TaxTMI 
TaxTMI 
TaxTMI 
2015 (1) TMI 467
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....ccordance with the law and the CIT(Appeals)has grossly erred in confirming the same without any rhyme & reason and justification. 4. That the worthy CIT(Appeals) did not appreciate that the appellant fulfilled all the conditions laid down under section 80IE of the Income Tax Act,1961. 5. That the authorities below did not appreciate that the Company is manufacturing goods and the AO has grossly erred in coming to the conclusion that less consumable stores have been used, less expenses were incurred during the course of manufacturing process. The AO failed to appreciate that the assessee company was engaged in the manufacturing of Precious Metal Compounds, which were of a very high value item. Thus the presumption of the AO was not justified that component of labour, consumable stores, electricity are not commensurate with the production. Further, the CIT(Appeals) has grossly erred in confirming the order of the AO without any rhyme & reasons. 6. That the AO has grossly erred in coming to the conclusion that the manufacturing Gold Chloride Powder out of gold bullion is not a manufacturing activity. The conclusion of the AO is without any basis and justification. Further, the Ld. ....
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.... As such, there was no justification for disallowing the interest to the tune of Rs. 2,29,550/- and the addition made may be deleted. Alternatively, without prejudice to the above the disallowance of interest is very high & excessive. 12. Again, the AO has grossly erred in charging interest under section 234B & 234C of the Income-Tax Act, 1961, amounting to Rs. 11,98,326/-. The Ld. CIT(Appeals) did not appreciate that no reasonable opportunity of being heard was allowed before charging interest under section 234B & 234C of the Income-tax Act,1961. 13. Alternatively, the interest charged under section 234B & 234C of the Income-Tax Act, 1961, is very high & excessive. 14. Any other ground of appeal that may be urged at the time of hearing of the appeal." 3. The Ground No. 1, 2 and 14 are general in nature and they do not require an y adjudication. 4. As Ground No.3 to 7, the brief facts of the case are that the assessee has claimed deduction u/s 80 IE of the Act, amounting to Rs. 1,33,10,413/-. The assessee was having Offices at Delhi and Ahemdabad which were to purchase the raw material and later on the raw materials were dispatched to Sikkim manufacturing unit. The assessee is....
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....hat expenses were of negligible value. From the above it is evident that the assessee has in fact carried out trading activity mainly at Ahmadabad, Delhi and Kota. In fact, even if any conversion of gold into gold powder has been done at Sikkim during the year it is of negligible value. It is quite apparent that the assessee is claiming to have an industrial undertaking with total turnover of 18.35 Crores at Sikkim only to claim benefits/incentives available under Income Tax Act and Central Excise Act. The mere fact that the assessee has received Central Excise Duty refund does not entitle the assessee for claim of deduction u/s. 80IE of the I.T. Act in view of the above facts. Accordingly it is held that the assessee company is engaged in trading activity and no manufacturing has been done by the assessee company. As such, deduction u/s. 80IE of Rs. 1,33,10,413/- claimed by the assessee is disallowed and added to the income of the assessee. The assessee has furnished inaccurate particulars of income and has claimed wrong deduction u/s 80IE of the I.T. Act, 1961 to the above extent. Penalty proceedings u/s. 271(1) (c ) of the I.T. Act, 1961 are, therefore, initiated. 3.1 It is se....
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....ain articles are known by different names, it does not mean that they are different commercial commodities if in fact they are merely different forms of the same commodity. The Hon'ble Bomaby High Court in the case of CST vs. Dunker Coffee Mfg. Co.[1975]35 STC 493 has also held that mere change in the name of commodity will not amount to manufacture. 3.4. Further, in the case of State of Gujrat v. Sakarwala Bros.[1967 19 STC 24 to 31 the question before the Hon'ble Supreme Court of India was whether patasha harda and elichidana were product of sugar and no sugar as such in any form. The Hon'ble Supreme Court affirmed the following observations of the Tribunal:- "If chemical composition of the article is to be taken as guide in interpreting he entry 47 there is no doubt that patasha harda and elichidana are mere different form of sugar as defined by the Central Excise and Sales Tax Act, 1944. We were informed that small portion of hydrogen sulphide is passed through the sugar solution for bleaching purposes after which patashas are prepared by splaching the solution on piece of wood which converts sugar into amorphosed sugar, the hardas are allowed to cool and elichid....
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....ues to be groundnut oil within the meaning of rules 5(1)(k) and 18(2) notwithstanding that such oil does not possess the characteristic colour, or taste, odour etc. of the raw groundnut oil." At page No.833 of this Order the Hon'ble Supreme Court has held that process of removal of impurities does not render groundnut oil any the less. The Hon'ble Supreme Court has further held that even hydrogenation of oil does not amount to manufacture. At page 835 the Hon'ble Supreme Court has held that there is no use to which the groundnut oil can be put for which the hydrogenated oil could not be used, nor is where any use to which the hydrogenated oil could be put for which the raw oil could not be used. 3.5. Thus, keeping in view the facts of the case and above judicial pronouncements, it is evident that conversion of gold into gold powder does not amount to manufacture and, as such, is not entitled to deduction u/s80IE of the I.T. Act 1961. Accordingly, deduction u/s 80IE of the I.T. Act 1961 of Rs. 1,33,10,413/- claimed by the assessee is disallowed and an amount of Rs. 1,33,10,413/- subjected to tax. Since the assessee has wrongly claimed deduction u/s 80IE of the I.T. Act....
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.... Foods Pvt Ltd., Kota totaling Rs. 31,10,000/- are non interest bearing investments and advance was paid to Smt. Mira Kumari Pradhan for purchase of additional land at Sikkim which could not materialize. However the assessee could not furnish any such agreement with Smt. Mina Kumari Pradhan. The investment has also been made for no business purposes. It is seen that the assessee has obtained unsecured loan amounting to Rs. 2,49,75,000/- on which interest of Rs. 10,40,471/- was paid by the assessee. At the same time, the assessee had made an interest free advances/investments of Rs. 55,10,000/- for non business use. 5.2.I have gone through the earlier reply of the assessee and the judicial pronouncements on this issue. The assessee has not been able to prove that these interest free advances were made for the purpose of business. Section 36(1)(iii) provides for deduction of interest on the loans raised for business purposes. Once th e assessee claims any such deduction in the books of account, the onus will be on the assessee to satisfy the Assessing Officer that whatever loans were raised by the assessee, the same were used for business purposes. If in the process of examination o....
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....disallowance is for violation of provisions of the Income Tax Act, 1961, no deduction u/s 80IE of the Act will be admissible on this amount. Penalty proceedings u/s 271(1) (c ) of the Income admissible on this amount. Penalty proceedings u/s 271(1)(c) of the Income Tax Act,1961 for furnishing inaccurate particulars of income are initiated. 7. Before the learned CIT(A) the learned Counsel for the assessee made the submissions which for the sake of convenience are reproduced herein below: "1. That During the course of assessment proceedings, it was pleaded by the assessee Company before the L/d Assessing Officer that Assessee company due to unavoidable circumstances could do the manufacturing for 2 months only and three batches were processed with 127 kg gold. Since raw material of the assessee company was precious metal and heavy cost was involved manufactured goods were exported outside the India due to this reason for small period of time turnover of the assessee company gone to 18.35 crores. But L/d Assessing Officer without appreciating the evidence produced before him held that assessee company has claimed expenses which are unimaginable:- A,Electricity shown for Rs. 1100.00....
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....enditure does not determine its character. 3. As per report 10CCB only for workers were engaged. In this regard it is submitted that U/S 80IB of the IT Act,1961 there was no any condition with respect of number of workers to be engaged Unless there is a limitation put by the law on this account quantum of workers does not determined its fate. 4. Audit report Balance sheet shows sales at Ahmedabad and Delhi, In this regard it is submitted that during the course of Assessment proceedings assessee has stated before the Ld. Assessing Officer that raw material which was procured at Delhi and Ahmadabad was dispatched to Sikkim for manufacturing of finished products as branch transfer and branch wise trading account and profit and loss account were enclosed. It was interstate movement from one state to other state and company retained the ownership of goods and no sale was involved. It was held that mere consignment of goods by a manufacture to his own branches out side the state does not amount to sales or disposal as such. The Consignment of goods is neither sales or purchases. Good year India Limited v. State of Haryana(1990) 76STC71(SC) page no 98. Following evidences were produced....
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....r for Rs. 23000.00 was quite adequate for packing of 127 Kgs. 8. Regarding plant and machinery for Rs. 13.31 lkahs at Sikkim and Rs. 10.79 Lakhs at Kota and turnover of Rs. 18.35 cores at Sikim and Rs. 14.40 lakhs at Kota it is submitted that assessee company has to unit for different activities at Sikkim and Kota. The assessee company was engaged in manufacturing of gold chlorate out of gold at Sikim and at Kota copper, nickel and zinc and hence comparison with these metals are not justifiable. 9. Ld. Assessing Officer in order at para no. 2.2 page 4 has admitted in fact, even if any conversion of gold in to gold chloride powder has been done at Sikkim during the year it is of negligible value but no quantitative has been determined by the L/d Assessing Officer. 10. That Ld. Assessing Officer is the order at para no.2.2 page 4 held that mere fact that Assessing has received excise duty refund does not entitled for the assessee for claim, in this regard it is submitted that Central Excise duty is an indirect tax levied on goods manufactured in India. The tax is administered by the Central Government under the Authority of Entry 84 of the union list (list 1). The Central Excise d....
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....rture of 0.5 MM. This product used for Electronic connectors, solder joint compound in mobiles, super computers and Laptops, Electroplating, anode in an electric Cell and in Photography, as a print toning agent (Gold Toning) starting material to form other gold compounds, Cell body stains for bright and dark filed microscopy and raw material for printing ink. Gold and gold chloride are two different commercial commodities. Gold is a dense, soft, shiny, malleable and ductile (it can draw in to sheet and wires) on the other hand gold chloride which prepared out of Gold metal is soft, it is chemical compound of the Gold and Chlorine. It is hygroscopic (observe moisture from Air and soluble in the water as well ethanol. It is not malleable and ductile, it decomposes above 160 C or in light. This clearly shows that preparation of Gold chloride from Gold involves the process resulting in to bring out entirely a different commercial commodity which very much covered by the term manufacturing as per the definition in the Act under section 2(29BA);- "Manufacture" with its grammatical variation, means a change in non living physical object or things;- (a) resulting in transformation of the....
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.... year 2005-2006 dated 11-06-2010, in this case Hon'ble ITAT Amritsar bench has allowed deduction U/S 80IE on the enhanced income. 14. That L/d Assessing Officer Kathua has not applied his mind by passing impugned order, he has moved from one opinion to toher in an effort to disallow deduction U/S 80IE of the Income Tax Act 1961 to the appellant. Firstly he has said that appellant has done trading activity because alleged less consumption of consumable, then he has gone to say the activity of conversion of Gold Chloride from gold bullion carried out by the Assessee company during the year under consideration is not constitute manufacturing as per law laid down by the various High Courts. Lastly he has said that Excise duty refund of Rs. 8248402.00 received by the assessee company from the Central Excise Department to this extent income is not derived from manufacturing of industrial undertaking. The impugned order passed by the L/d Assessee Officer is a self contradictory and liable to quash." 8. Before the leaned CIT(A) the assessee has submitted the manufacturing process in detail which is available at page 7 to10 of learned CIT(A)'s order and is reproduced for the sake ....
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....ectable amount of gold, forming gold ions (Au3+). The hydrochloric acid provides a ready supply of chloride ions (Cl.), which react with the gold ions to produce chloroaurate anions, also in solution. The reaction with hydrochloric acid is an equilibrium reaction which favours formation of chloroaurate anions (AuCl 4 ). This results in a removal of gold ions from sol ution and allows furt her oxidation of gold to take place. The gold dissolves t o become chloroauric acid. In addition, gold may be dissolved by the tree c hlorine present in aqua regia. Appropriate equations are: Au(s ) +3No-3(aq)-Au3+(aq)+3NO 2 (g)+3H 2 O(I )and AU3+(aq)+4CL- (aq)- AuCL-4(aq). Au+3HNO 3 +4HCL 4 -HauCL 4 3NO 2 +3H 2 P The oxidation reaction can also be written showing nitric oxide as the product rather than nitrogen dioxide: Au(s)+NO-3(aq)-4H*(aq)-----Au3+(aq)+NO(g)+2H 2 O(1). 3.Filtering Process The quo-regia now contains various metal chlorides(and perhaps nitrates) in solution and insoluble chloride as well as a lot of unwanted material in the sludge, and this mixture (when cooled) must be filtered. The reasons for cooling is that silver chloride, though quite insoluble in water, is slightly so....
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....iled and dark filed microscopy Raw material for Printing Inks. Flow Chart of Gold powder manufacturing process Gold bars/bullion By rolling Machine gold bars cut in small pieces Mixing with aqua regia solution Clear gold chloride solution Precipitation with reducing agent Gold powder (in wet form) Filter washed and dired Dry Gold powder, (ready for packing) By this process raw material gold bullions get converted in to gold chloride powder which is entitled a different commercial commodity with different name, character, and use, same is very much covered by the term manufacturing as per the definition in the IT Act 1961 U/s 2(29BA)"Manufacture with its grammatical variation, means a change in a non living physical object or things:- (a) resulting in transformation of the object or articles or things in to a new and distinct object or articles or things having a different name, character, and use; or (b) bringing in to existence of new and distinct object or article or things with a different composition or integral structure." All the above submission amply support the facts that manufacturing taken place in the matter. Hence submitted for kind consideration." After considerin....
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....rs and without any substantial power consumption cannot transform 127kg. Gold into gold powder. (vii) In the instant case the appellant has not placed on record that the skilled laborers and plant and machinery has been used for achieving the said conversion. It has also not been brought to my notice that these chemical conversion has taken place under the guidance and supervision of qualified and technical persons. What kind of machinery has been deployed was also not brought to my notice. (viii) As admitted by the appellant that it has processed only three batches of gold bar in short span of time and closed industry thereafter. It the industry was viable and incentives were in place why was the industry closed down? This creates a bonafide doubt about this manufacturing unit. (ix) Section 80IE was inserted by the Finance Act, 2007 for the undertaking manufacturing eligible article or thing in North East state including Sikkim for those beginning to operate between 01.04.2007 to 31.03.2017. The appellant was trying to take undue benefit of this scheme giving this a colour of manufacturing. The above observations prove that there is no manufacturing activity which has gone int....
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.... palced reliance on Shree Balajee Alloys case in respect of excise duty refund but this ratio is not applicable in this case because the same decisions is applicable to units located in Jammu and Kashmir and not in Sikkim. In vie of the above, the claim of the appellant is rejected. 4.5 Regarding the disallowance under section 36(1)(iii) for Rs. 2,29,550/- for the reasons extended by the A.O. that there was no nexus between borrowed funds for the purposes of business and the borrowed funds have been used for one other purposes, I am of the view that interest has rightly been disallowed. During the year interest free advances are quite substantial and at the same time the appellant is paying interest of Rs. 10.40 lakhs on unsecured loan of Rs. 2.49 crores. Thus I upheld the disallowance and reject the appellant's ground on this issue." 9. The leaned counsel for the assessee Mr. P.N. Arora, Advocate submitted a chart mainly with regard to the allegations made by the AO with reference to the CIT(A)'s findings and how the same were met out during the assessment or first appellate proceedings. For the sake of convenience the said chart is reproduced herein below:- Sl. No. Ob....
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.... Kota shows that the assesseecompany was registered under TIN 08062957322 for sales & purchases of metals such as copper, nickel, zinc etc. [Refer Para (iv) Page 3 of Assessment Order] (iv) The Audit Report & Balance Sheet shows sales at Ahmedabad & Delhi. In this regard it was submitted that raw materials which was procured at Delhi & Ahmedabad was dispatched to Sikkim for manufacturing of finished products as a branch transfer and branch-wise Trading and Profit & Loss a/c were also furnished. It was only an interstate movement from one state to other state and the company retained the ownership of goods. As such, no sales were involved. It was held that mere consignment of goods by a manufacturer to his own branches outside the state does not amount to sales or disposal. This view finds support from the decision in the case of Goodyear India Ltd. vs. State of Haryana, reported in 76 STC 71. In this regard following evidences were produced. (i) Transfer memos from Delhi to Sikkim duly seal & signed by the Sales Tax check post authorities of Sikkim. (ii) Evidence regarding transportation of goods between Delhi/Ahmedabad to Sikkim by the well equipped Security Company. (iii) Copies....
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....s shown plant & machinery of Rs. 10.79 Lac. At the same time, the assessee has shown turnover of Rs. 18.35 Crore in respect of Sikkim Unit & turnover of Rs. 14.40 Lac in respect of Kota Unit. [Refer Para (viii) Page 4 of Assessment Order] (viii) Regarding Plant & Machinery for Rs. 13,31 Lac at Sikkim and Rs. 10.79 Lac at Kota and turnover of Rs. 18.35 Crore at Sikkim and Rs. 14.40 Lac at Kota, it was submitted that the assessee-company has two units for different activities at Sikkim & Kota. The assessee-company was engaged in the manufacturing of Gold Chlorate out of Gold at Sikkim and at Kota Coper, Nickel & Zinc & hence, comparison with these metals was not justifiable. [Refer Para 8 Page 4 of CIT(A)'s order] (ix) Manufacturing of Gold Chlorate out of Gold Bullion is not manufacturing activity. [Refer Para 3.1 to 3.5 Page 4 to 7 of Assessment Order] Kindly refer necessary details mentioned in the order of Ld.CIT(A) in Para 4.1 to 4.4 at Page 6 to 11, which is enclosed herewith for your ready reference. (II) Disallowance u/s 80IE is respect of the Central Excise Duty Refund received by the assessee company held to be "Revenue Receipt" not derived from the Industrial ....
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....no meaningful expenses have been incurred by the assessee, therefore, the assessee has not carried out any manufacturing activity. Therefore the case made out by the assessee does not inspire confidence. As regards Excise Duty Refund, the learned DR argued that decision of Hon'ble J & K High Court in the case of Balaji Alloys (supra) is not applicable since the scheme in the case of Balaji Alloys was different to scheme in the present case. 11. In the rejoinder learned counsel for the assessee Mr. P.N. Arora, Advocate argued that in the case of Shree Balaji Alloys vs. CIT 333 ITR 335 (J&K) there were concessions for the State of J&K to achieve the acceleration of Industrial Development in the State of J& K which had been found lagging behind in such development and generation of employment in the State of J&K which was not only temporary but was of permanent in nature which in the Public Interest which would have brought additional permanent source of employment to the unemployed in the State of J&K. Looking to the purpose of eradication of the social problem of unemployment in the State of J &K, the Hon'ble J& K High Court had held that such incentive could not be constru....
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....city for the manufacturing activity conducted only for two months during the impugned year. In fact the bill has been raised by the electricity department during the year 2010-11 and department of energy and power could not issue the bill during the impugned year and accordingly said bill was not paid to the concerned department during the impugned year. Due to this reason no electricity charges were booked in the books of account of the impugned year. In fact the said electricity charges of Rs. 54,112 were pertaining to the impugned year ending 31st March,2009 relevant to assessment year 2009-10. Which in fact were raised during the Financial Year 2010-11. This explanation was submitted before the learned CIT(A) available at page 3 at para 1 of his order. The learned CIT(A) in fact was not satisfied in spite of the fact the reasons and explanation were placed on record along with copy of the bill of the department of energy and power, receipt of the amount paid and certificate from the Government of Sikkim, energy and power department available at PB60,61 and 62. But the learned CIT(A) has not taken cognizance of the same and merely observed at page 10 in para 4.3(ii) that he is n....
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....eported 76 STC 71(SC) on the basis of evidence placed on record i.e. i) transfer memos from Delhi to Sikkim which was duly sealed and signed by the Sales Tax Check post Authorities of Sikkim, ii) evidence regarding the transportation of goods between Delhi and Ahemdabad to Sikim by the well equipped security company and iii) copies of the requisite mandatory declarations forms F u/s 64(i) of the Central Sales Tax Act 1956 by the Sikkim Unit to Delhi and Ahemdabad. But the learned CIT(A) again endorsed the order of the AO without considering the explanation of the assessee just on the basis of human probability which in fact does not have any basis as evident from pages 10 &11 in para 4.3 in (iii) (v) (vii) of his order. As regards the allegations that the assessee has declared consumables of Rs. 716 /- on the turnover of Rs. 18.35 Crores in respect of Sikkim Unit, it was explained and the said explanation is available in para 6 at page 4 of the CIT(A)'s order. The assessee has produced copy on account of purchases along with the evidence and basic raw material of the assessee was gold billion and consumable items such as Nitric Acid and Hydrochloric Acid were purchased and duly....
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....h aqua regia solution, which process is called digestion of gold in aqua regia. The solution is cooled at room temperature. The aqua regia required for this contains 425 ml of concentrated hydrochloric acid(HCL)and 150ml of concentrated nitric acid where gold is completely dissolved in the aqua reiga to form a clear, golden-colored solution. After a certain duration the same is converted into Gold Chloride solution. The solution is cooled to room temperature. Thereafter, the solution is charged to second reaction vessel equipped with stirrer, a pH meter, a thermometer and cooling jacket a stirring and cooling are initiated. A concentrated sodium hydroxide solution in water is slowly added to the vessel to raise it to a particular desired pH. The addition rate of sodium hydroxide is regulated so that the temperature of the reaction mixture does not exceed a particular temperature and the resulting reaction mixture is dark orange in color and is quite clear. Thereafter, there is a Filtering Process where unwanted material is filtered. The reasons for cooling is that silver chloride, though quite insoluble in water, is slightly soluble in strong acids. Thereafter, the nitric acid is e....
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....nsidering the explanation of the assessee and in particular without taking into consideration the manufacturing process which in fact is part of the learned CIT(A)'s order at page 7 to 10 as mentioned herein above, mentioning of such a cumbersome manufacturing process as purification process and mentioning that there is no change in the chemical composite of gold by the learned CIT(A) is without any basis and without considering explanation of assessee. 19. In view of our findings herein above and the explanation submitted by the assessee discussed herein above, we hold that the conversion of gold bullion or gold bar to the gold chlorate powder is a manufacturing process, in the circumstances and facts of the present case since, the final and manufactured product is new and distinct object with different name character and use which is not possible in the case of raw material. In the circumstances and facts of the case, the decisions relied upon by the AO at page 5 to 7 and learned CIT at page 11 are not at all applicable. As regards the argument made by Mr. Tarsem Lal learned DR that there is a tendency amongst people to avoid tax and gold bullion is not available in the open....