Income Tax Appellate Tribunal - Hyderabad
Aquamall Water Solutions Ltd, ... vs Assessee on 25 June, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'B', HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
and
SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA No. 107/Hyd/2011
Assessment year 2006-07
M/s. Aquamall Water vs. The CIT-I
Solutions Pvt. Ltd., Hyderabad
Hyderabad
PAN: AADCA6241M
Appellant Respondent
ITA No. 95/Hyd/2013 - A.Y. 2005-06
ITA No. 1723/Hyd/2012 - A.Y. 2006-07
ITA No. 287/Hyd/2012 - A.Y. 2008-09
The DCIT vs. M/s. Aquamall Water
Circle-1(1) Solutions Pvt. Ltd.,
Hyderabad Hyderabad
PAN: AADCA6241M
Appellant Respondent
Assessee by: Sri A.V. Raghuram
Revenue by: Sri D. Sudhakar Rao
Date of hearing: 25.06.2013
Date of pronouncement: 15.07.2013
O R D E R
PER CHANDRA POOJARI, AM:
ITA No. 107/Hyd/2011 by assessee for A.Y. 2006-07
is directed against the order of the CIT-I, Hyderabad dated 30.11.2010 passed u/s. 263 of Income-tax Act, 1961. The other appeals, ITA No. 95/Hyd/2013, 1723 and 287/Hyd/ 2012 are relating to A.Ys. 2005-06, 2006- 2 ITA No. 107/Hyd/2011 & Ors. M/s. Aquamall Water Solutions Pvt. Ltd. ================================= 07 and 2008-09, respectively, are by the Revenue regarding deletion of addition made u/s. 80IC of the Act.
2. First we will take up assessee's appeal. The assessee's grievance in this appeal is that the CIT erred in invoking the provisions of section 263 of the Act as there is no case to hold that the Assessing Officer's order is erroneous or prejudicial to the interests of revenue.
3. The learned AR submitted that the original assessment was completed u/s. 143(3) of the Act vide assessment order passes u/s. 143(3) of the Act on 26.12.2008. He submitted that before passing the assessment order, the Assessing Officer called for various details vide his letter dated 15.9.2006. In response to this letter the assessee furnished various details with reference to the same issue raised by the CIT in his order u/s. 263 of the Act. He submitted that the assessee also filed full details before the Assessing Officer and after considering the entire issue the Assessing Officer passed the assessment order u/s. 143(3) of the Act. The order may be short and cryptic, it does not mean that the order of the Assessing Officer is erroneous and prejudicial to the interests of revenue. According to the CIT(A) the Assessing Officer should have made further enquiry rather than accepting the explanation of the assessee. Therefore, it cannot be said that it is a case of "lack of enquiry". The CIT though not agreed with the enquiry made by the Assessing Officer, he has not suggested what enquiry the Assessing Officer has to make. He submitted that the assessee is engaged 3 ITA No. 107/Hyd/2011 & Ors. M/s. Aquamall Water Solutions Pvt. Ltd. ================================= in manufacturing of articles or things other than those specified in Schedule XIII and company is entitled to deduction u/s. 80IC which has been rightly allowed by the Assessing Officer.
4. On the other hand, the learned DR submitted that there is no enquiry by the Assessing Officer in proper perspective and allowed the claim of the assessee u/s 80IC and the cryptic order of the Assessing Officer itself shows that the order is erroneous and prejudicial to the interests of revenue. The claim of the assessee u/s 80IC cannot be allowed without proper enquiry and as such the CIT directed the Assessing Officer to cause necessary enquiry. He relied on the order of the CIT.
5. We have heard both the parties and perused the material on record. We have carefully considered the rival submissions in the light of material placed before us and also gone through all the judgements cited by the parties before us. First we take up the legal issue with reference to the jurisdiction of invoking the provisions of section 263 of the Act by the learned CIT. The scheme of the IT Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to erroneous order of the assessing officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interest of the revenue. As held in the case of Malabar Industries Co. Ltd., Vs. CIT ( 243 ITR 83 (SC), the Commissioner can exercise revision jurisdictional u/s 263 if he is satisfied that the order of the assessing officer sought to 4 ITA No. 107/Hyd/2011 & Ors. M/s. Aquamall Water Solutions Pvt. Ltd. ================================= be revised is (i)erroneous; and also (ii) prejudicial to the interests of the revenue. The word 'erroneous' has not been defined in the Income Tax Act. It has been however defined at page 562 in Black's Law Dictionary (seventh Edition) thus;
'erroneous, adj. Involving error, deviating from the law'.
The word 'error' has been defined at the same page in the same dictionary thus:
'error No. 1 : A psychological state that does not conform to Objective reality; a brief that what is false is true or that what is true is false'.
At page 649/650 in P. Ramanatha Aiyer's Law Lexicon Reprint 2002, the word 'error' has been defined to mean-
'Error: A mistaken judgement or deviation from the truth in matters of fact, and from the law in matters of judgement 'error' is a fault in judgement, or in the process or proceeding to judgement or in the execution upon the same, in a Court of Record; which in the Civil Law is called a Nullityie" (termes de la ley).
Something incorrectly done through
ignorance or inadvertence S.99 CPC and
S.215 Cr.PC.
'Error, Fault, Error respects the act; fault respect the agent, an error may lay in the judgement, or in the conduct, but a fault lies in the will or intention."5 ITA No. 107/Hyd/2011 & Ors.
M/s. Aquamall Water Solutions Pvt. Ltd. =================================
6. At page 650 of the aforesaid Law Lexicon, the scope of Error, Mistake, Blunder, and Hallucination has been explained thus:
"An error is any deviation from the standard or course of right, truth, justice or accuracy, which is not intentional. A mistake is an error committed under a misapprehension of misconception of the nature of a case. An error may be from the absence of knowledge, a mistake is from insufficient or false observation. Blunder is a practical error of a peculiarly gross or awkward kind, committed through glaring ignorance, heedlessness, or awkwardness. An error may be overlooked or atoned for, a mistake may be rectified, but the shame or ridicule which is occasioned by a blunder, who can counteract. Strictly speaking, Hallucination is an illusion of the perception, a phantasm of the imagination. The one comes of disordered vision, the other of discarded imagination. It is extended in medical science to matters of sensation, whether there is no corresponding cause to produce it. In its ordinary use it denotes an unaccountable error in judgement or fact, especially in one remarkable otherwise for accurate information and right decision. It is exceptional error or mistake in those otherwise not likely to be deceived."
7. In order to ascertain whether an order sought to be revised under Section 263 is erroneous, it should be seen whether it suffers from any of the aforesaid forms of error. In our view, an order sought to be revised under Section 263 would be erroneous and fall in the aforesaid category of "errors" if it is, inter alia, based on an incorrect assumption of facts or an incorrect application of law or non-application of mind to something which was obvious and required application of mind or based on no 6 ITA No. 107/Hyd/2011 & Ors. M/s. Aquamall Water Solutions Pvt. Ltd. ================================= or insufficient materials so as to affect the merits of the case and thereby cause prejudice to the interest of the revenue.
8. Section 263 of the Income-tax Act seeks to remove the prejudice caused to the revenue by the erroneous order passed by the Assessing Officer. It empowers the Commissioner to initiate suo moto proceedings either where the Assessing Officer takes a wrong decision without considering the materials available on record or he takes a decision without making an enquiry into the matters, where such inquiry was prima facie warranted. The Commissioner will be well within his powers to regard an order as erroneous on the ground that in the circumstances of the case, the Assessing Officer should have made further inquiries before accepting the claim made by the assessee in his return. The reason is obvious. Unlike the Civil Court which is neutral in giving a decision on the basis of evidence produced before it, the role of an Assessing Officer under the Income-tax Act is not only that of an adjudicator but also of an investigator. He cannot remain passive in the face of a return, which is apparently in order but calls for further enquiry. He must discharge both the roles effectively. In other words, he must carry out investigation where the facts of the case so require and also decide the matter judiciously on the basis of materials collected by him as also those produced by the assessee before him. The scheme of assessment has undergone radical changes in recent years. It deserves to be noted that the present assessment was made under Section 143(3) of the 7 ITA No. 107/Hyd/2011 & Ors. M/s. Aquamall Water Solutions Pvt. Ltd. ================================= Income-tax Act. In other words, the Assessing Officer was statutorily required to make the assessment under Section 143(3) after scrutiny and not in a summary manner as contemplated by Sub-section (1) of Section
143. Bulk of the returns filed by the assessees across the country is accepted by the Department under Section 143(1) without any scrutiny. Only a few cases are picked up for scrutiny. The Assessing Officer is therefore, required to act fairly while accepting or rejecting the claim of the assessee in cases of scrutiny assessments. He should be fair not only to the assessee but also to the Public Exchequer. The Assessing Officer has got to protect, on one hand, the interest of the assessee in the sense that he is not subjected to any amount of tax in excess of what is legitimately due from him, and on the other hand, he has a duty to protect the interests of the revenue and to see that no one dodged the revenue and escaped without paying the legitimate tax. The Assessing Officer is not expected to put blinkers on his eyes and mechanically accept what the assessee claims before him. It is his duty to ascertain the truth of the facts stated and the genuineness of the claims made in the return when the circumstances of the case are such as to provoke inquiry. Arbitrariness in either accepting or rejecting the claim has no place. The order passed by the Assessing Officer becomes erroneous because an enquiry has not been made or genuineness of the claim has not been examined where the inquiries ought to have been made and the genuineness of the claim ought to have been examined and not because there is anything wrong 8 ITA No. 107/Hyd/2011 & Ors. M/s. Aquamall Water Solutions Pvt. Ltd. ================================= with his order if all the facts stated or claim made therein are assumed to be correct. The Commissioner may consider an order of the Assessing Officer to be erroneous not only when it contains some apparent error of reasoning or of law or of fact on the face of it but also when it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make enquiries or examine the genuineness of the claim which are called for in the circumstances of the case. In taking the aforesaid view, we are supported by the decisions of the Hon'ble Supreme Court in Rampyari Devi Saraogi v. CIT (67 ITR 84) (SC), Smt. Tara Devi Aggarwal v. CIT (88 ITR 323) (SC), and Malabar Industrial Co. Ltd's case ( 243 ITR 83) (SC).
9. In Malabar Industrial Co. Ltd. case the Hon'ble Court has held as under:
"There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall the orders passed without applying the principles of natural justice or without application of mind.
In our humble view, arbitrariness in decision-
making would always need correction regardless of whether it causes prejudice to an assessee or to the State Exchequer. The Legislature has taken ample care to provide for the mechanism to have such prejudice removed. While an assessee can have it 9 ITA No. 107/Hyd/2011 & Ors. M/s. Aquamall Water Solutions Pvt. Ltd. ================================= corrected through revisional jurisdiction of the Commissioner under Section 264 or through appeals and other means of judicial review, the prejudice caused to the State Exchequer can also be corrected by invoking revisional jurisdiction of the Commissioner under Section
263. Arbitrariness in decision-making causing prejudice to either party cannot therefore be allowed to stand and stare at the legal system. It is difficult to countenance such arbitrariness in the actions of the Assessing Officer. It is the duty of the Assessing Officer to adequately protect the interest of both the parties, namely, the assessee as well as the State. If he fails to discharge his duties fairly, his arbitrary actions culminating in erroneous orders can always be corrected either at the instance of the assessee, if the assessee is prejudiced or at the instance of the Commissioner, if the revenue is prejudiced. While making an assessment, the ITO has a varied role to play. He is the investigator, prosecutor as well as adjudicator. As an adjudicator he is an arbitrator between the revenue and the taxpayer and he has to be fair to both. His duty to act fairly requires that when he enquires into a substantial matter like the present one, he must record a finding on the relevant issue giving, howsoever briefly, his reasons therefor. In S.N. Mukherjee v. Union of India AIR 1990 SC 1984, it has been observed by the Hon'ble Supreme Court as follows:
"Reasons, when recorded by an administrative authority in an order passed by it while exercising quasi-judicial functions, would no doubt facilitate the exercise of its jurisdiction by the appellate or supervisory authority. But the other considerations, referred to above, which have also weighed with this Court in holding that an administrative authority must record reasons for its decision are of no less significance. These considerations show that the recording of reasons by an administrative 10 ITA No. 107/Hyd/2011 & Ors. M/s. Aquamall Water Solutions Pvt. Ltd. ================================= authority serves a salutary purpose, namely, it excludes chances or arbitrariness and ensures a degree of fairness in the process of decision- making. The said purpose would apply equally to all decisions and its application cannot be confined to decisions which are subject to appeal, revision or judicial review. In our opinion, therefore, the requirement that reasons be recorded should govern the decisions of an administrative authority exercising quasi-judicial functions irrespective of the fact may, however, be added that it is not required that the reasons should be as elaborate as in the decision of a court of law. The extent and nature of the reasons would depend on particular facts and circumstances. What is necessary is that the reasons are clear and explicit so as to indicate that the authority has given due consideration to the points in controversy. The need for recording of reasons is greater in a case where the order is passed at the original stage. The appellate or revisional authority, if it affirms such an order, need not give separate reasons if the appellate or revisional authority agrees with the reasons contained in the order under challenge."
10. Similar view was earlier taken by the Hon'ble Supreme Court in Siemens Engg. & Mfg. Co. Ltd. v. Union of India AIR 1976 SC 1785. It is settled law that while making assessment on assessee, the ITO acts in a quasi- judicial capacity. An assessment order is amenable to appeal by the assessee and to revision by the Commissioner under Sections 263 and 264. Therefore, a reasoned order on a substantial issue is legally necessary. The judgments on which reliance was placed by the learned Counsel for the assessee also points to the same direction. They have held that orders, which are subversive of the administration of revenue, must be 11 ITA No. 107/Hyd/2011 & Ors. M/s. Aquamall Water Solutions Pvt. Ltd. ================================= regarded as erroneous and prejudicial to the interests of the revenue. If the Assessing Officers are allowed to make assessments in an arbitrary manner, as has been done in the case before us, the administration of revenue is bound to suffer. If without discussing the nature of the transaction and materials on record, the Assessing Officer had made certain addition to the income of the assessee, the same would have been considered erroneous by any appellate authority as being violative of the principles of natural justice which require that the authority must indicate the reasons for an adverse order. We find no reason why the same view should not be taken when an order is against the interests of the revenue. As a matter of fact such orders are prejudicial to the interests of both the parties, because even the assessee is deprived of the benefit of a positive finding in his favour, though he may have sufficiently established his case.
11. In view of the foregoing, it can safely be said that an order passed by the Assessing Officer becomes erroneous and prejudicial to the interests of the Revenue under Section 263 in the following cases:
(i) The order sought to be revised contains error of reasoning or of law or of fact on the face of it.
(ii) The order sought to be revised proceeds on incorrect assumption of facts or incorrect application of law. In the same category fall orders passed without applying the principles of natural justice or without application of mind.12 ITA No. 107/Hyd/2011 & Ors.
M/s. Aquamall Water Solutions Pvt. Ltd. =================================
(iii) The order passed by the Assessing Officer is a stereotype order which simply accepts what the assessee has stated in his return or where he fails to make the requisite enquiries or examine the genuineness of the claim which is called for in the circumstances of the case.
12. In the light of the above discussion, now we will examine the facts of the present case. As seen from the order of the Assessing Officer it is very cryptic. There is no description what enquiry he has caused to come to the conclusion that the assessee is entitled for deduction u/s. 80IC of the Act. We cannot make any case regarding allowability of deduction u/s. 80IC of the Act from Assessing Officer's order. The assessee produced copy of letter dated November 6, 2006 addressed to the Assessing Officer and one more letter dated 15.12.2008. There is one more letter regarding claim of the assessee u/s. 80IC of the Act. It has to be noted that these letters do not bear any acknowledgement from the Assessing Officer or from the Inward section of the Department. Being so, we are not in a position express any opinion regarding the nature of enquiry made by the Assessing Officer. In these circumstances, we are of the opinion that the CIT is justified in exercising his powers u/s. 263 of the Act. Accordingly, the order of the CIT(A) passed u/s. 263 of the Act is confirmed.
13. Now we will take up Revenue appeals in ITA No. 93/Hyd/ 2013, 1723/Hyd/2012 and 287/Hyd/2012. In all these appeals, the common ground raised by the Revenue is with regard to allowability of deduction u/s.
13 ITA No. 107/Hyd/2011 & Ors.M/s. Aquamall Water Solutions Pvt. Ltd. ================================= 80IC of the Act in respect of manufacture of water purifiers.
14. For convenience we consider the facts as narrated in AY 2008-09. Briefly the facts of the case are that as seen from the assessment order, the company's products include water purifiers and related components. The company is having 4 units at different locations viz. Baddi (Himchal Pradesh), Bhimtal (Uttarakhand), Dehradun and Bommasandra (Bangalore). Besides, it is having a corporate office at New Delhi Though registered office is at Hyderabad, there are no activities at Hyderabad. While the profits derived from the units located at Baddi & Bhimtal is claimed as 100% exempted u/s 80IC, the unit located at Bommasandra does not enjoy any tax benefit. The unit located at Dehradun though stated to be eligible for deduction u/s 80IC, in the absence of profits, no deduction was claimed. For the taxable unit of Bommasandra, the assessee claimed a loss of Rs. 4 crores and in respect of units located at Baddi and Bhimtal, the exempted income was shown at Rs.13.71 crores and Rs.6.46 crores respectively. Since the tax payable under normal provisions was less, the tax was paid u/s 115JB of the Act.
15. The assessing officer noted that the appellant company purchased some raw material as well as many components (both local and imported) which we utilized for getting the final product and the company got some of the work done from outside parties, i.e. job works. If the value of the components and the job work charges 14 ITA No. 107/Hyd/2011 & Ors. M/s. Aquamall Water Solutions Pvt. Ltd. ================================= are excluded, the value addition done at the assessee own unit would be meager and therefore, it would be said that there was no manufacture of article or thing as contemplated under the provisions of section 80IC and what was being done by the assessee was assembling of various components 'purchase, testing and packing etc. The assessing officer referred the matter to the DDIT (lnv), Shimla and Nainital for the spot verification and noted that the report received from Nainital did not offer any specific comments on the issue, however, the DDIT, Shimla has submitted report, and extracts of whit are as under:
"In his statement Mr.M. Vinod Kumar (manufacturing), stated that this unit of company does the assembling work to prepare water filter cum purifiers. It purchases various components like,'chassis, body, top cover, back cover, pumps, PCB, wire harness, some hardware and plastic components from different vendors from all over India, assembles these components to get a finished product. He further stated that this unit also sell spare parts/components like pre-filter, post- filter, sediment filter, membrane filter etc. This unit has 26 on roll staff and 13 on roll operators/supervisors. Apart from this near about 120 workers are employed through labour contractors. He further stated that this unit is doing production since May 2005. He also stated that this unit is also getting the job work done from 3-4 local parties e.g. Global Teletronics, High Tech Components, Zenith Electrical etc. As regards the issue of the assembled products figuring in schedule XIII of the IT Act it is submitted that the same was confronted to Shri vikram Khanna, Manager (Accounts) in reply to which he has filed his submission dated 21-12-2010 which is enclosed .....
15 ITA No. 107/Hyd/2011 & Ors.M/s. Aquamall Water Solutions Pvt. Ltd. ================================= When confronted with the issue that the products being made in the unit were basically being assembled and not manufactured, both Sh. Vinod Kumar and Sh. Vikram Khanna had nothing concrete to submit as can be seen from their statements.
On the basis of physical inspection done, the type of plant and machinery installed and the nature of work being done as seen there, the undersigned is of considered opinion that the process or method of making the finished products at the aforementioned unit may be construed as assembling work of different components [Emphasis supplied]
16. After taking the assessee's comments on the report of the DDIT (Inv), Shimla, the assessing officer has disallowed the claim of deduction of Rs.14,25,17,658/- u/s 80IC. He relied on various judicial decisions and held that the definition of manufacture inserted in the Act with effect from 1-4-2009 cannot be applied for the Asst. Year 2008-09. The Act provides incentives to the manufacturing units located in the backward areas and the traders or the units which deal merely on assembling of certain goods even if located in the backward areas are not entitled for the deduction under the Act. He also held that the assessee did small portion of manufacturing or assembling whatever name is given and major part of work got done through outside agencies and the fact that the value of components was much more than the value of raw material purchased and substantial quantity of raw material/components were handed over to the job work manufacturers clearly proves that what the assessee has done was assembling, testing and packing only.
16 ITA No. 107/Hyd/2011 & Ors.M/s. Aquamall Water Solutions Pvt. Ltd. =================================
17. The assessing officer has also made an alternate stand for disallowance which is as under:
"Without prejudice, the above stand that the assessee company is not eligible for the deduction u/s 80IC, If any appellate authority holds that they are entitled for the deduction, the income computed by the assessee for the exempted units is excessive. Basically the assessee is a single entity. However, due to fiction created by the law, the income of the exempted units has to be computed as it is a separate company. As the assessee being managed by common e-management, most of the activities of the company are being carried on under singl command. 'Though each unit is located at different location, most of the common expenditure was incurred at one location and later transferred to other unit. Though the assessee claims that common expenditure was allocated in proportionate to the turnover, it is mere estimated work only. The units located in backward and far off places like Baddi, Bhimtal warrants extra allocation. It was also found some of the material/components were transferred from one Unit to other. Full documentary evidence for valuation and overheads involved are not produced. Furthermore, the funds are transferred from one unit to other unit. The interest expenditure was however was debited on the basis of turnover. Further, the assessee is not correct in not allocating the loss of corporate office, to the exempted units. Without support of corporate office, the units at Baddr/Bhimtal, cannot do their business. The loss shown for the corporate units is nothing but the loss of 4 units. Therefore, this loss has to be allocated to the exempted units also. On account of above defects, the income shown by the exempted units are more. Hence, there is a case of application of provisions of section of profit of the exempted units is an academic issue only. Hence, no separate disallowance is made under this head.
18. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) relied upon Hon'ble ITAT, Mumbai 'B' Bench in the case of P.L. Patel VS.
17 ITA No. 107/Hyd/2011 & Ors.M/s. Aquamall Water Solutions Pvt. Ltd. ================================= Income Tax Officer in its order in ITA.No.65(Mum/2005 dated 25-2-2010 wherein it has been held as follows:
"Deduction under s.80IB - Manufacture or production - Part of raw material acquired or manufacturing done by outside agencies - assessee is making water purification system which is used to maintain the level of fluoride and remove suspended solid in the water - major components required for assembly and production of the system or equipment are purchased from the market and production of the same is outsourced - It is not the case of the AD that readymade units are brought and sold by the assessee - merely because some raw material is readily purchased from the market and some raw material is got manufactured by outsourcing, it cannot be said that assessee is not engaged in manufacture - Admittedly, the new product is made by the assessee - As regards non payment of excise duty, exemption from customs duty, excise and central excise duty has been granted to water treatment plants Vide Circular NO.659/50/2002-CX, dt. 6 th Sept. 2002 - Thus, no adverse inference can be drawn on the basis that no excise duty is paid by the assessee - So far as the condition of employment of minimum number of workers is concerned, assessee employed twenty or more workers during the major part of the year and hence there is substantial compliance of the condition - As regards non deduction of PF and ESI contributions, merely because there is violation of labour law, It cannot be said that. there is no employer-employee relationship between the assessee and the employees - Moreover, assessee has been granted similar deduction In the preceding years - Therefore, 'assessee is entitled for deduction under s.80-1B."
19. The CIT(A) observed that the assessee is engaged in the manufacture of water purifiers and the assessee is entitled for deduction u/s 80IC.
18 ITA No. 107/Hyd/2011 & Ors.M/s. Aquamall Water Solutions Pvt. Ltd. =================================
20. Aggrieved by the order of the CIT(A) revenue is in appeal before us.
21. The learned DR submitted that the assessee is not engaged in the manufacture and it is only engaged in the work of assembling of various parts of purifier and joining them so as to make water purifier an there is no value addition to this product. The assessee does the assembling work to prepare water filter cum purifiers. It purchases various components like,'chassis, body, top cover, back cover, pumps, PCB, wire harness, some hardware and plastic components from different vendors from all over India, assembles these components to get a finished product. According to the learned DR, the definition of 'manufacture' inserted in the Act with effect from 01/04/2009 and, therefore, the same cannot be applied for AY 2008-09. According to the learned DR, in this case, the assessee only did assembling work. He also drew our attention recorded by the assessee and corresponding raw material used by the assessee, which is as follows:
(Rs. in crores)
i) Total sales recorded 237.04
ii) Value of raw material 14.03
iii) Value of components (indigenous) 136.70
iv) Value of imported components 28.37 Total value of components 165.07 According to the DR, there is minor value of addition to the product and at the best assessee to be given 19 ITA No. 107/Hyd/2011 & Ors. M/s. Aquamall Water Solutions Pvt. Ltd.
================================= proportionate deduction to the extent of value addition made by the assessee to the product. The DR relied upon the judgment of Hon'ble Supreme Court in the case of CIT Vs. R. Pratap 310 ITR 405 wherein it was held that when the assessee claimed deduction u/s 80HH, it had to demonstrate that it was the process which it had outsourced some of its activities to its sister concern and nature of activity undertaken by it. In the absence of details regarding process undertaken by the assessee and its sister concern, the assessee is not titled for deduction u/s 80 HH of the Act.
22. On the other hand, the learned AR submitted that the assessee is engaged in the manufacturing activity and the material used by the assessee undergone changes, therefore, a new distinct article came into existence having commercial market. The original commodity no longer remained and the new product has recognized as distinct commodity. He relied on the following case laws:
1. CIT Vs. Jackson Engineers Ltd., 231 ITR 348 (Delhi)
2. CIT Vs. Mahesh Chandra Sharma (P&H), 177 Taxman 22 (P&H)
3. N.S. Budhiraja & Co., 204 ITR 412 (SC)
4. CIT Vs. Chiranjjevi Wind Energy Ltd., [2010] 333 ITR 192 (Mad.)
5. CIT Vs. Emptee Poly-Yarn(P) Ltd., 320 ITR 665
6. ITO Vs. Arihant Tiles & Marbles (P) Ltd., 320 ITR 79
23. The learned AR also relied on the decision in the case of PL Patel Vs. ITO, ITAT Mumbai 'B' Bench, [2011] 20 ITA No. 107/Hyd/2011 & Ors. M/s. Aquamall Water Solutions Pvt. Ltd. ================================= 60 DTR 53 wherein it was held that Merely because some raw material is readily purchased from the market and some raw material is got manufactured by outsourcing, but when the final product is made by the assessee himself, it cannot be said that the assessee is not engaged in the manufacturing. The new product is made by the assessee and, therefore, the assessee is entitled for deduction u/s 80IB.
24. We have heard the arguments of both the parties, perused the record and have gone through the orders of the authorities below as well as the decisions cited. The case of the assessee is that the assessee is engaged in the manufacturing activity and hence, the assessee is entitled for deduction u/s 80IC of the Act. The case of the DR is that the assessee is not engaged in the manufacture and it is only engaged in the work of assembling of various parts of purifier and joining them so as to make water purifier an there is no value addition to this product. The AR pointed out that the definition of 'manufacture' inserted in the Act with effect from 01/04/2009 and, therefore, the same cannot be applied for AY 2008-09. According to Sec 2 (29BA) of Income tax act, 1961 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 different chemical composition or integral structure;
21 ITA No. 107/Hyd/2011 & Ors.M/s. Aquamall Water Solutions Pvt. Ltd. =================================
25. As per section 2(f) of the Central Excise Act, 1944 'manufacture' includes any process :
i) incidental or ancillary to the completion of a manufactured product.
ii) which is specified in relation to any goods in the section or chapter notes of the First Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture, or
iii) which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re-labelling of containers including the declaration or alteration of retail sale price on its adoption of any other treatment on the goods to render the product marketable to the consumer, and the word 'manufacturer' shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in production or manufacture on his own account. The processes that qualify to be manufacture as per clause (ii) and (iii) of section 2(f) are termed as deemed manufacture.
26. 'Assembly' would tantamount to 'manufacture'. Assembly is a process of putting together a number of items or parts of an item to make a product or item. Assembly of various parts and components may tantamount to manufacture if new product emerges, which is movable and marketable. In Narne Tulaman Manufacturers Pvt. Ltd. V. CCE 1988 938 E.L.T. 566 (SC) it was inferred that if the assembly results in new 22 ITA No. 107/Hyd/2011 & Ors. M/s. Aquamall Water Solutions Pvt. Ltd. ================================= commercial commodity with a distinct name, character and use, then it would amount to manufacture. Similarly, in BPL India Ltd. Vs. CCE 2002 9143) ELT 3, the Supreme Court held that assembly of imported kits of VTR with colour monitors imported in disassembled condition amounted to manufacture since the end of produce had a distinct character and use and the process of assembly was done by technical experts or skilled persons. On the other hand, assembly of plant at site will not be liable to duty. If 'immovable property' emerges after such assembly because excise duty can be levied on 'googs'.
27. Processing and Manufacture: A process is series of things which are carried out in order to achieve a particular result. Processing is distinct from 'manufacturing and mere processing does not mean 'manufacture'. In Empire Industries Vs. Union of India, 1985 20 ELT 179 (SC) it was held that any process creating something else having distinctive name, character and use would be 'manufacture'. Thus, processing gray fabrics by bleaching, dyeing, printing of fabric will amount to 'manufacture'.
28. Various Courts have laid down the ratios in the following cases, on which reliance has been placed, as follows:
i) In the case of CIT Vs. Chiranjjeevi Wind Energy Ltd.
[2010] 333 ITR 192 (Mad.), the Court held that assembling of different parts of windmill and assessee 23 ITA No. 107/Hyd/2011 & Ors. M/s. Aquamall Water Solutions Pvt. Ltd. ================================= assembles different parts which bear distinctive names, thereafter it gets transformed into an ultimate product which is commercially known as a 'windmill' amount to 'manufacture' as well as 'production' of a thing or article as set out in section 80IB(2)(ii). Assessee was, therefore entitled to deduction u/s 80IB.
ii) In the case of CIT Vs. Emptee Poly-Yarn (P) Ltd, 320 ITR 665, the Hon'ble Supreme Court held that twisting and texturising of partially oriented yarn (POY) - POY is a semi-finished yarn and it cannot be used directly to manufacture fabric - crimps, bulkiness, etc. are introduced into POY by a process called thermo - mechanical process which converts it into a texturised yarn - Thus, texturising and twisting of yarn constitutes 'manufacture' in the context of conversion of POY into texturized yarn which, in turn, is used for the manufacture of fabric. Further, the definition of the word' manufacture' inter-alia, means a change which brings into existence a new and distinct object or article or thing with a different chemical composition or integral structure.
iii) In the case of ITO Vs. Arihant Tiles & Marbles (P) Ltd, 320 ITR 79, the Apex Court held that conversion of marble blocks into slabs and tiles, for which the process undertaken by the assessee includes not only cutting of marble blocks into slabs but also the activity of polishing and ultimate conversion of blocks into polished slabs and tiles. The blocks have to go through various stages before they become polished slabs and tiles and such 24 ITA No. 107/Hyd/2011 & Ors. M/s. Aquamall Water Solutions Pvt. Ltd. ================================= activity would fall in the category of 'manufacture' or 'production' u/s 80IA. The word 'production' has a wider meaning as compared to the word 'manufacture'. The blocks converted into polished slabs and tiles certainly result in emergence of a new and distinct commodity. If the contention that the activity undertaken by the assessee is not manufacture is accepted, it would lead to serious revenue consequences in as much as then the assessees would plead that they are not liable to pay excise duty, sales tax, etc. Therefore, the activity undertaken by the assessees constitutes manufacture or production and they are entitled to benefit of s. 80IA.
29. In the case of Natural Fragrances Vs. DCIT in ITA No. 4183/Del/2011 for AY 2007-08 vide order dated 16/03/2012, the Delhi Bench of ITAT held as follows:
"7. We have duly considered the rival contentions and gone through the record carefully. In order to avail deduction under section 80IC, an assessee has to fulfill the conditions contemplated in the section. Therefore, before considering the respective contentions as well as the relevant material, it is imperative upon us to take note of the relevant statutory provisions. The relevant part of section 80-IC, thus reads as under:
"80-IC. Special provisions in respect of certain undertakings or enterprises in certain special category States - (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section (3).25 ITA No. 107/Hyd/2011 & Ors.
M/s. Aquamall Water Solutions Pvt. Ltd. ================================= (2) This section applies to any undertaking or enterprise, (a) which has begun or begins to manufacture or produce any article or thing, not being any article or thing specified in the Thirteenth Schedule, or which manufactures or produces any article or thing, not being any article or thing specified in the Thirteenth Schedule and undertakes substantial expansion during the period beginning ...
(ii) on the 7th day of January, 2003 and ending before the 1st day of April, 2012, in any Export Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or Industrial Park or software Technology Park or Industrial Area or Theme Park, as notified by the Board in accordance with the scheme framed and notified by the Central Government in this regard, in the State of Himachal Pradesh or the State of Uttaranchal; or ...
(b) which has begun or begins to manufacture or produce any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule, or which manufactures or produces any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule and undertakes substantial expansion during the period beginning ...
(ii) on the 7th day of January, 2003 and ending before the 1st day of April, 2012, in the State of Himachal Pradesh or the State of Uttaranchal; or ...
(3) The deduction referred to in sub-section (1) shall be
(i) in the case of any undertaking or enterprise referred to in sub-clauses (i) and (iii) of clause (a) or sub-clauses (i) and (iii) of clause (b), of sub-
section (2), one hundred per cent of such profits and gains for ten assessment years commencing with the initial assessment year;
(ii) in the case of any undertaking or enterprise 26 ITA No. 107/Hyd/2011 & Ors. M/s. Aquamall Water Solutions Pvt. Ltd. ================================= referred to in sub-clause (ii) of clause (a) or sub- clause (ii) of clause (b), of sub-section (2), one hundred per cent of such profits and gains for five assessment years commencing with the initial assessment year and thereafter, twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains".
8. Sub-section(2) of section 80IC of the Act provides that provisions contained in sub-section (5) and sub- sections 7 to 12 of section 80IA shall, so far as may be, applied to the eligible undertaking or enterprises under this section. Thus, we deem it fit to note down sub- section(5) and sub-sections 7 to 12 of section 80IA also. They read as under:
"Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub- section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made.
...
(7) The deduction under sub-section (1) from profits and gains derived from an [undertaking] shall not be admissible unless the accounts of the [undertaking] for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant, as defined in the Explanation below sub-section (2) of section 288, and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant.
(8) Where any goods [or services] held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods [or services] held for the purposes 27 ITA No. 107/Hyd/2011 & Ors. M/s. Aquamall Water Solutions Pvt. Ltd.
================================= of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods [or services] as on the date of the transfer, then, for the purposes of thededuction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods [or services] as on that date :
Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit.
[Explanation.-- For the purposes of this sub- section, "market value", in relation to any goods or services, means the price that such goods or services would ordinarily fetch in the open market.] (9) Where any amount of profits and gains of an [undertaking] or of an enterprise in the case of an assessee is claimed and allowed under this section for any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of this Chapter under the heading "C.--Deductions in respect of certain incomes ", and shall in no case exceed the profits and gains of such eligible business of [undertaking] or enterprise, as the case may be.
(10) Where it appears to the Assessing Officer that, owing to the close connection between the assessee carrying on the eligible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the 28 ITA No. 107/Hyd/2011 & Ors. M/s. Aquamall Water Solutions Pvt. Ltd.
================================= ordinary profits which might be expected to arise in such eligible business, the Assessing Officer shall, in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom. (11) The Central Government may, after making such inquiry as it may think fit, direct, by notification in the Official Gazette, that the exemption conferred by this section shall not apply to any class of industrial undertaking or enterprise with effect from such date as it may specify in the notification.
(12) Where any undertaking of an Indian company which is entitled to the deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger-- (a ) no deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and (b ) the provisions of this section shall, as far as may be, apply to the amalgamated or the resulting company as they would have applied to the amalgamating or the demerged company if the amalgamation or demerger had not taken place.
[(12A) Nothing contained in sub-section (12) shall apply to any enterprise or undertaking which is transferred in a scheme of amalgamation or demerger on or after the 1st day of April, 2007.] ...
