1987 (11) TMI 116 - AT - Income Tax

Tribunal Grants Deduction for New Industrial Unit under Section 80J

The Tribunal allowed the appeals in favor of the assessee, overturning the CIT(A)'s decision to disallow the claim under section 80J for the assessment ... - Issues:1. Rejection of appeals by CIT(A) against additions and disallowances made by ITO.2. Rejection of claim under section 80J by ITO and maintenance of the same by CIT(A).Detailed Analysis:1. The appeals filed by the assessee were against separate orders of the CIT(A) for the assessment years 1981-82 and 1982-83. The common points involved in these appeals led to a common order for convenience. Grounds related to CIT(A) not allowing appeals against additions and disallowances made by the ITO were rejected, as they were not passed at the time of hearing. Additionally, a ground regarding interest charged under sections 139, 215, and 217 of the IT Act was also rejected as it was not pressed.2. The main issue in these appeals was the rejection of the assessee's claim under section 80J by the ITO and its maintenance by the CIT(A). The ITO disallowed the claim as the assessee failed to establish essential facts required for relief under section 80J, such as investment of fresh capital, manufacturing of new articles yielding additional profit, employment of requisite labor, and a separate and distinct identity of the industrial unit. The CIT(A) upheld the disallowance based on the lack of evidence regarding the establishment of a new unit separate from the existing one.3. The assessee argued before the CIT(A) that they had indeed set up a new unit for the manufacture of pharmaceuticals, fulfilling the conditions for deduction under section 80J. They provided details of fresh capital employed, profits derived from the new industrial undertaking, employment of labor, and the manufacturing process. However, the CIT(A) rejected the claim, citing the absence of a separate and distinct identity for the new unit and the presence of old machinery exceeding 20% of the total plant and machinery.4. Upon review, the Tribunal found that the CIT(A) erred in rejecting the claim under section 80J. They noted that the assessee had successfully set up a new industrial undertaking for the manufacture of pharmaceutical formulations, distinct from the existing business. The Tribunal highlighted previous findings in the assessee's favor for the assessment year 1979-80 and emphasized the separate nature of the new unit. They concluded that the CIT(A) was unjustified in rejecting the claim, and the assessee was entitled to the deduction under section 80J.5. Consequently, the appeals were allowed in favor of the assessee, overturning the CIT(A)'s decision to disallow the claim under section 80J for both the assessment years 1981-82 and 1982-83.