DEPUTY COMMISSIONER OF INCOME TAX vs. M/S. KALA GENSET PVT.LTD., PUNE

आदेश आदेश / ORDER आदेश आदेश

PER VIKAS AWASTHY, JM :

These two appeals have been filed by the Revenue. ITA No.2654/PUN/2016 is directed against the order of Commissioner of Income-tax (Appeals)-6, Pune dated 30-08-2016 for the assessment year 2006-07 in reassessment proceedings u/s.147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). In ITA No.2653/PUN/2016, the Revenue has assailed the order of Commissioner of Income-tax (Appeals)-6, dated 31-08-2016 for the assessment year 2010-11.

2 ITA Nos. 2653 & 2654/PUN/2016 M/s. Kala Genset Pvt. Ltd.,

ITA No.2654/PUN/2016 for A.Y. 2006-07 :

the assessee is engaged in the business of manufacture and

assembling of Generator sets. The assessee filed its return of income

for the impugned assessment year on 22-11-2006 declaring total

income of Rs.1,71,42,956/-. The assessee claimed deduction

u/s.80IB(5) in respect of manufacturing unit located at Silvassa. In

scrutiny assessment proceedings, the assessee’s claim of deduction

u/s.80IB(5) was allowed vide order dated 04-11-2008. Subsequently,

the Assessing Officer (in short ‘AO’) reopened the assessment to reject

assessee’s claim of deduction amounting to Rs.1,63,06,945/-

u/s.80IB(5) of the Act. The AO vide order dated 08-03-2013 passed

u/s.143(3) read with section 147 disallowed the assessee’s claim of

deduction u/s.80IB(5) of the Act.

of deduction u/s.80IB(5), the assessee filed appeal before the CIT(A).

The First Appellate Authority vide impugned order held that the

assessee is eligible for claiming the deduction u/s.80IB(5) and reversed

the findings of AO. Against the order of CIT(A), the Revenue is in

appeal before the Tribunal.

the CIT(A) has erred in coming to the conclusion that ‘assembling’

amounts to ‘manufacturing’. The CIT(A) while allowing the appeal of

assessee has placed reliance on the decision of Pune Bench of the

3 ITA Nos. 2653 & 2654/PUN/2016 M/s. Kala Genset Pvt. Ltd.,

Tribunal in assessee’s own case for the assessment years 2007-08 and

2008-09 in ITA Nos. 2056 & 2057/PUN/2012 decided on 28-02-2014.

The Department is in appeal before the Hon’ble High Court against the

said order of Tribunal. The ld. DR fairly conceded that the appeal of

the Revenue may not be accepted by the Hon’ble High Court as the tax

effect in the appeal is below the monetary limit as has been recently

notified by the CBDT vide Circular No.21/2015. The ld. DR placed

reliance on the decision of Hon’ble Calcutta High Court in the case of

CIT Vs. Babcock & Wilcox of India Ltd. reported as 241 ITR 583 to

contend that assembling of parts cannot be equated with ‘manufacture

of an article or a thing’. The ld. DR contended that the provisions of

section 10A and 10B have been amended by the Finance Act, 2000

whereby definition of ‘manufacturing’, which included any process or

assembling has been deleted w.e.f. 01-04-2001.

assessee submitted that the assessee claimed deduction u/s.80IB(5)

for the first time in the assessment year 2005-06. The Revenue

initially allowed the assessee’s claim of deduction. Thereafter, the

assessment was reopened and the assessee’s claim of deduction

u/s.80IB(5) was denied. The assessee carried the matter in appeal

before the First Appellate Authority. The CIT(A) deleted the addition.

Thereafter, the Department did not agitate the issue in appeal before

the Tribunal on account of low tax effect. In assessment years 2007-

08 and 2008-09, the assessee’s claim of deduction was again

disallowed. In the first appeal before the CIT(A), the assessee’s claim

of deduction u/s.80IB(5) in respect of Silvassa unit was allowed. The

Department carried the issue in appeal before the Tribunal in ITA Nos.

2056 & 2057/PUN/2012 (supra). The Tribunal upheld the order of

4 ITA Nos. 2653 & 2654/PUN/2016 M/s. Kala Genset Pvt. Ltd.,

CIT(A) in holding assessee eligible for claiming deduction. The ld. AR

referred to the above order of Tribunal placed at pages 21 to 37 of the

paper book. The ld. AR submitted that the Tribunal has held that

‘manufacturing’ includes assembly of parts. The ld. AR further

pointed that the Tribunal while allowing assessee’s claim has

considered the decision rendered in the case of CIT Vs. Babcock &

Wilcox of India Ltd. (supra).

orders of the authorities below. The solitary issue in the appeal by

Revenue is against allowing assessee’s claim of deduction of

Rs.1,63,06,945/- u/s.80IB(5). The assessee is engaged in the

business of assembling and manufacture of Diesel Generator Sets for

industrial and commercial applications. As per the contentions of the

Revenue, assembling of various components does not amount to

‘manufacture’. We find that, for similar reasons, the assessee’s claim

of deduction u/s.80IB(5) was denied by the Department in assessment

years 2007-08 and 2008-09. The issued travelled to the Tribunal. The

Tribunal after placing reliance on the decisions rendered in the case of

Chiranjeevi Wind Energy Ltd. reported as 2011-TIOL-91-HC-MAD-IT,

Tata Locomotive & Engineering Ltd. reported as 68 ITR 325 (Bom.),

CIT Vs. Jackson Engineers Ltd. reported as 341 ITR 518 (Delhi) upheld

the order of CIT(A) in allowing assessee’s claim of deduction

u/s.80IB(5). We further find that the Coordinate Bench of the

Tribunal while deciding the issue in favour of the assessee has also

considered the decision rendered in the case of CIT Vs. Babcock &

Wilcox of India Ltd. (supra). Since this issue has already been

considered and decided in favour of the assessee by the Tribunal, we

find no reason to take a contrary view, especially when the facts are

5 ITA Nos. 2653 & 2654/PUN/2016 M/s. Kala Genset Pvt. Ltd.,

identical. Accordingly, the impugned order is upheld and the appeal of

the Revenue is dismissed.

ITA No.2653/PUN/2016 for A.Y. 2010-11 :

deleting the addition of Rs.1,37,66,943/-.

the Sales Tax Department, Govt. of Maharashtra the assessee has

indulged in bogus purchases of material from Hawala operators. The

assessee has obtained book entries indicting purchase of building

material from the following hawala dealers amounting to

Rs.1,37,66,943/- :

The assessee failed to substantiate with cogent evidence that the

material was procured from the aforesaid dealers. Consequently, the

AO made addition. However, in the first appeal, the CIT(A) deleted the

addition of bogus purchases on the ground that the assessee might

have obtained the material locally in cash and only for the purpose of

availing VAT credit the bills have been sought from the Hawala

operators. The findings of CIT(A) are erroneous as they are merely

based on presumptions and assumptions.

6 ITA Nos. 2653 & 2654/PUN/2016 M/s. Kala Genset Pvt. Ltd.,

CIT(A) in deleting the addition. The ld. AR submitted that, even if the

purchases are admitted to be bogus, the construction of the building

has not been disputed by the Department. The cash available with the

assessee against bogus purchases of construction material have been

invested for construction of the building. Therefore, the said amount

can be set off against work-in-progress.

rival sides and have perused the orders of the authorities below. The

solitary issue raised in appeal by the Department is against deleting

the addition of Rs.1,37,66,943/- on account of bogus purchase of

building material from the hawala operators by the assessee. The

contention of the Revenue is that the assessee has never purchased

the material for construction of the building. It has merely obtained

the accommodation entries from hawala dealers. At the same time,

construction of building by the assessee has not been disputed by the

Department. The CIT(A) has deleted the addition by considering the

fact that cash available with the assessee against alleged bogus

purchases has been utilized towards construction of building and

hence, it is part of work-in-progress. For the sake of completeness,

the relevant extract of the findings of CIT(A) are reproduced herein

below :

4.3.1 ………………… ………………………… Considering this evidence and the fact that the WIP has been certified by the auditors, I am of the view that there has been a construction work which has been carried out during the year. The value as per valuation report is Rs.1,56,55,200/- and the WIP as per the books is shown at Rs.1,51,26,000/-. The material purchased from the alleged bogus suppliers is Rs.1,37,66,943/-. It is quite possible that the appellant may have incurred this expenditure by purchasing the material locally in cash and only for the purpose of

7 ITA Nos. 2653 & 2654/PUN/2016 M/s. Kala Genset Pvt. Ltd.,

availing any VAT credit he may have sought the bills from these hawala operators. In view of the fact that the building has been constructed, it could not have been possible without purchasing the material. Therefore, the action of the AO in not considering the withdrawals made from the books as not having been invested in capita; WIP is erroneous. Therefore the addition made by the AO treating the investments in the WIP has unexplained investment is deleted. Further, as the withdrawn amounts have been utilized for the purpose of business, the disallowance of interest made by the AO is without any basis and hence deleted.”

addition are plausible and hence, we concur with the same. We find

no reason to interfere with the findings of CIT(A). Accordingly, the

appeal of the Revenue is dismissed.

Order pronounced on Monday, the 31st day of December, 2018.

Sd/- Sd/- (D. KARUNAKARA RAO) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER

पुणे / Pune; �दनांक / Dated : 31st December, 2018 Satish आदेश क� �ितिलिप अ�ेिषत आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to : आदेश क� आदेश क� �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत

अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. आयकर आयु� (अपील) / The CIT(A)-6, Pune 3. आयकर आयु� / The Pr.CIT-5, Pune 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “ए” ब�च, 5. पुणे / DR, ITAT, “A” Bench, Pune. गाड� फ़ाइल / Guard File. 6.

//स�यािपत �ित // आदेशानुसार / BY ORDER,

// True Copy // Senior Private Secretary, आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune

8 ITA Nos. 2653 & 2654/PUN/2016 M/s. Kala Genset Pvt. Ltd.,

Date 1. Draft dictated on 26-12-18 Sr.PS 2. Draft placed before author 27-12-18 Sr.PS 3. Draft proposed & placed before the AM second member 4. Draft discussed/approved by Second AM Member. 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order.