S.V. MEHROTRA, A.M:-This is assessee’s appeal against the order dated 14.01.2015 passed by the ld. CIT(A)-XX, New Delhi in appeal no. 166/2013-14, relating to A.Y. 2010-11.
2. Brief facts of the case are that the assessee firm, comprising of three partners viz. Rishabh Kishore, Mrs. Reshma Kishore & Mr. A.P. Dwivedi, having 1/3rd profit sharing ratio each, in the relevant assessment year was engaged in the business of assembling and undertaking civil contracts for and on behalf of government and public sector undertaking etc. It had filed its return of income declaring total income at Rs. 1,73,00,489/-, inter alia, after claiming deduction u/s 80-IC of Rs. 1,06,47,239/-. The AO required the assessee to substantiate its claim of deduction u/s 80IC by filing following details
a. Details of article/things manufacture
b. To produce documents in support of manufacture
c. Whether separate books of accounts were maintained in respect of the same to arrive at the eligible profit of Rs. 1,06,47,239/-.
d. Delay in filing return vis a vis the claim u/s 80IC.
3. The assessee, in its reply dated 26.2.2013 at sl. No. (ix) submitted as under:
"(ix) Regarding your honour's query on deduction claimed under section 80lC of the Income Tax Act, 1961, we would like to submit as under:
1. That the manufacturing unit set-up by the assessee during the year under consideration at Sitarganj, District Udham Singh Nagar, Uttrakhand mainly manufactured various kinds of signages/sign boards/panels and their components, various kinds of MS/SS/Sheet Metal fabricated structures and frames, Aluminum structures, Canopy/Building fascia and cladding components and panels etc.
2. That we are submitting copy of letter submitted with Excise Authorities and Uttarakhand VAT Authorities intimating them about start of commercial production along with first Stock transfer invoice dated 06.10.2009 with copy of Form "F" of Central Sales Tax issued against this Stock transfer as evidence in support of commercial production having been commenced in the financial year ending 31.03.2010 (Annexure “16" to “21").
3. That the assessee has maintained separate books of accounts in respect of its above mentioned manufacturing unit for arriving at eligible profit of Rs. 1,06,47,239/-.”
4. The delay in filing of return viz. a viz. claim under section 80IC is explained in Annexure 22 enclosed herewith.
4. As regards assessee’s claim u/s 80IC for not being denied on account of delay in filing the return, the assessee primarily advanced three submissions:
(i) The assessee had filed a belated return of income u/s 139(4) on 8.2.2011 and section 139(4) was nothing but an extension of section 139(1) and, therefore, compliance with the provision of sub-section (4) should be deemed to be due compliance of provision of sub-section (1). For this proposition, assessee relied on following decisions:
a. CIT vs. Ms. Jagriti Aggarwal 339 ITR 610, wherein it was, inter alia, held that the provision of sub-section (4) to section 139 was not an independent provision, but relates to the time contemplated under sub-sec. (1) of section 139.
b. CIT Vs. Rajesh Kumar Jalan 286 ITR 274, wherein it was, inter alia, held that the assessee could fulfill the requirement u/s 54 of the I.T. Act for exemption of the capital gain from being charged to income-tax on the sale of property used for residence by filing return before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, which ever was earlier under sub-section (4) of section 139.
c. High Court of Bombay vs. Trustees of Tulsidas Gopalji Charitable & Chaleshwar Temple Trust Commissioner of Income Tax. 207 ITR 368.
d. CIT Vs. Kulu Valley Transport Co. Ltd. 77 ITR 518 (SC), , wherein it was, inter alia, held that section 22(3), equivalent to section 139(4) is merely a proviso to section 22(1) equivalent to section 139(1).
e. The assessee further referred to various decisions of the Tribunal on this count, noted in AO’s order.
(ii) The second reason given by assessee regarding late filing of return was that it was prevented by sufficient cause from filing its income-tax return before 15.10.2010 as the assessee was engaged in executing certain job work contracts for ‘signages’ for the Common Wealth Games, which were held in New Delhi during 3rd to 14th October 2010. It was pointed out that the contract was a major one and required substantial efforts and time from all the partners and employees of the assessee to the extent that all other routine matters had to be held back just to enable the successful completion of CWG contract. The assessee further pointed out that the CWG contract also required extensive follow ups on the part of the assessee even post the completion of the games, which in turn consumed substantial time and efforts of the partners and employees.
(iii) The third reason advanced by assessee on this count was that under similar circumstances, many courts including Hon’ble Supreme Court, have held that the technical/ machinery provisions relating to sections which are intended to provide a benefit to the assessee, should be liberally construed. For this proposition assessee has relied on following case laws:
- ACIT Vs. Dhir Global Industrial (P) Ltd. 43 SOT 640, wherein it was, inter alia, held that section 10B(1) is directory and not mandatory and, therefore, a marginal delay of one and half month in filing the return of income was not sufficient for the rejection of the assessee’s claim u/s 10B(1) at the threshold.
- Hansa Dalakoti v. ACIT (ITA no. 3352/Del/2011 dated 25.1.2012). In this case the assessee’s claim u/s 80IC was allowed because assessee had filed all the supporting documents for claiming deduction u/s 80IC before due date of filing of return but the return was filed late.
- Bajaj Tempo Ltd. vs. CIT 196 ITR 188 (SC), wherein it has been, inter alia, held that particular provision in a taxing statute granting incentives for prompting growth and development should be construed liberally.
- Polyhose India Pvt. Ltd. Vs. Department of Income Tax 30.06.1911 in ITA no. 122/Mds/2011).
- Rambagh Palace Hotel (P) Ltd. Vs. DCIT 2.9.2012 87 ITD 163 (Delo.).
5. On the first aspect of details of article/ things manufactured, as contemplated u/s 80IC, the AO after considering the mandate of section 80IC observed that assessee had not explained about the article or things manufactured and manufacturing process. He pointed out that assessee had vide reply dated 16.11.2012 had merely stated that the firm was involved in manufacturing activities of products for self use required for execution of contracts being executed by it. He further observed that the auditors commented in the tax audit report that the assessee had not maintained the stock records and in absence of such records it was not practically possible for the auditors to give the quantitative details.
6. The AO further pointed out that the closing stock in hand valued in total at Rs. 40214495/- related to the various sites and the head office at New Delhi and other branches and there was no closing stock of factory at Sitargunj.
7. Further, the AO referred to sale invoice/ stock transfer wherein description of item claimed to be manufactured was as under:
“(1) Signage Type-1 Top Board fully assembled with RF Board size from 1284.479mm & (2) Verticle post with mounting clamps. Top cap and Base plate assembled size 4350.76 mm.”
8. Considering all the above aspects the AO concluded that assessee was merely assembling various materials like aluminum, steel sheets, fiberglass etc. to form panels, signboards, and signages and related products. The AO did not accept the assessee’s claim that it was manufacturing articles as contemplated u/s 80IC, as it did not bring into existence any new article or substance.
9. As regards the assessee’s claim that the deduction u/s 80IC should be allowed as return was filed belatedly u/s 139(4), the AO referred to various case laws relied upon by assessee and pointed out that a bare perusal of section 80AC makes it very clear that the return of income should have been filed within time limit specified u/s 139(1). He relied on various case laws mentioned in his order, wherein it was held that return has to be filed before due date specified u/s 139(1) for claiming deduction u/s 80IB.
10. The third reason for denying the deduction u/s 80IC was that assessee company produced several ledgers of its unit at Sitargunj but no separate P&L A/c and balance sheet had been brought on record to justify the profit claimed. However, the AO did not go in detail on this count, inter alia, observing that since the assessee’s claim was not admissible for the above two reasons viz. the assessee was not manufacturing any article or thing as contemplated u/s 80IC and the return of income was also belated, therefore, this aspect did not require any further investigation. AO, accordingly, disallowed the assessee’s claim for deduction u/s 80IC of Rs. 1,06,47,239/-.
11. Before ld. CIT(A) the assessee, inter alia, submitted that none of the notices issued to the assessee by the AO required him to justify how the activities amounted to manufacture or production. It was further pointed out that documents were produced in the form of bills from Uttrakhand Power Corporation, registration under Central capital Investment Subsidy Schemes and documents from Pollution Control Board to show that it was carrying out manufacturing activities. Ld. CIT(A), after considering the assessee’s submissions, required it to produce following documents:
- List of raw material consumed
- The manufacturing process being carried out
- The final product that is produced
- Any intermediary product produced
- Under which head as per the excise law is the final produce produced
- Stock details as per excise provision
- Copy of tender received by the appellant
- Copy of return and audit report when the Unit was located at Grater Noida.
- Details of labour employed, their skills and salary/wages
- Copy of invoice of the final products.
12. The assessee replied vide letter dated 27.10.2014, which has been reproduced by ld. CIT(A) in his order. From the details furnished by the assessee, ld. CIT(A) in para 5.4.2 observed as under:
“5.4.2 The process under taken by the appellant was explained as under:-
i) Procurement of material, both imported and indigenous
ii) Fabrication of structural as per drawings given in the tender for each item.
iii. “Galvanizing, powder coating of painting of the structural members in the workshop of vendor.
iv) Cutting, bending to shape and fabrication ACM as per given drawings,
v) Pre dispatch inspection by third party inspection at the vendor premises
vi) Transportation
vii) Erection at site
viii) Post installation inspection by third party inspecting (TPI) at site installation
ix) Inspection by the oil company engineer at site of installation Thus as per above the process under taken by the appellant is galvanizing, painting, cutting and bending. Even as per the CD and photographs provided by the appellant the work apparent from them is cutting of pipes to size, transfer of these pipes to the site, where the work of preparing the framework is undertaken and on this frame work the sheets which have been painted and on which different logos have been pasted are fitted. It is apparent that the entire unit which is fixed in a petrol pump etc. cannot be transported from the appellant factory to the site. The appellant was therefore asked to specify !he process that are carried out at the factory and at the contractee premises and also to" specify the machinery that has been installed/purchased by him . As per the details produced by the appellant most of the machines purchased by him related to cutting, welding, drilling and bending The appellant claimed that the production of signages, structure in MS/SS/aluminum, fabrication of ACP Panels for retail visual identity elements and allied components for Oil marketing companies were carried out at the factory premises. At this site the installation of supplied signages/RVI were done to the satisfaction of the end user.
The perusal of the purchase bills showed that the appellant had purchased fabricated MS Grill from various parties in New Delhi and this fabricated Grill was transported to Fiber Fill Engineers, Plot No.2, Daulatabad Road, Industrial Area), Gurgaon. The sale bills however show transportation of signage's and vertical posts from Sitar Ganj to the appellant's premises at Vasant Kunj, New Delhi. Thus from the perusal of the documents it cannot be stated with conviction
- whether any process is being carried out at the appellant's premises at Sitarganj
- the purchases are in favour of the factory at Gurgaon.
- Even if it is presumed that work is carried out at Sitarganj factory then the nature of the work is mainly cutting, welding and galvanizing .
- The post after cutting to size are transported to the parties site where the final process is carried out.
- The product being transported cannot be said to be a different product from the one purchased by the appellant. Thus a new and distinct commodity cannot be stated to have been produced or manufactured by the appellant.
13. Ld. CIT(A) after considering the provisions of section 80IC, inter alia, observed that all judicial pronouncements establish that the common product after undergoing some sort of process should be a commercially different product having different character, name and use. After considering various case laws, ld. CIT(A) rejected the assessee’s claim observing as under:
“It is thus required to be examined in the case of the appellant whether a new article or thing has been manufactured to enable it to merit the requisite deduction under section 80IC(2) of the act. The Assessing Officer has claimed that the process adopted by the applicant cannot be termed as manufacturing process as no new product has come into being. Reliance is placed on the decision of Rajasthan High Court in the case of CIT Vs. Lucky Minerals Pvt. Ltd. 226 ITR 245.
Applying the above tests, if the present case is analyzed, it emerges that in case of the appellant, the original article i.e. Pipes/Posts, as the photographs furnished indicate, do not undergo a substantial change and a commercially different product with distinctive name, cha se does not come into existence. Some of the metal attachments are being manufactured at the Gurgaon unit. Even the machinery installed at the Sitarganj factory reflects the activity or the lack of it being undertaken at the unit. The total machinery installed is a mere eye wash to claim manufacturing activities at the Sitarganj factory. The nature of the employees, their qualification, the wages being paid to them, and work assigned to each also show that the manufacturing activity claimed 0 be carried out at Sitarganj Unit is a mere eye wash. ESI and PF in respect of Sitarganj factory separately has not produced. It is only in 2012 for the year 2011 that the appellant has filed nominal roll of emp10yees and employment in ESIP, Sitarganj. Thus there is no evidence of employees at Sitarganj for the year under consideration. On the basis of the facts presented, the conclusion' that inevitably follows is that the Appellant cannot be said to have undertaken business activities which amount to manufacture or production of an article and therefore does not merit requisite deduction under section 80-IC(2) of the Act. In the light of the fore-going discussion and the given set of facts, the Appellant is not eligible for deduction under section 80-IC of the Act, as it cannot be said to have manufactured or produced any article or a thing. The decision of the Assessing Officer is, therefore, confirmed.
5.7 Without prejudice to the above, the appellant has also failed to file the audit report within time and therefore deduction under section 80lC is not eligible to the appellant. Without prejudice to the above even if any higher judicial authority holds a process carried out by the appellant as manufacturing, then too the percentage of a process carried out at the Sitarganj Factory is very nominal compared to the overall value of the process Even in that case the percentage of 80lC eligible to the appellant should not be more than 25%.”
14. Being aggrieved, the assessee is in appeal before us and has taken following grounds of appeal:
“1. That the order is against facts and law and is based on wrong interpretations of law & facts hence is liable to be struck down.
2. That the Ld. CIT(A) has erred in upholding the disallowance of deduction u/s of Rs. 1,06,47,239/-.
3. That the Ld. CIT(A) has erred in concluding that end product being manufactured/produced at eligible unit at Sitarganj factory is not commercially different from the input materials. The consequent conclusion that no manufacturing activity is being carried out is also erroneous, factually incorrect and is liable to be struck down.
4. That the Ld. CIT (A) has grossly erred in not adjudicating all the grounds taken in first appeal.
5. That the conclusion of the Ld AO (not adjudicated by CIT(A)) that provisions of sec. SOAC are mandatory and not directory is erroneous and against judicial pronouncements of various benches of the tribunal, courts including the apex court.
6. That the appellant prays for leave, to add, alter, amend or vary any of the grounds either before or at the time of hearing of the appeal.”
15. Ld. counsel for the assessee submitted that the first issue to be considered is whether activity carried out by the assessee is a manufacturing activity or not so as to entitle it for deduction u/s 80IC. He referred to pages 96 to 98 of PB wherein process carried out by assessee is contained, which is reproduced below:
“The process of procurement, fabrication and installation of all the Retail Visual Identity (RVI) features can be sub-divided as follows:
i) Procurement of material, both imported and indigenous
ii) Fabrication of structural as per drawings given in the tender for each item.
iii) Galvanising, powder coating of painting of the structural members in the workshop of vendor.
iv) Cutting, bending to shape and fabrication ACM as per given drawings .
v) Pre dispatch inspection by third party inspection at the vendor premises
vi) Transportation
vii) Erection at site
viii) Post installation inspection by third party inspecting (TPI) at site installation
ix) Inspection by the oil company engineer at site of installation The entire work of Procurement and fabrication is done in the manufacturing premises:
The completed elements are transported to the sites and erected/installed with the help of nuts, bolts and screws Fabrication work involving welding is not permitted at the site. The structures and A.CM for RVI features involving canopy and building fascia are brought to site in ready to erect condition from the manufacturing unit. The process of galvanizing, powder coating or painting of the structurals members take in the manufacturing unit. The inspection takes place In two stages. In the first stage the third party inspection (TPI) agency appointed by the oil company inspects the fabricated RVI items at the manufacturing unit before dispatch of the material to the site. In the second stage, the TPI agency is required to inspect the RVI elements after erection at the site. TPI agency is appointed by the oil company so as to ensure adherence to the specifications and maintain high standards and they do not permit any of the above activities except erection at the site. Maximum error permitted in joints is l mm. Representatives are deputed at each site to assess the exact quantities of work involved at each site. Engineers from the oil company also visit the site after TPI inspection.
A brief description. of the process undertaken by M/s Fibrefill Engineers while performing the work contract and the relevant items is as under:
Cladding: (i.e. covering of any surface such as walls, f1oors, building, column etc. by any foreign material on the preexisting structure), was carried 'out "mainly with aluminum composite sheets on the pre existing surfaces of walls, columns, canopies and buildings. In the process, (a) exact sizes were measured, (b) the sheets were cut, (c) surface was leveled with M.S. pipes which were welded to the existing surface to even out different levels or variations (i.e., to cover the defects in civil construction), (d) . aluminum extrusion was fixed piece by piece of required lengths cutting out the various opening like doors, windows, ventilators, ACs, coolers, water .dispensers, power points and lighting fixtures etc., (e)ACM sheet was cut as per the Aluminum extrusion that was secured to the MS or building through bolts.
Monoliths: Monolith is a complete sign which is manufactured at the manufacturing unit using steel, ACM, ploy carbonate sheets & aluminum tubes. Exact cut to steel pipes were received, and fabricated as per design of the oil company. The steel, was then directly dispatched from our manufacturing unit to the site. Other items like ACM and poly carbonate were prepared as per the design of the Oil Company. These panels were then cladded on the cut to size as per format. POC Foam boards were also packed and dispatched to the' site, where they are all assembled .and installed on the specially constructed foundation built by Oil Company for the same.
Building Fascia: Building Fascia is the ACM cladding done on top of sales Building of a Petrol Pump. Aluminum Composite Panels (ACM) sheets and Aluminum ACt-1 sheets and Aluminum Angle/Extrusion length were also made and dispatched as per the requirement. They were cut to size as per requirements of that particular site/petrol pump. They were installed on the existing sites Building Top of the petrol pumps. The entire building fascia after taking the exact measurements of the site, were manufactured at the manufacturing unit and the completed elements after inspection, were transported to the sites and erected/installed with the help nuts, bolts and strews as the fabrication work involving welding is not permitted at the site.
Canopy Fascia: It is cladding work on existing canopies of the Oil Companies as per their colour scheme and designs provided by the oil companies for aesthetic looks. For a canopy fascia measurement of canopy with regards to size, string level/straightness, water level were taken and a mean level was worked out that, so that water does not stop on the canopy. In order to make a Canopy Fascia MS Pipe (Coated) Aluminum extension, ACM sheets, GI sheets are required. MS Pipes of 900 mm are to be installed on the canopy piece by piece, single by single on the desired line levels, as worked out earlier (vertically) Aluminum Extrusion was then put/installed on the MS Pipes horizontally again piece by piece i.e., as per the standard lengths available then the ACM sheet which measures 900 x 4000mm lmm required colours was cladded on the MS/Aluminum with the help of screws/rivets. GI sheet was fixed on the top of ACM sheet to avoid water seepage. The entire canopy fascia after taking the exact measurements of the site, were manufactured at the manufacturing unit and the completed elements after inspection, were transported to the sites and erected/installed with the help nuts, bolts and screws as the fabrication work involving welding is not permitted at the site.”
16. Ld. counsel pointed out that the fabricated structures are as per the specification of clients. Ld. counsel pointed out that one of the objections raised by AO is that assessee was not maintaining any stock records and on this count he referred to the tax audit report contained in the paper book at page 10 wherein tax auditors have qualified their report by observing as under:
“As the assessee has not maintained the stock records and in absence of such records it is not practically possible for us to give the quantitative details.”
17. With reference to the above observation, ld. counsel pointed out that all the invoices are there which contained the quantitative details but since assessee did not maintain the stock record, therefore, only point to point correlation was not possible. Ld. counsel pointed out that it cannot be denied that signage has separate commercial use and, therefore, assessee was carrying out manufacturing activity as contemplated u/s 80IC. In this regard he relied on the decision of Hon’ble Supreme Court in the case of CIT Vs. Oracle Software India Ltd. 320 ITR 546 (SC), wherein in para 16 it has been observed:
16. If one reads the judgment in Tata Consultancy Services', it becomes clear that the intelligence/logic (contents) of a programme do not change. They remain the same, be it in the original or in the copy. The Department- needs to take into account the ground realities of the business and sometimes oversimplified tests create confusion, particularly, in modem times when technology grows each day. To say, that contents of the original and the copy are the same and, therefore, there is (sic no) manufacture would not be a correct proposition. What one needs to examine in each case is the process undertaken by the assessee. Our judgment is confined strictly to the process. impugned in the present case. It is for this reason that the American courts in such cases have evolved a new test to determine as to what constitute manufacture. They have laid down the test which states that if a process renders a commodity or article fit for use which otherwise is not fit, the operation falls within the letter and spirit of manufacture. (See United States v. International Paint Co. )
18. Ld. counsel pointed out that the relevant test is whether article produced has separate commercial use as compared to sourced material or not. Ld. counsel further submitted that in the case of CIT Vs. Ms. Megha Dadoo 232 Taxmann 419 (HP), it has been held that manufacturing of ‘Route Markers’ by undertaking process of cutting stainless steel pipes of larger sizes with electric cutter including pointing and welding of pipes, would amount to manufacture or production entitling assessee to deduction u/s 80IC.
19. Ld. counsel submitted that in case of assessee also the raw material is sourced from outside and then fabrication process is carried out as explained earlier and thereafter an article having separate commercial utility comes into existence.
20. Ld. counsel submitted that the second aspect to be considered is whether the assessee is entitled to claim deduction u/s 80IC though return has been filed belatedly u/s 139(4). He relied on various case laws, noted by us in the submissions advanced before AO, wherein it has been, inter alia, held that provision of section 139(4) is a proviso to section 139(1).
21. Ld. counsel submitted that the third aspect to be considered is regarding ld. CIT(A)’s observations that no manufacturing activity was carried out at Sitarganj site during the year under consideration. In this regard ld. counsel referred to the index to paper book no. 1, wherein the assessee’s reply dated 10.9.2014 before ld. CIT(A) is contained. The same is reproduced hereunder:-
10.9.2014
|
Copy of submission filed by assessee before CIT(A) alongwith its enclosures in respect of evidence to show manufacturing/ production by the appellant as per the Income Tax Act at Sitarganj Unit |
i) |
Bill from Uttarakhand Power Corporation Ltd. dated 12.11.2009 for an industrial unit under category-RTS-7 LT and HT industry |
ii) |
Ii) Registration and license to work a factory from the Director of Factories from 31.8.2009 |
iii) |
Central excise challan for the quarter ending December 2009. |
iv) |
Letter from the Fire Department dated 7.9.2009 |
v) |
Registration under Central capital Investment Subsidy Scheme, 2003 dated 20.8.2009. |
vi) |
Letters from Uttarakhand Power Corporation Ltd. |
vii) |
Letter to the Central Excise Division dated 17.8.2009 regarding start of the production in August 2009. |
viii) |
Documents from the Pollution Control Board dated 23.4.2009. |
22. Ld. counsel further referred to page 163 of PB, wherein conditions of tender documents are contained, in which para 5 reads as under:
“You are required to procure, install and commission the machinery as per details available in annexure XXII of the tender within 45 days from the date of the letter of Intent and confirm to us, so that IOC Engineers/ TPI agency may inspect your factory for verification of machinery. In case of failure to procure, install and commission the machinery within 45 days, the LOI and this work order shall be cancelled forthwith and the earnest money deposit/ initial security deposit shall be forfeited.”
23. Ld. counsel further referred to page 196 of the PB, wherein the report of third party inspection is contained. He pointed out that assessee is manufacturing signages etc. for IOC which nominates third party for inspection. He pointed out that third party has certified that the process of manufacture was carried out in terms of specification.
24. Ld. counsel further referred to pages 23 & 25 of the PB, wherein details of machinery installed at Sitarganj factory is contained to demonstrate that substantial investment was made at Sitarganj factory.
25. Ld. counsel further referred to pages 215 to 265 of the PB, wherein the copy of invoice of the machinery purchased for setting up the industrial undertaking at Sitarganj is contained. He further referred to pages 268 to 484 of the PB wherein the copy of bills of items purchased by assessee are contained in which the address of Sitarganj factory is given. He pointed out that the observations of ld. CIT(A) to the contrary on this count are not correct in the light of enormous evidence being on record.
26. Ld. counsel further referred to page 486 wherein the invoices evidencing the stock transferred from Sitarganj to New Delhi on 11.10.2009 is contained. Ld. counsel further referred to page 631 of PB, wherein list of employees along with designation at Sitarganj unit is contained. He pointed out that merely because PF and ESI register was granted subsequently cannot be a basis for denying the assessee’s claim regarding manufacturing activities being carried out at site in the backdrop of enormous evidences on record.
27. Ld. DR referred to the provisions of Sec. 80AC and pointed out that the said section categorically mentions section 139(1) and has used the negative language “unless”. She pointed out that unless the assessee filed the return before the due date as contemplated u/s 139(1), it could not claim deduction u/s 80IC. She further submitted that assessee has also not filed audit report on time which was filed during the course of assessment. She relied on following decisions in support of her contention that incentive provisions have to be given strict interpretation.
- Smt. Tarulata Shyam & others Vs. CIT 108 ITR 345 (SC)
- CIT Vs. Anjum M.H. Ghaswala & others (SC)252 ITR 1
- State of Punjab & others Vs. Surinder Kumar & others 194 ITR 434 (SC).
28. Ld. DR further submitted that no proper reason has been given for not filing return in time. Ld. DR referred to Explanation 2 to section 139(1) which defines the term “due date”. She submitted that section 139(4) nowhere mentions that the due date as contemplated u/s 139(1) will get altered if the return is filed belatedly u/s 139(4).
29. Ld. DR submitted that the second issue which is to be considered is whether assessee is carrying out any manufacturing activity or not as contemplated u/s 80IC. She referred to page 266 of the PB, wherein a note on the process being undertaken by assessee is contained and pointed out that assessee itself mentioned that it is only process of cutting , welding, bolting and jointing which is only a fabrication work done by assessee.
30. Ld. DR referred to page 215 onwards wherein copy of invoices of the machinery purchased for setting up industrial undertaking at Sitarganj unit is contained to submit that the investment is not subst4antial as claimed by assessee. She further submitted that no stock records have been maintained by assessee, as has been pointed out by the auditors. Ld. DR further relied on the order of CIT(A) page 9 para 5.4.2 wherein ld. CIT(A) disputed the feasibility of transportation. She submitted that as far as the decision of Hon’ble Punjab & Haryana High Court is concerned that is with reference to “Route Markers” and, therefore, she submitted that all these aspects taken together make it very clear that no manufacturing activity is carried out by assessee.
31. She submitted that the third issue is whether any activity carried out was not at Sitarganj. She referred to page 21 of AO’s order wherein he has observed that assessee has not filed any balance-sheet and P&L A/c before the AO. She further referred to the notice issued by AO u/s 142(1) contained at pages 32 to 144 of PB and assessee’s reply to various aspects. In this connection she referred to page 65 of PB, wherein form no. 3 under Rule 7(1) for registration and license to work a factory is contained, in which it is, inter alia, stated as under:
‘To licensed premises shown on plan approved vide letter no. 467F/Rekha dated 16.2.2010 are situated in M/s FiberFill Engineers Plot no. B-212 Eldico Sidcul Sitarganj, U.S. Nagar add consists of Building as shown by maps.”
32. She submitted that when the plan itself was approved on 16.2.2010, then how license could be given prior to that date to carry out activities.
33. Ld. DR referred to pages 194 and 195 of PB, wherein the inspection certificate from RITES Ltd. is contained and submitted that inspection has been carried out at Delhi though the contractor had been referred as assessee with Sitarganj, Uttrakhand. She submitted that this does not lead to any inference that the activities were carried out at Sitarganj.
34. Ld. DR further submitted that since the entire stock was transferred to New Delhi, then how the income part is explained at Sitarganj.
35. Ld. counsel in the rejoinder submitted that existence of undertaking at Sitarganj has been established with reference to invoices produced by assessee in regard to land, building, machinery etc. The P&L Account was also filed before ld. CIT(A). There is no machinery at Gurgaon unit and only for VAT purposes address was given. He referred to page 123 to 157 wherein the details of EPF and ESI contributions are contained. Ld. counsel submitted that if ld. CIT(A) had any doubt regarding the activities being carried out at Sitarganj, then he should have conducted the inspection.
36. Ld. counsel further pointed out that assessee had undertaken contract for sale and not contract for job and, therefore, it cannot be said to be a job work being carried out by assessee. He further referred to the decision in the case of CIT Vs. Faith Biotech Pvt. Ltd. to submit that value of machinery is not a relevant factor for deciding whether the assessee was carrying out manufacturing activity and the acid test is user of the article. He pointed out that, in any case, the assessee’s investment is not of small amount as submitted by ld. DR. As regards non-maintenance of records, ld. counsel pointed out that its books have not been rejected and quantitative details are there in invoices. On late filing of return ld. counsel submitted that no contrary judgment has been cited by ld. counsel which shows that 139(4) is not to be treated as proviso to section 139(1).
37. We have considered the rival submissions and have perused the record of the case. Primarily we have to consider following three issues-
(a) Whether any activity actually carried out by assessee at Sitarganj or not.
(b) Whether such activity could be termed as manufacturing or producing of any article or thing as contemplated u/s 80IC.
(c) Whether assessee was entitled to deduction even though it filed the return belatedly in view of the provisions contained u/s 80AC.
38. As far as the first issue is concerned, we find that AO has not questioned this aspect, but ld. CIT(A) has questioned this for the following reasons-
(i) Machinery installed at the Sitarganj factory reflects the activity or the lack of it being undertaken at the unit.
(ii) The nature of the employees, their qualifications, the wages being paid to them and the work assigned to each also showed that the manufacturing activity claimed to be carried out at Sitarganj Unit was a mere eye wash.
(iii) ESI and PF in respect of Sitarganj factory separately had not been produced. It was only in 2012 for the year 2011 that the assessee had filed nominal role of employees and employment for ESI/ PF in Sitarganj. Thus, there was no evidence of employees at Sitarganj in the year under consideration.
(iv) The purchase bill show that the assessee had purchased fabricated MS Grill from various parties in New Delhi and this fabricated bill was transported to Fiber Fill Engineers, Plot no. 2, Daulatabad Road, Industrial Area, Gurgaon. However, the sale bills show transportation of signages and vertical posts from Sitarganj to the assessee’s premises at Vasant Kunj, New Delhi. Thus, the main objection of ld. CIT(A) on this count was that the purchases were in favour of the factory at Gurgaon.
39. Ld. DR has also pointed out that the license was granted on 16.2.2010 and, therefore, no activity could be carried out prior to such date.
40. In our opinion, none of these objections can be accepted in the backdrop of enormous evidence on record, more particularly the documents furnished by assessee vide reply dated 10.9.2014
41. As far as ld. DR’s objection with reference to the grant of license to the factory is concerned, we find that on the said license it is specifically written that the same is enforced from 31.8.2009. Further, in the said license in column of date of renewal the first date mentioned is 1.1.2010. It is further noted that in form no. 3 it is specifically mentioned that the license shall remain in force till 31.12.2009 unless further renewal. It clearly shows that the license was enforced from 31.8.2009 and merely on the basis of approval being granted on 16.2.2010 it cannot be inferred that no activity could be carried out by assessee on the said premises. Therefore, it is evident that the approval might have been intimated vide letter no. 467F/Rekha dated 16.2.2010, but the activities must have been carried out prior to that date also.
42. Further from the bills on record it is evident that machinery had been installed at the said premises.
43. Ld. DR in course of her arguments submitted that there was no substantial investment in fixed assets at the premises so as to enable one to conclude that assessee was carrying out manufacturing activity. We do not find any substance in this plea of ld. DR because the requirement of investment depends on the nature of activity being carried out by assessee. It is not the case of revenue that with the investment at site the activities could not be carried out by assessee.
44. The assessee has also referred to the tender documents and the third party inspection carried out at the vender’s premises. From these documents it is evident that the third party inspection was carried out at Sitarganj Unit and, therefore, it cannot be said that no activity was carried out at the said premises. The submissions of ld. DR to the contrary are not correct when the entire report is considered.
45. Ld. counsel has also relied on the decision in the case of Faith Biotech Pvt. Ltd. (supra), where even though assessee was carrying out assembling and manufacturing of air purifier by using sample tools and testing equipments. It was held that assessee would be entitled to deduction u/s 80IC.This decision clearly counters the claim of revenue that the value of fixed asset is one of the deciding criteria for arriving at a finding whether assessee was carrying out manufacturing or not. The assessee has filed copies of invoices in the paper book from which it is evident that the raw material was purchased at Sitarganj unit during the relevant year under consideration and the fabricated items were transported from the Sitarganj to the site of contratees. We do not find any reason to doubt the credentials of these invoices particularly when ld. CIT(A) has not referred to the specific invoices to which she has referred in her order in para no. 5.4.2 reproduced earlier.
46. The next objection is regarding employees, the details of which have been referred to by ld. counsel for the assessee, noted in his arguments. From those details it is evident that keeping in view the nature of activity carried out by assessee, the number of employees and their qualifications could not be disputed.
47. As far as the objection regarding ESI and PF is concerned, we do not find much substance in the same because that is no where the criteria for concluding whether assessee had actually carried out activity or not. If there is any default on the part of assessee in regard to ESI and PF provision, then under the relevant Act it would be liable for action, but on that count deduction u/s 80IC cannot be denied. 48. Further it is noticeable from the observation of ld. CIT(A), reproduced earlier, that she has in the alternative accepted that assessee would be entitled to 25% deduction u/s 80IC. This also cannot be accepted particularly when assessee had produced separate ledgers for the activities carried out at Sitarganj unit.
49. In view of above discussion, the first issue stands answered in favour of assessee and on the alleged ground that no activity was carried out at Sitarganj unit, deduction u/s 80IC cannot be denied.
50. The next issue for our consideration is whether the activity carried out by assessee amounted to manufacture or production of any article or thing as contemplated u/s 80IC or not. We have extensively produced the assessee’s contention in regard to the activity being undertaken by it. From those submissions it is evident that assessee was primarily carrying out the process of procurement, fabrication and installation of the retail visual identity (RVI), which can be subdivided into following activities:
i) Procurement of material, both imported and indigenous
ii) Fabrication of structural as per drawings given in the tender for each item.
iii) Galvanising, powder coating of painting of the structural members in the workshop of vendor.
iv) Cutting, bending to shape and fabrication ACM as per given drawings .
51. All these activities definitely culminate into producing of an article, which has different utility in commercial sense. The fabricated item cannot be said to be the same as was the raw material for producing the same. The raw material may not be undergoing any chemical changes but nonetheless the same is fabricated in a manner so as to create an article which is of use to assessee’s customer as per their specifications.
52. Ld. counsel has referred to the decision of Hon’ble Supreme Court in the case of Oracle Software India Ltd. (supra), which clearly holds that if a process renders a commodity or article fit for use, which otherwise is not fit, the operation falls within the letter and spirit of manufacturing. In our opinion this test is clearly met in the case of assessee and, therefore, following the decision of Hon’ble Supreme Court in the case of Oracle Software India Ltd. (supra), assessee’s claim is liable to be allowed.
53. Ld. counsel has also referred to the decision in the case of Ms. Megha Dadoo (supra),wherein it has been held that manufacture of ‘Route Markers’ by undertaking process of cutting stainless steel pipes of larger sizes with electric cutter including painting and welding of pipes amounts to manufacture or production. In our opinion both these decisions clearly support the assessee’s claim that it was carrying on the manufacturing activity and, therefore, this objection of revenue authority stands rejected.
54. The third issue four our consideration is whether in view of the provision of section 80AC, the assessee is entitled to deduction u/s 80IC on account of late filing of return. Section 80AC reads as under:
“Deduction not to be allowed unless return furnished.
80AC. Where in computing the total income of an assessee of the previous year relevant to the assessment year commencing on the 1st day of April, 2006 or any subsequent of assessment year, any deduction is admissible under section 80IA or section 80IAB or section 80IB or section 80IC[ or section 80ID or section 80IE], no such deduction shall be allowed to him unless he furnishes a return of his income for such assessment year on or before the due date specified under sub-section (1) of section 139.”
55. While referring to the finding of assessment order, we have noted various decisions relied upon by ld. counsel for the assessee, which held that section 139(4) is to be read as proviso to section 139(1). It is true that the heading of section 80AC clearly shows that deduction is not to be allowed unless return is furnished on or before the due date specified under subsection (1) to section 139. However, it cannot be denied that section 80IC is an incentive provision and in view of various judicial pronouncements particularly in the case of Bajaj Tempo Ltd. Vs. CIT 196 ITR 188(SC), the incentive provision has to be interpreted in a manner so as to advance the objects of economic activities in the country and not to deny the claim merely on technical grounds.
56. Section 139(4) reads as under:
“139(4) Any person who has not furnished a return within the time allowed to him under sub-section (1), or within the time allowed under a notice issued under sub-section (1) of section 142, may furnish the return for any previous year at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.
Provided that where the return relates to a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year, the reference to one year aforesaid shall be construed as a reference to two years from the end of the relevant assessment year.”
57. A bare perusal of this section makes it clear that the legislature itself has allowed the assessee to file return belatedly subject to fulfillment of conditions written in the said section. Therefore, once those conditions are met, then return filed by the assessee would for all technical purposes be considered being filed u/s 139(1). Thus, keeping in view the various decisions noted earlier, we do not find any reason to deny the claim of assessee on the ground of filing the return belatedly.
58. In view of our observations, the assessee’s appeal is allowed.