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TMI Blog2015 (7) TMI 935X X X X Extracts X X X X X X X X Extracts X X X X ..... ain 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a separate independent division which was constituted with the use of FBC boilers and Steam turbine instead of old boilers and pressure reduction value to recover the energy in the steam. 3.1 According to the Assessing Officer steam was required for paper industry. Thus steam production was sine qua non for paper production. All along paper division was using boilers and pressure reduction valves for production of steam. There was considerable loss of energy from the steam. In order to avoid such energy losses, company opted a new system where new FBC boilers in combination with steam turbine were used to produce steam as well as the recover energy in the steam by way of electricity generation for reuse. Thus, the new system has replaced the old system primarily to supply steam to the paper industry and in the process energy was recovered and reused. Therefore, according to the Assessing Officer the new system was very much a part and parcel of the paper production and constitution of FBC boiler and steam turbine which was required for existing production process into a separate undertaking (turbine division) amounts to splitting up or the reconstruction of the business already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of ₹ 3,78,12,015/- to produce steam. Therefore the cost on these fuels should be expenditure in the hands of the turbine division. However, the entire expenditure on fuels used by the Turbine Division was charged to Paper Division and the electricity recovered from steam and supplied to the paper division was also charged to the paper division. Thus company has created a situation where in the steam that comes out of Turbine Division as 'waste' (since it has non marketable value to third parties)was supplied to paper division and the entire cost of fuels were charged to Paper Division in the guise of exchange of steam which go as waste from the Turbine Division. If entire fuel cost was charged to the paper division, the resultant steam energy produced out of those fuels also should naturally belong to the paper division and therefore part of the steam energy recovered through generation of steam also should belong to the paper division. Therefore electricity thus generated also should naturally belong to the paper division and accordingly paper division should not be made to pay for its own energy. Accordingly, the Assessing Officer rejected the claim of 80IA deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a separate division but amounts to splitting up and restructuring of business already in existence. Accordingly, the Commissioner of Income Tax (Appeals) disallowed the claim of the assessee u/s. 80IA of the Act. Against this, the assessee is in appeal before us. 5 The ld. Authorised Representative for assessee submitted that the company opted a new system where new FBC boilers in combination with steam turbine were used to produce steam as well as to recover energy in the steam by way of electricity generation for reuse. The company had invested ₹ 2,14,17,421/- towards the above project. The system was an integrated unit by itself and it functions independently. The finding of the CIT(A) that the steam turbine division cannot exist independently without paper division was totally against fact. The finding of the authorities that the technical persons examined under oath have admitted that the steam turbine division cannot exist independently without paper division was also totally incorrect and against fact. No person was examined by the authorities at all. No part of the existing undertaking was transferred to the new undertaking. The entire investment of ₹ 2,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of the assesseecompany, it cannot be said that the Kottayam unit was established in the process of reconstruction of the existing business or establishment. The decision of the Supreme Court referred to above, therefore, squarely applied to the facts of this case. The decision of the Tribunal in this case is quite in accord with the view expressed by the Supreme Court in the above case. 5.3 The ld. Authorised Representative for assessee submitted that in the case of CIT vs. Hindusthan General Industries Ltd. 137 ITR 851 wherein it was held that The present case does not come with the words, splitting up of the business already in existence. This expression indicate a case where the integrity of a business earlier in existence is broken up and different sections of the activities previously conducted are carried on independently. In the present case, there is no finding that the unity and integrity of the business or undertaking which had been established suffered in any manner as a result of the establishment of the new unit .. There is nothing to show that as a result of the setting up of this undertaking, the integrity, unity of the continuity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilding totalling ₹ 2,14,17,421/- towards new unit. The company also received term loan assistance from SBI, Commercial Branch, Coimbatore for a sum of ₹ 1,50,00,000/- for new investments. Separate books of accounts were maintained for the new unit. The unit started operation since September 2004. The year wise power generated from September 2004 to 2009 was provided to the assessing officer. The assessee started claiming deduction u/s 80lA from Assessment year 2008-09 onwards which was accepted by the department. The department allowed 80lA deduction as claimed by the assessee for the assessment years 2010-11 and 2012-13 under scrutiny assessment u/s 143(3). The assessee company filed its return of income for the assessment year 2009-10 on 28/09/2009, declaring total income of ₹ 2,51,37,806/- under normal provisions and book profit of ₹ 4,02,67,104/-. Form No. 10CCB - Audit Report u/s 80lA dated 31.08.2009 was also submitted. However, deduction u/s 80IA was not granted to the assessee on the reason that it was splitting up or reconstruction of existing business and the assessee has not established any new industrial undertaking. According to the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to in clause (iii) of sub-section (4) or generates power or commences transmission or distribution of power (or undertakes substantial renovation and modernization of the existing transmission or distribution lines (or lays and begins to operate a cross country natural gas distribution network))). (3) This section applies to an undertaking referred to in clause (ii) or clause (iv) of sub-section (4) which fulfils all the following conditions, namely :- (i) it is not formed by splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of an undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose: Provided that nothing contained in this subsection shall apply in the case of transfer, either in whole or in part, of machinery or plant previously used by a State Electricity Board referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new unit. 11. In our opinion the splitting of or reconstruction of the existing business should be understood in a broad commercial sense from a commonsense point of view and only in relation to the new industrial undertaking claiming the concession. 12. Further, where the new unit was started by fresh outlay of capital and manufactured or produced articles yielding additional profits having a separate physical independent existence, it was a new industrial undertaking eligible for tax concession. 13. In other words, the establishment of a new industrial unit as a part of an already existing industrial establishment may result in an expansion of the industry or the factory, but if the newly established unit is itself an integrated independent unit in which new plant and machinery are put up and are themselves, independently of the old unit, capable of production of goods then it can be classified as a newly established industrial undertaking. 14. The new industrial unit brought into existence by establishing new plant and machinery and by investing substantial funds may produce the same commodity as of the old business or it may produce some other distinct marketable pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. 17. Even though the decision of Textile Machinery Corporation Ltd [supra] was concerned with the clause dealing with reconstruction of existing business but the expression 'not formed' was construed to mean that the undertaking should not be a continuation of the old but emergence of a new unit. Therefore, even if the undertaking is established by transfer of building, plant or machinery, it is not formed as a result of such transfer, in our considered view; the assessee could not be denied the benefit. We also find that a new undertaking for manufacture of power with steam as by-product was formed out of fresh funds, in separately identifiable premises, under a separate license/approvals with manifold increase in capacity with new machinery and buildings without transfer of any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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