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TMI Blog2022 (6) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... ring/ business activities. Accordingly we are of the view that no adverse inference cannot be drawn to deny the benefit available under section 10AA of the Act to the assessee on the reasoning that it was operating from the premises of sister concern which was also eligible for deduction under section 10AA of the Act. Furthermore, there is no prohibition under the provisions of law suggesting that the assessee cannot be given the benefit of section 10AA of the Act if it is found that it is operating from same building from where another unit which is eligible for deduction under section 10A of the Act is also operating. Thus to our understanding, the assessee cannot be the denied the benefit of exemption which is otherwise available under the provisions of the law. Nature of the business of the company namely AMPL - Assessee before the learned CIT-A has contended that both the assessee firm and company AMPL are manufacturing Bar item but the drawing of final product are different from the drawing of the final product of the company namely AMPL. According to the assessee, it acquires different raw materials, carries out different manufacturing process and the final outcome of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - ITA No.246/Rjt/2015 And ITA No.161/Rjt/2016 - - - Dated:- 31-5-2022 - Shri Mahavir Prasad, Judicial Member And Shri Waseem Ahmed, Accountant Member For the Revenue : Shri Mehul Ranpura, A.R For the Assessee : Ms Bhavna Yashroy, CIT.D.R ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeals have been filed at the instance of the Revenue against the separate orders of the Learned Commissioner of Income Tax (Appeals), Jamnagar, dated 24/03/2015 29/02/2016 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as the Act ) relevant to the Assessment Years 2011-12 2012-13. First we take ITA No. 246/RJT/2015, an appeal by the Revenue for A.Y. 2011-12 2. The Revenue has raised the following grounds of appeal: 1. The Ld. CIT(A) has erred in law and on facts in deletion of the addition made on account of deduction of Rs.4,40,38,208/- claimed u/s.10AA of the Act. 2. On the basis of the facts and in the circumstances of the case, the Ld.CIT(A) ought to have upheld the order of the Assessing Officer. 3. That the revenue craves leaves to add, amend, alter or withd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te with the intention of the legislator while introducing this beneficial provision. The AO also observed that clause (ii) to sub-section (4) of section 10AA of the Act also provide that the exemption will not be available if undertaking is formed by splitting up or reconstruction of business of existing undertaking. Thus, the AO disallowed the deduction of Rs. 4,40,38,208/- and added to the total income of the assessee. 5. Aggrieved assessee preferred to appeal to the learned CIT-A 6. The assessee before the learned CIT-A submitted it has fulfilled all the 3 conditions prescribed under the provision of section 10AA of the Act i.e. started manufacturing after 1st April 2006, it was not formed by splitting and reconstruction of existing business and also its plant machinery were not transferred from existing business. The observation of AO that turnover increased many fold from nil turnover in immediate previous year cannot be criteria to disallow the eligible claim of the assessee. Further the reason of nil turnover in previous year was that the operation was not started in earlier year. As such business operation started in the year under consideration only. Thus, no adver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer that no motive could be shown for such manner of business exercise is factually incorrect. For claiming deduction under Section 10AA three baste 'conditions are required to be fulfilled by Assessee which, Inter alia, (I) the assesses should commence manufacture or production etc on or .after 01/4/2006 in SEZ. (II) Undertaking should not be formed by the : transfer of machinery .or plaift previously used for any purpose (ill) undertaking should npt be fdrmed'by the splitting up or reconstruction of business already in existence. In the present case, appellant firm has begun manufacturing of brass parts on 16/04/2010 01/4/2006 hence first condition is fulfilled by It. So far as second condition that undertaking should not be formed by transfer of old or used machinery, appellant has submitted details of addition to Plant machinery along with copies of bills In assessment proceedings as well as before undersigned and Assessing Officer has not raised -any doubt in appellant's claim that it has not transferred old machinery to this undertaking hence even this condition is also fulfilled In the case of appellant firm. The Assessing Officer has observed tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant has provided employment to new employees, Hon'bie Bombay High Court in the case of CTT v. Metropolitan Springs (P.) Ltd. [1991] 191 ITR 2881 has held In the context of provisions of section 8QJ that, even if some members of the staff were common to the old and new unit. It will not be a bar on the eligibility or deduction under section 80J. (iv) The appellant firm has submitted details of raw material used by it as well as AMPL which also proves that both the entitles are using separate raw material for production of finished goods. Even supplier details provided by appellant suggest that supplier in both the entities are different. The appellant has also proved that there are various technical differences in products manufacture by it and that of AMPL and manufacturing process carried out both the entitles are distinct and even plant and machineries used are of different from each other. Even Hon ble Madras High Court decision in the case of CIT vs premier Cotton Mills Ltd. [1999] 240 ITR 434 has held that it was not required for deciding the question of splitting up or reconstruction of the existing business that the new undertaking should produce different ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to, present case wherein the Hon'ble High court dealing with the Issue of splitting up and reconstruction of existing business has' held as under: 21. As regards the splitting up under Section 10BC2)(|I) of the Income Tax Act, it is not denied fay the Revenue that the assessee firm is a different assessable entity from the 'company: It Is. not denied by the Revenue that- the mere, fact of both the entities carrying on the same business, perse, would not lead to a conclusion that there was a splitting up of a company to a new entity namely firm. The Commissioner of Income Tax (Appeals) as well as the Tribunal had looked into the facts of the case and ultimately came to the conclusion that the mere presence of three of the.-Directors, as partners, by itself, would not make the firm, as one split up from the company and both the entitles deal in different graded product and they were one and the same while the .company deal): with low end I products, the assessee deals with high end products. The Tribunal, as a final fact finding authority, has also pointed out that the firm was constituted with .the capital contribution by the partners from' their personal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned CIT-A. 11. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the assessee has claimed exemption/deduction under section 10AA of the Act which was denied by the AO by alleging that the promoters adopted colorable device by transferring the business of the company namely AMPL to assessee firm to claim higher exemption and the assessee firm is formed by splitting up of existing business AMPL. In holding so the AO highlighted various reason which have been elaborated in preceding paragraph. However, the learned CIT-A was pleased to allow the deduction/exemption to the assessee under the provisions of section 10AA of the Act by observing that there was no violation committed by the assessee as envisaged under the provisions of the Act for claiming the deduction under section 10AA of the Act. For claiming the deduction under section 10AA of the Act, the following conditions should be complied with: 1. The undertaking begins to manufacture or produce articles or thing or provide services on or after 1st day of April 2006. 2. The undertaking is not formed by the splitting up or reconstruction of busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee in the factory building of AMPL was separate and independent unit though the same was established within the 4 walls of the AMPL. There was no allegation raised by the Revenue that the assessee was using the factory premises of the company namely AMPL for the purpose of its manufacturing/ business activities. Accordingly we are of the view that no adverse inference cannot be drawn to deny the benefit available under section 10AA of the Act to the assessee on the reasoning that it was operating from the premises of sister concern which was also eligible for deduction under section 10AA of the Act. Furthermore, there is no prohibition under the provisions of law suggesting that the assessee cannot be given the benefit of section 10AA of the Act if it is found that it is operating from same building from where another unit which is eligible for deduction under section 10A of the Act is also operating. Thus to our understanding, the assessee cannot be the denied the benefit of exemption which is otherwise available under the provisions of the law. 11.2 The 2nd observation of the revenue is that the nature of the business of the assessee viz a viz the nature of the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same while the company dealt with low end products, the assessee deals with high end products. The Tribunal, as a final fact finding authority, has also pointed out that the firm was constituted with the capital contribution by the partners from their personal funds. Thus, neither the presence of the partners not the products dealt with would be of any guidance to decide the issue raised by the assessee. So too the workmen working in the assessee's business and in the company. In the absence of any material to substantiate the contention of the Revenue that the firm was constituted by splitting up of the company, the order of the Tribunal is to be confirmed. [Para 21] 11.4 The next allegation of the Revenue is that the turnover of the assessee has increased manifolds whereas the turnover of the company namely AMPL has declined manifolds. The reason for decline in the sales of the other companies namely AMPL and increase in the assessee company may be on account of various reasons. But the mere presumption that the turnover of the assessee company has increased and the turnover of the other company has declined cannot hold the water so as to reach to the conclusion that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing grounds of appeal: 1. The learned CIT(A) erred in law and fact in deleting the addition made on account of deduction claimed u/s.10AA of the Act of Rs.5,80,57,809/- 2. On the basis of facts and the circumstances of the case, the ld.CIT(A) ought to have upheld the order of the Assessing Officer. 3. That the revenue craves leaves to add, amend, alter or withdraw any ground of appeal. 4. It is, therefore, prayed that the order of the Ld.CIT(A) be set aside and that of the Assessing Officer be restored. 13. The only issue raised by the Revenue is that the learned CIT-A erred in deleting the deleting the disallowances of deduction claimed under section 10AA of the Act for Rs. 5,80,57,860/- only. 14. At the outset we note that the issues raised by the Revenue in its grounds of appeal for the AY 2012-13 are identical to the issues raised by the Revenue in ITA No. 246/Rjt/2015 for the assessment year 2011-12. Therefore, the findings given in 246/Rjt/2015 shall also be applicable for the year under consideration i.e. AY 2012- 13. The ground of appeal of the Revenue for the assessment 2011-12 has been decided by us vide paragraph No. 11 of this order against t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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