HARNAM SYNTEX P. LTD, MUMBAI V. ITO 8(2)-2, MUMBAI

ITA 4459/MUM/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4514 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 05-01-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 03-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation
• Section: 143(3); 80IB

Judgement Text

HARNAM SYNTEX P LTD. ITA NO. 4151/MUM/2011 ITA NO. 4458 / MUM /201 1 ITA NO. 4459 / MUM /201 1 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H , MUMBAI , , BEFORE SHRI AMIT SHUKLA , JUDICIAL MEMBER AND SHRI RAMIT KOCHAR , ACCOUNTAN T MEMBER I TA NO. : 4151 / MUM /20 1 1 ( ASSESSMENT YEAR: 200 5 - 0 6 ) A C I T CIR - 8(2) , R. NO. 216 - A, AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400 020 VS HARNAM SYNTEX P LTD. , DHANA SINGH PROCESSORS COMPOUND, GALI VAZIR GLASS WORKS ANDHERI KURLA ROAD, JB NAGAR (EAST), MUMBAI 400 059 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NITIN WAGHMODE RESPONDENT BY : MS. RITIKA AGARWAL ITA NO. : 4458 / MUM /20 1 1 ( ASSESSMENT YEAR: 200 5 - 0 6 ) M/S HARNAM SYNTEX P LTD. , JB NAGAR (EAST), MUMBAI 400 059 VS DC I T CIR - 8(2) , R. NO. 216A, AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : MS. RITIKA AGARWAL RESPONDENT BY : SHRI NITIN WAGHMODE I TA NO. : 4459 / MUM /20 11 ( ASSESSMENT YEAR: 200 6 - 0 7 ) M/S HARNAM SYNTEX P LTD. , JB NAGAR (EAST), MUMBAI 400 059 .: PAN: AAAC H 4061 K VS DC I T CIR - 8(2) , R. NO. 216A, AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400 020 (APPELLANT) (RE SPONDENT) APPELLANT BY : MS. RITIKA AGARWAL RESPONDENT BY : SHRI NITIN WAGHMODE /DATE OF HEARING : 02 - 1 1 - 201 5 / DATE OF PRONOUNCEMENT : 04 - 01 - 201 6 ORDER HARNAM SYNTEX P LTD. ITA NO. 4151/MUM/2011 ITA NO. 4458 / MUM /201 1 ITA NO. 4459 / MUM /201 1 2 , . . : PER AMIT SHUKLA, J M : THE AFORESAID APPEAL S HAVE BEEN FILED BY THE ASSESSEE BY THE REVENUE AGAINST SEPARATE IMPUGNED ORDERS OF EVEN DATE, 17 TH JANUARY, 2011 PASSED BY CIT(A) - 17, MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) FOR THE ASSESSMENT YEAR 2005 - 06 & 2006 - 07. 2. WE SHALL TAKE - UP THE CROSS APPEALS FILED BY THE ASSESSEE AS WELL AS BY THE REVENUE FOR AY 2005 - 06 AND IN REVENUES APPEAL FOLLOWING GROUNDS HAVE BEEN RAISED : - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN GRANTING RELIEF OF RS.85,59,982/ - OUT OF THE ADDITIONS MADE BY THE ASSESSING OFFICER WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD ERRONEOUSLY REDUCED THE OLD BROUGHT FORWARD CENVAT CREDIT BALANCE FROM THE SA LES IN THE NAME OF CHANGING THE METHOD OF ACCOUNTING TO COMPLY WITH THE PROVISIONS OF SECTION 145A OF THE INCOME - TAX ACT, 1961, WITHOUT STRICTLY FOLLOWING THE PROVISIONS THEREUNDER. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS OVERLOOKED THE FACT THAT THE CHANGE OF ACCOUNTING METHOD MADE BY THE ASSESSEE IS ARBITRARY AS THE ASSESSEE STILL CONTINUES TO MAINTAIN A SEPARATE PERSONAL LEDGER ACCOUNT OF EXCISE DUTY LIABILITY AND CENVAT CREDIT, WHICH HAS NOT BEEN ROUTED THRO UGH THE PROFIT & LOSS ACCOUNT, IN CONTRADICTION TO ITS STATED CHANGE OVER TO 'INCLUSIVE METHOD' OF ACCOUNTING UNDER SECTION 145A OF THE INCOME - TAX ACT, 1961. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) OUGHT TO HAVE APP RECIATED THE FACT THAT THOUGH THE SECTION 145A WAS INSERTED BY FINANCE (NO.2) ACT, 1998 W.E.F. 01 - 04 - 1999, THE ASSESSEE CHANGED ITS ACCOUNTING METHOD ONLY IN A.Y.2005 - 06, THE YEAR UNDER CONSIDERATION, I.E. AFTER 6 YEARS OF FOLLOWING THE 'EXCLUSIVE METHOD', ONLY WITH A VIEW TO REDUCE THE TAXABLE INCOME BY Z 1,25,34,122/ - .' 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN OVERLOOKING THE FACT THAT THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE WITH REGARD TO ADJUSTMENT OF CENVAT CREDIT NEITHER COMPLIES WITH THE PROVISIONS OF SECTION 145A OF THE ACT NOR WITH THE JUDICIAL PRONOUNCEMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. MAHAVIR ALUMINUM LTD 297 ITR 77 (DEL). 2. THE APPELLANT PRAYS THAT THE ORDER OF TH E CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. HARNAM SYNTEX P LTD. ITA NO. 4151/MUM/2011 ITA NO. 4458 / MUM /201 1 ITA NO. 4459 / MUM /201 1 3 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3. WHEREAS, IN THE ASSESSEES APPEAL, FOLLOWING GROUNDS HAVE BEEN RAISED: - 1 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 39,74,140/ - OUT OF MODVAT CREDIT ON THE GROUND THAT THE AMOUNT REPRESENTED LIABILITY OF THE EARLIER ASSESSMENT YEARS. 