2022 (3) TMI 1360 - HC - Income Tax

Deduction u/s 80-IC - assessee was not entitled to claim any benefit under Section 80-IC as Unit-III was not a new Unit and it was re-construction of an existing Unit-II - Appellate Authority held that the Assessing Officer had rightly held that the operation of Unit-III was nothing but an extension of operation of Unit-II - HELD THAT - Assessing Officer was influenced by the fact that since Unit-III was being run by the assessee in its registered office, therefore, activities done in Unit-III were identical in nature to those done by Unit-II. The Assessing Officer had failed to appreciate that the building, where Unit-III had been started, had in fact been given on rent, whereas, Unit-II was being run in a separate building which was at a distance of about 7 kilometers. The building where the registered office was started in the assessment year 2009-10, was got vacated and thereafter Unit-III was started in the said premises in assessment year 2010-11. It was not a case where plant and machinery of Unit-II had been used for Unit-III. The business of the company had grown and with a view to expand its business, the company started a new Unit by making investment as shown in the Chart reproduced abve. New employees were recruited by the Assessee for Unit-III. Separate account books were maintained by Assessee qua Unit-II Unit-III. Tribunal rightly came to the conclusion that the assessee was entitled to claim benefit under Section 80-IC of the Act by treating Unit-III of the assessee-company as a separate and distinct Unit - findings recorded by the Tribunal can neither be said to be perverse or result of misreading of evidence and material on record. The substantial question of law decided in favour of assessee.

Summary

Issues Involved:
1. Whether the findings recorded by the Tribunal were perverse due to misreading the evidence and material on record regarding the reconstruction and splitting of the unit in question.

Issue-wise Detailed Analysis:

1. Tribunal's Findings and Alleged Perversity:
The core issue was whether the Tribunal's findings were perverse due to misreading the evidence and material on record concerning the reconstruction and splitting of Unit-III from Unit-II. The appellant-Department argued that the Tribunal erred in reversing the findings of the Assessing Officer and the Appellate Authority, which had concluded that Unit-III was not an independent unit but an extension of Unit-II.

2. Assessee's Arguments and Tribunal's Observations:
The assessee contended that Unit-II and Unit-III were operated from different buildings with separate staff, investments, and account books, emphasizing no inter-lapping between the units. The Tribunal noted these distinctions, including separate clientage, sale-tax registration numbers, and registration with the District Industries Center. The Tribunal found that the assessee had demonstrated the separate existence of Unit-III through detailed evidence, including a chart showing differences between the units.

3. Legal Precedents Cited:
The assessee relied on the Supreme Court's decisions in "Bajaj Tempo Ltd. versus Commissioner of Income Tax" and "Textile Machinery Corporation Ltd. versus Commissioner of Income Tax." These cases highlighted that an undertaking should not be formed by the transfer of building or machinery from an existing business to qualify for benefits under Section 80-IC. The emphasis is on the formation of a new and identifiable undertaking, separate and distinct from the existing business.

4. Tribunal's Conclusion:
The Tribunal concluded that Unit-III was a separate and distinct unit, not formed by the reconstruction of Unit-II. The Tribunal's findings were based on the evidence that Unit-III had separate employees, investments, and operations. The Tribunal also noted that the building for Unit-III was previously rented out and later used for the new unit after necessary formalities were completed.

5. High Court's Judgment:
The High Court upheld the Tribunal's findings, stating that the Tribunal rightly concluded that the assessee was entitled to the benefit under Section 80-IC by treating Unit-III as a separate and distinct unit. The High Court found no perversity or misreading of evidence in the Tribunal's findings and dismissed the appeals by the appellant-Department.

Conclusion:
The High Court dismissed the appeals, affirming that the Tribunal's findings were not perverse and were based on a correct appreciation of the evidence. The substantial question of law was answered in favor of the assessee, and the appeals were dismissed accordingly.