Income Tax Appellate Tribunal - Chandigarh
Yash Intenational Inc, Baddi vs Department Of Income Tax on 7 November, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH 'A' CHANDIGARH
BEFORE Ms.SUSHMA CHOWLA, JUDICIAL MEMBER
AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER
ITA No. 1012/CHD/2011
Assessment Year: 2007-08
ITO, V M/s Yash International Inc.,
Baddi (HP). Village Katha, Baddi,
Distt. Solan (HP).
PAN: AAAFY-5823B
(Appellant) (Respondent)
Appellant by : Shri N.K.Saini
Respondent : Shri Rakesh Gupta
Date of Hearing : 07.11.2012
Date of Pronouncement : 23.11.2012
ORDER
PER MEHAR SINGH, AM
The present appeal filed by the Revenue is directed against the order dated 01.08.2011 passed by the ld. CI T(A) u/s 250(6) of the Income-tax Act,1961 (in short 'the Act').
2. In this appeal, the Revenue has raised the following Grounds of Appeal:
"1. On the facts and circumstances of the case, the Ld. CIT(A) has erred in treating the assessment year 2007-08 to be the 1st year for deduction u/s 80IC as against finding of the A.O. that it is the 3rd year of deduction.
2. It is prayed that the order of the Ld CIT(A) be set-aside and that of the A.O. restored.
3. The Appellant craves leave to add any other ground of appeal which may arise at the time of hearing."
3. To start with, Ld. 'DR' referred to, the order of the CIT(Appeals),dated 01.08.2011, passed u/s 250(6) of the 2 Act, to state the factum that the impugned grounds of appeal as adjudicated by the CI T(Appeals) are the offshoot of non-consideration and non-adjudication of the ground of appeal and consequent amendment effected by the ld. CIT(Appeals) u/s 154 of the Act, to the order dated 17.1.2011, passed by his predecessor. However, it is further stated by the ld. 'DR' that there is no challenge to the impugned amendment carried out by the ld. CIT(Appeals) u/s 154 of the Act, in view of non-consideration and adjudication of Ground No.3, in the order dated 17.01.2011 passed by the CI T(Appeals) u/s 250(6) of the Act. Ld. 'DR' supported the findings of the AO, as recorded, in the order dated 30.12.2009, for the assessment year 2007-08 passed u/s 143(3) of the Act.
4. Ld. 'AR', on the other hand, supported findings of the CIT(Appeals).
5. We have perused and considered the rival submissions, facts of the case and the relevant available record. The brief and necessary facts, as culled out from the relevant records, are that the appellant is a partnership firm carrying out the manufacturing of ceiling fans, exhaust fans and commenced its manufacturing activity on 25.01.2007. The assessee appellant filed its return of income, wherein a deduction of Rs.28,15,375/- was claimed u/s 80IC of the Act. The AO rejected the books of account of the appellant assessee being not reliable and correct and applied GP rate at 12% vis-à-vis the GP rate at 22.92%, disclosed by the appellant. Consequently, an addition of Rs.49,28,454/- was made to 3 the income of the assessee on the ground of higher GP and treated the same as income from other sources. The AO, further, recorded a finding that the appellant firm is formed by splitting up of business belonging to M/s Yash Electricals, Baddi. The AO, also held and treated the relevant assessment year, as third year of claim of deduction u/s 80IC of the Act, as against the first year of deduction claimed by the assessee appellant. The findings of the AO are reproduced hereunder, with a view to providing and analyzing the same :
"The assessee vide show cause notice dated 24-12-2009 specifically asked to show cause as to why assessee firm may not be considered as Unit-ll of M/s Yash Electricals or as case of substantial expansion of M/s Yash Electricals and accordingly it is considered to be 3rd year of claim of deduction under section 80- IC (as in the case of Yash Electricals). It is apparent that the business of M/s Yash International Baddi is nothing but splitting up of the business of M/s Yash Electricals Baddi. To recapitulate, the facts are again reproduced that the partners in M/s Yash International Baddi are same as in the case of M/s Yash Electricals Baddi. The firm Yash Electricals Baddi manufactures ceiling fans, table fans, electric fans etc. for M/s Crompton Greaves. The assessee set up a new unit, new building and installed new machinery. Capital for setting up the new unit was obtained by withdrawing the capital in erstwhile firm i.e. Yash Electricals and unsecured loans from erstwhile firm. The only new partner introduced was wife of partner of erstwhile firm who did not contribute any capital except sharing of profit at the end of the year. The firm has a single customer. After the new unit was set up, the erstwhile firm stopped supplying goods within a few week. Though the erstwhile firm had contact for supply of spare parts & as guarantor for its product already supplied for thirty months from the date of supplying of products (clause 17.1 of the agreement), but the erstwhile stopped its function from 01-04-2007 and there is no infrastructure to meet such contingency thereafter. Though the new agreement was signed by the assessee firm, but the facts clearly shows that the erstwhile firm voluntarily did not continue its contract so as to shift its business to new firm, for reasons known to them. Though assessee firm have 4 done backward or forward integration but during the year under consideration, the mode of operation has remained similar to the mode of operation of erstwhile firm in the year under consideration. In this case, unity of control between the existing and the new business, even without transfer of machinery or other asset from the existing business to new business are relevant consideration for treating the new business as having been split from the existing business. The section 80IC(4) talks of splitting up of business already in existence. Business is more than the mere building or plant and machinery. It has been held in number of cases that if there is no transfer of asset from the existing undertaking to the new one, the splitting up can take place, if an integral part of business is shifted to the new unit. In the present case, the sole customer M/s Crornpton Greaves to whom all or almost all the sales of firm M/s Yash Electricals were made, was an integral part of the business of M/s Yash Electricals. The integral part of the business was shifted to M/s Yash International Inc. Baddi when this new unit was a set up. Hence, even without the transfer of plant or machinery from M/s Yash Electricals to M/s Yash International Inc. Baddi, a split up of the business of M/s Yash Electricals so as to form a new business of M/s Yash International Inc. Baddi took place. This is also fortified by the fact that almost entire capital of M/s Yash Electricals shifted to M/s Yash International Inc Baddi. The control and management of existing and new unit remained the same. The workers of M/s Yash Electricals were also shifted to the new unit. The legislature has made certain negative conditions for availing certain exemptions/deductions, and if these negative are attracted, the benefit could not be available to the assessee. For claiming deduction under section 80-IC of the IT. Act, the negative conditions are that new unit should not be formed by splitting up of a business already in existence. The reason for these negative conditions are also quite clear. The legislature, while giving incentive to promote new units has also stipulated that the contribution for the growth should come from new undertaking. Both the conditions are important, i.e. there should be a new unit involving fresh investments in plant and machinery leading to additional capacities in the national economy, as well as enhancement in gross domestic production. If only one condition i.e. a new unit is set up but there is no additional output or production or business generated or expansion, the objectives are not likely to be served. It appears that this is the reason that the prohibition on the new unit being formed by splitting up of business of an existing unit has been incorporated in section 80-IC of the IT. Act and several other deduction/exemption provisions in IT. Act. In the case of assessee, not merely investment from existing business has been made, it has merely resulting in diverting business from an old 5 unit to the new unit without enhancement of business growth of the country. It should not be misunderstood or misconstrued that the Apex court, in the case of Textile Machinery Corporation Ltd. Vs. CIT (1977) 107 ITR 195 (SC), has given judgment in favour of assessee. The Apex Court has held that, if substantially the same person(s) are doing the same business, it amounts to reconstruction and this portion of the judgment of the Apex Court is squarely applicable to the case of the assessee, though the facts were different in that case. The Hon'ble Apex Court has also held in this case that in order that the new undertaking can be said to be not formed* out of the already existing business, there must be a new mergence of a physically separate industrial unit which may exist on its own as a viable unit. Here the assessee person doing the same business, with none else than his wife as partner is manufacturing the same item to the same concern as the old concern was doing. Secondly, the new concern has taken over the only buyer of the old concern, received the capital of the old concern. It can not therefore, be said to be physically independent business in any manner. In view of the above discussion made at length in this order, it is inferred that the new proprietary concern is not intrinsically a newly established undertaking notwithstanding the fact that the assessee has purchased new machinery. Therefore, it is hereby held that the new unit of Yash International Inc. Baddi has been formed by splitting up of the existing business of M/s Yash Electricals. Deduction under section 80-1C of the l.T. Act is not available in respect of new unit. However, Yash Electricals Baddi is also availing deduction under section 80-IC of the l.T. Act and the assessment year 2007-08 was their 3rd year of claim of deduction. Therefore, it is hereby held that the claim of deduction under section 80-IC of l.T. Act in the case of assessee is also 3rd year of the claim of deduction under section 80-IC of the Act."
6. The grounds of appeal, adjudicated by ld.
CIT(Appeals), as recorded in para 4 of the impugned appellate order, is reproduced hereunder :
"4. In ground No.2 the appellant has agitated that the ld. AO was wrong in holding that the new unit of Yash International Inc. Baddi (assessee) has been formed by splitting up of the existing business of M/s Yash Electricals and further holding that the claim of deduction u/s 80IC of the Income-tax Act in the case of appellant is the 3rd year of the claim of deduction u/s 80IC of the Act."6
7. Ld. CIT(Appeals), on consideration of the submission made by the assessee appellant, including the case laws quoted by the assessee appellant, adjudicated the issue in favour of the assessee. Ld. CIT(Appeals), has discussed the judicial precedents, facts of the case, and findings of the AO in detail, to support his findings and adjudicated the issue in favour of the appellant. Consequently, it is imperative to reproduce the findings of the ld. CIT(Appeals) hereunder, with a view to appreciating the facts, issue and findings thereon, as adjudicated by the CIT(Appeals) :
"5 I have carefully considered the facts and submissions made by the Id. A.R. and perused the material on record. The Appellant during the year under consideration claimed the deduction u/s 80IC and the impugned year according to it is the first year of its claim. However, the Id. AO held that the appellant came into existence after splitting up of the business of M/s Yash Electrica/s, in the third year of its coming into existence.
5.1 From the submissions made by Id. A.R., the facts which emerge are that the present appellant started the same business of manufacturing ceiling fans which was carried on by the erstwhile firm M/s Yash Electrica/s. Further, out of three partners, the two partners in the appellant firm are the same as were in erstwhile firm M/s Yash E/ectricals. The only new partner introduced was wife of partner of erstwhile firm. It is an admitted position that the appellant has set-up a new unit, new building and installed new machinery and after the establishment of new unit the erstwhile firm stopped its functions. The appellant firm has obtained separate registration from the Himachal Pradesh State Industrial Development Corporation and Department of Industries, Solan as a small scale industry and the at Plot no 3, Behind Coco Co/a factory, Khatta village, Tehsil-Nagar, District-Solan, Baddi, HP and the erst-while firm M/s. Yash Electricals is located at opposite Sintex, village Billanwadi, Tehsil-Nagar, District-Solan, Baddi, HP. The Appellant firm had made a gross investment of Rs. 1,64,82,152/- as on March 31, 2007 in its plant and Machinery and out of the total investment of Rs.1,64,82,152/-, plant and machinery only worth Rs.2,15,631 was purchased from the erstwhile M/s. Yash Electricals which is just 1.31% of the total value of plant and machinery. The gross total investment by erstwhile Yash Electricals in 7 Plant and Machinery as on 31 March 2007 was just Rs.14,23,832/-whereas that of appellant firm was Rs. 1,64,82,152/-. Further, an investment of Rs. 10,20, OOO/- was made for. purchase of land and the appellant had also spent an amount of Rs.1,41,73,219/- towards construction of the building admeasuring about 28,000 sq.ft. During the course of hearing, the appellant also placed reliance on the following judgments:
1. Commissioner of Income Tax Vs. Ambur Co-operative Sugar Mills Ltd. (1981) 127 ITR 495 (Madras)
2. Commissioner of Income Tax Vs. Gedore tools India Private Limited (1980) 126 ITR 673 (Del)
3. Commissioner of Income Tax Vs. Ridhkeran Someni (1981) 121 ITR 668 (Pat)
4. Commissioner of Income Tax Vs. Babu Ram Ramesh Chand (1991) 190 ITR 535 (All.)
5. Commissioner of Income Tax Vs. Kamani Engineering Corporation Limited (1986) 161 ITR 473 (Bom.) 5.2 The facts of the case suggest that in the present controversy the case neither falls under the category of 'Reconstruction' nor under the category of 'Splitting up' although the entity is a separate new undertaking with substantial investment in new plant & machinery as well as in land & building with new registration and new location. The installed capacity with the new unit is 13,00,000 fans however the same was just 6,00,000 fans with the erstwhile firm. This position negates the finding of the Ld. A.O. that there is no additional output or production or business generated or expansion. As a matter fact, a unit with fresh capital investment in plant & machinery of Rs. 1.64,82,152/- and land & building of Rs. 1,51,93.219/- with production capacity of 13,00,000 fans cannot result from the 'splitting-up' or 'reconstruction' of old unit with plant & machinery worth Rs. 14,23.832/- and production capacity of 6,00,000 fans from rented premises. The capital can be arranged from any source; the only condition is that there should be substantial fresh investment in new plant and machinery.
5.3 I find force in reliance on the judgment in the case of Textile Machinery (supra) wherein while deciding the issue it was observed by the Hon'ble Apex Court in para 9 as under:
"9. Again the new undertaking must not be substantially the same old existing business. The third excluded category mentioned above is significant. Even if a new business is carried on, but by piercing the veil of the new business it is found that there is employment of the assets of the old business, the benefit will not be available.
From this it clearly follows that substantial investment of new capital is imperative.
The words "the capital employed" in the principal clause of s. 15C are significant, for fresh capital must be employed in the new undertaking claiming exemption. There must be a new undertaking were substantial investment of fresh capital must be made in order to enable earning of 8 profits attributable to that new capital." Further, the Hon'ble Apex Court in the case of Indian Aluminium Co. Ltd. (supra) held that:
'Where the new undertakings has been formed with fresh capital and investment with a motive to enhance the production capacity and expand the business, then it cannot be said that new undertakings were not new industrial units by themselves and that these units were set up side by side with the old ones and added to the respondent's total output.' In the case of Commissioner of Income Tax Vs. Ambur Co-operative Sugar Mills Ltd. (1981) 127 ITR 495 (Madras) It was held that:
"3. The Supreme court in the decision in Textile Machinery Corporation Ltd vs CIT 1977 CTR (SC) 151 : (19 7) 107 ITR 195 (SC) has pointed out that the reconstruction of a business involves the idea of substantially the same persons carrying on substantially the same business and there is an element of transfer of assets and continuity and a preservation of the old undertaking in an altered form and if the second unit set up by the appellant was a new activity launched by investing substantial funds and constituted an integrated unit employing its own labour, producing the same commodity or a different commodity, it is a new industrial undertaking and not an undertaking formed by the reconstruction of the exiting unit."
The Hon'ble Delhi High Court in the case of Commissioner of Income Tax Vs. Gedore tools India Private Limited (1980) 126 ITR 673 (Del) it was held that:
"6. Applying these principles to the present case, it is clear that the new unit has not been formed by splitting up or reconstruction of the existing business. The second unit has not derived anything from the old unit either by way of equipment or by way of factory buildings. No assets of the old unit has been transferred to the new unit nor has the identity of first unit being impaired in any way. The mere fact that the second unit manufactures some of the items which were manufactured by the first unit, doesn't make it an integral part of the first unit. It would survive independently of the first unit. In the words of the tribunal, the new facture is a viable unit, can run by itself, and has "a separate and distinct personality".
7. But in order to avail of the exemption it is apparent that a substantial employment of new capital is imperative. Sec 80J of the Act is intended to encourage, inter-alia, the setting up of new industrial undertakings. This is obviously with a view to expand industry, employment opportunities and production of goods. The section provides for a deduction from the profit and gains derived from the new industrial undertaking to the extent it doesn't exceed "six per cent per annum on the capital employed in an industrial undertaking calculated in the prescribed manner. It is, therefore, clear that the employment of capital is a condition precedent to attract the exemption under s.80J of the act. However, the question posed is, must fresh capital be issued or raised by the assessee- company for the new unit or can it employ the surplus- reserves which are available with it ?
8. It would appear to us that it is not necessary for the employment of capital to be formal in the sense of actually raising the capital and putting it into a new industrial undertaking. 9 Employment of capital in a new industrial undertaking is different from the capital belonging to the assessee-company. If surplus/reserve capital is available with the assessee-company, it can utilize a specific amount of this capital for the purchase of the plant, machinery, buildings and other assets of the new undertaking. As soon as the capital is so utilized for acquiring assets for the new undertaking, it will be an employment of capital. The actual amount of capital so utilized/employed in the new undertaking would then qualify for the purpose of calculating the deduction. The utilization of definite amount of capitals appears to be contemplated in order to attract the provisions of the section. Further, as the reserves of the appellant company are distinct from the assets employed in the old unit it would not be a case of transfer of assets of the old unit or business to the new undertaking."
In the case of Commissioner of Income Tax Vs. Ridhkeran Someni (1981) 121 ITR 668 (Pat) it was held that:
"5. In our view, it is not necessary to define as to what the expression "splitting up of a business" means, it is not sufficient to indicate that, in the fact and circumstances of the case it cannot be said that the new industrial under taking of the appellant was formed the splitting up of any existing business the view of the AAC and the Tribunal is also to the same effect .It has to be observed that the partnership business carried on the name of Bihar Trading Co. was dissolved on 15th April, 1961. On the date of dissolution, the saw mill had not been completely installed or was so working at Ghorasahan. The appellant on dissolution of the partnership, had no interest in the business which have been carried on by the other partners, either individually or collectively. Thus it was a new business unconnected with the earlier business which has been carried on by the other partners either individually or collectively. Thus, it was a new business unconnected with the earlier business which was being carried on the appellant in the accounting year in question. Had the saw mill at Ghorasahan been installed and working, perhaps, the matter would have required further consideration, but, in the circumstances, it is not possible to hold that the business of the appellant amounted to the splitting of a business already in existence. In fact, the question whether the business was established on the splitting up of a business already in existence is primarily a question of fact. We do not find any error of law in the approach of the Tribunal. In the circumstances, we would answer the reference in favour of the appellant and in the affirmative. The reference is answered accordingly. The appellant will be entitled to costs. Hearing fee, Rs 200."
In the case of Commissioner of Income Tax Vs. Babu Ram Ramesh Chand (1991) 190 ITR 535 (All.) It was held that:
"5. Thereupon, the revenue applied for and obtained the present reference. So far as question No.1 is concerned, we must state straightaway that there was material on record before the tribunal justifying its finding. We have already referred to the finding of the Tribunal. A fresh piece of land was purchased, a new factory was established and new machinery was installed apart from new cold storage rooms, refrigeration units, cold dry-ing chambers and other infrastructure. All these were installed in a new premises and the manufacturing process was also different, in the Circumstances, it would we idle to say the industrial undertaking established by the appellant is formed by the reconstruction of a business already in existence or that it is using old machinery or plant may be that the partners of the appellant partnership firm, (father and sons) were 10 carrying on the business of manufacture of katha but it would be evident from the fact found by the tribunal that the industrial undertaking in question is a new one. Accordingly, we must answer question No.1 in the affirmative, i.e. in favour of the appellant and against the revenue."
Recently the Ahmedabad Bench of Income Tax Appellate Tribunal in the case of Abbas Nabi Shaikh Vs. ACIT(2010) 8 Taxmann.com 72 (Ahd. ITAT) held that:
"13. Considering all these authorities we are of the considered view that it would be a case of splitting up if process of manufacturing of corrugated boxes is divided into several activities and each activity is separately carried out or a separate and independent account thereof are kept and separate and independent transactions in respect of each activity is carried out generating profit from each activity independently and separately, which were earlier carried out in the single unit.
14. It would be a case of reconstruction if at the same place where installed or new capital is infused or certain modifications and alterations in the process for manufacturing the product is carried out and there is continuity in the activities of the business in the same industrial undertaking. But where at a new location independent of the earlier existing unit, new plant and machinery are purchased and installed, new capital is invested then it would be a case of setting up of a new unit even though for carrying out the same business. The essential difference lies in change in location and installation of new infrastructure in the form of factory building and plant and machinery, whether appellant carries out the same business or different business is not an essential ingredient to hold it is a reconstruction or not. The Revenue authorities were not justified in treating it is a case of reconstruction merely because appellant continued to carry on the same business in the new unit also. On the basis that old unit did not function or it has stopped activities may give rise to an impression that the new unit is the reconstruction of business already in existence. But carrying on the same business in the new unit is not sufficient at its own to hold that the new unit is a reconstruction of business already in existence unless location is the same and there is no installation of new plant and machinery. The old unit may stop functioning immediately or after sometime. If old unit runs parallel for sometime and thereafter it stop functioning then it is not going to make any difference. One cannot say that if old unit stops functioning immediately on the start of new unit it would be a case of reconstruction and if old unit stops functioning after a year or so after the new unit starts functioning, it will not be a case of reconstruction of business already in existence. Further, if the argument of the Ld. DR is accepted than several units where same business is carried out, would always be treated as reconstruction of a business already in existence and thus denying the benefit otherwise available to the tax payer. Therefore, carrying on the same business in the new unit or stoppage of business in the old unit can not be a criteria to hold that it is a case of reconstruction of a business already in existence."
5.4 After perusing the aforesaid judgments and facts of the case I find substantial force in the arguments of the Ld. A.R. that the present unit is a separate undertaking which can function on its own, having its own plant and machinery wherein a substantial investment was made in plant and machinery as well as in land' and building. Further, the contention of the Id. A. O. that in the present case the partners, product and customers are same is misplaced as the present unit can work independently. The objections of assessing officer does not hold good to disallow the statutory deduction by holding the relevant assessment year as 3rd year of claim of deduction under section 80IC of the I. T. Act, as against the Ist year of 11 deduction claimed by the appellant. Further, the Ld. A.O. failed to bring on record any other plausible reason to disallow the deduction. Hence, the issue has to be decided in favour of appellant and against the revenue. In the result, Ground No.2 of the original appeal is allowed."
8. We have heard the rival submissions, facts of the case and the relevant records. A bare perusal of the findings recorded by the AO, as reproduced above, reveals that at page 13 of the impugned assessment order, AO has categorically observed that the assessee set up a new unit, new building and installed new machinery. Capital for setting up new unit was obtained by withdrawing the capital in erstwhile firm i.e. Yash Electricals and unsecured loans from erstwhile firm. The new partner introduced was wife of the partner of the erstwhile firm who did not contribute any capital, except sharing of profit at the end of the year. The ld. 'AR' has himself admitted in clear terms, of setting up a new unit with new building and with newly installed machinery. The capital for setting up such units can be drawn from any source and obtaining unsecured loan from erstwhile firm is not statutorily prohibited or a taboo, in the light of the erstwhile firm and the newly established firm, being independent and distinct taxable entity, as contemplated u/s 2(31) of the Act. Therefore, the conclusion arrived at by the AO, runs contrary to his findings recorded in the impugned assessment order. Ld. AO, further, observed as "Section 80IC(4) talks of splitting up of business already in existence. The business is more than mere building or plant and machinery. It has been held in a number of cases that if there is no transf er of assets f rom existing undertaking to the ne w one, the splitting up can take place, if 12 an integral part of business is shif ted to the ne w unit." Such findings of the AO remains uncorroborated and are in the realm of surmises and conjectures, in view of the fact that no such case-law has been cited by the AO, in the impugned assessment order, supporting the same. The findings of the AO that split-up of existing unit, within the meaning of section 80IC(4) takes place, even without there being no transfer of assets from the existing undertaking to the new one. The concept of splitting-up, as contemplated u/s 80IC(4) has not been defined in the Act. However, it has been judicially determined and has its common parlance connotation. The findings of the AO, contradicts the very concept of 'splitting up', as in his opinion, 'splitting up' can take place, even when there is no transfer of asset, from the existing unit, to the new unit. It appears, AO is under confusion with concept of splitting-up and the concept of re- construction. Further, the AO has completely ignored the factual matrix of the present case, as highlighted by the CIT(Appeals), in detail, in his order, as is evident from the perusal of the relevant and operative part of his order, as extracted above. The AO, placed reliance on the decision of the Apex Court, in the case of Textile Machinery Corp. Ltd. V CI T (1997) 107 ITR 195 (S.C), wherein, as quoted by the AO, it has been held that if, substantially, the same persons are doing the same business, it amounts to re-construction and this portion of the judgement of the Apex Court is squarely applicable to the case of the assessee, though the facts are different in that case, observed by the AO. 13 However, it is interesting to note that the AO concluded that the new unit of Yash International has been formed by 'splitting up' of the existing business of M/s Yash Electricals. The case-law quoted by the assessee squarely deals with the concept of 're-construction of business' and not with the 'splitting-up' of the business. Therefore, findings of the AO, are contradictory, having regard to the ratio laid down by the Hon'ble Apex Court, in the case of Textile Machinery Corp.Ltd. (supra), and his finding that the new unit has been formed by splitting-up of the old existing unit are not supporting by such decision. However, findings of the Hon'ble Supreme Court in the said decision are reproduced hereunder :
"For re-construction of existing business, there must be transf er of the asset of the existing business to the ne w industrial undertaking. A ne w activity, launched by the assessee, by establishing ne w plants and machinery, by investing substantial f unds, may produce the same commodities of the old business or it may produce some other distinct, marketable product, even commodities which may f eed 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 ne w undertaking must be an integrated unit by itself."
8(i) The facts of the present case clearly refute the findings of the AO. A taxable entity, as defined u/s 2(31) of the Act, may own or run many undertakings, some of which may be entitled to the benefit of section 80IC and many others, may not be so entitled. In view of this, it is not possible to equate an undertaking with the taxable entity. However, 14 AO, has construed that same partners, except one, are controlling the business of the new undertaking. Such findings of the CIT(Appeals), run contrary to the provisions of section 80IC(1) read with 80IC(4)(i) of the Act, as this section speaks of 'undertaking' or 'Enterprises'. A bare perusal of section 80IC reveals that it contemplates 'undertaking' or 'enterprises' and not the taxable entity, for the purpose of eligibility u/s 80IC of the Act. The appellant firm invested an amount of Rs.1,64,82,152/-, as on 31.3.2007 in its plant & machinery and out of such total investment of Rs.1,64,82,152/-, plant & machinery, to the tune of Rs.2,15,631/- was purchased from the erstwhile M/s Yash Electricals, which constitutes merely 1.31% of the total value of plant & machinery. Such investment in the plant & machinery is in consonance with provisions of section 80IC(4) of the Act and Explanation thereunder. It is, further, added that investment under plant & machinery of the erstwhile Yash Electricals, as on 31.3.2007, stood at Rs.14,23,832/- vis-à-vis investment in plant & machinery of the new unit at Rs.1,64,82,152/-. More so, the new undertaking made an investment of Rs.10,20,000/-, for purchase of land and Rs.1,41,73,219/- for construction of the building. Further, the installed capacity of the new undertaking is at 13 lacs fans. However, installed capacity of the erstwhile firm was 6 lacs. It is, further, added that the assessee appellant had different PAN number, separate registration under the H.P. State Industrial Development Corporation and Department of Industries, Solan, as Small 15 Scale Industry at different locations of the factory site, on a different plot No.3, Behind Cocacola Factory, Khatta Village, Tehsil Nagar, Distt. Solan, besides new building, new plant & machinery and different capacity. Further, the new Undertaking has not a single customer, but different customers, as has been submitted before CI T(Appeals) by the appellant.
9. In view of the above evidences, the findings of the AO that new undertaking has been formed, by splitting-up of a business, already in existence, is purely based on, no evidence, or on surmises and conjectures and such finding of the AO, runs contrary to the very concept of 'splitting-up' and its judicial determination by various Courts, as discussed by the CIT(Appeals), in his findings. The AO, has failed to appreciate the factum, that having regard to the facts of the present case and in the light of quantum of fresh capital, investment in plant & machinery, new building, new registration number and PAN number etc., that it is not conceptually feasible that new undertaking can be formed by splitting-up of a business of the erstwhile firm. Such findings of the AO, remains unsupported by any of the judicial determination or precedents.
10. New undertaking must not be substantially the same old existing business. Substantial investment of new capital is imperative. The assessee continues to be the same for the purpose of assessment. It is, further, observed in the decision of the Hon'ble Apex Court, in Textile Machinery 16 Corp. Ltd. V CI T (S.C) (supra) that true test is whether it is all the same a new 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 section 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 existing business, if the physical identity with the old unit is preserved. Such a unit or undertaking, cannot be said to be reconstruction of old business, since there is no transfer of any assets of the old business to the new undertaking which takes place when there is re- construction of the old business. In the light of such ratio decidendi, by the Hon'ble Apex Court, if facts of the present case are contextualized, we find that the present undertaking cannot be construed even as reconstruction of the old business, much less the formation of the undertaking by splitting-up, the existing undertaking. Thus, AO has mechanically and in a casual way, cited and relied upon the case of the Hon'ble Supreme Court, completely disregarding the facts of the present case.
11. A bare perusal of the submission filed before CIT(Appeals), by appellants and the findings of the CIT(Appeals), make it clear that findings of the AO are not legally and factually tenable. Findings of the CIT(Appeals) are well reasoned, based on evidence and judicial verdicts, 17 in the matter, as discussed in his impugned order. In view of this, we are of the considered opinion that there is no infirmity in the findings of the CI T(Appeals) and, hence, the same are upheld.
12. In the result, appeal of the Revenue is dismissed.
Order pronounced in the Open Court on 23 r d
Nov.,2012.
Sd/- Sd/-
(SU0SHMA CHOWLA) (MEHAR SINGH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 23 r d Nov.,2012.
'Poonam'
Copy to:
The Appellant, The Respondent, The CI T(A), The
CIT,DR
Assistant Registrar, I TAT
Chandigarh