2 . ON THE FACTS A ND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE AMOUNT UNDER REFERENCE EVEN THOUGH PERTAINED TO THE TRANSACTIONS OF EARLIER YEARS BECAME ELIGIBLE FOR DEDUCTION IN THE YEAR UNDER CONSIDERATION ON ACCOUNT OF CHANG E IN METHOD OF ACCOUNTING TO COMPLY WITH THE PROVISIONS OF SECTION 145A. 3 . WITHOUT PREJUDICE TO THE ABOVE GROUNDS THE LD. CTT(A) ERRED IN NOT DIRECTING THE AO TO ALLOW THE DEDUCTION IN THE RESPECTIVE YEARS ONCE SHE RECORDED A FINDING THAT THE AMOUNTS PERTA INED TO EARLIER ASSESSMENT YEARS. 4 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF DEDUCTION U/S 80IB OF RS. 59,66,478/ - ON THE GROUND THAT THE ASSESSEE IS NOT UNDERTAKING ANY MANUFACTURI NG ACTIVITY EVEN THOUGH THE CLAIM WAS ALLOWED BY THE DEPARTMENT IN THE PRECEDING YEAR. 5 . IN DOING SO THE LD. CIT(A) FAILED TO APPRECIATE THAT THE APPELLANT OWNED PLANT & MACHINERY OF SUBSTANTIAL VALUE AND WAS INCURRING EXPENSES UNDER THE HEAD WAGES AND ELEC TRIC EXPENSES FOR CARRYING OUT VARIOUS MANUFACTURING ACTIVITIES. THE APPELLANT CRAVES TO ADD, ALTER OR DELETE ALL OR MODIFY ANY OR ALL THE ABOVE GROUNDS OF APPEAL. 4. FROM THE PLAIN READING OF ABOVE, IT IS APPARENT THAT, G ROUND NO. 1 T O 4 OF THE DEPARTM ENTS APPEAL AND GROUND NO. 1 & 2 OF THE ASSESSEES APPEAL ARE COMMON, THEREFORE, THE SAME ARE BEING DISCUSSED FIRST. 5. THE BRIEF FACTS QUA THE ISSUE INVOLVED ARE THAT, THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT AND TRADI NG OF FABRIC. THE AO FROM THE PERUSAL OF CLAUSE 11 OF THE AUDIT REPORT NOTED THAT, AUDITORS HAVE MENTIONED THAT ALL THE PURCHASE S AND SALES WERE ACCOUNTED INCLUSIVE OF EXCISE DUTY AS PER HARNAM SYNTEX P LTD. ITA NO. 4151/MUM/2011 ITA NO. 4458 / MUM /201 1 ITA NO. 4459 / MUM /201 1 4 THE PAST PRACTICE OF ACCOUNTING THESE ITEMS AS NET OF EXCISE DUTY. O PENING MODVAT OF EXCISE DUTY IS ADJUSTED AGAINST SALES. THIS HAS RESULTED IN LOWER PROFIT AMOUNTING TO RS. 1,25,34,122/ - . IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT THE METHOD OF ACCOUNTING HAS BEEN CHANGED TO BE IN LINE WITH SECTIO N 145A , WHEREBY NOW THE ASSESSEE HAS CHANGED THE ACCOUNTING O F EXCISE DUTY FROM EXCLUSIVE TO INCLUSIVE METHOD. THIS HAS RESULTED IN HIGHER PURCHASES AND HIGHER SALES. THE OPENING BALANCE OF C EN VAT CREDIT LYING AS CURRENT ASSETS IN THE BOOK OF THE COMPANY H AS BEEN ADJUSTED AGAINST EXCISE CREDIT PAYABLE DURING THE YEAR AND ACCORDINGLY, EXCISE DUTY PAYABLE FOR THE YEAR AND SALES IS REDUCED BY THIS AMOUNT. SUCH A CHANGE WAS PURELY BONA FIDE SO AS TO BRING IN CONFORMITY WITH SECTION 145A. RELEVANT ACCOUNTING EN TRY MADE IN THIS YEAR WAS SHOWN IN THE FOLLOWING MANNER: - FROM DECEMBER 2004 ONWARDS COMPANY HAS STOPPED OWN PRODUCTION AND ACCORDINGLY TRANSFERRED UNUTILIZED CENVAT CREDIT TO PURCHASE ACCOUNT. DETAILS OF CENTRAL EXCISE DUTY YEAR WISE AS UNDER: AS ON 31.0 3.2003 NIL AS ON 31.03.2004 RS. 70,34,659/ - THIS EXCESS BALANCE REMAINED DUE TO EXCESS DUTY PAID ON PURCHASES. SUMMARY OF CENTRAL EXCISE DUTY (CENVAT A/C.) DEBIT OPENING BALANCE ADD: EXCISE DUTY PAID ON PURCHASES DURING THE YEAR 70,34,659 1,96,74,13 9 2,67,08,798 LESS: EXCISE DUTY PAID ON CAPITAL GOODS 9,376 2,66,99,422 LESS: EXCISE DUTY PAID ON GOODS RETURNED 7,643 2,66,91,779 LESS: CINVAT CREDIT TAKEN DURING YEAR 1,51,44,409 BALANCE TRANSFERRED TO PURCHASES 1,11,47,370 FURTHER, VIDE ORDER DATED 11.02.2007, THE ASSESSEE SUBMITTED AS UNDER: - THE COMPANY WAS FOLLOWING ACCOUNTING SYSTEM BY WHICH EXCISE DUTY COMPONENT ON PURCHASE WAS TAKEN TO SEPARATE ACCOUNT AND TO BE ADJUSTED AGAINST EXCISE DUTY LIABILITY. TH IS IS ACCEPTED ACCOUNTING PRINCIPLE IN MANUFACTURING ACCOUNT. DURING THE YEAR THE COMPANY HAD CHANGED ITS ACCOUNTING POLICY IN LINE WITH ACCOUNTING STANDARDS AS PRESCRIBED UNDER SEC. 145A OF THE INCOME TAX ACT, 1961. AS PER THIS ACCOUNTING SYSTEMS ALL PUR CHASES AND SALES WERE ACCOUNTED I NCLUSIVE OF HARNAM SYNTEX P LTD. ITA NO. 4151/MUM/2011 ITA NO. 4458 / MUM /201 1 ITA NO. 4459 / MUM /201 1 5 EXCISE DUTY. THIS IS IN LINE WITH THE REQUIREMENT OF INCOME TAX ACT, 1961. SINCE CLOSING STOCK OF EARLIER YEAR IS TO B E TAKEN AS OPENING STOCK OF CURRENT YEAR, NO ADJUSTMENT IS MADE TO THIS ITEM. IN CASE THE ADJ USTMENT IS TO BE MADE ON ACCOUNT OF EXCISE DUTY COMPONENT IN OPENING STOCK THE VALUE OF OPENING STOCK WOULD HAVE BEEN HIGHER BY RS. 30,59,4261 - AND CONSEQUENTLY PROFIT FOR THE YEAR W ILL HE LOWER BY RS. 30.59.426/ - . IN ADDITION, THE COMPANY WAS HAVING UNUT ILIZED EXCISE CREDIT AMOUNTING TO RS. 70,34,659 / - . THIS AMOUNT WAS ADJUSTED AGAINST EXCISE DUTY LIABILITY FOR THE YEAR AND CONSEQUENTLY LOWER SALES. SINCE PURCHASE AMOUNT HAS BEEN ALREADY REDUCED IN PAST RESULTING IN HIGHER INCOME IN EARLIER YEARS, THIS AM OUNT AGAI N CANNOT B E TAXED AS INCOME FOR THE YEAR. IN CASE COMPANY HAD FOLLOWED THE SAME ACCOUNTING POLICY AS FOLLOWED IN EARLIER YEAR, THE INCOME OF THE YEAR WOULD HE HIGHER BY RS. 1,15,47,370 / - AS GIVEN IN ATTACHED STATEMENT. IN AUDIT REPORT DUE TO TYPO GRAPHICAL ERROR THIS AMOUNT IS REPORTED AS RS. 1,25,34,122 / - . SINCE THE COMPANY HAD CHANGED ITS ACCOUNTING POLICY IN LINE WITH THE ACCOUNTING STANDARD PRESCRIBED UNDER SECTION 145A AND ALSO DUE TO FACT THAT THE OPENING MODVAT CREDIT WHICH WAS ALREADY TAXE D IN EARLIER YEARS, NO ADJUSTMENT ON ACCOUNT OF CHANGE IN ACCOUNTING POLICY IS WARRANTED . 6. HOWEVER, LD. AO REJECTED THE ASSESSEES CONTENTION AND HELD THAT ASSESSEE ITSELF HAD MENTIONED IN THE AFORESAID REPLY THAT UNUTILIZED MODVAT CREDIT OF RS. 70,34, 659/ - WAS NOT INCLUDED IN SALES AND FURTHER , RS. 81,09,075/ - WAS ONLY NOTIONAL EXCISE DUTY SHOWN AS SALES AS THE ASSESSEE WAS EXEMPTED FROM EXCISE DUTY. THAT APART, THE ASSESSEE WAS STILL MAINTAINING A SEPARATE EXCISE ACCOUNT FOR EXPORT SALES WHICH HAS NOT BEEN PASSED THROUGH THE PROFIT & LOSS ACCOUNT EVEN AFTER THE CHANGING THE METHOD OF ACCOUNTING DURING THE YEAR. THUS, HE HELD THAT, ASSESSEE HAD NOT INCLUDED EXCISE DUTY IN ALL HIS PURCHASES AND SALES AND HENCE HE ADDED BACK A SUM OF RS. 1,25,24,122/ - WHI CH WAS THE EFFECT OF CHANGE OF METHOD BY THE ASSESSEE. 7. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT THE ACTUAL AMOUNT OF THE CREDIT WAS AT RS. 1,15,47,370/ - AND THE FIGURE NOTED BY THE AUDITOR WAS A MISTAKE. REGARDING MAINTAINING OF SEPARATE EXCISE D UTY FOR ACCOUNTING OF EXPORTS SALES, IT WAS SUBMITTED THAT THE ASSESSEE HA D EXCISE DUTY ELEMENT IN TWO CAPACITIES; FIRST, AS A HARNAM SYNTEX P LTD. ITA NO. 4151/MUM/2011 ITA NO. 4458 / MUM /201 1 ITA NO. 4459 / MUM /201 1 6 MANUFACTURER AND SECOND, AS AN EXPORTER. AS FAR AS MODVAT IS CONCERNED, IT HAS EFFECT ONLY AS A MANUFACTURER. ACCORDINGLY, ONCE T HE ASSESSEE HAD SWITCHED OVER TO INCLUSIVE METHOD OF ACCOUNTING, IT HAD TO REFLECT OPENING STOCK, PURCHASES, SALES AND CLOSING STOCK AND AFTER TAKING INTO ACCOUNT EXCISE EFFECT. AS FAR AS EXCISE REFUND ON ACCOUNT OF EXPORT IS CONCERNED, THE SAME BENEFIT IS ON THE EXPORTS WHICH HAVE BEEN SEPARATELY REFLECTED IN THE PROFIT AND LOSS ACCOUNT. THUS, THE AO HAS COMPLETELY ERRED HIMSELF IN CONCLUDING THAT, THE CHANGE OF ACCOUNTING TO INCLUSIVE METHOD HAVE NOT BEEN REFLECTED. IT WAS FURTHER SUBMITTED THAT, THE ASSE SSEE HAD TAKEN INTO ACCOUNT BROUGHT FORWARD AMOUNT OF EXCISE DUTY OF RS. 7 0 ,34,659/ - WHICH COMPRISED OF RS. 30,49,426/ - IN RELATION TO THE G O O D S IN THE OPENING STOCK AND THE BALANCE REPRESENTED UNADJUSTED MODVAT CREDIT BROUGHT FORWARD FROM THE EARLIER YEAR S. THIS AMOUNT OF RS. 7 0 ,34,659/ - WAS ADJUSTED AGAINST MODVAT CREDIT WITH REFERENCE TO THE SALES OF RS. 1,51,44,409/ - AND THE BALANCE OF RS. 81,09,950/ - WAS CREDITED TO THE ACCOUNTS. THUS, THIS WAS NOT A NOTIONAL AMOUNT AS HELD BY THE AO. FURTHER, IT WAS S TATED THAT THE AMOUNT OF RS. 1,96,57,120/ - WAS DEPOSITED BEING MODVAT BENEFIT ON ACCOUNT OF PURCHASES AND THE NET IMPACT WOULD BE RS. 1,15,47,370/ - WHICH WAS IN THE FOLLOWING MANNER: - SR.NO. HEADS OF MODVAT CREDIT AMOUNT IN RS 1 BROUGHT FORWARD MODVA T CREDIT 17,34,659 2 MODVAT CREDIT ON PURCHASES 1,96,57,120 3 LESS: MODVAT CREDIT ON SALE 1,51,44,409 BALANCE 1,15,47,370 8. THE LD. CIT(A) AFTER CALLING FOR THE REMAND REPORT AND THE CONSIDERING THE ASSESSEES SUB MISSION, PARTLY SUSTAINED THE ADDITION OF RS. 39,74,140/ - AND DELETED THE BALANCE AMOUNT OF RS. 85,59,982/ - AFTER OBSERVING AND HOLDING AS UNDER: - THE SUBMISSION HAS BEEN CAREFULLY CONSIDERED AND MATERIALS ON RECORD PERUSED. THE CHANGE IN METHOD OF ACCOU NTING MADE BY THE APPELLANT IS CLAIMED TO BE IN LINE WITH PROVISIONS OF SECTION 145A. THE AO DID NOT ACCEPT THAT THE APPELLANT HAD IN FACT CHANGED THE METHOD OF HARNAM SYNTEX P LTD. ITA NO. 4151/MUM/2011 ITA NO. 4458 / MUM /201 1 ITA NO. 4459 / MUM /201 1 7 ACCOUNTING AS THE AO MISUNDERSTOOD THE ADJUSTMENTS MADE TO THE MODVAT CREDITS OF THE YEAR BY TH E BROUGHT FORWARD AND UNUTILIZED MODVAT CREDIT AND CREDIT TO THE SALES ONLY OF THE BALANCE OF RS. 81,09,750/ - , THE AO ALSO REFERRED TO EXCISE DUTY REFUND WHICH HAD BEEN SEPARATELY ACCOUNTED FOR TO SUPPORT THE STAND THAT THERE WAS VIOLATION OF SECTION 145A. WHEN THE APPELLANT CHANGED THE METHOD OF ACCOUNTING TO INCLUSIVE METHOD, NATURALLY IT HAD TO ACCOUNT THE PURCHASE AND SALES INCLUDING EXCISE DUTY ELEMENT. THE EXCISE DUTY OF THE OPENING STOCK WHICH ACCORDING TO THE APPELLANT AMOUNTING TO RS. 30,60,519/ - H AD ALSO TO BE CONSIDERED. THE APPELLANT HAS STATED THAT IT PAYS DUTY AT 24% WHEN PURCHASES ARE MADE AND GETS 10% REBATE ON PROCESSING OF FABRICS. THEREFORE IT FOLLOWS THAT THERE WOULD ALWAYS BE MORE DEBITS OF EXCISE DUTY THAN CREDITS DURING A YEAR AND WHEN PURCHASE AND SALES ARE ACCOUNTED WITH OR WITHOUT EXCISE DUTY THE PROFITS WOULD BE DIFFERENT. IT BEING LESS IN A SITUATION WHERE EXCISE DUTY PORTION IS INCLUDED AND ALSO WHERE AN ASSESSEE GETS A REBATE AS CLAIMED BY THE APPELLANT. THE APPELLANT HAS EXPLAIN ED THAT THE ACTUAL AMOUNT OF DIFFERENCE WAS RS. 1,15,47,370/ - AND NOT RS. 1,25,34122/ - THE AMOUNT OF RS. 1,15,47,370/ - BEING AMOUNT OF PROFIT REDUCED WITH THE APPELLANT CHANGED ITS METHOD OF ACCOUNTING COMPRISES OF BROUGHT FORWARD MODVAT CREDIT OF RS 70,34 ,659/ - AND RS. 45,12,711/ - BEING THE DIFFERENCE TOWARDS EXCISE DUTY PAID OF RS.1,96,57,120/ - AND MODVAT CREDITS RS. 1,51,44,409/ - OF THE CURRENT YEAR AS REGARDS THE AMOUNT OF RS. 45,12,711/ - , THERE IS NO DISPUTE AS IT IS A NET EFFECT OF THE CHANGE IN METHO D OF ACCOUNTING IN THE YEAR UNDER CONSIDERATION. REGARDING THE BROUGHT FORWARD MODVAT CREDIT OF RS.70,34,659/ - THE APPELLANT HAS STATED THAT AN AMOUNT OF RS. 30,60,519/ - RELATES TO EXCISE DUTY PORTION OF THE OPENING STOCK AND THEREFORE HAS TO BE CONSIDERED WHILE ARRIVING AT THE PROFIT OF THE YEAR. THUS ISSUE BOILS HARNAM SYNTEX P LTD. ITA NO. 4151/MUM/2011 ITA NO. 4458 / MUM /201 1 ITA NO. 4459 / MUM /201 1 8 DOWN TO THE BALANCE VALUE OF RS. 39,74,140/ - . THE APPELLANT HAS ARGUED THAT THIS CANNOT BE BROUGHT TO TAX AS THIS AMOUNT HAS ALREADY SUFFERED TAX IN EARLIER YEARS ON ACCOUNT OF PURCHASE PRICE OF T HOSE YEARS BEING LESS. THE APPELLANT'S PLEA CANNOT BE ACCEPTED ON ACCOUNT OF THE FACT THAT APPELLANT SHOULD HAVE CHANGED THE METHOD OF THOSE YEARS TOO AS THE PROVISIONS OF SECTION 145A WERE IN FORCE W.E.F. 1.4.99. THUS, IF THE ADJUSTMENT IS REQUIRED THEN I N THOSE YEARS THE ASSESSMENT OF EVERY ASSESSMENT YEAR BEING SEPARATE AND TAKES INTO ACCOUNT THE EFFECT OF TRANSACTIONS OF THAT PARTICULAR YEAR, THE EFFECT OF ADJUSTMENT REQUIRED IN EARLIER YEARS CANNOT BE BROUGHT INTO IN A DIFFERENT ASSESSMENT YEAR THOUGH IT IS AS PER ACCOUNTING PRINCIPLE. HENCE, OUT OF TOTAL DISALLOWANCE OF RS. 1,25,34,122/ - AMOUNT OF RS. 39,74,140/ - IS SUSTAINED AND BALANCE OF RS. 85,59,982/ - IS DELETED . 9. BEFORE US, THE LD. COUNSEL, MS. RITIKA AGARWAL AFTER EXPLAINING THE ENTIRE FACTS SUBMITTED THAT, FIRSTLY , THE IMPACT ON THE PROFIT WAS AT RS. 1,15,47,370/ - AND NOT RS. 1,25,47,370/ - AS NOTED BY BOTH THE AO . THIS ASPECT WAS MADE AMPLY CLEAR BEFORE THE CIT(A). THE FIGURE OF RS. 1, 15,47,370/ - INCLUDED SUM OF RS. 70,34,659/ - WHICH RELATES TO THE OPENING STOCK AND UNUTILIZED CREDIT FOR EARLIER YEARS, BECAUSE IT GOT ACCUMULATED ON THE EXCISE DUTY WHICH IS AT 24% , WHEREAS, THE DUTY PAYABLE ON THE FINISHED GOODS WA S AT 10% LEADING TO A MARGIN OF 14%. THIS AMOUNT IS FURTHER DIVIDED INTO 2 PARTS ; FIRST, RELATABLE TO OPENING STOCK OF RS. 30,60,599/ - AND OTHER PART, RELATABLE PRIOR TO YEAR , OF ACCUMULATION OF RS. 39,74,140/ - . THE OTHER COMP ONENT OF THE FIGURE OF RS. 1 , 15,47,370/ - I.E. (1,15,47,370 70,34,659) INCLUDED SUM OF RS. 45,12,711/ - WHICH IS ON ACCOUNT OF CURRENT YEARS DIFFERENCE IN EXCISE DUTY PAID ON INPUTS LESS PAYABLE ON SALES CLAIMED IN THE PROFIT AND LOSS ACCOUNT DUE TO CHANGE IN THE METHOD OF ACCOUNTING U/S 145A. AS REGARD S THE FINDING OF THE CIT(A) FOR CONFIRMING THE BALANCE AMOUNT OF RS. 39,74,140/ - OUT OF SUM OF HARNAM SYNTEX P LTD. ITA NO. 4151/MUM/2011 ITA NO. 4458 / MUM /201 1 ITA NO. 4459 / MUM /201 1 9 RS. 70,34,659/ - WHICH IS TO BE ADJUSTED IN THE RELEVANT ASSESSMENT YEAR, SHE SUBMITTED THAT THE SAID AMOUNT HAD ALREADY SUFFERED TAX IN THE EARLIER YEARS WHEN THE AMOUNT OF PURCHASES HAD BEEN SUFFERED TAXED IN THE EARLIER YEARS AS IT HAD BEEN CLAIMED AT THE FIGURE EX CLUSIVE OF EXCISE DUTY THOUGH PAID BUT NOT BEEN CLAIMED DUE TO EX CLUSIVE METHOD. SO FAR AS HIS OBSERVATION THAT THE PROVISIONS OF SECTION 145A CAME INTO FORCE W.E.F. 01.04.1999, THEREFORE, ADJUSTMENT CANNOT BE M ADE IN THE IMPUGNED YEAR , SHE SUBMITTED THAT LD. CIT(A) HAD HIMSELF ACCEPTED THAT THE CHANGE OF METHOD OF ACCOUNTING IS AS PER THE ACCOUNTING PRINCIPLE AND ONCE THAT IS SO THEN LOGICAL EFFECT HAVE TO BE GIVEN IN THE YEAR OF CHANGE. HERE IN THIS CASE ALREAD Y THIS AMOUNT HAS SUFFERED TAX IN THE EARLIER YEARS BY NOT CLAIMING IT . THUS, NO DISALLOWANCE IS CALLED FOR. SUM AND SUBSTANCE OF HER ARGUMENTS PUT FORTH BEFORE US CAN BE SUMMARIZED AS UNDER: - ( I ) THE EXPORT SALES ARE EXEMPT FROM EXCISE DUTY AND THEREFORE E XCISE DUTY ON THE SAME IS NOT ROUTED THROUGH PROFIT & LOSS ACCOUNT. THIS HAS NO IMPACT ON THE ISSUE OF DELETION OF RS. 1,25,47,370/ - . ( II ) THE CHANGE IN THE METHOD OF ACCOUNTING IS BONA FIDE AND AS PER LAW OF ACCOUNTING PRINCIPLES. THE ASSESSEE HAS BEEN SUBJEC TED TO SCRUTINY FROM AY 2001 - 02 TO AY 2004 - 05 EXCEPT AY 2003 - 04 FOR WHICH INTIMATION U/S 143(I)(A) WAS ISSUED. IN ALL THESE YEARS EXCISE DUTY HAS BEEN ACCOUNTED FOR AN EXCLUSIVE METHOD AND AMOUNT CLAIMED HAS BEEN ACCEPTED AS SUCH AFTER DUE VERIFICATION. IT IS NOT PROPER TO SAY THAT THE ASSESSEE SHOULD BE PENALIZED FOR NOT CHANGING METHOD OF ACCOUNTING IN EARLIER YEARS, ESPECIALLY WHEN THE ACCOUNTS AND RECORDS HAVE BEEN ACCEPTED AS CORRECT IN THE PAST YEARS. HARNAM SYNTEX P LTD. ITA NO. 4151/MUM/2011 ITA NO. 4458 / MUM /201 1 ITA NO. 4459 / MUM /201 1 10 ( III ) THE AMOUNT OF RS. 70,34,659/ - HAS BECOME DUE AND ACCRUED AS A CLAIM IN THE AY 2005 - 06 ITSELF DUE TO THE CHANGE OF METHOD OF ACCOUNTING. FOLLOWING MERCANTILE METHOD, THE AMOUNT CAN ONLY BE CLAIMED IN THE YEAR WHEN IT HAS BECOME DUE AND IT CANNOT BE BROKEN UP FOR CLAIM IN PAST YEARS WHEN IT HAD NOT EVEN BE COME DUE. ( IV ) THE AMOUNT OF RS.81,09,750/ - IS A NOTIONAL DUE. IT IS CLARIFIED THAT THE TOTAL EXCISE DUTY PAYABLE ON SALE DURING THE YEAR WAS RS. 1,51,44,409/ - . AFTER REDUCING THE OPENING CREDIT OF RS. 70,34,659/ - , THE BALANCE REMAINING PAYABLE ON SALE WAS RS . 81,09,750/ - . THIS WAS FURTHER REDUCED FROM THE AMOUNT OF EXCISE DUTY OF RS. 1,96,74,139/ - ALREADY PAID ON INPUTS DURING THE YEAR. THUS BALANCE REMAINING UNCLAIMED ON ACCOUNT OF CURRENT YEARS PURCHASES IS RS. 1,15,47,370/ - . THIS CAN BE SEEN FROM THE PAGE 3 OF THE ASSESSMENT ORDER. ( V ) IT HAS BEEN DEMONSTRATED ON PAGE 7 OF WRITTEN SUBMISSIONS DATED 20.04.2015 THAT WHETHER THE MODVAT CREDIT OF RS. 70,34,659/ - IS ADDED TO OPENING STOCK OR REDUCED FROM THE SALES, THE NET ARITHMETICAL RESULT IS THE SAME. 1 0. ON THE OTHER HAND, LD. DR REITERATED THE STAND TAKEN BY THE AO THAT THE CHANGE IN THE M ETH OD OF ACCOUNTING WAS NOT PROPER AND THE ENTIRE DISALLOWANCE MADE BY THE AO DESERVES TO BE SUSTAINED. HE THUS, STRONGLY RELIED UPON THE ORDER OF THE AO. 11. WE HAV E CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND ALSO PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS. SO FAR AS THE CHANGE IN METHOD OF ACCOUNT ING FOR THE EXCISE DUTY FROM EXCLUSIVE METHOD TO INCLUSIVE METHOD THE SAME IS PURELY BONA FIDE AND IS IN LINE WITH PROVISION O F SECTION 145A , WHICH PROVIDES THAT HARNAM SYNTEX P LTD. ITA NO. 4151/MUM/2011 ITA NO. 4458 / MUM /201 1 ITA NO. 4459 / MUM /201 1 11 THE VALUATION OF PURCHASE AND SALE OF GOODS AND INVENTORY SHALL BE FURTHER ADJUSTED TO INCLUDE AMOUNT OF ANY TAX, DUTY, CESS OR FEE ACTUALLY PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS TO ITS LOCATION AND THE CONDITION A S ON THE DATE OF VALUATION. IN THE EARLIER YEARS THE ASSESSEE HA D BEEN ASSESSED UNDER SCRUTINY PROCEEDINGS RIGHT FROM ASSESSMENT YEAR 2001 - 02 TO 2004 - 05 , WHEREIN, THE ASSESEES EXCLUSIVE METHOD FOR ACCOUNTING EXCISE DUTY HAS BEEN ACCEPTED. IF THE CHANGE IN THE ACCOUNTING HAS BEEN MADE BONA FIDELY THEN , THERE WOULD DEFINITELY BE SOME IMPACT IN THIS YEAR BUT IT GETS REVENUE NEUTRAL IN THE SUBSEQUENT YEARS. IN THE INCLUSIVE METHOD OF ACCOUNTING, NOW THE ASSESSEE HAD TO ACCOUNT FOR THE EXCISE DUTY STOCK OF RS.30,60,519/ - IN THE OPENING STOCK AND ALSO CONSIDER THE UNUTILIZED CREDIT FOR THE EARLIER YEARS. THE ASSESSEE HAD POINTED OUT THAT, EXCISE DUTY ON PURCHASES WE RE AT 24% AND 10% O N THE PROCESSING OF FABR ICS WHICH RESULTS INTO MORE ELEMENT OF EXCISE DUTY MARGIN BY 14%. THIS PRIOR PERIOD ACCUMULATION HAS TO BE GIVEN CREDIT DURING THE YEAR , WHEN PURCHASE S AND SALES ARE ACCOUNTED WIT H OR WITHOUT EXCISE DUTY, A N D IF SUCH EXERCISE IS CARRIED OUT THERE WOULD BE DIFFERENCE IN PROFITS. SO FAR AS THE AMOUNT OF RS. 81,09,050/ - WHICH THE AO HELD IT TO BE A NOTIONAL DU TY , THE LD. CIT(A) ON A CORRECT APPRECIATION OF FACTS HAS GIVEN CORRECT FINDING, WHICH CAN NOT BE INTERFERED WITH AS T HE TOTAL EXCISE DUTY PAYABLE ON THE SALE DURING THE YEAR WAS AT RS. 1,51,44,409/ - AND AFTER REDUCING THE OPENING CREDIT OF RS. 70,35,659/ - THE BALANCE REMAINING PAYABLE ON THE SALE WAS RS. 81,09,750/ - . THIS WAS FURTHER REDUCED FR O M THE AMOUNT OF THE EXCISE DUTY PAID ON INPUTS DURING THE YEAR FOR SALES AGGREGATIN G TO RS. 1,96,74,139/ - . THE BALANCE REMAINING ON CURRENT PURCHASES IS RS. 1,15,47,370/ - AND THIS HAS BEEN DULY ACCOUNTED FOR IN THE MANNER PROVIDED U/S 145A IN THIS YEAR. THE LD. CIT(A) ALREADY GIVEN RELIEF ON ACCOUNT EXCISE PORTION OF THE OPENING STOCK OF RS. 30,60,519/ - AS IT WAS PART OF THE BROUGHT FORWARD MODVAT CREDIT OF RS. 70,50,659/ - . HOWEVER, THE SUM OF RS. 39,74,140/ - WHICH HARNAM SYNTEX P LTD. ITA NO. 4151/MUM/2011 ITA NO. 4458 / MUM /201 1 ITA NO. 4459 / MUM /201 1 12 HAS BEEN CONFIRMED BY THE CIT(A) CANNOT BE UP HELD IN PRINCIPLE BECAUSE THESE ARE ACCRUAL OVER THE YEAR S AND WHEN THERE IS CHA NGE IN THE METHOD OF ACCOUNTING IN THE ASSESSMENT YEAR 2005 - 06, THE ENTIRE AMOUNT GETS DUE IN THIS YEAR WHICH HAS TO BE ALLOWED . HOWEVER SUCH AN ALLOWANCE IS SUBJECT TO LIMITED VERIFICATION BY THE AO, WHETHER THE ASSESSEE HAS FORGONE THE MODVAT CREDIT AS P ER EXCISE LAW AND RULES AND INSTEAD AVAILED THE BENEFIT UNDER THE INCOME - TAX ACT IN THIS YEAR AND FURTHER IF THE SAID AMOUNT HAS ALREADY SUBJECTED TO TAX IN THE EARLIER YEARS IN A WAY THAT THE ASSESSEE HAD NOT CLAIMED THE BENEFIT OF EXCISE DUTY ON THIS AMO UNT IN THE EARLIER YEAR AND HENCE RELIEF HAS TO BE GIVEN IN THIS YEAR . THUS, WITH THIS LIMITED DIRECTION OF VERIFICATION THE ISSUE RAISED VIDE REVENUES GROUND ARE TREATED AS DISMISSED WHEREAS THE AMOUNT OF RS. 39,74,140/ - AS CONFIRMED BY THE CIT(A) IS TRE ATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES . 12. IN THE RESULT, THE REVENUES GROUNDS ARE TREATED AS DISMISSED AND ASSESSEES GROUNDS ARE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE . 13. NOW WE WILL COME TO GROUND NO. 4 AND 5 OF THE ASSESSEE WH EREBY, THE ASSESSEE HAVE CHALLENGED DEDUCTION U/S 80IB OF RS. 59,60,478/ - . 14. THE BRIEF FACTS ARE THAT, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF FABRICS WITH A SMALL SCALE UNIT AT VALSAD DISTRICT, GUJARAT WHERE IT CARRIES OUT THE ACTIV ITIES OF CRIMPING, TWISTING, SIZING, WARPING AND WEAVING WORK. IN RESPONSE TO THE SHOW CAUSE NOTICE AS TO WHY SUCH ACTIVITY SHOULD BE TREATED AS MANUFACTUR ING AND CLAIM FOR DEDUCTION U/S 80IB BE ALLOWED, THE ASSESSEE SUBMITTED THAT, IT HAS STARTED ITS MA NUFACTUR ING ACTIVITY WAY BACK IN THE YEAR 1998 AND CLAIMED DEDUCTION U/S 80IB IN AY 2001 - 02. THE ASSESSEE HAS BEEN UNDERTAK ING THE ACTIVITIES FROM THE EARLIER YEARS WHICH HAD BEEN ACCEPTED TO BE MANUFACTURING. IN SUPPORT, CERTAIN DECISIONS WERE ALSO RELIED UPON. HOWEVER, THE AO REJECTED THE ASSESSEES CLAIM AFTER ANALYZING THE HARNAM SYNTEX P LTD. ITA NO. 4151/MUM/2011 ITA NO. 4458 / MUM /201 1 ITA NO. 4459 / MUM /201 1 13 USAGE OF RAW MATERIALS AND THE FINISHED PRODUCTS AND THE PROCESS AS GIVEN IN PARA 5.5 OF THE ORDER AND HELD THAT THE ACTIVITY CARRIED OUT BY THE ASSESSEE CANNOT BE TREATED AS MANUFACT URING. 15. BEFORE THE CIT(A), EXHAUSTIVE SUBMISSIONS WERE MADE WHICH ARE DEALT AND INCORPORATED BY CIT(A) IN PARA 5.2 TO 5.5. THE SUM AND SUBSTANCE OF ASSESSEES CONTENTION BEFORE THE CIT(A) THAT THE ASSESSEE HAS USED HUGE ELECTRICITY CHARGES ON RUNNING O F MACHINES WHICH WAS AT RS. 1,13,95,513/ - AND FUEL AND OIL CHARGES OF RS. 45,81,112/ - . APART FROM THAT, THE ASSESSEE HAS CLAIMED HUGE DEPRECATION ON PLANT AND MACHINERY AND THE VALU E OF GROSS BLOCK AS ON 01.04.2004 WAS RS. 2,69,31,301/ - . IT WAS SUBMITTED T HAT, ONLY WEAVING AND FINAL PROCESSING WAS OUTSOURCED , OTHERWISE ALL THE OTHER ACTIVITIES LIKE, CRIMPING, SIZING, WARPING IS DONE BY THE ASSESSEE FROM ITS OWN PLANT AND MACHINERY AND LABOURS. THE ASSESSEE WAS ALSO CLAIMED EXCISE DUTY AND IS REGISTERED AS S SI UNIT ITSELF SHOWS THAT MANUFACTURING ACTIVITY IS BEING TAKEN PLACE. HOWEVER, THE CIT(A) UPHELD THE ACTION OF THE AO AFTER OBSERVING AND HOLDING AS UNDER : - THE SUBMISSION OF THE APPELLANT HAS BEEN CAREFULLY CONSIDERED AND THE MATERIAL ON RECORDS PERUS ED. AS PER THE AUDIT REPORT AND STATEMENT ATTACHED TO THE REPORTS THE APPELLANT HAD MACHINERIES ON WHICH DEPRECIATION HAD BEEN CLAIMED AS ALSO EXPENSES ON ACCOUNT OF FACTORY, OIL AND FUEL EXPENSES. IN THE NORMAL COURSE THIS SHOULD POINT TO THE APPELLANT HA VING BEING INVOLVED IN MANUFACTURING BUT, AS PER THE AUDIT REPORT IN SCHEDULE N NOTES FORMING PART OF ACCOUNTS IN POINT 6 IT IS STATED PRODUCT DESCRIPTION 'TRADING IN FABRICS' IT IS ALSO STATED IN REPORT U/S. 44AB THAT NATURE OF BUSINESS OR PROFESSION - ' E XPORT AND TRADING OF FABRICS'. THE APPELLANT IN ITS SUBMISSION HAS NOT STATED CLEARLY WHAT THE MANUFACTURING PROCESS WAS, THE DETAILS OF MACHINERY INVOLVED, THE NATURE OF PRODUCTS PRODUCED AS A RESULT OF THE PROCESS. THE APPELLANT SHOULD HAVE PRODUCED CENT RAL EXCISE REGISTERS OR SOME OTHER RECORDS /TO SUPPORT THE CLAIM THAT MANUFACTURE WAS INVOLVED. THE APPELLANT HAS STATED THAT HAD A SMALL SCALE UNIT IN SARIGAM (VALSAD DIST.) WHERE IT IS INVOLVED IN CRIMPING, TWISTING, SIZING, WARPING AND WEAVING . IT WAS ALSO STATED THAT AFTER RAW FABRICS WERE PRODUCED IT WAS SENT TO PROCESS HOUSES OUTSIDE FOR FURTHER PROCESSING. IF THAT WAS THE CASE, THE APPELLANT COULD HAVE PRODUCED RECORDS TO SHOW THAT AFTER RAW FABRICS WAS MANUFACTURED THESE WERE SENT OUTSIDE FOR FURTH ER PROCESSING. IN THE ABSENCE OF TO PROOF AND THE CATEGORICALLY STATEMENTS OF AUDITORS REFERRED TO ABOVE THE DENIAL OF DEDUCTION U/S. 801B BY THE AO IS CORRECT. HARNAM SYNTEX P LTD. ITA NO. 4151/MUM/2011 ITA NO. 4458 / MUM /201 1 ITA NO. 4459 / MUM /201 1 14 16. BEFORE US, THE LD. COUNSEL AFTER REITERATING THE SUBMISSIONS FROM THE EXHAUSTIVE SUBMISS IONS, WHICH ARE SUMMARIZED IN THE FOLLOWING WAY: - 1 . THE ASSESSEE HAS FULL - FLEDGED FACTORY WHERE IT HAS CARRIED OUT MANUFACTURING ACTIVITY AS BORNE OUT FROM THE USE OF PLANT & MACHINERY AND VARIOUS EXPENSES INCURRED BY IT WHICH HAVE BEEN ACCEPTED AS SUCH BY THE AO. 2 . THIS MANUFACTURING ACTIVITY HAS BEEN CARRIED OUT BY THE ASSESSEE SINCE AY 2001 - 02 WHICH WAS THE FIRST YEAR IN WHICH DEDUCTION U/S 80IB HAD BEEN GRANTED. THE FACT THAT THE ASSESSEE COMPANY IS LIABLE FOR EXCISE DUTY FOR ITS OPERATIONS IS TESTAMENT TO THE FACT THAT MANUFACTURING ACTIVITY IS TAKING PLACE. 3 . THE LD. DR HAS ALSO FAIRLY ACCEPTED THAT THE FIRST FOUR STEPS CARRIED OUT BY THE ASSESSEE COMPANY REQUIRE SPECIALIZED MACHINERY AND INVOLVE HEAVY EXPENSE ON POWER, I.E. ELECTRICITY AND FUEL. HE ALSO EX PLAINED THE STAGES OF PRODUCTION AND STATED THAT THESE FOUR STEPS ARE REQUIRED FOR STRENGTHENING OF YARN WITHOUT WHICH IT CANNOT BE PROCESSED INTO FABRIC. 4 . THERE IS NO DISPUTE ABOUT THE FACTS THAT THE ASSESSEE COMPANY PURCHASES RAW YARN AND ALSO THAT IT IS SENT OUT FOR WEAVING PROCESS. BUT THE YARN CANNOT BE WOVEN OR PROCESSED TILL IT UNDERGOES THE FOUR STAGES OF PRODUCTION I.E. CRIMPING, TWISTING, SIZING AND WARPING. THIS INTERMEDIATE ACTIVITY IS THE MANUFACTURING OPERATION CARRIED OUT BY THE ASSESSEE COMPA NY. 5 . RELIANCE WAS P L A CED ON THE SYNOPSIS OF CASE LAWS FORWARDED DURING THE COURSE OF HEARING. SPECIAL ATTENTION WAS DIRECTED TO CBDT CIRCULAR DATED 23.11.1995 REFERRED TO BY JURISDICTIONAL HIGH COURT, STATING THAT TWISTING AND CRIMPING OF YARN IS ALSO MANUF ACTURING AND THE CASE OF EMPTEE POLYARN IN WHICH IT WAS HELD THAT THE YARN SUBJECTED TO CRIMPING, TWISTING, WEAVING IS DISTINCT FROM THE ORIGINAL YARN AND THEREFORE THE PROCESS FOR CARRYING OUT SUCH TREATMENT MEANS MANUFACTURING. HARNAM SYNTEX P LTD. ITA NO. 4151/MUM/2011 ITA NO. 4458 / MUM /201 1 ITA NO. 4459 / MUM /201 1 15 6 . THE PRINCIPLE OF CONSISTEN CY WAS ALSO INVOKED TO ESTABLISH THAT IN SIMILAR FACTS, A FINDING HAS BEEN RECORDED THAT THE ASSESSEE HAD CARRIED OUT MANUFACTURING ACTIVITY IN AY 2001 - 02 TO 2004 - 05 AND THE SAME CANNOT BE DENIED IN THE INSTANT YEAR WITHOUT ANY NEW OR ADVERSE FACT COMING T O LIGHT. 17. APART FROM THAT, VARIOUS DECISIONS WERE ALSO RELIED UPON, THE COMPILATION OF WHICH HAVE BEEN FILED IN THE SEPARATE PAPER BOOK, ALONG WITH THE SYNOPSIS THEREOF. SHE DREW OUR ATTENTION TO THE DECISION IN THE CASE OF CIT VS BIPALI TEXTILES PVT L TD, REPORTED IN [1991] 189 ITR 61, WHEREIN, HONBLE BOMBAY HIGH COURT AFTER REFERRING TO CBDT CIRCULAR DATED 22.11.1955 WHICH HAD CLARIFIED THAT THE ACTIVITIES OF TWISTING AND CRIMPING OF YARN IS TO BE TREATED AS MANUFACTURING ACTIVITY, HELD THAT SUCH A QU ESTION OF LAW , WHETHER ACTIVITIES OF TWISTING AND CRIMPING OF YARN CAN BE TREATED AS ACTIVITY OF MANUFACTURING OR NOT SHOULD NOT BE REFERRED. SHE ALSO RELIED UPON TWO OTHER DECISIONS OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. EMPTEE POLY - YARN P. L TD. [2008] 305 ITR 309 AND IN THE CASE OF CIT V. PENWALT INDIA LTD. [1992] 196 ITR 813. 18. ON THE OTHER HAND, LD. DR SUBMITTED THAT MOST OF THE PROCESSING WERE DONE THROUGH JOB WORK , BECAUSE WEAVING IS A MAJOR PART WHICH HAS BEEN OUTSOURCED. CRIMPING AN D TWISTING IS ONLY A MINOR PART. THEREFORE, IT HAS BEEN RIGHTLY HELD THAT, ASSESSEE IS NOT ENGAGED IN MANUFACTURING AND SALES AND THEREFORE THE DEDUCTION U/S 80IB SHOULD NOT BE ALLOWED. 19. AFTER CONSIDERING THE RIVAL CONTENTIONS AND ON PERUSAL OF THE REL EVANT FINDING GIVEN IN THE IMPUGNED ORDER, WE FIND THAT IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS A SSI UNIT IN THE DISTRICT OF WALSAD, GUJARAT. THE ACTIVITIES CARRIED OUT BY THE ASSESSEE FOR PROCESSING THE YARN ARE CRIMPING, TWISTING, SIZING, WARPING AND WEAVING. IT IS ALSO UNDISPUTED FACT THAT IT HAS BEEN REGISTERED UNDER EXCISE DEPARTMENT AND EXCISE DUTY IS PAYABLE ON THE HARNAM SYNTEX P LTD. ITA NO. 4151/MUM/2011 ITA NO. 4458 / MUM /201 1 ITA NO. 4459 / MUM /201 1 16 MANUFACTURED PRODUCT BY THE ASSESSEE. IT HAS ALSO INCURRED HUGE EXPENSES LIKE, ELECTRICITY, FUEL UNDER THE HEAD MANUFACTURING EX PENSES AND HAS SUBSTANTIAL INVESTMENT IN PLANT AND MACHINERY USED FOR THIS PURPOSE WHICH AS ON 01.04.2004 WERE APPROXIMATELY 2.07 CRORES . A S CLARIFIED BY THE CBDT ON 22.11.1995, EVEN THE ACTIVITIES OF TWISTING AND CRIMPING OF YARN HAS BEEN TREATED AS MANU FACTURING ACTIVITIES AND THIS CIRCULAR HAS BEEN REFERRED AND RELIED UPON BY THE JURISDICTIONAL HIGH COURT AS STATED ABOVE. THE FINISHED PRODUCT HERE IS DEFINITELY A DIFFERENT PRODUCT HAVING DIFFERENT VALUE : EVEN IF THE WEAVING PART HAS BEEN OUTSOURCED, IT DOES NOT I P SO FACTO LEADS TO CONCLUSION THAT ASSESSEE IS NOT ENGAGED IN MANUFACTURING. THE OTHER ACTIVITIES ARE THE VITAL PROCESS THROUGH WHICH THE RAW MATERIAL IS CONVERTED INTO FINISHED PRODUCTS. TIME AND AGAIN, VARIOUS COURTS HAVE HELD THAT, IF THE ORI GINAL COMMODITY UNDERGOES A CHANGE WHICH I S A COMMERCIALLY DIFFERENT PRODUCT AND NO LONGER IS REGARDED AS ORIGINAL COMMODITY AND IS RECOGNIZED A DISTINCT ARTICLE, THEN IT HAS TO BE HELD THAT MANUFACTURING HAD TAKEN PLACE . MOREOVER, AS POINTED BY LD. COUN SEL RIGHT FROM ASSESSMENT YEAR S 2001 - 02 TO 2004 - 05, ASSESSEE HAS BEEN ALLOWED DEDUCTION U/S 80IB CONTINUOUSLY IN 3 YEARS BY THE DEPARTMENT EVEN WHEN , THE ASSESSEES CASE HAS BEEN ASSESSED UNDER SCRUTINY PROCEEDINGS U/S 143(3). IF SIMILAR FACTS ARE PERMEATI NG IN THIS YEAR ALSO , THEN AS A MATTER OF CONSISTENCY DIFFERENT VIEW CANNOT BE TAKEN IN THIS YEAR. THE FUNDAMENTAL ASPECT OF ALLOWING DEDUCTION U/S 80IB HAS BEEN EXAMINED AND GRANTED EARLIER, THEN WITHOUT ANY CHANGE IN THE MATERIAL FACTS A DIFFERENT VIEW S HOULD NOT BE TAKEN. ACCORDINGLY, WE HOLD THAT, THE ACTIVITIES CARRIED OUT BY THE ASSESSEE AMOUNTS TO MANUFACTURING AND ACCORDINGLY, THE ASSESSEE IS ENTITLED FOR CLAIM OF DEDUCTION U/S 80IB. THUS, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 20. FOR THE A Y 2006 - 07, THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - HARNAM SYNTEX P LTD. ITA NO. 4151/MUM/2011 ITA NO. 4458 / MUM /201 1 ITA NO. 4459 / MUM /201 1 17 1. ON THE FATS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF DEDUCTION U/S 80IB OF RS. 5,45,795/ - ON THE GROUND THAT THE ASSESSEE IS NOT UNDERTAKING ANY MANUFACTURING ACTIVITY EVEN THOUGH THE CLAIM WAS ALLOWED BY THE DEPARTMENT IN THE ASSESSMENT YEAR 2004 - 05. 2. IN DOING SO THE LD. CIT(A) FAILED TO APPRECIATE THAT THE APPELLANT OWNED PLANT & MACHINERY OF SUBSTANTIAL VALUE AND WAS INCU RRING EXPENSES UNDER THE HEAD WAGES AND ELECTRIC EXPENSES FOR CARRYING OUT VARIOUS MANUFACTURING ACTIVITY. T HE ONLY ISSUE RAISED BY THE ASSESSEE IN THE ABOVE GROUNDS OF APPEAL WITH IS CLAIM OF 80IB, WHICH HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE, THERE FORE, CONSISTENT WITH THE VIEW TAKEN ABOVE, ASSESSEES CLAIM OF DEDUCTION U/S 80IB IS ALLOWED. ACCORDINGLY GROUND RAISED BY THE ASSESSEE IS ALLOWED. 21. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED AND BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH JANUARY , 201 6 . SD/ - SD/ - ( ) ( ) ( R AMIT KOCHAR ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 4 TH JANUARY , 201 6 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3) THE CIT (A) - 17 , MUMBAI . 4 ) THE CIT 8 , MUMBAI . 5 ) , , / THE D.R. H BENCH, MUMBAI. 6 ) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS