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TMI Blog2017 (2) TMI 1097X X X X Extracts X X X X X X X X Extracts X X X X ..... lity of reference, we take up the facts from the Asstt.Year 2006-07. 3. Brief facts of the case are that the assessee has filed its return of income on 5.10.2006 declaring NIL income after claiming deduction of Rs. 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 Rs. 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 accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that ensure that all the conditions precedent were fulfilled for the claim of deduction u/s.80IB. There is no plausible reason to reject the contention and claim of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant's Ground Nos.2. 3 and 4 are Allowed." 5. This order was followed in Asstt.Years 2005-06 and 2007-08. The ld.DR while 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 Rs. 13,205 does not practically possible to achieve a turnover of Rs. 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation 1.-For the purposes of clause (ii), any machinery or plant which was used outside 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2004 :" 8. A perusal of the section would reveal that 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 F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 electricity consumption considering Rs. 2.50 per unit (3900 * 2.50) Rs. 9750/- Appellant's actual consumption of electricity for manufacturing process reflected in the books of the year under Rs.9587/- Appellant's actual consumption of electricity for general lighting like bulbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment in Asstt.Year 2005-06 was reopened and in re-assessment, this deduction was denied. But it is pertinent to note that assessment was reopened for the reasons that deduction in A.Y.2006-07 was denied to the assessee. It was not reopened that something new was found and came to the possession of the AO. He has re-appreciated these very circumstance on the strength of the finding recorded in Asstt.Year 2006-07. Apart from the above, let us examine objections of the AO. First suspicion in the mind of the AO was that how 12 workers can produce goods of Rs. 3.18 crores, and how it is possible to manufacture goods of this magnitude with the electricity charges of Rs. 9857/-. The stand of the assessee was that it was engaged in manufacturing of all types of fancy, artificial, silver jewellery. The assessee has demonstrated in the detail that major components and raw-material was of silver, which is a valuable metal. The assessee has demonstrated that 15 to 20 silvers sets were manufactures and it was possible by 12 workers. It also pointed out its manufacturing and minimum use of machinery. The assessee has placed on record a copy of the letter written by the machinery supplier. This ..... X X X X Extracts X X X X X X X X Extracts X X X X
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