2020 (11) TMI 95 - AT - Income Tax

Deduction u/s.80IB - proof of manufacturing activity of the assessee - whether no re-structuring of any business in existence? - whether no business was ever carried out by the said entity so much so that neither any plant machinery was acquired by the said entity nor any business activity was commenced by them? - HELD THAT - An examination of the given documents clearly indicates that prior to the electric connection from Reliance Energy, the assessee was availing electricity connection from the Government of Goa ; the application for license to work was made by the assessee on 22.03.2002; the provisions of section 6 7 of the Factories Act, 1948 clearly indicate that there is no bar in occupying the factory premises, using it for manufacture and commencing the production there from before obtaining the final license from the prescribed authority; in the said application dated 22.03.2002 it was also declared that the manufacturing process is already commenced by the assessee on 19.03.2002, the computation of income for AY 2002-03 filed along with the return also stated that it was the first year of claim and that deduction was not claimed solely due to loss. A perusal of the excise returns filed before the Excise Authorities for the period from March 2002 to March 2003 as well as sales tax returns before the Sales Tax Authorities for the quarters pertaining to the financial year 2002-03, clearly indicates that manufacturing activity and corresponding sales was carried out by the assessee. Thus it cannot be said that the manufacturing activity of the assessee had not started till the receipt of the factory license. The ledger account of the plant machinery in the books of the assessee for the year ending 31.03.2002 along with copies of the bills/invoices also indicates purchase of new machinery during the said period. It is further evident that the block of asset had started during AY 2002-03 and fixed asset statement of the assessee for the AY 2003-04 would show opening WDV. find merit in the contentions of the Ld. counsel that although the original certificate was granted to M/s Konkan Plastics, no business was ever carried out by the said entity ; except the SSI license and the lease hold rights in the plot, no activity was ever carried out by the said entity. The excise returns and sales tax returns filed by the assessee clarify the issues in the instant case. The plant machineries, as evidenced by the invoices, have been purchased by the assessee ; the manufacturing activity was carried out by the assessee at its own premises. In the case of CIT v. Western Outdoor Interactive P. Ltd. 2012 (8) TMI 709 - BOMBAY HIGH COURT has held that where a benefit of deduction is available for a particular number of years on satisfaction of certain conditions under the provisions of the Income Tax Act, 1961, then unless relief granted for the first year in which the claim was made and accepted is withdrawn or set aside, the Income Tax Officer cannot withdraw the relief for subsequent years. - Decided against revenue.

Summary

Issues Involved:
1. Deduction under Section 80IB of the Income Tax Act, 1961.
2. Reconstruction of business and transfer of undertaking.

Issue-wise Analysis:

1. Deduction under Section 80IB:
The primary issue was whether the assessee was entitled to a deduction of ?4,36,38,691/- under Section 80IB for the Assessment Year (AY) 2005-06. The Assessing Officer (AO) denied the deduction on the grounds that the assessee did not establish actual production during AY 2002-03 due to the lack of necessary licenses, and claimed the business was formed by reconstructing an existing business. The Commissioner of Income Tax (Appeals) [CIT(A)], however, allowed the deduction, noting that the assessee had commenced manufacturing activities and was eligible for the deduction. The Tribunal upheld the CIT(A)'s decision, stating that the assessee had provided sufficient evidence, such as excise returns and sales tax returns, to prove that manufacturing activities had commenced in AY 2002-03.

2. Reconstruction of Business and Transfer of Undertaking:
The AO argued that the business was initially carried out by a proprietary concern, M/s Konkan Plastics, which was later taken over by the assessee, thus constituting a reconstruction of an existing business. The CIT(A) disagreed, stating that M/s Konkan Plastics had not carried out any manufacturing activities and had merely obtained a license. The business activities commenced only after the assessee took over. The Tribunal concurred, noting that the transfer of the undertaking from M/s Konkan Plastics to the assessee did not constitute a reconstruction of business since no manufacturing activities were carried out by the former entity. The Tribunal emphasized that the term "reconstruction" implies the continuation of the same business in an altered form, which was not the case here.

Detailed Analysis:

Deduction under Section 80IB:
The assessee filed a return of income for AY 2005-06, claiming a deduction under Section 80IB. The AO disallowed the deduction, citing the lack of necessary licenses and the reconstruction of an existing business. The CIT(A) allowed the deduction, referencing a previous appellate order for AY 2003-04, which confirmed that the assessee was engaged in manufacturing activities. The Tribunal examined various documents, including electricity bills, excise returns, and sales tax returns, which indicated that the assessee had commenced manufacturing activities in March 2002. The Tribunal found that the AO's observations were not supported by evidence and upheld the CIT(A)'s decision to allow the deduction.

Reconstruction of Business and Transfer of Undertaking:
The AO contended that the business was a reconstruction of M/s Konkan Plastics, which had obtained a license but did not carry out any manufacturing activities. The CIT(A) found that the assessee had taken over the business undertaking of M/s Konkan Plastics, but no manufacturing activities were conducted by the latter. The Tribunal agreed, stating that the transfer of the undertaking did not amount to a reconstruction of business. The Tribunal noted that the assessee had acquired new machinery and started manufacturing activities independently. The Tribunal also referenced the Bombay High Court's decision in CIT v. Western Outdoor Interactive P. Ltd., which held that unless the relief granted for the first year is withdrawn, the AO cannot deny the deduction for subsequent years.

Conclusion:
The Tribunal affirmed the CIT(A)'s order, allowing the deduction under Section 80IB and rejecting the AO's claim of business reconstruction. The Tribunal emphasized that the assessee had provided sufficient evidence of commencing manufacturing activities and that the transfer of the undertaking did not constitute a reconstruction of business. The appeals filed by the Revenue were dismissed.