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Income Tax Appellate Tribunal - Vizag
Tirumala Milk Products Pvt Ltd, ... vs Assessee on 11 August, 2011

ITA Nos.153&154/V/09, 397 of 2010 & 60 of 2011 of Tirumala Dairy Pvt. Ltd., Narasaraopet

IN THE INCOME TAX APPELLATE TRIBUNAL

VISAKHAPATNAM BENCH, VISAKHAPATNAM

BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER

AND

SHRI BR BASKARAN, ACCOUNTANT MEMBER

ITA No.153/Vizag/2009

Assessment Years : 2005-06

M/s. Tirumala Dairy Pvt. Ltd Ad. CIT Range-2(1) Narasaraopet Vs. Guntur (Appellant) (Respondent) AAACT 8063H

ITA No.154/Vizag/2009

Assessment Years : 2005-06

M/s. Tirumala Milk Products Pvt. Ltd Ad. CIT Range-2(1) Narasaraopet Vs. Guntur (Appellant) (Respondent) AABCT 7907M

ITA No.397/Vizag/2010

Assessment Years : 2002-03

M/s. Tirumala Dairy Pvt. Ltd DCIT, Circle-2(1) Narasaraopet Vs. Guntur (Appellant) (Respondent) AAACT 7907M

ITA No.60/Vizag/2011

Assessment Years : 2007-08

M/s. Tirumala Milk Products Pvt. Ltd. Jt. CIT Range-2 Narasaraopet Vs. Guntur (Appellant) (Respondent) AABCT 7907M

Appellant By: Shri G.V.N. Hari, CA

Respondent By: Shri TH.L. Peter, CIT(DR)

& Shri D.S. Sunder Singh, Sr.DR

Date of Hearing: 30.06.2011

Date of Pronouncement: 11.08.2011

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ITA Nos.153&154/V/09, 397 of 2010 & 60 of 2011 of Tirumala Dairy Pvt. Ltd., Narasaraopet

ORDER

Per Shri S.K. Yadav, Judicial Member:-

These appeals are preferred by the assessee against the respective order of the CIT(A) on common grounds. Therefore, these appeals were heard together and are being disposed of through this consolidated order. The main controversy involved in this appeal is with regard to the claim of deduction u/s 80IB of the Act. Other issue involved in ITA Nos.153 of 2009, 154 of 2009 and 60 of 2011 is with regard to the claim of additional depreciation. We, therefore, adjudicate these appeals simultaneously on groundwise.

2. With regard to the denial of claim of deduction u/s 80IB, the facts in brief borne out from the record are that the assessing officer has disallowed the deduction claimed u/s 80IB holding that (a) the assessee was not a small scale industrial unit since the value of its plant and machinery as on 31.3.2005 exceeded ` 1 crore (b) the assessee was engaged in processing and trading of milk and milk products and has not manufactured or produced any article or thing. Relying upon various judgements of the apex court and other courts, the A.O. has concluded that the assessee was not engaged in manufacture or production of any article or thing since the assessee merely makes the milk procured by it marketable by enhancing its self life but the output remains the same as the input does not undergo any significant change in its characteristics.

3. The assessee preferred an appeal before the CIT(A) with the submission that the assessee had been subjected to scrutiny assessment from the assessment year 1999-2000 onwards and the issue had been considered in depth by the department, including through directions issued by the Additional CIT u/s 144A of the Act before being allowed. It was further contended that as per the provisions of the Act, the deduction to an eligible industry was granted for a period of 10 years continuously and once

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ITA Nos.153&154/V/09, 397 of 2010 & 60 of 2011 of Tirumala Dairy Pvt. Ltd., Narasaraopet

granted in an initial year, there was no scope for reconsideration in any of the later years.

4. While adjudicating these arguments, the CIT(A) held that doctrine of the res judicata does not have any application in income tax proceedings. Each year is a distinct and independent year and errors or mistakes committed in one year cannot be repeated in the next year as held by the Andhra Pradesh High Court in the case of Sadasiv Krishnarao Vs. CIT 144 ITR

270. He has also placed a reliance upon the various other judgements of the Supreme Court while upholding the action of the A.O. for taking a view contrary to the view taken in the earlier years.

5. On merit, the Ld. Counsel for the assessee has relied upon various judgements in support of his contention that pasteurisation of the milk is an activity that can be described as a manufacturing or production. The milk procured had to undergo under various process and the pasteurised milk is a different product than the original milk. These arguments were examined by the CIT(A) but was not convinced with it and relying upon the orders of the special bench of the Tribunal in the case B.G. Chitale Vs. DCIT 116 TTJ 658, the CIT(A) has held that the pasteurisation of milk did not amount to manufacture or production of an article or thing. Relying upon this special bench order, the CIT(A) has also observed that if the assessee markets curd, ghee or other products after processing, that amounts to a manufacture or production of an article or thing. Therefore, the assessee pleaded that its unit be considered to be manufacturing unit and is eligible u/s 80IB of the Act. These arguments of the assessee are also rejected by the CIT(A) on the ground that main turnover of the assessee is of processed milk of different varieties and production of cream, ghee, butter and curd etc. are only incidental activity of the assessee company. Therefore, the assessee is not entitled for deduction u/s 80IB of the Act.

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ITA Nos.153&154/V/09, 397 of 2010 & 60 of 2011 of Tirumala Dairy Pvt. Ltd., Narasaraopet

6. The CIT(A) has also approved the order of the A.O., whereby the assessing officer has held that the assessee is not a small scale industry because on the last date of relevant financial year, the total investment in plant and machinery exceeded ` 1 crore which was permissible investment to qualify as a SSI.

7. Aggrieved, the assessee has preferred an appeal against the order of the CIT(A) with the submission that the assessee was allowed deduction u/s 80IB in the initial years after making a detailed examination by the assessing officer. Therefore, once the deduction is allowed in initial years, it cannot be disallowed in subsequent years. In support of this proposition, the assessee has placed a reliance upon the following judgements:

1. CIT Vs. Paul Brothers (1995) 216 ITR 548 (NAG)

2. Micro Instruments Co. Vs. ITO (2008) 12 DTR (Chd) (Trib) 501

3. ITO Vs. Essential Motto (2009) 17 DTR (Chd) (Trib) 281

4. M.M. Patel & Sons Pvt. Ltd. Vs. ITO (1982) 1 ITD 82

5. Janak Dehydration Pvt. Ltd. Vs. ACIT 134 TTJ 1 (Ahd)

6. Saurashtra Cement & Chemical Industries Ltd. Vs. CIT 123 ITR 669

8. With regard to the production of pasteurized milk, the Ld. Counsel for the assessee has submitted that the assessee has procured the milk from different places and in order to make it more hygienic with different percentage of fat contents, it has to undergo different process of boiling and cooling and therefore the final product is entirely different product other than the milk procured from different places. Thus, the process of pasteurization and standardization of milk amounts to manufacture or production of an article or thing and the assessee is entitled for deduction u/s 80IB of the Act. In support of his contention that even in those cases, where the final product remains the same product as of the original product/raw material, the processing amounts to a manufacture or production, the Ld. Counsel for the assessee has relied upon the following judgements:

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ITA Nos.153&154/V/09, 397 of 2010 & 60 of 2011 of Tirumala Dairy Pvt. Ltd., Narasaraopet

1. India Cine Agencies Vs. CIT (2008) 220 CTR (SC) 223

2. CIT Vs. Emptee Poly-Yarn Pvt. Ltd. (2010) 229 CTR (SC) 1

3. YFC Projects Pvt. Ltd. Vs. DCIT (2010) 37 SOT 130 (Del)

4. ACIT Vs. Leebo Metals (P) Ltd. (2010) 4 ITR 275

5. Midas Polymer Compounds (P) Ltd. Vs. ACIT (2011) 331 ITR 68

6. CIT Vs. Janak Raj Bansal (2010) 329 ITR 417

7. Empire Industries Ltd. & Another Vs. Union of India & Ors. (1986) 162 ITR 846 (SC)

8. DCIT Vs. Sri Sai Roller Flour Mills Pvt. Ltd. 2 ITR (Trib) 490 (Hyd)

9. Pankaj Jain Vs. ITO 104 ITD 152

10. CIT Vs. Siddhal Food Pvt. Ltd. 262 ITR 563

11. Ganesh Trading Company Vs. State of Haryana 32 STC 623

12. ITO Vs. Arihant Tiles and Marbles Pvt. Ltd. 320 ITR 79 (SC)

13. Vijay Ship Breaking Corporation Vs. CIT 314 ITR 309

14. CIT Vs. Sesa Goa Ltd. 271 ITR 331

15. Anil Steel Traders Vs. DCIT 111 TTJ 747

16. ACIT Vs. Tirupati Microt Tech Pvt. Ltd. 111 TTJ 149

17. Vin Brothers and company Vs. ITO 111 TTJ 435

18. Shah Originals Vs. ACIT 12 TTJ 754

19. Aspin Wall and Co. Ltd. Vs. CIT 251 ITR 323 (SC)

20. Broach Dist. Co-op. Cotton Sales Ginning & Processing Society 107 ITR 418 (SC)

21. CIT Vs. Indian Oil Blending Co. Ltd. 142 ITR (Statute) 1 (SC)

22. Ardeshir Bhiwandiwalia Vs. State of Bombay 2 LLJ 77 (SC)

23. State of Madras Vs. Swasthik Tobacco Factory 17 STC 316 (SC)

24. CIT Vs. ARJ Security Printers 264 ITR 276.

9. With regard to the small scale industries, the Ld. Counsel for the assessee has submitted that the assessee was registered as a small scale industries with the concerned authorities after fulfilling requisite conditions. At the time of registration, the investment in fixed assets in plant and machinery were within the prescribed limit. The registration was never

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ITA Nos.153&154/V/09, 397 of 2010 & 60 of 2011 of Tirumala Dairy Pvt. Ltd., Narasaraopet

withdrawn by the concerned authorities. Therefore, it cannot be said that assessee was not a small scale industry.

10. The Ld. D.R. on the other hand besides placing a heavy reliance upon the order of the CIT(A) has submitted that every assessment year is an independent assessment year and rule of res judicata would not apply to the income tax proceedings. Therefore, in each assessment year the issues are to be examined independently in the light of relevant legal provisions. When it has been held by the appellate authorities that pasteurization of milk does not amount to a manufacture or production of articles or things, the assessing officer has rightly disallowed the deduction claimed u/s 80IB of the Act. The Ld. D.R. further contended that for the assessment year 2002-03, the assessment originally framed allowing the claim of deduction was reopened and deduction u/s 80IB was disallowed by the A.O. The Ld. D.R. further contended if in any of the assessment year error is committed and claim is wrongly allowed, the assessing officer is within his jurisdiction to rectify the error and disallow the claim. Pasteurisation of milk is simply purification of milk without changing its characteristics. Pasteurised milk remain the same milk as it was procured. Only the strength of fats and percentage of purity was improved. With regard to the registration of small scale industries, the Ld. D.R. has submitted that during the impugned assessment year, the investment in plant and machineries exceeded the prescribed limit. Therefore, the A.O. has rightly held that the assessee is not a small scale industry.

