ITO, New Delhi V. M/s. Edcon Multimedia, New Delhi

ITA 66/DEL/2011

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7057 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 20-10-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 06-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

ITA NO. 66/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 66/DEL/2011 A.Y. : 2007-08 ITO, WARD 31(2), ROOM NO. 334A, CR BUILDING, NEW DELHI VS. M/S EDCON MULTIMEDIA, 33-B, ARADHNA ENCLAVE, SECTOR-13, RK PURAM, NEW DELHI - 110066 (PAN/GIR NO. : AABFE6878K) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : NONE DEPARTMENT BY : SH. ROHIT GARG, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 28.10. 2010 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE GROUNDS RAISED READ AS UNDER:- (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAD ERRED IN HO LDING THAT OUTSOURCING OF DUPLICATION OF CD IS A MANUFACTU RING ACTIVITY IN TERMS OF SECTION 80-IB(5) OF THE INCOME T AX ACT, 1961. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DE LETING THE ADDITION OF ` 34,40,594/- AS MADE BY THE ASSESSI NG ITA NO. 66/DEL/2011 2 OFFICER AS PER PROVISION OF SECTION 80-IB(5) OF TH E INCOME TAX ACT. (III) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR A MEND ANY/ ALL THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE O F HEARING OF THE APPEAL. 3. IN THIS CASE ASSESSEE FIRM IS ENGAGED IN THE MANU FACTURING OF EDUCATIONAL CDS. IT HAS BEEN PROVIDED WITH AN INDU STRIAL LICENCE BY THE GOVERNMENT AUTHORITIES FOR SETTING UP AN INDUS TRY IN CHHOTI MARAI, MARAI CHOWK, HAZIPUR DISTT. VAISHALI, BIHAR, A NOTIFI ED BACKWARD AREA FOR THE PURPOSES OF SECTION 80-IB OF THE IT ACT. T HE DEDUCTION U/S 80- IB(5) AT 100% OF THE PROFITS OF THE BUSINESS HAS B EEN CLAIMED SINCE A.Y. 2004-05. HOWEVER, IN THE PRESENT ASSESSMENT YEAR I.E. 2007-08, THE CLAIM WAS DISALLOWED BY THE ASSESSING OFFICER O N THE GROUND THAT DURING THE YEAR NO MANUFACTURING ACTIVITY RELATING TO CDS TOOK PLACE, THEREFORE, THE ASSESSEE WAS NOT ELIGIBLE FOR THE D EDUCTION U/.S 80-IB(5) OF ` 3440594/-. 4. UPON ASSESSEES APPEAL IN THIS REGARD, LD. COMM ISSIONER OF INCOME TAX (APPEALS) GAVE A FINDING THAT THE ASSESS EES CLAIM THAT ONE MASTER CD HAS BEEN MANUFACTURED AND ITS 3000 COPI ES HAVE BEEN REPLICATED DURING THE YEAR, IS CORRECT. LD. COMMIS SIONER OF INCOME TAX (APPEALS) FURTHER REFERRED THE DECISION OF T HE HONBLE APEX COURT IN THE CASE OF ORACLE SOFTWARE INDIA LTD. VS. C.I.T . CA NO. 235/2010 WHEREIN THE HONBLE APEX COURT HELD THAT DUPLICATI ON OF IMPORTED MASTER MEDIA OF THE SOFTWARE ON BLANK DISC IN INDIA A MOUNTS TO MANUFACTURING ACTIVITY. LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER REFERRED TO DELHI, ITAT DECISION IN THE CA SE OF CLASS INDIA LTD. VS. ACIT 21 SOT 580 WHEREIN IT WAS HELD THAT FOR TH E PURPOSES OF BEING ITA NO. 66/DEL/2011 3 TREATED AS A MANUFACTURER OF GOODS, THE MANUFACTURE MAY BE THE EITHER BY THE ASSESSEE ITSELF OR BY SOMEONE UNDER ASSESSEES SUPERVISORY CONTROL OR DIRECTIONS. LD. COMMISSIONER OF INCOME TAX (APPEALS) CONCLUDED THAT THAT THE OUTSOURCING OF D UPLICATION OF CDS CANNOT BE TREATED AS NON-MANUFACTURING ACTIVITY. I T HAS TO BE TREATED AS PART OF THE ASSESSEES MANUFACTURING ACTIVITY. THE RELEVANT PORTION OF THE LD. COMMISSIONER OF INCOME TAX (APPEA LS)S ADJUDICATION READ AS UNDER:- IT IS THE ASSESSING OFFICERS OBSERVATION THAT NO ORIGINAL/ MASTER CD HAS BEEN MANUFACTURED DURING THE YEAR. I FI ND THAT THIS OBSERVATION OF THE ASSESSING OFFICER IS NOT FACTUALLY CORRECT. AS PER COMPARATIVE DETAILS OF CL OSING STOCK AS ON 31.3.06 AND AS ON 31.3.07, STOCK OF MY FIRST LIBRARY MATHS OF 2752 CDS IS FOUND ON 31.3.07. THESE WERE NOT THERE AS ON 31.3.06. HENCE, THIS MASTER CD WAS MANUFACTURED DURING THE YEAR. THE REST WERE ALL AVAI LABLE IN THE OPENING STOCK AS ON 1.4.06. AS PER ASSESSEE 300 0 CDS OF MY FIRST LIBRARY MATHS WAS GOT REPLICATED FROM M/S SH ASHI AUDIO & VIDEO PVT. LTD. THERE IS NOT DISPUTE ABOUT T HE FACT OF REPLICATION/DUPLICATION WORK CARRIED OUT BY M/S. SHASHI AUDIO & VIDEO PVT. LTD. DURING THE YEAR. THEREFORE, A FINDING IS GIVEN THAT THE ASSESSEE'S CLAIM THAT ONE MASTER CD HAS BEEN MANUFACTURED AND ITS 3000 COPIES HAVE BEEN REPLICATED DURING THE YEAR, IS CORRECT. THE SECOND VITAL ISSUE FOR CONSIDERATION IS WHETHER OUTSOURCING OF THE REPLICATION OF THE CD IS A MANUF ACTURING ACTIVITY OR NOT. THIS ISSUE HAS NOW BEEN SETTLED BY THE ITA NO. 66/DEL/2011 4 HON'BLE SUPREME COURT IN THE CASE OF ORACLE SOFTWAR E INDIA LTD. VIDE ITS ORDER DATED 13.1.10 IN CA NO. 235/10, THE APEX COURT HAS HELD THAT PROCESSING OF BLANK CDS, DEDICA TING THEM TO A SPECIFIC USE CONSTITUTES A MANUFACTURE IN T ERMS OF SECTION 80-IA(12)(B) READ WITH SECTION 33B OF THE I T ACT. REFERRING TO THE DECISION IN THE CASE OF GRAMAPHONE CO. OF INDIA LTD. VS. COLLECTOR OF CUSTOMS, CALCUTTA 114 EL T 770 WHEREIN IT WAS HELD THAT RECORDING OF AN AUDIO CASS ETTE ON DUPLICATING SYSTEM AMOUNTS TO MANUFACTURE, THE HON'BL E COURT HELD THAT COPYING OR REPLICATING OR DUPLICATI NG THE MASTER CD WOULD CONSTITUTE MANUFACTURING ACTIVITY. AS REPORTED IN 320 ITR 546 THE HON'BLE APEX COURT HELD 'IF AN OPERATION/PROCESS RENDERED A COMMODITY FIT FOR USE FO R WHICH IT WOULD OTHERWISE NOT BE FIT, THE OPERATION/ PROCESS FELL WITHIN THE MEANING OF THE WORD 'MANUFACTURE'. APPLYING THIS TEST, THE ASSESSEE HAD UNDERTAKEN AN OPERATION WHICH RENDERED THE BLANK CD FIT FOR USE FOR A PURPOSE FOR WHICH IT WOULD OTHERWISE NOT BE FIT. THE BLANK CD WAS AN INP UT. BY THE DUPLICATING PROCESS UNDERTAKEN BY THE ASSESSEE, THE RECORDABLE MEDIA WHICH IS UNFIT FOR ANY SPECIFIC US E GOT CONVERTED INTO THE PROGRAMME WHICH IS EMBEDDED IN TH E MASTER MEDIA AND THUS THE BLANK CD GOT CONVERTED INT O RECORDED CD BY SUCH AN INTRICATE PROCESS. THE DUPLIC ATING PROCESS CHANGED THE BASIC CHARACTER OF A BLANK CD DEDICATING IT TO A SPECIFIC USE. WITHOUT SUCH PROCE SSING/ BLANK CDS WOULD BE UNFIT FOR THEIR INTENDED PURPOSE . THEREFORE, PROCESSING OF BLANK CDS DEDICATING THEM T O A SPECIFIC USE CONSTITUTED /MANUFACTURE/ IN TERMS OF S ECTION ITA NO. 66/DEL/2011 5 8O-IA(12)(B) READ WITH SECTION 338 OF THE ACT. THE MARKETED COPIES OF THE CD WERE GOODS AND THE PROCESS IN WHICH THEY BECAME GOODS WAS COVERED BY 'MANUFACTURE OR PROCESSI NG OF GOODS. - HEAD NOTE. THUS IN VIEW OF THE ABOVE RULING, THE REPLICATION/DUPLICATION OF THE MASTER CD INTO MARKETA BLE EDUCATIONAL CDS IS A 'MANUFACTURING ACTIVITY'. WITH REGARD TO THE OBSERVATION WHETHER OUTSOURCING OF THIS MANUFACT URING ACTIVITY TO ANOTHER ENTITY, AMOUNTS TO THE ASSESSEE' S OWN MANUFACTURING ACTIVITY IT IS NOTED THIS ISSUE HAS AL READY BEEN EXAMINED BY THE HON'BLE COURT'S/TRIBUNAL'S. THE ALLAHABAD HIGH COURT IN 235 ITR 0070 HAS HELD THAT WHERE THE ASSESSEE GOT BRASS ARTICLES MANUFACTURED FROM AR TISIANS AS PER ASSESSEE'S SPECIFICATIONS/DESIGN AND WHO WER E UNDER CLOSE CONTROL AND SUPERVISION OF THE ASSESSEE, THE ASSESSEE WAS AN INDUSTRIAL COMPANY MANUFACTURING OR PROCESSIN G GOODS. THE DELHI ITAT BENCH 'A' IN THE CASE OF CLASS INDIA LTD. VS. ACIT 21 SOT 580 HAS HELD THAT FOR THE PURPOSES OF BEING TREATED AS A MANUFACTURER OF GOODS, THE MANUFACTURE MA Y BE THE EITHER BY THE ASSESSEE ITSELF OR BY SOMEONE UNDER ASSESSEE'S SUPERVISORY CONTROL OR DIRECTIONS. IN VIEW OF THE ABOVE RULINGS, THE LD. AD'S OBSERVATI ON THAT OUTSOURCING OF DUPLICATION OF CDS IS NOT A MANUFACTURING ACTIVITY CANNOT BE UPHELD. THEREFORE, A FINDING IS GIVEN ON THE SECOND ISSUE THAT OUTSOURCI NG OF DUPLICATION OF CDS CANNOT BE TREATED AS A NON ITA NO. 66/DEL/2011 6 MANUFACTURING ACTIVITY. IT IS TO BE TREATED AS PAR T OF THE ASSESSEES MANUFACTURING ACTIVITY. IN VIEW OF THE ABOVE TWO FINDINGS RELATING TO THE MANUFACTURE OF CDS, THERE IS NOW NO BASIS FOR THE DISALLOWANCE OF THE 80-IB(5) DEDUCTION AS CLAIMED IN THE RETURN OF INCOME. THE ASSESSING OFFICER IS ACCORD INGLY DIRECTED TO ALLOW THE 80-IB(5) DEDUCTION OF ` 3440 594/- FOR A.Y. 2007-08. 5. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIV E. NONE APPEARED ON BEHALF OF THE ASSESSEE. HOWEVER, IN OU R CONSIDERED OPINION, THE MATTER CAN BE DISPOSED OF BY HEARING TH E LD. DEPARTMENTAL REPRESENTATIVE AND PERUSING THE RECORDS. 7. UPON CAREFUL CONSIDERATION, WE FIND THAT LD. COM MISSIONER OF INCOME TAX (APPEALS) HAS GIVEN A FINDING THAT ASSE SSEES CLAIM THAT ONE MASTER CD HAS BEEN MANUFACTURED AND ITS 3000 COPI ES HAVE BEEN REPLICATED DURING THE YEAR, IS CORRECT. IN THIS V IEW OF THE MATTER THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF O RACLE SOFTWARE INDIA LTD. VS. C.I.T. (SUPRA) IS SQUARELY APPLICABLE. IN THIS CASE HONBLE APEX COURT HAD HELD THAT DUPLICATION OF IMPORTED MASTER ME DIA OF THE SOFTWARE ON BLANK DISC IN INDIA AMOUNTS TO MANUFACTUR ING ACTIVITY. HENCE, THE REPLICATION OF MASTER CD BY MAKING 3000 CO PIES CAN BE SAID TO BE MANUFACTURED ACTIVITY. FURTHER, AS PER THE DE CISION OF THE DELHI, ITAT BENCH DECISION IN THE CASE OF CLASS INDIA LTD . VS. ACIT 21 SOT 580 FOR BEING TREATED AS A MANUFACTURER OF GOODS, THE MA NUFACTURE MAY BE THE EITHER BY THE ASSESSEE ITSELF OR BY SOMEON E UNDER ASSESSEES SUPERVISORY CONTROL OR DIRECTIONS. IN VIEW OF THE AFORESAID CASE LAWS, ITA NO. 66/DEL/2011 7 WE FIND THAT LD. COMMISSIONER OF INCOME TAX (APPEALS ) IS CORRECT IN HOLDING THAT OUTSOURCING OF DUPLICATION OF CDS CANN OT BE TREATED AS NON-MANUFACTURING ACTIVITY. IT IS TO BE TREATED AS PART OF THE ASSESSEES MANUFACTURING ACTIVITY. ACCORDINGLY, IN THE BACKG ROUND OF THE AFORESAID DISCUSSION AND PRECEDENTS, WE DO NOT FIND ANY INFIRMITY OR ILLEGALITY IN THE ORDER OF THE LD. COMMISSIONER OF IN COME TAX (APPEALS) AND HENCE, WE UPHOLD THE SAME. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/10/2011. SD/- SD/- [ [[ [I.P. BANSAL I.P. BANSAL I.P. BANSAL I.P. BANSAL] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 28/10/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES