9911796707
TMI Blog2013 (6) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... the case are that assessee filed its return of income in assessment year 2004-05 on 1st of November, 2004 declaring an income of Rs. 238,82,550. The case of the assessee was selected for scrutiny assessment and a notice under sec. 143(2) of the Income-tax Act, 1961 was issued on 04.08.2006. This notice was duly served upon the assessee and in response to the notice Shri Sanjay Jaswani, Assistant Vice-President (Finance) appeared on behalf of the assessee. On scrutiny of the accounts, it revealed to the Assessing Officer that assessee has claimed a deduction of Rs. 34,50,925 under sec. 80-IB of the Income-tax Act, 1961. In assessment year 2006-07 onwards, such deduction has been claimed under section 80-IC of the Act. It is pertinent to note that return in assessment year 2006-07 was filed on 15.11.2006 declaring an income of Rs. 159,53,822. The assessee has claimed a deduction of Rs. 608,33,742 under sec. 80-IC of the Act. The facts relating to the claim of deduction under secs. 80-IB and 80-IC are that assessee has established two units, namely, Unit No. 1 which was set up in December, 2003 is engaged in manufacturing/production of air conditioner and microwave oven. It has estab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne through the record carefully. In order to avail deduction under section 80-IC, an assessee has to fulfil the conditions contemplated in the section. Therefore, before considering the respective contentions as well as the relevant material, it is imperative upon us to take note of the relevant statutory provisions. The relevant part of section 80-IC, thus reads as under: "Special provisions in respect of certain undertakings or enterprises in certain special category States. 80-IC. (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section (3). (2) This section applies to any undertaking or enterprise, (a) which has begun or begins to manufacture or produce any article or thing, not being any article or thing specified in the Thirteenth Schedule, or which manufactures or produces any article or thing, not being any article or thing specified in the Thirteenth Sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (2), one hundred per cent of such profits and gains for five assessment years commencing with the initial assessment year and thereafter, twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains". 7. Sub-section (2) of section 80-IC of the Act provides that provisions contained in sub-section (5) and sub-sections (7) to (12) of section 80-IA shall, so far as may be, applied to the eligible undertaking or enterprises under this section. Thus, we deem it fit to note down sub-section (5) and sub-sections (7) to (12) of section 80-IA also. They read as under: "Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits and gains of such eligible business of undertaking or enterprise, as the case may be. (10) Where it appears to the Assessing Officer that, owing to the close connection between the assessee carrying on the eligible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the Assessing Officer shall, in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom. (11) The Central Government may, after making such inquiry as it may think fit, direct, by notification in the Official Gazette, that the exemption conferred by this section shall not apply to any class of industrial undertaking or enterprise with effect from such date as it may specify in the notification. (12) Where any undertaking of an Indian company which is entitled to the deduction under this section is transferred, before the expiry of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of an undertaking which is formed as a result of the re-establishment or reconstruction or revival of the business of an assessee as provided in section 33B of the Act. Similarly, it is not formed by the transfer to a new business of machinery or plant previously used for any purposes. Since there is no dispute that these conditions are not attracted in the case of the assessee, therefore, we do not deem it necessary to make elaborate discussion. At the time of hearing, it has been pointed out that there is no violation to any other conditions contained in sub-rules (5) to (12) of section 80-IA of the Act (extracted supra). 9. The primary issue required to be determined, is when assessee came into existence and whether geographically it is located with the notified area contemplated in sub-clause (ii) of sec. 80-IC(2)(a) or (2)(b). 10. From perusal of the record, we find that learned Assessing Officer has not objected about period of starting of manufacture. The assessee has also submitted that Unit 1 was started in December 2003 and Unit No. 2 was started in 2004. The objections of the Assessing Officer are that assembling do not constitute manufacturing and assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "2. As noted above, the core issue is whether activity undertaken was manufacture or production. 3. In Black's Law Dictionary (5th Edition), the word 'manufacture' has been defined as, "the process or operation of making goods or any material produced by hand, by machinery or by other agency; by the hand, by machinery, or by art. The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand labour or machine". Thus by process of manufacture something is produced and brought into existence which is different from that, out of which it is made in the sense that the thing produced is by itself a commercial commodity capable of being sold or supplied. The material from which the thing or product is manufactured may necessarily lose its identity or may become transformed into the basic or essential properties. (See Dy. CST (Law), Board of Revenue (Taxes) Coco Fibres [1992] Supp. 1 SCC 290). 4. Manufacture implies a change but every change is not manufacture, yet every change of an article is the result of treatment, labour arid manipulation. Naturally, manufacture is the end result of one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a different commercial commodity having its distinct character, use and name and commercially known as such from that point of view, is a question depending upon the facts and circumstances of the case. (See Empire Industries Ltd v. Union of India [1985] 3 SCC 314). ** ** ** 14. In this case, assessee was carrying on business of conversion of Jumbo Rolls of photographic films into small flats and rolls in desired sizes. It claimed deduction under secs. 80-HH and 80-I as well as investment allowance under sec. 32AB. The controversy arose whether conversion of jumbo rolls into small sizes amounts to manufacture or production, eligible for deduction under sec. 32AB or deduction under sections 80-HH and 80-I of the Income-tax Act, 1961/ Hon'ble Supreme Court has held that this activity amounts to manufacture or production. Thus, we think it is not necessary to recapitulate and recite all the decision on the construction expression "manufacture". But suffice to say that core of all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled to construe the revenue record in right perspective. He has compared the khasra number with a restricted approach. It has been demonstrated before us that the Board has extended the scope of industrial estates by the last notification bearing No. 115 dated 26.4.2006 which is applicable from earlier period also. The Board has simplicitor removed the confusion. In the latest notification, larger area has been shown as a industrial estates which includes khasra number 262 MI Selokni. The area according to the new notification includes the areas which were already notified plus Central Hope down. The learned counsel for the assessee has placed on record report of the Patwari, wherein he has submitted that khasra No. 262 MI is part of khasra No. 262. Learned Assessing Officer was considering khasra No. 262 and 262 MI as independent khasra number. The copy of the site plan available in the revenue record, exhibiting the geographical location of each killa number and khasra number was also filed before the Learned GIT(Appeals) along with patwari's report and this document has been placed before us also. Therefore, we are convinced that there is no confusion about the location of asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atisfied for claiming the deduction. Learned First Appellate Authority has admitted additional evidence and called for a remand report of the Assessing Officer. He observed that sum of Rs. 5,77,532 is an amount receivable from 30 parties. In the details submitted by the assessee, the purpose of payment of advance has been disclosed. According to the Learned CIT(Appeals) on perusal of the details, it is noticed that various items mentioned in the list which is to be supplied by these parties consist of various parts, which the assessee would normally be consuming in its day-to-day business. After satisfying himself with the nature of amounts debited by the assessee, details of parties to whom advances were given and how these advances were directly linked with the business of the assessee, learned CIT(Appeals) has allowed the deduction. 19. Learned DR relied upon the order of the Assessing Officer. On the other hand, learned counsel for the assessee relied upon the order of the Learned CIT(Appeals). 20. On due consideration of the facts and circumstances, we find that learned Assessing Officer neither discussed the nature of amounts claimed by the assessee nor discussed how they a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the decision of Hon'ble Gujarat High Court rendered in the case of Saurashtra Cement & Chemical Industries Ltd. v. CIT, wherein Hon'ble Court has held that if the liability for an expense is determined and crystallized during a particular year then the same cannot be disallowed as prior period expense, merely on the ground that the expense relates to a transaction of an earlier year. On due consideration of the detailed reasoning given by the Learned CIT(Appeals), we do not find any error in it. Hence, this ground of appeal is rejected. 24. In the result, the appeal for assessment year 2006-07 is dismissed. 25. In Ground No.2 in assessment year 2007-08, grievance of the revenue is that Learned CIT(Appeals) has erred in deleting the addition made on account of disallowance of excess depreciation claimed on computers. In brief, the issue is whether the depreciation on the computer peripheral like UPS, data drive etc. was to be allowed @ 35% or 60%. Learned Assessing Officer has granted the depreciation @ 35% including additional depreciation under sec. 32(l)(iia) of the Act. 26. On appeal, Learned CIT(Appeals) has allowed the depreciation @ 60%. The issue in dispute is squarely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gone through the record carefully. This ground is inter-connected with ground No.2 taken in assessment year 2007-08. The issue in this ground is, at what rate depreciation upon computers and peripherals would be admissible. Learned Assessing Officer has held that depreciation is admissible @ 35% whereas as assessee has claimed the depreciation @ 60%. Learned Assessing Officer has made the disallowance out of the claim of depreciation by applying the rate of 35%. Learned CIT(Appeals) after following the decision of Hon'ble Delhi High Court in the case of BSES Rajdhani Power Ltd. (supra) has held that depreciation would be admissible @ 60%. The similar disallowance was made by the Assessing Officer in assessment year 2007-08. We have considered this issue in ground No.2 of the revenue's appeal. After following the order of the ITAT in the case of Samiran Majumdar (supra) and the decision of jurisdictional Hon'ble High Court in the case of BSES Rajdhani Power Ltd. (supra), we have rejected the ground of appeal raised by the revenue. Accordingly, we do not find any merit in this ground of appeal also. It is dismissed. 31. In the next ground of appeal, revenue has objected allowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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