ITO 24(3)(3), MUMBAI V. DINESH A PATEL, MUMBAI

ITA 88/MUM/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2723 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 03-12-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 06-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 80IB; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI A.L.GEHLOT, AM & SMT. P.MADHAVI DEVI, JM I.T.A.NOS.88 & 89/MUM/2009 A.YRS. 2004-05 & 2005-06 INCOME TAX OFFICER 24 (3) (3) MUMBAI VS. SHRI DINESH A. PATEL PROP. M/S AUTO POWER 22, VIRWANI INDL. ESTATE GOREGAON [EAST] MUMBAI 400 063 PAN NO.AACPP 2933 P (APPELLANT) (RESPONDENT) REVENUE BY : SHRI MOHD. USMAN. ASSESSEE BY : SHRI SUBHASH S. SHETTY. O R D E R PER P.MADHAVI DEVI, JM: THE APPEALS OF THE REVENUE ARE DIRECTED AGAINST CI T(A)S CONSOLIDATED ORDER DATED 27/10/2007 FOR THE ASSESSM ENT YEARS 2004- 05 AND 2005-06. 2. SINCE GROUNDS OF APPEAL RAISED IN BOTH THE APPEA LS ARE COMMON, WE ARE REPRODUCING GROUNDS OF APPEAL ARISING OUT OF I.T.A.NO.88/M/09 FOR A.Y 2004-05 HEREIN BELOW: 1. ON THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT[A] HAS FAILED TO APPRECIATE THE CONDITIONS LAID DOWN IN SECTION 80IB[2][IV] OF THE INCOME TAX ACT. 2. ON THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT[A] IS CORRECT IN RELYING ON THE NEW REGISTER OF EMPLOYEES IGNORING THE FACT THAT THE NOTEBOOK FOUND AT THE TI ME OF SURVEY CONTAINED OF L7 EMPLOYEES ONLY AND THIS FACT WAS AL SO 2 CONFIRMED AND ADMITTED BY THE PROPRIETOR MR. DINESH PATEL IN HIS STATEMENT RECORDED UNDER OATH AT THE TIME OF SU RVEY. 3. ON THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT[A] FAILED TO APPRECIATE THAT IN THE CASE OF INC OME-TAX OFFICER VS. VENKATESH ELECTRO PLATERS AS REPORTED I N 45 ITD 95, IT WAS HELD THAT ASSESSEE HAS TO FULFILL ALL THE CO NDITIONS REQUIRED AS PER SECTION 80IB[2][IV] OF THE INCOME T AX ACT. 4. ON THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT[A] FAILED TO IGNORE THE OBSERVATIONS MADE BY TH E HON'BLE THE SUPREME COURT JUDGMENT IN THE CASE OF PERTON EN GINEERING CONSTRUCTION PVT. LTD. AND ANOTHER VS. CENTRAL BOAR D OF DIRECT TAXES AND OTHERS AS REPORTED IN 175 ITR 523. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S AN INDIVIDUAL WHO IS THE PROPRIETOR OF M/S AUTO POWER ENGAGED IN THE BUSINESS OF MANUFACTURING OF A.C. DRIVES AND ELECTRIC COMPONEN TS HAVING ITS FACTORY AT DAMAN, A UNION TERRITORY. THE ASSESSEE F ILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS.4,75,540/- FOR A.Y 04-05 AFTER CLAIMING DEDUCTION U/S.80IB OF RS.1,05,067/-. THE S AME WAS PROCESSED U/S.143[1] OF THE INCOME TAX ACT. SUBSEQUENTLY, THE RE WAS A SURVEY ACTION AT THE BUSINESS PREMISES OF THE ASSESSEE ON 17-2-2006. THEREAFTER TO VERIFY THE GENUINENESS OF THE CLAIM O F DEDUCTION U/S.80IB OF THE ACT, NOTICE U/S.148 WAS ISSUED AND IT WAS OB SERVED BY THE AO THAT DURING THE COURSE OF SURVEY IT WAS NOTICED THA T THE ASSESSEE HAD 8 EMPLOYEES ENGAGED IN MANUFACTURING ACTIVITY WHILE I N REPLY TO THE NOTICE U/S.148, ASSESSEE HAD SUBMITTED DETAILS OF 1 1 EMPLOYEES OUT OF WHOM 3 PERSONS BELONGED TO OTHER THAN MANUFACTURING ACTIVITY. HE, THEREFORE, HELD THAT THE ASSESSEE IS NOT ELIGIBLE F OR DEDUCTION U/S.80IB OF THE ACT. THE ASSESSEE SUBMITTED TO THE AO THAT F OR THE PURPOSE OF 3 DEDUCTION U/S.80IB[10] ADMINISTRATIVE STAFF OF THE ASSESSEE SHOULD ALSO BE INCLUDED AS WITHOUT THEM THE ASSESSEE CANNOT RUN HIS BUSINESS. AO, HOWEVER, HELD THAT THE WORKER MENTIONED IN THE SEC. 80IB SHOULD BE INVOLVED IN THE MANUFACTURING PROCESS ONLY. HE FURT HER CONSIDERED OTHER ASPECT OF THE ASSESSEES BUSINESS AND HELD TH AT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S.80IB OF THE ACT FOR THE FOLLOWING REASONS: 1. IN SHORT PERIOD OF SEVEN DAYS ONE CANNOT PRODUCE GOODS OF RS.36,70,000/-. 2. MANUFACTURING CAPACITY OF THE MACHINERIES ARE DOUBTFUL. 3. PRODUCTION OF THE CONCERN AND CONSUMPTION OF ELECTRICITY DOES NOT CORRELATE. 4. SALES IS NOT SUPPORTED WITH EVIDENCE I.E. DESTINATI ON, SALE BILLS, MODE OF TRANSPORT AND DELIVERY CHALLANS . 5. NUMBER OF EMPLOYEES/WORKERS LESS THAN TEN. HE ACCORDINGLY DISALLOWED THE DEDUCTION U/S.80IB. A GGRIEVED BY THE SAME, ASSESSEE FILED AN APPEAL BEFORE THE CIT[A] P RODUCING RELEVANT EVIDENCE IN SUPPORT OF HIS CONTENTIONS. AFTER CONSI DERING THE SAME, THE CIT[A] AT PARAS 4.6.2 TO 4.6.3 HAS HELD AS UNDER: 4.6.2 NOW I TAKE UP THE ISSUE OF NUMBER OF EMPLOYE ES ENGAGED IN THE MANUFACTURING PROCESS. DURING THE ASSESSMENT PR OCEEDING THE APPELLANT SUBMITTED THE PARTICULARS OF 11 WORKERS W ORKING IN DAMAN UNIT. THE ASSESSING OFFICER DID NOT DOUBT ABOUT TH E GENUINENESS OF THE EMPLOYMENT OF ANY WORKER. HE DISALLOWED THE CLA IM OF DEDUCTION U/S.80IB FOR THE REASON THAT THREE OUT OF SUCH 11 W ORKERS WERE NOT DIRECTLY ENGAGED IN THE MANUFACTURING PROCESS. THE SAID THREE WORKERS WERE ENGAGED IN PURCHASE AND STORES OF RAW MATERIAL , SERVICING AND PRODUCT AND MAINTENANCE OF EXCISE RECORDS AND ACCOU NTS. IN THE CASE OF CIT VS. SULTAN SONS RICE MILL (2005) 145 TAXMAN 506 (ALL], THE ASSESSEE WAS RUNNING A RICE PLANT. HON'BLE ALLAHABAD HIGH C OURT UPHELD THE VIEW OF THE ITAT THAT THE WORKERS EMPLOY ED FOR BRINGING PADDY BAGS FROM OUTSIDE AND KEEPING THE SAME IN FAC TORY, DRYING PADDY AND CLEANING PLANT, REMOVING BHOOSI, HUSK, ET C. WERE WORKERS ENGAGED IN MANUFACTURING PROCESS. IT FURTHER HELD T HAT THE PROCESS STARTING FROM THE PURCHASE OF RAW MATERIAL TILL SAL E OF FINISHED GOODS FORMED PART OF MANUFACTURING PROCESS. IN THIS CASE AT LEAST TWO OF THE 4 THREE WORKERS WHO WERE ENGAGED IN PURCHASE AND STOR E OF RAW MATERIAL AND SERVICING AND PRODUCTION CANNOT BE SAI D AS NOT ENGAGED IN THE MANUFACTURING PROCESS. SO, EVEN IF THE WORKE R KEEPING THE RECORDS AND ACCOUNTS IS NOT CONSIDERED AS ENGAGED I N THE MANUFACTURING PROCESS, THE TOTAL NUMBER OF WORKERS EMPLOYED IN THE MANUFACTURING PROCESS WAS NOT LESS THAN 10 IN VIEW OF THE JUDGMENT OF HON'BLE ALLAHABAD HIGH COURT [SUPRA] AND SO THE CLA IM OF DEDUCTION U/S.80IB CANNOT BE REJECTED ON THIS GROUND. 4.6.3 THE ASSESSING OFFICER REFERRED TO SURVEY REP ORT AND THE STATEMENTS OF THE APPELLANT AND HIS EMPLOYER MRS. S .BAHADURI TO SHOW THAT THE NUMBER OF WORKERS WAS LESS THAN 10. THE SU RVEY WAS CONDUCTED ON 17/02/2006 AND THE SURVEY PARTY ASKED THEM THE QUERIES REGARDING THE NUMBER OF WORKERS EMPLOYED DU RING THAT TIME. THE SURVEY PARTY DID NOT ASK THE APPELLANT OR MR.BA HADURI ANY QUERY REGARDING THE NUMBER OF WORKERS EMPLOYED IN DAMAN U NIT IN EARLIER PERIODS. AT PRESENT I WOULD NOT LIKE TO GO INTO THE ISSUE OF NUMBER OF WORKERS EMPLOYED ON THE DAY OF SURVEY AS THIS ISSUE IS RELEVANT FOR THE A.Y 2006-07. BUT, THE FACTS REGARDING NUMBER OF WOR KERS EMPLOYED ON 17/02/2006 CANNOT BE MADE A BASIS TO HOLD THAT THE NUMBER OF WORKERS EMPLOYED IN THE A.Y 2004-05 WAS LESS THAN 1 0. IN FACT THE SPECIFIC QUESTION REGARDING THE NUMBER OF WORKERS E MPLOYED IN F.Y 2003-04 WAS RAISED BY THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDING OF A.Y 2005-06 BEFORE TWO WORKERS OF THE APPELLANT, MR. PREM RAJAN AND MR. CHANDRAJIT YADAV WHOM HE HAD SUM MONED ON 06/11/2007. BOTH OF THEM CATEGORICALLY STATED THAT THE NUMBER OF WORKERS EMPLOYED IN THE F.Y 2003-04 WAS APPROXIMATE LY 12. THE ASSESSING OFFICER ALSO REFERRED TO THE APPLICATION FORM FOR PROVISIONAL REGISTRATION AS SMALL SCALE INDUSTRIES IN THE REMAN D REPORT. IT IS DATED 20/09/2003 AND THE EMPLOYMENT COLUMN IS FILLED UP A S UNDER: MANAGEMENT AND OFFICE STAFF 2 SUPERVISOR AND WORKERS 12 IN MY OPINION THESE DOCUMENTS ONLY SHOW THE PROBABL E NUMBER OF EMPLOYEES THE APPELLANT WOULD ENGAGE AND SO THESE D OCUMENTS CANNOT BE TAKEN AS CONCLUSIVE PROOF REGARDING THE N UMBER OF EMPLOYEES ACTUALLY EMPLOYED BY THE APPELLANT. IN AN Y CASE THESE DOCUMENTS ALSO DO NOT SHOW THAT THE NUMBER OF WORKE RS EMPLOYED IN THE MANUFACTURING PROCESS WAS LESS THAN 10. IN VIEW OF ALL THESE FACTS AND DISCUSSIONS, I HOLD THAT THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S.80IB IN RESPECT OF DAMAN UNIT. THE ASSESSING OF FICER IS DIRECTED TO ALLOW THE DEDUCTION OF RS.1,05,066/- U/S.80IB. 4. WITH REGARD TO THE OTHER GROUNDS, ON WHICH AO RE JECTED THE CLAIM OF DEDUCTION U/S.80IB, CIT[A] HELD THAT THE SAME WAS NOT JUSTIFIED. AGGRIEVED BY THE ORDER OF THE CIT[A] IN HOLDING THAT THERE 5 WERE MORE THAN 10 EMPLOYEES WORKING IN THE FACTORY OF THE ASSESSEE, THE REVENUE IS IN APPEAL BEFORE US. 5. THE LD. DR RELIED UPON THE ORDER OF THE AO, WHIL E THE LD. COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE CIT[A] AND RELIED ON THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. 6. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDE RED THEIR RIVAL CONTENTIONS, WE FIND THAT THE CIT[A] HAS CONSIDERE D THE FACTUAL MATRIX OF THE CASE AND HAS RIGHTLY HELD THAT THE NUMBER OF WORKERS EMPLOYED ON 17-2-2006 CANNOT BE MADE THE BASIS TO HOLD THAT THE NUMBER OF WORKERS EMPLOYED IN A.Y 04-05 WERE LESS THAN 10. HE HAS ALSO REFERRED TO THE STATEMENT OF TWO OF THE WORKERS OF THE ASSES SEE, VIZ., MR. PREM RAJAN AND MR. CHANDRAJIT YADAV WHOM THE AO HAD SUMM ONED ON 6-11- 07 BOTH OF WHOM HAD CATEGORICALLY STATED THAT THE N UMBER OF WORKERS EMPLOYED IN THE F.Y 03-04 WAS APPROXIMATELY 12. IT IS ALSO SEEN THAT THE CIT[A] HAD CALLED FOR A REMAND REPORT FROM THE AO AND EVEN IN THE REMAND PROCEEDINGS, AO HAD NOT MADE ANY ENQUIRY OR VERIFIED THE NUMBER OF WORKERS EMPLOYED IN THE F.Y 03-04. IN VIE W OF THE SAME, WE ARE INCLINED TO AGREE WITH THE FINDINGS OF THE C IT[A] AND SEE NO REASON TO INTERFERE WITH THE SAME. 7. SIMILARLY FOR THE A.Y 2005-06 ALSO, THE NUMBER OF WORKERS EMPLOYED AS ON 17-2-06 CANNOT BE MADE THE BASIS FOR HOLDING THAT THE NUMBER OF WORKERS EMPLOYED IN THE F.Y 04-05 WAS LES S THAN 10. IN 6 VIEW OF THE SAME, THE ORDER OF THE CIT[A] FOR A.Y 2005-06 IS ALSO UPHELD. 8. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE DISMISSED. ORDER PRONOUNCED ON THIS 10 TH DAY OF DECEMBER, 2009. SD/- SD/- (A.L.GEHLOT) (P.MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI: 10TH DECEMBER, 2009. P/-* COPY TO- 1) APPELLANT 2) RESPONDENT 3) CITA MUMBAI. 4) CIT CITY MUMBAI 5) DR BENCH MUMBAI TRUE COPY BY ORDER DY /ASST.REGISTRAR,ITAT MUMBAI. 7 SR.NO. PARTICULARS DATE INITIALS 1 DRAFT DICTATED ON 4-12-09 P 2 DRAFT PLACED BEFORE AUTHOR 7-12-09 P 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 5 APPROVED DRAFT COMES TO SR.PS/PS 6 ORDER KEPT FOR PRONOUNCEMENT 7 FILE SENT TO BENCH CLERK 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER