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Issues Involved:
1. Eligibility for deduction under sections 80HH and 80-I of the IT Act, 1961, due to the expansion of production capacity. 2. Whether the expansion constitutes the setting up of a new industrial undertaking. 3. Consistency in the application of the law by the Tribunal and the Revenue. Issue-wise Detailed Analysis: 1. Eligibility for deduction under sections 80HH and 80-I: The primary issue was whether the expansion of the assessee's production capacity constituted the setting up of a new industrial undertaking eligible for deductions under sections 80HH and 80-I of the IT Act, 1961. The assessee had been enhancing its production capacity in various stages since 1978 and claimed deductions on the basis that each expansion constituted a new industrial undertaking. The AO initially rejected these claims, considering the expansions as gradual and not the establishment of new undertakings. The CIT(A) had conflicting views on the matter, leading to appeals to the Tribunal. 2. Whether the expansion constitutes the setting up of a new industrial undertaking: The Tribunal examined whether the expansions resulted in new and identifiable undertakings, separate and distinct from the existing business. The assessee argued that each expansion required new machinery, separate approvals, and additional capital, thus qualifying as new undertakings. The Tribunal reviewed several case laws, including the Supreme Court's judgment in Textile Machinery Corporation Ltd. vs. CIT, which emphasized the need for a physically separate industrial unit for it to be considered a new undertaking. The Tribunal concluded that the expansions did not result in new industrial undertakings as the new machinery was integrated with the existing setup, and the operations remained interconnected. 3. Consistency in the application of the law: The Tribunal noted the inconsistency in the decisions of the CIT(A) and the Tribunal's previous order for the assessment year 1991-92, which had favored the assessee. The Tribunal emphasized that the true test for eligibility under sections 80HH and 80-I is whether a new and identifiable undertaking, separate from the existing unit, emerged. The Tribunal found that the expanded units were not physically separate and operated within the same premises with interconnected processes and common resources. Therefore, the expansions did not qualify as new industrial undertakings eligible for deductions. Conclusion: The Tribunal denied the deductions under sections 80HH and 80-I, holding that the expansions did not constitute the setting up of new industrial undertakings. The Tribunal's decision was based on the integrated nature of the expanded units with the existing setup, lack of physical separation, and commonality in operations. The Tribunal also addressed the issue of consistency, noting that the previous favorable order for the assessee was not indicative of a settled view, given the conflicting decisions and the specific facts of the case. The Tribunal's decision was upheld by the High Court, which remanded the matter to a Special Bench for a comprehensive resolution, ultimately affirming the denial of deductions.
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