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2017 (1) TMI 1695 - AT - Income TaxDisallowance u/s 80-IC in respect of its new unit - as per AO since the value of the aforesaid machinery which cannot be held as new and previously used for any purpose is more than 20% of the value of the plant and machinery used in the new unit the assessee has failed to satisfy the conditions laid down u/s 80-IC (4)(ii) - whether the assessee has started manufacturing activities during the year under assessment at Selaqui unit to be eligible for claiming exemption ? - HELD THAT - Bare perusal of Schedule D to the balance sheet for the period 31.03.2008 shows that the total addition of Rs. 32, 67, 070/- has been made under head land and no addition is attributed to the building. Likewise there is no addition under the head building as per Annexure-3 to the Form No.3CD and the entire amount of Rs. 32, 67, 070/- is attributed to the land. The assessee has purchased land/built up property in the light of the Schedule D to the balance sheet as on 31.03.2008 wherein capital WIP building is shown at Rs. 35, 23, 345/- the argument addressed by the ld. AR that there was no occasion for repair and maintenance lost its ground. The contention of the ld. AR that the revenue is not entitled to set up a new case by raising argument that when the building of the new unit was not in existence the question of carrying manufacturing activities therein does not arises is not tenable for the reason that when illegality of the order is under challenge before the Tribunal it being a fact finding forum is empowered to go into any argument addressed by the parties though not addressed before the CIT (A) to achieve the ends of justice. So we are of the considered view that there was no building with assessee at Selaqui unit during the period under assessment to carry out the manufacturing activities. Whether the assessee has transferred its used machinery in excess of 20% from Kala Amb unit to Selaqui unit against which the exemption u/s 80-IC has been claimed thus failed to satisfy the provisions contained u/s 80-IC (4)(i)? - HELD THAT - Assessee stated to have purchased the machinery from M/s. Grip Engineers Pvt. Ltd. Ballabhgarh and ABB Faridabad on 23.04.2007 and 28.04.2007 respectively but stated to have stored the same at Kala Amb unit for want of non-availability of the transit form to be issued by Uttarakhand Government. When assessee alleged to have started manufacturing at Selaqui unit in the month of June 2007 it is difficult to believe as to why the order was placed 5 months in advance without getting the necessary transit form issued which to our mind does not require any extensive exercise particularly when the Government is providing exemption to the new unit u/s 80-IC it cannot take five months to issue transit form. When this fact is examined in the light of the fact that no travelling allowance has been debited by the assessee to the P L account during the year under assessment it is difficult to believe that any manufacturing activities have been carried out at the Selaqui unit. Because earning the turnover of Rs. 11.11 crores with profit of Rs. 3.13 crores from the assembling / manufacturing unit is humanly not feasible without supervision of senior / junior functionaries of the assessee either from Kala Amb unit or from Head Office Delhi nor any skilled worker has ever visited the Selaqui unit or proved to be engaged. So all these facts strengthen the findings returned by the AO which have been overturned by the CIT (A) on the basis of whims and fancies. Since the assessee has transferred tools and machinery more than 20% of the total machinery employed at Selaqui unit from Kala Amb unit it is violation of section 80-IC(4)(ii) When we examine the factum of nonavailability of the machinery at Selaqui unit in the light of the fact that no manpower was engaged by the assessee to carry out the manufacturing activities at Selaqui unit the entire assessee s case to claim exemption u/s 80-IC goes flat. For argument s sake even if it is assumed that the new plant and machinery has been made available by the assessee at its Selaqui unit by transporting the same from its Kala Amb unit as contended by ld. AR for the assessee it is not humanly possible that massive manufacturing activities earning gross turnover of Rs. 11.11 crores with profit of Rs. 3.13 crores in a period of 10 months has been carried out by just a one man army. Whether Selaqui unit has been established by splitting up the existing unit? - As discussed in the preceding para no.22 when no plant and machinery was available in the Selaqui unit nor work force was there to carry out the manufacturing activities the question of expansion or augment the production in a different and separate location does not arise. Even otherwise assessee has transferred the used plant and machinery from its Kala Amb unit to Selaqui unit exceeding 20% which bars the assessee from taking benefit of section 80-IC. Plethora of documents brought on record by the assessee even otherwise goes to prove that assessee s case falls u/s 80-IC(2)(b) under which the assessee has not claimed any deduction as the assessee is not manufacturing any article listed under Schedule 14. Rather it is a case of splitting up/ reconstruction of a business already in existence for which the assessee is not eligible due to violation of section 80-IC (4)(ii) of the Act i.e. the use of previously used plant and machinery beyond 20%. Undisputedly the assessee was not having facility of gas filling and testing of RMPU air-conditioners at Selaqui unit for which the assessee stated to have sent the assembly unit to Kala Amb unit but prior to that the assessee has to bring on record the substantial evidence to prove the fact that the RMPU airconditioners against which the assessee has earned turnover of Rs. 11.11 crores were assembled at Selaqui unit which the assessee has miserably failed as discussed in the preceding para. We are unable to agree with the contentions raised by the ld. AR for the assessee for two reasons (i) that for the completeness of record and books of account each and every facts has to be brought on record by the assessee which would have strengthened the case of the assessee to prove the huge purported turnover of Rs. 11.11 crores from its Selaqui unit to achieve the cause of justice; (ii) that any issue can be raised before a fact finding authority particularly to prove the perversity of facts on record. We are of the considered view that CIT (A) has erred in deleting the addition made by the AO on account of disallowance made u/s 80-IC - Decided in favour of revenue
Issues Involved:
1. Whether the assessee commenced manufacturing activities at the Selaqui unit to be eligible for claiming exemption under section 80-IC. 2. Whether the assessee transferred used machinery in excess of 20% from the Kala Amb unit to the Selaqui unit, violating section 80-IC(4)(ii). 3. Whether the assessee debited sufficient expenditure under the head 'Salary' to prove manufacturing activities. 4. Whether the Selaqui unit was established by splitting up the existing unit, violating section 80-IC(3)(iii). Issue-wise Detailed Analysis: 1. Commencement of Manufacturing Activities: The AO observed that the assessee did not have any building at the Selaqui unit for manufacturing activities during the assessment year. The assessee claimed to have purchased a property with a built-up structure, but the Agreement to Sell and lease deed indicated it was a vacant plot. The balance sheet and other financial documents showed no addition under the head 'building,' only land. The Tribunal concluded that there was no building at the Selaqui unit during the assessment period, making it impossible to carry out manufacturing activities. 2. Transfer of Used Machinery: The AO noted that the total value of plant and machinery at the Selaqui unit was Rs. 3,50,353/-, with machinery worth Rs. 1,59,241/- transferred from the Kala Amb unit. The AO concluded that this exceeded the 20% limit for used machinery, violating section 80-IC(4)(ii). The CIT (A) relied on an undated affidavit from the assessee's partner, but the Tribunal found it unconvincing and noted inconsistencies in transportation documents. The Tribunal determined that the Selaqui unit was a "drop box address" with no real manufacturing activities. 3. Expenditure on Salary: The AO highlighted the lack of significant salary expenditure in the P&L account, with only Rs. 1,35,388/- debited under wages, bonus, PF, etc., indicating minimal manpower. The Tribunal found it implausible that a single worker could achieve a turnover of Rs. 11.11 crores and a profit of Rs. 3.13 crores. The Tribunal concluded that no substantial manufacturing activities were carried out at the Selaqui unit. 4. Establishment by Splitting Up: The revenue argued that the Selaqui unit was established by splitting the existing Kala Amb unit, violating section 80-IC(3)(iii). The Tribunal noted that the assessee transferred used machinery exceeding 20% and lacked evidence of substantial manufacturing at the Selaqui unit. The Tribunal determined that the assessee's case did not qualify as an expansion of the existing unit but rather as splitting up/reconstruction, making it ineligible for section 80-IC benefits. Conclusion: The Tribunal concluded that the CIT (A) erred in deleting the addition of Rs. 3,13,09,690/- made by the AO on account of disallowance under section 80-IC. The appeal filed by the revenue was allowed, and the order was pronounced in open court on January 16, 2017.
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