ITO, Baddi V. M/s Sardool Enterprises, Solan

ITA 88/CHANDI/2013

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 2551 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-12-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 04-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: RATTAN KAUR; SSH A K JINDAL
• Keywords: Assessment record
• Section: 143(3); 148

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT & MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO. 88/CHD/2013 ASSESSMENT YEAR : 2004-05 THE ITO, VS. M/S SHARDOOL ENTERPRISES, BADDI, (H.P) BADDI, DISTT.SOLAN PAN NO. AAVFS7061C (APPELLANT) (RESPONDENT) APPELLANT BY : SH. MANJIT SINGH RESPONDENT BY : S/SH. A.K. JINDAL & MS. RATTAN KAU R DATE OF HEARING : 03.12.2015 DATE OF PRONOUNCEMENT : 18.01.2016 . ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OR CIT(A) SHIMLA DATED 5.11.2012 RELATING TO ASSESSMENT YEAR 2004-05. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE IN THIS APPEAL READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES, THE LD. CIT( A) HAS ERRED IN DELETING / ALLOWING THE DEDUCTION U/S 80IC OF THE I.T. ACT, 1961, WHICH WAS RIGHTLY DISALLOWED BY THE ASSESSING OFFICER . 2 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2004-05 ON 29.10.200 4 DECLARING NIL INCOME AFTER CLAIMING DEDUCTION U/S 80IC OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') AMOUNTING TO RS. 33,91,573/-. THE ORIGINAL AS SESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON 28.12.2006 AND THE INCOME OF T HE ASSESSEE WAS DETERMINED AT RS. 50,000/- AS AGAINST NIL RETURNED INCOME. LATER ON, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD GOT BATTERY PLATES MA NUFACTURED ON JOB WORK BASIS FROM THIRD PARTY. THE ASSESSING OFFICER TOOK THE VI EW THAT THE ASSESSEE HAD NOT DERIVED THE INCOME FROM ITS OWN MANUFACTURING ACTIV ITIES, THEREFORE, THE ASSESSEE WAS NOT ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT AMOUNTING TO RS. 33,91,573/-. CONSEQUENTLY, THE ASSESSING OFFICER IS SUED NOTICE U/S 148 OF THE ACT TO THE ASSESSEE AFTER RECORDING THE REASONS. I N RESPONSE TO THE NOTICE ISSUED U/S 148 OF THE ACT, THE ASSESSEE SUBMITTED ITS RETU RN OF INCOME ON 13.12.2011 DECLARING SAME INCOME AS WAS SHOWN IN THE ORIGINAL RETURN OF INCOME SUBMITTED ON 29.10.2004. THE ASSESSING OFFICER ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE REQUIRING THE ASSESSEE TO EXPLAIN AS TO WHY DEDUCTI ON U/S 80IC SHOULD NOT BE DISALLOWED AS THE INCOME WAS NOT EARNED FROM THE MA NUFACTURING ACTIVITIES. IN RESPONSE TO THE ABOVE QUERY, THE ASSESSEE SUBMITTED ITS REPLY VIDE LETTER DATED 23.12.2011 WHICH IS REPRODUCED BY THE ASSESSING OFF ICER AT PAGE 3 OF THE ASSESSMENT ORDER. THE MAIN CONTENTION OF THE ASSES SEE WAS THAT THE JOB WORK WAS DONE TO GET THE BATTERY PLATES ONLY WHICH WAS ALSO A COMPONENT AS OTHER COMPONENTS LIKE CONTAINER, LID COVER, SEPRATOR, GLA SS MAT, PP SIM ETC. THE ASSESSEE FURTHER EXPLAINED THAT THERE WERE TWO WAYS TO GET PLATE. EITHER IT CAN BE PRODUCED FROM OUTSIDE OR GET THE LEAD FROM OUTSIDE AND MAKE THE PLATE IN HOUSE. SINCE THE ASSESSEE WAS NOT HAVING ANY FACILITY TO M AKE THE PLATE IN HOUSE, AND THEREFORE, IT USED