TMI Blog2011 (5) TMI 587X X X X Extracts X X X X X X X X Extracts X X X X ..... d the employees of the company as per the terms and condition of their appointment are entitled to use the case for personal purpose as well as to avail facilities of mobile/phone calls in view of decision in the case of Sayaji Iron And Engg. Co. Versus CIT [2001 (7) TMI 70 - GUJARAT HIGH COURT] - thus as in the interest of justice and fair play to both the parties, set aside this issue and restore this issue to the file of Assessing Officer with the direction that the Assessing Officer shall re-decide this issue after looking into the terms and conditions of the employees as well as the directors - in favour of assessee by way of remand. - IT APPEAL NOS. 447 (AGRA) OF 2006 AND 698 (AGRA) OF 2008 - - - Dated:- 31-5-2011 - P.K. BANSAL, H.S. SIDHU, JJ. Dr. Rakesh Gupta and Krishan Verma for the Appellant. Vinod Kumar for the Respondent. ORDER P.K. Bansal, Accountant Member. These appeals filed by the assessee against the orders of CIT(A) since have the common issues, therefore, they are being disposed of by this common order for the sake of convenience. In ITA No. 447/Agra/2006, the assessee has raised following effective grounds : "1. That having rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ps and cocks. During the year under consideration, the assessee company took over the business of the two firms M/s. Aarkay Plumbing and Fixtures and M/s. Faucet Industries as mentioned by the Assessing Officer, but the assessee claimed to have purchased the plant and machinery and other assets of these two firms. The assessee company is claiming deduction under section 80-IA/80-IB for the last several years. This is the 7th year in which the deduction was claimed. The Assessing Officer was of the view that both the firms, the business of which was taken over by the assessee during the year, have exhausted their period of 10 years in which these firms have already claimed deduction under section 80-IA/80-IB of the Act. Therefore, he was of the view that the income earned from manufacturing and trading of these concerns is not eligible for deduction under section 80-IA/80-IB and accordingly gave opportunity to the assessee to explain why the deduction should not be disallowed in respect of the profit from M/s. Aarkay Plumbing and Fixtures and M/s. Faucet Industries. In reply thereto, the assessee submitted as under : "At the very outset we will like to impress upon that the busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt's letter dated 9-10-2006 : Shareholders/Directors Number of shares Relationship A.Y. 2003-04 A.Y. 2004-05 Sri K.L. Chaudhary 53700 53700 Father Sri Ashok Kumar Chaudhary 110100 253260 S/o Sri K.L. Chaudhary Sri Sudhir Chaudhary 90000 204870 S/o Sri K.L. Chaudhary Sri Devendra Chaudhary 80000 191146 S/o Sri K.L. Chaudhary Smt. Rani Chaudhary 20000 161146 W/o Sri Ashok Kumar Chaudhary Smt. Anita Chaudhary 50000 163908 W/o Sri Sudhir Chaudhary Smt. Barkha Chaudhary 50000 174870 W/o Sri Devendra Chaudhary Total 453800 1202900 ( b ) all the three concerns have their industrial units in the same premises at Delhi Mathura Bye Pass, P.O. Chhatikara, Mathura. The items manufactured by each of the concerns is as under : 1. Faucet Industries Brass taps and cocks 8481.80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... units continue to function as in the past. The management and control is of the same persons. The P and M and other assets remain as they were. The dividing wall appears to have been removed. The fact that the firms continue to show brought forward creditors and debtors and related payments and recoveries, but no manufacturing and trading activity in subsequent years, shows that other infrastructure, and man power has also been taken over by the appellant company. Not only the P and M and assets, but the entire manufacturing units of the two firms have come under the banner of Aqua Plumbing (P.) Ltd. 4.6 In view of the above facts, this is not a case of transfer of machinery, but consolidation of three family run units under one name of Aqua Plumbing (P.) Ltd. The two units of Faucet Industries and Aarkey Plumbing Fixture have been taken over wholly, completely and physically. The units of FI and AFP are found to have operated in this year as in the earlier years whereas the business of FI and AFP have ceased to exist. Deduction has already been allowed under section 80-IA/80-IB in respect of these units. These units have neither been dismantled, nor shifted. They remain as and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee cannot be said to have formed in the year under appeal. The deduction was earlier allowed to the assessee in the assessment year 1997-98 and since then, the deduction is continued to be allowed. The authorities below have not appreciated the facts correctly despite the copies of the agreements with M/s. Faucet Industries and Aarkey Plumbing Fixture were duly filed before them. The copies of these agreements were also filed before us. It was pointed out that on 1-4-2003, the assessee-company purchased certain assets of M/s. Faucet Industries and Aarkey Plumbing Fixture vide agreements of even date. With the acquisition of these assets, the industrial undertaking of the assessee company continued to remain the same, rather it got extended by the purchase of further machinery/assets. In fact, the industrial undertaking of the assessee company had come into existence in the previous year relevant to assessment year 1997-98 only and the acquisition of assets of these two firms was made on 1-4-2003, i.e., much after the date of formation of industrial undertaking. This cannot be a ground to allege that the industrial undertaking was formed by splitting up of business alrea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct is that earlier subjectiveness in determining significance of old plant and machinery has been replaced with a fixed percentage. 7. The requirement laid down in Explanation 2 (now 20 per cent and earlier "not significant" or "not substantial") has to be seen at the time of "formation of new unit" not later. Clause (ii) merely ensures that unit must be formed by new plant and machinery and once so formed, the condition stands fulfilled. 8. Hon'ble Supreme Court had laid down in the leading case of Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188/62 Taxman 480 that "The restriction or denial of benefit arises not by transfer of holding or material to the new company but that it should not be formed by such transfer. This is the key to interpretation. The formation should not be by such transfer. The emphasis is on formation not on use. Therefore, it is not every transfer of building or material but the one which can be held to have resulted in formation of the undertaking. (2) This section applies to any industrial undertaking which (i) is not formed by the splitting up, or the reconstruction, of business already in existence or by the transfer to a new business of building, ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the setting of the facts which are akin and identical with those of the appellant. Head notes of that decision are as under : "Assessment years 1996-97 and 1997-98 - Whether condition laid down under section 80-I is to be satisfied only in initial year and not in all assessment years in which assessee is eligible for deduction, and, therefore, assessee was not disentitled to deduction merely because in subsequent assessment years, value of old machinery exceeded 20 per cent limit. Held, Yes." In this case, the value of old machinery exceeded 20 per cent in subsequent assessment year. Thus, it was contended that the assessee is entitled for deduction under section 80-IA/80-IB as has been claimed by him and there was no separate undertaking in existence. 9. The learned DR, on the other hand, relied on the order of the CIT(A). 10. We have carefully considered the rival submissions, perused the material on record along with the order of the tax authorities below. We have also gone through the agreement by which the assessee has taken over most of the assets of the erst while firms, but certain assets remained with the firm. The assessee company was formed in the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for education under those provisions when the assessee company was form. Therefore, in our opinion, the assessee cannot be denied deduction under section 80-IA/80-IB on the profit and gains derived by him from merged industrial undertaking. We accordingly set aside the order of CIT(A) and direct the Assessing Officer to allow the deduction to the assessee under section 80-IA/80-IB on the profit derived by the assessee from the industrial undertaking treating it to be the single industrial undertaking. Thus, ground No. 1 stands allowed. 11. Ground No. 2 relates to the disallowance of Rs. 1,32,913 out of mobile phone expenses, telephone and car expenses on the ground of personal use thereof by directors and employees. 12. The learned AR before us vehemently contended that the disallowance in the case of the company out of these expenses cannot be made, as the identity of the company is different from its directors. In any case, it was contended that the disallowance is at higher side. Reliance was placed on the decision of Gujarat High Court in the case of Syaji Iron Engg. Co. v. CIT [2002] 253 ITR 749/121 Taxman 43. 13. The learned DR, on the other hand, contended that the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the employees so provide, no part of the expenditure should be disallowed. In case the assessee fails to discharge its onus, the Assessing Officer is directed to disallow 10 per cent of these expenses as has been reasonably estimated by him. Thus, this ground is allowed for statistical purposes. 15. Ground No. 3 since not pressed is dismissed as such. Ground No. 4 is consequential in nature, and accordingly, the Assessing Officer is directed to re-compute the interest under section 234B and 234C after giving effect of this order. ITA No. 698/Agra/2008 16. So far as ground No. 1 in this appeal is concerned, both the parties have agreed that the issue involved in this ground is similar to the issue involved in ground No. 1 in ITA No. 447/Agra/2006 for the assessment year 2004-05. It was agreed that whatever view this Tribunal may take on this issue while disposing of the ground No. 1 in appeal for the assessment year 2004-05, the same view may be taken in this case also. We have already allowed the ground No. 1 taken by the assessee in appeal No. 447/2006 for assessment year 2004-05. We, accordingly, respectfully following our order in respect of ground No. 1 in appeal fo ..... 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