Income Tax Appellate Tribunal - Delhi
Sharda Exports, Meerut vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH "G" NEW DELHI)
BEFORE SHRI J. SUDHAKAR REDDY AND SHRI RAJPAL YADAV
ITA No. 3597/Del/2012
Assessment Year: 2009-10
Sharda Exports, vs. Joint Commissioner of IT,
C/o. M/s. S.S. Gupta & Co., Hardwar Range,
239 Asaura House, Western Kutchery Rd., Hardwar.
Meerut.
(PAN: AAYFS1694N)
(Appellant) (Respondent)
Assessee by: Ms. OP Sapra, Adv.
Revenue by: Shri Ramesh Chandra, CIT(DR)
ORDER
PER RAJPAL YADAV: JUDICIAL MEMBER The assessee is in appeal before us against the order of Learned CIT(Appeals) dated 01.06.2012passed for assessment year 2009-10. The assessee has taken seven grounds of appeal, however, its grievance revolves around two issues, namely; (a) disallowance of deduction under sec. 80-IC and (b) charging of interest under sec. 234B of the Income-tax Act, 1961.
2. The brief facts of the case are that assessee has filed its return of income on 26.9.2009 declaring an income at nil after claiming deduction under sec. 80IC of the Act. The case of the assessee was selected for scrutiny assessment and a notice under sec. 143(2) of the Act was issued to the assessee on Ist of September 2010. Thereafter notice under sec. 142(1) 2 along with the questionnaire was issued by the ACIT, Circle Hardwar on 6th of July 2011. It emerges out that assessment of this year was transferred to learned JCIT by the Learned CIT, Dehradun. He issued fresh notices under sec. 143(2) and 142(1) on 12th September 2011. In response to the notice, the representatives of the assessee had appeared and submitted the requisite information time to time. Learned Assessing Officer has passed the assessment order on 30.12.2011.
3. It emerges out from the assessment order that Assessing Officer noticed a total turnover of Rs.100,31,28,153 which has resulted net profit of Rs.36,68,35,903. Assessee has claimed deduction under sec. 80IC and in support of its claim, it has submitted Form No. 3CD and Form No. 10CCB along with the return. Learned Assessing Officer has observed that assessee has been claiming deduction under sec. 80IC on the ground that it has been engaged in the business of manufacturing and export of handmade, hand- tuffed carpet at its industrial undertaking situated at Plot No.11, Sector 4, Sidhcul Haridwar. It has been claiming deduction under sec. 80-IC since assessment year 2005-06. This is the 5th consecutive assessment year of such claim. Learned Assessing Officer had a suspicion that a turnover of more than Rs. 100 crores cannot be achieved by the assessee. He observed 3 that the department had made local inquiry on several occasions from which it was gathered that no manufacturing activity was done at the alleged industrial undertaking of the assessee. According to the Assessing Officer, the huge turnover as claimed by the assessee was diverted from its factory at Partappur, Meerut. He further observed that assessee has been claiming deduction at 100% by camouflaging manufacture at its location at Haridwar. Learned Assessing Officer has directed the assessee to show the present status of the business at Sidhcul. It was contended that assessee firm was came into existence in January 2003 and it was dissolved w.e.f. Ist of April 2009. The factum of dissolution was duly intimated to the Assessing Officer. Assessing Officer has observed that it is quite unusual to close down a business concern which is showing huge turnover up to assessment year 2009-10. Learned Assessing Officer has further observed that ITO, Ward 2, Hardwar was deputed to visit the factory premises and furnished the factual report. He took note of the factual status report submitted by the ITO, Ward- 2, Hardwar and thereafter made an analysis of the material collected by the ITO, Ward-2, Hardwar. On such analysis, learned Assessing Officer formed certain reasons which creates a doubt about the claim of the assessee. He issued a show-cause notice on 26.12.2011 wherein he has narrated 27 reasons for doubting the claim of the assessee. It is advantageous to take 4 note of the factual position noticed by ITO, Ward-2, Haridwar as well as the reasons narrated by the Assessing Officer in his notice, they read as under:
"Factual position found 1 There were only 13 taping frames. There was in broken condition i.e. out of order and only three were used at the time of visit. There were six machines for Tufting (hand tufting guns) and three were our of order in the premises and only three workers were sitting there as if to camouflage a working atmosphere that is just for creation of same evidence to befool all concerned government agencies. The workers stated that they can prepare five to six pieces of carpets of the size of 1.60x2.30 Sqr Mtr. Per worker in a working day.
2 There were only three workers who were engaged in the rubber latex process and there was only one broken machine for latex work. The capacity as stated by workers working on it, was only 40 to 45 pieces per day of average carpet area of 1.60x2.30 Sqr Meter.
3 There were only 4 workers engaged in binding work & drying the Latexing carpet base through sun light.
4 There were five workers who were engaged in scissoring process and there were only seven scissors at the premises for this work and two were not even usable. Hence only five were in working condition.
5 There were only three workers engaged in combing and only five combs were available for this work.
6 There were two workers who were engaged in Clipping work. There were only three clipping machine in the premises for this work.
7 At that time there were four weaving machines (Khaddi) only at the premise and three were out of order Only one machine was in working condition upon which one labour was simulating some work. He has stated that only five to six meter of weaving can be made by him in a single day. He has also denied working over time. There was only one light upon the overhead ceiling for his machine and the rest were not having any light.
8 There was only one weighing machine of maximum capacity of 150 Kg. 9 There were only two toilet seats in the factory premises and one urinal only.
1 There was a single computer in the office premise without any fixed land line 0 telephone connection. Four chairs with one table were available in the office in the factory.5
1 There were two diesel generator sets. One of small size using one litre diesel per 1 hour and second, two litre diesel per hour. Installation of electric meter was in March-2007 with a reading of 309576 units only.
In the light of the above condition and factual position which was relevant for this year and in all earlier years, it became clear that the assessee had put up only a facade to camouflage some activity which it could claim to be even manufacturing activity little realizing that anyone would immediately come to know that the huge turnover shown by the assessee is impossible in the absence of a manpower of possibly more than 200 workers and a large number of properly working machines.
As per chart of electricity expenses claimed by the assessee, surprisingly there is uniformity in the payment of monthly electricity charges which was not in consonance with the statement of Mr. Gupta where he stated that the carpet manufacturing is not uniform during the year. This fact proves that no machinery was being run by using electric power for manufacturing. The electric connection was there for normal lights and not for use in manufacturing.
It would be further noticed from the following discussion that the assessee never performed any manufacturing work itself but got it done by outer agencies for its Meerut premises and not from Hardwar premises. It would be clear from the following that the assessee has possibly been working behind the scene in order to get its black money converted into white by misutillising a scheme for industrial development and generation of employment 6 in the state of Uttrakhand. In the light of disturbing facts and circumstances which have come to notice the minimum that should first be done by the department is to unveil the bundle of lies that has been put up before the department during the assessment proceeding.
III. A questionnaire dated 02.12.2011 on the various specific emerging from the information already supplied by the assessee and on the basis of information available on record was issued to the assessee by the undersigned in response to which the assessee filed certain other details/information from time to time. In this connection, the statement of the Managing Partner, Sh. Ashish Gupta who was conversant with all the affairs of the firm was also recorded in the presence of the Assessee's counsel, Sh. Pankaj Gupta, CA On the basis of above and also other materials on record the following information/observations/conclusions inter alia came to light.
IV. From the stage-wise flow chart and other details of production and job work etc. furnished by the assessee it could be made out that most of the activities such as spinning and weaving had been done outside the state of Uttrakhand. Even the dyeing process was done by outside agencies and not at Hardwar. T he assessee also failed to produce the basic records for the verification of the daily production at Hardwar on the plea that the same were prepared on computer only. The negligible infrastructure including some hand driven machines lying at Hardwar cannot result in huge production shown by the company during the year and earlier years. In this connection the details of various findings/observations on the basis of information available on record as well as the statement recorded of Sh. Ashish Gupta and 7 also the visit of the Assessee's factory by ITO (OSD) of this office were duly confronted to the assessee vide this office letter dated 26.12.2011 as per the following details:-
1. The Gupta family consisting of Mr. Jitendra Gupta, his wife Smt. Meenakshi Gupta and their two sons namely Mr. Ashish Gupta and Mr. Aditya Gupta has been indulging in making various partnership deeds in the name of M/s Sharda Exports at a different span of time, showing head office of firms at different locations and claiming them to be different firms though main partners are almost the same and they are claiming the business of carpet manufacturing through all these firms of the same name at the same time.
The motive of this change of address of various firms with common name M/s Sharda Exports is prima facie nothing but to camouflage the revenue about the business activities of the group.
2. On perusal of the records of the firm and from the statement of Mr. Ashish Gupta, it came to the knowledge of the department that the group had another firm namely M/s Sharda Exports, Delhi which was also engaged in the carpet industry. Thereafter, the group dissolved the same in 2003, and created a new firm in the same name of M/s Sharda Exports which existed up to the year 2009 and between this period the assessee further established a parallel new firm of the same name claiming head office at Haridwar in the year 2004. Then after in the year 2009 the assessee dissolved the firm of Haridwar and established new firm with the same name at Delhi. However, the business of carpet was controlled at every time only from Meerut office and from 8 none other place. Thus, the act of framing new firms and that too at the same span of time two parallel firms in the name of M/s Sharda Exports by the group has been clearly established. This activity clearly shows that the assessee's intention was not to do the business at Haridwar but to hoodwink the revenue by applying various measures as detailed above in order to avail of the benefit of deduction u/s 80IC legitimately.
3. On perusal of the records of the firm and from the statement of Mr. Ashish Gupta, it come to the knowledge of the department that the assessee shifted the entire turnover of old M/s Sharda Exports, Meerut to the new firm of Haridwar without performing any activity at Haridwar and also the assessee transferred the same business to the Delhi firm. However, as usual the business was carried out only from Meerut. Mr. Ashish Gupta in his statement accepted that the goodwill of M/s Sharda Exports remained unchanged whenever a firm was either dissolved or transferred into a new one under the same name in the same business.
4. Since, major factor/assets of M/s Sharda Exports is its goodwill that is why M/s Sharda Exports, Haridwar had shown to have achieved sale of more than Rs.30 crores within a short period of five months in the initial year. Since, the major assets of the firms inter alia the goodwill of the firm remained common and not transferred in writing and was not possible to be
5. The assessee did not provide the data of turnover of M/s Sharda Exports, New Delhi from 2001-02 to F.Y. 2008-09. 9 However, Mr. Gupta accepted that their turnover of Delhi firm had decreased accordingly, due to forming the firm in the same name with Hardwar office. This shows that entire work of old Sharda Exports was shown to be shifted to Haridwar firm without executing any work at Haridwar. Even the assessee has not closed a single activity at Meerut and all the work was still being done at Meerut. All the transportation details show that the goods were being transported to Meerut and also from Meerut.
6. In Haridwar there is no scope of workers for carpet manufacturing and in this region the workers are concentrated in and around Bijnor Distt., Muzaffarnagar Dist., in Khekda of Bagpat Dist., Panipat Dist., Therefore, a direct question was asked to Mr. Gupta how many persons/business concerns performed carpet manufacturing for the firm at Haridwar. In response to this question Mr. Gupta accepted that when they have tried to start functioning at Haridwar most of the persons were not aware of this work in and around Haridwar.
7. He has failed even to remember the name of a single person of firm to disclose to this office during the statement who has worked at Haridwar for the firm during the entire period of existence of the firm.
8. Mr. Gupta accepted that he knows the necessary matters and details of the firm as a partner could be aware of. But he has failed to name none who has worked for the firm at Haridwar or in the premises of Haridwar. This clearly reflects that not even a single person of Uttrakhand is engaged in the activity of manufacturing of job work with the firm at Haridwar.
9. Mr. Gupta has claimed that Latexing, binding, embossing and finishing was done at Haridwar and also the production activity data furnished by the firm also reflects that not any activity of this 10 type is being done only at Haridwar. However, the replies of some job workers received by this office in compliance of notice u/s 133(6) was communicated to Mr. Ashish Gupta. In their replies the job workers have stated that they are performing the above activities for the assessee at their premises outside the Haridwar. This fact was confronted to Mr. Gupta and he accepted that there is nothing contrary to with him and he is in agreement with the statement of these job workers who have stated that these activities were performed outside the Haridwar.
10. Mr. Gupta in his statement dated 23.12.2011 claimed that job workers were doing business in his premises situated at Haridwar but failed to disclose name of even a single person. Therefore, claim of assessee is not tenable at all.
11. It has been stated that data of accounts is being maintained electronically and no books of accounts were maintained manually at three different sites and duly synchronized with each other's and further that, as usual, the computer personnel prepares the backup of the data which is being stored on a regular interval. But the assessee did not produce soft copy of the data but instead claimed that the data for A.Y. 2005-06 has been corrupted. Therefore, the Assessee's contention did not appear genuine at all which clearly establishes that the assessee has intentionally hiding the true affairs of its business. The assessee has claimed that they have obtained dyeing through outside job workers. But as per communication available in this office, the main dyeing job worker of the company is a business undertaking closely related to the assessee i.e. M/s Avant Grade Carpets Pvt. Ltd., Meerut. The dyeing process is not permissible for an eligible undertaking by the State Government. Therefore, the assessee had been modifying the facts of dyeing process as well as for the tanning process (which is a basic necessity for leather rugs) according to the Assessee's requirement so as to avoid getting debarred for doing 11 the entire manufacturing process in the eligible state by the State Authority as well as by the department.
12. The assessee claimed three business concern performing job work for the assessee at Haridwar, but during the cross examination, Mr. Gupta had shown ignorance about the same. When specifically confronted with the names of these business concerns namely M/s Pee Gee Enterprises, M/s Poornima Creations and M/s Sharda international Pvt. Ltd., the assessee denied of having any knowledge of these business entities working at Haridwar. However, when Mr. Gupta was told that M/s Pee Gee Enterprises is a company engaged in the business of carpet and is situated at Barnala in Dist. Sangrur of Panjab State and there has not been found any company in the name of M/s Sharda International Pvt. Ltd. And the remaining business concern namely M/s Poornima Creations whose address has been shown as Ranipur, Haridwar in not an existing one at Haridwar. Mr. Gupta has shown complete ignorance for these contradictory facts. Therefore, the activity of the firm cannot be held as genuine.
13. In reply to Question No.25 of the statement Mr. Gupta even failed to tell the approximate number of persons engaged at Haridwar during the year under reference. Mr. Gupta accepted that many Muslim workers are engaged with them but in the daily production sheet made available to this office not any decrease of production even on the eve of festivals like Eid-Ul- Fitar and Eid- Ul-Zuha has been reported by the assessee. Since, maximum number of weavers in the trade of carpet manufacturing are Muslim by faith: therefore, non reporting of decrease of the workers on the exact days on both main Muslim festivals reflects that the entire production sheet of the assessee is a desk work only to hoodwink the revenue.
12
14. Further, it was noticed that the partners created a new firm in the same name with different PAN-ABOFS0079G in the year 2009 with head office Delhi with all the family members excluding female member of the family. Mr. Gupta has even denied of any information regarding this new firm as per his reply to question No.37. However, it is worth noting that this new firm has shown its branch office in the premises of the undertaking situated at Haridwar, whereas all the assets and liabilities were transferred to a single person i.e. Shri Jitender Kumar Gupta after dissolution of the old firm at Haridwar on 1.04.2009.
15. Mr. Gupta accepted that the turnover of Rs.30 Crores was achieved in a short period of five months in the initial year of the firm, which was not sufficient in comparison of the promoters which should have been more than the results of the firm shown at Haridwar. This acceptance clearly shown that the goodwill of the old firm is being regularly encashed by the assessee.
16. It was specifically asked why the firm after availing the deduction of first five years has closed its business on an early date, though the business of firm was gradually increasing, the reason supplied by Mr. Gupta was that the business after the five years was downward and also due to shifting family at Delhi which statement is not in consonance with the results continuously being shown by the firm.
17. During the statement, Mr. Gupta was shown the copies of registration application made with Carpet Export Promotion Council, New Delhi by the new firm of the same name M/s Sharda Exports and was asked why the new firm in the same name has been created for the same business. However, no satisfactory answer was supplied by Mr. Gupta. The registration with CEPC clearly establishes that the requirement of creating new firm in the same name is just to hoodwink the revenue so that no one could 13 enquire into the true position of the assessee firm in respect of past activities.
18. The assessee claimed activities of Latexing at Haridwar, but besides this the assessee claimed that dyeing was performed at Meerut and other stations. This was not a reliable fact and also the movement of goods did not support this contention since Latexing is a process performed before dyeing, therefore, it is not tenable that Latexing is performed at Haridwar station after dyeing process because the Assessee's claim that firstly wool is stored at the warehouse situated at Meerut and then disbursed to various weavers through job workers, then it is again collected at Meerut warehouse for dying, then Latexing is necessarily being executed at Meerut or other stations because quality check is also available at Meerut. Therefore, in view of the above facts the assessee's contention was not prima facie reliable. Secondly, in such a big firm having turnover of more than Rs.100 crores, it is not practical to do tufting manually because in these days even smaller units are doing tufting through automatic machines and not through hand machines manually. Since no tufting machines are reportedly situated at Haridwar, there was no electric machine for tufting at the Haridwar premises.
19. As already pointed out, the assessee claimed weaving completely outside the Uttrakhand state but claimed Latexing, binding, carving and embossing, clipping and finishing at Haridwar. But various job workers claimed performing of these activities for the assessee outside Haridwar. The assessee showed clipping through the job work by M/s Pee Gee Enterprises, M/s Poornima Creations and M/s Sharda International Pvt. Ltd but none of these persons have been found to be existing concerns at Haridwar.
14
20. The assessee had shown electricity expenses of Rs.2,32,906/- which includes electricity consumed by the persons residing in the quarters at Haridwar in the premises of firm which expenses are very small fraction in comparison to the so called manufacturing activity at Haridwar. The Assessee's claim of generator expenses which have been claimed against the generator installed at M/s Avant Grade Carpets Pvt. Ltd at Meerut shows that the assesses did not perform any business activities at Haridwar.
21. The assessee declared addresses of only three employees relating to Uttrakhand state out of total 58 employees, namely Awadhesh Kumar, Bhupendra Singh and Rajneesh Tyagi, whose addresses were shown by the assessee at the premises of the company itself, but they do not belong to Uttrakhand. One of them namely Mr. Rajneesh Tyagi belongs to Saharanpur Distt of U.P. And the remaining two are also not belonging to Uttrakhand. From this, it emerged that the so called employment was not benefiting the people of Uttrakhand. None of the job workers/contractors claimed by the assessee of having performed job work for the assessee has been found to be belonging to the Uttrakhand state. Not a single activity of the assessee supports that manufacturing was done by the assessee at Haridwar except use of premises at Haridwar as a warehouse purpose only. Since, deduction u/s 80IC claimed by the assessee is exclusively for Uttrakhand state, therefore, the basic object of the Government for framing the policies of deduction for specific states is not fulfilled in this case.
22. Obtaining job work through job work contractors who are scattered at different places outside Uttrakhand nowhere permits the assessee to claim deduction u/s 80IC which is meant for the Uttrakhand state only.
15
23. Notices u/s 133(6) of the I.T.Act 1961 were issued to various job workers but except a few one none complied to these notices which fact was duly confronted to Mr. Ashish Gupta during the statement. This fact of non compliance also goes against the authenticity of the manufacturing activities of the firm having been done at Haridwar because if a person is in business relationship with the assessee then he will definitely secure the interest of the assessee by providing the requisite information called by the department.
24. The factual reports on the activities of the business was requisitioned from the ITO (OSD) of this Range who was specifically deputed for this purpose and whose report has already been communicated to the assessee during the statement which is already reproduced above. In the light of factual position as detailed therein, it clearly emerged that it is humanly not possible to achieve so much turnover as shown to have been performed by a scanty number of workers/job workers from the said premises at Haridwar.
25. As per chart of electricity expenses claimed by the assessee, surprisingly there is uniformity in the payment of monthly electricity charges which was not in consonance with the statement of Mr. Gupta where he stated that the carpet manufacturing is not uniform during the year. This fact proves that no machinery has been employed to consume the electric power for manufacturing but the electric connection was there for general power consumption in the unit only.
26. Further, the assessee did not perform any manufacturing work himself but through the outer agencies and through various persons. Therefore, there remains no reason for granting the benefit of manufacturing activities to the assessee concern. This is 16 because the work which was not done by the assessee primarily did not entitle him for claiming deduction u/s 80IC itself.
27. In the light of above facts and circumstances detailed above the entire deduction claimed u/s 80IC by the assessee was required to be disallowed."
4. On receipt of show-cause notice, assessee has filed detailed reply, whereby it has appraised its manufacturing activities, how it is entitled for deduction u/s. 80IC. It has already highlighted the various statutory compliance made by it for fulfilling all the conditions required for grant of deduction under sec. 80IC of the Act, the assessee has filed its comments on each observation of the Assessing Officer in the alleged show-cause notice. Learned Assessing Officer has reproduced the replies of the assessee from page Nos. 8 to 22 of the assessment order. Learned Assessing Officer thereafter held that the assessee did not manufacture carpet at Sidcul, rather it has achieved the turnover by diverting products from its factories at Partappur and Meerut. He disallowed the claim of the assessee under sec. 80IC which includes deduction on DEPB receipts at Rs.12,90,26,728.
5. Dissatisfied with the action of the Assessing Officer, assessee carried the matter in appeal. It emerges out that during the pendency of the appeal, a survey was carried out on the new business premises of the erstwhile 17 partners of the assessee. Based on the material found during survey operation conducted on 23.2.2012, learned Assessing Officer has filed a report dated 04.05.2012. Learned CIT(Appeals) has confronted the assessee with this report and the assessee has filed a reply to each item considered in the report. Learned CIT(Appeals) has reproduced the report submitted to him in a tabular form and also reproduced the reply of the assessee on page Nos. 8 to 26 of the impugned order. Since whole controversy in this appeal is based on evaluation of the evidences and circumstance demonstrating the fact that whether assessee has undertaken manufacturing activity of carpets at Sidcul or not? Therefore, we deem it necessary to take note of these details which read as under:
1. " A Survey operation was conducted on 23.02.2012 at the various business premises of the assessee and it is found evident that the assessee is not engaged in the manufacturing activities in the eligible state thus not eligible for deduction u/s 80-IC of the IT Act 1961.
2. In this respect it may be submit that on the basis of information gathered during the course of Asstt. Proceedings of A.Y 2009-10 completed by the Joint Commissioner Of Income Tax , Hardwar vide Asstt order dated 30.12.2011 , it was concluded that no manufacturing was undertaken at Hardwar by the assessee and accordingly deduction u/s 80IC was disallowed . Subsequently , on 23.02.2012 a survey operation has been conducted at the business premises of the assessee at Hardwar , Meerut and Delhi Units and it has been evidently found that the assessee actually had not been manufacturing /producing article / things at Hardwar since F.Y 2004-05 but obtaining it from various job work contractors from outside the eligible state of Uttrakhand state.18
3. During the course of survey operation it has been found that the claim of the assessee that manufacturing /production is being performed at Hardwar and the goods are exported from Hardwar is not true in the light of material facts gathered during the course of survey operation in this case detailed hereunder:
SI. Detail of Description page Conclusion to be derived No impounded numbered documents bold marked with this letter 1 Annexure - Dying unit register 1-2 Since, the register has 63 Party-A, been found at Gagol Road, at Gagol Meerut unit of the assesee Road Unit therefore, it may be concluded that Dying operation is being performed at Meerut rather than Hardwar as claimed by the assesee 2 Annexure - Goods return from 3-5 That the goods after job 61 Party-A, Panipat work returned back to at Gagol Meerut and not at Road Unit Hardwar 3 Annexure - Loading Book 6-9 That goods finally 60 Party-A, exported from the Meerut at Gagol and not from the Hardwar Road Unit unit as claimed by the assessee 4 Annexure - Washing Record 10-11 Washing activity is a final 59 Party-A, stage activity is being at Gagol performed at Meerut Road Unit 5 Annexure - Sending goods from 12-15 Since the register has 55 Party-A, Store to Dying been found at Gagol Road, at Gagol Meerut unit of the Road Unit assessee therefore it may be concluded that Dying operation is being performed at Meerut rather than Hardwar as claimed by the assessee 19
6 Annexure - Freight detail goods 16-19 That the Hardwar unit do 45 Party-A, transported from not pay any role in goods at Gagol Meerut to Panipat & receipts or dispatched for Road Unit vice-versa Panipat for job work but it is routed only from Meerut 7 Annexure - Transportation detail 19A,20-22 That the Hardwar unit do 44 Party-A, from Panipat to Meerut not pay any role in goods at Gagol & vice versa receipts or dispatched for Road Unit-7 Panipat for job work but it is routed only from Meerut 8 Annexure - Transportation detail 23-25 That the Hardwar unit do 43 Party-A, from Gurgaon to not pay any role in goods at Gagol Meerut & vice versa receipts or dispatched for Road Unit-7 Panipat for job work but it is routed only from Meerut 9 Annexure - Detail of goods send to 26-27 That the entire goods are 41 Party-A, various places from being sent from Meerut at Gagol Meerut and not from Hardwar.
Road Unit-7
10 Annexure - Exports Declaration 28-31 Shows that the imports
37 Party-A, certificates are made at Meerut and
at Gagol not at Hardwar.
Road Unit-7
11 Annexure - Payment vouchers for 32-34 Shows that the goods
36 Party-A, goods transported to after job work received at
at Gagol Meerut from Agra, Meerut only and not at
Road Unit-7 Panipat etc. Hardwar.
12 Annexure - Duty Credit transfer 35-40 That duty credit is being
35 Party-A, certificate and receipt received by the assessee
at Gagol for Meerut and for the
Road Unit-7 work..........
13 Annexure - Form of Registration 41-45 Shows that the partners
32 Party-A, with ROF & other has created a New firm
at Gagol documents under the same name
Road Unit-7 showing different head
offices on 01-01-2009 and
also shows the address of
old firms as unit address.
This shows mens rea of
the assessee.
20
14 Annexure - Form,s in the name of 46-49 Shows that various forms
28 Party-A, Sharda Exports, for state permission is
at Gagol Hardwar being obtained at Meerut
Road Unit-7 and used at Meerut
though belong to Hardwar
Unit. Though it is......
15 Annexure - Purchase Vouchers of 50-52 Shows that Buyer is being
27 Party-A, Sharda Exports, SF shown as Sharda Export -
at Gagol Delhi Hardwar but address is
Road Unit, Rithani Industrial Area,
Meerut Meerut (UP). The modus
operandi clearly reflects of
assessee.
16 Annexure - Registration of New 53-55 Shows that the same
26 Party-A, firm -Regd No object of the firm and
at Gagol FIEO/NR/10557/2009- nothing changed
Road Unit, 2010/279 with
Meerut federation of Indian
export Organization
(Ministry of Commerce
& Ind)
17 Annexure - Invoices, from job work 56-63 Shows that the tufting
25 Party-A, of tufting and backing and backing and other job
at Gagol work claimed by the
Road Unit, assessee is doing itself are
Meerut being outsourced from
outside the eligible state.
18 Annexure - Form no 8 for purchase 64-64 Shows that latex
23 Party-A, of latex purchased at Meerut in
at Gagol the name of Hardwar unit
Road Unit, and all the activity &
Meerut documentation is being
done at Meerut only
19 Annexure - Branch transfer 65-71 Shows that the carpet and
20 Party-A, challans & transport packing material are
at Gagol receipts being transferred at
Road Unit, Hardwar only in a few
Meerut cases just for packing the
finished carpets and none
other activity is being
performed at Hardwar.
The finihed or semi
finished goods received
from the job workers only
at Meerut and not at
21
Hardwar
20 Annexure - Leather import 72-73 item " Hair on Cow hides "
18 Party-A, imported which is directly
at Gagol received by the Meerut
Road Unit, office and not by the
Meerut Hardwar unit
21 Annexure - Stock statement before 74-81 The assessee shown the
16 Party-A, the bank for stock at every
at Gagol hypothecation. station/unit except
Road Unit, Hardwar unit, this shows
Meerut actual fact in the case of
assessee. NO Stock
neither maintained at
Hardwar nor any work
actually performed at
Hardwar.
22 Annexure - Branch transfer 82-84 claim of assessee that
14 Party-A, challans shows that the finished carpet
at Gagol finished handmade transported from Hardwar
Road Unit, carpets transferred to proves non genuine.
Meerut Meerut.
23 Annexure - Wages & Salary 85-87 Staff of 37 persons at
10 Party-A, payments to workers/ Gagol Road Branch is
at Gagol staff. more than three times
Road Unit, which has been found at
Meerut Hardwar where main
activity claimed by the
assessee.
22
24 Annexure - Wages & Salary 88-91 This is the register for
09 Party-A, payments to workers/ manipulation of salary
at Gagol staff of Hardwar detail to be claim in the
Road Unit, (maintained at name of Hardwar.
Meerut Meerut). heading clearly shows as
mentioned at the top of
the page that this is
maintained for Hardwar
unit. This shows clear
manipulation of the
assessee. person
maintained at SI No 25 "
Rajneesh tyagi" is the
same person who is the
key person at Hardwar,
who receives the most
of the notices/ letters of
the department on
behalf of assessee at
Hardwar but his daily
attendance is being
shown in the register
maintained at Meerut.
25 Annexure - Purchase vouchers/ 92-96 Purchase of Dyes and
68 Party-A, bills others made at Meerut
at Gagol and not at Hardwar.
Road Unit,
Meerut
26 Annexure -1 Invoice folders of 97-108 Invoices shows that
to 6 Party-A, Hardwar exports is being made
at Gagol from various city/ ports
Road Unit, but the assessee putting
Meerut remarks on these invoices
as from Hardwar to Delhi
& abroad etc but these
challans founds/invoices
found from Meerut unit
and not from Hardwar.
Even not a single invoices
of such type found from
Hardwar during the
survey operation which
shows that manipulation
is being done at Meerut.
23
27 Annexure - Daily Production 109-110 Shows that the binding
A8 Party-D, Register for Binding work is being performed
at Rithani at Meerut unit whereas
Unit, Meerut the assessee claimed this
activity at Hardwar
28 Annexure - Challan Book register 111-112 Shows that the binding
A7 Party-D, for Binding Activity work is being performed
at Rithani at Meerut unit whereas
Unit, Meerut the assessee claimed this
activity at Hardwar
29 Annexure - Challan/Invoices for 113-115 Shows that Stocking,
A6 Party-D, stocking/Latexing/ Latexing, binding is being
at Rithani Binding performed at Meerut.
Unit, Meerut
30 Annexure - Daily updation register 116-117 Quality check and other
A5 Party-D, for sampling final activity are being
at Rithani performed at Meerut.
Unit, Meerut
31 Annexure - Avant Garde Carpets- 118-120 Activity performed at
A4 Party-D, Panipat job work Panipat by job workers
at Rithani bill/register. which is outside the
Unit, Meerut eligible state.
32 Annexure - Stock- Store register 121-122 Tufting cloth and multi
A3 Party-D, backing cloth is being
at Rithani kept at Meerut but
Unit, Meerut claimed by the assessee at
Hardwar.
33 Annexure - Daily production 123-124 Shows that Stocking
A2 Party-D, register for Latexing Latexing is being
at Rithani performed at Meerut.
Unit, Meerut
34 Annexure - Gate pass for Latexing 125-127 Shows that Latexing and
A1 Party-D, and binding. Binding are being
at Rithani performed at Meerut and
Unit, Meerut not at Hardwar as claimed
by the assessee.
35 Annexure -B Job work register 128-130 Job work performed by
21 Party-D, obtained the assessee from outside
at Rithani the eligible state and
Unit, Meerut delivered at outside the
eligible state because
register found at Meerut
36 Annexure - Daily Production 131-132 Production at Meerut and
B18 Party-D, Register not at Hardwar.
at Rithani
24
Unit, Meerut
37 Annexure - Production Register 133-135 Job work obtained at
B17 Party-D, through job work Meerut and not at
at Rithani Hardwar.
Unit, Meerut
38 Annexure - Daily dispatch register- 136-138 Samples send from
B16 Party-D, Sampling Meerut to overseas and
at Rithani not from Hardwar
Unit, Meerut
39 Annexure - Daily Production 139-140 Shows that even final
B15 Party-D, register- Rinsing activity also performed at
at Rithani Meerut only.
Unit, Meerut
40 Annexure - Register- Sampling 141-143 Activity performed at
B14 Party-D, Meerut only
at Rithani
Unit, Meerut
41 Annexure - Buyer order entry 144-145 Activity performed at
B13 Party-D, register Meerut only.
at Rithani
Unit, Meerut
42 Annexure - Job work register 146-148 Job work register
B12 Party-D, obtained from various obtained from various
at Rithani contractors. contractors situated
Unit, Meerut outside eligible state.
43 Annexure - Register for latex to 149-150 Performed at Meerut but
B10 Party-D, Binding. claimed at Hardwar.
at Rithani
Unit, Meerut
44 Annexure - Binding Register 151-152 Performed at Meerut but
B7 Party-D, claimed at Hardwar.
at Rithani
Unit, Meerut
45 Annexure - Binding Register 153-154 Performed at Meerut but
B6 Party-D, claimed at Hardwar.
at Rithani
Unit, Meerut
46 Annexure - Binding to Finishing 155-157 This Shows that these
B3 Party-D, Register activities are being
at Rithani performed at Meerut only
Unit, Meerut but claimed by the
assessee for Hardwar.
47 Annexure - Binding to Finishing 158-160 This Shows that these
B2 Party-D, Register activities are being
25
at Rithani performed at Meerut only
Unit, Meerut but claimed by the
assessee for Hardwar.
48 Annexure - Ledger- Job Work 161-166 The ledger of various
C9 Party-D, parties situated at
at Rithani Panipat shows that the
Unit, Meerut work through job work
have been performed at
Panipat and not at
Hardwar.
49 Annexure - Ledger- Purchase/Job 167-169 The ledger of various
C8 Party-D, Work parties situated at
at Rithani Panipat shows that the
Unit, Meerut work through job work
have been performed at
Panipat and not at
Hardwar.
50 Annexure - Ledger-Job Work 170-172 The ledger of various
C7 Party-D, parties situated at
at Rithani Panipat shows that the
Unit, Meerut work through job work
have been performed at
Panipat and not at
Hardwar.
51 Annexure - Ledger-Shipment 173-175 Shows that shipping is
C6 Party-D, being done from Meerut
at Rithani only and not from
Unit, Meerut Hardwar.
52 Annexure - Ledger- 176-178 Shows that shipping is
C5 Party-D, Nazakat/Shipment being done from Meerut
at Rithani only and not from
Unit, Meerut Hardwar.
53 Annexure - Freight Register 2009- 179-182 Shows that Shipment
C4 Party-D, Sea & Air either sea or by Air is
at Rithani being done from Meerut
Unit, Meerut and not from Hardwar as
claimed by the assessee.
54 Annexure - Invoice Register for 183-187 This shows that entire
C3 Party-D, Shipping. shipment is being done
at Rithani from Meerut.
Unit, Meerut
55 Annexure - Performa Register - 188-189 This shows that entire
C1 Party-D, Shipping. shipment is being done
at Rithani from Meerut and not from
Unit, Meerut Hardwar.
26
56 Annexure - Invoice Register for 190-191 This shows that entire
C2 Party-D, Shipping. shipment is being done
at Rithani from Meerut and not from
Unit, Meerut Hardwar.
57 Annexure - Purchase Orders 192-196 This shows that purchase
A29 Party-C, is being matured at
at Rithani Meerut and the purchase
Unit, Meerut order maintained at
Meerut shows its seller as
Hardwar unit which is
table work trying to show
the work as at Hardwar.
58 Annexure - Gate pass for Meerut to 197-199 Containing both
A28 Party-C, Hardwar of various job destination as Hardwar &
at Rithani work Contractors Meerut reflects that the
Unit, Meerut assessee wants only to
disguise the work is being
performed at Hardwar.
59 Annexure - Inspection Room/ 200-200 shows that the final
A27 Party-C, Sample Register inspections are been
at Rithani carried out at Meerut only
Unit, Meerut
60 Annexure - Test for Foreign 201-202 Shows that even tags is
A26 Party-C, Destination. being affixed at Meerut
at Rithani only which are the final
Unit, Meerut stage, which proves that
final goods are being
exported only from
Meerut.
61 Annexure - Certificates along with 203-208 Showing that Meerut to
A25 Party-C, invoices containing Mumbai carpets
at Rithani certificates that carpets transported through Road
Unit, Meerut of various types are and from Sea to overseas
being exported from through vessel. Thus
Meerut to Navi claim of assessee that
Mumbai. goods are being
transported from Hardwar
is proved non genuine.
62 Annexure - Container/ Truck 209-219 Container/ Truck
A24 Party-C, inspection report- inspection report- Shows
at Rithani Showing the inspection that the stuffing and
Unit, Meerut before stuffing/loading Loading is being done at
and after stuffing/ Meerut not at Hardwar.
Loading the Since inspection is the
last activity of
27
manufacturing process
which are being done at
Meerut, therefore it prove
that final product is being
exported only from Meerut
and not from Hardwar.
63 Annexure - Challans for Finish 220-222 This contains truck
A23 Party-C, Carpets from T.C to numbers also which
at Rithani Rithani Ind. Area shows that finish carpets
Unit, Meerut Meerut. are being Handled at
Meerut only and not at
Hardwar.
64 Annexure - Details of Goods Weave 223-225 Shows that this activity is
A22 Party-C, Labels issued. performed at Meerut only.
at Rithani
Unit, Meerut
65 Annexure - Transaction with cost 226-229 Shows that overseas
A21 Party-C, plus management transaction are being
at Rithani service inc., US done at Meerut unit.
Unit, Meerut
66 Annexure - Packing- Finishing and 230-233 Shows that the finishing
A14 Party-C, then transfer to and packing activities are
at Rithani Hardwar details/ being done at Meerut only
Unit, Meerut Invoices. and no need to perform
any activity at Hardwar
but only for disguise the
revenue this action
performed in the name of
Hardwar.
67 Annexure - Receipts for goods send 234-236 Final products
A17 Party-C, to Hardwar. transported to Hardwar.
at Rithani
Unit, Meerut
68 Annexure - Labeling Register. 237-239 Shows that even labeling
A18 Party-C, are performed at Meerut
at Rithani through various job work
Unit, Meerut contractors which shows
that no further finishing
is required to be
performed by the assessee
under the head of
manufacturing.
28
69 Annexure - Gate pass register- 240-242 Shows that Material gate
A16 Party-C, packing department pass are issued for
at Rithani shipment from Meerut
Unit, Meerut only and no requirement
after this packing is
required to the final
product.
70 Annexure - Gate pass Labeling 243-245 Shows that even labeling
A15 Party-C, are performed at Meerut
at Rithani through various job work
Unit, Meerut contractors which shows
that no further finishing
is required to be
performed by the assessee
under the head of
manufacturing.
71 Annexure - Challans- hand tufted 246-250 That the entire activity
A13 Party-C, carpets issued to performed from Meerut
at Rithani various parties. only.
Unit, Meerut
72 Annexure - Challan-Stock Register. 251-255 Carpet sent for carving to
A12 Party-C, mahaluxmi shows that
at Rithani carving is not performed
Unit, Meerut by the assessee but by the
job workers. Other
challans shows material
send to Delhi for Export.
Therefore activities at
Hardwar not proves.
73 Annexure - Container A-11, 256-258 Payment to contractor's
A11 Party-C, Register Packing loaders shows that
at Rithani Department. loading carpers into
Unit, Meerut containers performed at
Meerut and not at
Hardwar.
