TaxTMI 
TaxTMI 
2021 (5) TMI 20
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....in holding that the formation of M/s Arun Enterprises is not spitting up or reconstruction of the existing business of M/s Arun Plasto Moulders Private Ltd (APMPL) by only relying on the fact stated by the assessee that the M/s Arun Enterprises has diversified products and new product line cater to the business of M/s Unilever Asia Pvt Ltd (UAPL) as well as third party clients without any restriction imposed by UAPL. 3. The ld. CIT(A) failed to appreciate the formation of M/s Arun Enterprises is nothing but splitting up or reconstruction of the business, already existed, of M/s Arun Plasto Moulders Private Ltd(APMPL) in view of the facts that-(i) The assessee is the proprietor of M/s Arun Enterprises as well as major stake holder along with his family in APMPL,(II) M/s Arun Enterprises was formed by transfer of machinery (more than 20% limit from APMPL, (III) M/s Arun Enterprises having huge and significant amount of related party transaction with APMPL in form of sale of raw material, finished goods, Moulds and spares, labour service charge, Purchase of raw material etc, hence catering directly to the needs of business already existed of APMPL and indirectly to UAPL as AP....
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....f the learned CIT(A) may be set aside and that of the Assessing Officer restored." 3. Brief facts of the case are that the assesse, an individual and proprietor of M/s. Arun Enterprises, is engaged in manufacturing of ancillary equipments catering to plastic, paper, rubber, confectionery, food and medical industries. During the financial year relevant to the assessment year 2011-12, the assessee has started a unit at Hardwar for manufacturing of plastic components using injection moulding process and supplied to M/s. Hindustan Unilever Ltd. for manufacturing of water purifiers. The assessee has filed his return of income for the assessment year 2012-13 on 23.09.2012 declaring total income of Rs. 13,08,240/-, after claiming deduction towards profit derived from undertaking situated at Haridwar u/s.80IC of the Act, amounting to Rs. 13,42,87,644/-. The case was taken up for scrutiny and during the course of assessment proceedings , the Assessing Officer has denied deduction claimed u/s.80IC of the Act, in respect of profit derived from unit situated at Haridwar for manufacturing of plastic components using injection moulding process for the following reasons:- (i) Till ....
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....ring the Plant & Machinery i.e. injection moulding machine from APMPL to the worth of Rs. 3120023/-." 4. Being aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the assessee has filed written submissions, which has been reproduced in para 6 on page 5 to 12 of the learned CIT(A) order. The sum and substance of arguments of the assessee before the learned CIT(A) are that denial of deduction claimed u/s. 80IC of the Act by the Assessing Officer is factually incorrect for simple reason that there is no splitting of existing business as alleged by the Assessing Officer, which is evident from the fact that new unit started at Haridwar is manufacturing new product for exclusive use of M/s. Hindustan Unilever Ltd. for manufacturing of water purifiers. The assessee has also negated the observations made by the Assessing Officer in light of denial of deduction claimed u/s. 80IC to sister concern of the assesse, M/s. Arun Plasto Moulders Pvt. Ltd. (APMPL) with facts and argued that the Assessing Officer has alleged that the assessee has started new unit, because of denial of deduction to sister concern on the ground of....
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....irected the Assessing Officer to delete additions made towards disallowance of deduction claimed u/s.80IC of the Act for both the assessment years. The relevant findings of the learned CIT(A) are as under: "8. Now, I have carefully gone through the undisputed/uncontroverted facts marshalled and presented by the AO/AR as reflected, in essence, in the excerpts from the said assessment order and the submissions of the AR quoted supra bolstered by relevant and supporting evidence as also the case laws relied on by the rival parties but on a relative and comparative consideration of the same, I am persuaded by the more substantive and meritorious reasoning/substantiation adduced by the AR on the issue at hand. 8.1 The AO disallowed the claim of deduction u/s 80IC basically for two reasons: (i) the unit at Haridwar according to her was out of splitting up of business at Chennai unit and (ii) on account of transfer of plant and machinery from the Chennai unit to Hardwar unit purportedly exceeding the statutory limit of 20% permissible in the said provision. The contentions of the AO appears misplaced both on facts and in law as could be seen fr....
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.... dated 25.02.2010 from the prescribed Authority. The ESIC registration was obtained on 28.06.2010. The registration with the Commercial Tax for VAT and CST was obtained on 06.02.2010. The registration for Service Tax was also obtained vide Form ST-2 dated 26.03.2010. The above facts clearly proves that the appellant had initiated the process of setting up a new unit at Haridwar, Uttarkand on 29iL2009 itself (F.Y. 200940) when compared to the date of 28.12.2011, the date on which the claim u/s 80IC of APMPL was disallowed on the ground. that the unit was started by sp1ittingup its existing business from Chennai. Further, the appellant during the F.Y. 2009-10 had also spent an amount of Rs. 1,62,10,320/ towards acquisition of fixed assets being land, plant and machinery and other assets for setting up of the new unit at Hardwar, The said investment in the fixed assets is reflected separately for units at Chennai and Haridwar in the audited financials field. 8.3. In the above background and facts which has not been disputed by the AO specifically and pointedly the detailed rulings in the case of CIT vs. Ganga Sugar Corporation Ltd. 92 ITR 173 Del) & CIT Vs. Hindustan....
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....he total value of the building, machinery or plant used in the business of a new industrial undertaking. Although no such percentage was fixed in sec. 15C(2)(i) of the Act of 1922, the extent and quantum of value of the transferred building, machinery or plant vis-a-vis the total cost involved in the setting up of the new industrial undertaking was a relevant and. material factor, the importance of which cannot be lost sight of In the light of all the facts of the case, the new industrial undertaking in the instant case could not be said to have been formed by the transfer to new business of building, machinery or plant previously used in any other business. Therefore, the assessee company was entitled to exemption from t on profits or gains derived from the new industrial undertaking u/s 15C of the 1922 Act. CIT Vs. Hindustan General Industries Ltd. 6 Taxman 360 (Del) 1. "The real test of finding out whether there is reconstruction or not as a result of the setting up of a new industrial undertaking. the assessee had expanded its business in the same or similar articles, but to find out whether the unit which has been set up separately is new in the sense that ne....
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....vent the assessee from calming that the new factory was a newly established industrial undertaking. 4. The assessee, therefore, satisfied all the conditions laid down in section 84(2) and was entitled to the deduction contemplated in section 84(1)," Further again in one of its recent decisions in the case of cir V. Premier cotton Mills Ltd 240 ITR 434, the Madras High Court had discussed in more detail the splitting up or reconstruction of an existing business. It was held that there is no requirement in section 80J of Income Tax Act that the article produced in the newly established industrial undertaking should be different from the one produced by the petitioner in its existing undertakings What is material is the bringing into existence by investing fresh capital, an unit which is capable of functioning as an independent unit and Is capable of / being regarded as an industrial undertaking engaged in the / production of articles. Though the heading of the section 80J refers to newly established industrial undertaking, in the body of the section, there is no requirement that the undertaking should be new or it must be set up as an Independent unit nd th....
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.... the A.Y. 2012-13 and verbatim adopted the same as Para (iv) in the present assessment order. The correct fact is that the AC during the course of the assessment for the AY 2012-13 had sought details for addition to fixed assets exceeding Rs. 10,00,000/- during the AY, 2011- 12 and 2012-13 which was furnished by the appellant with description to the tune of Rs. 59,81,123/-. However, the total value of plant and machinery available as on 31.03.2012, being the year end for the AY. 2012-13 stood at Rs. 2,05,36,114/- as detailed herein below. The AO instead of computing the percentage of old transferred machinery of Rs,3 1,20,023/ - with Rs. 2,05,36,114/- inadvertently appears to have adopted the said amount of Rs. 59,81,123/- as the total value of plant and machinery and came to a conclusion that there was a transfer of plant and machinery for more than 50% from a group company and thereby concluded that the appellant has violated the condition laid down u/s 80IC of the Act. The percentage of transfer of old machinery is only 15.19%, if worked out correctly as detailed hereunder: The total gross plant and machinery as on 31.03.2012 stands at Rs. 2,05,36,114/- as agai....
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....in holding that the formation of M/s Arun Enterprises was not an occurrence of transfer of plant and machinery to the tune of more than specified limit of 20% from business, already in existence of APMPL, by wrongly comparing machinery available as on 31.3.2012 to the transferred machinery in the financial year 2010-11, first year of 80IC claim, on the contrary, it has to be compared with machinery available in financial year 2010-11, for checking specified limit of 20% transferred machinery at the time of formation of 80IC eligible unit. The learned CIT(A) has failed to appreciate that if any undertaking has not qualified any one or both of the two conditions specified u/s 80IC(4) regarding formation of undertaking by splitting up or reconstruction and use of transferred plant and machinery from a business already existed, its claim of 80IC deduction has to be disallowed. Although, the Assessing Officer has brought out various facts to prove that splitting up of already existing business, the learned CIT(A) has negated observations made by the Assessing Officer without bringing on record any evidence to prove that how unit set up at Haridwar is separate and independent unit dif....
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....ficer to allege that new unit has been set up, when deduction was denied to sister concern of the assessee on the ground of splitting up of business. The AR further submitted that another allegation of the Assessing Officer in light of Explanation 2 of section 80(IA)(3) rws 80IC of the Act, regarding transfer of plant & machinery previously used for any purpose over and above the specified limit of 20% submitted that the Assessing Officer has wrongly compared plant and machinery value to the tune of Rs. 59,81,123/- to arrive at 50%, ignoring fact that the assessee has installed plant and machinery as on 31.03.2012 at Rs. 2,05,36,114/- and such value is considered, then percentage of plant and machinery used in the new unit is only 15.19%, which is well within the percentage specified under Explanation 2 of section 80(IA)(3) rws 80IC of the Act. Therefore, the learned CIT(A), after considering all the facts has rightly held that the assessee is eligible for deduction u/s. 80IC of the Act and hence, his order should be upheld. 8. We have heard both the parties, perused material available on record and gone through orders of the authorities below. The Assessing Officer has denied d....
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....ame business. In other words, where old business is carried on by the assessee and commensurate with the growth of said business new units are established, then it cannot be said that new unit was a result of splitting up of business already in existence. The concept of reconstruction of business would not be attracted in cases where i) a concern which is already running one industrial undertaking or unit set up another industrial unit manufacturing identical goods; or ii) a concern set up ancillary unit for manufacturing of goods for captive consumption. In order that a new industrial undertaking can be said to be not formed out of already existing business, there must be new emergence of physically separate unit on its own as a viable unit. The new activity may produce same commodity of the old business or it may produce some other distinct marketable product or even products which may affect old business. What must be certain is new undertaking must be an integrated unit by itself. 9. In this legal background, if facts of the present case is examined, the reasons given by the Assessing Officer to deny deduction claimed u/s.80IC of the Act appears to be misplaced both on facts....
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....n 29.11.2009 itself and hence, observations of the Assessing Officer in light of assessment order passed on 28.12.2011 in the case of M/s. Arun Plasto Moulders Private Ltd, is totally incorrect. Therefore, we are of the considered view that findings of the Assessing Officer that new unit at Haridwar was started by splitting of existing unit at Chennai is totally incorrect and not based on any facts. The concept of split up a business would not be attracted when a company which is already running one industrial unit set up another industrial unit to its advantage. The new unit would not lose its separate and independent entity even though it was set up by a company, which is already running an industrial unit before setting up of a new unit. The real test of finding out whether there is splitting up of already existing business or not as a result of setting up of a new industrial undertaking, the assessee had expanded its business in the same or similar articles, but to find out whether unit has been set up separately as new in the sense that new plant and machinery are erected and new independent and viable unit has come into existence for producing either the same commodity or som....
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....ect. We find that the learned CIT(A) has recorded categorical finding that the Assessing Officer has inadvertently adopted total plant and machinery installed at Haridwar unit at Rs. 59,81,123/- as against total plant and machinery installed at Rs. 2,05,36,114/- . If the total value of plant and machinery installed at new unit is taken into consideration for computing old plant and machinery, then it works to 15.19%. We further noted that the Assessing Officer has reproduced the plant and machinery installed at new unit at Haridwar, as per which as on 31.03.2012, the assessee has installed total plant and machinery worth Rs. 2,05,36,114/-, out of which used plant and machinery taken from APMPL is at Rs. 31,20,023/-. If the amount of Rs. 31,20,023/- being value of old plant and machinery as mentioned by the Assessing Officer is compared to total plant and machinery installed at new unit at Rs. 2,05,36,114/-, the same would be worked out to 15.19% only, as against more than 50% as observed by the Assessing Officer in her assessment order. Further, the learned DR has vehemently argued the issue of transfer of used plant and machinery on the ground that learned CIT(A) has wrongly ad....
