Income Tax Appellate Tribunal - Hyderabad
Hyderabad Chemicals Limited, ... vs Assessee on 11 March, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "B" : HYDERABAD
BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER
AND
SHRI SAKTIJIT DEY, JUDICIAL MEMBER
ITA.No.344/Hyd/2012
Assessment Year 2007-2008
Hyderabad Chemicals Ltd., DCIT, Circle 2(2)
Hyderabad. vs. Hyderabad
PAN AABCH1014K
(Appellant) (Respondent)
ITA.No.499/Hyd/2012
Assessment Year 2007-2008
DCIT, Circle 2(2) Hyderabad Chemicals Ltd.,
Hyderabad. vs. Hyderabad.
PAN AABCH1014K
(Appellant) (Respondent)
ITA.No.561 & 562/Hyd/2013
Assessment Year 2008-2009 & 2009-2010
Hyderabad Chemicals Ltd., DCIT, Circle 2(2)
Hyderabad. vs. Hyderabad
PAN AABCH1014K
(Appellant) (Respondent)
For Assessee : Mr. Gopal Choudray &
Mr. A.V. Raghuram
For Revenue : Mr. D. Sudhakar Rao
Date of Hearing : 13.02.2015
Date of Pronouncement : 11.03.2015
2
ITA.No.344/H/2012, 561 & 562/H/13 &
ITA.No.499/H/2012
Hyderabad Chemicals Ltd., Hyderabad.
ORDER
PER SAKTIJIT DEY, J.M.
These four appeals both by Assessee and Department are against separate orders of Ld. CIT(A),
Vijayawada, pertaining to A.Ys. 2007-08, 2008-09 and 2009- 2010. While there are cross-appeals for A.Y. 2007-08, appeals for A.Y. 2008-09 and 2009-2010 are by assessee alone. As the issues involved in all these appeals are common and inter- linked, they have been clubbed together and taken-up for disposal in this consolidated order for the sake of convenience.
ITA.No.344/Hyd/2012 (A.Y. 2007-08 Assessee's Appeal) :
2. Assessee has raised the following three grounds.
As can be seen ground Nos. 1 and 3 are on the common issue of disallowance of deduction claimed under section 80IA amounting to Rs.1,21,91,833 in respect of profit derived from wind mills.
2.1. Briefly the facts relevant to the aforesaid issue in dispute are, assessee a public limited company is engaged in the business of manufacture and sale of chemicals and pesticides as well as generation of power through wind mills. For the assessment year under consideration, assessee filed its return of income on 21.08.2007 declaring total income of Rs.1,63,96,296 after claiming deduction of Rs.7,43,57,454 under normal provisions and book profit of Rs.13,50,21,992 under section 115JB of the Act. During the assessment proceedings, the A.O. after verifying the information available on record noticed that the assessee has claimed deduction under section 80IA of Rs.1,21,91,833 for its wind mill units.
3ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
Assessing Officer noticed that in the return of income for A.Y. 2007-08 assessee has claimed deduction under section 80IA of the Act for different wind mill units as under :
Date of Wind Mill Deduction
Commission Unit u/s.80IA.
31.03.1999 Phase-I 36,93,729
30.09.2000 Phase-II 24,62,486
30.03.2002 Phase-III 38,52,580
31.03.2005 Phase-IV 21,83,038
01.01.2007 Phase-V -NIL-
2.2. In case of unit-V, assessee admitted net loss of Rs.4,57,40,764. A.O. found that the income derived as aforesaid from different units were claimed as deduction under section 80IA despite the fact that assessee has unabsorbed losses in respect of these units. In this context, he noted that assessee had unabsorbed brought forward losses of Rs.17,93,080 and Rs.89,19,789 for A.Ys. 1999-2000 and 2000-2001 pertaining to the first wind mill unit. Second wind mill unit had unabsorbed loss of Rs.1,06,86,686 in the A.Y. 2001-2002. The third wind mill unit had unabsorbed loss of Rs.1,65,95,447 for A.Y. 2002-2003 and the 4th wind mill unit has unabsorbed loss of Rs.1,65,95,447 for the A.Y. 2005-06 and the fifth wind mill unit has unabsorbed loss of Rs.4,57,47,064 on stand alone basis.
2.3. The A.O. when found that the computation of deduction under section 80IA made by assessee is not in accordance with sub-section (5) of section 80IA, as it stood then, he proposed to disallow the deduction. The assessee objected to the proposed disallowance by stating that as the loss has already been set off against 'other income' in respective assessment years, it cannot be brought forward 4 ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
notionally and set off against the profits derived from wind mill units for the impugned assessment year. The A.O. however, did not find any merit in the contention of the assessee. He observed that the provisions of section 80IA(5) is clear and unambiguous and states that quantum of deduction under section 80IA needs to be computed as if the eligible business were the only source of income of the assessee. For this reason, the provisions for carry forward and set off of the business/depreciation losses need to be applied while computing income eligible for deduction. The A.O. therefore, following the decision taken in assessee's case in the preceding assessment years as well as the decision of the ITAT, Ahmedabad, Special Bench in the case of ACIT vs. Gold Mine Shares and Finance P. Ltd., 302 ITR 208 (AT) notionally brought forward the losses relating to different wind mill units for set off against the profits of the wind mill units for impugned assessment year. This resulted in disallowance of deduction claimed under section 80IA of the Act. Being aggrieved of such disallowance, assessee preferred appeal before the Ld. CIT(A). Ld. CIT(A) however, concurred with the view taken by the A.O. by observing as under :
"10.2. Here the appellant argued that following High Court decisions CIT vs. Merwar Oil and General Mills Ltd., (271 ITR page 33); Velayudha Swamy Spinning Mills P. Ltd., vs. ACIT; Sudan Spinning Mills P. Ltd., vs. ACIT (23 CTR 368); M. Pallonji & Co. (P) Ltd., vs. CIT (2006) 6 SOT 287 (MUM) held as similar case and the deductions are allowable. But, in the same appellant case, the Hon'ble ITAT, Hyderabad A Bench for several assessment years disallowed the appeals of the assessee and held in favour of revenue. Keeping in view of this, I respectfully follow the decision of the Hon'ble ITAT, Hyderabad A Bench, I disallow this ground of appeal since the Assessing Officer made the addition based on the earlier year assessment 5 ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
orders and the same were upheld by the Hon'ble ITAT. Hence, this ground of appeal with regard to deduction under section 80IA of Rs.1,21,91,833/- is disallowed."
3. Learned A.R. submitted before us that the A.O. as well as Ld. CIT(A) were totally wrong in disallowing deduction under section 80IA of the Act by notionally bringing forward past year's losses and setting it off against the profit of the wind mills in the current year. Learned A.R. taking us through the provisions of section 80IA, as it stood before its amendment w.e.f. 01.04.2000 by Finance Act 1999, submitted, assessee is entitled for deduction of an amount of 100% of the profits and gains derived from wind mill business for the initial five assessment years and thereafter 25% of the profits from such industrial undertaking. He submitted, prior to 01.04.2000 as per sub-section (6) the assessee can claim the benefit for a period of 10 consecutive assessment years including the initial assessment year falling within a period of 12 assessment years beginning with the assessment year in which the assessee begins its operation. As per sub-section (7) the profits and gains of an eligible business which is entitled for deduction under sub-section (1), the quantum of deduction shall be computed as if such eligible business is the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made. Sub-section (12) of section 80IA defined initial assessment year as the year the unit starts its operation. Learned A.R. submitted that the aforesaid provision was amended by Finance Act, 1999 w.e.f. 01.04.2000. As per the amended provision the concept of initial assessment year was removed. Under sub-section (2) 6 ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
option was given to the assessee to claim deduction for any 10 consecutive assessment years within a block of 15 years within which the undertaking starts its operation. Thus, learned A.R. submitted, the initial assessment year after the amendment of section 80IA of the Act from 01.04.2000 cannot be said to be the assessment year in which the operation of the industrial undertaking is started, as the assessee at its own option can choose the initial assessment year and subsequent 9 assessment years within block of 15 years for claiming deduction under section 80IA. Therefore, the fiction created under section 80IA(5) operates only when the assessee exercises option of initial assessment year. The learned A.R. submitted only in case of first unit which was commissioned on 30.03.1999. The year of coming into operation could be considered to be the initial assessment year as per the un- amended section 80IA. Whereas, in case of other units, the provisions of amended section 80IA will come into effect and the deeming provision of sub-section (5) would apply only from the assessment year in which the assessee exercises its option of claiming deduction under section 80IA. Therefore, the loss arising prior to the initial assessment year cannot be brought forward notionally to the initial assessment year for set off against the profits derived from the eligible industrial undertaking.
3.1. Learned A.R. further submitted, if at all any loss can be brought forward and set off against the profits of eligible undertaking it is the loss relating to the first unit as the un-amended provisions will apply to that unit and the initial assessment year would be 1999-2000. Thus learned A.R. submitted that no notional carry forward and set off of 7 ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
loss can be made against the profit of wind mill units irrespective of the initial assessment year under the amended provisions. Learned A.R. in this context referred to the judgment of the Hon'ble Madras High Court in the case of Velayudha Swamy Spinning Mills P. Ltd., vs. ACIT 340 ITR 477 wherein the Hon'ble Madras High Court following its earlier unreported judgment held that once the assessee exercises the option of claiming deduction from a particular assessment year, then only losses of the years beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee cannot be notionally brought forward. Learned A.R. submitted, ITAT, Mumbai Bench in case of M/s. Sherie Exports vs. JCIT ITA.No.321/Mum/2012 dated 10.04.2013 also followed the aforesaid decision of the Hon'ble Madras High Court and expressed similar view. Learned A.R. also referred to the decision of ACIT vs. Gold Mine Shares and Finance P. Ltd., 113 ITD 209 (Ahd.) (S.B.) and contended that it will not apply even to the first wind mill unit as Special Bench decision has not taken into consideration, the un-reported judgment of the Hon'ble Madras High Court which was subsequently followed by the Madras High Court in the case of Velayudha Swamy Spinning Mills P. Ltd., vs. ACIT 340 ITR 477. Learned A.R. though, fairly submitted that the issue has been decided against the assessee in its own case by the ITAT, Hyderabad Bench in A.Ys. 2001-2002 to 2006-07 but the decision of the Tribunal being on wrong appreciation of fact and law, the same cannot be a binding precedence. More so, in the face of Madras High Court Judgment. Learned A.R. also relied upon the decision of ITAT, Bangalore Bench in the case of Shri Anil H. 8 ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
Lad vs. DCIT, Central Circle 2(3), Bangalore ITA.No.1262/Bang/2010 dated 07.01.2011.
4. Learned D.R. on the other hand submitted that all these arguments of the assessee have been considered by the Tribunal in the preceding assessment years and issue has been decided against the assessee. Therefore, as the issue relating to deduction under section 80IA is squarely covered in assessee's own case for the preceding assessment years, there is no reason to disturb the finding of Ld. CIT(A).
5. We have considered the submissions of the parties and perused the materials on record as well as the orders of the Revenue authorities on this issue. We have also carefully applied our mind to the decisions relied upon by the parties. As can be seen, the specific dispute arising for consideration is, whether the loss arising in earlier years and set off against other income could notionally be brought forward to subsequent assessment years and set off against the profits of the eligible business undertaking by applying the provisions of sub-section (5) of section 80IA. In this context, it is necessary to look at the relevant statutory provisions as existed prior to and post amendment effected by Finance Act, 1999 w.e.f. 01.04.2000. As can be noticed from conjoint reading of both the provisions, the most striking feature is with regard to the initial assessment year. While in the un-amended provision the initial assessment year is defined as the assessment year in which the operation of the industrial undertaking commenced. As per sub-section (2) of the amended provision, the assessee has been given an option to claim deduction under section 80IA for a period of any 10 consecutive assessment years 9 ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
within a 15 year block. However, the deeming provision under sub-section (5) remains unchanged. Sub-section (5) of section 80IA stipulates that the quantum of deduction under sub- section (1) of section 80IA is to be computed with reference to income of eligible business as if such eligible business was the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including assessment year for which the determination is to be made. It is the case of the assessee that except the first unit which commenced its operation on 30.03.1999 the amended provisions of section 80IA would apply to all other wind mill units and the initial assessment year will be the assessment year in which assessee exercised its option to claim deduction under section 80IA. Therefore, the loss arising prior to initial assessment year and which has already been set off cannot again be notionally brought forward and set off against the profit of the eligible business. In this context, it is to be noted that the Hon'ble Madras High Court in the case of Velayudha Swamy Spinning Mills P. Ltd., vs. ACIT 340 ITR 477 while dealing with this specific issue, referred to one of its unreported judgment and held as under :
"18. From reading of the above, it is clear that the eligible business were the only source of income, during the previous year relevant to initial assessment year and every subsequent assessment years. When the assessee exercises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated. It does not allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though 10 ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the set off amount and bring it notionally. Fiction created in sub-section does not contemplates to bring set off amount notionally. Fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created".
5.1. However, it is a fact on record the very same issue arising in preceding assessment years in assessee's own case came up for consideration before the ITAT, Hyderabad Bench in ITA.No.352/Hyd/2005 and others dated 21.01.2011. The Coordinate Bench taking into consideration judgment of the Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd., vs. ACIT (supra) as well as the Special Bench decision of ITAT, Ahmedabad Bench in the case of ACIT vs. Gold Mine Shares and Finance Limited 113 ITD 209, concurred with the decision of the A.O. and Ld. CIT(A) by holding as under :
"15. We have heard both the parties and perused the materials on record. In our opinion, the issue relating to computation of 80IA deduction that it has to be computed after deduction of the notional brought forward losses and depreciation of business even though they have been allowed set off against other income in earlier years has been dealt by the Special Bench in the case of ACIT Vs. Gold Mine Shares & Finance (P) Ltd. (113 ITD 209) (SB) (Ahemadabad) and decide the issue against the assessee. While delivering this order, the Special Bench considered all the arguments what the assessee has placed before us. The Tribunal also considered the judgment in the case of Mewar Oil & General Mills Ltd. (supra ) and observed that this case has not noticed the non obstante provisions of section 80I(6)/80IA(5) and, therefore, there is no discussion on this point in that decision. It would similarly, therefore, be not of any help to us. The Tribunal also considered the decision cited by the assessee in the 11 ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
case of Mohan Breweries & Distilleries Ltd. (116 ITD 241) (Chennai) (supra) and observed that what it decided in that case is that the deduction is allowed u/s 80IA for 10 out of 15 years at the option of the assessee which means any ten years not necessarily the beginning of 10 years. Finally it was observed that this case has no relevance in deciding the issue in this case of the assessee because the assessee itself had claimed deduction in the return starting from 1st year. The same is applicable in the case of Rangamma Steels & Malleables Vs. ACIT (132 TTJ 365) (Chennai) and Velayudhaswamy Spinning Mills (P) Ltd. Vs. ACIT (38 DTR 57) (Mds. ) (HC). Further, judgment of High Court though not of the jurisdictional High Court, prevails over an order of the Special Bench even though it is from the jurisdictional Bench of the Tribunal, however, where the judgment of the non jurisdictional High Court, though the only judgment on the point, has been rendered without having been informed about certain statutory provisions that are directly relevant, it is not to be followed. In our opinion, judgment of Special Bench in the case of Gold Mine Shares & Finance (P) Ltd. (113 ITD 209) (SB) (Ahemadabad) squarely applicable to the facts of the present case and applying the ratio laid down by this order of the Special Bench of this Tribunal, we inclined to decide the issue against the assessee relating to allowability of deduction u/s 80IA that in terms of provisions of u/s 80IA(5) of the IT Act, the profit from the eligible business for the purpose of determination of the quantum of deduction u/s 80IA of the Act has to be computed after deduction of the notional brought forward losses and depreciation of eligible business even though they have been allowed set off against other income in earlier years."
5.2. The same view was again reiterated by ITAT, Hyderabad Bench in assessee's own case in ITA.No.179/Hyd/2006 and others dated 14.12.2011. The Bench held as under :
"6. The Hon'ble Madras High Court has held that as initial year is not defined in S.80IA as compared to 80IB, wherein it is specifically provided that the year of commencement of business will be the initial year for the 12 ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
purpose of claiming the deduction. However, as initial year is not defined in section 80IA, the year of option has to be treated as initial assessment year for the purpose of section 80IA. The above analysis is excellent, but there is no conclusion drawn. In our opinion, what has been held by Madras High Court is that if the loss of eligible unit is pertaining to the assessment year during which the unit is not claimed to be eligible unit for deduction under section 80IA, then that loss should not be set off against the profits of the unit for the assessment year in which the unit is claimed to be eligible for deduction u/s.80IA whereas if the unit gets loses in one of the year during which the unit is claimed to be eligible for deduction u/s.80IA and in subsequent years, it gets profits then sec.80IA(5) is applicable and in those circumstances, the decision of Madras High Court is not applicable and Special Bench decision is applicable, and in consonance with the essence of the said decision, profits are first to be set off with brought forward losses and then the quantum of deduction u/s.80IA is to be computed."
5.3. It is to be further noted, in course of hearing of the present appeal when the assessee moved an application for referring the issue to Special Bench, a Division Bench of this Tribunal opined that there is no need to make a reference to the Special Bench as there is no conflict of the judgments which have been given in different factual conditions. The observations made by the learned Members are extracted hereunder for convenience :
"7. Since the facts in assessee's case are entirely different from the facts in the said case of M/s. Shevie Exports, there is no need to consider that M/s. Shevie Exports has established a different principle. At the cost of repetition, we submit that the principle of notional set off for losses while allowing deduction under section 80IA has not been differed but only the 'initial assessment year' in that case was considered. Therefore, assessee's contention that Mumbai Bench in M/s. Shevie Exports has differed with interpretation is not correct. Hon'ble Madras High Court Judgment in the case of Velayudhanswamy 13 ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
Spinning Mills (supra) which was also same principles of setting off the losses of only eligible units, was also followed in M/s. Shevie Exports on facts. We are of the opinion that there is no conflict of the judgments which are given in different fact conditions. Therefore, we are of the opinion that assessee's appeal can be heard by regular Bench and whatever principles are required to be established on the facts in each case can be followed, including that of Special Bench of the ITAT on the issue. We are of the opinion that there is no need to refer the matter to the Special Bench."
The Hon'ble President of ITAT has also accepted the aforesaid view and refused to refer the issue to Special Bench.
5.4. The Division Bench also took note of the fact that assessee's case on the relevant legal issue has already been admitted by the Hon'ble A.P. high Court. As can be seen from the aforesaid facts, the Coordinate Bench of this Tribunal in assessee's own case after considering the decision of Hon'ble Madras High Court in the case of Velayudha Swamy Spinning Mills P. Ltd., vs. ACIT (supra) as well as the decision of ITAT, Ahmedabad, Special Bench in the case of ACIT vs. Gold Mine Shares and Finance Limited has decided the issue against the assessee. It is also a fact on record that the decision taken by the Coordinate Bench has been challenged by the assessee before the Hon'ble High Court of A.P. and the appeal has been admitted and pending. In these circumstances, when the Coordinate Bench for the preceding assessment years in assessee's own case has decided the issue taking into consideration the judgment of Hon'ble Madras High Court referred to by learned A.R. and assessee's appeal against such decision is still pending before the Hon'ble jurisdictional High Court, until the decision of the Tribunal is reversed, judicial propriety and discipline require us to follow the decision taken 14 ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
by the Coordinate Bench. Following the same, we hold that assessee's claim of deduction under section 80IA is not maintainable. Accordingly, we uphold the order of the Ld. CIT(A) on this issue.
6. The next issue raised in ground No.2 is with regard to the disallowance of weighted deduction claimed under section 35(2AB) amounting to Rs.13,26,533.
6.1. Briefly stated the facts are, while examining assessee's return of income, it was noticed by the A.O. that assessee has claimed weighted deduction of Rs.13,26,533 under section 35(2AB). He however noted that though assessee has filed Form 3CL issued by DSIR, however, the said Form 3CL showing the quantum of amount spent has not been filed. Accordingly, he disallowed assessee's claim of weighted deduction. Being aggrieved, assessee challenged the same before the first appellate authority. The First Appellate Authority has also confirmed the disallowance.
6.2. Learned A.R. submitted before us that assessee has submitted the Form 3CL before the first appellate authority. However, the same has been totally ignored.
7. We have heard both the parties and perused the materials on record. Considering assessee's claim that Form 3CL containing necessary details was furnished before the first appellate authority which has not been taken into consideration before disallowing assessee's claim, we remit the matter back to the file of A.O. to verify assessee's claim and decide it accordingly. Ground No.2 of the assessee is allowed for statistical purposes.
15ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
8. In the result, ITA.No.344/Hyd/2012 of the assessee is partly allowed for statistical purposes.
ITA.No.561 & 562/Hyd/2013 - A.Y. 2008-09 & 2009-2010 (Assessee's appeals) ITA.No.499/Hyd/2012 - A.Y. 2007-2008 (Revenue Appeal)
9. The first issue, common in both the appeals of the assessee and interlinked with the only issue in the appeal of the department, is in relation to deduction claimed under section 80IB of the Act. Since the decision to be taken on this issue will have a bearing on all these appeals. It is decided as under.
10. Briefly the facts are, assessee apart from generating power through wind mill is also engaged in business of manufacture and sale of chemical and pesticides. For the purpose of its manufacturing activity, assessee had initially in the year 1954 set-up an unit at Balanagar in the State of Andhra Pradesh for manufacturing chemicals and pesticides. Subsequently, it set-up a second unit at Jammu which is eligible for deduction under section 80IB of the Act. Whereas, the Balanagar unit has no such tax exemption. For the A.Y. 2007-2008 assessee filed its return of income showing profit of Rs.10.71 crores from the Jammu unit and at the same time claimed it as deduction under section 80IB of the Act. The A.O., in the course of assessment proceedings held that the Jammu unit having been set-up by splitting up or re- construction of the existing unit at Balanagar and as well as transferring the machinery and plant of the existing unit is not eligible for deduction. Similarly, the claim of deduction for A.Ys. 2008-09 and 2009-2010 were also rejected by the A.O. 16 ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
10.1. Assessee challenged the disallowance of deduction claimed under section 80IB by preferring appeals before Ld. CIT(A) for the respective assessment years. As far as A.Y. 2007- 08 is concerned, Ld. CIT(A) after considering relevant facts and materials on record observed that the Jammu unit is a completely new unit and assessee has made substantial investment in fixed capital by installing new plant and machinery and investing in setting up the factory, building etc., Therefore, she held that as the Jammu unit is an independent and separate unit and has its own independent entity, it is eligible for deduction under section 80IB. As far as A.Y. 2008-09 is concerned, when the appeal came up for hearing before the Ld. CIT(A), assessee also took similar plea that as the Jammu unit is an independent unit, assessee is eligible for deduction under section 80IB. Assessee also brought to the notice of the Ld. CIT(A) the order passed for A.Y. 2007-08 allowing assessee's claim of deduction. Ld. CIT(A) after considering the submissions of the assessee, however, did not find any merit in the same. Ld. CIT(A) on interpreting the provisions of section 80IB of the Act, observed that the first condition which the industrial undertaking must fulfill is, it should not have been formed by splitting up or reconstruction of a business already in existence. Ld.CIT(A) after referring to certain judicial precedents including the decision of the Hon'ble Supreme Court in the case of Textile Machinery Corporation Ltd., vs. Commissioner of Income Tax 107 ITR 195 observed that even though the assessee has installed new machinery and plant and has also set up a new building at Jammu unit, however, there is no escaping from the fact that production has been split up between Balanagar unit and Jammu unit. Ld. CIT(A) observed, products having high profit 17 ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
margins which were being produced at Balanagar are now being produced at Jammu unit and production of such products at Balanagar unit is completely stopped. In this context, he referred to the turnover of certain products as mentioned by the Assessing Officer. Ld. CIT(A) referring to these specific products observed that though all the products had been manufactured and invented at Balanagar unit but the production of these products have now been shifted to Jammu unit. He noted that the sales turnover of these products had not increased. Therefore, it is not the case that Balanagar unit is not able to meet the demand for these products, necessitating setting up of additional manufacturing unit at Jammu to meet the demand. He observed, whether the unit at Jammu is entirely independent and self-sustaining is to be judged keeping in view of the fact, whether in the event of closing down of the unit of Balnaagar, the unit at Jammu will continue to survive and prosper and grow as an independent industrial undertaking? Ld. CIT(A) making a passing reference to CIT(A)'s order for A.Y. 2007-08 observed that mere presence of a functioning unit with separate machinery does not satisfy the rigor of section 80IB. Ld. CIT(A) further observed that deduction is not available only for setting up separate machinery, unit must be absolutely independent and self- sustaining. Whereas, in the case of the assessee, research and development of products is being carried out only at Balanagar unit and the Balanagar unit has patent rights over the molecules invented. Further, no facility of a separate research and development of molecules is available at Jammu. Ld. CIT(A) observed, in the business and manufacture of pesticides constant research is an extremely viable ingredient of the business and in case, the unit at Balanagar is shut down, the 18 ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
unit at Jammu would also be forced to shut down due to almost zero research and development activity in that unit. In otherwords, a very vital portion of the business is being carried out at Balanagar unit without which the unit at Jammu cannot sustain. Therefore, in the aforesaid context the Jammu unit cannot be considered as an independent and self- sustaining industrial undertaking which can survive without the backing of original unit i.e., Blanagar unit. He further observed that the marketing team, distribution net work etc., for the products manufactured are being controlled from Balanagar unit. As the business cannot be carried out without a marketing and distribution net work, since, these activities are centered at Balnaagar and if for any reason, the original business at Balanagar is to be shut down, the Jammu unit would not be able to survive on its own. The Ld. CIT(A), therefore, held that these factors clearly indicate that the production at Balnaagar unit has been split up between the old unit and the new unit at Jammu. He observed there has been no significant jump in sales turnover. Only high margin products has been shifted in terms of entire production to Jammu, while the rest of the products continue to be produced at Balanagar. Accordingly, the Ld. CIT(A) agreed with the view expressed by the A.O. that the Jammu unit has been set up through splitting-up or re-construction of the existing unit, hence, assessee is not eligible for deduction under section 80IB. Following the aforesaid view, Ld. CIT(A) also rejected assessee's claim for A.Y. 2009-2010.
11. Learned A.R. supporting the view taken by the Ld. CIT(A) in A.Y. 2007-08 and opposing the view of the Ld. CIT(A) for A.Ys. 2008-09 and 2009-10 submitted that the issue of 19 ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
eligibility to claim a deduction is to be examined in the first year of claim. The learned A.R. submitted that in the case of the assessee the initial assessment year for claiming deduction under section 80IB is A.Y. 2007-08. It was submitted, Ld. CIT(A) while examining the issue has taken into consideration all facts and materials including the enquiry conducted by the A.O. departmentally at Jammu and has given a categorical finding that the Jammu unit having been set up by making huge investment in land, building, machinery and plant etc., and being a functioning unit having its independent existence is eligible for deduction under section 80IB of the Act. Learned A.R. submitted that once such a decision has been taken after due enquiry in the initial year of claim of exemption, the Ld. CIT(A) cannot again go into the issue of eligibility in the subsequent assessment year ignoring the finding of his predecessor in the immediately preceding assessment year. The learned A.R. submitted for this reason alone the order of the Ld. CIT(A) needs to be set aside. In this context, he relied upon the decision of Hon'ble Madhya Pradesh High Court in the case of CIT vs. Bhilai Engineering Corporation P. Ltd., 133 ITR 687 (MP). Learned A.R. submitted even otherwise also the finding of the Ld. CIT(A) in A.Y. 2008-09 is factually incorrect and not borne out from record. The learned A.R. submitted, the Ld. CIT(A) has not denied the fact that the assessee has made substantial investment in land, building, machinery, plant etc., in setting up Jammu unit. He has also not disputed that the Jammu unit is an independent functioning unit and the manufacturing activity is going on. However, the Ld. CIT(A) has said that the Jammu unit has been set up by splitting up of the existing business mainly on the reason that the products manufactured by both the units are same and 20 ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
assessee has shifted manufacturing of some high profit margin products to Jammu unit by completely stopping the production of these products at Balanagar unit. The learned A.R. submitted that the aforesaid finding of the Ld. CIT(A) is factually incorrect as both the units i.e., Balanagar unit and Jammu units are producing up to their installed capacity. Learned A.R. referring to the workings containing installed capacity, production undertaken by both the units submitted that the figures from A.Y. 2004-05 to 2008-09 would clearly indicate that neither there is lower production in Balanagar unit nor decrease in sales. Learned A.R. submitted the CIT(A) while deciding the issue against the assessee for A.Y. 2008-09 has also not controverted the fact that assessee has employed large number of contract labour in its Jammu unit. Therefore, when the production of the Jammu unit has not affected the production at Balanagar unit it cannot be said that the assessee has set up the Jammu unit by splitting up the existing business at Balanagar. Learned A.R. submitted, CIT(A) has also thoroughly confused himself while applying the ratio laid down in the judgment referred to by him. Learned A.R. submitted, though in the case of Textile Machinery Corporation Ltd., the Hon'ble Supreme Court has clearly held that by establishing the new industrial undertaking assessee expands his existing business but the question is whether it is a new and identifiable undertaking separate and distinct from the existing business. Therefore, once, there is emergence of physically separate industrial unit which can exist on its own as a viable unit, then it cannot be considered to be a unit set up by splitting up or re-construction of existing business even if it is producing the same product. Learned A.R. submitted that the reliance by Ld. CIT(A) on the case of Chembra Peak 21 ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
