ACIT 6(3), MUMBAI vs. MANOHAR CANISTERS P.LTD, MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद� राजे� के अनुसार PER RAJENDRA, AM- Challenging the order dt.22.02.2013 of CIT(A)-8, Mumbai the Assessing Officer(AO),has filed following Grounds of Appeal: Challenging the order dated 22.02.2013 of CIT(A)-8,Mumbai,the Assessing Officer(AO)has raised following grounds of appeal: “1.On the facts and circumstances of case and in law the Ld. CIT(A) erred in directing the Assessing Officer to allow deduction of Rs. 6, 98, 098/- u/s.80I of I. T. Act, 1961 for the A. Y. 1994- 95.

3. On the facts and circumstances of case and in law the Ld. CIT(A) erred in allowing the claim of assessee for deduction u/s 801 of Rs. 6, 98, 098/- for A. Y. 1994- 95,evenwhen the assessee company ( transferee) at the time of acquiring the previously used machineries of a firm M/s Trimurti Corrupack, ( transferor,) on 'transfer' as a going concern in A. Y.1987-88, has not complied with stipulated condition in clause(ii) r. w. Explanation 20f sub-section (2)of Section 8010f the Act.

4. On the facts and circumstances of case and in law the Ld. CIT(A) erred in upholding the assessee claim of 801 deduction for A. Y. 1994-95, when in the initial year i.e. A. Y.1987-88 previously used machineries constituted 100% of the value of Plant & Machineries of business of the assessee company (transferee) 5.On the facts and circumstances of case and in law the Ld. CIT(A) erred in upholding assessee's claim of deduction u/s.801 of I. T. Act, 1961by accepting the contention of the assessee that the business acquired by the assessee company from a firm as a going concern cannot be said to be a case of reconstruction or splitting up of an existing business and also failing to take note of the fact that value of previously used Plant & Machineries of the transferor firm at the time of transfer 1

ITA/3287/M/13/Manohar C,AY.94-95 violated the condition laid down in clause (ii) r. w. Explanation 2 of sub-section (2) of section 801 of the Act that such (previously used) machineries did not constitute more than 20% of the total value of Plant & Machineries of the business of transferee company. 6.The appellant prays that the order of Ld. CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. 7.The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”

Brief Facts: In this case original assessment was completed on 27.9.96 u/s.143(3)of the Act determining the income of the assessee at Rs.21.09 lacs, which was arrived after the deduction allowed u/s. 80I of the Act, amounting to Rs.6.98 lacs.The assessment was subsequently rectified u/s.154 of the act on 17.12.1996 as the 80I deduction was not allowed on enhanced income. After passing the rectification order the total income was taken at Rs,21.05 lacs wherein deduction u/s. 80I was allowed at Rs.7.01 lacs. Later on vide order dt.30.3.1999, passed u/s. 263 of the Act the CIT- V,Mumbai, annulled the order passed the order u/s. 154 .The matter travelled up to the Tribunal and on 29.4.2009 it set aside the issue of deduction u/s. 80I to the file of the AO. In the fresh assessment proceedings the AO gave an opportunity as directed by the tribunal to support its claim.The AO completed the assessment on 20.12. 2010, u/s.143 (3)r.w.s.254 of the Act, determining income of the assessee at Rs. 28,07,610/-.

2.Effective ground of appeal is about deduction of Rs.6,98,098/- u/s. 80I of the Act. On perusal of the details available on record the AO noticed that the assessee had been carrying on manufacturing activities since 1987 but no deduction u/s. 80I was claimed on the ground that the Plant and machinery used by it were already used by some other assessee , that the cost of machinery was Rs.3.26 lacs, that the assessee made further addition to plant and machinery of Rs.12.00 lacs and Rs.6.72 lacs in A.Y.s. 1990-91 and 93-94, that the assessee claimed the deduction u/s. 80I for the first time in the year under consideration on the ground that that ratio of used machinery was less that 20% of the total value of the machinery. The AO further observed that the assessee co, was created by taking over the existing undertaking/business in the name of M/s.Trimurti Corrupacks, that no new undertaking was created in 97-98 i.e. the first year of business, that it did not fulfill the condition (i) of 80I, that the co. was created by transfer of old machinery of Trimurti, that the condition number (ii) of 80-I of the Act was also not fulfilled. The AO asked the assessee to explain as to why the deduction claimed by it u/s. 80-I should not be disallowed. Vide its letter dt.14.12.2010 the assessee stated that it had taken over the liabilities of Trimurti, that it did not make any claim u/s. 80I as it had taken over the old machine, that during AY 92-93 it purchased new machinery, that the cost of the old machinery went below 20% of the total cost of plant and machinery, that it had claimed deduction for the first time in 1994-95 which was the 7th year of production.After considering the submission of the assessee, the AO held that the intention behind introducing the section was that the new business, undertaking should be set up, that industrial undertaking as a result of reconstruction was not entitled to make the claim, that it had merely taken over the existing business, that it did not fulfill the condition as specified in section 80I(2)(i)(ii) of the Act.Finally, he held that the income of the assessee would remain at Rs.28.07 lacs.

ITA/3287/M/13/Manohar C,AY.94-95 3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA). Before him it was argued that the co. was incorporated on 7.7.96, that it took over the assets and liabilities of Trimurti, that it commences its business with the help of second hand machinery of Trimurti, that the assessee’s case was neither of splitting nor of reconstruction of old business, that nowhere it was stipulated that condition for claiming 80I deduction should be fulfilled in the very first year, that it did not add any new machinery for about 3 years, that new machinery worth Rs.24.16 lacs was added in A.Y.s 1990-91, 93-94 and 94-95, that the old machinery was of Rs.3.26 lacs only, that from AY 90-91 the percentage of old machinery went below 20%, that it was eligible to claim benefit for 8 years i.e. upto 1995, that the conditions of carrying on manufacturing activities and employing 10 or more workers had been fulfilled. After considering the submission of the assessee and the assessment order the FAA defined the work reconstruction and referred to the cases of Electronic Corporation of India Ltd. (151 ITR381), Devson Ltd. (98 ITR 311), Orient Paper Mills Ltd. (94 ITR 73), Gaikwad Foam & Rubber Co. Ltd. (35 ITR 662).He held that the industrial unit was not formed by splitting up or reconstruction of the business, that the business acquired by new corporate entity on a succession basis could not be termed reconstruction, that the new unit was set up with its own investment. He directed the AO to allow the deduction u/s. 80I of the Act. 4.Before us,Departmental Representative(DR)supported the order of the AO and argued that the industrial undertaking was set up by reconstruction/splitting-up, that it did not claim deduction in the first year of production, that it was not entitled to claim deduction in the year under appeal.The Authorised Representative(AR) argued that machinery was less than 20% of the total machinery owned by the assessee during the year under consideration, that it had fulfilled all the conditions stipulated by the Act.He relied upon the decision of Hon’ble High Court of Punjab & Haryana delivered in the case of Avery Cycle Industries Ltd. (298 ITR 239) and Mahan Food Ltd. (177 Taxmann 274).

5.We have heard the rival submissions and perused the material before us.We find that the assessee had taken over the assets and liabilities of Trimurti, that initially the manufacturing was done with the help of old machinery taken over from Trimurti, later on it purchased machinery worth Rs.24,16,835/-, that value of the machinery of Trimurti was Rs.3.26 lacs only, the old machinery was less than 20% of the total machinery from AY 90-91, that it was eligible to claim benefit upto 8 years, that for the first time it made claim during the year under consideration.In our opinion the Act has not provided that the deduction cannot be claimed in later years.In other words it is not mandatory that deduction should be claimed in the first year only.We would like to reproduce the order of Avery Cycle Industries Ltd.(supra) and same reads as under: “As far this question is concerned, the contention raised on behalf of the Revenue is that the unit having been set up during the assessment year 1984-85, a period of 7 year to claim benefit under section 80-I of the Act, would expire in the assessment year 1991-92 and during the year in question, the assessee will not be entitled to claim this benefit. The finding recorded by the Tribunal permitting the benefit to the assessee under section 80-I of the Act during the year in question treating the same to be seventh year of production deserves to be set aside. On the other hand, the contention of learned counsel for the assessee is that the Revenue had moved an application for rectification under section 254(2) of the Act, which has been dismissed by the Tribunal vide order dated October 13, 2003, but though the present appeal was filed thereafter, 3

ITA/3287/M/13/Manohar C,AY.94-95 this fact has not been disclosed in the present appeal. He further states as per the spirit of the Act, an assessee is entitled to benefit of the deductions under section 80-I of the Act for 7 years and the assessee in the present case is also claiming the same for the period permissible. As far as the dispute regarding the assessment year 1984-85 is concerned, counsel for the assessee referred to and relied upon the findings recorded by the Tribunal while dealing with the rectification application to state that during the year 1984-85, the setting up of the plant itself was not complete, accordingly, there was no question of any production. Out of the total investment in machinery amounting to Rs. 5.70 crores, it was only about Rs. 1.09 crores which was spent during the assessment year 1984-85 and the fact to which the Revenue is terming to be production was mere receipt of a sum of about Rs. 1 lakh on account of job charges which were recovered during the process of testing of some machines installed. This cannot in any manner be termed to be setting up of the plant and start of manufacturing therefrom. It is further submitted that to enable the assessee to start production, industrial licence was required which itself was received by the assessee on March 23, 1985, relevant to the assessment year 1986-87. To sum up, he submitted that once setting up of the plant itself was completed in the assessment year 1986-87 and licence to manufacture was also granted during that year, there is no reason to deny the benefit of section 80-I of the Act to the assessee for 7 years starting therefrom.

Respectfully following the above judgment we decide the effective ground of appeal against the AO. The effective ground of appeal is decided against the AO. As a result,appeal filed by AO stands dismissed. फलतः िनधा�रती अिधकारी क� अपील नामंजूर क� जाती है Order pronounced in the open court on 9th October,2015. आदेश क� घोषणा खुले �यायालय म� �दनांक 9 अ�टूबर,2015 को क� गई Sd/- Sd/- (श��जीत डे / Saktijit Dey) (राजे� / RAJENDRA) �ाियक सद� / JUDICIAL MEMBER लेखा सद� / ACCOUNTANT MEMBER मुंबई/Mumbai,िदनांक/Date: 09.10. 2015 व.िन.स.Jv.Sr.PS.