2005 (8) TMI 292 - AT - Income Tax

Issues Involved:
1. Eligibility for deduction under section 80-I.
2. Determination of the initial year of production.
3. Transfer and use of old plant and machinery.

Detailed Analysis:

1. Eligibility for Deduction under Section 80-I:

The primary issue revolves around the eligibility of the assessee for deduction under section 80-I of the Income Tax Act. The Assessing Officer denied the deduction, while the CIT (Appeals) allowed it. The Revenue contended that the assessee was not eligible for the deduction because the initial year of production was 1989-90, and the cost of old plant and machinery exceeded 20% of the total cost, violating the conditions specified under section 80-I(2).

2. Determination of the Initial Year of Production:

The Revenue argued that the initial year of production was the assessment year 1989-90, as the assessee had commenced production in that year using a plant purchased from ICI (India) Ltd. The plant was operational and achieved sales in the financial year relevant to the assessment year 1989-90. The Revenue emphasized that the assessee had claimed depreciation for that year, indicating the use of machinery for business purposes. Furthermore, the industrial licence granted in 1988 covered the production of all three chemical products, and the construction at Konnagar was merely a relocation of the existing industrial undertaking from Rishra.

Conversely, the assessee contended that the initial year of production was the assessment year 1990-91. They argued that the old plant at Rishra was dismantled in February 1990, and production commenced at a new site in Konnagar under a new industrial and excise licence. The assessee claimed that the new plant at Konnagar had a significantly higher value of new plant and machinery, making the old machinery less than 20% of the total cost.

3. Transfer and Use of Old Plant and Machinery:

The Revenue highlighted that the old plant and machinery purchased from ICI (India) Ltd. were valued at Rs. 54.55 lakhs, while the new additions were worth Rs. 18.69 lakhs. Therefore, the cost of old plant and machinery was much higher than 20% of the total cost in the assessment year 1989-90. They argued that once an industrial undertaking is found not eligible for relief in the initial assessment year, the benefit is not available in subsequent years, even if new investments are made.

The assessee, however, argued that the old plant and machinery transferred to the new industrial undertaking at Konnagar were less than 10% of the total value of the new plant and machinery, which was worth Rs. 639.90 lakhs. They claimed that this complied with the conditions under section 80-I(2)(ii), which allows for the transfer of old machinery if it does not exceed 20% of the total value.

Judgment:

The Tribunal, after considering the submissions and evidence, ruled in favor of the Revenue. The Tribunal concluded that the initial year of production was indeed the assessment year 1989-90, as the assessee had commenced production and achieved sales in that year. The Tribunal noted that the assessee had claimed depreciation for the old and new plant and machinery, indicating full-fledged business operations in the assessment year 1989-90. The Tribunal also highlighted that the industrial licence covered the production of all three chemical products, and the construction at Konnagar was merely a relocation of the existing industrial undertaking from Rishra.

The Tribunal rejected the assessee's argument that the new plant at Konnagar constituted a new industrial undertaking. They emphasized that the relocation and addition of new products did not transform the existing industrial undertaking into a new one. The Tribunal also pointed out that the cost of old plant and machinery exceeded 20% of the total cost in the assessment year 1989-90, violating the conditions specified under section 80-I(2). Consequently, the assessee was not entitled to the deduction under section 80-I for the assessment years 1995-96, 1996-97, and 1997-98.

The Tribunal also addressed the assessee's reliance on previous orders of the ITAT, clarifying that those orders did not delve into the merits of the case but merely vacated the CIT's order under section 263. Therefore, those orders had no bearing on the present issue.

Conclusion:

All three appeals by the Revenue were allowed, and the assessee's claim for deduction under section 80-I was denied for the assessment years 1995-96, 1996-97, and 1997-98. The Tribunal upheld the Revenue's contention that the initial year of production was 1989-90 and that the cost of old plant and machinery exceeded 20% of the total cost, making the assessee ineligible for the deduction.

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