TMI Blog2007 (11) TMI 441X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned 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. - R.K. GUPTA AND V.K. GUPTA, JJ. Yogesh A. Thar for the Appellant. B.K. Singh for the Respondent. ORDER V.K. Gupta, Accountant Member. - This appeal is filed by the assessee and directed against the order of CIT(A)XIV, Mumbai dated 25-7-2007 for assessment year 2004-05. 2. We have heard both the sides and have also perused the materials placed on record and applicable legal position. 3. In ground No. 1, the assessee is aggrieved for the reason that no proper opportunity of hearing was given by the Assessing Officer. This ground was not pressed by the assessee, hence, the same is dismissed as not pressed. 4. In ground Nos. 2, 3 and 4, the issue is involved is regarding denial of deduction under section 80-IB of the Act. 5. The facts, in brief, are that assessee is engaged in the manufacturing of perfumery components and this activity was commenced by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CIT v. Mahesh Chand Gupta [2005] 279 ITR 396 1 wherein it was held that if on some days the assessee engaged less than 10, deduction could not be denied. The assessee also contended that Factory Manager as well as Assistant assisting him were also workers as commonly understood because the term worker had not been defined under section 80-IB of the Act. In this regard, the assessee also relied the Dictionary meaning of the term worker . With regard to the aspect of manufacturing, the assessee made detail submissions and in sum and substance contended that the finished goods manufactured by the assessee were different and distinct from the input materials and chemicals and also in use, hence, the assessee was engaged in the manufacturing. The assessee also relied on various judicial decisions in this regard. With regard to electricity bill, it was submitted that the electricity department subsequently raised a bill of Rs. 13,100 in March, 2005 for the second meter installed in the factory for the consumption of electricity made in the past including the period under consideration. The assessee also explained the manufacturing process during the time of hearing. It was als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounts, banking and other administrative work. The learned counsel, accordingly, contended that the assessee fulfilled this criteria. In support of this contention, the assessee relied on the decision in the case of CIT v. Sultan Sons Rice Mill [2005] 272 ITR 181 (All.) and in the case of CIT v. Hanuman Rice Mills [2005] 275 ITR 79 (All.) and CIT v. Ajmani Industries [2006] 153 Taxman 43 (All.) ( ii ) In regard to the issue of whether production of perfumery compounds constituted manufacturing or production of articles or thing or not, the ld. Counsel submitted that the finished product and raw materials were commercially different in following ways; ( i ) the finished products were perfumery compounds used in manufacturing of soaps, intense stocks etc. and the raw materials were chemicals used for production of perfumery compounds. They could not be used directly for above applications and ( ii ) the finished product and raw materials were known in the market under different names and/or codes as per market practice. For example, sandal rose, spicy muguet, moon drop etc. The ld. Counsel further contended that the finished products were chemically different fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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] 271 ITR 331 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 under section 80-IB cannot be rejected as there is a production of a thing and human efforts along with mechanical process are also involved. As far as the aspect of consumption of electricity is concerned, the 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing this provision of law, which in our opinion, is not correct having regard to the nature of the provision. The Hon ble Allahabad High Court in the case of Sultan Sons Rice Mill ( supra ) relied on by the assessee, in this regard, observed as under: "Ordinarily, a provision in a taxing statute granting incentive for promoting growth and development should be construed liberally. These provisions should be interpreted so as to advance the objective of the provision. Sections 80HH and 80J of the Income-tax Act, 1961, have been enacted with a view to encourage the establishment of new industrial undertakings and the object was sought to be achieved by granting exemption or concession from tax on a certain portion of profits for the specified period. Sub-section (4) of section 80J lays down the conditions which an industrial undertaking is required to fulfil to claim the benefit under section 80J. In order to qualify for the relief and satisfy the requirement, the undertaking must have employed ten or more workers substantially during the period in which relief is claimed The expression "manufacturing process" should be interpreted in its ordinary sense and should not be conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs were required to clean the plant and remove bhoosi, husk etc. Paddy was cleaned and dried and thereafter brought and put into the machine. The rice came out of the machine along with broken rice thereafter. There was further cleaning of the rice to make it fit for marketing. The finished product emerged only when it was marketable. All these activities were integral parts of the manufacturing process of rice. The Tribunal held that the assistant was entitled to special deduction under sections 80HH and 80J . On a reference : Held, that the Tribunal had rightly interpreted the provision of law and there was no legal error in the order of the Tribunal. The assessee was entitled to relief under sections 80J and 80HH for the assessment years 1976-77 and 1977-78." The ratio of above decision also is clearly applicable in the facts of the case as the language employed in section 80-IB(4) of the Act is similar to the language employed in section 80J(4)( iv ) and 80HH(2)( iv ) of the Act. Thus, the manufacturing process should be construed as comprising of procurement of raw materials, processing thereof and generation of finished products and the persons involved in all these three ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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. 11. The issue raised in ground No. (V) is regarding the decision of the ld. CIT(A) in confirming the addition of Assessing Officer for making an addition of Rs. 22,493 under section. 69-C of the Act. 12. The facts, in brief, are that during the course of assessment proceedings, the Assessing Officer verified the cash pertaining to the factory which showed a negative cash balance of Rs. 22,493. The assessee, on enquiry by the Assessing Officer, replied that there was cash in Mumbai office which had been transferred and paid to workers. However, the Assessing Officer held that there should be a transfer entry in the account books of both head office and factory to show such flow of cash from head office. The Assessing Officer further held that the cash withdrawal of Rs. 20,000 shown by the assessee on 29-11-2003 was actually withdrawn from the bank at Silvasa on 1-12-2003, hence, this sum was not available on 29-11-2003. Accordingly, he disallowed this sum under section 69C of the Act. In the appellate proceedi ..... 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