TMI Blog2003 (3) TMI 258X X X X Extracts X X X X X X X X Extracts X X X X ..... acts in ignoring the spirit of ratio of decision of Karnataka High Court in the case of CIT vs. Nippon Electronics (India) (P) Ltd. (1990) 81 CTR (Kar) 24 : (1990) 181 ITR 518 (Kar) in which it has been held that eligibility stands determined in initial assessment year. In this case assessee was not eligible for the deduction in the initial assessment year, therefore, question for granting deduction in subsequent year does not arise." 3. Briefly stated, facts are that the assessee is a registered firm carrying on business of manufacturing and sale of cable and wires. The assessee's firm consists of two partners, namely, Shri Kailash Chand Gupta and Smt. Mithlesh Gupta, having profit sharing of 50 per cent each. These two partners were also partners in another concern, namely, M/s Khandelwal Cables, wherein the profit sharing was 40 per cent of Shri K.C. Gupta and 60 per cent of Smt. Mithlesh Gupta. The assessee's firm was constituted w.e.f. 27th Dec., 1989, and the return filed for asst. yr. 1990-91 was processed under s. 143(1)(a) of the Act. The AO while relating the history of the partner, and the business done by the group stated that Shri Mahesh Chand Gupta, husband of Smt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ady in existence has observed that there is a common management of business affairs of the two firms as the partners of both the firms, Shri Saurabh Gaur and Shri D.D. Gupta, are common partners of both the concerns as they had claimed travelling expenses from the other firm, namely, M/s Khandelwal Cables. He has further observed from the details of machinery that it is not clear as to which machinery is meant for which unit. In the asst. yr. 1993-94, machinery worth Rs. 1,01,505 had been transferred by the assessee to M/s Khandelwal Cables; manufacturing of another concern Khandelwal Cables was decreasing day by day; there was frequent transfer of funds through the partner from the firm, M/s Khandelwal Cables to M/s Khandelwal Associates. The telephone numbers used by the two concerns were same, main customers, agents as well as nature of business were also same namely cable/wire manufacturing. The details of cables/wires manufactured by M/s Khandelwal Cables reveal 11 kinds of wires while in the case of assessee there was only one kind of wire. The AO has further quoted the case of Shri Mahesh Chand Gupta where it was gathered that the new product winding wire for use in submersi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered all the arguments of the appellant as also the facts narrated in the assessment order. In CIT vs. Orient Paper Mills Ltd. (1974) 94 ITR 73 (Cal), it was held that the expression 'new industrial undertaking' and 'splitting up or reconstruction of business already in existence' must be understood in broad commercial sense for common point of view. The Tribunal Delhi 'C' Bench, in the case of Dy. CIT vs. New Sarkar Biri Factory, Amroha, in ITA No. 5734/Del/1989, asst. yr. 1986-87, dt. 10th May, 1993, has held that in the absence of any material that the new firm was formed for the purposes of taking over the business of the old firm, the deduction claimed under ss. 80HH and 80-I could not be disallowed. The Tribunal took note of the fact that the new machinery had been purchased by the new unit, the old business was still in existence. In the instant case, on the perusal of the material on record it has been duly found by the AO that M/s Khandelwal Cables continued to exist separately and the appellant had acquired new machineries for purposes of its business. The appellant has not acquired any machinery from M/s Khandelwal Cables. No adverse inference should have been draw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee, at the outset, has submitted that this issue has been considered by Tribunal, Delhi Bench in the case of Mahesh Chand Gupta vs. Dy. CIT (1995) 55 ITD 202 (Del), wherein the claim of the assessee made under ss. 80HH and 80-I has been allowed. He has further mentioned that the AO has made a reliance on its order given in the case of Mahesh Chand Gupta. Since the facts are identical in both the cases, it could be said that this case is covered by the decision of Tribunal, Delhi Bench, given in the case of Mahesh Chand Gupta. 8. However, the learned Departmental Representative has argued that the facts of the instant case are not identical with that of Mahesh Chand Gupta inasmuch as the condition for allowing deduction under ss. 80HH and 80-I namely, that the employment of 10 or more workers in the manufacturing process carried on with the aid of power has not been fulfilled in the instant case. In this regard, he has relied upon the order passed by the AO wherein the AO made out a case that there were 7 workers only in the initial year of the assessee-concern. The learned Departmental Representative while relying upon the decision in the case of CIT vs. Nippon Electronics ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , on these facts the AO came to the conclusion that there were only 7 workers in the initial year of the assessee. The perusal of the note recorded in the order-sheet as extracted above would show that 8 workers were paid basic salary @ Rs. 710 to Rs. 715 whereas Shri Giriraj Sharan Sharma was paid Rs. 1,065 and Shri Mahesh Chand Gaur Rs. 960. It is these three persons who have been taken out by the AO as non-worker supervisory staff. However, the Inspector's report itself contradicted the inference drawn by the AO. He has mentioned the number of supervisory staff/technical staff and skilled labour as 3/8. We, after having considered the matter, are of the view that the salary paid to the three persons is marginally higher as compared to the wages paid to other 8 workers. It may be because of the reasons that they are technically experienced persons for which reason slightly higher wages have been paid to them. However, the fact remains that they remained the workers of the assessee-concern. Further, in the absence of any definition of workers in the Act, this technical staff has to be treated as workers of the assessee-concern. We, therefore, hold that the assessee has satisfied t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as stated that the rejection was out of goods sold during the preceding year and during the year under appeal, since the commission agents had reported about the rejection, no action was required to be taken against the commission agents. It was further stated that since rejected goods of M/s Lubi Submersible (P) Ltd. consisted of small burnt pieces and they were not of any use except selling them as scrap. Some of the goods of other parties were rectifiable which were returned back to the concerned party after rectification. No action against the supplier of machinery was taken as manufacturing is always based on trials and errors, and the rejection cannot be attributed to any fault of machinery but it was on account of some faulty system. With regard to comparative figures of rejection, it was submitted by the assessee that the preceding year consisted of 10 days and the rejection of goods sold during that period were also included in the rejection of current year as during the period of 10 days no such claim was raised. The said explanation of the assessee, however, did not find favour with the AO. According to the AO the assessee has got experience in the line and they should h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the building itself was completed in financial year 1993-94, i.e., after the relevant accounting year. Some portion of the building was also stated to have been constructed by end of the relevant accounting year. Therefore, the building maintenance expenses claimed at Rs. 20,618 were not in the nature of current repairs but was expenditure on the construction of building. Therefore, the AO capitalised this expenses and allowed depreciation thereon. 20. On appeal before the CIT(A), the assessee has submitted that it was brought to the notice of the AO that part of the building had already been completed in the accounting year and depreciation on such portion of the building had been allowed even in earlier years because it had been used for its manufacturing purposes. It was also pointed out that the opening WDV of the building was Rs. 2,08,016 and further investment of about Rs. 80,000 had been made before 30th Sept., 1991. Accordingly, the assessee had claimed depreciation on the opening WDV plus additions made before 30th Sept., 1991, at full rate. It was also pointed out that the expenses incurred for building maintenance were in respect of repairs and maintenance of the ..... 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