ITO, New Delhi V. M/s. Indo Swedish Instruments, New Delhi

ITA 5421/DEL/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7281 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 01-10-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 05-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P K GAUR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER ITA NO. 5421 /DEL /201 1 ASSESSMENT YEAR : 200 8 - 200 9 ITO, WARD - 22(2), NEW DELHI VS. M/S INDO SWEDISH INSTRUMENT C/O ARJUN MEHTA & CO., CHARTERED ACCOUNTANTS, 401, WHITE HOUSE, 382, SAN T NAGAR, EAST OF KAILASH, NEW DELHI. ( PAN AA BFI 9730 J ) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VIVEK NANGIA, SR. D.R. RESPONDENT BY: SHRI P.K. GAUR , AND SHRI ARJUN MEHTA, C.AS. PER: GEORGE GEORGE K., J.M. 1. THIS APPEAL , AT THE INSTANCE OF THE REVENUE, IS DIRECTED AGAINST THE ORDER OF THE CIT (A) - XXIII, NEW DELHI, DATED 20 - 09 - 2011. THE RELEVANT ASSESSMENT YEAR IS 2008 - 09 . 2. THE DEPARTMENT, HAS, IN ITS GROUNDS OF APPEAL, RAISED A SOLITARY ISSUE, NAMELY : WHETHER THE CIT (A) WAS JUSTIFIED IN ALLOWING 50% OF THE CLAIM OF DEDUCTION U/S 80IC OF THE ACT WHICH WAS DENIED BY THE AO ? 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE AS FOLLOWS : THE ASSESSEE, A PARTNERSHIP FIRM, IS A MANUFACTURER OF MULTI - FUNCTION TRANSDUCER, CURRENT TRANSDUCER AND OTHER RELATED PRODUCTS. DURING THE ASSESSMENT YEAR UNDER DISPUTE, THE ASSESSEE HAD STARTED ITS MANUFACTURING OPERATION AND, ACCORDINGLY, CLAIMED EXE MPTION U/S 80 - IC OF THE ACT ON THE P REMISE THAT THE LOCATION OF ITS UNIT 2 ITA NO.5421/DEL/2011 ASSESSMENT YEAR 2008 - 09 FALLS IN THE NOTIFIED AREA IN HIMACHAL PRADESH. HOWEVER, THE AO TOOK A STAND THAT AS THERE WAS NO MANUFACTURING ACTIVITY, THE TRADED ITEMS PURCHASE D FROM M/S. SML WHICH WERE DIRECTLY SOLD TO M/S ABB LIMITED, THE ASSESSEE WAS DISENTITLED TO DEDUCTION U/S 80IC OF THE ACT. H OWEVER, THE AO HAD RESTRICTED THE DEDUCTION U/S 80IC OF THE ACT TO 50% , ON AD - HOC ESTIMATION , FOR THE FOLLOWING REASONING: 4.7. AS SEEN IN THE EARLIER PARAS THAT THE ASSESSEE HAS PURCHASED HI S MACHINERY ONLY IN THE SECOND HALF OF THE YEAR AND IT IS PRESUMED THAT IN THE FIRST 6 MONTHS OF THE YEAR, HE H ASDONE TRADING ONLY. MORE THAN 50% SALES WERE DONE IN THE FIRST 6 MONTHS. THE HEAD OF THE INCOME IS BEING CHANGED FROM MANUFACTURING TO TRADING IN THE CASE OF PURCHASES MADE FROM SML. SINCE, ASSESSEE HAS NOT FURNISHED THE COMPLETE DETAILS OF SALE AND PURCHASES BILLS SO THE COMPARISON COULD NOT BE MADE IN REST OF THE PURCHASES., AN AD - HOC ESTIMATED 50% OF SUCH PURCHA SES HAVE BEEN TREATED AS TRADING PURCHASES ACCORDINGLY THE HEAD OF SUCH PURCHASES WHICH IS ALSO CAN BE SAID 50 % OF THE SALES MADE TO M/S ABB LTD. HENCE, EXEMPT PROFIT HAS BEEN R ESTRICTED UP - TO 50% ONLY . 4. AGGRIEVED, THE ASSESSEE TOOK UP THE ISSUE WITH THE CIT (A) WHO ALLOWED THE APPEAL OF THE ASSESSEE AND GRANTED RELIEF FOR THE ENTIRE DEDUCTION AS CLAIMED BY THE ASSESSEE. THE RELEVANT FINDING OF THE CIT ( A) READ AS FOLLOWS: 4 IT IS SEEN THAT THE APPELLANT HAS TAKEN THE MANUFACTURIN G PREMISES ON RENT VIDE RENT AGREEMENT DT. 24.4.2006. THE APPELLANT HAS ENTERED INTO AN AGREEMENT WITH CEWE INSTRUMENTS AB, A SWEDISH CORPORATION ON 2.5.2006 FOR OBTAINING T ECHNICAL KNOW - HOW, SUPPORT AND ASSISTANCE FOR MANUFACTURE OF PRODUCTS BASED ON TECHNOLOGY SUPPLIED BY CEWE. THE APPELLANT HAS BEEN ALLOWED CERTIFICATE OF REGISTRATION UNDER VAT AS ON 27.9.2006. THE APPELLANT HAS BEEN GRANTED NOC FROM THE ENVIRONMENT PROT ECTION AND POLLUTION CONTROL BOARD, BADDI, ON 4.9.2006. POWER CONNECTION FROM THE STATE ELECTRICITY BOARD HAS BEEN PROVIDED ON 27.12.2006. AN INSPECTION REPORT OF THE DIRECTOR OF FIRE SERVICES IS ON RECORD, SHOWING INSPECTION ON 24.1.2007. THE DY . DIREC TOR, INDUSTRIES, DEPT. OF INDUSTRIES, BADDI, HIMACHAL PRADESH HAS ISSUED A CERTIFICATE OF ALLOCATION OF REGISTRATION NUMBER FOR SMALL SCALE ENTERPRISE FOR MANUFACTURING OF TRANSDUCERS, METERS ETC., SHOWING DATE OF COMMENCEMENT OF COMMERCIAL PRODUCTION ON 1 1.4.2007. THE APPELLANT HAS ALSO FURNISHED COPIES OF CERTIFICATION UNDER ISO 9001:2000 FOR DESIGN, MANUFACTURING AND SUPPLY OF TRANSDUCERS AND METERS AND COPY OF APPROVAL LETTER DATED 24.3.2008 FROM THE POWER GRID CORPORATION OF INDIA LTD FOR SUPPLY OF VO LTAGE AND CURRENT TRANSDUCERS WHICH SHOWS INSPECTION OF THE PREMISES AT BAROTIWALA BY POWER GRID REPRESENTATIVE ON 2.3.2008. ALL THESE DOCUMENTS ARE SEEN TO HAVE BEEN FURNISHED BEFORE THE ASSESSING OFFICER DURING ASSESSMENT PROCEEDINGS. THE SEQUENCE OF E VENTS DOES NOT SUPPORT THE ASSESSING OFFICER S OPINION THAT THE BUSINESS WAS SET UP HURRIEDLY. NOR CAN THE APPELLANT BE FAULTED FOR SETTING UP THE BUSINESS WITH RELATIVELY LESS CAPITAL COMPARED TO THE LOANS OR FOR ESTABLISHING THE UNIT IN AS RENTED PREMIS E. (5) THE A SSESSING O FFICER HAS ALSO FOUND IT DOUBTFUL THAT THE APPELLANT S TURNOVER HAS INCREASED FROM RS.6.28 LAKHS IN THE EARLIER YEAR TO RS.7.57 CRORES IN THE CURRENT YEAR AND THAT THE BULK OF SALES HAVE BEEN MADE TO ONE PARTY, M/S ABB LTD. THE ASSES SING OFFICER HAS SUSPECTED THAT THE UNIT WAS SET UP BY M/S. SML IN THE NAME OF THE 3 ITA NO.5421/DEL/2011 ASSESSMENT YEAR 2008 - 09 APPELLANT ONLY TO CLAIM DEDUCTION UNDER SECTION 80IC. HOWEVER, THE ASSESSING OFFICER HAS NOT FOUND ANY EVIDENCE TO SHOW THAT THE PARTNERS CAPITAL OR THE UNSECURED LOANS HA VE ORIGINATED FROM M/S SML. THE ASSESSING OFFICER S CONTENTION THAT THE PRODUCTS HAVE BEEN PURCHASED FROM M/S SML AND SOLD TO M/S ABB LTD WITHOUT ANY VALUE ADDITION IS ALSO NOT BORNE OUT BY THE RECORD. OUT OF THE TOTAL RAW MATERIAL CONSUMPTION OF RS.505. 5 LAKHS, RS . 218.56 LAKHS WAS THE VALUE OF IMPORTED COMPONENTS AND ACCESSORIES USED IN THE MANUFACTURING. THE RAW MATERIAL WAS SOURCED FROM MORE THAN TWENTY FIVE INDIGENOUS SUPPLIERS, APART FROM M/S. SML. THE APPELLANT WAS REQUIRED TO FILE COPIES OF THE B ILLS OF IMPORT OF RAW MATERIALS SHOWING THE PAR TICULARS OF BILLS OF LADING, DATE OF CLEARANCE ETC., WHICH HAVE BEEN EXAMINED BY ME. I FIND THE RAW MATERIALS HAVE BEEN RECEIVED IN INDIA FROM 7.6.2007 ONWARDS. EXAMINATION OF THE DETAILS OF POWER AND FUEL E XPENSES SHOWS PROPORTIONATE CONSUMPTION THROUGH THE YEAR. IT IS ALSO VERIFIED THAT THE MANUFACTURE AND PROCESS IS ONE OF ASSEMBLY AND TESTING WHICH DOES NOT REQUIRE LARGE INPUT OF POWER OR LABOUR. 6. THE ASSES SING OFFICER HAS POINTED OUT TH AT THERE IS A VERY SHORT SPAN OF TIME BETWEEN THE PURCHASE OF MATERIAL FROM M/S SML AND SALE TO M/S ABB LTD WHICH HAS LED HIM TO CONCLUDE THAT THE ITEMS WERE DIRECTLY SOLD TO M/S ABB LTD WITHOUT ANY FURTHER PROCESS. THIS WAS CONFRONTED TO THE APPELLANT BY THE ASSESSING OFFICER ON 28.12.2010 TO WHICH THE APPELLANT HAS FILED A REPLY ON 31.12.2010. FROM THE SAID REPLY , IT IS SEEN THAT THE APPELLANT EXPLAINED THAT THE TIME RECORDED ON THE INVOICE ISSUED BY M/S SML WAS SUBSEQUENT TO THE DESPATCH OF THE MATERIAL ON THE BASIS OF CHALLAN. THE APPELLANT HAS CORRELATED THE ENTRY OF GOODS AS PER DELIVERY CHALLAN AND THE DESPATCH OF THE FINISHED MATERIAL FROM ITS GATE REGISTER. IT IS SUBMITTED THAT THE TIME REQUIRED FOR ASSEMBLY AND TESTING OF THE PRODUCT VARIES BETWEEN TWO TO SI X HOURS. IT IS ALSO SUBMITTED THAT THE ITEMS PURCHASED FROM M/S SML ARE CIRCUIT CARD ASSEMBLY WHICH ARE THE BASIC RAW MATERIAL FOR MOUNTING OF VARIABLE COMPONENTS BASED ON CUSTOMER REQUIREMENTS. THE APPELLANT S PRODUCTS HOWEVER CONSIST OF TRANSDUCERS AND METERS WHICH ARE NOT MANUFACTURED BY M/S SML. 7. REGARDING THE PURCHASE OF MACHINERY FOR MANUFACTURING OF THE ELECTRONIC PRODUCTS, THE APPELLANT HAS SUBMITTED THAT MACHINERY AMOUNTING TO RS.24,39,190/ - WAS PURCHASED DURING THE FINANCIAL YEAR 2006 - 07. HENCE, THE ASSESSING OFFICER S FINDING THAT MANUF ACTURE COULD NOT HAVE COMMENCED AS MACHINERY OF ONLY RS.10,46,287/ - WAS PURCHASED IN THE FIRST HALF OF THE FINANCIAL YEAR 2007 - 08 ASND MACHINERY OF RS.83,30,016/ - DURING THE SECOND HALF, IS MISPLACED. IN RESPECT OF THE BILLS OF PURCHASE FROM M/S LAXMI DES IGNERS, BANGALORE AND M/S PREMANUI TOOLS, THANE, IT IS SEEN THAT THE INVOICES ARE IN THE NAME OF THE APPELLANT. IT WAS EXPLAINED BY THE APPELLANT IN THE SUBMISSION BEFORE THE ASSESSING OFFICER DATED 31.12.2010 THAT THE MANUFACTURERS OF THE MACHINERY WERE INTRODUCED TO THE APPELLANT MY M/S. SECURE METERS LTD WHOSE EMPLOYEE MR E.V.R MURTHY WAS AUTHORISED TO ISSUE THE ORDER OF PURCHASE. AS THE APPELLANT HAD NO PREVIOUS COMMERCIAL RELATION WITH THE SUPPLIER AND AS BAROTIWALA WAS A DISTANT LOCATION, THE MANUFA CTURERS CHOSE TO DELIVER THE EQUIPMENTS TO M/S SECURE METERS LTD. AT UDAIPUR FROM WHERE THE MACHINERIES WERE CARRIED BY AN EMPLOYEE TO THE PREMISES OF THE APPELLANT. I ALSO FIND THAT THE INVOICE OF M/S LAXMI DESIGNERS OF RS.25,92,757/ - IS DATED 4.3.2008 A ND NOT 3.7.2008 AS STATED BY THE ASSESSING OFFICER. IN RESPECT OF PURCHASE FROM M/S. PREMAUNI TOOLS, THE MACHINERY IS SEEN TO BE RECEIVED AT THE PREMISES OF THE APPELLANT ON 27.3.2008. MERELY BECAUSE THE MACHINERY WAS FIRST RECEIVED AT UDAIPUR AND T HEN TRANSPORTED TO 4 ITA NO.5421/DEL/2011 ASSESSMENT YEAR 2008 - 09 BAROTIWALA DOES NOT ESTABLISH THAT THE MACHINERY WAS USED BY M/S. SECURE METERS LTD OR THAT IT WAS NOT PUT TO USE BY THE APPELLANT BEFORE THE END OF THE FINANCIAL YEAR. 8. FOR THE VARIOUS REASONS STATED ABOVE, I AM UNABLE TO SUBSCRIBE T O THE VIEW OF THE ASSESSING OFFICER THAT NO MANUFACTURING HAS TAKEN PLACE AND THAT THE APPELLANT IS NOT ENTITLED TO THE FULL DEDUCTION UNDER SECTION 80IC. THE ASSESSING OFFICER HAS MADE AN AD - HOC DISALLOWANCE OF 50% OF THE DEDUCTION CLAIMED BY HOLDING THA T 50% OF THE SALES MADE TO M/S. ABB LTD ARE FROM TRADING. NEEDLESS TO SAY, THERE IS NO CREDIBLE BASIS FOR THIS ESTIMATION OF PROPORTION OF TRADING TO MANUFACTURING SALES. AFTER CAREFUL CONSIDERATION, IT IS HELD THAT THE APPELLANT IS ENTITLED TO THE DEDUC TION UNDER SECTION 80 IC FOR PROFITS FROM A MANUFACTURING UNIT ESTABLISHED IN A SPECIAL CATEGORY STATE . 5. THE REVENUE, BEING AGGRIEVED, IS IN APPEAL BEFORE US. DURING THE COURSE OF HEARING, T HE LE AR NED DR TOOK US THROUGH THE ASSESSMENT ORDE R AND HIGHLIGHTED THE REASONING OF THE AO FOR HAVING DENIED 50% OF DEDUCTION U/S 80 IC OF THE ACT. ON THE OTHER HAND, THE LEARNED A . R . REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND RELIED ON THE FINDINGS OF THE CIT (A) ON THE ISSUE. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE RELEVANT MATERIAL ON RECORD AND ALSO THE FINDINGS OF THE CIT (A) IN REVERSING THE STAND OF THE AO. THE AO HAD DENIED 50% OF THE DEDUCTION U/S 80 IC OF THE ACT AS CLAIMED BY THE ASS ESSEE SOLELY ON THE PREMISE THAT (A) ASSESSEE HAS NOT FURNISHED ANY PROOF OF THE INSTALLATION OF MACHINERY; (B) THE ITEMS PURCHASED FROM SML WAS SOLD TO M/S.ABB LTD WITHOUT DOING ANY MANUFACTURING ACTIVITY AND WITHOUT VALUE ADDITION IN PHYSICAL TERMS; AND (C) THERE ARE VERY FEW MANUFACTURING EXPENSES [SOURCE: PARA 4.5. OF THE ASST. ORDER]. HOWEVER, THE REASONING OF ASSESSING OFFICER THAT THE ASSESSEE HAD NOT FURNISHED ANY PROOF OF INSTALLATION OF MACHINERY [PARA 4.5(A) ] HAS SINCE BEEN CONTROVERTED , INTER ALIA, BY THE CIT (A) IN HER FINDINGS THAT THE DY. DIRECTOR, INDUSTRIES, DEPT. OF INDUSTRIES, BADDI, HIMACHAL PRADESH HAS ISSUED A CERTIFICATE OF ALLOCATION OF REGISTRATION NUMBER FOR SMALL SCALE ENTERPRISE FOR MANUFACTURING OF TRANSDUCERS, METERS ETC., SHOWING DATE OF COMMENCEMENT OF COMMERCIAL PRODUCTION ON 11.4.2007 . [P ARA 4 OF CIT (A) S ORDER] . OSTENSIBLY, THE FINDING OF THE CIT (A) HAS NOT BEEN DISPELLED BY THE REVENUE BY P L ACING ANY DOCUMENT OR MATERIAL ON RECORD. SIMILARLY, THE REASONING OF THE AO AS MENTIONED AT PARA 4.5.(B) AND (C) OF THE ASSESSMENT ORDER HAS ALSO BEEN EFFECTIVELY CONTROVERTED BY THE CIT (A). FOR READY REFERENCE, THE RELEVANT PORTIONS OF THE FINDINGS OF THE CIT (A) ARE ILLUSTRATED AS UNDER: (B) THE ITEMS PURCHASED FROM S ML WAS SOLD TO M/S. ABB LTD WITHOUT DOING ANY MANUFACTURING ACTIVITY AND WITHOUT VALUE ADDITION IN PHYSICAL TERMS AND (C) THERE ARE VERY FEW MANUFACTURING EXPENSES : 5 ITA NO.5421/DEL/2011 ASSESSMENT YEAR 2008 - 09 5 ..THE ASSESSING OFFICER S CONTENTION THAT THE PRODUCTS HAVE BEEN PURCHASED FROM M/S SML AND SOLD TO M/S ABB LTD WITHOUT ANY VALUE ADDITION IS ALSO NOT BORNE OUT BY THE RECORD. OUT OF THE TOTAL RAW MATERIAL CONSUMPTION OF RS.505.5 LAKHS, RS. 218.56 LAKHS WAS THE VALUE OF IMPORTED COMPONENTS AND ACCESSORIES USED IN THE MANUFACTURING. THE RAW MATERIAL WAS SOURCED FROM MORE THAN TWENTY FIVE INDIGENOUS SUPPLIERS, APART FROM M/S. SML. THE APPELLANT WAS REQUIRED TO FILE COPIES OF THE BILLS OF IMPORT OF RAW MATERIALS SHOWING THE PARTICULARS OF BILLS OF LADING, DATE OF CLEARANCE ETC., WHICH HAV E BEEN EXAMINED BY ME. I FIND THE RAW MATERIALS HAVE BEEN RECEIVED IN INDIA FROM 7.6.2007 ONWARDS. EXAMINATION OF THE DETAILS OF POWER AND FUEL EXPENSES SHOWS PROPORTIONATE CONSUMPTION THROUGH THE YEAR. IT IS ALSO VERIFIED THAT THE MANUFACTURE AND PROCE SS IS ONE OF ASSEMBLY AND TESTING WHICH DOES NOT REQUIRE LARGE INPUT OF POWER OR LABOUR. 6 ... FROM THE SAID REPLY, IT IS SEEN THAT THE APPELLANT EXPLAINED THAT THE TIME RECORDED ON THE INVOICE ISSUED BY M/S SML WAS SUBSEQUENT TO THE DESPATCH OF TH E MATERIAL ON THE BASIS OF CHALLAN. THE APPELLANT HAS CORRELATED THE ENTRY OF GOODS AS PER DELIVERY CHALLAN AND THE DESPATCH OF THE FINISHED MATERIAL FROM ITS GATE REGISTER. IT IS SUBMITTED THAT THE TIME REQUIRED FOR ASSEMBLY AND TESTING OF THE PRODUCT V ARIES BETWEEN TWO TO SIX HOURS. IT IS ALSO SUBMITTED THAT THE ITEMS PURCHASED FROM M/S SML ARE CIRCUIT CARD ASSEMBLY WHICH ARE THE BASIC RAW MATERIAL FOR MOUNTING OF VARIABLE COMPONENTS BASED ON CUSTOMER REQUIREMENTS. 6.1. MOREOVER, THE F INDING OF THE CIT (A) HAS ALSO NOT BEEN CHALLENGED AS INCORRECT BY PLACING ANY MATERIAL/DOCUMENT ON RECORD BY THE REVENUE . ON THE CONTRARY, THE ASSESSEE HAD PRODUCED POSITIVE PROOF THAT IT WAS MANUFACTURING/ASSEMBLING UNIT. THEREFORE, WE UPHOLD THE ORDER OF THE CIT (A) WHICH IS IN ACCORDANCE WITH LAW AND THAT NO INTERFERENCE IS CALLED FOR. IT IS ORDERED ACCORDINGLY. 7. IN THE RESULT , THE REVENUE S APPEAL IS DISMISSED. S D / - S D / - (T.S. KAPOOR) (GEORGE GEORGE K.) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 1 0 T H OCTOBER, 2014. COPY FOR WARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR DY. REGISTRAR, ITAT, NEW DELHI