[aaykarbhavan] Judgments and Information

IT: Where at time of assessment, assessee disclosed all material facts in relation to its claim of deduction under section 80HHC, Assessing Officer after expiry of four years from end of relevant assessment year could not initiate reassessment proceedings on ground that assessee could not have claimed deduction both under section 80HHC as well as section 80-IB

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[2013] 40 taxmann.com 459 (Gujarat)

HIGH COURT OF GUJARAT

Commissioner of Income-tax

v.

Bilag Industries (P.) Ltd.*

AKIL KURESHI AND MS. SONIA GOKANI, JJ.

TAX APPEAL NOS. 27 & 28 OF 2012

APRIL  2, 2013 

Section 80HHC, read with sections 80-IB and 147, of the Income-tax Act, 1961 - Deductions - Exporters [Computation of deduction] - Assessee, engaged in business of manufacturing pesticides, claimed deduction under section 80HHC - Assessing Officer passed assessment order allowing assessee's claim - Subsequently Assessing Officer initiated reassessment proceedings on premise that as per section 80-IA(9), read with section 80-IB(13), assessee could not have claimed deduction both under section 80HHC as well as 80-IB - Commissioner (Appeals) as well as Tribunal took a view that since there was no failure on part of assessee to disclose all material facts necessary for assessment, reassessment proceedings could not be initiated after expiry of four years from end of relevant assessment year - Whether since two authorities had concurrently held that assessee had made full disclosure, in absence of any contrary record, there was no substance in revenue's appeal and, thus, same was to be dismissed - Held, yes [Para 6] [In favour of assessee]

Sudhir M. Mehta for the Appellant. R.K. Patel for the Respondent.

ORDER

 

Akil Kureshi, J. - These appeals were admitted for consideration of following substantial questions of law :

"(A) Whether on the facts and circumstances of the case and in law, the Tribunal was right in annulling the assessment made u/s 143(3) r.w. Section 147 of the Act dated 30-11-2007?

(B) Whether on the facts and circumstances of the case and in law, the Tribunal was right in allowing deductions u/s 80IB and 80HHC simultaneously, in contravention of provision of section 80IA(9) r.w.s. 80IB(13)?"

2. We have heard learned counsel for the parties for final hearing of the tax appeals. Revenue has challenged the judgment of the Income-tax Appellate Tribunal dated 29-7-2011 by which Revenue's appeals against the decisions of the CIT(Appeals) came to be turned down.

3. Respondent assessee is in business of manufacturing pesticides. For the assessment years 2000-2001 and 2001-2002, the assessee had filed returns of income. Assessing Officer passed orders on 28-11-2002 and 5-12-2003 for the respective years. Such returns were taken in scrutiny. The Assessing Officer passed order under section 143(3) of the Income-tax Act, 1961 ("the Act" for short) on 30-11-2007 with respect to both the assessment years. In the returns that the assessee filed, the assessee had claimed deduction under section 80HHC of the Act.

4. On the premise that as per section 80IA(9) read with section 80IB(13) of the Act, the assessee could not have claimed deduction both under section 80HHC as well as 80IB of the Act, notices for both the assessment years were issued for reopening the assessment under section 148 of the Act on 21-2-2007. Assessee opposed such proceedings on the ground that there was no failure on part of the assessee to disclose truly and fully all material facts. Assessment therefore, cannot be reopened beyond a period of four years from the end of relevant assessment year. Such objections were however, discarded by the Assessing Officer. He passed two separate orders, both on 30-11-2007 and recomputed the tax of the assessee. Such orders were carried in appeal. Commissioner(Appeals) set aside the orders primarily on the ground that the reopening was invalid. He held that there was no failure on part of the assessee to disclose truly and fully all relevant material facts.

5. Revenue challenged such orders of the Commissioner(Appeals) before the Tribunal. Tribunal by common judgment dated 29-7-2011 which is impugned in these appeals, dismissed the Revenue's appeal. Tribunal referred to proviso to section 147 and observed as under :

"In the instant case we find that there is no failure on part of the assessee company to make a return under the provisions of Income-tax Act. The assessee has filed return of income u/s.139 of the Act in which all material facts relating to deduction claimed by the assessee-company were fully and truly disclosed. It is clear |from the original assessment order passed by Assessing Officer u/s 143(4) of the Act that deduction u/s.80IB and 80HHC of the Act claimed by the assessee-company was duly deliberated upon by AO and was allowed. In the light of these undisputed facts of this case, we are of the considered opinion that reopening u/s.147 cannot be done in view of the proviso to the Section after the expiry of four years from the end of relevant assessment year as there is no omission or failure on the part of the assessee company in putting fourth its claim in its entirety before the AO. This view of ours get support from the case laws of the jurisdictional High Court relied by the assessee. Therefore, the action of the AO in reopening the assessment of the assessee-company is not sustainable in law and Ld. CIT(Appeals) has rightly annulled the re-assessment proceedings carried out by the Assessing Officer. The orders passed by Ld. CIT(Appeals) for both the years are hereby upheld."

6. Learned counsel for the Revenue was unable to bring to our notice any material or factor which would enable us to take a view different from what the Tribunal has taken. CIT(Appeals) as well as Tribunal both came to the conclusion that there was no failure on part of the assessee to disclose truly and fully all material facts. In absence of any contrary material, we are not inclined to interfere with the decision of the Tribunal. Whether there was full and true disclosure by the assessee must be judged in the background of the claims made and the materials produced before the Assessing Officer during the assessment. When two authorities have concurrently held that the assessee had made full disclosures in absence of any contrary record, we find that there is no substance in the Revenue's appeals.

7. In the result, we answer question(A) in favour of the assessee and against the Revenue. Once we hold that reopening itself was invalid and that CIT(Appeals) as well as Tribunal were justified in annulling the Assessing Officer's, only on this ground it would not be necessary to examine the Assessing Officer's order on the merits of the assessee's claims for deduction. Question(B) is therefore, not required to be answered. Tax Appeals are dismissed accordingly.

--

202013-TIOL-53-SC-IT-LB

IN THE SUPREME COURT OF INDIA

Case Tracker

COMMISSIONER OF INCOME TAX Vs HIMATSINGKA SEIDE LTD    [High Court]

Civil Appeal No. 1501 of 2008

SLP(C) No. 10359-10360 of 2011

SLP(C) No. 10990 of 2013
(With office report)

SLP(C) No. 11030 of 2011
(With appln. for c/delay in filing SLP)

Civil Appeal No. 147 of 2013
(With office report)

SLP(C) No. 15860 of 2013
(With office report)

SLP(C) No. 15950 of 2012
(With office report)

SLP(C) No. 17055 of 2013
(With office report)

SLP(C) NOs. 19182 to 19186 of 2012
(With appln. for c/delay in filing SLP and with office report)

SLP(C) NOs. 19189 to 19195 of 2012
(With appln. for c/delay in filing SLP and with office report)

SLP(C) No. 19197 to 19202 2012
(With appln. for c/delay in filing SLP and with office report)

SLP(C) No. 19204 to 19208 of 2012
(With appln. for c/delay in filing SLP and with office report)

SLP(C) No. 19211 to 19212 to 19219 of 2012
(With appln. for c/delay in filing SLP and with office report)

SLP(C) No. 19221 of 2012
(With appln. for c/delay in filing SLP and with office report)

SLP(C) No. 19222-19223 of 2012
(With appln. for c/delay in filing SLP and with office report)

SLP(C) No. 20276 of 2013
(With office report)

SLP(C) No. 21454 of 2012
(With appln. for c/delay in filing SLP)

SLP(C) No. 25455 of 2012
(With appln. for c/delay in filing SLP and with office report)

SLP(C) No. 27297 of 2012
(With appln. for c/delay in filing SLP and c/delay in refiling SLP and
with office report)

SLP(C) No. 27469 of 2012
(With appln. for c/delay in filing SLP and c/delay in refiling SLP and
with office report)

SLP(C) No. 28980 of 2012
(With appln. for c/delay in filing SLP and with office report)

SLP(C) No. 29128 of 2012
(With appln. for c/delay in filing SLP and with office report)

SLP(C) No. 30188 of 2012
(With appln. for c/delay in filing SLP and with office report)

SLP(C) No. 30290 of 2012
(With appln. for c/delay in filing SLP and c/delay in refiling SLP and
with office report)

SLP(C) No. 32065-32066 of 2011
(With appln. for c/delay in filing SLP and c/delay in refiling SLP and
with office report)

SLP(C) No. 34824 of 2011
(With appln. for c/delay in filing SLP and with office report)

SLP(C) No. 34850 of 2012
(With appln. for c/delay in filing SLP and with office report)

SLP(C) No. 35435 of 2012
(With office report)

SLP(C) No. 35439 of 2012
(With office report)

SLP(C) No. 3677 of 2012

SLP(C) No. 3797 of 2012

SLP(C) No. 3799 of 2012
(With office report)

SLP(C) No. 3803 of 2012
(With office report)

SLP(C) No. 3804 of 201
(With office report)

SLP(C) No. 5785 of 2013
(With office report)

Civil Appeal No. 7853 of 2012

Civil Appeal No. 7854 of 2012
(With appln. for revocation of leave)

Civil Appeal NOs. 8788 - 8791 of 2012

Civil Appeal No. 8912 of 2012
(With office report)

SLP(C) No. 9465 of 2012
(With Appln. for c/delay in filing SLP and with office report)

SLP(C) No. 24415 of 2013
(With office report)

SLP(C) No...CC 10147 of 2012
(With appln. for c/delay in filing SLP and with office report)

SLP(C) No...CC 10573 of 2012
(With appln. for c/delay in filing SLP and permission to raise addl.
question of law and with office report)

SLP(C) Nos...CC 10658-10659 of 2012
(With appln. for c/delay in filing SLP and with office report)

SLP(C) No...CC 10963 of 2012
(With appln. for c/delay in filing SLP and with office report)

SLP(C) No...CC 10971 of 2012
(With appln. for c/delay in filing SLP and with office report)

SLP(C) No...CC 11537 of 2012
(With appln. for c/delay in filing SLP and with office report)

SLP(C) No...CC 14412 of 2012
(With appln. for c/delay in filing SLP and with office report)

SLP(C) No...CC 17421 of 2012
(With appln. for c/delay in filing SLP and with office report)

SLP(C) No. 21931 of 2012
(With appln. for c/delay in filing SLP and office report)

SLP(C) No. 10097 of 2013
(With appln. for permission to file lengthy list of dates and with prayer
for interim relief and office report)

SLP(C) No. 11945 of 2013
(With office report)

M/S HIMATSINGKA SEIDE LTD

Vs

COMMISSIONER OF INCOME TAX

H L Dattu, Sudhansu Jyoti Mukhopadhaya And M Y Eqbal, JJ

Dated: September 19, 2013

Appellant Rep by: G Sarangan, Sr Adv. Sanjay Kunur, Adv. Ramesh Keswani, Adv. Arijit Prasad, Adv
S Wasim A Qadri, Adv. N Annapoorani, Adv. B V Balaram Das, Adv. Anil Katiyar, Adv. Farrokh Irani, Adv
K V Mohan, Adv. R K Raghavan, Adv. K V Balakrishnan, Adv. 
Respondent Rep by: M S Syali, Sr Adv. SLPs.10097 &11945/13 Mayank Nagi, Adv.
Rameshwar Prasad Goyal, (A). Chythanya, Adv. S Sukumaran, Adv. Anand Sukumar, Adv.
Bhupesh Kumar Pathak, Adv. Meera Mathur, Adv. Chythanya, Adv. S Sukumaran, Adv. 
Anand Sukumar, Adv. Bhupesh Kuamr Pathak, Adv. Meera Mathur, Adv. K R Vasudevan, Adv.
V Balachandran, Adv. S Ganesh, Sr (A). T Suryanarayan, (A). Kunal Verma, (A). Tanmayee, (A).
Arpita, (A). Vabhav Kulkani, (A). Kavita Jha, (A). Abhay A Jena, (A). Ranjit Raut, (A). Bina Gupta, (A).
Anuj Dhir, (A). Avinash Kr Lakhanpal, (A). R N Keshwani, (A). Sameer Goel, (A). Lalit Chauhan, (A).
Galav Shamra, (A). for M/s. Parekh & Co., Advs. Satyen Sethi, (A). A T Panda, (A). Rameshwar Prasad Goyal, (A). 
R P Bhatt, Sr (A). Mukesh Butani, (A). Rahul Yadav, (A). H Raghavendra Rao, (A). Anuradha Dutt, (A).
Pawan Sharma, (A). Sachit Jolly, (A). B Vijayalakshmi Menon, (A). Senthil Jagadeesan, (A). S Ganesh, Sr (A).
Nandini Gore, (A). Debmalya Banerjee, (A). Dilpreet Singh, (A). Manik Karanjawala, (A). for Karanjawala & Co., (A).
Nikhil Nayyar, (A). Pritha Srikumar Iyer, (A). Dhananjay Baijal, (A). Nageswar Rao, (A). Sayaree Basu Mallik, (A).
Ambhoj Kumar Sinha, (A). Mohit Jolly, (A). Udit Mendiratta, (A). Sakya Singha Chaudhuri, (A). Jay Savla, (A).
Renuka Sahu, (A). Rajesh Mahale, (A). Pratap Venugopal, (A). Surekha Raman, (A). Meenakshi chauhan, (A). 
Dheeraj Nair, (A). Smita Bhargava, (A). K T Anantha Raman, (A). Vasudevan Raghavan, (A).

Income tax - Sections 10A, 10B - Whether unabsorbed depreciation carried forward by the EoU unit from earlier years is to be set off against the profits before computing exemption benefits under Ss 10A/10B.

The assessee commissioned a 100% EOU in AY 1988-89 but did not claim Sec 10B benefits for lack of profits in A.Y 1988-89, 1989-90 and 1990-91. On the other hand, it claimed the said benefits for a connective period of 5 years starting from A.Y 1992-93. In A.Y 1994-95, Assessee had other income beyond the profits and gains of the export oriented commercial unit. Unabsorbed depreciation available to the Assessee in A.Y 1988-89 was carried forward to the current year and was claimed to be adjustable against the income from other sources, thereby it reduced income to NIL. The AO accepted the return and passes the order. The CIT invoked powers under section 263 to disallow the benefits. The Tribunal allowed the Assessee's appeal but the HC reversed the same.

On appeal, the Apex Court held that,

++ having perused the records and in view of the facts and circumstances of the case, we are of the opinion that the Civil Appeal being devoid of any merit deserves to be dismissed and is dismissed accordingly.

Assessee's appeal dismissed

JUDGEMENT

1. We have heard learned counsel for the parties to the list.

2. Having perused the records and in view of the facts and circumstances of the case, we are of the opinion that the Civil Appeal being devoid of any merit deserves to be dismissed and is dismissed accordingly.

Ordered accordingly.

14-TIOL-40-ITAT-BANG

IN THE INCOME TAX APPELLATE TRIBUNAL
BANGALORE 'C' BANGALORE

ITA No.1087/Bang/2012
Assessment Year: 2009-10

M/s MINDTREE LTD
GLOBAL VILLAGE
RVCE POST MYSORE ROAD
BANGALORE-560059
PAN NO:AABCM8839K

Vs

ASSTT COMMISSIONER OF INCOME TAX
(LTU) BANGALORE

N Barthvajasankar, VP And George George K, JM

Date of Hearing: December 5, 2013
Date of Decision: December 5, 2013

Appellant Rep by: Shri Tata Krishna, Adv.
Respondent Rep by: Smt H L Sowmya Achar, DR

Income Tax - Section 10B - Whether the deduction u/s 10B is to be calculated without setting off of carried forward business loss and unabsorbed depreciation.

The assessee was engaged in software development and allied services. The return of income was filed claiming deduction u/s 10B amounting to Rs.13,50,89,407/-. The return was taken up for scrutiny. In the scrutiny assessment the AO had disallowed the relief claimed u/s 10B. The AO noticed that the assessee was having the total accumulated business loss brought forward from earlier years and the accumulated depreciation loss and hence, the income from business amounting to Rs.16,17,49,127/- has to be set off first against the brought forward business loss and unabsorbed depreciation and thereafter only, deduction u/s 10B to be calculated. Since, after the set off of brought forward loss and unabsorbed depreciation, the total income would be NIL, the AO held that the assessee was not entitled to any deduction u/s 10B.The CIT(A) dismissed the appeal of the assessee.

On Appeal before the Tribunal the AR submitted that the issue was squarely covered by the judgment of the jurisdictional High Court in the case of CIT v Yokogawa India Ltd. (2011-TIOL-711-HC-KAR-IT). The DR fairly agreed with it.

Having heard the parties, the HC held that,

++ the jurisdictional High Court in the case of Yokogawa India Ltd. categorically held that deduction u/s 10A is allowable without setting off the brought forward loss and unabsorbed depreciation of other units;

++ respectfully following the dictum laid down by the jurisdictional High Court in the case of Yokogawa India Ltd. (2011-TIOL-711-HC-KAR-IT), we hold that the deduction u/s 10B is to be calculated without setting off of carried forward business loss and unabsorbed depreciation. The assessee is entitled to deduction u/s 10B, provided the other conditions mentioned under the section are satisfied.

Assessee's appeal partly allowed

Case followed:

Yokogawa India Ltd. (2011-TIOL-711-HC-KAR-IT)

ORDER

Per: George George K:

1. This appeal of the assessee company is directed against the order of the CIT (A)-LTU, Bangalore, dated 21.6.2012. The relevant assessment year is 2009-10.

2. The concise grounds raised by the assessee, in its Memorandum of appeal, are as under:

(1) That the CIT (A)-LTU was not justified in sustaining the addition of Rs.1,29,473/- being 20% of Rs.6.47 lakhs incurred towards event management while computing the value of taxable Fringe Benefits [FB];

(2) That the CIT (A) was also not justified in upholding the additions of-

(i) Rs.6,87,089/- being 20% of Rs.34,35,443/- paid to Org. Indirect;

(ii) Rs.41,772/- being 20% of Rs.2,08,860/- paid to External faculties; &

(iii) Rs.38,38,958/- being 20% of Rs.1,91,94,739/- paid to Org. direct incurred towards staff training.

3. Briefly stated, the facts of the issues are as under:

The assessee is a company engaged in the business of software development and allied activities. During the year under dispute, the assessee had filed its return of fringe benefits on 30.9.2009, declaring taxable FB of Rs.8,85,08,943/- which was revised on 23.3.2010. During the course of proceedings, the assessee had furnished the reconciliation of FB with the financial statements. The AO had concluded the assessment u/s 115 WE(3) by making additions on the following expenses:

(i) Rs.1,29,473/- being 20% of Rs.6.47 lakhs incurred towards event management;

(ii) Rs.6,87,089/- being 20% of Rs.34.35 lakhs paid to Org. Indirect towards staff training;

(iii) Rs.41,772/- being 20% of Rs.2.08 lakhs paid to external faculties towards staff training; and

(iv) Rs.38,38,958/- being 20% of Rs.1.91 crores paid to Org. Direct towards staff training.

