TMI Blog1995 (6) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... ard area. To consider the aforesaid claims the Assessing Officer proceeded to verify the records of the preceding assessment years as also the various facts emerging therefrom. It appeared that up to assessment year 1980-81, the assessee was partner in a registered firm, namely, M/s. Khandelwal Associates, Mathura and the said firm came to be dissolved on 31st March, 1980. Subsequently, with effect from 10-5-1980 the assessee started his proprietory manufacturing concern under the name of "Khandelwal Electricals" for which the accounts were closed for the first time on 31-12-1980. As the aforesaid manufacturing concern was operating in a backward area the assessee claimed deductions under sections 80-HH and 80-I of the Income-tax Act and these were being regularly allowed to him. The aforesaid concern, namely, M/s. Khandelwal Electricals was stated to have been closed on 31st March, 1989, but prior to that during the previous year 1988-89 relevant to assessment year 1989-90 the assessee is stated to have started a new concern under the name of "M/s. Khandelwal Wires" with effect from 1-6-1988. It was claimed that machineries worth Rs. 1,64,164 had been installed in the said unit. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was dark in old concern; (j) The new unit was granted sales-tax exemption under section 4A/2A of Sales-tax Act 1948 being new unit and no such exemption was available to the old concern according to conditions of the Scheme; (k) As regards, the assessee's customers in old as well as new concern, it was mentioned in the Annexure (Col. 15) that they were quite different in new concern then those of old concern. However, during the course of hearing when the assessee's contention was invited to the fact that looking to his records most of the customers of the old and new concerns were same and even his main commission agents were same, he changed his earlier submission and admitted vide his reply dated 15-1-1993 that many customers of old concern were also customers in alleged new concern." 3. On the basis of the aforesaid submissions it was urged that since the conditions laid down in sections 80-HH and 80-I were duly complied with the alleged new unit, viz., M/s. Khandelwal Wires constituted with effect from 1-6-1988 be allowed the claims as made. 4. The Assessing Officer considered the submissions of the assessee with reference to the material on record and, at the outse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sign of the product manufactured by a unit could be treated as the manufacture and production of a new unit; (vi) The taking over of the creditors, debtors, assets, etc., of the old concern by the new concern showed that the new concern was formed by the splitting up of the business of the old concern and this tantamounted to a mere reconstruction of the business already in existence; (vii) There was no substance in the assessee's contention that the machinery used in the old concern was unusable and new machineries were purchased for the alleged new unit. A reference was made to the details of machineries installed by the alleged old concern during the period of 9 years since the date of its formation and the total thereof coming to a figure of Rs. 2,07,050. On being asked to explain the position of the machineries it was stated bv the assessee that the only machinery available was valued at Rs. 10,000 and odd and the same was also found unusable. The Assessing Officer referred to the fact that the assessee had only given an explanation with reference to the WDV of the machinery of the old concern and there was no mention of the machineries on which 100 per cent depreciation had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as in turn confronted to the assessee, who once again replied point by point the issues raised by the Assessing Officer. However, the net result of the entire exercise resulted once again in the rejection of the assessee's claim and the confirmation of the order of the Assessing Officer by the CIT (Appeals). It is in the aforesaid circumstances that the present appeal has been preferred to the Tribunal. 8. We have heard both the parties at considerable length and have perused the material on record which is contained in the various compilations filed by the assessee's counsel during the course of the hearing as also subsequently as directed by the Tribunal. The learned Departmental Representative has also been given adequate opportunity in perusing the aforesaid material and offering his comments thereto visa-vis the case of the Revenue. The case of the assessee can be called out from the written submissions addressed to the Commissioner of Income-tax (Appeals) on more than one occasion and which include the reply to the points made by the Assessing Officer in the course of the appellate proceedings. We would, at the outset, refer to the written submission to the Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the industrial undertaking set up by a dealer on or after October 1, 1982 but not later than March, 1980, and that the new unit is formed by using machinery, accessories or components not already used or acquired for use in any other factories or workshop in India. The appellant is also filing herewith a photo copy of the letter of Joint Director of Industries, Agra Division addressed to STO, Sector I, Mathura Annexure'D' which clearly mentions as under :-- (vi) That the telephone connections as well as electrical connections are quite separate as both the buildings are admittedly situated at a distance of three kilometers. The Annexure 'E' shows the telephone number and electric connections numbers of both the units. (v) The factory buildings, plant machinery of both the units are separate and situated at two different places. The separate physical existence of the two units has also been admitted by the learned AO. Moreover, there is no transfer of plant or machinery or any other asset from the old unit to the new Industrial Undertaking at the time of establishment or even the start of manufacture and sale of manufactured goods. 