TMI Blog2016 (2) TMI 262X X X X Extracts X X X X X X X X Extracts X X X X ..... nd distinct from the existing business of the assessee but whether it is all the same a new and identifiable undertaking separate and distinct from the existing business. For the assessment years 2007-08 and 2008-2009, the lower authorities for co-generation plant granted deduction u/s.80IA of the Act. They impliedly agreed that the new machinery and plant have been installed under separate premises and it is not appropriate to deny the same deduction for the assessment year 2009-2010. To constitute reconstruction, there must be transfer of assets of the existing business to the new industrial undertaking. In our opinion, generation of power unit is separate and distinct undertaking for which separate approval was obtained and it cannot be said that splitting of existing business structure. Therefore, in our considered opinion, the lower authorities are not correct in denying the deduction under section 80IA of the Act - Decided in favor of the assessee - I.T.A.Nos.2153 to 2156/Mds/2013 - - - Dated:- 18-12-2015 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER] For the Petitioner : Shri A Dhananjayan, CA For the Respondent : Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 E.1,98,16,873/- (@ ₹ 3.67 per unit) and charged the same to the paper division of the company. Accordingly, the profits of the paper division were reduced by E1,98,16,873/- and correspondingly arrived at the profits of E1,57,13,431/- in steam turbine division after claiming depreciation of E41,03,442/- and claimed the same as deduction u/s 80lA of the IT Act for the assessment year 2009-10. Accordingly, the assessee claimed turbine division has a separate independent division which was constituted with the use of FBC boilers and Steam turbine instead of old boilers and pressure reduction value to recover the energy in the steam. 5.1 According to the Assessing Officer steam was required for paper industry. Thus steam production was sine qua non for paper production. All along paper division was using boilers and pressure reduction valves for production of steam. There was considerable loss of energy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... marily 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. According to the Assessing Officer the steam turbine division used fuels costing an amount of E6,79,78,755/- to produce steam. Therefore the cost on these fuels should be expenditure in the hands of the turbine division. However, the entire expenditure on fuels used by the Turbine Division was charged to Paper Division and the electricity recovered from steam and supplied to the paper division was also charged to the paper division. Thus company has created a situation where in the steam that comes out of Turbine Division as 'waste' (since i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 creation of turbine division on existing paper production process would not be a separate division but amounts to splitting up and restructuring of business already in existence. Accordingly, the Commissioner of Income Tax (Appeals) disallowed the claim of the assessee u/s. 80IA of the Act. Against this, the assessee is in appeal before us. 7. The ld. Authorised Representative for assessee submitted that the company opted a new system where new FBC boilers in combination with steam turbine were used to produce steam as well as to recover en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and losing their identity in the old business, they are not to be treated as being formed by reconstruction of the old business . 7.2 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 by the Kottayam unit is used up by the existing undertaking of the assesseecompany, it cannot be said that the Kottayam unit was established in the process of reconstruction of the existing business or establishment. The decision of the Supreme Court referred to above, therefore, squarely applied to the facts of this case. The decision of the Tribunal in this case is quite in accord with the view expressed by the Supreme Court in the above case. 7.3 The ld. Authorised Representative for assessee submitted that in the case of CIT vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... denied. and accordingly prayed for allowing the claim u/s.80IA of the Act. 8. On the other hand, the Departmental Representative relied on the orders of the lower authorities. 9. 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 to house the new Turbine cum boiler unit to produce steam and electricity. The company invested E2,09,42,345/- towards co-gen machinery and also invested - in cogen building totalling towards new unit. The company also received term loan assistance from Lakshmi Vilas Bank, Udumalpet Branch, for a sum of E1,20,00,000/- for new investments. Separate books of accounts were maintained for the new unit. The unit started operation since March 2003. The year wise power generated was provided to the Assessing Officer. The assessee started claiming deduction u/s 80lA from Assessment year 2004-05 onwards which was accepted by the department. The department allowed 80lA deduction as claimed by the assessee for the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-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 special economic zone referred to in clause (iii) of sub-section (4) or generates power or commences transmission or distribution of power (or undertakes substantial renovation and modernization of the existing transmission or distribution lines (or lays and begins to operate a cross country natural gas distribution network))). (3) This section applies to an undertaking referred to in clause (ii) or clause (iv) of sub-section (4) 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 undertaking which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uated as an expansion of the old unit. 12. 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. 13. In our opinion the splitting of or reconstruction of the existing business should be understood in a broad commercial sense from a commonsense point of view and only in relation to the new industrial undertaking claiming the concession. 14. Further, where the new unit was started by fresh outlay of capital and manufactured or produced articles yielding additional profits having a separate physical independent existence, it was a new industrial undertaking eligible for tax concession. 15. In other words, the establishment of a new industrial unit as a part of an already existing industrial establishment may result in an ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 undertaking separate and distinct from the existing business. For the assessment years 2007-08 and 2008-2009, the lower authorities for co-generation plant granted deduction u/s.80IA of the Act. They impliedly agreed that the new machinery and plant have been installed under separate premises and it is not appropriate to deny the same deduction for the assessment year 2009-2010. 19. Even though the decision of Textile Machinery Corporation Ltd [supra] was concerned with the clause dealing with reconstruction of existing business but the expression 'not formed' was construed to mean that the undertaking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of M/s Tamilnadu Newsprint and Papers Ltd va ACIT, order dated 13.5.2011 Hence, we decide this issue in favor of the assessee company and against the Revenue. 20. The next ground is with regard of charging of interest u/s 234A, 234B and 234C of the Act. 21. Charging of interest u/s 234A, 234B and 234C is consequential and mandatory in nature and to be computed by the Assessing Officer in accordance with law. Ordered accordingly. 22. In the result, I.T.A.No. 2155 and 2156/Mds/2013 are partly allowed. I.T.A.No.2153 and 2154/Mds/2013 A.Y 2007-08 and 2008-09. 23. The first issue is with regard to reopening of assessment u/s 147 of the Act. 24. In these assessment years, the Assessing Officer reopened the assessment on the basis of the assessment order passed for assessment year 2009-10. Since, we have held that the assessee is entitled for deduction u/s 80IA of the Act for the assessment year 2009-10, the basis on which assessment was reopened for the assessment years under consideration is not surviving. Being so, the re-assessment orders for assessment years 2007-08 and 2008-09 are quashed. 25. Since we have quashed the re-assessment orders, w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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