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TMI Blog2015 (8) TMI 412X X X X Extracts X X X X X X X X Extracts X X X X ..... ng deduction u/s.10B of Rs. 1,01,07,319/-. Assessing Officer denied the deduction u/s.10B of the Act to the assessee for following reasons: "i. Though appellant is assessed as 100 % EOU from AY 2005- 06 to 2007- 08 but according to AO the deduction was first claimed by the appellant in AY 2007-08 and the same was allowed mechanically as claimed. ii. According to the AO because of commonality of partners as the appellant firm's partner and the partners of M/S Metal Recycling Industries (another partnership firm which was also an 100% EOU) the appellant firm is formed by the splitting up or the reconstruction of the business already in existence of that erstwhile firm and therefore according to the provisions of section 10B ((2) (ii) of the act, deduction u/s 10B is not allowable. For this the AO has reasoned as under a) The address of the erstwhile firm and the appellant is same and the business is carried on at the same place. b) Some of Partners of the erstwhile firm and some of the partners of the appellant are common. c) Erstwhile firm and the appellant are carrying on business on same plot of land taken on lease from relatives of partners. d) Appellant could not prove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the firms. The first contention of Assessing Officer that deduction was granted mechanically and without verifying the facts was not correct. Deduction was in fact granted to assessee after making detailed inquiry raising queries and examining facts of the case. However, in this year Assessing Officer has not looked at the previous records of assessee and has denied deduction to the assessee, which was granted in earlier years. There is no change in the facts of case in the present assessment year. Therefore, Assessing Officer was not justified to change its stand without there being any change in the facts of case. 2.3 Another reason given by Assessing Officer is that partners of M/s. metal Recycling industries and assessee are same. Regarding this, it was found that assessee was formed initially by the same partners of the firm, which were partners of M/s Metal Recycling industries and when the Letter of permission was obtained from the DGFT, they inducted three more partners in the firm. Therefore, when they started carrying on the business there were six partners and only some of the partners were partners of M/s. Metal recycling industries. Merely because some of the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by assessee. We find that most of the machineries were office equipments, furniture, and not machineries which could be used for production. Assessee has produced 1331.304 MT of finished goods during the year. For this production, assessee has purchased plant and machineries worth more than Rs. 5 Crores. Merely, some of the machineries have been purchased which were not at all usable for production of goods but merely auxiliary machinery and office equipment. So it could not be said that it is a case of splitting up or reconstruction of existing business. The explanation in section l0B (2) of the Act provides that provisions of Explanation 1 and Explanation 2 of subsection (2) of section 80-I shall apply for the purpose of clause (iii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section. According to these provisions, the undertaking can purchase 20 % of plant and machinery, which are used one. Therefore purchase of some of the fixed assets of M/s. Metal Recycling cannot be used for denying the benefit of deduction u/s l0B of the Act to assessee. 2.7 Having said so, CIT(A) examined whether there was any similarity between new undertaking and old u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e following passage. "We have given the matter our earnest consideration and are of the view that in the reconstruction of a business, as in the reconstruction of a company. there is an element of transfer of assets and of some change, however partial or restricted it may be, of ownership of the assets. The transfer, however, need not be of all the assets. It is nonetheless imperative that there should be continuity and preservation of the old undertaking though in an altered form. The concept of reconstruction of business would not be attracted when a company which is already running one industrial unit sets up another industrial unit. The new industrial unit would not lose its separate and independent identity even though it has been set up by a company which is already running an industrial unit before the setting up of the new unit." 14. We endorse the above views with regard to reconstruction of business. Reconstruction of business involves the idea of substantially the same persons carrying on substantially the same business. It is stated on behalf of the Revenue that the same company in the instant case continues to do the same business of heavy engineering-no matter certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isive tests in construing s. 15C. The High Court is not right in holding the two undertakings as formed by reconstruction of the existing business of the assessee." In case, production process, finished goods produced and identity of the unit is separate it does not amount to splitting up or reconstruction of the existing business. Assessee has set up a unit which is on a small part of the land used by the erstwhile firm M/s Metal Recycling Industries. It has further acquired the land and put up a construction of factory on that land. Huge investment in plant and machinery as detailed above has also been made. Funds employed in new firm as well as old firm are also not comparable. The unit has also obtained a separate letter of permission from DGFT which is the regulatory body over 100 % export oriented units. This regulatory body has given permission to manufacture the goods to the new unit as well as old undertaking. Old unit was granted LOP for processing of material and scarp and manufacturing of ingots and undertaking of assessee was granted LOP for manufacturing of over and above ingots, Non ferrous metal Ingots, Billets, pipes, Rods, Tubes, bars, Profiles, granules, brass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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