Use of 15% of Plant and Machinery of Existing Business: ITAT allows Tax Benefit to New Undertaking since the Usage was below Specified Limit

Plant and Machinery -Existing Business- ITAT - Tax Benefit - taxscan

The Income Tax Appellate Tribunal (ITAT), Chennai Bench allowed the Tax Benefit to New Undertaking since the Usage was below Specified Limit.

The assessee, Mr. Pool Thevar Marimuthu an individual and proprietor of M/s. Arun Enterprises, is engaged in manufacturing of ancillary equipment catering to plastic, paper, rubber, confectionery, food and medical industries. During the financial year relevant to the assessment year 2011- 12, the assessee has started a unit at Haridwar for manufacturing of plastic components using injection moulding process and supplied to M/s. Hindustan Unilever Ltd. for manufacturing of water purifiers.

The assessee has filed his return of income for the assessment year 2012-13 on 23.09.2012 declaring total income of Rs.13,08,240/-, after claiming deduction towards profit derived from undertaking situated at Haridwar u/s.80IC of the Act, amounting to Rs.13,42,87,644/-.

The case was taken up for scrutiny and during the course of assessment proceedings, the Assessing Officer has denied deduction claimed u/s.80IC of the Act, in respect of profit derived from unit situated at Haridwar for manufacturing of plastic components using injection moulding process.

The assessee preferred an appeal before the CIT(A) wherein it was held that additions made by the Assessing Officer towards disallowance of deduction claimed under section 80IC of the Act is legally unsustainable in law and accordingly, directed the Assessing Officer to delete additions made towards disallowance of deduction claimed under section 80IC of the Act for both the assessment years.

The department submitted that the CIT(A) has erred in holding that the formation of M/s Arun Enterprises is not splitting up or reconstruction of the existing business of M/s Arun Plasto Moulders Private Ltd (APMPL) by only relying on the fact stated by the assessee that M/s Arun Enterprises has diversified products and new product line cater to the business of M/s Unilever Asia Pvt Ltd (UAPL) as well as to third party clients without any restriction imposed by UAPL.

The department further added that the CIT(A) failed to appreciate that formation of M/s. Arun Enterprises is nothing but splitting up or reconstruction of the business, already existing, in view of the facts that the assessee is the proprietor of M/s. Arun Enterprises as well as major stakeholder along with his family in M/s. APMPL and hence, catering directly to the needs of business already existed of APMPL and indirectly to UAPL is a personal care unit of UAPL. The CIT(A) has erred in holding that the formation of M/s Arun Enterprises was not an occurrence of transfer of plant and machinery to the tune of more than specified limit of 20% from business, already in existence of APMPL, by wrongly comparing machinery available to the transferred machinery in the financial year 2010-11, first year of 80IC claim, on the contrary, it has to be compared with machinery available in financial year 2010-11, for checking specified limit of 20% transferred machinery at the time of formation of 80IC eligible unit.

The assessee, on the other hand, strongly supporting the order of the CIT(A) submitted that apart from personal care units, UAPL had also established another unit for manufacturing of water purifiers and spares, which product is different from personal care products. To cater the needs of UPAL for manufacturing of water purifiers, the assessee has set up a separate unit for manufacturing of plastic moulded components which are exclusively used for water purifier machines. Therefore, the Assessing Officer was totally incorrect in coming to the conclusion that there is splitting up of business already existing at Chennai.

The coram of V.Durga Rao and G.Manjunatha opined that the assessee is eligible for deduction under section 80IC of the Act in respect of profit derived from new undertaking set up at Haridwar. The CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer towards disallowances under section 80IC of the Act and hence, the ITAT upheld the findings of the CIT(A) and dismissed the appeal filed by the Revenue.

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