Deduction under section 80IC allowed for new unit at Haridwar, appeals dismissed by Tribunal

The Tribunal upheld the CIT(A)'s decision to allow the deduction under section 80IC for the new unit at Haridwar, dismissing the appeals filed by the Revenue for both assessment years 2012-13 and 2013-14. The Tribunal found that the new unit was not formed by splitting up or reconstructing the existing business, and the transfer of machinery did not exceed the specified limit.

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Issues Involved:
1. Whether the formation of M/s Arun Enterprises constitutes the splitting up or reconstruction of the existing business of M/s Arun Plasto Moulders Private Ltd (APMPL).
2. Whether the transfer of machinery from APMPL to M/s Arun Enterprises exceeds the specified limit of 20% as per section 80IC(4) of the Income Tax Act.
3. Whether the new unit at Haridwar qualifies for deduction under section 80IC of the Income Tax Act.

Detailed Analysis:

1. Splitting Up or Reconstruction of Existing Business:
The primary issue was whether the formation of M/s Arun Enterprises was a result of splitting up or reconstructing the existing business of M/s Arun Plasto Moulders Private Ltd (APMPL). The Assessing Officer (AO) argued that the new unit was formed by splitting the existing business, citing that the assessee and his family members were major stakeholders in both entities, and there were significant related party transactions between them. The AO also noted that the new unit was formed after the denial of a similar deduction to APMPL.

The CIT(A) and the Tribunal found that the new unit at Haridwar was established to cater to new business opportunities, specifically manufacturing plastic components for water purifiers for Hindustan Unilever Ltd. The Tribunal observed that the new unit was set up well before the denial of the deduction to APMPL, negating the AO's claim of splitting up. The Tribunal referenced judicial precedents, including the Delhi High Court's rulings in CIT Vs. Ganga Sugar Corporation Ltd. and CIT Vs. Hindustan General Industries Ltd., which supported the view that the new unit was an independent and viable entity, not a reconstruction of the existing business.

2. Transfer of Machinery:
The second issue was whether the transfer of machinery from APMPL to M/s Arun Enterprises exceeded the 20% limit specified under section 80IC(4). The AO argued that the transferred machinery constituted more than 50% of the total plant and machinery at the new unit. However, the CIT(A) and the Tribunal found that the AO had incorrectly calculated the percentage by considering only a portion of the total machinery installed at the new unit.

The Tribunal noted that the total value of plant and machinery at the new unit as of 31.03.2012 was Rs. 2,05,36,114, and the transferred machinery was valued at Rs. 31,20,023, which constituted only 15.19% of the total, well within the 20% limit. Even considering the machinery installed by 31.03.2011, the percentage was 17.11%, still within the permissible limit.

3. Eligibility for Deduction under Section 80IC:
The final issue was whether the new unit at Haridwar qualified for deduction under section 80IC. The Tribunal emphasized that section 80IC provides deductions for new industrial undertakings in special category states, provided they are not formed by splitting up or reconstruction of existing businesses and do not use previously used machinery beyond the specified limit.

The Tribunal concluded that the new unit at Haridwar was a separate and independent entity established to cater to a new product line for Hindustan Unilever Ltd., and the assessee had made substantial investments in new machinery and infrastructure. The Tribunal referenced several judicial precedents, including the Supreme Court's decision in Textile Machinery Corporation Ltd. Vs. CIT, which supported the view that new industrial undertakings with separate and distinct identities are eligible for such deductions.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to allow the deduction under section 80IC for the new unit at Haridwar, dismissing the appeals filed by the Revenue for both assessment years 2012-13 and 2013-14. The Tribunal found that the new unit was not formed by splitting up or reconstructing the existing business, and the transfer of machinery did not exceed the specified limit.

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