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2016 (7) TMI 1588 - AT - Income TaxDeduction u/s 80-IC - Disallowance of deduction as a case of splitting up of the old unit, rather than of that substantial expansion, as canvassed by the assessee - assessee claimed to have two units, namely Unit-I and Unit-11, at Baddi - HELD THAT:- It remains unchallenged on record that Unit-II of the assessee is an entirely independent unit from the erstwhile unit. It was set up by installing new machinery worth ₹ 71 lacs. Obviously, it has a separate electricity connection. It is being worked by separate employees. The purchases to and sales from Unit-II are separate, as borne out from the separate stock register maintained. All this has duly been taken into consideration by the Tribunal in its order for the assessment year 2006-07 (supra). Physically also, though located in the same complex, Unit-I & Unit-II are housed separately. Thus, for all intents and purposes, the two units are mutually distinct and separate entities, Unit-II having come into being only as a result of the substantial expansion carried out by the assessee. It is in this light, that the applicability of the provisions of section 80IC(6) have to be construed. The ld. CIT(A) has erred in not doing so. Section 80IC(8)(v) states that ‘initial assessment year’ means the assessment year relevant to the previous year in which the undertaking or enterprise, inter-alia, begins manufacture, or completes substantial expansion. In the present case, substantial expansion was brought about in the assessment year 2004-05 and that being so, the period of 10 years’ tax holiday is to commence with reference to this assessment year, i.e., A.Y. 2004-05. The assessee claimed deduction under section 80-IC with respect to Unit-II. This was wrongly disallowed by the AO and the ld. CIT(A) erroneously confirmed the disallowance. The initial assessment year for the proposed Unit-II, for the purposes of section 80-IC(6), was A.Y. 2004- 05. - Decided in favour of assessee.
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