ACIT, Bangalore V. M/s Himatsingka Seide Ltd., Bangalore

ITA 847/BANG/2011

• Counselvise Citation: 84721114 RSA 2011
• Duration Of Justice: 1 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2003-2004
• Appeal Filed On: 28-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ETWA MUNDA CITIII
• Assessee Lawyers: P TIWARI
• Keywords: Depreciation
• Section: 80HHC; 10B

Judgement Text

ITA NOS.847 & 848/BANG/20122 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'C', BANGALORE BEFORE SHRI. N. BARATHVAJA SANKAR, VICE PRESIDENT AND SMT. N. V. VASUDEVAN, JUDICIAL MEMBER I.T.A NOS.847 & 848BANG/2011 (ASSESSMENT YEARS : 2003-04 & 2005-06) ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE - 11(4), BANGALORE .. APPELLANT V. M/S. HIMATSINGKA SEIDE LTD., NO.10/24, KUMARAKRUPA ROAD, HIGH GROUNDS, BANGALORE 560 001 .. RESPONDENT PAN : AAACH3507N APPELLANT BY : SHRI. ETWA MUNDA, CIT-III RESPONDENT BY : SHRI. P. TIWARI. CA DATE OF HEARING : 27/09/2012 DATE OF PRONOUNCEMENT : O R D E R PER N. BARATHVAJA SANKAR, VICE PRESIDENT : THESE ARE TWO APPEALS FILED BY THE REVENUE FOR THE ASSESSMENT YEARS 2003-04 AND 2005-06 AGAINST THE COMMON APPELL ATE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, BANGALORE, DATED.23.07.2011, IN THE CASE OF THE ASSESSEE, M/S. HIMATSINGKA SEIDE, BANGALORE. ITA NOS.847 & 848/BANG/20122 PAGE - 2 02. THE ONLY ISSUE BROUGHT BEFORE US IN BOTH THESE APPEALS IS, WHETHER THE COMMISSIONER OF INCOME-TAX (APPEALS) IS NOT JUSTIFIED IN HOLDING THAT THE ASSESSEE COMPANY IS ENTITLED TO DE DUCTION U/S.10B OF THE IT ACT, IN RESPECT OF THE FILATI UNIT/DIVISION, WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES UNDER WHICH THE SAME WA S DISALLOWED BY THE ASSESSING OFFICER. 03. THOUGH THESE ARE REVENUE'S APPEALS, THE ASSESSE E'S REPRESENTATIVE, SHRI. TIWARI SUBMITTED A SMALL COMP ILATION CONSISTING OF THE ASSESSEE'S SUBMISSIONS AND A COPY OF THE ORD ER OF THIS TRIBUNAL IN ITA.1379/BANG/2010 FOR THE ASSESSMENT YEAR 2006- 07 AND COPY OF THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE COM MISSIONER OF INCOME-TAX (APPEALS) FOR THE ASSESSMENT YEAR 2006-0 7. BY PLACING THE ABOVE MATERIALS ON RECORD, THE LEARNED REPRESEN TATIVE SUBMITTED THAT THIS ISSUE HAD ALREADY BEEN CONSIDERED BY THE TRIBUNAL IN ITS ORDER DATED.27.01.2012 IN ITA.1379/BANG/2010, FOR THE ASS ESSMENT YEAR 2006-07 AND THE REVENUE'S APPEAL ON IDENTICAL GROUN DS WAS DISMISSED BY THE SAID ORDER AND HENCE, THESE APPEALS OF THE R EVENUE ALSO DESERVE TO BE DISMISSED ON SIMILAR GROUNDS. 