TaxTMI 
TaxTMI 
TaxTMI 
2025 (9) TMI 1297
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....nder consideration, the assessee claimed deduction of Rs. 3.53 crores as deduction u/s 80IE of the Act from the profit derived from the undertaking located in Assam. 3. The AO, however, was of the view that the assessee may not be entitled to claim deduction u/s 80IE of the Act in view of the following deficiencies noticed by him:- (a) The assessee is not manufacturing any new article, but it is assembling existing product "Watch" in the brand name "Foce Watch". (b) It is selling its products only to one customer, M/s Heighten Trading Company (Pvt) Ltd, (HTCPL) which is the original product manufacturer and seller. It is also a related entity, since Shri Manoj S Agarwal is the partner in the assessee firm and director in the above said company. HTCL is also selling Foce brand watches. (c) The assessee has also purchased materials from a related concern named M/s R B Industries. (d) It also purchased materials from another concern named M/s Tulsi Traders to the tune of Rs. 4.34 crores, but a sum of Rs. 2.18 crores was shown as outstanding. (e) The entire production has been sold to HTCPL in a high rate of Rs. 11,000/- per unit compared to the prices ranging from Rs. 2,000....
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....t had begun the manufacture before 31/03/2017; b) The undertaking of the appellant had fulfilled the conditions prescribed u/s.80IE(3), in understated manner :- i) The appellant's undertaking is not formed by splitting-up or reconstruction of the business already in existence; ii) The assessee's undertaking is not formed by the transfer of a new business of machinery/ plant previously used for any purpose; c) The assessee had also fulfilled the conditions prescribed u/s.80IE(6) r.w.s.80IA(5) and (7) to (12) in understated manner :- i) The accounts of the assessee's undertaking has been audited by the Chartered Accountant and Audit report in form 10CCB had been furnished before the date prescribed u/s.44AB of the Act; ii) The transfer of goods had been made at the market value of such goods as on that date; iii) All other conditions prescribed under the statue had been satisfied. 2.2. In support of the above, the appellant relies on understated documents (copies enclosed) to justify the fulfillment of all conditions prescribed u/s.80IE, stated as under:- a) Certificate of Registration issued by District Industries & Commerce (DIC), Guwahati on 20/03/2017; ....
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.... note that the Directorate General of Audit Central Taxes and Customs had conducted the physical inspection and audit at appellant's manufacturing unit situated at Guwahati and in their report dated December 2020 (served on 4/2/2021), the authority had recommended the extension of exemption till 28/03/2027 to avail the budgetary support." 6. The assessee also contended that the AO was not correct in presuming that the Assam unit has been formed by splitting up the existing unit. It submitted that the splitting up of unit presupposes transfer of machineries from the existing unit or breaking up of the existing unit, which is not the case here. It was submitted that the Assam Unit has been formed without transferring any unit from the existing business of M/s HTCPL. It also submitted that there is no bar like that the unit should not manufacture products already manufactured by other undertakings of the group. In this regard, the assessee relied upon following decisions:- "a) CIT vs. Delhi Press Patra Prakashan Ltd 34 taxniann.com 3 (HC- Delhi) "Whether a new undertaking would not be treated as formed by splitting or reconstruction of a business already in existence and would ....
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....n separately without complete absorption and losing their identity in old business, they were not to be treated as being formed by reconstruction of old business - Held, yes - Whether, therefore, assessee was entitled to exemption under section 15C of 1922 Act in respect of new units - Held, yes. " e) FIL Industries Ltd. v. Addl CIT [2012] 23 taxmann.com 61 (Asr.) "It was held in the case of Textile Machinery Carp. Ltd. v. CIT [1977] (107 ITR 195 (SC) that the new industrial undertaking must he a new emergence of a physically separate industrial unit which may exist on its own as a viable unit and in order to do so following facts have to he established by the assessee ... It was also held that unit may produce its products of the old business or it may produce some other distinct marketable products even products which may feed the old business. It was held that true test is 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. There must be a new emergence of a physically separate industrial unit which may exist on it....
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.... all above stated licenses and permissions had been granted by various authorities to the appellant to undertake the manufacturing activities from Ground floor of the said building (Aditya Enclave). The above stated documents conclusively proves that such premise (Aditya Enclave) had been used by the appellant to undertake its manufacturing activities. The Ld. AO, inspite of written request, had not issued the notice u/s. 133(6)/ 131 to the lessor and authorities to verify the existence of manufacturing unit operated from such premise (Aditya Enclave), thus the disallowance of deduction u/s 80IE is seriously unjustified; b) The Ld. AO is extremely unjustified in considering the unverified advertisement published in the website named "99 acres.com", wherein the land lord had intended to let-out the 2 nd and 3rd floor of the building for residential purpose. The Ld. AO erred seriously in ignoring the fact that the appellant is the occupant of the Ground floor of the premise used to undertake the manufacturing activities for which various permissions and licenses are in order. The Ld. AO had erred seriously in brushing aside the various licenses and permissions granted by various au....
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....sting associated business who are the suppliers like R.B.Industries and setting up assembly line in backward state Assam is nothing but creating a colourable device so as to achieve of artificially high profit is in contravention of the provision of Section 80IE. The AO also held that the license issued by the Guwahati Municipal Corporation to the appellant is only for Sale of watch not for running of factory in the residential area of Aditya Enclave. The appellant on the other hand contended that it had fulfilled all the conditions prescribed u/s.80IE of the Act. The said conditions as mentioned in the submissions are brought out supra. The appellant also submitted that it has newly created entity (firm) which had set-up the manufacturing undertaking in earlier year without any transfer of plant & machinery to manufacture the watches and clocks in the backward state of Assam at Guwahati. The appellant further submitted that the associate entity named M/s. Heighten Trading Co.Pvt.Ltd is engaged in trading of various goods such as watches and clocks in Mumbai, whereas the appellant is engaged in the manufacturing of watches & clocks from its manufacturing undertaking situated at Guw....
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.... within the words, "splitting up of the business already in existence." This expression indicates a case where the integrity of a business earlier in existence is broken up and different sections of the activities previously conducted are carried on independently. In the present case, there is no finding that the Unity and integrity of the business or associate of the appellant firm suffered in any manner as a result of the establishment of the new entity. The AO has not brought out any finding on this account. 5.2.3 In view of the above, it can be held that the appellant is eligible to claim deduction u/s.80IE of the Act as the appellant had established a new entity by obtaining licenses from various authorities and not by splitting of associate entity. Further, the AO was unable to show that there was any 'arrangement' in terms of Section 80IA(10) of the Act, the AO could not have invoked the deeming provision." The Ld CIT(A) also noticed that the various case laws relied upon by the assessee are applicable to the facts of the present case. Accordingly, he allowed the claim for deduction u/s 80IE of the Act. The revenue is aggrieved. 10. We heard the parties and perus....