CIT (CENTRAL) LUDHIANA V. BIMLA RANI

ITA/770/2010

AI Insights

The case involves multiple appeals by the Commissioner of Income Tax (Central), Ludhiana, against Smt. Bimla Rani concerning the eligibility for deductions under Section 80 IB of the Income Tax Act, 1961, and the addition of unexplained cash under Section 69A following a search and seizure operation. The ITAT had previously upheld the CIT (A)'s decision allowing the deductions and rejecting the addition of unexplained cash. The High Court's decision focused on whether the roles of Supervisor and Manager filled by the respondent's sons in the manufacturing process qualified them as 'workers' under Section 80 IB (2) (iv), and whether the memoranda books could be considered as regular books of accounts for explaining the cash discrepancy.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 720514 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 10-12-2014
• Assessment Year: misc
• Other Referred Cases: CIT vs. M/s Ansysco, CIT vs. Sultan and Sons Rice Mill, CIT vs. Hanuman Rice Mills, CIT vs. Ajmani Industries, CIT vs. Kelvinator of India Ltd., CWT Vs. Allied Finance Pvt. Ltd., Burger Paints India Ltd. vs. CIT, DCIT vs. United Vanaspati Ltd., Union of India and others vs. Kaumudni Narayan Dalal and others
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: RAJESH SETHI
• Keywords: Deduction; Income Tax; Industrial Undertaking; Manufacturing process; Search and seizure; Unexplained Cash
• Section: 142(1); 143(2); 153A; 69A; 260A; 80 IB (2) (iv)

Judgement Text

" ITA No. 770 of 2010 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH 1) ITA No. 770 of 2010 (O&M) Date of Decision: 10.12.2014 Commissioner of Income Tax (Central), Ludhiana. ..... Appellant Versus Smt. Bimla Rani .... Respondent 2) ITA No. 771 of 2010 (O&M) Commissioner of Income Tax (Central), Ludhiana. ..... Appellant Versus Smt. Bimla Rani .... Respondent 3) ITA No. 772 of 2010 (O&M) Commissioner of Income Tax (Central), Ludhiana. ..... Appellant Versus Smt. Bimla Rani .... Respondent 4) ITA No. 773 of 2010 (O&M) Commissioner of Income Tax (Central), Ludhiana. ..... Appellant Versus Smt. Bimla Rani .... Respondent 5) ITA No. 774 of 2010 (O&M) Commissioner of Income Tax (Central), Ludhiana. ..... Appellant Versus Smt. Bimla Rani .... Respondent BANITA CHUGH 2015.01.16 13:57 I attest to the accuracy and authenticity of this document chandigarh ITA No. 770 of 2010 -2- 6) ITA No. 776 of 2010 (O&M) Commissioner of Income Tax (Central), Ludhiana. ..... Appellant Versus Smt. Bimla Rani .... Respondent 7) ITA No. 837 of 2010 (O&M) Commissioner of Income Tax (Central), Ludhiana. ..... Appellant Versus Smt. Bimla Rani .... Respondent CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE B.S. WALIA Present: Sh. Rajesh Sethi, Advocate for the appellant. ..... B.S. WALIA, J. Vide this judgment we propose to dispose of ITA Nos. 770 to 774, 776 and 837 of 2010 filed by the revenue under Section 260A of the Income Tax Act, 1961 (hereinafter to be referred as the 'Act'), as all these appeals have been filed against order dated 29.05.2009 passed by the Income Tax Appellate Tribunal, Chandigarh, Bench (A), Chandigarh (hereinafter to be referred to as the “ITAT”), in ITA Nos. 284 to 290/Chd/2009 for the assessment years 1999-2000 to 2005-06. The following substantial questions of law have been framed in all the appeals :- BANITA CHUGH 2015.01.16 13:57 I attest to the accuracy and authenticity of this document chandigarh ITA No. 770 of 2010 -3- (i)“Whether, on the facts and in the circumstances of the case, and in law, the Hon'ble ITAT was justified in holding that the assessee fulfills the provisions of Section 80 IB (2) (iv) of the Act, 1961, where the basic condition for deduction is that the industrial undertaking employs ten or more workers in a manufacturing process whereas it has actually employed only 8 workers as certified in form No. 10 CCB filed alongwith audit report?” (ii)“Without prejudice to the ground No. 1 above, whether on the facts and the circumstances of the case and in law, the ITAT was right in holding that the respondent fulfills the conditions of necessary employment of ten workers for claiming deduction u/s 80 IB without appreciating that out of the ten workers, two persons working as manager and supervisor are also working partners in the two sister concerns of the respondent and actively engaged in the affairs of those firms and in lieu of that getting salary there from?” In ITA No. 770 of 2010, the following substantial question of law has been framed in addition to the aforementioned substantial questions of law :- (iii) Whether on the facts and in the circumstances of the case, the memoranda books could be considered as regular books of accounts explaining the discrepancy of cash found in the premises during search?” BANITA CHUGH 2015.01.16 13:57 I attest to the accuracy and authenticity of this document chandigarh ITA No. 770 of 2010 -4- Brief facts of the case as per narrative in the appeal are that the respondent-assessee is an individual engaged in the business of manufacturing of polythene bags and tubes (packing material). A search and seizure operation was carried out in the case of the respondent during the financial year 2004-05 on 03.09.2004 leading to service of notice on the respondent under Section 153A of the Act requiring her to file return of income within one month of the service of the notice. The respondent filed return on 04.05.2006 declaring income of Rs.19,62,604/-. After issuing notices under Section 143(2) and 142(1) the case was taken up for scrutiny. During the course of search at the respondent's residence, cash amounting to Rs.20,73,470/- was found from different rooms of the family members. However, from Smt. Bimla Rani's room alone, i.e. the respondent, cash of Rs.17,74,765/- was found. During the course of assessment proceedings, the respondent could not explain cash to the tune of Rs.6,55,270/-, therefore, the Assessing Officer made an addition of Rs.6,55,270/- under Section 69A on account of unexplained cash found during the search operation. During the course of assessment proceedings, it was also noticed that the respondent had claimed deduction under Section 80 IB of the Act and that as per the provisions of Section 80 IB (2) (iv) of the Act, one of the basic conditions for entitlement of deduction under Section 80 IB was that the industrial undertaking employs ten or more workers in a manufacturing process carried on with the aid of power. Section 80 IB (2) (iv) is reproduced BANITA CHUGH 2015.01.16 13:57 I attest to the accuracy and authenticity of this document chandigarh ITA No. 770 of 2010 -5- as under :- “ In a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power” In order to justify the claim under Section 80 IB, the respondent furnished list of 8 workers involved in the manufacturing process besides two other employees, one working as Supervisor and the other as Manager. However, as per certificate in Form No. 10 - CCB furnished alongwith audit report, the respondent was employing only eight workers in the manufacturing process in the assessment years 2004-05 and 2005-06. However, on further investigation, the Assessing Officer found that the two persons stated to be working as Supervisor and Manager i.e. Shri Surinder Mittal - Supervisor and Shri Narinder Mohan Mittal-Manager, were none else than the sons of the respondent and further that the aforesaid two persons were also working partners in (i) M/s Euro Containers and (ii) M/s Plastic Sales India i.e. sister concerns of the concerns owned and run by the respondent and were also drawing salary in the aforementioned capacity from the aforementioned concerns. On the basis of the above, it was observed that only eight workers had been employed in the manufacturing process and the insertion of two other names i.e. Supervisor and Manager in the list of workers was an after thought to justify the claim for deduction under Section 80 IB. Consequently, while passing order under Section 153A read with BANITA CHUGH 2015.01.16 13:57 I attest to the accuracy and authenticity of this document chandigarh ITA No. 770 of 2010 -6- Section 143 (3) on 27.12.2006, the Assessing Officer did not allow the respondent the deduction claimed under Section 80 IB. Being aggrieved with the order of the Assessing Officer, the respondent-assessee filed appeals before the CIT (A), who vide order dated 29.1.2009 allowed the same with respect to the matters in issue. Dissatisfied with the orders of the CIT (A), the revenue preferred appeals before “the ITAT” qua the issue of admissibility of claim under Section 80 IB as also qua deletion of disallowance of Rs.6,55,270/- under Section 69A. The ITAT upheld the order of the CIT (A) and dismissed the appeal of the revenue. Grievance of the revenue as advanced by the learned counsel for the revenue qua substantial question of law Nos. 1 & 2 is that as per Section 80-IB (2) (iv) of the Act, one of the basic conditions for claiming the deduction is that the industrial undertaking employs ten or more workers in the manufacturing process and that the same does not include the Manager or Supervisor, thereby clearly indicating the over all intention to claim deduction under section 80 IB of the Act and that the said two employees i.e. Supervisor and Manager, apart from not being directly involved with the manufacturing process, were also active working partners in sister concerns viz. M/s Euro Containers and M/s Plastic Sales India, devoting their time and full energies therein and getting salary in lieu of the same from the sister concerns. Therefore, they could not be stated to be actively involved in the manufacturing process and thus could not be covered under the BANITA CHUGH 2015.01.16 13:57 I attest to the accuracy and authenticity of this document chandigarh ITA No. 770 of 2010 -7- term “workers” as given under Section 80 IB (2) (iv) of the Act, that reliance placed on the orders of the jurisdictional High Court in the case of CIT vs. M/s Ansysco (ITA 344-2004) (2006) (P&H), was not applicable in the facts of the case and was distinguishable since in Ansysco's case (Supra), the debate was with regard to workers involved in packing and despatch being not actively involved in manufacturing, whereas in the instant case the alleged employees managing and supervising the overall activity of the manufacturing undertaking of the respondent were simultaneously working partners in the sister concerns namely, M/s Euro Containers and M/s Plastic Sales India and were getting salary from them as working partners ; that as per explanation 4 to Section 40 of the Act titled Amount not deductible, 'working partners' means an individual who is actively engaged in conducting the affairs of business or profession of the firm of which he is a partner ; that in the instant case, the said firms were M/s Euro Containers and M/s Plastic Sales India, i.e. sister concerns of the respondent in which Surinder Mittal and Ravinder Mittal, allegedly working as Supervisor and Manager, respectively, in the respondent's concern, were working partners and thus actively engaged in their business activities and apparently not in the manufacturing activities of the respondent's concern. Therefore, contention of the respondent that the said two persons were working in the respondent's concern was only a ploy to claim the deduction under Section 80 IB, which was not legally admissible. Qua additional substantial question i.e. No. 3 framed in ITA BANITA CHUGH 2015.01.16 13:57 I attest to the accuracy and authenticity of this document chandigarh ITA No. 770 of 2010 -8- No. 770/2010 with regard to deletion of disallowance of Rs.6,55,270/- under Section 69A in addition to the other two substantial questions of law framed in the other ITA's, revenues plea is that the memoranda of accounts, not being books of account written in regular course of business are not admissible as evidence and therefore could not be relied upon. Further, availability of cash of Rs.25,000/- with each member of the family was accepted taking a fair view and taking into consideration status of the family, but this acceptance did not amount to acceptance of memoranda books as regular books of accounts. We have heard learned counsel for the appellant, perused the orders passed by the Assessing Officer, CIT (A), as well as the impugned order but are not inclined to interfere with the orders passed by the ITAT, Chandigarh. The main argument of the revenue that two persons, namely, Surinder Mittal-Supervisor and Narinder Mohan Mittal-Works Manager, could not be counted as workers in addition to other eight workers, although is attractive but we are not inclined to accept the aforesaid plea on behalf of the revenue, since various processes starting from purchase of raw material and till the sale of finished goods, form an integral part of the manufacturing process. Therefore, the words “employs ten or more workers in a manufacturing process” normally would cover the entire process carried on by the industrial undertaking for converting the raw material into finished goods. For the aforesaid proposition, reference can be made to CIT vs. Sultan BANITA CHUGH 2015.01.16 13:57 I attest to the accuracy and authenticity of this document chandigarh ITA No. 770 of 2010 -9- and Sons Rice Mill ( 272 ITR 181) (All), CIT vs. Hanuman Rice Mills ( 275 ITR 79) ( All) and CIT vs. Ajmani Industries (153 Taxman 43) (All). We are of the considered opinion that the view of the ITAT that normally owner could not be counted as a worker but in the instant case, the dispute revolved around works manager and supervisor, therefore substantial compliance about the number of workers would satisfy the requirement under the Act and the position during abnormal situations could not be counted is absolutely justified. Likewise reliance by the ITAT on the decision of the jurisdictional High Court in M/s Ansysco's case (Supra), is also well placed. In M/s Ansysco's case (Supra), the issue was whether the Tribunal was justified in upholding the order of the first Appellate Authority in allowing deduction under Section 80 IA of the Act on the ground that manufacturing process includes packing, stitching, mounting and dispatch of finished goods, therefore, workers employed in allied activities were to be treated as those employed in manufacturing process. However, in the instant case, admittedly, a Works Manager is like a highly technical qualified worker having managerial responsibility, likewise, a Supervisor is also like a highly skilled supervisory worker. Therefore, both these persons cannot be taken out from the categories of workers. It is well known that 'manufacturing process' includes all activities in relation to manufacture, therefore, the same encompasses the entire process of converting raw material into finished goods to make it commercially expedient and even handling and transfer of raw material is integrally BANITA CHUGH 2015.01.16 13:57 I attest to the accuracy and authenticity of this document chandigarh ITA No. 770 of 2010 -10- connected with the process of manufacture. In the aforementioned background, we see no reason to disagree with the finding recorded by the ITAT upholding the findings of the CIT (A) qua deduction under Section 80 IB. We also take note of the fact that for the assessment year 2002-03, on identical facts, the claim of the assessee was allowed, that too in an order under Section 143(3). In the circumstances, it is not open to the department to take up inconsistent stand until and unless contrary facts are brought on the record. Reference in this context is made to the decision in CIT vs. Kelvinator of India Ltd. (256 ITR 1) (Delhi), wherein the Delhi High Court held that mere change of opinion cannot form the basis of reopening a completed assessment. Consequently, for the sake of consistency, the department is not permitted to change its stand unless and until some fact contrary to the facts earlier taken into account are brought on record. However no contrary facts have been pointed out by the revenue. Reference in this context is made to the decision in CWT Vs. Allied Finance Pvt. Ltd. (289 ITR 318) (Del), Burger Paints India Ltd. vs. CIT (266 ITR 99) (SC), DCIT vs. United Vanaspati Ltd. [275 ITR (AT) 124 (Chd.)] and Union of India and others vs. Kaumudni Narayan Dalal and others (249 ITR 219) (SC). In view of the above, we do not find any infirmity with the order of the ITAT, therefore, answer substantial question of law Nos. 1 & 2 against the revenue and in favour of the respondent BANITA CHUGH 2015.01.16 13:57 I attest to the accuracy and authenticity of this document chandigarh ITA No. 770 of 2010 -11- assessee. Qua plea of the revenue regarding the deletion of addition of Rs.6,55,270/- the ITAT in its order noted that as on 02.09.2004 the availability of cash with the firms and various members as per details given in the assessment order were as under :- Name of the person Amount (in Rs.) Narinder Mohan Mittal 40,875/- Surinder Mohan Mittal 52,500/- Jatinder Mohan Mittal 70,680/- O.P. Mittal 2,40,000/- Bimla Rani Mittal 11,09,289/- Saroj Mittal 1,74,025/- Meenakshi Mittal 1,11,600/- Narinder Mohan (HUF) 41,119/- Surinder Mohan (HUF) 37,440/- Jatinder mohan (HUF) 42,176/- Sadhna Mittal 45,000/- Cash balance of children who are separately assessed 1,50,000/- Sub-Total 21,14,686/- Euro Containers Rs.40,000/- out of total of Rs.58,527/- Plastic Sales (India) Rs.30,000/- out of total of Rs.36,826/- Print Plast Rs.35,000/- out of total of Rs.35,681/- Industrial Plastic Rs.30,000/- out of total of Rs.43,058/- Packers __________ Total Rs.1,35,000/- Cash of family members Rs.21,14,686/- Saroj Mittal Rs. 1,35,000/- Grand Total Rs.22,49,686/- On analysis of the aforementioned details, the ITAT observed that even as per facts mentioned in the assessment order the assessee withdrew Rs. 5 lacs from her proprietary concern M/s Indian Plastic BANITA CHUGH 2015.01.16 13:57 I attest to the accuracy and authenticity of this document chandigarh ITA No. 770 of 2010 -12- Packers on different dates which amount was claimed to be spent on marriage. The amount of Rs. 1,35,000/- was the cash as per regular books of account of manufacturing unit and the same was stated to be explained. Cash of Rs.21,14,686/- was claimed to be explained on the basis of accounts, however, the Assessing Officer was of the view that the same was an after thought as the regular books of account were not maintained during the regular course of business. The ITAT took into account that even the Assessing Officer had noted that keeping in view the status of the family every person including HUF and ladies were having cash of Rs.25,000/- each, children's money to the extent of Rs.50,000/- lying with the grandmother i.e. assessee was also treated as explained. Likewise shaguns from 320 persons amounting to Rs.4,58,200/- was also explained as list of the persons was furnished by the assessee. On the basis of the same, total cash of Rs.14,18,200/- including Rs.6,35,000/- withdrawn from books was considered to be explained. However, remaining cash of Rs.6,55,270/- was treated as un-explained under Section 69 of the Act. The ITAT also took into account the explanation given by the respondent-assessee before the CIT (A) regarding cash amount of Rs.6,55,270/- treated as un-explained under Section 69 of the Act as also the conclusion of the CIT (A) that the explanation given by the respondent-assessee had not been accepted by the Assessing Officer primarily on the ground that memoranda books of the family members of the assessee as per which the cash availability was BANITA CHUGH 2015.01.16 13:57 I attest to the accuracy and authenticity of this document chandigarh ITA No. 770 of 2010 -13- explained could not be admitted as evidence and the evidence as above was unreliable and self serving but that the said stand of the Assessing Officer was held to be not justified by the CIT (A), besides the Assessing Officer had not brought out the sources of cash explained in the said memoranda books were not acceptable or if the assessee's family was found to have spent / invested some amount over and above the amount mentioned in the memoranda books, that the evidence in the shape of memoranda books might not be admissible as evidence as per the Evidence Act as brought in the assessment order by the Assessing Officer, however, the evidence for the purpose of issue in hand could not be dismissed straightway on that ground alone, the said evidence might not be relevant in a civil case, but in a field like income tax, such evidence was very much relevant, as without proving that entries recorded in the so called memoranda books were not correct, the same could not be construed against the assessee and since the Assessing Officer had not pointed any defect or discrepancies in the books, therefore the inference drawn by him was not sustainable, that although the Assessing Officer had considered availability of cash of Rs.25,000/- for each member of the family to be reasonable and said position had been accepted with reference to the entries made in the memoranda books, therefore there was, in the circumstances, no justification in partly accepting the entries made in the memoranda books and rejecting the same partly. On the aforementioned conclusions of the CIT (A), the ITAT BANITA CHUGH 2015.01.16 13:57 I attest to the accuracy and authenticity of this document chandigarh ITA No. 770 of 2010 -14- upheld the order of the CIT (A) that the addition of Rs.6,55,270/- made by the Assessing Officer was not justified and therefore, the same accordingly stood deleted. The ITAT while upholding the order of CIT (A) observed that it was very clear that the Assessing Officer had not pointed out any defect or discrepancies in the books and that even the availability of cash of Rs.25,000/- with each member of the family was also considered to be reasonable, therefore, in the circumstances, there was no justification in partly accepting the entries made in the memoranda books and partly rejecting the same. According, the finding of CIT (A) in respect of deletion of addition of Rs.6,55,270/- was upheld by the ITAT by dismissing the appeal of the revenue. In view of the above we see no reason to disagree with the finding recorded by the ITAT qua all the three substantial questions of law. Accordingly, all the substantial questions of law are answered against the revenue and in favour of the respondent assessee. Resultantly, all the appeals filed by the revenue are dismissed, while leaving the parties to bear their own costs. 10.12.2014 ( RAJIVE BHALLA ) ( B.S. WALIA ) chugh JUDGE JUDGE BANITA CHUGH 2015.01.16 13:57 I attest to the accuracy and authenticity of this document chandigarh "