TaxTMI 
TaxTMI 
2020 (5) TMI 278
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.... 2. The main issue involved in these appeals are whether the assessee has set up a new unit or undertaking capable of producing entirely different products or articles from the existing unit and also as to whether the assessee is eligible for claim of deduction u/s 80lB in respect of profits declared in the returns of income filed by it. The issue started from the initial A.Y. i.e. 2001-02. Against the assessment order dated 29.03.2004, the assessee filed an appeal before the CIT(A) and the ld CIT(A) vide order in ITA No.23/2004-05, dismissed the appeal . On further appeal by the assessee, the Hon'ble ITAT vide its order in ITA No.2910/Mds/2005 dated 12.10.2007 has remitted back to the AO to consider the issue in de-novo. Subsequently, the AO denied the claim of deduction u/s 80IB noticing certain shortcomings in the quantum of the machinery purchased by the assesse and also holding that the assessee has not satisfied two major conditions as mentioned by the Supreme Court of India in the case of M/s Textile Machinery Corporation vs CIT 107 ITR 195 as under: 1. The manufacture of production or article or things by the so called new industrial undertaking with referenc....
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....stment in plant and machinery is required to be examined. In the present case, the Appellant invested INR 1,05,74,903 towards fixed assets for new Bussmann unit, out of which INR 60,86,552 were invested only towards Plant and machinery whereas the value of in the S&S unit was INR 34,97,597, which mean that the value new investment in new Plant and machinery was about 174% of the value of old machinery, which in fact depicts substantial investment (refer section 801C(8)(ix) of the Act which defines "Substantial expansion" to mean increase in the investment in the plant and machinery by at least fifty per cent of the book value of plant and machinery (before taking depreciation in any year), as on the first day of the previous year in which the substantial expansion is undertaken. Further, it is also relevant to point out that installed capacity was substantially increased which is evident from the year on year increase in turnover. 2. With regard to the finding that no new technology was employed and no new and different products was manufactured, the ld.AR submitted that New machinery worth INR 60.86 lakh was installed for manufacturing Bussmann range of fuses. ....
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.... The AO visited the premises of the Appellant in December 2008, i.e., during AY 2009-10, when the Appellant was not availing any deduction under section 80IB of the Act and therefore, it is not relevant whether or not the two units are separate or not, in AY 2009-10. Further, it is also not clear whether enquiry undertaken by AO was from the employees who were employees during the AY 2001-02. In view of aforesaid infirmities, such statement is inadmissible and reliance on the same is contrary to principle of natural justice. No requirement to maintain separate muster roll for separate units for availing deduction under section 81B of the Act. The statements / observations of the AO / CIT(A) are factually incorrect. There were separate employees for Bussmann Unit and S&S Unit. 5. With regard to the finding that no physical separation of the units, the ld.AR submitted that the evidences tendered by the Appellant, to demonstrate that the new undertaking is a physically separate and independent undertaking, have been wrongly rejected . The AO has erred in rejecting commission report prepared by the Appellant's engineers, wit....
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....ity connection was installed on January 23, 2002. 7. With regard to the finding that no commencement of new manufacturing activity, the ld.AR submitted that this is factually incorrect. The business of the Appellant had commenced in October 2000 and the same has been demonstrated by the Appellant , however, the AO /CIT(A) did not appreciate the evidence furnished by the Appellant, and alleged that the date of commencement of operations has not been proved. The Appellate has manufactured and exported the Bussmann range of fuses during the relevant AY, the said manufacturing was undertaken by the new machinery setup in Bussmann unit. In view of this, the AO I CIT(A) have erred in concluding that the manufacturing activity of the Appellant has not commenced. 8. With regard to the finding that no separate stock registers, the ld.AR submitted that the Appellant furnished its Central Excise Return for October 2000 as well as print outs of the computer extracts of its daily stock register, which it maintains under the Central Excise Act, 1944. Moreover, it is submitted that maintenance of separate physical daily stock register is not a requirement under the law ....
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....ere having the ASTA certification and were manufactured basically to IS 13703 with 151 mark which were not meeting European market requirement. The manufacture of "Bussmann" range of fuses was made exclusively by using the new plant and machinery, which was installed in a physically separate area within the factory building. Both 5&5 unit and Bussmann unit were operating with separate sets of plant and machinery and each was capable of manufacturing the respective products. None of the plant and machinery of the S&S unit was used for the manufacture of the Bussmann fuses. The list of plant and machinery mapped with the processes by both the units are enclosed. The design / physical dimensions of the Bussmann fuse is entirely different from the S&S fuse. The technology / process involved in the manufacture of Bussmann fuse are also difference from that of S&S fuse. S&S fuses continued to serve the Indian market with the existing customers and the Bussmann Unit supplied the new range of fuses. The list of existing products and customers of the S&S unit and Bussmann unit is enclosed. Even after the setting up of the Bussmann unit, the busin....
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....entioned by the Supreme Court of India in the case of M/s Textile Machinery Corporation vs CIT 107 ITR 195 as under: 1. The manufacture of production or article or things by the so called new industrial undertaking with reference to the investment of substantial capital made in the so called new industrial undertaking. 2. The assessee company was not able to establish that the so called new industrial undertaking is a separate and distinct and identity when compared to the old industrial undertaking. " "5.4 I have considered the findings giving by the AO in the order of re-assessment and submissions made by the appellant carefully. The facts of the case are that the assessee company was incorporated on 24.09.1992 but the business activity of the company commenced only during the previous year relevant to the A.Y. 2000-01 and the assessee company acquired a division of another company known as M/s S & S Power Switch Gear Ltd.(M/s S&S PS Ltd.). As per the hive of agreement dated 17.12.1999 entered into the assessee company and M/s S&S PS Ltd., M/s S&S PS Ltd. transferred its low tension(fuse business) located at Pondicherry to the assessee company. As a res....
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....stores of S&S LT fuses division was around 1280 sq.ft. 3 20.01.2000 The shares of S&S Low Tension Switchgear Ltd. was transferred to Cooper Bussmann LLC on 20/01/2000. 4 August 1999 to March 2000 Cooper Bussman LLC has infused funds amounting to Rs. 12,55,67,120/-. Out of the amount infused Rs. 11,83,20,000/- was utilized to pay the consideration to S&S Power Switchgear Ltd. and the balance was utilized for purchase of new plant & machinery to be used for manufacture of Bussmann range fuse & fuse fittings The sales of S&S LT fuse division for the financial year ended 31.03.2000 was around Rs. 1,95,27,964/-. 5 July 2000 to November 2000 The company has purchased new plant and machinery for manufacture of Bussmann range fuse & fuse fittings 6 August 2000 to October 2000 The company has recruited new employees for manufacture of Bussmann range fuse & fuse fittings. 7 31.10.2000 The company has commenced the manufacture of Bussmann range fuses & fuse fittings. The area occupied by the new undertaking manufacturing Bussmann range fuses and fuse fittings was around 5.122 sq.ft. The new undertaking manufacturing Bussmann range fuse and fuse fit....
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....inery purchase visa-vis total investment after the purchase of the Low Tension Division Unit comes to about 4.23% only. According to the appellant, the turnover of the so called the new industrial undertaking increased from Rs. 4.55 crores Rs. 60.43 crores from A.Y2001-02 to A.Y. 2005-06 and the turnover of the existing undertaking increased from Rs. 3.6 crores to Rs. 9.1 crores from A.Y. 2001-02 to A.Y. 2005-06. This fact itself shows that the new investment of Rs. 53.17 lakhs made by the appellant was in the normal course of business of expansion rather than the establishment of any new industrial undertaking. (b) use of new technology & process involved & products manufactured: I have perused the copies of the invoices in respect of the new machineries purchased to the tune of Rs. 53.17 lakhs. I have also perused the copies of the invoices in respect of manufacture of goods and articles. All the machineries were purchased in India only. It is evident from the copies of invoices that the new machineries purchased are not very different from the machineries which was already existing in the manufacturing process. No new technology was involved in these new machin....
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....e registers in respect of the so called separate units go to prove that the appellant in fact did not establish new industrial undertaking for the purpose of export business. (e) No physical separation of the units: The evidences produced before the undersigned reveal that the appellant manufactured goods of both for export purposes and domestic purposes in the same factory. No evidences were furnished to prove that the plant & machinery purchased were housed / installed in physically distinct areas. Revised building/machinery layout of drawing submitted for the approval of the Chief Inspector of Factories do not indicate the setting up of the new industrial unit. The quantum of investment made in the building during the A.Y. 2001-02 was only Rs. 9,23,579/- as compared to the written down value of the building as on 01.04.2000 of Rs. 1,11,29,966/-. No conclusive evidence was furnished to prove that new factory was constructed during the A.Y. 2001-02 with substantive investment and manufacturing took place in the newly constructed factory. (f) No separate power connection: No evidence for separate power connection was made available to prove that new industrial und....
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....fy the old machinery on 07.01.2014 when that has already become scrap during the FY 2007-08 and also disposed on 09.01.2009. Therefore, the certificate given by the chartered engineer cannot be the basis for holding a view that old machines are not capable of manufacturing so called Bussmann range products and appellant has established entirely new industrial undertaking. 5.5 The burden is really upon the appellant to prove that the new undertaking which is capable of manufacturing new products with distinct characteristics has come into existence during the A.Y. 2001-02 which is the initial year for the claim of deduction u/s 80 IB of the IT Act. In view of the discussion in the foregoing paras, I am of the considered view that no new undertaking has come up by substantial investment and also of the view that the so called new unit is not an integrated unit by itself. The subsequent purchase of the new machineries after the purchase of the old unit was done in the ordinary course of expansion of the business and not in the nature of new industrial undertaking within the meaning of the Sec.80IB of the IT Act. While doing so, the principle laid down by Supreme Court of Indi....
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....asons and also without any actual verification. It is to be seen that the appellant has sold entire old machineries during the financial year 2007-08. The appellant has shown the same as sale of scrap vide his invoice dated 09.01.2009. Then how come, the chartered engineer verified the old machinery on 07.01.2014 when that has already become scrap during the FY 2007-08 and also disposed on 09.01.2009. Therefore, the ld.CIT(A) held that the certificate given by the chartered engineer cannot be the basis for holding a view that old machines are not capable of manufacturing so called Bussmann range products and appellant has established entirely new industrial undertaking. Thus, the only external evidence, filed by the assessee has become totally unreliable. Further, the ld.CIT(A) held that the assessee has not maintained separate books of accounts, it employed the same employees for manufacture of all products, there was no physical separation of units, separate power connection and separate stock registers, etc. On such findings, he has come to the conclusion, that no new undertaking has come up by substantial investment, the so called new unit is not an integrated unit by its....
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....activity being carried out by them in India, the same would not be taxable in India. It was submitted that whole process of testing and certification is an automated process without having any human intervention. Therefore, the payment for said services does not qualify as fees for technical services. The foreign entity ASTA is performing services in the nature of product certification which does not make any technical knowledge, experience or skill to the assessee which could be utilized / applied by it independently. Therefore the above payments are not covered under FTS under the India UK DTAA. The ld.AR relied on the following case laws:- 1. Guy Carpenter & Co. Limited : [2012] 346 ITR 504 (Del) 2. CIT vs. De Beers India Mineral (P) Ltd : 346 ITR 467 (Kar) 3. ACIT vs. Vishwak Solutions (P) Ltd: [2015] 38 ITR (T) 522 (Mad) 4.2 Per contra, the ld.DR supported the orders of the lower authorities. 4.3 We heard the rival submissions and gone through the relevant material. Since the payment is towards certification, it is purely professional services and in the absence of any business connection and activity being carried out by ASTA and China I....