ACIT Cir.-1, Nashik V. Macks Surface Treatment Pvt. Ltd., Nashik

ITA 1256/PUN/2009

• Counselvise Citation: 125624514 RSA 2009
• Duration Of Justice: 1 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 04-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 30-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY SINGH
• Assessee Lawyers: DR SUNIL PATHAK

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER I.T.A. NO. 1254 TO 1257/PN/2009 A.Y. 2003-04 TO 2006-07 ASSTT. CIT CIR. 1, NASIK APPELLANT VS. MACKS SURFACE TREATMENT PVT .LTD., H-3/9 MIDC, AMBAD, NASIK PAN AACCM 4907 H RESPONDENT DEPARTMENT BY : SHRI SANJAY SINGH ASSESSEE BY : DR. SUNIL PATHAK ORDER PER SHAILENDRA KUMAR YADAV, JM ALL THESE FOUR APPEALS PERTAIN TO THE SAME ASSESSEE AND ARISE OUT OF CONSOLIDATED ORDERS OF CIT(A)-I NA SIK DATED 28-8-2009 FOR A.Y. 2003-04 TO 2006-07. AS THE ISSU ES INVOLVED IN ALL THESE APPEALS ARE SIMILAR, THEY WER E HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE COMMON GROUNDS RAISED BY THE REVENUE IN THES E APPEALS READ AS UNDER: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE THE LD. CIT(A) IS JUSTIFIED IN DELETING TH E ADDITION ON ACCOUNT OF DIRECTORS REMUNERATION FOR A .Y. 2006-07 BY NOT APPRECIATING THE FACT THAT THE ASSES SEE HAS NOT CARRIED OUT ITS LIABILITY OF PROVING THE ON US OF 2 ITA NO. 1254 TO 1257/PN/2007 MACKS SURFACE TREATMENTS A.Y. 2003-04 TO 2006-07 REASONABLENESS AND BUSINESS EXIGENCY OF SUCH AN EXPENDITURE. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) IS JUSTIFIED IN HOLDING THA T THE DIRECTORS REMUNERATION PAID IS REASONABLE AND NOT CONSIDERING THAT THE DIRECTORS REMUNERATION PAID IN A.Y. 2006-07 IS EXCESSIVE CONSIDERING ALL THE RELEV ANT FACTORS. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) IS JUSTIFIED IN ALLOWING TH E DEDUCTION U/S 80-IB(3) WHICH WAS REJECTED BY THE A. O. ASSESSEE FOR ALL THE A.Y UNDER CONSIDERATION. 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) IS JUSTIFIED IN CONSIDERING THAT THE ACTIVITY CARRIED ON BY THE ASSESSEE AS MANUFACTURING AND NOT APPRECIATING THE FACT THAT THE ACTIVITY CARRIED ON BY THE ASSESSEE IS OF PROCESSIN G AND NOT OF MANUFACTURING AND THE FINISHED PRODUCT IS NO T NEW OR TOTALLY DIFFERENT FROM THE RAW MATERIAL USED WHICH IS SUPPLIED BY THE CUSTOMER. 5. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) IS JUSTIFIED IN IGNORING TH E VITAL FACTUAL FINDING OF THE A.O. THAT THE ASSESSEE IS NO T PRODUCING ANY ARTICLE OR THING WHICH IS HE FOREMOST CONDITION FOR AVAILING THE DEDUCTION U/S 80-IB(3) O F THE ACT. 6. THE APPELLANT PRAYS THE ORDER OF THE A.O MAY BE RESTORED. 2. THE FIRST ISSUE IS WITH REGARDS TO DISALLOWANCE MADE IN RESPECT OF REMUNERATION PAID TO DIRECTOR IN A.Y. 20 06-07. THE ASSESSING OFFICER HAS DISALLOWED THE DIRECTORS REMUNERATION STATING THAT THE SAME IS UNREASONABLY HIGH. ON APPEAL, THE CIT(A) DIRECTED THE ASSESSING OFFICE R TO ALLOW THE REMUNERATION OF RS. 12,72,000/- PAID TO D IRECTOR TO SHRI R.G. NIGAM BY APPLYING THE PROVISIONS OF SE CTION 3 ITA NO. 1254 TO 1257/PN/2007 MACKS SURFACE TREATMENTS A.Y. 2003-04 TO 2006-07 40A(2)(B) OF THE ACT. THE SAME HAS BEEN OPPOSED BY THE REVENUE BEFORE US. 2.1. AFTER HEARING BOTH THE PARTIES AND PERUSING TH E MATERIAL ON RECORD, WE FIND THAT THE CIT(A) WAS JUS TIFIED IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE IMPUGN ED DISALLOWANCES ON ACCOUNT OF REMUNERATION PAID TO SH RI R.G. NIGAM. THE ASSESSEE HAS PROVED THE REASONABLENESS OF REMUNERATION PAID TO SAID DIRECTOR SHRI R.G. NIGAM. AS RIGHTLY ALREADY OBSERVED BY THE CIT(A) THE BENEFITS DERIVED BY THE ASSESSEE FROM THE SERVICES RENDERED BY SHRI R.G. NIGAM JUSTIFIED THE REMUNERATION PAID TO HIM. SHRI NIGAM HAS RENDERED VARIOUS SERVICES AS PER LEGITIMATE BUS INESS NEEDS OF THE ASSESSEE. IN VIEW OF THIS, ORDER OF T HE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE AT OUR HAND. TH E SAME IS UPHELD. 3. THE NEXT ISSUE IS WITH REGARDS TO DISALLOWANCE O F DEDUCTION U/S 80-IB(3) OF THE ACT. THE RELEVANT FA CTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PRO CESSING WORK OF ELECTROPLATING/CHROMO PLATING. THE ASSESSE E HAS CLAIMED DEDUCTION U/S 80-IB(3) OF THE ACT FOR THE Y EARS UNDER CONSIDERATION. THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF DEDUCTION U/S 80-IB(3) OF THE ACT O N THE GROUND THAT THE ACTIVITIES CARRIED OUT BY THE ASSES SEE DO 4 ITA NO. 1254 TO 1257/PN/2007 MACKS SURFACE TREATMENTS A.Y. 2003-04 TO 2006-07 NOT RESULT INTO NEW PRODUCT. FURTHER, AS PER THE AS SESSING OFFICER, THE ASSESSEE IS NOT LIABLE TO SALES-TAX AN D EXCISE DUTY AND HENCE THE ACTIVITIES OF THE ASSESSEE ARE N OT THE MANUFACTURING ACTIVITIES. ON APPEAL, THE CIT(A) HE LD THAT THE ACTIVITIES OF THE ASSESSEE ARE THE MANUFACTURIN G ACTIVITIES AND THEREFORE, ENTITLED TO CLAIM DEDUCTI ON U/S 80-IB(3) OF THE ACT. ACCORDINGLY, THE CIT(A) DIREC TED THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE U /S 80- IB(3) OF THE ACT. THE SAME HAS BEEN OPPOSED BEFORE US BY THE REVENUE. 3.1. AFTER HEARING BOTH THE PARTIES AND PERUSING TH E MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAS T O CARRY OUT VARIOUS ACTIVITIES AND PROCESS AS UNDER: I) RAW MATERIAL I.E. INNER AND OUTER TUBES OF IRON RODS ARE OBTAINED/RECEIVED. THESE TUBES ARE CLEANED USING VARIOUS CHEMICALS. II) THE SURFACE OF THE INNER AND OUTER TUBES OF IRO N RODS IS THEN SMOOTHENED BY USING POLISH PAPER AND ALSO CARRYING OUT BUFFING ACTIVITY. III) THESE INNER AND OUTER TUBES OF IRON ARE THEN DIPPED IN TO A TANK CONTAINING MAINLY NICKEL AND OT HER CHEMICALS. THE INTENSE ELECTRICAL CURRENT IS PASSED THROUGH NIKEL AND OTHER CHEMICALS IN TANK AND ALSO THROUGH IRON TUBES. THESE TUBES INTENSE ELECTRICAL CURRENTS RESULTS INTO CHEMICAL REACTION, WHICH RESU LTS IN TO FINE FILM DEPOSITION OF NICKEL ON IRON TUBES. IV) THESE TUBES ARE THEN REMOVED FROM THE TANK AND THE CHEMICAL REACTION CARRIED OUT (AS STATED IN PAR A (III) ABOVE) IS NEUTRALIZED BY DIPPING THE SAME IN CHEMICALS. THEREAFTER AGAIN THE TUBES ARE CLEANED A ND DRIED. 5 ITA NO. 1254 TO 1257/PN/2007 MACKS SURFACE TREATMENTS A.Y. 2003-04 TO 2006-07 V) THESE INNER AND OUTER TUBES OF IRON ARE THEN DIPPED INTO A TANK CONTAINING MAINLY CHROMIUM AND OTHER CHEMICALS. THE INTENSE ELECTRICAL CURRENT IS PASSED THROUGH CHROMIUM AND OTHER CHEMICALS IN TANK AND ALSO THROUGH IRON TUBES. THESE TWO INTENSE ELECTRICAL CURRENTS RESULTS INTO CHEMICAL REACTION, WHICH RESULTS INTO FINE FILM DEPOSITION OF NICKEL I N IRON TUBES. VI) THESE TUBES ARE THEN REMOVED FROM THE TANK AND THE CHEMICAL REACTION CARRIED OUT (AS STATED IN PAR A (V) ABOVE) IS NEUTRALIZED BY DIPPING THE SAME IN CHEMICALS. THEREAFTER AGAIN THE TUBES ARE CLEANED AND DRIED. VII) THEREAFTER THE TUBES ARE CLEANED, POLISHED AND BUFFED TO THE EXTENT THAT THE SURFACE OF THE TUBES LOOKS LIKE MIRROR. VIII) THEN THESE GOODS ARE SENT TO LABORATORY OF QU ALIFY CONTROL DEPARTMENT. IN THIS LABORATORY THE COATING OF NICKEL AND CHROMIUM IS CHECKED FOR ITS THICKNESS ( IN MICRON_ AND ITS STRENGTH. THE QUALITY AND PERFECT ION OF THE COATING AND IS STRENGTH IS CHECKED BY USING COMPUTERIZED MACHINERY. IX) THE RESULTANT WASTAGE OF CHEMICALS DUE TO THE ABOVE PROCESSES IS TO BE COLLECTED IN TANKS AND THE SE CHEMICALS ARE THEN NEUTRALIZED BY USING VARIOUS OTH ER CHEMICALS AS PER STANDARD CONTROLS OF POLLUTION CONTROL DEPARTMENT: THE RESULTANT PRODUCT IS DIFFERENT PRODUCT AFTER CA RRYING OUT VARIOUS PROCESSES ON THE RAW MATERIAL REQUIRED FOR THE PRODUCT BY USING NICKEL, CHROMIUM, CHEMICALS AND US ING ELECTRIC CURRENT ETC. ONCE THE ACTIVITY/PROCESS IS COMPLETED PRODUCT CANNOT BE REVERTED BACK TO ITS ORIGINAL FOR M. THEREFORE, THE ACTIVITIES CARRIED OUT BY THE ASSESS EE ARE MANUFACTURING ACTIVITIES. FOR CLAIMING THE DEDUCTI ON U/S 80-IB(3) HERE SHOULD BE SUBSTANTIAL INVESTMENT OF F RESH 6 ITA NO. 1254 TO 1257/PN/2007 MACKS SURFACE TREATMENTS A.Y. 2003-04 TO 2006-07 CAPITAL, THE INDUSTRIAL UNDERTAKING SHOULD EMPLOY R EQUISITE LABOUR FOR THE PURPOSE OF CARRYING OUT THE MANUFACT URING ACTIVITY AND THE UNIT SHOULD HAVE SEPARATE AND INDE PENDENT ACTIVITY. ALL THESE CONDITIONS HAVE BEEN FULFILLED BY THE ASSESSEE. TAKING ALL FACTS AND CIRCUMSTANCES INTO CONSIDERATION, THE DECISION OF THE CIT(A) ON THIS I SSUE DOES NOT CALL FOR ANY INTERFERENCE AT OUR HAND. THE SAME IS UPHELD. 4. SINCE THE FACTS AS WELL AS GROUNDS OF APPEAL IN ALL THESE APPEALS ARE SIMILAR, THE ABOVE DECISION WILL APPLY MUTATIS MUTANDIS TO OTHER APPEALS AS WELL. 5. IN THE RESULT, ALL THE APPEALS OF THE REVENUE AR E DISMISSED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 25 TH AUGUST 2011. SD/- SD/- (G.S. PANNU) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE DATED THE 25 TH AUGUST 2011 ANKAM COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-I NASIK 4. THE CIT I NASIK 5. THE D.R, ITAT A BENCH, PUNE 6. GUARD FILE BY ORDER 7 ITA NO. 1254 TO 1257/PN/2007 MACKS SURFACE TREATMENTS A.Y. 2003-04 TO 2006-07 ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL