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TMI Blog2019 (5) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... ch, to be eligible for deduction u/s. 80-IB, is to be of an eligible undertaking/business). Unit-I was set up in August, 2003, i.e., during the previous year relevant to AY 2004-05, so that the current year is the tenth (last) year for which deduction u/s. 80-IB is admissible and, further, at the rate of 25%. The assessee, however, claims having set up another undertaking (Unit-II) on 28.3.2012, on the profit of which for the relevant year, as comprised in the gross total income (GTI) (section 80B(5)), deduction u/s. 80IB is exigible at 100% of the profit. The Assessing Officer (AO), however, did not accept the assessee's claim of having set up a separate, independent unit (i.e., Unit-II), and that there was, in fact, only one business undertaking. His reasons so considering are as under (pgs. 8 to 10 of the assessment order), preceded by discussion in the earlier pages: (a) both the Units function from the same premises, with no new land having been purchased for the so called new Unit; (b) no separate record of EPF etc., of labour, electricity bills, etc. for Unit II was produced; (c) both the Units manufacture the same products, viz., white paper, media paper, MG paper, cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05 by the same DIC. The two certificates issued by the District Industry Centre, Kathua clearly establish that there are two separate units and DIC is the only competent authority to certify about the set up of the new unit. Regarding the sanction of Power Load Connection again it has been sanctioned separately for the two units. The State of J&K Pollution Board has also issued two separate pollution certificates in respect of the two units. All these certificates were issued by the competent authorities which establish beyond doubt there are two separate units set up at two different points of time i.e., 02/04/2005 (*) and 28/03/2012 respectively. On the other hand the AO is not the competent authority to question the authenticity of these certificates. Merely, because the second units was setup on the same plot of land or from the same premises it was wrong on the part of the AO to conclude that second unit does not exist at all and therefore, not entitled deduction u/s. 80IB of the Act. Now coming to the eligibility of the appellant under section 80IB of the Income Tax Act, it is found that it has fulfilled all the conditions laid down u/s. 80IB of the Income tax Act as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total sanctioned load of 1572 KW) (PB pgs. 40-47). The second unit was set up at a total cost of Rs. 545.51 lacs, including on building, installing additional plant and machinery at cost of Rs. 454.24 lacs, on which the assessee had in fact received capital subsidy at Rs. 136.27 lacs (PB pg.48-49), which amount stand reduced from the said cost (of P&M) for claim of depreciation. No land was purchased for the second unit as assessee had already sufficient land (at a total 37 Kanals, or 1,99,800 sq. ft.); with in fact the assessee having surplus land (at 1,14,700 sq. ft.) even after the second unit on 52,400 sq. ft. (of land). No adverse inference could therefore be drawn from the non-purchase of any additional land for the second unit, which was for manufacture of craft paper, i.e., as against white printing paper being manufactured by Unit I. He would, then, explain the difference in the production process between the two, being essentially in terms of the roller speed. The raw material (in the form of the chemicals used) was also different; the assessee having in fact maintained separate files (of purchase vouchers) for the two Units, which were submitted as such in the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions of section 80-IB, principally in terms of the number of workers, etc. as the production, as for the first unit, is with the aid of power. This is particularly so in view of the AO having called for and stated that the record of EPF of the workers was not supplied. The ld. CIT(A), however, issues no such finding. He could have done the exercises himself, or by calling a report by the AO. Adverting to the direction by the Jt. CIT (at pg. 21 of his order) in the matter is of no moment as the AO himself allowed deduction u/s. 80IB, so that the only issue that arises and remains to be examined is if the second Unit independently satisfies the conditions of section 80-IB, and which question stands to be arise only upon the ld. CIT(A) accepting the assessee's claim of the expansion being a separate unit, i.e., vide the impugned order, and not prior thereto. Further, the explanation in respect of the difference (Rs.8.97 lacs) would also be required (refer para 2.1 of this order). 4.3 The principal question is if the additional capacity set up by the assessee is to be regarded as a separate undertaking, i.e., separate and distinct from the first unit, in operation since August, 2003. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acture craft paper. This, however, does not detract from the assessee's case. This is so even if the existing unit is capable of producing craft paper, which as per the material on record it is, or the additional capacity installed (and operative), as stated, since March, 2012, of writing and printing paper. We say so as if the additional capacity set up is a complete facility in itself, from the first to the last stage of production, i.e., input to output, with no dependence on any process capacities of the existing unit, it is a new Unit, which can therefore be titled as Unit-I and Unit-II respectively. 4.5 All that was therefore required of the assessee was to give the process details, preferably in the form of a process chart, with the plant and machinery required at each stage, and correlating the same with the new plant and machinery purchased, also stating its' production capacity and power rating along with. Here it may be relevant to state that while the capacity as per the DIC certificate is stated at 33,000 MT per annum (PB pg. 41), that by the Pollution Board is at 2,33,000 MT p.a. (PB pg. 46). Is it, then, that the assessee has increased the existing capacity along wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce arising in the regular course of business. In fact, any Management would want to the expedite the process, saving on losses on account of overheads and absence of revenue generation. The same would, again, require funds. The funds transferred have however been applied in setting up a new unit, i.e., on irreversible basis. This imbroglio, then, needs to be satisfactorily explained in-as-much as, clearly, the transfer could not be at the cost of the existing unit. If its' operational capacity, even if in terms of working capital, has been impaired, it cannot be said that a separate, independent unit has been set-up, else it has. Further, if the working capital, i.e., as required for its' production, stated to be different from that of the new unit, transferred thereto, is subsequently infused by way of borrowed capital, entailing cost, the same is only an indirect reduction and, thus, shift of profit from the existing to the new unit; the former being now subject to tax, i.e., substantially or wholly, which cannot be countenanced in law. In fact, the charge of transfer/ shift of profit is a serious one (refer Ground 1), and would require being clarified. Apart from decline in dem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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