LOTUS FOOTWEAR ENTERPRISES LIMITED-INDIA BRANCH,TIRUVANNAMALAI V. DCIT, INTERNATIONAL TAX 1(2), CHENNAI

MA 7/CHNY/2025

AI Insights

The case involves M/s. Lotus Footwear Enterprises Ltd., which sought to amend or recall an earlier Tribunal order concerning the eligibility for deduction under Section 10AA for their unit LU2. The primary contention was whether the machinery transferred from another unit (LU1) to LU2 exceeded the statutory threshold of 20%, which would disqualify LU2 from being considered a new unit eligible for deductions. The Tribunal initially found that the transfer percentage was 22.10%, exceeding the limit. However, the assessee argued that including capital work-in-progress (WIP) reduced this percentage to 14.57%. The Tribunal also noted that the issue of splitting up or reconstruction of LU1 was not addressed in the earlier order, necessitating a recall for further consideration.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 633698 (ITAT-CHENNAI)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 11-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Laws Referred To: Section 80IA(3), Section 80IA(4), Section 10AA(4)(iii)
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R. ANITHA
• Assessee Lawyers: SRIRAM SESHADRI; C.A
• Section: 10AA

Judgement Text

"आयकर अपीलीय अिधकरण ‘ए’ \u0010ा यपीठ, चे\u0016ई। N THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH: CHENNAI \u0019ी एबी टी. वक , \u0010ा ियक सद! एवं \u0019ी जगदीश, लेखा सद! क े सम( BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI JAGADISH, ACCOUNTANT MEMBER M.A Nos.04, 07, 08 & 09/Chny/2025 (Arising out of IT(TP)A No.20/Chny/2021 & ITA Nos.798, 799, 800/Chny/2022) िनधा*रण वष* /Assessment Years: 2016-17, 2017-18, 2018-19 & 2019-20 M/s. Lotus Footwear Enterprises Ltd. - India Branch, Plot No.3B & 3C, SIPCOT Industrial Park, Mangal Village, Mathur Post, Vembakkam Taluk, Tiruvannamalai District – 613 701. Vs. The Dy. Commissioner of Income Tax, International Taxation-1(2), Chennai. [PAN: AABCL 3407G] (अपीलाथ\u0007/Appellant) (\b यथ\u0007/Respondent) अपीलाथ की ओर से/ Appellant by : Shri Sriram Seshadri, C.A & Ms. C. Soundarya, C.A ./थ की ओर से /Respondent by : Ms. R. Anitha, Addl. CIT सुनवाई की तारीख/Date of Hearing : 25.04.2025 घोषणा की तारीख /Date of Pronouncement : 11.06.2025 आदेश / O R D E R PER JAGADISH, A.M : By way of this Miscellaneous Application (MA), the assessee seeks TO amend or recall the order passed by the Tribunal in IT(TP)A No.20/Chny/2021 dated 20.11.2024. 2. The Ld. Authorized Representative (A.R) of the assessee has objected to the findings recorded in para 11 in page 9 of Tribunal’s M.A Nos.04, 07, 08 & 09/Chny/2025 :- 2 -: order as “….the Ld AR has not been able to substantiate the above claim by accounts either before the A.O or DRP or before us”. The para 11 is reproduced as under: “11. The second unit LU2 had made application to set up new unit in Cheyyar SEZ to Development Commissioner MEPZ on 24th May 2013 and commenced production from 2nd April 2014. The AO has noted that as on 31.03.2014, the assessee company has purchased new machinery of Rs.11,99,23,856/ and transferred machinery of value Rs.3,40,34,392/ from the other unit and therefore the percentage of transferred machinery is 22.10%. As per explanation 2 to Section 80IA(3) read with explanation to section 80IA(4), only where machinery transferred to new business does not exceed the twenty per cent of the total value of machinery, it will be said to be not formed by the transfer to a new business of machinery or plant previously used for any purpose which is requirement as per section 10AA(4)(iii) to be eligible to claim deduction under section 10AA. In the case of assessee company the percentage of transferred machinery is more that 20%, hence section 10AA(4)(iii) is clearly attracted. The Ld AR’s argument that production started in financial year 2014-15, therefore the percentage of transferred machinery as on 31.03.2015, which is 9.6% should be taken is not acceptable as assessee company has commenced production on 2nd April 2014 and the unit was in ready condition as on 31.03.2014. The Ld AR’s argument that AO has not included the capital WIP in new purchase of machinery for LU2 while arriving the 22.10 % of transferred machinery and if WIP is included the percentage of transferred machinery would be 14.57% is rejected as, the Ld AR has not been able to substantiate the above claim by accounts either before the A.O or DRP or before us. We, therefore agree with the order of Ld. AO that the second unit (LU2) is formed by the transfer of machinery previously used and therefore not eligible to claim deduction under section 10AA as new Unit. Accordingly, these grounds of appeals are dismissed.” 