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TMI Blog2015 (8) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferent article emerges having distinctive name, character and use. After applying the tests laid down in the different judgements and taking guidance from the definition of manufacture in the act, having noted the process involved, the learned CIT(A) rightly held that the assessee company is entitled to deduction u/s 80-IC of the Act. The Assessing Officer has not made any comments with regard to the certificates given by the Government of India, Ministry of Commerce and Industries, and Excise Authorities of the State has not commented upon adversely by the AO. Just because survey team has reported that only 20 people were working in the unit cannot brush aside the evidence that has been placed on record. Taking into consideration the corroborative evidence, we concur with the view of the learned CIT(A) and we find no infirmity in the same. - Decided in favour of assessee. Reopening of assessment - Held that:- CIT(A) who has deleted the entire addition made by the Assessing Officer on the ground that the predecessor CIT(A) had on merits found out for assessment year 2008-09 that the assessee company is eligible for deduction under Section 80-IC of the Act. Nowhere in the im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 of the CIT(A) that the Rudrapur unit at Pantnagar of the assessee is eligible for deduction under Section 80IC of the Income-tax Act, 1961 (for short the Act ) without taking into consideration the material gathered during survey under Section 133A of the Act. 6. Brief facts of the case, as noted by the AO, are that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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: i) Sh. A.K.Rawat, ACIT, Haldwani ii) M.M.K.Abbass, ITI, Rudrapur iii) Sh. Pankaj Khatri, ITI, Haldwani iv) Sh Ritesh, ITl, Haldwani v) Sh. Saurabh Prashant, ITI(lnv.), Haldwani vi) Sh. Anoop Baloni ITI(lnv.), Haldwani 1. At the business premise, Sh. Ajay Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich trading a/c tallies at ₹ 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 ₹ 23,80,42,515/-, out of which expense on job work is declared at ₹ 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 at some other unit. However, from the modus operandi of purchasing the machines and billing made for the same, it can be concluded that all the machines are purchased by Faridabad unit and payments are also either as stock transfer or as sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rked 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 reconstruction of any existing Unit, in other words it does not contain second hand machines or machines ever used before. b) The Unit should be in the backward area - Rudrapur is a backward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total 63 Copies of Attendance reqisier, Salary sheet, Contractors BII/ Challans for provident Fund and ESI for the month of October, 2010 are enclosed and 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. You ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter validation of the processes. We are confident that above would suffice your requirements and your honor would be kind in accepting our submissions in support of the manufacturing activities pursued by the Rudrapur unit and oblige. 9. After consideration of the reply 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 ₹ 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 conn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no. 1, 19/6, Mathura Road, Faridabad on 15/16.02.2010 respectivly. Though questionaire was issued by the Assessing Officer dated 22.11.2010 to the assessee, we find that the A.O. has not taken into consideration the reply and supporting documents filed by the assessee dated 30.11.2010 which has been 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 EQUIPT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LTD. 8. ALT4026 ALTERNATOR PUNJAB TRACTORS LTD. 9. STM1103-V STARTER MOTOR TRACTORS FARM EQUIPMENTS LTD., TAFE MOTORS TRACTORS LTD. BHOPAL INDO FARM TRACTORS LTD. 10. STM1104-W STARTER MOTOR PUNJAB TRACTORS LTD. 11. STM1105-V STARTER MOTOR MAHINDRA MAHINDRA LIMITED-RUD NAGPUR 12. STM1108-W STARTER MOTOR INDOFARM TRACTORS LTD., PREET TRACTORS, STANDARD COMBINES 13. STM1120-V STARTER MOTOR TAFE MOTORS TRACTORS LTD. BHOPAL 14. STM1121-W STARTER MOTOR INDOFARM TRACTORS LTD, PREET TRACTORS, STANDARD COMBINES MAHINDRA GUJRAT TRACTORS LTD. 15. STM1122-V STARTER MOTOR MAHINDRA MAHINDRA LIMITED-NAGPUR MAHINDRA GUJRAT TRACTORS LTD. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the change or the series of changes brought about by the processes take the commodity to the point where commercially it can no longer be regarded as the original commodity but is, instead, recognised as a distinct and new article that has emerged as a result of the processes. The principles are clear. But difficulties arise in their application in individual cases. There might be border line cases where either conclusion with equal justification may be reached. Insistence on any sharp or intrinsic distinction between processing and manufacture results in an oversimplification of both and tends to blur their interdependence.... [179 ITR 317] Manufacture 1993 Kerla High Court CIT Vs. Kanam Latex Industries (P.) Ltd. The prevalent and general accepted test to ascertain whether there is manufacture is to find whether the change or the series of changes brought about by the application of processes take the commodity to the point where, commercially, it can no longer be regarded as the original commodity but is, instead, recognized as a distinct and new article that has emerged as a result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 character and use. (ii) Meaning of Produce Produce 1988 AP-High Court CIT Vs. Sri Venkateswara Hatcheries (P.) Ltd. The word produce as used in ordinary parlance and its dictionary meaning shows that in case of the word, no distinction is made between animate and inanimate objects. Even if a living object is brought forth by human effort, it can be said to have been produced. [71 CTR 80, 174 ITR 231, 39 TAXMAN 279) Produce 2002 Kerala High Court CIT Vs. Vijaya Retreaders The word produce means bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all by-products, intermediate products and residual products which emerge in the course of manufacture of goods. The next word to be considered is articles. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ponents. 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 physical object or article or thing,-- (a) Resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) Bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure. 20 The ld CIT(A) rightly observed that it is well settled that every change or process cannot be termed as manufacture or production. Well known test applied for determining whether a process amounted to production/manufacture are that a new and di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction under Section 80-IC of the Act. Nowhere in the impugned order we find any observation or finding of the learned CIT(A) commenting on the validity of the reopening of the assessment proceedings under Section 147/148 of the Act. Since the ground does not arise from the impugned order, we are unable to state whether the said ground can survive. On a question to the learned DR whether he can point out from the impugned order CIT(A) s observations or findings in respect to the illegality of the reopening, he could not do so. We are constrained to note that the learned CIT(A) has not adjudicated on the reopening made by the AO under Section 147/148. He has deleted the addition made on the ground that his predecessor CIT(A) in chair had deleted the same on merits. Therefore, we do not find any merits in the grounds raised before us. In any case since, we have already up held the finding and decision of the Ld CIT(A) for assessment year 2008-09, that the assessee company s Rudrapur Unit is engaged in manufacturing and is therefore eligible for deduction under Section 80-IC of the Act, so we uphold the orders of the learned CIT(A) and dismiss the grounds raised by the Revenue in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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