TaxTMI 
TaxTMI 
2012 (12) TMI 410
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....ncern is to an associate firm M/s. Sigma Electro systems. During the course of assessment proceedings in the case of M/s. Aerosys, the AO carried out a survey U/s.133A(1) on 29-10-2003. On the basis of findings of the survey and enquiries carried out subsequently the AO came to the conclusion that the assessee firm is not entitled to deduction claimed u/s. 80IA of the I.T. Act on account of the following reasons : a. The assessee has not employed 10 or more employees in the manufacturing activity at Silvassa. b. Assessee has not carried out any activity of manufacturing but only the activity of stitching of sleeves and assembling of cable looms are done. c. The assessee has not used any power for activity as was shown from the electricity bills impounded which shows that the bill of only Rs 3,626/- which has also been confirmed by Sri Umesh Patel, the assessee's employee in his statement. Thus the assessee has not used any power for the activity carried out by it which requires the assessee to employ 20 or more persons, to be eligible for the deduction u/s.80IA. 2.1 The AO also disallowed labour charges and expenses on account of wages on the ground that the material ga....
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....ination was given by the CIT(A) in the course of some other proceedings relating to penalty under section 271(1)(c), and in the course of cross examination, Umesh Patel admitted that he was one of the workers in the unit and his statement was recorded as Supervisors and others were not available due to Diwali vacations. Umesh Patel also submitted that while making statements about the number of workers, he did not take into account the workers supplied by contractors. As we have noted earlier in this order, so far as the relevant labour contractors were concerned, the Assessing Officer has examined the same but brushed aside the examination on the ground that these contractors appeared to be tutored. The CIT(A) accepts that one of the foundations of the disallowance is 'discreet enquiries' conducted by the Assessing Officer, but then such discreet enquiries per se cannot be material enough to decline the deduction. What is found in a later year, incidentally in a year in which even deduction under section 80IA (2) was not claimed and in which the partnership did not even subsist, cannot be sufficient material to disregard the books of accounts, salary registers, cash books and othe....
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.... the definition of the employee, as is held by Hon'ble Gujarat High Court in the case of CIT Vs. Prithviraj Bhoorchand(280 ITR 94). In view of all these reasons, we are of the considered view that the CIT(A) was not justified in proceeding on the basis that the number of workers at Silvassa Unit were less than 10. The other issue is whether or not CIT(A) was justified in holding that no manufacturing of PCB actually took place at silvassa. We have noted that excise records show that manufacturing activity took place at Silvassa, and that there was in fact transfer of raw material from Nashik to Silvassa. There is no dispute that these goods were supplied to Sigma Electro Systems and, in the course of assessments of Sigma Electro Systems, these purchases have been accepted. It has not been the case of the revenue that the PCBs were actually manufactured by Sigma Electro Systems and not by this assessee. It is claim of the assessee that octroi was not applicable on purchases and that on sales octroi was the liability of the buyer, and, therefore, the assessee cannot be in a position of furnishing corroborative evidence by way of octroi payment records. Nothing has been brought on rec....
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....ndeed not justified in declining the deduction under section 80 IA (2) primarily on the basis of statement of Umesh Patel, diary notings of Manoj Saulanki which reflected payments to 4 workers only, and Assessing Officer's perceptions that the profit being shown by the assessee was unreasonably high and excessive. None of these factors, on the facts of the case, were germane to deciding assessee's eligibility to deduction under section 80 IA (2). It cannot be open to the Assessing Officer to presume that facts prevailing in the later years must also be taken to have prevailing in preceding years as well. Business situations can never be so static to have this kind of consistency in facts of each year. The condition laid down under section 80 IA(2) regarding employment of more than 10 workers has to be examined with respect to each year, as is held by a coordinate bench in the case of Vintage Cards & Creations Vs. ACIT (59 ITD 563). Having held so, however, we may also add that while the Assessing Officer need not be guided by the factors as discussed above, it is indeed his right, as also duty, to objectively examine as to whether or not a particular deduction such as under section....
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....dings proved that the electric consumption is not enough to manufacture or produce the items statedly manufactured/produced. 6. Sri Umesh Patil the employee in his statement recorded during the survey confirmed that no manufacturing activities are carried out at the Silvassa Unit. 7. In case of non use of power, to fulfil the condition of section 80IA of the I.T. Act the assessee should have employed 20 or more workers, which is not so. 8. Sri Umesh Patil the employee whose statement was recorded during the proceedings deposed that only himself and 4 others are employed in the Unit out of which one of them is a Sweeper. 9. Cash Vouchers impounded during survey indicate that salary has been paid only to the 4 said employees. The vouchers subsequently produced have no evidentiary value. 10. The claim of the assessee that labour was employed through labour contractor was proved otherwise during enquiries as the payments made to the labour contractors through bearer cheques were returned back to the assessee by the payees. 4. In appeal the learned CIT(A) allowed the claim of the assessee by holding as under : "6. I have carefully considered the orders of the AO pas....
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....on about use of power, however the same was not approved by the Hon'ble ITAT. Considering all the above claims, counter-claims and discussion, I am of the considered view that the appellant has carried out manufacturing activity with the aid of power, particularly in view of the fact that activity of soldering and testing of equipment cannot be carried out without the aid of the power. Therefore the minimum numbers of workers required to be employed by the appellant firm to claim the deduction u/s. 8IA of the Act is 10. 6.2 As regards contention of the AO that the appellant has manufactured only cable looms at Silvassa, it is noticed that the Hon'ble ITAT, Pune has rejected this contention of the AO in its order dated 30-06-2008 and has given finding as under : "There may not be conclusive evidence to prove this to the hilt, but there is no evidence to dislodge the claim of the assessee supported by excise and other statutory records as also by the evidence of purchase of raw material etc. that the production of PCB took place in Silvassa. We are thus unable to sustain the objection of the revenue either". In view of the above facts, the contention of the AO that appellant....
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...., I hold that in addition to own 10 or more workers the appellant has also employed about 15 to 30 workers through labour contractors in the manufacturing activity, which are also to be counted for arriving at the required number of workers for claiming deduction u/s. 80IA of the Act. In view of the above facts, I hold that the appellant has employed much more than 10 workers in the manufacturing activity. 6.6 In view of the above discussion and respectively following the findings and directions given by Hon'ble ITAT, Pune, I hold that the appellant firm is eligible for deduction u/s. 80IA of the Act for the assessment years under appeal. The AO is directed accordingly". 5. Aggrieved with such order of the learned CIT(A) the Revenue is in appeal before us with the following grounds : "1. Whether on the facts and in the circumstances of the case, the learned CIT(A),-I, Nashik is justified in allowing the deduction u/s.80IA claimed by the assessee at Rs. 13,98,849/-? 2. Whether on the facts and in the circumstances of the case, the learned CIT(A),-I, Nashik was justified in holding that Printed Circuit Boards (PCBs) were manufactured by the assessee at the Silvassa Unit? ....
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....nation before the CIT(A) it was found that the statement was inconsistent with the facts on record. The Tribunal has further recorded a finding of fact that during the course of assessment proceedings, the Assessing Officer has recorded statements of the partner and another worker, both of whom confirmed that the number of persons actually working at the unit were more than 10. The Tribunal has recorded a finding of fact that the payment vouchers and books of accounts showing payments to these workers were produced before the Assessing Officer and payments to many of them were made through cheques. 3. In these circumstances, the deletion of the additions made by the Assessing Officer cannot be faulted. In the result, we see no merits in the appeal and the same is dismissed". From the above and in view of the order of the CIT(A) at Para 6.4 of his order it can be concluded that the assessee has employed 10 or more workers during the year. 7. As regards the objection of the AO that assessee has manufactured only cable looms at Silvassa we find the Tribunal had already discussed the issue which has been reproduced by the learned CIT(A) at Para 6.2 of his order according to wh....
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.... the same if found to be in order. The CIT(A) allowed relief of Rs. 55,650/- on account of payment of stitching and engraving job work and confirmed the balance addition of Rs. 56,75,391/- towards payments to labour contractors. 9.2 The AO and the assessee preferred appeal before the Tribunal and the ITAT vide order dated 30-06-2008 confirmed the relief granted by CIT(A) in respect of deduction u/s. 80IB(4) of Rs. 24,46,191/- and payment of stitching and engraving job work of Rs. 55,650/-. As regards disallowance of payments to labour contractors of Rs. 56,75,391/-, the Tribunal confirmed the addition of Rs. 44,05,741/- and set aside the balance addition of Rs. 12,88,634/- to the file of the AO. 9.3 In the setting aside proceedings the AO again disallowed the deduction u/s.80IB(4) claimed by the assessee The AO also disallowed the job work expenses and stitching charges of Rs. 55,650/-. Further the AO confirmed the addition of Rs. 12,85,634/- on account of payment to labour contractors which was set aside by the Tribunal to the file of the AO. 10. In appeal the learned CIT(A) partly allowed the claim of the assessee by holding as under : "4. The first ground of appeal i....
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....no infirmity in this either. The statements recorded in the survey proceedings, which are heavily relied upon by the Revenue, also justify this inference. The statement recorded in the course of the survey proceedings may not have much evidentiary value against the assessee, but there is sufficient corroborative material on record to suggest that the number of employees in the Silvassa unit at the relevant point of time may not be more than 10, and the assessee himself has revised the claim in question. In this view of the matter, we confirm the action of the CIT(A) in restricting the claim of deduction of the assessee as mde under section 80IB". 6.1 In view of the fact that the then AO has allowed deduction u/s.80IB(4) at 25% of the profit after recording statements-on-oath of the workers and after verifying provisions of Section 80IB(4) as directed by the CIT (Appeals) and as the Hon'ble ITAT, pune has confirmed the relief granted by by predecessor in respect of deduction u/s.80IB(4), the AO is not justified in disallowing the deduction u/s.80IB of the Act. The AO has ignored the decision of Hon'ble ITAT, Pune which is binding on him. In view of the above facts and discussion ....
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....owed. 8. As the first and second grounds are decided as above, the third ground needs no adjudication". 11. Aggrieved with such order of the CIT(A) the revenue is in appeal before us with the following grounds : "1. Whether on the facts and in the circumstances of the case, the learned CIT(A),-I, Nashik is justified in allowing the deduction u/s.80IB and granting relief to the assessee on this account of Rs. 49,17,668/-. 2. Whether on the facts and in the circumstances of the case, the learned CIT(A),-I, Nashik was justified in holding that Printed Circuit Boards (PCBs) were manufactured by the assessee at the Silvassa Unit? 3. Whether on the facts and in the circumstances of the case, the learned CIT(A),-I, Nashik was justified in holding that the assessee had used electric power at the Silvassa Unit for manufacture of PCBs? 4. Whether on the facts and in the circumstances of the case, the learned CIT(A),-I, Nashik was justified in holding that the assessee had employed 10 or more workers in the manufacturing Unit at Silvassa? 5. Whether on the facts and in the circumstances of the case, the learned CIT(A),-I, Nashik was justified in allowing relief to the ass....