2018 (11) TMI 1896 - AT - Income Tax

Deduction u/s 80IC - Unit-III was not a new Unit within the meaning of section 80IC of the Act and its initial assessment year would be the same as of the Unit-II - CIT-A held unit-3 is reconstruction of existing business activity of the company and thereby holding both units as a single unit - HELD THAT - Merely because the assessee company had started conducting its operation of Unit-III from its registered office that does not mean that the assessee company has been split out or reconstructed out of Unit-II. There is no allegation that the plant and machinery of Unit-II has been used for Unit-III. The assessee company has also not only shown tremendous growth in business but has also demonstrated that it has been dealing with and attracting new clients and servicing in new products. We do not find any justification on the part of the lower authorities in denying the claim of the assessee by assuming that Unit-III was not a new unit or that it was started by way of spitting or reconstruction of an existing unit. The orders of the lower authorities are therefore set aside and the Assessing officer is directed to give relief to the assessee as per the provisions of section 80IC of the Act treating the Unit-III as a separate and distinct unit. The appeal of the assessee is hereby allowed.

Summary

Issues:
Assessment of deduction u/s 80IC for two units, determination of initial assessment year for Unit-3, reconstruction of existing business activity.

Analysis:
The appellant, engaged in Information and Communication Technology business, claimed deduction u/s 80IC for Unit-II and Unit-III. The Assessing officer contended that both units were identical, operating from the same premises, and Unit-III was a reconstruction of an existing business, thus not eligible for separate treatment. The CIT(A) upheld the Assessing officer's decision.

The appellant argued that Unit-II operated from STPI Building, while Unit-III was at a different location, supported by registration documents. The appellant purchased a building for Unit-III, shifted the registered office there, and commenced operations with new employees and machinery. Unit-II and Unit-III had separate buildings, employees, client base, and registrations. Unit-III expanded services to non-telecom clients, demonstrating growth and attracting new clients.

The Tribunal found the Assessing officer's objection unsubstantiated, as Unit-III's operation from the registered office did not imply reconstruction from Unit-II. No evidence suggested Unit-II's resources were used for Unit-III. The appellant's significant business growth and new client base supported the claim of Unit-III as a distinct unit. The Tribunal set aside lower authorities' orders, directing relief u/s 80IC for Unit-III as a separate unit.

The Tribunal's decision in ITA No. 330/Chd/2018 applied to other appeals for subsequent assessment years. The appellant's appeals for those years were allowed accordingly. In a separate appeal for A.Y. 2014-15, the appellant raised similar grounds and an additional issue of disallowance. As no arguments were presented on the disallowance issue, it was dismissed as not pressed, partially allowing the appeal.

In conclusion, the Tribunal allowed the appeals for various assessment years, recognizing Unit-III as a separate unit eligible for deduction u/s 80IC. The decision emphasized the distinct operations, growth, and client base of Unit-III, refuting claims of reconstruction or non-eligibility.