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2022 (6) TMI 82 - AT - Income TaxDeduction claimed u/s 10AA - allegation of promoters adopted colorable device by transferring the business of the company namely AMPL to assessee firm to claim higher exemption and the assessee firm is formed by splitting up of existing business AMPL - HELD THAT - CIT-A was pleased to allow the deduction/exemption to the assessee under the provisions of section 10AA of the Act by observing that there was no violation committed by the assessee as envisaged under the provisions of the Act for claiming the deduction under section 10AA of the Act. For claiming the deduction under section 10AA. There was no doubt raised by the AO with respect to the rent paid by the assessee to the company namely AMPL. In view of the above, there remains no ambiguity to the fact that the factory premises used by the assessee in the factory building of AMPL was separate and independent unit though the same was established within the 4 walls of the AMPL. There was no allegation raised by the Revenue that the assessee was using the factory premises of the company namely AMPL for the purpose of its manufacturing/ business activities. Accordingly we are of the view that no adverse inference cannot be drawn to deny the benefit available under section 10AA of the Act to the assessee on the reasoning that it was operating from the premises of sister concern which was also eligible for deduction under section 10AA of the Act. Furthermore, there is no prohibition under the provisions of law suggesting that the assessee cannot be given the benefit of section 10AA of the Act if it is found that it is operating from same building from where another unit which is eligible for deduction under section 10A of the Act is also operating. Thus to our understanding, the assessee cannot be the denied the benefit of exemption which is otherwise available under the provisions of the law. Nature of the business of the company namely AMPL - Assessee before the learned CIT-A has contended that both the assessee firm and company AMPL are manufacturing Bar item but the drawing of final product are different from the drawing of the final product of the company namely AMPL. According to the assessee, it acquires different raw materials, carries out different manufacturing process and the final outcome of the product is also different with that of the company - CIT-A found the explanation submitted by the assessee as genuine and accepted the same. The ld. DR at the time of hearing failed to controvert this fact finding of the ld. CIT-A. Thus it is established that business of the assessee firm and sister concern being company AMPL are different, separate and independent to each other. Therefore, the assessee cannot be denied the benefit of section 10-A of the Act. Without prejudice to the above, assuming final product, raw material and manufacturing process are similar of the assessee and the company, still the relief to the assessee under section 10AA cannot be denied merely on the reasoning that the raw material, processing activities resulted to the final output which is the same. It is for the reason that an assessee can have different eligible units for claiming the deduction under section 10AA of the Act subject to the compliances provided therein. Under the provisions of the Act, there is no necessity to manufacture the different product for claiming the deduction under section 10AA. Let us assume that the partnership firm and the company are one and the same person. As such, the assessee in order to claim higher amount of deduction has created a partnership firm and diverted its business. If that be so, even then the assessee is eligible for deduction under section 10AA of the Act to the tune of 50% in pursuance to the provisions of the Act. However we note that the Revenue has not considered this aspect while framing the assessment under section 143(3) of the Act. What is appealing in the given facts and circumstances is that the Revenue was adamant to deny the benefit provided under section 10AA of the Act on its own presumption of wrong facts. Likewise, the assessee has claimed rent expense in the year under consideration which was paid to M/s AMPL and there was no doubt raised by the revenue with respect to such expenses. In view of the above and after considering the facts in totality, we do not find any reason to deviate from the finding of the learned CIT-A in the given facts and circumstances. Hence, we uphold the same with the direction to allow the benefit of deduction to the assessee under the provisions of section 10AA of the Act in accordance with the provisions of law. Hence the ground of appeal of the revenue is hereby dismissed.
Issues Involved:
1. Deletion of the addition made on account of deduction claimed under section 10AA of the Income Tax Act. 2. Whether the assessee firm was formed by splitting up or reconstruction of an existing business. 3. Adequacy of infrastructure to generate the declared turnover and profit. 4. Validity of operating from the same premises as a sister concern. Issue-wise Detailed Analysis: 1. Deletion of the Addition Made on Account of Deduction Claimed Under Section 10AA: The Revenue challenged the deletion of the addition of Rs. 4,40,38,208/- for AY 2011-12 and Rs. 5,80,57,809/- for AY 2012-13 claimed under section 10AA of the Act. The assessee, a partnership firm engaged in manufacturing and trading of brass items, claimed exemption under section 10AA as it operated from a Special Economic Zone (SEZ). The Assessing Officer (AO) disallowed the deduction, suspecting a transfer of business from a sister concern, AMPL, to claim higher exemption. The CIT-A deleted the disallowance, observing that the assessee met all conditions under section 10AA, including independent commencement of manufacturing and non-transfer of old machinery. 2. Whether the Assessee Firm was Formed by Splitting Up or Reconstruction of an Existing Business: The AO argued that the business was transferred from AMPL to the assessee firm to continue claiming 100% exemption under section 10AA after AMPL's exemption reduced to 50%. The CIT-A found no evidence of business splitting or reconstruction, noting that the assessee firm and AMPL were separate legal entities with independent operations, different products, and separate factory premises. The Tribunal upheld this view, emphasizing that the mere presence of common management or operating from the same industrial plot does not constitute splitting or reconstruction. 3. Adequacy of Infrastructure to Generate the Declared Turnover and Profit: The AO doubted the assessee’s capability to generate substantial turnover and profit with minimal plant and machinery investment. The CIT-A dismissed this, stating that the AO's observations were presumptive and unsupported by evidence. The Tribunal concurred, noting that profitability does not necessarily correlate with the scale of infrastructure and that the assessee had provided sufficient proof of independent operations and investments. 4. Validity of Operating from the Same Premises as a Sister Concern: The AO raised concerns about the assessee operating from the same premises as AMPL. The CIT-A clarified that the assessee operated from a separate floor within the same industrial plot, paying rent to AMPL, and had obtained necessary approvals for independent operations. The Tribunal agreed, stating that there is no legal prohibition against multiple entities claiming deductions under section 10AA from the same premises, provided they operate independently. Conclusion: The Tribunal upheld the CIT-A's decision to delete the disallowances for both assessment years, affirming that the assessee met all conditions under section 10AA and operated independently from AMPL. The appeals by the Revenue were dismissed, confirming the assessee's entitlement to the claimed deductions.
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