Section 80IB deduction allowed where manufacturing had commenced and the unit was not formed by reconstruction of an existing business.

Deduction under section 80IB of the Income-tax Act was available because the undertaking was shown to have begun manufacturing in March 2002, supported by excise returns, sales tax returns and invoices for new plant and machinery. The statutory bar against reconstruction of an existing business did not apply, as the earlier proprietary concern had not carried on any business activity and the assessee had only taken over the undertaking and leasehold rights. The fact that the final factory licence had not yet been issued did not postpone commencement of manufacture, having regard to sections 6 and 7 of the Factories Act, 1948. The disallowance was therefore unsustainable.

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Issues: Whether the assessee was entitled to deduction under section 80IB of the Income-tax Act, 1961, and whether the claim could be denied on the ground that the undertaking was formed by reconstruction of an existing business or that manufacturing had not commenced before grant of the factory licence.

Analysis: The record showed that the assessee had applied for a factory licence, had declared commencement of manufacturing in March 2002, and had filed excise returns and sales tax returns evidencing production and sales during the relevant period. The plant and machinery invoices also supported acquisition of new machinery by the assessee. The materials further indicated that the earlier proprietary concern had not carried on any business activity and that the assessee had merely taken over the undertaking and its leasehold rights. On these facts, the statutory bar against reconstruction of a business already in existence was not attracted. The reference to sections 6 and 7 of the Factories Act, 1948 supported the view that commencement of manufacturing was not postponed merely because the final licence had not yet been issued.

Conclusion: The assessee was entitled to deduction under section 80IB of the Income-tax Act, 1961, and the disallowance was unsustainable.

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