9911796707
TMI Blog2022 (6) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... pheld the order of the Assessing Officer. 3. That the revenue craves leaves to add, amend, alter or withdraw any grounds of appeal. 4. It is, therefore, prayed that the order of the Ld.CIT(A), Jamnagar may kindly be set aside and that of the Assessing Officer be restored. 3. The only issue raised by the Revenue is that the learned CIT-A erred in deleting the deleting the disallowances by the AO for the deduction claimed under section 10AA of the Act for Rs. 4,40,38,208/- only. 4. The assessee is a partnership firm and engaged in the business of manufacturing and trading of Brass item. The assessee firm was incorporated as on 23rd December 2008 i.e. F.Y. 2008-09 corresponding to A.Y. 2009-10. The assessee firm for A.Y. 2009-10 and A.Y. 2010-11 declared nil turnover and nil GP. However, the assessee in the year under consideration i.e. A.Y. 2011-12 declared turnover of Rs. 10,83,78,230/-, GP of Rs. 5,04,29,339/- and NP of Rs. 4,52,99,616/- only. Out of such NP, an amount of Rs. 4,40,38,208/- was claimed as exempt under section 10AA of the Act being SEZ unit. Accordingly the assessee declared taxable income of Rs. 12,61,410/- (4,52,99,616 - 4,40,38,208) only in the return of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar. As such business operation started in the year under consideration only. Thus, no adverse inference ought to have be drawn based on the fact that common person holding substantial interest in two enterprise which are engaged in similar business line and operating from common industrial plot. Though the industrial plot is same but factory premises are independent to each other. Likewise, the final product being Brass items are also different to each other on the parameters such as drawing of products, use of raw material, manufacturing process and use of machinery etc. Accordingly, the assessee contended that it is operating independently and separate to the sister concern i.e. AMPL. Accordingly, the assessee submitted that the eligibility of exemption can be decided based on the conditions prescribed under subsection 4 of section 10AA of the Act. 7. The learned CIT-(A) after considering the facts in totality deleted the disallowances made by the AO by observing as under: On careful consideration of entire facts, it Is observed that appellant firm is established in Surat Special Economic Zone and obtained approval by Development commission on 30/12/2009. It has commenced the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o fulfilled In the case of appellant firm. The Assessing Officer has observed that appellant firm has little machinery of Rs 8.84 lacs in comparison with huge infrastructure of AMPL and ft/does not have infrastructure to generate profit of more than 4.4 crore. This entire observation of Assessing Officer is on presumption and Assessing Officer has not brought out any singe evidence which prove that appellant has used infrastructure of AMPL to earn such huge profit. It Is not the precondition that for earning huge profit, assessee should have large infrastructure facility or machinery arid as appellant has not made huge capital investment, deduction u/s 10AA should be denied to assessee. So far as third condition referred supra is concerned, the Assessing Officer in the last para of his order has observed that assessee firm is formed by the splitting up or reconstruction of business already Iri: existence but not given any cogent reasons to support his claim. It Is well-settled that in order to hold that a business was formed by splitting up of a business already in existence, there must be some material to hold that either :some assets of the existing business were diverted and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g business that the new undertaking should produce different article to that produced by the old unit. (v) It is pertinent to note that plant & machineries used by appellant firm have technical capabilities to produce the products as per customers specification to comply with ROHs directives and these directive restricts the use of six hazardous material in the manufacture of various electronic and electric equipment and such technical specification are not available with plant & machineries owned by other party being AMPL. In this context, it will be worthwhile to refer to Hon'ble Apex Court decision in the case of Textile Machinery Corpn. Ltd. CIT ['1977] 107 ITR 195 wherein it was held that:- "A new activity launched by the assessee by establishing new plants and machinery by investing substantial funds may produce the same commodities of the old business or it may produce some other distinct marketable products, even commodities which may feed the old business. These products may be consumed by the assessee in his old business or may be sold in the open market. One thing is certain that the new undertaking must be an integrated unit by itself wherein articles are produced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the partners from' their personal funds. Thus, we do not find neither the presence of the partners not the products dealt with, would -be of .any guidance to decide the issue raised by the assessee. Soo to 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, we have no hesitation in rejecting the plea of the Revenue. Consequently, we have no hesitation in confirming the order of the Tribunal. Further, while making disallowance u/s IOAA, Assessing Officer proceeded to arbitrarily assume that AMPL was first claiming deduction u/s IOAA of the Act and when its holiday period of claiming deduction (c) 100% was over, appellant firm was established to claim deduction @ 100%. In the present case, both AMPL and appellant are separate legal entities and have satisfied all the conditions laid down u/s 1QAA of the Act hence Assessing Officer is not empowered to make disallowance of deduction claimed in Return of Income on the grounds what are contrary to provisions granting such deductions. Thus, on holistic consideration of entir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... econstruction of business already existed. 3. There should be new plant and machineries, meaning thereby, it is not used previously for any purpose of business already existed. 11.1 In the present case, the 1st allegation of the Revenue was that the assessee firm has adopted colorable device. As such it was formed by splitting up of existing business of company i.e. AMPL. Furthermore, the assessee firm and the private limited company namely AMPL were owned and controlled by common person and were operating from the same premises. Undeniably, we note that the assessee firm was established in the premises owned by the company namely AMPL. However, the company namely AMPL was working from grounds floor whereas assessee firm was working/operating from first floor. The ground floor from where company AMPL operating was constructed during the year 2006 and 2007 and manufacturing process started from June 2007. This fact can be verified from application for permission of construction dated 15-11-2006 to the development commissioner of SEZ, application by structural engineer DGDC and fee paid for approval of building plan dated 17-11-2006, construction approval DGDC dated 15- 12-2006 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of the business of the company namely AMPL was same. Though the 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 the product is also different with that of the company. The learned CIT-A found the explanation submitted by the assessee as genuine and accepted the same. The ld. DR at the time of hearing failed to controvert this fact finding of the ld. CIT-A. Thus it is established that business of the assessee firm and sister concern being company AMPL are different, separate and independent to each other. Therefore, the assessee cannot be denied the benefit of section 10-A of the Act. 11.3 Without prejudice to the above, assuming final product, raw material and manufacturing process are similar of the assessee and the company, still the relief to the assessee under section 10AA cannot be denied merely on the reasoning that the raw material, processing activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that the turnover of the company namely AMPL was diverted until and unless some cogent materials brought on record. There is no allegation of the revenue suggesting that the assessee firm had made sales of its products to the same parties to whom the company was making the sales in the earlier years. Thus, in the absence of such finding, we are not inclined to draw any adverse inference against the assessee. 11.5 It is also important to note that the suspicion howsoever it is strong but cannot partake the character of the evidences until and unless it is brought on record based on cogent materials. In holding so we draw support and guidance from the judgment of Hon'ble supreme court in case of CIT vs. Daulatram Rawatmull reported in 53 ITR 574 where it was held that "The circumstances relied upon did raise suspicion, but suspicion could not take the place of evidence." 11.6 Without prejudice to the above, let us assume that the partnership firm and the company are one and the same person. As such, the assessee in order to claim higher amount of deduction has created a partnership firm and diverted its business. If that be so, even then the assessee is eligible for deduction u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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