TMI Blog2012 (12) TMI 1100X X X X Extracts X X X X X X X X Extracts X X X X ..... NT 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 claiming deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to manufacturing; if not than th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It was further stated that the unit was set up in the notified backward district of Barmer in Rajasthan and was run by power. It was submitted that the assessee s unit was registered under Factory Act as well as ESI Act, therefore, the assessee was required 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere incurred towards labour:- Wages 80,066.00 Factory Wages 4,40,384.00 Salary 1,76,000.00 12. The assessee furnished the calculation of production achieved which was as under:- Description Details No. of Jiggers 15 Time required for processing of one batch on single jigger 3.5 Hours No. of THAN contain single batch 10 No. of Meters /THAN 110 Total working hours in a day 8 No. of THAN can be processed on a single jigger in a day 20 No. of THAN can be processed at industrial undertaking 300 Total No. of Meters can be processed at the Industrial Undertaking 33000 No. of working days in a year 300 Total No. of meters,, which a unit can process in a year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e market / sister concern cannot be denied. Deduction u/s 80IB is allowable if the assessee sells its own manufactured goods and not ready goods purchased from elsewhere. In view of the above discussions as also detailed reasons given by the worthy CIT-II, Jodhpur in the order u/s 263, it is clear that the assessee failed to prove the claim of deduction u/s 80IB and hence, deduction u/s 80IB is not allowable. 15. The assessee carried the matter to the ld CIT(A) and submissions made before the ld CIT(A) which has been incorporated in para 5 of the impugned order are reproduced per verbatim as under:- i The assessee has commenced production on 1-3-2004 and the first assessment year of the appellant industrial undertaking was AY 2004-05. ii. The assessee purchases grey cloth from different places and the grey cloth was subjected to various process of manufacture / production and it includes operation of washing / bleaching, dyeing, padding and rapping of the fabrics. The said grey fabrics i.e. unprocessed undergo various processes in the factory. The grey fabrics are boiled in water mixed with various chemical and then grey fabric is washed / bleached and thereafter t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gistrar of Firms for carrying out business in processed cloth. e. Certificate issued by Central Excise Rules, 2002 and Rule of 7(5) of Cenvat Credit Rules, 2002, according to which the assessee's finished product was subject to levy of Central Excise Duty and availability of credit of Cenvat. f. Registration under Factory and Boiler Act showing number of workers more than 10. g. Registration with Electric Department for having electric connection. h. Copy of partnership deed showing that the business of the firm shall that of running a factory for dyeing, printing, felting and processing of cloth. It is therefore, submitted that registration as manufacturer is granted by the aforesaid authorities only after necessary enquiries and investigation. v. The assessee had taken plot with office building situated at no. E-4 and vacant plot situated at E -301 on rent. All the machineries were installed on these plots and necessary permissions from the Government Department for starting of factory were taken in respect of the above plots. It is further submitted that plot no. E-6, 1st Phase does not belong to the assessee and no activity has been carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted details of purchase of grey cloth and sale of finished cloth along with consumable items, details of opening as well as closing stock, electricity expenses, power / fuels expenses to prove activity of industrial undertaking and sale of finished goods. xi. He, therefore, submitted that the assessee has fulfilled all conditions laid down in the provision of sec. 80IB and the Assessing Officer had merely disallowed claim on the basis of wrong suspicions and baseless presumption. He therefore, submitted that the Assessing Officer ought to have allowed deduction u/s 80IB and accordingly requested for claimed to be allowed in the appellate proceeding. In support of the claim, the appellant's Authorized Representative relied upon decision of the Hon'ble ITAT Jodhpur Bench, Jodhpur in case of ITO, Balotra Vs. Ranmal, P/o. Subhash and Vimal Jasol in ITA No. 148/Ju/2000 for AY 96-97 order dated 3-11-2006. 16. The ld CIT(A) after considering the submissions of the assessee observed that for the purposes of allowing deduction u/s 80IB(2) of the Act, the business of the assessee should include any profit and gains derived from any business referred in sub section (3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had also filed certificate dated 29.4.2004 from ESI for Plot No.301 and registration and license issued by Chief Inspector of Factory, Rajasthan under Rule 5 of the registration and license to work a factory for the use of premises situated at E-301, RIICO, Industrial Area, Phase III for dyeing and starch related process of cloth and inspection report issued by Chief Inspector of Factory and Boilers, Baltora for employing in the factory for not more than 19 persons on any one day during the year and using motive power not exceeding 4 horse powers subject to the provisions of Factories Act, 1948. The ld CIT(A) observed that the assessee had obtained certificate form Commissioner, Tax Department for the premises No.E-4, Ist Phase and also got registered partnership firm to carry out its manufacturing and business activity. He further observed that in the Financial Year relevant to assessment year 2004-05, the assessee had made investment under head fixed assets to the tune of ₹ 1,32,697/- being plant and machinery. The assessee had set up industrial undertaking and commenced commercial production on 1.3.2003. The ld CIT(A) categorically stated that all the above certificates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C) b) CIT v Gasnga Sugar Corporation Ltd [92 ITR 173 (Del)] 17. The ld CIT(A) observed that in the assessee s case, the undisputed facts did not suggest for formation of the business by taking over assets and liability of the running industrial undertaking and also did not suggest taking over of business of undertaking already in existence and that the assessee had itself made all out efforts to start a new undertaking for manufacturing of goods on the plots taken on rent. He also observed that the assessee did not have any ownership right over the plots and it had merely taken on rent, therefore, it can be said that it was not the case of either split of undertaking or reconstruction of business already in existence. Reliance was place on the judgement of the Hon'ble Madhya Pradesh High Court in the case of CIT vs Khemchand Motilal Jain, reported in 228 ITR 338. The ld CIT(A) further observed that no adverse factual finding after verifications as directed by ld CIT(A)-II Jodhpur in the set aside order was made in the assessment order by the Assessing Officer who had not brought any evidence on record to prove that the assessee was carrying on business from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses. The ld CIT(A) referred to the following decision of the Hon'ble Supreme Court :- i) Empire Industries Ltd v Union of India, ([162 ITR 846); and ii) Ujagar Prints v Union of India (179 ITR 317) Wherein it has been held that the processes like bleaching, dyeing and printing of grey cloth amounts to manufacture. 20. The ld CIT(A) observed that the assessee purchased bales of raw fabric i.e. grey cloth and each of the bales contained several hundred / thousand meters of raw fabric cloth. The assessee by various process and by using and consuming various other raw materials like, colours and chemicals etc. obtained finished product which were sold in the market in a different name then that of raw material used and the use of raw material i.e raw of fabric had not no rlevasnty and connectivity with the use of finished goods produced and marketed by the assessee i.e. Polplin which was sold in Thans and meters and not in bales. The ld CIT(A) refereed to the judgment of the Hon'ble Supreme Court in the case of India Cine Agenois Vs. CIT reported in 175 Taxman 361 (SC) and the decision of the ITAT Mumbai Bench in the case of Shah Originals Vs. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Factory given in ESI Act, 1948 and the meaning of Power as defined in Employees State Insurance Act, 1984 and came to the conclusion that the assessee had taken power connection and utilized electricity which was measured in units and bills for expenses were issued by RSEB during the year under consideration for manufacturing / processing of cloth and that the assessee obtained certificate from the ESIC, Jaipur and was deducting ESI starting from April, 2004 in respect of 12 worker employed in the factory for manufacturing of the finished goods with the aid of power and the same was paid to the ESIC. He also observed that the assessee obtained a certificate from the Department of Factory and Boilers showing 12 workers and utilization of power up to 4 H.P. for manufacturing of finished goods and also obtained certificate from District Industrial Sub Centre, Baltora for cloth dyeing with jigger and finishing of goods with bleaching, padding and rapping etc. According to ld CIT(A), the above registrations and requirements of various government departments for granting certiicates clearly showed that the assessee had employed / utilized more than 10 workers for carrying out manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred manufacturing and processing expenditure of ₹ 53.43,947/- in addition to purchase of raw material of ₹ 7,29,49,642/- and had shown closing stock to the extent of ₹ 1,21,66,830/-. He also pointed out that the assessee had claimed payment of ESI amounting to ₹ 26,398/- which clearly showed that the assessee was engaged in manufacturing / processing of finished goods namely poplin out of grey cloth by subjecting on various processes with the aid of power and employed more than 10 workers in the Financial Year under consideration, therefore, the assessee fulfilled four conditions prescribed in Section 80IB(2) of the Income Tax Act, 1961. The ld CIT(A) pointed out that the Assessing Officer in setting aside the assessment order had observed that with the smallness of electricity expenses, the assessee could not produce and sold goods worth of ₹ 8.01 crores on this observation, the ld CIT(A) stated that the Assessing Officer had not brought any evidence on record for his findings which was based on surmises and presumption and that from the details given in the profit and loss account, the assessee had purchased grey cloth to the tune of ₹ 7.29 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... number of labourers and also used the electricity to run the Unit and that the expenses were incurred on labour engaged in manufacturing process for dyeing, padding, rapping, bales packing etc. and the monthly wages / salary per worker fairly commensurate with the wage rate prevailing in the market during the relevant year. It was further stated that the assessee filed the Audit report in Form No. 10CCB to claim the deduction u/s 80IB and fulfilled all the conditions and the claim was allowed by the Assessing Officer in the original assessment proceedings. It was stated that the assessee explained to the Assessing Officer that how the production was achieved, the same has been discussed at page No.5 of the assessment order. It was contended that the assessee was having generator which was used when the electrical power was not available to operate motor for running the jigger and the expenses incurred on electricity were sufficient to achieve the turn over shown by the assessee, therefore, the Assessing Officer was not justified in observing that electricity consumption by the assessee was not sufficient to achieve the turnover and in denying the deduction claimed by the assessee o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted. Explanation 1.- For the purposes of clause (ii), any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namely :- (a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India; (b) such machinery or plant is imported into India from any country outside India; and (c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee. Explanation 2.- Where in the case of an industrial undertaking, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les or things specified in 11th Schedule. In the present case, the assessee manufactured poplin i.e. finished product out of grey cloth i.e raw material by carrying out activities such as washing, bleaching, dyeing, padding and rapping etc. and the finished product is altogether different from the raw material in its properties and even the Department in the preceding year has allowed the claim of the assessee for deduction u/s 80IB of the Act by considering that the assessee was engaged in manufacturing activities. Moreover, the various government authorities such as Central Excise, Industrial Department, ESI authorities etc. have accepted by issuing the various certificates that the assessee is an industrial undertaking engaged in the business of manufacturing or production of finished product namely poplin out of grey cloth, which is a different article or thing from the raw material, therefore, the assessee also fulfilled the third condition laid down in section 80IB (2) of the Act. The fourth and last condition provides that the industrial undertaking must employ 10 or more workers, if manufacturing process is carried out with the aid of power or employ 20 or more workers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of electricity were not sufficient to achieve the turn over shown by it. In the present case, the Assessing Officer accepted the purchase of grey cloth which was used as a raw material of the finished product i.e Poplin which was obtained after applying various processes like padding, washing, dyeing, furnishing and wrapping of the cloth. The Assessing Officer also accepted the sale of the finished goods shown by the assessee, so there was no reason to deny the claim of deduction u/s 80-IB(5) of the Act when the assessee fulfilled all the conditions laid down in the provisions of section 80IB(2) of the Act. In the present case, the Assessing Officer although alleged that the assessee might have purchased a finished product from other sources and did not manufacture in its unit, however, the purchase of grey cloth which is a raw material in the assessee s industrial undertaking has not been doubted. It is not the case of the Assessing Officer that the assessee sold the grey cloth in raw form and did not use the same in manufacturing Poplin which is the finished product. Therefore, the Assessing Officer was not justified while alleging that the possibility of assessee s pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss. 80HH and 80-I, CIT(A) was not justified in withdrawing the deductions in question. 28. In the present case also, the Assessing Officer allowed the claim of the assessee for deduction u/s 80IB of the Act for the assessment year 2004-05 and there is no change in the facts for the assessment year under consideration as well as in the activities of the assessee as compared to the said earlier year, therefore, the Assessing Officer was not justified in denying the claim of the assessee. In our opinion, the ld CIT(A) has passed a just and well reasoned order which requires no interference on our part. In that view of the matter, we do not see any merit in this appeal of the Department. 29. In ITA No. 112/Ju/2011 and 102/Ju/2012 for the assessment years 2007-08 and 2008-09, the facts involved are identical and even the rival submissions were similar, therefore, our findings given in respect of ITA No.111/JU/2011 for the assessment year 2005-06 in the former part of this order shall apply mutatis-mutandis for these years also. 30. In the result, all the appeals preferred by the Department are dismissed. (Order Pronounced in the Open Court on 20.12.2012) - - TaxTMI - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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