The ACIT, Circle 1, JAMNAGAR V. M/s Metal Alloys Corporation, JAMNAGAR

ITA 1367/RJT/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94069 (ITAT-RAJKOT)
• Duration Of Justice: 4 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 25-05-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 30-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AVINASH KUMAR
• Assessee Lawyers: MJ RANPURA
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH , RAJKOT BEFORE SHRI SHAILEND RA K UMAR YADAV, JUDICIAL MEMBER, AND SHRI N. S. SAINI , ACCOUNTANT MEMBER . ITA. NO. 13 6 7 / RJT /20 1 0 (ASSESSMENT YEAR: 200 8 - 09 ) ASSISTANT COMMISSIONER OF INCOME - TA X, CIRCLE - 1, JAMNAGAR APPELLANT VS. M/S. METAL ALLOYS CORPORATION, PLOT NO.6 & 7, AT VILL - NAGADHI, POST - LAKHABAVAL, JAMNAGAR RESPONDENT PAN: AALFM0200F / BY APPELLANT : SHRI AVINASH KUMAR, D.R. / BY RESPONDENT : SHRI M. J. RANPURA / DATE OF HEARING : 2 7 . 0 5 .2015 / DATE OF PRONOUNCEMENT : 24 . 0 6 .201 5 ORDER PER SHAILENDR A KUMAR YADAV, J.M: TH I S APPEAL HAS BEEN FILED BY REVENU E AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) , JAMNAGAR , DATED 27 . 1 0 . 20 1 0 ON THE FOLLOWING GROUND S : I T A NO. 1367 / RJT / 1 0 , A.Y. 200 8 - 09 [ ACIT VS. M/S. METAL ALLOYS CORPORATION ] PAGE 2 1. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF RS.1,01,07,319/ - ON ACCOUNT OF DISALLOWANCE OF DEDUCTION U/S.10B OF THE ACT. 2. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE ASSESSEE FIRM CANNOT BE SAID TO HAVE CAME INTO EXISTENCE BY WAY OF SPLITTING UP OR RECONSTRUCTION OF OLD BUSINESS. 2. ISSUE BEFOR E US IS REGARDING ALLOWABILITY OF DEDUCTION U/S.10B OF THE ACT. FACTS OF THE CASE ARE THAT ASSESSEE IS A PARTNERSHIP FIRM CARRYING ON BUSINESS AS 100% EXPORT ORIENTED UNIT. FOR A.Y. 2008 - 09, ASSESSEE FILED ITS RETURN OF INCOME SHOWING GROSS TOTAL INCOME OF RS.39,09,215/ - AFTER CLAIMING DEDUCTION U/S.10B OF RS.1,01,07,319/ - . ASSESSING OFFICER DENIED THE DEDUCTION U/S.10B OF THE ACT TO THE ASSESSEE FOR FOLLOWING REASONS: I. THOUGH APPELLANT IS ASSESSED AS 100 % EOU FROM AY 2005 - 06 TO 2007 - 08 BUT ACCORDIN G TO AO THE DEDUCTION WAS FIRST CLAIMED BY THE APPELLANT IN AY 2007 - 08 AND THE SAME WAS ALLOWED MECHANICALLY AS CLAIMED. II. ACCORDING TO THE AO BECAUSE OF COMMONALITY OF PARTNERS AS THE APPELLANT FIRM'S PARTNER AND THE PARTNERS OF M/S METAL RECYCLING IN DUSTRIES (ANOTHER PARTNERSHIP FIRM WHICH WAS ALSO AN 100% EOU) THE APPELLANT FIRM IS FORMED BY THE SPLITTING UP OR THE RECONSTRUCTION OF THE BUSINESS ALREADY IN EXISTENCE OF THAT ERSTWHILE FIRM AND THEREFORE ACCORDING TO THE PROVISIONS OF SECTION 10B ((2) (II) OF THE ACT, DEDUCTION U/S 10B IS NOT ALLOWABLE. FOR THIS THE AO HAS REASONED AS UNDER - A) THE ADDRESS OF THE ERSTWHILE FIRM AND THE APPELLANT IS SAME AND THE BUSINESS IS CARRIED ON AT THE SAME PLACE. B) SOME OF PARTNERS OF THE ERSTWHILE FIRM AND S OME OF THE PARTNERS OF THE APPELLANT ARE COMMON. I T A NO. 1367 / RJT / 1 0 , A.Y. 200 8 - 09 [ ACIT VS. M/S. METAL ALLOYS CORPORATION ] PAGE 3 C) ERSTWHILE FIRM AND THE APPELLANT ARE CARRYING ON BUSINESS ON SAME PLOT OF LAND TAKEN ON LEASE FROM RELATIVES OF PARTNERS. D) APPELLANT COULD NOT PROVE THAT THE APPELLANT IS CARRYING ON BUSINESS WITH INC REASED CAPACITY OF ELECTRICITY CONNECTION AS WELL AS DIVERSIFICATION INTO NEW PRODUCTS. E) ENTRY GATE OF THE OLD UNIT ERSTWHILE FIRM AND THE APPELLANT IS SAME. F) WHOLE OF COMPOUND AND COMPOUND WALL SECURITY ROOM AND WATER CONNECTION AND ELECTRICITY C ONNECTION OF ERSTWHILE FIRM IS USED BY THE APPELLANT FIRM. G) SIX STAFF MEMBERS OF THE OLD FIRM ARE AMONGST THE STAFF MEMBERS OF THE APPELLANT. H) APPELLANT HAS PURCHASED SOME OF THE ASSETS OF THE ERSTWHILE FIRM OF RS . 7,96,915 / - . III. FURTHER THE A O RELIED ON THE DECISION OF CIT V HINDUSTAN GENERAL INDUSTRIES LIMITED 137 ITR 851, T. SATISH U PAI V CIT 11 CTR 79, CIT V ORIENT PAPERS MILLS LIMITED 94 ITR 73 CIT V GANGA SUGAR CORPORATION LIMITED 92 ITR 173. 2.1 MATTER WAS CARRIED BEFORE THE FIRST APPEL LATE AUTHORITY, WHEREIN VARIOUS CONTENTIONS WERE RAISED ON BEHALF OF ASSESSEE AS DETAILED IN PARA 5 OF THE ORDER OF CIT(A) AND HAVING CONSIDERED THE SAME CIT(A) HAS ALLOWED THE APPEAL OF ASSESSEE. SAME HAS BEEN OPPOSED ON BEHALF OF REVENUE BEFORE US INTER ALIA SUBMITTING THAT CIT(A) ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF RS.1,01,07,319/ - ON ACCOUNT OF DISALLOWANCE OF DEDUCTION U/S.10B OF THE ACT. ACCORDING TO LEARNED DEPARTMENTAL REPRESENTATIVE ORDER OF CIT(A) ON THE ISSUE BE SET ASIDE AND THAT OF ASSESSING OFFICER BE UPHELD. ON OTHER HAND, I T A NO. 1367 / RJT / 1 0 , A.Y. 200 8 - 09 [ ACIT VS. M/S. METAL ALLOYS CORPORATION ] PAGE 4 LEARNED AUTHORIZED REPRESENTATIVE SUPPORTED THE ORDER OF CIT(A) AND SUBMITTED THAT SIMILAR CLAIM HAS BEEN ALLOWED TO ASSESSEE IN A.Y. 2007 - 08. 2.2 AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATERIAL ON REC ORD, WE FIND THAT ONE OF THE REASONS GIVEN BY ASSESSING OFFICER FO R DISALLOWING DEDUCTION IS THAT IN PAST YEAR THIS DEDUCTION WAS GRANTED MECHANICALLY. WE F I ND THAT ASSESSEE IS ASSESSED TO TAX U/S.143(3) OF THE ACT FOR LAST THREE ASSESSMENT YEARS. SPECIF ICALLY IN A.Y. 2007 - 08, THIS ASPECT OF DEDUCTION WAS EXAMINED IN DETAIL BY ASSESSING OFFICER. ON VERIFICATION OF F ILE, IT WAS FOUND THAT ASSESSING OFFICER HAS PUT A DETAILED OFFICE NOTE ALLOWING CLAIM OF ASSESSEE AFTER MAKING DETAILED ENQUIRY ON ISSUE. I T SHOWS THAT IN A . Y . 2007 - 08, ASSESSING OFFICER HAS V ERIFIED THE CLAIM IN DETAIL COVERING ALL THE ASPECTS OF ISSUE SUCH AS COMMONALITY OF PARTNERS, FUNDS OF THE PARTNERSHIP, N ATURE OF BUSINESS OF THE PARTNERSHIP, NATURE OF PROCESS EMPLOYED FOR MANUFACTURIN G OF GOODS AND EVENTUALLY FINAL PRODUCTS MANUFACTURED BY BOTH THE FIRMS. T HE FIRST CONTENTION OF ASSESSING OFFICER THAT DEDUCTION WAS GRANTED MECHANICALLY AND WITHOUT VERIFYING THE FACTS WAS NOT CORRECT. D EDUCTION WAS IN FACT GRANTED TO ASSESSEE AFTER MA KING DETAILED INQUIRY RAISING QUERIES AND EXAMINING FACTS OF THE CASE. HOWEVER, IN THIS YEAR ASSESSING OFFICER HAS NOT LOOKED AT THE PREVIOUS RECORDS OF ASSESSEE AND HAS DENIED DEDUCTION TO THE ASSESSEE , WHICH WAS GRANTED IN EARLIER YEARS. THERE IS NO CHA NGE IN THE FACTS OF C ASE IN THE PRESENT ASSESSMENT YEAR. THEREFORE, ASSESSING OFFICER I T A NO. 1367 / RJT / 1 0 , A.Y. 200 8 - 09 [ ACIT VS. M/S. METAL ALLOYS CORPORATION ] PAGE 5 WAS NOT JUSTIFIED TO CHANGE ITS STAND WITHOUT THERE BEING ANY CHANGE IN THE FACTS OF CASE. 2.3 ANOTHER REASON GIVEN BY ASSESSING OFFICER IS THAT PARTNERS OF M/S . METAL RECYCLING INDUSTRIES AND ASSESSEE ARE SAME. REGARDING THIS , IT WAS FOUND THAT ASSESSEE WAS FORMED INITIALLY BY THE SAME PARTNERS OF THE FIRM , WHICH WERE PARTNERS OF M/S METAL RECYCLING INDUSTRIES AND WHEN THE LETTER OF PERMISSION WAS OBTAINE D FROM THE DG FT, THEY INDUCTED THREE MORE PARTNERS IN THE FIRM. THEREFORE, WHEN THEY STARTED CARRYING ON THE BUSINESS THERE WERE SIX PARTNERS AND ONLY SOME OF THE PARTNERS WERE PARTNERS OF M/S . METAL RECYCLING INDUSTRI ES. MERELY BECAUSE SOME OF THE PARTNERS OF THE FI RM WE RE ALSO PARTNERS IN THE NEW FIRM, IT CANNOT BE SAID THAT FIRM HAS BEEN FORMED BY SPLITTING UP OR RECONSTRUCTION OF EARLIER BUSINESS IN EXISTENCE. 2.4 ANOTHER REASON GIVEN BY ASSESSING OFFICER FOR DISALLOWANCE IN QUESTION IS THAT ASSESSEE IS CARRYING ON THE BUSINESS ON SAME OLD LEASEHOLD LAND ON WHICH METAL RECYCLING INDUSTRY WAS CARRYING ON BUSINESS AND THEREFORE, IT WA S SAME UNIT AND NOT THE NEW UNIT. IN THIS REGARD, IT WA S FOUND THAT THOUGH SOME PORTION OF ASSESSEE IS LEASE HOLD LAND WHICH WAS ALS O GIVEN ON LEASE TO M/S METAL RECYCLING INDUSTRIES. HOWEVER, ASSESSING OFFICER HAS LOST SIGHT THAT ASSESSEE T HAS PURCHASED NEW LAND AT THE COST OF RS. 23,26,653/ - AND ON WHICH CONSTRUCTION FOR THE NEW FACTORY HAS BEEN MADE OF RS . I T A NO. 1367 / RJT / 1 0 , A.Y. 200 8 - 09 [ ACIT VS. M/S. METAL ALLOYS CORPORATION ] PAGE 6 47,70,850/ - . IN THIS CONSTR UCTION, NEW MACHINERIES AND PLANT WERE INSTALLED OF RS. 5,20,22,975/ - . T HE MANUFACTURING OF A N EW PRODUCT WITH A NEW TECHNOLOGY AT AN EXISTING PLACE A FT ER TA KING FRESH APPROVALS FRO M SEZ A UTH ORI T IES DOES NOT AMOUNT TO SPLITTING UP OR RECONSTRUCTION OF AN EXISTING BUSINESS FOR THE PURPOSE OF SECTION L 0 A OF THE INCOME TAX ACT . 2.5 ASSESSING OFFICER HELD THAT THERE WERE SIX STAFF MEMBERS OF ASSESSEE, WHO WERE ALSO THE STAFF MEMBERS OF METAL RECYCLING INDUSTRIES AND THEREFORE , IT IS SPLITTING UP OR RECONSTRU CTION OF METAL RECYCLING INDUSTRY. IN A SSESSMENT ORDER , ASSESSING OFFICER HAS MENTIONED THAT NEW FIRM HAD 29 STAFF MEMBERS WHEREAS , IN CASE OF METAL RECYCLING INDUSTRIES OUT OF ITS STAFF SIX MEMBERS WERE EMPLOYED BY THE NEW FIRM. E VEN IF SOME MEMBERS OF TH E STAFF WERE COMMON TO THE OLD AND NEW UNIT, IT W OULD NOT BE A BAR ON THE ELIGIBILITY . S AME IS NOT SPLITTING UP OR RECONSTRUCTION. THEREFORE , MERELY BECAUSE ONLY 6 STAFF M EMBERS OF THE OLD FIRM WE RE EMPLOYED BY THE NEW FIRM IT COULD N OT BE SAID THAT IT IS A CASE OF SPLITTING UP OR RECONSTRUCTION OF THE EXISTING BUSINESS. 2.6 ANOTHER FACT THAT ASSESSING OFFICER TO BELIEVE THAT AS ASSESSEE HAS PURCHASED SOME OF THE FIXED ASSETS FROM METAL RECYCLING INDUSTRIES AND IT AMOUNTS TO SPLITTING UP OR RECONSTRUCTI ON OF THE EXISTING BUSINESS. IN THIS REGARD, CIT(A) OBSERVED THAT ASSESSEE HAS PURCHASED SOME OF THE ASSETS LIKE CCTV, AIR CONDITIONERS, WEIGHING SCALE, EPABX SYSTEM AND I T A NO. 1367 / RJT / 1 0 , A.Y. 200 8 - 09 [ ACIT VS. M/S. METAL ALLOYS CORPORATION ] PAGE 7 CUTTING AND ROLL ING MACHINES FOR RS. 7,96,915/ - . NOW IT IS TO BE LOOKED WHETHER THESE MACHINERIES ARE CAPABLE OF PRODUCING THE AMOUNT OF PRODUCTS THAT HAS BEEN MANUFACTURED BY ASSESSEE . WE FIND THAT M OST OF THE MACHINERIES WE RE OFFICE EQUIPMENTS, FURNITURE, AND NOT MACHINERIES WHICH C OULD BE USED FOR PRODUCTION. ASSESSEE HAS PRODUCED 133 1.304 MT OF FINISHED GOODS DURING THE YEAR. FOR THIS PRODUCTION , ASSESSEE HAS PURCHASED PLANT AND MACHINERIES WORTH MORE THAN RS 5 CRORES . MERELY, SOME OF THE MACHINERIES HAVE BEEN PURCHASED WHICH WE RE NOT AT ALL USABLE FOR PRODUCTION OF GOODS BUT MERELY AUXILIARY MACHINERY AND OFFICE EQUIPMENT . SO IT C OULD NOT BE SAID THAT I T IS A CASE OF SPLITTING UP OR RECONSTRUCTION OF EXISTING BUSINESS. T HE EXPLANATION IN SECTION L0 B (2) OF THE A CT PROVIDES THAT PROVISIONS OF EXPLANATION 1 AND EXPLANATION 2 OF SUB - S ECTION (2) OF SECTION 80 - I SHALL APPLY FOR THE PURPOSE OF CLAUSE (III) OF THIS SUB - SECTION AS THEY APPLY FOR THE PURPOSES OF CLAUSE (II) OF THAT SUB - SECTION. ACCORDING TO THESE PROVISIONS, THE U NDERTAKING CAN PURCHASE 20 % OF PLANT AND MACHINERY, WHICH AR E USED ONE . THEREFORE PURCHASE OF SOME OF THE FIXED ASSETS OF M /S. METAL RECYCLING CANNOT BE USED FOR DENYING THE BENEFIT OF DEDUCTION U/S L 0 B OF THE ACT TO ASSESSEE . 2.7 HAVING SAID SO, CIT(A) EXAMINED WHETHER THERE WAS ANY SIMILARITY BETWEEN NEW UNDERT AKING AND OLD UNDERTAKING TO HOLD THAT NEW UNIT IS SET UP BY SPLITTING UP OR RECONSTRUCTION OF EXISTING BUSINESS U NDERTAKING. WE FIND THAT HONOURABLE I T A NO. 1367 / RJT / 1 0 , A.Y. 200 8 - 09 [ ACIT VS. M/S. METAL ALLOYS CORPORATION ] PAGE 8 S UPREME C OURT IN CASE OF TEXTILE MACHINERY CORPORATION V CIT 107 ITR 195 AS UNDER: - '13. WE WILL NOW DEAL WITH THE QUESTION WHETHER THE TWO UNDERTAKINGS OF THE ASSESSEE ARE FORMED BY RECONSTRUCTION OF THE EXISTING BUSINESS. THE WORD 'RECONSTRUCTION' IS NOT DEFINED IN THE ACT BUT HAS RECEIVED JUDICIAL INTERPRETATION. IN IN RE SOUTH AFRICAN SUPPLY & COLD STORA GE CO. (1904) 2 CH 268 (CH D) BUCKLEY, I, DEALING WITH THE MEANING OF THE WORD 'RECONSTRUCTION' IN A COMPANY MATTER, OBSERVED AS FOLLOWS: 'WHAT DOES 'RECONSTRUCTION' MEAN? TO MY MIND IT MEANS THIS. AN UNDERTAKING OF SOME DEFINITE KIND IS BEING CARRIED ON, AND THE CONCLUSION IS ARRIVED AT THAT IT IS NOT DESIRABLE TO KILL THAT UNDERTAKING, BUT THAT IT IS DESIRABLE TO PRESERVE IT IN SOME FORM, AND TO DO SO, NOT BY SELLING IT TO AN OUTSIDER WHO SHALL CARRY IT ON - THAT WOULD BE A MERE SALE -- BUT IN SOME ALTERED FORM TO CONTINUE THE UNDERTAKING IN SUCH A MANNER AS THAT THE PERSONS NOW CARRYING IT ON WILL SUBSTANTIALLY CONTINUE TO CARRY IT ON. IT INVOLVES, I THIN K THAT SUBSTANTIALLY THE SAME BUSINESS SHALL BE CARRIED ON AND SUBSTANTIALLY THE SAME PERSONS SHALL CARR Y IT ON. BUT IT DOES NOT INVOLVE THAT ALL THE ASSETS SHALL PASS TO THE NEW COMPANY OR RESUSCITATED COMPANY, OR THAT ALL THE SHAREHOLDERS OF THE OLD COMPANY SHALL BE SHAREHOLDERS IN THE N EW COMPANY OR RESUSCITATED COMPANY. SUBSTANTIALLY THE BUSINESS AND THE PERSO NS INTERESTED MUST BE THE SAME. ' THIS CONCEPT OF RECONSTRUCTION WAS ACCEPTED BY THE BOMBAY HIGH COURT IN CIT VS. GAEKWAR FOAM & RUBBER CO. LTD. (1959) 35 ITR 662 (BOM) . TC25R.511 DEALING WITH S. 15C OF THE ACT. WHILE ADVERTING TO THE PASSAGE WHICH W E HAVE JUST QUOTED THE BOMBAY HIGH COURT OBSERVED AS FOLLOWS IN THE ABOVE DECISION: 'NOW FULLY APPRECIATING THE DISTINCTION WHICH COUNSEL FOR THE REVENUE HAS SOUGHT TO MAKE BETWEEN THE CASE OF A RECONSTRUCTION OF A COMPANY AND THE CASE OF RECONSTRUCTION OF A BUSINESS, THESE OBSERVATIONS, AS WE READ THEM, ARE EQUALLY ILLUMINATING IN THE CONTEXT OF RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE IN THE CASE OF A NEWLY ESTABLISHED INDUSTRIAL UNDERTAKING. ' I T A NO. 1367 / RJT / 1 0 , A.Y. 200 8 - 09 [ ACIT VS. M/S. METAL ALLOYS CORPORATION ] PAGE 9 THE DELHI HIGH COURT ALSO IN CIT VS. GANGA SUGAR CORPORATION LTD. (1973) 92 ITR 173 (DEL). TC25R. 512 A CCEPTED THE ABOVE CONCEPT OF 'RECONSTRUCTION' IN THE FOLLOWING PASSAGE. 'WE HAVE GIVEN THE MATTER OUR EARNEST CONSIDERATION AND ARE OF THE VIEW THAT IN THE RECONSTRUCTION OF A BUSINESS, AS IN THE REC ONSTRUCTION OF A COMPANY. THERE IS AN ELEMENT OF TRANSFER OF ASSETS AND OF SOME CHANGE, HOWEVER PARTIAL OR RESTRICTED IT MAY BE, OF OWNERSHIP OF THE ASSETS. THE TRANSFER, HOWEVER, NEED NOT BE OF ALL THE ASSETS. IT IS NONETHELESS IMPERATIVE THAT THERE SHOU LD BE CONTINUITY AND PRESERVATION OF THE OLD UNDERTAKING THOUGH IN AN ALTERED FORM. THE CONCEPT OF RECONSTRUCTION OF BUSINESS WOULD NOT BE ATTRACTED WHEN A COMPANY WHICH IS ALREADY RUNNING ONE INDUSTRIAL UNIT SETS UP ANOTHER INDUSTRIAL UNIT. THE NEW INDUS TRIAL UNIT WOULD NOT LOSE ITS SEPARATE AND INDEPENDENT IDENTITY EVEN THOUGH IT HAS BEEN SET UP BY A COMPANY WHICH IS ALREADY RUNNING AN INDUSTRIAL UNIT BE F ORE THE SETTING UP OF THE NEW UNIT.' 14. WE ENDORSE THE ABOVE VIEWS WITH REGARD TO RECONSTRUCTION O F BUSINESS. RECONSTRUCTION OF BUSINESS INVOLVES THE IDEA OF SUBSTANTIALLY THE SAME PERSONS CARRYING ON SUBSTANTIALLY THE SAME BUSINESS. IT IS STATED ON BEHALF OF THE REVENUE THAT THE SAME COMPANY IN THE INSTANT CASE CONTINUES TO DO THE SAME BUSINESS OF HEA VY ENGINEERING - NO MATTER CERTAIN SPARE PARTS NECESSARY AS COMPONENTS TO COMPLETION OF THE END - PRODUCT ARE NOW MANUFACTURED IN THE BUSINESS ITSELF THE FACT THAT THE ASSESSEE IS CARRYING ON THE GENERAL BUSINESS OF HEAVY ENGINEERING WILL NOT PREVENT HIM FROM SETTING UP NEW INDUSTRIAL UNDERTAKINGS AND FROM CLAIMING BENEFIT UNDER S. 15C O F THAT SECTION IS OTHERWISE APPLICABLE. HOWEVER, IN ORDER TO BE ENTITLED TO THE BENEFIT UNDER S . 15C, THE FOLLOWING FACTS HAVE TO BE ESTABLISHED BY THE ASSESSEE, SUBJECT ALWAYS TO TIME - SCHEDULE IN THE SECTION. (1) INVESTMENT OF SUBSTANTIAL FRESH CAPITAL IN THE INDUSTRIAL UNDERTAKING SET U P, (2) EMPLOYMENT OF REQUISITE LABOUR THEREIN, (3) MANUFACTURE OR PRODUCTION OF ARTICLES IN THE SAID UNDERTAKING, I T A NO. 1367 / RJT / 1 0 , A.Y. 200 8 - 09 [ ACIT VS. M/S. METAL ALLOYS CORPORATION ] PAGE 10 (4) EARNING OF PROFITS CLEARLY ATTRIBUTABLE TO THE SAID NEW UNDERTAKING , AND (5) ABOVE ALL, A SEPARATE AND DISTINCT IDENTITY OF THE INDUSTRIAL UNIT SET UP. WE MAY ADD THAT THERE IS NO BAR TO AN ASSESSEE CARRYING ON A PARTICULAR BUSINESS TO SET UP A NEW INDUSTRIAL UNDERTAKING ON ACCOUNT OF WHICH EXEMPTION OF TAX UNDER S. 15C MAY BE CLAIMED. THE LEGISLATURE HAS ADVISEDLY REFRAINED FROM INSERTING A DEFINITION OF THE WORD 'RECONSTRUCTION' IN THE ACT. INDEED, IN THE INFINITE VARIETY OF INSTANCES OF RESTRUCTURING OF INDUSTRY IN THE C OURSE OF STRIDES IN TECHNOLOGY AND OF OTHER DEVELOPMENTS, THE QUESTION HAS TO BE LEFT FOR DECISION ON THE PECULIAR FACTS OF EACH CASE. IF ANY UNDERTAKING IS NOT FORMED BY RECONSTRUCTION OF THE OLD BUSINESS THAT UNDERTAKING WILL NOT BE DENIED THE BENEFIT OF S. 15C SIMPLY BECAUSE IT GOES TO EXPAND THE GENERAL BUSINESS OF THE ASSESSEE IN SOME DIRECTIONS. AS IN THE INSTANT CASE, ONCE THE NEW INDUSTRIAL UNDERTAKINGS ARE SEPARATE AND INDEPENDENT PRODUCTION UNITS IN THE S ENSE THAT THE COMMODITIES PRODUCED OR TH E RESULTS ACHIEVED ARE COMMERCIALLY TANGIBLE PRODUCTS AND THE UNDERTAKINGS CAN BE CARRIED ON SEPARATELY WITHOUT COMPLETE ABSORPTION AND LOSING THEIR IDENTITY IN THE OLD BUSINESS, THEY ARE NOT TO BE TREATED AS BEING FORMED BY RECONSTRUCTION OF THE OLD BUSI NESS. 15. THE BUSINESS OF THE ASSESSEE IS OF HEAVY ENGINEERING. THE IWO NEW UNDERTAKINGS ARE INDEPENDENTLY PRODUCING ARTICLES WHICH MAY BE OF AID TO THE PRINCIPAL BUSINESS BUT YET THE UNDERTAKINGS ARE DISTINCT AND NOT RECONSTRUCTION OUT OF THE EXISTING B USINESS OF THE ASSESSEE. USE BY THE ASSESSEE OF THE ARTICLES PRODUCED IN ITS EXISTING BUSINESS OR THE CONCEPT OF EXPANSION ARE NOT DECISIVE TESTS IN CONSTRUING S. 15C. THE HIGH COURT IS NOT RIGHT IN HOLDING THE TWO UNDERTAKINGS AS FORMED BY R ECON STRUCTION OF THE EXISTING BUSINESS OF THE ASSESSEE . IN CASE, PRODUCTION PROCESS, FINISHED GOODS PRODUCED AND I T A NO. 1367 / RJT / 1 0 , A.Y. 200 8 - 09 [ ACIT VS. M/S. METAL ALLOYS CORPORATION ] PAGE 11 IDENTITY OF THE UNIT IS SEPARATE IT DOES NOT AMOUNT TO SPLITTING UP OR RECONSTRUCTION OF THE EXISTING BUSINESS. ASSESSEE HAS SET UP A UNIT WHICH IS ON A SMALL PART OF THE LAND USED BY THE ERSTWHILE FIRM M/S METAL RECYCLING INDUSTRIES. IT HAS FURTHER ACQUIRED THE LAND AND PUT UP A CONSTRUCTION OF FACTORY ON THAT LAND. HUGE INVESTMENT IN PLANT AND MACHINERY AS DETAILED ABOVE HAS ALSO BEEN MADE. FUNDS EMPLO YED IN NEW FIRM AS WELL AS OLD FIRM ARE ALSO NOT COMPARABLE. THE UNIT HAS ALSO OBTAINED A SEPARATE LETTER OF PER M ISSION FROM DGFT WHICH IS THE R EGULATORY BODY OVER 100 % EXPORT ORIENTED UNITS. THIS REGULATORY BODY HAS GIVEN PERMISSION TO MANUFACTURE THE G O ODS TO THE NEW UNIT AS WELL AS OLD UNDERTAKING. O LD UNIT WAS GRANTED LOP FOR PROCESSING OF MATERIAL AND SCARP AND MANUFACTURING OF INGOTS AND UNDERTAKING OF ASSESSEE WAS GRANTED LOP FOR MANUFACTURING OF OVER AND ABOVE INGOTS, NON FERROUS METAL INGOTS, BIL LETS, PIPES, RODS, TUBES, BARS, PROFILES, GRANULES, BRASS ELECTRICAL ITEMS, ACCESSORIES, PARTS, C OMPONENTS BRASS BUILDING HARDWARE, P ARTS / COMPONENTS / FITTINGS/ BRASS AUTO PARTS AND COMPONENTS, BRASS SANITARY WARES PLUMBING FITTINGS, PARTS COMPONENTS AND OTHER ARTICLES. FURTHER THE UNDERTAKING HAS DIFFERENCE IN ANNUAL PRODUCTION CAPACITY, EARLIER UNDERTAKING WAS HAVING HIGHER PRODUCTION CAPACITY OF 13500 MT PER ANNUM WHERE AS THE NEW UNIT HAS PRODUCTION CAPACITY OF 10000 MT. THIS PROVES THAT WHAT IS MANU FACTURED BY THE UNDERTAKING OF ASSESSEE WAS NOT MANUFACTURED BY METAL RECYCLING INDUSTRIES. ASSESSEE HA S ALSO DETAILED THE PRODUCTION PROCESS OF BOTH UNITS. THERE IS I T A NO. 1367 / RJT / 1 0 , A.Y. 200 8 - 09 [ ACIT VS. M/S. METAL ALLOYS CORPORATION ] PAGE 12 DIFFERENCE IN THE PRODUCTION PROCESS OF THESE UNITS. THE LIST OF CUSTOMERS OF METAL RECY CLING INDUSTRIES AND ASSESSEE HAS ALSO BEEN SUBMITTED AND IT WA S FOUND THAT THERE IS NOT A SINGLE CUSTOMER OF ASSESSEE WHO WAS PURCHASING MATERIAL FROM M/S METAL RECYCLING INDUSTRIES . THERE ARE SEPARATE LI CENSES/RE G ISTRATION AND PERMISSIONS GOVERNED BOTH THE UNITS UNDER VARIOUS STATUTORY LAWS. THIS ESTABLISHES THAT ASSESSEES UNDERTAKING IS SEPARATE; INVESTMENTS OF THE FUNDS, SEPARATE PRODUCTION FACILITIES, SEPARATE GOODS PRODUCED WITH DIFFERENT INSTALLED CAPACITIES AND SEPARATE CUSTOMERS OF THE UNIT. TH EREFORE UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE , CIT(A) WAS JUSTIFIED IN HOLDING THAT UNIT IS NOT SETUP BY SPLITTING UP OR RECONSTRUCTION OF THE EXISTING BUSINESS. MERE FACT THAT WHILE SETTING UP FACTORY A SMALL AMOUNT OF PLANT AND MACHINERY WAS TR ANSFERRED FROM PREVIOUS BUSINESS CANNOT BE BASIS TO COME CONCLUSION THAT IT IS A RECONSTRUCTION. MOREOVER, T HERE IS NO COMMONALITY IN THE BUSINESS OF UNDERTAKING OF THE M/ S . METAL RECYCLING INDUSTRY AND THE UNDERTAKING OF ASSESSEE EXCEPT THAT THREE PARTN ERS WE RE ALSO THE PARTNERS OF ASSESSEES UNDERTAKING. THIS CANNOT BE BASIS TO HOLD THAT UNDERTAKING SETUP BY ASSESSEE HAS ARISEN BECAUSE OF SPLITTING UP OR RECONSTRUCTION OF EXISTING BUSINESS OF ASSESSEE . IN VIEW OF ABOVE , CIT(A) JUSTIFIED IN HOLDING THA T NEW UNIT SET UP BY ASSESSEE IS NOT FORMED BY SPLITTING UP OR RECONSTRUCTION OF EXISTING BUSINESS AND THEREFORE DEDUCT ION U/ S . 10 B CANNOT BE DENIED TO ASSESSEE ESPECIALLY WHEN IN THE LAST YEAR , SAME WA S ALLOWED AFTER EXAMINING THE FACTS IN DETAIL AND THER E WA S NO I T A NO. 1367 / RJT / 1 0 , A.Y. 200 8 - 09 [ ACIT VS. M/S. METAL ALLOYS CORPORATION ] PAGE 13 CHANGE IN THE FACTS DURING THE YEAR. ACCORDINGLY, CIT(A) WAS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO ALLOW DEDUCTION U/S.10B TO ASSESSEE ON THE BASIS OF ASSESSED INCOME . 3 . IN THE RESULT, APPEAL FILED BY REVENUE IS DISMISSED. PRONOUN CED IN THE OPEN COURT ON THIS THE 24 TH DAY OF JUNE , 201 5 . SD/ - SD/ - (N. S. SAINI) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER RAJKOT : DATED 24 /0 5 /2015 TRUE COPY S K SI NHA COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, RAJKOT . 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT, RAJKOT I T A NO. 1367 / RJT / 1 0 , A.Y. 200 8 - 09 [ ACIT VS. M/S. METAL ALLOYS CORPORATION ] PAGE 14 STRENGTHEN PREPARATION & DELIVERY OF ORDERS IN THE ITAT 1) DATE OF TAKING DICTATION 2 7 .0 5 .2015 2) DIRECT DICTATION BY MEMBER STRAIGHT ON COMPUTER/LAPTOP/DRAGON DICTATE XXX 3) DATE OF TYPING & DRAFT ORDER PLACE BEFORE MEMBER 2 8 .05.2015 4) DATE OF CORRECTION ,, ,, 5) DATE OF FURTHER CORRECTION 24.06.2015 6) DATE OF FINAL SIGN BY MEMBERS 24.06.2015 7) ORDER UPLOADED ON 8) ORIGINAL DICTATION PAD HAS BEEN ENCLOSED IN THIS FILE 9) FINAL ORDER AND 2 ND COPY SEND TO BENCH CLERK ON