TaxTMI 
TaxTMI 
2012 (5) TMI 189
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....and crossobjections:- ITA no.1863 to 1866/A/09[AYs. 2001-02 to 2003-04 & 2005-06] 1. The Ld. CIT(A) has erred in law and on facts in not allowing the deduction u/s 80IB of the IT Act of Rs.47,68,774/-. in the AY 2001- 02, Rs.44,54,661/- in the AY 2002-03, Rs.1,01,17,628/-in the AY 2003-04 & Rs.1,29,53,650 in the AY 2005-06 1 On the facts and in the circumstances of the case, the ld. Commissioner of Income-tax (Appeals)-XIV, Ahmedabad ought to have upheld the order of the AO. 2 It is, therefore, prayed that the order of the ld. Commissioner of Income-tax (Appeals)-XIV, Ahmedabad may be set-aside and that of the AO be restored. CO no.159/A/09[AY 2001-02] 1. "The learned Commissioner of Income Tax (Appeals) has erred in holding that the proceedings u/s. 147 has been validly initiated. In the facts of the case, proceedings u/s. 147 are invalid and void-abinitio and therefore required to have been quashed. It is submitted that it be so held now. 1.1 The learned Commissioner of Income Tax (Appeals) has erred in holding that notice u/s 148 has been validly issued. In the facts of the case, notice u/s 148 cannot be issued after the expiry of four years from the end of ....
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....end all or any of the grounds before the final hearing of cross objection." CO no.161/A/09[AY 2003-04] 1. The learned Commissioner of Income Tax (Appeals) has erred in holding that the proceedings u/s. 147 has been validly initiated. In the facts of the case, proceedings u/s. 147 are invalid and void-abinitio and therefore required to have been quashed. It is submitted that it be so held now. 1.2 The learned Commissioner of Income Tax has erred in not appreciating the fact that the proceedings u/s 147 of the Income tax Act were initiated on the basis of the same facts which were not only available to him but also dealt with during the assessment proceedings before passing the assessment order u/s 143 (3) of the Act resulting into initiation of the proceedings merely on account of change of opinion. It is submitted that reassessment cannot be done on account of change of opinion. It be so held now. 1.2 The learned Commissioner of Income Tax (Appeals) has erred in upholding the validity of order passed u/s. 147 r.w.s. 143(3). It is submitted that where assessment u/s. 143(3) has been made, no action u/s. 147 can be taken after expiry of four years from the ends of relevan....
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....4,47,000/-. 3 On the facts and in the circumstances of the case, the ld. Commissioner of Income-tax (Appeals)-XIV, Ahmedabad ought to have upheld the order of the AO. 4 It is, therefore, prayed that the order of the ld. Commissioner of Income-tax (Appeals)-XIV, Ahmedabad may be set-aside and that of the AO be restored." CO no.163/A/09[AY 2006-07] 1 "The learned Commissioner of Income Tax has erred in rejecting the claim of copyright expense of Rs.2,23,500 (being 50% of Rs.4,47,000). It is submitted that the amount paid to a foreign company, Climator AB towards charges for agreeing to sell their products exclusively to the assessee for a period of one year. Since the benefit of such expense does not have enduring benefit, the same should have been treated as revenue expenditure. It is submitted that it be so held now. 2 The learned Commissioner of Income Tax has erred in confirming disallowance in respect of slow moving inventory of Rs.1,49,490/- holding that the amount being a provision cannot be allowed. It is submitted that provision of slow moving inventory is in accordance with sound accounting principles which requires to account for such losses. It is further s....
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....e appeal of the Revenue for the AY 2004-05 relating to deduction under section 80IB of the Income-tax Act, 1961 [hereinafter referred to the "Act"], facts, in brief, as per relevant orders for the AY 2004-05 are that return declaring income of Rs.2,00,92,070/- filed on 31.10.2004 by the assessee-company, engaged in business of manufacturing & installation of prefabricated telecom shelters and refrigeration bodies, was selected for scrutiny with the issue of a notice u/s 143(2) of the Act on 31-01-2005. During the course of assessment proceedings, the Assessing Officer [AO in short] noticed that the assessee claimed a deduction of Rs.71,09,267/ - u/s 80-IB of the Act. To a query by the AO, the assessee explained that the assessee was engaged in the manufacture and installation of telecom shelters made for mobile phone operators. While explaining the process of manufacture, the assessee pointed out that these shelters set in completely knock down condition, were erected on site. Since these shelters were different from their components purchased by the company, relying on the decisions in CIT Vs. Tata Locomotive & Engineering Co. Ltd 68 ITR 325 and Ship Scrap Traders Vs. CIT 25....
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....ct the equipment inside from ingress of moisture, dust, and humidity and were vandal proof. Ideally the shelters should be supplied to the customers in fully built-up condition as was done in foreign countries. But because of the constraints of transportation, lifting facilities at the sites etc. these were dispatched as kits in knocked down condition and erected at the sites. Some of the manufacturing processes were then completed at the sites. It was pointed out that the shelters may have their outer and inner skins of either steel or aluminum formed sheets, which were in the form of rigid panels with injected polyurethane foam as insulation material. The shelter sizes were governed by the qualitative requirements (QR) and specifications given by the customers based on the QRs. Based on the design parameters set, production drawings of the panels were made for manufacturing. The main raw material and components required for these shelters was detailed as under:- - Panels made of steel / aluminium sheets and injected with PU foam as per the drawings and specifications laid down by the design department. - GI coils for external and internal angles. - Locking mechanism usin....
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....f the case and the submissions of the A.R. carefully. The A.O. has disallowed the claim of deduction u/s.80 IB of the Act on two grounds, first that the final product is an immovable property and secondly the process of bringing the final product into existence is not manufacturing. As regards, first issue the appellant has contended that its final product is an article or thing and it is 'movable' and that the test of movability or immovability is not defined in IT. Act; rather it is governed by general law. The A.O. has relied upon the decision of the Apex court in the case of N.C.Budhiraja & Co. to treat the Shelters as immovable properly as in that case it was held that dam is not an article. As contended by the A.R. and as can be seen from the purchase order issued by Reliance Communications Limited filed at page B-89 of the paper book submitted by the A.R., the transaction is liable to excise duty and sales tax which implies that the transaction involves a movable property. The purchase order also involves transportation, packing, forwarding and unloading of goods, these facts lead to the conclusion that the product is a movable property. Further as per the decisions cited un....
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....as far as their application is concerned, both the levies are not applicable if the property is immovable. Based on the above said criteria and the case laws cited by the A.R., I hold that telecom shelters are movable properties. 7.3 The second issue is whether the activity of the appellant can be said to be manufacturing or not. The A.O. has relied upon the decision in the case of Lucky Minmat Pvt. Ltd. Vs. CIT. However, the said decision has been rendered on a different set of facts and process. The appellant fills rightly pointed out that in case of Lucky Minmat, even after mining or cutting limestone and marble, the end product remains same commodity as commercially known and mere is no change in its character or its use and based on such reasoning, it was not treated as manufacture. In the appellant's case, however, it uses various raw materials as listed in its submissions like panels made of steel or aluminium sheets, GI coils, PVC rolls, GI / aluminum coils and skid clamps and many such materials are used to provide a weather proof shelter and once the telecom shelter is prepared, one can not recognize the panels, skid and screws etc. used to prepare the shelters .The fi....
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....e case of CIT Vs. Tata Locomotive & Engineering Co. Ltd. [1968] 68 ITR 325 (Bom.) also, the prevailing set of facts are similar to those prevailing in the case of the appellant. The said ratio is directly applicable in the case of the appellant. Based on the above referred relevant extracts of the said decision of the Apex court I hold that the appellant does fulfill the test of manufacturing also. Also the decision of Ship Scrap Traders cited by the A.R. supports the case of the appellant. The said decision holding ship breaking activity as a manufacturing activity has been confirmed by the Apex court in case of Vijay Ship Breaking Corporation as reported in 175 Taxman 77 (SC). In the case of Aspinwall & Co. Ltd. vs. CIT 251 ITR 323 the Supreme Court had held as under: "Held, reversing the decision of the High Court, that the assessee after plucking or receiving the raw coffee berries made them undergo nine processes to give them the shape of coffee beans. The final product was absolutely different and separate from the input. The change made in the article resulted in a new and different article which was recognized in the trade as a new and distinct commodity. The co....
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....omponents, apparently the assessee manufactured or produced an 'article' or 'thing' in their industrial undertaking. While referring to photographs of the product placed before us, the ld. AR pointed out that these can be dismantled and re-erected at different sites. Moreover, the assessee paid excise duty and sales tax on such products. Had these shelters not been moveable and marketable, these Acts would not be applicable. The product was covered in substantive definition of manufacture and fell in Tariff Entry no.9406 and can be contrasted with the labelling and relabelling of tobacco Products, considered as a processing liable to excise duty. The ld. AR pointed out that the decision of Bomaby High Court in case of Hutchison Max Telecom Pvt. Ltd. (supra) was not applicable to the facts of the case of the assesseee as that related to a telecom service provider and the product was 'telecom tower' whereas assessee supplied telecom shelters to such mobile service provider and their product was different from the one considered by Bombay High Court in Hutchison's case. Inter alia, the ld. AR relied on a decision of the Hon'ble Supreme Court in the case of Commissioner of Central Exci....
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....iveted with the angles already fitted on the floor panels. (e) The front wall is put together by connecting the two side panels and the small panel above the door openings and the threshold strips. Before inserting the threshold strips, the door frame is inserted and riveted to the side panels. (f) The side walls are riveted to the floor angle. Once all four walls are standing, the vertical corner angles are riveted to the side walls, the roof panels are joined together by applying the sealant and operating the cam lock. It is then placed on top of the side walls. (g) Once the side walls have been matched accurately with the walls then the roof angles are joined to the roof panel and the wall panels. A total of approximately 3000 rivets are used in the installation of a shelter with the help of a riveting gun, which is operated by an air compressor. (h) Once the box of the shelter is ready the door panel is placed in the door frame and insert nuts are accurately placed both on the door panel and the right side wall panel to fix the hinges. This is a very precise operation and requires extreme skills for doing it. Then holes are made in the door frame and the door profil....
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....vides that unless there is something repugnant in the subject or context 'immovable property' under the Transfer of Property Act, 1882 does not include standing timber, growing crops or grass. Section 3(26) of the General Clauses Act, 1897, similarly does not provide an exhaustive definition of the said expression. It reads : "Section 3(26) : "immovable property" shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth." The AO in the assessment order while relying upon the decision in NC Budhraja & Another(supra) and Shivalik Poultries (supra) concluded that the assessee did not manufacture or produce an article or thing. In both these decisions issue was altogether different. In the former, the Hon'ble Apex Court was examining the issue as to whether construction of dam was manufacture or production of an article and in the latter the issue was as to whether poultry shed could be treated as plant within the meaning of sec. 43 of the Act. The issue and context in these decisions were, apparently, altogether different. The construction of dam or sheds could not be equated with manufacture or....
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....duty paid components tantamounts to manufacture of excisable goods within the meaning of Section 2(d) of the Central Excise Act, 1944,observed in their decision in Commissioner Of Central Excise, Ahmedabad, vs. Solid & Correct Engineering Works & Ors, 2010-(005)-SCC -0122-SC that the issue has to be examined as to whether the annexation of the plant is with the object of permanent beneficial enjoyment of the land or building. Accordingly, the Hon'ble Apex Court adjudicated the issue in the following terms: "Applying the above tests to the case at hand, we have no difficulty in holding that the manufacture of the plants in question do not constitute annexation hence cannot be termed as immovable property for the following reasons: (i) The plants in question are not per se immovable property. (ii) Such plants cannot be said to be "attached to the earth" within the meaning of that expression as defined in Section 3 of the Transfer of Property Act. (iii) The fixing of the plants to a foundation is meant only to give stability to the plant and keep its operation vibration free. (iv) The setting up of the plant itself is not intended to be permanent at a given place.....
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....c industry like telecom service providers' industry. Since the end product is a separate product which came into being as a result of the endeavour and activity of the assessee, apparently the product was manufactured by the assessee. Since the product is movable as concluded by us already and the activities fullfill the conditions stipulated u/s 80IB of the Act, nothing prevents the assesee from claiming deduction u/s 80IB of the Act. This view of ours is supported by decision in CIT Vs. Tata Locomotive & Engineering Co. Ltd. [1968] 68 ITR 325 (Bom.), wherein the assembling of the parts received by the assessee in C. K. D. condition and transforming those basic materials into the finished product, namely, a fully automotive truck/bus chasis, was held to be "manufacture". The Hon'ble Supreme Court in the matter of CIT v. N. C. Budharaja & Co. [1993] 204 ITR 412 (SC) held, "The test for determining whether manufacture can be said to have taken place is whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity but is recognised in the trade as a new and distinct commodity." The Hon'ble Supreme Court in the case of CIT v....
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....aforesaid definition and as is generally understood, `manufacture' implies a change, and such change must entail a transformation; a new and different article must emerge having a distinctive name, character or use. Thus, `manufacture' , ordinarily signifies emergence of new and different goods as understood in relevant commercial circles. The Corpus Juris Secundum defines it as the production of article for use from raw or prepared material by giving these materials new forms, qualities, properties, or combinations, whether by hand labour or machinery; also anything made for use from raw or prepared materials". According to Webster's Dictionary, manufacture means to work, raw or partly wrought materials, into suitable forms for use, as to manufacture wool, iron, etc. to make (wares or other products) by hand, by machinery or other agency. Thus, literally speaking the process of manufacture involves some transformation or change in the material as a result of application of art or a mechanical manipulation. The material, which is thus fashioned into a new product, may be distinct in form or in use. In the light of these features of the word manufacture, we reiterate that the assemb....
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.... of the company, visited Germany to attend the Board Meetings of the company held in Germany in August & December 2003 while visits to Gulf were for soliciting orders for the telecom shelters as evidenced by the orders from Alwaleed Syscom W.I.I., Alan Dick & Co. and export worth Rs.19.52 Lacs,. While pointing out that visit to Bahrain & Bhutan was for installation of Telecom shelters supplied by the company, it was contended that the documentary evidence filed by the assessee had not been questioned by the Assessing Officer nor the purpose of visit and that the expenditure was incurred wholly and exclusively for the purpose of business. In the light of these submissions, the ld. CIT(A) concluded as under: 6.2 I have considered the facts of the case and the submissions of the A.R. carefully. The appellant has furnished details of expenses along with purpose of such expenses. As the expenses have been incurred for the purpose of business and the foreign visit was undertaken for attending board meetings in Germany by the directors and for procuring orders from foreign countries, I do not find any justification for disallowance of these expenses. The A.O. in his remand report has s....
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....ilable before us nor any such evidence is subject matter of discussion in the impugned order. As is apparent from the orders of lower authorities, the assessee did not furnish even details of places visited abroad before the AO nor any evidence of purpose of visit at each of the places so visited abroad nor even furnished break up of expenditure incurred at each of these places. The onus is on the assessee to prove that expenditure is incurred wholly and exclusively for the purpose of business. The said onus has not been discharged by the assesseee even when the AO sought details/evidence of purpose of visit to foreign countries. The ld. CIT(A) without having complete facts and details, deleted the disallowance. Apparently, the order of the ld. CIT(A) is not well reasoned or speaking. Even before us, details of each of the places/companies or persons visited by the director/employees of the assessee has not been filed nor even break of expenses incurred by the assessee at each of these places so visited abroad nor the ld. AR even referred to us any evidence regarding purpose of visit at each of the places visited abroad. The ld. AR merely invited our attention to page 34-64 of the ....
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....ad. Therefore, ground no.1 in the appeal of the Revenue for the AY 2004-05 is disposed of. 12. Next ground no.2 in this appeal of the Revenue for the AY 2006-07 relates to depreciation on copy right expenses @ 25% of Rs.4,47,000/-. while ground no.1 in the corresponding CO relates to treating the amount of Rs. 2,23,500/-capital in nature. The assessee claimed expenses of Rs. 2,23,500/- in their P&L Account. To a query by the AO, the assessee submitted that the said expense represented the amount paid to a foreign company, Climator AB towards charges for agreeing to sell their products exclusively to the assessee for a period of one year. Total amount incurred for the above said purpose was Rs.4,47,000/-. However, only half of the amount was expensed out and balance was carried as prepaid expenses. Since exclusivity right was granted to the assessee only for one year and did not have enduring benefit, the same should be treated as revenue expenditure, the assessee pleaded. Alternatively, the assessee claimed depreciation u/s 32 of the Act @ 25% treating the same as an intangible asset. However, the AO did not accept the submissions of the assessee and concluded that copyright exp....
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....eir submissions before the learned CIT(A). 15. We have heard both the parties and gone through the facts of the case. Though the assessee submitted before the lower authorities and even before us that the amount of Rs.4,47,000/- represented the amount paid to a foreign company, Climator AB towards charges for agreeing to sell their products exclusively to the assessee for a period of one year, the relevant terms and conditions or a copy of the agreement has not been placed before us. As is apparent from the aforesaid findings in the impugned order in the instant case, the ld. CIT(A) while agreeing with the AO did not analyse the issues raised by the assessee in their explanation nor even brought out as to how the expenditure is capital in nature and why the entire amount of Rs. 4,47,000/- is entitled to depreciation in the year under consideration. A mere glance at the impugned order reveals that the order passed by the ld. CIT(A) is cryptic and grossly violative of one of the facets of the rules of natural justice, namely, that every judicial/quasi-judicial body/authority must pass reasoned order, which should reflect application of mind by the concerned authority to the issues....
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....lant and the observations of the assessing officer in the assessment order. It is seen that my predecessor vide his order No. CIT(A)-XIV/Cir.8/146/07-08 dated 06-01-2009 clearly held that the activities of the appellant company are manufacturing activity. Hence, the provisions of section 32(1)(iia) are applicable to the instant case. The provisions of the said section laid down as under:- "In the case of any new machinery or plant (other than ships and aircrafts), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to twenty percent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii)." 4.2.1 Therefore, having considered the facts and circumstances of the case, I am inclined to direct the assessing officer to allow the additional depreciation u/s 32(1)(iia) of the Act as claimed by the appellant and thereby to delete the addition made by him of Rs.2,44,495/-. Thus, this ground of appeal is allowed." 18. The Revenue is now in appeal before us against the aforesaid findings of the learned CIT(A). The le....
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....the same u/s 28 /37 of the Act being the loss arising in the course of business. 33. Details of the provision made of slow moving inventory is as under:- S.No. Item Name Unit Qty Value 1 Skid Clamp (Ambulance) Nos 36.00 3,100.00 2 Air Filter 275 x 275 (Aluminium) Nos 35.00 7,264.72 3 Door Handle 100 mm Nos 32.00 1,876.95 4 Aluminium Jamb Profile 100 x 3200 mm Kgs 190.00 38,408.91 5 Aluminium Door Profile 100 x 3100 mm Kgs 160.000 42,415.22 6 Lock Set Godrej (Double Latch) Nos 7.00 8,492.40 7 Godrej Ultra Motise-CK Lock (Single Latch) Nos 35.00 48,931.80 140,490.00 34 However the learned AO disallowed the same on non availability of any evidence regarding the irrecoverability of the alleged loss. In this connection, the appellant submits that the as no orders related to the materials were received the same were written off to the profit and loss account. The said loss being incidental to the carrying of business shall be allowed and hence the said disallowance being untenable needs to be deleted. 35 It is submitte....
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....erage investment in terms of Rule 8D of the IT Rules,1962 . However, the AO did not accept the submissions of the assessee and computed the disallowance u/s. 14A r.w.r. 8D of the IT Rules,1962 as under: Direct expenditure Rs. NIL Interest exp. 6264000 X [33,30,000] 213193000 Rs.97,841/- Administrative Exp. ½ % of ( 3330000 ) Rs.16,550/- Total Rs.1,14,491/-" 26. On appeal, the learned CIT(A) upheld the disallowance made by the AO in the following terms: - "5.2. I have considered the submissions made by the A. R. of the appellant. I have also gone through the decisions, referred to above, which are relied upon by the A. R. and the observations of the assessing officer in the assessment order, I am not inclined to accept the contentions put forth by the AR of the appellant. In the case of ITO vs. Daga Capital Management (312 ITR (AT) 1) Mumbai Special Bench held that the onus is on assessee to prove that expenditure was incurred to earn taxable income and further in view of Rule 8D onus and apportioning expenditure have become academic. 5.2.1. The appellant did not furnish the year(s) of investment in mutual funds. They could not su....
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....e relying on decision of his predecessor in the AY 2004-05 and decisions in ITO vs. Daga Capital Management (312 ITR (AT) 1) Mumbai Special Bench, Southern Petro Chemicals Industries vs. CIT, 93 TTJ 161(Chennai), and Rhythem Exports (Pvt.) Ltd. Vs ITO, 2 SOT 429 (Mum.), upheld the disallowance. 28.1 We further find that recently, Hon'ble Bombay High Court in their decision dated 12.8.2010 in case of Godrej & Boyce Mfg.Co.Ltd. Mumbai. in the ITA no. 626/2010 while adjudicating a similar issue in the context of provisions of sec. 14A of the Act and Rule 8D of the IT Rules,1962 concluded that Rule 8D, inserted w.e.f 24.3.2008 cannot be regarded as retrospective because it enacts an artificial method of estimating expenditure relatable to taxfree income. It applies only w.e.f AY 2008-09. For the assessment years where Rule 8D does not apply, the AO will have to determine the quantum of disallowable expenditure by a reasonable method having regard to all facts and circumstances, the Hon'ble High Court concluded. 28.2. Hon'ble Supreme Court in their decision dated 6.7.2010 in CIT v. Walfort Share & Stock Brokers (P.) Ltd., 326 ITR 1, inter alia, observed that for attracting section....
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....eans that if an income does not form part of total income, then the related expenditure is outside the ambit of the applicability of section 14A. Further, section 14 specifies five heads of income which are chargeable to tax. In order to be chargeable, an income has to be brought under one of the five heads. Sections 15 to 59 lay down the rules for computing income for the purpose of chargeability to tax under those heads. Sections 15 to 59 quantify the total income chargeable to tax. The permissible deductions enumerated in sections 15 to 59 are now to be allowed only with, reference to income which is brought under one of the above heads and is chargeable to tax. If an income like dividend income is not a part of the total income, the expenditure/deduction though of the nature specified in sections 15 to 59 but related to the income not forming part of total income could not be allowed against other income includible in the total income for the purpose of chargeability to tax. The theory of apportionment of expenditures between taxable and non-taxable has, in principle, been now widened under section 14A. Reading section 14 in juxtaposition with sections 15 to 59, it is clear tha....
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....ly benefit assessee derived is dividend income which is not assessable under the Act, the disallowance under Section 14A is squarely attracted and the Assessing Officer, in our view, rightly disallowed the claim. As already pointed out, the Calcutta High Court decision which pertains to the period prior to introduction of Section 14A, has no application. The decision of the Supreme Court also does not apply because in this case apart from investment in shares of the company, there is nothing to indicate that the assessee's business was fully linked with the business of the leasing company or that assessee's business is solely dependent on the business of the leasing company. In fact, the whole transaction was a total fiasco in as much as, as against Rs.17,44,310/- paid towards interest on borrowed funds serviced at the rate of interest of 24% p.a., the dividend income received by the assessee during the previous year was a meagre sum of Rs.3 lakhs. This only shows that the business carried on by the leasing company was not very substantial to justify the assessee's investment through borrowed funds. Therefore, in our view, the principle of commercial expediency gone into by the Sup....