TMI Blog2013 (10) TMI 513X X X X Extracts X X X X X X X X Extracts X X X X ..... d for deduction under sec. 80-IC of the Act. Deduction on account of DEPB Credit - Held that:- the issue is covered against the assessee in Liberty India v. CIT [2009 (8) TMI 63 - SUPREME COURT] - DEPB receipts were not derived from an industrial undertaking rather their genesis was from the beneficiary scheme formulated under Central Excise Act etc. They were the ancillary profit - amendment suggests that on sale of DEPB receipts, if there was any profit, then it will be a revenue receipts - We find that this amendment was brought by Act of 2005, w.e.f. 01.04.1998 - the Assessing Officer was directed to allow the deduction under sec. 80-IC of the Act as per law excluded on the DEPB receipts. – Decided partly in favour of Asseessee. - ITA No. 3597/Del/2012 - - - Dated:- 14-6-2013 - J. SUDHAKAR REDDY AND SHRI RAJPAL YADAV , JJ. For the Appellant : Ms. O.P. Sapra. For the Respondent : Ramesh Chandra. ORDER:- PER : Rajpal Yadav The assessee is in appeal before us against the order of Learned CIT(Appeals) dated 01.06.2012 passed for assessment year 2009-10. The assessee has taken seven grounds of appeal, however, its grievance revolves around two issues, namel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idhcul. It was contended that assessee firm was came into existence in January, 2003 and it was dissolved w.e.f. Ist of April, 2009. The factum of dissolution was duly intimated to the Assessing Officer. Assessing Officer has observed that it is quite unusual to close down a business concern which is showing huge turnover up to assessment year 2009-10. Learned Assessing Officer has further observed that ITO, Ward 2, Haridwar was deputed to visit the factory premises and furnished the factual report. He took note of the factual status report submitted by the ITO, Ward-2, Haridwar and thereafter made an analysis of the material collected by the ITO, Ward-2, Haridwar. On such analysis, learned Assessing Officer formed certain reasons which creates a doubt about the claim of the assessee. He issued a show-cause notice on 26.12.2011 wherein he has narrated 27 reasons for doubting the claim of the assessee. It is advantageous to take note of the factual position noticed by ITO, Ward-2, Haridwar as well as the reasons narrated by the Assessing Officer in his notice, they read as under: "Factual position found 1 There were only 13 taping frames. There was in b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 units only. In the light of the above condition and factual position which was relevant for this year and in all earlier years, it became clear that the assessee had put up only a facade to camouflage some activity which it could claim to be even manufacturing activity little realizing that anyone would immediately come to know that the huge turnover shown by the assessee is impossible in the absence of a manpower of possibly more than 200 workers and a large number of properly working machines. As per chart of electricity expenses claimed by the assessee, surprisingly there is uniformity in the payment of monthly electricity charges which was not in consonance with the statement of Mr. Gupta where he stated that the carpet manufacturing is not uniform during the year. This fact proves that no machinery was being run by using electric power for manufacturing. The electric connection was there for normal lights and not for use in manufacturing. It would be further noticed from the following discussion that the assessee never performed any manufacturing work itself but got it done by outer agencies for its Meerut premises and not from Haridwar premises. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of M/s Sharda Exports at a different span of time, showing head office of firms at different locations and claiming them to be different firms though main partners are almost the same and they are claiming the business of carpet manufacturing through all these firms of the same name at the same time. The motive of this change of address of various firms with common name M/s Sharda Exports is prima facie nothing but to camouflage the revenue about the business activities of the group. 2. On perusal of the records of the firm and from the statement of Mr. Ashish Gupta, it came to the knowledge of the department that the group had another firm namely M/s Sharda Exports, Delhi which was also engaged in the carpet industry. Thereafter, the group dissolved the same in 2003, and created a new firm in the same name of M/s Sharda Exports which existed up to the year 2009 and between this period the assessee further established a parallel new firm of the same name claiming head office at Haridwar in the year 2004. Then after in the year 2009 the assessee dissolved the firm of Haridwar and established new firm with the same name at Delhi. However, the business of carpet was cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pta how many persons/business concerns performed carpet manufacturing for the firm at Haridwar. In response to this question Mr. Gupta accepted that when they have tried to start functioning at Haridwar most of the persons were not aware of this work in and around Haridwar. 7. He has failed even to remember the name of a single person of firm to disclose to this office during the statement who has worked at Haridwar for the firm during the entire period of existence of the firm. 8. Mr. Gupta accepted that he knows the necessary matters and details of the firm as a partner could be aware of. But he has failed to name none who has worked for the firm at Haridwar or in the premises of Haridwar. This clearly reflects that not even a single person of Uttrakhand is engaged in the activity of manufacturing of job work with the firm at Haridwar. 9. Mr. Gupta has claimed that Latexing, binding, embossing and finishing was done at Haridwar and also the production activity data furnished by the firm also reflects that not any activity of this type is being done only at Haridwar. However, the replies of some job workers received by this office in compliance of n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nied of having any knowledge of these business entities working at Haridwar. However, when Mr. Gupta was told that M/s Pee Gee Enterprises is a company engaged in the business of carpet and is situated at Barnala in Distt. Sangrur of Panjab State and there has not been found any company in the name of M/s Sharda International Pvt. Ltd. And the remaining business concern namely M/s Poornima Creations whose address has been shown as Ranipur, Haridwar in not an existing one at Haridwar. Mr. Gupta has shown complete ignorance for these contradictory facts. Therefore, the activity of the firm cannot be held as genuine. 13. In reply to Question No.25 of the statement Mr. Gupta even failed to tell the approximate number of persons engaged at Haridwar during the year under reference. Mr. Gupta accepted that many Muslim workers are engaged with them but in the daily production sheet made available to this office not any decrease of production even on the eve of festivals like Eid-Ul- Fitar and Eid-Ul-Zuha has been reported by the assessee. Since, maximum number of weavers in the trade of carpet manufacturing are Muslim by faith: therefore, non reporting of decrease of the workers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of goods did not support this contention since Latexing is a process performed before dyeing, therefore, it is not tenable that Latexing is performed at Haridwar station after dyeing process because the Assessee's claim that firstly wool is stored at the warehouse situated at Meerut and then disbursed to various weavers through job workers, then it is again collected at Meerut warehouse for dyeing, then Latexing is necessarily being executed at Meerut or other stations because quality check is also available at Meerut. Therefore, in view of the above facts the assessee's contention was not prima facie reliable. Secondly, in such a big firm having turnover of more than Rs.100 crore, it is not practical to do tufting manually because in these days even smaller units are doing tufting through automatic machines and not through hand machines manually. Since no tufting machines are reportedly situated at Haridwar, there was no electric machine for tufting at the Haridwar premises. 19. As already pointed out, the assessee claimed weaving completely outside the Uttrakhand state but claimed Latexing, binding, carving and embossing, clipping and finishing at Haridwar. But various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthenticity of the manufacturing activities of the firm having been done at Haridwar because if a person is in business relationship with the assessee then he will definitely secure the interest of the assessee by providing the requisite information called by the department. 24. The factual reports on the activities of the business was requisitioned from the ITO (OSD) of this Range who was specifically deputed for this purpose and whose report has already been communicated to the assessee during the statement which is already reproduced above. In the light of factual position as detailed therein, it clearly emerged that it is humanly not possible to achieve so much turnover as shown to have been performed by a scanty number of workers/job workers from the said premises at Haridwar. 25. As per chart of electricity expenses claimed by the assessee, surprisingly there is uniformity in the payment of monthly electricity charges which was not in consonance with the statement of Mr. Gupta where he stated that the carpet manufacturing is not uniform during the year. This fact proves that no machinery has been employed to consume the electric power for manufacturing b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivity of carpets at Sidcul or not? Therefore, we deem it necessary to take note of these details which read as under: 1. A Survey operation was conducted on 23.02.2012 at the various business premises of the assessee and it is found evident that the assessee is not engaged in the manufacturing activities in the eligible state thus not eligible for deduction u/s 80-IC of the IT Act 1961. 2. In this respect it may be submitted that on the basis of information gathered during the course of Asstt. Proceedings of A.Y 2009-10 completed by the Joint Commissioner Of Income Tax, Hardwar vide Asstt order dated 30.12.2011, it was concluded that no manufacturing was undertaken at Haridwar by the assessee and accordingly deduction u/s 80-IC was disallowed. Subsequently, on 23.02.2012 a survey operation has been conducted at the business premises of the assessee at Haridwar, Meerut and Delhi Units and it has been evidently found that the assessee actually had not been manufacturing /producing article / things at Haridwar since F.Y 2004-05 but obtaining it from various job work contractors from outside the eligible state of Uttrakhand state. 3. During the course of survey o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Panipat for job work but it is routed only from Meerut 9 Annexure - 41 Party-A, at Gagol Road Unit-7 Detail of goods sent to various places from Meerut 26-27 That the entire goods are being sent from Meerut and not from Haridwar. 10 Annexure - 37 Party-A, at Gagol Road Unit-7 Exports Declaration certificates 28-31 Shows that the imports are made at Meerut and not at Haridwar. 11 Annexure - 36 Party-A, at Gagol Road Unit-7 Payment vouchers for goods transported to Meerut from Agra, Panipat etc. 32-34 Shows that the goods after job work received at Meerut only and not at Haridwar. 12 Annexure -35 Party-A, at Gagol Road Unit-7 Duty Credit transfer certificate and receipt 35-40 That duty credit is being received by the assessee for Meerut and for the work . 13 Annexure -32 Party-A, at Gagol Road Unit-7 Form of Registration with ROF other documents 41-45 Shows that the partners has created a New firm under the same name showing different head offices on 01-01-2009 and also shows the address of old firms as unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nor any work actually performed at Hardwar. 22 Annexure -14 Party-A, at Gagol Road Unit, Meerut Branch transfer challans shows that the finished handmade carpets transferred to Meerut. 82-84 claim of assessee that finished carpet transported from Haridwar proves- non genuine. 23 Annexure -10 Party-A, at Gagol Road Unit, Meerut Wages Salary payments to workers/ staff. 85-87 Staff of 37 persons at Gagol Road Branch is more than three times which has been found at Haridwar where main activity claimed by the assessee. 24 Annexure -09 Party-A, at Gagol Road Unit, Meerut Wages Salary payments to workers/ staff of Haridwar (maintained at Meerut). 88-91 This is the register for manipulation of salary detail to be claimed in the name of Haridwar. heading clearly shows as mentioned at the top of the page that this is maintained for Haridwar unit. This shows clear manipulation of the assessee. person maintained at SI No 25 " Rajneesh tyagi" is the same person who is the key person at Haridwar, who receives the most of the notices/ letters of the department on behalf of assessee at Hardwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... binding. 125-127 Shows that Latexing and Binding are being performed at Meerut and not at Haridwar as claimed by the assessee. 35 Annexure -B 21 Party-D, at Rithani Unit, Meerut Job work register obtained 128-130 Job work performed by the assessee from outside the eligible state and delivered at outside the eligible state because register found at Meerut 36 Annexure -B18 Party-D, at Rithani Unit, Meerut Daily Production Register 131-132 Production at Meerut and not at Haridwar. 37 Annexure -B17 Party-D, at Rithani Unit, Meerut Production Register through job work 133-135 Job work obtained at Meerut and not at Haridwar. 38 Annexure -B16 Party-D, at Rithani Unit, Meerut Daily dispatch register-Sampling 136-138 Samples sent from Meerut to overseas and not from Haridwar 39 Annexure -B15 Party-D, at Rithani Unit, Meerut Daily Production register- Rinsing 139-140 Shows that even final activity also performed at Meerut only. 40 Annexure -B14 Party-D, at Rithani Unit, Meerut Register- Samp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 176-178 Shows that shipping is being done from Meerut only and not from Hardwar. 53 Annexure -C4 Party-D, at Rithani Unit, Meerut Freight Register 2009-Sea Air 179-182 Shows that Shipment either sea or by Air is being done from Meerut and not from Haridwar as claimed by the assessee. 54 Annexure -C3 Party-D, at Rithani Unit, Meerut Invoice Register for Shipping. 183-187 This shows that entire shipment is being done from Meerut. 55 Annexure -C1 Party-D, at Rithani Unit, Meerut Proforma Register -Shipping. 188-189 This shows that entire shipment is being done from Meerut and not from Haridwar. 56 Annexure C2 Party-D, at Rithani Unit, Meerut Invoice Register for Shipping. 190-191 This shows that entire shipment is being done from Meerut and not from Haridwar. 57 Annexure -A29 Party-C, at Rithani Unit, Meerut Purchase Orders 192-196 This shows that purchase is being matured at Meerut and the purchase order maintained at Meerut shows its seller as Haridwar unit which is table work trying to show the work as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Annexure -A14 Party-C, at Rithani Unit, Meerut Packing- Finishing and then transfer to Haridwar details/ Invoices. 230-233 Shows that the finishing and packing activities are being done at Meerut only and no need to perform any activity at Hardwar but only for disguise the revenue this action performed in the name of Haridwar. 67 Annexure -A17 Party-C, at Rithani Unit, Meerut Receipts for goods sent to Hardwar. 234-236 Final products transported to Hardwar. 68 Annexure -A18 Party-C, at Rithani Unit, Meerut Labelling Register. 237-239 Shows that even labelling are performed at Meerut through various job work contractors which shows that no further finishing is required to be performed by the assessee under the head of manufacturing. 69 Annexure -A16 Party-C, at Rithani Unit, Meerut Gate pass register-packing department 240-242 Shows that Material gate pass are issued for shipment from Meerut only and no requirement after this packing is required to the final product. 70 Annexure -A15 Party-C, at Rithani Unit, Meerut Gate pass Labelling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 281-282 Packing at Meerut and no activity remains at Haridwar. 81 Annexure -A3 Party-C, at Rithani Unit, Meerut Daily Production Register- Packing 283-284 Packing at Meerut and no activity remains at Haridwar. 82 Annexure -A2 Party-C, at Rithani Unit, Meerut Daily Production Register- Packing 285-286 Packing at Meerut and no activity remains at Haridwar. 83 Annexure -A1 Party-C, at Rithani Unit, Meerut Daily Production Register- Packing 287-288 Packing at Meerut and no activity remains at Hardwar. 84 Annexure -1 Party-A, at Partapur, Meerut Yarn Movement Register for the period 01-04-2004 to 30-09-2004 289-295 Shows that the assessee is obtaining following job works through outsourced detail as follow: Latexing: from M/s Sharda International P Ltd (renamed as IHDP) Tufting : (I) M/s All India Textiles Mills, Panipat, (II) M/s Shri Ram Textiles Mills Panipat (III) M/s Shiv Enterprises Rithani Meerut. Bathmet: (i)M/s Woyal Tax feb Modinagar, (II) M/s Konark Handloom Modinagar Mill (III) M/s Sharda International Pvt Ltd Meerut (IV) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal books of other party shows the intention working of the assessee. 89 Annexure -6 Party-A, at Partapur, Meerut Job work bill books of Vishnu Carpets found from the premises of the assessee for the period of F.Y 2005-06 326-331 Manipulation by the assessee as same blank memo also placed in the books and the reason for availability of original books of other party shows the intention working of the assessee. 90 Annexure -7 Party-A, at Partapur, Meerut Job work bill books of M/s Sukhbir Carpets found from the premises of the assessee for the period of F.Y 2005-06 332-334 Manipulation by the assessee as same blank memo also placed in the books and the reason for availability of original books of other party shows the intention working of the assessee. 91 Annexure -8 Party-A, at Partapur, Meerut Job work bill books of M/s Sindhi Carpets found from the premises of the assessee for the period of F.Y 2005-06 335-337 Manipulation by the assessee as same blank memo also placed in the books and the reason for availability of original books of other party shows the intention working ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyee were 12 persons at a time at Haridwar unit. Which were not enough to earn turnover in more that 100 crore annually. 100 Annexure -A20 Party-at Haridwar Information supplied to Employment Exchange. 367-367 Shows that he claim bogus employee 35 in number at Haridwar unit. 101 Annexure -A19 Party-at Haridwar Various pages 368-371 Page 369: shows salary detail of total 9 employee of Haridwar. Page 370: Shows pujan samagri on 01-11-2005 that in augration of unit was on November -2005 only. Page 371: That water supply was started on 03.01.2005 only through old motor pump. 102 Annexure -A21 Party-at Haridwar Salary details in March-2005 372-375 Salary of four persons in March -2005 was debited. Therefore working strength is not enough to earn turnover more than 100 crore. 103 Inventory of stock found at Haridwar Unit. List of machinery at Hardwar 3 376-377 List of machineries installed at Hardwar do not support the contention of the assessee for obtaining of such huge production in comparison to machineries. Scantly machineries found at the premise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods comes from Meerut and some manufactured here. Only packing material was available at Hardwar as per godown detail. Finished carpet stocked in the premises. 108 Party-Haridwar premises covered : M/s Sharda Exports, Haridwar Document regarding working strength in January -2012 as found during survey operation. 385-385 The assessee claim engaged 25 workers which were even not verifiable during the time survey proceedings and their work was that only 3 workers in packing and 10 for tufting, which is not such strengths for such claimed huge production. 109 Party- A Premises covered : M/s Sharda Exports, Gagol Road Partapur, Meerut. Statement recorded of Mr. Aditya Gupta, partner of the firm, during the course of survey proceedings. 386-394 Statement of Mr. Aditya Gupta: (i) Mr. Aditya Gupta, one of the partners in the old and new M/s Sharda Exports has stated that his family group runs 1. M/s Sharda Exports, 2. M/s IHDP Globals. 3. M/s IHDP Home interiors 4. M/S Great Furniture factory, 5. M/S Tirupati carpets etc. Bathmet and carpet are being manufactured from this unit (however it is claimed in the old years t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r which he has stated "I could say something in this regard only after personnel enquiry." 110 Party- A Premises covered: M/s Sharda Exports, Gagol Road Partapur, Meerut. Statement recorded of Mr. Sushil Kumar, Supervisor of the firm, during the course of survey proceedings. 395-398 Statement of Sh. Sushil Kumar: he has accepted that the server could not be connected from Rithani office during entire survey day. No books produce even stock register. Export invoices kept but detail with shipping department at Rithani unit. 111 Party- A Premises covered: M/s Sharda Exports, Gagol Road Partapur, Meerut. Statement recorded of Mr. Shiv Shanker Pandey, Supervisor of the firm, during the course of survey proceedings. 399-400 Statement of Sh. Shiv Shanker Pandey: Bathmat manufacturing, finishing packing work from the unit. Send directly to Rithani Unit. 112 Party- A Premises covered: M/s Sharda Exports, Gagol Road Partapur, Meerut. Statement recorded of Mr. Ashad Salim, production manager of the firm, during the course of survey proceedings. 401-408 Statement of Mr. Ashad Salim: Quality ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chine available and hand machine for tufting). 115 Party- C Premises covered: M/s Sharda Exports, Rithani, Meerut. Statement of Sh Rajesh Ranjan, HOD, Packing, Sharda Exports. 423-428 From the statement it is found that the main work at the premises surveyed is packing and dispatch of carpets. The carpets are manufactured at Meerut unit and Panipat unit of the assessee and are packed at the packing unit at Rithani and are dispatched from here. Proper figure about handling of goods was not made available at the survey party. It was informed at rough estimate that 18 to 20 trucks of goods are dispatched each months and each truck carries about 1500 to 1800 sq mtrs of carpets. It was stated by Sh. Rajesh Ranjan, HOD in reply to question No 14 that some finished goods are sent to the Haridwar unit without packing. 116 Party- C Premises covered: M/s Sharda Exports, Rithani, Meerut. Statement of Shri Somesh Dwivedi, employee 429-430 He has admitted in response to question no 6 that exports of carpets up to 15-18 trucks per day is being made from the Rithani Unit of Sharda Exports. 117 Party- C Premises co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No 9 that 90% export of firm is being done from Rithani and rest 10% from Partapur unit and from Haridwar unit only 1-2% exported from Hardwar (statement of Mr. Gurnam Singh is annexed from page 17 to 20 to this proposal). 122 Party- D Premises covered: M/s Sharda Exports, Rithani, Meerut. Statement of Mr. Sohan Gautam, Employee 447-448 He has stated in reply of Q No 5 6 that Latexing, binding, tufting and packing are being done at Rithani unit then after loaded into containers. This shows that the no activity is further remains to be performed at Haridwar Unit. 123 Party- D Premises covered: M/s Sharda Exports, Rithani, Meerut. Statement of Mr. Devraj, Employee 449-451 He has stated in reply of Q No 5 6 that Latexing, binding, tufting and packing are being done at Rithani unit then after loaded into containers. This shows that the no activity is further remains to be performed at Hardwar Unit. 124 Party- D Premises covered: M/s Sharda Exports, Rithani, Meerut. Loose Computerized sheets of salary/ work detail of employees at Rithani unit. 452-456 Shows that Latexing, binding, tuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that all these records which I.T.O Ward 2 Hardwar referring (sic) is not related to the assessee i.e. M/s Sharda Exports, Haridwar and (sic) not to the relevant assessment year 2009-2010." Finally response to Serial numbers 5,10,14,72,84,and 95 to 124 may be extracted individually since they pertain to specific responses to the ld. AO's report :- "SI No.5: Reply by the Assessee's On the pages 12-15 the dates mentioned are 09-11-2011/10-11-2011/11-11-2011 and again it is evident to mention that on these dates the assessee firm M/s Sharda Exports Haridwar was not in existence and all these documents are not related to the assessee firm M/s Sharda Exports Hardwar. Since it has started its business on 18-10-2004 and closed down its business on 01-04-2009, moreover they are not related to A.Y 2009-2010.Here the I.T.O Ward 2 Hardwar is wrong in saying that the assessee M/s Sharda Exports Hardwar is doing dyeing at Hardwar not Meerut, it is a fact and continuously claimed by the assessee that the dyeing is an activity, which is banned at Uttrakhand and the assessee is doing dyeing at Meerut. Although the documents mentioned by I.T.O Ward 2 Haridwar does not rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 belongs to packing department and the materials are being issued accordingly. So all the conclusions drawn by the learned I.T.O Ward 2 Haridwar are abused and are not true. SI No.99: Reply by the Assessee's On the pages 364-366 containing staff salary records from march 2005 to December 2008 and are related to assessee M/s Sharda Exports Haridwar and are shown in accounts and P.F/ E.S.I everywhere. Moreover the conclusions drawn by the learned I.T.O Ward 2 Haridwar is wrong since all these salaries are already been shown by the assessee in his books. SI No.100: Reply by the Assessee's The learned I.T.O Ward 2 Haridwar observation in reading this record is wrong and the conclusion learned I.T.O Ward 2 Haridwar wants to draw is totally wrong and against the facts of the case. SI No.101: Reply by the Assessee's On the page 369 containing salary detail of 9 employee at Hardwar unit, Here it is most respectfully submitted that the assessee is not able to understand that for which financial year the salary detail is related. On the pages 370 371 containing detail of pujan samagri and water supply is related to the financial year 2005-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied and not true on the assessee firm M/s Sharda Exports, Hardwar for the assessment year 2009-2010. SI No.106: Reply by the Assessee's On the pages 382 containing statement of Mr. Hari Yadav, in this connection the assessee M/s Sharda Exports, Haridwar most respectfully submitted that any statement of any person which is recorded in the absence of the assessee and without giving the cross-examination opportunity of the witness to the assessee is not binding on the assessee. Moreover in his statement nowhere he has claimed that Sharda Exports Haridwar the assessee is not doing any manufacturing activity at Haridwar. so any inference drawn on the basis of such statement is illegal/not justified and not true on the assessee firm M/s Sharda Exports, Haridwar for the assessment year 2009-2010. SI No.107: Reply by the Assessee's On the pages 384 containing statement of Mr. Manna Lal, in this connection the assessee M/s Sharda Exports, Haridwar most respectfully submitted that any statement of any person which is recorded in the absence of the assessee and without giving the cross-examination opportunity of the witness to the assessee is not binding on the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 01-04-2009 and any statement of any person which is recorded in the absence of the assessee and without giving the cross-examination opportunity of the witness to the assessee is not binding on the assessee and any statement of any person belonging to the present firm i.e. M/s Sharda Exports Meerut or Delhi is not applicable on the facts of the assessee and any inference drawn on the basis of such statement is totally illegal and far from the facts of the assessee. SI No.112: Reply by the Assessee's On the pages from 401-408 containing statement of Mr. Asad Salim, in this connection the assessee most respectfully submitted that our firm M/s Sharda Exports, Haridwar started its business from 18-10-2004 and close down its business on 01-04-2009 and any statement of any person which is recorded in the absence of the assessee and without giving the cross-examination opportunity of the witness to the assessee is not binding on the assessee and any statement of any person belonging to the present firm i.e. M/s Sharda Exports Meerut or Delhi is not applicable on the facts of the assessee and any inference drawn on the basis of such statement is totally illegal and far fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. SI No. 116: Reply by the Assessee's On the pages from 429-430 containing statement of Mr. Somesh Dwivedi, in this connection the assessee most respectfully submitted that our firm M/s Sharda Exports, Haridwar started its business from 18-10-2004 and close down its business on 01-04-2009 and any statement of any person which is recorded in the absence of the assessee and without giving the cross-examination opportunity of the witness to the assessee is not binding on the assessee and any statement of any person belonging to the present firm i.e. M/s Sharda Exports Meerut or Delhi is not applicable on the facts of the assessee and any inference drawn on the basis of such statement is totally illegal and far from the facts of the assessee. SI No. 117: Reply by the Assessee's On the pages from 431-432 containing statement of Mr. Satyendra Singh, in this connection the assessee most respectfully submitted that our firm M/s Sharda Exports, Haridwar started its business from 18-10-2004 and close down its business on 01-04-2009 and any statement of any person which is recorded in the absence of the assessee and without giving the cross-examination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he present firm i.e. M/s Sharda Exports Meerut or Delhi is not applicable on the facts of the assessee and any inference drawn on the basis of such statement is totally illegal and far from the facts of the assessee. SI No. 121: Reply by the Assessee's On the pages from 443-446 containing statement of Mr. Gurnam Singh, in this connection the assessee most respectfully submitted that our firm M/s Sharda Exports, Haridwar started its business from 18-10-2004 and close down its business on 01-04-2009 and any statement of any person which is recorded in the absence of the assessee and without giving the cross-examination opportunity of the witness to the assessee is not binding on the assessee and any statement of any person belonging to the present firm i.e. M/s Sharda Exports Meerut or Delhi is not applicable on the facts of the assessee and any inference drawn on the basis of such statement is totally illegal and far from the facts of the assessee. SI No. 122: Reply by the Assessee's On the pages from 447-448 containing statement of Mr. Sohan Gautam, in this connection the assessee most respectfully submitted that our firm M/s Sharda Exports, Haridwar sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) The wages and salaries shown in the books are much more than what has been paid to the persons actually working at Hardwar. This implies that the Haridwar premises are used for the sake of billing and dispatch of finished goods only. (iii) The activities denoting the last leg of carpet making claimed to be performed at Hardwar is seen not to be so as per the discussion at the end of Id. AO's report dated 04.05.2012 which unfortunately has been summarily dismissed by the Id. AR as not pertaining to the situation as it used to exist when the appellant firm was in existence. (iv) The claim of manufacturing activity at Haridwar is not borne out from the facts. The appellant has himself admitted that a number of activities (before the finished product is ready for sale) are carried out outside the state of Uttrakhand. However, the AO has found that most of activities claimed to be performed at Haridwar are also evidently performed at Meerut. Thus the conclusion that emerges is that finished goods are being merely dispatched from Hardwar after some superficial treatment given to them. (v) The claim that the carpets are made through job work (job workers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (C) The Sharda Exports Haridwar plot no. 11, sector-4, integrated industrial estate (I.I.E) Sidcul Ranipur Hardwar was incorporated on 01-12-2003 and was dissolved on 01-04-2009 (D) The Sharda Export Delhi B-96 Sainik farms, New Delhi was incorporated on 01-01-2009 and is still in existence. Thus Sharda Export, Hardwar Plot no. 11, Sector 4, IIE, SIDCUL, Ranipur, Haridwar is seen to be incorporated on 01.12.2003 and dissolved on 01.04.2009. However, its successor-in-business M/s Sharda Export Delhi at B-96, Sainik farms, New Delhi was incorporated on 01.01.2009 i.e. three months before the formal dissolution of the appellant firm. In this case it appears not to have mattered who owned the premises at Haridwar since the control and command was always working from outside this unit. (viii) There is another factual point that needs to be considered. It is seen that there was another Sharda Exports functioning from Okhla Industrial Estate, phase-3, Delhi. This concern existed between 01.04.2000 to 28.02.2009. This concern was virtually operating coterminous with the appellant concern and also involved in the production of carpets an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 Schedule and undertakes substantial expansion during the period beginning ** ** ** (ii) on the 7th day of January, 2003 and ending before the 1st day of April, 2012, in any Export Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or Industrial Park or Software Technology Park or Industrial Area or Theme Park, as notified by the Board in accordance with the scheme framed and notified by the Central Government in this regard, in the State of Himachal Pradesh or the State of Uttaranchal; or ** ** ** (b) which has begun or begins to manufacture or produce any article or thing, specified in the Fourteenth Schedule or commences any operation spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missible unless the accounts of the undertaking for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant, as defined in the Explanation below sub-section (2) of section 288, and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant. (8) Where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date : Provided that where, in the opinion of the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion shall, as far as may be, apply to the amalgamated or the resulting company as they would have applied to the amalgamating or the demerged company if the amalgamation or demerger had not taken place. (12A) Nothing contained in sub-section (12) shall apply to any enterprise or undertaking which is transferred in a scheme of amalgamation or demerger on or after the 1st day of April, 2007. ** ** **" 8. From the bare perusal of the section would reveal that sub-section (1) of section 80-IC provides a deduction in respect of profit and gains derived by an undertaking or enterprises from any business referred to in sub-section (2), while computing the total income of an assessee. Sub-section (2) has further sub-sections and in the case of assessee, the clause applicable is 80-IC 2 (a)(ii) which provide that assessee has begun or begins to manufacture any article or thing, which are not specified in Thirteenth schedule. It means assessee should not manufacture any article or thing which is specified in thirteenth schedule. Apart from this, the activity of manufacture should commence between the period 7th day of Jan 2003 and ending on 1st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the admissibility of deduction under sec. 80-IC is whether it manufactures or produces any article or things. Expression "manufacture" has been defined in section 2(29BA) which read as under: (29BA) "manufacture", with its grammatical variations, means a change in a non-living physical object or article or thing,- (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure'. However, expression "production" has not been defined in the Act. The stand of the revenue authorities is that at the most activity carried out by the assessee is of latexing, binding, carving and embossing, clipping and finishing. The other activity of weaving of the carpets is being done at Meerut and other localities. 11. As observed earlier, we would be reverting back to the facts of the present case in the later part of the order. First, we would like to bring at home the meaning of expression "manufacture and production" as propounded in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... place. Process in manufacture or in relation to manufacture implies not only the production but also various stages through which the raw material is subjected to change by different operations. It is the cumulative effect of the various processes to which the raw material is subjected to that the manufactured product emerges. Therefore, each step towards such production would be a process in relation to the manufacture. Where any particular process is so integrally connected with the ultimate production of goods that but for that process processing of goods would be impossible or commercially inexpedient, that process is one in relation to the manufacture. (See Collector of Central Excise v. Rajasthan State Chemical Works [1991] 4 SCC 473). 7. To put it differently, the test to determine whether a particular activity amounts to "manufacture' or not is: Does a new and different good emerge having distinctive name, use and character. The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes 'manufacture' takes place and li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acturing. Hon'ble High Court has held that assembling of diesel generating set tantamounts to manufacture/production and is eligible for deduction under sec. 80-IA of the Act. Similarly, Hon'bkle Gauhati High Court in the case of CIT v. Tech Electronic reported in 341 ITR 533 has considered a similar issue, wherein it has been held that assembling of colour TV by purchasing and assembling item like cabinet. Chassis, ICs, picture tubes etc. tantamounts to manufacturing activities. 15. Before we apply the position of law propounded by various Hon'ble High Courts on this issue, we also deem it fit to take note of the details submitted by the assessee in support of its claim. They read as under: "(i) Partnership Deed dated 1st December, 2003. (ii) Revised Partnership Deed dated 1st January, 2005. (iii) Certificate of Registration of Firm with Registrar of Firms, Dehradun dated 25th May, 2004. (iv) Form No. 7 filed with Registrar of Firms, Dehradun dated 18.2.2005. (v) D.I.C. Registration Certificate (Provisional) dated 31.3.2004. (vi) D.I.C. Registration Certificate (Permanent Registration after Commercial Production) dated 19.4.2005. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es have erred in construing the concept of manufacturing in a restricted manner. Thus, as far as legal requirements are concerned, all have been fulfilled by the assessee. Even on the strength of principle of consistency, it was brought to our notice that deduction under sec. 80-IC of the Act was claimed for the first time in assessment year 2005-06 and it was allowed to the assessee. This is the 5th consecutive assessment year. The assessments have been made under sec. 143(3) in assessment year 2005-06 to 2008-09. The Department has not reopened the assessment in these four assessment years nor any action under sec. 263 of the Income-tax Act, 1961 was taken. Thus, we do not deem it necessary to go into the aspects whether assessee fulfilled the other conditions of sec. 80-IC of the Act or not. 17. The limited issue required to be considered in this assessment year is, whether the department is able to lay its hands on a material which exhibits that assessee has not carried out any manufacturing activity and it is not entitled for deduction under sec. 80-IC of the Act? Whatever was granted in earlier years was granted on account of mistaken belief or misconstruction of the facts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, pointing out object of his visiting and associates them during his inquiry. He should have prepared a list of persons with whom he had interacted and on the basis of which Assessing Officer has been observing that department made local inquiries on several occasions from which it was gathered that no manufacturing activity was done at the said location. No such material was ever confronted to the assessee or disclosed to the assessee. Learned Assessing Officer has been reproducing the factual position found by the ITO, OSD on page 2 of the assessment order ( extracted by us in the order ). According to the ITO, there were only 13 taping frames and three were in broken condition. Learned ITO has narrated list of eleven items which were available on the premises and then concluded that on the basis of these items, it is not possible to achieve a turnover of Rs.100 crore. While putting reliance on this material, Learned Revenue Authorities have totally lost sight that this is the remnant of a discontinued business. Learned ITO has been visiting the place after two and half years of the closure of the business. Why the machinery etc. would be available in an intact position a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed out that seven parties have confirmed about doing the job work then Assessing Officer has observed that such reply must be a tutored reply on the asking of the assessee otherwise they would have not sent these letters to the assessee. This will only suggest that this material cannot be used against the assessee, at the most for its prosecution. It is not the evidence of the assessee. It is the evidence of the Assessing Officer who failed to prove against the assessee but still relying upon it in a negative sense. 21. Similar are the other reasons assigned by the Assessing Officer. The assessee has explained its position and on an analysis of the material, we find that except observing philosophically for raising a suspicion, Assessing Officer was unable to lay his hands on any concrete material for doubting the activity of the assessee. 22. During the course of appellate proceedings, a survey under sec. 133A of the Act was carried out on the new business premises of erstwhile partner on 23.2.2012 at Meerut and Haridwar. Learned Assessing Officer has submitted a report dated 4.5.2012 to the Learned CIT(Appeals) which includes the material collected during the course of survey ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessment or penalty (whether on his own motion or on the request of the Assessing Officer under clause (a) of sub-section (1) of section 251 or the imposition of penalty under section 271". 23. A bare perusal of this rule from clause Nos. 1 to 3 would suggest that additional evidence could be produced by the appellant only. It nowhere provide a remedy to the Assessing Officer to strength his assessment order by supplementing the material in the shape of additional evidence. No doubt, sub-rule (4) gives powers to the Learned CIT(Appeals) to direct the production of any document or the examination of any witness to enable him to dispose of the appeal. Learned CIT(Appeals) in the impugned order did not disclose how he came to know about the survey and whether he has issued notice to the assessee for production of the survey material or not. Learned Assessing Officer cannot be an applicant for production of the additional evidence in an appellate proceeding. The rule does not empower the Assessing Officer because, if some income has escaped assessment, he can take action under sections 147, 154 or the CIT can take action under sec. 263 of the Income-tax Act, 1961. Learned C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our attention towards Sr. No. 96, or No. 86, Sr. No. 10 and Sr. No. 14 of the report. We have duly considered these material but they do not suggest that assessee has not carried out any manufacturing activity. 25. Apart from these aspects, learned counsel for the assessee took us through the assessment order passed by Dy. Commissioner, Central Excise under sec. 9(2) available on page 452 of the paper book. He also took us through the sales-tax assessment order passed by Dy. Commissioner Sales-tax, Haridwar. Copy of this order is available on pages 453 to 458. These are scrutiny assessments. For assessment year 2008-09, these authorities have accepted the business turnover of the assessee. Learned Revenue Authorities have totally ignored these material on the record. It is true that whenever a conclusion has to be reached on an appreciation of a number of facts established by evidence, whether that was sound or not must be determined not by considering the weight to be attached to each single fact in isolation but by assessing the cumulative effect of all the facts in their setting as a whole. The efforts of the Learned CIT(Appeals) is to reach the conclusion on the basis of cir ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
