Thermax Surface Coatings Limited,, Pune v. Deputy Commissioner of Income tax,, Pune

ITA 1341/PUN/2017 | 1997-1998
Pronouncement Date: 15-11-2019 | Result: Allowed

Appeal Details

RSA Number 134124514 RSA 2017
Assessee PAN AAACT3907G
Bench Pune
Appeal Number ITA 1341/PUN/2017
Duration Of Justice 2 year(s) 5 month(s) 16 day(s)
Appellant Thermax Surface Coatings Limited,, Pune
Respondent Deputy Commissioner of Income tax,, Pune
Appeal Type Income Tax Appeal
Pronouncement Date 15-11-2019
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 15-11-2019
Last Hearing Date 24-07-2019
First Hearing Date 24-07-2019
Assessment Year 1997-1998
Appeal Filed On 29-05-2017
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH PUNE BEFORE SHRI D. KARUNAKARA RAO AM AND SHRI PARTHA SARATHI CHAUDHURY JM . / I TA NO S.1340 & 1341 /PUN/20 17 / ASSESSMENT YEAR S : 1995 - 96 & 1997 - 98 THERMAX SURFACE COATINGS LIMITED. (NOW KNOWN AS THERMAX SUSTAINABLE ENERGY SOLUTIONS LIMITED.) THERMAX LIMITED 14 MUMBAI PUNE ROAD WAKDEWADI PUNE - 411 003. PAN : AAACT3907G ....... / APPELLANT / V/S. THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE - 10 PUNE. / RESPONDENT A SSESSEE BY : SHRI H.P. MAHAJANI REVENUE BY : SHRI HOSHANG B . IRANI / DATE OF HEARING : 14.11 .2019 / DATE OF PRONOUNCEMENT : 15 . 11 .2019 / ORDER PER PARTHA SARATHI CHAUDHU RY JM : THESE TWO APPEALS PREFERRED BY THE COMMON ASSESSEE EMANATES FROM THE ORDER OF THE LD. CIT(APPEALS) - 6 PUNE DATED 28.03.2017 FOR THE ASSESSMENT YEARS 1995 - 96 AND 1997 - 98 RESPECTIVELY AS PER THE GROUNDS OF APPEAL ON RECORD. 2 ITA NO. 1340 & 1341 /PUN/20 17 A.Y. 1995 - 96 & 1997 - 98 2. THESE CASES WERE HEARD TOGETHER. SINCE ISSUES COMMON AND FACTS AND SIMILAR THESE CASES ARE BEING D ISPOSED OF VIDE THIS CONSOLIDATED ORDER. IN BOTH THESE APPEALS THE ONLY GRIEVANCE OF THE ASSESSEE IS THAT THE LD. CIT(APPEALS) REJECTED THE ASSESSEES CLAIM FOR DEDUCTION U/S.80 - IA OF THE INCOME TAX ACT 1961 (HEREINAFTER REFERRED TO AS THE ACT) IN R ESPECT OF PROFITS DERIVED FROM ITS NEW INDUSTRIAL UNDERTAKING OF MANUFACTURING SURFACE COATING SYSTEMS. 3. THE FACTS DEMONSTRATE THAT FOR THE ASSESSEE IN THE FIRST ROUND OF LITIGATION THE TRIBUNAL HAD REMANDED THE ISSUE OF D EDUCTION U/S.80 - IA OF THE AC T TO THE ASSESSING OFFICER FOR FRESH ADJUDICATION. THE RELEVANT DIRECTIONS OF THE TRIBUNAL ARE IN PARA 3.13 OF ITS ORDER. THE CASE OF THE DEPARTMENT IN THE FIRST ROUND OF LITIGATION WAS THAT THE ASSESSEE HAS NOT SET UP A NEW INDUSTRIAL UNDERTAKING AND THAT THE ACTIVITY UNDERTAKEN BY THE ASSESSEE DID NOT AMOUNT TO MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING. THE TRIBUNAL TOOK PARTICULAR EXCEPTION TO THE ACTION OF THE THEN CI T(A) VISI TING THE FACTORY PREMISE S OF A CUSTOMER OF THE ASSESSEE AND COMING TO CERTAIN CONCLUSIONS BEHIND THE BACK OF THE A SSESSING O FFICER (THOUGH THESE CONCLUSIONS WERE ADVERSE TO THE ASSESSEE). THE TRIBUNAL ALSO TOOK EXCEPTION TO CERTAIN DRAWINGS BEING PRESENTED TO THEM DURING THE COURSE OF THE HEARING WHICH DRAWINGS WERE NOT SUBMITTED TO THE A SSESSING O FFICER . THE TRIBUNAL THEREFORE DIRECTED THE ISSUE BACK TO THE A SSESSING O FFICER TO ENABLE THE ASSESSEE TO DEMONSTRATE THE FACT OF ESTABLISHMENT OF THE NEW INDUST RIAL UNDERTAKING . 4. IN THE FIRST ROUND OF LITIGATION THE ASSESSING OFFICER IN PURSUANT TO THE SAID DIRECTIONS OF THE TRIBUNAL FIRST OF ALL REPRODUCED EXTRACTS FROM THE 3 ITA NO. 1340 & 1341 /PUN/20 17 A.Y. 1995 - 96 & 1997 - 98 ORIGINAL ORDER U/S . 143(3) THE ORDER OF THE CIT(A) AND T HE ORDER OF THE TRIBUNA L . HE HAS THEN EXTRACTED F R OM THE SUBMISS I ONS MADE BY THE ASSESSEE VIDE LE T TER DATED 09.05. 2007 . ON PAGE 11 OF THE ASSESSMENT ORDER UNDER CHALLENGE THE A SSESSING O FFICER HAS REFERRED TO VARIOUS ANNEXURES FILED BY THE ASSESSEE ALONG W I TH THE SAID SUBMISSIONS . ON PAGES 12 TO 15 THE A SSESSING O FFICER HAS ANALYZED THE VAR I OUS REQU I REMENTS OF SECTION 80 - IA AND WHETHER THE ASSESSEE HAS FULFILLED THOSE COND I T I ON S . THE ASSESSING OFFICER DENIED THE CLAIM OF DEDUCTION U/S.80 - IA OF THE ACT TO THE ASSESSEE OF RS.13 06 751 / - FOR THE ASSESSMENT YEAR 1995 - 96 AND RS.40 42 621/ - FOR THE ASSESSMENT YEAR 1997 - 98 AND THE REASONS FOR NOT GRANTING OF DEDUCTION U/S.80 - IA OF THE ACT BY THE ASSESSING OFFICER ARE AS FOLLOWS: (I) THE ASSESSEE HAS FAILED TO PROVE I NVESTMENT OF FRESH CAPI TAL IN THE INDUSTRIAL UNDERTAK I NG; (II) ASSESSEE HAS NOWHERE CLAIMED THAT IT HAS SET UP A NEW INDUSTRIAL UNDERTAKING FOR MANUFACTURE OF SUR F ACE C OAT I NG SYSTEM ; (III) THE ASSESSEE DOES NOT OWN PLANT AND MACHINERY BUT GETS THE EQUIPMENT MANUFACTURED FROM OTHERS AND DOES NOT ITSELF DIRECTLY MANUFACTURE THE SURFACE COATING SYSTEMS. (IV) THE ASSESSEE HAS NOT GIVEN DETAILS OF WH I CH TYPE OF ' ACTUAL MANUFACTURING WORK WAS BE I NG DONE BY ITS OWN EMPLOYEES IN ITS PREMISES . (V) ASSESSEE HAS NOT ITSELF CARRIED OUT THE MANUFACTURING