TMI Blog2010 (7) TMI 1038X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore the Assessing Officer be directed accordingly. Your appellant carave leave to amend, to alter or to add to any of the above referred grounds of appeal. The revised grounds of appeal raised by the assessee in ITA No. 1062/Mum./010 reads as follows : The Commissioner of Income-tax (Appeals)-34, Mumbai (hereinafter referred to as the CIT ) erred in not allowing the claim of your appellants claiming deduction under section 80-IB of the Income-tax Act, 1961 amounting to ₹ 6,41,46,162. Your appellants therefore submit that they are entitled to deduction under the provisions of section 80-IB and therefore the Assessing Officer be directed accordingly. Your appellant carave leave to amend, to alter or to add to any of the above referred grounds of appeal. 3. The assessee is a partnership firm. It is engaged in the business of manufacturing of various types of sheets and pre-engineering building material. It has its factory premises at Dadra Nagar Haveli. The firm came into existence on 16-1-2004. The assessee claimed deduction under section 80-IB of the Act. Under section 80-IB(4) of the Act, profits and gains derived from an Industrial undert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has also given the various applications to which the various products manufactured by it can be put to. A typical example will be of a petrol pump station or a bus stand/shelter, or a factory shed. The various products manufactured by the assessee can be assembled to make a petrol pump station, a bus stand/shelter or a factory. The columns are erected using foundation bolt. The columns are connected through rafters. This creates a structure, which is covered by the various roof products manufactured by the assessee. If a covered structure is to be made, the side walls and doors are covered using purlins, girts, trapezoidal and sheet accessories. 5. It is important to mention that the assessee manufactures only the above items and these serve as input for use in building structures stated above. The assessee s customers or end users buy these products from the assessee and use it for various purposes/applications. The assessee has given photographs depicting the end use of its various products and these are at pages 53 to 59 of the assessee s paper book in ITA No. 1062/Mum./10. At page-53 is a depiction of the assessee s products in making a petrol pump. At page-54, we can see th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Items of plant and machinery Function 1. Automatic beam mfg. M/c. Automatic beam manufacturing machine where plate will undergo through different processes like straightening, assembling, designing, Co2 Welding SAW Welding etc. 2. Cold Rolled Forming Sheet Mfg. M/c. In the cold roll forming machine the straighten coil will undergo various mechanical process viz. cutting, levelling, punching, shaping, drilling, plating, design, change in strength, change in thickness etc. with the help of this machine the coil is transformed into a Profiled sheet, new and different article called sheets. 3. Z Purline Mfg. M/c. Fully automatic PNC controlled Z purlie Mfg. M/c. the straighten, coil raw material will undergo various mechanical process viz. cutting, levelling, punching, shaping, drilling, plating, design, change in strength, change in thickness etc. with the help of this machine the coil is transformed into a Z shaped new and different article called purline and Girt s. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Threading machine The rods are passed through the Threading machine to make thread on both or either end 18. Hydraulic puncher machine Hydraulic puncher does two heads and middle holes are punched and cut off at the same time before forming Hydraulic puncher does two heads and middle holes are punched and cut off at the same time before forming The power consumption for the period from 31-3-2006 to 31-3-2008 has also been given. It shows high quantity of consumption of power. The value of investment in plant-machinery; land and building, investment ranges from ₹ 107 crores as on 31-3-2005 to ₹ 63.72 crores as on 31-3-2008. 7. The manufacturing activity and process involved in making the following products : (a) Z Purlins and Girts (b)Trapezoidal profile sheets (c) Sheets Accessories (d) Column (e) Rafter (f) Wind bracing (g) Ventilating Systems have been explained at page-40 of the assessee s paper book. The basic raw material used by the assessee is purlin coils, sheets etc. The same is as follows : (i) Unpacking the purlin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer, no new article was manufactured or produced. He concluded that the Assessee was involved in doing a process of galvanizing or coating by which iron or steel is coated with zinc and other chemical to protect it from rust and to ensure long life. According to him doing so does not amount to manufacturing and the assessee was not entitled to deduction under section 80-IB in respect of manufacturing. The Assessing Officer held that the word manufacture has not been defined in the Income-tax Act. But it means the production of articles for use from raw or prepared materials by giving these materials new forms, qualities, properties or combinations, whether by hand labour or machinery. The expression manufacture has in ordinary acceptance a wide connotation, it means making of articles, or materials commercially different from the basic components, by physical labour or mechanical process, and a manufacturer is a person by whom, or under whose direction or control the articles or materials are made. The word manufacture used as verb is generally understood to mean as bringing into existence a new substance and does not mean merely to produce some change in a subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stries. It also highlighted as to how the process involves number of engineering and mechanical process like cutting, threading, bending, change in gauge and strength, thickness etc. 11. The learned CIT(A) was of the view that ultimately products manufactured by the assessee were being used for construction of buildings. He was of the view that the items manufactured by the assessee were intermediary items for construction of building; and therefore, decision of Hon ble Supreme Court in the case of N.C. Budhiraja Co. (supra) will apply. Following were the relevant observations :- The contention of learned AR is not acceptable as these items were the intermediary items only. As discussed above the main activity of the appellant was making of steel buildings. The items pointed by learned AR were made for utilizing them in the fabrication and erection of steel building. The allowability of deduction under section 80-IB can be examined in respect of the final product only and not in respect of the intermediary items made in the process. The Assessing Officer correctly relied upon the judgment of Hon ble Gujarat High Court in the case of Cellulose Products of India Ltd. v. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the aforesaid decision in the case of N.C. Budhiraja Co. (supra) clearly support the plea of the assessee. Referring to the decision of Hon ble Supreme Court in the case of Dy. CST (Law), Board of Revenue (Taxes) v. Pio Food Packers [1980] 46 STC 63, he submitted that one of the test laid down in the aforesaid decision was as to whether the people in the relevant trade recognize a product as a distinct product. His submission was that the aforesaid test is satisfied in the case of the assessee, inasmuch as, the products manufactured by the assessee are considered as distinct product in its trade. 15. The learned DR submitted that the raw material used by the assessee was steel and after cutting into various shapes and after shredding, the end product are also steel and therefore, after the manufacturing process a different product does not emerges and therefore it cannot be said that the assessee was engaged in the manufacture or production of article or thing. According to him, decision of Hon ble Supreme Court in the case of Arihant Tiles Marbles Ltd. (supra) supports the view of the Department. According to him, in the case before the Hon ble Supreme Court marble bloc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... modity to the point where commercially it can no longer be regarded as the original commodity but instead recognized as a new and distinct article that a manufacture can be said to take place. The test that is required to be applied is: Does the processing of the original commodity bring into existence a commercially different and distinct article. It was held as follows: Commonly, manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take 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. 18. In N.C. Budhiraja Co. s case (supra ) the same test as laid down in the decision in the case of Pio Food Packers (supra) was reiterated. It was further held that the word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aged in the manufacture or production of an article or articles. Upon the foundation laid by the assessee further construction-whether it was a building, bridge, dam or any other structure-was raised. The process of laying the foundation was an integral part of the construction of a dam, bridge or building and the assessee s work was done on the spot and was a works contract. It was no different from any other works contract which was done on the spot and became part and parcel of a larger construction. It was further held that in such matters one has to look to the activity and decide whether it can be said to amount to manufacturing or producing an article. 20. It is the above observations, which was quoted out of context by the CIT(A) in the case of the assessee. The assessee was manufacturing fabricated steel material for use in the building industry. Because the ultimate product was a building, the CIT(A) held that the assessee was not manufacturing an article or thing. As observed by the Hon ble Supreme Court above, one has to look into the activity and decide whether it can be said to amount to manufacture or production of an article or thing. The assessee was manufacturi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per market requirement in prefect angles by edge cutting machine and multi disc cutter machines; (vi) Polished slabs and tiles are buffed by shiner. The Court further noted that the assessee(s) has been consistently regarded as a manufacturer/producer by various Government Departments and Agencies. The above processes undertaken by the respondent(s) have been treated as manufacture under the Excise Act and allied tax laws. The Hon ble Supreme Court that the assessee was manufacturing an article or thing. The Hon ble Court applied the test laid down by it in the case of CIT v. Sesa Goa [2004] 271 ITR 331 (SC) that extraction and processing of iron ore did not amount to manufacture . However, it came to the conclusion that extraction of iron ore and the various processes would involve production within the meaning of section 32A(2)(b)(iii) of the Income-tax Act, 1961. It was held that the word production is wider in ambit and it has a wider connotation than the word manufacture . It was held that while every manufacture can constitute production, every production did not amount to manufacture. The Court also explained that the assessee was paying excise duty and re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d counter it or examine it and not ignore it. 23. In our view the process carried out by the assessee (which we have explained in detail in the earlier paragraphs) and the fact that the fabricated steel cannot be used in the industry to which the assessee caters without its process and the fact that they have a distinct name in the trade all go to show that the assessee was manufacturing an article or thing. The assessee has given an expert opinion, which has not been countered by the CIT(A). We have already explained the various products which were manufactured. These products are known in the trade of distinct name and activity. The assessee is not fabricating any readymade steel building. We have perused the photographs of various products manufactured by the assessee. They are at page Nos. 31 to 39 of the assessee s paper book. Photographs give raw material form of the product and finished goods form of the product. In our opinion, input and output are certainly different and the arguments of learned DR that input is steel and output is also steel, cannot be accepted. It is pertinent to mention that the assessee designs the products according to requirement of its clients. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... batic load can be reduced since the surface temperature and indoor temperature is less susceptible to be raised. Further, even in paint there is a technical input while giving it coating layer of high heat resistance obtained due to a mass ratio of 55 per cent and volume ratio 80 per cent of the product has high heat resistance. Further, assessee s product wrinkle curved roof top sheet is also technically suitable to make suitable slope as required for a different usage and weather and monsoon condition of the region. This requires a technical input in respect of study and test and then standardization of process to meet the parameter of Bureau of Indian Standards. The assessee s roof tops are different than the simple corrugated sheet. Further, assessee has been employing high-tech sophisticated machinery for e.g. For making the roof top, it buy plain sheets and give them curve and desired shape on coldrolled mill and thereafter different engineering operations and thus ultimately assessee give technical inputs in respect of tensile strength, long durable service life and structural quality keeping factors in mind like heat resistance, operational requirement, energy consumption a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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