TaxTMI 
TaxTMI 
2014 (4) TMI 936
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....e case. 3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the disallowance of Rs. 44,865/- u/s. 14A by invoking the provisions of Rule 8D of Income Tax Rules, 1962. 4. That in any view of the matter and in any case, the action of ld. CIT(A) in confirming the disallowance of Rs. 44,865/- u/s. 14a by invoking the provisions of Rule 8D of Income Tax Rules, 1962 is bad in law and against the facts and circumstances of the case. 5. That having regard to facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in passing the impugned order contrary to law and facts and without providing adequate opportunity and without considering the principles of natural justice. 6. That the appellant craves the lave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other. 3. Apropos issue of disallowance u/s. 14A, Ld. Counsel of the assessee submitted that he shall not be pressing the grounds raised in Ground No. 3 & 4 of the Grounds of Appeal. Accordingly,....
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....e. From the above, the Assessing Officer inferred that no manufacturing activity is being carried out by Ponta Sahib unit which can be claimed as eligible for deduction u/s. 80IC. Accordingly, Assessing Officer disallowed the claim of the assessee for deduction u/s. 80IC. 5. Before the Ld. CIT(A) assessee claimed that it undertook various operations in the nature of assembly, fastening, fabricating, testing etc. towards emergence of the final product and new product is formed by the activities under taken by the assessee. It was submitted that assembly in this case amounts to manufacturing. Assessee further submitted detailed submissions and flow process to justify that actual manufacturing activity was being carried out at the Ponta Sahib Unit. It was claimed that rubber parts were imported from Germany and the metal parts were manufactured at the Ponta Sahib Unit. Assessee further submitted that since the final product is different from the product imported by it. It is eligible for the requisite deduction u/s. 80IC of the Act. It was emphasized that the industrial activities carried out by the assessee tantamount to manufacturing or production of article or things. 5.1 How....
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....eal, but since earlier years i.e. in the assessment year 2007-08. Ld. Counsel further submitted that the assessment order for assessment year 2007-08 was passed u/s. 143(3) of the I.T. Act and deduction u/s. 80IC was allowed. This claim for deduction u/s. 80IC was also made for assessment year 2008-09 and was also allowed. Therefore, the Ld. Counsel of the assessee submitted that there is no justification for denying this deduction in the year under appeal when the facts are being identical. Ld. Counsel of the assessee in this regard referred to the following decision for the proposition that deduction if allowed in initial years cannot be denied in subsequent years. "Subhash Chandra Sehgal vs. DCIT 1126/Del/2008 dated 27.2.2009 (Page 127) 88 ITD 313 (Chd.) (3rd member) Deduction under s. 80J - Allowability - claim allowed in earlier years - Once the claim for deduction under section 80J has been allowed to the assessee in first year by the Tribunal and also for subsequent two years, such deduction is allowable for subsequent assessment year falling within the period of five years - CIT vs. Modi Industries Ltd. 48 DTR 364 (Delhi)." ....
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....mitted that Assessing Officer totally erred in his approach and has not been able to appreciate the facts of the case properly. 8.3 Ld. D.R. on the other hand relied upon the orders of the Assessing Officer and Ld. CIT(A). 9. We have carefully considered the submissions and perused the records. At the outset, we note that this is not the first year of assessee's claim for deduction u/s. 80IC for its Ponta Sahib Unit. It is infact the 3rd year. In the earlier assessment years 2007-08 & 2008-09, the assessee had been duly granted deduction u/s. 80IC. The assessment order for the assessment year 2007-08 shows that the deduction u/s. 80IC has been allowed even in assessment u/s. 143(3) of the Act. 9.1 In this regard, the decision referred by the Ld. Counsel of the assessee in C.I.T. vs. Modi Industries (Supra) is germane. In this case, the deduction was with respect to section 80J. It was observed that the claim was allowed in the earlier years. Hence, it was held that once the claim for deduction u/s 80J has been allowed to the assessee in the first year by the tribunal and also for the subsequent two years, such deduction was allowable in the subsequent assessment years with....
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.... before the 1st day of April, [2007], in any Export Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or Industrial Park or Software Technology Park or Industrial Area or Theme Park, as notified by the Board in accordance with the scheme framed and notified by the Central Government in this regard, in the State of Sikkim; or (ii) on the 7th day of January, 2003 and ending before the 1st day of April, 2012, in any Export Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or Industrial Park or Software Technology Park or Industrial Area or Theme Park, as notified by the Board in accordance with the scheme framed and notified by the Central Government in this regard, in the State of Himachal Pradesh or the State of Uttaranchal; or (iii) on the 24th day of December, 1997 and ending before the 1st day of April, 2007, in any Export Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or Industrial Park or Software Technology Pa....
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....he assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation.-The provisions of Explanations 1 and 2 to sub-section (3) of section 80-IA shall apply for the purposes of clause (ii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section. (5) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee, no deduction shall be allowed under any other section contained in Chapter VIA or in section 10A or section 10B, in relation to the profits and gains of the undertaking or enterprise. (6) Notwithstanding anything contained in this Act, no deduction shall be allowed to any undertaking or enterprise under this section, where the total period of deduction inclusive of the period of deduction under this section, or under the second proviso to sub-section (4) of section 80-IB or under section 10C, as the....
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.... year), as on the first day of the previous year in which the substantial expansion is undertaken; (x) "Theme Park" means such parks, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government.]" 13. From the above, it is evident that deduction u/s. 80IC is granted particularly to undertaking/enterprise referred to in either clause (a) or clause (b) of sub-section (2), to claim relief u/s. 80IC, the said undertaking/ enterprise must manufacture or produce an article or thing. What the terms "to manufacture or produce any article or thing" signifies has not been specifically defined in the Act. However, reference in this regard can be made to several case laws on this issue. "Deputy CST vs. PIO Food Packers (1980) 46 STC 63, 65 There are several criteria for determining whether a commodity is consumed in the manufacture of another. The generally prevalent test is whether the article produced in the trade, by those who deal in it, as distinct in identity from the commodity involved in its manufacture. Commonly, manufacture ....
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.... "The word manufacture has not been defined in the Income Tax Act. In the absence of a definition, the word manufacture has to be given a meaning as is understood in common parlance. It is to be understood as meaning the production of articles for use from raw or prepared materials by giving such materials new forms, qualities or combinations whether by hand or machines. If the change made in the article results in a new and different article then it would amount to manufacturing activity." In CIT vs. Jamal Photo Industries (I) Pvt. Ltd. 285 ITR 209 (Mad.) it was held:- The expression manufacture involves the concept of changes effected to the basic raw material resulting in the emergence of, or transformation into, a new commercial commodity. But it is not necessary that the original articles or material should have lost its identity completely. All that is required is to find out whether as a result of the operation in question, a different commodity has been produced having its own name, identity or end use." 14. Thus, from the above, it is evident that essence of manufacturing is that what ....
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....compressed air for fitment in the existing bogies of Indian Railways. It caters to the increased payload demands and weight imbalances inherent to the existing coaches. 4. Pursuant to the award of tender, Purchase Orders were received by the Appellant towards the manufacture and supply of Air Spring Assemblies. Illustrative copies of these Purchase Orders are enclosed herewith as ANNEXURE - 2. These Purchase Orders clearly reflect that the purchases are being made by the Indian Railways against the specific technical specifications to which the manufactured product has to conform to. There are a number of these technical specifications depending upon the various variants of the Air Springs (in view of the different types of railways coaches manufactured at the ICF, Chennai) and are collectively enclosed herewith as ANNEXURE-3. 5. One of the common features underlying these technical specifications is that the air springs have to be manufactured by employing only the specified items in the manufacturing process. An understanding of the manufacturing process undertaken by the Appellant along with an appreciation of the role of the technical specificati....
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.... procured locally are collectively enclosed herewith as ANNEXURE - 6 and ANNEXURE - 7 respectively. 8. Once the three components are manufactured / fabricated by the Appellant at the Paonta Sahib Unit, the Appellant further undertakes the assembly process of these three components in order to manufacture the air-spring assembly which has to be supplied to the Indian Railways. The manufacturing chart to this effect is enclosed herewith as ANNEXURE - 8 along with photographs. 9. All these raw materials are procured as per the specifications of the 'Research, Designs & Standards Organization', of the Ministry of Railways, Government of India (RDSO) in terms of the tender awarded to the Appellant and the Purchase Orders. This is evident from a bare perusal of the Purchase Orders which specify that the supplies shall be as per RDSO Specifications. Air Spring Assembly is governed by 'Schedule of Technical Requirements' (STR) issued in September 2007 by RDSO. 10. The Appellant submits that it is mandatory for a supplier (for Indian Railways) to register with RDSO and comply with the requirements of STR (in terms of Clause 5). The suppliers s....
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....e following drawing of the final product which shows the location and positioning of the imported items; 14. It is submitted that the scope of supply for each air spring assembly covers the following items (as defined in Clause 4 on Page 6 of STR); S. No. Item Quantity 1 Air Spring (Rubber Bellow) 1 2 Top Interfacing Plate with Bolster, with Spigot 1 3 Sealing 0' Rings 2 4 Base Plate 1 5 Emergency Spring 1 6 High Tensile Hex Socket Head Screws with Spring Washers 4 Sets 15. In order to arrive at the air spring assembly to be supplied to the Indian Railways, the Appellant undertakes the following; * In accordance with the registration and approval of RDSO, Air Spring Assembly is manufactured by the Appellant with Air Spring (Rubber Bellow) and Emergency Spring (Bumper) (SI. No. 1 & 5 above) duly imported from the said German party. * All the metal parts are fabricated in the Paonta Sahib Works. This includes Top Interfacing Plate with Bolster, with Spigot and Base Plate (S. No. 2 & 4 above) and other e....
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....t various activities which result into a new commodity implying thereby that the imported component are not as such supplied to the Indian Railways but are subjected to further manufacturing process before supply. In very brief the activities on these very imported components are as under; (i) The imported rubber bellow is worked upon to provide for enclosures on both sides to seal the open ends and pressurize the rubber bellow with air to be able to function as an Air spring. (ii) Likewise the emergency spring cannot function on its own. It has to be integrated into the Air Spring Assembly for working is no air (air deflated case). 16. Further, the weight of these two imported items i.e. Air Spring and Emergency Bumper is only 57 Kilograms (approx) as against the 156 Kilograms (approx) being the weight of the manufactured Air Spring Assembly. 17. The appellant further submits that they undertake various operations in the nature of assembling, fastening, fabricating, testing, etc. towards the emergence of the final product and a new product is formed by the activities undertaken by the appellant. Even under Central Exc....
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..... 50/2003-CE for the State of Himachal Pradesh) that no Central Excise duty is paid on these products when they are manufactured at the Paonta Sahib Unit by the Appellant. 19. This fact of the Appellant undertaking manufacturing operations at the Paonta Sahib Unit is also certified by the Department of Excise and Taxation, State of Himachal Pradesh vide Certificate dated 24.07.2009 wherein this has been certified by the said Governmental Authority that the Appellant is an industrial unit doing manufacturing / assembling of air spring assembly and SR Rings. This certificate is enclosed herewith as ANNEXURE - 12. Further, even the Assessment Order (for accounting period 2007-08 and 2008-09 which covers the assessment year in question) passed by the District Taxation Officer dated 14.12.2011 clearly notes and concludes that the Appellant is engaged in undertaking manufacture and sale of air spring assembly. This Order is enclosed herewith as ANNEXURE - 13. Further, the Paonta Sahib Unit has been registered with the following government authorities, after their due checks and verifications, for the manufacture of Air Springs Assembly; &n....