TMI Blog2015 (3) TMI 757X X X X Extracts X X X X X X X X Extracts X X X X ..... d under section 35(2AB) - Held that:- Considering assessee’s claim that Form 3CL containing necessary details was furnished before the first appellate authority which has not been taken into consideration before disallowing assessee’s claim, we remit the matter back to the file of A.O. to verify assessee’s claim and decide it accordingly. - Decided in favour of assessee for statistical purposes. Disallowance of deduction claimed under section 80IB - Held that:- As can be seen from the facts on record, the A.O. has disallowed assessee’s claim of deduction in A.Ys. 2007-08 to 2009-2010, basically on the ground that Jammu unit has been set up by splitting up or reconstruction of a business already in existence. Ld. CIT(A) while deciding the issue in A.Y. 2007-08 had gone through the enquiry report of the Inspector of Income Tax and has concluded, as the assessee has made substantial investment in land, building, machinery, plant etc., while setting up the Jammu unit, it cannot be considered to have been set up by splitting up or reconstruction of existing business. Hence, assessee is eligible for deduction under section 80IB. There is no reason to hold that the assessee is not e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer through wind mills. For the assessment year under consideration, assessee filed its return of income on 21.08.2007 declaring total income of ₹ 1,63,96,296 after claiming deduction of ₹ 7,43,57,454 under normal provisions and book profit of ₹ 13,50,21,992 under section 115JB of the Act. During the assessment proceedings, the A.O. after verifying the information available on record noticed that the assessee has claimed deduction under section 80IA of ₹ 1,21,91,833 for its wind mill units. Assessing Officer noticed that in the return of income for A.Y. 2007-08 assessee has claimed deduction under section 80IA of the Act for different wind mill units as under : Date of Commission Wind Mill Unit Deduction u/s.80IA. 31.03.1999 Phase-I 36,93,729 30.09.2000 Phase-II 24,62,486 30.03.2002 Phase-III 38,52,580 31.03.2005 Phase-IV 21,83,038 01.01.2007 Phase-V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A). Ld. CIT(A) however, concurred with the view taken by the A.O. by observing as under : 10.2. Here the appellant argued that following High Court decisions CIT vs. Merwar Oil and General Mills Ltd., (271 ITR page 33); Velayudha Swamy Spinning Mills P. Ltd., vs. ACIT; Sudan Spinning Mills P. Ltd., vs. ACIT (23 CTR 368); M. Pallonji Co. (P) Ltd., vs. CIT (2006) 6 SOT 287 (MUM) held as similar case and the deductions are allowable. But, in the same appellant case, the Hon ble ITAT, Hyderabad A Bench for several assessment years disallowed the appeals of the assessee and held in favour of revenue. Keeping in view of this, I respectfully follow the decision of the Hon ble ITAT, Hyderabad A Bench, I disallow this ground of appeal since the Assessing Officer made the addition based on the earlier year assessment orders and the same were upheld by the Hon ble ITAT. Hence, this ground of appeal with regard to deduction under section 80IA of ₹ 1,21,91,833/- is disallowed. 3. Learned A.R. submitted before us that the A.O. as well as Ld. CIT(A) were totally wrong in disallowing deduction under section 80IA of the Act by notionally bringing forward past year s losses and setti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereas, in case of other units, the provisions of amended section 80IA will come into effect and the deeming provision of sub-section (5) would apply only from the assessment year in which the assessee exercises its option of claiming deduction under section 80IA. Therefore, the loss arising prior to the initial assessment year cannot be brought forward notionally to the initial assessment year for set off against the profits derived from the eligible industrial undertaking. 3.1. Learned A.R. further submitted, if at all any loss can be brought forward and set off against the profits of eligible undertaking it is the loss relating to the first unit as the un-amended provisions will apply to that unit and the initial assessment year would be 1999-2000. Thus learned A.R. submitted that no notional carry forward and set off of loss can be made against the profit of wind mill units irrespective of the initial assessment year under the amended provisions. Learned A.R. in this context referred to the judgment of the Hon ble Madras High Court in the case of Velayudha Swamy Spinning Mills P. Ltd., vs. ACIT 340 ITR 477 wherein the Hon ble Madras High Court following its earlier unreported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-section (5) of section 80IA. In this context, it is necessary to look at the relevant statutory provisions as existed prior to and post amendment effected by Finance Act, 1999 w.e.f. 01.04.2000. As can be noticed from conjoint reading of both the provisions, the most striking feature is with regard to the initial assessment year. While in the un-amended provision the initial assessment year is defined as the assessment year in which the operation of the industrial undertaking commenced. As per sub-section (2) of the amended provision, the assessee has been given an option to claim deduction under section 80IA for a period of any 10 consecutive assessment years within a 15 year block. However, the deeming provision under sub-section (5) remains unchanged. Sub-section (5) of section 80IA stipulates that the quantum of deduction under subsection (1) of section 80IA is to be computed with reference to income of eligible business as if such eligible business was the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including assessment year for which the determination is to be made. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ACIT vs. Gold Mine Shares and Finance Limited 113 ITD 209, concurred with the decision of the A.O. and Ld. CIT(A) by holding as under : 15. We have heard both the parties and perused the materials on record. In our opinion, the issue relating to computation of 80IA deduction that it has to be computed after deduction of the notional brought forward losses and depreciation of business even though they have been allowed set off against other income in earlier years has been dealt by the Special Bench in the case of ACIT Vs. Gold Mine Shares Finance (P) Ltd. (113 ITD 209) (SB) (Ahemadabad) and decide the issue against the assessee. While delivering this order, the Special Bench considered all the arguments what the assessee has placed before us. The Tribunal also considered the judgment in the case of Mewar Oil General Mills Ltd. (supra ) and observed that this case has not noticed the non obstante provisions of section 80I(6)/80IA(5) and, therefore, there is no discussion on this point in that decision. It would similarly, therefore, be not of any help to us. The Tribunal also considered the decision cited by the assessee in the case of Mohan Breweries Distilleries Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is no conclusion drawn. In our opinion, what has been held by Madras High Court is that if the loss of eligible unit is pertaining to the assessment year during which the unit is not claimed to be eligible unit for deduction under section 80IA, then that loss should not be set off against the profits of the unit for the assessment year in which the unit is claimed to be eligible for deduction u/s.80IA whereas if the unit gets loses in one of the year during which the unit is claimed to be eligible for deduction u/s.80IA and in subsequent years, it gets profits then sec.80IA(5) is applicable and in those circumstances, the decision of Madras High Court is not applicable and Special Bench decision is applicable, and in consonance with the essence of the said decision, profits are first to be set off with brought forward losses and then the quantum of deduction u/s.80IA is to be computed. 5.3. It is to be further noted, in course of hearing of the present appeal when the assessee moved an application for referring the issue to Special Bench, a Division Bench of this Tribunal opined that there is no need to make a reference to the Special Bench as there is no conflict of the ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e judgment of Hon ble Madras High Court referred to by learned A.R. and assessee s appeal against such decision is still pending before the Hon ble jurisdictional High Court, until the decision of the Tribunal is reversed, judicial propriety and discipline require us to follow the decision taken by the Coordinate Bench. Following the same, we hold that assessee s claim of deduction under section 80IA is not maintainable. Accordingly, we uphold the order of the Ld. CIT(A) on this issue. 6. The next issue raised in ground No.2 is with regard to the disallowance of weighted deduction claimed under section 35(2AB) amounting to ₹ 13,26,533. 6.1. Briefly stated the facts are, while examining assessee s return of income, it was noticed by the A.O. that assessee has claimed weighted deduction of ₹ 13,26,533 under section 35(2AB). He however noted that though assessee has filed Form 3CL issued by DSIR, however, the said Form 3CL showing the quantum of amount spent has not been filed. Accordingly, he disallowed assessee s claim of weighted deduction. Being aggrieved, assessee challenged the same before the first appellate authority. The First Appellate Authority has also co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment years. As far as A.Y. 2007- 08 is concerned, Ld. CIT(A) after considering relevant facts and materials on record observed that the Jammu unit is a completely new unit and assessee has made substantial investment in fixed capital by installing new plant and machinery and investing in setting up the factory, building etc., Therefore, she held that as the Jammu unit is an independent and separate unit and has its own independent entity, it is eligible for deduction under section 80IB. As far as A.Y. 2008-09 is concerned, when the appeal came up for hearing before the Ld. CIT(A), assessee also took similar plea that as the Jammu unit is an independent unit, assessee is eligible for deduction under section 80IB. Assessee also brought to the notice of the Ld. CIT(A) the order passed for A.Y. 2007-08 allowing assessee s claim of deduction. Ld. CIT(A) after considering the submissions of the assessee, however, did not find any merit in the same. Ld. CIT(A) on interpreting the provisions of section 80IB of the Act, observed that the first condition which the industrial undertaking must fulfill is, it should not have been formed by splitting up or reconstruction of a business al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to shut down due to almost zero research and development activity in that unit. In otherwords, a very vital portion of the business is being carried out at Balanagar unit without which the unit at Jammu cannot sustain. Therefore, in the aforesaid context the Jammu unit cannot be considered as an independent and selfsustaining industrial undertaking which can survive without the backing of original unit i.e., Blanagar unit. He further observed that the marketing team, distribution net work etc., for the products manufactured are being controlled from Balanagar unit. As the business cannot be carried out without a marketing and distribution net work, since, these activities are centered at Balnaagar and if for any reason, the original business at Balanagar is to be shut down, the Jammu unit would not be able to survive on its own. The Ld. CIT(A), therefore, held that these factors clearly indicate that the production at Balnaagar unit has been split up between the old unit and the new unit at Jammu. He observed there has been no significant jump in sales turnover. Only high margin products has been shifted in terms of entire production to Jammu, while the rest of the products continu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its are same and assessee has shifted manufacturing of some high profit margin products to Jammu unit by completely stopping the production of these products at Balanagar unit. The learned A.R. submitted that the aforesaid finding of the Ld. CIT(A) is factually incorrect as both the units i.e., Balanagar unit and Jammu units are producing up to their installed capacity. Learned A.R. referring to the workings containing installed capacity, production undertaken by both the units submitted that the figures from A.Y. 2004-05 to 2008-09 would clearly indicate that neither there is lower production in Balanagar unit nor decrease in sales. Learned A.R. submitted the CIT(A) while deciding the issue against the assessee for A.Y. 2008-09 has also not controverted the fact that assessee has employed large number of contract labour in its Jammu unit. Therefore, when the production of the Jammu unit has not affected the production at Balanagar unit it cannot be said that the assessee has set up the Jammu unit by splitting up the existing business at Balanagar. Learned A.R. submitted, CIT(A) has also thoroughly confused himself while applying the ratio laid down in the judgment referred to by h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the State Government such decision taken by the management keeping in view the business expediency cannot be questioned by the department by stepping into the shoes of the businessman. Learned A.R. submitted that the allegation of the Ld. CIT(A) that Balanagar unit is developing molecules and having patent rights is totally incorrect as there is no such R D activity in inventing molecules etc., or owning patent rights. What the unit is having is trade mark only. Learned A.R. thus submitted that the Ld. CIT(A) was totally wrong in denying assessee s claim of deduction under section 80IB of the Act. 12. Learned D.R. on the other hand submitted that as the Jammu unit is in the same line of business and is manufacturing the same products, it is not eligible for deduction under section 80IB as it has been set up by splitting up/re-construction of existing business. Learned D.R. submitted, assessee has adopted a colourable device by shifting the production of certain high profit margin products from Balanagar unit to Jammu unit for the purpose of shifting the profit base from taxable unit to exemped unit. Learned D.R. submitted view taken by the A.O. and Ld. CIT(A) in A.Ys. 2008-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly is a splitting up or reconstruction of existing business while setting up the Jammu unit, it is necessary to look into section 80IB. Sub-Sections (1) and (2) of section 80IB which are relevant for the purpose of deciding the present issue are extracted hereunder for ready reference. 80-IB. (1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-sections (3) to [(11) [and (11A)]] (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 80IB would make it clear that profit derived from an eligible business will be entitled for deduction subject to fulfillment of the conditions mentioned in sub-section (2). On going through the conditions enumerated in sub-section (2) of section 80IB vis- -vis the findings of the A.O. and Ld. CIT(A) in A.Ys. 2008-09 and 2009-10 it would be evident that there is no dispute to the fact that assessee has fulfilled the conditions of clauses (ii), (iii) and (iv) of sub-section (2). As far as the condition imposed under clause (i) is concerned, while the A.O. as well as the Ld. CIT(A) have held that the Jammu unit has been formed by splitting up or re-construction of a business already in existence, the assessee is contesting such view of the department. Therefore, in the aforesaid factual matrix, it is to be decided whether the Jammu unit has been set up by splitting up or reconstruction of a business already in existence. In this context, it is relevant to refer to decision of the Hon ble Supreme Court wherein the expression splitting up or reconstruction of a business already in existence came up for interpretation. In case of Textile Machinery Corporation Ltd., vs. CIT (su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts thereon are ascertainable. There is no difficulty to hold that s. 15C is applicable to an absolutely new undertaking for the first time started by an assessee. The cases which give rise to controversy are those where the old business is being carried on by the assessee and a new activity is launched by him by establishing new plants and machinery by investing substantial funds. The new activity 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. These products may be consumed by the assessee in his old business or may be sold in the open market. One thing is certain that the new undertaking must be an integrated unit by itself wherein articles are produced and at least a minimum of ten persons with the aid of power and a minimum of twenty persons without the aid of power have been employed. Such a new industrially recognisable unit of an assessee cannot be said to be reconstruction of his old business since there is no transfer of any assets of the old business to the new undertaking which takes place when there is reconstruction of the old business. For the purpose of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of existing unit. 13.4. It is further evident from the record, in the course of assessment proceedings for A.Y. 2007-08, the A.O. for ascertaining the correctness of assessee s claim of deduction under section 80IB for Jammu unit has conducted enquiry through the Commissioner of Income Tax, Circle-1, Jammu. In the report of the Inspector, who conducted the enquiry physically, it was categorically stated that the Jammu unit is a functioning unit and has been set up by making huge investment in land, building, plant and machinery etc., He further stated that the manufacturing activity in Jammu unit started in March, 2006 and he also found that besides regular employees a large number of contract labourers are also employed. He further stated that manufacturing process was being carried out in the premises and huge automatic plant was found installed for carrying out the manufacturing process. He also observed that very little man power is required in such type of manufacturing activity. The Inspector reported that besides some regular employees like technical and administrative staff, the company has engaged number of labourers through contract labourer. Therefore, from the afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cost of Balanagar unit or assessee has shifted the business of Balanagar unit to Jammu unit, in our view, is without any basis. Further, the allegationof the A.O. that after setting up of the Jammu unit, the profit of Balanagar unit has decreased with corresponding increase in the profit of Jammu unit, appears to be without proper appreciation of facts. Learned A.R. has proved this allegation to be incorrect by demonstrating before us that decrease in profit of Balanagar unit is due to claim of depreciation on wind mills, whereas, profit of Jammu unit also includes the excise duty refund. 13.6. As far as the allegation that assessee has started producing certain products at Jammu unit by stopping the production of the same at Balanagar unit, we are of the view that such business decision taken by the assessee cannot be questioned by the department. If the assessee being attracted with the incentives declared wants to set up a unit for manufacturing the same product it cannot be said that it is a devise adopted by the assessee to shift its profit base from taxable unit to the exemption unit. It is totally in the domain of the assessee to take a decision as a prudent businessman ..... X X X X Extracts X X X X X X X X Extracts X X X X
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