DCIT, Coimbatore V. GVG Paper Mills Limited, Udamalpet

ITA 1452/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8820 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 23-05-2016
• Court: TRIBUNAL
• Department Lawyers: A DHANANJAYAN
• Assessee Lawyers: SHIVA SRINIVAS
• Keywords: Depreciation; Cost of acquisition; Valuation report

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . . . , ! . '#'$ , % !& ' [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./ I.T.A.NO.1452/MDS/2016 / ASSESSMENT YEAR : 2011-12 THE DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 3(I/C) COIMBATORE VS. M/S GVG PAPER MILLS LTD NO.168/2 SIKKANDAR BATCHA STREET, GANDHI NAGAR UDUMALPET 642 154 [PAN AABCG 1438 N ] ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : SHRI A. DHANANJAYAN, CA /RESPONDENT BY : SHRI SHIVA SRINIV AS, JCIT / DATE OF HEARING : 01 - 0 8 - 2016 ! / DATE OF PRONOUNCEMENT : 10 - 0 8 - 2016 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-18, CHENN AI, DATED 12.2.2016 FOR ASSESSMENT YEAR 2011-12. 2. REVENUE HAS TAKEN FOUR GROUNDS OF WHICH GROUND NOS . 1 AND 4 ARE GENERAL IN NATURE AND DO NOT REQUIRE ANY SPECIFIC ADJUDICATION. ITA NO. 1452/16 :- 2 -: 3. IN GROUND NO.2, THE GRIEVANCE OF THE REVENUE IS THA T THE CIT(A) ERRED IN ALLOWING THE CLAIM OF ` 1,54,12,658/- FOR DEDUCTION U/S 80IA OF THE INCOME-TAX ACT, 1961 (THE ACT IN SHORT). 4. FACTS APROPOS ARE THAT THE ASSESSEE, ENGAGED IN TH E BUSINESS OF MANUFACTURE OF PAPER AND GENERATION OF POWER FROM WINDMILLS AND TURBO GENERATORS, FILED ITS RETURN DE CLARING AN INCOME OF `2,80,06,540/- WHICH WAS LATER REVISED TO ` 2,80,06 ,540/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD CLAIM ED DEDUCTION U/S 80IA OF THE ACT. SUCH CLAIM WAS OF ` 1,54,12,658/- FOR ITS TURBINE DIVISION AND ` 89,82,4 00/- FOR THE WINDMILL DIVISION. THE PROCESS OF MANUFACTURE UNDERT AKEN BY THE ASSESSEE INVOLVED PRODUCTION OF STEAM FOR HEATIN G THE DRYER CYLINDERS OF THE PAPER FACTORY. ASSESSEE STARTED USING FBC BOILERS AND STEAM TURBINES IN THE YEAR 2003 FOR INC REASING THE EFFICIENCY OF ITS PRODUCTION PROCESS. THE NEW PRO CESS STARTED BY THE ASSESSEE HELPED IT TO RECOVER ENERGY FROM THE STEA M THROUGH GENERATION OF POWER. THE UNIT GENERATING POWER USI NG THE STEAM, WAS CONSIDERED BY THE ASSESSEE AS A NEW UNDERTAKIN G. ASSESSEE VALUED THE POWER TO HAVE BEEN PRODUCED FROM ST EAM AT ` 2,71,66,440/-. THIS WAS CHARGED TO THE PAPER DIVIS ION AND THE PROFITS OF THE SAID DIVISION WAS DEPRESSED BY THE SAID AMOU NT, ON ACCOUNT OF ITA NO. 1452/16 :- 3 -: THIS TREATMENT. THE ASSESSING OFFICER WAS OF THE O PINION THAT THE ASSESSEE COULD NOT BE ALLOWED DEDUCTION U/S 80IA F OR THE POWER PRODUCED BY IT. AS PER THE ASSESSING OFFICER, PAPE R DIVISION USED FUELS WHICH HAD A HEAVY COST AND THE STEAM FROM THE SAID DIVISION WAS USED FOR PRODUCING THE POWER. AS PER THE ASSESSING OFFIC ER, THE EXPENDITURE ON FUELS WERE CHARGED TO THE PAPER DIVISION. THE F UEL EXPENDITURE HAVING BEEN CHARGED TO THE PAPER DIVISION, AS PER T HE ASSESSING OFFICER, THE ELECTRICITY PRODUCED USING THE STEAM ALSO BELONGED TO THE PAPER DIVISION. HE WAS OF THE OPINION THAT THE T URBINE DIVISION WAS NOTHING BUT THE RESULT OF A SPLIT UP/RECONSTRUCTION OF THE BUSINESS ALREADY IN EXISTENCE. ACCORDINGLY, THE CLAIM OF DED UCTION U/S 80IA OF ` 1,54,12,658/- WAS DISALLOWED. 5. APART FROM THE ABOVE, THE ASSESSEE HAD ALSO CLAIME D DEDUCTION UNDER THE VERY SAME SECTION FOR THE INCOM E GENERATED FROM ITS WINDMILL. THE ASSESSING OFFICER WAS OF THE OPI NION THAT SUCH DEDUCTION WHICH WAS CLAIMED UNDER SUB-SECTION(5) OF SEC. 80IA HAD TO BE WORKED OUT CONSIDERING THE WINDMILL TO BE THE ON LY SOURCE OF INCOME OF THE ASSESSEE. AS PER THE ASSESSING OFFI CER, THE LOSS WHICH WAS SUFFERED BY THE ASSESSEE FROM SUCH BUSINESS IN THE EARLIER THOUGH IT WAS SET OFF AGAINST OTHER INCOME, HAD TO BE SET OFF AGAINST THE PROFITS OF THE SAID BUSINESS FOR THE IMPUGNED A SSESSMENT YEAR. ITA NO. 1452/16 :- 4 -: THOUGH THE ASSESSEE RELIED ON THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILL S P. LTD VS ACIT 231 CTR 368, THE ASSESSING OFFICER WAS OF THE OPINI ON THAT THE ISSUE HAD STILL NOT ATTAINED FINALITY. HE DISALLOWED THE CLAIM OF ` 89,82,402/- AS WELL. 6. AGGRIEVED, THE ASSESSEE MOVED IN APPEAL BEFORE THE CIT(A). THE CIT(A) WAS OF THE OPINION THAT THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2007-08 TO 2010-11 IN I.T .A.NOS.2153 TO 2156/MDS/2013, DATED 18.12.2015, HAD CONSIDERED THE ISSUE WHETHER TURBINE DIVISION COULD BE CONSIDERED AS A SEPARATE UNDERTAKING FOR THE PURPOSE OF ALLOWING DEDUCTION U/S 80IA OF THE ACT. AS PER THE CIT(A), THE ISSUE STOOD RESOLVED IN FAVOUR OF THE ASSESSEE BY VIRTUE OF THE ABOVESAID ORDER OF THE TRIBUNAL. AS REGARDS DEDUCT ION U/S 80IA ON THE INCOME GENERATED FROM THE WINDMILL, THE CIT(A) WAS OF THE OPINION THAT THE MATTER STOOD RESOLVED IN FAVOUR OF THE ASSESSEE BY VIRTUE OF THE JUDGMENT OF THE JURISDICTIONAL HIGH C OURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS P. LTD(SUPRA). 7. NOW BEFORE US, THE LD. DR BY STRONGLY ASSAILING THE ORDER OF THE CIT(A), SUBMITTED THAT THE CLAIM OF DEDUCTION U/S 80IA IN EACH YEAR HAD TO BE CONSIDERED SEPARATELY. ACCORDING TO THE LD. DR, JUST BECAUSE SIMILAR CLAIM WAS ALLOWED IN THE EARLIER A SSESSMENT YEARS ITA NO. 1452/16 :- 5 -: WOULD NOT BE A REASON FOR ALLOWING THE CLAIM IN T HE IMPUGNED ASSESSMENT YEAR ALSO. AS PER THE LD. DR, THE QUES TION WAS NOT WHETHER THE BUSINESS OF THE TURBINE DIVISION WAS TH ROUGH RECONSTRUCTION OR SPLIT-UP. THE QUESTION WAS WHETH ER THE ASSESSEE HAD MAINTAINED SEPARATE BOOKS OF ACCOUNT FOR SUCH D IVISION AND WHETHER OTHER CONDITIONS RELEVANT TO THE ALLOWANCE OF SUCH CLAIM WERE COMPLIED WITH OR NOT. 8. IN SO FAR ALLOWANCE OF DEDUCTION U/S 80IA ON THE I NCOME GENERATED FROM WINDMILL, LD. DR SUPPORTED THE ORDE R OF THE ASSESSING OFFICER. 9. PER CONTRA, THE LD. AR SUBMITTED THAT THE QUESTION WHETHER TURBINE DIVISION COULD BE CONSIDERED AS A SEPARATE UNDERTAKING FOR THE PURPOSE OF ALLOWING DEDUCTION U/S 80IA STOOD RESOL VED IN FAVOUR OF THE ASSESSEE BY VIRTUE OF THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE (SUPRA). IN SO FAR AS THE CLAIM OF DEDUCTION U/S 80IA ON THE WINDMILL, THE LD. AR AGAIN PLACED RELIANCE ON THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING M ILLS P. LTD.(SUPRA). ITA NO. 1452/16 :- 6 -: 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. THE QUESTION WHET HER THE TURBINE DIVISION OF THE ASSESSEE COULD BE CONSIDERED SEPAR ATELY FOR CLAIMING DEDUCTION U/S 80IA OF THE ACT HAD COME UP BEFORE T HE TRIBUNAL IN THE EARLIER ASSESSMENT YEARS. AFTER CONSIDERING A PLET HORA OF DECISIONS, THE TRIBUNAL HAS HELD AS UNDER: 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE COMPANY WAS ENGAGED IN MANUFA CTURE OF PAPER AND PRODUCTION OF ELECTRICITY FROM WINDMILLS UPTO THE ASSESSMENT YEAR 2003-04. THE ASSESSEE COMPANY CONST RUCTED CO- GENERATION BUILDING DURING FINANCIAL YEARS 2003-04 TO HOUSE THE NEW TURBINE CUM BOILER UNIT TO PRODUCE STEAM AND EL ECTRICITY. THE COMPANY INVESTED F2,09,42,345/- TOWARDS CO-GEN MACH INERY AND ALSO INVESTED - IN CO-GEN BUILDING TOTALLING TOWARD S NEW UNIT. THE COMPANY ALSO RECEIVED TERM LOAN ASSISTANCE FROM LAK SHMI VILAS BANK, UDUMALPET BRANCH, FOR A SUM OF F1,20,00,000/- FOR NEW INVESTMENTS. SEPARATE BOOKS OF ACCOUNTS WERE MAINTA INED FOR THE NEW UNIT. THE UNIT STARTED OPERATION SINCE MARCH 20 03. THE YEAR WISE POWER GENERATED WAS PROVIDED TO THE ASSESSING OFFICER. THE ASSESSEE STARTED CLAIMING DEDUCTION U/S 80LA FROM A SSESSMENT YEAR 2004-05 ONWARDS WHICH WAS ACCEPTED BY THE DEPA RTMENT. THE DEPARTMENT ALLOWED 80LA DEDUCTION AS CLAIMED B Y THE ASSESSEE FOR THE ASSESSMENT YEARS 2005-06 TO 2008-0 9 UNDER SCRUTINY ASSESSMENT U/S 143(3). THE ASSESSEE COMPA NY FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 ON 28/09/2009, DECLARING TOTAL INCOME OF F6,17,71,290/- UNDER NORM AL PROVISIONS OF THE ACT. FORM NO. 10CCB - AUDIT REPORT U/S 80LA DATED 28.9.2009 WAS ALSO SUBMITTED. HOWEVER, DEDUCTION U /S 80IA WAS NOT GRANTED TO THE ASSESSEE ON THE REASON THAT IT W AS SPLITTING UP OR RECONSTRUCTION OF EXISTING BUSINESS AND THE ASSE SSEE HAS NOT ESTABLISHED ANY NEW INDUSTRIAL UNDERTAKING. ACCORDI NG TO THE ASSESSING OFFICER THE STEAM TURBINE DIVISION WAS NOT CREATED FOR GENERATING ELECTRICITY BUT TO SUPPLY STEAM TO PAPER INDUSTRY AND THE ASSESSEE HAS ARTIFICIALLY BIFURCATED A PRODUCTI ON PROCESS IN WHICH THE OLDER MACHINERY WERE REPLACED BY A NEW MA CHINERY WHICH WAS ONLY REQUIRED FOR PAPER INDUSTRY AND NOT FOR TURBINE DIVISION FOR GENERATING POWER. ACCORDING TO THE AS SESSING OFFICER THE ELECTRICITY GENERATED WAS ONLY AN INCIDENTAL ME CHANISM OF THE PAPER INDUSTRY TO SAVE THE ENERGY FROM THE STEAM WH ICH ITA NO. 1452/16 :- 7 -: OTHERWISE WOULD HAVE LOST IF THEY CONTINUE TO USE O LD BOILERS AND PRESSURE REDUCTION VALVE. THEREFORE, THE ASSETS AC QUIRED UNDER SO CALLED TURBINE DIVISION ARE PRIMARILY MEANT FOR PRO DUCTION OF STEAM AND RECOVER THE ENERGY LOSS FROM SUCH STEAM S O AS TO MAKE THE PAPER INDUSTRY MORE ENERGY EFFICIENT. THE STEAM TURBINE DIVISION CAN WORK ONLY WHEN STEAM FOR PAPER INDUSTRY RUNS. IF FOR ANY REASON, PAPER DIVISION STOPS, T URBINE DIVISION ALSO HAS TO BE STOPPED. ACCORDING TO THE ASSESSING OFFICER THE TURBINE DIVISION CANNOT EXIST WITHOUT THE PAPER DIV ISION OF THE COMPANY. CREATING A PART OF EXISTING PAPER PRODUCT ION PROCESS INTO A SEPARATE DIVISION SQUARELY AMOUNTS TO SPLITT ING AND RECONSTRUCTION OF BUSINESS ALREADY INEXISTENCE. THE REFORE, THE ASSESSING OFFICER WAS OF THE OPINION THAT THE ASSES SEE WAS NOT ENTITLED TO CLAIM OF DEDUCTION U/S.80IA OF THE ACT ON ITS TURBINE DIVISION. IN ORDER TO DECIDE THE ABOVE ISSUE, WE FI RST PROCEED TO EXAMINE THE LEGAL POSITION IN THIS REGARD. 10. NOW, WE PROCEED TO EXAMINE THE PROVISION OF SE CTION 80-IA OF THE ACT WHICH WAS AMENDED BY THE FINANCE A CT, 1999 W.E.F. 1ST APRIL, 2000. THE DEDUCTION UNDER S. 80-I A WAS AVAILABLE TO AN ASSESSEE WHOSE GROSS TOTAL INCOME INCLUDED AN Y PROFITS OR GAINS DERIVED FROM ANY BUSINESS OF AN INDUSTRIAL UN DERTAKING WHICH FULFILLED ALL THE CONDITIONS LAID DOWN IN THAT BEHA LF IN SUB-S. (2) OF THE SECTION. THE SUB-S. (2) OF S. 80-IA, AS APPLICA BLE TO THIS ASSESSMENT YEAR 2009-2010,INTER ALIA, READS AS UNDE R : (2) THE DEDUCTION SPECIFIED IN SUB-SECTION (1) MAY, AT THE OPTION OF THE ASSESSEE, BE CLAIMED BY HIM FOR ANY TEN CONSECUTIVE ASSESSMENT YEARS OUT OF FIFTEEN YEARS BEGINNING FROM THE YEAR IN WHICH THE UNDERTAKING OR THE ENTERPRISE DEVELOPS AND BEGINS TO OPERATE ANY INFRASTRUCTURE FACILITY OR STARTS PROVIDING TELECOMMUNICATION SERVICE OR DEVELOPS AN INDUSTRIAL PARK (OR DEVELOPS A SPECIAL ECONOMIC ZONE REFERRED TO IN CLAUSE (III) OF SUB-SECTION (4) OR GENERATES POWER OR COMMENCES TRANSMISSION OR DISTRIBUTION OF POWER (OR UNDERTAKES SUBSTANTIAL RENOVATION AND MODERNIZATION OF THE EXISTING TRANSMISSION OR DISTRIBUTION LINES (OR LAY S AND BEGINS TO OPERATE A CROSS COUNTRY NATURAL GAS DISTRIBUTION NETWORK))). (3) THIS SECTION APPLIES TO AN UNDERTAKING REFERRED TO IN CLAUSE (II) OR CLAUSE (IV) OF SUB-SECTION (4) WHICH FULFILS ALL THE FOLLOWING CONDITIONS, NAMELY : ITA NO. 1452/16 :- 8 -: (I) IT IS NOT FORMED BY SPLITTING UP, OR THE RECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE: PROVIDED THAT THIS CONDITION SHALL NOT APPLY IN RESPECT OF AN UNDERTAKING WHICH IS FORMED AS A RESULT OF THE RE-ESTABLISHMENT, RECONSTRUCTION OR REVIVAL BY THE ASSESSEE OF THE BUSINESS OF ANY SUCH UNDERTAKING AS IS REFERRED TO IN SECTION 33B, IN THE CIRCUMSTANCES AND WITHIN THE PERIOD SPECIFIED IN THAT SECTION; (II) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE: PROVIDED THAT NOTHING CONTAINED IN THIS SUB- SECTION SHALL APPLY IN THE CASE OF TRANSFER, EITHER IN WHOLE OR IN PART, OF MACHINERY OR PLANT PREVIOUSLY USED BY A STATE ELECTRICITY BOARD REFERRED TO IN CLAUSE (7) OF SECTION 2 OF THE ELECTRICITY ACT, 2003 (36 OF 2003), WHETHER OR NOT SUCH TRANSFER IS IN PURSUANCE OF THE SPLITTING UP OR RECONSTRUCTION OR REORGANISATION OF THE BOARD UNDER PART XIII OF THAT ACT. EXPLANATION 1.FOR THE PURPOSES OF CLAUSE (II), ANY MACHINERY OR PLANT WHICH WAS USED OUTSIDE INDIA BY ANY PERSON OTHER THAN THE ASSESSEE SHALL NOT BE REGARDED AS MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE, IF THE FOLLOWING CONDITIONS ARE FULFILLED, NAMELY : (A) SUCH MACHINERY OR PLANT WAS NOT, AT ANY TIME PREVIOUS TO THE DATE OF THE INSTALLATION BY THE ASSESSEE, USED IN INDIA; (B) SUCH MACHINERY OR PLANT IS IMPORTED INTO INDIA FROM ANY COUNTRY OUTSIDE INDIA; AND (C) NO DEDUCTION ON ACCOUNT OF DEPRECIATION IN RESPECT OF SUCH MACHINERY OR PLANT HAS BEEN ALLOWED OR IS ALLOWABLE UNDER THE PROVISIONS OF THIS ACT IN COMPUTING THE TOTAL INCOME OF ANY PERSON FOR ANY PERIOD PRIOR TO THE DATE OF THE INSTALLATION OF MACHINERY OR PLANT BY THE ASSESSEE. ITA NO. 1452/16 :- 9 -: EXPLANATION 2.WHERE IN THE CASE OF AN UNDERTAKING, ANY MACHINERY OR PLANT OR ANY PART THEREOF PREVIOUSLY USED FOR ANY PURPOSE IS TRANSFERRED TO A NEW BUSINESS AND THE TOTAL VALUE OF THE MACHINERY OR PLANT OR PART SO TRANSFERRED DOES NOT EXCEED TWENTY PER CENT OF THE TOTAL VALUE OF THE MACHINERY OR PLANT USED IN THE BUSINESS, THEN, FOR THE PURPOSES OF CLAUSE (II) OF THIS SUB-SECTION, THE CONDITION SPECIFIED THEREIN SHALL BE DEEMED TO HAVE BEEN COMPLIED WITH. 11. THE PRIMARY PURPOSE OF U/S. 80-IA IS TO G RANT RELIEF TO A NEW INDUSTRIAL UNDERTAKING. THEREFORE, WHENEVER AN ASSESSEE CLAIMS RELIEF U/S. 80-IA, THE ASSESSEE WILL HAVE TO ESTABLISH THAT A NEW UNIT HAD COME INTO EXISTENCE WHICH INDEPENDENTL Y PRODUCED ARTICLES AND THAT THIS NEW UNIT WAS NOT DEPENDENT U PON THE OLD EXISTENT UNIT, IN THE SENSE THAT THE NEW UNIT COULD NOT BE EQUATED AS AN EXPANSION OF THE OLD UNIT. 12. WHERE AN ASSESSEE MAKES A CLAIM FOR RELIEF U/S. 80- IA THE BURDEN LIES UPON HIM TO PRODUCE COGENT MATERIAL IN SUPPORT OF HIS CLAIM . IN ORDER TO AVAIL TAX CONCESSION U/S. 80-IA, EMPLOY MENT OF FRESH CAPITAL IN THE NEW UNIT IS IMPERATIVE. BUT IT DOES NOT MEAN THAT FOR THE EMPLOYMENT OF THE CAPITAL, IT SHOULD H AVE BEEN NEWLY RAISED. IF SURPLUS/RESERVE CAPITAL IS AVAILABLE WIT H AN ASSESSEE IN ITS EXISTING BUSINESS, THE ASSESSEE CAN UTILIZE SUCH CA PITAL FOR THE PURPOSE OF PLANT, MACHINERY, ETC., FOR THE NEW UNIT . 13. IN OUR OPINION THE SPLITTING OF OR RECONSTRUCTI ON OF THE EXISTING BUSINESS SHOULD BE UNDERSTOOD IN A BROAD COMMERCIAL SENSE FROM A COMMONSENSE POINT OF VIEW AND ONLY IN RELATION TO THE NEW INDUSTRIAL UNDERTAKING CLAIMING THE CONCESSION. 14. FURTHER, WHERE THE NEW UNIT WAS STARTED BY FR ESH OUTLAY OF CAPITAL AND MANUFACTURED OR PRODUCED ARTICLES YIELD ING ADDITIONAL PROFITS HAVING A SEPARATE PHYSICAL INDEPENDENT EXIS TENCE, IT WAS A NEW INDUSTRIAL UNDERTAKING ELIGIBLE FOR TAX CONCESS ION. 15. IN OTHER WORDS, THE ESTABLISHMENT OF A NEW IND USTRIAL UNIT AS A PART OF AN ALREADY EXISTING INDUSTRIAL ESTABLISHM ENT MAY RESULT IN AN EXPANSION OF THE INDUSTRY OR THE FACTORY, BUT IF THE NEWLY ESTABLISHED UNIT IS ITSELF AN INTEGRATED INDEPENDEN T UNIT IN WHICH NEW PLANT AND MACHINERY ARE PUT UP AND ARE THEMSELV ES, ITA NO. 1452/16 :- 10 -: INDEPENDENTLY OF THE OLD UNIT, CAPABLE OF PRODUCTIO N OF GOODS THEN IT CAN BE CLASSIFIED AS A NEWLY ESTABLISHED INDUSTR IAL UNDERTAKING. 16. THE NEW INDUSTRIAL UNIT BROUGHT INTO EXISTENCE BY ESTABLISHING NEW PLANT AND MACHINERY AND BY INVESTING SUBSTANTIA L FUNDS MAY PRODUCE THE SAME COMMODITY AS OF THE OLD BUSINESS O R IT MAY PRODUCE SOME OTHER DISTINCT MARKETABLE PRODUCTS, EV EN COMMODITIES WHICH MAY FEED THE OLD BUSINESS. THESE PRODUCTS MAY BE CONSUMED BY THE ASSESSEE IN ITS OLD BUSINESS OR MAY BE SOLD IN THE OPEN MARKET. ONE THING IS CERTAIN THAT THE NEW UNDERTAKING MUST BE AN INTEGRATED UNIT BY ITSELF WH EREIN ARTICLES ARE PRODUCED. THE INDUSTRIAL UNIT MUST BE NEW IN TH E SENSE THAT NEW PLANT AND MACHINERY ARE ERECTED FOR PRODUCING E ITHER THE SAME COMMODITY OR SOME OTHER DISTINCT COMMODITY. TH E BENEFIT CANNOT BE DENIED MERELY BECAUSE THE NEW UNDERTAKING GOES TO EXPAND THE GENERAL BUSINESS OF THE ASSESSEE IN SOME DIRECTION. 17. AFTER CONSIDERING THE FACTS OF THE CASE AND THE LEGAL POSITION ENUNCIATED IN THE ABOVE PARAS, WE ARE OF THE OPINIO N, THAT THE CRUCIAL QUESTION THAT HAS TO BE ANSWERED IS WHETHER , ON THE FACTS OF THE CASE, THE NEW INDUSTRIAL UNIT CAN BE SAID TO HA VE COME INTO EXISTENCE WITHIN THE MEANING OF SUB-S. (2) OF S. 80 -IA, SO AS TO BE ELIGIBLE FOR DEDUCTION UNDER S. 80-IA FOR ASSESSMEN T YEAR 2009- 2010. (I) WHETHER THE MACHINES COSTING 2,09,42,345/- AND BUILDING WHICH WERE MADE DURING THE ASSESSMENT YEAR 2004-2005 (BEFORE 31 ST MARCH, 2004), BROUGHT INTO EXISTENCE AN INTEGRATED INDEPENDENT UNIT, WHICH BY THEMSELVES, INDEPENDENTLY OF THE OLD UNIT, WERE CAPABLE OF PRODUCING THE STEAM AND ELECTRICITY. 18. WE FIND THAT THE ASSESSEE COMPANY COMMENCED A DISTINCT INDUSTRIAL UNDERTAKING FOR THE GENERATION OF POWER. IT IS AN UNDISPUTED FACT THAT THE PREMISES OF THIS UNDERTAKING ARE DIST INCT FROM THE PAPER UNIT AS SEPARATE BUILDING WAS CONSTRUCTED VIDE APPR OVAL NO.TM/9997/6 DATED 4.4.2001 ISSUED BY THE CHIEF INS PECTOR OF INDUSTRIES, CHENNAI, AT S.F.NO.279, 277, 278 AND 27 6 AT NALLUR VILLAGE, PUSHPATHUR PANCHAYAT, PALAN TALUK, DINDIGUL DISTRI CT. SEPARATE TECHNOLOGY IS USED AND LOAN WAS ALSO OBTAINED FROM LAKSHMI VILAS BANK, UDUMALPET BRANCH. THE LOWER AUTHORITIES ARE NOT CORRECT IN HOLDING THAT THE POWER PLANT WAS NOT A DISTINCT UNI T. THE TRUE PRINCIPLE AS LAID DOWN BY THE APEX COURT, IN THE CASE OF TEXTILE MACHINERY CORPORATION LTD., VS. CIT 107 ITR 195, DIRECTLY AND SQUARELY APPLIES TO THE FACTS OF THE CASE. IN THE INSTANT CASE, THE TRUE TEST IS NOT WHETHER THE NEW INDUSTRIAL UNDERTAKING CONNOTES EXPANSION O F THE EXISTING BUSINESS OF ITA NO. 1452/16 :- 11 -: THE ASSESSEE BUT WHETHER IT IS ALL THE SAME A NEW A N IDENTIFIABLE UNDERTAKING SEPARATE AND DISTINCT FROM THE EXISTING BUSINESS OF THE ASSESSEE BUT WHETHER IT IS ALL THE SAME A NEW AND IDENTIFIABLE UNDERTAKI NG SEPARATE AND DISTINCT FROM THE EXISTING BUSINESS. FOR THE ASSESSMENT YEARS 2007-08 AND 2008- 2009, THE LOWER AUTHORITIES FOR CO-GENERATION PLANT GRANTED DEDUCTION U/S.80IA OF THE ACT. THEY IMPLIEDLY AGREED THAT THE NEW MACHINERY AND PLANT HAVE BEEN INSTALLED UNDER SEPARATE PREMISES AND IT IS NOT APPROPRIATE TO DENY THE SAME DEDUCTION FOR THE ASSESSMENT YEAR 2009-20 10. 19 . EVEN THOUGH THE DECISION OF TEXTILE MACHINERY COR PORATION LTD [SUPRA] WAS CONCERNED WITH THE CLAUSE DEALING WITH RECONSTRUCTION OF EXISTING BUSINESS BUT THE EXPRESSION 'NOT FORMED' W AS CONSTRUED TO MEAN THAT THE UNDERTAKING SHOULD NOT BE A CONTINUAT ION OF THE OLD BUT EMERGENCE OF A NEW UNIT. THEREFORE, EVEN IF THE UND ERTAKING IS ESTABLISHED BY TRANSFER OF BUILDING, PLANT OR MACHI NERY, IT IS NOT FORMED AS A RESULT OF SUCH TRANSFER, IN OUR CONSIDE RED VIEW; THE ASSESSEE COULD NOT BE DENIED THE BENEFIT. WE ALSO F IND THAT A NEW UNDERTAKING FOR MANUFACTURE OF POWER WITH STEAM AS BY-PRODUCT WAS FORMED OUT OF FRESH FUNDS, IN SEPARATELY IDENTIFIAB LE PREMISES, UNDER A SEPARATE LICENSE/APPROVALS WITH MANIFOLD INCREASE I N CAPACITY WITH NEW MACHINERY AND BUILDINGS WITHOUT TRANSFER OF ANY PORTION OF THE OLD BUILDINGS OR MACHINERY WHICH PRE-EXISTED. THE P OWER AND STEAM PRODUCED EARLIER WAS PART OF THE PAPER UNIT AND COU LD SERVICE ONLY THE PAPER UNIT AND HENCE WAS AT BEST BY-PRODUCT OF THE PAPER UNIT MANUFACTURING FACILITY. THE NEW UNIT HAD POWER AS T HE MAIN PRODUCT AND APART FROM SERVICING THE CAPTIVE CONSUMPTION IN THE PAPER UNIT ALSO COULD SERVICE THE OTHER POWER REQUIREMENTS. TH E PRICING OF POWER IS ALSO SUBJECTED TO THE VARIOUS POWER TARIFF PRESC RIPTIONS. IT CAN BE CLEARLY SEEN THAT THE NEW UNDERTAKING IS THEREFORE NOT FORMED BY THE SPLITTING UP OF THE OLD UNDERTAKING. THERE IS NO CA SE ALSO MADE OUT BY THE LOWER AUTHORITIES THAT THE NEW UNDERTAKING IS F ORMED BY THE SPLITTING UP OF THE EXISTING BUSINESS. FURTHER, THE SUPREME COURT IN THE CASE OF TEXTILE MACHINERY CORPORATION (CITED SU PRA) WHEREIN THE SUPREME COURT CATEGORICALLY HELD THAT NEW UNIT ESTA BLISHED BY THE ASSESSEE FOR MANUFACTURING ARTICLES USED AS INTERME DIATE PRODUCTS IN THE OLD DIVISION, WHICH THE ASSESSEE WAS BUYING FRO M THE MARKET EARLIER, IS NOT RECONSTRUCTION OF BUSINESS ALREADY IN EXISTENCE. TO CONSTITUTE RECONSTRUCTION, THERE MUST BE TRANSFER O F ASSETS OF THE EXISTING BUSINESS TO THE NEW INDUSTRIAL UNDERTAKING . IN OUR OPINION, GENERATION OF POWER UNIT IS SEPARATE AND DISTINCT U NDERTAKING FOR WHICH SEPARATE APPROVAL WAS OBTAINED AND IT CANNOT BE SAID THAT SPLITTING OF EXISTING BUSINESS STRUCTURE. THEREFORE , IN OUR CONSIDERED OPINION, THE LOWER AUTHORITIES ARE NOT CORRECT IN D ENYING THE DEDUCTION UNDER SECTION 80IA OF THE ACT. IT IS ALSO PERTINENT TO MENTION THEREIN THAT THE TRIBUNAL IN FOLLOWING CASES CONSIDERED THI S ISSUE AND DECIDED IN FAVOUR OF THE ASSESSEE: ITA NO. 1452/16 :- 12 -: (1) I.T.A.NO. 633/MDS/2014 IN THE CASE OF SHRI HARI KRI SHNA PAPERS PVT. LTD VS ACIT, ORDER DATED 24.7.2015. (2) I.T.A.NOS.328, 329, 330 & 331/MDS/2011 IN THE CASE OF M/S TAMILNADU NEWSPRINT AND PAPERS LTD VA ACIT, ORDER D ATED 13.5.2011 HENCE, WE DECIDE THIS ISSUE IN FAVOR OF THE ASSESSE E COMPANY AND AGAINST THE REVENUE. 11. A CLEAR FINDING GIVEN BY THE TRIBUNAL THAT THE ASS ESSEE HAD MAINTAINED SEPARATE BOOKS OF ACCOUNT FOR THE TURBIN E DIVISION IN THE YEARS IN APPEAL BEFORE IT. THIS WAS ONE OF THE REA SONS WHY THE TRIBUNAL ACCEPTED THE PLEA OF THE ASSESSEE THAT T HE VALUE OF THE POWER GENERATED BY TURBINE DIVISION WAS ELIGIBLE FO R DEDUCTION U/S 80IA OF THE ACT. HOWEVER, FOR THE IMPUGNED ASSESSM ENT YEAR WE FIND THAT NONE OF THE AUTHORITIES BELOW HAS VERIFIED WHE THER THE ASSESSEE MAINTAINED SEPARATE BOOKS OF ACCOUNT FOR TURBINE DI VISION AND HOW THE VALUE OF THE ELECTRICITY PRODUCED WAS CALCULATE D. WE ARE, THEREFORE, OF THE OPINION THAT THE MATTER REQUIRES FRESH LOOK BY THE AUTHORITIES BELOW. THUS, INSOFAR AS THE CLAIM OF D EDUCTION U/S 80IA FOR THE TURBINE DIVISION, WE SET ASIDE THE ORDERS O F THE AUTHORITIES BELOW AND REMIT IT TO THE FILE OF THE ASSESSING OFF ICER FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. ITA NO. 1452/16 :- 13 -: 12. COMING TO THE CLAIM OF DEDUCTION U/S 80IA OF THE A CT FOR THE WINDMILL UNIT, THE ASSESSING OFFICER HAD DENIED TO FOLLOW THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE O F VELAYUDHASWAMY SPINNING MILLS P. LTD. (SUPRA), FOR A THE REASON TH AT REVENUE HAD CHOSEN TO FILE SLP BEFORE THE APEX COURT AGAINST TH E SAID JUDGMENT. IN OUR OPINION, AUTHORITIES LOWER IN HIERARCHY CANNOT SAY THAT A JUDGMENT WOULD NOT BE FOLLOWED MERELY BECAUSE AGGRIEVED PART Y HAD PREFERRED A FURTHER APPEAL. WE, THEREFORE, FIND NO REASON TO IN TERFERE WITH THE ORDER OF THE CIT(A) IN THIS REGARD. ACCORDINGLY, G ROUND NO. 2 IS PARTLY ALLOWED. 13. IN GROUND NO.3 THE GRIEVANCE OF THE REVENUE IS THAT CLAIM OF DEPRECIATION ON THE WINDMILL CLAIMED BY THE ASSESS EE DURING THE RELEVANT PREVIOUS YEAR WAS ALLOWED IN FULL. 14. FACTS APROPOS ARE THAT THE ASSESSEE HAD CLAIMED DEPRECIATION @ 80% ON WINDMILLS PURCHASED FROM ONE SHRI KN MUTHIAH DURING THE RELEVANT PREVIOUS YEAR AT A COST OF `2,57,92,000/-. ASSESSEE HAD ALSO SOLD THREE UNITS OF WINDMILL HAVI NG CAPACITY OF 250KWH FOR A PRICE OF `79,80,750/-. CLAIM OF DEDUCTION TOWARDS DEPRECIATION WAS ON THE NET BLOCK VALUE OF `1,78,11, 250/-. THE ASSESSING OFFICER VERIFIED WHETHER THE VENDOR OF T HE WINDMILL HAD CLAIMED ANY DEPRECIATION THEREON. FRO M THE ITA NO. 1452/16 :- 14 -: DETAILS SUBMITTED BY SHRI KN MUTHIAH, THE ASSESSING OFFICER FOUND THAT THE WINDMILLS PURCHASED BY THE ASSESSEE WERE BEING USED BY SHRI KN MUTHIAH SINCE 2005-06 AND HE WAS CLAIMING DEPRECIATION @ 80% THEREON. AS PER THE AS SESSING OFFICER, THE WINDMILLS PURCHASED BY THE ASSESSEE FRO M SHRI KN MUTHIAH HAD A CAPACITY OF 800KWH WHEREAS THOSE SOLD BY THE ASSESSEE HAD A CAPACITY OF 750 KWH. THE WINDMI LLS WERE SOLD AT A PRICE OF `79,80,750/- WHEREAS THE ONE PURCHASED WAS AT A COST OF `2,57,92,000/-. THE ASSE SSING OFFICER AFTER ANALYZING THE RETURN OF INCOME FILED BY S HRI KN MUTHIAH, CAME TO THE CONCLUSION THAT THE SAID PERSO N WAS BUYING AND SELLING WINDMILLS WITH THE SOLE INTENTIO N OF CLAIMING HIGHER RATE OF DEPRECIATION. IN OTHER WORD S, AS PER THE ASSESSING OFFICER, AFTER EXHAUSTING THE DEPRECIATI ON TO THE EXTENT AVAILABLE, SHRI KN MUTHIAH WAS SELLING THE W INDMILLS TO A THIRD PARTY AT A HUGE PRICE AND SUCH THIRD PARTY ALSO STARTED CLAIMING DEPRECIATION ON THE ENHANCED OR EXAGGERATE D PURCHASE COST. HE WAS OF THE OPINION THAT WHAT COUL D BE CONSIDERED AS COST IN THE HANDS OF THE ASSESSEE WAS THE OPENING WDV AVAILABLE IN THE HANDS OF SHRI KN MUTH IAH. RELIANCE WAS PLACED ON SEC. 43(6) OF THE ACT FOR CO MING TO AN OPINION THAT THE SALE AND PURCHASE OF WINDMILLS WAS ONLY FOR ITA NO. 1452/16 :- 15 -: CLAIMING ENHANCED DEPRECIATION AND THERE WAS NO BU SINESS PURPOSES IN SUCH TRANSACTIONS UNDERTAKEN BY THE AS SESSEE. THUS, THE ASSESSING OFFICER ALLOWED CLAIM OF DEPRECIAT ION ONLY ON A SUM OF ` 12,128/- WHICH WAS WDV OF THE WINDMILL IN THE HANDS OF SHRI KN MUTHIAH, AND DENIED THE BALANCE DEPRECIATION TO THE EXTENT OF ` 1,42,39,298/-. 15. IN APPEAL BEFORE THE CIT(A), THE ASSESSEE PRODUCED A VALUATION REPORT FROM THE APPROVED VALUER IN SUPPOR T OF THE PRICE PAID FOR THE WINDMILLS PURCHASED FROM SHRI KN M UTHIAH. AS PER THE ASSESSEE, THE APPROVED VALUER HAD ARRIV ED AT A MARKET PRICE OF ` 3,17,10,030/- FOR THE WINDMILLS WH EREAS IT HAD PAID ONLY ` 2,57,92,000/-. RELIANCE WAS PLACED O N THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF NAVLAKHA TRANSLINES VS ITO, 33 TAXMANN.COM 188. THE CIT(A) APPRECIATED THESE CONTENTIONS OF THE ASSESSEE. ACC ORDING TO HIM, THERE WAS NO REASON FOR REJECTING THE VALUATIO N DONE BY CHARTERED ENGINEERS. 16 1616 16. .. . LD. DR STRONGLY ASSAILING THE ORDER OF THE CIT(A) SUBMITTED THAT THE CIT(A) HAD GONE BY THE CERTIFICAT ION OF CHARTERED ENGINEERS, IGNORING THE ATTENDANT CIRCUMS TANCES POINTED OUT BY THE ASSESSING OFFICER. ACCORDING TO HIM, ITA NO. 1452/16 :- 16 -: ASSESSEE WAS ARTIFICIALLY CLAIMING HIGHER DEPRECIATI ON BY SHOWING AN INFLATED PURCHASE COST FOR THE WINDMILL. 17. PER CONTRA, THE LD. AR SUPPORTED THE ORDER OF THE CIT(A). 18. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. FACTS COMING OUT OF THE RECORD ARE THAT THE ASSESSEE HAD SOLD WI NDMILLS HAVING CAPACITY OF 750 KWH AND PURCHASED WINDMILLS HAVING CAPACITY OF 800KWH. THE PERIOD OF USE OF THE WINDMILL S THAT THE ASSESSEE HAD SOLD DURING THE RELEVANT PREVIOUS YEAR IS NOT CLEAR FROM THE RECORDS. HOWEVER, THE WINDMILLS PURCHASED BY THE ASSESSEE WERE MORE THAN FOUR YEARS OLD. IT IS ALSO ON RECORD THAT THE ASSESSEE HAD PAID A SUM OF ` 2,57,9 2,000/- FOR PURCHASE OF THE WINDMILLS AGAINST A SUM OF ` 79,8 0,750/- IT REALIZED FROM THE SALE OF THE WINDMILLS. NO PRUDE NT BUSINESSMAN WOULD SELL AND BUY WINDMILLS HAVING SIM ILAR CAPACITY AT THESE RATES. THE CAPACITY DIFFERENCE B ETWEEN THE WINDMILLS SOLD AND PURCHASED WAS A MERE 50 KWH. UNL ESS AND UNTIL THE ASSESSEE COULD SHOW THAT THE WINDMIL LS WHICH WERE SOLD HAD BEEN USED FOR A PERIOD MORE THAN WHAT WAS PURCHASED BY IT OR IT COULD SHOW OTHER ACCENTUATING ITA NO. 1452/16 :- 17 -: CIRCUMSTANCES, IN OUR OPINION, THE CLAIM OF THE ASS ESSEE FOR HIGHER DEPRECIATION COULD NOT HAVE BEEN ALLOWED. R ELEVANT ASPECTS, IN OUR OPINION, HAVE NOT BEEN LOOKED INTO BY ANY OF THE LOWER AUTHORITIES. WE ARE OF THE OPINION THAT T HE MATTER REQUIRES A FRESH LOOK BY THE ASSESSING OFFICER. WE, THEREFORE, SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND TH E ISSUE OF ALLOWANCE OF DEPRECIATION ON WINDMILLS IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. THIS GROUND RAISED BY THE REV ENUE IS ALLOWED FOR STATISTICAL PURPOSES. 19. IN THE RESULT, THE APPEAL OF THE REVENUE IS PART LY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH AUGUST, 2016, AT CHENNAI. SD/- SD/- ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! . '#'$ ) (ABRAHAM P. GEORGE) % / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 10 TH AUGUST, 2016 RD &' ()*) / COPY TO: 1 . / APPELLANT 4. + / CIT 2. / RESPONDENT 5. ),- . / DR 3. +/' / CIT(A) 6. -01 / GF