TO PURCHASE THE RAW MATERIAL OF LEAD FROM OUTSIDE AND USED TO GIVE IT TO M/S VASUNDHRA INTERNATIONAL, FARIDABAD F OR MAKING PLATES. THE ASSESSEE FURTHER SUBMITTED THAT ALL REQUIRED MACHIN ERY FOR COMPLETE 3 MANUFACTURING OF BATTERIES WAS INSTALLED AND PUT TO USE IN THE RELEVANT PERIOD. THE ASSESSEE ALSO SUBMITTED THE LIST OF MACHINERY P URCHASED FROM MANUFACTURER OF THE BATTERIES. AS REGARDS THE INSTALLMENT OF EFF LUENT TREATMENT PLANT (ETP), THE ASSESSEE SUBMITTED THAT THE SAME IS REQUIRED FO R TWO PROCESSES, ONE IS FOR MAKING PLATES AND OTHER IS FOR FILLING THE ACID IN THE BATTERIES. BOTH THE PROCESSES WERE NOT THE PART OF THE MANUFACTURING PR OCESS, THEREFORE, THE ASSESSEE DID NOT REQUIRE ETP IN THE RELEVANT PERIOD. THE ASS ESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSES SEE FIRM RESORTED TO GETTING ITS PLATE MANUFACTURED ON JOB WORK BASIS AS IT DID NOT HAVE NECESSARY ETP FACILITIES. ACCORDINGLY, THE ASSESSING OFFICER DREW THE CONCLUS ION THAT THE ASSESSEE WAS NOT HAVING PLANT AND MACHINERY DURING THE FINANCIAL YEA R 2003-04 RELATING TO ASSESSMENT YEAR 2004-05. HE, THEREFORE, DISALLOWED THE DEDUCTION U/S 80IC OF THE ACT AMOUNTING TO RS. 33,91,573/- AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 4. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE, OBSERVING AS UNDER:- 4. THE RIVAL SUBMISSIONS HAVE BEEN CAREFULLY CONSID ERED WITH REFERENCE TO THE FACTS OF THE CASE, THE RELEVA NT ASSESSMENT RECORDS AND THE INSPECTION REPORT SUBMIT TED BY THE A.O. IT IS NOTED THAT THE APPELLANT HAD DULY EX PLAINED THE ENTIRE MANUFACTURING PROCESS TO THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, BUT THE A.O. HAS NOT RESPONDED TO THE SAID EXPLANATION OF THE APPELLANT. THE A.O. HAS THUS NOT MENTIONED AS TO HOW THE PROCUREME NT OF THE BATTERY PLATES ON JOB-WORK-BASIS DILUTED THE MANUFACTURING PROCESS CARRIED OUT BY THE APPELLANT. AS PER THE INSPECTION REPORT OF THE INSPECTOR OF THE OFFIC E OF THE ITO, BADDI AND AS PER HIS VERBAL EXPLANATION, THE A PPELLANT 4 HAS INSTALLED VARIOUS TYPES OF MACHINES THROUGH WHI CH AN ELABORATE MANUFACTURING PROCESS IS BEING CARRIED OU T BY THE ASSESSEE TO MANUFACTURE BATTERIES. IT HAS BEEN DULY CONFIRMED BY THE INSPECTOR THAT THE BATTERY PLATES CONSTITUTES ONLY ONE COMPONENT OF THE BATTERIES BEI NG MANUFACTURED BY THE ASSESSEE, AND THEIR PROCUREMENT FROM OUTSIDE CANNOT NEGATE THE ENTIRE MANUFACTURING ACTI VITY CARRIED OUT BY THE ASSESSEE. THE A.O. HAS REJECTED THE APPELLANTS CLAIM FOR DEDUCTION U/S 80IC OF THE ACT PURELY ON THE ASSUMPTION THAT THE ASSESSEE DID NOT HAVE AN Y PLANT AND MACHINERY DURING THE YEAR UNDER CONSIDERATION. A PERUSAL OF THE RELEVANT ASSESSMENT RECORDS HOWEVER, REVEALS THAT THE APPELLANT HAD DULY PURCHASED PLANT AND MAC HINERY WORTH MORE THAT RS. 17 LACS DURING THE YEAR. THE A. O. HAS REJECTED THE CLAIM OF THE APPELLANT U/S 80IC OF THE ACT SIMPLY ON THE GROUND THAT IT WAS NOT MANUFACTURING THE BATTERY PLATES, AND IT DID NOT HAVE THE EFFLUENT TR EATMENT FACILITY. BUT THE A.O. HAS NOT CONTROVERTED THE APP ELLANTS CLAIM THAT IT DID NOT REQUIRE AN EFFLUENT TREATMENT PLANT, AS IT WAS GETTING THE BATTERY PLATES ON JOB WORK BASIS AND WAS MANUFACTURING ONLY THE DRY BATTERIES. A PERUSAL OF THE NOC ISSUED BY THE H.P. STATE ENVIRONMENT PROTECTION AND POLLUTION CONTROL BOARD, BADDI ISSUED ON 27/01/2004 SHOWS THAT THE APPELLANT UNIT WAS ENGAGED IN THE MANUFACT URING OF ALL TYPES OF DRY BATTERIES. A PERUSAL OF THE PROCES S-FLOW- CHART, AS WELL AS OF THE REPORT SUBMITTED BY THE A. O. BADDI ON THE BASIS OF ON-THE-SPOT-VERIFICATION OF THE APP ELLANTS MANUFACTURING PROCESS STARTS WITH BRUSHING, ENVELOP ING ETC. OF THE SAID PLATES. THE BATTERY PLATES ARE ONE OF T HE MANY COMPONENTS USED IN THE MANUFACTURING OF THE BATTERI ES, AND ARE PROCURED BY THE APPELLANT LIKE OTHER COMPONENTS OF THE BATTERIES. THE APPELLANT OPTED TO GET THE PLATES ON JOB- WORK-BASIS IN ORDER TO CUT ITS COST. IT IS FURTHER NOTED THAT THE APPELLANT WAS ENGAGED IN THE MANUFACTURING OF O NLY THE DRY BATTERIES, AND DID NOT, THEREFORE, NEED AN EFFL UENT TREATMENT PLANT. 5 4.1 IN VIEW OF THE DISCUSSION ABOVE, THE DISALLOWAN CE MADE BY THE A.O. IN A TOTALLY ADHOC MANNER WITHOUT CONDUCTING ANY ENQUIRIES IS NOT FOUND SUSTAINABLE. THE ADDITION OF RS. 33,91,573/- IS ACCORDINGLY DIRECTED TO BE DELETED. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS APPAR ENT FROM THE RECORD THAT DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE HAD PURCHASED PLANT AND MACHINERY FOR MANUFACTURING OF BATTERY. LIST OF PLANT AND MACHINERY INSTALLED FOR MANUFACTURING OF BATTER Y IS AVAILABLE AT PAGES 6 TO 8 OF THE ASSESSEES PAPER BOOK. THE ASSESSEE HAD PU RCHASED PLANT AND MACHINERY OF RS. 17,90,615/-. ON A PERUSAL OF THE ASSESSMENT ORDER IT WOULD BE CLEAR THAT ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSE E U/S 80IC OF THE ACT ON THE GROUND THAT IT WAS NOT MANUFACTURING THE BATTERY P LATES AS IT DID NOT HAVE THE EFFLUENT TREATMENT PLANT FACILITY. BEFORE US, THE A SSESSEE HAS SUBMITTED THE FLOW CHART OF BATTERY MANUFACTURING, WHICH IS AS UNDER:- FLOW CHART OF BATTERY MANUFACTURING DOC TITLE : PROCESS FLOW CHART (BATTERY ASSEMBLY) REV. NO. 00 DATE 00 PAGE NO. 1 OF 1 GROUPING (NEGATIVE & POSITIVE) PARTS CASTING ELEMENT BURNING (PLATE TERMINATION) PLATES GRINDING & SEGRIGATION SEPERATOR & GLASS MAT SEGRIGATION SEPERATOR & GLASS MAT INSERTION 6 PREPARED BY : SD/- APPROVED BY: SD/- 6. THE ASSESSEE HAS ALSO SUBMITTED A LIST OF RAW MA TERIAL REQUIRED FOR MANUFACTURING OF DRIED BATTERIES, WHICH IS AS UNDER :- MANUFACTURING PROCESS DROPPING (CELL POSITIONING) CONTAINER HOLE PUNCHING CELL SETTING(50/50) HIGH VOLTAGE TEST INTER CELL WELDING HIGH VOLTAGE TEST SHEAR TEST CONTAINER COVER HEAT SEALING TERMINAL BUILDING AIR PRESSURE TEST SR. NO. PUNCHING FINISHING & PACKING 7 1. MELTING OF THE LEAD ALLOY RODS TO BE FILLED IN T HE DYE FOR THE MANUFACTURING OF PART CASTING LIKE LED BAR, LEFT RI GHT STRAP, MIDDLE STRAP AND POLE. 2. HOLE PUNCHING INTO BATTERY CONTAINERS. 3. LUG GRINDING OF BATTERY PLATES (NEGATIVE & POSIT IVE) 4. BURNING OF PLATES AND PARTS TO PREPARE A GROUP F OR THE BATTERY CELL. 5. INSERTION OF SEPRATORS AND GLASS MATS IN THE GRO UP. 6. DROPPING OF GROUPS INTO BATTERY CONTAINER. 7. INTER CELL WELDING OF ABOVE GROUPS IN A BATTERY CONTAINER THROUGH INTERPRETED CELL WELDING MACHINE. 8. SHEAR TESTING FOR ABOVE CELLS. 9. LID FILLING THROUGH HEAT SEALING MACHINE. 10. AP TESTING FOR CHECKING OF LID FILLING. 11. POLL BURNING OF NEGATIVE & POSITIVE POINTS. 12. SL. NUMBER PUNCHING. 13. FINISHING & PACKING OF THE BATTERY. MAJOR RAW MATERIALS ARE: 1. BATTERY PLATES (NEGATIVE & POSITIVE) 2. LEAD OXIDE / ALLOY 3. BATTERY CONTAINERS. 4. BATTERY LTD. 5. VENT PLUGS & HANDLES. 6. SEPRATORS. 7. GLASS MATS. 8. HARDWARE. 9. TERMINAL GELLY. 10. RUBBER GURMET. 11. POLYTHENE 12. THERMOCOLE. 13. P.BOX 14. THANKS & BEST REGARDS SD/- FOR SHARDOOL SHARDOOL ENTERPRISES 8 7. SHRI A.K. JINDAL, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD DULY EXPLAINED THE ENTIRE MANUFACTURING PROCESS OF DRY BATTERIES TO THE ASSESSING OFFICER BUT THE ASSESSING OFFICER HAS NOT PROPERLY APPRECIATED THE MANUFACTURING PROCESS OF DRY BATTERIES. SHRI A.K. J INDAL, LD. COUNSEL FOR THE ASSESSEE FURTHER POINTED OUT THAT ASSESSING OFFICER HAS NOT ASSIGNED ANY COGENT REASONS AS TO WHY THE PROCUREMENT OF BATTERY PLATES ON JOB WORK BASIS DILUTED THE MANUFACTURING PROCESS CARRIED OUT BY THE ASSESS EE. IN OUR VIEW, THE LD. CIT(A) HAS CORRECTLY APPRECIATED THIS FACT THAT THE BATTERY PLATES CONSTITUTES ONLY ONE COMPONENT OF THE BATTERY BEING MANUFACTURED BY THE ASSESSEE, THEREFORE, PROCUREMENT FROM OUTSIDE CAN NOT NEGATE THE ENTIRE MANUFACTURING ACTIVITY CARRIED OUT BY THE ASSESSEE. THERE IS NO DISPUTE TH AT THE ASSESSEE HAD INSTALLED PLANT AND MACHINERY DURING THE PERIOD RELEVANT TO T HE ASSESSMENT YEAR UNDER CONSIDERATION THROUGH WHICH AN ELABORATE MANUFACTUR ING PROCESS WAS BEING CARRIED OUT BY THE ASSESSEE TO MANUFACTURER DRY BAT TERIES. THE ASSESSEE HAS ALSO SUBMITTED AN EXTRACT OF EXCISE LAW TO SHOW THAT MAN UFACTURING OF DRY BATTERIES IS A MANUFACTURING ACTIVITY AND IT IS COVERED UNDER CL ASSIFICATION CODE 8506, A COPY OF THE LETTER DATED 28.4.2004 ISSUED BY THE EX CISE DEPARTMENT IS AVAILABLE AT PAGES 3 TO 5 OF THE ASSESSEES PAPER BOOK. IT IS ALSO RELEVANT TO MENTION HERE THAT ASSESSEE IS POSSESSING NOC DATED 27.01.004 ISS UED BY HP STATE ENVIRONMENT PROTECTION AND POLLUTION CONTROL BOARD, BADDI, A COPY OF THE SAID CERTIFICATE IS AVAILABLE AT PAGES 9 TO 12 OF THE AS SESSEES COMPILATION. TAKING INTO ACCOUNT THE ABOVE FACTS, IT IS CRYSTAL CLEAR T HAT THE ASSESSEES UNIT IS ENGAGED IN THE MANUFACTURING OF DRY BATTERIES. IT I S TRUE THAT THE BATTERY PLATES ARE ONE OF THE COMPONENTS USED IN THE MANUFACTURING OF BATTERIES AND ARE PROCURED BY THE ASSESSEE LIKE OTHER COMPONENTS OF THE BATTERIES. IT IS STATED THAT THE ASSESSEE OPTED TO GET THE PLATES ON JOB WORK B ASIS IN ORDER TO CUT ITS COST. WE ALSO AGREE WITH THIS OBSERVATION OF THE CIT(A) T HAT THE ASSESSEE WAS ENGAGED IN THE MANUFACTURING OF ONLY DRY BATTERIES AND, THE REFORE, IT DID NOT REQUIRE THE 9 ETP IN THE RELEVANT PERIOD. THUS, CONSIDERING THE E NTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE DO NOT FIND ANY VALID GROUN D IN INTERFERING WITH THE ORDER OF CIT(A), AND ACCORDINGLY WE UPHOLD THE SAME. 8. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18.01.2016 SD/- SD/- (RANO JAIN) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED 18 TH JANUARY, 2016 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR