ACIT, CHENNAI v. M/s. M.M.Forgings Limited, CHENNAI

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI BEFORE SHRI ABRAHAM P. GEORGE ACCOUNTANT MEMBER AN D SHRI GEORGE MATHAN JUDICIAL MEMBER I.T.A. NO. 722/MDS/2010 ASSESSMENT YEAR : 2007-08 THE ASSISTANT COMMISSIONER OF INCOME-TAX COMPANY CIRCLE-IV(3) CHENNAI. V. M/S. M.M. FORGINGS LIMITED GUINDY HOUSE 95 ANNA SALAI CHENNAI-600 032. (PAN : AAACM2164L) A N D I.T.A. NOS. 731 & 1168/MDS/2010 ASSESSMENT YEARS : 2005-06 & 2006-07 M/S. M.M. FORGINGS LIMITED V. THE ADDL. COMMISSIONER OF GUINDY HOUSE 95 ANNA SALAI INCOME-TAX CHENNAI-600 032. COMPANY RANGE-IV CHENNAI/ THE ASSISTANT COMMISSI ONER OF INCOME-TAX COMPANY CIRCLE-IV(3) CHENNAI. (APPELLANTS) (RESPONDENTS) DEPARTMENT BY : SHRI P.B. SEKARAN ASSESSEE BY : SHRI PHILIP GEORGE O R D E R PER GEORGE MATHAN JUDICIAL MEMBER : AS COMMON ISSUES ARE INVOLVED IN THESE APPEALS FIL ED BY THE REVENUE AND THE ASSESSEE THEY ARE BEING DISPOSED OF BY THIS CO MMON ORDER FOR THE SAKE OF CONVENIENCE. I.T.A. NOS.722 731 & 1168/MDS/2010 2 2. SHRI P. B. SEKARAN CIT-DR REPRESENTED ON BEHALF OF THE REVENUE AND SHRI PHILIP GEORGE ADVOCATE REPRESENTED ON BEHALF OF TH E ASSESSEE. I.T.A. NO. 722/MDS/2010: 3. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST T HE ORDER OF THE LEARNED CIT(APPEALS)-V CHENNAI IN ITA NO. 317/09-10 DATED 22-02-2010 FOR THE ASSESSMENT YEAR 2007-08. 4. IN THE REVENUES APPEAL IN GROUNDS 2.1 AND 2.2. THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(A) IN DIRE CTING THE ASSESSING OFFICER TO ALLOW ADDITIONAL DEPRECIATION ON WINDMILL. IT WAS FAIRLY AGREED BY BOTH THE SIDES THAT THE ISSUE WAS SQUARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO. 2151/MDS/2008 DATED 4-12- 2009 WHEREIN THE CO-ORDINATE BENCH OF THIS TRIBUNAL FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF HI TECH AR AI REPORTED IN 321 ITR 477 (MAD) HAD HELD THAT THE ASSESSEE IS ENTITLED TO THE ADDITIONAL DEPRECIATION ON THE WINDMILL INSTALLED DURING THE PERIOD UNDER CONSIDER ATION. EVEN THOUGH THE LEARNED DR HAS SPECIFICALLY SUBMITTED THAT THE DECI SION IN THE CASE OF THE ASSESSEE IN ITA NO. 2151/MDS/2008 HAS NOT BECOME FI NAL AS IT IS NOTICED THAT THE CO-ORDINATE BENCH OF THIS TRIBUNAL HAD DECIDED THE ISSUE BY FOLLOWING THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT I N THE CASE OF HI TECH ARAI THE FINDING OF THE LEARNED CIT(A) ON THIS ISSUE STANDS CONFIRMED. I.T.A. NOS.722 731 & 1168/MDS/2010 3 5. IN REGARD TO GROUNDS 3.1 TO 3.5 OF THE REVENUES APPEAL THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(A) IN HOLD ING THAT THE CLAIM OF THE ASSESSEE IN RESPECT OF THE DEDUCTION U/S 80IA IN RE SPECT OF THE NEW UNIT AT PLANT- II IS ALLOWABLE. 6. IT WAS SUBMITTED BY THE LEARNED DR THAT THE ASSE SSEE HAS STARTED PRODUCTION IN RESPECT OF THE NEW UNIT OF PLANT-II F OR THE YEAR ENDING 31.3.1995 ITSELF AND CONSEQUENTLY THE ASSESSMENT YEAR 2007-08 WAS BEYOND THE TEN YEAR PERIOD. IT WAS THE SUBMISSION THAT THE FINANCIAL S TATEMENT OF THE ASSESSEE FOR THE YEAR ENDED 31.3.1995 ITSELF CLEARLY SHOWED THE USE OF THE NEW MACHINERY FOR MANUFACTURING. IT WAS THE SUBMISSION THAT THE WORD USED IN THE PROVISIONS OF SECTION 80-IA WAS MANUFACTURE AND EVEN TRIAL MANU FACTURING WOULD MEAN THAT THE ASSESSEE HAS STARTED MANUFACTURING. IT WAS THE SUBMISSION THAT THE CLAIM OF DEDUCTION U/S 80-IA HAVING BECOME ELIGIBLE FOR THE ASSESSMENT YEAR 1995-96 THE ASSESSMENT YEAR 2007-08 CLAIM WAS NOT LIABLE TO BE ALLOWED. IT WAS THE SUBMISSION THAT THE LEARNED CIT(A) ERRED IN GRANTIN G THE ASSESSEE THE DEDUCTION U/S. 80IA BY HOLDING THAT THE ASSESSEE HAD CREATED THE FACILITY ONLY DURING THE YEAR ENDED 31.3.1998 AND CONSEQUENTLY ALLOWING THE ASSESSEE THE BENEFIT OF DEDUCTION U/S 80-IA. 7. IN REPLY THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAD DURING THE YEAR ENDED 31-03-1997 INSTA LLED IMPORTED MACHINERY TO AN EXTENT OF ` 3 18 99 747/- AND FOR THE YEAR ENDED 31.3.1998 HAD INSTALLED THE I.T.A. NOS.722 731 & 1168/MDS/2010 4 IMPORTED MACHINERY FOR ` 2 81 11 674/-. HE FURTHER DREW OUR ATTENTION TO T HE ANNUAL REPORT OF THE ASSESSEE COMPANY FOR THE YEAR ENDED 31.3.1995 WHEREIN THE REPORT OF THE DIRECTORS AND THE DIRECTORS HAVE CATEGORICALLY ADMITTED THAT THE PROJECT TO EXPAND THE CAPACITY FROM 6000 TON TO 15 000 TON COULD NOT BE COMPLETED DURING THE YEAR AND THE RESULTS DID NOT T HEREFORE REFLECT ANY SIGNIFICANT CONTRIBUTION FROM THE EXPANDED CAPACITY . IN THE DIRECTORS REPORT IT WAS SPECIFICALLY SHOWN THAT THE CAPACITY EXPANSION WAS DELAYED DUE TO TWO REASONS BEING THAT THE FOREIGN TECHNICIANS FOR EREC TION OF THE IMPORTED MACHINERY POSTPONED THEIR ARRIVAL IN INDIA AND ALSO ON ACCOUN T OF THE SECOND REASON THAT THERE WERE WRONG SHIPMENTS OF VITAL PARTS BY THE FO REIGN SUPPLIER. HE FURTHER DREW OUR ATTENTION TO THE SHAREHOLDERS TO THE BALAN CE SHEET FOR THE YEAR ENDED 31.3.1996 AS ALSO THE NOTES ANNEXED TO FORMING PART OF THE STATEMENT OF ACCOUNTS AS ON 31.3.1996 TO SHOW THAT THERE WAS NO MUCH USAGE OF ANY IMPORTED MACHINERY. HE FURTHER DREW OUR ATTENTION TO THE ANNUAL REPORT AND THE ACCOUNTS FOR THE YEAR ENDED 31.3.1997 WHEREIN IN TH E NOTES ANNEXED FORMING PART OF THE ACCOUNTS FOR THE YEAR 31.3.1997 ALSO TH E DETAILS OF THE MACHINERY AND THE MACHINERY SPARES CONSUMED DID NOT SHOW MUCH USA GE OF ANY OF THE IMPORTED MACHINERY. HE FURTHER DREW OUR ATTENTION TO THE ANNUAL REPORT AND THE ACCOUNTS FOR THE YEAR 31.3.1998 AND THE NOTES ANNEX ED AND FORMING PART OF THE STATEMENT THERETO WHEREIN THE DETAILS OF THE RAW M ATERIALS CONSUMED DURING THE YEAR CLEARLY SHOWED THAT IMPORTED MACHINERY AND SPA RES AND RAW MATERIALS OF I.T.A. NOS.722 731 & 1168/MDS/2010 5 NEARLY ` 5.7 CRORES HAD BEEN USED. IT WAS THE SUBMISSION B Y THE LEARNED AUTHORISED REPRESENTATIVE THAT THE MACHINERIES INST ALLED IN 31-3-1997 AND 31-3- 1998 WHICH WERE THE MAIN MACHINERIES REQUIRED FOR T HE NEW UNIT OF PLANT-II WERE IMPORTED AND THEY WERE PUT INTO OPERATION ONLY DURI NG THE ASSESSMENT YEAR 1998-99. IT WAS THUS THE SUBMISSION THAT IT WAS ON LY DURING THE ASSESSMENT YEAR 1998-99 THE NEW UNIT OF THE ASSESSEE WENT INTO MANU FACTURING AND JUST BECAUSE SOME PARTS OF THE NEW UNIT WERE TESTED ON DELIVERY DURING THE EARLIER YEARS DID NOT EVEN MEAN TRIAL PRODUCTION. IT WAS THE SUBMISS ION THAT THE MACHINERY HAD TO BE TESTED IN ITS INDEPENDENT POSITION TO VERIFY AS TO WHETHER THERE WERE ANY DEFECTS IN THE MACHINERY OR THAT THEY MET THE REQUI REMENTS OF THE ASSESSEE. IT WAS THE SUBMISSION THAT THOUGH THE WORD USED IS MA NUFACTURE IN SECTION 80-IA TESTING OF THE MACHINERY DOES NOT AMOUNT TO MANUFAC TURE. HE SPECIFICALLY DREW OUR ATTENTION TO THE STATEMENT REFERRED TO BY THE L EARNED DR TO SUBMIT THAT IT WAS THE 2.5 TON PRESS AND THE 6 TON HAMMER WHICH WE RE RECEIVED IN 1995-96 AND TESTED. IT WAS THE SUBMISSION THAT THE 6 TON H AMMER WAS TESTED BY PRODUCING 39 DOOR HINGES. IT WAS THE FURTHER SUBMI SSION THAT THE OLD UNIT OF THE ASSESSEE WAS BASICALLY RUN ON THE HAMMER TECHNOLOGY AND THE ASSESSEE HAD THE CAPACITY OF 6000 TONS. BUT THE UNIT THE ASSESSEE H AD PROPOSED TO EXPAND ITS CAPACITY TO 15000 TONS FOR WHICH THE PRESS TECHNOLO GY WAS ALSO REQUIRED. CONSEQUENTLY THE REQUISITE MACHINERY WAS IMPORTED FROM RUSSIA AND THE FORGING PRESSES WERE REQUIRED DURING THE FIRST HALF OF 31-3 -1998 AS WAS EVIDENCED BY THE I.T.A. NOS.722 731 & 1168/MDS/2010 6 CUSTOMS SEAL AND ENDORSEMENTS. IT WAS THE SUBMISSI ON THAT THIS CLEARLY SHOWED THAT THE BUSINESS OF THE NEW UNIT OF PLANT-II REPRE SENTING THE MANUFACTURE ACTUALLY STARTED ONLY FROM THE ASSESSMENT YEAR 1998 -99. IT WAS THE SUBMISSION THAT THE ORDER OF THE LEARNED CIT(A) IN GRANTING TH E ASSESSEE THE BENEFIT OF DEDUCTION U/S. 80-IA IS LIABLE TO BE UPHELD. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE HA VE ALSO PERUSED THE PAPER BOOKS FILED AS ALSO THE ANNUAL REPORTS. CLEA RLY THE ANNUAL REPORTS FOR THE YEARS ENDED 31.3.1997 AND 31.3.1998 SHOW THAT THE I MPORTED MACHINERIES HAVE BEEN USED ONLY DURING THE YEAR ENDED 31.3.1998 AND NOT DURING THE YEAR ENDING 31.3.1997. A PERUSAL OF THE ANNUAL REPORT FOR THE YEAR ENDED 31.3.1995 CLEARLY SHOWS THAT THE PROJECT WAS DELAYED SUBSTANTIALLY. IN THE ANNUAL REPORT OF THE DIRECTORS FOR THE YEAR 31.3.1995 IT HAS BEEN CLEARL Y MENTIONED THAT THERE HAS BEEN NO SHIPMENT OF VITAL PARTS ALSO BY THE FOREIGN SUPPLIERS. FURTHER THE FACT THAT THE ASSESSEE HAS IMPORTED MACHINERIES WORTH ` MORE THAN 6 CRORES DURING THE YEAR ENDING 31.3.1997 AND 31.3.1998 CLEARLY SHO WS THAT WITHOUT THIS MACHINERY THERE COULD HAVE BEEN NO MANUFACTURING IN THE NEW UNIT OF PLANT-II. FURTHER THE FACT THAT THE CUSTOMS AUTHORITIES HAVE CLEARLY GIVEN THE ENDORSEMENT FOR THE IMPORT OF THE MACHINERY DURING THE FIRST HA LF OF THE ASSESSMENT YEAR 1998-99 ALSO SUPPORTS THE FACT THAT THE MACHINERY C AME INTO INDIA ONLY DURING THE ASSESSMENT YEAR 1998-99. THE CLAIM OF THE ASSE SSEE THAT THOUGH MINOR MACHINERIES WERE RECEIVED IN THE EARLIER YEARS NO MANUFACTURING COULD HAVE I.T.A. NOS.722 731 & 1168/MDS/2010 7 BEEN DONE WITH THEM IN THE NEW UNIT IS ALSO FOUND A CCEPTABLE INSOFAR AS THE LIST WHICH THE REVENUE IS RELYING UPON SHOWS THE 2.5 TON PRESS TO HAVE BEEN USED FOR MANUFACTURING ONLY A FEW ITEMS OF THE IDENTICAL VARIETY. THE 6 TON HAMMER USED ONLY FOR 39 DOOR HINGES. THESE OBVIOUSLY CAN BE CONSIDERED ONLY AS A TESTING. 9. IN REGARD TO THE QUESTION OF TRIAL PRODUCTION O BVIOUSLY WHEN THE UNIT HAS BEEN FULLY ESTABLISHED CAN A TRIAL PRODUCTION BE DO NE. TESTING OF INDEPENDENT MACHINERY DOES NOT AMOUNT TO TRIAL PRODUCTION. WE ALSO APPRECIATE THE FACT THAT WHEN TESTING THE INDEPENDENT MACHINERIES THEY CANNO T BE PUT INTO INTEGRATION WITH THE MAIN MACHINERIES AS IF ANY OF THE MACHINER IES IN THE LINE DO NOT PERFORM TO THE REQUIRED LEVELS THE WHOLE SYSTEM COULD BRAKE DOWN. IN THE CIRCUMSTANCES WE ARE OF THE VIEW THAT THE FIRST YEAR OF THE MANUF ACTURE IN REGARD TO THE NEW UNIT OF PLANT II IS TO BE TAKEN AS THE ASSESSMENT Y EAR 1998-99. IT IS FURTHER NOTICED THAT THE REVENUE HAS NOT CHALLENGED THE CLA IM OF DEDUCTION U/S. 80-IA IN REGARD TO THE QUANTIFICATION. THE CLAIM HAS BEEN R EJECTED BY THE REVENUE ONLY ON THE GROUND THAT THE ASSESSMENT YEAR 2007-08 IS T HE 11 TH YEAR. AS WE HAVE HELD EARLIER THAT THE ASSESSMENT YEAR 1998-99 IS TH E FIRST YEAR OF THE ELIGIBILITY FOR THE CLAIM OF DEDUCTION U/S 80-IA IN THE CASE OF THE ASSESSEE WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED TO THE CLAIM OF DEDUC TION U/S 80-IA FOR THE RELEVANT ASSESSMENT YEAR. IN THE CIRCUMSTANCES THE FINDING OF THE LEARNED CIT(A) ON THIS ISSUE STANDS CONFIRMED. I.T.A. NOS.722 731 & 1168/MDS/2010 8 10. IN REGARD TO THE GROUNDS 4.1 TO 4.3 THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(A) IN HOLDING THAT THE ACTION OF THE ASSESSING OFFICER IN COMBING THE PROFITS AND LOSSES OF ALL THE UNITS IN THE GENERATION OF ELECTRICITY FOR THE PURPOSE OF DEDUCTION U/S 80IA IS CONTRARY TO TH E PROVISIONS OF THE ACT. IT WAS THE SUBMISSION THAT ALL THE UNITS OF THE ASSESSEE F ED INTO THE COMMON POWER GRID AND AS PER THE PROVISIONS OF SEC. 80IA THE WORDS US ED WERE ELIGIBLE BUSINESS AND NOT ELIGIBLE UNITS. IT WAS FAIRLY AGREED THA T THE ISSUE WAS SQUARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TR IBUNAL IN THE CASE OF BANNARI AMMAN SUGARS LTD. IN ITA NO. 1162/MDS/2008 DATED16- 3-2009 WHEREIN AT PAGE 18 PARAS 23 & 24 OF THE SAID DECISION THE TRIBUNA L HELD AS FOLLOWS : 23. IN THE CASE IN HAND THE ASSESSEE IS HAVING TH REE POWER GENERATING UNITS AT DIFFERENT PLACES ESTABLIS HED AND COMMENCED AT DIFFERENT POINT OF TIME. IT IS ALSO U NDISPUTED FACT THAT THE POWER PURCHASE AGREEMENT ARE SEPARATE FOR EACH UNIT OF THE ASSESSEE. IT IS CLEAR THAT NONE OF THE UNIT IS DEPENDENT ON THE OTHER UNIT FOR ITS EXISTENCE AND GENERATION OF POWER. WHEN EACH UNIT IS WORKING INDEPENDENTLY WITHOUT ANY DEPENDENCE ON THE OTHER UNIT FOR THE GENERATION OF POWER THEN THERE IS NO HESITATION TO HOLD THAT THESE UNDERTAKI NG ARE SEPARATE ENTITIES OF GENERATION OF POWER BEING INDE PENDENT IDENTIFIABLE POWER GENERATING UNDERTAKING. AS PER THE FUNCTIONAL TEST OF THEIR SEPARATE AND INDEPENDENT U NIT WHEN A UNIT DOES NOT AFFECT THE