TMI Blog2015 (3) TMI 1331X X X X Extracts X X X X X X X X Extracts X X X X ..... he present assessee. In ‘Chenab Information Technologies (P) Ltd.’ (supra) itself, it has been observed that each case has to be evaluated on its own facts to determine whether it is a case of splitting up of existing business or not. In assessee’s case, as discussed, the facts do not lead to a conclusion of Prajana (India) having been formed by a splitting up of the business of M/s. Dynamech. To sum up, we hold that: a) The Tribunal rightly recalled its order dated 31.08.2009 in its entirety, for hearing afresh and no prejudice was caused to any interest of the Revenue thereby. b) The ld. CIT(A) went wrong in holding it to be a case of transfer of capital from the existing business to the new one. c) The ld. CIT(A) has erred in holding that orders for manufacture were shifted from the existing business to the new one. d) The ld. CIT(A) has fallen into error in holding that there was a unity of control in the two businesses. e) The ld. CIT(A) has wrongly held that there was a shifting of staff from the existing unit to the one newly set up. f) The ld. CIT(A) has erroneously held that tax evasion was the sole reason for setting up the new unit. f) The ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd. Therefore, our order dated 31.8.2009 (supra) is hereby recalled. The matter is refixed for hearing on merits afresh under notice to the parties on 8.4.2010. 9. As a result, the appeal is now before us this second time round. 10. The Ld. counsel for the assessee filed written submissions dated 02.01.2005. The contentions contained therein will be discussed in the succeeding portion of this order. The Ld. DR raised an objection, contending that the Tribunal can rectify only those mistakes, as were pointed out in the Miscellaneous Application of the assessee; that new judgments can neither be cited, nor considered at this stage; and that other than the issues mentioned in the Miscellaneous Application and the order passed thereon by the Tribunal, no new arguments can now be advanced. It was contended that the assessee cannot now rely on any judgment other than those taken note of by the Tribunal while allowing the Miscellaneous Application. 11. On our asking, the ld. Counsel for the assessee filed written submissions dated 12.01.2015 apropos the above objections raised by the Ld DR, contending therein to the effect that vide its order dated 04.03.2010, the Tribunal had r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue be done away with and the issue as to whether the order of the Tribunal allowing the application of the assessee had not caused such prejudice by decided first. 14. We have considered this aspect of the matter in the light of the rival contentions and the material placed on record. There is no requirement under the law, while deciding an appeal, to separately decide the question as to whether the Tribunal, while allowing a Miscellaneous Application filed by the assessee, had caused any prejudice to the interests of the revenue. All material issues arisen are to be decided in the appeal order itself. Moreover, in the present case, the Tribunal order allowing the Misc. Application of the assessee was passed on 04.03.2010. If the Department was aggrieved there against, it was well entitled to take recourse to an appropriate remedy under the law, if so as advised. This was not done at any stage, accepting the order of the Tribunal. It does not, therefore, in our considered opinion, lie in the mouth of the Department to rake up such a challenge at this stage. The reliance by the Department on the decision in Honda Siel Power Products Ltd. vs. CIT , (supra) is found to be misplace ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titiae to prevent abuse of process, even in the absence of any power. 18. In Gehna vs Income Tax Officer , reported in (2011) 137 TTJ (JP)(UO) 17, relying on Honda Siel Power Products Ltd. , (supra), it was held that where there was no whisper in respect of the decisions relied upon by the ld. Counsel of the assessee during the hearing of the appeal before the Tribunal, the order of the Tribunal is liable to be recalled in toto to decide the same afresh. 18-A. Two Third Member decisions of the Tribunal are also to the same effect: B. Karam Chand Pyare Lal vs. ITO 91 ITD 398 (All.) (TM); and Mohan Meakins Ltd. vs. ITO, 89 ITD 179 (Del) (TM). 19. Adverting to the order dated 04.03.2010 passed by the Tribunal allowing the Misc. Application of the assessee, in the application filed by the assessee, it had been contended that despite the assessee having filed nine judgments and despite the attention of the Bench having been drawn towards all of them by reading the highlighted parts thereof, none of these judgments had been considered by the Tribunal. On this basis, the earlier order of the Tribunal was requested to be recalled. To support such a recall, the assessee sough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see that though it was brought to the notice of the Tribunal that the ld. CIT(A) had given a finding in para 8 of his order that the argument of the AO was that it was a case of reconstruction and that the AO had wrongly made it to be a case of splitting of the business, these facts had not been considered by the Tribunal. 22. It was having considered the above, that in para 10 of the order allowing the application of the assessee, the Tribunal observed, inter-alia, that the arguments on behalf of the assessee had not been disposed of in their right perspective. To quote the relevant portion of the Tribunal order ( see para 8 above): . The aforesaid various arguments, stated to have been made before the Tribunal at the time of hearing of the appeal, have also not been disposed of in their right perspective, as pointed out in the application and argued during the hearing of the appeal.. (emphasis supplied) As such, there is no force in the objection of the department that it was not within the purview of the Tribunal to recall its earlier order on the basis that arguments had not been considered in their right perspective. Accordingly, this objection is also rejected. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er view with a fresh one thought ought to have been taken earlier. 26. In Shaw Wallace And Co. Ltd. vs ITAT , (supra), it was held that a mistake in the reasoning portion of the order cannot be rectified u/s 254(2) of the Act by the Tribunal by totally recalling its order. It was held that the Tribunal was not entitled u/s 254(2) of the Act to rectify or amend any reasoning of it which did not affect the correctness of its final order. Here too, the facts are at variance. In the present case, no mistake in the reasoning of the earlier order, not effecting the correctness of the order has been sought to be rectified by recalling the entire order. As discussed hereinabove, non-consideration of the judgments cited on behalf of the assessee and the arguments addressed were found to be the mistakes apparent from the record, which were sought to be rectified by recalling the entire order. It was not the reasoning, but the said omissions, which affected the order of the Tribunal and therefore, the mistakes apparent from the record were subjected to rectification. 27. In Commissioner of Income tax vs. Income Tax Appellate Tribunal And Others , (supra), it was held that the fact tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heard the rival contentions on this issue, it is seen that it remains undisputed that the letter sought to be produced by the assessee by way of additional evidence is essential for a just disposal of the main dispute. It also remains unchallenged that the letter was not available with the assessee till the time of the passing of the ld. CIT(A) s order, which is dated 14.07.2009. 33. In CIT vs. Mukta Metal Works , (2011) 336 ITR 555 (P H), it has been held to the effect that where the additional evidence sought to be produced has a direct bearing on the issue, the Tribunal is not justified in declining to consider the same. 34. Therefore, the request for additional evidence is accepted. 35. Now coming to the merits of the case. At the outset, it is pertinent to mention here, that, to reiterate, the department requested that the issue as to whether the Tribunal order allowing the application filed by the assessee has or has not caused prejudice to the interests of the revenue, be decided first. This request is also contained in the department s written submission dated 27.01.2015 (supra) and that dated 03.02.2015 (supra). Despite the department having been apprised of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (India). Thus, the AP concluded, capital had been withdrawn from M/s Dynamech and shifted to M/s Prajna (India). He concluded that Prajna (India) had substituted the firm dynamech in all the aspects of the business, i.e. sales, capital and profits. The AO noted that since the order earlier booked by M/s Dynamech where diverted to M/s Prajna (India), the business of M/s Prajna (India) was continuation or extension of the business of M/s Dyanamech and was not a new business. He further noted that the dueduction u/s 80IB available to M/s Dynamech was only 25% now, which was the reason for the business being shifted from one family concern to another to avoid the tax liability. 2.3 The AO further noted that M/s Prajna (India) had purchased machinery only in Feb and March, 2006. He was of the opinion that machinery had been purchased after the production had started and that the production of the assessee firm was being carried out with the machinery of M/s Dynamech. The AO noted that production had been started by the AO on 2-1-2006 without sufficient machinery, which was not possible. He compared the value of the machinery purchased later on by the assessee to the value of the mac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been purchased on 24.3.2006 and 29.3.2006. Furniture and fixture purchased was only ₹ 68240/- which was considered by the AO as insufficient for carrying out business from the new premises. The computer was purchased only on 25.3.2006. Office equipment of only 18,130/- was purchased. Electrical items were purchased only in March, 2006. Polishing machine had been purchased that the assessee could not have carried out production and sale on its own during the year and it was sustaining itself with the help of M/s Dynamech. In respect of consumption of consumable store also, the AO up to Feb 2006 indicated that the production was not done by the assessee himself. 2.4.3. In respect of the transfer of capital from M/s Dynamech to M/s Prajna (India) the AO held that the capital had been shifted along with the shifting of the business in the from of orders to the new concern. The AO, thus, concluded that M/s Prajna (India) was sharing all the assets and other infrastructure of M/s Dynamech i.e. building, machinery, capital, workers and even goodwill, The AO was of the opinion that while the assessee was free to establish new unit as per the volition but when the same person run ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Textile Machinery Corpn Ltd 107 1TR 195 for this proposition. As per the AO, in this decision, the Apex Court have held that if substantially the same person were doing the same business it amounted to reconstruction and this portion of the judgment of Apex Court was squarely applicable to the case of the assess, The AO also held that the new business was physically not an independent business, since it was doing the same business as was being done by him along with his wife, the only buyer of the old concern had been taken over and the capital of old concern had been taken over and even the building of old concern have been used. The AO therefore, held that Prajna (India) was intrinsically not a newly establish undertaking even though new machinery had been purchased. 2.4.5. The AO also referred to the decision of Hon ble Kerala High Court in the case of M/s Chembra Peak Estate Ltd Vs CIT 85 ITR 401 (ker). In this case the assessee established a New factory for manufacturer of new type of tea. The question before the Hon ble Kerala High Court was to decide whether the new factory could be considered to be formed by splitting up of business already in existence. The Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the observations. 6.2. The assessee, in respect of aforesaid queries, has submitted that the total amount invested in plant and machinery during the year was ₹ 91, 17, 949/-, Which included used machines of ₹ 8,79,318/-. Our of the used machines, ₹ 3, 92, 068/- was stated to be an imported machine on which no depreciation had been claimed in India and certificate in this regard was submitted. The production process was stated to consists of machining done by variety of machines like turning, milling, drilling etc. It was submitted that these operations could be done on manually operated machines or by CNC [computer and numerically controlled] machines. It was submitted that CNC machines gave higher productivity and better repeatability. Other processes like heat treatment, surface treatment, deburring etc. were also done to produce the finished parts. It was informed that no employees of Dynamech were shifted during the year to the assessee, though it was admitted that some employees of Dynamech has been employed by the assessee in the subsequent year. It was also submitted that no goods were sold from Dynamech to Prajna (India) during the year, though in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee had paid electricity charges in the month of March, 2006. The copy of electricity bill shows that date of connection as 13.1.2006. Two bills have been raised, as per which the electricity meter have not been read but charges on the basis of installed capacity have apparently been levied on provisional basis. 6.5. The details of receipt of the machinery show that the assessee had in hand manually operated machines in the month of Jan. 2006 and CNC Machines in the month of Feb. 2006. The wages register also shows payment to some workers. The assessee had obtained electricity connection at its new unit. It ahs also obtained a generator set for generating electricity in the absence of electric power. These evidences, in my opinion, do establish that the assessee was in a position to manufacture goods at its new factory. Even if there was no manufacture with the manually controlled machines, as alleged by the AO, the assessee could have started manufacture using CNC machines in the month of Feb. 2006. 6.6. As regards the factory building of M/S Prajna (India)\, as noted above, the plot area is 1000sq mt which is equal to 10,764 sqft. The total constructed area of ground floo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the appellant was manufacturing machines components for Mitsubishi Corpn., an engineering company of Japan. The components are manufactured as per the given designs and drawings. The relevant designs need to be fed into the CNC machines, if done through them. CNC machines, besides giving repeatable outputs-as contended by the appellant also give higher precision than manually operated machine since the movements of the CNC machine can be controlled to a very fine degree by computers. The details of machines used by Dynamech and Prajna (India) submitted by the appellant show that the concerns have CNC machines, though the machines of Prajna (India) are newer and possibly has more advanced features. Since both the concerns were manufacturing similar products and for the same customer, the low usage of consumables and the low wages incurred in Prajna (India) leads one to suspect as to whether all the products sold the Prajna (India) during the year was actually made by this concern or some help was also taken from Dynamech. The very high production and sales by Prajna (India) in March, 2006 noted above also leads one to doubts on this score. However, there is not enough eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of that sub-section. 7.2. In the assessment order the AO has contended that the manufacturing unit of Prajna (India) was formed by splitting up of the business of Dynamech. During the appellate proceedings the AO has contended that the new unit was formed by the reconstruction of business already in existence. The rival contentions have been noted above in this regard. Since the terms splitting up or reconstruction have not been defined in the I.T. Act, it may be useful to refer to the authorities relied upon by the two parties. 7.3 The AO has first relied on the decision of the Hon ble Supreme Court in the case of Textile Machinery Corporation 107 ITS 195 (SC) and has stated that the Hon ble Apex Court have held that if the substantially the same persons are doing the same business, it amounted to reconstruction. Incidentally, the appellant has also placed reliance on this judgment for the proposition that this judgment requires machinery to be transferred form the existing unit to the new unit for a reconstruction to take palace. It would , therefore, be worthwhile to go through this decision to understand if it supports the appellant or the AO. 7.4. The facts in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of tax liability under section 15C. The Hon ble Apex Court noted : The answer, in every particular case, depends upon the peculiar facts and conditions of the new industrial undertaking on account of which the assessee claims exemption under section 15C. No hard and fast rule can be laid down. Trade and industry do not run in earmarked channels and particularly so in view of manifold scientific and technological developments. There is great scope for expansi0on of trade and industry. The fact that an assessee by establishment of a new industrial undertaking expands his existing business, which he certain, does would not, on that score, deprive him of the benefit under section 15C. Every new creation in business is some kind of expansion and advancement. 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 and identifiable undertaking separate and distinct from the existing business. No particular decision in one case can lay down an inexorable test to determine whether a given case comes under section 15C or not. In order that the new undertaking can be said to be not form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o my mind it means this. An undertaking of some definite kind is being carried on, and the conclusion is arrived at that it is not desirable to kill that undertaking , but that it is desirable to preserve it in some form, and to do so, not by selling it to an outsider who shall carry it on that would be a mere sale but in come altered form to continue the undertaking in such a manner as that the persons now carrying it on will substantially continue to carry it on, it involves, I think, the substantially the same business shall be carried on and substantially the same persons shall carry it on. But it does not involve that all the assets shall pass to the new company of resuscitated company, or that all the shareholders of the old company shall be shareholders in the new company or resuscitated company. Substantially the business and the persons interested must be the same. 7.7 The AO has used to aforesaid definition of the term reconstruction for relying on this decision since the same person, the appellant, was carrying on the same business, i.e. supply of machined components to the same customer. However, in my opinion, in view of the categorical assertion of the Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it has been held that even if a new manufacturing unit was set up to carry out the work done earlier by another division of the assessee, it would amount to splitting up of the existing business of the assessee. Interestingly, the appellant had not commented on this decision in this original submission. In the rejoinder the ld. AR has stated that the decision was not applicable since new unit had been set up by installing new machinery in a new building at a new place. 7.9. let us examine the decisions relied upon by the appellant. The decision in 107 ITS 95 (SC) has already been discussed above. In 108 ITR 367 (SC) in the case of Indian Aluminium Company Limited, the facts as noted in the judgment are as under : The Indian aluminium Company Ltd. (hereinafter to be referred to as the respondent ) was a manufacturer of aluminium ingots form ore. In the years prior to the assessment year 1960-61 in question the respondent had four manufacturing centres at Belur, Kalwa, Alupuram and Hirakud. In the accounting year relevant to the assessment year in question one more centre was established at Muri and there were also extensions to the existing factories at Belur and Alupuram. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon ble High Court held as under: In order to hold that there it a splitting up of a business already in existence, there must be some material to hold that either some asset of an existing business is divided and another business is set up from such splitting up of assets, or that the two business are the same and one formed was an integral part of the earlier one and it was only question of breaking up of the same business. It implies a unity of control in regard to two business, i.e, earlier one in existence and a new one which is brought into existence. While cl. (ii) of sub-s. (4) of s. 80j may comprehend transfer of machinery or plant previously used for any purpose and which may belong to an outsider also, cl (i) implies such a transfer and setting up of another business by splitting up of the assets of the earlier one in existence in a case, where the same person carries on business and brings into existence another business of the same nature by the user of the assets belonging to the earlier business, it may be said that the unity of control continues and the business brought into existence is a part of the earlier existing business. There being no tangible evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvolved diversion of assets from the old unit. Though the new unit tool some employees of the old unit, there was substantial expansion during the relevant year which led to almost three fold increase in the number of employees. New unit was established by procuring machinery worth more than 50 lacs. There was also substantial addition to the nature and type of services rendered to clients in the volume of business , and there was a good increase of the number of customers. The Hon ble ITATA held that to hold that a new business was formed by the splitting up or reconstruction of a business already in existence there must be material to show that either some assets of the exiting business had been diverted or that the two business were the same and the one formed an integral part of the other earlier. On the fact of the case the Hon ble ITAT held that this was not a case of splitting up or reconstruction of business already in existence. In this case it was noted that new business and clients were procured and new services were offered. 7.13 In the case of Oswall Woollen Mills Ltd. 138 ITR 338 (P H) the issue was whether the assessee s newly set up export unit was formed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm manufactures machine components for M/s Mitsubishi Corporation. The assessee set up a new unit at a new place. New building was constructed and new machinery was installed therein. Capital for setting up the new unit was obtained by withdrawing the assessee s capital in this firm. The capital of the other partner, who is the wife of the assessee, was also obtained by way of gift from the other partner by the assessee. The firm had a single customer. After the new unit of the assesee was set up, the firm stopped supplying to Mitsubishi Corporation and All orders of Mitsubishi Corporation were executed by the assessee s concern Prajna (India). M/s Dynamech s business slowed down considerably in the subsequent year and it manufactured few items for the local India market and did job work for the appellant. Many workers of Dynamech shifted to prajna (India ) in the subsequent year . The sales and profit of the two concern, noted earlier, are again extracted below:-- Assesment Year Turnover (Rs. Lacs) Net Profit (Rs. Lacs) M/s Dynamech M/s Prajn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be a case of splitting up because the work of processing the tea leaves of the Elstone Division, being earlier done by the unite at Wynad district, was done by the newly set unit at Elstone. This was new unit with new machines at anew location. The Hon ble High court, on appreciation of the fact that the new unit did the work being already done at an existing unit and the work had only shifted to the new unit , held it to be case of splitting up of business. In the case of Ridhkeran Seoni(supra), there was no business with the earlier unit. In fact there was no earlier unit since the unit under construction had come to the assessee s share. This decision does not help the case of the appellant since the facts are quite different. In the case of T.Satish U.Pai(supra), the Hon ble High Court, for holding that there was no splitting up of the earlier business, noted that there was no unity of control in regards to the two business of the firm and that of the proprietorship concern of the assessee partner. It was also noted that there was no transfer of capital or machinery or of any other asset. This decision implies that unity of control between the existing and the new business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Dynamech to M/s Prajna(India) a split up of the business of M/s Dynamech so as to from a new business of M/s Prajna(India) took place. This is also fortified by the fact that almost the entire capital of M/s Dynamech was used in setting up M/s Prajna(India) The control had the management of existing and new unit remained with the appellant. The workers of Ms/ Dynamech shifted to M/s Prajna(India) at least paper in the subsequent year, and were possibly used in the present year also due to the circumstances discussed earlier. In my opinion M/s Prajna(India) has been formed by shifting up of the existing business of M/s Dynamech. 8.6 in the case of M/s Chenab information Technology (p) Ltd. 25 SOT 432 (Mum) The Hon ble ITAT held that it will bea case of splitting up of Business if either the assets of old unit have been transferred to new unit or in case assets have not been transferred the business itself has been diverted to the new unit and the business of both units remain the same. In this case the assesse had an existing unit which was not entitled to exemption u/s 10A . The assessee has set up anew unit in the STP and calimed exemption u/s 10A . The hin ble ITAT not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the new unit being formed by splitting up of business of an existing unit has been incorporated in section 10b and several other deduction/exemption provisions in the I.T.Act. in the case of appellant , while new investment has been made, it has merely resulted in diverting business from an old unit to the new unit without leading to enhancement in business of export. 8.8 Based on the discussion above, I agree with the AO's conclusion in the assessment order that the new unit of Prajna (India) have been formed by splitting up of the existing business of M/s Dynamech. Deduction u/s 10B is therefore no allowable in respect of the income of this new unit. These grounds of appeals are therefore rejected. 37. As available from the above orders and as also contended on behalf of the assessee, the AO observed that since the building of the assessee did not stand completed and since it was not sufficient to house the machinery in order to produce the machined parts which were required for manufacture by the assessee, as per the requirements of Mitsubishi, Japan, the production had not been carried out by the assessee in his new unit, namely, M/s. Prajna (India), but in the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT , (supra) and Chembra Peak Estate Ltd. vs. CIT , (supra). The ld,. CIT(A) held Textile Machinery Corpn. Ltd. , (supra) to go in favour of the assessee. However, Chembra Peak Estate Ltd. , (supra) was relied on by the ld. CIT(A) to hold against the assessee. 43. The Ld. CIT(A) has held that the capital for setting up the new unit was obtained by withdrawing the assessee s capital in M/s. Dynamech; and that the capital of the other partner of M/s. Dynamech, i.e., the wife of the assessee, was obtained by way of gift from her by the assessee. The ld. CIT(A) thus held that the capital was transferred from the existing business to the new unit and it was this capital which was used in the setting up of the new unit, i.e., Prajna (India). Objecting to this, the assessee contends that this finding of the ld. CIT(A) is ill founded, in asmuchas there is no material whatsoever on record to arrive at such a finding. 44. In this regard, it is seen that the partners capital at the end of the first year of operation of M/s. Dynamech was ₹ 20.45 lacs. The assessee and his wife had made withdrawals from time to time out of the profits earned in M/s. Dynamech and the amounts withd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier being done by M/s. Dynamech was shifted to Prajna (India). In this regard, the assessee contends that again, this finding is not based on any material on record. 48. We find this objection of the assessee to be correct. The ld. CIT(A) has not referred to any material showing that M/s. Dynamech had any orders from M/s. Mitsubishi, Japan, which remained unsupplied. No material has also been referred to to show that any orders placed by Mitsubishi, Japan with M/s. Dynamech were, in fact, supplied by M/s. Prajna (India) and not by M/s. Dynamech. The observation of the ld. CIT(A) that after Prajna (India) was set up, M/s. Dynamech stopped supplying the orders of Mitsubishi cannot be taken to go against the assessee sans any material to show that any order of Mitsubishi placed with M/s. Dynamech remained uncomplied, or that any orders of Mitsubishi with M/s. Dynamech were supplied by Prajna (India). Further, in order to prove the splitting up nothing turns on the observation that the business of M/s. Dynamech slowed down considerably in the succeeding years and it manufactured items for the local market and did job work for the assessee. 49. The Ld. CIT(A) has further observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT(A) is without any basis. 52. Again, this finding of the ld. CIT(A) does not accompany any basis thereof. In para 8.5 of the order, the ld. CIT(A) observed that workers of M/s. Dynamech shifted to Prajna (India) at least on paper in the subsequent year, and were possibly used in the present year also due to the circumstances discussed earlier. This, despite the fact that the assessee claimed that during the year under consideration, all the manufacturing was done by different workers. The ld. CIT(A) has based his finding on the observation ( para 8.3 of the impugned order) that the large volume of the production in a short time does raise doubt on this score. 53. Now, the order under appeal does not evince any material to show that any worker was shifted or transferred. Rather, the CIT(A) is himself evidently not sure of any worker of Dynamech having actually shifted to Prajna (India), in the absence of any material on record to this effect, when he employes the expression possibly in his finding. It goes without saying that in the case of transfer of a worker, there is continuity of service, which is absent here. 54. The ld. CIT(A) has observed to the effect th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . To wit, exemption u/s 10B of the Act was available only upto 31.03.2009. That being so, the investment of over ₹ 2.6 crores in land, building and machinery would not make any business sense. This fact has also gone unnoticed by the ld. CIT(A). 60. Thus, it can be seen that none of the reasons for which the ld. CIT(A) has held that Prajna (India) was formed by splitting up of the business of M/s. Dynamech holds good. In CIT vs. Hindustan General Industries Ltd. , 137 ITR 851 (Delhi), it has been held that the expression split up indicates a case where the integrity of a business earlier in existence is broken up and different sections of the activities previously conducted are carried on independently. In the present case, neither of these factors is present. Neither has the integrity of the business of M/s. Dynamech been shown to have been broken up, nor any activities previously conducted by M/s. Dynamech have been established to have been carried on independently by Prajna (India). Prajna (India) has not been proved to be a rehash of M/s. Dynamech. 61. M/s. Dynamech has not been shown to have been either split up, or divided. It continued to independently produce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein articles are produced and at least a minimum of ten persons with the aid of power and a minimum of twenty persons without the aid of power have been employed. Such a new industrially recognizable unit of an assessee cannot be said to be reconstruction of his old business since there is no transfer of any assets of the old business in the new undertaking which takes place when there is reconstruction of the old business. For the purpose of section 15C the industrial units set up must be new in the sense that new plants and machinery are erected for producing either the same commodities or some distinct commodities. In order to deny the benefit of section 15C the new undertaking must be formed by reconstruction of the old business. 65. This decision has been held by the ld. CIT(A) to go in favour of the assessee, except for transfer of capital, noting that this decision dealt with re-construction and not with splitting up of business. Apropos the transfer of capital, we have held above that this is not a case of transfer of capital. 66. In Indian Alluminium Co. Ltd. , (supra) the Hon ble Supreme Court decided the matter on the submission of the counsel for both the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneral Industries Pvt. Ltd. , 137 ITR 185 (Delhi) that the expression splitting up indicates a case where the integrity of a business earlier in existence is broken up and different sections of the activities previously conducted are carried out independently. 70. In T.Satish U. Pai (supra), it has been observed that in order to hold that there is a splitting up of a business already in existence, there must be some material to hold that either some asset of the existing business is divided and another business is set up from such splitting up of assets, or that the two businesses are the same and the one formed was an integral part of the earlier one and that it was only a question of breaking up of the same business. It was, thus, held that transfer of assets, inter-alia, was a decisive factor for holding that there was a splitting up of the earlier business. This has also been noted by the ld. CIT(A) in para 7.7 of his order. 