ITO, BALOTRA V. M/s. P.T.M. Industries, BALOTRA

ITA 111/JODH/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7988 (ITAT-JODHPUR)
• Duration Of Justice: 1 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 29-11-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 18-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBHASH CHANDRA
• Keywords: Depreciation; Rule of consistency; Corroborative evidences
• Section: 143(3); 80IB; 263; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIL MEMBER AND SHRI N.K.SAINI, ACCOUNTANT MEMBER ITA NO.111/JU/2011 ASSESSMENT YEAR : 2005-06 THE ITO, VS M/S P.T.M. INDUSTRIES, WARD - BALTORA BALOTRA, PAN NO. AAHFP0588K & ITA NO.112/JU/2011 ASSESSMENT YEAR : 2007-08 THE ITO, VS M/S P.T.M. INDUSTRIES, WARD - BALTORA BALOTRA, PAN NO. AAHFP0588K & ITA NO.104/JU/2012 ASSESSMENT YEAR : 2008-09 THE ITO, VS M/S P.T.M. INDUSTRIES, WARD BALOTRA, BALOTRA PAN NO. AAHFP0588K (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUBHASH CHANDRA RESPONDENT BY : SHRI AMIT KOTHARI & S H ASHOK BANSAL DATE OF HEARING : 29.11.2012 DATE OF PRONOUNCEMENT : 20.12.2012 ORDER PER N.K.SAINI, A.M. THESE THREE APPEALS BY THE DEPARTMENT ARE DIRECTED AGAINST SEPARATE ORDERS DATED 17.1.2011, 18.1.2011 AND 28.12.2011 FO R THE ASSESSMENT YEARS 2005-06, 2007-08 & 2008-09 RESPECTIVELY. 2 2. IN THESE APPEALS, COMMON ISSUE IS INVOLVED AND T HE APPEALS WERE HEARD TOGETHER, SO THESE ARE BEING DISPOSED OF BY THIS CO NSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. FIRST, WE WILL DEAL WITH ITA NO.111/JU/2011. TH E ONLY GROUND RAISED IN THIS APPEAL READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LD CIT(A) HAS ERRED IN ALLOWING DEDUCTION U/ 80IB OF T HE I.T. ACT REJECTED BY THE ASSESSING OFFICER AFTER GO ING THROUGH THE REQUIREMENTS OF CONDITIONS PRESCRIBED F OR DEDUCTION U/S 80IB AND NOT FOUND FIT THIS CASE ELIG IBLE FOR DEDUCTION U/S 80IB. 4. THE FACTS OF THE CASE AS APPEARING IN THE ORDER OF THE AUTHORITIES BELOW ARE THAT THE ASSESSEE DERIVES IT INCOME FROM PROCESSING AND MANUFACTURING OF POPLIN OUT OF GREY CLOTH AND FILED ITS RETURN OF INCOME ON 31.10.2005 DECLARING TOTAL INCOME AT NIL AFTER CLA IMING DEDUCTION OF RS. 28,33,506/- U/S 80IB OF THE THE INCOME-TAX ACT, 196 1 [HEREINAFTER REFERRED TO AS THE ACT IN SHORT]. THE ASSESSMENT WAS ORI GINALLY COMPLETED U/S 143(3) OF THE ACT ON 27.9.2006 DETERMINING THE TOTA L INCOME AT RS. NIL AFTER ALLOWING DEDUCTION U/S 80IB AMOUNTING TO RS. 28,63, 551/-. SUBSEQUENTLY, THE CIT(A)-II JODHPUR PASSED THE ORDER U/S 263 OF T HE ACT BY OBSERVING AT PARA 6 OF THE ORDER DATED 4/27-03-2009 THAT 'THE VARIOUS DOCUMENTS AND EVIDENCES RELIED UPON BY THE ASSESSEE AND FILED BEFORE ME IN RESPECT OF THE CLAIM OF DEDUCTION U/S 80IB WERE NOT AVAILABLE TO THE ASSESSING OFFICER. IN THE LIGHT OF THE DISCUSSION ABOVE, I CONSIDER THE ASSESSMENT ORDER UNDER REFERENCE AS ERRONEOUS A S ALSO PREJUDICIAL TO THE INTEREST OF REVENUE WHICH REQUIRES TO BE SET ASIDE U/S 263 FOR FRESH ADJUDICATION IN RESPECT OF CLAIM OF DEDUCTION U/S 80IB. 3 5. THE LD CIT WHILE EXERCISING HIS POWER U/S 263 OF THE ACT ALSO OBSERVED IN PARAS 7,9 AND 10 OF HIS AFORESAID ORDE R AS UNDER:- '7. TO ACHIEVE A TURNOVER OF RS. 8.01 CRORES, THE TOTAL VALUE OF PLANT AND MACHINERY WORKS OUT TO RS. 8 TO 9 LACS O N A CONSERVATIVE ESTIMATE. HOWEVER, THE PLANT AND MACHINERY AS REFLE CTED IN THE RETURN IS SUBSTANTIALLY AND ABSURDLY LESS. THE ASSE SSING OFFICER FAILED TO MAKE ANY VERIFICATION IN THIS REGARD AND ALLOWED THE CLAIM OF DEDUCTION U/S 80IB WITHOUT ANY ENQUIRIES'. IT IS FURTHER MENTIONED THAT 'WHETHER, A PART OF THE GOODS WERE PURCHASED R EADYMADE FROM MARKET OR FROM SISTER CONCERNS AND SHOWN AS MANUFAC TURED BY THE ASSESSEE REMAINED TO BE VERIFIED BY THE ASSESSING O FFICER?.' 9. 'THE ELECTRICITY EXPENSES OF RS. 70,982/- WERE J UST SUFFICIENT TO MEET THE OFFICE REQUIREMENTS ONLY WHI CH WERE THEMSELVES QUITE SUBSTANTIAL. NO VERIFICATIONS WERE MADE BY THE ASSESSING OFFICER FROM THE ELECTRICITY BOARD AS TO WHEN THE ELECTRICITY CONNECTION WAS TAKEN. 10. 'THE AUDIT REPORT SUGGESTS THAT THE NATURE OF B USINESS MENTIONED THEREIN IS PURCHASING AND PROCESSING AND TRADING OF CLOTH. HOWEVER, THE ABOVE FACTS ESCAPED THE ATTENTI ON OF THE ASSESSING OFFICER AND WHETHER ANY TRADING TOOK PLAC E OR NOT REMAINED TO BE VERIFIED BY THE ASSESSING OFFICER. 6. THE LD CIT ALSO OBSERVED THAT THE ASSESSING OFFI CER HAD NOT MADE SPOT VERIFICATION AS TO WHETHER SHRI PURSHOTTAM DAS S CONSTRUCTED BUILDING OR FACTORY WITH MACHINES ON PLOT E-6, IST PHASE BAL OTRA AND THAT NO ENQUIRY HAD BEEN MADE WHETHER IT PRODUCED GOODS FORM FACTOR Y SITUATED AT E-4 & E- 6, WHICH WERE OLD. IN VIEW OF THE ABOVE, THE LD CIT CONCLUDED THAT THE ASSESSING OFFICER FAILED TO MAKE ANY VERIFICATION I N THE MATTER AS DISCUSSED 4 ABOVE, WHICH WERE REALLY REQUIRED. HE ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO MAKE DEPTH INVESTIGATION AND VERIFY THE GENUINENESS OF THE CLAIM OF DEDUCTION U/S 80IB OF THE ACT AND PASS A FRESH ASSESSMENT ORDER IN THE MATTER AND IF ON VERIFICATION IT WAS FOUND THAT THE ASSESSEE FULFILLED THE REQUIRED CONDITIONS CONTAINED AS ENVISAGED IN SECTI ON 80IB OF THE ACT , HE SHALL ALLOW THE CLAIM OF DEDUCTION AND IN THE ALTER NATIVE IF THE ASSESSEE DID NOT FULFILL THE REQUIRED CONDITION AS ENVISAGED IN SECTION 80IB OF THE ACT , THE ASSESSING OFFICER SHALL REJECT THE CLAIM. THE A SSESSING OFFICER ASKED THE ASSESSEE TO FURNISH FOLLOWING DETAILS / INFORMA TION ALONG WITH SUPPORTING EVIDENCE:- 1. THE WORKERS EMPLOYED IN THE UNIT AS REPORTED WER E 13 TO 17 AND EXPENSES DEBITED TO THE TRADING AND P&L ACCOUNT OF RS. 70,982/- IN RESPECT OF POWER CONSUMPTION, WHICH IS VERY MUCH LO W LOOKING TO THE HUGE TURNOVER. FURNISH THE JUSTIFICATION WITH REGARD TO MANUFACTURING; IF NOT THAN THE READY GOODS WERE PURCHASED FROM MARKET OR ITS SISTER CONCERNS. 2. THE EXTENT AND VALUE OF MACHINERIES (ESPECIALLY JIG GER MACHINE) SHOWN, EXTREMELY SMALL ELECTRICITY CHARGES & WATER CHARGES AND NIL PF, ESI AND BONUS PAID APPROV ES THAT WORKERS EMPLOYED WERE 13 TO 17 AND IN VIEW CLAIM OF DEDUCTION U/S 80IB WHICH WAS ERRONEOUSLY ALLOWED . PLEASE CLARIFY. 3. OPENING WDV OF MACHINERIES IS RS. 1,32,697/- + ADDI TION OF MACHINERY DURING THE YEAR TO RS. 2,97,562/-. ACCORDINGLY, THERE WAS NO MACHINERY WHICH REQU IRED POWER CONSUMPTION FOR MANUFACTURING PROCESS AND, THEREFORE, IT REQUIRES TO BE CONCLUDED THAT IT IS A HAND POWER UNIT. FURTHER EXPENSES AGGREGATING TO RS. 2,1 5,242/- HAVE BEEN SHOWN AS MACHINERY EXPENSES WHICH RELATES TO CONSTRUCTION EXPENSES. PLEASE JUSTIFY. 5 4. AS PER ESI RECEIPTS AND CERTIFICATE FOR REGISTRATIO N AND LICENSE TO WORK A FACTORY ISSUED BY GOVT. OF RAJAST HAN DATED 22.02.2004. THUS, IT IMPLIES THAT THE OLD FAC TORY WAS RUNNING EARLIER AT E-4, 1 ST PHASE, BALOTRA SINCE 1994 OR SO AND, THEREFORE, PROFIT EARNED FROM THE SAID FACTORY ARE NOT ENTITLED FOR DEDUCTION U/S 80IB. BESIDES TH E ABOVE, THE CERTIFICATE DATED 17.01.2005 ISSUED BY THE BOILER INSPECTOR SHOWS THAT THE LICENSE WAS MO DIFIED AND RENEWED. THIS IMPLIES THAT A CERTIFICATE WAS ISSUED EARLIER ALSO. PLEASE CLARIFY. 7. THE ASSESSEE SUBMITTED TO THE ASSESSING OFFICER THAT IT CAME INTO EXISTENCE VIDE PARTNERSHIP DEED ON 14.2.2004 AND HA D TAKEN THE FACTORY BUILDING (E-4) ON RENT FROM M/S PURSHOTTAM TEXTILE S. A COPY OF RENT AGREEMENT WAS FURNISHED WHEREIN IT WAS MENTIONED TH AT PLOT NO.E-6 WAS ALLOTTED TO ONE SHRI PURSHOTTAM DASS AND THE ASSESS EE HAS NO CONNECTION WITH THE SAID PLOT AND M/S PURSHOTTAM TEXTILES HAD CONSTRUCTED A FACTORY PREMISES LONG AGO BUT NO PLANT AND MACHINERY WAS IN STALLED, THE FACTORY WAS NOT FUNCTIONING FOR LAST 10 YEARS. IT WAS STATE D THAT THE ASSESSEE WAS REGISTERED WITH THE FOLLOWING DEPARTMENTS:- (A) DISTRICT INDUSTRIES CENTRE : - 170409220 / TINY (B) EMPLOYEES ESI ACT :- 15/18340/19 (C) FACTORY ACT REGISTRATION :- RJ-26940 (D) RST/CSTNO. :- 08532402466 8. IT WAS FURTHER STATED THAT THE UNIT WAS SET UP I N THE NOTIFIED BACKWARD DISTRICT OF BARMER IN RAJASTHAN AND WAS RUN BY POWE R. IT WAS SUBMITTED THAT THE ASSESSEES UNIT WAS REGISTERED UNDER FACTO RY ACT AS WELL AS ESI ACT, THEREFORE, THE ASSESSEE WAS REQUIRED TO MAINTA IN LABOUR REGISTERS AND 6 PAY WAGES AND SALARY REGISTER, COPIES OF WHICH WERE FURNISHED. REGARDING THE PLANT AND MACHINERY, THE ASSESSEE SUBMITTED THA T THE PLANT AND MACHINERY WERE NEW, WHICH WAS EVIDENT FROM FOLLOWIN G:- YEAR OF INVESTMENT INVESTMENT IN P&M AY 2003-04 RS. 1,32,697.00 AY 2004-05 RS. 2,97,562.00 9. THE ASSESSEE HAS FURNISHED COPIES OF INVOICES / BILLS OF PURCHASES AND STATED THAT SINCE THE FIRM HAD TAKEN THE FACTORY BU ILDING ON RENT, THE WDV OF THE FACTORY BUILDING WAS SHOWN AT NIL. IT WAS C ONTENDED THAT DURING THE YEAR THE ASSESSEE CONSTRUCTED TEMPORARY STRUCTURE T O KEEP GREY CLOTH, COLOURS & CHEMICALS AND PACKING MATERIALS ETC AS PE R RENT AGREEMENT ON WHICH A SUM OF RS. 1,03,845/- WAS SPENT. IT WAS FU RTHER CONTENDED THAT THE FACTORY BUILDING TAKEN ON RENT ALSO INCLUDED THE FA CILITY OF GENERATOR, AND, THEREFORE, NO INVESTMENT WAS SHOWN IN THE BALANCE SHEET ON GENERATOR AND THAT THE MACHINERY REQUIRED FOR CARRYING OUT MA NUFACTURING ACTIVITIES DID NOT REQUIRE HEAVY INVESTMENT, THEREFORE, THE IN VESTMENT SHOWN WAS MOST REASONABLE AND SUFFICIENT. AS REGARDS TO THE OPERAT ION OF UNIT, THE ASSESSEE STATED THAT THE PROCESS WAS OPERATED WITH THE AID O F POWER AND FOR CARRYING OUT MANUFACTURING ACTIVITIES SMOOTHLY, THE ASSESSEE HAD INSTALLED 15 JIGGER; 2 PADDING MACHINE, 1 FOLDING MACHINE, BOILER, GEY A ND DYEING EQUIPMENTS. THE ASSESSEE ALSO FURNISHED PHOTOGRAPHS SHOWING SIN GLE 2HP MOTOR OPERATING 10 JIGGERS. THE ASSESSEE ALSO FURNISHED THE BILLS SHOWING THE PURCHASE OF ELECTRIC MOTOR, CONNECTIVE DEVICES, SHA FTS, PULLY, V-BELTS, BEARING CHAINS ETC. AND STATED THAT FOLLOWING EXPEN SES WERE INCURRED IN THE POWER HEAD:- 7 ELECTRICITY EXPENSES 70,982.00 GENERATOR EXP. (ELECTRICITY) 1,23,355.00 FUEL 5,53,948.00 10. IT WAS FURTHER STATED THAT DURING THE YEAR A DI SPUTE AROSE WITH THE POLLUTION CONTROL DEPT. AND THEREFORE, PROCESS WAS RUN WITH THE AID OF GENERATOR AS ALTERNATIVE USE OF ELECTRICITY AND AS PER PROCESS LAY OUT TOTAL EXPENDITURE TO UNIT WILL BE ONE AND HALF UNIT IF EL ECTRIC MOTOR OF 2 HP WAS RUN FOR AN HOUR. THUS TOTAL CONSUMPTION OF ELECTRIC ITY WORKED OUT WAS AS UNDER:- TOTAL WORKING HOURS FOR THE DAY 8 HOURS NO. OF WORKING DAYS IN THE YEAR 300 DAYS TOTAL CONSUMPTION OF UNITS FOR WHOLE YEAR (8*300*1.5) 7920 RATE PER UNIT RS. 4.25- TO RS. 4.50 TOTAL CONSUMPTION FOR THE WHOLE DAY RS. 35,640/- 11. THE ASSESSEE SUBMITTED THAT EXPENDITURE ON ELEC TRICITY WOULD BE 1.25 TIMES IF GENERATOR WAS USED. IT WAS STATED THAT THE ASSESSEE INCURRED A SUM OF RS. 1,94,337/- ON ELECTRICITY, WHICH WAS INCLUSIVE OF ELECTRICITY CHARGES FOR OFFICE AND OTHER MANUFACTURING PROCESS I.E WRAPPING OF GOODS, BALE PACKING, LIFTING OF WATER ETC. THE ASSESSEE FURNISHED THE C OPIES OF ELECTRICITY BILLS AND STATED THAT THE DETERMINING FACTOR FOR ALLOWING DEDUCTION U/S 80IB OF THE ACT WAS APPLICATION OF POWER IN THE MANUFACTURING ACTIVITY AND NOT THE QUANTUM OF POWER. THE ASSESSEE ALSO STATED THAT F OLLOWING EXPENDITURES WERE INCURRED TOWARDS LABOUR:- WAGES 80,066.00 FACTORY WAGES 4,40,384.00 SALARY 1,76,000.00 8 12. THE ASSESSEE FURNISHED THE CALCULATION OF PRODU CTION ACHIEVED WHICH WAS AS UNDER:- DESCRIPTION DETAILS NO. OF JIGGERS 15 TIM E REQUIRED FOR PROCESSING OF ONE BATCH ON SINGLE JI GGER 3.5 HOURS NO. OF THAN CONTAIN SINGLE BATCH 10 NO. OF METERS /THAN 110 TOTAL WORKING HOURS IN A DAY 8 NO. OF THAN CAN BE PROCESSED ON A SINGLE JIGGER IN A DAY 20 NO. OF THAN CAN BE PROCE SSED AT INDUSTRIAL UNDERTAKING 300 TOTAL NO. OF METERS CAN BE PROCESSED AT THE INDUSTR IAL UNDERTAKING 33000 NO. OF WORKING DAYS IN A YEAR 300 TOTAL NO. OF METERS,, WHICH A UNIT CAN PROCESS IN A YEAR 99,00,000 AVERAGE RATE OF SALE PRICE 15 TOTAL VALUE OF GOODS WHICH CAN BE PROCESSE D BY THE INDUSTRIAL UNDERTAKING 14,85,00,000 13. IT WAS SUBMITTED THAT AS AGAINST PRODUCTION CAP ACITY OF RS. 14,85,00,000/-, THE ASSESSEE HAD SHOWN TURNOVER OF RS. 8,01,81,703/- AND THIS HUGE TURNOVER COULD NOT BE POSSIBLE WITHOUT EN GAGING SUFFICIENT NUMBER OF LABOURERS AS ALSO USE OF ELECTRICITY TO RUN THE UNIT. IT WAS ALSO SUBMITTED THAT THE EXPENSES WERE INCURRED ON LABOUR ENGAGED I N MANUFACTURING PROCESS FOR DYEING, PADDING, WRAPPING, BALE PACKING ETC. A ND THE ASSESSEE HAD ALSO MADE THE PAYMENTS OF RS. 28,118/- TOWARDS ESI AND L EAVE ENCASHMENT. IT WAS CONTENDED THAT THE MONTHLY WAGES / SALARY PER W ORKER FAIRLY COMMENSURATE WITH THE WAGE RATE PREVAILING IN THE M ARKET DURING THE RELEVANT YEAR. IT WAS STATED THAT LABOUR WAGES COU LD NOT BE COMPARED WITH TURN OVER. IT WAS SUBMITTED THAT ALONGWITH RETURN OF INCOME ITSELF THE ASSESSEE HAD FILED AUDIT REPORT OF ORIGINAL ASSESSM ENT PROCEEDINGS, WITH SUPPORTING DOCUMENTARY EVIDENCE WHICH ESTABLISHED T HAT ALL THE CONDITIONS LAID DOWN FOR AVAILING DEDUCTION U/S 80IB WERE FULF ILLED, THEREFORE, CLAIM OF 9 DEDUCTION WAS RIGHTLY MADE BY THE ASSESSEE AND ACC EPTED BY THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT PROCEEDINGS. 14. THE ASSESSING OFFICER AFTER CONSIDERING THE SUB MISSIONS OF THE ASSESSEE DID NOT ALLOW THE DEDUCTION U/S 80IB OF TH E ACT BY OBSERVING AT PAGE NOS. 5 & 6 OF THE ASSESSMENT ORDER DATED 22.12 .2009 AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS OF THE ASSESSEE. ON GOING THROUGH THE SUBMISSIONS MADE BEFORE THE UNDERSIGNED , IT IS OBSERVED THAT THE SAME SUBMISSIONS WERE MADE BEFORE THE WORTHY CIT-II, JODHPUR, WHO HAD DULY CONSIDERED THE SAME AND NEGATED AFTER GIVEN DUE REASONS. DURING THE COU RSE OF PRESENT SET ASIDE ASSESSMENT PROCEEDINGS, NO NEW FA CTS HAVE EMERGED WHICH WERE NOT PLACED BEFORE THE WORTHY CIT . THEREFORE, IN VIEW OF THE ABOVE DISCUSSIONS AS ALSO DETAILED REASONS GIVEN BY THE WORTHY CIT-II, JODHPUR IN THE ORDER U/S 263 AS ALSO ELECTRICITY CONSUMPTION OF RS. 70,982/- WHICH INCLUDED THE EXPENSES INCURRED FOR OFFICE RUN IN TH E FACTORY PREMISES, IT WAS NOT POSSIBLE FOR THE ASSESSEE TO A CHIEVE TURNOVER OF RS. 8,01,81,703/-. AS SUCH, POSSIBILITY OF ASSESSEE'S PURCHASING READY GOODS FROM THE MARKET / SISTER CONCERN CANNOT BE DENIED. DEDUCTION U/S 80IB IS ALL OWABLE IF THE ASSESSEE SELLS ITS OWN MANUFACTURED GOODS AND N OT READY GOODS PURCHASED FROM ELSEWHERE. IN VIEW OF THE ABOV E DISCUSSIONS AS ALSO DETAILED REASONS GIVEN BY THE W ORTHY CIT-II, JODHPUR IN THE ORDER U/S 263, IT IS CLEAR T HAT THE ASSESSEE FAILED TO PROVE THE CLAIM OF DEDUCTION U/S 80IB AND HENCE, DEDUCTION U/S 80IB IS NOT ALLOWABLE. 15. THE ASSESSEE CARRIED THE MATTER TO THE LD CIT(A ) AND SUBMISSIONS MADE BEFORE THE LD CIT(A) WHICH HAS BEEN INCORPORATED IN PARA 5 OF THE IMPUGNED ORDER ARE REPRODUCED PER VERBATIM AS UNDER:- I THE ASSESSEE HAS COMMENCED PRODUCTION ON 1-3-2 004 AND THE FIRST ASSESSMENT YEAR OF THE APPELLANT INDUSTRIAL UNDERTA KING WAS AY 2004- 05. 10 II. THE ASSESSEE PURCHASES GREY CLOTH FROM DIFFERE NT PLACES AND THE GREY CLOTH WAS SUBJECTED TO VARIOUS PROCESS OF MANU FACTURE / PRODUCTION AND IT INCLUDES OPERATION OF WASHING / B LEACHING, DYEING, PADDING AND RAPPING OF THE FABRICS. THE SAID GREY F ABRICS I.E. UNPROCESSED UNDERGO VARIOUS PROCESSES IN THE FACTOR Y. THE GREY FABRICS ARE BOILED IN WATER MIXED WITH VARIOUS CHEM ICAL AND THEN GREY FABRIC IS WASHED / BLEACHED AND THEREAFTER THE MATE RIAL IS TAKEN FOR DYEING PROCESS I.E. IMPORTING OF REQUIRED SHEDS OF COLOUR. THE NEXT STAGE IS PADDING PROCESS I.E. PUTTING THE STARCH ON THE SAID FABRICS BY WAY OF MACHINERIES. THEREAFTER, IT DRIES BY HANGING ON THE WOODEN OR BAMBOW STICK UNDER FACTORY SHED. THEREAFTER, IT SEG REGATES WITH COLOUR AND QUALITY IN THE HALL AND PUT IN THE PARTICULAR P ACKET FOR SALE IN REQUIRED LENGTH TO THE CUSTOMERS. THE ABOVE PROCESS / MANUFACTURING PROCESS CAN BE SUMMARIZED IN THE FOLLOWING MANNER:- PURCHASING OF GREY CLOTH FROM MALEGAON & ICHALKARAN JI I WASHING OF CLOTH I DYEING OF CLOTH (AT FACTORY REMISES) I PADDING OF CLOTH (AT FACTORY PREMISES) I FINISHING OF CLOTH I WRAPPING OF CLOTH (AT FACTORY PREMISES) I BALE PACKING OF CLOTH (AT FACTORY PREMISES) I SALE OF GOODS III. IT IS FURTHER SUBMITTED THAT THE VARIOUS ABOV E ACTIVITIES ON THE GREY CLOTH AMOUNT TO MANUFACTURE / PRODUCTION OF FI NISHED CLOTH. WHAT WAS SOLD BY THE ASSESSEE WAS THE FINISHED CLOT H, WHICH WAS A COMMERCIAL DISTINCT, DIFFERENT AND SEPARATE MARKETA BLE PRODUCT. THE ACTIVITIES CARRIED OUT BY THE ASSESSEE IN THE FACTO RY CLEARLY AMOUNTS TO MANUFACTURE / PRODUCTION OF AN ARTICLE OR THING AS ENVISAGED IN 11 SEC. 80IB. THE ASSESSEE THEREFORE, SUBMITTED THAT I T MANUFACTURES FINISHED GOODS NAMELY 'POPLIN' OUT OF GREY CLOTH. IV. THE ASSESSEE SUBMITTED THAT ITS INDUSTRIAL UNDE RTAKING HAS BEEN REGISTERED, APPROVED AND RECOGNIZED AS A MANUFACTUR ING UNIT BY VARIOUS CONCERNING GOVT. AUTHORITIES. COPIES OF REG ISTRATION CERTIFICATE ISSUED BY ALL SUCH AUTHORITIES WERE SUB MITTED BEFORE THE ASSESSING OFFICER AS WELL BEFORE THE UNDERSIGNED. T HE ASSESSING OFFICER HAS NOT DISPUTED THE CORRECTNESS OF ANY OF THOSE FACTS. IT IS FURTHER SUBMITTED THAT THE ASSESSEE CONCERN HAS OBT AINED CERTIFICATE FROM THE FOLLOWING GOVERNMENT AUTHORITIES:- A. CERTIFICATE ISSUED BY INDUSTRIAL DEPARTMENT, GOV ERNMENT OF RAJASTHAN WHERE THE ASSESSEE HAS BEEN GRANTING REGI STRATION FOR THE PROCESSING / MANUFACTURE OF FINISHED CLOTH. B. CERTIFICATE GRANTING UNDER PROVISIONS OF ESI ACT , 1948 IN WHICH THE ASSESSEE HAS BEEN REGISTERED AS A 'FACTOR Y' AND EMPLOYED MORE THAN 10 WORKERS. C. CERTIFICATE ISSUED BY SALES TAX AUTHORITIES FOR DYEING, PRINTING, PROCESSING AND FINISHING OF CLOTH. D. CERTIFICATE OF REGISTRATION ISSUED BY REGISTRAR OF FIRMS FOR CARRYING OUT BUSINESS IN PROCESSED CLOTH. E. CERTIFICATE ISSUED BY CENTRAL EXCISE RULES, 2002 AND RULE OF 7(5) OF CENVAT CREDIT RULES, 2002, ACCORDING TO WHI CH THE ASSESSEE'S FINISHED PRODUCT WAS SUBJECT TO LEVY OF CENTRAL EXCISE DUTY AND AVAILABILITY OF CREDIT OF CENVAT. F. REGISTRATION UNDER FACTORY AND BOILER ACT SHOWIN G NUMBER OF WORKERS MORE THAN 10. G. REGISTRATION WITH ELECTRIC DEPARTMENT FOR HAVING ELECTRIC CONNECTION. H. COPY OF PARTNERSHIP DEED SHOWING THAT THE BUSIN ESS OF THE FIRM SHALL THAT OF RUNNING A FACTORY FOR DYEING, PR INTING, FELTING AND PROCESSING OF CLOTH. 12 IT IS THEREFORE, SUBMITTED THAT REGISTRATION AS MAN UFACTURER IS GRANTED BY THE AFORESAID AUTHORITIES ONLY AFTER NEC ESSARY ENQUIRIES AND INVESTIGATION. V. THE ASSESSEE HAD TAKEN PLOT WITH OFFICE BUILDIN G SITUATED AT NO. E-4 AND VACANT PLOT SITUATED AT E -301 ON RENT. ALL THE MACHINERIES WERE INSTALLED ON THESE PLOTS AND NECESSARY PERMISS IONS FROM THE GOVERNMENT DEPARTMENT FOR STARTING OF FACTORY WERE TAKEN IN RESPECT OF THE ABOVE PLOTS. IT IS FURTHER SUBMITTED THAT PL OT NO. E-6, 1ST PHASE DOES NOT BELONG TO THE ASSESSEE AND NO ACTIVITY HAS BEEN CARRIED OUT FROM THE SAID PLOTS. VI. IT IS FURTHER SUBMITTED THAT IN ADDITION TO OPE NING BALANCE OF RS. 1,32,697/- UNDER HEAD FIXED ASSETS BEING MACHINERIE S, THE ASSESSEE HAD MADE ADDITION DURING THE YEAR UNDER CONSIDERA TION TO THE FIXED ASSETS AMOUNTING TO RS. 4,53,313/- WHICH INCLUDES P LANT AND MACHINERY OF RS. 2,97,562/- AND BUILDING OF RS. 1,03,845/-. IT IS THEREFORE, SUBMITTED THAT THE ASSESSEE HAD INSTALLED TOTAL 15 JIGGER AND 2 PADDING MACHINES AT THE ABOVE PLOTS AND THEREFORE, IT IS SUBMITTED THAT IT HAS SET UP FOR MANUFACTURING / PROCESSING OF FIN ISHED GOODS AN INDUSTRIAL UNDERTAKING WHICH HAD EMPLOYED MORE THAN 10 LABOURS AND UTILIZED POWER FOR MANUFACTURING / PROCESSING. IN S UPPORT OF CLAIM FOR INSTALLATION OF PLANT AND MACHINERY, PHOTOGRAPHS OF THE MACHINERIES AND FACTORY ARE SUBMITTED. HE ALSO SUBMITTED SAMPLE OF FINISHED GOODS PRODUCED AT FACTORY PREMISES. VII. IT IS FURTHER SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD CONSUMED COLOUR CHE MICAL, PACKING MATERIAL AND FUELS AMOUNTING TO RS. 90,13,295/- FO R MANUFACTURING OF FINISHED PRODUCTS. VIII. IT IS FURTHER SUBMITTED THAT THE ASSESSEE'S UNDERTAKING IS SET UP AND ESTABLISHED IN BARMER DISTRICT OF RAJASTHAN WHICH IS DECLARED AS BACKWARD DISTRICT VIDE NOTIFICATION NO. 10441 DATED 7- 10-97 FOR THE PURPOSE OF ALLOWING DEDUCTION U/S 80I A. 13 IX. IT IS FURTHER SUBMITTED THAT THE ASSESSING OF FICER FAILED TO POINT OUT ANY FAULT OR DISCREPANCIES OR DEFECTS IN ANY SU CH DETAILS, EXPLANATION OR DOCUMENTS SUBMITTED BEFORE HIM IN SU PPORT OF CLAIM FOR GRANT OF DEDUCTION U/S 80IB. THE ASSESSING OFFI CER WAS UNDULY INFLUENCED BY THE OBSERVATIONS OF THE CIT - II, JOD HPUR, WHICH WERE NOT IN NATURE OF FINDING BUT HE HAD EXPRESSED THE N EED FOR IN-DEPTH INVESTIGATION / EXAMINATION TO BE CARRIED OUT BY TH E ASSESSING OFFICER IN THE COURSE OF SETTING ASIDE ASSESSMENT P ROCEEDINGS. THE ASSESSEE FURNISHED COMPLETE DETAILS / EXPLANATION T O PROVE ITS ELIGIBLY FOR GRANT OF DEDUCTION U/S 80IB BEFORE THE ASSESSING OFFICER AND NO ADVERSE FINDINGS EXCEPT RELYING UPON OBSERVA TION OF THE CIT - II, JODHPUR ARE MADE IN THE ORDER U/S 263. X. IT IS FURTHER SUBMITTED THAT THE ASSESSING OFFI CER'S OBSERVATION REGARDING POSSIBILITY OF PURCHASING OF READY GOODS FROM THE MARKET / SISTER CONCERNS ARE BASED ON PRESUMPTION AND ARE NOT BASED ON ANY ENQUIRY. THE ASSESSEE HAD SUBMITTED DETAILS OF PURCHASE OF GREY CLOTH AND SALE OF FINISHED CLOTH ALONG WITH CONSUMA BLE ITEMS, DETAILS OF OPENING AS WELL AS CLOSING STOCK, ELECTR ICITY EXPENSES, POWER / FUELS EXPENSES TO PROVE ACTIVITY OF INDUSTR IAL UNDERTAKING AND SALE OF FINISHED GOODS. XI. HE, THEREFORE, SUBMITTED THAT THE ASSESSEE HAS FULFILLED ALL CONDITIONS LAID DOWN IN THE PROVISION OF SEC. 80IB AND THE ASSESSING OFFICER HAD MERELY DISALLOWED CLAIM ON THE BASIS OF WRONG SUSPICIONS AND BASELESS PRESUMPTION. HE THEREFORE, SUBMITTED THAT THE ASSESSING OFFICER OUGHT TO HAVE ALLOWED DEDUCTI ON U/S 80IB AND ACCORDINGLY REQUESTED FOR CLAIMED TO BE ALLOWED IN THE APPELLATE PROCEEDING. IN SUPPORT OF THE CLAIM, THE APPELLANT' S AUTHORIZED REPRESENTATIVE RELIED UPON DECISION OF THE HON'BLE ITAT JODHPUR BENCH, JODHPUR IN CASE OF ITO, BALOTRA VS. RANMAL, P/O. SUBHASH AND VIMAL JASOL IN ITA NO. 148/JU/2000 FOR AY 96-97 ORDER DATED 3-11-2006. 14 16. THE LD CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT FOR THE PURPOSES OF ALLOWING DEDUCTIO N U/S 80IB(2) OF THE ACT, THE BUSINESS OF THE ASSESSEE SHOULD INCLUDE AN Y PROFIT AND GAINS DERIVED FROM ANY BUSINESS REFERRED IN SUB SECTION ( 3) TO SECTIONS (11), (11A) AND (11B) WHICH BUSINESS IS CALLED AS ELIGIBL E BUSINESS. HE FURTHER OBSERVED THAT IN ASSESSEES CASE, PROVISIONS OF SEC TION 80-IB(5) WERE APPLICABLE WHICH PROVIDES THAT THE AMOUNT OF DEDUCT ION IN THE CASE OF AN INDUSTRIAL UNDERTAKING LOCATED IN SUCH INDUSTRIAL B ACKWARD DISTRICTS AS THE CENTRAL GOVERNMENT MAY HAVING REGARD TO THE PRESCRI BED GUIDELINES BY NOTIFICATION IN THE OFFICIAL GAZETTE, SPECIFY IN TH IS BEHALF AS INDUSTRIALLY BACKWARD DISTRICT OF CATEGORY A OR AN INDUSTRIALLY BACKWARD DISTRICT IN CATEGORY B SHALL BE 100% OF THE PROFIT AND GAINS DE RIVED FROM AN INDUSTRIAL UNDERTAKING LOCATED IN BACKWARD DISTRICT S OF CATEGORY A FOR FIVE ASSESSMENT YEARS BEGINNING WITH THE INITIAL ASSESSM ENT YEAR AND THEREAFTER 25% OF THE PROFITS AND GAINS OF AN INDUSTRIAL UNDER TAKING AND THE TOTAL PERIOD OF DEDUCTION SHALL NOT EXCEED 10 CONSECUTIVE ASSESSMENT YEARS AND THAT THE INDUSTRIAL UNDERTAKING BEGINS TO MANUFACTU RING OR PRODUCE ARTICLES OR THINGS AT ANY TIME DURING THE PERIOD BEGINNING F ROM 1.10.94 AND ENDING ON 31.3.2004 AND THE LD CIT(A) OBSERVED THAT THE AS SESSEE HAD TAKEN VACANT PLOT NO. E-301 SITUATED AT RIICO, INDUSTRIAL AREA AT BALOTRA ON RENT FROM SHRI PURSHOTTAM DASS W.E.F. 1.2.2004 AND PLOT ALONG WITH OFFICE BUILDING SITUATED AT E-4, IST PHASE, INDUSTRIAL ARE A, BALOTRA WAS TAKEN FROM M/S PURSTHOTTAM TEXTILES, BALOTRA W.E.F. 1.2.2 004. AS PER AGREEMENT, THE ASSESSEE HAD TAKEN VACANT PLOT WITH OFFICE BUILDING TO INSTALL ITS OWN PLANT AND MACHINERY AND ALSO TO CON STRUCT FACTORY BUILDING AND OTHER SHEDS IN ACCORDANCE WITH ITS REQUIREMENTS AND THAT THE ASSESSEE 15 WOULD PAY ELECTRICAL EXPENDITURE TO CARRY OUT MANUF ACTURING PROCESS OF WASHING, DYEING, PADDING ETC. AND WOULD PAY MONTHLY RENT OF RS. 2000/- FOR PLOT NO.E-301 AND RS. 3,000/- FOR PLOT NO.E-4. THE LD CIT(A) POINTED OUT THAT VARIOUS CERTIFICATES OBTAINED BY THE ASSES SEE FROM VARIOUS GOVERNMENT AUTHORITIES REVEALED THAT CENTRAL EXCISE HAD ISSUED A CERTIFICATE TO THE ASSESSEE FOR CARRYING OUT MANUFA CTURING OF EXCISABLE GOODS IN RESPECT OF PLOT NO.E-4 AND E-301, INDUSTRI AL AREA, BALOTRA VIDE ORDER DATED 8.3.2003. THE ASSESSEE ALSO OBTAINED A CERTIFICATE FROM DISTRICT INDUSTRIES, SUB CENTRE, BALOTRA FOR THE PR EMISES NO.E-4, IST PHASE, INDUSTRIAL AREA, BALOTRA FOR DYEING OF CLOTH WITH JIGGER AND PROCESSING OF CLOTH WITH STARCH PADDING. THE LD CI T(A) POINTED OUT THAT THE ASSESSEE HAD ALSO FILED CERTIFICATE DATED 29.4. 2004 FROM ESI FOR PLOT NO.301 AND REGISTRATION AND LICENSE ISSUED BY CHIEF INSPECTOR OF FACTORY, RAJASTHAN UNDER RULE 5 OF THE REGISTRATION AND LICE NSE TO WORK A FACTORY FOR THE USE OF PREMISES SITUATED AT E-301, RIICO, I NDUSTRIAL AREA, PHASE III FOR DYEING AND STARCH RELATED PROCESS OF CLOTH AND INSPECTION REPORT ISSUED BY CHIEF INSPECTOR OF FACTORY AND BOILERS, B ALTORA FOR EMPLOYING IN THE FACTORY FOR NOT MORE THAN 19 PERSONS ON ANY ONE DAY DURING THE YEAR AND USING MOTIVE POWER NOT EXCEEDING 4 HORSE POWERS SUBJECT TO THE PROVISIONS OF FACTORIES ACT, 1948. THE LD CIT(A) O BSERVED THAT THE ASSESSEE HAD OBTAINED CERTIFICATE FORM COMMISSIONER , TAX DEPARTMENT FOR THE PREMISES NO.E-4, IST PHASE AND ALSO GOT REGISTE RED PARTNERSHIP FIRM TO CARRY OUT ITS MANUFACTURING AND BUSINESS ACTIVITY. HE FURTHER OBSERVED THAT IN THE FINANCIAL YEAR RELEVANT TO ASSESSMENT Y EAR 2004-05, THE ASSESSEE HAD MADE INVESTMENT UNDER HEAD FIXED ASSE TS TO THE TUNE OF RS. 1,32,697/- BEING PLANT AND MACHINERY. THE ASSESSEE HAD SET UP INDUSTRIAL 16 UNDERTAKING AND COMMENCED COMMERCIAL PRODUCTION ON 1.3.2003. THE LD CIT(A) CATEGORICALLY STATED THAT ALL THE ABOVE CERT IFICATES WERE ISSUED BY VARIOUS GOVT. DEPARTMENTS AFTER VERIFICATION AND EX AMINATION OF THE FACTS AND THAT THE ASSESSEE HAD ESTABLISHED ITS INDUSTRI AL UNDERTAKING AT THE PREMISES SITUATED E-4, IST PHASE, INDUSTRIAL AREA B ALOTRA AND E-301, RIICO IND AREA, PHASE III, BALTORA FOR MANUFACTURIN G AND CARRYING OUT ITS BUSINESS ACTIVITIES. THE LD CIT(A) ALSO STATED THA T BALTORA IS IN BARMER DISTRICT AND THE BARMER IS DECLARED AS INDUSTRIALLY BACKWARD DISTRICT APPEARING AT SNO.33 OF CATEGORY A IN NOTIFICATION N O. 714(E) DATED 7.10.1997 BY THE CBDT IN ACCORDANCE TO PROVISIONS O F SECTION 80IB(5) OF THE ACT. THE LD CIT(A) FURTHER OBSERVED THAT THE LAND CAN BE OBTAINED ON LEASE OR ON RENT OR IT MAY BE ACQUIRED BY SOME OTHE R MODE AND ASSESSEE CAN INSTALL PLANT AND MACHINERY BY INCURRING ITS OW N COST. ACCORDING TO LD CIT(A), THE GRIEVANCE OF THE ASSESSING OFFICER T HOUGH NOT SPECIFICALLY MENTIONED IN THE ASSESSMENT ORDER, HOWEVER, WAS THA T SINCE THE LAND AND OFFICE BUILDING BELONGED TO OTHERS, THEREFORE, A P RESUMPTION WAS DRAWN THAT IT WAS ON ACCOUNT OF SPLITTING UP OR RECONSTRU CTION OF A BUSINESS ALREADY IN EXISTENCE, WAS A WRONG AND UNFOUNDED PRE SUMPTION. THE LD CIT(A) OBSERVED THAT THE REQUIREMENT OF LAW AS A CO NDITION IS THAT THE PLANT AND MACHINERY SO INSTALLED SHOULD NOT BE OLD ONE OR IT MUST NOT BE PREVIOUSLY USED AND DEPRECIATION CLAIMED. HE FURTH ER OBSERVED THAT THE LAW DOES NOT PUT CONDITION LIKE THAT OF PLANT AND M ACHINERY SO FAR AS LAND IS CONCERNED. RELIANCE WAS PLACED ON THE DECISION OF THE ITAT MUMBAI BENCH IN THE CASE OF DCIT VS SHEMROCK, REPORTED IN 32 SOT 1. LD CIT(A) FURTHER OBSERVED THAT THE ASSESSEE HAD TAKEN TWO PLOTS ON RENT ONE WAS VACANT PLOT AND ANOTHER ONE WAS ALONG WITH OFFI CE BUILDING AND 17 ELECTRICITY CONNECTION FORM SHRI PURSHOTTAM DASS AN D M/S PURSHOTTAM TEXTILES, ON THESE PLOTS NO INDUSTRIAL UNDERTAKING WAS ESTABLISHED OR WAS SET UP BY THE OWNER OF THE PLOTS AND NO MANUFACTURI NG ACTIVITY WAS BEING CARRIED ON THE SAID PLOTS BY THE OWNERS, IT WAS TH E FIRST TIME THE ASSESSEE HAD TAKEN PERMISSION FROM VARIOUS GOVERNMENT DEPART MENTS TO ESTABLISH AN INDUSTRIAL UNDERTAKING FOR MANUFACTURING OF GOODS B UT IT WAS NEITHER CASE OF SPLITTING OF BUSINESS OR RECONSTRUCTION OF BUSIN ESS ALREADY IN EXISTENCE. THE LD CIT(A) HAD DESCRIBED THE WORD RECONSTRUCTIO N REFERRING TO THE FOLLOWING CASE LAWS:- A) TEXTILES MACHINEARY CORPORATION LTD V CIT (107 ITR 195 (SC) B) CIT V GASNGA SUGAR CORPORATION LTD [92 ITR 173 (DEL )] 17. THE LD CIT(A) OBSERVED THAT IN THE ASSESSEES C ASE, THE UNDISPUTED FACTS DID NOT SUGGEST FOR FORMATION OF THE BUSINESS BY TAKING OVER ASSETS AND LIABILITY OF THE RUNNING INDUSTRIAL UNDERTAKING AND ALSO DID NOT SUGGEST TAKING OVER OF BUSINESS OF UNDERTAKING ALREADY IN E XISTENCE AND THAT THE ASSESSEE HAD ITSELF MADE ALL OUT EFFORTS TO START A NEW UNDERTAKING FOR MANUFACTURING OF GOODS ON THE PLOTS TAKEN ON RENT. HE ALSO OBSERVED THAT THE ASSESSEE DID NOT HAVE ANY OWNERSHIP RIGHT OVER THE PLOTS AND IT HAD MERELY TAKEN ON RENT, THEREFORE, IT CAN BE SAID THA T IT WAS NOT THE CASE OF EITHER SPLIT OF UNDERTAKING OR RECONSTRUCTION OF BU SINESS ALREADY IN EXISTENCE. RELIANCE WAS PLACE ON THE JUDGEMENT OF T HE HON'BLE MADHYA PRADESH HIGH COURT IN THE CASE OF CIT VS KHEMCHAND MOTILAL JAIN, REPORTED IN 228 ITR 338. THE LD CIT(A) FURTHER OBS ERVED THAT NO ADVERSE FACTUAL FINDING AFTER VERIFICATIONS AS DIRECTED BY LD CIT(A)-II JODHPUR IN 18 THE SET ASIDE ORDER WAS MADE IN THE ASSESSMENT ORDE R BY THE ASSESSING OFFICER WHO HAD NOT BROUGHT ANY EVIDENCE ON RECORD TO PROVE THAT THE ASSESSEE WAS CARRYING ON BUSINESS FROM THE SAID PLO TS BEFORE TAKING ON RENT OR HAD EARLIER TAKEN PERMISSION FROM VARIOUS G OVERNMENT DEPARTMENTS TO ESTABLISH AN INDUSTRIAL UNDERTAKING ON THE SAID PREMISES. THE LD CIT(A) ACCORDINGLY HELD THAT THERE WAS NO VIOLATION OF FI RST CONDITION LAID DOWN IN SECTION 80IB(2) OF THE ACT. 18. AS REGARDS SECOND CONDITION, WHICH PROVIDES THA T THE INDUSTRIAL UNDERTAKING IS NOT FORMED TO A NEW BUSINESS BY TRAN SFER OF OLD PLANT AND MACHINERY USED FOR ANY PURPOSES. THE LD CIT(A) OB SERVED THAT IN ASSESSEES CASE THERE WAS NO ALLEGATION OF THE ASSE SSING OFFICER THAT PREVIOUSLY USED PLANT AND MACHINERY WERE TRANSFERRE D IN THE NEW INDUSTRIAL UNDERTAKING, THEREFORE, THE SECOND CONDI TION LAID IN THE PROVISIONS OF SECTION 80IB(2) OF THE ACT WAS FULFI LLED. 19. AS REGARDS TO THE THIRD CONDITION, WHICH PROVID ES THAT THE INDUSTRIAL UNDERTAKING SHALL MANUFACTURE OR PRODUCE ANY ARTICL ES OR THINGS IN ANY PART OF INDIA EXCEPT ARTICLES OF THINGS SPECIFIED I N ELEVENTH SCHEDULE, THE LD CIT(A) OBSERVED THAT THERE WAS NO ALLEGATION OF THE ASSESSING OFFICER THAT ITEM PRODUCED BY THE ASSESSEE WAS IN THE LIST OF ELEVENTH SCHEDULE AND THERE WAS ALSO NO SPECIFIC ALLEGATION THAT THE ASSESSEE WAS NOT IN AN ACTIVITY OF MANUFACTURING OR PRODUCTION OF ARTICLE OR THINGS. THE LD CIT(A) POINTED OUT THAT THE PROCESS FLOW CHART AS S UBMITTED BY THE ASSESSEE REVEALED THAT THE ASSESSEE WAS MANUFACTURI NG PRODUCT NAMELY 19 POPLIN OUT OF GREY CLOTH BY CARRYING OUT ACTIVITI ES SUCH AS WASHING, BLEACHING, DYEING, PADDING AND RAPPING ETC. THE LD CIT(A) ALSO POINTED OUT THAT THE WORLD MANUFACTURE HAD BEEN DEFINED B Y FINANCE ACT, 2009 IN SECTION 2(29BA) AND THE WORD MANUFACTURE MEANS A CHANGE IN NON LIVING PHYSICAL OBJECT OR ARTICLE OR THING A) RESULTING IN TRANSFORMATION OF THE OBJECT OR ARTICLES OR THING INTO A NEW AND D ISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFERENT NAME, CHARACTER AND USE OR B) BRINGING INTO EXISTENCE OF A NEW AND DISTINCT OBJECT OR ARTICLE O R THING WITH A DIFFERENT CHEMICAL COMPOSITION OR INTEGRAL STRUCTURE. THE LD CIT(A) OBSERVED THAT THE ASSESSEE UTILIZED GREY CLOTH AS A RAW MATERIAL AND AFTER APPLYING VARIOUS PROCESSES IN ITS FACTORY, IT PRODUCED FINIS HED PRODUCT AS POPLIN WHICH IS USED BY LADIES AS UNDER GARMENT SUCH AS PA TICOT AND UNIFORM DRESS FOR SCHOOL CHILDREN ETC AND THE END PRODUCTS ARE COMPLETELY DIFFERENT TO THE RAW MATERIAL IN ITS CHARACTER AS WELL AS USE S. THE LD CIT(A) REFERRED TO THE FOLLOWING DECISION OF THE HON'BLE S UPREME COURT :- I) EMPIRE INDUSTRIES LTD V UNION OF INDIA, ([162 ITR 8 46); AND II) UJAGAR PRINTS V UNION OF INDIA (179 ITR 317) WHEREIN IT HAS BEEN HELD THAT THE PROCESSES LIKE BL EACHING, DYEING AND PRINTING OF GREY CLOTH AMOUNTS TO MANUFACTURE. 20. THE LD CIT(A) OBSERVED THAT THE ASSESSEE PURCHA SED BALES OF RAW FABRIC I.E. GREY CLOTH AND EACH OF THE BALES CONTAINED SE VERAL HUNDRED / THOUSAND METERS OF RAW FABRIC CLOTH. THE ASSESSEE BY VARIO US PROCESS AND BY USING AND CONSUMING VARIOUS OTHER RAW MATERIALS LIKE, COL OURS AND CHEMICALS ETC. 20 OBTAINED FINISHED PRODUCT WHICH WERE SOLD IN THE MA RKET IN A DIFFERENT NAME THEN THAT OF RAW MATERIAL USED AND THE USE OF RAW M ATERIAL I.E RAW OF FABRIC HAD NOT NO RLEVASNTY AND CONNECTIVITY WITH THE USE OF FINISHED GOODS PRODUCED AND MARKETED BY THE ASSESSEE I.E. POLPLIN WHICH WAS SOLD IN THANS AND METERS AND NOT IN BALES. THE LD CIT(A) REFEREE D TO THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF INDIA CINE AGE NOIS VS. CIT REPORTED IN 175 TAXMAN 361 (SC) AND THE DECISION OF THE ITAT MU MBAI BENCH IN THE CASE OF SHAH ORIGINALS VS. ACIT, REPORTED IN 19 SOT 568 AND OBSERVED THAT THE ASSESSEE CARRIED OUT THE WORK OF WASHING BY JO B WORK AND ITSELF CARRIED OUT THE BLEACHING, DYEING AND PADDING TO PRODUCE FI NISHED PRODUCT NAMELY POPLIN. THE LD CIT(A) FURTHER OBSERVED THAT THE VA RIOUS GOVERNMENT AUTHORITIES SUCH AS CENTRAL EXCISE, FACTORY AUTHORI TIES, INDUSTRIAL DEPARTMENT AND ESI AUTHORITIES HAVE ACCEPTED THE AS SESSEE CONCERN AS AN INDUSTRIAL UNDERTAKING ENGAGED IN THE BUSINESS OF M ANUFACTURE AND PRODUCTION OF FINISHED PRODUCTS NAMELY POPLIN OUT OF GREY CL OTH WHICH WAS DIFFERENT ARTICLE OR THING FROM GREY CLOTH. HE, THEREFORE, HE LD THAT THE ASSESSEE WAS MANUFACTURING THE FINISHED PRODUCT NAMELY POPLIN F ROM GREY CLOTH AND ACCORDINGLY IT FULFILLED THE THIRD CONDITION OF THE PROVISIONS OF SECTION 80IB(2) OF THE ACT. 21. AS REGARDS TO THE LAST CONDITION, WHICH REQUIRE S THAT THE INDUSTRIAL UNDERTAKING SHALL MANUFACTURE OR PRODUCE ARTICLE O F THINGS BY EMPLOYING 10 OR MORE WORKERS IN THE MANUFACTURING PROCESS CARRIE D OUT WITH THE AID OF POWER OR EMPLOY 20 OR MORE WORKERS WITHOUT THE AID OF POWER, THE LD CIT(A) OBSERVED THAT BEFORE THE ASSESSING OFFICER AS WELL AS BEFORE HIM, THE 21 ASSESSEE FILED COPY OF LEDGER ACCOUNT FOR PAYMENT O F SALARY AND WAGES ALONGWITH COPY OF WAGES REGISTER PRESCRIBING NAME O F THE WORKERS, BASIC RATE, DEDUCTION OF ESI, PF, EPS, LOAN OR ADVANCES, NET PA YABLE AND SIGNATURE OF WORKERS WHICH REVEALED THAT THE ASSESSEE HAD EMPLOY ED 12 WORKERS IN THE MONTH OF APRIL 2004 AND WAS CONTINUOUSLY HAVING TIL L THE END OF THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2005 -06, MORE THAN 10 WORKERS AND HAD DEDUCTED ESI ON PAYMENT OF WAGES AN D THE COPIES OF CHALLANS OF PAYMENTS OF ESI WERE FURNISHED. THE LD CIT(A) POINTED OUT THAT AS PER EMPLOYEES STATE INSURANCE ACT, 1948, AN ESTA BLISHMENT WHO EMPLOYS MORE THAN 10 WORKERS, AND ENGAGE IN MANUFACTURING, THE ACT WAS APPLICABLE AND IN ASSESSEES CASE, AN INSPECTION BY THE OFFICE R OF EMPLOYEES STATE INSURANCE CORPORATION, JAIPUR WAS CARRIED OUT IN TH E MONTH OF APRIL, 2004 AND IT WAS FOUND THAT 12 WORKERS WERE WORKING IN TH E FACTORY PREMISES OF THE ASSESSEE AND ACCORDINGLY IT WAS DIRECTED TO GET REG ISTRATION UNDER ESI ACT. THE LD CIT(A) POINTED OUT THAT THE ASSESSEE FURNISH ED ITS APPLICATION FOR REGISTRATION UNDER ESI ACT MENTIONING THAT IT HAD E MPLOYED MORE THAN 12 WORKERS IN ITS FACTORY PREMISES. THE LD CIT(A) DIS CUSSED THE DEFINITION OF FACTORY GIVEN IN ESI ACT, 1948 AND THE MEANING OF POWER AS DEFINED IN EMPLOYEES STATE INSURANCE ACT, 1984 AND CAME TO THE CONCLUSION THAT THE ASSESSEE HAD TAKEN POWER CONNECTION AND UTILIZED EL ECTRICITY WHICH WAS MEASURED IN UNITS AND BILLS FOR EXPENSES WERE ISSU ED BY RSEB DURING THE YEAR UNDER CONSIDERATION FOR MANUFACTURING / PROCES SING OF CLOTH AND THAT THE ASSESSEE OBTAINED CERTIFICATE FROM THE ESIC, JAIPUR AND WAS DEDUCTING ESI STARTING FROM APRIL, 2004 IN RESPECT OF 12 WORKER E MPLOYED IN THE FACTORY FOR MANUFACTURING OF THE FINISHED GOODS WITH THE AID OF POWER AND THE SAME WAS PAID TO THE ESIC. HE ALSO OBSERVED THAT THE ASSESS EE OBTAINED A CERTIFICATE 22 FROM THE DEPARTMENT OF FACTORY AND BOILERS SHOWING 12 WORKERS AND UTILIZATION OF POWER UP TO 4 H.P. FOR MANUFACTURING OF FINISHED GOODS AND ALSO OBTAINED CERTIFICATE FROM DISTRICT INDUSTRIAL SUB CENTRE, BALTORA FOR CLOTH DYEING WITH JIGGER AND FINISHING OF GOODS WIT H BLEACHING, PADDING AND RAPPING ETC. ACCORDING TO LD CIT(A), THE ABOVE REG ISTRATIONS AND REQUIREMENTS OF VARIOUS GOVERNMENT DEPARTMENTS FOR GRANTING CERTIICATES CLEARLY SHOWED THAT THE ASSESSEE HAD EMPLOYED / UTI LIZED MORE THAN 10 WORKERS FOR CARRYING OUT MANUFACTURING PROCESS WITH THE AID OF POWER IN THE YEAR UNDER CONSIDERATION. THE LD CIT(A) ALSO OBSER VED THAT THE ASSESSEE INCURRED ELECTRICITY EXPENSES OF RS. 70,640/- AND G ENERATOR EXPENSES OF RS. 1,23,355/- FOR THE PURPOSE OF MANUFACTURING OF GOOD S AS WELL AS FOR OFFICE, FOLDING, PACKING OF FINISHED GOODS IN HALL BY UTILI ZING FAN, TUBE LIGHTS AND IN OFFICE USE, SO THERE WAS NO DISPUTE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD USED ELECTRICITY THOUGH ACCORDING TO ASSESSING OFFICER IT WAS VERY LESS OR NOMINAL. HOWEVER, FACT REMAINED T HAT THE ASSESSEE WAS UTILIZING POWER TO PROCESS / MANUFACTURING POPLIN OUT OF GREY CLOTH. 22. THE LD CIT(A) OBSERVED THAT IN THE ASSESSEES P ROCESS, THE REQUIREMENT OF CONSUMPTION OF ELECTRICITY WAS VERY LESS AS NO B IG PLANT AND MACHINERY OR ESTABLISHMENT WERE REQUIRED EXCEPT USE OF ELECTRICI TY IN RUNNING OF SMALL HORSE POWER MOTORS FOR OPERATIONS OF JIGGER, MIXTUR ES, PADDING ETC. THEREFORE, ON THE BASIS OF ELECTRICITY EXPENSES, IT CANNOT BE SAID THAT THE ASSESSEE WAS NOT ENGAGED IN THE MANUFACTURING ACTIV ITY. RELIANCE WAS PLACED ON THE DECISION OF THE ITAT CHANDIGARH IN THE CASE OF M/S SHOGI COMMUNICATION VS DCIT, REPORTED IN 009 SOT 0489. T HE LD CIT(A) POINTED 23 OUT THAT AS PER THE LAID DOWN PLAN, A 2 HORSE POWE R MOTOR CONSUMES 1.5 UNIT OF ELECTRICITY PER HOUR AND A ONE AND HALF H.P. MOT OR INSTALLED FOR PADDING PROCESS CONSUME ONE UNIT OF ELECTRICITY PER HOUR AN D ONE HORSE POWER WATER PUMP CONSUME ONE UNIT IN ONE HOUR ONLY. AS THE ASS ESSEES FACTORY WORKED IN SINGLE SHIFT OF EIGHT HOUR, IT CONSUMED ELECTRIC ITY NOT MORE THAN 28 UNITS PER DAY. HE FURTHER OBSERVED THAT THE CLOTH WAS DI LUTED WITH BOILED WATER WHICH WAS BOILED WITH THE AID OF FUEL, THEREFORE, I T WOULD BE CLEAR THAT THE ELECTRICITY EXPENSES AND GENERATOR EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT WERE SUFFICIENT TO PRODUCE SALE SHOWN IN PR OFIT AND LOSS ACCOUNT. THE RELIANCE WAS PLACED ON THE DECISION OF THE ITAT MUMBAI IN THE CASE OF SHREE PAR FRAGRANCE P. LTD VS. ITO REPORTED IN 20 S OT 440. THE LD CIT(A) HELD THAT THE ASSESSEE HAD EMPLOYED MORE THAN 10 WO RKERS IN ITS FACTORY PREMISES AND HAD UTILIZED POWER IN MANUFACTURING PR OCESS TO PRODUCE FINISHED GOODS OUT OF GREY CLOTH I.E. POPLIN. TH E LD CIT(A) POINTED OUT THAT THE ASSESSEE HAD CONSUMED COLOUR, CHEMICAL, PACKING MATERIAL AND FUEL AMOUNTING TO RS. 90,13,295/- AND INCURRED MANUFACTU RING AND PROCESSING EXPENDITURE OF RS. 53.43,947/- IN ADDITION TO PURCH ASE OF RAW MATERIAL OF RS. 7,29,49,642/- AND HAD SHOWN CLOSING STOCK TO THE EX TENT OF RS. 1,21,66,830/-. HE ALSO POINTED OUT THAT THE ASSESSEE HAD CLAIMED P AYMENT OF ESI AMOUNTING TO RS. 26,398/- WHICH CLEARLY SHOWED THAT THE ASSES SEE WAS ENGAGED IN MANUFACTURING / PROCESSING OF FINISHED GOODS NAMEL Y POPLIN OUT OF GREY CLOTH BY SUBJECTING ON VARIOUS PROCESSES WITH THE A ID OF POWER AND EMPLOYED MORE THAN 10 WORKERS IN THE FINANCIAL YEAR UNDER C ONSIDERATION, THEREFORE, THE ASSESSEE FULFILLED FOUR CONDITIONS PRESCRIBED I N SECTION 80IB(2) OF THE INCOME TAX ACT, 1961. THE LD CIT(A) POINTED OUT TH AT THE ASSESSING OFFICER IN SETTING ASIDE THE ASSESSMENT ORDER HAD OBSERVED THAT WITH THE SMALLNESS OF 24 ELECTRICITY EXPENSES, THE ASSESSEE COULD NOT PRODUC E AND SOLD GOODS WORTH OF RS. 8.01 CRORES ON THIS OBSERVATION, THE LD CIT(A) STATED THAT THE ASSESSING OFFICER HAD NOT BROUGHT ANY EVIDENCE ON RECORD FOR HIS FINDINGS WHICH WAS BASED ON SURMISES AND PRESUMPTION AND THAT FROM THE DETAILS GIVEN IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE HAD PURCHASE D GREY CLOTH TO THE TUNE OF RS. 7.29 CRORES AND HAD UTILIZED VARIOUS CONSUMABLE S IN THE PROCESS OF MANUFACTURING OF FINISHED GOODS WHICH HAD NOT BEEN DISPUTED BY THE ASSESSING OFFICER. HE ALSO OBSERVED THAT THE ASSESS EE FURNISHED DETAILS OF CAPACITY OF PRODUCTION OF FINISHED GOODS OF THE ASS ESSEES UNDERTAKING, WHICH REVEALED THAT THE ASSESSEE COULD PROCESS / MANUFACT URE 99 LAKHS METERS OF GREY CLOTH OF WORTH OF RS. 14.85 CRORES BY APPLYING SELLING PRICE AT RS. 15/- WHEREAS THE ASSESSEE HAD SHOWN SALES OF RS. 8.01 CO RES AND THE ASSESSING OFFICER HAD NOT BROUGHT ON RECORD ANY EVIDENCE TO SUGGEST ANY TRANSFER ENTRY OF FINISHED GOODS EITHER FROM THE SISTER CONCERN OR BY WAY OF UNACCOUNTED PURCHASES, THEREFORE, IN THE ABSENCE OF ANY DOCUMEN TARY EVIDENCE OR PROPER VERIFICATION OF FACTS AND BRINGING PRIMARY FACTS O N RECORD, THE FINDINGS OF ASSESSING OFFICER THAT THE ASSESSEE MIGHT HAVE PURC HASED OR TRANSFERRED GOODS FROM SISTER CONCERN, HAVE TO BE IGNORED. RELI ANCE WAS PLACED ON THE DECISION OF ITAT JAIPUR IN THE CASE OF DCIT VS ASS OCIATED STONE INDUSTRIES, KOTA LTD REPORTED IN XXII TAXWORLD 155. THE LD CIT (A) HELD THAT THE ASSESSEE FULFILLED THE CONDITIONS LAID DOWN IN THE PROVISIONS OF SECTION 80IB(2) OF THE ACT AND WAS ELIGIBLE FOR DEDUCTION U /S 80IB OF THE ACT AS WAS ALLOWED IN THE ORIGINAL ASSESSMENT ORDER DATED 27.9 .2006. HE ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO ALLOW DEDUCTION O F RS. 28,63,551/-. NOW, THE DEPARTMENT IS IN APPEAL. 25 23. THE LD. DR STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND FURTHER SUBMITTED THAT THE ASSESSEE PURCHASED THE P LANT AND MACHINERY IN THE MONTH OF FEBRUARY ONLY, SO, IT WAS NOT POSSIBLE TO ACHIEVE THE TURNOVER SHOWN BY THE ASSESSEE. IT WAS FURTHER STATED THAT NO DETAIL OF EXPENSES WAS FURNISHED BY THE ASSESSEE AND THE COST OF THE ELECT RICITY WAS VERY LOW FOR THE PRODUCTION CLAIMED TO HAVE BEEN ACHIEVED BY THE ASS ESSEE. THEREFORE, THE ASSESSING OFFICER WAS FULLY JUSTIFIED IN DISALLOWIN G THE CLAIM OF THE ASSESSEE FOR THE DEDUCTION U/S 80IB OF THE ACT. 24. IN HIS RIVAL SUBMISSIONS, LD. COUNSEL FOR THE A SSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND STRONGLY SUPPORTED THE IMPUGNED ORDER PASSED BY THE LD CIT(A). IT WAS FU RTHER STATED THAT THE ASSESSEE WAS ENGAGED IN THE PRODUCTION OF POPLIN CLOTH AND MACHINERY WERE INSTALLED TO ACHIEVE THE TURN OVER. IT WAS CONTEND ED THAT THE ASSESSEE ENGAGED SUFFICIENT NUMBER OF LABOURERS AND ALSO USE D THE ELECTRICITY TO RUN THE UNIT AND THAT THE EXPENSES WERE INCURRED ON LAB OUR ENGAGED IN MANUFACTURING PROCESS FOR DYEING, PADDING, RAPPING, BALES PACKING ETC. AND THE MONTHLY WAGES / SALARY PER WORKER FAIRLY COMMEN SURATE WITH THE WAGE RATE PREVAILING IN THE MARKET DURING THE RELEVANT Y EAR. IT WAS FURTHER STATED THAT THE ASSESSEE FILED THE AUDIT REPORT IN FORM NO . 10CCB TO CLAIM THE DEDUCTION U/S 80IB AND FULFILLED ALL THE CONDITIONS AND THE CLAIM WAS ALLOWED BY THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT PROCEEDINGS. IT WAS STATED THAT THE ASSESSEE EXPLAINED TO THE ASSESSING OFFICER THAT HOW THE PRODUCTION WAS ACHIEVED, THE SAME HAS BEEN DISCUSSE D AT PAGE NO.5 OF THE 26 ASSESSMENT ORDER. IT WAS CONTENDED THAT THE ASSESS EE WAS HAVING GENERATOR WHICH WAS USED WHEN THE ELECTRICAL POWER WAS NOT AV AILABLE TO OPERATE MOTOR FOR RUNNING THE JIGGER AND THE EXPENSES INCURRED ON ELECTRICITY WERE SUFFICIENT TO ACHIEVE THE TURN OVER SHOWN BY THE ASSESSEE, THE REFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN OBSERVING THAT ELECTRI CITY CONSUMPTION BY THE ASSESSEE WAS NOT SUFFICIENT TO ACHIEVE THE TURNOVER AND IN DENYING THE DEDUCTION CLAIMED BY THE ASSESSEE ONLY ON THAT BASI S. IT WAS CONTENDED THAT CLAIM FOR DEDUCTION U/S 80IB OF THE ACT WAS ALLOWED BY THE ASSESSING OFFICER FOR PRECEDING ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2004-05, SO THERE WAS NO REASON TO DEVIATE FOR THE YEAR UNDER CONSIDERATION WHEN THE ACTIVITIES OF THE ASSESSEE FOR BOTH THE YEARS WERE SAME. RELIANCE WAS PLACED ON THE DECISION OF THE ITAT, LUCKNOW B BENCH IN THE CASE OF TAHR EEM ELECTRICALS (P) LTD VS. ACIT (2007)112 TTJ 586. RELIANCE WAS ALSO PL ACED ON THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F M/S GRACE EXPORTS, AMBERI, UDAIPUR VS. ITO, WARD-2(1), UDAIPUR IN ITA NO. 16/2010 ORDER DATED 29.8.2012. COPY OF THE SAME WAS FURNISHED WH ICH IS AVAILABLE ON RECORD. 25. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIALS AVAILABLE ON RECORD. IN THE PRESENT CASE, THE ASSESSEE CLAIMED THE DEDUCTION U/S 80IB OF THE ACT. THE PROVISIONS CONTAINED IN THE SECTION 80IB(2) OF THE ACT WHICH A RE ESSENTIAL TO CLAIM THE DEDUCTION U/S 80IB(5) OF THE ACT ARE FOLLOWING:- DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM CER TAIN INDUSTRIAL UNDERTAKINGS OTHER THAN INFRASTRUCTURE DEVELOPMENT UNDERTAKINGS. 27 80-IB. (2) THIS SECTION APPLIES TO ANY INDUSTRIAL UNDERTA KING WHICH FULFILS ALL THE FOLLOWING CONDITIONS, NAMELY: (I) IT IS NOT FORMED BY SPLITTING UP, OR THE RECON STRUCTION, OF A BUSINESS ALREADY IN EXISTENCE : PROVIDED THAT THIS CONDITION SHALL NOT APPLY IN RESPECT OF A N INDUSTRIAL UNDERTAKING WHICH IS FORMED AS A RESULT OF THE RE-E STABLISHMENT, RECONSTRUCTION OR REVIVAL BY THE ASSESSEE OF THE BU SINESS OF ANY SUCH INDUSTRIAL UNDERTAKING AS IS REFERRED TO IN SECTION 33B , IN THE CIRCUMSTANCES AND WITHIN THE PERIOD SPECIFIED IN THAT SECTION; (II) IT IS NOT FORMED BY THE TRANSFER TO A NEW BU SINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE; (III) IT MANUFACTURES OR PRODUCES ANY ARTICLE OR TH ING, NOT BEING ANY ARTICLE OR THING SPECIFIED IN THE LIST IN THE ELEVENTH SCHEDUL E, OR OPERATES ONE OR MORE COLD STORAGE PLANT OR PLANTS, IN ANY PART OF INDIA : PROVIDED THAT THE CONDITION IN THIS CLAUSE SHALL, IN RELATIO N TO A SMALL SCALE INDUSTRIAL UNDERTAKING OR AN INDUSTRIAL UNDERTAKING REFERRED TO IN SUB-SECTION (4) SHALL APPLY AS IF THE WORDS 'NOT BEING ANY ARTI CLE OR THING SPECIFIED IN THE LIST IN THE ELEVENTH SCHEDULE' HAD BEEN OMITTED. EXPLANATION 1.FOR THE PURPOSES OF CLAUSE (II), ANY MACHINERY OR PLANT WHICH WAS USED OUTSIDE INDIA BY ANY PERSON OTHER THAN THE ASSESSEE SHALL NOT BE REGARDED AS MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE, IF THE FOLLOWING CONDITIONS ARE FULFILLED, NAMELY : (A) SUCH MACHINERY OR PLANT WAS NOT, AT ANY TIME PREVIOUS TO THE DATE OF THE INSTALLATION BY THE ASSESSEE, USED IN INDIA; (B) SUCH MACHINERY OR PLANT IS IMPORTED INTO INDI A FROM ANY COUNTRY OUTSIDE INDIA; AND (C) NO DEDUCTION ON ACCOUNT OF DEPRECIATION IN RE SPECT OF SUCH MACHINERY OR PLANT HAS BEEN ALLOWED OR IS ALLOWABLE UNDER THE PR OVISIONS OF THIS ACT IN COMPUTING THE TOTAL INCOME OF ANY PERSON FOR ANY PE RIOD PRIOR TO THE DATE OF THE INSTALLATION OF THE MACHINERY OR PLANT BY THE A SSESSEE. EXPLANATION 2.WHERE IN THE CASE OF AN INDUSTRIAL U NDERTAKING, ANY MACHINERY OR PLANT OR ANY PART THEREOF PREVIOUSLY U SED FOR ANY PURPOSE IS TRANSFERRED TO A NEW BUSINESS AND THE TOTAL VALUE O F THE MACHINERY OR PLANT OR PART SO TRANSFERRED DOES NOT EXCEED TWENTY PER CENT OF THE TOTAL VALUE OF THE MACHINERY OR PLANT USED IN THE BUSINESS, THEN, FOR THE PURPOSES OF CLAUSE (II) OF THIS SUB-SECTION, THE CONDITION SPECIFIED THEREIN S HALL BE DEEMED TO HAVE BEEN COMPLIED WITH; 28 (IV) IN A CASE WHERE THE INDUSTRIAL UNDERTAKING MAN UFACTURES OR PRODUCES ARTICLES OR THINGS, THE UNDERTAKING EMPLOYS TEN OR MORE WORKERS IN A MANUFACTURING PROCESS CARRIED ON WITH THE AID OF PO WER, OR EMPLOYS TWENTY OR MORE WORKERS IN A MANUFACTURING PROCESS CARRIED ON WITHOUT THE AID OF POWER. 26. FROM THE ABOVE PROVISIONS IT IS CLEAR THAT THE FIRST CONDITION TO BE FULFILLED IS THAT THE ASSESSEE SHALL NOT BE FORMED BY SPLITTING OR RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE. IN THE PRESENT CASE, NOTHING WAS BROUGHT ON RECORD TO SUBSTANTIATE THAT THE ASSE SSEE WAS FORMED BY SPLITTING OR RECONSTRUCTION OF A BUSINESS ALREADY I N EXISTENCE. THE ASSESSEE INSTALLED ITS MACHINERY AT THE PREMISES SITUATED AT E-4, IST PHASE, INDUSTRIAL AREA, BALTORA AND E-3, RIICO, INDUSTRIAL AREA, PHAS E-3, BALATORA FOR MANUFACTURING OF POPLIN FROM GREY CLOTH. THE LD CIT(A) CATEGORICALLY STATED IN PARA 6.6 OF THE IMPUGNED ORDER THAT BALOR A IS IN BARMER DSITRICT WHICH IS DECLARED AS INDUSTRIALLY BACKWARD DISTRIC T AS PER NOTIFICATION NO.714 (E) DATED 7.10.1997 ISSUED BY THE CBDT IN AC CORDANCE WITH THE PROVISIONS OF SECTION 80IB(5) OF THE ACT. THE ASSE SSEE INSTALLED PLANT AND MACHINERY IN THE PRECEDING YEARS RELEVANT TO THE AS SESSMENT YEARS 2003-04 AND 2004-05, SO THERE WAS NO MERIT IN THIS CONTENTI ON OF THE LD DR THAT THE MACHINERY WAS INSTALLED IN THE MONTH OF FEBRUARY 20 05 AND IT WAS NOT POSSIBLE TO ACHIEVE THE TURN OVER OF RS. 8.01 CRORE S. IN THE PRESENT CASE, THE ASSESSEE HAD TAKEN ONE VACANT PLOT AND ANOTHER WITH OFFICE BUILDING & TAKEN ELECTRIC CONNECTION FROM SHRI PURSHOTTAM DASS AND M /S PURSHOTTAM TEXTILES. THE INDUSTRIAL UNDERTAKING WAS ESTABLISHED BY THE A SSESSEE AND MANUFACTURING ACTIVITIES WERE STARTED, AS SUCH, THE ASSESSEE FULFILLED THE FIRST CONDITION OF SECTION 80IB(2) OF THE ACT. AS PER THE SECOND CONDITION, THE INDUSTRIAL UNDERTAKING SHOULD NOT BE FORMED BY TRAN SFER OF A NEW BUSINESS 29 MACHINERY OR PLANT PREVIOUSLY USED FOR ANY BUSINESS . IN THE PRESENT CASE, THE ASSESSEE HAD TAKEN A NEW MACHINERY TO ESTABLISH A N EW INDUSTRIAL UNDERTAKING AND NOTHING CONTRARY WAS BROUGHT ON RECORD, THEREFO RE, THE ASSESSEE FULFILLED THE SECOND CONDITION ALSO. THE THIRD CONDITION IS THAT THE ASSESSEE MUST MANUFACTURE OR PRODUCE ANY ARTICLE OR THING IN ANY PART OF INDIA EXCEPT THE ARTICLES OR THINGS SPECIFIED IN 11 TH SCHEDULE. IN THE PRESENT CASE, THE ASSESSEE MANUFACTURED POPLIN I.E. FINISHED PRODUCT OUT OF GREY CLOTH I.E RAW MATERIAL BY CARRYING OUT ACTIVITIES SUCH AS WASHING, BLEACHI NG, DYEING, PADDING AND RAPPING ETC. AND THE FINISHED PRODUCT IS ALTOGETHER DIFFERENT FROM THE RAW MATERIAL IN ITS PROPERTIES AND EVEN THE DEPARTMENT IN THE PRECEDING YEAR HAS ALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/ S 80IB OF THE ACT BY CONSIDERING THAT THE ASSESSEE WAS ENGAGED IN MANUFA CTURING ACTIVITIES. MOREOVER, THE VARIOUS GOVERNMENT AUTHORITIES SUCH A S CENTRAL EXCISE, INDUSTRIAL DEPARTMENT, ESI AUTHORITIES ETC. HAVE A CCEPTED BY ISSUING THE VARIOUS CERTIFICATES THAT THE ASSESSEE IS AN INDUST RIAL UNDERTAKING ENGAGED IN THE BUSINESS OF MANUFACTURING OR PRODUCTION OF FINI SHED PRODUCT NAMELY POPLIN OUT OF GREY CLOTH, WHICH IS A DIFFERENT AR TICLE OR THING FROM THE RAW MATERIAL, THEREFORE, THE ASSESSEE ALSO FULFILLED TH E THIRD CONDITION LAID DOWN IN SECTION 80IB (2) OF THE ACT. THE FOURTH AND LAS T CONDITION PROVIDES THAT THE INDUSTRIAL UNDERTAKING MUST EMPLOY 10 OR MORE W ORKERS, IF MANUFACTURING PROCESS IS CARRIED OUT WITH THE AID OF POWER OR EMP LOY 20 OR MORE WORKERS IF THE MANUFACTURING PROCESS IS WITHOUT AID OF POWER. IN THE PRESENT CASE, THE LD CIT(A) AFTER VERIFYING FROM THE WAGES REGISTER F OUND THAT 12 WORKERS WERE WORKING CONTINUOUSLY FORM APRIL, 2004 TO THE END OF THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. TH EREFORE, THE ASSESSEE FULFILLED THE CONDITION OF EMPLOYING MORE THAN 10 W ORKERS AND MANUFACTURE 30 THE GOODS WITH THE AID OF POWER. THE ASSESSEE DEDUC TED ESI ON THE PAYMENT OF WAGES TO THE WORKERS AND ESI ACT IS APPLICABLE O N THE FACTORY WHICH IS ESTABLISHED AND ENGAGED IN MANUFACTURING OF GOODS B Y EMPLOYING MORE THAN 10 WORKERS. IN THE PRESENT CASE, THE ASSESSEE OBTA INED A CERTIFICATES FROM THE DEPARTMENT OF FACTORY AND BOILER SHOWING THAT T HE ASSESSEE WAS HAVING 12 WORKERS, UTILIZED THE POWER UP TO 4 H.P. FOR MAN UFACTURING OF FINISHED GOODS. THE SAID CERTIFICATE IS NOT DOUBTED AT ANY S TAGE, THEREFORE, THE ASSESSEE ALSO FULFILLED THE FOURTH CONDITION LAID D OWN IN SECTION 80IB(2) OF THE ACT TO CLAIM THE DEDUCTION U/S 80IB(5) OF THE ACT. IN THE PRESENT CASE, THE MAIN OBJECTION OF THE ASSESSING OFFICER FOR DE NYING THE DEDUCTION U/S 80IB OF THE ACT WAS THAT IT WAS NOT POSSIBLE FOR TH E ASSESSEE TO ACHIEVE THE TURN OVER OF RS. 8,01,81,703/- WITH ELECTRICITY CON SUMPTION OF RS. 70,982/- ONLY. IN THIS REGARD, THE EXPLANATION OF THE ASSES SEE WAS THAT APART FROM THE ELECTRICITY EXPENSES OF RS. 70,640/-, GENERATOR EXP ENSE OF RS. 1,23,355/- WERE INCURRED WHICH WERE SUFFICIENT TO RUN 4 H.P. MACHINE REQUIRED TO RUN 15 JIGGERS, WHICH WAS CONNECTED WITH THE SHAFT FUNC TIONING WITH 2 H.P. MOTOR AND FOR PADDING PROCESS, ONE AND HALF HORSE P OWER WAS SUFFICIENT. AS PER THE LAY OUT PLAN, A TWO HORSE POWER MOTOR CONSU MES 1.5 UNIT OF ELECTRICITY PER HOUR AND FOR PADDING PROCESS, ONE A ND A HALF H.P. MOTOR CONSUME ONE UNIT OF ELECTRICITY PER HOUR. ANOTHER M OTOR OF ONE HORSE POWER USED FOR WATER PUMP CONSUMES ONE UNIT IN ONE HOUR A ND THE ASSESSEE WAS RUNNING THE FACTORY ON SINGLE SHIFT BASIS OF EIGHT HOURS, THEREFORE, CONSUMPTION OF ELECTRICITY WOULD NOT BE MORE THAN 2 8 UNITS PER DAY. WHILE PROCESSING THE CLOTH, BOILED WATER WAS REQUIRED WHI CH WAS OBTAINED WITH THE AID OF FUEL AND THE ASSESSEE INCURRED EXPENSES OF R S. 5,53,948/- ON ACCOUNT OF FUEL CHARGES. WE, THEREFORE, DO NOT SEE ANY JUSTIF ICATION ON THE PART OF 31 ASSESSING OFFICER WHILE PRESUMING THAT THE EXPENSES CLAIMED BY THE ASSESSEE ON ACCOUNT OF ELECTRICITY WERE NOT SUFFICIENT TO AC HIEVE THE TURN OVER SHOWN BY IT. IN THE PRESENT CASE, THE ASSESSING OFFICER ACCEPTED THE PURCHASE OF GREY CLOTH WHICH WAS USED AS A RAW MATERIAL OF THE FINISHED PRODUCT I.E POPLIN WHICH WAS OBTAINED AFTER APPLYING VARIOUS PROCESSES LIKE PADDING, WASHING, DYEING, FURNISHING AND WRAPPING OF THE CLO TH. THE ASSESSING OFFICER ALSO ACCEPTED THE SALE OF THE FINISHED GOODS SHOWN BY THE ASSESSEE, SO THERE WAS NO REASON TO DENY THE CLAIM OF DEDUCTION U/S 80 -IB(5) OF THE ACT WHEN THE ASSESSEE FULFILLED ALL THE CONDITIONS LAID DOWN IN THE PROVISIONS OF SECTION 80IB(2) OF THE ACT. IN THE PRESENT CASE, THE ASSES SING OFFICER ALTHOUGH ALLEGED THAT THE ASSESSEE MIGHT HAVE PURCHASED A FI NISHED PRODUCT FROM OTHER SOURCES AND DID NOT MANUFACTURE IN ITS UNIT, HOWEVE R, THE PURCHASE OF GREY CLOTH WHICH IS A RAW MATERIAL IN THE ASSESSEES IND USTRIAL UNDERTAKING HAS NOT BEEN DOUBTED. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE ASSESSEE SOLD THE GREY CLOTH IN RAW FORM AND DID NOT USE THE SAME IN MANUFACTURING POPLIN WHICH IS THE FINISHED PRODUCT. THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED WHILE ALLEGING THAT THE POSSIBILITY O F ASSESSEES PURCHASING READY GOODS FROM THE MARKET / SISTER CONCERN COULD NOT BE DENIED. FURTHERMORE, THE ASSESSING OFFICER ACCEPTED THE CLA IM OF THE ASSESSEE IN THE PRECEDING YEAR AND ALLOWED DEDUCTION U/S 80IB OF TH E ACT. THEREFORE, KEEPING IN VIEW THE PRINCIPLE OF CONSISTENCY, THE D EDUCTION COULD NOT HAVE BEEN DISALLOWED FOR THE YEAR UNDER CONSIDERATION A S PER RATIO LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F M/S GRACE EXPORTS, AMBERI, UDAIPUR VS. ITO, WARD-2(1), UDAIPUR (SUPRA) , WHEREIN IT HAS BEEN LAID DOWN AS UNDER:- 32 IN VIEW OF WHAT HAS BEEN FOUND HEREINABOVE IN QUES TION NO.1 THERE APPEARS NO NECESSITY OF MUCH DILATATION ON QU ESTION NO.2. SUFFICE IS TO OBSERVE THAT IF THE BENEFITS HA VE BEEN GRANTED FOR THE ABOVE YEAR 2003-04 UNDER SECTION 10 -B OF THE ACT; AND THE BENEFIT IS AVAILABLE FOR A BLOCK OF 10 YEARS, IT CANNOT, ORDINARILY, BE WITHDRAWN WHEN THE NATURE OF WORK AND BENEFIT REMAIN THE SAME. 27. IN THE PRESENT CASE ALSO, THE DEDUCTION U/S 80I B IS AVAILABLE FOR TEN CONSECUTIVE ASSESSMENT YEARS AND THE ASSESSEE CLAIM ED THE DEDUCTION FIRST TIME FOR THE ASSESSMENT YEAR 2004-05, THEREFORE, TH E BENEFIT WAS AVAILABLE TO THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WHEN NOTHING WAS BROUGHT ON RECORD TO SUBSTANTIATE THAT THERE WAS CHANGE IN THE ACTIVITIES AND NATURE OF THE WORK OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATI ON VIS-A-VIS THE PRECEDING YEAR I.E. 2004-05. SIMILAR VIEW HAS ALSO BEEN TAKE N BY THE ITAT, LUCKNOW B BENCH IN THE CASE OF TAHREEM ELECTRICALS (P) LT D VS. ACIT (2007) 112 TTJ (LUCK) 586 (SUPRA),WHEREIN IT AHS BEEN HELD AS UNDER:- IT IS AN ADMITTED FACT THAT THE ASSESSEE-COMPANY I S CLAIMING DEDUCTIONS UNDER SS. 80HH AND 80-I SINCE ASSESSMENT YEAR 1992-93.THE DEPARTMENT HAS ALLOWED DEDUCTIONS UNDER SS. 80HH AND 80-I FOR THE ASSESSMENT YEARS 1992-93, 199 3-94, 1994-95, 1995-96, 1996-97 AND 1997-98. EVEN THE AS SESSING OFFICER ALLOWED DEDUCTIONS UNDER SS.80HH AND 80-I T O THE ASSESSEE FOR THE ASSESSMENT YEAR 1998-99. THE DEDU CTIONS, IN QUESTION, ARE AVAILABLE TO AN ASSESSEE FOR 8 YEARS AND THE YEAR UNDER CONSIDERATION IS THE LAST YEAR. THE CIT (A) HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THE RE WAS ANY CHANGE IN THE ACTIVITIES OF THE ASSESSEE AS COM PARED TO THE EARLIER YEARS. THUS, IT IS CLEAR THAT SINCE AS SESSMENT YEARS 1992-93 TO 1997-98, THE ASSESSEE HAS BEEN CON SISTENTLY 33 GETTING DEDUCTIONS UNDER SS. 80HH AND 80-I, CIT(A) WAS NOT JUSTIFIED IN WITHDRAWING THE DEDUCTIONS IN QUESTION . 28. IN THE PRESENT CASE ALSO, THE ASSESSING OFFICER ALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80IB OF THE ACT FOR THE ASSESSMENT YEAR 2004-05 AND THERE IS NO CHANGE IN THE FACTS FOR THE ASSESSM ENT YEAR UNDER CONSIDERATION AS WELL AS IN THE ACTIVITIES OF THE A SSESSEE AS COMPARED TO THE SAID EARLIER YEAR, THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DENYING THE CLAIM OF THE ASSESSEE. IN OUR OPINION, THE LD CIT(A) HAS PASSED A JUST AND WELL REASONED ORDER WHICH REQUIRES NO INTE RFERENCE ON OUR PART. IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY MERIT IN THIS APPEAL OF THE DEPARTMENT. 29. IN ITA NO. 112/JU/2011 AND 102/JU/2012 FOR THE ASSESSMENT YEARS 2007-08 AND 2008-09, THE FACTS INVOLVED ARE IDENTIC AL AND EVEN THE RIVAL SUBMISSIONS WERE SIMILAR, THEREFORE, OUR FINDINGS G IVEN IN RESPECT OF ITA NO.111/JU/2011 FOR THE ASSESSMENT YEAR 2005-06 IN T HE FORMER PART OF THIS ORDER SHALL APPLY MUTATIS-MUTANDIS FOR THESE YEARS ALSO. 30. IN THE RESULT, ALL THE APPEALS PREFERRED BY THE DEPARTMENT ARE DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 20.12.2012) SD/- SD/- (HARI OM MARATHA) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMER DATED : 20 TH DECEMBER, 2012 RKK 34 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR BY ORDER ASSISTANT REGISTRAR ITAT, JODHPUR