TaxTMI 
TaxTMI 
2015 (8) TMI 37
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....or reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal. 2. Grounds of appeal raised in ITA No. 4732/Del/2011 are as follows: 1. The order of the learned CIT(A) is erroneous and contrary to facts & law. 2. (i) On the facts and in the circumstances of the case and in law, the learned CIT(Appeals) has erred in directing the A.O. to allow deduction u/s 80IC of the I.T. Act to the tune of Rs. 4,56,03,108/-. (ii) The ld. CIT(A) ignored the fact that the disallowance u/s 80IC of the I.T. Act was made by the A.O. on the basis of material and facts gathered during the Survey u/s 133A of the I.T. Act at the business premises of the assessee at Faridabad and Rudarpur. 3. The appellant craves leave to add, to alter, or amend any grounds of appeal raised above at the time of the hearing. ITA No. 4732/Del/2011 for A.Y. 2008-09: 3. Both sides agree that the appeal of the Revenue for AY 2008-09 is adjudicated first; therefore we are adjudicating first the Revenue's appeal for AY 2008-09. 4. Ground nos. 1 & 3 are general in nature, so it is not adjudicated. 5. Ground no. 2 is regarding the finding ....
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....of Income Tax, Haldwani. Sh. A.K. Pandey, Dy. Director of Income Tax. Haldwani has sent his report dated 175.02.2010 which received in the office of undersigned on 025.03.2010. Upon perusal of report, the following points emerge: i) Production in the unit was started at 22.07.2005. ii) Machinery installed at the premises was purchased by Faridabad unit and the same was transferred to the premises in the shape of either stock transfer or asset sale and all the payments were also made from Faridabad unit. iii) The main supply to this unit is from Faridabad unit and the Rudarpur unit is engaged in assembling of parts which are being manufactured at Faridabad unit. iv) At the time of survey at Rudarpur Unit less than 20 persons were present and most of the persons available were not skilled persons ..... " 7. Further the relevant findings as given in paras 2, 3 & 4 of survey report dated 17/02/2010 submitted by Dy. Director of Income Tax (Inv.), Haldwani for the survey conducted by him on 16/02/2010 at the Pantnagar Unit of assessee are reproduced below: "2. In this connection, I entered in the said premise at 12.30 PM on 16.02.2010 alongwith following officers/officials: ....
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....his premise is engaged in assembling of very basic in nature and is not involved in any manufacturing activity in any remote sense. This aspect also gets support from the P/L a/c ex retracted from the computer relevant for a period 01.04.09 to 16.02.2010, in which trading a/c tallies at Rs. 36,73,25,089.73. However, the purchase a/c declared as per this trading a/c, there are no manufacturing expenses. The purchase a/c tallies at Rs. 23,80,42,515/-, out of which expense on job work is declared at Rs. 62,14,786.80 and all other expenses claimed are related to either purchase or CST or Excise duty only. There is no other manufacturing expense, without which it is impossible to manufacture anything. Such huge turnover from manufacturing with electric connection of 92KW only and without having skilled or technical persons seems to be next to impossible. The trading a/c clearly speaks that stock is being transferred to this premise, manufactured at Faridabad unit or somewhere else and the same is being sold/claimed to be sold from this premise. 4. From the few machine installed, it cannot be surely that these were new machines when installed or were already used at Faridabad unit or a....
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....y filing its Returns on month to month basis to Excise Deptt. furnishing the details of the production of the unit. Copies of the Returns for the month of January, 2010 and February, 2010 are enclosed and marked as Annexure-7 at page Nos. 82 to 90. v) All necessary registrations such as DIC Registration, Sales Tax Registration, Registration under Factory Act, NOC from Pollution Control Board etc. have been obtained by the Rudrapur unit and copies are annexed and marked as Annexure-8 (Colly.) at page Nos. 91 to 99. As a matter of fact, this plant was put up at the instance of OE customer Mahindra and Mahindra(M&M) because M&M had put up its plant at Rudrapur, to meet the logistics for supply of products like Starter Motor and Alternators. As on date the Unit's main supplies are to M&M and is also supplying its products to TAFE, Eicher, PTL, International Tractors, Indo Farm Tractors etc and others. From the above it is apparent that the Rudrapur Unit against which deduction u/s 80(1 )(c) are being taken, is a manufacturing unit qualifying the eligibility such as: a) That the plant & machinery installed at Unit is new and no part of the same is out of split or reconstru....
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....nd marked as Annexure-10 (page from 125 to 143). In view of the above it is submitted that the actual numbers of employees were 55 on 16.02.2010 and not 20 as reported by survey because the Incharge Mr. Chauhan never stated in his statement that the number of employees present were 20. 3) Sir, you have queried as to why no manufacturing expenses were incurred by the unit from 01.04.2009 to 16.02.2010. It is humbly submitted that the manufacturing expenses itself, is not a separate head of account but under this head so many subheads are housed like: a) Wages b) Electricity expenses c) Fuel a) Freight inward c) Consumable stores d) Repair & maintenance e) Security expenses etc. The audited accounts for the year ending 31 s' March 2010 of the Unit are enclosed and marked as Annexure-14. Therefore, the contention that no manufacturing expenses were incurred during 1.4.2009 to 16.02.2010 is unfounded and untrue. 4. Your Honour has stated that a power load of 92 KVA was granted to the unit and how manufacturing is possible with such a low load? Though unit initially started with 92 KVA but the same was enhanced to 220 KVA, moreover, the unit has two (2) stand....
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....ply of the assessee company, the Assessing Officer concurred with the findings of the survey report and concluded that no manufacturing activity was carried on at Pantnagar and hence disallowed the deduction u/s 80IC claimed by the assessee and made an addition of Rs. 4,56,03,108/- 10. Aggrieved by the aforesaid disallowance of the deduction claimed u/s 80IC of the Act, the assessee company preferred an appeal before the learned CIT(A) who was pleased to find that the assessee company is entitled to deduction under Section 80IC of the Act and allowed the claim of the assessee. 11. Now, Revenue is before us assailing the impugned order of the learned CIT(A). 12. The learned DR contended that the unit at Pantnagar, Rudrapur did not manufacture anything and when survey was conducted at the unit, there were only 20 workers and that too they were not skilled workers. The unit had only electric connection of 92 kw and trading account clearly speaks that stock was being transferred to the said unit which are manufactured at Faridabad or somewhere else and the same is sold from this unit premises only. So according to the learned DR, it is clear that while the assessee has completed all....
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....n reproduced above. The Assessing Officer has based his finding only on the basis of survey report and has not made any attempt to look into the documents filed before him by the assessee company to substantiate its claim that it's Rudrapur, Pantnagar unit is eligible for deduction under section 80-IC of the Act. The AO has not controverted the document of Ministry of Commerce & Industry, Secretariat for Industrial Assistant (S/A), dated 25.04.2005 (page 80 of PB) which has acknowledged the memorandum submitted before it for manufacture of the following are reproduced as under: Item code 3607 Proposed Item: STARTER MOTOR of Manufacture falling under NIC- broad description MANUFACTURE OF ELECTRICAL STARTING AND IGNITION EQUIPMENT FOR INTERNAL COMBUSTION ENGINES AND ELECTRICAL LIGHTNING/SIGNALLING EQUIPTION FOR MOTOR VEHICLES Proposed Capacity : 75000.00 NOS. 3607 Proposed Item: ALTERNATORS of Manufacture falling under - NIC - broad description MANUFACTURE OF ELECTRICAL STARTING AND IGNITION EQUIPMENT FOR INTERNAL COMBUSTION ENGINES AND ELECTRICAL LIGHTINING/SIGNALLING EQUIPTION FOR MOTOR VEHICLES. Proposes Capacity 75000.00 NOS. 15. We find that the assesse....
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.... Wages 10,519,996 (Out of total personal expenses) Job work charges 6,499,377 Freight and delivery inward expenses 6,176,670 (shown under raw material consumption in balance sheet) Stores and spares consumed 54,096 Rent Paid (lease rent) 24,000 Electricity charges 3,436,555 Fuel (diesel ) expenses 2,338,041 Repair & Maintenance-Plant and Machinery 2,564,981 Security Expenses 937,235 Depreciation 692,078 Total manufacturing exps. 33,243,028 18. In the light of these documents and other documents produced before the authorities below which are produced before us by filing Paper book- I & II. We need to see whether the ld. CIT(A) is correct to uphold the contention of the assessee company that its unit at Pantnagar at Rudrapur qualifies for Section 80-IC deduction. For that, let us examine judicial precedents of the words manufacture, produce, thing, article to see whether the assessee is manufacturing or producing an article or thing in the state of Uttranchal. (i) Meaning of manufacture Manufacture 1989 Supreme Court Ujagar Prints Vs. Union of ....
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....gence of, or transformation into, a new commercial commodity. Whether an article is converted into a different article depends on several criteria and one of the essential tests is whether in a commercial sense, the original article has ceased to exist and and a new article has taken its place. It is, however, not necessary that the original article or material should have lost its identity completely: all that is important is whether, what has emerged as a result of the operations is a different commercial commodity, having its own name, identity, character or end use. This determination is essentially one of fact and has to be arrived at on a consideration of all relevant factors such as the quality and nature of the original article, the extent and magnitude of the operations carried out on, or in relation to, it and the commercial identity, character and use of the article produced. [137 CTR 47, 223 ITR 776, 90 TAXMAN 26] Manufacture 2001 Kerala High Court CIT Vs. Darshak Ltd. The word manufacture is to be understood in a wide sense. Manufacture would imply a change and a transformation. A new and a different article must emerge having a distinct and different charact....
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....e final article, the commencement of operation for the manufacture of the trial product would not constitute commencement of manufacture of articles for the purposes of section 15C. [93 ITR 548] 19. The ld CIT(A) has observed that in the instant case various parts are assembled by the assessee using its machinery results in achieving of a final product. The parts or components utilized by the assessee in its assembling process undergo a transformation and result into a product namely motorcycle wheel, which is distinct and separate commodity in character, name and use than each of the parts or components. Therefore, on the basis of the principles referred to above case laws, in the instant case the ld CIT(A) held that it is safe to deduce that the process of assembling carried out by the assessee is to be understood as amounting to 'manufacture' or production of an article. Therefore, the profit derived from each activity is eligible for the claim of benefit u/s 80- IA of the Act. The word manufacture has also now been defined in Sec 2(29)BA by Finance act 2009 w.e.f. 1.4.09 as under; "manufacture",. with its grammatical variations, means a change in a non- living physi....