TMI Blog2020 (5) TMI 278X X X X Extracts X X X X X X X X Extracts X X X X ..... has not maintained separate books of accounts, it employed the same employees for manufacture of all products, there was no physical separation of units, separate power connection and separate stock registers, etc. On such findings, he has come to the conclusion, that no new undertaking has come up by substantial investment, the so called new unit is not an integrated unit by itself, the subsequent purchases of new machinery's after the purchase of old unit was done in the ordinary course of expansion of the business and not in the nature of new industrial undertaking within the meaning of Section 80IB - On such cumulative findings, the assessee has not laid any fresh material to prove that the appellant has established a new undertaking which is capable of manufacturing new products with distinct characteristics has come into existence during the assessment year 2001-02 which is the initial year for the claim of deduction u/s.80IB. We do not find any reason to interfere with the order of the ld.CIT(A) and hence, the corresponding grounds of the assessee are dismissed. Disallowance of payments made to ASTA Beab Certification Service and China Inspection Company Ltd., as te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The issue started from the initial A.Y. i.e. 2001-02. Against the assessment order dated 29.03.2004, the assessee filed an appeal before the CIT(A) and the ld CIT(A) vide order in ITA No.23/2004-05, dismissed the appeal . On further appeal by the assessee, the Hon'ble ITAT vide its order in ITA No.2910/Mds/2005 dated 12.10.2007 has remitted back to the AO to consider the issue in de-novo. Subsequently, the AO denied the claim of deduction u/s 80IB noticing certain shortcomings in the quantum of the machinery purchased by the assesse and also holding that the assessee has not satisfied two major conditions as mentioned by the Supreme Court of India in the case of M/s Textile Machinery Corporation vs CIT 107 ITR 195 as under: 1. The manufacture of production or article or things by the so called new industrial undertaking with reference to the investment of substantial capital made in the so called new industrial undertaking. 2. The assessee company was not able to establish that the so called new industrial undertaking is a separate and distinct and identity when compared to the old industrial undertaking. 2.1 Similar claims made by the assessee u/s 80IB were also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... about 174% of the value of old machinery, which in fact depicts substantial investment (refer section 801C(8)(ix) of the Act which defines Substantial expansion to mean increase in the investment in the plant and machinery by at least fifty per cent of the book value of plant and machinery (before taking depreciation in any year), as on the first day of the previous year in which the substantial expansion is undertaken. Further, it is also relevant to point out that installed capacity was substantially increased which is evident from the year on year increase in turnover. 2. With regard to the finding that no new technology was employed and no new and different products was manufactured, the ld.AR submitted that New machinery worth INR 60.86 lakh was installed for manufacturing Bussmann range of fuses. Commissioning report was also furnished in the course of hearing. Further, the fact that the said new machinery was put to use by the Appellant during the relevant AY and the corresponding depreciation was claimed, and was never objected by the AO as well as CIT(A). The Bussmann range of fuses are manufactured with European specifications and they are sign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid infirmities, such statement is inadmissible and reliance on the same is contrary to principle of natural justice. No requirement to maintain separate muster roll for separate units for availing deduction under section 81B of the Act. The statements / observations of the AO / CIT(A) are factually incorrect. There were separate employees for Bussmann Unit and S S Unit. 5. With regard to the finding that no physical separation of the units, the ld.AR submitted that the evidences tendered by the Appellant, to demonstrate that the new undertaking is a physically separate and independent undertaking, have been wrongly rejected . The AO has erred in rejecting commission report prepared by the Appellant's engineers, without appreciating that there is no statutory requirement to obtain the commissioning report to be issued by an independent third party or a government agency. On one hand the AO / CIT(A) has not disputed allowance of depreciation on the said plant and machinery since they were setup and put to use during the relevant AY by the Appellant, on the other hand they are disputing the commissioning of the machinery, which is self-contrad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. The Appellate has manufactured and exported the Bussmann range of fuses during the relevant AY, the said manufacturing was undertaken by the new machinery setup in Bussmann unit. In view of this, the AO I CIT(A) have erred in concluding that the manufacturing activity of the Appellant has not commenced. 8. With regard to the finding that no separate stock registers, the ld.AR submitted that the Appellant furnished its Central Excise Return for October 2000 as well as print outs of the computer extracts of its daily stock register, which it maintains under the Central Excise Act, 1944. Moreover, it is submitted that maintenance of separate physical daily stock register is not a requirement under the law and the same cannot be a decisive factor whether a new undertaking has been setup or not, particularly when the Appellant has furnished its central excise return to demonstrate that it manufactured the impugned product during the relevant period. and invited our attention to the materials placed in the Paper-book and relied on various case laws, in support of his contentions. Per contra, the ld.DR submitted that the material furnished by the assessee were thoroughly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne of the plant and machinery of the S S unit was used for the manufacture of the Bussmann fuses. The list of plant and machinery mapped with the processes by both the units are enclosed. The design / physical dimensions of the Bussmann fuse is entirely different from the S S fuse. The technology / process involved in the manufacture of Bussmann fuse are also difference from that of S S fuse. S S fuses continued to serve the Indian market with the existing customers and the Bussmann Unit supplied the new range of fuses. The list of existing products and customers of the S S unit and Bussmann unit is enclosed. Even after the setting up of the Bussmann unit, the business of the S S unit was also carried on and continued to grow year-on-year, as evident from the following table tabulating the turnover of the Bussmann unit and the S S unit over the years: Particulars AY 2001-02 AY 2002-03 AY 2003-04 AY 2004-05 AY 2005-06 New undertaking 4.55 crores 11.40 21.35 29.76 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith reference to the investment of substantial capital made in the so called new industrial undertaking. 2. The assessee company was not able to establish that the so called new industrial undertaking is a separate and distinct and identity when compared to the old industrial undertaking. 5.4 I have considered the findings giving by the AO in the order of re-assessment and submissions made by the appellant carefully. The facts of the case are that the assessee company was incorporated on 24.09.1992 but the business activity of the company commenced only during the previous year relevant to the A.Y. 2000-01 and the assessee company acquired a division of another company known as M/s S S Power Switch Gear Ltd.(M/s S S PS Ltd.). As per the hive of agreement dated 17.12.1999 entered into the assessee company and M/s S S PS Ltd., M/s S S PS Ltd. transferred its low tension(fuse business) located at Pondicherry to the assessee company. As a result of hive of agreement, the assessee company acquired the following assets of M/s S S PS Ltd. S.No. Name of the assets Amount 1 La ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Date of incorporation of the SSP Industrial Investments Ltd. Subsequently, the name of the company was changed to S S Low Tension Switchgear Ltd. (the company) 2 31.08.99 The manufacturing facility of S S Low Tension Fuses(S S LT fuses division) at Pondicherry was hived off to S S Low Tension Switchgear Ltd. by S S Power Switchgear Ltd. The area occupied by plant and stores of S S LT fuses division was around 1280 sq.ft. 3 20.01.2000 The shares of S S Low Tension Switchgear Ltd. was transferred to Cooper Bussmann LLC on 20/01/2000. 4 August 1999 to March 2000 Cooper Bussman LLC has infused funds amounting to ₹ 12,55,67,120/-. Out of the amount infused ₹ 11,83,20,000/- was utilized to pay the consideration to S S Power Switchgear Ltd. and the balance was utilized for purchase of new plant machinery to be used for manufacture of Bussmann range fuse fuse fittings The sales of S S LT fuse division for the financial year ended 31.03.2000 was around ₹ 1,95,27,964/-. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inery to be used for the manufacture of bussmann range fuse and fuse fittings. The quantum of the new investment made after paying to M/s. S S Power Switch Gear Ltd., was very low as compared to initial investment in the acquisition of the Low Tension Division Unit of M/s S S Power Switch Gear Ltd. t Pondicherry which is about 5.7%. The appellant has not made any significant investment in the plant machinery during the assessment year 2001-02 other than the initial investment of ₹ 60,00,000/-. Even for this stated investment of ₹ 60 lakhs in plant machinery, the appellant could not produce copies of invoices in respect of all the purchases. The appellant could produce only invoice copies to the extent of ₹ 53,17,373/-. Hence, it can be construed that the appellant has invested in the plant machinery to the tune of ₹ 53,17,373/- only and not over the ₹ 60 lakhs as claimed by the appellant. If this figure is taken, the percentage of the plant machinery purchase visa-vis total investment after the purchase of the Low Tension Division Unit comes to about 4.23% only. According to the appellant, the turnover of the so called the new industrial undert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Division. On perusal of the audit report in Form No.10CCB for A.Y. 2005-06 A.Y. 2006-07, it was noted that even the income from job work and sale of HRC fuses components and interest income shown for the purpose of computation of profit of export division are allocated without any scientific data, self certified and the manufacturing expenses are also allocated on the basis of the ratio of the export sales to total sales. Same basis of accounting was adopted by the appellant for the A.Y. 2001-02 also. This itself prove that no separate industrial undertaking was established by the appellant. (d) Same employees were employed for all the manufacture of all products: The appellant did not furnish any evidence to prove that the new employees recruited were employed throughout the year only for the purpose of products manufactured for export purposes. No evidence was furnished by producing muster roll register in respect of both the units separately. The non maintenance of separate wage registers in respect of the so called separate units go to prove that the appellant in fact did not establish new industrial undertaking for the purpose of export business. (e) No physical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the manufacturing activities of the new Bussmann Range products, being manufactured by M/s Cooper Bussmann Pvt. India Ltd. to meet the required quality/safety standard specified for export by M/s Cooper Bussmann, UK. The chartered engineer used the word 'the old machineries cannot be effectively utilized' which itself means that old machineries can also be used in the manufacturing activities of the so called new products being manufactured though with a less effectiveness. The chartered engineer has not completely ruled out usage of the old machineries for the manufacture of the so called new products. Later on i.e. on 07.01.2014, the chartered engineer changed his stand without plausible reasons and also without any actual verification. It is to be seen that the appellant has sold entire old machineries during the financial year 2007-08. The appellant has shown the same as sale of scrap vide his invoice dated 09.01.2009. Then how come, the chartered engineer verify the old machinery on 07.01.2014 when that has already become scrap during the FY 2007-08 and also disposed on 09.01.2009. Therefore, the certificate given by the chartered engineer cannot be the basis for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in these new machineries. The assessee s contention that different types of machines are involved in the manufacture of Bussmann range of products which are meant for export purpose was not supported by any evidence. With regard to commencement of new manufacturing activity, the ld.CIT(A) held that the so called invoice dated 21.07.2000 for import of raw material and the so called invoice for the export of products dated 31.10.2000 do not conclusively establish that the appellant has manufactured distinct products from the products which were already being manufactured. With regard to the certificate produced by the assessee dated 03.03.2005, stating that the machineries which were listed in Annexure 1 which was used in the plant prior of the acquisition of the plant by M/s. Cooper Bussmann Pvt. India Ltd., to meet the required quality/safety standard specified for export by M/s. Cooper Bussmann, UK. However, later on i.e., on 07.01.2014, the chartered engineer changed his stand without plausible reasons and also without any actual verification. It is to be seen that the appellant has sold entire old machineries during the financial year 2007-08. The appellant has shown the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere tax is required to be deduction under Chapter XVII of the Act. It is settled law that tax is not required to be deducted from a payment made to non-resident, under section 195 of the Act, if such payment is not subject to tax in India. Thus, the issues which needs to be examined at the outset is whether the payments made to ASTA and China Inspection Company Ltd., which are non-resident, would be taxable in India under the Act as well as under the respective DTAA. Further, it was submitted that the impugned payments were made only towards product certification services, provided by such non-resident from overseas. They have no business connection in India and the said services were provided outside India and were related to export of goods. Therefore, such services were not taxable in India as they are neither managerial, technical or consultancy services. It is purely an audit work, which comes within the definition of professional services, however in the absence of business connection and the activity being carried out by them in India, the same would not be taxable in India. It was submitted that whole process of testing and certification is an automated process without h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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