Rajiv Bhatnagar, Noida V. DCIT, New Delhi

ITA 1026/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66065 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 10-05-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 24-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R R KUMAR
• Assessee Lawyers: V K JAIN
• Keywords: Question of law; Reason to believe
• Section: 142(1); 80IB; 148; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH `F : NEW DELHI) BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI A.N. PAHUJA, ACCOUNTANT MEMBER ITA NO.1026/DEL./2011 (ASSESSMENT YEAR : 2002-03) RAJIV BHATNAGAR, VS. DCIT, CIRCLE 6(1), B-51 & 52, SECTOR 59, NEW DELHI. NIODA(UP) (PAN/GIR NO.AAFPB3162R) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI V.K. JAIN, C.A. REVENUE BY : SHRI B.R.R. KUMAR, SR.DR ORDER PER U.B.S. BEDI, J.M. THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY CIT(A)-IX, NEW DELHI, DATED 20.10.2010, RELEVANT TO ASSESSME NT YEAR 2002-03, WHEREIN ASSESSEE BESIDES CHALLENGING REOPENING OF THE ASSESSMENT, HA S ALSO CHALLENGED DISALLOWANCE OF DEDUCTION OF RS.57,25,080 U/S 80I OF THE I.T. ACT, 1961, IN RESPECT OF PROFITS EARNED BY THE INDUSTRIAL UNIT M/S M.J. PACKAGING, BEING PROPRIE TORSHIP CONCERN OF THE ASSESSEE. 2. AT THE VERY OUTSET, LD.COUNSEL FOR THE ASSESS EE DID NOT PRESS FIRST GROUND IN RELATION TO RE-ASSESSMENT PROCEEDINGS AND BY MAKING ENDORSEMENT AGAINST THIS GROUND IN MEMORANDUM OF APPEAL TO THE EFFECT THAT THE GROUND IS NOT PRESSED, IT WAS PLEADED FOR DISMISSAL OF THIS GROUND. SINCE, THIS GROUND HAS NOT BEEN PRESSED, SO SAME IS DISMISSED AS NOT PRESSED. I.T.A. NO.1026/DEL./2011 (A.Y. : 2002-03) 2 3. SO FAR AS NEXT SURVIVING GROUND IS CONCERNED, SA ME RELATES TO CONFIRMATION OF DISALLOWANCE OF DEDUCTION U/S 80IB OF THE ACT TO TH E EXTENT OF RS.57,25,080/- IN RESPECT OF PROFIT EARNED BY INDUSTRIAL UNIT, M/S M.J. PACKA GING, BEING A PROPRIETORSHIP CONCERN OF THE ASSESSEE. 4. THE ASSESSING OFFICER FROM THE PERUSAL OF THE RE CORD HAS NOTICED THAT THE ASSESSEE HAS REDUCED ITS INCOME BY RS.57,25,080/- IN THE STA TEMENT OF ASSESSABLE INCOME BY CLAIMING THE AMOUNT AS EXPENDITURE U/S 80I OF THE A CT. THERE IS NO PROVISION OF ALLOWING EXPENSES U/S 80I AGAINST INCOME OF THE ASSESSEE. F URTHER, IT WAS ALSO NOTICED THAT IN THE AUDIT REPORT IN FORM 3CD ENCLOSED WITH THE RETURN O F INCOME AT POINT NO.26 IT WAS MENTIONED THAT THE DEDUCTION ADMISSIBLE UNDER CHAPT ER VIA WAS NIL. MOREOVER, THE ASSESSEE DID NOT CLAIM ANY DEDUCTION U/S 80I IN ITS RETURN OF INCOME FILED IN FORM 2D FOR ASSESSMENT YEAR 2002-03 IN THE STATUS OF INDIVIDUAL . THEREFORE, THE ASSESSING OFFICER HAD REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMEN T TO THE EXTENT OF RS.57,25,080/-. A NOTICE U/S 148 WAS THEREFORE ISSUED TO THE ASSESSEE ON 11.05.2006 AND SUBSEQUENTLY NOTICE U/S 142(1) AND 143 WERE ISSUED TO THE ASSESSEE. 5. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U /S 147/143(3) VIDE ORDER DATED 28.12.2007 WHEREBY CLAIM OF DEDUCTION U/S 80I AMOUN TING TO RS.57,25,080/- WAS DISALLOWED. 6. THE ASSESSEE TOOK UP THE MATTER IN APPEAL AND FI LED FOLLOWING WRITTEN SUBMISSION WHICH WAS REPRODUCED BY CIT(A) IN PARA.6.2 OF HIS O RDER FROM PAGE 13 ONWARDS IS AS UNDER: I.T.A. NO.1026/DEL./2011 (A.Y. : 2002-03) 3 6.2 DURING THE COURSE OF THE APPELLATE PROCEEDING S, THE LD. AR MADE THE FOLLOWING WRITTEN SUBMISSIONS ON THIS ISSUE:- 'WE SUBMIT THAT THE LEARNED ASSESSING OFFICER HAS P RIMARILY DISALLOWED THE CLAIM MADE BY THE APPELLANT IN TERMS OF SECTION 80-1B OF THE ACT ON THE GROUND THAT A PART OF THE PRODUCTION PROCESS OF MANUFACTURING PRINTED CORRUGATED BOXES NAMELY THE PROCESS OF CORRUGATION OF KRAFT PAPER WHICH WERE CONVERTED INTO CORRUGATED ROLLS WAS DONE BY WA Y OF JOB WORK FROM A SISTER CONCERN I.E. M.J. ENTERPRISES LTD. WE FURTHE R SUBMIT THAT THE LEARNED ASSESSING OFFICER HAS ERRONEOUSLY CONCLUDED THAT TH IS WAS THE MAJOR PART OF THE PRODUCTION PROCESS OF MANUFACTURING CORRUGAT ED BOXES. WE, THEREFORE, SUBMIT THAT ONLY ONE PORTION OF THE MANUFACTURING PROCESS WAS GOT DONE BY WAY OF JOB WORK FROM M.J. ENTERPRIS ES LTD. UNDER THE APPELLANT'S CONTROL AND SUPERVISION AND THE OTHER M ANUFACTURING PROCESSES INVOLVED WERE UNDERTAKEN BY THE APPELLANT AT ITS RE NTED FACTORY PREMISES. SINCE THE APPELLANT'S FACTORY AT 59, HS/DC, BADDI, H.P. WAS UNDER CONSTRUCTION. WE FURTHER SUBMIT THAT THE JOB WORK OF CORRUGATION OF KRAFT PAPER WAS GIVEN TO M/S. M.J. ENTERPRISES LTD. SINCE THEY HAD THE MACHINES & SURPLUS CAPACITY. THERE IS NO INCONSISTENCY IN THE APPELLAN TS STAND. IT DID NOT HAVE THE MACHINERIES TO CORRUGATE, THEREFORE OUTSOURCED IT, AS THE OTHER PARTY HAD SPARE CAPACITY. THE EXPENSES ON JOB WORK CONSTITUTE 90% OF TOTAL EX PENSES SINCE THE RAW MATERIAL I. E. KRAFT PAPER WAS SUPPLIED BY THE CUST OMERS AND OTHER EXPENSES LIKE SALARY & WAGES RS.54,450/-, LABOUR CHARGES RS. 14,316/-, HIRING OF MACHINES RS.27,000/- AND TECHNICAL SERVICE CHARGES (MACHINE OPERATORS) RS.1,10,000/- DID NOT REQUIRE MUCH EXPENDITURE AS C OMPARED TO CORRUGATION CHARGES. HOWEVER THE PERCENTAGE OF EXPE NSES TO TOTAL EXPENSES IS NOT RELEVANT IN DETERMINING AS TO WHETHER THE AP PELLANT HAS UNDERTAKEN ANY MANUFACTURING OR NOT AND IT IS NOT UNUSUAL TO H AVE A PART OF THE MANUFACTURING PROCESS DONE THROUGH JOB WORK. IN FAC T IT HAS BEEN JUDICIALLY HELD THAT THE ENTIRE MANUFACTURING PROCE SS MAY BE OUTSOURCED BUT AS LONG IT IS UNDER THE ASSESSEE'S SUPERVISION AND CONTROL DEDUCTION U/S 80LB IS ALLOWABLE. AS REGARDS THE LEARNED ASSESSING OFFICER IS OBJECTI ON THAT THE APPELLANT AND M.J. ENTERPRISES LTD. ARE CLAIMING 80-1B DEDUCT ION FOR THE SAME AMOUNT IS FACTUALLY INCORRECT SINCE THE AMOUNT PAID TO M.J. ENTERPRISES