2014 (7) TMI 251 - AT - Income Tax

Deduction on profits and gains u/s 80IB of the Act Industrial undertaking formed by reconstruction of business Held that - The decision in assessee s own case for the earlier assessment year followed, the unit has not been formed either by splitting up or by reconstruction of a business - There was a new independent location where new plant and machinery was stated to be installed - Whether the assessee carried the same business or different business was of no consideration as it was done by the revenue authorities - the AO has molded the facts and stated that the old unit was closed down consequently given birth to a new unit - The old unit may stop functioning immediately or after sometime - If old unit runs parallel for some time and thereafter it stop functioning then it is not going to make any difference - carrying on the same business in the new unit or stoppage of business in the old unit cannot be a criteria to hold that it is a case of reconstruction of a business already in existence thus, the assessee is entitled for the claim of deduction u/s 80IB of the Act Decided in favour of Assessee.

Summary

Issues:
Appeal against orders of Ld. CIT(A) for A.Y. 2006-07 & 2007-08, Disallowance of deduction u/s. 80IB, Reconstruction of industrial undertaking.

Analysis:
The assessee appealed against the orders of Ld. CIT(A) for A.Y. 2006-07 & 2007-08, challenging the disallowance of deduction u/s. 80IB based on the reconstruction of the industrial undertaking. The AO disallowed the deduction, stating that the business was shifted from one place to another, not constituting the formation of a new business. Ld. CIT(A) upheld this decision based on the previous year's ruling. The assessee contended that the issue was already decided in their favor by Hon'ble ITAT for A.Y. 2005-06. The ITAT, after reviewing the facts, held that the unit was not formed by reconstruction but at a new independent location with new plant and machinery, satisfying all conditions under section 80-IB. The ITAT emphasized that the mere continuation of the same business in a new unit does not constitute reconstruction, especially when there is a change in location and new infrastructure. The ITAT referred to previous case laws to support its decision.

The ITAT found that the assessee met all the requirements for claiming deduction u/s 80IB and directed that the assessee is entitled to the deduction. The ITAT allowed the appeals filed by the assessee for both years, ruling in favor of the assessee. The decision highlighted the importance of establishing a new unit with new investments and infrastructure, rather than focusing solely on the continuity of business activities. The judgment emphasized the distinction between reconstruction and setting up a new unit, based on factors such as location, installation of new machinery, and investment in the new venture. The ruling provided clarity on the interpretation of the law regarding deductions under section 80IB of the Income Tax Act, 1961.