2016 (7) TMI 183 - AT - Income Tax

Tribunal allows appeals for assessment years, rejects disallowances under Section 80IA, denies Section 153A invocation.

Medley Pharmaceuticals Ltd. Versus The DCIT, Central Cir. 44, Mumbai

The Tribunal allowed the appeals for the assessment years 1999-2000, 2000-01, and 2001-02, concluding that the disallowances under Section 80IA for Daman ... Denial of deduction under section 80IA of the Act with respect to Daman Unit-1 - Held that:- We are unable to uphold the stand of the Revenue that the Daman Unit-1 has been set-up with value of old machinery in excess of 20% of the total value of machinery and, therefore, on facts also, we find no reason to affirm the denial of deduction under section 80IA of the Act with respect to Daman Unit-1. Thus, on this aspect assessee succeeds. Denial of claim of deduction u/s. 80IA of the Act in respect of Daman Unit-2 - Held that:- The Hon’ble Madras High Court in the case of CIT vs. Premier Cotton Mills Ltd. (1999 (2) TMI 41 - MADRAS High Court ) 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. Issues Involved:1. Invocation of provisions of Section 153A of the Income Tax Act.2. Disallowance of claim under Section 80IA for Daman Units I & II.Issue-wise Detailed Analysis:1. Invocation of Provisions of Section 153A:The assessee contended that the CIT(A) erred in confirming the invocation of provisions of Section 153A when no material was found during the search leading to any additions or disallowances. The Tribunal observed that the assessment was finalized under Section 143(3) read with Section 153A following a search and seizure action under Section 132(1). Various documents were seized, leading the Assessing Officer to object to the deduction claims under Section 80IA/80IB for the Daman units. The Tribunal did not find merit in the invocation of Section 153A as no new material was found during the search that warranted such invocation.2. Disallowance of Claim under Section 80IA for Daman Units I & II:Unit-1:The primary issue was whether the value of machinery transferred from Aurangabad to Daman Unit-1 exceeded 20% of the total value of the machinery, violating Section 80IA(2)(ii) read with Explanation-2. The Tribunal noted that the condition prescribed in Section 80IA(2)(ii) should be evaluated at the time of formation of the unit, which was the previous year relevant to the assessment year 1995-96. The assessee had been allowed the benefit of Section 80IA since 1995-96, making the denial of deduction in the assessment year 1999-2000 legally untenable.The Tribunal found that the Assessing Officer's calculation of 29% or 22% of old machinery was not substantiated with detailed figures. The assessee provided detailed records showing that the value of transferred machinery was within permissible limits. The Tribunal accepted the assessee's records, which showed the total value of machinery at Rs. 31,41,563, with old machinery valued at Rs. 68,633, constituting only 2.1% of the total machinery. The Tribunal concluded that the denial of deduction under Section 80IA for Unit-1 was not justified.Unit-2:The issue was whether Daman Unit-2 was an independent unit or merely an extension of Unit-1. The Tribunal noted that Unit-2 was set up in 1998 for manufacturing different products (tablets, capsules, and B-lactum antibiotics) compared to Unit-1 (oral liquids). The Tribunal found that Unit-2 was physically separate, with its own plant, machinery, labor force, and products, despite having common excise and sales tax registrations with Unit-1.The Tribunal referred to various judgments, including those of the Supreme Court, which established that a new unit could produce the same or different products from the old unit and still qualify for deductions under Section 80IA/80IB. The Tribunal concluded that Unit-2 met all conditions for the deduction and was not merely an extension of Unit-1. Therefore, the denial of deduction under Section 80IA for Unit-2 was also not justified.Conclusion:The Tribunal allowed the appeals for the assessment years 1999-2000, 2000-01, and 2001-02, concluding that the disallowances under Section 80IA for Daman Units I & II were not justified. The Tribunal's decision applied mutatis mutandis to all the assessment years in question. The order was pronounced in the open court on 29/06/2016.