04. WE HAVE ALSO HEARD THE LEARNED DR AND CONSIDERE D THE FACTS AND MATERIALS ON RECORD INCLUDING THE DECISION OF THE T RIBUNAL FOR THE ASSESSMENT YEAR 2006-07 IN ASSESSEE'S OWN CASE. WE FIND THAT THE ITA NOS.847 & 848/BANG/20122 PAGE - 3 FACTS AND CIRCUMSTANCES ARE IDENTICAL IN THESE TWO ASSESSMENT YEARS ALSO AND THE COMMISSIONER OF INCOME-TAX (APPEALS) F OLLOWING HIS EARLIER ORDERS HAD ALLOWED THE CLAIM OF THE ASSESSE E. WE ALSO FIND THAT THE APPELLATE ORDER OF THE COMMISSIONER OF INCOME-T AX (APPEALS) WAS UPHELD BY THE ITAT AND THE REVENUE'S APPEAL WAS DIS MISSED IN THE ABOVE SAID ORDER. WHILE DISMISSING THE ABOVE APPEA L, THE TRIBUNAL HAS OBSERVED AS FOLLOWS : '7 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSING OFFICER UNDE R MISTAKEN NOTION HAD ANALYSED THE FINANCIAL AND QUANTITATIVE DETAILS OF THE WEAVING (FABRIC) SEGMENT AND YARN SEGMENT SEPARATEL Y. HE WAS OF THE VIEW THAT THE SEIDE UNIT OF THE ASSESSEE WAS EXCLUSIVELY MANUFACTURING FABRICS WHEREAS FILATI UNIT WAS EXCLU SIVELY MANUFACTURING YARN AND NOT FABRIC. THE ASSESSING O FFICER HELD THAT THE COMPANY STARTED SHIFTING THE BUSINESS OF T HE WEAVING UNIT (SEIDE/ FABRIC UNITS) TO THE YARN DIVISION (FI LATI UNIT) ON A GRADUAL BASIS SO AS TO REDUCE THE IMPACT ON TAXES O N THE WEAVING UNIT. IT WAS FURTHER HELD BY THE ASSESSING OFFICER THAT THE ASSESSEE COMPANY HAD TRANSFERRED ASSETS WHICH INCLU DE LAND, BUILDINGS AND PLANT AND MACHINERY OF THE WEAVING DI VISION TO FILATI DIVISION GRADUALLY AND STARTED SHOWING THE T URNOVER OF THE VERY TRANSFERRED ASSETS UNDER THE FILATI DIVISION O F THE COMPANY AND STARTED CLAIMING DEDUCTION U/S.10B OF THE ACT A ND CORRESPONDINGLY, THE TURNOVER UNDER SEIDE UNIT HAD BEEN BROUGHT DOWN SUBSTANTIALLY. THIS MISTAKEN CONCLUSION DRAWN BY THE ASSESSING OFFICER THAT THE SEIDE UNIT IS EXCLUSIVEL Y MANUFACTURING FABRICS AND FILATI UNIT IS EXCLUSIVEL Y MANUFACTURING YARN PROBABLY COULD HAVE OCCURRED DUE TO THE ASSESSEE FURNISHING SEGMENT-WISE ACCOUNTS (PRODUCT- WISE). THE ASSESSEE BEING A COMPANY WAS ALSO REQUIRED TO REPOR T SEGMENT- WISE ACCOUNTS (PRODUCT-WISE) AS PER THE ACCOUNTING STANDARDS- 17. THE ASSESSEE WHILE SUBMITTING INFORMATION TO T HE ASSESSING OFFICER INADVERTENTLY SUBMITTED THE SEGMENT WISE IN STEAD OF UNIT WISE PROFITABILITY AND BALANCE-SHEET. IT WAS SUBMI TTED THAT THE COPIES OF THE SEGMENT WISE ACCOUNTS ARE FURNISHED T O RESPECTIVE STOCK EXCHANGE IN WHICH THE ASSESSEE SHARES ARE LIS TED AND IT IS A MATTER OF RECORD. A COPY OF THE SEGMENT WISE ACCOU NTS PUBLISHED IN THE BUSINESS STANDARD NEWSPAPER FOR THE YEAR END ING ITA NOS.847 & 848/BANG/20122 PAGE - 4 31.03.2006 AND AUDITED BALANCE SHEET FOR THE CONCER NED YEAR DISCLOSING SEGMENT WISE FIGURES ARE ENCLOSED IN THE PAPER BOOK FILED BY THE ASSESSEE. WE ARE OF THE VIEW THE ASSE SSING OFFICER MISCONSTRUED THE FACTS AND CONCLUDED THAT SEGMENT W ISE ACCOUNTS WERE THE UNIT WISE ACCOUNTS. THE ASSESSIN G OFFICER IGNORED ALL THE DOCUMENTS AND RECORDS AND IN PARTIC ULAR THE UNIT WISE AUDIT REPORT OF FILATI UNIT U/S.10B OF THE ACT . 