2015 (2) TMI 1317 - AT - Income Tax

Deduction u/s 80-IB at Silvassa unit - proof of manufacturing or production of electrical generators - HELD THAT - As per JACKSON ENGINEERS LTD. 2009 (12) TMI 649 - DELHI HIGH COURT the activity involving assembling of various components and achieving a final product of a generator amounts to manufacture or production of an article or thing within the meaning of section 80-IB of the Act. Moreover as in the case of Tata Locomotive And Engineering Company Limited 1967 (2) TMI 22 - BOMBAY HIGH COURT has also held that assembling of various components which results into a different product which is distinct then the individual components, such an activity amounts to manufacture or production. As a consequence, we therefore do not agree with the first objection of the Assessing Officer to deny assessee s claim for deduction u/s 80-IB(4) of the Act. Thus, on this aspect assessee succeeds. Silvassa unit of the assessee did not begin to manufacture or produce the Generators before 31.03.2004. - Assessing Officer relied upon the statement of the transporter to infer that there was neither transportation of raw material to Silvassa unit and nor the manufactured generator set was transported from Silvassa unit to M/s SNA Industries, Chakan Pune - need for cross-examination - HELD THAT Ostensibly, there are apparent contradictions in the statements furnished by the transporter at the different points of time. The assessee pointed out that earlier it had contended that due to the contradictory position taken by the transporter a report of the handwriting expert be called for to establish as to whether the signature on the transport bills were that of Shri Padwal or not. It was also asserted by the assessee that the cross-examination would not serve any purpose when the appropriate preparation was not possible at a short notice. No doubt, technically speaking, an opportunity was allowed to the assessee to cross-examine the transporter. The assessment order has been passed on 31.12.2010 and obviously the cross-examination opportunity was allowed at the fagend of the proceedings. Of-course, one of the reasons for the cross-examination to be allowed at the fagend was that the investigation itself were started late by the Assessing Officer. But the moot question is that can it be conclusively established on the basis of the apparently inconsistent stand of the transporter that there was no transaction effected with M/s Kavita Industries Pvt. Ltd. or M/s SNA Industries prior to 31.03.2004. In-fact, in the Excise return furnished by the assessee, a copy of which has been placed at pages 131 to 132 of the Paper Book, it is revealed that assessee returned the quantity manufactured and also showed its liability for excise duty on the quantity manufactured and sold. The said return of income is dated 05.04.2004 and at the time of hearing, the original copies of the said were also called for and perused. The said return corresponded to the quarter ending on 31.03.2004. The reflection of quantity of goods manufactured and liability of excise duty thereof in the said return has not been disapproved by the Revenue at any stage. There is also no reason for us to disregard the same. Nevertheless, it is also emerging that so far as the evidence of transportation is concerned it does not clinchingly establish the case either way. It was not only imperative but also prudent that the cross-examination of the transporter was undertaken so as to enable the Assessing Officer to come to appropriate findings.

Summary

Issues Involved:
1. Eligibility for deduction under Section 80-IB(4) of the Income-tax Act, 1961.
2. Determination of whether the activities at the Silvassa unit constitute "manufacture" or "production".
3. Verification of the commencement of manufacturing activities at the Silvassa unit before the specified date of 31.03.2004.

Issue-wise Detailed Analysis:

1. Eligibility for Deduction under Section 80-IB(4) of the Income-tax Act, 1961:
The primary issue in these appeals concerns the assessee's claim for deduction under Section 80-IB(4) of the Income-tax Act, 1961, with respect to the profits derived from its Silvassa unit. The Revenue's appeals for the assessment years 2006-07 and 2007-08 challenge the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which allowed the assessee's claim for deduction. Conversely, the assessee's appeals for the assessment years 2005-06 and 2008-09 challenge the denial of the deduction by the Assessing Officer (AO) and the subsequent affirmation by the CIT(A).

2. Determination of Whether the Activities at the Silvassa Unit Constitute "Manufacture" or "Production":
The AO denied the deduction on two primary grounds. First, the AO contended that the activities at the Silvassa unit did not amount to "manufacture" or "production" of goods or articles as required under Section 80-IB(4). The assessee argued that the activities at the Silvassa unit involved various processes such as inspection, testing, assembling, and functional testing of electrical generators, which should be considered as manufacturing. The Tribunal referred to the judgments in *Aspinwall and Co. Ltd. vs. CIT* and *CIT vs. Jackson Engineers Ltd.*, which supported the assessee's contention that assembling various components into a final product constitutes manufacturing. Consequently, the Tribunal disagreed with the AO's first objection and held that the activities at the Silvassa unit amounted to manufacturing.

3. Verification of the Commencement of Manufacturing Activities at the Silvassa Unit Before the Specified Date of 31.03.2004:
The second objection raised by the AO was that the Silvassa unit did not begin manufacturing activities before the cutoff date of 31.03.2004, as required by the proviso to Section 80-IB(4). The AO's verification process included examining evidence such as labor charges, installation certificates, electricity bills, sales tax returns, rental agreements, machinery installation, and excise duty payments. The AO also issued requisitions to M/s Kavita Industries Pvt. Ltd. and M/s SNA Industries, which allegedly dealt with the Silvassa unit before 31.03.2004. The AO relied heavily on the statements of the transporter, Shri Manik Sopan Padwal, who initially denied transporting raw materials and finished goods to and from the Silvassa unit. However, upon further examination, the transporter admitted to issuing the relevant bills and LRs but claimed they were for local transportation only.

The Tribunal noted the contradictions in the transporter's statements and emphasized the need for cross-examination to establish the facts conclusively. The Tribunal observed that the AO had allowed an opportunity for cross-examination at the fag end of the proceedings, which the assessee could not avail due to short notice. The Tribunal found the evidence provided by the assessee, including excise records and returns, to be credible and indicative of manufacturing activities before 31.03.2004. However, due to the contradictory evidence from the transporter, the Tribunal deemed it appropriate to remand the matter back to the AO for a fresh assessment, ensuring a proper opportunity for cross-examination.

Conclusion:
The Tribunal set aside the order of the CIT(A) and remanded the matter back to the AO for a fresh assessment, allowing the assessee an adequate opportunity for cross-examination and further verification. The Tribunal's decision applied mutatis mutandis to the other three appeals, resulting in a partial allowance of the appeals for statistical purposes.