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2015 (5) TMI 364 - ITAT AMRITSAR

2015 (5) TMI 364 - ITAT AMRITSAR - TMI - Disallowance of wrong claim of deduction u/s 80IB - CIT(A) deleted disallowance - whether Unit-2 & Unit-3 were not separate and independent industrial undertakings and it was the case of extension of business of Unit-1 for which deduction u/s 80IB of the Act is not available being eleventh year of operation u/s 80IB of the Act? - Held that:- It should be a new and identifiable undertaking separate and distinct from the existing business. There must be a e .....

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ear 2012-13 except in the impugned year.

In the case of M/s. FIL Industries Ltd. (supra) reliance has been placed on the decision of the Hon'ble Gujrat High Court in the case of CIT vs. Saurashtra Cement and Chemical Industries Ltd. reported in [1979 (2) TMI 21 - GUJARAT High Court], where the said findings have been reproduced hereinabove. In the facts and circumstances, we find that the facts in the present case are also similar to the case in the case of M/s. FIL Industries Lt .....

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B. P. Jain,AM. This appeal of the Revenue arises from the order of the CIT(A), Jammu, dated 17.02.2014 for the assessment year 2009-10. The Revenue has raised the following grounds of appeal: "1. On the facts and circumstances whether the ld. CIT(A) was right in deleting the disallowance of wrong claim of deduction u/s 80IB by relying upon the decision of the Hon'ble ITAT, Amritsar in the case of M/s. FIL Industries vs. ACIT in ITA No.415/2009 as the Department has filed appeal before t .....

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er that it has produced more than ordinary profits to the assessee than might be expected to arise." 2. The brief facts of the case, as reproduced at pages 1 to 12 of AO's order, are reproduced hereinbelow: "In this case return of income declaring net taxable income of ₹ 63,63,100/- was e-filed by the assessee on 29.09.2009. the case was selected for scrutiny under CASS and accordingly notice under section 143(2) dated 30.08.2010 was issued and served upon the assessee by the .....

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ase for 18.11.2011. In response to this Sh. Rattan Lal Gupta, Advocate & counsel for the assessee alongwith Sh. Vijay Manager Accounts appeared from time to time and filed information which is placed on record. They also produced books of accounts and other documents. 2.1 The Assessee is a manufacturing concern involved in manufacturing of oil and vanaspati ghee. Income is shown under tow units viz. Oil Unit and Vanaspati Unit and the Income is then consolidated into a single Balance Sheet & .....

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fit has been disclosed at ₹ 82,46,961/-. On this profit, the assessee has claimed deduction u/s 80IB of the I.T. Act @ 25% at ₹ 20,61,790/-. The income has accordingly been returned at ₹ 63,63,100/-. 2.2 During the assessment proceedings, it was observed that the Oil unit and the 'Vanaspati unit' are registered as a single unit under the name of 'JK Oil Industries'. As per the documents on record, M/s JK Oil Industries has been registered with the Industries Dep .....

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arted to claim deduction u/s 80IB of the I.T. Act, 1961 for AY 2003-04 onwards in respect of this unit. 2.3 On going through the records of the case, it was observed that the assessee was not entitled to deduction u/s 80IB of the I.T. Act,1961 on the additional line of activity on ground that by installing additional machinery for additional line of activity for manufacture of vanaspati ghee and refined oils under the 'Vanaspati Gheee Unit' no new Industrial Undertaking came into existen .....

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Thus, the unit of the assessee came into existence in the year 1985. The initial assessment year in the case of the assessee thus was AY 1996-97. ii) The unit was registered by the Sales tax/Commercial tax Authorities vide certificate dated 17.5.1984. It still continues to be registered under the same certificate. No new CST/GST/TIN No. was allotted in respect of the additional line of activity (Vanaspati Unit), referred to above. It is pertinent to mention that the sales in respect of 'Oil .....

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e Vanaspati Unit under the category of 'substantial expansion of unit already in existence' and not as new registration. Thus again, the 'Vanaspati unit' is not a new industrial undertaking. iv) The Electric connection of both the Oil Unit and the Vanaspati Unit is only one which means that the Electricity Department is also recognizing both the units as one and not as separate entities. 2.4 The deduction u/s 80IB of the I.T. Act, is available only to new industrial undertaking a .....

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el for the assessee vide his letter dated 02.12.2011 stated as under:- "Please refer point raised by your good-self regarding the claim of deduction u/s 80IB of the Income tax Act,1061 in respect of Vanaspati Ghee Unit. This point has been already settled by the Hon'ble Commissioner of Income tax (J&K), jammu u/s 263 of the Income tax Act, 1961 for the assessment year 2005-06 vide order dated 29.3.2010. Copy of order is enclosed here with for your kind personal & reference pleas .....

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sioner of Income Tax, Circle-J, Jammu stated in its proposal that the then Assessing Officer while finalizing the assessment in the case, allowed deduction @ 100% u/s 80-IB of the I.T Act, 1961 claimed by the assessee. It is seen that the assessee has been running 'oil unit' and manufacture of mustard oil under DIC Registration No.07/04/02565/PMT/SSI dated 14.05.1985. Further, it has taken additional line of activity for manufacturing of 'refined vegetable oils' and 'vanaspat .....

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new industrial undertaking which would entitle it to deduction @ 100% u/s 80IB of the I.T. Act, 1961." 2.8. The worthy CIT after considering the objection of the assessee held as under: "The above explanation of the assessee has been considered. On going through the assessment record the submission made by the assessee, it is observed that the assessee has reflected income form both the units under the one entity M/s J.K. Oil Industries. The old unit has been claiming 100% deductions u .....

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/s 80-IB of the I.T Act, 1961 shall be available @25% in respect of both units. This system has been followed by the assessee in the current assessment year under reference. Therefore, no interference is called for u/s 263 of the I.T. Act, 1961. The Assessing Officer is directed to ensure that assessee is following the same practice for the subsequent years also." 2.9. Thus, on perusal of the finding of the worthy CIT, it will be appreciated the facts of the case have not been correctly app .....

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ofits of this unit during the preceding three years. Even in respect of the new unit i.e., the Vanaspati Unit deduction had actually been claimed from AY 2004-05 only. Thus, the facts are thus totally contrary to the facts on record. In fact, the income from refined vegetable oil is not reflected separately but is reflected in the Vanaspati Unit itself. The worthy CIT further adds that the during the year, the assessee has also reflected income through the additional line i.e., refined vegetable .....

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een clubbed but the deduction has been claimed only in respect of 'Vanaspati Unit'. Both the units shall be entitled to claim 100% deduction u/s 80IB of the I.T. Act for the remaining tow years and thereafter deductions u/s 80IB shall be available @ 25% in respect of both units. Even the, assessee has not claimed deduction in respect of the old unit it has claimed deduction in respect of the Vanapati Unit only which is the so called new unit. 2.10. Thus, while passing the above order the .....

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ir Veneer Industries for the AY 2004-05 ad in the case of Sh. Raju Choudhary for the AY 2005-06 vide orders u/s 263 of the I.T. Act, dated 27.03.2009, 27.03.2009 and 25.06.2009 respectively had already held that profits earned by way of substantial expansion by taking additional line of activity, by an already existing industrial under taking did qualify for deduction u/s 80IB of the I.T Act, 1961. In fact the Hon'ble ITAT while deciding the appeal against the orders u/s 263 referred to abov .....

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I.T. Act, 1961 as withdrawn by the assessee. Thus, the order passed by the Worthy CIT u/s 263 of the I.T Act, 1961. In the case of the assessee is not as per the correct appreciation of facts of the case and Law. 2.12. Keeping in view the above facts, the order passed u/s 263 of the I.T. Act, 1961 by the worthy CIT for the AY 2005-06 in the case of the assessee cannot help its case. Therefore, in absence of any other objection from the assessee on this issue. It is held that by adding additional .....

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1(1)(c) of the I.T. Act,1961 are also initiated for furnishing inaccurate particulars of income. 3.1 Further, in the case of M/s J.K. Oil Industries Trading Wing, Gangyal, Jammu for the Asst. Year 2009-10 following facts were observed that M/s J.K. Oil Industries Trading Wing had made major purchases including that of the packing material mainly from its sister concerns. Almost all of these concerns were claiming deduction u/s 80IB of the I.T. Act,1961. Further perusal of the books of accounts r .....

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o such discount was passed on by the trading wing to the sister concern of M/s J.K. Oil Trading Wing. During the year out of total sale of ₹ 59,08,25,904/- sales of ₹ 57,09,07,249/- which is 96.63% of total sales had been made to this concern. No discount offered by the Trading Wing had been passed on to the assessee. Accordingly, vide notice u/s 142(1) dated 21.12.2012, the assessee was asked to explain as under:- "During the course of assessment proceedings in the case of M/s .....

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noticed that you have also claimed deduction u/s 80IB of the I.T. Act,1961 @ 25% of your profits. It appears that you have sold your goods to your sister concern at inflated price thereby so as to claim more benefit under the above said provisions. Accordingly, in view of the provisions of section 80IA(10) r.w.sec.80IB(13) of the I.T. Act 1961. You are requested to explain as to why in computing profit and gains of your business for the purpose of deduction under sec. 80IB of the I.T. Act., 196 .....

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il Industries Trading Wing has made purchase from M/s. J.K. Oil Industries and other concerns. The total turn over of J.K. Oil Industries Trading Wing during the Asst. Year under reference is ₹ 93,16,54,554/-. It means they have made purchases of market competitive rates amounting to ₹ 57,09,07,249/- from J.K. Oil Industries and rests of purchases have been made from other sister concerns at their own. So, J.K. Oil Industries Trading Wing is not depending on purchases made from J.K. .....

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IA(10) read with 80IB (13) of the I.T.Act,1961 do not apply. Since M/s J.K. Oil Industries have sold the goods at reasonable market rates and have not derived income more income be selling the goods. So far, the point raised by your goodself in respect of discount given by M/s J.K. Oil Industries Trading Wing is concerned, it is a trade practice of the firm M/s J.K. Oil Industries Trading Wing to attract more and more customers in order to boost the sales in a competitive system and get the earl .....

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es (Rs) Sales to assessee(Rs) Percentage of sales to assessee. 1 JK Oil Industries 590825904 570907249 96.63 2 Kamla Containers 204403215 141513797 69.23 3 Keshav Agro Mills (Oil Unit) 175178048 139686032 79.74 4 Shiva Container 17768026 9355261 52.65 5 Shree Ganesh Containers 11358739 6261065 55.12 6 Ganesh Pet 14107567 5422520 38.44 3.4. Therefore, on observing the above table it will be seen that the sister concern are routing their respective sales through M/s J.K. Oil Industries Trading Win .....

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eby implying less capital formation. On the other had, the profit of M/s. J.K. Oil Industries Trading Wing would have increased and since this concern was not enjoying any such benefit U/s 80IB of the I.T. Act, 1961, it would have had to shell out huge amount as tax. Thus, the assessee and M/s J.K. Oil Industries Trading Wing arranged their transactions in such a manner that the assessee earned more tax free profits and M/s. J.K. Oil Industries Trading Wing earned lesser taxable profits. 3.5. Th .....

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RD OIL ONLY THE SCHEME PERIOD IS FROM 19TH FEBRUARY, 2009 TO 31ST MARCH,2009. THE SCHEME IS VALID ONLY ON PURCHASE AND DELIVERY BETWEEN 19/2/09 31/3/09 ONLY THE SCHEME IS AS BELOW: ON PURCHASE AND DESPATCH OF ONE TRUCK: ₹ 8000/- ON PURCHASE AND DESPATCH OF THREE TRUCKS ₹ 27000/- ON PURCHASE AND DESPATCH OF FIVE TRUCKS ₹ 55000/- ON PURCHASE AND DESATCH OF SEVEN TRUCKS ₹ 84000/- ON PURCHASE AND DESPATCH OF EIGHT TRUCKS ₹ 104000/- ON PURCHASE AND DESPTACH OF TEN TRUCKS .....

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d Oil is the assessee and not M/s J.K. Oil Industries Trading Wing. Thus, again own advertisement of the assessee, it is amply clear that the discounts were offered by the Manufacturers and not M/s J.K. Oil Industries Trading Wing. However, in order to benefit the assessee and also avoid payment of tax, M/s J.K Oil Industries Trading Wing did not pass on the benefit of discount to the assessee but debited it in its own books of accounts. This is nothing but a colorable devise used by the assesse .....

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affairs as to avoid taxation but the arrangement must be real and genuine and not a sham or make-believe...." The Gujarat High Court in the case of CIT vs. Sakarlal balabhai [1968] 69 ITR 186 (Guj) , said (p.200}: "Tax avoidance postulates that the assessee is in receipt of amount which is really and in truth his income liable to tax but on which he avoids payment of tax by some artifice or device. Such artifice or device may apparently show the income as accruing to another persons, .....

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of the assessee in the shape of income or under any guise....". This decision has been affirmed in CIT v. Sakarlal Balabhai [1972] 86 ITR 2 (SC). In the case of CIT v. B.M. Kharway [1969] 72 ITR 603 (SC) . It was held that "The taxing authority is entitled and is indeed bound to determine the true legal relation resulting from a transaction. If the parties have chosen to conceal by a device the legal relation, it is open to the taxing authorities to unravel the device and to determine .....

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sorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges" 3.8. Keeping in view the above facts, it is clear that M/s J.K. Oil Industries Trading Wing has not deliberately passed on the discounts to the assessee in order to lessen it tax liability and to benefit the assessee. Therefore, in view of the above legal pronouncements and the provisions of section 80IA(10) r.w. sec. 80IB (13) of the I.T. Act.1961 such an arrangemen .....

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nterest of revenue is protected. In addition in the case of the assessee, the entire deduction u/s 80IB of the I.T. Act, 1961 has been allowed for the reasons mentioned in para-2 above, no separate addition is being made here. Penalty proceedings u/s 271(1) (c) of the I.T. Act, 1961 are also initiated for providing inaccurate particulars of its income." 3. The Ld. CIT(A) allowed the claim of the assessee and deleted the addition so made following the decision of the ITAT, Amritsar in the ca .....

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hat the issue regarding deduction u/s 80IB of I.T. Act, 1961 in the case of the respondent is rightly held by the Ld. Commissioner of Income Tax (Appeals), Jammu, by relying upon the observations of the Hon'ble ITAT Amritsar Bench, Amritsar in the case of Fill Industries Ltd. Vs. ACIT, ITA No. 415/2009 as the case of the respondent is completely identical as of M/s Fil Industries Ltd. ii. M/s FIL Industries Ltd. are having three industrial units operating from the same premises at Bari Brahm .....

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gible since it completed 10 years. So unit No.2 and 3 are formed by new plant and machinery and operating independently as industrial undertaking. The concern invested new capital for establishment of unit No.2 and 3. iii. Likewise the respondent is also having three industrial units, i.e., oil units, vanaspati ghee and refined oil units operating from the same premise at Gangyal Jammu under one name M/s J.K. Oil Industries, having common statutory registrations from DIC, Excise Department, Sale .....

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made fresh capital investment for installation of these new units. iv. That this identical issue has been settled by the Hon'ble ITAT Bench, Amritsar in Fill Industries Ltd. in para 11.1. of the order which reads as under: "11.1 After reading statutory provision as contained in section 80IB(1), 80IB(2) & 80IB(4) of the Act, we find that provisions do not provide in any way separate registration or maintenance of separate records for claiming deduction u/s80IB of the Act. The requir .....

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ment of requisite labour therein. iii) Manufacture or production of articles in the said undertaking. iv) Earning of profits clearly attributable to the said new undertaking, and v) A separate and distinct identity of the industrial unit setup. It was also held that unit may produce its products of the old business or it may produce some other distinct marketable products even products which may feed the old business. It was held that true test is whether the new industrial undertaking connotes .....

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u/s 80IB for first 5 yeas and then 25% was allowed till Asst. Year 2012-13 except the year under appeal. vi. This issue has also been settled by the Hon'ble Bench in Fill Industries Ltd. as per para 13.1 of the order, relying upon the decision of Hon'ble Gujrat High Court in the case of CIT Vs. Saurashtra Cement and Chemical Industries Ltd. reported in 123 ITR 669. "13.1........................................................ "We rely upon the decision of Hon'ble Gujrat Hi .....

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the succeeding assessment year. As regards the initiation of proceedings u/s 147 of the Act, it was stated when unit-2 was set up in assessment year 2000-01, no such proceedings were initiated and the proceedings for the assessment year 2001-01 had attained finality, through it cannot be reopened on period of limitation as argued by the ld. Counsel for the assessee under section 149 of the Act. As regards the principles laid down by the various courts of law, the issue is with regard to formati .....

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vii. As per para 14 of the order which reads as under: "The judgment relied upon by the Ld. Counsel for the Revenue have no application to the facts of the present assessee's case. In view of findings hereinabove, denial of deduction under section 80IB of the Act amounting to ₹ 7,01,56,903/- is deleted. Thus, ground Nos. 1 to 4, 7 & 7.1 of the assessee are allowed." Thus, from the observations of the Hon'ble Bench in the case of Fill Industries Ltd. the Ld. Commissio .....

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rival contentions and perused the facts of the case. The assessee is engaged in the business of manufacture and sale of Pesticides and Agro Products etc. at Lane-4, Phase-II, SIDCO Industrial Complex, Bari Brahamana, Jammu. As regards deduction under section 80-IB in respect of Unit-1 claimed by the assessee, the same was eligible for ten years ending in the assessment year 2004-05 and the same was not allowable during the impugned year as per provision of the Income Tax Act, being the eleventh .....

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has been completed under section 143(1) of the Act. As regards deduction u/s 80IB with respect to Unit-3, it has been claimed for the first time during the assessment year 2004-05 by the assessee, which was allowed to the assessee and the assessment was completed u/s 143(1) of the Act. The assessee during the year had claimed deduction for two Units i.e. Unit -2 & Unit-3 u/s 80IB of the Act on the basis of separate financial accounts i.e. 30% in respect of Unit-2 being sixth year and 100% i .....

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takings at a common place having common statutory registration from Excise Department, Sales Tax Deptt., Pollution Deptt. etc. and are having common record. The assessee is having one power connection and all the purchase and sale invoices are in the name of the assessee and not in the name of separate Unit-2 & Unit-3. Having heard the parties and perusal of records, the dispute before us, when the assessee is having maintained common record of Excise Duty, Sales Tax, Service tax and having .....

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t is not formed by splitting up or the reconstruction of a business already in existence, (ii) it is not formed by the transfer of a news 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 Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India, and (iv) in a case where the industrial undertaking manufactures or produces articles o .....

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n 80IB(1), 80IB(2) and 80IB(4) is that profit must derive from an industrial undertaking. It was held in the case of Textile Machinery Corporation Ltd. 107 ITR 195 (SC) that the new industrial undertaking must be a new emergence of a physically separate industrial unit which may exist on its own as a viable unit and in order to do so following facts have to be established by the assessee: i) Investment of substantial fresh capital in the Industrial undertaking set up. ii) employment of requisite .....

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existing business of the assessee but whether it is all the same a new and identifiable undertaking separate and distinct from the existing business. There must be a new emergence of a physically separate industrial unit which may exist on its own as a viable unit. 11.2. It was held by the Hon'ble Madras High Court, in the case of CIT vs. Premier Cotton mills Ltd. 240 ITR 434 (Mad) that a single legal entity may own and operate more than one industrial undertaking and the fact of common own .....

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nstalled plant, machinery and other facilities such as factory buildings, godowns etc; when taken together are capable of being regarded as industrial undertaking, the requirements of the section are met. The fact that the industrial undertaking so established by way of substantial expansion is at a location which is adjacent to the existing undertaking would not in any way render such an undertaking any the less a new undertaking for the purpose of determining its eligibility under section 80J .....

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latest technology and with increased capacity and of course, with fairly good amount of fresh investment. The formation of the new undertaking is not as a consequence of the transfer of the plant and machinery of the old business. The value of the plant and machinery utilized in the new undertaking has been less than 20% of the total investment. Thus, the assessee's case does not get disqualified under these provisions. Therefore, in this view of the matter, the conclusion is inevitable that .....

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are producing similar goods as the existing ones are hardly relevant to decide whether a unit is in the nature of undertaking. Likewise, the fact that procurement of raw materials is common or certain post-manufacturing activities are centrally carried out or drawing certain facilities from a common source are not as rightly pointed out by the ld. CIT(A), sufficient enough to hold that each unit is not engaged in manufacturing or producing the articles or things or is not independent or separat .....

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. It is also not the case of the department that any of the negative tests laid down in section 80-I(2) is attracted in the case before us. It was held that findings recorded as also the order passed by him and consequently ground taken by the department, was dismissed. 11.5. In the case of CIT vs. Quality Steel Tubes Pvt. Ltd. 280 ITR 254 (All), it was held that a new project was set up but no separate profit & loss account prepared. According to the AO, the common use of the two projects o .....

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ction u/s 80IB of the Act. The same product or same location, common procurement, manufacturing and common employees cannot be the basis to hold that the assessee was not an industrial undertaking viable and separate undertaking. What is important is that there must be a set up of independent and separate viable undertaking. In this regard, the assessee has placed on record that it has made separate investment in the plant & machinery account and the building which is evident from the separa .....

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ing and plant & machinery has not been disputed by any of the authorities below or before us. There is no dispute as regards to the separate registration granted by DIC to the assessee with regard to Unit-II where date of commencement of production for Unit-II has been certified as 2.5.1999. The DIC vide letter dated 29.03.2002 has granted the approval for installation of machinery and had stated that production commenced on 28.03.2003. In view of investment in building and plant & machi .....

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and Insecticides Rules 1971 by giving specific reference to section 13, Rule 9(1) to Rule 9(3) etc. A reading of such provisions and section 13 which provides that any person desiring to manufacture or to sell stock or exhibit for sale or distribute any insecticide may make an application to the licensing officer for the grant of a license. Under Rule 9(1), such application has been made in Form III or Form IV for grant of license. Therefore, application has been made by a person desiring to ma .....

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ound and is not a case where insecticide is manufactured at more than one places and as such, one common license has been obtained by the assessee company. In view of the above, it is obvious that no separate registration is required to the assessee company." 7. From the decision of ITAT, Amritsar Bench in the case of FIL Industries Ltd., (supra), we find that the FIL Industries Ltd., (supra), was having three industrial units having common statutory registration from DIC, Jammu, Excise Dep .....

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amp; III. Likewise, the assessee in the present case is also having three industrial units i.e. Oil units, Vanaspati ghee and refined oil units operating from the same unit at Gangyal, Jammu under one name M/s.J.K. Oil Industries, having common statutory registrations from DIC, Jammu, Excise Department etc., as in the case of M/s. FIL Industries Ltd., (supra). In this case also, the first unit was set up in the year 1985 and second unit set up in 2002 and the third unit was set up in 2004. The a .....

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