TaxTMI 
TaxTMI 
2012 (12) TMI 1100
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.... 80IB and not found fit this case eligible for deduction u/s 80IB. 4. The facts of the case as appearing in the order of the authorities below are that the assessee derives it income from processing and manufacturing of poplin out of grey cloth and filed its return of income on 31.10.2005 declaring total income at nil after claiming deduction of Rs. 28,33,506/- u/s 80IB of the the Income-tax Act, 1961 [hereinafter referred to as "the Act" in short"]. The assessment was originally completed u/s 143(3) of the Act on 27.9.2006 determining the total income at Rs. Nil after allowing deduction u/s 80IB amounting to Rs. 28,63,551/-. Subsequently, the CIT(A)-II Jodhpur passed the order u/s 263 of the Act by observing at para 6 of the order dated 4/27-03-2009 that "the various documents and evidences relied upon by the assessee and filed before me in respect of the claim of deduction u/s 80IB were not available to the Assessing Officer. In the light of the discussion above, I consider the assessment order under reference as erroneous as also prejudicial to the interest of revenue which requires to be set aside u/s 263 for fresh adjudication in respect of claim of deduction u/s 80IB." ....
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....th supporting evidence:- 1. The workers employed in the unit as reported were 13 to 17 and Expenses debited to the Trading and P&L account of Rs. 70,982/- in respect of power consumption, which is very much low looking to the huge turnover. Furnish the justification with regard to manufacturing; if not than the ready goods were purchased from market or its sister concerns. 2. The extent and value of machineries (especially Jigger Machine) shown, extremely small electricity charges & water charges and NIL PF, ESI and Bonus paid approves that workers employed were 13 to 17 and in view claim of deduction u/s 80IB which was erroneously allowed. Please clarify. 3. Opening WDV of machineries is Rs. 1,32,697/- + addition of machinery during the year to Rs. 2,97,562/-. Accordingly, there was no machinery which required power consumption for manufacturing process and, therefore, it requires to be concluded that it is a hand power unit. Further expenses aggregating to Rs. 2,15,242/- have been shown as machinery expenses which relates to construction expenses. Please justify. 4. As per ESI receipts and certificate for registration and license to work a factory issued by Govt. of R....
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....s shown in the "Balance Sheet" on generator and that the machinery required for carrying out manufacturing activities did not require heavy investment, therefore, the investment shown was most reasonable and sufficient. As regards to the operation of unit, the assessee stated that the process was operated with the aid of power and for carrying out manufacturing activities smoothly, the assessee had installed 15 jigger; 2 padding machine, 1 folding machine, boiler, Gey and dyeing equipments. The assessee also furnished photographs showing single 2HP motor operating 10 jiggers. The assessee also furnished the bills showing the purchase of electric motor, connective devices, shafts, pully, v-belts, bearing chains etc. and stated that following expenses were incurred in the power head:- Electricity expenses 70,982.00 Generator Exp. (electricity) 1,23,355.00 Fuel 5,53,948.00 10. It was further stated that during the year a dispute arose with the Pollution Control Dept. and therefore, process was run with the aid of generator as alternative use of electricity and as per process lay out total expenditure to unit will be one and half unit if electric motor of 2 HP was ....
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....nover could not be possible without engaging sufficient number of labourers as also use of electricity to run the unit. It was also submitted that the expenses were incurred on labour engaged in manufacturing process for dyeing, padding, wrapping, bale packing etc. and the assessee had also made the payments of Rs. 28,118/- towards ESI and leave encashment. It was contended that the monthly wages / salary per worker fairly commensurate with the wage rate prevailing in the market during the relevant year. It was stated that labour wages could not be compared with turn over. It was submitted that alongwith return of income itself the assessee had filed audit report of original assessment proceedings, with supporting documentary evidence which established that all the conditions laid down for availing deduction u/s 80IB were fulfilled, therefore, claim of deduction was rightly made by the assessee and accepted by the Assessing Officer in the original assessment proceedings. 14. The Assessing Officer after considering the submissions of the assessee did not allow the deduction u/s 80IB of the Act by observing at page Nos. 5 & 6 of the assessment order dated 22.12.2009 as under:- ....
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....ers. The above process / manufacturing process can be summarized in the following manner:- Purchasing of Grey cloth from Malegaon & Ichalkaranji I Washing of cloth I Dyeing of cloth (At factory remises) I Padding of cloth (At factory premises) I Finishing of cloth I Wrapping of cloth (At factory premises) I Bale packing of cloth (At factory Premises) I Sale of goods iii. It is further submitted that the various above activities on the grey cloth amount to manufacture / production of finished cloth. What was sold by the assessee was the finished cloth, which was a commercial distinct, different and separate marketable product. The activities carried out by the assessee in the factory clearly amounts to manufacture / production of an article or thing as envisaged in sec. 80IB. The assessee therefore, submitted that it manufactures finished goods namely "poplin" out of grey cloth. iv. The assessee submitted that its industrial undertaking has been registered, approved and recognized as a manufacturing unit by various concerning Govt. authorities. Copies of registration certificate issued by all such authorities were submit....
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....igger and 2 padding machines at the above plots and therefore, it is submitted that it has set up for manufacturing / processing of finished goods an industrial undertaking which had employed more than 10 labours and utilized power for manufacturing / processing. In support of claim for installation of plant and machinery, photographs of the machineries and factory are submitted. He also submitted sample of finished goods produced at factory premises. vii. It is further submitted that during the year under consideration, the assessee had consumed colour chemical, packing material and fuels amounting to Rs. 90,13,295/- for manufacturing of finished products. viii. It is further submitted that the assessee's undertaking is set up and established in Barmer District of Rajasthan which is declared as backward district vide Notification no. 10441 dated 710-97 for the purpose of allowing deduction u/s 80IA. ix. It is further submitted that the Assessing Officer failed to point out any fault or discrepancies or defects in any such details, explanation or documents submitted before him in support of claim for grant of deduction u/s 80IB. The Assessing Officer was unduly influen....
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....ard District of Category A or an industrially backward district in Category B shall be 100% of the profit and gains derived from an industrial undertaking located in backward districts of Category A for five assessment years beginning with the initial assessment year and thereafter 25% of the profits and gains of an industrial undertaking and the total period of deduction shall not exceed 10 consecutive assessment years and that the industrial undertaking begins to manufacturing or produce articles or things at any time during the period beginning from 1.10.94 and ending on 31.3.2004 and the ld CIT(A) observed that the assessee had taken vacant plot No. E-301 situated at RIICO, Industrial Area at Balotra on rent from Shri Purshottam Dass w.e.f. 1.2.2004 and plot along with office building situated at E-4, Ist Phase, Industrial Area, Balotra was taken from M/s Pursthottam Textiles, Balotra w.e.f. 1.2.2004. As per agreement, the assessee had taken vacant plot with office building to install its own plant and machinery and also to construct factory building and other sheds in accordance with its requirements and that the assessee would pay electrical expenditure to carry out manufactu....
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....ory A in Notification No. 714(E) dated 7.10.1997 by the CBDT in accordance to provisions of section 80IB(5) of the Act. The ld CIT(A) further observed that the land can be obtained on lease or on rent or it may be acquired by some other mode and assessee can install plant and machinery by incurring its own cost. According to ld CIT(A), the grievance of the Assessing Officer though not specifically mentioned in the assessment order, however, was that since the land and office building belonged to others, therefore, a presumption was drawn that it was on account of splitting up or reconstruction of a business already in existence, was a wrong and unfounded presumption. The ld CIT(A) observed that the requirement of law as a condition is that the plant and machinery so installed should not be old one or it must not be previously used and depreciation claimed. He further observed that the law does not put condition like that of plant and machinery so far as land is concerned. Reliance was placed on the decision of the ITAT Mumbai Bench in the case of DCIT vs Shemrock, reported in 32 SOT 1. Ld CIT(A) further observed that the assessee had taken two plots on rent one was vacant plot and ....
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.... in assessee's case there was no allegation of the Assessing Officer that previously used plant and machinery were transferred in the new industrial undertaking, therefore, the second condition laid in the provisions of section 80IB(2) of the Act was fulfilled. 19. As regards to the third condition, which provides that the industrial undertaking shall manufacture or produce any articles or things in any part of India except articles of things specified in Eleventh Schedule, the ld CIT(A) observed that there was no allegation of the Assessing Officer that item produced by the assessee was in the list of Eleventh Schedule and there was also no specific allegation that the assessee was not in an activity of manufacturing or production of article or things. The ld CIT(A) pointed out that the process flow chart as submitted by the assessee revealed that the assessee was manufacturing product namely "poplin" out of grey cloth by carrying out activities such as washing, bleaching, dyeing, padding and rapping etc. The ld CIT(A) also pointed out that the world "manufacture" had been defined by Finance Act, 2009 in section 2(29BA) and the word 'manufacture' means a change in non living ph....
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....products namely 'poplin' out of grey cloth which was different article or thing from grey cloth. He, therefore, held that the assessee was manufacturing the finished product namely poplin" from grey cloth and accordingly it fulfilled the third condition of the provisions of section 80IB(2) of the Act. 21. As regards to the last condition, which requires that the industrial undertaking shall manufacture or produce article of things by employing 10 or more workers in the manufacturing process carried out with the aid of power or employ 20 or more workers without the aid of power, the ld CIT(A) observed that before the Assessing Officer as well as before him, the assessee filed copy of ledger account for payment of salary and wages alongwith copy of wages register prescribing name of the workers, basic rate, deduction of ESI, PF, EPS, loan or advances, net payable and signature of workers which revealed that the assessee had employed 12 workers in the month of April 2004 and was continuously having till the end of the Financial Year relevant to the assessment year 2005-06, more than 10 workers and had deducted ESI on payment of wages and the copies of challans of payments of ESI we....
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....fficer it was very less or nominal. However, fact remained that the assessee was utilizing power to process / manufacturing "Poplin" out of grey cloth. 22. The ld CIT(A) observed that in the assessee's process, the requirement of consumption of electricity was very less as no big plant and machinery or establishment were required except use of electricity in running of small Horse Power motors for operations of Jigger, mixtures, padding etc. therefore, on the basis of electricity expenses, it cannot be said that the assessee was not engaged in the manufacturing activity. Reliance was placed on the decision of the ITAT Chandigarh in the case of M/s Shogi Communication vs DCIT, reported in 009 SOT 0489. The ld CIT(A) pointed out that as per the laid down plan, a 2 horse power motor consumes 1.5 unit of electricity per hour and a one and half H.P. motor installed for padding process consume one unit of electricity per hour and one horse power water pump consume one unit in one hour only. As the assessee's factory worked in single shift of eight hour, it consumed electricity not more than 28 units per day. He further observed that the cloth was diluted with boiled water which was bo....
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....ord any evidence to suggest any transfer entry of finished goods either from the sister concern or by way of unaccounted purchases, therefore, in the absence of any documentary evidence or proper verification of facts and bringing primary facts on record, the findings of Assessing Officer that the assessee might have purchased or transferred goods from sister concern, have to be ignored. Reliance was placed on the decision of ITAT Jaipur in the case of DCIT vs Associated Stone Industries, Kota Ltd reported in XXII Taxworld 155. The ld CIT(A) held that the assessee fulfilled the conditions laid down in the provisions of section 80IB(2) of the Act and was eligible for deduction u/s 80IB of the Act as was allowed in the original assessment order dated 27.9.2006. He accordingly directed the Assessing Officer to allow deduction of Rs. 28,63,551/-. Now, the Department is in appeal. 23. The ld. DR strongly supported the order of the Assessing Officer and further submitted that the assessee purchased the plant and machinery in the month of February only, so, it was not possible to achieve the turnover shown by the assessee. It was further stated that no detail of expenses was furnished ....
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.... Grace Exports, Amberi, Udaipur Vs. ITO, Ward-2(1), Udaipur in ITA No. 16/2010 order dated 29.8.2012. Copy of the same was furnished which is available on record. 25. We have considered the submissions of both the parties and carefully gone through the materials available on record. In the present case, the assessee claimed the deduction u/s 80IB of the Act. The provisions contained in the section 80IB(2) of the Act which are essential to claim the deduction u/s 80IB(5) of the Act are following:- "Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings. ...... 80-IB. (2) This section applies to any industrial undertaking which fulfils all the following conditions, namely:- (i) it is not formed by splitting up, or the reconstruction, of a business already in existence : Provided that this condition shall not apply in respect of an industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specifie....
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.... already in existence. In the present case, nothing was brought on record to substantiate that the assessee was formed by splitting or reconstruction of a business already in existence. The assessee installed its machinery at the premises situated at E-4, Ist Phase, Industrial Area, Baltora and E-3, RIICO, Industrial Area, Phase-3, Balatora for manufacturing of "Poplin" from grey cloth. The ld CIT(A) categorically stated in para 6.6 of the impugned order that Balora is in Barmer Dsitrict which is declared as industrially backward district as per Notification No.714 (E) dated 7.10.1997 issued by the CBDT in accordance with the provisions of section 80IB(5) of the Act. The assessee installed plant and machinery in the preceding years relevant to the assessment years 2003-04 and 2004-05, so there was no merit in this contention of the ld DR that the machinery was installed in the month of February 2005 and it was not possible to achieve the turn over of Rs. 8.01 Crores. In the present case, the assessee had taken one vacant plot and another with office building & taken electric connection from Shri Purshottam Dass and M/s Purshottam Textiles. The industrial undertaking was established....
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.... of goods by employing more than 10 workers. In the present case, the assessee obtained a certificates from the Department of Factory and Boiler showing that the assessee was having 12 workers, utilized the power up to 4 H.P. for manufacturing of finished goods. The said certificate is not doubted at any stage, therefore, the assessee also fulfilled the fourth condition laid down in section 80IB(2) of the Act to claim the deduction u/s 80IB(5) of the Act. In the present case, the main objection of the Assessing Officer for denying the deduction u/s 80IB of the Act was that it was not possible for the assessee to achieve the turn over of Rs. 8,01,81,703/- with electricity consumption of Rs. 70,982/- only. In this regard, the explanation of the assessee was that apart from the electricity expenses of Rs. 70,640/-, generator expense of Rs. 1,23,355/- were incurred which were sufficient to run 4 H.P. machine required to run 15 jiggers, which was connected with the shaft functioning with 2 H.P. motor and for padding process, one and half horse power was sufficient. As per the lay out plan, a two horse power motor consumes 1.5 unit of electricity per hour and for padding process, one and....
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....ove in Question No.1 there appears no necessity of much dilatation on Question No.2. Suffice is to observe that if the benefits have been granted for the above year 2003-04 under section 10-B of the Act; and the benefit is available for a block of 10 years, it cannot, ordinarily, be withdrawn when the nature of work and benefit remain the same." 27. In the present case also, the deduction u/s 80IB is available for ten consecutive assessment years and the assessee claimed the deduction first time for the assessment year 2004-05, therefore, the benefit was available to the assessee for the year under consideration when nothing was brought on record to substantiate that there was change in the activities and nature of the work of the assessee for the year under consideration vis-a-vis the preceding year i.e. 2004-05. Similar view has also been taken by the ITAT, Lucknow 'B' Bench in the case of Tahreem Electricals (P) Ltd Vs. ACIT (2007) 112 TTJ (Luck) 586 (supra),wherein it ahs been held as under:- "it is an admitted fact that the assessee-company is claiming deductions under ss. 80HH and 80-I since assessment year 1992-93.The Department has allowed deductions under ss. 80HH an....