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2007 (11) TMI 441 - ITAT MUMBAIDenial of deduction u/s 80-IB - Manufacturing or production of perfumery components is "Manufacturing or Production activities or not"? - Consumption of electricity is very small amount - Assessee did not employ ten or more workers in the manufacturing process - scope of term workers "Manager and the Assistant could be categorized as workers?" - Addition u/s 69C - Unexplained expenditure. Engaged in manufacturing or production - HELD THAT:- We find that the finished products are chemically and commercially different from the raw materials used in the making of such finished products, hence, as settled by various judicial decisions, the assessee can be said to be engaged in the manufacture and, thus, it qualifies on this account. Even otherwise, the section has also used the term "production" and the term "production" is certainly wider than the term "manufacture". The Three Judge Bench of Hon’ble Apex Court in the case of CIT v. Sesa Goa Ltd.[2004 (11) TMI 14 - SUPREME COURT] held that where human efforts were involved in the making of a product, then, such product fell within the term production and even it was not necessary that such product should be commercially different and, therefore, the assessee was entitled for exemption under section 80-I of the Act. Thus, assessee’s claim for deduction u/s 80-IB cannot be rejected as there is a production of a thing and human efforts along with mechanical process are also involved. Consumption of electricity - Assessee has submitted the bill of the meter installed in connection with the machinery used for manufacturing, hence, if the consumption is low due to the involvement of machinery in the processing activity, the same cannot be a valid ground for denying the deduction u/s 80-IB of the Act and for holding that the assessee is carrying manufacturing activities without aid of power, hence, required to employ 20 or more workers particularly when the Legislature has not prescribed any minimum criteria for consumption of electricity in the manufacturing process. Employment of workers in the manufacturing process - We find that both the term ‘workers’ and ‘manufacturing process’, as used in section 80-IB(2)(iv) of the Act, have not been defined in the Act. We also find that it is one of the four conditions which are required to be complied with by the assessee for claiming deduction u/s 80-IB of the Act. We also find that the principal object of this section is to encourage the setting up of industrial undertaking by offering tax incentives so as to attain the objective of economic development which, as such, comprises of investment, economic size and employment generation and if all the conditions are read together then, these all the above three parameters would be found implied, as a result of these conditions, in section 80-IB(2) of the Act. It is also true that it is an incentive provision, hence, it should be interpreted in a manner so as to advance the objective of the provision and not to frustrate it. In this background, we shall firstly look at the aspect of manufacturing process. Manufacturing process has got two words "manufacturing" and "process". Thus, we are of the considered opinion that Factory Manager and Assistant looking after various activities of a unit should be considered as workers, employed in the manufacturing process. Thus, the assessee also fulfils the condition regarding employment of minimum number of workers. Accordingly, we hold that the assessee is entitled for deduction u/s 80-IB of the Act and we direct the Assessing Officer to accept the claim of the assessee in this regard. Thus, ground Nos. 2, 3 and 4 of the assessee stand allowed. Addition u/s 69-C - Unexplained expenditure - HELD THAT:- From the perusal of the cash/factory book, we find that it contain entries relating only to cash inflow by way of transfer from head office or withdrawal from HDFC Bank. It is also noted that employees’ wages have been paid mostly at the end of the each month except in the case of the month of June, 2003 and there is a corresponding withdrawal of cash from bank on that date. It is also noted that assessee is a Pvt. Ltd. Co. and managed by independent persons other than owners, hence, normally, there cannot be a situation where the wages being a regular payment, which has been duly recorded in the books of account would be disbursed through unaccounted cash. We also find that there is no dispute regarding the quantum of wages nor any statements have been obtained from the workers in this regard. Thus, taking into account the entire facts, it appears to be a case of accounting mistake only, hence, in our opinion, no addition is warranted. Accordingly, we accept this ground of assessee. In the result, appeal filed by the assessee stands allowed.
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