3.1. Aggrieved, the assessee took up the issues with the CIT (A)-LTU. After due consideration of the assessee's contentions, the CIT (A)-LTU had recorded her findings, under each item-wise, as under:

(i) Rs.1,29,473/- :

"4.2. (e) I am of the considered opinion that the nature of expenses listed in Table I above wherein the appellant has furnished the break-up of event management expenditure makes it abundantly clear that such expenses are in the nature of 'Entertainment' liable to be treated as a deemed benefit u/s 115WB(2)(A) rather than as expenditure incurred towards 'conference' liable to be taxed u/s 115WB(2)(C). It is quite evident from a plain reading of the Finance Minister's speech dt 28.2.2005 and from the Memorandum to the Finance Bill, 2005 that where the benefits are usually enjoyed collectively by the employees and where the expenditure incurred by the employer is ostensibly for purposes of the business but includes, in partial measure, a benefit of a personal nature, such expenses would clearly fall within the purview of FBT. In the instant case, the expenses towards event management have been largely incurred towards inauguration of its Chennai Facility and the Cricket Match which were for the collective benefit of its employees between different project teams. Obviously, the very nature of the expenses incurred makes it crystal clear that the event management expenses incurred to the tune of Rs.6,47,363/- is a deemed fringe benefit liable for FBT u/s 115WB(2)(A). This is even more apparent from a perusal of the answer to Q No.49 of CBDT Circular No.8/2005 dt. 29.8.2005 which is reproduced below:

'49. What is the scope of the expression 'entertainment in clause (A) of section 115WB(2)?

Ans: The meaning of the word 'entertainment' in clause (A) of sub-section (2)(of s. 115WB is of wide import. It includes all expenditure in connection with exhibition, performance, amusement, game or sport, for affording some sort of amusement and gratification."

(emphasis supplies)

In view of the foregoing analysis, I have no hesitation in upholding the AO's stand in treating even management expenses to the tune of Rs.6,47,363/- as a deemed fringe benefit except that instead of bringing it to tax under the head 'conference' u/s 115WB(2(C), I am of the view that it should rightly be brought to tax under the head 'entertainment' u/s 115WB(2)(A)…"

(ii) Rs.6,87,089/-, Rs.41,772/- & Rs.38,38,958/- being 'staff training', 'staff training expenses – External Faculty & 'staff training expenses' respectively:

"5.2. As already pointed out in para 4.2, clauses (a) to (e), it was evident that the purpose or rationale behind introduction of FBT provisions was to tax a benefit which was enjoyed collectively by the employees which was enjoyed collectively by the employees which was hitherto untaxed in the hands of the employees and in r/o which the employer was claiming deduction. Likewise, an expenditure which did not result in any benefit to an employee would not be liable for FBT as FBT was leviable only in a case where expenditure was incurred by the employer ostensibly for the purpose of business but included partially a benefit of a personal nature which could not be attributed or was difficult to attribute. It is crystal clear from the Finance Minister's speech and Memorandum explaining the FBT provisions reproduced in para 4.2 above that the rationale for levying FBT on the employer lies in the inherent difficulty in isolating the 'personal element' when there is collective enjoyment of such benefits and in attributing the same directly to the employee. It further provides that where attribution of the personal benefit poses problems, or for some reasons, it is not feasible to tax benefits in the hands of the employee, it is proposed to levy a separate tax known as FBT on the employer on the value of such benefits provided or deemed to have been provided to the employees. Thus, the intention of creation of a deeming fiction under section 115WB(2) is to include an expenditure resulting in collective enjoyment of fringe benefits by the employees and it is difficult or not feasible to attribute such benefit personally to employees.

5.2.1. In the instant case, it is quite evident from the nature of the staff training expenses incurred by the appellant on its employees that both elements of employer – employee relationship as well as collective benefit to the employees are clearly visible and omnipresent though incidentally this may ultimately result in improving productivity in the long run. The appellant placed reliance on q No.51 of the Board's Circular wherein the Board clarified in its answer to the query as to whether expenditure incurred during in-house employee training would be considered as 'conference' expenses deemed to be a fringe benefit u/s 115WB(2)(C), the Board clarified that though FBT was not envisaged on expenditure incurred for purpose of imparting in-house training to employees, FBT would be payable on any expenditure incurred towards food & beverage, tour & travel and lodging & boarding in connection with such in-house training of employees. At the other end of the spectrum, it is pertinent to note that even with regard to expenditure incurred for attending training programs organized by Trade bodies or Institutions, vide answer to Q No.54, the Board clarified that since a training program entails a congregation of a number of persons for discussion or exchange of views, expenditure incurred for attending training programs organized by Trade Bodies or Institutions or any other agencies fell within the scope of provisions relating to expenditure incurred for purposes of conference contained in sec. 115WB(2)(C) and would be liable to FBT. However, it is abundantly clear that both the queries referred to above are in connection with the applicability or otherwise of the deeming provisions of sec.115WB(2)(C) which directly relates to 'conference' whereas the AO has clearly brought the other amounts to tax as 'employees' welfare' under the deeming provisions of sec. 115 WB(2)(E). Therefore, the whole argument of whether 'in-house' training includes within its ambit payment made to external faculty or not or merely denotes location is irrelevant. Under the circumstances, I am inclined to agree with the AO that staff training expenses, whether direct, indirect or external faculty, are all liable to FBT under the deeming provisions of sec. 115 WB(2)(E)."

3.2. Aggrieved, the assessee has come up with the present appeal. During the course of hearing, the learned AR, extensively quoting the Finance Minister's speech on 28.2.2005 as well as in the Lok Sabha on 2.5.2005, Memorandum to Finance Bill 2005 and also his interview with the Economic Times, it was contended that the fringe benefits can only mean privilege, service, benefit or amenity provided directly or indirectly by an employer to his employees by reason of their employment. Taking hint from the provisions of s. 115WB (2), it was submitted that the deeming fiction in s. 115 WB (2) is with a specific purpose. The FM speech and Memorandum explaining the FBT provisions state that the rationale for levying a fringe benefit tax on the employer lies in the inherent difficulty in isolating the 'personal element' where there is collective enjoyment of such benefits and attributing the same directly to the employee. It was submitted that the Memorandum states that FBT is sought to be levied where attribution of the personal benefit poses problems. Thus, it was contended that deeming fiction u/s 115 WB is attracted only when the expenditure results in some benefit to employees and/or it is difficult to isolate the personal element of enjoyment or benefit. Further, it was claimed that s. 115 WB (2) incorporating a deeming fiction should be read along with the intention of Legislature to tax the collective enjoyment of benefits by the employees and that u/s 115WB (2), the expenditure should be incurred in the capacity of 'employer' for his employees and, therefore, legitimate business expenditure bereft of any benefit to employees is outside the ambit of FBT. For this proposition, the learned AR relied on the case laws, namely, (i) CIT v. Karnataka Power Transmission Corporation Ltd (2012) 20 Taxmann.com 142 (Kar); (ii) M/s. Toyota Kirloskar Motor Pvt. Ltd v. Addl CIT - 2012-TIOL-313-ITAT-BANG; (iii) Bosch Ltd. v. DCIT (2011) 15 Taxmann.com 187 (Bang); (iv) DCIT v. Mescon -2010-TIOL-419-ITAT-BANG.

3.2.1. Referring to s. 115WB (1), it was submitted that the expression 'consideration for employment' will only consist of those benefits which the employee is entitled to as a matter of right or at his option to be exercised as an employees. In other words, it is that benefit which the employee can demand as his contractual right. It was, further, contended that the phrase 'consideration for employment' as used in s. 115WB (1) has to be read while interpreting the provision of s. 115 WB (2). In other words, it was explained, it is those expenditure which are incurred as 'consideration for employment' and enlisted under clauses (A) to (Q) in s. 115 WB (2) of the Act is subjected to FBT. For this proposition, the assessee has relied on the findings of the Pune ITAT reported in (2012) 149 TTJ (Pune) 365.

3.2.2. To drive home his point, the learned AR had averred that an expense would be subjected to FBT only if the following attributes are present, namely:

> Benefit is given in consideration for employment;

> Benefit is available to employee as a matter of right;

> Benefit is collectively enjoyed by the employees;

> Benefits enjoyed in the hands of the employee are quantified;

> Expenditure incurred by the employer is ostensibly for the purpose of business but includes an element of benefit of a personal nature which cannot be attributed or is difficult to attribute; &

> Payments were not made to third parties.

3.2.3. With regard to the sustaining of the addition of Rs.1,29,473/- by the CIT (A), it was argued that the CIT (A) ought not to have treated the expenditure of Rs.6.47 lakhs as 'entertainment expenditure' liable to be treated as deemed benefit u/s 115WB (2) as against the addition made by the AO as 'conference' expenditure liable to tax u/s 115WB(2)(C) without affording an opportunity to the assessee to explain its stand, even though the details of expenses were furnished to the AO as well as the CIT (A)-LTU. It was contended that s. 115WB (2) provides that the fringe benefit shall be deemed to have been provided by the employer to his employees, if the employer had incurred in the course of business or profession any expense on or made any payment for the purposed enlisted in clauses (A) to (Q). In this context, the assessee relies on the Circular No.8/2005 dt.29.8.2005 [Q No.11]. With regard to the expenses incurred in the inauguration of its Chennai Facility, it was contended that the same cannot be termed as entertainment as it was in the course of the expansion of the assessee's business and not meant for the employees and the employees were not benefited from such expenses and as such, the FBT is not attracted in the instant case. It was claimed, the CIT (A)-LTU erred in treating Rs.34000/- paid towards items hired for Panache Cricket match conducted between different project team also as 'entertainment'. Quoting the provisions of s. 115 WB(2)(E), it was argued that it was evident from the Explanation to clause (E) that if an employer organizes any sports event for employees, the amount expended on the said event shall not be considered as employee's welfare and thereby cannot be regarded as FB and the employer was not required to pay FBT on the same. In conclusion, it was argued that the sum of Rs.6,47,363/- incurred by the assessee cannot be regarded as FB and, thus, not chargeable FBT on the said amount.

3.2.4. In respect of the staff training expenses of Rs.34,35,443/-, staff training expenses – External faculty of Rs.2,08,860/- and Rs.1,91,94,739/- paid towards Org. direct under the head 'staff training expenses' for which 20% of the same were treated as liable to FBT, after explaining the graphic description of the staff training expenses and also elaborately quoting the clauses (A) to (Q) to s.115WB(2) of the Act, it was submitted that the authorities below were not justified in considering the aforesaid expenses as part of 'employee welfare' u/s 115WB (2)(E) of the Act as they have failed to appreciate that the expression 'welfare' in common parlance would mean the health, happiness and fortunes of a person or a group. Thus, it was argued, the expenses incurred towards staff training do not fall under the expression 'employee welfare'. It was, further, argued that the employee's welfare is a comprehensive expression which would include any expenditure where welfare of the employee is involved as medical reimbursement, recreation facilities offered for employees, incentive awards etc. In the instant case, staff training was provided by the assessee with an intention to increase the productivity of the employees which was evident from the above said description. It was argued that the CIT (A) had failed to appreciate that the purpose of providing the training was to equip the employees to perform their official duties efficiently. In other words, it was explained, the training provided was to improve the employee's productivity at the workplace by giving cutting-edge knowledge and ideas which directly benefits the assessee in carrying on its business more efficiently. It was, further, argued that the CIT (A) had failed to appreciate that if the purpose of incurring the expenses was to protect the employer's business interest and not the welfare of/benefit to the employees, the expenses incurred thereon would not be termed as 'employee welfare.' It was the stand of the learned AR that the Board's Circular (supra) has clarified that the expenses incurred for the purpose of imparting in-house training to employees would be out of the ambit of FBT and that the authorities below have to failed to see the reason that the imparting the knowledge was not meant for the welfare of the employees. Referring to the provisions of s. 115WB (2)(C), it was claimed by the learned AR that the said provision that the fee paid towards participation in conference would not be part of the deeming provision. The explanation to sub-section (C) enlists expenditure are not forming part of conference. Any fee paid towards the participation by the employees in any conference is excluded from the scope of s. 115 WB (2)(C) and, thus, the participation fee in respect of a conference organized by an outside entity was excluded from the purview of FBT. If it were so, even staff training provided by the employer should also be free from FBT. The purpose of participation, it was contended, in any conference organized by a third party cannot be different from purpose of training provided by the employer itself to its employees. If the former cannot be regarded as employee welfare, the latter also cannot be regarded as such. Without prejudice the ruling of the Hon'ble Calcutta High Court in the case of Ravi Marketing (P) Ltd v. CIT (2006) 280 ITR 519 (Cal) = (2006-TIOL-47-HC-KOL-IT), the learned AR submitted that the reply to Q. No.54 [Circular No.8/2005] doesn't apply to the present case for the following reasons:

(i) The aforesaid expenditure was not incurred by the assessee for attending training programmes organized by trade bodies or institutions; &

(ii) The training programmes as referred to in the above query are general in nature whereas in the present case, it was an in-house training provided to the employees of the assessee for improvement of productivity in the normal working hours.

3.2.5. In conclusion, it was submitted that the aforesaid expenses incurred towards staff training was not for the collective benefit/welfare of the employees and, thus, the same cannot be regarded as FB for the purpose of Ch., XII-H and not chargeable to FBT.

3.2.6. On the other hand, the learned DR supported the stand of the authorities below. The learned DR had, further, argued that the issue has since been dealt with elaborately and, subsequently, came to a right conclusion by the CIT (A) that the staff training expenses whether direct, indirect or external faculty were all liable to FBT under the deeming provisions of s. 115 WB (2)(E) of the Act. It was, therefore, pleaded that the stand of the CIT (A) requires to be sustained.

3.3. We have carefully considered the submissions of both the parties and also perused the relevant materials on record. It is an undisputed fact that the assessee had incurred the following expenses:

Lighting arrangements during Chennai event	Rs. 15,000
Items hired for Panache Cricket match finals for employees held in Bangalore between different project teams	Rs. 34,000
Aztecsoft with Mindtree	Rs. 71,617
Relates to Mindtree Chennai facility inauguration	Rs.5,26,310

3.3.1. The break-up of expenses grouped under Event Management Expenditure account along with documentary evidences were furnished before the AO as well as the CIT (A) by the assessee. However, the CIT (A)-LTU, after analysing the provisions of s. 115 WB (1), 115WB(1)(a) of the Act, was of the view that the nature of expenses claimed make it abundantly clear that such expenses were in the nature of 'entertainment' liable to be treated as a deemed benefit u/s 115WB (2)(A) of the Act rather than as expenditure incurred towards conference liable to be taxed u/s 115WB(2)(C) of the Act. However, on a careful consideration of the expenses incurred/claimed by the assessee clearly establish that the aforesaid expenses were incurred for the purposes of (i) lighting arrangements for Chennai event; (ii) Share-holders and creditors meet during merger of Aztecsoft with Mindtree and (iii) Mindtree facility inauguration.

3.3.2. From the above, it is abundantly clear that none of those expenses were incurred by the assessee to endure any benefit to the employees whatsoever.

(i) To illustrate further, the assessee had incurred an expenditure of Rs.34,000/-for organizing the cricket match. In this connection, we refer to Explanation to s."115 WB(2)(E) of the Act that –

Explanation – For the purposes of this clause, any expenditure incurred or payment made to-

(i)…………………………………………………

(vi) organise sports events for employees, shall not be considered as expenditure for employees' welfare;"

(ii) A sum of Rs.71,617/- and Rs.15,000/- were incurred for the purpose of organising shareholders and creditors meet during merger of Aztecsoft with Mindtree. In these events, the question of involvement of any employees' welfare doesn't arise. Therefore, invoking the provisions of s. 115 WB (2)(A) of the Act do not arise as there was no any involvement of entertainment on the issue.

(iii) Rs.5,26,310/- was claimed being expenses incurred towards the inauguration of Chennai facility. On a perusal of the Invoice produced during the course of hearing, we find that the expenses incurred towards organizing the inauguration of Chennai facility [Source: Page 65 & 66 of PB AR]. Hereto, we find there was no any element of 'entertainment' in the said expenses so as to bring it under the purview of s. 115 WB(2)(A) of the Act.

3.3.3. In substance, the entire expenses of Rs.6.47 lakhs incurred by the assessee cannot be regarded as FB and, therefore, FBT is not chargeable on the said sum. Therefore, the CIT (A) was not justified in invoking the provisions of s. 115 WB(2)(A) of the Act to bring the said sum of Rs.6.47 lakhs under the ambit of FBT. It is ordered accordingly.

4. With regard to the second ground of the assessee to the effect that the CIT (A) was not justified in sustaining the additions of Rs.6.87 lakhs, Rs.41,772/- and Rs.38.38 lakhs in respect of staff training etc., we would like to point out that the authorities below have justified in their stand that the aforesaid expenses as part of 'employee welfare' u/s 115WB(2)(E) of the Act. However, as rightly pointed out by the learned AR, they have failed to appreciate that the expression of 'welfare' in general parlance would mean the health, fortunes of a person or a group. Such being the scenario, they have failed to justify that the staff training falls within the sphere of 'employee welfare'. The purpose of providing training to its employees by its employer was to perform their official duties efficiently which will definitely enhance the productivity thereby the ultimate beneficiary would be the employer in carrying on its business more effectively and not the employees. If the purpose of incurring the expenses was to protect the employer's business interest and not the welfare of the employees and, as such, it cannot be termed as employees' welfare. These aspects have neither been considered by the AO nor by the CIT (A). Moreover, the comprehensive details of expenses incurred for the staff training have neither been furnished before the authorities below nor during the course of hearing before this Bench by the assessee to ascertain as to whether the assessee's claim that such expenses were not liable to FBT.

4.1. As could be seen from the order of the AO as well as the finding of the CIT (A), the issue has not been deliberated thoroughly by the authorities below before coming to an conclusion that the staff training expenses liable to FBT under the deeming provisions of s. 115WB (2)(E) of the Act, we are of the view that the issue requires a fresh and thorough verification at the level of the AO. To facilitate the AO to have a fresh look on the issue as directed (supra), the matter is restored on the file of the AO. In the meanwhile, the assessee through its learned AR is advised to furnish all the relevant details with supporting documentary evidence to enable the AO to carry out the directions of this Bench (supra) expeditiously. It is ordered accordingly.

5. In the result, the assessee's appeal is treated as partly allowed for statistical purpose.

(Order pronounced in the Open Court on 5.12.2013.)

2014-TIOL-46-ITAT-DEL

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'F' NEW DELHI

ITA No.2554/Del/2013
Assessment Year: 2009-10

M/s RESISTOFLEX DYNAMICS (P) LTD
C/0 RRA TAXINDIA, D-28, SOUTH EXTENSION
PART-I, NEW DELHI-110049
PAN NO:AACCR3766P

Vs

DEPUTY COMMISSIONER OF INCOME TAX
CIRCLE-15(1), NEW DELHI

R P Tolani, JM And Shamim Yahya, AM

Date of Decision: December 6, 2013

Appellant Rep by: Dr Rakesh Gupta, Adv.
Respondent Rep by: Shri Keyur Patel, DR

Income Tax - Section 80IC - Whether deduction u/s 80IC cannot be denied in subsequent years if the same was allowed in initial years - Whether assessee was manufacturing air spring assembly and supplying it to Indian Railways and was not merely trading as alleged by the Revenue and hence eligible to claim deduction u/s 80IC of the Act.

The assessee company had three units - Unit - I at Noida, which was engaged in the manufacturing / assembling of air spring and suspension system of industrial segments only; Unit - II at Greater Noida, which was engaged in the manufacturing of air springs for automotive segment and; Unit -III at Paonta Sahib, which was engaged in the manufacturing/ assembling of air spring and suspension system for railways only.

The assessee claimed deduction u/s. 80IB of 30% for Noida Unit and deduction u/s. 80IC of 100% for Ponta Sahib unit. The AO referred to various expenses of all the units and observed that the expenses claimed in respect of Ponta Sahib unit are much less vis-a-vis the expense for Noida and Greater Noida units. AO was of the opinion that even the total investment in fixed assets of Ponta Sahib unit was less and in which case the other two units should have shown higher productivity and returns. AO also referred to the investment in plant and machinery in the units and the net profit margin thereof. AO was not convinced by the explanation given by the assessee in the context of profitability of the units. AO opined that the discrepancy could only be due to the fact that higher profit reflected for Ponta Sahib Unit was for claiming deduction under Chapter VI-A.

Further, the AO referred to the contract awarded to the Ponta Sahib unit by the Ministry of Railways. Referring to the work award, AO held that the work award was for supply of 'air springs' manufactured by M/s Conty Tech, Germany. Hence, AO observed that it is clear that assessee company was not manufacturing air springs and emergency bumper as claimed by the assessee company. He observed that the assessee has been specifically given the direction to provide the air springs and bumber duly manufactured by M/s Contitech/Germany. AO further referred to the heavy expenses being incurred on freight and cartage. From the above, the AO inferred that no manufacturing activity is being carried out by Ponta Sahib unit which can be claimed as eligible for deduction u/s. 80IC. Accordingly, AO disallowed the claim of the assessee for deduction u/s. 80IC.

Before the CIT(A) assessee claimed that it undertook various operations in the nature of assembly, fastening, fabricating, testing etc. towards emergence of the final product and new product is formed by the activities under taken by the assessee. It was submitted that assembly in this case amounts to manufacturing. Assessee further submitted detailed submissions and flow process to justify that actual manufacturing activity was being carried out at the Ponta Sahib Unit. It was claimed that rubber parts were imported from Germany and the metal parts were manufactured at the Ponta Sahib Unit. Assessee further submitted that since the final product is different from the product imported by it. It is eligible for the requisite deduction u/s. 80IC of the Act. It was emphasized that the industrial activities carried out by the assessee tantamount to manufacturing or production of article or things. However, CIT(A) did not accept the above contention and rejected the appeal of the assessee. 

On further appeal by the assessee, ITAT held that,

++ this is not the first year of assessee's claim for deduction u/s. 80IC for its Ponta Sahib Unit. It is infact the 3rd year. In the earlier AYs 2007-08 & 2008-09, the assessee had been duly granted deduction u/s. 80IC;

++ In this regard, the decision referred by the Assessee in CIT vs. Modi Industries Ltd. 48 DTR 364 (Delhi) is germane. In this case, the deduction was with respect to section 80J. It was observed that the claim was allowed in the earlier years. Hence, it was held that once the claim for deduction u/s 80J has been allowed to the assessee in the first year by the tribunal and also for the subsequent two years, such deduction was allowable in the subsequent AYs within the period of 5 years;

++ further the Apex Court in the case of C.I.T. vs. Excel Industries Ltd. 2013-TIOL-52-SC-IT-LB has reiterated the exposition given by the Apex Court in the case of Radha Soami Satsang (2002-TIOL-745-SC-IT) and Parshuram Poultry Works (2002-TIOL-573-SC-IT). It was held that as in several AYs the revenue accepted the order of the tribunal in favour of the assessee and did not pursue the matter any further, it cannot be allowed to flip flop on the issue and it ought let the matter rest rather than spend the tax payers money in pursuing litigation for the sake of it;

++ the assessee has been granted deduction u/s. 80IC in earlier years and that also in assessment u/s. 143(3) of the Act. Now in the 3rd year the Revenue cannot suddenly take up the ground that the assessee is not doing any manufacturing and therefore, is not entitled for deduction u/s. 80IC. The case laws discussed hereinbove amply support this proposition;

++ apart from above, on the merits also assessee has cogent case that assessee was manufacturing air spring assembly and supplying it to Indian Railways and it was not merely trading as alleged by the Revenue;

++ deduction u/s. 80IC is granted particularly to undertaking/enterprise referred to in either clause (a) or clause (b) of sub-section (2), to claim relief u/s. 80IC, the said undertaking/ enterprise must manufacture or produce an article or thing. What the terms "to manufacture or produce any article or thing" signifies has not been specifically defined in the Act. However, reference in this regard can be made to several case laws on this issue;

++ from the juridical pronouncements, it is evident that essence of manufacturing is that what is made shall be a different thing from that out of which it is made despite the original material not losing its identity completely. Manufacturing process postulates some change in the shape of new things with a distinct name, character or use. In the present case, assessee has made elaborate submissions in the paper book to justify that assessee is engaged in the manufacture or production of article or thing. In this regard, Assessee has made elaborate submissions alongwith Paper Book, Annexures, Diagrams process chart and photogprah, from which it is amply clear that the assessee is engaged in manufacture and production of an article or thing named air spring assembly. The assessee imports (a) air spring component (fitted in the top plate) and (b) emergency air spring component (fitted in the emergency spring and calibrated with the bottom plate). These items are imported from Germany from M/s ContiTech Luftfedersysteme GmbH (Hannover, Germany). Rest all other goods / raw materials required in the manufacturing process are procured from India and employed by the Appellant in the manufacturing process at the Paonta Sahib Unit;

++ the description of manufacturing process above amply proves that the imported material as well as local materials are used in a manufacturing process which results in a final product which is quite distinct from the components used, and has distinct usage too;

++ in the background of the aforesaid discussions and precedents, the orders of the authorities below were set aside and held that the assessee was engaged in manufacturing of air spring assembly and is hence eligible for deduction u/s. 80IC for the manufacturing activity undertaken at its Paonta Sahib unit.

Assessee's appeal partly allowed

ORDER

Per: Shamim Yahya:

This is an appeal filed by the Assessee against the order of the Ld. CIT(A) dated 19.3.2013 and pertains to assessment year 2009-10.

2. The grounds raised read as under:-

"1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the disallowance of deduction u/s. 80IC in respect of the profits derived from Paonta Sahib unit of the appellant on the basis that the appellant's said undertaking is not manufacturing article or thing.

2. That in any view of the matter and in any case, the action of Ld. CIT(A) in confirming the disallowance of deduction u/s. 80IC in respect of the profits derived from Paonta Sahib unit is bad in law and against the facts and circumstances of the case.

3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the disallowance of Rs. 44,865/- u/s. 14A by invoking the provisions of Rule 8D of Income Tax Rules, 1962.

4. That in any view of the matter and in any case, the action of ld. CIT(A) in confirming the disallowance of Rs. 44,865/- u/s. 14a by invoking the provisions of Rule 8D of Income Tax Rules, 1962 is bad in law and against the facts and circumstances of the case.

5. That having regard to facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in passing the impugned order contrary to law and facts and without providing adequate opportunity and without considering the principles of natural justice.

6. That the appellant craves the lave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.

3. Apropos issue of disallowance u/s. 14A, Ld. Counsel of the assessee submitted that he shall not be pressing the grounds raised in Ground No. 3 & 4 of the Grounds of Appeal. Accordingly, we dismiss these grounds raised by the assessee.

3.1 Further Ld. Counsel of the assessee submitted that only effective ground in this case is that Ld. CIT(A) erred in confirming the disallowance of deduction u/s. 80IC in respect of profit derived from Poanta Sahib Unit.

4. In this case assessee company has three units as under:-

- Unit - I at Noida, which is engaged in the manufacturing / assembling of air spring and suspension system of industrial segments only.

- Unit - II at Greater Noida, which is engaged in the manufacturing of air springs for automotive segment and;

- Unit -III at Paonta Sahib, which is engaged in the manufacturing/ assembling of air spring and suspension system for railways only.

4.1 The assessee claimed deduction u/s. 80IB of 30% for Noida Unit and deduction u/s. 80IC of 100% for Ponta Sahib unit. The Assessing Officer referred to various expenses of all the units and observed that the expenses claimed in respect of Ponta Sahib unit are much lessvis-a-vis the expense for Noida and Greater Noida units. Assessing Officer was of the opinion that even the total investment in fixed assets of Ponta Sahib unit was less and in which case the other two units should have shown higher productivity and returns. Assessing Officer also referred to the investment in plant and machinery in the units and the net profit margin thereof. Assessing Officer was not convinced by the explanation given by the assessee in the context of profitability of the units. Assessing Officer opined that the discrepancy could only be due to the fact that higher profit reflected for Ponta Sahib Unit was for claiming deduction under Chapter VI-A.

4.2 Further, the Assessing Officer referred to the contract awarded to the Ponta Sahib unit by the Ministry of Railways. Referring to the work award, Assessing Officer held that the work award was for supply of 'air springs' manufactured by M/s Conty Tech, Germany. Hence, Assessing Officer observed that it is clear that assessee company was not manufacturing air springs and emergency bumper as claimed by the assessee company. He observed that the assessee has been specifically given the direction to provide the air springs and bumber duly manufactured by M/s Contitech/Germany. Assessing Officer further referred to the heavy expenses being incurred on freight and cartage. From the above, the Assessing Officer inferred that no manufacturing activity is being carried out by Ponta Sahib unit which can be claimed as eligible for deduction u/s. 80IC. Accordingly, Assessing Officer disallowed the claim of the assessee for deduction u/s. 80IC.

5. Before the Ld. CIT(A) assessee claimed that it undertook various operations in the nature of assembly, fastening, fabricating, testing etc. towards emergence of the final product and new product is formed by the activities under taken by the assessee. It was submitted that assembly in this case amounts to manufacturing. Assessee further submitted detailed submissions and flow process to justify that actual manufacturing activity was being carried out at the Ponta Sahib Unit. It was claimed that rubber parts were imported from Germany and the metal parts were manufactured at the Ponta Sahib Unit. Assessee further submitted that since the final product is different from the product imported by it. It is eligible for the requisite deduction u/s. 80IC of the Act. It was emphasized that the industrial activities carried out by the assessee tantamount to manufacturing or production of article or things.

5.1 However, Ld. CIT(A) did not accept the above contention. In this regard, Ld. CIT(A) referred to the provisions of section 80IC. He also referred to the several cases laws in this regard. Ld. CIT(A) concluded as under:-

"Applying the above tests, if the present case is analyzed, it emerges that in case of the appellant, the original article i.e. air springs, as the photographs furnished indicate, do not undergo a substantial change and a commercially different product with distinctive name, character and use does not come in to existence. Even the metal attachments are being manufactured at the Noida units from where they are being transported to a Paonta Sahib Unit. The goods being imported from Germany are referred to as 'air springs' and so are the goods being sold to the railways. Even the machinery installed at the Paonta Sahib unit reflects the activity or the lack of it being undertaken at the unit. The total machinery installed worth Rs. 44 lacs is a mere eye wash to claim manufacturing activities at the Paonta Sahib unit premises. The nature of the employees, their qualification, the wages being paid to them, and the work assigned to each also show that the manufacturing activity claimed to be carried out Paonta Sahib unit is a mere eye wash. On the basis of the facts presented, the conclusion that inevitably follows is that the appellant company cannot be said to have undertaken business activities which amount to manufacture or production of an article different from the air spring manufactured by M/s Contitech and therefore does not merit requisite deduction under section 80-IC(2) of the Act. In light of the foregoing discussion and the given set of facts, the appellant company is not eligible for deduction under section 80IC of the Act, as it cannot be said to have manufactured or produced any article or a thing. The decision of the AO is, therefore, confirmed."

6. Against the above order the Assessee is in appeal before us.

7. We have heard both the counsel and perused the records. Ld. Counsel of the assessee submitted that the assessee in fact is engaged in manufacturing of 'air springs assembly and other metal parts' which are supplied to Indian Railways in its Ponta Sahib Unit. The profit derived from this unit which is located in Ponta Sahib, Himachal Pradesh qualified for deduction u/s. 80IC not only in the year under appeal, but since earlier years i.e. in the assessment year 2007-08. Ld. Counsel further submitted that the assessment order for assessment year 2007-08 was passed u/s. 143(3) of the I.T. Act and deduction u/s. 80IC was allowed. This claim for deduction u/s. 80IC was also made for assessment year 2008-09 and was also allowed. Therefore, the Ld. Counsel of the assessee submitted that there is no justification for denying this deduction in the year under appeal when the facts are being identical. Ld. Counsel of the assessee in this regard referred to the following decision for the proposition that deduction if allowed in initial years cannot be denied in subsequent years.

"Subhash Chandra Sehgal vs. DCIT 1126/Del/2008 dated 27.2.2009 (Page 127)

88 ITD 313 (Chd.) (3rd member) = (2004-TIOL-17-ITAT-CHD-TM)

Deduction under s. 80J - Allowability - claim allowed in earlier years - Once the claim for deduction under section 80J has been allowed to the assessee in first year by the Tribunal and also for subsequent two years, such deduction is allowable for subsequent assessment year falling within the period of five years - CIT vs. Modi Industries Ltd. 48 DTR 364 (Delhi)."

8. Furthermore, Ld. Counsel of the assessee submitted that principle of consistency has been emphasized in the following case laws :-

i) 245 ITR 490 (Del.)

ii) 193 ITR 321 (SC) = (2002-TIOL-745-SC-IT)

iii) CIT vs. Excel Industries Ltd. passed by the Hon'ble Apex Court in Civil Appeal No. 125 of 2013 dated 08.10.2013 = (2013-TIOL-52-SC-IT-LB).

8.1 Without prejudice to the above, Ld. Counsel of the assessee made further submissions for the proposition that assessee was manufacturing the air springs assembly and was not into trading of air springs as alleged by the Assessing Officer. In this regard, ld. Counsel of the assessee referred to the purchase order received by the assessee for the manufacturing and supply of air springs assembly, to show that the assessee is manufacturing air spring assembly which is different from air spring imported by the assessee. Ld. Counsel of the assessee further pointed out that these purchase order clearly reflects the specific technical specifications to which the manufactured product has to conform to show that the air springs is different where as the assessee manufactures air springs assembly. Ld. Counsel of the assessee further referred to the Paper Book that bring out the technical specifications for the various variants of air springs assembly manufactured by the assessee for Indian Railways. Ld. Counsel further referred to the process flow chart in the paper book submitted for the air springs assembly manufactured by the assessee. Ld. Counsel of the asessee also referred to the cross sectional diagram of air springs assembly supplied to the Indian Railways to show that there are several parts of the assembly and it is not the air springs and conical springs alone. Furthermore, Ld. Counsel of the assessee further referred to the letter of approval issued by the Research & Design and Standards Organization, copies of Central Excise invoices, assessment order passed by the District Taxation Officer, copy of registration certificate issued by the Excise and Taxation Department to buttress the proposition that the assessee was a manufacturer and was engaged in manufacturing.

8.2 Ld. Counsel for the assessee further referred to the observations of the Assessing Officer where Assessing Officer has made adverse observations regarding the expenditure incurred by the assessee and the profitability shown. The Ld. Counsel submitted that Assessing Officer totally erred in his approach and has not been able to appreciate the facts of the case properly.

8.3 Ld. D.R. on the other hand relied upon the orders of the Assessing Officer and Ld. CIT(A).

9. We have carefully considered the submissions and perused the records. At the outset, we note that this is not the first year of assessee's claim for deduction u/s. 80IC for its Ponta Sahib Unit. It is infact the 3rd year. In the earlier assessment years 2007-08 & 2008-09, the assessee had been duly granted deduction u/s. 80IC. The assessment order for the assessment year 2007-08 shows that the deduction u/s. 80IC has been allowed even in assessment u/s. 143(3) of the Act.

9.1 In this regard, the decision referred by the Ld. Counsel of the assessee in C.I.T. vs. Modi Industries (Supra) is germane. In this case, the deduction was with respect to section 80J. It was observed that the claim was allowed in the earlier years. Hence, it was held that once the claim for deduction u/s 80J has been allowed to the assessee in the first year by the tribunal and also for the subsequent two years, such deduction was allowable in the subsequent assessment years within the period of 5 years.

9.2 Further the Hon'ble Apex Court in the case of C.I.T. vs. Excel Industries Ltd. (Supra) has reiterated the exposition given by the Apex Court in the case of Radha Soami Satsang 193 ITR 321 = (2002-TIOL-745-SC-IT) and Parshuram Poultry Works 106 ITR 1 = (2002-TIOL-573-SC-IT). It was held that as in several assessment years the revenue accepted the order of the tribunal in favour of the assessee and did not pursue the matter any further, it cannot be allowed to flip flop on the issue and it ought let the matter rest rather than spend the tax payers money in pursuing litigation for the sake of it.

10. In our considered opinion, as discussed above the assessee has been granted deduction u/s. 80IC in earlier years and that also in assessment u/s. 143(3) of the Act. Now in the 3rd year the Revenue cannot suddenly take up the ground that the assessee is not doing any manufacturing and therefore, is not entitled for deduction u/s. 80IC. The case laws discussed hereinbove amply support this proposition.

11. Apart from above, we find that on the merits also assessee has cogent case that assessee was manufacturing air spring assembly and supplying it to Indian Railways and it was not merely trading as alleged by the Revenue.

12. In this regard, we can gainfully refer to the provisions of section 80IC:-

"[Special provisions in respect of certain undertakings or enterprises in certain special category States.

80-IC. (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 subsection (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).

(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-

(i) on the 23rd day of December, 2002 and ending before the 1st day of April, [2007], 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 Sikkim; or

(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

(iii) on the 24th day of December, 1997 and ending before the 1st day of April, 2007, 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 any of the North-Eastern States;

(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-

(i) on the 23rd day of December, 2002 and ending before the 1st day of April, [2007], in the State of Sikkim; or

(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

(iii) on the 24th day of December, 1997 and ending before the 1st day of April, 2007, in any of the North-Eastern States.

(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.

(4) This section applies to any undertaking or enterprise which fulfils all the following conditions, namely:-

(i) it is not formed by splitting up, or the reconstruction, of a business already in existence :

Provided that this condition shall not apply in respect of an undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section;

(ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.

Explanation.-The provisions of Explanations 1 and 2 to sub-section (3) of section 80-IA shall apply for the purposes of clause (ii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section.

(5) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee, no deduction shall be allowed under any other section contained in Chapter VIA or in section 10A or section 10B, in relation to the profits and gains of the undertaking or enterprise.

(6) Notwithstanding anything contained in this Act, no deduction shall be allowed to any undertaking or enterprise under this section, where the total period of deduction inclusive of the period of deduction under this section, or under the second proviso to sub-section (4) of section 80-IB or under section 10C, as the case may be, exceeds ten assessment years.

(7) The provisions contained in sub-section (5) and sub-sections (7) to (12) of section 80-IA shall, so far as may be, apply to the eligible undertaking or enterprise under this section.

(8) For the purposes of this section,-

(i) "Industrial Area" means such areas, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government;

(ii) "Industrial Estate" means such estates, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government;

(iii) "Industrial Growth Centre" means such centres, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government;

(iv) "Industrial Park" means such parks, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government;

(v) "Initial assessment year" means the assessment year relevant to the previous year in which the undertaking or the enterprise begins to manufacture or produce articles or things, or commences operation or completes substantial expansion;

(vi) "Integrated Infrastructure Development Centre" means such centres, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government;

(vii) "North-Eastern States" means the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura;

(viii) "Software Technology Park" means any park set up in accordance with the Software Technology Park Scheme notified by the Government of India in the Ministry of Commerce and Industry;

(ix) "Substantial expansion" means increase in the investment in the plant and machinery by at least fifty per cent of the book value of plant and machinery (before taking depreciation in any year), as on the first day of the previous year in which the substantial expansion is undertaken;

(x) "Theme Park" means such parks, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government.]"

13. From the above, it is evident that deduction u/s. 80IC is granted particularly to undertaking/enterprise referred to in either clause (a) or clause (b) of sub-section (2), to claim relief u/s. 80IC, the said undertaking/ enterprise must manufacture or produce an article or thing. What the terms "to manufacture or produce any article or thing" signifies has not been specifically defined in the Act. However, reference in this regard can be made to several case laws on this issue.

"Deputy CST vs. PIO Food Packers (1980) 46 STC 63, 65 = (2002-TIOL-67-SC-CT-LB)

There are several criteria for determining whether a commodity is consumed in the manufacture of another. The generally prevalent test is whether the article produced in the trade, by those who deal in it, as distinct in identity from the commodity involved in its manufacture. Commonly, manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take 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."

Similarly, the Apex Court in the case of C.I.T. vs. NC Bhudhiraja, 204 ITR 413 (SC) = (2002-TIOL-632-SC-IT), has held as under:-

The test for determining whether manufacture can be said to have taken place is whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity but is recognised in the trade as a new and distinct commodity."

In the case of Aspinwall and Co. Ltd. vs. CIT 251 ITR 323 (SC) = (2002-TIOL-592-SC-IT-LB), the following observations at P. 327 are also important:-

The world "manufacture" has not been defined in the Act, in the absence of a definition of the word "manufacture" it has to be given a meaning as is common parlance. It is to be understood as meaning the production of articles for use from raw or prepared material by giving such materials new forms, qualities or combinations whether by hand labour or machines. If the change made in the article results in a new and different article then it would amount to a manufacturing activity.

As observed by the Supreme Court in Aditya Mills Ltd. vs. Union of India, AIR 1988 SC 2237, manufacture is complete as soon as the raw material undergoes some change and a new substance or article is brought into existence, having its own character and use.

Kanataka High court in the case of C.I.T. vs. Darshak Ltd. 247 ITR 480 explained the word 'manufacture' as under:-

The word manufacture is to be understood in a wide sense. Manufacture would imply a change and a transformation. A new and different article must emerge having a distinct and different character and use."

In C.I.T. vs. Premier Tobacco Packers P. Ltd. (2003) 284 ITR 222 (Mad.) it was held :-

"The word manufacture has not been defined in the Income Tax Act. In the absence of a definition, the word manufacture has to be given a meaning as is understood in common parlance. It is to be understood as meaning the production of articles for use from raw or prepared materials by giving such materials new forms, qualities or combinations whether by hand or machines. If the change made in the article results in a new and different article then it would amount to manufacturing activity."

In CIT vs. Jamal Photo Industries (I) Pvt. Ltd. 285 ITR 209 (Mad.) = (2006-TIOL-141-HC-MAD-IT) it was held:-

The expression manufacture involves the concept of changes effected to the basic raw material resulting in the emergence of, or transformation into, a new commercial commodity. But it is not necessary that the original articles or material should have lost its identity completely. All that is required is to find out whether as a result of the operation in question, a different commodity has been produced having its own name, identity or end use."

14. Thus, from the above, it is evident that essence of manufacturing is that what is made shall be a different thing from that out of which it is made despite the original material not losing its identity completely. Manufacturing process postulates some change in the shape of new things with a distinct name, character or use. In the present case, assessee has made elaborate submissions in the paper book to justify that assessee is engaged in the manufacture or production of article or thing. In this regard, Ld. Counsel of the assessee has made elaborate submissions alongwith Paper Book, Annexures, Diagrams process chart and photogprah. Following submissions extracted from the paper book submitted by the Ld. Counsel of the assessee can be gainfully referred:-

"A. THE APPELLANT IS INDEED ENGAGED IN MANUFACTURE.

1. Besides the objection as to the inter se profitability percentage of the three units, main finding of the Ld. Assessing Officer is that the Appellant is not undertaking manufacture at the Paonta Sahib Unit and therefore the claim for exemption under Section 80IC is not proper. The Appellant submits that this finding of the Ld. Assessing Officer is grossly inaccurate, contrary to the factual position as certified by various Governmental authorities and is based upon an incorrect appraisal of the work order placed upon the Appellant by Indian Railways in terms of which the Appellant is undertaking the manufacturing activity at the Paonta Sahib Unit.

2. The Appellant submits that the activity undertaken by the Appellant at the Paonta Sahib Unit indeed amounts to manufacture of Air Spring System for Indian Railways and thus the claim for exemption under Section 80IC is well founded. The Appellant is sequentially explaining in the following paragraphs the manner in which the activities are undertaken at the Paonta Sahib Unit amounting to manufacture of Air Spring System for Indian Railways.

3. The process was initiated with the floating of tenders by the Indian Railways for supply of Air Spring Systems towards fitment in the Railway coaches manufactured at the Integrated Coach Factory (ICF), Chennai. The Appellant bid for the tenders and was one of the parties who were awarded the tender for manufacture and supply of these Air Spring Systems. It must here be pointed out that as far as Indian Railways is concerned, Air Spring Assembly is a new suspension design working on compressed air for fitment in the existing bogies of Indian Railways. It caters to the increased payload demands and weight imbalances inherent to the existing coaches.

4. Pursuant to the award of tender, Purchase Orders were received by the Appellant towards the manufacture and supply of Air Spring Assemblies. Illustrative copies of these Purchase Orders are enclosed herewith as ANNEXURE - 2. These Purchase Orders clearly reflect that the purchases are being made by the Indian Railways against the specific technical specifications to which the manufactured product has to conform to. There are a number of these technical specifications depending upon the various variants of the Air Springs (in view of the different types of railways coaches manufactured at the ICF, Chennai) and are collectively enclosed herewith as ANNEXURE-3.

5. One of the common features underlying these technical specifications is that the air springs have to be manufactured by employing only the specified items in the manufacturing process. An understanding of the manufacturing process undertaken by the Appellant along with an appreciation of the role of the technical specifications of raw materials is relevant in determining the claim of 'manufacture'. Therefore these processes are explained in some detail.

6. Air Spring Assembly consists of a flexible Rubber Bellow whose open ends are pressed onto the sealing surfaces of the top mounting plate and base plate to allow the required air pressure to develop in the Air Spring Assembly without leaking (like in tubeless tyres). It also consists of an Emergency Spring Bumper, which is integrated in the Air Spring Assembly to ensure the train continues to run in emergency conditions when air is deflated. The application specific Metal Parts are essential to allow air pressurization of the Air Spring Assembly and to serve as an interface for fitment on the rail vehicle.

A copy of the cross-sectional view is also enclosed herewith as ANNEXURE - 4. In a typical air spring manufactured by the Appellant for the Indian Railways, there are three main components; (a) air spring - top plate; (b) sliding plate; and (c) emergency spring and bottom plate. Certain manufacturing processes are undertaken in order to manufacture these three components themselves and thereafter these three components are further submitted to manufacturing processes in order to finally arrive at the air springs which are supplied to the Indian Railways.

Copies of the above manufacturing process for the components are also collectively enclosed herewith as ANNEXURE - 5.

7. In the above charts it may be noted that out of the various activities undertaken and the raw materials employed in order to manufacture these components the Appellant imports (a) air spring component (fitted in the top plate) and (b) emergency air spring component (fitted in the emergency spring and calibrated with the bottom plate). These items are imported from Germany from M/s ContiTech Luftfedersysteme GmbH (Hannover, Germany). Rest all other goods / raw materials required in the manufacturing process are procured from India and employed by the Appellant in the manufacturing process at the Paonta Sahib Unit. For illustration, corrosion resistant steel / stainless steel; metal parts; nuts, screws and blots; etc. are procured by the Appellant and utilization for carrying out the manufacturing process at the Paonta Sahib Unit. Illustrative invoices of the imported goods and the raw materials procured locally are collectively enclosed herewith as ANNEXURE - 6 and ANNEXURE - 7 respectively.

8. Once the three components are manufactured / fabricated by the Appellant at the Paonta Sahib Unit, the Appellant further undertakes the assembly process of these three components in order to manufacture the air-spring assembly which has to be supplied to the Indian Railways. The manufacturing chart to this effect is enclosed herewith as ANNEXURE - 8 along with photographs.

9. All these raw materials are procured as per the specifications of the 'Research, Designs & Standards Organization', of the Ministry of Railways, Government of India (RDSO) in terms of the tender awarded to the Appellant and the Purchase Orders. This is evident from a bare perusal of the Purchase Orders which specify that the supplies shall be as per RDSO Specifications. Air Spring Assembly is governed by 'Schedule of Technical Requirements' (STR) issued in September 2007 by RDSO.

10. The Appellant submits that it is mandatory for a supplier (for Indian Railways) to register with RDSO and comply with the requirements of STR (in terms of Clause 5). The suppliers should be ISO approved and use components strictly as specified in STR/drawing approved by RDSO and maintain strict control of dimensions of components and assembled product. The Appellant is accredited to ISO 9001:2008 by an independent agency for design, manufacture and marketing of Air Springs.

11. The Appellant submitted the technical specifications of the product manufactured by M/s ContiTech Luftfedersysteme GmbH (Hannover, Germany) and sought the permission of the RDSO for employing the products manufactured by the said German party for manufacturing air spring assemblies. The RDSO examined in detail these specifications and thereafter approved the same vide letter No. SV AS Contitech dated 21.10.2008 addressed to the Appellant wherein the specification of product manufactured by the said German party was approved to be employed for manufacturing air spring assemblies. Similar letters of approval of the design and technical specification of the products manufactured by the said German party were issued subsequently by the RDSO to the Appellant and these are collectively enclosed herewith as ANNEXURE - 9.

12. In this regard, the Appellant submits that in terms of the RDSO Specifications / instructions the 'air bellow' and 'emergency springs' were required to be imported from the said German party. The Appellant submits that while there is no doubt that the 'air bellow' and 'emergency springs' were imported by the Appellant but it is incorrect to hold, as was done by the Ld. Assessing Officer, that it is these same 'air bellow' and 'emergency springs' which have been supplied by the Appellant to the Indian Railways.

On the contrary the correct factual position, as reflected in terms of the charts above, is that these air below and emergency springs are only one of the raw materials employed by the appellant in carrying out the manufacturing activity at their Paonta Sahib Unit for the manufacture of air-spring assemblies.

13. The Appellant submits that there is a vast difference between the imported items and the goods manufactured and supplied by the Appellant to the Indian Railways. Not only the Appellant undertakes substantial operations independent of the imported goods but also the imported items form only a part of the final product manufactured by the Appellant. This is evident from the following drawing of the final product which shows the location and positioning of the imported items;

14. It is submitted that the scope of supply for each air spring assembly covers the following items (as defined in Clause 4 on Page 6 of STR);

S. No.	Item	Quantity
1	Air Spring (Rubber Bellow)	1
2	Top Interfacing Plate with Bolster, with Spigot	1
3	Sealing 0' Rings	2
4	Base Plate	1
5	Emergency Spring	1
6	High Tensile Hex Socket Head Screws with Spring Washers	4 Sets

15. In order to arrive at the air spring assembly to be supplied to the Indian Railways, the Appellant undertakes the following;

• In accordance with the registration and approval of RDSO, Air Spring Assembly is manufactured by the Appellant with Air Spring (Rubber Bellow) and Emergency Spring (Bumper) (SI. No. 1 & 5 above) duly imported from the said German party.

• All the metal parts are fabricated in the Paonta Sahib Works. This includes Top Interfacing Plate with Bolster, with Spigot and Base Plate (S. No. 2 & 4 above) and other essential items (Sliding Plate). Sealing O' Rings and High Tensile Screws with Washers (SI. No. 3 & 6 above) are bought out items.

• It has to be noted that the profile of the Top Plate and base plate must perfectly match with the profile of the Air Bellow seating area to avoid any leakage during service. This is ensured by precise machining, grinding and calibrating the conical sealing area of each and every metal part to suit the corresponding mating area of the Bellow on a one to one basis. Further, the Appellant ensures that the spigot in the top plate interfaces with the matching air supply hole in bogie bolster and the bottom fixing plate is fabricated to suit the fixing arrangement in the Bogie frame.

• The Metal Parts and Nylon Sliding plates fabricated at the Unit are combined with the Imported Rubber Bellows and Emergency Springs (after machining) and 'O' Rings, fasteners are procured to manufacture a completely new and distinct article namely 'Air Spring Assembly" with new and specific characteristics of pressure, load, movement capabilities and fitment dimensions as per specifications of Indian Railways for use in the Rail Coaches produced by them. 25. In the context of the finding of the Ld. Assessing Officer that the Appellant is not manufacturing the air spring but the same are manufactured by the German party, the Appellant submits that the conclusion of the Ld. Assessing Officer if taken to the logical end would imply that the Appellant is a mere trader in air springs, which is not true. The Appellant only imports from the said German party the components of the Air spring assembly and does not in any merely supply these air-springs to the Indian Railways. If that had been the situation then the Indian Railways would in any case have procured / imported these components directly from the said German party for the Chennai based coach factory of the Indian Railways instead of requiring the Appellant to import it from Germany at the ICD Tughlakabad, New Delhi through Mumbai port and then transporting it to Himachal and then sending it back again to for the Chennai based coach factory of the Indian Railways, which defies logic especially for a Government undertaking like the Indian Railways. In any case, the Appellant undertakes, at its factory in the Paonta Sahib unit various activities which result into a new commodity implying thereby that the imported component are not as such supplied to the Indian Railways but are subjected to further manufacturing process before supply. In very brief the activities on these very imported components are as under;

(i) The imported rubber bellow is worked upon to provide for enclosures on both sides to seal the open ends and pressurize the rubber bellow with air to be able to function as an Air spring.

(ii) Likewise the emergency spring cannot function on its own. It has to be integrated into the Air Spring Assembly for working is no air (air deflated case).

16. Further, the weight of these two imported items i.e. Air Spring and Emergency Bumper is only 57 Kilograms (approx) as against the 156 Kilograms (approx) being the weight of the manufactured Air Spring Assembly.

17. The appellant further submits that they undertake various operations in the nature of assembling, fastening, fabricating, testing, etc. towards the emergence of the final product and a new product is formed by the activities undertaken by the appellant. Even under Central Excise Law, wherein central excise duty is levied on activity of manufacture or production, these activities are considered as amounting to different products. This is evident from their respective Central Excise Classification, which is as under:-

Central Excise Classification of raw materials

S.No.	Raw material	Usage	Central excise classification	Remarks
1.	Rubber parts	Component of air spring assembly		Imported from Conitech, Germany
	Air Spring	Air spring (Rubber bellow)	4016 99 90
	Layer spring/ conical spring	Emergency spring	4016 99 91
2.	Corrosion resistant steel plats MS plates / iron plats	Top plate with spigot bottom fixing plate	7208 51 10
3.	Steel forgings	Base plate	7207 11 20
4.	SS flats	Sliding plates	7211 14 10
5.	Sliding Plates (PA6)	Sliding Plates	5010 52 2
6.	Silicon Grease	Lubrication of sliding plate
7.	Welding rod	Fabrication of metal parts and air spring assembly.	8311 10 00
8.	Fasteners Allen CSK, Bolt, Nut, Washers	Supplied for fixing Air Spring Assembley to Rail Coach
9.	Wooden Boxes, Plastic Sheets, Jute Cloth, Hession Cloth, M.S. Patti	Packing
10.	Teepol, Cloth	Consumable
11.	Red Paint, Red Oxide Primer, Thinner, MT oil, Turpine oil	Painting of metal parts
12.	Cutting Wheel	Fabrication of metal parts
13.	Drill Bits, Locktite	Fabrication of metal parts
14.	Cathodes & anodes	Plasma cutting consumable

Illustrative central excise invoices to this effect are collectively enclosed herewith as ANNEXURE-10.

Central Excise Classification of manufactured products

S. No.	Finished Goods	Central Excise Classification
1	Air Spring Assembly (C.K-106 )	8607 99 10
2	Air Spring Assembly(180 KN)	8607 99 10
3	SR. Ring	8485 90 00

Illustrative central excise invoices to this effect are collectively enclosed herewith as ANNEXURE-11.

18. It is submitted that it is only because of the exemption from Central Excise duty (in terms of Notification No. 50/2003-CE for the State of Himachal Pradesh) that no Central Excise duty is paid on these products when they are manufactured at the Paonta Sahib Unit by the Appellant.

19. This fact of the Appellant undertaking manufacturing operations at the Paonta Sahib Unit is also certified by the Department of Excise and Taxation, State of Himachal Pradesh vide Certificate dated 24.07.2009 wherein this has been certified by the said Governmental Authority that the Appellant is an industrial unit doing manufacturing / assembling of air spring assembly and SR Rings. This certificate is enclosed herewith as ANNEXURE - 12. Further, even the Assessment Order (for accounting period 2007-08 and 2008-09 which covers the assessment year in question) passed by the District Taxation Officer dated 14.12.2011 clearly notes and concludes that the Appellant is engaged in undertaking manufacture and sale of air spring assembly. This Order is enclosed herewith as ANNEXURE - 13. Further, the Paonta Sahib Unit has been registered with the following government authorities, after their due checks and verifications, for the manufacture of Air Springs Assembly;

- Department of Industries (Single Window Clearance Agency) mentioning the manufacturing activity capital investment & employment details. The said agency also issued regarding assessment of production capacity.

- Central Excise Office, Pantha Ghati Shimla (HP).

- Labour Department (HP) and Inspectorate of Factories (HP).

- Employees State Insurance Corporation (ESIC), Parwanoo (HP).

- HP State Environment Protection & Pollution Control Board.

- Directorate of Fire Services (HP), Shimla-2.

- Himachal Pradesh State Electricity Board permission to install DG set.

20. The Appellant therefore submits that there is overwhelming evidence that the Appellant is engaged in undertaking manufacturing activity at the Paonta Sahib Unit and thus the Ld. Assessing Officer was in gross error to conclude that the Appellant was not undertaking any manufacturing activity.

21. It is further submitted that the Ld. Assessing Officer has erred in applying the correct legal position to the factual position of the instant case.

22. The Appellant submits that the activities undertaken by the assessee on a raw material result in the transformation of the article or thing into a new and distinct object or article or thing having a different name, character and use and bring into existence of a new and distinct article or thing."

15. From the above, it is amply clear that the assessee is engaged in manufacture and production of an article or thing named air spring assembly. The assessee imports (a) air spring component (fitted in the top plate) and (b) emergency air spring component (fitted in the emergency spring and calibrated with the bottom plate). These items are imported from Germany from M/s ContiTech Luftfedersysteme GmbH (Hannover, Germany). Rest all other goods / raw materials required in the manufacturing process are procured from India and employed by the Appellant in the manufacturing process at the Paonta Sahib Unit.

16. The description of manufacturing process above amply proves that the imported material as well as local materials are used in a manufacturing process which results in a final product which is quite distinct from the components used, and has distinct usage too.

17. In the background of the aforesaid discussions and precedents, we set aside the orders of the authorities below and hold that the assessee was engaged in manufacturing of air spring assembly and is hence eligible for deduction u/s. 80IC for the manufacturing activity undertaken at its Paonta Sahib unit.

18. In the result, the appeal filed by the Assessee is partly allowed.

(Order pronounced in the open court on 6.12.2013.)

--
Regards,

Pawan Singla , LLB

M. No. 9825829075

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