ACIT, Pune V. M/s Kitchen Grace [ I ] P. Ltd, Pune

ITA 2219/PUN/2012

• Counselvise Citation: 221924514 RSA 2012
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-12-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 07-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE: SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 221 9 / P N/ 20 12 ASSESSMENT YEAR : 2009 - 10 THE ASST. COMMISSIONER OF INCOME TA X, CIRCLE - 11(1), PUNE VS. M/S. KITCHEN GRACE (INDIA) PVT. LTD., GAT NO. 116, ALANDI MARKAL ROAD, VILLAGE DHANORE, TAL - KHED, PUNE (APPELLANT) (RESPONDENT) PAN NO. AAACK6998G APPELLANT BY: SHRI S.P. WALIMBE RESPONDENT BY: SHRI NIKHIL PATHAK DATE OF HEARING : 05 - 12 - 2013 DATE OF PRONOUNCEMENT : 24 - 12 - 2013 ORDER P ER R.S. PADVEKAR , JM : - IN THIS APPEAL, THE REVENUE HAS CHALLENGED THE IMPUGNED ORDER OF THE LD. CIT(A) - I, PUNE DATED 25 - 09 - 2012 FOR THE A.Y. 2009 - 10. THE REVENUE HAS TAKEN THE MULT IPLE GROUNDS BUT GROUND NO S . 3, 4, 5 AND 6 ARE THE EFFECTIVE GROUNDS WHICH READ AS UNDER: 1. (3). THE LEARNED COMMISSIONER OF INCOME - TAX(APPEALS) GROSSLY ERRED IN DELETING THE DISALLOWANCE OF RS.38,12,047/ - MADE IN THE ASSESSMENT ON ACCOUNT OF DENIAL OF THE A SSESSEE'S CLAIM OF DEDUCTION U/S.80IB(3) OF THE INCOME - TAX ACT, 1961 INSTEAD OF CONFIRMING THE SAID DISALLOWANCE. 2. (4). THE LEARNED COMMISSIONER OF INCOME - TAX(APPEALS) GROSSLY ERRED IN FAILING TO APPRECIATE THAT THE ASSESSEE'S ACTIVITY OF MAKING RAW MATERIA LS SUCH AS PARTICLE BOARDS, MDF'S BOARD AND PLYWOOD INTO STORAGE CABINETS IS NOTHING BUT ASSEMBLING AND SUCH ACTIVITY CAN BY NO MEANS BE TREATED AS 'MANUFACTURE' AND, ON THE CONTRARY, IS MERELY IN THE NATURE OF THE WORKS CONTRACT. 2 ITA NO. 221 9 /PN/2012, M/S. KITCHEN GRACE (INDIA) PVT. LTD., PUNE 3. (5). THE LEARNED COMMISS IONER OF INCOME - TAX(APPEALS) GROSSLY ERRED IN FAILING TO APPRECIATE THAT THERE IS NO CHANGE OF THE RAW MATERIALS EITHER IN TERMS OF CHARACTER OR IN TERMS OF CHEMICAL COMPOSITION OR INTEGRAL STRUCTURE, AND THUS THE ASSESSEE'S ACTIVITY DOES NOT FALL WITHIN T HE DEFINITION OF 'MANUFACTURE' GIVEN IN SECTION 2(29BA) OF THE INCOME - TAX ACT, 1961. 4. (6). THE LEARNED COMMISSIONER OF INCOME - TAX(APPEALS) GROSSLY ERRED IN REFERRING TO THE DECISIONS RELIED UPON BY THE ASSESSEE FOR DECIDING THE APPEAL WITHOUT APPRECIATING T HAT THESE DECISIONS HAD BEEN RENDERED IN THE CONTEXT OF ASSESSMENT YEARS PRIOR TO 01.04.2009 WHEREAS THE DEFINITION OF MANUFACTURE U/S.2(29BA) WAS BROUGHT INTO THE STATUTE W.E.F. 01.04.2009. 2. THE BRIEFLY STATED FACTS ARE AS UNDER. THE ASSESSEE IS CLAIM ING THE DEDUCTION U/S. 80IB(10) IN RESPECT OF HIS UNIT IN WHICH THE ASSESSEE IS MAKING KITCHEN FURNITURE AND STORAGE CABINETS FOR WHICH THE RAW MATERIALS LIKE PLYWOOD, PARTICLE BOARDS AND MDFS ARE USED. THE ASSESSEE IS MAKING THE KITCHEN FURNITURE WHICH IS CALLED THE CUSTOMIZED AS PER CUSTOMERS REQUIREMENTS. AS EXPLAINED BY THE ASSESSEE THERE ARE FOLLOWING STAGES IN MAKING/MANUFACTURE STORAGE UNITS/CABINETS FROM WHICH THE TOTAL KITCHEN CABINETS ARE MADE. I . LAMINATING PLYWOOD/MDF/PARTICLE BOARD THESE ARE LAMINATED WITH HIGH PRESSURE LAMINATES (FORMICA/SUNMICA ETC.) WITH HYDRAULIC PRESS. II . CUTTING CUTTING IS DONE WITH SLIDING PANEL SAW TO ACHIEVE DESIRED SIZE AND ACCURATE RIGHT ANGLE. III . EDGEBANDING (LIPPING) THE EXPOSED EDGES AFTER CUTTING THE SHEETS, NEED TO BE SEALED WITH PVC OR WOOD EDGING (LIPPING), WHICH IS DONE ON AUTOMATIC EDGEBANDER. EDGEBANDER IS AUTOMATIC MACHINE, WHICH APPLIES EDGING IN PVC OR WOOD LIPPING. THIS IS DONE WITH BRAND MACHINE. 3 ITA NO. 221 9 /PN/2012, M/S. KITCHEN GRACE (INDIA) PVT. LTD., PUNE IV . DRILLING ALL COMPONENTS PREPARED ARE PREDRILLED BEFORE ASSEMBLY ON MULTIBORING MACHINE, WHICH DRILL VERTICAL AND HORIZONTAL AT THE SAME TIME TO MAINTAIN HIGH ACCURACY. V . ASSEMBLY THE COMPONENTS PREPARED ARE ASSEMBLED WITH SPECIAL KNOCK DOWN FITTINGS, AND INTERNAL HARDWARE. NORMALLY INST ALLATION IS DONE BY DEALERS OR CUSTOMERS. 3. THE ASSESSEE CLAIMED THE DEDUCTION U/S. 80IB(3) TO THE EXTENT OF RS.38,12,047/ - IN THE A.Y. 2009 - 10. THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE BY GIVING THE FOLLOWING REASON: THE ASSESSEE IS PU RCHASING THE RAW MATERIALS LIKE PLYWOOD, PARTICLE BOARDS AND MDF'S AND BASED ON THE FUNCTIONAL NEED OR REQUIREMENTS, THE ASSESSEE IS ASSEMBLING THE PURCHASED MATERIAL TO TRANSFORM IT INTO STORAGE CABINETS ETC. AND FOR THIS ASSESSEE IS ENGAGED IN LITTLE BIT OF CUTTING, DRILLING AND FITTING WHICH TAKES PLACE AT EVERY ASSEMBLING STAGE AT ANYWHERE WHICH DOES NOT AMOUNT TO THE TERM 'MANUFACTURE'. MOREOVER ASSESSEE'S ACTIVITY DOES NOT ATTRACT SECTION 2(29BA) OF THE I.T. ACT, 1961. THEREFORE, BASED ON THE CITED CA SE LAWS WHEREIN CUTTING, DRILLING AND FITTING DOES NOT AMOUNT TO MANUFACTURE RATHER WHAT ASSESSEE HAS FURNISHED DURING PROCEEDINGS IS NOTHING BUT 'WORKS CONTRACT'. TO EXAMINE THE EXACT NATURE OF MANUFACTURE ACTIVITY OF ASSESSEE,, HE WAS EVEN REQUESTED TO SUBMIT THE COPIES OF EXCISE &. VAT RETURNS, FILED FOR THE SAID ASSESSMENT YEAR, WHICH EVENTUALLY ASSESSEE FAILED TO SUBMIT. THEREFORE, I AM CONVINCED THAT ASSESSEE'S CLAIM OF 80IB(3) IS NOT TENABLE AND HENCE AMOUNT OF RS. 38,12,047/ - DISALLOWED AND ADDED B ACK TO THE TOTAL INCOME. 4. IN SUM AND SUBSTANCE , IN THE OPINION OF THE ASSESSING OFFICER IN VIEW OF THE NEW DEFINITION IN SEC. 2(29BA) OF THE INCOME - TAX ACT WHICH HAS BEEN BROUGHT ON S TATURE B OOK W.E.F. 01 - 04 - 2009 , THE ACTIVITY OF THE ASSESSEE DOES NOT AMOUNT TO MANUFACTURE BUT IT IS WORK CONTRACT. THE ASSESSEE CHALLENGED THE ACTION OF THE ASSESSING OFFICER BEFORE THE LD. CIT(A). IT WAS CONTENDED BY THE ASSESSEE BEFORE THE LD. CIT(A) THAT IT IS ENGAGED IN THE MANUFACTURING OF KITCHEN FURNITURE AND HOU SEHOLD 4 ITA NO. 221 9 /PN/2012, M/S. KITCHEN GRACE (INDIA) PVT. LTD., PUNE FURNITURE. THE ASSESSEE IS SPECIALIZED IN MANUFACTURING MODULAR KITCHEN FURNITURE AND STORAGE CABINETS. THE ASSESSEE ALSO EXPLAINED ITS ACTIVITY HOW IT IS COVERED U/S. 2(29BA) WHICH IS A DEFINITION OF THE TERM MANUFACTURE WHICH WILL BE APPLICABLE IN THE A.Y. 2009 - 10. IT WAS CONTENDED BY THE ASSESSEE THAT THE ASSESSEES RAW MATERIAL S ARE IN THE FORM OF PLYWOOD, PARTICLE BOARDS AND MDFS ETC. AND THE FINAL FURNISH PRODUCT IS KITCHEN CABINETS. IT WAS CONTENDED THAT THE RAW MATERIAL LIKE PLYWOOD, PAR TICLE BOARDS AND MDFS ARE DIFFERENT THAN THE FINAL PRODUCT OF THE ASSESSEE. THE ASSESSEE IS FURTHER CONTENDED THAT THE ASSESSEES REQUIREMENT TO CARRY OUT VARIOUS STEPS LIKE LAMINATING, CUTTING, EDGEBANDING, DRILLING, ASSEMBLY ETC. AND THE SAID PROCESS INVOLVED IN USE OF SPECIALIZED MACHINERY AND ALL THOSE ACTIVITIES RESULTED INTO MANUFACTURING OF TOTALLY DIFFERENT ARTICLE. THE ASSESSEE ALSO RELIED ON THE FOLLOWING DECISIONS (I) ORACLE SOFTWARE INDIA LTD. 320 ITR 546 (SC) AND (II) EMPTEE POLY - YARN (P) LTD. 320 ITR 665 (SC). THE ASSESSEE ALSO CONTENDED THAT IN THE PRECEDING YEARS THE ASSESSEES CLAIMED HAS BEEN CONSISTENTLY ALLOWED FROM THE A.Y. 2002 - 03 ONWARDS AND A.Y. 2009 - 10 IS THE LAST YEAR IN WHICH THE ASSESSING OFFICER HAS REJECTED THE CLAIM OF T HE ASSESSEE. THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY HOLDING THAT WHATEVER IS MADE BY THE ASSESSEE AMOUNT S TO MANUFACTURE AND EVEN THE ACTIVITY OF THE ASSESSEE IS COVERED IN THE DEFINITION U/S. 2(29BA) OF THE INCOME - TAX ACT AND THE CONDITIONS SPECIFIED IN THE SAID PROVISION S ARE MADE IN THE ASSESSEES OWN CASE. H E, ACCORDINGLY, ALLOW ED THE CLAIM OF THE ASSESSEE. NOW THE REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THE PARLIAMENT HAS INSERTED THE DEF INITION OF THE TERM M ANUFACTURE IN THE INCOME - TAX ACT BY INSERTING SUB - SEC. ( 29BA ) TO SEC. 2 WHICH READS AS UNDER: MANUFACTURE, WITH ITS GRAMMATICAL VARIATIONS, MEANS A CHANGE IN A NON - LIVING PHYSICAL OBJECT OR ARTICLE OR THING, - 5 ITA NO. 221 9 /PN/2012, M/S. KITCHEN GRACE (INDIA) PVT. LTD., PUNE (A) RESULTING IN TRANSFOR MATION OF THE OBJECT OR ARTICLE OR THING INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFERENT NAME, CHARACTER AND USE; OR (B) BRINGING INTO EXISTENCE OF A NEW AND DISTINCT OBJECT OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSITION OR INT EGRAL STRUCTURE; 6. THE SAID DEFINITION IS BROUGHT ON STATUTE BOOK BY THE FINANCE (NO. 2) A CT, 2009 W.E.F. 01 - 04 - 2009. NOW THE QUESTION IS WHETHER THE ACTIVITY OF MAKING THE MODULAR KITCHEN AND STORAGE CABINETS AMOUNT TO MANUFACTURE ? SEC. 80IB(3) REFER S THE EXPRESSION S MANUFACTURE OR PRODUCE AND NOT ALONE MANUFACTURE . 7. IN THIS CASE AS PER THE FACTS ON RECORD , IT IS NOT DISPUTED THAT THE ASSESSEE IS USING THE RAW MATERIAL S LIKE PLYWOOD, PARTICLE BOARDS AND MDFS ETC. AND THERE ARE DIFFERENT PROCES S ES LIKE LAMINATI ON OF SHEETS, C UTTING, EDGEB O NDING, DRILLING, ASSEMBLY ETC. E VEN IF WE PUT THE ACTIVITY OF THE ASSESSEE TO TEST LAID DOWN IN THE NEWLY INSERTED DEFINITION IN THE MANUFACTURE IN SEC. 2(29BA) , I T CAN BE EASILY INFER THAT THE FINAL PRODUCT S I.E. THE KITCHEN CABINETS AND KITCHEN STORAGE ARE THE NEW AND DISTINCT ARTICLE S HAVING DIFFERENT NAME, CHARACTER AND USE FROM THAT OF PLYWOOD, PARTICLE BOARDS AND MDFS ETC. WHICH ARE THE BASIC RAW MATERIAL S FOR MAKING THE MODULAR KITCHEN CABINETS BY THE A SSESSEE. 8. WE ALSO FIND THAT IN SEC. 80IB (2) & (3) THE EXPRESSION M ANUFACTURE IS NOT ONLY USE BUT TERM PRODUCE IS ALSO USE. THE TERM PRODUCTION IS MUCH WIDER THAN THE MANUFACTURING ACTIVITY. THE ASSESSEE HAS ALSO FILED THE B ROCHURE OF ITS PRO DUCT S IN THE COMPILATION FROM PAGE NOS. 71 TO 90. WE HAVE EXAMINED THE PHOTOGRAPHS AND IT CANNOT BE SAID THAT THE PRODUCT S OR ARTICLE S MADE BY THE ASSESSEE HAS RETAINED THE CHARACTER AND FORM OF THE PLYWOOD, PARTICLE BOARDS AND MDFS ETC. IN OUR OPINION THE ACTIVITY OF THE ASSESSEE MA KING OF MODULAR KITCHEN S AND KITCHEN CABINETS AMOUNT TO MANUFACTUR E A ND THE LD. 6 ITA NO. 221 9 /PN/2012, M/S. KITCHEN GRACE (INDIA) PVT. LTD., PUNE CIT(A) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. IN OUR OPINION, NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE LD. CIT(A). ACCORDINGLY , ALL THE GROUNDS TAKEN BY THE REVENUE ARE DISMISSED. 9. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 24 - 12 - 20 1 3 SD/ - SD/ - ( R.K. PANDA ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER RK /PS PUNE , DATED : 24 TH DECEMBER, 20 1 3 COPY TO 1 DEPARTMENT 2 ASSESSEE 3 THE CIT(A) - I, PUNE 4 THE CIT ( - I, PUNE 5 THE DR, ITAT, B BENCH, PUNE . 6 GUARD FILE. //TRUE COPY// BY ORDER PRIVATE SECRETARY I NCOME TAX APPELLATE TRIBUNAL , PUNE