ACTIVITY AND MAJOR PART OF THE WORK WAS DONE BY THE SUBCONTRACTORS THOUGH ADMITTEDLY IT WAS SUPERVISED BY THE ASSESSEE . (VI) SINCE THE ASSESSEE HAS NOT ITSELF D I RECTLY CONDUCTED THE ACTUAL MANUFACTURING ACTIVITY BY ITS OWN EMPLOYEES BUT THAT IT HAS DONE SO THROUGH SUB - CONTRACTORS IT CANNOT BE SA I D THAT I T HAS EMPLOYED TEN OR MORE WORKERS IN THE MANUFACTURING PROCESS. (VII) THE ASSESSEE HAS THUS FAILED TO PROVE THAT IT HAS SATISFIED ALL THE CONDITIONS LAID DOWN IN SECTION 80 - IA. 4 ITA NO. 1340 & 1341 /PUN/20 17 A.Y. 1995 - 96 & 1997 - 98 THAT ON PERUSAL OF THE ORDER PASSED BY THE ASSESSING OFFICER IT IS EVIDENT THAT THE FINDINGS OF THE ASSESSING OFFICER IS THAT ALL THE WORKS SAID TO BE DONE BY THE ASSESSEE WERE OUTSOURCED TO OTHER PERSONS AND THAT THEY WERE NOT DONE BY THE ASSESSEE HIMSELF. THE ASSESSEE FURTHER FAILED TO PRODUCE DETAILS OF ACTUAL MANUFACTURING WORKS DONE BY ITS OWN EMPLOYEES AND THEREFORE THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT MAJOR PART OF THE WORK WAS DONE BY THE SUBCONTRACTORS AND THE ASSESSEE FAILED TO ESTABLISH THAT HE HIMSELF CONDUCTED THE ACTUAL MANUFACTURING ACTIVITY BY ITS OWN EMPLOYEES. 5. THAT FURTHER WHEN WE PERUSE THE LD. CIT(APPEALS) S ORDER HE HAS ALTOGETHER GONE INTO A DIFFERENT FOOTINGS WHILE ADJUDICATING THE CASE OF THE ASSESSEE. THE LD. CIT(APPEALS) HAS NOT ACCEPTED THE VIEW OF THE ASSESSING OFFICER DIRECTLY BUT SIMPLY HE HAS STATED THAT ACCORDING TO HIS OPINION THE ASSESSEE HAS CONDUCTED ONLY MINOR MODIFICATION S OF THE EXISTING PRODUCT AND THEREFORE THE ASSESSEE IS NOT ELIGIBLE FOR CLAIMING DEDUCTION U/S.80 - IA OF THE ACT. 6. WE HAVE PERUSED THE CASE RECORDS AND ANALYZED THE FACTS AND CIRCUMSTANCES IN THIS CASE. WE FIND THAT THE ASSESSING OFFICER REJECTED THE CLAIM OF DEDUCTION U/S.80 - IA OF THE ACT TO THE ASSESSEE ON THE GROUND THAT ACCORDING TO HIS ANALYSIS MOST OF THE MANUFACTURING WORKS ARE OUTSOURCED BY THE ASSESSEE AND THAT THEREFORE THE CRITERIA FOR CLAIMING DEDUCTION U/S.80 - IA OF THE ACT HAS NOT BEEN FULFILLED BY THE ASSESSEE. THE LD. CIT(APPEALS) ON THE OTHER HAND THOUGH REJECTED THE CLAIM OF DEDUCTION U/S.80 - IA OF THE ACT BUT ON DIFFERENT PREMISES THAT THERE WAS 5 ITA NO. 1340 & 1341 /PUN/20 17 A.Y. 1995 - 96 & 1997 - 98 NEITHER FRESH MANUFACTURING UNIT OF THE ASSESSEE NOR ANY DIFFERENT PRODUCTS WERE MANUFACTURED BY THE ASSESSEE. THE LD. CIT(APPEALS) IS OF THE OPINION THAT THE SURFACE COATING SYSTEM IS NOTHING BUT PROVIDING SPRAY PAINTING EQUIPMENTS AT THE SITE OF THE ASSESSEE WITH ADDITIONAL ACCESSORIES AND IT IS ONLY MIN OR MODIFICATION S OF THE EXISTING PRODUCT. THEREFORE THE DEDUCTION U/S.80 - IA WAS NOT GRANTED TO THE ASSESSEE BY THE LD. CIT(APPEALS). 7. ON PERUSAL OF THE CASE RECORDS WE FIND THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DESIGN FABRICATION ASSEMBLY SUPPLY OF INDUSTRIAL PAIN T ING SYSTEMS AND THEIR ERECTION AND COMMISSIONING AT THE SITE OF THE CUSTOMERS OF THE ASSESSEE. FOR THIS PURPOSE THE ASSESSEE SET UP A NEW INDUSTRIAL UNDERTAKING FOR THE ASSESSMENT YEAR 1995 - 96 FULFILLING THE REQUIRED CONDITIONS AS STIPULATED UNDER THE APPLICABLE PROVISIONS OF SECTION 80 - IA OF THE ACT. A TYPICAL PAIN T ING SYSTEM INCLUDES SECTIONS WHICH TAKE CARE OF PRETREATME NT OF THE SURFACE TO BE PAINTED; THE PAIN T ING BOOTH WHERE THE ACTUAL PAIN T ING TAKES PLACE AND BAKING OVEN FO R DRYING THE PAINTED SURFACE AT OPTIMAL TEMPERATURE. THE ENTIRE MANUFACTURING PROCESS CONSISTS OF VARIOUS ACTIVITIES WHICH ARE THE INTEGRAL PART OF THE WHOLE MANUFACTURING ACTIVITY CARRIED ON BY THE ASSESSEE. LIKE ALL ENGINEERING PRODUCTS A PAIN T ING SYSTEM IS AN AMALGAM ATION OF BOUGHT OUT COMPONENTS AND MANUFACTURED OR FABRICATED COMPONENTS WHICH ARE FINALLY ASSEMBLED TO CREATE A DISTINCTLY NEW PRODUCT WHICH IS THE HALLMARK OF ANY MANUFACTURING ACTIVITY. THE TYPICAL NATURE OF THE END PRODUCT WHICH HAS TO B E INTEGRATED WITH THE MANUFACTURING SET UP OF THE BUYER AND THE PROCUREMENT FABRICATION MANUFACTURING AND ASSEMBLY ACTIVITIES TAKE PLACE AT DIFFERENT PLACES WITHIN AND OUTSIDE THE ASSESSEES PREMISES. THEREFORE THE LOCATION OF THE MANUFACTURING ACTION H AD TO BE THEREFORE PRIMARILY OUTSIDE THE FOUR WALLS OF THE ASSESSEES ESTABLISHMENT BUT 6 ITA NO. 1340 & 1341 /PUN/20 17 A.Y. 1995 - 96 & 1997 - 98 BY THAT FACT THE SANCTITY OF THE BUSINESS OF MANUFACTURING IS NOT LOST. THUS MERELY BECAUSE SOME COMPONENTS ARE BOUGHT OUT OR THE PARTS ARE GOT FABRICATED UND ER THE DIRECT SUPERVISION AND CONTROL OF THE ASSESSEE ON THE BASIS OF OWN DRAWING AND DESIGNS CANNOT MEAN THAT THE UNDERTAKING WAS NO T SET UP OR IT CONSTITUTES RECONSTRUCTION OF THE EXISTING BUSINESS RATHER THE DRAWING AND DESIGNS CONSTITUTES THE HEART OF THE MANUFACTURING PROCESS. THE LD. CIT(A) HAS NOT DEALT WITH THE MANUFACTURING PROCESSES/DETAILS AND IT IS ALSO NOT APPARENT FROM HIS ORDER AS TO HOW HE HAS COME TO A CONCLUSION THAT (I) THE SURFACE COATING SYSTEMS IS NOTHING BUT PROVIDING SPRAY PAINTIN G EQUIPMENTS AT THE SITE OF THE ASSESSEE WITH ADDITIONAL ACCESSORIES; (II) IT IS ONLY MINOR MODIFICATION OF THE EXISTING PRODUCT; (III) SURFACE COATING SYSTEMS CONSTITUTES AS A RECONSTRUCTION OF THE EXISTING BUSINESS. 8 . THAT FURTHER ON CAREFUL PERUSAL OF THE LD. CIT(APPEALS)S ORDER AND THE FINDINGS ARRIVED THEREIN HE HAS NOT DEALT WITH SPECIFICALLY AS TO WHY HE HAS NOT ACCEPTED THE ANALYSIS OF THE ASSESSING OFFICER . HE HAS NO T PASSED A SPEAKING ORDER NOR HAS REASONS BACKING HIS ORDER WHICH IS NOT APPARENT FROM HIS ORDER. THESE ISSUES (I) WHETHER THE FACTUAL PARAMETERS FOR GETTING DEDUCT ION U/S.80 - IA OF THE ACT ARE COMPLIED BY THE ASSESSEE OR NOT ; (II) WHETHER SURFACE COATING SYSTEMS CONSTITUTES RECONSTRUCTION OF THE EXISTING BUSINESS REQUIRES DETAILED FACTUAL ANALYSIS AND VERIFICATION COUPLED WITH A SPEAKING ORDER. IN VIEW OF THE MA TTER WE SET ASIDE THE ORDERS OF THE LD. CIT(APPEALS) FOR BOTH THE ASSESSMENT YEARS AND RESTORE THEM BACK TO HIS FILE FOR NECESSARY ADJUDICATION AS PER LAW AFTER FOLLOWING PRINCIPLES OF NATURAL JUSTICE. THAT GIVEN THE OLD NATURE OF THE CASES RELATING TO ASSESSMENT YEARS 1995 - 96 AND 1997 - 7 ITA NO. 1340 & 1341 /PUN/20 17 A.Y. 1995 - 96 & 1997 - 98 98 AND THE TIME ALREADY CONSUMED FOR ADJUD ICATION IT IS ADVISABLE THAT THE LD. CIT(A) MA Y ADJUDICATE THIS MATTER IN EXPEDITE AND TIME BOUND MANNER. 9 . IN THE RESULT BOTH THE APPEALS OF THE ASSESSEE FOR THE ASSESSMENT YEARS 1995 - 96 AND 1997 - 98 ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRO NOUNCED ON 15 TH DAY OF NOVEMBER 201 9 . SD/ - SD/ - D. KARUNAKARA RAO PARTHA SARATHI CHAUDHURY ACCOUNTANT MEMBER JUDICIAL MEMBER / PUNE; / DATED : 15 TH NOVEMBER 2019 . SB / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(APPEALS) - 6 PUNE. 4. THE PR. CIT - 5 PUNE. 5 . / DR ITAT B BENCH PUNE. 6 . / GUARD FILE. // TRUE COPY // / BY ORDER / PRIVATE SECRETARY / ITAT PUNE . 8 ITA NO. 1340 & 1341 /PUN/20 17 A.Y. 1995 - 96 & 1997 - 98 DATE 1 DRAFT DICTATED ON 14.11 .2019 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 15 .11 .201 9 SR.PS/PS 3 DRAFT PROPOSED AND PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/JM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 DATE OF UPLOADING OF ORDER SR.PS/PS 8 FILE SENT TO BENCH CLERK SR.PS/PS 9 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 10 DATE ON WHICH FILE GOES TO THE A.R 11 DATE OF DISPATCH OF ORDER