DCIT, New Delhi V. M/s. Auto Ignition Ltd., New Delhi

ITA 4488/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5197 (ITAT-DELHI)
• Duration Of Justice: 3 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 29-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 14-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ANIL KUMAR MELHOTRA
• Keywords: Depreciation
• Section: 143(3); 133A; 260A; 147; 12

Judgement Text

ITA NO. 4488/DEL/2014 ASSESSMENT Y EAR: 2010 - 11 PAGE 1 OF 15 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A BENCH NEW DELHI) BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI L.P. SAHU, ACCOUNTANT MEMBER I N ITA NO. 4488 /DEL/201 4 ASSESSMENT YEAR: 20 1 0 - 11 DCIT CIRCLE - 2(1), NEW DELHI VS. AUTO IGNITION LTD. THE BAHAR, 37, DERA MANDI ROAD, NEW DELHI (APPLICANT) (RESPONDENT) (PAN: A A A C A5390E ) REVENUE BY: SHRI ARUN KUMAR YADAV, SR. DR ASSESSEE BY: SHRI ANIL KUMAR MELHOTRA , CA DATE OF HEARING 0 9 / 0 8 /201 7 DATE OF PRONOUNCEMENT 1 4 / 0 8 /201 7 ORDER PER AMIT SHUKLA, JUDICIAL MEMBER : THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST IMPUGNED ORDER DATED 1 2. 6.20 1 4 , PASSED BY THE LD. CIT (APPEALS) - V, NEW DELHI FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) FOR THE A.Y. 20 10 - 11 . IN THE GROUNDS OF THE APPEAL THE REVENUE HAS RAISED FOLLOWING GROUNDS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN DELETING THE DISALLOWANCE OF DEDUCTION U/S 80IC AMOUNTING TO RS.5,29,78,820/ - WHEN THE DISALLOWANCE HAD BEEN MADE BY THE AO ON THE BASIS OF MATERIAL AND FACTS GATHERED PAGE 2 OF 15 DURING THE COURSE OF SURVEY U/S 133A OF THE ACT AT THE BUSINESS PREMISES OF THE ASSESSEE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 3,16,495/ - MADE ON ACCOUNT OF UNDISCLOSED INCOME WHEN THE ASSESSEE HAD FAILED TO FURNISH ANY CORROBORATORY EVIDENCE FOR ITS JUSTIFICATION FOR NOT EN TERING SOME VOUCHERS. 3. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS A PP EAL. 2. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTE D THAT THE ASSESSEE SUBMITTED THAT THE ISSUE OF DISALLOWANCE OF DEDUCTION U/S 80IC IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN THE ASSESSEE S CASE FOR THE A.Y. 2006 - 07 TO 2010 - 11 IN ITA NOS. 6349 TO 6351/DEL/2012 & 4732/DEL/2011 A.YS. 2006 - 07, 2 007 - 08, 2009 - 10 & 2008 - 09 VIDE ORDER DATED 29.5.2015. HE ALSO POINTED OUT THAT THE SAID DECISION OF THE TRIBUNAL NOW STANDS AFFIRMED FROM THE HON'BLE HIGH COURT AS THE APPEAL FILED BY THE REVENUE AGAINST THE SAID ORDER U/S 260A HAS BEEN DISMISSED. 3. ON T HE OTHER HAND THE LD. DR STRONGLY RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 4. THE BRIEF FACTS QUA THE ISSUE OF DISALLOWANCE DEDUCTION U/S 80IC ARE THAT THE ASSESSEE COMPANY ENGAGED IN MANUFACTURING OF AUTO ELECTRICAL PARTS VIZ. STARTER MOTOR, ALTER NATOR, DYNAMICS, SOLENOID SWITCHES AND OTHER AUTO ELECTRICAL PARTS AND HAVING WORKS IN FARIDABAD. ITS MAIN CUSTOMERS IN THE DOMESTIC MARKET ARE TATA MOTORS KIRLOSKAR OIL ENGINE LTD. AND MAHINDRA AND MAHINDRA LTD. TAFE, HMT, EICHER, ESCORTS ETC. BESIDE THIS , THE ASSESSEE HAS ALSO PAGE 3 OF 15 EXPORT MARKET. A SURVEY WAS CONDUCTED AT THE VARIOUS BUSINESS PREMISES OF THE ASSESSEE COMPANY ON 15 - 16/2/2010. DURING THE COURSE OF SURVEY, IT WAS NOTED THAT THE FINISHED GOODS WERE TRANSFERRED FROM FARIDABAD UNIT TO PANT NAGAR UNI T AND THEREFORE, IT WAS INFERRED THAT NO MANUFACTURING ACTIVITIES WAS CARRIED OUT BY THE ASSESSEE COMPANY AT PANT NAGAR UNIT. THE ASSESSING OFFICER NOTED THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS IN THE A.Y. 2008 - 09. THE CLAIM OF DEDUCTION U/S 80IC WAS REJECTED ON THE BASIS OF SOME FINDINGS GIVEN BY THE SURVEY AUTHORITIES THAT THE ASSESSEE WAS NOT CARRYING OUT ANY MANUFACTURING UNIT ACTIVITIES AT PANT NAGAR UNIT AND IT WAS MERELY SUPPLYING FINISHED GOODS FROM FARIDABAD UNIT. ON THE BASIS OF SAME LINE THE ASSESSEE S CASE WAS REOPENED U/S 147 FOR THE A.Y. 2006 - 07 AND 2007 - 08 AND CLAIMED DEDUCTION U/S 80IC WAS DISALLOWED. SIMILARLY, OBSERVED IN THE A.Y. 2009 - 10 DEDUCTIONS WERE DENIED BY THE ASSESSING OFFICER. HOWEVER, THE LEARNED CIT(APPEALS) HAS ALLOWED THE SAME AND THE REVENUE IS PREFERRED THE APPEAL BEFORE THE TRIBUNAL. IN THIS YEAR, THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS. 5,29,78,820/ - ON ACCOUNT OF DEDUCTION U/S 80IC AND FOLLOWING THE EARLIER YEARS PRECEDENCE AND THE SURVEY REPORT, HE DISALLOWED THE CL AIM OF DEDUCTION U/S 80IC. 5. THE LEARNED CIT(APPEALS) FOLLOWING THE EARLIER YEARS APPELLATE ORDERS ALLOWED THE ASSESSEE S CLAIM. WE FIND THAT THIS ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ALL THE EARLIER YEARS A.YS. RIGHT FROM 2006 - 07 TO 2009 - 10 WHEREIN THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE AFTER DETAILED DISCUSSION. THE RELEVANT OBSERVATION AND FINDINGS OF THE TRIBUNAL ARE REPRODUCED HERE UNDER: - PAGE 4 OF 15 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS . WE FIND THAT THE ASSESSMENT ORDER IS PURELY BASED ON THE SURVEY REPORT DATED 17.02.2010 & 15.03.2010 WHICH ARE REPORT PREPARED AFTER THE SURVEY CONDUCTED AT PLOT NOS. 17 & 18, SECT. 6, HE, PANTNAGAR, RUDRAPUR DISTRICT ON 16.02.2010 AND AT PLOT NO. 1, 19/ 6, MATHURA ROAD, FARIDABAD ON 15/16.02.2010 RESPECTIVLY. THOUGH QUESTIONNAIRE WAS ISSUED BY THE ASSESSING OFFICER DATED 22.11.2010 TO THE ASSESSEE, WE FIND THAT THE A.O. HAS NOT TAKEN INTO CONSIDERATION THE REPLY AND S UPPORTING DOCUMENTS FILED BY THE ASSES SEE DATED 30.11.2010 WHICH HAS B EEN REPRODUCED ABOVE. THE ASSESSING OFFICER HAS BASED HIS FINDING ONLY ON THE BASIS OF SURVEY RE PORT AND HAS NOT MADE ANY ATTEMPT TO LOOK INTO THE DOCUMENTS FILED BEFORE HIM BY THE ASSESSEE COMPANY TO SUBSTANTIATE ITS CLAIM THAT IT S RUDRAPUR, PANTNAGAR UNIT IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 - IC OF THE ACT. THE AO HAS NOT CONTROVERTED THE DOCUMENT OF MINISTRY OF COMMERCE & INDUSTRY, SECRETARIAT FOR INDUSTRIAL ASSISTANT (S/A), DATED 25.04.2005 (PAGE 80 OF PB) WHICH HAS ACKNOWLEDGED THE MEMORANDUM SUBMITTED BEFORE IT FOR MANUFACTURE OF THE FOLLOWING ARE REPRODUCED AS UNDER: ITEM CODE PROPOSED ITEM: STARTER MOTOR OF MANUFACTURE 3607 FALLING UNDER NIC - BROAD DESCRIPTION MANUFACTURE OF ELECTRICAL STARTING AND IGNITION EQUIPMENT FOR INTERNAL COMBUSTION ENGINES AND ELECTRICAL LIGHTNING/SIGNALLING EQUIPTION FOR MOTOR VE HICLES PROPOSED CAPACITY: 75000.00 NOS. PROPOSED ITEM: ALTERNATORS OF MANUFACTURE 3607 FALLING UNDER - NIC - BROAD DESCRIPTION MANUFACTURE OF ELECTRICAL STARTING AND IGNITION EQUIPMENT FOR INTERNAL COMBUSTION ENGINES AND ELECTRICAL LIGHTINING/SIGNALLING EQUIPTION FOR MOTOR VE HICLES . PROPOSES CAPACITY 75000.00 NOS. 15. WE FIND THAT THE ASSESSEE COMPANY HAS FILED THE FOLLOWING DOCUMENTS TO PROVE THAT IT QUAL IFIES FOR DEDUCTION UNDER SECTION 80 - IC OF THE ACT. I. EXCISE REGISTRATION CERTIFICATE (PAGE 82 OF PB, VOL. - II) (PAGE 91 - 92 OF PB, VOL - I) PAGE 5 OF 15 II. REGISTRATION DIC, SALES TAX (PAGE 9 9 - 99 OF PAPER BOOK VOL. - II) (PAGE 93 - 96 OF PB, VOL - I) III. ATTENDANCE REGIST ER, SALARY SHE ET, CONTRACT BILLS (PAGE 100 - 143 OF P.B. V - II). IV. PROCESS FLOW CHART & BILL OF MAT ERIAL ( PAG E 144 - 150 OF PB, VOL - I I) V. CONNECTION LOAD OF ALL MOTOR (PAG E 151 - 157 OF P.B. VOL.II) VI. ISO 9001:2008 CERTIFICATE (PAGE 158 OF P.B. VOL.II) VI I. MAHINDRA OEM AUTO (PAGE 158 - 160 OF P.B. VO.II) VIII. BLOW UP OF STARTER MOTOR (PAGES 79 - 80 OF PB, VOL - I) 16. THE DETAILS OF PRODUCTS AND MANUFACTURE OF RUDRAPUR WAS FURNISHED BY THE COMPANY IS FOUND AT PAGE NO. 100 OF PB, VOL. - I, ARE REPRODUCED BELOW : DETAILS OF PRODUCT MAJUFACTURED AT RUDRAPUR AND CUSTOMERS S. NO. PRODUCT CODE PRODUCT DESCRIPTION CUSTOMER S NAME 1 ALT4004 - A ALTERNATOR TRACTORS & FARM EQUIPMENTS LTD. 2. ALT4004 - C .ALTERNATOR TRACTORS & FARM EQUIPMENTS LTD. 3. ALT4005 - B ALTERNATOR MAHINDRA & MAHINDRA LIMITED - RUD & JAIPUR 4. ALT4005 - C ALTERNATOR MAHINDRA & MAHINDRA LIMITED - RUD & NAGPUR 5 ALT4006 - A ALTERNATOR INDOFARM TRACTORS LTD., PREET TRACTORS, STANDARD COMBINES 6. ALT4007 - I ALTERNATOR INDOFARM TRACTORS LTD. 7. ALT4012 ALTERNATOR MAHINDRA & MAHINDRA LIMITED - NAGPUR & MAHINDRA GUJRAT TRACTORS LTD. 8. ALT4026 ALTERNATOR PUNJAB TRACTORS LTD. 9. STM1103 - V STARTER MOTOR TRACTORS & FARM EQUIPMENTS LTD., TAFE MOTORS & TRACTORS LTD. - BHOPAL & INDO FARM TRACTORS LTD. 10. STM1104 - W STARTER MOTOR PUNJAB TRACTORS LTD. PAGE 6 OF 15 11. STM1105 - V STARTER MOTOR MAHINDRA & MAHINDRA LIMITED - RUD & NAGPUR 12. STM1108 - W STARTER MOTOR INDOFARM TRACTORS LTD., PREET TRACTORS, STANDARD COMBINES 13. STM1120 - V STARTER MOTOR TAFE MOTORS & TRACTORS LTD. - BHOPAL 14. STM1121 - W STARTER MOTOR INDOFARM TRACTORS LTD, PREET TRACTORS, STANDARD & MAHINDRA GUJARAT TRACTORS LTD. 15. STM1122 - V STARTER MOTOR MAHINDRA & MAHINDRA LIMITED NAGPUR MAHINDRA GUJARAT TRACTORS LTD. 16. STM1131 - W STARTER MOTOR TAFE MOTERS & TRACTORS LTD. BHOPAL 17. STM1144 - V STARTER MOTOR MAHINDRA & MAHINDRA 17. THE DETAILS OF MANUFACTURING EXPENSES FOR F.Y. 2007 - 2008 FOUND AT PAGE 101 OF VOL. - I, ARE AS UNDER: EXPENDITURE AMOUNT REMARKS WAGES 10,519,996 (OUT OF TOTAL PERSONAL EXPENSES) JOB WORK CHARGES 6,499,377 FREIGHT AND DELIVERY INWARD EXPENSES 6,176,670 (SHOWN UNDER RAW MATERIAL CONSUMPTION IN BALANCE SHEET) STORES AND SPARES CONSUMED 54.096 RENT PAID (LEASE RENT) 24,000 ELECTRICITY CHARGES 3,436,555 FUEL (DIESEL) EXPENSES 2,338,041 REPAIR & MAINTENANCE - PLANT AND 2,564,981 MACHINERY SECURITY EXPENSES 937,235 DEPRECIATION 692,078 PAGE 7 OF 15 TOTAL MANUFACTURING EXPS. 33,243,028 18. IN THE LIGHT OF THESE DOCUMENTS AND OTHER DOCUMENTS PRODUCED BEFORE THE AUTHORITIES BELOW WHICH ARE PRODUCED BEFORE US BY FILING PAPER BOOK - 1 & II. WE NEED TO SEE WHETHER THE ID. CIT(A) IS CORRECT TO UPHOLD THE CONTENTION OF THE ASSESSEE COMPANY THAT I TS UNIT AT PANTNAGAR AT RUDRAPUR QUALIFIES FOR SECTION 80 - IC DEDUCTION. FOR THAT, LET US EXAMINE JUDICIAL PRECEDENTS OF THE WORDS MANUFACTURE, PRODUCE, THING, ARTICLE TO SEE WHETHER THE ASSESSEE IS MANUFACTURING OR PRODUCING AN ARTICLE OR THING IN THE STATE OF UTTRANCHAL. (I) MEANING OF MANUFACTURE MANUFACTURE 1989 SUPREME UJAGAR PRINTS VS. UNION OF INDIA COURT THE PREVALENT AND GENERALLY ACCEPTED TEST TO ASCERTAIN THAT THERE IS MANUFACTURE IS WHETHER THE; CHANGE OR THE SERIES OF CHANGES BROUGHT ABOUT BY THE PROCESSES TAKE THE COMMODITY TO THE POINT WHERE COMMERCIALLY IT CAN NO LONGER BE REGARDED AS THE ORIGINAL COMMODITY BUT IS, INSTEAD, RECOGNISED AS A DISTINCT AND NEW ARTICLE THAT HAS EMERGED AS A RESULT OF THE PROCESSES. THE PRINCIPLES ARE CLEAR. BUT DIFFICULTIES ARISE IN THEIR APPLICATION IN INDIVIDUAL CASES. THERE MIGHT BE BORDER LINE CASES WHERE EITHER CONC LUSION WITH EQUAL JUSTIFICATION MAY BE REACHED. INSISTENCE ON ANY SHARP OR INTRINSIC DISTINCTION BETWEEN PROCESSING AND MANUFACTURE RESULTS IN AN OVERSIMPLIFICATION OF BOTH AND TENDS TO BLUR THEIR INTERDEPENDENCE.... [179 ITR 317] MANUFACTURE 1996 KERALA C IT VS. OCEANIC PRODUCTS EXPORTING CO. HIGH COURT THE PREVALENT AND GENERAL ACCEPTED TEST TO ASCERTAIN WHETHER THERE IS MANUFACTURE IS TO FIND WHETHER THE CHANGE OR THE SERIES OF CHANGES BROUGHT ABOUT BY THE APPLICATION OF PROCESSES TAKE THE COMMODITY TO THE POINT WHERE, COMMERCIALLY, IT CAN NO LONGER BE REGARDED A S THE ORIGINAL COMMODITY BUT IS INSTEAD, RECOGNIZED AS A DISTINCT AND NEW ARTICLE THAT HAS EMERGED AS A RESULT OF THE PROCESSES. THE PRINCIPLES ARE CLEAR. BUT DIFFICULTIES ARISE IN T HEIR APPLICATION IN INDIVIDUAL CASES. PAGE 8 OF 15 THERE MIGHT BE BORDERLINE CASES WHERE EITHER CONCLUSION WITH EQUAL JUSTIFICATION MAY BE REACHED. MANUFACTURE 1996 KERALA CIT VS. OCEANIC PRODUCTS EXPORTING CO. HIGH COURT THE WORD USED IN THE SECTION IS MANUFACTURE. COMMONLY, MANUFACTURE IS THE END RESULT OF ONE OR MORE PROCESSES THROUGH WHICH THE ORIGINAL COMMODITY IS MADE TO PASS. THE NATURE AND EXTENT OF PROCESSING MAY VARY FROM ONE CASE TO ANOTHER, AND INDEED THERE MAY BE SEVERAL STAGES OF PROCESSING AND PERHAPS A KIND OF PROCESSING AT EACH STAGE. WITH EACH PROCESS SUFFERED, THE ORIGINAL COMMODITY EXPERIENCES A CHANGE. BUT IT IS ONLY WHEN THE CHANGE, OR A SERIES OF CHANGES, TAKES THE COMMODITY TO THE POINT WHERE COMMERCI ALLY IT CAN NO LONGER BE REGARDED AS THE ORIGINAL COMMODITY BUT INSTEAD IS RECOGNISED AS A NEW AND DISTINCT ARTICLE THAT A MANUFACTURE CAN BE SAID TO TAKE PLACE. [131 CTR 305, 219 ITR 293, 85 TAXMAN 554J ] MANUFACTURE 1997 AAR ARTHUR E. NEWELL VS. CIT THE EXPRESSION MANUFACTURE INVOLVES THE CONCEPT OF CHANGES EFFECTED TO A BASIC RAW MATERIAL RESULTING IN THE EMERGENCE OF, OR TRANSFORMATION INTO, A NEW COMMERCIAL COMMODITY. WHETHER AN ARTICLE IS CONVERTED INTO A DIFFERENT ARTICLE DEPENDS ON SEVERAL CRITE RIA AND ONE OF THE ESSENTIAL TESTS IS WHETHER IN A COMMERCIAL SENSE, THE ORIGINAL ARTICLE HAS CEASED TO EXIST AND AND A NEW ARTICLE HAS TAKEN ITS PLACE. IT IS, HOWEVER, NOT NECESSARY THAT THE ORIGINAL ARTICLE OR MATERIAL SHOULD HAVE LOST ITS IDENTITY COMPL ETELY ALL THAT IMPORTANT WHETHER, WHAT HAS EMERGED AS A RESULT OF THE OPERATIONS IS A DIFFERENT COMMERCIAL COMMODITY HAVING ITS OWN NAME, IDENTITY, CHARACTER OR END USE. THIS DETERMINATION IS ESSENTIALLY ONE OF FACT AND HAS TO BE ARRIVED AT ON A CONSIDERA TION OF ALL RELEVANT FACTORS SUCH AS T HE QUALITY AND NATURE OF THE ORIGINAL ARTICLE, THE EXTENT AND MAGNITUDE OF THE OPERATIONS CARRIED OUT ON, OR IN RELATION TO, IT AND THE COMMERCIAL IDENTITY, CHARACTER AND USE O F THE ARTICLE PRODUCED. [137 QTR 4F, 223 ITR 776,90 TAXMAN 26] MANUFACTURE 2001 KERALA 1 CIT VS. DARSHAK LTD. HIGH I COURT I PAGE 9 OF 15 THE WORD MANUFACTURE IS TO BE UNDERSTOOD IN A WIDE SENSE. MANUFACTURE WOULD IMPLY A CHANGE AND A TRANSFORMATION. A NEW AND A DIFFERENT ARTICLE MUST EMERGE HAVING A DISTINCT AND DIFFERENT CHARACTER AND USE. (II) MEANING OF PRODUCE PRODUCE 1988 AP - HIGH CIT VS. SRI VENKATESWARA HATCHERIES (P.) LTD. COURT THE WORD PRODUCE AS USED IN ORDINARY PARLANCE AND ITS DICTIONARY MEANING SHOWS THAT IN CASE OF THE WORD, NO DISTINCTION IS MADE BETWEEN ANIMATE AND INANIMATE OBJECTS. EVEN IF A LIVING OBJECT IS BROUGHT FORTH BY HUMAN EFFORT, IT CAN BE SAID TO HAVE BEEN PRODUCED. [71 CTR 80, 174 ITR 231, 39 TAXMAN 279) PRODUCE 2002 KERALA CIT VS. VIJAYA RETREADERS HIGH COURT ; THE WORD PRODUCE MEANS BRINGING INTO EXISTENCE NEW GOODS BY A PROCESS WHICH MAY OR MAY NOT AMOUNT TO MANUFACTURE. IT ALSO TAKES IN ALL BY - PRODUCTS, INTERMEDIATE PRODUCTS AND RESIDUAL PRODUCTS WHICH EMERGE IN THE COURSE OF MANUFACTURE OF GOODS. THE NEXT WOR D TO BE CONSIDERED IS ARTICLES. THE WORD IS NOT DEFINED IN THE ACT OR THE RULES. IT MUST, THEREFORE, BE UNDERSTOOD IN ITS NORMAL CONNOTATION - THE SENSE IN WHICH IT IS UNDERSTOOD IN THE COMMERCIAL WORLD. IT IS EQUALLY WELL TO KEEP IN MIND THE CONTEXT SINCE A WORD TAKES ITS COLOUR FROM THE CONTEXT. THE WORD ARTICLES IS PRECEDED BY THE WORDS MANUFACTURES OR PRODUCES. [170 CTR 307, 253 ITR 53,119 TAXMAN 39. (III) MEANING OF THING THING 1997 RAJ - HIGH CIT VS. TRINITY HOSPITAL COURT THE DICTIONARY MEANING OF THE WORD THING IS A PRODUCT OF WORK OR ACTIVITY; USEFUL OR APPROPRIATE. [131 CTR 328, 225 ITR 178, 87 TAXMAN 127] (IV) MEANING OF ARTICLES PAGE 10 OF 15 ARTICLES 1974 BOM - HC CIT VS. HINDUSTAN ANTIBIOTICS LTD. THE WORD ARTICLES USED IN T RE EXPRESSION HAS BEGUN OR BEGINS TO MANUFACTURE OR PRODUCE ARTICLES IN SECTION 15C(2)(II) MUST BE INTERPRETED REG ARD BEING HAD TO THE OBJECT FOR WHICH THE SECTION WAS ENACTED. THE PROVISION WAS ENACTED WITH THE A VIEW TO ENCOURAGING THE ESTABLISHMENT OF NEW INDUSTRIAL UNDERTAKINGS AND THE OBJECT BY GRANTING EXEMPTION FROM T AX ON PROFITS DERIVED FROM SUCH UNDERTAKINGS DURING THE FIRST FIVE YEAR YEARS. THE OBJECT OF THE SECTION PRE - SUPPOSES THAT PROFIT S AR E CAPABLE OF BE ING EARNED. HEN C E, UNTIL AN ASSESSEE REACHES A STAGE WHERE IT IS IN A POSIT ION TO DECIDE THAT A FINAL PRODUCT WHICH CAN BE ULTIMATELY SOLD IN THE MARKET CAN BE MANU FACTURED IT CANNOT BE SAID TO HAVE STARTED MANUFACTURE OF THE ARTICLES. IF IT BECOMES NECESSARY FOR AN ASSESSEE TO PRODUCE A TRIAL PRODUCT AT AN EARLIER STAG E TO VERIFY' WHETHER IT CAN BE USED ULTIMATELY IN THE MANUFACTURE OF THE FINAL ARTICLE, THE COMMENCEMENT OF OPERATION FOR THE MANUFACTURE OF THE TRIAL PRODUCT WOULD NOT CONSTITUTE COMMENCEMENT OF MANUFACTURE OF ARTICLES FOR THE PURPOSES OF SECTION 15C. [93 ITR 548] 19. THE ID CIT(A) HAS OBSERVED THAT IN THE INSTANT CASE VARIOUS PARTS ARE ASSEMBLED BY THE ASSESSEE USING ITS MACHINERY RESULTS IN ACHIEVING OF A FINAL PRODUCT. THE PARTS OR COMPONENTS UTILIZED BY THE ASSESSEE IN ITS ASSEMBLING PROCESS UNDERGO A TRANSFORMATION AND RESULT INTO A PRODUCT NAMELY MOTORCYCLE WHEEL, WHICH IS DISTINCT AND SEPARATE COMMODITY IN CHARACTER, NAME AND USE THAN EACH OF THE PARTS OR COMPONENTS. THEREFORE, ON THE BASIS OF THE PRINCIPLES REFERRED TO ABOVE CASE LAWS, IN THE INSTAN T CASE THE ID CIT(A) HELD THAT IT IS SAFE TO DEDUCE THAT THE PROCESS OF ASSEMBLING CARRIED OUT BY THE ASSESSEE IS TO BE UNDERSTOOD AS AMOUNTING TO 'MANUFACTURE1 OR PRODUCTION OF AN ARTICLE. THEREFORE, THE PROFIT DERIVED FROM EACH ACTIVITY IS ELIGIBLE FOR T HE CLAIM OF BENEFIT U/S 80 - IA OF THE ACT. I THE WORD MANUFACTURE HAS ALSO NOW BEEN DEFINED IN SEC 2(29)BA BY FINANCE ACT 2009 W.E.F. 1.4.09 AS UNDER; 'MANUFACTURE', WITH ITS GRAMMATICAL VARIATIONS, MEANS A CHANGE IN A NON - LIVING PHYSICAL OBJECT OR ARTICL E OR THING, (A) RESULTING IN TRANSFORMATION OF THE OBJECT OR ARTICLE OR THING INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFERENT NAME, CHARACTER AND USE; OR PAGE 11 OF 15 (B) BRINGING INTO EXISTENCE OF A NEW AND DISTINCT OBJECT OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSITION OR INTEGRAL STRUCTURE. 20. THE LD. CIT (A) RIGHTLY OBSERVED THAT IT IS WELL SETTLED THAT EVERY CHANGE OR PROCESS CANNOT BE TERMED AS MANUFACTURE OR PRODUCTION. WELL KNOWN TEST APPLIED FOR DETERMINING WHETHER A PROCESS AMOUNTED TO R E PRODUCTION MANUFACTURE ARE THAT A NEW AND DISTI NCT COMMERCIAL PRODUCT EMERGES. COMMONLY ACCEPTED MEANING GIVEN TO THE WORD MANUFACTURE AS HELD IN THE JUDGEMENTS BY THE HON'BLE SUPREME COURT IS WHEN A NEW AND DIFFERENT ARTICLE EMERGES HAVING DISTINCTIVE NAME, CHARACTER AND USE. AFTER APPLYING THE TESTS LAID DOWN IN THE DIFFERENT JUDGEMENTS AND TAKING GUIDANCE FROM THE DEFINITION OF MANUFACTURE IN THE ACT, HAVING NOTED THE PROCESS INVOLVED, THE LEARNED CIT(A) RIGHTLY HELD THAT THE ASSESS E E COMPANY IS ENTITLED TO DEDUCTION U S 80 - IC OF THE ACT. 21. WE DO N OT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT(A), TAKING INTO CONSIDERATION THE EVIDENCE ADDUCED BY THE ASSESSEE COMPANY AND THE CONSISTENT STAND OF THE REVENUE IN ALLOWING THE DEDUCTION UNDER SECTION 80IC OF THE ACT. AS SUCH WITHOUT ANY CHANGE IN THE FACTS AND CIRCUMSTANCES, THE DISALLOWANCE OF THE DEDUCTION GIVEN UNDER SECTION 80 - IC WAS NOT WARRANTED. THE ASSESSING OFFICER HAS NOT MADE ANY COMMENTS WITH REGARD TO THE CERTIFICATES GIVEN BY THE GOVERNMENT OF INDIA, MINISTRY OF COMMERCE AND INDUSTRI ES, AND EXCISE AUTHORITIES OF THE STATE HAS NOT COMMENTED UPON ADVERSELY BY THE AO. JUST BECAUSE SURVEY TEAM HAS REPORTED THAT ONLY 20 PEOPLE WERE WORKING IN THE UNIT CANNOT BRUSH ASIDE THE EVIDENCE THAT HAS BEEN PLACED ON RECORD. TAKING INTO CONSIDERATION THE CORROBORATIVE EVIDENCE, WE CONCUR WITH THE VIEW OF THE LEARNED CIT(APPEALS) AND WE FIND NO INFIRMITY IN THE SAME. THEREFORE, WE UPHELD THE ORDER OF THE LEARNED CIT(APPEALS) THE APPEAL OF THE REVENUE STANDS DISMISSED. 6. IN VIEW OF THE AFOR ESAID FINDINGS OF THE TRIBUNAL WHICH IS BASED ON APPRECIATION OF SAME MATERIAL AND FACTS OF VARIOUS JUDICIAL PRECEDENCE. THEREFORE, WE RESPECTFULLY FOLLOWING THE SAME AND AS THERE IS NEITHER ANY CHANGE IN THE MATERIAL FACTS NOR ANY JUDICIAL PRECEDENCE OF SUPERIOR COURT HAS BEEN BROUGHT BEFORE US SO AS TO PAGE 12 OF 15 CONTRARY VIE W. ACCORDINGLY, THE LEARNED CIT(APPEALS) ALLOWING THE CLAIM U/S 80IC IS ALLOWED. 6. IN THE SECOND GROUND THE REVENUE HAS CHALLENGED THE DELETION OF ADDITION OF RS. 3,16,495/ - MADE ON ACCOUNT OF UNDISCLOSED INCOME. THE BRIEF FACTS OF THE ISSUES ARE THAT DURING THE COURSE OF SURVEY IT WAS FOUND THAT THE AMOUNT OF RS. 48,51,695/ - WAS FOUND AT THE BUSINESS PREMISES WHEREAS AS PER THE BOOKS OF TOTAL CASH WAS RECORDED FOR RS. 45,35,200/ - HENCE THE DIFFERENCE AMOUNT OF RS. 3,16,495/ - WAS ASKED BY THE ASSESSING OFFICER TO RECONCILE/GIVEN EXPLANATION. IN RESPONSE TO THE ASSESSEE SUBMITTED THAT DURING THE COURSE OF SURVEY ITSELF IT WAS STATED THAT SOME VOUCHERS AMOUNTING TO RS. 3,16,495/ - WERE PENDING TO BE ENTRY IN THE BOOKS OF ACCOUNTS AS CONCERNED PERSON WHO WAS DEALING WITH THE CASH. THE LD. ASSESSING OFFICER HAS HELD THAT THE ASSESSEE COULD NOT HAVE ANY CORROBORATIVE EVIDENCE IN SUPPORT OF ITS CLAIM AND ACCORDINGLY, HE ADDED THE SAME AS INCOME OF UNDISCLOSED SOURCES U/S 68. BEFORE THE LEARNED CIT(APPEALS), AFTE R EXPLAINING THE ENTIRE FACTS AND BACKGROUNDS AND ALSO WHAT WAS CASH BALANCE AS PER THE BOOKS, THE BALANCE CASH AVAILABLE AS ON DATE OF SURVEY AND THE VOUCHERS WHICH WAS UNRECORDED TILL THAT DATE, IT WAS CATEGORICALLY SUBMITTED THAT THE ASSESSEE HAD PRODUC ED ALL THE VOUCHERS BEFORE THE ASSESSING OFFICER INCLUDING THE CASH BOOK OF ASSESSEE PERTAINING TO EXPENSES BORNE OUT ON DATE OF SURVEY I.E. 15.2.2010. HOWEVER, THE ASSESSING OFFICER HAS FAILED TO T AKE NOTE OF THIS FACT. THE LEARNED CIT(APPEALS) AFTER EXAM INING THE CASH BOOK AS WELL AS THE VOUCHERS WHICH WERE PLACED BEFORE HIM, CAME TO THE CONCLUSION THAT THIS WAS THE SAME EXPLANATION GIVEN DURING THE COURSE OF SURVEY AND SAID EXPLANATION FOUND CORROBORATIVE FROM THE RECORDS AND PRODUCED BEFORE HIM. PAGE 13 OF 15 ACCORDI NGLY, HE ACCEPTED THE ASSESSEE S EXPLANATION AND DELETED THE OBSERVATION OF ASSESSEE AFTER HOLDING AND DELETING THE ADDITION AS UNDER: - I HAVE PERUSED THE COPY OF THE CASH BOOK AS WELL AS COPY OF THE CASH VOUCHERS WHICH HAS BEEN ENCLOSED THROUGH THE PAPE R BOOK AND I AM OF THE CONSIDERED VIEW THAT KEEPING IN VIEW THE FACT THAT THE VERY SAME EXPLANATION WAS ALSO OFFERED BY THE ASSESSEE IN ANSWER TO QUESTION NO 33 AT THE TIME OF SURVEY ITSELF AS WELL AS THE SUBSEQUENT PRODUCTION OF COMPLETED BOOKS AND COPY O F VOUCHERS , THE EXPLANATION OFFERED BY THE APPELLANT FOR THE DIFFERENCE IN CASH IS FOUND TO BE ACCEPTABLE. ACCORDINGLY, THE GROUND OF APPEAL NO. 1 IS ACCEPTED AND THE APPEAL IS ALLOWED. 7. ON THE OTHER HAND THE LD. DR SUBMITTED THAT THE MATTER SHOULD GO BACK TO THE FILE OF THE ASSESSING OFFICER BECAUSE IT IS BORNE OUT FROM THE ASSESSMENT ORDER THAT THE ASSESSEE HAD PRODUCED THE VOUCHERS AND THE COMPLETED CASH BOOK BEFORE THE ASSESSING OFFICE R. 8. ON THE OTHER HAND THE LD. COUNSEL OF THE ASSESSEE RELIED UPON THE ORDER OF THE LEARNED CIT(APPEALS). 9. AFTER CONSIDERING THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDER, WE FIND THAT THE ADDITION HAS BEEN MADE ON ACCOUNT OF DIFFERENT IN CASH AS PER THE CASH BOOK ON THE DATE OF SURVEY ON 15.2.2010 WHICH REFLECTED AN AMOUNT OF RS. 48,51,695/ - AND ACTUAL CASH AVAILABLE ON THE SAID DATE AT RS. 45,35,200/ - . AT THE TIME OF SURVEY THE ASSESSEE HAD CONTENDED THAT THERE WERE CERTAIN EXPENSE VOUCHERS WHICH REMAIN TO BE IN CASH BOOK OR WERE UNRECORDED ON THAT DATE. BEFORE THE AUTHORITIES BELOW THE ASSESSEE HAD FURNISHED THE VOUCHERS AS WELL AS THE CASH BOOK, THE LEARNED CIT(APPEALS) HAS HIMSELF GIVEN FINDINGS THAT HE HAS PERUSED THE CASH BOOKS AS WELL AS PAGE 14 OF 15 THE CASH VOUCHERS AND FOUND THAT THE ASSESSEE S EXPLANATION MATCHES WITH THE REGULAR BOOKS OF ACCOUNT AND THEREFORE, THERE COULD NOT BE ANY ADDITION ON SUCH DIFFERENCE. IN VIEW OF THIS CATEGORICAL FINDINGS OF LEARNED CIT(APPEALS), WE DO NOT FIND ANY REASON TO DEVIATE THE SUCH FINDINGS WHICH IS BASED ON APPRAISAL AND APPRECIATION OF RECORDS PRODUCED BEFORE HIM. THUS THE ORDER OF THE LEARNED CIT(APPEALS) DELETING THE SAID ADDITION IS AFFIRMED AND THE GROUNDS RAISED BY THE REVENUE IS DISMISSED. 10 . IN THE RESULT , THE APPEAL OF THE REVENUE IS DISMISSED. ORDER P RONOUNCED IN THE OPEN COURT ON 1 4 . 0 8 .201 7. S D / - S D / - ( L.P. SAHU ) (AMIT SHUKLA) ( ACCOUNTANT MEMBER ) (JUDICIAL MEMBER) DATED: 1 4 . 0 8 .2017 NARENDER COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT (APPEALS) 5) DR: ITAT ASSISTANT REGISTRAR PAGE 15 OF 15 DATE DRAFT DICTATED ON 0 8 .0 8 .2017 DRAFT PLACED BEFORE AUTHOR 0 9 . 0 8 .2017 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS 1 4 . 8 .2017 KEPT FOR PRONOUNCEMENT ON 1 4 . 8 .2017 FILE SENT TO THE BENCH CLERK 1 4 . 8 .2017 DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.