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TMI Blog2012 (8) TMI 665X X X X Extracts X X X X X X X X Extracts X X X X ..... ation was as the assessee had failed to produce the books of accounts in spite of being specifically called for by the Assessing Officer (AO). In appeal, the assessee contended that the books of accounts had in fact been produced before the AO, though there had been a lapse in attending on a particular date. The books of accounts have been duly maintained, rather, stand audited; it having furnished the audited accounts along with the audit report thereon with its return. There has been an error by the AO in taking the gross profit for the immediately preceding year, i.e., A.Y. 2000-01, at 27.77%; the same being actually at 23.13%, as is evident from the copy of the final accounts for the current year, which contain the corresponding figures for the preceding year as well. The ld. CIT(A) was of the view that in view thereof, no grievance by the Revenue could stand and, accordingly, deleted the trading addition. Aggrieved, the Revenue is in appeal. 3. Before us, like contentions were raised by either side, each relying on the order by the authority below as favourable to it. 4. We have heard the parties, and perused the material on record. 4.1 In our view, no definite findings, ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in fact to refer to the final accounts for the current year inasmuch as it cannot be verified on the basis thereof whether the assessee's return for the preceding year corresponds thereto. Also, it is a common practice to regroup the accounts for better presentation from time to time. In fact, the ld. AR conceded before us that the tax audit report for the preceding year does in fact state of the gross profit rate for that year as at 27.77%, further corroborating the claim of the Revenue; the same being required to be certified by the Auditor. Rather, it may be necessary, where the accounts of the preceding year disclose an ostensible gross profit rate at 23.23%, to verify the auditor's working, which is to be given credence, so that a mistake therein, though not ruled out, cannot be lightly inferred. The requirement in law is to furnish profit and loss account, i.e., as a single account. It is for this reason that the law requires the trading result/s, as disclosed by the assessee's accounts for the relevant year, to be furnished separately, duly authenticated by the Auditor, including its working. In fact, the Auditor would have made the working for the current year on similar l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment was not supported by a resolution of the Memorandum of Articles. Further, the same was not made at regular intervals but only at the end by way of credit entries at the end of the year. No cogent reasons had been stated by the assessee in support of the payment of the said handsome commission being paid to the directors for the first time, who are assessed to tax at a rate less than that applicable to the company. He sought support to the decision in the case of Mc Dowell & Co. Ltd. v. CTO [1985] 154 ITR 148/22 Taxman 1 (SC). In appeal, the assessee relied on a number of case laws of various high courts to the effect that the Revenue cannot step into the shoes of a businessman, and that the legitimate needs of the business from its standpoint, and not that of the income-tax officer, who may have has his own subjective standards of reasonableness, is to be adopted. The company had exhibited an overall improvement in its performance during the year; it sales having gone up from Rs. 202.85 lacs to 368.08 lacs, and the net profit, despite charge of impugned commission, increased from Rs. 8.72 lacs to Rs. 32.96 lacs. The ld. CIT(A) allowed the assessee's claim on that basis, re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be payable only on assessing the profitability of the company achieved during the year. In fact, as we see it, the same is only a manner of working out the incentive, and may as well have been stipulated at a flat rate of Rs. 1.80 lacs for each director. Deduction in its respect would thus stand to be allowed even though the resolution creates no binding obligation in law on the company. No issue qua commercial expediency, in our view, arises under the circumstances; the same being itself suggested by the overall improvement in performance, and has even otherwise been adequately met by the ld. CIT(A), with the assessee also relying on a host of case law in relation thereto -the law on which is trite - before him. The question of differential tax rate, also raised by the AO, which though is contested by the assessee on merits, is of no relevance as he has not made out any case u/s. 40A(2)(a). No other infirmity, factual or legal, has been brought to our notice by the ld. DR. We, accordingly, hold the amount as allowable, and of its disallowance as having been rightly deleted by the ld. CIT(A). The Revenue fails on its Gd. 2 before us. 8. The Revenue's third ground relates to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cture', and to be of a wider import. The assessee is also in fact registered with the District Industries Centre ('DIC' for short). The output is subject to payment of central excise duty. The claim stood allowed to the assessee on that basis. Aggrieved, the Revenue is in appeal. 13. Like contentions were raised by the assessee before us, each relying on the order of the authority below as favourable to it, besides on case law. 14. We have heard the parties, and perused the material on record. 14.1 Without doubt, there has been no examination of the assessee's claim for deduction u/s. 80IA by Revenue at any earlier point of time. We find that while the AO has rejected the assessee's claim on the preliminary ground of the same being not a manufacture activity, the ld. CIT(A), whose action is under challenge before us, has allowed the claim on the basis that the assessee's process does indeed amount to manufacture. The issue is primarily factual, i.e., of an inferential fact, based on primary facts. 14.2 We may first consider the nature and scope of the activities being undertaken by the assessee. Reference to case laws, if at all, would come only later, i.e., on the basis of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any new article or thing. 14.3 The terms 'repair', 'manufacture' and 'production' have not been defined by or under the Act. The same are not terms of art, but one of common day use; the hon'ble courts of law having themselves relied on their plain, natural, common user to elicit and elucidate their meaning. (a) The word 'repair', one of common day use, stands defined as: 'to restore to good condition'. It has been further explained by stating that if you repair something that has been damaged or is not working properly, you mend it; further explaining that a repair is something you do to mend a machine, building, piece of clothing or other thing that has been damaged or is not working properly (Collins English dictionary, third edition, page 1309). (b) The word 'manufacture' has been explained by the hon'ble apex court time and again. As held in the classical decision in the case of Dy. CST v. Pio Food Packers [1980] 46 STC 63 (SC): '...Commonly, manufacturing is the end result of one or more process through which original commodities are made to pass. The nature and extent of processing may vary from one case to another. There may be several stages of processing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ker.). In the instant case, the 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. Can, one may ask, an article or thing be manufactured or produced twice over? In fact, as it appears, the raw material consumed is not uniform per unit (i.e., per cylinder), so that it is not each and every gas cylinder processed that is fitted with these peripherals, which functionally only facilitate the handling of the gas cylinder, but only where required. Again, though apparent, it needs to be emphasized that these peripherals are not being joined or affixed for the first time; the gas cylinders having been already manufactured or produced once, and being treated or processed only on their having become unable to be so used, on account of user as such, so that, firstly, the said peripherals stood fixed to the cylinder when originally produced, all of which cannot be said to be afflicted with the same deficiency. In some both the top and bottom rings may have to be fixed, while in others, none, while in some others one or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd substance of the decision in the case of Indian Cine Agencies (supra) is also the same, each of which has to be read in the context of the facts and circumstances of each case, with even a single fact altering the situation, even as explained by the apex court, inter alia, in its celebrated decision in the case of Padmasundara Rao (Decd.) v. State of Tamil Nadu [2002] 255 ITR 147 (SC); State Financial Corpn. v. Jagdamba Oil Mills AIR 2002 SC 834 [refer: Asstt. CIT v. T.N. Gopal [2009] 121 ITD 352 (Chennai)(TM)]. The elucidation of the term 'production' in N.C. Budharaja & Co. (supra) remains applicable to date, with the recent decisions by the apex court, in our view, only delinking the 'production' from 'manufacture', so that the article or thing being produced may not necessarily have its origin in a manufacturing process or activity. The article may thus stand to be produced in any manner, and not necessarily through manufacture, and does not impact the essential, qualifying attribute that an article or thing, which did not exist earlier, must, nevertheless, be produced or come into being as a result of the activity under reference, for it to be considered as a case of produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of his decision. Therefore, in our view, if we were to find that the same require consideration, i.e., that the assessee's case, as found by us, would stand to be modified on the basis of these materials, we would have to remit the matter back the file to the AO for the purpose, else not, being infructuous. In our view our clear finding as to the assessee's processes as amounting only to processing by way of carrying out repairs, it would not stand to be impacted in any manner by the said material. Further on, even on merits, an industrial unit would also be entitled to registration with DIC even where engaged in the processing, as an electroplating or a heat treatment unit for example, so that the same by itself is of little consequence. Similarly, the registration with the Excise Department is vide the assessee's letter dated 7-01-2002, i.e., valid only for the subsequent period. No excise has been either paid or demanded from the assessee by the Excise Department for any year and, in any case, for the current, for us to consider the assessee to have made out any prima facie by showing the excise returns. In fact, the levy of excise, though on manufacture or production, is onl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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