7.1. AT THIS JUNCTURE, IT IS WORTHWHILE TO RECORD T HE CHRONOLOGY OF THE EVENTS OF THE ASSESSEE COMPANY. THOUGH THE CHRONOLOGY OF EVENTS ARE RECORDED IN A TABULAR FORM IN THE IMPUGN ED ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS), FOR THE S AKE OF CONVENIENCE, THE SAME IS REPRODUCED BELOW : SL. NO. DATE/YEAR EVENT 1. 1985 HSL WAS INCORPORATED TO MANUFACTURE AND EXPORT NATURAL SILK FABRIC. 2. 1987 FIRST UNIT CALLED SEIDE UNIT WAS ESTABLISHE D AS 100% EOU. STARTED COMMERCIAL PRODUCTION OF FABRIC, ETC. 3. 31.3.1995 A.Y.1995-96 UNDER GREEN CARD NO.269, THE HSL GOT APPROVAL OF CEPZ TO PRODUCE SPUN SILK AND BLENDED YARN IN THE FACTORY LOCATED AT VEERAPURA VILLAGE, DODDABALLAPUR, BANGALORE. 4. 9-4-1997 (F.Y.1997- 98) A.Y. 1998-99 FILATI DIVISION GOT THE CERTIFICATE TO MANUFACTURE SPUN SILK AND BLENDED YARN VIDE REFERENCE NO.1/32/96 : EOU: CEPZ/1222 DATE 9-4-1997 (COPY ENCLOSED AS ANNEXURE-I). THIS CERTIFICATE SHOWS THE FILATI DIVISION WAS GIVEN A DISTINCT IDENTIFICATION BY CHANGE OF NAME FROM HSL TO HIMATSINGKA FILATI DIVISION OF HSL. PROJECT COST OF RS.49.07 WAS SHOWN IN THE BALANCE SHEET. 5. (APRIL, 1998) F.Y. 1998-99 ASSESSMENT YEAR 1999-2000 COMMERCIAL PRODUCTION OF YARN STARTED IN FILATI UNIT. LOSS RESULTING FROM SUCH BUSINESS WAS REFLECTED IN THE RETURN. THE DEPARTMENT CONSIDERED SUCH LOSS OF FILATI DIVISION TO REDUCE THE CLAIM OF DEDUCTION UNDER SECTION 80 HHC OF I T ACT. ITA NOS.847 & 848/BANG/20122 PAGE - 5 6. 19-09-2000 F.Y. 2000-01 ASSESSMENT YEAR 2001-02 (I) FILATI UNIT ADDED MACHINERIES VALUED AT RS.12,27,54,090/- TO MANUFACTURE FABRIC AND ALSO OBTAINED THE APPROVAL FROM CEPZ ON 19- 9-2000 TO PRODUCE FABRICS ALONG WITH ITS ORIGINAL PRODUCT YARN. IN OCTOBER, 2000, IT STARTED COMMERCIAL PRODUCTION IN FABRIC ALSO. (II) THUS, FILATI UNIT BECAME MANUFACTURER AND EXPORTER OF YARN AS WELL AS FABRIC WHILE SEIDE UNIT REMAINED EXCLUSIVELY THE MANUFACTURE AND EXPORTER OF FABRIC ONLY. (III) FILATI UNIT CLAIMED DEDUCTION UNDER SECTION 10B FOR BOTH FABRIC AS WELL AS YARN AND DEPARTMENT ALLOWED THE CLAIM PARTIALLY. 7. A.Y. 2002- 03, 03-04, 04-05 & 05-06 IN ALL THESE YEARS, CLAIM OF DEDUCTION UNDER SECTION 10B WAS MADE BY THE FILATI UNIT FOR ITS MANUFACTURE AND EXPORT OF YARN AS WELL AS FABRIC AND WAS ALSO ACCEPTED BY THE DEPARTMENT WITH MINOR CHANGES IN QUANTIFICATION. 8. A.Y. 2006-07 THE CLAIM OF DEDUCTION UNDER SECTION 10B RELATING TO FILATI UNIT WAS DENIED BY THE ASSESSING OFFICER ON THE GROUND THAT THE SAME HAS BEEN FORMED BY SPLITTING UP OR RECONSTRUCTION OF THE EXISTING SEIDE UNIT. TILL 1999-2000, FABRIC WAS PRODUCED ONLY IN SEIDE U NIT AND FILATI UNIT WAS PRODUCING ONLY YARN. LATER ON FILATI UNIT WAS EXPANDED BY ADDING MACHINERY TO MANUFACTURE FABRIC IN ADDITI ON TO YARN. NECESSARY APPROVALS WERE DULY OBTAINED FROM ALL CON CERNED AUTHORITIES INCLUDING THE APPROVAL OF CEPZ. CEPZ G AVE THEIR APPROVAL VIDE LETTER NO.1/32:96:EOU:CEPZ/6447 DATED 19 SEPTEMBER, 2000 CLEARLY GIVING