ACIT CIR 9(3), MUMBAI V. SUN TRANSTAMP P. LTD, MUMBAI

ITA 4758/MUM/2009

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75765 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 25-02-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 13-08-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: R C JAIN
• Keywords: Opportunity of being heard
• Section: 80IB

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F B ENCH, MUMBAI . , !'# , $% &'() , $* +, $ # BEFORE SHRI D.MANMOHAN, VP AND SHRI N.K. BILLAIY A, AM ./ I.T.A. NO. 4758/MUM/2009 ( - - - - / ASSESSMENT YEAR :2006-07 A N D ./ I.T.A. NOS. 4612 & 4611/MUM/2010 ( - - - - / ASSESSMENT YEARS :2004-05 &2005-06 THE ACIT, CIRCLE-9(3), AAYAKAR BHAVAN, MUMBAI-400 020 / VS. M/S. SUN TRANSTAMP PVT. LTD., 204, VIKAS CHAMBERS, JUNCTION OF MARVE ROAD, LINK ROAD, MALAD (W), MUMBAI-400 064 ,. $* ./ /0 ./ PAN/GIR NO. : AABCS 6149N ( .1 / APPELLANT ) .. ( 23.1 / RESPONDENT ) .1 4 $ / APPELLANT BY: SHRI RAVI PRAKASH 23.1 5 4 $ / RESPONDENT BY: SHRI R.C. JAIN 5 6* / DATE OF HEARING :25.02.2014 7- 5 6* / DATE OF PRONOUNCEMENT :28.02.2014 +$8 / O R D E R PER N.K. BILLAIYA, AM: THESE THREE APPEALS ARE FILED BY THE REVENUE AGAINS T THREE SEPARATE ORDERS OF THE LD. CIT(A) MUMBAI PERTAINING TO A.Y RS. 2004-05 TO 2006- M/S. SUNSTAMP PVT. LTD. 2 07. IN ALL THESE THREE APPEALS, THE GROUNDS ARE CO MMON THOUGH QUANTUM MAY DEFER WHICH READ AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE ASSESSEE CLAIM FOR DEDUCTION U/S.801B OF THE IT . ACT, EVEN THOUGH THE ASSESSEE DID NOT EMPLOY 20 OR MORE WORKE RS IN THE PROCESS CARRIED ON BY THE ASSESSEE WITHOUT THE AID OF POWER. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE ASSESSEES CLAIM FOR DEDUCTION U/S.801B OF THE IT. ACT, WITHOUT APPRECIATING THAT THE PROCESS CARRIED OUT BY THE AS SESSEE DID NOT AMOUNT TO MANUFACTURING AS STIPULATED IN PROVISION OF SEC.801B(2)(III) OF THE IT. ACT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD.CIT(A) HAS ERRED IN ALLOWING THE ASSESSE E CLAIM FOR DEDUCTION U/S.801B OF THE I.T. ACT ON THE BASIS OF APPELLATE ORDER IN ASSESSEE CASE ON SIMILAR ISSUE FOR A.Y.2006-07, WIT HOUT APPRECIATION THAT THE PRINCIPLE OF RES-JUDICATA DOE S NOT APPLY TO THE ASSESSEES CLAIM FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD.CIT(A) ERRED IN ALLOWING THE ASSESSEES ENTIRE CLAIM OF DEDUCTION U/S.801B AS AGAINST THE REDUCED AMOUNT CO MPUTED BY THE ASSESSING OFFICER, IGNORING THE APPLICABILITY OF PR OVISIONS OF SEC. 801A(8) R.W.S. 801B(13) AS INVOKED BY THE ASSESSING OFFICER. 2. THE ENTIRE GRIEVANCE OF THE REVENUE CAN BE SUMME D UP INTO FOLLOWING TWO CATEGORIES. FIRST THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S. 80IB(2) BECAUSE THE PROCESS CARRIED OUT BY THE ASSESSEE DID NOT AMOUNT TO MANUFACTURING AS STIPULATED IN PROVISION S OF SEC. 80IB(2)(III) OF THE ACT AND SECONDLY TO BE ELIGIBLE FOR DEDUCTION U/S. 80IB BECAUSE THE ASSESSEE DID NOT EMPLOY 20 OR MORE WORKERS IN T HE PROCESS CARRIED ON BY THE ASSESSEE WITHOUT THE AID OF POWER. M/S. SUNSTAMP PVT. LTD. 3 3. IN SO FAR AS FIRST ISSUE IS CONCERNED, THE LD. C OUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT IT IS COVER ED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL AHMEDABAD BENCH IN THE CASE OF ACIT VS NATIONAL LAMINATION INDUSTRIES 109 ITD 181( THIRD MEMBER). THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT BRING ANY DISTINGUISHING FACTS/DECISION. 4. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOWE R AUTHORITIES. THE NATURE OF BUSINESS OF THE ASSESSEE IS IDENTICAL TO THE NATURE OF BUSINESS WHICH WAS THERE BEFORE THE AHMEDABAD BENCH WHEREIN THE TRIBUNAL HAS HELD AS UNDER: THE EXPRESSION MANUFACTURE INVOLVES THE CONCEPT OF CHANGES EFFECTED TO A BASIC RAW MATERIAL, RESULTING IN THE EMERGENCE OR TRANSFORMATION INTO A NEW COMMERCIAL C OMMODITY. BY PROCESS OF MANUFACTURE, SOMETHING IS PRODUCED AN D BROUGHT INTO THE EXISTENCE WHICH IS DIFFERENT FROM THAT, O UT OF WHICH IT IS MADE IN THE SENSE THAT THE PRODUCE IS BY ITSELF A C OMMERCIAL COMMODITY CAPABLE OF BEING SOLD OR SUPPLIED. THE M ATERIAL, FROM WHICH THE THING OR PRODUCT IS MANUFACTURED, MAY NEC ESSARILY LOSE ITS IDENTITY OR MAY BE TRANSFORMED INTO BASIC OR ES SENTIAL PRODUCT. MANUFACTURE IS A TRANSFORMATION OF AN ARTICLE WHICH IS COMMERCIALLY DIFFERENT FROM ONE WHICH IS CONVERTED. THE MOMENT THERE IS TRANSFORMATION INTO A NEW COMMODITY COMMER CIALLY KNOWN AS A DISTINCT AND SEPARATE COMMODITY HAVING ITS OWN CHARACTER, USE AND NAME, THE IDENTITY OF THE ORIGINAL COMMODITY CE ASES TO EXIST AND THE COMMODITY COMING INTO EXISTENCE WILL SERVE NO PURPOSE OTHER THAN THE SAID PURPOSE FOR WHICH IT WAS MANUFA CTURED. MANUFACTURE IS THE END-RESULT OF ONE OR MORE PROCES SES THROUGH WHICH THE ORIGINAL COMMODITY IS MADE TO PASS AND WI TH EACH PROCESS, THE ORIGINAL COMMODITY EXPERIENCES CHANGE. BUT IT IS ONLY WHEN THE CHANGE TAKES THE COMMODITY TO THE POINT WH ERE COMMERCIALLY IT CAN NO LONGER BE REGARDED AS THE OR IGINAL COMMODITY, BUT INSTEAD IS RECOGNIZED AS A NEW AND D ISTINCT ARTICLE , THAT MANUFACTURE CAN BE SAID TO TAKE PLACE. BROAD LY, THE REQUIREMENT OF THE MANUFACTURE IS THAT THE RAW MATE RIAL MUST BE IN THE FIRST INSTANCE SUBJECT TO PROCESS OF SUCH A NAT URE THAT IT CANNOT M/S. SUNSTAMP PVT. LTD. 4 BE TERMED TO BE THE SAME AS THE END-PRODUCT AFTER T HE RAW MATERIAL UNDERGOES THE PROCESS OF MANUFACTURE. IN THE INSTANT CASE, ALL THE ASSESSES WERE ENGAGED IN MAKING TRANSFORMER CORE, WHICH IS ONE OF THE ACTIVE PARTS OF THE TRANSFORMER. THE MAIN FUNCTION OF THE TRANSFORMER CORE IS TO CARRY THE MAGNETIC FLUX LINK IN A TRANSFORMER WINDING. T HE RAW MATERIAL FOR MAKING SUCH TRANSFORMER CORE IS CRG/CRNO SHEET. THESE SHEETS ARE PURCHASED IN JUMBO COILS OR SHEETS. THE SE HAVE TO BE FIRST CUT IN DIFFERENT SIZES AS PER REQUIREMENTS OF THE CUSTOMERS. THIS PROCESS IS CALLED SLITTING. SLITTED ROLL HAS TO BE FURTHER CUT IN THE TRAPEZODICAL SHAPE BY EMPLOYING HYDRAULICALLY O PERATING GUILLOTINE MACHINES. AFTER GUILLOTINE OPERATION, T HE PIERCING OPERATION TAKES PLACE IN WHICH THE HOLES ARE PUNCHE D. DURING THESE PROCESSES OF SLITTING, CUTTING AND PIECING OF LAMINATION, THE CUT EDGES GET SOME BURRS. THESE BURRS ARE REMOVED BY PASSING THE LAMINATION THROUGH DURING OPERATION. THE PRESENCE OF BURRS IMPAIRS, INCREASES THE LOSS. DURING THE COURSE OF THESE PROCESSES, THE MECHANICAL STRESSES ARE DEVELOPED INSIDE THE LA MINATION. IT IS TESTED TO FIND OUT AS TO HOW MUCH STRESS HAS DEVELO PED AND HOW MUCH LOSSES WILL BE INCREASED. IT IS TO BE DONE SO AS TO FIND OUT AS TO WHETHER WITH THESE STRESSES, THE TRANSFORMER COR E WILL GIVE DESIRED RESULT AS PER TECHNICAL SPECIFICATION OR NO T. IN SUCH A SITUATION, THE LAMINATION IS TO BE PASSED THROUGH A TEMPERATURE OF MORE THAN 820 DEGREE CELSIUS, WHICH REMOVES THE STR ESSES AND ALSO IMPROVES AND INCREASES THE QUALITY AND STRUCTURE OF THE LAMINATION SHEET USED IN A TRANSFORMER CORE. THIS PROCESS IS CALLED ANNEALING PROCESS. THE NEXT PROCESS IS KNOWN AS CORE ASSEMBLY . SOME OF THE PROCESSES ARE PERFORMED THEREAFTER. IN VIEW OF ABO VE, THERE CANNOT BE TWO OPINIONS THAT THE SHAPE OF LAMINATION HAS UN DERGONE A COMPLETE CHANGE AFTER PERFORMING VARIOUS PROCESSES. IT IS UNDISPUTED FACT THAT THE RAW MATERIAL FROM WHICH TH E CORE IS MADE, IS CALLED CRGO COILS WHEREAS THE ITEM, WHICH EMERGE S AFTER VARIOUS PROCESSES, IS CALLED TRANSFORMER CORE. ALS O THE CRGO COILS, EVEN WITH FEW PROCESSES, CANNOT BE USED IN A TRANSFORMER UNLESS ALL THE PROCESSES ARE COMPLETE. IT IS THE TRANSFORMER CORE ONLY, WHICH IS THE END-PRODUCT, WHICH CAN BE USED I N THE MANUFACTURING OF TRANSFORMER. THUS, DUE TO VARIOUS PROCESSES, THE PRODUCT HAS DISTINCT NAME, SHAPE AND USES. BY THES E PROCESSES, THE RAW MATERIAL LOSES ITS IDENTITY AND NEW PRODUCT COMES INTO EXISTENCE, WHICH IS COMMERCIALLY RECOGNIZED AS NEW PRODUCT. M/S. SUNSTAMP PVT. LTD. 5 FURTHER, ONCE TECHNICAL OPINION FROM THE WELL RECOG NIZED INSTITUTIONS ARE FILED, THE SAME SHOULD HAVE BEEN C ONSIDERED ON ITS MERITS. THOUGH THE OPINION EXPRESSED BY THEM WAS N OT SACROSANCT, YET ONCE THE SAME WAS FILED, THE SAME SHOULD BE ACC EPTED OR REJECTED ON MERITS. THEY HAD CONFIRMED THAT VARIOU S ACTIVITIES PERFORMED BY THE ASSESSEE FOR MAKING THE TRANSFORME R CORE WERE MANUFACTURING ACTIVITY. NOTHING WAS BROUGHT TO NOT ICE TO TAKE A DIFFERENT VIEW IN THAT REGARD. SOME OF THE ASSESS EES, WHILE MANUFACTURING TRANSFORMER CORE, DID NOT CARRY ANNE ALING PROCESS. STILL CORE MADE BY THEM WAS USED IN THE TRANSFORM ERS. ANNEALING PROCESS IS NOT ESSENTIAL PROCESS FOR MANUFACTURE OF TRANSFORMER CORE. ONLY WHERE THE ASSESSEE FINDS THAT THERE IS DECREASE IN INHERENT CHARACTERISTICS OF THE PRODUCT, WHICH IS R EQUIRED TO BE CORRECTED, THIS PROCESS IS ADOPTED. OTHERWISE EVEN WITHOUT ANNEALING PROCESS, TRANSFORMER CORES HAVE ALL THE Q UALITIES, WHICH ARE ESSENTIAL TO USE IT IN THE TRANSFORMER FOR CONT ROLLING SUPPLY OF ELECTRICITY. THEREFORE, THIS IS NOT ESSENTIAL PROC ESS OF MANUFACTURING. HENCE, FROM THE EVIDENCES ON RECORD, THE VICE PRESI DENT RIGHTLY HELD THAT THE ASSESSES WERE ENGAGED IN THE MANUFACTURING OR PRODUCING AN ARTICLE OR THING AND HAD RIGHTLY AL LOWED EXEMPTION UNDER SECTION 80 IB. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDI NATE BENCH, WE HOLD THAT THE PROCESS USED BY THE ASSESSEE IN ITS B USINESS IS ELIGIBLE FOR DEDUCTION U/S. 80IB OF THE ACT. 5. IN SO FAR AS SECOND ISSUE IS CONCERNED, OUR RECORD SHOWS THAT THE ASSESSEE WAS ASKED TO FILE THE COPY OF THE WAGES RE GISTER. THE LD. COUNSEL FOR THE ASSESSEE PRODUCED THE WAGES REGISTE R BEFORE US TO SUBSTANTIATE ITS CLAIM THAT MORE THAN 20 WORKERS WE RE EMPLOYED BY THE ASSESSEE. 6. WE HAVE SEEN THE REGISTER OF WAGES AS PRODUCED B EFORE US. IN OUR CONSIDERED VIEW, THIS ISSUE NEEDS FURTHER VERIFICAT ION. WE THEREFORE, M/S. SUNSTAMP PVT. LTD. 6 RESTORE THIS ISSUE BACK TO THE FILES OF THE AO. TH E AO IS DIRECTED TO EXAMINE THE REGISTER OF WAGES AND IN PARTICULAR THE REVENUE STAMPS AFFIXED. THE AO IS FREE TO TAKE NECESSARY HELP FRO M OTHER AGENCIES TO VERIFY THE GENUINENESS OF THE REVENUE STAMPS AFFIXE D AND THEIR DATE OF PRINTING ETC. NEEDLESS TO MENTION, THE AO SHALL GI VE A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IT IS CLARIFIED HERE THAT THE ISSUE IS RESTORED BACK TO THE FILES OF THE AO ONLY FOR THIS LIMITED PURPOSE. IF THE ENTRIES IN THE REGISTER OF WAGES ARE FOUND C ORRECT AND GENUINE, THE AO SHALL ALLOW THE DEDUCTION SO CLAIMED BY THE ASS ESSEE U/S. 80IB OF THE ACT AND IF FOUND OTHERWISE, THE ASSESSEE WILL NOT B E ELIGIBLE FOR DEDUCTION U/S. 80IB OF THE ACT. 7. IN THE RESULT, THE APPEALS FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 28.2.2014 . +$8 5 - * $ 9 :+ ; 28.2.2014 5 < SD/- SD/- (D.MANMOHAN ) (N.K. BILLAIYA) !'# / VICE PRESIDENT $* +, / ACCOUNTANT MEMBER MUMBAI; :+ DATED 28.2.2014 . . ./ RJ , SR. PS M/S. SUNSTAMP PVT. LTD. 7 +$8 +$8 +$8 +$8 5 55 5 26& 26& 26& 26& =$&-6 =$&-6 =$&-6 =$&-6 / COPY OF THE ORDER FORWARDED TO : 1. .1 / THE APPELLANT 2. 23.1 / THE RESPONDENT. 3. > ( ) / THE CIT(A)- 4. > / CIT 5. &?< 26 , , / DR, ITAT, MUMBAI 6. < / GUARD FILE. +$8 +$8 +$8 +$8 / BY ORDER, 3&6 26 //TRUE COPY// ! !! ! / / / / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI