M/s Aqua Plumbing (P) Ltd., Mathura V. ACIT, Mathura

ITA 447/AGR/2006

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7021 (ITAT-AGRA)
• Duration Of Justice: 4 year(s) 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 25-03-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 26-12-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Principle of natural justice
• Section: 234B; 80IB; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE SHRI P.K. BANSAL, ACCOUNTANT MEMBER AND SHRI H.S. SIDHU, JUDICIAL MEMBER ITA NO. 447/AGRA/2006 ASSTT. YEAR : 2004-05 M/S. AQUA PLUMBING (P) LTD. VS. A.C.I.T. 3(1), DELHI MATHURA BYE PASS MATHURA. CHHATIKARA, MATHURA. (PAN : AACCA 5366 Q) ITA NO. 698/AGRA/2008 ASSTT. YEAR : 2005-06 M/S. AQUA PLUMBING (P) LTD. VS. ADDL. .C.I.T., DELHI MATHURA BYE PASS RANGE-3, MATHURA. CHHATIKARA, MATHURA. (APPELLANT) (RESPONDENT) FOR APPELLANT : DR. RAKESH GUPTA, ADVOCATE & SRI KRISHAN VERMA, C.A. FOR RESPONDENT : SHRI VINOD KUMAR, JR. D.R. ORDER PER P.K. BANSAL, A.M. : THESE APPEALS FILED BY THE ASSESSEE AGAINST THE OR DERS OF CIT(A) SINCE HAVE THE COMMON ISSUES, THEREFORE, THEY ARE BEING DISPOSED OF BY TH IS COMMON ORDER FOR THE SAKE OF CONVENIENCE. IN ITA NO. 447/AGRA/2006, THE ASSESSEE HAS RAISED F OLLOWING EFFECTIVE GROUNDS : 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF THE DEDUCTION CLAIMED BY THE APPELLANT U/S. 80IA/80IB A ND RESTRICTING THE CLAIM OF RS.44,54,807/- TO RS.27,73,066/-. 2. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF RS.1,32,913/- OUT OF MOBILE, TELEPHONE AND CAR EXPE NSES. 2 3. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN MAKING AN A DDITION OF RS.1982/- ON ACCOUNT OF CLOSING BALANCE OF MODVAT. 4. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CHARGING IN TEREST U/S. 234B & 234C. 2. THE EFFECTIVE GROUNDS RAISED IN ITA NO. 698/AGRA /2008 READ AS UNDER : 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE LD. AO IN NOT ALLOWING DEDUCTION U/S. 80IB IN FULL AS C LAIMED BY THE ASSESSEE AND HAS FURTHER ERRED IN RESTRICTING THE CLAIM U/S. 80IB TO RS.28,35,748/- AS AGAINST RS.45,88,825/- AS CLAIMED BY THE ASSESSE E IN THE RETURN OF INCOME. 2. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE LD. AO IN MAKING DISALLOWANCE OF RS.67,417/- ON ACCOUNT OF VEHICLE EXPENSES. 3. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE LD. AO IN MAKING DISALLOWANCE OF RS.1,32,389/- ON ACCOU NT OF TELEPHONE EXPENSES. 4. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER, ACTION OF LD. CIT(A) IN NOT QUASHING THE IMPUGNED ORDER PASSED BY LD. AO BEING ILLEGAL, VOID AB INITIO, CONTRARY TO LAW AND FACTS AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 5. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE LD. AO IN CHARGING INTEREST U/S 234A, 234B, 234C AND 23 4D. ITA NO. 447/AGRA/2006 : 3. THE BRIEF FACTS PERTAINING TO GROUND NO. 1 ARE T HAT THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF TAPS AND COCKS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY TOOK OVER THE BUSINESS OF THE TWO FIRMS M/S. AARKAY PLUMBING AND FIXTURES AND M/S. FAUCET INDUSTRIES AS MENTIONED BY THE ASSE SSING OFFICER, BUT THE ASSESSEE CLAIMED TO HAVE PURCHASED THE PLANT AND MACHINERY AND OTHER AS SETS OF THESE TWO FIRMS. THE ASSESSEE 3 COMPANY IS CLAIMING DEDUCTION U/S. 80IA/80IB FOR TH E LAST SEVERAL YEARS. THIS IS THE 7 TH YEAR IN WHICH THE DEDUCTION WAS CLAIMED. THE ASSESSING OFFI CER WAS OF THE VIEW THAT BOTH THE FIRMS, THE BUSINESS OF WHICH WAS TAKEN OVER BY THE ASSESSEE DU RING THE YEAR, HAVE EXHAUSTED THEIR PERIOD OF 10 YEARS IN WHICH THESE FIRMS HAVE ALREADY CLAIMED DEDUCTION U/S. 80IA/80IB OF THE ACT. THEREFORE, HE WAS OF THE VIEW THAT THE INCOME EARNE