9911796707
TMI Blog2012 (5) TMI 309X X X X Extracts X X X X X X X X Extracts X X X X ..... nder s. 10B for the new EOU on the erroneous view that the EOU was formed by splitting up or reconstruction of the existing business. The learned CIT(A) has erred in not rejecting this erroneous view. 4. That the non-allowance of exemption under s. 10B of the Act by the learned AO and by the learned CIT(A) is based on erroneous views, non-appreciation of the facts and law involved, and upon suspicion, conjectures and surmises. 5. That the learned CIT(A) has erred in sustaining the non-allowance of exemption under s. 10B in respect of the eligible EOU on erroneous adverse inferences adopted on aspects that have not been adopted by the learned AO and on which no proper lawful opportunity was provided to the appellant. 6. That the appellant is duly engaged in manufacturing a product which is a product separate and distinct from the raw materials with the use of labour, manufacturing and processing, for which manufacturing expenses have been incurred. The learned CIT(A) has erred in holding that manufacturing or processing of articles/things was not proved or, in making other erroneous averments without appreciating the facts, records, written submissions and ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee company was incorporated in asst. yr. 1993-94, on 10th Aug., 1992; that there was no business activity during asst. yr. 1993-94; that a new unit was started in asst. yr. 1994-95, for manufacture and export of fabric merchandise; that the assessee company did not have any sale from asst. yr. 1998-99 and the undertaking was stopped; that the assessee company, w.e.f. 1st April, 1996, became a partner in the firm, M/s Taurus Exports; that with effect from asst. yr. 2002-03, on 1st April, 2001, the assessee company retired from the partnership of the said partnership firm of M/s Taurus Exports; that a new one hundred per cent EOU was established for the business of manufacture and export of hand-made quilts and bed spreads; that this unit was registered as such on 28th March, 2000, by the Development Commr., NEPZ; that the new EOU commenced its business in asst. yr. 2002-03; that the assessee received a licence for private bonding of licenced EOU from 31st March, 2000; that the said bonding came to an end w.e.f. 3rd Aug., 2005; and that for the purpose of the newly established EOU, the assessee took the premises in Gurgaon on lease, vide lease deed dt. ast April, 2001. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10B of the Act; that the authorities have also erred in observing that the business of the EOU was carried on by using old infrastructure without addition of any new plant and machinery, in spite of the turnover of Rs. 3.09 crores; that while observing so, it has not been taken into consideration that the business of the assessee was manufacture and export of hand-made quilts and bed spreads; that such manufacture does not require plant and machinery; that only needles and scissors are required, which are debited as consumable stores, under the head of fabrication charges; that moreover, much of the manufacturing process activities were outsourced; that pertinently, the assets owned by the assessee prior to setting up of the new unit, had neither been transferred, nor used in the new unit; that the old minor plant and machinery worth Rs. 26,190 was neither transferred, nor used by the new unit, being not required: that it remained as part of the office assets of the old head office and never became part of the independent new EOU; that the provisions of s. 10B of the Act nowhere require the use of plant and machinery as a must for manufacture or production of goods or articles, so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the EOU of the assessee was established, there was an increase in the production and sales of the sister concern, M/s Taurus Exports, i.e., in the period from asst. yrs. 2000-01 to 2003-04, the separate and independent business of M/s Taurus Exports continued to increase; that the authorities below have also wrongly observed that the old stock had been carried forward as opening stock; that the said stock, being obsolete, was of no use to the EOU and it was not shown to have been used in the business of the EOU; that it was being carried forward as such, in the overall balance sheet of the assessee, as head office assets; that the EOU was an independent undertaking of the company, having distinct, separate and independent accounts; that it was only for the company's consolidated balance sheet that these accounts were consolidated with the head office accounts; that the closing stock of Rs. 4,48,701 as on 31st March, 2002 was never transferred to the new EOU, much less used by it; that the amount representing this stock in both the years under consideration", is exactly the same; that the new EOU had its new independent inventories; that the learned CIT(A) has wrongly concluded t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned CIT(A) has further gone wrong in observing that the assessee did not prove manufacturing or processing of articles/things; that as stated, the assessee had outsourced the activities involved in the manufacturing or processing of goods, which is not forbidden by law; and that moreover, the authorities below have themselves allowed deduction to the assessee under s. 80HHC of the Act, as a manufacturer-exporter, thereby admitting the assessee to be a manufacturer. In this manner, the learned counsel for the assessee has prayed that deduction under s. 10B of the Act, which is legally available to the assessee and has wrongly been declined to the assessee by the authorities, be granted to it by allowing the assessee's appeals for both the years while cancelling the orders under appeal. 11. The learned Departmental Representative, on the other hand, has placed strong reliance on the impugned order. It has been contended that the assessee has violated the provisions of s. 10B of the Act and therefore, the authorities below have correctly denied deduction thereunder to the assessee; that so as to avail deduction under s. 10B of the Act, the assessee merely reconstructed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company. Sec. 10B(2) provides the conditions which undertaking has to fulfil so as to be eligible to avail exemption under s. 10B. Sec. 10B(2) reads as follows:- "This section applies to any undertaking which fulfils all the following conditions, namely:- (i) It manufactures or produces any articles or things or computer software; (ii) It is not formed by the splitting up, or the reconstruction, of a business already in existence:- Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as Is referred to in s. 33B, in the circumstances and within the period specified in that section; (iii) It is not formed by the transfer to a new business or machinery or plant previously used for any purpose. Explanation:- The provisions of Expln. 1 and Expln. 2 to sub-s. (2) of s. 80-I shall apply for the purposes of cl. (iii) of this sub-section as they apply for the purposes of cl. (ii) of that sub-section." 14. Therefore, the conditions to be fulfilled are, inter alia, manufacture or pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . On 28th April, 2001, the assessee commenced production. It claimed deduction under s. 10B of the Act, for the first time, in the asst. yr. 2002- 03. The AO disallowed the assessee's claim. Deduction under s. 80HHC, as manufacturer-exporter was, however, allowed. The learned CIT(A) confirmed the disallowance. 16. The first objection raised by the authorities below is that the assessee restarted its old business activity of export of the very same items as earlier and that it had merely reconstructed the existing business just to avail deduction under s. 10B of the Act. In this regard, it is seen, that the earlier undertaking, started in the asst. yr. 1994-95, stopped its sales with effect from the asst. yr. 1998-99. Thereafter, there was no undertaking and the new EOU was set up only in the asst. yr. 2002-03. A copy of the audited balance sheet and P and L a/c for financial year 1997-98 is at assessee's paper book 43 to 45. They do not show any sales of the old undertaking in the asst. yr. 1998-99. Similar is the position with the balance sheet and P and L a/c for financial years 1998-99, 1999-2000 and 2000-01, respectively (copies at assessee's paper book 46 to 47, 50 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Government in exercise of the powers conferred by s. 14 of the Industries (Development and Regulation) Act, 1951 and the Rules made thereunder. For facility, the said Expln. 2(iv) to s. 10B is being reproduced as follows:- "Hundred per cent export-oriented undertaking" means an undertaking which has been approved as a hundred per cent export-oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by s. 14 of the Industries (Development and Regulation) Act, 1951 (65 of 1951), and the Rules made under that Act." 18. Therefore, registration as a one hundred per cent EOU is a sine qua non for claiming deduction under s. 10B of the Act. Further, as is available from the copy of registration of the unit as a one hundred per cent EOU (assessee's paper book 71 to 74), the unit was duly approved by the board appointed in this behalf by the Central Government. In Tube Investments of India Ltd. vs. Asstt. CIT (2009) 121 TTJ (Chennai)(TM) 577 : (2009) 20 DTR (Chennai)(TM)(Trib) 244 : (2009) 117 ITD 239 (Chennai)(TM), it has been held that a one hundred per cent EOU, as per Expln. 2(iv) to s. 10B means an u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chinery shown at Rs. 26,190 has been stated to include not necessarily manufacturing machinery to office supplies and office machinery, etc. The Department has not brought on record anything contrary to this assertion of the assessee. They have only gone by the entry of Rs. 26,190 as plant and machinery. Even the items under this have never in fact, been transferred to the new unit, nor have they been shown to have been used by the new unit. It is, therefore, correct to assert, as done on behalf of the assessee, that it is only by way of conjecture and surmise that it has been concluded that any machinery, even the old machinery, was transferred to the new EOU. The mere factum of the assessee having claimed depreciation of overall corporate office or company as separate from the eligible unit cannot lead to an inference that any old machinery was used in the new eligible EOU. Otherwise too, the assessee has maintained separate accounts for its corporate or head office and for its EOU. No legal bar has been brought to our notice on behalf of the Department against continuing of assets and liabilities of a closed undertaking in the overall consolidated balance sheet of the company as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent should be construed liberally and since a provision for promoting economic growth has to be interpreted liberally, the restriction on it too has to be construed so as to advance the objective of the provision and not to frustrate it. Indisputably, s. 10B of the Act is a provision directed towards encouraging industrialization by permitting an assessee to set up a new industrial undertaking to claim relief from tax to the extent prescribed. 25. The next objection of the Department is that the assessee has utilized the infrastructure of its sister concern. This objection, we find, is also not justified. The said sister concern is M/s Taurus Exports. It is a partnership firm-an independent taxable entity. The assessee firm and its said sister concern operated from separate premises. The assessee, for establishing the new EOU took a new premises on lease at Gurgaon. As to how it has been arrived at that the assessee utilized the infrastructure of its sister concern, has not been brought out. As discussed, the assessee is an entity separate and distinct from its sister concern. It is the assessee's categoric assertion that it did not utilize the infrastructure of its sister ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,701 as on 31st March, 2001, 31st March, 2002 and 31st March, 2003, respectively. The new inventory in the new EOU shows 'nil' stock as on 31st March, 1997, and 31st March, 2001 and stock of Rs. 40,63,765 as on 31st March, 2003. 28. This objection, as such, carries no weight. 29. The learned CIT(A) has observed, besides confirming the aforesaid observations of the AO, that the assessee has violated the conditions laid down under s. 1OB(2) of the Act. This observation is unsupported. The report under s. 10B of the Act in Form No. 56G was filed before both the authorities below. A copy thereof is at assessee's paper book 7 to 9. assessee's paper book 8 shows the date of 'commencement of manufacture as 28th April, 2001. The assessee, as discussed, has amply complied with the three conditions laid down in s. 10B(2). It manufactures articles or things. It has not been formed by splitting up or reconstruction of a business already in existence. It has not been formed by the transfer of plant or machinery previously used for any purpose, to the new business. 30. Apropos the CIT(A)'s observation that the assessee has not purchased any machinery required for manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the premises at Gurgaon was not used merely as a godown, but was also used for finishing and packing of finished goods under the supervision and control of the assessee's employees and contract labour. The expenses for the same were booked under the heads "Finishing expenses" and "Salaries" etc. In this regard, assessee's paper book 119 contains the details of establishment. These are as follows:- Taurus Merchandising (P) Ltd. Asst. yr. 2001-02 Name of the staff Designation Total amount 1. Rahul Panday Production manager 1,68,000 2. P.L. Tiwari Production co-ordinator 48,000 3. Mahendra Singh Store assistant 33,600 4. Ravi Sharma Field boy 23,580 5. Ganesh Singh Store assistant 30,000 6. Neetu Rana Sampling co-ordinator 48,000 7. Laxmi Kant Store keeper 44,400 8. Kanta Prasad Assistant production co-ordinator 15,1000 9. Shiva Sharma Helper checking 15,404 10. Ompal Singh Helper checking 15.538 11. Girish Sampling coordinator 90,000 12. Mohd. Saheed Checking master 42,000 13. Jagadish Singh Store incharge 90,000 14. Dinesh Singh Finishing incharge 45,000 15. Suresh Kumar Cutting master 42.000 16. Ajit Kumar Export execut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee had not fulfilled any of the conditions laid down. It was only thus, that the registration approval was granted to the assessee. Besides, the violation, if any, of the conditions is to be monitored by the Development Commr., as the prescribed authority for the purpose: The learned CIT(A) thus erred in taking the objection in this regard particularly in the absence of any objection by the competent authority-.the Development Commr. 37. A further objection raised by the learned CIT(A) is that manufacturing or processing of articles/things was not proved. In this regard, the learned CIT(A) has observed that the value addition on account of job work charges is enormous. Now, this cannot be taken to go against the assessee at all. There is no legal bar against outsourcing of activities involved in manufacture or processing of goods. What is required is that the undertaking must mainly engage itself in the manufacture or processing of goods, either itself, or through some agency under its supervisory control or direction. In ITO vs. Techdrive (India) (P) Ltd. (2009) 122 TTJ (Del) 264 : (2009) 21 DTR (Del)(Trib) 52 : (2008) 25 SOT 152 (Del), it has been held that under s. 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cturer and the assessee company merely employed the agency of someone else, through whom, the goods were caused to be manufactured. 41. In CIT vs. Neo Pharma (P) Ltd. (1982) 28 CTR (Bom) 223 : (1982) 137 ITR 879 (Bom), the assessee company, which was incorporated mainly with the object of engaging itself in the business of manufacturing and processing pharmaceuticals, entered into an agreement with another company, "Pharmed", to make available to the assessee their premises, plant, machinery and the services of the staff such as chemists and labourers to carry on the manufacturing activities for and on behalf of the assessee. Exercising the powers under s. 263 of the Act, the CIT held that an assessee could be said to be the manufacturer of goods or engaged in the manufacture or processing of goods only when it carried out all the operations involved in converting the raw material into finished goods with the aid of machinery owned by itself and with labour in its direct supervision; and that since the machinery and services rendered for the conversion of raw materials into finished goods in that case were provided by Pharmed, the assessee could not be said to be a manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n", when used in juxtaposition with the word "manufacture", takes in bringing into existence new goods by a process which may or may not amount to manufacture; and that it also takes in all the bye-products, being material products and residual products, which emerges in the course of manufacture of goods. The quilts, bed sheets, bed spreads and bed covers, etc., produced by the assessee are commodities different from the raw cloth or consumables out of which they are manufactured. The process carried on by the assessee, as such, definitely amounts to manufacture. 44. In view of the above discussion, ground Nos. 2 to 6 raised by the assessee are accepted. It is held that the learned CIT(A) has gone wrong in sustaining the non-allowance of the exemption claimed by the assessee under s. 10B of the Act, with regard to the assessee's new EOU. The CIT(A)'s order is thus set aside in this regard and the claim of the assessee is allowed. 45. Ground No. 7 has been taken as an alternative ground without prejudice to ground Nos. 2 to 6. Since the grievance of the assessee by way of ground Nos. 2 to 6 has been allowed as above, it is no longer necessary to adjudicate ground No ..... X X X X Extracts X X X X X X X X Extracts X X X X
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