THE APPROVAL FOR THE MANUFACTURE OF VELVET PILE FABRICS AND OTHER KINDS OF FABRICS ( ANNEXURE F OF PAPER BOOK). CEPZ ALSO ISSUED REVISED GREEN CARD N O.450 DATED 8.3.01 GIVING THE VARIOUS PRODUCTS TO BE MANU FACTURED BY THE UNIT I.E. YARNS OF SPUN SILK/WOOLEN/VISCOSE/BLE NDS, VELVET (PILE) & CHENILLE FABRICS MADE OUT OF SPUN SILK/NAT URAL SILK/WOOLEN/VISCOSE/COTTON & BLENDS (INC. JACQUARD WOVEN) (COURTESY : ANNEXURE G OF PAPER BOOK). BASED ON TH E APPROVAL, THE ASSESSEE EXPANDED ITS FILATI EOU AND MADE A CAP ITAL EXPENDITURE OF RS.12.28 CRORES WHICH EVENTUALLY IN SUBSEQUENT YEARS INCREASED TO RS.90.63 CRORES. THE ADDITIONS TO FIXED ASSETS MADE IN THE FILATI UNIT (FABRIC ONLY) ARE DULY DISC LOSED IN THE ITA NOS.847 & 848/BANG/20122 PAGE - 6 AUDITED BALANCE SHEET FOR THE YEAR ENDING 31.3.2001 AND SUBSEQUENT YEARS. THE YEAR-WISE BREAK UP OF THE AD DITIONS TO THE FIXED ASSETS MADE IN THE FILATI UNIT IS DETAILED AT ANNEXURE H OF THE PAPER BOOK. THE PLANT AND MACHINERY MAINLY INC LUDED WEAVING LOOMS ETC. TO MANUFACTURE FABRICS IN ADDITI ON TO YARN BY THE FILATI UNIT. THE COMMERCIAL PRODUCTION OF THE FABRIC UNDER FILATI UNIT WAS COMMENCED IN OCTOBER, 2000. IN OTH ER WORDS, FROM THE YEAR 2000-01, FILATI UNIT STARTED MANUFACT URING FABRICS ALSO, IN ADDITION TO YARN. THE PRODUCTION & SALES MADE BY THE FILATI UNIT OF FABRICS AS WELL AS YARN HAVE DULY BE EN REFLECTED IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE AN D THE SAME FORMED PART OF THE BALANCE SHEET AND BASED ON THE I NCOME TAX RETURNS FILED BY THE ASSESSEE; THE SAME HAS BEEN DU LY ASSESSED ACCORDINGLY. THE ASSESSEE CLAIMED DEDUCTIONS UNDER SECTION 10B FOR ITS YARN AND FABRIC MANUFACTURING OF THE FI LATI UNIT AND THE SAME HAVE BEEN DUTY ALLOWED BY THE RESPECTIVE A SSESSING OFFICERS IN RESPECT OF ASSESSMENT YEARS 2000-01, 20 01-02, 2002- 03, 2003-04, 2004-05, 2005-06. THE SUMMARIZED CLAIM OF THE ASSESSEE YEAR WISE IS A S UNDER : FY AY PRODUCT LINE PROFIT/(LOSS) RS. 10B CLAIM ALLOWED BY ASSESSING OFFICER RS. 1998-99 1999-00 YARN (29,091,721) 1999-00 2000-01 YARN (17,353,470) 2000-01 2001-02 YARN & FABRICS (31,126,485) LOSS IGNORED, BEING 10B UNIT AND NOT SET OFF AGAINST OTHER PROFITS. 2001-02 2002-03 -DO- 67,900,502 63,934,532 2002-03 2003-04 -DO- 213,830,976 183259,431 2003-04 2004-05 -DO- 280,112,162 239,256,051 2004-05 2005-06 -DO- 343,698,388 307,572,784 2005-06 2006-07 -DO- 392,943,877 DISALLOWED FIRST TIME BY ASSESSING OFFICER, ALLOWED BY CIT(APPEALS) AND DEPT. IS IN ITAT FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE HAS B EEN CLAIMING DEDUCTION UNDER SECTION 10B OF THE ACT FROM THE YEA R IN WHICH IT ITA NOS.847 & 848/BANG/20122 PAGE - 7 HAS BEEN SET UP, NAMELY, A. Y.1999-00 ONWARDS. IT WAS A LOSS FOR THE A.YS.1999-00 TO 2001-02. LOSS WAS IGNORED AND WAS NOT SET OFF AGAINST THE OTHER PROFITS OF THE ASSESS EE COMPANY. THE DEDUCTION UNDER SECTION 10B OF THE ACT WAS ALLO WED FROM ASSESSMENT YEAR 2002-03 ONWARDS. THE CLAIM OF DEDU CTION U/S.10B HAS BEEN DENIED FOR THE FIRST TIME IN THIS ASSESSMENT YEAR, NAMELY, A. Y. 2006-07. THE ONUS IS VERY HEAV Y ON THE REVENUE TO EXAMINE THE FACTS IN THE INITIAL YEAR AN D COME TO A CONCLUSION WHETHER BENEFIT U/S.10B(2)(II) IS TO BE ALLOWED OR DENIED. THIS LEGAL PROPOSITION HAS BEEN ELABORATEL Y DISCUSSED BY THE JURISDICTIONAL HIGH COURT IN CIT V. NIPPON E LECTRONICS (INDIA) PVT. LTD., (1990) (181 ITR 518) AND SAMI LA BS LTD., V. ACIT (2011) (334 ITR 157). 7.2. THE OBSERVATIONS OF THE ASSESSING OFFICER IN PARA 27 IS NOT CORRECT THAT THE TRANSFER OF THE ASSETS I NCLUDING LAND, BUILDING AND MACHINERIES HAS BEEN DONE GRADUALLY TO CLAIM DEDUCTION UNDER SECTION 10B. THE FILATI UNIT HAS B EEN ESTABLISHED IN COLLABORATION WITH M/S FILATI BURATT I SPA, ITALY AS AN INDEPENDENT UNIT TO PRODUCE THE PRODUCTS BASE D ON LATEST TECHNOLOGY AND DEMAND OF THE CUSTOMERS. SOME TRANS FER OF THE ASSETS, IF AT ALL HAS BEEN DONE FROM THE SEIDE UNIT TO THE FILATI UNIT, THE SAME HAS BEEN IN ACCORDANCE WITH THE LAW AND THE UNIT HAS FULFILLED ALL THE CONDITIONS LAID DOWN UNDER SE CTION 10B RIGHT FROM THE INCEPTION. THE ASSESSING OFFICER H AS FAILED TO APPRECIATE THAT THE ASSESSEE HAS INVESTED MORE THAN RS.90 CRORES OVER THE PERIOD IN THE FILATI DIVISION TO IN CREASE ITS PRODUCTION OF FABRIC TO MEET THE MARKET DEMANDS. T HE DEPRECIATION HAS BEEN CLAIMED AND ALLOWED. IT IS N OT A CASE WHERE THE PRODUCTION OF FILATI UNIT HAS INCREASED W ITHOUT MAKING ANY CAPITAL INVESTMENT AND IS PURELY BASED O N TRANSFER OF THE ASSETS FROM THE SEIDE UNIT. THE ALLEGATIONS OF THE ASSESSING OFFICER IN THIS REGARD ARE UNFOUNDED WITH OUT ANY SUBSTANCE AND EVIDENCE. EVEN ASSUMING IF THERE IS SOME TRANSFER OF MACHINERY AND PLANT FROM THE SEIDE UNIT TO THE FILATI UNIT, THE ASSESSING OFFICER DOES NOT HAVE A CASE TH AT SUCH TRANSFER EXCEED THE PRESCRIBED LIMIT, NAMELY, THE T RANSFERRED MACHINERY AND PLANT VALUE, EXCEEDED 20% [EXPLANATIO N TO SECTION 10B(2) R.W. EXPLANATION 2 TO SECTION 80I(2) ] OF THE TOTAL VALUE OF THE MACHINERY AND PLANT USED IN THE BUSINE SS OF FILATI UNIT. 7.3. ANOTHER IMPORTANT ASPECT TO BE NOTED IS THE FABRIC MANUFACTURING CAPACITY IN THE FILATI UNIT WAS 14,12 ,194 (QUANTITY IN METERS) WHEREAS THE PRODUCTION WAS ONL Y TO THE ITA NOS.847 & 848/BANG/20122 PAGE - 8 EXTENT OF 76% OF THE INSTALLED CAPACITY DURING THE CURRENT FINANCIAL YEAR. THEREFORE, WHEN THE FILATI UNIT HA S NOT UTILIZED ITS FULL CAPACITY, UTILIZATION PRODUCTION OF FABRIC , THE ASSESSING OFFICERS STATEMENT THAT THE ASSESSEE HAS SHIFTED F ABRIC SALES TURNOVER FROM SEIDE UNIT TO FILATI UNIT, IS ONLY A PRESUMPTION WITHOUT ANY EVIDENCE TO SUBSTANTIATE THE SAME. 7.4. THEREFORE, WE ARE IN TOTAL AGREEMENT WITH TH E SOUND REASONING OF THE FIRST APPELLATE AUTHORITY TH AT THE FILATI DIVISION STARTED AS A SEPARATE UNIT IN AY 1997-98 F OR PRODUCTION OF YARN. IT STARTED PRODUCTION OF FABRI C IN AY 2001- 02 BECAUSE OF LOSS INCURRED AND ALSO DID NOT CLAIM SET OFF OF LOSS, BUT, THE LOSS WAS SET OFF AGAINST THE PROFITS OF SEIDE UNIT TO REDUCE THE CLAIM U/S 80HHC OF I.T. ACT. THE APPELL ANT CLAIMED DEDUCTION U/S 10B OF I.T.ACT FROM FILATI DIVISION F OR FABRIC AND YARN PRODUCTION TAKEN TOGETHER IN AY 2002-03 FOR TH E FIRST TIME. THEREFORE, THE ISSUE OF FORMATION OUT OF RECONSTRUC TION OR SPLITTING UP COULD HAVE BEEN RAISED EITHER OF THESE THREE ASSESSMENT YEARS AND, THEREFORE, THE AO IS NOT JUST IFIED IN DISALLOWING THE CLAIM U/S 10B OF I.T. ACT IN AY 200 6-07 WHICH IS NOT THE FORMATION YEAR OF THE FILATI DIVISION ON THE PLEA THAT THE FILATI DIVISION WAS BORN OUT OF RECONSTRUCTION PROCESS OF EXISTING SEIDE UNIT. 7.4.1. AT THIS JUNCTURE, WE VENTURE TO QUOTE THE RULINGS OF VARIOUS JUDICIARIES ON A SIMILAR ISSUE: (A) IN THE CASE OF CIT V. NIPPON ELECTRONICS (INDI A) PVT. LTD REPORTED IN 181 ITR 518 (KAR), THE HONBLE JURISDIC TIONAL COURT HAD HELD IN THE CONTEXT OF S.80J OF THE ACT THAT T HE WORD FORMED SUGGESTS THAT THE TRANSFER CONTEMPLATED IS ONE AT THE TIME OF FORMATION OF THE NEW UNDERTAKING. ONCE THE CONDITION IS SATISFIED IN THE YEAR OF FORMATION OF THE UNIT, THE RE IS NO NEED TO LOOK AT THIS CONDITION IN LATER YEARS. THE RATIO LAID DOWN BY THE HONBLE COURT IS DIREC TLY APPLICABLE TO THE ISSUE ON HAND. IN THE PRESENT CA SE, THE CLAIM OF DEDUCTION U/S 10B OF THE ACT FOR FILATI DIVISION FOR THE AY 2002-03 WAS ALLOWED. SUBSEQUENTLY, THE CLAIMS FOR DEDUCTIONS U/S 10B OF THE ACT FOR FILATI DIVISION WERE ALLOWED FOR THE AYS. 2003-04 TO 2005-06, OF COURSE, AT REDUCED PROPOSITI ONS. THIS UNAMBIGUOUSLY PROVES THAT THE AO MUST HAVE COME TO A DEFINITE CONCLUSION THAT THERE WAS NEITHER RECONSTRUCTION NO R SPLITTING UP OF THE EXISTING UNITS, AND, THEREFORE, ALLOWED T HE APPELLANTS CLAIM THOUGH AT REDUCED AMOUNTS, OTHERWISE, IT IS A SIMPLE LOGIC THAT HE COULD HAVE RAKED UP THE ISSUE AT THAT RELEV ANT TIME ITSELF. ITA NOS.847 & 848/BANG/20122 PAGE - 9 (B) WITH REGARD TO THE AOS ALLEGATION THAT THER E WAS RECONSTRUCTION OF THE EXISTING BUSINESS OF APPELLANTS SEIDE DIVISION, IT MAY NOT BE INAPPROPRIATE TO QUOTE THE RULING OF THE HONBLE APEX COURT ON A SIMILAR ISSUE IN THE CASE O F TEXTILE MACHINERY CORPORATION LTD. V. CIT (1977) 107 ITR 19 5 (SC) AS UNDER: 'A NEW ACTIVITY LAUNCHED BY THE ASSESSEE BY ESTABLI SHING NEW PLANTS AND MACHINERY BY INVESTING SUBSTANTIAL FUNDS MAY PRODUCE THE SAME COMMODITIES OF THE OLD BUSINESS OR IT MAY PRODUCE SOME OTHER DISTINCT MARKETABLE PRODUCTS, EV EN COMMODITIES WHICH MAY FEED THE OLD BUSINESS. THESE PRODUCTS MAY BE CONSUMED BY THE ASSESSEE IN HIS OLD BUSINESS OR MAY BE SOLD IN THE OPEN MARKET. ONE THING IS CERTAIN TH AT THE NEW UNDERTAKING MUST BE AN INTEGRATED UNIT BY ITSELF WH EREIN ARTICLES ARE PRODUCED AND AT LEAST A MINIMUM OF TEN PERSONS WITH THE AID OF POWER AND A MINIMUM OF TWENTY PERSO NS WITHOUT THE AID OF POWER HAVE BEEN EMPLOYED. SUCH A NEW INDUSTRIALLY RECOGNIZABLE UNIT OF AN ASSESSEE CANNO T BE SAID TO BE RECONSTRUCTION OF HIS OLD BUSINESS SINCE THERE I S NO TRANSFER OF ANY ASSETS OF THE OLD BUSINESS TO THE NEW UNDERT AKING WHICH TAKES PLACE WHEN THERE IS RECONSTRUCTION OF THE OLD BUSINESS. FOR THE PURPOSE OF SECTION 15C THE INDUSTRIAL UNITS SET UP MUST BE NEW IN THE SENSE THAT NEW PLANTS AND MACHIN ERY ARE ERECTED FOR PRODUCING EITHER THE SAME COMMODITIES O R SOME DISTINCT COMMODITIES. IN ORDER TO DENY THE BENEFIT OF SECTION 15C THE NEW UNDERTAKING MUST BE FORMED BY RECONSTRU CTION OF THE OLD BUSINESS. IF AN UNDERTAKING IS NOT FORMED BY THE RECONSTRUCTI ON OF THE OLD BUSINESS THAT UNDERTAKING WILL NOT BE DENIED TH E BENEFIT OF SECTION 15C MERELY BECAUSE IT GOES TO EXPAND THE GE NERAL BUSINESS OF THE ASSESSEE IN SOME DIRECTIONS. USE BY THE ASSESSEE OF THE ARTICLES PRODUCED IN ITS EXISTING BUSINESS OR THE CONCEPT OF EXPANSION ARE NOT DECISI VE TESTS IN CONSTRUING SECTION 15C.' (C) INCIDENTALLY, THE HONBLE DELHI HIGH COUR T IN THE CASE OF CIT V. HINDUSTAN GENERAL INDUSTRIES LIMITED REPO RTED IN (1981) 137 ITR 851 (DEL) HAD INTERPRETED THAT THE TERM RECONSTRUCTION IS NO DOUBT VERY WIDE BUT IT DOES NOT HOLD IN A CASE OF A COMPANY SETTING UP OR ESTABLISHING A TOTA LLY INDEPENDENT AND VIABLE INDUSTRIAL UNIT FOR CARRYING ON THE SAME OR SIMILAR BUSINESS EVEN THOUGH IT MIGHT BE SO SET UP BY ITA NOS.847 & 848/BANG/20122 PAGE - 10 WAY OF EXPANDING THE ALREADY EXISTING BUSINESS. TH E EMPHASIS IS NOT ON BUSINESS BUT ON UNDERTAKING. TH E EXEMPTION IS GRANTED TO NEW UNDERTAKINGS AND THE ES SENCE OF THE EXEMPTION IS THAT IT IS A NEW INDUSTRIAL UNIT T HAT IS ESTABLISHED AND THAT IT IS NOT MERELY A REHASH OF A N ALREADY EXISTING UNIT. (D) THE HONBLE ITAT, E BENCH IN THE CASE OF TATA COMMUNICATIONS INTERNET SERVICES V. ITO REPORTED IN (2010) 130 TTJ (DEL) HAD ALLOWED THE CLAIM OF THE ASSESSEE BY HOLDING THAT SUCH OBJECTION COULD ONLY BE MADE IN THE FIRST YEAR OF FORMATION OR AT BEST THE FIRST YEAR OF THE CLAIM MA DE AND NOT IN SUBSEQUENT YEARS ESPECIALLY WHEN IN EARLIER YEARS, NO OBJECTION HAD BEEN RAISED ON SUCH GROUND EVEN IF AS SESSMENT WAS COMPLETED UNDER SCRUTINY AND SUCH CLAIMS HAD BE EN ACCEPTED BY THE DEPARTMENT AS SUCH. (E) TO TOP IT ALL, THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SAMI LABS LTD. REPORTED IN 334 ITR 157 HAD OBSERVED THAT STARTING POINT OF THE HOLIDAY PERIOD WOULD BE THE YEAR IN WHICH THE MANUFACTURE OR PRODUCTION OF THE ARTICLE BEGINS AND THERE IS NO DISPUTE ON THIS. ELIGIBILITY TEST HAS TO BE IN THE INITIAL ASSESSMENT YEAR AND IF FOR ANY REASON LIKE NOT EARNING PROFITS AND GAINS IN THE INITIAL YEARS ON ACCOUNT O F ITS INFANCY AND ON ACCOUNT OF NON-STABILIZATION OF ITS UNIT, AS THE CASE MAY BE IT MAY NOT BE ABLE TO DERIVE THE BENEFITS F LOWING FROM SEC.10-B IN THAT YEAR, BUT WOULD BE ELIGIBLE TO AVA IL THE SAME IN ANY OF THE SUCCEEDING YEARS, ONCE IT IS FOUND EL IGIBLE IN THE INITIAL YEAR OF MANUFACTURE. . IN AN OVERALL CONSIDERATION OF THE FACTS AND CIRCUM STANCES OF THE ISSUE AS DELIBERATED UPON IN THE FORE-GOING PAR AGRAPHS AND ALSO IN CONFORMITY WITH THE PRECEDENT LAID DOWN BY VARIOUS JUDICIARIES, CHIEFLY, THE JURISDICTIONAL HONBLE HI GH COURT IN THE CASE OF M/S. SAMI LABS LIMITED V. ACIT CITED SUPRA, WE ARE OF THE UNANIMOUS VIEW THAT THE LD. CIT (A) WAS FULLY J USTIFIED IN FINDING FAULT WITH THE AO THAT (I) THE AO OUGHT T O HAVE RAISED SUCH A BOGEY OF THE ALLEGED FORMATION OUT OF RECONS TRUCTION OR SPLITTING UP OF THE EXISTING BUSINESS OF SEIDE DIVI SION ETC., WHEN THE APPELLANT HAD INITIALLY CLAIMED SUCH A DEDUCTI ON IN THE AY 2002-03 ITSELF; AND (II) HE ( THE AO) WAS ALSO NOT JUSTIFIED IN DISALLOWING SUCH A CLAIM IN THE AY UNDER CHALLENGE WHICH INCIDENTALLY NOT THE FORMATION YEAR OF THE ALLEGED FILATI DIVISION. FURTHERMORE, THE STAND OF THE AO HAD, IN FACT, BEEN ITA NOS.847 & 848/BANG/20122 PAGE - 11 CONTRARY TO THE VERY SPIRIT OF THE RULING OF THE JU RISDICTIONAL HIGH COURT CITED ABOVE. IN ESSENCE (I) THE APPELLANT WAS ELIGIBLE FOR CLAIM SINCE THOSE TW O UNITS WERE DISTINCT INDUSTRIALLY RECOGNIZABLE UNITS WHICH , IN OUR CONSIDERED VIEW, CANNOT BE CATEGORIZED AS HAVING BE EN FORMED BY THE RECONSTRUCTION MERELY BECAUSE OF COMMON OWNE RSHIP OR BECAUSE IT PRODUCED THE SAME COMMODITIES AND DEA L WITH THE SAME CUSTOMERS. IT HAS, THEREFORE, BEEN CLASSI FIED AS A CASE OF EXPANSION, BUT, NOT RECONSTRUCTION OR SPLIT TING UP AS ALLEGED BY THE REVENUE; & (II) THOUGH HYPOTHETICAL, THE AOS ALLEGED CLAIM OF YARN DIVISION OF THE APPELLANT WAS NOTHING BUT THE RECO NSTRUCTION OF THE EXISTING BUSINESS OF SEIDE DIVISION, EVEN T HEN ALSO THE AO WAS FORBIDDEN IN DISALLOWING THE CLAIM OF THE AP PELLANT U/S 10-B OF THE ACT FOR THE AY UNDER DISPUTE WHICH WAS, ADMITTEDLY, NOT THE FORMATION OF FILATI DIVISION. 8. IN A NUT-SHELL , THE FINDINGS OF THE LD. CIT (A) REQUIRE NO INTERVENTION OF THIS BENCH. IT IS ORDERED ACCORDIN GLY. 9. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED .' 05. FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL IN AS SESSEE'S OWN CASE, WE DISMISS THE REVENUE'S APPEALS IN ITA NO.84 7 AND 848/BANG/2011, FOR THE ASSESSMENT YEARS 2003-04 AND 2005-06. 06. IN THE RESULT, THE REVENUE'S APPEALS ARE DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 05.10.2012. SD/- SD/- (N. V. VASUDEVAN) (N. BARATHVAJA SANKAR) JUDICIAL MEMBER VICE PRESIDENT ITA NOS.847 & 848/BANG/20122 PAGE - 12