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Deputy Commissioner of Income Tax, Circle 2 (1) , New Delhi Versus M/s Auto Ignition Ltd., New Delhi

Disallowance of the deduction claimed u/s 80IC - CIT(A) allowed claim - Held that:- CIT(A) who has deleted the entire addition made by the Assessing Officer on the ground that the predecessor CIT(A) had on merits found out for assessment year 2008-09 that the assessee company is eligible for deduction under Section 80-IC of the Act. Nowhere in the impugned order we find any observation or finding of the learned CIT(A) commenting on the validity of the reopening of the assessment proceedings unde .....

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dgements by the Hon'ble supreme court is when a new and different article emerges having distinctive name, character and use. After applying the tests laid down in the different judgements and taking guidance from the definition of manufacture in the act, having noted the process involved, the learned CIT(A) rightly held that the assessee company is entitled to deduction u/s 80-IC of the Act.

The Assessing Officer has not made any comments with regard to the certificates given by the .....

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at:- CIT(A) who has deleted the entire addition made by the Assessing Officer on the ground that the predecessor CIT(A) had on merits found out for assessment year 2008-09 that the assessee company is eligible for deduction under Section 80-IC of the Act. Nowhere in the impugned order we find any observation or finding of the learned CIT(A) commenting on the validity of the reopening of the assessment proceedings under Section 147/148 of the Act. Since the ground does not arise from the impugned .....

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e assessee company’s Rudrapur Unit is engaged in manufacturing and is therefore eligible for deduction under Section 80-IC of the Act, so we uphold the orders of the learned CIT(A) and dismiss the grounds raised by the Revenue - Decided in favour of assessee. - ITA Nos. 6349 to 6351/Del/2012 & 4732/Del/2011 - Dated:- 29-5-2015 - Shri N.K. Saini and Shri A.T. Varkey, JJ. For the Petitioner : Sh. B.R.R. Kumar, Sr. DR For the Respondent : S/sh. Anil Malhotra, CA & L.K. Sharma, Adv. ORDER PER A. .....

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AXMAN 444(Del) it has been observed that if there is some material on the basis of which the A.O. has reason to believe that income has escaped assessment, it is sufficient to invoke the provision of section 147/148 of the I.T. Act. ii. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal. 2. Grounds of appeal raised in ITA No. 4732/Del/2011 are as follows: 1. The order of the lea .....

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t Faridabad and Rudarpur. 3. The appellant craves leave to add, to alter, or amend any grounds of appeal raised above at the time of the hearing. ITA No. 4732/Del/2011 for A.Y. 2008-09: 3. Both sides agree that the appeal of the Revenue for AY 2008-09 is adjudicated first; therefore we are adjudicating first the Revenue s appeal for AY 2008-09. 4. Ground nos. 1 & 3 are general in nature, so it is not adjudicated. 5. Ground no. 2 is regarding the finding of the CIT(A) that the Rudrapur unit a .....

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ridabad. The assessee company supplies goods in domestic as well as in export market. The main customers in domestic market are Tata Motors, Kirloskar Oil Engines Ltd., Mahindra & Mahindra Ltd., TAFE, HMT, Eicher, Escorts etc. During the year, the net profit rate has been declared at 8.54% against the total turnover of ₹ 19.79 crores in comparison to the net profit rate of 5.16% against the total turnover of ₹ 20.45 crores in the immediately preceding previous year. A survey was .....

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, Haldwani on 16.02.2010 in the premises of Pantnagar unit of assessee company and this survey also confirmed that no manufacturing activity was carried out by the assessee company at Pantnagar. The report of the survey team dated 15.03.2010 is reproduced as under: "3. During survey operation it came to the notice that the assessee company is having another unit at Plot No. 1 7 and 18, Sector-6, lIE, Pantnagar, Rudrapur (Distt. Udamsingh Nagar) for which claiming deduction u/s 801C of the I .....

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ch received in the office of undersigned on 025.03.2010. Upon perusal of report, the following points emerge: i) Production in the unit was started at 22.07.2005. ii) Machinery installed at the premises was purchased by Faridabad unit and the same was transferred to the premises in the shape of either stock transfer or asset sale and all the payments were also made from Faridabad unit. iii) The main supply to this unit is from Faridabad unit and the Rudarpur unit is engaged in assembling of part .....

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e said premise at 12.30 PM on 16.02.2010 alongwith following officers/officials: i) Sh. A.K.Rawat, ACIT, Haldwani ii) M.M.K.Abbass, ITI, Rudrapur iii) Sh. Pankaj Khatri, ITI, Haldwani iv) Sh Ritesh, ITl, Haldwani v) Sh. Saurabh Prashant, ITI(lnv.), Haldwani vi) Sh. Anoop Baloni ITI(lnv.), Haldwani 1. At the business premise, Sh. Ajay Chauhan, S/o Sh. Chatar Singh was available, who was working in the capacity of Plant Incharge. Statement on oath of Sh. Ajay Chauhan was recorded and stock of fini .....

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erators. Regarding purchase of plant & machinery, it was stated that all the machinery was purchased at Faridabad and the same was transferred to this premise in the shape of either stock transfer or asset sale and all the payments were also made from Faridabad unit only. However, he could not give any satisfactory reply regarding prior use of this machinery at Faridabad unit, which seems to be engaged in manufacturing the similar products or whether the machineries purchased were new or sec .....

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his premise are also assembling of two or three parts not requiring any particular skill. As per statement, there are approximately 55 persons working at this premise. However, at the time more than 20 persons were present and out of them, no person was having any specialisation for the claimed manufacturing. In fact, the so called manufacturing is nothing but to add various parts all coming from Faridabad. 3. From the above narrated facts, it can be clearly concluded that this premise is engage .....

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14,786.80 and all other expenses claimed are related to either purchase or CST or Excise duty only. There is no other manufacturing expense, without which it is impossible to manufacture anything. Such huge turnover from manufacturing with electric connection of 92KW only and without having skilled or technical persons seems to be next to impossible. The trading a/c clearly speaks that stock is being transferred to this premise, manufactured at Faridabad unit or somewhere else and the same is be .....

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lled at this premise are either used by the Faridabad unit before transferring the same or the Faridabad unit transferred its own old and used machines to this premise to claim deduction u/s 80IC of the I.T. Act, 1961, for which, this premise is not eligible, as there is no such activity at this premise, which can be said as manufacturing in any remote sense. " 8. During the course of assessment proceedings, the assessee company was asked to explain why deduction u/s 801C should be allowed. .....

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bought from various suppliers. These are fresh machines and the word split or reconstruction cannot be attached to it. It is pertinent to mention that before a manufacturing unit comes into being the following formalities have to be undergone: i) Permission from Ministry of Industry (SIA) - The approval was obtained from Ministry of Commerce (SIA) vide Letter dated 25.04.2005. Copy attached and marked as Annexure-5 at page No.40. ii) Acquisition of land - The land was leased by SIDCUL Industrial .....

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nufacturing facilities, with no adverse comments. The Assessee has been regularly filing its Returns on month to month basis to Excise Deptt. furnishing the details of the production of the unit. Copies of the Returns for the month of January, 2010 and February, 2010 are enclosed and marked as Annexure-7 at page Nos. 82 to 90. v) All necessary registrations such as DIC Registration, Sales Tax Registration, Registration under Factory Act, NOC from Pollution Control Board etc. have been obtained b .....

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thers. From the above it is apparent that the Rudrapur Unit against which deduction u/s 80(1 )(c) are being taken, is a manufacturing unit qualifying the eligibility such as: a) That the plant & machinery installed at Unit is new and no part of the same is out of split or reconstruction of any existing Unit, in other words it does not contain second hand machines or machines ever used before. b) The Unit should be in the backward area - Rudrapur is a backward area. c) It should be independen .....

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st 55 nos stated by the factory incharge. In this connection we wish to draw your kind attention to the Question No.7 of the Statement of Mr. Chauhan which reads as under: "Question No. 7 - How many officers/employees this unit has? Answer by Mr. Chauhan - approx. 55 nos. are working and this number can increase/decrease depending on the need. " In support we are submitting the necessary details of the total number of employees of the Unit on 16.02.2010 as under: Employees at Radrapur: .....

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. with following details: Nos. a) On Company pay roll 7 b) By Contractor M/s 39 c) Contractor M/s Soldier Security & Placement Services 17 Total 63 Copies of Attendance reqisier, Salary sheet, Contractors BII/ & Challans for provident Fund and ESI for the month of October, 2010 are enclosed and marked as Annexure-10 (page from 125 to 143). In view of the above it is submitted that the actual numbers of employees were 55 on 16.02.2010 and not 20 as reported by survey because the Incharge .....

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ed accounts for the year ending 31 s' March 2010 of the Unit are enclosed and marked as Annexure-14. Therefore, the contention that no manufacturing expenses were incurred during 1.4.2009 to 16.02.2010 is unfounded and untrue. 4. Your Honour has stated that a power load of 92 KVA was granted to the unit and how manufacturing is possible with such a low load? Though unit initially started with 92 KVA but the same was enhanced to 220 KVA, moreover, the unit has two (2) standby Generators to ha .....

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rs of M&M, TAFE, Eicher, International Tractors Ltd. Etc. The process flow chart along with Bills of materials is stated at Annexure-11 (page No.144 to 150) It is submitted that to declare the facility of the Company at Rudrapur as non manufacturing activity would be an assessment not founded on facts, arbitrary and is unlawful and against the cannons of justice. The word 'Manufacture' is now being defined by insertion of section 2(29BA) of the Income tax Act 1961 wherein the manufac .....

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declared as non manufacturing unit vis- a-vis denial of deduction u/s 80(1)© when it is a fully functional manufacturing activity with huge infrastructure running into crores of investment, duly validated by Excise department the authority to vet presence of manufacturing activities, independent auditor's certification, OE Mahindra & Mahindra visits from time to time for quality audit on the processes of production for supply of products to them, environment no pollution clearance, .....

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anufacturing activity was carried on at Pantnagar and hence disallowed the deduction u/s 80IC claimed by the assessee and made an addition of ₹ 4,56,03,108/- 10. Aggrieved by the aforesaid disallowance of the deduction claimed u/s 80IC of the Act, the assessee company preferred an appeal before the learned CIT(A) who was pleased to find that the assessee company is entitled to deduction under Section 80IC of the Act and allowed the claim of the assessee. 11. Now, Revenue is before us assai .....

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rding to the learned DR, it is clear that while the assessee has completed all necessary paper work for Pantnagar unit to show manufacturing activity at ground level, assessee was not carrying out any manufacturing activity at Pantnagar unit to produce any article or thing within the meaning of section 80-IC of the Act. According to him, the AO is right in observing that in fact, assessee is supplying finished goods from it's Faridabad Unit and made a specific design by creating paper & .....

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ty load at Pantnagar unit, books of accounts, physical verification at Pantnaqar unit and Faridabad unit by two independent survey teams has established beyond doubt that assessee is actually not manufacturing any article or thing at Pantnagar unit within the meaning of section 80-IC of the Act. Hence, the Assessing Officer rejected the contentions of the assessee and disallowed the deduction u/s 80-IC of the Act at ₹ 4,56,03,108/- and therefore he prays that the order of the ld. CIT(A) be .....

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vey report dated 17.02.2010 & 15.03.2010 which are report prepared after the survey conducted at plot nos. 17 & 18, Sect. 6, IIE, Pantnagar, Rudrapur district on 16.02.2010 and at plot no. 1, 19/6, Mathura Road, Faridabad on 15/16.02.2010 respectivly. Though questionaire was issued by the Assessing Officer dated 22.11.2010 to the assessee, we find that the A.O. has not taken into consideration the reply and supporting documents filed by the assessee dated 30.11.2010 which has been reprod .....

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um submitted before it for manufacture of the following are reproduced as under: Item code 3607 Proposed Item: STARTER MOTOR of Manufacture falling under NIC- broad description MANUFACTURE OF ELECTRICAL STARTING AND IGNITION EQUIPMENT FOR INTERNAL COMBUSTION ENGINES AND ELECTRICAL LIGHTNING/SIGNALLING EQUIPTION FOR MOTOR VEHICLES Proposed Capacity : 75000.00 NOS. 3607 Proposed Item: ALTERNATORS of Manufacture falling under - NIC - broad description MANUFACTURE OF ELECTRICAL STARTING AND IGNITION .....

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ntract bills ( page 100-143 of PB, V-II) iv. Process Flow chart & Bill of material (page 144-150 of PB, Vol-II) v. Connection load of all Motor (page 151-157 of PB, Vol-II) vi. ISO 9001:2008 certificate (page 158 of PB, Vol-II) vii. Mahindra OEM Auto (Page 158-160 of PB, Vol. II) viii. Blow up of Starter Motor (pages 79-80 of PB, Vol-I) 16. The details of products and manufacture of Rudrapur was furnished by the company is found at page no. 100 of PB, Vol.-I, are reproduced below: DETAILS OF .....

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ALT4012 ALTERNATOR MAHINDRA & MAHINDRA LIMITED-NAGPUR & MAHINDRA GUJRAT TRACTORS LTD. 8. ALT4026 ALTERNATOR PUNJAB TRACTORS LTD. 9. STM1103-V STARTER MOTOR TRACTORS & FARM EQUIPMENTS LTD., TAFE MOTORS & TRACTORS LTD. - BHOPAL & INDO FARM TRACTORS LTD. 10. STM1104-W STARTER MOTOR PUNJAB TRACTORS LTD. 11. STM1105-V STARTER MOTOR MAHINDRA & MAHINDRA LIMITED-RUD & NAGPUR 12. STM1108-W STARTER MOTOR INDOFARM TRACTORS LTD., PREET TRACTORS, STANDARD COMBINES 13. STM1120-V S .....

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-I, are as under: Expenditure Amount Remarks Wages 10,519,996 (Out of total personal expenses) Job work charges 6,499,377 Freight and delivery inward expenses 6,176,670 (shown under raw material consumption in balance sheet) Stores and spares consumed 54,096 Rent Paid (lease rent) 24,000 Electricity charges 3,436,555 Fuel (diesel ) expenses 2,338,041 Repair & Maintenance-Plant and Machinery 2,564,981 Security Expenses 937,235 Depreciation 692,078 Total manufacturing exps. 33,243,028 18. In t .....

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the state of Uttranchal. (i) Meaning of manufacture Manufacture 1989 Supreme Court Ujagar Prints Vs. Union of India The prevalent and generally accepted test to ascertain that there is manufacture is whether the change or the series of changes brought about by the processes take the commodity to the point where commercially it can no longer be regarded as the original commodity but is, instead, recognised as a distinct and new article that has emerged as a result of the processes. The principle .....

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is manufacture is to find whether the change or the series of changes brought about by the application of processes take the commodity to the point where, commercially, it can no longer be regarded as the original commodity but is, instead, recognized as a distinct and new article that has emerged as a result of the processes. The principles are clear. But difficulties arise in their application in individual cases. There might be borderline cases where either conclusion with equal justificatio .....

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But it is only when the change, or a series of changes, takes the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place. [131 CTR 305, 219 ITR 293, 85 TAXMAN 554J ] Manufacture 1997 AAR Arthur E. Newell Vs. CIT The expression manufacture involves the concept of changes effected to a basic raw material resulting in the emergence of, or transformation int .....

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its own name, identity, character or end use. This determination is essentially one of fact and has to be arrived at on a consideration of all relevant factors such as the quality and nature of the original article, the extent and magnitude of the operations carried out on, or in relation to, it and the commercial identity, character and use of the article produced. [137 CTR 47, 223 ITR 776, 90 TAXMAN 26] Manufacture 2001 Kerala High Court CIT Vs. Darshak Ltd. The word manufacture is to be under .....

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be said to have been produced. [71 CTR 80, 174 ITR 231, 39 TAXMAN 279) Produce 2002 Kerala High Court CIT Vs. Vijaya Retreaders The word produce means bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all by-products, intermediate products and residual products which emerge in the course of manufacture of goods. The next word to be considered is articles. The word is not defined in the Act or the Rules. It must, therefore, be understood i .....

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127] (iv) Meaning of Articles Articles 1974 Bom-HC CIT Vs. Hindustan Antibiotics Ltd. The word articles used in the expression has begun or begins to manufacture or produce articles in section 15C(2)(ii) must be interpreted regard being had to the object for which the section was enacted. The provision was enacted with a view to encouraging the establishment of new industrial undertakings and the object was sought to be achieved by granting exemption from tax on profits derived from such underta .....

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al article, the commencement of operation for the manufacture of the trial product would not constitute commencement of manufacture of articles for the purposes of section 15C. [93 ITR 548] 19. The ld CIT(A) has observed that in the instant case various parts are assembled by the assessee using its machinery results in achieving of a final product. The parts or components utilized by the assessee in its assembling process undergo a transformation and result into a product namely motorcycle wheel .....

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he word manufacture has also now been defined in Sec 2(29)BA by Finance act 2009 w.e.f. 1.4.09 as under; "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 .....

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e, character and use. After applying the tests laid down in the different judgements and taking guidance from the definition of manufacture in the act, having noted the process involved, the learned CIT(A) rightly held that the assessee company is entitled to deduction u/s 80-IC of the Act. 21 We do not find any infirmity in the order of the learned CIT(A), taking into consideration the evidence adduced by the assessee company and the consistent stand of the Revenue in allowing the deduction und .....

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the evidence that has been placed on record. Taking into consideration the corroborative evidence, we concur with the view of the learned CIT(A) and we find no infirmity in the same. Therefore, we uphold the order of the learned CIT(A). The appeal of the Revenue stands dismissed. ITA Nos. 6349 to 6351/Del/2012 for AY 2006-07, 2007-08 & 2009-10 22. We will now consider the impugned order passed for the assessment years 2006-07, 2007-08 & 2009-10. 23. The sole ground raised by the Revenue .....

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