TMI Blog2017 (2) TMI 1097X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee has demonstrated that electricity consumption was very less on this machinery and maximum work was manual. This aspect has been highlighted before the AO in the explanation of the assessee and also before the CIT(A). The ld.AO failed to appreciate this peculiar nature of the assessee’s business. The explanation of the assessee is being noticed by us in page 11 of this order. This explanation justifies the consumption of low electricity. This fact can be cross verified with the letter of machinery manufacturer at page no.27 of the paper book. The second reason assigned by the AO is that the assessee failed to give capacity of manufacturing of goods of each machine. In this connection, it was pointed by the assessee that major work was manual and number of art jewelleries was solely not depended upon machinery though assistance of machinery was required. As far as objection of the AO with regard nonproduction of day-today production register is concerned, it was pointed out by the assessee that in this line of business it was not possible to maintain such details. The assessee-firm was not manufacturing proto-type of jewellery. It has produced variety of items contai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after claiming deduction of ₹ 92,49,373/- under section 80IB of the Act. Similarly, returns in the Asstt.Years 2005-06 and 2006-07 were filed on 24.10.2005 and 26.10.2007. The assessee has claimed deduction of ₹ 62,31,421/- and 90,86,929/-. The assessee at the relevant time was engaged in the business of manufacturing and selling of silver art jewellery, fancy bindi and bangles. The assessee firm had started its business activities before 31.3.2004 and its unit was located in Union Territory of Daman, which is a backward area as specified in VIIIth Schedule of the Act. Assessment in A.Y.2005-06 was made under section 143(3) on 28.12.2007 and deduction under section 80IB was allowed. However, while scrutinizing return for Asstt.Year 2006-07, same officer in the seat of ld.AO did not agree with his conclusion in the Asstt.Year 2005-06 and disallowed the claim of the assessee. Thereafter, the assessment in Asstt.Year 2005-06 was reopened by issuance of notice under section 148 on 12.5.2009 and accordingly followed his assessment order in A.Y.2006-07. He disallowed claim in Asstt.Year 2005-06 also. 4. On appeal, the ld.CIT(A) has re-appreciated facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant that process of making or manufacturing jewellery, is a labour intensive job or an artisan's job and in such products, the use of machining is minimum and therefore the consumption of electricity would not be a major cost factor. The appellant's explanation is quite palatable from the facts and figures submitted that even the cost structure of (he product i.e. jewellery manufactured is such that because of the use of costly raw material like silver and other alloy involved, the monetary sale value of the product would be normally high and the value addition made by the labour would be comparatively low and therefore the contention that with this peculiar nature of manufacturing activity undertaken by the appellant major portion of the sales turnover is attributable to the material cost and therefore correlating the wages and electricity consumption with the sales value without taking into consideration the peculiar nature of manufacturing process or nature of product of the appellant firm is not justified. Secondly, as the averaged daily sales or cost of production worked out is quite reasonable and acceptable with the employment of 12 workers, there is no plau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le impugning orders of the ld.CIT(A) took us through the assessment order and contended that the ld.AO has raised questionnaire during the assessment proceedings, and this questionnaire was not specifically replied by the assessee. He took us through the finding of the AO recorded in para-5 on page no.2 to 5 of the assessment order. He pointed that the ld.AO has appreciated the facts and circumstances and arrived at a conclusion that with the help of 12 workers with meager consumption of electricity of ₹ 13,205 does not practically possible to achieve a turnover of ₹ 3.18 crores. Thus, the AO has rightly doubted activity of the assessee and has rightly disallowed this claim. 6. On the other hand, the ld.counsel for the assessee took us through submissions made by the assessee before the ld.CIT(A) and pointed out that the ld.AO failed to appreciate nature of business and how its machinery did not consume electricity. He specifically took us through page nos.24 to 27 of the paper book and pointed out that the assessee has explained each and every objections raised by the AO. This aspect has been pleaded in the written submissions made before the ld.CIT(A), and the ld.C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namely :- (a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India; (b) such machinery or plant is imported into India from any country outside India; and (c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee. Explanation 2.-Where in the case of an industrial undertaking, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this subsection, the condition specified therein shall be deemed to have been complied with; (iv) in a case where th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it contemplates that where gross total income of an assessee includes any profit and gains derived from any business referred to sub-section 3 to 11, 11A and 11B, then such an assessee would be entitled to claim deduction under this section subject to fulfillment of conditions enumerated in sub-sections (2), (3) and (4). A conjoint reading of all these clauses would indicate that in order to claim deduction under section 80IB, the assessee should fulfill following conditions: (a) It should be a new undertaking i.e. not formed by splitting up, or the reconstruction, of a business already in existence. (b) It should not be formed by transfer of machinery or plant previously used for any purpose. However, two exceptions are prescribed under the Act. (c) It should not manufacture or produce articles specified in the Eleventh Schedule. (d) It must start manufacturing during October 1,1994 and March 31,2004 as notified vide notification No.714(E), dated October 7,1997. (e) It should employ 10 worker with the aid of power or 20 worker without the aid of power. In support of its claim, the assessee has filed a report in Form No.10CCB. The AO did not dispu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pearls / ghoogri / Zalar (Manual) (as per requirement of design) finished set of requisite design The AR further argued that the AO should have reconciled the consumption of electricity from the actual bills of electricity filed before him. The AR furnished the reconciliation of consumption of electricity in correlation with the user of machines. The relevant reconciliation filed by the appellant is re-produced below:- Types of Machines used and its electricity consumption reconciliation:- 1) Grooving Machine 2 Nos. 2) Mini-steam Generators 1 No. 3) Casting Machine 1 No. One machine on and average consumes 210 watt per hour (approx) One machine consumes 2 to 2.5 units per hour (approx) Units consumption (approx) Average usage of Grooving Machine 2.5 to 3 hours per day 7 Average usage of other Machines 2 to 2.5 hours per day 6 i. e. Total consumption per day 13 units For full year consumption considering 300 working days 3900 units Amount of ele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 1,06,046/- 4. Average purchase per day ₹ 73,077/- 5. Total Wages Salary ₹ 4,67,761/- (12 Workers ) 6. Silver sets manufactured 15 to 20 per day The AR argued that being high value range product, the value of 15 to 20 number of sets manufactured are of approx ₹ 95000 to 110000/- and average workers employees are 12 being skilled workers are capable of producing above quantity. 10. Let us evaluate the evidence. First ground of the assessee for claiming the deduction under section 80IB was that it had started production in Asstt.Year 2004-05. Asstt.Year 2006-07 is the third year. Deduction under section 80IB was granted in Asstt.Year 2005-06 in a scrutiny assessment. The ld.CIT(A) while considering this aspect made reference to the decision of the Hon ble Gujarat High Court in the case of Saurashtra Cement Chemical Industries Ltd. vs. CIT, 123 ITR 669 (Guj) and has observed that without disturbing relief granted in the earlier years, the AO cannot exa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s required. As far as objection of the AO with regard nonproduction of day-today production register is concerned, it was pointed out by the assessee that in this line of business it was not possible to maintain such details. The assessee-firm was not manufacturing proto-type of jewellery. It has produced variety of items containing numerous designs, shape, size and specification. It is not feasible or possible to maintain any quantitative records on daily basis. 11. With regard to non-production of challans and transport bills are concerned, the assessee pointed out to the AO that jewellery by its nature is a very small item and it is not being transported through transporter. These items were carried out by its employees or by the purchasers. Help of transporter would not be required in this line of business. It is also pertinent to observe that the AO wants to prove certain negative facts, i.e. to demonstrate how 12 persons can produce jewellery having value of ₹ 3.18 crores. Now, it is very difficult situation for any assessee to explain. The assessee has submitted all its details and pointed out how it has produced. Before the ld.CIT(A) detailed written submissions we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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