EXISTENCE AND FUNCTION OF THE OTHER UNIT THEN THE UNITS ARE SEPARATE AND INDEPENDENT. THERE IS NOTHING IN THE CASE TO SHOW THAT THE EXISTENCE OF THE UNITS IS INTER- I.T.A. NOS.722 731 & 1168/MDS/2010 9 DEPENDENT. THEREFORE WE ARE OF THE VIEW THAT THES E THREE UNITS OF THE ASSESSEE ARE INDEPENDENT UNDERTAKINGS FOR THE PURPOSE OF SECTION 80-IA. THE OBJECT OF THE SECTIO N WOULD PROPERLY SERVE ONLY BY CONFINING THE APPLICABILITY OF THE PROVISIONS OF SECTION 80-IA TO THE PROFIT AND GAIN OF A SINGLE UNIT. IT IS NOT THE INTENTION OF THE LEGISLATURE T HAT THE BENEFIT ACCRUED TO THE UNIT SHOULD BE DIMINISHED BECAUSE OF THE LOSS SUFFERED BY THE OTHER UNIT. THE CO-EXISTENCE OF MO RE THAN ONE UNITS UNDER A SINGLE OWNERSHIP DOES NOT AFFECT THE BENEFIT AVAILABLE TO ONE UNIT TO BE DIMINISHED DUE TO THE L OSS SUFFERED BY ANOTHER UNIT. IF THE ASSESSEE IS HAVING ONLY ON E UNIT WHICH IS ENTITLED FOR DEDUCTION U/S 80-IB AND SUBSEQUENTLY A NEW UNIT IS ESTABLISHED FOR THE SAME PURPOSE OF GENERATING POWE R THEN THE SECOND UNIT WILL BE SEPARATELY AND INDEPENDENTLY EN TITLED FOR DEDUCTION U/S 80-IA IRRESPECTIVE OF RESULTS OF THE FIRST UNIT AND VIS-VERSA. 24. IN VIEW OF THE ABOVE DISCUSSIONS VARIOUS JUDGE MENTS OF HON'BLE SUPREME COURT HON'BLE HIGH COURTS AND THIS TRIBUNAL IT IS CLEAR THAT WHILE COMPUTING THE DEDUCTION U/S 80-IA OF THE INCOME TAX ACT THE PROFITS AND GAINS OF A PARTICUL AR UNIT IN RESPECT OF WHICH THE ASSESSEE HAS CLAIMED THE DEDUC TION SHALL BE COMPUTED IF SUCH ELIGIBLE BUSINESS OF THE SAID U NIT IS THE ONLY SOURCE OF INCOME OF THE ASSESSEE AS PROVIDED IN SUB SECTION (5) OF SECTION 80-IA. RESPECTFULLY FOLLOWING THE DECIS ION RELIED UPON BY THE ASSESSEE AND PARTICULARLY THE DECISION OF TH E HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. DEWAN KRAFT SYSTEM (P) LTD. REPORTED IN 2967 ITR 305 (DEL) WE HOLD THAT THE LOWER AUTHORITIES HAS COMMITTED GROSS ERROR AND ILLEGALIT Y BY CLUBBING I.T.A. NOS.722 731 & 1168/MDS/2010 10 THE RESULTS OF ALL THE THREE UNITS OF THE ASSESSEE FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80-IA . HENCE THE ASSESSEE IS ENTITLED FOR DEDUCTION ON THE INCOME OF 16MW UNIT S ITUATED AT ALAGANCHI MYSORE DISTRICT WITHOUT CLUBBING THE RES ULTS OF OTHER UNITS OF THE ASSESSEE. ACCORDINGLY THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE. IT WAS SUBMITTED THAT THE DECISION I N THE CASE OF M/S. BANNARI AMMAN SUGARS LTD. HAS NOT BECOME FINAL AND APPEAL HAS BEEN FILED AGAINST THE SAID DECISION. 11. IN REPLY THE LEARNED AUTHORISED REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED CIT(A). HE PLACED RELIANCE UP ON THE DECISION OF THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S BANNARI AMMAN SUGARS LTD. REFERRED TO SUPRA. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS I T IS NOTICED THAT THE ISSUE IN THESE GROUNDS IS SQUARELY COVERED BY THE DECISIO N OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. BANNARI AMMAN SUG ARS LTD. REFERRED TO SUPRA RESPECTFULLY FOLLOWING THE SAID DECISION OF THE CO- ORDINATE BENCH OF THIS TRIBUNAL THE FINDING OF THE LEARNED CIT(A) ON THIS ISSUE STA NDS CONFIRMED. 13. IN REGARD TO GROUNDS 5.1 TO 5.4 THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(A) IN DELETING THE ADDITION OF ` . 3 29 61 000/- MADE BY THE ASSESSING OFFICER U/S 40(A)(IA) OF THE INCOME TAX A CT 1961 ON ACCOUNT OF THE NON-DEDUCTION OF TDS. AT THE TIME OF HEARING IT WA S SUBMITTED BY THE LEARNED DR THAT THE ASSESSEE HAD NOT DEDUCTED TDS IN RESPEC T OF THE COMMISSION PAID TO NON-RESIDENT AGENTS AND CONSEQUENTLY THE ASSESSING OFFICER HAD RIGHTLY INVOKED I.T.A. NOS.722 731 & 1168/MDS/2010 11 THE PRO0VISIONS OF SECTION 40(A)(IA). IT WAS SUBMI TTED THAT THE ORDER OF THE LEARNED CIT(A) WAS LIABLE TO BE REVERSED. 14. IN REPLY THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE FOREIGN AGENT HAD NO INCOME IN INDIA AND THE FOREIGN AGENT OPERATED IN HIS OWN COUNTRY AND NO PART OF HIS INCOME AROSE IN INDIA. HE RELIE D UPON THE CIRCULAR NO. 786 ISSUED BY THE CBDT AS ALSO THE CIRCULAR NO. 23(F) N O. 7A 3869-IT(A-II) DATED 23.7.1967. HE ALSO PLACED RELIANCE ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF G.E. INDIA TECHNOLOGY CENTRE P. LTD. V. CIT REPORTED IN 327 ITR 456. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A P ERUSAL OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF GE INDIA TE CHNOLOGY CENTRE P. LTD. REFERRED TO SUPRA SHOWS THAT THE HON'BLE SUPREME C OURT UNDER SIMILAR CIRCUMSTANCES HAS HELD AS FOLLOWS :- 9. ONE MORE ASPECT NEEDS TO BE HIGHLIGHTED . SECTION 195 FALLS IN CHAPTER XVII WHICH DEALS WITH COLLECTION A ND RECOVERY. CHAPTER XVII-B DEALS WITH DEDUCTION AT SOURCE BY TH E PAYER. ON ANALYSIS OF VARIOUS PROVISIONS OF CHAPTER XVII ONE FINDS USE OF DIFFERENT EXPRESSIONS HOWEVER THE EXPRESSION 'SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT' IS USED ONLY IN SE CTION 195. FOR EXAMPLE SECTION 194C CASTS AN OBLIGATION TO DEDUCT TAS IN RESPECT OF 'ANY SUM PAID TO ANY RESIDENT'. SIMILARLY SECTI ONS 194EE AND 194F INTER ALIA PROVIDE FOR DEDUCTION OF TAX IN RES PECT OF 'ANY AMOUNT' REFERRED TO IN THE SPECIFIED PROVISIONS. IN NONE OF THE PROVISIONS WE FIND THE EXPRESSION 'SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT' WHICH AS STATED ABOVE IS AN EXPRESSION USED ONLY IN SECTION 195(1). THEREFORE THIS COURT IS REQUIRED TO GIVE MEANING AND EFFECT TO THE SAID EXPRESSION. IT FOLLOWS THEREFORE THAT THE OBLIGATION TO DEDUCT TAS ARISES ONLY WHEN THERE IS A SUM CHARGEABLE UNDER THE ACT. SECTION 195(2) I S NOT MERELY A I.T.A. NOS.722 731 & 1168/MDS/2010 12 PROVISION TO PROVIDE INFORMATION TO THE INCOME-TAX OFFICER(TDS). IT IS A PROVISION REQUIRING TAX TO BE DEDUCTED AT SOUR CE TO BE PAID TO THE REVENUE BY THE PAYER WHO MAKES PAYMENT TO A NON - RESIDENT. THEREFORE SECTION 195 HAS TO BE READ IN CONFORMITY WITH THE CHARGING PROVISIONS I.E. SECTIONS 4 5 AND 9. THI S REASONING FLOWS FROM THE WORDS 'SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT' IN SECTION 195(1). THE FACT THAT THE REVENUE HAS NOT O BTAINED ANY INFORMATION PER SE CANNOT BE A GROUND TO CONSTRUE S ECTION 195 WIDELY SO AS TO REQUIRE DEDUCTION OF TAS EVEN IN A CASE WHERE AN AMOUNT PAID IS NOT CHARGEABLE TO TAX IN INDIA AT AL L. WE CANNOT READ SECTION 195 AS SUGGESTED BY THE DEPARTMENT N AMELY THAT THE MOMENT THERE IS REMITTANCE THE OBLIGATION TO DE DUCT TAS ARISES. IF WE WERE TO ACCEPT SUCH A CONTENTION IT WOULD MEAN THAT ON MERE PAYMENT INCOME WOULD BE SAID TO ARISE OR AC CRUE IN INDIA. THEREFORE AS STATED EARLIER IF THE CONTENTION OF THE DEPARTMENT WAS ACCEPTED IT WOULD MEAN OBLITERATION OF THE EXPR ESSION 'SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT' FROM SE CTION 195(1). WHILE INTERPRETING A SECTION ONE HAS TO GIVE WEIGHT AGE TO EVERY WORD USED IN THAT SECTION. WHILE INTERPRETING THE P ROVISIONS OF THE INCOME TAX ACT ONE CANNOT READ THE CHARGING SECTION S OF THAT ACT DE HORS THE MACHINERY SECTIONS. THE ACT IS TO BE RE AD AS AN INTEGRATED CODE. SECTION 195 APPEARS IN CHAPTER XVI I WHICH DEALS WITH COLLECTION AND RECOVERY. AS HELD IN THE CASE O F C.I.T. VS. ELI LILLY & CO. (INDIA) (P.) LTD. (2009) [312 ITR 225] THE PROVISIONS FOR DEDUCTION OF TAS WHICH IS IN CHAPTER XVII DEALING W ITH COLLECTION OF TAXES AND THE CHARGING PROVISIONS OF THE I.T. ACT F ORM ONE SINGLE INTEGRAL INSEPARABLE CODE AND THEREFORE THE PROV ISIONS RELATING TO TDS APPLIES ONLY TO THOSE SUMS WHICH ARE 'CHARGEABL E TO TAX' UNDER THE INCOME-TAX ACT. IT IS TRUE THAT THE JUDG MENT IN ELI LILLY (2009) 312 ITR 25 WAS CONFINED TO SECTION 192 OF TH E INCOME-TAX ACT. HOWEVER THERE IS SOME SIMILARITY BETWEEN THE TWO. IF ONE LOOKS AT SECTION 192 ONE FINDS THAT IT IMPOSES STAT UTORY OBLIGATION ON THE PAYER TO DEDUCT TAS WHEN HE PAYS ANY INCOME 'CHARGEABLE UNDER THE HEAD SALARIES'. SIMILARLY SECTION 195 IM POSES A STATUTORY OBLIGATION ON ANY PERSON RESPONSIBLE FOR PAYING TO A NON-RESIDENT ANY SUM 'CHARGEABLE UNDER THE PROVISIONS OF THE ACT ' WHICH EXPRESSION AS STATED ABOVE DO NOT FIND PLACE IN O THER SECTIONS OF CHAPTER XVII. IT IS IN THIS SENSE THAT WE HOLD THAT THE I.T. ACT