ACIT, New Delhi V. M/s. Khanna Brothers, New Delhi

ITA 397/DEL/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2641 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 04-03-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 28-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DK MISHR A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: D NEW DELHI BEFORE SHRI I.C. SUDHIR, JM AND SHRI J.SUDHAKAR REDDY, A.M. ITA NO: 397/DEL/2010 ASSESSMENT YEAR : - 2006-07 ACIT, CIRCLE 24(1) VS. KHANNA BROTHERS ROOM NO.238 B 44, UDAY PARK 2 ND FLOOR, C.R.BLDG. NEW DELHI I.P.ESTATE, NEW DELHI PAN: AAAFK 9950 H ITA NO: 2210/DEL/2012 ASSESSMENT YEAR : - 2008-09 ACIT, NEW DELHI VS. KHANNA BROTHERS, NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY : SH.D.K.MISHRA, D.R. RESPONDENT BY : SHRI G.N.GUPTA, ADV. O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER BOTH THESE APPEALS ARE FILED BY THE REVENUE AGAINS T THE ORDER OF THE LD.CIT(A)-XXIII, NEW DELHI DATED 27.11.2009 PERT AINING TO THE AYS 2006-07 AND ORDER DT. 30.01.2012 FOR AY 2008-09. AS THE IS SUES ARISING IN BOTH THE APPEALS ARE COMMON, FOR THE SAKE OF CONVENIENCE THE Y ARE HEARD TOGETHER AND ARE DISPOSED OF BY WAY OF THIS COMMON ORDER. 2. FACTS IN BRIEF :- THE ASSESSEE IS A PARTNERSHIP FIRM AND IT FILED ITS RETURN OF INCOME ON 31.10.2006 DECLARING A TOTAL INCOME OF RS.24,17,034/-. THE AO 2 AT PARA 5.3 TO 5.3.5 HAS DISCUSSED THE ISSUE. THE SAME IS REPEATED IN PARA 8 OF THE LD.CIT(A)S ORDER, FOR THE SAKE OF BREVITY WE D O NOT EXTRACT THE SAME. THE ISSUE IS WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) WAS RIGHT IN HOLDING THAT THE ASSESSEE IS ENGAGED IN MA NUFACTURE OR NOT. THE FACTS ARE BROUGHT OUT AT PARA 11 OF THE LD.CIT(A)S ORDE R WHICH IS EXTRACTED FOR READY REFERENCE. 11. THE ASSESSEE HAD ENTERED INTO A PURCHASE CONTR ACT WITH M/S DHARAMPAL PREM CHAND LTJD. THE MANDATE OF THE ASSESSEE WAS T O FABRICATE, SUPPLY, SHORT BLAST, PAINT, AND ERECT STEEL STRUCTURES FOR BUILDI NGS OF THE STEEL PROJECTS OF THE VENDEE AT AGARTALA (TRIPURA). THE ASSESSEE WAS GIV EN CUSTOMIZED FABRICATION DRAWINGS OF THE STEEL STRUCTURES AND ACCORDINGLY IT FABRICATED THE STEEL STRUCTURE AT THE FACTORY BUILDING OF THE CONTRACTEE. DURING THE YEAR, IT IS UNDISPUTED THAT THE ASSESSEE PAID EXCISE DUTY AND WAS REGISTERED UN DER CENTRAL EXCISE AUTHORITIES FOR MANUFACTURE OF EXCISABLE GOODS. TH E ASSESSEE HAD ALSO OBTAINED LAND/SHED FROM TRIPURA INDUSTRIAL DEVELOPMENT CORPO RATION, ON ELASE. UNDER THE FACTORIES ACT, THE ASSESSEE WAS REGISTERED AS A STE EL MANUFACTURER. IN THE SUBMISSIONS MADE BEFORE THE LD.AO, WHICH IS UNDATED , BUT HAS BEEN FILED BEFORE ME, THE PROCESS HAS BEEN EXPLAINED. THE ASSESSEE P URCHASED RAW MATERIALS LIKE ANGLES, CHANNELS, JOINTS, PLATES ETC. AND AFTER SUB JECTING THROUGH THE PROCESS OF FABRICATION VIZ., CUTTING, DRILLING, BENDING, GRIND ING, WELDING, SAND PLASTED TO THE ARTICLE, AS PER THE SPECIFICATION OF THE VENDEE DIS PATCHED IT TO HIM, WHEREIN IT WAS ERECTED ON THE STEEL PLANT BUILDING AND PAINTED. T HE PRODUCTION PROCESS, WHICH WAS ALSO SUBMITTED SUGGESTS AS UNDER. PROCUREMENT OF RAW MATERIALS & CONSUMABLE STORES H.R.PLATES, CHANNELS, ANGLES, ROUNDS, FLATS ETC. WELDING ELECTRODES, INDUSTRIAL GASES, GRINDING WHEELS ETC. MAKING OF TEMPLATES TEMPLATES ARE MASTER PIECE FIXTURES MADE ACCORDING TO DIMENSIONS PROVIDED BY CLIENTS DRAWING ON THE BASIS OF WHICH MASS PRODUCTION OF COMPONENTS IS DONE. 3 MAKING, CUTTING & BENDING RAW MATERIALS TO SIZES & SHAPES OF TEMPLATES THEN THE MATERIAL IS CUT WITH THE HELP OF HACKSHAW MACHINE, GAS CUTTERS: BENDED WITH THE HELP OF FIXTURE AFTER HEATING. MACHINING OF COMPONENTS SOME COMPONENTS LIKE BASE PLATES, TENSION CHORDS, BOLTS WHICH REQUIRE MACHINING ARE MACHINES ON LATHE MACHINE AND ARE DRILLED WITH THE HELP OF MAGNETIC DRILLING & RADIAL DRILLING MACHINES WELDING DIFFERENT COMPONENTS MANUFACTURED ARE WELDED TOGETHER TO FORM ASSEMBLIES LIKE LACES COLUMNS, TRUSSES ETC. SAND BLASTING IT IS A PROCESS WHERE THE SAND IS THROWN THROUGH HIGH SPEED COMPRESSED AIR IN ORDER TO REMOVE THE CARBON SCALING ON THE SURFACE OF THE COMPONENTS AND ASSEMBLIES. PAINTING THE COMPONENTS ARE PAINTED WITH ANTI RUST PRIMER WITH THE HELP OF AIR COMPRESSOR. DISPATCH TO CLIENT FACTORY SITE AFTER INSPECTION ERECTION AT SITE SOME OF THE COMPONENTS HAVE TO BE PLACED ON THE BASES TO SHOW THE ACCURACY VIS A VIS PERPENDICULARITY AND HEIGHT. 3. THE A.O. HAD RELIED ON THE JUDGEMENT OF THE HON BLE HIGH COURT IN THE CASE OF CIT VS. N.C.BUDHARAJA & CO. 204 ITR 402 (SC ) AND THE DECISION OF THE 4 HONBLE SUPREME COURT IN THE CASE OF BUILDERS ASSOC IATION OF INDIA VS. CIT 209 ITR 877 (S.C.). THE LD.CIT(A) ON THE OTHER HAND HE LD THAT THESE DECISIONS ARE NOT APPLICABLE TO THE FACTS OF THE CASE. HE OPINED THAT THE DECISION OF AP HIGH COURT IN THE CASE OF BEEHIVE ENGINEERING CO. AND A LLID INDUSTRIES LTD. 221 ITR 561 IS APPLICABLE TO THE FACTS OF THE CASE. 4. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LD.CIT(A) HAS ERRED IN LAW IN HOLDING THAT THE ASSESSEE IS ENGAGED IN MANU FACTURING ACTIVITY AND ELIGIBLE FOR DEDUCTION U/S 80 IC OF THE ACT, IN FAC T THERE IS NO DESCRIPTION OF FINISHED PRODUCTS IN THE FORM NO.3CD. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN IGNORING THAT THE ASSESSEE IS D OING FABRICATION WORK AND CONSTRUCTION OF SUPER STRUCTURE OF FACTORY BUILDING , THE ASSESSEE CANNOT BE SAID TO BE MANUFACTURING OR PRODUCING ANY ARTICLE OR THING. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AME ND ANY OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF HEARING OF TH E APPEAL. 5. THE LD.D.R. MR.D.K.MISHRA FOUND FAULT WITH THE O RDER OF THE LD.CIT(A). HE REFERRED TO THE AOS ORDER AND SPECIFICALLY TO PARA 5.3.4, 5.3.5 AND 5.3.6 OF THE AOS ORDER SPECIFICALLY DRAWING THE ATTENTION O F THE BENCH TO THE COMMENTS OF THE TAX AUDITOR AS EXTRACTED BY THE LD.AO. HE R EFERRED TO THE LD.CIT(A)S ORDER PARA 8 AND TO THE CHART GIVEN THEREIN AND SUB MITTED THAT WHEN THIS CHART IS READ WITH COPY OF THE PURCHASE ORDER, IT LEADS T O A CONCLUSION THAT WHAT THE ASSESSEE HAS UNDERTAKEN IS FABRICATION AND NOT MANU FACTURE. HE ALSO DISPUTED THE FINDING OF THE FIRST APPELLATE AUTHORITY THAT T HE FACTS OF THE ASSESSEES CASE ARE IDENTICAL WITH THE FACTS IN THE CASE OF BEEHIVE ENGINEERING CO. AND ALLIED INDUSTRIES LTD. (SUPRA). 5 5.1. THE LD.D.R. FURTHER SUBMITTED THAT THE ASSESSE E WAS CONSTRUCTING A TOBACCO FACTORY BUILDING AND THAT SUCH ACTIVITY DO NOT DESERVE GRANT OF DEDUCTION U/S 80 IC. IN ADDITION TO THIS ARGUMENT, WHICH IS NOT A GROUND ON WHICH THE AO HAS DISALLOWED THE CLAIM OF THE ASSESS EE, THE LD.D.R. RELIED ON PREPONDERANCE OF PROBABILITIES BY SUBMITTING THAT T HE ASSESSEE HAS ONLY THREE EMPLOYEES AND ALSO THAT THE ASSESSEE HAS SHOWN EXC ESSIVE PROFITS ETC. HE FURTHER ARGUED THAT THIS IS A CASUAL ACTIVITY OF TH E ASSESSEE AND NOT A REGULAR ACTIVITY. 6. THE LD.COUNSEL FOR THE ASSESSEE MR.GN GUPTA ON T HE OTHER HAND SUBMITTED THAT THE LD.DR IS FACTUALLY INCORRECT IN HIS ARGUMENTS AS THE ASSESSEE WAS ESTABLISHING A STEEL FACTORY AND NOT A TOBACCO FACTORY. HE SUBMITTED THAT THE ASSESSEE WAS SUPPLYING STEEL STR UCTURES AFTER FABRICATING AND MANUFACTURING THE SAME AND WAS NOT CONSTRUCTING A BUILDING. HE REFERRED TO THE DEFINITION OF MANUFACTURE IN S.2(29)BA OF THE ACT. HE RELIED ON THE ORDER OF THE LD.CIT(A) AND SUPPORTED THE SAME. HE RELIED ON THE FOLLOWING CASE LAWS. I. CIT VS. BEEHIVE ENGINEERING CO.AND ALLIED INDUS TRIES P.LTD., 221 ITR 561(AP) II. CIT VS. ELEMECH INDUSTRIAL CONSTRUCTIONS, 229 ITR 503 (A.P.) III. CIT VS. NORTHERN AROMATICS LTD., 326 ITR 27 ( P&H) IV. CIT VS. ALCAM ENGINEERING P.LTD., 336 ITR 294 (MAD) 7. IN REPLY THE LD.D.R. RELIED ON SOME SURVEY FINDI NGS. HE DISTINGUISHED THE CASE LAWS RELIED UPON BY THE ASSESSEE. 8. AFTER HEARING RIVAL CONTENTIONS, WE ARE OF THE C ONSIDERED OPINION THAT THE ORDER OF THE FIRST APPELLATE AUTHORITY HAS TO BE UP HELD FOR THE REASON THAT, THE FACTS OF THE CASE CLEARLY DEMONSTRATE THAT THE ASSE SSEE HAS MANUFACTURED AN 6 ARTICLE OR A THING. THE LD.CIT(A) IN THE ORDER DT. 30.1.2012 FOR THE AY 2008-09 HAS DISCUSSED THE ISSUE AT LENGTH. AT PARA 6 AND 7 OF HIS ORDER HE HELD AS FOLLOWS:- (6) I HAVE ALSO CALLED FOR AND EXAMINED THE PURCH ASE ORDER PLACED ON THE APPELLANT BY M/S. DHARMPAL PREMCHAND LTD. DATED 07. 07.2006 FOR THE FABRICATION, SUPPLY, SHOT/SAND BLASTING, PAINTING A ND ERECTION OF 1500 MT OF STEEL STRUCTURES FOR ITS STEEL PROJECT AT AGARTALA. AS PE R THE ORDER, THE ENTIRE WORK WAS TO BE EXECUTED STRICTLY IN CONFORMITY WITH TECHNICA L DETAILS PROVIDED TO THE APPELLANT THROUGH DETAILED FABRICATION DRAWINGS MAD E AVAILABLE BY M/S. DHARAMPAL PREMCHAND LTD. AS HELD BY THE HIGH COURT OF DELHI IN THE CASE OF CIT VS. NORTHERN AROMATICS LTD. (SUPRA), THE ACTIVITY O F THE ASSESSEE IS TO BE REGARDED AS MANUFACTURING ACTIVITY IRRESPECTIVE OF THE FACT S WHETHER THE PRODUCTS MANUFACTURED BY IT ARE FOR ITS OWN BUSINESS OR IT I S DOING JOB WORK FOR OTHERS. THE APPELLANT HAS PRODUCED, DURING THE ASSESSMENT PROCE EDINGS AS WELL AS APPELLATE PROCEEDINGS, THE COPIES OF EXCISE RETURNS FILED BEF ORE THE CENTRAL EXCISE AUTHORITY AT AGARTALA, BILLS OF MACHINERY AND OF RAW MATERIAL PURCHASED, DETAILS OF FREIGHT AND CARTAGE FOR PURCHASE OF RAW MATERIAL, AND DETAI LS OF JOB WORK PAID. THE APPELLANT HAS CREDIBLY ARGUED THAT IN VIEW OF MANUF ACTURE AND FABRICATION WORK CARRIED OUT WITH THE HELP OF CONTRACT LABOUR TO WHO M JOB CHARGES OF RS. 1,66,17,876/- HAS BEEN PAID, THERE WAS NO REQUIREME NT FOR A LARGE NUMBER OF REGULAR EMPLOYEES. IT IS ALSO CORRECT THAT THE PROV ISIONS OF SECTION 80IC DO NOT INCLUDE ANY REQUIREMENT REGARDING THE NUMBER OF WOR KERS TO BE EMPLOYED DIRECTLY. REGARDING THE FINDING DURING SURVEY THAT THE MACHINES APPEARED TO BE OLD AND NO LONGER IN USE, THE APPELLANT HAS EXPLAIN ED THAT THE CONTRACT FOR SUPPLY AND ERECTION OF STEEL STRUCTURES WAS COMPLETED IN J ULY,2009, HENCE, AT THE TIME OF SURVEY ON 09.03.2010, THERE WAS NO LONGER ANY MANUF ACTURING ACTIVITY UNDERWAY. 7. THE APPELLANT FIRM IS FOUND TO BE REGISTERED WIT H VAT, CST, SERVICE TAX, AND CENTRAL EXCISE AUTHORITIES. THE APPELLANT HAS P RODUCED DETAILS OF RENT PAID TO TRIPURA INDUSTRIAL DEVELOPMENT CORPORATION LTD., THE BILLS OF CONSTRUCTION OF THE FACTORY SHEDS AND THE DETAILS OF PAYMENT OF ELECTRI CITY CHARGES TO TRIPURA STATE ELECTRICITY CORPORATION LTD. THE APPELLANT HAS PRO DUCED THE BILLS OF PURCHASE OF THE MACHINERY INSTALLED AT THE PREMISES, COMPRIS ING DRILLING MACHINES, WELDING MACHINES, MOTORS, GAS CUTTING MACHINES, AIR COMPRES SOR, ETC. THE APPELLANT HAS ALSO PRODUCED DETAILS AND BILLS OF PURCHASE OF RAW MATERIAL COMPRISING NUTS, BOLTS, RODS, M.S.ANGLES, CHANNELS, HR SHEETS, METAL PAINTS ETC. AFTER CAREFULLY CONSIDERING THE VARIOUS EVIDENCES FILED, I AM UNAB LE TO UPHOLD THE FINDING OF THE 7 ASSESSING OFFICER THAT NO MANUFACTURING ACTIVITY HA S BEEN CARRIED OUT BY THE APPELLANT. IN MY OPINION, THE APPELLANT HAS FURNIS HED ADEQUATE EVIDENCE OF FABRICATION AND ASSEMBLY OF THE STEEL STRUCTURE FOR THE STEEL PROJECT OF M/S. DHARAMPAL PREMCHAND LTD. AT AGARTALA. THE EVIDENCES RELIED ON BY THE ASSESSING OFFICER, NAMELY THE FEW NUMBERS OF REGULA R EMPLOYEES, AND THE DESERTED APPEARANCE OF THE FACTORY SHED, HAVE BEEN SATISFACTORILY EXPLAINED BY THE APPELLANT. THERE CAN BE NO REASONABLE DOUBT THA T THE APPELLANT MANUFACTURED TRUSSES, COLUMNS, GANTRIES, ETC. IN ITS FACTORY AND TRANSPORTED THESE ARTICLES TO THE PROJECT SITE OF M/S. DHARMAPAL PREMCHAND WHERE THES E ARTICLES WERE ERECTED BY FASTENING BOLTS ON THE CIVIL WORK ALREADY COMPLETED BY M/S. DHARAMPAL PREMCHAND. THE APPELLANT HAS CARRIED OUT CUSTOMIS ED FABRICATION OF THE STEEL STRUCTURE AS PER DRAWINGS PROVIDED BY THE CONTRACTE E. THE APPELLANT HAS BEEN GRANTED REGISTRATION/APPROVAL FROM VARIOUS REGULATO RY AND GOVERNMENT AUTHORITIES AND HAS PAID EXCISE DUTY ON THE ARTICLE S MANUFACTURED BY IT. FOR ALL THE ABOVE STATED REASONS, IT IS HELD THE APPELLANT IS ENTITLED TO THE DEDUCTION U/S 80IC IN RESPECT OF ITS MANUFACTURING ACTIVITIES. T HE DISALLOWANCE OF RS.3,29,76,090/- IS ACCORDINGLY DELETED. 9. THIS DECISION IS IN LINE WITH THE JUDGEMENT OF H ONBLE A.P.HIGH COURT IN THE CASE OF CIT VS. BEEHIVE ENGINEERING CO. AND ALL IED INDUSTRIES LTD. (SUPRA) WHERE THE FACTS AND DECISIONS ARE AS FOLLOWS: THE ASSESSEE, A PRIVATE LIMITED COMPANY, PURCHASED M.S.ANGLES, JOINTS, CHANNELS ETC. AND CUT THEM INTO REQUIRED SIZES, AND THEREAFTER, THE PIECES WERE WELDED, DRILLED WITH HOLES AND FITTED WITH BOLTS, N UTS, ETC. FOR MANUFACTURING TRUSSES. THE ASSESSEE COMPANY HAD ALSO UNDERTAKEN THE WORK OF FIXING THE TRUSSES FOR PURPOSES OF ROOFING ON THE BUILDING WHI CH WERE UNDER CONSTRUCTION. THE ASSESSEE CLAIMED THAT IT WAS AN INDUSTRIAL COMP ANY AND ENTITLED TO THE BENEFIT OF THE REDUCED RATE OF TAX. THE ITO REJECT ED THE CLAIM. HOWEVER, THE APPELLATE ASSISTANT COMMISSIONER AND THE TRIBUNAL A LLOWED THE CLAIM. ON A REFERENCE: HELD, THAT HAVING REGARD TO THE FINDINGS OF FACT RE CORDED BY THE TRIBUNAL, THE ASSESSEE COMPANY SQUARELY FELL WITHIN THE MEANING O F INDUSTRIAL COMPANY WHETHER OR NOT THE INCOME FROM THE ACTIVITIES EXCEE DED 51 PER CENT. IT WAS ENTITLED PER CENT. IT WAS ENTITLED TO THE REDUCED RATE OF TAX. 10. THE LD.CIT(A) HAS RELIED ON THE FOLLOWING CASE LAWS WHICH IN OUR VIEW ARE APPLICABLE TO THE FACTS OF THE CASE. 8 I. CIT VS. ALCAM ENGINEERING P.LTD., 336 ITR 294 II. CIT VS. NORTHERN AROMATICS LTD., 196 CTR 479 (D EL) III. CIT VS. IMPEL FORGE & ALLIED INDUSTRIES LTD., 326 ITR 27 (P&H) 11. APPLYING THE PROPOSITIONS LAID DOWN IN THESE C ASES TO THE FACTS OF THIS CASE, WE UPHOLD THE ORDER OF THE LD.CIT(A) AS ON FA CTS, THE LD.D.R. COULD NOT CONTROVERT THE FINDINGS OF THE LD.COMMISSIONER OF I NCOME TAX (APPEALS). 12. COMING TO THE ARGUMENTS OF THE LD.D.R. BASED ON SURVEY AND ON THE GROUND THAT THE ASSESSEE IS CONSTRUCTING ABOVE FAC TORY WHICH IS PROHIBITED/UNDESIRABLE ETC. AND THAT IT IS A CASUA L ACTIVITY ETC., WE ARE OF THE OPINION THAT THESE ARE NOT THE GROUNDS ON WHICH THE A.O. DENIED THE CLAIM OF THE ASSESSEE. SUCH FRESH GROUNDS AND FACTUAL ARGUM ENTS ARE NOT BORNE OUT OF RECORD AND HENCE ARE DISMISSED AS DEVOID OF MERIT. 13. IN THE RESULT BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH JUNE, 2013. SD/- SD/- (I.C. SUDHIR) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: THE 14 TH JUNE, 2013 *MANGA 9 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT (A); 5.DR; 6.GUARD FILE BY ORDER DY. REGISTRAR 1. DATE OF DICTATION: 2. DRAFT PLACED BEFORE THE AUTHOR ON: 3. DRAFT PROPOSED AND PLACED BEFORE SECOND MEMBER ON: 4. DRAFT DISCUSSED/APPROVED BY THE SECOND MEMBER ON: 5. APPROVED DRAFT CAME TO SR.P.S. ON: 6. DATE OF PRONOUNCEMENT : 7. FILE SENT TO BENCH CLERK ON : 8. DATE ON WHICH FILE GIVEN TO HEAD CLERK ON: 9. DATE OF DISPATCHING THE ORDER ON : .