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2016 (5) TMI 717 - ITAT MUMBAI

2016 (5) TMI 717 - ITAT MUMBAI - [2016] 47 ITR (Trib) 134 - Deduction u/s 80IB - claim of assessee was denied due to noncompliance of provisions of Section 80IB(2)(iv) - AO held that the assessee has also failed to establish correctness of deduction u/s 80IB of the Act, that it carried out its manufacturing activity by use of electricity and also not employing twenty or more workers to carry out his business without electricity, hence, deduction u/s 80IB of the Act was denied - Held that:- The T .....

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r. The assessee has produced these technical expert opinions before the Tribunal in second round of litigation and has explained that in the interest of substantial justice and equity, the same should be admitted and has contended that due to ailments and advanced age of the assessee the same could not be adduced earlier before the authorities below.

We are inclined to accept and admit the additional evidences submitted by the assessee in the interest of substantial justice as these e .....

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admitting these additional evidences, the case will at best be decided on merits instead of rejecting the matter at threshold which in our considered view will not advance justice. But at the same time we are equally conscious of the fact that these additional evidences are to be subjected to verification and scrutiny by the Revenue authorities in accordance with the principles of natural justice which demand that the Revenue need to be accorded an opportunity to verify these additional evidenc .....

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ue : Shri Ganesh Barc (Sr. D.R.) ORDER PER RAMIT KOCHAR, ACCOUNTANT MEMBER: These two appeals by the assessee are directed against two separate orders both dated 27-10-2011 passed by the learned Commissioner of Income Tax(Appeals)- 30 , Mumbai (Hereinafter called the CIT (A) ) pertaining to the assessment year s 2003-04 & 2004-05. Since identical issues are involved in both these appeals, these two appeals were heard together and are disposed of by this common order for the sake of convenien .....

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y mutatis mutandis to the appeal ITA No. 200/Mum/2012 for assessment year 2004-05, the following grounds of appeal have been raised by the assessee with respect to appeal ITA No 199/Mum/2012 for the assessment year 2003-04 in the memo of appeal filed with the Tribunal :- 1. The Order of the Learned CIT (A) is bad in law and on facts. 2. The Learned CIT (A) has erred in dismissing the appeal filed by the assessee on disallowance made by the assessing officer deduction under Section 80IB despite: .....

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carrying out its activities by non-electrical methods. 3. The Learned CIT (A) has erred in concluding that since machinery installed in the factory could not be used without power, the assessee must have carried out the manufacturing activity outside the factory. 3. The brief facts are that the assessee is an individual having income from consultancy and business income. The assessee is proprietor of firm Kisamago engaged in the business of manufacture of industrial lubricants. In the first rou .....

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ssessee preferred an appeal before the CIT(A) which was allowed by the CIT(A) vide his orders dated 03-12-2007 by observing as under:- I am of the opinion that the claim and arguments made by the appellant are fair and reasonable and the benefit u/s 80IB should be allowed to the assessee. Against the above order of the CIT(A) dated 03.12.2007 in the first round, the Revenue preferred an appeal before the Mumbai Tribunal and the Mumbai Tribunal vide orders dated 25/06/2009 in ITA No. 1478 & 1 .....

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pport of this contention. In our considered opinion no findings can be given on this issue unless there is some clinching material available on record. The learned A.R. conceded that he did not possess any such technical report etc. Under these circumstances we are of the considered opinion that it will be just and fair if the impugned order on this issue is set aside and the matter is restored to the file of the A.O. We order accordingly and direct him to decide the issue afresh in accordance w .....

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s directed by the Tribunal. A notice dated 30.11.2010 u/s 133(6) of the Act was issued to the Dy. Engineer (N.Z.), Electricity Department, Dadra & Nagar Haveli, Silvasa calling information of electrical units consumed for the period April, 2002 to March, 2003 and April, 2003 to March, 2004. On perusal of the information submitted by the Deputy Engineer (N/Z-1I), Electrical Dept, Dadra andF Nagar Haveli, Silvassa that the minimum electrical connection charges for the assessee s unit, per mont .....

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department it was concluded by the AO that the assessee is carrying out its activities by non-electrical help methods. The assessee has submitted before the A.O. that in the financial years 2002-03 and 2003-04, being early years of business, the production was limited and the factory was not operated on a daily basis. The product manufactured was a proprietary product and was tailor-made to the requirements of various customers. The production was limited, and hence the consumption of power was .....

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per month and the assessee has not consumed any power for the year under consideration for the purpose of manufacturing. The assessee was again asked by AO to demonstrate that manufacturing is carried on with the aid of the power. The assessee has filed a copy of certificate from M/s Elecktrocraft (India) Pvt. Ltd. certifying that ½ HP blender mixer used by M/s Kisamango (assessee s proprietary concern) cannot be used without power which as per AO indicated that the assessee has done the .....

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mpliance of provisions of Section 80IB(2)(iv) of the Act. Thus the AO held that the assessee has also failed to establish correctness of deduction u/s 80IB of the Act , that it carried out its manufacturing activity by use of electricity and also not employing twenty or more workers to carry out his business without electricity, hence, deduction u/s 80IB of the Act was denied to the assessee by the AO in the second round vide assessment orders dated 30-12-2010 passed u/s 143(3) read with Section .....

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s received from the Directorate of Industries, which all confirm the presence of the machinery on the factory premises. The sanction from the electricity Department regarding the use of 15HP motive power and 2500 W. lighting connection is also on record. The certificate from the Sales tax department also states that the premises have plant and machinery for manufacture as well as the raw material for use in the manufacture. The assessee submitted that it is not in dispute that the manufacturing .....

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rrer" used for mixing of oils is operated only through the use of power and a detailed discussion on this aspect was submitted by the assessee. The assessee submitted that the A.O. in the second para of the assessment order has stated that from the manufacturing process explained that different oils are mixed in high speed stirrers after moderately heating to 45 degree centigrade to a smooth paste which indicates that the A.O. has accepted that the manufacturing process requires the use of .....

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nd hence the consumption of power naturally lower. It was submitted by the assessee that the electricity meter installed on the factory premises was faulty and that a single bill was received from the electricity department covering the period from September 2001 to August 2003 was received which evidences that meter was faulty. Further, the manufacturing process by itself does not require high power consumption. The assessee submitted that there were no installations such as air conditioners or .....

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e disallowed. The CIT(A) after going through the assessment order and submission of the assessee observed that the A.O. had called for the information from the Dy. Engineer (N.Z.), Electricity Department, Dadra, Nagar & Haveli, Silvasa from which the A.O. found that the assessee was carrying out its activities by nonelectrical help method. The CIT(A) further observed that the A.O. has analysed the report of Dy. Engineer, Electrical Department, Silvasa and noted that the net charges for elect .....

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furnished by the assessee. No expert opinion was submitted by the assessee to substantiate the claim of the assessee to prove very low electricity consumption. The CIT(A) observed that the assessee is contending that motive power is used in the manufacturing carried on by the assessee and motive power requires use of power but if the motive power was used by using electricity, then bill for electricity charges should have come. It was observed by the CIT(A) that no evidence of faulty meter was .....

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ithout the aid of power and the assessee has not fulfilled the condition of having employed twenty or more persons as stipulate u/s 80IB(2)(iv) of the Act, deduction u/s 80IB of the Act cannot be allowed and accordingly confirmed the order of A.O. 6. Aggrieved by the orders dated 27.10.2011 of the CIT(A), the assessee is in appeal before the Tribunal. 7. At the time of hearing, the ld. Counsel for the assessee did not press ground No. 1, hence, the said ground is dismissed as not pressed. The ld .....

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heating to 45°C to a smooth paste. Merely mixing of articles does not involve process of manufacturing and manufacturing involves transformation of matter into something else which is a different commercial commodity having its distinct character, use and name and commercially known as such and mixing and manufacturing are two different activities. Accordingly the A.O. denied the deduction u/s 80IB of the Act in the first round of litigation. However, the CIT(A) allowed the appeal in the fi .....

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the same time the Tribunal accepted the fact that the assessee is engaged in manufacturing activity, while the controversy now centers around the carrying out of the manufacturing process with or without the aid of power, for which there was no material placed on record before the Tribunal by the assessee in the first round of litigation. The ld. Counsel for the assessee submitted that the assessee has installed gear stirrers fitted with ½ HP AC/DC motors and the process of mixing of two .....

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ok filed by the assessee with the Tribunal. The ld. Counsel also submitted copy of approval of power sanctioned by Electricity Department of 15HP motive and 2500W lighting connection which are placed on record vide paper book page No. 31. The ld. Counsel also submitted copy of Pollution Control Board Certificate from Pollution Control Committee vide paper book page 32 and copy of License to Work a Factory engaged in the manufacture of oil based formulation which is placed in paper book page 33 . .....

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copy of the order is placed as an additional evidence before the Tribunal. The P&L of the assessee showing turnover of ₹ 90,29,671/- and electricity consumption was of ₹ 25,220/- incurred by the assessee for the assessment year 2006-07, as an additional evidences was filed before the Tribunal with the prayer that these additional evidences may be admitted. The Ld. Counsel of the assessee submitted that but for the two assessment years namely 2003-04 and 2004-05,the claim of the .....

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on and based on the technical specification of the nominal 1/s HP motor(230V/2.5Amps) used in the mixer equipment as follows : eltek make GM 63L2, 280RPM, single phase, continuous duty at 45 degree C and power consumption was worked out based on the reported production to be 528 units for the previous year 2002-03 and 1296 units for the previous year 2003-04. The ld. Counsel also submitted copy of certificate dated 3rd June 2015 from Institute of Chemical Technology as additional evidence whereb .....

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matter, may kindly be admitted and the claim of deduction of the assessee u/s 80IB of the Act may be allowed to the assessee on merits. The Ld. Counsel for the assesssee submitted that the assessee is of advanced aga being 72 years of age and is only person in the organization who looks after the financial and taxation matter. The Ld. Counsel of the assessee has stated that the health of the assessee is deteriorating in the last six years as he is suffering from several ailments such as heart p .....

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lls Private Limited v. CIT (137 ITR 415) to contend that the additional evidences as submitted before the Tribunal may be admitted in the interest of equity and justice keeping in view the provisions of Section 255(6) of the Act read with Rule 29 of Income Tax( Appellate Tribunal) Rules, 1963. 8. The ld. D.R. while relying on the orders of authorities below submitted that the assessee has failed to produce the expert opinion certificate in the first round of litigation and also in the second rou .....

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ubricants. It is stated by the assessee that different oils are mixed in high speed stirrers after moderately heating to 45°C to a smooth paste . It is stated by the assessee that the assessee has installed gear stirrers fitted with ½ HP AC/DC motors and the process of mixing of two oils takes place. The process of mixing oil and water carried on by the assessee is held to be manufacturing by the Mumbai Tribunal in ITA no 1478 & 1479/Mum/2008 for assessment year 2003-04 and 2004-0 .....

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py of invoices from various parties for purchase of machineries, which is on record in paper book, page 18-26. The assessee also submitted copy of small scale industries registration certificate for manufacture of oil based formulation and copy of approval of power connection of 15HP for motive power and 2500W for lighting sanctioned by Electricity Department which are also on record at page 30-31. The assessee also submitted copy of Pollution Control Board Certificate from Pollution Control Com .....

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e in the assessment order dated 26.12.2008 passed u/s 143(3) of the Act for the assessment year 2006-07 wherein the deduction u/s 80IB of ₹ 5,87,494/- was also allowed. The Revenue has doubted that the assessee is not carrying on activity of manufacturing with the aid of power due to following reasons: a) The electricity bill is of minimum charges of ₹ 375/- per month and in many months as per electricity bill the consumption of electricity is shown to be zero units consumed. b) From .....

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ed based on information from electricity department that the activity carried on by the assessee is by nonelectrical help methods. The assessee has submitted before the Tribunal additional evidence by way of technical certificate from Triton Mentors and Advisors Private Limited dated 01-06-2015 whereby as technical experts they have certified that products which are emulsion of water and oil need to be necessarily produced in mechanized equipment run with electric motors and production cannot be .....

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idence submitted before the Tribunal whereby the said Institute certified that the numbers given in the letter for power consumption amounting to 0.5 KW per mixer of 20 liters each and totaling up to 528 units in the previous year relevant to assessment year 2003-04 and 1296 units in the previous year relevant to assessment year 2004-05 whereby for the process of making emulsions of oil and water, the amount of required power consumption as given in that letter of Triiton Mentors and Advisors Pr .....

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is of advanced age being 72 years of age and is the only person in the organization who looks after the financial and taxation matter. The assessee has stated that his health is deteriorating in the last six years as he is suffering from several ailments such as heart problem, diabetes and eye sight problem etc and also due to his advanced age , he could not obtain technical expert opinion earlier for submission before the AO and the CIT(A). The assessee relied upon the decision of Hon ble Apex .....

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nal evidences be admitted and the case be decided on merits. The Tribunal in the first round of litigation in its order dated 25-06-2009 in ITA No.1478 & 1479/Mum 2008 for assessment year 2003-04 and 2004-05 has observed that in the absence of expert opinion or other relevant material , no finding can be given on this issue whether the manufacturing process is carried on with the aid of power or not , as under: On the other hand learned AR has stated that the machinery used in the manufactur .....

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opinion that it will be just and fair if the impugned order on this issue is set aside and the matter is restored to the file of the A.O. We order accordingly and direct him to decide the issue afresh in accordance with our aforesaid observation. The Rule 29 of Income Tax(Appellate Tribunal) Rules,1963 provides as under: [Production of additional evidence before the Tribunal. 29. The parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the .....

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to be filed or may allow such evidence to be adduced.] Rule 29 clearly provides that if the Tribunal requires any document to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause, the Tribunal may record reasons for production of the evidences and the material. From a judicial analysis of various decisions, it is amply settled and clear that the Tribunal can admit additional evidence in terms of rule 29 of the Inco .....

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rought before it by way of second appeal in a lawful, fair and judicious manner, it has necessarily to look into and consider such evidences and other materials having a nexus and bearing on the subject-matter of the appeal, viz., the dispute involved. Even according to the provisions of rule 29, the Tribunal is empowered to receive and admit additional evidence for any other substantial cause. The Tribunal in the first round has clearly indicated that in absence of technical expert opinion and .....

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of litigation and has explained that in the interest of substantial justice and equity, the same should be admitted and has contended that due to ailments and advanced age of the assessee the same could not be adduced earlier before the authorities below. We are inclined to accept and admit the additional evidences submitted by the assessee in the interest of substantial justice as these evidences are vital and essential for resolving the controversy and go to the root of the matter for resolvin .....

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