2002 (10) TMI 242 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of deduction under sections 80-I and 80-IA of the Income Tax Act.
2. Disallowance of car expenses for personal use by the partners.

Issue-Wise Detailed Analysis:

1. Disallowance of Deduction under Sections 80-I and 80-IA of the Act:

The assessee, a firm involved in trading milk, expanded its operations to include manufacturing ghee and skimmed milk under M/s Mohan Industries and took over the business of M/s Mohan Cold Storage. The assessee claimed deductions under sections 80-I and 80-IA on the profits from the cold storage business. The Assessing Officer (AO) denied the claim for several reasons:

(i) The cold storage was not considered an industrial undertaking as it did not manufacture or produce any article or thing.
(ii) Even if it were an industrial undertaking, it was not a new business.
(iii) The takeover of an existing business was deemed reconstruction, referencing a Karnataka High Court ruling.
(iv) The business did not start manufacturing or producing articles on or before April 1, 1991.
(v) No deduction was claimed in the assessment years 1991-92 and 1992-93.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's findings, prompting the assessee to appeal.

The assessee argued that the AO and CIT(A) confused the terms "industrial undertaking" and "assessee." They contended that the deduction is available to the particular unit fulfilling the conditions, not necessarily the entire assessee. The cold storage business, previously run by a different firm with the same partners and profit-sharing ratios, was taken over by the assessee. The assessee emphasized that section 80-I(1A) introduced on April 1, 1990, allowed deductions for cold storage plants, which the AO and CIT(A) failed to consider.

The Tribunal reviewed the facts and noted that the cold storage plant began operations in the financial year ending March 31, 1991. The partners and profit-sharing ratios remained the same, and the business was transferred to the assessee-firm. The Tribunal found that the business was neither split up nor reconstructed, and the cold storage plant was not formed by transferring machinery to a new business. The cold storage plant met all conditions under sections 80-I and 80-IA, including operating within the specified dates and employing more than ten workers.

The Tribunal dismissed the AO and CIT(A)'s reasoning that cold storage is not an industrial undertaking, noting that the Finance Act of 1990 extended section 80-I benefits to cold storage plants. The Tribunal also dismissed the reliance on unrelated case laws and clarified that the non-claiming of deductions in previous years was due to the lack of profits, not eligibility. Consequently, the Tribunal directed the AO to allow the deduction under sections 80-I and 80-IA.

2. Disallowance of Car Expenses for Personal Use by the Partners:

The assessee's grounds related to the disallowance of car expenses for personal use by the partners were not pressed. Therefore, these grounds were dismissed.

Conclusion:

The appeal was partly allowed, granting the assessee the deduction under sections 80-I and 80-IA for the cold storage business, while the disallowance of car expenses for personal use by the partners was upheld.