CONSTITUTES ONE SINGLE INTEGRAL INSEPARABLE CODE. H ENCE THE PROVISIONS RELATING TO TDS APPLIES ONLY TO THOSE SU MS WHICH ARE CHARGEABLE TO TAX UNDER THE INCOME-TAX ACT. IF THE CONTENTION OF THE DEPARTMENT THAT ANY PERSON MAKING PAYMENT TO A NON-RESIDENT I.T.A. NOS.722 731 & 1168/MDS/2010 13 IS NECESSARILY REQUIRED TO DEDUCT TAS THEN THE CONS EQUENCE WOULD BE THAT THE DEPARTMENT WOULD BE ENTITLED TO APPROPR IATE THE MONEYS DEPOSITED BY THE PAYER EVEN IF THE SUM PAID IS NOT CHARGEABLE TO TAX BECAUSE THERE IS NO PROVISION IN THE INCOME-TAX ACT BY WHICH A PAYER CAN OBTAIN REFUND. SECTION 237 READ WITH SECTION 199 IMPLIES THAT ONLY THE RECIPIENT OF THE SUM I.E. THE PAYEE COULD SEEK A REFUND. IT MUST THEREFORE FOLLOW IF THE DEPARTMENT IS RIGHT THAT THE LAW REQUIRES TAX TO B E DEDUCTED ON ALL PAYMENTS. THE PAYER THEREFORE HAS TO DEDUCT AND P AY TAX EVEN IF THE SO-CALLED DEDUCTION COMES OUT OF HIS OWN POCKET AND HE HAS NO REMEDY WHATSOEVER EVEN WHERE THE SUM PAID BY HIM I S NOT A SUM CHARGEABLE UNDER THE ACT. THE INTERPRETATION OF THE DEPARTMENT THEREFORE NOT ONLY REQUIRES THE WORDS 'CHARGEABLE UNDER THE PROVISIONS OF THE ACT' TO BE OMITTED IT ALSO LEADS TO AN ABSURD CONSEQUENCE. THE INTERPRETATION PLACED BY THE DEPA RTMENT WOULD RESULT IN A SITUATION WHERE EVEN WHEN THE INCOME HA S NO TERRITORIAL NEXUS WITH INDIA OR IS NOT CHARGEABLE IN INDIA THE GOVERNMENT WOULD NONETHELESS COLLECT TAX. IN OUR VIEW SECTION 195(2) PROVIDES A REMEDY BY WHICH A PERSON MAY SEEK A DETERMINATION OF THE 'APPROPRIATE PROPORTION OF SUCH SUM SO CHARGEABLE' WHERE A PROPORTION OF THE SUM SO CHARGEABLE IS LIABLE TO TA X. THE ENTIRE BASIS OF THE DEPARTMENT'S CONTENTION IS BASED ON AD MINISTRATIVE CONVENIENCE IN SUPPORT OF ITS INTERPRETATION. ACCO RDING TO THE DEPARTMENT HUGE SEEPAGE OF REVENUE CAN TAKE PLACE I F PERSONS MAKING PAYMENTS TO NON-RESIDENTS ARE FREE TO DEDUCT TAS OR NOT TO DEDUCT TAS. IT IS THE CASE OF THE DEPARTMENT THAT S ECTION 195(2) AS INTERPRETED BY THE HIGH COURT WOULD PLUG THE LO OPHOLE AS THE SAID INTERPRETATION REQUIRES THE PAYER TO MAKE A DE CLARATION BEFORE THE INCOME-TAX OFFICER(TDS) OF PAYMENTS MADE TO NON -RESIDENTS. IN OTHER WORDS ACCORDING TO THE DEPARTMENT SECTION 195(2) IS A PROVISION BY WHICH PAYER IS REQUIRED TO INFORM THE DEPARTMENT OF THE REMITTANCES HE MAKES TO THE NON- RESIDENTS BY W HICH THE DEPARTMENT IS ABLE TO KEEP TRACK OF THE REMITTANCES BEING MADE TO NON-RESIDENTS OUTSIDE INDIA. WE FIND NO MERIT IN TH ESE CONTENTIONS. AS STATED HEREINABOVE SECTION 195(1) USES THE EXPR ESSION 'SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT.' WE NEE D TO GIVE WEIGHTAGE TO THOSE WORDS. FURTHER SECTION 195 USE S THE WORD `PAYER' AND NOT THE WORD 'ASSESSEE'. THE PAYER IS N OT AN ASSESSEE. THE PAYER BECOMES AN ASSESSEE-IN-DEFAULT ONLY WHEN HE FAILS TO FULFILL THE STATUTORY OBLIGATION UNDER SECTION 195( 1). IF THE PAYMENT DOES NOT CONTAIN THE ELEMENT OF INCOME THE PAYER CA NNOT BE MADE LIABLE. HE CANNOT BE DECLARED TO BE AN ASSESSEE-IN- DEFAULT. THE I.T.A. NOS.722 731 & 1168/MDS/2010 14 ABOVEMENTIONED CONTENTION OF THE DEPARTMENT IS BASE D ON AN APPREHENSION WHICH IS ILL FOUNDED. THE PAYER IS ALS O AN ASSESSEE UNDER THE ORDINARY PROVISIONS OF THE INCOME-TAX ACT . WHEN THE PAYER REMITS AN AMOUNT TO A NON-RESIDENT OUT OF IND IA HE CLAIMS DEDUCTION OR ALLOWANCES UNDER THE INCOME TAX ACT FO R THE SAID SUM AS AN 'EXPENDITURE'. UNDER SECTION 40(A)(I) INSE RTED VIDE FINANCE ACT 1988 WITH EFFECT FROM APRIL 1 1989 PAYMENT I N RESPECT OF ROYALTY FEES FOR TECHNICAL SERVICES OR OTHER SUMS CHARGEABLE UNDER THE INCOME TAX ACT WOULD NOT GET THE BENEFIT OF DED UCTION IF THE ASSESSEE FAILS TO DEDUCT TAS IN RESPECT OF PAYMENTS OUTSIDE INDIA WHICH ARE CHARGEABLE UNDER THE INCOME-TAX ACT. THI S PROVISION ENSURES EFFECTIVE COMPLIANCE OF SECTION 195 OF THE INCOME-TAX ACT RELATING TO TAX DEDUCTION AT SOURCE IN RESPECT OF P AYMENTS OUTSIDE INDIA IN RESPECT OF ROYALTIES FEES OR OTHER SUMS C HARGEABLE UNDER THE INCOME-TAX ACT. IN A GIVEN CASE WHERE THE PAYER IS AN ASSESSEE HE WILL DEFINITELY CLAIM DEDUCTION UNDER THE INCOME -TAX ACT FOR SUCH REMITTANCE AND ON INQUIRY IF THE AO FINDS THAT THE SUMS REMITTED OUTSIDE INDIA COMES WITHIN THE DEFINITION OF ROYALT Y OR FEES FOR TECHNICAL SERVICE OR OTHER SUMS CHARGEABLE UNDER TH E INCOME-TAX ACT THEN IT WOULD BE OPEN TO THE AO TO DISALLOW SUC H CLAIM FOR DEDUCTION. SIMILARLY VIDE FINANCE ACT 2008 WITH EFFECT FROM APRIL 1 1989 SUB-SECTION (6) HAS BEEN INSERTED IN SECTION 195 WHICH REQUIRES THE PAYER TO FURNISH INFORMATION RELATING TO PAYMENT OF ANY SUM IN SUCH FORM AND MANNER AS MAY BE PRESCRIBED BY THE BOARD. THIS PROVISION IS BROUGHT INTO FORCE ONLY FROM APRI L 1 2008. IT WILL NOT APPLY FOR THE PERIOD WITH WHICH WE ARE CONCERNE D IN THESE CASES BEFORE US. THEREFORE IN OUR VIEW THERE ARE ADEQUATE SAFEGUARDS IN THE ACT WHICH WOULD PREVENT REVENUE L EAKAGE. APPLICABILITY OF THE JUDGMENT IN THE CASE OF TRANSMISSION CORPORATION (SUPRA) 10. IN TRANSMISSION CORPORATION CASE ( SUPRA) A NON- RESIDENT HAD ENTERED INTO A COMPOSITE CONTRACT WITH THE RESIDENT PARTY MAKING THE PAYMENTS. THE SAID COMPOSITE CONTRACT NOT ONLY COMPRISED SUPPLY OF PLANT MACHINERY AND EQUIPMENT IN INDIA BUT ALSO COMPRISED THE INSTALLATION AND COMMISSIONING OF THE SAME IN INDIA. IT WAS ADMITTED THAT THE ERECTION AND COMMISSIONING OF PLANT AND MACHINERY IN INDIA GAVE RISE TO INCOME TAXABLE IN I NDIA. IT WAS THEREFORE CLEAR EVEN TO THE PAYER THAT PAYMENTS RE QUIRED TO BE MADE BY HIM TO THE NON-RESIDENT INCLUDED AN ELEMENT OF INCOME WHICH WAS EXIGIBLE TO TAX IN INDIA. THE ONLY ISSUE RAISED IN THAT I.T.A. NOS.722 731 & 1168/MDS/2010 15 CASE WAS WHETHER TDS WAS APPLICABLE ONLY TO PURE IN COME PAYMENTS AND NOT TO COMPOSITE PAYMENTS WHICH HAD AN ELEMENT OF INCOME EMBEDDED OR INCORPORATED IN THEM. THE CONTRO VERSY BEFORE US IN THIS BATCH OF CASES IS THEREFORE QUITE DIFF ERENT. IN TRANSMISSION CORPORATION CASE (1999) 239 ITR 587 (S C) IT WAS HELD THAT TAS WAS LIABLE TO BE DEDUCTED BY THE PAYER ON THE GROSS AMOUNT IF SUCH PAYMENT INCLUDED IN IT AN AMOUNT WHI CH WAS EXIGIBLE TO TAX IN INDIA. IT WAS HELD THAT IF THE P AYER WANTED TO DEDUCT TAS NOT ON THE GROSS AMOUNT BUT ON THE LESSE R AMOUNT ON THE FOOTING THAT ONLY A PORTION OF THE PAYMENT MADE REPRESENTED 'INCOME CHARGEABLE TO TAX IN INDIA' THEN IT WAS NE CESSARY FOR HIM TO MAKE AN APPLICATION UNDER SECTION 195(2) OF THE ACT TO THE INCOME-TAX OFFICER (TDS) AND OBTAIN HIS PERMISSION FOR DEDUCTING TAS AT LESSER AMOUNT. THUS IT WAS HELD BY THIS COU RT THAT IF THE PAYER HAD A DOUBT AS TO THE AMOUNT TO BE DEDUCTED A S TAS HE COULD APPROACH THE INCOME-TAX OFFICER (TDS) TO COMP UTE THE AMOUNT WHICH WAS LIABLE TO BE DEDUCTED AT SOURCE. IN OUR VIEW SECTION 195(2) IS BASED ON THE 'PRINCIPLE OF PROPOR TIONALITY'. THE SAID SUB-SECTION GETS ATTRACTED ONLY IN CASES WHERE THE PAYMENT MADE IS A COMPOSITE PAYMENT IN WHICH A CERTAIN PROP ORTION OF PAYMENT HAS AN ELEMENT OF 'INCOME' CHARGEABLE TO TA X IN INDIA. IT IS IN THIS CONTEXT THAT THE SUPREME COURT STATED ' IF NO SUCH APPLICATION IS FILED INCOME-TAX ON SUCH SUM IS TO BE DEDUCTED AND IT IS THE STATUTORY OBLIGATION OF THE PERSON RESPON SIBLE FOR PAYING SUCH`SUM' TO DEDUCT TAX THEREON BEFORE MAKING PAYME NT. HE HAS TO DISCHARGE THE OBLIGATION TO TDS'. IF ONE READS T HE OBSERVATION OF THE SUPREME COURT THE WORDS 'SUCH SUM' CLEARLY IND ICATE THAT THE OBSERVATION REFERS TO A CASE OF COMPOSITE PAYMENT W HERE THE PAYER HAS A DOUBT REGARDING THE INCLUSION OF AN AMOUNT IN SUCH PAYMENT WHICH IS EXIGIBLE TO TAX IN INDIA. IN OUR VIEW THE ABOVE OBSERVATIONS OF THIS COURT IN TRANSMISSION CORPORAT ION CASE (1999) 239 ITR 587 (SC) WHICH ARE PUT IN ITALICS HAVE BEEN COMPLETELY WITH RESPECT MISUNDERSTOOD BY THE KARNATAKA HIGH C OURT TO MEAN THAT IT IS NOT OPEN FOR THE PAYER TO CONTEND THAT I F THE AMOUNT PAID BY HIM TO THE NON-RESIDENT IS NOT AT ALL 'CHARGEABL E TO TAX IN INDIA' THEN NO TAS IS REQUIRED TO BE DEDUCTED FROM SUCH PA YMENT. THIS INTERPRETATION OF THE HIGH COURT COMPLETELY LOSES S IGHT OF THE PLAIN WORDS OF SECTION 195(1) WHICH IN CLEAR