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TMI Blog2021 (5) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... nd machinery as on 31.03.2011 at ₹ 1,82,32,810/-, the percentage works out to ₹ 17.11%, which is well within the percentage specified in Explanation 2 of section 80(IA)(3) rws 80IC of the Act. Therefore, we are of the considered view that on this count also reason given by the Assessing Officer to deny deduction claimed u/s.80IC of the Act fails. Coming back to case laws relied on by the counsel for the assessee. The learned counsel for the assessee has relied upon plethora of judicial precedents in support of his arguments. The Hon ble High Court of Delhi in the case of CIT Vs.Ganga Sugar Corporation Ltd.[ 1971 (3) TMI 46 - DELHI HIGH COURT] has considered an identical issue in light of the observations of the Assessing Officer of splitting up or reconstruction of business already in existence. The Hon ble High Court in the context of provisions of section 15C of the Income Tax Act, 1922, which is similar to the provisions of section 80J of the Income Tax Act, 1961 The Hon'ble Jurisdictional High Court of Madras in the case of CIT Vs. Premier Cotton Mills Ltd, [ 1999 (2) TMI 41 - MADRAS HIGH COURT] has discussed in more detail the splitting up or reconst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than 20% limit from APMPL, (III) M/s Arun Enterprises having huge and significant amount of related party transaction with APMPL in form of sale of raw material, finished goods, Moulds and spares, labour service charge, Purchase of raw material etc, hence catering directly to the needs of business already existed of APMPL and indirectly to UAPL as APMPL is a personal care unit of UAPL. 4. The ld. CIT(A) erred in holding that the formation of M/s Arun Enterprises was not an occurrence of Transfer of machinery to the tune of more than the specified limit of 20% from business, already existed, of APMPL, by wrongly comparing machinery available as on 31/3/2012 to the transferred in machinery in F Y 2010-11(First year of 801C claim), on the contrary transferred in machinery in F Y in F Y 2010-11(First year of 80IC claim) has to be compared with machinery available in F Y 2010-11(First year of 80lC claim) for checking specified limit of 20% transferred in machinery at the time of formation of 80IC eligible unit, as AO has done and correctly disallowed 80IC claim of the assessee, as this transferred in machinery was more than 50% of total plant machinery at the time of formation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 87,644/-. The case was taken up for scrutiny and during the course of assessment proceedings , the Assessing Officer has denied deduction claimed u/s.80IC of the Act, in respect of profit derived from unit situated at Haridwar for manufacturing of plastic components using injection moulding process for the following reasons:- (i) Till the Asst year 2010-11, the assessee was engaged in the manufacturing of ancillary equipments catering to the plastic, paper, rubber, confectionary, food and medical industries During the Financial year 2010 11, the company has started a unit in Haridwar, for manufacturing and supplying of plastic components using the injection moulding process and supplied to Hindustan Unilever Limited. (ii) The assessee and his family members are the share holders and Directors of the Company in the name and style of Arun Plasto Moulders P Ltd (APMPL) . The APMPL is engaged in the business of making plastic components using the process of injection moulding and supplies major part of its production to Hindustan Unilever Limited. The said company started 80IC undertaking in Haridwar, for manufacturing the plastic components. The claim of 80IC by the Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns made by the Assessing Officer in light of denial of deduction claimed u/s. 80IC to sister concern of the assesse, M/s. Arun Plasto Moulders Pvt. Ltd. (APMPL) with facts and argued that the Assessing Officer has alleged that the assessee has started new unit, because of denial of deduction to sister concern on the ground of splitting up of existing business, but fact remains that the assessee has started new unit in the year 2009 well before the Assessing Officer has denied deduction to the sister concern for the assessment year 2010-11 vide his order dated 28.12.2011. Therefore, observations of the Assessing Officer that because deduction was denied to M/s. Arun Plasto Moulders Pvt. Ltd, the assessee has started new unit is not correct. The assessee has also negated another observation of the Assessing Officer in light of Explanation 2 of section 80(IA)(3) rws 80IC of the Act that the assessee has used more than 20% of used machinery from the existing unit with facts and figures, as per which percentage of used machinery installed in the new unit is only 15.19%, when compared to total amount of plant and machinery installed at new unit at ₹ 2,05,36,114/-. 5. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing up of business at Chennai unit and (ii) on account of transfer of plant and machinery from the Chennai unit to Hardwar unit purportedly exceeding the statutory limit of 20% permissible in the said provision. The contentions of the AO appears misplaced both on facts and in law as could be seen from the aforesaid discussion in so far as the facts that the new unit at Haridwar would be by no logic or reasoning construed to be put up by splitting or reconstruction of the unit already in existence in Chennai since from a perusal of the assessment order and material and documentation on record it is seen that in order to expand the business in new areas by having diversified products in its fold and to cater the new line of business of supplying products to water purifier business of UAPL and also to cater independently to any third party clients without any restriction imposed by UAPL, the appellant had conceived the idea of establishing of a new unit of M/s. Arun Enterprises at Haridwar, Uttarakhand in the FY. 2009-10 and it was common for any business enterprise to expand its business without any restrictions by having diversified products to sustain in the competitive e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed separately for units at Chennai and Haridwar in the audited financials field. 