TMI Blog2007 (8) TMI 407X X X X Extracts X X X X X X X X Extracts X X X X ..... f expenses of Rs. 7,31,209 made by the AO in respect of gift articles. The CIT(A) directed the AO, saying that the entire expenses be regulated under r. 6B of the IT Rules, 1962. We find that this issue is covered in favour of the assessee by the decision of Tribunal, Pune, in the assessee's own case for asst. yr. 1993- 94 in 1TA No. 299/Pn/1997, dt. 23rd June, 2006. The Tribunal, Pune, while allowing the assessee's claim, observed in para 5 of its order dt. 23rd June, 2006 as under : "Ground No. 5 is against the findings of the learned CIT(A) that the assessee is not entitled to deduct fully the expenditure of Rs. 6,90,303 incurred on gift items and provisions of r. 6B of the IT Rules are applicable in respect of this expenditure. In the course of hearing before us, the learned counsel pointed out that this issue is covered in the order of Hon'ble Tribunal for asst. yr. 1990-91. In that order, the expenditure was allowed in full by referring inter alia to the decision of Hon'ble Bombay High Court in the case of CIT v. Allana Sons (P.) Ltd. [1993] 114 CTR (Bom) 448 : [1995] 216 1TR 690 (Bom). The facts of this year are identical with that year inasmuch as if was affirmed before u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a bona fide one but a device of tax avoidance and hence cannot be allowed in view of the ratio of Supreme Court judgment in the case of McDowell Co. Ltd. v. CTO [1985] 47 CTR (SC) 126 : [1985] 154 ITR 148 (SC)." 6. We find that a similar issue, involved in the assessee's own case for asst. yr. 1993-94, in ITA No. 334/Pn/1997, was decided by us against the assessee, vide our order dt. 31st July, 2007. We follow the precedent and allow these grounds. Ground No. 6 "On the facts and in the circumstances of the case, the learned CIT(A) erred in allowing the relief of Rs. 89,06,203 in the computation of deduction under s. 80-I and in not appreciating the reasons mentioned by the AO for reducing the claim under s. 80-I by Rs. 1,52,55,539." 7. In the statement of total income enclosed with the return the assessee had claimed deduction of Rs. 9,39,16,300 under s. 80-I of the Act. It was claimed by the assessee, before the AO, that during the previous year relevant to asst. yr. 1994-95 a new industrial undertaking was 'formed', known as Urse unit-II. In other words, there came into existence two units in Urse (unit-I and unit-II), but in asst. yr. 1994-95 the claim under s. 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ----------------------- Deduction@ 25%, allowed by AO under s. 80-I 7,86,60,761 ----------------------------------------------------------------- Difference 1,52,55,539 ----------------------------------------------------------------- 7.2 The assessee challenged the AO's action before the CIT(A) in its appeal for asst. yr. 1994-95, through ground No. 10, as under : "The learned AO has further erred in computing the profits and gains of Urse unit-I, for the purpose of allowing deduction under s. 80-I, in the amount of Rs. 31,46,43,046 as against the computation made by the appellant of Rs. 37,56,65,198 causing thereby reduction in the relief available under s. 80-I. Without prejudice to the generality of the foregoing, your appellant objects to the method of allocation of expenses adopted by the AO. The learned AO has also erred in not accepting the appellant's contention that Urse unit-II is distinct industrial undertaking independent of the existing industrial undertaking being Urse unit-I." 7.3 It is seen that the aforesaid ground No. 10, which was raised by the assessee before the CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------ 43,86,63,589 ----------------------------------------------------------------- Less : Depreciation as per IT Act 1,71,87,907 ----------------------------------------------------------------- 42,14,75,682 ----------------------------------------------------------------- Less : Customs duty paid on stock claimed as expenses under closing s. 43B 4,58,10,484 ----------------------------------------------------------------- 37,56,65,198 ----------------------------------------------------------------- Claim under s. 80-I @ 25% of the new undertaking profit of 9,39,16,300 ----------------------------------------------------------------- 7.5 The AO reduced the quantum of assessee's claim under s. 80-IA by Rs. 1,52,55.539 as under : ----------------------------------------------------------------- Particulars (Rs.) (Rs.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... --- 1. Travelling conveyance expenses 27,29,659 13,59,626 13,70,033 ----------------------------------------------------------------- 2. Miscellaneous expenses 77,35,694 20,75,246 56,60,448 ----------------------------------------------------------------- 3. Other expenses ----------------------------------------------------------------- Communication 37,23,209 13,00,000 24,23,209 ----------------------------------------------------------------- Repairs and maintenance 21,68,070 - 21,68,070 ----------------------------------------------------------------- Auditors remuneration 72,487 72,487 ----------------------------------------------------------------- Freight outward 39,20,327 39,20,327 ----------------------------------------------------------------- Advertisement 73,73,237 73,73,237 ----------------------------------------------------------------- 4. Finance charges 79,62,152 53,67,217 25,94,935 ----------------------------------------------------------------- 5. Employee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industrial unit as a part of an already existing industrial establishment may no doubt result in an expansion of the industry or the factory, but if the newly established unit is itself an integrated independent unit in which new plant and machineries is set up and is itself independent of the old unit capable of production of goods, then in our new it could be classified as a newly established industrial undertaking'. In the ease of Textile Machinery Corporation Ltd., cited supra, the Hon'ble Supreme Court also held that the industrial unit set up must be new in the sense that new plant and machineries must be erected for producing either the same commodities or some distinct commodities. In view of these decisions of the Courts which have application to the facts of the case, I hold that depreciation be allowed to Urse unit-II. As a result, this ground is decided in favour of the appellant." 7.8 The decision given by the CIT(A) on the aforesaid ground No. 10 raised by the assessee before him, has been challenged by the Department before us, in its appeal for asst. yr. 1994-95, through the ground No. 6, as under : "On the facts and in the circumstances of the case, the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the decision of the CIT(A) is based on a detailed examination of the flow chart showing the manufacturing process, and the investments made in the plant and machinery. - that a new identifiable unit came into existence which was separate and distinct from the existing one. - that reliance was placed on the decisions in the following cases : (i) Textile Machinery Corporation Ltd. v. CAT 1977 CTR (SC) 151 : [1977] 107 ITR 195 (SC); (ii) CAT v. Associated Cement Companies Ltd. [1979] 118 ITR 406 (Bom); (iii) CIT v. Hindusthan Malleables Forgings Ltd. [1991] 191 ITR 70 (Pat); (iv) Mahindra Sintered Products Ltd. v. CIT [1989] 75 CTR (Bom) 83 : [1989] 177 ITR 111 (Bom). 9.3 We have considered the rival submissions in the light of material on record and the precedents cited. In order to be able to decide the issue at sl. No. (II) above, we first proceed to examine the legal position as provided in the Act, and as laid down by the Courts in this regard, in the following paras. 9.4 The primary purpose of s. 80-IA is to grant tax relief/concession to a new industrial undertaking and therefore, whenever relief is claimed under s. 80-IA, the assessee has to establish t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee by establishing new plants and machinery by investing substantial funds may produce the same commodities of the old business or it may produce some other distinct marketable products, even commodities, which may feed the old business, that these products may be consumed by the assessee in his old business or may be sold in the open market, one thing was certain that the new undertaking must be an integrated unit by itself wherein articles are produced. 10.2 In the case of CIT v. Associated Cement Companies Ltd., it was held by the Bombay High Court that the establishment of a new industrial unit as a part of an already existing industrial establishment may result in an expansion of the industry or the factory, but, if the newly established unit is itself an integrated independent unit in which new plant and machinery are put up and are themselves, independently of the old unit, capable of production of goods, then it can be classified as a newly established industrial undertaking. 10.3 In the case of CIT v. Metropolitan Springs (P.) Ltd. [1991] 95 CTR (Bom) 265 : [1991] 191 ITR 288 (Bom), the Bombay High Court noted, that the Tribunal had arrived at a finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but it did not mean that for the employment of the capital, it should have been newly raised. If surplus/reserve capital was available with an assessee in his existing business, the assessee could utilized such capital for the purpose of plant, machinery, etc., for the new unit. 11. To summarise, in order to be eligible for deduction under s. 80-IA, the new unit, should be brought into existence by establishing new plant and machinery and by investing substantial funds; it must be an integrated unit by itself wherein articles are produced; it may produce the same commodity as of the old unit or commodities which may feed the old unit; or some other distinct marketable products. These products may be consumed by the assessee in his old unit or may be sold in the open market. The benefit cannot be denied merely because the new undertaking goes to expand the general business of the assessee in some direction and the section has to be so construed as to effectuate the object of the legislature and not to defeat it. 11.1 Now, we proceed to examine facts of the present case on the basis of the legal position enunciated in the above paras. Where an assessee makes a claim for relief un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------------------------------------------------- Stage Machinery Amount (Rs.) ------------------------------------------------------------------- Asst. yr. Asst. yr. Asst. yr. Asst yr. 1994-95 1995-96 1996-97 1997-98 ------------------------------------------------------------------- 2 Nokia lines 4 5 2,42,859 ------------------------------------------------------------------- 2 Nokia lines 6 7 4,00,64,116 ------------------------------------------------------------------- 2 Chilling plant 3,42,922 15,69,880 94,669 ------------------------------------------------------------------- 2 Nokia lines 8 9 10,25,82,219 ------------------------------------------------------------------- 2 Silo system 34,27,521 ------------------------------------------------------------------- 2 Insulating line 4 - 43,254 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are satisfied that a new unit, referred to by the assessee as Urse unit-II was brought into existence at Urse, during the previous year relevant to asst. yr. 1994-95, by investing substantial funds, and by establishing new plant and machinery. It was a separate identifiable integrated unit by itself, wherein articles were produced. Therefore, we uphold the order of the CIT(A) and decide this issue in favour of the assessee and against the Department. 12. Now, we proceed to decide the issue at serial No. III, mentioned in para 7.9 above. It was submitted by the learned Authorised Representative that the conditions for claim of depreciation under s, 32 and those for the claim of deduction under s. 80-IA are different. The expression used in s. 32 is 'used for the purposes of the business'; and the term 'use' has a wide connotation and includes use for trial production. 12.1 The expression used in sub-s. (1) of s. 80-IA, on the other hand, is 'Where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking' which is described in subs. (2). Therefore, the deduction under s. 80-IA becomes available for the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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