2007 (6) TMI 230 - AT - Income Tax

Deduction u/s 80-IB - nature of activity - making CRGO Core Lamination - manufacturing/production - Profits And Gains From Industrial Undertaking - violation of the provisions of section 250(6) of the Act read with the provisions of rule 46A - principles of natural justice - difference of opinion between Learned Members - Third member decision - HELD THAT - In our opinion there is also no violation of the provisions of section 250(6) of the Act read with the provisions of rule 46A of the Rules. The CIT(A) has visited the factory premises along with the Assessing Officer and whatever findings he has recorded was in the presence of the Assessing Officer at the time of their joint visit. The Assessing Officer was present at the time of visit and remained with the CIT(A), from the beginning to the end. No independent evidences were collected by the CIT(A) and no fresh evidence was taken by him. We noted that as per the mill's specification at a temperature of 820 degree for 72 to 90 seconds depending upon the thickness and grade of material. The inspection report is reproduced above in the order. The CIT(A) has not considered the opinion of Standing Counsel of the Department by relying upon the Supreme Court decision in Smt. Amiya Bala Paul v. CIT 2003 (7) TMI 4 - SUPREME COURT . This is only an opinion and has in any case is to be considered as an argument in holding whether there was a manufacture. These issues, material and submissions in any case are being discussed in the proceedings before us and there nothing much turns on that because in substance the CIT(A) has discussed everything stated in the opinion by way of a proposition. No principles of natural justice are violated by him in disposing the appeal. The ld. JM, therefore, held that as there is no basic change in the characteristics of the raw material and the finished products, the assesses cannot be said to be engaged in the manufacturing activities and held that the CIT(A) was not justified in allowing relief to the assessees. Third Member - Keeping in view the above meaning of the word manufacture as decided by the Hon'ble Courts including the Supreme Court in various cases I have to decide as to whether various processes involved in making the transformer core would amount to manufacturing or not. If the activities amounted to manufacture, the assessees will be entitled to exemption u/s 80-IB of the Act as they are situated in the areas eligible for such exemption. The core building is done in horizontal position of specifically raised platform. Some of the processes are performed thereafter. A booklet from Parekh group of Industries whose companies are also before me along with various photographs of the processes involved was also filed. This gives picture of the raw material purchased, the physical changes at the end of each process and the new product which comes into existence. Looking to these facts, there cannot be two opinions that the shape of lamination has undergone a complete change after performing various processes. I also find that there was no dispute that the raw material from which the core is made is called CRGO coils whereas the item which has emerged after various processes is called transformer core. It is also undisputed position that the CRGO coils even with few processes cannot be used in a transformer unless all the processes were complete. It is the transformer core only which is end-product which could be used in the manufacturing of transformer. Thus there cannot be any dispute that due to various processes the product has distinct name, shape and uses. By these processes the raw material loses its identity and new product comes into existence which is commercially recognized as a new product. As regards the observation of the ld. JM regarding res judicata, I feel that the principle of judicial consistency should be followed where nothing new has come to the notice of the Assessing Officer. Similarly, as on the facts the activities of the assessees were in the nature of manufacturing activities, the question of liberal interpretation of the statutes does not arise. I also agree with the proposition that the judgment of the court should not be read as a statute. A judgment must be construed upon reading the same as a whole. For the said purpose the attendant circumstances may also be taken consideration. As held by Hon'ble Supreme Court in the case of Ramesh Chand Daga 2005 (3) TMI 788 - SUPREME COURT , P.S. Sathappa 2004 (10) TMI 605 - SUPREME COURT and order of court of law must be read in its entirety for the purposes of ascertaining its true intent and purport. Reliance on the part judgment may do violence to the true intent and purport of the judgment. In my final analysis, I am inclined to agree with the views and observations made by ld. Vice President in his proposed order regarding factual aspects of various processes undertaken by the assessee and its effect which are well supported by treatise from various foreign and Indian books on the subject and especially supported by Research Institute known as ERDA which is the highest authority on the subject and approved by the CBDT for giving the technical opinion and ld. VP's analysis of various judicial pronouncements for ascertaining the test for manufacturing activity. From the evidences on record, I am of the opinion that the ld. VP has rightly held that the assessees were engaged in the manufacturing or producing an article or thing and he has rightly allowed the exemption u/s 80-IB of the Act. I agree with proposed orders of the learned Vice President. The matter should now be placed before the Regular Bench for disposal in accordance with law.

Summary

Issues Involved:
1. Whether the CIT(A) erred in not granting the opportunity of being heard to the Assessing Officer.
2. Whether the CIT(A) erred in adjudicating the issue without providing findings and evidences recorded during the factory visit.
3. Whether the CIT(A) erred in not granting the opportunity for necessary enquiries and cross-examination.
4. Whether the CIT(A) erred in holding the activity of the assessee as manufacturing.
5. Whether the CIT(A) erred in not considering the legal opinion submitted by the Assessing Officer.
6. Whether the CIT(A) erred in granting relief based on incorrect facts.
7. Whether the CIT(A) erred in granting relief despite contradictory observations and opinions.
8. Whether the CIT(A) erred in holding that the activity of the assessee is manufacturing based on decisions that were distinguished in the remand report.
9. Whether the CIT(A) erred in not making a speaking order as per section 250(6) of the Act.
10. Whether the CIT(A) erred in granting relief without considering the judgment of the Hon'ble Apex Court and other relevant decisions.

Detailed Analysis:

1. Opportunity of Being Heard:
The revenue contended that the CIT(A) did not grant the opportunity of being heard to the Assessing Officer, despite a specific request, violating the principles of natural justice. However, the Tribunal found no force in this contention, noting that the remand report was submitted by the Assessing Officer and no specific request for a hearing was made, thus rejecting this ground.

2. Adjudication Without Providing Findings:
The revenue argued that the CIT(A) adjudicated the issue without providing findings and evidences recorded during the factory visit, thereby denying the Assessing Officer the opportunity to comment. The Tribunal noted that the CIT(A) visited the factory along with the Assessing Officer and recorded findings in their presence, thus no independent evidence was collected, and no fresh evidence was taken. Therefore, there was no violation of rule 46A.

3. Opportunity for Necessary Enquiries and Cross-Examination:
The revenue claimed that the CIT(A) erred in not granting the opportunity for necessary enquiries and cross-examination. The Tribunal observed that the CIT(A) did not take cognizance of any certificate or report filed by the assessee, hence the question of cross-examination did not arise.

4. Manufacturing Activity:
The core issue was whether the activity of the assessee constituted manufacturing. The Tribunal, after detailed analysis and inspection of the factory, concluded that the processes involved, including slitting, shearing, notching, holing, annealing, and core assembling, transformed the raw material (CRGO sheets) into a new product (transformer core) with different characteristics, thus constituting manufacturing. The Tribunal upheld the CIT(A)'s decision, finding the activity to be manufacturing.

5. Legal Opinion Submitted by the Assessing Officer:
The revenue contended that the CIT(A) erred in not considering the legal opinion submitted by the Assessing Officer. The Tribunal noted that the opinion of the Standing Counsel was not decisive and was considered as an argument. The CIT(A) did not violate any principles of natural justice in disposing of the appeal.

6. Granting Relief Based on Incorrect Facts:
The revenue argued that the CIT(A) granted relief based on incorrect facts. The Tribunal, after considering the detailed processes and technical aspects, found that the CIT(A) correctly concluded that the activity was manufacturing, thus rejecting the revenue's contention.

7. Contradictory Observations and Opinions:
The revenue claimed that the CIT(A) granted relief despite contradictory observations and opinions. The Tribunal found that the CIT(A) provided a detailed and reasoned order, considering all relevant aspects and technical reports, thus there were no contradictions affecting the decision.

8. Decisions Distinguished in Remand Report:
The revenue argued that the CIT(A) relied on decisions that were distinguished in the remand report. The Tribunal, however, found that the CIT(A) appropriately applied the relevant judicial decisions to the facts of the case, supporting the conclusion that the activity was manufacturing.

9. Speaking Order as per Section 250(6):
The revenue contended that the CIT(A) did not make a speaking order as per section 250(6) of the Act. The Tribunal found that the CIT(A) provided a detailed order with reasons for the decision, thus fulfilling the requirements of section 250(6).

10. Consideration of Apex Court Judgment:
The revenue argued that the CIT(A) granted relief without considering the judgment of the Hon'ble Apex Court and other relevant decisions. The Tribunal, after a thorough analysis, found that the CIT(A) appropriately distinguished the cited cases and applied the correct legal principles, supporting the conclusion that the activity was manufacturing.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, concluding that the activities performed by the assessee constituted manufacturing, thereby entitling the assessee to the deduction under section 80-IB of the Act. The appeals of the revenue were dismissed.