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TMI Blog2015 (7) TMI 935X X X X Extracts X X X X X X X X Extracts X X X X ..... nders of the paper factory till the year 2002. Use of this technology involves loss of energy in the steam. During the year 2003, the assessee company started using FBC boilers and steam turbines instead of normal boilers and pressure reduction valves basically to recover the energy from the steam through generation of power. The power (i.e. recovered energy from steam) thus produced from the steam was recycled to the paper division resulting in less consumption of power by the factory. The company constituted these FBC boilers and Steam turbine (steam production process of the paper industry) into a new undertaking viz. Turbine Division and started claiming deduction u/s 80lA of the IT Act. The company valued the power thus claimed to be produced from steam at Rs. 96,57,543/- (@ Rs. 3.5 per unit) and charged the same to the paper division of the company. Accordingly, the profits of the paper division were reduced by Rs. 96,57,543/- and correspondingly arrived at the profits of Rs. 83,94,236/- in steam turbine division (after claiming other expenditure (depreciation, Insurance and repairs and maintenance) of Rs. 12,63,307/- & claimed the same as deduction u/s 80lA of the IT Act for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but to supply steam to paper industry. Thus, the company has artificially bifurcated a production process in which the old machinery was replaced by a new machinery which was only required for paper industry and not for Turbine Division for generating power. Thus the electricity generated was only an incidental mechanism of the paper industry to save the energy from the steam which otherwise would have lost if they continue to use old boilers and pressure reduction valve. Therefore, the assets acquired under so called Turbine Division are primarily meant for production of steam and recover the energy loss from such steam so as to make the paper industry more energy efficient. The steam turbine division can work only when steam for paper industry runs. If for any reason, if paper division stops, turbine division also has to be stopped. Thus turbine division cannot exist without the paper division of the company. Creating a part of existing paper production process into a separate division squarely amounts to splitting and reconstruction of business already in existence. Therefore, assessee was not entitled to claim of deduction u/s 80lA of the IT Act on its turbine division. Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner of Income Tax (Appeals) in agreement with Assessing Officer's findings that the steam turbine division cannot exist independently without paper divisions indicating that the turbine division was not created for generating electricity to supply steam to the paper industry. So, the company has artificially bifurcated a production process in which the old machinery was replaced by a new machinery which would require for paper industry. This was not a new turbine division created for generating power. Thus, the electricity generated was only an incidental mechanism of paper industry to supply energy from steam generator which would otherwise had gone waste. It only makes use of the heat which was an incidental product. If this fact was considered, the stipulation that the old machinery used should not exceed 20% of the value of the machinery used in new business required under explanation (2) to section 80IA(3) will not be satisfied. To produce the stream, not only the boiler but the whole incidental machinery employed in the plant for such purpose has to be reckoned for computing the value of old machinery used. Since the turbine division cannot exist without paper division, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 107 ITR 0195 wherein it was held that ''If any undertaking is not formed by reconstruction of the old business that undertaking will not be denied the benefit of Sec. 15C simply because it goes to expand the general business of the assessee in some directions. As in the instant case, once the new industrial undertakings are separate and independent production units in the sense that the commodities produced or the results achieved are commercially tangible products and the undertakings can be carried on separately without complete absorption and losing their identity in the old business, they are not to be treated as being formed by reconstruction of the old business''. 5.2 The ld. Authorised Representative for assessee further relied on the judgment in the case of CIT vs. Madras Rubber Factory Ltd 149 ITR 405 wherein it was held that On the facts of the present case, there is absolutely no evidence to indicate that any asset of the existing undertaking had been transferred to the new unit at Kottayam. It is also seen that the Kottayam unit was set up with new plants and machinery for producing masticated rubber. Though a substantial portion of the masticated rubber produced b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith a fairly good amount of fresh investment 5.5 The ld. Authorised Representative for assessee further placed reliance in the case of JCIT vs. Associated Capsule (P) Ltd. 114 ITD 189 wherein it was held that Held that some post manufacturing activities are common or there are common source of production, the benefit of deduction of 80lA cannot be denied to the undertaking. So long there is no reconstruction of existing undertaking and so long as the undertaking is independently formed with a new Plant and Machinery and such an undertaking is new and the deduction cannot be denied. and accordingly prayed for allowing the claim u/s.80IA of the Act. 6 On the other hand, the Departmental Representative relied on the orders of the lower authorities. 7. We have heard both the parties and perused the material on record. The assessee company was engaged in manufacture of paper and production of electricity from windmills upto the assessment year 2003-04. The assessee company constructed co-generation building during financial years 2003-04 and 2004-05 to house the new Turbine cum boiler unit to produce steam and electricity. The company invested Rs. 1,77,39,233/- towards co-gen mac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tting and reconstruction of business already inexistence. Therefore, the Assessing Officer was of the opinion that the assessee was not entitled to claim of deduction u/s.80IA of the Act on its turbine division. In order to decide the above issue, we first proceed to examine the legal position in this regard. 8. Now, we proceed to examine the provision of section 80-IA of the Act which was amended by the Finance Act, 1999 w.e.f. 1st April, 2000. The deduction under s. 80-IA was available to an assessee whose gross total income included any profits or gains derived from any business of an industrial undertaking which fulfilled all the conditions laid down in that behalf in sub-s. (2) of the section. The sub-s. (2) of s. 80-IA, as applicable to this assessment year 2009- 2010,inter alia, reads as under : (2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility or starts providing telecommunication service or develops an industrial park (or develops a spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with. 9. The primary purpose of u/s. 80-IA is to grant relief to a new industrial undertaking. Therefore, whenever an assessee claims relief u/s. 80-IA, the assessee will have to establish that a new unit had come into existence which independently produced articles and that this new unit was not dependent upon the old existent unit, in the sense that the new unit could not be equated as an expansion of the old unit. 10. Where an assessee makes a claim for relief u/s. 80-IA the burden lies upon him to produce cogent material in support of his claim. In order to avail tax concession u/s. 80-IA, employment of fresh capital in the new unit is imperative. But it does not mean that for the employment of the capital, it should have been newly raised. If surplus/reserve capital is available with an assessee in its existing business, the assessee can utilize such capital for the purpose of plant, machinery, etc., for the new unit. 11. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, independently of the old unit, were capable of producing the steam and electricity. 16. We find that the assessee company commenced a distinct industrial undertaking for the generation of power. It is an undisputed fact that the premises of this undertaking are distinct from the paper unit as separate building was constructed vide approval No. 15442/2003 at survey Nos.417, 423, 424 & 426 at Nallur Village, Pushpathur Panchayat, Palani Taluk, Dindigul District. Separate technology is used and loan was also obtained from State Bank of India, Commercial Branch, Trichy Road, Coimbatore. The lower authorities are not correct in holding that the power plant was not a distinct unit. The true principle as laid down by the Apex Court, in the case of Textile Machinery Corporation Ltd., Vs. CIT 107 ITR 195, directly and squarely applies to the facts of the case. In the instant case, the true test is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is all the same a new an identifiable undertaking separate and distinct from the existing business of the assessee but whether it is all the same a new and identifiable undert ..... X X X X Extracts X X X X X X X X Extracts X X X X
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