M/s Sri Aurobindo Packagers Private Limited, CHENNAI V. DCIT, CHENNAI

ITA 1270/CHNY/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 4478 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 21-07-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 12-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AN D SHRI GEORGE MATHAN, JUDICIAL MEMBER .. I.T.A. NOS. 1270/MDS/2009 ASSESSMENT YEAR : 2004-05 SRI AUROBINDO PACKAGERS PVT. LTD., 163, 1A&1B, GIRUGAMBAKKAM, KANKADU POST, CHENNAI-602 101. V. THE DY. COMMISSIONER OF INCOME-TAX, CO.CIRCLE- VI(4), CHENNAI. (PAN: AAECS9520Q) (APPELLANT) (RESPONDENT) A PPELLANT : SHRI S. SRIDHAR RESPONDENT : SHRI P.B. SEKARAN O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER : THIS IS AN APPEAL BY THE ASSESSEE AGAINST T HE ORDER OF THE LEARNED CIT(APPEALS)-V, CHENNAI IN APPEAL NO. ITA NO. 419/2 006-07 DATED 22-08- 2008 FOR THE ASSESSMENT YEAR 2004-05. I.T.A. NO.1270/MDS/2009 2 2. SHRI SRIDHAR, ADVOCATE APPEARED ON BEHALF OF THE ASSESSEE AND SHRI P.B. SEKARAN, CIT-DR APPEARED ON BEHALF OF THE REVE NUE. 3. IT WAS SUBMITTED BY THE LEARNED AUTHORIZED REPRE SENTATIVE THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING PLASTI C BAGS AND TUBES. IT WAS THE SUBMISSION THAT THE ASSESSEE HAD TWO UNITS ONE AT CHENNAI AND ANOTHER AT PONDICHERRY. THE ASSESSEE HAD CLAIMED DEDUCTION U/ S. 80IB OF THE INCOME- TAX ACT, 1961 IN RESPECT OF THE INCOME FROM THE PON DICHERRY UNIT. IT WAS THE SUBMISSION THAT IN RESPECT OF THE PONDICHERRY UNIT A SUM OF RS. 15,85,183/- HAD BEEN CLAIMED AS DEDUCTION U/S. 80IB. IT WAS THE SUBMISSION THAT THE AO HAD DISALLOWED THE CLAIM OF DEDUCTION U/S. 80IB ON THE GROUND THAT ON VERIFICATION OF THE ELECTRICITY BILLS IT WAS FOUND THAT THE CHARGES PAID FOR PONDICHERRY UNIT WAS NOT FOR CONSUMPTION BUT WAS ON LY MINIMUM CHARGES FOR KEEPING THE CONNECTION ALIVE AND THAT THE BILL SPEC IFICALLY SHOWED THAT DOOR WAS LOCKED AND THE PROGRESSIVE METER READING WAS PR ACTICALLY NIL. IT WAS THE FURTHER SUBMISSION THAT THE LEARNED AO HAD HELD THA T THE ASESSEE WAS NOT DOING ANY MANUFACTURING AT THE PONDICHERRY UNIT. T HE LEARNED AUTHORIZED REPRESENTATIVE DREW OUR ATTENTION TO PAGE NO. 259 O F THE PAPER BOOK WHICH WAS THE COPY OF THE ASSESSMENT ORDER BY THE COMMERC IAL TAXES DEPARTMENT DATED 11.10.2006 FOR THE FINANCIAL YEAR 2003-04 REL EVANT FOR THE ASSESSMENT YEAR 2004-05 WHEREIN IT HAS BEEN MENTIONED THAT THE ASSESSEE COMPANY IS A REGISTERED SSI UNIT HAVING A PERMANENT REGISTRATION CERTIFICATE NO. I.T.A. NO.1270/MDS/2009 3 34/02/006906 DATED 25-03-2002 AND HAD STARTED PRODU CTION WITH EFFECT FROM 25-03-2002 AS CERTIFIED BY THE DIRECTOR OF INDUSTRI ES, PONDICHERRY AND THAT THE ASSESSEE IS A MANUFACTURER OF THE BOPP PRINTED/LAMI NATION MATERIALS AND THAT THE ASSESSEE HAS REPORTED A TOTAL AND TAXABLE TURNO VER AT RS. 26,95,368.33 AND INTER STATE TURNOVER OF RS.1,82,00,021.19. IT I S ALSO RECORDED THAT THE ASSESSEE HAD PURCHASED RAW MATERIALS LOCALLY AS WEL L AS FROM OUTSIDE THE STATE AND UTILIZED IN THE MANUFACTURE OF BOPP PRINTED/LAM INATION MATERIAL. THE LEARNED AUTHORIZED REPRESENTATIVE ALSO DREW OUR ATT ENTION TO PAGES 47 AND 48 OF THE PAPER BOOK WHICH WAS THE LETTER ISSUED BY TH E SUPERINTENDENT OF CENTRAL EXCISE, CHENNAI WHEREIN THE ASSESSEE HAS BEE N DIRECTED TO PAY THE INTEREST ON THE REVERSAL OF THE CENVAT CREDIT ON AC COUNT OF THE REMOVAL OF THE INPUTS/RAW MATERIALS FROM THE CHENNAI BRANCH. THE LEARNED AUTHORIZED REPRESENTATIVE FURTHER DREW OUR ATTENTION TO PAGES 1 TO 4 OF THE PAPER BOOK WHICH WAS THE COPY OF THE WRITTEN SUBMISSIONS FILED BEFORE THE LEARNED CIT(A). HE DREW OUR ATTENTION TO PAGE 2 OF THE WRITTEN SUBM ISSION WHEREIN HE HAS EXPLAINED THE ISSUE OF THE CONSUMPTION OF ELECTRICI TY AS FOLLOWS : .2 CONSUMPTION 0F ELE CTRICITV: IN ORDER TO APPRECIATE THE CONSUMPTION OF ELECTRICITY OF THE MANUFACTURING PROCESS, ONE NEEDS TO UNDERSTAND THE REQUIREMENT OF POWER OF THE VARIOUS MACHINERY INVOLVED IN THE VARIOUS PROCESS OF MANUFACTURE FROM PRINTING TO POUCH MAKING, END TO END. AS EXPLAINED EARLIER AND AT THE COST OF REPETITION WE I.T.A. NO.1270/MDS/2009 4 GO THROUGH THE MANUFACTURING PROCESS WITH THE POWER CONSUMPTION FACTOR. THE FIRST PROCESS IS THE PRINTING PROCESS AND THE NEXT PROCESS IS THE LAMINATING PROCESS FOLLOWED BY SLITTING AND POUCH MAKING. THE EIGHT COLOUR PRINTING MACHINE USES 42.50 HORSEPOWER AND THE LAMINATION MACHINE USES 39 HORSEPOWER AND THE SLITTING MACHINE AND POUCH MAKING MACHINE USES 0.50 HORSEPOWER. IF CONSUMPTION OF ELECTRICITY IS TO B E APPORTIONED, TH E MAJOR POWER CONSUMPTION WILL BE FOR PRINTING MACHINE AND LAMINATION MACHINE, CONSEQUENTLY THE VALUATION OF WORK IN PROGRESS WILL ALSO BE PRO-RATA HIGH. THE CONTENTION OF THE ASSESSING OFFICER THAT THE COMPANY HAS BEEN PAYING ONLY THE MINIMUM CHARGES TO THE ELECTRICITY DEPARTMENT TO KEEP THE CONNECTION ALIVE IS NOT CORRECT EVEN AS PER HIS TABULATION IN PAGE 4 OF THE ASSESSMENT ORDER. THE ELECTRICITY CHARGES PAID TOTAL TO `. 9056 FOR THE ASSESSMENT YEAR. THE TOTAL NUMBER OF 3934 UNITS HAS BEEN CONSUMED AS PER THE CHARGES PAID FOR THE YEAR. A SLITTING WITH 4 HP TOTAL CAPACITY AND SEALING MACHINE WITH 0.5 HP CAPACITY THE TOTAL PRODUCTION HOURS CAN BE ARRIVED AT AS FOLLOWS: QUANTITY OF MATERIAL NO. OF HOURS OF NO. OF UNITS REQUIRED IN IN ROLL FORM. PRODUCTION IN SLITTING AT PEAK LOAD 89,901.02 KG. 1253.3 HR S. 3070 UNITS @ 80% PEAK LOAD QUANTITY OF MATERIAL IN NO. OF HOURS OF NO. OF UN ITS REQUIRED FOR POUCH FORM PRODUCTION IN SLITTING PRODUCTION 21717.70 KG. 488.25 HRS. 188.00 UNIT S ___________________________________________________ __________________ I.T.A. NO.1270/MDS/2009 5 TOTAL UNITS REQUIRED FOR PRODUCTION 3257 UNITS NO. OF UNITS CONSUMED BY THE FACTORY AS PER ELECTRICITY CHARGES PAID: 3934 UNITS OUT OF THE TOTAL CONSUMPTION OF 3934 UNITS, 3257 WA S USED FOR PRODUCTION AND THE BALANCE FOR LIGHTING. THE PRODUCTION PROCESS AT PONDICHENY UNIT IS LABOUR AND MANUAL ORIENTED AND DOES NOT REQUIRE MAJOR CONSUMPTION OF ELECTRICITY, FURTHER, THE LOCATION OF THE MACHINERY IS AN IMPORTANT FACTOR IN DETERMINING THE VALUE ADDITION AND COST OF PRODUCTION BECAUSE OF THE STAGES OF PRODUCTION AND STOCK TRANSFER BETWEEN CHENNAI AND PONDICHERRY, WHILE THE CHENNAI UNIT IS FULLY EQUIPPED WITH A PRINTING MACHINE, LAMINATING MACHINE, SLITTING MACHINE AND POUCH MAKING MACHINE, THE PONDICHERRY UNIT IS EQUIPPED WITH A FOUR COLOUR PRINTING MACHINE, SLITTING AND POUCH MAKING MACHINE AND HAS NO LAMINATION MACHINE. IT IS NOT OUT OF PLACE TO MENTION HERE THAT THE ENTIRE SEAT OF MANAGEMENT AND CONTROL IS AT CHENNAI, THE MARKETING ACTIVITY, RAW MATERIAL PURCHASING ACTIVITY, ACCOUNTING ACTIVITY AND LAMINATION ACTIVI TY ARE IN CHENNAI AND DUE TO CUSTOMER/DELIVERY REASONS OPERATION FOR CERTAIN CUSTOMERS WERE DONE AT PONDICHERRY, THE COMPANY HAS INFRASTRUCTURE FOR PRINTING, SLITTING AND POUCH MAKING AT PONDICHERRY AND IT IS NOT OUT OF PLACE TO MENTION HERE THAT THE CREDIT FACILITY FOR WORKING CAPITAL IS PROVIDED BY STATE BANK OF INDIA, SSI BRANCH, PONDICHERRY. IT WAS THE SUBMISSION THAT THE ELECTRICITY CONSUMED AT THE PONDICHERRY UNIT WAS ADEQUATE TO MEET THE REQUIREMENTS. THE LEARNED AUT HORIZED REPRESENTATIVE FURTHER DREW OUR ATTENTION TO THE DECISION OF THE HONBLE S UPREME COURT IN THE CASE OF INDIA CINE AGENCIES V. CIT (2008) 220 CTR 223 (SC), WHERE IN IT HAD BEEN HELD THAT THE I.T.A. NO.1270/MDS/2009 6 CONVERSION OF JUMBO ROLLS OF PHOTOGRAPHIC FILMS INT O SMALL FLATS AND ROLLS IN DESIRED SIZES AMOUNTS TO MANUFACTURE OR PRODUCTION ELIGIBLE FOR D EDUCTION UNDER SECTIONS 80HH AND 80-I. IT WAS THE SUBMISSION THAT THE ASSESSEE WAS DOING THE BUSINESS OF MANUFACTURE OF PLASTIC BAGS AND TUBES AND WAS CONSEQUENTLY ENTI TLED TO THE DEDUCTION UNDER SECTION 80-IB AS CLAIMED. 4. IN REPLY, THE LEARNED DR SUBMITTED THAT THE FACT THAT ELECTRICITY READING SHOWED MINIMUM AND THAT THE FACTORY BUILDING WAS CLOSED AT THE TIME OF THE READING OF THE ELECTRICITY METER SHOWED THAT NO MANUFACTURING ACTI VITY WAS CONDUCTED AT THE PONDICHERRY UNIT. IT WAS THE SUBMISSION THAT EVEN THE DEPRECIA TION CLAIMED WAS NOMINAL. HE VEHEMENTLY SUPPORTED THE ORDERS OF THE LEARNED CIT( A) AND THE AO. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PER USAL OF THE PROFIT AND LOSS ACCOUNT AND THE BALANCE SHEET OF THE ASSESSEE SHOWS THAT TH E FIGURES AS DISCLOSED BY THE ASSESSEE TO THE COMMERCIAL TAXES DEPARTMENT AND CENTRAL EXCIS E AUTHORITIES TALLY WITH THE FIGURES AS SHOWN IN THE PROFIT & LOSS ACCOUNT AND THE BALAN CE SHEET. THE CENTRAL EXCISE AUTHORITIES WOULD NORMALLY BEFORE GRANTING CENVAT C REDIT VERIFY THE RG REGISTERS. FURTHER THE SISTER DEPARTMENT OF THE REVENUE BEING THE COMM ERCIAL TAXES DEPARTMENT HAS CATEGORICALLY RECORDED THE FINDING THAT THE ASSESSE E IS DOING THE BUSINESS OF MANUFACTURE AND THAT THE ASSESSEE IS REGISTERED AS AN SSI AND T HE DIRECTORATE OF INDUSTRIES, PONDICHERY HAS CERTIFIED THAT THE ASSESSEE HAS ALSO STARTED PR ODUCTION. NOW THESE ARE GOVERNMENT DOCUMENTS ISSUED BY DIFFERENT AUTHORITIES UNDER DIF FERENT LEGAL REQUIREMENTS IN RESPECT OF THE MANUFACTURING ACTIVITY. THE TURNOVER AS DECLAR ED BY THE ASSESSEE IN RESPECT OF THE I.T.A. NO.1270/MDS/2009 7 PONDICHERRY UNIT HAS ALSO BEEN ACCEPTED. THE EXEMP TION CLAIMED BY THE ASSESSEE IN RESPECT OF THE PONDICHERRY UNIT ON ACCOUNT OF THE C OMMERCIAL TAXES HAS ALSO BEEN GRANTED TO THE ASSESSEE. THE CENVAT CREDIT CLAIMED BY THE ASSESSEE HAS BEEN GRANTED BY THE EXCISE DEPARTMENT THAT TOO IN RESPECT OF THE PONDICH ERRY UNIT. THERE IS NO EVIDENCE AVAILABLE WITH THE REVENUE TO DISPROVE THESE GOVERN MENT DOCUMENTS. THE ASSESSEE HAS ALSO EXPLAINED WHY THE POWER CONSUMPTION IS SO LOW. IF FOR A MOMENT THE AO DID DISPUTE OR DID SUSPECT THAT THE ASSESSEE WAS NOT DOING ANY MANUFACTURING ACTIVITY AT PONDICHERRY UNIT OR THAT THE CLAIM IS WRONG, IT IS NOT A DIFFIC ULT TASK OR AN IMPOSSIBILITY TO VERIFY THE FACT FROM PONDICHERRY. IT IS NOTICED FROM THE ASSESSMEN T ORDER THAT THE AO HAS DENIED THE ASSESSEE THE BENEFIT OF DEDUCTION UNDER SECTION 80- IB ONLY ON PRESUMPTIONS THAT THE ELECTRICITY CONSUMED IS NOT ADEQUATE. PRESUMPTIONS WOULD NOT AND CANNOT TAKE THE PLACE OF SUBSTANTIVE EVIDENCE. FURTHER THE SISTER DEPART MENT OF THE REVENUE, MORE SO THE COMMERCIAL TAXES DEPARTMENT AS ALSO THE EXCISE DEPAR TMENT HAVE ACCEPTED THE FACTUM OF MANUFACTURE AND TURNOVER DECLARED BY THE ASSESSE E. THE DIRECTOR OF INDUSTRIES, PONDICHERRY HAS ALSO ACCEPTED THE FACTUM OF MANUFAC TURE BY THE ASSESSEE AND HAS ALSO RECOGNIZED THE ASSESSEE UNIT IN PONDICHERRY AS AN S SI AND REGISTERED AS SUCH. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE AO WAS W RONG IN DISALLOWING THE ASSESSEES CLAIM FOR DEDUCTION U/S. 80-IB. A PERUSAL OF THE O RDER OF THE LEARNED CIT(A) ALSO SHOWS THAT HE HAS CONFIRMED THE ORDER OF THE AO ON THE GR OUND THAT THE AO HAD COME TO THE PRIMA FACIE BELIEF THAT NO PRODUCTION OR MANUFACTURE HAD TAKEN PLACE AT THE PONDICHERRY UNIT. WHEN SISTER DEPARTMENTS OF THE REVENUE HAS A CCEPTED THE FACTUM OF MANUFACTURE I.T.A. NO.1270/MDS/2009 8 AND THE AO ONLY HAS A PRIMA FACIE BELIEF THAT THERE IS NO MANUFACTURE IT WOULD NOT B E ADEQUATE ENOUGH TO DISLODGE THE ASSESSEES CLAIM FO R DEDUCTION U/S 80-IB. IN THE CIRCUMSTANCES WE ARE OF THE VIEW THAT THE FINDING O F THE LEARNED CIT(A) IS NOT SUSTAINABLE ON THE FACTS OF THE CASE, CONSEQUENTLY, THE SAME IS REVERSED AND THE AO IS DIRECTED TO GRANT THE ASSESSEE THE DEDUCTION U/S. 80-IB IN RESP ECT OF THE PONDICHERRY UNIT. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . 7. THE ORDER WAS PRONOUNCED IN THE COURT ON 30-07-2010. SD/- SD/- (ABRAHAM P. GEORGE) (GEORGE MATHAN) ACCOUNTANT MEMBERNT JUDICIAL MEMBER CHENNAI, DATED THE 30 TH JULY, 2010. H. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE