TaxTMI 
TaxTMI 
2016 (7) TMI 1588
X X X X Extracts X X X X
X X X X Extracts X X X X
....acks at its factory at Baddi, District Solan, Himachal Pradesh. The assessee claimed to have two units, namely Unit-I and Unit-11, at Baddi. During the present asstt. year, the assessee claimed deduction u/s 80-IC in respect of the income of Unit-II, whereas no deduction u/s 80IB in respect of Unit-I was claimed. In the Form No.lOCCB, the assessee had claimed that the Unit-II had commenced operation on 1.5.2003. The AO asked the assessee to justify the claim of deduction u/s 80IC in light of the provisions of the Income Tax Act, 1961. The assessee submitted before the AO that all aspects pertaining to the deduction had been considered while framing the assessment order for the Asstt.Year 2006-07 and the only point of dispute was that of "substantial expansion". A calculation of the deduction claimed u/s 80IC was submitted to the AO. Thereafter, the AO asked the assessee to show cause as to why the Unit-II at Baddi should not be considered to be a case of splitting up of business, as held in the assessment order for the Asstt.Year 2006-07, for various reasons, including the fact that Unit-I & Unit-II had common premise, common invoice book, common stock register, common excise regis....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is that the learned CIT(A) has erred in upholding the action of the Assessing Officer in rejecting the claim of deduction u/s 80-1C at Rs. 25,44,945. The legal as well as the factual position in this case has not been appreciated by the learned CIT(A) and he has relied upon an aspect which was not even raised during the assessment proceedings. The facts of the case are that the assessee had established an industrial undertaking and claimed deduction u/s 80-IB for the first time for the Assessment Year 1997-98 [para 5.3 at page no. 15 of the order of CIT(A)] subsequently a substantial expansion was carried out by the assessee to an existing unit in the Assessment Year 2004-05 by setting up a unit which was described as Unit-II and the old unit was described as Unit-I. The substantial expansion carried out by the assessee resulted in the creating of a new unit [para no. 2 of the order of ITAT for AY 2006-07 i.e. page no. 19 of the paper book]. The establishment of Unit-II is apparent from page no. 2 of the assessment order where the turnover as well as the deduction of the two units has been separately mentioned to the extent available with the assessing officer. The positi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 80-IC has been reproduced by the CIT(A) in para no. 5.3 at page no. 15 of his order. It was also emphasized that sub-section (6) of Section 80-IC overrides all other provisions of the Income Tax Act as it started with the words "notwithstanding anything contained in this Act ... ." and as such sub-section(3) of section 80-IC which provides for deduction for a period of ten years from the initial assessment year will get prevailed over by sub-section (6) and deduction would not be available beyond the assessment year 2006-07. It may be submitted that the issue raised by the CIT(A) was something new and this was not even touched upon by the assessing officer while framing assessment. Without going into much details, it is submitted that the words used in subsection (6) of section 80- IC are "undertaking or enterprise" and not "assessee". The period of deduction is thus to be restricted to ten years for an undertaking or enterprise belonging to an assessee and not to the assessee himself. In this case the assessee has carried out substantial expansion by setting up a unit which was described as Unit-II and the old unit was described as Unit-I. The contention that substanti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....house different commercial enterprises. These units or enterprises cannot be treated as one. Also the inspection carried out by the Inspectors on 15/12/2008 [when the assessment proceedings for A.Y 2006-07 were being taken up] could not have revealed the position which existed prior to 31/3/2008 and thus their report cannot be relied upon while deciding the issue for the assessment year 2008-09. In fact the inspectors also reported purchase of new looms and construction of new shed which will not be relevant for the financial year ending 31/3/2008J Even with the facts as considered in the assessment year 2006-07, the substantial expansion resulted in a new unit which has to be treated as a new unit for which deduction would be available for a period of ten years from its initial assessment year. The deduction thus has to start from the date of establishment of the new unit i.e. Unit-II which was established in the Assessment Year 2004-05[last para at page no. 7 of the paper book and middle of first para at page no. 20 which is the order of ITAT for AY 2006-07]. Even where one assessee has separate units, there could be one Sales Tax Registration as well as Excise Registration Numbe....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is enclosed at page no. 47 to 51 [please see page no.49]. The ITAT, Kolkata Bench has in the case of Joonktolle Tea & Industries Ltd. vs. DCIT reported at 8 Taxman.com 4 wtMe dealing with section 80-IC itself held that the substantial expansion would constitute separate business which would be separate from existing business. Copy of the decision is enclosed at page no. 52 to 62 (please see page no. 52]. The judgment supports the contention of the assessee that the new substantial expansion unit would constitute a new business or enterprise and accordingly would be eligible for deduction u/s 80IC for a period of ten assessment years from the initial assessment year of that unit as discussed above. The Unit-I and Unit-11 were independent in view of the facts brought on record. It would also be relevant to discuss circular no. 7 of 2003 which has been referred to the CIT(A) in para no. 5.3 of his order. The relevant para in circular no. 7 of 2003 is j; no. 49. Relevant pages of the circular containing these paras are enclosed at page no. & 64. The observations of the CIT(A) from circular no. 7 of 2003 are contained in p no749.4 which states that the deduction to an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....acturing Co Ltd. reported at 177 ITR 431 [please see page no. 74], in the case of CIT vs. South Arcot District Co-op Marketing Society Ltd. reported at 176 ITR 117 [please see page no. 76] and in the case of Harihar Polyfibres vs. Regional Director of ESI Corporation [please see page no. 83], Copy of the above decisions is enclosed at page no. 72 to 83 [please see page no. 66], Without prejudice to the above, even if there was a doubt in interpretation and two views were possible, the one favouring the assessee should prevail. Reliance is placed on the decision of the Supreme Court in the case of CIT vs. Vegetable Products Ltd. reported at 88 ITR 192." 4. On the other hand, the ld. DR relied on the impugned order. 5. We heave heard the parties and have perused the material on record. The AO held it to be a case of splitting up of the old unit, rather than of that substantial expansion, as canvassed by the assessee. The ld. CIT(A), on the other hand, relying on his own decision in the assessee's case for the assessment year 2006-07, held that there was no splitting up of the business. However, he has expressed the view that in view of section 80-IC(6) of the Act, the period of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n carried out, is not at all in dispute. It has been held by the Hon'ble Madras High Court in 'Premier Cotton Mills Ltd.' (supra), that the assessee 'undertaking' is not to be equated with the legal entity which may own the undertaking and that a single legal entity may own operate more than one industrial undertaking. 13. The provisions of section 80-IC of the Act are contained in part 'C' of Chapter VII-A of the Act. Chapter VII-A of the Act concerns deduction to be made in computing total income. Part 'C' thereof is about deduction in respect of certain income. 14. The heading of section 80-IC is as follows: 'Special provisions in respect of certain undertakings or enterprises in certain special category of States: Thus, as evident from the heading itself, section 80-IC relates to "undertaking or enterprise". This is made more clear by section 80-IC(1), which talks of deduction being allowed form the profits and gains by an undertaking or enterprise, where the gross total income of the assessee includes any profits and gains derived by an undertaking or enterprise. Section 80-IC(2) lays out the applicability of section 80-IC to any undertaking or enterprise, as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s erred in not doing so. 18. in this regard, reliance by the assessee on 'ITO vs. Carborundum Universal Ltd.', 13 TTJ 370 (Madras) and 'ACIT vs. Niko Resources Ltd.', 22 DTR 225 (Ahd.), is appropriate. 19. 'Joonktolle Tea & Industries Ltd. vs. DCIT', 8 Taxman.Com 4 ( Kol. ITAT), which holds that the unit arising due to the substantial expansion would constitute a new business or enterprise and, accordingly, would be eligible for deduction under section 80-IC for a period of ten years from the initial assessment of that unit, is directly on the issue, in favour of the assessee. 20. Further, CBDT Circular No.7 of 2003, as noted, was referred to by the ld. CIT(A). Para 49 of this Circular (APB 63-64), which is relevant for our present purposes, reads as follows: The Union Cabinet has announced a package of Fiscal and nonfiscal concessions for the special category states of Himachal Pradesh, Uttarnchal, Sikkim and North-Eastern States, in order to give boost to the economy in these states. With a view to give effect to these new packages a new section has been inserted to allow a deduction for ten years from the profits of new undertakings or ; or existing undertaking....