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Income Tax Appellate Tribunal, DELHI BENCH “F” NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI O.P. KANT
PER BENCH: The aforesaid appeals and the cross objections have been filed by the Revenue as well as by the assessee against the separate impugned orders dated 23.10.2014 for the Assessment Year 2009-10, dated 20.05.201 for the Assessment Years 2006-07, 2007-08 and 2008-09. Since common issues are involved in all the appeals arising out of identical set of facts, therefore, the same were heard together and are being disposed of by way of this consolidated order.
Since lead case is Assessment Year 2009-10 which has been followed in the other years, therefore, we are taking up the case for the Assessment Year 2009-10 and finding therein will apply mutatis mutandis in all the other appeals. The Revenue is mainly aggrieved by deletion of addition of Rs.1,09,84,998/- on account of claim of deduction u/s.810IC which was disallowed by the Assessing Officer.
The facts in brief are that the assessee-firm is engaged in the business of manufacturing of plastic packaging materials since 1998 at its unit located in Baddi, Himachal Pradesh. Since its manufacturing facility was located in Baddi Industrial area which was notified by the Ministry of Commerce & Industry, vide notification dated 7th January, 2003, therefore, assessee was eligible for making a claim u/s 80IC for its manufacturing activity. It was also registered with 3 I.T.As. No.215/Del/2014, 5151 to 5123/Del/2015 & CO No.56, 57 & 58/Del/2016 the Central Excise Department and has been filed CENVAT return and also return under the VAT Tax Act, before Himachal Pradesh Authorities. In the assessment order, it has been noted by the Assessing Officer that team of Income tax official has visited the assessee’s premises and godowns where the business activities of the assessee was being carried out. On inspection the said team observed that no manufacturing activity is done by the assessee firm. Statement of employee, Shri Girish Chander and Shri Masood Ali Beg, Production/Quality Manager was recorded on oath relevant extract of which has been incorporated in the impugned assessment order. From the said statement, he observed that the assessee is only engaged in packaging for M/s. Gillette India Ltd. and it is only doing a job work. Thus, he held that assessee is not engaged in any manufacturing activity, and therefore, deduction u/s.80IC is not applicable. In response to show cause notice, the assessee has explained the entire process of manufacturing and the agreement between the assessee and the M/s. Gillette India Ltd. and how such packaging involves mechanical process. However, the Assessing Officer rejected the assessee’s contention that it is not any kind of manufacturing activity.
Before the ld. CIT (A), detailed submission and material were produced and the findings of the Assessing Officer were rebutted on various counts. Assessee’s submission have been noted and dealt with by the ld. CIT (A) in paragraph 4.2 to 4 I.T.As. No.215/Del/2014, 5151 to 5123/Del/2015 & CO No.56, 57 & 58/Del/2016 4.5. Ld. CIT (A) after considering the entire facts and material on record and the fact that similar issue had arisen in the assessee’s own case for the Assessment Year 2005-06, wherein ld. CIT (A) after detailed discussion has allowed the claim of deduction u/s.80IC. The relevant observation and finding of the ld. CIT (A) reads as under: 4.6 I have carefully considered the arguments and assertions of the AO. as enumerated in the assessment order. I have also carefully considered the submissions made by the Id. AR and the point wise reply given by him. I have also considered the evidences placed on record by the Id. AR. I have taken note of the fact that the issue regarding allowability of deduction u/s 801C was considered in appeal in the ease of this appellant during A.Y. 2005-06, wherein the then CIT(A)-XX1II, New Delhi give a finding that the claim of the appellant w as correct and allowable. I have also taken note of the fact that the crucial evidence put forth by the AO for denying deduction u/s. 80IC to the appellant was the statement recorded under oath from the production manager of the appellant at its Baddi factory, Sh. Girish Chander. It is pertinent to note that in reply to the very first question, Sh. Girish Chander stated that he was working in the Baddi factory of the appellant since June 2009. This statement of Sh. Girish Chander has been reproduced by the AO on the first page of the assessment order. This gives credence to the assertion of the Id. AR that Sh. Girish Chander had joined the Baddi factory after the end of financial year 2008-09, relevant to AY 2009-10, which is under consideration and therefore, he was not privy to the business activities being carried out prior to his appointment. In the light of the above discussion and after careful consideration of all the facts of the case and evidences on record. I am of the opinion that the appellant cannot be denied deduction
5 I.T.As. No.215/Del/2014, 5151 to 5123/Del/2015 & CO No.56, 57 & 58/Del/2016 u/s. 80IC of the Act. The addition on this ground amounting to Rs. 1.09.84.998/- is hereby deleted.”
Before us, the learned Department Representative referred to the order of the Assessing Officer and submitted that the statement of the employees makes it very clear that the assessee was doing job work for packaging of products in small and large boxes for which it was paid job work charges from M/s. Gillette India and hence such packaging does not amount to manufacturing, and therefore, claim of deduction u/s.80IC has rightly been denied.
On the other hand, ld. counsel for the assessee submitted that this precise issue had come up for consideration in the Assessment Year 2005-06, wherein detailed inquiry was made by the Assessing Officer in the remand proceedings and based on the remand report of the Assessing Officer, the ld. CIT (A) has held that the assessee satisfied the conditions laid down in Section 80IC and Assessing Officer has accepted that there was a major expansion of more than 50% in the Assessment Year 2005- 06. Since, similar claim of deduction u/s.80IC has been allowed in the Assessment Year 2005-06 by the ld. CIT (A) against which no appeal has been filed by the Department, therefore, the claim of deduction cannot be denied in the subsequent years. He further drew our attention to the relevant paragraphs of the finding given by the ld. CIT (A) in the appeal for the Assessment Year 2005-06. Apart from that,
6 I.T.As. No.215/Del/2014, 5151 to 5123/Del/2015 & CO No.56, 57 & 58/Del/2016 he also drew our attention to various notifications and certificates issued by Central and State Government that the assessee was registered as manufacturing unit, and therefore, it could not be held that assessee was not engaged in any manufacturing activities. Regarding statement of the employees, he submitted that first of all the employees themselves admitted that they were employed in the year 2009 only, and therefore, such statement does not have any relevance for the earlier years. Apart from that, nothing incriminating has been stated in the said statement and the inference drawn by the Assessing Officer that the assessee is merely doing packaging and doing job work is not correct. He referred to the note of activities of the assessee’s firm that the chart showing process of manufacturing to canvass that how the assessee is being carrying out a complex process of making packaging materials as per the order given by the M/s. Gillette India Ltd. The note of activities and chart of process of manufacturing of plastic packaging material has been given from pages 35 to 40 of the paper book. This note was submitted before the ld. CIT (A) during the course of appellate proceedings. Thus, as a matter of consistency and on facts of the case, the deduction claimed u/s.80IC cannot be denied.
We have heard the rival submissions, perused the relevant materials and findings given in the impugned orders as well as material referred to at the time of hearing, the 7 I.T.As. No.215/Del/2014, 5151 to 5123/Del/2015 & CO No.56, 57 & 58/Del/2016 assessee firm had undertaken a substantial expansion in the Assessment Year 2005-06 and in that year the issue for claim of deduction u/s.80IC had come up for consideration. From the perusal of the order of ld. CIT(A) for the Assessment Year 2005-06, we find that the machine which were added in Assessment Year 2005-06 for the purpose of manufacturing of packaging material and doing the job work were as under: Machinery 1. Box Strapping Machine 2. Cutting Machine 3. Drilling Machine 4. Forming Machine 5. Pad Printing Machine 6. Sharing Machine 7. Taping Machine 8. Welding Machine The Assessing Officer had denied the deduction in that year on the ground that the new machineries purchased by the assessee were less than 50% as required u/s.80IC. However, rebutting the said observation of the Assessing Officer, the assessee had filed the entire details based on which the remand report was submitted by the Assessing Officer which reads as under:- In this connection, it is submitted that in proceedings u/s. 250(4), the assessee has produced books of accounts and vouchers which were examined on test check basis. The books of accounts were found to be commensurate with figures of Profit & Loss accounts enclosed with the return of income for assessment year 2005-06.
8 I.T.As. No.215/Del/2014, 5151 to 5123/Del/2015 & CO No.56, 57 & 58/Del/2016
The assessee was also asked to lead evidence in favour of the submission made before your honour in the appellate proceedings. During the proceedings u/s .250(4) the assessee substantiated its claim by filing the bills of plant and machinery along with details of certificate of expansion issued by National Research & Technology consortium Parwanoo. It has also filed approval of Revised Capacity issued by G.M. Distt. Industrial Centre, Solan. The assessee has also stated that the expansion of plant and machinery took place in the F. Y 2003-04 and 2004-05 from where it can be seen that the plant and machinery has increased from the initial plant and machinery of the concern when the deduction u/s 80 IB was claimed. The assessee has so produced bills of other plant and machinery purchased during the assessment year 2005- 06 after consideration of which the plant and machinery appears to be increased by more than 50% during the assessment year 2005- 06 itself, the machinery added during the year includes machine (Elevator) stacker worth Rs.2,15,280/- and electronic weighing scale of Rs.6,900/- which is used in the manufacturing process whose purchase bills have been filed now and examined. Thus from the aforesaid facts the assessee has filed evidences regarding the substantial expansion of plant and machinery which can be considered at the appellate stage in view of the evidences filed during the appeal and examined u/s 250(4) of the IT Act. Submitted for further consideration in appellate proceedings".
Based on this remand report and other material facts on record, ld. CIT (A) had given a favourable finding in the following manner:- “7. I have considered the order of the learned Assessing Officer and the remand report submitted by him. The submissions made by the learned AR have also been taken into consideration. It is 9 I.T.As. No.215/Del/2014, 5151 to 5123/Del/2015 & CO No.56, 57 & 58/Del/2016
recapitulated that the matter had been referred to the ld. Assessing Officer under sub section (4) of section 250. In the report dated 19.05.2009, after making suitable enquiries and examining the books of accounts and supporting documents, the ld. Assessing Officer has concluded that the enhancement in the plant and machinery has been more than 50% in the year under consideration. In such circumstances, and after a positive finding by the Assessing Officer, I am of the considered opinion that since the assessee has met this crucial condition, based on examination of the books, the deduction u/s.80IC needs to be allowed. ”
Thus, the initial claim of 80IC has been allowed after due inquiry and examination of facts on record and such allowability of deduction has attained finality, because as stated by the learned counsel no appeal has been filed by the Revenue against the said order dated 17.11.2009. Whence it has been accepted that assessee firm has been carrying out manufacturing activities and its claim of deduction u/s.80IC has been allowed, then in the subsequent year such a claim cannot be disallowed.
Coming to the observation and the facts as noted in the impugned assessment order, we find that the Assessing Officer has heavily relied upon the statements of two of the employees of the assessee firm wherein they have stated that they are doing the job work of packaging of loose products in boxes for which they are being paid job charges from M/s. Gillette India Ltd. and apart from that they have also said that raw material are also available by M/s. Gillette India Ltd.
10 I.T.As. No.215/Del/2014, 5151 to 5123/Del/2015 & CO No.56, 57 & 58/Del/2016 which the assessee firm is packing them. Based on these statements, Assessing Officer has come to the conclusion that assessee is not involved in the manufacturing of packaging; therefore, assessee is not eligible for deduction u/s.80IC. Before the Assessing Officer, the assessee had stated the process of packaging and repackaging is a complicated technical process which involves control of thermal and pneumatic power specified time regulation and it is not merely packaging of a product in a boxes. From the perusal of a note and the activities carried out and the chart showing process of manufacturing, it is seen that assessee has explained the manufacturing activity in the following manner:- “The firm is primarily into manufacturing and production of plastic thermoformed materials. It is done with use of various types of plastic material/sheets as base, formed and shaped into specific designs and shapes as per the requirements of various customers and their usage The process is carried out by use of specific dies and moulds as per the customer design performed on different conversion machines by use of thermal, pneumatic and hydraulic technology with specified time, temperature pressure and vacuum regulation. A detailed process charted is drawn out and enclosed. Further we are also into making of tools, dyes and moulds for various such operations including forming, sealing, cutting, etc. We also fabricate and provide various machines for carrying out similar operations. This includes our working on a full fledged tool room operation for which we have numerous working machines We also upgrade and recondition such machines and sell. List of different types of RAW MATERIALS used for making Tools, Dies, Moulds & Machines are like aluminium, epoxy's, wooden blocks and sheets, MDF sheets, different type of rubber sheets (natural and synthetic), marking pins, etc. All types of electrical, electronic, pneumatics, hydraulics and other types of instruments, articles, parts, accessories and consumables required for the above
11 I.T.As. No.215/Del/2014, 5151 to 5123/Del/2015 & CO No.56, 57 & 58/Del/2016 machines, including heaters, motors, cables, air blowing and lighting accessories. Each die needs different activities to be done and no specific process can be defined. We have also entered into a one stop operation of such activities on behalf of our customers whereby we pack their products or carryout their activity of installation as per their requirement to complement our above productions. In this case, where most of the customers have taken a single bill for complete production and also separate bills for providing material and separate bill for execution of packaging Also, off late there have been such operations, where the materials were provided by the customer or their approved vendors and we only did the technical operation of handling their material and converting it into a sellable proposition.”
Besides this, the assessee has also given the details of the raw material purchased, product flow chart and the entire process of packing of articles. From the further perusal of the record, it is seen that assessee has shown turnover from various activities in the following manner:-
S. Particulars Amount Amount No. (in Rs.) (in Rs.) (a) Manufacture of packaging 1,36,58,621/- material (b) (i) Packaging of goods on job 63,43,995 work basis (b)(ii) Sale of packing material 18,31,202 81,75,197 with job work Manufacture of dies/moulds (c) 6,53,000 2,24,86,818 Total
Apart from that, it is undisputed fact that assessee firm has been categorized under the Central Excise Tariff Act as a manufacturer, because it manufactures dyes and moulds for 12 I.T.As. No.215/Del/2014, 5151 to 5123/Del/2015 & CO No.56, 57 & 58/Del/2016 making and designing the packaging materials. It has also granted approval from District Industries Center, Solan. All those details of approval, certificates and notification issued in the case of the assessee have been placed in the paper book. The entire facts and material which has been placed before the Assessing Officer has not been rebutted and Assessing Officer has tried to draw inference that mere packaging does not amount to manufacturing. If assessee is making packaging material as per the requirement of the product with the aid and help of various kinds of machines as incorporated above and it is also registered as manufacturer under the various laws, then such a general inference based on statement of employees cannot be given much credence. Thus, we do not find any substantial merits in the grounds raised by the Revenue that assessee is not engaged in the manufacturing of packaging material, therefore, the finding of ld. CIT(A) is uphold and the grounds raised by the Revenue is dismissed.
Since exactly similar ground has been raised in the Assessment Years 2006-07, 2007-08 & 2008-09, wherein similar claim of deduction has been denied after reopening the case u/s.147, therefore, our finding given will apply here mutatis mutandis. Accordingly, we uphold the order of the ld. CIT (A) in allowing the deduction u/s.80IC.
In the Cross Objections, the assessee has challenging the validity of reopening u/s.148 for the Assessment Years
13 I.T.As. No.215/Del/2014, 5151 to 5123/Del/2015 & CO No.56, 57 & 58/Del/2016 2006-07, 2007-08 and 2008-09. At the time of hearing, learned counsel has not pressed the grounds raised in the Cross Objections and accordingly, same is dismissed as not pressed.
In the result, the Appeals of the Revenue as well as the Cross Objections raised by the assessee are dismissed.