M/s. Liddle Manufacturing Pvt. Ltd, Distt. Kathua V. The Income-tax Officer, Kathua

ITA 178/ASR/2013

• Counselvise Citation: 17820914 RSA 2013
• Duration Of Justice: 1 year(s) 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 08-12-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 28-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P N ARORA
• Keywords: Business income; Opportunity of being heard; Capital receipt
• Section: 143(3); 234B; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE SH. A.D. JAIN, HONBLE JUDICIAL MEMBER, AND SH. B.P. JAIN, HONBLE ACCOUNTANT MEMBER I.T.A. NO.178/ASR/2013 (ASSESSMENT YEA R: 2009-10) M/S. LIDDLE MANUFACTURING PVT. LTD., C/O JAMMU METALLIC OXIDES PVT. LTD., KHASRA NO.725, NEAR RAILWAY CROSSING VILLAGE LOGATE, TEH. & DISTT. KATHUA PAN:AABCL4156C(APPELLANT) VS. THE INCOME TAX OFFICER, WARD NO.1(4), KATHUA. (RESPONDENT) APPELLANT BY: SH. P.N.AR ORA, ADV. RESPONDENT BY: SH . TARSEM LAL, DR. DATE OF HEARIN G: 08.12.2014 DATE OF PRONOUN CEMENT: 02.01.2015 ORDER PER: B.P. JAIN (AM): THIS APPEAL OF THE ASSESSEE IS ARISING FROM THE OR DER OF LEARNED CIT(A), JAMMU DATED 30.01.2013 FOR THE ASSESSMENT Y EAR 2009-10. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL. 1. THAT THE ORDER OF THE ASSESSING OFFICER AS WELL AS THE ORDER OF THE LD. CIT(APPEALS) ARE BOTH AGAINST THE FACTS OF THE CASE AND UNTENABLE IN LAW. 2. THAT THE WORTHY CIT(APPEALS) HAS GROSSLY ERRED I N CONFIRMING THE ORDER OF THE AO WITHOUT APPLYING HIS MIND AND W ITHOUT APPRECIATING THE FACTS, ARGUMENTS AND WRITTEN SUBMI SSIONS FILED BEFORE HIM FROM TIME TO TIME. 3. THAT THE AO HAS GROSSLY ERRED THEREBY DISALLOWIN G DEDUCTION OF RS.1,33,10,413/- CLAIMED UNDER SECTION 80IE OF T HE INCOME-TAX ACT, 1961. THAT DEDUCTION UNDER SECTION 80IE OF THE I.T.ACT,1961, WAS CORRECTLY CLAIMED AND THE SAME WAS IN ACCORDANC E WITH THE LAW ITA NO. 178/ASR/2013 2 AND THE CIT(APPEALS)HAS GROSSLY ERRED IN CONFIRMING THE SAME WITHOUT ANY RHYME & REASON AND JUSTIFICATION. 4. THAT THE WORTHY CIT(APPEALS) DID NOT APPRECIATE THAT THE APPELLANT FULFILLED ALL THE CONDITIONS LAID DOWN UN DER SECTION 80IE OF THE INCOME TAX ACT,1961. 5. THAT THE AUTHORITIES BELOW DID NOT APPRECIATE TH AT THE COMPANY IS MANUFACTURING GOODS AND THE AO HAS GROSS LY ERRED IN COMING TO THE CONCLUSION THAT LESS CONSUMABLE STORE S HAVE BEEN USED, LESS EXPENSES WERE INCURRED DURING THE COURSE OF MANUFACTURING PROCESS. THE AO FAILED TO APPRECIATE THAT THE ASSESSEE COMPANY WAS ENGAGED IN THE MANUFACTURING O F PRECIOUS METAL COMPOUNDS, WHICH WERE OF A VERY HIGH VALUE IT EM. THUS THE PRESUMPTION OF THE AO WAS NOT JUSTIFIED THAT COMPON ENT OF LABOUR, CONSUMABLE STORES, ELECTRICITY ARE NOT COMMENSURATE WITH THE PRODUCTION. FURTHER, THE CIT(APPEALS) HAS GROSSLY E RRED IN CONFIRMING THE ORDER OF THE AO WITHOUT ANY RHYME & REASONS. 6. THAT THE AO HAS GROSSLY ERRED IN COMING TO THE C ONCLUSION THAT THE MANUFACTURING GOLD CHLORIDE POWDER OUT OF GOLD BULLION IS NOT A MANUFACTURING ACTIVITY. THE CONCLUSION OF THE AO IS WITHOUT ANY BASIS AND JUSTIFICATION. FURTHER, THE LD. CIT(A PPEALS) HAS GROSSLY ERRED IN CONFIRMING THE ORDER OF THE AO ON THIS ISSUE WITHOUT APPRECIATING THE FACTS & CIRCUMSTANCES OF T HE CASE. 7. THAT THE AUTHORITIES BELOW DID NOT APPRECIATE TH AT THE CENTRAL EXCISE DEPARTMENT CONSIDERING THE SAME AS A MANUFAC TURING ACTIVITY. THE AUTHORITIES BELOW DID NOT APPRECIATE THAT THE SEVERAL PROCESSES ARE INVOLVED BEFORE OBTAINING THE FINAL P RODUCT AND IT IS CLEARLY A CASE OF MANUFACTURING. THE LD. AO HAS NOT BEEN ABLE TO PLACE ANY MATERIAL ON THE RECORD FOR REJECTING THE CONTENTION OF THE ASSESSEE AND FOR COMING TO THE CONCLUSION THAT IT I S NOT A MANUFACTURING ACTIVITY. THE AO HAS MISERABLY FAILED TO APPRECIATE THE PROCESS OF MANUFACTURING. SIMILARLY, THE CIT(AP PEALS) HAS GROSSLY ERRED IN CONFIRMING THE ORDER OF THE AO WIT HOUT ANY RHYME & REASON. 8. THAT THE LD. CIT(APPEALS) HAS GROSSLY ERRED IN C ONFIRMING THE ORDER OF THE AO WHEREIN THE AO HAS ERRED IN NOT ALL OWING THE DEDUCTION ON ACCOUNT OF RS.82,48,402/- RECEIVED BY THE APPELLANT AS CENTRAL EXCISE DUTY REFUND ON THE GROUND THAT THE SAME IS NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING. THE CIT(AP PEALS) HAS MISERABLY FAILED TO APPRECIATE THAT THIS AMOUNT REC EIVED BY THE APPELLANT ON ACCOUNT OF EXCISE DUTY REFUND IS A CAP ITAL RECEIPT AND IS NOT SUBJECT TO TAX AND IT IS TOTALLY EXEMPT FROM THE INCOME-TAX.. THUS THE DEDUCTION ON AMOUNT OF RS.82,48,402/- U/S 80IE OF THE INCOME TAX ACT, 1961, SHOULD HAVE BEEN ALLOWED. 9. THAT THE WORTHY CIT(APPEALS) HAS MISERABLY FAILE D TO APPRECIATE THAT THIS CASE IS CLEARLY COVERED BY THE DECISION OF THE TERRITORIAL JURISDICTIONAL COURT IN THE CASE OF M/S . BAJAJ ALLOYS & ITA NO. 178/ASR/2013 3 ORS. VS. COMMISSIONER OF INCOME-TAX & ORS. REPORTED IN 333- ITR,335. 10. THAT THE AUTHORITIES BELOW FAILED TO APPRECIATE THAT EVEN OTHERWISE, IT WAS AN ALLOWABLE DEDUCTION UNDER SECT ION 80IE OF THE INCOME-TAX ACT,1961, AND THE SAME SHOULD HAVE BEEN ALLOWED AS CLAIMED. 11. THAT THE LD. CIT (APPEALS) HAS GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE UNDER SECTION 36(1)(III) AT RS.2,2 9,550/- ON ACCOUNT OF DISALLOWANCE OF INTEREST MADE BY THE AO. THAT THE AUTHORITIES BELOW DID NOT APPRECIATE THAT THE INTER EST WAS PAID ON THE LOAN UTILIZED FOR MANUFACTURING PURPOSE. THE AU THORITIES BELOW HAVE NOT BEEN ABLE TO PLACE ANY MATERIAL ON THE REC ORD TO JUSTIFY THE DISALLOWANCE AND HAS NOT BEEN ABLE TO MAKE ANY NEXU S BETWEEN THE LOAN TAKEN AND UTILIZED FOR NON-BUSINESS PURPOSES. AS SUCH, THERE WAS NO JUSTIFICATION FOR DISALLOWING THE INTEREST T O THE TUNE OF RS.2,29,550/- AND THE ADDITION MADE MAY BE DELETED. ALTERNATIVELY, WITHOUT PREJUDICE TO THE ABOVE THE D ISALLOWANCE OF INTEREST IS VERY HIGH & EXCESSIVE. 12. AGAIN, THE AO HAS GROSSLY ERRED IN CHARGING INT EREST UNDER SECTION 234B & 234C OF THE INCOME-TAX ACT, 1961, AM OUNTING TO RS.11,98,326/-. THE LD. CIT(APPEALS) DID NOT APPREC IATE THAT NO REASONABLE OPPORTUNITY OF BEING HEARD WAS ALLOWED B EFORE CHARGING INTEREST UNDER SECTION 234B & 234C OF THE INCOME-TA X ACT,1961. 13. ALTERNATIVELY, THE INTEREST CHARGED UNDER SECTI ON 234B & 234C OF THE INCOME-TAX ACT, 1961, IS VERY HIGH & EX CESSIVE. 14. ANY OTHER GROUND OF APPEAL THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL. 3. THE GROUND NO. 1, 2 AND 14 ARE GENERAL IN NATURE AND TH EY DO NOT REQUIRE ANY ADJUDICATION. 4. AS GROUND NO.3 TO 7, THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80IE OF THE ACT, AMOUNTIN G TO RS.1,33,10,413/-. THE ASSESSEE WAS HAVING OFFICES AT DELHI AND AHEMDA BAD WHICH WERE TO PURCHASE THE RAW MATERIAL AND LATER ON THE RAW MATE RIALS WERE DISPATCHED TO SIKKIM MANUFACTURING UNIT. THE ASSESSEE IS ALSO HAVING UNIT AT KOTA BRANCH FOR WHICH SEPARATE TRADING AND PROFIT AND LO SS ACCOUNT WERE SUBMITTED. THE AO AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE IN ITA NO. 178/ASR/2013 4 RESPONSE TO SHOW CAUSE DATED 29.11.2011 MADE THE VA RIOUS OBSERVATION WHICH FOR THE SAKE OF CONVENIENCE ARE REPRODUCED HE RE IN BELOW: I) AS PER ASSESSEES CONTENTION, IT HAS MANUFACTU RED GOODS WORTH RS.18.35 CRORES IN ITS SIKKIM UNIT. FROM THE P&L A/ C OF THE ASSESSEE, IT IS SEEN THAT THE ASSESSEE HAS NOT PAID ANY ELECTRICITY CHARGES IN RESPECT OF SIKKIM UNIT. IN FACT, FOR ALL ITS FOUR UNITS THE ASSESSEE HAS SHOWN ELECTRICITY EXPENSES OF RS.1100/ - ONLY ON TURNOVER OF RS.18.60 CRORES, WHICH IS UNIMAGINABLE. II) ON TOTAL TURNOVER OF RS. 18.35 CRORES, THE ASSE SSEE HAS SHOWN TOTAL WAGES AND SALARY EXPANSES OF RS.3,60,000/- ON LY IN RESPECT OF ITS SIKKIM UNIT. III) AS PER FORM 10CCB, IN RESPECT OF ITS SIKKIM UN IT, THE ASSESSEE HAS SHOWN TO HAVE ENGAGED ONLY FOUR WORKERS FOR A TURNOVER OF RS.18.35 CRORES. IT IS QUITE UNIMAGINABLE AS TO HOW FOUR WORKERS COULD HAVE MANUFACTURED ITEMS WORTH RS. 18.35 CRORE S. IV) THE ASSESSEE COMPANY IN ITS AUDITED A/CS ATTACH D WITH THE RETURN HAD ITSELF SHOWN THAT SALES OF 17.78 CRORES HAVE BEEN MADE FROM ITS AHMEDABAD KOTA AND DELHI UNITS WHICH ARE N OT ELIGIBLE FOR DEDUCTION U/S. 80IE OF THE A.T. ACT,1961. IN FACT, REGISTRATION CERTIFICATE DATED 20 TH MAY, 2008 ISSUED BY COMMERCIAL TAX OFFICER, KOTA SHOWS THAT THE ASSESSEE COMPANY WAS REGISTERED UNDER TIN 08062957322 FOR SALE AND PURCHASE OF METALS SUCH AS COPPER, NICKEL, ZINC ETC. ITA NO. 178/ASR/2013 5 V) IT HAS BEEN GATHER THAT THERE IS NO SUCH INDUSTR IAL UNDERTAKING AT SIKKIM AS ON DATE AND, AS SUCH, NO MANUFACTURING AC TIVITY IS GOING ON AT SIKKIM AS ON DATE, WHICH HAS BEEN CONFIRMED B Y THE ASSESSEE. VI) IT IS SEEN THAT THE ASSESSEE HAS SHOWN CONSUMAB LE OF RS.716/- ON TURNOVER OF RS.18.35 CRORES IN RESPECT OF SIKKIM UN IT. VII) ON TOTAL TURNOVER OF RS.18.35 CRORES THE ASSES SEE HAS SHOWN PACKING MATERIAL CONSUMED AT RS.23,000/- ONLY IN RE SPECT OF SIKKIM UNIT. VII) IN RESPECT OF SIKKIM UNIT, THE ASSESSEE HAS SH OWN PLANT & MACHINERY OF RS. 13.31 LAKHS AND IN RESPECT OF KOTA UNIT, THE ASSESSEE HAS SHOWN PLANT AND MACHINERY OF RS.18.35 CRORES IN RESPECT OF SIKKIM UNIT AND TURN OVER OF RS.14.40 LA KH IN RESPECT OF KOTA UNIT. 2.2. IN ITS REPLY THE ASSESSEE HAS STATED THAT ONLY THREE BATCHES OF GOLD WERE PROCESSED AND DUE TO THAT EXPENSES WERE O F NEGLIGIBLE VALUE. FROM THE ABOVE IT IS EVIDENT THAT THE ASSESS EE HAS IN FACT CARRIED OUT TRADING ACTIVITY MAINLY AT AHMADABAD, D ELHI AND KOTA. IN FACT, EVEN IF ANY CONVERSION OF GOLD INTO GOLD P OWDER HAS BEEN DONE AT SIKKIM DURING THE YEAR IT IS OF NEGLIGIBLE VALUE. IT IS QUITE APPARENT THAT THE ASSESSEE IS CLAIMING TO HAVE AN I NDUSTRIAL UNDERTAKING WITH TOTAL TURNOVER OF 18.35 CRORES AT SIKKIM ONLY TO CLAIM BENEFITS/INCENTIVES AVAILABLE UNDER INCOME TA X ACT AND CENTRAL EXCISE ACT. THE MERE FACT THAT THE ASSESSEE HAS RECEIVED ITA NO. 178/ASR/2013 6 CENTRAL EXCISE DUTY REFUND DOES NOT ENTITLE THE ASS ESSEE FOR CLAIM OF DEDUCTION U/S. 80IE OF THE I.T. ACT IN VIEW OF T HE ABOVE FACTS. ACCORDINGLY IT IS HELD THAT THE ASSESSEE COMPANY IS ENGAGED IN TRADING ACTIVITY AND NO MANUFACTURING HAS BEEN DONE BY THE ASSESSEE COMPANY. AS SUCH, DEDUCTION U/S. 80IE OF R S.1,33,10,413/- CLAIMED BY THE ASSESSEE IS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME AND HAS CLAIMED WRONG DEDUCTION U/S 80IE OF THE I.T . ACT, 1961 TO THE ABOVE EXTENT. PENALTY PROCEEDINGS U/S. 271(1) ( C ) OF THE I.T. ACT, 1961 ARE, THEREFORE, INITIATED. 3.1 IT IS SEEN THAT THE ASSESSEE HAS CLAIMED DEDUCT ION U/S. 80IE OF THE INCOME TAX ACT 1961 OF RS.1,33,10,413/- SHOWING ITS ACTIVITY AS MANUFACTURE OF GOLD POWDER FROM GOLD. DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE VIDE ORDER SHE ET ENTRY DATED 29.11.2011 WAS ASKED TO EXPLAIN AND SHOW CAUSE AS T O HOW DEDUCTION U/S 80IE OF THE INCOME TAX ACT 1961 HAS B EEN CLAIMED ON CONVERSION OF GOLD INTO GOLD POWDER AND WHY SAME MA Y NOT BE DISALLOWED. IN RESPONSE, A WRITTEN REPLY WAS FILED IN THIS OFFICE STATING THAT THE CONVERSION OF GOLD IN TO GOLD POWD ER CONSTITUTES MANUFACTURING ACTIVITY. IN THIS REGARD IT IS SUBMIT TED THAT MANUFACTURING OF GOLD POWDER FROM GOLD THE MAIN RAW MATERIAL IS GOLD BULLION, HYDROCHLORIC ACID, NITRIC ACID AND SO DIUM MET ITA NO. 178/ASR/2013 7 BISULPHATE. IN THE FIRST PROCESS GOLD CONVERTS INTO GOLD CHLORIDE AND FINALLY CONVERT INTO GOLD POWDER. BY THIS PROCESS G OLD POWDER CAME INTO EXISTENCE AND PROCESS IS A MANUFACTURING PROCE SS. 3.2. I HAVE GONE THROUGH THE CONTENTIONS RAISED BY THE ASSESSEE WHAT AMOUNTS TO MANUFACTURE HAS BEEN DEFINED IN PARAGRAPH FROM A N AMERICAN JUDGMENT WHICH HAS BEEN QUOTED BY APPROVAL BY VARIOUS JUDGMENTS OF THE HONBLE SUPREME COURT AS ALSO IN THE CASE OF DELHI CLOTH & GENERAL MILLS CO. LTD. THE PARAGRAPH QUOTED IN PARA 14 ON PAGE 795 OF THE REPORT READS AS FOLLO WS: MANUFACTURE IMPLIES A CHANGE, BUT EVERY CHANGE IS NOT MANUFACTURE AND YET EVERY CHANGE OF AN ARTICLE IS THE RESULT OF TREATME NT, LABOUR AND MANIPULATION. THUS FOR MANUFACTURE MERE CHANGE FROM ONE FORM OF STATE TO ANOTHER IS NOT SUFFICIENT. 3.3. WHAT CONSTITUTES MANUFACTURING HAS BEEN LAID D OWN BY HONBLE SUPREME COURT OF INDIA IN THE CASE OF DY. CIT V. PIO FOOD P ACKER [1980]46 STC 63(SC). IN THAT CASE THE HONBLE APEX COURT HAS LAID DOWN THAT WHERE THERE IS NO ESSENTIAL DIFFERENCE IN THE IDENTITY OR ORIGINAL CO MMODITY AND PROCESSED ARTICLES, IT IS NOT POSSIBLE TO SAY THAT ONE COMMODITY HAS BE EN CONSUMED IN THE MANUFACTURE OF ANOTHER ALTHOUGH IT HAS UNDERGONE A DEGREE OF PROCESSING IT MUST BE REGARDED AS STILL RETAINING THE ORIGINAL IDENTIT Y. THE ASSESSEE HAS ALSO CONTENDED THAT HIS ACTIVITY IS PURELY MANUFACTURING IN WHICH GOLD CONVERTS INTO GOLD CHLORIDE AND FINAL LY CONVERT INTO GOLD POWDER., IN THIS REGARD, THE HONBLE SUPREME COURT IN THE CASE OF STATE OF ORISSA V. TITAGHUR PAPER MILLS CO. LTD. [1985] 60 STC 213(SC) HAS HELD THAT MERELY BECAUSE ITA NO. 178/ASR/2013 8 CERTAIN ARTICLES ARE KNOWN BY DIFFERENT NAMES, IT D OES NOT MEAN THAT THEY ARE DIFFERENT COMMERCIAL COMMODITIES IF IN FACT THEY AR E MERELY DIFFERENT FORMS OF THE SAME COMMODITY. THE HONBLE BOMABY HIGH COURT IN THE CASE OF CST V S. DUNKER COFFEE MFG. CO.[1975]35 STC 493 HAS ALSO HELD THAT MERE CH ANGE IN THE NAME OF COMMODITY WILL NOT AMOUNT TO MANUFACTURE. 3.4. FURTHER, IN THE CASE OF STATE OF GUJRAT V. SAK ARWALA BROS.[1967 19 STC 24 TO 31 THE QUESTION BEFORE THE HONBLE SUPREME COURT OF INDIA WAS WHETHER PATASHA HARDA AND ELICHIDANA WERE PRODUCT OF SUGAR AND NO SUGAR AS SUCH IN ANY FORM. THE HONBLE SUPREME COURT AFFIRMED THE FOLLOW ING OBSERVATIONS OF THE TRIBUNAL:- IF CHEMICAL COMPOSITION OF THE ARTICLE IS TO BE T AKEN AS GUIDE IN INTERPRETING HE ENTRY 47 THERE IS NO DOUBT THAT PAT ASHA HARDA AND ELICHIDANA ARE MERE DIFFERENT FORM OF SUGAR AS DEFI NED BY THE CENTRAL EXCISE AND SALES TAX ACT, 1944. WE WERE INF ORMED THAT SMALL PORTION OF HYDROGEN SULPHIDE IS PASSED THROUG H THE SUGAR SOLUTION FOR BLEACHING PURPOSES AFTER WHICH PATASHA S ARE PREPARED BY SPLACHING THE SOLUTION ON PIECE OF WOOD WHICH CO NVERTS SUGAR INTO AMORPHOSED SUGAR, THE HARDAS ARE ALLOWED TO CO OL AND ELICHIDANA PREPARED BY RAPIDLY PASSING THE SOLUTION OF APPROPRIATE THICKNESS THROUGH A SIEVE SO AS TO CONVERT IT INTO GRANULATE LUMPS OF SUGAR. BUT WHATEVER THE PROCESS, THESE ARTICLES ARE ONLY FORMS OF ITA NO. 178/ASR/2013 9 REFINED SUGAR WITH THE REQUISITE SUCROSE CONTENT.. AFTER UNDERGOING ALL THE PROCESS THE ARTICLE CONTINUES TO BE SUGAR. IN THE CASE OF THE ASSESSEE ALSO, THE ASSESSEE HA S SHOWN HIS ACTIVITY OF CONVERTING GOLD INTO GOLD CHLORIDE AND FINALLY INTO GOLD POWDER APPLYING THE REST LAID DOWN BY VARIOUS HONBLE COU RTS AS MENTIONED ABOVE, IT IS OBSERVED THAT CONVERTING DOE S NOT RESULT INTO MANUFACTURE OF A COMMODITY WHICH IS DIFFERENT FROM THE ORIGINAL ONE. RELIANCE IS ALSO PLACED UPON THE DECISION OF E VASANTHA & CO. V. STATE OF MADRAS[1963] 14 STC 697 TO 701 ( MAD.). IN THAT CASE, THE ASSESSEE WAS DEALER IN SUGAR AND THE QUESTION B EFORE THE HONBLE COURT WAS WHETHER SUGAR CANDY, IS DIFFERENT FROM SUGAR AND EXEMPT FROM PAYMENT OF SALES TAX. IN THAT CASE, AFTER CONSIDERING VARIOUS FACTS AND CIRCUMSTANCES OF THE CASE AND THE OPINION OF NATIONAL SUGAR INSTITUTE OF KANPUR, IT W AS HELD THAT SUGAR CANDY IS PURER FORM OF SUGAR. IN THE CASE OF TUNGABHADRA INDUSTRIES LTD. VS. CTO [1960] 11 STC 827, THE HONBLE SUPREME COURT HAS DECIDED THAT PURIFICATION/REFINING OF GROUNDNUT OIL TO OBTAIN RE FINED GROUNDNUT OIL DOES NOT AMOUNT TO MANUFACTURE. SINCE THERE IS NO CHANGE IN THE NATURE OF THE SUBSTANCE WHICH REMAINS GROUNDNUT OIL EVEN AFTER PURIFICATION. THE IMPORTANT OBSERVATIONS OF THE HON BLE SUPREME COURT AT PAGE 831 ARE REPRODUCED BELOW: ITA NO. 178/ASR/2013 10 WHEN RAW GROUNDNUT OIL IS CONVERTED INTO REFINED O IL, THERE IS NO DOUBT PROCESSING, BUT THIS CONSISTS MERELY IN REMOV ING FROM RAW GROUNDNUT OIL THE CONSTITUTE PART OF THE RAW OIL WH ICH IS NOT REALLY OIL. THE ELEMENTS REMOVED IN THE REFINING PROCESS C ONSISTS OF FREE FATTY ACIDS, PHOSPHOTICIDES AND UNSAPONFIABLE MATTE R. AFTER THE REMOVAL OF THIS NON-OLEIC MATTER THEREAFTER THE OIL CONTINUES TO BE GROUNDNUT OIL AND NOTHING MORE. THE MATTER REMOVE F ROM THE RAW GROUNDNUT OIL NOT BEING OIL CANNOT BE USED, AFTER S EPARATION, AS OIL OR FOR ANY PURPOSE FOR WHICH OIL COULD BE USED AFTE R SEPARATION, AS OIL OR FOR ANY PURPOSE FOR WHICH OIL COULD BE USED. IN OTHER WORDS, THE PROCESSING CONSIST IN THE NON-OIL CONTENT OF TH E RAW OIL BEING SEPARATED AND REMOVED, RENDERING THE ONLY CONTENT O F THE OIL 100 PER CENT. FOR THIS REASON REFINED OIL CONTINUES TO BE GROUNDNUT OIL WITHIN THE MEANING OF RULES 5(1)(K) AND 18(2) NOTWI THSTANDING THAT SUCH OIL DOES NOT POSSESS THE CHARACTERISTIC COLOUR , OR TASTE, ODOUR ETC. OF THE RAW GROUNDNUT OIL. AT PAGE NO.833 OF THIS ORDER THE HONBLE SUPREME C OURT HAS HELD THAT PROCESS OF REMOVAL OF IMPURITIES DOES NOT RENDER GROUNDNUT OIL ANY THE LESS. THE HONBLE SUPREME COU RT HAS FURTHER HELD THAT EVEN HYDROGENATION OF OIL DOES NOT AMOUNT TO MANUFACTURE. AT PAGE 835 THE HONBLE SUPREME COURT HAS HELD THAT THERE IS NO USE TO WHICH THE GROUNDNUT OIL CAN BE P UT FOR WHICH THE HYDROGENATED OIL COULD NOT BE USED, NOR IS WHERE AN Y USE TO WHICH ITA NO. 178/ASR/2013 11 THE HYDROGENATED OIL COULD BE PUT FOR WHICH THE RAW OIL COULD NOT BE USED. 3.5. THUS, KEEPING IN VIEW THE FACTS OF THE CASE AN D ABOVE JUDICIAL PRONOUNCEMENTS, IT IS EVIDENT THAT CONVERSION OF GO LD INTO GOLD POWDER DOES NOT AMOUNT TO MANUFACTURE AND, AS SUCH, IS NOT ENTITLED TO DEDUCTION U/S80IE OF THE I.T. ACT 1961. ACCORDIN GLY, DEDUCTION U/S 80IE OF THE I.T. ACT 1961 OF RS.1,33,10,413/- C LAIMED BY THE ASSESSEE IS DISALLOWED AND AN AMOUNT OF RS.1,33,10, 413/- SUBJECTED TO TAX. SINCE THE ASSESSEE HAS WRONGLY CLAIMED DEDU CTION U/S 80IE OF THE I.T. ACT 1961, PENALTY PROCEEDINGS U/S. 271( 1)(C) OF THE INCOME TAX ACT, 1961 FOR FURNISHING INACCURATE PART ICULARS OF INCOME ARE INITIATED. 5. AS REGARDS GROUND NO.8 TO 10 WITH RESPECT TO THE EXCISE DUTY REFUND, THE ASSESSEE HAS RECEIVED EXCISE DUTY REFUN D OF RS.82,48,402/- WHICH WAS CLAIMED AS DEDUCTION U/S. 80IE OF THE ACT WHICH IS CORRESPONDING TO THE RECEIPT OF THE SAID REFUND. A SHOW CAUSE NOTICE WAS GIVEN THAT SAID EXCISE DUTY REFUND MAY NOT BE WITHD RAWN AS THE SAME IS NOT DERIVED FROM MANUFACTURING ACTIVITY. THE ASSES SEE HAS SUBMITTED THE REPLY WHICH IS AVAILABLE AT PAGE 8 & 9 OF THE AOS ORDER. THE AO AFTER CONSIDERING THE REPLY OF THE ASSESSEE MAINLY RELIED UPON THE DECISION OF PONNI SUGARS AND CHEMICALS LTD. (306 ITR, 392 (SC) AND SAWHNEY STEEL AND PRESS WORKS LTD., 228 ITR 253 (SC) APART FROM T HE DECISION IN THE CASE OF CIT VS. RELIANCE INDUSTRIES LTD., CIVIL APP EAL NO. 7769 OF 2011, ITA NO. 178/ASR/2013 12 DATED 09.09.2011, THE AO OBSERVED THAT THE INCOME T AX DEPARTMENT HAS NOT ACCEPTED THE DECISION OF HONBLE HIGH COURT OF JAMMU & KASHMIR IN THE CASE OF M/S BAJAJ ALLOYS & ORS. VS. CIT AND HAS FILED SLP AGAINST THE SAID DECISION AND THEREFORE, EXCISE DUTY REFUND WHI CH IS RECEIVED BY THE ASSESSEE AS CONSEQUENT TO THE SCHEME FORMULATED BY THE GOVT. OF INDIA CANNOT BE SAID TO BE DERIVED FROM INDUSTRIAL UNDERT AKING AND HAS TO BE HELD AS REVENUE RECEIPT AND ACCORDINGLY, AO ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 6. AS REGARDS GROUND NO.11 WITH REGARD TO THE DISAL LOWANCE U/S.36(1)(III) THE OBSERVATION OF THE AO WHILE DISA LLOWING RS.2,29,550/- ARE CONTAINED AT PAGE 13 & 14 OF THE AOS ORDER WHI CH ARE REPRODUCED FOR THE SAKE OF CONVENIENCE HEREIN BELOW. 5.1 IT IS SEEN THAT DURING THE YEAR THE ASSESSEE HAS SHOWN TO HAVE MADE INTEREST FREE TRANSACTION WITH M/S HORIZON PRO JECTS & INFRA PVT. LTD., KOTA; M/S MACRO SOFT TECHNOLOGY PVT. LTD , MUMBAI AND M/S NUTRILITE FOODS PVT. LTD, KOTA TOTALING RS.31,1 0,000/- WHICH HAS BEEN SHOWN AS AN INVESTMENT. BESIDES AN AMOUNT OF RS,24,00,000/- HAS BEEN SHOWN AS AN ADVANCE TO SMT. MINA KUMARI PRADHAN. DURING THE COURSE OF ASSESSMENT PROCEEDING S, THE ASSESSEE WAS ASKED TO STATE ITS PURPOSE AND ALSO STATE AS TO WHETHER SAME IS FOR BUSINESS PURPOSE. IN RESPONSE TO ABOVE, THE ASS ESSEE FILED A WRITTEN REPLY STATING THAT M/S HORIZON PROJECTS & I NFRA PVT. LTD, KOTA; M/S MACRO SOFT TECHNOLOGY PVT. LTD, MUMBAI AN D M/S ITA NO. 178/ASR/2013 13 NUTRILITE FOODS PVT LTD., KOTA TOTALING RS. 31,10,0 00/- ARE NON INTEREST BEARING INVESTMENTS AND ADVANCE WAS PAID T O SMT. MIRA KUMARI PRADHAN FOR PURCHASE OF ADDITIONAL LAND AT S IKKIM WHICH COULD NOT MATERIALIZE. HOWEVER THE ASSESSEE COULD N OT FURNISH ANY SUCH AGREEMENT WITH SMT. MINA KUMARI PRADHAN. THE I NVESTMENT HAS ALSO BEEN MADE FOR NO BUSINESS PURPOSES. IT IS SEEN THAT THE ASSESSEE HAS OBTAINED UNSECURED LOAN AMOUNTING TO RS.2,49,75,000/- ON WHICH INTEREST OF RS.10,40,471/ - WAS PAID BY THE ASSESSEE. AT THE SAME TIME, THE ASSESSEE HAD MA DE AN INTEREST FREE ADVANCES/INVESTMENTS OF RS.55,10,000/- FOR NON BUSINESS USE. 5.2.I HAVE GONE THROUGH THE EARLIER REPLY OF THE A SSESSEE AND THE JUDICIAL PRONOUNCEMENTS ON THIS ISSUE. THE ASSESSEE HAS NOT BEEN ABLE TO PROVE THAT THESE INTEREST FREE ADVANCES WER E MADE FOR THE PURPOSE OF BUSINESS. SECTION 36(1)(III) PROVIDES FO R DEDUCTION OF INTEREST ON THE LOANS RAISED FOR BUSINESS PURPOSES. ONCE THE ASSESSEE CLAIMS ANY SUCH DEDUCTION IN THE BOOKS OF ACCOUNT, THE ONUS WILL BE ON THE ASSESSEE TO SATISFY THE ASSESSI NG OFFICER THAT WHATEVER LOANS WERE RAISED BY THE ASSESSEE, THE SAM E WERE USED FOR BUSINESS PURPOSES. IF IN THE PROCESS OF EXAMINATION OF GENUINESS OF SUCH A DEDUCTION, IT TRANSPIRES THAT THE ASSESSEE H AD ADVANCED CERTAIN FUNDS TO SISTER CONCERNS OR ANY OTHER PERSO N WITHOUT ANY INTEREST, THERE WOULD BE VERY HEAVY ONUS ON THE ASS ESSEE TO BE DISCHARGED BEFORE THE ASSESSING OFFICER TO THE EFFE CT THAT IN SPITE OF ITA NO. 178/ASR/2013 14 PENDING LOANS ON WHICH THE ASSESSEE IS INCURRING LI ABILITY TO PAY INTEREST, THERE WAS JUSTIFICATION TO ADVANCE LOANS TO SISTER CONCERNS FOR NON-BUSINESS PURPOSES WITHOUT ANY INTEREST AND, ACCORDINGLY. THE ASSESSEE SHOULD BE ALLOWED DEDUCTION OF INTERES T BEING PAID ON THE LOANS RAISED BY IT TO THAT EXTENT. THE ONLY THI NG SUFFICIENT TO DISALLOW THE INTEREST PAID ON THE BORROWING TO THE EXTENT THE AMOUNT IS LENT TO SISTER CONCERN WITHOUT CARRYING ANY INTE REST FOR NON- BUSINESS PURPOSES WOULD BE THAT THE ASSESSEE HAS SO ME LOANS OR OTHER INTEREST-BEARING DEBTS TO BE REPAID. IN CASE OF THE ASSESSEE HAS SOME SURPLUS AMOUNT WHICH, ACCORDING TO IT, COU LD NOT BE REPAID PREMATURELY TO ANY FINANCIAL INSTITUTION, ST ILL THE SAME IS EITHER REQUIRED TO BE CIRCULATED AND UTILIZED FOR T HE PURPOSE OF BUSINESS OR TO BE INVESTED IN A MANNER IN WHICH IT GENERATES INCOME AND NOT THAT IT IS DIVERTED TOWARDS SISTER CONCERN FREE OF INTEREST. THIS WOULD RESULT IN NOT PRESENTING TRUE AND CORREC T PICTURE OF THE ACCOUNTS OF THE ASSESSEE AS AT THE COST BEING INCUR RED BY THE ASSESSEE, THE SISTER CONCERN WOULD BE ENJOYING THE BENEFITS THEREOF. IT CANNOT POSSIBLY BE HELD THAT THE FUNDS TO THE EX TENT DIVERTED TO SISTER CONCERNS OR OTHER PERSONS FREE OF INTEREST A RE REQUIRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS AND LOANS TO THE EXTENT ARE REQUIRED TO BE RAISED. THERE SHOULD BE NEXUS OF USE OF BORROWED FUNDS FOR THE PURPOSE OF BUSINESS TO CLAIM DEDUCTIO N UNDER SECTION 36(1)(III). THIS VIEW HAS ALSO BEEN UPHELD BY THE H ONBLE PUNJAB & ITA NO. 178/ASR/2013 15 HARYANA HIGH COURT IN THE CASE OF CIT V. ABHISHEK I NDUSTRIES LTD. [2006] 156 TAXMAN 257. 5.3. ACCORDINGLY, IN VIEW OF ABOVE, INTEREST PAID TO BANK TO THE EXTENT OF INTEREST FREE ADVANCES/INVESTMENTS IS DIS ALLOWED. IT IS SEEN THAT DURING THE YEAR AN INTEREST FREE ADVANCE AND A T THE SAME TIME THE ASSESSEE IS PAYING INTT OF RS.10,40,471/- ON UN SECURED LOAN OF RS.2,49,75,000/-. IN VIEW OF ABOVE IT WOULD RESULT IN DISALLOWANCE OF INTEREST PAID TO THE EXTENT OF RS.2,29,550/-. AC CORDINGLY, AN AMOUNT OF RS.2,29,550/- IS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. SINCE THE DISALLOWANCE IS FOR VIOLATI ON OF PROVISIONS OF THE INCOME TAX ACT, 1961, NO DEDUCTION U/S 80IE OF THE ACT WILL BE ADMISSIBLE ON THIS AMOUNT. PENALTY PROCEEDINGS U/S 271(1) (C ) OF THE INCOME ADMISSIBLE ON THIS AMOUNT. PENALTY PROCE EDINGS U/S 271(1)(C) OF THE INCOME TAX ACT,1961 FOR FURNISHING INACCURATE PARTICULARS OF INCOME ARE INITIATED. 7. BEFORE THE LEARNED CIT(A) THE LEARNED COUNSEL FO R THE ASSESSEE MADE THE SUBMISSIONS WHICH FOR THE SAKE OF CONVENIE NCE ARE REPRODUCED HEREIN BELOW: 1. THAT DURING THE COURSE OF ASSESSMENT PROCEEDING S, IT WAS PLEADED BY THE ASSESSEE COMPANY BEFORE THE L/D ASSE SSING OFFICER THAT ASSESSEE COMPANY DUE TO UNAVOIDABLE CIRCUMSTAN CES COULD DO THE MANUFACTURING FOR 2 MONTHS ONLY AND THREE BATCH ES WERE PROCESSED WITH 127 KG GOLD. SINCE RAW MATERIAL OF T HE ASSESSEE ITA NO. 178/ASR/2013 16 COMPANY WAS PRECIOUS METAL AND HEAVY COST WAS INVOL VED MANUFACTURED GOODS WERE EXPORTED OUTSIDE THE INDIA DUE TO THIS REASON FOR SMALL PERIOD OF TIME TURNOVER OF THE ASS ESSEE COMPANY GONE TO 18.35 CRORES. BUT L/D ASSESSING OFFICER WIT HOUT APPRECIATING THE EVIDENCE PRODUCED BEFORE HIM HELD THAT ASSESSEE COMPANY HAS CLAIMED EXPENSES WHICH ARE UNIMAGINABLE :- A,ELECTRICITY SHOWN FOR RS. 1100.00 B,WAGES AND SALARY FOR RS.36000.00 C,FOUR WORKERS WERE ENGAGED AS PER REPORT 10CCB D,IN THE AUDIT BALANCE SHEET 17.78 CRORES HAVE BEEN SHOWN MADE FROM AHMADABAD, DELHI & KOTA. IN FACTS SALES TAX OF FICER KOTA HAS ISSUED TIN 08062957322 COPPER AND NICKEL ZINC.ETC. E, AT PRESENT NO BUSINESS ACTIVITY IS BEING CARRIED OUT BY THE ASSESSEE. F,PACKING MATERIAL OF RS23000.00 WAS CONSUMED. G, PLAT AND MACHINERY AT SIKKIM UNIT IS RS.13.31LAK HS AND KOTA UNIT AT RS.10.79 BUT IN THE SAME TIME TURNOVER AT S IKKIM IS RS 18.35 CRORES AND AT KOTA IS RS.14.40 LACS. EACH AND EVERY QUERY WAS EXPLAINED DURING THE COURSE OF ASSESSMENT PROCEEDIN GS. 1. REGARDING ELECTRICITY:- IN THIS REGARD IT IS SUB MITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS EXPLAINED THAT COMPANY HAS PAID RS. 54112.00 ON ACCOUNT OF ELECTIR C CHARGES FOR THE FINANCIAL YEAR 2008-2009 IN THE YEAR 2010-11 DU E TO THE REASON ITA NO. 178/ASR/2013 17 THAT COMPANY HAS CONDUCTED MANUFACTURING ACTIVITY O NLY FOR TWO MONTHS AND DEPARTMENT OF ENERGY AND POWER SIKKIM CO ULD NOT ISSUE BILL DURING THE YEAR UNDER CONSIDERATION AND ELECTR IC CHARGES COULD NOT BE PAID WITHOUT BILL ISSUED BY THE CONCERNED DE PARTMENT DUE TO THIS REASONS NO ELECTRIC CHARGES WERE BOOKED IN THE BOOKS OF ACCOUNT AND CLAIMED IN THE MANUFACTURING ACCOUNT. E XPLANATION ALONG WITH EVIDENCE OF INSTALLATION ELECTRIC CONNEC TION AND PROOF PAYMENT HAS NOT BEEN PROPERLY APPRECIATED BY THE L/ D ASSESSING OFFICER KATHUA. DELAYED PAYMENT OF ELECTRICITY CHAR GES FOR WHAT SO EVER REASON CAN BY NO STRETCH OF IMAGINATION BE CON STRUED THAT THERE HAS BEEN NO CONSUMPTION OF ELECTRICITY AT ALL . CONSUMPTION OF ELECTRICITY PAYMENT OF ITS CHARGES ARE TWO DIFFEREN T EVENTS. THEREFORE DRAWING OF CONCLUSION ON THIS BASIS IS SN OT JUSTIFIED IN ANY MANNER. SINCE ELECTRIC EXPENSES WERE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MANUFACTURING AT SIKKIM. REPLY ALONG WITH EVIDENCE IS ANNEXED HERE WITH AND MARKED AS ANNEXURE A FOR Y OUR KIND PERUSAL. 2. REGARDING RS. 36000.00 WAGES AND SALARY HAS BEEN PAID BY THE COMPANY DURING THE YEAR UNDER CONSIDERATION. IN THIS REGARD IT IS SUBMITTED THAT DURING THE COURSE OF ASSESSMENT P ROCEEDINGS, IT WAS EXPLAINED THAT ASSESSEE COMPANY COULD DO MANUFA CTURING ACTIVITY FOR 2 MONTHS ONLY AND THREE BATCHES WERE P ROCESSED WITH 127 KG RAW MATERIAL. SINCE RAW MATERIAL OF THE ASSE SSEE COMPANY ITA NO. 178/ASR/2013 18 WAS PRECIOUS METAL AND HEAVY COST WAS INVOLVED, THE QUANTUM OF EXPENDITURE DOES NOT DETERMINE ITS CHARACTER. 3. AS PER REPORT 10CCB ONLY FOR WORKERS WERE ENGAGE D. IN THIS REGARD IT IS SUBMITTED THAT U/S 80IB OF THE IT ACT, 1961 THERE WAS NO ANY CONDITION WITH RESPECT OF NUMBER OF WORKERS TO BE ENGAGED UNLESS THERE IS A LIMITATION PUT BY THE LAW ON THIS ACCOUNT QUANTUM OF WORKERS DOES NOT DETERMINED ITS FATE. 4. AUDIT REPORT BALANCE SHEET SHOWS SALES AT AHMEDA BAD AND DELHI, IN THIS REGARD IT IS SUBMITTED THAT DURING T HE COURSE OF ASSESSMENT PROCEEDINGS ASSESSEE HAS STATED BEFORE T HE LD. ASSESSING OFFICER THAT RAW MATERIAL WHICH WAS PROCU RED AT DELHI AND AHMADABAD WAS DISPATCHED TO SIKKIM FOR MANUFACT URING OF FINISHED PRODUCTS AS BRANCH TRANSFER AND BRANCH WIS E TRADING ACCOUNT AND PROFIT AND LOSS ACCOUNT WERE ENCLOSED. IT WAS INTERSTATE MOVEMENT FROM ONE STATE TO OTHER STATE AND COMPANY RETAINED THE OWNERSHIP OF GOODS AND NO SALE WAS INVOLVED. IT WAS HELD THAT MERE CONSIGNMENT OF GOODS BY A MANUFACTURE TO HIS OWN BR ANCHES OUT SIDE THE STATE DOES NOT AMOUNT TO SALES OR DISPOSAL AS SUCH. THE CONSIGNMENT OF GOODS IS NEITHER SALES OR PURCHASES. GOOD YEAR INDIA LIMITED V. STATE OF HARYANA(1990) 76STC71(SC) PAGE NO 98. FOLLOWING EVIDENCES WERE PRODUCED. ITA NO. 178/ASR/2013 19 1.TRANSFER MEMOS FROM DELHI TO SIKKIM DULY SEAL AND SIGNED BY THE SALES TAX CHECK POST AUTHORITIES SIMMIM HAVE ALREADY PRODUCED BEFORE YOUR GOOD SELF. 2. EVIDENCE REGARDING TRANSPORTATION OF GOODS BETWE EN DELHI/AHMEDABAD TO SIMMIM BY THE WELL EQUIPPED SECU RITY COMPANY HAVE ALSO PRODUCED BEFORE YOUR GOOD SELF. 3. COPIES OF THE REQUISITE MANDATORY DECLARATIONS F ORMS F U/S 6A(1) OF THE CENTRAL SALES TAX ACT 1956 BY THE SIKKIM UNIT TO DELHI AND AHEMBABAD, IS ANNEXED HERE WITH A ND MARKED AS ANNEXURE B FOR YOUR KIND PERUSAL. BUT ASSESSING OFFICER WITHOUT ANY MATERIAL ON RECOR D OR ANYTHING CONTRARY AGAINST THE DEALER COMPANY HELD THAT ASSES SING COMPANY HAS CARRIED OUT TRADING ACTIVITY MAINLY AT DELHI AN D AHMEDABAD. IT IS HELD THAT WHEN MAKING AN ASSESSMENT U/S 143(3) O F THE IT ACT.1961, THE A.O IS NOT ENTITLED TO MAKE A PURE GU ESS WITHOUT ANY EVIDENCE ON MATERIAL AT ALL.(DHANKESHWARI COTTON MI LLS LTD VS CIT 261ITR 775(SC). 5. IT WAS ADMITTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT ASSESSEE COMPANY HAS DISCONTINUED HIS MANUFACT URING ACTIVITY AT SIKIM. THERE WAS NO LEGAL REQUIREMENT FOR THE AS SESSEE TO REMAIN IN THE PRODUCTION FOR FURTHER PERIOD TO CLAIM DEDUC TION U/S 80IE OF THE ACT,1961. ITA NO. 178/ASR/2013 20 6. REGARDING CONSUMABLE OF RS.716.00 HAS BEEN S HOWN FOR THE SIKKIM UNIT, IN THIS REGARD IT IS SUBMITTED THAT DU RING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSEE COMPANY HAS PRODUCE D COPY OF ACCOUNT OF PURCHASES ALONG WITH EVIDENCE. THE BASIC RAW MATERIAL OF THE ASSESSEE OF THE ASSESSEE COMPANY IS GOLD BUL LION AND OTHER CONSUMABLES ITEMS SUCH AS NITRIC ACIDS AND HHDROCHL ORIC ACID WERE PURCHASES AND DULY ACCOUNTED FOR IN THE BOOKS OF AC COUNT. COPY OF PURCHASES BILL AND COPY OF ACCOUNT IS ENCLOSED. RS. 716 WAS FOR PURCHASES OF HAND GLOVES AND LABORATORY ITEMS BILLS AND COPY OF ACCOUNT IS ENCLOSED.RS.716 WAS FOR PURCHASES OF HAN D GLOVES AND LABORATORY ITEMS BILLS ARE ENCLOSED. BUT L/D ASSESS ING OFFICER HELD THAT ASSESSEE HAS CLAIMED RS. 716.00 AS CONSUMABLE ON TURNOVER OF RS.18.35 CRORES. BILLS & CONSUMABLE PURCHASES ARE A NNEXED HERE WITH AND MARKED AS ANNEXURE C&D FOR YOUR KIND PERUS AL. 7. REGARDING PACKING MATERIAL OF RS. 23000.00 IN TH IS REGARD IT IS SUBMITTED THAT ASSESSEE COMPANY WAS ENGAGED IN M ANUFACTURING GOLD CHLORAE WHICH IS COSTLY PRODUCT. THREE BATCHES WERE MANUFACTURED AND GOODS ARE DISPATCHED IN THE POLY J ARS. ONLY 127 KGS WERE MANUFACTURED. POLY JAR FOR RS. 23000.00 WA S QUITE ADEQUATE FOR PACKING OF 127 KGS. 8. REGARDING PLANT AND MACHINERY FOR RS. 13.31 LKAH S AT SIKKIM AND RS. 10.79 LAKHS AT KOTA AND TURNOVER OF RS. 18. 35 CORES AT SIKIM AND RS. 14.40 LAKHS AT KOTA IT IS SUBMITTED T HAT ASSESSEE ITA NO. 178/ASR/2013 21 COMPANY HAS TO UNIT FOR DIFFERENT ACTIVITIES AT SIK KIM AND KOTA. THE ASSESSEE COMPANY WAS ENGAGED IN MANUFACTURING OF GO LD CHLORATE OUT OF GOLD AT SIKIM AND AT KOTA COPPER, NICKEL AND ZINC AND HENCE COMPARISON WITH THESE METALS ARE NOT JUSTIFIABLE. 9. LD. ASSESSING OFFICER IN ORDER AT PARA NO. 2.2 P AGE 4 HAS ADMITTED IN FACT, EVEN IF ANY CONVERSION OF GOLD IN TO GOLD CHLORIDE POWDER HAS BEEN DONE AT SIKKIM DURING THE YEAR IT I S OF NEGLIGIBLE VALUE BUT NO QUANTITATIVE HAS BEEN DETERMINED BY TH E L/D ASSESSING OFFICER. 10. THAT LD. ASSESSING OFFICER IS THE ORDER AT PAR A NO.2.2 PAGE 4 HELD THAT MERE FACT THAT ASSESSING HAS RECEIVED EXC ISE DUTY REFUND DOES NOT ENTITLED FOR THE ASSESSEE FOR CLAIM, IN TH IS REGARD IT IS SUBMITTED THAT CENTRAL EXCISE DUTY IS AN INDIRECT T AX LEVIED ON GOODS MANUFACTURED IN INDIA. THE TAX IS ADMINISTERE D BY THE CENTRAL GOVERNMENT UNDER THE AUTHORITY OF ENTRY 84 OF THE U NION LIST (LIST 1). THE CENTRAL EXCISE DUTY IS LEVIED IN THE TERM O F CENTRAL EXCISE ACT 1944 AND TAXABLE EVENT UNDER THE CENTRAL EXCISE LAW IS MANUFACTURE AND LIABILITY OF CENTRAL EXCISE DUTY ARISES AS SOON AS THE GOODS ARE MANUFACTURED. REFUND OF EXCISE DUT Y PAID WAS IN THE TERM OF NOTIFICATION NO 56/2002. THE EXCISE DUT Y WAS PAID BY THE ASSESSEE COMPANY BEING A MANUFACTURER OF EXCISE ABL E GOODS. THERE IS NO LAW REGARDING PAYMENT OF DUTY BY THE RE-SELLE R AND GET ITS REFUND. SINCE EXCISE DUTY WAS PAID BY THE DEALER CO MPANY IT IS ITA NO. 178/ASR/2013 22 ESTABLISHED BEYOND ANY DOUBT THAT THE DEALER HAS MA NUFACTURED THE GOODS DURING THE YEAR UNDER CONSIDERATION. COPIES O F EXCISE RETURNS AND REFUND CHEQUES AND ORDER WAS PRODUCED D URING THE COURSE OF ASSESSMENT PROCEEDINGS BUT SAME WAS NOT A PPRECIATED BY THE L/D ASSESSING OFFICER KATHUA. CHEQUE FOR EXCISE DEPT., MONTHLY RETURNS, RG 1, FORM 1V ARE ANNEXED HERE WITH AND MA RKED AS ANNEXURE E, F, G & H FOR YOUR KIND PERUSAL. 11. REGARDING MANUFACTURING OF GOLD CHLORIDE OUT OF GOLD BULLION IS NOT MANUFACTURING ACTIVITY:- SECTION 2(29BA) OF THE INCOME TAX ACT 1961 DEFINE THE TERM MANUFACTURING. THIS DEFINI TION WAS INCORPORATED IN THE ACT BY FINANCE ACT 2009 W.E.F. ASSESSMENT YEAR 2009-2010. L/D ASSESSING OFFICER IN THE IMPUGNED OR DER BYE PASSED THIS DEFINITION AND TAKEN THE HELP OF EXTERNAL AIDS TO COINED THE TERM MANUFACTURING. WHEN ACT HAS ALREADY DEFINED THE TER M MANUFACTURING THERE WAS NO NEED TO CREATE NEW DEFIN ITION. L/D ASSESSING OFFICER HAS DONE THIS ONLY TO DENY THE AP PELLANT THE BENEFIT OF DEDUCTION U/S 80IE OF THE IT ACT 1961, B REIF MANUFACTURING PROCESS IS AS UNDER;- WITH THE HELD PF SHEET ROLLING MACHINE AND CUTTING MACHINE GOLD BULLION OR BAR HAVE TO BE ROLLED AND CUT IN TO SMALL PIECES. THESE SMALL PIECES HAVE TO PUT IN THE GLASS REACTOR ALONG WITH HYDROCHLORIC ACID AND NITRIC ACID THEN CERTAIN TEMP ERATURE IS GIVEN IN THE REACTOR. AFTER A CERTAIN DURATION THE REACTI ON OF GOLD AND ITA NO. 178/ASR/2013 23 BOTH ACIDS CONVERTS IN TO GOLD CHLORIDE. GOLD CHLOR IDE SOLUTION TAKEN IN A SUITABLE CONTAINER WITH STIRRER. THAN WA TER-SOLUBLE REDUCING AGENT ADDED LIKE NA 2 S 2 O 5 C6H6O 2 ARE ADDED. THE GOLD IS PRECIPITATE TO FINE PARTICLERS & IS SEPARATED FROM SOLUTION AND FILTER THE PRECIPITATED. THE PRECIPITATED SO OBTAINED IS W ASHED WITH HOT WATER & DRIED IN AN OVEN & PACKED. THE GOLD POWDER BEING MANUFACTURED BY THIS PROCESS IS HAVING 90% OR MORE BY WEIGHT PASSES THROUGH ASLEVE HAVING A MESH APERTURE OF 0.5 MM. THIS PRODUCT USED FOR ELECTRONIC CONNECTORS, SOLDER JOIN T COMPOUND IN MOBILES, SUPER COMPUTERS AND LAPTOPS, ELECTROPLATIN G, ANODE IN AN ELECTRIC CELL AND IN PHOTOGRAPHY, AS A PRINT TONING AGENT (GOLD TONING) STARTING MATERIAL TO FORM OTHER GOLD COMPOU NDS, CELL BODY STAINS FOR BRIGHT AND DARK FILED MICROSCOPY AND RAW MATERIAL FOR PRINTING INK. GOLD AND GOLD CHLORIDE ARE TWO DIFFERENT COMMERCIA L COMMODITIES. GOLD IS A DENSE, SOFT, SHINY, MALLEABL E AND DUCTILE (IT CAN DRAW IN TO SHEET AND WIRES) ON THE OTHER HAND G OLD CHLORIDE WHICH PREPARED OUT OF GOLD METAL IS SOFT, IT IS CHE MICAL COMPOUND OF THE GOLD AND CHLORINE. IT IS HYGROSCOPIC (OBSERV E MOISTURE FROM AIR AND SOLUBLE IN THE WATER AS WELL ETHANOL. IT IS NOT MALLEABLE AND DUCTILE, IT DECOMPOSES ABOVE 160 C OR IN LIGHT. THI S CLEARLY SHOWS THAT PREPARATION OF GOLD CHLORIDE FROM GOLD INVOLVE S THE PROCESS RESULTING IN TO BRING OUT ENTIRELY A DIFFERENT COMM ERCIAL COMMODITY ITA NO. 178/ASR/2013 24 WHICH VERY MUCH COVERED BY THE TERM MANUFACTURING A S PER THE DEFINITION IN THE ACT UNDER SECTION 2(29BA);- MANU FACTURE WITH ITS GRAMMATICAL VARIATION, MEANS A CHANGE IN NON LI VING PHYSICAL OBJECT OR THINGS;- (A) RESULTING IN TRANSFORMATION OF THE OBJECT OF ARTICL ES OF THING IN TO A NEW AND DISTINCT OBJECT OF ARTICLE OR THING S HAVING A DIFFERENT NAME CHARACTER AND USE; OR (B) BRINING IN TO EXISTENCE OF NEW AND DISTINCT OBJECT OR ARTICLE OR THING WITH A DIFFERENT COMPOSITION OR INTEGRAL S TRUCTURE 12. THAT REGARDING RECEIPT OF EXCISE DUTY OF REFUND RS.8248402.00 IS NOT REVENUE RECEIPTS;- ASSESSEE CO MPANY HAS RECEIVED EXCISE DUTY REFUND OF RS.8248402.00. DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS L/D ASSESSING OFFICER WAS AP PRISED WITH THE LAW LAID DOWN BY THE HONBLE HIGH COURT OF J&K IN T HE MATTER OF M/S SHREE BALAJI ALLOYS & ORS VS COMMISSIONER OF IN COME TAX & ORS DECLARED ON 31.01.2011. LAW LAID DOWN BY THE JU RISDICTIONAL HIGH COURT IS BINDING ON ALL THE COURTS UNDER HIS J URISDICTION BUT SAME HAS BEEN RESPECTFULLY FOLLOWED BY THE OTHER FO RUMS LIKE WORTHY CIT(APPEALS) JAMMU AND ITAT AMRITSAR BENCH. BUT LD. ASSESSING OFFICER HAS NOT APPRECIATED THE SUBMISSION AND DISA LLOWED THE DEDUCTION CLAIMED U/S 80IE OF THE IT ACT ON THE CEN TRAL EXCISE DUTY ITA NO. 178/ASR/2013 25 REFUND. COPY REPLY ANNEXED HERE WITH AND MARKED AS ANNEXURE 1 FOR YOUR KIND PERUSAL. 13. THAT REGARDING DISALLOWANCE OF INTEREST DEBITED TO P&L A/C ON ACCOUNT OF INTEREST FREE ADVANCE MADE FOR PURCHA SES OF LAND AND INVESTMENT MADE FOR PURCHASES OF SHARES;- ASSESSEE COMPANY HAS MADE ADVANCES FOR ADDITIONAL LAND AT SIKKIM RS.24,0 0,000.00 TO SMT. MEENA KUMARI PARDHAN SAME WAS NOT MATERIALIZED AND GOT IT BACK. COMPANY HAS ALSO PURCHASED SHARES OF RS.31000 00.00 OF OTHER COMPANIES. L/D ASSESSING OFFICER HAS DISALLOW ED INTEREST CLAIMED OF THE ASSESSEE COMPANY IN THE PROFITS & LO SS A/C OF RS. 2,29,550.00 ON THE GROUND THAT SAME WAS NOT FOR THE BUSINESS PURPOSES AND DISALLOWED. IN THIS REGARD IT IS SUBMI TTED THAT INTEREST PAID ON THE CAPITAL BORROWED FOR PURCHASES OF SHARE FOR THE PURPOSE OF BUSINESS IS ALLOWABLE U/S 36(1)(III) OF THE INCO ME TAX ACT 1961. ADDITIONAL COMMISSIONER VS. LAXMI AGENT P ITD(1980) 125(GUJ). INTEREST IS ALSO ALLOWABLE EVEN THE BORROWING IS FO R ACQUIRING STOCK IN TRADE;- STATE OF MADRAS VS G.J. GEOLHO (1964) 53 ITR 186(SC). IN THE INSTANT CASE BOTH INVESTMENT WAS MADE FOR BUSIN ESS PURPOSE AND ASSESSEE COMPANY HAD EARNED MORE THAN THE INVESTMEN T MADE. MORE OVER THIS ISSUE IN DISPUTE IS SQUARELY COVERED BY T HE DECISION OF HONBLE ITAT AMRITSAR BENCH IN THE CASE OF M/S SUN PHARMACEUTICALS, IN ITAT NO.184(ARS)/2009 FOR THE A SSESSMENT YEAR ITA NO. 178/ASR/2013 26 2005-2006 DATED 11-06-2010, IN THIS CASE HONBLE IT AT AMRITSAR BENCH HAS ALLOWED DEDUCTION U/S 80IE ON THE ENHANCE D INCOME. 14. THAT L/D ASSESSING OFFICER KATHUA HAS NOT APPLI ED HIS MIND BY PASSING IMPUGNED ORDER, HE HAS MOVED FROM ONE OP INION TO TOHER IN AN EFFORT TO DISALLOW DEDUCTION U/S 80IE OF THE INCOME TAX ACT 1961 TO THE APPELLANT. FIRSTLY HE HAS SAID THAT APP ELLANT HAS DONE TRADING ACTIVITY BECAUSE ALLEGED LESS CONSUMPTION O F CONSUMABLE, THEN HE HAS GONE TO SAY THE ACTIVITY OF CONVERSION OF GOLD CHLORIDE FROM GOLD BULLION CARRIED OUT BY THE ASSESSEE COMPA NY DURING THE YEAR UNDER CONSIDERATION IS NOT CONSTITUTE MANUFACT URING AS PER LAW LAID DOWN BY THE VARIOUS HIGH COURTS. LASTLY HE HAS SAID THAT EXCISE DUTY REFUND OF RS.8248402.00 RECEIVED BY THE ASSESSEE COMPANY FROM THE CENTRAL EXCISE DEPARTMENT TO THIS EXTENT INCOME IS NOT DERIVED FROM MANUFACTURING OF INDUSTRIAL UND ERTAKING. THE IMPUGNED ORDER PASSED BY THE L/D ASSESSEE OFFICER I S A SELF CONTRADICTORY AND LIABLE TO QUASH. 8. BEFORE THE LEANED CIT(A) THE ASSESSEE HAS SUBMIT TED THE MANUFACTURING PROCESS IN DETAIL WHICH IS AVAILABLE AT PAGE 7 TO10 OF LEARNED CIT(A)S ORDER AND IS REPRODUCED FOR THE SA KE OF CONVENIENCE AS UNDER: .1. CUTTING OF GOLD BARS IS SMALL PIECES . WITH THE HELP OF SHEET ROLLING MACHINE AND CUTTING MACHINES GOLD BULLION OR GOLD BAR HAVE TO BE ROLLED AND CUT IN SM ALL PIECES BECAUSE, IT ITA NO. 178/ASR/2013 27 IS DIFFICULT TO DISSOLVE LARGE SIZE OF GOLD BARS IN AQUA REGIA SOLUTION. IT ALSO HELPS TO SHORTEN THE TIME OF PROCESS. THESE SM ALL PIECES HAVE TO BE PUT IN GLASS REACTOR ALONG WITH HYDROCHLORIC ACID, CALLED AQUA REGIA SOLUTION. WHAT IS AQUA REGIA ? AQUA REGIS (LIT. KINGS WATER), OR NITOR HYDROCH LORIC ACID IS A HIGHLY CORROSIVE MIXTURE OF ACIDS, A HYDROCHLORIC A CID, USUALLY IN A VOLUME RATIO 1:3 IT WAS NAMED SO BECAUSE IT CAN DIS SOLVE HE SO CALLED ROYAL OR OTHER METALS ARE CAPABLE OF WITHSTANDING I TS CORROSIVE PROPERTIES. PREPARATION OF AQUA REGIA 1. POUR 150 ML. CONCENTRATE HCL (HYDROCHLORIC ACID) IN A PLYPROPYLENE CONTAINER. 2. CARFULLY AND SLOWLY ADD 500ML. OF CONCENTRATED HNOE (NITRIC ACID) TO THE HCL 3. AQUA REGIA IS PREPARED. TO DILUE IT, YOUR CON ADD F EW MILLILITERS OF IT TO WATER. 2. MIXING OF GOLD PIECES WITH AQUA REGIA SOLUTION/D IGESTION OF GOLD IN AQUA REGIA. IN THIS PROCESS ONE HUNDRED GRAM OF SMALL GOLD PIEC ES ARE CHARGED TO AQUA REGIA AT ROOM TEMPERATURE IN A REACTION EQUIPP ED WITH STIRRER AND A HEATER. THE AQUA REGIA REQUIRED FROM THIS CONTAINES 425 ML OF CONCENTRATED HYDROCHLORIC ACIT(HCL) AND 150 ML OF C ONCENTRATED NITRIC ACID (HNO3). THE RESULTING MIXTURE IS STIRRED AND H EATED. THE GOLD ITA NO. 178/ASR/2013 28 COMPLETELY DISSOLVES IN THE AQUA REGIA TO FORM A CL EAR, GOLDEN-CLORED SOLUTION. AFTER CERTAIN DURATION THE REACTION OF GO LD WITH BOTH ACIDS CONVERTS IT INTO GOLD CHLORIDE SOLUTION. THE SOLUTI ON IS COOLED TO ROOM TEMPERATURE. THE SOLUTION IS THEN CHARGED TO A SECOND REACTION V ESSEL EQUIPPED WITH STIRRER, A PH METER, A THERMOMETER AND COLLING JACK ET AND STIRRING AND COOLING ARE INITIATED. A CONCERNED SODIUM HYDROXIDE SOLUTION IN WATER IS SLOWLY ADDED TO THE VESSEL TO RAISE IT TO A PARTICU LAR DESIRED PH. THE ADDITION RATE OF SODIUM HYDROXIDE IS REGULATED SO THAT THE TEMPERATURE OF HE REACTION MIXTURE DOES NOT EXCEED A PARTICULAR TEMPERATURE. THE RESULTING REACTION MIXTURE IS DARK ORANGE IN COLOR AND IS QUITE CLEAR. CHEMISTRY AQUA REGIA DISSOLVES GOLD, THROUGH NEITHER CONSTIT UENT ACID WILL DO SO ALONE, BECAUSE, IN COMBINATION, EACH ACI D PERFORMS A DIFFERENT TASK. NITRIC ACID IS A POWERFUL OXIDIZER, WHICH WIL L ACTUALLY DISSOLVE A VIRTUALLY UNDETECTABLE AMOUNT OF GOLD, FORMING GOLD IONS (AU3+). THE HYDROCHLORIC ACID PROVIDES A READY SUPPLY OF CHLORI DE IONS (CL.), WHICH REACT WITH THE GOLD IONS TO PRODUCE CHLOROAURATE AN IONS, ALSO IN SOLUTION. THE REACTION WITH HYDROCHLORIC ACID IS AN EQUILIBRI UM REACTION WHICH FAVOURS FORMATION OF CHLOROAURATE ANIONS (AUCL 4 ). THIS RESULTS IN A REMOVAL OF GOLD IONS FROM SOLUTION AND ALLOWS FURTHER OXIDA TION OF GOLD TO TAKE PLACE. THE GOLD DISSOLVES TO BECOME CHLOROAURIC ACID. IN A DDITION, GOLD MAY BE DISSOLVED BY THE TREE CHLORINE PRESENT IN AQUA REGI A. APPROPRIATE EQUATIONS ARE: ITA NO. 178/ASR/2013 29 AU(S) +3NO-3(AQ)-AU3+(AQ)+3NO 2 (G)+3H 2 O(I)AND AU3+(AQ)+4CL-(AQ)-AUCL-4(AQ). AU+3HNO 3 +4HCL 4 HAUCL 4 3NO 2 +3H 2 P THE OXIDATION REACTION CAN ALSO BE WRITTEN SHOWIN G NITRIC OXIDE AS THE PRODUCT RATHER THAN NITROGEN DIOXIDE: AU(S)+NO-3(AQ)-4H*(AQ)-----AU3+(AQ)+NO(G)+2H 2 O(1). 3.FILTERING PROCESS THE QUO-REGIA NOW CONTAINS VARIOUS METAL CHLORIDES( AND PERHAPS NITRATES) IN SOLUTION AND INSOLUBLE CHLORIDE AS WELL AS A LOT OF UNWANTED MATERIAL IN THE SLUDGE, AND THIS MIXTURE (WHEN COOLED) MUST BE FILTERED. THE REASONS FOR COOLING IS THAT SILVER CHLORIDE, THOUGH QUITE I NSOLUBLE IN WATER, IS SLIGHTLY SOLUBLE IN STRONG ACIDS AND THIS SOLUBILIT Y IS LOWER IN COLD ACIDS. THE AQUA-REGIA SOLUTION ARE FILTERED WITH A BUCHNER FILTERING FUNNEL AND A 4 LITER VACCUM FILTERING FLASK AND PAPER DISCS USUA LLY USED THESE FILTERS. THESE SHOULD BE LARGE ENOUGH TO LINE THE BOTTOM AND SIDES OF THE FILTER FUNNEL, INSERTED DRY, WATTED THOROUGHLY WITH WATER AND FIRMLY SEATED AND PRESSED INTO THE COMERS TO AVOID WRINKLES AND VACUU M LEAKS. TWO PLYS OF FILTER PAPER ARE USED TO HELP FILTRATION AND AVOID BREAKTHROUGH. THE FILTERED SOLUTION IS POURED INTO A PLASTIC CONTAINE R FOR THE NEXT STEP OF ELIMINATION OF EXCESS NITRIC ACID AND PRECIPITATING THE GOLD. 4.NITRIC ACID ELIMINATION THE EXCESS QUA-REGIA THAT WAS ADDED TO ENSURE COMPL ETE SOLUBILITY OF ALL GOLD IS, OF COURSE, STILL IN THE SOLUTION AND MUST BE ELIMINATED TO ALLOW THE GOLD TO BE PRECIPITATED. ITA NO. 178/ASR/2013 30 THE CLASSIC PROCEDURE FOR NITRIC ACID ELIMINATION I S REPEATED BOILING TO NEAR DRYNESS WITH THE ADDITION OF HYDROCHLORIC ACID WITH SOME SULPHURIC ACID NEAR THE END. 5. PRECIPITATING THE GOLD CHLORIDE SOLUTION METALLIC GOLD IS PRECIPITATED, FROM THE SOLUTION O BTAINED BY THE DIGESTING THE GOLD BARS IN AQUA REGIA SOLUTION, BY SODIUM METABISULPHITE. THE SODIUM METABISULPHITE ACT AS REDUCING AGENT IN THIS PROCESS AND POWERED SODIUM METABISULPHITEIS PLACED IN ANOTHER F LASK AND DISSOLVE WITH WATER. THIS FORM A SOLUTION OF SODIUM BISULPHA TE AND THEN ADD THE SODIUM BISULPHATE SOLUTION TO THE GOLD CHLORIDE SOL UTION. THEN IT IS LEFT TO SETTLE FOR FOUR HOURS. THE BROWN POWDER OF GOLD IS PRECIPITATED AT THE BOTTOM OF THE FLASK. 1 ST STEP-OXIDZATION PROCESS NA 2 S 2 O 2 +H 2+ O-2N A HSO 3 (I.E.SODIUM METABISULPHITE+WATER-BISULPHAE) LLND STEP-REDUCING PROCESS 2HAUCL 4 +2NAHSO+3-2AU+4HCL+NA 2 SO 4 +SO 2 (I.E.CHLOROAURIC ACID+SODIUM BISULPHATE-GOLD POWDER +HYDROCHLORIC ACID+SULPHUR DIOXIDE GAS). THE GOLD PRECIPITATED IS FILTERED AND WASHED WITH H OT DISTILLED WATER AND AN ANNONIUM SOLUTION, DRIED IN AN EVEN & PACKED. TH E GOLD POWDER BEING MANUFACTURED BY THIS PROCESS IS HAVING 90% OR MORE BY WEIGH PASSES THROUGH A SIEVE HAVING A MESH APERTURE OF 0.5 MM. USE/APPLICATION OF GOLD POWDER ITA NO. 178/ASR/2013 31 IN ELECTRONIC CONNECTORS & SOLDER JOINT COMPOUND IN MOBILES, SUPER COMPUTERS AND LAPTOPS ELECTROPLATING AND AS AN ANOD E IN AN ELECTRIC CELL IN PHOTOGRAPHY, AS A PRINT TONING AGENT (GOLD TONIN G) STARTING MATERIAL TO FORM OTHER GOLD COMPOUNDS CELL BODY STAINS FOR BRIGHT FILED AND DARK FILED MI CROSCOPY RAW MATERIAL FOR PRINTING INKS. FLOW CHART OF GOLD POWDER MANUFACTURING PROCESS GOLD BARS/BULLION BY ROLLING MACHINE GOLD BARS CUT IN SMALL PIECES MIXING WITH AQUA REGIA SOLUTION CLEAR GOLD CHLORIDE SOLUTION PRECIPITATION WITH REDUCING AGENT GOLD POWDER (IN WET FORM) FILTER WASHED AND DIRED DRY GOLD POWDER, (READY FOR PACKING) BY THIS PROCESS RAW MATERIAL GOLD BULLIONS GET CONV ERTED IN TO GOLD CHLORIDE POWDER WHICH IS ENTITLED A DIFFERENT COMMERCIAL COMMODITY WITH DIFFERENT NAME, CHARACTER, AND USE, SAME IS VERY MUCH COVERED BY THE TERM MANUFACT URING AS PER THE DEFINITION IN THE IT ACT 1961 U/S 2(29BA)MANUFACTURE WITH ITS GRAMMATIC AL VARIATION, MEANS A CHANGE IN A NON LIVING PHYSICAL OBJECT OR THINGS:- (A) RESULTING IN TRANSFORMATION OF THE OBJECT OR ARTICL ES OR THINGS IN TO A NEW AND DISTINCT OBJECT OR ARTICLES OR THINGS HAVING A DIFF ERENT NAME, CHARACTER, AND USE; OR ITA NO. 178/ASR/2013 32 (B) BRINGING IN TO EXISTENCE OF NEW AND DISTINCT OBJECT OR ARTICLE OR THINGS WITH A DIFFERENT COMPOSITION OR INTEGRAL STRUCTURE. ALL THE ABOVE SUBMISSION AMPLY SUPPORT THE FACTS TH AT MANUFACTURING TAKEN PLACE IN THE MATTER. HENCE SUBMITTED FOR KIND CONSIDERATI ON. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE A ND THE MANUFACTURING PROCESS, THE LEARNED CIT(A) REJECTED THE CLAIM OF T HE ASSESSEE BY OBSERVING IN VIDE PARA 4.3, 4.4 AND 4.5 WHICH IS RE PRODUCED HEREIN BELOW FOR THE SAKE OF CONVENIENCE. 4.3. IN VIEW OF THE ABOVE MANUFACTURING PROCESS AND FACTS OF THE CASE THE FOLLOWING EMERGES: (I) THE GOLD BAR IS CONVERTED INTO MORE PURE FORM OF D RY GOLD POWDER FOR USE IN ELECTRONIC INDUSTRIES. AT THE OUTSET IT IS TO ME NTION THAT THE APPELLANT EVERY WHERE STATED THAT IT HAS CONVERTED GOLD BAR T O GOLD CHLORIDE BUT IN FACT IT HAS ONLY CHANGED THE SHAPE FROM GOLD BAR TO GOLD POWDER. (II) THE APPELLANT HAS THOUGH CONTESTED THAT THE ELECTRI CITY CHARGES WERE RS.54,112/- INSTEAD OF RS.1100/- BUT COULD NOT SATI SFY AS TO WHY THE PAYMENT OF ELECTRICITY CHARGES FOR FINANCIAL YEAR 2 008-09 WERE MADE IN THEYEAR 2010-11 AND ALSO WHY NO BILLS RECEIVED FOR THE PERIOD OF MANUFACTURING TIMELY. (III) ALL PURCHASES OF GOLD BULLION WERE STATED TO BE MAD E FROM EITHER AHMEDABAD UNIT OR DELHI UNIT OF THE APPELLANT AND T RANSPORTED ALL THE WAY TO SIKIM. THIS IS ILLOGICAL THAT FOR CONVERTING GOL D BULLION TO POWDER THE APPELLANT WILL INCURE ADDITIONAL TRANSPORTATION CHA RGE AND RISK AS WELL BECAUSE OF BEING COSTLY ITEM UNDER TRANSPORTATION. ITA NO. 178/ASR/2013 33 (IV) EVEN IF THE APPELLANT THEORY OF MANUFACTURING IS BE LIEVED. IT IS AT THEBEST A LABORATORY PROCESS OF PURIFICATION OF GOLD WHICH DO ES NOT TANTAMOUNT OT MANUFACTURING. (V) THE CONSUMPTION OF RAW MATERIAL WHICH AS PER APPELL ANT ARE HYDROCHLORIC, ACID, NITRIC ACID AND SODIUM META BISULPHATE IS ABY SMAL. AS PER BALANCD CHEMICAL EQUATION THE VOLUME AND WEIGHT OF THESE CH EMICALS REQUIRED TO CONVERT GOLD BAR INTO PURE GOLD POWDER ARE MANY FOL D THAN THE WEIGH OF THE GOLD. ALL THESE REGENTS ARE COSTLY CHEMICALS AN D CONTRADICT THE THEORY OF THE APPELLANT FOR MEAGER CONSUMPTION OF CONSUMAB LE OF RS.716/- ONLY. THE APPELLANT EXPLANATION THAT CONSUMABLE ARE NOT O NLY FOR RS.716 BUT MORE AND IN FACT THIS IS COST OF GLOVES. EVEN IF T HE APPELLANT VERSION OF THE TOTAL CONSUMABLE I.E., HYDROCHLORIC ACID AND NITRIC ACID WORTH RS..3.07 LACKS APPROX IS TAKEN INTO CONSIDERATION IT WAS NOT ADEQUATE WEIGHT WISE OR VOLUME WISE. FURTHER THERE IS NO PURCHASE DETAIL SHOWN OF SODIUM META BISULPHATE WHICH IS AN IMPORTANT INGREDIENT IN HIS. THUS THE AMOUNT OF CONSUMABLES USED WAS NOT ENOUGH FOR CARRYING OUT TH E SAID TRANSFORMATIONS. (VI) FOUR WORKERS AND WITHOUT ANY SUBSTANTIAL POWER CONS UMPTION CANNOT TRANSFORM 127KG. GOLD INTO GOLD POWDER. (VII) IN THE INSTANT CASE THE APPELLANT HAS NOT PLACED ON RECORD THAT THE SKILLED LABORERS AND PLANT AND MACHINERY HAS BEEN USED FOR ACHIEVING THE SAID CONVERSION. IT HAS ALSO NOT BEEN BROUGHT TO MY NOTI CE THAT THESE CHEMICAL CONVERSION HAS TAKEN PLACE UNDER THE GUIDANCE AND S UPERVISION OF QUALIFIED AND TECHNICAL PERSONS. WHAT KIND OF MACHI NERY HAS BEEN DEPLOYED WAS ALSO NOT BROUGHT TO MY NOTICE. (VIII) AS ADMITTED BY THE APPELLANT THAT IT HAS PROCESSED ONLY THREE BATCHES OF GOLD BAR IN SHORT SPAN OF TIME AND CLOSED INDUSTRY THEREAFTER. IT THE INDUSTRY WAS VIABLE AND INCENTIVES WERE IN PLACE WH Y WAS THE INDUSTRY ITA NO. 178/ASR/2013 34 CLOSED DOWN? THIS CREATES A BONAFIDE DOUBT ABOUT TH IS MANUFACTURING UNIT. (IX) SECTION 80IE WAS INSERTED BY THE FINANCE ACT, 2007 FOR THE UNDERTAKING MANUFACTURING ELIGIBLE ARTICLE OR THING IN NORTH EA ST STATE INCLUDING SIKKIM FOR THOSE BEGINNING TO OPERATE BETWEEN 01.04 .2007 TO 31.03.2017. THE APPELLANT WAS TRYING TO TAKE UNDUE BENEFIT OF T HIS SCHEME GIVING THIS A COLOUR OF MANUFACTURING. THE ABOVE OBSERVATIONS PROVE THAT THERE IS NO MANUF ACTURING ACTIVITY WHICH HAS GONE INTO PROCESS AT ALL. 4.4. FOR ARGUMENT SAKE EVEN IF IT IS CONSIDERED THAT CON VERSION OF GOLD BARS INTO POWDER HAS TAKEN PLACE, IT CANNOT BE CALLED MA NUFACTURING ACTIVITY FOR THE FOLLOWING REASONS. (I) THIS IS A PURIFICATION PROCESS. THERE MAY BE CHARGE IN THE FORM BUT THERE IS NO CHANGE IN THE CHEMICAL COMPOSITION OF G OLD. IN THE DEFINITION OF MANUFACTURING THE STATUTE ALSO DESIRE THERE SHOULD BE CHANGE IN THE CHEMICAL COMPOSITION. MANUFACTURING E MPLOYEES A CHANGE BUT EVERY CHANGE IS NOT MANUFACTURING EVEN T HOUGH EVERY CHANGE IS THE RESULT OF TREATMENT, LABOUR AND MANIP ULATION. (II) IN THE CASE OF STATE OF ORISSA V/S TITAGHUR PAPER M ILLS COMPANY LTD. 1985 60 STC 213(SC) IT HAS BEEN HELD THAT MERELY BE CAUSE CERTAIN ARTICLES ARE KNOWN BY DIFFERENT NAMES IT DOES NOT M EAN THAT THEY ARE DIFFERENT COMMERCIAL COMMODITY. IF IN FACT THEY ARE MERELY DIFFERENT FORM OF SAME COMMODITY. IT HAS BEEN HELD BY THE BOM ABY HIGH COURT IN THE CASE OF CST V/S DUNCAN COFFEE MANUFACTURING CO.1975 35STC 493 THAT MERE CHANGE IN THE NAME OF COMMODITY WILL NOT AMOUNT TO MANUFACTURE. (III) THE HONBLE SUPRE COURT IN THE CASE OF JUNG BAHADUR INDUSTRIES LTD. V/S CTO 1960 11STC 827 HELD THAT PURIFICATION, REFI NING OF GROUND ITA NO. 178/ASR/2013 35 NUT OIL DOES NOT AMOUNT TO MANUFACTURING. THE HONBLE APEX COURT HAS HELD THAT PROCESS OF REMOVAL OF IMPURITIES DOES NOT RENDER GROUND NUT OIL ANY THE LESS. (IV) IN ANOTHER JUDGMENT IN THE CASE OF B.G.CHITALE VS D CIT 2008 305 ITR (AT) 1 PUNE (SV). IT WAS HELD THAT THE PASTEURIZATI ON AND STANDARDIZATION OF MILK DOES NOT AMOUNT TO MANUFACT URING OR PRODUCTION OF ARTICLE OR THINGS. A REAL TEST WAS WH ETHER THERE WAS PLANT AND MACHINERY AND SKILLED LABOUR TO ACHIEVE THE DES IRED PRODUCT. IN THE INSTANT CASE I FIND THAT REAL MANUFACTURING PER SE WAS NOT IN PLACE FOR THE REASONS MENTIONED ABOVE AND EVEN FOR SAKE OF ARGUMENTS IF MANUFACTURING UNIT EXISTED THE CONVERSION OF GOL D BAR INTO GOLD POWDER WAS A PURIFICATION PROCESS AND NOT MANUFACTU RING. THE APPELLANT ARGUES THAT SINCE IT GOT EXCISE DUTY REFU ND HENCE IT WAS MANUFACTURING, WILL NOT AUTHENTICATE ITS STAND BECA USE AS PER NOTIFICATION THE EXCISE DUTY WAS EXEMPT AND WHATEVE R HAS BEEN PAID BY THE APPELLANT WAS RECEIVED BACK FROM THE EXCISE DEP ARTMENT. MERELY BECAUSE THERE WAS A REFUND THE APPELLANT CLAIM OF M ANUFACTURING IS NOT PROVED AND MAY BE THE EXCISE DUTY ERRONEOUS BEE N REFUNDED BACK. MOREOVER THE APPELLANT HAS PALCED RELIANCE ON SHREE BALAJEE ALLOYS CASE IN RESPECT OF EXCISE DUTY REFUND BUT THIS RATI O IS NOT APPLICABLE IN THIS CASE BECAUSE THE SAME DECISIONS IS APPLICABLE TO UNITS LOCATED IN JAMMU AND KASHMIR AND NOT IN SIKKIM. IN VIE OF THE ABOVE, THE CLAIM OF THE APPELLANT IS REJECTED. 4.5 REGARDING THE DISALLOWANCE UNDER SECTION 36(1)(III) FOR RS.2,29,550/- FOR THE REASONS EXTENDED BY THE A.O. THAT THERE WAS NO NEXUS BETWEEN BORROWED FUNDS FOR THE PURPOSES OF BUSINESS AND THE BORROWED FUNDS HAVE BEEN USED FOR ONE OTHER PURPOSES, I AM OF THE VIEW THAT INTEREST HAS RIGHTLY BEEN DISALLOWED. DURING THE YEAR INTEREST F REE ADVANCES ARE QUITE SUBSTANTIAL AND AT THE SAME TIME THE APPELLANT IS P AYING INTEREST OF ITA NO. 178/ASR/2013 36 RS.10.40 LAKHS ON UNSECURED LOAN OF RS.2.49 CRORES. THUS I UPHELD THE DISALLOWANCE AND REJECT THE APPELLANTS GROUND ON T HIS ISSUE. 9. THE LEANED COUNSEL FOR THE ASSESSEE MR. P.N. ARORA, ADVOCATE SUBMITTED A CHART MAINLY WITH REGARD TO THE ALLEGATIONS MADE BY THE A O WITH REFERENCE TO THE CIT(A)S FINDINGS AND HOW THE SAME WERE MET OUT DURING THE A SSESSMENT OR FIRST APPELLATE PROCEEDINGS. FOR THE SAKE OF CONVENIENCE THE SAID C HART IS REPRODUCED HEREIN BELOW:- SL. NO. OBJECTIONS OF THE A.O. REMARKS/OBJECTION ME T BY THE ASSESSEE- COMPANY (1) DISALLOWANCE U/S 80IE IN RESPECT OF WRONG DEDUCTION CLAIMED (I) SIKKIM UNIT THE ASSESSEE HAS NOT PAID ANY ELECTRICITY CHARGES IN RESPECT OF SIKKIM UNIT. IN FACT FOR ALL ITS FOUR UNITS THE ASSESSEE HAS SHOWN ELECTRICITY EXPENSES ONLY TO THE TUNE OF RS.1100/- ON TURNOVER OF RS.18.60 CRORES. (REFER PARA (I) PAGE 3 OF ASSESSMENT ORDER] (I) IT WAS EXPLAINED THAT COMPANY HAS PAID RS.54112/ ON ACCOUNT OF ELECTRICITY CHARGES FOR THE FINANCIAL YEAR 2008-09 IN THE YEAR 2010-11 DUE TO THE REASON THAT COMPANY HAS CONDUCTED MANUFACTURING ACTIVITY ONLY FOR TWO MONTHS AND DEPARTMENT OF ENERGY & POWER, SIKKIM COULD NOT ISSUE BILL DURING THE YEAR UNDER CONSIDERATION AND ELECTRIC CHARGES COULD NOT BE PAID WITHOUT BILL ISSUED BY THE CONCERNED DEPARTMENT. DUE TO THIS REASONS NO ELECTRIC CHARGES WERE BOOKED IN THE BOOKS OF ACCOUNTS AND CLAIMED IN THE MANUFACTURING ACCOUNT. [REFER PARA 1 PAGE 3 OF THE CIT(A)S ORDER] (II) ON TOTAL TURNOVER OF RS.18.35 CRORE THE ASSESSEE HAS SHOWN TOTAL WAGES AND SALARY EXPENSES OF RS.360000/-. [REFER PARA (II) PAGE 3 OF ASSESSMENT ORDER] (II) IT WAS EXPLAINED DURINHG THE COURSE OF ASSESSMENT PROCEEDING THAT DURING THE CURRENT PERIOD THE ASSESSEE-COMPANY COULD DO MANUFACTURING ACTIVITY FOR 2 MONTHS ONLY AND ONLY 3 BRANCHES WERE PROCESSED WITH 127 KG. OF RAW MATERIAL. SINCE RAW MATERIAL OF THE COMPANY WAS PRECIOUS METAL AND HEAVY COST ITA NO. 178/ASR/2013 37 WAS INVOLVED, THE QUANTUM, OF EXPENDITURE DOES NOT DETERMINE ITS CHARACTER. [REFER PARA 2 PAGE 3 OF CIT(A)S ORDER] (III) AS PER FORM 10CCB, THE ASSESSEE HAS SHOWN TO HAVE ENGAGED ONLY 4 WORKERS FOR A TURNOVER OF RS.18.35 CRORE. IT IS QUITE UN-IMAGINABLE AS TO HOW 4 WORKERS COULD HAVE MANUFACTURED ITEMS WORTH RS.18.35 CRORE. [REFER PARA (III) PAGE 3 OF ASSESSMENT ORDER] (III) IT WAS EXPLAINED THAT THERE WAS NO RESTRICTION/CONDITION WITH RESPECT OF NUMBER OF WORKERS TO BE ENGAGED, UNLESS THERE IS A LIMITATION PUT BY THE LAW ON THIS ACCOUNT. MOREOVER, QUANTUM OF WORKERS DOES NOT DETERMINE ITS FATE. [REFER PARA 3 PAGE 3 OF CIT(A)S ORDER] (IV) IN THE ADUDIT ACCOUNT, THE ASSESSEE-COMPANY HAS SHOWN TOTAL SALES OF RS.17.78 CRORE MADE FROM ITS AHMEDABAD, KOTA & DELHI UNITS WHICH ARE NOT ELIGIBLE FOR DEDUCTION U/S 80IE OF THE ACT, IN FACT REGISTRATION CERTIFICATION DATED 20/05/2008 ISSUED BY COMMERCIAL TAX OFFICER, KOTA SHOWS THAT THE ASSESSEE- COMPANY WAS REGISTERED UNDER TIN 08062957322 FOR SALES & PURCHASES OF METALS SUCH AS COPPER, NICKEL, ZINC ETC. [REFER PARA (IV) PAGE 3 OF ASSESSMENT ORDER] (IV) THE AUDIT REPORT & BALANCE SHEET SHOWS SALES AT AHMEDABAD & DELHI. IN THIS REGARD IT WAS SUBMITTED THAT RAW MATERIALS WHICH WAS PROCURED AT DELHI & AHMEDABAD WAS DISPATCHED TO SIKKIM FOR MANUFACTURING OF FINISHED PRODUCTS AS A BRANCH TRANSFER AND BRANCH-WISE TRADING AND PROFIT & LOSS A/C WERE ALSO FURNISHED. IT WAS ONLY AN INTERSTATE MOVEMENT FROM ONE STATE TO OTHER STATE AND THE COMPANY RETAINED THE OWNERSHIP OF GOODS. AS SUCH, NO SALES WERE INVOLVED. IT WAS HELD THAT MERE CONSIGNMENT OF GOODS BY A MANUFACTURER TO HIS OWN BRANCHES OUTSIDE THE STATE DOES NOT AMOUNT TO SALES OR DISPOSAL. THIS VIEW FINDS SUPPORT FROM THE DECISION IN THE CASE OF GOODYEAR INDIA LTD. VS. STATE OF HARYANA, REPORTED IN 76 STC 71. IN THIS REGARD FOLLOWING EVIDENCES WERE PRODUCED. ITA NO. 178/ASR/2013 38 (I) TRANSFER MEMOS FROM DELHI TO SIKKIM DULY SEAL & SIGNED BY THE SALES TAX CHECK POST AUTHORITIES OF SIKKIM. (II) EVIDENCE REGARDING TRANSPORTATION OF GOODS BETWEEN DELHI/AHMEDABAD TO SIKKIM BY THE WELL EQUIPPED SECURITY COMPANY. (III) COPIES OF THE REQUISITE MANDATORY DECLARATION FORM F U/S 64(1) OF THE CENTRAL SALES TAX ACT, 1956, BY THE SIKKIM UNIT TO DELHI & AHMEDABAD. BUT THE AO WITHOUT ANY MATERIAL ON RECORD CONTRARY AGAINST THE DEALER COMPANY HELD THAT THE ASSESSEE-COMPANY HAS CARRIED OUT TRADING ACTIVITY MAINLY AT DELHI & AHMEDABAD. [REFER PARA 4 PAGE 3 &4 OF THE CIT(A)S ORDER] (V)IT HAS BEEN GATHERED THAT THERE WAS NOT SUCH INDUSTRIAL UNDERTAKING SIKKIM AS ON DATE, AS SUCH NO MANUFACTURING ACTIVITY WAS GOING ON AT SIKKIM AS ON DATE. [REFER PARA (V) PAGE 3 OF ASSESSMENT ORDER] ( V)THAT IT WAS ADMITTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE ASSESSEE- COMPANY HAS DISCONTINUED HIS MANUFACTURING ACTIVITY AT SIKKIM. THERE WAS NO LEGAL REQUIREMENT FOR THE ASSESSEE TO REMAIN IN THE PRODUCTION FOR FURTHER PERIOD TO CLAIM DEDUCTION U/S 80IE OF THE IT ACT, 1961. [REFER PARA (V) PAGE 3 OF ASSESSMENT ORDER] (VI) THAT THE ASSESSEE HAS SHOWN CONSUMABLE OF RS.716/- ON TURNOVER OF RS.18.35 CRORE IN RESPECT OF SIKKIM UNIT. (VI) IN THIS REGARD IT WAS SUBMITTED THAT ASSESSEE-COMPANY HAS PRODUCED COPY OF ACCOUNT OF PURCHASES ALONG-WITH EVIDENCE. THE BASIC RAW MATERIAL OF THE ASSESSEE-COMPANY WAS GOLD BULLION AND OTHER CONSUMABLE ITEMS ITA NO. 178/ASR/2013 39 [REFER PARA (VI) PAGE 3 OF ASSESSMENT ORDER] SUCH AS NITRIC ACID AND HYDROCHLORIC ACID WERE PURCHASED AND DULY ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS. COPIES OF PURCHASE BILLS WERE ALSO FURNISHED. RS.716/- WAS FOR PURCHASE OF HAND GLOVES AND LABORATORY ITEMS, FOR WHICH PURCHASES BILLS WERE ALSO FURNISHED. BUT THE LD. AO HELD THAT THE ASSESSEE HAS CLAIMED RS.S716/- AS CONSUMABLE ON TURNOVER OF RS.18.35 CRORE. [REFER PARA 6 PAGE 4 OF CIT(A)S ORDER] (VII) THAT ON TOTAL TURNOVER OF RS.18.35 CRORE, THE ASSESSEE HAS SHOWN PACKING MATERIAL CONSUMED AT RS.23000/- ONLY IN RESPECT OF SIKKIM UNIT. [REFER PARA (VII) PAGE 3 OF ASSESSMENT ORDER] (VII) IN THIS CONNECTION, IT WAS SUBMITTED THAT THE ASSESSEE-COMPANY WAS ENGAGED IN MANUFACTURING GOLD, CHLORATE WHICH IS A COSTLY PRODUCT. THREE BATCHES WERE MANUFACTURED AND GOODS WERE DISPATCHED IN THE POLY JARS. ONLY 127 KG WERE MANUFACTURED. POLY JAR FOR RS.23000 WAS QUITE ADEQUATE FOR PACKING OF 127 KG. [REFER PARA 7 PAGE 4 OF CIT(A)S ORDER] (VIII) IN RESPECT OF SIKKIM UNIT, THE ASSESSEE HAS SHOWN PLANT & MACHINERY OF RS. 13.31 LAC AND IN RESPECT OF KOTA UNIT, THE ASSESSEE HAS SHOWN PLANT & MACHINERY OF RS.10.79 LAC. AT THE SAME TIME, THE ASSESSEE HAS SHOWN TURNOVER OF RS.18.35 CRORE IN RESPECT OF SIKKIM UNIT & TURNOVER OF RS.14.40 LAC IN RESPECT OF KOTA UNIT. [REFER PARA (VIII) PAGE 4 OF (VIII) REGARDING PLANT & MACHINERY FOR RS.13,31 LAC AT SIKKIM AND RS.10.79 LAC AT KOTA AND TURNOVER OF RS.18.35 CRORE AT SIKKIM AND RS.14.40 LAC AT KOTA, IT WAS SUBMITTED THAT THE ASSESSEE-COMPANY HAS TWO UNITS FOR DIFFERENT ACTIVITIES AT SIKKIM & KOTA. THE ASSESSEE-COMPANY WAS ENGAGED IN THE MANUFACTURING OF GOLD CHLORATE OUT OF GOLD AT SIKKIM AND AT KOTA COPER, NICKEL & ZINC & HENCE, COMPARISON WITH THESE METALS WAS NOT JUSTIFIABLE. ITA NO. 178/ASR/2013 40 ASSESSMENT ORDER] [REFER PARA 8 PAGE 4 OF CIT(A)S ORDER] (IX) MANUFACTURING OF GOLD CHLORATE OUT OF GOLD BULLION IS NOT MANUFACTURING ACTIVITY. [REFER PARA 3.1 TO 3.5 PAGE 4 TO 7 OF ASSESSMENT ORDER] KINDLY REFER NECESSARY DETAILS MENTIONED IN THE ORDER OF LD.CIT(A) IN PARA 4.1 TO 4.4 AT PAGE 6 TO 11, WHICH IS ENCLOSED HEREWITH FOR YOUR READY REFERENCE. (II) DISALLOWANCE U/S 80IE IS RESPECT OF THE CENTRAL EXCISE DUTY REFUND RECEIVED BY THE ASSESSEE COMPANY HELD TO BE REVENUE RECEIPT NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING AND CANNOT SAID TO BE PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING AND HENCE LIABLE TO BE ADDED TO THE INCOME OF THE ASSESSEE AT RS.82,48,402/-. [REFER PARA 4.1 TO 4.7 PAGE 7 TO 12 OF ASSESSMENT ORDER] (II) IT WAS EXPLAINED BEFORE THE AUTHORITIES BELOW THAT THE CENTRAL EXCISE DUTY REFUND RECEIVED BY THE ASSESSEE WAS A CAPITAL RECEIPT AND AS SUCH THE SAME WAS NOT SUBJECT TO TAX. AS HELD BY THE J&K HIGH COURT IN THE CASE OF M/S SHREE BALAJI ALLOYS VS. CIT AND ANOTHER, REPORTED IN 333 ITR PAGE 335. [REFER PARA 5 PAGE 5 & 6 OF CIT(A)S ORDER] (III) DISALLOWANCE U/S 36(I)(VA) IN RESPECT OF INTEREST PAID TO BANK TO THE EXTENT OF INTEREST FREE ADVANCES/INVESTMENT AT RS.229550/-. [REFER PARA 4.1 TO 4.7 PAGE 7 TO 12 OF ASSESSMENT ORDER] (III) IT WAS EXPLAINED DURING THE YEAR UNDER CONSIDERATION THAT A SUM OF RS.24,00,00/- WAS PAID TO SMT. MEERA KUMARI PRADHAN FOR THE PURPOSE OF PURCHASE OF LAND WHICH WAS NOT MATERIALIZED AND SHE RETURNED BACK THE SAME TO THE ASSESSEE-COMPANY AND INTEREST PAID FOR THIS PURPOSE WAS ALLOWABLE U/S 36(1)(III) OF THE IT ACT, 1961. FURTHER INTEREST PAID ON THE CAPITAL BORROWED FOR ACQUIRING SHARES WAS ALSO ALLOWABLE U/S 36(1)(III). [REFER PARA 4.5 PAGE 11&12 OF CIT(A)S ITA NO. 178/ASR/2013 41 ORDER] (IV) DEDUCTION U/S 80IE HAS TO BE ALLOWED ON FINALLY ENHANCED ASSESSED INCOME. THIS VIEW FINDS SUPPORT FROM THE DECISION OF ITAT, AMRITSAR BENCH, AMRITSAR IN THE CASE OF SMT. HARBHAJAN KAUR PROP. M/S SAINICO ENGINEERS, KATHUA IN ITA NO.331(ASR)/2013, ORDER DATED 6/12/2013 RELATING TO ASSESSMENT YEAR 2009-10 AND ALSO IN THE CASE M/S ASIAN INDUSTRIES, JAMMU IN ITA NO.588(ASR)/2013, ORDER DATED 02/09/2014 RELATING TO ASSESSMENT YEAR 2009-10. [REFER PARA 1 TO 8 AND 9 TO 15 OF COMPLIANCE OF JUDGEMENTS] 10. ON THE OTHER HAND, LEARNED JCIT, DR MR. TAR SEM LAL ARGUED AT THE OUTSET THAT THERE IS A TENDENCY AMONGST PEOPLE TO AVOID TAX AS IN THE PRESENT CASE. HE ARGUED THAT GOLD BAR IS NOT AVAILABLE IN THE OPEN MARKET BUT TH E SAME IS AVAILABLE AND CAN BE PURCHASED FROM STATE BANK OF INDIA. THEREFORE HE DO UBTED IF AT ALL ANY PURCHASE HAS BEEN MADE. HE FURTHER ARGUED THAT THERE IS NO REASON TO PURCHASE THE GOLD AT DIFFERENT OFFICES I.E. AT DELHI AND AHEMDABAD AND TRANSPORT THE SAME AT SIKKIM. AS REGARDS ELECTRICAL EXPENSES PAID, THE LD. DR ARGUED THAT THESE EXPENSE S MIGHT HAVE BEEN PAID FOR SOME RESIDENCE OF EMPLOYER OR EMPLOYEE OF ASSESSEE AT SI KKIM. SINCE NO MEANINGFUL EXPENSES HAVE BEEN INCURRED BY THE ASSESSEE, THEREFORE, THE ASSESSEE HAS NOT CARRIED OUT ANY MANUFACTURING ACTIVITY. THEREFORE THE CASE MADE OUT BY THE ASSESSEE DOES NOT INSPIRE CONFIDENCE. AS REGARDS EXCISE DUTY REFUND, THE LEAR NED DR ARGUED THAT DECISION OF HONBLE J & K HIGH COURT IN THE CASE OF BALAJI ALLO YS (SUPRA) IS NOT APPLICABLE SINCE THE SCHEME IN THE CASE OF BALAJI ALLOYS WAS DIFFERENT T O SCHEME IN THE PRESENT CASE. ITA NO. 178/ASR/2013 42 11. IN THE REJOINDER LEARNED COUNSEL FOR THE AS SESSEE MR. P.N. ARORA, ADVOCATE ARGUED THAT IN THE CASE OF SHREE BALAJI ALLOYS VS. CIT 33 3 ITR 335 (J&K) THERE WERE CONCESSIONS FOR THE STATE OF J&K TO ACHIEVE THE AC CELERATION OF INDUSTRIAL DEVELOPMENT IN THE STATE OF J& K WHICH HAD BEEN FOUND LAGGING B EHIND IN SUCH DEVELOPMENT AND GENERATION OF EMPLOYMENT IN THE STATE OF J&K WHICH WAS NOT ONLY TEMPORARY BUT WAS OF PERMANENT IN NATURE WHICH IN THE PUBLIC INTEREST WH ICH WOULD HAVE BROUGHT ADDITIONAL PERMANENT SOURCE OF EMPLOYMENT TO THE UNEMPLOYED IN THE STATE OF J&K. LOOKING TO THE PURPOSE OF ERADICATION OF THE SOCIAL PROBLEM OF UNE MPLOYMENT IN THE STATE OF J &K, THE HONBLE J& K HIGH COURT HAD HELD THAT SUCH INCENTIV E COULD NOT BE CONSTRUED AS PRODUCTION OR OPERATIONAL INCENTIVES FOR THE BENEFI T OF ASSESSEE ALONE AND ACCORDINGLY HELD THAT EXCISE DUTY REFUND, INTEREST SUBSIDY AND INSURANCE SUBSIDY ARE CAPITAL RECEIPTS IN THE HANDS OF THE ASSESSEE. AS AGAINST THE DECIS ION IN THE CASE OF SHREE BALAJI ALLOYS (SUPRA), IN THE PRESENT CASE ALSO THE REFUND OF EXC ISE DUTY IS IN THE TERMS OF LARGE SCHEME WORKED OUT BY THE UNION GOVERNMENT IN CONJUNCTION W ITH THE NORTH EASTERN STATES IN ORDER THAT THE INDUSTRY IS PRESENTED WITH A CONGENI AL ENVIRONMENT. DURING THE PAST SIX DECADES SINCE INDEPENDENCE THE STATES OF NORTH EAST ERN HAVE LAGGED BEHIND IN INDUSTRIALIZATION. AS THESE STATES HAVE PRIMARILY A N AGRARIAN ECONOMY, THE INCOME LEVEL OF THE PEOPLE ARE LAGGING BEHIND ECONOMICALLY. ONE OF THE PRIMARY REASON HAS BEEN THE LACK OF AVENUE FOR THE WORK AND THE WOEFUL INADEQUACY OF SKILL SETS POSSESSED BY THE PEOPLE. TO UNDO THIS AND ENSURE THAT THE PEOPLE CAN DEVELOP SKILL SETS TO IMPROVE THEIR LIFE THE UNION GOVT. DEVELOPED THE IDEA FOR ALL AROUND EXEMP TIONS TO ENSURE THAT DEVELOPMENT TAKES PLACE. ACCORDINGLY, THE GOVERNMENT EXTENDED A WHOLE SET OF INCENTIVES TO LOWER THE COST OF PRODUCTION SO THAT INDUSTRIES ARE INTERESTE D IN COMING TO IN THESE STATES AND LARGE ITA NO. 178/ASR/2013 43 NUMBER OF EMPLOYMENT IS GENERATED APART FROM ACCE LERATION OF INDUSTRIAL DEVELOPMENT. THE LEARNED COUNSEL FOR THE ASSESSEE MR. P.N. ARORA , ADVOCATE ACCORDINGLY ARGUED THAT THE SCHEME OF THE CENTRAL GOVERNMENT IS AKIN AND SI MILAR TO THE ONE AS PRONOUNCED BY THE GOVT. OF INDIA AND THE PRIME MINISTER FOR THE S TATE OF J& K REFERRED TO IN THE CASE OF SHREE BALAJI ALLOYS VS. CIT(SUPRA), THEREFORE, FACT S BEING IDENTICAL AND ACCORDINGLY THE EXCISE DUTY REFUND IN THE PRESENT CASE HAS TO BE T REATED AS INCENTIVES IN THE FORM OF CAPITAL RECEIPT IN THE HANDS OF THE ASSESSEE AND NO T AS REVENUE RECEIPT AS HELD BY THE LEARNED CIT(A). 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE FACTS OF THE CASE. THE MAIN ALLEGATIONS BY THE AO AS ENUMERATED IN THE CHART PL ACED ON RECORD BY THE LEARNED COUNSEL FOR THE ASSESSEE AND ALSO AS PER OUR PERUSA L OF AOS AND CIT(A)S ORDER, IS MAINLY WITH REGARD TO THE ELECTRICITY CHARGES IN RE SPECT OF THE SIKKIM UNIT WHICH HAS BEEN CLAIMED DURING THE IMPUGNED YEAR AT RS. 1100/- ONLY , AGAINST TURNOVER OF RS. 18.60 CRORES. THE EXPLANATION OF THE ASSESSEE WAS THAT TH ERE WAS ACTUAL EXPENSE OF RS.54,112/- ON ACCOUNT OF ELECTRICITY FOR THE MANUFACTURING ACT IVITY CONDUCTED ONLY FOR TWO MONTHS DURING THE IMPUGNED YEAR. IN FACT THE BILL HAS BEEN RAISED BY THE ELECTRICITY DEPARTMENT DURING THE YEAR 2010-11 AND DEPARTMENT OF ENERGY AN D POWER COULD NOT ISSUE THE BILL DURING THE IMPUGNED YEAR AND ACCORDINGLY SAID BILL WAS NOT PAID TO THE CONCERNED DEPARTMENT DURING THE IMPUGNED YEAR. DUE TO THIS RE ASON NO ELECTRICITY CHARGES WERE BOOKED IN THE BOOKS OF ACCOUNT OF THE IMPUGNED YEAR . IN FACT THE SAID ELECTRICITY CHARGES OF RS.54,112 WERE PERTAINING TO THE IMPUGNED YEAR E NDING 31 ST MARCH,2009 RELEVANT TO ASSESSMENT YEAR 2009-10. WHICH IN FACT WERE RAISED DURING THE FINANCIAL YEAR 2010-11. THIS EXPLANATION WAS SUBMITTED BEFORE THE LEARNED C IT(A) AVAILABLE AT PAGE 3 AT PARA 1 OF ITA NO. 178/ASR/2013 44 HIS ORDER. THE LEARNED CIT(A) IN FACT WAS NOT SATIS FIED IN SPITE OF THE FACT THE REASONS AND EXPLANATION WERE PLACED ON RECORD ALONG WITH COPY O F THE BILL OF THE DEPARTMENT OF ENERGY AND POWER, RECEIPT OF THE AMOUNT PAID AND CERTIFICA TE FROM THE GOVERNMENT OF SIKKIM, ENERGY AND POWER DEPARTMENT AVAILABLE AT PB60,61 AN D 62. BUT THE LEARNED CIT(A) HAS NOT TAKEN COGNIZANCE OF THE SAME AND MERELY OBSERVE D AT PAGE 10 IN PARA 4.3(II) THAT HE IS NOT SATISFIED. THIS APPROACH OF THE LEARNED CIT( A) IS NOT SUSTAINABLE IN LAW, AS IT SUFFERS FROM THE VICE OF NON-CONSIDERATION OF DOCUMENTARY E VIDENCE BROUGHT ON RECORD BY THE ASSESSEE. 13. AS REGARDS THE ALLEGATIONS OF THE AO THAT TH E ASSESSEE HAD PAID WAGES AND SALARY EXPENSES TO THE TUNE OF RS.3,60,000/- ONLY AGAINST A TURN OVER RS. 18.35 CRORES, IT WAS EXPLAINED BY THE ASSESSEE THAT THE ASSESSEE CARRIED OUT MANUFACTURING ACTIVITY FOR TWO MONTHS ONLY DURING THE YEAR AND ASSESSEE HAS PROCES SED ONLY THREE BATCHES TOTALING TO 127 KG OF RAW MATERIAL AND THE RAW MATERIAL WAS OF HEAV Y COSTS AND THAT THE QUANTUM OF EXPENDITURE DOES NOT DETERMINE ITS CHARACTER. THIS EXPLANATION WAS SUBMITTED BEFORE THE LEARNED CIT(A) AND IS AVAILABLE AT PAGE 3 IN PARA 2 OF LEARNED CIT(A)S ORDER. ALSO, WITH REGARD TO THE EMPLOYMENT OF FOUR WORKERS ONLY, VIS- A-VIS TURNOVER, IT WAS EXPLAINED THAT THERE IS NO RESTRICTION OR CONDITION WITH RESPECT T O THE NUMBER OF WORKERS TO BE ENGAGED AND SINCE THERE IS NO SUCH LIMITATION PUT BY THE LA W ON THIS ACCOUNT, IT DOES NOT LIE WITHIN THE PURVIEW OF THE TAXING AUTHORITIES TO IMPOSE SUC H A CONDITION UNILATERALLY, I.E., WITHOUT DUE SANCTION OF LAW. THE SAID EXPLANATION IS AVAILA BLE AT PARA 2 AT PAGE 3 OF LEARNED CIT(A)S ORDER. BUT THE LEARNED CIT(A), WITHOUT CON SIDERING THE EXPLANATION OF THE ASSESSEE DITTOED THE ORDER OF AO AT PAGE 10 (VI), (VII). 14. NEXT ALLEGATION BY THE AO IS THAT IN THE AU DITED ACCOUNTS, THE ASSESSEE COMPANY HAS DECLARED TOTAL SALES OF RS. 17.78 CRORES AT AHEMDAB AD, KOTA AND DELHI UNITS WHICH ARE NOT ELIGIBLE FOR DEDUCTION U/S.80IE OF THE ACT. THE REGISTRATION CERTIFICATE ISSUED BY THE CTO QUOTA SHOWS THAT ASSESSEE IS REGISTERED UNDER T IN FOR SALE AND PURCHASE OF METALS ITA NO. 178/ASR/2013 45 SUCH AS COPPER, NICKEL AND ZINC ETC. IN THIS REGARD IT WAS EXPLAINED BY THE ASSESSEE, AND SAID EXPLANATION IS RECORDED AT PARA 4 AT PAGE 3 & 4 OF LEARNED CIT(A)S ORDER, THAT WITH REGARD TO SALES AT AHEMDABAD AND DELHI, THE RAW MAT ERIAL WAS PROCURED AT DELHI AND AHEMDABAD AND WAS DISPATCHED TO SIKKIM FOR MANUFACTURING OF FINISHED PRODUCTS AS A BRANCH TRANSFER AND BRANCH WISE TRADING ACCOUNT AND PROFIT AND LOSS ACCOUNT WERE FU RNISHED. SUCH INTERSTATE MOVEMENT OF GOODS DOES NOT INVOLVE ANY SALES TO THE ASSESSEE AN D ASSESSEE RETAINS OWNERSHIP OF GOODS. THE AR RELIED UPON THE DECISION IN THE CASE OF GOOD YEAR INDIA LIMITED V. STATE OF HARYANA REPORTED 76 STC 71(SC) ON THE BASIS OF EVI DENCE PLACED ON RECORD I.E. I) TRANSFER MEMOS FROM DELHI TO SIKKIM WHICH WAS DULY SEALED AND SIGNED BY THE SALES TAX CHECK POST AUTHORITIES OF SIKKIM, II) EVIDENCE REGA RDING THE TRANSPORTATION OF GOODS BETWEEN DELHI AND AHEMDABAD TO SIKIM BY THE WELL EQ UIPPED SECURITY COMPANY AND III) COPIES OF THE REQUISITE MANDATORY DECLARATIONS FORM S F U/S 64(I) OF THE CENTRAL SALES TAX ACT 1956 BY THE SIKKIM UNIT TO DELHI AND AHEMDABAD. BUT THE LEARNED CIT(A) AGAIN ENDORSED THE ORDER OF THE AO WITHOUT CONSIDERING TH E EXPLANATION OF THE ASSESSEE JUST ON THE BASIS OF HUMAN PROBABILITY WHICH IN FACT DOES N OT HAVE ANY BASIS AS EVIDENT FROM PAGES 10 &11 IN PARA 4.3 IN (III) (V) (VII) OF HIS ORDER. AS REGARDS THE ALLEGATIONS THAT THE ASSESSEE HAS DECLARED CONSUMABLES OF RS.716 /- ON T HE TURNOVER OF RS.18.35 CRORES IN RESPECT OF SIKKIM UNIT, IT WAS EXPLAINED AND THE SA ID EXPLANATION IS AVAILABLE IN PARA 6 AT PAGE 4 OF THE CIT(A)S ORDER. THE ASSESSEE HAS PROD UCED COPY ON ACCOUNT OF PURCHASES ALONG WITH THE EVIDENCE AND BASIC RAW MATERIAL OF T HE ASSESSEE WAS GOLD BILLION AND CONSUMABLE ITEMS SUCH AS NITRIC ACID AND HYDROCHLOR IC ACID WERE PURCHASED AND DULY ACCOUNTED FOR IN THE BOOKS OF ACCOUNT AND BILLS WER E PRODUCED. RS. 716/- WERE FOR THE ITA NO. 178/ASR/2013 46 PURCHASE OF HAND GLOVES AND LABORATORY ITEMS FOR WH ICH THE BILLS WERE PRODUCED. THE LEARNED CIT(A) MERELY REPEATED THE ORDER OF THE AO AT PAGE 10 IN PARA 4.3 IN (V) AND HAS NOT CONSIDERED THE EXPLANATION OF THE ASSESSEE IN T HE RIGHT PROSPECTIVE. 15. AS REGARDS THE EXPENSES ON ACCOUNT OF PACKI NG MATERIAL CONSUMED AT RS.23,000/- AGAINST TURNOVER OF RS.18.35 CRORES AS ALLEGED BY T HE AO, IT WAS SUBMITTED BY THE ASSESSEE THAT THE GOODS ARE COSTLY WHICH WERE DISPA TCHED IN POLY JARS AND ONLY 127 KGS WERE MANUFACTURED AND THE COSTS OF POLY JARS WAS RS . 23,000/- WHICH IS QUITE ADEQUATE FOR PACKING OF 127 KGS OF RAW MATERIAL. 16. NEXT ALLEGATION BY THE AO WAS THAT THE ASSESS EE IS HAVING PLANT AND MACHINERY OF RS.13.31 LACS THAT SIKKIM UNIT AND RS. 10.79 CRORES AT KOTA UNIT FOR THE TURNOVER OF RS.18.35 CRORE AT SIKKIM UNIT AND RS.14.40 LAC AT K OTA UNIT. IN THIS REGARD THE ASSESSEE SUBMITTED THE EXPLANATION WHICH IS AVAILABLE AT PAR A 8 AT PAGE 4 OF LEARNED CIT(A)S ORDER THAT ASSESSEE COMPANY WAS ENGAGED IN MANUFACTURING OF GOLD CHLORATE OUT OF GOLD AT SIKKIM AND AT KOTA COPPER, NICKEL AND ZINC AND HENC E COMPARISON WITH THESE METALS WAS NOT JUSTIFIABLE. THE LEARNED CIT(A) IN PARA 4.3 HAS NOT TAKEN THE EXPLANATION OF THE ASSESSEE IN THE RIGHT PERSPECTIVE AND HAS SIMPLY RE PEATED THE ORDER OF THE AO. 17. AS REGARDS THE MANUFACTURING OF GOLD CHLORATE OUT OF GOLD BULLION NOT BEING A MANUFACTURING ACTIVITY AS ALLEGED BY THE AO, THE LE ARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED A DETAILED MANUFACTURING PROCESS WHICH IS AVAILABLE IN THE ORDER OF LEARNED CIT(A) IN PARA 4.2 AND AT PAGES 5 TO 10, WHICH IS C UTTING OF GOLD BARS IN SMALL PIECES WITH THE HELP OF SHEET ROLLING MACHINE AND CUTTING MACHI NES. GOLD BULLION OR GOLD BARS HAVE TO BE ROLLED AND CUT IN SMALL PIECES, BECAUSE IT IS DIFFICULT TO DISSOLVE LARGE SIZE OF ITA NO. 178/ASR/2013 47 GOLD BARS IN AQUA REGIA SOLUTION. THE SMALL PIECES HAVE TO BE PUT IN GLASS REACTOR ALONG WITH HYDROCHLORIC ACID, CALLED AQUA REGIA SOLUTION. THE SAID AQUA REGIA WAS EXPLAINED BY THE ASSESSEE AT PAGE 7 OF LEARNED CIT(A)S ORDER TO BE A HIGHLY CORROSIVE MIXTURE OF ACIDS, A FUMING YELLOW OR RED SOLUTION. THE MIXTURE IS FORMED BY FRESHLY MIXING CONCENTRATED NITRIC ACID AND HYDROCHLORIC ACID, USU ALLY IN VOLUME RATIO OF 1:3. THEREAFTER, THERE IS MIXING OF GOLD PIECES WITH AQUA REGIA SOLU TION, WHICH PROCESS IS CALLED DIGESTION OF GOLD IN AQUA REGIA. THE SOLUTION IS COOLED AT RO OM TEMPERATURE. THE AQUA REGIA REQUIRED FOR THIS CONTAINS 425 ML OF CONCENTRATED H YDROCHLORIC ACID(HCL)AND 150ML OF CONCENTRATED NITRIC ACID WHERE GOLD IS COMPLETELY D ISSOLVED IN THE AQUA REIGA TO FORM A CLEAR, GOLDEN-COLORED SOLUTION. AFTER A CERTAIN DUR ATION THE SAME IS CONVERTED INTO GOLD CHLORIDE SOLUTION. THE SOLUTION IS COOLED TO ROOM T EMPERATURE. THEREAFTER, THE SOLUTION IS CHARGED TO SECOND REACTION VESSEL EQUIPPED WITH STI RRER, A PH METER, A THERMOMETER AND COOLING JACKET A STIRRING AND COOLING ARE INITIATED . A CONCENTRATED SODIUM HYDROXIDE SOLUTION IN WATER IS SLOWLY ADDED TO THE VESSEL TO RAISE IT TO A PARTICULAR DESIRED PH. THE ADDITION RATE OF SODIUM HYDROXIDE IS REGULATED SO T HAT THE TEMPERATURE OF THE REACTION MIXTURE DOES NOT EXCEED A PARTICULAR TEMPERATURE AN D THE RESULTING REACTION MIXTURE IS DARK ORANGE IN COLOR AND IS QUITE CLEAR. THEREAFTER , THERE IS A FILTERING PROCESS WHERE UNWANTED MATERIAL IS FILTERED. THE REASONS FOR COOL ING IS THAT SILVER CHLORIDE, THOUGH QUITE INSOLUBLE IN WATER, IS SLIGHTLY SOLUBLE IN STRONG A CIDS. THEREAFTER, THE NITRIC ACID IS ELIMINATED BY BOILING TO NEAR DRYNESS WITH THE ADDI TION OF HYDROCHLORIC ACID WITH SOME SULPHURIC ACID NEAR THE END. THEREAFTER, THE PROCES S IS OF PRECIPITATION OF THE GOLD CHLORIDE SOLUTION, BY SODIUM METABISULHITE WHICH ACT AS RED UCING AGENT WHICH IS LEFT TO SETTLE FOR FOUR HOURS. SUCH GOLD POWDER IS PRECIPITATED AT THE BOTTOM OF THE FLASK. IT WAS EXPLAINED ITA NO. 178/ASR/2013 48 BY THE LEANED COUNSEL FOR THE ASSESSEE WHILE SUBMIT TING THE COMPLETE MANUFACTURING PROCESS THAT THERE IS A DIFFERENT APPLICATION OF TH E FINAL PRODUCT WHICH IS GOLD CHLORATE POWDER WHICH IS ENTIRELY A DIFFERENT PRODUCT, AS R EPRODUCED HEREIN ABOVE FROM PAGE 9 OF THE LEARNED CIT(A)S ORDER. APPLICATIONS OF THE GOL D CHLORATE POWDER ARE QUITE DIFFERENT FROM THE APPLICATION OF THE GOLD BAR OR GOLD BULLIO N. THE GOLD BAR OR GOLD BULLION IN FACT IS USED FOR MAKING OF JEWELLERY WHEREAS THE GOLD CH LORATE POWDER AFTER PASSING THROUGH SUCH CUMBERSOME PROCESS CAN BE USED ONLY IN THE ELE CTRICAL CONNECTORS AND SOLDER JOINT COMPOUND IN MOBILES, SUPER COMPUTERS AND LAPTOPS AN D ELECTROPLATING AND AS AN ANODE IN AN ELECTRIC CELL, IN PHOTOGRAPHY, AS A PRINT TON ING AGENT (GOLD TONING), STARTING MATERIAL TO FORM OTHER GOLD COMPOUNDS, CELL BODIES STAINS FOR BRIGHT FIELD AND DARK FIELD MICROSCOPY AND RAW MATERIAL FOR PRINTING INKS. THE APPLICATION IS ENTIRELY DIFFERENT COMMERCIAL COMMODITIES WITH DIFFERENT NAME AND CHAR ACTER WHICH IS COVERED UNDER THE DEFINITION OF MANUFACTURING U/S.2(29BA) OF THE INCO ME TAX ACT WHICH IN FACT IN THE PRESENT CASE HAS BEEN TRANSFERRED INTO A NEW DISTIN CT OBJECT HAVING DIFFERENT NAME AND CHARACTER AND USE OF DIFFERENT APPLICATIONS WHICH A PPLICATIONS ARE NOT POSSIBLE IN THE GOLD BULLION OR GOLD BAR AS RAW MATERIAL. SECTION 2(29BA ) IS REPRODUCED FOR THE SAKE OF CONVENIENCE AS UNDER: 2(29BA) MANUFACTURE WITH ITS GRAMMATICAL VARIATION, MEAN S A CHANGE IN A NON LIVING PHYSICAL OBJECT OR THINGS: (A) RESULTING IN TRANSFORMATION OF THE OBJECT OR ARTICL ES OR THINGS IN TO A NEW AND DISTINCT OBJECT OR ARTICLES OR THINGS HAVING A DIFFERENT NAME, CHARACTER, AND USE; OR (B) BRINGING IN TO EXISTENCE OF NEW AND DISTINCT OBJECT OR ARTICLE OR THINGS WITH A DIFFERENT COMPOSITION OR INTEGRAL STRUCTURE. 18. ACCORDINGLY, THE FINDINGS OF THE LEARNED C IT(A) IN PARA 4.3 AND 4.4 THAT THE ASSESSEE HAS ONLY CHANGED THE SHAPE FROM THE GOLD B AR TO GOLD POWDER NOTHING BUT THE ITA NO. 178/ASR/2013 49 REPETITION OF THE ORDER OF THE AO WITHOUT CONSIDERI NG THE EXPLANATION OF THE ASSESSEE AND IN PARTICULAR WITHOUT TAKING INTO CONSIDERATION THE MANUFACTURING PROCESS WHICH IN FACT IS PART OF THE LEARNED CIT(A)S ORDER AT PAGE 7 TO 10 AS MENTIONED HEREIN ABOVE, MENTIONING OF SUCH A CUMBERSOME MANUFACTURING PROCESS AS PURIF ICATION PROCESS AND MENTIONING THAT THERE IS NO CHANGE IN THE CHEMICAL COMPOSITE OF GOL D BY THE LEARNED CIT(A) IS WITHOUT ANY BASIS AND WITHOUT CONSIDERING EXPLANATION OF AS SESSEE. 19. IN VIEW OF OUR FINDINGS HEREIN ABOVE AND THE EXPLAN ATION SUBMITTED BY THE ASSESSEE DISCUSSED HEREIN ABOVE, WE HOLD THAT THE C ONVERSION OF GOLD BULLION OR GOLD BAR TO THE GOLD CHLORATE POWDER IS A MANUFACTURING PROC ESS, IN THE CIRCUMSTANCES AND FACTS OF THE PRESENT CASE SINCE, THE FINAL AND MANUFACTURED PRODUCT IS NEW AND DISTINCT OBJECT WITH DIFFERENT NAME CHARACTER AND USE WHICH IS NOT POSSI BLE IN THE CASE OF RAW MATERIAL. IN THE CIRCUMSTANCES AND FACTS OF THE CASE, THE DECISIONS RELIED UPON BY THE AO AT PAGE 5 TO 7 AND LEARNED CIT AT PAGE 11 ARE NOT AT ALL APPLICABL E. AS REGARDS THE ARGUMENT MADE BY MR. TARSEM LAL LEARNED DR THAT THERE IS A TENDENCY AMONGST PEOPLE TO AVOID TAX AND GOLD BULLION IS NOT AVAILABLE IN THE OPEN MARKET BUT FRO M THE SBI AND ACTUALLY THERE IS NO PURCHASE AND NO MEANINGFUL EXPENSES HAVE BEEN INCUR RED AND THE ARGUMENT OF THE ASSESSEE FOR HIS CASE DOES NOT INSPIRE CONFIDENCE T HESE ARE ARGUMENTS BASED ON HUMAN PROBABILITY WHICH ARE WITHOUT ANY BASIS IN THE LIGH T OF OUR FINDINGS HEREIN ABOVE. THE LEARNED DR HAS TRIED TO MAKE OUT A NEW CASE, FOR WH ICH NO MATERIAL WAS PLACED ON RECORD. SINCE, THE PURCHASE HAVE NOT BEEN DOUBTED BY THE AO OR THE LEARNED CIT(A) AND ARGUMENTS OF LEARNED DR AT THIS STAGE THAT NO PURCH ASES HAVE BEEN MADE CANNOT BE HELP THE REVENUE. ON THE OTHER HAND THE ARGUMENTS THAT T HE GOLD BILLION IS NOT AVAILABLE IN THE OPEN MARKET BUT IS AVAILABLE FROM THE STATE BANK OF INDIA ONLY WAS NOT AN ISSUE BEFORE ITA NO. 178/ASR/2013 50 THE AO OR THE LEARNED CIT(A), SINCE NO PURCHASE HAV E BEEN DOUBTED BY EITHER OF THE AUTHORITIES BELOW AND RAISING SUCH AN ISSUE AT THIS STAGE CANNOT HELP THE REVENUE. AS REGARDS THE ALLEGATION THAT ELECTRICAL EXPENSES AND OTHER EXPENSES ARE NOT MEANINGFUL, THE ASSESSEE HAS SUBMITTED HIS EXPLANATION WHICH HAS NO T BEEN TAKEN IN THE RIGHT PROSPECTIVE BY THE LEARNED CIT(A) AND THE EXPLANATION OF THE AS SESSEE HAS BEEN FOUND CORRECT IN OUR FINDING HEREIN ABOVE. AND WE ARE SATISFIED WITH THE EXPLANATION OF THE ASSESSEE AND THEREFORE, THE ARGUMENTS OF LEARNED DR THAT THE CAS E DOES NOT INSPIRE CONFIDENCE CANNOT HELP THE REVENUE. THE RELIANCE BY THE LEARNED COUNS EL FOR THE ASSESSEE AND THE DECISION OF THE STEEL AUTHORITY INDIA KOLKATA ITAT, IN THE FACT HAS NOT BEEN PLACED ON RECORD AND IN VIEW OF OUR FINDINGS HEREIN ABOVE WHERE ASSESSEES ACTIVITIES HAVE BEEN HELD TO BE MANUFACTURING ACTIVITY AND ACCORDINGLY ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S.80IE OF THE ACT. ACCORDINGLY, ARGUMENTS MADE BY THE LEARNED JC IT, DR CANNOT HELP THE REVENUE. ACCORDINGLY, WE HOLD THAT THE ASSESSEE HAS MET OUT ALL THE CONDITIONS REFERRED TO U/S. 80IE OF THE ACT AND IS ENTITLED FOR THE DEDUCTION 80IE O F THE ACT AND ACCORDINGLY ALL THE GROUNDS NO. 3,4,5,6 & 7 OF THE ASSESSEE ARE ALLOWED . 20. AS REGARDS GROUND NO.8, 9 &10 , THE ASSESS EE HAS CLAIMED THE DEDUCTION WITH REGARD TO EXCISE DUTY REFUND AND HAS RELIED UPON TH E DECISION OF HONBLE J&K HIGH COURT IN THE CASE OF SHREE BALAJI ALLOYS (SUPRA) WHEREIN EXCISE DUTY REFUND HAS BEEN HELD TO BE CAPITAL RECEIPT. THE EXPLANATION SUBMITTED BY THE ASSESSEE IN THIS REGARD AT PAGE 8 & 9 OF THE LEARNED CIT(A)S ORDER IS FOUND TO BE CONVINCIN G AND IN VIEW OF THE SCHEME OF THE UNION GOVERNMENT WITH REGARD TO NORTH EASTERN STATE WHICH IS AKIN TO AND SIMILAR TO THE ONE IN THE CASE OF SHREE BALAJI ALLOYS(SUPRA) AND T HEREFORE, IN THE PRESENT CIRCUMSTANCES AND FACTS OF THE CASE, WE ARE BOUND BY THE DECISION OF SHREE BALAJI ALLOYS(SUPRA) AND THE ITA NO. 178/ASR/2013 51 SAID RECEIPTS ARE HELD TO BE CAPITAL RECEIPTS. THE ARGUMENT MADE BY THE LEARNED DR MENTIONED HEREIN ABOVE THEREFORE, CANNOT HELP TO TH E REVENUE. ACCORDINGLY GROUND NO. 8,9 & 10 OF THE ASSESSEE ARE ALLOWED. 21. AS REGARDS GROUND NO.11, THE ASSESSEE HAS S UBMITTED THE EXPLANATION THAT A SUM OF RS.24 LAC WAS PAID TO SMT. MEENA KUMARI PRADHAN FOR THE PURPOSES OF LAND WHICH WAS NOT MATERIALIZED WHICH HAS BEEN RETURNED BACK TO TH E ASSESSEE COMPANY AND WAS ALLOWABLE U/S.36(1)(III) OF THE ACT AND INTEREST WA S PAID ON CAPITAL BORROWED FOR PURCHASE OF SHARES WAS ALSO ALLOWABLE U/S 36(1)(III) OF THE ACT AND RELIANCE WAS PLACED ON THE DECISION OF ITAT, AMRITSAR IN THE CASE OF SMT. HAR BHAJAN KAUR, PROP. ITA NO.331/ASR/2012 ORDER DATED 06/12/2013 AND IN THE C ASE OF ASIAN INDUSTRIES DATE 2.9.2014 IN ITA NO. 588/ASR/2013. THE ASSESSEE HAS SUBMITTED THAT BOTH THE INVESTMENTS WERE MADE FOR THE BUSINESS PURPOSES AND THE ASSESSE E COMPANY HAD EARNED MORE THAN INVESTMENT MADE. IN THE CIRCUMSTANCES AND FACTS OF THE CASE, LEARNED CIT(A) IS NOT JUSTIFIED IN DISALLOWANCE OF INTEREST. ACCORDINGLY, GROUND NO.11 OF THE ASSESSEE IS ALLOWED. 22. AS REGARDS GROUND NO.12 &13 IS WITH RESPEC T TO THE CHARGING OF INTEREST U/S. 234B AND 234C OF THE ACT WHICH ARE CONSEQUENTIAL AND MAN DATORY IN NATURE. 23. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND JANUARY, 2015. SD/- SD/- (A.D. JAIN) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMB ER DATED: 02.01.2015 PK. PS ITA NO. 178/ASR/2013 52 COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE: M/S. LIDDLE MANUFACTURING PVT. LTD., 2. THE INCOME TAX OFFICER, WARD -1(4), KATHUA. 3. THE CIT(A), 4. THE CIT, 5. THE SR DR, I.T.A.T., TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.