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2010 (7) TMI 831 - AT - Income TaxDeduction u/s.80IB - transfer of the business activity - HELD THAT - there was no evidence with the AO through which it could be demonstrated that the machinery was transferred from old unit to new unit. There was no iota of evidence to say that it was a case of splitting up of the old business. The old unit was closed down way back in the year-1998 and the new unit had come up in the year-2002 and an entirely new building was constructed with the deployment of new technology to manufacture new type of telephone instrument. The assessee has successfully demonstrated that the new unit was set up with the substantial investment in plant machinery. On account of these facts as well as on account of the legal position, we find no force in the grounds of the Revenue, hence dismissed. In this manner, for AY's 2002-03, 2003-04 2004- 05 2006-07 in all four years ground No.1 of the Revenue is hereby dismissed. deleting the addition - account of creditors - HELD THAT - the appellant produced copy of ledger account of the creditors for the subsequent year and submitted that the payment has been already made to the said creditors. Since the appellant has already made payments to the creditors in dispute the addition made on this account is directed to be deleted. The appellant succeeds in this ground of appeal. therefore, in the absence of any contrary material, we have no reason to doubt the findings on facts of the first appellate authority. We hereby affirm those findings and dismiss this ground of the Revenue. addition u/s.68 - account of capital - introduced by the partner - HELD THAT - Since Learned CIT(A) being under the territorial jurisdiction of the Hon'ble Gujarat High Court has also directed the Assessing Officer to take due legal action in the hands of the partner considering the capital introduced by him in his respective capital account, therefore, in our considered opinion, being within the jurisdiction of the Gujarat High Court, the directions given by the Learned CIT(A) deserves to be upheld and the deletion of addition in the hands of the assessee-firm is hereby confirmed. With the result, ground of the Revenue is dismissed. deduction u/s.80IB - disallowance u/s.40a(ia) - the learned CIT(A) has erred in allowing the deduction u/s.80IB on disallowance u/s.40a(ia).It was noticed by the AO that the appellant had failed to deduct the TDS amount. Because of the said reason a disallowance u/s.40a(ia) was made. HELD THAT - Since the language itself says that in case of disallowance, the said disallowance should fall under the category of income chargeable under the head profits and gains of business or profession , therefore, the impugned disallowance has to be treated as part of the business income of the assessee and thereupon to be taxed as per the other provisions. With the result, we hereby affirm the directions of Learned CIT(A). This ground of the Revenue is dismissed. HELD THAT - the same is consequential in nature because of the basic reason that once a deduction is allowed u/s.80IB for the year under consideration due to the disallowance for AY 2006-07. In our opinion, the AO is competent enough to take care of the interest of the Revenue by not committing such a mistake of granting double benefit to this taxpayer in any of the subsequent year. We order accordingly. In the result, all the four appeals of the Revenue are dismissed.
Issues Involved:
1. Claim of deduction under Section 80IB of the Income Tax Act, 1961. 2. Addition on account of creditors. 3. Addition on account of capital introduced by the partner. 4. Deduction under Section 80IB on disallowance made under Section 40a(ia). Issue-wise Detailed Analysis: 1. Claim of Deduction under Section 80IB: The primary issue across all four appeals was the claim of deduction under Section 80IB of the Income Tax Act, 1961. The Revenue argued that the assessee's new unit at Kachigam, Daman, was formed by the reconstruction of an existing business, which disqualified it from claiming the deduction. The Assessing Officer (AO) noted that the assessee had previously operated a unit at Mogarwada, Daman, which was closed in 1998. The AO alleged that the new unit was essentially a continuation of the old business, thus failing the conditions of Section 80IB(2)(ii). The assessee countered that the Kachigam unit was a new undertaking, with new investments in plant, machinery, and building, and engaged in manufacturing different products using new technology. The first appellate authority upheld the assessee's claim, noting that the new unit was independent and distinct from the old unit. The tribunal found in favor of the assessee, stating that the new unit was not formed by splitting up or reconstructing the old business. The tribunal emphasized the importance of legal terminology and concluded that the AO had misinterpreted the provisions of Section 80IB. The tribunal cited several case laws supporting the assessee's position and confirmed the first appellate authority's findings. 2. Addition on Account of Creditors: For the Assessment Year 2002-03, the AO added Rs. 5,14,790 on account of creditors, as the assessee failed to furnish confirmations for the creditors Sahyog Industries and Shogini Technoarts Pvt. Ltd. The first appellate authority deleted the addition, noting that the payments had been made to the creditors in subsequent years and that the parties were traceable. The tribunal upheld the first appellate authority's decision, confirming that the payments were made through proper banking channels and that the accounts were squared up. The tribunal found no reason to doubt the first appellate authority's findings in the absence of any contrary material. 3. Addition on Account of Capital Introduced by the Partner: For the Assessment Year 2002-03, the AO added Rs. 1,00,000 introduced as capital by partner Shri Manjit Singh, invoking Section 68 of the Income Tax Act, 1961. The first appellate authority found that the partner had sufficient independent income and was assessed to tax, thus deleting the addition. The tribunal affirmed the first appellate authority's decision, citing the Hon'ble Gujarat High Court's ruling in Pankaj Dyestuff Industries, which held that once partners own the monies deposited in their accounts, the AO should assess the same in the partners' hands if their explanation is unsatisfactory. The tribunal upheld the deletion of the addition in the assessee-firm's hands. 4. Deduction under Section 80IB on Disallowance under Section 40a(ia): For the Assessment Year 2006-07, the AO disallowed Rs. 3,71,896 under Section 40a(ia) for non-deduction of TDS on certain payments. The first appellate authority directed that the disallowance should increase the claim of deduction under Section 80IB, as it would be added to the "income from business or profession." The tribunal found no fallacy in the first appellate authority's directions, confirming that the disallowance should be treated as part of the business income and taxed accordingly. The tribunal dismissed the Revenue's ground, affirming the first appellate authority's decision. Conclusion: All four appeals of the Revenue were dismissed. The tribunal upheld the first appellate authority's findings on the claim of deduction under Section 80IB, the addition on account of creditors, the addition on account of capital introduced by the partner, and the deduction under Section 80IB on disallowance made under Section 40a(ia). The tribunal's detailed analysis and reliance on relevant case laws supported its conclusions, ensuring a thorough and comprehensive judgment.
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