Estates Ltd., vs. CIT 84 ITR 401 is also misplaced as the said decision was rendered by following the decision of the Hon'ble Kolkata High Court in the case of CIT vs. Textile Machinery Corporation Ltd., 80 ITR 428 which subsequently stood reversed by the Hon'ble Supreme Court in the case of Textile Machinery Corporation Ltd., vs. CIT (supra). Therefore, the view expressed by the Hon'ble Kerala High Court in the case of Chemra Peak Esates Ltd., vs. CIT 84 ITR 401 cannot be considered to be good law. The learned A.R. submitted that out of the total 70 products manufactured by assessee, 20 products are manufactured at Jammu unit whereas rest of the products are manufactured at Balanagar unit. Learned A.R. submitted, in the case of splitting up there should be reduction in production, man power etc., whereas the evidences produced as well as accounts would clearly indicate that neither the production nor man power etc., was disturbed for setting up the new unit at Jammu. The Jammu unit was set up with entire new machinery and no machinery was moved from the Balanagar unit. The installed capacity at the old unit i.e., Balanagar unit as on 01.042006 still remained at 7800 MT whereas the installed capacity of Jammu unit remained at 4400 MT as on 01.04.2006. The Balanagar unit continued to produce products and in A.Y. 2008-09 the production was 9042 MT as compared to 8529 MT in the preceding year. Therefore, there is no violation of any of the conditions mentioned in sub-section (2) of section 80IB of the Act. Learned A.R. submitted that if for business expediency the management took a decision to manufacture some of the products only at Jammu unit keeping in view the incentives declared by the State Government such decision taken by the management keeping in view the business expediency cannot 22 ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
be questioned by the department by stepping into the shoes of the businessman. Learned A.R. submitted that the allegation of the Ld. CIT(A) that Balanagar unit is developing molecules and having patent rights is totally incorrect as there is no such R & D activity in inventing molecules etc., or owning patent rights. What the unit is having is trade mark only. Learned A.R. thus submitted that the Ld. CIT(A) was totally wrong in denying assessee's claim of deduction under section 80IB of the Act.
12. Learned D.R. on the other hand submitted that as the Jammu unit is in the same line of business and is manufacturing the same products, it is not eligible for deduction under section 80IB as it has been set up by splitting up/re-construction of existing business. Learned D.R. submitted, assessee has adopted a colourable device by shifting the production of certain high profit margin products from Balanagar unit to Jammu unit for the purpose of shifting the profit base from taxable unit to exemped unit. Learned D.R. submitted view taken by the A.O. and Ld. CIT(A) in A.Ys. 2008-09 and 2009-10 is the correct view and the view expressed by Ld. CIT(A) in A.Y. 2007-08 is to be reversed.
13. We have considered the rival contentions and perused the respective orders of the revenue authorities as well as other materials on record. There is no dispute to the fact that A.Y. 2007-08 is the initial year of claim of deduction under section 80IB for the Jammu unit. As can be seen from the facts on record, the A.O. has disallowed assessee's claim of deduction in A.Ys. 2007-08 to 2009-2010, basically on the ground that Jammu unit has been set up by splitting up or 23 ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
reconstruction of a business already in existence. Ld. CIT(A) while deciding the issue in A.Y. 2007-08 had gone through the enquiry report of the Inspector of Income Tax and has concluded, as the assessee has made substantial investment in land, building, machinery, plant etc., while setting up the Jammu unit, it cannot be considered to have been set up by splitting up or reconstruction of existing business. Hence, assessee is eligible for deduction under section 80IB. However, in A.Ys. 2008-2009 and 2009-2010 Ld. CIT(A) has chosen to differ with the finding of his predecessor in A.Y. 2007-08. It is evident from the order of Ld. CIT(A) for A.Y. 2008-09, though he accepts the fact that Jammu unit has been set up after making substantial investment in land, building, plant, machinery etc., but he was of the view that as products manufacture by both the units are same, it is to be treated to have been formed by splitting-up or reconstruction of existing business. Ld. CIT(A) has held that assessee for reducing its tax burden has shifted manufacturing of certain high profit earning products from its taxable unit to exempt unit. Ld. CIT(A) has observed that mere presence of functioning unit at Jammu does not satisfy the rigor of section 80IB. According to Ld. CIT(A) for availing deduction under section 80IB the unit must be absolutely independent and self sustaining. Whereas, in assessee's case research and development activity is carried out in Balanagar unit and it is Balanagar unit which is holding patents and rights over the products. Further, he observed that management of the units are centered in Balanagar as well as marketing and distribution etc., are controlled from Balanagar. Hence, the Jammu unit cannot be considered to be an independent unit. Before, examining whether there really is a splitting up or reconstruction of existing business while 24 ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
setting up the Jammu unit, it is necessary to look into section 80IB. Sub-Sections (1) and (2) of section 80IB which are relevant for the purpose of deciding the present issue are extracted hereunder for ready reference.
"80-IB. (1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-sections (3) to [(11) [and (11A)]] (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section.
(2) This section applies to any industrial undertaking which fulfils all the following conditions, namely :--
(i) it is not formed by splitting up, or the reconstruction, of a business already in existence :
Provided that this condition shall not apply in respect of an industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section;
(ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose;
(iii) it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India :
Provided that the condition in this clause shall, in relation to a small scale industrial undertaking or an industrial undertaking referred to in sub-section (4) shall apply as if the words "not being any article or 25 ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
thing specified in the list in the Eleventh Schedule" had been omitted.