8.3. In the above background and facts which has not been disputed by the AO specifically and pointedly the detailed rulings in the case of CIT vs. Ganga Sugar Corporation Ltd. 92 ITR 173 Del) CIT Vs. Hindustan General industries Ltd. 6 Taxmann 360 (Del) apart from the catena of judgements relied on by the AR aforesaid, is instructive and supports the contention of the appellant in the instant case. CIT vs. Ganga Sugar Corporation Ltd. 92 ITR 173 (Del) 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 to he of all the assets. It is none the less imperative that there should be continuity and preservation of the old undertaking though in an altered from. The concept of reconstruction of business would not be attracted when a company which is already running one industrial unit set up another industrial unit. The new industrial unit would not lose its separate and independent identity even though it ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inding out whether there is reconstruction or not as a result of the setting up of a new industrial undertaking. the assessee had expanded its business in the same or similar articles, but to find out whether the unit which has been set up separately is new in the sense that new plant and machinery are erected and a new independent and viable unit has come into existence for producing either the same commodities or some distinct commodities. In the instant case, the fact clearly showed that the assessee was manufacturing certain articles at its old factory. Subsequently, as a result the order placed by the Central Government, it had to embark on construction of railway wagons. For the purpose, the existing factory was found to be totally inadequate, Fresh land was acquired, fresh capital was invested, fresh machinery and plant were installed and the new factory came into existence after more than a couple of years. It was no doubt true that in the initial stages, the new factory also turned out article perhaps of the same type as those manufactured in the old factory. But, gradually the new factory started the manufacture of railway wagons. Further the Tribunal had found as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduction of articles. Though the heading of the section 80J refers to newly established industrial undertaking, in the body of the section, there is no requirement that the undertaking should be new or it must be set up as an Independent unit nd the new undertaking is not to be equated with legal entity which may awn such undertaking. A single legal entity may own and operate more than one industrial undertakings When an existing industrial undertaking is substantially expanded and the manner of expansion is such that the newly installed plant, being regarded as an industrial undertaking, the requirements of the section are met Location . of expanded facilities vis-a-vis existing undertaking is not relevant The petitioner added the additional splindlage after securing license and claimed deduction only after completion of expansion. The Madras High court held that the petitioner is entitled to the deduction u/s. 80J of Income Tax Act. 8.4. The case laws referred to above clearly indicate the requirements to claim that an undertaking being newly established undertaking eligible to claim deduction as provided in the section 80IC of the IT Act and such an undertaking is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated the condition laid down u/s 80IC of the Act. The percentage of transfer of old machinery is only 15.19%, if worked out correctly as detailed hereunder: The total gross plant and machinery as on 31.03.2012 stands at ₹ 2,05,36,114/- as against the amount of ₹ 59,81,123/- as mentioned by the AC in the assessment order. The details of plant and machinery available as on 31.03.2012 as per the audited financials which has not been disputed by the AO are as under: Asset F. Y. Gross Amt before depreciation Depreciation Net Block Plant machinery 2009-10 ₹ 83,32,090 plus WIP of rs.7,23,028 ₹ 624,968 ₹ 84,30,969 Plant machinery 2010-11 ₹ 98,99,901 ₹ 27,00,684 ₹ 1,56,30,186 Plant machinery 2011-12 ₹ 15,80276 ₹ 25,60,009 ₹ 1,46,50,453 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of formation of 80IC eligible unit. The learned CIT(A) has failed to appreciate that if any undertaking has not qualified any one or both of the two conditions specified u/s 80IC(4) regarding formation of undertaking by splitting up or reconstruction and use of transferred plant and machinery from a business already existed, its claim of 80IC deduction has to be disallowed. Although, the Assessing Officer has brought out various facts to prove that splitting up of already existing business, the learned CIT(A) has negated observations made by the Assessing Officer without bringing on record any evidence to prove that how unit set up at Haridwar is separate and independent unit different from already existing business at Chennai. 7. The learned A.R for the assesse, on the other hand, strongly supporting order of the learned CIT(A) submitted that new unit set up at Haridwar is a separate undertaking for manufacturing of new product different from products already manufactured by the assessee in the existing unit at Chennai, which is clear from facts narrated before the learned CIT(A) that new unit had been set up at Haridwar to cater the needs of major clients of M/s. Unilever A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 59,81,123/- to arrive at 50%, ignoring fact that the assessee has installed plant and machinery as on 31.03.2012 at ₹ 2,05,36,114/- and such value is considered, then percentage of plant and machinery used in the new unit is only 15.19%, which is well within the percentage specified under Explanation 2 of section 80(IA)(3) rws 80IC of the Act. Therefore, the learned CIT(A), after considering all the facts has rightly held that the assessee is eligible for deduction u/s. 80IC of the Act and hence, his order should be upheld. 8. We have heard both the parties, perused material available on record and gone through orders of the authorities below. The Assessing Officer has denied deduction claimed u/s. 80IC of the Act in respect of profit derived from new industrial undertaking at Haridwar on the ground that new unit at Haridwar was set up by splitting up of existing business at Chennai unit. According to the Assessing Officer, the assessee has split up its existing business and formed new unit, when the deduction claimed u/s.80IC was denied to M/s Arun Plasto Moulders Private Ltd., a sister concern of the assessee. The Assessing Officer has also denied deduction on anothe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary unit for manufacturing of goods for captive consumption. In order that a new industrial undertaking can be said to be not formed out of already existing business, there must be new emergence of physically separate unit on its own as a viable unit. The new activity may produce same commodity of the old business or it may produce some other distinct marketable product or even products which may affect old business. What must be certain is new undertaking must be an integrated unit by itself. 9. In this legal background, if facts of the present case is examined, the reasons given by the Assessing Officer to deny deduction claimed u/s.80IC of the Act appears to be misplaced both on facts and in law. The contentions of the Assessing Officer appears to be incorrect, because new unit at Haridwar would be by no logic or reasoning can be construed by splitting or reconstruction of the unit already in existence in Chennai. Because, the assessee in order to expand its business in new areas by having diversified products in its fold and to cater new line of business of supplying products to water purifier business of UPAL and also to cater independently to any third party clients withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one industrial unit set up another industrial unit to its advantage. The new unit would not lose its separate and independent entity even though it was set up by a company, which is already running an industrial unit before setting up of a new unit. The real test of finding out whether there is splitting up of already existing business or not as a result of setting up of a new industrial undertaking, the assessee had expanded its business in the same or similar articles, but to find out whether unit has been set up separately as new in the sense that new plant and machinery are erected and new independent and viable unit has come into existence for producing either the same commodity or some distinct commodity. In this case, it is abundantly clear that assessee has set up a new unit to expand its business and also to enter into new market by considering economic feasibility of business, said unit has been set up in order to benefit from new tax regime announced for setting up units in a special category States. Further, the assessee has set up its new unit to cater the needs of its major customers which is set up a separate unit for manufacturing water purifier which is altogether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e plant and machinery installed at new unit at Haridwar, as per which as on 31.03.2012, the assessee has installed total plant and machinery worth ₹ 2,05,36,114/-, out of which used plant and machinery taken from APMPL is at ₹ 31,20,023/-. If the amount of ₹ 31,20,023/- being value of old plant and machinery as mentioned by the Assessing Officer is compared to total plant and machinery installed at new unit at ₹ 2,05,36,114/-, the same would be worked out to 15.19% only, as against more than 50% as observed by the Assessing Officer in her assessment order. Further, the learned DR has vehemently argued the issue of transfer of used plant and machinery on the ground that learned CIT(A) has wrongly adopted total plant and machinery installed as on 31.03.2012 instead of plant and machinery as on 31.03.2011. The learned DR further submitted that of plant and machinery should be considered when the unit was first claimed deduction u/s.80IC of the Act. In this case, the assessee has claimed deduction for the first time in the financial year 2010-11 relevant to the assessment year 2011-12 and hence, total plant and machinery installed at the end of financial year 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dustrialization. It does not appear to have been the intention of the Legislature as envisaged by Sec. 15C of the 1922 Act, that the benefit of the said section would be confined to the industrial undertaking of those parties who had not already set up such undertakings in the past but would not be extended to parties who have past experience of running similar undertakings. If in the context of the total cost involved in the setting up of the new industrial undertaking the value of transferred building, machinery or plant constitute only a small fraction, the new industrial undertaking would not be held to have been formed by the transfer to a new business of building, machinery or plant previously used in another business. As against that, if however the value of the transferred building, machinery or plant is substantial when compared to the total cost involved in the setting up of the new industrial undertaking, the said undertaking would be hit by the concluding words of clause (i) of sub-section 15C of 1922 Act It may be stated that in sub-section (6) of Sec. 80Jof the 1961 Act the Legislature has specified that the total value of the building machinery or plant so tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter of facts that the assessee s new factory was a new undertaking. There was nothing to show that as a result of setting up of this undertaking the integrity, unit or the continuity of the business transaction in the earlier undertaking were in any manner adversely affected. This was a new, independent and viable unit. 2. The mere fact while setting up of this factory, a small amount of plant and machinery was transferred from the previous business could not lead one to the conclusion that it was a case of reconstruction. Under section 84(2)(ii), the assessee could be denied exemption only where the assets transferred to the new factory constituted more than 20 percent of the assets used in the new business. This was essentially a question of fact. In the instant case, the Tribunal had looked into the figures of the balance sheets and had correctly come to the conclusion that the assets transferred constituted less than 20 per cent of the total value of the assets of the new business. Hence the assessee satisfied the aforesaid condition. 3. The emphasis is not on business but on undertakings. The exemption is granted to new undertakings and the essence of the exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. Vs. CIT (1977) 107 ITR 195 (SC) in the context of deduction claimed u/s. 80J of the Income Tax Act, 1961, which is corresponding to section 15C of the Income Tax Act, 1922 held as under:- Section 15C is an exemption section. The benefit granted under this section is a partial benefit so far as the quantum of the exempted profits of the new industrial undertaking as also for a limited period or periods as specified in the section. If the two industrial undertakings, about the existence of which there can be no controversy, as found by the Tribunal, could not be held to be formed by the reconstruction of the business already in existence, the benefit of section 15C of the 1922 Act would be available to the assessee. Section 15C(2) of the 1922 Act has a negative as well as a positive aspect. Negatively, the new industrial undertaking of the assessee should not be formed- (1) by the splitting up of the business already in existence, (2) by the reconstruction of business already in existence, or (3) by the transfer to a new business of building, machinery or plant used in a business which was being carried on before April 1, 1948. It is not possible to exclude any ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y so in view of manifold scientific and technological developments. There is great scope for expansion of trade and industry. The fact that an assessee by establishment of a new industrial undertaking expands his existing business, which he certainly does, would not, on that score, deprive him of the benefit under section 15C of the 1922 Act. Every new creation in business is some kind of expansion and advancement. The true test is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is all the same a new and identifiable undertaking separate and distinct from the existing business. No particular decision in one case can lay down an inexorable test to determine whether a given case comes under section 15C or not. In order that the new undertaking can be said to be not formed out of the already existing business, there must be a new emergence of a physically separate industrial unit which may exist on its own as a viable unit. An undertaking is formed out of the existing business if the physical identity with the old unit is preserved. This had not happened in the case of the relevant two undertakings which were separa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be reconstruction of his old business since there is no transfer of any assets of the old business to the new undertaking which takes place when there is reconstruction of the old business. For the purpose of section 15C of the 1922 Act the industrial units set up must be new in the sense that new plants and machinery are erected for producing either the same commodities or some distinct commodities. In order to deny the benefit of section 15C of the 1922 Act, the new undertaking must be formed by reconstruction of the old business. Now, in the instant case, there was no formation of any industrial undertaking out of the existing business since that could take place only when the assets of the old business were transferred substantially to the new undertaking. There was no such transfer of assets in the two cases. The fact that the assessee was carrying on the general business of heavy engineering would not prevent him from setting up new industrial undertakings and from claiming benefit under section 1 SC of the 1922 Act if that section was otherwise applicable. However, in order to be entitled to the benefit under section 15C of the 1922 Act, the following facts have t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew of the matter and considering case laws discussed herein above, we are of the considered view that the assessee is eligible for deduction u/s.80IC of the Act in respect of profit derived from new undertaking set up at Haridwar. The learned CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer towards disallowances u/s.80IC of the Act and hence, we are inclined to uphold the findings of the learned CIT(A) and dismiss the appeal filed by the Revenue. 18. In the result, appeal filed by Revenue for the assessment year 2012-13 is dismissed. ITA No.3400/Chny/2019 (A.Y.2013-14): 19. The facts and issues involved in this appeal are identical to the facts and issues, which we have considered in ITA No.3399/Chny/2019 for the assessment year 2012-13. The reasons given by us in preceding paragraphs in ITA No.3399/Chny/2019 for assessment year 2012-13 shall mutandis mutandis apply to this appeal as well. Therefore, for similar reasons, we are inclined to uphold the order of the learned CIT(A) and dismiss appeal filed by the Revenue. 20. In the result, appeal filed by the Revenue for both the assessment years are dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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