Dy CIT, Pune V. Shri Niranjan Pandurang Alpe, Pune

ITA 1261/PUN/2013

• Counselvise Citation: 126124514 RSA 2013
• Duration Of Justice: 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 04-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HEMANT KUMAR C LUEVA
• Section: 80IB; 2

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 ITA NO.1261/PN/2013 (A.Y: 2008-09) ACIT (HQ)-II, PUNE APPELLANT VS. SHRI NIRANJAN PANDURANG ALPE FLAT NO.12, PAYAL RESIDENCY, GANANJAY SOCIETY, KOTHRUD, PUNE 411038 PAN: AARPA6899E RESPONDENT ITA NO.1842/PN/2013 (A.Y: 2009-10) DCIT, CIRCLE-3, PUNE APPELLANT VS. SHRI NIRANJAN PANDURANG ALPE FLAT NO.4, CHETALI APARTMENT, PLOT NO.50, MAYUR COLONY, KOTHRUD, PUNE 411038 PAN: AARPA6899E RESPONDENT APPELLANT BY : SHRI HEMANT KUMAR C LUEVA RESPONDENT BY : SHRI B.B. MANE DATE OF HEARING : 30.05.2014 DATE OF PRONOUNCEMENT : 30.05.2014 ORDER PER BENCH : BOTH THE APPEALS FILED BY THE REVENUE PERTAIN TO TH E SAME ASSESSEE ON SIMILAR GROUND AGAINST THE RESPECTIVE O RDERS OF THE COMMISSIONER OF INCOME TAX(APPEALS)-II, [(IN SHORT CIT(A)] PUNE FOR A.YS. 2008-09 AND 2009-10, SO THEY ARE BEING DISPOS ED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. IN ITA NO.1261/PN/2013, THE REVENUE HAS FILED TH E APPEAL ON THE FOLLOWING GROUNDS. 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN ALLOWING THE CLAIM OF DEDUCTION U/S.80IB(3) OF THE INCOME TAX ACT, 1961 HOLDING THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF ELECTRICAL CONTROL PANEL S, WHEN THERE WAS ALMOST NO MACHINERY AVAILABLE WITH THE AS SESSEE FOR MANUFACTURING. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE IS INDU LGING IN THE ACTIVITY OF ASSEMBLING THE PANELS AFTER GETTING VARIOUS COMPONENTS MANUFACTURED FROM OUTSIDE PARTIES AND TH AT NO MANUFACTURING ACTIVITY AS ENVISAGED U/S.80IB(3) OF THE ACT HAS BEEN CONDUCTED. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN NOT APPRECIATING THE FACT THAT NO SEPARATE ACCOUNTS ARE BEING MAINTAINED FOR MANUFACTURING AND TRADING ACTI VITY AS ENVISAGED IN SECTION 80IB(3) OF THE OF THE ACT. 4. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN FAILING TO APPLY THE IMPORT OF THE DEFINITION OF 'MANUFACTURE' GIVEN IN SUB SECTION (29BA) OF SECTIO N 2 OF THE INCOME TAX ACT, 1961, WHICH IS CLARIFICATORY IN NATURE. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND A NY OR ALL THE GROUNDS OF APPEAL. 3. THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUS INESS OF MANUFACTURING OF ELECTRIC CONTROL PANELS. IN THE R ETURN OF INCOME, THE ASSESSEE HAS CLAIMED DEDUCTION U/S.80IB(3) AMOU NTING TO 32,72,329/-, WHICH WAS REJECTED BY THE ASSESSING OF FICER. 3.1 THE MATTER WAS CARRIED BEFORE FIRST APPELLATE A UTHORITY, WHEREIN THE VARIOUS CONTENTIONS WERE RAISED ON BEHA LF OF ASSESSEE AND HAVING CONSIDERED THE SAME, THE CIT(A) HAS GRAN TED RELIEF TO THE ASSESSEE. THE SAME HAS BEEN OPPOSED BEFORE US ON BEHALF OF REVENUE, INTER ALIA, SUBMITTED THAT THE CIT(A) WAS NOT JUSTIFIED IN ALLOWING THE CLAIM OF DEDUCTION U/S.80IB(3) OF THE INCOME TAX ACT, 1961 HOLDING THAT THE ASSESSEE IS ENGAGED IN THE BU SINESS OF MANUFACTURE OF ELECTRICAL CONTROL PANELS, WHEN THER E WAS ALMOST NO MACHINERY AVAILABLE WITH THE ASSESSEE FOR MANUFACTU RING. ACCORDING TO LEARNED DEPARTMENTAL REPRESENTATIVE, T HE ASSESSEE IS INDULGING IN THE ACTIVITY OF ASSEMBLING THE PANELS AFTER GETTING VARIOUS COMPONENTS MANUFACTURED FROM OUTSIDE PARTIE S AND THAT THERE WAS NO MANUFACTURING ACTIVITY AS ENVISAGED UN DER THE PROVISIONS OF SECTION 80IB(3) OF THE ACT. SO, THE ORDER OF CIT(A) BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED . ON THE OTHER HAND, THE LEARNED AUTHORIZED REPRESENTATIVE HAS SUP PORTED THE ORDER OF CIT(A). 4. AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND MA TERIAL ON RECORD, WE FIND THAT THE ASSESSEE IS CLAIMED TO HAV E ENGAGED IN THE BUSINESS OF MANUFACTURE OF ELECTRIC CONTROL PANELS SINCE F.Y. 1999- 2000. THE ONLY ISSUE IS WHETHER THE ASSESSEES ACT IVITY OF MANUFACTURING IS ENTITLED FOR CLAIMING DEDUCTION U/ S.80IB(3) OF THE ACT OR NOT. THE CLAIM OF THE ASSESSEE HAS BEEN REJ ECTED BY THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE W AS NOT CONDUCTING MANUFACTURING ACTIVITY AS PER THE DEFINI TION PROVIDED IN THE ACT. NO SEPARATE ACCOUNTS WERE BEING MAINTAINE D AND PRODUCED FOR MANUFACTURING ACTIVITY BY THE ASSESSEE . THE ASSESSING OFFICER, IN FACT, NOTICED IN THE TAX AUDI T REPORT THAT THE ASSESSEE HAD CLAIMED TO BE IN THE MANUFACTURING BUS INESS AS WELL AS TRADING IN ELECTRIC CONTROL PANELS. THE SAID BU SINESS IS CLAIMED TO HAVE COMMENCED FROM F.Y. 1999-2000 AND IT FULFIL LED THE CONDITION REQUIRED U/S.80IB(3) OF THE ACT. HENCE E LIGIBLE TO CLAIM DEDUCTION U/S.80IB(3) OF THE ACT. THE ASSESSING OF FICER HAVING CONSIDERED THE SUBMISSION MADE ON BEHALF OF ASSESSE E, REJECTED THE CLAIM OF ASSESSEE UNDER THE PROVISIONS OF SECTION 8 0IB(3) ON THE GROUND THAT THE ASSESSEE WAS NOT DOING MANUFACTURIN G ACTIVITY BUT A TRADING ACTIVITY. THE ASSESSING OFFICER HELD THA T THE ASSESSEE DID NOT MANUFACTURE FINAL PRODUCT AND ONLY ASSEMBLED AN D GOT MANY JOBS DONE THROUGH SUB-VENDORS BY WAY OF OUTSOURCING . THE ASSESSING OFFICER HAS ALSO OBSERVED THAT THE PURCHA SES SHOWN WERE 75% TO 80% OF THE SALES, WAGES WERE NEGLIGIBLE AND THERE WERE NO ELECTRICITY EXPENSES. THE ASSESSEE HAS NOT MAINTAI NED SEPARATE BOOKS OF ACCOUNTS FOR TRADING AND MANUFACTURING ACT IVITY. HE ALSO HELD THAT THE ASSESSEE HAD ONLY A SINGLE DRILLING M ACHINE AND WITH THE SAID MACHINE MANUFACTURING ACTIVITY COULD NOT B E CARRIED OUT AND ALSO THAT THE EVIDENCE OF THE MACHINERY BEING N EW AND UNUTILIZED WAS NOT PRODUCED. SO, HE REJECTED THE C LAIM OF THE ASSESSEE. 4.1 THE DEFINITION OF MANUFACTURING ACTIVITY HAS NO T BEEN DEFINED UNDER THE ACT, ONLY THE WORD MANUFACTURE IS DEFINED U/S.2(29BA) OF THE ACT. ACCORDING TO WHICH, THE ACTIVITY OF AS SEMBLING VARIOUS COMPONENTS TO PRODUCE ELECTRIC CONTROL PANELS COULD BE TERMED AS MANUFACTURE OF ARTICLE. THE PROCESS AND VARIOUS CO MPONENTS REQUIRED FOR MANUFACTURING ACTIVITY WAS FILED ALONG WITH THE EXPENDITURE BEFORE THE AUTHORITIES BELOW. THE DRIL LING MACHINE WAS CLAIMED TO BE PURCHASED IN THE YEAR 2000 WHICH IS E VIDENT FROM THE COPY OF THE AUDITED BALANCE SHEET FOR THE YEAR ENDE D 31.03.2000 OF NEW ASSETS. THE TOTAL MANUFACTURING WAGES DEBITED TO THE PROFIT & LOSS ACCOUNT ARE TO THE TUNE OF 11,43,094/- AND THE NUMBER OF WORKERS WERE MORE THAN TEN WHICH IS EVIDENT FROM TH E MUSTER ROLL RECORD. THE EXPENDITURE ON ELECTRICITY OF 66,920/- HAS ALSO BEEN DEBITED TO PROFIT & LOSS ACCOUNT. ALL THE SALES WE RE MANUFACTURING SALES AND THAT NO SALES WERE OF THE NATURE OF TRADI NG. THE SAID FACT COULD BE VERIFIED WITH THE TOTAL VALUE OF MANUFACTU RING WITH EXCISE DUTY COLLECTED AND PAID. IT WAS ALSO EXPLAINED ON BEHALF OF ASSESSEE THAT THE NATIONAL ELECTRICAL CODE DEFINES AN ELECTRICAL CONTROL PANEL AND CONTENDED THAT THE ASSESSEE MANUF ACTURES THESE ELECTRICAL CONTROL PANEL BOARDS FOR THE COMMERCIAL AND INDUSTRIAL USE. THE PANEL BOARDS HAVE BEEN EXPLAINED TO PROVI DE CIRCUIT CONTROL AND OVER CURRENT PROTECTION. THE ASSESSEE S PROCESS INVOLVES MANUFACTURING OF ELECTRICAL CONTROL PANELS . THE ONLY WORK RELATING TO FABRICATION WAS OUTSOURCED. THE MAJOR ACTIVITY OF ASSEMBLING REQUIRES MINIMUM LABOUR AND TIME BY THE ASSESSEE. THE ASSESSEE GAVE A DETAILED WORKING OF THE ENTIRE MANUFACTURING PROCESS INVOLVED IN THE PRODUCTION OF ELECTRICAL CO NTROL PANELS AS FURNISHED BEFORE AUTHORITIES BELOW. ACCORDING TO T HE ASSESSEE, THE PROCESS OF ABOVE MANUFACTURING INVOLVES THE FOLLOWI NG STEPS AND OUT OF THE SAME, ONLY CUTTING OF MS SHEETS AND WELD ING ARE OUTSOURCED BY THE ASSESSEE. 1. APPROVAL OF DRAWINGS AND DESIGNS: EVERY SINGLE JOB IS CAREFULLY DESIGNED, DRAWN AS PE R THE REQUIREMENT OF THE CUSTOMERS AND APPROVED ACCORDING LY. 2. CUTTING OF MS SHEETS: IN THIS PROCESS SHEETS ARE CUT AS PER ABOVE DESIGNS/DRAWINGS 3. BENDING: THESE SHEETS ARE BEND AS PER THE DESIGNS. 4. WELDING: THESE SHEETS ALONG WITH ANGLES ARE WELDED AS PER DE SIGNS. 5. POWDER COATING: THESE ARE THEN POWDER COATED. 6. ASSEMBLY OF ELECTRICAL COMPONENTS AND EQUIPMENTS AN D FABRICATION OF ALUMINUM / COPPER BARS. 7. THESE ARE THEN DRILLED, TAPPED AND WIRED UP AS PER DESIGNS. 8. FITTING OF ACCESSORIES LIKE DOORS, COVERS, PARTITIO NS, CHASIS ETC. 9. PRODUCT IS THEN TESTED. 10. FINAL INSPECTION AND TESTING IS DONE BY THE INSPECT ION STAFF FROM CUSTOMERS. 4.2 THE AFORESAID PROCESS CERTAINLY INDICATES THAT THE SAID PROCESS COMPLETELY TRANSFORMS THE ORIGINAL ARTICLES TO PROD UCE COMMERCIALLY DIFFERENT PRODUCTS. THE ENTIRE PROCESS CERTAINLY RE SULTS INTO BRINGING INTO EXISTENCE A NEW DIFFERENT COMMODITY. THE ASSESSEE HAS SATISFIED THE CONDITION OF DEFINITION OF MANUFA CTURE AS CONTAINED IN SUB-SECTION (29BA) OF SECTION 2 OF THE ACT. THE DEFINITION AS PER THE FACTORIES ACT, 1948 MEANS ANY PROCESS FOR MAKING, ALTERING, REPAIRING, ORNAMENTING, FINISHING , PACKING, OILING, WASHING, CLEANING, BREAKING UP, DEMOLISHING OR OTHE RWISE TREATING OR ADAPTING ANY ARTICLE OR SUBSTANCE WITH A VIEW TO ITS USE, SALE, TRANSPORT, DELIVERY OR DISPOSALS. 4.3 WE FIND THAT THE HONBLE SUPREME COURT IN THE C ASE OF ASPINWALL & CO LTD. VS. CIT (2001) 251 ITR 323 (SC) HELD THAT THE WORD MANUFACTURING HAS TO BE GIVEN A MEANING AS IS UNDERSTOOD IN COMMON PARLANCE. IT HAS TO BE UNDERSTOOD AS MEANIN G TO BE THE PRODUCTION OF ARTICLES FOR USE FROM RAW OR PREPARED MATERIAL BY GIVING SUCH MATERIAL NEW FORMS, QUALIFIES OR COMBIN ATIONS WHETHER BY HAND LABOUR OR MACHINES. IF THE CHANGE IN THE A RTICLE RESULTS IN A NEW AND DIFFERENT ARTICLE THEN IT WOULD AMOUNT TO MANUFACTURING ACTIVITY. A SIMILAR VIEW HAS BEEN TAKEN BY MUMBAI BENCH IN THE CASE OF P L PATEL VS. ITO (2011) 142 TTJ 57 (MUM). THE STAND OF THE ASSESSING OFFICER IS THAT THE PROCESS ADOPTED O F ASSEMBLING BY THE ASSESSEE IS NOT MANUFACTURING, IS NOT JUSTIFIED IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSEMBLING IS ALSO ONE OF THE FORM OF MANUFACTURING. 4.4 IN VIEW OF ABOVE DISCUSSION, THE ASSESSING OFFI CER HAS WRONGLY INFERRED THAT THE ASSESSEE IS ENGAGED IN TRADING BU SINESS WITHOUT VERIFICATION FROM ANY OF THE GOVERNMENT AGENCIES ES PECIALLY THE EXCISE WHERE THE ASSESSEE WAS REGISTERED. THE ASSE SSING OFFICER COULD HAVE EXAMINED THE PAYMENT OF EXCISE DUTY BY T HE ASSESSEE VIS--VIS THE SALES TO VERIFY THE FACT OF MANUFACTU RING ACTIVITY. THE ASSESSING OFFICER WAS NOT JUSTIFIED IN CALLING THE LINE OF ACTIVITY AS TRADING WHEN THE PRODUCT MANUFACTURED I.E. THE ELEC TRIC CONTROL PANEL IS SUBJECT TO EXCISE DUTY. IT IS NOT IN DISP UTE THAT THE ASSESSEE HAS INCURRED EXPENDITURE FOR MAKING PAYMEN T OF WAGES OF 11,43,094/- AND HE HAS INCURRED EXPENSES OF 66,920/- TOWARDS ELECTRICITY. THE SAME WERE TO BE REFLECTED IN PROF IT & LOSS ACCOUNT. THE DRILLING MACHINE WAS ALSO PURCHASED BY THE ASSE SSEE AND UTILIZED SINCE A.Y. 2000-01 WHEN THE SAME HAD BEEN NEWLY PURCHASED AND ALSO REFLECTED IN THE BALANCE SHEET F OR THE SAID YEAR. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE AR E OF THE VIEW THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING OF EL ECTRICAL CONTROL PANELS. THUS, THE ASSESSEE HAS FULFILLED THE CONDI TION LAID DOWN IN SUB-SECTION (2) OF SECTION 80IB OF THE ACT. ACCORD INGLY, THE CIT(A) WAS JUSTIFIED IN GRANTING THE ASSESSEES CLAIM OF D EDUCTION U/S. 80IB(3) OF THE ACT. THIS REASONED FINDING OF CIT(A ) NEEDS NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 4.5 A SIMILAR ISSUE AROSE IN ITA NO.1842/PN/2013 FO R A.Y. 2009- 10. FACTS BEING SIMILAR, SO FOLLOWING THE SAME REA SONING, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDING OF CIT(A ), WHO HAS GRANTED RELIEF TO THE ASSESSEE U/S. 80IB(3). 5. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE DAY OF 30 TH MAY, 2014. SD/- SD/- (G.S. PANNU) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED THE 30 TH MAY, 2014 GCVSR COPY TO:- 1) THE DEPARTMENT 2) ASSESSEE 3) THE CIT(A)-II, PUNE 4) THE CIT-II, PUNE 5) THE DR, A BENCH, I.T.A.T., PUNE. 6) GUARD FILE BY ORDER //TRUE COPY// SENIOR PRIVATE SECRETARY, ITAT, PUNE.