D FROM MANUFACTURING AND TRADING OF THESE CONCERNS IS NOT ELIGIBLE FOR DEDUCTION U/S. 80IA/80 IB AND ACCORDINGLY GAVE OPPORTUNITY TO THE ASSESSEE TO EXPLAIN WHY THE DEDUCTION SHOULD NOT BE DISALLOWED IN RESPECT OF THE PROFIT FROM M/S. AARKAY PLUMBING AND FIXTURES AND M/S. FAUCET INDUST RIES. IN REPLY THERETO, THE ASSESSEE SUBMITTED AS UNDER : AT THE VERY OUTSET WE WILL LIKE TO IMPRESS UPON TH AT THE BUSINESS OF M/S. FAUCET INDUSTRIES AND M/S. AARKEY PLUMBING FIXTURE WAS AMALGAMATED IN THE COMPANY M/S AQUA PLUMBING PVT. LTD. JUST TO OCCUPY A DOMINATING POSITION IN THE MARKET IN THE LONG RUN. ALL THE CONDITIONS STAND DU LY SATISFIED. IN THIS CONTEXT, WE WILL FURTHER LIKE TO ADD THAT THE UNDERTAKING AMALG AMATED WITH THE COMPANY HAVE CEASED TO EXIST AND HAVE ALTOGETHER LOST THEIR SEPA RATE IDENTITY. SO FAR COMPANYS ELIGIBILITY FOR CLAIM OF DEDUCTION U/S. 80IB IS CONCERNED, WE HAVE TO MENTION THAT ITS STATUS AND IDENTITY CON TINUE TO REMAIN AS BEFORE. NO SPLIT UP OR CONSTRUCTION OF THE EXISTING BUSINESS O F THE COMPANY HAS TAKEN PLACE. THERE IS NO CHANGE WHATSOEVER IN THE PATTERN OF BUS INESS AND THE PERSONS AT THE HELM OF AFFAIRS. FROM THE FACTS AS ABOVE IT IS AMPLY CLEAR THAT THER E WAS NO OTHER MOTIVE IN CARRYING OUT THE AMALGAMATION. THE SOLE PURPOSE WAS TO SEE THAT THE COMPANY IN LONG RUN IS IN A POSITION TO WITHSTAND THE GROWING COMPETITION. 4. THE ASSESSING OFFICER DID NOT AGREE WITH THE ASS ESSEE AND POINTED OUT THAT PARA 3 OF THE AGREEMENT STATES THAT SUNDRY CREDITORS, UNSECURED L OANS AND SUNDRY DEBTORS WILL CONTINUE TO REMAIN WITH THE FIRM BEING TAKEN OVER AND REPAYMENT AND REALIZATION OF THE SAME WILL BE THE FIRMS RESPONSIBILITY. THEREFORE, HE WAS OF THE VIEW THAT THE FIRM HAD NOT LOST THEIR SEPARATE IDENTITY. SINCE BOTH THE FIRMS HAD ALREADY AVAILED OF DEDUCTION U/S. 80IA/80IB FOR 10 YEARS, HE REJECTED THE CONTENTION OF THE ASSESSEE AND WORKED OUT THE PROFIT IN RESPECT OF M/S. FAUCET 4 INDUSTRIES AND M/S. AARKEY PLUMBING FIXTURE AND DID NOT ALLOW THE DEDUCTION TO THE ASSESSEE U/S. 80IA/80IB ON THE PROFIT AS WORKED OUT IN RESPECT OF M/S. FAUCET INDUSTRIES AND M/S. AARKEY PLUMBING FIXTURE. THE ASSESSEE WENT IN APPEAL BEFOR E THE CIT(A). THE CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER BY OBSERVING AS UNDE R : 4.4. I HAVE CONSIDERED THE RELEVANT FACTS AND THE RIVAL CONTENTIONS. MY OBSERVATIONS ARE AS UNDER : (A) THE APPELLANT AND THE TWO FIRMS, M/S. FAUCET IN DUSTRIES AND M/S. AARKEY PLUMBING FIXTURE ARE CONCERNS OF THE SAME FA MILY. THE PARTNERS OF THE FIRMS WERE SHAREHOLDERS / DIRECTORS IN THE COMPANY. AS A RESULT OF THE TAKEOVER, THE SHAREHOLDING PATTERN HAS UNDERGONE A CHANGE ON ACCOUNT OF ALLOTMENT OF ADDITIONAL SHARE TO THE PARTNERS IN LIEU OF THEIR C APITAL IN THE FIRMS. THE SAME IS REPRODUCED FROM THE APPELLANTS LETTER DATED 9.10.2 006 :- SHAREHOLDERS/DIRECTORS NUMBER OF SHARES RELATIONSHI P AY 2003-04 AY 2004-05 SRI K.L. CHAUDHARY 53700 53700 FATHER SRI ASHOK KUMAR CHAUDHARY 110100 253260 S/O SRI K.L . CHAUDHARY SRI SUDHIR CHAUDHARY 90000 204870 S/O SRI K.L. CHAU DHARY SRI DEVENDRA CHAUDHARY 80000 191146 S/O SRI K.L. CH AUDHARY SMT. RANI CHAUDHARY 20000 161146 W/O SRI ASHOK KUMA R CHAUDHARY SMT. ANITA CHAUDHARY 50000 163908 W/O SRI SUDHIR CH AUDHARY SMT. BARKHA CHAUDHARY 50000 174870 W/O SRI DEVENDRA CHAUDHARY TOTAL 453800 1202900 (B). ALL THE THREE CONCERNS HAVE THEIR INDUSTRIAL U NITS IN THE SAME PREMISES AT DELHI MATHURA BYE PASS, P.O. CHHATIKARA, MATHURA . THE ITEMS MANUFACTURED BY EACH OF THE CONCERNS IS AS UNDER : 1. FAUCET INDUSTRIES BRASS TAPS AND COCKS 8481.80 TAPS AND COCKS 8481.99 2. AARKAY PVT. -DO- A CO. -DO- BEFORE AND AFTER THE TAKEOVER ALL THE CONCERNS WERE MANUFACTURING IDENTICAL ITEMS FROM THE SAME PREMISES. (C). VIDE LETTER DATED 13.09.2006, THE APPELLANT HA S FURNISHED THE BALANCE SHEETS OF THE TWO FIRMS ON 31.3.2003 AND 31.3.2004, I.E. RELEVANT TO THE YEAR PRIOR TO THE TAKE OVER AND THE RELEVANT YEAR. THE COMPARA TIVE FIGURES ARE AS UNDER 5 AARKAY PLUMBING 31.3.2003 1,47,51,690 31.3.2004 5,68,574 G.P. 1,11,48,969 F.Y. 2003-04 G.P. NIL F.Y. 2004-05 FAUCET INDUSTRIES 31.3.2003 1,40,70,744 31.3.2004 6,92,655 G.P. 82,87,520 F.Y. 2003-04 G.P. F.Y. 2004-05 VIDE LETTER DATED 13.09.2006, THE APPELLANT HAS STA TED AS UNDER : WE HAVE FURTHER ENCLOSED LAYOUT PLAN OF THE PLANT & MACHINERY BEFORE PURCHASE OF THESE PLANT AND MACHINERY AND OTHER ASS ETS OF THESE TWO FIRMS AND AFTER PURCHASE OF THE P & M AND OTHER ASSETS OF THE SE TWO FIRMS. TO SHOW THAT THERE IS ONLY ONE UNDERTAKING OF THE APPELLANT COMPANY. IT IS KINDLY TO SEEN THAT THERE IS NO INDEPENDENT BUILDIN G WHICH HAS BEEN ACQUIRED. BUT THE TWO FIRMS BUILDING WERE ADJOINING TO THE BUILDI NG OF THE APPELLANT COMPANY AND THERE WAS A SINGLE WALL IN BETWEEN WHICH HAS NO W BEEN REMOVED AFTER THE ACQUISITION OF THE P & M AND AFTER THE REMOVAL IT HAS BECOME ONE COMPLETE BUILDING.'. 4.5 THUS, IT IS OBSERVED THAT ALL THE THREE CONCERN S BELONG TO THE CHAUDHARY FAMILY AND ARE MANUFACTURING THE SAME ART ICLES. WHEREAS THE UNITS OF THE TWO FIRMS HAVE ALREADY AVAILED DEDUCTION U/S 80 IA/80IB AND EXHAUSTED THEIR ENTITLEMENTS, THE APPELLANT COMPANY HAVING STARTED LATER, IS STILL AVAILING THE BENEFIT. THE TAKEOVER HAS APPARENTLY BEEN MADE SO T HAT THE TWO OLD MANUFACTURING UNITS CAN BE SHOWN AS PART OF THE NEW ONE AND DEDUC TION CAN BE TAKEN U/S 80LB ON THE COMPOSITE PROFITS. HOWEVER, AS ADMITTED BY THE APPELLANT ITSELF THE ENTIRE TAKEOVER IS ON PAPER. THE THREE UNITS CONTINUE TO F UNCTION AS IN THE PAST. THE MANAGEMENT AND CONTROL IS OF THE SAME PERSONS. THE P & M AND OTHER ASSETS REMAIN AS THEY WERE. THE DIVIDING WALL APPEARS TO H AVE BEEN REMOVED. THE FACT THAT THE FIRMS CONTINUE TO SHOW BROUGHT FORWARD CRE DITORS AND DEBTORS AND RELATED PAYMENTS AND RECOVERIES, BUT NO MANUFACTURING AND T RADING ACTIVITY IN SUBSEQUENT YEARS, SHOWS THAT OTHER INFRASTRUCTURE, AND MAN POW ER HAS ALSO BEEN TAKEN OVER BY THE APPELLANT COMPANY. NOT ONLY THE P & M AND AS SETS, BUT THE ENTIRE MANUFACTURING UNITS OF THE TWO FIRMS HAVE COME UNDE R THE BANNER OF AQUA PLUMBING PVT. LTD . 4.6 IN VIEW OF THE ABOVE FACTS, THIS IS NOT A CASE OF TRANSFER OF MACHINERY, BUT CONSOLIDATION OF THREE FAMILY RUN UNITS UNDER O NE NAME OF AQUA PLUMBING PVT. LTD. THE TWO UNITS OF FAUCET INDUSTRIES AND AARKEY PLUMBING FIXTURE HAVE BEEN TAKEN OVER WHOLLY, COMPLETELY AND PHYSICALLY. THE U NITS OF FI AND AFP ARE FOUND TO HAVE OPERATED IN THIS YEAR AS IN THE EARLIER YEA RS WHEREAS THE BUSINESS OF FI 6 AND AFP HAVE CEASED TO EXIST. DEDUCTION HAS ALREADY BEEN ALLOWED U/S 801A/801B IN RESPECT OF THESE UNITS. THESE UNITS HA VE NEITHER BEEN DISMANTLED, NOR SHIFTED. THEY REMAIN AS AND WHERE THEY WERE AND HAVE CONTINUED TO FUNCTION AS IN THE PAST. THAT THE APPELLANT HAS ACCOUNTED FO R MANUFACTURING AND TRADING RESULTS AND MAINTAINED COMPOSITE ACCOUNTS IS A MATT ER OF FORM, NOT SUBSTANCE. THE THREE UNITS ARE DISTINCT, AND SEPARATELY IDENTIFIAB LE. HENCE, BY THE VERY FACTS OF THE CASE, THE CASE OF THE APPELLANT IS NOT COVERED BY T HE DECISION OF THE SUPREME COURT IN THE CASE OF BAJAJ TEMPO LTD. IN THAT CASE, THE I SSUE WAS TRANSFER OF PURCHASE OF OLD MACHINERY. IN THE PRESENT CASE, THE ENTIRE, COM POSITE UNITS HAVE COME UNDER THE ASSESSEE'S BANNER. THE PARTNERS OF THE ERSTWHIL E FIRMS WHO WERE ALREADY DIRECTORS/SHAREHOLDERS IN THE APPELLANT COMPANY, HA VE BEEN GIVEN ADDITIONAL STAKES IN PROPORTION TO THEIR CAPITAL, REPRESENTED BY THE ASSETS AND P & M. THE RUNNING BUSINESSES OF THE TWO FIRMS HAVE BEEN BROUG HT UNDER THE COMPANY'S NAME AND THE FIRMS' BUSINESSES HAVE CEASED TO EXIST. THE APPELLANT VIDE LETTER DATED 13.9.2006, EXTRACTED ABOVE, HAS ADMITTED THE ABOVE FACTS. HENCE, I HOLD THAT THE CASE OF THE APPELLANT IS NOT COVERED BY THE DECISIO N OF THE SUPREME COURT IN BAJAJ TEMPO LTD. THE DECISION OF THE AO IS UPHELD AND THE DISALLOWANCE OF DEDUCTION U/S 80LB WITH REGARD TO THE PROFITS OF THE OLD UNIT S AND TRADING OF STOCKS OF THE OLD UNITS IS HEREBY CONFIRMED. 5. THE LEARNED AR VEHEMENTLY CONTENDED THAT THE ASS ESSING OFFICER WAS NOT CORRECT IN LAW IN RESTRICTING THE DEDUCTION CLAIMED BY THE ASSESSE E U/S. 80IA / 80IB TO THE EXTENT OF RS.27,73,066/- AS AGAINST THE CLAIM MADE BY ASSESSE E AT RS.44,54,807/- ON THE GROUND THAT ERST WHILE TWO FIRMS NAMELY, M/S. FAUCET INDUSTRIES AND AARKEY PLUMBING FIXTURE WERE MERGED WITH THE ASSESSEE COMPANY. THE ASSESSING OFFICER WORKED OUT THE INCOME RELATING TO THESE FIRMS AND REDUCED THE DEDUCTION IN THAT RATIO. THERE IS NO IO TA OF CHARGE IN THE ASSESSMENT ORDER THAT THE ASSESSEE COMPANY WAS HIT BY ANY OF THE CONDITIONS M ENTIONED IN SECTION 80IA /80IB, I.E., IT WAS NOT FORMED BY SPLITTING UP, OR THE RECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE; IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSINESS OF MACHINE RY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE OR IT MANUFACTURERS ANY ITEM MENTIONED IN 11 TH SCHEDULE OR IT DOES NOT EMPLOY REQUISITE NUMBER OF EMPLOYEES. IN THE ABSENCE OF ADVERSE FINDING ON ANY OF THESE ASPECTS, THE DEDUCTION TO THE ASSESSEE, AS CLAIMED CANNOT BE DENIED. THE ASSESSEE CANNOT BE SAID TO HAVE FORMED IN THE YEAR UNDER APPEAL. THE DEDUCTION WAS EARLIER ALLOWED TO THE ASSESSEE IN THE ASSESSMENT YEAR 1997-98 7 AND SINCE THEN, THE DEDUCTION IS CONTINUED TO BE AL LOWED. THE AUTHORITIES BELOW HAVE NOT APPRECIATED THE FACTS CORRECTLY DESPITE THE COPIES OF THE AGREEMENTS WITH M/S. FAUCET INDUSTRIES AND AARKEY PLUMBING FIXTURE WERE DULY FILED BEFORE THEM. THE COPIES OF THESE AGREEMENTS WERE ALSO FILED BEFORE US. IT WAS POINTED OUT THAT ON 01 .04.2003, THE ASSESSEE-COMPANY PURCHASED CERTAIN ASSETS OF M/S. FAUCET INDUSTRIES AND AARKEY PLUMBING FIXTURE VIDE AGREEMENTS OF EVEN DATE. WITH THE ACQUISITION OF THESE ASSETS, THE IND USTRIAL UNDERTAKING OF THE ASSESSEE COMPANY CONTINUED TO REMAIN THE SAME, RATHER IT GOT EXTENDE D BY THE PURCHASE OF FURTHER MACHINERY/ASSETS. IN FACT, THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE COMPANY HAD COME INTO EXISTENCE IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 1997-98 O NLY AND THE ACQUISITION OF ASSETS OF THESE TWO FIRMS WAS MADE ON 01.04.2003, I.E., MUCH AFTER THE DATE OF FORMATION OF INDUSTRIAL UNDERTAKING. THIS CANNOT BE A GROUND TO ALLEGE THAT THE INDUSTRI AL UNDERTAKING WAS FORMED BY SPLITTING UP OF BUSINESS ALREADY IN EXISTENCE. THE CONDITIONS PRE-R EQUISITE AS LAID DOWN U/S. 80IA(3)(II) ALONGWITH EXPLANATION 1 & 2, INTER ALIA, REQUIRE TH AT THE UNDERTAKING IS 'NOT FORMED BY THE TRANSFER TO A NEW BUSINESS OF MACHINERY OR PLANT PR EVIOUSLY USED FOR ANY PURPOSE.' EXPLANATION 1 PROVIDES A RELAXATION AS UNDER : EXPLANATION 1 .-FOR THE PURPOSES OF CLAUSE (II) OF THIS SUB-SECTI ON, ANY MACHINERY OR PLANT WHICH WAS USED OUTSIDE INDIA BY ANY PERSON OT HER THAN THE ASSESSEE SHALL NOT BE REGARDED AS 'MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE, IF THE FOLLOWING CONDITIONS ARE FULFILLED, NAMELY:- (A) SUCH MACHINERY OR PLANT WAS NOT, AT ANY TIME PR EVIOUS TO THE DATE OF THE INSTALLATION BY THE ASSESSEE, USED IN INDIA; (B) SUCH MACHINERY OR PLANT IS IMPORTED INTO INDIA FROM ANY COUNTRY OUTSIDE INDIA; AND ( C) NO DEDUCTION ON ACCOUNT OF DEPRECIATION IN RES PECT OF SUCH MACHINERY OR PLANT HAS BEEN ALLOWED OR IS ALLOWABLE UNDER THE PROVISIO NS OF THIS ACT IN COMPUTING THE TOTAL INCOME OF ANY PERSON FOR ANY PERIOD PRIOR TO THE DATE OF THE INSTALLATION OF THE MACHINERY OR PLANT BY THE ASSESSEE. 