M/s Japan Exports, New Delhi V. ITO, New Delhi

ITA 5719/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91437 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 24-06-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 24-10-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: GAURAV DUDEJA
• Assessee Lawyers: R S AHUJA
• Keywords: Depreciation
• Section: 143(3)

Judgement Text

ITA NO. 5719/ DEL/ 2013 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D , NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI H.S. SIDHU, JUDICIAL MEMBER I.T.A. NO. 5719 /DEL/2013 A.Y. : 200 5 - 0 6 M/S JAPNA EXPORTS, 186, SAINIK VIHAR, PITAMPURA, DELHI 110 034 (P AN: AAA FJ4243N) ) VS. INCOME TAX OFFICER, WARD - 25 ( 1 ), C.R. BUILDING,, I.P. ESTATE, NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. R.S. AHUJA, CA DEPARTMENT BY : SH. GAURAV DUDEJA, SR. DR DATE OF HEARING : 25 - 6 - 201 5 DATE OF ORDER : 2 4 - 7 - 201 5 ORDER PER H.S. SIDHU : J M TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE O RDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) - XXX, NEW DELHI DATED 2 6 . 8 .201 4 P ERTAINING TO ASSESSMENT YEAR S 200 5 - 0 6 ON THE FOLLOWING GROUNDS: - (A) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. ASSESSING OFFICER & LD. CIT(A) ERRED IN: 1) DISALLOWING THE CLAIM U/S. 80IV OF THE INCOME TAX ACT OF RS. 12,97,007/ - . 2) NOT TREATING THE ACTIVITY AT KALA AMB AS A MANUFACTURING ACTIVITY. ITA NO. 5719/ DEL/ 2013 2 3) STATING THAT BEFORE SETTING UP THE KALA AMB PLANT THE ASSESSEE WAS MANUFACTURING ALTHOUGH IT WAS ONLY TRADING. 4) NOT HOLDING THAT A MOSQUITO REPELLANT IS DISTINCT FROM THE PARTS CONSTITUTING IT SUCH AS MOULD, PLUG, WIRE, PORCELA IN, LED ETC. AND THEREFORE IS MANUFACTURE. 5) IGNORING THE DEFINITION OF MANUFACTURE U/S. 2(29BA) OF THE I.T. ACT, 1961. (B) THE ASSESSEE CRAVES LEAVE TO ADD, ALTER OR AMEND THE GROUNDS OF APPEAL AT AND BEFORE THE HEARING. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE FILED ITS RETURN OF INCOME DECL ARING INCOME OF RS 2,22,215/ - ON 27.10.2005 WHICH WAS PROCESSED U/S . 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE I.T. ACT ) ON 18.12.2006. THE C ASE WAS SU B SEQUENTL Y SELECTED FOR SCRUTINY UNDER CASS AND ASSESSING OFFICER ISSUED NOTICE U /S 143(2) OF THE I T ACT ON 25.10.2006 AND THE SAME WAS SERVED UPON THE ASSESSEE . IN RESPONSE TO THE SAME, AUTHORISED REPRESENTATIVE OF THE ASSESSE ATTENDED THE PROCEEDINGS FROM TIME TO TIME AND FILED THE REQUISITE DETAILS. ASSESSEE IS INVOLVED IN THE BUSINESS OF M ANUFACTURING AND E XPORT OF MOSQUITO REPELLENT, MEDICINES ETC . T HE ASSESSEE HAS REGISTERED A TURNOVER OF RS. 41.44 LAKHS AS AGAINST RS.1.56 CRORES IN THE PREVIOUS YEAR. ASSE SSEE HAS ALSO EARNED A GROSS PROFIT OF RS. 21.88 LACS AS AGAINST RS. 49.04 LACS IN THE PREVIOUS YEAR. AFTER CLAIMING DEDUCTION U/S 80 IC OF THE I.T. ACT A NET TAXABLE INCOME OF RS. 2.22 LACS HAS BEEN DECLARED. A SSESSEE HAS NOT FILED THE COPY OF AUDITOR'S R EPORT IN F ORM NO .10CCB WITH THE RETURN. ASSESSING OFFICER ASKED TO FILE NOTE ON SATISFACTION OF ELIGIBILITY CONDITIONS FOR CLAIMING DEDUCTION U/S 80 I C OF THE I.T. ACT. IN RESPONSE TO THE SAME ASSESSEE ASSESSEE FILED ITS REPLY ALONGWITH DETAILED NOTE OF MANUFACTURING PROCESS. A SSESSING O FFICER ITA NO. 5719/ DEL/ 2013 3 CONSIDERED THE EXPLANATION OF THE ASSESSEE AND NOTED THAT MAJOR ACTIVITY OF PRODUCTION IS BEING CARRIED OUT BY THE ASSESSEE OUTSIDE OF KALA AMB FACTORY. HE ALSO NOTED THAT THE FIRM WAS ALREADY IN THE BUSINESS OF MOSQUITO REPELLENT MACHINES SINCE 1998. THE ISSUE OF S UBSTANTIAL EXPANSION OF THE ACTIVITY IS QUITE APPARENT FR O M THE SUBMISSIONS OF THE ASSESSEE. THEREFORE, PRIMA FACIE THE CLAIM OF DEDUCTION U/SEC 80 IC DID NOT SEEM SUSTAINABLE . ASSESSING OFFICER FURTHER CONFRONTED TO THE ASSESSEE WITH THE FACTS VIDE HIS NOTE DATED 27.11.2007 AND SPECIFICALLY ASKED THE ASSESSEE TO CLARIFY AS TO HOW IN SUB - SECTION (2)(B) OF SECTION 80 I C IS SATI SFIED. THE ASSESSING OFFICER ALSO ASKED THE ASSESSEE TO CLARIFY THE SATISFACTION OF THE CONDITION IN SUB - SEC TI ON 4(I) OF SECTION 80LC RE GARDING BUSINESS NOT BEIN G FORMED BY SPLITTING U P OR RECONSTRUCTION OF AN EXISTING BUSINESS. AR WAS ALS O ASKED TO EXPLA IN THE SATISFACTION OF THE ELIGIBILITY CONDITION LAID DOWN IN SU B - SECTION 4(II) REGARDING MACHINERY BEING USED PREVIOUSLY FOR ANY OTHER PURPOS E. IN RESPONSE, THE AR IN HIS SUBMISSION DATED 12.12.07 EXPLAINED THE ISSUE OF MANUFACTURING ACTIVITY BEING CARRIE D OUT AT KALA AMB. 2.1 ASSESSEE'S REPLY WAS CONSIDERED AND ASSESSING OFFICER IS OF THE VIEW THAT HARDLY ANY MANUFACTURING ACTIVITY IS TAKING PLACE IN KALA AMB. HE FURTHER HELD THAT MAJOR PART OF MANUFACTURING PROCESS IS BEING PLACED OUTSIDE THE KALA AMB , (HIMACHAL PRADESH) TO CORROBORATE SUCH FACT REFERENCE IS MADE TO THE INVESTMENT IN PLANT AND MACHINERY MADE BY THE ASSESSEE. HE STATED THAT ASSESSEE OWNS THE FOLLOWING PLANT AND MACHINERY DIES AND MOULDS - RS. 5,16,603/ - PLANT AND MACHINERY - RS. 8,262/ - CEILIN G MACHINE - RS. 2 , 152 / - ITA NO. 5719/ DEL/ 2013 4 2.2 HE WAS OF THE VIEW THAT NO OTHER PLANT AND MACHINERY IS OWNED BY THE ASSESSEE . FROM THE CLARIFICATION OF THE AR, HE IS OF THE VIEW THAT THAT DIES AND MOULDS WHICH FORM BULK PORTION OF THE PLANT AND MACHINERY ARE BEING USED AT DELHI BECAUSE THERE IS NO TOOL ROOM FACILITY AT KALA A M B. AND DIES AND MOULDS ARE VERY HEAVY SO THEIR MOVEMENT IS RESTRICTED, AS SUBMITTED BY THE AR . IF TH ESE WERE TO BE TRUE, THEN MACHINERY WORTH RS.10 , 400 / - ODD IS BEIN G USED AT KALA AMB. SO IT CAN BE VISUALIZED WHAT PORTION OF THE COMPLETE MANUFACTURING PROCESS IS BEING CARRIED OUT AT KALA AMB. 2.3 ASSESSING OFFICER FURTHER OBSERVED THAT DETAIL OF ELECTRICITY BILLS REVEAL THAT AS MUCH AS R S .35 , 124/ - WERE INCURRED FOR ELECTRICITY IN DELHI WHEREAS A PALTRY SUM OF RS.3153/ - HAS BEEN INCURRED ON ELECTRICITY AT KALA AMB. EVEN FOR RS.3153/ - THERE ARE NO BILLS OF ELECTRICITY COMPANY . ONLY PAYMENTS TO SOME SH. RAJINDER SINGH AND INDERJIT SINGH HAVE, B EEN MADE. THIS ALSO GOES TO SUPPORT THE FACT THAT NO MANUFACTURING ACTIVITY OR NEGLIGIBLE MANUFACTURING ACTIVITY IS BEING CARRIED OUT KALA AMB. MAJOR OPERATIONS ARE STILL BEING CARRIED OUT IN DELHI. THE 'SUBSTANTIAL EXPANSION' AT KALA AMB. HAS CLEARLY BEEN STAGE - MANAGED TO UNDULY AVAIL OF THE BENEFIT OF DEDUCTION ULS 80 I C. 2.4 ON THE ISSUE OF SUBSTANTIAL EXPANSION, AR ONLY PROVIDED CERTAIN FIGURES WITHOUT ENCLOSING BILLS FOR PLANT AND MACHINERY WHICH WERE ACQUIRED DURING F.Y. 03 - 04 WHEN THE SUBSTANTIAL EXP ANSION WAS SAID TO HAVE TAKEN PLACE. MO RE OVER, IN VIEW OF NEGLIGIBLE PLANT AND MACHINERY INSTALLED AT KALA AMB, THE ASPECT OF SUBSTANTIAL EXPANSION AUTOMATICALLY STANDS DISPROVED. IT HAS BEEN OBSERVED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER THAT QUESTION OF COMPLETE RULE OUT OF SUBSTANTIAL EXPANSION HAVING TAKEN PLACE, BECAUSE THE CONDITION LAID DOWN IN SUB - SECTION 2(B) HAS ALSO NOT ITA NO. 5719/ DEL/ 2013 5 BEEN SATISFIED BY THE ASSESSEE, THEREFORE, ON THIS COUNT ALSO CLAIM OF DEDUCTION U/S 80LC IS DENIED BY THE ASSESSING OFFICER . 2.5 AS REGARDS ISSUE OF SATISFACTION OF THE CONDITION LAID DOWN IN SUB - SECTION 4(I) OF THE ACT , REGARDING THE UNDERTAKING NOT B E ING FORMED BY SPLITTING UP OR RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE, THE AR SUBMITTED THAT THE UNIT WAS NOT FORMED BY SPLITTING UP, OR THE RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE , BUT BY SUBSTANTIAL EXPANSION WHICH TOOK PLACE IN THE PREVIOUS AY. I.E, THE FIRST YEAR OF ESTABLISHMENT OF THE UNI T. THE ASSESSING OFFICER CONSIDERED THIS SUBMISSIONS A ND REJECTED THE SAME BY STATING THAT M / S JAPNA EXPORTS IS A UNIT ALREADY IN EXISTENCE SINCE 1998 AS ALREADY SUBMITTED BY THE ASSESSEE AND IS INVOLVED IN MANUFACTURING OF MOSQUITO REPELLANT MACHINE, THOUGH SOME RESTRUCTURING HAS HAPPENED WITH ENTRY AND EXI T OF PARTNERS. THIS GOES TO SHOW THAT ASSESSEE IS A MANUFACTURING CONCERN IN EXISTENCE AND CARRYING ON THE SAME BUSINESS SINCE 1998. ONLY A SUBSTANTIAL EXPANSION HAS TAKEN PLACE IN 2003. BUT AS THE ISSUE OF SUBSTANTIAL EXPANSION ALREADY STANDS DISPROVED, T HEREFORE, THE CONDITION IN 80 IC 4(I) ALSO REMAINS UNFULFILLED . 2.6 KEEPING IN VIEW OF THE AFORESAID DISCUSSIONS, THE ASSESSING OFFICER IS OF THE VIEW THAT CLAIM OF EXISTENCE OF A MANUFACTURING FACILITY AT KALA AMB STANDS DISPROVED. NIL OR NEGLIGIBLE ACTI VITY IS BEING CARRIED OUT AT KALA AMB. ASSESSEE HAS TRIED TO PORTRAY AS IF BY VIRTUE OF SUBSTANTIAL EXPANSION IN A BACKWARD STATE, I TS BUSINESS BECOMES ENTITLED FOR DEDUCTION U/S 80 IC OF THE I.T. ACT. ASSESSING OFFICER WAS OF THE VIEW THAT I F SUCH HOLLOW AND SUPERFLUOUS CLAIMS OF DEDUCTION ARE TO BE ALLOWED THEN THE ENTIRE PURPOSE OF ENACTING SUCH PROVISIONS WILL STAND DEFEATED. DEDUCTION AND EXEMPTION S HAVE BEEN BROUGHT ON STATUTE IN ORDER TO FULFIL L THE ROLE OF THE GOVERNMENT IN EQUITABLE DEVELOPMENT OF VARIOUS PARTS OF THE COUNTRY. DEDUCTION ITA NO. 5719/ DEL/ 2013 6 U/S 80LC IS MEANT FOR ENCOURAGING INDUSTRIAL ACTIVITY IN INDUSTRIALLY AND ECONOMICALLY BACKWARD STATE LIKE HIMACHAL PRADESH, BY ENCOURAGING INVESTMENT IN SUCH STATES SO THAT BACKWARD AREAS AND INHABITANTS OF SUCH ST ATES FIND EMPLOYMENT . THE ENTIRE BACKWARD AREA FLOURISHES BY CREATION OF A CLIMATE FAVOURABLE FOR INDUSTRIAL AND ECONOMIC ACTIVITY AND BENEFITS OF THE SAME PERMEATING DOWN TO THE LOCAL POPULATION . IF SUCH AIMS ARE NOT ACHIEVED THEN THERE IS NO PURPOSE IN E XTENDING BENEFITS LIKE 100% DEDUCTION U/S 80IC TO VARIOUS ASSESEES. 2.7 LASTLY, HE SUBMITTED THAT ASSESSEE WAS CLAIMING DEDUCTION U/S 80 HHC BY VIRTUE OF BEING AN EXPORTER. WITH PHASING OUT OF DEDUCTION U/S 80HHC, THE ASSESSEE HAS TRIED TO WRONGLY SEEK T HE BENEFIT OF DEDUCTION U/S 80LC TO AVOID PAYING TAXES. THE NON - INCLUSION OF THE AUDITOR'S REPORT WITH THE RETURN ALSO STANDS EXPLAINED IN VIEW OF THE DUBIOUS CLAIM OF DEDUCTION U/S 80 IC AND HE DISALLOWED THE CLAIM OF DEDUCTION U/S 80 IC BY ASSESSING THE IN COME OF RS. 15,19,222/ - AND COMPLETED THE ASSESSMENT U/S. 143(3) OF THE I.T. ACT, 1961 ON 28.12.2007. 3. AGGRIEVED WITH THE AFORESAID ASSESSMENT ORDER DATED 28.12.2007 PASSED BY THE ASSESSING OFFICER U/S. 143(3) OF THE I.T. ACT, BUT ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY WHO VIDE IMPUGNED ORDER DATED 26.8.2013 UPHELD THE ORDER OF THE ASSESSING OFFICER AND DISMISSED THE APPEAL FILED BY THE ASSESSEE. 4. ASSESSEE BEING AGGRIEV ED WITH THE IMPUGNED ORDER DATED 26.8.2013 PASSED BY THE LD. FIRST APPELLATE AUTHORITY FILED THE PRESENT APPEAL. 5. AT THE TIME OF HEARING, SH. R.S. AHUJA, CA/AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS FILED A PAPER BOOK CONTAINING ITA NO. 5719/ DEL/ 2013 7 PAGES 1 TO 164 IN W HICH HE HAS ATTACHED THE VARIOUS DOCUMENTS FOR SUBSTANTIATING THE CLAIM OF ASSESSEE. HE DRAW OUR ATTENTION TOWARDS A LETTER DATED 14.12.2011 WRITTEN BY HIM TO THE LD. CIT(A) IN WHICH HE HAS MENTIONED THE FACTS OF THE CASE OF ASSESSEE, PROVISIONS OF LAW A ND THE MANUFACTURING PROCESS OF MOSQUITO REPELLENT MACHINE ETC. HE HAS MENTIONED VARIOUS CASE LAWS IN HIS WRITTEN SUBMISSION FILED BEFORE THE LD. CIT(A) FOR SUBSTANTIATING THE CLAIM OF ASSESSEE. THE RELEVANT CONTENTION RAISED IN THE WRITTEN SUBMISSION DATED 14.12.2011 ARE T HAT ASSESSEE WAS IN THE BUSINESS OF MANUFACTURING AND EXPORT OF MOSQUITO REPELLANT MACHINE. ASSESSEE FILED RETURN OF INCOME OF RS. 22,215/ - ON 27.10.2011 FOR THE ASSESSMENT YEAR IN DISPUTE. ASSESSING OFFICER COMPLETED THE ASSESSMEN T U/S. 143(3) OF THE I.T. ACT, 1961 ON 28.12.2007 ASSESSING THE INCOME OF THE ASSESSEE OF RS. 15,19,222/ - . THE ASSESSEE WENT IN APPEAL BEFORE THE LD. CIT(A) WHO VIDE IMPUGNED ORDER UPHELD THE ASSESSMENT ORDER AND DISMISSED THE APPEAL OF THE ASSESSEE. HE STATED THAT SH. SANDEEP GULATI , CA ATTENDED THE PROCEEDINGS BEFORE THE ASSESSING OFFICER . DUE TO SOME REASON THE ASSESSEE HAS NOT FILED THE AUDIT REPORT AS REQUIRED IN FORM 10 CCB DURING THE ASSESSMENT PROCEEDINGS THE SAME WAS FILED VIDE LETTER DATED 3.1.2011 BEFORE THE LD. CIT(A). HE STATED THAT ASSESSING OFFICER HAS GIVEN MULTIPLE REASONS IN SUPPORT OF HIS CONCLUSION THAT ASSESSEE IS NOT ENTITLE D FOR DEDUCTION U/S. 80 I C OF THE I.T. ACT . THE MAIN REASONS OFFERED BY THE ASSESSING OFFICER CAN B E SUMMARIZED IN THE FOLLOWING MANNER: - I. IT IS PRETTY MUCH APPARENT THAT HARDLY ANY MANUFACTURING ACTIVITY IS TAKING PLACE IN KALA AMB AND THUS A MAJOR PART OF THE MANUFACTURING PROCESS IS TAKING PLACE OUTSIDE KALA AMB. ITA NO. 5719/ DEL/ 2013 8 II. IT IS APPARENT THAT DIES AND MOULDS WHICH FORM THE BULK PORTION OF THE PLANT & MACHINERY IS BEING USED AT DELHI BECAUSE THERE IS NO TOOL ROOM FACILITY A KALA AMB. III . ONLY MACHINERY WORTH RS 10,400/ - IS BEING USED AT KALA AMB AND AS SUCH NO MANUFACTU RING ACTIVITY IS BEING CARRIED OUT THERE AND IF AT ALL ONLY NEGLIGIBLE MANUFACTURING ACTIVITY IS BEING CARRIED OUT THERE. IV. ONLY A SUM OF RS 3,153/ - HAS BEEN INCURRED ON ELECTRICITY AT KALA AMB FOR WHICH ALSO THERE ARE NO BILLS OF ELECTRICITY COMPANY BU T PAYMENTS HAVE BEEN MADE TO SOME SH RAJINDER SINGH AND INDERJIT SINGH. V. THE SUBSTANTIAL EXPANSION AT KALA AMB HAS CLEARLY BEEN STAGE MANAGED TO UNDULY AVAIL OF THE BENEFIT OF DEDUCTION U /S 80 IC. VI. SINCE VIRTUALLY NO PLANT AND MACHINERY EXISTS AT KA LA AMB THE QUESTION OF SUBSTANTIAL EXPANSION HAVING TAKEN PLACE IS COMPLETELY RULED OUT AND ACCORDINGLY THE CONDITION LAID OUT IN SUB SECTION 2(B) OF THE SAID SECTION HAS NOT BEEN SATISFIED. 5.2 LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT ASSESSEE IS A PARTNERSHIP FIRM. ITS HEAD OFFICE IS SITUATED AT 186, SAINIK VIHAR, PITAMPURA, DELHI - 110034 AND ITS UNDERTAKING WHICH DEALS WITH ITS WORK AND MANUFACTURING IS SITUATED AT VILLAGE - MOGINAND, TEHSIL - NAHAN, POST - KALA AMB, DISTI: - SIRMOR, HIMACHAL PRAD ESH. THE FIRM WAS CONSTITUTED ON 01 . 06.1994 WITH THE FOLLOWING PARTNERS AND RESPECTIVE PROFIT SHARING RATIOS NAME OF PARTNER SHARES IN PROFIT/LOSS MS. ANGELA BHASIN 60% ITA NO. 5719/ DEL/ 2013 9 MR. NARINDER SACHDEVA 20% MS. NAMRITA SACHDEVA 20% 5.3 SUBSEQUENTLY THERE WERE ADDITIONS/RETIREMENT OF PARTNERS AND ADJUSTMENT IN PROFIT SHARING RATIO HAS BEEN TAKEN PLACE AT VARIOUS TIMES DURING THAT PERIOD. THE PRESENT CONSTITUTION OF THE FIRM WHICH WAS LAST RECONSTITUTED ON 31.10.2002 IS AS FOLLOWS - NAME OF PARTNER SHARES IN PROFIT/LOSS MR. GURVINDER SINGH BHASIN 60% MS. ANGELA BHASIN 20% MR. NARINDER SACHDEVA 10% MS. NAMRITA SACHDEVA 10% AS IT HAS BEEN STATED SUPRA ASSESSEE FIRM IS - ENGAGED IN BUSINESS OF EXPORT OF DIFFERENT ITEMS. IT BEGAN THE EXPORT OF ELECTRONIC MOSQUITO REPEL/ANT MACHINES IN THE YEAR 1998. FOR THIS PURPOSE THE ENTIRE PRODUCTS WERE GOT MANUFACTURED ON JOB WORK BASIS. THE DESIGN AND SPECIFICATION WERE PROVIDED BY ASSESSEE. DUE TO BUSINESS NECESSITI ES ASSESSEE FIRM TOOK DECISION TO HAVE THEIR OWN PLANT FOR THE MANUFACTURE OF THE SAID MACHINE. BEFORE THAT THE BUSINESS PROCESS OF ASSESSEE CONSISTS OF FOL L OWING STEPS - I. EXPORT ORDER WITH DESIGN SPECIFICATION RECEIVED FROM T - T/S CHARLIE INTERNATIONAL, MO SCOW, RUSSIA. ITA NO. 5719/ DEL/ 2013 10 II. RAW MATERIALS LIKE NEON/LED, RESISTANCE, M O R, PIN, PORCELAIN, PLASTIC DANA, AND BOXES ETC PURCHASED AND SUPPLIED TO THE JOB WORKER. III. DYES WERE ALSO SUPPLIED TO THE JOB WORKER. IV. JOB WORKER DID THE ENTIRE MANUFACTURING AN D SUPPLIED IT DIRECTL Y TO THE INLAND CONTAINER DEPOT FROM WHERE THE ELECTRONIC REPELLANT MACHINE GOT EXPORTED. 5.4 HE SUBMITTED THAT T HE ENTIRE BUSINESS PROCESS OF THE ENTITY BEFORE THE FY 2003 - 04 HAS BEEN EXPLAINED IN A GRAPHICAL CHART. 5.5 IT WAS SUBMITTED THAT W HEN ASSES SEE REALIZED THAT IT WILL BE MORE COST EFFICIENT TO HAVE ITS OWN MANUFACTURING PLANT TO MANUFACTURE THE MOSQUITO REPELLANT MACHINE, A DETAILED PROJECT REPORT WAS SUBMITTED FOR REGISTRATION OF THE UNDERTAKING AS A 551 UNIT FOR THE MANUFACTURE OF MOSQUITO RE PELLANT MACHINES TO DIC NAHAN. THE PROJECT REPORT GOT ITS REQUIRED APPROVAL AND THE PROVISIONAL CERTIFICATE WAS GRANTED ON 14.10.2003 FROM DIRECTOR OF INDUSTRIES, N AHAN. THE SAID APPROVED PROJECT REPORT IN ITS CHAPTER WHERE MANUFACTURING PROCESS HAS BEEN E XPLAINED . 5.6 HE FURTHER SUBMITTED THAT TRUE TEST TO DETERMINE WHETHER ANY INDUSTRIAL UNDERTAKING IS SITUATED OR NOT IS THE CERTIFICATE FROM DIC, WHICH HAS BEEN PRODUCED BEFORE THE REVENUE AUTHORITIES. IT IS ALSO TO BE NOTED THAT IN THE PROJECT REPORT WHI CH WAS SUBMITTED TO THE DIC NAHAN ALONG WITH THE APPLICATION FOR GRANT OF CERTIFICATE TO COMMENCE INDUSTRIAL ACTIVITY AS 551, ASSESSEE HAS SUBMITTED THAT IT WILL EMPLOY 12 WORKERS AND WILL BE HAVING A RENTED PREMISE FOR ITS BUSINESS. ITA NO. 5719/ DEL/ 2013 11 ASSESSEE HAS DONE THE SAME WORK AS IT HAS SUBMITTED IN ITS PROJECT REPORT. ASSESSEES ALSO HAVE PROVIDED IN COURSE OF ASSESSMENT PROCEEDINGS THE RENT AGREEMENT OF THE PREMISES AT KALA AMB. HE INVITED THE ATTENTION TOWARDS CLAUSE '5' OF THE SAID AGREEMENT WHICH STATES THAT - 'THAT THE PREMISES HAVE BEEN LET OUT FOR THE PURPOSE OF INDUSTRY ONLY AND THE TENANT SHALL NOT USE PREMISES FOR A PURPOSE OTHER THAN BUSINESS/ INDUSTRY'. 5.7 LD. AR FURTHER SUBMITTED THAT A SSESSEE HAS ALSO GOT THE CONSENT OF HP STATE ENVIRONMENT PROTECTION & POLLUTION CONTROL BOARD HAD VIA ITS LETTER DATED 08.11.2003 AND 15/06/2006. A CERTIFICATE FROM HIMACHAL PREDES H STATE ELECTRICITY BOARD, ELECTRICAL SUB DIVISION, KALA AMB 'HPSEB/KESD/PRC/2009 - 10' DATED 03.12.2009 HAS ALSO BEEN SUBMITTED ALONG WITH BILLS TO STATE THE FACT THAT A COMMERCIAL ELECTRICITY CONNECTION OF 5.200 KW HAS BEEN RELEASED TO THE ASSESSEE AS SSI. COPY OF ELECTRICITY BILLS . 5.8 HE STATED THAT THE UNDERTAKING OF THE ASSESSEE FIRM SITUATED AT KALA AMB IS IN THE AREA FOR WHICH DED UCTION U/S 80 IC IS AVAILABLE IN THE STATE OF HIMACHAL PRADESH AS PER NOTIFICATION NO 5 O 1269E, DATED 04.11.2003. THE SAID UNDERTAKING IS HAVING ALL THE NECESSARY APPROVALS AND PAPERS TO PROVE ITS EXISTENCE AND THESE DOCUMENTS HAVE ALREADY BEEN SUBMITTED D URING THE COURSE OF ASSESSMENT PROCEEDINGS. THE UNDERTAKING OF THE ASSESSEE FIRM IS ALSO REGISTERED WITH SALES TAX DEPARTMENT OF STATE OF HIMACHAL PRADESH UNDER CENTRAL SALES TAX ACT AS WELL AS LOCAL SALES TAX (VAT) OF THE STATE. T HAT THE ASSESSEE WAS REGI STERED AS MERCHANT EXPORTER WITH THE DIRECTOR GENERAL OF FOREIGN TRADE AND ITS IEC CODE WAS ITA NO. 5719/ DEL/ 2013 12 REVISED AFTER ADDITION OF PREMISES AT KALA AMB. FEDERATION OF INDIAN EXPORTERS ORGANIZATION HAS ALSO ISSUED REVISED 'REGISTRATION CUM MEMBERSHIP CERTIFICATE' AFTER ADDITION OF PREMISES AT KALA AMB, ALL THE RELEVANT DOCUMENTS RELATED TO THE ABOVE AN D BEEN SUBMITTED DURING ASSESSMENT PROCEEDINGS . 5.9 IN THE WRITTEN SUBMISSIONS , THE A SSESSEE HAS SUBMITTED THAT THE SALES TAX DEPARTMENT OF THE HIMACHAL PRADESH, HP STATE ENVIRONMENT PROTECTION & POLLUTION CONTROL BOARD, DIRECTOR GENERAL OF FOREIGN TRADE, FEDERATION OF INDIAN EXPORTERS ORGANIZATION ALL HAVE ACKNOWLEDGED PRESENCE OF THIS INDUSTRIAL UNDERTAKING AT KALA AMB AND THEY CANNOT BE OVERRULED ON THE BASIS OF SOME IL LOGICAL REASONING OF THE ASSESSING OFFICER . 5.10 ASSESSEE ALSO STATED THAT EARLIER IN THE FOREGOING PARAGRAPHS THE EXISTENCE OF THE INDUSTRIAL UNDERTAKING STANDS CONFIRMED AND CORROBORATED BY THE DOCUMENTARY EVIDENCES FILED DURING THE ASSESSMENT PROCEEDI NGS AND ALSO HAVE BEEN FILED HERE DURING THE APPEL LATE PROCEEDINGS. IT CANNOT BE DENIED THAT THE APPELLANT FIRM'S INDUSTRIAL UNIT IS LOCATED IN A SPECIAL CATEGORY AREA IN THE STATE OF HIMACHAL PRADESH, THE FACT OF ITS REGISTRATION UNDER THE SALES TAX ACT, IEC CODE AND CONSENT FROM HP STATE ENVIRONMENT PROTECTION AND POLLUTION CONTROL BOARD WOULD DECISIVELY SUPPORT THE EXISTENCE AND OPERATION OF THE INDUSTRIAL UNDERTAKING. IT IS ALSO TO BE NOTED THAT THAT ALMOST ALL SALES OF THE ASSESSEE ARE EXPORT FOR WHICH DOCUMENTARY EVIDENCES ARE AVAILABLE IN THE FORM OF INVOICES, BILL OF LADING ETC AND IT DECISIVELY POINTS OUT THAT THE GOODS ARE BEING MANUFACTURED AT KALA AMB. HE STATED THAT THE ASSESSING OFFICER IS IN OPINION THAT THE MAJOR PART OF MANUFACTURING ITA NO. 5719/ DEL/ 2013 13 ACTIVI TY IS BEING CARRIED OUT OUTSIDE KALA AMB. HE CAME TO THIS CONCLUSION ON THE BASIS OF FOLLOWING SUBMISSIONS MADE BY THE LD AR DURING THE ASSESSMENT PROCEEDINGS 'THE MAIN PARTS OF THE MACHINE ARE - 1. CABINET 2. PLUG 3. HEATER 4. RESISTANCE AND 5. LED A) CABINET IS MANUFACTURED FROM PLASTIC DANA BY MOULDING MACHINES, DONE AT DELHI ON JOB WORK AND THEN DISPATCHED TO KALA AMB. THE PLASTIC DANA IS PROCURED AT DELHI. B) PLUG IS MANUFACTURED FROM PLUG DANA BY MOULDING MACHINES AT KALA AMB AND PINS ARE USED FO R THE SAME. PINS ARE PROCURED FROM JAM NAGAR & DELHI. C) HEATER IS MANUFACTURED AT KALA AMB FROM PORCELAIN PROCURED FROM GUJARAT BY FITTING IN MOR (METAL OXIDE RESISTANCE). RESISTANCE AND LED ARE PROCURED FROM DELHI AND SENT TO KALA AMB. D) THE COMPLETE MACHINE GETS SHAPE AND ASSEMBLY IS DONE AT KALA AMB FOR FINAL SALE. 5.11 IT WAS SUBMITTED THAT IN SITUATION LIKE THIS WHERE DIFFERENT TYPES OF EQUIPMENTS MADE OF DIFFERENT MATERIAL IS REQUIRED FOR MAKING OF A MOSQUITO REPELLANT MACHINE IT IS QUITE OBVIO US AND NATURAL THAT DIFFERENT PARTS OF THE MACHINE HAS TO BE SOURCED FROM DIFFERENT PLACES. IN THE CURRENT SITUATION ASSESSEE IS JUST DOING THE SAME WHICH HAS BEEN STATED SUPRA. IT CANNOT BE EXPECTED FROM ANY BUSINESS ESTABLISHMENT TO PROCURE EVERYTHING IN ITS BASIC FORM AND THEN DO THE ENTIRE MANUFACTURING TO MAKE A FINAL PRODUCT. ITA NO. 5719/ DEL/ 2013 14 5.12 LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT I N THE CURRENT CASE ALL THE MAIN PARTS OF THE MACHINE ARE MADE OF DIFFERENT MATERIAL AND THERE ARE DIFFERENT INDUSTRIES THAT HAV E GOT EXPERTISE IN QUALITY AND COST EFFECTIVE PRODUCTION OF SUCH MATERIALS. ASSESSEE IS EXPORTING ITS ENTIRE PRODUCTION AND TOR BEING A PRODUCER OF PRODUCT WHICH CAN WITHSTAND INTERNATIONAL COMPETITION IN TERMS OF QUALITY AND COST IT HAS TO SOURCE THE BEST QUALITY RAW MATERIAL ACCORDING TO ITS AVAILABILITY. IN THE CURRENT SCENARIO ASSESSEE IS DOING THE SAME BY SOURCING MATERIALS FROM THE PLACES WHERE THEY ARE AVAILABLE IN THEIR BEST FORM AND ASSEMBLING WITH THE AID OF LABOUR AND MACHINE TO PRODUCE A FINAL P RODUCT THAT IS SEPARATE AND DISTINCT FROM THE INGREDIENTS THAT GO INTO IT AND IT THEREFORE CONSTITUTES MANUFACTURING. 5.13 THE STEPS INVOLVED IN THE BUSINESS PROCESS OF THE ASSESSEE WHEN IT HAS BEGUN MANUFACTURING IN ITS FIRST MANUFACTURING PLANT S QUITE DIFFERENT THAN THE SITUATION WHEN ASSESSEE FIRM WAS INVOLVED ONLY IN TRADI NG ACTIVITY . AFTER BEGINNING PRODUCTION IN ITS OWN MANUFACTURING PLANT THE BUSINESS PROCESS OF THE ASSESSEE CONSISTS OF FOLLOWING STEPS: - I. ORDER RECEIVED LOCAL AND EXPORT II. RAW MATERIALS LIKE NEON/LED, RESISTANCE, MOR, PIN, PORCELAIN, PLASTIC DANA, AND BOXES ETC PURCHASED AND TRANSFERRED DIRECTLY TO THE UNDERTAKING OF ASSESSEE AT KALA AMB. III . PLASTIC DANA PURCHASED FROM VENDOR & SUPPLIED TO THE JOB WORKER. ITA NO. 5719/ DEL/ 2013 15 IV. DYES FOR MANUFACTURING OF CABINET WERE ALSO PROVIDED TO THE JOB WORKER. V. JOB WORKER MANUFACTURES 'CABINET' FROM THE PLASTIC DANA USING THE DUES SUPPLIED BY ASSESSEE. THE CABINET IS THEN SUPPLIED TO UNDERTAKING OF THE ASSESSEE AT KALA AMB. VI. PLAST IC DANA IS MOULDED IN DYES TO MANUFACTURE PLUG IN KALA AMB. VII. PORCELAIN FILLED WITH MOR TO MANUFACTURE HEATER IN KALA AMB. VIII. PLUG, NEON/LED, RESISTANCE, PIN, HEATER AND CABINET WERE ASSEMBLED TOGETHER AND ELECTRONIC MOSQUITO REPELLANT MACHINE COM ES IN EXISTENCE. IX. ABOVE MANUFACTURED PRODUCT IS TASTED FOR QUALITY. X. FINAL/Y TESTED PRODUCTS GOT PACKED AND LABELED AND DISPATCHED DIRECTLY TO THE INLAND CONTAINER DEPOT FROM WHERE THE ELECTRONIC MOSQUITO REPEL/ANT MACHINE GOT EXPORTED. 5.14 ASSESSEE SUBMITTED THAT IN THE CURRENT CASE AFTER GOING THROUGH THE ENTIRE PROCESS EXPLAINED IN THE FOREGOING PARA WHAT WE MANUFACTURE IS A PRODUCT OF DISTINCT PHYSICAL CHARACTER WITH A DISTINCT NAME KNOWN AS 'MOSQUITO REPEL L ANT MACHINE'. THE QUESTION OF W HAT IS MANUFACTURING HAS TO BE TAKEN BY IN THE SIMPLEST FORM. ASSESSEE SUBMITTED THAT THIS PROCESS IS WITHOUT ANY IOTA OF DOUBT BEING CARRIED OUT ONLY AT KALA AMB AND THEREFORE THE MANUFACTURING OF THE MOSQUITO REPEL/ANT MACHINES IS TAKING PLACE AT KALA AM B AND NO OTHER PLACE. IN THIS BEHALF, HE INVITED OUR ATTENTION TO THE DECISION OF HON BLE SUPREME COURT IN CASE OF CIT VS N C BUDHARAJA 204 ITA NO. 5719/ DEL/ 2013 16 ITR 412 WHEREIN WHILE ANALYZING THE MEANING OF WORD 'MANUFACTURE' IT HAS BEEN ENUNCIATED THAT - '..... THE TEST EVO LVED FOR DETERMINING WHETHER MANUFACTURE CAN BE SAID TO HAVE TAKEN PLACE IS, WHETHER THE COMMODITY WHICH IS SUBJECTED TO THE PROCESS OF MANUFACTURE CAN NO LONGER BE REGARDED AS THE ORIGINAL COMMODITY BUT IS RECOGNIZED IN THE TRADE AS A NEW AND DISTINCT COM MODITY. ... ' IN THIS BEHALF, LD COUNSEL OF THE ASSESSEE SUBMITTED THAT THE HON'BLE SUPREME COURT HAS FOLLOWED THE SPIRIT OF ABOVE JUDGMENT ON NUMEROUS OCCASIONS WITHOUT ANY EXCEPTION; SOME OF THEM ARE BEING QUOTED BELOW - 1. C IT VS EMPTEE POLY YARN PVT. UD, [2010J 320 ITR 665 (SC), HELD THAT' TWISTING AND TEXTURISING OF PARTIALLY ORIENTED YARN (POY) BY USING THERMO - MECHANICAL PROCESS, WHICH CONVERTS POY INTO A TEXTURISED YARN, AMOUNTS TO MANUFACTURE'. 2. CIT VS ORACLE SOFTWARE INDIA LTD, [2010J 320 ITR 546 (SC), HELD THAT 'COMMERCIAL DUPLICATION PROCESS, BY WHICH A BLANK CD IS TRANSFORMED INTO SOFTWARE LOADED DISC DEDICATING IT TO A SPECI FIC USE, CONSTITUTES 'MANUFACTURE OR PROCESSING OF G OODS' . 3. ITO VS A RIHANT TILES & MARBLES PVT LTD. [2010] 320 ITR 79 (SC), HELD THAT CONVERSION OF MARBLE BLOCKS BY SAW ING THEM INTO SLABS AND TILES AND POLISHING AMOUNTS TO MANUFACTURE OR PRODUCTION OF ARTICLE OR THING. IV. ASPINWALL & CO. LTD VS CIT, [2001] 251 ITR 323 (SC), HELD THAT 'PROCESSING RAW BERRIES INTO COTTEE BEANS CONSTITUTES MANUFACTURE'. V. SHIP SCRAP TRADERS VS CIT [2OO1J 251 ITR 806 (BOM), HELD THAT SHIP BREAKING WILL CONSTITUTE MANUFACTURE. ITA NO. 5719/ DEL/ 2013 17 VI. CIT VS HEM SONS INDUSTRIES [2001] 251 ITR 693 (AP), HELD THAT 'OECORTIFICATION OF GROUNDNUT CONSTITUTE S MANUFACTURING BECAUSE THERE IS QUALITATIVE DIFFERENCE BETWEEN GROUNDNUT KERNEL & GROUND NUT'. VII. CIT VS TATA LOCOMOTIVE &,ENGG.CO .. LTD, [1968]68 ITR 325 (BOM), HELD THAT 'ASSEMBLING OF BUS/TRUCK CHASSIS FROM IMPORTED PARTS IN A KNOCKED DOWN CONDITIO N IS MANUFACTURE'. VIII. CIT VS BHARAT SEA FOODS [1999] 237 ITR 46 (KER), HELD THAT 'PRODUCTION OF PROCESSED FISH AMOUNTS TO PRODUCTION OR MANUFACTURE OF ARTICLE'. I X. CIT VS SUPREME GRAPHICS CREATIONS PVT. LTD, [2005] 197 ITR 657 HELD THAT 'CONVERSION O F PAPER CORRUGATED SHEETS INTO PRINTED LAMINATED CARTONS IS MANUFACTURE IF. ABOVE INTERPRETATION OF THE WORD 'MANUFACTURER' IS ALSO BEEN AFFIRMED BY THE FINANCE ACT 2009, WHEREIN A NEW CLAUSE '29BA' HAS BEEN ADDED TO THE SECTION 2 OF THE INCOME TAX ACT 19 61. THE SAID CLAUSE STATES THAT - '(29BA) 'MANUFACTURE', WITH ITS GRAMMATICAL VARIATIONS, MEANS A CHANGE IN A NON - LIVING PHYSICAL OBJECT OR ARTICLE 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 B) BRINGING INTO EXISTENCE OF A NEW AND DISTINCT OBJECT OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSITION OR INTEGRAL STRUCTURE'. ITA NO. 5719/ DEL/ 2013 18 IT WAS SUBMITTED THAT IN THE BACKDROP OF ABOVE D EFINITION THE MEMORANDUM EXPLAINING FINANCE BILL (2)2009 IS ALSO IMPORTANT WHICH STATES THAT - 'A NUMBER OF TAX CONCESSIONS UNDER THE INCOME - TAX ACT ARE PROVIDED FOR ENCOURAGING MANUFACTURE OF ARTICLES OR THINGS. HOWEVER, THE TERM 'MANUFACTURE' HAS NOT BE EN DEFINED IN THE STATUTE. THEREFORE, IT HAS BEEN THE SUBJECT MATTER OF DISPUTE AND RESULTANT JUDICIAL REVIEW IN A NUMBER OF CASES. IN ORDER TO REMOVE ANY KIND OF AMBIGUITY WHICH MAY STILL PERSIST IN THIS REGARD, IT IS PROPOSED TO INSERT A NEW CLAUSE (29BA ) IN SECTION 2 SO AS TO PROVIDE THAT 'MANUFACTURE' WITH ITS . 5.15 LD. COUNSEL FURTHER ASSESSEE SUBMITTED THAT IN LIGHT OF ABOVE PROVISION IT IS CRYSTAL CLEAR THAT MANUFACTURING IS TAKING PLACE IN KALA AMB AND NOT AT ANY OTHER PLACE. BEFORE BEING USED I N THE MANUFACTURE OF ELECTRONIC MOSQUITO REPELLANT MACHINE THE CABINET, PLUG, HEATER, RESISTANCE AND LED THE DIFFERENT PARTS AND RAW MATERIALS BEING USED AS EXPLAINED IN FOREGOING PARAGRAPHS ARE NOT ONLY DISTINCT IN NAME. CHARACTER AND USE BUT THEY BRING O UT ALTOGETHER DIFFERENT INTEGRAL STRUCTURE AS ENVIS AG E D BY THE STATUTE IN 29(BA) OF SECTION 2 OF THE INCOME TAX ACT 1961. 5.16 LD. COUNSEL OF THE ASSESSEE STATED THAT THE MEMORANDUM EXPLAINING FINANCE BILL 2009 ALSO MAKES IT QUITE CLEAR THAT THE PURPOSE O F THIS DEFINITION IS TO 'REMOVE ANY KIND OF AMBIGUITY WHICH MAY STILL PERSIST' IN THE INTERPRETATION OF WORD 'MANUFACTURER' WITH ALL ITS GRAMMATICAL VARIATIONS. THE ABOVE EXPLANATION ALSO CLARIFIES THE ACTUAL MEANING OF WORD 'MANUFACTURER' AS ENVISAGED BY THE STATUTE. HE STATED THAT THIS DEFINITION HAS BEEN MADE APPLICABLE FROM 1 ST D AY OF APRIL, 2009 ITA NO. 5719/ DEL/ 2013 19 BUT, BE ING CLARIFICATORY INTRODUCTION IN THE STATUTE IT WILL BE APPLICABLE AS IT WAS ALREADY BEEN IN THE SAID ACT SINCE INCEPTION. IN THIS BEHALF, HE REFERRED THE JUDGMENT OF HON BLE SUPREME COURT IN CASE OF ALLIED MOTORS VS. CIT, 224 ITR 677 (SC), WHEREIN WHILE LAYING DOWN THE PRINCIPLE WITH REGARD TO RETROSPECTIVE LEGISLATION THEIR LORDSHIPS HELD THAT 'A PROVISO WHICH IS INSERTED TO REMEDY UNINTENDED CONSEQUEN CES AND TO MADE THE PROVISION WORKABLE, A PROVISO WHICH SUPPLIES AN OBVIOUS OMISSION IN THE SECTION AND IS REQUIRED TO BE READ INTO THE SECTION TO GIVE THE SECTION A REASONABLE INTERPRETATION, REQUIRES TO BE TREATED AS RETROSPECTIVE IN OPERATION SO THAT A REASONABLE INTERPRETATION CAN BE GIVEN TO THE SECTION AS A WHOLE'. 5.17 LD. COUNSEL OF THE ASSESSEE FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS RAISED SOME QUESTION MARKS ON CONSUMPTION OF ELECTRICITY AND THE TYPE OF CONNECTION WHICH THIS UNDERTAK ING HAS GOT. HE SUBMITTED THAT ASSESSEE HAS APPLIED FOR AN ELECTRICITY CONNECTION WHICH IS MEANT FOR THE COMMERCIAL USE AND THE SAME HAS BEEN GRANTED. CERTIFICATE FROM THE STATE ELECTRICITY BOARD IN THIS REGARD ALSO PROVES THIS FACT . IT IS ALSO SUBMITTED THAT KALA AMB IS A SMALL VI LL AGE AND ELECTRICITY BILLS ARE RAISED ON SAME PERFORMA WHICH IS BEING USED FOR HOUSEHOLD CONNECTION, WHICH MAY HAVE RESULTED IN CONFUSION THAT THE UNDERTAKING HAVE A DOMESTIC ELECTRICITY CONNECTION. 5.18 REGARDING AMOUNT OF ELECTRICITY WHICH HAS BEEN CONSUMED . HE SUBMITTED THAT THE CONSUMPTION OF ELECTRICITY IS IN NO MANNER DIRECT DETERMINANT OF WHETHER MANUFACTURE HAS TAKEN PLACE OR NOT. IT DEPENDS ON THE LEVEL OF MECHANIZATION AND THE PRODUCT WHICH IS BEING MANUFACTURED. THE ASSESSING ITA NO. 5719/ DEL/ 2013 20 OFFICER HAS COMPARED THE AMOUNT IN RS WHICH HAS BEEN SPENT ON ELECTRICITY NOT THE UNITS OF ELECTRICITY WHICH HAS BEEN CONSUMED. THE RATE OF ELECTRICITY PER UNIT IS MUCH HIGHER IN DELHI THAN IN HIMACHAL PRADESH AVAILABLE TO AN SSI UNIT. SSI U NITS GENERALLY GET ELECTRICITY AT SUBSIDIZED RATE THAN OTHER INDUSTRIAL CONNECTIONS. 5.19 HE SUBMITTED THAT THE ASSESSING OFFICER HAS ALSO ALLEGED IN HIS ASSESSMENT ORDER THAT THERE ARE NO BILLS OF ELECTRICITY COMPANY AND IN THE BOOKS OF ACCOUNT ONLY PAY MENTS HAS BEEN MADE TO MR. RAJENDER SINGH & MR. INDERJIT SINGH. IN THIS REGARD HE WAS SUBM ITTED THAT BILLS OF ELECTRICITY HAVE BEEN SUBMITTED NOT ONLY DURING THE ASSESSMENT PROCEEDINGS BUT ALSO DURING APPEAL PROCEEDINGS. THE PAYMENTS MADE TO THE ABOVE PERS ONS ARE IN THE NATURE OF IMPREST WHICH WAS PAID TO THEM TO FURTHER PAY IT TO ELECTRICITY D EPART MENT RECEIPTS OF THE SAME HAVE ALREADY BEEN SUBMITTED . HE FURTHER SUBMITTED THAT IT IS A TITLE LAW THAT MERE ENTRY IN THE BOOKS OF ACCOUNT OR, NOMENCLATURE OF THE HEAD OF ACCOUNT IS IN NO WAY DETERMINATIVE OF TRUE NATURE OF TRANSACTION. FOR THIS PROPOSITION, HE REFERRED THE CASE LAW IN THE CASE CIT VS INDIA DISCOUNT COMPANY, 75 ITR 191 (SC), CIT VS PROVINCIAL FARMER PVT. LTD, 108 ITR 219 (CAL), KCP LTD VS CIT, 245 ITR 421. HE SUBMITTED THAT WHAT HAVE TO BE SEEN IS ACTUAL NATURE OF TRANSACTION WHICH IS IN THE CURRENT CASE CAN BE VERIFIED FROM RECEIPT OF THE ELECTRICITY BILL PAYMENTS. 5.20 LD. COUNSEL OF THE ASSESSEE FURTHER SUBMITTED THAT ASSESSING OFFICER HA S NOT TAKEN ANY EXPERT ADVICE IN THIS REGARD THAT HOW MUCH ELECTRICITY SHOULD BE CONSUMED IN CURRENT PROCESS OF MANUFACTURE AND THEREFORE THE CONCLUSION REACHED ON BY THE ASSESSING OFFICER IS NOT BASED ON ANY ITA NO. 5719/ DEL/ 2013 21 EVIDENCE EXCEPT HIS OWN JUDGMENT OF QUANTUM OF ELECTRICITY THAT SHOULD BE CONSUMED. RELIANCE ON HIS JUDGMENT HAS LED TO FALLACIOUS RESULTS. THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER HAS CONCLUDED THAT CONDITION OF SUBSTANTIAL EXPANSION AS SPECIFIED U LS . 80IC(2)(B) HAS NOT BEEN SATISFIED. HE SUBMITTED THAT THE PRIME QUESTION IS WHETHER THE REQUIREMENT OF 'SUBSTANTIAL EXPANSION' AS ENVISAGED IN THE SAID SECTION IS APPLICABLE TO THE COMPANY. IN THE SIMPLE WORDS THE ANSWER IS NO. A. THE ASSESSEE FIRM WAS OPERATING AS A TRADING ENTITY ; IT H AD NO MANUFACTURING PLANT OF ITS OWN ; IT WAS AND STILL RUNNING ITS OPERATIONS FROM ITS OFFICE WHERE MANUFACTURING IS NOT POSSIBLE ; THE ASSESSEE FIRM DID NOT HAVE ANY WAREHOUSE EITHER OWNED OR LEASED AND HENCE IT NEVER STORED ANY FINISHED GOODS OR RAW MATER IALS ; THE ENTIRE MANUFACTURING WAS DONE BY JOB WORKERS AND THE FINISHED PRODUCT THAT IS ELECTRONIC MOSQUITO REPELLANT MACHINE GOT DIRECTLY TRANSPORTED TO ICD FOR EXPORT. AS IT IS CLEAR FROM THE ABOVE ASSESSEE WAS NOT IN MANUFACTURING BEFORE AND NEITHER IT HAD GOT CAPABILITY TO DO SO AT THAT TIME. THE ASSESSEE FIRMS' FIRST ESTABLISHED ITS ONE AND ONLY MANUFACTURING UNIT IN THE KALA AMB FOR MANUFACTURING OF SAID MACHINE. LD. COUNSEL OF THE ASSESSEE STATED THAT AFTER GOING TH R OUGH THE SUBSECTION (2)( B ) , IT I S CLEAR THAT THE DEDUCTION IS AVAILABLE TO AN UNDERTAKING WHICH HAS BEEN BEGUN TO MANUFACTURE OR PRODUCE ANY ARTICLE OR THING OR HAS UNDERTAKEN SUBSTANTIAL EXPANSION IN THE SPECIFIED PERIOD IN THE STATE OF HIMACHAL PRADESH. NOW ACCORDING TO THE STATUTE AND THE FACTS OF THE CASE STATED ABOVE, IT HAS BEEN PROVED BEYOND DOUBT THAT - ITA NO. 5719/ DEL/ 2013 22 I. THIS IS AN UNDERTAKING WHICH IS SITUATED IN THE NOTIFIED ` AREA OF THE STATE OF HIMACHAL PRADESH. II. IT'S NEVER BEEN IN HIMACHAL BEFORE AND BASICALLY THIS IS A VERY FIRST MANUFACTURING UNIT OF THE ASSESSEE WHICH HAS BEEN ESTABLISHED THERE. III. IT HAS ALSO BEEN PROVED ON THE BASIS OF FACTS STATED SUPRA THAT MANUFACTURING IS TAKING PLA CE AT KALA AMB WHERE THE ASSESSEE HAS ITS MANUFACTURING UNIT. IV. EVIDENCES ON RECORD ALSO MAKE IT CLEAR THAT ASSESSEE HAS BEGUN TO MANUFACTURE MOSQUITO REPEL/ANT MACHINES DURING THE SPECIFIED PERIOD. LD. COUNSEL OF THE ASSESSEE THAT 'SUBSTANTIAL EXPANSION' IS NECESSARY TO CLAIM THIS DEDUCTION. SAID WORD HAS BEEN VE RY WELL DEFINED IN THE ACT AND IT CLEARLY SAYS THAT INCREASE IN INVESTMENT IN PLANT AND MACHINERY BY AT LEAST 50% OF THE BOOK VALUE OF THE PLANT & MACHINERY. NOW THE QUESTION THAT NEEDS TO BE ANSWERED THAT HOW AN ENTIRELY NEW MANUFACTURING UNIT WHICH HAS B EEN CREATED FROM A SCRATCH IS GOING TO BE TESTED ON THE CLAUSE OF SUBSTANTIAL EXPANSION. HE STATED THAT IT IS NOT POSSIBLE BECAUSE FOR CALCULATION OF 50% OF THE BOOK VALUE OF THE PLANT & MACHINERY, YOU NEED TO HAVE A BOOK VALUE FROM WHICH YOU WILL CALCULAT E 50% WHICH DID NOT EXIST IN CASE OF AN ENTIRELY NEW UNDERTAKING. HE STATED THAT A S STATED IN FOREGOING PARAGRAPHS ASSESSEE WAS DOING ITS ENTIRE MANUFACTURING SINCE 1998 ON JOB WORK BASIS, THE CURRENT UNDERTAKING HAS BEEN ESTABLISHED FROM THE SCRATCH IN THE STATE OF HIM A CH AL , PRADESH. ITS SOLE PURPOSE ITA NO. 5719/ DEL/ 2013 23 IS TO MANUFACTURING THE PRODUCT I.E. MOSQUITO REPELLANT MACHINE IN A COST EFFECTIVE AND QUALITY CONTROLLED MANNER. EVEN IF RS 5,000/ - IS BEING INVESTED IN AN UNDERTAKING WHICH IS HAVING ITS DISTINCT PHYSICAL APPEARANCE AND A NEW BORN EXISTENCE QUALIFIES FOR THE DEDUCTION UNDER SAID SECTION BECAUSE - IT NOT ONLY FULFILLS THE CONDITION SPECIFIED IN THE SECTION THAT THE 'UNDERTAKING WHICH BEGINS TO MANUFACTURE OR PRODUCE ANY ARTICLE OR THING' BUT ALSO SATISFIES THE INTENTION OF THE LEGISLATURE REGARDING ENCOURAGEMENT OF INDUSTRIAL ACTIVITY IN INDUSTRIALLY AND ECONOMICAL BACKWARD STATE OF HIMACHAL PRADESH AS STATED BY THE ITO. IN VIEW OF THE ABOV E EXPLANATION HE WAS SUBMITTED THAT QUESTION OF 'SUBSTANTIAL EXPANSI ON' DOES NOT HO L D ANY GROUND. B. LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT W ITHOUT PREJUDICE TO WHAT HAS BEEN STATED ABOVE , THE STATUTE SHOULD BE INTERPRETED IN ITS STRICT SENSE AND IT SHOULD NOT BE READ MORE THAT WHAT THAT HAS BEEN SAID BY THE STAT UTE ITSELF. A CONSTITUTION BENCH OF THE SUPREME COURT, IN AV FERNANDEZ V. STATE OF KERALA AIR 1957 SC 657, EXPLAINED THE LAW RELATING TO INTERPRETATION OF FISCAL STATUTES AS UNDER: (AIR @ 661) '( I ) IN CONSTRUING FISCAL STATUTES AND IN DETERMINING THE LIAB ILITY OF A SUBJECT TO TAX ONE MUST HAVE REGARD TO THE STRICT LETTER OF THE LAW AND NOT MERELY TO THE SPIRIT OF THE STATUTE OR THE SUBSTANCE OF THE LAW. IF THE REVENUE SATISFIES THE COURT THAT THE CASE FALLS STRICTLY WITHIN THE PROVISIONS OF THE LAW, THE SU BJECT CAN BE TAXED. IF, ON THE OTHER HAND, THE CASE IS NOT COVERED WITHIN THE FOUR CORNERS OF THE PROVISIONS OF THE TAXING STATUTE, NO TAX CAN BE IMPOSED BY INFERENCE OR BY ANALOGY OR BY TRYING TO PROBE INTO THE INTENTIONS OF THE LEGISLATURE AND BY CONSIDE RING WHAT WAS THE SUBSTANCE OF THE MATTER. ITA NO. 5719/ DEL/ 2013 24 HE POINTED OUT THAT THE SUPREME COURT IN COMMISSIONER OF WEALTH TAX, GUJERET - ILL, AHMEDABAD V. ELLIS BRIDGE GYMKHANA (1998) 1 SCC 384, HELD AS UNDER: (SCC @ 387) 'THE RULE OF CONSTRUCTION OF A CHARGING SECTION IS THAT BEFORE TAXING ANY PERSON, IT MUST BE SHOWN THAT HE FALLS WITHIN THE AMBIT OF THE CHARGING SECTION BY DEAR WORDS USED IN THE SECTION. NO ONE CAN BE TAXED BY IMPLICATION. A CHARGING SECTION HAS TO BE CO NSTRUED STRICTLY. IF A PERSON HAS NOT BEEN BROUGHT WITHIN THE AMBIT OF THE CHARGING SECTION BY CLEAR WORDS, HE CANNOT BE TAXED AT ALL. I T WAS FURTHER SUBMITTED THAT I N THE LIGHT OF ABOVE DEFINITION OF SUBSTANTIAL EXPANSION WHICH HAS BEEN DEFINED IN THE SA ID SECTION SHOULD BE INTERPRETED IN THE SIMILAR MANNER AND IT SHOULD NOT BE CONCLUDED IN A DIFFERENT FORM. IF SUBSTANTIAL EXPANSION IS MANDATORY FOR CLAIMING THE DEDUCTION U/SEC . 80 IC THAN WE M U ST CONSIDER ALL THE INVESTMENTS WHICH HAVE BEEN MADE FOR THE MANUFACTURING OF THE SAID PRODUCT AT KALA AMB. THE DYES & MOULDS WHICH HAVE BEEN BOUGHT BY ASSESSEE ARE ONLY BEING USED FOR MANUFACTURING OF PARTS OF THE SAID MACHINE WHICH IS NECESSARY FOR THE RUNNING AND PRODUCTION OF MOSQUITO REPEL/ANT MACHINES AT UNDER TAKING OF THE ASSESSEE AT KALA AMB. AS STATED SUPRA THE MANUFACTURING IS ONLY HAPPENING AT KALA AMB A ND HENCE THE INVESTMENTS MADE FOR THE SAID MANUFACTURING PROCESS COMES UNDER DEFINITION OF SUBSTANTIAL EXPANSION IT/SEC 80 IC (8) (IX). IT WAS FURTHER SUB MITTED THAT T HE UNIT OF THE ASSESSEE WAS ESTABLISHED IN THE KALA AMB IN THE FINANCIAL YEAR 2003 - 04 RELEVANT TO A. Y. 2004 - 05 AND THE ADDITION IN THE PLANT & ITA NO. 5719/ DEL/ 2013 25 MACHINERY IN THE SAME YEAR AGGREGATED TO RS 2,71,016/ - FOR UNDERTAKING THE EXPANSION. THE OPENING W OV OF THE PLANT & MACHINERY STOOD AT RS 4,02,972/ - AS ON 01.04.2003. THE PROPORTION OF ADDITION TO THE PLANT & MACHINERY STOOD AT 62.72% WHICH IS MORE THAN THE PRESCRIBED LIMIT OF 50% AND AS SUCH THE CONDITION OF SUBSTANTIAL EXPANSION AS SPECIFIED IN THE S UB - SECTION 2(B) READ TOGETHER WITH SUB SECTION 8(IX) STOOD SATISFIED. C. WITHOUT PREJUDICE TO 'A' & ' B ' HE SUBMITTED THAT THIS ENQUIRY OF 'SUBSTANTIAL EXPANSION' IN AY 2005 - 06 IS TOTALLY MISPLACED BECAUSE, THIS IS NOT THE YEAR IN WHICH KALA AMB UNIT, TH E UNDERTAKING OF ASSESSEE FIRM IS SET UP. IT IS MAY PLEASE BE NOTED THAT THE ASSESSEE FIRM HAS GIVEN DEDUCTION UNDER SAID SECTION OF RS. 14,01.745/ - IN THE AY 2004 - 05. THE QUESTION OF SUBSTANTIAL EXPANSION IS TOTALLY IRRELEVANT IN THE AY 2005 - 06 AS EVEN I F SUBSTANTIAL EXPANSION HAS BEEN TAKEN PLACE IT HAS BEEN DURING THE AY 2004 - 05. THE LAW IN THIS REGARD IS VERY CLEAR. THE STATUTE HAS DET ERM INED THE WORD INITIAL ASSESSMENT Y EAR AS 'INITIAL A SSESSMENT YEAR' MEANS THE ( RELEVANT TO THE PREVIOUS YEAR IN W HICH THE UNDERTA KING OR THE ENTERPRISE BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS, OR COMMENCES OPERATION OR COMPLETES SUBSTANTIAL EXPANSION; THERE IS NO DOUBT THAT ACCORDING TO THE ABOVE DEFINITION THE AY 2004 - 05 CONSTITUTES INITIAL ASSESSMENT Y EAR FOR THE ASSESSEE AND IT HAS ALREADY BEEN PROVIDED DEDUCTION IN RELATION TO INCOME OF ITS UNDERTAKING AT KALA AMB. ITA NO. 5719/ DEL/ 2013 26 HE SUBMITTED THAT REVENUE AUTHORITIES HAS CONC LUDED THAT THE UNDERTAKING OF THE ASSESSEE S ITUATED AT KALA AMB DOES NOT SATISFIES THE CONDITION LAID DOWN IN SUBSECTION 4(I), REGARDING THE UNDERTAKING NOT BEING FORMED BY SPLITTING UP OR RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE. WHILE DOING SO IT HAS BEEN STATED BY HIM THAT - 'AR HAS ALR EADY SUBMITTED THAT M / S JAPNA EXPORTS IS A UNIT ALREADY IN EXISTENCE SINCE 1998 AND IS INVOLVED IN MANUFACTURING OF MOSQUITO REPEL/ANT MACHINES, THOUGH SOME RESTRUCTURING HAS HAPPENED WITH ENTRY AND EXIT OF PARTNERS. THIS GOES TO SHOW THAT ASSESSEE IS A MA NUFACTURING CONCERN IN EXISTENCE AND CARRYING ON THE SAME BUSINESS SINCE 1998. ONLY A SUBSTANTIAL EXPANSION HAS BEEN TAKEN PLACE IN 2003. BUT AS THE ISSUE OF SUBSTANTIAL EXPANSION ALREADY STANDS DISPROVED, THEREFORE THE CONDITION IN 80IC (4)(I) ALSO REMAIN S UNFULFILLED. ' LD. COUNSEL OF THE ASSESSEE FURTHER INVITED THE ATTENTION TOWARDS THE SUB SECTION 4 OF THE SAID SECTION - SECTION 80 L C (4) 'THIS SECTION APPLIES TO ANY UNDERTAKING OR ENTERPRISE WHICH FULFILS ALL THE FOLLOWING CONDITIONS, NAMELY: - (I ) IT IS NOT FORMED BY SPLITTING UP, OR THE RECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE: (II) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. ' IT IS QUITE CLEAR FROM THE ABOVE, THAT LAW S PECIFICALLY BARS DEDUCTION TO UNDERTAKINGS WHICH HAS BEEN FORMED VIA SPLITTING UP OR A RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE. IN ITA NO. 5719/ DEL/ 2013 27 VIEW OF THE FACT THAT THE ONLY REASON WHICH LED THE ITO TO THIS CONCLUSION IS THAT ASSESSEE IS IN SAME BUSINESS SIN CE 1998. ASSESSEE SUBMITTED THAT LAW DOES NOT BARS ANY PERSON FROM HIS ELIGIBILITY TO CLAIM DEDUCTION UNDER THIS SECTION JUST BECAUSE HE IS IN THE SAME BUSINESS SINCE LAST MANY YEARS. LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS NOT SPARED EVEN A SINGLE WORD TO GIVE ANY REASONS TO BELIEVE THAT THE ASSESSEE FIRM HAS FORMED ITS UNDERTAKING BY SPLITTING UP OR RECONSTRUCTION OF ITS ALREADY EXISTING BUSINESS. HE ALSO INVITED TO THE DECISION OF HONORABLE SUPREME COURT IN CASE OF TEXTILE MACHINERY CORPORATION VS CIT (1977) 107 ITR 195 (SC) WHEREIN IT HAS BEEN ENUNCIATED THAT - ... THE TRUE TEST IS NOT WHETHER THE NEW INDUSTRIAL UNDERTAKING CONNOTES EXPANSION OF TH E EXISTING BUSINESS OF THE ASSESSEE BUT WHETHER IT IS ALL THE SAME A NEW AND IDENTIFIABLE UNDERTAKING ... ' ' .... IN ORDER THAT A NEW UNDERTAKING CAN BE SAID TO BE NOT FORMED OUT OF ALREADY EXISTING BUSINESS, THERE MUST BE A NEW EMERGENCE OF A PHYSICALL Y SEPARATE INDUSTRIAL UNIT WHICH MAY EXIST ON ITS OWN AS A VIABLE UNIT.... HE FURTHER SUBMITTED THAT THE S IMILAR VIEWS HAS ALSO BEEN TAKEN IN CASE OF INTERNATIONAL INSTRUMENTS VS CIT 123 ITR 11(REFER PAGE NO 1442, LAW & PRACTICE OF INCOME TAX, KANGA PALKH IWALA & VYAS) WHERE IN IT HAS BEEN SAID THAT 'THE FACT THAT THERE IS COMMON MANAGEMENT OR THE FACT THAT SEPARATE ACCOUNTS ARE NOT MAINTAINED DOES NOT LEAD TO THE CONCLUSION THAT T HEY ARE NOT SEPARATE UNDERTAKINGS. HE SUBMITTED THAT THE DECISION OF THE APE X COURT IN CASE OF TEXTILE MACHINERY ITA NO. 5719/ DEL/ 2013 28 CORPORATION HAS BEEN FOLLOWED BY VARIOUS HIGH COURTS AND APEX COURT WITHOUT ANY EXCEPTION REGARDING THE CONDITION SPECIFIED IN SECTION 80 IC(4)(I) WHICH IS SAME AS IN SECTION 15C OF THE INCOME TAX ACT 1922. IT WAS ALSO SUBMITTED THAT THE ASSESSING OFFICER CANNOT ADVISE THE ASSESSEE REGARDING THE WAY HE SHOULD CONDUCT BUSINESS. IT IS AN ESTABLISHED FACT THAT HOW TO DO A BUSINESS IS TOTALLY IN DOMAIN OF ASSESSEE AND THE ASSESSING OFFICER CANNOT QUESTION THIS. THE PURPOS E OF BUSINESS IS TO ALWAYS GENERATE PROFITS. HE REQUESTED THAT ASSESSEE MAY PLEASE BE GIVEN FREEDOM TO CHOOSE THE PLACE WHERE HE WANTS TO OPEN A FACTORY OR TO WHETHER TO OUTSOURCE A PART OR FULL MANUFACTURING OF A PRODUCT OR NOT . LD. ASSESSING OFFICER HA S GONE BEYOND THE ALL LEGAL MEANS TO ADJUDGE THE ASSESSES GENUINE CLAIM OF DEDUCTION U/S 80 IC AS SUPERFLUOUS AND HOLLOW. ASSESSEE IN ITS WRITTEN SUBMISSIONS HAS SUBMITTED THAT T HE ASSESSING OFFICER HAS ALSO PROCEEDED TO HOLD THAT DEDUCTION U/S 80 IC IS NOT ALLOWABLE AS NO AUDIT REPORT HAS BEEN ATTACHED ALONGWITH THE RETURN. IN THIS CONNECTION WE WOULD LIKE TO SUBMIT HERE THAT THE REQUIREMENT OF FILING AN AUDIT REPORT IN THE PRESCRIBED FORM IS ALTHOUGH MANDATORY, IS PROCEDURAL IN NATURE AND BE MADE GOOD B Y FILING THE SAME IN THE COURSE OF ASSESSMENT PROCEEDINGS. WHILE FILING OF AUDIT REPORT IS MANDATORY THE TIME OF FILING THEREOF IS NOT MANDATORY. IN THIS CONNECTION HE INVITED TO THE JUDGMENT OF DELHI BENCH OF HON'BLE ITAT IN THE CASE OF SUDHA SHERME VS IT O [1993 44 ITD 351 (DE L )] HAS HELD THAT - ITA NO. 5719/ DEL/ 2013 29 ' .. ALTHOUGH U/S, 80 HHC (4), FURNISHING OF A CERTIFICATE FROM AN ACCOUNTANT ALONG WITH RETURN OF INCOME IS CONDITION PRECEDENT FOR THE ALLOWANCE OF CLAIM ON ACCOUNT OF EXPORTS, THE STRINGENCY AND MANDATORY NATUR E PROVIDED UNDER THAT THE SECTION SHOULD BE VIEWED IN THE LIGHT OF THE PURPOSE INTENDED TO BE SERVED. FILING OF THE CERTIFICATE ALONG WITH THE RETURN THOUGH STATUTORY, BELONGS TO THE AREA OF PROCEDURE, THUS THIS CONDITION FOR THE GRANT OF EXEMPTION COULD N OT BE SO STRICTLY CONSTRUED AS TO PREVENT THE ASSESSEE OF HIS LEGITIMATE CLAIM OF DEDUCTION. AS THE CERTIFICATE REQUIRED U/SEC . 80 HHC (4) HAD BEEN FILED DURING THE COURSE OF ASSES SEE PROCEEDINGS , THE A SSESSEE WAS ENTITLED TO THE DEDUCTION CLAIMED U/S. 80HHC. FURTHER SUPPORT TO THE ABOVE VIEW IS GOVERNED FROM THE FOLLOWING JUDICIAL PRONOUNCEMENTS - - CIT VS. G. KRISHNAN NAIR (2003) 259 ITR 727 (KER.) - CIT VS. BERGER PAINTS (INDIA) LTD. (2002) 254 ITR 503 (CAL) - CIT VS GUPTA FABS [(2005) 274 ITR 6 20 (P & H) - MURLI EXPORT HOUSE & OTHERS VS CIT [(1999) 238 ITR 257 (CA L )] LD. COUNSEL OF THE ASSESSEE FURTHER SUBMITTED THAT THE ABOVE JUDGMENTS HAVE BEEN RENDERED IN THE CONTEXT OF SEC 80 HHC BUT WOULD APPLY WITH EQUAL FORCE TO SEE 80 IC SINCE BOTH THE SECTIONS ARE PARI - MATERIA IN THE RESPECT. HE SUBMITTED THAT THE DEFAULT IN FILING THE AUDIT REPORT IN THE PRESCRIBED FORM WAS ONLY PROCEDURAL MATTER AND THE DENIAL OF DEDUCTION U/ S EC 80 IC ON THIS COUNT IS NOT WARRANTED. ITA NO. 5719/ DEL/ 2013 30 KEEPING IN VIEW OF THE AFORESAI D WRITTEN SUBMISSION, LD. COUNSEL OF THE ASSESSEE STATED THAT ASSESSING OFFICER AS WELL AS LD. FIRST APPELLATE AUTHORITY HAS NOT PROPERLY APPRECIATED THE VERSION OF THE ASSESSEE MENTIONED IN THE WRITTEN SUBMISSION ALONGWITH DOCUMENTARY EVIDENCE FILED BY THE ASSESSEE BEFORE THEM AND THEY DECIDED THE ISSUE IN DISPUTE AGAINST THE ASSESSEE, WHICH IS CONTRARY TO THE LAW AND FACTS OF THE FILE AND THE FINDING OF THESE LOWER AUTHORITIES DESERVE TO BE CANCELLED. HE REQUESTED THAT ON THE BASIS OF THE ARGUME NTS ADVANCED BY THE ASSESSEE S AUTHORIZED REPRESENTATIVE ALONGWITH DOCUMENTARY EVIDENCE IN THE SHAPE OF PAPER BOOK MAY BE CONSIDERED AND THE ADDITION IN DISPUTE MAY BE DELETED BY ACCEPTING THE APPEAL FILED BY THE ASSESSEE. 6. LD. DR RELIED UPON THE ORDERS PASSED BY THE LD. FIRST APPELLATE AUTHORITY AND STATED THAT THE ASSESSING OFFICER HAS GIVEN THE FULL OPPORTUNITY TO FILE NOTE OF SATISFACTION OF ELIGIBILITY CONDITION FOR CLAIM IN DEDUCTION U/S. 80IC OF THE I.T. ACT, BUT THE ASSESSEE FAILED TO F ILE THE SAME BEFORE THE ASSESSING OFFICER AS WELL AS BEFORE THE LD. CIT(A). HE DRAW OUR ATTENTION TOWARDS THE ORDER OF THE ASSESSING OFFICER AT PAGE 1 TO 3 AND STATED THAT NEGLIGIBLE ACTIVITIES IS BEING TAKEN PLACE BY THE ASSESSEE IN KALA AMB AND MAJO R PART OF THE MANUFACTURING PROCESS IS BEING TAKEN PLACE OUTSIDE KALA AMB . TO CORROBORATE THIS VERSION, HE DRAW OUR ATTENTION TOWARDS THE SCHEDULE OF FIXED ASSETS IN WHICH THE ASSESSEE OWNS THE D IES AND M OUL DS COSTING TO RS. 5,16,603/ - ; PLANT AND MACHINERY RS. 8,262/ - AND CEILING MACHINE RS. 2,152/ - . NO OTHER PLANT AND MACHINERY IS OWNED BY THE ASSESSEE . LD. DR FURTHER STATED THAT DIES AND MOULDS WHICH FORM BULK PORTION OF THE PLANT AND MACHINERY ARE BEING U SED AT DELHI BECAUSE THERE IS NO TOOL ROOM FACILITY AT KALA A M B. AND DIES AND MOULDS ARE VERY HEAVY SO THEIR MOVEMENT IS RESTRICTED ONLY ITA NO. 5719/ DEL/ 2013 31 MACHINERY RS. 10,400/ - IS BEING USED AT KALA AMB. LD. DR FURTHER STATED THAT AFTER EXAMINING THE DETAILS OF ELECTRIC ITY BILLS, IT REVEALED THAT AS MUCH AS RS. 35 , 124/ - WERE INCURRED FOR ELECTRICITY IN DELHI WHEREAS A PALTRY SUM OF RS.3153/ - HAS BEEN INCURRED ON ELECTRICITY AT KALA AMB. EVEN FOR RS.3153/ - THERE ARE NO BILLS OF ELECTRICITY COMPANY . ONLY PAYMENTS TO SOME SH. RAJINDER SINGH AND INDERJIT SINGH HAVE, BEEN MADE. THIS EVIDENCE PROVED THAT NO MANUFACTURING OR NEGLIGIBLE MANUFACTURING ACTIVITY IS BEING CARRIED OUT AT KALA AMB AND MAJOR PORTION ARE STILL BEING CARRIED OUT IN DELHI. THE 'SUBSTANTIAL EXPANSION' AT KALA AMB. HAS CLEARLY BEEN STAGE - MANAGED TO UNDULY AVAIL OF THE BENEFIT OF DEDUCTION ULS 80 I C I.T. ACT . LD. DR FURTHER SUBMITTED THAT ASSESSEE HAS NOT PRODUCED ANY BILL FOR PLANT AND MACHINERY WHICH WAS ACQUIRED DURING FY 2003 - 04 WHEN THE SUBSTANTIAL E XPANSION WAS SAID TO HAVE BEEN TAKEN PLACE. THE NEGLIGIBLE PLANT AND MACHINERY INSTALLED AT KALA AMB, THE ASPECT OF SUBSTANTIAL EXPANSION AUTOMATICALLY STANDS DISPROVED. IT IS ESTABLISHED BEYOND ANY DOUBT THAT NO PLANT AND MACHINERY EXISTS AT KALA AMB. THE QUESTION OF SUBSTANTIAL EXPANSION IS COMPLETELY RULED OUT. HENCE, THE CONDITIOIN LAID DOWN IN SUB - SECTION 2(B) HAS ALSO NOT BEEN SATISFIED BY THE ASSESSEE, THEREFORE, ON THIS COUNT ALSO CLAIM OF DEDUCTION U/S 80LC I.T. ACT IS RIGHTLY BEEN DENIED BY T HE ASSESSING OFFICER . 6.1 LD. DR FINALLY STATED THAT KEEPING IN VIEW OF THE ARGUMENTS ADVANCED BY THE LD. COUNSEL OF THE ASSESSEE AND THE ORDERS PASSED BY THE REVENUE AUTHORITIES, AFTER DISCUSSING THE EVIDENCES FILED BY THE ASSESSEE S COUNSEL IN THE SHA PE OF PAPER BOOK, IT IS CLEARLY PROVED THAT THERE IS NEGLIGIBLE PLANT AND MACHINERY AT THE KALA AMB AND ASSESSEE HAS FAILED TO FURNISH ANY ELECTRICITY BILL ISSUED BY THE ELECTRICITY COMPANY AS WELL AS EXCEPT NEGLIGIBLE MANUFACTURING ACTIVITIES HAS B EEN DOWN AT KALA AMB. THEREFORE, ITA NO. 5719/ DEL/ 2013 32 THE DEDUCTION CLAIMED BY THE ASSESSEE U/S. 80IC OF THE ACT HAS RIGHTLY BEEN DENIED BY THE LOWER AUTHORITIES. HENCE, HE REQUESTED THAT THE APPEAL FILED BY THE ASSESSEE MAY BE DISMISSED. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS AVAILABLE WITH US , ESPECIALLY THE ORDERS OF THE REVENUE AUTHORITIES ALONGWITH THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE AS WELL AS OTHER DOCUMENTARY EVIDENCE. ACCORDING TO ASSESSEE, ASSESSEE IS INVOLVED IN THE BUSINESS OF M ANUFACTURING AND E XPORT OF MOSQUITO REPELLENT, MEDICINES ETC . T HE ASSESSEE HAS REGISTERED A TURNOVER OF RS. 41.44 LAKHS AS AGAINST RS.1.56 CRORES IN THE PREVIOUS YEAR. ASSESSEE HAS ALSO EARNED A GROSS PROFIT OF RS. 21.88 LACS AS AGAINST RS. 49.04 LACS IN T HE PREVIOUS YEAR. AFTER CLAIMING DEDUCTION U/S 80 IC OF I.T. ACT, A NET TAXABLE INCOME OF RS. 2.22 LACS HAS BEEN DECLARED. A SSESSEE HAS NOT FILED THE COPY OF AUDITOR'S REPORT IN F ORM NO .10CCB WITH THE RETURN. ASSESSING OFFICER ASKED TO FILE NOTE ON SATISFA CTION OF ELIGIBILITY CONDITIONS FOR CLAIMING DEDUCTION U/S 80 I C OF THE I.T. ACT. IN RESPONSE TO THE SAME ASSESSEE FILED ITS REPLY ALONGWITH NOTE OF MANUFACTURING PROCESS. ASSESSING OFFICER CONSIDERED THE SAME AND FOUND THAT THE MAJORITY ACTIVITY OF PR ODUCTION IS BEING CARRIED OUT BY THE ASSESSEE OUTSIDE OF KALA AMB FACTORY. AO ALSO NOTED THAT THE FIRM WAS ALREADY IN THE BUSINESS OF MOSQUITO REPELLENT MACHINES , MEDICINES SINCE 1998. HE IS OF THE VIEW THAT T HE ISSUE OF S UBSTANTIAL EXPANSION OF THE ACTI VITY IS QUITE APPARENT FROM THE SUBMISSIONS AS WELL AS THE EVIDENCES FILED BY THE ASSESSEE. AO HAS CONFRONTED TO THE ASSESSEE WITH THESE FACTS VIDE HIS NOTE DATED 27.11.2007 AND SPECIFICALLY ASKED THE ASSESSEE TO VERIFY AS TO HOW IN SUB - SECTION 2(B) OF SECTION 80IC OF THE I.T. ACT IS SATISFIED. FURTHER THE ASSESSING OFFICER ALSO ASKED THE ASSESSEE TO CLARIFY THE SATISFACTION OF THE ELIGIBILITY CONDITIONS LAID DOWN IN SUB - SECTION 4(I) OF SECTION 80IC OF I.T. ACT REGARDING BUSINESS NOT BEING ITA NO. 5719/ DEL/ 2013 33 FORM BY SPLITTING UP OR RECONSTRUCTION OF AN EXISTING BUSINESS. ASSESSEE WAS ALSO ASKED BY THE AO TO EXPLAIN THE SATISFACTION OF THE ELIGIBILITY IN SUB - SECTION 4(II) REGARDING MACHINERY BEING USED PREVIOUSLY FOR OTHER PURPOSES. IN RESPONSE TO THESE QUERIES THE ASSESSEE FILED ITS SUBMISSION DATED 12.12.2007 EXPLAINING THEREIN THE ISSUE OF MANUFACTURING ACTIVITIES BEING CARRIED OUT AT KALA AMB. IN THE SAID REPLY DATED 12.12.2007 ASSESSEE SUBMITTED THAT THE FIRM IS IN THE BUSINESS OF EXPORTS AND BALANCES OUTSTANDING AT THE END OF YEAR WITH FOREIGN BUYERS ARE TALLIED IN FOREIGN CURRENCY. THE DIFFERENCE IN THE RATE OF FOREIGN CURRENCY AT THE END OF THE YEAR AND THE TIME WHEN TRANSACTIONS HAVE BEEN CARRIED OUT, RESULTS IN THE DIFFERENCE DUE TO FOREIGN EXCH ANGE RATE VARIATION. ASSESSEE SUBMITTED THAT THE MANUFACTURING ACTIVITY HAS ALREADY BEEN EXPLAINED IN DETAIL IN THE EARLIER SUBMISSION MADE AS EXPLAINED EARLIER ONLY THE COVER PART OF THE MACHINE IS GOT DONE BY JOB WORK AT DELHI AND THEN SENT TO KALA AMB (H.P.). THIS IS DUE TO THE R E ASON THAT TOOL ROOM FACILITY DOES NOT EXIST AT KALA AMB (HP) AND AS THE DIE AND MOULDS FOR THE SAME ARE VERY HEAVY ROUGHLY THE 100 - 200 KG. EACH, THE MOVEMENT OF SAME IS RESTRICTED. ALL THE MAJOR WORKING PARTS OF THE MACHINE ARE MADE AT KALA AMB (HP) AND FINAL ASSEMBLY AND PRODUCT TAKES SHAPE AT KALA AMB (HP). AFTER INSPECTION AND PACKING THE SAME IS BILLED / EXPORTED FROM KALA AMB (HP) ONLY. 7.1 THE ASSESSING OFFICER CONSIDERED THE REPLY OF THE ASSESSEE AND WAS OF THE VIEW THAT HARDLY ANY MANUFACTURING ACTIVITY IS TAKING PLACE IN KALA AMB. HE FURTHER HELD THAT MAJOR PART OF MANUFACTURING PROCESS IS BEING PLACED OUTSIDE THE KALA AMB, (HIMACHAL PRAD ESH) . T O CORROBORATE SUCH FACT REFERENCE IS MADE TO THE INVESTMENT IN PLANT AND MACHINERY MADE BY THE ASSESSEE WHICH ARE AS UNDER: - DIES AND MOULDS - RS. 5,16,603/ - ITA NO. 5719/ DEL/ 2013 34 PLANT AND MACHINERY - RS. 8,262/ - J CEILIN G MACHINE - RS. 2 , 152 / - 7. 2 AFTER EXAMINING THE REPLY AND EVIDENCES FILED BY THE ASSESSEE, AO IS OF THE VIEW THAT NO OTHER PLANT AND MACHINERY IS OWNED BY THE ASSESSEE AT KALA AMB (HP). HE WAS OF THE VIEW THAT DIES AND MOULDS ARE FORMED BULK PORTION OF THE PLANT AND MACHINERY WHICH ARE BEING USED AT DELHI, BECAUSE THERE IS NO TOOL ROOM FACILITY AT KALA AMB (HP) AS SUBMITTED BY THE ASSESSEE, AS AFORESAID. HE IS OF THE VIEW THAT IF THESE WERE TO BE TRUE THEN MACHINERY WORTH OF RS. 10,400/ - ODD IS BEING USED AT KALA AMB (H.P.). S O IT CAN BE VISUALIZED WHAT PORTION OF THE COMPLETE MANUFACTURING PROCESS IS BEING CARRIED OUT AT KALA AMB. EVEN FOR RS. 3153/ - THERE ARE NO BILLS OF ELECTRICITY COMPANY. ONLY PAYMENTS TO SOME SH. RAJINDER SINGH AND INDERJIT SINGH HAVE BEEN MADE. 7.3 KE EPING IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICER WAS OF THE VIEW THAT NO MANUFACTURING ACTIVITY OR NEGLIGIBLE MANUFACTURING ACTIVITY IS BEING CARRIED OUT AT KALA AMB (H.P.). THE MAJOR OPERATIONS ARE STILL BEING CARRIED OUT I N DELHI, THEREFORE, HE DENIED THE BENEFIT OF DEDUCTION CLAIMED BY THE ASSESSEE U/S. 80IC OF THE I.T. ACT. 7.4 WE FIND THAT LD. CIT(A) HAS UPHELD THE FINDING OF THE AO BY HOLDING THAT HARDLY ANY MANUFACTURING ACTIVITY WAS BEING CARRIED OUT AT KALA AMB, TH E PLACE WHERE THE PLANT OF THE ASSESSEE WAS LOCATED. SECONDLY, THE ASSESSEE HAS NOT FILED AUDITOR REPORT IN FORM 3CD AND 10CCB. THE DEDUCTION CLAIMED BY THE ASSESSEE WAS NOT SUPPORTED IN ANY WAY BY THE AUDITORS. 7.5 WE HAVE PERUSED THE ORDERS PASSED BY THE REVENUE AUTHORITIES, ESPECIALLY THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) ITA NO. 5719/ DEL/ 2013 35 ON THE ISSUE OF DEDUCTION U/S. 80IC OF THE I.T. ACT AMOUNTING TO RS. 12,97,007/ - WHICH HAS BEEN DISALLOWED BY THE AO AND CONFIRMED BY THE LD. CIT(A). WE ARE OF THE CONSIDERED VIEW THAT THE REVENUE AUTHORITIES HAS GIVEN A SUFFICIENT OPPORTUNITY TO THE ASSESSEE FOR FILING THE SATISFACTION NOTE FOR FILING THE ELIGIBILITY CONDITION FOR CLAIMING DEDUCTION U/S. 80IC OF THE I.T. ACT , WITH THE PROOF OF DOCUMENTARY EVIDENCE. THE ASSE SSEE FAILED TO PRODUCE THE SUFFICIENT EVIDENCE BEFORE THE REVENUE AUTHORITIES . I T IS NECESSARY TO REFER THE RELEVANT EXTRACT OF SECTION 80IC(2)(B) OF THE I.T. ACT. SECTION 80 - IC(2)(B) WHICH HAS BEGUN OR BEGINS TO MANUFACTURE OR PRODUCE ANY ARTICLE O R THING, SPECIFIED IN THE FOURTEENTH SCHEDULE OR COMMENCES ANY OPERATION SPECIFIED IN THAT SCHEDULE, OR WHICH MANUFACTURES OR PRODUCES ANY ARTICLE OR THING, SPECIFIED IN THE FOURTEENTH SCHEDULE OR COMMENCES ANY OPERATION SPECIFIED IN THAT SCHEDULE AND UNDE RTAKES SUBSTANTIAL EXPANSION DURING THE PERIOD OF BEGINNING. (II) ON THE 7 TH DAY OF JANUARY, 2003 AND ENDING BEFORE THE 1 ST DAY OF APRIL, 2012, IN THE STATE OF HIMACHAL PRADESH OR THE STATE OF UTTRANCHAL. 7.6 KEEPING IN VIEW OF THE AFORESAID PROVISIONS, WE ARE OF THE VIEW THAT IN REPLY DATED 12.12.2007 ASSESSEE ITSELF ADMITTED AS UNDER: - AS EXPLAINED EARLIER ONLY THE COVER PART OF THE MACHINE IS GOT DONE BY JOB WORK AT DELHI AND THEN SENT TO KALA AMB (H P). THIS IS DUE TO THE REASON ITA NO. 5719/ DEL/ 2013 36 THAT TOOL ROOM FACILITY DOES NOT EXIST AT KALA AMB. (HP) AND AS THE DIE AND MOULDS FOR THE SAME ARE VERY HEAVY ROUGHLY THE 100 - 200 KG EACH, THE MOVEMENT OF SAME IS RESTRICTED. 7.6.1 WE FIND THAT REVENUE AUTHORITIES HAS CON SIDERED THE REPLY DATED 12.12.2007 AND HAS RIGHTLY HELD THAT IT IS APPARENT THAT DIES AND MOULDS WHICH FORM BULK PORTION OF THE PLANT AND MACHINERY ARE BEING USED AT DELHI BECAUSE THERE IS NO TOOL ROOM FACILITY AT KALA AMB . D IES AND MOULDS ARE VERY HEAVY SO THEIR MOVEMENT IS RESTRICTED. IF THIS IS TRUE, THEN MACHINCERY WORT OF RS. 10,400/ - ODD IS BEING USED AT KALA AMB (HP). SO IT CAN BE VISUALIZED WHAT PORTION OF THE COMPLETE MANUFACTURING PROCESS IS BEING CARRIED OUT AT KALA AMB. WE FULLY AGREE WITH THE FINDINGS GIVEN BY THE REVENUE AUTHORITIES. SECONDLY, THE ASSESSEE HAS ALSO NOT PRODUCED THE ELECTRICITY BILL ISSUED BY THE CONCERNED ELECTRICITY DEPARTMENT. AFTER EXAMINING THE DETAILS OF ELECTRICITY BILL, WE FIND THAT AS MUCH AS RS. 35,124/ - WERE INCURRED FOR ELECTRICITY IN DELHI WHEREAS AS PALTRY SUM OF RS. 3135/ - HAS BEEN INCURRED ON ELECTRICITY AT KALA AMB. FOR THIS ALSO ASSESSEE HAS NOT PRODUCED ANY ELECTRICITY BILLS RECEIVED FROM THE ELECTRICITY DEPARTMENT. IN OUR CONSIDERED VIEW THAT NO M ANUFACTURING ACTIVITY IS BEING CARRIED OUT AT KALA AMB. IF THERE IS ANY ACTIVITY I.E. NEGLIBLE ACTIVITY WAS CARRIED OUT. THEREFORE, THE REVENUE AUTHORITIES HAS RIGHTLY DENIED THE DEDUCTION U/S. 80IC OF THE I.T. ACT TO THE ASSESSEE. 7.7 AFTER DISPROVING T HE CLAIM OF EXISTENCE OF MANUFACTURING ACTIVITY OR NEGLIGIBLE ACTIVITY BEING CARRIED OUT AT KALA AMB (HP). THE ASSESSING OFFICER IS OF THE VIEW THAT ASSESSEE HAS TRIED TO PORTR AY, IF ANY SUBSTANTIAL EXPANSION IN A BACKWARD STATE, IT IS ENTITLED FOR DEDU CTION U/S. 80IC OF THE I.T. ACT. WE ARE OF THE VIEW THAT IF SUCH HOLLOW AND SUPERFLUOUS CLAIMS OF DEDUCTION ARE TO BE ALLOWED THEN ITA NO. 5719/ DEL/ 2013 37 THE ENTIRE PURPOSE OF ENACTING SUCH PROVISIONS WILL STAND DEFEATED. DEDUCTIONS AND EXEMPTIONS HAVE BEEN BROUGHT ON STATUTE IN ORDER TO FULFIL L THE ROLE OF THE GOVERNMENT IN EQUITABLE DEVELOPMENT OF VARIOUS PARTS OF THE COUNTRY. DEDUCTION U/S. 80IC IS MEANT FOR ENCOURAGING INDUSTRIAL ACTIVITY IN INDUSTRIALLY AND ECONOMICALLY BACKWARD STATE LIKE HIMACHAL PRADESH, BY ENCOURAGING INVESTMENT IN SUCH STATES SO THAT BACKWARD AREAS AND INHABITANTS OF SUCH STATES FIND EMPLOYMENT. THE ENTIRE BACKWARD AREA FLOURISHES BY CREATION OF A CLIMATE FAVORABLE FOR INDUSTRIAL AND ECONOMIC ACTIVITY AND BENEFITS OF THE SAME PERMEATING DOWN TO THE LOCAL POPULATION. IF SUCH AIMS ARE NOT ACHIEVED THEN THERE IS NO PURPOSE IN EXTENDING BENEFITS LIKE 100% DEDUCTION U/S. 80IC OF THE I.T. ACT TO VARIOUS ASSESSES. FOR THE SAKE OF CONVENIENCE, SECTION 80IC(4) AND 80IC(8)(IX) ARE EXTRACTED BELOW: - 80I C(4) THIS SECTION APPLIES TO ANY UNDERTAKING OR ENTERPRISE WHICH FULFILLS ALL THE FOLLOWING CONDITIONS, NAMELY: - (I) IT IS NOT FORMED BY SPLITTING UP, OR THE RECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE. (II) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. 80IC(8)(IX) SUBSTANTIAL EXPANSION MEANS INCREASE IN THE INVESTMENT IN THE PLANT AND MACHINERY BY AT LEAST FIFTY PER CENT OF THE BOOK VALUE OF PLANT AND MACHINERY (BEFORE ITA NO. 5719/ DEL/ 2013 38 TAKING DEPRECIATION IN ANY YEAR), AS ON THE FIRST DAY OR THE PREVIOUS YEAR IN WHICH THE SUBSTANTIAL EXPANSION IS UNDERTAKEN. 7.7.1 ON THE ISSUE OF SUBSTANTIAL EXPANSION, THE ASSESSEE PROVIDED CERTAIN FIGURES WITHOUT INCLUSIVE BILLS FOR PLANT AND MACHINERY, WHICH WAS ACQUIRED DURING FINANCIAL YEAR 2003 - 04 WHEN THE SUBSTANTIAL EXPANSION WAS SAID TO HAVE BEEN TAKEN PLACE. AFTER EXAMINING THE PLANT AND MACHINERY INSTALLED AT KALA AMB WORTH RS. 10,400/ - , THE ASPECT OF SUBSTANTIAL EXPANSION AUTOMATICALLY STANDS DISPR OVED. 7.8 WE FIND THAT THE CONDITIONS LAID DOWN IN SUB - SECTION 2(B) HAS ALSO NOT BEEN SATISFIED BY THE ASSESSEE AND ON THIS ACCOUNT ALSO CLAIM OF DEDUCTION U/S. 80IC HAS RIGHTLY BEEN DENIED BY THE ASSESSING OFFICER. LD. CIT(A) HAS ALSO DISCUSSED THE RELE VANT PROVISIONS OF LAW ON THE ISSUE OF CLAIM OF DEDUCTION U/S. 80 - IC OF THE I.T. ACT . ON SUBSTANTIAL EXPANSION AND REGARDING UNDERTAKING NOT BEING FORMED SPLITTING UP OR RECONSTRUCTION OF THE BUSINESS ALREADY IN EXISTENCE. ON THIS ISSUE THE ASSESSEE HAS NO T SATISFIED THE CONDITIONS AS DISCUSSED ABOVE. AS PER SUB - SECTION 4(I) OF SECTION 80IC OF THE I.T.ACT , THE UNIT WAS NOT FORMED BY SPLITTING UP, OR THE RECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE. BUT BY SUBSTANTIAL EXPANSION WHICH TOOK PLACE IN T HE PREVIOUS YEAR I.E. A FIRST YEAR OF ESTABLISHMENT OF THE UNIT. THIS VERSION OF THE ASSESSEE HAS ALSO BEEN REJECTED BY THE REVENUE AUTHORITIES BY STATING THAT ASSESSEE ITSELF SUBMITTED THAT M/S JAPNA EXPORTS IS A UNIT ALREADY IN EXISTENCE SINCE 1997 AND IS INVOLVED IN THE MANUFACTURING MOSQUITO REPLANT MACHINE WHICH SHOWS THAT ASSESSEE IS A MANUFACTURING CONCERN IN EXISTENCE AND CARRY ON THE SAME BUSINESS SINCE 1998. ASSESSEE HAS NOT FILED ANY DOCUMENTARY EVIDENCE FOR SUBSTANTIAL ITS CLAIM BEFORE THE ASSESSING OFFICER, LD. CIT(A) AS WELL AS BEFORE US ESTABLISHING ITA NO. 5719/ DEL/ 2013 39 THAT ASSESSEE IS IN MANUFACTURING OF MOSQUITO REPELLANT MACHINES ETC. THE ENTIRE MACHINE WAS NOT MADE AT KALA AMB. ONLY ASSEMBLING OF MACHINE WAS DONE AT KALA AMB (HP). THE ASSESSEE HAS ALSO NOT FURNISHED ANY PURCHASE BILLS OF MACHINERY TO SHOW THAT IT WAS A NEW PURCHASE. THE ASSESSEE WAS IN THE BUSINESS OF MANUFACTURING OF MOSQUITO REPELLANT MACHINE FROM THE YEAR 1998, THAT MEANS THE BUSINESS OF MANUFACTURING AND EXPORT OF MOSQUITO RE PELLANT WAS ALREADY IN EXISTENCE. A UNIT WAS SET UP AT KALA AMB WHERE THE SAME ACTIVITY OR RATHER PART OF THE ACTIVITY WAS DONE. THE ENTIRE MACHINE WAS NOT MADE IN KALA AMB. ONLY THE ASSEMBLY OF THE MACHINE WAS DONE AT KALA AMB. THE SAME BUSINESS WAS C ONTINUED BUT ONLY A PART WAS SHIFTED TO KALA AMB. THEREFORE, IT IS A RECONSTRUCTION OF THE EXISTING BUSINESS AND ASSESSEE HAS FAILED TO ESTABLISH ITS CLAIM BEFORE THE REVENUE AUTHORITIES. THE COMPANY AT DELHI IS DOING MAJOR PART OF THE WORK AND THE UNIT AT KALA AMB GETS THE ARTICLE IN THE SAME CONDITION IN WHICH IT IS TO BE SOLD. THE CABINET OR THE MAIN PART OF THE MACHINE IS MADE AT DELHI. THE PLUG IS MADE IN THE MOULDING MACHINES AND THE PINS IN THE PLUG ARE PROCURED. THE RESISTANCE WIRE AND LED ARE PROCURED FROM DELHI AND THE MACHINERY IS ASSEMBLED AT KALA AMB (H.P.). THE MAIN MACHINES FOR MAKING THIS ITEM ARE MOULDS WHICH ARE USED TO GIVE SHAPE TO THE PLUGS AND HEATERS. THEREFORE CONDITIONS UL S 80IC 4(I)& (II) ARE NOT SATISFIE D. 7 . 9 . TO SUPPORT OUR CONTENTION, WE DRAW SUPPORT FROM THE CASE OF TEXTILE MACHINERY CORPORATION LTD. VS. CIT(1977) 107 ITR 195 (SC), WHEREIN IT WAS STATED : 'IN ORDER THAT THE NEW UNDERTAKING CAN BE SAID TO BE NOT FORMED OUT OF THE ALREADY EXISTING BUSINESS , THERE MUST BE A NEW EMERGENCE OF A PHYSICALLY SEPARATE INDUSTRIAL UNIT WHICH MAY EXIST ON ITS OWN AS A VIABLE UNIT' ITA NO. 5719/ DEL/ 2013 40 7 . 10 IT IS TO BE SEEN WHETHER THERE IS SUBSTANTIAL EXPANSION. THE GROSS BLOCK OF PLANT & MACHINERY AS ON 1 ST DAY OF F.Y. IS REQUIRED TO B E COMPARED WITH PURCHASE OF NEW PLANT AND MACHINERY DURING SUCH F.Y. IN WHICH SUCH SUBSTANTIAL EXPANSION IS UNDERTAKEN. THE A SSESSEE HAS STATED THA T ADDITION TO PLANT AND MACHINE R Y WAS RS. 2,71,016/ - , WHEREAS THE WRITTEN DOWN VALUE WAS RS. 4,02,972/ - . T HERE IS HARD LY ANY ADDITION TO PLANT AND MACHINERY AT KALA AMB OUT OF THE ABOVE ADDITION. THE ASSESSING OFFICER HAS STATED THAT ONLY A SMALL PART OF THE MACHINERY WAS AT KALA AMB AND THE A SSESSEE HAS NOT REFUTED THIS ASPECT. THE A SSESSEE HAS NOT GIVEN DE TAILS OF PLANT AND MACHINERY AT KALA AMB. EVEN IN THE AUDIT REPORT THE AUDITOR HAS NOT GIVEN ANY COMMENTS ON 25(D)(II) AND ( III ) WHICH TALKS OF TOTAL BOOK VALUE OF PLANT & MACHINERY AS ON FIRST DAY OF THE PREVIOUS YEAR IN WHICH SUBSTANTIAL EXPANSION TOOK P LACE AND VALUE OF INCREASE IN THE YEAR OF SUBSTANTIAL EXPANSION. IT IS EVIDENT THAT NO SUBSTANTIAL EXPANSION TOOK PLACE. 7 . 11 WE FURTHER NOTE THAT D URING THE APPELLANT PROCEEDINGS, THE ASSESSING OFFICER NOTED CERTAIN FACTS WHICH WERE FIRSTLY THAT NO S UBSTANTIAL EXPANSION WAS CARRIED OUT. HARDLY ANY MANUFACTURING ACTIVITY WAS CARRIED OUT OF KALA AMB AS WAS EVIDENT FROM THE FACT THAT MACHINERY WORTH RS.10 ,4 OO/ - WAS ONLY EXISTING AT KALA AMB. THE ELECTRICITY BILL WAS ONLY RS.3,153/ - .THEREFORE, THE REVENUE AUTHORITIES BELOW HAS RIGHTLY CONCLUDED THAT ONLY A CERTAIN AMOUNT OF MANUFACTURING ACTIVITY WAS CARRIED OUT AT KALA AMB. 8. KEEPING IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AS EXPLAINED ABOVE AND THE DISCUSSIONS ON THE FINDING GIVEN BY THE R EVENUE AUTHORITIES AS WELL AS THE ARGUMENTS ADVANCED BY THE LD. COUNSEL OF THE ASSESSEE ALONGWITH EVIDENCE PRODUCED BY HIM IN THE SHAPE OF PAPER BOOK AND THE SUBMISSIONS OF THE LD. DR, WE ARE OF THE CONSIDERED VIEW THAT ASSESSEE HAS ALSO NOT SATISFIED THE ITA NO. 5719/ DEL/ 2013 41 CONDITIONS FOR CLAIMING THE DEDUCTIONS U/S. 80IC OF THE I.T. ACT, 1961, THE ASSESSEE HAS ALSO NOT PRODUCED THE SUFFICIENT EVIDENCE BEFORE THE REVENUE AUTHORITIES AS WELL AS BEFORE US F OR SUBSTANTIATING ITS CLAIM . T HE EVIDENCES PRODUCED BY THE ASSESSEE IN THE PAPER BOOK HAVE NO RELEVANCE FOR THE GRANT OF DEDUCTION U/S. 80IC OF THE I.T. ACT. HENCE, IN OUR CONSIDERED, OPINION, THE LD. CIT(A) HAS PASSED A WELL REASONED ORDER, WHICH DOES NOT NEED ANY INTERFERENCE ON OUR PART, THEREFORE, WE UPHOLD THE IMPUGNE D ORDER PASSED BY THE LD. CIT(A) BY DISMISSING THE APPEAL FILED BY THE ASSESSEE. 9 . IN THE RESULT, THE ASSESSEE S A PPEAL IS DISMISSED. ORDER PRONOUNCED IN THE O PEN C OURT ON 2 4 / 7 /20 1 5 . S D / - S D / - [ S.V. MEHROTRA ] [ H.S. SIDHU ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 2 4 / 7 /201 5 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES