Subhalachal Print & Pack, Ahmedabad V. The ACIT., Circle-10, Ahmedabad

ITA 2128/AHD/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1747 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 08-12-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 18-05-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJEEV AGARWAL
• Keywords: Deemed dividend
• Section: 271(1)(c); 2(22)(e); 234B; 80IB; 80IA; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD A BENCH (BEFORE DR.O.K. NARAYANAN, VICE-PRESIDENT AND SHRI BHAVNESH SAINI, JUDICIAL MEMBER) ITA NO.2128/AHD/2007 [ASSTT.YEAR: 2003-2004] M/S.SUBHALACHAL PRINT & PACK, 1, UPNISHAD COMPLEX NR.SHREYAS RAILWAY CROSSING AMBAWADI, AHMEDABAD. VS. ACIT, CIR.10 AHMEDABAD. ITA NO.425, 426, 427, 428 AND 1104/AHD/2009 [ASSTT.YEARS: 2000-2001, 2001-2002, 2002-2003, 2004 -2005 AND 2005- 2006] M/S.SUBHALACHAL PRINT & PACK, 1, UPNISHAD COMPLEX AMBAWADI, AHMEDABAD. VS. JCIT, RANGE-10 AHMEDABAD. ASSESSEE BY : SHRI SAURABH N. SOPARKAR WITH SHRI TUSHAR HEMANI REVENUE BY : SHRI RAJEEV AGARWAL DATE OF ORDER RESERVED : 08-12-2009 O R D E R PER DR.O.K. NARAYANAN, VICE-PRESIDENT : THIS IS A BUNCH OF SIX APPEALS ALL FILED BY THE ASSESSEE. THE RELE VANT ASSESSMENT YEARS ARE 2000-2001, 2001-2002, 2002-2003, 2003-2004, 2004-20 05 AND 2005- 2006. AS THE PRINCIPAL ISSUE INVOLVED IN ALL THESE APPEALS IS ONE AND SAME, RELATING TO THE BENEFITS AVAILABLE UNDER SECT ION 80IB(4) OF THE INCOME TAX ACT, 1961, THESE APPEALS ARE HEARD AND D ISPOSED THROUGH THIS COMMON ORDER. PAGE - 2 M/S.SUBHALACHAL PRINT & PACK VS. ACIT (6 APPEALS) -2- 2. THE PRINCIPAL ISSUE RAISED IN ALL THESE APPEALS AND COMMON TO ALL THE ASSESSMENT YEARS IS THE CLAIM OF DEDUCTION MADE BY THE ASSESSEE UNDER SECTION 80IB OF THE INCOME TAX ACT, 1961. 3. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN TH E BUSINESS OF MANUFACTURE AND SALE OF SILTING OF PRINTED/LAMINATE D PAPER AND BOARDS. THE ASSESSEE HAS SET UP ITS MANUFACTURING UNIT AT S ILVASSA, WHICH IS A NOTIFIED BACKWARD AREA FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80IB(4). THE DEDUCTION CLAIMED BY THE ASSESSEE-FIR M UNDER SECTION 80IB(4) WAS REJECTED BY THE AO ON THE GROUND THAT T HE NEW UNIT HAS BEEN SET UP BY RECONSTITUTING/SPLITTING UP OF EXISTING U NIT; THAT A PORTION OF THE PROCESS IS CARRIED ON BY THE JOB WORKERS; THAT NO M ANUFACTURING ACTIVITIES HAVE BEEN CARRIED OUT AS SUCH AND THAT THE NUMBER E MPLOYEES ARE LESS THAN TEN. IN FIRST APPEAL, EVEN THOUGH THE CIT(A) HAS DISPROVED THE FINDING OF THE ASSESSING AUTHORITY THAT THE NUMBER OF EMPLOYEES ARE LESS THAN TEN, HE HAS UPHELD THE DENIAL OF DEDUCTION UND ER SECTION 80IB(4) ON THE REMAINING GROUNDS. 4. WE CONSIDERED THIS ISSUE. THE ASSESSEE IS MANUF ACTURING SMALL REELS OF MAPLITHO PAPER (STIFFNER), LDPE GRANULES, POLYESTER/BOPP FILM, WHICH ARE PRINTED AND LAMINATED OF DIFFERENT SIZES AND DIMENSIONS. IN THE MANUFACTURING PROCESS EMPLOYED BY THE ASSESSEE, THE POLYCOATED/POLYESTER MAPLITHO, POLYESTER FILM ETC. GOT CONVERTED INTO WRAPPERS USED FOR PACKING OF TOILET SOAPS AND ARE U SED AS INNER PACKING. THE ASSESSEE PURCHASES MAPLITHO PAPER, POLY GRANULE S, POLYESTER FILM ETC AND DELIVER THESE MATERIALS TO JOB WORKERS WHO CARR Y OUT THE PROCESS OF LAMINATION WORK. THE LAMINATION WORK IS CARRIED OU T BY THE JOB WORKERS PAGE - 3 M/S.SUBHALACHAL PRINT & PACK VS. ACIT (6 APPEALS) -3- UNDER THE SUPERVISION OF THE QUALITY CONTROL STAFF OF THE ASSESSEE. AFTER COMPLETING THE PROCESS, THE JOB WORKERS DISPATCH TH E POLY-COATED LAMINATED PAPERS AND SIMILAR ITEMS FOR PRINTING AT SILVASSA FACTORY. AFTER PRINTING, THE ASSESSEE CONVERTS THESE ROLLS INTO SM ALL REELS WITH THE HELP OF SLITTING MACHINE. THE SLITTING IS DONE MECHANICALL Y AND THE DOCTORING ACTIVITIES DONE MANUALLY FOR FINE FINISH. IN THE P ROCESS, CERTAIN REELS NOT PROPERLY SLITTED ARE REJECTED AND THE MATERIALS ARE SENT TO PACKING SECTION FOR PACKING AND LABELING AFTER REWINDING. AFTER PA CKING AND LABELING, THE REELS ARE DISPATCHED TO THE END CUSTOMERS. 5. IN FACT THE ASSESSEE HAS COMMENCED ITS COMMERCIA L PRODUCTION W.E.F. 30 TH JUNE, 1999. THEREFORE, THE ASSESSEE CLAIMED THE D EDUCTION UNDER SECTION 80IB(4) FOR THE FIRST TIME FOR THE AS SESSMENT YEAR 2000- 2001. 6. THE ASSESSEE FIRM HAS BEEN RECOGNIZED AS A MANUF ACTURING UNIT BY THE SALES TAX DEPARTMENT AS WELL AS BY THE CENTRAL EXCISE DEPARTMENT. THE INDUSTRIES DEPARTMENT ALSO HAS RECOGNIZED THE A SSESSEE AS A SMALL SCALE INDUSTRIAL UNIT ENGAGED IN THE MANUFACTURING ACTIVITY. IN A RECENT JUDGMENT, THE HONBLE SUPREME COURT IN THE CASE OF ITO, UDAIPUR VS. M/S.ARIHANT TILES & MARBLES P.LTD. IN CIVIL APPEAL NOS.8037 TO 8044 OF 2009 DELIVERED ON DECEMBER 2, 2009 HAS HELD, IN SIM ILAR CIRCUMSTANCES, AS FOLLOWS: . BEFORE CONCLUDING, WE WOULD LIKE TO MAKE ON OBSER VATION. IF THE CONTENTION OF THE DEPARTMENT IS TO BE ACCEPTED, NAMELY THAT THE ACTIVITY UNDERTAKEN BY THE RESPONDENTS HEREIN IS NO T A MANUFACTURE, THEN, IT WOULD HAVE SERIOUS REVENUE CONSEQUENCES. AS STATED PAGE - 4 M/S.SUBHALACHAL PRINT & PACK VS. ACIT (6 APPEALS) -4- ABOVE, EACH OF THE RESPONDENTS IS PAYING EXCISE DUT Y, SOME OF THE RESPONDENTS ARE JOB WORKERS AND THE ACTIVITY UNDERT AKEN BY THEM HAS BEEN RECOGNIZED BY VARIOUS GOVERNMENT AUTHORITI ES AS MANUFACTURE. TO SAY THAT THE ACTIVITY WILL NOT AMO UNT TO MANUFACTURE OR PRODUCTION UNDER SECTION 80IA WILL H AVE DISASTROUS CONSEQUENCES, PARTICULARLY IN VIEW OF THE FACT THAT THE ASSESSEES IN ALL THE CASES WOULD PLEAD THAT THEY WERE NOT LIABLE TO PAY EXCISE DUTY, SALES TAX ETC. BECAUSE THE ACTIVITY DID NOT C ONSTITUTE MANUFACTURE. KEEPING IN MIND THE ABOVE FACTORS, WE ARE OF THE VIEW THAT IN THE PRESENT CASES, THE ACTIVITY UNDERT AKEN BY EACH OF THE RESPONDENTS CONSTITUTES MANUFACTURE OR PRODUCTI ON AND, THEREFORE, THEY WOULD BE ENTITLED TO THE BENEFIT OF SECTION 80IA OF THE INCOME TAX ACT, 1961. 7. WHEN WE CONSIDER THE NARROW APPROACH ADOPTED BY THE LOWER AUTHORITIES IN DECIDING THE ISSUE WHETHER THE ASSES SEE IS CARRYING ON MANUFACTURING ACTIVITY OR NOT, IT IS VERY NECESSARY TO BEAR IN MIND THE ABOVE MENTIONED CONCERN EXPRESSED BY THEIR LORDSHIP S OF THE SUPREME COURT. THE ASSESSEE FIRM HAS ESTABLISHED A NEW UNI T TO MANUFACTURE SLITTED PACKING REELS NECESSARY FOR THE SAID UNIT. THE ASSESSEE HAS ERECTED PLANT AND MACHINERY. THE ASSESSEE IS CARRYING ON A NUMBER OF MANUFACTURING OR CONVERSION PROCESSES EITHER DIRECT LY OR THROUGH JOB WORKERS. IT IS NOT NECESSARY THAT THE ASSESSEE ITS ELF SHOULD CARRY OUT ALL THE STAGES OF MANUFACTURING PROCESS. OUTSOURCING O F CERTAIN PROCESSES IS PERMISSIBLE IN LAW AS HELD BY VARIOUS COURTS. THE ARGUMENTS OF THE REVENUE THAT THE ACTIVITIES OF THE ASSESSEE DO NOT AMOUNT TO MANUFACTURING ACTIVITIES AS ASSESSEE IS ONLY SLITTI NG OR CUTTING OF PAPER ROLLS INTO SMALLER REELS. IN FACT THE ASSESSEE IS GETTING THE SHEETS PRINTED/LAMINATED UPTO THE REQUIRED MARK AND THEREA FTER GETS INTO SMALL REELS AND RE-PACK IT FOR FINAL DISPATCH. THE ACTIV ITY OF SLITTING ITSELF PAGE - 5 M/S.SUBHALACHAL PRINT & PACK VS. ACIT (6 APPEALS) -5- INVOLVES DIFFERENT PROCESSES BY WHICH THE CHARACTER OF THE MATERIAL IS TRANSFORMED INTO A DIFFERENT NATURE. THE FACT THAT THE ASSESSEE IS OUTSOURCING CERTAIN PROCESSING ACTIVITIES DOES NOT DISQUALIFY THE ASSESSEE TO BE PLACED IN THE STATUS OF A MANUFACTURER. IN C IT VS. ORICON, 151 ITR 296 AND CIT VS. PENWALT, 196 ITR 813, IT WAS HELD T HAT A PROCESSOR OF GOODS NEED NOT HIMSELF CARRY OUT ALL THE PROCESSES RESULTING IN THE END PRODUCT AND HE MAY GET SOME OF THEM DONE BY A THIRD PARTY. WHEN WE CONSIDERED ALL THESE ACTIVITIES CARRIED OUT BY THE ASSESSEE, IN THE LIGHT OF THE ABOVE OBSERVATIONS OF THE HONBLE SUPREME COURT , IN THE CASE OF M/S. ARIHANT TEXTILES PVT. LTD., WE ARE OF THE VIEW THAT THE ACTIVITY CARRIED ON BY THE ELIGIBLE UNIT OF THE ASSESSEE IS A MANUFACTU RING ACTIVITY AND THE ASSESSEE IS ELIGIBLE FOR THE DEDUCTION CONTEMPLATED UNDER SECTION 80IB(4) AS FAR AS THAT RELEVANT INCOME IS CONCERNED. 8. THEREFORE, WE DECIDE THE ISSUE OF EXEMPTION UNDE R SECTION 80IB IN FAVOUR OF THE ASSESSEE AND DIRECT THE AO TO GRANT T HE DEDUCTION IN ACCORDANCE WITH THE LAW. 9. FOR THE ASSESSMENT YEAR 2005-2006, THE ASSESSEE HAS RAISED ANOTHER GROUND AGAINST THE ORDER OF THE LOWER AUTHORITIES, TREATING THE AMOUNT RECEIVED BY THE ASSESSEE FROM M/S.VIMALCHAL PRINT & PACK PVT. LTD. AS DEEMED DIVIDEND INCOME UNDER SECTION 2(22)(E) OF TH E I.T.ACT. THE FINDING HAS BEEN ARRIVED AT BY THE LOWER AUTHORITIE S ON THE GROUND THAT M/S.VIMALCHAL PRINT & PACK PVT. LTD., IS A PRIVATE LIMITED COMPANY WHERE TWO PARTNERS OF THE ASSESSEE FIRM, VIZ. SHRI GIRISH V. SHAH & HARMISH G. SHAH ALONG WITH THEIR HUFS HOLD MORE THA N 10% OF VOTING POWER EACH IN THE COMPANY, M/S.VIMALCHAL PRINT & PA CK PVT. LTD. PAGE - 6 M/S.SUBHALACHAL PRINT & PACK VS. ACIT (6 APPEALS) -6- 10. IN THIS CONTEXT, WE HAVE TO SEE THAT THE QUALIF YING INTEREST HAS BEEN COMPUTED BY THE ASSESSING AUTHORITY AFTER CLUBBING THE PERSONAL INTEREST OF THE PARTNERS AND INTEREST OF THE HUFS., TOGETHER . IN A RECENT ORDER OF THE ITAT, A BENCH IN THE CASE OF HETU CONSTRUCTIO N PVT. LTD. VS. DCIT, IN ITA NO.114/AHD/2008 DATED 31-7-2008 HAS HE LD THAT SECTION 2(22)(E) CANNOT BE INVOKED AFTER CLUBBING THE VOTIN G RIGHTS OF PARTNERS AND THEIR HUFS., TOGETHER FOR THE REASON THAT THE P ARTNERS AND HUFS. ARE DIFFERENT ENTITIES FOR THE PURPOSE OF INCOME-TAX. THE ABOVE VIEW OF THE TRIBUNAL FINDS SUPPORT FROM THE DECISIONS OF THE TR IBUNAL IN THE CASE OF ITO VS. S.S.BARODAWAL, 4 ITD 186 (BOM), MRS., MINNI E R. CAM VS. ITO, 17 ITD 139 (AHD), SMT.GUNVANTI R. MEHTA VS. IT O, 45 ITD 382 (BOM). THE HONBLE SUPREME COURT HAS ALSO EXPRESSE D SIMILAR VIEW IN THE CASE OF RAMESHWARLAL SANWARMAL VS. CIT, 122 ITR 1 AND CIT VS. C.P.SARATHY MUDALIAR, 83 ITR 120. IN THE LIGHT OF THE ABOVE ORDERS AND JUDGMENTS, WE FIND THAT THE ASSESSING AUTHORITY IS NOT JUSTIFIED IN TREATING THE AMOUNT RECEIVED BY THE ASSESSEE-FIRM AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT AND THEREFORE THE SAID ADDITION IS DELETED. 11. THE ASSESSEE HAS ALSO RAISED GROUNDS RELATING T O REOPENING OF THE ASSESSMENTS UNDER SECTION 147 FOR THE ASSESSMENT YE ARS 2000-2001 AND 2001-2002. AS THE ISSUES HAVE BEEN DECIDED ON MERI TS, THE GROUNDS RELATING TO REOPENING HAVE BECOME REDUNDANT. THERE ARE NOT ADJUDICATED. 12. THE ASSESSEE HAS FURTHER RAISED GROUNDS FOR THE ASSESSMENT YEAR 2005-2006 RELATING TO THE LEVY OF INTEREST UNDER SE CTIONS 234A, 234B AND 234C OF THE ACT. THESE ARE ONLY CONSEQUENTIAL IN N ATURE, WHICH DO NOT CALL FOR ADJUDICATION. THE ASSESSEE HAS RAISED ANO THER GROUND FOR PAGE - 7 M/S.SUBHALACHAL PRINT & PACK VS. ACIT (6 APPEALS) -7- A.Y.2005-2006 AGAINST THE PROPOSAL TO LEVY PENALTY UNDER SECTION 271(1)(C) OF THE ACT. WE WILL ONLY SAY THAT THE SA ID GROUND IS PREMATURE. 13. IN RESULT, THESE APPEALS FILED BY THE ASSESSEE ARE TREATED AS ALLOWED ON THE MERITS OF THE ISSUES. ORDER PRONOUNCED ON WEDNESDAY, THIS 16 TH DAY OF DECEMBER, 2009. SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (DR.O.K. NARAYANAN) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 16-12-2009 COPY OF THE ORDER FORWARDED TO: 1) : ASSESSEE 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR, ITAT, AHMEDABAD