74 Annexure - Carpet Received 259-261 Shows that local job work
A10 Party-C, Register obtained from Meerut and
at Rithani not from Hardwar.
Unit, Meerut
75 Annexure - Buyers Orders 262-263 Buyers orders even
A9 Party-C, received at Meerut.
at Rithani
Unit, Meerut
29
76 Annexure - Carpet Received 264-267 Shows that finishing are
A8 Party-C, register - Finishing being performed at
at Rithani Meerut and the finishing
Unit, Meerut material obtained from job
workers. Therefore this
activity not performed at
Hardwar as claim of
assessee.
77 Annexure - Carpet Received 268-272 That this activity also
A7 Party-C, register - P& S performed at Meerut and
at Rithani Department not at Hardwar.
Unit, Meerut
78 Annexure - Register- Packing 273-278 Packing is being done at
A6 Party-C, Department the large level at Meerut
at Rithani therefore after packing no
Unit, Meerut further requirement of
any further action for the
same is required at
Hardwar.
79 Annexure - Daily Production 279-280 Packing at Meerut and no
A5 Party-C, Register- Packing any activity remains at
at Rithani Hardwar.
Unit, Meerut
80 Annexure - Daily Production 281-282 Packing at Meerut and no
A4 Party-C, Register- Packing any activity remains at
at Rithani Hardwar.
Unit, Meerut
81 Annexure - Daily Production 283-284 Packing at Meerut and no
A3 Party-C, Register- Packing any activity remains at
at Rithani Hardwar.
Unit, Meerut
82 Annexure - Daily Production 285-286 Packing at Meerut and no
A2 Party-C, Register- Packing any activity remains at
at Rithani Hardwar.
Unit, Meerut
83 Annexure - Daily Production 287-288 Packing at Meerut and no
A1 Party-C, Register- Packing any activity remains at
at Rithani Hardwar.
Unit, Meerut
84 Annexure -1 Yarn Movement 289-295 Shows that the assessee
Party-A, at Register for the period is obtaining following job
Partapur, 01-04-2004 to 30-09- works through outsourced
30
Meerut 2004 detail as follow:
Latexing: from M/S
Sharda International P
Ltd(renamed as IHDP)
Tufting : (I) M/S All India
Textiles Mills, Panipat, (II)
m/s Shri Ram Textiles
Mills Panipat (III) M/S
Shiv Enterprises Rithani
Meerut.
Bathmet: (i)M/S Woyal
Tax feb Modinagar, (II)
M/S Konark Handloom
Modinagar Mill (III) M/S
Sharda International Pvt
Ltd Meerut (IV) M/S M.G
Enterprises Rithani,
Meerut
Carpet Weaving: (i) M/S
ML carpet Partapur,
Meerut (II) M/S Tirupati
Carpets Meerut (III) M/S
Wanga carpet Meerut (iv)
M/S Nirmal
Carpet,Meerut (v) M/S
Kruti Overseas, Panipat
(vi) M/S Sharda
International Pvt Ltd,
Meerut
Clothing: (I) M/S Kruti
overseas Panipat (II)M/S
Mittal Overseas Panipat
(III) M/S Shree Fab
Panipat (iv) M/S Banke
Bihari Carpets, Plikhia (v)
M/S All India Textiles
Mills, Panipat.
Packing and Finishing:
M/S M.G Enterprises,
Rithani, Meerut.
31
from the above details it
is proved that even
packing and finishing
are being outsourced
through job work
contracts by the
assessee at various
places outside the
eligible state since very
beginning of the unit at
Hardwar as this Data is
for the period from 01-
04-2004 to 30-09-2004
85 Annexure -2 Attendance register for 296-303 Stamp at the top of the Party-A, at the period from attendance page shows Partapur, December 2004 to that this work force is for Meerut March 2005 Hardwar Unit but attendance maintained at Meerut. This shows that manipulation has been made at Meerut and no actual working was in operation at Hardwar since very beginning of Hardwar Unit.
86 Annexure -3 Attendance register for 304-311 Detail of the top of the Party-A, at the period from April attendance pages shows Partapur, 2008 to March 2009 that work force is for Meerut Hardwar Unit but attendance maintained at Meerut. This shows that manipulation has been made at Meerut and no actual working was in operation at Hardwar since very beginning of Hardwar Unit. Even some persons are same as claimed at Hardwar Unit and found during survey operation.
3287 Annexure -4 Cash/ Credit memo 312-316 Manipulation by the Party-A, at books of Nandlal assessee as same blank Partapur, Carpets, memo also placed in the Meerut Muzzaffarnagar found books and the reason for from the premises of availability of original the assessee for the books of other party period of F.Y 2005-06 shows the intention & working of the assessee.
88 Annexure -5 Bill books of M.L 317-325 Manipulation by the Party-A, at Carpets found from assessee as same blank Partapur, the premises of the memo also placed in the Meerut assessee for the period books and the reason for of F.Y 2005-06 availability of original books of other party shows the intention & working of the assessee.
89 Annexure -6 Job work bill books of 326-331 Manipulation by the Party-A, at Vishnu Carpets found assessee as same blank Partapur, from the premises of memo also placed in the Meerut the assessee for the books and the reason for period of F.Y 2005-06 availability of original books of other party shows the intention & working of the assessee.
90 Annexure -7 Job work bill books of 332-334 Manipulation by the Party-A, at M/S Sukhbir Carpets assessee as same blank Partapur, found from the memo also placed in the Meerut premises of the books and the reason for assessee for the period availability of original of F.Y 2005-06 books of other party shows the intention & working of the assessee.
91 Annexure -8 Job work bill books of 335-337 Manipulation by the Party-A, at M/S Sindhi Carpets assessee as same blank Partapur, found from the memo also placed in the Meerut premises of the books and the reason for assessee for the period availability of original of F.Y 2005-06 books of other party shows the intention & working of the assessee.
3392 Annexure -9 Job work bill books of 338-340 Manipulation by the Party-A, at M/S Taru Carpets assessee as same blank Partapur, found from the memo also placed in the Meerut premises of the books and the reason for assessee for the period availability of original of F.Y 2005-06 books of other party shows the intention & working of the assessee.
93 Annexure - Container register 341-343 That working strength of A7 Party-at maintained shows the persons (9 persons only) Hardwar salary detail of person is not enough even for for the period of F.Y maintenanace of such 2010-2011. large field and shades and building of the unit at Hardwar and none others.
94 Annexure - Generator & Light 344-346 Shows that consumption
A8 Party-at Consumption records of 3-4 units per day,
Hardwar which are not enough for
such a large scale
production as claimed for
Hardwar Unit.
95 Annexure - Attendance Register 347-354 A Manipulation one which
A9 Party-at shows such huge working
Hardwar staff of 52 persons in
January 2006 but shows
next month's as January
2009 enrolled only 15
workers. This shows that
the assessee nowhere
maintained attendance
register from the year
2006 to 2009 but it has
no working staff at
Hardwar unit beside the
staff as mentioned in para
93 above.
96 Annexure - Register 355-356 Shows that the main
A10 Party-at person leaving at the unit,
Hardwar Hardwar namely Mr.
Rajneesh of category of
loader and none other, his
writing also proves that
his education which do
not appears of such level
as work claimed to be
34
performed from Hardwar
Unit.
97 Annexure - Register 357-358 Shows that 13 persons
A11 Party-at are available there.
Hardwar
98 Annexure - Register- Packing 359-363 Shows that the register is
A12 Party-at maintained to disguise
Hardwar the revenue only as there
is blank receipts also
available in between the
issued receipts.
99 Annexure - Staff salary records 364-366 Shows salary detail of the
A18 Party-at from March 2005 to person of Hardwar for the
Hardwar December -2008 month March 2005 to
December 2008. This
shows that during this
period only average
number of employee were
12 persons at a time at
Hardwar unit. Which were
not enough to earn
turnover in more that 100
crores annually.
100 Annexure - Information supplied to 367-367 Shows that he claim A20 Party-at Employment Exchange. bogus employee 35 in Hardwar number at Hardwar unit.
101 Annexure - Various pages 368-371 Page 369: shows salary
A19 Party-at detail of total 9 employee
Hardwar of Hardwar.
Page 370: Shows pujan
samagri on 01-11-2005
that in augration of unit
was on November -2005
only. Page
371: That water supply
was started on
03.01.2005 only through
old motor pump.
35
102 Annexure - Salary details in 372-375 Salary of four persons in
A21 Party-at March-2005 March -2005 was debited.
Hardwar Therefore working
strength is not enough to
earn turnover more than
100 Crores.
103 Inventory of List of machinery at 376-377 List of machineries
stock found Hardwar 3 installed at Hardwar do
at Hardwar not support the
Unit. contention of the assessee
for obtaining of such huge
production in comparison
to machineries. Scantly
machineries found at the
premises does not support
the huge production
shown by the assessee at
Hardwar. There is found
only 1 Latexing machine,
latex drum -3 no empty
drum is found, powder - 7
bag, waste material 17
bags, other machinery
weigh machinery -01,
sewing machine -02,
electronic sceisor -4,
finishing machine -3,
clunder -1, electronic
leather cutting-1, Hand
leather cutting-03, Khaddi
machine-04, Tana
machine-01 only which
cannot make such
production as claimed.
36
104 Party- Statement of Rajneesh 378-380 i. Mr. Rajneesh Kumar,
Hardwar tyagi, incharge at introduced himself as
premises Hardwar recorded prod. Mng. has stated in
covered : during the course of his statement that he is in
M/S Sharda survey proceedings. Hardwar unit from 2005.
Exports, which indicates that
Hardwar Hardwar unit functioning
in the year 2005 only and
not before this period. ii.
He has stated in his
statement that finished
goods is send to parties
but the assessee claims at
entire finished goods as
exported. he has stated to
be maintaining daily
finishing register, daily
tufting register, weaving
register, final passing,
final packing, dispatch
register which is not
possible by such a meager
staff and also he has
stated that since after
2006-07 all the records
maintained at Meerut
only, which is not possible
if it would be performed at
Hardwar. iii.
His acceptance of
machinery also not
supports the huge
production as claimed by
the assessee.
105 Party- Statement of Mr. 381-381 Mr. Laxman Prasad,
Hardwar Laxman Prashad at stated for designing &
premises Hardwar recorded packing but the designing
covered : during the course of is claimed through
M/S Sharda survey proceedings. outsourced a pre-stage
Exports, performed by job work
Hardwar contractors. Carpets
design claimed (No scope
for designing work at
Hardwar).
37
106 Party- Statement of Mr. Hari 382-382 Hari Yadav, worker,
Hardwar Yadav Supervisor at stated that goods comes
premises Hardwar recorded from Meerut and after
covered : during the course of packing it is send back.
M/S Sharda survey proceedings.
Exports,
Hardwar
107 Party- Statement of Mr. 384-384 Manna Lal Gupta stated
Hardwar Manna Lal Supervisor that goods comes from
premises at Hardwar recorded Meerut and some
covered : during the course of manufactured here. Only
M/S Sharda survey proceedings. packing material was
Exports, available at Hardwar as
Hardwar per godown detail.
Finished carpet stocked in
the premises.
108 Party- Document regarding 385-385 The assessee claim
Hardwar working strength in engaged 25 workers which
premises January -2012 as were even not verifiable
covered : found during survey during the time survey
M/S Sharda operation. proceedings and their
Exports, work was that only 3
Hardwar workers in packing and
10 for tufting, which is
not such strengths for
such claimed huge
production.
109 Party- A Statement recorded of 386-394 Statement of Mr. Aditya
Premises Mr. Aditya Gupta, Gupta: (i) Mr. Aditya
covered : partner of the firm, Gupta, one of the
M/S Sharda during the course of partners in the old and
Exports, survey proceedings. new M/S Sharda Exports
Gagol Road has stated that his family
Partapur, group runs 1. M/S
Meerut. Sharda Exports, 2. M/S
IHDP Globals.
3. M/S IHDP Home
interiors 4. M/S
Great Furniture factory,
5. M/S Tirupati carpets
etc.
Bathmet and carpet are
being manufactured from
this unit (however it is
38
claimed in the old years
that the same is being
manufactured through
outsourced.
ii. Though he has
accepted that only 1
Boiler is there in the
Gagol road unit and
number of handloom
machine and bathmat not
known to him.
iii. He has stated that it is
not in his knowledge that
finishing work is being
done at his Gagol road
unit which has been told
by Mr. Asad Salim, prod
Mng. and by Mr. Krishna
Singh supervisor. (He has
not denied that the
finishing is being done at
Gagol Road unit).
iv. Stock register not
produce and stated that
the reason for not
available stock register in
this unit is not known to
him. He has stated that
he is un ware to the
reason why the old firm
dissolve and new one
formed with the same
name.
v. Most importantly he
has accepted that
Manufacturing of Sharda
Exports are being done at
Meerut, Hardwar, Panipat
and Bhadoi i.e. he has
accepted that the main
work is not only from
39
Hardwar unit.
vi. He has falsely stated
that at Rithani and Gagol
Road unit coloring and
weaving is being
performed other work not
known as during the A.Y
2005-2006 to A.Y 2009-
2010 he has not claimed
these two activities.
vii. Unit at Rithani was
started since 1998 he has
accepted it.
viii. He has produced
current electricity bill of
Hardwar unit which
shows all the activities is
being manipulated from
Meerut only and no work
at Hardwar.
ix. He has accepted of
having knowledge of
transferring Hardwar to
Delhi also address of C-
22, Gole Gurudwara
Hardwar is not known to
him.
x. He has stated that
he is not sure that
dyeing performed at
Hardwar or not however
dyeing is being done at
Gagol Road Unit (but in
earlier claim of dying
was for Hardwar Unit).
xi. He has denied of
having knowledge of
40
performing work such as
Latexing, binding,
carving, embossing or
clipping for Hardwar.
xii. Knowledge of goodwill
of the firm on dissolution
denied for. Shown
inability of producing
books of accounts of New
& Old Sharda Exports at
this time. Accepted of Not
Knowing the name of even
a single person who has
left the Sharda Exports
after dissolution.
xiii. He accepted M/S
M.G. Enterprises, a firm
relating to their business
(This firm is doing all the
finishing & Packing work
at Meerut for Sharda
Exports and not from the
Hardwar Unit as perused
from the information on
impounding papers).
xiv. Confirmation made
with Mr. Aditya Gupta
regarding shipment only
from Rithani Unit for
which he has stated "I
could say something in
this regard only after
personnel enquiry."
110 Party- A Statement recorded of 395-398 Statement of Sh. Sushil
Premises Mr. Sushil Kumar, Kumar: he has accepted
covered: Supervisor of the firm, that the server could not
M/S Sharda during the course of be connected from Rithani
Exports, survey proceedings. office during entire survey
Gagol Road day. No books produce
Partapur, even stock register.
Meerut. Export invoices kept but
detail with shipping
41
department at Rithani
unit.
111 Party- A Statement recorded of 399-400 Statement of Sh. Shiv
Premises Mr. Shiv Shanker Shanker Pandey:
covered: Pandey, Supervisor of Bathmat manufacturing,
M/S Sharda the firm, during the finishing & packing work
Exports, course of survey from the unit. Send
Gagol Road proceedings. directly to Rithani Unit.
Partapur,
Meerut .
112 Party- A Statement recorded of 401-408 Statement of Mr. Ashad
Premises Mr. Ashad Salim, Salim: Quality check at
covered: production manager of Rithani. 50 workers in my
M/S Sharda the firm, during the supervision. Passing &
Exports, course of survey Packing under his
Gagol Road proceedings. supervision.
Partapur,
Meerut. Dyeing unit works for five
working day in a week
Handloom Cushin,
Bathmat under his
supervision and also
dyeing work. Raw material
from go down. The
product send to Rithani
unit from where product
send to overseas directly.
Rithani is quality
checking department.
Dyeing of thread of 1000-
1200 kg per day. 50
handloom out of which 35
is in working. 200-250
meter per day production.
Finishing is by hand-
clipping work- final touch.
Packing - piece rolled,
covered by polythene
tube, sewing- put the
BARCODE of byres- after
packing send to Rithani
from where it exported. All
42
Product belong to Sharda
Export only Quality
check- also here
performed through
random selection. All the
machine employed is old
than 7-8 years not a
single machine is new
one.
Party- A Statement recorded of 409-411 Statement of Mr.
Premises Mr. Krishna Singh, Krishna Singh: Final
covered: production manager of passing work. Final
M/S Sharda the firm, during the packing is being
Exports, course of survey performed here. Buyer
Gagol Road proceedings. wise color, Design, Size
Partapur, and quality wise packing,
Meerut. Finishing & Packing is
performed here. Work of
Avant Garde, Sharda
Export and M/S M.G.
Enterprises is performed
from here. Bathmat
directly exported from
here. Carpet exported
from Rithani Unit.
43
113 Party- A List of Labours- 55 412-421 This working strength is
Premises Sewing Division - total huge in comparison to
covered: 55 employees at Gagol Hardwar unit, where main
M/S Sharda Road Partapur, list of work has shown as
Exports, attached. performed.
Gagol Road Packing Division - Total
Partapur, 55 employee at Gagol
Meerut. Road Partapur, list
attached.
Account office- 17
persons Labour list
shows -204 labour at
Gagol Road Unit.
114 Party- A List of Machinery found 422-422 10 Machine (3 Niddle) and
Premises during the course of 22 Machine (4 Niddle),07
covered: survey operation. Binder Machine , 60
M/S Sharda Bathmat machine,07
Exports, Dyeing Machine (small
Gagol Road size) , 09 Dyeing Machine
Partapur, (big size), 01 Hydro
Meerut. machine, 1 boiler and 1
ETP plant found at Gagol
Road. ( In comparison
with family facility
available at Hardwar will
play vital role on it, where
one dyeing machine
available and hand
machine for tufting).
115 Party- C Statement of Sh Rajesh 423-428 From the statement it is
Premises Ranjan, HOD, Packing, found that the main work
covered: Sharda Exports. at the premises surveyed
M/S Sharda is packing and dispatch of
Exports, carpets. The carpets are
Rithani, manufactured at Meerut
Meerut. unit and Panipat unit of
the assessee and are
packed at the packing
unit at Rithani and are
dispatched from here.
Proper figure about
handling of goods was not
made available at the
survey party. It was
informed at rough
44
estimate that 18 to 20
trucks of goods are
dispatched each months
and each truck carries
about 1500 to 1800 sq
mtrs of carpets. It was
stated by Sh. Rajesh
Ranjan, HOD in reply to
question No 14 that
some finished goods are
sent to the Hardwar unit
without packing.
116 Party- C Statement of Shri 429-430 He has admitted in
Premises Somesh Dwivedi, response to question no 6
covered: employee that exports of carpets up
M/S Sharda to 15-18 trucks per day is
Exports, being made from the
Rithani, Rithani Unit of Sharda
Meerut . Exports.
117 Party- C Statement of Sh. 431-432 He has stated in reply of
Premises Satyendra Singh, Question No 7 that the
covered: Driver in M/S Okara goods exported from
M/S Sharda Roadways, which is a Rithani to Mumbai port
Exports, transport contractor of and it is not transferred to
Rithani, Sharda Exports. Hardwar.
Meerut.
118 Party- C Statement of Sh. Sonu 433-438 He has accepted in reply
Premises Sharma, Supervisor of of question no 4,8,9,10 &
covered: Sharda Exports. 11 that the semi finished
M/S Sharda carpet is being
Exports, manufactured at Rithani
Rithani, unit and final product
Meerut. exported from this unit
after quality check. He
has accepted that this
unit was engaged in
export since his joining in
2007.
45
119 Party- C Statement of Ms Pooja 439-439 She had admitted that at Premises Chaudhry of Sharda Rithani unit work of covered: Exports. production Checking, M/S Sharda internal inspection, Exports, passing, Packing and Rithani, dispatch are being Meerut. performed. After her statement it may be concluded that there is no need to send the carpets to Hardwar if final passing got concluded at Rithani.
120 Party- D Statement of Mr. 440-442 Mr. Mukesh Kumar
Premises Mukesh Kumar Rajwanshi, GM stated
covered: Rajwanshi, GM that Latexing, finishing,
M/S Sharda binding, tufting and
Exports, packing are being done
Rithani, from Rithani Unit and
Meerut. Export Shipment from
Rithani Unit through
Shipping Department.
M/S M.G. Enterprises
prop. Mrs. Meenakshi
Gupta, M/S Tirupati
Carpets, IHDP Globals Pvt
ltd, Avant Garde Carpets
ltd, M/S Civic Traders Pvt
ltd, Arushi Vastushilp Pvt
ltd is main business
entities of this group. we
obtain job work. when
machine purchased is not
known to him. All
machinery seven eight
year old.
46
121 Party- D Statement of Mr. 443-446 Mr. Gurnam Singh,
Premises Gurnam Singh, Executive Shipping Deptt:
covered: Executive Shipping stated 90 % export from
M/S Sharda Deptt. Rithani and about 10%
Exports, from Gagol unit and
Rithani, only 1-2% from Hardwar
Meerut. Unit.
Statements shows that
production is being done
from Rithani unit and not
from Hardwar unit.
Mr. Gurnam Singh,
Executive, Shipping deptt,
M/S Sharda Exports,
Rithani Meerut has stated
in his statement dt 23-02-
2012 during survey in
response to Q No 9 that
90% export of firm is
being done from Rithani
and rest 10% from
Partapur unit and from
Hardwar unit only 1-2%
exported from Hardwar
(statement of Mr. Gurnam
Singh is annexed from
page 17 to 20 to this
proposal).
122 Party- D Statement of Mr. Sohan 447-448 He has stated in reply of Premises Gautam, Employee Q No 5& 6 that Latexing, covered: binding, tufting and M/S Sharda packing are being done at Exports, Rithani unit then after Rithani, loaded into containers.
Meerut. This shows that the no
any activity is further
remains to be performed
at Hardwar Unit.
123 Party- D Statement of Mr. 449-451 He has stated in reply of
Premises Devraj, Employee Q No 5& 6 that Latexing,
covered: binding, tufting and
M/S Sharda packing are being done at
Exports, Rithani unit then after
Rithani, loaded into containers.
Meerut. This shows that the no
47
any activity is further
remains to be performed
at Hardwar Unit.
124 Party- D Loose Computerized 452-456 Shows that Latexing,
Premises sheets of salary/ work binding, tufting, packing,
covered: detail of employees at labeling, finishing,
M/S Sharda Rithani unit. passing etc are being
Exports, performed at Rithani unit
Rithani, but the assessee claiming
Meerut. these activities at
Hardwar Unit.
Whereas the assessee is claiming its different activities at different station wise as follows:
ACTIVITIES PERFORMED SI. PARTIC BHA MUZZA NO ULARS HARDWAR MEE PANI DOHI MODIN AGR GHAZI RUT PAT FERNA AGAR A ABAD GAR BIN CLIPPING WEA WEA LATE CARVING & WEA WEAVI WEAVI WEA WEAVI DIN AND VIN VIN XING EMBOSSING VING NG NG VING NG G FINISHING G G But from the para no 124 it is clear that Binding, Latexing, Packing, Tufting, Labeling, Finishing passing etc are being done at Meerut Unit which are shown by the assessee at Hardwar Unit only.
Same state of affairs of the assessee prevailing in the previous year also as evident from the records found during the course of survey operation , therefore, the assessee is not entitle for deduction u/s 80-IC against its income of either source. In this light of above facts natural justice demands that the entire income of the assessee is required to be taxed without allowing benefit of deduction u/s 80-IC. Therefore your honour is prayed kindly treat 48 the assessee as not entitled for deduction u/s 80-IC for its entire income.
4.2 The ld. AR respondent to this report point wise. However it is seen that the rejoinder consist of stock replies to a majority of allegations. Thus replies to serial numbers 1to 4,6 to 9, 11 to 13, 15 to 71, 73 to 83, 93,94,and 97 are stock replies consisting of the following phrase :
"............was in actually related to the Financial Year 2010-11 relevant (sic) to assessment Year 2011-2012 from 01.04.2010 to 31.03.2011 and again it is evident to mention (sic) that on these dates the assessee firm M/S Sharda Exports Hardwar was not in existence (sic) and all these documents are not related to the assessee firm M/S Sharda Exports Hardwar. Since it has started its business on 18-10-2004 and closed down its business on 01- 04-2009, moreover they are not related to A.Y 2009-2010."
Similarly, response to serial numbers 85 and 87 to 92 contain the stock phrase:
"............Here it is most respectfully submitted that all these records which I.T.O Ward 2 Hardwar referring (sic) is not related to the assessee i.e. M/S Sharda Exports, Hardwar and (sic) not to the relevant assessment year 2009-2010."
Finally response to Serial numbers 5,10,14,72,84,and 95 to 124 may be extracted individually since they pertain to specific responses to the ld. AO's report :-
49
"SI No.5: Reply by the Assessee's on the pages 12-15 the dates mentioned are 09-11-2011/10-11- 2011/11-11-2011 and again it is evident to mention that on these dates the assessee firm M/S Sharda Exports Hardwar was not in existence and all these documents are not related to the assessee firm M/S Sharda Exports Hardwar. Since it has started its business on 18-10-2004 and closed down its business on 01-04- 2009, moreover they are not related to A.Y 2009-2010.Here the I.T.O Ward 2 Hardwar is wrong in saying that the assessee M/S Sharda Exports Hardwar is doing dying at Hardwar not Meerut, it is a fact and continuously claimed by the assessee that the dying is an activity, which is banned at Uttrakhand and the assessee is doing dying at Meerut. Although the documents mentioned by I.T.O Ward 2 Hardwar does not relates to the assessee M/S Sharda Exports Hardwar.
"SI No.10: Reply by the Assessee's on the pages 28-31, containing Export Declaration certificates the dates mentioned are 25-09-2007 and yes it relates to the assessee and the goods are imported by the assessee and received at it warehouses at Gagol Road, Meerut, and are already shown by the assessee in his books of accounts.
"SI No.14: Reply by the Assessee's In the register the forms 3KHA,C,H & F details are contained which are already shown in the books of accounts by the assessee M/S Sharda Exports Hardwar and documents are issued by sales tax department to the assessee M/S Sharda Exports Hardwar.50
"SI No.72: Reply by the Assessee's on the pages 251-255 containing challan stock register, the dates mentioned are 20-10-2008/23-10-2008/24-11-2008/28-11-2008, but on these challans the H.O is mentioned as 225, OKHLA INDUSTRIAL ESTATE, NEW DELHI, and not belongs to the assessee M/S Sharda Exports Hardwar , Moreover nowhere on the challan the name of the assessee is marked. and we clearly mention that these do not belong to the assessee M/S Sharda Exports, Hardwar.
"SI No.84: Reply by the Assessee's In this annexure from page no 289 -295, the learned I.T.O Ward 2 Hardwar is mentioning yarn movement register from 01-04-2004 to 30-09-2004, Here it is most respectfully submitted that the assessee firm M/S Sharda Exports, Hardwar has commenced its business from 18-10-2004 and this fact is already mentioned everywhere and therefore all these records which I.T.O Ward 2 Hardwar referring does not relate to the assessee and not to the relevant assessment year 2009-2010.
"SI No.95: Reply by the Assessee's Here the Learned I.T.O Ward 2 Hardwar is mistaking by comparing two different months i.e. January 2006 with January 2009 while it is April 2009 and no details is related to the Assessment Year 2009-2010.
SI No.96: Reply by the Assessee's In the pages from 355-356, the learned I.T.O Ward 2 Hardwar is making a wrong conclusion, it is not the name of the Loader/ Worker but it is the name of the Loader in charge. So the conclusion drawn by the learned I.T.O Ward 2 Hardwar is wrong 51 and far from the facts of the case M/S Sharda Exports Hardwar for assessment year 2009-10.
SI No.98: Reply by the Assessee's On the pages 359-363 belongs to packing department and the materials are being issued accordingly. So all the conclusions drawn by the learned I.T.O Ward 2 Hardwar are abused and are not true.
SI No.99: Reply by the Assessee's on the pages 364-366 containing staff salary records from march 2005 to December 2008 and are related to assessee M/S Sharda Exports Hardwar and are shown in accounts and P.F/ E.S.I everywhere. Moreover the conclusions drawn by the learned I.T.O Ward 2 Hardwar is wrong since all these salaries are already been shown by the assessee in his books.
SI No.100: Reply by the Assessee's The learned I.T.O Ward 2 Hardwar observation in reading this record is wrong and the conclusion learned I.T.O Ward 2 Hardwar wants to draw is totally wrong and against the facts of the case.
SI No.101: Reply by the Assessee's on the page 369 containing salary detail of 9 employee at Hardwar unit, Here it is most respectfully submitted that the assessee is not able to understand that for which financial year the salary detail is related.
On the pages 370 & 371 containing detail of pujan samagri and water supply is related to the financial year 2005-2006 relevant to assessment year 2006-2007, Here it is most respectfully submitted 52 that all these records which I.T.O Ward-2 Hardwar is referring is not related to the Sharda Exports Hardwar for Assessment year 2009-10.
SI No.102: Reply by the Assessee's The page contains salary details in March-2005 is related to the financial year 2004-2005 relevant to assessment year 2005-2006 and not to the assessment year 2009-2010 while the appeal in question relates to the assessment year 2009-2010.
SI No.103: Reply by the Assessee's on the pages 376-377 containing list of machinery at Hardwar, the assessee is not able to understand what inference the learned I.T.O Ward-2 Hardwar is trying to drawn from list of machinery found during the survey conducted on 23-02-2012 while the firm of the business has already been closed down its business as on 01-04- 2009 and inference drawn on these papers is not related to the assessee is totally baseless and not true.
SI No.104: Reply by the Assessee's on the pages 378 -380 containing statement of Mr. Rajneesh Kumar Tyagi recorded on 23-02-2012, he has clearly mentioned that all the raw material, dyed yarn is received from Meerut ware house and all the labour is from outside. More over any statement of any person which is recorded in the absence of the assessee and without giving the cross examination opportunity of the witness to the assessee is not binding on the assessee. Moreover in his statement no where he has claimed that Sharda Exports Hardwar the assessee is not doing any manufacturing activity at Hardwar. so any inference drawn on the basis of such statement is il-53
legal/not justified and not true on the assessee firm M/S Sharda Exports, Hardwar for the assessment year 2009-2010.
SI No.105: Reply by the Assessee's On the page 381 containing statement of Mr. Laxman prashad, in this connection the assessee M/S Sharda Exports, Hardwar most respectfully submitted that any statement of any person which is recorded in the absence of the assessee and without giving the cross examination opportunity of the witness to the assessee is not binding on the assessee. Moreover in his statement no where he has claimed that Sharda Exports Hardwar the assessee is not doing any manufacturing activity at Hardwar. so any inference drawn on the basis of such statement is il-legal/not justified and not true on the assessee firm M/S Sharda Exports, Hardwar for the assessment year 2009-2010.
SI No.106: Reply by the Assessee's On the pages 382 containing statement of Mr. Hari Yadav, in this connection the assessee M/S Sharda Exports, Hardwar most respectfully submitted that any statement of any person which is recorded in the absence of the assessee and without giving the cross examination opportunity of the witness to the assessee is not binding on the assessee. Moreover in his statement no where he has claimed that Sharda Exports Hardwar the assessee is not doing any manufacturing activity at Hardwar. so any inference drawn on the basis of such statement is il-legal/not justified and not true on the assessee firm M/S Sharda Exports, Hardwar for the assessment year 2009-2010.
SI No.107: Reply by the Assessee's On the pages 384 containing statement of Mr. Manna Lal, in this connection the assessee M/S Sharda Exports, Hardwar most 54 respectfully submitted that any statement of any person which is recorded in the absence of the assessee and without giving the cross examination opportunity of the witness to the assessee is not binding on the assessee. Moreover in his statement no where he has claimed that Sharda Exports Hardwar the assessee is not doing any manufacturing activity at Hardwar. so any inference drawn on the basis of such statement is il-legal/not justified and not true on the assessee firm M/S Sharda Exports, Hardwar for the assessment year 2009-2010.
SI No.108: Reply by the Assessee's on the pages 385 containing working strength of January 2012 found during the survey conducted on 23-02-2012 is not related to the assessee firm M/S Sharda Exports Hardwar for the assessment year 2009-2010 therefore any inference drawn on the basis of such statement is totally il-legal/unjust and far from the facts of the assessee M/S Sharda Exports Hardwar.
SI No.109: Reply by the Assessee's In the statement of Shri Aditya Gupta, he has clearly mentioned the position of today i.e. on 23-02-2012 and not of the old firm M/S Sharda Exports Hardwar from the year 2004-2005 to 2009- 2010. And in the Q.No 14, he answered clearly that finishing work is not done at Gagol unit Meerut, and in the Q. No 17, he answered and manufacturing is looked after by Shri Ashish Gupta and he has no specific information about it. So the inference drawn by the learned I.T.O Ward 2 Hardwar is wrong and far from the facts and not related to assessment year 2009-2010.
SI No.110: Reply by the Assessee's on the pages from 395-398 containing statement of Mr. Sushil Kumar, in this connection the assessee most respectfully 55 submitted that our firm M/S Sharda Exports, Hardwar is started its business from 18-10-2004 and close down its business on 01- 04-2009 and any statement of any person which is recorded in the absence of the assessee and without giving the cross examination opportunity of the witness to the assessee is not binding on the assessee and any statement of any person belonging to the present firm i.e. M/S Sharda Exports Meerut or Delhi is not applicable on the facts of the assessee and any inference drawn on the basis of such statement is totally il-legal and far from the facts of the assessee.
SI No.111: Reply by the Assessee's on the pages from 399-400 containing statement of Mr. Shiv Shanker Pandey, in this connection the assessee most respectfully submitted that our firm M/S Sharda Exports, Hardwar is started its business from 18-10-2004 and close down its business on 01- 04-2009 and any statement of any person which is recorded in the absence of the assessee and without giving the cross examination opportunity of the witness to the assessee is not binding on the assessee and any statement of any person belonging to the present firm i.e. M/S Sharda Exports Meerut or Delhi is not applicable on the facts of the assessee and any inference drawn on the basis of such statement is totally il-legal and far from the facts of the assessee.
SI No.112: Reply by the Assessee's on the pages from 401-408 containing statement of Mr. Asad Salim, in this connection the assessee most respectfully submitted that our firm M/S Sharda Exports, Hardwar is started its business from 18-10-2004 and close down its business on 01-04-2009 and any statement of any person which is recorded in the absence of 56 the assessee and without giving the cross examination opportunity of the witness to the assessee is not binding on the assessee and any statement of any person belonging to the present firm i.e. M/S Sharda Exports Meerut or Delhi is not applicable on the facts of the assessee and any inference drawn on the basis of such statement is totally il-legal and far from the facts of the assessee.
SI No.112 A: Reply by the Assessee's on the pages from 409-411 containing statement of Mr. Krishna Singh, in this connection the assessee most respectfully submitted that our firm M/S Sharda Exports, Hardwar is started its business from 18-10-2004 and close down its business on 01-04-2009 and any statement of any person which is recorded in the absence of the assessee and without giving the cross examination opportunity of the witness to the assessee is not binding on the assessee and any statement of any person belonging to the present firm i.e. M/S Sharda Exports Meerut or Delhi is not applicable on the facts of the assessee and any inference drawn on the basis of such statement is totally il-legal and far from the facts of the assessee.
SI No. 113: Reply by the Assessee's on the pages 412-421 containing working strength found during the survey conducted on 23-02-2012 is not related to the assessee firm M/S Sharda Exports Hardwar for the assessment year 2009- 2010 therefore any inference drawn on the basis of such statement is totally il-legal/unjust and far from the facts of the assessee M/S Sharda Exports Hardwar.
SI No. 114: Reply by the Assessee's on the page 422 containing list of machinery, the assessee is not able to understand what inference the learned I.T.O Ward-2 57 Hardwar is trying to drawn from list of machinery found during the survey conducted on 23-02-2012 while the firm of the business has already been closed down its business as on 01-04-2009 and inference drawn on these papers is not related to the assessee is totally baseless and not true.
SI No. 115: Reply by the Assessee's on the pages from 423-428 containing statement of Sh. Rajesh Ranjan, in this connection the assessee most respectfully submitted that our firm M/S Sharda Exports, Hardwar is started its business from 18-10-2004 and close down its business on 01- 04-2009 and any statement of any person which is recorded in the absence of the assessee and without giving the cross examination opportunity of the witness to the assessee is not binding on the assessee and any statement of any person belonging to the present firm i.e. M/S Sharda Exports Meerut or Delhi is not applicable on the facts of the assessee and any inference drawn on the basis of such statement is totally il-legal and far from the facts of the assessee.
SI No. 116: Reply by the Assessee's on the pages from 429-430 containing statement of Mr. Somesh Dwivedi, in this connection the assessee most respectfully submitted that our firm M/S Sharda Exports, Hardwar is started its business from 18-10-2004 and close down its business on 01- 04-2009 and any statement of any person which is recorded in the absence of the assessee and without giving the cross examination opportunity of the witness to the assessee is not binding on the assessee and any statement of any person belonging to the present firm i.e. M/S Sharda Exports Meerut or Delhi is not applicable on the facts of the assessee and any inference drawn on the basis of 58 such statement is totally il-legal and far from the facts of the assessee.
SI No. 117: Reply by the Assessee's on the pages from 431-432 containing statement of Mr. Satyendra Singh, in this connection the assessee most respectfully submitted that our firm M/S Sharda Exports, Hardwar is started its business from 18-10-2004 and close down its business on 01-04-2009 and any statement of any person which is recorded in the absence of the assessee and without giving the cross examination opportunity of the witness to the assessee is not binding on the assessee and any statement of any person belonging to the present firm i.e. M/S Sharda Exports Meerut or Delhi is not applicable on the facts of the assessee and any inference drawn on the basis of such statement is totally il-legal and far from the facts of the assessee.
SI No. 118: Reply by the Assessee's on the pages from 433-438 containing statement of Sh. Sonu Sharma, in this connection the assessee most respectfully submitted that our firm M/S Sharda Exports, Hardwar is started its business from 18-10-2004 and close down its business on 01- 04-2009 and any statement of any person which is recorded in the absence of the assessee and without giving the cross examination opportunity of the witness to the assessee is not binding on the assessee and any statement of any person belonging to the present firm i.e. M/S Sharda Exports Meerut or Delhi is not applicable on the facts of the assessee and any inference drawn on the basis of such statement is totally il-legal and far from the facts of the assessee.59
SI No. 119: Reply by the Assessee's on the page 439 containing statement of Mrs. Pooja Chaudhry, in this connection the assessee most respectfully submitted that our firm M/S Sharda Exports, Hardwar is started its business from 18- 10-2004 and close down its business on 01-04-2009 and any statement of any person which is recorded in the absence of the assessee and without giving the cross examination opportunity of the witness to the assessee is not binding on the assessee and any statement of any person belonging to the present firm i.e. M/S Sharda Exports Meerut or Delhi is not applicable on the facts of the assessee and any inference drawn on the basis of such statement is totally ill-legal and far from the facts of the assessee.
SI No. 120: Reply by the Assessee's on the pages from 440-442 containing statement of Mr. Mukesh Kumar Rajvanshi , in this connection the assessee most respectfully submitted that our firm M/S Sharda Exports, Hardwar is started its business from 18-10-2004 and close down its business on 01-04-2009 and any statement of any person which is recorded in the absence of the assessee and without giving the cross examination opportunity of the witness to the assessee is not binding on the assessee and any statement of any person belonging to the present firm i.e. M/S Sharda Exports Meerut or Delhi is not applicable on the facts of the assessee and any inference drawn on the basis of such statement is totally il-legal and far from the facts of the assessee.
SI No. 121: Reply by the Assessee's on the pages from 443-446 containing statement of Mr. Gurnam Singh, in this connection the assessee most respectfully submitted that our firm M/S Sharda Exports, Hardwar is started its business 60 from 18-10-2004 and close down its business on 01-04-2009 and any statement of any person which is recorded in the absence of the assessee and without giving the cross examination opportunity of the witness to the assessee is not binding on the assessee and any statement of any person belonging to the present firm i.e. M/S Sharda Exports Meerut or Delhi is not applicable on the facts of the assessee and any inference drawn on the basis of such statement is totally il-legal and far from the facts of the assessee.
SI No. 122: Reply by the Assessee's on the pages from 447-448 containing statement of Mr. Sohan Gautam, in this connection the assessee most respectfully submitted that our firm M/S Sharda Exports, Hardwar is started its business from 18-10-2004 and close down its business on 01- 04-2009 and any statement of any person which is recorded in the absence of the assessee and without giving the cross examination opportunity of the witness to the assessee is not binding on the assessee and any statement of any person belonging to the present firm i.e. M/S Sharda Exports Meerut or Delhi is not applicable on the facts of the assessee and any inference drawn on the basis of such statement is totally il-legal and far from the facts of the assessee.
SI No. 123: Reply by the Assessee's on the pages from 449-451 containing statement of Mr. Devraj, in this connection the assessee most respectfully submitted that our firm M/S Sharda Exports, Hardwar is started its business from 18- 10-2004 and close down its business on 01-04-2009 and any statement of any person which is recorded in the absence of the assessee and without giving the cross examination opportunity of the witness to the assessee is not binding on the assessee and any 61 statement of any person belonging to the present firm i.e M/S Sharda Exports Meerut or Delhi is not applicable on the facts of the assessee and any inference drawn on the basis of such statement is totally il-legal and far from the facts of the assessee.
SI No. 124: Reply by the Assessee's These list of employee's are mandatory for P.F and E.S.I and are nothing to do with the production and the conclusions drawn by the learned I.T.O Ward 2 Hardwar about these papers is wrong."
5. Learned First Appellate Authority, after hearing the assessee and going through on the material has upheld the disallowance of deduction under sec. 80IC of the Act. Learned First Appellate Authority has summarized the reasons for concurring with the Assessing Officer in paragraph Nos. 5.4 and 5.5 of the impugned order. They read as under:
"5.4 Thus the factual picture that emerges from a consideration of the entire conspectus of facts would contain the following points:-
(i) All control and command is located at Meerut with respect to key business decisions, supply of raw material, deputation of skilled workers and managerial staff, as also control of finance. Here it may be mentioned that the appellant firm is headquartered at Hardwar and thus logically the activities attributed to Meerut should have been naturally performed at Hardwar.
(ii) The wages and salaries shown in the books are much more than what has been paid to the persons actually working at Hardwar. This implies that the Hardwar premises are used for the sake of billing and dispatch of finished goods only.62
(iii) The activities denoting the last leg of carpet making claimed to be performed at Hardwar is seen not to be so as per the discussion at the end of Id. AO's report dated 04.05.2012 which unfortunately has been summarily dismissed by the Id. AR as not pertaining to the situation as it used to exist when the appellant firm was in existence.
(iv) The claim of manufacturing activity at Hardwar is not borne out from the facts. The appellant has himself admitted that a number of activities ( before the finished product is ready for sale ) are carried out outside the state of Uttrakhand. However, the AO has found that most of activities claimed to be performed at Hardwar are also evidently performed at Meerut. Thus the conclusion that emerges is that finished goods are being merely dispatched from Hardwar after some superficial treatment given to them.
(v) The claim that the carpets are made through job work (job workers are based outside Uttrakhand) and this would imply that manufacturing is done as per the specifications provided by and under the control of the appellant firm. I t has been demonstrated that the control and command of the business centre at SIDCUL HARDWAR is located at Meerut and thus as a logical consequence to this the activity performed by the job workers as well as all other related functions, would be controlled from Meerut and not from Hardwar. This means that whatever " manufacturing " processes are taking place in the production of carpet, are taking place not only outside the 801C designated geographical area but also is not even controlled from Hardwar to apportion to it the benefit of connectivity for claiming vicarious responsibility of a manufacturer of goods as required u/s 801C of the act.
(vi) It is seen that the product that enters the business premises at Hardwar on way to the eventual buyer does not have any generic or commercial name different from the final products viz. Carpets mats etc. Thus even if for the sake of argument we accept the appellant's argument that the " intermediate " product is subjected to critical "
intermediate " product is produced which has a commercially distinguishable identity. For an activity to qualify as "manufacturing "
a new product which is indistinguishable from its constituents should come into existence. Here it has been seen that under the command and control of Meerut facility raw material is given to various job workers who produce the carpets and mats, then these products are sent to Hardwar for "finishing" and eventual dispatch at customers. Thus it needs to be stressed that what is received at Hardwar is 63 commercially the same product that is eventually sold. Thus as far as the Hardwar facility is concerned, no "manufacturing" activity is seen to take place.
(vii) The blurring of distinction between Meerut, Hardwar and Delhi operations is also highlighted by the fact gathered from a reply filed on 31.05.2012 by the ID. AR:-
1. Brief history of the carpet business of the assessee is as under:
(A) In the year 1992 the Sharda Exports, Meerut was incorporated which was dissolved on 32-03-2000 (B) The Sharda Exports Delhi 225, Okhla industrial Estate phase-3 was incorporated on 01-04-2000 and was dissolved on 28-02-2009.
(C) The Sharda Exports Hardwar plot no. 11, sector-4, integrated industrial estate (I.I.E) Sidcul Ranipur Hardwar was incorporated on 01-
12-2003 and was dissolved on 01-04-2009 (D) The Sharda Export Delhi B-96 Sainik farms, New Delhi was incorporated on 01-01-2009 and is still in existence. Thus Sharda Export, Hardwar Plot no. 11, Sector 4, IIE, SIDCUL, Ranipur, Hardwar is seen to be incorporated on 01.12.2003 and dissolved on 01.04.2009. However, its successor-in-business M/s Sharda Export Delhi at B-96, Sainik farms, New Delhi was incorporated on 01.01.2009 i.e. three months before the formal dissolution of the appellant firm. In this case it appears not to have mattered who owned the premises at Hardwar since the control and command was always working from outside this unit.
(viii) There is another factual point that needs to be considered. It is seen that there was another Sharda Exports functioning from Okhla industrial estate, phase-3, Delhi. This concern existed between 01.04.2000 to 28.02.2009. This concern was virtually operating coterminous with the appellant concern and also involved in the production of carpets and mats. While the naming of firms involved in the carpets trade under the umbrella banner of " Sharda Exports"
might make it convenient to the appellant in terms of brand recognition and marketing, but it also leads to a situation where it is observed that it convenient to the appellant in terms of brand recognition and marketing, but it also leads to a situation where it is observed that most internal vouchers have simply printed " Sharda Exports" without distinguishing between the two Sharda Exports doing business simultaneously. Also, it is seen that the suppliers or job workers also bill, in some cases, to simply " Sharda Exports " this 64 raises a doubt even about the business entity which is purportedly claiming to authorize the job work even if the job work is to be treated as a step in aid to the final marketable product, the same has to be demonstrated to have been authorized by the appellant. In this case, it is evident that a control and command centre certainly not situated at Hardwar is controlling this aspect for both the concerns named "
Sharda Export " therefore the premises at Hardwar receive the so called " semi finished ' material which is then booked to be sent to the manufacturing activity is being authorized to job workers from Hardwar.
5.5 on these facts alone the appellant does not deserve the benefit of deduction u/s 801C of the act since it has been seen that the Hardwar unit is not manufacturing any article or thing necessary for any claim u/s 801C of the Act.
6. With the assistance of learned representatives, we have 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).65
(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 ** ** ** 66 (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 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".
7. 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 67 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 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 the deduction 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.68
[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 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 there from.
(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.69
(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.] ** ** **
8. 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 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 70 commence between the period 7th day of Jan 2003 and ending on 1st 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 80- IC(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 71 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).
9. 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 Ist of December 2003. It is situated at Plot No.11 Sector 4, Sidcul, integrated industrial estate, Haridwar. It had commenced theproduction on 18th October 2004. The A.O. himself admitted that deduction under sec. 80IC was granted to the assessee contineously since assessment year 2005-06.
10. 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. Expression "manufacture" has been defined in section 2(29BA) which read as under:
"(29BA) "manufacture", with its grammatical variations, means a change in a non-living physical object or article or thing,-72
(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 latexing, binding, carving and embosing, clipping and finishing. The other actiity of weaving of the carpets is being done at Meerut and other localities.
11. 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.
12. In the case of India Cine Agencies reported in 308 ITR 98, Hon'ble Supreme Court has considered the judgment rendered in the case of Sesa Goa Ltd. Reported in 271 ITR 331 and all other decisions on the point which contemplate the meaning of expression "manufacture" as well as 73 "production". The relevant discussion made by the Hon'ble Court reads as under:
"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 74 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 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 75 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)."
13. In this case, assessee was carrying on business of 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 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 76 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.
14. Hon'ble Delhi High Court has also considered this issue in the case of CIT vs. Jackson Engineering Ltd. reported in 341 ITR 518. In this case, assessee was manufacturing diesel generating set. Learned Assessing Officer has concluded that assembling of diesel generating set does not constitute manufacturing. Hon'ble High Court has held that assembling of diesel generating set tantamounts to manufacture/production and is eligible for deduction under sec. 80IA of the Act. Similarly, Hon'bkle Gauhati High Court in the case of CIT vs. Tech Electronic reported in 341 ITR 533 has considered a similar issue, wherein it has been held that assembling of colour TV by purchasing and assembling item like cabinet. Chassis, ICs, picture tubes etc. tantamounts to manufacturing activities. 77
15. Before we apply the position of law propounded by various Hon'ble High Courts on this issue, we also deem it fit to take note of the details submitted by the assessee in support of its claim. They read as under:
"
i) Partnership Deed dated 1st December, 2003.
ii) Revised Partnership Deed dated 1st January, 2005.
iii) Certificate of Registration of Firm with Registrar of Firms, Dehradun dated 25th May, 2004.
iv) Form No. 7 filed with Registrar of Firms, Dehradun dated 18.2.2005.
v) D.I.C. Registration Certificate (Provisional) dated 31.3.2004.
vi) D.I.C. Registration Certificate (Permanent Registration after Commercial Production) dated 19.4.2005.
vii) Pollution Certificate dated 31.3.2004.
viii) Possession Letter of Plot No. 11, Sector-4, Sidcul Integrated Industrial Estate, Ranipur, Hardwar dated 11.6.2004.
ix) Sales Tax Registration Certificate dated 16.3.2004.
x) Service Tax Registration Certificate dated 28.3.2005.
xi) Employees Provident Fund Registration Certificate dated 21.3.2005.
xii) Certificate of Importer Exporter Code dated 12.7.2004.
xiii) Employees State Insurance Registration Certificate dated 11.3.2005.
xiv) Copy of Notification No. 177/2004 dated 28.6.2004 of C.B.D.T.
xv) Certificate of Tehsildar regarding Khasra No. 545, Village Salempur Mehdood, Tehsil and Distt. Hardwar.
78xvi) Copy of of PAN allotment letter.
xvii) Copy of Tan allotment letter.
xviii) Copy of Monthly Sales Tax Returns for the year ended 31st March, 2005 That the assessee firm had also submitted along with the Income Tax Return:
1. Audited Accounts for the year ended 31st March 2009;
2. Report u/s 44AB - Tax Audit Report for the year ended 31st March, 2009 - i.e. for Asstt. Year 2009-2010.
3. Report u/s 80-/ IC on Form No. 10CCB for the year ended 31st March 2009 i.e. for Asstt. Year 2009-2010.
That the Report u/s 80-IC on Form No. 10CCB has been obtained after audit of the eligible undertaking by the Chartered Accountant as required under Section 80-IA (7) (Rule 18BBB) and the said Report has been submitted along with the Return of Income."
16. In the light of above factual position, as well as the position of law we have discussed, more particularly, keeping in view the past history, we are of the view that as far as objections of the Assessing Officer that binding latexing packing, tufting, leveling, embossing and finishing are to be considered as a manufacturing activity of the assessee. This activity was not even disputed by the Assessing Officer himself since assessment year 2005-
06. In the last four years, deduction under sec. 80IC has been granted to the assessee treating this activity as a manufacturing activity. Learned 79 Assessing Officer did not dispute the fulfillment of other eligible criteria provided in sec. 80IC of the Act i.e. the geographical location of the assessee, employment of the number of employees etc. In this year, Learned Revenue Authorities have erred in construing the concept of manufacturing in a restricted manner. Thus, as far as legal requirements are concerned, all have been fulfilled by the assessee. Even on the strength of principle of consistency, it was brought to our notice that deduction under sec. 80IC of the Act was claimed for the first time in assessment year 2005-06 and it was allowed to the assessee. This is the 5th consecutive assessment year. The assessments have been made under sec. 143(3) in assessment year 2005-06 to 2008-09. The Department has not reopened the assessment in these four assessment years nor any action under sec. 263 of the Income-tax Act, 1961 was taken. Thus, we do not deem it necessary to go into the aspects whether assessee fulfilled the other conditions of sec. 80IC of the Act or not.
17. The limited issue required to be considered in this assessment year is, whether the department is able to lay its hands on a material which exhibits that assessee has not carried out any manufacturing activity and it is not entitled for deduction under sec. 80IC of the Act? Whatever was granted in earlier years was granted on account of mistaken belief or misconstruction of 80 the facts. It is also to be kept in mind that if no remedial action can be taken in those years on account of expiry of limitation etc. that does not mean that any error committed in earlier years would be perpetuated in the present year.
18. With the assistance of learned representatives, we have gone through the complete details. In the assessment order, learned Assessing Officer has issued notice under sec. 143(2) on Ist of September 2010, a questionnaire was issued under sec. 142(1) almost after 10 months on 06th July 2011. Thereafter, the jurisdiction over the assessee was transferred from ACIT to the JCIT who had issued fresh notice under sec. 143(2) and 142(1) on 12th September, 2011. It suggests that investigation process has been started after 6th July 2011 and effectively after 12th of September, 2011. The assessment has been passed on 30.12.2011 i.e. just within three and half months. The assessee firm was dissolved on Ist of April 2009. It closed down its business from this date. The alleged spot inquiry got conducted through ITO, OSD, Haridwar was conducted after the month of September, 2011 i.e. almost after two and half years of closure of the business. According to the assessee, learned Assessing Officer has observed that on a local inquiry conducted through ITO, OSD, Haridwar, it was found that no such business 81 was ever carried out at the said location. The learned counsel for the assessee pointed out that during the course of assessment proceedings, assessee has asked the Assessing Officer to disclose the basis of this observation. Learned DR on the other hand pointed out that in the reasons stated by the Assessing Officer, he has disclosed the basis. The objection of the assessee is that after the closure of the business, if the ITO made the inquiry from tea-vendors, rikshaw-pullers, it is meaningless. Had he approached the Pollution Authority, local sales-tax authorities, district industry office or other government agencies? It reveals from the record that no such exercise was carried out. In our opinion, the prosecuting agency needs not to explain the assessee the manner of investigation, but it is bound to confront the assessee with the material of investigation collected during the spot inquiry. If learned ITO, OSD was visiting the area in the capacity of a local commissioner, he should have issued a show-cause notice to the partners of the assessee, pointing out object of his visiting and associates them during his inquiry. He should have prepared a list of persons with whom he had interacted and on the basis of which Assessing Officer has been observing that department made local inquiries on several occasions from which it was gathered that no manufacturing activity was done at the said location. No such material was ever confronted to the assessee or 82 disclosed to the assessee. Learned Assessing Officer has been reproducing the factual position found by the ITO, OSD on page 2 of the assessment order ( extracted by us in the order ). According to the ITO, there were only 13 taping frames and three were in broken condition. Learned ITO has narrated list of eleven items which were available on the premises and then concluded that on the basis of these items, it is not possible to achieve a turnover of Rs.100 crores. While putting reliance on this material, Learned Revenue Authorities have totally lost sight that this is the remnant of a discontinued business. Learned ITO has been visiting the place after two and half years of the closure of the business. Why the machinery etc. would be available in an intact position as was available at the time of running the business?
19. Thus, the alleged inspection report of ITO is neither here nor there, it cannot goad any adjudicating authority to any conclusion, more so, when in the last four assessment years passed under sec. 143(3) existence of assessee's business was not disputed by the ITO. The right time to raise this suspicion about the nature of business was the time when it was in existence.
20. We have gone through the 27 reasons assigned by the Assessing Officer (extracted supra). We have gone through the replies of the assessee 83 also. In point No. 9, learned Assessing Officer has alleged that statement of Mr. Ashis Gupta was recorded. In his statement, he claimed that latexing, binding, embossing and finishing was done at Haridwar but the production activity data furnished by the firm does not reflect any activity of this type being done at Haridwar. For this conclusion, he was harping upon the replies of the job workers obtained under sec. 133(6) who have alleged that they were doing the job work at their premises outside Haridwar. The reply qua reasons No. 9 of the assessee is available on page 18 of the assessment order. The assessee has alleged that these replies were received during the assessment year 2005-06. The vendors have no where said that these services are not given by them at Haridwar. Learned Assessing Officer has drawn incorrect inference from the replies. Learned Assessing Officer has considered this reply and made analysis on page 24 of the order. He observed that letters were issued to different persons under sec. 133(6) of the Act, who have done job work for the assessee. 25 letters have been received back undelivered. 7 concerns have responded to the letters. They have confirmed the job work done for the assessee. Learned Assessing Officer did not consider their replies as worthy of credence on the ground that they have sent the copies of their replies to the assessee. Their replies are similarly worded. On an analysis of this detail, we fail to understand the 84 approach of the Assessing Officer. He is using this material against the assessee. When assessee explained its position he excluded this material but considered it as a negative evidence. In the reasons, he has observed that job workers have denied for carrying out the job work for the assessee. When assessee explained its position and pointed out that seven parties have confirmed about doing the job work then Assessing Officer has observed that such reply must be a tutored reply on the asking of the assessee otherwise they would have not sent these letters to the assessee. This will only suggest that this material cannot be used against the assessee, at the most for its prosecution. It is not the evidence of the assessee. It is the evidence of the Assessing Officer who failed to prove against the assessee but still relying upon it in a negative sense.
21. Similar are the other reasons assigned by the Assessing Officer. The assessee has explained its position and on an analysis of the material, we find that except observing philosophically for raising a suspicion, Assessing Officer was unable to lay his hands on any concrete material for doubting the activity of the assessee.
22. During the course of appellate proceedings, a survey under sec. 133A of the Act was carried out on the new business premises of erstwhile partner 85 on 23.2.2012 at Meerut and Haridwar. Learned Assessing Officer has submitted a report dated 4.5.2012 to the Learned CIT(Appeals) which includes the material collected during the course of survey. Before considering this report on merit, let us consider the procedural aspect whether it is cognizance could be taken by the Learned CIT(Appeals) or not, on asking of the learned Assessing Officer? Rule 46A of the Income-tax Rules, 1962 is a rule which provide the procedure for production of additional evidence before the DCIT(Appeals) and Learned CIT(Appeals). This Rule reads as under:
"46A (1) The appellant shall not be entitled to produce before the DC(Appeals) or, as the case may be, the Commissioner (Appeals), any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the Assessing Officer, except in the following circumstances, namely:-
a) where the Assessing Officer has refused to admit evidence which ought to have been admitted; or
b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the Assessing Officer; or
c) where the appellant was prevented by sufficient cause from producing before the Assessing Officer any evidence which is relevant to any ground of appeal; or
d) where the Assessing Officer has made the order appealed against without giving sufficient opportunity to the 86 appellant to adduce evidence relevant to any ground of appeal.
(2) No evidence shall be admitted under sub-rule(1) unless the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) records in writing the reasons for its admission.
(3) The Deputy Commissioner (Appeals) or, as the case may be, the Commissioner(Appeals) shall not take into account any evidence produced under sub-rule (1) unless the Assessing Officer has been allowed a reasonable opportunity-
a) to examine the evidence or document or to cross-examine the witness produced by the appellant; or
b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant.
(4) Nothing contained in this rule shall affect the power of the Deputy Commissioner( Appeals) or, as the case may be, the Commissioner(Appeals) to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the [Assessing Officer] under clause (a) of sub-section (1) of section 251 or the imposition of penalty under section 271".
23. A bare perusal of this rule from clause Nos. 1 to 3 would suggest that additional evidence could be produced by the appellant only. It nowhere 87 provide a remedy to the Assessing Officer to strength his assessment order by supplementing the material in the shape of additional evidence. No doubt, sub-rule(4) gives powers to the Learned CIT(Appeals) to direct the production of any document or the examination of any witness to enable him to dispose of the appeal. Learned CIT(Appeals) in the impugned order did not disclose how he came to know about the survey and whether he has issued notice to the assessee for production of the survey material or not. Learned Assessing Officer cannot be an applicant for production of the additional evidence in an appellate proceeding. The rule does not empower the Assessing Officer because, if some income has escaped assessment, he can take action under sections 147, 154 or the CIT can take action under sec. 263 of the Income-tax Act, 1961. Learned CIT(Appeals) can exercise its co- terminus powers of the Assessing Officer and then calls for any evidence. But we find that the report has been entertained on the request of the Assessing Officer which is not permissible under the Rule.
24. Apart from the above, we have considered the report. The assessee has explained each page and each objections raised by the Assessing Officer. The survey has not been carried out on the premises of the assessee because it has already discontinued the business. In paragraph 4.2 of the learned First Appellate Authority has observed that as far as the material available in 88 report at Sr. Nos. 1 to 4, 6 to 9, 11 to 13, 15 to 71, 73 to 83, 93, 94 & 97 are concerned, the assessee has given a common reply that these documents are not related to the assessee firm because, it has closed the business. In the paper book, assessee has placed on record its reply on all the issues. In the report of the Assessing Officer, Sr. No. 1 talks about register pertaining to dying unit. It is annexure 63. The conclusion derived by the Assessing Officer is that this register has been found at the Gogal Road, Meerut Unit of the assessee, therefore, it may be concluded that dying operation is being performed at Meerut rather then Haridwar as claimed by the assessee. The reply of the assessee is available on page 206 of the paper book. It submitted that on page Nos. 1 and 2, dates mentioned are January 2012. Therefore, it is a register for dying unit. It does not relate to the business of the assessee which discontinued w.e.f. Ist of April 2009. Learned CIT(Appeals) has simply ignored this reply on the ground that it is a stock reply. When a business was discontinued in 2009 and the department is trying to co-relate the entries of 2012 with 2009, it is totally misapplication of mind. In the survey, the department ought to have collected the material for the period relevant to this assessment year. It should not have drawn the inference from the latest material found at the premises of new concern and then assumed that it must belong to the assessee in 2009. During the course of hearing, we 89 have confronted the Learned DR to pin point the material which pertains to the period of the accounting year involved in the present assessment year and then point out how that material suggests that assessee has not carried out any manufacturing activity. He drew our attention towards Sr. No. 96, or No. 86, Sr. No. 10 and Sr. No. 14 of the report. We have duly considered these material but they do not suggest that assessee has not carried out any manufacturing activity.
25. Apart from these aspects, learned counsel for the assessee took us through the assessment order passed by Dy. Commissioner, Central Excise under sec. 9(2) available on page 452 of the paper book. He also took us through the sales-tax assessment order passed by Dy. Commissioner Sales- tax, Haridwar. Copy of this order is available on pages 453 to 458. These are scrutiny assessments. For assessment year 2008-09, these authorities have accepted the business turnover of the assessee. Learned Revenue Authorities have totally ignored these material on the record. It is true that whenever a conclusion has to be reached on an appreciation of a number of facts established by evidence, whether that was sound or not must be determined not by considering the weight to be attached to each single fact in isolation but by assessing the cumulative effect of all the facts in their setting as a whole. The efforts of the Learned CIT(Appeals) is to reach the conclusion 90 on the basis of circumstantial evidence but to our mind the inferences drawn by the Learned Revenue Authorities are not supported by the material or the circumstances. They are just on assumption and suspicion. Therefore, in our opinion, the assessee has carried out the manufacturing activity. It has been granted deduction under sec. 80IC of the Act from the last four assessment years. The department is unable to lay its hands on any concrete material which can force us to take a different view then the stand of the Assessing Officer in earlier four assessment years. Assessee is entitled for deduction under sec. 80IC of the Act.
26. In the computation for deduction under sec. 80IC, assessee has included a sum of Rs.12.90 crores which represents the DEPB receipts. The learned counsel for the assessee has placed on record a note as to how deduction on DEPB receipts under sec. 80IC are admissible. However, we find that this issue is squarely covered against the assessee by the decision of Hon'ble Supreme Court in the case of Liberty India vs. CIT reported in 317 ITR 218. Hon'ble Court has held that DEPB receipts are not derived from an industrial undertaking rather their genesis is from the beneficiary scheme formulated under Central Excise Act etc. They are the ancilliary profit. The learned counsel for the assessee submitted that the Hon'ble Supreme Court 91 has not taken into consideration the amendment in sec. 28 which has been given effect from Ist of April 1998. This amendment suggest s that on sale of DEPB receipts, if there is any profit, then it will be a revenue receipts. We find that this amendment was brought by Act of 2005, w.e.f. 01.04.1998. The decisions of the Hon'ble Supreme Court is dated 31.09.2009. Thus, the decision of Hon'ble Supreme Court is subsequent to the amendment, hence, the decision cannot be distinguished on this argument. In view of the above discussion, we direct the Assessing Officer to allow the deduction under sec. 80IC of the Act as per law excluded on the DEPB receipts.
27. As far as charging of interest under sec. 234B of the Income-tax Act, 1961 is concerned, it is consequential in nature.
28. In the result, the appeal filed by the assessee is partly allowed.
Decision pronounced in the open court on 14 .06.2013 Sd/- Sd/-
( J. SUDHAKAR REDDY ) ( RAJPAL YADAV )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 14/06/2013
Mohan Lal
92
Copy forwarded to:
1) Appellant
2) Respondent
3) CIT
4) CIT(Appeals)
5) DR:ITAT
ASSISTANT REGISTRAR