ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, JAMMU V. M/s. Komal Paper Mills, Gandhinagar

ITA 614/ASR/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7754 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 07-03-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 26-09-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Competent authority; Capital receipt
• Section: 143(3); 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR. BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I. T. A. NO. 614/ASR/2017 ASSE SSMENT YEAR: 2013-14 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-1, JAMMU VS. KOMAL PAPER MILLS, GHAK GOTA, NATIONAL HIGHWAY, KATHUA [PAN: AAGFK 9784K] (APPELLANT) (RESPONDENT) APPELLANT BY : SH. CHARAN DASS (D.R. ) RESPONDENT BY: SH. SANJAY GUPTA (C.A.) DATE OF HEARING: 07.03.2019 DATE OF PRONOUNCEMENT: 24.04.2019 ORDER PER SANJAY ARORA, AM: THIS IS AN APPEAL BY THE REVENUE ARISING OUT OF THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS), JAMMU (CIT(A ) FOR SHORT) DATED 29.6.2017, ALLOWING THE ASSESSEES APPEAL CONTESTIN G ITS ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 ('THE ACT' HEREI NAFTER) VIDE ORDER DATED 30.3.2016 FOR ASSESSMENT YEAR (AY) 2013-14. 2.1 THE ASSESSEE, A PARTNERSHIP FIRM MANUFACTURING PAPER (FROM WASTE PAPER), FILED ITS RETURN OF INCOME FOR THE RELEVANT YEAR O N 29.9.2013, DECLARING NIL INCOME, I.E., AFTER CLAIMING DEDUCTION U/S. 80-IB AT RS.115 .90 LACS, BEING THE CONSOLIDATED INCOME FROM TWO UNITS, CHRISTENED UNIT I (AT (-) RS .99.31 LACS) AND UNIT II (AT RS.206.24 LACS) (THERE IS NO EXPLANATION FOR THE BA LANCE INCOME OF RS.8.97 LACS WHICH, TO BE ELIGIBLE FOR DEDUCTION U/S. 80-IB, IS TO BE OF AN ELIGIBLE ITA NO. 614/ASR/2017 (AY 2013-14) ASSTT. CIT V. KOMAL PAPER MILLS 2 UNDERTAKING/BUSINESS). UNIT-I WAS SET UP IN AUGUST, 2003, I.E., DURING THE PREVIOUS YEAR RELEVANT TO AY 2004-05, SO THAT THE CURRENT YE AR IS THE TENTH (LAST) YEAR FOR WHICH DEDUCTION U/S. 80-IB IS ADMISSIBLE AND, FURTH ER, AT THE RATE OF 25%. THE ASSESSEE, HOWEVER, CLAIMS HAVING SET UP ANOTHER UND ERTAKING (UNIT-II) ON 28.3.2012, ON THE PROFIT OF WHICH FOR THE RELEVANT YEAR, AS COMPRISED IN THE GROSS TOTAL INCOME (GTI) (SECTION 80B(5)), DEDUCTION U/S. 80IB IS EXIGIBLE AT 100% OF THE PROFIT. THE ASSESSING OFFICER (AO), HOWEVER, DID NO T ACCEPT THE ASSESSEES CLAIM OF HAVING SET UP A SEPARATE, INDEPENDENT UNIT (I.E., U NIT-II), AND THAT THERE WAS, IN FACT, ONLY ONE BUSINESS UNDERTAKING. HIS REASONS SO CONSI DERING ARE AS UNDER (PGS. 8 TO 10 OF THE ASSESSMENT ORDER), PRECEDED BY DISCUSSION IN THE EARLIER PAGES: (A) BOTH THE UNITS FUNCTION FROM THE SAME PREMISES, WITH NO NEW LAND HAVING BEEN PURCHASED FOR THE SO CALLED NEW UNIT; (B) NO SEPARATE RECORD OF EPF ETC., OF LABOUR, ELEC TRICITY BILLS, ETC. FOR UNIT II WAS PRODUCED; (C) BOTH THE UNITS MANUFACTURE THE SAME PRODUCTS, V IZ., WHITE PAPER, MEDIA PAPER, MG PAPER, CRAFT PAPER/DUPLEX/GREY BOARD, I.E., AS P ER THE CERTIFICATE ISSUED BY DISTRICT INDUSTRIES CENTRE (DIC) ON 07.4.2005 AND 2 8.3.2012; (D) THERE WAS SUBSTANTIAL TRANSFER OF CAPITAL (RS.5 06.22 LACS) FROM UNIT I TO UNIT II, I.E., AT RS.433.55 LACS AND RS.72.67 LACS DURING TH E PREVIOUS YEARS RELEVANT TO AYS. 2012-13 AND 2013-14 RESPECTIVELY; (E) THERE WAS AN UNEXPLAINED DECLINE IN THE SALE OF UNIT I, I.E., BEING AT RS.3.52 CR. FOR THE CURRENT YEAR AS AGAINST RS.13.85 CR. AND RS .13.96 CR. FOR THE IMMEDIATELY TWO PRECEDING YEARS, WHICH WAS FURTHER ACCOMPANIED BY A CONTINUING DECLINE IN THE PROFIT RATE, AS UNDER: AY NP(%) EXEMPTION STATUS 2007-08 31.05 100% 2008-09 16.41 100% 2009-10 15.51 25% ITA NO. 614/ASR/2017 (AY 2013-14) ASSTT. CIT V. KOMAL PAPER MILLS 3 2010-11 7.04 25% 2011-12 (UNSTATED) 25% 2012-13 (LOSS) 25% 2013-14 (LOSS) 25% IN VIEW OF THE FOREGOING, HE INFERRED THAT THE ASSE SSEE HAD, IN VIEW OF THE PHASING OUT OF THE SECTION 80-IB BENEFIT, WITH THE CURRENT YEAR BEING THE LAST YEAR FOR THE SAID DEDUCTION, SHIFTED THE PRODUCTION (SALES) AS W ELL THE PROFIT TO, AS STATED, A NEW UNIT, I.E., TO SECURE A FRESH LEASE OF SECTION 80IB BENEFIT IN FACT, A COMPLETE EXEMPTION OF PROFIT. RELIANCE WAS PLACED BY HIM ON THE DECISION IN ORIENT PAPER MILLS LTD. V. CIT [1989] 176 ITR 110 (SC). THE ASSESSEE HAD, IN HIS VIEW, CLAIMED UNVERIFIABLE CASH EXPENDITURE AT RS.4.22 CR. FOR TH E CURRENT YEAR, DEPRESSING THE PROFIT FOR THE CURRENT YEAR, DECLINE IN WHICH (PROF IT) OVER THE YEARS WAS, IN ANY CASE, UNEXPLAINED AND, ACCORDINGLY, COMPUTED A PROFIT RAT E OF 17.5% (I.E., THE AVERAGE FOR AYS. 2007-08 AND 2010-11). THE CAPITAL SUBSIDY OF R S.136.27 LACS RECEIVED BY THE ASSESSEE DURING YEAR WAS ALSO BROUGHT TO TAX. 2.2 IN APPEAL, THE LD. CIT(A) NOTED THE FACTS AND F OUND THAT THE ISSUE WAS WHETHER THE SECOND UNIT WAS AN EXTENSION OF THE FIR ST UNIT OR A SEPARATE UNIT . THE LD. CIT(A), AFTER CONSIDERING THE ASSESSEES SUBMIS SIONS, AS WELL AS THE MATERIAL ON RECORD, HELD AS UNDER: I HAVE CONSIDERED THE ABOVE SUBMISSION ON THE GENU INENESS OF THE SECOND UNIT. I HAVE ALSO CONSIDERED THE DOCUMENTS PRODUCED BY THE APPEL LANT BOTH DURING THE ASSESSMENT PROCEEDINGS AS WELL AS THE APPELLATE PROCEEDINGS. O N THE BASIS OF THESE DOCUMENTS, IT IS FOUND THAT PERMANENT REGISTRATION CERTIFICATE WAS GIVEN B Y THE DISTRICT INDUSTRY CENTRE, KATHUA ON 28/03/2012 FOR UNIT-II WHEREAS THE FIRST UNIT WAS R EGISTERED ON 07/04/2005 BY THE SAME DIC. THE TWO CERTIFICATES ISSUED BY THE DISTRICT INDUSTR Y CENTRE, KATHUA CLEARLY ESTABLISH THAT THERE ARE TWO SEPARATE UNITS AND DIC IS THE ONLY COMPETEN T AUTHORITY TO CERTIFY ABOUT THE SET UP OF THE NEW UNIT. REGARDING THE SANCTION OF POWER LOAD CONNECTION AGAIN IT HAS BEEN SANCTIONED SEPARATELY FOR THE TWO UNITS. THE STATE OF J&K POLL UTION BOARD HAS ALSO ISSUED TWO SEPARATE POLLUTION CERTIFICATES IN RESPECT OF THE TWO UNITS. ALL THESE CERTIFICATES WERE ISSUED BY THE ITA NO. 614/ASR/2017 (AY 2013-14) ASSTT. CIT V. KOMAL PAPER MILLS 4 COMPETENT AUTHORITIES WHICH ESTABLISH BEYOND DOUBT THERE ARE TWO SEPARATE UNITS SET UP AT TWO DIFFERENT POINTS OF TIME I.E., 02/04/2005 (*) AND 2 8/03/2012 RESPECTIVELY. ON THE OTHER HAND THE AO IS NOT THE COMPETENT AUTHORITY TO QUESTION T HE AUTHENTICITY OF THESE CERTIFICATES. MERELY, BECAUSE THE SECOND UNITS WAS SETUP ON THE S AME PLOT OF LAND OR FROM THE SAME PREMISES IT WAS WRONG ON THE PART OF THE AO TO CONC LUDE THAT SECOND UNIT DOES NOT EXIST AT ALL AND THEREFORE, NOT ENTITLED DEDUCTION U/S. 80IB OF THE ACT. NOW COMING TO THE ELIGIBILITY OF THE APPELLANT UNDE R SECTION 80IB OF THE INCOME TAX ACT, IT IS FOUND THAT IT HAS FULFILLED ALL THE COND ITIONS LAID DOWN U/S. 80IB OF THE INCOME TAX ACT AS THE SECOND UNIT WAS NOT FORMED BY A SPLITTIN G UP, RECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE AND WAS NOT FORMED AS A RESULT OF THE RE-ESTABLISH MENT, RECONSTRUCTION OR REVIVAL BY THE ASSESSEE OF ANY SUCH INDUSTRIAL UNDERTAKING AS IS REFERRED TO IN SECTION 33B. FINALLY, EVEN THE JCIT IN HIS DIRECTIONS TO THE AO U/S. 144A, ON THE APPLICATION OF THE APPELLANT, HAS STATED THAT THE ASSESSEE FULFILLED A LL THE CONDITIONS PRESCRIBED U/S. 80IB OF THE ACT. IN VIEW OF THE FACTS STATED ABOVE, I HOLD THAT THE APPELLANT IS ENTITLED TO GET 100% DEDUCTION U/S. 80IB OF THE INCOME TAX ACT. ACCORDIN GLY, THE GROUNDS OF APPEAL ARE ALLOWED. [(*) TO BE READ AS 07/04/2005] THE CAPITAL SUBSIDY OF RS.136.27 LACS WAS CONFIRMED BY HIM TO BE A CAPITAL RECEIPT ON THE BASIS OF THE DECISIONS OF THE APEX COURT IN PONNY SUGAR AND CIT V . MEGHALAYA STEELS LTD. [2016] 383 ITR 217 (SC). AS REGARDS THE REJECTION OF ACCOUNTS AND ESTIMATION OF PROFIT, HE AGAIN FOUND N O SUBSTANCE IN THE REVENUES CASE IN VIEW OF NO DEFECTS HAVING BEEN POINTED OUT BY THE AO. AGGRIEVED, THE REVENUE IS IN APPEAL, RAISING THE FOLLOWINGS GROUND S: 1. THE LD. CIT(A) HAS ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE BY ACCEPTING CONTENTION THAT THE DEDUCTION CLAIMED U/S. 80IB ON THE 2 ND UNIT WAS ALLOWABLE @100% TREATING IT A NEW UNIT WHEREAS THE ASSESSEE HAS SHIFTED HIS PROFIT TO UNIT-2, FORMED BY RECONSTRUCTION/SPLITTING UP OF THE ALREADY EXISTING UNDERTAKING AND THUS WAS NOT ELIGIBLE FOR 100% OF DEDUCTION APPLICABLE TO A NEW UNDERTAKING. 2. THE LD. CIT(A) HAS ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE REGARDING SUBSIDY ON PLANT AND MACHINERY BY RELYING ON THE ORDER OF THE APEX C OURT IN CASE OF CIT V. BALAJI ALLOYS THAT ANY SUBSIDY RECEIVED FROM GOVT. FOR THE BACKWARD AR EA DEVELOPMENT AREA IS CAPITAL RECEIPT IGNORING THE FACT THAT SUBSIDY RECEIVED WAS NOT ON FRESH UNIT AND HENCE NOT ELIGIBLE FOR DEDUCTION U/S. 80IB AS SUBSIDY ON CAPITAL RECEIPT. 3.1 BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE (DR), SH. CHARAN DASS, WOULD EMPHASIZE THE VARIOUS INFIRMITIES IN THE ASSE SSEES CASE AS NARRATED IN THE ASSESSMENT ORDER. THE LD. COUNSEL FOR THE ASSESSEE, SH. GUPTA, WOULD, ON THE OTHER ITA NO. 614/ASR/2017 (AY 2013-14) ASSTT. CIT V. KOMAL PAPER MILLS 5 HAND, REFER TO THE DIFFERENT REGISTRATIONS OBTAINED BY AND ALLOWED TO THE ASSESSEE FOR ITS UNIT II, VIZ., INDUSTRIES DEPARTMENT, EXCISE, SALES-TAX, POLLUTION, SEPARATE POWER CONNECTION (FOR AN ADDITIONAL 786 KW, RESULTI NG IN A TOTAL SANCTIONED LOAD OF 1572 KW) (PB PGS. 40-47). THE SECOND UNIT WAS SET U P AT A TOTAL COST OF RS.545.51 LACS, INCLUDING ON BUILDING, INSTALLING ADDITIONAL PLANT AND MACHINERY AT COST OF RS.454.24 LACS, ON WHICH THE ASSESSEE HAD IN FACT R ECEIVED CAPITAL SUBSIDY AT RS.136.27 LACS (PB PG.48-49), WHICH AMOUNT STAND RE DUCED FROM THE SAID COST (OF P&M) FOR CLAIM OF DEPRECIATION. NO LAND WAS PURCHAS ED FOR THE SECOND UNIT AS ASSESSEE HAD ALREADY SUFFICIENT LAND (AT A TOTAL 37 KANALS, OR 1,99,800 SQ. FT.); WITH IN FACT THE ASSESSEE HAVING SURPLUS LAND (AT 1,14,7 00 SQ. FT.) EVEN AFTER THE SECOND UNIT ON 52,400 SQ. FT. (OF LAND). NO ADVERSE INFERE NCE COULD THEREFORE BE DRAWN FROM THE NON-PURCHASE OF ANY ADDITIONAL LAND FOR TH E SECOND UNIT, WHICH WAS FOR MANUFACTURE OF CRAFT PAPER, I.E., AS AGAINST WHITE PRINTING PAPER BEING MANUFACTURED BY UNIT I. HE WOULD, THEN, EXPLAIN THE DIFFERENCE I N THE PRODUCTION PROCESS BETWEEN THE TWO, BEING ESSENTIALLY IN TERMS OF THE ROLLER S PEED. THE RAW MATERIAL (IN THE FORM OF THE CHEMICALS USED) WAS ALSO DIFFERENT; THE ASSESSEE HAVING IN FACT MAINTAINED SEPARATE FILES (OF PURCHASE VOUCHERS) FO R THE TWO UNITS, WHICH WERE SUBMITTED AS SUCH IN THE ASSESSMENT PROCEEDINGS. 3.2 ON THE BENCH OBSERVING THAT THE REGISTRATION OF UNIT-II ALSO MENTIONED THE VARIOUS TYPES OF PAPERS, VIZ., WHITE, MEDIA, MG, VI RGIN CRAFT, CRAFT/DUPLEX/GREY BOARD (AT PB PGS. 41, 45, 46, 47), HE EXPLAINED THA T THE SAME HAD TO BE AS THE UNIT WAS CAPABLE OF, WITH MINOR CHANGES, VIZ. THE CHEMIC ALS, ROLLER SPEED, ETC. PRODUCTION OF ALL TYPES OF PAPER. HE WOULD, ON A FU RTHER QUERY BY THE BENCH, SUBMIT THAT UNIT-II IS AN INDEPENDENT UNIT, I.E., C APABLE OF PRODUCING PRODUCT/S WITHOUT USING ANY EXISTING PLANT AND MACHINERY, THO UGH WAS UNABLE TO SHOW ANY CONTENTION TO THAT EFFECT BY THE ASSESSEE BEFORE, M UCH LESS A FINDING IN THAT RESPECT ITA NO. 614/ASR/2017 (AY 2013-14) ASSTT. CIT V. KOMAL PAPER MILLS 6 BY, THE LD. CIT(A), NOT TO SPEAK OF THE AO. WITH RE GARD TO THE TRANSFER OF CAPITAL (FROM UNIT I TO UNIT II), HE EXPLAINED THE SAME TO BE THE TRANSFER OF SURPLUS CAPITAL, NOT IMPACTING UNIT-I, AND WITH A VIEW TO R EDUCE THE DEPENDENCE OF UNIT-II ON BORROWED CAPITAL, WHICH WAS THEREFORE NOT ASSUME D. ON THE DEPLETING SALES OF UNIT-I, HE EXPLAINED THE SAME TO BE SINCE RESTORED; THE UNIT-I SALES FOR AY 2015-16 AND AY 2017-18 BEING AT RS.13.10 CR. AND RS.12.11 C R. RESPECTIVELY. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 4.1 OUR FIRST OBSERVATION IS THAT WHILE THE ASSESSE E STATES OF THE AO HAVING NOT FOLLOWED THE DIRECTIONS BY THE JT. CIT U/S. 144A, H E DOES NOT EXPLAIN AS TO IN WHAT MANNER, NOR HAS MADE THESE DIRECTIONS A PART OF THE PAPER-BOOK. IN FACT, THE AO HIMSELF STATES (AT PARA 3 (VII), PG. 10) OF THE ASS ESSMENT ORDER OF IT BEING IN DEFERENCE TO THE GUIDANCE ISSUED U/S. 144A. WE CONS IDER IT PERTINENT TO MENTION THIS AS A DIRECTION/S U/S. 144A IS BINDING ON THE A O, SO THAT ANY ACTION BY HIM INCONSISTENT THEREWITH, CANNOT HOLD. 4.2 OUR SECOND OBSERVATION IN THE MATTER IS THAT TH E SATISFACTION OF THE CONDITIONS OF SECTION 80-IB IS NOT IN DOUBT. THIS IS AS THE AO HAS HIMSELF, IN CONTINUATION WITH THE PAST, ALLOWED DEDUCTION THEREUNDER, ALBEIT AT T HE REDUCED RATE OF 25%, REGARDING THE TWO UNITS AS ONE, I.E., BY REGARDING THE AD DITIONAL CAPACITY SET-UP BY THE ASSESSEE AS AN EXTENSION, EVEN IF SUBSTANTIAL, OF I TS (FIRST) UNIT, I.E., ITS EXISTING BUSINESS. WHAT, THEREFORE, THE LD. CIT(A), WHEN HE FOUND THE SAID EXTENSION TO BE SEPARATE UNIT (NOT FORMED BY SPLITTING UP OR RECONS TRUCTION OF A BUSINESS ALREADY IN EXISTENCE), WAS TO EXAMINE IF THE SECOND UNIT INDEP ENDENTLY SATISFIED THE CONDITIONS OF SECTION 80-IB, PRINCIPALLY IN TERMS OF THE NUMBE R OF WORKERS, ETC. AS THE PRODUCTION, AS FOR THE FIRST UNIT, IS WITH THE AID OF POWER. THIS IS PARTICULARLY SO IN VIEW OF THE AO HAVING CALLED FOR AND STATED THAT TH E RECORD OF EPF OF THE WORKERS ITA NO. 614/ASR/2017 (AY 2013-14) ASSTT. CIT V. KOMAL PAPER MILLS 7 WAS NOT SUPPLIED. THE LD. CIT(A), HOWEVER, ISSUES NO SUCH FINDING . HE COULD HAVE DONE THE EXERCISES HIMSELF, OR BY CALLING A REPORT BY THE AO. ADVERTING TO THE DIRECTION BY THE JT. CIT (AT PG. 21 OF HIS ORDER) I N THE MATTER IS OF NO MOMENT AS THE AO HIMSELF ALLOWED DEDUCTION U/S. 80IB, SO THAT THE ONLY ISSUE THAT ARISES AND REMAINS TO BE EXAMINED IS IF THE SECOND UNIT INDEPE NDENTLY SATISFIES THE CONDITIONS OF SECTION 80-IB, AND WHICH QUESTION STANDS TO BE A RISE ONLY UPON THE LD. CIT(A) ACCEPTING THE ASSESSEES CLAIM OF THE EXPANSION BEI NG A SEPARATE UNIT, I.E., VIDE THE IMPUGNED ORDER, AND NOT PRIOR THERETO. FURTHER, THE EXPLANATION IN RESPECT OF THE DIFFERENCE (RS.8.97 LACS) WOULD ALSO BE REQUIRED (R EFER PARA 2.1 OF THIS ORDER). 4.3 THE PRINCIPAL QUESTION IS IF THE ADDITIONAL CAP ACITY SET UP BY THE ASSESSEE IS TO BE REGARDED AS A SEPARATE UNDERTAKING, I.E., SEPARATE AND DISTINCT FROM THE FIRST UNIT, IN OPERATION SINCE AUGUST, 2003. UNITS KEEP ADDING CAPACITIES, REMOVING PRODUCTION BOTTLENECKS AS WELL AS INTERNAL (CAPACIT Y) INCONSISTENCIES, EVEN INTRODUCING NEW PRODUCT/S/PRODUCT LINES, WITH A VIE W TO INCREASE BOTH THE PHYSICAL CAPACITY AS WELL AS THE PRODUCT RANGE, I.E., QUA QUALITY AND VARIETY. THE NEW CAPACITY MAY OR MAY NOT REQUIRE ADDITIONAL LAND, OR POWER OR EVEN BUILDING, WHICH COULD IN THAT CASE BE DRAWN FROM THE EXISTING SET-U P, AS INDEED THE ASSESSEE CLAIMS QUA LAND. THE ONLY ISSUE IN THAT CASE WOULD BE OF THE ACCOUNTS OF THE SECOND UNIT BEARING AN APPROPRIATE CHARGE FOR THE RESOURCES USE D, VIZ. RENT (OR DEPRECIATION) FOR THE BUILDING USED, POWER CONSUMPTION, ETC. IT MAY P RODUCE THE SAME OR A DIFFERENT VARIETY OF THE SAME PRODUCT. WHAT IS DECISIVE OF TH E MATTER, AND THE TEST THEREFORE OF A NEW UNIT IS ITS INDEPENDENCE, I.E., FROM THE FIR ST (EXISTING) UNIT. WE SAY SO AS THIS ONLY WOULD DISTINGUISH A CASE OF EXTENSION SUBSTA NTIAL OR OTHERWISE, OF A UNIT FROM ESTABLISHING A NEW UNDERTAKING. THE LD. CIT(A) , THOUGH APPRECIATES THIS AS THE ISSUE (PARA 3, PG. 4 OF THE IMPUGNED ORDER), DO ES NOT ISSUE ANY FINDING THEREON, MERELY STATING THAT THERE IS NO SPLITTING OR RECONS TRUCTION OF THE EXISTING UNIT. ITA NO. 614/ASR/2017 (AY 2013-14) ASSTT. CIT V. KOMAL PAPER MILLS 8 WHERE, ONE MAY ASK, IS THE QUESTION OF SPLITTING-UP OR RECONSTRUCTION IN CASE OF EXPANSION OR CAPACITY ENHANCEMENT ? 4.4 IN THE INSTANT CASE, THE ASSESSEE STATES OF THE UNIT-II BEING FOR THE MANUFACTURE OF CRAFT PAPER, WHILE UNIT I MANUFACTUR ES WRITING AND PRINTING PAPER. HOWEVER, THERE IS NOTHING TO SHOW THAT THIS WAS STA TED, MUCH LESS DEMONSTRATED, BEFORE THE AO, EVEN AS SH. GUPTA WAS SPECIFICALLY Q UERIED ON THIS ASPECT DURING HEARING. AGAIN, THOUGH STATED BEFORE THE LD. CIT(A), THERE I S NO FINDING BY HIM IN THE MATTER . IN FACT, THERE COULD NOT POSSIBLY BE AS THAT WOUL D REQUIRE MATERIAL, REQUIRING IT TO BE FIRST ADMITTED BY WAY OF ADDITIO NAL EVIDENCE UNDER RULE 46A OF THE RULES (INCOME TAX RULES, 1962). RATHER, AS AFOR E-STATED, THE REGISTRATIONS ON RECORD ARE FOR ALL THE PRODUCTS FOR WHICH THE EXIST ING UNIT IS REGISTERED AND, THUS, CAPABLE OF BEING PRODUCED OR MANUFACTURED. THAT IS, IS A CASE OF, AS IT APPEARS, CAPACITY ENHANCEMENT. THIS IN FACT ALSO AGREES WITH WHAT STANDS EXPLAINED TO US BY SH. GUPTA DURING HEARING, I.E., THAT SOME CHANGES I N THE CHEMICAL MIX; THE RAW MATERIAL IN THE FORM OF WASTE PAPER, BEING THE SA ME, AND ROLLER (DRUM) SPEED, IS ALL THAT IS REQUIRED TO MANUFACTURE CRAFT PAPER. TH IS, HOWEVER, DOES NOT DETRACT FROM THE ASSESSEES CASE. THIS IS SO EVEN IF THE EXISTIN G UNIT IS CAPABLE OF PRODUCING CRAFT PAPER, WHICH AS PER THE MATERIAL ON RECORD IT IS, O R THE ADDITIONAL CAPACITY INSTALLED (AND OPERATIVE), AS STATED, SINCE MARCH, 2012, OF W RITING AND PRINTING PAPER. WE SAY SO AS IF THE ADDITIONAL CAPACITY SET UP IS A CO MPLETE FACILITY IN ITSELF, FROM THE FIRST TO THE LAST STAGE OF PRODUCTION, I.E., INPUT TO OUTPUT, WITH NO DEPENDENCE ON ANY PROCESS CAPACITIES OF THE EXISTING UNIT, IT IS A NE W UNIT, WHICH CAN THEREFORE BE TITLED AS UNIT-I AND UNIT-II RESPECTIVELY. 4.5 ALL THAT WAS THEREFORE REQUIRED OF THE ASSESSEE WAS TO GIVE THE PROCESS DETAILS, PREFERABLY IN THE FORM OF A PROCESS CHART, WITH THE PLANT AND MACHINERY ITA NO. 614/ASR/2017 (AY 2013-14) ASSTT. CIT V. KOMAL PAPER MILLS 9 REQUIRED AT EACH STAGE, AND CORRELATING THE SAME WI TH THE NEW PLANT AND MACHINERY PURCHASED, ALSO STATING ITS PRODUCTION CAPACITY AN D POWER RATING ALONG WITH. HERE IT MAY BE RELEVANT TO STATE THAT WHILE THE CAPACITY AS PER THE DIC CERTIFICATE IS STATED AT 33,000 MT PER ANNUM (PB PG. 41), THAT BY THE POL LUTION BOARD IS AT 2,33,000 MT P.A. (PB PG. 46). IS IT, THEN, THAT THE ASSESSEE HAS INCREASED THE EX ISTING CAPACITY ALONG WITH SETTING UP OF THE FACILITY FOR MANUFACTURE OF CRAFT PAPER ? PROFILING IN THE FORM SUGGESTED SHOULD RESOLVE THIS ISSUE. THE REVENUE, ON ITS PART, COULD THEN SUBJECT THE ASSESSEES CLAIM/S TO VERIFI CATION, INCLUDING PHYSICAL, ISSUING FINDINGS OF FACT, ON THAT BASIS, IN ADJUDICATION OF THE MATTER. FOR EXAMPLE, THE PRODUCTION OF THE NEW UNIT IS CORRELATED WITH THE P OWER CONSUMPTION OF THE SEPARATE POWER CONNECTION TAKEN FOR THE PURPOSE. CO NJOINT WITH THIS IS THE EXERCISE AS TO WHETHER THE NEW PLANT AND MACHINERY HAS BEE N USED EARLIER AT ANY TIME, AS INDICATED BY DEPRECIATION CLAIMED THEREON, AS THAT WOULD SHOW OF IT HAVING BEEN BOUGHT FOR UNIT I. FURTHER, IS IT A COINCIDENCE THA T THE DECLINE IN SALES OF UNIT-I, STATED TO BE ON ACCOUNT OF FALL IN THE DEMAND AND N EED FOR REPAIRS, BOTH SINCE RESTORED, OCCURRED SIMULTANEOUS TO THE FLIGHT OF CA PITAL FROM UNIT-I? IN FACT, DECLINING DEMAND WOULD RATHER DISCOURAGE A MANAGEME NT FROM UNDERTAKING REPAIRS, STATED BY SH. GUPTA TO BE CARRIED OUT ON A N EXTENSIVE SCALE, SO THAT THE MATTER NEEDS TO BE CLARIFIED FURTHER. 4.6 FINALLY, THERE IS THE ASPECT OF TRANSFER OF CAP ITAL FROM UNIT-I TO UNIT-II, NOT EXPLAINED AT ANY STAGE OF THE PROCEEDINGS. IT WAS B EFORE US STATED TO BE THE SURPLUS CAPITAL OF THE EXISTING UNIT (UNIT-I), WH ICH THEREFORE WAS TRANSFERRED TO SET UP THE NEW FACILITY, SAVING ON THE RELIANCE ON BORR OWED CAPITAL TO THAT EXTENT. BORROWING ENTAILS COST. A REDUCTION THEREIN, AND IN THE CONCOMITANT FINANCIAL RISK, IS THEREFORE LAUDABLE. THE ISSUE, HOWEVER, IS IF TH E TRANSFER OF CAPITAL IS AT THE COST OF THE OPERATIONAL CAPACITY OF UNIT-I. THERE HAS BE EN APPARENTLY NO TRANSFER OF THE ITA NO. 614/ASR/2017 (AY 2013-14) ASSTT. CIT V. KOMAL PAPER MILLS 10 FIXED ASSETS FROM UNIT-I TO UNIT-II. IF THE PLANT A ND MACHINERY WAS, AS STATED, UNDER-GOING REPAIRS CAUSING REDUCTION/SUSPENSION OF PRODUCTION WHICH NEEDS TO BE EXPLICITLY CLARIFIED IN TERMS OF FACTS AND FIGUR ES, INCLUDING THE TIME HORIZON, THE MANAGEMENT MAY WELL HAVE, PARTICULARLY CONSIDERING THE DECLINE IN DEMAND, CONSIDERED IT PRUDENT TO UTILIZE (FOR THE TIME BEIN G SURPLUS) FUNDS OF THE EXISTING UNIT. HOWEVER, SUCH FUNDS COULD BE USED ONLY AS A S HORT-TERM MEASURE, AS THE FUNDS WOULD BE AVAILABLE ON A TEMPORARY BASIS, I.E., TILL THE EXTENSIVE REPAIRS BEING UNDERTAKEN WHICH WOULD NEED TO BE SHOWN, ARE COMP LETED, AND THE PLANT RESTORED TO ITS NORMATIVE, OPERATIONAL CAPACITY, AND TOWARD WHICH THERE SHOULD BE SUFFICIENT EVIDENCE ARISING IN THE REGULAR COURSE OF BUSINESS. IN FACT, ANY MANAGEMENT WOULD WANT TO THE EXPEDITE THE PROCESS, SAVING ON LOSSES ON ACCOUNT OF OVERHEADS AND ABSENCE OF REVENUE GENERATION. THE SAME WOULD, AGAI N, REQUIRE FUNDS. THE FUNDS TRANSFERRED HAVE HOWEVER BEEN APPLIED IN SETTING UP A NEW UNIT, I.E., ON IRREVERSIBLE BASIS. THIS IMBROGLIO, THEN, NEEDS TO BE SATISFACTO RILY EXPLAINED IN-AS-MUCH AS, CLEARLY, THE TRANSFER COULD NOT BE AT THE COST OF T HE EXISTING UNIT. IF ITS OPERATIONAL CAPACITY, EVEN IF IN TERMS OF WORKING CAPITAL, HAS BEEN IMPAIRED, IT CANNOT BE SAID THAT A SEPARATE, INDEPENDENT UNIT HAS BEEN SET-UP, ELSE IT HAS. FURTHER, IF THE WORKING CAPITAL, I.E., AS REQUIRED FOR ITS PRODUCTION, STA TED TO BE DIFFERENT FROM THAT OF THE NEW UNIT, TRANSFERRED THERETO, IS SUBSEQUENTLY INFU SED BY WAY OF BORROWED CAPITAL, ENTAILING COST, THE SAME IS ONLY AN INDIRECT REDUCT ION AND, THUS, SHIFT OF PROFIT FROM THE EXISTING TO THE NEW UNIT; THE FORMER BEING NOW SUBJECT TO TAX, I.E., SUBSTANTIALLY OR WHOLLY, WHICH CANNOT BE COUNTENANCED IN LAW. IN FACT, THE CHARGE OF TRANSFER/ SHIFT OF PROFIT IS A SERIOUS ONE (REFER GROUND 1), AND WOULD REQUIRE BEING CLARIFIED. APART FROM DECLINE IN DEMAND, WHICH IS APPARENTLY I NCONSISTENT WITH THE SETTING-UP OF ADDITIONAL CAPACITY, THE REDUCTION IN THE PROFIT RATE (REFER PARA 2.1 OF THIS ORDER) HAS TO BE ON ACCOUNT OF EXTERNAL FACTORS. THE MATTE R, ACCORDINGLY, WOULD REQUIRE BEING EXAMINED IN ALL ITS ASPECTS. ITA NO. 614/ASR/2017 (AY 2013-14) ASSTT. CIT V. KOMAL PAPER MILLS 11 4.7 THE VARIOUS FINDINGS BY THE AO HAVE NOT BEEN AD DRESSED BY THE LD. CIT(A) IN ADJUDICATING THE ASSESSEES APPEAL, WHO, RATHER, OUGHT TO EITHER VALIDATE OR, AS THE CASE MAY BE, INVALIDATE THE ASSESSING AUTHORITYS C ASE ON THE BASIS OF FIRM FINDINGS (REFER: KAPURCHAND SHRIMAL V. CIT [1981] 131 ITR 451 (SC)). HE, WHILE CORRECTLY DISCERNING THE ISSUE ARISING (REFER PARAS 2.2 & 4.3 OF THIS ORDER), HAS NOT ANSWERED THE SAME. AS WE OBSERVE, NEITHER THE ASSESSEE NOR T HE REVENUE HAS DONE ITS JOB PROPERLY, I.E., ONE ON THE BASIS OF WHICH IT COULD BE POSSIBLE TO ISSUE FINDINGS DETERMINING THE ISSUE/S ARISING. WITHOUT DOUBT, THE ASSESSEE HAS OBTAINED REGISTRATIONS UNDER THE NAME AND STYLE OF UNIT II . THAT, AS EXPLAINED, THOUGH RELEVANT, WOULD NOT HOWEVER BE BY ITSELF CONCLUSIVE OF THE MATTER IN VIEW OF IT BEING ESSENTIALLY A QUESTION OF FACT. THE CERTIFICA TES ARE ISSUED PRIMARILY ON THE REPRESENTATION BY THE ASSESSEE. IN FACT, THESE ARE IN THE NATURE OF CLEARANCES AND PERMISSIONS, VIZ., POLLUTION, EXCISE, SALE TAX, END ORSEMENT FROM WHICH WOULD BE REQUIRED EVEN FOR CAPACITY EXPANSION. THERE IS, IT MAY BE APPRECIATED, INSTALLATION OF ADDITIONAL CAPACITY, SO THAT THE ISSUE IS NOT TH E SETTING UP OF THE ADDITIONAL CAPACITY BUT OF WHETHER IT REPRESENTS AN EXTENSION OF THE EXISTING CAPABILITY OR A NEW UNDERTAKING, WHICH, BY DEFINITION, SHOULD BE AB LE TO FUNCTION AND OPERATE INDEPENDENT OF THE EXISTING ONE, WHICH CONTINUES TO OPERATE UNABATED OR, WHERE NOT SO, FOR REASONS UNRELATED TO THE SETTING UP OF THE ADDITIONAL CAPACITY. THIS ONLY WOULD QUALIFY FOR EXTENDING THE EXEMPTION TO THE PR OFIT THEREOF, I.E., ON A STAND- ALONE BASIS. THE HEALTHY (IF NOT ABOVE AVERAGE) PRO FIT RATES, DECLINING AS TAX HOLIDAY PERIOD NEARS ITS TERM, WITNESSING THE CLOSURE OR BE LOW PAR PERFORMANCE OF SUCH UNITS, WITH (OR WITHOUT) OPENING OF NEW UNITS AT TH E SAME (OR SOME OTHER) PLACE BY THE MANAGEMENT, ET.AL ARE ALL TOO COMMON INCIDENTS AND, APPARENTLY, A BRAZEN ABUSE OF TAX POLICY, DESIGNED TO ACHIEVE SOCIO-ECON OMIC BENEFITS WHICH TO A MORE OR LESS EXTENT, THUS, DO NOT ENURE. THE RECORD S ARE MAINTAINED TO JUSTIFY THE CLAIMS. THE SAME COULD WELL BE A HAPPENSTANCE. IT M UST THEREFORE INVITE A STRICT, ITA NO. 614/ASR/2017 (AY 2013-14) ASSTT. CIT V. KOMAL PAPER MILLS 12 ALBEIT UNBIASED AND UNPREJUDICED JUDICIAL SCRUTINY, TOWARD WHICH WE HAVE ALSO RAISED CERTAIN QUERIES REQUIRING EXPLANATION/CLARIF ICATION. 5. THE ASSESSMENT, IN VIEW OF THE FOREGOING, IS SET -ASIDE BACK TO THE FILE OF THE AO FOR PROPER DETERMINATION, WHO SHALL EXAMINE THE ISSUE IN ALL ITS ASPECTS, AND DECIDE AFRESH, TAKING INTO ACCOUNT THE MATERIAL DEE MED RELEVANT, INCLUDING THAT THE ASSESSEE MAY WISH TO ADDITIONALLY RELY UPON. THIS, THEN, DECIDES THE ISSUE AS REGARDS DEDUCTION U/S. 80-IB. AS REGARDS THE CAPITA L SUBSIDY, THE SAME IS A CAPITAL RECEIPT. THE ONLY ISSUE IS IF THE SAME IS, AS CLAIM ED BY THE ASSESSEE, REDUCED FROM THE COST OF THE RELEVANT PLANT AND MACHINERY FOR CL AIM OF DEPRECIATION. IF SO, THAT IS THE END OF THE MATTER. IF NOT, THE SAME WOULD NEED TO BE ADJUSTED FOR COMPUTING THE DEPRECIATION ADMISSIBLE (REFER EXPLANATION 8 TO S. 43(1)). WE DECIDE ACCORDINGLY. 6. IN THE RESULT, THE REVENUES APPEAL IS ALLOWED F OR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON APRIL 24, 201 9 SD/- SD/- (N. K. CHOUDHRY) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 24.04.2019 /GP/SR. PS. COPY OF THE ORDER FORWARDED TO: (1) THE APPELLANT: ASSTT. COMMISSIONER OF INCOM E TAX, CIRCLE-1, JAMMU (2) THE RESPONDENT: KOMAL PAPER MILLS, GHAK GOT A, NATIONAL HIGHWAY, KATHUA (3) THE CIT(APPEALS), JAMMU (4) THE CIT CONCERNED (5) THE SR. DR, I.T.A.T. TRUE COPY BY ORDER