M/s. Maharashtra Polycane Industries,, Daman v. The Income tax Officer, Vapi Ward-4, Daman

ITA 1235/AHD/2007 | 2003-2004
Pronouncement Date: 08-10-2010 | Result: Partly Allowed

Appeal Details

RSA Number 123520514 RSA 2007
Assessee PAN AAEFA9907G
Bench Ahmedabad
Appeal Number ITA 1235/AHD/2007
Duration Of Justice 3 year(s) 6 month(s) 15 day(s)
Appellant M/s. Maharashtra Polycane Industries,, Daman
Respondent The Income tax Officer, Vapi Ward-4, Daman
Appeal Type Income Tax Appeal
Pronouncement Date 08-10-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 08-10-2010
Date Of Final Hearing 22-09-2010
Next Hearing Date 22-09-2010
Assessment Year 2003-2004
Appeal Filed On 23-03-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH C CC C BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI MUKUL SHRAWAT MUKUL SHRAWAT MUKUL SHRAWAT MUKUL SHRAWAT JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER AND AND AND AND SHRI SHRI SHRI SHRI N.S.SAINI N.S.SAINI N.S.SAINI N.S.SAINI ACCOUNTANT ACCOUNTANT ACCOUNTANT ACCOUNTANT MEMBER MEMBER MEMBER MEMBER DATE OF HEARING :22-9-10 DRAFTED ON: 22-9-10 ITA NO. 1235 /AHD/ 2007 ASSESSMENT YEAR2003-04 AND ITA.NO.1936/AHD/2007 ASSESSMENT YEAR:2004-05 M/S. MAHARASHTRA POLY CANE INDUSTRIES PLOT NO.51/3 DAMAN INDUSTRIAL ESTATE KADAIYA NANI DAMAN. VS. INCOME TAX OFFICER VAPI WARD-4 INCOME TAX OFFICE DAMAN. PAN/GIR NO. : AAEFA 9907 G (A PPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI S.N.SOPARKAR SR. ADV. RESPONDENT BY: SHRI K.M. MAHESH S R. D .R. O R D E R O R D E R O R D E R O R D E R PER N.S.SAINI ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DA MAN DATED 30-11-2006. 2. GROUND NUMBER 1 OF THE APPEAL IN BOTH THE YEARS UNDER CONSIDERATION IS DIRECTED AGAINST DISALLOWANCE OF D EPRECIATION OF `.4 91 258/- IN ASSESSMENT YEAR 2003-04 AND `.3 55 3267/- IN ASSESSMENT YEAR 2004-05 FOR THE REASON THAT IN WORK ING OUT WRITTEN DOWN VALUE OF DEPRECIABLE ASSETS AT BEGINNING OF TH E YEAR ON THE BASIS AS IF DEPRECIATION WAS ACTUALLY ALLOWED DURIN G THE ASSESSMENT YEARS 1999-00 TO 2001-02 EVEN THOUGH THE ASSESSEE FIRM OPTED NOT TO CLAIM DEPRECIATION FOR THE ASSESSMENT YEARS 1999-00 TO 2001-02. - 2 - 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF THE ACT AT TH E RATE 100% OF THE INCOME DERIVED FROM ITS MANUFACTURING UNIT DURI NG THE ASSESSMENT YEARS 1998-99 TO 2001-02. THE LEARNED AS SESSING OFFICER FROM SCRUTINY OF THE PROFIT AND LOSS ACCOUN T FILED WITH THE RETURN OF INCOME OBSERVED THAT THE ASSESSEE HAS CLA IMED EXCESS DEPRECIATION FOR THE YEAR UNDER CONSIDERATION. HE O BSERVED THAT THE ASSESSEE WAS NOT CLAIMING DEPRECIATION THOUGH IT HA D NOT FOREGONE ITS RIGHT TO CLAIM DEPRECIATION DURING THE FIVE YEA RS OF COMMENCEMENT OF PRODUCTION AS ITS PROFIT WAS EXEMPT UNDER SECTION 80IB OF THE ACT. THE ASSESSEE STARTED CLAIM ING DEPRECIATION FROM THE SIXTH YEAR AS THE DEDUCTION WAS LIMITED TO 25% OF ELIGIBLE INCOME OF THE INDUSTRIAL UNDERTAKING. IN THIS WAY T HE ASSESSEE TRIED TO REDUCE THE TAX LIABILITY FROM THE SIXTH YEAR. S UCH ACTION OF THE ASSESSEE WAS A COLOURABLE DEVICE IN VIEW OF THE DEC ISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MC. DOWELLS & CO. LTD. VS. CIT 154 ITR 148 (SC). THE LEARNED ASSESSING OFFICER RELYING ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CA MBAY ELECTRIC SUPPLY INDUSTRIAL COMPANY VS. CIT 113 ITR 84 (SC) A ND THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF INDIAN RAYON CORPORATION LTD. VS. CIT 261 ITR 98(BOM) RE-CALCULA TED THE INCOME OF INDUSTRIAL UNDERTAKING FOR DEDUCTION UNDER SECTI ON 80IB BY ALLOWING CORRECT DEPRECIATION FOR THE YEARS UNDER C ONSIDERATION. THE EXCESS DEPRECIATION CLAIM OF `.4 91 258/- IN AS SESSMENT YEAR 2003-04 AND `.3 55 327/- FOR ASSESSMENT YEAR 2004-0 5 WAS WITHDRAWN. THE CORRECT DEDUCTION WAS ALLOWED UNDER SECTION 80IB FOR THE ELIGIBLE INCOME OF `.6 60 844/- IN BOTH THE YEARS UNDER CONSIDERATION. 4. ON APPEAL LEARNED COMMISSIONER OF INCOME TAX (A PPEALS) OBSERVED THAT THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. MAHENDRA MILLS LTD. 243 ITR 56(SC) HAS DECIDED THE ISSUE BEFORE THEM FOR THE ASSESSMENT YEAR PRIOR TO 1-4-1988 AND THIS DECISION CANNOT BE APPLIED FOR THE ASSESSMENT YEAR STARTING FROM 1-4-1988 AND ONWARDS AS NOT ONLY THE PROVISIONS OF SECTION 3 2 HAVE BEEN - 3 - AMENDED BUT THE VITAL SECTION 34 HAS BEEN OMITTED F ROM THE STATUTE BOOK W.E.F. 1-4-1988. THE HON'BLE SUPREME C OURT ALSO REFERRED TO THE CIRCULAR OF THE BOARD DATED 31-8-19 65 WHICH PROVIDED THAT DEPRECIATION COULD NOT BE ALLOWED WHE RE THE REQUIRED PARTICULARS HAVE NOT BEEN FURNISHED BY THE ASSESSEE AND NO CLAIM FOR DEPRECIATION HAS BEEN MADE IN THE RETURN. THIS CIRCULAR HAS NO RELEVANCE AFTER THE OMISSION OF SECTION34 FROM THE ACT W.E.F. 1.4.1988 AS FURNISHING OF REQUIRED PARTICULARS IS N OT NECESSARY AFTER OMISSION OF SECTION 34 AND AMENDMENT IN SECTION 32 OF THE ACT W.E.F.1-4-1988. THE HON'BLE SUPREME COURT IN MAHEND RA MILLS CASE HAS REFERRED TO SECTION 34 OF THE ACT AND RULE 5AA OF THE I. T. RULES BOTH HAVE SINCE BEEN DELETED. 5. THE HON'BLE SUPREME COURT IN THE CASE OF MAHENDR A MILLS HAS HELD THAT INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION IS CHARGEABLE TO INCOME TAX UNDER SECTIO N 28 AND INCOME UNDER SECTION 29 IS TO BE COMPUTED IN ACCORD ANCE WITH THE PROVISIONS CONTAINED IN SECTION 32 TO 43A. THE ARGU MENTS ARE THAT SINCE SECTION 32 PROVIDES FOR DEPRECIATION IT HAS T O BE ALLOWED IN COMPUTING THE INCOME OF THE ASSESSEE CANNOT IN ALL CIRCUMSTANCES BE ACCEPTED IN VIEW OF THE BAR CONTAINED IN SECTION 34. IF SECTION IS NOT SATISFIED AND THE PARTICULARS ARE NOT FURNISHED BY THE ASSESSEE THE CLAIM FOR DEPRECIATION UNDER SECTION 32 CANNOT BE ALLOWED. SECTION 29 IS THUS TO BE READ WITH REFERENCE TO OTH ER PROVISIONS OF THE ACT. IT IS NOT ITSELF A COMPLETE CODE. 6. THE HON'BLE SUPREME COURT WAS THUS OF THE VIEW I N MAHENDRA MILLS CASE THAT DEPRECIATION CANNOT BE ALL OWED ONLY BECAUSE BAR CONTAINED IN SECTION 34 WHICH IS NO MOR E IN THE ACT. EVEN THE BOMBAY HIGH COURT HAS CONSIDERED THE MAHEN DRA MILLSS CASE AND OPINED THAT HAS NO APPLICATION. 7. SECONDLY IN MAHENDRA MILLS CASE THE ISSUE REGAR DING DEPRECIATION WAS NOT THERE. THE ASSESSEE THEREFORE CANNOT DERIVE SUPPORT FROM THE DECISION OF HON'BLE SUPREME COURT IN MAHENDRA - 4 - MILLS CASE AS NO BAR LIKE SECTION 34 IS THERE IN T HE ACT AND THE JURISDICTIONAL HAS HELD THAT IT IS NOT APPLICABLE W HERE DEDUCTION UNDER CHAPTER VI-A IS CLAIMED. 8. THOUGH THE FACTS OF THE CASE IN CAMBAY ELECTRIC SUPPLY CO. LTD. CASE WAS DIFFERENT BUT THE RATIO LAID DOWN BY THAT JUDGEMENT CANNOT BE IGNORED. IT WAS HELD BY THE HON'BLE SUPRE ME COURT IN THAT CASE THAT WHERE TOTAL TAXABLE INCOME COMPRISES PROFITS DERIVED FROM NEWLY ESTABLISHED INDUSTRIAL UNDERTAKING CLAIM ING SPECIAL DEDUCTION THEN SUCH PROFITS HAVE GOT TO BE COMPUTE D SEPARATELY. IT WAS FURTHER HELD THAT THE IMPORTANT WORDS IN SEC TION 80E (1) ARE THOSE THAT APPEAR IN PARENTHESIS VIZ. AS COMPUTED WITH IN ACCORDANCE WITH THE OTHER PROVISIONS OF THE ACT AN D SINCE IT IS INCOME FROM BUSINESS THE SAME IN VIEW OF SECTION 29 HAS TO BE COMPUTED IN ACCORDANCE WITH SECTIONS 32 TO 43A. 9. THE HON'BLE BOMBAY HIGH COURT IS THE JURISDICTIO NAL HIGH COURT FOR THE UNION TERRITORY OF DAMAN IN WHICH T HE INDUSTRIAL UNDERTAKING OF THE ASSESSEE IS LOCATED. THE DECISIO N OF THE JURISDICTIONAL HIGH COURT IS BINDING ON THE ASSESSI NG OFFICER AS WELL AS ON THE ASSESSEE. THE HON'BLE BOMBAY HIGH COURT W AS DECIDING THE QUESTION WHETHER THE TRIBUNAL WAS JUSTIFIED IN COMING TO THE CONCLUSION THAT DEPRECIATION ALLOWANCE OUGHT TO BE DEDUCTED IN COMPUTING THE TOTAL INCOME FOR THE PURPOSES OF THE DEDUCTION UNDER SECTION 80HH THE HON'BLE HIGH COURT ANSWERED THE SAME IN THE AFFIRMATIVE I.E. IN FAVOUR OF THE DEPARTMENT AN D AGAINST THE ASSESSEE. 10. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) THUS HELD THAT THE MAHENDRA MILLS CASE CAN ONLY BE APPLI ED WHERE THE TOTAL INCOME IS COMPUTED IN NORMAL COURSE WITHOUT C LAIM OF RELIEF UNDER CHAPTER VI-A OF THE ACT. THE APPELLANT THERE FORE CANNOT DERIVE SUPPORT FROM THE DECISION OF MAHENDRA MILLS CASE. FOR THE REASONS STATED ABOVE THE LEARNED COMMISSIONER OF I NCOME TAX (APPEALS) DISMISSED THE APPEAL OF THE ASSESSEE. - 5 - 11. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE SUBMITTED THAT THE ISSUE IN QUESTION IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE FOLLOWING DECISIONS OF AHMEDABAD BE NCH OF THE TRIBUNAL:- (1) M/S. SIDDHARTH CORPORATION VS. ACIT VAPI AND M /S. GAUTAM ENTERPRISES VS. ACIT IN ITA NOS.866/AHD/2007 & 867/AHD/2007 IN ASSESSMENT YEAR 2003-04 CONSOLIDATED ORDER DATED 26-3-2010. (2) M/S. KHEMANI DISTILLERIES PVT. LTD. VS. ACIT V API CIRCLE IN ITA NO.2149/AHD/2007 ASSESSMENT YEAR 2005 ORDER DATED 12-4-2010. (3) M/S. KHEMANI DISTELLERIES PVT. LTD./ VS. ACIT VAPI CIRCLE IN ITA NO.3385/AHD/2004 ASSESSMENT YEAR 2001-02 ORDER DATED 16-1-2009 ON A QUERY FROM THE BENCH THAT ON AND FROM ASSESSME NT YEAR 2002-03 THE ASSESSEE STARTED CLAIMING DEPRECIATION ON ASSETS WHAT WAS THE WRITTEN DOWN VALUE OF THE ASSETS WHICH WAS ADOPTED BY THE LEARNED ASSESSING OFFICER TO ALLOW DEPRECIAT ION TO THE ASSESSEE AND WHETHER NOT BEING SATISFIED WITH THE O RDERS OF THE LOWER AUTHORITIES THE ASSESSEE PREFERRED APPEAL BEF ORE THE TRIBUNAL OR NOT THE LEARNED AUTHORISED REPRESENTATIVE OF T HE ASSESSEE REPLIED THAT HE IS NOT AWARE ABOUT THESE FACTS AND STATED THAT THE APPEAL MAY BE HEARD AND THE LEARNED ASSESSING OFFIC ER MAY BE DIRECTED TO ADOPT THE CLOSING WRITTEN DOWN VALUE OF THE ASSETS IN ASSESSMENT YEAR 2002-03 FOR ALLOWING DEPRECIATION T O THE ASSESSEE IN THE YEARS UNDER APPEAL. 12. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORT ED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS). 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE IT IS NOT IN DISPUTE THAT THE ASSESSEE NEITHER HAS CLAIMED NOR W AS ALLOWED DEPRECIATION IN RESPECT OF FIXED ASSETS USED IN ITS INDUSTRIAL UNIT UPTO ASSESSMENT YEAR 2001-02. DURING THE YEAR UNDER - 6 - CONSIDERATION FOR ALLOWING DEPRECIATION THE ASSESS ING OFFICER DEDUCTED THE VALUE OF THE DEPRECIATION WHICH OUGHT TO HAVE BEEN CLAIMED BY THE ASSESSEE IN EARLIER YEARS AND W HICH OUGHT TO HAVE BEEN ALLOWED TO THE ASSESSEE BY THE DEPARTM ENT IN THE EARLIER YEARS. THUS THE DISPUTE BEFORE US RAISED O N DETERMINING OF THE WRITTEN DOWN VALUE OF THE YEAR UNDER CONSIDE RATION WITH REFERENCE TO WHICH DEPRECIATION UNDER SECTION 32 OF THE ACT IS TO BE CALCULATED. WE FIND THAT THE WRITTEN DOWN VALUE HAS BEEN DEFINED IN SECTION 43(6) OF THE ACT READS AS UNDER: - 6) WRITTEN DOWN VALUE MEANS (A) IN THE CASE OF ASSETS ACQUIRED IN THE PREVIOUS YEAR THE ACTUAL COST TO THE ASSESSEE; (B) IN THE CASE OF ASSETS ACQUIRED BEFORE THE PREVIOUS YEAR THE ACTUAL COST TO THE ASSESSEE LESS ALL DEPRECIATION ACTUALLY ALLOWED TO HIM UNDER THIS ACT OR UNDER THE INDIAN INCOME-TAX ACT 1922 (11 OF 1922) OR ANY ACT REPEALED BY THAT ACT OR UNDER ANY EXECUTIVE ORDERS ISSUED WHEN THE INDIAN INCOME-TAX ACT 1886 (2 OF 1886) WAS IN FORCE: [ PROVIDED THAT IN DETERMINING THE WRITTEN DOWN VALUE IN RESPECT OF BUILDINGS MACHINERY OR PLANT F OR THE PURPOSES OF CLAUSE (II) OF SUB-SECTION (1) OF SECTION 32 DEPRECIATION ACTUALLY ALLOWED SHALL N OT INCLUDE DEPRECIATION ALLOWED UNDER SUB-CLAUSES (A) (B) AND (C) OF CLAUSE (VI) OF SUB-SECTION (2) OF SECTION 10 OF THE INDIAN INCOME-TAX ACT 1922 (11 OF 1922) WHERE SUCH DEPRECIATION WAS NOT DEDUCTIBLE IN DETERMINING THE WRITTEN DOWN VALUE FOR THE PURPOSES OF THE SAID CLAUSE (VI);] [(C) IN THE CASE OF ANY BLOCK OF ASSETS (I) IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL 1988 THE AGGREGATE OF THE WRITTEN DOWN VALUES OF ALL THE ASSETS FALLING WITHIN THAT BLOCK OF ASSETS AT THE BEGINNING OF THE PREVIOUS YEAR AND ADJUSTED (A) BY THE INCREASE BY THE ACTUAL COST OF ANY ASSET FALLING WITHIN THAT BLOCK ACQUIRED DURING THE PREVIOUS YEAR; (B) BY THE REDUCTION OF THE MONEYS PAYABLE IN RESPECT OF ANY ASSET FALLING WITHIN THAT BLOCK WHICH IS SOLD OR DISCARDED OR DEMOLISHED OR DESTROYED DURING THAT PREVIOUS YEAR TOGETHER WITH THE AMOUNT OF THE SCRAP VALUE IF ANY SO HOWEVER THAT - 7 - THE AMOUNT OF SUCH REDUCTION DOES NOT EXCEED THE WRITTEN DOWN VALUE AS SO INCREASED; AND (C) IN THE CASE OF A SLUMP SALE DECREASE BY THE ACTUAL COST OF THE ASSET FALLING WITHIN THAT BLOCK AS REDUCED (A) BY THE AMOUNT OF DEPRECIATION ACTUALLY ALLOWED TO HIM UNDER THIS ACT OR UNDER THE CORRESPONDING PROVISIONS OF THE INDIAN INCOME-TAX ACT 1922 (11 OF 1922) IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING BEFORE THE 1ST DAY OF APRIL 1988; AND (B) BY THE AMOUNT OF DEPRECIATION THAT WOULD HAVE BEEN ALLOWABLE TO THE ASSESSEE FOR ANY ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL 1988 AS IF THE ASSET WAS THE ONLY ASSET IN THE RELEVANT BLOCK OF ASSETS SO HOWEVER THAT THE AMOUNT OF SUCH DECREASE DOES NOT EXCEED THE WRITTEN DOWN VALUE;] (II) IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL 1989 THE WRITTEN DOWN VALUE OF THAT BLOCK OF ASSETS IN THE IMMEDIATELY PRECEDING PREVIOUS YEAR AS REDUCED BY THE DEPRECIATION ACTUALLY ALLOWED IN RESPECT OF THAT BLOCK OF ASSETS IN RELATION TO THE SAID PRECEDING PREVIOUS YEAR AND AS FURTHER ADJUSTED BY THE INCREASE OR THE REDUCTION REFERRED TO IN ITEM (I).] EXPLANATION 1.WHEN IN A CASE OF SUCCESSION IN BUSINESS OR PROFESSION AN ASSESSMENT IS MADE ON TH E SUCCESSOR UNDER SUB-SECTION (2) OF SECTION 170 THE WRITTEN DOWN VALUE OF ANY ASSET OR ANY BLOCK OF ASSETS] SHALL BE THE AMOUNT WHICH WOULD HAVE BEEN TAKEN AS ITS WRITTEN DOWN VALUE IF THE ASSESSMENT H AD BEEN MADE DIRECTLY ON THE PERSON SUCCEEDED TO. EXPLANATION 2.WHERE IN ANY PREVIOUS YEAR ANY BLOC K OF ASSETS IS TRANSFERRED (A) BY A HOLDING COMPANY TO ITS SUBSIDIARY COMPANY OR BY A SUBSIDIARY COMPANY TO ITS HOLDING COMPANY AND THE CONDITIONS OF CLAUSE (IV) OR AS THE CASE MAY BE OF CLAUSE (V) OF SECTION 47 ARE SATISFIED; OR (B) BY THE AMALGAMATING COMPANY TO THE AMALGAMATED COMPANY IN A SCHEME OF AMALGAMATION AND THE AMALGAMATED COMPANY IS AN INDIAN COMPANY THEN NOTWITHSTANDING ANYTHING - 8 - CONTAINED IN CLAUSE (1) THE ACTUAL COST OF THE BLO CK OF ASSETS IN THE CASE OF THE TRANSFEREE-COMPANY OR THE AMALGAMATED COMPANY AS THE CASE MAY BE SHALL BE THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS AS IN THE CASE OF THE TRANSFEROR-COMPANY OR THE AMALGAMATING COMPANY FOR THE IMMEDIATELY PRECEDING PREVIOUS YEAR AS REDUCED BY THE AMOUNT OF DEPRECIATION ACTUALLY ALLOWED IN RELATION TO THE SAID PRECEDING PREVIOUS YEAR.] [EXPLANATION 2A.WHERE IN ANY PREVIOUS YEAR ANY ASSET FORMING PART OF A BLOCK OF ASSETS IS TRANSFER RED BY A DEMERGED COMPANY TO THE RESULTING COMPANY THEN NOTWITHSTANDING ANYTHING CONTAINED IN CLAUSE (1) THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS OF THE DEMERGED COMPANY FOR THE IMMEDIATELY PRECEDING PREVIOUS YEAR SHALL BE REDUCED BY THE [WRITTEN DOWN VALUE OF THE ASSETS] TRANSFERRED TO THE RESULTING COMPANY PURSUANT TO THE DEMERGER. EXPLANATION 2B.WHERE IN A PREVIOUS YEAR ANY ASSE T FORMING PART OF A BLOCK OF ASSETS IS TRANSFERRED BY A DEMERGED COMPANY TO THE RESULTING COMPANY THEN NOTWITHSTANDING ANYTHING CONTAINED IN CLAUSE (1) T HE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS IN THE CA SE OF THE RESULTING COMPANY SHALL BE THE [WRITTEN DOWN VALUE OF THE TRANSFERRED ASSETS [***] OF THE DEMERG ED COMPANY IMMEDIATELY BEFORE THE DEMERGER. EXPLANATION 3.ANY ALLOWANCE IN RESPECT OF ANY DEPRECIATION CARRIED FORWARD UNDER SUB-SECTION (2) OF SECTION 32 SHALL BE DEEMED TO BE DEPRECIATION ACTUALLY ALLOWED. [EXPLANATION 4.FOR THE PURPOSES OF THIS CLAUSE T HE EXPRESSIONS MONEYS PAYABLE AND SOLD SHALL HAVE THE SAME MEANINGS AS IN THE EXPLANATION BELOW SUB- SECTION (4) OF SECTION 41 . [EXPLANATION 5.WHERE IN A PREVIOUS YEAR ANY ASSET FORMING PART OF A BLOCK OF ASSETS IS TRANSFERRED BY A RECOGNISED STOCK EXCHANGE IN INDIA TO A COMPANY UNDER A SCHEME FOR CORPORATISATION APPROVED BY THE SECURITIES AND EXCHANGE BOARD OF INDIA ESTABLISHED UNDER SECTION 3 OF THE SECURITIES AND EXCHANGE BOAR D OF INDIA ACT 1992 (15 OF 1992) THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS IN THE CASE OF SUCH COMPANY SHALL BE THE WRITTEN DOWN VALUE OF THE TRANSFERRED ASSETS IMMEDIATELY BEFORE SUCH TRANSFER .] 14. A PERUSAL OF THE ABOVE PROVISIONS SHOWS THAT THE WDV IN RESPECT OF WHICH DEPRECIATION IS TO BE CALCULATE D IS THE ACTUAL COST OF THE ASSET TO THE ASSESSEE AS REDUCED BY THE AMOUNT OF - 9 - THE DEPRECIATION ACTUALLY ALLOWED TO THE ASSESSEE. NOW IN THE INSTANT CASE IT IS NOT IN DISPUTE THAT UPTO THE AS SESSMENT YEAR 2001-02 NO DEPRECIATION WAS ALLOWED TO THE ASSESSE E IN RESPECT OF THE FIXED ASSETS IN QUESTION. THE REVENU E COULD NOT BRING ON RECORD ANY MATERIAL BEFORE US TO SHOW THAT THOUGH THE DEPRECIATION WAS NOT CLAIMED BY THE ASSESSEE BUT IN FACT SUCH DEPRECIATION WAS ALLOWED BY THE DEPARTMENT AS DEDUC TION TO THE ASSESSEE IN THE ASSESSMENT MADE IN RESPECT OF T HE INCOME OF THE ASSESSEE. IN OUR CONSIDERED OPINION IT IS N OT OPEN TO THE REVENUE TO DEDUCT ANY AMOUNT FROM THE COST OF THE A SSET TO DETERMINE THE WDV ON THE GROUND THAT SUCH AMOUNT SH OULD HAVE BEEN CLAIMED BY THE ASSESSEE AS DEPRECIATION I N EARLIER YEAR. IN OUR CONSIDERED VIEW WDV CAN BE ASCERTAINE D ONLY BY REDUCING THE ACTUAL DEPRECIATION ALLOWED TO THE ASS ESSEE IN AN ASSESSMENT AND NOT THE AMOUNT WHICH OUGHT TO HAVE B EEN ALLOWED TO THE ASSESSEE. IT IS THE ACTUAL DEPRECIAT ION ALLOWED TO THE ASSESSEE WHICH ONLY CAN BE REDUCED FOR ASCERTAI NING THE WDV AND NOT THE AMOUNT WHICH IS NOTIONALLY ALLOWED TO THE ASSESSEE. THUS IN THE ABSENCE OF ANY MATERIAL BROU GHT BEFORE US TO SHOW THAT ANY REMEDIAL MEASURE WAS TAKEN BY T HE REVENUE IN THE EARLIER ASSESSMENT YEARS TO ACTUALLY ALLOW THE DEPRECIATION TO THE ASSESSEE IN THE YEAR IN WHICH T HE ASSESSEE HAS HIMSELF NOT CLAIMED SUCH DEPRECIATION IN OUR C ONSIDERED VIEW THE NOTIONAL AMOUNT CANNOT BE REDUCED TO ASCE RTAIN THE WDV AS PER THE PROVISIONS OF SECTION 43(6) OF THE A CT. SIMILAR VIEW WAS ALSO EXPRESSED BY THIS TRIBUNAL IN THE CAS E OF KHEMANI DISTILLERIES PVT. LTD. VS. ACIT ITA NO.3385 /AHD/2004 ASSESSMENT YEAR 2001-02 ORDER DATED 16-01-2009. IT IS ALSO OBSERVED THAT AN EXPLANATION IN SECTION 32(1) WAS I NSERTED NAMELY EXPLANATION 5 WITH EFFECT FROM 1-04-2002. AS PER THE SAID EXPLANATION ALLOWANCE OF DEPRECIATION BECAME M ANDATORY EVEN WNEN THE ASSESSEE CHOOSES NOT TO CLAIM THE SAM E. - 10 - HOWEVER THIS INSERTION DOES NOT MAKE ANY AMENDMENT IN THE PROVISIONS OF SECTION 43(6) OF THE ACT AND EVEN AFT ER THIS AMENDMENT ONLY THE AMOUNT OF DEPRECIATION WHICH HAS BEEN ACTUALLY ALLOWED AS DEDUCTION TO THE ASSESSEE ON AN ASSESSMENT CAN ONLY BE REDUCED TO DETERMINE THE WRITTEN DOWN V ALUE OF THE ASSET. FROM THE FACTS AVAILABLE ON RECORD IT IS NOT CLEAR THAT WHETHER THE DEPRECIATION WAS ALLOWED TO THE ASSESSE E IN THE ASSESSMENT OF ASSESSMENT YEAR 2002-03 OR NOT. BOTH THE PARTIES BEFORE US COULD NOT PRODUCE ANY RELEVANT EV IDENCE IN THIS REGARD. WE THEREFORE SET ASIDE THE ORDERS OF T HE LOWER AUTHORITIES AND RESTORE THE MATTER BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR ADJUDICATION AFRESH I N LIGHT OF THE DISCUSSIONS MADE HEREINABOVE AFTER ALLOWING REASONA BLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL P URPOSES. 15. GROUND NO.2 OF THE APPEAL IS DIRECTED AGAINST THE ACTION OF THE LEARNED ASSESSING OFFICER IN TREATING ASSESS MENT YEAR 1998- 99 AS THE FIRST YEAR OF COMMENCEMENT OF THE ELIGIBL E BUSINESS UNDERTAKING FOR DEDUCTION UNDER SECTION 80IB OF THE ACT AND ACCORDINGLY TREATING THE ASSESSMENT YEARS 2003-04 A ND 2004-05 AS SIXTH AND SEVENTH YEAR RESPECTIVELY AND ALLOWING DE DUCTION OF ONLY 25% OF THE PROFIT OF THE ELIGIBLE UNDERTAKING UNDER SECTION 80IB OF THE ACT. 16. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSE SSEES MANUFACTURING UNIT IS LOCATED IN THE UNION TERRITOR Y OF DAMAN A BACKWARD AREA SPECIFIED IN VIIITH SCHEDULE OF THE A CT. THUS THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IB OF THE ACT FROM THE INCOME DERIVED FROM ITS MANUFACTURING UNIT . THE INCOME DERIVED FROM SUCH ELIGIBLE UNDERTAKING IS ELIGIBLE FOR 100% DEDUCTION UNDER SECTION 80IB FOR A PERIOD OF 5 YEAR S FROM COMMENCEMENT OF PRODUCTION AND AT THE RATE 25% OF T HE INCOME IN THE NEXT 5 YEARS. THE ASSESSEE CLAIMED THAT IT HAS FULFILLED ALL THE CONDITIONS LAID DOWN UNDER SECTION 80IB OF THE ACT AND STARTED - 11 - MANUFACTURING WIRE ROPE IN THE ASSESSMENT YEAR 1998 -99 BY TAKING TRIAL RUN PRODUCTION. HOWEVER THE WIRE ROPES MANUF ACTURED WERE NOT TO THE SATISFACTION OF THE CUSTOMERS AND HENCE THE ASSESSEE SUSPENDED ITS MANUFACTURING OPERATION FROM THE NEXT YEAR. IN THE ASSESSMENT YEAR 2000-01 THE ASSESSEE STARTED MANUFA CTURING NEW PRODUCT VIZ. PLASTIC CANES PLASTIC SUTALI ARTICLE S LIKE CYCLE BOX BASKET ETC. FOR WHICH PLANT AND MACHINERY OF THE VA LUE OF `.28.48 LACS WERE ACQUIRED DURING THE ASSESSMENT YEAR 2000- 01. 17. THE ASSESSEES CONTENTION IS THAT IT HAS STA RTED COMMERCIAL PRODUCTION SINCE ASSESSMENT YEAR 2000-01 AND THEREF ORE SHOULD BE ALLOWED DEDUCTION UNDER SECTION 80IB AT THE RATE 100% OF THE PROFITS OF THE ELIGIBLE UNDERTAKING WHEREAS THE LE ARNED ASSESSING OFFICER HAS TREATED THE ASSESSMENT YEAR 1998-99 AS THE FIRST YEAR PRODUCTION FOR COMPUTING FIRST FIVE YEARS OF THE EL IGIBLE UNDERTAKING FOR THE PURPOSE OF SECTION 80IB OF THE ACT AND ACCO RDINGLY ALLOWED DEDUCTION AT THE RATE OF 25% OF THE PROFITS OF THE ELIGIBLE UNDERTAKING UNDER SECTION 80IB OF THE ACT IN THE YE ARS UNDER APPEAL. THE ASSESSEES CONTENTION IS ALSO THAT IN T HE FIRST YEAR ONLY TRIAL RUN OF PLASTIC ROPE WAS UNDERTAKEN AND MANUFA CTURING OF THE SAME WAS SUSPENDED FROM THE ASSESSMENT YEAR 1999-00 AND WITH THE HELP OF NEW PLANT AND MACHINERY PURCHASED NEW ARTICLES VIZ. PLASTIC CAN PLASTIC SUTALI AND BASKETS ETC. WERE MANUFACTURED FROM THE ASSESSMENT YEAR 2000-01. THEREFORE THE PL EA OF THE ASSESSEE IS THAT IT IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB SINCE ASSESSMENT YEAR 2000-01 ONLY AND THEREFORE SHOULD BE ALLOWED DEDUCTION UNDER SECTION 80IB @ 100% OF THE PROFITS OF THE ELIGIBLE UNDERTAKING IN THE ASSESSMENT YEARS 2003-04 AND 200 4-05 WHICH ARE IN APPEAL BEFORE US. 18. THE LEARNED ASSESSING OFFICER HAS NOTED THAT TH E ASSESSEE OBTAINED SSI REGISTRATION AND THEREAFTER STARTED PR ODUCTION ON 25- 3-1998 OF WIRE ROPES AND PRODUCTION OF THE SAME LAS TED FOR 7 DAYS I.E. UPTO 31-3-1998. SINCE THE PRODUCT WAS NOT UPT O THE SATISFACTION OF THE CUSTOMERS THE SAME WAS DISCONTI NUED FROM THE ASSESSMENT YEAR 1998-99 AND THE ASSESSEE STARTED MA NUFACTURING - 12 - PLASTIC CANES PLASTIC SUTALI CYCLE BOX BASKET ET C. WITH THE HELP OF NEW PLANT AND MACHINERY PURCHASED OVER AND ABOVE TH E EXISTING PLANT AND MACHINERY. ACCORDINGLY BEFORE THE LEARN ED ASSESSING OFFICER THE ASSESSEE ARGUED THAT FIRST YEAR OF PROD UCTION IS ASSESSMENT YEAR 2000-01. IT WAS THEREFORE CONTENDED THAT IN THE YEARS UNDER APPEAL THE FIRM IS ELIGIBLE FOR DEDUCTI ON AT THE RATE 100% OF PROFITS OF ELIGIBLE UNDERTAKING. THE ASSESS EE EMPHASIZED THAT THE COMMERCIAL PRODUCTION WAS DIFFERENT FROM T RIAL RUN PRODUCTION AND THEREFORE THE INITIAL ASSESSMENT YE AR FROM WHICH THE MANUFACTURING ACTIVITY STARTED WAS ASSESSMENT Y EAR 2000-01. IT WAS ALSO SUBMITTED THAT THE QUANTUM OF SALE OF ` .64 000/- ALONE CANNOT BE DECISIVE OF WHETHER IT IS A TRIAL RUN PRO DUCTION OR A COMMERCIAL PRODUCTION. 19. THE LEARNED ASSESSING OFFICER AT PARA-3.4 OF THE ASSESSMENT ORDER HAS GIVEN A CATEGORICAL FINDING THAT THE SALE OF PRODUCTION OF `.64 000/- WITHIN THE PERIOD OF 7 DAYS IS A SUBSTAN TIAL PRODUCTION AND THE SAME CANNOT BE CONSIDERED AS A TRIAL RUN PR ODUCTION. IT WAS ARGUED THAT NO BUSINESSMAN WOULD INCUR EXPENSES OF `.64 000/- FOR THE SAKE OF TRIAL. THE QUANTUM ITSEL F SHOWS THAT IT IS A COMMERCIAL PRODUCTION. THE LEARNED ASSESSING OFFICE R AT PARA 4.5 OF THE ASSESSMENT ORDER OBSERVED THAT NEW PLANT AND MACHINERY PURCHASE IN THE ASSESSMENT YEAR 2000-01 DID NOT CON STITUTE A SEPARATE DIVISIBLE UNIT CAPABLE OF MANUFACTURING DI FFERENT GOODS WAS SET UP BECAUSE THE BASIC FACT REMAINS THAT THE ASSESSEE IN ASSESSMENT YEAR 1998-99 AND 1999-00 WAS MANUFACTURI NG GOODS ONLY AND THE BASIC RAW MATERIALS WAS HDPE AND PP ON LY OUT OF WHICH DIFFERENT ITEMS OF PLASTIC GOODS ARE MANUFACT URED. ACCORDING TO THE LEARNED ASSESSING OFFICER THE PLEA OF THE AS SESSEE THAT A SEPARATE DIVISIBLE UNIT WAS ESTABLISHED DOES NOT HO LD WATER. THE LEARNED ASSESSING OFFICER HAS BROUGHT ON RECORD THA T THE ASSESSEE STARTED PRODUCTION OF PLASTIC ROPE IN THE ASSESSMEN T YEAR 1998-99 AND IN THE SUBSEQUENT YEAR THE ASSESSEE HAS TRIED T O MANUFACTURE DIFFERENT VARIETY OF GOODS LIKE PLASTIC CANES PLAS TIC SUTALI CYCLE BOX BASKET ETC. THUS IT WAS MERELY AN EXTENSION OF TH E EXISTING RANGE - 13 - OF THE PRODUCTS AND NO SEPARATE UNIT WAS ESTABLISHE D IN THE SUBSEQUENT YEAR ASSESSMENT YEAR 2000-01. 20. THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS HELD AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT FIRM AS WELL AS THE OBSERVATION OF THE LEARNED ASSESSING OF FICER IN THE ASSESSMENT ORDER. THE FACTS OF THE CASE ARE SUCH TH AT THERE IS NO FORCE IN THE CLAIM OF THE APPELLANT FIRM THAT TH E YEAR UNDER APPEAL IS A FIFTH YEAR OF THE UNIT AS THE UNIT OF T HE APPELLANT FIRM STARTED PRODUCTION OF PLASTIC GOODS DURING FIN ANCIAL YEAR 1997-98. THE LEARNED AUTHORISED REPRESENTATIVE OF T HE ASSESSEE OF THE APPELLANT HAS TRIED TO MISLEAD AND MISREPRESENT THE FACTS OF THE CASE BY PLACING EMPH ASIS ON THE FACT THAT SUBSTANTIAL MACHINERY AND PLANT WERE PURC HASED DURING THE FINANCIAL YEAR 1998-99 I.E. THE YEAR SUB SEQUENT TO YEAR IN WHICH THE APPELLANT FIRM ACTUALLY STARTED P RODUCTION. ONLY BECAUSE NEW PLANT AND MACHINERY WERE PURCHASED AND VARIETY OF PLASTIC GOODS WERE MANUFACTURED DOES NOT TANTAMOUNT TO ESTABLISHING ALTOGETHER A NEW UNIT AS THE BASIC CHARACTER OF THE GOODS MANUFACTURED BY THE UNIT REM AINS SAME. IN THE FIRST YEAR 1997-98 IN THE SECOND YEAR 1998-99 AND IN SUBSEQUENT YEARS AS WELL THE APPELLANT FIRM IS PRODUCING PLASTIC GOODS AND ARTICLES FROM BASIS RAW MATERIALS LIKE HDPE AND PP ONLY. THEREFORE THE PLEA OF THE APPELLANT FIRM THAT DEDUCTION UNDER SECTION 80IB SHOULD BE AL LOWED AT 100% OF THE PROFITS OF THE ELIGIBLE UNDERTAKING CAN NOT BE ENTERTAINED. THE APPELLANT FIRM HAS PRODUCED AND SO LD SUBSTANTIAL GOODS WORTH `.64 000/- IN THE FIRST YEA R OF ITS OPERATION ITSELF I.E. FINANCIAL YEAR 1997-98. THERE FORE THE ATTEMPT AND ARGUMENTS OF THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE TO LABEL THE ACTUAL PRODUCTION AS TRIAL RUN PRODUCTION ARE MEANINGLESS. IT IS A HARD CORE FACT THAT THE APPELLANT FIRM ACTUALLY STARTED PRODUCTION IN THE YEAR 1997-98. AFTER APPRECIATING THE FACTS OF THE CASE I AM OF THE CONSIDERED VIEW THAT THE LEARNED ASSESSING OFFICER WAS JUSTIFIED IN TREATING THE FINANCIAL YEAR RELEVANT T O ASSESSMENT YEAR 1998-99 AS FIRST YEAR OF PRODUCTION AND CONSEQ UENTLY THE LEARNED ASSESSING OFFICER WAS JUSTIFIED IN ALLOWING DEDUCTION @ 25% OF THE PROFITS OF THE ELIGIBLE UNIT UNDER SECTI ON 80IB OF THE INCOME TAX ACT IN THE YEAR UNDER APPEAL. THE APPELL ANTS GROUND NO.2 IS DISMISSED. 21. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSES SEE SUBMITTED THAT THE QUESTION TO BE DECIDED BY THE TR IBUNAL WAS WHICH IS THE FIRST YEAR OF OPERATION OF THE ASSESSE E FOR ALLOWING DEDUCTION UNDER SECTION 80IB OF THE ACT. HE POINTED OUT FROM - 14 - PAGE-2 PARA 3.1 OF THE ASSESSMENT ORDER THAT THE LE ARNED ASSESSING OFFICER TREATED THE FIRST YEAR OF OPERATI ON OF THE ASSESSEE FOR ALLOWING DEDUCTION UNDER SECTION 80IB AS THE ASSESSMENT YEAR 1998-99 AND ACCORDINGLY TREATED THE ASSESSMENT YEARS 2003-04 AND 2004-05 AS SIXTH AND SEVENTH YEAR FOR THE PURPOSES OF ALLOWING DEDUCTION UNDER SECTION 80IB O F THE ACT AND ACCORDINGLY ALLOWED DEDUCTION AT THE RATE 25% OF TH E PROFITS OF THE ELIGIBLE UNDERTAKING IN THE YEARS UNDER APPEAL. HE SUBMITTED THAT IT WILL BE SEEN FROM PAGE NOS.1 AND 2 OF THE PAPER BOOK FILED BY THE ASSESSEE THAT THE ASSESSEE HAS APPENDED A NOTE TO THE COMPUTATION OF INCOME FILED WITH THE RETURN OF INCO ME STATING THAT THE ASSESSEE HAD TAKEN TRIAL RUN PRODUCTION DURING THE LAST WEEK OF MARCH 1998. ALL THE EXPENSES INCURRED FOR TRIAL RU N AND ALL THE INCOME EARNED DURING THIS PERIOD HAS BEEN DEBITED/C REDITED TO PREOPERATIVE EXPENSES ACCOUNT AND THE BALANCE AMOUN T HAS BEEN CAPITALIZED. IN VIEW OF THIS THE ASSESSEE DID NOT PREPARE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 1998. SI MILARLY FROM PAGE 4 AND PAGE 6 OF THE PAPER BOOK THE LEARNED AUT HORISED REPRESENTATIVE OF THE ASSESSEE POINTED OUT THAT IT CONTAINS PREOPERATIVE EXPENSES ACCOUNT OF THE ASSESSEE FOR T HE YEAR ENDED ON 31 ST MARCH 1998 AND THAT THE ASSESSEE HAD PLANT AND MACHINERY OF THE VALUE OF `.5 97 484/-. HE FURTHER POINTED OUT FROM PAGE 7 OF THE PAPER BOOK THAT IT CONTAINS NOTES ON ACCOUNTS OF THE ASSESSEE FIRM WHEREIN IT HAS BEEN STATED THAT THE A SSESSEE HAS TAKEN TRIAL RUN PRODUCTION DURING THE LAST WEEK OF MARCH 1998. ALL EXPENSES INCURRED FOR TRIAL RUN AND ALL INCOME DURI NG THIS PERIOD HAS BEEN DEBITED/CREDITED TO PREOPERATIVE EXPENSES ACCOUNT AND THE BALANCE AMOUNT HAS BEEN CAPITALIZED. IN VIEW OF THIS THE ASSESSEE HAS NOT PREPARED PROFIT AND LOSS ACCOUNT F OR THE YEAR ENDED ON 31 ST MARCH 1998. FROM PAGE-11 AND 12 OF THE PAPER BOOK WHEREIN COPY OF ACKNOWLEDGEMENT OF RETURN OF I NCOME IS FILED AND COPY OF BALANCE SHEET AND PREOPERATIVE EX PENSES ACCOUNT FOR THE YEAR ENDED 31 ST MARCH 1998 WAS FILED IT WAS POINTED OUT THAT THE ASSESSEE DID NOT HAVE ANY SALE AND THE ENTIRE AMOUNT WAS TRANSFERRED TO PREOPERATIVE EXPENSES ACC OUNT. - 15 - FURTHER HE POINTED OUT FROM PAGE 14 OF THE PAPER B OOK WHERE BALANCE SHEET AS AT 31 ST MARCH 1999 IS PLACED THAT DURING THE YEAR ASSESSEE ACQUIRED PLANT AND MACHINERY OF THE VALUE OF `.28 48 685/-. THIS SHOWS THAT THE PLANT AND MACHIN ERY OF THE ASSESSEE INCREASED BY 4.5 TIMES DURING THE ASSESSME NT YEAR 2000-01. THUS THE ASSESSEE STARTED NEW INDUSTRIAL UNDERTAKING ON AND FROM ASSESSMENT YEAR 2000-01 FOR MANUFACTURING PLASTIC CANE PLASTIC SUTALI ARTICLE LIKE CYCLE BOX AND BA SKET ETC. LOOKING FROM THIS ANGLE ALSO THE ASSESSEE WAS ENTITLED FOR DEDUCTION UNDER SECTION 80IB ON AND FROM ASSESSMENT YEAR 1999-00 AN D THEREFORE WAS ELIGIBLE FOR DEDUCTION AT THE RATE 100% OF THE PROFITS OF THE ELIGIBLE UNDERTAKING DURING THE YEARS UNDER APPEAL. 22. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TEXTILE MACHINERY CORPORATION LTD. VS. CIT (1977) 107 ITR 1 95(SC) WHEREIN IT WAS HELD AS UNDER:- THE CASES WHICH GIVE RISE TO CONTROVERSY ARE THOSE WHERE THE OLD BUSINESS IS BEING CARRIED ON BY THE ASSESSE E AND A NEW ACTIVITY IS LAUNCHED BY HIM ESTABLISHING NEW PL ANTS AND MACHINERY BY INVESTING SUBSTANTIAL FUNDS. THE NEW A CTIVITY MAY PRODUCE THE SAME COMMODITIES OF THE OLD BUSINES S 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 THI NG IS CERTAIN THAT THE NEW UNDERTAKING MUST BE AN INTEGRA TED UNIT BY ITSELF WHEREIN ARTICLES ARE PRODUCED AND AT LEAS T A MINIMUM OF TEN PERSONS WITH THE AID OF POWER AND A MINIMUM OF TWENTY PERSONS WITHOUT THE AID OF POWER HAVE BEEN EMPLOYED. SUCH A NEW INDUSTRIALLY RECOGNIZABLE UNIT OF AN ASSESSEE CANNOT BE SAID TO BE RECONSTRUCTION OF HIS OLD BUSINESS SINCE THERE IS NO TRANSFER OF ANY ASSETS O F THE OLD BUSINESS TO THE NEW UNDERTAKING WHICH TAKES PLACE W HEN THERE IS RECONSTRUCTION OF THE OLD BUSINESS. FOR TH E PURPOSE OF S. 15C THE INDUSTRIAL UNITS SET UP MUST BE NEW IN T HE SENSE THAT NEW PLANTS AND MACHINERY ARE ERECTED FOR PRODU CING EITHER THE SAME COMMODITIES OR SOME DISTINCT COMMOD ITIES. IN ORDER TO DENY THE BENEFIT OF S. 15C THE NEW UNDE RTAKING MUST BE FORMED BY RECONSTRUCTION OF THE OLD BUSINES S. NOW IN THE INSTANT CASE THERE IS NO FORMATION OF ANY I NDUSTRIAL - 16 - UNDERTAKING OUT OF THE EXISTING BUSINESS SINCE THAT CAN TAKE PLACE ONLY WHEN THE ASSETS OF THE OLD BUSINESS ARE TRANSFERRED SUBSTANTIALLY TO THE NEW UNDERTAKING. T HERE IS NO SUCH TRANSFER OF ASSETS IN THE TWO CASES WITH WHICH THIS CASE IS CONCERNED. RECONSTRUCTION OF BUSINESS INVOLVES T HE IDEA OF SUBSTANTIALLY THE SAME PERSONS CARRYING ON SUBSTANT IALLY THE SAME BUSINESS. IT IS STATED ON BEHALF OF THE REVENU E THAT THE SAME COMPANY IN THE INSTANT CASE CONTINUES TO DO TH E SAME BUSINESS OF HEAVY ENGINEERINGNO MATTER CERTAIN SPA RE PARTS NECESSARY AS COMPONENTS TO COMPLETION OF THE END- PRODUCT ARE NOW MANUFACTURED IN THE BUSINESS ITSELF . THE FACT THAT THE ASSESSEE IS CARRYING ON THE GENERAL BUSINE SS OF HEAVY ENGINEERING WILL NOT PREVENT HIM FROM SETTING UP NEW INDUSTRIAL UNDERTAKINGS AND FROM CLAIMING BENEFIT U NDER S. 15C IF THAT SECTION IS OTHERWISE APPLICABLE. HOWEVE R IN ORDER TO BE ENTITLED TO THE BENEFIT UNDER S. 15C THE FOL LOWING FACTS HAVE TO BE ESTABLISHED BY THE ASSESSEE SUBJECT ALW AYS TO TIME-SCHEDULE IN THE SECTION : (1) INVESTMENT OF SUBSTANTIAL FRESH CAPITAL IN THE INDUSTRIAL UNDERTAKING SET UP (2) EMPLOYMENT OF REQUISITE LABOUR THEREIN (3) MANUFACTURE OR PRODUCTION OF ARTICLES IN THE S AID UNDERTAKING (4) EARNING OF PROFITS CLEARLY ATTRIBUTABLE TO THE SAID NEW UNDERTAKING AND (5) ABOVE ALL A SEPARATE AND DISTINCT IDENTITY OF THE INDUSTRIAL UNIT SET UP. IF ANY UNDERTAKING IS NOT FORMED BY RECONSTRUCTION OF THE OLD BUSINESS THAT UNDERTAKING WILL NOT BE DENIED THE BE NEFIT OF S. 15C SIMPLY BECAUSE IT GOES TO EXPAND THE GENERAL BU SINESS OF THE ASSESSEE IS SOME DIRECTIONS. AS IN THE INSTA NT CASE ONCE THE NEW INDUSTRIAL UNDERTAKINGS ARE SEPARATE A ND INDEPENDENT PRODUCTION UNITS IN THE SENSE THAT THE COMMODITIES PRODUCED OR THE RESULTS ACHIEVED ARE COMMERCIALLY TANGIBLE PRODUCTS AND THE UNDERTAKINGS CAN BE CARRIED ON SEPARATELY WITHOUT COMPLETE ABSORPTION A ND LOSING THEIR IDENTITY IN THE OLD BUSINESS THEY ARE NOT TO BE TREATED AS BEING FORMED BY A RECONSTRUCTION OF THE OLD BUSI NESS. THE BUSINESS OF THE ASSESSEE IS OF HEAVY ENGINEERING. T HE TWO NEW UNDERTAKINGS ARE INDEPENDENTLY PRODUCING ARTICL ES WHICH MAY BE OF AID TO THE PRINCIPAL BUSINESS BUT YET THE UNDERTAKINGS ARE DISTINCT AND NOT RECONSTRUCTION OU T OF THE EXISTING BUSINESS OF THE ASSESSEE. USE BY THE ASSES SEE OF THE ARTICLES PRODUCED IN ITS EXISTING BUSINESS OR THE C ONCEPT OF EXPANSION ARE NOT DECISIVE TESTS IN CONSTRUING S. 1 5C. THE HIGH COURT IS NOT RIGHT IN HOLDING THE TWO UNDERTAK INGS AS - 17 - FORMED BY RECONSTRUCTION OF EXISTING BUSINESS OF TH E ASSESSEE. 23. HE ALSO RELIED ON THE DECISION OF THE HON'B LE SUPREME COURT IN THE CASE OF CIT VS. INDIAN ALUMINIUM CO. (1977) 108 ITR 367 (SC) WHEREIN IT IS HELD THAT WHERE AN ASSESSEE SETS UP N EW UNIT FOR MANUFACTURE OF SAME COMMODITY APART FROM ADDING PLA NT AND MACHINERY TO THE EXISTING UNITS THE ASSESSEE IS ENT ITLED TO RELIEF UNDER SECTION 15C. 24. HE ALSO RELIED ON THE DECISION OF HON'BLE GUJAR AT HIGH COURT IN THE CASE OF C.I.T. VS. DIGVIJAY CEMENT CO. LTD. (1983) 144 ITR- 532 (GUJ.) WHEREIN IT IS HELD AS UNDER:- THERE WAS SUBSTANTIAL EXPANSION WHEN THE ASSESSEE COMPANY INSTALLED A FOURTH KILN. PRODUCTION CAPACIT Y OF CEMENT WAS INCREASED BY 2 LAKHS TONES. THERE WAS TH EREFORE SUBSTANTIAL INCREASE IN THE PRODUCTION OF THE ASSES SEE- COMPANY AS A RESULT OF THE INSTALLATION OF A FOURTH KILN. THE EVIDENCE ON RECORD DISCLOSES THAT VARIOUS MACHINERI ES INDEPENDENT OF THE EXISTING MACHINERIES WERE INSTAL LED ALONG WITH INSTALLATION OF THE FOURTH KILN. THERE IS INVE STMENT OF FRESH CAPITAL AND ADDITIONAL LABOUR FORCE IS EMPLOY ED BY THE ASSESSEE-COMPANY AS A RESULT OF THE INSTALLATION OF THE FOURTH KILN. THE EXPANDED UNIT HAS A SEPARATE AND DISTINCT IDENTITY AND THERE IS SUBSTANTIAL INCREASE IN THE PRODUCTION IN THE ASSESSEE-COMPANY. ASSESSEE IS ENTITLED TO RELIEF UN DER SECTION 84/80J IN RESPECT OF THE FOURTH KILN. 25. HE ALSO RELIED ON THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF DC.I.T. VS. FINOLEX CABLES LTD. (200 9) 29 SOT 595 (PUNE.) WHEREIN IT IS HELD AS UNDER:- IN ORDER TO BE ELIGIBLE FOR DEDUCTION UNDER S. 80- IA THE NEW UNIT SHOULD BE BROUGHT INTO EXISTENCE BY ESTABLISHI NG NEW PLANT AND MACHINERY AND BY INVESTING SUBSTANTIAL FU NDS; IT MUST BE AN INTEGRATED UNIT BY ITSELF WHEREIN ARTICL ES ARE PRODUCED; IT MAY PRODUCE THE SAME COMMODITY AS OF T HE OLD UNIT OR COMMODITIES WHICH MAY FEED THE OLD UNIT; OR SOME OTHER DISTINCT MARKETABLE PRODUCTS. THESE PRODUCTS MAY BE CONSUMED BY THE ASSESSEE IN HIS OLD UNIT OR MAY BE SOLD IN THE OPEN MARKET. THE BENEFIT CANNOT BE DENIED MEREL Y BECAUSE THE NEW UNDERTAKING GOES TO EXPAND THE GENE RAL BUSINESS OF THE ASSESSEE IN SOME DIRECTION AND THE SECTION HAS TO BE SO CONSTRUED AS TO EFFECTUATE THE OBJECT OF THE LEGISLATURE AND NOT TO DEFEAT IT. - 18 - A NEW UNIT WAS BROUGHT INTO EXISTENCE DURING THE PR EVIOUS YEAR RELEVANT TO ASST. YR. 1994-95 BY INVESTING SU BSTANTIAL FUNDS AND BY ESTABLISHING NEW PLANT AND MACHINERY. IT WAS A SEPARATE IDENTIFIABLE INTEGRATED UNIT BY ITSELF WH EREIN ARTICLES WERE PRODUCED. 26. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE ASSESSEE STARTED A MANUFACTURING UNIT IN THE UNION TERRITORY OF DAMAN A BACKWARD AREA SPECIFIED IN VIII SCHEDULE OF THE ACT FOR MANUFACTURE OF PLASTIC ROPES AND AFTER OBTAINING SS I REGISTRATION STARTED PRODUCTION OF PLASTIC ROPES FROM 25-3-1998 WHICH LASTED FOR 7 DAYS UPTO 31-3-1998. THE ASSESSEE SOLD THIS PRODU CTION FOR `.64 000/- AND CREDITED THIS TO PREOPERATIVE EXPENS E ACCOUNT AND THE BALANCE AMOUNT IN THIS ACCOUNT WAS CAPITALIZED. THEREAFTER THE ASSESSEE DISCONTINUED PRODUCTION OF PLASTIC ROP ES AND ONLY IN ASSESSMENT YEAR 2000-01 STARTED PRODUCTION OF NEW P RODUCTS SUCH AS PLASTIC CANE PLASATIC SUTALI CYCLE BOX AND BAS KET ETC. WITH THE AID OF EXISTING PLANT AND MACHINERY WORTH `.5 97 48 4/- AND ALSO ACQUIRING NEW PLANT AND MACHINERY OF `.28 48 685/-. THE ASSESSEE CLAIMED EXEMPTION OF ITS ENTIRE PROFITS EARNED FROM THIS INDUSTRIAL UNDERTAKING IN THE ASSESSMENT YEAR 2003-04 AND 2004 -05 UNDER SECTION 80IB OF THE ACT WHICH WAS ALLOWED BY THE LE ARNED ASSESSING OFFICER AT THE RATE 25% OF THE PROFITS DE RIVED FROM THE ELIGIBLE INDUSTRIAL UNDERTAKING. THE LEARNED ASSESS ING OFFICER OBSERVED THAT EXEMPTION UNDER SECTION 80IB WAS ALLO WABLE AT THE RATE 100% OF THE PROFITS DERIVED FROM THE ELIGIBLE INDUSTRIAL UNDERTAKING FOR FIRST 5 YEARS OF COMMENCEMENT OF PR ODUCTION AND AT THE RATE 25% OF THE PROFITS DERIVED FROM SUCH IN DUSTRIAL UNDERTAKING IN THE SUBSEQUENT 5 YEARS. AS ASSESSEE STARTED PRODUCTION ON 25-3-1998 THE LEARNED ASSESSING OFFIC ER HELD THAT THE FIRST YEAR OF ALLOWING DEDUCTION UNDER SECTION 80IB WAS THE ASSESSMENT YEAR 1998-99 AND ACCORDINGLY THE ASSESSM ENT YEAR 2003-04 WAS THE SIXTH YEAR AND THE ASSESSMENT YEAR 2004-05 WAS THE SEVENTH YEAR FOR ALLOWING DEDUCTION UNDER SECTI ON 80IB FOR THE PROFITS DERIVED FROM THE ELIGIBLE INDUSTRIAL UNDERT AKING AND HENCE WAS ENTITLED TO DEDUCTION UNDER SECTION 80IB AT THE RATE 25% OF - 19 - THE PROFITS DERIVED FROM SUCH UNDERTAKING AND ACCOR DINGLY ALLOWED DEDUCTION TO THE ASSESSEE. ON THE OTHER HAND THE ASSESSEE CONTENDS THAT THE PRODUCTION DONE IN ASSESSMENT YEA R 1998-99 WAS THE TRIAL PRODUCTION AND NOT THE COMMERCIAL PRO DUCTION. THE PRODUCT PLASTIC ROPE WHOSE PRODUCTION WAS DONE DURI NG THE PERIOD 25-3-1998 TO 31-3-1998 WAS DISCONTINUED AND THEREAF TER NEW PRODUCTS WERE PRODUCED SINCE THE ASSESSMENT YEAR 20 00-01 BY ACQUIRING FURTHER PLANT AND MACHINERY OF `.28 48 68 5/- AND THEREFORE THE ASSESSMENT YEAR 2000-01 WAS THE FIRS T YEAR OF PRODUCTION FOR THE PURPOSES OF ALLOWING DEDUCTION U NDER SECTION 80IB AND THAT BEING SO THE ASSESSMENT YEAR 2003-04 WAS THE FOURTH YEAR AND ASSESSMENT YEAR 2004-05 WAS THE FIF TH YEAR FOR THE PURPOSE OF ALLOWING DEDUCTION UNDER SECTION 80I B FROM THE PROFITS DERIVED FROM THE ELIGIBLE INDUSTRIAL UNDERT AKING AND HENCE DEDUCTION UNDER SECTION 80IB SHOULD BE ALLOWED AT T HE RATE 100% OF THE PROFITS DERIVED FROM THE ELIGIBLE UNDERTAKIN G. 27. ON THE APPEAL LEARNED COMMISSIONER OF INCOME T AX (APPEALS) CONFIRMED THE ACTION OF THE LEARNED ASSES SING OFFICER ALLOWING DEDUCTION UNDER SECTION 80IB TO THE ASSESS EE AT THE RATE 25% OF THE PROFIT DERIVED FROM THE ELIGIBLE UNDERTA KING IN THE ASSESSMENT YEAR 2003-04 AND 2004-05. 28. BEFORE US THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT DURING THE ASSESSMENT YEAR 1998-99 THE TOTAL INVESTMENT IN PLANT AND MACHINERY WAS `.5 97 484/- AND IN THE ASSESSMENT YEAR 2000-01 THE ASSESSEE MADE SUBST ANTIAL INVESTMENT IN PLANT AND MACHINERY OF `.28 48 685/- WHICH IS ABOUT 4.5 TIMES OF THE ORIGINAL INVESTMENT. FURTHER THE PRODUCTION IN THE ASSESSMENT YEAR 1998-99 WAS ONLY `./64 000/- THERE WAS NO PRODUCTION IN THE ASSESSMENT YEAR 1999-00 GOES TO S HOW THAT PRODUCTION IN ASSESSMENT YEAR 1998-99 WAS ONLY TRIA L PRODUCTION AND COMMERCIAL PRODUCTION WAS STARTED ONLY IN THE A SSESSMENT YEAR 2000-01 THEREFORE THE ASSESSEE WAS ENTITLED TO 100% DEDUCTION DURING THE ASSESSMENT YEARS UNDER CONSIDE RATION. - 20 - 29. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE ALTERNATIVELY ALSO SUBMITTED THAT DURING THE ASSES SMENT YEAR 1998-99 THE PRODUCT MANUFACTURED WAS PLASTIC ROPE W HEREAS FROM THE ASSESSMENT YEAR 2000-01 THE ASSESSEE STARTED MA NUFACTURING VARIOUS PLASTIC ARTICLES LIKE PLASTIC CANE PLASTIC SUTALI CYCLE BOX AND BASKET ETC. WHICH ARE NEW PRODUCTS AND THEREFOR E NEW INDUSTRIAL UNDERTAKING WAS STARTED FROM THE ASSESSM ENT YEAR 2000-01 AND THE OLD INDUSTRIAL UNIT WAS ABANDONED. 30. WE FIND THAT IT IS NOT IN DISPUTE THAT THE ASSE SSEE SET-UP AN INDUSTRIAL UNIT AND COMMENCED PRODUCTION W.E.F. 25- 3-1998 WHICH IS RELATING TO ASSESSMENT YEAR 1998-99. THE ABOVE F ACT IS ALSO EVIDENCED BY THE SSI REGISTRATION ISSUED BY THE IND USTRIES OFFICE AND WHICH IS ALSO MADE AS AN ANNEXURE TO THE ASSESS MENT ORDER BY THE LEARNED ASSESSING OFFICER. THE FURTHER UNDI SPUTED FACT IS THAT THE ASSESSEE SOLD THE GOODS MANUFACTURED FROM THIS NEWLY ESTABLISHED INDUSTRIAL UNDERTAKING AMOUNTING TO `.6 4 000/- IN ASSESSMENT YEAR 1998-99. THE CONTENTION OF THE ASS ESSEE IS THAT THIS PRODUCTION IS ONLY A TRIAL PRODUCTION AND ON T HE BASIS OF THIS IT CANNOT BE SAID THAT THE ASSESSEE HAS STARTED COMMER CIAL PRODUCTION IN THE NEWLY ESTABLISHED INDUSTRIAL UNDE RTAKING. ACCORDING TO THE PROVISIONS OF SECTION 80IB OF THE ACT THE ASSESSEE IS ENTITLED FOR DEDUCTION AT THE RATE 100% OF THE P ROFIT DERIVED FROM THE NEW INDUSTRIAL UNDERTAKING FOR FIVE ASSESS MENT YEARS BEGINNING WITH THE INITIAL ASSESSMENT YEAR AND THER EAFTER AT THE RATE 25% OF THE PROFIT DERIVED FROM SUCH INDUSTRIAL UNDERTAKING. THE INITIAL ASSESSMENT YEAR HAS BEEN DEFINED IN CLA USE (C) OF SUB SECTION 14 OF 80IB AS UNDER:- (I) IN THE CASE OF AN INDUSTRIAL UNDERTAKING OR COLD ST ORAGE PLANT OR SHIP OR HOTEL MEANS THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE INDUSTRI AL UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICL ES OR THINGS OR TO OPERATE ITS COLD STORAGE PLANT OR PLANTS - 21 - OR THE COLD CHAIN FACILITY OR THE SHIP IS FIRST BRO UGHT INTO USE OR THE BUSINESS OF THE HOTEL STARTS FUNCTIONING . THUS THE INITIAL ASSESSMENT YEAR FOR THE PURPOSES OF SECTION 80IB IN THE INSTANT CASE MEANS THE ASSESSMENT YEAR RELEV ANT TO THE PREVIOUS YEAR IN WHICH THE INDUSTRIAL UNDERTAKING B EGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS. IN THE INSTANT CASE IT IS EVIDENT THAT THE ASSESSEES NEWLY ESTABLISHED INDUS TRIAL UNDERTAKING PRODUCED PLASTIC ROPE DURING THE PREVIO US YEAR RELEVANT TO THE ASSESSMENT YEAR 1998-99. THE ASSESS EES CONTENTION IS THAT SUCH PRODUCTION CANNOT TAKEN AS BEGINNING OF PRODUCTION OF ARTICLE OR THING AS THE SAME WAS ONLY A TRIAL PRODUCTION AND NOT A COMMERCIAL PRODUCTION. 31. WE FIND FORCE IN THE ARGUMENT OF THE LEARNED AU THORISED REPRESENTATIVE OF THE ASSESSEE TO THE EXTENT THAT B EGINNING OF MANUFACTURE OR PRODUCTION SPECIFIED IN SECTION 80-I B MEANS BEGINNING OF COMMERCIAL PRODUCTION AND NOT A MERE T RIAL PRODUCTION BY THE INDUSTRIAL UNDERTAKING. HOWEVER THE ISSUE IS WHEN IT CAN BE SAID THAT AN INDUSTRIAL UNDERTAKING HAS COMMENCED THE COMMERCIAL PRODUCTION AND WHEN A PRODUCTION MAD E BY THE INDUSTRIAL UNDERTAKING CAN BE CLASSIFIED AS A MERE TRIAL PRODUCTION. IN OUR CONSIDERED VIEW WHEN THE MANUFACTURED GOODS ARE SOLD IN THE MARKET THEN IT CAN BE INFERRED THAT THE ASSESSE ES UNIT HAS COMMENCED ITS COMMERCIAL PRODUCTION. A TRIAL PRODU CTION IS ONLY TO TEST THE EFFICIENCY OF THE UNIT OR TO TEST THE Q UALITY OF THE GOODS PRODUCED AND THE PRODUCTS SO OBTAINED ARE USED FOR TESTING OR STUDYING TO SET UP THE INDUSTRY PROPERLY AND ARE NO T USED FOR THE PURPOSE OF EARNING INCOME BY SELLING THE SAME. THUS IN OUR CONSIDERED OPINION THE LOWER AUTHORITIES WERE JUSTI FIED IN HOLDING THAT THE COMMERCIAL PRODUCTION OF THE ASSESSEES IN DUSTRIAL UNIT WAS STARTED W.E.F. 25-3-1998 AND THUS THE INITIAL ASSESSMENT YEAR WAS ASSESSMENT YEAR 1998-99 AND NOT ASSESSMENT YEAR 2000-01 AS CLAIMED BY THE ASSESSEE. - 22 - 32. THE ALTERNATIVE CONTENTION OF THE ASSESSEE IS T HAT AS SUBSTANTIAL INVESTMENT IN PLANT AND MACHINERY OF AB OUT 4.5 TIMES WERE MADE IN THE ASSESSMENT YEAR 2000-01 AND AS ASS ESSEES UNIT STARTED PRODUCTION OF NEW ITEMS IN THE ASSESSMENT Y EAR 2000-01 THEREFORE SUCH UNIT SHOULD BE TREATED AS NEWLY EST ABLISHED INDUSTRIAL UNDERTAKING OF THE ASSESSMENT YEAR 2000- 01 AND THE SAME SHOULD BE TAKEN AS THE INITIAL ASSESSMENT YEAR . THE ABOVE ARGUMENT OF THE ASSESSEE WAS NEGATED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) BY HOLDING THA T ONLY BECAUSE NEW PLANT AND MACHINERY WERE PURCHASED AND VARIETY OF PLASTIC GOODS WERE MANUFACTURED DOES NOT TANTAMOUNT TO ESTABLISHING ALTOGETHER A NEW UNIT AS THE BASIC CHA RACTER OF THE GOODS MANUFACTURED BY THE UNIT REMAINS SAME. 33 . WE DO NOT AGREE WITH THE ABOVE REASONING OF THE LEA RNED COMMISSIONER OF INCOME TAX (APPEALS). IN OUR CONSID ERED OPINION THE ISSUE INVOLVED IS THAT WHETHER THE NEW INVESTME NT GIVES RISE TO SET UP OF A SEPARATE UNIT WHICH IS CAPABLE OF MANUF ACTURING OR PRODUCING ARTICLES OR THINGS INDEPENDENTLY OF THE O LD UNIT OR NOT. IN OUR CONSIDERED OPINION IF THE NEW INVESTMENT IN PLANT AND MACHINERY ARE OF SUCH NATURE THAT NEW PLANT AND MAC HINERY CAN BE IDENTIFIED AS INDEPENDENT INTEGRATED UNIT FOR PR ODUCING ARTICLE OR THING THEN SUCH UNIT CAN BE RECOGNISED AS SET UP OF A NEW INDUSTRIAL UNIT AND IT IS IMMATERIAL THAT THE GOODS PRODUCED BY THE NEW UNIT IS OF THE SAME CHARACTER OR NOT WHICH WAS ALSO PRODUCED BY THE OLD UNIT. 34. BE THAT AS IT MAY. IN THE INSTANT CASE IT IS NO T THE CASE OF THE ASSESSEE THAT THE NEW INVESTMENT MADE BY IT GAVE RI SE TO ESTABLISHING OF A NEW AND SEPARATE IDENTIFIABLE IND USTRIAL UNDERTAKING WHICH WAS CAPABLE OF MANUFACTURING OR P RODUCING OF ARTICLE OR THING BY ITS OWN. THE CASE OF THE ASSES SEE IS THAT IT HAS MADE SUBSTANTIAL INVESTMENT IN PLANT AND MACHINERY WHICH WAS ALMOST 4.5 TIMES OF THE EXISTING COST OF MACHINERY AND IT PRODUCED NEW ARTICLES OR THINGS WHICH WERE NOT PRODUCED EARL IER. IN OUR - 23 - CONSIDERED OPINION THE AMOUNT OF FRESH INVESTMENT I S NOT THE DECISIVE CRITERIA FOR HOLDING THAT SUCH INVESTMENT TANTAMOUNTS TO ESTABLISHMENT OF NEW INDUSTRIAL UNDERTAKING AND THE CONSIDERATION IS THAT WHETHER A NEW PLANT AND MACHINERY INSTALLED ARE A INTEGRATED UNIT CAPABLE OF MANUFACTURING OR PRODUCI NG ARTICLES OR THINGS INDEPENDENTLY OF THE EXISTING UNIT OR NOT. FURTHER WE ALSO DO NOT FIND ANY FORCE IN THE ARGUMENT OF THE LEARNE D AUTHORISED REPRESENTATIVE OF THE ASSESSEE TO THE EFFECT THAT S UCH NEW ARTICLES OR THINGS WERE MANUFACTURED IN ASSESSMENT YEAR 2000 -01 WHICH WERE NOT MANUFACTURED OR PRODUCED EARLIER AND THERE FORE IT SHOULD BE HELD THAT THE ASSESSEE HAS ESTABLISHED A NEW INDUSTRIAL UNDERTAKING IN THE ASSESSMENT YEAR 2000-01. IN OUR VIEW IF AN INDUSTRY IS CAPABLE OF PRODUCING FOUR ITEMS AND IT ACTUALLY PRODUCES ONLY ONE ITEM FOR TWO YEARS AND THEN IT ST ARTS PRODUCING OTHER THREE ITEMS FROM THIRD YEAR ONWARDS DOES NOT MEAN THE ASSESSEE ESTABLISHED A NEW INDUSTRIAL UNDERTAKING I N THE THIRD YEAR. IN OUR CONSIDERED VIEW ONCE THE NEW INDUSTRIA L UNDERTAKINGS ARE SEPARATE AND INDEPENDENT PRODUCTION UNITS IN TH E SENSE THAT THE COMMODITIES PRODUCED OR THE RESULTS ACHIEVED AR E COMMERCIALLY TANGIBLE PRODUCTS AND THE UNDERTAKINGS CAN BE CARRIED ON SEPARATELY WITHOUT COMPLETE ABSORPTION A ND LOSING THEIR IDENTITY IN THE OLD BUSINESS THEY ARE NOT TO BE TR EATED AS BEING FORMED BY A RECONSTRUCTION OF THE OLD BUSINESS. IN THE INSTANT CASE NEITHER IT IS THE CASE OF THE ASSESSEE NOR AN Y MATERIAL WAS BROUGHT ON RECORD TO SHOW THAT THE NEW INVESTMENT M ADE BY THE ASSESSEE OF `.28 48 685/- IN ASSESSMENT YEAR 2000-0 1 RESULTED IN ESTABLISHMENT OF A NEW AND SEPARATE INDUSTRIAL UNDE RTAKING WHICH WAS CAPABLE OF PRODUCING OR MANUFACTURING ARTICLE O R THING INDEPENDENTLY OF THE OLD INVESTMENT. WE THEREFORE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE ASSESSEE. THE REFORE THE SAME IS DISMISSED. 35. IN THE RESULT BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED STATISTICAL PURPOSES. - 24 - ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 8 TH DAY OF OCTOBER 2010. SD/- SD/- (MUKUL SHRAWAT) (N.S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: ON THIS 8 TH DAY OF OCTOBER 2010 COMPILED AND COMPARED BY: PATKI. FIT FOR PUBLICATION. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-DAMAN. 5. THE DR AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT.REGISTRAR) ITAT AHMEDABAD