ITO 20(1)(1), MUMBAI V. ADVANCE POWER ENGINEERING, MUMBAI

ITA 8434/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3564 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 23-04-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 03-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: TUSHAR KAMDAR
• Keywords: Depreciation; Tax effect

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI . , !'# $ $ $ $ %& ', () %*+ ( %# BEFORE SHRI D. MANMOHAN, V. P. AND SHRI SANJAY ARO RA, A. M. %./ I.T.A. NO. 8434/MUM/2010 ( - $.- - $.- - $.- - $.- / / / / ASSESSMENT YEAR: 2007-08) I.T.O - 20(1)(1), 702, PIRAMAL CHAMBERS, LALBAUG, PAREL, MUMBAI-400 012 / VS. ADVANCE POWER ENGINEERING 69, MISTRY INDL. ESTATE, CROSS ROAD, MIDC AREA, ANDHERI (E), MUMBAI-400 093 +/ () % ./ &0 % ./ PAN/GIR NO. AAFFA 0736 N ( /1 / APPELLANT ) : ( 23/1 / RESPONDENT ) /1 4 %( / APPELLANT BY : MISS NEERAJA PRADHAN 23/1 5 4 %( / RESPONDENT BY : SHRI TUSHAR KAMDAR %$ 5 6) / // / DATE OF HEARING : 23.04.2013 7. 5 6) / DATE OF PRONOUNCEMENT : 21.06.2013 *(8 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE REVENUE AGITATING THE ORDE R BY THE COMMISSIONER OF INCOME TAX (APPEALS)-31, MUMBAI (CIT(A) FOR SHORT ) DATED 13.09.2010, ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S.143 (3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 20 07-08 VIDE ORDER DATED 23.12.2009. 2 ITA NO.8434/MUM/2010 (A.Y. 2007-08) I.T.O. VS. ADVANCE POWER ENGINEERING 2.1 THE ONLY ISSUE ARISING IN THIS APPEAL IS THE MA INTAINABILITY IN LAW OF THE ASSESSEES CLAIM U/S.80-IB(1) R.W.S 80-IB(4) OF THE ACT. THE A SSESSEE, A MANUFACTURER OF ELECTRICAL POWER DISTRIBUTION AND CONTROL EQUIPMENTS (POPULARL Y KNOWN AS ELECTRICAL CONTROL PANELS), CLAIMED DEDUCTION AT 100% OF ITS PROFIT (RS.73.67 L ACS) IN RESPECT OF ITS UNDERTAKING LOCATED AT DAMAN (UT), A BACKWARD AREA AS SPECIFIED IN THE EIGHTH SCHEDULE TO THE ACT. THE ASSESSING OFFICER (A.O.), ON A SCRUTINY OF THE ASSESSEES ACCOUNTS, WAS OF THE VIEW THAT IT IS ENGAGED ONLY IN AN ASSEMBLING JOB, WITH THE USE OF SOME TOOLS AND EQUIPMENTS, ALSO EVIDENCED FROM THE OPENING WDV OF PLANT & MACH INERY BEING AT A MERE RS. 19,175, WITH NO ADDITIONS DURING THE YEAR, EVEN AS THE TURN OVER OF THE SAID UNIT IS AT RS. 404.94 LACS. THE ASSESSEES WORKERS WERE MOUNTING BOUGHT O UT COMPONENTS ON THE PANEL AND WIRING THEM. THE SAME WAS CLEARLY ONLY AN ASSEMBLY JOB, WHICH COULD NOT BE SAID TO BE MANUFACTURING, FOR WHICH HE DREW SUPPORT FROM THE D EFINITION OF THE SAID TERM AS PROVIDED U/S. 2(29BA) OF THE ACT, AS INSERTED ON TH E STATUTE BY FINANCE (NO.2) ACT, 2009 W.E.F. 01.04.2009. REFERENCE WAS ALSO MADE BY HIM T O THE DECISIONS CLARIFYING THE SCOPE OF THE TERM, AS IN THE CASE OF AMAN MARBLE INDUSTRIES 157 ELT 393 (SC); V. M. SALGAONKAR BRS. PVT. LTD. VS. CIT [1996] 217 ITR 849 (KAR). THE ELECTRICITY EXPENDITU RE FOR THE YEAR (RS.47,932), WOULD ALSO SHOW THAT NO P OWER CONNECTION WAS REQUIRED/USED, AS ELECTRICITY EXPENDITURE TO THIS EXTENT WOULD EVE N OTHERWISE ARISE FROM AN ELECTRICAL CONNECTION. THE ASSESSEES PROCESSES BEING, THUS, C ARRIED OUT WITHOUT THE AID OF THE POWER, WOULD REQUIRED AT LEAST TWENTY OR MORE WORKE RS FOR IT TO QUALIFY AS AN ELIGIBLE UNDERTAKING U/S.80-IB, WHILE THE NUMBER OF WORKERS AS PER THE LIST SUPPLIED BY THE ASSESSEE WAS ONLY 14, INCLUDING ONE STORE-MAN AND O NE WIRE-MAN, SO THAT THE ASSESSEE DID NOT FULFILL THE CONDITION AS LAID DOWN U/S.80-IB(2) (IV). FURTHER, ASSESSEES CLAIM THAT IT HAD BEEN ALLOWED DEDUCTION U/S.80-IB(1) IN THE PAST WAS ALSO MET BY HIM BY RELYING ON THE DECISIONS, AS IN THE CASE OF NORTHERN AIR PRODUCTS P. LTD. VS. CIT [2005] 274 ITR 225 (MP), CLARIFYING THAT THERE IS NO ESTOPPEL AGAINST THE LAW, SO THAT A DEDUCTION ALLOWED IN AN EARLIER YEAR WOULD NOT NECESSARILY IMPLY ITS ALL OWANCE FOR A SUBSEQUENT YEAR, OR PRECLUDE THE ASSESSING AUTHORITY FROM DISALLOWING I T IN A LATER YEAR. 3 ITA NO.8434/MUM/2010 (A.Y. 2007-08) I.T.O. VS. ADVANCE POWER ENGINEERING 2.2 IN APPEAL, THE MATTER WAS EXAMINED AT LENGTH BY THE LD. CIT(A). THE ASSESSEE UNDERTOOK THE WORK UNDER A FACTORY LICENSE ISSUED B Y THE DAMAN GOVERNMENT, CLEARLY STATING THAT THE ASSESSEE IS ENGAGED IN THE MANUFAC TURE OF ELECTRICAL POWER AND DISTRIBUTION AND CONTROL UNITS, WHICH IS EXCISABLE, SO THAT THE ASSESSEES UNIT WAS ALSO REGISTERED WITH THE CENTRAL EXCISE DEPARTMENT. A PO WER CONNECTION SANCTIONING POWER SUPPLY OF 40 HP HAD ALSO BEEN RELEASED. A PROCESS F LOW CHART WAS ALSO SUBMITTED. FABRICATED COMPONENTS MADE FROM SHEET METAL, DULY C OATED WITH POWDER COATING PAINT OR ELECTROPLATED AND BUS BARS (MAIN CONDUCTOR) OF THE REQUIRED DESIGN AND DIMENSIONS AND OTHER SPECIFICATIONS, ARE PROCURED (FROM THE FABRIC ATORS), BESIDES OTHER HARDWARE AND ELECTRICAL ITEMS. THE COMPONENTS ARE THEN ASSEMBLED WITH THE MAIN (BASE) FRAME. ANY MINOR MODIFICATION ON THE FABRICATION IS MET WITH T HE HAND SHEARING AND HAND BENDING MACHINES. THIS IS FOLLOWED BY WIRING. AFTER ELECTRI CALLY CHECKING THE MOUNTING PLATE/TROLLEY, THE ELECTRICAL COMPONENTS LIKE SWITC HGEARS, CIRCUIT BREAKER, CONTROL TRANSFORMERS AND MEASURING AND CONTROLLING EQUIPMEN TS MOUNTED ON THE COMPARTMENT DOORS, WHICH ARE FIXED IN THE ERECTED BOARDS. THIS PROCESS ARE OF-COURSE PRECEDED BY SHOP FLOOR DRAWINGS EXHIBITING THE DETAILED ENGINEERING AND THE INTERNAL ARRANGEMENTS, AND ALSO SUCCEEDED BY TESTING OF THE EQUIPMENTS PRIOR TO ITS DISPATCH TO THE CUSTOMER, WHO MAY ALSO INSPECT THE SAME REPORT THERETO. EACH OF THE OBJECTIONS RAISED BY THE A.O. IN HIS OR DER, WHICH IT WAS CLAIMED WERE NEVER RAISED DURING THE COURSE OF THE ASSESSMENT PR OCEEDINGS, WAS SOUGHT TO BE COUNTERED. NO DOUBT, THE LABOUR WORKING IN THE ASSE SSEES WORKS WAS PROVIDED BY LABOUR CONTRACTORS, WHICH WERE THREE IN NUMBER DURING THE RELEVANT YEAR, BUT THAT WOULD NOT IN ANY MANNER IMPLY THAT THE LABOUR CONTRACTORS WERE M ANUFACTURING THE PANELS AT THEIR OWN PREMISES USING THEIR OWN MACHINERY. THEY HAD ONLY S UPPLIED THE LABOUR, ISSUING BILLS IN ITS RESPECT, AND WHICH HAD BEEN DISCHARGED, ALSO DE DUCTING THE TAX AT SOURCE THEREON. THE GOODS PURCHASED AS WELL AS THOSE PRODUCED IS CLEARL Y EVIDENCED FROM THE PURCHASE BILLS (I.E., THE BILLS OF THE BOUGHT OUT) AS WELL AS THE INVOICES RAISED, RESPECTIVELY. THE SAME WOULD ALSO CLARIFY THAT THE ASSESSEE HAD EMPLOYED M ORE THAN 10 WORKERS DURING THE RELEVANT YEAR, AND WHICH IS THE THRESHOLD LIMIT WHI CH NEEDS TO BE OBSERVED TO QUALIFY THE 4 ITA NO.8434/MUM/2010 (A.Y. 2007-08) I.T.O. VS. ADVANCE POWER ENGINEERING UNDERTAKING IN VIEW OF THE MANUFACTURING PROCESS BE ING CARRIED OUT WITH THE AID OF POWER. THE A.O.S OBJECTION WITH REGARD TO THE QUANTUM OF PLANT AND MACHINERY WAS ALSO MISCONCEIVED INASMUCH AS THE LAW DOES NOT STIPULATE ANY MINIMUM INVESTMENT IN PLANT AND MACHINERY TO AVAIL OF THE DEDUCTION UNDER REFER ENCE. THE MANUFACTURING PROCESS IS, IN FACT, QUITE SIMPLE, THOUGH LABOUR INTENSIVE, BUT WO ULD NOT STAND DISQUALIFIED FOR THAT REASON, OR BE CONSIDERED AS BEING CARRIED OUT WITHO UT THE AID OF THE POWER. IN FACT, AS AN INCENTIVE GIVEN FOR SETTING UP THE INDUSTRIAL UNITS AT DAMAN, AN INDUSTRIAL BACKWARD AREA, ONE OF THE INCENTIVES GRANTED IS BY WAY OF LOWER PO WER TARIFF AT (APPROX RS.2.50 PER UNIT), WHICH IS EASILY ONE OF THE LOWEST RATES IN INDIA. T HE TRIBUNAL, IN THE CASE OF SHREE PAR FRAGRANCE (P.) LTD. VS. ITO [2008] 20 SOT 440 (MUM), HAS CLARIFIED THAT LOW CONSUMPTION OF ELECTRICITY WOULD NOT BY ITSELF BE A VALID GROUND FOR DENYING DEDUCTION U/S.80-IB. AGAIN, NO INFERENCE AS TO THE ASSESSEES PROCESSES AS NOT AMOUNTING TO MANUFACTURE FOLLOWS FROM A LOWER QUANTUM OF CLOSING STOCK, WHICH RATHER SHOWS THE BIASED MIND OF THE A.O. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 3.1 WE SHALL TAKE UP THE ASSESSEES PRELIMINARY OBJ ECTION FIRST; IT CLAIMING, SANS ANY MATERIAL THOUGH, THAT DEDUCTION U/S.80-IB IS BEING ALLOWED TO IT SINCE A.Y. 2004-05, WITH THE ASSESSMENT FOR A.Y. 2005-06 HAVING BEEN, IN FAC T, MADE UNDER THE VERIFICATION PROCEDURE U/S.143(3) OF THE ACT (PB PGS. 211-213). WE HAVE PERUSED THE ORDER WHICH IS SANS ANY FINDING AS TO THE SATISFACTION OF THE CONDITIO NS FOR GRANT OF DEDUCTION U/S. 80-IB. UNLESS AND UNTIL THERE IS A SPECIFIC FINDING IN REL ATION TO THE SATISFACTION OF ALL THE CONDITIONS OF SECTION 80-IB(1), I.E., UNDER WHICH T HE DEDUCTION IS BEING CLAIMED, WITH NO NEW FACT COMING TO THE SURFACE FOR THE CURRENT YEAR , WE CAN NOT HOLD THAT THE REVENUE IS BOUND BY ITS DECISION FOR THE EARLIER YEAR/S; RES JUDICATA BEING NOT APPLICABLE TO THE PROCEEDINGS UNDER THE ACT. THE ASSESSEES OBJECTION UNDER THESE CIRCUMSTANCES IS WITHOUT SUBSTANCE OR MERIT. 5 ITA NO.8434/MUM/2010 (A.Y. 2007-08) I.T.O. VS. ADVANCE POWER ENGINEERING 3.2 THE A.O., AS APPARENT, HAS RAISED SEVERAL OBJEC TIONS TO THE ASSESSEES CLAIM. WE WOULD, THEREFORE, NEED TO EXAMINE EACH OF THEM. THI S IS FOR THE SIMPLE REASON THAT EVEN IF ONE OF THEM WERE TO SURVIVE OR HOLD, THE ASSESSEES CLAIM FOR DEDUCTION U/S.80-IB(1) R.W.S. 80-IB(4) WOULD NOT OBTAIN. THE FIRST AND THE FOREMOST OBJECTION IS THAT THE PROCESSES INVOLVED, THOUGH LOOSELY TERMED AS MANUF ACTURE, IS ESSENTIALLY ONLY AN ASSEMBLY JOB. WE WOULD ESCHEW THE SCOPE OF THESE WO RDS AS GIVEN IN THE DICTIONARIES, AND STRAIGHTAWAY LOOK AT THE VARIOUS PROCESSES INVO LVED, TO DETERMINE IF THE SAME CONSTITUTE MANUFACTURE, EVEN AS EXHORTED BY THE HIG HER COURTS OF LAW TIME AND AGAIN. THE MATTER IS FACTUAL, WITH THE LAW HAVING BEEN AMPLY C LARIFIED PER A HOST OF DECISIONS, TO WHICH REFERENCE HAS BEEN ABUNDANTLY MADE - IN THEIR FAVOUR OF COURSE BY BOTH THE AUTHORITIES BELOW. BESIDES, IT IS ONLY THIS THAT WO ULD DETERMINE IF THE SAME LEADS TO A MANUFACTURE OF A NEW AND DISTINCT PRODUCT. THE SAME IS A FUNCTION OF THE DEGREE OF THE CHANGE WROUGHT ON THE ORIGINAL (RAW) MATERIAL, AS E XPLAINED BY THE APEX COURT IN THE CASE OF DY. CST VS. PIO FOOD PACKERS , 46 STC 63 (SC) (REFER PARA 2.3.7 OF THE IMPUGNED ORDER): COMMONLY, MANUFACTURE IS THE END RESULT OF ONE OR MORE PROCESS THROUGH WHICH THE ORIGINAL COMMODITY IS MADE TO PASS. THE N ATURE AND EXTENT OF PROCESSING MAY VARY FROM ONE CASE TO ANOTHER, AND I NDEED THERE MAY BE SEVERAL STAGES OF PROCESSING AND PERHAPS DIFFERENT KINDS 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, TAKE THE COMMODITY TO THE POINT WHERE COMMERCIALLY IT CAN NO LONGER BE REGARD ED AS THE ORIGINAL COMMODITY BUT INDEED IS RECOGNIZED AS A NEW DISTINC T ARTICLE THAT A MANUFACTURE CAN BE SAID TO TAKE PLACE. CLEARLY, A NUMBER OF PROCESSES HAVE BEEN UNDERTAKE N, AS EXPLAINED BY THE ASSESSEE, ALSO ENCLOSING THE PROCESS FLOW CHART (PB PG.86), SO THAT WHAT NEEDS TO BE SEEN IS IF BY VIRTUE OF THE CHANGES EXPERIENCED, HAS TAK EN THE COMMODITY TRANSFORMED TO THE POINT WHERE IT CAN COMMERCIALLY BE NO LONGER REGARD ED AS THE ORIGINAL COMMODITY, BUT ONLY AS A NEW AND DISTINCT ARTICLE. WITHOUT DOUBT, THE PROCESSES UNDERTAKEN HAVE LED TO A COMMERCIALLY NEW AND DISTINCT PRODUCT, I.E., THE EL ECTRICAL CONTROL PANELS. HOWEVER, THE QUESTION STILL REMAINS IF THIS COULD BE SAID TO BE A MANUFACTURE. IN FACT, THE TEST FOR 6 ITA NO.8434/MUM/2010 (A.Y. 2007-08) I.T.O. VS. ADVANCE POWER ENGINEERING MANUFACTURE AS LAID DOWN BY THE APEX COURT, WHICH H OLDS THE FIELD TO DATE, ADOPTED BY THE FIRST APPELLATE AUTHORITY, IS NOT MUCH DIFFERENT FR OM THE SECTION 2(29BA), TO WHICH REFERENCE HAS BEEN MADE BY THE AO, AND TAKEN AS DEF INING MANUFACTURE. IN OUR OPINION, THE PROCESS UNDERTAKEN CANNOT BE SAID TO AMOUNT TO MANUFACTURE. THIS IS FOR THE SIMPLE REASON THAT INHERENT IN THE MEANING OF THE TERM MA NUFACTURE IS THE CHANGE BROUGHT ABOUT ON ONE OR EVEN MORE THAN ONE PRINCIPAL RAW MATERIAL S, SO AS TO TRANSFORM THE SAME INTO A NEW AND DISTINCT PRODUCT. SOME SIMPLE EXAMPLES TO I LLUSTRATE THE CONCEPT WOULD BE AS UNDER; WE DELIBERATELY CHOOSING EXAMPLES OF PRODUCT S OF EVERYDAY USE, SO AS TO CONVEY THE CONCEPT: - A WRITING PENCIL (FROM LEAD AND WOOD AS RAW MATERIA LS); - FURNITURE, AS (SAY) WOODEN TABLE, CHAIR, ETC. (FROM WOOD); - A DRESS FROM CLOTH MATERIAL, ETC. WHAT IN CONTRADISTINCTION, TRANSPIRES IN THE INSTA NT CASE IS THAT ALL THE FABRICATED COMPONENTS ARE ASSEMBLED IN A DEFINITE MANNER, EACH PERFORMING ITS FUNCTION, SO AS TO FUNCTION AS A COHESIVE UNIT, I.E., AS AFORE-STATED, A NEW AND DISTINCT PRODUCT, BOTH FUNCTIONALLY AS WELL AS COMMERCIALLY. AS SUCH, WITH OUT DOUBT THERE HAS BEEN PRODUCTION OF A NEW ARTICLE OR THING. MERELY BECAUSE THE SAME IS A RESULT OF ASSEMBLING, INVOLVING FEW OPERATIONS OR PROCESSES, SIMPLE IN NATURE, WITH LOW POWER CONSUMPTION, WOULD NOT IN ANY MANNER DETRACT FROM THE FACT THAT THE SAME HAVE LED TO A COMPLETELY NEW AND DISTINCT PRODUCT. NONE OF THE COMPONENTS HAVE UNDERGONE ANY CHANGE; RATHER, HAVE BEEN PUT IN PLACE TO PERFORM EXACTLY AS THEY HAVE BEEN MADE OR DESIGNED FOR, EXCEPT THAT ACTING IN UNISON AS AN INTEGRATED WHOLE, IT MAKES FOR A FUNCT IONALLY NEW PRODUCT. TAKE THE CASE OF A POTTER MAKING POTS FROM CLAY, OR SAY A SCULPTOR MAK ING A STATUE, AND SO ON. COULD THEY BY ANY MEANS BE SAID TO MANUFACTURE A POT OR A STATU E. YET, UNDENIABLY, THE EARTHEN POTS OR STATUTE CANNOT BE EQUATED WITH CLAY WHICH REMAINS THE SAME, SO THAT A NEW PRODUCT HAS EMERGED. AS SUCH, THOUGH NOT MANUFACTURE, THE PRO CESSES UNDERTAKEN BY THE ASSESSEE WOULD AMOUNT TO PRODUCTION, WHICH EQUALLY QUALIFI ES FOR DEDUCTION U/S.80-IB(1). REFERENCE IN THIS CONTEXT MAY BE MADE TO THE DECISI ON IN THE CASE OF CIT VS. TATA 7 ITA NO.8434/MUM/2010 (A.Y. 2007-08) I.T.O. VS. ADVANCE POWER ENGINEERING LOCOMOTIVE AND ENGINEERING CO. LTD. [1968] 68 ITR 325 (BOM), WHICH STANDS RELIED UPON BY THE LD.CIT(A). ITS STAND EXPLAINED THEREIN THAT PRODUCTION OR MANUFACTURE MEANS BRINGING INTO EXISTENCE SOMETHING DIFFERENT FROM IT S COMPONENTS. IN THE FACTS OF THE CASE, THE ASSESSEE WAS ENGAGE IN ASSEMBLY OF BUS/TRUCK CH ASIS FROM IMPORTED PARTS ON A KNOCK DOWN CONDITION. THE ORIGINAL COMPONENTS RETAINING T HEIR IDENTITY, AS IN THE INSTANT CASE, THE QUESTION AS TO WHETHER THE SAME LED TO MANUFACT URE OR PRODUCTION AROSE. THE HONBLE COURT ADVOCATED A BROADER CONSTRUCTION OF THE TERM, USING THE WORDS MANUFACTURE AND PRODUCTION INTERCHANGEABLY. IN FACT, THE ACT HAS USED BOTH THESE WORDS TOGETHER, SO THAT THE TWO, WHEREVER THE CONDITION FOR THE SAME IS PRE SCRIBED, HAVE TO BE READ IN CONJUNCTION. IT BECOMES IMMATERIAL THEREFORE WHETHE R THE PROCESSING UNDERTAKEN LEADS TO MANUFACTURE OR PRODUCTION. IN FACT, THE TERM PRODU CTION IS WIDER IN SCOPE, EVEN AS EXPLAINED TIME AND AGAIN BY THE APEX COURT; AS PER ITS RECENT DECISION IN THE CASE OF VIJAY SHIP BREAKING CORPOR. VS. CIT [2009] 314 ITR 309 (SC), HOLDING THAT SHIP BREA KING ACTIVITIES GAVE RISE TO THE PRODUCTION OF DISTINCT AND A DIFFERENT ARTICLE. THE OBJECTION RAISED IN THIS RESPECT BY THE A.O. IS, THUS, WITHOU T MERIT. 3.3 THE A.O.S SECOND OBJECTION IS THAT THE ASSESSE E IS PROCURING GOODS ON A CONTRACT BASIS FROM THE CONTRACTORS, WHO SUPPLY IT ELECTRIC CONTROL PANELS AS ASSEMBLED BY THEM AT THEIR OWN PREMISES LOCATED AT KALYAN, THANE AND MUM BAI, AS THE CASE MAY BE. THE SAME IS INFERRED ON THE BASIS OF THE BILLS RAISED BY THE M ON THE ASSESSEE, WHICH RAISE CHARGES ON IT BY WAY OF PER UNIT CHARGES FOR ASSEMBLY OF PANE LS AS PER DRAWING; ASSEMBLY AND WIRING AS PER DRAWING, ETC. IT IS ON THIS BASIS TH AT IT IS STATED BY HIM THAT THE PARTS STAND ASSEMBLED BY THE CONTRACTORS AT THEIR OWN WORKS, SU PPLYING THE GOODS TO THE ASSESSEE IN THE FABRICATED, ASSEMBLED FORM, SO THAT EVEN NO ASS EMBLY WORK STANDS UNDERTAKEN BY IT. THIS WOULD ALSO BE APPARENT FROM THE FACT THAT THE ASSESSEES CLOSING STOCK AS AT THE YEAR- END WAS AT RS.6.71 LACS, I.E., AS AGAINST THE MONTH LY TURNOVER OF NEARLY RS.34 LACS. THE ASSESSEE CLAIMING BEFORE THE LD. CIT(A) OF THE SAID ADVERSE INFERENCES HAVING BEEN DRAWN AND ACTED UPON BY THE A.O. WITHOUT CONFRONTING HIM OR GIVING AN OPPORTUNITY TO EXPLAIN THE MATTER, ALSO PLACING ON RECORD AFFIDAVITS FROM THE LABOUR CONTRACTORS TO THE EFFECT THAT 8 ITA NO.8434/MUM/2010 (A.Y. 2007-08) I.T.O. VS. ADVANCE POWER ENGINEERING THEY WERE ONLY SUPPLIERS OF LABOUR (PB PGS. 135-138 ), THE LD. CIT(A) CALLED UPON THE ASSESSEE TO PRODUCE THE LABOUR CONTRACTORS. ACCORDI NGLY, TWO OF THE THREE LABOUR CONTRACTORS, I.E., SHRI MILIND SHIRKE PROPRIETOR (O F M2 ELECTRICALS) AND SHRI GEORGE KUTTI, WERE PRODUCED BEFORE HIM IN PERSON ON 26.08.2010. T HE TWO CONFIRMED TO HAVE CARRIED OUT THE LABOUR CONTRACT WORK IN THE APPELLANTS FAC TORY PREMISES AT DAMAN. THE ADDRESSES GIVEN IN THEIR CONTRACT BILLS WERE OF THEIR RESIDEN CES AT THANE AND MIRA ROAD, MUMBAI. ON THE BASIS THEREOF THE LD. CIT(A) WAS OF THE VIEW THAT THEY WERE MERE LABOUR CONTRACTORS HAVING NO BUSINESS ESTABLISHMENT, AND O NLY SUPPLIERS OF LABOUR ON CONTRACT BASIS. IN THIS REGARD, OUR OBSERVATIONS AGAIN DO NOT EXACT LY MATCH WITH THAT OF THE FIRST APPELLATE AUTHORITY, THOUGH TO NO MATERIAL EFFECT. WE HAVE PERUSED THE RELEVANT DETAILS, PLACED AT PGS. 126 TO 134 OF THE ASSESSEES PAPER-B OOK. THE SAME CLEARLY STATES OF THE CHARGES AS BEING TOWARDS ASSEMBLED UNITS. IF THE CO NTRACTORS WERE ONLY LABOUR CONTRACTORS, THE BILLS RAISED BY THEM WOULD ONLY STATE THE NUMBE R OF PERSONS SUPPLIED ON A PER MONTH OR PER DAY (I.E., PER UNIT OF TIME) BASIS. ON THE O THER HAND, THE BILLS MAKE IT CLEAR THAT THE CHARGES RAISED ARE IN RESPECT OF THE SPECIFIC WORK PERFORMED, AND IT IS ONLY ON THE BASIS OF THE COMPLETED WORK THAT THE TERMS OF THE CONTRACT G ET FULFILLED AND THE CONTRACTOR ENTITLED TO HIS CHARGES. THE SAME IS ONLY, THEREFORE, A WORK CONTRACT. THIS FINDING BY US WOULD HOWEVER, BE OF LITTLE CONSEQUENCE. THIS IS AS WITHO UT DOUBT THE WORK IS CARRIED OUT AT THE ASSESSEES WORKS AT DAMAN UNDER THE SUPERVISION OF HIS STAFF AS WELL AS THE PARTNERS, TWO OF THREE OF THEM BEING QUALIFIED ENGINEERS. APART T HEREFROM, WORK IN ALSO CARRIED OUT AT THE CUSTOMERS SITE, WHICH MAY BE OF COMMISSIONING, AND CHARGES IN RESPECT OF WHICH ARE ON TIME BASIS. THE DETAILS IN RESPECT OF LABOUR CHA RGES STAND PROVIDED BY THE ASSESSEE VIDE ITS LETTER DATED 20.10.2009 TO THE A.O., REPRODUCED AT PG. 9 OF THE ASSESSMENT ORDER. THE PRODUCTION BEING CARRIED OUT IN THE ASSESSEES FACT ORY PREMISES, AS PER THE SPECIFICATIONS PROVIDED BY THE ASSESSEE, AND UNDER ITS SUPERVISION , IT WOULD MATTER LITTLE WHETHER THE LABOUR ENGAGED FOR THE PRODUCTION WORK IS PAID FOR ON TIME BASIS OR ON PER UNIT PRODUCTION BASIS, AS IN THE INSTANT CASE. THE A.O.S SECOND OB JECTION IS, THUS, AGAIN TO NO EFFECT. 9 ITA NO.8434/MUM/2010 (A.Y. 2007-08) I.T.O. VS. ADVANCE POWER ENGINEERING 3.4 THE THIRD OBJECTION BY THE A.O. IS WITH REGARD TO THE LOW POWER CONSUMPTION, WHICH HE INFERS TO BE IN RESPECT OF A LIGHT CONNECT ION, SO THAT NO POWER HAD ACTUALLY BEEN UTILIZED FOR PRODUCTION. WE HAVE ALREADY CLARIFIED THIS TO BE A MERE FIGMENT OF THE A.O.S IMAGINATION. THIS IS AS THERE IS NOTHING ON RECORD TO SHOW THAT ALL THE RAW MATERIALS WERE FIRST TRANSPORTED TO THE PREMISES OF THE CONTRACTOR S (WHO HAVE IN FACT SUBSEQUENTLY CLARIFIED THE SAME TO BE ONLY THEIR RESIDENCES), AN D LATER ON THE FINISHED GOODS BEING SHIPPED TO THE ASSESSEES WORKS, FROM WHERE THESE A RE BILLED TO THE ASSESSEES CUSTOMERS. IN FACT, A MERE REFERENCE TO THE EXCISE RECORDS, BE ARING THE INPUTS AND THE OUTPUTS, AS ALSO THE STOCK RECORDS, WOULD HAVE CLARIFIED THE MATTER TO THE A.O. COMING BACK TO THE QUESTION OF THE POWER UTILIZATION, AS EVIDENT, THE PROCESSES INVOLVED ARE CUTTING, DRILLING, WELDING, WIRING AND ASSEMBLING. THE SAME CLEARLY E NTAIL POWER CONSUMPTION. FURTHER, AS APPARENT, THE MACHINES EMPLOYED FOR THE PURPOSE REQ UIRE LOW POWER, WHICH EXPLAINS THE LOW POWER CONSUMPTION, WHICH STANDS IN FACT ALSO PA RTLY EXPLAINED IN TERMS OF THE LOW POWER TARIFF. THIS OBJECTION, THUS, IS AGAIN WITHOU T BASIS. 3.5 THE NEXT AND THE LAST OBJECTION RAISED BY THE A .O. IS THE LOW QUANTUM OF PLANT AND MACHINERY. FOR THE SAME TO BE APPLICABLE, THE AO OU GHT TO HAVE REQUIRED THE ASSESSEE TO LIST OUT THE DIFFERENT MACHINERIES, INCLUDING THEIR CAPACITY, FROM ITS RECORDS, AND WHICH WOULD THEN HAVE TO BE MATCHED WITH THE VARIOUS PROC ESSES CARRIED OUT. IF THERE IS NO MACHINERY FOR A PARTICULAR PROCESS, OR A CAPACITY M ISMATCH, THE SAME ONLY IMPLY THAT EITHER THE SAID PROCESS IS NOT CARRIED OUT AT THE A SSESSEES PREMISES OR THAT THE SAID MACHINERY, IN WHATEVER NUMBER, HAS BEEN ACQUIRED OU T OF BOOKS. THE A.O. HAS NOT DONE ANY SUCH EXERCISE AND, AS SUCH, NOT CARRIED HIS INV ESTIGATION TO ITS LOGICAL END, EVEN AS THE ASSESSEE HAS, TO ITS CREDIT, SUPPLIED THE DETAIL OF ITS ENTIRE MACHINERY ALONG WITH THE COPY OF THE RELEVANT INVOICES TO THE A.O. DURING THE COU RSE OF THE ASSESSMENT PROCEEDINGS (REFER PARA V OF THE ASSESSEES WRITTEN SUBMISSIONS BEFORE THE A.O., WHICH APPEAR AT PAGE 12 OF THE IMPUGNED ORDER). MERE LOW INVESTMENT IN MACHINERY, WHICH IS ONLY ON ACCOUNT OF THE VARIOUS PROCESSES CARRIED OUT BEING ELEMENTA RY, REQUIRING LOW POWER, BESIDES BEING LABOUR INTENSIVE, WOULD BE TO NO EFFECT. IN FACT, T HE ASSESSEE IN THIS REGARD HAS ALSO 10 ITA NO.8434/MUM/2010 (A.Y. 2007-08) I.T.O. VS. ADVANCE POWER ENGINEERING CLARIFIED THAT PER MISTAKE ONE AIR COMPRESSOR MACHI NE PURCHASED DURING THE YEAR FROM M/S. BIMPEX MACHINES PVT. LTD. FOR RS.56,060/- HAD BEEN INADVERTENTLY DEBITED TO THE PURCHASE ACCOUNT, SO THAT THE NECESSARY ADJUSTMENT MAY BE MADE, I.E., INCREASING ITS PROFIT TO THAT EXTENT, WHILE ALLOWING DEPRECIATION @ 25% O N THE SAID MACHINERY. NO SUCH ADJUSTMENT HAS BEEN DIRECTED BY THE LD. CIT(A), WHI CH HE OUGHT TO HAVE IN VIEW TO THE ASSESSEE CONCEDING TO THE SAID ERROR IN ITS ACCOUNT S FOR THE YEAR. WE DIRECT ACCORDINGLY, SO THAT THE AO SHALL CARRY OUT THE REQUIRED VERIFICATI ON AND ALLOW DEPRECIATION AS EXIGIBLE. THE SAME WOULD HAVE NO TAX EFFECT THOUGH INASMUCH A S THE ASSESSEES INCREASED INCOME WOULD QUALIFY FOR DEDUCTION. THE OBJECTION BY THE A .O., HOWEVER, WOULD NOT SURVIVE. 4. IN VIEW OF THE FOREGOING, IN OUR CLEAR VIEW THE PROCESSES UNDERTAKEN BY THE ASSESSEE FOR THE PRODUCTION OF ELECTRICAL POWER DIS TRIBUTION AND CONTROL EQUIPMENTS AT ITS WORKS LOCATED AT DAMAN (UT), BEING ADMITTEDLY AN IN DUSTRIAL BACKWARD AREA SPECIFIED IN THE EIGHT SCHEDULE OF THE ACT, WOULD AMOUNT TO PROD UCTION THEREOF, SO THAT THE PROFITS DERIVED FROM THE SAID INDUSTRIAL UNIT ARE ELIGIBLE FOR DEDUCTION U/S.80-IB(1) R.W.S. 80- IB(4) OF THE ACT. WE STATE SO ON THE BASIS OF THE F INDING THAT THE OBJECTIONS RAISED BY THE REVENUE TO THE ASSESSEES CLAIM IN THIS REGARD AS B EING NOT VALID, SO THAT THE ASSESSEES CLAIM HAS BEEN CORRECTLY UPHELD BY THE LD. CIT(A). WE DECIDE ACCORDINGLY. 5. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . 9 6: &+$ 5 )9& 5 &6 ; ORDER PRONOUNCED IN THE OPEN COURT ON JUNE 21,, 201 3 *(8 5 7. )( <*:&= 21 , 2013 5 B SD/- SD/- (D. MANMOHAN) (SANJAY ARORA) !'# / VICE PRESIDENT () %*+ / ACCOUNTANT MEMBER MUMBAI; <* DATED : 21.06.2013 $..%./ ROSHANI , SR. PS 11 ITA NO.8434/MUM/2010 (A.Y. 2007-08) I.T.O. VS. ADVANCE POWER ENGINEERING *(8 5 26C D(C.6 *(8 5 26C D(C.6 *(8 5 26C D(C.6 *(8 5 26C D(C.6/ COPY OF THE ORDER FORWARDED TO : 1. /1 / THE APPELLANT 2. 23/1 / THE RESPONDENT 3. E ( ) / THE CIT(A) 4. E / CIT - CONCERNED 5. C$HB 26 , , / DR, ITAT, MUMBAI 6. B- I / GUARD FILE *(8% *(8% *(8% *(8% / BY ORDER, ! !! !/ // /% & % & % & % & (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI