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2015 (11) TMI 436 - ITAT AHMEDABAD

2015 (11) TMI 436 - ITAT AHMEDABAD - TMI - Eligibilty for claim of deduction u/s 80I & 80HH - Held that:- The distinction between the commercial production and trial run needs to be established. This distinction has to be proved by the assessee to the satisfaction of AO. We do not find any disparity on facts. Therefore, following the order of the ITAT Ahmedabad in earlier A.Y. on identical issues, we are of the considered view that the issue be restored to the file of AO for verification so as t .....

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Borad, AM For the Petitioner : Ms Urvashi Shodhan, AR For the Respondent : Mr D C Mishra, Sr DR ORDER Per Manish Borad, Accountant Member This appeal of the assessee is against the order of CIT(A) VIII, Ahmedabad dated 8th July, 2011 passed for AY 2006-07. It emerges out of an assessment order dated 30/11/2007 passed under section 143(3) r.w.s. 250 of the Income-tax Act, 1961(herein after referred to as the Act), by DCIT, Sabarkantha Circle, Himatnagar. The assessee has raised the following gro .....

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of both the units so as to meet out cause of natural justice. Under the facts and circumstances of the case, ld. CIT(A) ought to have accepted the various submissions and documentary evidence produced to hold that the appellant had set up a new industrial undertaking eligible for deduction u/s 80I of the Act and ought to have quashed the order passed by AO. 2. The ld. CIT(A) has erred in law and on the facts in holding that the appellant's case was of expansion/modification of old unit and n .....

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as available to the appellant only for 8 and 10 years commencing from AY 1983-84. The ld. CIT(A) ought to have appreciated the submissions, evidences and factual data submitted during the new proceedings to hold the appellant eligible for claim of deduction u/s 80I and 80HH of the Act. 4. The ld. CIT(A) has erred in law and on facts in confirming the initiation of penalty proceedings u/s 271(1)(c) of the Act. 5. The appellant craves leave to add, amend, alter, edit, delete, modify or change all .....

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2006, wherein the matter was set aside to the file of AO. The AO was directed to provide proper opportunity of being heard to the assessee and then pass fresh assessment order under section 143(3) r.w.s. 250 of the Act. The ld. AO again disallowed the deduction u/s 80HH & 80I of the Act giving following finding:- "Reply of the assessee is not considered satisfactory. On verification of claim u/s 80HH and 80I in the AY 1993-94. Claim was rejected vide order dated 19.03.99 CIT(A) IX had c .....

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3. Therefore claim u/s 80HH was rejected in AY 1993-94 as assessee company had not fulfill any condition. Assessee company had simply modernization of an old unit and claim that new unit come in existence. Assessee company had claimed depreciation on the additional plant and machinery in the year of installation i.e. in the AY 1988-89 to 1990-91. These new machinery was installed became an integral part of an old industrial undertaking. Assessee's contention that the new unit has come into e .....

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s 80HH & 80I(2)9ii). I had verified the submission filed vide letter dated 23.11.2007. It is not disputed and denied that the assessee company has started installing new plant and machinery from AY 1988-89 in piece-meal and phasewise. It is also seen that the assessee company also claimed depreciation in respect of plant and machinery and building as they were installed/constructed and put into use in the respective assessment years. From the above there is no escapement from the conclusion .....

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indicated that the assessee company though purchased machineries based on new technology, but simultaneously used the same along with old machineries as an expansion of the business and therefore, depreciation was claimed. It was claimed by the assessee that completion of installation of machinery was on 8.2.90. Further, the assessee's claim that it has set up new industrial undertaking during FY 1990-91, also fails as the assessee company failed to company with the conditions as mentioned i .....

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ry of the so-called new industrial undertaking. In view of the above, the assessee's claim u/s 80I fails. All high courts are unanimous in holding that if the assessee itself used the machinery and later on transfer into the new industrial undertaking that would be treated as used plant & machinery. The decision in the cases of Kanaiyalal Rameshwar Das vs. CIT (1985) 156 ITR 463 (Raj) Electronic Corporation of India Ltd. vs. CIT (1985) 151 ITR 381 (AP) are referred in this regard. Thus t .....

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assessment year for the purpose of deduction u/s 80HH and 80I in the case of assessee company was AY 1983-84 and thus the period of 10 year and 8 year had already expired in AY 1992-93 and 1990-91 respectively for the purpose of deductions under sections 80HH and 80I. The assessee company was therefore not eligible or entitled for deductions u/s 80HH and 80I for AY 1996-97." 3. Aggrieved, the assessee went in appeal before CIT(A) who also confirmed the addition made by the AO after giving .....

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imilar set of facts. The observation of CIT(A) are as under:- "Keeping in view the aforesaid facts, circumstances and various judicial pronouncements, the fact emerges that the appellant has claimed depreciation on the additional plant and machinery only in the year of installation (i.e. in the A.Ys. 1988-89, 89-90 and 90-91) which clearly establishes the fact that the plant and machinery installed in these years had been used in the old unit. Thus, it is crystal clear that new machinery in .....

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an article or thing i.e. the new unit is capable of functioning on its own and the closer of the old unit would not come in the way of functioning of new unit. [(Textile Machinery Co-op. Ltd. vs. CIT 107 ITR 197 (S.C) and CIT vs. Associated Cement Co. Ltd. (1979) 118 ITR 406 (Bom)]. According to section 80! (2), an industrial undertaking must fulfill the following conditions. [i] It is not formed by splitting up or re-construction of business already in existence. [ii] It is not formed by the t .....

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is considered vis-a-vis the facts and circumstances of the appeal under consideration; it is abundantly clear that the set of the plant and machinery installed in the A. Ys. 1988-89, 89- 90 and 90-91 are not capable to function on its own. Thus, so called new unit had the machinery of old unit and the plant and machinery installed subsequently in the A. Ys. 1988-89 to 90-91. It is a fact that the total gross value of the plant and machinery as on 31,03.1990 was of ₹ 23.73.169/- which inclu .....

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om the A. Y. 1991-92 it would not be entitled to the benefit of section 80! as eight years got over in the A. Y. 90-91. It is also a fact that new addition of plant and machinery was an essential requirement to manufacture changed item as per new technology. The appellant's claim of depreciation on the plant and machinery installed in the year of purchase, on the basis of actual use reveals that in order to manufacture modified items it required additional plant and machinery. Further it is .....

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p. Keeping in view the aforesaid facts and circumstances, it is abundantly clear that appellant's case is that of an expansion/modification of old unit and not that of setting up of new industrial undertaking and the same also violates the explanation-2 to section 801 (2). 5.2.1 Respectfully following the decision of my predecessor in A.Y. 1991-92 on the similar facts, the action of the A.O reflecting the claim of appellant u/.s 80HH and 80! is confirmed." Aggrieved, assessee is now in .....

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land, building and machineries and has claimed deduction under section 80HH & 80I for AYs, 1991-92, 1992-93, 1994-1995 and 1995-96. The ld. AR further submitted that depreciation was regularly claimed on this expenditure of ₹ 24,36,345/- in view of "TRIAL RUN" being carried out in these years but actually production from this new unit started from AY 1991-92. He further contended that identical issue arose before the Tribunal in AYs. 1991-92, 1993-94 to 1995-96. The Tribunal .....

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aterial available on record. Similar grounds of appeal in assessee's own case for AY 1991-92, 1993-94, 1994-95 and 1995-96 were heard by the ITAT "C" Bench, Ahmedabad. The relevant portion of the Tribunal's observations vide its order in ITA Nos. - Sl.No. ITA Nos. Assessment Year Appeal(s) by Appellant vs. Respondent Appellant Respondent 1 2629/Ahd/2010 1991-92 M/s Controlled Acoustic Ind.(P) Ltd. 32 Manoj Ind.Estate 40A, G.D.Ambedkar Road Wadala, Mumbai-400031 PAN AABCC2902P D .....

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e), whereas the Hon'ble High Court has held as under :- "13. The following principles of law clearly emerge from the decision of the Supreme Court- (i) There must be a new undertaking where substantial investment of fresh capital is made in order to enable earning of profit attributable to what new capital: (ii) The manufacturing or production of articles yielding additional profit attributable to a new outlay of capital in a separate and distinct unit is the heart of the matter; (iii) .....

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plant and machinery; and (vii) The fact that a Unit produces the same commodity does not disentitle the Assessee to the benefit of the deduction." 5.2 The facts in the case in hand are distinguishable as in the present case the undisputed facts as culled out from the record are that the averment of the assessee for new undertaking was established beginning from the years 1988-89 to 1990-91 by making the following investments:- A.Y. Land Plant & M/c. Building 1988-89 - 559710 714943 198 .....

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e same being set up only in AY 1991-92. This becomes material as depreciation stood claimed (and also allowed) for the said years, so that, undeniably, there has been a user of the said machinery for the purposes of the assessee's business for each of the relevant years. And user for any purpose prior to its user for the eligible undertaking (new unit) would invalidate the assessee's claim u/s 80HH(2)(ii)/s.80I(2)(ii); the said machinery exceeding twenty per cent in value of the total ma .....

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ot;trial run" is an afterthought and just to take advantage of the deduction available u/s 80I and 80HH of the Act. As per the observation of the AO as taken from the submissions of the assessee itself clear that there was a substantial increase in the production turnover, which is reproduced as under:- AY 1988-89 Rs.1,27,63,220/- (20 months) AY 1989-90 Rs.1,53,09,991/- AY 1990-91 Rs.2,00,46,759/- 5.4 Under these facts, the onus was on the assessee to demonstrate the quantum of input used i .....

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assessee. The Revenue has demonstrated that there is substantial increase in the production turnover of the old Unit and as per the Revenue, such increase in the production was not possible when the production made in the new Unit is utilized by the old Unit. It is not disputed that the machinery used by the two Units are different, but the product remained same except the length of the product. It is not coming out from the record that what was the nature of the product sold by the assessee dur .....

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