ACIT, New Delhi V. M/s. Auto Ignition Ltd., New Delhi

ITA 6349/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91088 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 22-04-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 24-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R R KUMAR
• Assessee Lawyers: S S H ANIL MALHOTRA; L K SHARMA
• Keywords: Depreciation; Reason to believe
• Section: 143(3); 133A; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : A : NEW DELHI BEFORE SHRI N.K. SAINI , ACCOUNTANT MEMBER AND SHRI A.T. VARKEY , JUDICIAL MEMBER ITA NO S . 6349 TO 6351 /DEL/201 2 & 4732/DEL/2011 ASSESSMENT YEAR S : 2006 - 07 , 2007 - 08, 2009 - 10 & 2008 - 09 DEPUTY COMMISSIONER OF VS. M/S AUTO IGNITION LTD. INCOME TAX, CIRCLE 2(1), THE BAHAR, DERA MANDI ROAD, NEW DELHI NEW DELHI (PAN: AAACA5390E) (APPELLANT) (RESPONDENT) APPELLANT BY : SH. B.R.R. KUMAR, SR. DR RESPONDENT BY : S /S H. ANIL MALHOTRA, CA & L.K. SHARMA, ADV. DATE OF HEARING: 22.04.2015 DATE OF PRONOUNCEMENT: 29 .05.2015 ORDER PER A.T. VARKEY , J .M. : 1. THESE ARE THE APP EALS FILED BY THE REVENUE FOR THE ASSESSMENT YEARS 2006 - 07, 2007 - 08, 2009 - 10 AND 2008 - 09. C OMMON GROUNDS OF APPEAL HAVE BEEN RAISED IN THE APPEALS FILED FOR ASSESSMENT YEARS 2006 - 07, 2007 - 08, 2009 - 10 ARE AS FOLLOWS: I. THE LEARNED CIT(A) HAS ERRED ON FACTS AN D IN LAW IN DELETING THE DISALLOWANCE OF DEDUCTION U/S 80IC AMOUNTING TO RS. 2,97,67,086/ - IGNORING THE FACTS THAT IN THE LATEST DECISION OF THE DELHI HIGH COURT, CIT VS. BATRA BHATTA CO. (2008) 174 TAXMAN 444(DEL) IT HAS BEEN OBSERVED THAT IF THERE IS SOM E MATERIAL ON THE BASIS OF WHICH THE A.O. HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT, IT IS SUFFICIENT TO INVOKE THE PROVISION OF SECTION 147/148 OF THE I.T. ACT. II. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 2 2. GROUNDS OF APPEAL RAISED IN ITA NO. 4732/DEL/2011 ARE AS FOLLOWS: 1. THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS AND CONTRARY TO FACTS & LAW. 2. (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(APPEALS) HAS ERRED IN DIRECTING THE A.O. TO ALLOW DEDUCTION U/S 80IC OF THE I.T. ACT TO THE TUNE OF RS. 4,56 , 03 , 108/ - . (II) THE LD. CIT(A) IGNORED THE FACT THAT THE DISALLOWANCE U/S 80IC OF THE I.T. ACT WAS MADE BY THE A.O. ON THE BASIS OF MATERIAL AND FACTS GATHERED DURING THE SURVEY U/S 133A OF THE I.T. ACT AT THE BUSINESS PREMISES OF THE ASSESSEE AT FARIDABAD AND RUDARPUR. 3. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, OR AMEND ANY GROUN DS OF APPEAL RAISED ABOVE AT THE TIME OF THE HEARIN G . ITA NO . 4732/DEL/2011 FOR A.Y. 2008 - 09 : 3. BOTH SIDES AGREE THAT THE APPEAL OF THE REVENUE FOR AY 2008 - 09 IS ADJUDICATED FIRST; THEREFORE WE ARE ADJUDICATING FIRST THE REVENUE S APPEAL FOR AY 2008 - 09 . 4. GROUND NOS. 1 & 3 ARE GENERAL IN NATURE, SO IT IS NOT ADJUDICATED. 5 . GROUND NO. 2 IS REGARDING THE FIN DING OF THE CIT(A) THAT THE RUD R A PUR UNIT AT PANTNAGAR OF THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE INCOME - TAX ACT, 1961 (FOR SHORT THE ACT ) WITHOUT TAKING INTO CONSIDERATION THE MATERIAL GATHERED DURING SURVEY UNDER SECTION 133A OF THE ACT. 6 . BRIEF FACTS OF THE CASE , AS NOTED BY THE AO, ARE THAT THE ASSESSEE COMPANY WAS INCORPORATED IN 1971 AND IS ENGAGED IN MANUFACTU RING OF AUTO ELECTRICAL PARTS VIZ. STARTER MOTOR, ALTERNATOR, DYNAMOS, SALENOID SWITCHES AND OTHER AUTO ELECTRICAL PARTS AND HAVING ITS WORKS IN FARIDABAD. THE ASSESSEE COMPANY SUPPLIES GOODS IN DOMESTIC AS WELL AS IN EXPORT MARKET. THE MAIN CUSTOMERS IN D OMESTIC MARKET ARE TATA MOTORS, 3 KIRLOSKAR OIL ENGINES LTD., MAHINDRA & MAHINDRA LTD., TAFE, HMT, EICHER, ESCORTS ETC. DURING THE YEAR, THE NET PROFIT RATE HAS BEEN DECLARED AT 8.54% AGAINST THE TOTAL TURNOVER OF RS. 19.79 CRORES IN COMPARISON TO THE NET PR OFIT RATE OF 5.16% AGAINST THE TOTAL TURNOVER OF RS. 20.45 CRORES IN THE IMMEDIATELY PRECEDING PREVIOUS YEAR. A SURVEY WAS CONDUCTED IN THE BUSINESS PREMISES OF ASSESSEE COMPANY AT PLOT NO.1, 19/6, MATHURA RD., FARIDABAD ON 15.02.2010 BY ACIT, CIRCLE - 1, FA RIDABAD. IT WAS OBSERVED BY THE ACIT THAT DURING THE COURSE OF SURVEY OPERATION THAT FINISHED GOODS WERE TRANSFERRED TO ASSESSEE COMPANY S ANOTHER UNIT AT PLOT NO. 17 & 18, SEC. 6, IIE, PANTNAGAR, RUDRAPUR (DISTT. UDAM S INGH NAGAR) FOR WHICH ASSESSEE WA S C LAIMING DEDUCTION U/S 80IC OF THE ACT. ON THIS INFORMATION, ANOTHER SURVEY WAS ALSO CONDUCTED BY DDIT(INV.), HALDWANI ON 16.02.2010 IN THE PREMISES OF PANTNAGAR UNIT OF ASSESSEE COMPANY AND THIS SURVEY ALSO CONFIRMED THAT NO MANUFACTURING ACTIVITY WAS CARR IED OUT BY THE ASSESSEE COMPANY AT PANTNAGAR. THE REPORT OF THE SURVEY TEAM DATED 15.03.2010 IS REPRODUCED AS UNDER: '3. DURING SURVEY OPERATION IT CAME TO THE NOTICE THAT THE ASSESSEE COMPANY IS HAVING ANOTHER UNIT AT PLOT NO. 1 7 AND 18, SECTOR - 6, LIE, P ANTNAGAR, RUDRAPUR (DISTT. UDAMSINGH NAGAR) FOR WHICH CLAIMING DEDUCTION U/S 801C OF THE INCOME TAX ACT. IT WAS ALSO NOTICED THAT THE ASSESSEE COMPANY IS SUPPLYING FINISHED GOODS FROM FARIDABAD UNIT TO ITS RUDRAPUR UNIT. ACCORDINGLY, JOINT COMMISSIONER OF INCOME TAX, HALDWANI VIDE LETTER DATED 16.02.2010 WAS REQUESTED TO CONDUCT CONSEQUENTIAL SURVEY ON THIS UNIT. THE JOINT COMMISSIONER OF INCOME TAX, HALDWANI HAS GIVEN AUTHORIZATION TO SH. A.K. PANDEY, DY. DIRECTOR OF INCOME TAX, HALDWANI. SH. A.K. PANDEY, DY. DIRECTOR OF INCOME TAX. HALDWANI HAS SENT HIS REPORT DATED 175.02.2010 WHICH RECEIVED IN THE OFFICE OF UNDERSIGNED ON 025.03.2010. UPON PERUSAL OF REPORT, THE FOLLOWING POINTS EMERGE: 4 I) PRODUCTION IN THE UNIT WAS STARTED AT 22.07.2005. II) MACHINE RY INSTALLED AT THE PREMISES WAS PURCHASED BY FARIDABAD UNIT AND THE SAME WAS TRANSFERRED TO THE PREMISES IN THE SHAPE OF EITHER STOCK TRANSFER OR ASSET SALE AND ALL THE PAYMENTS WERE ALSO MADE FROM FARIDABAD UNIT. III) THE MAIN SUPPLY TO THIS UNIT IS FROM FARIDABAD UNIT AND THE RUDARPUR UNIT IS ENGAGED IN ASSEMBLING OF PARTS WHICH ARE BEING MANUFACTURED AT FARIDABAD UNIT. IV) AT THE TIME OF SURVEY AT RUDARPUR UNIT LESS THAN 20 PERSONS WERE PRESENT AND MOST OF THE PERSO NS AVAILABLE WERE NOT SKILLED PERSONS ..... ' 7 . FURTHER THE RELEVANT FINDINGS AS GIVEN IN PARAS 2, 3 & 4 OF SURVEY REPORT DATED 17/02/2010 SUBMITTED BY DY. DIRECTOR OF INCOME TAX (INV.), HALDWANI FOR THE SURVEY CONDUCTED BY HIM ON 16/02/2010 AT THE PAN TNAGAR UNIT OF ASSESSEE ARE REPRODUCED BELOW: '2. IN THIS CONNECTION, I ENTERED IN THE SAID PREMISE AT 12.30 PM ON 16.02.2010 ALONGWITH FOLLOWING OFFICERS/OFFICIALS: I) SH. A.K.RAWAT, ACIT, HALDWANI II) M.M.K.ABBASS, ITI, RUDRAPUR III) SH. PANKA J KHATRI, ITI, HALDWANI IV) SH RITESH, ITL, HALDWANI V) SH. SAURABH PRASHANT, ITI(LNV.), HALDWANI VI) SH. ANOOP BALONI ITI(LNV.), HALDWANI 1. AT THE BUSINESS PREMISE, SH. AJAY CHAUHAN, S/O SH. CHATAR SINGH WAS AVAILABLE, WHO WAS WORKING IN THE CAPACITY OF PLANT INCHARGE. STATEMENT ON OATH OF SH. AJAY CHAUHAN WAS RECORDED AND STOCK OF FINISHED PRODUCTS, SO CALLED RAW MATERIAL AND CASH FOUND AT RS 10,500/ - WAS INVENTORISED. DOCUMENTS RELATED TO PLANT & MACHINERY WERE ALSO OBTAINED. AS PER STATEMENT ON OATH, THIS CONCERN STARTED PRODUCTION SINCE 22.07.2005 AND IS ENGAGED IN MANUFACTURING OF STARTER MOTORS AND ALTERNATORS. THE CONCERN IS ASSESSED TO TAX AT FARIDABAD VIDE PAN: AAACA5390E. FURTHER, THE PREMISE HAS ELECTRIC CONNECTION OF 92KW, INSTALLED IN MAY,06 AND BEFORE THIS CONNECTION, THE CONCERN WAS WORKING BY USING GENERATORS. REGARDING PURCHASE OF PLANT & MACHINERY, IT WAS STATED THAT ALL THE M ACHINERY WAS PURCHASED AT FARIDABAD AND THE SAME WAS TRANSFERRED TO THIS PREMISE IN THE SHAPE OF EITHER STOCK TRANSFER OR ASSET SALE AND ALL THE PAYMENTS WERE ALSO MADE FROM FARIDABAD UNIT ONLY. HOWEVER, HE COULD NOT GIVE ANY SATISFACTORY REPLY REGARDING P RIOR USE OF THIS MACHINERY AT FARIDABAD UNIT, WHICH SEEMS TO BE ENGAGED IN 5 MANUFACTURING THE SIMILAR PRODUCTS OR WHETHER THE MACHINERIES PURCHASED WERE NEW OR SECOND HAND/USED, ONES. OUT OF RAW MATERIAL USED FOR THE SO CALLED MANUFACTURING, ONLY TWO PARTS ARE MADE IN THIS PREMISE AND ALL THE OTHER PARTS ARE TRANSFERRED FROM FARIDABAD. THE SAID RAW MATERIAL IS NOTHING BUT VARIOUS PARTS MANUFACTURED - EITHER AT FARIDABAD UNIT OF THIS GROUP OR AT SOME OTHER PLACE. THIS PREMISE IS ONLY ENGAGED IN ASSEMBLING OF T HESE PARTS, WHICH CAN BE EASILY ASSEMBLED WITHOUT HAVING ANY TECHNICAL OR ANY OTHER EXPERTISE. THE TWO PARTS WHICH ARE CLAIMED TO BE MANUFACTURED AT THIS PREMISE ARE ALSO ASSEMBLING OF TWO OR THREE PARTS NOT REQUIRING ANY PARTICULAR SKILL. AS PER STATEMENT , THERE ARE APPROXIMATELY 55 PERSONS WORKING AT THIS PREMISE. HOWEVER, AT THE TIME MORE THAN 20 PERSONS WERE PRESENT AND OUT OF THEM, NO PERSON WAS HAVING ANY SPECIALISATION FOR THE CLAIMED MANUFACTURING. IN FACT, THE SO CALLED MANUFACTURING IS NOTHING BUT TO ADD VARIOUS PARTS ALL COMING FROM FARIDABAD. 3. FROM THE ABOVE NARRATED FACTS, IT CAN BE CLEARLY CONCLUDED THAT THIS PREMISE IS ENGAGED IN ASSEMBLING OF VERY BASIC IN NATURE AND IS NOT INVOLVED IN ANY MANUFACTURING ACTIVITY IN ANY REMOTE SENSE. THIS ASPECT ALSO GETS SUPPORT FROM THE P/L A/C EX RETRACTED FROM THE COMPUTER RELEVANT FOR A PERIOD 01.04.09 TO 16.02.2010, IN WHICH TRADING A/C TALLIES AT RS. 36,73,25,089.73. HOWEVER, THE PURCHASE A/C DECLARED AS PER THIS TRADING A/C, THERE ARE NO MANUFACTUR ING EXPENSES. THE PURCHASE A/C TALLIES AT RS.23,80,42,515/ - , OUT OF WHICH EXPENSE ON JOB WORK IS DECLARED AT RS. 62,14,786.80 AND ALL OTHER EXPENSES CLAIMED ARE RELATED TO EITHER PURCHASE OR CST OR EXCISE DUTY ONLY. THERE IS NO OTHER MANUFACTURING EXPENSE , WITHOUT WHICH IT IS IMPOSSIBLE TO MANUFACTURE ANYTHING. SUCH HUGE TURNOVER FROM MANUFACTURING WITH ELECTRIC CONNECTION OF 92KW ONLY AND WITHOUT HAVING SKILLED OR TECHNICAL PERSONS SEEMS TO BE NEXT TO IMPOSSIBLE. THE TRADING A/C CLEARLY SPEAKS THAT STOCK IS BEING TRANSFERRED TO THIS PREMISE, MANUFACTURED AT FARIDABAD UNIT OR SOMEWHERE ELSE AND THE SAME IS BEING SOLD/CLAIMED TO BE SOLD FROM THIS PREMISE. 4. FROM THE FEW MACHINE INSTALLED, IT CANNOT BE SURELY THAT THESE WERE NEW MACHINES WHEN INSTALLED OR WERE ALREADY USED AT FARIDABAD UNIT OR AT SOME OTHER UNIT. HOWEVER, FROM THE MODUS OPERANDI OF PURCHASING THE MACHINES AND BILLING MADE FOR THE SAME, IT CAN BE CONCLUDED THAT ALL THE MACHINES ARE PURCHASED BY FARIDABAD UNIT AND PAYMENTS ARE ALSO EITHER AS STOCK TRANSFER OR AS SALE OF ASSETS THIS FACT STRONGLY SUPPORT THAT THE WHATEVER MACHINES INSTALLED AT THIS PREMISE ARE EITHER USED BY THE FARIDABAD UNIT BEFORE TRANSFERRING THE SAME OR THE FARIDABAD UNIT TRANSFERRED ITS OWN OLD AND USED MACHINES TO THIS P REMISE TO CLAIM DEDUCTION U/S 80IC OF THE I.T. ACT, 1961, FOR WHICH, THIS PREMISE IS NOT ELIGIBLE, AS THERE IS NO SUCH ACTIVITY AT THIS PREMISE, WHICH CAN BE SAID AS MANUFACTURING IN ANY REMOTE SENSE. ' 6 8 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE COMPANY WAS ASKED TO EXPLAIN WHY DEDUCTION U/S 801C SHOULD BE ALLOWED. THE QUESTION RAISED BY THE ASSESSING OFFICER AND THE ANSWER OF THE ASSESSEE IS AS UNDER: 'DURING THE COURSE OF LAST HEARING, YO UR HONOUR HAD CALLED FOR CERTAIN INFORMATION / DETAILS WHICH, WE UNDER THE INSTRUCTIONS FROM THE ABOVE REFERRED ASSESSEE COMPANY SUBMIT AS UNDER IN CHRONOLOGICAL ORDER OF YOUR QUERIES: 1) WHETHER MACHINES INSTALLED AT RUDRAPUR PLANT ARE NEW MACHINES AND ARE NOT SPLIT OF FARIDABAD UNIT OR RECONSTRUCTION. RUDRAPUR UNIT WAS SET UP WITH INSTALLATION OF FRESH MACHINERY BOUGHT FROM VARIOUS SUPPLIERS. THESE ARE FRESH MACHINES AND THE WORD SPLIT OR RECONSTRUCTION CANNOT BE ATTACHED TO IT. IT IS PERTINENT TO MEN TION THAT BEFORE A MANUFACTURING UNIT COMES INTO BEING THE FOLLOWING FORMALITIES HAVE TO BE UNDERGONE: I) PERMISSION FROM MINISTRY OF INDUSTRY (SIA) - THE APPROVAL WAS OBTAINED FROM MINISTRY OF COMMERCE (SIA) VIDE LETTER DATED 25.04.2005. COPY ATTACHED A ND MARKED AS ANNEXURE - 5 AT PAGE NO.40. II) ACQUISITION OF LAND - THE LAND WAS LEASED BY SIDCUL INDUSTRIAL AREA, HE PANTNAGAR ON DATED 25.11.2004. THE FACTORY BUILDING WAS CONSTRUCTED AND COMPLETED ON 28.07.2005. THE DETAILS OF THE COMPLETE EXPENDITURES O N BUILDING IS STATED AT PAGE NO.41 TO 42. III) THE PLANT AND MACHINERY WAS INSTALLED ALONGWITH POWER CONNECTION BY STATE ELECTRICITY BOARD. IV) THE EXCISE DEPTT. WAS INTIMATED VIDE LETTER DATED 15.07.2005, DULY RECEIPTED BY EXCISE DEPTT. ON 25.07. 2005 AND MARKED AS ANNEXURE - 6 AT PAGE NO.81. THE EXCISE DEPTT. MADE A VISIT TO THE UNIT TO CHECK THE MANUFACTURING FACILITIES, WITH NO ADVERSE COMMENTS. THE ASSESSEE HAS BEEN REGULARLY FILING ITS RETURNS ON MONTH TO MONTH BASIS TO EXCISE DEPTT. FURNISHING TH E DETAILS OF THE PRODUCTION OF THE UNIT. COPIES OF THE RETURNS FOR THE MONTH OF JANUARY, 2010 AND FEBRUARY, 2010 ARE ENCLOSED AND MARKED AS ANNEXURE - 7 AT PAGE NOS. 82 TO 90. V) ALL NECESSARY REGISTRATIONS SUCH AS DIC REGISTRATION, SALES TAX REGISTRATION, REGISTRATION UNDER FACTORY ACT, NOC FROM POLLUTION CONTROL BOARD ETC. HAVE BEEN OBTAINED BY THE RUDRAPUR UNIT AND COPIES ARE ANNEXED AND MARKED AS ANNEXURE - 8 (COLLY.) AT PAGE NOS. 91 TO 99. AS A MATTER OF FACT, THIS PLANT WAS PUT UP AT THE INSTANCE OF OE CUSTOMER MAHINDRA AND MAHINDRA(M&M) BECAUSE M&M HAD PUT UP ITS PLANT AT RUDRAPUR, TO MEET THE LOGISTICS FOR SUPPLY OF PRODUCTS LIKE STARTER MOTOR AND ALTERNATORS. 7 AS ON DATE THE UNIT'S MAIN SUPPLIES ARE TO M&M AND IS ALSO SUPPLYING ITS PRODUCTS TO TAFE, E ICHER, PTL, INTERNATIONAL TRACTORS, INDO FARM TRACTORS ETC AND OTHERS. FROM THE ABOVE IT IS APPARENT THAT THE RUDRAPUR UNIT AGAINST WHICH DEDUCTION U/S 80(1 )(C) ARE BEING TAKEN, IS A MANUFACTURING UNIT QUALIFYING THE ELIGIBILITY SUCH AS : A) THAT THE PL ANT & MACHINERY INSTALLED AT UNIT IS NEW AND NO PART OF THE SAME IS OUT OF SPLIT OR RECONSTRUCTION OF ANY EXISTING UNIT, IN OTHER WORDS IT DOES NOT CONTAIN SECOND HAND MACHINES OR MACHINES EVER USED BEFORE. B) THE UNIT SHOULD BE IN THE BACKWARD AREA - RUD RAPUR IS A BACKWARD AREA. C) IT SHOULD BE INDEPENDENT: THE UNIT MAINTAINS INDEPENDENT BOOKS OF ACCOUNT, SEPARATE ANNUAL ACCOUNTS ARE PREPARED, THE ANNUAL ACCOUNTS ARE SEPARATELY AUDITED BY AN INDEPENDENT AUDITOR WHO HAS FURNISHED REPORTS ON FORM 10CCCB WHICH WE HAVE ALREADY FURNISHED. THE DEDUCTION U/S 80(1) IS BEING CLAIMED FROM AY 2006 - 07 AND ALL THE ASSESSMENTS HAVE BEEN PASSED U/S 143(3) WITHOUT ANY ADVERSE COMMENTS. 2) YOUR HONOUR HAS STATED THAT AT THE TIME OF VISIT OF THE SURVEY TEAM ON 16.02.2010 ONLY 20 EMPLOYEES WERE PRESENT AGAINST 55 NOS STATED BY THE FACTORY INCHARGE. IN THIS CONNECTION WE WISH TO DRAW YOUR KIND ATTENTION TO THE QUESTION NO.7 OF THE STATEMENT OF MR. CHAUHAN WHICH READS AS UNDER: 'QUESTION NO. 7 - HOW MANY OFFICERS/EMPLOYEES THIS UNIT HAS? ANSWER BY MR. CHAUHAN - APPROX. 55 NOS . ARE WORKING AND THIS NUMBER CAN INCREASE/DECREASE DEPENDING ON THE NEED. ' IN SUPPORT WE ARE SUBMITTING THE NECESSARY DETAILS OF THE TOTAL NUMBER OF EMPLOYEES OF THE UNIT ON 16.02.2010 AS UNDER: EMPLOYEES AT RADRAPUR: NOS. A) ON COMPANY S PAY ROLL 6 B) BY CONTRACTOR M/S SONU SECURITY SERVICES 23 C) BY CONTRACTOR M/S PIVOT MULTIFAR INDUSTRIAL SERVICES 8 D) BY CONTRACTOR M/S SOLDIER SECURITY & PLACEMENT SERVICES 18 TOTAL 55 THE COPIES OF ATTENDANCE REGISTER, SALARY SHEET, CONTRACTORS BILL & CHALLANS FOR PROVIDENT FUND AND ESI FOR THE MONTH OF FEBRUARY, 2010 ARE ENCLOSED AND MARKED AS ANNEXURE - 9 (PAGE FROM 100 TO 124) THE STATUS OF THE STRENGTH OF THE EMPLOYEES IN THE MONTH OF OCTOBER 2010 WAS 63 NOS. WITH FOLLOWING DETAILS: NOS. 8 A) ON COMPANY PAY ROLL 7 B) BY CONTRACTOR M/S 39 C) CONTRACTOR M/S SOLDIER SECURITY & PLACEMENT SERVICES 17 TOTAL 63 COPIES OF ATTENDANCE REQISIER, SALARY SHEET, CONTRACTORS BII/ & CHALLANS FOR PROVIDENT FUND AND ESI FOR THE MONTH OF OCTOBER, 2010 ARE ENCLOSED AND MARKED AS ANNEXURE - 10 (PAGE FROM 125 TO 143). IN VIEW OF THE ABOVE IT IS SUBMITTED THAT THE ACTUAL NUMBERS OF EMPLOYEES WERE 55 ON 16.02.2010 AND NOT 20 AS REPORTED BY SU RVEY BECAUSE THE INCHARGE MR. CHAUHAN NEVER STATED IN HIS STATEMENT THAT THE NUMBER OF EMPLOYEES PRESENT WERE 20. 3) SIR, YOU HAVE QUERIED AS TO WHY NO MANUFACTURING EXPENSES WERE INCURRED BY THE UNIT FROM 01.04.2009 TO 16.02.2010. IT IS HUMBLY SUBMITTED THAT THE MANUFACTURING EXPENSES ITSELF, IS NOT A SEPARATE HEAD OF ACCOUNT BUT UNDER THIS HEAD SO MANY SUBHEADS ARE HOUSED LIKE: A) WAGES B) ELECTRICITY EXPENSES C) FUEL A) FREIGHT INWARD C) CONSUMABLE STORES D) REPAIR & MAINTE NANCE E) SECURITY EXPENSES ETC. THE AUDITED ACCOUNTS FOR THE YEAR ENDING 31 S' MARCH 2010 OF THE UNIT ARE ENCLOSED AND MARKED AS ANNEXURE - 14. THEREFORE, THE CONTENTION THAT NO MANUFACTURING EXPENSES WERE INCURRED DURING 1.4.2009 TO 16.02.2010 IS UNFOUND ED AND UNTRUE. 4. YOUR HONOUR HAS STATED THAT A POWER LOAD OF 92 KVA WAS GRANTED TO THE UNIT AND HOW MANUFACTURING IS POSSIBLE WITH SUCH A LOW LOAD? THOUGH UNIT INITIALLY STARTED WITH 92 KVA BUT THE SAME WAS ENHANCED TO 220 KVA, MOREOVER, THE UNIT HAS TWO (2) STANDBY GENERATORS TO HAVE UNINTERRUPTED POWER FOR PRODUCTION. SIR, IT IS PERTINENT TO UNDERSTAND THAT THE USAGE OF ELECTRICITY DEPENDS ON THE TECHNOLOGY AND PROCESS USED. TO SUPPORT THE ABOVE THE CONNECTING LOAD OF ALL THE MACHINES IS ENCLOSED AS P ER ANNEXURE - 12 (PAGES 151 TO 157) 5. YOUR HONOUR HAS DESIRED THE COMPLETE PRODUCTION PROCESS DETAILS ALONGWITH THE ITEMS BEING MANUFACTURED AT RUDRAPUR UNIT. AT THIS UNIT, THE ASSESSEE COMPANY IS MANUFACTURING PRODUCTS VIZ, STARTER MOTORS AND ALTERNATO RS SUPPLIED TO TRACTORS OF M&M, TAFE, EICHER, INTERNATIONAL TRACTORS LTD. ETC. THE PROCESS FLOW CHART ALONG WITH BILLS OF MATERIALS IS STATED AT ANNEXURE - 11 (PAGE NO.144 TO 150) IT IS SUBMITTED THAT TO DECLARE THE FACILITY OF THE COMPANY AT RUDRAPUR AS NO N MANUFACTURING ACTIVITY WOULD BE AN ASSESSMENT NOT FOUNDED ON FACTS, ARBITRARY AND IS UNLAWFUL AND AGAINST THE CANNONS OF JUSTICE. 9 THE WORD 'MANUFACTURE' IS NOW BEING DEFINED BY INSERTION OF SECTION 2(29BA) OF THE INCOME TAX ACT 1961 WHEREIN THE MANUFACT URE MEANS - A CHANGE IN NON - LIVING PHYSICAL OBJECT OR ARTICLE OR THINGS - 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 INT O EXISTENCE OF A NEW AND DISTINCT OBJECT OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSITION OR INTEGRAL STRUCTURE. FROM THE ABOVE WE FAIL TO UNDERSTAND AS TO HOW THE ACTIVITIES OF THE ASSESSING COMPANY'S INDEPENDENT UNIT AT RUDRAPUR BE DECLARED AS NON MANUFACTURING UNIT VIS - A - VIS DENIAL OF DEDUCTION U/S 80(1) WHEN IT IS A FULLY FUNCTIONAL MANUFACTURING ACTIVITY WITH HUGE INFRASTRUCTURE RUNNING INTO CRORES OF INVESTMENT, DULY VALIDATED BY EXCISE DEPARTMENT THE AUTHORITY TO VET PRESENCE OF MANUFACTU RING ACTIVITIES, INDEPENDENT AUDITOR'S CERTIFICATION, OE MAHINDRA & MAHINDRA VISITS FROM TIME TO TIME FOR QUALITY AUDIT ON THE PROCESSES OF PRODUCTION FOR SUPPLY OF PRODUCTS TO THEM, ENVIRONMENT NO POLLUTION CLEARANCE, TIME TO TIME SIDCUL VISITS/INSPECTION S, ISO 9001:2008 CERTIFICATION BY BRITISH STANDARDS INSTITUTION AFTER VALIDATION OF THE PROCESSES. WE ARE CONFIDENT THAT ABOVE WOULD SUFFICE YOUR REQUIREMENTS AND YOUR HONOR WOULD BE KIND IN ACCEPTING OUR SUBMISSIONS IN SUPPORT OF THE MANUFACTURING ACTIVI TIES PURSUED BY THE RUDRAPUR UNIT AND OBLIGE. ' 9 . AFTER CONSIDERATION OF THE REPLY OF THE ASSESSEE COMPANY, THE ASSESSING OFFICER CONCURRED WITH THE FINDINGS OF THE SURVEY REPORT AND CONCLUDED THAT NO MANUFACTURING ACTIVITY WAS CARRIED ON AT PANTNAGAR AND HENCE DISALLOWED THE DEDUCTION U/S 80IC CLAI MED BY THE ASSESSEE AND MADE AN ADDITION OF R S. 4,56,03,108/ - 10 . AGGRIEVED BY THE AFORESAID DISALLOWANCE OF THE DEDUCTION CLAIMED U/S 80IC OF THE ACT, THE ASSESSEE COMPANY PREFERRED AN APPEAL BEFORE THE LEA RNED CIT(A) WHO WAS PLEASED TO FIND THAT THE ASSESSEE COMPANY IS ENTITLED TO DEDUCTION UNDER SECTION 80IC OF THE ACT AND ALLOWED THE CLAIM OF THE ASSESSEE. 10 11 . NOW, REVENUE IS BEFORE US ASSAILING THE IMPUGNED ORDER OF THE LEARNED CIT(A). 12 . THE LEARNED DR CONTENDED THAT THE UNIT AT PANTNAGAR, RUDRAPUR DID NOT MANUFACTUR E ANYTHING AND WHEN SURVEY WAS CONDUCTED AT THE UNIT, THERE WERE ONLY 20 WORKERS AND THAT TOO THEY WERE NOT SKILLED WORKERS. THE UNIT HAD ONLY ELECTRIC CONNECTION OF 92 KW AND TRADING ACCO UNT CLEARLY SPEAKS THAT STOCK WAS BEING TRANSFERRED TO THE SAID UNIT WHICH ARE MANUFACTURED AT FARIDABAD OR SOMEWHERE ELSE AND THE SAME IS SOLD FROM THIS UNIT PREMISES ONLY. SO ACCORDING TO THE LEARNED DR , IT IS CLEAR THAT WHILE THE ASSESSEE HAS COMPLETED ALL NECESSARY PAPER WORK FOR PANTNAGAR UNIT TO SHOW MANUFACTURING ACTIVITY AT GROUND LEVEL, ASSESSEE WAS NOT CARRYING OUT ANY MANUFACTURING ACTIVITY AT PANTNAGAR UNIT TO PR ODUCE ANY ARTICLE OR THING WITHIN THE MEANING OF SECTION 80 - I C OF THE ACT. ACCORD ING TO HIM, THE AO IS RIGHT IN OBSERVING THAT I N FACT, ASSESSEE IS SUP PLYING FINISHED GOODS FROM IT'S FARIDABAD UNIT AND MADE A SPECIFIC DESIGN BY CREATING PAPER & OTHER EVIDENCES TO SHOW THAT THE GOODS ARE BEING P RODUCED AT PANTNAGAR UNIT WITH THE SOLE MO TIVE TO CLAIM DEDUCTION U/S 80 IC OF THE ACT . ACCORDING TO LEARNED DR, I T IS SETTLED LAW THAT THE PAPER EVIDENCES CAN NOT PREVAIL OVER THE ACTUAL EVIDENCES COLLECTED FROM THE PHYSICAL VERIFICATION OF THE PLACE FOR WHICH THE PAPER EVIDENCES ARE REFERRING TO. IN THIS CASE, ACCORDING TO HIM, ALL FACTS INCLUDING TRANSFER OF FINI SHED GOODS FROM, FARIDABAD UNIT, NO PROPER M ANPOWER/UNSKILLED MANPOWER AND ELECTRICIT Y LOAD AT PANTNAGAR UNIT, BOOKS OF ACCOUNTS, PHYSICAL VERIFICATION AT PANTNAQAR UNIT AND 11 FARIDABAD UN I T BY TWO INDEPENDENT SURVEY TEAMS HAS ESTABLISHED BEYOND DOUBT THAT ASSESSEE IS ACTUALLY NOT MA NUFACTURING ANY ARTICLE OR THIN G AT PANTNAGAR UNIT WITH IN THE MEANING OF SECTION 80 - IC OF THE ACT. HENCE, THE ASSESSING OFFICER REJECTED THE CONTENTIONS OF THE A SSESSEE AND DISALLOWED THE DEDUCTION U/S 80 - IC OF THE ACT AT RS . 4 ,56,03,1 08/ - AND THEREFORE HE PRAYS THAT THE ORDER OF THE LD. CIT(A) BE REVERSED AND THE ORDER OF THE AO RESTORED. 1 3 . ON THE OTHER HAND, THE LEARNED AR SUPPORTED THE ORDER OF THE LEARNED CIT(A) AND TOOK US THROUGH THE 2 ND PAPER BOOK FILED BEFORE US TO SUBSTANTIATE AND CORROBORATE THE AVERMENTS MADE IN REPLY TO THE A.O. S QUERY AND TO SUPPORT THE FINDINGS OF LEARNED CIT(A) AND SO THE LEARNED AR DOES NOT WANT US TO INTERFERE IN THE IMPUGNED ORDER. 14 . WE HAVE HEARD BOTH THE PAR TIES AND PERUSED THE RECORDS. WE FIND THAT THE ASSESSMENT ORDER IS PURELY BASED ON THE SURVEY REPORT DATED 17.02.2010 & 15.03.2010 WHICH ARE REPORT PREPARED AFTER THE SURVEY CONDUCTED AT PLOT NOS. 17 & 18, SECT. 6, II E , PANTNAGAR, RUDRAPUR DISTRICT ON 16.02.2010 AND AT PLOT NO. 1, 19/6, MATHURA ROAD, FARIDABAD ON 15/16.02.2010 RESPECTIVLY . THOUGH QUESTION AIRE WAS ISSUED BY THE ASSESSING OFFICER DATED 22.11.2010 TO THE ASSESSEE, WE FIND THAT THE A.O. HAS NOT TAKEN INTO CONSIDERATION THE REPLY AND SUPPORTING DOCUMENTS FILED BY THE ASSESSEE DATED 30.11.2010 WHICH HAS BEEN REPRODUCED ABOVE. THE ASSESSING OFFICER HAS BASED HIS FINDING ONLY ON THE BASIS OF SURVEY REPORT AND HAS NOT MADE ANY ATTEMPT TO LOOK INTO THE DOCUMENTS FILED BEFORE HIM BY THE 12 ASSESSEE COMPANY TO SUBSTANTIATE ITS CLAIM THAT IT S RUDRAPUR, PANTNAGAR UNIT IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 - IC OF THE ACT . THE AO HAS NOT CONTROVERTED THE DOCUMENT OF MINISTRY OF COMMERCE & INDUSTRY, SECRETARIAT FOR INDUSTRIAL ASSISTANT (S/A), DATED 25.04.2005 (PAGE 80 OF PB) WHICH HAS ACKNOWLEDGE D THE MEMORANDUM SUBMITTED BEFORE IT FOR MANUFACTURE OF THE FOLLOWING ARE REPRODUCED AS UNDER : ITEM CODE PROPOSED ITEM: STARTER MOTOR O F MANUFACTUR E 3607 FALLING UNDER NIC - BROAD DESCRIPTION MANUFACTURE OF ELECTRICAL STARTING AND IGNITION EQUIPMENT FOR INTERNAL COMBUSTION ENGINES AND ELECTRICAL LIGHTNING/SIGNALLING EQUIPTION FOR MOTOR VEHICLES PROPOSED CAPACITY : 75000.00 NOS. PROPOSED ITEM: ALTER NATORS OF MANUFACTURE 3607 FALLING UNDER NIC BROAD DESCRIPTION MANUFACTURE OF ELECTRICAL STARTING AND IGNITION EQUIPMENT FOR INTERNAL COMBUSTION ENGINES AND ELECTRICAL LIGHTINING/SIGNALLING EQUIPTION FOR MOTOR VEHICLES. PROPOSES CAPACITY 75000.00 NO S. 15 . WE FIND THAT THE ASSESSEE COMPANY HAS FILED THE FOLLOWING DOCUMENTS TO PROVE THAT IT QUALIFIES FOR DEDUCTION UNDER SECTION 80 - IC OF THE ACT. I. EXCISE REGISTRATION CERTIFICATE (PAGE 82 OF PB, VOL. - II) (PAGE 91 - 92 OF PB , VOL - I) II. REGISTRATION DIC, SALES TAX (PAGE 91 - 99 OF PB , VOL - II) ( PAGE 93 - 96 OF PB , VOL - I) III. ATTENDANCE REGISTER, SALARY SHEET, CONTRACT BILLS ( PAGE 100 - 143 OF PB , V - II) IV. PROCESS FLOW CHART & BILL OF MATERIAL (PAGE 144 - 150 OF PB , VOL - II) V. CONNEC TION LOAD OF ALL MOTOR (PAGE 151 - 157 OF PB , VOL - II) VI. ISO 9001:2008 CERTIFICATE (PAGE 158 OF PB , VOL - II) VII. MAHINDRA OEM AUTO (PAGE 158 - 160 OF PB , VOL. II) 13 VIII. BLOW UP OF STARTER MOTOR (PAGES 79 - 80 OF PB , VOL - I) 1 6 . THE D ETAILS OF PRODUCTS AND MANUFACTURE OF RUDRAPUR WAS FURNISHED BY THE COMPANY IS FOUN D AT PAGE NO. 100 OF PB, VOL. - I, ARE REPRODUCED BELOW : DETAILS OF PRODUCT MAJUFACTURED AT RUDRAPUR AND CUSTOMERS S. NO. PRODUCT CODE PRODUCT DESCRIPTION CUSTOMER S NAME 1 ALT4004 - A ALTERNATOR TRACTORS & FARM EQUIPMENTS LTD. 2. ALT4004 - C ALTERNATOR TRACTORS & FARM EQUIPMENTS LTD. 3. ALT4005 - B ALTERNATOR MAHINDRA & MAHINDRA LIMITED - RUD & JAIPUR 4. ALT4005 - C ALTERNATOR MAHINDRA & MAHINDRA LIMITED - RUD & NAGPUR 5. ALT4006 - A ALTERNATOR INDOFARM TRACTORS LTD., PREET TRACTORS, STANDARD COMBINES 6. ALT4007 - I ALTERNATOR INDOFAR M TRACTORS LTD. 7. ALT4012 ALTERNATOR MAHINDRA & MAHINDRA LIMITED - NAGPUR & MAHINDRA GUJRAT TRACTORS LTD. 8. ALT4026 ALTERNATOR PUNJAB TRACTORS LTD. 9. STM1103 - V STARTER MOTOR TRACTORS & FARM EQUIPMENTS LTD., TAFE MOTORS & TRACTORS LTD. BHOPAL & INDO FARM TRACTORS LTD. 10. STM1104 - W STARTER MOTOR PUNJAB TRACTORS LTD. 11. STM1105 - V STARTER MOTOR MAHINDRA & MAHINDRA LIMITED - RUD & NAGPUR 12. STM1108 - W STARTER MOTOR INDOFARM TRACTORS LTD., PREET TRACTORS, STANDARD COMBINES 13. STM1120 - V STARTER MOTOR TAFE MOTORS & TRACTORS LTD. BHOPAL 14. STM1121 - W STARTER MOTOR INDO FARM TRACTORS LTD, PREET TRACTORS, STANDARD COMBINES & MAHINDRA GUJ R AT TRACTORS LTD. 15. STM1122 - V STARTER MOTOR MAHINDRA & MAHINDRA LIMITED - NAGPUR & MAHINDRA GUJRAT TRACTORS LTD. 16. STM1131 - W STARTER MOTOR TAFE MOTORS & TRACTORS LTD. - BHOPAL 14 17. STM1144 - V STARTER MOTOR MAHINDRA & MAHINDRA LIMITED - NAGPUR 17 . THE D ETAILS OF MANUFACTURING EXPENSES FOR F . Y . 2007 - 2008 FOUND AT PAGE 101 OF VOL. - I, ARE AS UNDER: EXPENDITURE AMOUNT REMARKS WAGES 10,519,996 (OUT OF TOTAL PERSONAL EXPENSES) JOB WORK CHARGES 6,499,377 FREIGHT AND DELIVERY INWARD EXPENSES 6,176,670 (SHOWN UNDER RAW MATERIAL CONSUMPTION IN BALANCE SHEET) STORES AND SPARES CONSUMED 54,096 RENT PAID (LEASE RENT) 24,000 ELECTRICITY CHARGES 3,436,555 FUEL (DIESEL ) EXPENSES 2,338,041 REPAIR & MAINTENANCE - PLANT AND MACHINERY 2,564,981 SECURITY EXPENSES 937,235 DEPRECIATION 692,078 TOTAL MANUFACTURING EXPS. 33,243,028 18 . IN THE LIGHT OF THESE DOCUMENTS AND OTHER DOCUMENTS PRODUCED BEFORE THE AUTHORITIES BELOW WHICH ARE PRODUCED BEFORE US BY FILING PAPER BOOK - I & II. WE NEED TO SEE WHETHER THE LD. CIT(A) IS CORRECT TO UPHOLD THE CONTENTION OF THE ASSESSEE COMPANY THAT ITS UNIT AT PANTNAGAR AT RUDRAPUR QUALIFIES FOR SECTION 80 - IC DEDUCTION. FOR THAT, LET US EXAMINE JUDICIAL PRECEDENTS OF THE WORDS MANUFACTURE, PROD UCE, THING, ARTICLE TO SEE WHETHER THE ASSESSEE IS MANUFACTURING OR PRODUCING AN ARTICLE OR THING IN THE STATE OF UTTRANCHAL. 15 (I) MEANING OF MANUFACTURE MANUFACTURE 1989 SUPREME COURT UJAGAR PRINTS VS. UNION OF INDIA THE PREVALENT AND GENERALLY ACCEPTED TEST TO ASCERTAIN THAT THERE IS MANUFACTURE IS WHETHER THE CHANGE OR THE SERIES OF CHANGES BROUGHT ABOUT BY THE PROCESSES TAKE THE COMMODITY TO THE POINT WHERE COMMERCIALLY IT CAN NO LONGER BE REGARDED AS THE ORIGINAL C OMMODITY BUT IS, INSTEAD, RECOGNISED AS A DISTINCT AND NEW ARTICLE THAT HAS EMERGED AS A RESULT OF THE PROCESSES. THE PRINCIPLES ARE CLEAR. BUT DIFFICULTIES ARISE IN THEIR APPLICATION IN INDIVIDUAL CASES. THERE MIGHT BE BORDER LINE CASES WHERE EITHER CONCL USION WITH EQUAL JUSTIFICATION MAY BE REACHED. INSISTENCE ON ANY SHARP OR INTRINSIC DISTINCTION BETWEEN PROCESSING AND MANUFACTURE RESULTS IN AN OVERSIMPLIFICATION OF BOTH AND TENDS TO BLUR THEIR INTERDEPENDENCE.... [179 ITR 317] MANUFACTURE 1993 KER LA H IGH COURT CIT VS. KANAM LATEX INDUSTRIES (P.) LTD. THE PREVALENT AND GENERAL ACCEPTED TEST TO ASCERTAIN WHETHER THERE IS MANUFACTURE IS TO FIND WHETHER THE CHANGE OR THE SERIES OF CHANGES BROUGHT ABOUT BY THE APPLICATION OF PROCESSES TAKE THE COMMODI TY TO THE POINT WHERE, COMMERCIALLY, IT CAN NO LONGER BE REGARDED AS THE ORIGINAL COMMODITY BUT IS, INSTEAD, RECOGNIZED AS A DISTINCT AND NEW ARTICLE THAT HAS EMERGED AS A RESULT OF THE PROCESSES. THE PRINCIPLES ARE CLEAR. BUT DIFFICULTIES ARISE IN THEIR A PPLICATION IN INDIVIDUAL CASES. THERE MIGHT BE BORDERLINE CASES WHERE EITHER CONCLUSION WITH EQUAL JUSTIFICATION MAY BE REACHED . MANUFACTURE 1996 KERALA HIGH COURT CIT VS. OCEANIC PRODUCTS EXPORTING CO. THE WORD USED IN THE SECTION IS MANUFACTURE. COMMONLY, MANUFACTURE IS THE END RESULT OF ONE OR MORE PROCESSES THROUGH WHICH THE ORIGINAL COMMODITY IS MADE TO PASS. THE NATURE AND EXTENT OF PROCESSING MAY VARY FROM ONE CASE TO ANOTHER, AND INDEED THERE MAY BE SEVERAL STAGES OF PROCESSING AND PERHAPS A KIND OF PROCESSING AT EACH STAGE. WITH EACH PROCESS SUFFERED, THE ORIGINAL COMMODITY EXPERIENCES A CHANGE. BUT IT IS ONLY WHEN THE CHANGE, OR A SERIES OF CHANGES, TAKES THE COMMODITY TO THE POINT WHERE COMMERCI ALLY IT CAN NO LONGER BE REGARDED AS THE ORIGINAL COMMODITY BUT INSTEAD IS RECOGNISED AS A NEW AND DISTINCT ARTICLE THAT A MANUFACTURE CAN BE SAID TO TAKE PLACE. [131 CTR 305, 219 ITR 293, 85 TAXMAN 554J ] MANUFACTURE 1997 AAR ARTHUR E. NEWELL VS. CIT THE EXPRESSION MANUFACTURE INVOLVES THE CONCEPT OF CHANGES EFFECTED TO A BASIC RAW MATERIAL RESULTING IN THE EMERGENCE OF, OR TRANSFORMATION INTO, A NEW COMMERCIAL COMMODITY. WHETHER AN ARTICLE IS CONVERTED INTO A DIFFERENT ARTICLE DEPENDS ON SEVERAL CRITE RIA AND ONE OF THE ESSENTIAL TESTS IS WHETHER IN A COMMERCIAL SENSE, THE ORIGINAL ARTICLE HAS CEASED TO EXIST AND AND A NEW ARTICLE HAS TAKEN ITS PLACE. IT IS, HOWEVER, NOT NECESSARY THAT THE ORIGINAL ARTICLE OR MATERIAL SHOULD HAVE LOST ITS IDENTITY COMP LETELY: ALL THAT IS IMPORTANT IS WHETHER, WHAT HAS EMERGED AS A RESULT OF THE OPERATIONS IS A DIFFERENT COMMERCIAL COMMODITY, HAVING ITS OWN NAME, IDENTITY, CHARACTER OR END USE. THIS DETERMINATION IS ESSENTIALLY ONE OF FACT AND HAS TO BE ARRIVED AT ON A C ONSIDERATION OF ALL RELEVANT FACTORS SUCH AS THE QUALITY AND NATURE OF THE ORIGINAL ARTICLE, THE EXTENT AND MAGNITUDE OF THE OPERATIONS CARRIED OUT ON, OR IN RELATION TO, IT AND THE COMMERCIAL IDENTITY, CHARACTER AND USE OF THE ARTICLE PRODUCED. [137 CTR 4 7, 223 ITR 776, 90 TAXMAN 26] 16 MANUFACTURE 2001 KERALA HIGH COURT CIT VS. DARSHAK LTD. THE WORD MANUFACTURE IS TO BE UNDERSTOOD IN A WIDE SENSE. MANUFACTURE WOULD IMPLY A CHANGE AND A TRANSFORMATION. A NEW AND A DIFFERENT ARTICLE MUST EMERGE HAVING A D ISTINCT AND DIFFERENT CHARACTER AND USE. (II) MEANING OF PRODUCE PRODUCE 1988 AP - H IGH COURT CIT VS. SRI VENKATESWARA HATCHERIES (P.) LTD. THE WORD PRODUCE AS USED IN ORDINARY PARLANCE AND ITS DICTIONARY MEANING SHOWS THAT IN CASE OF THE WORD, NO DISTINCTION IS MADE BETWEEN ANIMATE AND INANIMATE OBJECTS. EVEN IF A LIVING OBJECT IS BROUGHT FORTH BY HUMAN EFFORT, IT CAN BE SAID TO HAVE BEEN PRO DUCED. [71 CTR 80, 174 ITR 231, 39 TAXMAN 279) PRODUCE 2002 KER ALA HIGH COURT CIT VS. VIJAYA RETREADERS THE WORD PRODUCE MEANS BRINGING INTO EXISTENCE NEW GOODS BY A PROCESS WHICH MAY OR MAY NOT AMOUNT TO MANUFACTURE. IT ALSO TAKES IN ALL BY - PRODUCTS, INTERMEDIATE PRODUCTS AND RESIDUAL PRODUCTS WHICH EMERGE IN THE COURSE OF MANUFACTURE OF GOODS. THE NEXT WOR D TO BE CONSIDERED IS ARTICLES. THE WORD IS NOT DEFINED IN THE ACT OR THE RULES. IT MUST, THEREFORE, BE UNDERSTOOD IN ITS NORMAL CONNOTATION - THE SENSE IN WHICH IT IS UNDERSTOOD IN THE COMMERCIAL WORLD. IT IS EQUALLY WELL TO KEEP IN MIND THE CONTEXT SINCE A WORD TAKES ITS COLOUR FROM THE CONTEXT. THE WORD ARTICLES IS PRECEDED BY THE WORDS MANUFACTURES OR PRODUCES. [170 CTR 307, 253 ITR 53, 119 TAXMAN 39 . (III) MEANING OF THING THING 1997 RAJ - HIGH COURT CIT VS. TRINITY HOSPITAL THE DICTIONARY MEANING OF THE WORD THING IS A PRODUCT OF WORK OR ACTIVITY; USEFUL OR APPROPRIATE. [131 CTR 328, 225 ITR 178, 87 TAXMAN 127] (IV) MEANING OF ARTICLES ARTICLES 1974 BOM - HC CIT VS. HINDUSTAN ANTIBIOTICS LTD. THE WORD ARTICLES USED IN THE EXPRESSION HAS BEGUN OR BEGINS TO MANUFACTURE OR PRODUCE ARTICLES IN SECTION 15C(2)(II) MUST BE INTERPRETED REGARD BEING HAD TO THE OBJECT FOR WHICH THE SECTION WAS ENACTED. THE PROVISION WAS ENACTED WITH A VIEW TO ENCOURAGING THE ESTABLISHMENT OF NEW INDUSTRIAL UNDERTAKINGS AND THE OBJECT WAS SOUGHT TO BE ACHIEVED BY GRANTING EXEMPTION FROM TAX ON PROFITS DERIVED FROM SUCH UNDERTAKINGS DURING THE FIRST FIVE YEARS. THE OBJECT OF THE SECTION PRE - SUPPOSES THAT PROFITS ARE CAPABLE OF BEING EARNED. HENCE, UNTIL AN ASSESSEE REACHES A STAGE WHERE IT IS IN A POSITION TO DECIDE THAT A FINAL PRODUCT WHICH CAN BE ULTIMATELY SOLD IN THE MARKET CAN BE MANUFACTURED IT CANNOT BE SAID TO HAVE STARTED 17 MANUFACTURE OF THE ARTICLES. IF IT BECOMES NECESSARY FOR AN ASSESSEE TO PRODUCE A TRIAL PRODUCT AT AN EARLIER STAGE TO VERIFY WHETHER IT CAN BE USED ULTIMATELY IN THE MANUFACTURE OF THE FINAL ARTICLE, THE COMMENCEMENT OF OPERATION FOR THE MANUFACTURE OF THE TRIAL PRODUCT WOULD NOT CONSTITUTE COMMEN CEMENT OF MANUFACTURE OF ARTICLES FOR THE PURPOSES OF SECTION 15C. [93 ITR 548] 19 . THE LD CIT(A) HAS OBSERVED THAT I N THE INSTANT CASE VARIOUS PARTS ARE ASSEMBLED BY THE ASSESSEE USING ITS MACHINERY RESULTS IN ACHIEVING OF A FINAL PRODUCT. THE PARTS OR COMPONENTS UTILIZED BY THE ASSESSEE IN ITS ASSEMBLING PROCESS UNDERGO A TRANSFORMATION AND RESULT INTO A PRODUCT NAMELY MOTORCYCLE WHEEL, WHICH IS DISTINCT AND SEPARATE COMMODITY IN CHARACTER, NAME AND USE THAN EACH OF THE PARTS OR COMPONENTS. THEREFORE , ON THE BASIS OF THE PRINCIPLES REFERRED TO ABOVE CASE LAWS, IN THE INSTANT CASE THE LD CIT(A) HELD THAT IT IS SAFE TO DEDUCE THAT THE PROCESS OF ASSEMBLING CARRIED OUT BY THE ASSESSEE IS TO BE UNDERSTOOD AS AMOUNTING TO 'MANUFACTURE' OR PRODUCTION OF AN ARTICLE. THEREFORE, THE PROFIT DERIVED FROM EACH ACTIVITY IS ELIGIBLE FO R THE CLAIM OF BENEFIT U/S 80 - I A OF THE ACT. THE WORD MANUFACTURE HAS ALSO NOW BEEN DEFINED IN SEC 2(29)BA BY FINANCE ACT 2009 W.E.F. 1.4.09 AS UNDER; '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 DIFFERE NT 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. 20 THE LD CIT(A) RIGHTLY OBSERVED THAT I T IS WELL SETTLED THAT EVERY CHANGE OR PRO CESS CANNOT BE TERMED AS MANUFACTURE OR PRODUCTION. WELL KNOWN TEST APPLIED FOR DETERMINING WHETHER A PROCESS AMOUNTED TO 18 PRODUCTION/MANUFACTURE ARE THAT A NEW AND DISTINCT COMMERCIAL PRODUCT EMERGES. COMMONLY ACCEPTED MEANING GIVEN TO THE WORD MANUFACTURE AS HELD IN THE JUDGEMENTS BY THE HON'BLE SUPREME COURT IS WHEN A NEW AND DIFFERENT ARTICLE EMERGES HAVING DISTINCTIVE NAME, CHARACTER AND USE. AFTER APPLYING THE TESTS LAID DOWN IN THE DIFFERENT JUDGEMENTS AND TAKING GUIDANCE FROM THE DEFINITION OF MANUFA CTURE IN THE ACT, HAVING NOTED THE PROCESS INVOLVED, THE LEARNED CIT(A) RIGHTLY HELD THAT THE ASSESSEE COMPANY IS ENTITLED TO DEDUCTION U/S 80 - IC OF THE ACT. 21 WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT(A), TAKING INTO CONSIDERATION TH E EVIDENCE ADDUCED BY THE ASSESSEE COMPANY AND THE CONSISTENT STAND OF THE REVENUE IN ALLOWING THE DEDUCTION UNDER SECTION 80IC OF THE ACT. AS SUCH W ITHOUT ANY CHANGE IN THE FACTS AND CIRCUMSTANCES, THE DISALLOWANCE OF THE DEDUCTION GIVEN UNDER SECTION 80 - IC WAS NOT WARRANTED. THE ASSESSING OFFICER HAS NOT MADE ANY COMMENTS WITH REGARD TO THE CERTIFICATES GIVEN BY THE GOVERNMENT OF INDIA, MINISTRY OF COMMERCE AND INDUSTRIES , AND EXCISE AUTHORITIES OF THE S TATE HAS NOT COMMENTED UPON ADVERSELY BY THE AO. JUST BECAUSE SURVEY TEAM HAS REPORTED THAT ONLY 20 PEOPLE WERE W ORKING IN THE UNIT CANNOT BRUSH ASIDE THE EVIDENCE THAT HAS BEEN PLACED ON RECORD. TAKING INTO CONSIDERATION THE CORROBORATIVE EVIDENCE, WE CONCUR WITH THE VIEW OF THE LEARNED CIT(A) AND WE FI ND NO INFIRMITY IN THE SAME. THEREFORE, WE UPHOLD THE ORDER OF THE LEARNED CIT(A). THE APPEAL OF THE REVENUE STANDS DISMISSED. 19 ITA NOS. 6349 TO 6351/DEL/2012 FOR AY 2006 - 07 , 2007 - 08 & 2009 - 10 22 . WE WILL NO W CONSIDER THE IMPUGNED ORDER PASSED FOR THE A SSESSMENT YEARS 2006 - 07, 2007 - 08 & 2009 - 10 . 23 . THE SOLE GROUND RAISED BY THE REVENUE IS THAT THE CHALLENGING/QUASHING OF REOPENING OF THE ASSESSM ENT PROCEEDINGS UNDER SECTION 14 7/148 OF THE ACT WHEN THERE WAS MATERIAL BEFORE THE ASSESSING OFFICER IN TH E FORM OF SURVEY REPORT THAT THE ASSESSEE COMPANY S RUDRAPU R UNIT IS NOT MANUFACTURING ANY THING SO DEDUCTION UNDER SECTION 80 - IC CLAIMED BY THE ASSESSEE COMPANY WAS INCORRECT AND THEREFORE ESCAPEMENT OF INCOME WAS THERE. 24. WE HAVE GONE THROUGH THE IMPUG NED ORDER DATED 01.10.2012 OF THE LEARNED CIT(A) WHO HAS DELETED THE ENTIRE ADDITION MADE BY THE ASSESSING OFFICER ON THE GROUND THAT THE PREDECESSOR CIT(A) HAD ON MERITS FOUND OUT FOR ASSESSMENT YEAR 2008 - 09 THAT THE ASSESSEE COMPANY IS ELIGIBLE FOR DEDUC TION UNDER SECTION 80 - IC OF THE ACT. NOWHERE IN THE IMPUGNED ORDER WE FIND ANY OBSERVATION OR FINDING OF THE LEARNED CIT(A) COMMENTING ON THE VALIDITY OF THE REOPENING OF THE ASSESSMENT PROCEEDINGS UNDER SECTION 147/148 OF THE ACT. S INCE THE GROUND DOES N OT ARISE FROM THE IMPUGNED ORDER, WE ARE UNABLE TO STATE WHETHER THE SAID GROUND CAN SURVIVE. O N A QUESTION TO THE LEARNED DR WHETHER HE CAN POINT OUT FROM THE IMPUGNED ORDER CIT(A) S OBSERVATIONS OR FINDINGS IN RESPECT TO THE ILLEGALITY OF THE REOPENING, HE COULD NOT DO SO. WE ARE CONSTRAINED TO NOTE THAT THE LEARNED CIT(A) HAS NOT ADJUDICATED ON THE REOPENING MADE 20 BY THE AO UNDER SECTION 147/148. HE HAS DELETED THE ADDITION MADE ON THE GROUND THAT HIS PREDECESSOR CIT(A) IN CHAIR HAD DELETE D THE SAME ON ME RITS . THEREFORE, WE DO NOT FIND ANY MERITS IN THE GROUNDS RAISED BEFORE US . IN ANY CASE SINCE, WE HAVE ALREADY UP HELD THE FINDING AND DECISION OF THE LD CIT(A) FOR ASSESSMENT YEAR 2008 - 09, THAT THE ASSESSEE COMPANY S RUDRAPUR UNIT IS ENGAGED IN MANUFACTU RING AND IS THEREFORE ELIGIBLE FOR DEDUCTION UNDER SECTION 80 - IC OF THE ACT, SO WE UPHOLD THE ORDER S OF THE LEARNED CIT(A) AND DISMISS THE GROUND S RAISED BY THE REVENUE IN THE ASSESSMENT YEARS I.E. 2006 - 07, 2007 - 08 AND 2009 - 10. 25 . IN THE RESULT, ALL TH E APPEALS OF THE REVENUE ARE DISMISSED. THE DECISION IS PRONOUNCED IN THE OPEN COURT ON 2 9 T H MAY , 2015. S D / - S D / - ( N.K. SAINI ) ( A.T. VARKEY ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 2 9 T H MAY , 2015. RK/ - COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI