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TMI Blog2020 (5) TMI 278X X X X Extracts X X X X X X X X Extracts X X X X ..... e whether the assessee has set up a new unit or undertaking capable of producing entirely different products or articles from the existing unit and also as to whether the assessee is eligible for claim of deduction u/s 80lB in respect of profits declared in the returns of income filed by it. The issue started from the initial A.Y. i.e. 2001-02. Against the assessment order dated 29.03.2004, the assessee filed an appeal before the CIT(A) and the ld CIT(A) vide order in ITA No.23/2004-05, dismissed the appeal . On further appeal by the assessee, the Hon'ble ITAT vide its order in ITA No.2910/Mds/2005 dated 12.10.2007 has remitted back to the AO to consider the issue in de-novo. Subsequently, the AO denied the claim of deduction u/s 80IB noticing certain shortcomings in the quantum of the machinery purchased by the assesse and also holding that the assessee has not satisfied two major conditions as mentioned by the Supreme Court of India in the case of M/s Textile Machinery Corporation vs CIT 107 ITR 195 as under: 1. The manufacture of production or article or things by the so called new industrial undertaking with reference to the investment of substantial capital made in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt invested INR 1,05,74,903 towards fixed assets for new Bussmann unit, out of which INR 60,86,552 were invested only towards Plant and machinery whereas the value of in the S&S unit was INR 34,97,597, which mean that the value new investment in new Plant and machinery was about 174% of the value of old machinery, which in fact depicts substantial investment (refer section 801C(8)(ix) of the Act which defines "Substantial expansion" to mean increase in the investment in the plant and machinery by at least fifty per cent of the book value of plant and machinery (before taking depreciation in any year), as on the first day of the previous year in which the substantial expansion is undertaken. Further, it is also relevant to point out that installed capacity was substantially increased which is evident from the year on year increase in turnover. 2. With regard to the finding that no new technology was employed and no new and different products was manufactured, the ld.AR submitted that New machinery worth INR 60.86 lakh was installed for manufacturing Bussmann range of fuses. Commissioning report was also furnished in the course of hearing. Further, the fact that the said new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, it is not relevant whether or not the two units are separate or not, in AY 2009-10. Further, it is also not clear whether enquiry undertaken by AO was from the employees who were employees during the AY 2001-02. In view of aforesaid infirmities, such statement is inadmissible and reliance on the same is contrary to principle of natural justice. No requirement to maintain separate muster roll for separate units for availing deduction under section 81B of the Act. The statements / observations of the AO / CIT(A) are factually incorrect. There were separate employees for Bussmann Unit and S&S Unit. 5. With regard to the finding that no physical separation of the units, the ld.AR submitted that the evidences tendered by the Appellant, to demonstrate that the new undertaking is a physically separate and independent undertaking, have been wrongly rejected . The AO has erred in rejecting commission report prepared by the Appellant's engineers, without appreciating that there is no statutory requirement to obtain the commissioning report to be issued by an independent third party or a government agency. On one hand the AO / CIT(A) has not disputed allowance of depr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been demonstrated by the Appellant , however, the AO /CIT(A) did not appreciate the evidence furnished by the Appellant, and alleged that the date of commencement of operations has not been proved. The Appellate has manufactured and exported the Bussmann range of fuses during the relevant AY, the said manufacturing was undertaken by the new machinery setup in Bussmann unit. In view of this, the AO I CIT(A) have erred in concluding that the manufacturing activity of the Appellant has not commenced. 8. With regard to the finding that no separate stock registers, the ld.AR submitted that the Appellant furnished its Central Excise Return for October 2000 as well as print outs of the computer extracts of its daily stock register, which it maintains under the Central Excise Act, 1944. Moreover, it is submitted that maintenance of separate physical daily stock register is not a requirement under the law and the same cannot be a decisive factor whether a new undertaking has been setup or not, particularly when the Appellant has furnished its central excise return to demonstrate that it manufactured the impugned product during the relevant period. and invited our attention to the mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding. Both 5&5 unit and Bussmann unit were operating with separate sets of plant and machinery and each was capable of manufacturing the respective products. None of the plant and machinery of the S&S unit was used for the manufacture of the Bussmann fuses. The list of plant and machinery mapped with the processes by both the units are enclosed. The design / physical dimensions of the Bussmann fuse is entirely different from the S&S fuse. The technology / process involved in the manufacture of Bussmann fuse are also difference from that of S&S fuse. S&S fuses continued to serve the Indian market with the existing customers and the Bussmann Unit supplied the new range of fuses. The list of existing products and customers of the S&S unit and Bussmann unit is enclosed. Even after the setting up of the Bussmann unit, the business of the S&S unit was also carried on and continued to grow year-on-year, as evident from the following table tabulating the turnover of the Bussmann unit and the S&S unit over the years: Particulars AY 2001-02 AY 2002-03 AY 2003-04 AY 2004-05 AY 2005-06 New undertaking 4.55 crores 11.40 21.35 29.76 60.43 Existing undertaking 3.6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dustrial undertaking is a separate and distinct and identity when compared to the old industrial undertaking. " "5.4 I have considered the findings giving by the AO in the order of re-assessment and submissions made by the appellant carefully. The facts of the case are that the assessee company was incorporated on 24.09.1992 but the business activity of the company commenced only during the previous year relevant to the A.Y. 2000-01 and the assessee company acquired a division of another company known as M/s S & S Power Switch Gear Ltd.(M/s S&S PS Ltd.). As per the hive of agreement dated 17.12.1999 entered into the assessee company and M/s S&S PS Ltd., M/s S&S PS Ltd. transferred its low tension(fuse business) located at Pondicherry to the assessee company. As a result of hive of agreement, the assessee company acquired the following assets of M/s S&S PS Ltd. S.No. Name of the assets Amount 1 Land 3,971,000 2 Buildings 11,129,966 3 Plant & Machinery 3,497,597 4 Electrical installation 6,55,428 5 Tooling & Fixtures 14,81,288 6 Furniture & Fittings 26,01,128 7 Computers 7,33,193 8 Goodwill 8,60,19,764 Total 11,00,89,364 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nge fuse & fuse fittings The sales of S&S LT fuse division for the financial year ended 31.03.2000 was around Rs. 1,95,27,964/-. 5 July 2000 to November 2000 The company has purchased new plant and machinery for manufacture of Bussmann range fuse & fuse fittings 6 August 2000 to October 2000 The company has recruited new employees for manufacture of Bussmann range fuse & fuse fittings. 7 31.10.2000 The company has commenced the manufacture of Bussmann range fuses & fuse fittings. The area occupied by the new undertaking manufacturing Bussmann range fuses and fuse fittings was around 5.122 sq.ft. The new undertaking manufacturing Bussmann range fuse and fuse fittings and S&S LT fuses division was demarcated by a wire mesh partition. 8 22.11.2000 The name of the company was changed from S&S Low Tension Switchgear Pvt. Ltd. to Cooper Bussmann India Pvt. Ltd. 9 31.10.2001 The company has extended its building for manufacturing Bussmann range fuses and fuse fittings. The total area constructed was around 11,204 sq.ft. 10 12.07.2004 The company has constructed another new building for its EOU operations. The area of new EOU was around 16,528 sq.ft. 11 17. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion rather than the establishment of any new industrial undertaking. (b) use of new technology & process involved & products manufactured: I have perused the copies of the invoices in respect of the new machineries purchased to the tune of Rs. 53.17 lakhs. I have also perused the copies of the invoices in respect of manufacture of goods and articles. All the machineries were purchased in India only. It is evident from the copies of invoices that the new machineries purchased are not very different from the machineries which was already existing in the manufacturing process. No new technology was involved in these new machineries. Hence, the contention of the appellant that different types of machines were involved in the manufacture of Bussmann range of products which are meant for export purposes was not supported by any evidence. There was no upgradation in the quality of the products manufactured under the name of Bussmann fuses as compared to S&S products. The appellant has artificially divided the products manufactured for export products as Busmann fuses and for domestic products as S&S fuses. Naturally, products which are exported requires certification from foreign cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of the Chief Inspector of Factories do not indicate the setting up of the new industrial unit. The quantum of investment made in the building during the A.Y. 2001-02 was only Rs. 9,23,579/- as compared to the written down value of the building as on 01.04.2000 of Rs. 1,11,29,966/-. No conclusive evidence was furnished to prove that new factory was constructed during the A.Y. 2001-02 with substantive investment and manufacturing took place in the newly constructed factory. (f) No separate power connection: No evidence for separate power connection was made available to prove that new industrial undertaking was in fact started during the A.Y. 2001-02. The existing connection was used for running extra machines which was in the course of expansion of the already existing factory rather than the newly established unit. (g) No commencement of the new manufacturing activity: No evidence was produced to prove that any new manufacturing activity took place during the A.Y. 2001-02. The so called invoice dated 21.07.2000 for import of raw material and the so called invoice for the export of products dated 31.10.2000 do not conclusively establish that the appellant has manufactured dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of deduction u/s 80 IB of the IT Act. In view of the discussion in the foregoing paras, I am of the considered view that no new undertaking has come up by substantial investment and also of the view that the so called new unit is not an integrated unit by itself. The subsequent purchase of the new machineries after the purchase of the old unit was done in the ordinary course of expansion of the business and not in the nature of new industrial undertaking within the meaning of the Sec.80IB of the IT Act. While doing so, the principle laid down by Supreme Court of India in the cases cited by the AO are fully applicable to hold that the appellant is not eligible for deduction u/s 80IB of the IT Act. Under the facts & circumstances of the case, all the grounds of appeal raised are rejected. Hence, the disallowance of claim of deduction made by AO are confirmed." 3.1 We heard the rival submissions. It is clear from the order of the ld.CIT(A), extracted above, the ld.CIT(A) examined the issue in detail viz., the sequence of events and considered that the quantum of investment was to the tune of Rs. 53,17,373/- only, which comes to about 4.23% only. Considering the turnover increa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant has established entirely new industrial undertaking. Thus, the only external evidence, filed by the assessee has become totally unreliable. Further, the ld.CIT(A) held that the assessee has not maintained separate books of accounts, it employed the same employees for manufacture of all products, there was no physical separation of units, separate power connection and separate stock registers, etc. On such findings, he has come to the conclusion, that no new undertaking has come up by substantial investment, the so called new unit is not an integrated unit by itself, the subsequent purchases of new machineries after the purchase of old unit was done in the ordinary course of expansion of the business and not in the nature of new industrial undertaking within the meaning of Section 80IB of the Act. On such cumulative findings, the assessee has not laid any fresh material to prove that the appellant has established a new undertaking which is capable of manufacturing new products with distinct characteristics has come into existence during the assessment year 2001-02 which is the initial year for the claim of deduction U/s.80IB. Therefore, we do not find any reason to interfere w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following case laws:- 1. Guy Carpenter & Co. Limited : [2012] 346 ITR 504 (Del) 2. CIT vs. De Beers India Mineral (P) Ltd : 346 ITR 467 (Kar) 3. ACIT vs. Vishwak Solutions (P) Ltd: [2015] 38 ITR (T) 522 (Mad) 4.2 Per contra, the ld.DR supported the orders of the lower authorities. 4.3 We heard the rival submissions and gone through the relevant material. Since the payment is towards certification, it is purely professional services and in the absence of any business connection and activity being carried out by ASTA and China Inspection Company Ltd., in India, the same is not taxable in India and hence, we find merit in the grounds of the assessee and hence allow the appeals. 5. Further, the ld.AR pleaded that the AO has not given the credit of advance tax and self-assessment tax amounting to Rs. 16,02,767/- and Rs. 1,41,80,738/- respectively for the assessment year 2008-09. The issue was raised before the CIT(A) vide ground No.6, however the ground has not been adjudicated. Therefore the assessee pleaded that AO may be directed to allow correct credit of taxes. We direct the AO to examine and allow the correct credit of taxes. 6. Further, the ld.AR pleaded that in the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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