New industrial undertaking relief and section 43B deferment treatment upheld for a separate production unit with deemed-paid sales tax

A newly set up industrial unit with fresh machinery and substantial investment can qualify as a newly established industrial undertaking for relief under sections 80-I and 80HH, even if management, shareholders, or directors are common with an existing business; on those facts, the Dewas unit was treated as eligible and the disallowance was deleted. Sales tax collections covered by the Madhya Pradesh deferment scheme were treated as deemed paid under the State framework, so they were not regarded as an unpaid liability attracting disallowance under section 43B. The appeal succeeded on both substantive issues and the additions under challenge were deleted to that extent.

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Issues: (i) Whether the assessee was entitled to deduction under sections 80-I and 80HH in respect of the Dewas unit as a newly established industrial undertaking; (ii) Whether sales tax collections under the Madhya Pradesh deferment scheme were hit by section 43B.

Issue (i): Whether the assessee was entitled to deduction under sections 80-I and 80HH in respect of the Dewas unit as a newly established industrial undertaking.

Analysis: The Dewas unit was found to be a distinct industrial unit set up with new machinery and substantial investment, and it satisfied the statutory conditions for relief for a newly established undertaking in a backward area. The mere fact that the management, shareholders, or directors were common with the existing business did not by itself convert the unit into a mere expansion or reconstruction of the old business. The prior acceptance of the claim in an earlier assessment year, save for want of profits, reinforced the position that the factual basis had not changed.

Conclusion: The deduction under sections 80-I and 80HH was allowable, and the disallowance was set aside in favour of the assessee.

Issue (ii): Whether sales tax collections under the Madhya Pradesh deferment scheme were hit by section 43B.

Analysis: The scheme and the supporting governmental materials showed that the deferred sales tax was treated as deemed paid under the State framework. On that basis, the collections covered by the deferment scheme were not regarded as a liability remaining unpaid for the purposes of section 43B.

Conclusion: The disallowance under section 43B was quashed, in favour of the assessee.

Final Conclusion: The appeal succeeded on the two substantive issues decided and the additions/disallowances under challenge were deleted to that extent, while the remaining grounds were not pressed.

Ratio Decidendi: A unit set up with new machinery and independent production capacity is a newly established industrial undertaking notwithstanding common management or ownership, and sales tax deferred under a State scheme treated as deemed paid is not liable to disallowance under section 43B.

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