Delhi High Court
Intec Corporation vs Principal Commissioner Of Income Tax ... on 28 January, 2019
Author: S. Ravindra Bhat
Bench: S. Ravindra Bhat, Prateek Jalan
$~42
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Decided on: 28th January, 2019.
+ ITA 72/2019 & CM Appl. 3927-28/2019
INTEC CORPORATION ..... Appellant
Through: Mr. Bharat Beriwal, Adv.
versus
PRINCIPAL COMMISSIONER OF
INCOME TAX -11, NEW DELHI ..... Respondents
Through: Mr. Ashok Kumar Manchanda, Sr.
Std. Counsel.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE PRATEEK JALAN
S. RAVINDRA BHAT, J. (OPEN COURT)
%
1. The assessee appeals a decision of the Income Tax Appellate
Tribunal (ITAT), for Assessment Year 2008-2009. Its claim for benefit of
deduction under Section 80-IC of the Income Tax Act [hereafter referred to
as the 'Act'] was disallowed by the AO. The Appellate Commissioner,
however, set aside the disallowance and granted the benefit. The ITAT by
the impugned order reversed the Commissioner's decision. In the return of
income for Assessment Year 2008-09, which was subject to scrutiny, the
assessee declared ₹1,62,82,400/-. It claimed deduction of ₹3,13,09,690/-
from its gross total income under Section 80-IC stating that a new industrial
unit at Selaqui, Uttrakhand had started during the assessment year. The
assessee manufactured roof mounted air conditioner units for the Indian
Railways. Till 2007-2008, this activity was carried out at Kala Amb,
Himachal Pradesh. The Kala Amb unit enjoyed the Section 80-IC benefit
ITA 72/2019 Page 1 of 7
which had ended sometime in 2005. The assessee during the scrutiny
claimed that it had purchased 3 Ton Cap Wire Rope Hoist Mach Machine
on 23.04.2007 and one of the two "Map 1305 Hydraulic Pallets" on
04.04.2007. These were transferred to the new unit at Selaqui on
07.07.2007. It also used old tools and equipments valued at an insignificant
amount of ₹18,000/-. The A.O. was not satisfied with these declarations and
was of the view that having regard to the value of the machinery, that
previously used machinery for any purpose is more than 20% of the value
of the plant and machinery used in the new unit, the assessee has failed to
satisfy the conditions laid down in Section 80-IC(4)(ii) of the Act. In so
holding the AO also took note of the fact that the machinery was initially
taken to Kala Amb and later transported to Selaqui. The AO, therefore,
disallowed ₹3,13,09,690/-. The CIT(A) granted relief.
2. The ITAT addressed itself to the question whether the Selaqui unit
was eligible to claim exemption under Section 80-IC. In so doing, it took
note of certain circumstances that the assessee did not have the competence
in Selaqui unit to carry out manufacturing activities; but it transferred used
machinery in excess of 20% from Kala Amb unit to Selaqui unit, contrary
to Section 80-IC(4)(i) and that minimal expenditure was debited to the P&L
Account under the head 'salary' to establish prima facie that any
manufacturing was carried out at the new unit. To consider all this, the
ITAT took note of several documents such as agreement to sell, the lease
deed of 16.12.2006, the site plan annexed to the lease deed, the balance
sheet for the period 31.03.2008, and further noted that the plant and
machinery in the Selaqui unit as on 31.03.2008 was declared to be of value
of ₹3,50,353/- as against which, the turnover reported was in excess of
₹11.3 crores. The ITAT further noted that the assessee had claimed that it
ITA 72/2019 Page 2 of 7
purchased machinery from M/s Grip Engineers Pvt. Ltd., Ballabhgarh and
ABB, Faridabad but stored it at Kala Amb unit for want of space and non-
availability of Transit Form issued by the Government of Uttrakhand. The
ITAT disbelieved this explanation. Some of the material parts of the
ITAT's findings are as follows:
"19. Moreover, when this fact is examined in the light of the
fact that no travelling allowance has been debited by the
assessee to the P&L account during the year under
assessment, it is difficult to believe that any manufacturing
activities have been carried out at the Selaqui unit. Because
earning the turnover of Rs. 11.11 crores with profit of Rs. 3.13
crores from the assembling/ manufacturing unit is humanly not
feasible without supervision of senior/ junior functionaries of
the assessee either from Kala Amb unit or from Head Office,
Delhi nor any skilled worker has ever visited the Selaqui unit
or proved to be engaged. So, all these facts strengthen the
findings returned by the AO which have been overturned by
the CIT (A) on the basis of whims and fancies. Since the
assessee has transferred tools and machinery more than 20%
of the total machinery employed at Selaqui unit from Kala
Amb unit it is violation of section 80-IC(4) (ii) of the Act.
20. The factum of transfer of machinery by Grip Engineers
Pvt. Ltd., Ballabhgarh and ABB, Faridabad to the Kala Amb
unit of the assesee on 23.04.2007 and 28.04.2007 respectively
with which the assesee has alleged to have started
manufacturing in the month of June 2007 is not to be seen in
isolation, rather it is to be seen in the light of the connected
facts and circumstances that the assessee has debited only
amount of Rs.1,35,388/- under the head wages, bonus, PF,
ESI, etc., with which at the most only one worker can be hired
and no expenditure has been debited to P&L account on
account of travelling expenses nor any telephone, tele-fax and
internet facility is proved to have been established at Selaqui
unit. So we are of the considered view that new plant and
machinery, even if assumed to be transferred by the assessee
from Kala Amb unit to Selaqui unit, it was never put to use to
carry out the manufacturing activities to qualify for exemption
ITA 72/2019 Page 3 of 7
u/s 80-IC.
21. Furthermore, when we examine the factum of non-
availability of the machinery at Selaqui unit in the light of the
fact that no manpower was engaged by the assesee to carry
out the manufacturing activities at Selaqui unit, the entire
assessee‟s case to claim exemption u/s 80-IC goes flat.
Perusal of the P&L account statement, available at page 147
of the supplementary paper book, shows that the expenditure
of Rs.1,35,388/- has been debited to the P&L account under
the head wages, bonus, gratuity and other benefits which
comes to roughly ₹50,000/- per month of wages, PF, gratuity,
etc. Annexure 4 annexed with the tax auditor‟s report,
available at page 54 of the paper book, shows the monthly
contribution of Rs.2,000/- which leads to the irresistible
conclusion that only one worker was hired for the Selaqui unit
during the entire period under assessment.
22. The contention of the ld. AR of the assessee that since
the assessee is carrying out the function of assembly of RMPU
with the parts procured from different manufacturers like
chassis, compressors, electric motors, copper wire, mounting
plate sheet metal box, etc. by engaging requisite number of
employees and they were paid at the rates prevailing in the
State of Uttarakhand, whose wages cannot be compared with
the wages of employees at Delhi, is not tenable because apart
from the composite expenses of Rs. 1,53,588/-, no other
expenditure on account of wages/salary have been debited to
the P&L account."
3. Learned counsel urged that the substantial question of law, which
requires consideration is with respect to the ITAT's findings, firstly that
Section 80-IC was not available to Selaqui unit and secondly, other adverse
findings that the unit was created by splitting up the existing unit contrary
to Section 80-IC(4)(ii). It was urged in this regard that the nature of the
business i.e. manufacturing activity could not be disputed and furthermore,
that the work did not entail labour intensive activity but was rather capable
of being performed by very few workmen. Learned counsel also submitted
ITA 72/2019 Page 4 of 7
that the ITAT could not have doubted the high turnover reported. It was
further urged that for the later years, the Revenue Authorities had accepted
higher losses even though the value of machinery reported to have been
purchased was over ₹30 lakhs.
4. This Court has carefully examined the orders of the Appellate
Commissioner and the ITAT. Undoubtedly, the CIT(A) reversed the AO's
opinion. We note further that in the 17-page order of the CIT(A), more
than 14 pages were devoted to recording the assessee's contentions; the
Appellate Commissioner then went on virtually to paraphrase an affidavit
of one Mr.R.S.Sindhu, filed during the course of appellate proceedings.
Relevant findings of the CIT(A) are as follows:
"{4.1} The appellate was required to furnish evidence of
movement of goods from M/s SIRL, Faridabad to Selaqui, in
response to which the appellant filed copies of invoices along
with relevant forms and also produced the original invoices of
the purchase of all the goods from M/s SIRL during the year
under consideration. It is seen that the goods were
accompanied by transit forms in Form No.16, required under
rule 26(3) of the Uttranchal VAT Rules, 2005. M/s SIRL is
also verified to have filed its return of income of Assessment
Year 2008-09 disclosing income of Rs.5,75,11,150/-. It is seen
from the bills of purchase of raw material from M/s SIRL that
the description of the goods is of „chassis of RMPU‟, whereas
the goods transferred to Kala Amb are of „Roof mounted
package air-conditioner‟, and „Electric panels‟. The appellant
has stated that its manufacturing process consists of
manufacturing of wire harness, piping of copper pipes, fitting
of compressor & electrical motor, fitting of mounting plate,
fitting the electrical panel and leak testing. It has further been
affirmed that these goods were sent to the Kala Amb unit to be
tested and then supplied to the Indian Railways as the new unit
at Selaqui was not yet approved by the Indian Railways for the
testing of the air-conditioners. The appellant has placed on
record copy of its correspondence with the Central Excise
ITA 72/2019 Page 5 of 7
Division, Dehradun, Uttrakhand, regarding exercise of option
of exemption from excise duty for the new industrial unit at
Selaqui, including its undertaking to apply for Central Excise
Registration as soon as the goods mentioned become
chargeable to duty. The appellant has also relied o n a
number of judgments dealing with the question of the process
of manufacture to argue that even manufacture of a „part‟ is
manufacture so long as that part is duitable as a separate part.
The appellant has furnished a copy of the order of the
Customs, Excise and Service Tax Appellate Tribunal in the
case of the appellant, reported at 156 ELT 544 [2003],
wherein it is held that „roof top mounted package unit of air-
conditioner‟ is an item distinctively classifiable under Central
Excise Law, on which excise duty is payable. For all these
reasons, I am unable to agree with the finding of the Assessing
Officer that there was no value addition at Selaqui or that no
new article or thing came into existence.
{4.2} The appellant has also filed a reconciliation of units
manufactured at Selaqui with detailed chart in numbers of
purchase of chassis of RMPU, chassis of LHB type RMPU,
mounting plate with switch gear and wiring, sheet metal box
and chassis of Garib Rath, and transfer of semi finished
RMPU to Kala Amb. The said chart clearly shows that the
Assessing officer has not considered purchase of five numbers
of RMPU on 21.8.2007 and four numbers of RMPU - Garib
Rath on 4.12.2007. The appellant has also shown that the
turnover of the business has increased from Rs.``,07,93,708/-
in the preceding year to Rs.16,72,68,395/- and the profit of the
Kala Amb unit has also increased from Rs.1,37,57,883/- to
Rs.2,51,86,186/- from the previous year. Hence the Assessing
Officer‟s apprehension that the business of the Kala Amb unit
has been split or reconstructed to set up the Selaqui unit
appears unfounded.
{4.3} I have also carefully considered the issue of transfer of
machinery from the Kala Amb unit to Selaqui unit. The
Assessing officer has disbelieved the explanation offered that
the machinery comprising one Wire Rope Hoist Machine and
one Hydraulic Pallet Machine were temporarily kept at the
Kala Amb Unit as the transit form was unavailable. The
appellant has stated that the Wire Rope Hoist Machine,
ITA 72/2019 Page 6 of 7
purchased from M/s Grip Engineers, Faridabad, was
transported by the appellant‟s own truck along with 21 electric
Motors purchased from ABB Ltd., Faridabad, in the interest of
economy. The appellant has filed evidence that the machinery
was stored at the Kala Amb stores for a total period of 14 days
from 23.5.2007 to 7.6.2007 and the said machinery was never
used before its installation at Selaqui. It is also shown that the
Kala Amb Unit already had a Chain Hoist Machine and there
was no need to purchase or install another machine at that
unit. An affidavit by the partner Shri R.S.Sidhu affirming these
facts has been filed. After considering these facts, it is held
that the appellant has furnished sufficient evidence regarding
the installation of the new machinery at the Selaqui unit and
the more transportation through Kala Amb does not disentitle
the appellant from its claim of deduction under Section 80IC."
5. Under Section 260A, this Court is to frame substantial questions of
law wherever they do arise. Though the findings of facts by the AO were
reversed by the CIT(A), and in turn were set aside by the ITAT, that ipso
facto does not attract the jurisdiction of this Court unless the reasoning or
the approach of the ITAT is so unreasonable or manifestly irrational. The
ITAT in its remit is the final tribunal of fact. In this case, the court is of the
opinion that the ITAT performed the task to the extent it could, having
regard to the materials which it elaborately and exhaustively analyzed. The
inference it drew cannot be called perverse or illegal. No substantial
question of law arises.
6. The appeal is accordingly dismissed.
S. RAVINDRA BHAT, J.
PRATEEK JALAN, J. JANUARY 28, 2019 „hkaur/pv‟ ITA 72/2019 Page 7 of 7