DCIT, Chandigarh V. Sh. Raman Singal, Chandigarh

ITA 544/CHANDI/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73445 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-01-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 20-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Section: 143(3); 54F; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B CHANDIGARH BEFORE SHRI T.R.SOOD ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.544/CHD/2011 ASSESSMENT YEAR : 2007-08 THE DY. COMMISSIONER OF VS SHRI RAMAN SINGAL, INCOME TAX, 185, INDUSTRIAL AREA-II, CIRCLE 1(1), CHANDIGARH. CHANDIGARH. PAN : AEFPS6301F & C.O. 55/CHD/2011 IN ITA NO.544/CHD/2011 ASSESSMENT YEAR : 2007-08 SHRI RAMAN SINGH VS THE DY. COMMISSIO NER OF 185, INDUSTRIAL AREA-II, INCOME TAX, CHANDIGARH. CIRCLE 1(1), CHANDIGARH. . (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M.R.SHARMA RESPONDENT BY : SHRI AKHILESH GUPTA DATE OF HEARING : 10.01.2014 DATE OF PRONOUNCEMENT : 30.01.2014 O R D E R PER SUSHMA CHOWLA, JM THE REVENUE HAS FILED THE APPEAL AGAINST THE ORDER OF CIT(APPEALS) CHANDIGARH, DATED 21.01.2011 RELATING TO ASSESSMENT YEAR 2007-08 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT, 1961 AND THE CROSS OBJECTION HAS BEEN FILED BY THE ASSESSEE AGAINST TH E APPEAL FILED BY THE REVENUE. 2. BOTH THE APPEAL FILED BY THE REVENUE AND THE CRO SS OBJECTIONS FILED BY THE ASSESSEE WERE HEARD TOGETHER AND ARE BEING DISP OSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2 3. THE REVENUE HAS RAISED UNDER MENTIONED GROUNDS O F APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS GRAVELY ERRED IN DELETING THE ADDITION OF RS. 14,24 ,481/- MADE BY THE AO AS PER SECTION 36(1)(III) OF THE INCOME TAX ACT, 19 61 AFTER CONSIDERING THE JUDGMENT OF HON'BLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF ABHISHEK INDUSTRIES LTD., 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW LD. CIT(A) HAS GRAVELY ERRED IN DELETING THE ADDITION OF RS. 15,13 ,623/- ON ACCOUNT OF DISALLOWANCE UNDER SECTION 80 1C OF THE INCOME TAX ACT 1961 PERTAINING TO UNIT-LL BADDI. 3. THE APPELLANT CRAVES TO ADD OR AMEND ANY GROUND ANY GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD OR DISPOSED OFF. 4. IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A ) BE CANCELLED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 4. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THE CROSS OBJECTIONS : 1. THAT THE ORDER OF THE ASSESSING OFFICER AS UPHELD B Y THE COMMISSIONER OF INCOME TAX (APPEALS), CHANDIGARH DI SALLOWING RS. 1,94,000/-- BEING THE ACTUAL AMOUNT APPROPRIATED FO R THE PURCHASE OF RESIDENTIAL FLATS BAD IN LAW AND NEEDS TO BE SET AS IDE. 2. THAT THE ORDER OF THE ASSESSING OFFICER AS UPHELD B Y THE COMMISSIONER OF INCOME TAX (APPEALS) CHANDIGARH DIS ALLOWING AN AMOUNT OF RS. 4,11,787/- IN THE FACTS AND CIRCUMSTA NCES OF THE CASE IS BAD IN LAW AND NEEDS TO BE SET ASIDE. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR DE LETE ANY OF THE GROUNDS BEFORE THE CORSS-OBJECTIONS AND APPEAL IS F INALLY HEARD. 5. THE ASSESSEE HAS MOVED AN APPLICATION FOR AMENDM ENT IN GROUND NO. 1 OF THE CROSS OBJECTION I.E. INSTEAD OF THE FI GURE RS.1,94,000/- THE FIGURE OF RS. 12,96,000/- BE ADOPTED. 6. THE GROUND NO. 1 RAISED BY THE REVENUE IS AGAINS T THE DELETION OF ADDITION MADE BY THE ASSESSING OFFICER UNDER SEC TION 36(1)(III) OF THE ACT. THE ASSESSING OFFICER DURING THE COURSE O F ASSESSMENT PROCEEDINGS, NOTED THAT THE ASSESSEE HAD MADE INTER EST FREE ADVANCES TO B.K.RAMAN & CO. UNIT NO. II, BADDI, B.K.VARUN &C O. (HPL) AND SINGHAL POLYMER. ON THE OTHER HAND, THE ASSESSEE WA S PAYING INTEREST IN THE CHANDIGARH UNIT. THE EXPLANATION OF THE ASS ESSEE WAS THAT IT 3 WAS THE SOLE PROPRIETOR OF B.K.RAMAN &CO. CHANDIGAR H AND UNIT II AT BADDI AND THE CREDIT TO HIS ACCOUNT OF RS. 37,17,60 6/- WAS NOTHING BUT A WORKING CAPITAL AND THERE WAS NO MERIT IN ANY CHARGE OF INTEREST ON SUCH TRANSFER OF CAPITAL FROM ONE UNIT TO THE OT HER. IN RESPECT OF B.K. VARUN & CO., IT WAS POINTED OUT THAT NO INTERE ST WAS CHARGED AS THERE WAS A DEBIT BALANCE OF RS. 20,41,042/- AGAINS T CREDIT BALANCE OF RS. 1,06,10,906/- AND HENCE, THERE WAS NET CREDIT W ITH THE ASSESSEE OF RS. 85,69,864/-. THE ADVANCE TO M/S SINGHAL POLYMER OF RS. 3,70,627/- WAS ADVANCED INTEREST FREE. THE SAID WA S CLAIMED TO BE A PURE BUSINESS TRANSACTION I.E. THE PERSON TO WHOM G OODS WERE SOLD BY THE ASSESSEE. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD DEBITED SUM OF RS. 14,24,481/- UNDER THE HEAD INTER EST IN THE BOOKS OF M/S B.K.RAMAN & CO. CHANDIGARH AND WAS OF THE VIEW THAT INTEREST @ 18% ON OUTSTANDING DEBIT BALANCE HAD TO BE DISALL OWED, RESULTING IN DISALLOWANCE OF RS. 26,73,621/- WHICH WAS RESTRI CTED TO RS. 14,24,481/-, I.E. THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE. 7. BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE MADE ELABORATE SUBMISSIONS WHICH ARE INCORPORATED U NDER PARA 21 AT PAGES 14 TO 16 OF THE APPELLATE ORDER AND DELETED T HE ADDITION IN VIEW OF THE SIMILAR ISSUE BEING DECIDED IN ASSESSMENT YE AR 2006-07 VIDE APPELLATE ORDER DATED 30.03.2010. THE REVENUE IS I N APPEAL AGAINST THE SAID DELETION OF THE ADDITION. 8. THE LD. DR FOR THE REVENUE PLACED RELIANCE ON TH E ORDER OF THE ASSESSING OFFICER. THE LD. AR FOR THE ASSESSEE PLA CED RELIANCE ON THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) A ND THE SUBMISSIONS MADE BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) EXPLAINING EACH OF THE DEBIT ENTRY. 4 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HA D DECLARED INCOME FROM BUSINESS AS SOLE PROPRIETOR OF B.K. RAMAN & CO . CHANDIGARH AND UNIT II AT BADDI. IN THE CHANDIGARH OFFICE, TH E ASSESSEE HAD CLAIMED INTEREST EXPENDITURE OF RS. 14,24,481/- ON ACCOUNT OF THE INTEREST PAID ON SECURED LOANS. AS AGAINST THIS, T HE ASSESSEE HAD SHOWN CERTAIN DEBIT BALANCES ON WHICH NO INTEREST W AS CHARGED. THE FIRST CONCERN TO WHOM AMOUNT HAD BEEN ADVANCED WAS THE UNIT NO. II AT BADDI. IN THE CHANDIGARH OFFICE, DEBIT BALANCE OF RS. 33,17,606/- IS REFLECTED WHICH ADMITTEDLY IS NOTHING BUT WORKIN G CAPITAL OF THE ASSESSEE FOR RUNNING THE UNIT NO. II AT BADDI AND I T ALSO INCLUDES THE PROFIT DECLARED BY THE BADDI UNIT. THE ASSESSEE IN THE CHANDIGARH UNIT HAD SHOWN A CAPITAL OF RS. 49,34,981/- AND HAD ALSO SHOWN DEBIT BALANCE IN THE NAME OF B.K. RAMAN & CO. UNIT II RS. 37,17,608/-. IN THE FIRST INSTANCE, THE SAID RS. 37,17,608/- INCLUD ES THE PROFIT EARNED BY B.K.RAMAN & CO. UNIT II, BADDI WHICH IS NOT TO B E CONSIDERED FOR COMPUTING THE ADVANCES, IF ANY. FURTHER, THE ASSES SEE IN ITS CHANDIGARH OFFICE HAD RAISED CERTAIN LOANS ON WHICH IT WAS PAYING INTEREST AND ON THE OTHER HAND, IT HAD ADVANCED MON EY TO THE UNIT NO. II AT BADDI WHICH WAS AN EXEMPT UNIT. IN THE TOTAL ITY OF THE ABOVESAID FACTS AND CIRCUMSTANCES, WE HOLD THAT THE INTEREST ATTRIBUTABLE TO SUCH INTEREST FREE ADVANCES MADE BY THE ASSESSEE TO ITS OWN EXEMPT UNIT IS TO BE DISALLOWED FOLLOWING THE R ATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT VS A BHISHEK INDUSTRIES 286 ITR 1 (P&H). HOWEVER, WE FIND MERIT IN THE CONTENTION OF THE ASSESSEE THAT IN ADDITION TO THE SAID INTEREST BEARING LOANS, IT HAD CERTAIN INTEREST FREE LOANS AND THE A VERAGE COST RATIO OF THE INTEREST EXPENDITURE IS TO BE CONSIDERED FOR CO MPUTING THE DISALLOWANCE OF INTEREST EXPENDITURE IN THE HANDS O F THE ASSESSEE. 5 ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO COM PUTE DISALLOWANCE OF INTEREST EXPENDITURE ATTRIBUTABLE T O THE ADVANCES MADE TO UNIT NO. II AT BADDI BY APPLYING AVERAGE CO ST RATIO. 10. THE SECOND ADVANCE CONSIDERED BY THE ASSESSING OFFICER WAS TO M/S B.K.VARUN &CO., AGAINST WHOM DEBIT BALANCE OF R S. 20,41,042/- HAS BEEN SHOWN. THE SAID COMPANY WAS ALSO REFLECTE D AS A CREDITOR IN THE BOOKS OF THE ASSESSEE AT RS. 1,06,10,906/- AND THE NET CREDIT AVAILABLE WITH THE ASSESSEE WAS RS. 85,69,864/-. I N VIEW OF THE ABOVESAID CREDIT BALANCE, WE FIND NO MERIT IN THE O RDER OF THE ASSESSING OFFICER IN CHARGING ANY INTEREST ON THE D EBIT BALANCES AS THE NET BALANCE AVAILABLE WITH THE ASSESSEE IS TO B E CONSIDERED FOR MAKING ANY DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT. HOWEVER, THE SAID ASPECT, WHETHER THE ASSESSEE HAS CREDIT BALANCE THROUGHOUT THE YEAR, HAS NOT BEEN VERIFIED BY THE A SSESSING OFFICER AND IN ORDER TO ADJUDICATE THE ISSUE, WE DEEM IT FI T TO RESTORE THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER WHO SHA LL VERIFY THE STAND OF THE ASSESSEE IN THIS REGARD AND IN CASE THE ASSE SSEE HAS NET CREDIT BALANCE FROM MONTH TO MONTH, THEN NO DISALLOWANCE I S TO BE MADE IN THE HANDS OF THE ASSESSEE. HOWEVER, WHERE THE ASSE SSEE HAS DEBIT BALANCE IN THE ACCOUNT OF M/S B.K.VARUN & CO. IN AN Y OF THE MONTHS, THEN THE DISALLOWANCE OF INTEREST IS TO BE WORKED O UT ON AVERAGE COST RATIO. 11. NOW COMING TO THE THIRD INTEREST FREE ADVANCE M ADE BY THE ASSESSEE TO M/S SINGAL POLYMER AGAINST WHOM THERE I S A DEBIT BALANCE OF RS. 370,627/- IN THE BOOKS OF ACCOUNT OF THE ASS ESSEE. THOUGH THE SAID CONCERN IS A BUSINESS ASSOCIATE OF THE ASSESSE E I.E. TO WHOM GOODS HAVE BEEN SOLD BY THE ASSESSEE BUT THAT DOES NOT JUSTIFY THE ADVANCEMENT OF INTEREST FREE LOAN TO THE SAID CONCE RN. ACCORDINGLY, 6 WE HOLD THAT INTEREST RELATABLE TO SUCH INTEREST FR EE ADVANCE IS TO BE DISALLOWED IN VIEW OF THE PROVISIONS OF SECTION 36( 1)(III) OF THE ACT. HOWEVER, THE RATE OF INTEREST TO BE APPLIED IN SUCH CASE IS TO BE ON THE BASIS OF AVERAGE COST RATIO I.E. TAKING INTO CO NSIDERATION THE INTEREST FREE ADVANCES AVAILABLE TO THE ASSESSEE AN D THE INTEREST BEARING ADVANCES AVAILABLE WITH THE ASSESSEE. 12. BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) , THE ASSESSEE HAD SUBMITTED THAT THE AVERAGE RATE OF INTEREST IS NOT 18% WHICH HAS BEEN APPLIED BY THE ASSESSING OFFICER TO WORK OUT T HE DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT. THE ASSESSING OFFICER IS THUS, DIRECTED TO APPLY AVERAGE COST RATIO IN ORDER TO CO MPUTE THE DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT IN RESPECT OF THE ADVANCE OF RS. 370,627/- MADE TO M/S SINGAL POLYMER . THE GROUND NO. 1 RAISED BY THE REVENUE IS THUS, PARTLY ALLOWED . 13. THE ISSUE IN GROUND NO. 2 RAISED BY THE REVENU E IS AGAINST THE DELETION OF ADDITION OF RS. 15,13,623/- MADE ON ACC OUNT OF DISALLOWANCE UNDER SECTION 80IC OF THE ACT PERTAINI NG TO UNIT NO. II, BADDI. 14. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE WAS RUNNING A TRADING UNIT AT CHANDIGARH WHICH IS THE C HANDIGARH UNIT AND WAS ALSO RUNNING A MANUFACTURING UNIT AT BADDI. THE ASSESSING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDING S NOTED THAT IN THE CHANDIGARH UNIT, THE ASSESSEE HAD SHOWN GP RATE OF 2.31% AND NP RATE OF 0.52% AS AGAINST GP RATE OF 50.62% AND NP R ATE OF 23.25%, SHOWN IN THE BADDI UNIT. THE ASSESSING OFFICER FUR THER NOTED THAT LARGE NUMBER OF EXPENSES WERE CLAIMED IN THE CHANDI GARH UNIT WHICH WERE ON ACCOUNT OF THE BADDI UNIT. THE ASSESSEE WA S SHOW CAUSED TO EXPLAIN THE SAME. IT WAS EXPLAINED BY THE ASSESSEE THAT THE UNIT NO. 7 II AT BADDI OPERATES SEPARATELY UNDER ITS OWN STAFF EXCEPT THE VEHICLE RUNNING EXPENSES OF RS. 28,103/- WHICH MAY BE ALLOW ED ON PROPORTIONATE BASIS. THE ASSESSING OFFICER, AFTER CONSIDERING THE DIFFERENT EXPENSES CLAIMED IN THE CHANDIGARH UNIT A LLOCATED RS. 411,787/- TO THE BADDI UNIT AND OBSERVED THAT THE S AME WOULD INCREASE THE PROFIT OF THE CHANDIGARH UNIT AND REDU CE THE PROFIT OF THE BADDI UNIT ACCORDINGLY. FURTHER IT WAS NOTED BY TH E ASSESSING OFFICER THAT THE ASSESSEE HAD SHOWN JOB WORK OF RS. 22,90,481/- IN UNIT NO. II BADDI ON WHICH THE ASSESSEE HAD SHOWN J OB WORK INCOME OF RS. 22,90,481/- ON WHICH IT HAD CLAIMED DEDUCTIO N UNDER SECTION 80IC OF THE ACT. THE ASSESSING OFFICER WAS OF THE V IEW THAT JOB WORK WAS NOT AN ACTIVITY WHICH FALLS WITHIN THE DEFINITI ON OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING. FURTHER THE MANUFACTURING ACCOUNT OF THE BADDI UNIT REFLECTED THAT NO EXPENSE S RELATING TO MANUFACTURING ACTIVITY WERE DEBITED AS ONLY PURCHAS ES, FREIGHT AND CARTAGE AND THE TAX WAS DEBITED TO THE MANUFACTURIN G ACCOUNT. THE PROFIT & LOSS ACCOUNT BELOW MANUFACTURING ACCOUNT R EFLECTED THE SALARY AND WAGES OF RS. 262,800/- AND WATER AND ELE CTRICITY EXPENDITURE OF RS. 868,244/- WERE DEBITED. THE ASS ESSING OFFICER WAS THUS, OF THE VIEW THAT THE ASSESSEE HAD NOT UND ERTAKEN ANY MANUFACTURING ACTIVITY. THE ASSESSING OFFICER FURT HER HELD THAT IT WAS AN ADMITTED FACT THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF PLASTIC MOULDINGS AT BADDI UNIT AND THE 13 TH SCHEDULE OF THE INCOME TAX ACT SPECIFICALLY MENTIONS PLASTIC AND ARTICLES THEREOF AS AN ITEM FALLING UNDER THE SCHEDULE. SINCE THE PLASTIC ITEM S WERE PROHIBITED UNDER THE 13 TH SCHEDULE, THE ASSESSEE WAS HELD TO BE NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE ACT. 15. THE COMMISSIONER OF INCOME TAX (APPEALS) AFTER DELIBERATING UPON THE DEFINITION OF THE TERM MANUFACTURING AND THE VARIOUS 8 JUDICIAL PRONOUNCEMENTS ON THE ISSUE OBSERVED THAT A LIBERAL VIEW ON THE MEANING OF MANUFACTURE HAS BEEN TAKEN BY VARI OUS COURTS AND IN THE ABSENCE OF ANY DEFINITION IN THE ACT, THE WORD HAS TO BE GIVEN AN ORDINARY MEANING. FURTHER RELIANCE WAS PLACED ON TH E RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT V S IMPEL FORGE & ALLIED INDUSTRIES LTD. (2009) 183 TAXMAN 38 (P&H) THAT WHERE THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURIN G AND TRADING OF TRACTOR AND AUTO PARTS AND WAS ALSO DOING JOB WORK OF SIMILAR NATURE, IT WOULD BE ENTITLED TO THE DEDUCTION CLAIMED UNDER SECTION 80IB OF THE ACT BOTH IN RESPECT OF THE INCOME DERIVED FROM ITS OWN MANUFACTURING AND INCOME DERIVED FROM JOB WORK DONE FOR THE OTHERS. IN VIEW THEREOF, THE COMMISSIONER OF INCOME TAX (AP PEALS) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. THE RE VENUE IS IN APPEAL AGAINST THE SAME. 16. IT WAS VEHEMENTLY POINTED OUT BY THE LD. DR FOR THE REVENUE THAT THE ASSESSEE HAS FAILED TO BOOK ANY MANUFACTUR ING EXPENSES AND IN THE ABSENCE OF THE SAME AND ALSO FOR THE FACT TH AT THE ASSESSEE WAS DOING JOB WORK, THE ASSESSEE IS NOT ENTITLED TO ANY DEDUCTION UNDER SECTION 80IC OF THE ACT. THE LD. DR FOR THE REVENU E FURTHER POINTED OUT THAT THE COMMISSIONER OF INCOME TAX (APPEALS) H AS FAILED TO GIVE ANY FINDING AGAINST THE OBSERVATION OF THE ASSESSIN G OFFICER THAT THE ITEMS MANUFACTURED BY THE ASSESSEE WERE RESTRICTED ITEMS. 17. THE LD. AR FOR THE ASSESSEE IN REPLY POINTED OU T THAT THE EXPENSES RELATING TO MANUFACTURING WERE CLAIMED IN THE PROFIT & LOSS ACCOUNT BY AN ERROR AND THE SAME WOULD NOT DISENTIT LE THE ASSESSEE TO HIS CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE AC T. THE LD. AR FOR THE ASSESSEE FURTHER REFERRED TO THE NOTIFICATION O F THE DEPARTMENT OF INDUSTRIES, BADDI UNDER WHICH THE ASSESSEE WAS GIVE N A CERTIFICATE FOR 9 THE MANUFACTURING AND JOB WORK OF PLASTIC BOTTLES A ND PLASTIC MEASURING CUPS, THE COPY OF THE SAID NOTIFICATION I S PLACED AT PAGE 67 OF THE PAPER BOOK. OUR ATTENTION WAS FURTHER DRAWN TO THE CUSTOMS TARRIF SCHEDULE III PLACED AT PAGES 68 TO 72 OF THE PAPER BOOK AND UNDER ITEM NO. 3923 AT PAGE 69 OF THE PAPER BOOK. T HE ARTICLES FOR CONVEYANCE OR PACKING OF GOODS OF PLASTIC; STOPPERS , LIDS, CAPS AND OTHER CLOSURES OF PLASTICS WAS RECOGNIZED AS AN ITE M OF MANUFACTURING UNDER THE 13 TH SCHEDULE. 18. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE HAS TWO TRADING UNITS, ONE AT CHANDIGA RH AND THE OTHER AT BADDI. IN ADDITION, THE ASSESSEE HAS UNIT NO. I I AT BADDI WHICH IS THE MANUFACTURING UNIT WHEREIN THE ASSESSEE CARRIES ON THE BUSINESS OF MANUFACTURING OF PLASTIC BOTTLES AND PLASTIC MEA SURING CUPS. THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 80IC O F THE ACT IN RESPECT OF THE PROFITS OF THE UNIT NO. II AT BADDI. THE ASSESSING OFFICER HAD IN THE FIRST INSTANCE RE-ALLOCATED THE EXPENSES OF CHANDIGARH AND BADDI UNIT TO THE EXEMPT UNIT RESULT ING IN AN ADDITION OF RS. 411,787/- AGAINST WHICH THE ASSESSEE HAS RAI SED GROUND NO. 2 IN ITS CROSS OBJECTIONS. FURTHER, THE BENEFIT OF D EDUCTION UNDER SECTION 80IC OF THE ACT WAS DENIED TO THE ASSESSEE ON TWO ACCOUNTS I.E. IT WAS HELD BY THE ASSESSING OFFICER THAT IN T HE ABSENCE OF ANY MANUFACTURING EXPENSES AND ALSO BECAUSE OF THE FACT THAT THE ASSESSEE WAS ENGAGED IN THE MANUFACTURING OF BANNED ITEMS UN DER 13 TH SCHEDULE OF THE ACT, THE ASSESSEE WAS NOT ENGAGED I N ANY MANUFACTURING ACTIVITIES. FURTHER IT WAS NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE WAS CARRYING ON SIMILAR A CTIVITY ON JOB WORK BASIS ON WHICH THE ASSESSEE WAS NOT ENTITLED TO ANY DEDUCTION UNDER SECTION 80IC OF THE ACT. THE COMMISSIONER OF INCOM E TAX (APPEALS), ON THE OTHER HAND, HAD ALLOWED THE CLAIM OF THE ASS ESSEE IN ENTIRETY. 10 THE FIRST ASPECT TO BE CONSIDERED IN THE PRESENT AP PEAL IS WHETHER THE ASSESSEE IS CARRYING ON ANY MANUFACTURING ACTIVITIE S. 19. THE LD. AR FOR THE ASSESSEE AT PAGE 67 OF THE P APER BOOK HAS FILED THE COPY OF LETTER REGARDING ACKNOWLEDGEMENT OF ENTREPRENEUR ISSUED BY THE SINGLE WINDOW CLEARING AGENCY, DEPART MENT OF INDUSTRIES, BADDI, DISTRICT SOLAN DATED 06.08.2007 UNDER WHICH THE UNIT OF THE ASSESSEE UNDER THE MICRO/SMALL/MEDIUM S CALE ENTERPRISES IS RECOGNIZED FOR THE MANUFACTURING AND JOB WORK OF PLASTIC BOTTLES AND PLASTIC MEASURING CUPS. THE ASSESSEE FURTHER A T PAGES 68 TO 72 OF THE PAPER BOOK HAS PLACED ON RECORD THE CUSTOM TARI FF SCHEDULE III CHAPTER 39, UNDER WHICH AT ITEM NO. 3923, THE ARTIC LES FOR THE CONVEYANCE OR PACKING OF GOODS OF PLASTICS, STOPPER S, LIDS, CAPS AND OTHER CLOSURES OF PLASTICS ARE RECOGNIZED. THE ASS ESSEE CLAIMS TO BE ENGAGED IN THE MANUFACTURING OF PLASTIC BOTTLE/CON TAINERS FOR PACKING OF HARPIC FOR M/S RECKITT BENCKISER & ALSO PACKING MATERIAL FOR M/S EMAMI LTD. IN ADDITION TO MANUFACTURING FOR ASSESSEE HIMSELF. SINCE THE ASSESSEE WAS MANUFACTURING BOTTLES/PACKIN G MATERIAL, SO IT HAS TO BE HELD THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING. IN ADDITION THE SAID MANUFACTURING IS CLAIMED TO HAVE BEEN CARRIED ON BY THE ASSESSEE ON ITS OWN. THE DEDUCTION CLAIMED UNDER SECTION 80 IC OF THE ACT WAS DENIED TO THE ASSESSEE AS THE ASSESSEE WAS FOUND TO BE ENGAGED IN THE MANUFACTURE OF THE ITEMS WHICH ARE UNDER SCHEDULE 1 3 OF THE ACT AND IN VIEW OF THE PROVISIONS OF SECTION 80IC OF THE AC T, THE SAID DEDUCTION WAS HELD BY THE ASSESSING OFFICER TO BE N OT ALLOWABLE AS UNDER SUB-SECTION (2) TO SECTION 80IC OF THE ACT, W HEREIN IT IS PROVIDED THAT AN UNDERSTANDING OR ENTERPRISE WHICH MANUFACTURES OR PRODUCES ANY ARTICLE OR THING, WHICH IS NOT SPECIFI ED IN THE 13 TH SCHEDULE OF THE ACT. THE PLEA OF THE ASSESSEE IN T HIS REGARD WAS THAT 11 IN CASE THE TARIFF CLASSIFICATION OF THE GOODS MANU FACTURED BY THE ELIGIBLE UNIT ARE CONSIDERED, THEN THE SAME FALLS O UTSIDE THE SCOPE OF SCHEDULE 13 OF THE INCOME TAX ACT. AS THE ASSESSEE WAS ENGAGED IN THE MANUFACTURE OF ITEMS WHICH ARE NOT FALLING WITH IN 13 TH SCHEDULE OF THE INCOME TAX ACT, THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE ACT. THE MANUFACTURING ACTIVIT Y TO BE UNDERTAKEN BY THE ASSESSEE HAVE BEEN RECOGNIZED BY THE MINISTR Y OF INDUSTRIES, BADDI AND IS ALSO PROVIDED UNDER THE CUSTOMS TARIFF SCHEDULE III CHAPTER 13 AS REFERRED TO BY US IN THE PARAS HEREIN ABOVE. AS PER THE SAID CUSTOM TARIFF, SCHEDULE 3 CHAPTER 13, THE ASSE SSEE IS COVERED BY ITEM NO. 3923 WHICH PROVIDES ARTICLES FOR THE CONVEYANCE OR PACKING OF GOODS, OF PLASTICS, STOPPERS, LIDS, CAPS AND OTHER CLOSERS OF PLASTICS. UNDER SCHEDULE 13 OF THE INCOME TAX ACT, THE PLAS TICS AND ARTICLES THEREOF WHICH ARE ENLISTED ARE AS PER THE EXCISE CLASSIFICATION OF ITEM NO. 3909 TO 3915. THE ITEMS MANUFACTURED BY THE ASSESSEE FALLING UNDER ITEM NO. 3923 IS THUS, O UTSIDE THE PROVISIONS OF THE 13 TH SCHEDULE TO INCOME TAX ACT. UNDER SUCH CIRCUMSTANCES, IT CANNOT BE SAID THAT THE ASSESSEE WAS ENGAGED IN THE MANUFACTURE OF ITEMS WHICH ARE PROHIBITED UNDER THE 13 TH SCHEDULE TO INCOME TAX ACT. IN VIEW THEREOF, WE HOLD THAT ONCE ASSESSEE IS ENGAGED IN AN ACTIVITY OF MANUFACTURE, WHICH IS NOT PROHIBITED UNDER THE 13 TH SCHEDULE OF THE INCOME TAX ACT, THEN IT CANNOT BE SAID THAT THE ASSESSEE WAS NOT ENGAGED IN ANY MANUFACTURING. THE ASSESSEE HAS DECLARED INCOME FROM CARRYING ON OF SUCH ACTIVITY A ND IN ADDITION THE ASSESSEE HAD CARRIED ON THE SAID ACTIVITY ON JOB WO RK BASIS. THE ASSESSEE IS THUS, ENTITLED TO THE CLAIM OF DEDUCTIO N UNDER SECTION 80IC OF THE ACT ON PROFITS ARISING FROM ITS OWN MANUFACT URING ACTIVITY AND ALSO THE ACTIVITY CARRIED ON, ON JOB WORK BASIS. W E FIND SUPPORT FROM THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN 12 CIT VS IMPEL FORGE & ALLIED INDUSTRIES LTD. (SUPRA) , WHEREIN IT HAS BEEN HELD THAT WHERE THE ASSESSEE IS ENGAGED IN ANY MANUFACTURING ACTIVITY AND IN ADDITION CARRIES ON THE SAME ACTIVI TY ON JOB WORK BASIS, THE ASSESSEE IS ELIGIBLE FOR THE CLAIM OF DE DUCTION UNDER SECTION 80IB OF THE ACT. FOLLOWING THE SAME PARITY OF REAS ONING, WE HOLD THAT THE ASSESSEE IS ENTITLED TO THE CLAIM OF DEDUC TION UNDER SECTION 80IC OF THE ACT ON ITS TOTAL PROFITS. 20. NOW COMING TO THE SECOND ASPECT OF THE OBJECTIO NS RAISED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS NOT INCURRE D ANY EXPENDITURE FOR CARRYING OUT THE SAID MANUFACTURING ACTIVITY. UNDOUBTEDLY THE ASSESSEE HAS ONLY DEBITED THE COST OF PURCHASES AND CARTAGE TO THE MANUFACTURING ACCOUNT AND HAS NOT DEBITED THE EXPEN DITURE INCURRED ON OTHER RELATED ITEMS OF EXPENDITURE FOR CARRYING ON THE MANUFACTURING ACTIVITIES. THE PROFIT & LOSS ACCOUN T PREPARED BY THE ASSESSEE REFLECTS THE SALARY AND WAGES AT RS. 262,8 00/- AND ELECTRICITY EXPENSES AT RS. 868,244/-. THE LD. AR FOR THE ASSES SEE DURING THE COURSE OF HEARING WAS DIRECTED TO PRODUCE THE ELECT RICITY BILLS AND SOME OF THE BILLS HAVE BEEN PRODUCED WHICH RELATE T O THE BADDI UNIT II I.E. MANUFACTURING UNIT. MERELY BECAUSE THE ENT RIES HAVE NOT BEEN CORRECTLY POSTED IN THE MANUFACTURING ACCOUNT BUT H AVE BEEN DEBITED TO THE PROFIT & LOSS ACCOUNT BY THE ASSESSEE DOES N OT DISENTITLE THE ASSESSEE TO THE CLAIM OF DEDUCTION UNDER SECTION 80 IC OF THE ACT. WE FIND NO MERIT IN THE ORDER OF THE ASSESSING OFFICER IN THIS REGARD. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ALLOWE D THE CLAIM OF THE ASSESSEE IN VIEW OF THE ORDER PASSED FOR THE PR ECEDING YEAR, AGAINST WHICH THE DEPARTMENT HAS NOT FILED ANY APPE AL. HOWEVER, WE HAVE ADJUDICATED THE CLAIM OF THE ASSESSEE VIS--VI S THE DEDUCTION CLAIMED UNDER SECTION 80IC OF THE ACT IN PARAS ABOV E, AND ACCORDINGLY, WE UPHOLD THE ORDER OF COMMISSIONER OF INCOME TAX 13 (APPEALS) IN GRANTING THE DEDUCTION UNDER SECTION 8 0IC OF THE ACT, THOUGH ON DIFFERENT BASIS. THE GROUND NO. 2 RAISED BY THE REVENUE IS THUS, DISMISSED. 21. THE ASSESSEE IS AGGRIEVED BY THE ALLOCATION OF EXPENSES TO THE EXEMPT UNIT WHICH HAVE BEEN DEBITED TO THE CHANDIGA RH TRADING UNIT OF THE ASSESSEE. THE EXPENSES HAD BEEN FOUND TO BE IN RELATION TO THE BADDI MANUFACTURING UNIT AND SOME OF THE COMMON EXP ENSES HAVE BEEN ATTRIBUTED TO THE BADDI MANUFACTURING UNIT. A DMITTEDLY, THE UNIT AT BADDI IS EXEMPT FROM TAX AND PROFITS OF THE CHAN DIGARH UNIT ARE TAXABLE. IN THE ENTIRETY OF THE FACTS AND CIRCUMST ANCES, AND THE ELABORATE DISCUSSIONS MADE BY THE ASSESSING OFFICER AND BY THE COMMISSIONER OF INCOME TAX (APPEALS), WE ARE IN CON FORMITY WITH THE ORDER OF THE AUTHORITIES BELOW IN ALLOCATING TH E COMMON EXPENDITURE AND ALSO THE PARTICULAR EXPENDITURE OF THE BADDI UNIT TO THE EXEMPT UNIT. ACCORDINGLY, WE FIND NO MERIT IN THE GROUND NO. 2 RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION. 22. NOW COMING TO THE GROUND NO. 1 RAISED BY THE AS SESSEE IN THE CROSS OBJECTION. THE CLAIM WAS IN RESPECT OF THE DE DUCTION UNDER SECTION 54F OF THE ACT. THE ASSESSEE DURING THE YE AR UNDER CONSIDERATION HAD DECLARED LONG TERM CAPITAL GAINS ON SALE OF A FLAT AGAINST WHICH IT HAD CLAIMED TO HAVE MADE INVESTMEN T FOR THE PURCHASE OF ANOTHER FLAT IN AMARAVATI AGGARWAL BUIL DERS PVT. LTD. ON THE LETTER OF INTENT OF THE SAID BUILDER DATED 2 2.10.2005, THE ASSESSEE HAD DEPOSITED A SUM OF RS.1,94,000/- WITHI N THE STIPULATED PERIOD AS INITIAL PAYMENT AND THE BALANCE HAD TO BE PAID IN INSTALLMENTS. THE ASSESSING OFFICER NOTED THAT THO UGH THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 54F OF THE ACT AT RS.12,96,000/- THE ASSESSEE HAD FAILED TO COMPLY WITH THE PROVISIO NS OF THE SAID ACT. 14 23. THE LD. AR FOR THE ASSESSEE BEFORE US, RESTRICT ED THE CLAIM TO RS.1,94,000/- WHICH WAS PAID AS DOWN PAYMENT. THE L D. AR FOR THE ASSESSEE HAS PLACED ON RECORD COPY OF THE RECEIPT O F HAVING PAID THE SUM OF RS.1,94,000/-. IN THE TOTALITY OF THE FACTS AND CIRCUMSTANCES, WHERE THE ASSESSEE HAS DEPOSITED THE SAID SUM OF RS .1,94,000/- WITHIN THE STIPULATED TIME, AS PROVIDED UNDER SECTION 54F OF THE ACT, WE FIND NO MERIT IN THE ADDITION TO THAT EXTENT. AS AGAINS T THE CLAIM OF RS. 12,96,000/-, WE DIRECT THE ASSESSING OFFICER TO ALL OW DEDUCTION UNDER SECTION 54F OF THE ACT IN THE HANDS OF THE ASSESSEE TO THE EXTENT OF RS.1,94,000/-. THE GROUND NO. 1 RAISED BY THE ASSE SSEE IN THE CROSS OBJECTION IS THUS, PARTLY ALLOWED. 24. IN THE RESULT, APPEAL OF THE REVENUE AND CROSS OBJECTIONS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JANUARY,2014. SD/- SD/- ( T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JU DICIAL MEMBER DATED: 30 TH JANUARY,2014 POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR. ASSISTANT REGISTRAR ITAT,CHD.