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Income Tax Appellate Tribunal, KOLKATA BENCH “A” KOLKATA
Before: Shri N.V.Vasusdevan & Shri Waseem Ahmed
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by Revenue and Cross Objection (CO) by assessee are arising out of order of Commissioner of Income Tax (Appeals)-I, Kolkata in appeal No.1083/CIT(A)-I/C-2/11-12 dated 19.01.2013. Assessment was framed by DCIT, Circle-2, Kolkata u/s 143(3) of the Income Tax Act, 1961 CO.48/Kol/2013 A.Y. 2009-10 DCIT, Cir-2, Kol. v. M/s Jeevan diesels & Electricals Page 2 (hereinafter referred to as ‘the Act’) vide his order dated 24.12.2011 for assessment year 2009-10. First we take up Revenue’s appeal. 2. Revenue has raised following grounds:- “
1. Whether on the facts and the circumstances of the case the Ld. CIT(A)-I, Kolkata has erred in deleting the disallowance u/s. 80. IB to the extent of Rs.11,02,777/- although the assessee had no infrastructures to support it’s manufacturing activity in respect of it’s unit at Dadar, Silvassa?
2. Whether on the facts and the circumstances of the case the Ld. CIT(A)-I, Kolkata has erred in deleting the disallowance u/s. 10B to the extent of Rs.61,23,963/- although the assessee had no infrastructures to support it’s manufacturing activity in respect of it’s two units at Pondicherry, Special Economic Zone?”
3. First issue raised in ground No.1 is that Ld. CIT(A) erred in deleting the disallowance made u/s. 80IB of the Act.
3.1 Briefly stated facts are that assessee is a Limited Company engaged in the business of manufacturing of diesel generating sets and accessories. It has manufacturing units at Dadra, Silvassa & Pondicherry at Special Economic Zone (SEZ for short). The assessee has claimed a deduction of Rs.11,02,777/- u/s. 80IB of the Act. During the course of assessment proceedings Assessing Officer objected on the claim made under section 80IB of the Act by the assessee on the ground that there was no manufacturing activities carried out by assessee and which is perquisite for claiming the deduction u/s 80IB of the Act. Accordingly, AO sought clarification from assessee regarding the claim made by the assessee by issuing a notice. In compliance thereto assessee submitted that there is assembling plant where components like engine, alternator, base place, fuel tank, control panel, are assembled and as a result a new product emerges which is called as a Diesel Generating set (for short DG set). The New Product DG set has different name and function. Besides the above, assessee also submitted the Central Excise registration in support of its claim for carrying out its manufacturing CO.48/Kol/2013 A.Y. 2009-10 DCIT, Cir-2, Kol. v. M/s Jeevan diesels & Electricals Page 3 activity in the factory located at SEZ. However, AO disregarded the said claim of assessee on the ground that the component used in making the generator sets can be sold in the open market. Therefore, the activity of assembling the different components for making the generator sets does not amount to manufacture. Besides, the above, AO also observed that the excise registration is not a deciding document to ensure whether there is a manufacturing activity or not.
Aggrieved, assessee preferred an appeal before Ld. CIT(A) and submitted that the activity of making generator sets has been accepted as manufacturing unit at SEZ in earlier year and subsequent year also relevant to the year under consideration. Ld. CIT(A) after considering the submission made by assessee deleted the disallowance made by AO by observing as under:- “Similarly, assessee claimed deduction u/s. 80IB in respect of unit at Silvassa for Rs.11,02,777/- by filing form no. 10CCB. The A/R relied upon the case of Delhi High Court reported in 341 ITR (518) to support his contention that the DG set as the final product was distinct in name, character and function from the component used and accordingly it would amount to manufacturing activity. Keeping in view the facts and circumstances and the paste history of the case the ground No. 2, 3,4 and 5 are allowed.”
Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us.
Shri S.M. Surana, Ld. Authorized Representative appearing on behalf of assessee and Shri Sujit Das, Ld. Departmental Representative appearing on behalf of Revenue.
We have heard both the rival parties and perused the materials available on record. Before us Ld. DR relied on the order of AO whereas Ld. AR relied on the order of Ld. CIT(A). From the aforesaid discussion, we find that AO has disallowed the claim of assessee u/s. 80IB of the Act on the ground that assessee is not engaged in manufacturing activity as required for CO.48/Kol/2013 A.Y. 2009-10 DCIT, Cir-2, Kol. v. M/s Jeevan diesels & Electricals Page 4 claiming the deduction u/s 80IB of the Act. However we understand that the process of assembling of different components like coupling and aligning with the engine and alternator requires great skill and technical expertise. In the process of assembling various components which are having different name and function are brought together and as a result of assembling it becomes new product which has a distinct name and function. However this entire process of assembling requires lot of technical and engineering expertise. Therefore, we hold that this activity of assembling amounts to a manufacturing activity. We also find that the issue is covered by the decision of Hon'ble Delhi High Court in the case of CIT v. Jackson Engineers Ltd. in of 2008 dated 23.12.2009, where the Hon'ble Delhi High Court exactly on similar activity has regarded as manufacturing activity and in the present case also assessee was manufacturing the diesel generating sets where assessee- company assembles diesel generating sets. Several components go in relation to the making of diesel generating sets and some of the major components are engine, alternator, engine instrument panel, base place, fuel tank, control panel, battery, measuring instruments and gauges, radiator, silencer and other components. The relevant extract of the Hon'ble High Court’s is reproduced below:- “4. Insofar as operation/activity undertaken by the assessee is concerned, which is described in detail above, it is a finding of fact which has arrived at and it cannot be disputed. Such an activity would amount to manufacture. When we apply the principles laid down in various judgments explaining what amounts to ‘manufacture activity’ on the aforesaid fact, irresistibly conclusion would be that it would be treated as ‘manufacture activity’. In the case of assessee itself, this issue stands decided in its favour by the judgment of this Court deciding on 11.08.2009 in ITA No. 149 of 2001 and other connected cases. Relevant portion of that judgment reads as under:
‘6. Submissions before us remain the same. We are of the opinion that the case is directly covered by the judgment of the Apex Court in Aspinwall & Co. Ltd. v. Commissioner of Income Tax, Eranakulam, (2001) 7 SCC 525. In that case the assessee was engaged, inter alia, in curing of coffee for which it had installed coffee-curing plants. It had claimed investment allowance under Section 32-A of the Income Tax Act which CO.48/Kol/2013 A.Y. 2009-10 DCIT, Cir-2, Kol. v. M/s Jeevan diesels & Electricals Page 5 depended upon the issue as to whether the process of curing the coffee would amount to manufacturing or production activity. Answering the question in the affirmative, in favour of the assessee, the Court explained the expression “manufacture” as under:-
’13. The word “manufacture” has not been defined in the Act. In the absence of a definition of the words “manufacture” it has to be given a meaning as is understood in common parlance. It is to be understood as meaning the production of articles for use from raw or prepared materials by giving such materials new forms, qualities or combinations whether by hand labour or machines. If the change made in the article results in a new and different article then it would amount to a manufacturing activity.
This Court while determining as to what would amount to a manufacturing activity, held in CST v. Pio Food Packets, 1980 Supp. SCC 174 that the test for determination whether manufacture can be said to have taken place is whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity, but is recognized in the trade as a new and distinct commodity. It was observed: (SCC p. 176 para 5).
“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 different 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 take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article that a manufacture can be said to take place.”
Adverting to facts of the present case, the assessee after plucking or receiving the raw coffee berries makes it undergo nine processes to give it the shape of coffee beans. The net product is absolutely different and separate from the input. The change made in the article in a new and CO.48/Kol/2013 A.Y. 2009-10 DCIT, Cir-2, Kol. v. M/s Jeevan diesels & Electricals Page 6 different article which is recognized in the trade as a new and distinct commodity. The coffee beans have an independent identity distinct from raw material from which it was manufactured. A distinct change comes about in the finished product.
When we apply the aforesaid principle on the facts of the present case, the irrefutable conclusion would be that the respondent company is indulging in manufacturing activity. We, thus, answer the question formulated in favour of the assessee and uphold the view of the Tribunal on this aspect.”
From the above decision of Hon'ble Delhi High Court, in our opinion, that in the present case, assembling of different products which are giving rise to a new product and which has become a new name in the market and function will be regarded as “manufacturing activity”. Relying on the above case (supra) and totality of the facts of the case, we do not find any reason to interfere in the order passed by Ld. CIT(A). Hence this ground of Revenue’s appeal is dismissed.
Coming to next ground raised by Revenue is that Ld. CIT(A) erred in deleting the disallowance of ₹61,23,963/- u/s. 10B of the Act.
The assessee claimed the deduction u/s. 10B of the Act but same was disallowed by Assessing Officer on the same reasoning as elaborated in ground No.1 of Revenue’s appeal i.e., no manufacturing activity was carried out by assessee, however, Ld. CIT(A) allowed this ground of assessee.
7. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal.
We have heard rival contentions of both the parties and perused the materials available on record and taking a consistent view of our decision as depicted in ground No.1 of Revenue’s appeal in para-5 of this order, we dismiss the ground raised by Revenue.
CO.48/Kol/2013 A.Y. 2009-10 DCIT, Cir-2, Kol. v. M/s Jeevan diesels & Electricals Page 7 Coming to assessee’s C.O. No. 48/Kol/2013 9. The grounds raised by assessee in its CO are supportive to the order of Ld. CIT(A). Since we have already dismissed the Revenue’s appeal, so, assessee’s CO has become infructus and hence we dismiss assessee’s CO as infructus.