Section 80-IC deduction hinges on genuine manufacturing, compliant use of old machinery, and a truly independent new unit.

Deduction under section 80-IC is unavailable unless the assessee proves genuine commencement of manufacturing at the claimed unit. The Tribunal noted that absence of plant, machinery, workforce and other operational indicia can negate a claim of actual manufacturing activity, and that unsupported turnover assertions are insufficient. It also examined the statutory bar on using previously used machinery beyond the prescribed limit, stressing that the assessee must prove compliance with the machinery condition through reliable evidence. Finally, it treated a unit lacking independent infrastructure or manpower as potentially falling within splitting up or reconstruction of an existing business, which disqualifies the exemption.

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Issues: (i) Whether the assessee had commenced manufacturing activities at the Selaqui unit during the relevant assessment year so as to qualify for deduction under section 80-IC; (ii) Whether transfer and use of old machinery from the Kala Amb unit exceeded the permissible limit and thereby attracted the bar under section 80-IC; (iii) Whether the Selaqui unit was formed by splitting up or reconstruction of the existing business.

Issue (i): Whether the assessee had commenced manufacturing activities at the Selaqui unit during the relevant assessment year so as to qualify for deduction under section 80-IC.

Analysis: The Tribunal found that no building, adequate plant and machinery, workforce, travelling expenses, telephone facility, or other supporting indicia of real manufacturing activity were established at the Selaqui unit. The records showed only minimal wages and no convincing material to show that the claimed turnover was generated by an operational manufacturing unit at Selaqui. The Tribunal also held that the evidence relied upon by the first appellate authority was insufficient to displace the Assessing Officer's findings.

Conclusion: The assessee had not proved that genuine manufacturing activity commenced at the Selaqui unit and, therefore, the claim under section 80-IC failed.

Issue (ii): Whether transfer and use of old machinery from the Kala Amb unit exceeded the permissible limit and thereby attracted the bar under section 80-IC.

Analysis: On the Tribunal's appraisal, machinery transferred from Kala Amb constituted more than 20% of the plant and machinery used at Selaqui, and the assessee failed to establish that the machinery was not previously used in the manner required by the provision. The Tribunal also held that the explanation regarding storage and later transfer was not supported by reliable evidence and that the appellate authority erred in accepting the affidavit without adequate corroboration. The Tribunal further held that admission of such evidence breached the procedural discipline governing additional evidence.

Conclusion: The statutory condition relating to previously used machinery was violated, and the assessee was not entitled to deduction under section 80-IC.

Issue (iii): Whether the Selaqui unit was formed by splitting up or reconstruction of the existing business.

Analysis: The Tribunal held that, in substance, the Selaqui set-up was not an independent new manufacturing undertaking but part of an arrangement connected with the existing business at Kala Amb. Since the unit did not demonstrate independent manufacturing infrastructure or manpower, the plea of a fresh expansion at a separate location was rejected. The Tribunal treated the overall arrangement as falling within the mischief of splitting up or reconstruction of an existing business.

Conclusion: The Selaqui unit was treated as a case of splitting up or reconstruction of an existing business and was not eligible for the exemption.

Final Conclusion: The Tribunal held that the assessee was not entitled to deduction under section 80-IC and restored the addition made by the Assessing Officer, resulting in success for the Revenue.

Ratio Decidendi: A deduction for a new industrial unit under section 80-IC is unavailable where the assessee fails to prove actual manufacturing operations, uses previously used machinery beyond the statutory limit, or establishes that the alleged new unit is in substance only a continuation or splitting up of an existing business.

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