TERMS LAYS D OWN THAT TAX AT SOURCE IS DEDUCTIBLE ONLY FROM 'SUMS CHARGEABLE' UN DER THE PROVISIONS OF THE INCOME-TAX ACT I.E. CHARGEABLE UNDER SECTIONS 4 5 AND 9 OF THE INCOME-TAX ACT. I.T.A. NOS.722 731 & 1168/MDS/2010 16 IN THE CIRCUMSTANCES RESPECTFULLY FOLLOWING THE PR INCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF GE INDIA TECHN OLOGY CENTRE P. LTD. REFERRED TO SUPRA AS IT IS NOTICED THAT THE FOREIG N AGENT TO WHOM THE ASSESSEE HAD PAID COMMISSION DOES NOT HAVE ANY INCOME LIABLE FOR TAX IN INDIA AND AS IT IS ALSO NOTICED THAT THE AGENT IS NOT GIVING ANY SERVI CES TO THE ASSESSEE IN INDIA FOR WHICH COMMISSION HAS BEEN PAID THE FINDING OF THE LEARNED CIT(A) ON THIS ISSUE STANDS CONFIRMED. 16. IN REGARD TO PARAS 6.1 AND 6.2 THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(A) IN RESTRICTING THE DISALLOWANCE MADE U/S 14A AT ` 10 000/-. WE HAVE ALREADY CONSIDERED THIS ISSUE IN GROUND NOS . 4 AND 4.1 IN THE ASSESSEES APPEAL IN ITA NO. 675/MDS/2010. IN THE SAID APPEAL THIS ISSUE HAS BEEN RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR RE-ADJUDIC ATION. IN THE CIRCUMSTANCES IN THE REVENUES APPEAL ALSO THIS ISSUE IS ALSO RESTOR ED TO THE FILE OF THE ASSESSING OFFICER WITH IDENTICAL DIRECTIONS AS GIVEN IN GROUN D NO. 4 AND 4.1 IN ITA NO. 675/MDS/2010. 17. IN THE CIRCUMSTANCES THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 18. ITA NOS. 731 & 1168/MDS/2010: THESE ARE APPEALS FILED BY THE ASSESSEE AGAINST THE ORDERS OF THE LEARNED COMMISSI ONER OF INCOME-TAX CHENNAI-III (I/C) CHENNAI PASSED UNDER SECTION 263 OF THE INCOME TAX ACT 1961 IN C. NO. 3033/08/III/2009-10 DATED 26-03-2010 FOR THE ASSESSMENT YEAR 2005- I.T.A. NOS.722 731 & 1168/MDS/2010 17 06 AND IN C. NO. 3033/09/III/2009-10 DATED 19-04-20 10 FOR THE ASSESSMENT YEAR 2006-07. 19. IT WAS THE SUBMISSION BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THE LEARNED CIT IN THE SECTION 263 PROCEEDINGS HAD HELD THAT THE ASSESSEE HAD STARTED MANUFACTURING DURING THE ASSESSMENT YEAR 19 95-96 AND CONSEQUENTLY THE ASSESSMENT YEAR 1998-99 WAS THE 4 TH YEAR. IT WAS THE SUBMISSION THAT CONSEQUENTLY THE LEARNED CIT REVISED THE ASSESSMENT ORDER PASSED WHEREIN HE HAD HELD THAT THE ASSESSEE WAS NOT ENTITLED TO THE CLAIM UNDER SECTION 80-IA OF THE ACT FOR THE ASSESSMENT YEARS 2005-06 AND 2006-0 7. IT WAS THE SUBMISSION THAT THE ASSESSEE HAD STARTED THE MANUFACTURING IN REGARD TO THE NEW UNIT OF PLANT-II DURING THE ASSESSMENT YEAR 1998-99 AND CON SEQUENTLY THE ASSESSMENT YEAR 1998-99 WAS TO BE CONSIDERED AS THE FIRST YEAR FOR THE CLAIM OF DEDUCTION UNDER SECTION 80-IA. HE RE-ITERATED HIS SUBMISSION S MADE IN THE REVENUES APPEAL IN ITA NO. 722/MDS/2010 IN REGARD TO GROUNDS 3.1 TO 3.5 SUPRA. THE LEARNED DR ALSO RE-ITERATED HIS SUBMISSIONS TO BE I DENTICAL TO HIS SUBMISSIONS IN REGARD TO THE REVENUES APPEAL IN ITA NO. 722/MDS/2 010 INN RESPECT OF GROUNDS 3.1 TO 3.5. 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS W E HAVE ALREADY HELD IN ITA NO. 722/MDS/2010 IN THE REVENUES APPEAL IN REG ARD TO GROUNDS 3.1 TO 3.5 THAT THE FIRST YEAR OF ELIGIBILITY FOR DEDUCTION UN DER SECTION 80-IA IN THE CASE OF THE ASSESSEE IS THE ASSESSMENT YEAR 1998-99 WE ARE OF THE VIEW THAT THE I.T.A. NOS.722 731 & 1168/MDS/2010 18 ASSESSEE IS ENTITLED TO THE CLAIM UNDER SECTION 80- IA FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07. CONSEQUENTLY WE ARE OF THE V IEW THAT THE ORDERS OF THE LEARNED CIT PASSED UNDER SECTION 263 OF THE ACT ARE NOT ON A RIGHT FOOTING AND CONSEQUENTLY THE SAME ARE QUASHED. IN THE CIRCUMST ANCES THE APPEALS OF THE ASSESSEE ARE ALLOWED. 21. IN THE RESULT THE APPEAL OF THE REVENUE IN ITA NO. 722/MDS/2010 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEALS OF THE ASSESSEE IN ITA NOS. 731 AND 1168/MDS/2010 ARE ALLOWED. 22. THE ORDER WAS PRONOUNCED IN THE COURT ON 04/02/ 2011. SD/- SD/- (ABRAHAM P. GEORGE) (GEORGE MATHAN) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI DATED THE 04 TH FEBRUARY 2011. H. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE