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4 The brief facts of the case are that the assessee was engaged in the business of suppl ying communication equipment mainl y to Govt agencies. The assessee was operating from two units - one at Panchkula and second at Parwanoo. The assessee was claiming deduction u/s 80 IC of IT Act against profits of the Parwanoo unit since Assessment Year 2004-05. The assessee was allowed deduction u/s 80 IC of IT Act relating to Assessment Years 2004-05 and 2005-06. However, the said deduction was denied by Assessing Officer in Assessment Year 2006-07. The reasons for denial of the said deduction in the year under appeal were the observations of the Assessing Officer pursuant to the visit to the Parwanoo unit, during the conduct of assessment proceedings. The Assessing Officer has mentioned that the business of the assessee was of manufacturing of communication equipments which includes manufacturing of transceivers, power suppl y and other accessories. The Assessing Officer had observed the transceiver which the assessee manufactures was a device that transmits and receives analog or digital signals. It comprises of three main parts - a transmitter, a receiver and a oscillator generator. The components as per Assessing Officer were highl y integrated circuit boards made by highl y professional and skilled technicians. These circuit boards are then arranged in a fixed manner and are fixed in the outer body cover. Once the transceiver is manufactured then it is to be customized for use of the customers because each customer has a pre-set frequency allotted by the Government. The Assessing Officer noted that all these steps are integral part of the manufacturing process of transceiver sets. The Assessing Officer further observed that the other component claimed to have been manufactured by the assessee is the power suppl y which regulates the suppl y of power to the equipments. The essential components are the electronic circuits of which the common circuit is the PCB. As per Assessing Officer to manufacture a power suppl y, a unit has to first write a PCB which is the work of highl y skilled and professional technicians and then on these PCBs transformers, resistors, capacitors, voltage regulators etc. have to be laid. Lastl y the entire circuit is put into the required covering or equipment and then the product is tested for use. The Assessing Officer on her visit to factory premises on 8.12.2008 observed that the factory unit was located in one large room on the first floor of the premises and not more than 7 to 8 workers were engaged at the unit. Further, the Assessing Officer noted that no machine was being used and onl y two drilling machines along with stabilizers and testers were present there and no manufacturing was being carried. Statement of two of the workers at factory unit were recorded in which they stated that no manufacturing was taking place. They admitted that material was being purchased in raw condition and then loading the PC Programmes and software to adjust various parameter was carried on. As regards power suppl y equipment, they stated that assessee purchases readymade PCBs and final setting of voltage and final testing of power suppl y is done. The Assessing Officer found the consumption of electricit y at Rs. 24,429/= for a total turnover of Rs. 5.92 crore too low to justify production in comparison with consumption of electricit y at Panchkula Unit. The Assessing Officer also took photographs of the activit y at the Unit and observed that transceiver, power suppl y and other accessories are purchased in a finished stage and onl y programming and testing of transceiver is done as per requirements of customers. The raw material needed for manufacturing the highl y sophisticated products were not found available at the factory premises and onl y finished goods purchased from outside were found lying at the premises. The Assessing Officer thus held that assessee was not carrying on manufacturing activities at Parwanoo Unit but was doing basic activit y and carrying out trading activit y. The Assessing Officer compared the activities carried on by the assessee at its two units and on basis of various parameters at Page 22 of assessment order observed that expenses booked at Parwanoo unit are much less than those booked at Panchkula Unit. As per the Assessing Officer the assessee had reduced expenses at Parwanoo Unit to claim higher deduction u/s 80 IC of IT Act. The Assessing Officer also noted the transfer of raw material stock of Rs. 2.25 crore from Panchkula Unit to Parwanoo Unit, which in turn was utilized at Parwanoo Unit. The assessee was thus held to be not eligible for claim of deduction u/s 80 IC of IT Act. The contentions of the assessee that it was on the verge of closure of business and its turnover had decreased from Rs. 601.03 Lacs in Financial Year 2005-06 to Rs. 65.46 Lacs in Financial Year 2007-08 and consequent thereof shifting of machinery from Parwanoo unit to Panchkula unit and less labour force at the unit were not accepted. The assessee also contended that because of lack of orders, there was no manufacturing activit y on the date of visit of Assessing Officer on 8.12.2008. The Assessing Officer rejecting the contentions of the assessee held that assessee was not engaged in manufacturing activities. The Assessing Officer also held that the registration with various departments does not entitle the assessee to claim of deduction u/s 80 IC of IT Act. The Assessing Officer held that the assessee had tried to cover its claim as per Serial No. 13 of Part-C of 14 t h Schedule under Section 80 IC(2) of the Act. The Assessing Officer rejected the books of accounts u/s 145 of IT Act and also disallowed the claim of deduction u/s 80 IC of the Act. The Assessing Officer further observed that the assessee had shown value of plant & machinery in the Parwanoo unit at Rs. 29,98,881/- and had claimed depreciation at Rs. 9,32,258/-. In the absence of any machinery found at the factory premises on the dates of inspection, the claim of depreciation of Rs. 932,258/- was disallowed by the Assessing Officer.