TMI Blog2015 (2) TMI 278X X X X Extracts X X X X X X X X Extracts X X X X ..... e basis of the submission and rate of profit as agreed by the counsel of the Assessee. In our opinion, the basis adopted by CIT(A) is not correct and in accordance with law. We, therefore, set aside ground nos. 2 & 3 and restore both these issues to the file of CIT(A) as, in our opinion, the profit shown in respect of Unit-II & III are abnormally high as compared to the profit shown by the Assessee in respect of Unit-I. - Decided in favour of Revenue for statistical purposes. Whether Unit-III established by the Assessee has undertaken manufacturing activity or not? - Held that:- The raw materials used are flakes and cannot be marketed as such. For making it marketable it has to be converted into coating powder through manufacturing process with the help of machines and manpower. CIT(A) has exhaustively dealt with the manufacturing process adopted by the Assessee alongwith the definition of the word ‘manufacture’ as given u/s 2(29)(BA) of the Income Tax Act. Thus no interference is called for in the order of CIT(A) in this regard and we, therefore, confirm the order of CIT(A) by holding that Unit-III of the Assessee is engaged in manufacturing activity. Even otherwise also, we no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing powder coating from flakes transferred from Unit-I II. Unit-III purchases flakes from Unit-I II and grinds it as powder. The powder coating is used to paint automobiles, consumer durables, office equipment etc. The AO noted that the Unit-I has all the facilities for manufacturing power coating and Unit-II III are dependent on Unit-I in respect of raw material and semi-finished products. It was noticed that following profit has been computed by the Assessee in respect of Unit - I, II and III including the inter se transfers. Unit Sales Profit as per computation sheet Unit-I 46,59,57,245 1,18,43,391 (which include Interest income of ₹ 11,23,062/-) Unit-II 45,26,99,231 2,65,42,138 Unit-III 3,74,98,386 40,59,216 Total Sales 95,61,54,862 4,24,44,745 5. The AO noted that Unit-I has around 2% profit if other income is excluded, Unit-II has around 6% profit while Unit-III has 11% profit. Transpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the power of AO for re-computation of profit and also the fact that in respect of inter-unit transfer, market value has to be taken into account while computing the profit of eligible unit as has been laid down u/s 80IA(7) to (12). We noted that the Assessee has taken the contention before CIT(A) that the realizable value of the powder coating is more than the realizable value of the resin but we noted that in respect of this contention, no evidence or material has been brought on record or referred to before the CIT(A). The other contention taken by the Assessee that the plant and machinery of Unit-I was set up about 20 years back and in respect of Unit-I the Assessee had to incur high maintenance cost. CIT(A) simply relied on the submission of the Assessee. No data in respect of incurring of the high maintenance cost has been provided by the Assessee. We may also mention that the cost of the machinery have increased and therefore if the machinery is established after many years in Unit-II and III, the depreciation will be much higher while in respect of Unit-I the depreciation will be lower. CIT(A) has not appreciated all these facts and has simply allowed the relief to the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. This is because in AO‟s opinion, the raw material used and the finished product are one and the same and they are neither different in physical appearance or chemical composition. On the other hand the appellant has tried to explain the manufacturing process and contends that raw material and finished product are two different things The raw material, which are Flakes‟ can not be marketed as such and in order to become marketable it has to be converted into coating powder through a manufacturing process with the help of machine and man power. Both, the A.O. and the appellant have placed reliance on judicial pronouncements, but, in my opinion, it is a question of facts, whether conversion of Flakes to coating powder shall amount to manufacturing or not. In this regard the appellant presented a flow-chart displaying the manufacturing process. Flakes are added with fumed silica to repel moisture. Then the particle size is maintained as per requirement. The semi-finished product has to pass through Powder Spray Equipment and Hot air oven and at the end, depending on the requirement of the customer for metallic or mat finish, adequate pigments are added using Bl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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