11. Having heard the rival submissions and from a careful perusal of the orders of the authorities below and documents placed on record, we find that undisputedly assessee was recognized as a small scale industry and deduction claimed u/s 80IB was allowed to the assessees first time in the assessment year 1993-94 as contended by the assessee in his written submissions. This factual aspect was not disputed by the revenue. It was further contended by the assessee that for the assessment year 2000-01,

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ITA Nos.153&154/V/09, 397 of 2010 & 60 of 2011 of Tirumala Dairy Pvt. Ltd., Narasaraopet

2001-02, 2002-03 & 2004-05, the claim of deduction u/s 80IB was allowed but for the assessment year 2002-03, the assessment was reopened by the assessing officer as the assessment was framed u/s 143(1) of the Act. For other assessment years, the assessment was framed u/s 143(3) and the issue was duly examined by the assessing officer. Now the question arise, once the assessee was allowed, the deduction u/s 80IB after treating the pasteurization of milk as a manufacturing activity, can the deduction u/s 80IB can be disallowed in succeeding years?

12. In this regard, our attention was invited to the order of the Tribunal of Allahabad bench in the case of Janak Dehydration Pvt. Ltd. Vs. ACIT 134 TTJ 1 in which it has been held that condition precedent for allowability of deduction u/s 80IB are to be examined in the initial year of the claim and if they are found to be satisfied, the A.O. cannot ignore that finding in the assessment of a subsequent year and take a different view. The Tribunal further held that CIT(A) was not justified in disallowing the deduction u/s 80IB on the ground that manufacture and sale of dehydrated onion flaker and potato is not manufacture or production of article or thing to be eligible to incentive deduction u/s 80IB.

13. In the case of Micro Instruments Company Vs. ITO (supra), the Tribunal has held that the assessee's claim for deduction u/s 80IB having been allowed in the initial assessment year and also thereafter, the claim for such deduction cannot be denied for subsequent years without any justification. The relevant observations of the Tribunal are extracted hereunder:

"The assessee initially claimed deduction under s. 80IB for the impugned unit in the asst. yr. 2001-02 and the same was allowed. In this assessment year, i.e. 2003-04 the claim of the assessee was in continuation of the claims made in the earlier assessment years for the impugned assessment year falls within the number of assessment years as specified in the section in which the claim is eligible. It is also a pertinent fact position that the claim allowed to the assessee in the initial assessment year of 2001-02 and thereafter in the asst. yr. 2002-03 has not been withdrawn. There is no contravention from the Revenue either at the

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ITA Nos.153&154/V/09, 397 of 2010 & 60 of 2011 of Tirumala Dairy Pvt. Ltd., Narasaraopet

stage of the proceedings before the lower authorities or even before the Tribunal. Thus, factually speaking the claim of the assessee for deduction under s. 80IB stands admitted in the initial assessment year and also thereafter upto the assessment year prior to the year under consideration. On this factual matrix, there is no justification for the AO to deny the claim of the assessee for deduction under s. 80IB. The implication of the earlier assessment made for the initial assessment year under s. 143(3) is that the assessee has fulfilled the conditions prescribed in the said section. Thereafter, it is not open for the AO to re-examine the issue all over again and come to a different conclusion in a subsequent year without justifying such departure. In the assessment order, there is no discussion by the AO on this aspect in spite of the fact that the assessee had taken a specific position based on the relief allowed in the past. Further, the claim accepted by the AO in the asst. yr. 2001-02 and thereafter in 2002-03 has not been disturbed. Clearly, in a such a situation, the onus which was on the Revenue has not been discharged. Insofar as the justification for the claims of exemption/tax reliefs are concerned the onus is on the assessee to establish and justify the claims. So, however, in a situation like the present situation, the AO ought to have justified his departure from the earlier accepted position whereby similar claim has been accepted in the past. It is in this background the onus was on the AO to justify the denial of deduction under s. 80IB in view of the past history. Therefore, in this background there is no justification to uphold the stand of the IT authorities to deny the claim of the assessee for deduction under s. 80IB in relation to the profits and gains.-- Saurashtra Cement & Chemical Industries Ltd. Vs. CIT (1979) 11 CTR (Guj) 139 : (1980) 123 ITR 669 (Guj) and CIT Vs. Paul Brothers (1995) 216 ITR 548 (Bom) relied on."

14. In the case of Saurashtra Cement & Chemical Industries Ltd. Vs. CIT 123 ITR 669, their Lordship of the Gujarat High Court have held that a rebate granted u/s 80J cannot be withdrawn in a subsequent year without disturbing the relief granted in the earlier years. The relevant observation of the Hon'ble High Court are as under:

"It should be stated that there is no provision in the scheme of s. 80J similar to the one which one finds in the case of development rebate which could be withdrawn in subsequent year for breach of certain conditions. No doubt, the relief of tax holiday under s. 80J can be withheld or discontinued provided the relief granted in the initial year of assessment is disturbed or changed on valid grounds. But without disturbing the relief granted in the initial year the ITO cannot examine the question again and decide to withhold or withdraw the relief which has been already once granted. The Tribunal was right in law in holding that there was no case for the Revenue to withdraw the assessee's claim under s. 80J for the year under reference, when such claim had been accepted in the earlier assessment year, which assessment had not been disturbed."

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ITA Nos.153&154/V/09, 397 of 2010 & 60 of 2011 of Tirumala Dairy Pvt. Ltd., Narasaraopet

15. The similar view was taken by the Tribunal in the case of ITO Vs. Essential Moto (supra) in which the Tribunal has held that deduction u/s 80IA having been allowed in initial assessment year i.e. 1997-98 in assessment u/s 143(3) with a specific finding that assessee fulfilled all the conditions of section 80IA which stands undisturbed, A.O. could not have reopened the assessment for the assessment year 1998-99 and subsequent years for withdrawing said deduction. Further, A.O. having allowed identical claims in section 80IA in assessment u/s 143(3) for earlier year and also subsequent assessment year could not have reason to believe in the absence of any fresh facts or change of law that income escaped assessment on account of relief u/s 80IA, hence, reopening was on mere change opinion and invalid. Similar view was also expressed by the Tribunal Nagpur Bench in M.M. Patel & Sons Vs. ITO (supra) in which it was held that relief to assessee u/s 80HH and 80J having been allowed in the initial assessment year and the said allowance having become final and conclusive, ITO cannot reject the relief for succeeding years in respect of same business and same assets.

16. We have also carefully examined the nature of activities undertaken by the assessee in processing for pasteurized and standardized of milk. Undisputedly, assessee is having full range of dairy products and procured milk from different places and to make it marketable product it has to undergo under different processes. Technically, pasteurization of milk is an important process. Before pasteurization the milk was dangerous source of infection as it is procured from different places. In a pasteurization process, it has to undergo boiling and cooling process besides extraction of cream there from. The pasteurized milk of different standards i.e. tone, double tone etc. and assessee is also engaged in production of ghee, butter, curd and other milk products. All these activities were examined by the A.O. in assessment year 2000-01, 2001-02 & 2004-05 in regular assessment. In 2002-03, the claim was allowed u/s 143(1) but it was reopened u/s 147 of the Act. The claim of deduction can be allowed as per provisions of section 80IB of the Act for a period of 10 consecutive assessment years beginning

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ITA Nos.153&154/V/09, 397 of 2010 & 60 of 2011 of Tirumala Dairy Pvt. Ltd., Narasaraopet

with the initial assessment years subject to fulfillment of certain conditions. In the initial years, the claim was admittedly allowed by the assessing officer after making a necessary enquiry. Once it is allowed in the initial assessment year, it should be allowed in succeeding assessment years. There is no provision in this section which empowers the assessing officer to withdraw the claim originally allowed in earlier assessment years, in succeeding years. Once the nature of activities was examined by the A.O. and it was considered to be the manufacturing activity for the purpose of allowance of deduction u/s 80IB of the Act, the same activity cannot be differently interpreted in order to disallow the claim of deduction to the assessee in succeeding year. No doubt there is a special bench in the case of B.J. Chitale Vs. DCIT (supra) in which it was held that pasteurization of milk is only processing of milk and milk remains the milk even after processing though a little more clean and more fit for consumption and therefore, does not amount to manufacture or production for the purpose of grant of deduction u/s 80HHA and 80I. But after this judgement, the word manufacture and production was further interpreted by the apex court and various High Courts.

17. In the case of India Cine Agencies Vs. CIT (supra), their Lordship of the apex court have held that conversion of jumbo rolls of photographic films into small rolls in desired size amounts to a manufacture or production eligible for deduction u/s 80HH and 80I of the Act. While dealing with the issue, their Lordship have defined the word manufacture by holding that manufacture implies a change but every change is not manufacture yet every change of an article is the result of a treatment, labour and manipulation. Naturally manufacture is an end result of one or more processes through which the original commodities are made to pass. The nature and extent of processing may vary from one class to another. There may be a several stages of processing, a different account of processing at each stage. With each process suffered, the original commodity experience a change. Whenever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing

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ITA Nos.153&154/V/09, 397 of 2010 & 60 of 2011 of Tirumala Dairy Pvt. Ltd., Narasaraopet

of the commodity. But it is only when the change or series of changes takes the commodity to the point where commercially it can no longer be regarded as a original commodity but instead is a recognized a new and distinct article that a manufacture can said to take place. They have also defined the expression production and held that packing, labelling, relabelling containers, re-packing from bulk packages to retail packages and the adoption of other method to render the product marketable are the part of productions as defined in advanced law lexigan.

18. In the case of CIT Vs. Empty Poly Yarn Pvt. Ltd. (supra) their Lordship further held that POY (Partially Oriented Yarn) becomes usable for manufacture of fabric only after it undergoes the operation/process known as theremo mechanical process which converts POY into textiles yarn and therefore, twisting and texturising of POY amounts to manufacture in terms of 80IA. While dealing with this issue their Lordship have observed that POY a semi finished yarn not capable of being put in warp or weft, it can only be used for making a textile yarn, which, in turn can be used in the manufacture of fabric.

19. In the case of ACIT Vs. Leebo Metals Pvt. Ltd. (supra), the Tribunal has held that activity of assessee making non-ferrous wires from big gauge rods is covered within the meaning of production u/s 80IB and therefore, assessee is entitled for deduction u/s 80IB of the Act.

20. Order of the special bench of the Tribunal in the case of B.J. Chitale was passed on 6.6.2008, whereas the assessment order in these cases were passed in December, 2007. Therefore, the order of the special bench of the Tribunal in the case of B.J. Chitale cannot be called to be available with the assessing officer to take a view contrary to the view taken in earlier assessment years. Moreover, we do not find any valid reasons with the assessing officers to reject the claim of deduction u/s 80IB of the Act allowed in earlier years, in succeeding years. After this order of the special bench in

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the case of B.J. Chitale, various judgements are rendered by the apex court and various high courts on this subject and in case of India Cine Agencies, the honorable apex court vide its judgement dated 12.11.2008 has clarified the expression 'production' and 'manufacture' and held that packing, labeling, re-labelling containers repacking from bulk package to retail package and the adoption of other method to render the product marketable are also a part of productions. The deduction u/s 80IB is to be allowed when the assessee is engaged in the activities of manufacture or production. Admittedly, the assessee is engaged in processing and trading of milk and milk products. The bulk of milk is being procured from different places and after its pasteurization, it was packed in small packets for its marketing and the packing from bulk material to retail package amounts to a production as per the judgement of the Hon'ble Supreme Court in the case of India Cine Agencies (supra). Therefore, once the revenue in the initial year has accepted the claim of the assessee and allowed deduction u/s 80IB which has to be allowed consecutively for 10 succeeding years, the revenue should not have taken a view contrary to the earlier view in succeeding year to disallow the claim of the assessees. Admittedly, there is no change in the legal proposition. Therefore, we are of the view that revenue was not justified in taking a contrary view in succeeding years. We therefore, set aside the order of the CIT(A) in all these cases and direct the A.O. to allow the claim of deduction u/s 80IB to the assessees.

21. Next ground relate to the disallowance of claim of additional depreciation raised by the assessees. In this regard, it is noticed from the orders of the lower authorities that assessee has claimed additional depreciation u/s 32(1)(iia) on the addition made to the fixed asset. The A.O. found that the assessee had failed to enclose the audit report in form-3AA along with the return of income as required u/s 32(1)(iia) of the Act. On account of non-filing of the audit report, the claim of additional depreciation was disallowed.

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ITA Nos.153&154/V/09, 397 of 2010 & 60 of 2011 of Tirumala Dairy Pvt. Ltd., Narasaraopet

22. Before the CIT(A), it was contended on behalf of the assessee that non-filing of the report was merely a procedural lapse and the assessee should not be penalized for this. It was further contended that this was essentially on the failure of the assessee's auditor and this lapse occurred only because of rush of audit work during that period. The CIT(A) was not convinced with the explanations of the assessees and he has confirmed the disallowance of additional depreciation after having observed that the audit report in the requisite form no.3AA was not filed even during the course of assessment proceedings. He has also confirmed the disallowance of deductions u/s 80IB on the ground that assessee was not an industrial undertaking engaged in the manufacture or production of any article or thing as required under this section. Now the assessee has preferred an appeal before the Tribunal with the submission that the audit report was filed subsequently and the non-filing of the report along with the return of income was merely a procedural lapse. Therefore, once the audit report is filed, the assessee's claim of additional depreciation should have been allowed as per law.

23. The Ld. D.R. placed a heavy reliance upon the order of the CIT(A).

24. Having heard the rival submissions and from a careful perusal of the orders of the lower authorities, we find that undeniably the audit report was not filed along with the return of income but subsequently it was filed. No doubt as per the provisions of section 32(1)(iia) of the Act, the assessee is required to file the audit report along with the return of income to claim additional depreciation. But in case it is not filed along with the return and filed subsequently, the claim of the depreciation should not be denied only for the technical default. Since the audit report was filed subsequently, the claim of the additional depreciation should have been examined by the A.O. in accordance with law. We, therefore, set aside the order of the CIT(A) in this regard and direct the A.O. to re-examine the claim of additional depreciation as per provisions of law.

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ITA Nos.153&154/V/09, 397 of 2010 & 60 of 2011 of Tirumala Dairy Pvt. Ltd., Narasaraopet

25. So far as the issue of industrial undertaking is concerned, we find that assessee was registered as a SSI with the concerned authorities and certificate to this effect is also placed on record. Nothing is placed on record by the revenue that the registration granted to the assessees as a SSI was ever withdrawn by the concerned authorities. Moreover, it is also noticed that at the time of grant of registration as a SSI, the requisite conditions were also fulfilled. We therefore of the view that until and unless the registration granted as a SSI by the concerned authorities is not withdrawn, the assessee should be treated as a small scale industrial undertaking. The small scale industrial undertaking is defined in clause (g) of sub-section 14 of section 80IB, according to which small scale industrial undertaking means an industrial undertaking recognized as SSI u/s 11B of the Industries (Development and Regulation) Act 1951. Since the assessee is recognized as SSI by the competent authority till date, we find no merit in these findings of the CIT(A) that the assessee was not an industrial undertaking.

26. In ITA No.60 of 2011, the order of the CIT(A) is also assailed on one more ground that CIT(A) is not justified in disallowing the claim of set off of losses of amalgamated companies amounting to ` 66,01,556/-.

27. The brief facts borne out in this regard from the order of the lower authorities are that the assessee has claimed the set off of losses relating to various companies that were amalgamated with the assessee company during the year. The losses claimed were as under:

`

1. Bhakthanjaneya Milk Foods Pvt. Ltd. 51,78,537

2. Janakirama Dairy Milk Pvt. Ltd. 12,95,889

3. Pragati Milk Products 1,27,130 ------------

66,01,556

28. The A.O. found that as per provisions of section 72A, set off of accumulated loss and unabsorbed depreciation allowance on amalgamation,

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ITA Nos.153&154/V/09, 397 of 2010 & 60 of 2011 of Tirumala Dairy Pvt. Ltd., Narasaraopet

is allowed only where there is an amalgamation of a company owning an industrial undertaking. Since the amalgamated companies are not industrial undertakings as defined in section 72A(aa), the claim of set off of amalgamated companies was not allowed. The assessee has preferred an appeal before the CIT(A) and CIT(A) confirmed the disallowance after having observed that amalgamating companies were not engaged in manufacturing activities. Therefore, they are not industrial undertakings and as such, the set off of loss of the amalgamated companies cannot be allowed. The relevant observation of the CIT(A) are extracted hereunder:

"I have considered the submissions and also perused the details of returns and the annual report of the three amalgamating companies filed by the AR. From the computation of total income filed in the case of Bhaktanjaneya Milk Foods Pvt. Ltd., for the A.Y. 2000-01, it is seen that the business of the company is stated to be "buying and selling of milk and operating of milk chilling centre". Therefore, in this case, the company was not carrying out any manufacturing or processing activity but appears to be mainly a chilling unit and a trading company. In the case of M/s. Pragati Milk Products Pvt. Ltd., the Director's report of the year ended 31.3.2006 shows that the company has leased out its factory building and plant and machinery to its holding company M/s. Tirumala Dairy Pvt. Ltd., and had only shown receipt of other income on account of this. In this case also, therefore, the company is not seen to be engaged in manufacturing or processing activity as required by the section. In the case of M/s. Janakirama Dairy Pvt. Ltd., the Auditor's report u/s 115JB for the A.Y. 2005-06 shows the company as engaged in the business of chilling and selling milk. Again, therefore, no manufacturing or processing activity is seen to be carried on by this company also.

As brought out by the Assessing Officer, the provisions of section 72A(7)(aa) defines an industrial undertaking as one which is engaged in the manufacture or processing of goods. Section 72A(i) read with Rule 9C of the IT Rules, specifies a situation where a company owning an industrial undertaking amalgamates with another company. Since, in this case, neither the appellant nor the amalgamating companies are carrying on any manufacturing activity, the set off of losses of the amalgamating companies cannot be allowed. The Assessing Officer's decision is upheld and the appellant gets no relief on this ground also."

29. Now the assessee has preferred an appeal before us but during the course of hearing nothing has been placed before us to substantiate that the

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ITA Nos.153&154/V/09, 397 of 2010 & 60 of 2011 of Tirumala Dairy Pvt. Ltd., Narasaraopet

amalgamating companies are industrial undertakings. We however, carefully examined the order of the CIT(A) and we find that under the given facts and circumstances of the case, the CIT(A) has rightly adjudicated the issue and we find no infirmity therein and we accordingly confirm his order.

30. In the result, the appeal nos.153 & 154 of 2009 and 397 of 2010 of the assessee are allowed for statistical purposes and appeal no.60 of 2011 of the assessee is partly allowed for statistical purposes.

Pronounced in the open Court on 11.8.2011

Sd/- Sd/- (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER

VG/SPS

Visakhapatnam,

Dated 11th August, 2011

Copy to

1 M/s. Punnaiah & Co., Chartered Accountant, "UDAY" 5-87-129, Main Road, Brodipet, Guntur-522 002

2 Addl. CIT, Range-2(1), Guntur

3 DCIT, Circled-2(1), Guntur

4 Joint CIT, Range-2, Guntur

5 The CIT, Guntur

6 The CIT(A), Guntur

7 The DR, ITAT, Visakhapatnam.

8 Guard file.

By Order

Senior Private Secretary

Income Tax Appellate Tribunal

Visakhapatnam

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