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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI ABY T VARKEY, HON’BLE & SHRI S. R. RAGHUNATHA, HON’BLE
PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER:
This appeal instituted by the revenue is against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, for the assessment year 2014-15, vide order dated 27.09.2023 against the order of the DCIT, Chennai dated 23.12.2016.
The sole issue is allowability of deduction u/s. 80IC of the Income-tax Act, 1961 (hereinafter referred to as “the Act”).
:-2-: ITA. No: 1421/Chny/2023 3. The brief facts are that, the assessee is an individual carrying on the business in the name of M/s. Arun Plasto Moulders and has set up an industry at Haridwar, Uttarakhand and claimed deduction u/s. 80IC of the Act. During the assessment year 2014-15, the assessee had filed return of income on 24.09.2014 and claimed deduction u/s. 80IC of the Act to the tune of Rs.11,07,71,096/-. The case was selected for scrutiny for scrutiny through CASS and the assessment was concluded by the Assessing Officer by disallowing the deduction claimed u/s. 80IC of the Act, by holding as under: “The assessee has claimed deduction u/s. 80IC for its undertaking at Haridwar, Uttarakhand, amounting to Rs.110771096/-. Similar claim of deduction u/s 801C, in the assessee's case, was denied in the earlier assessments by making a finding that the BOIC unit is formed by splitting up of business, the gist of which part of order is reproduced as under: "The claim of the assessee was verified by calling various information. On perusal of the information and explanation offered by the assessee, the deduction claimed was disallowed due Jo the following reasons: (i) Till the Asst. year 2010-11, the assessee was engaged in the manufacturing of ancillary equipment’s catering to the plastic, paper, rubber, confectionary, food and medical industries. During the financial year 2010-11, the company has started a unit in Haridwar, for manufacturing and supplying of plastic components using the injection moulding process and supplied to Hindustan Unilever Limited
:-3-: ITA. No: 1421/Chny/2023 (ii) The assessee and his family members are the share holders and Directors of the Company in the name and style of “Arun Plasto Moulders P Ltd (APMPL)”. The APMPL is engaged in the business of making plastic components using the process of injection moulding and supplies major part of its production to Hindustan Unilever limited The said company started 80IC undertaking in Haridwar, for manufacturing the plastic components. The claim of 80IC by the Company was disallowed on tile ground of splitting up of business from the AY 2009-10, the first year of claim. (iii) When the companies claim uws 80IC was disallowed, the assessee as a proprietary concern started the unit in Haridwar for manufacturing of the plastic components using injection moulding process for supplying lo Hindustan Unilever Limited. I is pertinent to note that the assessee was not engaged in the business of manufacturing of plastic components till such time. (iv) During the. Financial year 2010- l 1 (Asst, Year 2011-12), the first year of 8()JC claim by the assessee, the fixed asset schedule reveals that out of total Plant and Machinery to the w.01111 of Rs. 5981123/- installed in the Haridwar unit; Plant and Machinery to the 'worth of Rs.3120023/- was transferred from APMPL.. This transfer of Machinery was more than 50% of the total Plant & machinery l.!t1r-ployed in the Haridwar unit. Though the assessee and the company, APMPL, are different person and the company was a corporate entity, the lifting of the Corporate veil reveals that the assessee along with his family members control the business of the company and the order placed by the Hindustan Unilever Limited is to their group. As the assessee controls the affairs of the company, he has decided to split up the business of the company and divert some of the orders of Hindustan Unilever Limited to his proprietary concern especially to his Haridwar unit. The assessee 's action is also further justified by transferring the Plant &
:-4-: ITA. No: 1421/Chny/2023 Machinery i.e., injection moulding machine from APMPL to the worth of&. 31200231- . As the Haridwar unit was established by splitting of business and transferring of more than 20 % of Plant & Machinery employed in his group concern, the 80IC claim to the extent of Rs.49687993/- is disallowed and added to total income of .the asM1ssee under the head "income from Business & Profession".
Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the ld. CIT(A).
Before the ld. CIT(A), the assessee has filed written submissions along with supporting relevant documents as acknowledged by ld.CIT(A) at Para 4 and 5.2 of the impugned order. Wherein, the assessee pointed out that the first year of claim of deduction u/s. 80IC of the Act for assessment year 2011-12 and similar action was taken by Assessing Officer, which issue came up before the Tribunal and Tribunal was pleased to allow the deduction. The ld.CIT(A) after examining/verifying the claim of assessee, has allow it by upholding the order of the ld.CIT(A). Aggrieved, the revenue is before us.
The ld. DR, assailing the action of the ld. CIT(A) contended that the ld.CIT(A) erred in holding that formation of :-5-: ITA. No: 1421/Chny/2023 M/s. Arun Enterprises was not by way of splitting up or by way of reconstruction and would not fall u/s. 80IC(4)(i) of the Act, whereas the Assessing Officer has found that used machinery added during the year to the unit crosses the threshold limit of 20% fixed u/s. 80IC(4) r.w.s. 80IA of the Act in the present assessment year 2014-15 and therefore, assessee is not eligible for the deduction. According to him, used machinery was purchased by the Haridwar unit and therefore, the percentage of total used machinery added to the unit crossed threshold limit of 20% and therefore, ld.CIT(A) erred in allowing deduction. Therefore, he wants us to reverse the order of ld.CIT(A) and uphold the action of Assessing Officer.
Per contra, the ld. Counsel for the assessee brought to our notice that the ld.CIT(A) has rightly held that assessee was eligible for the deduction especially since the first year of claim was assessment year 2011-12 and the Assessing Officer ought not to have again found fault in the claim of the assessee and relied for such a proposition of Hon’ble Delhi High Court in the case of Tata Communications Ltd (SC) [2021] 282 Taxmann 462 (SC), applying the case law, since the assessee’s claim of deduction u/s. 80IC of the Act. The Assessing Officer had :-6-: ITA. No: 1421/Chny/2023 raised similar grounds to deny the claim of assessee in earlier years and the matter travelled to Tribunal took us to the submissions of the assessee’s own case for the assessment years 2012-13 & 2013-14 has already been adjudicated in favour of the assessee by way of coordinate bench of ITAT in & 3400/Chny/2019, by confirming the setting up of an undertaking which has been done as per the provisions of section 80IC of the Act and denial of deduction claimed u/s. 80IC of the Act has been deleted. The issue wise submissions for assessment years 2012-13 and 2013-14 held by the ld.AO, ld.CIT(A) and the Tribunal reads as under: Issue AO's Order CIT(A)’s Order Tribunal Decision 1. Whether The ld.AO The ld.CIT(A) after Tribunal findings the unit is confirmed that considering the are that the formed by the unit is relevant documents, assessee has splitting up or formed by denies the formed the new reconstruction splitting up observations of the unit at Haridwar of existing existing ld.AO and confirms not by splitting business business of the unit of assessee up of the another the assessee at Haridwar is not unit at Chennai formed by splitting (Para 9 of the up of existing Tribunal order) business at Chennai.
2. Whether The ld.AO The ld.CIT(A) being The assessee has the unit was disallowed the satisfied with the transferred used set up by deduction u/s. documents provided machinery only transferring 80IC of the confirmed that the to the tune of used Act, stating used machinery 15.19% of the machinery in that the transferred is only total plant and excess of 20% assessee has 15.19% of total machinery
:-7-: ITA. No: 1421/Chny/2023 of threshold transferred plant and machinery purchased during limit more than and which is well the financial year 50% of used within the threshold 2010-11 relevant machinery to limit of 20% to assessment the new unit prescribed u/s. 80IC year 2011-12, at Haridwar. r.w. Explanation 2 of which is the first Sec. 80IA(3) of the year of claiming Act. deduction u/s. 80IC of the Act. The CIT(A) deleted the disallowance The Tribunal made by ld.AO and upheld the allowed the ld.CIT(A) order of deduction u/s. 80IC allowing as claimed by the deduction u/s. assessee. 80IC The Ld. Counsel for the assessee also relied upon the ruling of Hon’ble Apex Court in the case of Tata Communications Ltd (SC) [2021] 282 Taxmann 462 (SC), wherein the Supreme Court has decided the issue on Section 80IA of the Act, which is in pari materia with section 80IC(4), wherein the Apex Court has confirmed the order of the Delhi Delhi High Court in [(2012) 251 CTR 290 (Del)] dated 08.08.2021. The Delhi High Court in its order had held as under: "the bar as provided under section 80IA(3) is to be considered only for the first year of the claim for deduction u/s 80 IA. Once the assessee is able to show that it has used new plants and machinery which has not been previously used for any purpose and the new under taking is not formed by splitting up or reconstruction of business already in existence, it is entitled to the deduction u/s 80IA for subsequent years. Since the assesee had been granted claim of deduction right from the AY 2004-05 under section 80 IA, consequently it cannot be denied deduction for the subsequent years in as much as restraint of :-8-: ITA. No: 1421/Chny/2023 section 80 IA (3) cannot be considered for every year of claim of deduction, but can be considered only in the year of formation of the business."
We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The Assessing Officer has denied the deduction claimed u/s. 80IC of the Act in respect of profit derived from new industrial undertaking at Haridwar on the ground that the unit was set up by splitting up of existing business based on the assessment orders of the previous assessment years 2012-13 & 2013-14. The Assessing Officer based on additions recorded to plant and machinery in the fixed assets and depreciation schedule of Rs.1,52,13,821/- to the machinery made by purchasing used machineries during the assessment year crosses the threshold limit of 20% as prescribed u/s. 80IA(3) r.w.s. 80IC of the Act and hence, the unit is not eligible for claiming deduction u/s. 80IC of the Act and the same had been disallowed.
In the present case, the facts are examined along with decision of coordinate bench of the Tribunal in assessee’s own case. In this regard, the assessee has already filed various corroborative evidences to prove that it has established a new
:-9-: ITA. No: 1421/Chny/2023 industrial unit at Haridwar for manufacturing the plastic components using injections moulding process, and have been claiming the deduction from assessment year 2011-12 itself. The facts have already been verified and accepted by the department before allowing the deduction u/s. 80IC of the Act, for the first year and deduction claimed in the assessment year 2011-12 onwards.
Thereafter, in subsequent assessment years i.e., 2012- 13 & 2013-14, the revenue carried the issue before the Tribunal, which was examined in detail especially with regard to the splitting up of machinery and the Tribunal repelled such \ action of Assessing Officer by holding as below: “11. Another observation of the Assessing Officer on the issue of transfer of machinery or plant previously used for any purpose beyond the specified percentage as per Explanation 2 of section 80(IA)(3) r.w.s. 80IC of the Act. The Assessing Officer alleged that assessee has used old plant and machinery previously used in the unit of M/s. Arun Plasto Moulders Private Ltd at Rs.31,20,023/- out of total plant and machinery installed at new unit of Rs.59,81,123/- and the said used plant and machinery is more than 50% of total machinery installed in new unit, which is beyond the prescribed limit of 20% in Explanation 2 of section 80(IA)(3) r.w.s. 80IC of the Act. The assessee has filed various details to prove that computation of percentage of used machinery by the Assessing Officer is incorrect. We find that the learned CIT(A) has recorded categorical finding that the Assessing Officer has inadvertently adopted total plant and machinery installed at Haridwar unit at Rs.59,81,123/- as against total plant and machinery installed at Rs.2,05,36,114/- . If the total value of plant and machinery installed at new unit is taken into consideration for :-10-: ITA. No: 1421/Chny/2023 computing old plant and machinery, then it works to 15.19%. We further noted that the Assessing Officer has reproduced the plant and machinery installed at new unit at Haridwar, as per which as on 31.03.2012, the assessee has installed total plant and machinery worth Rs.2,05,36,114/-, out of which used plant and machinery taken from APMPL is at Rs.31,20,023/-. If the amount of Rs.31,20,023/- being value of old plant and machinery as mentioned by the Assessing Officer is compared to total plant and machinery installed at new unit at Rs.2,05,36,114/-, the same would be worked out to 15.19% only, as against more than 50% as observed by the Assessing Officer in her assessment order. Further, the learned DR has vehemently argued the issue of transfer of used plant and machinery on the ground that learned CIT(A) has wrongly adopted total plant and machinery installed as on 31.03.2012 instead of plant and machinery as on 31.03.2011. The learned DR further submitted that of plant and machinery should be considered when the unit was first claimed deduction u/s.80IC of the Act. In this case, the assessee has claimed deduction for the first time in the financial year 2010-11 relevant to the assessment year 2011-12 and hence, total plant and machinery installed at the end of financial year 2010-11 needs to be considered.”
In such a scenario, for the relevant assessment year 2014-15, the Assessing Officer ought to have followed the ruling of Hon’ble Apex Court in the case of Tata Communications Ltd, (supra) wherein the Apex court has confirmed the order of the Delhi High Court and made observations that once, the assessee had been granted claim of deduction right from particular assessment year u/s. 80IA of the Act, consequently, it cannot deny deduction for the subsequent years in as much as restrain of section 80IA(3) of the Act cannot be considered for every year of claim of :-11-: ITA. No: 1421/Chny/2023 deduction, but can be considered in the year of formation of the business.
In view of the above discussions and considering case laws discussed herein above, we are of the considered view that the assessee is eligible for deduction u/s. 80IC of the Act, in respect of profit derived from new undertakings and hence, we are inclined to uphold the findings of the ld. CIT(A) and dismiss the appeal filed by the revenue.