4. The case of the appellant is fully e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... none of the bills bore the stamp of the Sales-tax check post which was mandatory under the Sales-tax Rules in respect of goods received from a station outside U.P. The inference which was required to be drawn was that the alleged new unit was carrying on the manufacturing process by utilising the entire machinery of the old concern which was a disqualification for allowing deductions under sections 80HH and 80-I of the Act; (iv) That it was the assessee's claim that the new unit had come into existence in the immediately preceding assessment year, viz., 1989-90, but the facts revealed that there was no indication of, the part of the assessee in the return filed for the said preceding assessment year and neither had any claim been made under the aforesaid sections and even the auditors' report prescribed by the said sections had not been filed; (v) That the plant and machinery purported to have been installed for the new units was purchased out of the profit of the old unit. Further there was no substance in the assessee's contention that no item of plant and machinery had been transferred from the old unit since the admitted facts were that car, scooter, computer and office fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an absolute necessity taking note of the power position in the State of U.P. particularly in backward areas; (xii) That the details of the raw material used and the items manufactured by both the units did not prove the assessee's point that the articles produced were dissimilar; (xiii) That the senior staff members of the two units were the same, the main commission agents were also the same and the technology being used was also identical. Further the installation of a new power connection in the new unit was not a deciding factor since any manufacturer would have to obtain a new connection as per the electricity rules in case it required an increased load due to the expansion of the unit and the addition of new machineries; (xiv) The material on record pointed out to the fact that the new unit could not achieve the huge turnover as it had done in the assessment year under appeal only on the basis of the new plant and machinery and the electrical fittings shown without utilising the machineries of the old unit as also the electrical installations belonging to the said old unit; (xv) That the facts discussed in the preceding paras as also the activities brought out clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of machinery as the computer had nothing to do with the production and it was highly doubtful whether a computer could fall under the category of plant and machinery; (iv) That the Assessing Officer had referred to the date of commencement of production as 1-2-1989 whereas the certificate issued by the Distt. Industries Officer, Mathura, categorically gave the said date as one on which the first sale had been effected and that by no stretch of imagination could be considered as the date of production; (v) That the certificate given by the Joint Director of Industries, Govt. of U.P. had in unambiguous terms certified that the facts stated by the industrial unit, i.e., the assessee had been verified and he was totally satisfied that the new unit was entitled to the exemption of Sales-tax; (vi) That the various items of plant and machinery had been purchased on the basis of genuine bills and all necessary formalities required by the Sales-tax Laws had been duly complied with; (vii) That there was no basis with the Assessing Officer to hold that in case the new unit had started with effect from 1-6-1988 the entire machineries of the old unit had been utilised in the new unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer regarding the installation of telephones was not correct as both the units were situated at a distance of three kilometers and had got separate telephones at both the places. Further the assessee was the sole proprietor of both the units as it was in that capacity that he had got typed out the telephone Nos. of both the units on his letter-pads; (xv) That it was not a mere case of change in the building, but it was a case in which a totally new unit had been established carrying on the production of a different item altogether; (xvi) That the observations of the Assessing Officer regarding the generator of the old unit were not valid and justified as the assessee had not at all used the generator of the old unit in the new unit and it in fact had purchased the generator for the new unit in the subsequent year on availability of funds; (xvii) That the assessee had brought on record sufficient material and evidence to prove that the new unit had been established with effect from 1-6-1988 wherein new machinery had been installed and further the first sale of the production of the said unit was made on 10th February, 1989, the said date having been certified by the Joint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en employed in the old unit and who had been taken on account of their experience and sincerity. Further there was no bar for allowing the deductions claimed by the assessee; (xxiii) That it was improper on the part of the Assessing Officer to draw an adverse inference vis-a-vis the old power connection since a new power connection was taken for the new unit. Further the assessee had purchased a building for the new unit and which already included electrical fittings and after the said purchase the assessee had incurred further expenditure on electrical fittings; (xxiv) That the material on record did not show that it was the old unit which was shifted to the new premises, but the material on record categorically proved that a new unit independent of the earlier one had been established; (xxv) That the observation of the Assessing Officer to the effect that the old unit was intended to be shifted to the industrial area was not correct inasmuch as the new premises purchased by the assessee were not in the industrial area, but located in a residential locality totally unconnected with the industrial area; (xxvi) That it was incorrect on the part of the Assessing officer to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is presently in appeal before the Tribunal. We have heard both the parties at length and have also perused the orders passed by the tax authorities. The material on record, to which our attention was invited has also been duly considered as also the decisions cited at the bar by both the parties. The arguments of the learned counsel for the assessee were quite identical to those tendered before the authorities below, but he highlighted the following for our consideration :-- (i) That in the preceding assessment year the new unit had worked only for a period of two months and as there was a loss, no claim had been made. Further the matter was not discussed in the assessment order as the same had been framed under section 143(1); (ii) Whereas the Assessing Officer had proceeded on the ground that it was a case of re-construction and that machineries from the old unit had been transferred exceeding 20 per cent of the value thereof the CIT (Appeals) had imposed another condition, namely, the number of workers being less than 10. That it was not necessary to have the stipulated number of workers, viz., 10 at all points of time during the previous year under consideration an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 96 ITR 188 (SC); (xviii) Textile Machinery Corpn. Ltd.'s case; (xix) CIT v. K.G. Yediyurappa Co. [1985] 152 ITR 152 (Kar.); (xx) Addl CIT v. Suessin Textile Ball Bearings Ltd. [1987] 163 ITR 582 (Bom.); and (xxi) CIT v. Dandeli Ferro Alloys (P.) Ltd. [1995] 212 ITR 1 (Bom.). 17. The learned Departmental Representative, on the other hand, supported the order passed by the Commissioner of Income-tax (Appeals) and the subsequent arguments advanced by him were a reiteration of the reasons recorded by the first appellate authority in upholding the order passed by the Assessing Officer vis-a-vis the claims under sections 80HH and 80-I. 18. We have examined the rival submissions and have also perused the material on record to which our attention was invited during the course of the hearing. The decisions cited at the bar have also been duly considered. 19. At the outset, we must highlight that the provisions of sections 80HH and 80-I envisage a similar type of scheme for allowing deduction at a stipulated percentage, of the profits and gains derived from an industrial undertaking. Even the conditions to be fulfilled are quite identical viz.: (i) manufacture or produce of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ril and May, 1989 in case office workers are excluded. 23. On coming to the other aspects of the matter we find ourselves in agreement with the submissions made by the learned counsel vis-a-vis the establishment of a 'new unit' at a place admittedly different than the old unit, and manufacturing an item different to the one manufactured earlier although both come under the category of "wires and cables". In annexure 'A' to the present order the points of distinction have been drawn up on behalf of the assessee and these do aptly support the viewpoint canvassed by the learned counsel and there being no effective challenge or material in rebuttal placed on record by the Revenue represented by the Departmental Representative. Much stress has been laid by the Revenue on the similarity between the customers, employers and the commission agents of the old and the new units but in our opinion these on the facts of the present case are not at all valid, since the assessee in operating a "new unit" has to fall back on his old contacts, customers as well as employers. The law does not create a bar on these aspects to deny a rightful claim. 24. Then again the Revenue has alleged that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Fresh land was acquired, fresh capital was invested, fresh machinery and plant were installed and the new factory came into existence after more than a couple of years. In the initial stages, the new factory also turned out articles, perhaps of the same type as those manufactured in the earlier undertaking. Later, the new undertaking started the manufacture of railway wagons and aircraft refuellers. The Tribunal found as a matter of fact that this was a new undertaking. Held that the Tribunal was justified." [Emphasis supplied]. (II) Nagardas Bechardas Bros. (P.) Ltd. v. CIT [1976] 104 ITR 255 (Guj.): "Where the assessee had established a separate unit to manufacture parts used by itself in the construction of engines, which parts it earlier purchased from the market and the Tribunal on the comparative data of the existing business and the business done by the new unit as regards the cost of establishment and the annual turnover, concluded that since the cost of establishment of the new unit and its annual turnover was very small as compared to the establishment cost and annual turnover of the previously running business, the former should be considered merely a result of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as entitled to relief on the new unit. [Emphasis supplied by us]. Note : Approved by the Supreme Court in Textile Machinery Corpn. Ltd. v. CIT [1977] 107 ITR 195. " (iv) Associated Cement Co's. Ltd. 's case : "Establishment of a new industrial unit as a part of an already existing industrial establishment may result in an expansion, but if the newly established unit is itself an integrated independent unit in which new plant and machinery is put up and is itself, independent of the old unit,capable of production of goods, then it could be classified as a newly established industrial undertaking. Thus, where the assessee, already engaged in the business of manufacture of cement, claimed relief qua new kilns commissioned by it by investing huge amount of machinery, and supported its claim on the basis of a certificate from an engineer which disclosed that each kiln, worked independently of the old kilns, and that the new kilns were completely integrated units which could be put into production independently of the other units, or production therefrom could be stopped, without affecting production from old units, it was held that each new kiln constituted a new industrial undert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Polyester Film. 6. Product Winding wire for submersible Heat Resistant Fibreglass manufactured motor pumps Cables, Refrigerant resistant-Cables, Sleeves, cords. 7. Machines used All new purchased Most of them become unusable. 8. Machines Transferred Nil Nil 9. Other-assets Transferred Office Equipments, etc.,on Dt. 22-7-89 Computer 23,575.00 Car 90,670.00 Scooter 4,622.00 Office Furtniture 2,806.00 ----------- 1,21,673.00 10. Process of manufacturing Wrapping of plastic films over bare Bunched tinned copper copper conductor then cured conductor than Fibreglass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng and varnishing. Tape Wrapped over copper conductor than cured. Patent Pending No. 218/DEL/88, dt. 18-3-1988. (Braiding is a slow process, 1 Machine 2. FG/Polyester Cuvered Cables: produces only 100MTs/8HR.) Yarn Braiding Replaces with Yarn Lapping (A Fast process, covered 2400 MTS./8 Hrs.) (2) List of customers Enclosed Enclosed (3)Commission agents 1. M/s.Khandelwal Sales Syndicate, Vbn. 1. Same 2. M/s.Khandelwal Agencies, Coimbatore. 2. Same 3. M/s.Oriental Insulators, Faridabad. 3. M/s. Balkrishna Engg. Co., Rajkot. 4. M/s.Jai Steel Corporation, Bombay ..... X X X X Extracts X X X X X X X X Extracts X X X X
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