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2016 (7) TMI 183 - ITAT MUMBAI

2016 (7) TMI 183 - ITAT MUMBAI - TMI - Denial of deduction under section 80IA of the Act with respect to Daman Unit-1 - Held that:- We are unable to uphold the stand of the Revenue that the Daman Unit-1 has been set-up with value of old machinery in excess of 20% of the total value of machinery and, therefore, on facts also, we find no reason to affirm the denial of deduction under section 80IA of the Act with respect to Daman Unit-1. Thus, on this aspect assessee succeeds. - Denial of claim .....

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blished by way of expansion is located adjacent to the existing undertaking would not render the new undertaking ineligible for the claim of deduction u/s. 80 IA/80IB of the Act. Therefore, having regard to the factual matrix, which clearly establishes that the Daman Unit-2 was separate unit having its own plant and machinery, manufacturing of products, independent funds, and separate labour force, it cannot be considered as a mere part of the Daman Unit-1 so as to defeat its claim of deduction .....

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e assessee and involve common issues, they have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. 2. The appeal in ITA No.1384/Mum/2009 pertaining to assessment year 1999-2000 is taken as the lead case. This appeal is directed against the order passed by the CIT(Appeals) Central-II, Mumbai dated 17/12/2008, which in turn arises out of an order passed by Assessing Officer under section 143(3) r.w.s. 153A of the Income Tax Act, 1961 ( .....

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at Daman was formed with transfer of machinery from Aurangabad Unit and thus violated provisions of sec.801A while transfer of machinery was much within the limits laid down in Sec.801A. c) The Id. CIT(A) further erred in confirming that Unit No.2 at Daman was an extension of Unit No.1 while it was a separate and independent unit manufacturing a different product with new machinery and new labour and the portion of machinery that was transferred from the Aurangabad Unit was insignificant and wi .....

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he Act following a search and seizure action carried out by the Department under section 132(1) of the Act in the case of assessee and its group entities. Notably, the assessee company is part of Medley Group of companies and its manufacturing facilities are located at Aurangabad and Daman and its registered office is in Mumbai. In the search action under section 132 of the Act carried out in the Group on 18/11/2004, multiple premises, being offices, factories, godowns as well as residences of t .....

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two independent manufacturing units at Daman, namely, Unit-1 and Unit-2. The amount of deduction claimed by the assessee under section 80IA of the Act with respect to Units 1 & 2 of Daman for the assessment year 1999-2000 amounted to ₹ 2,97,25,838/-. The deduction under section 80IA/80IB claimed with respect to both the units have been denied by the Assessing Officer, which has been further affirmed by the CIT(Appeals). 4.1 The substantive dispute before us arises from the action of th .....

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Aurangabad. In 1994, the assessee company set up a unit at Daman, which is termed as Unit-1. In Unit-1, assessee is undertaking manufacture of oral liquids only. Further, it emerges from the record that in the year 1998, assessee company set-up another manufacturing unit in Daman, termed as Unit-2. In Unit-2, the assessee company is undertaking manufacture of tablets and capsules but some oral liquids and B-lactam antibiotics. In so far as Unit-1 is concerned, notably it has availed the benefit .....

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(ii) of section 80IA(2) of the Act. The charge made against the assessee is that on the basis of the search and survey action it was found that old used machinery from Aurangabad Unit was transferred to Unit-1 at Daman which was in excess of the 20% of the total value of the plant and machinery used in the business of Unit-. The aforesaid objection is the sum and substance of the dispute before us inasmuch as the plea of the assessee is that it has complied with the requirement contained in sec .....

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the Revenue is what we have stated earlier. Sub-section (2) of section 80IA prescribes that the benefits envisaged in the section apply to such industrial undertaking, which fulfils the conditions prescribed therein. One of the conditions prescribed is contained in clause(ii) of section 80IA(2), which is to the effect that such industrial undertaking shall not be formed by transfer to new business the machinery or plant previously used for any purpose. Furthermore, in Explanation -2 thereof, it .....

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excess of 20% of the total value of the plant and machinery at Unit-1, Daman. 4.4 In this context, it is to be noted that the conditions prescribed in sub-section (2) of section 80IA from clauses (i) to (v) are of varying quality inasmuch as some of them are to be fulfilled at the time of the set-up or the initial year and some conditions are of such nature, which have to be consistently adhered to be by an assessee during the entire period of claim. Notably, the condition which has been invoked .....

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ction of the Assessing Officer in denying the deduction in assessment year 1999-2000 is legally untenable and unwarranted as it seeks to disturb an accepted position, and that too based on a condition which is required to be evaluated in the initial year only. Be that as it may, we have also considered the factual matrix of the case because the Assessing Officer has attempted to make out a case that the documents/ information found in the course of search and survey carried out on the group on 1 .....

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out to 22%. Be that as it may, the entire discussion in this regard is contained in para 9.2 of the assessment order and apart from asserting that the percentage of old used machinery vis-à-vis the total plant and machinery is 29% or 22%, the Assessing Officer has not tabulated either the value or the names of such machinery. For this very reason, assessee had raised a specific point before the CIT(Appeals). Before the CIT(Appeals), assessee had asserted, and a reference to which has been .....

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erred in previous year 1998-99 relevant to assessment year 1999- 2000 and ₹ 6754/- in relation to assessment year 2000-01. In fact, in the initial year, it has been claimed that no old machinery was transferred to Daman Unit-1. 5. Before the CIT(Appeals), we find that the assessee made varied factual submissions countering the findings of the Assessing Officer. The CIT(Appeals) has also called for a remand report from the Assessing Officer. Such remand report has also been reproduced by th .....

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referred by the Assessing Officer in the remand report was unverifiable. The said amount was stated to be the value of new plant and machinery of Daman Unit-1 as on 31/3/1994. As per the assessee, it had purchased three S.S Jacketed Tanks for ₹ 1,87,200/- each when Daman Unit-1 was started. The manufacturing facilities at Aurangabad Unit was for liquid orals, which was an old facility using plain S.S Tanks without top and without any jacket for manufacturing of syrups, whereas for its Dama .....

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peals), so however, he has ultimately upheld the stand of the Assessing Officer. In para 3.4.9 of his order, the CIT(Appeals) records that all plant and machinery from Aurangabad unit could not be considered to have been transferred to Daman Unit-1, but atleast two tanks were transferred from Aurangabad unit and two from another concern. The CIT(Appeals) has also referred to the statement given by Mr. Sahir Khatib in the course of search action. The failure of the assesse to produce delivery cha .....

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primary argument led by the assessee is that the CIT(Appeals) has incorrectly taken the total value of new plant and machinery as on 31/3/1994 at ₹ 19,29,226/-, whereas the correct value is ₹ 31,41,563/-. The aforesaid figure is sought to be justified on the basis of the audited annual accounts filed with the respective return of income and which has also been subjected to assessments in the past years. Ld. Representative for the assessee submitted that all- along the Annual Accounts .....

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e of plant and machinery found recorded in the audited accounts vis-à-vis the papers found in the course of search. In this context, our attention was specifically invited to the assertions of the lower authorities, whereby it is stated that the seized material reflect the usage of old machinery at Daman Unit-1 in excess of 20%. Countering the aforesaid, Ld. Representative for the assessee pointed out that there is no material adduced at any stage to justify such inference. 6.2 On facts, .....

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t even if the total value of the new plant and machinery be taken as ₹ 19,29,266/-, as adopted by the CIT(Appeals), yet the value of old asset transferred is less than 20% as it is merely 68,633/-. In any case, it is sought to be asserted that the total value of the plant and machinery of Daman Unit-1 is ₹ 31,41,563/- and considering the old transferred machinery of ₹ 68,633/-, it constitutes only 2.1% of the total machinery. In support, assessee has furnished extract of the an .....

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mp; Machinery of Unit 1 during 1993-94 for ₹ 5,77,256/- A-11 to A-13 6. Accounts entries passed while capitalizing to accounts. - A-14 to A-32 6.3 The aforesaid submissions put-forth by the assessee as well as order of the authorities below throw-up an issue which revolves around factual appreciation of the affairs. Admittedly, there are conflicting findings in the orders of the authorities below as to the total value of the plant and machinery of Daman Unit-1, as also the value of old pla .....

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e usage of old machinery at Daman Unit-1 was more than the permissible limit of 20% and thus, the disallowance of deduction under section 80IA of the Act was quite proper. 8. We have considered the material being put-forth by the assessee in the context of the objections raised by the income-tax authorities. Ostensibly, in so far as the assessment order is concerned, it does not bring out the figures of total plant and machinery of Daman Unit-1 or the old machinery claimed to have been used from .....

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t of Jacketed Tanks was ₹ 5,61,600/-, he proceeded to hold the usage of old machinery at Daman Unit-1 at 29.1%. 8.1 We have considered the aforesaid finding of the CIT(Appeals) and find that it does not conform to the schedule of fixed assets forming part of the Annual Accounts of the assessee, a copy of which has been placed before us. In terms of the details furnished by the assessee, based on audited annual accounts, the following position has been argued by the appellant before us:- Pl .....

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A-10. Further Machinery valued at ₹ 5,77,256/- was capitalized during the period 01.04.1994 to 31.03.1995 for Daman Unit I, list of which is at pg A-11 to A-12. Thus machinery purchased for operations of Daman Unit I is valued at ₹ 31,41,563/- as on 31.03.1995. The revenue has not given details of value of machinery for Daman Unit I being ₹ 19,29,266/- (pg 19 of CIT(A) Order). Further CIT(A) has considered the value of machinery at ₹ 19,29,266/-(pg 43 of the order). At 46 .....

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ll as by the CIT(A). 8.2 Now, on one hand, the assessee has justified the total value of machinery on the basis of annual accounts i.e. at ₹ 31,41,563/- in place of ₹ 19,29,266/- considered by the CIT(Appeals). The figure adopted by the CIT(Appeals) does not find any justification even in the report that has been furnished by the Assessing Officer before us. There are only bald assertions from the side of the Department that the usage of old machinery being in excess of 20% was accep .....

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nit-1 was assessment year 1995-96 and the value of machinery is depicted at ₹ 31,41,563/-. Even if, we go alongwith the CIT(Appeals) and take the value of old transferred machinery at ₹ 5,61,600/-, even then considering a total value of machinery at ₹ 31,41,563/-, the percentage of usage of old machinery falls below 20%. This aspect was specifically put to the Ld. CIT-DR at the time of hearing but no cogent arguments have been made except reiterating the position contained in t .....

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at only machineries to the extent of ₹ 68,633/- have been transferred to Daman Unit-I. In fact, in this context reference was made to Page-466 of the Paper Book to elaborate that the value of transfer in financial year 1996-97 was ₹ 61,049/-; ₹ 830/- in financial year 1998-99; and, ₹ 6,754/- in the financial year 1999-2000. In this detail, it has also been pointed out that the transfer of ₹ 6,754/- in financial year 1999- 2000 included the WDV of two tanks of 1000 l .....

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man Unit-I. The aforesaid point made out by the assessee is liable to be upheld because we find that even in the remand report furnished by the Assessing Officer before us, there is no substantiation as to how the figure of ₹ 5,61,600/- has been arrived at although assessee has consistently pointed out that the same reflects the purchase price of new S.S. Jacketed Tanks. As a consequence, we have no reason to distract from the position that old machinery to the extent of ₹ 68,633/- o .....

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seized material. The aforesaid assertions of the Revenue, in our view, do not distract from the factual matrix, which clearly support the assertion of the assessee that the total value of the old machinery at Daman Unit-1 is within the permissible limits. In fact, the orders of the authorities below do not bring out any specific material except generalized observations, which we have already dealt with. Even in the report furnished before us, Assessing Officer has not substantiated that how the .....

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ct with respect to Daman Unit-1. Thus, on this aspect assessee succeeds. 10. Another aspect of the controversy relates to denial of claim of deduction u/s. 80IA of the Act in respect of Daman Unit-2. The claim of deduction u/s. 80IA of the Act for Daman Unit-2 has been made for the first time in assessment year 1999-2000. The Daman Unit-2 is stated to have been set-up in the year 1998 for manufacture of tablets, capsules and B-lactum antibiotics. The Assessing Officer as well as the CIT(A) have .....

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efits of section 80IB could not be separately available to Daman Unit-2 and it should run concurrently with Daman Unit-1 itself. 11. On the other hand, the stand of the assessee before lower authorities as well as before us is to the effect that the Daman Unit-2 is separate and distinct unit which is engaged in the business of manufacture of tablets, capsules and B-lactum antibiotics; the products which are different from the products being manufactured at Daman Unit-1. It has been pointed out t .....

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h purchase of new machinery, new loans were raised and separate labour force was employed. It has been explained that even products manufactured in Daman Unit-1 and Daman Unit-2 are different. For this purpose reference has been made to Page-480 of the Paper Book. Our attention was also invited to page 540 of the Paper Book, wherein is placed visual photographs of the two units, which are physically separate. It was also pointed out that Daman Unit-2 meets with all the conditions prescribed in s .....

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1 3. M/s. FIL Industries Ltd. vs. Addl. CIT,ITA No.415(Asr)/2009 dated 27/06/2012. 4. Aqua Plumbing Pvt Ltd. Vs. ACIT, 140 TTJ 496(Asr) On the basis of the decision of Amritsar Bench of the Tribunal in the case of Aqua Plumbing Pvt Ltd. Vs. ACIT (supra), it has been specifically argued that expansion or extension of an existing unit by itself would not disentitle the assessee from claiming deduction under section 80IA/80IB of the Act . 12. On the other hand, Ld. Departmental Representative appea .....

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mpany has its manufacturing facilities located at different places and so far as the controversy before us is concerned, it is confined to manufacturing activities carried out in the two units located at Daman, namely, Daman Unit -1 and Daman Unit-2. Daman Unit-1 is in operation since assessment year 1995-96 and has been claiming exemption under section 80IA of the Act. Daman Unit-2 is stated to have been set-up in the previous year relevant to the assessment year 1999-2000 and, therefore, the c .....

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usiness. In fact, in Daman Unit-1, assessee is undertaking manufacture of oral liquids only, whereas in Daman Unit-2 assessee company is undertaking manufacture of tablets and capsules as also some oral liquids and Blactum antibiotics. These factual assertions have not been negated by either of the lower authorities and in fact even before us there is no material led by the Revenue which would negate the same. At this point, we may also add that we are not professing that it is imperative for th .....

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producing the same item which were being produced in the old units. Both the judgments show that the decisive test is that industrial unit set-up must be new in the sense that new plant and machinery should be installed for producing either the same commodity or some new commodity. In the present case, it is abundantly clear that the Daman Unit-2 has been set-up on a later date of time and it is located on a separate piece of land. The objections raised by the Revenue, in our view, do not distra .....

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