ORDER
L.N. Aggarwal, Judicial Member
1. These are two appeals filed by the assessee for the assessment years 1984-85 and 1985-86 against the orders of the CIT (Appeals). As the issues are common; hence both the appeals are disposed of by a consolidated order.
2. The first and second grounds in both the appeals are common, regarding the disallowance of the claim of the assessee under sections
80-I and 80HH of the Act. The assessee had established a new factory at Dewas, manufacturing the same items, i.e., glazed tiles which it was manufacturing in its original factory at Bombay. The assessee claimed that it was established to claim the benefits of backward area. Consequently, the assessee had claimed deductions under sections
80-I and 80HH. The production is alleged to have commenced on 8-10-1981. The claim for the first time for deductions
Under Section 80-I and 80HH was made for the assessment year 1982-83. The then IAC after detailed scrutiny of all the documents placed before him had concluded that the deduction under these sections was allowable but due to inadequacy of profits, the same was disallowed. The claim of the assessee was disallowed this year on the ground that the factory at Dewas was placed and managed by the managerial staff supplied by the assessee-company from Bombay. It was also concluded that the company at Dewas continued to do the same business of manufacture of glazed tiles which was being done at its original factory at Bombay, with the same shareholders and the directors with the investments substantially provided by the original company. With these facts, it was concluded by the IAC that it was a mere case of expansion of business and not set up of a new industrial undertaking. No separate profit and loss account was alleged to be available on record. Consequently, the IAC rejected the claim of the assessee
Under Section 80-I and 80HH. The same order was confirmed by the learned CIT(A). It. was against this order that the assessee came in appeal before the Tribunal.
3. The learned counsel for the assessee has very vehemently argued out that firstly the very claim of the assessee was accepted by the IAC for the assessment year 1982-83 and there was no new facts for the subsequent years and thus the same should be accepted in these years as well. Secondly, he pointed that the Dewas unit was an independent and separate unit in the eyes of law. It had received permission separately from the Govt. and in view of the various decisions of the Hon’ble Supreme Court in the cases of Textile Machinery Corpn. Ltd. v. CIT [1977] 107 ITR 195, CIT v. Indian Aluminium Co. Ltd. [1977] 108 ITR 367 and of the Hon’ble Bombay High Court in CIT v. Associated Cement Companies Ltd. [1979] 118 ITR 406, the assessee was entitled to its claim
Under Sections 80-I and 80HH. On the other hand, the learned Departmental Representative relied on the order of the learned CIT(A).
4. We have heard the parties at length and also perused the entire facts on record. In this case, it is not disputed that there was a unit for manufacturing glazed tiles etc. at Dewas. It was established by the assessee-company and complete new machinery was fixed up in the said project. Section 80HH of the IT Act, which entitles the assessee for a deduction in profits and gains from newly established industrial undertaking in a backward area, prescribes the following conditions:-
(1) The new unit has begun or begins to manufacture or produce articles after 31st Dec. 1970 in any backward area.
(2) It is not formed by the splitting up or the reconstruction of a business already in existence in a backward area.
(3) It is not formed by transfer to a new business of machinery or plant previously used for any business in any backward area.
(4) In employs 10 (ten) or more workers in the manufacturing process, aided by power.
In the light of these conditions prescribed, in Section 80HH, the assessee appears to have fully satisfied the conditions. The factory is alleged to have been established in 1981 and the production commenced in assessment year 1982-83. There was no previous unit or factory of the assessee in Dewas and thus it was a new unit and the question of reconstruction of an old business does not arise. The fact that Dewas is a backward area is not disputed. It is alleged by the assessee that no plant or machinery was sent from the original factory and it was established with a complete new machinery. It is also not disputed that the assessee had invested about Rs. 90 lakhs towards the Dewas project. The Hon’ble Supreme Court in the case of Textile Machinery Corpn. Ltd. (supra), that a new activity started by an assessee by establishing a new plant and machinery and by investing substantial funds, may produce some commodity as of the old business or may produce some other distinct marketable products; even commodities which might feed the old business or may be sold in an open market, still such a new industrially recognizable unit of an assessee cannot be said to be construction of his old business. Under such circumstances, the benefit cannot be denied merely because the new undertaking goes to expand the general business of the assessee in some direction.
In another case of Indian Aluminium Co. Ltd. (supra), the Hon’ble Supreme Court had held in favour of the assessee. Briefly the facts of the case were that the assessee was a manufacturer of aluminium ingots from ore. He had 4 manufacturing centres at Belur, Kalwa, Alupuram and Hirakud. In the accounting year, the assessee established one more centre at Muree and also made extension to the existing centres at Belur and Alupuram by installing new plant and machinery over there. The ITO refused to allow relief on the ground that it was only an extension of its own activity. The Hon’ble Supreme Court did not accept the Department’s action and held that these all were new production units, including the one installed at Belur and Alupuram and directed to grant relief. In this case the Hon’ble Supreme Court had gone even a little further that the extension with new machinery at an already existing unit was held to be entitled for the relief.
Even the Hon’ble Bombay High Court in the case of Associated Cement Companies Ltd. (supra), had held that where the project was capable of producing articles/goods independently by itself with the aid of new machinery, it should not be treated as an extension of the existing activity. All these decisions relied by the learned counsel for the assessee clearly go to suggest that the order passed by the learned CIT(A) in this case was not justified in the eyes of law. The mere fact that the managers and directors were the same and the funds were also supplied from the same company is not enough to disallow the claim under sections
80-I and 80HH on the new unit established by the assessee by establishing new machinery. In fact, even the Revenue itself in assessee’s own case for the assessment year 1982-83, had accepted the contention of the assessee in the following words:
3. In support of the contention that the assessee is entitled to deduction under
Section 80-HH and 80-I as available to the New Unit, the assessee has relied upon the decision of the Bombay High Court in the case of CIT v. Associated Cement Companies Ltd. [1979] 118ITR 406 and of the Supreme Court in the case of CIT v. Indian Aluminium Co. Ltd. [1977] 108 ITR 367. The common theme of both the decisions is that the establishment of a new industrial undertaking as part of an already existing industrial establishment may result in an explanation, but if the newly established unit is itself an integrated independent unit in which new plant and machinery is put up and is itself, independent of the old unit capable of production of goods, then it could be classified as a newly established industrial undertaking. Therefore, I hold that the assessee is entitled to benefits of deduction under
Section 80-I and 80HH subject to available profit and in the absence of requisite profit, the benefit is not available this year.
Benefit in that year was disallowed only because of the absence of requisite profit. This shows that from initial stage, the Revenue had accepted the contention of the assessee and the facts since then have not changed. Taking all these facts into consideration and the various decisions of the Hon’ble Supreme Court and the Bombay High Court and certain admitted facts in the case, we hold that the assessee is entitled for claim under sections
80-I and 80HH and the order passed by the learned CIT(A) was not justified in the eyes of law. The issues are decided accordingly.
5. Ground No. 3 in ITA4912isregarding disallowance of sales tax collections made Under Section 43B of the sales tax collections under the Madhya Pradesh Deferment of Sales Tax Rules. It is only made under the Madhya Pradesh Deferment Sales Tax Rules, which has been pressed before us. The assessee has filed a copy of G.O. of Govt. of Madhya Pradesh, Directorate of Industries, dt. 20-11-1985 which shows that the assessee which had started its business from 8-10-1981 had been held to be eligible for deferment of sales tax payable for a period of three years. He has further filed a copy of the circular of CBDT at p. 5 of its compilation which shows that the Board had examined in consultation with the Ministry of Law and the various Governments and they were of the view that if the State Governments make an amendment in the Sales-tax Act, to the effect that the sales tax deferred under the scheme shall be treated as actually paid, such a deeming provision will meet the requirements of Section 43B. The assessee has filed an alleged amendment of Section 18 of the Madhya Pradesh General Sales Tax Act, at p. 6 of the compilation in which it has been provided that such deferment of sales tax shall be deemed to have been paid in accordance with the provisions of Sub-section (2) or Sub-section (3) or Sub-section (4) as exempt. Both these papers clearly go to suggest that even the CBDT had held that such deferment of sales tax, if deemed to have been paid, will not be hit by Section 43B. With these papers on the file, we are of the opinion that the sales-tax collections amounting to Rs. 8,56,228 made under the Madhya Pradesh Deferment of Sales Tax Rules, will not be treated to be a liability or obligation to pay the amount and thus will not be hit by Section 43B of the IT Act. We therefore hold that the order passed by the learned CIT(A) on that score is not justified and thereby is reversed and the disallowance made by the learned CIT(A) Under Section 43B is quashed.
6. Ground Nos. 4, 5, 6, 7, 8 and 9 in ITA 4912 are not pressed. Hence they are dismissed and decided against the assessee.
7. to 13. [These paras are not reproduced here as they involved minor issues.]