Rainbow Packaging Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-5(3), Ahmedabad

ITA 3226/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6525 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 24-05-2011
• Assessment Year: 2000-2001
• Appeal Filed On: 02-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J P JANGID
• Assessee Lawyers: B R POPAT
• Keywords: Wrong claim; Difference of opinion

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B BEFORE SHRI D. K. TYAGI, JUDICIAL MEMBER AND SHRI D. C. AGARWAL, ACCOUNTANT MEMBER I.T.A. NO.3226/AHD/2009 (ASSESSMENT YEAR 200-01) M/S. RAINBOW PACKAGING P. LTD., 15/B, CHANGODAR INDL. ESTATE, SARKHEJ BAVLA HIGHWAY, VILLAGE CHANGODAR, TAL: SANAND, AHMEDABAD VS. ITO, WARD 5(3), AHMEDABAD PAN/GIR NO. :AAACR5411P (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI B.R.POPAT RESPONDENT BY: SHRI J.P.JANGID. SR. D.R. O R D E R PER SHRI D. C. AGARWAL, AM:- THIS APPEAL IS FILED BY THE ASSESSEE AGAINST CONFI RMATION OF LEVY OF PENALTY OF RS.1,43,528/- U/S 271(1)(C) OF THE ACT. THE EFFECT GROUND RAISED BY THE ASSESSEE IS AS UNDER: THE LD. CIT(A) XI, AHMEDABAD, HAS ERRED ON FACTS A ND IN LAW IN CONFIRMING THE ACTION OF THE A.O. IN LEVYING A PENA LTY OF RS.1,43,528/- U/S 271(1)(C) OF THE ACT. 2. THE ASSESSEE IS ENGAGED IN MANUFACTURING OF MULT ILAYER EXCLUDED POLYTHENE FILMS AND POLYTHENE BAGS. THE FACTS RELA TING TO LEVY OF PENALTY ARE THAT RETURN OF INCOME WAS FILED ON 30.11.2000 ON AN INCOME OF RS.8,69,870/- . IT HAD CLAIMED DEDUCTION U/S 80IA, WHICH WAS D ISALLOWED BY THE A.O. ON I.T.A.NO. 3226/AHD/2009 2 THE GROUND THAT IT IS NOT EMPLOYING THE REQUISITE N UMBER OF WORKERS. IT IS MENTIONED BY THE A.O. WHILE DENYING THE CLAIM OF DE DUCTION THAT ASSESSEE HAS 12 EMPLOYEES AND ONE MARKETING MANAGER AND ONE SALES REPRESENTATIVE. 8 OUT OF THESE 12 EMPLOYEES ARE SHOWN WORKING IN TH E FACTORY AND REST 4, WERE NOT WORKING AT FACTORY. OUT OF THESE FOUR, 3 ARE CLERKS AND ONE PEON. THUS, ONLY 8 EMPLOYEES WERE WORKING IN THE FACTORY. THE REQUIREMENT OF SECTION 80IA(2)(V) IS THAT AT LEAST 10 WORKERS SHOU LD BE WORKING IN THE UNDERTAKING IN MANUFACTURING PROCESS. HE ACCORDING LY REJECTED THE CLAIM OF THE ASSESSEE THAT ALL THE 12 PERSONS ARE WORKING IN THE FACTORY. HOWEVER, THE CLAIM OF THE ASSESSEE WAS ALLOWED BY THE LD. CIT(A) . BUT HIS ORDER WAS REVERSED BY THE TRIBUNAL BY UPHOLDING THE ORDER OF THE A.O. IN THIS REGARD, THE TRIBUNAL HAD OBSERVED AS UNDER: 10.1 WE HAVE HEARD THE PARTIES, ON THIS ASPECT OF THE MATTER AS WELL AS PERUSED THE MATERIAL ON RECORD, INCLUDIN G -THE CASE LAW CITED. THE RELEVANT PART OF THE SECTION. IS REPR ODUCED AS UNDER: 80IA (1) (2)(I) (II) (III) (IV) (V) IN A CASE WHERE THE INDUSTRIAL UNDERTAKING MANU FACTURES OR PRODUCES ARTICLES OR THINGS, THE UNDERTAKING EMP LOYS TWENTY OR MORE WORKERS IN A MANUFACTURING PROCESS, CARRIED ON WITHOUT THE AID OF THE POWER:... EVIDENTLY, THE NUMERICAL STRENGTH OF THE WORKERS IS TO BE CONSIDERED WITH RESPECT TO THE MANUFACTURING PROCESS AS CARRIED OUT BY THE ASSESSEE, SO THAT ALL EMPLOYEES WHO ARE DIRECTLY OR INDIRECTLY ASSOCIATED WITH THE .SAID PROCESS, EVEN AS EXPLAINED BY THE HON'BLE KAERNATAKA HIGH COURT IN THE CASE OF CI T VS. K.G. YEDYURAPPA & CO. [1985) 152 1TR 152 _ (KAR.), WOULD QUALIFY AS BEING CONTEMPLATED BY DIE SECTION AS A 'WORKER' FOR ITS PURPOSES- THE MANUFACTURING PROCESS WOULD BEGIN WITH THE RECE IPT OF THE MATERIAL AND END WITH THE COMPLETION OF THE MANUFAC TURING OR PRODUCTION PROCESS. IT IS IN THIS CONTEXT THAT TH E SAID COURT HAS SAID THAT A STORE-KEEPER WHO IS THE CUSTODIAN IN RE SPECT OF THE RAW MATERIAL AND STORES, ISSUING THEM TO THE WORKS FROM TIME TO I.T.A.NO. 3226/AHD/2009 3 TIME, AS ALSO MAINTAINING THE RECORD IN RESPECT THE REOF, WOULD QUALIFY TO BE CONSIDERED AS A 'WORKER'. FURTHER, THE COURTS HAVE ADAPTED A UNIFORM VIEW THAT THE NUMBER OF TEN WORKE RS CANNOT BE CONSIDERED IN A STRICT MANNER, SAY AS WHERE (HE PRO DUCTION LEVELS ARE SUSCEPTIBLE TO HIGH VARIATION FROM TIME TO TIME , AS IN A SEASONAL INDUSTRY, AND WOULD NEED TO BE SEEN WHETHE R THE UNIT ON AN AVERAGE EMPLOYS TEN WORKERS- 10.2 IN THE FACTS OF THE PRESENT CASE, WE FIND, FIR STLY, THAT THE NUMBER OF WORKERS WHICH WOULD NEED TO BE CONSIDERED IS ONLY FOR THE CHANGODAR UNIT AND NOT FOR THE ENTIRE COMPA NY. BOTH OF ITS UNITS ARE STATED TO BE FUNCTIONAL, DURING THE Y EAR, AT LEAST FOR SOME PART (THEREOF, SO THAT THE WORKERS EMPLOYED BY THE VATVA UNIT WOULD NEED TO BE EXCLUDED. EVEN IT' THE ASSESSEE'S CONTENTION OF BOTH THE UNITS AS BEING SIMULTANEOUSLY IN OPERATION IS D ISREGARDED, THE FACTS STILL REMAINS, AS PROVED BY RECORD, THAT REMOVALS F ROM THE VATVA UNIT CONTINUED UP TO MARCH, 1997. AS SUCH, SOME OF THE W ORKERS WOULD DEFINITELY BE ENGAGED AT THE SAID UNIT. THE COMPANY HAS NOT GIVEN A UNIT-WISE BIFURCATION OF THE EMPLOYEES, ALONG WITH THEIR RESPECTIVE FUNCTIONS. THE ONLY RELEVANT DOCUMENT WE FIND IS TH AT GIVEN BY IT TO THE INDUSTRIES DEPARTMENT FOR OBTAINING SS1 REGISTR ATION FOR THE CHANGODAR UNIT. HERE, AGAIN, WHAT THE COMPANY PLATE S IS THE NUMBER OF EMPLOYEES IT ENGAGES OR PROPOSES TO ON AN AVERAG E, FOR IT OBVIOUSLY CANNOT STATE WITH CERTAINTY THE EXACT NUMBER OF WOR KERS IT EMPLOYING IN FUTURE. NEVERTHELESS, GOING BY THIS MATERIAL PIE CE OF EVIDENCE, NO DIRECT ONE, ARID IT BEING FAIRLY AGREED THAT THE SAID CONDITION IS NOT TO OPERATE IN A STRINGENT MANNER, SO AS TO IMPLY TH E ACTUAL EMPLOYMENT OF THE REQUIRED NUMBER OF WORKERS THROUGHOUT THE YEAR, SO THAT THE CONDITION WOULD BE CONSIDERED AS MET WHERE SUBSTANTIALLY SATISFIED, THE SAID NUMBER IS TEN OF WHICH TWO ARE SLATED TO BE WORKING AT THE OFFICE IN VIEW OF THE SAME, WE WOULD CONSIDER THAT THE A.O .'S INFERENCE OF THE ASSESSES AS NOT EMPLOYING A MINIMU M OF TEN WORKERS AT ITS CHANGODAR UNIT AS NOT INFIRM, BUT ON LY REASONABLE CONCLUSION ARRIVED AT ON THE BASIS OF TH E MATERIAL ON RECORD. 11.1 IN VIEW OF FOREGOING, WE FIND MERIT IN THE RE VENUE'S APPEAL ON THE SECOND GROUND, AND UPHELD THE SAME, SETTING ASIDE THE ORDER OF THE LD. CIT(A) ON THE SAID GROUND. WE DECIDE ACC ORDINGLY. 3. THE GIST OF FINDING GIVEN BY THE TRIBUNAL IN I.T .A. NO. 4378/AHD/2003 ASSESSMENT YEAR 2000-01 PRONOUNCED ON 12.10.2007 WA S THAT ONLY THE I.T.A.NO. 3226/AHD/2009 4 WORKERS WORKING IN THE MANUFACTURING UNIT HAS TO BE CONSIDERED AND NOT FOR THE ENTIRE COMPANY. THE ASSESSEE HAD TWO UNITS AND DEDUCTION U/S 80IA IS CLAIMED WITH RESPECT TO THE ONE UNIT I.E., CHANGODA R UNIT ONLY. 4. IN PENALTY PROCEEDINGS, IT WAS CONTENDED BY THE ASSESSEE THAT NO PENALTY PROCEEDINGS U/S 271(1)(C) WERE INITIATED FO R DISALLOWANCE OF DEDUCTION U/S 80IA AND FURTHER THIS LEVY OF PENALTY IS BARED BY LIMITATION. THE A.O. HOWEVER PROCEEDED TO LEVY THE PENALTY ON T HE GROUND THAT CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80IA WAS INCORRECT A S NECESSARY CONDITIONS LAID DOWN U/S 80IA WERE NOT SATISFIED IN AS MUCH AS THERE WERE ONLY 8 WORKERS WORKING FOR THE SUBSTANTIAL PART OF THE YEA R AND NOT 10. 5. THE CIT(A) CONFIRMED THE LEVY OF PENALTY BY HOLD ING THAT THE ASSESSEE HAS FRAUDULENTLY CLAIMED DEDUCTION BY SHOWING FACTU AL INACCURACY IN THE NUMBER OF WORKERS EMPLOYED BY IT. IN THIS REGARD, HE OBSERVED AS UNDER: 8. AS SEEN FROM THE ABOVE DISCUSSION ASSESSEE'S CL AIM FOR DEDUCTION U/S. 80IA (MADE FOR THE FIRST TIME) WAS D ISALLOWED BY THE A.O. ON THE GROUND THAT THE APPELLANT DID NOT F ULFILL ONE OF THE PRIMARY CONDITIONS OF EMPLOYING MINIMUM OF 10 WORKE RS. THIS FINDING OF THE A.O. THAT THE APPELLANT EMPLOYED LES S THAN 10 WORKERS IN THE FACTORY CAME TO BE UPHELD BY THE HON 'BLE ITAT AS STATED ABOVE. THE ISSUE WHETHER THE APPELLANT EMPLO YED 10 WORKERS OR NOT IS A MATTER OF FACT, WHICH WAS WEL L WITHIN THE KNOWLEDGE OF THE APPELLANT. THE APPELLANT MADE CLAI M FOR DEDUCTION U/S. 80IA FRAUDULENTLY BY CLAIMING A FACT UAL INACCURACY REGARDING THE NUMBER OF WORKERS EMPLOYED IN THE FAC TORY. THE ARGUMENT ADVANCED BY THE APPELLANT THAT THIS IS A D EBATABLE ISSUE IS FAR FROM TRUTH. THE VARIOUS CASE LAWS RELIED UPON B Y THE APPELLANT ARE OF LITTLE HELP AS THE ISSUE INVOLVED IN THOSE C ASES IS ONE OF LEGAL DIFFERENCE OF OPINION - WHETHER DEDUCTION U/S. 80IA IS TO BE ALLOWED ON THE GROSS INTEREST OR NET INTEREST ETC. IN VIEW OF THIS I AM OF THE CONSIDERED OPINION THAT THE APPELLANT INFLAT ED THE NUMBER OF WORKERS EMPLOYED; MADE BLATANTLY WRONG CLAIM FOR DE DUCTION U/S. 801A AND IN THE PROCESS FURNISHED INACCURATE PARTIC ULARS OF INCOME. SINCE THE ENTIRE CLAIM IS BASED ON BLATANT UNTRUTH, A.O.'S ACTION LEVYING PENALTY U/S. 271(L)(C) IS CONFIRMED. I.T.A.NO. 3226/AHD/2009 5 6. WE HAVE HEARD LD. A.R. AND LD. D.R. IN OUR CON SIDERED VIEW, THERE IS NO CASE FOR LEVY OF PENALTY. THE ASSESSEE HAS M ADE A CLAIM AND ACCORDING TO IT, 12 EMPLOYEES ARE WORKING IN THE FACTORY. HO WEVER THE A.O. HAD DISAGREED WITH THE ASSESSEE AND HELD THAT ONLY 8 WO RKERS ARE WORKING. IN OUR VIEW, THIS FINDING IS BASED ONLY ON MERE OPINION AS NO INQUIRY HAS BEEN CARRIED OUT IN RESPECT OF OTHER 4 PERSONS CLAIMED B Y THE ASSESSEE TO BE WORKING IN THE FACTORY. THEY SHOULD HAVE BEEN SUMM ONED AND THEIR STATEMENTS BE RECORDED AS TO WHAT IS THEIR JOB PROF ILE AND WHETHER THEY ARE ATTENDING TO THE WORK OF THE FACTORY ALSO. FOR COU NTING THE NUMBER OF WORKERS IT IS NOT NECESSARY THAT ONLY THOSE EMPLOYE ES WHO ARE PERMANENTLY POSTED IN THE FACTORY ALONE SHOULD BE COUNTED, EVEN CASUAL WORKERS AND THOSE WHO ARE TEMPORARY, ARE ALSO TO BE COUNTED. IT HAS BEEN HELD IN ACIT VS. RICHA CHADHA (2006) 282 ITR (AT) 2000-01, ITAT MUMB AI THAT MANUFACTURING PROCESS MEANS NOT ONLY MANUFACTURING ACTIVITY BUT ALSO SUCH OTHER ACTIVITIES SUPPORTING THE MAIN MANUFACTURING PROCESS. IT STARTS FROM INITIAL TREATMENT TILL MAKING OF THE PRODUCT MARKET ABLE INCLUDING SORTING AND REPACKING. THE WORKERS EMPLOYED FOR THE CHAIN OF A CTIVITIES INVOLVED IN PACKING SHOULD ALSO BE COUNTED AS EMPLOYED FOR THE MANUFACTURING PROCESS. FURTHER, IT IS HELD THAT IT IS NOT NECESSARY THAT A SSESSEE SHOULD EMPLOY 10 OR MORE WORKERS THROUGHOUT THE YEAR. WHAT IS NECESSAR Y, IS THAT, THERE SHOULD BE A SUBSTANTIAL COMPLIANCE OF THE PROVISIONS OF SE CTION 80IA(2)(V). IF FOR MOST OF THE PERIOD, FOR WHICH THE MANUFACTURING PRO CESS CONTINUED, ASSESSEE HAD EMPLOYED MORE THAN 10 WORKERS, EITHER IN THE MA NUFACTURING PROCESS OR IN THE SUBSIDIARY PROCESS THEN IT WOULD BE A SUBSTA NTIAL COMPLIANCE. THE A.O. SPECIFICALLY CONSIDERED THAT ONLY THOSE WORKER S SHOULD BE COUNTED WHICH ARE EMPLOYED IN THE MAIN PROCESS AND THIS VIE W WAS UPHELD BY THE TRIBUNAL AS REFERRED TO ABOVE IN THE ASSESSEES CAS E. HOWEVER, THERE IS CONTRARY VIEW HELD IN ACIT VS. M/S. RICHA CHADHA (S UPRA). THEREFORE, IT CANNOT BE SAID THAT ASSESSEE HAD FURNISHED INACCURA TE PARTICULARS OR HAD MADE I.T.A.NO. 3226/AHD/2009 6 ANY FALSE CLAIM. HOWEVER, HONBLE APEX COURT IN CI T VS RELIANCE PETRO PRODUCTS LTD. (2010) 322 ITR 158 HELD THAT PENALTY U/S 271(1)(C) CANNOT BE LEVIED IF THE CLAIM MADE BY THE ASSESSEE HAS NOT BE EN SUSTAINED. IT IS OBSERVED BY THE HONBLE APEX COURT THAT PENALTY IS ATTRACTED IF DETAILS SUPPLIED IN THE RETURN ARE NOT ACCURATE, NOT EXACT OR NOT CORRECT, NOT ACCORDING TO THE TRUTH OR ARE ERRONEOUS. WHEN THERE IS NO FI NDING THAT ANY DETAIL SUPPLIED BY THE ASSESSEE IN ITS RETURN OF INCOME IS INCORRECT OR ERRONEOUS OR FALSE, THERE IS NO QUESTION OF LEVYING PENALTY U/S 271(1)(C) OF THE ACT. MERE MAKING A CLAIM WHICH IS NOT SUSTAINABLE IN LAW WILL NOT AMOUNT TO FURNISHING OF INACCURATE PARTICULARS REGARDING THE INCOME OF T HE ASSESSEE. IN THE PRESENT CASE, THE CLAIM OF THE ASSESSEE HAS BEEN DISALLOWED BUT THERE IS NO FINDING THAT THE FACTS GIVEN BY THE ASSESSEE IN ITS RETURN OF INCOME ARE INCORRECT, INACCURATE, FALSE OR ERRONEOUS. ON THE OTHER HAND, THERE IS A DIFFERENCE OF OPINION AS TO HOW ONE COUNTS THE NUMBER OF WORKERS EMPLOYED IN THE MANUFACTURING PROCESS. A CONTRARY VIEW HAS ALREADY BEEN EXPRESSED EARLIER BY THE TRIBUNAL IN RICHA CHADHAS CASE AND THEREFOR E IT CANNOT BE SAID THAT WHAT IS SUBMITTED BY THE ASSESSEE IN ITS RETURN OF INCOME WAS INCORRECT OR ERRONEOUS. ACCORDINGLY, PENALTY AS CONFIRMED BY TH E LD. CIT(A) IS CANCELLED. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSEE STAN DS ALLOWED. 8. ORDER PRONOUNCED IN THE OPEN COURT ON 27TH MAY 2011. SD./- SD./- (D. K. TYAGI) (D. C. AGARWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 27 TH MAY, 2011 SP I.T.A.NO. 3226/AHD/2009 7 COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD 6. THE GUARD FILE 1. DATE OF DICTATION 24.05.2011 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 25.05.2011 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S. 26.05.11 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 27.05.2011 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S. 27.05.11 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 27.0 5.2011 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. ..