ACIT, Jaipur V. SHRI JAGDISH PRASAD SONI, Jaipur

ITA 424/JPR/2012

• Counselvise Citation: 42423114 RSA 2012
• Duration Of Justice: 1 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 02-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHUBHASH CHANDRA
• Assessee Lawyers: G G MUNDRA
• Section: 10AA; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH: JAIPUR (BEFORE SHRI H.M. MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER) I.T.A. NO. 424 & 425/JP/2012 ASSTT. YEAR- 2008-09 & 2009-10 THE ACIT, CIRCLE-1, VS. SHRI JAGDISH PRASAD SONI, JAIPUR. 4088, TOP KHANA KA RASTA, CHANDPOLE BAZAR, JAIPUR. PAN- AHNPS6614E (APPELLANT) (RESPONDENT) DEPARTMENT BY :- SHRI SHUBHASH CHANDRA ASSESSEE BY :- SHRI G.G. MUNDRA DATE OF HEARING : 23/01/2014 DATE OF PRONOUNCEMENT : 26/02/2014 O R D E R PER: N.K. SAINI, A.M. THESE TWO APPEALS BY THE DEPARTMENT ARE DIRECTED AG AINST THE SEPARATE ORDERS EACH DATED 15/02/2012 OF COMMISSIONER OF INC OME TAX (APPEALS)-I, JAIPUR FOR THE ASSESSMENT YEARS 2008-09 AND 2009-10 . COMMON ISSUES ARE RAISED IN THESE APPEALS, WHICH WERE HEARD TOGETHER, SO THESE ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER FOR THE SAK E OF CONVENIENCE. 2. COMMON GROUNDS RAISED IN THESE APPEALS READ AS U NDER:- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) IS JUSTIFIED IN:- I) TREATING THE FIRM M/S KAPIL JEWELS AND ART AS NE W INDUSTRIAL UNDERTAKING, AS A SEPARATE AND INDEPENDE NT ITA 424 & 425/JP/2012 2 PRODUCTION UNIT AND ALLOWING DEDUCTION U/S 10AA OF THE I.T. ACT, 1961, IGNORING THAT ENTIRE EXPORT SALE WA S TRANSFERRED TO THE NEW UNDERTAKING. THE BUSINESS OF OLD UNDERTAKING REMAINED SUBSTANTIALLY OF SUPPLYING GOO DS TO THE NEW UNDERTAKING. II) HOLDING THAT A NEW UNDERTAKING HAS STARTED FUNC TIONING WHEREAS THERE IS A CASE OF RECONSTRUCTION. SUBSTANT IALLY, THE SAME BUSINESS IS CARRIED ON BY THE SAME PERSONS BUT IN AN ALTERED FORM, THEREBY NOT FULFILLING THE COND ITIONS AS LAID DOWN IN SECTION 10AA(4)(II) OF THE I.T. ACT, 1 961. 3. DURING THE COURSE OF HEARING, LEARNED COUNSEL FO R THE ASSESSEE AT THE VERY OUT SET STATED THAT THIS ISSUE IS SQUARELY COV ERED IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED 29/04/2011 OF THE ITAT JA IPUR BENCH A, JAIPUR IN ASSESSEES OWN CASE IN ITA NO. 642/JP/2010 FOR T HE A.Y. 2007-08, COPY OF THE SAID ORDER WAS FURNISHED. THE AFORESAID CONT ENTION OF THE LD. COUNSEL FOR THE ASSESSEE WAS NOT CONTROVERTED BY THE LD. D. R. 4. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PA RTIES AND THE MATERIAL ON RECORD, IT IS NOTICED THAT AN IDENTICAL ISSUE HA VING SIMILAR FACTS HAS ALREADY BEEN ADJUDICATED VIDE ORDER DATED 29/04/2011 IN ASS ESSEES OWN CASE IN ITA NO. 642/JP/2010 FOR THE A.Y. 2007-08. WHEREIN RELEV ANT FINDINGS HAVE BEEN GIVEN IN PARAS 4.4 TO 4.9, WHICH READ AS UNDER:- 4.4 WE HAVE ALREADY REPRODUCED SUB SECTION 4 OF 10 AA. THE WORD FORMED IS APPEARING IN SUB CLAUSE (II) AND (III) OF SUBSECTION (4) OF 10AA. THE WORD FORMED WITH REFERENCE TO THE TRAN SFER TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE HAS BEEN CONSIDERED BY THE HONBLE APEX COU RT IN THE ITA 424 & 425/JP/2012 3 CASE OF BAJAJ TEMPO LTD. V/S CIT 196 ITR 188 THE HO NBLE APEX COURT HAS REFERRED THAT THE WORD FORMED WAS CO NSTRUED BY THE HONBLE APEX COURT IN THE CASE OF TEXTILE MA CHINERY CORPORATION LTD. 107 ITR 195 IN WHICH THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V/S. GANGA SUGA R CORPORATION LTD., 92 ITR 173 WAS APPROVED. THE HON BLE APEX COURT OBSERVED AT PAGE 199 AS UNDER: FORM, ACCORDING TO THE DICTIONARY, HAS DIFFERENT M EANINGS. IN THE CONTEXT IN WHICH IT HAS BEEN USED, IT WAS INTEN DED TO CONNOTE THAT THE BODY OF THE COMPANY OR ITS SHAPE DID NOT C OME UP IN CONSEQUENCE OF TRANSFER OF BUILDING, MACHINERY OR P LANT USED PREVIOUSLY FOR BUSINESS PURPOSE. USE OF THE NEGATIV E BEFORE THE WORD FORMED FURTHER STRENGTHENS IT. IN OTHER WORD S, BUILDING, MACHINERY OR PLANT USED PREVIOUSLY IN OTHER BUSINES S SHOULD NOT RESULT IN THE UNDERTAKING BEING FORMED BY IT. THE T RANSFER, TO TAKE THE NEW UNDERTAKING OUT OF THE PURVIEW OF SUB- SECTION (1), MUST BE SUCH THAT, BUT FOR THE TRANSFER, THE NEW UN DERTAKING COULD NOT HAVE COME INTO BEING. IN OUR OPINION, ON THE FACTS FOUND BY THE TRIBUNAL, THE PART PLAYED BY TAKING TH E BUILDING ON LEASE WAS NOT DOMINANT IN THE FORMATION OF THE COMP ANY. 4.5 CONDITIONS IN SECTION 15C (2) (I) OF THE I.T.AC T 1922 ARE SIMILAR TO THE CONDITIONS AS MENTIONED IN SECTION 10AA(4) OF I.T. ACT 1961. THE HONBLE APEX COURT IN CASE OF TEXTILE MAC HINERY CORPORATION LTD. (SUPRA) HAS ENDORSED THE VIEW OF H ONBLE DELHI HIGH COURT WITH REGARD TO RECONSTRUCTION OF B USINESS. AND THE PARA FROM THE DECISION OF DELHI HIGH COURT AS ITA 424 & 425/JP/2012 4 APPEARING IN THE DECISION OF HONBLE APEX COURTT I N THE CASE OF TEXTILE MACHINERY CORPORATION LTD. IS AS UNDER : WE HAVE GIVEN THE MATTER OUR EARNEST CONSIDERATIO N AND ARE OF THE VIEW THAT IN THE RECONSTRUCTION OF A BUSINES S, AS IN THE RECONSTRUCTION OF A COMPANY, THERE IS AN ELEMENT OF TRANSFER OF ASSETS AND OF SOME CHANGE, HOWEVER PARTIAL OR RESTR ICTED IT MAY BE, OF OWNERSHIP OF THE ASSETS. THE TRANSFER, HOWEV ER, NEED NOT BE OF ALL THE ASSETS. IT IS NONE THE LESS IMPERATIV E THAT THERE SHOULD BE CONTINUITY AND PRESERVATION OF THE OLD UN DERTAKING THOUGH IN AN ALTERED FORM. THE CONCEPT OF RECONSTRU CTION OF BUSINESS WOULD NOT BE ATTRACTED WHEN A COMPANY WHIC H IS ALREADY RUNNING ONE INDUSTRIAL UNIT SETS UP ANOTHER INDUSTRIAL UNIT. THE NEW INDUSTRIAL UNIT WOULD NOT LOSE ITS SE PARATE AND INDEPENDENT IDENTITY EVEN THOUGH IT HAS BEEN SET UP BY A COMPANY WHICH IS ALREADY RUNNING AN INDUSTRIAL UNIT BEFORE THE SETTING UP OF THE NEW UNIT. 4.6 AFTER ENDORSING THE VIEWS OF THE HONBLE DELHI COURT THE REGARD TO RECONSTRUCTION OF BUSINESS THE HONBLE AP EX COURT HAS OBSERVED AS UNDER: RECONSTRUCTION OF BUSINESS INVOLVES THE IDEA OF SUB STANTIALLY THE SAME PERSONS CARRYING ON SUBSTANTIALLY THE SAME BUS INESS. IT IS STATED ON BEHALF OF THE REVENUE THAT THE SAME COMPA NY IN THE INSTANT CASE CONTINUES TO DO THE SAME BUSINESS OF H EAVY ENGINEERING-NO MATTER CERTAIN SPARE PARTS NECESSARY AS COMPONENTS TO COMPLETION OF THE END-PRODUCT ARE NOW MANUFACTURED IN THE BUSINESS ITSELF. THE FACT THAT THE ASSESSEE IS CARRYING ON THE GENERAL BUSINESS OF HEAVY ENGINEERI NG WILL NOT ITA 424 & 425/JP/2012 5 PREVENT HIS FROM SETTING UP NEW INDUSTRIAL UNDERTAK INGS AND FROM CLAIMING BENEFIT UNDER SECTION 15C IF THAT SEC TION IS OTHERWISE APPLICABLE. HOWEVER, IN ORDER TO BE ENTIT LED TO THE BENEFIT UNDER SECTION 15C, THE FOLLOWING FACTS HAVE TO BE ESTABLISHED BY THE ASSESSEE, SUBJECT ALWAYS TO TIME -SCHEDULE IN THE SECTION: (I) INVESTMENT OF SUBSTANTIAL FRESH CAPITAL IN THE INDUSTRIAL UNDERTAKING SET UP, (II) EMPLOYMENT OF REQUISITE LABOUR THEREIN. (III) MANUFACTURE OR PRODUCTION OF ARTICLES IN THE SAID UNDERTAKING. (IV) EARNING OF PROFITS CLEARLY ATTRIBUTABLE TO THE SAID NEW UNDERTAKING AND (V) ABOVE ALL, A SEPARATE AND DISTINCT IDENTITY OF THE INDUSTRIAL UNIT SET UP. WE MAY ADD THAT THERE IS NO BAR TO AN ASSESSEE CARR YING ON A PARTICULAR BUSINESS TO SET UP A NEW INDUSTRIAL UNDE RTAKING ON ACCOUNT OF WHICH EXEMPTION OF TAX UNDER SECTION 15C MAY BE CLAIMED. 4.7 THE HONBLE APEX COURT IN THE CASE OF TEXTILE M ACHINERY CORPORATION LTD. (SUPRA) HAS ALSO APPROVED THE OBSE RVATIONS OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V/ S GAEKWAR FOAM. AND RUBBER COMPANY LTD. 35 ITR 662 TH E HONBLE BOMBAY HIGH COURT HAS HELD THAT RECONSTRUCT ION OF BUSINESS OR INDUSTRIAL UNDERTAKING MUST NECESSARILY INVOLVE THE CONCEPT THAT THE ORIGINAL BUSINESS OR UNDERTAKING D O NOT CEASE FUNCTIONING AND ITS IDENTITY IS NOT TO BE LOST OR A BANDONED. THE UNDERLYING IDEA OF A RECONSTRUCTION IS OF A BUSINE SS ALREADY IN EXISTENCE - THERE MUST BE A CONTINUATION OF THE AC TIVITIES AND BUSINESS OF THE SAME INDUSTRIAL UNDERTAKING. THE UN DERTAKING ITA 424 & 425/JP/2012 6 MUST CONTINUE TO DO SAME BUSINESS THOUGH IN SOME AL TERED OR VARIED FORM. IN THE INSTANT CASE THE EARLIER INDUST RIAL UNDERTAKING WAS OWNED BY SMT. KAMLESH DANGAYACH WHILE THE PRESE NT UNDERTAKING IS OWNED BY THE FIRM. THE FIRM IS SEPAR ATE ENTITY UNDER THE INCOME TAX ACT AND THE EARLIER INDUSTRIAL UNDERTAKING OF THE ASSESSEE MUST CEASE TO THE FUNCTION. THE DED UCTION U/S 10AA IS UNDERTAKING SPECIFIC. THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT V/S MODI SPINNING AND MANU FACTURING 125 ITR 361 HAD OCCASION TO CONSIDER TO THE ALLOWIB ILITY OF DEDUCTION U/S 15C OF I.T. ACT 1922. THE REVENUE ARG UED THAT THE ASSESSEE HAS EXPENDED THE BUSINESS AND THEREFORE TH E UNDERTAKING SHOULD BE CONSIDERED TO HAVE BEEN FORME D AS THE RESULT OF RECONSTRUCTION. THE TRIBUNAL IN THIS CASE OBSERVED THAT THE UNIT WAS BIGGER THEN THE UNIT WHICH THE ASSESSE E HAS ALREADY THERE AND THERE WERE NEW FEATURES IN THE NEW UNIT. THE HONBLE ALLAHABAD HIGH COURT OBSERVED THAT EVERY NEW CREATI ON IN BUSINESS IS SOME KIND OF EXPANSION AND ADVANCEMENT. IF THE UNDERTAKING IS NEW AND IDENTITIABLE UNDERTAKING, SE PARATE AND DISTINCT, FOOM THE EXISTING BUSINESS THEN IT WILL N OT BE RECONSTRUCTION OF BUSINESS ALREADY IN EXISTENCE. TH E HONBLE DELHI COURT IN THE CASE OF CIT V/S GEDORE TOOLS IND IA (PVT) LTD. 126 ITR 673 HAS HELD THAT THE FACT THAT THE NE W UNIT MANUFACTURED SOME OF THE ITEMS WHICH WERE MANUFACTU RED BY THE OLD UNIT WILL NOT MAKE IT AN INTEGRAL PART OF O LD UNIT, EVEN IF NEW UNDERTAKING MANUFACTURES A PRODUCT WHICH IS FEE DED TO THE OLD BUSINESS EVEN THEN IT WILL NOT AMOUNT RECONSTRU CTION OF THE OLD BUSINESS. ESTABLISHMENT OF THE NEW UNIT WITH NE W SEPARATE ITA 424 & 425/JP/2012 7 PLANT AND MACHINERY BY INVESTING SUBSTANTIAL FUNDS IS ESSENTIAL. IF THE NEW UNIT HAS NOT DERIVED ANY THING FOOM THE OLD UNIT BY WAY OF EQUIPMENT OR BY WAY OF FACTORY BUILDING AND NO ASSETS OF THE OLD UNIT HAVE BEEN TRANSFERRED TO THE NEW UN IT, THE NEW UNIT HAD NOT BEEN FORMED BY RECONSTRUCTION. WE FEEL THAT THE LD. AR IN HIS WRITTEN SUBMISSION HAS RIGHTLY PLACED REL IANCE ON THE FOLLOWINGS DECISIONS THAT THE NEW UNDERTAKING IS NO T A FORMED ON RECONSTRUCTION OF THE BUSINESS ALREADY IN THE EX ISTENCE. 1 CIT V/S AMBUR COOPERATIVE SUGAR MILLS LTD.(MADRAS)127 ITR 495 2. ADDL. CIT V/S HUTTI GOLD MINES COMPANY LTD. 128 ITR 476 (KARNATAKA) IN THIS CASE EXISTING PLANT AND CONVEYER BELTS AND OLD MILL DISMANTED AND THE NEW MILL AND REFINERY COVERING FO RTUNES AREA OF FACTORY WAS SETUP. NEW UNIT IS INDEPENDENT UNIT AND IS ENTITLED TO DEDUCTION AND IT WILL NOT BE RECONSTRUC TION OF BUSINESS. (3) CIT V/S MAHAAN FOODS LTD. 216 CTR 148 (DELHI) IN THIS CASE ASSESSEE SETUP INDUSTRIAL UNDERTAKING WITH LATEST `TECHNOLOGY AND INCREASED CAPACITY WITH FREST INVES TMENT OF RS.104.88 LAKS AS AGAINST INVESTMENT 20.8 LAKS IN O LD PLANT AND IT CANNOT BE SAID THAT THE UNIT WAS A RESULT A RECO NSTRUCTION OF OLD BUSINESS. (4) CIT V/S PREMIER COTTON MILLS LTD. 240 ITR 434 (MADRAS) (5) CIT V/S QUALITY STEEL TUBE LTD. 280 ITR 254 (ALLAHABAD.) 4.8 EVEN IF FOR THE ARGUMENT SAKE, IT IS CONSIDERED THAT SUBSTANTIAL PERSONS HAVE STARTED THE UNIT EVEN THEN IT CAN NOT BE CONSIDERED ITA 424 & 425/JP/2012 8 AS RECONSTRUCTION OF THE EXISTING BUSINESS. THERE I S SUBSTANTIAL INVESTMENT IN NEW PLANT AND MACHINERY. DETAILS OF M ACHINERIES INSTALLED ARE AVAILABLE AT PAGE 15 OF THE PAPER BOO K. OUT OF TOTAL INVESTMENT OF PLANT AND MACHINERY OF RS.43,99,591/- THE MACHINERY PURCHASED FROM DOMESTIC MARKET IS ONLY OF RS.31,750/- OTHER MACHINERIES INSTALLED HAVE BEEN A CQUIRED THROUGH IMPORTS FROM FOREIGN COUNTRIES. PURCHASE VO UCHERS ARE AVAILABLE IN THE PAPERBOOK. WE WERE INFORMED THAT T HE PROPRIETORSHIP CONCERN WAS NOT USING THE IMPORTED M ACHINERY. THERE IS DEFINITELY ADVANCEMENT IN THE TECHNIQUE OF MAKING STUDDED JEWELLERY. HENCE THE UNIT EVEN IF RELATE TO PERSON HAVING SUBSTANTIAL INTEREST IN OLD UNIT, EVEN THEN THE NEW UNIT CAN NOT BE CONSIDERED A RECONSTRUCTION OF OLD BUSIN ESS AS NEW UNIT IF INDEPENDENT IS NOT TO BE CONSIDERED AS RECO NSTRUCTION OF BUSINESS. 4.9 CONSIDERING THE ABOVE DISCUSSION IT IS CLEAR TH AT THE ASSESSEE HAS SET UP A NEW UNIT WITH THE SUBSTANTIAL INVESTME NTS AND THE ASSESSEE FIRM IS SEPARATE AND DISTINCT FROM THE PRO PRIETORSHIP CONCERN. FOR HOLDING THAT THERE IS RECONSTRUCTION O F EXISTING BUSINESS THAN THE EARLIER BUSINESS SHOULD CEASE. SE CTION 10AA(4) REFERS TO THE FORMATION OF THE UNDERTAKING BY THE TRANSFER TO A NEW BUSINESS OF MACHINERY OR PLANT PR EVIOUSLY USED FOR ANY PURPOSES. THERE IS NO RESTRICTION OF T HE HUMAN RESOURCES USED IN THE NEW BUSINESS IN CASE THE HUMA N RESOURCES HAVE BEEN PREVIOUSLY USED AND THEREFORE DEDUCTION U /S 10AA CANNOT BE DISALLOWED ON GROUND THAT ALMOST THE SAME EMPLOYEES WERE EMPLOYED BY THE FIRM WHICH WERE EARL IER ITA 424 & 425/JP/2012 9 EMPLOYED BY THE PROPRIETORSHIP CONCERN. HENCE IT IS HELD THAT LD. CIT (A) WAS JUSTIFIED IN HOLDING THAT DEDUCTION CANNOT BE DISALLOWED ON THE GROUND THAT THE UNIT SETUP IS FOR MED BY THE RECONSTRUCTION OF THE BUSINESS ALREADY IN EXISTENCE . 5. SO RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER DATED 29/4/2011 IN ASSESSEES OWN CASE, WE DO NOT SEE ANY MERIT IN THE APPEALS OF THE DEPARTMENT. 6. IN THE RESULT, BOTH THE APPEALS OF THE DEPARTMEN T ARE DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 26/02/20 14) SD/- SD/- (HARI OM MARATHA) (N.K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 26/02/2014 * RANJAN COPY FORWARDED TO :- 1.APPELLANT- THE ACIT, CIRCLE-1, JAIPUR. 2. RESPONDENT- SHRI JAGDISH PRASAD SONI, JAIPUR. 3. THE CIT (A) 4. THE CIT 5. THE D/R 6. GUARD FILE (ITA NO. 425 & 425/JP/2012) BY ORDER, AR ITAT JAIPUR.