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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI G.S. PANNU & SHRI SANJAY GARG
Per Sanjay Garg, Judicial Member:
The short question involved in the present bunch of appeals for different assessment years is as to whether the activity carried out by the assessee of production of Manganese Dioxide falls in the definition of manufacturing activity or not; secondly, whether the assessee had started manufacturing activity/production on or before 31.03.2004 to claim benefit under section 80IB of the Income Tax Act.
The appeal for A.Y. 2005-06 has been preferred by the assessee against the order passed by the Commissioner of Income Tax (hereinafter referred to as the CIT) passed under section 263 of the Act vide which the Ld. CIT has set aside the assessment order dated 17.03.2010 of the Assessing Officer (hereinafter referred to as the AO) observing that the AO has not properly examined the above issues. He observed that neither the production started before 31.03.2004 nor the activities carried out by the assessee can be said to be manufacturing activity for the purpose of claiming benefit under section 80IB of the Act.
The appeal for A.Y. 2006-07 has also been preferred by the assessee against the order of the Ld. CIT(Appeals) dated 18.03.2010. The Ld. CIT(Appeals) has followed the order of his predecessor for A.Y. 2005-06 while dismissing the appeal of the assessee. The Department has also filed a cross objection in relation to the order of the Ld. CIT(Appeals) for A.Y. 2006- 07. However, a perusal of the grounds of cross objection reveals that the Department has not raised any ground challenging any part of the order of the Ld. CIT(Appeals). The cross objection merely states that the order of the AO and Ld. CIT(Appeals) be confirmed.
For A.Y. 2007-08 the claim of the assessee has been allowed by the Ld. CIT(Appeals) in view of the order of the AO for A.Y. 2005-06 dated 17.03.10 wherein the AO, after examining the evidences furnished by the assessee, has accepted the contention of the assessee that the manufacturing activity has been carried out prior to 01.04.2004.
The brief facts relevant to the issue are that the assessee for the first time made the claim under section 80IB of the Act for A.Y. 2005-06. Though, the case of the assessee has been that the manufacturing activity was carried out during the financial year 2003-04 relevant to A.Y. 2004-05 but no claim under section 80IB was made for A.Y. 2004-05. The claim under section 80IB for the first time has been made for the year 2005-06. The AO rejected the claim of the assessee observing that as per the certificate (Form 10CCB) which is certified by the Chartered Accountant of the assessee, the assessee has commenced operation/activity on 01.04.2004 whereas section 80IB required the assessee to start the manufacturing activity during the period beginning of the 1st day of April 1993 and ending of 31st day of March, 2004. He, therefore, observed that since the manufacturing activity had not been carried out between the aforesaid dates, but on the next day after the end of the said period, hence, the assessee failed to fulfill the primary condition for claiming deduction under section 80IB of the Act.
The assessee unsuccessfully contested the appeal against the above order before the Ld. CIT(A). The matter ultimately reached up to the level of the Tribunal. Before the Tribunal, the assessee pleaded that he could not attend the hearing before the lower authorities because his wife was seriously ill. The assessee also filed relevant copies of medical reports. The assessee further claimed that the manufacturing activity was carried out prior to 01.04.2004 and produced certain additional evidences in this respect. The Tribunal after considering the submissions of both the parties, vide order dated 21.10.09,
4 ITA No.4973/M/2010, CO No.76/M/2011 & ITA No.440/M/2010 Mr. Laxmikant Sharma observed that the evidences filed by the assessee go to the root of the matter. The Tribunal, therefore, admitted the additional evidences and restored the matter back to the file of the AO to decide the same afresh in the light of the observations made by the Tribunal. In the set aside proceedings, the assessee pleaded that the date mentioned by the Chartered Accountant regarding the commencement of production was due to some inadvertent mistake, however, the manufacturing activity has commenced prior to 01.04.2004. The assessee filed declaration of the auditor stating that the date of commencement was prior to 01.04.04. The assessee also produced bills for purchase of machinery, copies of purchase of raw material and sale bills of the product manufactured, copy of sales tax returns etc. The AO after verification of the details and considering the facts of the case admitted the claim of the assessee. However, the Ld. CIT set aside the order of the AO exercising his revisional jurisdiction under section 263 of the Act observing that the AO had not properly examined the case. He observed that the activity carried out by the assessee was not a manufacturing activity and further that as per the certificate of the Chartered Accountant in form No.10CCB, the activity of the assessee, if any, stared on 01.04.04 and not prior to 01.04.04. He further observed that even there was no electricity consumption during the period and that the assessee has failed to prove that the machinery was put to use and manufacturing activity had started prior to 01.04.04. Being aggrieved by the above order of the Ld. CIT, the assessee has come in appeal before us for A.Y. 2005-06.
The same issue is involved in relation to appeals for A.Y. 2006-07 preferred by the assessee and for A.Y. 2007-08 preferred by the Revenue.
We have heard the rival contentions and have also gone through the records. So far as the issue as to whether the activity carried out by the assessee is manufacturing activity or not, the Ld. A.R. of the assessee before us
5 ITA No.4973/M/2010, CO No.76/M/2011 & ITA No.440/M/2010 Mr. Laxmikant Sharma has submitted that the assessee buys Manganese Ores. They are first washed, silicon and other metals are removed and then it is converted into powder and sold to chemical industries. The Ld. A.R. has further invited our attention to a notification No.STA.-11.02/CR-99/Taxation-1 dated 9th May, 2002 issued by Government of Maharashtra in relation to “Industrial inputs and packing materials” wherein the government has specified certain items as industrial inputs and packing materials. He has invited our attention to item No.8 of the schedule wherein the Manganese Ores and concentrates has been included in the list. He has further invited our attention to item No.49 wherein “Mangansese Oxides” have been mentioned as a different item at Sl. No.49. The Ld. A.R. has stressed that the Manganese Ores are different products than Mangansese Oxides that is why the same have been differently named and entered at different serial numbers. The case of the assessee is that it manufacturers Mangansese Oxides from raw material which is called Manganese Ores. The Ld. A.R. has further invited our attention to the decision of the Hon’ble Supreme Court in the case of “Lucky Minmat Pvt. Ltd. vs. Commissioner of Income Tax” 245 ITR 830 wherein the Hon’ble Supreme Court has held that though mining of limestone and marble blocks and getting and sizing them cannot be said to be a manufacture or production of an article, however, the conversion into lime and limestone or concrete by stone crushers could legitimately considered to be a manufacturing process.
We have heard the rival contentions and have also gone through the records. The issue for consideration before us is as to whether from the activity carried out by the assessee a new product comes into existence and whether the nature and characteristics of the old product gets changed giving rise to a new product which is different in nature and characteristic and usage. From the activity carried out by the assessee, it reveals that it coverts the raw Manganese Ores into powder by removing the silicon there from and hence an entirely new product comes into existence. Thus in the light of the decision of the Hon’ble
6 ITA No.4973/M/2010, CO No.76/M/2011 & ITA No.440/M/2010 Mr. Laxmikant Sharma Supreme Court in the case of “Lucky Minmat Pvt. Ltd.” (supra) and also in the light of the Notification dated 09.05.12, the activity carried out by the assessee can be safely said to be manufacturing activity.
So far as the second issue whether the manufacturing activity commenced prior to 01.04.04 or not, the assessee has explained that the date mentioned as 01.04.2004 in the certificate given by the Chartered Accountant was due to an inadvertent mistake, rather the activity had started prior to 01.04.2004. The assessee, in this respect, has produced the relevant evidences before the AO as discussed above which have been duly examined by the AO as per the directions of the Tribunal. The Ld. A.R. in this respect has invited our attention to the remand report of the AO dated 23.09.10 relevant to A.Y. 2006-07, wherein, before the AO the assessee submitted the signed audit report in form No.10CCB which showed the date of commencement as 20th March 2004. Assessee also produced bills for the purchase of machinery, copy of purchase of raw material and sale bills of the product manufactured showing that the purchases and sales were done before 31.03.2004. The assessee also produced books of accounts, wages and salary register in original which were verified. After examining the said evidences the AO did not find any fault with the same. The assessee has also successfully explained the non consumption of electricity by showing the purchase of diesel generator set and has explained that since there was some delay in the installation of electric connection, hence, diesel generator set was used for generation of electricity for the purpose of running of machines.
We further find that the department has not come with a specific stand that on which date the assessee has actually commenced the production. The department has only found fault with the date mentioned in the certificate (form 10CCB) regarding which the assessee has successfully explained that it was due to an inadvertent mistake on the part of Chartered Accountant. The 7 ITA No.4973/M/2010, CO No.76/M/2011 & ITA No.440/M/2010 Mr. Laxmikant Sharma correct and rectified certificate has been produced. Even it is not the case of the Revenue that the activity has commenced months later or in any subsequent year. There is a difference of only one day. The assessee from the evidences on the file has showed that since the date of limitation for claiming deduction was approaching, the assessee somehow, has been able to commence its manufacturing activity prior to 01.04.04 even though under some odd circumstances. The assessee has produced the relevant evidences like purchase of raw material, sales, use of electricity through generator set etc. Under these circumstances it can be safely said that the assessee has proved that the manufacturing activity commenced prior to 01.04.04.
In view of our above observations, the appeals of the assessee for A.Y. 2005-06 and 2006-07 are hereby allowed whereas the cross objection of the Revenue for A.Y. 2006-07 and appeal of the Revenue for A.Y. 2007-08 are hereby dismissed.
Order pronounced in the open court on 18.11.2016.