9911796707
TMI Blog2012 (12) TMI 1100X X X X Extracts X X X X X X X X Extracts X X X X ..... , JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER Appellant By : Shri Subhash Chandra Respondent By: Shri Amit Kothari & Sh Ashok Bansal ORDER PER N.K.SAINI, A.M. These three appeals by the Department are directed against separate orders dated 17.1.2011, 18.1.2011 and 28.12.2011 for the Assessment Years 2005-06, 2007-08 & 2008-09 respectively. 2. In these appeals, common issue is involved and the appeals were heard together, so these are being disposed of by this consolidated order for the sake of convenience. 3. First, we will deal with ITA NO.111/Ju/2011. The only ground raised in this appeal reads as under:- On the facts and in the circumstances of the case the ld CIT(A) has erred in allowing deduction u/ 80IB of the I.T. Act rejected by the Assessing Officer after going through the requirements of conditions prescribed for deduction u/s 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Balotra and that no enquiry had been made whether it produced goods form factory situated at E-4 & E6, which were old. In view of the above, the ld CIT concluded that the Assessing Officer failed to make any verification in the matter as discussed above, which were really required. He accordingly directed the Assessing Officer to make depth investigation and verify the genuineness of the claim of deduction u/s 80IB of the Act and pass a fresh assessment order in the matter and if on verification it was found that the assessee fulfilled the required conditions contained as envisaged in section 80IB of the Act , he shall allow the claim of deduction and in the alternative if the assessee did not fulfill the required condition as envisaged in section 80IB of the Act , the Assessing Officer shall reject the claim. The Assessing Officer asked the assessee to furnish following details / information along with 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 ₹ 70,982/- in respect of power consumption, which is very much low looking to the huge turnover. Furnish the justification with regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equired to maintain labour registers and pay wages and salary register, copies of which were furnished. Regarding the plant and machinery, the assessee submitted that the plant and machinery were new, which was evident from following:- Year of Investment Investment in P&M AY 2003-04 ₹ 1,32,697.00 AY 2004-05 ₹ 2,97,562.00 9. The assessee has furnished copies of invoices / bills of purchases and stated that since the firm had taken the factory building on rent, the WDV of the factory building was shown at nil. It was contended that during the year the assessee constructed temporary structure to keep grey cloth, colours & chemicals and packing materials etc as per rent agreement on which a sum of ₹ 1,03,845/- was spent. It was further contended that the factory building taken on rent also included the facility of generator, and, therefore, no investment was 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33000 No. of working days in a year 300 Total No. of meters,, which a unit can process in a year 99,00,000 Average rate of sale price 15 Total value of goods which can be processed by the industrial undertaking 14,85,00,000 13. It was submitted that as against production capacity of ₹ 14,85,00,000/-, the assessee had shown turnover of ₹ 8,01,81,703/- and this huge turnover 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 ₹ 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 avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial is taken for dyeing process i.e. importing of required sheds of colour. The next stage is padding process i.e. putting the starch on the said fabrics by way of machineries. Thereafter, it dries by hanging on the wooden or bambow stick under factory shed. Thereafter, it segregates with colour and quality in the hall and put in the particular packet for sale in required length to the customers. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of ₹ 1,32,697/- under head fixed assets being Machineries, the assessee had made addition during the year under consideration to the fixed assets amounting to ₹ 4,53,313/- which includes plant and machinery of ₹ 2,97,562/- and building of ₹ 1,03,845/-. It is therefore, submitted that the assessee had installed total 15 Jigger 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 ₹ 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 Notific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee's case, provisions of section 80-IB(5) were applicable which provides that the amount of deduction in the case of an industrial undertaking located in such industrial backward districts as the Central Government may having regard to the prescribed guidelines by Notification in the official Gazette, specify in this behalf as industrially backward 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, Balotr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... established its industrial undertaking at the premises situated E-4, Ist Phase, Industrial Area Balotra and E-301, RIICO Ind Area, Phase III, Baltora for manufacturing and carrying out its business activities. The ld CIT(A) also stated that Baltora is in Barmer district and the Barmer is declared as industrially backward district appearing at SNo.33 of category 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king on the said premises. The ld CIT(A) accordingly held that there was no violation of first condition laid down in section 80IB(2) of the Act. 18. As regards second condition, which provides that the industrial undertaking is not formed to a new business by transfer of old plant and machinery used for any purposes. The ld CIT(A) observed that 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 reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nished product namely poplin. The ld CIT(A) further observed that the various government authorities such as Central Excise, Factory Authorities, Industrial Department and ESI Authorities have accepted the assessee concern as an industrial undertaking engaged in the business of manufacture and production of finished 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 sig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rator expenses of ₹ 1,23,355/- for the purpose of manufacturing of goods as well as for office, folding, packing of finished goods in hall by utilizing fan, tube lights and in office use, so there was no dispute that during the year under consideration the assessee had used electricity though according to Assessing Officer 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished details of capacity of production of finished goods of the assessee's undertaking, which revealed that the assessee could process / manufacture 99 lakhs meters of grey cloth of worth of ₹ 14.85 crores by applying selling price at ₹ 15/- whereas the assessee had shown sales of ₹ 8.01 cores and the Assessing Officer had not brought on record 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no reason to deviate for the year under consideration when the activities of the assessee for both the years were same. Reliance was placed on the decision of the ITAT, Lucknow 'B' Bench in the case of Tahreem Electricals (P) Ltd Vs. ACIT (2007)112 TTJ 586. Reliance was also placed on the judgment of the Hon'ble Jurisdictional High Court in the case of M/s 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power." 26. From the above provisions it is clear that the first condition to be fulfilled is that the assessee shall not be formed by splitting or reconstruction of a business 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 ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to assessment year under consideration. Therefore, the assessee fulfilled the condition of employing more than 10 workers and manufacture the goods with the aid of power. The assessee deducted ESI on the payment of wages to the workers and ESI Act is applicable on the factory which is established and engaged in manufacturing 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 ₹ 8,01,81,703/- with electricity consumption of ₹ 70,982/- only. In this regard, the explanation of the assessee was that apart from the electricity expenses of ₹ 70,640/-, generator expense of ₹ 1,23,35 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the principle of consistency, the deduction could not have been disallowed for the year under consideration as per ratio laid down by the Hon'ble Jurisdictional High Court in the case of M/s Grace Exports, Amberi, Udaipur Vs. ITO, Ward-2(1), Udaipur (supra), wherein it has been laid down as under:- "In view of what has been found hereinabove 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 ..... 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