DCIT, NEW DELHI vs. M/S. AUTO IGNITION LTD., NEW DELHI

ORDER

PER BEENA A PILLAI, JUDICIAL MEMBER

2. The Ld.CIT(A) erred in not considering the evidences/materials gathered by the survey team to prove that there was no ITA 6646/Del/15 Assessment Year 2012-13 Auto Ignition Ltd. manufacturing activity in the manufacturing unit of the assessee company. 3. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any grounds of appeal at any time before or during the hearing of this appeal.”

2. Brief facts of the case are as under. 2.1. Assessee filed its return of income declaring loss of Rs. 3,02,01,165/-. The case was selected for scrutiny and notice under section 143 (2) was issued and served upon the assessee. The representative of assessee appeared before the Ld. AO and filed necessary details as called for. 2.2. Ld. AO from computation of income observed that assessee had made a claim of Rs. 1,48,36,580/-under section 80 IC which was disallowed by Ld.A.O. while passing assessment order. 2.3. Aggrieved by the order passed by Ld. AO, assessee preferred appeal before Ld. CIT (A). 2.4. Ld. CIT (A) deleted the addition by relying upon the order passed by this Tribunal in assessee’s own case for assessment year 2006-07, 2007-08, 2008-09 and 2009-10. The relevant extract of the observations recorded by this Tribunal in these assessment years have been reproduced at pages 6-13 of the order passed by Ld. CIT (A).

“5. We find that this issue had come up for consideration before the Tribunal in all the earlier assessment years right from Assessment Year 2006-07 to Assessment Year 2009-10, wherein this issue has been decided in favour of the assessee after detailed discussion. The relevant observation and findings of the Tribunal are reproduced here under.

ITA 6646/Del/15 Assessment Year 2012-13 Auto Ignition Ltd. “14. We have heard both the parties and perused the records. We find that the assessment order is purely based on the survey report dated 17.02.2010 & 15.03.2010 which are report prepared after the survey conducted at plot nos. 17 & 18, Sect. 6, HE, Pantnagar, Rudrapur district on 16.02.2010 and at plot no. 1, 19/6, Mathura Road, Faridabad on 15/16.02.2010 respectivly. Though questionnaire was issued by the Assessing Officer dated 22.11.2010 to the assessee, we find that the A.O. has not taken into consideration the reply and supporting documents filed by the assessee dated 30.11.2010 which has been reproduced above. The Assessing Officer has based his finding only on the basis of survey report and has not made any attempt to look into the documents filed before him by the assessee company to substantiate its claim that it’s Rudrapur, Pantnagar unit is eligible for deduction under section 80-IC of the Act. The AO has not controverted the document of Ministry of Commerce & Industry, Secretariat for Industrial Assistant (S/A), dated 25.04.2005 (page 80 of PB) which has acknowledged the memorandum submitted before it for manufacture of the following are reproduced as under:

Item code Proposed Item: STARTER MOTOR of Manufacture 3607 falling under NIC- broad description MANUFACTURE OF ELECTRICAL STARTING AND IGNITION EQUIPMENT FOR INTERNAL COMBUSTION ENGINES AND ELECTRICAL LIGHTNING/SIGNALLING EQUIPTION FOR MOTOR VEHICLES Proposed Capacity: 75000.00 NOS. Proposed Item: ALTERNATORS of Manufacture 3607 falling under - NIC - broad description MANUFACTURE OF ELECTRICAL STARTING AND IGNITION EQUIPMENT FOR INTERNAL COMBUSTION ENGINES AND ELECTRICAL LIGHTINING/SIGNALLING EQUIPTION FOR MOTOR VEHICLES. Proposes Capacity 75000.00 NOS.

ITA 6646/Del/15 Assessment Year 2012-13 Auto Ignition Ltd. iii. Attendance Register, Salary Sheet, Contract bills (page 100-143 of P.B. V-II). iv. Process Flow chart & Bill of material (page 144-150 of PB, Vol-II) v. Connection load of all Motor (page 151-157 of P.B. Vol.II) vi. ISO 9001:2008 certificate (page 158 of P.B. Vol.II) vii. Mahindra OEM Auto (Page 158-160 of P.B. Vo.II) viii. Blow up of Starter Motor (pages 79-80 of PB, Vol-I)

DETAILS OF PRODUCT MAJUFACTURED AT RUDRAPUR AND CUSTOMERS S. No. PRODUCT CODE PRODUCT CUSTOMER’S NAME DESCRIPTION ALT4004-A ALTERNATOR 1 TRACTORS & FARM EQUIPMENTS LTD.

ITA 6646/Del/15 Assessment Year 2012-13 Auto Ignition Ltd.

INDOFARM TRACTORS LTD., PREET 12. STM1108-W STARTER MOTOR TRACTORS, STANDARD COMBINES

15. STM1122-V MAHINDRA & MAHINDRA LIMITED NAGPUR MAHINDRA GUJARAT TRACTORS LTD. STARTER MOTOR STM1131-W STARTER MOTOR 16. TAFE MOTERS & TRACTORS LTD. BHOPAL

Expenditure Amount Remarks Wages 10,519,996 (Out of total personal expenses)

Job work charges 6,499,377 Freight and delivery inward expenses 6,176,670 (shown under raw material consumption in balance sheet)

Stores and spares consumed 54.096 Rent Paid (lease rent) 24,000 Electricity charges 3,436,555 Fuel (diesel) expenses 2,338,041 Repair & Maintenance-Plant and 2,564,981 Machinery Security Expenses 937,235 Depreciation 692,078 Total manufacturing exps. 33,243,028 ITA 6646/Del/15 Assessment Year 2012-13 Auto Ignition Ltd.

(i) Meaning of manufacture Manufacture 1989 Supreme Ujagar Prints Vs. Union of India Court The prevalent and generally accepted test to ascertain that there is manufacture is whether the change or the series of changes brought about by the processes take the commodity to the point where commercially it can no longer be regarded as the original commodity but is, instead, recognised as a distinct and new article that has emerged as a result of the processes. The principles are clear. But difficulties arise in their application in individual cases. There might be border line cases where either conclusion with equal justification may be reached. Insistence on any sharp or intrinsic distinction between processing and manufacture results in an oversimplification of both and tends to blur their interdependence.... [179 ITR 317] Manufacture 1996 Kerala CIT Vs. Oceanic Products Exporting Co. High Court The prevalent and general accepted test to ascertain whether there is manufacture is to find whether the change or the series of changes brought about by the application of processes take the commodity to the point where, commercially, it can no longer be regarded as the original commodity but is instead, recognized as a distinct and new article that has emerged as a result of the processes. The principles are clear. But difficulties arise in their application in individual cases. There might be borderline cases where either conclusion with equal justification may be reached.

ITA 6646/Del/15 Assessment Year 2012-13 Auto Ignition Ltd.

Manufacture 1996 Kerala CIT Vs. Oceanic Products Exporting Co. High Court The word used in the section is manufacture. Commonly, manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, takes the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place. [131 CTR 305, 219 ITR 293, 85 TAXMAN 554J ] Manufacture 1997 AAR Arthur E. Newell Vs. CIT The expression manufacture involves the concept of changes effected to a basic raw material resulting in the emergence of, or transformation into, a new commercial commodity. Whether an article is converted into a different article depends on several criteria and one of the essential tests is whether in a commercial sense, the original article has ceased to exist and and a new article has taken its place. It is, however, not necessary that the original article or material should have lost its identity completely all that important whether, what has emerged as a result of the operations is a different commercial commodity having its own name, identity, character or end use. This determination is essentially one of fact and has to be arrived at on a consideration of all relevant factors such as the quality and nature of the original article, the extent and magnitude of the operations carried out on, or in relation to, it and the commercial identity, character and use of the article produced. [137 QTR 4F, 223 ITR 776,90 TAXMAN 26]

1 CIT Vs. Darshak Ltd. Manufacture 2001 Kerala High I Court i The word manufacture is to be understood in a wide sense. Manufacture would imply a change and a transformation. A new and a different article must emerge having a distinct and different character and use.

(ii) Meaning of Produce Page 8 of 13

ITA 6646/Del/15 Assessment Year 2012-13 Auto Ignition Ltd.

Produce 1988 AP-High CIT Vs. Sri Venkateswara Hatcheries (P.) Ltd. Court The word produce as used in ordinary parlance and its dictionary meaning shows that in case of the word, no distinction is made between animate and inanimate objects. Even if a living object is brought forth by human effort, it can be said to have been produced. [71 CTR 80, 174 ITR 231, 39 TAXMAN 279)

Produce 2002 Kerala CIT Vs. Vijaya Retreaders High Court The word produce means bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all by- products, intermediate products and residual products which emerge in the course of manufacture of goods. The next word to be considered is articles. The word is not defined in the Act or the Rules. It must, therefore, be understood in its normal connotation-the sense in which it is understood in the commercial world. It is equally well to keep in mind the context since a word takes its colour from the context. The word articles is preceded by the words manufactures or produces. [170 CTR 307, 253 ITR 53,119 TAXMAN 39.

(iii) Meaning of Thing Thing 1997 Raj-High CIT Vs. Trinity Hospital Court The dictionary meaning of the word thing is a product of work or activity; useful or appropriate. [131 CTR 328, 225 ITR 178, 87 TAXMAN 127] (iv) Meaning of Articles Articles 1974 Bom-HC CIT Vs. Hindustan Antibiotics Ltd. The word articles used in the expression has begun or begins to manufacture or produce articles in section 15C(2)(ii) must be interpreted regard being had to the object for which the section was enacted. The provision was enacted with the a view to encouraging the establishment of new industrial undertakings and the object by granting exemption from tax Page 9 of 13 ITA 6646/Del/15 Assessment Year 2012-13 Auto Ignition Ltd. on profits derived from such undertakings during the first five year years. The object of the section pre-supposes that profits are capable of being earned. Hence, until an assessee reaches a stage where it is in a position to decide that a final product which can be ultimately sold in the market can be manufactured it cannot be said to have started manufacture of the articles. If it becomes necessary for an assessee to produce a trial product at an earlier stage to verify' whether it can be used ultimately in the manufacture of the final article, the commencement of operation for the manufacture of the trial product would not constitute commencement of manufacture of articles for the purposes of section 15C. [93 ITR 548] 19. The Id CIT(A) has observed that in the instant case various parts are assembled by the assessee using its machinery results in achieving of a final product. The parts or components utilized by the assessee in its assembling process undergo a transformation and result into a product namely motorcycle wheel, which is distinct and separate commodity in character, name and use than each of the parts or components. Therefore, on the basis of the principles referred to above case laws, in the instant case the Id CIT(A) held that it is safe to deduce that the process of assembling carried out by the assessee is to be understood as amounting to 'manufacture1 or production of an article. Therefore, the profit derived from each activity is eligible for the claim of benefit u/s 80- IA of the Act. I The word manufacture has also now been defined in Sec 2(29)BA by Finance act 2009 w.e.f. 1.4.09 as under; "manufacture", with its grammatical variations, means a change in a non- living physical object or article or thing,— (a) Resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) Bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure.

6. In view of the aforesaid findings of the Tribunal which is based on appreciation of same material and facts of various judicial precedence. Therefore, we respectfully following the same and as there is neither any change in the material facts nor any judicial precedence of superior court has been brought before us so as to contrary view. Accordingly, the Learned CIT(Appeals) allowing the claim u/s 80IC is allowed.”

by the revenue stand dismissed.

7. In the result appeal filed by the revenue stands dismissed. Order pronounced in the open court on 04th December, 2017.