TMI Blog2012 (8) TMI 665X X X X Extracts X X X X X X X X Extracts X X X X ..... alance the accounts where short payments are received, so that the (personal) accounts of the business associates, being customers (oil companies) to whom cylinders are supplied, have been squared up by writing off the differences, being for minor sums – 10% of the amount is disallowd Deduction u/s. 80IA of the Act – repair or manufacture for the purpose of deduction – Held that:- Repair of cylinders - raw material and finished product is only a gas cylinder, the assessee by its processes removing the deficiency/s, as by way of welding the joints, and effecting improvements, as by way of fixing the bottom and/or the top ring - Rendering a particular thing fit for being used for which it stand already produced or manufactured, i.e., restoring it to good and workable condition, once again, is essentially a repair - assessee's activity only amounts to repair for the purpose of deduction - IT APPEAL NO. 779 (JP) OF 2011 - - - Dated:- 27-4-2012 - R.K. GUPTA, SANJAY ARORA, JJ. Miss. Roshanta Kumar Meena for the Appellant. P.C. Parwal for the Respondent. ORDER Sanjay Arora, Accountant Member This is an Appeal by the Revenue directed against the Order by the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without merit inasmuch as if no books of accounts have been actually produced, how could the same be rejected by the AO?. The question is not of their maintenance, but their production before the AO for his verification in substantiation of the assessee's declared results as well as claims preferred per its return of income. This is particularly so as the AO has reiterated the non-production of the books of account before him during the assessment proceedings vide para 1 of his remand report dated 25-07-2006 (PB page 20-22). We, in fact, wonder why the books of accounts could not have been produced before the AO during the remand proceedings; the books of account having been admittedly maintained, and available with the assessee. The same would at once dissolve the controversy. The ld. CIT(A) has not issued any findings in the matter, deleting the addition on the basis that the gross profit rate for the preceding year was in fact at 23.23%, and not at 27.77%, as stated by the AO. The assessee had returned better trading results for the current year vis-a-vis the immediately preceding year. The same no doubt is a valid argument, and which we approve of in principle. However, again, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll as the material/s being relied upon by the parties before him, after affording proper opportunity of being heard thereto. Reference in this context is made to section 250(6) of the Act, prescribing clearly the ingredients which an order by the first appellate authority has to satisfy. Where additional materials are relied upon, the procedure u/r. 46A would have to be, in addition, observed. Further, we may also add that if the trading result for the preceding year is found to be at 27.77%, the same, again, would not by itself constitute a firm ground for effecting a trading addition for the current year. This is as the assessee may well be able to explain its book results for the current year with reference to its accounts, as well as the reason/s for the decline therein with reference to the preceding year. That is, an addition cannot automatically follow, and shall be required to be addressed on merits. Though the assessee is not in appeal, its cause cannot be allowed to be prejudiced for want of proper findings by the ld. CIT(A) on a matter precedent. As such, in our view, in the event of the trading results for the immediately preceding year being better than that for the cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esolution allowing commission to each director @ Re.1/- per cylinder repaired/produced during the current financial year (PB page 33). Further, he continued that the directors are also in fact subject to tax at same rate as assessee-company, so that there is no tax motivation in the booking the said expenditure, which represents a genuine business expenditure. 7. We have heard the parties, and perused the material on record. The first thing that strikes us is the nature of the liability: is it contractual ? We do not think it as so. This is as the resolution under reference only authorizes the payment of what it terms as commission to all (without even specifying their number) the directors at a defined rate per unit of production or output. There is no reference to the services rendered or to be rendered, and concomitant terms and conditions. The ingredients of and, thus, for an enforceable contract in law to come into existence, are completely missing. Could the directors, for example, get the same enforced through a court of law? Reference in this context may be drawn to the decision in the case of CIT v. Lakshmipati Singhania [1973] 92 ITR 598 (All.). At the same tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which has been restricted to almost one half by the ld. CIT(A), whose action we find as not unreasonable; the assessee having submitted the details of the expenditure before him (PB pg. 55-57), so that it is stands confirmed. We decide accordingly. 10. The fourth ground is in respect of the deletion of the disallowance in the sum of Rs. 27,820/- made by the AO on account of business adjustment. 11. We have heard the parties, and perused the material on record. While the AO effected the same, stating the absence of details as the reason, it stood explained by and on the assessee's behalf before the ld. CIT(A), that the same is only by way of journal vouchers, to balance the accounts where short payments are received, so that the (personal) accounts of the business associates, being customers (oil companies) to whom cylinders are supplied, have been squared up by writing off the differences, being for minor sums. The nature of the expenditure is apparent from the nomenclature of the account itself, even as the assessee had duly furnished the relevant vouchers, also placing the same on record (PB pgs. 40 - 54). No interference at our end is, under the circumstances, warranted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suable state from, as it appears, oil companies on job work basis. The work undertaken by the assessee includes: ( a ) fixing a ring at the top of the cylinder; ( b ) putting a footring at the bottom of the cylinder; ( c ) welding the cylinder where there is a leakage; and ( d ) testing the cylinder at a particular temperature. The gas cylinder, rendered thus fit for being used as such is restored back to the supplier, raising a bill for processing charges. The process is claimed to amount to manufacture inasmuch as a new marketable commodity in the form of usable gas cylinder has come into existence. All the ingredients of manufacture, i.e., use of raw material and consumable stores, power, labour, equipment etc. are thus present. Reliance is placed by the assessee on the decisions in the case of India Cine Agencies v. CIT [2009] 308 ITR 98/[2008] 175 Taxman 361 (SC) and Vijay Ship Breaking Corpn. v. CIT [2009] 314 ITR 309/[2008] 175 Taxman 77 (SC), wherein it has been clarified that the word 'new' does not find mention in the section, so that it is not a necessary condition for the relevant product to be considered as being either manufactured or produced. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere commercially it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article that a manufacture can be said to take place.' ( c ) With regard to production, as explained in CIT v. N.C. Budharaja Co . [1993] 204 ITR 412/70 Taxman 312 (SC): 'The word "production" or "produce" when used in juxtaposition with the word "manufacture" takes into bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods.' In Vijay Ship Breaking Corpn. ( supra ), as well as Indian Cine Agencies ( supra ), the apex court has confirmed its understanding of the term 'production' as conveyed in the case of N.C. Budharaja Co . ( supra ). Referring to and relying on its said earlier decision, it held that the word "production" does not derive its color from the word "manufacture", further relying on the dictionary meaning of the term, as being something that is brought forth or yielded naturally or as a result of effort or work . The decision in the case of N.C. Budharaja Co . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the gas cylinders. The only process, uniformly applied, is the heat treatment, i.e., heating to a particular temperature. The basic character or use of the article or thing is, in any case, not changed, and remains the same. The assessee is thus only engaged in processing old gas cylinders for others at a charge, rendering it fit for being used again as one, i.e., in conformity with the safety standards as applicable, also fitting the peripherals parts as required. That is, in repair, by definition, and the user of some materials would not detract from the essence or the substance of the work or the transaction. Here, again, it may be emphasized that the gas cylinder having been (already) produced only as one such, it is only made of the sheet (raw material) of the required quality, weight and thickness, i.e., as prescribed, which is not changed, but subject to being fixed to remove the deficiencies that may have cropped therein from user as such, viz. leakages at joints, etc., by welding, heating. The same cannot, by any score, amount to manufacture of a gas cylinder. In fact, without doubt, the company to whom the cylinder is to be supplied would only subject it to rigorous tes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference we have examined its scope and content. Reliance on case law, without drawing parity of facts, is of little moment. We may, further, to illustrate the point by way of examples, where the underlying activity or process under reference has been considered to be not a manufacture or production: - Retreading of tyres: Tamil Nadu State Transport Corp. Ltd. (supra) . Likewise, in the two cases by the hon'ble Madras High Court CIT v. Sundaram Industries Ltd. [2002] 253 ITR 396/123 Taxman 744 (Mad.). - the job work undertaken to make case sets for watches by welding glas and case: P.A. Time Industries v. Dy. CIT [2006] 101 ITD 132 (Chd.). - Heating raw bitumen to obtain solid bitumen: CIT v. Meenakshi Asphalts , [2004] 266 ITR 626/136 Taxman 170 (Mad.) - Electroplating: CIT v. Hindustan Metal Refining Works (P.) Ltd . [1981] 128 ITR 472/6 Taxman 245 (Cal.); Titanor Components Ltd. v. Dy. CIT [2000] 72 ITD 514 Delhi) - Cutting and polishing of uncut raw diamonds: CIT v. Gem India Mfg. Co . [2001] 249 ITR 307/117 Taxman 368 (SC) - Production of mineral water; both the raw material and final output being only drinking water: Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered unusuable on account of certain, defined, defects, and only on its user as such, i.e., a gas cylinder, to some processes leading to their removal, so that it is rendered usuable. A particular article or thing may become dysfunctional for want of a single part of insignificant value, so that the criterion of the product being rendered usuable or workable, once again, would not make it any less a repair; rather, is repair by definition. As such, restoration, for consideration to the file of the AO, is not deemed necessary in the facts and circumstances of the case. Without prejudice to the foregoing, our findings being appealable, we may also add that even independent of the same, no claim u/s 80IA would lie inasmuch as the same is only in respect of an undertaking or enterprise that: ( a ) develops or begins to operate infrastructure facilities; or ( b ) provides telecommunication services; or ( c ) develops industrial parks in the Special Economic Zone; or ( d ) generates power or commences transmission or distribution of power. The assessee's case, clearly, does not fall under any of these categories. There has been thus an error on the part of both the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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