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Issues Involved:
1. Disallowance of depreciation for MAP manufacturing unit. 2. Disallowance of interest related to borrowings for MAP project. 3. Disallowance of various expenditures for IPU manufacturing unit. 4. Reduction in the quantum of deduction claimed under section 80-I of the I.T. Act. Issue-wise Detailed Analysis: 1. Disallowance of Depreciation for MAP Manufacturing Unit: The first ground of appeal pertains to the confirmation by the CIT(A) of the disallowance of depreciation of Rs. 24,29,913 made by the Assessing Officer in respect of assets of the new MAP manufacturing unit. The assessee claimed depreciation on the plant and machinery, factory building, and other assets of this unit on the ground that the unit became functional during the year and trial production was started. The Assessing Officer disallowed the claim on the grounds that the MAP unit was an independent unit and commercial production had not started. The CIT(A) confirmed this disallowance, observing that the MAP unit was a new unit and trial runs did not culminate in commercial production. The Tribunal, however, disagreed with this view, stating that trial production entails actual use of the plant and machinery for business purposes. The Tribunal directed the Assessing Officer to allow depreciation, restricting it to 50% of the admissible amount as the plant and machinery were used for less than 180 days in the previous year. 2. Disallowance of Interest Related to Borrowings for MAP Project: The second ground of appeal pertains to the disallowance of interest of Rs. 23,01,836 relating to borrowings used for the MAP project. The revenue authorities disallowed the interest on the ground that the borrowed funds were utilized for investment in the new project and, therefore, the interest expenditure had to be capitalized. The Tribunal, however, held that the assessee must succeed on this issue, relying on the Gujarat High Court decision in the case of Core Healthcare Ltd. and the Bombay High Court decision in Tata Chemicals Ltd. The Tribunal directed the Assessing Officer to allow the deduction in respect of the interest, noting that the WDV of the relevant assets may have to be modified in subsequent assessment years if the interest had been added to the cost of assets. 3. Disallowance of Various Expenditures for IPU Manufacturing Unit: The third ground of appeal pertains to the disallowance of various expenditures in respect of the IPU manufacturing unit, including depreciation, expenditure on power and fuel, research and development expenditure, and interest. The IPU unit was an existing manufacturing unit, and during the present assessment year, the production of IPU was stopped, and the unit was modified to produce different items. The revenue authorities disallowed the claims on the ground that the expenditure was treated as capital expenditure in the books of account. The Tribunal, however, held that the assessee is entitled to the relevant deductions, including depreciation, as the plant and machinery were subjected to trial runs. The Tribunal directed the Assessing Officer to allow the expenses claimed by the assessee and to allow depreciation as per the provisions of law, after verifying the period during which the plant and machinery were actually used for trial runs. 4. Reduction in the Quantum of Deduction Claimed Under Section 80-I of the I.T. Act: The last ground of appeal pertains to the reduction in the quantum of deduction claimed by the assessee under section 80-I of the I.T. Act. The assessee claimed a deduction of Rs. 54,28,290, which was restricted by the Assessing Officer to Rs. 20,83,666. The assessee maintained only one set of books of account for all the industrial units, and the Assessing Officer estimated the profits from the industrial undertaking on the basis of the total turnover and the average profit rate earned by the assessee. The CIT(A) confirmed this approach, and the Tribunal agreed, stating that the basis adopted by the Assessing Officer appeared to be fair and logical given the lack of separate books of account for the industrial undertaking. Conclusion: In conclusion, the Tribunal allowed the appeal partly, directing the Assessing Officer to allow depreciation and interest deductions for the MAP project and various expenditures for the IPU unit, while confirming the reduction in the quantum of deduction claimed under section 80-I.
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