TaxTMI 
TaxTMI 
2015 (3) TMI 766
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....n ITA 232/2007) 5. Did the ITAT fall into error in respect of the claim for foreign exchange fluctuation made by the assessee?(in ITAT 232/2007) Question nos.1&2 2. The brief facts are that the assessee engages itself in the manufacturing, inter alia, of cassettes. At the relevant time, i.e., 1994-95 and 1995-96, the assessee had owned five production units. Two were located at Noida; one at Delhi and two at Namoli and Malanpur (UP). The assessee's production process entails manufacturing of Audio Magnetic Tapes (AMT) in bulk - an activity carried out in the two Noida units. These articles were thereafter transported to the other Units - in the present instance Namoli and Malanpur where final products - marketed by the assessee were assembled. The assessee had claimed the benefit of Section 80HH and 80I in respect of Namoli Unit and Section 80IA in respect of Malanpur Unit which had been granted from the years 1991-92. In the course of assessment for AY 1994-95, based upon the assessee's returns, the AO formed an opinion that no manufacturing activity was carried out in Namoli and Malanpur. This, he surmised based upon (a) the loss declared by the Noida Unit, (b) the trans....
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....ed from the manufacturing activity carried on by the Noida unit. 6. The AO's findings in regard to the functionality are extracted below: - A) The expenditure pertaining to vehicles have not been debited by the units having ownership of their on. The use of the vehicles is not confined to the units having ownership. But the depreciation is claimed by the owner units declared. B) The employees of one unit are working for the other unit. But their salary is debited in the unit of their enrolment. Some time, travelling expenses have been paid to the non employees of the company namely by the Malanpur Unit. In the Malanpur unit, payments have been made for 65 trips in respect of persons who are not employees of Malanpur Unit. This expenditure amounted to Rs. 62,659/-. Similarly unit-II has claimed expenditure in respect of 5 persons who are not employees of unit-II. C) No separate bank account for each and every unit except Malanpur are maintained. The profits and the accumulated funds of any unit is not marked separately, whereas the company makes such demarcation in respect of inter transfer of various raw materials. In order to arrive the correct and factual income of any u....
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....8.1997 to the Assistant Commissioner of Excise, Noida claiming Modvat under Rule 57H. There was physical verification of the inventory at Namoli and the Excise Department had in fact granted credit to the assessee under the Modvat scheme. Furthermore, other co-lateral material in the form of show cause notice issued by the Excise Department and the correspondence with the Sales Tax Department, bonus registers, and returns of statistics filed with the Government authorities etc. were all taken into consideration. 8. The CIT (A) also extracted charts indicating number of workers engaged by the assessee based upon the records produced by it; these are found at paragraph 11 of the order. The CIT (A) made a detailed comparison of the price of similar goods manufactured by other producers. A chart was prepared; the same has been reproduced in paragraph 2.23 of the CIT (A)'s order. Based upon these materials, the CIT (A) adjusted profits of the various units in the following terms: - The Assessing Officer is therefore directed to allow deductions u/s 80-HH and 80I in respect of the Namoli unit on a profit of Rs. 20266884/- and in respect of Malanpur unit on a profit of Rs. 1081096/-....
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.... adduced copious materials and evidence before the CIT (A) which were sent to the AO by the CIT (A) by letter dated 13.04.1999 and he was asked to give his comments in respect of them. The A.O. gave his comments by letter dated 16.04.1999 stating that the evidence had been created by the assessee and also questioning the claim of the assessee by pointing out that the Namoli unit did not have a power connection. The CIT (A) took into account the evidence and also comments of the AO and proceeded to examine the matter closely. He recorded his findings as under: - (i) the Namoli unit did have an electricity connection. This is clear from the electricity bills issued by UP State Electricity Board in respect of the Period 26.03.1990 to 02.12.1998 and includes the accounting year under consideration. ii) the assessee also produced photographs of the electricity cable, electricity pole, energy meter, tube box etc., iii) the Namoli unit mainly relied on captive power generation and incurred a total expenditure of Rs. 2,97,360/- on the purchase of HSD and mobile oil during the year, iv) the assessee also filed a copy of an order dated 06.03.1998 passed by the Commissioner of Sal....
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....ector never visited the unit and in support of the claim the visitors register was produced before the CIT (A). The assessee also challenged the Inspector to mention the name of the guard, who had allegedly told him that no production was carried on in the Namoli unit. The names of the Guards present on 18.11.1998 at the Namoli unit were furnished to the CIT (A) and the duty register was also produced. The Inspector was not able to mention the name of the guard in his report. The assessee also produced the guards who were on duty on the date of inspection before the CIT (A) and the CIT (A) called upon the inspector to identify the guard, who had stated that no production was carried on in the unit. The Inspector did not turn up before CIT (A) to do so. The CIT (A), therefore, did not attach much credence to the report of the Inspector and rejected the same as unsubstantiated. 23. On the basis of the above findings, based on the material produced before him, the CIT (A) concluded that both the Namoli and Malanpur unit did function during the relevant accounting year and employed the requisite labour to produce the articles which resulted in the profits. He accordingly directed th....
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....which in turn constitute the raw materials for the ultimate assembly of the marketable products into cassettes in which several intervening stages would be involved. These would be cutting of the tapes into requisite levels, their placement in cassettes shells, packaging of such finished cassettes and labelling etc. In these circumstances, the Revenue's argument that no manufacturing activity was involved in the assembling of cassettes is unsustainable. We also hold that the decision in Krishak Bharti (supra) is only an authority for the proposition that the expression "derived from", is with respect to the activity and not the ownership of the unit. This Court is of the opinion that the said decision has no relevance in the circumstances of the present case. 14. Having regard to the above conclusion, the first question is answered against the Revenue and in favour of the assessee. 15. The second question framed in these cases pertains to the depreciation claims for the Namoli unit. In view of the concurrent findings of the CIT (A) and the ITAT that in fact Namoli unit actually functioned during the relevant year, the depreciation was correctly allowed. 16. This question, ....
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.... 1994-95 and later on picked up and reached a figure of 1175 million running meters in the financial year 1997-98. The assessee had explained that the production at the unit was stopped with effect from 01.04.1993 for major repairs and renovation and regular production was resumed only from 06.05.1996. During the above period of more than 3 years the following repairs and additions were carried out to the plant & machinery of unit no.-II. Fin. Year 1993-94 1994-95 1995-96 1996-97 Total Repairs (Rs.) 1963265 599619 404886 2935220 5902990 Addition (Rs.) Nil 2060156 5346 365484 4610986 It was further stated that during the accounting years relevant to the assessment year 1995-96 and 1996-97 there was only trial production of the plant resulting in 81 million running meter and 45 million running meters of AMT were being produced. Details of the trial production during these years were furnished by the assessee. For the assessment year 1995-96 despite the stoppage of production the assessee continued to incur expenditure under various heads such as raw materials, manufacturing expenses, excise duty, selling & distributing expenses....