TaxTMI 
TaxTMI 
2011 (3) TMI 1667
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....In the AY 2002-03, the amount of deduction u/s 80IB involved is Rs. 11,38,060/-. It was not allowed by the AO but was allowed by the learned CIT(A) and therefore, the Revenue is in appeal before us. 2.4 Similarly, in the AY 2003-04, the amount of deduction involved is Rs. 89,66,192/-. It was not allowed by the AO but was allowed by the learned CIT(A) and the Revenue has preferred an appeal. 2.5 In the AY 2004-05, the learned CIT(A) allowed deduction u/s 80IB to the tune of Rs. 3,54,93,137/- for Silvassa Unit and of Rs. 26,11,119/- for Daman Unit but restricted it to gross total income of Rs. 2,43,23,939/-. 2.6 In the AY 2005-06, the amount of deduction allowed by the learned CIT(A) is Rs. 14,85,74,625/-. There are other issues involved in the appeal in this year. Hence, they will be considered separately in the following paragraphs. 3 The lead year is Asst. Year 2003-04 where the AO has carried out investigation and written a detailed order which has become the basis for assessment in other years. Therefore, we will take up for discussion Assessment Year 2003-04. The grounds raised by the Revenue in all the assessment years except AY 2005-06 are the same except amount o....
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....d) V. M. Salgaocar Bros.(P) Ltd. Vs. CIT(217 ITR 849 (Kar)- whereby the Hon'ble Karnataka High Court held that jron ore sizing and washing plant used in washing the impurities from iron ore and sizing the same is not manufacturing or production. (e) CIT Vs. Lucky Mineral Pvt. Lt. (226 ITR 245(Raj) - whereby the Rajasthan High Court held that mining of limestone and marble blocks and cutting and sizing of the same does amount to manufacture or production as the marble stone retains a continuing substantial identity. The said decision of Hon'ble Rajasthan High Court stands confirmed by the Hon'ble Supreme Court in the case of Lucy Minmat (P) Ltd Vs. CIT as reported in 245 ITR 830 (SC). (f) CIT Vs. Premier General Traders (P) Ltd(242 ITR 654(Bom)-whereby the Bombay High Court has held that grinding of soap stones and minerals cannot be regarded as manufacture of article or thing. (g) CIT Vs. Computer Graphics Ltd(285 ITR 84 (Mad)- whereby the Madras High Court has held that cutting of jumbo rolls of graphic colour paper into marketable size by the process of slitting neither amounts to manufacture nor production. (h) CIT Vs. Sri Meenakshi Asphalts (266 ITR 6....
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.... BD Dal a Oil Mill 40 ITD 180 (Jaipur ITAT) 11. ITO Vs. Sadhuram Gupta 66 ITD 441 (Chandigarh ITAT). 12. DCIT Vs. Bhogilal A\ulchand Kandoi 96 ITD 344 (A'bad ITAT). 13. ACIT Vs. Rameshchandra R. Patel 89 ITD 203 (A'bad 3rd Mem). 14. H. V. Venugopal Chettiar Vs. CIT 153 ITR 376 (Mad) 15. Hiralal Maganlal a Co. Vs. DCIT 96 ITD 113 (Mum). The Ld. CIT(A) has erred in not appreciating that the statements were backed by independent evidence. As per per assessee's submission dated 16.3.2006, iron scrap is purchased directly directly by the Ahmedabad Unit. However, iron scrap is claimed to be needed for the production of the main product Ferro Moly and is stated to be one of the ingredients required for the pilot process which determines the product mix which is communicated in the job order to the Ahmedabad Uni.t It is for the assessee to explain as to how the pilot process is conducted at Silvassa in the absence of iron scrap. The closing stock of the Silvassa Unit does not reflect any chemicals which could have been used for testing of raw material. Also unloading and sampling of each batch of raw material and re-loading for dispatch to Ahmedabad woul....
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....d continued to operate at Silvassa Unit till July, 2005. After that period, available deduction u/s 80IB was reduced to 30% from earlier available at 100% and therefore, the assessee opened another unit at Daman which was eligible for 100% deduction. This led the AO to have suspicion that no manufacturing activity as such is being carried out at Silvassa Unit or Daman Unit and they are only make-belief affair. In order to find out the truth, the AO carried out survey u/s 133A of the Act at all the three premises, i.e. at Silvassa, Ahmedabad and Daman Units on 17-01-2006. During the course of survey proceedings, the AO had recorded the statements of various persons on oath. From the material gathered during survey operation, the AO inferred that no manufacturing or production of any article or thing is carried out at two places, viz., Silvassa and Daman Units except occasionally crushing and grinding of the final product, with the help of one jaw crusher and two grinding machines and engaging few workers for sizing and sieving. The basis for arriving at this inference has been discussed by the AO in detail in the subsequent paragraphs in his order. This basis / reasoning are further....
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.... of section 80IB of the Act . 5.4 The AO also called for the explanation of the assessee on his view that the expenses of Silvassa Unit have been shifted to Ahmedabad Unit thereby reducing the profit of Ahmedabad Unit and increasing the profit of Silvassa Unit for claiming the benefit of deduction u/s 80IB of the Act. He listed such common expenses shifted to Ahmedabad Unit, as under:- (a) Salary / Wages (b) Contribution to PF, ESI Scheme (c) P.F. Admn. Expenses (d) Managing Director's remuneration (e) Commission on sale (f) Books and periodicals (g) Computer expenses (h) L.C. opening charges (i) Interest payments to directors and others, etc. 5.5 In response to the above show cause notice, the assessee explained that - (i) Substantial manufacturing process and decision making are done at Silvassa Unit which brings value addition to the product; (ii) Only the process of melting is carried out at Ahmedabad and rest of process is done at Silvassa and Daman Units; (iii) This was done as the authorities in Silvassa did not allow the melting process to be carried out there; (iv) Ultimate responsibility of supply of material to the satisfactio....
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....ng -Can be sold to customers who ordered for lumps - To next stage Jaw Crusher Sieving 5 Silvassa Grinding Smaller chips and into different mesh size powder as required by customer Sieving & Grading and mixing - Can be sold to customers who ordered for chips / powder - To be interchanged between sieving stage as well Grinder Sieving 6 Silvassa Testing To be analyzed to match with the order specifications and standard specificat ion Laboratory - Oven, Hot plate and Electrical Balance. Glassware and chemical 7 Silvassa Packing Finished goods graded physically and chemically tested packed as per customer requirement Sieving decks Laboratory 6. The AO did not accept the contentions of the assessee that substantial part of the process during the course of manufacturing were carried out at Silvassa Unit, for the following reasons:- [1] The documents for procuring Molybdenum Ore which constitute 90% of the cost of production is only imported in the name of Silvassa Unit but in reality they were delivered at Ahmedabad Unit. [2] The documents showing procurement of Ore do not prove that the raw....
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....ng and sampling of raw material at Silvassa because Aluminium Powder, Ferro Silicon, Iron Scrap never reached Silvassa. [13] No Sand Pit for carrying out lab testing is found at Silvassa or Daman as they are necessary for testing. [14] Once authorities have prohibited the assessee to carry out melting then it is not possible to believe that such melting for testing purposes could be permitted. [15] For carrying out chemical testing of raw materials or of final product, large number of agents, viz., Sulphuric Acid, Hydrochloric Acid or other regents are required and for chemical analysis, electronic instruments are also needed. The survey at Silvassa did not indicate that assessee had purchased any such chemical agents or instruments required for chemical analysis. A vessel for melting Molybdenum di sulphide for converting into Molybdenum tri sulphide at a temperature of 400 degree cel. is required but no such vessel was found. 7 Thereafter, the AO referred to various authorities for the proposition that the process carried out by the assessee is not manufacturing. Some of these authorities referred to by the AO are as under:- (i) Banner & Co. v. Union of India,....
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....Pvt. Ltd.(2000) 242 ITR, 654 (Bom.). (xi) A new article does not come into existence as a result of reconditioning of the old belt. CIT v. Neyveli Lignite Corpn. " Ltd. (2001) 118 Taxman 230 (Mad.) (xii) Mining of Stone. If the assessee is engaged in the business of mining of limestones and marbles blocks and thereafter cutting and sizing the same before being sold in the market, it does not amount to manufacture / production - Lucky Mineral (P) Ltd. vs. CIT (2001) 116 Taxman 1 (SC). 8. The other judgments relied on by the AO are as under :- 1. Titaner Component Ltd. 72 ITD 514(Delhi) Coating of metal is not manufacturing of articles of things. 2. Pink-Star Vs. DCIT 72 ITD 137(Mumbai) cutting and polishing of diamond is not manufacturing and 80I is not available to the assessee for these activities. 3. Liberty group marketing Division v/s. ACIT, 61 TTJ 566 (Delhi) - getting shoes manufactured from cobblers cannot be called manufacturing. 4. Shaw Scot Distilleries (P) Ltd. v/s. AOT 76 ITD 89(SB (Kolkotta) Production of IMFL & packing is not amounting to manufacture of art icles of things. 5. ACIT v/s. GTC Enterprise 87 ITD 188(Chennai) - making of small quart....
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....ssa unit and then was chemically tested on sample basis at Silvassa and it is decided as to the ratio in which the other materials like ferro, silica, aluminium powder are to be added to the ore to obtain the final product and after the testing the material is sent to Ahmedabad with the job work instructions for mixing other materials. Thus at Silvassa unit sampling and testing, batching and determination of composition are carried out. On the basis of test report obtained at Silvassa the process of converting it into molly slab is carried out at Ahmedabad. The appellant is required to carry out this process at Ahmedabad for the reason that this process creates huge heat and it also produces some toxic gases which cause pollution. The local authority of Silvassa on account of this pollution problem has given permission of production of final product by crushing and grinding of slabs only at Silvassa. Thus for this reason the Silvassa unit has got its part of the process carried out at Ahmedabad on job basis at Alimedabad. At Ahmedabad unit other materials like ferro, silica, aluminium powder, iron scrap are added to the raw material i.e. Molly ore and melting of metal is carried....
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....ion receipt i.e. L.R. These evidences have been verified in the remand proceedings by the A.O. Merely because the machinery has been purchased from Alimedabad it cannot be presumed that it was the machinery of Ahmedabad unit which was sent to Silvassa, particularly when the appellant has produced bills for such machinery and the suppliers have been verified by the Assessing Officer u/s. 133(6) of the I. T. Act. The appellant has got machineries like jaw crusher, vibro screen, double cone crasher, grinder, genset and lab equipment at Silvassa unit. 13.3 In so far as the use of power is concerned, the appellant has given details that it has purchased LDO which has been used for running genset for operating machinery and that it has also got three phase power line. The appellant has produced evidence that meter was not functioning properly and that therefore it had time and again made complaint to the Electricity Authority. This fact was verified in remand proceedings by the A.O. with the electricity authorities. The transfer of LDO to Silvassa is supported by L.R. which has also been verified with the supplier of LDO and the transport company by the A.O. in the remand proceedings.....
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....used in foundry and casting unit. Powder is having lowest molly content and it is used in electrode industry and sinter metallurgy. 13.5 As held in the case of Aspinwall and Co. Ltd. 251ITR 323 (SC ) manufacturing implies a complete transformation in the original article so as to produce a commercially different article or commodity and the net product should be absolutely different and separate from the input .The change made in the article result in a new and different article which is recognized in the trade as a new and distinct commodity i.e. the name, use and character of the end product should be different. In the case of the appellant the final product is called ferro molly, Molly di suphide which has been brought about by changes in the chemical composition of the original commodity i.e. molybdenum, therefore, it is definitely a process of manufacturing. The final product produced at Silvassa unit is known in the trade as a distinct commodity and has a separate market. The appellant has got machineries at Silvassa in the form of jaw crusher, grinder and sieving machine . Considering these aspects, I hold-that the A.O. was not justified in rejecting the claim of deduc....
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....different market use. (viii) The job work done at Ahmedabad resulted in income at Ahmedabad Unit which is so accounted for by the Ahmedabad Unit. (ix) Reallocation of expenses by the assessee company between Silvassa Unit and Ahmedabad Unit are reasonable which are made on the basis of turnover of both the Units. 10. Before us, the learned DR in general relied on the order of the AO and the findings given in survey proceedings and statements of various persons recorded by him during the course of survey. In brief, the learned DR submitted the following arguments:- [1] The entire production as such of FMA was made at Ahmedabad but no profit is shown at Ahmedabad. As entire production is shown at Silvassa Unit, it shows the intention of the assessee to transfer entire profits to Silvassa Unit for claiming the deduction u/s 80IB of the Act. Thus, there is diversion of profits from Ahmedabad Unit to Silvassa Unit. In fact, Silvassa Unit is a disguise to take an undue benefit under the Act. As Silvassa situated in a backward area as per VIIIth Schedule it has enabled the assessee to claim such deduction. The intention of the assessee is further clear from the fact that when ....
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....debited in the Silvassa Unit. [10] All those persons whose statements were recorded during the survey have retracted their statements after long gap of time and such retraction after long gap of time is nothing but an afterthought. For this proposition, the learned DR relied on the judgments referred to by AO in his order. 10.1 In support of his contention that what the assessee does at Silvassa Unit is neither manufacture nor production, the learned DR referred to the following judgments:- (a) CIT Vs. Gomatesh Granites (246 ITR 737 (Mad) - wherein the Hon'ble Madras High Court held that extraction of granite from hills, blasting the same into granite block involves only a process of cutting or removing part of larger mass, it is not an activity which can properly be regarded as manufacture or production. (b) CIT Vs. Natraj Processing Industries (203 ITR 833 (Pat)- wherein the Hon'ble Patna High Court held that calendaring_of grey cloth is only a process to give a temporary finish by pressing the fabric for making it marketable without bringing any lasting change and the same does not amount to manufacturing. (c) CIT Vs. Hindustan Metal Refining Works (P) ....
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....ecision of the Hon'ble Madras High Court stands confirmed by the Hon'ble Supreme Court in the case of Tamalnadu State Transport Corporation Ltd. Vs. CIT reported in 252 ITR 883 (SC). 11. Against this, the learned AR for the assessee has made elaborate arguments which are summarized as under:- [A] Raw material i .e. Molybdenum Ore is imported. It is received at Mumbai Port which is brought to Silvassa. The chemical testing is carried out at Silvassa for determining the ratio in which other material is to be melted along with Ore so purchased so as to obtain final product. On the basis of testing, instructions are to sent to Ahmedabad Unit along with the raw material. [B] Melting activities are prohibited at Silvassa because they create heat at a high temperature of 1800 degree cel. It has been so given in writing by the Pollution Department of Union Territories of Dadra & NH. Therefore, melting process is carried out at Ahmedabad. [C] Only the permission granted for Silvassa Unit is for breaking, crushing and sizing of slabs only. [D] After melting at Ahmedabad Unit, the slabs are sent to Silvassa where they are broken, crushed, grinded and sieved. [E] When mel....
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....on of iron and molybdenum is found in the slabs. When FMA slab is crushed and grinded, it results into lumps, chips and powder. Slab as such is not saleable or usable by any Industry in their production process. During crushing of Alloys of these two metals, different product item having different strength and chemistry is produced. The chemistry of lump is different from chips, granules or powder. They have different strength and different chemical effect. Even though all of them contain iron and molybdenum but due to varying proportion of these two metals in different sizes, the effect they would create in the manufacturing process carried out by the clients would be different. Thus, lumps, granules or powder are chemically tested to suit the customers and to understand molybdenum contained in the material . [Q] It is incorrect on the part of the AO and the learned DR that the new machineries were not purchased at Silvassa. The learned AR referred to copy of transport receipts and purchase vouchers. The claim of the AO that there were (7) seven workers and not (10) ten or more, is incorrect because the AO has ignored to count production chemist, production supervisor and produ....
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...., is his own inference. It is not proper to draw legal inference from the statements of the employees of the company. What is being done at Silvassa has been stated by them. What they stated is a part of manufacturing process. The other part of process i.e. crushing, grinding and sieving should be considered together with the laboratory testing of raw material carried out at Silvassa before dispatching of such raw material to Ahmedabad Unit for manufacturing and melting. 11.4 On repeatedly asked from the Bench to show the primary record of laboratory testing, the learned AR only referred to certificate sent to various buyers as to the contents of Molybdenum sold to them in the form of lumps, granules or powder but he could not produce or show any register in which record of such testing is made having the signature of the person who has tested the material and also the results of such testing. 11.5 The certificates did not indicate as to where such testing was carried out. It was also not explained how the proportion of molybdenum or iron in a particular sample was found. If melting is required to be carried out even for testing then how the high temperature for such melting ....
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....ritten to Mr. Adarsh Jhaveri [date not known] indicating that the lumps of FMA was dispatched. A representative sample is drawn from the heap of Ferro Molybdenum offered for inspection and analyzed in laboratory but when not known. (xii) Page 403 is a Joint Inspection Report showing inspection of Daman Unit and sampling size checked and found OK [PO size 10 to 100 MM] (xiii) Page 404 is again a Joint Sampling Analysis Report. 11.7 The learned AR on the basis of the above arguments, submitted that the assessee is held as a manufacturer by various State Government Authorities but its activities are restricted to grinding and crushing at Silvassa. Even these activities including laboratory testing and grinding and crushing would constitute manufacturing, he referred to the following judgments:- (i) Computers Graphics Ltd. vs. CIT (2009) 308 ITR 98 (SC) (ii) CIT vs. Prabhudas Kishordas Tobacco Products (P) Ltd. 282 ITR 568 (Guj) (iii) Paul Mathew & Sons vs. CIT (2003) 263 ITR 101 (Kerala) (iv) CIT vs. S Khadir Khan Sons (2008) 300 ITR 157 (Mad) (v) ITO vs. 327 ITR 497 (Chhatisgarh) (vi) 97 ITD 361 (ITAT) (Ahd) (vii) 328 ITR 384 (viii) 107 ITR 195 (ix....
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....ction. By these process assessee has shown loss at Ahmedabad and profit of Rs. 16 crores at Silvassa unit. The AO is bound to accept the certificates of registration by other departments such as Excise, Sales-tax, Octroi. They are issued prior to any activity initiated by the assessee whereas the AO has to verify as to what is actually done at that unit. Further, any registration with Sales-tax or Excise Authority does not necessarily mean that it should be accepted under the Income-tax Act that assessee is doing manufacturing activities. It has been held by Hon. Supreme Court in the case of K. Ravindranathan Nair (supra) and Laxmi Machine Works that definition from other Acts cannot be borrowed for the purpose of Income-tax Act. The ld. DR referred to Ujagar Prints vs. Union of India & Others (1989) 179 ITR 317 (SC) for highlighting the definition of manufacture as per Central Excise & Salt Act, 1944 which was later followed by Hon. Kerala High Court in CIT vs. Kanam Latex Industries (P) Ltd. (1993) 203 ITR 542 (Ker) wherein it is held that to find out whether there is manufacture is to find out whether the change or series of changes brought about by the application of processes ....
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....the same character and identity, it will not amount to manufacture. The ld. DR on the similar reasoning sought to differentiate the decision of Hon. Apex Court in ITO vs. Arihant Tiles and Marbles (P) Ltd. (2010) 320 ITR 79 (SC) wherein slabs were cut into raw marbles, uneven shapes were removed resulting into waste material, squared up blocks were made, they were sawn for making slabs, slabs were reinforced by way of filling cracks by epoxy resins, they were polished and cut into required dimension and further they were buffed by shiners. Thus final products which were marketed were recognized differently, commercially as compared to raw marble rocks. Hon. Apex Court could hold that when processing resulted into different marketable commodity it would amount to manufacturing but where commodity resulted into same commodity as in the present case, it will not amount to manufacture. The ld. DR submitted that the documents referred to by the ld. AR in the Paper Book about alleged laboratory testing are not in fact dated and they do not reflect as to whether such testing was done. For carrying out testing assessee should preserve equivalent samples of the item which was tested so that....
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....section 80IB, enacted by the Parliament to promote industrial development of Backward areas and to create employment in backward were misused by creating a 'make believe' set up at Silvasa (from 1999 to July, 2005) and at Daman {from 2004 till date). 2 Assessee company Electro Ferro Alloys Pvt. Ltd., Ahmedabad is involved in manufacturing of Ferro Molybdenum, Molybdenum-Di-Sulphide and Ferro Silico Zirconium. Apart from manufacturing, company also trades in Roasted Molybdenum concentrate, Molybdenum-Di-Sulphide, Colloidal Mo$2 etc. Manufacturing of Ferro Molybdenum involves putting together of certain quantity of Roasted Molybdenum Concentrate and scrap of Iron and certain other minor metals and igniting them to melt and mix in a vessel. The vessels for manufacturing of FeMo Alloy are available at the main factory at Ahmedabad. It is undisputed fact that there is no such vessel(s) at Silvasa or Daman. Moly Di Sulphide is produced in a kiln at Ahmedabad factory. It is not the claim of the assessee at any stage of the proceedings that these vessels, kilns are available at Silvasa / Daman units. 3. The stand of the assessee had been that "FeMo Alloy Slab" manufactured at....
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....ich was earlier generating all the profits of the company from 1966 till 1998-99. It is not the case of the assessee that the Ahmedabad units are closed. Factory at Ahmedabad unit is functioning at the some pace, handling all the raw material pun .lased and producing the same product |s] as it was doing earlier. It may be noted here that it is not the argument of the assessee that the assessee can not open parallel unit, but it is the very act of shifting the profits of old unit to the make believe small al Silvasa/Daman. In the circumstances, it is beyond logic that small single shed units at Silvasa / Daman with a small 20hp jaw crusher, grinder have produced huge profits against the actual manufacturing activity that has been taking place at Ahmedabad factory. To find out the truth and collect the evidences a survey u/s.133A was concluded on 17.01,2006. During the survey at factory at Amraiwadi [Ahmedabad], Bavla, Head, office and at Daman (Silvasa unit was closed on the date of survey) evidences were gathered, statements were recorded from the primary persons who were handling the factory at Ahmedobad and Daman, and also the laborers including Shri Adarsh Zaveri, the Director o....
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....ore dispatch. This argument of existence of lab is baseless and no evidence was found which will support the argument of the assessee. (1} On the day of survey at Daman, photographs of entire premises were token, copies of which hove been submitted to your honors. There is no such lab room, lab place or tab equipment found at Do man. (2) The 50 called lab equipment (Muffle furnace, weighing balance etc,) were not found at Daman. (3) Lab requires certain chemicals like HCI. which were not found at Daman. (4} All the available stock was token, which is submitted in Deportment paper book, it may be seen that there was no closing stock of any chemical found. When materials received on regular basis and materials are dispatched on regular basis, there should be some stock of chemicals at the place.(5) Advertisement and Bio-data of Lab Technician (submitted by assessee in Paper book) does not prove actual existence of Lab and conducting of tests, in the face of facts found. (6) Shri Adarsh Zaveri who is Director, overall incharge of operations stated that he does not know whether material is unloaded and loaded at Silvasa/Daman, how samples are taken (statement Q.15). (7) Most importa....
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....ents of page 432 to 44 of Paper Book of assessee). This is also the fact from statement of Sachidanand Jha. Q. No.6. (Annexure-III to assessment order). MoS2 is also received as powder from Ahmedabad and exported as such as per the statement of Shri Sachidanand Jha Q. No.16 and 17. V. Assessee claimed that "crushing and grinding" is manufacturing as per the certificates issued by District Industries Centre (DIC), Sales tax department etc. In this connection, it is submitted that these documents mention the activity as 'manufacturing' to distinguish it from trading activity. But these certificates always mention in brackets "crushing and grinding only". For an Industrial Department, the establishment cannot be 'trading' establishment to get a DIC certificate. For the Sales Tax department, the tax rates vary depending upon the nature of activity. So the mere mention of 'manufacturing' in these certificates does not make the activity of the assessee as 'manufacturing' for the purpose of Income-tax. DIC and the sales tax do not administer the Income-tax. Income-tax Act has to be implemented by the Income-tax Department. The words/phrases have to be interpreted to further the inte....
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....e proceedings at any stage.(2 or 3 alleged single paper reports enclosed in paper book cannot be given any credience as these were not found. The joint inspection reports of some of the customers at page 404 of paper book do not mention as to where the tests were conducted at Ahmedabad or Silvasa/Daman. These letters of the customers it may be noticed that are dated after the survey on 17.01.2006. Therefore, the veracity and purpose of bringing these reports on record may be understood. Why order of the CIT(A) is wrong Ld. CIT(A) concluded in his order stating that "I find......." He did not substantiate his findings with any document. As already discussed, various documents produced by the assessee in the paper book does not establish anything. These documents are insufficient to conclusively prove claim of the assessee. These are disjointed and concocted to support self serving statements of the assessee. Assessee company only made a small establishment at Silvasa/Daman by placing a small jaw crusher, grinder, to make believe that crushing and grinding is taking place. Actual manufacturing of FeMo is taking place at Ahmedabad as it was taking place prior to 1998-99. Major crus....
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....Climax Molybdenum Company which is an international concern dealing in molybdenum according to which conversion of FMA slabs into lump. Chips and powder is considered as manufacturing activities. Relevant portion from that letter is reproduced below :- "These large slabs of Ferro Molybdenum are crushed in jaw crushers and grinders to produce Ferro Molybdenum lumps, chips and powder. These products each have different property and are known in the market as Ferro Molybdenum lump. Ferro Molybdenum chip and Ferro Molybdenum powder. These products go into different markets. Normally Ferro Molybdenum lumps are used in the steel industry. Ferro Molybdenum chips are used by casting units and foundries. Ferro Molybdenum powder is used in the electrode and sinter metallurgy markets. This crushing of large slabs of Ferro Molybdenum into lumps chips and powder is considered a manufacturing activity. We have such a manufacturing plant in the UK and utilize the service of two other manufacturers in the United States. In these countries the crushing, grinding and sieving activity of Ferrow Moly slabs into lumps, chips and powder is considered a manufacturing activity." 14.2 The ld....
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....A of larger size as lump or chips cannot be used in making electrodes. The contents of which are as under :- "M/s Electro Ferro Alloys (P) Ltd. 208, Aditya Building, Near Khadigate Colony, Allisbridge, Ahmedabad (Guj). Dear Sir, We regularly require Ferro Molybdenum electrode grade powder used in the manufacture of special grade electrode. The specification is as under :- Moly 60% Min. Si: 1.5% Max. C :0.05% Max. S :0.05% Max P :0.05% Max. Size:-60 Mesh We cannot use Ferro Moly in larger size such as lumps or chips. Please give us your offer as early as possible. Thanking you, Yours faithfully, For D & H Welding Electrodes (India) Ltd. Sd/ Sanat Jain General Manager -Finance" 14.6 Similarly certificate from GKN Sinter Metals Ltd. is placed at page 401. They are using FMA powder and further in their place lump or chips cannot be used. The contents of which are as under :- "TO WHOMSOEVER IT MAY CONCERN We are a Sinter Products Manufacturer. We produce sinter bearings & parts and other sinter parts. All our raw materials are very fine powders. We use Ferro Molybdenum powder. It is below 325 mesh size and called Ferro....
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....ng size, testing chemically in a lab and then mixing in the correct proportion can insure the material being sent to a customer is as per their specification. One can achieve that by moly material containing higher moly% with that containing lower moly% in the right ratio get ferro moly as per specifications of chemisty and size for the customer." 14.9 The ld. AR then referred to page 857 of the Paper book which is a mail from TREIBACHER INDUSTRIES AG, EUROPE'S 2ND LARGEST FERRO MOLY MANUFACTURER wherein following note was highlighted:- "Thank you very much for your mail. Yes, we can confirm that larger particles of crushed FeMo shown higher Moly content than fine material. The variation you indicated its quite good with our own experience. Please give us some more information about your company activities in Ferro Alloy production. We are a Ferro Molybdenum manufacturer in India. We wanted to get some practical information from you. When we crush large slabs/blocks of Ferro Moly to lumps, chips (1-10 mm) and powder, we find the chemistry changes: Ferro Moly lumps : 70% Moly Ferro Moly chips :65% Moly Ferro Moly powder :60% Moly" 14.10 Then reference was mad....
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....ring; (4) What is the relevance of statement of various personnel recorded by the Revenue during the course of survey and on which ld. DR heavily relied upon and which indicated that only grinding, crushing was done at Silvassa and there were no instruments or facility for carrying out any laboratory testing; (5) Whether there is any case for holding that Silvassa unit was a result of splitting of Ahmedabad unit. 15.2 We will take up all these disputed areas and find out as to what was the real state of affairs. (1) Whether assessee company had employed ten or more workers. In our considered view this aspect has been totally thrashed out by ld. CIT(A) wherein he considered that after inclusion of production chemist, production supervisor and production manager there will be 10 workers in addition to casual workers. In this regard ld. CIT(A) has held as under :- "13.1 The AO's observation regarding employment of less than 10 workers is totally incorrect in view of the fact that in remand proceedings it was found by the AO that the appellant has more than 10 employees and that it has also got two casual workers. The various courts as cited by the ld. AR have held that ....
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....denum ore would contain molybdenum and other impurities. No contemporary and basic record of laboratory testing carried out at Silvassa was produced before. We are unable to persuade ourselves to believe that any kind of laboratory testing could be done of commercial samples without there being a primary record containing details of the samples on which test was done. To whom the product whose sample was tested was sold; who carried out the testing; who signed the testing report and whether it was dispatched and whether any official copy of such report is available. In one case a report of 2002 was shown to us in the Paper Book but it was a letter received from the client to the assessee. Laboratory testing report means the testing done and report prepared in-house. It should also indicate the process employed for testing and the temperature achieved for determining the percentage of contents. Not only there was absence of contemporary and basic record there is inherent contradiction in the facts presented by the assessee in the sense that on one hand, it was vehemently argued and supported with certificates that melting of molybdenum and iron has to be got done at Ahmedabad due to....
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....at Ahmedabad. No billing instances have been produced to show that price for the process carried at Ahmedabad unit, was higher as compared to the same process if carried at other unit. In other words there is no evidence that payment made to Ahmedabad unit for the process carried out there was not at arm's length price. On the other hand, the ld. AR has been able to show that price paid to Ahmedabad unit was at par with the industry price. Further accounting records maintained at Silvassa did indicate that the purchases of molybdenum ore was recorded in that unit. Sale prices were also recorded in that unit and payment for process carried out at Ahmedabad was debited in the account of that unit. In absence of any material it cannot be held that entire maintenance of account or claim of certain process carried out at Silvassa was a smoke screen and it was only Ahmedabad unit which carried out everything. While discussing undisputed facts we have found that department has accepted the position that crushing, grinding and sieving were actually done at Silvassa. In our considered view entire sequence of process from purchasing of raw material, mixing iron scrap, melting, forming slab, ....
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....th the assessment order copies of statements of various employees recorded during the course of survey. On the basis of statement, the ld. AO and ld. DR have strongly argued that no laboratory existed at Silvassa. No testing was carried out at Silvassa and only crushing, grinding and sieving was done at Silvassa. The assessee has sought to retract this statement by filing affidavits of those employees and referred to several decisions for the proposition that statement recorded during the course of survey cannot be relied upon unless supported by other evidences. In our considered view arguments on this aspect are of academic nature. For proving whether any laboratory existing or not, basic records are necessary and we have held above that assessee has failed to establish that such a laboratory existing at Silvassa and any testing was done at Silvassa. We, therefore, ignore this aspect of the argument emphasized by the ld. DR and countered by the ld. AR. 15.7 (6) Whether crushing, grinding sieving done at Silvassa can be called to be manufacturing process. This is the most crucial and relevant aspect of entire discussion. As held above, what was done at Ahmedabad was an inter....
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....he ld. DR has merely focused himself on the commonness of the name. Prior to crushing according to him was FMA and after crushing, grinding and sieving again it is FMA. Thus according to the ld. DR initial raw material and final product being the same there cannot be any manufacturing activity in the whole process of crushing, grinding and sieving. But really the act does not stop at this. We have to see what is the physical size and what is the chemical composition of end product and where it is used. As observed above physical sizes of the three products vary. They are not replaceable by each other. Where granules are used chips or powder cannot be used. Similarly where other two are used granules cannot replace them. It is simply because of property of chemical activation as catalyst different industries use the different product. There is no material to hold that steel industry or foundry industry could use powder or Electrode Industries can carry on with the work with granules or chips. We, therefore, hold that when slabs are crushed, grinded and sieved three different products are formed which are commercially different in use because of their different physical and chemical ....
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....e, identity and character or end use. In that case, the assessee used negative films and exposed them into printed positive photos. The assessee was held as involved in manufacturing activities as the final photos were different than the original or negative. 16.4 In CIT vs. Premier Tobacco Packers P. Ltd. (2006) 284 ITR 222 (Mad) the Hon'ble Madras High Court held that the "word" manufacture should be given a meaning as is understood in a common parlance. It is to be understood to mean the production of an article for use different from the raw material by giving them a new quality or combination whether by hand, labour or machines which results into a new and distinct article is produces. It would amount to manufacturing activities. In that case, the assessee was processing and redrying the Virginia flavored tobacco (VFT) converted into lamina N.R.Stamps which were used in manufacture of cigarette. The raw material i.e. Virginia flavored tobacco (VFT) cannot be used directly for manufacture of cigarette. The end product i.e. Virginia and lamina are different from VFT. Therefore, conversion of VFT into lamina N.R.Stamps would be manufacturing activity. 16.5 In CIT vs.Jansons....
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....es, properties or combination whether by handlabour or by machinery. In other words, it means making of articles or materials commercially different from basic component by physical labour or mechanical process. In that case, the assessee used to purchase trees and cut them into log and planks. These logs and planks were different from standing trees. A common man who wants to purchase logs or planks would not purchase a standing tree. The most primary form in which timber sold in the market is in the form of log and planks. Thus, cutting of timber and conversion of timber obtained there-from into logs and planks, can be done either by manual labour or by mechanical process and this activity would amount to manufacturing process. 16.8 In CIT vs. Darshak Ltd. (2001) 247 ITR 489 (Kar) the Hon'ble Karnataka High Court held that manufacture would imply a change and transformation. A new and different article must emerge having a distinct and different character and use. In that case the assessee was transforming the blank glassware into decorative glassware with process which was irreversible and end product was distinct and different in character.It was marketed as a commodity diff....
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....gs. It was held that the assessee was engaged in manufacture or production of articles different from raw-castings entitled to deduction u/s 80 IC (2). 16.12 In CIT vs. Sterling Foods (Goa) (1995) 213 ITR 851 (Bom) Hon'ble Bombay High Court held that the 3 expressions namely processing, manufacture and production used in various taxing statutes are not interchangeable expressions. They are often used in juxtaposition. But they convey different concepts and refer to different activities. Processing is much wider concept. Every process does not amount to manufacture. It is only when process results into the emergence of a new and different article having distinctive name, character and use that "manufacturing" can be said to have taken place. Similarly production is wider than manufacture. 16.13 The Hon'ble Supreme Court in ITO vs. Arihant Tiles and Marbles (P) Ltd. (2010) 320 ITR79 (SC) considered the case of an assessee which was engaged in cutting of marble blocks into slabs. It was applying several stepwise activities on the marble blocks. It was found that marble blocks were converted into polished slabs and tiles but original block did not remain the same, it became slabs....
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....dable media or the programmes were embedded therein from master media and thus blank CD was converted into recorded CD by such an integrated process. The duplicating process changed the basic character of a blank CD which became marketable for a specific use. Without such processing, blank CDs would be not fit for their intended purposes. It was held that it would amount to manufacture in terms of section 80IA read with section 33B. 16.18 The Hon'ble Supreme Court in CIT vs. Tara Agencies (2007) 292 ITR 444 (SC) was considering the case of an assessee who was mixing different kinds of tea and making different type of blended tea. It was held that the assessee was not engaged in manufacturing. It can at best be said to be processing. 16.19 There are various other authorities which have already been referred to above while concising the arguments of the parties. Since these authorities more or less confirm the views referred to above, we do not consider it necessary to refer to them separately. 17. After careful study of all the above authorities referred to by the parties and also as above, we can cull out the following principles: (A) The assessee uses an input, applies....
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....ntaining different proportion of molybdenum, iron and silicon. They have different names. They have different commercial use. The larger pieces are called lumps or rubbles. They contain higher percentage of molybdenum. Powder contains lesser quantity of molybdenum. They are very fine granules of less than 1 mm in size. The lumps have higher degree of melting point which is 1700 degree centigrade, chips have lower melting point which is 1300 degree centigrade whereas powders have further lower melting point which is 1100 degree centigrade. (III). The 3 products obtained after applying the above process are known with different commercial names like FMA lumps, FMA Chips and FMA powder. They are used by different industries.The lumps/granules are used by iron industries, chips are used by foundry industries and powders are used by electrode industries. The slabs brought from Ahmedabad Unit are as such not regarded as saleable except to similar industries which would convert the slabs into lumps, chips and powder. 19. Thus applying the above principles to the facts of present case we easily come to the conclusion that what the assessee is doing at Silvasa is manufacturing. For ar....
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....ces the profit then if excise income is received then it would go to reduce the cost by set off against the excise expenses. Hence excise duty refund is part of profit of the industrial undertaking. 21.2 We have heard the parties. The issue is now covered by the decision of Hon. Delhi High Court in the case of Dhevchand Premchand (2009) 317 ITR 353 (Del) wherein it is held that refund of excise duty was pivoted on the manufacturing activity carried on by the assessee. The assessee at the time of payment of excise duty, debited it in the profit and loss account and upon the receipt of the refund credited the profit and loss account. The net effect would be NIL and, therefore, there is no reason to exclude the excise duty in arriving at profit derived for the purposes of deduction under section 80IB. This issue is accordingly decided in favour of the assessee. 21.3 The next issue is about interest on F.D. and NSC. It was claimed that assessee has to open a letter of credit for importing material and for that purpose it has to make FD with the banks on which interest is earned. Therefore, according to the assessee such interest is directly connected with the business of the indu....
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....ar purchased in the name of the Director of the company. (2) The ld. CIT(A) has erred in law and on the facts of the case in holding that the assessee is eligible for deduction u/s 80IB at Rs. 14,85,74,625/- (3) The ld. CIT(A) has erred in law and on the facts of the case in omitting to give direction, as given by the CIT(A) in the Asst. Years 2003-04 & 2004-05 to recalculate the deduction u/s 80IB on the basis of reallocation of expenses, as submitted by the assessee during the course of assessment proceedings. (4) The ld. CIT(A) has erred in law and on the facts of the case in directing to exclude only net interest income from the business profits eligible for deduction u/s 80IB. (5) The ld. CIT(A) has erred in law and on the facts of the case in holding that DEPB income is derived from the undertaking. (6) On the facts and in the circumstances of the case, the ld. CIT(A) ought to have upheld the order of the AO. (7) It is, therefore, prayed that the order of the ld. CIT(A) may be cancelled and that of the AO may be restored to the above effect. 22.1 The first issue of this appeal relates to disallowance of depreciation on motor car purchased in the nam....
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....CIT(A) and dismiss this ground of Revenue. 22.4 3rd ground relates to failure of ld. CIT(A) in giving any direction for relocating expenses as submitted by the assessee during the course of assessment proceedings. There is no material on record to suggest that this issue was considered by the AO in the assessment order or agitated before ld. CIT(A). Once necessary facts are not on record the question of considering that expenditure should be relocated does not arise. This ground is accordingly rejected. 22.5 4th ground is regarding netting of interest for the purpose of eligible deduction under section 80IB. While disposing of the Cross Objection of assessee, we have restored this issue to the file of AO for finding out nexus between the interest income and interest expenditure and to the extent nexus is established, netting should be allowed. Accordingly, this ground is restored to the file of AO and is allowed for statistical purposes. 22.6 5th ground relates to the decision of the ld. CIT(A) to the effect that DEPB income is derived from the undertaking. The issue is now covered against the assessee by the decision of Hon. Supreme Court in Liberty India vs. CIT (2009) 3....