DCIT 15(2), MUMBAI V. ESTER LUB TECHNOLOGIES, MUMBAI

ITA 3045/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3663 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 02-05-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DEBABRATA BAID YA
• Assessee Lawyers: PRATHIK B SHAH
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI SANJAY ARORA , A M AND SHRI PAWAN SING H , JM ./ I.T.A. NO. 3045/MUM/2014 ( / ASSESSMENT YEAR: 2009 - 10) DY. CIT - 15(2), MATRU MANDIR, ROOM NO. 113, GRANT ROAD (W), MUMBAI - 400 007 / VS. ESTER LUB TECHNOLOGIES, 6, KAMALDEEP INDUSTRIAL ESTATE, SONAWALA CROSS LANE NO.2, GOREGAON (E), MUMBAI - 63 ./ ./ PAN/GIR NO. AAKFM 0861 D ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI DEBABRATA BAIDYA / RESPONDENT BY : SHRI PRATHIK B. SHAH / DATE OF HEARING : 11.05.2016 / DATE OF PRONOUNCEMENT : 20 . 05.2016 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN A PPEAL BY THE REVENUE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 26 , MUMBAI (CIT(A) FOR SHORT) DATED 24.2.2014 , ALLOWING THE A SSESSEES APPEAL CONTESTING ITS ASSE SSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 2009 - 10 VIDE ORDER DATED 09.12.2012 . 2. AT THE VERY OUTSET, IT WAS CONTENDED BY THE LD. AUTHORIZED REPRESENTATIVE (AR) , THE ASSESSEES COUNSEL , THAT THE I SSUE MAY BE REGARDED AS COVERED BY THE ORDER BY THE T RIBUNAL IN THE ASSESSEES OWN CASE FOR ( A.Y. ) 2007 - 08, FOLLOWED BY IT FOR 2008 - 09, ADVERTING TO PGS. 8 - 19, 23 - 27 OF THE PAPER - BOOK (PB) . IN FACT, THE A SSESSING OFFICER (A .O. ) HAD NOT DISPUTED THE DEDUCTI ON U/S. 80 - IB, I.E., THE SUBJECT MATTER OF DISPUTE, FOR 2 ITA NO. 3045/MUM/2014 (A.Y.2009 - 10) DY. CIT VS. ESTER LUB TECHNOLOGIES THE TWO YEARS PRECEDING THE SAME , BEING CLAIMED SINCE A.Y. 2005 - 06, AND FOR WHICH HE MADE REFERENCE TO THE COPY OF THE ASSESSMENT ORDERS ON RECORD (PB PGS. 1 - 7), SO THAT THE ISSUE CAME TO BE DISPUTED BY HIM FOR THE FIRST TIME ONLY FOR A.Y. 2007 - 08. NARRATING THE BACKGROUND FACTS OF THE CASE IN BRIEF, HE WOULD CONTINUE , T HE ASSESSEE CONCERN , A MANUFACTURER OF LUBRICATING OIL AND ANTISTAT IC CONNING OIL, PRODUCE D EMULSIFIER S , USING RAW MATERIALS SUCH AS F ATTY ACIDS, GLYCOLS, VEGETABLES OILS, CAUSTIC SODA AND OTHER ADDITIVES. THE SAME WAS QUESTIONED BY THE REVENUE ON THE GROUND THAT THE ASSESSEE WAS PRODUCING THE SAME FOR ITS SISTER CONCERN, WIT T MANS INDUSTRIES , SO T H A T IT WAS ESSENTIALLY UNDERTAKING J OB W ORK FOR IT , PRODUCING ONLY AN INTERMEDIATE PRODUCT . THE TRIBUNAL DID NOT FIND IT AS A RELEVANT CONSIDERATION. HOWEVER, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) RAISING A CONTENTION THAT THE ASSESSEE HAD NOT ESTABLISHED THAT THE EMULSIFIER WAS A DISTINCT AN D NEW PRODUCT, COMMERCIALLY RECOGNIZED IN THE MARKET AS SUCH, THE TRIBUNAL ( FOR A.Y. 2007 - 08 ) RESTORED THE MATTER BACK TO THE FILE OF THE A.O. TO EXAMINE IF THE EMULSIFIER /S PRODUCED BY THE ASSESSEE FOR ITS SISTER CONCERN IS A NEW COMMERCIAL PRODUCT, I.E. , FROM THE RAW MATERIALS USED, RECOGNIZE D IN THE MARKET AS SUCH (IN ITA NO. 4154/MUM/2011 DATED 13.6.2012/PB PGS.8 - 19). THE ASSESSMENT ORDER PASSED SINCE, I.E., U/S. 143(3) R/W S. 254 OF THE ACT IS ON RECORD (PB PGS. 20 - 22), WHEREAT THE A.O. HAD ALLOWED TH E DEDUCTION U/S. 80 - IB, CLARIFYING VIDE PARA 6 OF THE SAID ORDER THAT THE E N D PRODUCT ( EMULSIFIER ) PASSES THE TESTS AS PRESCRIBED BY THE TRIBUNAL; THE OPERATIVE PART OF HIS ORDER READING AS UNDER: 6. IT CAN BE INFERRED FROM THE REPORT AS SUBMITTED ABOVE THAT THE END PRODUCT I.E. EMULSIFIER APPEARS TO BE QUITE DISTINCT FROM THE RAW MATERIALS USED FOR PREPARING IT AND IS RECOGNIZED IN THE MARKET AS PER THE CHAPTER HEAD CODE ASSIGNED TO THE PRODUCT BY THE EXCISE AUTHORITIES. ON THAT BASIS, THE FACTS OF THE CASE BEING THE SAME A S FOR THE EARLIER YEARS, SINCE ALLOWED, THE DEDUCTION FOR THIS YEAR WAS PRAYED BY HIM FOR BEING ALLOWED. THE LD. DR DID NOT OBJECT TO THE SAME IN VIEW OF THE UNDISPUTED FACTS ON RECORD, WOULD THOUGH RAISE AN ISSUE THAT WHILE THE ASS ESSEE CLAIMS TO MANUFACTURING 3 ITA NO. 3045/MUM/2014 (A.Y.2009 - 10) DY. CIT VS. ESTER LUB TECHNOLOGIES EMULSIFIER, THE ASSESSMENT ORDER NOTES THAT THE INCOME BY THE ASSESSEE IS BY WAY OF LABOUR CHARGES (PARA 4). THE LD. AR WOULD, IN REJOINDER , STATE THAT THE RAW MATERIALS STAND PURCHASED BY THE ASSESSEE ON OWN ACCOUNT , AND THAT CATEGORIZING THE SA M E AS LABOUR CHARGES MAY PERHAPS NOT BE CORRECT , THOUGH THIS WOULD NOT ALTER THE ASSESSEES CLAIM IN ANY MANNER IN - AS - MUCH AS THE DEDUCTION IS BEING CLAIMED ONLY ON THE NET PROFIT. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIA L ON RECORD. W E FIRST LY OBSERVE THAT WHILE THE ASSESSEE S EXPLAINS TO BE MANUFACTURING EMULSIFIER S , USING FATTY ACIDS, GLYCOLS, VEGETABLES OILS, CAUSTIC SODA, ETC. AS RAW MATERIALS, IT IS STATED TO BE A MANUFACTURER OF LUBRICATING OILS AND ANTISTATIC CON NING OIL. DO THE TWO REPRESENT THE SAME CLASS OF CHEMICAL S ? IT DOES NOT APPEAR TO BE SO . HOWEVER , THE QUESTION IS IF THE DIFFERENCE IS MATERIAL? WHILE THE ASSESSEES CASE RESTS SOLELY ON THE MANUFACTURING OF EMULSIFIER, IT SH OULD NOT MATERIALLY ALTER ITS CASE EVEN IF IT IS ALSO MANUFACTURING, AND WHICH SHOULD BE THE CASE, LUBRICATING OILS AND ANTISTATIC CONNING OIL. THIS IS AS THE TWO PRODUCTS AGAIN APPEAR TO BE DISTINCT PRODUCTS. FURTHER, THIS MAY PERHAPS ALSO EXPLAIN THE AMOUNT REFLECTED BY WAY OF LABO UR CHARGES AND SALES IN THE ASSESSEES ACCOUNTS FOR THE CURRENT YEAR, AT RS.127.13 LACS AND RS.0 .91 LACS RESPECTIVELY. IF, HOWEVER, THE ASSESSEE HAS ALSO PRODUCED THE OTHER TWO CATEGORIES OF PRODUCTS, I.E., THE LUBRICATING OILS AND ANTISTATIC CONNING OIL , WHICH APPEARS TO BE THE CASE, THE SAME SHALL BE SUBJECT TO THE SAME VERIFICATION AND THE PRESCRIPTIVE TEST BY THE A.O., I.E., A S DIRECTED BY THE TRIBUNAL IN THE ASSESSEES CASE FOR A.Y. 2007 - 08 (SUPRA), WITH A FURTHER DIRECTION FOR ALLOWANCE OF ITS CLAIM ( FOR DEDUCTION U/S. 80 - IB(1)) SUBJECT TO THE A.O. RETURNING POSITIVE FINDING/S. AS REGARDS THE APPARENT ANOMALY IN - AS - MUCH AS THE LD. AR STATE S OF THE RAW MATERIALS BEING PURCHASED BY THE ASSESSEE FROM THE MARKET , WHILE IT HAS RAISED - IN THE M AIN , LABOUR C HARGES ON ITS SISTER CONCERN, WE CONSIDER IT AS OF LITTLE MOMENT IN - AS - MUCH AS THE COST OF RAW MATERIALS WOULD EITHER WAY STAND TO BE EXCLUDED, I.E., IN COMPUTING THE INCOME ON WHICH DEDUCTION IS BEING CLAIMED. NO DOUBT, THE MAIN 4 ITA NO. 3045/MUM/2014 (A.Y.2009 - 10) DY. CIT VS. ESTER LUB TECHNOLOGIES OBJECTION BY THE REVENUE I S OF THE ASSESSEE PRODUCING ONLY AN INTERMEDIATE (SEMI - FINISHED PRODUCT) FOR ITS SISTER CONCERN, PURCHASING THE GOODS, AS IT APPEARS , FROM ANOTHER SISTER CONCERN , M/S. WIT T MANS PETROCHEM LTD. T HE OBJECTION HAS BEEN FOUND AS VALID, WITH WE HAVING STATED TH AT THE ASSESSEE SHALL HAVE TO SATISFY THE PERSPECTIVE TEST OF THE PRODUCT /S BEING MANUFACTURED AS REPRESENTING DISTINCT COMMERCIAL PRODUCT /S. T HE RAISING OF A CHARGE , WHETHER BY WAY OF LABOUR CHARGES OR SALE, WOULD THOUGH BE OF LITTLE CONSEQUENCE IN - AS - MUC H AS THE ASSESSEE , EITHER WAY , MANUFACTUR ES THE SAME, CLAIMING DEDUCTION ON THE VALUE ADDITION ON ACCOUNT OF THE MANUFACTURING PROCESS UNDERTAKEN BY IT. WE DECIDE ACCORDINGLY. 4. IN THE RESULT, THE R EVENUE S APPEAL IS DISPOSED OF ON THE AFORE - SAID TERMS. ORDER PRONOUNCED IN THE OPEN COURT ON MAY 20 , 201 6 SD/ - SD/ - ( PAWAN SINGH ) (S ANJAY ARORA) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 20 . 0 5 .201 6 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI