ITO, Baddi V. M/s Yash Intenational Inc, Baddi

ITA 1012/CHANDI/2011

• Counselvise Citation: 101221514 RSA 2011
• Duration Of Justice: 1 year(s) 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-11-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 21-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 154; 143(3)

Judgement Text

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 . CIT(A) U/S 250(6) OF THE INCOME-TAX ACT,1961 (IN SHORT 'TH E ACT'). 2. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLO WING 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 1 ST YEAR FOR DEDUCTION U/S 80IC AS AGAINST FINDING OF THE A.O. T HAT IT IS THE 3 RD 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 OTH ER GROUND OF APPEAL WHICH MAY ARISE AT THE TIME OF HEARING. 3. TO START WITH, LD. 'DR' REFERRED TO, THE ORDER O F 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 CIT(APPEALS) ARE THE O FFSHOOT OF NON-CONSIDERATION AND NON-ADJUDICATION OF THE GROUN D 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 CHA LLENGE TO THE IMPUGNED AMENDMENT CARRIED OUT BY THE LD. CIT(A PPEALS) U/S 154 OF THE ACT, IN VIEW OF NON-CONSIDERATION AN D ADJUDICATION OF GROUND NO.3, IN THE ORDER DATED 17. 01.2011 PASSED BY THE CIT(APPEALS) U/S 250(6) OF THE ACT. L D. 'DR' SUPPORTED THE FINDINGS OF THE AO, AS RECORDED, IN T HE ORDER DATED 30.12.2009, FOR THE ASSESSMENT YEAR 2007-08 P ASSED 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 SUBMISS IONS, FACTS OF THE CASE AND THE RELEVANT AVAILABLE RECORD . THE BRIEF AND NECESSARY FACTS, AS CULLED OUT FROM THE RELEVAN T RECORDS, ARE THAT THE APPELLANT IS A PARTNERSHIP FIRM CARRYI NG OUT THE MANUFACTURING OF CEILING FANS, EXHAUST FANS AND COM MENCED ITS MANUFACTURING ACTIVITY ON 25.01.2007. THE ASSE SSEE APPELLANT FILED ITS RETURN OF INCOME, WHEREIN A DED UCTION OF RS.28,15,375/- WAS CLAIMED U/S 80IC OF THE ACT. TH E AO REJECTED THE BOOKS OF ACCOUNT OF THE APPELLANT ASSE SSEE BEING NOT RELIABLE AND CORRECT AND APPLIED GP RATE AT 12% VIS--VIS THE GP RATE AT 22.92%, DISCLOSED BY THE A PPELLANT. CONSEQUENTLY, AN ADDITION OF RS.49,28,454/- WAS MAD E 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 F INDINGS OF THE AO ARE REPRODUCED HEREUNDER, WITH A VIEW TO PROVIDING AND ANALYZING THE SAME : THE ASSESSEE VIDE SHOW CAUSE NOTICE DATED 24-12-200 9 SPECIFICALLY ASKED TO SHOW CAUSE AS TO WHY ASSESSEE FIRM MAY NOT BE CONSI DERED 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 3 RD YEAR OF CLAIM OF DEDUCTION UNDER SECTION 80- IC (AS IN THE CASE OF YASH ELECTRICALS). IT IS APPA RENT THAT THE BUSINESS OF M/S YASH INTERNATIONAL BADDI IS NOTHING BUT SPLITTING U P OF THE BUSINESS OF M/S YASH ELECTRICALS BADDI. TO RECAPITULATE, THE FACTS ARE A GAIN REPRODUCED THAT THE PARTNERS IN M/S YASH INTERNATIONAL BADDI ARE SAME A S 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 GRE AVES. 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 WH O 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 ERSTWH ILE FIRM STOPPED SUPPLYING GOODS WITHIN A FEW WEEK. THOUGH THE ERSTWHILE FIRM HAD CONTACT FOR SUPPLY OF SPARE PARTS & AS GUARANTOR FOR ITS PRODUCT ALREA DY 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 T HAT 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 HAV E 4 DONE BACKWARD OR FORWARD INTEGRATION BUT DURING THE YEAR UNDER CONSIDERATION, THE MODE OF OPERATION HAS REMAINED S IMILAR TO THE MODE OF OPERATION OF ERSTWHILE FIRM IN THE YEAR UNDER CONSI DERATION. IN THIS CASE, UNITY OF CONTROL BETWEEN THE EXISTING AND THE NEW B USINESS, EVEN WITHOUT TRANSFER OF MACHINERY OR OTHER ASSET FROM THE EXIST ING BUSINESS TO NEW BUSINESS ARE RELEVANT CONSIDERATION FOR TREATING THE NEW BUS INESS AS HAVING BEEN SPLIT FROM THE EXISTING BUSINESS. THE SECTION 80IC(4) TAL KS OF SPLITTING UP OF BUSINESS ALREADY IN EXISTENCE. BUSINESS IS MORE THAN THE MER E 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 T O THE NEW UNIT. IN THE PRESENT CASE, THE SOLE CUSTOMER M/S CRORNPTON GREAVES TO WH OM ALL OR ALMOST ALL THE SALES OF FIRM M/S YASH ELECTRICALS WERE MADE, WAS AN INTE GRAL 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 S ET UP. HENCE, EVEN WITHOUT THE TRANSFER OF PLANT OR MACHINERY FROM M/S YASH ELECTR ICALS TO M/S YASH INTERNATIONAL INC. BADDI, A SPLIT UP OF THE BUSINES S 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 MANAG EMENT OF EXISTING AND NEW UNIT REMAINED THE SAME. THE WORKERS OF M/S YASH ELECTRIC ALS WERE ALSO SHIFTED TO THE NEW UNIT. THE LEGISLATURE HAS MADE CERTAIN NEGATIVE CONDITIONS FOR AVAILING CERTAIN EXEMPTIONS/DEDUCTIONS, AND IF THESE NEGATIV E ARE ATTRACTED, THE BENEFIT COULD NOT BE AVAILABLE TO THE ASSESSEE. FOR CLAIMING DEDU CTION 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 F OR THESE NEGATIVE CONDITIONS ARE ALSO QUITE CLEAR. THE LEGISLATURE, WHILE GIVING INC ENTIVE TO PROMOTE NEW UNITS HAS ALSO STIPULATED THAT THE CONTRIBUTION FOR THE GROWT H 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 TH ERE 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 U NIT HAS BEEN INCORPORATED IN SECTION 80-IC OF THE IT. ACT AND SEVERAL OTHER DEDU CTION/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 BUSINES S GROWTH OF THE COUNTRY. IT SHOULD NOT BE MISUNDERSTOOD OR MISCONSTRUED THAT TH E APEX COURT, IN THE CASE OF TEXTILE MACHINERY CORPORATION LTD. VS. CIT (1977) 1 07 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 AMOU NTS TO RECONSTRUCTION AND THIS PORTION OF THE JUDGMENT OF THE APEX COURT IS SQUARE LY APPLICABLE TO THE CASE OF THE ASSESSEE, THOUGH THE FACTS WERE DIFFERENT IN THAT C ASE. THE HON'BLE APEX COURT HAS ALSO HELD IN THIS CASE THAT IN ORDER THAT THE NEW U NDERTAKING CAN BE SAID TO BE NOT FORMED* OUT OF THE ALREADY EXISTING BUSINESS, T HERE MUST BE A NEW MERGENCE OF A PHYSICALLY SEPARATE INDUSTRIAL UNIT W HICH MAY EXIST ON ITS OWN AS A VIABLE UNIT. HERE THE ASSESSEE PERSON DOING TH E 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, RECEI VED THE CAPITAL OF THE OLD CONCERN. IT CAN NOT THEREFORE, BE SAID TO BE PHYSIC ALLY 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 TH AT THE ASSESSEE HAS PURCHASED NEW MACHINERY. THEREFORE, IT IS HEREBY HE LD THAT THE NEW UNIT OF YASH INTERNATIONAL INC. BADDI HAS BEEN FORMED BY SP LITTING UP OF THE EXISTING BUSINESS OF M/S YASH ELECTRICALS. DEDUCTION UNDER S ECTION 80-1C OF THE L.T. ACT IS NOT AVAILABLE IN RESPECT OF NEW UNIT. HOWEVE R, YASH ELECTRICALS BADDI IS ALSO AVAILING DEDUCTION UNDER SECTION 80-IC OF T HE L.T. ACT AND THE ASSESSMENT YEAR 2007-08 WAS THEIR 3 RD 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 3 RD 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 BUSINES S 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 3 RD YEAR OF THE CLAIM OF DEDUCTION U/S 80IC OF THE ACT. 6 7. LD. CIT(APPEALS), ON CONSIDERATION OF THE SUBMIS SION 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 JUDI CIAL 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 FIN DINGS OF THE LD. CIT(APPEALS) HEREUNDER, WITH A VIEW TO APPRECIATING THE FACTS, ISSUE AND FINDINGS THEREON, AS ADJUDICATED BY THE C IT(APPEALS) : 5 I HAVE CAREFULLY CONSIDERED THE FACTS AND SUBMISSIO NS MADE BY THE ID. A.R. AND PERUSED THE MATERIAL ON RECORD. THE APPELLANT D URING THE YEAR UNDER CONSIDERATION CLAIMED THE DEDUCTION U/S 80IC AND TH E 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 FACT S WHICH EMERGE ARE THAT THE PRESENT APPELLANT STARTED THE SAME BUSINES S OF MANUFACTURING CEILING FANS WHICH WAS CARRIED ON BY THE ERSTWHILE FIRM M/S YASH ELECTRICA/S. FURTHER, OUT OF THREE PARTNERS, THE TW O PARTNERS IN THE APPELLANT FIRM ARE THE SAME AS WERE IN ERSTWHILE FI RM 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 ESTABLISH MENT OF NEW UNIT THE ERSTWHILE FIRM STOPPED ITS FUNCTIONS. THE APPELLANT FIRM HAS OBTAINED SEPARATE REGISTRATION FROM THE HIMACHAL PRADESH STA TE INDUSTRIAL DEVELOPMENT CORPORATION AND DEPARTMENT OF INDUSTRIE S, SOLAN AS A SMALL SCALE INDUSTRY AND THE AT PLOT NO 3, BEHIND COCO C O/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 APPELL ANT FIRM HAD MADE A GROSS INVESTMENT OF RS. 1,64,82,152/- AS ON MARCH 3 1, 2007 IN ITS PLANT AND MACHINERY AND OUT OF THE TOTAL INVESTMENT OF RS.1,6 4,82,152/-, 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 V ALUE 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/-. FURTH ER, 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 CONSTRU CTION OF THE BUILDING ADMEASURING ABOUT 28,000 SQ.FT. DURING THE COURSE O F HEARING, THE APPELLANT ALSO PLACED RELIANCE ON THE FOLLOWING JUD GMENTS: 1. COMMISSIONER OF INCOME TAX VS. AMBUR CO-OPERATIVE S UGAR MILLS LTD. (1981) 127 ITR 495 (MADRAS) 2. COMMISSIONER OF INCOME TAX VS. GEDORE TOOLS INDIA P RIVATE LIMITED (1980) 126 ITR 673 (DEL) 3. COMMISSIONER OF INCOME TAX VS. RIDHKERAN SOMENI (19 81) 121 ITR 668 (PAT) 4. COMMISSIONER OF INCOME TAX VS. BABU RAM RAMESH CHAN D (1991) 190 ITR 535 (ALL.) 5. COMMISSIONER OF INCOME TAX VS. KAMANI ENGINEERING C ORPORATION LIMITED (1986) 161 ITR 473 (BOM.) 5.2 THE FACTS OF THE CASE SUGGEST THAT IN THE PRES ENT CONTROVERSY THE CASE NEITHER FALLS UNDER THE CATEGORY OF 'RECONSTRU CTION' 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 AN D NEW LOCATION. THE INSTALLED CAPACITY WITH THE NEW UNIT IS 13,00,000 F ANS 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 ADDITI ONAL OUTPUT OR PRODUCTION OR BUSINESS GENERATED OR EXPANSION. AS A MATTER FACT, A UNIT WITH FRESH CAPITAL INVESTMENT IN PLANT & MACHINERY OF RS. 1.6 4,82,152/- AND LAND & BUILDING OF RS. 1,51,93.219/- WITH PRODUCTION CAP ACITY OF 13,00,000 FANS CANNOT RESULT FROM THE 'SPLITTING-UP' OR 'RECON STRUCTION' OF OLD UNIT WITH PLANT & MACHINERY WORTH RS. 14,23.832/- AND PRODUC TION 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 JUDGM ENT 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 SUBSTANTI ALLY THE SAME OLD EXISTING BUSINESS. THE THIRD EXCLUDED CATEGORY MENTIONED ABOVE IS SIGNIFICANT. EVEN IF A NEW BUSINESS IS CARRIED O N, 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 NO T BE AVAILABLE. FROM THIS IT CLEARLY FOLLOWS THAT SUBSTANTIAL INVES TMENT OF NEW CAPITAL IS IMPERATIVE. THE WORDS 'THE CAPITAL EMPLOYED' IN THE PRINCIPAL C LAUSE 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 T O 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) HE LD THAT: 'WHERE THE NEW UNDERTAKINGS HAS BEEN FORMED WITH FR ESH CAPITAL AND INVESTMENT WITH A MOTIVE TO ENHANCE THE PRODUCT ION CAPACITY AND EXPAND THE BUSINESS, THEN IT CANNOT BE SAID THA T NEW UNDERTAKINGS WERE NOT NEW INDUSTRIAL UNITS BY THEMS ELVES AND THAT THESE UNITS WERE SET UP SIDE BY SIDE WITH THE OLD O NES 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 MA CHINERY CORPORATION LTD VS CIT 1977 CTR (SC) 151 : (19 7) 1 07 ITR 195 (SC) HAS POINTED OUT THAT THE RECONSTRUCTION OF A B USINESS INVOLVES THE IDEA OF SUBSTANTIALLY THE SAME PERSONS CARRYING ON SUBSTANTIALLY THE SAME BUSINESS AND THERE IS AN ELEMENT OF TRANSF ER OF ASSETS AND CONTINUITY AND A PRESERVATION OF THE OLD UNDERTAKIN G IN AN ALTERED FORM AND IF THE SECOND UNIT SET UP BY THE APPELLANT WAS A NEW ACTIVITY LAUNCHED BY INVESTING SUBSTANTIAL FUNDS AN D 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 RE CONSTRUCTION OF THE EXITING UNIT.' THE HON'BLE DELHI HIGH COURT IN THE CASE OF COMMISS IONER OF INCOME TAX VS. GEDORE TOOLS INDIA PRIVATE LIMITED (1980) 126 I TR 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 REC ONSTRUCTION OF THE EXISTING BUSINESS. THE SECOND UNIT HAS NOT DERI VED ANYTHING FROM THE OLD UNIT EITHER BY WAY OF EQUIPMENT OR BY WAY O F FACTORY BUILDINGS. NO ASSETS OF THE OLD UNIT HAS BEEN TRANS FERRED TO THE NEW UNIT NOR HAS THE IDENTITY OF FIRST UNIT BEING IMPAI RED 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 I T AN INTEGRAL PART OF THE FIRST UNIT. IT WOULD SURVIVE INDEPENDENTLY O F THE FIRST UNIT. IN THE WORDS OF THE TRIBUNAL, THE NEW FACTURE IS A VIA BLE UNIT, CAN RUN BY ITSELF, AND HAS 'A SEPARATE AND DISTINCT PERSONALITY'. 7. BUT IN ORDER TO AVAIL OF THE EXEMPTION IT IS APP ARENT THAT A SUBSTANTIAL EMPLOYMENT OF NEW CAPITAL IS IMPERATIVE . SEC 80J OF THE ACT IS INTENDED TO ENCOURAGE, INTER-ALIA, THE SETTI NG UP OF NEW INDUSTRIAL UNDERTAKINGS. THIS IS OBVIOUSLY WITH A V IEW TO EXPAND INDUSTRY, EMPLOYMENT OPPORTUNITIES AND PRODUCTION O F GOODS. THE SECTION PROVIDES FOR A DEDUCTION FROM THE PROFIT AN D GAINS DERIVED FROM THE NEW INDUSTRIAL UNDERTAKING TO THE EXTENT I T 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. HOWEV ER, THE QUESTION POSED IS, MUST FRESH CAPITAL BE ISSUED OR RAISED BY THE ASSESSEE- COMPANY FOR THE NEW UNIT OR CAN IT EMPLOY THE SURPL US- 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 UN DERTAKING. 9 EMPLOYMENT OF CAPITAL IN A NEW INDUSTRIAL UNDERTAKI NG IS DIFFERENT FROM THE CAPITAL BELONGING TO THE ASSESSEE-COMPANY. IF SURPLUS/RESERVE CAPITAL IS AVAILABLE WITH THE ASSES SEE-COMPANY, IT CAN UTILIZE A SPECIFIC AMOUNT OF THIS CAPITAL FOR T HE 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. T HE ACTUAL AMOUNT OF CAPITAL SO UTILIZED/EMPLOYED IN THE NEW UNDERTAK ING WOULD THEN QUALIFY FOR THE PURPOSE OF CALCULATING THE DEDUCTIO N. THE UTILIZATION OF DEFINITE AMOUNT OF CAPITALS APPEARS TO BE CONTEM PLATED IN ORDER TO ATTRACT THE PROVISIONS OF THE SECTION. FURTHER, AS THE RESERVES OF THE APPELLANT COMPANY ARE DISTINCT FROM THE ASSETS EMPL OYED IN THE OLD UNIT IT WOULD NOT BE A CASE OF TRANSFER OF ASSETS O F THE OLD UNIT OR BUSINESS TO THE NEW UNDERTAKING.' IN THE CASE OF COMMISSIONER OF INCOME TAX VS. RIDHK ERAN SOMENI (1981) 121 ITR 668 (PAT) IT WAS HELD THAT: '5. IN OUR VIEW, IT IS NOT NECESSARY TO DEFINE AS T O WHAT THE EXPRESSION 'SPLITTING UP OF A BUSINESS' MEANS, IT I S 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 AP PELLANT WAS FORMED THE SPLITTING UP OF ANY EXISTING BUSINESS TH E 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 O F BIHAR TRADING CO. WAS DISSOLVED ON 15 TH APRIL, 1961. ON THE DATE OF DISSOLUTION, THE SAW MILL HAD NOT BEEN COMPLETELY INSTALLED OR W AS SO WORKING AT GHORASAHAN. THE APPELLANT ON DISSOLUTION OF THE PAR TNERSHIP, 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 WHIC H HAS BEEN CARRIED ON BY THE OTHER PARTNERS EITHER INDIVIDUALL Y OR COLLECTIVELY. THUS, IT WAS A NEW BUSINESS UNCONNECTED WITH THE EA RLIER BUSINESS WHICH WAS BEING CARRIED ON THE APPELLANT IN THE ACC OUNTING YEAR IN QUESTION. HAD THE SAW MILL AT GHORASAHAN BEEN INSTA LLED AND WORKING, PERHAPS, THE MATTER WOULD HAVE REQUIRED FU RTHER 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 QUESTIO N WHETHER THE BUSINESS WAS ESTABLISHED ON THE SPLITTING UP OF A B USINESS ALREADY IN EXISTENCE IS PRIMARILY A QUESTION OF FACT. WE DO NO T FIND ANY ERROR OF LAW IN THE APPROACH OF THE TRIBUNAL. IN THE CIRC UMSTANCES, WE WOULD ANSWER THE REFERENCE IN FAVOUR OF THE APPELLA NT 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 BEFO RE THE TRIBUNAL JUSTIFYING ITS FINDING. WE HAVE ALREADY REFERRED TO THE FINDING OF THE TRIBUNAL. A FRESH PIECE OF LAND WAS PURCHASED, A NE W FACTORY WAS ESTABLISHED AND NEW MACHINERY WAS INSTALLED APART F ROM NEW COLD STORAGE ROOMS, REFRIGERATION UNITS, COLD DRY-ING CH AMBERS AND OTHER INFRASTRUCTURE. ALL THESE WERE INSTALLED IN A NEW P REMISES AND THE MANUFACTURING PROCESS WAS ALSO DIFFERENT, IN THE CI RCUMSTANCES, IT WOULD WE IDLE TO SAY THE INDUSTRIAL UNDERTAKING EST ABLISHED 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 BU T IT WOULD BE EVIDENT FROM THE FACT FOUND BY THE TRIBUNAL THAT TH E 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 APPELLAT E 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 TH E 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 INDEPEN DENT ACCOUNT THEREOF ARE KEPT AND SEPARATE AND INDEPENDENT TRANS ACTIONS IN RESPECT OF EACH ACTIVITY IS CARRIED OUT GENERATING PROFIT FROM EACH ACTIVITY INDEPENDENTLY AND SEPARATELY, WHICH WERE E ARLIER 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 MODI FICATIONS AND ALTERATIONS IN THE PROCESS FOR MANUFACTURING THE PR ODUCT IS CARRIED OUT AND THERE IS CONTINUITY IN THE ACTIVITIES OF TH E BUSINESS IN THE SAME INDUSTRIAL UNDERTAKING. BUT WHERE AT A NEW LOC ATION INDEPENDENT OF THE EARLIER EXISTING UNIT, NEW PLANT AND MACHINERY ARE PURCHASED AND INSTALLED, NEW CAPITAL IS INVESTE D 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 A PPELLANT 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 T O CARRY ON THE SAME BUSINESS IN THE NEW UNIT ALSO. ON THE BASIS TH AT 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 BUSI NESS IN THE NEW UNIT IS NOT SUFFICIENT AT ITS OWN TO HOLD THAT THE NEW UNIT IS A RECONSTRUCTION OF BUSINESS ALREADY IN EXISTENCE UNL ESS LOCATION IS THE SAME AND THERE IS NO INSTALLATION OF NEW PLANT AND MACHINERY. THE OLD UNIT MAY STOP FUNCTIONING IMMEDIATELY OR AF TER SOMETIME. IF OLD UNIT RUNS PARALLEL FOR SOMETIME AND THEREAFTER IT STOP FUNCTIONING THEN IT IS NOT GOING TO MAKE ANY DIFFER ENCE. ONE CANNOT SAY THAT IF OLD UNIT STOPS FUNCTIONING IMMEDIATELY ON THE START OF NEW UNIT IT WOULD BE A CASE OF RECONSTRUCTION AND I F OLD UNIT STOPS FUNCTIONING AFTER A YEAR OR SO AFTER THE NEW UNIT S TARTS FUNCTIONING, IT WILL NOT BE A CASE OF RECONSTRUCTION OF BUSINESS ALREADY IN EXISTENCE. FURTHER, IF THE ARGUMENT OF THE LD. DR I S ACCEPTED THAN SEVERAL UNITS WHERE SAME BUSINESS IS CARRIED OUT, W OULD 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 A LREADY IN EXISTENCE.' 5.4 AFTER PERUSING THE AFORESAID JUDGMENTS AND FAC TS 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 CONTENT ION OF THE ID. A. O. THAT IN THE PRESENT CASE THE PARTNERS, PR ODUCT AND CUSTOMERS ARE SAME IS MISPLACED AS THE PRESENT UNIT CAN WORK INDE PENDENTLY. THE OBJECTIONS OF ASSESSING OFFICER DOES NOT HOLD GOOD TO DISALLOW THE STATUTORY DEDUCTION BY HOLDING THE RELEVANT ASSESSMENT YEAR A S 3 RD 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 L D. A.O. FAILED TO BRING ON RECORD ANY OTHER PLAUSIBLE REASON TO DISALLOW T HE 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 APPE AL IS ALLOWED. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS, FACTS OF TH E CASE AND THE RELEVANT RECORDS. A BARE PERUSAL OF THE FI NDINGS RECORDED BY THE AO, AS REPRODUCED ABOVE, REVEALS TH AT AT PAGE 13 OF THE IMPUGNED ASSESSMENT ORDER, AO HAS CATEGORICALLY OBSERVED THAT THE ASSESSEE SET UP A N EW 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 UNSECUR ED LOANS FROM ERSTWHILE FIRM. THE NEW PARTNER INTRODUCED WA S WIFE OF THE PARTNER OF THE ERSTWHILE FIRM WHO DID NOT CONTR IBUTE ANY CAPITAL, EXCEPT SHARING OF PROFIT AT THE END OF THE YEAR. THE LD. 'AR' HAS HIMSELF ADMITTED IN CLEAR TERMS, OF SE TTING UP A NEW UNIT WITH NEW BUILDING AND WITH NEWLY INSTALLED MACHINERY. THE CAPITAL FOR SETTING UP SUCH UNITS C AN BE DRAWN FROM ANY SOURCE AND OBTAINING UNSECURED LOAN FROM ERSTWHILE FIRM IS NOT STATUTORILY PROHIBITED OR A T ABOO, IN THE LIGHT OF THE ERSTWHILE FIRM AND THE NEWLY ESTABLISH ED FIRM, BEING INDEPENDENT AND DISTINCT TAXABLE ENTITY, AS CONTEMPLATED U/S 2(31) OF THE ACT. THEREFORE, THE C ONCLUSION 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 MER E BUILDING OR PLANT AND MACHINERY. IT HAS BEEN HELD IN A NUMBE R OF CASES THAT IF THERE IS NO TRANSFER OF ASSETS FROM E XISTING UNDERTAKING TO THE NEW ONE, THE SPLITTING UP CAN TA KE PLACE, IF 12 AN INTEGRAL PART OF BUSINESS IS SHIFTED TO THE NEW UNIT. SUCH FINDINGS OF THE AO REMAINS UNCORROBORATED AND ARE I N THE REALM OF SURMISES AND CONJECTURES, IN VIEW OF THE F ACT THAT NO SUCH CASE-LAW HAS BEEN CITED BY THE AO, IN THE I MPUGNED ASSESSMENT ORDER, SUPPORTING THE SAME. THE FINDINGS OF THE AO THAT SPLIT-UP OF EXISTING UNIT, WITHIN THE MEANI NG OF SECTION 80IC(4) TAKES PLACE, EVEN WITHOUT THERE BEI NG 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 PARLA NCE CONNOTATION. THE FINDINGS OF THE AO, CONTRADICTS T HE VERY CONCEPT OF SPLITTING UP, AS IN HIS OPINION, SPLI TTING 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 CONC EPT OF RE- CONSTRUCTION. FURTHER, THE AO HAS COMPLETELY IGNOR ED THE FACTUAL MATRIX OF THE PRESENT CASE, AS HIGHLIGHTED BY THE CIT(APPEALS), IN DETAIL, IN HIS ORDER, AS IS EVIDEN T FROM THE PERUSAL OF THE RELEVANT AND OPERATIVE PART OF HIS O RDER, AS EXTRACTED ABOVE. THE AO, PLACED RELIANCE ON THE DE CISION OF THE APEX COURT, IN THE CASE OF TEXTILE MACHINERY CO RP. LTD. V CIT (1997) 107 ITR 195 (S.C), WHEREIN, AS QUOTED BY THE AO, IT HAS BEEN HELD THAT IF, SUBSTANTIALLY, THE SA ME PERSONS ARE DOING THE SAME BUSINESS, IT AMOUNTS TO RE-CONST RUCTION AND THIS PORTION OF THE JUDGEMENT OF THE APEX COURT IS SQUARELY APPLICABLE TO THE CASE OF THE ASSESSEE, TH OUGH THE FACTS ARE DIFFERENT IN THAT CASE, OBSERVED BY THE A O. 13 HOWEVER, IT IS INTERESTING TO NOTE THAT THE AO CONC LUDED 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 S QUARELY DEALS WITH THE CONCEPT OF RE-CONSTRUCTION OF BUSIN ESS AND NOT WITH THE SPLITTING-UP OF THE BUSINESS. THERE FORE, FINDINGS OF THE AO, ARE CONTRADICTORY, HAVING REGAR D TO THE RATIO LAID DOWN BY THE HON'BLE APEX COURT, IN THE C ASE OF TEXTILE MACHINERY CORP.LTD. (SUPRA), AND HIS FINDIN G 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 A RE REPRODUCED HEREUNDER : FOR RE-CONSTRUCTION OF EXISTING BUSINESS, THERE MU ST BE TRANSFER OF THE ASSET OF THE EXISTING BUSINESS TO T HE NEW INDUSTRIAL UNDERTAKING. A NEW ACTIVITY, LAUNCHED BY THE ASSESSEE, BY ESTABLISHING NEW PLANTS AND MACHINERY, BY INVESTING SUBSTANTIAL FUNDS, MAY PRODUCE THE SAME COMMODITIES OF THE OLD BUSINESS OR IT MAY PRODUCE S OME OTHER DISTINCT, MARKETABLE PRODUCT, EVEN COMMODITIE S WHICH MAY FEED THE OLD BUSINESS. THESE PRODUCTS MA Y BE CONSUMED BY THE ASSESSEE IN HIS OLD BUSINESS OR MAY BE SOLD IN THE OPEN MARKET, ONE THING IS CERTAIN TH AT THE NEW UNDERTAKING MUST BE AN INTEGRATED UNIT BY ITSEL F. 8(I) THE FACTS OF THE PRESENT CASE CLEARLY REFUTE T HE 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 OT HERS, MAY NOT BE SO ENTITLED. IN VIEW OF THIS, IT IS NOT POSS IBLE TO EQUATE AN UNDERTAKING WITH THE TAXABLE ENTITY. HOW EVER, 14 AO, HAS CONSTRUED THAT SAME PARTNERS, EXCEPT ONE, A RE CONTROLLING THE BUSINESS OF THE NEW UNDERTAKING. S UCH FINDINGS OF THE CIT(APPEALS), RUN CONTRARY TO THE P ROVISIONS 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 CONTEMPLATE S UNDERTAKING OR ENTERPRISES AND NOT THE TAXABLE ENTITY, FOR THE PURPOSE OF ELIGIBILITY U/S 80IC OF THE ACT. TH E 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 ERSTWH ILE 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 SECTI ON 80IC(4) OF THE ACT AND EXPLANATION THEREUNDER. IT I S, FURTHER, ADDED THAT INVESTMENT UNDER PLANT & MACHINERY OF TH E ERSTWHILE YASH ELECTRICALS, AS ON 31.3.2007, STOOD AT RS.14,23,832/- VIS--VIS INVESTMENT IN PLANT & MACH INERY OF THE NEW UNIT AT RS.1,64,82,152/-. MORE SO, THE NEW UNDERTAKING MADE AN INVESTMENT OF RS.10,20,000/-, F OR PURCHASE OF LAND AND RS.1,41,73,219/- FOR CONSTRUCT ION OF THE BUILDING. FURTHER, THE INSTALLED CAPACITY OF T HE 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, SE PARATE REGISTRATION UNDER THE H.P. STATE INDUSTRIAL DEVELO PMENT CORPORATION AND DEPARTMENT OF INDUSTRIES, SOLAN, AS SMALL 15 SCALE INDUSTRY AT DIFFERENT LOCATIONS OF THE FACTOR Y SITE, ON A DIFFERENT PLOT NO.3, BEHIND COCACOLA FACTORY, KHAT TA VILLAGE, TEHSIL NAGAR, DISTT. SOLAN, BESIDES NEW BU ILDING, NEW PLANT & MACHINERY AND DIFFERENT CAPACITY. FURT HER, THE NEW UNDERTAKING HAS NOT A SINGLE CUSTOMER, BUT DIFF ERENT CUSTOMERS, AS HAS BEEN SUBMITTED BEFORE CIT(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 F INDING OF THE AO, RUNS CONTRARY TO THE VERY CONCEPT OF SP LITTING-UP AND ITS JUDICIAL DETERMINATION BY VARIOUS COURTS, A S DISCUSSED BY THE CIT(APPEALS), IN HIS FINDINGS. TH E AO, HAS FAILED TO APPRECIATE THE FACTUM, THAT HAVING REGARD TO THE FACTS OF THE PRESENT CASE AND IN THE LIGHT OF QUANT UM OF FRESH CAPITAL, INVESTMENT IN PLANT & MACHINERY, NEW BUILDING, NEW REGISTRATION NUMBER AND PAN NUMBER ET C., THAT IT IS NOT CONCEPTUALLY FEASIBLE THAT NEW UNDER TAKING CAN BE FORMED BY SPLITTING-UP OF A BUSINESS OF THE ERST WHILE FIRM. SUCH FINDINGS OF THE AO, REMAINS UNSUPPORTED BY ANY OF THE JUDICIAL DETERMINATION OR PRECEDENTS. 10. NEW UNDERTAKING MUST NOT BE SUBSTANTIALLY THE S AME OLD EXISTING BUSINESS. SUBSTANTIAL INVESTMENT OF NE W CAPITAL IS IMPERATIVE. THE ASSESSEE CONTINUES TO BE THE SA ME FOR THE PURPOSE OF ASSESSMENT. IT IS, FURTHER, OBSERVED IN THE DECISION OF THE HON'BLE APEX COURT, IN TEXTILE MACH INERY 16 CORP. LTD. V CIT (S.C) (SUPRA) THAT TRUE TEST IS WH ETHER IT IS ALL THE SAME A NEW IDENTIFIABLE UNDERTAKING, SEPARA TE AND DISTINCT FROM THE EXISTING BUSINESS. NO PARTICULAR DECISION IN ONE CASE CAN LAY DOWN AN INEXORABLE TEST TO DETE RMINE WHETHER A GIVEN CASE COMES UNDER SECTION 15C OR NOT . IN ORDER THAT THE NEW UNDERTAKING CAN BE SAID TO BE NO T 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 UNDERTAK ING IS FORMED OUT OF EXISTING BUSINESS, IF THE PHYSICAL ID ENTITY WITH THE OLD UNIT IS PRESERVED. SUCH A UNIT OR UNDERTAK ING, CANNOT BE SAID TO BE RECONSTRUCTION OF OLD BUSINESS , SINCE THERE IS NO TRANSFER OF ANY ASSETS OF THE OLD BUSIN ESS 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 T HE PRESENT CASE ARE CONTEXTUALIZED, WE FIND THAT THE PRESENT UNDERTAKING CANNOT BE CONSTRUED EVEN AS RECONSTRUCT ION OF THE OLD BUSINESS, MUCH LESS THE FORMATION OF THE UNDERTAKING BY SPLITTING-UP, THE EXISTING UNDERTAKI NG. THUS, AO HAS MECHANICALLY AND IN A CASUAL WAY, CITE D AND RELIED UPON THE CASE OF THE HON'BLE SUPREME COURT, COMPLETELY DISREGARDING THE FACTS OF THE PRESENT CA SE. 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 V ERDICTS, 17 IN THE MATTER, AS DISCUSSED IN HIS IMPUGNED ORDER. IN VIEW OF THIS, WE ARE OF THE CONSIDERED OPINION THAT THER E IS NO INFIRMITY IN THE FINDINGS OF THE CIT(APPEALS) AND, HENCE, THE SAME ARE UPHELD. 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD NOV.,2012. SD/- SD/- (SU0SHMA CHOWLA) (MEHAR SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 23 RD NOV.,2012. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT,DR ASSISTANT REGISTRAR, ITAT CHANDIGARH