2015 (11) TMI 436 - AT - Income Tax

Eligibilty for claim of deduction u/s 80I & 80HH - Held that - The distinction between the commercial production and trial run needs to be established. This distinction has to be proved by the assessee to the satisfaction of AO. We do not find any disparity on facts. Therefore, following the order of the ITAT Ahmedabad in earlier A.Y. on identical issues, we are of the considered view that the issue be restored to the file of AO for verification so as to whether there was only trial run of the machinery as claimed by the assessee or the assessee carried out any commercial production from the new unit during AY 1988-89, 1990-91. Ld. AO shall decide the issue in accordance with law after providing due opportunity of hearing to the assessee. He shall keep in mind the finding of ITAT in A.Ys. 1991-92, 1993-94 to 1995-96. Decided in favour of assessee for statistical purpose.

Issues Involved:
1. Disallowance of the claim under sections 80I and 80HH of the Income-tax Act, 1961.
2. Determination of whether the appellant set up a new industrial undertaking or merely expanded/modified an old unit.
3. Eligibility for deduction under sections 80I and 80HH for specific assessment years.
4. Initiation of penalty proceedings under section 271(1)(c) of the Act.

Issue-wise Detailed Analysis:

1. Disallowance of the claim under sections 80I and 80HH of the Income-tax Act, 1961:
The appellant contested the disallowance of deductions under sections 80I and 80HH. The CIT(A) and AO both concluded that the appellant did not set up a new industrial undertaking but rather expanded an existing unit. The AO found that more than 20% of the plant and machinery used were previously utilized, violating section 80I(2). The CIT(A) upheld the AO's decision, noting that the appellant's claim of setting up a new industrial undertaking was not substantiated by the facts, as the machinery was integrated into the old unit.

2. Determination of whether the appellant set up a new industrial undertaking or merely expanded/modified an old unit:
The Tribunal examined whether the appellant established a new industrial undertaking or merely expanded the old one. The AO and CIT(A) concluded that the appellant's actions constituted expansion/modification of the old unit rather than setting up a new one. The Tribunal noted that the appellant claimed depreciation on new machinery installed from AY 1988-89 to 1990-91, indicating that the machinery was part of the old unit. The Tribunal emphasized that for a new unit to qualify, it must be capable of functioning independently without the old unit's machinery.

3. Eligibility for deduction under sections 80I and 80HH for specific assessment years:
The Tribunal observed that the eligibility for deductions under sections 80I and 80HH was previously contested for AYs 1991-92, 1993-94, 1994-95, and 1995-96. The Tribunal had set aside the issue for re-examination by the AO. The Tribunal reiterated that the appellant must demonstrate that the new unit was distinct and capable of independent production. The AO was directed to verify whether the appellant conducted only trial runs or commercial production during AYs 1988-89 to 1990-91. If the appellant proves the trial run claim, the AO should allow the deductions.

4. Initiation of penalty proceedings under section 271(1)(c) of the Act:
The Tribunal found the ground regarding the initiation of penalty proceedings under section 271(1)(c) to be premature and rejected it without adjudication.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, directing the AO to re-examine the distinction between trial runs and commercial production for the relevant assessment years. The AO must decide the issue in accordance with the law, considering the Tribunal's findings and providing the appellant with a fair hearing. The Tribunal's decision emphasized the need for the appellant to substantiate the claim of setting up a new industrial undertaking to qualify for deductions under sections 80I and 80HH.

← Previous Next →