TMI Blog2005 (8) TMI 292X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee has purchased from ICI (India) Ltd. a plant which was installed at Rishra. This plant was manufacturing water treatment chemicals. The installed capacity of the plant was 1070 tons. The cost of the plant and machinery was Rs. 54.55 lakhs and further the assessee purchased new plant and machinery worth Rs. 18,69,000. This industrial undertaking was located at Rishra. The Ld. D.R. submitted that in the first year, the plant and machinery worth Rs. 54.55 lakhs were second-hand since it was previously used by ICI (India) Ltd. and were acquired in running condition. The fresh addition made by the assessee was only Rs. 18.69 lakhs and, therefore, the cost of old plant and machinery was much higher than 20 per cent of the total cost of the plant and machinery. Accordingly, in terms of Explanation 2 below section 80-I(2), the assessee was not eligible for deduction in the first year. The Ld. D.R. continued his argument and submitted that once the assessee failed the eligibility test in the first year Le., assessment year 1989-90, no benefit would be available to assessee in the subsequent years even if in such subsequent years new investment is made by the assessee so as to redu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st crucial fact in this document is that the assessee made an application for grant of licence not merely of water treatment chemicals but also of oil field and industrial chemicals (additives) as far back as 10-6-1986 i.e., many months prior to the assessment year 1989-90. 5. He submitted that the licence was granted on 12-9-1988 for manufacturing and sale of all three chemical products. It was further stipulated that in terms of the licence, the project had to be completed within two years. Another significant fact apparent from the aforesaid licence is that the permission was for production at Rishra site as explicitly mentioned therein. It would be incorrect to assert that the assessee started construction of a new project at Konnagar pursuant to the grant of this licence. When the construction of this site began in November 1988, it was not for starting a new industrial undertaking but to relocate the industrial undertaking at Rishra. The Ld. D.R. further submitted that the facts decisively demolished the case of the assessee that there were two distinct industrial undertakings- one at Rishra that manufactured water treatment chemicals and the other at Konnagar that manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal address. Therefore, according to the Ld. D.R., the assessment year 1989-90 is quite certainly the first year in the life of the industrial undertaking. The Ld. D.R. submitted that the assessee's contention that a 'new' industrial licence was acquired in 1988 is incorrect and, as mentioned, the assessee had applied in 1986 itself and the same was granted for manufacturing at Rishra. Further, had the assessee continued production at Rishra, there would have been no need for a new excise licence as well. 7. It was submitted by him that a change in the site of an industrial undertaking makes no difference to an ineligible claim of deduction under section 80-I. The Ld. D.R. submitted that it is wholly incorrect on the part of the assessee to contend that the unit at Rishra stopped production. Production did not stop because there was an irreversible cessation of manufacturing and that the company wound up. It was submitted by him that production stopped at Rishra because the assessee decided to relocate at Konnagar where production recommenced. There was no stoppage of production per se but stoppage of production at a particular location only. Further, according to the Ld. D.R., t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to Rs. 11,44,000 is apparent and indicates the use of machinery for full-fledged business purposes. 11. Further, in the fixed asset Schedule No. 3 to the Balance Sheet, the gross block as at 31-3-1989 in respect of plant and machinery has been stated at Rs. 73.24 lakhs on which depreciation of Rs. 2.81 lakhs has been claimed. Item No. 3 of Schedule 12 of the accounts clearly states that the assessee acquired the water treatment chemical business of IEL Ltd., later named [ICI (India) Ltd.] valued at Rs. 54,55,440. 12. The Ld. D.R. submitted that the fact that a new industrial unit has come into being in the period relevant to the assessment year 1989-90 is borne out by the fact that the assessee had made purchases of raw material etc. and incurred other expenditure as reflected in Schedules 11 and 12 of the Profit and Loss Account. The quantitative value of the water treatment chemicals actually produced is at item No. (11) of Schedule 13 to the accounts. 13. The assessee itself states that there was commencement of business at appoint of time falling in the previous year relevant to the assessment year 1989-90. In Schedule 13 being notes "forming part of accounts", at Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used plant of M/s. ICI (India) Ltd. 16. On the other hand, the Ld. A.R. of the assessee Dr. D. Pal, Senior Advocate, argued at length and supported the order of the CIT (Appeals), a copy of which was enclosed. He also referred to the assessment orders in respect of the assessment years 1995-96, 1996-97 and 1997-98, copies of which are enclosed in the Paper Book. The Ld. Counsel has enclosed copy of the order of the I.T.A.T. which cancelled the order under section 263 passed by the C.I.T. in respect of the assessment year 1993-94. He has also enclosed the copy of the order of the I.T.A.T. in respect of the appeal filed by the department against consequential order for the assessment year 1993-94. The Ld. Counsel for the assessee has submitted that the assessee's claim has been allowed consistently for all the years, i.e., assessment years 1995-96, 1996-97 and 1997-98, by the CIT (Appeals). The Ld. Counsel submitted that what the assessee had at Rishra was a water treatment chemical plant acquired from ICI (India) Ltd. which was dismantled in February, 1990. The excise licence was surrendered. The plant was dismantled and taken to a different site at Konnagar where two more chemic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 11 of the Industries Development and Regulation Act, 1951. The said licence was granted on 12th September, 1988. The said licence specially provided a condition that the new industrial undertaking shall be completed and commercial production started within the period of two years from the date of issue of this industrial licence. It will appear, therefore, that the industrial licence could not refer to the old plant which was purchased by the assessee from ICI India Ltd. in 1988. The said industrial licence has been issued under section 11 of the Industries Development and Regulation Act. Section 11 provides that no person or authority other than the Central Government shall after the commencement of the said Act, establish any new industrial undertaking, except under and in accordance with a licence issued in that behalf by the Central Government. Therefore, when the industrial licence was given it clearly postulates that a new industrial undertaking is to be set up in terms of the said licence. Objection is raised on behalf of the Department that in the licence the setting up of the plant is to be made at Rishra, District - Hooghly. As already pointed out when the lice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... schedule for the assessment year 1990-91 that for the old plant which was purchased from ICI India Ltd. depreciation of Rs. 12,46,221 has been allowed to the said old unit which was purchased from ICI India Ltd. and which was worked up to 28-2-1990. When the new industrial undertaking was set up and commercial production started from 9-3-1990 the old unit was dismantled and the plant and machinery of the old unit valued at Rs. 54.55 lakhs was transferred to the new industrial undertaking which was set up at Konnagar under the industrial licence and for which also the factory licence and excise licence were obtained. The assessee never claimed any deduction under section 80-I on the old unit which was installed in the year 1988. The said old unit was dismantled after it worked up to 28-2-1990 when the new industrial undertaking was set up and commercial production started from 9-3-1990 in the new industrial undertaking. Even according to the Income Tax Officer himself the addition was to the tune of Rs. 639.90 lakhs. The old machinery which was transferred from the old unit purchased from ICI India Ltd. was worth Rs. 54.55 lakhs and therefore it was less than 10 per cent of the tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have perused the copy of annual report and accounts for the year ending March, 1989. After careful consideration of the entire facts and submissions, we are of the view that the Revenue will succeed. It is an admitted fact that the assessee made an application for grant of licence not merely of water treatment chemicals but also of oil field chemicals as on 10-6-1986, much before the assessment year 1989-90. The licence was granted on 12-9-1988 for manufacturing and sale of all the three chemical products. Therefore, it is not correct to say that the assessee has started construction of a new project at Konnagar pursuant to the grant of this licence. When the assessee started work at Konnagar, it was not for starting a new industrial undertaking but to relocate the industrial undertaking at Rishra. It was a kind of shifting the place of industrial undertaking which is very nearby in the same District. An industrial undertaking can manufacture a number of products. As such, an industrial undertaking can choose the timing of commencement of production of one or more related products within the overall limits of licence terms and this is exactly what the assessee has done. It has st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 1989-90. Therefore, the initial year for new industrial undertaking is the assessment year 1989-90 only and since the machinery which was used was old and more than 20 per cent of the total plant and machinery, it clearly violates one of the conditions which is required to be fulfilled to be entitled for deduction under section 80-I. Accordingly, we hold that the assessee is not entitled for deduction under section 80-I in any of the three assessment years 1995-96, 1996-97 and 1997-98. 18. We may mention here that the Ld. Counsel has enclosed the copies of the two orders of the I.T.A.T., one cancelling the order under section 263 passed by the C.I.T. in respect of the assessment year 1993-94 and the other order of the I.T.A.T. dismissing the Revenue's appeal in respect of the assessment passed consequent to order under section 253. In this regard, we may mention that while adjudicating upon the order under section 263, the Hon'ble I.T.A.T. has not gone into the merits of the case as it appears from its order in I.T.A. No. 596/Cal/98, the relevant portion of which is reproduced below:- "4. We have heard the rival contentions, perused the orders of the authorities below and du ..... X X X X Extracts X X X X X X X X Extracts X X X X
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