1. This appeal by the assessee is directed against the order of the Commissioner (Appeals) for assessment year 1995-96, dated 29-11-2002.
2. Shri S.N. Inamdar, the learned Authorised Representative did not press this ground and therefore it is rejected.
3. This ground relates to the assessee's claim for deduction under Section 80-IA of the Act.
4. The first assessment order, giving rise to the present controversy, was passed by the assessing officer for assessment year 1996-97 on 23-2-1999 and it is this order, which was referred to by the CIT in his order under Section 263 for assessment year 1995-96 and then by the assessing officer in his consequential assessment order. Therefore, for deciding this appeal for assessment year 1995-96 we proceed to discuss and examine the orders of the assessing officer and the Commissioner (Appeals) for both the years i.e. assessment years 1995-96 and 1996-97.
5. The facts of the case, in brief, are these : The assessee company incorporated on 21-1-1981, was manufacturing mechanical and power steering gears. The mechanical steering gears are indigenous products and did not require imported components/parts, whereas the power steering gears are based on hydraulic operation system and have about 50-60 per cent imported components. It decided to establish a new undertaking to manufacture exclusively power steering gears-8043 (302 Type), for light and medium commercial vehicles like Tata 407, Tempo-Traveller, Tempo Trax, Tata 608, Tata Sierra and off-road vehicles. The construction of a new shed for the new unit commenced in April, 1994. During the accounting year relevant to assessment year 1995-96 nine machines costing about Rs. 90 lacs were installed. In the return filed for assessment year 1995-96 on 29-11-1995 the assessee claimed deduction under Section 80-IA of the Act in respect of the new undertaking. The assessing officer while dealing with the assessee's claim in the assessment order for assessment year 1995-96 dated 2-1-1998 made a cryptic observation as under: During the year company has established new industrial undertaking.
The details of the shade undertaking along with the working of loss of the said undertaking are attached with the return of income. In view of the disallowances out of depreciation, club expenses, and gift articles as discussed above the loss to be carry forwarded of the new undertaking for the initial assessment year is reworked at Rs. 17,96,549." 6. In the assessment order for assessment year 1996-97, dated 23-2-1999 the assessing officer examined the assessee's claim under Section 80-IA in great detail, and disallowed it. He observed in his order (at pp. 28 and 32) that though the assessee company had been allowed, in the assessment order for assessment year 1995-96, to carry forward loss of the new unit, No. 53 pecific finding had been recorded in that order about the fulfilment of the various conditions and the allowability or otherwise of the assessee's claim for deduction under Section 80-IA, that the material which had been gathered and examined during the assessment proceeding for assessment year 1996-97 was not available and the assessing officer had no occasion to consider them during the assessment proceeding for assessment year 1995-96, that it was a well settled principle that the principle of res judicata did not apply to the income-tax proceedings, that every year was an independent and separate assessment year, that after considering the facts and circumstances of assessee's case during the course of assessment proceeding of subsequent assessment year if it is noticed that an incorrect observation had been made or allowance had been given in the assessment of an earlier year, the same certainly can be rectified in view of the material gathered in the subsequent assessment year, that, therefore, the observation made with regard to carry forward of loss of new unit made in assessment year 1996-96 was not sufficient ground to accept the assessee's contention that since the loss of the new unit had been allowed in the earlier year, the deduction under Section 80-IA should be allowed in the subsequent year also, that without prejudice to the above discussions, measures to rectify the above observation made in the assessment order for assessment year 1995-96 were being taken separately.
7. The assessing officer finally held in the assessment order for assessment year 1996 97 that no new unit came into existence before 31-3-1995, that the new unit could not be said to be an independent and viable unit, having separate identity from the old unit and that the so-called new unit had been formed as a result of splitting up and reconstruction of the old unit and therefore, assessee was not entitled for deduction under Section 80-IA, and hence the claim for deduction was denied.
8. The original assessment order for assessment year 1995-96 dated 2-1-1998 was set aside by the CIT, Pune vide his order under Section 263 dated 9-2-2000. In para 4 of his order under Section 263 the CIT, inter alia observed, that during the assessment proceeding for assessment year 1996-97 the assessing officer made detailed inquires and came to the conclusion that the new unit did not start functioning before 31-3-1995, but while framing the assessment for assessment year 1995-96, this important issue was not properly examined by the assessing officer and no proper finding was recorded, and therefore on that ground the assessment was erroneous as well as prejudicial to the interest of revenue. The CIT accordingly set aside the assessment order for assessment year 1995-96 and directed the assessing officer to examine the issue afresh after considering the relevant facts and the legal position and to record proper finding.
8.1 The consequential assessment order for assessment year 1995-96 was passed by the assessing officer on 28-3-2002, which was confirmed by the Commissioner (Appeals) vide his order dated 29-11-2002. This order of the Commissioner (Appeals) has been challenged by the assessee in the present appeal.
9. Shri S.N. Inamdar, the authorised representative, reiterated the submissions which were put forward on behalf of the assessee company before the assessing officer and the Commissioner (Appeals). The submissions made by him are summarized below: that the assessee's claim was allowed by the Commissioner (Appeals) in assessment years 1996-97, 1997-98 and 1998-99.
that the assessing officer had himself allowed the assessee's claim for assessment year 1995-96, though the assessee did not challenge the order of the CIT under Section 263.
that the construction of new factory building started in April, 1994 and completed on 23-2-1995.
that nine machines costing Rs. 90,32,912 were installed in the new unit.
that 115 additional workers and employees were recruited for the new unit during the accounting year relevant to assessment year 1995-96.
(He took us through the copy of the written submissions filed before the Commissioner (Appeals) at pp. 1 to 21 of the paper book).
that a new industrial undertaking had come into existence during the accounting year ending 31-3-1995.
that all the conditions of Sub-section (2) of Section 80-IA were fulfilled. that during the period 24-2-1995 to 31-3-1995, 890 units of the power steering gears - 8043 (Type 302) were produced.
(iv) Discussion at p. 3674 of Chaturvedi & Pithisaria's Commentary (Vol. 2).
10. Shri Pankaj Singhania, the learned departmental Representative placed reliance on the order of the assessing officer, and of the Commissioner (Appeals) for assessment year 1995-96. He vehemently argued saying that the order of Commissioner (Appeals) for assessment year 1995-96 and that of the assessing officer for assessment year 1996-97 needed to be upheld.11. We have considered the rival submissions in the light of material on record and the precedents cited. The assessee company, incorporated on 21-2-1981, was manufacturing mechanical and power steering gears and decided to establish a new undertaking to manufacture exclusively power steering gears-8043 (302 Type), for light and medium commercial vehicles like Tata 407, Tempo-Traveller, Tempo Trax, Tata 608, Tata Sierra and off-road vehicles. During the accounting year relevant to assessment year 1995-96 nine machines costing Rs. 90,32,912 were installed as under: 12. In the second year new machinery costing Rs. 2,74,52,116 was installed. Also old machinery was transferred at WDV of Rs. 64,21,458.
Therefore as on 31-3-1996 the total plant and machinery was as under: 13. It is seen that the assessee's claim for deduction under Section 80-IA was rejected by the assessing officer and the Commissioner (Appeals) for assessment year 1995-96 for the reasons as under: (i) that the so-called new unit was formed as a result of splitting up and reconstruction of the old unit.
(ii) that the so-called new unit cannot be said to be an independent unit having a separate identity from the old unit.
(iii) that the new unit did not come into existence before 31-3-1995.
14. In order to be able to decide the above issue we first proceed to examine the legal position in this regard in the following paras.
15. The Section 80-IA of the Act was inserted by the Finance Act, 1991 with effect from 1-4-1991. It was subsequently amended by the Finance Act, 1992 with effect from 1-4-1993 and then by Finance Act, 1993 with effect from 1-4-1994/1-4-1995. The deduction under Section 80-IA was available to an assessee whose gross total income included any profits or gains derived from any business of an industrial undertaking which fulfilled all the conditions laid down in that behalf in Sub-section (2) of the section. The Sub-section (2) of Section 80-IA, inter alia, says as under: that the industrial undertaking should not be formed by splitting up, or the reconstruction of a business already in existence.
that it should not be formed by the transfer to a new business, of machinery or plant previously used for any purpose.
that it should begin to manufacture or produce articles or things at any time during the period beginning on 1-4-1991 and ending on 31-3-1995.
16. The primary purpose of Section 80-IA is to grant relief to a new industrial undertaking. Therefore, whenever an assessee claims relief under Section 80-IA, the assessee will have to establish that a new unit had come into existence which independently produced articles and that this new unit was not dependent upon the old existent unit, in the sense that the new unit could not be equated as an expansion of the old unit.
17. Where an assessee makes a claim for relief under Section 80-IA the burden lies upon him to produce cogent material in support of his claim. Canara Wire & Wire Products Ltd. v. CIT , CIT v. Anil Hardboards Ltd. . In order to avail tax concession under Section 80-IA, employment of fresh capital in the new unit is imperative. But it does not mean that for the employment of the capital, it should have been newly raised. If surplus/reserve capital is available with an assessee in his existing business, the assessee can utilize such capital for the purpose of plant, machinery, etc., for the new unit.
18. In the case of CIT v. Orient Paper Mills Ltd. , it was held by the Calcutta High Court that the splitting of or reconstruction of the existing business should be understood in a broad commercial sense from a commonsense point of view and only in relation to the new industrial undertaking claiming the concession.
19. In the case of CIT v. Rohtas Industries Ltd. , it was held by the Calcutta High Court, that where the new unit was started by fresh outlay of capital and manufactured or produced articles yielding additional profits having a separate physical independent existence, it was a new industrial undertaking eligible for tax concession.
20. In the case of CIT v. Associated Cement Companies Ltd. , it was held by the Bombay High Court that the establishment of a new industrial unit as a part of an already existing industrial establishment may result in an expansion of the industry or the factory, but if the newly established unit is itself an integrated independent unit in which new plant and machinery are put up and are themselves, independently of the old unit, capable of production of goods then it can be classified as a newly established industrial undertaking.
21. The new industrial unit brought into existence by establishing new plant and machinery and by investing substantial funds may produce the same commodity as of the old business or it may produce some other distinct marketable products, even 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 that the new undertaking must be an integrated unit by itself wherein articles are produced. The industrial unit must be new in the sense that new plant and machinery are erected for producing either the same commodity or some other distinct commodity. The benefit cannot be denied merely because the new undertaking goes to expand the general business of the assessee in some direction.
22. After considering the facts of the case and the legal position enunciated in the above paras, we are of the opinion, that the crucial question that has to be answered is whether, on the facts of the case, the new industrial unit can be said to have come into existence before 31-3-1995 within the meaning of Sub-section (2) of Section 80-IA, so as to be eligible for deduction under Section 80-IA for assessment year 1995-96. Therefore, for deciding this issue, the relevant questions, which need to be answered, are as under: (i) Whether the nine machines, costing Rs. 90,32,912, which were installed before 31-3-1995, brought into existence an integrated independent unit, which by themselves, independently of the old unit, were capable of producing the product-8034 (Type 302) (ii) Whether the new machinery costing Rs. 2,74,52,116 installed, and the old machinery of WDV of Rs. 64,21,458 transferred from the old unit, in the subsequent year, were needed to make the impugned unit integrated and independent (iii) Whether the product-8034 (Type 302) was also being manufactured in the old unit during the period 1-4-1994 to 31-3-1995 (iv) Whether the product-8034 (Type 302), was shown to have been manufactured simultaneously, in the old unit, as well as in the new unit independently of the old unit during the months of February and March, 1995 (v) Whether there is any evidence, from the relevant contemporaneous production records maintained in the factory, to prove that the 890 units of the product-8034 (Type 302) were actually manufactured/produced in the new unit, independently of the old unit 23. We find that in none of the orders for assessment years 1995-96 and 1996-97, the assessing officer and the Commissioner (Appeals) examined the matter on the above lines. In the circumstances, therefore we remit the case for assessment year 1995-96 back to the file of the Commissioner (Appeals) with a direction that he should re-examine the matter, after bringing the relevant material on record, in the light of the guidelines given in para 22 above, and should decide the issue afresh. He should pass a fresh order after giving adequate opportunity of being heard to the assessee and also to the assessing officer. The ground No. 2 is decided accordingly.
24. This ground relates to the assessee's claim for depreciation of Rs. 6,26,912. We find that the assessing officer and the Commissioner (Appeals) passed cryptic orders while rejecting the assessee's claim.
The assessing officer has merely stated, that it was not possible that the machinery was put to use on the same day when it was installed on 31-3-1995. His did not discuss in his order the submissions made on behalf of the assessee before him in this regard. In the circumstances, therefore, we consider it appropriate, in the interest of justice, to remit this matter back to the file of the Commissioner (Appeals). The Commissioner (Appeals) is directed to de novo examine this issue after bringing the relevant material on record, and to pass a fresh speaking order after giving an opportunity of being heard to the assessee. The ground No. 3 is decided accordingly.
25. In the result, the appeal filed by the assessee for assessment year 1995-96 is partly allowed for statistical purposes.