ACIT, Bangalore V. M/s Saint Gobain Crystals & Detectors (I) Ltd., Bangalore

ITA 1504/BANG/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51354 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 22-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 24-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P H NARGUNDKAR
• Assessee Lawyers: ANANTHA PADMANABHAN
• Section: 260A; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI N.K.SAINI, ACCOUNTANT MEMBER AND SMT. P.MADHAVI DEVI, JUDICIAL MEMBER I.T.A. NO.1504/BANG/2010 (ASSESSMENT YEAR : 2006-07) ASST. COMMISSIONER OF INCOME TAX, CIRCLE 12(3), BANGALORE. VS. M/S. SAINT GOBAIN CRYSTALS & DETECTORS (I) PRIVATE LIMITED, SY.NO.171/2, MARUTHI INDUSTRIAL ESTATE, HOODI RAJAPALYA, WHITE FIELD MAIN ROAD, BANGALORE-48 PAN AAACB6794R APPELLANT RESPONDENT. APPELLANT BY : MR. P.H. NARGUNDKAR. RESPONDENT BY : MR. ANANTHA PADMANABHAN. DATE OF HEARING : 22.11.2011. DATE OF PRONOUNCEMENT : 22.11.2011. O R D E R PER N.K. SAINI, A.M. : THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE OR DER DT.21.09.2010 BY THE COMMISSIONER OF INCOME TAX (APPEALS)-III, BANGALORE ON THE FOLLOWING EFFECTIVE GROUNDS : THE LEARNED CIT(A) ERRED IN RELYING ON ITATS ORDE R IN THE ASSESSEES OWN CASE FOR THE A.YS 2003-04 AND 2004-05 AND HOLDI NG THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S. 10B ALTHOUG H THE DEPARTMENT HAS NOT ACCEPTED THE ITATS ORDERS FOR ABOVE MENTIONED YEARS AND APPEALS UNDER SECTION 260A OF THE INCOME TAX ACT, 1961 ARE PENDING BEFORE THE HONBLE HIGH COURT OF KARNATAKA. 2 ITA NO.1504/BANG/2010 THE CIT(A) ERRED IN HOLDING THAT THE ASSESSEE IS M ANUFACTURING RADIATION DETECTORS WHEREAS THE ASSESSEE IS ONLY POLISHING THE CRYSTALS AND THEREAFTER ASSEMBLING THE GLASS AND CRYSTAL. THE PR OCESSING UNDERTAKEN BY THE ASSESSEE WOULD NOT BRING ANYTHING NEW IN TO EX ISTENCE. THE HONBLE SUPREME COURT, IN THE CASE OF UNION OF INDIA VS. DE LHI CLOTH AND GENERAL MERCHANTS CO. LTD. AIR 1963 SC 791, 794, HAS DIFFER ENTIATED PROCESSING FROM MANUFACTURING. THE CIT(A) OUGHT TO HAVE APPLI ED THE RATIO OF THIS JUDGEMENT AND SHOULD HAVE HELD THAT THE ASSESSEE IS NOT ENGAGED IN MANUFACTURING ACTIVITY. FROM THE ABOVE GROUNDS, IT IS CLEAR THAT THE ONLY GR IEVANCE OF THE DEPARTMENT IN THIS APPEAL RELATES TO THE ELIGIBILITY OF DEDUCTION U/S. 10B OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED AS THE ACT). 2. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE FILED RETURN OF INCOME ON 30.11.2006 DECLARING A TOTAL INCOME OF RS.2,31,7 18. HOWEVER, THE ASSESSMENT WAS COMPLETED BY THE ASSESSING OFFICER VIDE ORDER DT .31.7.2009 DETERMINING THE TOTAL INCOME AT RS.89,00,710. THE ASSESSING OFFICE R WHILE FRAMING THE AFORESAID ASSESSMENT DISALLOWED A SUM OF RS.86,68,992 U/S.10B OF THE ACT BY OBSERVING THAT THE ASSESSEE WAS ENGAGED IN ASSEMBLING OF INSTRUMEN TS WHICH COULD NOT BE CONSTRUED AS MANUFACTURING WITHIN THE PURVIEW OF SE CTION 10B OF THE ACT. 3. THE ASSESSEE CARRIED THE MATTER TO THE LEARNED CIT(A) WHO DIRECTED THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSE E SINCE FOR THE PRECEDING ASSESSMENT YEARS I.E. 2003-04 AND 2004-05, THE ITAT HAS ALLOWED THE CLAIM VIDE ORDER DT.31.01.2009 IN ITA NOS.15 & 720/BANG/2008 I N ASSESSEES OWN CASE FOR A.YS 2003-04 & 2004-05. NOW THE DEPARTMENT IS IN A PPEAL BEFORE US. 3 ITA NO.1504/BANG/2010 4. DURING THE COURSE OF HEARING, THE LEARNED COUNSE L FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT THE ISSUE RAISED BY THE DEPAR TMENT IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE VIDE ITAT ORDER DT.31.01.200 9 IN ITA NOS.15 & 720/BANG/2008 IN ASSESSEES OWN CASE FOR ASSESSMEN T YEARS 2003-04 & 2004-05. IN HIS RIVAL SUBMISSION, THE LEARNED DEPARTMENTAL R EPRESENTATIVE ALTHOUGH RELIED ON THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER BUT HE COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE. 5. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND PERUSED THE MATERIAL ON RECORD. IT IS NOTICED THAT ITAT IN THE AFORESAID DECISION DT.31.10.2009 IN ASSESSEES OWN CASE VIDE PARA 2.15 HAS HELD AS UNDER : 2.15 WE HAVE HEARD BOTH THE PARTIES. BEFORE DEA LING WITH THE LEGAL POSITION ON THE ISSUE, IT WILL BE RELEVANT TO REPRODUCE THE TECHNICAL WRITE-UP AS GIVEN TO THE LEARNED CIT(A):- 'TECHNICAL WRITE-UP ON THE MANUFACTURE OF RADIATION DETECTORS AT SGCD INDIA SAINT-GOBAIN CRYSTALS & DETECTORS INDIA LTD. I S ENGAGED IN THE MANUFACTURE OF RADIATION (SCINTILLATION) DETECTORS SINCE 1996. A BRIEF DESCRIPTION OF THE PRODUCTION AND THE PROCESS IS GI VEN HERE FOR THE BENEFIT OF THOSE WHO WOULD LIKE TO KNOW THE PROCESS IN BRIEF. THE SCINTILLATION PRINCIPLE: THE BASIC PRINCIPLE US ED IN THE MANUFACTURE OF RADIATION DETECTORS IS KNOWN 'SCINTILLATION'. SCIN TILLATION IS A PROPERTY EXHIBITED BY SOME CRYSTALS IN WHICH THE CRYSTALS GIVE OUT LOW ENERGY RADIATION (IN THE VISIBLE OR NEAR VISIBLE RANGES) W HEN SUBJECTED TO HIGHER ENERGY RADIATION SUCH AS X-RAY, Y-RAY OR OTHER SUCH NU CLEAR RADIATIONS. THE CRYSTALS THAT EXHIBIT THIS TYPE OF PROPERTY ARE C ALLED SCINTILLATION CRYSTALS. THE RADIATION DETECTORS MANUFACTURED FROM SUCH CRYSTALS ARE CALLED SCINTILLATION DETECTORS. THERE ARE SEVERAL CRYSTALS THAT EXHIBIT THE SCINTILLATION PROPERTY. MOST POPULARLY USED CRYSTALS ARE SODIUM IODIDE (NAI), CESIUM IODIDE, BGO AND CADMIUM TUNGSTATE. S GCD-INDIA STARTED 4 ITA NO.1504/BANG/2010 ITS OPERATIONS WITH SODIUM IODIDE AND HAS CAPABILIT Y TO BUILD DETECTORS WILL ALL TYPES OF CRYSTALS. THE DETECTION PRINCIPLE: THE BASIC PRINCIPLE OF DET ECTION IN THE SCINTILLATION BASED DETECTORS IS TO USE THE SCINTIL LATION CRYSTALS TO CONVERT THE HIGH ENERGY RADIATION TO NEAR VISIBLE RADIATION AND USE A PHOTO- DETECTOR DIODES OR PHOTO-MULTIPLIER TUBES (PMTS) TO GENERATE AN ELECTRICAL SIGNAL FROM THE PHOTONS GENERATED. THE ELECTRICAL SIGNAL CAN THEN BE FILTERED, AMPLIFIED AND PROCESSED TO GIVE T HE NECESSARY TYPE OF OUTPUT-SUCH AS COUNTS, IMAGES, SIGNALS ETC. THE BA SIC COMPONENTS OF A DETECTOR ARE THE CRYSTAL AND THE PMT (OR A SUITABLE PHOTO-ELECTRIC CONVERTER). THE CONSTRUCTION OF A DETECTOR: THE CRYSTAL AND THE PMT ARE THE HEART OF THE RADIATION DETECTOR. IN ADDITION, IT INCLUDES S EVERAL OTHER PARTS IN ITS CONSTRUCTION TO TAKE CARE OF MANY FACTORS. THE FIRS T FACTOR IS THE LIGHT COLLECTION EFFICIENCY OF THE CRYSTAL. THE LIGHT COLL ECTION EFFICIENCY OF THE CRYSTAL IS DEPENDENT ON THE SURFACE QUALITY AND REFLE CTIVITY. THE CRYSTALS ARE SANDED AND POLISHED TO GET THE RIGHT REFLECTIVI TY AND SURFACE QUALITY FOR THE COLLECTION AND TRANSMISSION OF LIGHT. USE OF SPECIAL REFLECTIVE MATERIALS ENHANCES THE LIGHT COLLECTION EFFICIENCY O F THE CRYSTALS. ANOTHER IMPORTANT FACTOR TO TAKE CARE OF IS THE HIG H HYGROSCOPIC NATURE OF THE CRYSTALS. CRYSTALS LIKE SODIUM IODIDE ARE VER Y HYGROSCOPIC. IT MEANS THAT THEY ABSORB MOISTURE FROM AIR AND THEY DIS SOLVE IN THE MOISTURE THUS ABSORBED. THEREFORE, THE CRYSTALS MUS T BE SEALED FROM EXPOSURE TO MOISTURE. THIS IS DONE BY SEALING THE CRYSTALS INSIDE A HERMETICAL SEAL. THE THIRD FACTOR IS THE SENSITIVITY OF THE OMT TO MA GNETIC FIELDS. THIS IS TAKEN CARE OF BY PROVIDING MAGNETIC SHIELDING AROUND THE PMTS. ANOTHER FACTOR IS THE SENSITIVITY OF THE PMT TO THE PRESENCE OF EXTERNAL LIGHT. THE PMT MUST BE COMPLETELY SEALED FROM EXPOS URE TO EXTERNAL LIGHT. THIS IS ACHIEVED BY THE SEALING WITH BLACK E POXY OVER LIGHT SHIELDING. THUS, THE CONSTRUCTION OF RADIATION DETECTORS INVOL VES SEVERAL PROCESS STEPS. THE ENCLOSED FLOW-CHART GIVES IN BRIEF THE VARIOUS STEPS FOLLOWED IN THE MANUFACTURE OF A RADIATION DETECTOR AT SGCD-IND IA'. 5 ITA NO.1504/BANG/2010 6. IN THE PRESENT CASE, THE FACTS ARE IDENTICAL TO THE FACTS OF THE CASE ON HAND, THEREFORE, KEEPING IN VIEW OF THE AFORESAID F INDING IN ASSESSEES OWN CASE FOR PRECEDING ASSESSMENT YEARS, WE DO NOT SEE ANY INFIRM ITY IN THE ORDER OF LEARNED CIT(A) ON THIS ISSUE. THE APPEAL FILED BY THE DEPART MENT IS DISMISSED. 7. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSE D. (ORDER PRONOUNCED IN THE OPEN COURT ON 2 2 ND NOV., 2011.) SD/- SD/- (P. MADHAVI DEVI) (N.K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED: 22.11.2011. *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, -A BENCH. 6. GUARD FILE. (TRUE COPY) BY ORDER ASSTT. REGISTRAR, ITAT, BANGALORE. .