3. The Ld. AR has submitted that the capital work-in-progress, as reflected in the financial statements for the year ended 31st March 2014, was duly presented as a handout before the Hon’ble Tribunal during the hearing. It was further submitted that the details of capital WIP capitalized on 01.04.2014 were provided to the AO in response to M.A Nos.04, 07, 08 & 09/Chny/2025 :- 3 -: a show-cause notice and are enclosed on Page 157 of the Paper Book dated 13.04.2023. The Ld. AR contended that there is an error in the finding that the assessee failed to substantiate the claim regarding capital WIP. Therefore, it was requested that the AO be directed to consider the capital WIP as reflected in the financial statements for the purpose of computing the ratio of transferred machinery. 4. The Ld. AR further contended that the Hon’ble Tribunal has adjudicated only the issue of transfer of machinery while dismissing the relevant grounds. However, it did not adjudicate the separate statutory ground regarding the splitting up or reconstruction of the existing unit (LU1), which formed an independent basis for denial of deduction under Section 10AA by the AO and DRP. These grounds remain unadjudicated. 5. We have heard the rival submissions, and perused the materials available on record. We observe that the Tribunal, while dismissing grounds 3 to 9, held that LU2 was formed by transfer of previously used machinery and hence not eligible for deduction u/s. 10AA of the Act. However, we note that the AO/DRP has denied deduction also on the grounds that LU2 was formed by splitting up or reconstruction of LU1, a distinct statutory condition under the law and assessee has M.A Nos.04, 07, 08 & 09/Chny/2025 :- 4 -: raised them as grounds. As these grounds have not been adjudicated by the Tribunal, we are of the considered opinion that the order requires recall for adjudication on this aspect. 6. On the objection of our observation in para 11 , we find that The Ld AR in page 157 para 2.6.6 of the paper book has submitted that even if the aforesaid formative condition is tested on the date of commencement of LU2 the plant and machinery transferred accounts to about 14.57% and submitted table as under : 2.6.6 Additionally, even if the aforesaid formative condition is tested on the date of commencement of LU2, the plant and machinery transferred accounts to about 14.57%, which is again pretty much within the statutory threshold. Table5: Details of investment plant and machinery pertaining to LU2 (in Rs.) New purchases for LU2 and CWIP capitalized Machinery from LU1 Total machinery capitalized in LU2 % of transferred machinery from LU1 to total machinery 199,606,454 34,034,392 233,640,846 14.57% 7. The new machinery purchased as on 31.03.2013 was shown to be Rs 11,99,23856, which was used by AO/DRP to arrive at computation of 22.10% of machinery transferred from the other unit, but in table 5 the new purchase for LU2 and CWIP capitalized was shown at Rs.19,96,06,454/- as on 02.04.2013 to claim the transferred machinery at 14.57%. We find that no details of WIP capitalized as on 02.04.2013 was available before us to verify the above claim. We M.A Nos.04, 07, 08 & 09/Chny/2025 :- 5 -: therefore do not find any infirmity in our observation in this regard. However, as we have already recalled our order to adjudicate the other grounds on allowbility of claim of deduction u/s 10AA, assessee may submit the detail if allowed by the Bench. 7. In the result, the Miscellaneous Application filed by the assessee is allowed and the appeals to be posted in the regular course. Order pronounced on 11th day of June, 2025 at Chennai. Sd/- Sd/- (एबी टी. वक ) (ABY. T. Varkey) \u0010ाियक सद! / Judicial Member (जगदीश) (Jagadish) लेखा सद! /Accountant Member चे\u0010नई/Chennai, \u0013दनांक/Dated: 11th June, 2025. EDN/- आदेश क\u0016 \bितिल\u0019प अ\u001aे\u0019षत/Copy to: 1. अपीलाथ\b/Appellant 2. थ\b/Respondent 3. आयकर आयु\u0010/CIT, Chennai 4. िवभागीय ितिनिध/DR 5. गाड\u0019 फाईल/GF "