TaxTMI 
TaxTMI 
2007 (8) TMI 407
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....ess expenses by the AO." 3. This ground relates to the disallowance of expenses of Rs. 7,31,209 made by the AO in respect of gift articles. The CIT(A) directed the AO, saying that the entire expenses be regulated under r. 6B of the IT Rules, 1962. We find that this issue is covered in favour of the assessee by the decision of Tribunal, Pune, in the assessee's own case for asst. yr. 1993- 94 in 1TA No. 299/Pn/1997, dt. 23rd June, 2006. The Tribunal, Pune, while allowing the assessee's claim, observed in para 5 of its order dt. 23rd June, 2006 as under : "Ground No. 5 is against the findings of the learned CIT(A) that the assessee is not entitled to deduct fully the expenditure of Rs. 6,90,303 incurred on gift items and provisions of r. 6B of the IT Rules are applicable in respect of this expenditure. In the course of hearing before us, the learned counsel pointed out that this issue is covered in the order of Hon'ble Tribunal for asst. yr. 1990-91. In that order, the expenditure was allowed in full by referring inter alia to the decision of Hon'ble Bombay High Court in the case of CIT v. Allana Sons (P.) Ltd. [1993] 114 CTR (Bom) 448 : [1995] 216 1TR 690 (Bom). The facts of th....
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....of leased assets and in not appreciating the fact that the transaction of leasing was not a bona fide one but a device of tax avoidance and hence cannot be allowed in view of the ratio of Supreme Court judgment in the case of McDowell & Co. Ltd. v. CTO [1985] 47 CTR (SC) 126 : [1985] 154 ITR 148 (SC)." 6. We find that a similar issue, involved in the assessee's own case for asst. yr. 1993-94, in ITA No. 334/Pn/1997, was decided by us against the assessee, vide our order dt. 31st July, 2007. We follow the precedent and allow these grounds. Ground No. 6 "On the facts and in the circumstances of the case, the learned CIT(A) erred in allowing the relief of Rs. 89,06,203 in the computation of deduction under s. 80-I and in not appreciating the reasons mentioned by the AO for reducing the claim under s. 80-I by Rs. 1,52,55,539." 7. In the statement of total income enclosed with the return the assessee had claimed deduction of Rs. 9,39,16,300 under s. 80-I of the Act. It was claimed by the assessee, before the AO, that during the previous year relevant to asst. yr. 1994-95 a new industrial undertaking was 'formed', known as Urse unit-II. In other words, there came into existen....
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....------------ iii. Dividend income of Urse unit-excluded 1,05,23,166 ----------------------------------------------------------------- iv. Interest income of Urse unit-excluded 31,83,384 ----------------------------------------------------------------- v. Transfer of raw material 1,16,217 ----------------------------------------------------------------- vi. Depreciation of Urse unit-II considered in Urse Unit-I 1,00,14,550 6,10,22,152 ----------------------------------------------------------------- Profit of Urse unit 31,46,43,046 ----------------------------------------------------------------- Deduction@ 25%, allowed by AO under s. 80-I  ....
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....p; (Rs.) (Rs.) (Rs.) ----------------------------------------------------------------- Profit as per P&L a/c of the Urse division 40,81,82,704 ----------------------------------------------------------------- Add: ----------------------------------------------------------------- 1. Depreciation as per books 86,81,900 ----------------------------------------------------------------- 2. Disallowance under s. 43B &nbs....
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....nbsp; 1,71,87,907 ----------------------------------------------------------------- 42,14,75,682 ----------------------------------------------------------------- Less : Customs duty paid on stock claimed as expenses under closing s. 43B 4,58,10,484 ----------------------------------------------------------------- &nbs....
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....Urse unit-excluded 1,05,23,166 ----------------------------------------------------------------- iv. Interest income of Urse unit-excluded 31,83,384 ----------------------------------------------------------------- v. Transfer of raw material 1,16,217 ----------------------------------------------------------------- vi. Depreciation of Urse unit-II considered in Urse Unit-I 1,00,14,550 6,10,22,152 ----------------------------------------------------------------- Profit of Urse unit 31,46,43,046 ----------------------------------------------------------------- Deduction under s. 80-I, allowed by AO @ 25%  ....
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....nbsp; 21,68,070 - 21,68,070 ----------------------------------------------------------------- Auditors remuneration 72,487 72,487 ----------------------------------------------------------------- Freight outward 39,20,327 39,20,327 ----------------------------------------------------------------- Advertisement 73,73,237 73,73,237 ----------------------------------------------------------------- 4. Finance charges 79,62,152 53,67,217 25,94,935 ------------------------------------------------------------....
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....he year ending 1994 and 1997 have also been filed. The diagrammatic sketch of the new machineries installed in the Urse unit-II clearly indicates that these machineries are working independently and that considerable amount has been spent to install ancillary machineries to increase the production capacity. The capacity generated by the new unit is such that it can sustain as an independent viable unit itself. Under similar circumstances, the Hon'ble Bombay High Court in the case of CAT v. Associated Cement Co. Ltd., cited supra, held that : 'establishment of a new industrial unit as a part of an already existing industrial establishment may no doubt result in an expansion of the industry or the factory, but if the newly established unit is itself an integrated independent unit in which new plant and machineries is set up and is itself independent of the old unit capable of production of goods, then in our new it could be classified as a newly established industrial undertaking'. In the ease of Textile Machinery Corporation Ltd., cited supra, the Hon'ble Supreme Court also held that the industrial unit set up must be new in the sense that new plant and machineries must be erected f....
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....e submissions made by him are summarized below. - that the old Urse unit-I was set up during the previous year relevant to asst. yr. 1990-91 and was allowed deduction under s. 80-1 for and from asst. yr. 1991-92, being the year from which it started earning profits. - that a new separate industrial undertaking, Urse unit-II, was set up during the previous year relevant to 1994-95. - that the 'trial run' of the new unit was conducted during the previous year relevant to 1994-95 and that it began to manufacture goods in the previous year relevant to asst. yr. 1995-96. - that the decision of the CIT(A) is based on a detailed examination of the flow chart showing the manufacturing process, and the investments made in the plant and machinery. - that a new identifiable unit came into existence which was separate and distinct from the existing one. - that reliance was placed on the decisions in the following cases : (i) Textile Machinery Corporation Ltd. v. CAT 1977 CTR (SC) 151 : [1977] 107 ITR 195 (SC); (ii) CAT v. Associated Cement Companies Ltd. [1979] 118 ITR 406 (Bom); (iii) CIT v. Hindusthan Malleables & Forgings Ltd. [1991] 191 ITR 70 (Pat); (iv) Mahi....
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....ng set up, (ii) employment of requisite labour therein, (iii) manufacture or production of articles in the said undertaking, (iv) earning of profits clearly attributable to the said new undertaking, (v) above all, a separate and distinct identity of the industrial unit set up. The fact that an assessee by establishment of a new industrial undertaking, expands his existing business, which he certainly does, would not, on that score, deprive him of the benefit. Every new creation in business is some kind of expansion and advancement. 10.1 The Supreme Court observed that a new activity launched by the assessee by establishing new plants and machinery by investing substantial funds may produce the same commodities of the old business or it may produce some other distinct marketable products, even commodities, which may feed the old business, that these products may be consumed by the assessee in his old business or may be sold in the open market, one thing was certain that the new undertaking must be an integrated unit by itself wherein articles are produced. 10.2 In the case of CIT v. Associated Cement Companies Ltd., it was held by the Bombay High Court that the establishment o....
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....r cannot per se destroy the separate identity of the unit. 10.9 In the case of International Instruments (P.) Ltd. v. CIT [1979] 9 CTR (Kar) 291 : [1980] 123 ITR 11 (Kar), it was held by the Karnataka High Court that the fact that the there was common management or the fact that separate accounts had not been maintained would not lead to the conclusion that they were not separate undertakings. 10.10 In the case of CIT v. Gedore Tools India (P.) Ltd. [1980] 126 ITR 673 (Del) it was held that in order to avail tax concession under s. 80J, employment of fresh capital in the new unit was imperative, but it did not mean that for the employment of the capital, it should have been newly raised. If surplus/reserve capital was available with an assessee in his existing business, the assessee could utilized such capital for the purpose of plant, machinery, etc., for the new unit. 11. To summarise, in order to be eligible for deduction under s. 80-IA, the new unit, should be brought into existence by establishing new plant and machinery and by investing substantial funds; it must be an integrated unit by itself wherein articles are produced; it may produce the same commodity as of th....
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....------------------------------------------------------------- 3 Group twinner Group twinner ---------------------------------------------------------------- 4 Laying-up on drum Nylon binder Drum twister twister Jelly/Polyster ---------------------------------------------------------------- 5 Sheathing on extruder Polythene ---------------------------------------------------------------- 6 Armouring HDPE/steel Hot foil meter ....
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....nbsp; - - ------------------------------------------------------------------- 2 Chilling plant - 3,42,922 15,69,880 94,669 ------------------------------------------------------------------- 2 Nokia lines 8 & 9 - - 10,25,82,219 - ------------------------------------------------------------------- 2 Silo system - - 34,27,521 - ------------------------------------------------------------------- 2 Insulating line 4 - -&nb....
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.... - - - ------------------------------------------------------------------- 6 Sheathing line 47,566 - 3,56,32,053 - ------------------------------------------------------------------- 7 Armouring line 76,382 73,750 7,54,582 - ------------------------------------------------------------------- 7 Annouring machine 7 - - - 30,498 ------------------------------------------------------------------- 7 Armouring machine 8 - - &nbs....