M/s Hyderabad Chemicals Limited, Hyderabad V. DCIT, Circle-2(2), Hyderabad

ITA 562/HYD/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8953 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 27-01-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 22-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: A V RAGHURAM; GOPAL CHOUDRAY
• Keywords: Depreciation
• Section: 115JB; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.344/HYD/2012 ASSESSMENT YEAR 2007-2008 HYDERABAD CHEMICALS LTD., HYDERABAD. PAN AABCH1014K VS. DCIT, CIRCLE 2(2) HYDERABAD (APPELLANT) (RESPONDENT) ITA.NO.499/HYD/2012 ASSESSMENT YEAR 2007-2008 DCIT, CIRCLE 2(2) HYDERABAD. VS. HYDERABAD CHEMICALS LTD., HYDERABAD. PAN AABCH1014K (APPELLANT) (RESPONDENT) ITA.NO.561 & 562/HYD/2013 ASSESSMENT YEAR 2008-2009 & 2009-2010 HYDERABAD CHEMICALS LTD., HYDERABAD. PAN AABCH1014K VS. DCIT, CIRCLE 2(2) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. GOPAL CHOUDRAY & MR. A.V. RAGHURAM FOR REVENUE : MR. D. SUDHAKAR RAO DATE OF HEARING : 13.02.2015 DATE OF PRONOUNCEMENT : 11.03.2015 2 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. ORDER PER SAKTIJIT DEY, J.M. THESE FOUR APPEALS BOTH BY ASSESSEE AND DEPARTMENT ARE AGAINST SEPARATE ORDERS OF LD. CIT(A ), VIJAYAWADA, PERTAINING TO A.YS. 2007-08, 2008-09 AN D 2009- 2010. WHILE THERE ARE CROSS-APPEALS FOR A.Y. 2007-0 8, APPEALS FOR A.Y. 2008-09 AND 2009-2010 ARE BY ASSESSEE ALON E. AS THE ISSUES INVOLVED IN ALL THESE APPEALS ARE COMMON AND INTER- LINKED, THEY HAVE BEEN CLUBBED TOGETHER AND TAKEN-U P FOR DISPOSAL IN THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA.NO.344/HYD/2012 (A.Y. 2007-08 ASSESSEES APPEAL ) : 2. ASSESSEE HAS RAISED THE FOLLOWING THREE GROUNDS . AS CAN BE SEEN GROUND NOS. 1 AND 3 ARE ON THE COMMO N ISSUE OF DISALLOWANCE OF DEDUCTION CLAIMED UNDER SECTION 80IA AMOUNTING TO RS.1,21,91,833 IN RESPECT OF PROFIT DE RIVED FROM WIND MILLS. 2.1. BRIEFLY THE FACTS RELEVANT TO THE AFORESAID I SSUE IN DISPUTE ARE, ASSESSEE A PUBLIC LIMITED COMPANY IS E NGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF CHEMICALS A ND PESTICIDES AS WELL AS GENERATION OF POWER THROUGH W IND MILLS. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, ASSESS EE FILED ITS RETURN OF INCOME ON 21.08.2007 DECLARING TOTAL INCO ME OF RS.1,63,96,296 AFTER CLAIMING DEDUCTION OF RS.7,43, 57,454 UNDER NORMAL PROVISIONS AND BOOK PROFIT OF RS.13,50 ,21,992 UNDER SECTION 115JB OF THE ACT. DURING THE ASSESSME NT PROCEEDINGS, THE A.O. AFTER VERIFYING THE INFORMATI ON AVAILABLE ON RECORD NOTICED THAT THE ASSESSEE HAS CLAIMED DED UCTION UNDER SECTION 80IA OF RS.1,21,91,833 FOR ITS WIND M ILL UNITS. 3 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. ASSESSING OFFICER NOTICED THAT IN THE RETURN OF INC OME FOR A.Y. 2007-08 ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTIO N 80IA OF THE ACT FOR DIFFERENT WIND MILL UNITS AS UNDER : DATE OF COMMISSION WIND MILL UNIT DEDUCTION U/S.80IA. 31.03.1999 PHASE-I 36,93,729 30.09.2000 PHASE-II 24,62,486 30.03.2002 PHASE-III 38,52,580 31.03.2005 PHASE-IV 21,83,038 01.01.2007 PHASE-V -NIL- 2.2. IN CASE OF UNIT-V, ASSESSEE ADMITTED NET LOSS OF RS.4,57,40,764. A.O. FOUND THAT THE INCOME DERIVED AS AFORESAID FROM DIFFERENT UNITS WERE CLAIMED AS DEDU CTION UNDER SECTION 80IA DESPITE THE FACT THAT ASSESSEE HAS UNA BSORBED LOSSES IN RESPECT OF THESE UNITS. IN THIS CONTEXT, HE NOTED THAT ASSESSEE HAD UNABSORBED BROUGHT FORWARD LOSSES OF RS.17,93,080 AND RS.89,19,789 FOR A.YS. 1999-2000 A ND 2000-2001 PERTAINING TO THE FIRST WIND MILL UNIT. S ECOND WIND MILL UNIT HAD UNABSORBED LOSS OF RS.1,06,86,686 IN THE A.Y. 2001-2002. THE THIRD WIND MILL UNIT HAD UNABSORBED LOSS OF RS.1,65,95,447 FOR A.Y. 2002-2003 AND THE 4 TH WIND MILL UNIT HAS UNABSORBED LOSS OF RS.1,65,95,447 FOR THE A.Y. 2005-06 AND THE FIFTH WIND MILL UNIT HAS UNABSORBED LOSS OF RS.4,57,47,064 ON STAND ALONE BASIS. 2.3. THE A.O. WHEN FOUND THAT THE COMPUTATION OF DEDUCTION UNDER SECTION 80IA MADE BY ASSESSEE IS NO T IN ACCORDANCE WITH SUB-SECTION (5) OF SECTION 80IA, AS IT STOOD THEN, HE PROPOSED TO DISALLOW THE DEDUCTION. THE AS SESSEE OBJECTED TO THE PROPOSED DISALLOWANCE BY STATING TH AT AS THE LOSS HAS ALREADY BEEN SET OFF AGAINST OTHER INCOME IN RESPECTIVE ASSESSMENT YEARS, IT CANNOT BE BROUGHT F ORWARD 4 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. NOTIONALLY AND SET OFF AGAINST THE PROFITS DERIVED FROM WIND MILL UNITS FOR THE IMPUGNED ASSESSMENT YEAR. THE A.O. H OWEVER, DID NOT FIND ANY MERIT IN THE CONTENTION OF THE ASS ESSEE. HE OBSERVED THAT THE PROVISIONS OF SECTION 80IA(5) IS CLEAR AND UNAMBIGUOUS AND STATES THAT QUANTUM OF DEDUCTION UN DER SECTION 80IA NEEDS TO BE COMPUTED AS IF THE ELIGIBL E BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE. FOR THIS REASON, THE PROVISIONS FOR CARRY FORWARD AND SET OF F OF THE BUSINESS/DEPRECIATION LOSSES NEED TO BE APPLIED WHI LE COMPUTING INCOME ELIGIBLE FOR DEDUCTION. THE A.O. T HEREFORE, FOLLOWING THE DECISION TAKEN IN ASSESSEES CASE IN THE PRECEDING ASSESSMENT YEARS AS WELL AS THE DECISION OF THE ITA T, AHMEDABAD, SPECIAL BENCH IN THE CASE OF ACIT VS. GO LD MINE SHARES AND FINANCE P. LTD., 302 ITR 208 (AT) NOTION ALLY BROUGHT FORWARD THE LOSSES RELATING TO DIFFERENT WI ND MILL UNITS FOR SET OFF AGAINST THE PROFITS OF THE WIND MILL UN ITS FOR IMPUGNED ASSESSMENT YEAR. THIS RESULTED IN DISALLOW ANCE OF DEDUCTION CLAIMED UNDER SECTION 80IA OF THE ACT. BE ING AGGRIEVED OF SUCH DISALLOWANCE, ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A). LD. CIT(A) HOWEVER, CONCURRE D WITH THE VIEW TAKEN BY THE A.O. BY OBSERVING AS UNDER : 10.2. HERE THE APPELLANT ARGUED THAT FOLLOWING HI GH COURT DECISIONS CIT VS. MERWAR OIL AND GENERAL MILL S LTD., (271 ITR PAGE 33); VELAYUDHA SWAMY SPINNING MILLS P . LTD., VS. ACIT; SUDAN SPINNING MILLS P. LTD., VS. A CIT (23 CTR 368); M. PALLONJI & CO. (P) LTD., VS. CIT (2006 ) 6 SOT 287 (MUM) HELD AS SIMILAR CASE AND THE DEDUCTIONS A RE ALLOWABLE. BUT, IN THE SAME APPELLANT CASE, THE HON BLE ITAT, HYDERABAD A BENCH FOR SEVERAL ASSESSMENT YEAR S DISALLOWED THE APPEALS OF THE ASSESSEE AND HELD IN FAVOUR OF REVENUE. KEEPING IN VIEW OF THIS, I RESPECTFULLY FOLLOW THE DECISION OF THE HONBLE ITAT, HYDERABAD A BENCH , I DISALLOW THIS GROUND OF APPEAL SINCE THE ASSESSING OFFICER MADE THE ADDITION BASED ON THE EARLIER YEAR ASSESSM ENT 5 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. ORDERS AND THE SAME WERE UPHELD BY THE HONBLE ITAT . HENCE, THIS GROUND OF APPEAL WITH REGARD TO DEDUCTI ON UNDER SECTION 80IA OF RS.1,21,91,833/- IS DISALLOWE D. 3. LEARNED A.R. SUBMITTED BEFORE US THAT THE A.O. AS WELL AS LD. CIT(A) WERE TOTALLY WRONG IN DISALLOWIN G DEDUCTION UNDER SECTION 80IA OF THE ACT BY NOTIONALLY BRINGIN G FORWARD PAST YEARS LOSSES AND SETTING IT OFF AGAINST THE P ROFIT OF THE WIND MILLS IN THE CURRENT YEAR. LEARNED A.R. TAKING US THROUGH THE PROVISIONS OF SECTION 80IA, AS IT STOOD BEFORE ITS AMENDMENT W.E.F. 01.04.2000 BY FINANCE ACT 1999, SU BMITTED, ASSESSEE IS ENTITLED FOR DEDUCTION OF AN AMOUNT OF 100% OF THE PROFITS AND GAINS DERIVED FROM WIND MILL BUSINESS F OR THE INITIAL FIVE ASSESSMENT YEARS AND THEREAFTER 25% OF THE PRO FITS FROM SUCH INDUSTRIAL UNDERTAKING. HE SUBMITTED, PRIOR TO 01.04.2000 AS PER SUB-SECTION (6) THE ASSESSEE CAN CLAIM THE BENEFIT FOR A PERIOD OF 10 CONSECUTIVE ASSESSMENT Y EARS INCLUDING THE INITIAL ASSESSMENT YEAR FALLING WITHI N A PERIOD OF 12 ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT Y EAR IN WHICH THE ASSESSEE BEGINS ITS OPERATION. AS PER SUB -SECTION (7) THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS WHICH IS ENTITLED FOR DEDUCTION UNDER SUB-SECTION (1), THE QUANTUM OF DEDUCTION SHALL BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS IS T HE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOU S YEAR RELEVANT TO THE INITIAL ASSESSMENT YEAR AND TO EVER Y SUBSEQUENT ASSESSMENT YEAR UP TO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH THE DETERMINATION IS TO BE MADE. SUB-SECTION (12) OF SECTION 80IA DEFINED INITIAL ASSESSMENT YEAR AS THE YEAR THE UNIT STARTS ITS OPERATION. LEARNED A.R. SUBMITTED T HAT THE AFORESAID PROVISION WAS AMENDED BY FINANCE ACT, 199 9 W.E.F. 01.04.2000. AS PER THE AMENDED PROVISION THE CONCEP T OF INITIAL ASSESSMENT YEAR WAS REMOVED. UNDER SUB-SECT ION (2) 6 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. OPTION WAS GIVEN TO THE ASSESSEE TO CLAIM DEDUCTION FOR ANY 10 CONSECUTIVE ASSESSMENT YEARS WITHIN A BLOCK OF 15 Y EARS WITHIN WHICH THE UNDERTAKING STARTS ITS OPERATION. THUS, L EARNED A.R. SUBMITTED, THE INITIAL ASSESSMENT YEAR AFTER THE AM ENDMENT OF SECTION 80IA OF THE ACT FROM 01.04.2000 CANNOT BE S AID TO BE THE ASSESSMENT YEAR IN WHICH THE OPERATION OF THE I NDUSTRIAL UNDERTAKING IS STARTED, AS THE ASSESSEE AT ITS OWN OPTION CAN CHOOSE THE INITIAL ASSESSMENT YEAR AND SUBSEQUENT 9 ASSESSMENT YEARS WITHIN BLOCK OF 15 YEARS FOR CLAIM ING DEDUCTION UNDER SECTION 80IA. THEREFORE, THE FICTIO N CREATED UNDER SECTION 80IA(5) OPERATES ONLY WHEN THE ASSESS EE EXERCISES OPTION OF INITIAL ASSESSMENT YEAR. THE LE ARNED A.R. SUBMITTED ONLY IN CASE OF FIRST UNIT WHICH WAS COMM ISSIONED ON 30.03.1999. THE YEAR OF COMING INTO OPERATION CO ULD BE CONSIDERED TO BE THE INITIAL ASSESSMENT YEAR AS PER THE UN- AMENDED SECTION 80IA. WHEREAS, IN CASE OF OTHER UNI TS, THE PROVISIONS OF AMENDED SECTION 80IA WILL COME INTO E FFECT AND THE DEEMING PROVISION OF SUB-SECTION (5) WOULD APPL Y ONLY FROM THE ASSESSMENT YEAR IN WHICH THE ASSESSEE EXERCISES ITS OPTION OF CLAIMING DEDUCTION UNDER SECTION 80IA. THEREFORE , THE LOSS ARISING PRIOR TO THE INITIAL ASSESSMENT YEAR CANNOT BE BROUGHT FORWARD NOTIONALLY TO THE INITIAL ASSESSMENT YEAR F OR SET OFF AGAINST THE PROFITS DERIVED FROM THE ELIGIBLE INDUS TRIAL UNDERTAKING. 3.1. LEARNED A.R. FURTHER SUBMITTED, IF AT ALL ANY LOSS CAN BE BROUGHT FORWARD AND SET OFF AGAINST THE PROF ITS OF ELIGIBLE UNDERTAKING IT IS THE LOSS RELATING TO THE FIRST UNIT AS THE UN-AMENDED PROVISIONS WILL APPLY TO THAT UNIT A ND THE INITIAL ASSESSMENT YEAR WOULD BE 1999-2000. THUS LE ARNED A.R. SUBMITTED THAT NO NOTIONAL CARRY FORWARD AND S ET OFF OF 7 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. LOSS CAN BE MADE AGAINST THE PROFIT OF WIND MILL UN ITS IRRESPECTIVE OF THE INITIAL ASSESSMENT YEAR UNDER T HE AMENDED PROVISIONS. LEARNED A.R. IN THIS CONTEXT REFERRED T O THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CA SE OF VELAYUDHA SWAMY SPINNING MILLS P. LTD., VS. ACIT 34 0 ITR 477 WHEREIN THE HONBLE MADRAS HIGH COURT FOLLOWING ITS EARLIER UNREPORTED JUDGMENT HELD THAT ONCE THE ASSESSEE EXE RCISES THE OPTION OF CLAIMING DEDUCTION FROM A PARTICULAR ASSE SSMENT YEAR, THEN ONLY LOSSES OF THE YEARS BEGINNING FROM INITIAL ASSESSMENT YEAR ALONE ARE TO BE BROUGHT FORWARD AND NO LOSSES OF EARLIER YEARS WHICH WERE ALREADY SET OFF AGAINST THE INCOME OF THE ASSESSEE CANNOT BE NOTIONALLY BROUGHT FORWARD. LEARNED A.R. SUBMITTED, ITAT, MUMBAI BENCH IN CASE OF M/S. SHERIE EXPORTS VS. JCIT ITA.NO.321/MUM/2012 DATED 10.04.20 13 ALSO FOLLOWED THE AFORESAID DECISION OF THE HONBLE MADRAS HIGH COURT AND EXPRESSED SIMILAR VIEW. LEARNED A.R. ALSO REFERRED TO THE DECISION OF ACIT VS. GOLD MINE SHARES AND FINAN CE P. LTD., 113 ITD 209 (AHD.) (S.B.) AND CONTENDED THAT IT WIL L NOT APPLY EVEN TO THE FIRST WIND MILL UNIT AS SPECIAL BENCH D ECISION HAS NOT TAKEN INTO CONSIDERATION, THE UN-REPORTED JUDGM ENT OF THE HONBLE MADRAS HIGH COURT WHICH WAS SUBSEQUENTLY FO LLOWED BY THE MADRAS HIGH COURT IN THE CASE OF VELAYUDHA S WAMY SPINNING MILLS P. LTD., VS. ACIT 340 ITR 477. LEARN ED A.R. THOUGH, FAIRLY SUBMITTED THAT THE ISSUE HAS BEEN DE CIDED AGAINST THE ASSESSEE IN ITS OWN CASE BY THE ITAT, H YDERABAD BENCH IN A.YS. 2001-2002 TO 2006-07 BUT THE DECISIO N OF THE TRIBUNAL BEING ON WRONG APPRECIATION OF FACT AND LA W, THE SAME CANNOT BE A BINDING PRECEDENCE. MORE SO, IN THE FAC E OF MADRAS HIGH COURT JUDGMENT. LEARNED A.R. ALSO RELIED UPON THE DECISION OF ITAT, BANGALORE BENCH IN THE CASE OF SH RI ANIL H. 8 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. LAD VS. DCIT, CENTRAL CIRCLE 2(3), BANGALORE ITA.NO.1262/BANG/2010 DATED 07.01.2011. 4. LEARNED D.R. ON THE OTHER HAND SUBMITTED THAT A LL THESE ARGUMENTS OF THE ASSESSEE HAVE BEEN CONSIDERE D BY THE TRIBUNAL IN THE PRECEDING ASSESSMENT YEARS AND ISSU E HAS BEEN DECIDED AGAINST THE ASSESSEE. THEREFORE, AS TH E ISSUE RELATING TO DEDUCTION UNDER SECTION 80IA IS SQUAREL Y COVERED IN ASSESSEES OWN CASE FOR THE PRECEDING ASSESSMENT YE ARS, THERE IS NO REASON TO DISTURB THE FINDING OF LD. CIT(A). 5. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIALS ON RECORD AS WELL AS THE ORDERS OF THE REVENUE AUTHORITIES ON THIS ISSUE. WE HAVE ALSO CAREFULLY APPLIED OUR MIND TO THE DECISIONS RELIED UPON BY TH E PARTIES. AS CAN BE SEEN, THE SPECIFIC DISPUTE ARISING FOR CO NSIDERATION IS, WHETHER THE LOSS ARISING IN EARLIER YEARS AND S ET OFF AGAINST OTHER INCOME COULD NOTIONALLY BE BROUGHT FORWARD TO SUBSEQUENT ASSESSMENT YEARS AND SET OFF AGAINST THE PROFITS OF THE ELIGIBLE BUSINESS UNDERTAKING BY APPLYING THE P ROVISIONS OF SUB-SECTION (5) OF SECTION 80IA. IN THIS CONTEXT, I T IS NECESSARY TO LOOK AT THE RELEVANT STATUTORY PROVISIONS AS EXI STED PRIOR TO AND POST AMENDMENT EFFECTED BY FINANCE ACT, 1999 W. E.F. 01.04.2000. AS CAN BE NOTICED FROM CONJOINT READING OF BOTH THE PROVISIONS, THE MOST STRIKING FEATURE IS WITH R EGARD TO THE INITIAL ASSESSMENT YEAR. WHILE IN THE UN-AMENDED PR OVISION THE INITIAL ASSESSMENT YEAR IS DEFINED AS THE ASSESSMEN T YEAR IN WHICH THE OPERATION OF THE INDUSTRIAL UNDERTAKING C OMMENCED. AS PER SUB-SECTION (2) OF THE AMENDED PROVISION, TH E ASSESSEE HAS BEEN GIVEN AN OPTION TO CLAIM DEDUCTION UNDER S ECTION 80IA FOR A PERIOD OF ANY 10 CONSECUTIVE ASSESSMENT YEARS 9 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. WITHIN A 15 YEAR BLOCK. HOWEVER, THE DEEMING PROVIS ION UNDER SUB-SECTION (5) REMAINS UNCHANGED. SUB-SECTION (5) OF SECTION 80IA STIPULATES THAT THE QUANTUM OF DEDUCTION UNDER SUB- SECTION (1) OF SECTION 80IA IS TO BE COMPUTED WITH REFERENCE TO INCOME OF ELIGIBLE BUSINESS AS IF SUCH ELIGIBLE BUS INESS WAS THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PR EVIOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT YEAR AND TO EVER Y SUBSEQUENT ASSESSMENT YEAR UP TO AND INCLUDING ASSESSMENT YEAR FOR WHICH THE DETERMINATION IS TO BE MADE. IT IS THE CA SE OF THE ASSESSEE THAT EXCEPT THE FIRST UNIT WHICH COMMENCED ITS OPERATION ON 30.03.1999 THE AMENDED PROVISIONS OF S ECTION 80IA WOULD APPLY TO ALL OTHER WIND MILL UNITS AND T HE INITIAL ASSESSMENT YEAR WILL BE THE ASSESSMENT YEAR IN WHIC H ASSESSEE EXERCISED ITS OPTION TO CLAIM DEDUCTION UNDER SECTI ON 80IA. THEREFORE, THE LOSS ARISING PRIOR TO INITIAL ASSESS MENT YEAR AND WHICH HAS ALREADY BEEN SET OFF CANNOT AGAIN BE NOTI ONALLY BROUGHT FORWARD AND SET OFF AGAINST THE PROFIT OF T HE ELIGIBLE BUSINESS. IN THIS CONTEXT, IT IS TO BE NOTED THAT T HE HONBLE MADRAS HIGH COURT IN THE CASE OF VELAYUDHA SWAMY SP INNING MILLS P. LTD., VS. ACIT 340 ITR 477 WHILE DEALING W ITH THIS SPECIFIC ISSUE, REFERRED TO ONE OF ITS UNREPORTED J UDGMENT AND HELD AS UNDER : 18. FROM READING OF THE ABOVE, IT IS CLEAR THAT T HE ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME, D URING THE PREVIOUS YEAR RELEVANT TO INITIAL ASSESSMENT YE AR AND EVERY SUBSEQUENT ASSESSMENT YEARS. WHEN THE ASSESSE E EXERCISES THE OPTION, THE ONLY LOSSES OF THE YEARS BEGINNING FROM INITIAL ASSESSMENT YEAR ALONE ARE TO BE BROUGHT FORWARD AND NO LOSSES OF EARLIER YEARS WHIC H WERE ALREADY SET OFF AGAINST THE INCOME OF THE ASSE SSEE. LOOKING FORWARD TO A PERIOD OF TEN YEARS FROM THE I NITIAL ASSESSMENT IS CONTEMPLATED. IT DOES NOT ALLOW THE REVENUE TO LOOK BACKWARD AND FIND OUT IF THERE IS A NY LOSS OF EARLIER YEARS AND BRING FORWARD NOTIONALLY EVEN THOUGH 10 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. THE SAME WERE SET OFF AGAINST OTHER INCOME OF THE ASSESSEE AND THE SET OFF AGAINST THE CURRENT INCOME OF THE ELIGIBLE BUSINESS. ONCE THE SET OFF IS TAKEN PLACE IN EARLIER YEAR AGAINST THE OTHER INCOME OF THE ASSESSEE, THE REVENUE CANNOT REWORK THE SET OFF AMOUNT AND BRING IT NOTIONALLY. FICTION CREATED IN SUB-SECTION DOES NOT CONTEMPLATES TO BRING SET OFF AMOUNT NOTIONALLY. FI CTION IS CREATED ONLY FOR THE LIMITED PURPOSE AND THE SAME C ANNOT BE EXTENDED BEYOND THE PURPOSE FOR WHICH IT IS CREA TED. 5.1. HOWEVER, IT IS A FACT ON RECORD THE VERY SAME ISSUE ARISING IN PRECEDING ASSESSMENT YEARS IN ASSESSEES OWN CASE CAME UP FOR CONSIDERATION BEFORE THE ITAT, HYDERABA D BENCH IN ITA.NO.352/HYD/2005 AND OTHERS DATED 21.01.2011. THE COORDINATE BENCH TAKING INTO CONSIDERATION JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF VELAYUDHAS WAMY SPINNING MILLS (P) LTD., VS. ACIT (SUPRA) AS WELL A S THE SPECIAL BENCH DECISION OF ITAT, AHMEDABAD BENCH IN THE CASE OF ACIT VS. GOLD MINE SHARES AND FINANCE LIMITED 113 ITD 20 9, CONCURRED WITH THE DECISION OF THE A.O. AND LD. CIT (A) BY HOLDING AS UNDER : 15. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS ON RECORD. IN OUR OPINION, THE ISSUE RELA TING TO COMPUTATION OF 80IA DEDUCTION THAT IT HAS TO BE COM PUTED AFTER DEDUCTION OF THE NOTIONAL BROUGHT FORWARD LOS SES AND DEPRECIATION OF BUSINESS EVEN THOUGH THEY HAVE BEEN ALLOWED SET OFF AGAINST OTHER INCOME IN EARLIER YEA RS HAS BEEN DEALT BY THE SPECIAL BENCH IN THE CASE OF ACIT VS. GOLD MINE SHARES & FINANCE (P) LTD. (113 ITD 209) ( SB) (AHEMADABAD) AND DECIDE THE ISSUE AGAINST THE ASSES SEE. WHILE DELIVERING THIS ORDER, THE SPECIAL BENCH CONS IDERED ALL THE ARGUMENTS WHAT THE ASSESSEE HAS PLACED BEFO RE US. THE TRIBUNAL ALSO CONSIDERED THE JUDGMENT IN TH E CASE OF MEWAR OIL & GENERAL MILLS LTD. (SUPRA ) AND OBSE RVED THAT THIS CASE HAS NOT NOTICED THE NON OBSTANTE PRO VISIONS OF SECTION 80I(6)/80IA(5) AND, THEREFORE, THERE IS NO DISCUSSION ON THIS POINT IN THAT DECISION. IT WOULD SIMILARLY, THEREFORE, BE NOT OF ANY HELP TO US. THE TRIBUNAL ALSO CONSIDERED THE DECISION CITED BY THE ASSESSEE IN THE 11 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. CASE OF MOHAN BREWERIES & DISTILLERIES LTD. (116 IT D 241) (CHENNAI) (SUPRA) AND OBSERVED THAT WHAT IT DECIDED IN THAT CASE IS THAT THE DEDUCTION IS ALLOWED U/S 80IA FOR 10 OUT OF 15 YEARS AT THE OPTION OF THE ASSESSEE WHICH MEANS ANY TEN YEARS NOT NECESSARILY THE BEGINNING OF 10 Y EARS. FINALLY IT WAS OBSERVED THAT THIS CASE HAS NO RELEV ANCE IN DECIDING THE ISSUE IN THIS CASE OF THE ASSESSEE BEC AUSE THE ASSESSEE ITSELF HAD CLAIMED DEDUCTION IN THE RE TURN STARTING FROM 1ST YEAR. THE SAME IS APPLICABLE IN T HE CASE OF RANGAMMA STEELS & MALLEABLES VS. ACIT (132 TTJ 3 65) (CHENNAI) AND VELAYUDHASWAMY SPINNING MILLS (P) LTD . VS. ACIT (38 DTR 57) (MDS. ) (HC). FURTHER, JUDGMEN T OF HIGH COURT THOUGH NOT OF THE JURISDICTIONAL HIGH CO URT, PREVAILS OVER AN ORDER OF THE SPECIAL BENCH EVEN TH OUGH IT IS FROM THE JURISDICTIONAL BENCH OF THE TRIBUNAL, H OWEVER, WHERE THE JUDGMENT OF THE NON JURISDICTIONAL HIGH C OURT, THOUGH THE ONLY JUDGMENT ON THE POINT, HAS BEEN REN DERED WITHOUT HAVING BEEN INFORMED ABOUT CERTAIN STATUTOR Y PROVISIONS THAT ARE DIRECTLY RELEVANT, IT IS NOT TO BE FOLLOWED. IN OUR OPINION, JUDGMENT OF SPECIAL BENCH IN THE CASE OF GOLD MINE SHARES & FINANCE (P) LTD. (113 IT D 209) (SB) (AHEMADABAD) SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE AND APPLYING THE RATIO LAID DOWN BY TH IS ORDER OF THE SPECIAL BENCH OF THIS TRIBUNAL, WE INC LINED TO DECIDE THE ISSUE AGAINST THE ASSESSEE RELATING TO ALLOWABILITY OF DEDUCTION U/S 80IA THAT IN TERMS OF PROVISIONS OF U/S 80IA(5) OF THE IT ACT, THE PROFIT FROM THE ELIGIBLE BUSINESS FOR THE PURPOSE OF DETERMINATION OF THE QUANTUM OF DEDUCTION U/S 80IA OF THE ACT HAS TO BE COMPUTED AFTER DEDUCTION OF THE NOTIONAL BROUGHT FO RWARD LOSSES AND DEPRECIATION OF ELIGIBLE BUSINESS EVEN T HOUGH THEY HAVE BEEN ALLOWED SET OFF AGAINST OTHER INCOME IN EARLIER YEARS. 5.2. THE SAME VIEW WAS AGAIN REITERATED BY ITAT, HYDERABAD BENCH IN ASSESSEES OWN CASE IN ITA.NO.179/HYD/2006 AND OTHERS DATED 14.12.2011. T HE BENCH HELD AS UNDER : 6. THE HONBLE MADRAS HIGH COURT HAS HELD THAT AS INITIAL YEAR IS NOT DEFINED IN S.80IA AS COMPARED T O 80IB, WHEREIN IT IS SPECIFICALLY PROVIDED THAT THE YEAR O F COMMENCEMENT OF BUSINESS WILL BE THE INITIAL YEAR F OR THE 12 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. PURPOSE OF CLAIMING THE DEDUCTION. HOWEVER, AS INIT IAL YEAR IS NOT DEFINED IN SECTION 80IA, THE YEAR OF OP TION HAS TO BE TREATED AS INITIAL ASSESSMENT YEAR FOR THE PU RPOSE OF SECTION 80IA. THE ABOVE ANALYSIS IS EXCELLENT, BUT THERE IS NO CONCLUSION DRAWN. IN OUR OPINION, WHAT HAS BEEN HELD BY MADRAS HIGH COURT IS THAT IF THE LOSS OF ELIGIBL E UNIT IS PERTAINING TO THE ASSESSMENT YEAR DURING WHICH THE UNIT IS NOT CLAIMED TO BE ELIGIBLE UNIT FOR DEDUCTION UNDER SECTION 80IA, THEN THAT LOSS SHOULD NOT BE SET OFF AGAINST THE PROFITS OF THE UNIT FOR THE ASSESSMENT YEAR IN WHIC H THE UNIT IS CLAIMED TO BE ELIGIBLE FOR DEDUCTION U/S.80 IA WHEREAS IF THE UNIT GETS LOSES IN ONE OF THE YEAR D URING WHICH THE UNIT IS CLAIMED TO BE ELIGIBLE FOR DEDUCT ION U/S.80IA AND IN SUBSEQUENT YEARS, IT GETS PROFITS T HEN SEC.80IA(5) IS APPLICABLE AND IN THOSE CIRCUMSTANCE S, THE DECISION OF MADRAS HIGH COURT IS NOT APPLICABLE AND SPECIAL BENCH DECISION IS APPLICABLE, AND IN CONSON ANCE WITH THE ESSENCE OF THE SAID DECISION, PROFITS ARE FIRST TO BE SET OFF WITH BROUGHT FORWARD LOSSES AND THEN THE QU ANTUM OF DEDUCTION U/S.80IA IS TO BE COMPUTED. 5.3. IT IS TO BE FURTHER NOTED, IN COURSE OF HEARI NG OF THE PRESENT APPEAL WHEN THE ASSESSEE MOVED AN APPLICATI ON FOR REFERRING THE ISSUE TO SPECIAL BENCH, A DIVISION BE NCH OF THIS TRIBUNAL OPINED THAT THERE IS NO NEED TO MAKE A REF ERENCE TO THE SPECIAL BENCH AS THERE IS NO CONFLICT OF THE JU DGMENTS WHICH HAVE BEEN GIVEN IN DIFFERENT FACTUAL CONDITIO NS. THE OBSERVATIONS MADE BY THE LEARNED MEMBERS ARE EXTRAC TED HEREUNDER FOR CONVENIENCE : 7. SINCE THE FACTS IN ASSESSEES CASE ARE ENTIREL Y DIFFERENT FROM THE FACTS IN THE SAID CASE OF M/S. S HEVIE EXPORTS, THERE IS NO NEED TO CONSIDER THAT M/S. SHE VIE EXPORTS HAS ESTABLISHED A DIFFERENT PRINCIPLE. AT T HE COST OF REPETITION, WE SUBMIT THAT THE PRINCIPLE OF NOTI ONAL SET OFF FOR LOSSES WHILE ALLOWING DEDUCTION UNDER SECTI ON 80IA HAS NOT BEEN DIFFERED BUT ONLY THE INITIAL ASSESSMENT YEAR IN THAT CASE WAS CONSIDERED. THEREFORE, ASSESSEES CONTENTION THAT MUMBAI BENCH IN M/S. SHEVIE EXPORTS HAS DIFFERED WITH INTERPRETATION IS NOT CORRECT. HONBL E MADRAS HIGH COURT JUDGMENT IN THE CASE OF VELAYUDHANSWAMY 13 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. SPINNING MILLS (SUPRA) WHICH WAS ALSO SAME PRINCIPL ES OF SETTING OFF THE LOSSES OF ONLY ELIGIBLE UNITS, WAS ALSO FOLLOWED IN M/S. SHEVIE EXPORTS ON FACTS. WE ARE OF THE OPINION THAT THERE IS NO CONFLICT OF THE JUDGMENTS WHICH ARE GIVEN IN DIFFERENT FACT CONDITIONS. THEREFORE, WE ARE OF THE OPINION THAT ASSESSEES APPEAL CAN BE HEARD BY REGULAR BENCH AND WHATEVER PRINCIPLES ARE REQUIRED TO BE ESTABLISHED ON THE FACTS IN EACH CASE CAN BE FOLLOW ED, INCLUDING THAT OF SPECIAL BENCH OF THE ITAT ON THE ISSUE. WE ARE OF THE OPINION THAT THERE IS NO NEED TO REFE R THE MATTER TO THE SPECIAL BENCH. THE HONBLE PRESIDENT OF ITAT HAS ALSO ACCEPTED THE AFORESAID VIEW AND REFUSED TO REFER THE ISSUE TO SPECIAL BENC H. 5.4. THE DIVISION BENCH ALSO TOOK NOTE OF THE FACT THAT ASSESSEES CASE ON THE RELEVANT LEGAL ISSUE HAS ALR EADY BEEN ADMITTED BY THE HONBLE A.P. HIGH COURT. AS CAN BE SEEN FROM THE AFORESAID FACTS, THE COORDINATE BENCH OF THIS T RIBUNAL IN ASSESSEES OWN CASE AFTER CONSIDERING THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF VELAYUDHA SWAMY SP INNING MILLS P. LTD., VS. ACIT (SUPRA) AS WELL AS THE DECI SION OF ITAT, AHMEDABAD, SPECIAL BENCH IN THE CASE OF ACIT VS. GO LD MINE SHARES AND FINANCE LIMITED HAS DECIDED THE ISSUE AG AINST THE ASSESSEE. IT IS ALSO A FACT ON RECORD THAT THE DECI SION TAKEN BY THE COORDINATE BENCH HAS BEEN CHALLENGED BY THE ASS ESSEE BEFORE THE HONBLE HIGH COURT OF A.P. AND THE APPEA L HAS BEEN ADMITTED AND PENDING. IN THESE CIRCUMSTANCES, WHEN THE COORDINATE BENCH FOR THE PRECEDING ASSESSMENT YEARS IN ASSESSEES OWN CASE HAS DECIDED THE ISSUE TAKING IN TO CONSIDERATION THE JUDGMENT OF HONBLE MADRAS HIGH C OURT REFERRED TO BY LEARNED A.R. AND ASSESSEES APPEAL A GAINST SUCH DECISION IS STILL PENDING BEFORE THE HONBLE JURISD ICTIONAL HIGH COURT, UNTIL THE DECISION OF THE TRIBUNAL IS REVERS ED, JUDICIAL PROPRIETY AND DISCIPLINE REQUIRE US TO FOLLOW THE D ECISION TAKEN 14 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. BY THE COORDINATE BENCH. FOLLOWING THE SAME, WE HOL D THAT ASSESSEES CLAIM OF DEDUCTION UNDER SECTION 80IA IS NOT MAINTAINABLE. ACCORDINGLY, WE UPHOLD THE ORDER OF T HE LD. CIT(A) ON THIS ISSUE. 6. THE NEXT ISSUE RAISED IN GROUND NO.2 IS WITH REGARD TO THE DISALLOWANCE OF WEIGHTED DEDUCTION CL AIMED UNDER SECTION 35(2AB) AMOUNTING TO RS.13,26,533. 6.1. BRIEFLY STATED THE FACTS ARE, WHILE EXAMINING ASSESSEES RETURN OF INCOME, IT WAS NOTICED BY THE A.O. THAT ASSESSEE HAS CLAIMED WEIGHTED DEDUCTION OF RS.13,26 ,533 UNDER SECTION 35(2AB). HE HOWEVER NOTED THAT THOUGH ASSESSEE HAS FILED FORM 3CL ISSUED BY DSIR, HOWEVER, THE SAI D FORM 3CL SHOWING THE QUANTUM OF AMOUNT SPENT HAS NOT BEE N FILED. ACCORDINGLY, HE DISALLOWED ASSESSEES CLAIM OF WEIG HTED DEDUCTION. BEING AGGRIEVED, ASSESSEE CHALLENGED THE SAME BEFORE THE FIRST APPELLATE AUTHORITY. THE FIRST APP ELLATE AUTHORITY HAS ALSO CONFIRMED THE DISALLOWANCE. 6.2. LEARNED A.R. SUBMITTED BEFORE US THAT ASSESSE E HAS SUBMITTED THE FORM 3CL BEFORE THE FIRST APPELLA TE AUTHORITY. HOWEVER, THE SAME HAS BEEN TOTALLY IGNOR ED. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS ON RECORD. CONSIDERING ASSESSEES CLAIM T HAT FORM 3CL CONTAINING NECESSARY DETAILS WAS FURNISHED BEFO RE THE FIRST APPELLATE AUTHORITY WHICH HAS NOT BEEN TAKEN INTO CONSIDERATION BEFORE DISALLOWING ASSESSEES CLAIM, WE REMIT THE MATTER BACK TO THE FILE OF A.O. TO VERIFY ASSESSEE S CLAIM AND DECIDE IT ACCORDINGLY. GROUND NO.2 OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 15 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. 8. IN THE RESULT, ITA.NO.344/HYD/2012 OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ITA.NO.561 & 562/HYD/2013 A.Y. 2008-09 & 2009-201 0 (ASSESSEES APPEALS) ITA.NO.499/HYD/2012 A.Y. 2007-2008 (REVENUE APPEA L) 9. THE FIRST ISSUE, COMMON IN BOTH THE APPEALS OF THE ASSESSEE AND INTERLINKED WITH THE ONLY ISSUE IN THE APPEAL OF THE DEPARTMENT, IS IN RELATION TO DEDUCTION CLAIMED UNDER SECTION 80IB OF THE ACT. SINCE THE DECISION TO BE T AKEN ON THIS ISSUE WILL HAVE A BEARING ON ALL THESE APPEALS. IT IS DECIDED AS UNDER. 10. BRIEFLY THE FACTS ARE, ASSESSEE APART FROM GENERATING POWER THROUGH WIND MILL IS ALSO ENGAGED IN BUSINESS OF MANUFACTURE AND SALE OF CHEMICAL AND PE STICIDES. FOR THE PURPOSE OF ITS MANUFACTURING ACTIVITY, ASSE SSEE HAD INITIALLY IN THE YEAR 1954 SET-UP AN UNIT AT BALANA GAR IN THE STATE OF ANDHRA PRADESH FOR MANUFACTURING CHEMICALS AND PESTICIDES. SUBSEQUENTLY, IT SET-UP A SECOND UNIT A T JAMMU WHICH IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF THE ACT. WHEREAS, THE BALANAGAR UNIT HAS NO SUCH TAX EXEMPTI ON. FOR THE A.Y. 2007-2008 ASSESSEE FILED ITS RETURN OF INC OME SHOWING PROFIT OF RS.10.71 CRORES FROM THE JAMMU UNIT AND A T THE SAME TIME CLAIMED IT AS DEDUCTION UNDER SECTION 80IB OF THE ACT. THE A.O., IN THE COURSE OF ASSESSMENT PROCEEDINGS HELD THAT THE JAMMU UNIT HAVING BEEN SET-UP BY SPLITTING UP OR RE - CONSTRUCTION OF THE EXISTING UNIT AT BALANAGAR AND AS WELL AS TRANSFERRING THE MACHINERY AND PLANT OF THE EXISTIN G UNIT IS NOT ELIGIBLE FOR DEDUCTION. SIMILARLY, THE CLAIM OF DED UCTION FOR A.YS. 2008-09 AND 2009-2010 WERE ALSO REJECTED BY T HE A.O. 16 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. 10.1. ASSESSEE CHALLENGED THE DISALLOWANCE OF DED UCTION CLAIMED UNDER SECTION 80IB BY PREFERRING APPEALS BE FORE LD. CIT(A) FOR THE RESPECTIVE ASSESSMENT YEARS. AS FAR AS A.Y. 2007- 08 IS CONCERNED, LD. CIT(A) AFTER CONSIDERING RELEV ANT FACTS AND MATERIALS ON RECORD OBSERVED THAT THE JAMMU UNIT IS A COMPLETELY NEW UNIT AND ASSESSEE HAS MADE SUBSTANTI AL INVESTMENT IN FIXED CAPITAL BY INSTALLING NEW PLANT AND MACHINERY AND INVESTING IN SETTING UP THE FACTORY, BUILDING ETC., THEREFORE, SHE HELD THAT AS THE JAMMU UNIT IS AN INDEPENDENT AND SEPARATE UNIT AND HAS ITS OWN INDEP ENDENT ENTITY, IT IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB. AS FAR AS A.Y. 2008-09 IS CONCERNED, WHEN THE APPEAL CAME UP FOR HEARING BEFORE THE LD. CIT(A), ASSESSEE ALSO TOOK S IMILAR PLEA THAT AS THE JAMMU UNIT IS AN INDEPENDENT UNIT, ASSE SSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB. ASSESSEE ALSO BROUGHT TO THE NOTICE OF THE LD. CIT(A) THE ORDER P ASSED FOR A.Y. 2007-08 ALLOWING ASSESSEES CLAIM OF DEDUCTION. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, HOWEVER, DID NOT FIND ANY MERIT IN THE SAME. LD. CIT(A) ON INTER PRETING THE PROVISIONS OF SECTION 80IB OF THE ACT, OBSERVED THA T THE FIRST CONDITION WHICH THE INDUSTRIAL UNDERTAKING MUST FUL FILL IS, IT SHOULD NOT HAVE BEEN FORMED BY SPLITTING UP OR RECO NSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE. LD.CIT(A) AFTER REFERRING TO CERTAIN JUDICIAL PRECEDENTS INCLUDING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TEXTILE MACHIN ERY CORPORATION LTD., VS. COMMISSIONER OF INCOME TAX 10 7 ITR 195 OBSERVED THAT EVEN THOUGH THE ASSESSEE HAS INSTALLE D NEW MACHINERY AND PLANT AND HAS ALSO SET UP A NEW BUILD ING AT JAMMU UNIT, HOWEVER, THERE IS NO ESCAPING FROM THE FACT THAT PRODUCTION HAS BEEN SPLIT UP BETWEEN BALANAGAR UNIT AND JAMMU UNIT. LD. CIT(A) OBSERVED, PRODUCTS HAVING H IGH PROFIT 17 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. MARGINS WHICH WERE BEING PRODUCED AT BALANAGAR ARE NOW BEING PRODUCED AT JAMMU UNIT AND PRODUCTION OF SUCH PRODUCTS AT BALANAGAR UNIT IS COMPLETELY STOPPED. I N THIS CONTEXT, HE REFERRED TO THE TURNOVER OF CERTAIN PRO DUCTS AS MENTIONED BY THE ASSESSING OFFICER. LD. CIT(A) REFE RRING TO THESE SPECIFIC PRODUCTS OBSERVED THAT THOUGH ALL TH E PRODUCTS HAD BEEN MANUFACTURED AND INVENTED AT BALANAGAR UNI T BUT THE PRODUCTION OF THESE PRODUCTS HAVE NOW BEEN SHIF TED TO JAMMU UNIT. HE NOTED THAT THE SALES TURNOVER OF THE SE PRODUCTS HAD NOT INCREASED. THEREFORE, IT IS NOT TH E CASE THAT BALANAGAR UNIT IS NOT ABLE TO MEET THE DEMAND FOR T HESE PRODUCTS, NECESSITATING SETTING UP OF ADDITIONAL MA NUFACTURING UNIT AT JAMMU TO MEET THE DEMAND. HE OBSERVED, WHET HER THE UNIT AT JAMMU IS ENTIRELY INDEPENDENT AND SELF-SUST AINING IS TO BE JUDGED KEEPING IN VIEW OF THE FACT, WHETHER IN T HE EVENT OF CLOSING DOWN OF THE UNIT OF BALNAAGAR, THE UNIT AT JAMMU WILL CONTINUE TO SURVIVE AND PROSPER AND GROW AS AN INDE PENDENT INDUSTRIAL UNDERTAKING? LD. CIT(A) MAKING A PASSING REFERENCE TO CIT(A)S ORDER FOR A.Y. 2007-08 OBSERVED THAT ME RE PRESENCE OF A FUNCTIONING UNIT WITH SEPARATE MACHINERY DOES NOT SATISFY THE RIGOR OF SECTION 80IB. LD. CIT(A) FURTHER OBSER VED THAT DEDUCTION IS NOT AVAILABLE ONLY FOR SETTING UP SEPA RATE MACHINERY, UNIT MUST BE ABSOLUTELY INDEPENDENT AND SELF- SUSTAINING. WHEREAS, IN THE CASE OF THE ASSESSEE, R ESEARCH AND DEVELOPMENT OF PRODUCTS IS BEING CARRIED OUT ONLY A T BALANAGAR UNIT AND THE BALANAGAR UNIT HAS PATENT RIGHTS OVER THE MOLECULES INVENTED. FURTHER, NO FACILITY OF A SEPAR ATE RESEARCH AND DEVELOPMENT OF MOLECULES IS AVAILABLE AT JAMMU. LD. CIT(A) OBSERVED, IN THE BUSINESS AND MANUFACTURE OF PESTICIDES CONSTANT RESEARCH IS AN EXTREMELY VIABLE INGREDIENT OF THE BUSINESS AND IN CASE, THE UNIT AT BALANAGAR IS SHUT DOWN, THE 18 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. UNIT AT JAMMU WOULD ALSO BE FORCED TO SHUT DOWN DUE TO ALMOST ZERO RESEARCH AND DEVELOPMENT ACTIVITY IN TH AT UNIT. IN OTHERWORDS, A VERY VITAL PORTION OF THE BUSINESS IS BEING CARRIED OUT AT BALANAGAR UNIT WITHOUT WHICH THE UNIT AT JAM MU CANNOT SUSTAIN. THEREFORE, IN THE AFORESAID CONTEXT THE JAMMU UNIT CANNOT BE CONSIDERED AS AN INDEPENDENT AND SEL F- SUSTAINING INDUSTRIAL UNDERTAKING WHICH CAN SURVIVE WITHOUT THE BACKING OF ORIGINAL UNIT I.E., BLANAGAR UNIT. H E FURTHER OBSERVED THAT THE MARKETING TEAM, DISTRIBUTION NET WORK ETC., FOR THE PRODUCTS MANUFACTURED ARE BEING CONTROLLED FROM BALANAGAR UNIT. AS THE BUSINESS CANNOT BE CARRIED O UT WITHOUT A MARKETING AND DISTRIBUTION NET WORK, SINCE, THESE ACTIVITIES ARE CENTERED AT BALNAAGAR AND IF FOR ANY REASON, TH E ORIGINAL BUSINESS AT BALANAGAR IS TO BE SHUT DOWN, THE JAMMU UNIT WOULD NOT BE ABLE TO SURVIVE ON ITS OWN. THE LD. CI T(A), THEREFORE, HELD THAT THESE FACTORS CLEARLY INDICATE THAT THE PRODUCTION AT BALNAAGAR UNIT HAS BEEN SPLIT UP BETW EEN THE OLD UNIT AND THE NEW UNIT AT JAMMU. HE OBSERVED THE RE HAS BEEN NO SIGNIFICANT JUMP IN SALES TURNOVER. ONLY HI GH MARGIN PRODUCTS HAS BEEN SHIFTED IN TERMS OF ENTIRE PRODUC TION TO JAMMU, WHILE THE REST OF THE PRODUCTS CONTINUE TO B E PRODUCED AT BALANAGAR. ACCORDINGLY, THE LD. CIT(A) AGREED WI TH THE VIEW EXPRESSED BY THE A.O. THAT THE JAMMU UNIT HAS BEEN SET UP THROUGH SPLITTING-UP OR RE-CONSTRUCTION OF THE EXIS TING UNIT, HENCE, ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB. FOLLOWING THE AFORESAID VIEW, LD. CIT(A) ALSO REJECTED ASSESSEES CLAIM FOR A.Y. 2009-2010. 11. LEARNED A.R. SUPPORTING THE VIEW TAKEN BY THE LD. CIT(A) IN A.Y. 2007-08 AND OPPOSING THE VIEW OF THE LD. CIT(A) FOR A.YS. 2008-09 AND 2009-10 SUBMITTED THAT THE IS SUE OF 19 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. ELIGIBILITY TO CLAIM A DEDUCTION IS TO BE EXAMINED IN THE FIRST YEAR OF CLAIM. THE LEARNED A.R. SUBMITTED THAT IN T HE CASE OF THE ASSESSEE THE INITIAL ASSESSMENT YEAR FOR CLAIMI NG DEDUCTION UNDER SECTION 80IB IS A.Y. 2007-08. IT WAS SUBMITTE D, LD. CIT(A) WHILE EXAMINING THE ISSUE HAS TAKEN INTO CON SIDERATION ALL FACTS AND MATERIALS INCLUDING THE ENQUIRY CONDU CTED BY THE A.O. DEPARTMENTALLY AT JAMMU AND HAS GIVEN A CATEGO RICAL FINDING THAT THE JAMMU UNIT HAVING BEEN SET UP BY M AKING HUGE INVESTMENT IN LAND, BUILDING, MACHINERY AND PL ANT ETC., AND BEING A FUNCTIONING UNIT HAVING ITS INDEPENDENT EXISTENCE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF THE ACT. LEARNED A.R. SUBMITTED THAT ONCE SUCH A DECISION HAS BEEN T AKEN AFTER DUE ENQUIRY IN THE INITIAL YEAR OF CLAIM OF EXEMPTI ON, THE LD. CIT(A) CANNOT AGAIN GO INTO THE ISSUE OF ELIGIBILIT Y IN THE SUBSEQUENT ASSESSMENT YEAR IGNORING THE FINDING OF HIS PREDECESSOR IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. THE LEARNED A.R. SUBMITTED FOR THIS REASON ALONE TH E ORDER OF THE LD. CIT(A) NEEDS TO BE SET ASIDE. IN THIS CONTE XT, HE RELIED UPON THE DECISION OF HONBLE MADHYA PRADESH HIGH CO URT IN THE CASE OF CIT VS. BHILAI ENGINEERING CORPORATION P. LTD., 133 ITR 687 (MP). LEARNED A.R. SUBMITTED EVEN OTHERWISE ALSO THE FINDING OF THE LD. CIT(A) IN A.Y. 2008-09 IS FACTUA LLY INCORRECT AND NOT BORNE OUT FROM RECORD. THE LEARNED A.R. SUB MITTED, THE LD. CIT(A) HAS NOT DENIED THE FACT THAT THE ASS ESSEE HAS MADE SUBSTANTIAL INVESTMENT IN LAND, BUILDING, MACH INERY, PLANT ETC., IN SETTING UP JAMMU UNIT. HE HAS ALSO N OT DISPUTED THAT THE JAMMU UNIT IS AN INDEPENDENT FUNCTIONING U NIT AND THE MANUFACTURING ACTIVITY IS GOING ON. HOWEVER, TH E LD. CIT(A) HAS SAID THAT THE JAMMU UNIT HAS BEEN SET UP BY SPL ITTING UP OF THE EXISTING BUSINESS MAINLY ON THE REASON THAT THE PRODUCTS MANUFACTURED BY BOTH THE UNITS ARE SAME AN D 20 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. ASSESSEE HAS SHIFTED MANUFACTURING OF SOME HIGH PRO FIT MARGIN PRODUCTS TO JAMMU UNIT BY COMPLETELY STOPPING THE PRODUCTION OF THESE PRODUCTS AT BALANAGAR UNIT. THE LEARNED A.R. SUBMITTED THAT THE AFORESAID FINDING OF THE LD . CIT(A) IS FACTUALLY INCORRECT AS BOTH THE UNITS I.E., BALANAG AR UNIT AND JAMMU UNITS ARE PRODUCING UP TO THEIR INSTALLED CAP ACITY. LEARNED A.R. REFERRING TO THE WORKINGS CONTAINING I NSTALLED CAPACITY, PRODUCTION UNDERTAKEN BY BOTH THE UNITS S UBMITTED THAT THE FIGURES FROM A.Y. 2004-05 TO 2008-09 WOULD CLEARLY INDICATE THAT NEITHER THERE IS LOWER PRODUCTION IN BALANAGAR UNIT NOR DECREASE IN SALES. LEARNED A.R. SUBMITTED THE CIT(A) WHILE DECIDING THE ISSUE AGAINST THE ASSESSEE FOR A .Y. 2008-09 HAS ALSO NOT CONTROVERTED THE FACT THAT ASSESSEE HA S EMPLOYED LARGE NUMBER OF CONTRACT LABOUR IN ITS JAMMU UNIT. THEREFORE, WHEN THE PRODUCTION OF THE JAMMU UNIT HAS NOT AFFEC TED THE PRODUCTION AT BALANAGAR UNIT IT CANNOT BE SAID THAT THE ASSESSEE HAS SET UP THE JAMMU UNIT BY SPLITTING UP THE EXISTING BUSINESS AT BALANAGAR. LEARNED A.R. SUBMIT TED, CIT(A) HAS ALSO THOROUGHLY CONFUSED HIMSELF WHILE APPLYING THE RATIO LAID DOWN IN THE JUDGMENT REFERRED TO BY HIM. LEARN ED A.R. SUBMITTED, THOUGH IN THE CASE OF TEXTILE MACHINERY CORPORATION LTD., THE HONBLE SUPREME COURT HAS CLE ARLY HELD THAT BY ESTABLISHING THE NEW INDUSTRIAL UNDERTAKING ASSESSEE EXPANDS HIS EXISTING BUSINESS BUT THE QUESTION IS W HETHER IT IS A NEW AND IDENTIFIABLE UNDERTAKING SEPARATE AND DIS TINCT FROM THE EXISTING BUSINESS. THEREFORE, ONCE, THERE IS EM ERGENCE OF PHYSICALLY SEPARATE INDUSTRIAL UNIT WHICH CAN EXIST ON ITS OWN AS A VIABLE UNIT, THEN IT CANNOT BE CONSIDERED TO B E A UNIT SET UP BY SPLITTING UP OR RE-CONSTRUCTION OF EXISTING B USINESS EVEN IF IT IS PRODUCING THE SAME PRODUCT. LEARNED A.R. S UBMITTED THAT THE RELIANCE BY LD. CIT(A) ON THE CASE OF CHEM BRA PEAK 21 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. ESTATES LTD., VS. CIT 84 ITR 401 IS ALSO MISPLACED AS THE SAID DECISION WAS RENDERED BY FOLLOWING THE DECISION OF THE HONBLE KOLKATA HIGH COURT IN THE CASE OF CIT VS. TEXTILE M ACHINERY CORPORATION LTD., 80 ITR 428 WHICH SUBSEQUENTLY STO OD REVERSED BY THE HONBLE SUPREME COURT IN THE CASE O F TEXTILE MACHINERY CORPORATION LTD., VS. CIT (SUPRA). THEREF ORE, THE VIEW EXPRESSED BY THE HONBLE KERALA HIGH COURT IN THE CASE OF CHEMRA PEAK ESATES LTD., VS. CIT 84 ITR 401 CANNOT BE CONSIDERED TO BE GOOD LAW. THE LEARNED A.R. SUBMITT ED THAT OUT OF THE TOTAL 70 PRODUCTS MANUFACTURED BY ASSESSEE, 20 PRODUCTS ARE MANUFACTURED AT JAMMU UNIT WHEREAS RES T OF THE PRODUCTS ARE MANUFACTURED AT BALANAGAR UNIT. LEARNE D A.R. SUBMITTED, IN THE CASE OF SPLITTING UP THERE SHOULD BE REDUCTION IN PRODUCTION, MAN POWER ETC., WHEREAS THE EVIDENCE S PRODUCED AS WELL AS ACCOUNTS WOULD CLEARLY INDICATE THAT NEITHER THE PRODUCTION NOR MAN POWER ETC., WAS DIST URBED FOR SETTING UP THE NEW UNIT AT JAMMU. THE JAMMU UNIT WA S SET UP WITH ENTIRE NEW MACHINERY AND NO MACHINERY WAS M OVED FROM THE BALANAGAR UNIT. THE INSTALLED CAPACITY AT THE OLD UNIT I.E., BALANAGAR UNIT AS ON 01.042006 STILL REMAINED AT 7800 MT WHEREAS THE INSTALLED CAPACITY OF JAMMU UNIT REMAIN ED AT 4400 MT AS ON 01.04.2006. THE BALANAGAR UNIT CONTIN UED TO PRODUCE PRODUCTS AND IN A.Y. 2008-09 THE PRODUCTION WAS 9042 MT AS COMPARED TO 8529 MT IN THE PRECEDING YEA R. THEREFORE, THERE IS NO VIOLATION OF ANY OF THE COND ITIONS MENTIONED IN SUB-SECTION (2) OF SECTION 80IB OF THE ACT. LEARNED A.R. SUBMITTED THAT IF FOR BUSINESS EXPEDIE NCY THE MANAGEMENT TOOK A DECISION TO MANUFACTURE SOME OF T HE PRODUCTS ONLY AT JAMMU UNIT KEEPING IN VIEW THE INC ENTIVES DECLARED BY THE STATE GOVERNMENT SUCH DECISION TAKE N BY THE MANAGEMENT KEEPING IN VIEW THE BUSINESS EXPEDIENCY CANNOT 22 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. BE QUESTIONED BY THE DEPARTMENT BY STEPPING INTO TH E SHOES OF THE BUSINESSMAN. LEARNED A.R. SUBMITTED THAT THE AL LEGATION OF THE LD. CIT(A) THAT BALANAGAR UNIT IS DEVELOPING MOLECULES AND HAVING PATENT RIGHTS IS TOTALLY INCORRECT AS TH ERE IS NO SUCH R & D ACTIVITY IN INVENTING MOLECULES ETC., OR OWNI NG PATENT RIGHTS. WHAT THE UNIT IS HAVING IS TRADE MARK ONLY. LEARNED A.R. THUS SUBMITTED THAT THE LD. CIT(A) WAS TOTALLY WRONG IN DENYING ASSESSEES CLAIM OF DEDUCTION UNDER SECTION 80IB OF THE ACT. 12. LEARNED D.R. ON THE OTHER HAND SUBMITTED THAT AS THE JAMMU UNIT IS IN THE SAME LINE OF BUSINESS AND IS MANUFACTURING THE SAME PRODUCTS, IT IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB AS IT HAS BEEN SET UP BY SPLITTING UP/RE-CONSTRUCTION OF EXISTING BUSINESS. LEARNED D. R. SUBMITTED, ASSESSEE HAS ADOPTED A COLOURABLE DEVICE BY SHIFTING THE PRODUCTION OF CERTAIN HIGH PROFIT MARG IN PRODUCTS FROM BALANAGAR UNIT TO JAMMU UNIT FOR THE PURPOSE O F SHIFTING THE PROFIT BASE FROM TAXABLE UNIT TO EXEMPED UNIT. LEARNED D.R. SUBMITTED VIEW TAKEN BY THE A.O. AND LD. CIT(A ) IN A.YS. 2008-09 AND 2009-10 IS THE CORRECT VIEW AND THE VIE W EXPRESSED BY LD. CIT(A) IN A.Y. 2007-08 IS TO BE RE VERSED. 13. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE RESPECTIVE ORDERS OF THE REVENUE AUTHOR ITIES AS WELL AS OTHER MATERIALS ON RECORD. THERE IS NO DISPUTE T O THE FACT THAT A.Y. 2007-08 IS THE INITIAL YEAR OF CLAIM OF D EDUCTION UNDER SECTION 80IB FOR THE JAMMU UNIT. AS CAN BE SE EN FROM THE FACTS ON RECORD, THE A.O. HAS DISALLOWED ASSESS EES CLAIM OF DEDUCTION IN A.YS. 2007-08 TO 2009-2010, BASICALLY ON THE GROUND THAT JAMMU UNIT HAS BEEN SET UP BY SPLITTING UP OR 23 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE. LD. CIT(A) WHILE DECIDING THE ISSUE IN A.Y. 2007-08 HAD GONE T HROUGH THE ENQUIRY REPORT OF THE INSPECTOR OF INCOME TAX AND H AS CONCLUDED, AS THE ASSESSEE HAS MADE SUBSTANTIAL INV ESTMENT IN LAND, BUILDING, MACHINERY, PLANT ETC., WHILE SET TING UP THE JAMMU UNIT, IT CANNOT BE CONSIDERED TO HAVE BEEN SE T UP BY SPLITTING UP OR RECONSTRUCTION OF EXISTING BUSINESS . HENCE, ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IB. HOWEVER, IN A.YS. 2008-2009 AND 2009-2010 LD. CIT(A) HAS CHO SEN TO DIFFER WITH THE FINDING OF HIS PREDECESSOR IN A.Y. 2007-08. IT IS EVIDENT FROM THE ORDER OF LD. CIT(A) FOR A.Y. 2008- 09, THOUGH HE ACCEPTS THE FACT THAT JAMMU UNIT HAS BEEN SET UP AFTER MAKING SUBSTANTIAL INVESTMENT IN LAND, BUILDING, PL ANT, MACHINERY ETC., BUT HE WAS OF THE VIEW THAT AS PROD UCTS MANUFACTURE BY BOTH THE UNITS ARE SAME, IT IS TO BE TREATED TO HAVE BEEN FORMED BY SPLITTING-UP OR RECONSTRUCTION OF EXISTING BUSINESS. LD. CIT(A) HAS HELD THAT ASSESSEE FOR RED UCING ITS TAX BURDEN HAS SHIFTED MANUFACTURING OF CERTAIN HIGH PR OFIT EARNING PRODUCTS FROM ITS TAXABLE UNIT TO EXEMPT UN IT. LD. CIT(A) HAS OBSERVED THAT MERE PRESENCE OF FUNCTIONI NG UNIT AT JAMMU DOES NOT SATISFY THE RIGOR OF SECTION 80IB. A CCORDING TO LD. CIT(A) FOR AVAILING DEDUCTION UNDER SECTION 80I B THE UNIT MUST BE ABSOLUTELY INDEPENDENT AND SELF SUSTAINING. WHEREAS, IN ASSESSEES CASE RESEARCH AND DEVELOPMENT ACTIVIT Y IS CARRIED OUT IN BALANAGAR UNIT AND IT IS BALANAGAR UNIT WHIC H IS HOLDING PATENTS AND RIGHTS OVER THE PRODUCTS. FURTHER, HE O BSERVED THAT MANAGEMENT OF THE UNITS ARE CENTERED IN BALANA GAR AS WELL AS MARKETING AND DISTRIBUTION ETC., ARE CONTRO LLED FROM BALANAGAR. HENCE, THE JAMMU UNIT CANNOT BE CONSIDER ED TO BE AN INDEPENDENT UNIT. BEFORE, EXAMINING WHETHER THER E REALLY IS A SPLITTING UP OR RECONSTRUCTION OF EXISTING BUSINE SS WHILE 24 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. SETTING UP THE JAMMU UNIT, IT IS NECESSARY TO LOOK INTO SECTION 80IB. SUB-SECTIONS (1) AND (2) OF SECTION 80IB WHIC H ARE RELEVANT FOR THE PURPOSE OF DECIDING THE PRESENT IS SUE ARE EXTRACTED HEREUNDER FOR READY REFERENCE. 80-IB. (1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED FROM ANY BUS INESS REFERRED TO IN SUB-SECTIONS (3) TO [ (11) [AND (11A)] ] (SUCH BUSINESS BEING HEREINAFTER REFERRED TO AS THE ELIGI BLE BUSINESS), THERE SHALL, IN ACCORDANCE WITH AND SUBJ ECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED, IN COMP UTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION FROM SUCH PROFITS AND GAINS OF AN AMOUNT EQUAL TO SUCH PERCEN TAGE AND FOR SUCH NUMBER OF ASSESSMENT YEARS AS SPECIFIE D IN THIS SECTION. (2) THIS SECTION APPLIES TO ANY INDUSTRIAL UNDERTAK ING WHICH FULFILS ALL THE FOLLOWING CONDITIONS, NAMELY : (I) IT IS NOT FORMED BY SPLITTING UP, OR THE RECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE : PROVIDED THAT THIS CONDITION SHALL NOT APPLY IN RESPECT OF AN INDUSTRIAL UNDERTAKING WHICH IS FORME D AS A RESULT OF THE RE-ESTABLISHMENT, RECONSTRUCTION OR REVIVAL BY THE ASSESSEE OF THE BUSINESS OF ANY SUCH INDUSTRIAL UNDERTAKING AS IS REFERRED TO IN SECTION 33B , IN THE CIRCUMSTANCES AND WITHIN THE PERIOD SPECIFIE D IN THAT SECTION; (II) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE; (III) IT MANUFACTURES OR PRODUCES ANY ARTI CLE OR THING, NOT BEING ANY ARTICLE OR THING SPECIFIED IN THE LIST IN THE ELEVENTH SCHEDULE, OR OPERATES ONE OR MORE COLD STO RAGE PLANT OR PLANTS, IN ANY PART OF INDIA : PROVIDED THAT THE CONDITION IN THIS CLAUSE SHALL, IN RELATION TO A SMALL SCALE INDUSTRIAL UNDERTAKING OR AN INDUSTRIAL UNDERTAKING REFERRED TO IN SUB-SECTION ( 4) SHALL APPLY AS IF THE WORDS 'NOT BEING ANY ARTICLE OR 25 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. THING SPECIFIED IN THE LIST IN THE ELEVENTH SCHEDUL E' HAD BEEN OMITTED. EXPLANATION 1.FOR THE PURPOSES OF CLAUSE (II), ANY MACHINERY OR PLANT WHICH WAS USED OUTSIDE INDIA BY ANY PERSON OTHER THAN THE ASSESSEE SHALL NOT BE REGARDED AS MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE, IF THE FOLLOWING CONDITIONS ARE FULFIL LED, NAMELY: (A) SUCH MACHINERY OR PLANT WAS NOT, AT ANY TIME PREVIOUS TO THE DATE OF THE INSTALLATION BY THE ASSESSEE, USED IN INDIA; (B) SUCH MACHINERY OR PLANT IS IMPORTED INTO INDIA FROM ANY COUNTRY OUTSIDE INDIA; AND; (C) NO DEDUCTION ON ACCOUNT OF DEPRECIATION IN RESPECT OF SUCH MACHINERY OR PLANT HAS BEEN ALLOWED OR IS ALLOWABLE UNDER THE PROVISIONS OF THIS ACT IN COMPUTING THE TOTAL INCOME OF ANY PERSON FOR ANY PERIOD PRIOR TO THE DATE OF THE INSTALLATION OF THE MACHINERY OR PLANT BY THE ASSESSEE. EXPLANATION 2.WHERE IN THE CASE OF AN INDUSTRIAL UNDERTAKING, ANY MACHINERY OR PLANT OR ANY PART THEREOF PREVIOUSLY USED 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 THE TOTAL VALUE OF TH E MACHINERY OR PLANT USED IN THE BUSINESS, THEN, FOR THE PURPOSES OF CLAUSE (II) OF THIS SUB-SECTION, TH E CONDITION SPECIFIED THEREIN SHALL BE DEEMED TO HAVE BEEN COMPLIED WITH; (IV) IN A CASE WHERE THE INDUSTRIAL UNDERTAKING MANUFACTURES OR PRODUCES ARTICLES OR THINGS, THE UNDERTAKING EMPLOYS TEN OR MORE WORKERS IN A MANUFACTURING PROCESS CARRIED ON WITH THE AID OF POWER, OR EMPLOYS TWENTY OR MORE WORKERS IN A MANUFACTURING PROCESS CARRIED ON WITHOUT THE AID OF POWER. 26 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. 13.1. A PLAIN READING OF THE AFORESAID EXTRACTED P ORTION OF SECTION 80IB WOULD MAKE IT CLEAR THAT PROFIT DER IVED FROM AN ELIGIBLE BUSINESS WILL BE ENTITLED FOR DEDUCTION SU BJECT TO FULFILLMENT OF THE CONDITIONS MENTIONED IN SUB-SECT ION (2). ON GOING THROUGH THE CONDITIONS ENUMERATED IN SUB-SECT ION (2) OF SECTION 80IB VIS--VIS THE FINDINGS OF THE A.O. AND LD. CIT(A) IN A.YS. 2008-09 AND 2009-10 IT WOULD BE EVIDENT THAT THERE IS NO DISPUTE TO THE FACT THAT ASSESSEE HAS FULFILLED THE CONDITIONS OF CLAUSES (II), (III) AND (IV) OF SUB-SECTION (2). AS FAR AS THE CONDITION IMPOSED UNDER CLAUSE (I) IS CONCERNED, WH ILE THE A.O. AS WELL AS THE LD. CIT(A) HAVE HELD THAT THE JAMMU UNIT HAS BEEN FORMED BY SPLITTING UP OR RE-CONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE, THE ASSESSEE IS CONTESTING SU CH VIEW OF THE DEPARTMENT. THEREFORE, IN THE AFORESAID FACTUAL MATRIX, IT IS TO BE DECIDED WHETHER THE JAMMU UNIT HAS BEEN SET U P BY SPLITTING UP OR RECONSTRUCTION OF A BUSINESS ALREAD Y IN EXISTENCE. IN THIS CONTEXT, IT IS RELEVANT TO REFER TO DECISION OF THE HONBLE SUPREME COURT WHEREIN THE EXPRESSION S PLITTING UP OR RECONSTRUCTION OF A BUSINESS ALREADY IN EXIST ENCE CAME UP FOR INTERPRETATION. IN CASE OF TEXTILE MACHINERY CORPORATION LTD., VS. CIT (SUPRA), THE HONBLE SUPREME COURT WH ILE INTERPRETING SIMILAR EXPRESSION EMPLOYED UNDER SECT ION 15C OF THE INCOME TAX ACT, 1922 HELD AS UNDER : 10. THE ASSESSEE CONTINUES TO BE THE SAME FOR THE PURPOSE OF ASSESSMENT. IT HAS ITS EXISTING BUSINESS ALREADY LIABLE TO TAX. IT PRODUCED IN THE TWO CONCE RNED UNDERTAKINGS COMMODITIES DIFFERENT FROM THOSE WHICH IT HAS BEEN MANUFACTURING OR PRODUCING IN ITS EXISTING BUSINESS. MANUFACTURE OR PRODUCTION OF ARTICLES YIE LDING ADDITIONAL PROFIT ATTRIBUTABLE TO THE NEW OUTLAY OF CAPITAL IN A SEPARATE AND DISTINCT UNIT IS THE HEART OF THE MATTER, TO EARN BENEFIT FROM THE EXEMPTION OF TAX LIABILITY UNDER S. 15C. SUB-S. (6) OF THE SECTION ALSO POINTS TO THE S AME 27 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. EFFECT, NAMELY, PRODUCTION OF ARTICLES. THE ANSWER, IN EVERY PARTICULAR CASE, DEPENDS UPON THE PECULIAR FA CTS AND CONDITIONS OF THE NEW INDUSTRIAL UNDERTAKING ON ACCOUNT OF WHICH THE ASSESSEE CLAIMS EXEMPTION UNDE R S. 15C. NO HARD AND FAST RULE CAN BE LAID DOWN. TRADE AND INDUSTRY DO NOT RUN IN EARMARKED CHANNELS AND PARTICULARLY SO IN VIEW OF MANIFOLD SCIENTIFIC AND TECHNOLOGICAL DEVELOPMENTS. THERE IS GREAT SCOPE FO R EXPANSION OF TRADE AND INDUSTRY. THE FACT THAT AN ASSESSEE BY ESTABLISHMENT OF A NEW INDUSTRIAL UNDERTAKING EXPANDS HIS EXISTING BUSINESS, WHICH HE CERTAINLY DOES, WOULD NOT, ON THAT SCORE, DEPRIVE H IM OF THE BENEFIT UNDER S. 15C. EVERY NEW CREATION IN BUS INESS IS SOME KIND OF EXPANSION AND ADVANCEMENT. THE TRUE TEST IS NOT WHETHER THE NEW INDUSTRIAL UNDERTAKING CONNO TES EXPANSION 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 LA Y DOWN AN INEXORABLE TEST TO DETERMINE WHETHER A GIVEN CAS E COMES UNDER S. 15C OR NOT. IN ORDER THAT THE NEW UNDERTAKING CAN BE SAID TO BE NOT FORMED 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 VIABLE UNIT. AN UNDERTAKI NG IS FORMED OUT OF THE EXISTING BUSINESS IF THE PHYSICAL IDENTITY WITH THE OLD UNIT IS PRESERVED. THIS HAS NOT HAPPEN ED HERE IN THE CASE OF THE TWO UNDERTAKINGS WHICH ARE SEPAR ATE AND DISTINCT. 11. . . . . . . . . . . . . . 12. SEC. 15C PARTIALLY EXEMPTS FROM TAX A NEW INDUSTRIAL UNIT WHICH IS SEPARATE PHYSICALLY FROM T HE OLD ONE, THE CAPITAL OF WHICH AND THE PROFITS THEREON A RE ASCERTAINABLE. THERE IS NO DIFFICULTY TO HOLD THAT S. 15C IS APPLICABLE TO AN ABSOLUTELY NEW UNDERTAKING FOR THE FIRST TIME STARTED BY AN ASSESSEE. THE CASES WHICH GIVE R ISE TO CONTROVERSY ARE THOSE WHERE THE OLD BUSINESS IS BEI NG CARRIED ON BY THE ASSESSEE AND A NEW ACTIVITY IS LA UNCHED BY HIM BY ESTABLISHING NEW PLANTS AND MACHINERY BY INVESTING SUBSTANTIAL FUNDS. THE NEW ACTIVITY MAY PRODUCE THE SAME COMMODITIES OF THE OLD BUSINESS OR IT MAY PRODUCE SOME OTHER DISTINCT MARKETABLE PRODUCTS , EVEN COMMODITIES WHICH MAY FEED THE OLD BUSINESS. T HESE PRODUCTS MAY BE CONSUMED BY THE ASSESSEE IN HIS OLD 28 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. BUSINESS OR MAY BE SOLD IN THE OPEN MARKET. ONE THI NG IS CERTAIN THAT THE NEW UNDERTAKING MUST BE AN INTEGRA TED UNIT BY ITSELF WHEREIN ARTICLES ARE PRODUCED AND AT LEAST A MINIMUM OF TEN PERSONS WITH THE AID OF POWER AND A MINIMUM OF TWENTY PERSONS WITHOUT THE AID OF POWER HAVE BEEN EMPLOYED. SUCH A NEW INDUSTRIALLY RECOGNISABLE UNIT OF AN ASSESSEE CANNOT BE SAID TO BE RECONSTRUCTION OF HIS OLD BUSINESS SINCE THERE IS NO TRANSFER OF ANY ASSE TS OF THE OLD BUSINESS TO THE NEW UNDERTAKING WHICH TAKES PLA CE WHEN THERE IS RECONSTRUCTION OF THE OLD BUSINESS. F OR THE PURPOSE OF S. 15C THE INDUSTRIAL UNITS SET UP MUST BE NEW IN THE SENSE THAT NEW PLANTS AND MACHINERY ARE EREC TED FOR PRODUCING EITHER THE SAME COMMODITIES OR SOME DISTINCT COMMODITIES. IN ORDER TO DENY THE BENEFIT OF S. 15C THE NEW UNDERTAKING MUST BE FORMED BY RECONSTRUCTIO N OF THE OLD BUSINESS. NOW, IN THE INSTANT CASE, THERE I S NO FORMATION OF ANY INDUSTRIAL UNDERTAKING OUT OF THE EXISTING BUSINESS SINCE THAT CAN TAKE PLACE ONLY WHEN THE AS SETS OF THE OLD BUSINESS ARE TRANSFERRED SUBSTANTIALLY T O THE NEW UNDERTAKING. THERE IS NO SUCH TRANSFER OF ASSET S IN THE TWO CASES WITH WHICH WE ARE CONCERNED. 13.2. THEREFORE, THE PRINCIPLE WHICH EMERGE FROM T HE AFORESAID DECISION OF THE HONBLE SUPREME COURT TO DETERMINE WHETHER THERE IS A SPLITTING UP OR RECONSTRUCTION O F BUSINESS ALREADY IN EXISTENCE AS LUCIDLY EXPLAINED BY THE HO NBLE BOMBAY HIGH COURT IN THE CASE OF CIT-V, PUNE VS. FI NOLEX CABLES LTD., (2012) 47-I-ITCL-0637 IS AS UNDER : (I) THERE MUST BE A NEW UNDERTAKING WHERE SUBSTANTIAL INVESTMENT OF FRESH CAPITAL IS MADE IN ORDER TO ENABLE EARNING OF PROFIT ATTRIBUTABLE TO T HAT NEW CAPITAL; (II) THE MANUFACTURING OR PRODUCTION OF ARTICLES YIELDIN G ADDITIONAL PROFIT ATTRIBUTABLE TO A NEW OUTLAY OF CAPITAL IN A SEPARATE AND DISTINCT UNIT IS THE HEAR T OF THE MATTER. (III) THE TRUE TEST IS NOT WHETHER A NEW INDUSTRIAL UNDERTAKING CONNOTES EXPANSION OF THE EXISTING BUSINESS, BUT WHETHER IT IS ALL THE SAME A NEW AND 29 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. IDENTIFIABLE UNDERTAKING SEPARATE AND DISTINCT FROM THE EXISTING BUSINESS. (IV) IF AN UNDERTAKING CAN EXIST EVEN AFTER CESSATION OF THE PRINCIPAL BUSINESS OF THE ASSESSEE, IT CANNOT B UT BE A NEW AND SEPARATE BUSINESS OR UNDERTAKING; (V) THERE MUST BE A NEW UNDERTAKING WHICH CONSTITUTES AN INTEGRATED UNIT BY ITSELF. (VI) A NEW UNIT MUST BE SET UP WITH NEW PLANT AND MACHINERY; AND (VII) THE FACT THAT A UNIT PRODUCES THE SAME COMMODITY DOES NOT DISENTITLE THE ASSESSEE TO THE BENEFIT OF THE DEDUCTION. 13.3. THEREFORE, APPLYING THE AFORESAID TESTS AS L AID DOWN IN THE JUDICIAL PRECEDENTS, WE ARE TO EXAMINE WHETHER THE JAMMU UNIT HAS BEEN SET UP BY SPLITTING UP OR RECON STRUCTION OF A BUSINESS ALREADY IN EXISTENCE. IN THIS CONTEXT , IT IS TO BE NOTED THAT THE A.O. IN THE INITIAL YEAR OF CLAIM OF DEDUCTION I.E., A.Y. 2007-08 HAD DISALLOWED THE CLAIM OF DEDUCTION BASICALLY ON THE REASON, JAMMU UNIT HAS BEEN FORMED BY SPLITT ING-UP OR RECONSTRUCTION OF EXISTING UNIT. 13.4. IT IS FURTHER EVIDENT FROM THE RECORD, IN TH E COURSE OF ASSESSMENT PROCEEDINGS FOR A.Y. 2007-08, THE A.O . FOR ASCERTAINING THE CORRECTNESS OF ASSESSEES CLAIM OF DEDUCTION UNDER SECTION 80IB FOR JAMMU UNIT HAS CONDUCTED ENQ UIRY THROUGH THE COMMISSIONER OF INCOME TAX, CIRCLE-1, J AMMU. IN THE REPORT OF THE INSPECTOR, WHO CONDUCTED THE ENQU IRY PHYSICALLY, IT WAS CATEGORICALLY STATED THAT THE JA MMU UNIT IS A FUNCTIONING UNIT AND HAS BEEN SET UP BY MAKING HUGE INVESTMENT IN LAND, BUILDING, PLANT AND MACHINERY E TC., HE FURTHER STATED THAT THE MANUFACTURING ACTIVITY IN J AMMU UNIT STARTED IN MARCH, 2006 AND HE ALSO FOUND THAT BESID ES REGULAR 30 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. EMPLOYEES A LARGE NUMBER OF CONTRACT LABOURERS ARE ALSO EMPLOYED. HE FURTHER STATED THAT MANUFACTURING PROC ESS WAS BEING CARRIED OUT IN THE PREMISES AND HUGE AUTOMATI C PLANT WAS FOUND INSTALLED FOR CARRYING OUT THE MANUFACTUR ING PROCESS. HE ALSO OBSERVED THAT VERY LITTLE MAN POWE R IS REQUIRED IN SUCH TYPE OF MANUFACTURING ACTIVITY. TH E INSPECTOR REPORTED THAT BESIDES SOME REGULAR EMPLOYEES LIKE T ECHNICAL AND ADMINISTRATIVE STAFF, THE COMPANY HAS ENGAGED N UMBER OF LABOURERS THROUGH CONTRACT LABOURER. THEREFORE, FRO M THE AFORESAID ENQUIRY CONDUCTED BY THE DEPARTMENT, IT I S VERY MUCH EVIDENT THAT THE JAMMU UNIT HAS NOT ONLY BEEN SET UP BY THE ASSESSEE BY MAKING SUBSTANTIAL INVESTMENT IN LAND, BUILDING, PLANT AND MACHINERY BUT IT IS AN UNIT HAV ING ITS INDEPENDENT EXISTENCE DISTINCT AND SEPARATE FROM BA LANAGAR UNIT. FURTHER, IT IS ALSO EVIDENT FROM THE FACTS AN D MATERIALS ON RECORD THAT THE JAMMU UNIT IS A SELF-SUSTAINING UNI T HAVING NO DEPENDENCE ON BALANAGAR UNIT. BOOKS OF ACCOUNTS HAV E BEEN SEPARATELY MAINTAINED FOR JAMMU UNIT, EMPLOYEES ARE SEPARATE, THOUGH, MANAGEMENT MAY BE COMMON. IN THES E CIRCUMSTANCES, ONLY BECAUSE THE PRODUCTS MANUFACTUR ED BY BOTH THE UNITS ARE SAME, IT CANNOT BE INFERRED THAT THE JAMMU UNIT HAS BEEN FORMED BY SPLITTING UP OR RECONSTRUCT ION OF A BUSINESS ALREADY IN EXISTENCE. 13.5. AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF TEXTILE MACHINERY CORPORATION LTD., VS. CIT (SUP RA), A NEW UNIT MAY PRODUCE DIFFERENT PRODUCTS OR THE SAME PRO DUCTS AS IN OLD UNIT BUT THAT CANNOT BE A REASON TO DENY THE BENEFIT TO THE ASSESSEE, IF THE NEW UNIT IS AN INDEPENDENT UNI T, DISTINCT FROM THE OLD UNIT. IN THE CASE ON HAND, THE LD. CIT (A) WHILE UPHOLDING THE DENIAL OF DEDUCTION TO ASSESSEE HAS C ONSIDERED 31 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. IRRELEVANT MATERIALS WHICH, IN OUR VIEW, HAS NO BEA RING WHILE DECIDING THE ISSUE WHETHER ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF THE ACT. ON GOING THROUGH THE ASSESSMENT ORDER AS WELL AS FINDING OF THE LD. CIT( A) FOR THE A.Y. 2008-09, IT IS CLEAR THAT BOTH THE AUTHORITIES WERE OBSESSED WITH THE FACT THAT JAMMU UNIT IS ALSO MANU FACTURING THE SAME PRODUCT AS THE BALANAGAR UNIT. FURTHER, IT IS ALLEGED BY THE A.O. AND LD. CIT(A) THAT FOR REDUCING ITS TA X BURDEN THE ASSESSEE HAS SHIFTED MANUFACTURING OF CERTAIN HIGH PROFIT EARNING PRODUCTS FROM BALANAGAR TO JAMMU UNIT. IN O UR VIEW, SUCH INFERENCE DRAWN BY THE A.O. AND LD. CIT(A) ON THE BASIS OF PRESUMPTION AND SURMISES CANNOT BE HELD TO BE CO RRECT WHILE CONSIDERING ASSESSEES CLAIM OF DEDUCTION. MO RE SO, WHEN FACT REMAINS THAT THERE IS NEITHER REDUCTION IN INS TALLED CAPACITY OR PRODUCTION OF BALANAGAR UNIT NOR REDUCT ION IN THE NUMBERS OF EMPLOYEES. THE EVIDENCES BROUGHT ON RECO RD BY ASSESSEE CLEARLY DEMONSTRATE THAT NOT ONLY PRODUCTI ON BUT SALES OF BALANAGAR UNIT OVER THE YEARS HAVE PROGRES SIVELY INCREASED. THEREFORE, THE APPREHENSION OF THE LD. C IT(A) AND A.O. THAT THE TURNOVER OF JAMMU UNIT IS AT THE COST OF BALANAGAR UNIT OR ASSESSEE HAS SHIFTED THE BUSINESS OF BALANAGAR UNIT TO JAMMU UNIT, IN OUR VIEW, IS WITHO UT ANY BASIS. FURTHER, THE ALLEGATIONOF THE A.O. THAT AFTE R SETTING UP OF THE JAMMU UNIT, THE PROFIT OF BALANAGAR UNIT HAS DE CREASED WITH CORRESPONDING INCREASE IN THE PROFIT OF JAMMU UNIT, APPEARS TO BE WITHOUT PROPER APPRECIATION OF FACTS. LEARNED A.R. HAS PROVED THIS ALLEGATION TO BE INCORRECT BY DEMONSTRATING BEFORE US THAT DECREASE IN PROFIT OF BALANAGAR UNIT IS DUE TO CLAIM OF DEPRECIATION ON WIND MILLS, WHEREAS, PROFIT OF JAMMU UNIT ALSO INCLUDES THE EXCISE DUTY REFUND. 32 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. 13.6. AS FAR AS THE ALLEGATION THAT ASSESSEE HAS S TARTED PRODUCING CERTAIN PRODUCTS AT JAMMU UNIT BY STOPPIN G THE PRODUCTION OF THE SAME AT BALANAGAR UNIT, WE ARE OF THE VIEW THAT SUCH BUSINESS DECISION TAKEN BY THE ASSESSEE C ANNOT BE QUESTIONED BY THE DEPARTMENT. IF THE ASSESSEE BEING ATTRACTED WITH THE INCENTIVES DECLARED WANTS TO SET UP A UNIT FOR MANUFACTURING THE SAME PRODUCT IT CANNOT BE SAID TH AT IT IS A DEVISE ADOPTED BY THE ASSESSEE TO SHIFT ITS PROFIT BASE FROM TAXABLE UNIT TO THE EXEMPTION UNIT. IT IS TOTALLY I N THE DOMAIN OF THE ASSESSEE TO TAKE A DECISION AS A PRUDENT BUSINE SSMAN HOW TO ARRANGE HIS AFFAIRS WITHIN THE FRAME WORK OF LAW . IN THE PRESENT CASE, AS CAN BE SEEN, ASSESSEE HAS NOT VIOL ATED ANY OF THE CONDITIONS OF SUB-SECTION (2) OF SECTION 80IB. WHEN THE DEPARTMENT DOES NOT DISPUTE THE FACT THAT THE JAMMU UNIT HAS BEEN SET UP BY MAKING SUBSTANTIAL INVESTMENT IN LAN D, BUILDING, MACHINERY, PLANT ETC., AND THERE IS NO TR ANSFER OF MACHINERY, PLANT OF THE OLD UNIT TO THE NEW BUSINES S THEN IT CANNOT BE SAID THAT THE NEW UNIT IS FORMED BY SPLIT TING UP RE- CONSTRUCTION OF OLD UNIT. THE HONBLE SUPREME COURT IN THE CASE OF PETRON ENGINEERING CONSTRUCTION PVT. LTD., VS. CBDT 175 ITR 523 HAS OBSERVED THAT EXEMPTION PROVISIONS HAVE TO BE LIBERALLY CONSTRUED. IN THE PRESENT CASE, NO ADV ERSE MATERIAL HAS BEEN BROUGHT ON RECORD EITHER BY THE A.O. OR LD . CIT(A) TO ESTABLISH THE FACT THAT THE JAMMU UNIT WAS FORMED B Y SPLITTING UP OR RECONSTRUCTION OF EXISTING BUSINESS. ON THE C ONTRARY, THE MATERIAL ON RECORD CLEARLY INDICATE THAT THE JAMMU UNIT IS AN INDEPENDENT UNIT, SEPARATE AND DISTINCT FROM THE BA LANAGAR UNIT. HENCE, THERE IS NO REASON TO HOLD THAT THE AS SESSEE IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB AS THE JA MMU UNIT IS FORMED BY SPLITTING UP OR RECONSTRUCTION OF BUSINES S ALREADY IN EXISTENCE. AFTER, GOING THROUGH THE FACTS AND MATER IALS ON 33 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. RECORD, WE ARE OF THE FIRM VIEW THAT THE ORDER PASS ED BY THE LD. CIT(A) FOR A.Y. 2007-08 ALLOWING ASSESSEES CLAIM O F DEDUCTION UNDER SECTION 80IB DESERVES TO BE UPHELD WHEREAS, T HE DECISION TAKEN BY THE LD. CIT(A) IN A.YS. 2008-09 A ND 2009-10 IS NOT THE CORRECT VIEW. ACCORDINGLY, WE SET ASIDE THE IMPUGNED ORDERS OF THE LD. CIT(A) FOR A.YS. 2008-09 AND 2009 -10 AND DIRECT THE A.O. TO ALLOW ASSESSEES CLAIM OF DEDUCT ION UNDER SECTION 80IB OF THE ACT. 13.7. IT IS RELEVANT TO NOTE THAT IN THE GROUNDS T AKEN FOR A.Y. 2007-08 THE DEPARTMENT HAS ALLEGED THAT ASSESS EE HAS TRANSFERRED OLD MACHINERY AND PLANT FOR SETTING UP THE JAMMU UNIT AND IS ALSO ENGAGED IN MANUFACTURING OF OIL. H OWEVER, AT THE TIME OF HEARING, LEARNED D.R. COULD NOT SUBSTAN TIATE THE AFORESAID FACT BY BRINGING ANY MATERIAL ON RECORD. THEREFORE, THE AFORESAID ALLEGATION OF THE DEPARTMENT NOT BEIN G BORNE OUT FROM RECORD DESERVES TO BE REJECTED. ACCORDINGLY, W HILE WE ALLOW GROUNDS RAISED BY THE ASSESSEE, THE GROUNDS R AISED BY THE DEPARTMENT ARE DISMISSED IN THE RESPECTIVE APPE ALS. 14. GROUND NO.3 WHICH IS COMMON IN ITA.NO.561 & 562/HYD/2013 A.Y. 2008-2009 AND 2009-2010 IS RELATI NG TO DISALLOWANCE OF DEDUCTION CLAIMED UNDER SECTION 80I A OF THE ACT ON THE WIND MILL UNITS. 15. AS COULD BE SEEN, THIS ISSUE IS SIMILAR TO THE ISSUE DECIDED BY US WHILE DEALING WITH GROUND NO. 1 & 3 O F ASSESSEES APPEAL IN ITA.NO.344/HYD/2012 FOR A.Y. 2 007-08 IN THE EARLIER PART OF THIS ORDER. FOLLOWING OUR DECIS ION THEREIN REFERRED TO HEREINABOVE, WE DISMISS THE GROUND RAIS ED BY THE ASSESSEE. 34 ITA.NO.344/H/2012, 561 & 562/H/13 & ITA.NO.499/H/2012 HYDERABAD CHEMICALS LTD., HYDERABAD. 16. IN THE RESULT, APPEALS OF THE ASSESSEE IN ITA.NO.344/HYD/2012, 561 & 562/HYD/2013 ARE PARTLY ALLOWED AND APPEAL OF THE REVENUE ITA.NO.499/HYD/20 12 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11.03.2015. SD/- SD/- (P.M. JAGTAP) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 11 TH MARCH, 2015 VBP/- COPY TO 1. HYDERABAD CHEMICALS LIMITED, APIE, 24 & 25, BALNAAG AR, HYDERABAD 500 037. 2. ASST. COMMISSIONER OF INCOME TAX, CIRCLE 2(2), 8 TH FLOOR, I.T. TOWERS, A.C. GUARDS, HYDERABAD. 3. CIT(A)-III, HYDERABAD. 4. CIT-II, HYDERABAD. 5. D.R. I.T.A.T. B BENCH, HYDERABAD. 6. GUARD FILE.