TMI Blog2010 (10) TMI 748X X X X Extracts X X X X X X X X Extracts X X X X ..... hese terminologies, namely “re-construction of business” or “splitting up of business” or even “transfer of business” have duly been deliberated upon which needs no detailed discussion - The old unit was closed down way back in the year 1998 and the new unit had come up in the year 2002 and an entirely new building was constructed with the deployment of new technology to manufacture new type of telephone instrument - Exemption u/s 80IB allowed - Decided in favor of assessee. - ITA No. 1496 & 2586/Ahd/2007 - - - Dated:- 22-10-2010 - MAHAVIR SINGH, JUDICIAL MEMBER AND D.C. AGRAWAL, ACCOUNTANT MEMBER M.K. Patel for the Appellant. A.K. Tiwari for the Respondent. ORDER Per D.C. Agrawal, Accountant Member These are two appeals for Asst. Year 2003-04 2004-05 filed by the assessee raising following grounds :- Assessment year 2003-04 1. The order of assessment is contrary to the facts and prejudicial to the appellant. 2. On appreciation of the facts and circumstances of the case and law, the disallowances made by the ld. AO and confirmed by the ld. CIT(A) are contrary to law and based on erroneous understanding of the facts. 3. On the appreciation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax. The action of the ld. CIT(A) is based on presumptions and surmises, and is contrary to the facts and circumstances of the case and deserves to be deleted. 9. On appreciation of the facts and circumstances of the case and interpretation of law, the ld. CIT(A) has erred in confirming the action of the ld. AO in not granting deduction u/s 80IB of the Act from the profits and gains of the appellant on the basis that the industrial undertaking is formed by reconstruction of a business already in existence. The action of the ld. CIT(A) is based on presumptions and surmises, and is contrary to the facts and circumstances of the case and deserves to be deleted. 10. On appreciation of the facts and circumstances of the case the ld. CIT(A) has erred in confirming the action of the ld. AO not granting deduction to the appellant u/s 80IB of the Income-tax Act. Asst. Year 2004-05 01. The order of assessment is contrary to the facts and prejudicial to the appellant. 02. On appreciation of the facts and circumstances of the case and law, the disallowances made by the Learned Assessing Officer and confirmed by the Learned Commissioner of Income Tax (Appeals) are contrary to law a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the AO found that assessee has introduced a sum of Rs.4,48,950/- in the capital account. When asked to explain, no credible evidence was submitted except saying that money was introduced out of own sources. The AO was not satisfied and, therefore, he made the addition. 4. The ld. CIT(A) confirmed the addition. 5. Before us, it was submitted that opportunity has not been provided to the assessee for explaining the capital. 6. The ld. DR on the other hand supported the orders of authorities below and submitted that no evidence has been furnished even before the Tribunal. 7. We have heard the rival submissions and perused the material on record. In our considered view there is no case for interference in the order of ld. CIT(A). The reasons are that no credible evidence has been furnished before us so as to show the source from where additional capital has come. At least some basic documents should have been shown for enabling the Tribunal go give further opportunity to the assessee. Since there is no material submitted by the assessee, we decline to interfere. This ground of assessee is, therefore, rejected. 8. The second issue is regarding not granting deduction under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertaking is located in Dadra Nagar-Haveli a backward area specified in the eighth Schedule to the Income Tax Act. e. Thus my client assessee has set up a new industrial undertaking as required by law. Thus ply client assesses satisfies all the conditions as required in section 80-IB. Further more I would like to bring before your honor that a. There is no transfer of any of the fixed assets from the old unit to new unit b. There was no transfer of plant, machinery or any other manufacturing facilities from the old unit to new unit c. All plants and machineries installed in the industrial undertaking are new. d. There was no transfer of business from the old unit to new unit. e. My client assesses has obtained all the required licenses and certificates /ram various Government agencies tike Central Excise, Sales Tax, DIC, Pollution Control board and factory license etc. as required under the respective legislation for setting up an unit. Copy of the same is attached therewith for your kind perusal Page No, [ ] Thus it can be seen that in case of my client assesses, none of the business has been broken up and also that no portion of the business activity of any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the required registrations, licenses and approvals, from the concerned Government authorities as per the requirement of respective legislations. F, My client assessee has his own plant, machinery, premises, labour, etc. none of which has been transferred or diverted from any of the existing business, G. My client assessee's unit is an integrated unit; performing all the stages of manufacture of finished goods from Raw Materials stage till finished goods stage in his own factory. H. Undisputedly, my client assesses had invested in new plant and machinery, thereby created new manufacturing capacity. Hence it can be said that the industrial undertaking claiming deduction U/s 80-IB is not formed by reconstruction." The AO, however, did not agree. According to him for starting new business original business cease functioning. What the assessee has done it is mere reorganization of the business. There is infusion of new capital, new personnel. The parties from whom materials are purchased and to whom finished goods are sold are the same. Activities of the assessee are also same. Shareholders and directors of the assessee are also almost same. There is no change in substance in ol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a new location with investment of fresh capital. It would be a case of setting up of a new unit. For the sake of convenience we reproduce below section 80IB(2) as under :- 80IB(2) - This section applies to any industrial undertaking which fulfils all the following conditions, namely (i) it is not formed by splitting up or the reconstruction of a business already in existence; Provided that this condition shall not apply in respect of an industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B in the circumstances and within the period specified in that section; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose; (iii) it manufactures or produces any article or thing, not being any article or thing specified in the list in the Elevent Schedule, or operates one or more cold storage plant or plants, in any part of India; Provided that the condition in this clause shall in relation to a small scale industrial undertaking or an industrial undertaking referred to in sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad to Nangloi was considerably less than 20% of the total value of the building, machineries or plants used in the new unit at Nalgoi. It was held that assessee would be entitled to the benefit under section 84 of the I.T. Act, 1961. It was held by Hon. Delhi High Court that it could not be a case of reconstruction of the business already in existence. It was found to be a new undertaking. There was nothing to show that as a result of setting up of new undertaking the integrity, unity or continuity of the business transactions in the earlier undertaking were in any manner adversely affected. It was considered to be a new independent viable unit. It is held that it is not every alteration in the mode, method or scope of the activities of a business and it is not every transfer of asset from one unit to another that will involve reconstruction. Even though the word reconstruction is very wide it does not take a case in its fold where assessee sets up or establishes a totally independent viable industrial unit for carrying on the same or similar business even though it might be so set up by way of expanding the already existing business. The expression splitting up indicates a cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the new unit also. On the basis that old unit did not function or it has stopped activities may give rise to an impression that the new unit is the reconstruction of business already in existence. But carrying on the same business in the new unit is not sufficient at its own to hold that the new unit is a reconstruction of business already in existence unless location is the same and there is no installation of new plant and machinery. The old unit may stop functioning immediately or after sometime. If old unit runs parallel for some time and thereafter it stop functioning then it is not going to make any difference. One cannot say that if old unit stops functioning immediately on the start of new unit it would be a case of reconstruction and if old unit stops functioning after a year or so, after the new unit starts functioning, it will not be a case of reconstruction of business already in existence. Further, if the argument of the ld. DR is accepted then several units where same business is carried out, would always be treated as reconstruction of a business already in existence and thus denying the benefit otherwise available to the tax payer. Therefore, carrying on the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not decided the issue within the scope of these legal terminologies and misconceived the same by substituting the word transferred the business activity . For that reasoning, the AO has placed reliane on Gaekwar Form and Rubber Company Ltd. reported as 35 ITR 662 (Bom). But in that case, the assessee company had taken over all the assets of the business of a partnership including its goodwill. In lieu of the consideration, facts of that case have revealed that shares were allotted. Therefore, the said decision of the Hon. Bombay High Court was in respect of a business which was transferred lock, stock and barrel from one concern to another concern. Contrary to that at present the facts are altogether different because admittedly a new place was allocated at Kachigam Daman on which a new technology was deployed for manufacturing new instruments, namely telephone call monitors and coin pay phones under the roof of a newly constructed business premises. Facts have undisputedly demonstrated that business as a whole was not transferred from old unit to new unit. Assets and liabilities of the old unit remained undisputed as found from the position of the Depreciation Chart. Eve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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