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....uld not be attracted when a company which is already running one industrial unit set up another industrial unit. The new industrial unit would not lose its separate and independent identity even though it has been set up a company which is already running an industrial unit before the setting up of the new unit The object of Sec. 15C of the 1922 Act is to provide an incentive for the setting up of new industrial unit so as to accelerate the process of industrialization. It does not appear to have been the intention of the Legislature as envisaged by Sec. 15C of the 1922 Act, that the benefit of the said section would be confined to the industrial undertaking of those parties who had not already set up such undertakings in the past but would not be extended to parties who have past experience of running similar undertakings. If in the context of the total cost involved in the setting up of the new 'industrial undertaking the value of transferred building, machinery or plant constitute only a small fraction, the new industrial undertaking would not be held to have been formed by the transfer to a new business of building, machinery or plant previously used in another busines....
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....ry was found to be totally inadequate, Fresh land was acquired, fresh capital was invested, fresh machinery and plant were installed and the new factory came into existence after more than a couple of years. It was no doubt true that in the initial stages, the new factory also turned out article perhaps of the same type as those manufactured in the old factory. But, gradually the new factory started the manufacture of railway wagons. Further the Tribunal had found as a matter of facts that the assessee's new factory was a new undertaking. There was nothing to show that as a result of setting up of this undertaking the integrity, unit or the continuity of the business transaction in the earlier undertaking were in any manner adversely affected. This was a new, independent and viable unit. 2. The mere fact while setting up of this factory, a small amount of plant and machinery was transferred from the previous business could not lead one to the conclusion that it was a case of reconstruction. Under section 84(2)(ii), the assessee could be denied exemption only where the assets transferred to the new factory constituted more than 20 percent of the assets used in the new busin....
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....l undertaking, the requirements of the section are met location of expanded facilities vis-a-vis existing undertaking is not relevant.The petitioner added the additional splindlage after securing license and claimed deduction only after completion of expansion. The Madras High court held that the petitioner is entitled to the deduction u/s. 80J of Income Tax Act." 16. The learned AR has also relied upon the decision of the Hon'ble Supreme Court in the case of Textile Machinery Corporation Ltd. Vs. CIT (1977) 107 ITR 195 (SC) in the context of deduction claimed u/s. 80J of the Income Tax Act, 1961, which is corresponding to section 15C of the Income Tax Act, 1922 held as under:- "Section 15C is an exemption section. The benefit granted under this section is a partial benefit so far as the quantum of the exempted profits of the new industrial undertaking as also for a limited period or periods as specified in the section. If the two industrial undertakings, about the existence of which there can be no controversy, as found by the Tribunal, could not be held to be formed by the reconstruction of the business already in existence, the benefit of section 15C of the 1922 Act ....
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....nd distinct unit is the heart of the matter, to earn benefit from the exemption of tax liability under section ISC of the 1922 Act. Section 15C(6) also points to the same effect, namely, production of articles. The answer, in every particular case, depends upon the peculiar facts and conditions of the new industrial undertaking on account of which the assessee claims exemption under section 15C of the 1922 Act. No hard and fast rule can be laid down. Trade and industry do not run in earmarked channels and particularly so in view of manifold scientific and technological developments. There is great scope for expansion of trade and industry. 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 under section 15C of the 1922 Act. Every new creation in business is some kind of expansion and advancement. The true test is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is all the same a new and identifiable undertaking separate and distinct from the existing business. No particular decision ....
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....t may produce some other distinct marketable products, even commodities which may feed the old business. These products may be consumed by the assessee in his old business or may be sold in the open market. One thing is certain that the new undertaking must be an integrated unit by itself wherein articles are produced and at least a minimum often persons with the aid of power and a minimum of twenty persons without the aid of power have been employed. Such a new industrially recognisable unit of an assessee cannot be said to be reconstruction of his old business since there is no transfer of any assets of the old business to the new undertaking which takes place when there is reconstruction of the old business. For the purpose of section 15C of the 1922 Act the industrial units set up must be new in the sense that new plants and machinery are erected for producing either the same commodities or some distinct commodities. In order to deny the benefit of section 15C of the 1922 Act, the new undertaking must be formed by reconstruction of the old business. Now, in the instant case, there was no formation of any industrial undertaking out of the existing business since that could take ....