1991 (7) TMI 124 - AT - Income Tax

Manufacture And Sale, New Industrial Undertaking, Plant And Machinery, Profits And Gains, Splitting Up

Summary

Issues:
- Interpretation of provisions under sections 80J and 80HHA regarding deduction eligibility.
- Whether the formation of a new firm constitutes splitting up of an existing business.
- Validity of orders passed under section 154 to withdraw deductions.

Detailed Analysis:
The judgment by the Appellate Tribunal, ITAT Ahmedabad-B, involved an appeal concerning the eligibility of deductions under sections 80J and 80HHA. The Revenue contended that the CIT(A) erred in allowing the deductions withdrawn by the ITO under section 154 for multiple assessment years. The ITO had initially withdrawn the deductions based on the formation of a new firm, M/s. Elite Shipyard, which was perceived as a result of splitting up the existing business of M/s. Gujarat Industrial Corporation (GIC). The ITO concluded that the conditions under sections 80J and 80HHA were not met due to the perceived splitting up of the business. However, the CIT(A) overturned these orders, stating that the formation of the new firm did not constitute splitting up of an existing business but rather the establishment of a new entity for a different business activity. The CIT(A) held that the ITO's rectification and withdrawal of deductions under sections 80J and 80HHA were beyond the scope of section 154 and allowed the appeals for all years.

During the appeal, the Senior D.R. argued that the transfer of land and superstructure by the old firm to the new firm indicated a splitting up of an existing business, justifying the ITO's actions under section 154. Citing legal precedents, the Senior D.R. contended that overlooking mandatory legal provisions could be rectified under section 154. However, the assessee's counsel maintained that the new firm engaged in a distinct business of boat building, separate from the old firm's activities. The counsel emphasized that the new firm acquired new plant and machinery, registered as a separate SSI unit, and operated in a different sector. The counsel relied on court decisions to support the argument that establishing a new business on premises previously used for a different business did not constitute splitting up of the old business.

In its analysis, the Tribunal considered the legislative intent behind sections 80J and 80HHA to incentivize the establishment of new industrial undertakings. The Tribunal noted the amendments to section 80J, emphasizing that the deductions were intended to encourage the growth of new industries. The Tribunal concluded that the formation of the new firm for manufacturing boats and ships did not amount to splitting up of an existing business. The Tribunal highlighted that the new firm operated in a distinct sector with new plant and machinery, aligning with the legislative objectives of promoting industrial growth. Referring to legal precedents, the Tribunal emphasized that the mere transfer of premises did not negate the eligibility for deductions under sections 80J and 80HHA. Consequently, the Tribunal upheld the CIT(A)'s decision to cancel the orders passed under section 154 and dismissed the appeals.