9911796707
TMI Blog2016 (10) TMI 1401X X X X Extracts X X X X X X X X Extracts X X X X ..... P. Singh ORDER PER R.C.SHARMA (A.M): These are the appeals filed by the assessee against the order of CIT(A) for the assessment years 2002-2003, 2003-2004, 2004-2005 and 2005-2006, in the matter of order passed under Section 143(3) read with Section 153A of the IT Act. CIT(A) has also confirmed penalty u/s. 271(1)(c) in the Assessment Year 1999-2000 to 2004-2005 with respect to disallowance of claim of deduction u/s. 80IA. 2. Common grievance of assessee in quantum appeals in all the years pertains to decline of claim of deduction under Section 80IA of Daman Unit 1 2. 3. Rival contentions have been heard and record perused. 4. Facts in brief are that the assessee company is engaged in the business of manufacturing and trading of bulk drugs as well as pharmaceutical formulations comprising of oral liquid, tablets and capsules. It is mentioned on page 2 para 6 of the impugned assessment order for Assessment Year 2002-2003 that during the course of search and survey action u/s. 132 r.w.s. 133A at Aurangabad factory premises various documents were found and seized. AO stated that during the course of survey conducted at Aurangabad factory premises of the assessee, the office File No. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80IB was allowed by Tribunal in its order dated 29/06/2016 after having the following observation:- 4.1 The substantive dispute before us arises from the action of the income-tax authorities in denying assessee's claim for deduction under Medley Pharmaceuticals Limited. Section 80IA of the Act with respect to Unit-1 and Unit-2 at Daman. Considering the short controversy before us, we proceed to cull out the relevant facts from the material on record and the orders of the authorities below, which would enable us to decide the aforesaid dispute appropriately. The assessee company is in the business of manufacturing of oral liquids, tablets and capsules since 1976 from its initial location at Aurangabad. In 1994, the assessee company set up a unit at Daman, which is termed as Unit-1. In Unit-1, assessee is undertaking manufacture of oral liquids only. Further, it emerges from the record that in the year 1998, assessee company set-up another manufacturing unit in Daman, termed as Unit-2. In Unit-2, the assessee company is undertaking manufacture of tablets and capsules but some oral liquids and B-lactam antibiotics. In so far as Unit-1 is concerned, notably it has availed the benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Revenue is that the plant and machinery transferred from Aurangabad unit to Daman Unit-1 is in excess of 20% of the total value of the plant and machinery at Unit-1, Daman. 4.4 In this context, it is to be noted that the conditions prescribed in sub-section (2) of section 80IA from clauses (i) to (v) are of varying quality inasmuch as some of them are to be fulfilled at the time of the set-up or the initial year and some conditions are of such nature, which have to be consistently adhered to be by an assessee during the entire period of claim. Notably, the condition which has been invoked by the Revenue in the present case (i.e. clause (ii)) is to be evaluated at the time of formation of the unit. Ostensibly, the instant assessment year is 1999-2000, which is not the year of formation of the unit, which admittedly was the previous year relevant to the assessment year 1995-96. It is also an established position that assessee has been allowed benefit of section 80IA of the Act right from assessment year 1995-96 in relation to Daman Unit-1. Therefore, on a prima-facie basis, the action of the Assessing Officer in denying the deduction in assessment year 1999-2000 is legally unt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugned order. In such remand report, the Assessing Officer considered that the value of old machinery transferred from Aurangabad Unit to Daman Unit-1 consisted of three tanks of Rs. 5,61,600/- and the total value of machinery in Daman Unit- 1 being Rs. 24,90,866/-, thereby reflecting that the proportion of old machinery was 22%. We shall deal with this aspect a little later. 5.1 Before CIT(Appeals), the assessee pointed out that the figure of Rs. 19,29,266/- referred by the Assessing Officer in the remand report was unverifiable. The said amount was stated to be the value of new plant and machinery of Daman Unit-1 as on 31/3/1994. As per the assessee, it had purchased three S.S Jacketed Tanks for Rs. 1,87,200/- each when Daman Unit-1 was started. The manufacturing facilities at Aurangabad Unit was for liquid orals, which was an old facility using plain S.S Tanks without top and without any jacket for manufacturing of syrups, whereas for its Daman Unit-1, assessee acquired Jacketed Tanks, which were totally closed with top dish. Thus, the allegation by the Assessing Officer that tanks from Aurangabad Unit were transferred was untenable. The assessee also pointed out that its Auranga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s specifically invited to the assertions of the lower authorities, whereby it is stated that the seized material reflect the usage of old machinery at Daman Unit-1 in excess of 20%. Countering the aforesaid, Ld. Representative for the assessee pointed out that there is no material adduced at any stage to justify such inference. 6.2 On facts, the Ld. Representative for the assessee pointed out that since assessee has furnished the bills of purchase of new Tanks, there is no repudiation of the same. At the time of hearing, Ld. Representative for the assessee furnished voluminous Paper Books, especially Paper Book-6, which contained detailed note on reconciliation of the fixed assets shown in the annual accounts for the period ending 31/3/1993 to 31/3/1995 for Daman Unit-1. On the basis of the aforesaid, it is sought to be made out that even if the total value of the new plant and machinery be taken as Rs. 19,29,266/-, as adopted by the CIT(Appeals), yet the value of old asset transferred is less 20% as it is merely 68,633/-. In any case, it is sought to be asserted that the total value of the plant and machinery of Daman Unit-1 is Rs. 31,41,563/- and considering the old transferred m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of plant and machinery impounded from Aurangabad unit shows that three Tanks were transferred from Aurangabad unit to Daman Unit-1. Considering that the total expenditure incurred by the assessee on account of Jacketed Tanks was Rs. 5,61,600/-, he proceeded to hold the usage of old machinery at Daman Unit-1 at 29.1%. 8.1 We have considered the aforesaid finding of the CIT(Appeals) and find that it does not conform to the schedule of fixed assets forming part of the Annual Accounts of the assessee, a copy of which has been placed before us. In terms of the details furnished by the assessee, based on audited annual accounts, the following position has been argued by the appellant before us:- Please refer to page A-1 of PB-VI filed. It is statement of Fixed Assets as at 31.03.1993. As on 31.03.1993, the total machinery shown is Rs. 36,26,956/-. As on 31.03.1994(Pg A-2) total machinery shown is Rs. 31,75,090/- and at the bottom is Capital WIP of Rs. 101,04362/-. The said Capital WIP was capitalized to Accounts as on 01.04.1994 (Page A-4 to A-7). The value of Machinery capitalized as on 01.04.1994 to Unit I at Daman is Rs. 25,64,307/-. List of Machinery is at page A-8 to A-10. Furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the position contained in the order of the CIT(Appeals). 8.3 Apart there from, we find that the assessee had argued before the CIT(Appeals) that machinery to the extent of Rs. 68,633/- only, detailed in the earlier part of this order, were transferred from Aurangabad unit to Daman Unit-1. There is no categorical repudiation of such stand of the assessee apart from generalized observation of the CIT(Appeals) which have been thereafter affirmed by the CIT(Appeals). Even before us, the stand of the appellant company is that only machineries to the extent of Rs. 68,633/- have been transferred to Daman Unit-I. In fact, in this context reference was made to Page-466 of the Paper Book to elaborate that the value of transfer in financial year 1996-97 was Rs. 61,049/-; Rs. 830/- in financial year 1998-99; and, Rs. 6,754/- in the financial year 1999-2000. In this detail, it has also been pointed out that the transfer of Rs. 6,754/- in financial year 1999- 2000 included the WDV of two tanks of 1000 litres and 2000 litres. On the contrary, it has also been asserted that the CIT(Appeals) in Para 3.4.7 has wrongly considered the value of machinery transferred at Rs. 5,61,600/-, being 3 S.S. Jack ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enial of claim of deduction u/s. 80IA of the Act in respect of Daman Unit-2. The claim of deduction u/s. 80IA of the Act for Daman Unit-2 has been made for the first time in assessment year 1999-2000. The Daman Unit-2 is stated to have been set-up in the year 1998 for manufacture of tablets, capsules and B-lactum antibiotics. The Assessing Officer as well as the CIT(A) have denied the claim on identical considerations. In nutshell, the stand of the Revenue is that Daman Unit-2 does not have independent existence, inasmuch as, it can be viewed as a part of Daman Unit-1 itself. According to Revenue, both units have a common excise registration, common electricity and water connection and, therefore, Daman Unit-2 is nothing but merely an extension of Daman Unit-1. Therefore, the Assessing Officer held that Daman Unit-2 could not be considered as a new unit and the benefits of section 80IB could not be separately available to Daman Unit-2 and it should run concurrently with Daman Unit-1 itself. 11. On the other hand, the stand of the assessee before lower authorities as well as before us is to the effect that the Daman Unit-2 is separate and distinct unit which is engaged in the busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an extension of Daman Unit-1. 13. We have carefully considered the rival submissions. As we have noted earlier, the assessee company is mainly engaged in the business of manufacture and trading of bulk drugs as well as pharmaceutical formulations comprising of oral liquids, tablets and capsules. The assessee company has its manufacturing facilities located at different places and so far as the controversy before us is concerned, it is confined to manufacturing activities carried out in the two units located at Daman, namely, Daman Unit -1 and Daman Unit-2. Daman Unit-1 is in operation since assessment year 1995-96 and has been claiming exemption under section 80IA of the Act. Daman Unit-2 is stated to have been set-up in the previous year relevant to the assessment year 1999-2000 and, therefore, the claim for exemption under section 80IA and 80IB of the Act has come up for the first time in this year. The claim of exemption for Daman Unit-2 is sought to be defeated by the Revenue on the ground that it was merely an extension of Daman Unit-1. In this context, Page-480 of the Paper Book clearly establishes that the products being manufactured in Daman Unit-2 are different from those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for claiming deduction u/s. 80IB of the Act. The Hon'ble Madras High Court in the case of CIT vs. Premier Cotton Mills Ltd., 240 ITR 434(Mad) has laid down that even a single legal entity may own and operate more than one industrial undertaking and the fact of common ownership would not render the undertaking, which is otherwise capable of being separately viewed, into a common undertaking. In our view, the fact that the new undertaking so established by way of expansion is located adjacent to the existing undertaking would not render the new undertaking ineligible for the claim of deduction u/s. 80 IA/80IB of the Act. Therefore, having regard to the factual matrix, which clearly establishes that the Daman Unit-2 was separate unit having its own plant and machinery, manufacturing of products, independent funds, and separate labour force, it cannot be considered as a mere part of the Daman Unit-1 so as to defeat its claim of deduction u/s. 80IA/80IB of the Act. Thus, on this aspect also assessee succeeds. 14. In the result, for assessment year 1999-2000 appeal of the assessee is allowed to the above extent. 15. It was a common ground between the parties that so far as the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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