ZF Steering Gear (India) Limited Vs DCIT (ITAT Delhi)
A New Unit Need Not Reinvent the Wheel — Independent Manufacturing Unit Entitled to Deduction u/s 80-IA/80-IB Despite Same Product, Phased Expansion & Some Commonality with Old Unit: Delhi ITAT
Summary: The assessee established a new manufacturing unit at Pune for manufacture of Hydraulic Power Steering Gears & claimed deduction u/s 80-IA beginning from AY 1995-96. The original assessment was subjected to revision u/s 263 on the premise that the AO had not properly examined whether manufacturing activity had actually commenced before 31.03.1995. In the consequential assessment, deduction u/s 80-IA was denied & depreciation on certain machinery was also disallowed. The dispute ultimately travelled through several rounds of proceedings, with the Tribunal earlier remanding the matter to CIT(A) for determining whether a genuinely new, integrated & independent industrial undertaking had come into existence before 31.03.1995.
The CIT(A), in the latest remand proceedings, again rejected the assessee’s claim. According to him, no new integrated & independent undertaking had come into existence by 31.03.1995. Consequently, deduction u/s 80-IA for AYs 1995-96 to 1999-2000 & u/s 80-IB for AYs 2000-01 to 2004-05 was denied.
The Delhi ITAT, however, found substantial contemporaneous evidence supporting the assessee. A new factory building had been constructed; industrial approvals had been obtained; finance had been raised through a rights issue & ICICI loan; additional electricity load was sanctioned; fresh employees were appointed; & the audited financial statements reflected the installation of plant & machinery. Significantly, photographs attached to the audited accounts showed inauguration of the new unit on 24.02.1995, while an advertisement in the Economic Times provided independent contemporaneous corroboration. The installed capacity & actual production had also increased.
The Tribunal attached considerable importance to the Chartered Engineer’s certificate, which established that the machinery available was capable of independently manufacturing the product. The Revenue had rejected this technical evidence without producing any contrary expert opinion. Relying upon Saraswati Industrial Syndicate Ltd. v. CIT, the ITAT observed that tax authorities cannot substitute their own views on technical matters without appropriate technical material.
An important objection of the Revenue was that some machinery had been installed only towards the end of March 1995 or subsequently. The Tribunal rejected the proposition that every machine contemplated under the entire expansion programme had to be installed before the undertaking could be regarded as independent. The relevant question was whether the machinery available before 31.03.1995 was capable of functioning as an integrated manufacturing unit. Subsequent machinery was found to have been installed principally for enhancing production capacity, creating additional facilities & bringing certain outsourced processes in-house, rather than for giving birth to an otherwise incomplete undertaking.
The ITAT also rejected the argument that purchase of certain components from outside vendors destroyed the character of the assessee as a manufacturer. The assessee carried out substantial processes such as turning, thread cutting, gear cutting, hobbing, drilling, grinding, washing, assembly & testing, ultimately producing Hydraulic Power Steering Gears having substantial value addition. Thus, purchase of blanks/components from vendors did not mean that the new unit lacked independent manufacturing capability.
Another significant issue was that Product Code 8043 (Type 302) continued to be manufactured in both the old & new units. The Tribunal held that manufacture of the same product by the old & new undertaking does not establish splitting up or reconstruction. Relying upon Textile Machinery Corporation Ltd. v. CIT [1977] 107 ITR 195 (SC), it reiterated that a new undertaking can manufacture the very same product manufactured by an existing undertaking, provided the new undertaking possesses an integrated & independent identity.
The Revenue’s argument based on decline of production in the old unit was similarly rejected. The new unit had a separate building, fresh capital, new machinery, additional power load, fresh manpower & separate unit-wise accounts and production records. Continuation of production in the old unit during the transition period was commercially understandable, particularly to ensure uninterrupted supplies to customers. A subsequent shift of larger production to the new unit could not retrospectively convert the new undertaking into reconstruction of the old business.
The ITAT further found sufficient contemporaneous evidence proving actual production from the new unit — including unit-wise P&L accounts, material consumption records, monthly production & dispatch statements, sales register, invoices, RG-1/MODVAT workings & CST/BST challans. The fact that invoices of both units followed a common serial number was held immaterial, particularly when separate Excise registration was not required & invoices pertaining to the new unit were separately identified. If the Revenue doubted the sales, it could have verified them from customers; no such enquiry was made.
Accordingly, the Tribunal held that the assessee had affirmatively answered all five questions framed in the earlier remand order. The new unit was established with fresh capital, a new building, new machinery & separate facilities & had commenced commercial production during FY 1994-95. It therefore satisfied the conditions for deduction u/s 80-IA from AY 1995-96 onwards.
On depreciation of ₹6,26,912, the ITAT rejected the Revenue’s assumption that machinery received on 30/31.03.1995 could not possibly have been installed & made ready for use before year-end. The assessee had produced invoices, Goods Inward Notes & purchase orders, while the Revenue produced no contrary evidence. Applying the principle of passive user & relying upon Stitchwell Qualitex (RF) v. ITO, the Tribunal held that machinery installed & kept ready for use qualifies for depreciation u/s 32. The depreciation was accordingly allowed.
Finally, since eligibility of the undertaking stood established in the initial AY 1995-96, deduction could not be denied for subsequent years merely because further machinery was installed or capacity was expanded. Following CIT v. International Tractors Ltd. (2017) 397 ITR 696 (Delhi), the ITAT allowed deduction u/s 80-IA/80-IB for the entire ten-year period from AY 1995-96 to AY 2004-05. All ten appeals of the assessee were allowed.
Cases Discussed
- Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188 (SC)
- Textile Machinery Corporation Ltd. v. CIT [1977] 107 ITR 195 (SC)
- Gujarat Alkalies & Chemicals Ltd. v. Commissioner of Income Tax (2013) 350 ITR 94 (Guj.)
- Atul Ltd. v. ACIT (OSD) 2024:GJHC:70791
- Saraswati Industrial Syndicate Ltd. v. CIT, 237 ITR 1 (SC)
- ACIT v. National Lamination Industries [2007] 111 TTJ 754 (Ahmedabad ITAT) (TM)
- Commissioner of Income Tax v. M/s Sociedade De Fomento Industrial Pvt. Ltd. [2022] 443 ITR 34 (SC)
- CIT v. Indian Aluminium Co. Ltd. [1977] 108 ITR 367 (SC)
- Commissioner of Income Tax & Ors. v. M/s Delhi Press Patra Prakashan Ltd. [2013] 355 ITR 14 (Delhi)
- Assistant Commissioner of Income-tax v. Leo Fasteners [2017] 84 taxmann.com 6 / 398 ITR 462 (Mad.); SLP dismissed in CIT v. Leo Fasteners [2018] 95 taxmann.com 18 (SC)
- CIT v. Mahaan Foods Ltd. [2008] 216 CTR 148 (Delhi)
- Stitchwell Qualitex (RF) v. ITO & Anr. 2015 (9) TMI 850 (Del.)
- CIT v. International Tractors Ltd. (2017) 397 ITR 696 (Delhi)
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT DELHI
The captioned appeals are filed by assessee against the separate orders all dated 27.03.2026 passed by Ld. Commissioner of Income Tax (Appeals) 28, Delhi [“ld. CIT(A)”] passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of the separate assessment orders passed u/s 143(3) r.w.s. 263 of the Act.
2. The captioned appeals filed by the Assessee are tabulated as under:
| S. No. | Appeal Nos. | Asstt. Year | CIT(A)’s Order dated | Assessment Order dated | Assessment Order passed u/s |
|---|---|---|---|---|---|
| 1 | 4374/Del/2026 | 1995 -96 |
27.03.2026 | 28.03.2002 | 143(3) r.w.s.243 |
| 2. | 4375/Del/2026 | 1996 -97 |
– Do- | 23.03.1999 | 143(3) r.w.s.243 |
| 3. | 4376/Del/2026 | 1997 -98 |
– Do- | 16.02.2000 | 143(3) |
| 4. | 4377/Del/2026 | 1998 -99 |
– Do- | 20.11.2000 | 143(3) |
| 5. | 4378/Del/2026 | 1999 -2000 |
– Do- | 29.03.2004 | 147 r.w.s.143(3) |
| 6. | 4379/Del/2026 | 2000 -01 |
– Do- | 29.03.2004 | 143(3) |
| 7. | 4380/Del/2026 | 2001 -02 |
– Do- | 28.03.2003 | 143(3) |
| 8. | 4381/Del/2026 | 2002 -03 |
– Do- | 09.12.2004 | 143(3) |
| 9. | 4382/Del/2026 | 2003 -04 |
– Do- | 25.02.2005 | 143(3) |
| 10. | 4383/Del/2026 | 2004 -05 |
– Do- | 21.03.2006 | 143(3) |
3. Since all the appeals are having common issues which fact is fairly admitted by both the parties before us, therefore, all the appeal are taken together and decided by a common order.
4. We take the appeal of the assessee for AY 1995-96 in ITA No. 4374/Del/2026 as the lead case.
5. Briefly stated the facts are that assessee has filed its return of income on 29.11.1995 declaring total income at Rs.1,27,11,600/- after claiming deduction u/s 80-IA of the Act on the profits of derived from new manufacturing unit installed at Gat No. 1242/44, Village Vadubudruk, Taluka Shirur, Pune for the manufacturing of “Hydraulic Power Steering Gear”. The assessment was originally completed us/ 143(3) vide order dt. 02.01.1998 and thereafter the ld. PCIT passed the order u/s 263 of the Act holding the assessment order as erroneous and prejudicial to the interest of revenue on the ground that the AO has failed to properly and thoroughly examine the date of commencement of manufacturing activity as according to the ld. PCIT, date of installation of machinery was after 31.3.1995 thus commercial production was not started upto 31.03.1995 and therefore, deduction claimed u/s 80IA of the Act was wrongly allowed. In compliance to the directions given, the AO passed the order u/s 143(3) r.w.s. 263 of the Act wherein vide order dt. 28.03.2002, deduction claimed u/s 80IA of the Act was denied and depreciation claimed on certain plant & machinery was disallowed by observing that the same were not installed upto 31.03.1995.
6. Against the said order assessee preferred an appeal before the ld. CIT(A) which was dismissed thus second appeal was filed before the Tribunal. The coordinate bench of Tribunal vide its order dated 04.08.2006 in ITA No. 22/PN/2003 has set aside the matter to the file of Ld. CIT(A) for re-examination of the issue as to whether the industrial undertaking had come into existence before 31.03.1995. The Tribunal has formulated five question in terms of para 22 of its order for consideration by the Ld. CIT(A) in order to determine the issue of allowability of deduction u/s 80IA of the Act. Following the said order, the Tribunal remanded the matter for all the remaining years, i.e. for A.Ys. 1996-97 to 2004-05, to the file of the Ld. CIT(A), directing the Ld. CIT(A) to decide the issue for the remaining assessment years on the basis of the decision taken in A.Y. 1995-96. Accordingly, the said five questions remained common to the proceedings for all the assessment years from A.Y. 1995-96 to A.Y. 2004-05 and are reproduced herein below for the sake of ready reference: –
“After considering the facts of the case and the legal position enunciated in the above paragraphs, 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 31.03.1995 within the meaning of sub section (2) of section 80-IA, so as to be eligible for deduction u/s 80-IA for AY 1995-96. Therefore, for deciding the 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 31.03.1995, brought into existence an integrated independent unit, which by themselves, independently of the old unit, were capable of producing the Product – 8043 (Type 302).
ii. Whether the new machinery costing Rs. 2,74,52,116 installed and the old machinery of WDV of Rs.64,12,458 transferred from the old unit, in the subsequent year, were needed to make the impugned unit integrated and independent.
iii. Whether the Product – 8043 (Type 302) was also being manufactured in the old unit during the period 1.04.1994 to 31.03.1995.
iv. Whether the Product – 8043 (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 – 8043 (Type 302) were actually manufactured/ produced in the new unit, independently of the old unit.”
7. In remand proceedings, the Ld. CIT(A), vide orders dated 27.03.2026, dismissed the appeals of the assessee, inter alia, holding that no new, integrated and independent industrial undertaking for the manufacture of Hydraulic Power Steering Gear, as claimed by the assessee, had come into existence on or before 31.03.1995, i.e. during the A.Y. 1995-96. Accordingly, the Ld. CIT(A) held that the assessee was not eligible to claim deduction under Section 80-IA of the Act for A.Ys. 1995-96 to 1999-2000 and under Section 80-IB of the Act for A.Ys. 2000-01 to 2004-05.
8. With the above background, the appeal for AY 1995-96 in ITA No.4374/Del/2026 is decided as under:
ITA NO. 4374/Del/2026 For AY 1995-96
9. The assessee has challenged the order of the Ld. CIT(A) on the strength of following grounds of appeal:-
“1. That on the facts and circumstances of the case and in law, the order dated 27.03.2026 passed by the Ld. Commissioner of Income Tax (Appeals), [hereinafter referred to as “CIT(A)”] under section 250 of the Income Tax Act, 1961 (“the Act”) is illegal, bad in law and unsustainable and liable to be set aside.
2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in denying deduction under section 80-IA/80-IB by wrongly holding that the new industrial undertaking was not an independent and integrated unit, ignoring material on record and settled legal position.
3. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in exceeding the scope of directions issued by the Hon’ble ITAT by undertaking fresh inquiries and adjudicating issues not remanded, thereby vitiating the impugned order.
4. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has applied an incorrect legal test by insisting on complete independence of the unit on the date of inauguration (24.02.1995) instead of examining its capability of independent production during the relevant previous year ending as at 31.03.1995.
5. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has recorded findings based on incorrect and contrary facts, inter alia, regarding non-availability of CNC ACE Auto Lathe Machine on the date of inauguration, ignoring evidence showing availability and phased installation within the same financial year, thereby vitiating the conclusions drawn.
6. That the learned CIT(A) erred in treating the Grinding Machine – Mysore Kirloskar (installed on 31.03.1995) as indispensable, ignoring that a grinding facility already existed and the said machine was only an additional unit, rendering the adverse inference on production capability factually incorrect and unsustainable.
7. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in drawing adverse inference regarding absence of production in February–March 1995 on erroneous assumptions, ignoring contemporaneous evidence such as sales records, RG-1/MODVAT records, financial statements and statutory documents.
8. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding that there was splitting up or reconstruction of existing business based merely on variation in production levels, ignoring settled law and commercial realities.
9. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in disregarding relevant evidences such as increase in licensed capacity, installed capacity, electricity load, additional workforce, and subsequent installation of machinery, without appreciating that phased implementation and later additions only indicate expansion/augmentation and not absence of a new undertaking.
10. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in placing undue reliance on expressions like “expansion cum diversification” and quantum/timing of investment, including partial investment in FY 1994-95 vis-à-vis total project cost, ignoring that the determinative test is operational capability and not completion of entire investment.
11. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in rejecting the Chartered Engineer’s report and other technical evidence without any contrary expert material and without any valid basis.
12. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in disregarding contemporaneous documentary evidence including invoices and statutory records on mere suspicion, and in drawing adverse inference from continuation of invoice series or absence of separate records, ignoring settled law that separate books or documentation are not mandatory.
13. That on the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in confirming the disallowance of depreciation amounting to ₹6,26,912/- pertaining to the new industrial undertaking, without properly appreciating the facts, evidences and the directions of the Hon’ble ITAT, and the said disallowance is liable to be deleted.
14. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has failed to consider binding judicial precedents relied upon by the appellant and has passed the order based on conjectures, surmises and suspicion, ignoring material evidence on record.
15. That the appellant craves leave to add, alter, amend or withdraw any of the grounds of appeal at or before the time of hearing.”
10. During the course of hearing, though the ld. CIT-DR has made oral arguments and requested to file written submissions accordingly, one-week time was allowed to file written submissions, if so desired, but till date no submission has been filed by the ld. CIT- DR. Therefore, we proceed to adjudicate all the appeals filed by the assessee on the basis of oral arguments advanced by both the parties and the written submission and paper books placed before us by the ld. AR for the assessee during the course of hearing.
11. As observed above, the solitary issue for examination which is common in all the assessment years is whether the assessee had started manufacturing activity on or before 31.03.1995 so as to get the eligibility for claiming the deduction u/s 80-IA/80-IB of the Act for Ten consecutive assessment years starting from AY 1995-96.
12. Before us, the ld. AR for the assessee, submits the Tribunal, vide its order dated 04.08.2006, had also laid down certain guiding principles while framing five questions for consideration of the Ld. CIT(A). According to the Ld. AR, the said principles are in the nature of directions which ought to have been followed by the Ld. CIT(A) while passing the order pursuant to such directions in the set aside proceedings. As per law to claim deduction u/s 80-IA of the Act, new unit must be independently capable of manufacturing the articles and should not be dependent upon the old existing unit, so as to be regarded merely as an expansion of the old unit. The employment of fresh capital in the new unit is an important consideration; however, where surplus/reserve capital is available with the assessee from its existing business, there is no bar to utilize such funds for installation of new unit. Further, ld. AR submits that the restriction u/s 80-IA relating to splitting up or reconstruction of an existing business is to be understood in a broad commercial sense and is to be examined with reference to the new undertaking claiming the deduction. The fact that the new undertaking may form part of the existing business would not, by itself, disentitle the assessee from claiming the deduction: Lastly, there is no bar u/s 80-IA for manufacturing the same product by the new unit.
13. In elaboration to aforesaid arguments, Ld. AR for the assessee drew our attention to page 6 of the PB containing annual report wherein the management of the assessee company has reported that the company has established the manufacturing unit for production of ‘Hydraulic power steering gears’ which was inaugurated on 24th Feb. 1995. As per the assessee, construction cost of building and cost of machinery was partly meet out from the funds received under Right issue of 22,500 equity shares of each at a premium of Rs.30 per share and remaining cost was meet out from the term loan taken from ICICI Investment Corporation. Thereafter, the Ld. AR drew our attention to pages 18, 35 & 36 of the PB which are the Fixed Asset schedule and building plans. As per page 18 of PB, total addition in Gross Value of building block was of Rs. 1.78 Crs. and in the Plant & Machinery block was of Rs. 7,96,21,846/- and the total addition in gross value of Assets was of Rs.10,45,03,170/- comprising of building, plant and machinery, electric installation, furniture and vehicles.
14. The Ld. AR further taken us to page 25 of the PB where in the Notes on Account No. 7, increase in the installed capacity from 10,000 units to 24,000 units was reported. The Ld. AR submits that in Financial Year 1995-96, installed capacity was further increased from 24,000 units to 36,000 units. The Ld. AR submits that the actual production of Hydraulic Gears in AY 1994-95 was 9633 units, and for AY 1995-96 it was increased to 13,357 units. Thereafter, he drew our attention to pages 29 and 56 of the PB which are in support of the claim that the new unit was started by way of inauguration on 24.02.1995. Page 56 contained the newspaper cutting of the advertisement published in Economic Times, edition on 25.02.1995 and page 29 contained the photographs of inaugural function (forming part of audited financial statements) attended by Mr. Erwin Teufel, Minister-President of Baden-Württemberg, Germany. From the perusal of these photographs, fact that they had visited the newly installed unit where various machines purchased and installed at the time of inauguration, as well as the production process being carried out on such machines stood confirmed. Thus the ld. AR submits that this conclusive evidence reaffirming the claim of the assessee that new unit was operational as on the date inauguration cannot be ignored/ brushed aside.
15. Ld. AR refers pages 80 to 81A of the PB containing the details of the new machinery purchased for new unit and their date of receipt/installation. The Ld. AR submits as per these details total two Grinding Machineries were purchased by the assessee out of which one was received on 15.06.1994 and the other was received on 31.03.1995. As per ld. AR, production could be possible from one Grinding machine and therefore, the allegation of ld. CIT(A) that the Grinding machine was not installed upto 30.3.1995 and thus no production could be done was totally misplaced.
16. The Ld. AR also refers pages 362 to 369 of the PB, describing complete manufacturing process through all the machines installed. The Ld. AR submits that the AO has not doubted the construction of new building and further has not doubted the bifurcation of the expenses between the new unit and old unit. For this our attention is invited to page 103 of the PB which is the Profit & Loss Account for the year ended on 31.3.1995 containing the expenditure incurred on old unit and new unit separately. Further the AO has not doubted the wage payment made to the employees of the new unit.
17. The Ld. AR further drew our attention to the monthly production and dispatch details from the new unit, along with the sales register and sales invoices for the period from 24.02.1995 to 31.03.1995, and an opinion of Excise consultants regarding issue of invoice with same Registration which were not rebutted. The assessee also adverted to sample appointment letters of the employees engaged at the new unit and a certificate issued by the President of the company explaining the function of each of the machines purchased and certifying that the entire set of machinery, having an aggregate value of Rs. 90,32,912/-, was capable of independently manufacturing the goods. Ld. AR submits that assessee has been able to establish that the production was started at the new unit from the month of Feb.1995 and more than 900 units were produced upto 31.03.1995. He, therefore, submits that deduction claimed u/s 80IA of the Act should be allowed.
18. Ld. AR further in the written submissions filed, in para 11 to 16, is submitted following chart with respect to the documentary evidence submitted to establish that production was commenced at the new unit installed during the year itself and therefore, requested to consider the same.
11. The cumulative documentary evidence, which has either been ignored or wrongly brushed aside by the Ld. CIT(A), is as under:
| Evidence | PB reference | Relevance | ||||||||||||||||||
| Annual Report for F.Y. 1994-95 | PB 1-29, especially PB 6 |
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| Fixed Asset Schedule, Building plan and revised building plan | PB 18 & PB 35-36 |
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| Increase in Production Capacity (Audited Balance-sheets of FY 94-95 & 95-96) | PB 25 & 274 |
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| Rights issue letter of offer | PB 37-55, especially PB 46-49 | Shows raising of substantial funds for the project, including new factory building and plant/machinery for enhanced power steering gear capacity.
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| Economic Times Report dated 24.02.1995 & Inauguration Photographs | PB 56-61 |
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| ICICI loan agreement dated 10.01.1994 | PB 62-75 | Shows separate project finance of Rs. 2.97 crores for expansion/set-up of facilities for manufacture of power steering gears. | ||||||||||||||||||
| Ministry of Industrial Development approval dated 06.04.1994 | PB 76 | The Ministry of Industrial Development’s Secretariat for Industrial Approvals issued an entrepreneurial assistance letter dated 6th April 1994, approving the manufacture of hydraulic steering gear for the new unit. (P.No. 76 of PB) | ||||||||||||||||||
| Technical know-how renewal with ZF Germany | PB 77-79 |
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| Machinery chart for F.Y. 1994-95 | PB 80-81A | Shows nine machines costing Rs. 90,32,912/- installed before 31.03.1995 for the new unit. | ||||||||||||||||||
| Chartered Engineer’s certificate | PB 82-90 | Certifies that the machinery installed before 31.03.1995 constituted a complete assembly line and was technically capable of manufacturing Product 8043 independently. | ||||||||||||||||||
| MSEB load sanction | PB 92-97 |
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| Excise consultant opinion | PB 98-99 | Contemporaneous advice regarding Central Excise registration/compliance for new unit. | ||||||||||||||||||
| Manufacturing process | PB 101-102 and PB 453-456; chart at PB 443 | Shows process flow and machines used for Nut/Worms, Sector Shaft, Pistons, assembly and testing. | ||||||||||||||||||
| Unit-wise P&L, raw material consumption and taxable profit bifurcation | PB 103-109 | Shows unit-wise financial results, material consumption and expenses of new unit. | ||||||||||||||||||
| Monthly production and dispatch details | PB 110-112 | Shows production/dispatch of Product 8043 in old and new units. | ||||||||||||||||||
| Sales register and sale invoices for new unit | PB 113-134 | Shows sales from new unit during 24.02.1995 to 31.03.1995. | ||||||||||||||||||
| RG-1/MODVAT monthly workings | PB 134A-134L | Contemporaneous statutory/excise-linked record corroborating production. | ||||||||||||||||||
| Appointment letters of staff for new unit | PB 135-137 |
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| Evidence of 2006 floods | PB 228-232 | Explains loss of certain primary factory records and supports reliance on best available evidence. | ||||||||||||||||||
| Certificate of President of the company | PB 234-247 | Explains machinery, subsequent additions and independent capability. | ||||||||||||||||||
| Annual Report for F.Y. 1995-96 | PB 248-283 | Shows subsequent expansion and increased installed capacity, supporting phased capacity augmentation. | ||||||||||||||||||
| Comparative machinery chart and manufacturing chart filed before CIT(A) | PB 437-443 | Shows subsequent machinery was for capacity expansion/backward integration and not to make the unit independent for the first time. |
12. The above evidence must be read cumulatively. The Ld. CIT(A) has erred in isolating one or two dates of installation and ignoring the entire evidentiary matrix.
IV. ASSESSEE’S EVIDENCE NOT AN AFTERTHOUGHT: EARLIER CIT(A) ORDER SUPPORTS THE CLAIM
13. It is material to note that this is not a case where the assessee has improved its case at a later stage. In the first detailed appellate order for A.Y. 1996-97 dated 03.03.2000, the CIT(A), after considering the AO’s objections and the assessee’s detailed evidences, had allowed deduction under section 80-IA.
14. The following important findings/explanations were recorded in the earlier appellate order [Para 31 & 32 of CIT(A) order at P. No. 87-100 of PB of Orders]:
| Issue | Earlier record/finding in CIT(A) order dated 03.03.2000 | Relevance in present appeal |
|---|---|---|
| Commencement of new unit | Production commenced on 24.02.1995. | Supports existence of new unit before 31.03.1995. |
| Machinery | Machines costing Rs. 90.32 lakhs were installed in the new shed. | Shows independent machinery base in the initial year. |
| Employees | Fresh workers/employees were recruited for the new undertaking. | Supports separate operational identity. |
| Capacity | Licensed capacity increased from 20,000 to 36,000 units and installed capacity from 10,000 to 24,000 units. | Corroborates establishment of new capacity. |
| Phased expansion | Project was implemented in phases; subsequent machinery was added for expansion. | Rebuts CIT(A)’s view that later machinery proves earlier incapability. |
| Old machinery | No plant and machinery was transferred from old unit to new unit in the initial year. | Rebuts allegation of splitting up/reconstruction. |
| Common records | One excise/sales tax registration and one invoice series existed because both units were in the same factory campus. | Rebuts adverse inference from common statutory records. |
| Invoices | Invoices were stamped to identify old/new unit sales. | Rebuts allegation of afterthought. |
| Common services | Common services were used for efficiency, economy and synergy. | Common services do not destroy independent undertaking. |
| Expense allocation | Common expenses were allocated on a reasonable basis. | Supports reliability of unit-wise computation. |
15. Thus, the evidences now relied upon are not post-facto or afterthought documents. They were part of the assessee’s case from the first appellate stage itself and had already been examined and accepted by the CIT(A) while allowing deduction under section 80-IA for A.Y. 1996-97.
16. Therefore, the Ld. CIT(A) in 2026, could not have rejected the same evidence merely on suspicion, without bringing any fresh adverse material or contrary expert evidence.
19. Ld. AR submits that the lower authorities has wrongly held that the production was not commenced in the year under appeal at the new unit installed during the year as according to them, questions framed by the Tribunal were not affirmatively answered by the assessee. Ld. AR submits that all the questions were duly answered and the respective evidences filed to answer these questions, as given in written submission is reproduced herein below.
VII. ANSWER TO QUESTION NO. 1: NINE MACHINES INSTALLED BEFORE 31.03.1995 CONSTITUTED AN INTEGRATED INDEPENDENT UNIT
26. The nine machines costing Rs. 90,32,912/- installed before 31.03.1995 were as under:
| Machine | Function | PB reference |
|---|---|---|
| CNC ACE Auto Lathe Machine | Turning/thread cutting of worms, nuts, sector shaft, pistons | PB 80-81, 101 |
| Imported Grinding Machine | Grinding of components | PB 80-81 |
| Micron Conveyor Washing Machine | Washing/cleaning of components | PB 80-81 |
| Gear Hobbing Machine | Gear cutting and hobbing of sector shafts | PB 80-81 |
| Grinding Machine – Mysore Kirloskar | Grinding/OD grinding | PB 80-81, 101 |
| CNC Vertical Machine Centre – Hart Ford Type | Milling, drilling, fitting holes, hydraulic passages | PB 80-81, 101 |
| Testing Machine | Testing of final assembly | PB 80-81, 101 |
| Air Receiver | Assembly utility | PB 80-81 |
| Lubrio System | Assembly utility | PB 80-81 |
27. The manufacturing process placed at PB 101-102 and PB 453-456 shows that Product 8043 is made through three component lines – Nut/Worms, Sector Shaft and Pistons – followed by assembly and testing. The chart at PB 443 maps these processes to the machines available in the new unit.
