TaxTMI 
TaxTMI 
2016 (2) TMI 262
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....ion of Rs. 4,73,205/- (Expenses on foreign travel). 2.3 The CIT(A) is also erred in confirming the addition of. Rs. 4,78,977/- (Expenses incurred on vehicles) 3. The CIT(A) is also erred in confirming the levy of interest u/s 234A, 234B and 234C of the IT Act." 3. Before us, the assessee has filed additional evidence with petition to admit the same as follows: (1) Certificate from Chartered Engineer (2) Flow chart The above additional evidence was admitted as there was reasonable cause for not placing the same before the lower authorities as explained in its petition. 4. At the time of hearing, the ld. Representative has not pressed Ground Nos.2.2 and 2.3. Accordingly, these grounds are dismissed as not pressed. 5. Coming to Ground No.2.1 with regard to allowability of deduction u/s 80IA of the Act, the facts are that the assessee started its paper division in the year 1986. The manufacturing of paper involves various processes. One of the processes involves production of steam which was required for heating of dryer cylinders of the paper factory. The assessee-company was using boilers and pressure reduction valves to heat the dryer ....
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....for deduction u/s.80IA of the Act. Further, the Assessing Officer observed that turbine was not a new unit, it was splitting up or reconstruction of the existing paper division. Therefore, it cannot be considered as independent division so as to grant 80IA deduction. According to the Assessing Officer for paper manufacturing process, company created the same into a new undertaking. With the result of new undertaking created by the assessee, a part of the original business undertaking of the assessee i.e. paper industry ceased to exist. The steam generation system of the old one is not required when turbine division functions. If for any reason, paper industry has to be relocated to a different place, the Turbine Division also has to move to the location of paper division as it cannot exist independently. According to the Assessing Officer the technical persons examined under oath have admitted that the steam turbine division cannot exist independently without paper division indicating that turbine division was not created for generating electricity but to supply steam to paper industry. Thus, the company has artificially bifurcated a production process in which the old machinery wa....
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....the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). 6. On appeal, the Commissioner of Income Tax (Appeals) observed that generation of electricity was consequent on the splitting or reconstruction of business already in existence and therefore the assessee would not qualify for the deduction u/s.80IA of the Act. The Commissioner of Income Tax (Appeals) observed that the assessee was a manufacturer of papers and Cardboards etc. One of the major component of the machinery was a boiler unit which the assessee replaced by a more sophisticated system which enabled it to recover the lost heat and produce electricity. It was observed by the Commissioner of Income Tax (Appeals) that the boiler and the turbine producing the electricity sub serve the main business of the assessee i.e. production of paper. The replacement of old boiler by a new boiler which could make use of the wasted heat energy does not become a distinct entity. In other words the Turbine Unit has no independent existence of its own. Therefore, the Commissioner of Income Tax (Appeals) in agreement with Assessing Officer's findings that the steam turbine division cannot exist independently w....
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....king only. It was all a new and identifiable undertaking separate and distinct from the existing business. Reconstruction of business involves the carrying on substantially the same business. But in this case the existing unit was for production of paper whereas the new undertaking was production of power. It was also nowhere evident that the old industrial unit was split up or damaged or destroyed that was supposedly reconstructed as a new unit by the assessee. The existing paper division continues its activities as before. The term split up of the business already in existence indicated a case where the integrity of a business earlier in existence was broken up and different sections of the activities previously conducted are carried on independently. In this case there was no finding by the authorities that the existing business was broken up into different sections and carried on independently. 7.1 The ld. Authorised Representative for assessee relied on the judgment of Supreme Court in the case of Textile Machinery Corporation Ltd vs. CIT 107 ITR 0195 wherein it was held that ''If any undertaking is not formed by reconstruction of the old business that undertaking ....
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....ly affected. This was a new, independent and viable unit which produced similar, if not the same, commodities as were produced by the earlier factory. The mere fact that while setting up this factory, a small amount of plant and machinery was transferred from the previous business cannot be conclusive to come to the conclusion that it is a reconstruction The concept of reconstruction should be looked at from a substantial point of view and for the reasons already stated the present case cannot be said to be one of reconstruction. 7.4 The ld. Authorised Representative for assessee further submitted that in the case of CIT vs. Mahaan Foods Ltd 216 CTR 148 wherein it was held that As for 'reconstruction' of the business, it is nowhere evident that the old industrial unit was split up or damaged or destroyed that was supposedly reconstructed as a new unit by the assessee. What the assessee has done is to set up an industrial undertaking with latest technology and with increased capacity and of course, with a fairly good amount of fresh investment 7.5 The ld. Authorised Representative for assessee further placed reliance in the case of JCIT vs. Associated....
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....ced by a new machinery which was only required for paper industry and not for turbine division for generating power. According to the Assessing Officer the electricity generated was only an incidental mechanism of the paper industry to save the energy from the steam which otherwise would have lost if they continue to use old boilers and pressure reduction valve. Therefore, the assets acquired under so called Turbine Division are primarily meant for production of steam and recover the energy loss from such steam so as to make the paper industry more energy efficient. The steam turbine division can work only when steam for paper industry runs. If for any reason, paper division stops, turbine division also has to be stopped. According to the Assessing Officer the turbine division cannot exist without the paper division of the company. Creating a part of existing paper production process into a separate division squarely amounts to splitting and reconstruction of business already inexistence. Therefore, the Assessing Officer was of the opinion that the assessee was not entitled to claim of deduction u/s.80IA of the Act on its turbine division. In order to decide the above issue, we fir....
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....XIII of that Act. Explanation 1.-For the purposes of clause (ii), any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namely :- (a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India; (b) 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 machinery or plant by the assessee. Explanation 2.-Where in the case of an 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 su....
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.... the new undertaking must be an integrated unit by itself wherein articles are produced. The industrial unit must be new in the sense that new plant and machinery are erected for producing either the same commodity or some other distinct commodity. The benefit cannot be denied merely because the new undertaking goes to expand the general business of the assessee in some direction. 17. After considering the facts of the case and the legal position enunciated in the above paras, we are of the opinion, that the crucial question that has to be answered is whether, on the facts of the case, the new industrial unit can be said to have come into existence within the meaning of sub-s. (2) of s. 80-IA, so as to be eligible for deduction under s. 80-IA for assessment year 2009-2010. (i) Whether the machines costing Rs. 2,09,42,345/- and building which were made during the assessment year 2004-2005 (before 31st March, 2004), brought into existence an integrated independent unit, which by themselves, independently of the old unit, were capable of producing the steam and electricity. 18. We find that the assessee company commenced a distinct industrial undertaking for the generat....
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.... was at best by-product of the paper unit manufacturing facility. The new unit had power as the main product and apart from servicing the captive consumption in the paper unit also could service the other power requirements. The pricing of power is also subjected to the various power tariff prescriptions. It can be clearly seen that the new undertaking is therefore not formed by the splitting up of the old undertaking. There is no case also made out by the lower authorities that the new undertaking is formed by the splitting up of the existing business. Further, the Supreme Court in the case of Textile Machinery Corporation (cited supra) wherein the Supreme Court categorically held that new unit established by the assessee for manufacturing articles used as intermediate products in the old division, which the assessee was buying from the market earlier, is not reconstruction of business already in existence. To constitute reconstruction, there must be transfer of assets of the existing business to the new industrial undertaking. In our opinion, generation of power unit is separate and distinct undertaking for which separate approval was obtained and it cannot be said that splitting....