Sh Rohit Tandon Prop, Jaandhar city V. The Income-tax Officer, Jalandhar

ITA 238/ASR/2011

• Counselvise Citation: 23820914 RSA 2011
• Duration Of Justice: 3 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 03-02-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 11-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: Y K SUD
• Keywords: Gift; Business income; Depreciation; Rectification of order; Additional evidence
• Section: 80HHC; 80IB; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. A.D.JAIN, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO. ASSESSMENT YEAR 345(ASR)/2009 2006-07 55(ASR)/2011 2006-07 410(ASR)/2010 2007-08 238(ASR)/2011 2008-09 284(ASR)/2012 2009-10 SHRI ROHIT TANDON PROP. VS. INCOME TAX OFFICER, M/S. PRAJNA (INDIA) LIMITED. WARD 1(3), JALANDHAR. JALANDHAR. PAN :AAFPT3362Q (APPELLANT) (RESPONDENT) APPELLANT BY:SH.Y.K.SUD, CA RESPONDENT BY:SH.TARSEM LAL, DR DATE OF HEARING:03/02/2015 DATE OF PRONOUNCEMENT:05/03/2015 ORDER PER A.D. JAIN, AM: THESE FIVE APPEALS RELATE TO THE SAME ASSESSEE FOR THE ASSESSMENT YEARS 2006-07, 2006-07, 2007-08, 2008-2009 AND 2009-10, R ESPECTIVELY. 2. SINCE THE SAME ISSUES ARE INVOLVED THEREIN, ALL THESE APPEALS ARE BEING DISPOSED OF BY THIS COMMON ORDER. ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 2 3. FOR CONVENIENCE, THE FACTS ARE BEING TAKEN FROM ITA NO.345(ASR)/2009. 4. AS PER THE FINDINGS OF THE AO IN THE ASSESSMENT ORDER, AS TAKEN NOTE OF BY THE LD. CIT(A) FROM PAGE 2, PARA-2.1 TO PAGE 5, PARA 2.5 OF THE IMPUGNED ORDER, THE AO REFUSED TO ALLOW TO THE ASSE SSEE THE DEDUCTION CLAIMED U/S 10B OF THE INCOME TAX ACT (THE ACT, F OR SHORT). 5. THE LD. CIT(A), BY VIRTUE OF HIS FINDINGS CONTAI NED AT PAGE 24, PARA 6 TO PAGE 43 OF THE IMPUGNED ORDER, PARTLY ALLOWED TH E APPEAL OF THE ASSESSEE. 6. THE TRIBUNAL, VIDE ORDER DATED 31.08.2009 DISMIS SED THE ASSESSEES APPEAL AGAINST THE AFORESAID ORDER PASSED BY THE L D. CIT(A). 7. THE ASSESSEE FILED M.A. NO.98(ASR)/2009 BEFORE T HE TRIBUNAL, POINTING OUT VARIOUS ALLEGED MISTAKES APPARENT FROM THE RECORD IN THE AFORESAID TRIBUNAL ORDER DATED 31.08.2009. 8. VIDE ORDER DATED 04.03.2010, THE TRIBUNAL ALLOWE D THE MISCELLANEOUS APPLICATION FILED BY THE ASSESSEE, OBSERVING AS FOL LOWS: 10. HAVING CONSIDERED THE RIVAL SUBMISSIONS, WE FIN D THE GRIEVANCES OF THE ASSESSEE TO BE CORRECT. A PERUSAL OF THE ORDER SHOW S THAT THE CASE LAWS CITED ON BEHALF OF THE ASSESSEE HAVE NOT BEEN CONSIDERED. TH E AFORESAID VARIOUS ARGUMENTS, STATED TO HAVE BEEN MADE BEFORE THE TRI BUNAL AT THE TIME OF HEARING OF THE APPEAL, HAVE ALSO NOT BEEN DISPOSED OF IN THEIR RIGHT PERSPECTIVE, AS POINTED OUT IN THE APPLICATION AND ARGUED DURING THE HEARIN G OF THE APPEAL. THIS, IN OUR CONSIDERED OPINION, INDEED CONSTITUTES A RECTIFIABL E MISTAKE APPARENT FROM RECORD. THEREFORE, OUR ORDER DATED 31.8.2009 (SUPRA) IS HER EBY RECALLED. THE MATTER IS REFIXED FOR HEARING ON MERITS AFRESH UNDER NOTICE T O THE PARTIES ON 8.4.2010. 9. AS A RESULT, THE APPEAL IS NOW BEFORE US THIS SE COND TIME ROUND. ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 3 10. THE LD. COUNSEL FOR THE ASSESSEE FILED WRITTEN SUBMISSIONS DATED 02.01.2005. THE CONTENTIONS CONTAINED THEREIN WILL BE DISCUSSED IN THE SUCCEEDING PORTION OF THIS ORDER. THE LD. DR RAISED AN OBJECTION, CONTENDING THAT THE TRIBUNAL CAN RECTIFY ONLY THOSE MISTAKES, AS WERE POINTED OUT IN THE MISCELLANEOUS APPLICATION OF THE ASSESSEE; THAT NEW JUDGMENTS CAN NEITHER BE CITED, NOR CONSIDERED AT THIS STAGE; AND THAT OT HER THAN THE ISSUES MENTIONED IN THE MISCELLANEOUS APPLICATION AND THE ORDER PASSED THEREON BY THE TRIBUNAL, NO NEW ARGUMENTS CAN NOW BE ADVANCED. IT WAS CONTENDED THAT THE ASSESSEE CANNOT NOW RELY ON ANY JUDGMENT OTHER THAN THOSE TAKEN NOTE OF BY THE TRIBUNAL WHILE ALLOWING THE MISCELLANEOUS AP PLICATION. 11. ON OUR ASKING, THE LD. COUNSEL FOR THE ASSESSEE FILED WRITTEN SUBMISSIONS DATED 12.01.2015 APROPOS THE ABOVE OBJE CTIONS RAISED BY THE LD DR, CONTENDING THEREIN TO THE EFFECT THAT VIDE ITS ORDER DATED 04.03.2010, THE TRIBUNAL HAD RECALLED ITS ORDER DATED 31.09.2009 IN TOTO. IT WAS ALSO SUBMITTED THEREIN THAT THE TRIBUNAL HAD POWER TO OR DER A TOTAL RECALL OF ITS EARLIER ORDER, IF THE MISTAKES POINTED OUT IN THE M ISC. APPLICATION WERE FOUND TO BE SO PATENT FROM THE RECORD, THAT A TOTAL RECALL WAS CALLED FOR. IN SUPPORT OF THIS CONTENTION, NUMEROUS DECISIONS WERE RELIED ON. 12. AS A COUNTER TO THE WRITTEN SUBMISSIONS DATED 12.01.2015, THE LD. DR FILED WRITTEN SUBMISSIONS DATED 27.01.2015. THEREIN , IT WAS CONTENDED THAT ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 4 BY PASSING THE ORDER DATED 04.03.2010, THE TRIBUNAL HAS CAUSED IMMENSE PREJUDICE TO THE INTERESTS OF THE REVENUE AND SUCH PREJUDICE WAS REQUIRED TO BE DONE AWAY WITH IN THE FIRST INSTANCE. RELIANCE WAS PLACED ON HONDA SIEL POWER PRODUCTS LTD. VS. CIT, REPORTED IN (2007) 2 95 ITR 466 (SC). IT WAS CONTENDED THAT THE TRIBUNAL ERRED IN HOLDING THAT NINE JUDGMENTS CITED ON BEHALF OF THE ASSESSEE WERE NOT CONSIDERED BY THE T RIBUNAL WHILE PASSING ITS EARLIER ORDER DATED 31.08.2009; THAT THE TRIBUNAL F URTHER ERRED IN HOLDING THAT VARIOUS ARGUMENTS ADVANCED ON BEHALF OF THE ASSESSE E AT THE TIME OF HEARING OF THE APPEAL HAD NOT BEEN DISPOSED OF IN THEIR RIG HT PERSPECTIVE; THAT IN CASE IT WERE SO, SUCH NON-CONSIDERATION OF THE ARGUMENT S IN THEIR RIGHT PERSPECTIVE AMOUNTED TO PERVERSITY, WHICH COULD NO T BE REVIEWED BY THE TRIBUNAL; THAT THE ORDER COULD HAVE BEEN RECALLED BY INVOKING THE PROVISIONS OF SECTION 254(2) OF THE ACT ONLY IN CASE THE ARGUM ENTS HAD NOT BEEN CONSIDERED AT ALL; THAT THE RECALLING OF THE TRIBUN ALS EARLIER ORDER BE TREATED AS VACATED; AND THAT THUS, THERE REMAINED NOTHING TO BE TAKEN AFRESH IN THE APPEAL, AS WHEN THE TRIBUNAL WILL ATONE FOR ITS WR ONG, IT WILL ONLY RESULT IN RESTORATION OF ITS ORDER DATED 31.08.2009 WHICH IS HUMBLY PRAYED FOR. FURTHER, A PARA-WISE DISCUSSION OF THE ORDER DATED 04.03.2010 WAS MADE, CHALLENGING THE OBSERVATIONS MADE THEREIN AND IT WA S REITERATED THAT THE TRIBUNAL HAD CAUSED PREJUDICE TO THE INTERESTS OF T HE REVENUE BY RECALLING ITS ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 5 EARLIER ORDER. APROPOS THE ISSUE REGARDING THE POWE R OF THE TRIBUNAL TO RECALL AN ORDER IN TOTO, IT WAS CONTENDED THAT THE TRIBUNA L DOES NOT HAVE ANY SUCH POWER. THE CASE LAWS RELIED ON BY THE ASSESSEE IN T HIS BEHALF WERE STATED TO BE NOT APPLICABLE. 13. THE LD. DR FILED FURTHER WRITTEN SUBMISSIONS DA TED 03.02.2015, REITERATING THE REQUEST THAT THE PREJUDICE CAUSED TO THE INTERESTS OF THE REVENUE BE DONE AWAY WITH AND THE ISSUE AS TO WHETH ER THE ORDER OF THE TRIBUNAL ALLOWING THE APPLICATION OF THE ASSESSEE H AD NOT CAUSED SUCH PREJUDICE BY DECIDED FIRST. 14. WE HAVE CONSIDERED THIS ASPECT OF THE MATTER IN THE LIGHT OF THE RIVAL CONTENTIONS AND THE MATERIAL PLACED ON RECORD. THER E IS NO REQUIREMENT UNDER THE LAW, WHILE DECIDING AN APPEAL, TO SEPARATELY DECIDE THE QUESTION AS TO WHETHER THE TRIBUNAL, WHILE ALLOWING A MISCELLANEOU S APPLICATION FILED BY THE ASSESSEE, HAD CAUSED ANY PREJUDICE TO THE INTER ESTS OF THE REVENUE. ALL MATERIAL ISSUES ARISEN ARE TO BE DECIDED IN THE APP EAL ORDER ITSELF. MOREOVER, IN THE PRESENT CASE, THE TRIBUNAL ORDER ALLOWING T HE MISC. APPLICATION OF THE ASSESSEE WAS PASSED ON 04.03.2010. IF THE DEPARTMEN T WAS AGGRIEVED THERE AGAINST, IT WAS WELL ENTITLED TO TAKE RECOURSE TO A N APPROPRIATE REMEDY UNDER THE LAW, IF SO AS ADVISED. THIS WAS NOT DONE AT ANY STAGE, ACCEPTING THE ORDER OF THE TRIBUNAL. IT DOES NOT, THEREFORE, IN OUR CON SIDERED OPINION, LIE IN THE ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 6 MOUTH OF THE DEPARTMENT TO RAKE UP SUCH A CHALLENGE AT THIS STAGE. THE RELIANCE BY THE DEPARTMENT ON THE DECISION IN HOND A SIEL POWER PRODUCTS LTD. VS. CIT, (SUPRA) IS FOUND TO BE MISPLACED. TH EREIN, THE QUESTION PRESENTLY UNDER CONSIDERATION WAS NOT AT ALL IN ISS UE. THUS, THIS MATTER REQUIRES NO FURTHER DELIBERATION AND IT NEED NOT DE TAIN US ANY LONGER. HOWEVER, THE OBJECTION HAVING BEEN RAISED AND PRESS ED WHOLE HOG, WE ARE GOING INTO IT AT LENGTH, FULLY ALIVE TO THE FACT TH AT WE ARE NOT SITTING IN APPEAL OVER THE TRIBUNAL ORDER WHEREBY THE MISCELLANEOUS A PPLICATION OF THE ASSESSEE WAS ALLOWED. 14. SO FAR AS REGARDS THE POWER OF THE TRIBUNAL TO RECALL ITS ORDER IN ITS ENTIRETY IN LACHMAN DASS BHATIA HINGWALA (P) LTD. VS. ACIT, 237 CTR (DEL) (FB) 117, IT HAS BEEN OBSERVED THAT THE TR IBUNAL, WHILE EXERCISING THE POWER OF RECTIFICATION U/S 254(2) OF THE ACT, CAN R ECALL ITS ORDER IN ITS ENTIRETY, IF IT IS SATISFIED THAT PREJUDICE HAS RE SULTED TO THE PARTY, WHICH IS ATTRIBUTABLE TO THE TRIBUNALS MISTAKE, ERROR OR OM ISSION AND WHICH ERROR IS A MANIFEST ERROR AND IT HAS NOTHING TO DO WITH THE DO CTRINE OR CONCEPT OF INHERENT POWER OF REVIEW. IN THE PRESENT CASE, THE TRIBUNAL FOUND THE DECISIONS CITED BY THE ASSESSEE AND THE ARGUMENTS M ADE BY THE ASSESSEE TO HAVE BEEN NOT CONSIDERED IN ITS EARLIER ORDER. IT W AS ON THIS BASIS THAT THE TRIBUNAL RECALLED ITS EARLIER ORDER IN TOTO. ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 7 15. IN COMMISSIONER OF INCOME TAX VS. S.K.GUPTA, REPORTED IN (2010) 327 ITR 267 (ALL), IT WAS OBSERVED THAT IF THE MIST AKES APPARENT FROM THE RECORD GO TO THE ROOT OF THE MATTER, IT IS THE DISC RETION OF THE TRIBUNAL TO CORRECT THE MISTAKES IN THE FACTS OF THE ORDER, OR THE OPERATIVE PORTION OF THE ORDER, OR TO HEAR THE APPEAL DENOVO. 16. IN CHAMPA LAL CHOPRA VS. STATE OF RAJASTHAN, REPORTED IN (2002) 257 ITR 74 (RAJ.), IT WAS HELD THAT IN A GIVEN CAS E, WHERE THE FACTUAL MISTAKE IS SO APPARENT THAT IT BECOMES NECESSARY TO CORRECT THE SAME, THE TRIBUNAL WOULD BE JUSTIFIED IN NOT ONLY CORRECTING THE SAID MISTAKE BY WAY OF RECTIFICATION, BUT IF THE JUDGMENT HAS PROCEEDED ON THE BASIS OF FACTS, IT WOULD BE JUSTIFIED IN RECALLING SUCH ORDER. 17. IN COMMISSIONER OF INCOME TAX VS. RAMESH CHAN D MODI, 249 ITR 323 (RAJ), IT WAS HELD THAT WHERE THE TRIBUNAL FAIL S TO DECIDE SOME OF THE QUESTIONS RAISED BEFORE IT, INADVERTENTLY OR BY OVE RSIGHT, THE ONLY APPROPRIATE METHOD OF CORRECTING SUCH MISTAKE IS TO RECALL THE ORDER AND MAKE A FRESH ORDER AFTER AFFORDING AN OPPORTUNITY OF HEARING TO SUCH PARTY, AND THAT IN ALL SUCH CASES, ORDINARILY, THE TRIBUNAL ACTS EX-DEBITO JUSTITIAE TO PREVENT ABUSE OF PROCESS, EVEN IN THE ABSENCE OF ANY POWER. 18. IN GEHNA VS INCOME TAX OFFICER, REPORTED IN (2011) 137 TTJ (JP)(UO) 17, RELYING ON HONDA SIEL POWER PRODUCTS LTD., (SUPRA), IT WAS ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 8 HELD THAT WHERE THERE WAS NO WHISPER IN RESPECT OF THE DECISIONS RELIED UPON BY THE LD. COUNSEL OF THE ASSESSEE DURING THE HEARI NG OF THE APPEAL BEFORE THE TRIBUNAL, THE ORDER OF THE TRIBUNAL IS LIABLE TO BE RECALLED IN TOTO TO DECIDE THE SAME AFRESH. 18-A. TWO THIRD MEMBER DECISIONS OF THE TRIBUNAL AR E ALSO TO THE SAME EFFECT: B. KARAM CHAND PYARE LAL VS. ITO 91 ITD 3 98 (ALL.) (TM); AND MOHAN MEAKINS LTD. VS. ITO, 89 ITD 179 (DEL) (TM) . 19. ADVERTING TO THE ORDER DATED 04.03.2010 PASSED BY THE TRIBUNAL ALLOWING THE MISC. APPLICATION OF THE ASSESSEE, IN THE APPLICATION FILED BY THE ASSESSEE, IT HAD BEEN CONTENDED THAT DESPITE THE AS SESSEE HAVING FILED NINE JUDGMENTS AND DESPITE THE ATTENTION OF THE BENCH HA VING BEEN DRAWN TOWARDS ALL OF THEM BY READING THE HIGHLIGHTED PARTS THEREO F, NONE OF THESE JUDGMENTS HAD BEEN CONSIDERED BY THE TRIBUNAL. ON THIS BASIS, THE EARLIER ORDER OF THE TRIBUNAL WAS REQUESTED TO BE RECALLED. TO SUPPORT S UCH A RECALL, THE ASSESSEE SOUGHT TO PLACE RELIANCE ON NINE DECISIONS, WHICH W ERE QUOTED IN THE APPLICATION ITSELF. IN THE ORDER ALLOWING THE APPLI CATION, MISTAKENLY, THE TRIBUNAL OBSERVED THAT THESE LATTER NINE JUDGMENTS HAD NOT BEEN CONSIDERED BY THE TRIBUNAL WHILE PASSING ITS EARLIER ORDER. T HIS, EVIDENTLY, WAS A TYPOGRAPHICAL ERROR, SINCE A PERUSAL OF THE EARLIER ORDER OF THE TRIBUNAL SHOWS THAT THE OTHER SET OF NINE JUDGMENTS RELIED ON BY THE ASSESSEE DURING THE ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 9 APPEAL PROCEEDINGS HAD NOT BEEN CONSIDERED. THEREFO RE, THE OBJECTION OF THE DEPARTMENT IN THIS REGARD IS NOT JUSTIFIED. 20. COMING TO THE OBJECTION OF THE DEPARTMENT THAT THE TRIBUNAL WENT WRONG IN OBSERVING THAT VARIOUS ARGUMENTS ON BEHAL F OF THE ASSESSEE WERE NOT CONSIDERED IN THEIR RIGHT PERSPECTIVE, THIS O BJECTION IS ALSO FOUND TO BE MIS-CONCEIVED. THIS IS SO, BECAUSE IN PARA 3 OF THE ORDER DATED 04.03.2010, IT WAS OBSERVED BY THE TRIBUNAL THAT IT HAD BEEN CONTE NDED ON BEHALF OF THE ASSESSEE THAT THE DECISION IN TEXTILE MACHINERY CO RPORATION LTD. VS. CIT, 107 ITR 195 (SC) HAD WRONGLY BEEN OBSERVED BY THE T RIBUNAL TO HAVE BEEN RELIED ON BOTH BY THE ASSESSEE AND THE DEPARTMENT; THAT THIS WAS NOT SO; THAT THE LD. CIT(A) HAD HELD THIS DECISION TO BE GOING I N FAVOUR OF THE ASSESSEE; AND THAT THIS CONTENTION OF THE ASSESSEE HAD NOT BE EN CONSIDERED. LIKEWISE, IN PARA 4, THE TRIBUNAL HAS OBSERVED THAT THOUGH TH E ASSESSEE HAD DISTINGUISHED CHEMBRA PEAK ESTATE LIMITED VS. CIT , 85 ITR 401 (KERALA), THIS DISTINCTION HAD NEITHER BEEN DISCUSSED, NOR DI SPOSED OF BY THE TRIBUNAL. 21. FURTHER, IN PARA 5, IT WAS OBSERVED THAT THE DE CISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN CHENAB INFORMATION TECHNO LOGIES (P.) LTD. VS INCOME-TAX OFFICER, 25 SOT 432 (MUM.), THOUGH NEVE R RELIED ON BY THE ASSESSEE, WAS CITED BY THE TRIBUNAL TO HAVE BEEN SO RELIED ON. IN PARA 6, IT WAS OBSERVED THAT THOUGH THE DECISION IN INCOME TA X OFFICER VS. SERVION ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 10 GLOBAL SOLUTIONS LTD., REPORTED IN 117 TTJ (CHENN AI) 380 AND THAT REPORTED IN 115 TTJ 469 WERE DISTINGUISHABLE ON FAC TS, BUT NO REASON WAS RECORDED TO ARRIVE AT SUCH A FINDING. IN PARA 7, IT HAS BEEN OBSERVED THAT IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THOUGH THE ARGUMENTS ADDRESSED ON BEHALF OF THE ASSESSEE AT THE TIME OF HEARING OF THE APPEAL WERE RECORDED, THEY WERE NOT EITHER FULLY RECORDED, OR DISPOSED OF . IN PARA 8, IT WAS OBSERVED THAT IT HAD BEEN ASSERTED ON BEHALF OF THE ASSESSEE THAT THOUGH IT WAS BROUGHT TO THE NOTICE OF THE TRIBUNAL THAT THE LD. CIT(A) H AD GIVEN A FINDING IN PARA 8 OF HIS ORDER THAT THE ARGUMENT OF THE AO WAS THAT IT WAS A CASE OF RECONSTRUCTION AND THAT THE AO HAD WRONGLY MADE IT TO BE A CASE OF SPLITTING OF THE BUSINESS, THESE FACTS HAD NOT BEEN CONSIDERE D BY THE TRIBUNAL. 22. IT WAS HAVING CONSIDERED THE ABOVE, THAT IN PAR A 10 OF THE ORDER ALLOWING THE APPLICATION OF THE ASSESSEE, THE TRIB UNAL OBSERVED, INTER-ALIA, THAT THE ARGUMENTS ON BEHALF OF THE ASSESSEE HAD NO T BEEN DISPOSED OF IN THEIR RIGHT PERSPECTIVE. TO QUOTE THE RELEVANT PORTION O F THE TRIBUNAL ORDER ( SEE PARA 8 ABOVE): . THE AFORESAID VARIOUS ARGUMENTS, STATED TO HAVE BEEN MADE BEFORE THE TRIBUNAL AT THE TIME OF HEARING OF THE A PPEAL, HAVE ALSO NOT BEEN DISPOSED OF IN THEIR RIGHT PERSPECTIVE, AS POI NTED OUT IN THE APPLICATION AND ARGUED DURING THE HEARING OF THE AP PEAL ..(EMPHASIS SUPPLIED) ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 11 AS SUCH, THERE IS NO FORCE IN THE OBJECTION OF THE DEPARTMENT THAT IT WAS NOT WITHIN THE PURVIEW OF THE TRIBUNAL TO RECALL ITS EA RLIER ORDER ON THE BASIS THAT ARGUMENTS HAD NOT BEEN CONSIDERED IN THEIR RIGHT PE RSPECTIVE. ACCORDINGLY, THIS OBJECTION IS ALSO REJECTED. 23. SUPPORTING THE PROPOSITION THAT THE TRIBUNAL D OES NOT HAVE ANY POWER TO RECALL ITS EARLIER ORDER IN ITS ENTIRETY, THE LD . DR HAS SOUGHT TO PLACE RELIANCE ON THE FOLLOWING DECISIONS: I) COMMISSIONER OF INCOME TAX VS. GOKUL CHAND AGAR WAL, 202 ITR 14 (CAL.) II) COMMISSIONER OF INCOME TAX VS. EARNEST EXPORTS LTD., 323 ITR 577 (BOM.) III) SHAW WALLACE AND CO. LTD. VS. INCOME-TAX APPELLATE TRIBUNAL AND OTHERS, 240 ITR 577 (CAL.) IV) COMMISSIONER OF INCOME TAX VS. INCOME TAX APPELLAT E TRIBUNAL AND OTHERS, 293 IT 118 (DEL.) V) COMMISSIONER OF INCOME TAX VS. KEDIA LEATHER AND L IQUOR LTD., 293 ITR 95 (MP) 24. COMMISSIONER OF INCOME TAX VS. GOKUL CHAND AGA RWAL, (SUPRA) IS DISTINGUISHABLE ON FACTS. THEREIN, THE TRIBUNAL HAD RECALLED ITS EARLIER ORDER WITHOUT POINTING OUT THAT THE SAME SUFFERED FROM A NY MISTAKE APPARENT FROM THE RECORD, WHICH WAS LIABLE TO BE RECTIFIED. 25. COMMISSIONER OF INCOME TAX VS. EARNEST EXPORTS LTD. (SUPRA) ALSO DOES NOT FURTHER THE CAUSE OF THE DEPARTMENT. IN TH AT CASE, IN ITS ORIGINAL ORDER, THE TRIBUNAL SPECIFICALLY DEALT WITH TWO TRI BUNAL DECISIONS CITED BY ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 12 THE ASSESSEE AND DISTINGUISHED THE SAME. THE ISSUE CONCERNING DEDUCTION U/S 80HHC OF THE ACT, WAS DECIDED ON MERITS BY DEALING WITH THE SAID TWO DECISIONS. THE APPEAL OF THE ASSESSEE WAS NOT DISMI SSED ONLY ON TECHNICAL GROUNDS. HOWEVER, WHILE DEALING WITH THE APPLICATIO N U/S 254(2) OF THE ACT THE TRIBUNAL VIRTUALLY RECONSIDERED THE ENTIRE MAT TER AND CAME TO THE CONCLUSION THAT DEDUCTION U/S 80HHC OF THE ACT WAS ALLOWABLE IN VIEW OF THESE DECISIONS. THE HONBLE BOMBAY HIGH COURT HELD THAT THIS AMOUNTED TO RE-APPRECIATION OF THE CORRECTNESS OF THE EARLIER D ECISION ON MERITS, WHICH WAS NOT PERMISSIBLE. IT WAS HELD THAT POWER U/S 254 (2) OF THE ACT IS CONFINED TO RECTIFICATION OF MISTAKES APPARENT FROM THE REC ORD AND THAT SECTION 254(2) IS NOT A CARTE BLANCHE FOR THE TRIBUNAL TO CHANGE I TS OWN VIEW BY SUBSTITUTING A VIEW WHICH IT BELIEVES SHOULD HAVE BEEN TAKEN IN THE FIRST INSTANCE. NOW, AGAIN, THESE ARE NOT FACTS IN PARI-MATERIA WITH TH OSE OF THE PRESENT CASE. IN THE PRESENT CASE, THE EARLIER ORDER WAS RECALLED SI NCE MISTAKES APPARENT FROM THE RECORD, CALLING FOR RECTIFICATION, WERE FOUND T O EXIST IN THE EARLIER ORDER OF THE TRIBUNAL AND IT WAS AS SUCH THAT THE ENTIRE EAR LIER ORDER WAS ORDERED TO BE RECALLED. IT IS NOT A CASE OF SUBSTITUTION OF AN EA RLIER VIEW WITH A FRESH ONE THOUGHT OUGHT TO HAVE BEEN TAKEN EARLIER. 26. IN SHAW WALLACE AND CO. LTD. VS ITAT, (SUPRA ), IT WAS HELD THAT A MISTAKE IN THE REASONING PORTION OF THE ORDER CANNO T BE RECTIFIED U/S 254(2) ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 13 OF THE ACT BY THE TRIBUNAL BY TOTALLY RECALLING ITS ORDER. IT WAS HELD THAT THE TRIBUNAL WAS NOT ENTITLED U/S 254(2) OF THE ACT TO RECTIFY OR AMEND ANY REASONING OF IT WHICH DID NOT AFFECT THE CORRECTN ESS OF ITS FINAL ORDER. HERE TOO, THE FACTS ARE AT VARIANCE. IN THE PRESENT CASE , NO MISTAKE IN THE REASONING OF THE EARLIER ORDER, NOT EFFECTING THE CORRECTNESS OF THE ORDER HAS BEEN SOUGHT TO BE RECTIFIED BY RECALLING THE ENTIRE ORDER. AS D ISCUSSED HEREINABOVE, NON- CONSIDERATION OF THE JUDGMENTS CITED ON BEHALF OF THE ASSESSEE AND THE ARGUMENTS ADDRESSED WERE FOUND TO BE THE MISTAKES A PPARENT FROM THE RECORD, WHICH WERE SOUGHT TO BE RECTIFIED BY RECAL LING THE ENTIRE ORDER. IT WAS NOT THE REASONING, BUT THE SAID OMISSIONS, WHIC H AFFECTED THE ORDER OF THE TRIBUNAL AND THEREFORE, THE MISTAKES APPARENT FROM THE RECORD WERE SUBJECTED TO RECTIFICATION. 27. IN COMMISSIONER OF INCOME TAX VS. INCOME TAX A PPELLATE TRIBUNAL AND OTHERS, (SUPRA), IT WAS HELD THAT THE FACT TH AT THE TRIBUNAL, WHILE DISPOSING OF THE APPEAL, FAILED TO TAKE NOTE OF A D ECISION MAY NOT CONSTITUTE A MISTAKE APPARENT FROM THE RECORD WITHIN THE MEANING OF SECTION 254(2) OF THE ACT. IT WAS FURTHER HELD THAT THE FACT THAT THE ISSUE DECIDED BY THE TRIBUNAL WAS DEBATABLE, COULD NOT BE A JUSTIFICATIO N FOR RECALLING THE ORDER TO HEAR THE APPEAL DENOVO. IN THE PRESENT CASE, IT IS NOT ONLY THAT THE TRIBUNAL FAILED TO TAKE NOTE OF DECISIONS CITED, RATHER, AS DELIBERATED UPON ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 14 HEREINABOVE, THERE ALSO EXISTED NUMEROUS OTHER MIST AKES APPARENT FROM THE RECORD ALSO, WHICH REQUIRED RECTIFICATION. IT WAS THUS THAT THE TRIBUNAL RECALLED ITS EARLIER ORDER IN ITS ENTIRETY. TOO, WH ILE ORDERING SUCH RECALL, IT WAS NOWHERE HELD THAT ANY ISSUED DECIDED BY THE TRI BUNAL WAS A DEBATABLE ONE. AS SUCH, THIS DECISION IS ALSO DISTINGUISHABL E. 28. IN COMMISSIONER OF INCOME TAX VS. KEDIA LEATHE R AND LIQUOR LTD., (SUPRA), IT HAS BEEN HELD THAT U/S 254(2) OF THE AC T, THE TRIBUNAL CAN RECTIFY A MISTAKE, BUT IT CANNOT REVIEW ITS ORDER. THIS, UND ENIABLY IS THE SETTLED POSITION OF LAW. IN THE PRESENT CASE, HOWEVER, IT H AS NOT BEEN SHOWN AS TO HOW, PARTICULARLY WHEN THE TRIBUNAL RECALLED ITS EA RLIER ORDER TO RECTIFY NUMEROUS MISTAKES APPARENT FROM THE RECORD, IT AMOU NTED TO A REVIEW. THUS, THIS DECISION IS OF NO AID TO THE DEPARTMENT. 29. BESIDES THE ABOVE, IT HAS ALREADY BEEN DISCUSSE D THAT SINCE THE DEPARTMENT NEVER FELT AGGRIEVED OF THE RECTIFICATIO N ORDER OF THE TRIBUNAL AND DID NOT EVER AGITATE THIS ISSUE, IT IS PRECLUDED FR OM DOING SO AT THIS STAGE. ACCORDINGLY, THE OBJECTIONS OF THE DEPARTMENT IN TH IS REGARD ARE HEREBY REJECTED. 30. THE ASSESSEE HAS FILED AN APPLICATION FOR ADDI TIONAL EVIDENCE BEFORE US, SEEKING TO PRODUCE ON RECORD, AS ADDITIONAL EV IDENCE, A LETTER DATED ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 15 14.12.2009 OF MITUSUVHISHI HEAVY INDUSTRIES LIMITE D, JAPAN. IT HAS BEEN CONTENDED THAT THIS LETTER IS CRUCIAL FOR A JUST DI SPOSAL OF THE DISPUTE AT HAND; THAT THIS LETTER WAS NOT AVAILABLE AT THE TIME OF H EARING, EITHER BEFORE THE AO, OR BEFORE THE LD. CIT(A) AND IT WAS RECEIVED BY THE ASSESSEE SUBSEQUENTLY, AFTER THE ORDER OF THE LD. CIT(A) WAS PASSED; AND T HAT AS SUCH, THE ASSESSEE HAD NO OPPORTUNITY TO PRODUCE THIS EVIDENCE BEFORE THE TAXING AUTHORITIES. 31. THE LD. DR, ON THE OTHER HAND, HAS CONTENDED TH AT THIS EVIDENCE CANNOT BE ALLOWED TO BE PRODUCED ON RECORD AT THIS BELATED STAGE. 32. HAVING HEARD THE RIVAL CONTENTIONS ON THIS ISSU E, IT IS SEEN THAT IT REMAINS UNDISPUTED THAT THE LETTER SOUGHT TO BE PRO DUCED BY THE ASSESSEE BY WAY OF ADDITIONAL EVIDENCE IS ESSENTIAL FOR A JUST DISPOSAL OF THE MAIN DISPUTE. IT ALSO REMAINS UNCHALLENGED THAT THE LETT ER WAS NOT AVAILABLE WITH THE ASSESSEE TILL THE TIME OF THE PASSING OF THE LD . CIT(A)S ORDER, WHICH IS DATED 14.07.2009. 33. IN CIT VS. MUKTA METAL WORKS, (2011) 336 ITR 555 (P&H), IT HAS BEEN HELD TO THE EFFECT THAT WHERE THE ADDITIONAL E VIDENCE SOUGHT TO BE PRODUCED HAS A DIRECT BEARING ON THE ISSUE, THE TRI BUNAL IS NOT JUSTIFIED IN DECLINING TO CONSIDER THE SAME. 34. THEREFORE, THE REQUEST FOR ADDITIONAL EVIDENCE IS ACCEPTED. ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 16 35. NOW COMING TO THE MERITS OF THE CASE. AT THE OU TSET, IT IS PERTINENT TO MENTION HERE, THAT, TO REITERATE, THE DEPARTMENT R EQUESTED THAT THE ISSUE AS TO WHETHER THE TRIBUNAL ORDER ALLOWING THE APPLICATION FILED BY THE ASSESSEE HAS OR HAS NOT CAUSED PREJUDICE TO THE INTERESTS OF THE REVENUE, BE DECIDED FIRST. THIS REQUEST IS ALSO CONTAINED IN THE DEPAR TMENTS WRITTEN SUBMISSION DATED 27.01.2015 (SUPRA) AND THAT DATED 03.02.2015 (SUPRA). DESPITE THE DEPARTMENT HAVING BEEN APPRISED OF THE LEGAL POSITI ON, AS PER THE CONSIDERED OPINION OF THIS BENCH, THAT THE MATTER REQUIRES TO BE HEARD IN ITS ENTIRETY, INCLUDING THE MERITS THEREOF AND NO SUCH SEGREGATIO N, AS SOUGHT BY THE DEPARTMENT, IS ENVISAGED UNDER THE LAW, THE DEPARTM ENT CHOSE NOT TO RESPOND TO THE ARGUMENTS ON MERITS, BOTH ORAL AS WELL AS WR ITTEN, ON BEHALF OF THE ASSESSEE. THEREFORE, WE ARE PROCEEDING TO DECIDE TH E MERITS OF THE CASE ON THE BASIS OF THE IMPUGNED ORDER, AND THE MATERIAL A VAILABLE ON RECORD. THE CIT(A) HAS NOTED THE OBJECTIONS OF THE AO THUS: 2.1 THE AO NOTED THAT THE ASSESSEE AND HIS WI FE MRS. MALA TANDON WERE RUNNING A PARTNERSHIP CONCERN UNDER THE NAME A ND STYLE OF M/S DYNAMECH SINCE 1998. M/S DYNAMECH WAS ENGAGED IN TH E MANUFACTURE OF COMPONENT PARTS RIGHT FROM 1998. AND WAS EXPORTING ITS PRODUCTS TO M/S MITSUBISHI CORPORATION,JAPAN. THE FIRM WAS AVAILING DEDUCTION U/S 80IB IN RESPECT OF ITS PROFITS. THE AO NOTED THAT AFTER THE SET UP OF NEW CONCERN M/S PRAJNA (INDIA) THE OLD BUSINESS OF M/S DYNAMECH WAS DIVERTED SYSTEMATICALLY TO THE NEW CONCERN. SIMILAR ITEMS HA VE BEEN SUPPLIED TO THE SAME CUSTOMER M/S MITSUBISHI CORPN. JAPAN FOR ITS O FFSET PRINTING PRESS. ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 17 THE MANUFACTURING PROCESS EMPLOYED BY THE BOTH THE CONCERNS WERE SAME. THE AO NOTED THAT THE ASSESSEE SH. ROHIT TANDON HAD BEEN ASSOCIATED WITH M/S MITSUBISHI CORPN AS PARTNER IN M/S DYNAMECH AND M/S ASUTECS ALLOYS AND ROW AS PROP. OF M/S PRAJNA (INDIA) AND THAT HE WAS INVOLVED IN RUNNING OF THE BUSINESS OF BOTH M/S DYNAMECH AND M/ S PRAJNA (INDIA). HE ANALYZED THE TURNOVER OF M/S DYNAMECH AND M/S PRAJN A (INDIA) AND NOTICED THAT THE BUSINESS OF M/S PRAJNA (INDIA) HAD GAINED SOLELY AT THE COST OF M/S DYANEMECH AND THAT, IN FACT THE BUSINESS OF M/S DYNAMECH FROM MITSUBISHI CORPN HAD SHIFTED TO PRAJNA (INDIA). THE AO WAS OF THE OPINION THAT THIS HAD BEEN DONE SINCE DEDUCTION U/S 10B OF 100% PROFITS WAS AVAILABLE TO PRAJNA (INDIA) AND SUCH DEDUCTION WAS NO LONGER AVAILABLE TO M/S DYNAMECH. 2.2 THE AO FURTHER NOTED THAT SOURCE OF THE ASS ESSEES CAPITAL IN PRAJNA (INDIA) WAS A GIFT OF RS. 95 LACS FROM HIS MRS MALA TANDON WHO HAD MADE THIS GIFT AFTER WITHDRAWING FROM HER CAPITAL AMOUNT WITH M/S DYNAMECH. THE ASSESSEE HAD ALSO WITHDRAW RS. 96.70 LAC FROM M /S DYNAMECH. ALMOST THE ENTIRE CAPITAL BALANCE OF THE TWO PARTNERS, WIT HOUT CONSIDERING THE CURRENT YEARS PROFIT, WAS WITHDRAWN AND INVESTED I N M/S PRAJNA (INDIA). THUS, THE AP CONCLUDED, CAPITAL HAD BEEN WITHDRAWN FROM M/S DYNAMECH AND SHIFTED TO M/S PRAJNA (INDIA). HE CONCLUDED THA T PRAJNA (INDIA) HAD SUBSTITUTED THE FIRM DYNAMECH IN ALL THE ASPECTS OF THE BUSINESS, I.E. SALES, CAPITAL AND PROFITS. THE AO NOTED THAT SINCE THE OR DER EARLIER BOOKED BY M/S DYNAMECH WHERE DIVERTED TO M/S PRAJNA (INDIA), THE BUSINESS OF M/S PRAJNA (INDIA) WAS CONTINUATION OR EXTENSION OF THE BUSINESS OF M/S DYANAMECH AND WAS NOT A NEW BUSINESS. HE FURTHER NO TED THAT THE DUEDUCTION U/S 80IB AVAILABLE TO M/S DYNAMECH WAS O NLY 25% NOW, WHICH WAS THE REASON FOR THE BUSINESS BEING SHIFTED FROM ONE FAMILY CONCERN TO ANOTHER TO AVOID THE TAX LIABILITY. 2.3 THE AO FURTHER NOTED THAT M/S PRAJNA (INDIA) HAD PURCHASED MACHINERY ONLY IN FEB AND MARCH, 2006. HE WAS OF TH E OPINION THAT MACHINERY HAD BEEN PURCHASED AFTER THE PRODUCTION H AD STARTED AND THAT THE PRODUCTION OF THE ASSESSEE FIRM WAS BEING CARRI ED OUT WITH THE MACHINERY OF M/S DYNAMECH. THE AO NOTED THAT PRODUC TION HAD BEEN STARTED BY THE AO ON 2-1-2006 WITHOUT SUFFICIENT MA CHINERY, WHICH WAS NOT POSSIBLE. HE COMPARED THE VALUE OF THE MACHINERY PU RCHASED LATER ON BY THE ASSESSEE TO THE VALUE OF THE MACHINERY WITH M/S DYNAMECH WHICH WERE FOUND TO BE SIMILAR AND CAME TO THE CONCLUSI ON THAT PRAJNA (INDIA) COULD NOT BE EXPECTED TO MAKE THE PRODUCTION WITH L ESSER MACHINERY. ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 18 2.4 THE AO GAVE A SHOW CAUSE NOTICE TO THE ASSE SSEE BASED ON ABOVE DATA AND INTERPRETATION PROPOSING TO WITHDRAW THE D EDUCTION U/S 10B ON GROUNDS WHICH HAVE BEEN SUMMARIZED IN PARA 4.6 OF A OS ORDER. THE AO, THEREFORE, EXAMINED THE OBJECTIONS OF THE ASSESSEE TO HIS PROPOSAL. IN RESPECT OF THE BUILDING CONSTRUCTED BY THE ASSESSEE FOR THE NEW PRODUCTION UNIT, THE AO WAS OF THE OPINION THAT THE INVESTMENT SHOWN BY THE ASSESSEE TO HIS PROPOSAL. IN RESPECT OF THE BUILDING CONSTRUCTE D BY THE ASSESSEE FOR THE NEW PRODUCTION UNIT, THE AO WAS OF THE OPINION THAT THE INVESTMENT SHOWN BY THE ASSESSEE IN THE BUILDING AT RS. 47,83,487/- UPTO 31.3.2006 AND FURTHER RS. 3,49,482/- IN THE NEXT FINANCIAL YEAR WAS INSUFFICIENT TO CONSTRUCT THE BUILDING WHOSE GROUND FLOOR SELF HAD COVERED AREA OF 10400 SQ.FT. IN THE AOS OPINION, SINCE HE GROUND FLOOR, 1 ST FLOOR AND IIND FLOOR WERE ALL NEEDED FOR DIFFERENT STAGES OF PRODUCTION PROCESS AS PER ASSESSES SUBMISSIONS, THE ASSESSEE COULD NOT HAVE DONE EXPOR T OF RS. 3 CRORES EVEN DURING THE NEXT FINANCIAL YEAR FROM THIS BUILDING W ITH FRACTIONAL CONSTRUCTION. 2.4.1. IN RESPECT OF MACHINERY PURCHASED, THE AO NOTED THAT THE ASSESSEE HAS PURCHASED MACHINERY OF VALUE OF ONLY RS. 14,36, 128/- UPTO 6 TH FEB. 2006. THE CNC MACHINES WERE IMPORTED AND RECEIVED I N INDIA AND 22-2- 2006 AND RECEIVED AT NOIDA ON 2.3.2006. ON THE OTHE R HAND, THE ASSESSEE HAD ISSUED SALES INVOICES OF SUBSTANTIAL VALUE RIGH T FROM 10-2-2006. THE AO WAS OF THE OPINION THAT IN THE ABSENCE OF CNC MACHI NE, THE ASSESSEE COULD NOT HAVE CARRIED OUT ITS PRODUCTION SINCE THESE MAC HINES WERE VITAL TO THE PRODUCTION PROCESS FOR MAKING PRECISION PARTS. THE AO WAS OF THE OPINION THAT THE ACTUAL MANUFACTURING WAS DONE BY M/S DYNAM ECH, IN THIS PERIOD. 2.4.2. THE AO ALSO NOTED THAT THE ASSESSEE HAD P URCHASED MILLING MACHINES FOR RS. 9,14,600/- IN THE LAST WEEK OF MAR CH, 2006. HE WAS ALSO OF THE OPINION THAT SINCEH THE ASSESSEES PRODUCTION W ORK WAS OF SOPHISTICATED NATURE, THE NUMBER OF SKILLED AND SEMI SKILLED WORK ERS EMPLOYED WAS NOT SUFFICIENT TO USE THE CNC MACHINES THE ASSESSEE COU LD, THEREFORE, HAVE USED THE WORKERS OF M/S DYNAMECH. THE AO NOTED THAT THE FIRE PROTECTION SYSTEM HAS BEEN PURCHASED ON 24.3.2006 AND 29.3.2006. FURN ITURE AND FIXTURE PURCHASED WAS ONLY RS. 68240/- WHICH WAS CONSIDERED BY THE AO AS INSUFFICIENT FOR CARRYING OUT BUSINESS FROM THE NEW PREMISES. THE COMPUTER WAS PURCHASED ONLY ON 25.3.2006. OFFICE EQUIPMENT O F ONLY 18,130/- WAS PURCHASED. ELECTRICAL ITEMS WERE PURCHASED ONLY IN MARCH, 2006. POLISHING MACHINE HAD BEEN PURCHASED THAT THE ASSESSEE COULD NOT HAVE CARRIED OUT PRODUCTION AND SALE ON ITS OWN DURING THE YEAR AND IT WAS SUSTAINING ITSELF WITH THE HELP OF M/S DYNAMECH. IN RESPECT OF CONSUM PTION OF CONSUMABLE STORE ALSO, THE AO UP TO FEB 2006 INDICATED THAT TH E PRODUCTION WAS NOT DONE BY THE ASSESSEE HIMSELF. ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 19 2.4.3. IN RESPECT OF THE TRANSFER OF CAPITAL FROM M/S DYNAMECH TO M/S PRAJNA (INDIA) THE AO HELD THAT THE CAPITAL HAD BEE N SHIFTED ALONG WITH THE SHIFTING OF THE BUSINESS IN THE FROM OF ORDERS TO T HE NEW CONCERN. THE AO, THUS, CONCLUDED THAT M/S PRAJNA (INDIA) WAS SHARING ALL THE ASSETS AND OTHER INFRASTRUCTURE OF M/S DYNAMECH I.E. BUILDING, MACHINERY, CAPITAL, WORKERS AND EVEN GOODWILL, THE AO WAS OF THE OPINIO N THAT WHILE THE ASSESSEE WAS FREE TO ESTABLISH NEW UNIT AS PER THE VOLITION BUT WHEN THE SAME PERSON RUNNING GOOD BUSINESS FOR YEARS, CHOOSE S TO CREATE A NEW CONCERN FOR DOING EXACTLY THAT VERY BUSINESS BY DIV ERTING THE TOTAL SALES AND ALSO CLAIMS 100% DEDUCTION OF TAX. IT WAS A MATTER OF CONCERN. HE EXPRESSED THE VIEW THAT THE CLAIM OF EXEMPTION OF I NCOME FROM TAXATION HAS TO BE PROVEN BY THE ASSESSEE. HE NOTED THAT THE ASS ESSEE HAD ONLY 8 SKILLED AND SEMISKILLED WORKERS EFFECTIVELY, THE SEMI SKILL ED WORKERS WERE CONSIDERED BY THE AO TO BE NOT FIT FOR THE PURPOSES OF SUCH PROCESSING MANUFACTURING THE AO NOTED THAT THE ASSESSEE WAS TH E CONTROLLER, MANAGER AND BENEFICIARY OF BUSINESS OF BOTH M/S DYNAMECH AN D PRAJNA (INDIA) AND THAT ONLY FOR THE PURPOSE OF CLAIMING EXEMPTION U/S 10B, A NEW BUSINESS HAD BEEN ERECTED BY TRANSFER OF CAPITAL FROM THE OL D FIRM. THE AO COMPARED THE TURNOVER AND PROFITS OF THE TWO CONCERNS AS UND ER : ASSESSMENT YEAR TURNOVER (RS. LACS) NET PROFIT (RS. LACS) M/S DYNAMECH MS/ PRAJNA (INDIA) M/S DYNAMECH MS/ PRAJNA (INDIA) 2002-03 137.29 - 56.68 - 2003-04 166.17 - 62.94 - 2004-05 212.09 - 77.00 - 2005-06 268.72 - 108.80 - 2006-07- 221.09 54.67 87.60 24.59 2007-08 8.14 317.16 ???? 177.93 HE, BASED ON THE ABOVE ANALYSIS CAME TO THE CONCL USIONS THAT NEW CONCERN WAS MADE UP OR CONSTRUCTED BY SPLITTING UP THE OLD CONCERN, BY DIVERSIFICATION OF SALES OF THE OLD FIRM TO THE NEW CONCERN. 2.4.4. THE AO, BASED ON HIS AFORESAID ANALYSIS HE LD THAT THE NEW FIRM CIATED MANUFACTURED THE SAME ITEMS MADE BY THE EARL IER FIRM, UTILIZED THE CAPITAL THAT LAY IN THE EARLIER FIRM, MADE SALES TO THE SAME BUYER AS IN THE OLD FIRMS AND THAT THIS WAS A CALCULATED AND CONSCI OUS ACT TO EARN PROFITS AND AVAIL DEDUCTION U/S 10B TO ESCAPE LEVY OF TAX. THE AO RELIED ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF TE XTILE MACHINERY CORPN LTD 107 1TR 195 FOR THIS PROPOSITION. AS PER THE AO, IN THIS ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 20 DECISION, THE APEX COURT HAVE HELD THAT IF SUBSTANT IALLY THE SAME PERSON WERE DOING THE SAME BUSINESS IT AMOUNTED TO RECONST RUCTION AND THIS PORTION OF THE JUDGMENT OF APEX COURT WAS SQUARELY APPLICABLE TO THE CASE OF THE ASSESS, THE AO ALSO HELD THAT THE NEW BUSINE SS WAS PHYSICALLY NOT AN INDEPENDENT BUSINESS, SINCE IT WAS DOING THE SAME B USINESS AS WAS BEING DONE BY HIM ALONG WITH HIS WIFE, THE ONLY BUYER OF THE OLD CONCERN HAD BEEN TAKEN OVER AND THE CAPITAL OF OLD CONCERN HAD BEEN TAKEN OVER AND EVEN THE BUILDING OF OLD CONCERN HAVE BEEN USED. THE AO THER EFORE, HELD THAT PRAJNA (INDIA) WAS INTRINSICALLY NOT A NEWLY ESTABLISH UND ERTAKING EVEN THOUGH NEW MACHINERY HAD BEEN PURCHASED. 2.4.5. THE AO ALSO REFERRED TO THE DECISION OF H ONBLE KERALA HIGH COURT IN THE CASE OF M/S CHEMBRA PEAK ESTATE LTD VS CIT 85 ITR 401 (KER). IN THIS CASE THE ASSESSEE ESTABLISHED A NEW FACTORY FOR MANUFACTURER OF NEW TYPE OF TEA. THE QUESTION BEFORE THE HONBLE KERALA HIGH COURT WAS TO DECIDE WHETHER THE NEW FACTORY COULD BE CONSIDERED TO BE FORMED BY SPLITTING UP OF BUSINESS ALREADY IN EXISTENCE. THE HONBLE HIGH COURT HELD THAT THIS WAS A CASE OF SPLITTING UP OF BUSINESS AL READY IN EXISTENCE. THE HONBLE HIGH COURT HELD AS DISPUTED BETWEEN THE OLD AND NEW FACTORIES. THE AO RELIED ON THIS DECISION FOR THE PROPOSITION THAT THE BUSINESS OF M/S DYNAMECH HAS BEEN SPLIT AND HAD BEEN TRANSFEERED IN M/S PRAJNA (INDIA). 2.5. BASES ON THIS DISCUSSION , THE AO THAT PRAJN A (INDIA) WAS NOT PHYSICALLY AN INDEPENDENT BUSINESS. HE WAS OF THE O PINION THAT OBTAINING TAX INCENTIVES BY COLOURABLE DEVICE NOT PERMITTED I N LAW. HE WAS OF THE OPINION THAT THIS SORT OF SCHEMING, THROUGH WHICH P AYMENT OF TAX TO THE EXCHEQUER COULD BE AVOIDED, WAS NOT PERMISSIBLE. HE NCE, THE DEDUCTION A/S 10B WAS NOT ALLOWED TO THE ASSESSEE. 36. IT WAS IN THIS MANNER THAT THE AO REFUSED TO AL LOW DEDUCTION U/S 10B OF THE ACT TO THE ASSESSEE. 37. THE LD. CIT(A), IN THE IMPUGNED ORDER, HAS OBSE RVED (THIS LENGTHY OPERATIVE PORTION OF THE IMPUGNED ORDER IS BEING RE PRODUCED HERE FOR THE FACILITY OF READY REFERENCE) AS FOLLOWS: ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 21 6. I HAVE CONSIDERED THE RIVAL SUBMISSION CAREF ULLY BEFORE CONSIDERING THE AOS CONTENTION REGARDING SPLITTING UP OR RECON STRUCTION OF AN EXISTING BUSINESS, I WILL FIRST DEAL WITH THE AOS CONTENTIO NS REGARDING THE BUILDING, PLANT AND MACHINERY AND PRODUCTION MADE BY THE APPE LLANT. 6.1 DURING THE COURSE OF THE APPELLATE PROCEEDINGS, THE ID. AR WAS REQUESTED TO PRODUCE STOCK REGISTER, ELECTRICITY BI LLS, NOTE ON GOODS MANUFACTURED AND RAW MATERIAL REQUIRED FOR THE SAME , APPROVAL FOR STARTING PRODUCTION FROM STATUTORY AUTHORITIES MONT HLY ELECTRICITY CONSUMPTION FIGURES. THE APPELLANT WAS ALSO REQUEST ED SO SUBMIT THE TOTAL COST OF USED AND NEW MACHINERY, TO STATE WHETHER CN C MACHINES WERE REQUIRED TO PRODUCTION OF SEPARATE CATEGORY OF FINI SHED GOODS, WHETHER ANY PERSONAL EMPLOYED BY M/S. DYNAMECH HAD BEEN SHIFTED TO ASSESSEES UNIT, WHETHER ANY MACHINERY USED BY M/S DYNAMECH HAD BEEN TRANSFERRED TO ASSESSEES UNIT DIRECTLY OR INDIRECTLY, WHETHER SAM E GOODS AS WERE SOLD BY DYNAMECH HAS ALSO SOLD BY THE ASSESSEE REASON FOR S TARTING NEW UNIT, WHETHER ANY MACHINERY OF DYNAMECH HAD BEEN SOLD IN THIS OR SUBSEQUENT YEAR AND MONTH WISE PRODUCTION OF DYNAMECH AND THE ASSESSEES UNIT. THE ASSESSEE OF THE SUBMITTED REPLIES TO THE QUERIES WH ICH HAVE ALSO BEEN FORWARDED TO THE AO. MOST OF THE HEARINGS WERE HELD IN THE PRESENCE OF THE AO WHO HAS ALSO TAKEN NOTE AND COMMENTED ON SOME O F THE OBSERVATIONS. 6.2. THE ASSESSEE, IN RESPECT OF AFORESAID QUERIES, HAS SUBMITTED THAT THE TOTAL AMOUNT INVESTED IN PLANT AND MACHINERY DURING THE YEAR WAS RS. 91, 17, 949/-, WHICH INCLUDED USED MACHINES OF RS. 8,79 ,318/-. OUR OF THE USED MACHINES, RS. 3, 92, 068/- WAS STATED TO BE AN IMPO RTED MACHINE ON WHICH NO DEPRECIATION HAD BEEN CLAIMED IN INDIA AND CERTI FICATE IN THIS REGARD WAS SUBMITTED. THE PRODUCTION PROCESS WAS STATED TO CONSISTS OF MACHINING DONE BY VARIETY OF MACHINES LIKE TURNING, MILLING, DRILLING ETC. IT WAS SUBMITTED THAT THESE OPERATIONS COULD BE DONE ON MA NUALLY OPERATED MACHINES OR BY CNC [COMPUTER AND NUMERICALLY CONTRO LLED] MACHINES. IT WAS SUBMITTED THAT CNC MACHINES GAVE HIGHER PRODUCT IVITY AND BETTER REPEATABILITY. OTHER PROCESSES LIKE HEAT TREATMENT, SURFACE TREATMENT, DEBURRING ETC. WERE ALSO DONE TO PRODUCE THE FINISH ED PARTS. IT WAS INFORMED THAT NO EMPLOYEES OF DYNAMECH WERE SHIFTED DURING THE YEAR TO THE ASSESSEE, THOUGH IT WAS ADMITTED THAT SOME EMPL OYEES OF DYNAMECH HAS BEEN EMPLOYED BY THE ASSESSEE IN THE SUBSEQUENT YEA R. IT WAS ALSO SUBMITTED THAT NO GOODS WERE SOLD FROM DYNAMECH TO PRAJNA (INDIA) DURING THE YEAR, THOUGH IN THE SUBSEQUENT YEAR, DYNAMECH I S STATED TO HAVE BEEN DONE SOME JOB WORK FOR PRAJNA (INDIA). IT WAS SUBMI TTED THAT NO MACHINERY HAS BEEN SOLD BY DYNAMECH IN THIS OR SUBSEQUENT YEA R TO PRAJNA (INDIA) OR TO ANY OTHER CONCERN. THE REASONS FOR STARING THE N EW UNIT WERE STATED TO ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 22 BE TO INSTALL MODERN AND PRODUCTIVE EQUIPMENT, TO S ET UP OF PROPRIETORSHIP CONCERN IN WHICH SH. ROHIT TANDON WAS THE SOLE OWNE R AND TO AVAIL THE INCENTIVES OFFERED BY THE GOVT. TO NEW UNITS SET UP AS 100% EOU. IT WAS SUBMITTED THAT BOTH DYNAMECH AND PRAJNA (INDIA) MAN UFACTURED MACHINED PARTS AS PER DESIGNS / DRAWINGS AND SPECIFICATIONS OF THE CUSTOMERS. THE RAW MATERIAL USED IN THE MANUFACTURING PROCESS WERE STATED TO BE IN THE SHAPE OF RODS, BRIGHT BARS, ANGLES, PIPES, PLANTS, ETC. AS PER THE REQUIREMENT OF THE FINISHED GOVT. OF INDIA, DEPARTMENT OF INDUS TRIAL POLICY AND PROMOTION, MINISTRY OF COMMERCE AND INDUSTRIES ACKN OWLEDGING THE ASSESSEES MEMORANDUM INTIMATING THE COMMENCEMENT O F COMMERCIAL PRODUCTION AT THE ASSESSEES UNIT FROM 02.01.2006, A COPY OF ASSESSEES LETTER DATED 19.01.2006 TO THE DEVELOP[MENT COMMISS IONER, NOIDA, SPECIAL ECONOMIC ZONE, INTIMATING THE START OF PRODUCTION O N 02.01.2006 AND ACKNOWLEDGED BY THE OFFICE OF THE DEVELOPMENT COMMI SSIONER HAS ALSO BEEN SUBMITTED BY THE APPELLANT. 6.3. THE APPELLANT ALSO PLACED ON RECORD COPIES OF BILLS FOR PURCHASE OF MACHINERY. THESE WERE ALSO GIVEN TO THE AO. ALL THE INVOICES FOR MACHINERY ARE DRAWN IN THE NAME OF M/S PRAJNA I(INDIA) AT B 1 30-SECTO 63, NOIDA WHICH IS THE ASSESSEES ADDRESS. INVOICE DATED 23.1 2.2005 IS FOR SUPPLY OF MS SHEET FABRICATED ELECTRIC FURNACE. SUBSEQUENT IN VOICES ARE FOR CUTTING MACHINE, WELDING MACHINE, VERTICAL MILLING MACHINE, MILLING MACHINE AND GRINDER. THE ALSO MUCH MACHINE HAS BEEN RECEIVED BY THE ASSESSEE ON 21- 1.2006. OTHER MACHINES INCLUDING CNC MACHINES HAVE BEEN RECEIVED BY THE ASSESSEE IN FEB., 2006. THE TRANSPORT RECEIPT F OR DELIVERY OF CNC SHOWS THAT THEY WERE DISPATCHED ON 3.2.2006 FROM THE PORT AND REACHED THE ASSESSEES PROMISE ON 7.2.06 AND 8.2.06 RESPECTIVEL Y. A MILLING MACHINE WAS RECEIVED BY THE APPELLANT ON 24.3.2006 USED GEN ERATING SET WAS RECEIVED BY THE ASSESSEE ON 28.3.2006. 6.4. THE POWER AND FUEL ACCOUNT OF THE ASSESSEE SHO WS PAYMENT OF RENT FOR GENERATOR SET FROM THE MONTH OF DEC. 2005 TO MA RCH, 2006, AS WELL AS PAYMENT OF FUEL FOR THE GENERATOR SET. IN ADDITION THE ASSESSEE HAD PAID ELECTRICITY CHARGES IN THE MONTH OF MARCH, 2006. TH E COPY OF ELECTRICITY BILL SHOWS THAT DATE OF CONNECTION AS 13.1.2006. TWO BIL LS HAVE BEEN RAISED, AS PER WHICH THE ELECTRICITY METER HAVE NOT BEEN READ BUT CHARGES ON THE BASIS OF INSTALLED CAPACITY HAVE APPARENTLY BEEN LEVIED O N PROVISIONAL BASIS. 6.5. THE DETAILS OF RECEIPT OF THE MACHINERY SHOW T HAT THE ASSESSEE HAD IN HAND MANUALLY OPERATED MACHINES IN THE MONTH OF JAN . 2006 AND CNC MACHINES IN THE MONTH OF FEB. 2006. THE WAGES REGIS TER ALSO SHOWS PAYMENT TO SOME WORKERS. THE ASSESSEE HAD OBTAINED ELECTRICITY CONNECTION ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 23 AT ITS NEW UNIT. IT AHS ALSO OBTAINED A GENERATOR S ET FOR GENERATING ELECTRICITY IN THE ABSENCE OF ELECTRIC POWER. THESE EVIDENCES, IN MY OPINION, DO ESTABLISH THAT THE ASSESSEE WAS IN A POSITION TO MANUFACTURE GOODS AT ITS NEW FACTORY. EVEN IF THERE WAS NO MANUFACTURE WITH THE MANUALLY CONTROLLED MACHINES, AS ALLEGED BY THE AO, THE ASSESSEE COULD HAVE STARTED MANUFACTURE USING CNC MACHINES IN THE MONTH OF FEB. 2006. 6.6. AS REGARDS THE FACTORY BUILDING OF M/S PRAJNA (INDIA)\, AS NOTED ABOVE, THE PLOT AREA IS 1000SQ MT WHICH IS EQUAL TO 10,764 SQFT. THE TOTAL CONSTRUCTED AREA OF GROUND FLOOR, MEZZANINE FLOOR I S STATED TO 10,245 SQ FT AS PER APPROVED BUILDING PLAN. THUS, THE AOS OBSER VATION THAT AREA OF GROUND FLOOR ITSELF WAS 14000 SQ FT IS INCORRECT SI NCE THAT TOTAL AREA OF ALL FLOORS IS 10.245 SQ FT. THE APPELLANT HAD INVESTED A SUM OF RS. 47,83,487/- IN THE CONSTRUCTION UPTO 31-12-2005 AND HE SUBMITTE D THAT THE GROUND FLOOR PRODUCTION ARE HAD BEEN COMPLETED BY THIS DATE, BAS ED ON WHICH THE CENTRAL EXCISE AUTHORITIES GAVE THEM LICENSE TO FUN CTION AS THE BONDING OF THE PREMISES AS A BONDED WAREHOUSE WAS DONE ON 27-1 2-20085. FURTHER WORK WAS CARRIED OUT IN THE LAST QUARTER OF FY AND A SMALL PORTION OF THE WORK WAS DONE IN THE NEXT YEAR. THESE FACTS INDICAT E THAT THE BUILDING OF THE APPELLANT WAS SUBSTANTIALLY READY OF USE DURING THE RELEVANT PREVIOUS YEAR. 6.7 THE FACTS DISCUSSED ABOVE SHOW THAT THE BUILDIN G OF THE APPELLANT WAS SUBSTANTIALLY READY ON 31.12.2005 AND SOME MORE WORK WAS DONE IN THE SUBSEQUENT MONTHS DURING THE YEAR. ELECTRICITY CONNECTION WAS AVAILABLE, AND WAS READY TO USE IN VIEW OF THE BILL S RAISED. THE ASSESSEE HAD BACKUP GENERATOR SYSTEMS IN PLACE. MOST OF THE MACH INES REQUIRED FOR PRODUCTION WERE ALSO IN PLACE BY FEBRUARY, 2006. I THEREFORE, DO NOT ACCEPT THE ACS CONTENTION THAT THE ASSESSEE COULD NOT HAV E MANUFACTURED GOODS AT ITS OWN PREMISES DURING THE YEAR USING ITS OWN M ACHINES. 6.8 THE AO HAS REFERRED TO LOW CONSUMPTION OF CONSU MABLES TILL FEB., 2006. THE APPELLANT HAS NOT COMMENTED ON THIS CONTE NTION OF THE AO. THE AO HAS ALSO REFERRED TO THE VERY LOW WAGES IN PRAJN A (INDIA) IN HIS REMAND REPORT (3.5% OF SALES\) AS COMPARED TO THE WAGES OF DYNAMECH (87.5% OF SALES). IN THE REJOINDER THE APPELLANT HAS STATED T HAT THE COST WAS LOW SINCE MOST OF THE WORK WAS BEING DONE ON CNC MACHINES. TH IS EXPLANATION DOES NOT APPEAR TO BE CONVINCING SINCE DYNAMECH HAS ALSO USED CNC MACHINES. THE APPELLANT HAS HARPED ON THE FACT THAT SALES WOR TH RS. 51,15,550/- WERE MADE DURING MARCH, 2006 AFTER ALL THE MACHINES WERE IN PLACE. THE AVERAGE MONTHLY SALES OF DYNAMECH DURING FY 20-04-0 5 IS RS. 22.39 LACS. AND AND IN FY 2005-06 IS RS. 18.42 LACS. THE AVERAG E SALES OF PRAJNA (INDIA) DURING FY 2006-07 (THE FIRST FULL YEAR OF O PERATION) IS RS. 26.43 ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 24 LACS. HENCE, THE HIGH SALES OF RS. 51.15 LACS MADE BY A NEWLY SET UP UNIT IN ITS FIRST FULL MONTH OF OPERATION DOES APPEAR TO BE ON THE HIGH SIDE. 6.9. IT IS NOTED THAT THE APPELLANT WAS MANUFACTURI NG MACHINES COMPONENTS FOR MITSUBISHI CORPN., AN ENGINEERING CO MPANY OF JAPAN. THE COMPONENTS ARE MANUFACTURED AS PER THE GIVEN DESIGN S AND DRAWINGS. THE RELEVANT DESIGNS NEED TO BE FED INTO THE CNC MACHIN ES, IF DONE THROUGH THEM. CNC MACHINES, BESIDES GIVING REPEATABLE OUTPU TS-AS CONTENDED BY THE APPELLANT ALSO GIVE HIGHER PRECISION THAN MANUA LLY OPERATED MACHINE SINCE THE MOVEMENTS OF THE CNC MACHINE CAN BE CONTR OLLED TO A VERY FINE DEGREE BY COMPUTERS. THE DETAILS OF MACHINES USED B Y DYNAMECH AND PRAJNA (INDIA) SUBMITTED BY THE APPELLANT SHOW THAT THE CONCERNS HAVE CNC MACHINES, THOUGH THE MACHINES OF PRAJNA (INDIA) ARE NEWER AND POSSIBLY HAS MORE ADVANCED FEATURES. SINCE BOTH THE CONCERNS WERE MANUFACTURING SIMILAR PRODUCTS AND FOR THE SAME CUS TOMER, THE LOW USAGE OF CONSUMABLES AND THE LOW WAGES INCURRED IN PRAJNA (INDIA) LEADS ONE TO SUSPECT AS TO WHETHER ALL THE PRODUCTS SOLD THE PRA JNA (INDIA) DURING THE YEAR WAS ACTUALLY MADE BY THIS CONCERN OR SOME HELP WAS ALSO TAKEN FROM DYNAMECH. THE VERY HIGH PRODUCTION AND SALES BY PRA JNA (INDIA) IN MARCH, 2006 NOTED ABOVE ALSO LEADS ONE TO DOUBTS ON THIS S CORE. HOWEVER, THERE IS NOT ENOUGH EVIDENCE TO SUPPORT THIS DOUBT AS HAS BE EN RIGHTLY CONTENDED BY THE APPELLANT. THE PRODUCTION RECORDS AND SALES REC ORDED S OF THE APPELLANT SUPPORT ITS CONTENTION THAT THE PRODUCTION AND SALE S SHOWN IN ITS BOOKS ARE OF ITS OWN. NEVERTHELESS, IT IS BORNE IN MIND THAT SOME WORKERS OF DYNAMECH DID OFFICIALLY JOIN PRAJNA (INDIA) IN THE SUBSEQUENT YEAR AND THAT DYNAMECH DID DO JOB-WORK FOR PRAJNA (INDIA) IN THE SUBSEQUENT YEARS. 7. THE NEXT QUESTION IS WHETHER, IN THE CIRCUMSTANC ES WHEN ALMOST THE ENTIRE EXISTING BUSINESS OF M/S DYNAMECH HAS CLOSED AND PRAJNA (INDIA) HAS TAKEN UP THE WORK OF MANUFACTURING COMPONENTS FOR THE SAME CUSTOMER; THAT THIS UNIT HAS BEEN SET UP WITH THE DYNAMECH WITH HIS WIFE, HE NEW UNIT CAN BE SAID TO BE FORMED BY SPLITTING UP OR RECONSTRUCTION OF THE EXISTING BUSINESS. 7.1 THE RELEVANT PROVISION OF SECTION 10B ARE AS UNDER : 10B, SPECIAL PROVISIONS IN RESPECT OF NEWLY ESTAB LISHED HUNDRED PER CENT EXPORT ORIENTED UNDERTAKINGS. (1) SUBJECT TO THE PROVISIONS OF THIS SECTION, DEDU CTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A HUNDRED PERCENT. EXPORT-O RIENTED UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER, . SOFTWARE FOR A PERIOD ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 25 OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAK ING BEGINS TO MANUFACTURE OF PRODUCE ARTICLES OR THINGS OR COMPU TER, SOFTWARE, AS THE CASE MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE : (2) THIS SECTION APPLIES TO ANY UNDERTAKING WHICH F ULFILS ALL THE FOLLOWING CONDITIONS, NAMELY. (1) IT MANUFACTURES OR PRODUCES ANY ARTICLES OR THI NGS OR COMPUTER SOFTWARE (2) IT IS NOT FORMED BY THE SPLITTING UP, OR THE RE CONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE : PROVIDED THAT THIS CONDITION SHALL NOT APPLY IN RES PECT OF ANY UNDERTAKING WHICH IS FORMED AS A RESULT OF THE RE-ESTABLISHMEN T, RECONSTRUCTION OR REVIVAL BY THE ASSESSEE OF THE BUSINESS OF ANY SUCH UNDERTAKING AS IS REFERRED TO IN SECTION 33B, IN THE CIRCUMSTANCES AN D WITHIN THE PERIOD SPECIFIED IN THAT SECTION ; (III) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUS INESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. EXPLANATION --- THE PROVISIONS OF EXPLANATION 1 AND EXPLANATION 2 TO SUB- SECTION (2) OF SECTION 80-I SHALL APPLY FOR THE PUR POSES OF CLAUSE (III) OF THIS SUB-SECTION AS THEY APPLY FOR THE PURPOSES OF CLAUS E (II) OF THAT SUB-SECTION. 7.2. IN THE ASSESSMENT ORDER THE AO HAS CONTENDED THAT THE MANUFACTURING UNIT OF PRAJNA (INDIA) WAS FORMED BY SPLITTING UP O F THE BUSINESS OF DYNAMECH. DURING THE APPELLATE PROCEEDINGS THE AO H AS CONTENDED THAT THE NEW UNIT WAS FORMED BY THE RECONSTRUCTION OF BU SINESS ALREADY IN EXISTENCE. THE RIVAL CONTENTIONS HAVE BEEN NOTED AB OVE IN THIS REGARD. SINCE THE TERMS SPLITTING UP OR RECONSTRUCTION HAVE N OT BEEN DEFINED IN THE I.T. ACT, IT MAY BE USEFUL TO REFER TO THE AUTHORITIES R ELIED UPON BY THE TWO PARTIES. 7.3 THE AO HAS FIRST RELIED ON THE DECISION OF TH E HONBLE SUPREME COURT IN THE CASE OF TEXTILE MACHINERY CORPORATION 107 IT S 195 (SC) AND HAS STATED THAT THE HONBLE APEX COURT HAVE HELD THAT I F THE SUBSTANTIALLY THE SAME PERSONS ARE DOING THE SAME BUSINESS, IT AMOUNT ED TO RECONSTRUCTION. INCIDENTALLY, THE APPELLANT HAS ALSO PLACED RELIANC E ON THIS JUDGMENT FOR THE PROPOSITION THAT THIS JUDGMENT REQUIRES MACHINERY T O BE TRANSFERRED FORM THE EXISTING UNIT TO THE NEW UNIT FOR A RECONSTRUCT ION TO TAKE PALACE. IT WOULD , THEREFORE, BE WORTHWHILE TO GO THROUGH THIS DECISION TO UNDERSTAND IF IT SUPPORTS THE APPELLANT OR THE AO. 7.4. THE FACTS IN THIS CASE ARE THAT THE ASSESSEE HAD IN THE EARLIER YEARS BOUGHT FROM OUTSIDE THE CASTINGS MANUFACTURED IN TH E STEEL FOUNDRY DIVISION WHICH WAS STARTED IN THE ASSESSMENT YEAR 1958-59. I N THE YEAR 1959-60 THE ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 26 ASSESSEE STARTED THE JUTE MILL DIVISION WHERE THE P ARTS MADE OUT OF THE RAW MATERIAL SUPPLIED BY THE BOILER DIVISION BY MONITOR ING AND FORGING THEM WERE GIVEN TO THE BOILER DIVISION OF THE ASSESSEE. IT WAS FOUND THAT OUT OF TOTAL SALE OF RS. 28,23,127 OF STEEL CASTING GOODS WORTH RS. 18,39,433 WERE USED IN CONNECTION WITH THE VARIOUS DIVISIONS OF TH E COMPANY. IN RESPECT OF THE JUTE MILL DIVISION, THE INCOME-TAX OFFICER FOUN D THAT OUT OF THE TOTAL SALES OF RS. 13,03,509, SALES TO THE BOILER DIVISIO N TOTALED RS. 11,89,812 AND SALES TO OUTSIDE THE JUTE MILL DIVISION TOTALED ONL Y A SUM OF RS. 1,13,697. THE INCOME-TAX OFFICER, ON THE ABOVE FACTS, HELD TH E UNDERTAKINGS AS EXPANSION AND RECONSTRUCTION OF THE BUSINESS ALREAD Y EXISTING AND HENCE THE ASSESSEE WAS NOT ENTITLED TO EXEMPTION UNDER SE CTION 15C OF THE 1922 ACT. THE HONBLE APEX COURT EXAMINED THE MATTER IN LIGHT OF THE PROVISIONS OF CLAUSE (I) OF SUB-SECTION (2) OF SECTION 15C [AK IN TO 10B(2) (II) AND 10B (2) (III) OF THE 1961 ACT] AND THAT ALSO ONLY WITH ONE PART OF IT, NAMELY, WHETHER THE INDUSTRIAL UNDERTAKINGS, STEEL FOUNDRY AND THE JUTE MILLS DIVISION, WERE NOT FORMED BY THE RECONSTRUCTION OF THE BUSINESS ALREADY IN EXISTENCE. THE HONBLE APEX CORT HELD THAT EVEN IF A NEW BUSINESS WAS CARRIED ON, BUT BY PIERCING THE VEIL OF THE NEW BUS INESS IT WAS FOUND THAT THERE WAS EMPLOYMENT OF THE ASSETS OF THE OLD BUSIN ESS, THE BENEFIT WOULD NOT BE AVAILABLE. IT WAS HELD THAT SUBSTANTIAL INVE STMENT OF NEW CAPITAL WAS IMPERATIVE AND THE WORDS THE CAPITAL EMPLOYED IN THE PRINCIPAL CLAUSE OF SECTION 15C WERE SIGNIFICANT, FOR FRESH CAPITAL MUS T BE EMPLOYED IN THE NEW UNDERTAKING CLAIMING EXEMPTION. 7.5 IT WAS FURTHER NOTED THAT THE ASSESSEE CONTIN UED TO BE THE SAME FOR THE PURPOSE OF ASSESSMENT. IT HAD ITS EXISTING BUSINESS ALREADY LIABLE TO TAX. IT PRODUCED IN THE TWO CONCERNED UNDERTAKINGS COMMODIT IES DIFFERENT FROM THOSE WHICH IT HAS BEEN MANUFACTURING OR PRODUCING IN ITS EXISTING BUSINESS. MANUFACTURE OR PRODUCTION OF ARTICLES YIELDING ADDI TIONAL PROFIT ATTRIBUTABLE TO THE NEW OUTLAY OF CAPITAL IN A SEPA RATE AND DISTINCT UNIT WAS THE HEART OF THE MATTER, TO EARN BENEFIT FROM THE E XEMPTION OF TAX LIABILITY UNDER SECTION 15C. THE HONBLE APEX COURT NOTED : THE ANSWER, IN EVERY PARTICULAR CASE, DEPENDS UPON THE PECULIAR FACTS AND CONDITIONS OF THE NEW INDUSTRIAL UNDERTAKING ON ACC OUNT OF WHICH THE ASSESSEE CLAIMS EXEMPTION UNDER SECTION 15C. NO HAR D AND FAST RULE CAN BE LAID DOWN. TRADE AND INDUSTRY DO NOT RUN IN EARMARK ED CHANNELS AND PARTICULARLY SO IN VIEW OF MANIFOLD SCIENTIFIC AND TECHNOLOGICAL DEVELOPMENTS. THERE IS GREAT SCOPE FOR EXPANSI0ON O F TRADE AND INDUSTRY. THE FACT THAT AN ASSESSEE BY ESTABLISHMENT OF A NEW INDUSTRIAL UNDERTAKING EXPANDS HIS EXISTING BUSINESS, WHICH HE CERTAIN, DO ES WOULD NOT, ON THAT SCORE, DEPRIVE HIM OF THE BENEFIT UNDER SECTION 15C . EVERY NEW CREATION IN ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 27 BUSINESS IS SOME KIND OF EXPANSION AND ADVANCEMENT. THE TRUE TEST IS NOT WHETHER THE NEW INDUSTRIAL UNDERTAKING CONNOTES EXP ANSION OF THE EXISTING BUSINESS OF THE ASSESSEE BUT WHETHER IT IS ALL THE SAME A NEW AND IDENTIFIABLE UNDERTAKING SEPARATE AND DISTINCT FROM THE EXISTING BUSINESS. NO PARTICULAR DECISION IN ONE CASE CAN LAY DOWN AN INEXORABLE TEST TO DETERMINE WHETHER A GIVEN CASE COMES UNDER SECTION 15C OR NOT. IN ORDER THAT THE NEW UNDERTAKING CAN BE SAID TO BE NOT FORM ED 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 VIA BLE UNIT. AN UNDERTAKING IS FORMED OUT OF THE EXISTING BUSINESS IF THE PHYSI CAL IDENTITY WITH THE OLD UNIT IS PRESERVED. THIS HAS NOT HAPPENED HERE IN TH E CASE OF THE TWO UNDERTAKINGS WHICH ARE SEPARATE AND DISTINCT. THE HONBLE APEX COURT, THEREAFTER, HELD THAT THE M ERE FACT THAT THE NEW UNIT MANUFACTURED ITEMS WHICH WERE CONSUMED INTERNA LLY WAS NOT IMPORTANT AS LONG AS THE NEW UNIT COULD EXIST INDEP ENDENTLY AND MAKE MARKETABLE COMMODITIES. IT WAS FURTHER HELD AS UNDE R : THE CASES WHICH GIVE RISE TO CONTROVERSY ARE THOSE WHERE THE OLD BUSINESS IS BEING CARRIED ON BY THE ASSESSEE AND A NEW ACTIV ITY IS LAUNCHED BY HIM BY ESTABLISHING NEW PLANTS AND MACHINERY BY INVESTING SUBSTANTIAL FUNDS. THE NEW ACTIVITY MAY PRODUCE THE SAME COMMODITIES OF TH E OLD BUSINESS OR IT MAY PRODUCE SOME OTHER DISTINCT MARKETABLE PRODUCTS , EVEN COMMODITIES WHICH MAY FEED THE OLD BUSINESS. THERE PRODUCTS MAY BE CONSUMED BY THE AS ESSEE IN HIS OLD BUSINESS OR MAY BE SOLD IN THE OPEN MARKET ONE THINS IS CERTAIN THAT THE NEW UNDERTAKING MUST BE AN INTEGRA TED UNIT BY ITSELF WHEREIN ARTICLES ARE PRODUCED AND AT LEAST A MINIMU M OF TEN PERSONS WITH THE AID OF POWER AND A MINIMUM OF TWENTY PERSONS WI THOUT THE AID OF POWER HAVE BEEN EMPLOYED. SUCH A NEW INDUSTRIALLY RECOGNI ZABLE UNIT OF AN ASSESSEE CANNOT BE SAID TO BE RECONSTRUCTION OF HIS OF BUSINESS SINCE THERE IS SO TRANSFER OF ANY ASSETS OF THE OLD BUSINESS TO TH E NEW UNDERTAKING WHICH TAKES PLACE WHEN THERE IS RECONSTRUCTION OF THE OLD BUSINESS (EMPHASIS SUPPLIED). FOR THE PURPOSE OF SECTION 15C THE INDU STRIAL UNITS SET UP MUST BE NEW IN THE SENSE THAT NEW PLANTS AND MACHINERY A RE ERECTED FOR PRODUCING EITHER THE SAME COMMODITIES OR SAME DISTI NCT COMMODITIES. IN ORDER TO DENY THE BENEFIT OF SECTION 15C THE NEW UN DERTAKING MUST BE FORMED BY RECONSTRUCTION OF THE OLD BUSINESS. 7.6 THE HONBLE APEX COURT HEN EXPLAINED THE MEAN ING OF THE TERM RECONSTRUCTION AS UNDER : ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 28 THE WORD RECONSTRUCTION IS NOT DEFINED IN THE ACT BUT HAS RECEIVED JUDICIAL INTERPRETATION. IN IN RE SOUTH AFRICAN SUP PLY AND COLD STORAGE CO. (1904) 2 CH 268 (CH D) BUCKLEY J., DEALING WITH TH E MEANING OF THE WORLD RECONSTRUCTION IN A COMPANY MATTER, OBSERVED AS FOLLOWS : WHAT DOES RECONSTRUCTION MEANS ? TO MY MIND IT M EANS 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 UN DERTAKING , BUT THAT IT IS DESIRABLE TO PRESERVE IT IN SOME FORM, AND TO DO S O, NOT BY SELLING IT TO AN OUTSIDER WHO SHALL CARRY IT ON THAT WOULD BE A MER E SALE BUT IN COME ALTERED FORM TO CONTINUE THE UNDERTAKING IN SUCH A MANNER AS THAT THE PERSONS NOW CARRYING IT ON WILL SUBSTANTIALLY CONTI NUE TO CARRY IT ON, IT INVOLVES, I THINK, THE SUBSTANTIALLY THE SAME BUSIN ESS SHALL BE CARRIED ON AND SUBSTANTIALLY THE SAME PERSONS SHALL CARRY IT ON. B UT IT DOES NOT INVOLVE THAT ALL THE ASSETS SHALL PASS TO THE NEW COMPANY OF RES USCITATED COMPANY, OR THAT ALL THE SHAREHOLDERS OF THE OLD COMPANY SHALL BE SHAREHOLDERS IN THE NEW COMPANY OR RESUSCITATED COMPANY. SUBSTANTIALLY THE BUSINESS AND THE PERSONS INTERESTED MUST BE THE SAME. 7.7 THE AO HAS USED TO AFORESAID DEFINITION OF THE TERM RECONSTRUCTION FOR RELYING ON THIS DECISION SINCE THE SAME PERSON, THE APPELLANT, WAS CARRYING ON THE SAME BUSINESS, I.E. SUPPLY OF MACHI NED COMPONENTS TO THE SAME CUSTOMER. HOWEVER, IN MY OPINION, IN VIEW OF T HE CATEGORICAL ASSERTION OF THE HONBLE APEX COURT THAT THERE SHOU LD BE TRANSFER OF ASSETS OF THE OLD UNIT TO THE NEW UNIT IN ESTABLISHING THE NEW UNIT-WHICH IS ABSENT IN THIS CASE EXCEPT FOR TRANSFER OF CAPITAL, THIS D ECISION GOES TO FAVOUR THE APPELLANT. HOWEVER, IT MUST BE NOTED THAT THIS CASE DEALT WITH RECONSTRUCTION RATHER THAN SPLITTING UP OF BUS INESS. 7.8. THE AO HAS ALSO RELIED ON THE DECISION OF THE KERALA HIGH COURT IN THE CASE OF M/S CHEMBRA PEAK ESTATES LTD. 85 IT S 401 (KER). IN THIS CASE THE FACTS WERE THAT THE ASSESSEE OWNING TEA AND COF FEE PLANTATIONS IN WYNAD DISTRICT CLAIMED REBATE UNDER SECTION 84 (1) OF THE INCOME-TAX ACT, 1961, ON A SUM OF RS. 48,044 BEING THE PROFITS FORM THE MANUFA CTURE OF TEA IN HIS NEWLY ESTABLISHED FACTORY IN ELSTONE DIVISION. ITO DISALL OWED THE CLAIM ON THE GROUND THAT THE NEW FACTORY IN THE ELSTONE DIVISION WAS FORMED BY THE SPLITTING UP OR RECONSTRUCTION OF A BUSINESS ALREAD Y IN EXISTENCE WITH IN MEANING OF SECTION 84(1), READ WITH SECTION 84 (2) (I) OF THE INCOME-TAX ACT. PRIOR TO THE ACCOUNTING YEAR ENDING WITH 31 ST MARCH, 1964 THE ASSESSEE WAS HAVING THE FACTORY FOR THE MANUFACTURE OF TEA AND O NLY IN THE CHEMBRA PEAK ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 29 DIVISION. DURING THE PREVIOUS YEAR ENDING WITH 31 ST MARCH, 1964, THE ASSESSEE ESTABLISHED A NEW FACTORY IN ELSTONE DIVISION EMPLO YING A NEW PROCESS KNOWN AS C.T.C. PROCESS (CRUSHING, TEARING AND CURLING) T O MANUFACTURE A NEW TYPE OF TEA. BEFORE THE ESTABLISHMENT OF THE FACTORY IN THE ELSTONE DIVISION ALL THE TEA LEAVES FROM THE TEA ESTATES IN ELSTONE DIVISION WERE BEING TAKEN TO THE FACTORY IN THE CHEMBRA PEAK DIVISION FOR THE MANUFA CTURE OF TEA. AFTER THE ESTABLISHMENT OF THE FACTORY IN ELSTONE DIVISION TH E FACTORY IN CHEMBRA PEAK DIVISION CONTINUED TO MANUFACTURE TEA FROM THE GREE N LEAVES BROUGHT FROM DIVISIONS OTHER THAN ELSTONE DIVISION AND THE FACTO RY IN THE ELSTONE DIVISION WAS BEING FED ONLY BY THE TEA ESTATES IN WHAT DIVIS ION. THE HONBLE HIGH COURT HELD AS UNDER : IT IS ENOUGH FOR THE PURPOSE OF THIS CASE TO HOLD THAT IN VIEW OF THE FACTS ADMITTED THE NEW FACTORY IN THE ELSTONE DIVISION WA S FORMED BY THE SPLITTING UP OF THE BUSINESS WHICH WAS ALREADY IN EXISTENCE. IF SO, THE ASSESSEE WILL NOT BE ENTITLED TO THE EXEMPTION UNDER SECTION 84(1) RE AD WITH SECTION 84 (2) (I) OF THE ACT. WE, THEREFORE, ANSWER THE QUESTION IN THE AFFIRMATIVE, THAT IS, AGAINST THE ASSESSEE AND IN FAVOUR OF THE DEPARTMENT. IN THIS CASE IT HAS BEEN HELD THAT EVEN IF A NEW MA NUFACTURING UNIT WAS SET UP TO CARRY OUT THE WORK DONE EARLIER BY ANOTHER DI VISION OF THE ASSESSEE, IT WOULD AMOUNT TO SPLITTING UP OF THE EXISTING BUSI NESS OF THE ASSESSEE. INTERESTINGLY, THE APPELLANT HAD NOT COMMENTED ON T HIS DECISION IN THIS ORIGINAL SUBMISSION. IN THE REJOINDER THE LD. AR HA S STATED THAT THE DECISION WAS NOT APPLICABLE SINCE NEW UNIT HAD BEEN SET UP B Y INSTALLING NEW MACHINERY IN A NEW BUILDING AT A NEW PLACE. 7.9. LET US EXAMINE THE DECISIONS RELIED UPON BY TH E APPELLANT. THE DECISION IN 107 ITS 95 (SC) HAS ALREADY BEEN DISCUSSED ABOVE . IN 108 ITR 367 (SC) IN THE CASE OF INDIAN ALUMINIUM COMPANY LIMITED, THE F ACTS AS NOTED IN THE JUDGMENT ARE AS UNDER : THE INDIAN ALUMINIUM COMPANY LTD. (HEREINAFTER TO BE REFERRED TO AS THE RESPONDENT) WAS A MANUFACTURER OF ALUMINIUM INGOTS FORM ORE. IN THE YEARS PRIOR TO THE ASSESSMENT YEAR 1960-61 IN QUESTION TH E RESPONDENT HAD FOUR MANUFACTURING CENTRES AT BELUR, KALWA, ALUPURAM AND HIRAKUD. IN THE ACCOUNTING YEAR RELEVANT TO THE ASSESSMENT YEAR IN QUESTION ONE MORE CENTRE WAS ESTABLISHED AT MURI AND THERE WERE ALSO EXTENSI ONS TO THE EXISTING FACTORIES AT BELUR AND ALUPURAM. IN THE ASSESSMENT YEAR 1960-61, THE RESPONDENT CLAIMED RELLER UNDER SECTION 15C OF THE INDIAN INCOME-TAX ACT, 1922 (BRIEFLY THE ACT), IN RESPECT OF THE FRESH C APITAL OUTLAY AT MURI AS WELL AS OF THE ADDITIONAL INVESTMENTS IN THE FORM OF EXT ENSIONS TO THE EXISTING FACTORY PREMISES, INSTALLATION OF NEW PLANT AND MAC HINERY ETC. AT BELUR AND ALUPURAM. THE INCOME-TAX OFFICER REFUSED TO ALLOW T HE RELIEF AND THE ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 30 APPELLATE ASSISTANT COMMISSIONER DISMISSED THE RESP ONDENTS APPEAL. ON APPEAL TO THE APPELLATE TRIBUNAL IT HELD THAT DURIN G THE PREVIOUS YEAR, THE PRODUCTION OF ALUMINIUM INGOTS WENT UP THE DOUBLE, THAT THE ADDITIONAL UNITS SET UP BY THE RESPONDENT COST OVER RS. 50 LAKHS AT BELUR AND ABOUT THE SAME FIGURE OR A LITTLE MORE AT ALUPURAM, THAT IN VIEW \ OF THE NATURE OF THE SUBSTANTIAL INVESTMENTS, IT COULD NOT BE SAID THAT THE UNITS WERE NOT NEW INDUSTRIAL UNITS BY THEMSELVES. IT FURTHER HELD THA T THESE UNITS HAVE BEEN SET UP SIDE BY SIDE WITH THE OLD ONES AND HAD ADDED TO THE RESPONDENTS TOTAL OUTPUT OF ALUMINIUM INGOTS. THE TRIBUNAL HELD THAT THE RES PONDENT WAS ENTITLED TO THE RELIEF UNDER SECTION 15C. THE HONBLE HIGH COURT ANSWERED THE REFERENCE FILED BY THE DEPARTMENT IN FAVOUR OF THE ASSESSEE. THE HONBLE SUPREME COURT, REPLYING ON THE DECISION IN THE CASE OF TEXTILE MACHINERY CORPORATION (SUPRA ), ALSO HELD IN FAVOUR OF THE APPELLANT. NO NEW PROPOSITION IN LAW WAS LAID DOWN IN THIS CASE./ THE FACT OF SUBSTANTIAL INVESTMENT IN THE NEW UNITS AND THE SUBSTANTIAL INCREASE IN PRODUCTION HAVE BEEN NOTED IN THIS CASE WHILE ALLOW ING THE ASSESSEES CLAIM. IN RIDHKERAN SOMENI 121 ITR 668 (PAT) THE HONBLE H IGH COURT HELD THAT THE CONSTRUCTION OF THEE SAW MILL WHICH CAME TO THE SHARE OF THE ASSESSEE PARTNER ON DISSOLUTION OF THE FIRM AND BEEN COMPLET ED AFTER THE FIRM WAS DISSOLVED AND WAS NOT WORKING ON THE DATE OF DISSOL UTION. UNDER THE CIRCUMSTANCES, IT WAS HELD THAT THERE COULD BE NO S PLITTING UP AN EXISTING BUSINESS SINCE AN ENTIRELY NEW BUSINESS UNCONNECTED WITH THE EARLIER BUSINESS OR OF THE BUS NESS BEING CARRIED ON BY THE OTHER PA RTNERS WAS NEWLY SET UP. 7.9 IN THE CASE OF T. SATISH U.PAI 119 ITR 877 (K AR), ASSESSEE, PARTNER OF THE FIRM M/S MANIPAL POWER PRESS, MANIPAL STARTED H IS OWN BOOK-BINDING BUSINESS IN THE NAME AND STYLE OF COMPACK AT UDUP I. FIRM WAS CARRYING ON THE BUSINESS OF PRINTING AND ALSO CARRYING ON BU SINESS IN BOOK-BINDING. THE HONBLE HIGH COURT HELD AS UNDER: IN ORDER TO HOLD THAT THERE IT A SPLITTING UP OF A BUSINESS ALREADY IN EXISTENCE, THERE MUST BE SOME MATERIAL TO HOLD THAT EITHER SOME ASSET OF AN EXISTING BUSINESS IS DIVIDED AND ANOTHER BUSINESS I S SET UP FROM SUCH SPLITTING UP OF ASSETS, OR THAT THE TWO BUSINESS ARE THE SAME AND ONE FORMED WAS AN INTEGRAL PART OF THE EARLIER ONE AND IT WAS ONLY QU ESTION OF BREAKING UP OF THE SAME BUSINESS. IT IMPLIES A UNITY OF CONTROL IN REG ARD TO TWO BUSINESS, I.E, EARLIER ONE IN EXISTENCE AND A NEW ONE WHICH IS BRO UGHT INTO EXISTENCE. WHILE CL. (II) OF SUB-S. (4) OF S. 80J MAY COMPREHEND TRA NSFER OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE AND WHICH MAY BELON G TO AN OUTSIDER ALSO, CL (I) IMPLIES SUCH A TRANSFER AND SETTING UP OF ANOTH ER BUSINESS BY SPLITTING UP OF THE ASSETS OF THE EARLIER ONE IN EXISTENCE IN A CASE, WHERE THE SAME PERSON CARRIES ON BUSINESS AND BRINGS INTO EXISTENCE ANOTH ER BUSINESS OF THE SAME NATURE BY THE USER OF THE ASSETS BELONGING TO THE E ARLIER BUSINESS, IT MAY BE ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 31 SAID THAT THE UNITY OF CONTROL CONTINUES AND THE BU SINESS BROUGHT INTO EXISTENCE IS A PART OF THE EARLIER EXISTING BUSINES S. THERE BEING NO TANGIBLE EVIDENCE OF TRANSFER OF ANY ASSETS FROM AN EARLIER BUSINESS TO THE NEW BUSINESS, A CONCLUSION CANNOT BE REACHED THAT A NEW BUSINESS IS FORMED BY THE SPLITTING UP OF THE BUSINESS ALREADY IN EXISTEN CE. IN THE INSTANCE CASE, THE MANIPAL PAWER PRESS IS A FIRM AND THE ASSESSEE IS CARRYING ON THE BUSINESS UNDER THE NAME AND STYLE O F COMPACK AS AN INDIVIDUAL. THERE IS NO UNITY OF CONTROL IN REGARD TO THE TWO BUSINESS. THERE IS NO TRANSFER OF EITHER CAPITAL OR MACHINERY OR ANY O THER ASSET FROM (EMPHASIS SUPPLIED) MANIPAL POWER PRESS TO THE ASSESSEES BUS INESS. THE LABOUR EMPLOYED IN THE NEW BUSINESS WERE DIFFERENT AND NOT TAKEN OUR FROM THE STAFF OF MANIPAL POWER PRESS. IT WAS NO THE CASE OF THE D EPARTMENT THAT THE BUSINESS CARRIED ON BY THE ASSESSEE WAS BENAMI FOR MANIPAL POWER PRESS. THESE ARE CIRCUMSTANCES WHICH MILITANTE AGAINST ANY CONCLUSION THAT THE BUSINESS CARRIED ON BY THE ASSESSEE WAS FORMED BY T HE SPLITTING UP OF A BUSINESS WHICH WAS ALREADY IN EXISTENCE. THE MERE F ACT THAT SOME WORK OF BINDING IS ENTRUSTED TO THE ASSESSEE BY MANIPAL POW ER PRESS DOES NOT LEAD TO THE INFERENCE THAT THERE IS SPLITTING UP OF THE BUS INESS. THE ASSESSEE IS AN INDEPENDENT CONTRACTOR AND THE MANIPAL POWER PRESS IS AS MUCH A CUSTOMER AS ANY OTHER OF THE ASSESSEE. IT IS SEEN THAT THE FACT THAT THERE WAS NO UNITY OF CONTROL BETWEEN THE FIRM AND THE ASSESEE AND THAT THERE WAS NO TRANSFER OF A NY ASSETS, INCLUDING CAPITAL, FROM THE FIRM TO THE ASSESEE WERE HELD AS DECISIVE FACTORS FOR HOLDING THAT THERE WAS NO SPLITTING UP OF THE EARLIER BUSIN ESS. 7.10 IN THE CASE OF CIT VS ORIENT PAPER MILLS LTD. 176 ITR 110 (SC) THE ASSESSEE OWING A PAPER MILL SET UP A PLANT FOR MANU FACTURING CAUSTIC SODA. THE HONBLE APEX COURT HELD IN FAVOUR OF THE ASSESS EE BY RELYING ON THEIR DECISIONS I THE CASES OF TEXTILES MACHINERY CORPORA TION LTD. V CUT 107 ITR 195 AND CIT V INDIAN ALUMINNIUM CO. LTD 108 ITR 367 . IN THIS CASE A NEW FACTORY FOR PRODUCING A NEW PRODUCT WAS FORMED. 7.11 IN THE CASE OF CIT VS DANDELI FERRO ALLOYS P VT LTD. 212 ITR 1 (BOB) THE MATTER WAS WITH REFERENCE TO AMALGAMATION AND T HE ISSUE WAS TRANSFER OF MACHINERY FROM THE OLD CONCERN TO THE NEW CONCERN. THE FACTS AND THE ISSUES ARE QUITS DIFFERENT THAN THE PRESENT CASE. 7.12 IN THE CASE OF ITO VS DSM SOFTWARE (P) LTD 115 TTJ (CHENNAI) 469, THE HONBLE ITAT NOTED THAT IT WAS NOT THE CASE OF THE REVENUE THAT THE NEW BUSINESS INVOLVED DIVERSION OF ASSETS FROM THE OLD UNIT. THOUGH THE NEW UNIT ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 32 TOOL SOME EMPLOYEES OF THE OLD UNIT, THERE WAS SUBS TANTIAL EXPANSION DURING THE RELEVANT YEAR WHICH LED TO ALMOST THREE FOLD IN CREASE IN THE NUMBER OF EMPLOYEES. NEW UNIT WAS ESTABLISHED BY PROCURING MA CHINERY WORTH MORE THAN 50 LACS. THERE WAS ALSO SUBSTANTIAL ADDITION T O THE NATURE AND TYPE OF SERVICES RENDERED TO CLIENTS IN THE VOLUME OF BUSIN ESS , AND THERE WAS A GOOD INCREASE OF THE NUMBER OF CUSTOMERS. THE HONBLE IT ATA HELD THAT TO HOLD THAT A NEW BUSINESS WAS FORMED BY THE SPLITTING UP OR RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE THERE MUST BE MATERIA L TO SHOW THAT EITHER SOME ASSETS OF THE EXITING BUSINESS HAD BEEN DIVERTED OR THAT THE TWO BUSINESS WERE THE SAME AND THE ONE FORMED AN INTEGRAL PART OF THE OTHER EARLIER. ON THE FACT OF THE CASE THE HONBLE ITAT HELD THAT THIS WAS NOT A CASE OF SPLITTING UP OR RECONSTRUCTION OF BUSINESS ALREADY IN EXISTENCE. IN THIS CASE IT WAS NOTED THAT NEW BUSINESS AND CLIENTS WERE PROCURED AND NEW SERV ICES WERE OFFERED. 7.13 IN THE CASE OF OSWALL WOOLLEN MILLS LTD. 138 ITR 338 (P&H) THE ISSUE WAS WHETHER THE ASSESSEES NEWLY SET UP EXPOR T UNIT WAS FORMED BY THE RECONSTRUCTION OF THE EXISTING BUSINESS OF HOSIERY MANUFACTURE. THE HOBLE HIGH COURT TOOK NOTE OF THE DECISION OF THE HONBLE SUPREMME COURT IN THE CASE OF TEXTILES MACHINERY CORP. (SUPRA( AND HELD T HAT UNLESS THERE WAS TRANSFER OF ASSETS FROM THE EXISTING UNIT TO THE NE W UNIT WHICH WAS ABSENT IN THIS CASE, THERE COULD BE NO RECONSTRUCTION OF AN EXISTING BUSINESS. 8. HAVING EXAMINED THE AUTHORITIES RELIED UPON BY T HE RIVAL PARTIES, IT CAN SAFELY BE INFERRED THAT FOR ATTRACTING THE CHARGES OF RECONSTRUCTION OF AN EXISTING BUSINESS THERE MUST BE TRANSFER OF ASSETS, INCLUDING MACHINERY, FROM THE EXISTING UNDERTAKING TO THE NEW UNDERTAKING. TH IS HAS BEEN HELD IN THE CASE OF TEXTILE MACHINERY CORP. (SUPRA) INDIAN ALUM INUM COM. (SUPRA) OSWALL WOOLLEN MILLS LTD (SUPRA) AND A HOST OF OTHE R DECISIONS. THERE IS NOTING TO SUGGEST THAT IN THE CASE OF THE PRESENT A PPELLANT ANY MACHINERY HAS BEEN TRANSFERRED FROM THE EXISTING UNIT OF DYNAMECH TO THE NEW UNIT OF PRAJNA (INDIA) . THE CONTENTION REGARING THIS BEING A CASE OF RECONSTRUCTION RAISED BY THE AO IN THE WRITTEN SUBMISSION IN RESPO NSE TO THE APPELLANTS SUBMISSION MUST THEREFORE, FAIL. 8.1 THE ISSUE IS WHETHER TO ATTRACT THE CHARGE OF SPLITTING UP OF AN EXISTING BUSINESS, THE SAME TEST OF TRANSFER OF ASS ETS INCLUDING MACHINERY FROM THE EXISTING BUSINESS TO THE NEW BUSINESS SHOULD AP PLY. NONE OF THE DECISIONS OF THE HONBLE SUPREME COURT RELIED UPON BY THE APP ELLANT PERTAIN TO SPLITTING UP OF BUSINESS. THEY ALL PERTAIN TO RE CONSTRUCTION OF BUSINESS. SPLITTING UP AND RECONSTRUCTION OBVIOUSLY DO NO T MEAN THE SAME THING SINCE THE SAME THING SINCE THE LEGISLATURE HAS USED BOTH THE WORDS IN SECTION 10B(2)(II) AND OTHER ANALOGOUS PROVISIONS OF THE 19 22 ACT AS WELL AS WELL AS ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 33 THE 1961 ACT AND THERE IS THE USE OF OR BETWEEN T HE TWO TERMS IMPLYING THAT THEY OPERATE IN DIFFERENT REALMS. IT IS WELL ACCEPT ED THAT THE DECISIONS OF THE COURTS HAVE TO BE READ IN THE CONTEXT OF THE QUESTI ON BEFORE THEM, AND IN VIEW OF THIS THE DECISIONS WITH REFERENCE TO RECONSTRUC TION CANNOT BE HELD TO APPLY DIRECTLY TO THE ISSUES RELATING TO SPLITTING UP OF BUSINESS. IN LIGHT OF THIS CONCLUSION, OUT OF THE DECISIONS DISCUSSED ABO VE, THOSE RELATING TO SPLITTING UP ARE HELD TO BE RELEVANT TO DECIDING THE ISSUE AT HAND. 8.2. TO RECAPITULATE, THE FACTS ARE THAT THE ASS ESSEE IS A PARTNER IN THE FIRM M/S DYNAMECH. THIS FIRM MANUFACTURES MACHINE COMPON ENTS FOR M/S MITSUBISHI CORPORATION. THE ASSESSEE SET UP A NEW U NIT AT A NEW PLACE. NEW BUILDING WAS CONSTRUCTED AND NEW MACHINERY WAS INST ALLED THEREIN. CAPITAL FOR SETTING UP THE NEW UNIT WAS OBTAINED BY WITHDRA WING THE ASSESSEES CAPITAL IN THIS FIRM. THE CAPITAL OF THE OTHER PART NER, WHO IS THE WIFE OF THE ASSESSEE, WAS ALSO OBTAINED BY WAY OF GIFT FROM THE OTHER PARTNER BY THE ASSESSEE. THE FIRM HAD A SINGLE CUSTOMER. AFTER THE NEW UNIT OF THE ASSESEE WAS SET UP, THE FIRM STOPPED SUPPLYING TO MITSUBISH I CORPORATION AND ALL ORDERS OF MITSUBISHI CORPORATION WERE EXECUTED BY T HE ASSESSEES CONCERN PRAJNA (INDIA). M/S DYNAMECHS BUSINESS SLOWED DOWN CONSIDERABLY IN THE SUBSEQUENT YEAR AND IT MANUFACTURED FEW ITEMS FOR T HE LOCAL INDIA MARKET AND DID JOB WORK FOR THE APPELLANT. MANY WORKERS OF DYN AMECH SHIFTED TO PRAJNA (INDIA ) IN THE SUBSEQUENT YEAR . THE SALES AND PRO FIT OF THE TWO CONCERN, NOTED EARLIER, ARE AGAIN EXTRACTED BELOW:-- ASSESMENT YEAR TURNOVER (RS. LACS) NET PROFIT (RS. LACS) M/S DYNAMECH M/S PRAJNA (INDIA) M/S DYNAMECH M/S PRAJNA (INDIA) 2002-03 137.29 -- 56.68 -- 2003-04 166.17 -- 62.94 -- 2004-05 212.09 -- 77.00 -- 2005-06 268.72 -- 108.80 -- 2006-07 221.09 54.67 87.62 24.59 2007-08 8.14 317.16 (-)21.29 177.93 8.3 WHILE THE APPELLANT MAY CLAIM THAT THERE IS N O EVIDENCE THAT ANY OF THE ORDERS OF DYNAMECH WERE EXECUTED BY PRAJNA (INDIA), THE FACTS AND THE TABLE ABOVE SHOWS THAT THE WORK EARLIER BEING DONE BY DYN AMECH HAS SHIFTED TO PRAJNA(INDIA).THUS, THE BUSINESS OF M/S DYNAMECH, I N AS MUCH AS THEY PERTAIN TO THE ONLY CUSTOMER OF THE FIRM, HAS SPLIU T AND WENT PARTLY TO ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 34 PRANJNA(INDIA) IN THE BEGINNING BEFORE BEING ECLIPS ED BY THE LATTER. BOTH THA CONCERNS ARE BEING MANAGED BY THE APPELLANT WHO IS STATED TO BE AN ENGINEER AND HAS TECHNICAL KNOWLEDGE AND SKILLS FOR THE JOB TO BE EXECUTED. THERE IS, UNITY OF CONTROL. THIS IS ALSO EVIDENT FR OM THE FACT THAT APART FROM THE CAPITAL OF THE APPELLANT IN THE FIRM, THAT OF H IS WIFE WAS ALSO TRANSFERRED TO HIM TO ENABLE THE NEW UNIT TO BE SET UP. MANY OF THE WORKERS OF THE FIRM HAVE ALSO BEEN ADMITTEDLY SHIFTED TO THE APPELLANTS CONCERN IN THE NEXT YEAR. AS FAR AS THIS YEAR IS CONCERNED, TIT IS CLAIMED TH AT ALL THE MANUFACTURING WAS DONE BY DIFFERENT WORKERS, BUT AS NOTED EARLIER , THE LARGE VOLUME OF PRODUCTION IN A SHORT TIME DOES RAISE DOUBTS ON THI S SCORE. EVEN DISCOUNTING THESE DOUBTS , IT IS CLEAR THAT THE CAP ITAL AND SALES BUSINESS OF DYNAMECH HAS SHIFTED TO PRAJNA(INDIA) HAS THIS SHIF TING RESULTED IN CREATION OF ADDITIONAL CAPACITIES OR SALES OR NEW PRODUCTS? EVIDENTLY NOT, SINCE THE CUSTOMER REMAINS THE SAME, THERE IS NO EVIDENCE OR EVEN CLAIM OF HIGHER CAPACITY, DYNAMECH'S BUSINESS HAS ALMOST SLOWED DOW N TO A CRAWL AND NO NEW TYPES OF PRODUCTS ARE SHOWN TO BE MANUFACTURED. 8.4 IN THE CASE OF CHEMBRA PEAK ESTATES LTD.(SUPRA ), THE HONBLE HIGH COURT HELD IT TO BE A CASE OF SPLITTING UP BECAUSE THE WORK OF PROCESSING THE TEA LEAVES OF THE ELSTONE DIVISION, BEING EARLIER D ONE BY THE UNITE AT WYNAD DISTRICT, WAS DONE BY THE NEWLY SET UNIT AT ELSTONE . THIS WAS NEW UNIT WITH NEW MACHINES AT ANEW LOCATION. THE HONBLE HIGH COU RT, ON APPRECIATION OF THE FACT THAT THE NEW UNIT DID THE WORK BEING AL READY DONE AT AN EXISTING UNIT AND THE WORK HAD ONLY SHIFTED TO THE NEW UNIT , HELD IT TO BE CASE OF SPLITTING UP OF BUSINESS. IN THE CASE OF RIDHKERAN SEONI(SUPRA), THERE WAS NO BUSINESS WITH THE EARLIER UNIT. IN FACT THERE WA S NO EARLIER UNIT SINCE THE UNIT UNDER CONSTRUCTION HAD COME TO THE ASSESSEES SHARE. THIS DECISION DOES NOT HELP THE CASE OF THE APPELLANT SINCE THE F ACTS ARE QUITE DIFFERENT. IN THE CASE OF T.SATISH U.PAI(SUPRA), THE HONBLE HIGH COURT, FOR HOLDING THAT THERE WAS NO SPLITTING UP OF THE EARLIER BUSINESS, NOTED THAT THERE WAS NO UNITY OF CONTROL IN REGARDS TO THE TWO BUSINESS OF THE FIRM AND THAT OF THE PROPRIETORSHIP CONCERN OF THE ASSESSEE PARTNER. IT WAS ALSO NOTED THAT THERE WAS NO TRANSFER OF CAPITAL OR MACHINERY OR OF ANY O THER ASSET. THIS DECISION IMPLIES THAT UNITY OF CONTROL BETWEEN THE EXISTING AND THE NEW BUSINESS , EVEN WITHOUT TRANSFER OF MACHINERY OR OTHER ASSETS FROM THE THROUGH THE NEW BUSINESS , EVEN WITHOUT TRANSFER OF MACHINERY O R OTHER ASSETS FROM THE EXISTING BUSINESS TO THE NEW BUSINESS ARE RELEVANT CONSIDERATIONS FOR TREATING THE NEW BUSINESS AS HAVING BEEN SPLIT FROM THE EXISTING BUSINESS. IN CASE OF DSM SOFTWARE(P) LTD (SUPRA) , THE HONBLE I TAT NOTED THAT THERE WAS SUBSTANTIAL ADDITION TO THE NATURE AND TYPE OF SERVICES RENDERED TO CLIENTS , TO THE VOLUME OF THE BUSINESS AND ALSO TH AT THERE WAS INCREASE IN NUMBER OF CUSTOMERS , WHILE HOLDING THAT THE NEW BU SINESS WAS NOT SPLIT ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 35 FROM THE EXISTING BUSINESS. IN THE PRESENT CASE , T HE NATURE AND TYPE OF PRODUCTS SUPPLIED IN THE NEW BUSINESS IS THE SAME AS IN THE EXITING BUSINESS , THERE IS NO CHANGE IN THE CUSTOMERS WHICH REMAINS THE SAME AS IN THE EARL IER BUSINESS AND THERE IS NO INCREASE IN VOLUME OF BUSINESS ON ACCOUNT OF SETTING UP OF NEW UNIT OTHER THAN THE NORMAL GROWTH. THIS DECISION ALSO IN MY OPINION DOES NOT HELP THE SAME OF THE APPELLANT. 8.5 A MOOT QUESTION IS WHETHER THEY CAN BE SPLITTI NG UP OF BUSINESS WITHOUT THE TRANSFER OF ANY ASSET BEING PLANT AND M ACHINERY FORM THE EXISTING BUSINESS TO THE NEW UNDERTAKING. IN THIS C ONNECTION, IT IS WORTH NOTING THAT SECTION 10B (2) (II) TALKS ABOUT SPLITT ING UP OF BUSINESS RATHER THAN OF AN INDUSTRIAL UNDERTAKING TRANSFER OF USE D MACHINERY OR PLANT TO A NEW BUSINESS AS A NEGATIVE CONDITION U/S 10B IS C OVERED BY CLAUSE (III) OF SECTION 10B (2). BUSINESS IS MORE THAN THE MERE BUI LDING OR PLANT AND MACHINERY THIS IS A REASON THAT THE HONBLE ITAT IN THE CASE OF DSM SOFTWARE (P) LTD (SUPRA) HAVE HELD THAT SPLITTING UP WOULD INVOLVE THE FACT THAT EITHER SOME ASSETS OF THE EXISTING BUSINESS HA D BEEN DIVERTED OR THAT THE TWO BUSINESS WERE SAME AND THE ONE FORMED THE INTEG RAL PART OF THE OTHER EARLIER. NOW IF THERE IS NO TRANSFER OF ASSET FORM THE EXISTING BUSINESS IS SHIFTED TO THE NEW UNIT. IN THE PRESENT CASE THE SO LE CUSTOMER MITSUBISHI CORP. TO WHOM ALL THE SALES OF THE EXISTING FIRM M/ S DYNAMECH WERE MADE WAS AN INTEGRAL PART AND THE RAISON DETRE FOR THE B USINESS OF M/S DYNAMECH. THIS INTEGRAL PART OF THE BUSINESS OF M/S DYNAMECH WAS SHIFTED TO M/S PRAJNA (INDIA) WHEN THIS NEW UNIT WAS SETTLE D. HENCE IN MY OPINION EVEN WITHOUT THE TRANSFER OF MACHINERY OR PLANT FRO M M/S DYNAMECH TO M/S PRAJNA (INDIA) BY VIRTUE OF THE SHIFTING OF THE SOL E BUSINESS OF M/S DYNAMECH TO M/S PRAJNA(INDIA) A SPLIT UP OF THE BUS INESS OF M/S DYNAMECH SO AS TO FROM A NEW BUSINESS OF M/S PRAJNA(INDIA) T OOK PLACE. THIS IS ALSO FORTIFIED BY THE FACT THAT ALMOST THE ENTIRE CAPITA L OF M/S DYNAMECH WAS USED IN SETTING UP M/S PRAJNA(INDIA) THE CONTROL HA D THE MANAGEMENT OF EXISTING AND NEW UNIT REMAINED WITH THE APPELLANT. THE WORKERS OF MS/ DYNAMECH SHIFTED TO M/S PRAJNA(INDIA) AT LEAST PAPE R IN THE SUBSEQUENT YEAR, AND WERE POSSIBLY USED IN THE PRESENT YEAR AL SO DUE TO THE CIRCUMSTANCES DISCUSSED EARLIER. IN MY OPINION M/S PRAJNA(INDIA) HAS BEEN FORMED BY SHIFTING UP OF THE EXISTING BUSINESS OF M /S DYNAMECH. 8.6 IN THE CASE OF M/S CHENAB INFORMATION TECHNOLOG Y (P) LTD. 25 SOT 432 (MUM) THE HONBLE ITAT HELD THAT IT WILL BEA CASE OF SPLI TTING UP OF BUSINESS IF EITHER THE ASSETS OF OLD UNIT HAVE BEEN TRANSFERRED TO NEW UNIT OR IN CASE ASSETS HAVE NOT BEEN TRANSFERRED THE BUSINESS ITSEL F HAS BEEN DIVERTED TO THE ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 36 NEW UNIT AND THE BUSINESS OF BOTH UNITS REMAIN THE SAME. IN THIS CASE THE ASSESSE HAD AN EXISTING UNIT WHICH WAS NOT ENTITLED TO EXEMPTION U/S 10A . THE ASSESSEE HAS SET UP ANEW UNIT IN THE STP AND CA LIMED EXEMPTION U/S 10A . THE HINBLE ITAT NOTED THAT THE BUSINESS OF T HE ASSESSEE CONTINUED TO BE THE SAME THAT WORK WAS DONE ONSITE AT CUSTOMERS PREMISES THAT VERY LITTLE NEW INVESTMENT WAS MADE AND THE EMPLOYEES IN THE NE W UNIT WERE ALSO THE SAME . THOUGH SOME OF THE FACT IN THIS CASE ARE DIF FERENT FROM THE CASE OF THE PRESENT APPELLANT THE PRINCIPAL OF THIS CASE WILL A PPLY TO THE PRESENT CASE ALSO. THAT IS, THERE NEED NOT BE TRANSFER OF ASSIST FOR SPLITTING UP TO BE EFFECTIVE. WHAT MAY TRIGGER SOLITTING UP CAN BE DIV ERSION OF BUSINESS OF THE EXISTING UNIT TO THE UNIT. IN THE PRESENT CASE , EV EN THOUGH THE ASSESSEE HAS SET UP A NEW UNIT BY MAKING SUBSTANTIAL INVESTMENT IN PLANT AND MACHINERY, THE BUSINESS CONTINUES TO BE THAT OF THE EXISTING U NIT. THERE IS NO BUSINESS NECESSITY FOR SETTING UP OF NEW UNIT. THE REASON FO R SETTING UP OF NEW UNIT IS NOT FAR TO SEEK , I.E. TO CLAIM DEDUCTION U\S 10B O F THE ACT. THIS HAS ALSO BEEN ADMITTED BY THE APPELLANT. 8.7 THE APPELLANT HAS RAISED A PERTINENT ISSUE THAT WHERE THE PROVISIONS OF THE ACT PROVIDE FOR DEDUCTION \EXEMPTION, THE AO CA NNOT DECIDE THE COURSE OF BUSINESS ACTIONS OF THE ASSESSEE. THERE CAN BE N O QUARREL OVER THIS PROPOSITION WHICH HAS BEEN WELL SETTLED BY SEVERAL JUDICIAL DECISIONS. HOWEVER , THE LEGISLATURE HAS MADE CERTAIN NEGATIVE CONDITIONS FOR AVAILING CERTAIN EXEMPTIONS/ DEDUCTIONS, AND IF THESE NEGATI VE CONDITIONS ARE ATTRACTED, BENEFIT COULD NOT BE AVAILABLE TO THE AS SESSEE. FOR CLAIMING DEDUCTION U/S 10B, THE NEGATIVE CONDITIONS ARE THAT THE NEW UNIT SHOULD NOT BE FORMED BY TRANSFER OF USED MACHINERY IN EXCESS O F 20% OF THE TOTAL PLANT AND MACHINERY, THAT THE NEW UNIT SHOULD NOT BE FOUN D BY RECONSTRUCTION OF AN EXISTING BUSINESS, OR THE NEW UNIT SHOULD NOT BE FOUND BY SPLITTING UP OF AN EXISTING BUSINESS. THE REASONS FOR THESE NEGATIV E CONDITIONS ARE ALSO QUITE CLEAR. THE LEGISLATURE, WHILE GIVING INCENTIV ES TO PROMOTE EXPORTS, HAVE ALSO STIPULATED THAT THESE EXPORTS COME FROM N EW UNDERTAKINGS . BOTH THE CONDITIONS ARE IMPORTANT, I.E. THERE SHOULD BE A NEW UNIT INVOLVING FRESH INVESTMENTS IN PLANT AND MACHINERY LEADING TO ADDIT IONAL CAPACITIES IN THE NATIONAL ECONOMY , AS WELL AS ENHANCEMENT IN THE EX PORTS. IF ONLY ONE CONDITION IS SATISFIED, I.E. A NEW UNIT IS SET UP, BUT THERE IS NO ADDITIONAL EXPORT OR BUSINESS GENERATED OR EXPANSION, THE OBJE CTIVES ARE NOT LIKELY TO BE SERVED. IT APPEARS THAT IS THE REASON THAT THE P ROHIBITION ON THE NEW UNIT BEING FORMED BY SPLITTING UP OF BUSINESS OF AN EXIS TING UNIT HAS BEEN INCORPORATED IN SECTION 10B AND SEVERAL OTHER DEDUC TION/EXEMPTION PROVISIONS IN THE I.T.ACT. IN THE CASE OF APPELLANT , WHILE NEW INVESTMENT HAS BEEN MADE, IT HAS MERELY RESULTED IN DIVERTING BUSI NESS FROM AN OLD UNIT TO THE NEW UNIT WITHOUT LEADING TO ENHANCEMENT IN BUSI NESS OF EXPORT. ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 37 8.8 BASED ON THE DISCUSSION ABOVE, I AGREE WITH THE AO'S CONCLUSION IN THE ASSESSMENT ORDER THAT THE NEW UNIT OF PRAJNA (INDIA ) HAVE BEEN FORMED BY SPLITTING UP OF THE EXISTING BUSINESS OF M/S DYNAME CH. DEDUCTION U/S 10B IS THEREFORE NO ALLOWABLE IN RESPECT OF THE INCOME OF THIS NEW UNIT. THESE GROUNDS OF APPEALS ARE THEREFORE REJECTED. 37. AS AVAILABLE FROM THE ABOVE ORDERS AND AS ALSO CONTENDED ON BEHALF OF THE ASSESSEE, THE AO OBSERVED THAT SINCE THE BUILDI NG OF THE ASSESSEE DID NOT STAND COMPLETED AND SINCE IT WAS NOT SUFFICIENT TO HOUSE THE MACHINERY IN ORDER TO PRODUCE THE MACHINED PARTS WHICH WERE REQU IRED FOR MANUFACTURE BY THE ASSESSEE, AS PER THE REQUIREMENTS OF MITSUBISH I, JAPAN, THE PRODUCTION HAD NOT BEEN CARRIED OUT BY THE ASSESSEE IN HIS NE W UNIT, NAMELY, M/S. PRAJNA (INDIA), BUT IN THE FACTORY OF M/S. DYNAMEC H, WHEREIN, THE ASSESSEE WAS A PARTNER AND WHICH WAS ALSO SUPPLYING MACHINED PARTS TO MITSUBISHI, JAPAN. THE LD. CIT(A), HAVING CONSIDERED THE SUBMISSIONS ON BEHALF OF THE ASSESSEE, HELD THAT THE ASSESSEES BUILDING WAS SUB STANTIALLY READY FOR USE DURING THE YEAR UNDER CONSIDERATION. 38. THE AO FURTHER HELD THAT THE ASSESSEES MACHIN ERY WAS NOT SUFFICIENT FOR THE REQUIRED PRODUCTION AND SO, THE PRODUCTION WAS, IN FACT, DONE BY M/S. DYNAMECH AND NOT THE ASSESSEE. THIS FINDING OF THE AO WAS ALSO OVER-RULED BY THE LD. CIT(A). ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 38 39. THE AO ALSO HELD THAT CONSIDERING THE EXPENSES ON CONSUMABLE STORES, I.E., @ 7.19% TILL THE END OF FEBRUARY AND @ 11.78% OVERALL, THE PRODUCTION WAS NOT JUSTIFIED AND THAT SUCH PRODUCTI ON WAS CARRIED OUT BY M/S. DYNAMECH. THIS FINDING OF THE AO WAS ALSO NOT ACCEPTED BY THE LD. CIT(A). 40. THE EXEMPTION CLAIMED BY THE ASSESSEE U/S 10B O F THE ACT WAS DISALLOWED BY THE AO BY HOLDING THAT PRAJNA (INDI A) WAS FORMED BY A SPLITTING UP OF THE BUSINESS OF M/S. DYNAMECH. FOR THIS, THE AO RELIED ON THE FOLLOWED CASE LAWS: I) M/S. TEXTILE MACHINERY CORPN. LTD. VS. CIT, 107 I TR 195 (SC) II) CHEMBRA PEAK ESTATE LTD. VS. CIT, 85 ITR 401 (KER .) DURING THE APPEAL BEFORE THE LD. CIT(A), HOWEVER, T HE AO, VIDE WRITTEN COMMENTS DATED 2/3.7.2009, CHANGED HER STANCE FROM THAT OF SPLITTING UP TO RECONSTRUCTION. THE LD. CIT(A) HELD IT TO BE A CASE OF SPLITTING UP OF THE BUSINESS OF M/S. DYNAMECH. 41. THE GRIEVANCE OF THE ASSESSEE IS THAT DESPITE N OT AGREEING WITH THE AO ON THE ABOVE COUNTS, THE LD. CIT(A) HAS ERRONEOUSLY STILL HELD IT TO BE A CASE OF SPLITTING UP OF THE BUSINESS OF M/S. DYNAMECH. T HIS, ACCORDING TO THE ASSESSEE, IS NEITHER CORRECT, NOR SUSTAINABLE IN LA W. THE ASSESSEE MAINTAINS THAT M/S. PRAJNA (INDIA) IS AN INDEPENDENT ENTITY, TOTALLY SEPARATE FROM M/S. ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 39 DYNAMECH; THAT IT HAS BEEN SET UP AT A NEW PLACE, I N A NEW BUILDING, BY INSTALLING NEW MACHINERY; THAT THOUGH THE SOLE CUS TOMER OF M/S. PRAJNA (INDIA) AND M/S. DYNAMECH IS THE SAME, I.E., MITSUB ISHI, JAPAN, THE PRODUCTS MANUFACTURED BY BOTH ARE DIFFERENT, EVEN THOUGH TH EY COME UNDER THE GENERAL CATEGORY OF MACHINED PARTS; AND THAT, THERE FORE, IT CANNOT AT ALL BE SAID THAT THE NEW UNIT, I.E., PRAJNA (INDIA) HAS BE EN SET UP BY A SPLITTING UP OF THE BUSINESS OF M/S. DYNAMECH. 42. AS MENTIONED, THE AO HAD RELIED ON TEXTILE MAC HINERY CORPN. LTD. VS. CIT, (SUPRA) AND CHEMBRA PEAK ESTATE LTD. VS. CIT, (SUPRA). THE LD,. CIT(A) HELD TEXTILE MACHINERY CORPN. LTD., (SUPR A) TO GO IN FAVOUR OF THE ASSESSEE. HOWEVER, CHEMBRA PEAK ESTATE LTD., (SUP RA) WAS RELIED ON BY THE LD. CIT(A) TO HOLD AGAINST THE ASSESSEE. 43. THE LD. CIT(A) HAS HELD THAT THE CAPITAL FOR SE TTING UP THE NEW UNIT WAS OBTAINED BY WITHDRAWING THE ASSESSEES CAPITAL IN M/S. DYNAMECH; AND THAT THE CAPITAL OF THE OTHER PARTNER OF M/S. DYNAM ECH, I.E., THE WIFE OF THE ASSESSEE, WAS OBTAINED BY WAY OF GIFT FROM HER BY THE ASSESSEE. THE LD. CIT(A) THUS HELD THAT THE CAPITAL WAS TRANSFERRED F ROM THE EXISTING BUSINESS TO THE NEW UNIT AND IT WAS THIS CAPITAL WHICH WAS USED IN THE SETTING UP OF THE NEW UNIT, I.E., PRAJNA (INDIA). OBJECTING TO TH IS, THE ASSESSEE CONTENDS THAT ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 40 THIS FINDING OF THE LD. CIT(A) IS ILL FOUNDED, IN A SMUCHAS THERE IS NO MATERIAL WHATSOEVER ON RECORD TO ARRIVE AT SUCH A FINDING. 44. IN THIS REGARD, IT IS SEEN THAT THE PARTNERS CA PITAL AT THE END OF THE FIRST YEAR OF OPERATION OF M/S. DYNAMECH WAS RS.20.45 LAC S. THE ASSESSEE AND HIS WIFE HAD MADE WITHDRAWALS FROM TIME TO TIME OUT OF THE PROFITS EARNED IN M/S. DYNAMECH AND THE AMOUNTS WITHDRAWN WERE DEPOS ITED IN THEIR PERSONAL BANK ACCOUNT. A PROFIT OF RS. 4.37 CRORES STOOD EARNED IN M/S. DYNAMECH IN THE SIX YEARS FROM AY 2001-02 TO AY 200 6-07. OUT OF THIS, AN AMOUNT OF RS.4.20 CRORES WAS WITHDRAWN BY THE PART NERS OF M/S. DYNAMECH, I.E., THE ASSESSEE AND HIS WIFE. THE CAPITAL ACCOUN T OF THE PARTNERS IN M/S. DYNAMECH, AS HAS BEEN FILED BEFORE US, AND AS ALSO STATED TO HAVE BEEN FILED BEFORE THE LD. CIT(A), IS AS FOLLOWS: DEPOSITS DURING THE PERIOD WITHDRAWALS DURING THE PERIOD BALANCE IN PARTNERS ACCOUNT AS ON 31.3. OF THAT PERIOD PERIOD AY MALA ROHIT MALA ROHIT PROFIT FOR THE PERIOD MALA ROHIT DIFFERENCE (PROFITS- WITHDRAWALS) 01.04.00 TO 31.03.01 2001- 02 5,75,0 00.00 7,41,76 7.00 6,00,00 0.00 10,63,4 93.00 44,73,6 79.66 38.80. 225.05 52,01, 715.04 28,10,186.66 01.04.01 TO 31.03.02 2002- 03 -- 25,010. 00 21,75,0 00.00 22,34,8 16.00 56,68,8 46.76 45,39, 648.43 58,26, 332.42 12,59,030.76 01.04.02 2003- 2,00,0 2,28,73 21,00,0 33,11,8 62,94,1 57, 86, 58,90, 8,82,329.44 ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 41 TO 31.03.03 04 00.00 8.00 00.00 31.00 60.44 728.65 319.64 01.04.03 TO 31.03.04 2004- 05 8,00,0 00.00 7,86,88 5.00 26,36,7 60.00 36,18,8 90.00 77,00,0 82.90 78,00, 010.10 69,08, 356.09 14,44,432.90 01.04.04 TO 31.03.05 2005- 06 -- 82,310. 00 9,47,60 8.50 23,13,0 41.50 1,08,80 ,376.20 1,22,9 2,589. 70 1,01,1 7,812. 69 76,19,726.20 01.04.05 TO 31.03.06 2006- 07 -- 4,49,35 3.00 1,13,60 ,124.70 96,70,4 80.69 87,62,0 24.82 53,13, 477.41 52,77, 697.41 (1,22,68,580.57) 15,75,000.00 23,14,063.00 1,98,19,493.20 2,2 2,12,552.19 4,37,79,170.78 17,47,125.39 45. THE ABOVE CLEARLY SHOWS THAT NO CAPITAL WAS WIT HDRAWN FROM M/S. DYNAMECH. THE CAPITAL OF M/S. DYNAMECH WAS LEFT INT ACT. FURTHER, A CHART SHOWING THE AMOUNT INVESTED IN PRAJNA (INDIA) DURIN G THE ASSESSMENT YEAR 2006-07, I.E., THE YEAR UNDER CONSIDERATION, HAS AL SO BEEN FILED BEFORE US. THIS CHART IS ALSO STATED TO HAVE BEEN FILED BEFORE THE LD. CIT(A). THE AMOUNT INVESTED IN PRAJNA (INDIA) BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WAS RS.1.61 CRORE, BESIDES A PLOT OF LAND, PURCHASED EARLIER, FOR RS.0.22 CRORES. AN AMOUNT OF RS.1.05 CRORES IS FURT HER SHOWN TO HAVE BEEN INVESTED DURING THE ASSESSMENT YEARS 2007-08 & 2008 -09. 46. THE OBSERVATION OF THE LD. CIT(A) THAT ANY SUCH CAPITAL WAS WITHDRAWN FOR SETTING UP THE NEW UNIT AND THAT THE CAPITAL OF THE WIFE OF THE ASSESSEE WAS OBTAINED BY WAY OF GIFT, ALSO FOR SETT ING UP OF THE NEW UNIT IS, ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 42 THUS, MERELY A BALD OBSERVATION, WITHOUT ANY SUPPOR T FROM THE RECORD. THERE IS, ERGO, NO BASIS FOR THE LD. CIT(A) TO ARRIVE AT THE FINDING THAT THE CAPITAL OF M/S. DYNAMECH WAS TRANSFERRED TO M/S. PRAJNA (INDIA ). THIS FINDING IS BUT A RESULT OF MERE CONJECTURES AND SURMISES. 47. THE LD. CIT(A) FURTHER OBSERVED THAT THE ORDERS WERE SHIFTED FROM M/S. DYNAMECH TO M/S. PRAJNA (INDIA), THUS AMOUNTIN G TO A SPLITTING UP OF THE BUSINESS. IT HAS ALSO BEEN OBSERVED THAT M/S. D YNAMECH HAD A SINGLE CUSTOMER, I.E., MITSUBISHI, JAPAN, THAT AFTER THE NEW UNIT, PRAJNA (INDIA) WAS SET UP, M/S. DYNAMECH STOPPED SUPPLYING THE ORDERS OF MITSUBISHI AND ALL ORDERS OF MITSUBISHI WERE EXECUTED BY PRAJNA (INDI A); AND THAT THE BUSINESS OF DYNAMECH SLOWED DOWN CONSIDERABLY IN THE SUBSEQ UENT YEAR AND IT MANUFACTURED A FEW ITEMS FOR THE LOCAL MARKET AND D ID JOB WORK FOR THE ASSESSEE. REFERRING TO THE TABLE DEPICTING THE TUR NOVER AND NET PROFIT OF M/S. DYNAMECH VIS--VIS THOSE OF PRAJNA (INDIA) FOR AYS 2002-03 TO 2007-08, THE LD. CIT(A) HAS OBSERVED THAT THE WORK EARLIER BEING DONE BY M/S. DYNAMECH WAS SHIFTED TO PRAJNA (INDIA). IN THIS REGARD, THE ASSESSEE CONTENDS THAT AGAIN, THIS FINDING IS NOT BASED ON ANY MATERIAL ON RECORD. 48. WE FIND THIS OBJECTION OF THE ASSESSEE TO BE CO RRECT. THE LD. CIT(A) HAS NOT REFERRED TO ANY MATERIAL SHOWING THAT M/S. DYNAMECH HAD ANY ORDERS FROM M/S. MITSUBISHI, JAPAN, WHICH REMAINED UNSUPPLIED. NO MATERIAL ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 43 HAS ALSO BEEN REFERRED TO TO SHOW THAT ANY ORDERS PLACED BY MITSUBISHI, JAPAN WITH M/S. DYNAMECH WERE, IN FACT, SUPPLIED BY M/S. PRAJNA (INDIA) AND NOT BY M/S. DYNAMECH. THE OBSERVATION OF THE L D. CIT(A) THAT AFTER PRAJNA (INDIA) WAS SET UP, M/S. DYNAMECH STOPPED SU PPLYING THE ORDERS OF MITSUBISHI CANNOT BE TAKEN TO GO AGAINST THE ASSESS EE SANS ANY MATERIAL TO SHOW THAT ANY ORDER OF MITSUBISHI PLACED WITH M/S. DYNAMECH REMAINED UNCOMPLIED, OR THAT ANY ORDERS OF MITSUBISHI WITH M/S. DYNAMECH WERE SUPPLIED BY PRAJNA (INDIA). FURTHER, IN ORDER TO PR OVE THE SPLITTING UP NOTHING TURNS ON THE OBSERVATION THAT THE BUSINESS OF M/S. DYNAMECH SLOWED DOWN CONSIDERABLY IN THE SUCCEEDING YEARS AND IT MANUFAC TURED ITEMS FOR THE LOCAL MARKET AND DID JOB WORK FOR THE ASSESSEE. 49. THE LD. CIT(A) HAS FURTHER OBSERVED THAT BOTH M /S. DYNAMECH AND PRAJNA (INDIA) WERE BEING MANAGED BY THE ASSESSEE, WHICH SHOWED THAT THERE WAS UNITY OF CONTROL. THIS OBSERVATION OF THE LD. C IT(A) HAS ALSO BEEN OBJECTED TO BY THE ASSESSEE, AS BEING A RESULT OF MERE PRESUMPTIONS AND ASSUMPTIONS, WITHOUT THERE BEING ANY MATERIAL ON RE CORD TO SUPPORT THE SAME. 50. THE ASSESSEE, UNDISPUTEDLY, IS AN ENGINEER, HAV ING TECHNICAL KNOWLEDGE AND SKILL REQUIRED FOR THE JOBS TO BE EXE CUTED. THIS, COMBINED WITH THE OBSERVATION OF THE LD. CIT(A) (DEALT WITH ABOVE) THAT THE CAPITAL OF ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 44 THE ASSESSEE AND HIS WIFE WAS TRANSFERRED TO ENABLE THE SETTING UP OF THE NEW UNIT AND AS SEEN FROM PARA 8.3 OF THE IMPUGNED ORDE R, HAS LED TO THE FINDING OF UNITY OF CONTROL. HOWEVER, THIS FINDING TOO, IS FOUND TO BE WITHOUT ANY BASIS. M/S. DYNAMECH WAS HAVING TWO PARTNERS, I.E., THE ASSESSEE AND HIS WIFE. THE LD. CIT(A), REFERRING TO THE DECISION OF T. SATISH U. PAI VS. CIT, 119 ITR 877 (KAR.), HAS OBSERVED THAT THIS DECISION IMPLIES THAT THE UNITY OF CONTROL BETWEEN THE EXISTING AND THE NEW BUSINESSES AS WELL AS TRANSFER OF CAPITAL FROM THE EXISTING BUSINESS TO THE NEW BUSIN ESS, EVEN WITHOUT THE TRANSFER OF THE MACHINERY OR ASSETS FROM THE EXISTI NG BUSINESS TO THE NEW BUSINESS, ARE RELEVANT CONSIDERATIONS FOR TREATING THE NEW BUSINESS AS HAVING BEEN SPLIT FROM THE EXISTING BUSINESS. HOWEVER, AS SEEN ABOVE, IN THE PRESENT CASE, THERE IS NO TRANSFER OF CAPITAL AND THE FINDI NG OF UNITY OF CONTROL IS ALSO NOT BASED ON ANY MATERIAL ON RECORD. FURTHER, AS PO INTED OUT ON BEHALF OF THE ASSESSEE, IN THIS DECISION, IT HAS BEEN HELD THAT U NITY OF CONTROL MAY BE SAID TO CONTINUE IN A CASE WHERE THE SAME PERSON CARRIES ON BUSINESS AND BRINGS INTO EXISTENCE ANOTHER BUSINESS OF THE SAME NATURE , BY THE USE OF THE ASSETS BELONGING TO THE EARLIER BUSINESS. HEREIN, HOWEVER, AS ALSO TAKEN INTO CONSIDERATION BY THE LD. CIT(A), NO ASSETS OF THE E ARLIER BUSINESS WERE SHIFTED TO THE NEW UNIT. THEREFORE ALSO, EVEN AS PER T. SATISH U. PAI (SUPRA), UNITY OF CONTROL DOES NOT STAND ESTABLISHE D. ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 45 51. THE LD. CIT(A) HAS FURTHER OBSERVED THAT MANY W ORKERS OF M/S. DYNAMECH ADMITTEDLY SHIFTED TO PRAJNA (INDIA) IN TH E SUBSEQUENT YEAR, AT LEAST ON PAPER. THE LD. CIT(A) OBSERVED THAT THESE WORKERS WERE POSSIBLY USED IN THE YEAR UNDER CONSIDERATION, THEREBY INDIC ATING A SPLITTING UP OF THE BUSINESS. AGAIN, THE ASSESSEE CONTENDS THAT THIS FI NDING OF THE LD. CIT(A) IS WITHOUT ANY BASIS. 52. AGAIN, THIS FINDING OF THE LD. CIT(A) DOES NOT ACCOMPANY ANY BASIS THEREOF. IN PARA 8.5 OF THE ORDER, THE LD. CIT(A) O BSERVED THAT WORKERS OF M/S. DYNAMECH SHIFTED TO PRAJNA (INDIA) AT LEAST ON PAPER IN THE SUBSEQUENT YEAR, AND WERE POSSIBLY USED IN THE PRESENT YEAR A LSO DUE TO THE CIRCUMSTANCES DISCUSSED EARLIER. THIS, DESPITE TH E FACT THAT THE ASSESSEE CLAIMED THAT DURING THE YEAR UNDER CONSIDERATION, A LL THE MANUFACTURING WAS DONE BY DIFFERENT WORKERS. THE LD. CIT(A) HAS BASED HIS FINDING ON THE OBSERVATION ( PARA 8.3 OF THE IMPUGNED ORDER) THAT THE LARGE VOLUME OF THE PRODUCTION IN A SHORT TIME DOES RAISE DOUBT ON THIS SCORE. 53. NOW, THE ORDER UNDER APPEAL DOES NOT EVINCE ANY MATERIAL TO SHOW THAT ANY WORKER WAS SHIFTED OR TRANSFERRED. RATHER, THE CIT(A) IS HIMSELF EVIDENTLY NOT SURE OF ANY WORKER OF DYNAMECH HAVING ACTUALLY SHIFTED TO PRAJNA (INDIA), IN THE ABSENCE OF ANY MATERIAL ON R ECORD TO THIS EFFECT, WHEN HE EMPLOYES THE EXPRESSION POSSIBLY IN HIS FINDIN G. IT GOES WITHOUT SAYING ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 46 THAT IN THE CASE OF TRANSFER OF A WORKER, THERE IS CONTINUITY OF SERVICE, WHICH IS ABSENT HERE. 54. THE LD. CIT(A) HAS OBSERVED TO THE EFFECT THAT THE REASON FOR SETTING UP OF THE NEW UNIT PRAJNA (INDIA) WAS BUT TO CLAIM DEDUCTION 10B OF THE ACT AND THEREBY TO EVADE TAX. THIS OBSERVATION/FINDING OF THE LD. CIT(A) HAS ALSO BEEN OBJECTED TO BY THE ASSESSEE AS BEING BASE LESS. 55. THIS OBSERVATION OF THE LD. CIT(A) ACCOMPANIES AN OBSERVATION THAT THIS HAS BEEN ADMITTED BY THE ASSESSEE. HOWEVER, TH E ADMISSION IS THAT THE NEW UNIT WAS SET UP TO CLAIM DEDUCTION U/S 10B OF T HE ACT, WHICH BY ITSELF DOES NOT LEAD TO THE CONCLUSION THAT THE PURPOSE OF SETTING UP A NEW UNIT WAS TAX EVASION. 56. THE ASSESSEE HAS ALL THROUGH MAINTAINED THAT M ITSUBISHI, JAPAN CAME UP WITH REQUIREMENT OF PARTS WITH GREATER PRECISION AND COST EFFECTIVENESS. MITSUBISHI, JAPAN IS THE ONLY CUSTOMER OF M/S. DYN AMECH AND PRAJNA (INDIA). IT WAS ON THE ARISING OF THIS REQUIREMENT , THAT THE ASSESSEE SOUGHT TO SET UP A NEW INDUSTRIAL UNDERTAKING. THE NEW INDUST RIAL UNDERTAKING WAS SET UP WITH ADVANCED MODERN MACHINERY AT A NEW PLACE, I N A NEW BUILDING, TO MEET THE FRESH REQUIREMENTS OF MITSUBISHI, JAPAN. THE OPERATION IMPROVED, AS IS ALSO EVIDENT FROM PAGE 3 OF THE ASSESSMENT OR DER. THE PROFITABILITY OF PRAJNA (INDIA) WENT UP TO 56% IN THE ASSESSMENT YEA R 2007-08 FROM THAT OF ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 47 45% IN ASSESSMENT YEAR 2006-07, THE YEAR UNDER CONS IDERATION. THIS, JUXTAPOSED WITH THE PROFITABILITY OF M/S. DYNAMECH, WHICH HAD REMAINED CONSTANT OVER A PERIOD OF FIVE YEARS, I.E., BETWEEN 30% AND 41%. THIS IS AVAILABLE AT PAGE 17 OF ASSESSEES WRITTEN SUBMISSI ON DATED 2.1.2015. 57. M/S. PRAJNA (INDIA) PRODUCED 112 NEW PARTS UPTO ASSESSMENT YEAR 2007-08, 156 NEW PARTS UPTO ASSESSMENT YEAR 2008-9 AND 236 NEW PARTS UPTO ASSESSMENT YEAR 2009-10 (AS IS AVAILABLE AT P AGE 18 OF THE ASSESSEES WRITTEN SUBMISSION DATED 02.01.2015). THESE FIGURES ARE ALSO STATED TO HAVE BEEN PLACED BEFORE THE LD. CIT(A). HOWEVER, THEY HA VE NOT BEEN TAKEN INTO CONSIDERATION. 58. FURTHER, IT STANDS DEPICTED AT PAGE 19 OF ASSES SEES WRITTEN SUBMISSION DATED 02.01.2015 THAT THE RATE OF INCREASE OF ANNU AL SALES OF M/S. DYNAMECH, WHICH WAS BETWEEN 21% TO 28% FOR EACH OF THE THREE PRECEDING YEARS, FELL TO 3% IN THE YEAR UNDER CONSIDERATION. THIS ALSO STANDS NOTED AT PAGE 3 OF THE ASSESSMENT ORDER. AS AGAINST THIS, DU RING ASSESSMENT YEAR 2007-08, THE ANNUAL SALES OF PRAJNA (INDIA), IN ITS FIRST FULL YEAR OF OPERATIONS, WAS 15%. THESE FIGURES ALSO REMAINED OBLIVIOUS TO T HE LD. CIT(A). 59. TO WIT, EXEMPTION U/S 10B OF THE ACT WAS AVAILA BLE ONLY UPTO 31.03.2009. THAT BEING SO, THE INVESTMENT OF OVER R S.2.6 CRORES IN LAND, ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 48 BUILDING AND MACHINERY WOULD NOT MAKE ANY BUSINESS SENSE. THIS FACT HAS ALSO GONE UNNOTICED BY THE LD. CIT(A). 60. THUS, IT CAN BE SEEN THAT NONE OF THE REASONS F OR WHICH THE LD. CIT(A) HAS HELD THAT PRAJNA (INDIA) WAS FORMED BY SPLITT ING UP OF THE BUSINESS OF M/S. DYNAMECH HOLDS GOOD. IN CIT VS. HINDUSTAN GE NERAL INDUSTRIES LTD., 137 ITR 851 (DELHI), IT HAS BEEN HELD THAT THE EXPR ESSION SPLIT UP INDICATES A CASE WHERE THE INTEGRITY OF A BUSINESS EARLIER IN EXISTENCE IS BROKEN UP AND DIFFERENT SECTIONS OF THE ACTIVITIES PREVIOUSLY CON DUCTED ARE CARRIED ON INDEPENDENTLY. IN THE PRESENT CASE, NEITHER OF THES E FACTORS IS PRESENT. NEITHER HAS THE INTEGRITY OF THE BUSINESS OF M/S. DYNAMECH BEEN SHOWN TO HAVE BEEN BROKEN UP, NOR ANY ACTIVITIES PREVIOUSLY CONDUCTED BY M/S. DYNAMECH HAVE BEEN ESTABLISHED TO HAVE BEEN CARRIED ON INDEPENDEN TLY BY PRAJNA (INDIA). PRAJNA (INDIA) HAS NOT BEEN PROVED TO BE A REHASH OF M/S. DYNAMECH. 61. M/S. DYNAMECH HAS NOT BEEN SHOWN TO HAVE BEEN EITHER SPLIT UP, OR DIVIDED. IT CONTINUED TO INDEPENDENTLY PRODUCE AND SUPPLY PARTS. NO MACHINERY OR FIRM OR SECTION OF M/S. DYNAMECH WAS TRANSFERRED OR SHIFTED TO PRAJNA (INDIA), AS ACCEPTED BY THE LD. CIT(A) AL SO. RATHER, THE OBSERVATIONS OF THE LD. CIT(A) IN PARA 8.3 OF THE ORDER UNDER APPEAL, ARE MUTUALLY CONTRADICTORY. IT WAS FIRST STATED THAT TH E WORK EARLIER DONE IN M/S. ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 49 DYNAMECH WAS SHIFTED TO PRAJNA (INDIA). IMMEDIATEL Y THEREAFTER, IT WAS OBSERVED THAT THE BUSINESS HAD SPLIT AND HAD GONE P ARTLY TO PRAJNA (INDIA). 62. THERE IS ALSO NO REBUTTAL TO THE STAND MAINTAIN ED BY THE ASSESSEE THAT THOUGH THE PARTS SUPPLIED BY BOTH M/S.DYNAMECH AN D PRAJNA (INDIA) WERE MACHINED PARTS, THIS WAS ONLY A GENERAL CLASSIFICAT ION AND WHEREAS THOSE SUPPLIED BY M/S. DYNAMECH WERE SIMPLY PARTS, PRAJNA (INDIA) WAS SET UP TO PRODUCE HIGH PRECISION PARTS, AS WAS THE FRESH REQU IREMENT OF MITSUBISHI, JAPAN. 63. APROPOS RELIANCE BY THE ASSESSEE ON JUDICIAL DE CISIONS, THE FOLLOWING CASE LAWS HAVE BEEN CITED: I) TEXTILE MACHINERY CORPN. LTD. VS. CIT 107 ITR 19 5 (SC) II) CIT VS. ORIENT PAPER MILLS LTD. 108 ITR 367 (S C) III) CIT VS. ORIENT PAPER MILLS LTD.176 ITR 110 (S C) IV) OSWAL WOLLEN MILLS VS. CIT 138 ITR 338 (P&H) VI) CIT VS. DANDELI FERRO ALLOYS (P) LTD. 212 ITR 18 (B OM.) VII) ITO VS. WESTERN OUTDOOR INTERACTIVE (P) LTD. (2009) TIOL -631 ITAT- MUM. VIII) ITO VS. COMPUTER FORCE 136 TTJ (AHD.) 221 IX) ABBAS NABI SHEIKH VS. ACIT 8 TAXMAN 72 (AHD-ITAT) X) QUALITY STEEL TUBES (P) LTD. VS. ITO ALLAHABD BENCH (ITA NOS.730 & 99 (ALL) OF 1985 DATED 30.10.1985) ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 50 XI) ITO VS. SERVION GLOBAL SOLUTIONS LTD. 117 TTJ CHEN NAI 380. XII) ITO VS. DSM SOFT (P) LTD. 307 ITR (AT) 156 (CHENNAI ). XIII) CIT VS. SAGUN GEMS (P) LTD. 256 CTR (RAJ.) 614 XIV) TAURUS MERCHANDISING (P) LTD. VS. ITO 143 TTJ (DEL) XV) CIT VS. DELHI PRESS PATRA PARKASHAN LTD. 260 CTR 25 3 64. IN TEXTILE MACHINERY CORPN. LTD., (SUPRA), IT HAS BEEN HELD BY THE HONBLE SUPREME COURT THAT 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, O R IT MAY PRODUCE SOME OTHER DISTINCT MARKETABLE PRODUCTS, EVEN COMMODITIE S WHICH MAY FEED THE OLD BUSINESS. THESE PRODUCTS MAY BE CONSUMED BY TH E ASSESSEE IN HIS OLD BUSINESS OR MAY BE SOLD IN THE OPEN MARKET. ONE THI NG IS CERTAIN THAT THE NEW UNDERTAKING MUST BE AN INTEGRATED UNIT BY ITSELF WH EREIN ARTICLES ARE PRODUCED AND AT LEAST A MINIMUM OF TEN PERSONS WIT H THE AID OF POWER AND A MINIMUM OF TWENTY PERSONS WITHOUT THE AID OF POWER HAVE BEEN EMPLOYED. SUCH A NEW INDUSTRIALLY RECOGNIZABLE UNIT OF AN ASS ESSEE CANNOT BE SAID TO BE RECONSTRUCTION OF HIS OLD BUSINESS SINCE THERE IS N O TRANSFER OF ANY ASSETS OF THE OLD BUSINESS IN THE NEW UNDERTAKING WHICH TAKES PLACE WHEN THERE IS RECONSTRUCTION OF THE OLD BUSINESS. FOR THE PURPOSE OF SECTION 15C THE ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 51 INDUSTRIAL UNITS SET UP MUST BE NEW IN THE SENSE TH AT NEW PLANTS AND MACHINERY ARE ERECTED FOR PRODUCING EITHER THE SAM E COMMODITIES OR SOME DISTINCT COMMODITIES. IN ORDER TO DENY THE BENEFIT OF SECTION 15C THE NEW UNDERTAKING MUST BE FORMED BY RECONSTRUCTION OF THE OLD BUSINESS. 65. THIS DECISION HAS BEEN HELD BY THE LD. CIT(A) T O GO IN FAVOUR OF THE ASSESSEE, EXCEPT FOR TRANSFER OF CAPITAL, NOTING TH AT THIS DECISION DEALT WITH RE-CONSTRUCTION AND NOT WITH SPLITTING UP OF BU SINESS. APROPOS THE TRANSFER OF CAPITAL, WE HAVE HELD ABOVE THAT THIS IS NOT A CASE OF TRANSFER OF CAPITAL. 66. IN INDIAN ALLUMINIUM CO. LTD., (SUPRA) THE HONBLE SUPREME COURT DECIDED THE MATTER ON THE SUBMISSION OF THE COUNSEL FOR BOTH THE PARTIES, THAT THE MATTER WAS GOVERNED BY TEXTILE MACHINERY CORPN . LTD.., (SUPRA). 67. IN ORIENT PAPER MILLS LTD., (SUPRA), TEXTILE MACHINERY CORPN. LTD., (SUPRA) AND INDIAN ALLUMINIUM CO. LTD., (SUPRA) WERE FOLLOWED. 68. IN OSWAL WOOLLEN MILLS LTD., (SUPRA), THE ASS ESSEE WAS MANUFACTURING HOSIERY GOODS. A SEPARATE EXPORT WING WAS ESTABLISHED FOR MANUFACTURE TO EXPORT, USING DIFFERENT RAW-MATERIAL AND HAVING SEPARATE ACCOUNTS. LARGE AMOUNTS WERE SPENT FOR CONSTRUCTION OF NEW BUILDING AND PURCHASE OF NEW MACHINERY DURING PREVIOUS AND SUBS EQUENT YEARS. A PART OF THE NEW BUILDING WAS UTILIZED FOR INSTALLING MACHI NERY FOR PRODUCTION OF KNITWEARS. THE EXPORT WING WAS SEPARATELY REGISTER ED UNDER THE FACTORIES ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 52 ACT AND ALSO WITH THE EXPORT PROMOTION COUNCIL. IT WAS HELD BY THE HONBLE HIGH COURT THAT THE EXPORT WING WAS AN INDEPENDENT ENTITY NOT FORMED BY RECONSTRUCTION OF THE BUSINESS ALREADY IN EXISTENCE AND WAS ENTITLED TO DEDUCTION. TEXTILE MACHINERY CORPN. LTD. (SUPRA), WAS FOLLOWED. 69. EVEN THOUGH THIS DECISION DEALT WITH THE RECON STRUCTION AND NOT WITH SPLITTING UP OF BUSINESS, THE LD. CIT(A) HAS HIMS ELF HELD TEXTILE MACHINERY CORPN. LTD. (SUPRA), TO GO IN FAVOUR OF THE ASSESSEE, EXCEPT FOR TRANSFER OF CAPITAL. TEXTILE MCHINERY CORPN. LTD. , (SUPRA) AS NOTED, HAS BEEN FOLLOWED IN INDIAN ALLUMIM CO. LTD., (SUPRA ), ORIENT PAPER MILLS LTD., (SUPRA) AND OSWAL WOOLLEN MILLS LTD., (SUPR A). NOW, RECONSTRUCTION AND SPLITTING UP ARE EXPRESSION S USED IN THE SAME SECTION, I.E., SECTION 10B(2)(III) OF THE ACT. THE PARAMETER S APPLICABLE TO RECONSTRUCTION ARE EQUALLY APPLICABLE TO SPLIT TING UP ALSO. THERE IS NO DENIAL TO THIS, EVEN THOUGH THE LD. CIT(A) HAS MADE IT TO BE A SPLITTING UP RATHER THAN THAT OF RECONSTRUCTION, AS ULTIMATELY HELD BY THE AO ( HAVING INITIALLY HELD IT TO BE A CASE OF SPLITTING UP). THIS, DESPITE THE FACT THAT THE LD. CIT(A) HAS OBSERVED IN PARA 8 OF THE IMPUGNED O RDER THAT TO ATTRACT THE CHARGE OF RECONSTRUCTION OF AN EXISTING BUSINESS, THERE MUST BE TRANSFER OF ASSETS, INCLUDING MACHINERY, FROM THE EXISTING UNDE RTAKING TO THE NEW UNDERTAKING, FOLLOWING TEXTILE MACHINERY CORPN. LTD. (SUPRA), INDIAN ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 53 ALLUMINIUM CO. LTD., (SUPRA) AND OSWAL WOOLLEN MI LLS LTD.,(SUPRA). THE DISTINCTION SOUGHT TO BE MADE OUT BY THE LD. CIT(A) , IN OUR CONSIDERED OPINION, IS NON-EXISTENT. IT WAS HELD IN CIT VS. HINDUSTAN GENERAL INDUSTRIES PVT. LTD., 137 ITR 185 (DELHI) THAT THE EXPRESSION SPLITTING UP INDICATES A CASE WHERE THE INTEGRITY OF A BUSINESS EARLIER IN EXISTENCE IS BROKEN UP AND DIFFERENT SECTIONS OF THE ACTIVITIES PREVIOUSLY CONDUCTED ARE CARRIED OUT INDEPENDENTLY. 70. IN T.SATISH U. PAI (SUPRA), IT HAS BEEN OBSER VED THAT IN ORDER TO HOLD THAT THERE IS A SPLITTING UP OF A BUSINESS ALREADY IN EXISTENCE, THERE MUST BE SOME MATERIAL TO HOLD THAT EITHER SOME ASSET OF THE EXISTING BUSINESS IS DIVIDED AND ANOTHER BUSINESS IS SET UP FROM SUCH SP LITTING UP OF ASSETS, OR THAT THE TWO BUSINESSES ARE THE SAME AND THE ONE FO RMED WAS AN INTEGRAL PART OF THE EARLIER ONE AND THAT IT WAS ONLY A QUESTION OF BREAKING UP OF THE SAME BUSINESS. IT WAS, THUS, HELD THAT TRANSFER OF ASSET S, INTER-ALIA, WAS A DECISIVE FACTOR FOR HOLDING THAT THERE WAS A SPLITTING UP OF THE EARLIER BUSINESS. THIS HAS ALSO BEEN NOTED BY THE LD. CIT(A) IN PARA 7.7 O F HIS ORDER. 71. IT IS NOTE-WORTHY THAT IN THE PRESENT CASE, THE LD. CIT(A) HAS HELD CAPITAL TO HAVE BEEN TRANSFERRED FOR SETTING UP OF THE NEW UNIT. TO REITERATE, WE HAVE DISAGREED WITH THIS OBSERVATION OF THE LD. CIT(A). TEXTILE MACHINERY CORPN. LTD. (SUPRA), AS WILL BE SEEN IN THE SUCCEEDING PARGRAPHS, ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 54 HAS BEEN REFERRED TO AND FOLLOWED IN NUMEROUS CASES INVOLVING SPLITTING UP AND RECONSTRUCTION OF EXISTING BUSINESS. THEREFORE, TEXTILE MACHINERY CORPN. LTD., INDIAN ALLUMINIUM CO. LTD., (SUPR A) AND OSWAL WOOLLEN MILLS LTD.,(SUPRA), ARE HELD TO BE SQUARELY APPLICABLE TO THE FACTS AT HAND. 72. IN DANDELI FERRO ALLOWS PVT. LTD., (SUPRA), W HILE CONSIDERING THE SCHEME OF SECTION 80J OF THE ACT, IT WAS HELD THAT THE SAID SCHEME IS TO ENCOURAGE NEW INDUSTRIAL UNDERTAKINGS, PROVIDED THEY FULFIL T HE CONDITIONS MENTIONED THEREIN; THAT THE SCHEME OF THE SECTION I NDICATES THAT WHAT IS BEING AIMED AT IS TO PREVENT EXEMPTION TO THOSE INDUSTRI AL UNDERTAKINGS, WHICH ARE FORMED BY THE SPLITTING UP OR RECONSTRUCTION, OR BY TRANSFER OF A NEW BUSINESS, OR PLANT AND MACHINERY OF THE OLD BUSINES S; AND THAT TRANSFER, IN THIS CONTEXT, MUST MEAN A TRANSFER OF PLANT AND MA CHINERY, WHICH IS ESSENTIAL FOR THE FORMATION OF THE NEW INDUSTRIAL UNDERTAKING AND THAT MUST AGAIN MEAN A TRANSFER TO THE NEW BUSINESS OF TRANSFEREE O F ANY MACHINERY USED BY THE SAID TRANSFEREE IN HIS OLD BUSINESS. THIS DECIS ION ALSO CLEARLY BUTTRESSES THE STAND TAKEN BY THE ASSESSEE, NEGATING THE DIFFE RENTIATION SOUGHT TO BE BROUGHT IN BY THE LD. CIT(A). 73. IN WESTERN OUTDOOR INTERACTIVE (P) LTD., (S UPRA), THE ASSESSEE, WHICH WAS INTO ENTERTAINMENT SOFTWARE EXPORTS, HAD OWNED A UNIT AT FORT IN MUMBAI AND CLAIMED BENEFIT U/S 80HHE OF THE ACT. IT HAD SET UP A SECOND ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 55 UNIT AND MADE INVESTMENTS IN INFRASTRUCTURE DEVELOP MENT. DEDUCTION U/S 10A OF THE ACT WAS CLAIMED. THIS CLAIM WAS ALLOWED BY THE AO FOR THE RELEVANT YEAR, BUT IT WAS DISALLOWED FOR THE SUBSEQUENT ASSE SSMENT YEARS, ON THE GROUND THAT THE NEW UNIT HAD BEEN SET UP AFTER SPL ITTING THE EXISTING BUSINESS, AS THE BUYER OF THE PRODUCT WAS THE SAME ( AS IN TH E PRESENT CASE) AND ALSO THE PAYMENTS SOMETIMES RECEIVED WERE COMPOSITE FOR BOTH THE UNITS. THE TRIBUNAL UPHELD THE LD. CIT(A)S FINDING THAT MEREL Y BECAUSE THE PRODUCTS WERE THE SAME AND THE BUYER OF THE PRODUCT WAS ALSO THE SAME, IT COULD NOT BE HELD THAT THE ASSESSEE WAS NOT ENTITLED TO THE B ENEFIT CLAIMED, SINCE THERE WAS NO EVIDENCE TO SUGGEST (AGAIN, AS IN THE PRESEN T CASE), THAT THE NEW UNIT HAD BEEN SET UP BY SPLITTING UP THE EXISTING UNIT, NOR WAS THERE ANY PROOF TO INDICATE TRANSFER OF PLANT AND MACHINERY. 74. IN COMPUTER FORCE, (SUPRA), CONSIDERING THE A LLOWABILITY OF DEDUCTION U/S 80IB OF THE ACT, IT WAS HELD, FOLLOWI NG, INTER-ALIA, TEXTILE MACHINERY CORPN. LTD. (SUPRA), THAT THE ASSETS AND LIABILITIES OF THE OLD UNIT REMAINED UNDISTURBED AND THAT SO, THE PREUMPTION T HAT THE OLD UNIT HAD GIVEN BIRTH TO THE NEW UNIT, HAD NO LEGAL BASIS OR SANCT ITY AND WAS NOT SUPPORTED BY ANY COGENT EVIDENCE. 75. IN ABBAS NABI SHEIKH, (SUPRA), CONSIDERING TH E ALLOWABILITY OF DEDUCTION U/S 80IB OF THE ACT, IT WAS HELD THAT WH ERE AT A NEW LOCATION ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 56 INDEPENDENT OF THE EARLIER EXISTING UNIT, NEW PLANT AND MACHINERY ARE PURCHASED AND INSTALLED AND NEW CAPITAL IS INVESTED ( AS IN THE CASE AT HAND), IT WOULD A CASE OF SETTING UP OF A NEW UNIT EVEN FO R CARRYING OUT THE SAME BUSINESS, AND THAT WHETHER THE ASSESSEE CARRIES ON THE SAME BUSINESS OR A DIFFERENT ONE, IS NOT AN ESSENTIAL INGREDIENT TO HO LD IT TO BE A CASE OF SPLITTING UP OR RECONSTRUCTION. 76. IN QUALITY STEEL TUBES, (SUPRA), CONSIDERING THE ALLOWABILITY OF DEDUCTION U/S 80J OF THE ACT, FOLLOWING TEXTILE M ACHINERY CORPN. LTD. (SUPRA) AGAIN, THE MATTER WAS DECIDED BY THE TRIB UNAL IN FAVOUR OF THE ASSESSEE. THIS DECISION OF THE TRIBUNAL WAS LATER C ONFIRMED BY THE HONBLE HIGH COURT IN CIT VS. QUALITY STEEL TUBES PVT. LTD ., 280 ITR 254 (ALL.) BY UPHOLDING THE FINDING THAT MERELY BECAUSE SOME OF T HE ACTIVITIES WERE COMMON BETWEEN THE OLD UNIT AND THE NEW ONE, THAT W OULD NOT MEAN RECONSTRUCTION OR SPLITTING UP. 77. IN SERVION GLOBAL SOLUTIONS LTD., (SUPRA), IT WAS HELD THAT THE FACT THAT THE NEW UNIT ALSO DEALT IN THE SAME PRODUCTS A S THAT OF THE OLD UNIT, OR THAT THERE WERE SOME EMPLOYEES OR CUSTOMERS OF THE OLD UNIT, COULD NOT BE TAKEN AS A GROUND FOR DENYING THE BENEFIT U/S 10A O F THE ACT ON THE BASIS THAT THE NEW UNIT HAD BEEN ESTABLISHED AS A RESULT OF SP LITTING OR RECONSTRUCTION OF THE OLD UNIT. ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 57 78. IN DSM SOFT P. LTD., (SUPRA), WHERE A NEW U NIT WAS SET UP WITH SUBTANTIAL INVESTMENT AND INCREASE IN THE NUMBER OF EMPLOYEES AND NATURE OF SERVICES, THERE WAS HELD TO BE NO SPLITTING UP AND RECONSTRUCTION OF THE NEW BUSINESS AND THE ASSESSEE WAS HELD ENTITLED TO EXE MPTION U/S 10A OF THE ACT. TEXTILE MACHINERY CORPN. LTD., (SUPRA), WAS REFER RED TO. 79. IN SAGUN GEMS (P) LTD., (SUPRA), THE LD. CIT( A) OBSERVED THAT IT HAD BEEN BROUGHT ON RECORD THAT FUNDS FROM THE EXISTING CONCERN HAD NOT BEEN DIVERTED TO THE NEW COMPANY AND INVESTMENT IN SHAR E CAPITAL OF THE COMPANY HAD BEEN MADE FROM REALIZATION OF ASSETS OT HER THAN THE CAPITAL EMPLOYED IN THE FIRM; AND THAT NEW PLANT AND MACH INERY HAD BEEN PURCHASED BY THE CONCERN AND OUT OF SEVENTY EMPLO YEES IN THE NEW CONCERN, ONLY EIGHT WERE FROM THE EARLIER ONE. UPH OLDING THE CIT(A)S ORDER, THE TRIBUNAL OBSERVED THAT THERE WAS NO REAS ON TO HOLD THAT THE NEW CONCERN WAS NOTHING BUT A RESTRUCTURED CONCERN OF T HE EARLIER CONCERN, NOT ENTITLED TO EXEMPTION. THE HONBLE HIGH COURT CONFI RMED THE ORDER OF THE TRIBUNAL. 80. IN TAURUS MERCHANDISING (P) LTD., (SUPRA), AU THORED BY ONE OF US, THE JM, THE AO DENIED EXEMPTION U/S 10B OF THE ACT, HOLDING THAT THE ASSESSEE HAD RESTARTED ITS OLD BUSINESS ACTIVITY OF EXPORT OF THE SAME ITEMS AND HAD MERELY RECONSTRUCTED THE EXISTING BUSINESS TO AVAIL OF THE DEDUCTION ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 58 CLAIMED U/S 10B OF THE ACT. IT WAS HELD BY THE TRIB UNAL, INTER-ALIA, THAT THE PROVISIONS OF SECTION 10B OF THE ACT DID NOT PLACE ANY BAR ON THE ASSESSEE HAVING A SEPARATE NEW UNDERTAKING FOR THE MANUFACTU RE AND PRODUCTION OF THE SAME OR SIMILAR GOODS, AS DONE EARLIER, SIMILAR T O ONE OF THE ACTIVITIES CARRIED ON IN THE EXISTING UNDERTAKING. 81. THEREFORE, AS CONSIDERED IN THE PRECEDING PARAG RAPHS, THERE IS A PLETHORA OF CASE LAWS SUPPORTING THE STAND TAKEN B Y THE ASSESSEE AND ON THE BASIS THEREOF, THE CASE OF SPLITTING UP OF THE EARL IER BUSINESS TO FORM A NEW UNIT, AS MADE OUT BY THE LD. CIT(A), CARRIES NO FOR CE. 82. THE ASSESSEE HAS ALSO RELIED ON ITO VS. VS. DS M SOFT (P) LTD., 115 TTJ 469 (CHENNAI) (SUPRA), WHEREIN, CIT VS. PODDA R CEMENTS LTD, 26 ITR 625 (SC) AND MYSORE MINERALS LTD., 39 ITR 775 (SC ) HAVE BEEN FOLLOWED. IN THAT CASE, IT HAS, INTER-ALIA, BEEN THAT WHERE T WO VIEWS ARE POSSIBLE, THE ONE IN FAVOUR OF THE ASSESSEE SHOULD BE ADOPTED. T HERE CAN POSSIBLY BE NO TWO OPINIONS ABOUT THIS PROPOSITION. 83. FURTHER, THE ASSESSEE HAS PLACED RELIANCE ON B AJAJ TEMPO LTD. VS. CIT, 196 ITR 199 (SC) AND CIT VS. CHAND DIESELS, 216 ITR 639 (BOM.), WHEREIN,IT HAS BEEN HELD THAT THE INCENTIVE PROVISI ONS OF THE ACT SHOULD BE CONSTRUED LIBERALLY, IN A BROAD COMMERCIAL SENSE, KEEPING THEIR OBJECT IN ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 59 VIEW, SO AS TO OBVIATE DEFEATING THE VERY PURPOSE O F THE TMENT THEREOF. AGAIN, THIS PROPOSITION IS TRITE. 84. NOW, FOR A MOMENT, WE REVERT TO THE PROGRESSIO N OF EVENTS IN THE MATTER OF TEXTILE MACHINERY CORPORATION (SUPRA). A HEAVY ENGINEERING CONCERN MANUFACTURING BOILERS, MACHINE PARTS, WAGON S, ETC., SETTING UP TWO NEW UNITS, A STEEL FOUNDRY DIVISION AND A JUTE MILL DIVISION. THE STEEL DIVISION STARTED MANUFACTURING SOME CASTINGS, WHIC H THE HEAVY ENGINEERING CONCERN WAS PREVIOUSLY BUYING FROM THE MARKET. HOWE VER, THE CASTINGS WERE MOSTLY USED BY OTHER EXISTING DIVISIONS OF THE ENGI NEERING CONCERN ITSELF. THE RAW-MATERIALS WERE SUPPLIED TO THE JUTE MILL DI VISION BY THE BOILER DIVISION OF THE CONCERN AFTER MACHINING AND FORGING AND THE PARTS WERE GIVEN BACK BY THE JUTE MILL DIVISION TO THE BOILER DIVISION. THE ENGINEERING CONCERN CLAIMED EXEMPTION FROM TAX UNDER SECTION 15 C OF THE INCOME TAX ACT, 1922 IN RESPECT OF THE PROFITS FROM THE STEEL FOUNDRY DIVISION, FOR ASSESSMENT YEARS 1958-59 AND 1959-60 AND IN RESPECT OF THE PROFITS FROM THE JUTE MILL DIVISION, FOR ASSESSMENT YEAR 1959-60. TH E TAXING AUTHORITIES HELD THAT THE TWO UNITS WERE FORMED BY A RECONSTRUCTION OF THE BUSINESS ALREADY EXISTING. THE TRIBUNAL HELD THAT THE HEAVY ENGINEER ING CONCERN WAS ENTITLED TO THE RELIEF CLAIMED, SINCE THE TWO DIVISIONS WERE NOT FORMED BY ANY ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 60 RECONSTRUCTION OF THE EXISTING BUSINESS. THE TRIBUN AL FOUND THAT THE MACHINERY IN THE TWO DIVISIONS WERE NEW, THAT THEY WERE HOUSED IN A SEPARATE BUILDING AND THAT AN INDUSTRIAL LIENCESE H AD BEEN OBTAINED FOR MANUFACTURING PARTS. IT WAS OBSERVED BY THE TRIBUNA L THAT THE EXISTING BUSINESS OF THE ENGINEERING CONCERN CONSISTED OF M ANUFACTURING BOILERS AND WAGONS, ETC., AND FOR THAT PURPOSE THE CONCERN WAS PURCHASING PARTS AND GETTING THE FORGING AND CASTING DONE FROM OUTSIDE; THAT THE BUSINESS OF THE NEW UNIT WAS TO MANUFACTURE THESE PARTS; AND THAT, THEREFORE, IT COULD NOT BE SAID THAT THE NEW UNDERTAKINGS WERE FORMED OUT OF T HE EXISTING BUSINESS, TO COME WITHIN THE MISCHIEF OF SECTION 15C(2)(I) OF TH E INCOME TAX ACT, 1922. ON A REFERENCE, THE HONBLE CALCUTTA HIGH COURT, IN CIT VS. TEXTILE MACHINERY CORPN., 80 ITR 428 (CAL.), HELD THAT C HANGE OF PRODUCING ONES OWN GOODS SYSTEMATICALLY USED IN THE EXISTING BUSIN ESS INSTEAD OF BUYING THEM FROM OUTSIDE WOULD ONLY BE A RECONSTRUCTION O F AN EXISTING BUSINESS WITHIN THE MEANING OF SECTION 15C(2)(I) OF THE I.T . ACT, 1922. 85. THE JUDGMENT OF THE HONBLE CALCUTTA HIGH COURT , WAS REVERSED BY THE HONBLE SUPREME COURT IN TEXTILE MACHINERY CO RPN. LTD. VS. CIT, WEST BENGAL, 105 ITR 195 (SC), VIDE JUDGMENT DATED 25.01.1977. THE LD. CIT(A) HEREIN HELD THIS JUDGMENT OF THE HONBLE SUP REME COURT TO GO IN FAVOUR OF THE ASSESSEE, AS NOTED HEREINABOVE. ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 61 86. THE LD. CIT(A) RELIED ON CHEMBRA PEAK ESTATE L TD. VS. CIT, (SUPRA), TO HOLD IN FAVOUR OF THE DEPARTMENT , THAT THIS WAS A CASE OF SPLITTING UP OF THE BUSINESS OF M/S. DYNAMECH. WHILE DECIDING CHEM BRA PEAK ESTATE LTD. VS. CIT, (SUPRA), IT IS SEEN, THE HONBLE KERALA H IGH COURT RELIED ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF TEXTILE MACHINERY CORPN. LTD., (SUPRA). CHEMBRA PEAK ESTA TE LTD. VS. CIT, (SUPRA) IS DATED 18.11.1971. IT WAS POST CHEMBRA P EAK ESTATE LTD. VS. CIT, (SUPRA), THAT THE HONBLE SUPREME COURT DECISION IN TEXTILE MACHINERY CORPN. LTD., (SUPRA) WAS DELIEVERED ON 25.01.1977, REVERSING THE HIGH COURT ORDER. HENCE, OBVIOUSLY THE HONBLE HIGH COUR T DID NOT HAVE THE BENEFIT OF THE SAID SUPREME COURT DECISION. THIS PO SITION HAS ALSO BEEN TAKEN NOTE OF BY THE ALLAHABAD BENCH OF THE TRIBUNAL IN QUALITY STEEL TUBES, (SUPRA), AND AS NOTED, THIS TRIBUNAL DECISION WAS C ONFIRMED BY THE HONBLE HIGH COURT IN CIT VS. QUALITY STEEL TUBES, 280 IT R 254 (ALL.) (SUPRA). THEREFORE, THE LD. CIT(A) HAS ERRED IN PLACING RELI ANCE ON CHEMBRA PEAK ESTATE LTD. VS CIT (SUPRA). 87. THE LD. CIT(A) ALSO RELIED ON CHENAB INFORMATI ON TECHNOLOGIES (P) LTD. VS. ITO 25 SOT 432 (MUM.). THE LD. CIT(A) NO TED THAT THEREIN, IT WAS HELD THAT IT WOULD BE A CASE OF SPLITTING UP OF THE BUSINESS, IF EITHER THE ASSETS OF THE OLD UNIT STAND TRANSFERRED TO THE NEW UNIT, OR THE BUSINESS ITSELF HAS ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 62 BEEN DIVERTED TO THE NEW UNIT AND THE BUSINESS OF B OTH THE UNITS REMAINS THE SAME. THE LD. CIT(A) NOTED THAT THIS CASE APPLIES TO THE CASE OF THE ASSESSE AS WELL, DESPITE SOME FACTS THEREIN BEING DIFFERENT FROM THE FACTS OF THE ASSESSEES CASE. AS PER THE LD. CIT(A), FOR SPLITTI NG UP, THUS, THERE NEED NOT BE ANY TRANSFER OF ASSETS. THE ASSESSEE CONTENDS T HAT FIRSTLY, THIS DECISION WAS NOT DISCUSSED WITH THE ASSESSEE BY THE LD. CIT( A), AND THAT IT IS DISTINGUISHABLE FROM THE ASSESSEES CASE ON FACTS. 88. IN THIS REGARD, WE HAVE ALREADY HELD THAT FOR S PLITTING UP TO BE EFFECTIVE, TRANSFER OF ASSETS NEEDS MUST BE THERE F ROM THE OLD UNIT, TO THE NEW UNIT, WHICH IS ENTIRELY ABSENT HERE. THEN, THE FACT S OF THE PRESENT CASE ARE NOT IN PARI MATERIA WITH THOSE OF CHENAB INFORMATION T ECHNOLOGIES (P) LTD. (SUPRA) IN AS MUCH AS IT HAS BEEN OBSERVED THEREIN THAT THE NEW UNIT CARRIED ON THE EXISTING BUSINESS OF THE OLD UNIT, USING THE SAME EMPLOYEES. HEREIN, AS NOTED, THE EMPLOYEES OF M/S. DYNAMECH HAVE NOT BEEN PROVED TO HAVE CARRIED ON THE BUSINESS OF PRAJNA (INDIA). IN CHE NAB INFORMATION TECHONOLOGIES (P) LTD. (SUPRA), SOME OF THE EXISTI NG STAFF WAS FOUND TO HAVE BEEN SHIFTED TO THE NEW OFFICE IN THE SAME AREA TA KEN ON LEASE BY MAKING A SMALL INVESTMENT OF ABOUT RS. 2 LAKHS IN FURNITUR E AND EQUIPMENT. THESE, EVIDENTLY, ARE NOT THE FACTS OF THE PRESENT ASSESSE E. IN CHENAB INFORMATION TECHNOLOGIES (P) LTD. (SUPRA) ITSELF, IT HAS BEEN OBSERVED THAT EACH CASE HAS ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 63 TO BE EVALUATED ON ITS OWN FACTS TO DETERMINE WHE THER IT IS A CASE OF SPLITTING UP OF EXISTING BUSINESS OR NOT. IN ASSESS EES CASE, AS DISCUSSED, THE FACTS DO NOT LEAD TO A CONCLUSION OF PRAJANA (INDIA ) HAVING BEEN FORMED BY A SPLITTING UP OF THE BUSINESS OF M/S. DYNAMECH. 89. NO OTHER ARGUMENT WAS RAISED BEFORE US. 90. TO SUM UP, WE HOLD THAT: A) THE TRIBUNAL RIGHTLY RECALLED ITS ORDER DATED 31 .08.2009 IN ITS ENTIRETY, FOR HEARING AFRESH AND NO PREJUDICE WAS C AUSED TO ANY INTEREST OF THE REVENUE THEREBY. B) THE LD. CIT(A) WENT WRONG IN HOLDING IT TO BE A CASE OF TRANSFER OF CAPITAL FROM THE EXISTING BUSINESS TO THE NEW ON E. C) THE LD. CIT(A) HAS ERRED IN HOLDING THAT ORDERS FOR MANUFACTURE WERE SHIFTED FROM THE EXISTING BUSINESS TO THE NEW ONE. D) THE LD. CIT(A) HAS FALLEN INTO ERROR IN HOLDING THAT THERE WAS A UNITY OF CONTROL IN THE TWO BUSINESSES. E) THE LD. CIT(A) HAS WRONGLY HELD THAT THERE WAS A SHIFTING OF STAFF FROM THE EXISTING UNIT TO THE ONE NEWLY SET UP. F) THE LD. CIT(A) HAS ERRONEOUSLY HELD THAT TAX EVA SION WAS THE SOLE REASON FOR SETTING UP THE NEW UNIT. ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 64 F) THE LD. CIT(A) HAS, ON THE BASIS OF THE ABOVE MI SPLACED FINDINGS, INCORRECTLY HELD IT TO BE A CASE OF SPLIT TING UP OF EXISTING BUSINESS. 91. IN VIEW OF THE ABOVE DISCUSSION, WE HOLD THAT THE LD. CIT(A) HAS MISDIRECTED HIMSELF IN SUSTAINING THE DISALLOWANCE OF DEDUCTION CLAIMED BY THE ASSESSEE U/S 10B OF THE ACT. THE GRIEVANCE OF THE ASSESSEE IS ACCEPTED. THE ORDER OF THE LD. CIT(A) IS REVERSED. 92. AS STATED IN THE BEGINNING OF THIS ORDER, THE F ACTS IN ALL THE FIVE APPEALS ARE, MUTATIS MUTANDIS, SIMILAR. THEREFORE, OUR O BSERVATIONS WILL EQUALLY APPLY TO THE OTHER APPEALS ALSO. 92. IN THE RESULT, ALL THE FIVE APPEALS FILED BY TH E ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5TH MARCH, 2015. SD/- SD/- (B.P. JAIN) (A.D.JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 5TH MARCH, 2015 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:SH.ROHIT TANDON PROP. M/S. PRAJNA (IND IA) JALANDHAR) 2. THE ITO WARD 1(3), JALANDHAR. 3. THE CIT(A), JALANDHAR. 4. THE CIT, JALANDHAR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER ITA NO. 345,(ASR)/2009 ITA NOS. 55, 410,238 & 284(ASR)/2011 65 (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.