2015 (3) TMI 649 - HC - Income Tax

Disallowance of deduction u/s 80-IA - AO held that since there was sale of going concern and formation of Private Limited Company, there was capital gain, for which tax was liable to be paid by the assessee under Section 50-B of the Act and disallowed the deduction claimed by the assessee under Section 80-IA - Tribunal allowed the claim - Whether the assessee is entitled for claiming deduction under Section 80-IA when more than 20% of old plant and machinery were used in the reconstructed unit as contemplated under Sub-section (3) of Section 80-IA? - Held that - In order to claim deduction under Section 80-IA assessee has to satisfy that Industrial undertaking must be set up on or after 01.04.1991 and before 31.03.1995.Industrial undertaking is not formed by splitting up or reconstruction of a business already in existence (subjected to certain other conditions as specified in Section 80-IA.)The transferred assets of old business should not exceed 20% of the total value of the machinery or plant used in the new business. & It should not manufacture or produce articles specified in the Eleventh Schedule. The records placed for perusal show that the assessee has not fulfilled the above conditions and therefore, the Assessing Officer and the Appellate Authority had rightly disallowed the benefit. The Tribunal without any just and cogent reasons has reversed the orders passed by the Assessing Officer as confirmed by the Appellate Authority. The Tribunal while setting aside the order of the Appellate Authority has erroneously held that the unit established in Shed No.C-54 is a new unit and the products manufactured in both the units are identical. Thus, the findings of the Tribunal in setting aside the concurrent orders of the Assessing Officer as well as the Appellate Authority are unsustainable in law. - Decided in favour of revenue.

Summary

Issues:
1. Applicability of Section 50B of the Income Tax Act and Section 80-IA to a slump sale.
2. Justification of re-opening assessment under Section 147 of the Act.
3. Claiming deduction under Section 80-IA for a manufacturing unit.
4. Entitlement to deduction under Section 80-IA based on specific conditions.
5. Appeal against the Tribunal's decision on deduction under Section 80-IA.

Analysis:

Issue 1:
The appeal challenged the Tribunal's order regarding the applicability of Section 50B of the Income Tax Act and Section 80-IA to a slump sale. The Tribunal held that Section 50B is not applicable retrospectively from 01.04.2000, and thus, Section 80-IA does not apply to the case due to the nature of the business transfer as a slump sale. The entire business undertaking was transferred as an ongoing concern with assets and liabilities, making it not chargeable for capital gain tax.

Issue 2:
The conversion of a proprietary concern into a Private Limited Company led to disputes over re-opening the assessment under Section 147 of the Act. The Assessing Officer justified the re-opening due to the sale of a going concern and the formation of a new company, resulting in capital gains under Section 50-B. This led to the disallowance of the deduction claimed under Section 80-IA, with subsequent appeals filed before the Commissioner of Income Tax (Appeals).

Issue 3:
The Tribunal's decision centered around a manufacturing unit established as a 'new unit' in Shed No.C-54, manufacturing hydraulic products of higher capacity and different sizes. The Tribunal concluded that the assessee was entitled to a deduction under Section 80-IA for this manufacturing unit during the relevant assessment year, leading to an appeal by the revenue.

Issue 4:
The conditions for claiming deduction under Section 80-IA were scrutinized, emphasizing requirements such as the establishment of the industrial undertaking within specified dates, non-splitting or reconstruction of an existing business, limitations on transferred assets from old business, and restrictions on manufacturing specific articles. The Tribunal's reversal of the Assessing Officer and Appellate Authority's decisions was deemed erroneous, as the unit in question did not meet the necessary conditions for the deduction.

Issue 5:
The appeal by the revenue focused on challenging the Tribunal's decision allowing the deduction under Section 80-IA. The revenue argued that the unit was not independent, constituted an expansion of the old unit, and used more than 20% of old plant machinery in the reconstructed unit, rendering the assessee ineligible for the deduction. The Court agreed with the revenue's contentions, setting aside the Tribunal's decision and restoring the Assessing Officer's order affirmed by the Appellate Authority.