LTD. HAS BEEN CLAIMED AS EXPENSES BY THE APPELLANT WHICH HAS REDUCED THE INCOME AND CONSEQUENTLY THE CLAIM U/S 801B. IT IS EASY TO UNDERSTAND THAT INCOME OF ONE UNIT IS AN EXPENSE OF THE OTHER. THE SAME AMOUNT CANNOT BE INCOME FOR BOTH.' I.T.A. NO.1026/DEL./2011 (A.Y. : 2002-03) 4 7. LD.CIT(A) OBSERVED AS PER PARA.6.3 AS UNDER: I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE B Y THE APPELLANT AND THE FINDINGS RECORDED BY THE LD. AO AS PER THE ASSE SSMENT ORDER AND NOTED THAT ONE OF THE CONDITIONS FOR ALLOWANCE OF DEDUCTI ON ULS 80I IS THAT AN ASSESSEE MUST EMPLOY 10 OR MORE WORKERS IN A MANUFA CTURING PROCESS CARRIED ON WITH THE AID OF POWER, OR EMPLOY 20 OR M ORE WORKERS IN A MANUFACTURING PROCESS CARRIED ON WITHOUT THE AID OF POWER. IT IS AN ADMITTED FACT THAT THE APPELLANT HAD EMPLOYED ONLY 4 WORKERS. IT HAS BEEN ARGUED BY THE LD. AR THAT THE APPELLANT HAD HIRED 8 WORKERS FROM M/S M.J. GLOBAL LTD., A SISTER CONCERN, AND THUS IN EFF ECT IT HAD EMPLOYED A TOTAL OF 12 WORKERS. IT HAS BEEN ADDITIONALLY ARGUE D BY THE LD. AR THAT THE WORKERS OF THE COMPANY TO WHICH THE WORK WAS OUT SO URCED SHOULD ALSO BE COUNTED IN THE AGGREGATE NUMBER OF EMPLOYEES. THE L D. AR MADE THE FOLLOWING WRITTEN SUBMISSION IN THIS REGARD:- 'FURTHER THE LEARNED ASSESSING OFFICER VIDE PARA 4 ON PAGE 10 OF THE ORDER HAS TRIED TO PROVE THAT THE LABOUR WAGES PAID BY TH E APPELLANT WERE NOT GENUINE AND SUFFICIENT NUMBER OF LABOUR WERE NOT EM PLOYED. WE SUBMIT THAT THE LEARNED ASSESSING OFFICER HAS NO T COMPREHENDED THE FACTS IN A CORRECT MANNER. WE SUBMIT THAT DURING TH E ASSESSMENT PROCEEDINGS THE APPELLANT EXPLAINED THAT DURING THE RELEVANT PREVIOUS YEAR IT HAS EMPLOYED A TOTAL OF 12 WORKERS (4 WORKERS EM PLOYED BY APPELLANT + 8 WORKERS HIRED FROM M.J. GLOBAL LIMITED) ADDITIONALLY THE WORKERS OF THE COMPANY TO WHICH WO RK WAS OUTSOURCED AS EXPLAINED ABOVE SHOULD ALSO BE COUNTED IN THE AG GREGATE NUMBER OF EMPLOYEES. WE SUBMIT THAT AGGREGATE PAYMENTS MADE TO WORKERS D URING THE RELEVANT PREVIOUS YEAR AMOUNTED TO RS. 1,78,766/- (54,450 + 1,10,000 + 14,316) FOR TOTAL OF 12 WORKERS. WE FURTHER SUBMIT THAT WORKERS FROM M.J. GLOBAL LTD . WERE HIRED BY THE APPELLANT IN THE ABSENCE OF TRAINED WORKERS AT BADD I, HIMACHAL PRADESH AND SINCE M.J. GLOBAL LTD. WAS ALSO IN THE SAME LIN E OF BUSINESS THE SURPLUS WORKERS WERE HIRED FROM THEM. WE FURTHER SU BMIT THAT THE SAID HIRED WORKERS WERE FULLY UNDER THE CONTROL AND SUPE RVISION OF THE APPELLANT AND THEREFORE HAVE TO BE CONSIDERED FOR THE PURPOSE OF DETERMINING THE TOTAL AMOUNT OF WORKERS EMPLOYED BY THE APPELLANT D URING THE RELEVANT PREVIOUS YEAR SO AS TO COMPLY WITH THE BASIC REQUIR EMENT FOR CLAIM OF DEDUCTION U/S 801B. I.T.A. NO.1026/DEL./2011 (A.Y. : 2002-03) 5 WE, THEREFORE, SUBMIT THAT THE LEARNED A.0. HAS ERR ED IN HOLDING THAT THE APPELLANT HAS ONLY FIVE WORKERS. SINCE THE APPELLAN T HAS 12 WORKERS THE CONDITION OF AT LEAST HAVING 10 WORKERS WITH THE AI D TO POWER AS PER SECTION 80 IB HAS BEEN COMPLIED WITH. WE FURTHER SUBMIT THAT IT IS ABSOLUTELY INCORRECT P RESUMPTION OF THE A. O. THAT 35 WORKERS ARE REQUIRED FOR 16 HOURS 6 DAYS A WEEK TO DO JOB WORK OF RS.1,02,20,815/-. THE APPELLANT HAS BEEN IN THE BUS INESS SINCE 20 YEARS AND FROM THEIR EXPERIENCE ONLY 12 WORKERS ARE REQUI RED FOR 8 HOURS A DAY. 6 DAYS A WEEK TO EXECUTE THE JOB WORK OF RS.1,02,20 ,815/-. IN ANY CASE THE WORKERS USED IN THE COURSE OF OUTSO URCING FROM ANOTHER CONCERN CAN ALSO BE CONSIDERED AS EMPLOYED BY THE A SSESSEE. WE, THEREFORE, SUBMIT THAT THE LEARNED A. O. HAS ME RELY ON SURMISES AND CONJECTURES DETERMINED THE QUANTITATIVE LABOUR REQU IREMENT FOR THE APPELLANT FOR THE PURPOSES OF ACHIEVING A TURNOVER OF RE. 1 CRORE PLUS IN ITS BUSINESS OF MANUFACTURE OF CORRUGATED BOXES. ' 7.1 CIT(A) WHILE CONSIDERING, BUT NOT ACCEPTING THE PLEA OF THE ASSESSEE HAS CONCLUDED TO FIRST ADJUDICATE UPON THE ISSUE OF ALL OWABLITY OF DEDUCTION U/S 80I AFTER DISCUSSING LEGISLATIVE INTENT AS PROVIDED IN THE ST ATUTE HAS CONCLUDED TO REJECT THE APPEAL OF THE ASSESSEE FROM PARA.6.4 TO 6.10 BY DISCUSSING AND FOLLOWING DECISIONS: 1. IN THE CASE OF COMMISSIONER OF INCOME-TAX V. A. R. BALARAMAN (DEED.) (242 ITR 470) 2. IN THE CASE OF COMMISSIONER OF WEALTH-TAX V. VEN KATACHALAM PILLAI (5.) (215 ITR 406) 3. IN THE CASE OF HONBLE MADRAS HIGH COURT DECISIO N IN CWT VS. RAMALINGAM (V.O.) (216 ITR 566) 4. IN THE CASE OF LIBERTY GROUP MARKETING DIVISION VS. ACIT, THE HON'BLE ITAT, DELHI (61 TTJ 566) 7.2 TO CONCLUDE AT PARA 6.11 AS UNDER: I.T.A. NO.1026/DEL./2011 (A.Y. : 2002-03) 6 6.11 IN THE YEAR UNDER CONSIDERATION, 90% OF THE T OTAL JOB WORK EXPENSES INCURRED BY THE APPELLANT WERE ON OUTSOURC ING TO M.J. ENTERPRISES LTD. THIS CLEARLY SHOWS THAT THE MANUFA CTURING DONE BY THE APPELLANT ON ITS OWN IS ALMOST NEGLIGIBLE. ONE OF THE CONDITIONS PRESCRIBED FOR CLAIMING DEDUCTION U/S 801 IS THAT M ANUFACTURING SHOULD BE DONE BY THE ASSESSEE HIMSELF WHICH IS NOT THE CASE HERE. IF THE BENEFIT OF SECTION 801 WAS TO BE GIVEN ON OU TSOURCING THEN EVERY TRADER WITH 90% OUTSOURCING WILL MAKE A CLAI M FOR MANUFACTURING AND MISUSE THE BENEFIT GIVEN U/S 801. FURTHER THE NUMBER OF WORKERS EMPLOYED ARE ALSO LESS THAN 10, W HICH IS AGAIN NOT IN COMPLIANCE WITH THE CONDITION AS PRESCRIBED FOR CLAIMING DEDUCTION U/S 801. IN VIEW OF THE AFORESAID DISCUSS ION, I HOLD THAT THE APPELLANT IS NOT ENTITLED TO CLAIM OF DEDUCTION U/S 80-I AND, THEREFORE, THE ACTION OF THE LD.ASSESSING OFFICER I S SUSTAINED AND THE GROUND NO.4 IS REJECTED. 8. STILL AGGRIEVED, THE ASSESSEE HAS COME UP IN FUR THER APPEAL AND WHILE REITERATING THE SUBMISSIONS AS MADE BEFORE LOWER AUTHORITIES, I T WAS PLEADED FOR DELETION OF THE IMPUGNED ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRMED BY CIT(A) IN RESPECT OF DEDUCTION U/S 80I OF THE ACT. VARIOUS DOCUMENTS IN CLUDING EXPLANATION GIVEN BEFORE THE ASSESSING OFFICER, WRITTEN SUBMISSIONS FILED BEFORE CIT(A) AND OTHER RELATED PAPERS SUCH AS CORRUGATED FLOW CHART, PROCESS INVOLVED IN MANUF ACTURING AND DETAILS OF JOB WORK GOT DONE FORM M/S M.J. ENTERPRISES LTD., COPY OF PAYMEN T OF WAGE REGISTER, BALANCE SHEET, REPORT OF AUDITOR U/S 80-I OF THE ACT IN FORM 10CCB , CERTIFICATE FROM K.B. SOOD & ASSOCIATES, CA, COPY OF CERTIFICATE FORM D.S. REKHI & ASSOCIATES, CA, DETAILS OF SALARY AND LABOUR CHARGES, WAGES REGISTER AND M/S M.J. PAC KAGING, DETAILS OF JOB WORK DONE, COPY OF NUMBER OF SUBMISSIONS BEFORE CIT(A) WITH RE SPECT TO THE ISSUE AND PLEADED FOR ALLOWING APPEAL BY GRANTING RELIEF. COPIES OF VARI OUS ITAT DECISIONS WERE ALSO FILED TO SUPPORT THE PLEA FOR ALLOWING DEDUCTION U/S 80I, A S ASSESSEE FULFILLS ALL THE RELEVANT CONDITIONS AND QUALIFIED FOR SUCH ENTITLEMENT WHI CH MAY BE ALLOWED. 9. LD.DR, ON THE OTHER HAND, RELIED UPON THE ORDERS OF AUTHORITIES BELOW AND I.T.A. NO.1026/DEL./2011 (A.Y. : 2002-03) 7 SUBMITTED THAT SINCE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THAT ANY MANUFACTURING PROCESS IS INVOLVED IN VIEW OF FACTS AND CIRCUMSTAN CES OF THE CASE AND MANPOWER REQUIRED WAS ALSO NOT ESTABLISHED, THEREFORE, ASSESSEE WAS W AS NOT ENTITLED TO DEDUCTION U/S 80IA OF THE ACT WHICH HAS RIGHTLY BEEN REFUSED BY THE AS SESSING OFFICER WHOSE ACTION HAS JUSTIFIABLY BEEN CONFIRMED BY THE CIT(A). IT WAS T HUS PLEADED FOR CONFIRMATION OF THE IMPUGNED ORDER. 10. WE HAVE HEARD BOTH THE SIDES, CONSIDERED THE MA TERIAL ON RECORD AS WELL AS PRECEDENTS RELIED UPON LD.CIT(A) AND BY RIVAL SIDE S, IT IS SEEN THAT BEFORE ASSESSING OFFICER ASSESSEE HAS FURNISHED HIS EXPLANATION WITH REGARD TO DEDUCTION U/S 80I AS UNDER: PAYMENT OF JOB WORK CHARGES TO SISTER CONCERN : TH E COMPANY HAS PAID A SUM OF RS.39,36,030/- TO M/S M.J. ENTERPRISES LIMITED FOR GETTING THOSE JOBS DONE FOR WHICH IT HAD NOT INSTALLED MACHINES ITSELF AS THEY WERE ALREADY AVAILABLE WITH A COMPANY IN THE IMMEDIATE VICINITY AND HAVING SURPLU S CAPACITY. WE WOULD LIKE TO POINT OUT THAT ALL MANUFACTURING COMPANIES GET JOB WORK DONE FROM OTHER COMPANIES HAVING SURPLUS CAPACITIES IN ORDER TO SAV E ON BOTH CAPITAL AND REVENUE COSTS. HAVING JOB WORK DONE FOR PAYMENT OF THE MAN UFACTURING PROCESS DOES NOT AMOUNT TO OUTSOURCING OF THE MANUFACTURING PROCESS IN ENTIRETY. THE NATURE OF THE PRINCIPAL COMPANYS OPERATION STILL REMAINS AS MANUFACTURING. FURTHER, THERE IS NO PROHIBITION ON OUTSOURCING PART OF THE MANUFA CTURING PROCESS U/S 80IB. FURTHER, THE STATE GOVERNMENT HAS ALSO ISSUED PERMA NENT SSI CERTIFICATE AS WELL AS RM-II CONFIRMING THE STATUS OF THE INDUSTRY UNDER N OTIFICATION NO.IND./A(E)5- 1/98 DATED 3.3.1999. MOREOVER M.J. ENTERPRISES LIMI TED IS DULY REGISTERED UNDER EXCISE VIDE REGISTRATION NO.3/MJE/CJHAPTER 48/B-II/ 2001 AND IS ALSO EXEMPT U/S 80IB. ALL PROPER RECORDS FOR JOB WORK DONE ARE DUL Y MAINTAINED. FURTHER, WE WOULD LIKE TO CLARIFY THAT MANUFACTURE OF CORRUGATE D BOXES IS FULLY COVERED U/S 80IB. HOWEVER, PROCESS CARRIED OUT IS COVERED UNDER THE T ERM MANUFACTURING : MANUFACTURE OF CORRUGATED BOXES IS ON AN AVERAGE A NINE STAGE PROCESS WHICH INVOLVES CONVERSION OF PAPER REELS TO SHEETS THAN P RINTING, THAN CORRUGATION, PASTING, CREASING, DIE CUTTING/SLOTTING, THAN STITC HING IN TO THE REQUIRED FORM. A DETAILED MANUFACTURING FLOW CHART IS ENCLOSED FOR Y OUR READY REFERENCE. WE WOULD FURTHER LIKE TO POINT OUT THAT A MANUFACTURIN G PROCESS IS ONE WHICH RESULTS IN A CHANGE IN THE FORM/SHAPE OF THE MATERIAL AFTER COMPLETION OF THE MANUFACTURING PROCESS. THE AFORESTATED PROCESS AND FLOW CHART WOULD CLEARLY I.T.A. NO.1026/DEL./2011 (A.Y. : 2002-03) 8 ESTABLISH THAT A PAPER REEL IS CONVERTED INTO A BOX UNDER OUR MANUFACTURING PROCESS. FURTHER, MANUFACTURE OF CORRUGATED BOXES AND SHEETS IS RECOGNIZED BY THE OFFICE OF THE DEVELOPMENT COMMISSIONER (MSME) M INISTRY OF MICRO, SMALL AND MEDIUM ENTERPRISE GOVERNMENT OF INDIA, PAGE 7/1 0 OF SAID MANUAL LISTING THE INDUSTRY IS ENCLOSED FOR YOUR READY REFERENCE. WE WOULD LIKE TO PLACE ON RECORD THAT THE ASSESSEE HAS OUTSOURCED THE FIRST TWO PROC ESS I.E., CORRUGATION AND PASTING AND BALANCE OF THE PROCESS ARE DONE I HOUSE. HENCE , THE COMPANY FULLY QUALIFIES FOR EXEMPTION U/S 80IB. 11. BEFORE CIT(A), ASSESSEE SUBMITTED THAT ONLY ONE PORTION OF THE MANUFACTURING PROCESS WAS GOT DONE BY WAY OF JOB WORK FROM M/S M. J. ENTERPRISES LTD. UNDER THE ASSESSEES CONTROL AND SUPERVISION AND OTHER MANUFA CTURING PROCESS AS INVOLVED WERE UNDERTAKEN BY THE ASSESSEE AT ITS RENTED FACTORY PR EMISES AND IT WAS FURTHER SUBMITTED THAT JOB WORK IN CORRUGATION OF KRAFT PAPER WAS GIVEN T O M/S M.J. ENTERPRISES LTD. SINCE THEY HAD MACHINE AND SURPLUS CAPACITY, THERE IS NO ANY I NCONSISTENCY IN ASSESSEES STAND AS IT DID NOT HAVE MACHINERY TO CORRUGATE, THEREFORE, OUT SOURCING IT AS THE OTHER PARTY WHO HAD SPARE CAPACITY TO DO JOB WORK AND EXPENSES CONSTI TUTE 90% OF THE TOTAL EXPENSES, SINCE THE RAW MATERIAL ETC. I.E. KRAFT PAPER WAS SUPPLIED BY THE CUSTOMERS AND OTHER EXPENSES LIKE SALARY AND WAGES, LABOUR CHARGES, HIRING OF MA CHINE, TECHNICAL SERVICE CHARGES ETC. DID NOT REQUIRE MUCH EXPENDITURE, AS COMPARED TO CO RRUGATION CHARGES, AND SO FAR AS WORKERS INVOLVED ARE CONCERNED, PERMANENT WERE 4 AN D HIRED WORKERS WERE 8 BORROWED FROM SISTER CONCERN TAKEN ON PERMANENT BASIS. SO, THE REQUIREMENT OF EMPLOYING 10 WORKERS IS ALSO MET. 12. AFTER HAVING CONSIDERED THE FACTS, MATERIAL ON RECORD AND OTHER RELEVANT DETAILS, WE FIND THAT ALL THE CONDITIONS TO QUALIFY FOR DEDU CTION U/S 80IB OF THE ACT IS FOUND TO HAVE BEEN FULFILLED BY THE ASSESSEE, INASMUCH AS, F IRST CONDITIONS OF EMPLOYING 10 OR MORE LABOUR WHEN USE OF POWER IS NOT DISPUTED HAS BEEN F ULFILLED BECAUSE COURTS HAVE HELD THAT I.T.A. NO.1026/DEL./2011 (A.Y. : 2002-03) 9 CONTRACT LABOUR ALSO QUALIFIES FOR DEDUCTION AS ENV ISAGED UNDER RELEVANT PROVISIONS AND USEFUL REFERENCE CAN BE MADE BY THE DECISION OF HON BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. PRITHVIRAJ BHOORCHAND, 280 ITR 94, HEAD NOTES OF WHICH ARE AS UNDER: INDUSTRIAL UNDERTAKING SPECIAL DEDUCTION UNDER SEC TION 80I-CONDITION PRECEDENT EMPLOYMENT OF SPECIFIED NUMBER OF EMPLOYEESWORKERS ENGAGED ON CONTRACT LABOUR BASIS FINDING THAT ASSESSEE CONTROLLED THE WORK AND THE MANNER OF DOING IT WORKERS WERE EMPLOYEES FOR PURPOSES OF SECTION 80-I I.T. ACT, 1961, S.80-I. SIMILARLY, IT IS ALSO SETTLED POSITION OF LAW THAT OUTSOURCING OF SOME OF THE PROCESSES WILL NOT DISQUALIFY THE ASSESSEE FROM CLA IMING OR ALLOWING DEDUCTION IF END PRODUCT IS OTHERWISE ELIGIBLE FOR DEDUCTION. S O FAR AS DEDUCTION U/S 80IB OF MANUFACTURING OF CARD BOARD BOXES FROM KRAFT PAPER IS CONCERNED, IT IS SETTLED LAW THAT TRANSFORMING IN THE CORRUGATED SHEETS AFTER HA VING TRANSFORMED IN THE SHAPE OF A BOX AND THE BOX IS AGAIN IN A FLAT POSITION F OR EASY TRANSPORTATION WHEN FLAT POSITION PAPER CORRUGATED BOXES ARE THE FINAL PRODU CTS WHICH IS ELIGIBLE FOR DEDUCTION AND OUR THIS VIEW CAN BE FORTIFIED BY HON BLE MADRAS HIGH COURT DECISION IN THE CASE OF CIT VS. M/S ZAINAB TRADING PVT. LTD. IN TAX CASE APPEAL NOS.1204, 1205 & 1206 AND AMP 1207 OF 2010 DATED 7 TH FEBRUARY, 2011 IN WHICH IT HAS BEEN HELD AS UNDER: THE REVENUE HAS COME FORWARD WITH THESE APPEALS AN D SEEKS TO RAISE THE FOLLOWING QUESTION OF LAW AS SUBSTANTIAL QUESTION O F LAW: & QUOT;E : WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE APP ELLATE TRIBUNAL WAS RIGHT IN HOLDING THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 80IB OF THE ACT, TREATING THE PRODUCTION OF CORRUGATED BOXES FROM KRAFT SHEETS AS MANUFACTURE FOR THE PURPOSE OF SECTION 80IB OF THE ACT, IS VALID? 2. TO APPRECIATE THE STAND OF THE APPELLANT, IT IS NEC ESSARY TO REFER TO THE BRIEF FACTS OF THE CASE. THE RESPONDENT/ASSESSEE COMPANY CLAIMS THAT IT IS ENGAGED IN THE ACTIVITY OF MANUFACTURING OF PAPER CORRUGATED BOXES AND ON THAT BASIS CLAIMED I.T.A. NO.1026/DEL./2011 (A.Y. : 2002-03) 10 DEDUCTION UNDER SECTION 80IB OF THE INCOME-TAX ACT, ON THE PROFITS DERIVED IN ITS BUSINESS. ACCORDING TO THE RESPONDENT/ASSESSEE, IT PROCURES PAPER CORRUGATED SHEETS OF DIFFERENT SIZES, WHICH IS ITS RAW MATERIA L, PUT THEM INTO THE DESIGNED MACHINES FOR CHISELING THEM AT THE REQUIRED PLACES IN ORDER TO FOLD THOSE SHEETS AND PIN THEM AT THE FOLDED POINTS AND AFTER PINNING AT THE FOLDED POINTS AND AFTER THE SHEET GOT TRANSFORMED IN THE SHAPE OF A BOX, TH E BOX IS AGAIN KEPT IN A FLAT POSITION FOR EASY TRANSPORTATION. THAT FLAT POSITIO NED PAPER CORRUGATED BOXES ARE THE FINAL PRODUCTS OF THE RESPONDENT/ASSESSEE. 3. A CCORDING TO THE APPELLANT, SINCE THE CORRUGATED SHEET IN THE PROCESS OF BEING FOLDED INTO A BOX, IT HAS NOT LOST ITS ORIGINAL CHARACTERISTICS OF CORRUGATED SHEET, NO MA NUFACTURING ACTIVITY HAD TAKEN PLACE AND THEREFORE, THE INGREDIENTS OF SECTION 80I B OF THE ACT, ARE NOT ATTRACTED. 4. THE COMMISSIONER OF INCOME-TAX (APPEALS) HOWEVER DIFFERED FROM THE ASSESSING AUTHORITY AND TOOK THE VIEW THAT THE CORRUGATED SHE ETS ONCE ARE SHAPED INTO CORRUGATED BOXES, THAT WOULD AMOUNT TO A 'MANUFACTU RING ACTIVITY' AND THEREFORE, THE RESPONDENT/ASSESSEE WAS ENTITLED FOR DEDUCTION UNDER SECTION 80IB OF THE ACT. THE COMMISSIONER OF INCOME-TAX (APPEALS) THEREFORE DIRECTED THE ASSESSING OFFICER TO ASCERTAIN THE EXACT QUANTUM OF DEDUCTION AFTER MAKI NG PROPER VERIFICATION TO GRANT THE RELIEF. 5. THE TRIBUNAL ALSO TOOK THE SAME VIEW AND HELD TH AT THE CONVERSION OF CORRUGATED SHEETS INTO BOXES WOULD AMOUNT TO 'MANUFACTURE' HAV ING NOTED THE NATURE OF ACTIVITY OF THE RESPONDENT/ASSESSEE, WHICH DISCLOSE THAT THE PLAIN CORRUGATED SHEETS ARE PUT INTO THE DESIGNING MACHINE IN ORDER TO CHISEL THEM INTO DIFFERENT SHAPES AND PIN THEM AT THE FOLDED POINTS TO CONVERT THE PLAIN SHEETS INTO CORRUGATED BOXES. 6. WE ARE ALSO CONVINCED THAT SUCH AN ACTIVITY OF T RANSFORMING THE PLAIN CORRUGATED SHEETS INTO A DIFFERENT PRODUCT OF BOXES, THOUGH TO GAIN SPACE FOR TRANSPORTATION, SUCH BOXES ARE KEPT IN A FOLDED POSITION, ONE CANNO T SAY THAT THE BOXES CONTINUE TO RETAIN ITS ORIGINAL CHARACTERISTICS OF CORRUGATE D SHEETS. THEREFORE, THERE IS NO SCOPE TO TAKE A DIFFERENT VIEW THAN WHAT HAS BEEN S TATED BY THE COMMISSIONER OF INCOME-TAX (APPEALS), AS CONFIRMED BY THE TRIBUNAL. SUCH DETERMINATION CAME TO BE MADE BY BOTH THE AUTHORITIES BASED ON THE FACTS PLACED BEFORE THEM AND WITH REFERENCE TO WHICH, WE DO NOT FIND ANY SERIOUS LEGA L LACUNA, THERE IS NO SCOPE TO INTERFERE WITH THE SAME, INASMUCH AS THERE IS NO QU ESTION OF LAW, MUCH LESS SUBSTANTIAL QUESTION OF LAW INVOLVED. 14. SINCE ALL THE CONDITIONS LAID DOWN UNDER THE RE LEVANT PROVISIONS HAVE BEEN COMPLIED WITH, THEREFORE, WE ARE OF THE VIEW THAT T HE ACTION OF THE AUTHORITIES BELOW IN NOT ALLOWING THE CLAIM OF THE ASSESSEE U/S 801B IS UNWARRANTED AND UNCALLED FOR. AS SUCH, WHILE ACCEPTING THE APPEAL OF THE ASSESSEE , WE DIRECT TO GRANT DEDUCTION U/S 801B OF THE ACT AS CLAIMED BY THE ASSESSEE. I.T.A. NO.1026/DEL./2011 (A.Y. : 2002-03) 11 15. AS A RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN OPEN COURT ON 17.12.2012. SD/- SD/- (A.N. PAHUJA) ACCOUNTANT EMBER (U.B.S. BEDI) JUDICIAL MEMBER DATED : DEC. 17, 2012 SKB COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A)-IX, NEW DELHI. 5. CIT(ITAT) DEPUTY REGISTRAR, ITAT