2010 (12) TMI 1229 - AT - Income Tax

Tribunal confirms Unit II's eligibility for deduction under section 80-IB

Deputy Commissioner of Income Tax Range 5 (3), Mumbai Versus M/s Uniglobe Packaging P. Ltd.,

The Tribunal upheld the CIT(A)'s decision, ruling that Unit II was eligible for the deduction under section 80-IB. It found that Unit II was a separate ... - Issues Involved:1. Eligibility of Unit II for deduction u/s 80-IB.2. Whether Unit II is an extension of Unit I or a separate undertaking.Summary:Issue 1: Eligibility of Unit II for deduction u/s 80-IBThe revenue's main contention was that the CIT(A) erred in holding that the new unit (Unit II) is entitled to deduction u/s 80-IB at the rate of 100%, without appreciating that the new unit is merely an extension of the first unit (Unit I). The assessee's Unit I was already entitled to the deduction u/s 80-IB. During the year ended 31.03.2004, the assessee started Unit II and claimed the deduction for it. The Assessing Officer (AO) initially allowed the deduction for the assessment year 2004-05 but denied it for subsequent years, considering Unit II as an expansion of Unit I.Issue 2: Whether Unit II is an extension of Unit I or a separate undertakingThe CIT(A) accepted the assessee's appeal, holding that Unit II was eligible for the deduction based on several findings:1. The new Unit was situated in a separate section of the building.2. It employed new technology and produced new products using different raw materials.3. The assessee had taken loans specifically for setting up the new Unit.4. The manufacturing processes in both Units were different.The CIT(A) also relied on the Supreme Court judgment in Textile Machinery Corporation Ltd. vs. CIT, which held that producing the same product in both units does not disqualify the new unit from the deduction.The AO's assessment for subsequent years (2005-06 and 2006-07) reiterated the earlier stance, citing lack of physical, technical, and financial severance between the units. However, the CIT(A) maintained that Unit II was independent, citing new machinery, separate loans, and different manufacturing processes.The revenue's appeal argued that the CIT(A) overlooked key points, such as the lack of separate registration for Unit II and the fact that the products were sold to the same customers. The revenue relied on various judgments, including Videsh Sanchar Nigam Ltd. vs. CIT and Periyar Chemicals Ltd. vs. CIT.The assessee's counsel countered by emphasizing the CIT(A)'s unchallenged findings and the Supreme Court judgments supporting the deduction for new units producing the same products. The counsel also highlighted that Unit II's products were priced higher, indicating a qualitative difference.The Tribunal concluded that the CIT(A) rightly held Unit II eligible for the deduction u/s 80-IB. The Tribunal noted that the new unit was set up with new plant and machinery, financed by a separate loan, and produced different or superior quality products. The Tribunal dismissed the revenue's appeals, upholding the CIT(A)'s orders for both years.