ACIT 2(3), MUMBAI V. UMESH PENCILS PROCESSORS P.LTD, MUMBAI

ITA 4780/MUM/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62599 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 18-06-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 14-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P KANT SR
• Keywords: Tax effect
• Section: 260A; 80IB

Judgement Text

UMESH PENCILS PROCESSORS P. LTD. I.T.A. NOS. 4775 TO 4780 & 4787 TO 4789 OF 2011 PAGE 1 O F 7 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER & SHRI VIVEK VARMA, JUDICIAL MEMBER S.NO I.T.A. NO. A.Y APPELLANT RESPONDENT 1 4775-M-11 1998-99 ASST. COMMISSIONER OF I.T. 2(3), MUMBAI. UMESH PENCILS PROCESSORS P. LTD., 510, HIMALAYA HOUSE, 79, PALTON ROAD, MUMBAI 400001. PAN: AAACU0701F 2 4776-M-11 2000-01 ACIT 2(3), MUMBAI. UMESH PENCILS PROCESSORS P. LTD., MUMBAI. 3 4777-M-11 2001-02 ACIT 2(3), MUMBAI. UMESH PENCILS PROCESSORS P. LTD., MUMBAI 4 4778-M-11 2003-04 ACIT 2(3), MUMBAI. UMESH PENCILS PROCESSORS P. LTD., MUMBAI 5 4779-M-11 2006-07 ACIT 2(3), MUMBAI. UMESH PENCILS PROCESSORS P. LTD., MUMBAI 6 4780-M-11 2007-08 ACIT 2(3), MUMBAI. UMESH PENCILS PROCESSORS P. LTD., MUMBAI AND S.NO I.T.A. NO. A.Y APPELLANT RESPONDENT 1 4787-M-11 1998-99 UMESH PENCILS PROCESSORS P. LTD., MUMBAI. ACIT 2(3), MUMBAI. 2 4788-M-11 2000-01 UMESH PENCILS PROCESSORS P. LTD., MUMBAI. ACIT 2(3), MUMBAI 3 4789-M-11 2001-02 UMESH PENCILS PROCESSORS P. LTD., MUMBAI. ACIT 2(3), MUMBAI DEPARTMENT BY SHRI O. P. KANT. (SR. AR.) ASSESSEE BY SHRI VIJAY MEHTA. DATE OF HEARING 18-06-2012. DATE OF PRONOUNCEMENT 04-07-2012. O R D E R PER BENCH: SIX APPEALS ARE FILED BY THE REVENUE COVERING ASSES SMENT YEARS 1998-99, 2000-01, 2001-02, 2003-04, 2006-07 AND 200 7-08. THE UMESH PENCILS PROCESSORS P. LTD. I.T.A. NOS. 4775 TO 4780 & 4787 TO 4789 OF 2011 PAGE 2 O F 7 ASSESSEE IS ALSO IN CROSS APPEALS FOR THE THREE YEA RS, COVERING ASSESSMENT YEARS 1998-99, 2000-01 AND 2001-02. AS T HE GROUNDS COVERED IN THE SIX DEPARTMENTAL APPEALS ARE COMMON, FOR THE SAKE OF BREVITY WE ARE PASSING CONSOLIDATED ORDER. SIMILARL Y, AS THE GROUNDS ARE COMMON IN THE ASSESSEES APPEALS, WE ARE PASSIN G A CONSOLIDATED ORDER THEREIN. FOR THE SAKE OF CONVENIENCE, WE ARE PASSING COMMON ORDER COVERING ALL THE NINE APPEALS HEARD BY US. 2. THE GROUNDS OF APPEAL TAKEN IN ALL THE SIX APPEA LS BY THE DEPARTMENT ARE COMMON, WHICH ARE AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD.CIT(A) ERRED IN ALLOWING THE CLAIM OF DEDUCTION U/S 80IA & 80IB BASED ON THE DECISION OF HONBLE ITAT I BENCH, BO MBAY IN THE CASE OF M/S. HINDUSTAN PENCIL LTD. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) FAILED TO APPRECIATE THAT THE JUDGMENT O F M/S HINDUSTAN PENCIL LTD. IS BASED ON THE DECISION OF TRIBUNAL ON M/S PATEL STATIONERS P. LTD. & M/S KIRTI STATIONERS P. LTD. WHERE BOTH H AVE BEEN CHALLENGED BY THE REVENUE BEFORE THE HONBLE HIGH COURT. APPEA L SHOULD ALSO BE FILED IN LINE WITH THE PRECEDENCE OF OTHER ASSESSME NT YEARS IN THE SAME GROUND. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD.CIT(A) ERRED IN ALLOWING ASSESSEES CLAIM OF 80I A DEDUCTION IN RESPECT OF UMERGAON UNIT WHEREIN IT WAS CONCLUSIVEL Y PROVED THAT ALL THE CONDITIONS LAID DOWN IN SEC. 80IA(2) WERE NOT F ULLY ADHERED TO. 4. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE DECISION OF CIT(A) MAY BE SET ASIDE AN D THAT OF THE AO RESTORED. 3. AT THE TIME OF HEARING, THE AUTHORISED REPRESENT ATIVE FOR THE ASSESSEE MADE A PRELIMINARY OBJECTION ON THE MAINTA INABILITY OF FOUR OUT OF THE SIX APPEALS FILED BY THE DEPARTMENT, ON ACCOUNT OF TAX EFFECT FOR THE PURPOSES OF THE APPEALS FILED BEFORE THE IT AT. THE AR PLACED A CHART WITH THE WORKING OF THE TAX EFFECT IN EACH OF THE SIX APPEALS FILED BY THE DEPARTMENT AND POINTED OUT THAT IN ASSESSMEN T YEARS 1998-99, 2000-01 2001-02 AND 2003-04 THE TAX EFFECT IS LESS THEN RS. 3,00,000/- UMESH PENCILS PROCESSORS P. LTD. I.T.A. NOS. 4775 TO 4780 & 4787 TO 4789 OF 2011 PAGE 3 O F 7 AS PER THE INSTRUCTION NO. 3/2011 DATED 09-02-2011 READ WITH INSTRUCTION NO. 5/2008 DATED 15-05-2008. THUS ACCOR DING TO THE CHART, APPEALS FILED BY THE DEPARTMENT IN ASSESSMENT YEARS 1998-99, 2000- 01, 2001-02 AND 2003-04 ARE NON MAINTAINABLE, FALLI NG WITHIN THE PURVIEW OF THE AFORESAID INSTRUCTIONS AND ASSESSMEN T YEARS 2006-07 AND 2007-08 ARE NOT IN THE PURVIEW OF THE SAID INST RUCTIONS. 4. THE AR FURTHER POINTED OUT THAT THE BASIS OF FIL ING OF THE PRESENT APPEALS AND KEEPING THE ISSUE ALIVE IN ALL THE CASE S OF THE ASSESSEE, WAS THAT THE DEPARTMENT HAD FILED APPEALS BEFORE TH E HON'BLE BOMBAY HIGH COURT AGAINST THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF PATEL STATIONERS PVT. LTD., WHICH WAS FOLLOWED BY T HE CIT(A) IN ALLOWING RELIEF TO THE ASSESSEE. THE AR POINTED OUT THAT VID E ORDER DATED 21-02- 2011, THE HON'BLE BOMBAY HIGH COURT HAS DISMISSED T HE APPEAL FILED BY THE DEPARTMENT IN THE CASE OF PATEL STATIONERS ( P) LTD., MEANING THEREBY THAT THE ORDER OF THE ITAT HAS BECOME FINAL . 5. THE AR, THEREFORE, SUBMITTED THAT UNDER BOTH CIR CUMSTANCES, THE APPEALS FILED BY THE DEPARTMENT NEED TO BE DISM ISSED. 6. THE DR RELIED ON THE ORDER OF THE AO. 7. WE HAVE HEARD THE AR, BOTH ON THE PRELIMINARY OB JECTIONS AND THE MERITS AND HAVE ALSO PERUSED THE CASE OF PATEL STATIONERS (P) LTD. WE FIND MERIT ON BOTH THE GROUNDS AND WE AGREE WITH THE AR THAT SO FAR AS ASSESSMENT YEARS 1998-99, 2000-01, 2001-02 A ND 2003-04 ARE CONCERNED, THE DEPARTMENTS APPEALS FAIL UNDER BOTH THE CIRCUMSTANCES, I.E. MAINTAINABILITY AND DISMISSING OF THE APPEALS BY THE HONBLE BOMBAY HIGH COURT U/S 260A FILED AGAINST TH E BASE ORDER OF UMESH PENCILS PROCESSORS P. LTD. I.T.A. NOS. 4775 TO 4780 & 4787 TO 4789 OF 2011 PAGE 4 O F 7 PATEL STATIONERS (P) LTD. AND SO FAR AS ASSESSMENT YEARS 2006-07 AND 2007-08 ARE CONCERNED, THE APPEALS FAIL ON ACCOUNT OF DISMISSING OF THE APPEAL U/S 260A FILED BY THE DEPARTMENT IN THE CASE OF PATEL STATIONERS (P) LTD. 8. IN THE RESULT, ALL SIX APPEALS FILED BY THE DEPA RTMENT ARE DISMISSED. ITAS NO. 4787, 4788 & 4789/MUM/2011 (APPEALS BY THE ASSESSEE) : 9. THE APPEALS ARE FILED BY THE ASSESSEE, COVERING ASSESSMENT YEARS 1998-99, 2000-01 & 2001-02, WHEREIN DEDUCTION U/S 80IA IN RESPECT OF ASSEMBLY OF SHARPNESS HAS NOT BEEN ALLOW ED. 10. FROM THE ORDER OF CIT(A), WE FIND THAT THE ASSE SSEE HAS SATISFIED OTHER CONDITIONS FOR BECOMING ELIGIBLE FO R THE CLAIM OF DEDUCTION, AS PROVIDED U/S 80IA(2)(V), THEREFORE, THE ONLY ISSUE IS WHETHER THE ASSEMBLY OF SHARPENERS WOULD QUALIFY FOR THE DEDUCTION. FROM THE ASSESSMENT ORDER, WE FIND THAT THE AO HAS REPRODUCED THE ASSEMBLY PROCESS FOR THE MAKING OF THE SHARPENERS, WHICH IS AS UNDER: IN UMERGAON UNIT, THE ASSESSEE IS ALSO ENGAGED IN T HE ASSEMBLING OF SHARPENERS. FOR ASSEMBLING OF SHARPENERS, THE PROCE SS INVOLVED AND THE FINISHED PRODUCTS EMERGES, ARE AS UNDER: ACTIVITY ASSEMBLING OF SHARPENERS TYPES OF MATERIAL SHARPENER BODY SHARPENER BLADES SHARPENER SCREWS DETAILED PROCESS OF ASSEMBLING AND PACKING 1) SHARPENER BODY, BLADES & SCREWS ARE SENT TO THE ASSEMBLY DEPARTMENT. 2) THE WORKER ASSEMBLES THE SCREWS & BLADES WITH THE BODY: 3) THEN THE SHARPENER IS TESTED WITH PENCILS & SENT TO THE PACKING DEPT. 4) EACH SINGLE SHARPENER IS PACKED IN A SLEEVE. UMESH PENCILS PROCESSORS P. LTD. I.T.A. NOS. 4775 TO 4780 & 4787 TO 4789 OF 2011 PAGE 5 O F 7 5) THEN THE SLEEVES ARE PACKED IN INNER. FINISHED PRODUCT SHARPENERS THE ASSEMBLING OF SHARPENER IS A TOTALLY MANUAL PRO CESS AND NO MACHINERY IS REQUIRED FOR THE SAME. 11. THE POSITION IS NOW CLEAR NOT ONLY FROM THE IMP ORT OF CERTAIN CASE LAWS CITED BY THE AR ALSO FROM INCLUSION OF TH E DEFINITION OF THE WORD MANUFACTURE IN THE STATUTE BOOKS. THE A.R. PLACED BEFORE US, THE COPY OF JUDGMENT OF HON'BLE MADRAS HIGH COURT I N THE CASE OF CIT V/S CHIRANJJEEVI WIND ENERGY LTD. REPORTED IN 243 C TR 195, WHEREIN THE HON'BLE MADRAS HIGH COURT HAS HELD (HEADNOTE), THE DIFFERENT PARTS PROCURED BY THE ASSESSEE BY THEMSELVES CANNOT BE TREATED AS A WINDMILL. THOSE DIFFERENT PARTS BEAR DISTINCTIVE NA MES AND WHEN ASSEMBLED TOGETHER, THEREAFTER IT GETS TRANSFORMED INTO AN ULTIMATE PRODUCT WHICH IS COMMERCIALLY KNOWN AS A WINDMILL THERE CAN, THEREFORE, BE NO DIFFICULTY IN HOLDING THAT SUCH AN ACTIVITY CARRIED ON BY THE ASSESSEE WOULD AMOUNT H MANUFACTURE AS WELL AS PRODUCTION OF A THING OR ARTICLE AS SET OUT II? S. 80-113(2) (III) IN SUCH CIRCUMSTANCES THE CONCLUSION OF THE TRIBUNAL IN ACCEPTING THE PLE A OF THE ASSESSEE CANNOT BE FOUND FAULT WITH. THE A.R. ALSO CITED THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. SHRI MAHESH CHANDRA SHARMA REPORTED IN 308 ITR 222, WHER EIN THE HON'BLE HIGH COURT HAS HELD (HEADNOTE), .(II) THAT THE ASSESSEE ASSEMBLED THE WHEELS FROM THE RAW MATERIAL/COMPONENTS WHICH W ERE RIM, TYRE, TUBE, BEARING, DRUM, SPOKE, NIPPLE AND COLLAR BY DI FFERENT PROCESSES. THE WHEEL WAS CERTAINLY A DIFFERENT ITEM FROM THE COMPONENTS WHICH UMESH PENCILS PROCESSORS P. LTD. I.T.A. NOS. 4775 TO 4780 & 4787 TO 4789 OF 2011 PAGE 6 O F 7 WERE USED IN THE PROCESS. THE ASSESSEE WAS ENTITLED TO SPECIAL DEDUCTION UNDER SECTION 80IB. WE, FIND FROM THE PRODUCTION PROCESS CHART, AS REPRODUCED BY THE AO IN THE ASSESSMENT OR DER THAT THE FINAL MARKETABLE PRODUCT CAN BE PROCURED, ONLY AFTER GOING THROUGH A PRODUCTION LINE, WHICH IS DIFFERENT FROM THE INDIVI DUAL PIECES OF RAW MATERIALS THAT HAVE TO BE PUT TOGETHER. WE FIND NO MERIT IN THE ARGUMENT OF THE DR THAT IT IS A SIMPLE MANUAL PROCESS , WHICH DOES NOT QUALIFY FOR THE DEDUCTION. IT IS SO, BECAUSE A MANUFACTURING PROCESS SHALL ALWAYS REMAIN A MANUFACTURING PROCESS EVEN IF THAT SIMPLE PROCESS BRINGS INTO EXISTENCE A DISTINCT MARKETABLE PRODUC T, AND ONCE A DISTINCT PRODUCT COMES INTO BEING, BY WAY OF NAME, CHARACTER AND USE , IT WOULD DEFINITELY QUALIFY TO COME UNDER THE DEF INITION OF MANUFACTURE . IT MUST BE ADDED HERE THAT TO INCLUDE SIMPLE MANUFACTURING PROCESS WITHIN THE AMBIT OF SECTION 8 0IA, THE LEGISLATURE HAS PROVIDED ONE OF THE CONDITIONS, I.E. WHERE THE PRODUCTION IS DONE MANUALLY AND NOT GUIDED WITH THE HELP OF POWER, SUB JECT TO CERTAIN CONDITIONS WHICH NEED TO BE FULFILLED. 12. ON THESE OBSERVATIONS, RESPECTFULLY FOLLOWING T HE DECISIONS CITED BY THE AR, WE ARE INCLINED TO AGREE WITH HIM AND AL LOW THE APPEALS. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) IN ALL THE THREE IMPUGNED YEARS ON THIS ISSUE AND DIRECT THE AO TO A LLOW THE CLAIM OF DEDUCTION U/S 80IA , AS CLAIMED BY THE ASSESSEE. TH E APPEALS FILED BY THE ASSESSEE FOR ASSESSMENT YEARS 1998-99, 2000-01 AND 2001-02, ARE THEREFORE, ALLOWED. IN THE RESULT, DEPARTMENTS APPEALS IN UMESH PENCILS PROCESSORS P. LTD. I.T.A. NOS. 4775 TO 4780 & 4787 TO 4789 OF 2011 PAGE 7 O F 7 I.T.A. NO.4775/M/11 I.T.A. NO 4776/M/11 I.T.A. NO 4777/M/11 I.T.A. NO 4778/M/11 I.T.A. NO 4779/M/11 & I.T.A. NO 4780/M/11 ARE DISMISSED; AND ASSESSEES APPEALS IN I.T.A. NO. 4787/M/11 I.T.A. NO. 4788/M/11 & I.T.A. NO. 4789/M/11 ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 04/07/2012. SD/- SD/- (B.RAMAKOTAIAH) ( VIVEK VARMA ) ACCOUNTNAT MEMBER JUDIC IAL MEMBER MUMBAI: 04/07/2012. P/-*