TaxTMI 
TaxTMI 
2011 (5) TMI 587
X X X X Extracts X X X X
X X X X Extracts X X X X
....p; That having regard to the facts and circumstances of the case, ld. CIT(A) has erred in law and on facts in making an addition of Rs. 1982 on account of closing balance of MODVAT." 4. That having regard to the facts and circumstances of the case, ld. CIT(A) has erred in law and on facts in charging interest under section 234B and 234C." 2. The effective grounds raised in ITA No. 698/Agra/2008 read as under : "1. That having regard to the facts and circumstances of the case, ld. CIT(A) has erred in law and on facts in confirming the action of the ld. Assessing Officer in not allowing deduction under section 80-IB in full as claimed by the assessee and has further erred in restricting the claim under section 80-IB to Rs. 28,35,748 as against Rs. 45,88,825 as claimed by the assessee in the return of income. 2. That having regard to the facts and circumstances of the case, ld. CIT(A) has erred in law and on facts in confirming the action of the ld. Assessing Officer in making disallowance of Rs. 67,417 on account of vehicle expenses. 3. That having regard to the facts and circumstances of the case, ld. CIT(A) h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arate identity. So far company's eligibility for claim of deduction under section 80-IB is concerned, we have to mention that its status and identity continue to remain as before. No split up or construction of the existing business of the company has taken place. There is no change whatsoever in the pattern of business and the persons at the helm of affairs. From the facts as above it is amply clear that there was no other motive in carrying out the amalgamation. The sole purpose was to see that the company in long run is in a position to withstand the growing competition." 4. The Assessing Officer did not agree with the assessee and pointed out that para 3 of the agreement states that sundry creditors, unsecured loans and sundry debtors will continue to remain with the firm being taken over and repayment and realization of the same will be the firms responsibility. Therefore, he was of the view that the firm had not lost their separate identity. Since both the firms had already availed of deduction under section 80-IA/80-IB for 10 years, he rejected the contention of the assessee and worked out the profit in respect of M/s. Faucet Industries and M/s. Aarkey Plumbing Fixture an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sp; 31-3-2004 5,68,574 G.P. 1,11,48,969 F.Y. 2003-04 G.P. Nil F.Y. 2004-05 Faucet Industries 31-3-2003 1,40,70,744 31-3-2004 6,92,655 G.P. 82,87,520 F.Y. 2003-04 G.P. F.Y. 2004-05 Vide letter dated 13-9-2006, the appellant has stated as under : We have further enclosed layout plan of the Plant & Machinery before purchase of these plant and machinery and other assets of these two firms and after purchase of the P&M and other assets of these two firms. To show that there is only one undertaking of the appellant company. It is kindly to seen that there is no independent building which has been acquired. But the two firms building were adjoining to the building of the appellant company and there was a single wall in between which has now been removed after the acquisition of the P& M and after the removal it has become one complete building. ..... 4.5 Thus, it is observed that all the three concerns belong to the Chaudhary family and are manufacturing the same articles. Whereas the units of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by the assets and P and M. The running businesses of the two firms have been brought under the company's name and the firms' businesses have ceased to exist. The appellant vide letter dated 13-9-2006, extracted above, has admitted the above facts. Hence, I hold that the case of the appellant is not covered by the decision of the Supreme Court in Bajaj Tempo Ltd. The decision of the Assessing Officer is upheld and the disallowance of deduction under section 80-IB with regard to the profits of the old units and trading of stocks of the old units is hereby confirmed." 5. The learned AR vehemently contended that the Assessing Officer was not correct in law in restricting the deduction claimed by the assessee under section 80-IA/80-IB to the extent of Rs. 27,73,066 as against the claim made by assessee at Rs. 44,54,807 on the ground that erst while two firms namely, M/s. Faucet Industries and Aarkey Plumbing Fixture were merged with the assessee company. The Assessing Officer worked out the income relating to these firms and reduced the deduction in that ratio. There is no iota of charge in the assessment order that the assessee company was hit by any of the conditions mentioned in se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nbsp; such machinery or plant is imported into India from any country outside India; and (c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee. Explanation 2 provides the mathematical formula to determine when the condition of 80-IA(3)(ii) will be deemed to have been fulfilled- Explanation 2.-Where in the case of an industrial undertaking, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with. Explanations provide for the working of the main provision and are to be read along with the main provision. Clause (iii) further provides that unit must not be formed by the transfer of the old pl....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... took the plea that condition of 20 per cent has to be seen in the initial year itself and not on year to year basis and Hon'ble High Court upheld the assessment under section 148 for the reasoning that condition of at least 80 per cent new machinery has to be satisfied at the time of formation of undertaking. The requirement of formation by new machinery can be verified at the initial stage only since the provision specifies that "it is not formed by transfer to new business of machinery or plant previously used." There cannot be any possibility of "new business" after the initial year. Thus, condition of new assets has to be seen in only at the time of formation of new industrial undertaking and not thereafter. Thus, clearly where assets were added after formation of new unit in regular course of business of unit as are the facts of the present case, there can be no dispute about deduction under section 80-IA. It is also worth noticing is that no new business or business unit has been acquired by the assessee. It is only a case where some more assets have been added by the assessee to expand the business of the undertaking which already enjoyed the benefit of deduction under sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he case of Jain Udhay Hosiery (P.) Ltd. (supra) and that of the decision of co-ordinate Bench, Pune in the case of Desai Bros. Ltd. v. Dy. CIT [1998] 66 ITD 203. No contrary decision was brought to our knowledge. In the initial year, the conditions as laid down under section 80-IA/80-IB for the claim of deduction were duly complied with by the assessee and therefore, the assessee was allowed deduction under section 80-IA/80-IB in the initial year. The deduction was even though allowed during the year, but was reduced on the plea that the assessee has taken over two other units during the year. The facts on record clearly prove that the assessee has not taken over the complete units, but has purchased most of the assets of those units and the units got merged with the unit of the assessee. It is a case of substantial expansion and extension of the industrial unit not of running three separate units. The expansion or extension of a existing unit, in our opinion, will not disentitle the assessee to claim deduction under section 80-IA/80-IB so that the profit increased to the expansion or extension of the industrial undertaking will not be eligible for deduction under section 80-IA/80-....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... cent of these expenses. In our opinion, whenever an assessee claims an expenditure to have been incurred for the purpose of business, the onus is on the assessee to prove the genuineness of the expenditure. The assessee was bound to produce the log-book for running of the car and the details of mobile/phone calls which he failed to do. But in case, the directors and the employees of the company as per the terms and condition of their appointment are entitled to use the case for personal purpose as well as to avail facilities of mobile/phone calls in view of the decision of Gujarat High Court as has been relied by the learned AR in the case of Syaji Iron & Engg. Co. (supra), the assessee will be entitled for deduction of these expenses. Since no evidence is brought on record to show the terms and conditions on which the directors and employees were appointed to avoid the use of car and mobile/phone by them, we, therefore, in the interest of justice and fair play to both the parties, set aside this issue and restore this issue to the file of Assessing Officer with the direction that the Assessing Officer shall re-decide this issue after looking into the terms and conditions of the e....