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M/s G.V.G Paper Mills Pvt. Ltd. Versus The Dy. Commissioner of Income-tax

2016 (2) TMI 262 - ITAT CHENNAI

Allowability of deduction u/s 80IA - Held that:- 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.TM/9997/6 dated 4.4.2001 issued by the Chief Inspector of Industries, Chennai, at S.F.No.279, 277, 278 and 276 at Nallur Village, Pushpathur Panchayat, Palan Taluk, Dindigul District. Separate t .....

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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 .....

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tion 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 A V Sreekanth, JCIT ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER These appeals of the assessee are directed against different orders of the Commissioner of Income-tax (Appeals)-II, Coimbatore, for assessment years 2007-08 .....

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T(A) is erred in confirming the addition of ₹ 4,73,205/- (Expenses on foreign travel). 2.3 The CIT(A) is also erred in confirming the addition of. ₹ 4,78,977/- (Expenses incurred on vehicles) 3. The CIT(A) is also erred in confirming the levy of interest u/s 234A, 234B and 234C of the IT Act. 3. Before us, the assessee has filed additional evidence with petition to admit the same as follows: (1) Certificate from Chartered Engineer (2) Flow chart The above additional evidence was admi .....

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ocesses involves production of steam which was required for heating of dryer cylinders of the paper factory. The assessee-company was using boilers and pressure reduction valves to heat the dryer cylinders of the paper factory. 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 pr .....

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ngly, 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 t .....

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rgy in the steam by way of electricity generation for reuse. Thus, the new system has replaced the old system primarily to supply steam to the paper industry and in the process energy was recovered and reused. Therefore, according to the Assessing Officer the new system was very much a part and parcel of the paper production and constitution of FBC boiler and steam turbine which was required for existing production process into a separate undertaking (turbine division) amounts to splitting up or .....

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new undertaking created by the assessee, a part of the original business undertaking of the assessee i.e. paper industry ceased to exist. The steam generation system of the old one is not required when turbine division functions. If for any reason, paper industry has to be relocated to a different place, the Turbine Division also has to move to the location of paper division as it cannot exist independently. According to the Assessing Officer the technical persons examined under oath have admit .....

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dustry 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 .....

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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 it has non marketable value to third parties)was supplied to paper division and the entire .....

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rdingly paper division should not be made to pay for its own energy. Accordingly, the Assessing Officer rejected the claim of 80IA deduction on the income derived from turbine division. Aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). 6. On appeal, the Commissioner of Income Tax (Appeals) observed that generation of electricity was consequent on the splitting or reconstruction of business already in existence and therefore the assessee would not qualif .....

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ssessee i.e. production of paper. The replacement of old boiler by a new boiler which could make use of the wasted heat energy does not become a distinct entity. In other words the Turbine Unit has no independent existence of its own. Therefore, the Commissioner 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 .....

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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 p .....

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r energy in the steam by way of electricity generation for reuse. The company had invested E2,09,42,345/- towards the above project. The system was an integrated unit by itself and it functions independently. The finding of the CIT(A) that the steam turbine division cannot exist independently without paper division was totally against fact. The finding of the authorities that the technical persons examined under oath have admitted that the steam turbine division cannot exist independently withou .....

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the existing unit was for production of paper whereas the new undertaking was production of power. It was also nowhere evident that the old industrial unit was split up or damaged or destroyed that was supposedly reconstructed as a new unit by the assessee. The existing paper division continues its activities as before. The term split up of the business already in existence indicated a case where the integrity of a business earlier in existence was broken up and different sections of the activit .....

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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 reconstruc .....

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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 .....

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the unity and integrity of the business or undertaking which had been established suffered in any manner as a result of the establishment of the new unit There is nothing to show that as a result of the setting up of this undertaking, the integrity, unity of the continuity of the business transaction the earlier undertaking were in any manner adversely affected. This was a new, independent and viable unit which produced similar, if not the same, commodities as were produced by the earlier facto .....

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td 216 CTR 148 wherein it was held that As for 'reconstruction' of the business, it is nowhere evident that the old industrial unit was split up or damaged or destroyed that was supposedly reconstructed as a new unit by the assessee. What the assessee has done is to set up an industrial undertaking with latest technology and with increased capacity and of course, with a fairly good amount of fresh investment 7.5 The ld. Authorised Representative for assessee further placed reliance in th .....

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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. .....

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sment year 2004-05 onwards which was accepted by the department. The department allowed 80lA deduction as claimed by the assessee for the assessment years 2005-06 to 2008-09 under scrutiny assessment u/s 143(3). The assessee company filed its return of income for the assessment year 2009-10 on 28/09/2009, declaring total income of E6,17,71,290/- under normal provisions of the Act. Form No. 10CCB - Audit Report u/s 80lA dated 28.9.2009 was also submitted. However, deduction u/s 80IA was not grant .....

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division for generating power. According to the Assessing Officer 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 tur .....

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tled 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. 10. 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 .....

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on 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 fu .....

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ew business of machinery or plant previously used for any purpose: Provided that nothing contained in this subsection shall apply in the case of transfer, either in whole or in part, of machinery or plant previously used by a State Electricity Board referred to in clause (7) of section 2 of the Electricity Act, 2003 (36 of 2003), whether or not such transfer is in pursuance of the splitting up or reconstruction or reorganisation of the Board under Part XIII of that Act. Explanation 1.-For the pu .....

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espect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of machinery or plant by the assessee. Explanation 2.-Where in the case of an undertaking, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of .....

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t upon the old existent unit, in the sense that the new unit could not be equated 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 ass .....

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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 expansion of the industry or the factory, but if the newly established unit is itself an integrated independent unit in which new plant and machinery are put up and are themselves, independently of the old unit, capable of production of g .....

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ew undertaking must be an integrated unit by itself wherein articles are produced. The industrial unit must be new in the sense that new plant and machinery are erected for producing either the same commodity or some other distinct commodity. The benefit cannot be denied merely because the new undertaking goes to expand the general business of the assessee in some direction. 17. After considering the facts of the case and the legal position enunciated in the above paras, we are of the opinion, t .....

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, independently of the old unit, were capable of producing the steam and electricity. 18. 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.TM/9997/6 dated 4.4.2001 issued by the Chief Inspector of Industries, Chennai, at S.F.No.279, 277, 278 and 276 at Nallur Village, Pushpathur Panchayat, P .....

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on 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 un .....

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achinery, it is not formed as a result of such transfer, in our considered view; the assessee could not be denied the benefit. We also find that a new undertaking for manufacture of power with steam as by-product was formed out of fresh funds, in separately identifiable premises, under a separate license/approvals with manifold increase in capacity with new machinery and buildings without transfer of any portion of the old buildings or machinery which pre-existed. The power and steam produced ea .....

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g. There is no case also made out by the lower authorities that the new undertaking is formed by the splitting up of the existing business. Further, the Supreme Court in the case of Textile Machinery Corporation (cited supra) wherein the Supreme Court categorically held that new unit established by the assessee for manufacturing articles used as intermediate products in the old division, which the assessee was buying from the market earlier, is not reconstruction of business already in existence .....

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