9. From the bare perusal of the section would reveal that sub-section (1) of section 80IC provides a deduction in respect of profit and gains derived by an undertaking or enterprises from any business referred to in sub-section (2), while computing the total income of an assessee. Sub-section (2) has further sub-sections and in the case of assessee, the clause applicable is 80IC 2 (a)(ii) which provide that assessee has begun or begins to 29 ITA No. 107/Hyd/2011 & Ors. M/s. Aquamall Water Solutions Pvt. Ltd. ================================= manufacture any article or thing, which are not specified in Thirteenth schedule. It means assessee should not manufacture any article or thing which is specified in thirteenth schedule. Apart from this, the activity of manufacture should commence between the period 7 th day of Jan 2003 and ending on 1 s t April 2012. It should be at the place notified by the Board in accordance with the scheme. The learned counsel pointed out that assessee's case falls under 80-IC 2(b) also. The difference between both the clause is that under clause 'b', the article should be one, which is provided in fourteenth schedule and area i.e. Industrial Park, Industrial Centre need not be notified. The assessee has not manufactured any article or thing, which provided in thirteenth schedule. It is situated in Industrial Estate, thus it falls in section 80IC(2)(ii) of the Act. As far as the other provisions are concerned, they are meant for different geographical area i.e. State of Sikkim, Northern Eastern States. The assessee is situated in Uttrakhand, therefore, sub-clause (ii) of section 80IC(2)(a) is applicable. Thereafter, sub-section (3)provides quantification of deduction, sub-section(4) laid down the conditions that undertaking or enterprises should not be formed by splitting up or the reconstruction, of a business already in existence. However, this condition would not be applicable in respect of an undertaking which is formed as a result of the reestablishment or reconstruction or revival of the business of an assessee as provided in section 33B of the Act. Similarly, it is not formed by the transfer to a new business of machinery or plant previously used for any purposes. Since there is no dispute that these conditions are not attracted in the case of the assessee, therefore, we do not deem it necessary to make elaborate discussion. At the time of hearing, it has been pointed out that there is no violation to any other conditions contained in sub-rules 5 to 12 of section 80IA of the Act (extracted supra).
10. The primary issue required to be determined, is when assessee came into existence and whether geographically it is located with the notified area contemplated in sub- clause (ii) of sec. 80IC(2)(a) or (2) (b). It emerges out from the record that assessee partnership firm came into existence on 1 st of April 2006. It is situated at F-3, Industrial Area, Bhimtal (Nainital). According to the 30 ITA No. 107/Hyd/2011 & Ors. M/s. Aquamall Water Solutions Pvt. Ltd. ================================= assessee, it has started the manufacturing operation at its industrial undertaking on 28.8.2006 though this date has been disputed by the Assessing Officer and we will discuss this aspect in the later part of the order. For the time being, it is concluded that as far as geographical location of the assessee is concerned, it falls within the industrial estate specified for the purpose of admissibility of deduction under sec. 80-IC of the Act. Similarly, it has commenced its operation in between period of January 2003 to April 2012 as provided in sub-clause (2) of section 80-IC(ii)(a)(b) of the Act. Therefore, to this extent, there cannot be any dispute between the parties.
11. The next step which is essential for examining the case of an assessee about the admissibility of deduction under sec. 80-IC is whether it manufactures or produces any article or things. According to the Assessing Officer, expression "manufacture" has been defined in section 2(29)(B)(a) which read as under:
"(29BA) "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".
However, expression "production" has not been defined in the Act. The stand of the revenue authorities is that at the most activity carried out by the assessee is of blending one. It has just mixed the floral distillate from Kannouj and no new or distinct product has emerged out. On the other hand, learned counsel for the assessee has placed in the written submissions a flow chart exhibiting the activities carried out by the assessee before producing altogether distinct saleable commodity which has its own identification in the commercial 31 ITA No. 107/Hyd/2011 & Ors. M/s. Aquamall Water Solutions Pvt. Ltd. ================================= world. The learned counsel for the assessee pointed out that expression "manufacture" as well as production have fallen for their interpretation and construction not only at the level of ITAT but before the Hon'ble Supreme Court also and the Hon'ble Court has explained both these expressions in detail. He made reference to the decision of Hon'ble Supreme Court in the case of CIT vs. M/s. Arihant Tiles & Marbles Pvt. Ltd. reported in 320 ITR 79, India Cine Agency Vs. CIT reported in 308 ITR 98, CIT vs. Sesa Goa Ltd. reported in 271 ITR 331. In his written submissions, he also referred a large number of other decisions rendered by Bombay High Court, Hon'ble Gujarat High Court in the cases of CIT vs. NeE Pharma (P.) Ltd., 137 ITR 879/10 Taxman 218 (Bom.), CIT vs. Anglo French Drug Co. (Eastern) Ltd. [1991] 191 ITR 92/57 Taxman 8 (Bom.), CIT vs. Prabhudass Kishore Dass Tobacco Products reported in 282 ITR 568 (Gujarat). On the other hand, Learned DR has pointed out that it is just a blending activity and he referred to the decision of Hon'ble Calcutta High Court in the case of Brokebond India Vs.CIT reported in 269 ITR 232 and the judgment of Hon'ble Supreme Court in the case of CIT vs. Tara Agency reported in 292 ITR
444. In these cases, it has been held that blending of various categories of teas and selling them after packaging with new brand name does not amount to manufacturing or production of a new commodity.
12. As observed earlier, we would be reverting back to the facts of the present case in the later part of the order. First, we would like to bring at home the meaning of expression "manufacture and production" as propounded in the various authoritative pronouncements of the Hon'ble Supreme Court as well as of Hon'ble High Court.
13. In the case of India Cine Agency, Hon'ble Supreme Court has considered the judgment rendered in the case of Sesa Goa (supra) and all other decisions on the point which contemplate the meaning of expression "manufacture" as well as "production". The relevant discussion made by the Hon'ble Court reads as under:
32 ITA No. 107/Hyd/2011 & Ors.M/s. Aquamall Water Solutions Pvt. Ltd. ================================= "2.As noted above, the core issue is whether activity undertaken was manufacture or production.
3. In Black's Law Dictionary(5th Edition), the word "manufacture' has been defined as, "the process or operation of making goods or any material produced by hand, by machinery or by other agency; by the hand, by machinery, or by art. The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand labour or machine". Thus by process of manufacture something is produced and brought into existence which is different from that, out of which it is made in the sense that the thing produced is by itself a commercial commodity capable of being sold or supplied. The material from which the thing or product is manufactured may necessarily lose its identity or may become transformed into the basic or essential properties. (See Dy. CST (Law), Board of Revenue (Taxes) Coco Fibres[1992] Supp. 1 SCC
290).
4.Manufacture implies a change but every change is not manufacture, yet every change of an article is the result of treatment, labour and manipulation.
Naturally, manufacture is the end result of one or more processes through which the original commodities are made to pass. The nature and extent of processing may vary from one class to another. There may be several stages of processing, a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. Whenever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity. 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 recognized as a new and distinct article that a manufacture can be said to take place. Process in manufacture or in 33 ITA No. 107/Hyd/2011 & Ors. M/s. Aquamall Water Solutions Pvt. Ltd. ================================= relation to manufacture implies not only the production but also various stages through which the raw material is subjected to change by different operations. It is the cumulative effect of the various processes to which the raw material is subjected to that the manufactured product emerges. Therefore, each step towards such production would be a process in relation to the manufacture. Where any particular process is so integrally connected with the ultimate production of goods that but for that process processing of goods would be impossible or commercially inexpedient, that process is one in relation to the manufacture. (See Collector of Central Excise v.Rajasthan State Chemical Works[1991] 4 SCC 473).
...
7.To put it differently, the test to determine whether a particular activity amounts to manufacture' or not is: Does a new and different good emerge having distinctive name, use and character. The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes 'manufacture' takes place and liability to duty is attracted. Etymologically the word 'manufacture' properly construed would doubtless cover the transformation. It is the transformation of a matter into something else and that something else is a question of degree, whether that something else is a different commercial commodity having its distinct character, use and name and commercially known as such from that point of view, is a question depending upon the facts and circumstances of the case. (See Empire Industries Ltd. v.Union of India[1985] 3 SCC 314).
...
14. In this case, assessee was carrying on businessof conversion of Jumbo Rolls of photographic films into small flats and rolls in desired sizes. It claimed deduction under sec. 80-HH and 80-I as well as investment allowance under sec. 32AB. The controversy arose whether conversion of jumbo rolls into small sizes 34 ITA No. 107/Hyd/2011 & Ors. M/s. Aquamall Water Solutions Pvt. Ltd. ================================= amounts to manufacture or production, eligible for deduction under sec. 32AB or deduction under sections 80-HH and 80-I of the Income-tax Act, 1961/ Hon'ble Supreme Court has held that this activity amounts to manufacture or production. Thus, we think it is not necessary to recapitulate and recite all the decision on the construction expression "manufacture". But suffice to say that core of all the decisions of the Hon'ble Supreme Court or Hon'ble High Court is to the effect that broadly manufacture is a transformation of an article, which is commercially different from the one which is converted. It is a change of one object to another for the purpose of marketability. It brings something into existence, which is different from that, which originally existed. The new product is a different commodity physically as well as commercially. The Hon'ble Court also explained broader test to determine whether manufacture is there or not, it is propounded that when a change or series of changes are brought out by application of processes which take the commodity to the point where, commercially, it cannot be regarded as the original commodity but is, instead recognized as a distinct and new article that has emerged as a result of the process."
30. In the case under consideration, the assessee company does the assembling work to prepare water filter cum purifiers. It purchases various components like, 'chassis, body, top cover, back cover, pumps, PCB, wire harness, some hardware and plastic components from different vendors from all over India, assembles these components to get a finished product. According to the AR, a new distinct article which is called 'water purifier' came into existence having commercial market and the original commodity no longer remained and the new product has recognized as distinct commodity.
31. The ratios laid down in the aforesaid case laws cited supra are in support of assessee's case. In view of this 35 ITA No. 107/Hyd/2011 & Ors. M/s. Aquamall Water Solutions Pvt. Ltd. ================================= the assessee is engaged in the manufacture of water purifiers and therefore entitled for deduction u/s 80IC.
32. In view of our discussion as above, we do not find any infirmity in the order of the CIT(A) that the assessee is entitled for deduction u/s 80IC of the Act in respect of manufacture of water purifiers. Accordingly, the common ground raised by the revenue on this count in ITA Nos. 93/Hyd/13 and 1723 & 287/Hyd/2012 is dismissed.
33. In the result, the revenue appeals under consideration are dismissed.
34. To sum up, ITA No. 107/Hyd/2011 by the assessee is dismissed and the appeals of the revenue being ITA No. 95/Hyd/13, 1723/Hyd/12 and 287/Hyd/12 are dismissed.
Order pronounced in the open court on 15 th July, 2013.
Sd/- SSSd/- (ASHA VIJAYARAGHAVAN) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, dated 15 th July, 2013 Tprao/kv 36 ITA No. 107/Hyd/2011 & Ors.
M/s. Aquamall Water Solutions Pvt. Ltd. ================================= Copy forwarded to:
1. M/s. Aquamall Water Solutions Pvt. Ltd., Flat No. 20, 1 st Floor, Sony Business Complex, Prashanti Nagar, Kukatpally, Hyderabad.
2. The Commissioner of Income-tax-1, Hyderabad.
3. The DCIT, Circle-1(1), 4 th Floor, Aayakar Bhavan, Basheerbagh, Hyderabad.
4. The CIT(A)-II, Hyderabad.
5. The CIT-I, Hyderabad.
6. The DR - 'A' Bench, ITAT, Hyderabad Description Date Intls S.No.
1. Draft dictated on Sr.P.S./P.S
2. Draft placed before author Sr.P.S/PS Draft proposed & placed before JM/AM 3 the second Member 4 Draft discussed/approved by JM/AM second Member 5 Approved Draft comes to the Sr.P.S./P.S Sr.P.S./PS
6. Kept for pronouncement on Sr. P.S./P.S.
7. File sent to the Bench Clerk Sr.P.S./P.S 8 Date on which file goes to the Head Clerk 9 Date of Dispatch of order