The High Court · 2025

M/s. Synergies Castings Llmited, a company incorporated under the companies Act,1956, having its registered office at 4A, 6-3-855/1-A, Sampathji Apartments, Ameerpet, Hyderabad. Rep. by its Director, Mr. Padmanayan Chirala, R/o. Visakhap,atnam ...Appellant AND

1. The Deputy Commissioner of lncome Tax, Circle 3(2), lT Towers, AC Guards, Hyderaba,J.

2. Assistant Sommissioner of lncome tax, Circle 3 (3), Hyderabad. ... Respondents l.A. NO: 2OF ?CI11(dTTAMP. NO: 652 OF 2011] Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to pass an order staying the collection of the disputed demand in the appeal for the assessment yezrr 2007 -2008. Counsel for the Appellant: Sri A.V.A. Siva Kartikeya Counset for th€' Respondents: Ms. Sapna Reddy, Senior Standing Counsel for lncome Tax Department .N 16 Appeal under Section 260-4 of the lncome Tax Act, 1961 against the order dated 26-02-2014 passed in l.T.A.No.2/Hydl2013 for Assessment Year 2008-2009 on the file of the. lncome Tax Appellate Tribunal, Hyderabad 'B' Bench, Hyderabad. Between: Synergies Oastings Ltd, A Company incorporated Under the Companies Act 1 956 and traving its registered office at 44, Door. No.6-3-855/1 -A, Sampathji Apartments, Ameerpet, Hyderabad and being represented by its Director Mr. Hemachandran, Residents of Vishakapatnam. ...Appellant AND

1. The Deputy Commissioner of lncome Tax, Circle 3(3), Hyderabad. 2. The Ass stant Commissioner of lncome Tax, Circle 3(3), Hyderabad. Counsel for the Appellant: Sri A.V.A. Siva Kartikeya Counsel forthe Respondents: Ms. Sapna Reddy, Senior Standing Counsel for lncome Tax Department The Court delivered the following: COMMON JUDGMENT ... Respondents THE HON'BLE SRI JUSTICE P.SAM KOSHY AND THE HON'BLE SRI JUSTICE NARSING RAO NANDIKONDA ITTA NOS. 319. 332 of 11 AND 677 0F 2oL6 COMMON JUDGMENT: (per Hon'bte sri Justice Narsins Ro.o NandtkondQ Since the parties and the issue involved in these three appeals are common, they are being heard together and disposed of by way of this common Judgment.

2. These three appeals are filed arising out of Common Order, dated 18.03.201 1 in I.T.A.No.864lHydl2OlO and I.T.A.No.1364lHyd/2O10 for the Assessment Year 2006- 2OO7 and 2OO7-2OO8 and order dated 26.02.2014 in I.T.A.No.2/Hyd/2013, for the Assessment Year 2OOB-2OO9 passed by the learned Income Tax Appellate Tribunal, Hyderabad'B' Bench, Hyderabad.

3. For the purpose of disposal of these three appeals, the facts in IftA No.319 of 2oll are to be taken into consideration.

4. Heard Sri A.V.A. Siva Kartikeya, learned counsel for appetlant and Ms. Sapna Reddy, learned Senior Standing Counsel for lncome Tax Department, appearing for the respondent. ' Poge No. 2 of 76 PSK,T & NNR,' ,TfA NOs. 379, 332 ol 20rl ANo 677 OF 2076

5. The brief facts of the case are that the appellant is a Compimy engaged in the business of manufacturing and sale of Aluminum Alloy Wheels. For the Assessment Year 2006-2007, the appellant has filed its income tax returns on

29.1I.2006 declaring loss of Rs.32,77,967/- under normal provisio:ns of the lncome Tax Act, 1961 (for short, 'the Act, 1961) and book profits of Rs.1,24,23,7821- under Section 115 JB of the Act. It is stated that respondent No.2 completed the assessment on 19.12.2008 under Section 143 (3) of the Act, 19b 1 determining loss of Rs.31,24,467 / - and book profits under fjection 115 JB at Rs.2,24,3O,397 l-. (i) The Assessing Officer while computing the income under .eormal provisions of the Act, 1961, book profits under SectiorL 115 JB was disallowed the appellant's claim for deduction of Rs.1,00,06,6151- under Section lOB of the Act,

1961. (,i) It is stated that the appellant company is loOo/o Exporl. Oriented Unit in Visakhapatnam Special Economic Zone :VSEZ) in the year 1998 in collaboration with Dooray Corporation, Korea for manufacture of Aluminum Alloy Page No. 3 of 76 PSK) & NNR,I tTfA NOS. 319, 3r2 ol 2071 ANO 677 OF 2016 Wheels for exporting from India and to sell in the domestic market also.

6. It is stated that due to financial problems, the appellant-company filed an application under Corporation Debt Restructuring (CDR) Scheme before Reserve Bank of India to recast the debt of the Company. It is stated that the ICICI bank limited, while approving a rnajor and deep restructure in repayment schedules of loans and reduction in interest rates advised the appellant-company to tie up the means for additional finance. It is further stated that Thinc Commercial Solutions, UK agreed to arrange investments / provide financial assistance to the appellant-company through equity as well as need based working capital assistance, provided a new Company was created, to receive such financial assistance and suitable enabling linkages were created with manufacturing assets of the appellant-company. (iii) It is further stated that the appellant-company was incorporated on 24.01.2005 as a subsidiary of Thinc Commercial Solutions, UK and it is registered as a lOOo/o EOU in Visakhapatnam Special Economic Zone. The appellant- company entered into an Agreement of Licence on 03.11.2005 PSKJ & NNR) lTfA NOS. 319, 332 ol 2Ot, AND 677 OF 2016 with the appellant company which allows access to Equipme,nt and facilities owned by Synergies Dooray Automotive Limited for the purpose of continuing the businesr;. By virtue of this licence agreement, the appellant compan'/ \ ras to operate and maintain the unit and also defray the cost of the wear and tear and capital equipment usage charges to Synergies Dooray Automotive Limited. Under this agreement, the appellant is permitted complete access to the eqtripment and facilities of appellant's company for a period 'tf 47 months subject to condition in clauses 4.8, 5.1 and clause 8 of the Agreement. (i'r) In view of Licence Agreement for lease of unit by Synergies Dooray automotive Limited to the Appellant Company, the Government of lndia, Ministry of Commerce & lndustry passed order dated 30.06.2005 extending all the concessions/business available to Synergies Dooray Automotive Limited, under EOU Scheme to the Appellant company since it had obtained licence to operate and maintain the very same EOU which was previously run by Synerl3ies Dooray Automotive limited. Page No. 5 of 76 P'K,T & NNR,I lTfA NOS. 319, ,32 ol 20rt AND 577 OF 2076

7. It is stated that the appellant company which was created as a (Special Purpose Vehicle) (SPV) consequent to Corporation Debt Restructuring Scheme started manufacturing and selling of Aluminum Alloy Wheels during the assessment year 2006-2007 by taking the unit of Synergies Dooray Automotive Limited on licence basis to run the unit. Since the appellant company had taken the unit of Synergies Dooray Automotive Limited on licence for manufacture of Aluminum alloy u,heels, it cannot be said that unit is formed by transfer of machinery or plant previously used to a new business. The Assessing Officer as also the Commissioner of lncome Tax (Appeals) negatived the claim of the appellant.

8. It is stated that the appellant had made a meager investment of Rs.1,38,55,000/- in machinery, but carried on business valued at Rs.125.55 crores to Synergies Dooray Automotive Limited. The Tribunal held that it was a pre- meditated arrangement and. the appellant could not have manufactured the said goods without the expensive machinery and that it was nothing but a reconstruction of the existing business. Further, the appellant had stated that it \ . Page No. 6 of 76 PSK,' & NNRJ tTtA NOS. ,19, 332 ol 2011 AND 677 OF 2016 \q need not own any machinery or plant and its own for the purpose of claiming deduction under Section 1OB of the Act. According to the appellant without owning plant and machinr:ry, Section 10B (21 of the Act did not apply to it. But, erroneousl5r, the Tribunal rejected the claim of the appellant for conl.inuation of relief under Section 108 of the Act, 1961 only fcr the balance unexpired period and rejected the appellant's submission based on the Circular of the Central Board ,rf Direct Taxes in F.No.15l5/63-IT[Ai] on the ground that if t.he benefit is claimed for the balance period, it must be proved that the appellant was the successor to the predec,:ssor who enjoyed the benefit under Section 108 of the Act. The appellant was only a lessee/licence having the right to enjoy the plant and machinery and accordingly rejected the appeal confirming the order of assessment order in first appeal declining the benefit of Section 10B of the Act to the appell,lnt for the Assessment year in question. l). [n view of the submissions made by learned counsel for the appellant, the following substantial question of larn, is framed: "(l) Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was correctin law in holding that the Appellant Poge No. 7 of 76 PSKJ & NNR.J |TTA NOS. 379, 332 oI 207, AND 677 OF 2016 who succeeded to the business o[ Synergies Dooray Automotive Limited was not eligible for the benefit under Section l0B of the Act for the balance period as stipulated in the said Section?" (ii) Whether on the lacts and circumsrances of the case, ir was essential for the Appellant to own the plant and machinery and taking plant and machinery on lease / Iicense would consritute reconstruction of the existing business so as to disentitle the Appeltant to claim bcnefit of Section l0B of the Act?"

10. It is the case of the appellant before this Court and before the authorities that as the appellant has taken the unit of Synergies Dooray Automotive Limited on lease for operating and maintaining the unit with facilities of manufacturing Aluminum Alloy Wheels, it cannot be said that the unit is formed by transfer to a new business of machinery or plant previously used.

11. The main grievance of the appellant is that as Assessing Officer has denied the claim of exemption under Section 10B of the Act, l96L upholding the decision of the learned Commissioner of Income Tax (Appeals). Learned Assessing Officer has held that as the benefits w,hich the SADL has enjoyed do not automatically confer on the Synergr Castings Limited i.e., appellant herein for the reason that the Synergr Castings Limited is a separate company duly incorporated with the ROC, and the company has to satisfy . Poge No. I of 76 PSK) & NNR) tffA NOS. 3r9, 332 ol 2011 AND 677 OF 2016 + the various eligibility conditions under the Act, t961. It is further held by the Assessing Officer that as per Section 108(2xiii) of the Act, 1961 the Section applies to any undertaking which is not formed by the transfer to a new business of machinery or plant previously used for any other purpose. [t was further held that the original company i.e., SADL i:; also not expected to transfer its machinery to another company, and if it transfers, it loses its eligibility for deduction under Section 80-lB of the Act, 1961. In the presenl case, the entire machinery that is used by the SADL is transferred to SCL and the assessee has therefore failed to satisfy the conditions prescribed under Section 1OB of the Act, t961. As such, deduction of Rs.1,00,06,6151- is not alloweC for the purpose of computation of book profits. '.L2. Against which an appeal was preferred before the Comrrissioner of Income Tax Appeals, wherein the Comrrrissioner of Income Tax Appeals has held that in order to claim deduction under Section 108 of the Act, 1961 the assessee need not own any plant and machinery. It was furthr:r held that the referred Agreement Licence is a mere faqade created for the purpose of claiming deduction under Page No. 9 of 76 PSK) & NNR,I ffTA NOS. 319, 332 ol 20rt ANo 677 OF 2076 Section 10B of the Act, 1961 is further supported by the fact that the appellant company in itself is not capable of manufacturing 'Aluminum Alloy Wheels'. From records, it is seen that the appellant has made a meagre investment of Rs.1,38,55,000/- in machinery, whereas the same business was being carried out by M/s. Synergr Dooray Automotie Limited with the plant and machinery value up to Rs.125.55 crores. Therefore, it is clear but for this premeditated arrangement, it would not have been possible for the appellant company to manufacture the commodity of this kind and further held that as it is in the case of manufacturing of Aluminum Alloy Wheels, it is the plant and machinery which is of utmost importance for carrying out the manufacture. Besides, it is not the case that in addition to production carried out on its own, the appellant has taken assistance of plant and machinery belonging to others for the sake of some additional productions and finally held that the Assessing Officer therefore was right in denying the claim for exemption under Section 1OB of Act, 1961, upholding the decision of the Assessing Officer thereof. Page No. 7O of 76 P'KJ & NNRJ tTfA NOs. 1r9, 332 ol 2071 AND 677 OF 2076 13;. He further submits that the said judgment was being a:ssailed before learned Income Tax Appellate Tribunal uid.elTA, No. B6a/HYDl2O10 for the assessment year 2006-07 and IT1. No. 1364lHYD/2010 for the assessment year 2OO7- 08, wtrerein the Appellate Court having gone into the questions and grounds raised has finally come to a conclus;ion that the learned CRT appeal orders were upheld by the: appellate Tribunal justifying and upholding the findings of the Assessing Officer and denying the claim of exemp'-ion under Section 10B of the Act, 1961, for the said assessment years.

1.4. For the sake of seeking exemption under Section 1OB of the Act, 196l which is applicable only to an undertaking n hich is stated for the first time, and the appellant has to prove before the Court to claim the benefit under Section 108 of the Act, 196l for the unexpired period that il. has established that it is a successor of a lessor and he also fulfils all the other necessary conditions. Without which he cannot claim benefit under Section 1OB of the Act, l96L for the balance unexpired period Page No. 77 of 16 PSKJ & NNR) nfA NOS. 3r9, 3i2 ol 20rt AND 677 OF 2016

15. Admittedly, as per Section 108(2[iii) as the section applies to the undertaking which is not formed by the transfer to a new business of machinery or plant previously used for any other purpose. Further, as per the accompanying explanation read with Section 80-l Explanation 2 to Section 80-l(2) of the Act, L961, the tolerance limit for the use of transferred machinery is only upto 2Oo/o of the total value of the machinery or the plant. Incentive provisions for new industrial undertaking would require that the undertaking should be new and that one of the tests for the same is that the machinery should not have been previously used so that it has to be new, subject to the tolerance limit of 2Oo/o of the total outlay of plant and machinery.

16. In the present case, admittedly, the entire machinery that is used by SADL is transferred to the SCL and the assessee. It is also an admitted fact that M/s. Synergies Dooray Automotive Limited established a hundred percent export-oriented unit in Visakhapatnam in Special Economic Zone tn 1998 in collaboration with the Dooray Corporation, Korea, for manufacture of Aluminum Alloy Wheels for exporting them from India and to sell in the domestic market . Poge No. 72 of 76 PSK) & NNR) |TTA NOS. 319, 332 ol 2071 AND 677 OF 201.6 s Due to financial problems Synergies Dooray Automative Limited, led by ICICI Bank Limited, made a reference under the Corl>orate Debt Restructuring (CDR) Scheme of Reserve Bank of tndia to recast the debt of the company and the ICICI Bank Limited, while approving a major and deep restructure in repayment schedule and reduction in interest rates, advised Synergies Dooray Automotive Limited to tie up for additional finance with Thinc Commercial Solutions, UK which has arranged investments and also agreed to provide financial assistance to the SDAL to equity as well as need- based lvorking capital assistance provided with the condition that a new company has to be Created to receive Such financial assistance and suitable enabling linkages were create<l with the manufacturing assets of Synergies Dorray Automotive Limited. 1-7. Further, the new company i.e., M/s.Synergies Castings Limited, which is the appellant herein, was incorporated on 24.O 1.2005 as subsidiary of Thinc Comrrrercial Solutions UK and is registered as a hundred percerr.t EOU in Visakhapatnam Special Econornic Zone. The SDAL entered into an Agreement of licence on 03.11.2005 Page No. 73 of 76 PSK,I & NNR"I ffrA NOs. 319, 332 ol 201, ANO 577 OF 2016 with the appellant company which allows access to the equipment and facilities owned by the Synergies Dorray Automotive Limited for the purpose of continuing the business. By virtue of the licence agreement, the appellant company was to operate and maintain the unit and also defray the cost of wear and tear and capital equipment usage charges to Synergies Dorray Automotive Limited. Under the said agreement, the appellant was given the permission and complete access to the equipment and the facilities and the plant and equipment for a period of seven months, subject to conditions specified therein.