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 the machinery or plant by the assessee.
Explanation 2.--Where in the case of an industrial 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 sub-section, the condition specified therein shall be deemed to have been complied with;
(iv) in a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power."
26ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
13.1. A plain reading of the aforesaid extracted portion of section 80IB would make it clear that profit derived from an eligible business will be entitled for deduction subject to fulfillment of the conditions mentioned in sub-section (2). On going through the conditions enumerated in sub-section (2) of section 80IB vis-à-vis the findings of the A.O. and Ld. CIT(A) in A.Ys. 2008-09 and 2009-10 it would be evident that there is no dispute to the fact that assessee has fulfilled the conditions of clauses (ii), (iii) and (iv) of sub-section (2). As far as the condition imposed under clause (i) is concerned, while the A.O. as well as the Ld. CIT(A) have held that the Jammu unit has been formed by splitting up or re-construction of a business already in existence, the assessee is contesting such view of the department. Therefore, in the aforesaid factual matrix, it is to be decided whether the Jammu unit has been set up by splitting up or reconstruction of a business already in existence. In this context, it is relevant to refer to decision of the Hon'ble Supreme Court wherein the expression 'splitting up or reconstruction of a business already in existence' came up for interpretation. In case of Textile Machinery Corporation Ltd., vs. CIT (supra), the Hon'ble Supreme Court while interpreting similar expression employed under section 15C of the Income Tax Act, 1922 held as under :
"10. The assessee continues to be the same for the purpose of assessment. It has its existing business already liable to tax. It produced in the two concerned undertakings commodities different from those which it has been manufacturing or producing in its existing business. Manufacture or production of articles yielding additional profit attributable to the new outlay of capital in a separate and distinct unit is the heart of the matter, to earn benefit from the exemption of tax liability under s. 15C. Sub-s. (6) of the section also points to the same 27 ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
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 s. 15C. 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 s. 15C. 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 in one case can lay down an inexorable test to determine whether a given case comes under s. 15C or not. In order that the new undertaking can be said to be not formed out of the already existing business, there must be a new emergence of a physically separate industrial unit which may exist on its own as a viable unit. An undertaking is formed out of the existing business if the physical identity with the old unit is preserved. This has not happened here in the case of the two undertakings which are separate and distinct."
11. . . . . .... .....
"12. Sec. 15C partially exempts from tax a new industrial unit which is separate physically from the old one, the capital of which and the profits thereon are ascertainable. There is no difficulty to hold that s. 15C is applicable to an absolutely new undertaking for the first time started by an assessee. The cases which give rise to controversy are those where the old business is being carried on by the assessee and a new activity is launched by him by establishing new plants and machinery by investing substantial funds. The new activity may produce the same commodities of the old business or it 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 28 ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
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 of ten 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 s. 15C 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 s. 15C the new undertaking must be formed by reconstruction of the old business. Now, in the instant case, there is no formation of any industrial undertaking out of the existing business since that can take place only when the assets of the old business are transferred substantially to the new undertaking. There is no such transfer of assets in the two cases with which we are concerned."
13.2. Therefore, the principle which emerge from the aforesaid decision of the Hon'ble Supreme Court to determine whether there is a splitting up or reconstruction of business already in existence as lucidly explained by the Hon'ble Bombay High Court in the case of CIT-V, Pune vs. Finolex Cables Ltd., (2012) 47-I-ITCL-0637 is as under :
(i) "There must be a new undertaking where substantial investment of fresh capital is made in order to enable earning of profit attributable to that new capital;
(ii) The manufacturing or production of articles yielding additional profit attributable to a new outlay of capital in a separate and distinct unit is the heart of the matter.
(iii) The true test is not whether a new industrial undertaking connotes expansion of the existing business, but whether it is all the same a new and 29 ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
identifiable undertaking separate and distinct from the existing business.
(iv) If an undertaking can exist even after cessation of the principal business of the assessee, it cannot but be a new and separate business or undertaking;
(v) There must be a new undertaking which constitutes an integrated unit by itself.
(vi) A new unit must be set up with new plant and machinery; and
(vii) The fact that a unit produces the same commodity does not disentitle the assessee to the benefit of the deduction."
13.3. Therefore, applying the aforesaid tests as laid down in the judicial precedents, we are to examine whether the Jammu unit has been set up by splitting up or reconstruction of a business already in existence. In this context, it is to be noted that the A.O. in the initial year of claim of deduction i.e., A.Y. 2007-08 had disallowed the claim of deduction basically on the reason, Jammu unit has been formed by splitting-up or reconstruction of existing unit.
13.4. It is further evident from the record, in the course of assessment proceedings for A.Y. 2007-08, the A.O. for ascertaining the correctness of assessee's claim of deduction under section 80IB for Jammu unit has conducted enquiry through the Commissioner of Income Tax, Circle-1, Jammu. In the report of the Inspector, who conducted the enquiry physically, it was categorically stated that the Jammu unit is a functioning unit and has been set up by making huge investment in land, building, plant and machinery etc., He further stated that the manufacturing activity in Jammu unit started in March, 2006 and he also found that besides regular 30 ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
employees a large number of contract labourers are also employed. He further stated that manufacturing process was being carried out in the premises and huge automatic plant was found installed for carrying out the manufacturing process. He also observed that very little man power is required in such type of manufacturing activity. The Inspector reported that besides some regular employees like technical and administrative staff, the company has engaged number of labourers through contract labourer. Therefore, from the aforesaid enquiry conducted by the department, it is very much evident that the Jammu unit has not only been set up by the assessee by making substantial investment in land, building, plant and machinery but it is an unit having its independent existence distinct and separate from Balanagar unit. Further, it is also evident from the facts and materials on record that the Jammu unit is a self-sustaining unit having no dependence on Balanagar unit. Books of accounts have been separately maintained for Jammu unit, employees are separate, though, management may be common. In these circumstances, only because the products manufactured by both the units are same, it cannot be inferred that the Jammu unit has been formed by splitting up or reconstruction of a business already in existence.
13.5. As held by the Hon'ble Supreme Court in the case of Textile Machinery Corporation Ltd., vs. CIT (supra), a new unit may produce different products or the same products as in old unit but that cannot be a reason to deny the benefit to the assessee, if the new unit is an independent unit, distinct from the old unit. In the case on hand, the Ld. CIT(A) while upholding the denial of deduction to assessee has considered 31 ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
irrelevant materials which, in our view, has no bearing while deciding the issue whether assessee is eligible for deduction under section 80IB of the Act. On going through the assessment order as well as finding of the Ld. CIT(A) for the A.Y. 2008-09, it is clear that both the authorities were obsessed with the fact that Jammu unit is also manufacturing the same product as the Balanagar unit. Further, it is alleged by the A.O. and Ld. CIT(A) that for reducing its tax burden the assessee has shifted manufacturing of certain high profit earning products from Balanagar to Jammu unit. In our view, such inference drawn by the A.O. and Ld. CIT(A) on the basis of presumption and surmises cannot be held to be correct while considering assessee's claim of deduction. More so, when fact remains that there is neither reduction in installed capacity or production of Balanagar unit nor reduction in the numbers of employees. The evidences brought on record by assessee clearly demonstrate that not only production but sales of Balanagar unit over the years have progressively increased. Therefore, the apprehension of the Ld. CIT(A) and A.O. that the turnover of Jammu unit is at the cost of Balanagar unit or assessee has shifted the business of Balanagar unit to Jammu unit, in our view, is without any basis. Further, the allegationof the A.O. that after setting up of the Jammu unit, the profit of Balanagar unit has decreased with corresponding increase in the profit of Jammu unit, appears to be without proper appreciation of facts. Learned A.R. has proved this allegation to be incorrect by demonstrating before us that decrease in profit of Balanagar unit is due to claim of depreciation on wind mills, whereas, profit of Jammu unit also includes the excise duty refund.
32ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
13.6. As far as the allegation that assessee has started producing certain products at Jammu unit by stopping the production of the same at Balanagar unit, we are of the view that such business decision taken by the assessee cannot be questioned by the department. If the assessee being attracted with the incentives declared wants to set up a unit for manufacturing the same product it cannot be said that it is a devise adopted by the assessee to shift its profit base from taxable unit to the exemption unit. It is totally in the domain of the assessee to take a decision as a prudent businessman how to arrange his affairs within the frame work of Law. In the present case, as can be seen, assessee has not violated any of the conditions of sub-section (2) of section 80IB. When the department does not dispute the fact that the Jammu unit has been set up by making substantial investment in land, building, machinery, plant etc., and there is no transfer of machinery, plant of the old unit to the new business then it cannot be said that the new unit is formed by splitting up re- construction of old unit. The Hon'ble Supreme Court in the case of Petron Engineering Construction Pvt. Ltd., vs. CBDT 175 ITR 523 has observed that exemption provisions have to be liberally construed. In the present case, no adverse material has been brought on record either by the A.O. or Ld. CIT(A) to establish the fact that the Jammu unit was formed by splitting up or reconstruction of existing business. On the contrary, the material on record clearly indicate that the Jammu unit is an independent unit, separate and distinct from the Balanagar unit. Hence, there is no reason to hold that the assessee is not eligible for deduction under section 80IB as the Jammu unit is formed by splitting up or reconstruction of business already in existence. After, going through the facts and materials on 33 ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
record, we are of the firm view that the order passed by the Ld. CIT(A) for A.Y. 2007-08 allowing assessee's claim of deduction under section 80IB deserves to be upheld whereas, the decision taken by the Ld. CIT(A) in A.Ys. 2008-09 and 2009-10 is not the correct view. Accordingly, we set aside the impugned orders of the Ld. CIT(A) for A.Ys. 2008-09 and 2009-10 and direct the A.O. to allow assessee's claim of deduction under section 80IB of the Act.
13.7. It is relevant to note that in the grounds taken for A.Y. 2007-08 the department has alleged that assessee has transferred old machinery and plant for setting up the Jammu unit and is also engaged in manufacturing of oil. However, at the time of hearing, learned D.R. could not substantiate the aforesaid fact by bringing any material on record. Therefore, the aforesaid allegation of the department not being borne out from record deserves to be rejected. Accordingly, while we allow grounds raised by the assessee, the grounds raised by the department are dismissed in the respective appeals.
14. Ground No.3 which is common in ITA.No.561 & 562/Hyd/2013 A.Y. 2008-2009 and 2009-2010 is relating to disallowance of deduction claimed under section 80IA of the Act on the wind mill units.
15. As could be seen, this issue is similar to the issue decided by us while dealing with ground No. 1 & 3 of assessee's appeal in ITA.No.344/Hyd/2012 for A.Y. 2007-08 in the earlier part of this order. Following our decision therein referred to hereinabove, we dismiss the ground raised by the assessee.
34ITA.No.344/H/2012, 561 & 562/H/13 & ITA.No.499/H/2012 Hyderabad Chemicals Ltd., Hyderabad.
16. In the result, Appeals of the Assessee in ITA.No.344/Hyd/2012, 561 & 562/Hyd/2013 are partly allowed and appeal of the Revenue ITA.No.499/Hyd/2012 is dismissed.
Order pronounced in the open Court on 11.03.2015.
Sd/- Sd/- (P.M. JAGTAP) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, Dated 11th March, 2015 VBP/- Copy to
1. Hyderabad Chemicals Limited, APIE, 24 & 25, Balnaagar, Hyderabad - 500 037.
2. Asst. Commissioner of Income Tax, Circle 2(2), 8th Floor, I.T. Towers, A.C. Guards, Hyderabad.
3. CIT(A)-III, Hyderabad.
4. CIT-II, Hyderabad.
5. D.R. I.T.A.T. "B" Bench, Hyderabad.
6. Guard File.