The ACIT,B.K.Circle, Palanpur V. M/s. Accura Bikes Pvt.Ltd., Dehradun

ITA 2513/AHD/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1218 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 21-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 07-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Assessee Lawyers: A P SANDESARA
• Keywords: Question of law

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA.NO.2513/AHD/2011 / ASSTT. YEAR: 2008-2009 ACIT, B.K. CIRCLE PALANPUR. VS M/S.ACCURA BIKES PVT. LTD. E-7/3, USIDC INDUSTRIAL AREA SELAKUI, DEHRADUN PAN : AAMFA 7121 Q. ! / (APPELLANT) '# ! / (RESPONDENT) REVENUE BY : SHRI DINESH SINGH, SR.DR ASSESSEE BY : SHRI A.P. SANDESARA / DATE OF HEARING : 21/06/2016 / DATE OF PRONOUNCEMENT: 04/07/2016 $%/ O R D E R REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST TH E ORDER OF THE LD.CIT(A)- XX, AHMEDABAD DATED 8.7.2011 PASSED FOR THE ASSTT.Y EAR 2008-09. 2. THOUGH THE REVENUE HAS TAKEN THREE GROUNDS OF AP PEAL, BUT ITS GRIEVANCE REVOLVES AROUND SINGLE ISSUE WHEREBY IT HAS PLEADED THAT LD.CIT(A) HAS ERRED IN ALLOWING DEDUCTION OF RS.44,94,463/- UNDER SECTION 80IC OF THE INCOME TAX ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ON 20.9.2008 DECLARING TOTAL INCOME AT RS.2,00,211/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE UNDER S ECTION 143(2) OF THE ACT WAS ISSUED AND SERVED UPON THE ASSESSEE. ON SCRUTINY O F THE ACCOUNTS, IT REVEALED TO THE AO THAT THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SE CTION 80IC(2)(A) OF THE ACT OF RS.44,94,462/-. IN SUPPORT OF ITS CLAIM, THE ASSE SSEE HAS FILED A REPORT IN FORM NO.10CCB. THE ASSESSEE-COMPANY WAS MANUFACTURING E LECTRIC BIKE AT THE RELEVANT TIME. THE LD.AO HAS DISALLOWED CLAIM OF THE ASSESS EE ON GROUND THAT THE ASSESSEE- ITA NO.2513/AHD/2011 2 COMPANY WAS NOT MANUFACTURING ELECTRIC BIKE, RATHER , IT WAS ASSEMBLING PARTS PROCURED FROM CHINA. THUS, IN THE OPINION OF THE A O, ASSEMBLING OF THE PART DOES NOT AMOUNT TO MANUFACTURING OF AND/OR PRODUCTION OF ANY PRODUCTS. APART FROM THIS OBJECTION, THE LD.AO FURTHER DOUBTED THE CAPACITY O F THE ASSESSEE TO MANUFACTURE BIKE ON THE GROUND THAT PLANT AND MACHINERY OF RS.8 ,52,348/- ONLY WAS INSTALLED BY THE ASSESSEE, WHICH COULD NOT GENERATE A SALE TURNO VER OF RS.3,53,78,640/-. THE AO HAS OBSERVED THAT OUT OF THE TOTAL VALUE OF PLANT A ND MACHINERY, A CONVEYOR BELT WITH SYSTEM WAS HAVING VALUE OF RS.5,61,242/-. IN OTHER WORDS, REFERENCE TO THE DETAILS OF THIS VALUE WAS MADE WITH INTENTION TO DEMONSTRAT E THAT TURNOVER OF THIS MAGNITUDE CANNOT BE ACHIEVED BY UTILIZATION OF SMALL PLANT & MACHINERY. THE AO, THEREAFTER, OBSERVED THAT THE ASSESSEE FAILED TO GIVE DETAILS W ORKERS. ACCORDINGLY, HE DISALLOWED THE CLAIM OF THE ASSESSEE. 4. ON APPEAL, THE LD.CIT(A) HAS ALLOWED THE CLAIM O F THE ASSESSEE BY OBSERVING AS UNDER: 4.3 APPELLANT COMPANY IS HAVING ITS PRINCIPAL PLAC E OF BUSINESS AT BRAHMPURI BUILDING, S.T. ROAD, PALANPUR, GUJARAT. I TS FACTORY IS LOCATED IN DEHRADUN. DURING THE YEAR UNDER CONSIDERATION, IT C LAIMED DEDUCTION U/S.80- IC OF RS.46,94,674/-. THIS CLAIM WAS DENIED BY THE AO ON THE GROUND THAT APPELLANT IS NOT ENGAGED IN PRODUCTION OR MANUFACTU RE. 4.3(I) THE CONTENTIONS OF THE LEARNED AR IN BRIEF A RE AS FOLLOW. APPELLANT COMMENCED ITS ACTIVITY ON 27-11-2006. IT IS MANUFAC TURING ELECTRIC BIKES. IT REGISTERED ITS BRAND, DESIGN AND PATENTS WITH THE C ONTROLLER GENERAL OF PATENTS, DESIGN AND TRADEMARKS. IT IS REGISTERED AS MANUFACTURING UNIT WITH COMMERCIAL TAX OFFICE AND DISTRICT INDUSTRIES CENTE R. IT IMPORTS SPARE-PARTS OF ELECTRONIC BIKES FROM CHINA IN COMPLETELY KNOCKE D DOWN (CKD) CONDITION. IT ASSEMBLES THE PARTS AT ITS FACTORY WITH THE HELP OF MACHINERY. PRODUCTS OF THE COMPANY, I.E. ELECTRIC BIKES ARE FALLING UNDER CHAPTER 87(ENTRY NO. 119091) OF CENTRAL EXCISE DUTY AND TARIFF. IT ENJOY S EXEMPTION FROM EXCISE DUTY BY VIRTUE OF NOTIFICATION NO.50/2003 CE DT. 10 -6-2003. IT WAS FILING EXCISE RETURNS CONTAINING MONTHLY INFORMATION (REGA RDING THE VALUE OF PRODUCTION AND AMOUNT OF EXCISE DUTY EXEMPTION CLAI MED) WITH THE CENTRAL EXCISE DEPARTMENT. IT PROCURES THE CHASIS FROM CHIN A IN CKD CONDITION AS PER THE DESIGN PROVIDED BY IT WITH ITS LOGO. FRONT SHOCKERS, TYRES & TUBES, NUTS, BOLTS AND SCREWS ARE PROCURED IN INDIA. AFTER WELDING AND ASSEMBLING THE BIKE, ACCESSORIES ARE FITTED. THE RESULTANT PRO DUCT IS COMMERCIALLY DISTINCT. THE ACTIVITY SQUARELY FALLS UNDER SECTION 2(29BA)(A) (WHICH DEFINES ITA NO.2513/AHD/2011 3 MANUFACTURE) INSERTED W.E.F. 01-04-2009. DURING THE COURSE OF HEARING, THE LEARNED AR RELIED ON THE CASES OF CIT VS. CHIRANJEE VI WIND ENERGY LTD. (333 ITR 192)(MAD.)(2011) AND CIT VS. MAHESH CHANDRA SHA RMA (3.08 ITR 222)(P&H). 4.3(II) HAVING CONSIDERED THE FACTS OF THE CASE, I AM INCLINED TO ACCEPT THE CONTENTIONS OF THE APPELLANT. THE DESIGN OF THE BIK ES WAS REGISTERED WITH THE PATENT OFFICE VIDE THE 'CERTIFICATE OF REGISTRATION OF DESIGN' DT. 10-09-2007. 'ELECTRIC BIKES' ARE EXCISABLE, BUT FOR THE EXEMPTI ON GIVEN BY NOTIFICATION NO.50 DT. 10-06-2003. APPELLANT IS FILING EXCISE RE TURNS MONTHLY. IN THE CASE CITED AT 308 ITR 222(RELIED ON BY THE AR), PUNJAB & HARYANA HIGH COURT HELD THAT -'MOTORCYCLE WHEEL ASSEMBLED BY ASSESSEE BY USING RIM, TUBE, TYRE, BEARING, DRUM, SPOKE, NIPPLE AND COLLAR RESULTED IN AN ARTICLE DISTINCT IN NAME, CHARACTER AND USE HENCE 'MANUFACTURE' ELIGIBL E FOR DEDUCTION UNDER S.80-IB; FINDING ARRIVED AT BY TRIBUNAL IS A FINDIN G OF FACT NOT GIVING RISE TO ANY SUBSTANTIAL QUESTION OF LAW.' IN THE CASE CITED AT 333 ITR 192 (RELIED ON BY THE AR), MADRAS HIGH COURT UPHELD THE TRIBUNAL'S ORDER (WHICH IN TURN REFERRED TO VARIOUS LATEST CASE- LAWS CITED AT 308 ITR 98(SC); 314 ITR 309(SC); 321 ITR 431(P&H), BY OBSERVING THAT- 'APPLYING THE ABOVE TEST TO THE CASE ON HAND, THE D IFFERENT PARTS PROCURED BY THE RESPONDENT ASSESSEE BY THEMSELVES CANNOT, BE TREATED AS A WIND MILL. THOSE DIFFERENT PAERTS BEAR DISTINCTIVE NAMES AND W HEN ASSEMBLED TOGETHER, THEREAFTER IT GETS TRANSFORMED INTO AN ULTIMATE PRO DUCT WHICH IS COMMERCIALLY KNOWN AS A 'WIND MILL'. THERE CAN, THEREFORE, BE NO DIFFICULTY IN HOLDING THAT SUCH AN ACTIVITY CARRIED ON BY THE RESPONDENT- ASSE SSEE WOULD AMOUNT TO 'MANUFACTURE' AS WELL AS 'PRODUCTION: OF A THING OR ARTICLE AS SET OUT IN SECTION 80IB(2)(III) OF THE INCOME-TAX ACT. IN SUCH CIRCUMSTANCES, THE CONCLUSION OF THE TRIBUNAL IN ACCEPTING THE PLEA OF THE RESPONDENT ASSESSEE CANNOT BE FOUND FAULT WITH. WE, THEREFORE, DO NOT F IND ANY QUESTION OF LAW, MUCH LESS SUBSTANTIAL QUESTION OF LAW, TO ENTERTAIN THIS APPEAL. 4.3(III) IN VIEW OF THE ABOVE DISCUSSION, I HOLD THAT THE ACTIVITY OF THE APPELLANT IS ONE OF MANUFACTURE OR PRODUCTION. DEN IAL OF DEDUCTION U/S.80- IC IS NOT IN ACCORDANCE WITH LAW. AO IS DIRECTED T O ALLOW THE DEDUCTION. THIS GROUND OF APPEAL IS ALLOWED. 5. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, I HAVE GONE THROUGH THE RECORD CAREFULLY. THE DISPUTE IS WHETHER ASSEMBLING OF PA RTS FOR BRINGING INTO EXISTENCE AN ELECTRIC BIKE AMOUNTS TO MANUFACTURING OR NOT. THE EXPRESSION 'MANUFACTURE' HAS BEEN DEFINED IN SECTION 2(29)(B)(A) WHICH READ AS U NDER: ITA NO.2513/AHD/2011 4 '(29BA) 'MANUFACTURE', WITH ITS GRAMMATICAL VARIATI ONS, MEANS A CHANGE IN A NON-LIVING PHYSICAL OBJECT OR ARTICLE OR THING,- (A) RESULTING IN TRANSFORMATION OF THE OBJECT OR AR TICLE OR THING INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFER ENT NAME, CHARACTER AND USE; OR (B) BRINGING INTO EXISTENCE OF A NEW AND DISTINCT O BJECT OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSITION OR INTEGRAL S TRUCTURE'. 6. HOWEVER, EXPRESSION 'PRODUCTION' HAS NOT BEEN DE FINED IN THE ACT. THE EXPRESSION 'MANUFACTURE' AS WELL AS PRODUCTION HAVE FALLEN FOR THEIR INTERPRETATION AND CONSTRUCTION NOT ONLY AT THE LEVEL OF ITAT BUT BEFORE THE HON'BLE SUPREME COURT ALSO AND THE HON'BLE COURT HAS EXPLAINED BOTH THESE EXPRESSIONS IN DETAIL. A REFERENCE TO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. M/S. ARIHANT TILES & MARBLES PVT. LTD. REPORTED IN 320 I TR 79, INDIA CINE AGENCY VS. CIT REPORTED IN 308 ITR 98, CIT VS. SESA GOA LTD. R EPORTED IN 271 ITR 331 AND TO THE FOLLOWING DECISION OF HONBLE GUJARAT HIGH COUR T CAN BE MADE : (A) CIT VS. NEOKARNA REPORTED IN 137 ITR 879 (BOMBA Y) (B) CIT VS. ANGLO FRENCH DRUG CO. LTD. REPORTED IN 191 ITR 92 (BOM.) (C) CIT VS. PRABHUDASS KISHORE DASS TOBACCO PRODUCT S REPORTED IN 282 ITR 568 (GUJARAT). 7. LET US BRING AT HOME THE MEANING OF EXPRESSION 'MANUFACTURE AND PRODUCTION' AS PROPOUNDED IN THE VARIOUS AUTHORITAT IVE PRONOUNCEMENTS OF THE HON'BLE SUPREME COURT AS WELL AS OF HON'BLE HIGH CO URT. 8. IN THE CASE OF INDIA CINE AGENCY, HON'BLE SUPRE ME COURT HAS CONSIDERED THE JUDGMENT RENDERED IN THE CASE OF SESA GOA (SUPRA) A ND ALL OTHER DECISIONS ON THE POINT WHICH CONTEMPLATE THE MEANING OF EXPRESSION ' MANUFACTURE' AS WELL AS 'PRODUCTION'. THE RELEVANT DISCUSSION MADE BY THE H ON'BLE COURT READS AS UNDER: '2. AS NOTED ABOVE, THE CORE ISSUE IS WHETHER ACTIV ITY UNDERTAKEN WAS MANUFACTURE OR PRODUCTION. ITA NO.2513/AHD/2011 5 3. IN BLACK'S LAW DICTIONARY (5TH EDITION), THE WOR D 'MANUFACTURE' HAS BEEN DEFINED AS, 'THE PROCESS OR OPERATION OF MAKING GOO DS OR ANY MATERIAL PRODUCED BY HAND, BY MACHINERY OR BY OTHER AGENCY; BY THE HAND, BY MACHINERY, OR BY ART. THE PRODUCTION OF ARTICLES FO R USE FROM RAW OR PREPARED MATERIALS BY GIVING SUCH MATERIALS NEW FORMS, QUALI TIES, PROPERTIES OR COMBINATIONS, WHETHER BY HAND LABOUR OR MACHINE'. T HUS BY PROCESS OF MANUFACTURE SOMETHING IS PRODUCED AND BROUGHT INTO EXISTENCE WHICH IS DIFFERENT FROM THAT, OUT OF WHICH IT IS MADE IN THE SENSE THAT THE THING PRODUCED IS BY ITSELF A COMMERCIAL COMMODITY CAPABL E OF BEING SOLD OR SUPPLIED. THE MATERIAL FROM WHICH THE THING OR PROD UCT IS MANUFACTURED MAY NECESSARILY LOSE ITS IDENTITY OR MAY BECOME TRANSFO RMED INTO THE BASIC OR ESSENTIAL PROPERTIES. (SEE DY. CST (LAW), BOARD OF REVENUE (TAXES) COCO FIBRES [1992] SUPP. 1 SCC 290). 9. MANUFACTURE IMPLIES A CHANGE BUT EVERY CHANGE I S NOT MANUFACTURE, YET EVERY CHANGE OF AN ARTICLE IS THE RESULT OF TREATME NT, LABOUR AND MANIPULATION. NATURALLY, MANUFACTURE IS THE END RESULT OF ONE OR MORE PROCESSES THROUGH WHICH THE ORIGINAL COMMODITIES ARE MADE TO PASS. 10. THE NATURE AND EXTENT OF PROCESSING MAY VARY FR OM ONE CLASS TO ANOTHER. THERE MAY BE SEVERAL STAGES OF PROCESSING, A DIFFER ENT KIND OF PROCESSING AT EACH STAGE. WITH EACH PROCESS SUFFERED, THE ORIGINAL COM MODITY EXPERIENCES A CHANGE. WHENEVER A COMMODITY UNDERGOES A CHANGE AS A RESULT OF SOME OPERATION PERFORMED ON IT OR IN REGARD TO IT, SUCH OPERATION WOULD AMOUNT TO PROCESSING OF THE COMMODITY. BUT IT IS ONLY WHEN THE CHANGE OR A SERI ES OF CHANGES TAKES THE COMMODITY TO THE POINT WHERE COMMERCIALLY IT CAN NO LONGER BE REGARDED AS THE ORIGINAL COMMODITY BUT INSTEAD IS RECOGNIZED AS A N EW AND DISTINCT ARTICLE THAT A MANUFACTURE CAN BE SAID TO TAKE PLACE. PROCESS IN M ANUFACTURE OR IN RELATION TO MANUFACTURE IMPLIES NOT ONLY THE PRODUCTION BUT ALS O VARIOUS STAGES THROUGH WHICH THE RAW MATERIAL IS SUBJECTED TO CHANGE BY DIFFEREN T OPERATIONS. IT IS THE CUMULATIVE EFFECT OF THE VARIOUS PROCESSES TO WHICH THE RAW MA TERIAL IS SUBJECTED TO THAT THE MANUFACTURED PRODUCT EMERGES. THEREFORE, EACH STEP TOWARDS SUCH PRODUCTION WOULD BE A PROCESS IN RELATION TO THE MANUFACTURE. WHERE ANY PARTICULAR PROCESS IS SO INTEGRALLY CONNECTED WITH THE ULTIMATE PRODUCTIO N OF GOODS THAT BUT FOR THAT PROCESS PROCESSING OF GOODS WOULD BE IMPOSSIBLE OR COMMERCIALLY INEXPEDIENT, THAT ITA NO.2513/AHD/2011 6 PROCESS IS ONE IN RELATION TO THE MANUFACTURE. (SEE COLLECTOR OF CENTRAL EXCISE V. RAJASTHAN STATE CHEMICAL WORKS [1991] 4 SCC 473). X X X X X X X X X X X X X X X X X X X X X X 11. TO PUT IT DIFFERENTLY, THE TEST TO DETERMINE W HETHER A PARTICULAR ACTIVITY AMOUNTS TO 'MANUFACTURE' OR NOT IS: DOES A NEW AND DIFFERENT GOOD EMERGE HAVING DISTINCTIVE NAME, USE AND CHARACTER. THE MOMENT THE RE IS TRANSFORMATION INTO A NEW COMMODITY COMMERCIALLY KNOWN AS A DISTINCT AND SEPA RATE COMMODITY HAVING ITS OWN CHARACTER, USE AND NAME, WHETHER BE IT THE RESU LT OF ONE PROCESS OR SEVERAL PROCESSES 'MANUFACTURE' TAKES PLACE AND LIABILITY T O DUTY IS ATTRACTED. ETYMOLOGICALLY THE WORD 'MANUFACTURE' PROPERLY CONSTRUED WOULD DOU BTLESS COVER THE TRANSFORMATION. IT IS THE TRANSFORMATION OF A MATTE R INTO SOMETHING ELSE AND THAT SOMETHING ELSE IS A QUESTION OF DEGREE, WHETHER THA T SOMETHING ELSE IS A DIFFERENT COMMERCIAL COMMODITY HAVING ITS DISTINCT CHARACTER, USE AND NAME AND COMMERCIALLY KNOWN AS SUCH FROM THAT POINT OF VIEW, IS A QUESTION DEPENDING UPON THE FACTS AND CIRCUMSTANCES OF THE CASE. (SEE EMPIR E INDUSTRIES LTD. V. UNION OF INDIA [1985] 3 SCC 314). 12. APART FROM THE ABOVE, THE ASSESSEE HAS RELIED U PON THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT AS WELL AS HONBLE PUNJAB AND HARYANA HIGH COURT DISCUSSED BY THE LD.CIT(A) IN THE FINDING EXTRACTED SUPRA. IN THE LIGHT OF THE ABOVE, IF THE ACTIVITY OF THE ASSESSEE IS BEING EXAMINED, THEN, IT WOULD REVEAL THAT THE PARTS IMPORTED BY THE ASSESSEE FROM CHINA HAD UNDERGONE A CHANGE AND NEW PRODUCT CAME TO THE LIGHT. THE ASSESSEE HAS PRODUCED FLOW CHART GIVING DIFFERENT STAGES HOW THE PRODUCT HAS UNDERGONE CHANGES. THIS FLOW CHART HAS BEEN REPRODUCED BY THE LD.CIT(A) WHILE TAKING COGNIZANCE OF THE ASSESSEES WRITTEN SUBMISSIONS. AS FAR AS THE OBJECTION OF THE AO THAT THE VERY MEAGER MACHIN ERY WAS BEING USED BY THE ASSESSEE IS CONCERNED, THE CASE OF THE ASSESSEE IS THAT IT REQUIRES ONLY TOOLS AND NOT BIG PLANT TO ASSEMBLE PARTS. SIMILAR, SECTION 80IC NOWHERE LAID DOWN CONDITION FOR EMPLOYMENT OF SPECIFIC NUMBER OF EMPLOYEES. THEREF ORE, THAT OBJECTION OF THE AO ITA NO.2513/AHD/2011 7 IS ONLY IRRELEVANT. CONSIDERING THE FINDING OF THE LD.CIT(A), I DO NOT SEE ANY REASON TO INTERFERE IN IT. THE APPEAL OF THE REVENUE IS D ISMISSED. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE COURT ON 4 TH JULY, 2016 AT AHMEDABAD. SD/- (RAJPAL YADAV) JUDICIAL MEMBER