8 EXPLANATION 2 PROVIDES THE MATHEMATICAL FORMULA TO DETERMINE WHEN THE CONDITION OF 80 IA (3) (II) WILL BE DEEMED TO HAVE BEEN FULFILLE D - EXPLANATION 2.- WHERE IN THE CASE OF AN INDUSTRIAL UNDERTAKING, AN Y MACHINERY OR PLANT OR ANY PART THEREOF PREVIOUSLY U SED FOR ANY PURPOSE IS TRANSFERRED TO A NEW BUSINESS AND THE TOTAL VALUE O F THE MACHINERY OR PLANT OR PART SO TRANSFERRED DOES NOT EXCEED TWENTY PER CENT OF T HE TOTAL VALUE OF THE MACHINERY OR PLANT USED IN THE BUSINESS, THEN, FOR THE PURPOS ES OF CLAUSE (II) OF THIS SUB- SECTION, THE CONDITION SPECIFIED THEREIN SHALL .BE DEEMED TO HAVE BEEN COMPLIED WITH. EXPLANATIONS PROVIDE FOR THE WORKING OF THE MAIN PR OVISION AND ARE TO BE READ ALONG WITH THE MAIN PROVISION. CLAUSE (III) FURTHER PROVIDES THAT UNIT MUST NOT BE FORMED BY THE TRANSFER OF THE OLD PLANT AND MACHINE RY. 6. HITHERTO FORE, IN SIMILARLY BENEFICIAL PROVISION S WHERE THERE WAS NO QUANTIFICATION LIKE THE CURRENT 20% - 80% CRITERIA, HON'BLE COURTS IN A SER IES OF DECISIONS HAVE HELD THE VIEW THAT IF THE VALUE OF OLD PLANT & MACHINERY IS NOT SIGNIFICANT T HEN BENEFIT OF DEDUCTION SHALL BE ALLOWED. EXPLANATION 2 AFORESAID, SEEKS TO REMOVE ONLY THE A RBITRARINESS AND FIXES A LIMIT OF 20% RELATING TO OLD PLANT & MACHINERY. THUS, ONLY IMPACT IS THAT EARLIER SUBJECTIVENESS IN DETERMINING SIGNIFICANCE OF OLD PLANT AND MACHINERY HAS BEEN RE PLACED WITH A FIXED PERCENTAGE. 7. THE REQUIREMENT LAID DOWN IN EXPLANATION 2 (NOW 20% AND EARLIER 'NOT SIGNIFICANT' OR 'NOT SUBSTANTIAL') HAS TO BE SEEN AT THE TIME OF 'F ORMATION OF NEW UNIT' NOT LATER. CLAUSE (II) MERELY ENSURES THAT UNIT MUST BE FORMED BY NEW PLAN T AND MACHINERY AND ONCE SO FORMED, THE CONDITION STANDS FULFILLED. 8. HON'BLE SUPREME COURT HAD LAID DOWN IN THE LEADI NG CASE OF BAJAJ TEMPO LTD. (196 ITR 188, 198-199) THAT - 'THE RESTRICTION OR DENIAL OF BENEFIT ARISES NOT BY TRANSFER OF HUILDING OR MATERIAL TO THE NEW COMPANY BUT THAT IT SHOULD NOT BE FORMED BY SUC H TRANSFER. THIS IS THE KEY TO INTERPRETATION. THE FORMATION SHOULD NOT BE BY SUCH TRANSFER. THE EMPHASIS IS ON 9 FORMATION NOT ON USE. THEREFORE, IT IS NOT EVERY TR ANSFER OF BUILDING OR MATERIAL BUT THE ONE WHICH CAN BE HELD TO HAVE RESULTED IN FORMATION OF THE UNDERTAKING.' '(2) THIS SECTION APPLIES TO ANY INDUSTRIAL UNDERTA KING WHICH (I) IS NOT FORMED BY THE SPLITTING UP, OR THE RECONSTRUCTION, OF BUSINESS AL READY IN EXISTENCE OR BY THE TRANSFER TO A NEW BUSINESS OF BUILDING, MACHINERY OR PLANT PREVIO USLY USED IN ANY OTHER BUSINESS ... ' WHICH WAS IN PARI-MATERIA TO LANGUAGE IN CLAUSE (II ) AND THE PURPOSE OF THE SECTION WAS ALSO TO EXTEND TAX BENEFITS TO NEW UNDERTAKINGS. THUS, THIS RATIO IS DIRECTLY APPLICABLE TO THE CASE OF PRESENT ASSESSEE. THE DECISION HAS LATER ON BEEN FO LLOWED IN A SERIES OF CASES UNDER VARIOUS SECTIONS EMPLOYING THE SAME CONDITION FOR TAX BENEF IT. SOME OF THEM ARE AS:- 138 ITR 644 (BOM) 112 ITR 893 (BOM) 181 ITR 518 (KAR) IN THE CASE REPORTED AT 181 ITR 518, IT WAS THE REV ENUE THAT TOOK THE PLEA THAT CONDITION OF 20% HAS TO BE SEEN IN THE INITIAL YEAR ITSELF AND NOT O N YEAR TO YEAR BASIS AND HON 'BLE HIGH COURT UPHELD THE ASSESSMENT U/S 148 FOR THE REASONING THA T CONDITION OF AT LEAST 80 % NEW MACHINERY HAS TO BE SATISFIED AT THE TIME OF FORMATION OF UND ERTAKING. THE REQUIREMENT OF FORMATION BY NEW MACHINERY CAN BE VERIFIED AT THE INITIAL STAGE ONLY SINCE THE PROVISION SPECIFIES THAT 'IT IS NOT FORMED BY TRANSFER TO NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED. THERE CAN NOT BE ANY POSSIBILITY OF 'NEW BUSINESS' AFTER THE INITIAL YEA R. THUS, CONDITION OF NEW ASSETS HAS TO BE SEEN IN ONLY AT THE TIME OF FORMATION OF NEW INDUSTRIAL UND ERTAKING AND NOT THEREAFTER. THUS, CLEARLY WHERE ASSETS WERE ADDED AFTER FORMATION OF NEW UNIT IN REGULAR COURSE OF BUSINESS OF UNIT AS ARE THE FACTS OF THE PRESENT CASE, THERE CAN BE NO DISP UTE ABOUT DEDUCTION U/S 80IA. IT IS ALSO WORTH NOTICING IS THAT NO NEW BUSINESS OR BUSINESS UNIT H AS BEEN ACQUIRED BY THE ASSESSEE. IT IS ONLY A CASE WHERE SOME MORE ASSETS HAVE BEEN ADDED BY THE ASSESSEE TO EXPAND THE BUSINESS OF THE UNDERTAKING WHICH ALREADY ENJOYED THE BENEFIT OF DE DUCTION U/S 80 IA IN THE PAST. FURTHER, THERE IS NO BAR ON THE EXPANSION OF THE UNDERTAKING ELIGI BLE FOR DEDUCTION U/S 80IA BY THE LAW AND NO 10 NEGATIVES SHALL BE READ INTO THE BENEFICIAL PROVISI ONS. RELIANCE HAS BEEN PLACED ON THE DECISION OF CHANDIGARH BENCH OF TRIBUNAL IN THE CASE OF JAIN UD HAY HOSIERY (P) LTD. VS. ACIT, 1 SOT 193 (CHD.) IN WHICH HAS BEEN HELD THAT CONDITIONS OF EL IGIBILITY COULD BE SEEN ONLY IN THE YEAR OF FORMATION AND NOT AFTER WARDS IN THE SETTING OF THE FACTS WHICH ARE AKIN AND IDENTICAL WITH THOSE OF THE APPELLANT. HEAD NOTES OF THAT DECISION ARE AS U NDER :- ASSESSMENT YEARS 1996-97 AND 1997-98 - WHETHER CON DITION LAID DOWN UNDER SECTION 80-I IS TO BE SATISFIED ONLY IN INITIAL YEA R AND NOT IN ALL ASSESSMENT YEARS IN WHICH ASSESSEE IS ELIGIBLE FOR DEDUCTION, AND, THER EFORE, ASSESSEE WAS NOT DISENTITLED TO DEDUCTION MERELY BECAUSE IN SUBSEQUE NT ASSESSMENT YEARS, VALUE OF OLD MACHINERY EXCEEDED 20 PER CENT LIMIT. HELD, YES . IN THIS CASE, THE VALUE OF OLD MACHINERY EXCEEDED 2 0% IN SUBSEQUENT ASSESSMENT YEAR. THUS, IT WAS CONTENDED THAT THE ASSESSEE IS ENTITLED FOR DED UCTION U/S. 80IA / 80IB AS HAS BEEN CLAIMED BY HIM AND THERE WAS NO SEPARATE UNDERTAKING IN EXISTE NCE. 9. THE LEARNED DR, ON THE OTHER HAND, RELIED ON THE ORDER OF THE CIT(A). 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS, PERUSED THE MATERIAL ON RECORD ALONG WITH THE ORDER OF THE TAX AUTHORITIES BELOW. WE HAV E ALSO GONE THROUGH THE AGREEMENT BY WHICH THE ASSESSEE HAS TAKEN OVER MOST OF THE ASSETS OF T HE ERST WHILE FIRMS, BUT CERTAIN ASSETS REMAINED WITH THE FIRM. THE ASSESSEE COMPANY WAS FORMED IN T HE ASSESSMENT YEAR 1997-98. THIS FACT IS NOT DENIED AND WAS ALLOWED DEDUCTION U/S. 80IA / 80IB S INCE THEN IN THE SUBSEQUENT YEARS ALSO. THIS IS THE 7 TH YEAR OF CLAIM OF THE DEDUCTION U/S. 80IA / 80IB OF THE ASSESSEE. SO FAR AS THE PROVISIONS OF SECTION 80IA / 80IB ARE CONCERNED, ANY INDUSTRIA L UNDERTAKING ELIGIBLE FOR DEDUCTION UNDER THESE SECTIONS MUST FULFILL CERTAIN CONDITIONS. THE SE CONDITIONS U/S. 80IB ARE LAID DOWN UNDER SUB-SECTION (2). THIS IS SETTLED LAW THAT THE CONDI TIONS AS LAID DOWN FOR CLAIMING THE DEDUCTION US. 11 80IB ARE TO BE COMPLIED WITH IN THE INITIAL YEAR AN D NOT IN ALL THE ASSESSMENT YEARS IN WHICH THE ASSESSEE IS ELIGIBLE FOR DEDUCTION IN VIEW OF THE D ECISION OF CO-ORDINATE BENCH IN THE CASE OF JAIN UDHAY HOSIERY (P) LTD. VS. ACIT (SUPRA) AND THAT OF THE DECISION OF CO-ORDINATE BENCH, PUNE IN THE CASE OF DESAI BROTHERS LTD. VS. DCIT, 66 ITD 20 3 (PUNE). NO CONTRARY DECISION WAS BROUGHT TO OUR KNOWLEDGE. IN THE INITIAL YEAR, THE CONDITIO NS AS LAID DOWN U/S. 80IA / 80IB FOR THE CLAIM OF DEDUCTION WERE DULY COMPLIED WITH BY THE ASSESSEE A ND THEREFORE, THE ASSESSEE WAS ALLOWED DEDUCTION U/S. 80IA / 80IB IN THE INITIAL YEAR. THE DEDUCTION WAS EVEN THOUGH ALLOWED DURING THE YEAR, BUT WAS REDUCED ON THE PLEA THAT THE ASSESSEE HAS TAKEN OVER TWO OTHER UNITS DURING THE YEAR. THE FACTS ON RECORD CLEARLY PROVE THAT THE ASSESSEE HAS NOT TAKEN OVER THE COMPLETE UNITS, BUT HAS PURCHASED MOST OF THE ASSETS OF THOSE UNITS AND THE UNITS GOT MERGED WITH THE UNIT OF THE ASSESSEE. IT IS A CASE OF SUBSTANTIAL EXPANSION AND EXTENSION OF THE INDUSTRIAL UNIT NOT OF RUNNING THREE SEPARATE UNITS. THE EXPANSION OR EXTENSION OF A EXI STING UNIT, IN OUR OPINION, WILL NOT DISENTITLE THE ASSESSEE TO CLAIM DEDUCTION U/S. 80IA / 80IB SO THAT THE PROFIT INCREASED TO THE EXPANSION OR EXTENSION OF THE INDUSTRIAL UNDERTAKING WILL NOT BE ELIGIBLE FOR DEDUCTION U/S. 80IA / 80IB OF THE ACT. BOTH THE CONCERNS, M/S. FAUCET INDUSTRIES AND AARKEY PLUMBING FIXTURE REMAINED IN EXISTENCE EVEN AFTER THE SALE OF CERTAIN ASSETS OF THE ASSESSEE AS IS APPARENT FROM THE BALANCE SHEET FILED BEFORE US AVAILABLE BEFORE US AT PAGES 1C-24 AND 25 TO 53 OF THE PAPER BOOK. IN OUR OPINION, IT IS A CASE OF SUBSTANTIAL EXPANSION AND EXTENSION OF THE EXISTING UNIT WHICH HAS COMPLIED WITH THE CONDITIONS AS STIPULATED U/S. 80I A /80IB ELIGIBLE FOR EDUCATION UNDER THOSE PROVISIONS WHEN THE ASSESSEE COMPANY WAS FORM. THER EFORE, IN OUR OPINION, THE ASSESSEE CANNOT BE DENIED DEDUCTION U/S. 80IA / 80IB ON THE PROFIT AND GAINS DERIVED BY HIM FROM MERGED INDUSTRIAL UNDERTAKING. WE ACCORDINGLY SET ASIDE TH E ORDER OF CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION TO THE ASSESSEE U/S. 80IA / 80IB ON THE PROFIT DERIVED BY THE 12 ASSESSEE FROM THE INDUSTRIAL UNDERTAKING TREATING I T TO BE THE SINGLE INDUSTRIAL UNDERTAKING. THUS, GROUND NO. 1 STANDS ALLOWED. 11. GROUND NO. 2 RELATES TO THE DISALLOWANCE OF RS. 1,32,913/- OUT OF MOBILE PHONE EXPENSES, TELEPHONE AND CAR EXPENSES ON THE GROUND OF PERSONA L USE THEREOF BY DIRECTORS AND EMPLOYEES. 12. THE LEARNED AR BEFORE US VEHEMENTLY CONTENDED T HAT THE DISALLOWANCE IN THE CASE OF THE COMPANY OUT OF THESE EXPENSES CANNOT BE MADE, AS TH E IDENTITY OF THE COMPANY IS DIFFERENT FROM ITS DIRECTORS. IN ANY CASE, IT WAS CONTENDED THAT T HE DISALLOWANCE IS AT HIGHER SIDE. RELIANCE WAS PLACED ON THE DECISION OF GUJRAT HIGH COURT IN THE CASE OF SYAJI IRON & ENGG. CO. VS. CIT, 253 ITR 749. 13. THE LEARNED DR, ON THE OTHER HAND, CONTENDED TH AT THE DISALLOWANCE WAS NOT MADE ONLY FOR PERSONAL USE OF PHONE/CAR BY THE DIRECTORS AS W ELL AS EMPLOYEES OF THE COMPANY, BUT WAS ALSO MADE AS THE ASSESSEE FAILED TO PROVE THE GENUINENES S OF THE EXPENDITURE BY NOT PRODUCING LOG BOOK TO THE SATISFACTION OF THE ASSESSING OFFICER. 14. WE HAVE CAREFULLY CONSIDERED RIVAL SUBMISSIONS AND HAVE PERUSED THE MATERIAL ON RECORD. WE NOTED THAT THE ASSESSEE WAS ASKED BY THE ASSESSI NG OFFICER TO PRODUCE LOG BOOK FOR RUNNING OF THE CAR AND THE DETAILS OF THE MOBILE/PHONE CALL S, BUT THE ASSESSEE COULD NOT PRODUCE THE SAME. THE ASSESSING OFFICER ALSO OBSERVED THAT THE PERSON AL USE OF THE PHONE/CAR BY THE DIRECTORS AS WELL AS EMPLOYEES OF THE COMPANY CANNOT BE RULED OU T AND, THEREFORE, HE DISALLOWED 10% OF THESE EXPENSES. IN OUR OPINION, WHENEVER AN ASSESSE E CLAIMS AN EXPENDITURE TO HAVE BEEN 13 INCURRED FOR THE PURPOSE OF BUSINESS, THE ONUS IS O N THE ASSESSEE TO PROVE THE GENUINENESS OF THE EXPENDITURE. THE ASSESSEE WAS BOUND TO PRODUCE THE LOG-BOOK FOR RUNNING OF THE CAR AND THE DETAILS OF MOBILE / PHONE CALLS WHICH HE FAILED TO DO. BUT IN CASE, THE DIRECTORS AND THE EMPLOYEES OF THE COMPANY AS PER THE TERMS AND CONDITION OF TH EIR APPOINTMENT ARE ENTITLED TO USE THE CASE FOR PERSONAL PURPOSE AS WELL AS TO AVAIL FACILITIES OF MOBILE / PHONE CALLS IN VIEW OF THE DECISION OF GUJRAT HIGH COURT AS HAS BEEN RELIED BY THE LEAR NED AR IN THE CASE OF SYAJI IRON AND ENGINEERING CO. VS. CIT(SUPRA), THE ASSESSEE WILL B E ENTITLED FOR DEDUCTION OF THESE EXPENSES. SINCE NO EVIDENCE IS BROUGHT ON RECORD TO SHOW THE TERMS AND CONDITIONS ON WHICH THE DIRECTORS AND EMPLOYEES WERE APPOINTED TO AVOID THE USE OF CA R AND MOBILE/PHONE BY THEM, WE, THEREFORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY TO BOTH TH E PARTIES, SET ASIDE THIS ISSUE AND RESTORE THIS IS SUE TO THE FILE OF ASSESSING OFFICER WITH THE DIRECTION THAT THE ASSESSING OFFICER SHALL RE-DECIDE THIS ISSUE AFTER LOOKING INTO THE TERMS AND CONDITIONS O F THE EMPLOYEES AS WELL AS THE DIRECTORS WHETHER THEY ARE ENTITLED TO USE THE CASE AND MOBIL E/PHONE FOR THEIR PERSONAL USE OR NOT. THE ASSESSEE IS ALSO DIRECTED TO PROVIDE ALL THE DETAIL S ALONG WITH CAR NUMBER, NAME OF THE DIRECTORS OR THE PERSONS, WHO HAVE USED THE CAR, DETAILS OF MOBI LE /PHONE CALLS ALONG WITH THE NAME OF THE DIRECTORS AND NAME OF THE EMPLOYEES WHO HAD USED TH EM ALONG WITH THE TERMS AND CONDITIONS OF THEIR EMPLOYMENT. IF THE TERMS AND CONDITIONS OF TH E EMPLOYEES SO PROVIDE, NO PART OF THE EXPENDITURE SHOULD BE DISALLOWED. IN CASE THE ASSES SEE FAILS TO DISCHARGE ITS ONUS, THE ASSESSING OFFICER IS DIRECTED TO DISALLOW 10% OF THESE EXPENS ES AS HAS BEEN REASONABLY ESTIMATED BY HIM. THUS, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOS ES. 14 15. GROUND NO. 3 SINCE NOT PRESSED IS DISMISSED AS SUCH. GROUND NO. 4 IS CONSEQUENTIAL IN NATURE, AND ACCORDINGLY, THE ASSESSING OFFICER IS D IRECTED TO RE-COMPUTE THE INTEREST U/S. 234B AND 234C AFTER GIVING EFFECT OF THIS ORDER. ITA NO. 698/AGRA/2008 : 16. SO FAR AS GROUND NO. 1 IN THIS APPEAL IS CONCER NED, BOTH THE PARTIES HAVE AGREED THAT THE ISSUE INVOLVED IN THIS GROUND IS SIMILAR TO THE ISS UE INVOLVED IN GROUND NO. 1 IN ITA 447/AGRA/2006 FOR THE ASSESSMENT YEAR 2004-05. IT W AS AGREED THAT WHATEVER VIEW THIS TRIBUNAL MAY TAKE ON THIS ISSUE WHILE DISPOSING OF THE GROUN D NO. 1 IN APPEAL FOR THE ASSESSMENT YEAR 2004-05, THE SAME VIEW MAY BE TAKEN IN THIS CASE AL SO. WE HAVE ALREADY ALLOWED THE GROUND NO. 1 TAKEN BY THE ASSESSEE IN APPEAL NO. 447/2006 FOR A.Y. 2004-05. WE, ACCORDINGLY, RESPECTFULLY FOLLOWING OUR ORDER IN RESPECT OF GROUND NO. 1 IN A PPEAL FOR THE ASSESSMENT YEAR 2004-05, AS ENUMERATED HEREINABOVE UNDER PARA 10, WE ALLOW GROU ND NO. 1 IN THIS APPEAL OF ASSESSEE. 17. IT WAS CONTENDED BY THE LEARNED AR THAT GROUND NO. 2 & 3 ARE SIMILAR TO GROUND NO. 2 TAKEN BY ASSESSEE IN HIS APPEAL FOR THE ASSESSMENT YEAR 2004-05 AND, THEREFORE, WHATEVER VIEW THIS TRIBUNAL MAY TAKE IN RESPECT OF GROUND NO. 2 I N APPEAL FOR A.Y. 2004-05, THE SAME VIEW MAY BE TAKEN FOR DISPOSAL OF GROUND NO. 2 & 3 IN TH IS APPEAL. BOTH THESE GROUNDS RELATE TO THE DISALLOWANCE OF VEHICLE EXPENSES AND TELEPHONE EXPE NSES. THE LD. DR ALSO AGREED FOR THE SAME. WE HAVE ALREADY DISPOSED OF GROUND NO. 2 FOR THE AS SESSMENT YEAR 2004-05 AND RESTORED THIS ISSUE TO THE ASSESSING OFFICER WITH CERTAIN DIRECTI ONS AS PER PARA 14 OF THIS ORDER, RESPECTFULLY FOLLOWING OUR ORDER, WE RESTORE THIS ISSUE ALSO TO THE FILE OF ASSESSING OFFICER WITH THE SIMILAR DIRECTIONS. THUS, GROUNDS NOS. 2 & 3 ARE ALLOWED FO R STATISTICAL PURPOSES. 15 18. GROUND NO. 4 SINCE NOT ARGUED, THEREFORE, THE S AME IS DISMISSED AS SUCH. 19. GROUND NO. 5 IS CONSEQUENTIAL IN NATURE AND THE ASSESSING OFFICER IS DIRECTED TO GIVE CONSEQUENTIAL RELIEF TO THE ASSESSEE AFTER GIVING E FFECT OF THIS ORDER. 20. IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31.05.11. SD/- SD/- (H.S. SIDHU) (P.K. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 31 ST MAY, 2011 *AKS/- COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) BY ORDER 4. CIT, CONCERNED 5. DR, ITAT, AGRA 6. GUARD FILE ASSISTANT REGISTRAR TRUE COPY