28. The Chartered Engineer’s certificate at PB 82-90 specifically explains the manufacturing process and certifies that the nine machines were sufficient and technically capable of performing the operations necessary for manufacturing Product 8043 independently.
29. The Ld. CIT(A) has rejected the Chartered Engineer’s certificate mainly because the visit was in 2006. This rejection is untenable. The certificate was not relied upon to prove that the engineer personally witnessed production in 1995. It was relied upon as expert technical opinion on whether the machinery installed as per contemporaneous records was capable of independent production. Such technical opinion could not be rejected without any contrary expert material.
30. Further, the rejection of the Chartered Engineer’s certificate by the Ld. CIT(A) is contrary to settled principles governing appreciation of expert/technical evidence. The Hon’ble ITAT Ahmedabad Special Bench/Third Member in ACIT v. National Lamination Industries [2007] 109 ITD 181 (Ahd) (TM), while dealing with deduction under section 80-IB, held that once expert opinions from recognised technical institutions were filed, the same were required to be considered on merits; though such opinion may not be sacrosanct, it cannot be ignored and must either be accepted or rejected on cogent reasons, especially where no contrary technical material is brought on record.
31. Similarly, in Shanti Complex v. ITO [1999] 237 ITR (AT) 27 (Patna), as referred to in DCIT v. Rohtas Projects Ltd. [2006] 100 ITD 113 (Lucknow) (TM), it was held that the report of a Registered Valuer has to be effectively considered and cannot be brushed aside on flimsy grounds.
32. Applying the same principle, the Chartered Engineer’s certificate in the present case, which specifically explained the manufacturing process and certified the capability of the machines installed before 31.03.1995, could not have been rejected merely because it was issued subsequently or because the expert used cautious language. In absence of any contrary expert report or technical material from the Revenue, the Ld. CIT(A)’s rejection of the certificate is unsustainable.
33. The Revenue has not produced any expert report, technical inspection report or contrary evidence to show that the nine machines were incapable of manufacturing Product 8043. Suspicion or disbelief cannot substitute technical evidence.
34. The CIT(A)’s observation that the expression “it appears” in the Chartered Engineer’s report shows uncertainty is misconceived. The expression was used in relation to production quantity inferred from records. The technical opinion on capability of machines is clear and categorical. In any case, the engineer’s report is corroborative; the assessee has independently produced sales records, unit-wise accounts, RG-1/MODVAT workings and production data.
35. Thus, Question No. 1 deserves to be answered in favour of the assessee.
VIII. ANSWER TO QUESTION NO. 2: SUBSEQUENT MACHINERY WAS FOR EXPANSION, CAPACITY AUGMENTATION AND BACKWARD INTEGRATION
36. The Ld. CIT(A) has held that machinery installed in F.Y. 1995-96 was necessary to make the new unit integrated and independent. This finding is contrary to the record.
37. The comparative machinery chart at PB 437-442 and certificate of the President at PB 234-247 show that the subsequent machinery of Rs. 2,74,52,116/- and old machinery of WDV Rs. 64,12,458/- were installed/transferred for the following purposes:
a) to increase production capacity;
b) to create balancing/additional facilities;
c) to develop in-house capability for certain parts which were earlier bought from vendors;
d) to improve utility and ease in manufacturing process.
38. The CIT(A) has overlooked that in F.Y. 1994-95, several parts/components were being procured from vendors, and manufacturing with bought-out components is commercially normal. A unit does not cease to be a manufacturing unit merely because some parts are bought out. The assessee was carrying out substantial manufacturing, assembly and testing operations in-house.
39. Subsequent installation of boring, turning, hobbing, milling or surface grinding machines does not mean the earlier line was incapable. It only shows phased industrial implementation and augmentation. Industrial projects are not static; capacity is expanded after commencement.
40. The installed capacity itself increased from 24,000 units in F.Y. 1994-95 to 36,000 units in F.Y. 1995-96. This supports the assessee’s case that later additions were for capacity enhancement and not for first-time creation of independent capability.
41. Further, even the old machinery transferred in the subsequent year was within the statutory tolerance, and in any case was not the basis on which the new unit came into existence before 31.03.1995.
42. Therefore, Question No. 2 also deserves to be answered in favour of the assessee.
IX. ANSWER TO QUESTIONS NOS. 3 AND 4: SAME PRODUCT IN OLD AND NEW UNIT IS LEGALLY IRRELEVANT
43. The Ld. CIT(A) has heavily relied on the fact that Product 8043 was also manufactured in the old unit and that production in the old unit reduced after the new unit commenced production.
44. This finding does not establish splitting up or reconstruction. At best, it shows commercial transition of production from old unit to new unit after commencement of the new unit.
45. The Hon’ble Tribunal itself, in the first round, recognised the legal position that a new unit may produce the same commodity as the old business. The benefit cannot be denied merely because the new undertaking expands the general business of the assessee.
46. The Supreme Court in Textile Machinery Corporation Ltd. v. CIT [1977] 107 ITR 195 (SC) held that a new undertaking may produce the same commodity or even an intermediate product used in the old business. The decisive test is whether the new unit is integrated and capable of production on its own.
47. Similarly, CIT v. Indian Aluminium Co. Ltd. [1977] 108 ITR 367 (SC) supports the proposition that a new unit producing the same product can still be a new industrial undertaking.
48. Thus, simultaneous manufacture of Product 8043 in old and new unit does not defeat the claim. On the contrary, the production data at PB 110-112 shows that after the new unit commenced, the new unit took over a substantial part of production, while limited production continued in the old unit to avoid disruption in supply to customers such as TELCO/Tata Motors.
49. The Ld. CIT(A) has further held that since Product 8043 was being manufactured in the old unit till January 1995 and thereafter production in the old unit fell while production in the new unit increased, it shows shifting/reconstruction of the existing business.
50. This inference is legally untenable. The fall in production in the old unit and rise in production in the new unit only shows commercial transition of production to a new facility. It does not show that the new unit was formed by splitting up or reconstruction.
51. In Assistant Commissioner of Income-tax v. Leo Fasteners [2017] 84 taxmann.com 6 / 398 ITR 462 (Mad.); SLP Dismissed in CIT v. Leo Fasteners [2018] 95 taxmann.com 18 (SC), the Revenue had similarly alleged that the eligible unit had taken over the manufacturing activity of the earlier concern/unit. The Hon’ble Madras High Court rejected the allegation and held that even if the assessee ultimately took over the manufacturing activity earlier carried on by the old concern, that by itself would not disentitle the assessee from deduction under section 80-IB.
52. The High Court further held that the Revenue cannot deny deduction merely because the product manufactured by the new unit is commercially similar to that manufactured by the old unit. The statute only requires manufacture or production of an article or thing; it does not require that the article must be different from that manufactured in the old unit.
53. In the present case also, the assessee has established a new unit with separate/new factory building, fresh capital, new machinery, increased sanctioned power load, fresh employees, enhanced capacity, unit-wise accounts and independent production/sales records.
54. Therefore, the mere fact that the old unit’s production of Product 8043 reduced in February/March 1995 while the new unit’s production increased cannot be treated as evidence of splitting up or reconstruction.
55. At best, it shows that after the new unit became operational, production was commercially shifted/allocated to the new facility. Such business transition is normal and does not defeat deduction under section 80-IA/80-IB.
56. Questions Nos. 3 and 4 therefore deserve to be answered in favour of the assessee.
X. ANSWER TO QUESTION NO. 5: CONTEMPORANEOUS EVIDENCE OF PRODUCTION OF 890 UNITS EXISTS
1. The assessee produced multiple contemporaneous and corroborative records to show production and sale of 890 units of Product 8043 from the new unit during 24.02.1995 to 31.03.1995. The key records are:
a) unit-wise P&L account, material consumption and taxable profit bifurcation – PB 103-109;
b) monthly production and dispatch details – PB 110-112;
c) sale register and sale invoices for new unit – PB 113-134;
d) RG-1/MODVAT monthly workings – PB 134A-134L;
e) CST/BST challan for March 1995 – PB 233;
f) explanation and evidence regarding loss of some primary records in 2006 floods – PB 228-232.
2. The CIT(A) has rejected the sale invoices merely because the invoice series was in continuation and because some invoices bore the stamp of the new unit. This approach is legally unsustainable. There is no requirement in section 80-IA that the new unit must have a separate invoice series.
3. The invoices are not loose papers. They are part of regular sales records, supported by unit-wise accounts, material consumption, production details and RG-1/MODVAT workings. If the CIT(A) doubted the invoices, she ought to have directed third-party verification from the customers. No such enquiry has been conducted.
4. The reference to a purchase order dated 10.03.1994 is also irrelevant. A customer’s purchase order only shows the commercial demand and supply arrangement. It does not prove that goods supplied after 24.02.1995 could only have been manufactured in the old unit. A continuing purchase order can validly be fulfilled from a new production facility.
5.The CIT(A) has also erred in brushing aside unit-wise P&L and expense bifurcation as “self-serving”. These are not self-serving loose papers but regular books/statutory/accounts supported by material consumption records, invoices and excise/NODVAT records. In absence of any rejection of books or contrary enquiry, these records could not be ignored.
6. Therefore, Question No.5 also deserves to be answered in favour of the assessee.
20. Thereafter, Ld. AR has rebutted all the allegations made by the Ld. CIT(A) in its order as tabulated below:
XI. SPECIFIC REBUTTAL OF CIT(A)’S KEY OBSERVATIONS
S. No. |
Observation of Ld. CIT(A) |
Rebuttal on behalf of the assessee |
PB / Case-law reference |
|---|---|---|---|
i. |
Mere inauguration of factory building on 24.02.1995 does not establish that the new unit was an integrated and independent undertaking. |
|
|
ii. |
Critical machines, i.e., Testing Machine, CNC ACE Auto Lathe and Mysore Kirloskar Grinding Machine, were installed after 24.02.1995. |
|
Machinery chart: PB 80-81. |
iii. |
CNC ACE Auto Lathe was not available on 24.02.1995 and, therefore, critical manufacturing operations could not have been carried out. |
|
|
iv. |
CNC ACE Auto Lathe and Grinding Machine were indispensable; therefore, absence/delay in installation disproves independent production. |
|
|
v. |
Mysore Kirloskar Grinding Machine installed on 31.03.1995 was merely a second/additional grinding machine; the imported grinding machine and Mysore Kirloskar machine had distinct functions. |
|
|
vi. |
Increase in licensed/installed capacity and appointment of 115 employees is misleading and does not prove independent production. |
|
|
vii. |
If critical machines were not available, production of 223 units during 24.02.1995 to 28.02.1995 is doubtful. |
|
|
viii. |
Sudden fall in production in old unit and simultaneous production in new unit shows shifting/reconstruction of old business. |
|
|
ix. |
Product 8043 was also manufactured in the old unit during F.Y. 1994-95. |
|
|
x. |
Machinery installed in A.Y. 1996-97, such as boring, turning, hobbing, milling and surface grinding machines, was necessary to make the new unit independent. |
|
|
xi. |
Offer letter described the project as “expansion cum diversification”; hence no independent unit was established. |
|
|
xii. |
Total project cost was Rs. 13.66 crores, whereas machinery investment in F.Y. 1994-95 was only Rs. 90.32 lakhs; therefore, no independent complete unit existed. |
|
|
xiii. |
Chartered Engineer visited the factory only in 2006; therefore, the report cannot prove the position as on 31.03.1995. |
|
|
xiv. |
Chartered Engineer used the phrase “it appears” while referring to manufacture of 890 units; hence the report is uncertain. |
|
|
xv. |
Engineer did not independently verify job cards, electricity records, labour deployment records or stock registers; therefore, report is not conclusive. |
|
|
xvi. |
Invoices were in continuation of old unit invoice series and only bore rubber stamp of new unit; hence they may be afterthought. |
|
|
xvii. |
Purchase Order dated 10.03.1994 suggests regular supply from old unit; it is difficult to believe that the said PO related to goods manufactured in new unit in February/March 1995. |
|
|
xviii. |
Absence of separate records/books shows that new unit was not independent. |
|
|
xix. |
Use of old machinery/subsequent transfer suggests reconstruction. |
|
|
xx. |
The assessee failed to prove manufacture of 890 units independently in the new unit. |
|
|
21. Reliance is placed on the judgment of the Hon’ble Supreme Court in the case of Bajaj Tempo Ltd. v. CIT reported in [1992] 196 ITR 188 (SC), wherein it is held by the hon’ble Apex court that an incentive provision is required to be construed liberally once the assessee satisfies the statutory conditions prescribed thereunder.
22. Further reliance is placed on the following judicial precedents:
- The CIT v. M/s. Sociedade De Fomento Industrial Pvt. Ltd. [2022] 443 ITR 34 (SC); Case Law PB 86-88
- CIT v. Birlasoft Ltd. [2025] 472 ITR 170 (Del.) / 2024 (12) TMI 324 (Delhi HC), Case Law PB 16-38
- Atul Ltd. V. ACIT (OSD) 2024:GUJHC:70791; Case Law PB 39-50
- CIT v. Mahaan Foods Ltd. [2008] 216 CTR 148 / 2008 (3) TMI 24 (Delhi HC); Case Law PB 110-113
- ACIT v. Leo Fasteners [2017] 84 taxmann.com 6 / 398 ITR 462 (Mad.); SLP Dismissed in CIT v. Leo Fasteners [2018] 95 taxmann.com 18 (SC) – SLP dismissed; Case Laws PB 114-141
- CIT v. Micro Instruments Co. [2016] 388 ITR 46 (P&H), Case Law PB 56-72
- CIT v. Harinkhola Ice & Cold Storage Ltd. [1981] 3 TMI 52 (Cal.), Case Law PB 25-28
- CIT v. Delhi Press Patra Prakashan Ltd. [2013] 355 ITR 14 (Del.), Case Law PB 73-93
- PCIT v. Medley Pharmaceuticals Ltd. [2019 (7) TMI 1414] (Bombay HC), Case Laws PB 156-158
- CIT v. Ganga Sugar Corporation Ltd. [1973] 92 ITR 173 (Delhi); PB 159-164
23. It is thus, prayed by the Ld. AR that the assessee has successfully demonstrated that new unit was installed and commercial production was commenced form the same upto 31.3.1995 and therefore, the assessee is entitled for the deduction u/s 80IA of the Act. He prayed accordingly.
24. On the other hand, the Ld. DR stated that ld. CIT(A) had recorded a finding that, as per the chart furnished by the assessee during the appellate proceedings, the critical machines essential for the manufacturing process, namely, CNC ACE Auto Lathe, Testing Machine and Mysore Kirloskar Grinding Machine, were installed after 24.02.1995, i.e., on 01.03.1995, 25.02.1995 and 31.03.1995, respectively. Accordingly, it was contended that no production could have taken place on or before 31.03.1995, as claimed by the assessee. The Ld. DR further contended that the Chartered Engineer’s certificate was not a contemporaneous document, having been obtained in 2006, and therefore, could not be relied upon for determining the position as it existed on 31.03.1995. He also supported the finding of Ld. CIT(A) that the Chartered Engineer’s certificate did not contain a definite opinion, as it used the expression “it appears”, thereby indicating an element of uncertainty.
25. The Ld. DR further contended that the sales invoices issued at the new unit were in continuation of the sale invoice series of the old unit. Therefore, no reliance could be placed on the rubber stamp affixed sales invoices indicating the same as pertained to new unit, as these were self-generated documents. He further contended that, in view of the fact that important machinery had not been installed before 31.03.1995, the assessee’s claim that it had started commercial production from 24.02.1995 to 28.02.1995 was factually incorrect. Regarding the press report published in The Economic Times and the photographs of the new plant, as per ld. AR such material could not be relied upon to hold that new plant had commenced commercial production after installation of new machinery. Ld. DR also relied upon the remand report of the AO, as reproduced and considered by the Ld. CIT(A). Accordingly, it was contended that no new, independent and integrated industrial undertaking had come into existence on or before 31.03.1995, as claimed by the assessee and thus the lower authorities have rightly denied the deduction u/s 80IA on the new unit which order be uphold.
26. In rejoinder, regarding the non-availability of the critical machines on the date of inauguration, i.e. 24.02.1995, ld. AR stated that Ld. CIT(A) had erred in treating 24.02.1995 as the cut-off date for commencement of commercial production, whereas Section 80-IA of the Act provides that new unit should have been come into existence on or before 31.03.1995. As per ld. AR, ld. CIT(A) had exceeded the scope of examination as limited by the Tribunal, to answer the question, whether the nine machines installed before 31.03.1995 constituted an integrated and independent unit. It was for this reason, the assessee has submitted the flow chart of entire manufacturing process carried out with the help of all the nine machines. Ld. AR stated that as per said manufacturing process chart placed at pages 362 to 369 of PB, the CNC ACE Auto Lathe machine had arrived at the factory on 21.02.1995 and was, therefore, available on the date of inauguration i.e. on 24.02.1995. The Testing Machine was duly installed on 25.02.1995. Further as stated above one Grinding Machine was already available. Accordingly, even if, a minor process for a short period was done at old unit, the same would not disentitle the assessee from claiming the deduction u/s 80IA of the Act. He further contended that Section 80-IA itself permits the use of old machinery up to 20% of the total value of the new machinery. In support of this contention, reliance is placed on the judgement of hon’ble Gujarat High court in the case of Atul Ltd. v. ACIT (OSD) reported in 2024:GJHC:70791 and in the case of Gujarat Alkalies & Chemicals Ltd. v. Commissioner of Income Tax reported in [2013] 350 ITR 94 (Guj.) and in the case of Pr. Commissioner of Income Tax v. Medley Pharmaceuticals Ltd. reported in [2019] 7 TMI 1414 (Bom.).
27. Ld. AR further contended that, even if the finding of the Ld. CIT(A) that the Testing Machine and CNC ACE Auto Lathe machine were installed on 25.02.1995 and 01.03.1995, respectively, were accepted, the same would support the case of the assessee that manufacturing activity had commenced on or before 31.03.1995. Regarding the installation of other Grinding Machine received on 31.03.1995, as stated above, it was explained before the Ld. CIT(A) that the said machine was second set of the same machine and its function was being performed by other grinding machine purchased on 15.06.1994, which was installed as on the date of inauguration. Ld. AR drew our attention to the fact that in its report, Chartered Engineer had affirmed the capability of manufacturing Hydraulic Power Steering Gears with the eight machines which were available as on the date of inauguration and did not include the other Grinding Machine received on 31.3.1995. The Ld. CIT(A), however, rejected this contention by observing that both machines performed distinct functions, without there being any contrary expert opinion on the issue and it is settled law that the revenue officers has no power to comment upon the technical. For this reliance is placed on the judgment of Hon’ble Supreme Court in the case of Saraswati Industrial Syndicate Ld. vs. CIT reported in 237 ITR 1(SC).
28. Regarding the doubts raised on the sales invoices, the Ld. AR referred to the opinion dated 18.01.1995 obtained from the consultant firm M/s Deodhar Bhargave and Associates, Excise & Management Consultants, placed at pages 98-99 of PB, wherein the opined that since the assessee could not obtain separate excise numbers for the two different units situated on the same premises, the invoices relating to both units could be issued under the same series. It is thus submitted that the deduction was rightly claimed u/s 80IA of the Act.
29. Heard the contentions of both the parties and perused the material available on record. The issue before us is regarding the allowability of the deduction u/s 80IA /80IB of the Act as claimed by the assessee. The Tribunal in its order while remanding back the matter to the ld. CIT(A), has defined certain parameters and asked the ld. CIT(A) to answer “Five questions” which are reproduced herein above. Thus, we are required to examine whether the assessee has pass the tests as required by the Tribunal in Five questions. Before commenting, we first examine the evidences filed by the assessee to rebut the allegation of Ld. CIT(A).
30. Regarding purchase and installation of nine machines having an aggregate value of Rs. 90,32,912/- brought into existence an integrated independent unit, which by themselves, independently of old unit, were capable of producing Product code, the assessee with the support of the evidence demonstrated the steps taken such as construction of new building, obtaining license for industrial production on 06.04.1994, raising loan from ICICI, and issuance rights issue for financing the purchase of the said machinery and building construction increases in installed capacity, approval from Ministry of Industrial Development which cannot be doubted. Further, letter sanctioning the additional power load, appointment letters issued to the staff of the new unit and the audited Balance Sheet for the year ending 31.03.1995 are also filed before the lower authorities to establish that new building was constructed and new plant & machinery was duly installed.
31. The contemporary evidence in the form of photographs annexed to the audited Balance Sheet for F.Y. 1994-95, confirming the visit of Mr. Erwin Teufel, Minister-President of Baden-Württemberg, Germany, along with other Directors from Germany to inaugurate the new unit on 24.02.1995, cannot be ignored. The event had witnessth the construction, installation and production from new machinery at new unit in February 1995. Third party evidence like the advertisement published in ‘The Economic Times’ on 24.02.1995, announcing the inauguration of new unit, is also contemporaneous evidence substantiating the factum of establishment of the new unit during F.Y. 1994-95, relevant to A.Y. 1995-96 and cannot be held as an afterthought.
32. Thereafter the clinching evidences like renewal of technical know-how agreement with ZF, Germany, providing for payment of royalty in respect of the increased production capacity, corroborated with the audited Balance Sheet, wherein increase in the installed capacity, as well as the actual production, has been reflected. All these supports the claim of the assessee that new machinery had commenced production. We have also gone through the manufacturing process, where function of each machine and its role in the manufacturing process is elaborately explained. The Chartered Engineer’s certificate duly certified that machineries installed at the new unit as on the date of inauguration were capable of independently manufacturing the product which was seconded by the certificate of the President of the company who was having vast experience in the field and cannot be ignored without bringing on record any contrary material.
33. Another glaring fact was that assessee had submitted complete stock details which include monthly production and dispatch, raw material consumption and separate unit-wise Profit and Loss Account of old and new unit where bifurcation of expenses and profits between the old and new unit claimed was never doubted by the lower authorities. The stock register maintained for the new unit, RG-1/MODVAT monthly workings and CST/BST challans for March 1995 were also submitted before the lower authorities which further establish the claim and constitute contemporaneous evidence.
34. With the above background and the material submitted before the lower authorities and copies placed before us, we now proceed to examine whether Five questions framed by the Tribunal vide its order dated 04.08.2006 were answered affirmatively by the assessee or not?
35. First question is regarding the installation of plant & Machinery and commencement of the commercial production which reads as under:
Whether nine machines costing Rs. 90,32,912, which were installed before 31 March 1995, brought into existence an integrated independent unit, which by themselves, independently of old unit, were capable of producing Product code – 8043 (Type 302)?
36. As observed above, assessee has explained the entire manufacturing process and functions performed by each machine to demonstrate that these machines are capable of independently manufacturing Product Code 8043 (Type 302) before of the end of the previous year relevant to assessment year under consideration. For this following evidences were filed by the assessee:
1. Chartered Engineer’s certificate who has certified that manufacturing process could have been independently carried out with the eight machines available at the time of inauguration.
2. The Mysore Kirloskar Grinding Machine installed on 31.03.1995 was the second grinding machine and that the grinding operation required for manufacture of the product was being performed by another grinding machine which was already available at the time of inauguration of the new unit.
3. The CNC ACE Auto Lathe Machine though may be not installed on 24.02.1995 however, admittedly when it was installed on 01.03.1995 and such delay in no manner refutes the assessee’s claim that manufacturing activity was commenced upto 31.3.1995. Moreover, for few days if the old machine was used that would not disentitle the assessee from claiming the deduction. Even otherwise the value of the CNC ACE Auto Lathe Machine was only Rs. 9,84,303/-, which was far below the permissible 20% limit for use/transfer of old machinery.
4. The contemporaneous records produced by the assessee, such as the sales records, unit-wise accounts, RG-1/MODVAT workings, production records duly corroborated with invoices, photographs and the expert’s certificate etc, we are of the considered view that the machines installed before 31.03.1995 were capable of functioning as an integrated and independent manufacturing unit.
37. The Hon’ble Gujarat High Court in the case of Gujarat Alkalies & Chemicals Ltd. v. Commissioner of Income Tax reported in (2013) 350 ITR 94 (Guj.), has held that merely because, to a certain extent, the new undertaking is dependent upon the existing unit, the same would not deprive the new undertaking of its separate and distinct identity, having regard to the nature of the technology and mechanism of production. The relevant observations of the hon’ble court are reproduced as under:
“We are of the view that so far as the fifth test is concerned i.e. a separate and distinct identity, only because to a certain extent the new undertaking is dependent on the existing unit, will not deprive the new undertaking the status of a separate and distinct identity. It all depends on the nature of the technology and the mechanism of production. We cannot ignore the fact that new machinery and new plant have been installed at an investment of Rs.7 crore some time in the year 1982-83 i.e. almost three decades back and also the fact that the production has gone from 34000 M.Tonnes to almost 75000 M.Tonnes.”
38. Further the Hon’ble Gujarat High Court in the case of Atul Ltd. v. ACIT reported in (OSD) 2024:GJHC:70791 held that where machinery or plant previously used for any purpose was used to the extent of 20% of the total value of the machinery, the allowability of deduction u/s 80-IA of the Act in respect of the new unit is not disturbed. The relevant observations of the hon’ble court are reproduced as under:
“16. On perusal of the above provision, as it existed at the relevant time, Explanation-2, provides that when any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of machinery or plant or part does not exceed twenty percent of the total value of the machinery or plant used in the business, then, for the purpose of clause (i) of the sub-section (3), the condition specified therein that such new industrial undertaking is not formed by transfer to a new business of machinery or plant previously used for any purpose shall be deemed to have been complied with. Therefore, even considering the fact that the boiler was used for the purpose of obtaining steam to run the new turbine for generation of the power, cost of new turbine is less than twenty percent of the total value, would Condition No. 2 of the conditions prescribed in Clause (i) shall be deemed to have been complied with in the facts of the case. The total value of the plant and used for the purpose of generating power works out to Rs. 14,56,44,295/- (Rs. 18,27,180/- value of the plant and machinery and Rs. 1,26,42,715/- for turbine new industrial unit) and the value of boiler (pre-existing and pre-used) is Rs. 14,76,600/- purchased second hand on 09.11.1998. In view of such facts even as per the Explanation-2 to section 80IA (3) there is no breach of the condition on use of the old boiler for obtaining steam to run the turbine for generation of power.”
39. It is further observed that the ld. CIT(A) has doubted the expert certificate and certificate of the President, who is also an expert in the field. While doing so, ld. CIT(A) has not taken any support of the independent expert. The hon’ble Supreme court in the case of Saraswati Industrial Syndicate Ltd. Vs. CIT (supra) has held the AO or the appellate authorities are not entitled to comment upon the technical matters. The relevant observations of the hon’ble court are reproduced as under:
“We can understand that the authorities declined to rely upon the experts opinion because he was not produced for cross-examination. But neither the Income Tax Officer nor, indeed, the High Court were entitled to make statements on technical matters for which no basis had been laid on the record by either the Revenue or the assessee. If the High Court was of the view that further material was required , the appropriate course was to require the Tribunal to take further evidence and draw up a Supplemental Statement of Case.”
40. The Third member at Ahmedabad bench of Tribunal in the case of ACIT v. National Lamination Industries reported in [2007] 111 TTJ 754 (Ahmedabad ITAT) (TM) on the issue of deduction u/s 80-IB concurred with the finding of Accountant Member, who had allowed the claim of the assessee, inter alia, held that the expert opinion placed on record was required to be considered on its merits.
41. The Hon’ble Supreme Court in the case of Commissioner of Income Tax v. M/s Sociedade De Fomento Industrial Pvt. Ltd. reported in [2022] 443 ITR 34 (SC) affirmed the decision of Tribunal allowing the deduction u/s 10B after considering, inter alia, the photographs of the new unit and the engineer’s certification regarding its capability of independent production as relevant factors in determining the allowability of deduction in respect of a new unit. The relevant observations of the hon’ble Apex court are as under:
“3 In coming to the conclusion that the tests which have been formulated in the decision of this Court in Textile Machinery Corporation Ltd (supra) and reiterated in Indian Aluminium (supra) have been duly fulfilled, the Tribunal has entered specific findings of fact which are contained in paragraph 19 of the judgment which is extracted below:
19. It is thus submitted that the following facts will go to establish the assessee’s claim that the unit formed in 1998 is a new undertaking:
i. the old unit approved under license No.CIL/420 (1985) dt.26-12-1985 started producing Iron ore in the year 1986 and was setup at a total cost of ₹ 3 crores having a capacity of producing 2 lac tons of beneficiated Ore per year;
ii. in these circumstances it was considered imperative to install a new and more sophisticated beneficiation plant whose operations would result in production of higher ferrous content of about 63% plus;
iii. accordingly the appellant applied for allowing it to import plant and machinery, pursuant to the approval from the Ministry of Industry, an agreement came to be entered into between the appellant and the Government which recognized the setting up of the new unit and required that the unit should comply with fresh net foreign exchange earnings from the date of commencement of production of newly set up unit;
iv. pursuant to the approval the appellant set up and installed primary beneficiation section (PBS-II) and other related plant and machineries along with a slime treatment plant from a Swedish company, this plant is independently capable of producing ore of higher ferrous content, i.e. up to 63% to 65% with lower content of alumina and silica as required in the international market from the low-grade ore which is mined;
v. the new unit was formed in the financial year 1998-99 at a cost of over ₹ 30 crores and the capacity of this unit is 15 lakhs tons compared to the earlier capacity of 2 lakhs tons per annum in old unit;
vi. a photograph taken of the new unit established in 1998-99 (copy enclosed at pg.37 of paper book) clearly shows that the new unit is a completely different and independent unit which is located at a separate plot adjacent to the old unit;
vii. a certificate given by the Engineer of the appellant, one Mr. Y.S. Reddy establishes that the Greater Ferro-met Unit is capable of independently producing ore on its own of the desired ferrous” content.”
4. The Tribunal has noted that the new unit was fully a independent unit with a production capacity of 15 lakh tons per annum as compared to the earlier production capacity of 2 lakh tons per annum of the old unit. The Tribunal has also dealt with the reasons which were furnished by the CIT in coming to the conclusion that what was set up was only an expansion of the old unit and not a new unit. Ex facie, the reasons which weighed with the CIT were not compliant with the tests which have been formulated in the judgments of this Court.
5. In this backdrop, the judgment of the Division Bench of the High Court of Bombay at Goa dated 22 October 2020 affirming the judgment of the Tribunal does not suffer from any error. The Special Leave Petition is accordingly dismissed.”
42. Accordingly, the finding of the Ld. CIT(A) that the non-availability of certain machines on the date of inauguration, i.e. 24.02.1995, rendered the unit incapable of being regarded as an independent and integrated unit is not sustainable in the light of complete records produced by the assessee. Therefore, the finding of Ld. CIT(A) that non-availability of certain machines on the date of inauguration, i.e. 24.02.1995, rendered the unit incapable of being regarded as an independent and integrated unit is not sustainable and we thus hold that the assessee has positively answered the first question.
43. Next question No. 2 is “Whether the new machinery costing Rs. 2,74,52,116 installed and old machinery transferred WDV of Rs. 64,12,458 transferred from the old unit, in subsequent year, were needed to make the new unit integrated and independent?”
44. The allegation of ld. CIT(A) in this regard was that the initial investment during F.Y. 1994-95 was only Rs. 90 lakh out of the total investment of Rs. 13.66 crores. Further, major amount of Rs. 3,38,64,574/- was spent for purchases of new machinery in the subsequent year, thus the new unit became an integrated and independent unit only in the subsequent year and not in A.Y. 1995-96. Ld. CIT(A) further alleged that some machines such as boring machines, turning machines, hobbing machines, surface grinding machines, milling machines, etc., which were essential to make the unit integrated and independent, were installed after 31.03.1995, thus it could not be said that the new unit had become an integrated and independent unit during A.Y. 1995-96.
45. It was the claim of the assessee that, in the subsequent year, more machineries were installed to increase the production capacity, create additional facilities, develop in-house capacity for certain parts which were earlier purchased from vendors, and facilitate the manufacturing process. For this purpose, ld. AR drew our attention to the comparative machinery chart and the certificate issued by the President of the company, wherein the functions performed by each machine was duly explained. Merely because some finished parts are purchased from outside vendors does not cease to be a manufacturing unit because the assessee was carrying out substantial manufacturing, assembly and testing operations in-house. As per ld. AR, installed capacity was increased from 10000 units to 24000 units in FY 1994-95 and was further increased from 24,000 units in F.Y. 1994-95 to 36,000 units in F.Y. 1995-96.
46. Regarding the allegation of initial investment of Rs. 90 lakh in F.Y. 1994-95, it was the claim of the assessee that the as per rights issue letter, entire amount of Rs. 13.66 crores was not exclusively raised for setting up the new unit, but was also intended to increase the installed capacity for Power Steering Gears for HCVs, which continued to be manufactured in the old unit. Further, the comparison of the entire project cost with the cost of machinery was misleading, as the project cost comprised of building, electrification, furniture, etc. in addition to the cost of machinery.
47. Having gone through the contentions made by both the parties and the relevant records produced by the assessee, we find that purchases of some finished components for assembling and use them to manufacture finished products cannot be a reason for denial of deduction when by the use of these components assessee had manufactured a new product having substantial value addition. It was explained to ld. CIT(A) that assessee had purchased blank nuts and worms, blank sector shafts and blank pistons from outside vendors and, through the machinery installed, performed the activities of turning and thread-cutting of nuts, worms, sector shafts and pistons using the CNC Auto Lathe Machine; gear cutting and hobbing of sector shafts using the Gear Hobbing Machine; drilling of pistons using the CNC Vertical Machining Centre; and grinding of sector shafts and pistons using the Grinding Machine. The components were thereafter washed using the Micron Conveyor Washing Machine and finally assembled using assembly facilities such as the Air Receiver and Lubro System. Hence, the raw materials/components so purchased from outside vendors were transformed into the finished goods in the form of Hydraulic Power Steering Gears capable of being sold as a unit. All this manufacturing process was done through new machines installed in the year under appeal.
48. Ld. CIT(A) without bringing any contrary material on record to dispute the contention raised by the assessee has alleged that the without the help of new machines purchased in FY 1995-96 manufacturing in the year under appeal i.e. in AY 1995-96 was not possible.
49. The Hon’ble jurisdictional High Court in the case of Commissioner of Income Tax & Ors. v. M/s Delhi Press Patra Prakashan Ltd. & Ors. Reported in [2013] 355 ITR 14, while allowing the deduction u/s 80-I, which is similar to Section 80IA/80IB, held that nothing in the language of Section 80-I disqualifies an undertaking from claiming the benefit merely because it processes raw material supplied by others. Relevant findings of the Hon’ble Court are as follows:
“42. We are unable to appreciate the contention that the industrial undertaking which undertakes job work would not be entitled to claim deduction under Section 80-I of the Act. The language of Section 80-I(2) of the Act does not indicate in any manner that an industrial undertaking which instead of purchasing raw material, acquires raw material from a third party in order to subject it to the activity carried on by the industrial undertaking and sends the resultant product back to the entity from which the raw material had been procured, would be disqualified from availing benefits under Section 80-I of the Act. There is nothing in the language of Section 80-I(2)(iii) of the Act to suggest that the assessee claiming the benefit of Section 80-I of the Act must structure his business in any particular form. Carrying on job work is only a method of structuring one’s business. An assessee owning an industrial undertaking may either choose to purchase raw material on its own and process the same or it may acquire raw material on job work basis and utilize the same for carrying on the industrial activity. In either event so long as the industrial undertaking owned by the assessee fulfills the conditions as specified under Section 80-I(2) of the Act, the benefit of Section 80-I of the Act cannot be denied to the assessee.”
50. Accordingly in our view the assessee has successfully demonstrated that the new unit was installed as an integrated and independent manufacturing unit in F.Y. 1994-95 itself and was independently capable of manufacturing Product Code 8043 (Type 302), without being dependent upon the old unit and the machinery acquired in F.Y. 1995-96 was not necessary for the new unit to attain the character of an integrated and independent manufacturing unit which was acquired for the purposes of increasing production capacity, creating additional facilities, developing in-house manufacturing capabilities for certain components and facilitating the manufacturing process.
51. The question No. 3 & 4 are almost on common and thus are discussed together. The question No. 3 is “Whether Product code – 8043 (Type 302) was also being manufactured in the old unit during the period 1 April 1994 to 31 March 1995?”
The question No. 4 is “Whether the Product code – 8043 (Type 302) was manufactured simultaneously in the old unit as well as new unit independently of the old unit during the month of February and March 1995?
52. There is no dispute that Product Code 8043 was manufactured in the old unit during F.Y. 1994-95 which is verifiable from the production records placed before us. However, in our opinion, the fact that same product was manufactured in old unit does not, by itself, militate against the existence of a separate and independent new undertaking. This view is supported by the order of hon’ble Supreme Court in the case of Textile Machinery Corporation Ltd. v. CIT (supra) wherein the Hon’ble Apex court has held that a new industrial undertaking may manufacture the same product as was manufactured by the existing undertaking, so long as the new undertaking is itself an integrated and independent unit. This fact was also appreciated by the Tribunal in its order dated 04.08.2006.
53. It is also not in dispute that separate factory building for new unit was constructed with fresh capital and new machinery with additional sanctioned power load and fresh manpower. Further, separate unit-wise accounts, production and dispatch records and sales records were maintained. We have already hold that the new unit was capable of carrying out the manufacturing process independently.
54. We also find merits in the explanation of the assessee that such continuation of production in the old unit was necessitated due to commercial considerations and the need to maintain continuous supplies to its customers. There is nothing on record to suggest that new unit was dependent upon the old unit for any essential manufacturing process or that the production recorded in the new unit was in fact carried out in the old unit. On the contrary, as observed above, new unit had its own building, machinery, manpower, additional power load and manufacturing facilities and was independently capable of manufacturing Product Code 8043. Regarding the allegation that it is mere shifting/reconstruction of the existing business which has resulted into the fall in production in the old unit, the SLP was dismissed by the Hon’ble Supreme Court in CIT v. Leo Fasteners [2018] 95 taxmann.com 18 (SC) confirming the order of hon’ble Madras high court reported in [2017] 84 taxmann.com 6 (Mad.). Further the hon’ble jurisdictional high court in the case of CIT v. Mahaan Foods Ltd. [2008] 216 CTR 148 held that even the complete overtaking by the new unit of old unit would not disentitle the assessee of deduction u/s 80IA provided assessee fulfills the statutory requirements.
55. Accordingly we find that both the questions in no way lead to denial of deduction u/d 80A of the Act to the assessee.
56. The last question was Whether there is any evidence maintained in the factory to prove that the said 890 units of the Product code – 8043 (Type 302) were actually manufactured/ produced in the new unit?
57. As observed above, before us in the paper books filed in three volumes, assessee has placed every possible evidence filed before the lower authorities to establish the production and sale of the product from the new unit. These comprises of the following:
1. Unit-wise Profit and Loss Account having bifurcation of material consumed and expenses incurred and profits earned;
2. Quantitative records like monthly production and dispatch details;
3. Sales register and sale invoices, RG-1/MODVAT monthly workings and CST/BST challan for March 1995.
58. It is observed that out of the above evidences, ld. CIT(A) raised doubts only about the sale invoices by alleging that the invoice has the same series which was in continuation of the old unit and further alleged that invoices of new unit bore a stamp identifying them as having been issued from the new unit.
59. The claim of the assessee was that no new Excise registration was required for new unit and there was no such condition provided in the Act that fresh series of bills is required to be issued from the new unit. Once the assessee has maintained separate records of purchases, material consumed and sale made, whether the invoices were issued of the same series or a single invoice book cannot, by itself, render them unreliable or can be a basis for denial of deduction us/ 80IA of the Act more particularly when the ld. CIT(A) had accepted the fact that stamp was affixed to identify the sales pertaining to the new unit. Further such invoices were accepted by the Excise authorities for the purposes of claiming MODVAT credit and constitute contemporaneous excise-linked records reflecting the production activity. There is also no material on record to show that the invoices bearing the identification of the new unit were not the invoices actually issued to the ultimate customers, nor any verification was done from the customers to disprove the sales made to them. If the lower authorities has doubts about the sale to these parties from the new unit, enquiries could have been made by issuing summon however, as observed above, no such effort was made either by AO or by Ld. CIT(A). Accordingly, we find that the assessee has successfully answered the fifth question framed by the Tribunal.
60. In view of the above detailed discussion and by respectfully following the judgement of hon’ble Apex Court, hon’ble High courts including of jurisdictional high court and coordinate bench of Tribunal, we find that assessee had established new unit by raising capital through rights issue and loans from Financial Institutions, and constructed new building and installed machinery and other facilities during F.Y. 1994-95. The documentary evidence placed before us are elaborately appreciated herein above which further established the fact that commercial production of Hydraulic Power Steering Gear had commenced during F.Y. 1994-95 relevant to AY 1995-96. Further all the questions framed by the Tribunal while setting aside the matter to Ld. CIT(A) are answered affirmatively by assessee. We, therefore, have no hesitation in holding that the new unit established in the new building with new machines installed during F.Y. 1994-95 has capable of production and thus satisfied all the conditions for claiming deduction u/s 80-IA of the Act from A.Y. 1995-96 and onwards. The Grounds of appeal Nos. 1 to 12 & 14 raised by the assessee are thus allowed.
61. In ground of appeal No. 13, the assessee has challenged the disallowance of depreciation of Rs. 6,26,912/- claimed on some machines.
62. This issue was also remanded back by the Tribunal for reconsideration to the file of ld. CIT(A). The Tribunal, while remanding the matter back observed that both the lower authorities had passed cryptic orders while rejecting the claim of the assessee and, therefore, directed the Ld. CIT(A) to consider the issue de novo and pass a fresh speaking order.
63. The sole reason for making disallowance by the lower authorities was that since certain machines were received on 30.03.1995 and 31.03.1995, i.e. towards the last days of the financial year. It was the claim of the assessee that the same were installed and made ready for use before the close of the previous year which was not found acceptable. The Ld. CIT(A) has denied the depreciation on the premise that specialised machinery requires installation, trial runs and integration into the production process and, therefore, could not have been installed and put to use on the very day of its receipt.
64. We have carefully considered the rival submissions, the material placed on record and the findings of the lower authorities. The disallowance of depreciation was made merely on the presumption that the machinery received on 30.03.1995/31.03.1995 could not have been installed and made ready for use on the same day. However, the assessee furnished purchase invoices, Goods Inward Notes, purchase orders etc. It was also explained that the machinery was added to an already operational manufacturing set-up and no contrary material was brought on record by the Revenue to disprove the assessee’s documentary evidence. The Hon’ble Delhi High Court in the case of Stitchwell Qualitex (RF) v. ITO & Anr. Reported in 2015 (9) TMI 850 (Del.) has held that the expression “used for the purposes of business” under section 32 includes a situation where the asset is kept ready for use. The Hon’ble Court also recognized this principle in the context of machinery installed in an expansion of an existing business.
65. In the present case, there is no dispute that the machinery was acquired. The assessee has submitted all the plausible evidence regarding its receipt and installation. The Revenue has also failed to bring on record any evidence to establish that the machinery was incapable of being used, remained uninstalled after receipt, or was not available for deployment in the business as on 31.03.1995. Therefore, merely because the same were received on 30.03.1995 or 31.03.1995 cannot constitute a valid ground for denial of depreciation. The principle of passive user, as recognized by the Hon’ble jurisdictional High Court, is applicable where the asset has been installed and kept ready for use for the purposes of the business. We, therefore, hold that assessee is entitled for depreciation of Rs. 6,26,912/- u/s 32 of the Act. The Ground of appeal No. 13 is thus allowed.
66. In the result appeal of the assessee in ITA No. 4374/Del/2026 is allowed.
ITA Nos. 4345 to 4383 for AY 1996-97 to AY 2004-05
67. Before us, ld. AR submits that deduction claimed u/s 80IA/80IB of the Act in these assessment years was disallowed solely on the ground that no eligible new unit had come into existence in the base year, i.e. A.Y. 1995-96 and thus the deduction claimed u/s 80IA by the assessee was denied by the lower authorities. As per ld. AR, once the eligibility of the undertaking stands established in initial year, the deduction in the subsequent years cannot be denied on the same ground, particularly when there is no change in the basic facts relating to the eligible undertaking. He further submitted that the manufacturing activity continued in the subsequent years and that the additional machinery installed thereafter was only for expansion of production capacity and development of additional manufacturing facilities, as already discussed hereinabove. Accordingly, he requested that the deduction u/s 80-IA/80-IB be allowed in the subsequent assessment years.
68. On the other hand, ld. CIT DR vehemently supported the orders of lower authorities and reiterated the submission made in AY 1995-96.
69. Heard the rival submissions and perused the material available on record. Before us, both the parties fairly admitted that there was no material change in the facts and circumstances relating to the eligible undertaking, except for the further expansion of production capacity and addition of machinery. As observed above, this fact did not alter the character of the undertaking since the new unit had already commenced manufacturing activity during F.Y. 1994-95. The sole basis for denial of deduction u/s 80IA / 80IB in these assessment years was founded on the finding that the eligible new unit had not come into existence in A.Y. 1995-96. While deciding the appeal of the assessee for AY 1995-96 in ITA NO. 4374/Del/2026, we have already held that the new unit was established and commenced production during F.Y. 1994-95 thus, eligible of deduction 80IA of the Act. Such observations are Mutatis Mutandis followed to hold that the assessee is entitled for deduction us/ 80-IA/80-IB of the Act for all these assessment years. Reliance is placed on the order of the Hon’ble Delhi High Court in the case of Commissioner of Income Tax Versus International Tractors Ltd. reported in (2017) 397 ITR 696 (Delhi), wherein it was held that once the eligibility conditions are satisfied in the initial assessment year (the year in which the undertaking begins manufacture/production), the undertaking is entitled for the same for ten consecutive years even if, in later years, investment in plant and machinery increases. Accordingly, all the grounds of appeal of the assessee are allowed in all the remaining appeals.
70. In the result, all the appeals filed by the assessee are allowed.
Order pronounced in the open court on 03.09.2026.
