2015 (7) TMI 935 - AT - Income Tax

Deduction claimed u/s.80IA on turbine division denied - assessee company was engaged in manufacture of paper and production of electricity from windmills constructed co-generation building during financial years 2003-04 and 2004-05 to house the new Turbine cum boiler unit to produce steam and electricity - Held that - The true test is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is all the same a new an identifiable undertaking separate and distinct from the existing business of the assessee but whether it is all the same a new and identifiable undertaking separate and distinct from the existing business. For the assessment year 2008-2009, the lower authorities for co-generation plant granted deduction u/s.80IA of the Act. They impliedly agreed that the new machinery and plant have been installed under separate premises and it is not appropriate to deny the same deduction for the assessment year 2009-2010. The new unit had power as the main product and apart from servicing the captive consumption in the paper unit also could service the other power requirements. The pricing of power is also subjected to the various power tariff prescriptions. It can be clearly seen that the new undertaking is therefore not formed by the splitting up of the old undertaking. There is no case also made out by the lower authorities that the new undertaking is formed by the splitting up of the existing business. Further, the Supreme Court in the case of Textile Machinery Corporation (1977 (1) TMI 3 - SUPREME Court ) wherein held that new unit established by the assessee for manufacturing articles used as intermediate products in the old division, which the assessee was buying from the market earlier, is not reconstruction of business already in existence. To constitute reconstruction, there must be transfer of assets of the existing business to the new industrial undertaking. In our opinion, generation of power unit is separate and distinct undertaking for which separate approval was obtained and it cannot be said that splitting of existing business structure. Therefore, in our considered opinion, the lower authorities are not correct in denying the deduction under section 80IA of the Act. - Decided in favour of assessee.

Issues Involved:
1. Rejection of deduction claimed under Section 80IA of the Income Tax Act for the turbine division.
2. Disallowance of bonus and ex-gratia payment.
3. Levy of interest under Sections 234A, 234B, and 234C of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Rejection of Deduction Claimed Under Section 80IA of the Income Tax Act for the Turbine Division:
The primary issue in this appeal was the rejection of the deduction claimed under Section 80IA of the Income Tax Act for the turbine division of the assessee company. The assessee company, which initially started its paper division in 1989, later introduced FBC boilers and steam turbines in 2003 to recover energy from steam through power generation. The company claimed that this new system constituted a new undertaking (Turbine Division) and sought deductions under Section 80IA.

The Assessing Officer (AO) rejected the claim, stating that the new system was an integral part of the paper production process and amounted to the splitting up or reconstruction of an existing business. The AO argued that the turbine division could not exist independently without the paper division, and thus, it did not qualify as a separate undertaking eligible for the deduction. The Commissioner of Income Tax (Appeals) upheld this view, emphasizing that the turbine unit did not have an independent existence and was primarily meant to make the paper industry more energy-efficient.

The assessee contended that the turbine division was a distinct and independent unit, with a separate investment of Rs. 2,14,17,421/-, and that it was not formed by splitting up or reconstructing the existing business. The assessee relied on several judicial precedents, including the Supreme Court's judgment in Textile Machinery Corporation Ltd vs. CIT, which held that a new industrial undertaking should be considered separate if it independently produced commercially tangible products and was not merely an expansion of the old business.

The Tribunal examined the legal provisions and judicial precedents, concluding that the new unit was distinct and independent. It noted that the turbine division was established with new machinery and buildings, separate from the paper division, and had obtained separate approvals and loans. The Tribunal held that the new unit qualified for the deduction under Section 80IA, as it was not formed by splitting up or reconstructing the existing business. Thus, the Tribunal decided this issue in favor of the assessee.

2. Disallowance of Bonus and Ex-Gratia Payment:
The second issue involved the disallowance of bonus and ex-gratia payment amounting to Rs. 19,88,890/-. The assessee's authorized representative did not press this ground before the Tribunal. Consequently, the Tribunal dismissed this ground as not pressed.

3. Levy of Interest Under Sections 234A, 234B, and 234C of the Income Tax Act:
The final issue concerned the levy of interest under Sections 234A, 234B, and 234C of the Income Tax Act. The Tribunal noted that the interest was mandatory and consequential in nature. Therefore, it directed the Assessing Officer to consider this aspect while passing the consequential order.

Conclusion:
The Tribunal partly allowed the appeal of the assessee. The rejection of the deduction under Section 80IA for the turbine division was overturned, recognizing it as a distinct and independent unit eligible for the deduction. The disallowance of bonus and ex-gratia payment was dismissed as not pressed, and the issue of interest levy was left to be considered by the Assessing Officer in the consequential order.

← Previous Next →