71. It is note-worthy that in the present case, the ld. CIT(A) has held capital to have been transferred for setting up of the new unit. To reiterate, we have disagreed with this observation of the ld. CIT(A). Textile Machinery Corpn. Ltd. (supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , (supra), considering the allowability of deduction u/s 80IB of the Act, it was held, following, inter-alia, Textile Machinery Corpn. Ltd. (supra), that the assets and liabilities of the old unit remained undisturbed and that so, the preumption that the old unit had given birth to the new unit, had no legal basis or sanctity and was not supported by any cogent evidence. 75. In Abbas Nabi Sheikh , (supra), considering the allowability of deduction u/s 80IB of the Act, it was held that where at a new location independent of the earlier existing unit, new plant and machinery are purchased and installed and new capital is invested ( as in the case at hand), it would a case of setting up of a new unit even for carrying out the same business, and that whether the assessee carries on the same business or a different one, is not an essential ingredient to hold it to be a case of splitting up or reconstruction. 76. In Quality Steel Tubes , (supra), considering the allowability of deduction u/s 80J of the Act, following Textile Machinery Corpn. Ltd. (supra) again, the matter was decided by the Tribunal in favour of the assessee. This decision of the Tribunal was later confirmed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, as considered in the preceding paragraphs, there is a plethora of case laws supporting the stand taken by the assessee and on the basis thereof, the case of splitting up of the earlier business to form a new unit, as made out by the ld. CIT(A), carries no force. 82. The assessee has also relied on ITO vs. vs. DSM Soft (P) Ltd. , 115 TTJ 469 (Chennai) (supra), wherein, CIT vs. Poddar Cements Ltd , 26 ITR 625 (SC) and Mysore Minerals Ltd. , 39 ITR 775 (SC) have been followed. In that case, it has, inter-alia, been that where two views are possible, the one in favour of the assessee should be adopted. There can possibly be no two opinions about this proposition. 83. Further, the assessee has placed reliance on Bajaj Tempo Ltd. vs. CIT , 196 ITR 199 (SC) and CIT vs. Chand Diesels , 216 ITR 639 (Bom.), wherein,it has been held that the incentive provisions of the Act should be construed liberally, in a broad commercial sense, keeping their object in view, so as to obviate defeating the very purpose of the tment thereof. Again, this proposition is trite. 84. Now, for a moment, we revert to the progression of events in the matter of Textile Machinery Corporation (supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t dated 25.01.1977. The ld. CIT(A) herein held this judgment of the Hon ble Supreme Court to go in favour of the assessee, as noted hereinabove. 86. The ld. CIT(A) relied on Chembra Peak Estate Ltd. vs. CIT , (supra), to hold in favour of the department , that this was a case of splitting up of the business of M/s. Dynamech. While deciding Chembra Peak Estate Ltd. vs. CIT , (supra), it is seen, the Hon ble Kerala High Court relied on the decision of the Hon ble Calcutta High Court in the case of Textile Machinery Corpn. Ltd., (supra). Chembra Peak Estate Ltd. vs. CIT , (supra) is dated 18.11.1971. It was post Chembra Peak Estate Ltd. vs. CIT , (supra), that the Hon ble Supreme Court decision in Textile Machinery Corpn. Ltd., (supra) was delievered on 25.01.1977, reversing the High Court order. Hence, obviously the Hon ble High Court did not have the benefit of the said Supreme Court decision. This position has also been taken note of by the Allahabad Bench of the Tribunal in Quality Steel Tubes, (supra), and as noted, this Tribunal decision was confirmed by the Hon ble High Court in CIT vs. Quality Steel Tubes , 280 ITR 254 (All.) (supra). Therefore, the ld. CIT(A) ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT(A) went wrong in holding it to be a case of transfer of capital from the existing business to the new one. c) The ld. CIT(A) has erred in holding that orders for manufacture were shifted from the existing business to the new one. d) The ld. CIT(A) has fallen into error in holding that there was a unity of control in the two businesses. e) The ld. CIT(A) has wrongly held that there was a shifting of staff from the existing unit to the one newly set up. f) The ld. CIT(A) has erroneously held that tax evasion was the sole reason for setting up the new unit. f) The ld. CIT(A) has, on the basis of the above misplaced findings, incorrectly held it to be a case of splitting up of existing business. 91. In view of the above discussion, we hold that the ld. CIT(A) has misdirected himself in sustaining the disallowance of deduction claimed by the assessee u/s 10B of the Act. The grievance of the assessee is accepted. The order of the ld. CIT(A) is reversed. 92. As stated in the beginning of this order, the facts in all the five appeals are, mutatis mutandis, similar. Therefore, our observations will equally apply to the other appeals also. 92. In the result ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
