The Asstt. Commissioner of Income Tax 3(1), Bhopal V. M/s. R.F. Network Pvt. Ltd., Bhopal

ITA 616/IND/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53956 (ITAT-INDORE)
• Duration Of Justice: 10 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 06-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJAY K CHHAJED
• Assessee Lawyers: ARUN DEWAN
• Keywords: Sale consideration of property below Jantri Value; Transfer pricing; International transaction
• Section: 92C; 92E; 10B; 10

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO.616/IND/2010 A.Y. 2007-08 ASSTT. COMMISSIONER OF INCOME TAX 3(1), BHOPAL ... APPELLANT VS M/S R.F. NETWORK PVT. LTD., PAN AABCR-7253G ... RESPONDENT APPELLANT BY : SHRI ARUN DEWAN DEPARTMENT BY : SHRI AJAY K. CHHAJED DATE OF HEARING : 18.10.2011 DATE OF PRONOUNCEMENT : 18.10.2011 O R D E R PER JOGINDER SINGH THIS IS AN APPEAL BY THE REVENUE CHALLENGING THE O RDER DATED 17.8.2010 OF THE LEARNED COMMISSIONER OF INCO ME TAX 2 (APPEALS) ON THE GROUND THAT ON THE FACTS AND IN TH E CIRCUMSTANCES OF THE CASE, THE LD. FIRST APPELLATE AUTHORITY ERRED IN DELETING THE ADDITION OF RS.58,90,684/- MADE ON ACCOUNT OF DISALLOWANCE OF EXEMPTION U/S 10B OF THE ACT AS THE ASSESSEE IS DOING JOB WORK ONLY. 2. DURING HEARING OF THIS APPEAL WE HAVE HEARD SHRI ARUN DEWAN, LEARNED SR. DR AND SHRI AJAY K. CHHAJED, LEA RNED COUNSEL FOR THE ASSESSEE. THE CRUX OF ARGUMENTS ON BEHALF OF THE REVENUE IS IN SUPPORT TO THE ASSESSMENT ORDER W HEREAS THE LEARNED COUNSEL FOR THE ASSESSEE DEFENDED THE IMPUG NED ORDER. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON FILE. THE FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY IS REGISTERED AS 100% EXPORT ORIEN TED UNIT, FILED ITS RETURN WITH AUDITED ACCOUNTS, REPORT U/S 92E RELATING TO INTERNATIONAL TRANSACTIONS IN FORM NO. 3CCB AND REP ORT U/S 10B OF THE ACT IN FORM NO. 56G BEFORE THE ASSESSING OFF ICER SHOWING INCOME AT RS. 8,81,899/- ON ACCOUNT OF INT EREST ON 3 FIXED DEPOSIT AND RS. 58,90,684/- CLAIMED EXEMPT U/ S 10B OF THE ACT. THE AUDIT REPORT WITH COMPLETED AUDITED A CCOUNTS, THE TAX AUDIT REPORT WITH PARTICULARS AND REPORT U/S 10 B FOR CLAIM OF DEDUCTION ALONG WITH THE REPORT U/S 92E ARE AVAILAB LE FROM PAGES 13 TO 27, 28 TO 41, 42 TO 44 AND 45 TO 51 RES PECTIVELY OF THE PAPER BOOK. THE CLAIM OF EXEMPTION U/S 10B OF T HE ACT WAS DENIED ON THE GROUND THAT THE ASSESSEE IS MERELY DO ING A JOB WORK. NOW THE QUESTION ARISES WHETHER THE JOB WORK DONE BY THE ASSESSEE COMES UNDER THE PURVIEW OF MANUFACTURI NG. BEFORE ADVERTING FURTHER WE ARE SUPPOSED TO UNDERST AND THE PROCESS OF MANUFACTURING ACTIVITIES CARRIED OUT BY THE ASSESSEE WHICH IS SUMMARISED AS UNDER :- A) HI TECH ELECTRONICS FILTERS (LD. CIT(A), CRYST AL & CERAMIC) AND RF ASSEMBLIES ARE MANUFACTURED. B) THEY ARE TUNED TO THE SPECIFIC REQUIREMENTS OF CLIENTS, TESTED TO THE STRINGENT SPECIFICATIONS & THEN FINALLY CHECKED & P ROPERLY PACKED & EXPORTED. C) FOLLOWING STEPS ARE TAKEN:- IN EACH CONSIGNMENT LOOSE DIFFERENT PARTS IN THE FO RM OF KITS ARE IMPORTED SUCH AS INSULATED WIRE :- THESE ARE LIKE DIFFERENT TYPE OF INSULATED WIRE AND ARE OF DIFFERENT COLOURS. TOROIDS :- THESE ARE OF DIFFERENT TYPE MADE OF CERA MIC & ARE OF MANY TYPE OF THICKNESS & IN DIAMETER . LEADED CAPACITORS & CHIP CAPACITORS :- THESE ARE OF MANY TYPES, SIZES AND OF DIFFERENT VALUE, STARTING FROM A CHIP CAPACITORS OF SIZE LMM X LMM TO BIG CERAMIC CAPACITORS OF DIFFERE NT SIZE & VALUE. RESISTANCES:- WHICH ARE OF DIFFERENT TYPES, VALUE & SIZE ( OHMS) . 4 CRYSTAL :- WHICH ARE ALSO OF DIFFERENT TYPES, SIZE & DIFFERENT FREQUENCIES. PRINTED CIRCUIT BOARD :- WHICH ARE ALS O OF DIFFERENT TYPES, SIZE ON WHICH DIFFERENT ITEMS ARE MOUNTED . CAN & COVERS :- WHICH ARE OF DIFFERENT TYPES, SIZES IN WH ICH THE COMPLETE ASSEMBLY IS PACKED. RTV :- WHICH IS A WHITE ADHESIVE TO FIX THE COILS. TRIMMERS :- WHICH ARE ALSO OF DIFFERENT TYPES, SIZE S AND ARE USED TO TUNE THE FILTERS OF DIFFERENT FREQUENCIES AS PER OUR CUS TOMER SPECIFICATIONS. ALSO INCLUDED ARE MANY TYPES OF SOLDER WIRE , BUS W IRE , SOLDER PASTE, GRD PINS AND MANY OTHER TOOLS USED IN MANUFACTURING. THESE ARE THE PARTS WHICH ARE SENT BY THE PARENT CO MPANY NETWORKS INTERNATIONAL CORP, KANSAS CITY, USA. 2.1 THESE ITEMS WERE PACKED IN A BOX BY AIR FREIGHT PAID BY NIC AT INDIRA GANDHI AIRPORT, NEW DELHI. THEY ARE OPENED, CHECKED, INSPECTED AND REPACKED & SEALED BY THE OFFICERS OF CUSTOMS DEPT, GOVT OF INDIA. THE SEALED BOX COMES TO R.F. NETWORK, BHOPAL , AND VERIFIED BY THE OFFICER OF CUSTOMS DEPT OF BHOPAL, WHERE THE WHOLE AREA IS A PRIVATE CUSTOM BONDED WAREHOUSE. 2.2 THEN THE BOX IS OPENED AND VERIFIED IN RESPECT OF THE CONTENTS IN THE BOX AS PER THE BILL OF ENTRY AND INVOICE , AND THEN IT IS KEPT IN THE WAREHOUSE FROM WHERE THEY ARE ISSUED FOR THE PRODUCTION . 2.3 ONCE THE RAW MATERIALS IN FORM OF LOOSE PARTS A RE RECEIVED THEN THE MANUFACTURING ACTIVITY STARTS. IT MAY BE NOTED THAT THE PARENT COMPANY NETWORKS INTERNATIONAL CORPORATION , 15237 BROADMOO R , OVERLAND PARK, KANSAS CITY 66233 , USA, MANUFACTURES HUNDRED / THO USANDS OF DIFFERENT TYPE OF FILTERS, OSCILLATORS, R.F.ASSEMBL IES ETC. A CATALOGUE OFNIC FOR YOUR KIND INFORMATION, PERUSAL & RECORD IS ENCLOSED. 2.4 MANUFACTURING PROCESS STARTS AFTER TAKING INSUL ATED WIRE OF REQUIRED GUAGE , COLOUR & TAKE TORRIODS OF DIFFERENT SIZES & DIAMETER & MAKE COILS. THIS COIL MADE GOES TO SOLDER POT, WHERE THE ENDS ARE TI NNED AS PER SPECIFICATIONS. 2.5 THIS TINNED COIL AND OTHER PARTS GO TO ASSEMBLY LINE, WHERE ON THE PC BOARD THESE COILS ARE SOLDERED. 2.6 THEN MANY OTHER PARTS ARE MOUNTED ( SOLDERED) O N THE PCB , LIKE TRIMMER, CRYSTAL RESISTANCE, CHIP & CERAMIC CAPACITORS ETC. 2.7 AFTER THE ASSEMBLY IT IS READY AND GOES TO RTV SECTION WHERE RTV INJECTION PROCESS IS DONE. 2.8. AFTER THIS THE FILTERS ARE PRE - TUNED TO TH E STRINGENT SPECIFICATIONS OF THE CUSTOMER ON A NETWORK ANALYZER. ASSEMBLY THEN IS PU T ON THE CAN & COVERED AND SEALED. THEN FILTERS ARE FINALLY TUNED. 2.9 THE WHOLE PROCESS HAS MANY CHECK POINTS WHERE TESTS ARE PERFORMED. WHEN COILS ARE MADE THEY ARE TO HAVE SPECIFIC NUMBE RS OF TURNS , THEY MAY HAVE ONE WIRE, TWO WIRES, THREE WIRES, THEY ARE TES TED THAT EXACT NO. OF TURNS & TYPE OF WIRE HAS BEEN USED & THEN THEY ARE TINNED TO SPECIFICATION . 5 2.10 ASSEMBLY IS TESTED BY-VISUALLY, UNDER MAGNIFYI NG LENS & VISION MICROSCOPE TO SEE THAT EACH PART IS SEPARATE, NOT TOUCHING TO EAC H OTHER & SOLDER IS PERFECT & THERE IS NO DRY SOLDER. 2.11 EACH BATCH IS PUT IN HOT OVEN AT + 92C TO 95 C THEN TO COLD CHAMBER AT 450C TO -55C. THIS HOT COLD CYCLE IS RE PEATED 5 TIMES FOR 1 HR EACH. 2.12 ALL FILTERS ARE PUT IN HOT WATER TEST WHERE IF THERE IS ANY LEAK IT CARRIES OUT & RE - SEALING IS DONE . 2.13 LASTLY, VISUAL CHECK FOR QUALITY & LOOK & POLI SHING IS DONE & THEN THEY ARE SPECIALLY LABELED & PACKED FOR EXPORT . (PAGE 52 TO 100) 3. ALL THESE MANUFACTURING PROCESS, TUNING & TESTING P ROCESS ARE GOVERNED BY THE DOCUMENTATION. FOR EACH ASSEMBLY BATCH THERE IS A ' TRAVELLER '. TRAVELLER MEANS A PAGE WHERE EACH PROCESS WHEN DONE IS CLEARLY WRITTEN BY DATE & TIME IS MENTIONED AND THEN WE EXPORT THE ITE M WITH ONE COPY OF TRAVELLER TO PROVE THAT ALL THE STEPS HAVE BEEN TAK EN. A COPY OF TRAVELLER IS ATTACHED. 3.1 FURTHER FOR EACH QUALITY CHECK THERE ARE SPEC IFIED STEPS WHICH ARE CLEARLY MENTIONED IN THE MANUFACTURER'S SHEETS. THEY HAVE T O BE FOLLOWED. ALL THE QUALITY TEST ARE CARRIED OUT TO THESE SPECIFICA TIONS. 3.2 ALSO R.F.NETWORK PVT LTD. HAS RECEIVED ISO CERT IFICATION ISO 9001: 2000 AND THEREFORE THE COMPANY HAS TO FOLLOW ALL THE STEPS AS PER ISO CERTIFICATE STANDARDS 4. IF THE ABOVE PROCESS IS ANALYSED, ONE FACT IS CL EARLY OOZING OUT THAT THERE IS A SYSTEMATIC ACTIVITY FOR PRODUCT ION OF GOODS. THE TRUE FOCUS IS FUNCTIONAL AND THE DECISIVE TEST IS THE NATURE OF ACTIVITY. WE ARE ALSO SUPPOSED TO SEE WH ETHER THE INCOME HAS BEEN DIRECTLY DERIVED FROM THE ACTIV ITY OF MANUFACTURING. THE DERIVATION OF INCOME SHOULD BE GENERATED FROM THE ACTIVITY. IF THE AFORESAID PROCESS IS FUR THER ANALYSED, 6 WE FIND THAT THE NET PRODUCED/MANUFACTURED ITEMS AR E DIFFERENT FROM THE ORIGINAL/RAW MATERIAL. THEREFORE, CLEARLY IT IS A MANUFACTURING ACTIVITY. THE DECISIONS FROM HON'BLE APEX COURT IN THE CASE OF INDIA CINE AGENCIES V. CIT (2008) 17 5 TAXMAN 361, THOUGH FOR THE PURPOSES OF SECTION 80I, AND TH E DECISION OF HON'BLE KARNATAKA HIGH COURT IN CIT V. DARSHAK LIMI TED; 247 ITR 489, CIT V. JAMAL PHOTO INDUSTRIES (2006) 203 C TR 256 (MAD) CLEARLY SUPPORT OUR VIEW. SO FAR AS THE CONT ENTION OF THE LEARNED DR THAT THE ASSESSEE IS MERELY DOING JOB WO RK AND EXEMPTION U/S 10B IS CONCERNED, WE FIND THAT THE LA NGUAGE USED IN SECTION 10B PROVIDES FOR EXEMPTION WITH RES PECT TO ANY PROFIT AND GAINS DERIVED BY THE ASSESSEE AND THE S AME IS NOT CONFINED TO PROFIT AND GAINS OF BUSINESS OR PROFESS ION. THE MAIN EMPHASIS IS ON PROFIT AND GAINS WHICH ARE DERI VED BY A 100% EXPORT ORIENTED UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARES FOR TEN CONSECUTIVE AS SESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT T O THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MA NUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE 7 MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF T HE ASSESSEE. SUB-CLAUSE (III) TO EXPLANATION REGARDING MANUFACTU RING INCLUDES (A) PROCESS OR (B) ASSEMBLING OR (C) RECOR DING OF PROGRAMMES ON ANY DISC, TAP, PERFORATED MEDIA OR OT HER INFORMATION STORAGE DEVICE. IN VIEW OF THESE, WE F IND NO INFIRMITY IN THE STAND OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND CONFIRM THE SAME. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED. ORDER WAS PRONOUNCED IN THE OPEN IN THE PRESENCE O F LEARNED REPRESENTATIVES FROM BOTH THE SIDES AT THE CONCLUSION OF THE HEARING. SD SD (R.C.SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 18.10.2011 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, GU ARD FILE DN/- 8