TMI Blog2014 (9) TMI 1003X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 during AYs 1988-89 to 1990-91. In the absence of such details and also coupled with the facts that the assessee has not explained under what circumstances “trial run” was necessary for all the three years. Therefore, we are of the considered view that the issue to be restored to the file of AO for verification, whether there was only “trial run” of the machinery as claimed by the assessee or the assessee carried out any “commercial production” from New Unit during AYs 1988-89 to 1990- 91. In case, the assessee is able to prove its claim of “trial run” in that event the AO would allow the claim of deduction as made by the assessee. - Decided in favour of statistical purposes. - ITA No(s) 2629/Ahd/2010, 2630/Ahd/2010, 2631/Ahd/2010, 2632/Ahd/2010 - - - Dated:- 19-9-2014 - SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER For the Appellant : Shri S.N.Soparkar, A.R. For the Respondent : Shri M.K.Singh, Sr.DR O R D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. 3. Briefly stated facts are that this is the second round of litigation. In earlier round, the issues regarding eligibility of deduction under sections 80I and 80HH of the Income Tax Act,1961 (hereinafter referred to as the Act ) were restored back to the file of AO by this Tribunal (ITAT C Bench Ahmedabad) in ITA Nos.2873, 2874, 2855 2556/Ahd/2002 for AYs 1994-95, 1995-96, 1991-92 1993-94 vide order dated 31/10/2007, by observing as under:- 4. We have heard both the parties, and perused the material on record. 4.1 We observe that the assessment for AYs 1991-92 and 1993-94 is made pursuant to action under section 263 of the Act, so that there had been, in the first instance, apparently, lack of proper enquiry or application of mind, in the matter, by the assessing authority. Secondly, we find tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces, as also observed by the Bench during the course of hearing, we would only consider it fit and in the interest of justice, that the matter is remitted back to the file of the AO for the purpose, and adjudicate after allowing a proper opportunity to the assessee to present its case before him, addressing the issue as delineated above. We decide accordingly 3.1. In pursuance to the aforesaid direction of the Tribunal, the AO after giving opportunity to the assessee of hearing, yet again rejected the claim of deduction u/s.80HH and 8I of the Act. Against this, the assessee filed an appeal before the ld.CIT(A), who also confirmed the addition. 4. The ld.counsel for the assessee submitted that the action of the authorities below is unjustified, arbitrary and against the settled principles of law. He submitted that in pursuance to the directions of the Tribunal, detailed submissions were made vide letter dated 25/08/2009 and 05/10/2009 to the AO for bringing to his notice about distinction between the old Unit and the new Unit. He submitted that the new Unit was established in piecemeal started from the years of 1998-89 to 1990- 91. He submitted that both the Units (old and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o mispresent the observation made by the Hon ble ITAT in its replies. At no stage Hon ble ITAT has held that depreciation was claimed on trial run. The crutial issue as laid down by the Hon ble ITAT was The issue as we discern, is the non-utilisation of the plant and machinery purportedly purchased for the new unit during the previous years relevant to AYs 1988-89, to 1990-91, otherwise than for its purpose, in the relevant years, the 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 purpose of the assessee s business for each of the relevant years. And user for any purpose prior to its user for eligible undertaking (New Unit) would invalidate the assessee s claim u/s 80HH(2)(ii); the said machinery exceeding twenty percent in value of the total machinery acquired for setting up of a new unit. 8.1. In its replies, the assessee has admitted two crucial actions on its part. a. that the machines installed in earlier years had been put to use in the years of their installation. The assessee states in its submission that the new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear case of the machineries having been put to use in their year of installation before the so called new unit was set up by the assessee in 1991-92 attracting the provisions of section 80I(2)(ii). e. Section 80I talks about a new undertaking. The assessee has confused itself that setting up of a new undertaking is similar to installing a fresh line of production in an existing plant. An undertaking is much more than installing a new process line in an existing plant. It needs a variety of other infrastructure which could include say tool room, tools and tackles, jigs, fixtures, store room, lifting devices, workshop which was common and hence it was a common unit rather than two units set up by the assessee 8.2 In para III of its reply dated 05.10.2009 assessee submitted that Hon ble Tribunal has decided that its new unit is an identifiable unit itself and it cannot be treated as a mere extension of the old unit and depreciation in respect of plant and machinery is allowed in the year in which mere trail production has been taken place and in subsequent year in which the undertaking manufacturers articles, becomes the initial year for allowing the deduction u/s.80I (Annexur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble for deduction u/s.80IA. This circular also mentions that deduction u/s.80IA shall be available to only new industrial undertakings and not to old one. Since the assessee has not been able to establish that new industrial undertaking came into existence w.e.f. A.Y. 1991- 92, such deduction can not be allowed. 13. In view of facts of the case as mentioned above and after taking into considerations all the submissions of the assessee, legal as well as factual I am satisfied that assessee has failed in its attempt to prove that new industrial undertaking was established in A.Y. 1991-92 within the meaning of sec. 80I(2) of the I.T.Act eligible for deduction. It is no doubt a case of extension of old unit not capable of functioning on its own. The various decisions quoted by the assessee have already been discussed by the CIT(A) in its order dated 20.05.2002 and are therefore not repeated again as the same have been held not applicable to facts of the assessee s case as these relate to definition of industrial undertaking only. 14. From facts of the case as discussed above it becomes clear that assessee claimed depreciation on new plant and machinery in A.Y. 1988-89 to 1990-91 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no new industrial undertaking came into existence in A.Y. 1991-92. 5.1. The ld.CIT(A) confirmed the findings of the AO. The ld.counsel for the assessee placed reliance on the judgement of the Hon ble Bombay High Court rendered in the case of Commissioner of Income-taxV, Pune vs. Finolex Cables Ltd. reported at (2012) 24 taxmann.com 279 (Bom.) :: 114 TTJ 785 (Pune), 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) The true test is not whether a new industrial undertaking connotes expansion of the existing business, but whether it is all the same a new and identifiable undertaking separate and distinct from the existing business; (iv) If an undertaking can exist even after cessation of the principal business of the Assessee, it canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the so-called explanation of 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:- A.Y. 1988-89 Rs.1,27,63,220/- (20 months) A.Y. 1989-90 Rs.1,53,09,991/- A.Y. 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 in all three years when the depreciation is claimed and also the quantity of production produced in the trial run . Since the trial run has been made in all the three years, it was incumbent upon the assessee to explain that how many days trial run was carried out and how much electricity was consumed, whether raw-material was used or not, whether any finished products were produced and what was the accounting treatment of these goods, etc. and nothing has been placed on record by the assessee. The Revenue has demonstrated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation is claimed and also the quantity of production produced in the trial run . Since the trial run has been made in all the three years, it was incumbent upon the assessee to explain that how many days trial run was carried out and how much electricity was consumed, whether raw-material was used or not, whether any finished products were produced and what was the accounting treatment of these goods, etc. and nothing has been placed on record by the 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 during AYs 1988-89 to 1990-91. In the absence of such details and also coupled with the facts that the assessee has not explained under what circumstances trial run was necessary for all the three years. Therefore, we are of the considered ..... X X X X Extracts X X X X X X X X Extracts X X X X
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