18. It is further case of the appellant that in view of the licence agreement for the lease of the unit by the Synergies Dorray Automotive Limited to the appellant, the Government of India Ministry of Commerce and Industry passed the order dated 30.06.2005 extending all the concessions and benefits to the Synergies Dorray Automotive Limited under the EOU scheme to the appellant company since it has obtained licence to operate and maintain the very sarne EOU i,ifii6t *.. previously run by Synergies Dorray Automotive Limited. Further, in view of the sarne, the Poge No. 74 of 76 PSK,! & NNR) ttfA NOs. 319, 332 ol 2011 ANo 577 OF 2Ot6 appellarrt company which was created as a special purpose vehicle pursuant to Corporate Debt Restructuring Scheme started manufacturing and selling of the Aluminum Alloy Wheels during the assessment year 2006-07 by taking the unit of iiynergies Dorry Automotive Limited on licence basis to run the unit for the assessment 2006-07

19. In view of the sarne, it can be understood that in view ol' the other contentions of the appellant, it can be unders[ood that the said company which is the appellant comparly is formed in place of Synergies Dorray Automotive Limitecl by establishing 1OO% export-oriented unit in place of the Synergies Dorray Automotive Limited, and it is also working with having a tie-up with Thinc Commercial Solutic,ns UK, and where the condition was that it has to form into a new company, as such, a new company was created, but it is also an admitted fact that the entire plant and machi::rery and the equipment of the Synergies Dorray Automotive Limited was being utilised by way of licence agreereent. Poge No. 75 of 76 P'K) & NNR) tfTA NOs. 379, 332 ol 2011 AND 677 OF 2Ot6

20. on considering the entire contentions raised this Bench is of the consid.ered opinion that section 10El(2) of the Act, L96r does not apply to the instant case. As it is clearly borne out of the record that in order to get the benefit under Section 10B of the Act, 196l for the unexpired period, the assessee company must prove that it is a successor of the lessor who was enjoying the benefit of Section l0B of the Act,

19861. But in the instant case, the assessee company is a new company which is formed in view of the conditions imposed by Thinc commercial Solutions. It has formed into a new company and the only aspect is that they have taken the plant and machinery on lease. First of a-ll, leasehold rights are leased, and as such the assessee company is not a successor to the lessor, but is only a lessee to the extent of taking the plant and machinery and the equipment on lease.

21. Admittedly, as the said plant was taken on lease and the said unit is being run by the present appellant company in the same premises and the same product under I the licence agreement, this Bench is of the opinion that this court also does not see any error committed by the ITAT. The substantial question of law which is framed by this court, is Page No. 16 of 76 PSK,T & NNR,I tTfA NOS. 319, 3r2 ol 2011 AND 677 OF 2015 answered against the appellant and we do not see any error committed by the assessing officer or also we do not see any error in the concurrent judgments passed by the commi'ssioner and the Tribunal sustaining the orders passed by the ,\ssessing Officer.

22. For the aforesaid reasons, the substantial questions of law which are framed go against the appellant and corrsequently, the appeals are liable to be dismissed.

23. Accordingly, the appeals are dismissed. There shall be no order as to costs. I\{iscellaneous petitions, if any, pending shall stand closed SD/- MOHD.ISMAIL DEPUTY REGISTRAR //TRUE COPY// One Fair Cop:f to the HON'BLE _ (For His Lordship One Fair Cop:t to the HON,BLE SRI JUSTICE P.SAM 's kind Perusal) SRI JUSTICE I\iARSI NG RAO NANDIKONDA (For His Lordship's kind perusal) N OFFICER To, Bench, Hyderabad. Departnrent [OpUC]

1. The lnc'cme Tax Appellate Tribunal, Hyderabad ,B' 2. One CC; to SriA.V.A. Siva Kartik"ya Adro"ate [OpUC] 3. one c(l to Ms...lapna Reddy, Senior standing counser for rncome Tax 4. 11 LR C)opies 5- The Under Secretary, Union of lndia Ministry of Law, Justice and company Affairs, New Delhi 6. The Se:retary, Tela ngana Advocates Association Library, High court for the State ol Telangana, High Court Buildings at Hyderabad.

7. Two C[r Copies Kam/PSL w HIGH COURT DATED:161071202s / '16t: S \)rt ( (-) r6 i' * * COMMON JUDGMENT lTTA.Nos..319,3g2 of 2011 and 67T of 2016 DISMISSING THE APPEALS KS */"u