The ACIT, Circle-8,, Ahmedabad v. Zeepelin Mobile System (India) Ltd.,, Ahmedabad

ITA 1863/AHD/2009 | 2001-2002
Pronouncement Date: 22-03-2011 | Result: Dismissed

Appeal Details

RSA Number 186320514 RSA 2009
Assessee PAN AAACZ2270K
Bench Ahmedabad
Appeal Number ITA 1863/AHD/2009
Duration Of Justice 1 year(s) 9 month(s) 18 day(s)
Appellant The ACIT, Circle-8,, Ahmedabad
Respondent Zeepelin Mobile System (India) Ltd.,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 22-03-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 22-03-2011
Date Of Final Hearing 28-01-2011
Next Hearing Date 28-01-2011
Assessment Year 2001-2002
Appeal Filed On 04-06-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' BEFORE SHRI MAHAVIR SINGH JM & SHRI A N PAHUJA AM ITA NOS.1863 TO 1867/AHD/2009 WITH CO NOS.159 TO 163/AHD/2009 [ASSESSMENT YEARS:-2001-02 TO 2003-04 AND 2005-06 & 2006-07] & ITA NO.1041/AHD/2009 [ASSESSMENT YEAR:-2004-05] & ITA NO.1440/AHD/2010 WITH CO NO.199/AHD/2010 [ASSESSMENT YEAR:-2007-08] ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-8 AHMEDABAD V/S ZEPPELIN MOBILE SYSTEMS (INDIA) LTD. ABHIJEET BUILDING 7 TH FLOOR 701-704 MITHAKHALI SIX ROADS NAVRANGPURA AHMEDABAD PAN: AAACZ 2270 K [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI SHELLEY JINDAL DR ASSESSEE BY:- SHRI SANJAY R SHAH AR O R D E R A N PAHUJA: THESE APPEALS BY THE REVENUE AND THE CORRESPONDIN G CROSS OBJECTIONS[CO] BY THE ASSESSEE ARE DIRECTED AGAINST THE FOLLOWING ORDERS OF THE LD. CIT(APPEALS)-XIV AHMED ABAD : SR. NO. APPEAL FILED BY REVENUE CO FILED BY ASSESSEE AGAINST ORDER OF CIT(A) DATE OF ORDER OF CIT(A) ASST. YEAR 1 1863/A/09 159/A/09 CIT(A)-XIV AHMEDABAD 23-03-09 01-02 2 1864/A/09 160/A/09 -DO- -DO- 02-03 3 1865/A/09 161/A/09 -DO- -DO- 03-04 4 1866/A/09 162/A/09 -DO- -DO- 05-06 5 1867/A/09 163/A/09 -DO- -DO- 06-07 6 1041/A/09 --- -DO- 06-01-09 04-05 7 1440/A/10 199/A/10 -DO- 19-02-10 07-08 ITA N OS.1863 TO 1867/A/09 AND OTHERS 2 THE FOLLOWING GROUNDS ARE RAISED IN THESE APPEALS A ND CROSS- OBJECTIONS:- ITA NO.1863 TO 1866/A/09[AYS. 2001-02 TO 2003-04 & 2005-06] 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT ALLOWING THE DEDUCTION U/S 80IB OF THE IT ACT OF RS.47 68 774/-. IN THE AY 2001- 02 RS.44 54 661/- IN THE AY 2002-03 RS.1 01 17 62 8/-IN THE AY 2003-04 & RS.1 29 53 650 IN THE AY 2005-06 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XIV AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 2 IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD . COMMISSIONER OF INCOME-TAX (APPEALS)-XIV AHMEDABAD MAY BE SET-ASID E AND THAT OF THE AO BE RESTORED. CO NO.159/A/09[AY 2001-02] 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN HOLDING THAT THE PROCEEDINGS U/S. 147 HAS BEEN VALI DLY INITIATED. IN THE FACTS OF THE CASE PROCEEDINGS U/S. 147 ARE INV ALID AND VOID-AB- INITIO AND THEREFORE REQUIRED TO HAVE BEEN QUASHED. IT IS SUBMITTED THAT IT BE SO HELD NOW. 1.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN HOLDING THAT NOTICE U/S 148 HAS BEEN VALIDLY ISSUED . IN THE FACTS OF THE CASE NOTICE U/S 148 CANNOT BE ISSUED AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT IF TH E ASSESSEE HAS DULY FILED THE RETURN OF INCOME AND DISCLOSED FULLY AND TRULY ALL MATERIAL FACTS AT THE TIME OF ASSESSMENT. IT IS SUB MITTED THAT NOTICE U/S 148 AFTER EXPIRY OF FOUR YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR IS INVALID. IT BE SO HELD NOW. 1.2 THE LEARNED COMMISSIONER OF INCOME TAX HAS ERRE D IN NOT APPRECIATING THE FACT THAT THE PROCEEDINGS U/S 147 OF THE INCOME TAX ACT WERE INITIATED ON THE BASIS OF THE SAME FACTS W HICH WERE NOT ONLY AVAILABLE TO HIM BUT ALSO DEALT WITH DURING TH E ASSESSMENT PROCEEDINGS BEFORE PASSING THE ASSESSMENT ORDER U/S 143 (3) OF THE ACT RESULTING INTO INITIATION OF THE PROCEEDINGS ME RELY ON ACCOUNT OF CHANGE OF OPINION. IT IS SUBMITTED THAT REASSESSMEN T CANNOT BE DONE ON ACCOUNT OF CHANGE OF OPINION. IT BE SO HELD NOW. 1.3 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN UPHOLDING THE VALIDITY OF ORDER PASSED U/S. 147 R.W .S. 143(3). IT IS SUBMITTED THAT WHERE ASSESSMENT U/S. 143(3) HAS BEE N MADE NO ITA N OS.1863 TO 1867/A/09 AND OTHERS 3 ACTION U/S. 147 CAN BE TAKEN AFTER EXPIRY OF FOUR Y EARS FROM THE ENDS OF RELEVANT ASSESSMENT YEAR UNLESS IT IS ON ACCOUNT OF FAILURE OF THE ASSESSEE IN VIEW OF PROVISO TO SECTION 147. IN ABSE NCE OF ANY FAILURE ON PART OF THE ASSESSEE NO ACTION U/S. 147 CAN BE TAKEN INCLUDING PASSING AN ORDER UNDER THE SAID SECTION. IT BE SO HELD NOW. THE RESPONDENT PRAYS FOR LEAVE TO ADD ALTER AND/OR AMEND ALL OR ANY OF THE GROUNDS BEFORE THE FINAL HEARING OF CROSS OBJECTION . CO NO.160/A/09[AY 2002-03] 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN HOLDING THAT THE PROCEEDINGS U/S. 147 HAS BEEN VALI DLY INITIATED. IN THE FACTS OF THE CASE PROCEEDINGS U/S. 147 ARE INV ALID AND VOID-AB- INITIO AND THEREFORE REQUIRED TO HAVE BEEN QUASHED. IT IS SUBMITTED THAT IT BE SO HELD NOW. 1.1 THE LEARNED COMMISSIONER OF INCOME TAX HAS ERRE D IN NOT APPRECIATING THE FACT THAT THE PROCEEDINGS U/S 147 OF THE INCOME-TAX ACT WERE INITIATED ON THE BASS OF THE SAME FACTS WH ICH WERE NOT ONLY AVAILABLE TO HIM BUT ALSO DEALT WITH DURING THE ASS ESSMENT PROCEEDINGS BEFORE PASSING THE ASSESSMENT ORDER U/S 143(3) OF THE ACT FOR AY 2001-02 & 2002-03 RESULTING INTO INITIAT ION OF THE PROCEEDINGS MERELY ON ACCOUNT OF CHANGE OF OPINION. IT IS SUBMITTED THAT REASSESSMENT CANNOT BE DONE ON ACCOUNT OF CHAN GE OF OPINION. IT BE SO HELD NOW. THE RESPONDENT PRAYS FOR LEAVE TO ADD ALTER AND/OR AMEND ALL OR ANY OF THE GROUNDS BEFORE THE FINAL HEARING OF CROSS OBJECTION . CO NO.161/A/09[AY 2003-04] 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN HOLDING THAT THE PROCEEDINGS U/S. 147 HAS BEEN VALI DLY INITIATED. IN THE FACTS OF THE CASE PROCEEDINGS U/S. 147 ARE INV ALID AND VOID-AB- INITIO AND THEREFORE REQUIRED TO HAVE BEEN QUASHED. IT IS SUBMITTED THAT IT BE SO HELD NOW. 1.2 THE LEARNED COMMISSIONER OF INCOME TAX HAS ERRE D IN NOT APPRECIATING THE FACT THAT THE PROCEEDINGS U/S 147 OF THE INCOME TAX ACT WERE INITIATED ON THE BASIS OF THE SAME FACTS W HICH WERE NOT ONLY AVAILABLE TO HIM BUT ALSO DEALT WITH DURING TH E ASSESSMENT PROCEEDINGS BEFORE PASSING THE ASSESSMENT ORDER U/S 143 (3) OF THE ACT RESULTING INTO INITIATION OF THE PROCEEDINGS ME RELY ON ACCOUNT OF CHANGE OF OPINION. IT IS SUBMITTED THAT REASSESSMEN T CANNOT BE DONE ON ACCOUNT OF CHANGE OF OPINION. IT BE SO HELD NOW. ITA N OS.1863 TO 1867/A/09 AND OTHERS 4 1.2 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN UPHOLDING THE VALIDITY OF ORDER PASSED U/S. 147 R.W .S. 143(3). IT IS SUBMITTED THAT WHERE ASSESSMENT U/S. 143(3) HAS BEE N MADE NO ACTION U/S. 147 CAN BE TAKEN AFTER EXPIRY OF FOUR Y EARS FROM THE ENDS OF RELEVANT ASSESSMENT YEAR UNLESS IT IS ON ACCOUNT OF FAILURE OF THE ASSESSEE IN VIEW OF PROVISO TO SECTION 147. IN ABSE NCE OF ANY FAILURE ON PART OF THE ASSESSEE NO ACTION U/S. 147 CAN BE TAKEN INCLUDING PASSING AN ORDER UNDER THE SAID SECTION. IT BE SO HELD NOW. THE RESPONDENT PRAYS FOR LEAVE TO ADD ALTER AND/OR AMEND ALL OR ANY OF THE GROUNDS BEFORE THE FINAL HEARING OF CROSS OBJECTION . CO NO.162/A/09[AY 2005-06] 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN HOLDING THAT THE PROCEEDINGS U/S. 147 HAS BEEN VALI DLY INITIATED. IN THE FACTS OF THE CASE PROCEEDINGS U/S. 147 ARE INV ALID AND VOID-AB- INITIO AND THEREFORE REQUIRED TO HAVE BEEN QUASHED. IT IS SUBMITTED THAT IT BE SO HELD NOW. 1.1 THE LEARNED COMMISSIONER OF INCOME TAX HAS ERRE D IN NOT APPRECIATING THE FACT THAT THE PROCEEDINGS U/S 147 OF THE INCOME-TAX ACT WERE INITIATED ON THE BASS OF THE SAME FACTS WH ICH WERE NOT ONLY AVAILABLE TO HIM BUT ALSO DEALT WITH DURING THE ASS ESSMENT PROCEEDINGS BEFORE PASSING THE ASSESSMENT ORDER U/S 143(3) OF THE ACT FOR AY 2001-02 & 2002-03 RESULTING INTO INITIAT ION OF THE PROCEEDINGS MERELY ON ACCOUNT OF CHANGE OF OPINION. IT IS SUBMITTED THAT REASSESSMENT CANNOT BE DONE ON ACCOUNT OF CHAN GE OF OPINION. IT BE SO HELD NOW. THE RESPONDENT PRAYS FOR LEAVE TO ADD ALTER AND/OR AMEND ALL OR ANY OF THE GROUNDS BEFORE THE FINAL HEARING OF CROSS OBJECTION . ITA NO.1041/AHD/2009[AY 2004-05] 1 THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XIV A HMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDIT ION OF RS.4 13 416/- MADE BY THE AO U/S 37(1) OF THE IT AC T ON ACCOUNT OF FOREIGN TRAVEL EXPENSES. 2 THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XIV AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE DEDUC TION OF RS.71 09 267/- MADE BY THE AO U/S 80IB OF THE IT AC T. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XIV AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE AO. ITA N OS.1863 TO 1867/A/09 AND OTHERS 5 4 IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD . COMMISSIONER OF INCOME-TAX (APPEALS)-XIV AHMEDABAD MAY BE SET-ASID E AND THAT OF THE AO BE RESTORED. ITA NO.1867/A/09[AY 2006-07] 1 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT ALLOWING THE DEDUCTION U/S 80IB OF THE IT ACT OF RS.1 07 66 798/ - . 2 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN A LLOWING DEPRECIATION ON COPY RIGHT EXPENSES 25% ON RS.4 47 000/-. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XIV AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 4 IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD . COMMISSIONER OF INCOME-TAX (APPEALS)-XIV AHMEDABAD MAY BE SET-ASID E AND THAT OF THE AO BE RESTORED. CO NO.163/A/09[AY 2006-07] 1 THE LEARNED COMMISSIONER OF INCOME TAX HAS ERRED IN REJECTING THE CLAIM OF COPYRIGHT EXPENSE OF RS.2 23 500 (BEIN G 50% OF RS.4 47 000). IT IS SUBMITTED THAT THE AMOUNT PAID TO A FOREIGN COMPANY CLIMATOR AB TOWARDS CHARGES FOR AGREEING T O SELL THEIR PRODUCTS EXCLUSIVELY TO THE ASSESSEE FOR A PERIOD O F ONE YEAR. SINCE THE BENEFIT OF SUCH EXPENSE DOES NOT HAVE ENDURING BENEFIT THE SAME SHOULD HAVE BEEN TREATED AS REVENUE EXPENDITUR E. IT IS SUBMITTED THAT IT BE SO HELD NOW. 2 THE LEARNED COMMISSIONER OF INCOME TAX HAS ERRED IN CONFIRMING DISALLOWANCE IN RESPECT OF SLOW MOVING INVENTORY OF RS.1 49 490/- HOLDING THAT THE AMOUNT BEING A PROVISION CANNOT BE ALLOWED. IT IS SUBMITTED THAT PROVISION OF SLOW MOVING INVENTORY I S IN ACCORDANCE WITH SOUND ACCOUNTING PRINCIPLES WHICH REQUIRES TO ACCOUNT FOR SUCH LOSSES. IT IS FURTHER SUBMITTED THAT SAID AMOUNT RE PRESENTS LOSS IN THE NORMAL COURSE OF BUSINESS OF THE APPELLANT AND THEREFORE THE SAME IS ALLOWABLE U/S 28 / 37 OF THE ACT. IT IS SUB MITTED THAT IT BE SO HELD NOW. 2.1 THE LEARNED COMMISSIONER OF INCOME TAX HAS ERRE D IN NOT ADJUDICATING THE ALTERNATE GROUND OF THE RESPONDENT THAT THE DEDUCTION IN RESPECT OF SLOW MOVING INVENTORY OF RS .1 49 490/- IS NOT ALLOWED IN THE CURRENT YEAR THE SAME SHALL BE ALLOWED IN THE YEAR IN WHICH IT IS ACTUALLY WRITTEN OFF / WRITTEN BACK. IT IS SUBMITTED THAT THE AO BE DIRECTED TO ALLOW THE PROVISION IN T HE YEAR IN WHICH IT IS ACTUALLY WRITTEN OFF / WRITTEN BACK. ITA N OS.1863 TO 1867/A/09 AND OTHERS 6 THE RESPONDENT PRAYS FOR LEAVE TO ADD ALTER AND/O R AMEND ALL OR ANY OF THE GROUNDS BEFORE THE FINAL HEARING OF CROSS OBJECTION . ITA NO.1440/AHD/2010 [AY2007-08] 1 THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XIV A HMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDIT ION OF RS.13479223/- MADE BY THE AO ON ACCOUNT OF DEDUCTIO N U/S 80IB. 2 THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XIV AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDIT ION ON ACCOUNT OF ADDITIONAL DEPRECIATION @ 20% OF RS.244495/- ON MAC HINERY. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A)- XIV AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF TH E AO. 4 IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD. CIT(A)-XIV AHMEDABAD MAY BE SET-ASIDE AND THAT OF THE AO BE RE STORED. CO NO.199/A/2010 [AY2007-08] 1. THE LEARNED COMMISSIONER OF INCOME TAX HAS ERRED IN CONFIRMING DISALLOWANCE OF RS.1 14 491/- BY INVOKING PROVISION S OF SECTION 14A. IT BE SO HELD NOW. 1.1 THE LEARNED COMMISSIONER OF INCOME TAX HAS ERRE D IN CONFIRMING INVOCATION OF PROVISIONS OF RULE 8D. IT BE SO HELD NOW. 1.2 THE LEARNED COMMISSIONER OF INCOME TAX HAS ERRE D IN IGNORING THE FACT THAT NO INTEREST BEARING FUNDS WERE UTILIZED F OR INVESTMENT EARNING EXEMPT INCOME. IT BE SO HELD NOW. THE RESPONDENT PRAYS FOR LEAVE TO ADD ALTER AND / OR AMEND ALL OR ANY OF THE GROUNDS BEFORE THE FINAL HEARING OF CROSS OBJEC TION. SINCE SIMILAR ISSUES ARE INVOLVED THESE APPEALS/CR OSS OBJECTIONS WERE HEARD SIMULTANEOUSLY FOR THE SAKE OF CONVENIEN CE AND ARE BEING DISPOSED OF THROUGH THIS COMMON ORDER. ITA N OS.1863 TO 1867/A/09 AND OTHERS 7 2. ADVERTING FIRST TO GROUND NO.1 IN THE APPEALS F ILED BY THE REVENUE FOR ASSESSMENT YEARS 2001-02 TO 2003-04 AND 2005-06 TO 2007-08 AND GROUND NO.2 IN THE APPEAL OF THE REVEN UE FOR THE AY 2004-05 RELATING TO DEDUCTION UNDER SECTION 80IB OF THE INCOME-TAX ACT 1961 [HEREINAFTER REFERRED TO THE ACT] FACT S IN BRIEF AS PER RELEVANT ORDERS FOR THE AY 2004-05 ARE THAT RETURN DECLARING INCOME OF RS.2 00 92 070/- FILED ON 31.10.2004 BY THE ASSE SSEE-COMPANY ENGAGED IN BUSINESS OF MANUFACTURING & INSTALLATION OF PREFABRICATED TELECOM SHELTERS AND REFRIGERATION BODIES WAS SELE CTED FOR SCRUTINY WITH THE ISSUE OF A NOTICE U/S 143(2) OF THE ACT ON 31-01-2005.DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE CLAIMED A DEDUCTIO N OF RS.71 09 267/- U/S 80-IB OF THE ACT. TO A QUERY BY THE AO THE ASSESSEE EXPLAINED THAT THE ASSESSEE WAS ENGAGED IN THE MANUFACTURE AND INSTALLATION OF TELECOM SHELTERS MA DE FOR MOBILE PHONE OPERATORS. WHILE EXPLAINING THE PROCESS OF MA NUFACTURE THE ASSESSEE POINTED OUT THAT THESE SHELTERS SET IN COM PLETELY KNOCK DOWN CONDITION WERE ERECTED ON SITE. SINCE THESE S HELTERS WERE DIFFERENT FROM THEIR COMPONENTS PURCHASED BY THE C OMPANY RELYING ON THE DECISIONS IN CIT VS. TATA LOCOMOTIVE & ENGIN EERING CO. LTD 68 ITR 325 AND SHIP SCRAP TRADERS VS. CIT 251 ITR 8 06 THE ASSESSEE CONTENDED THAT THEY WERE ENTITLED TO DEDU CTION U/S 80IB OF THE ACT. HOWEVER THE AO WHILE REFERRING TO PROVIS IONS OF SEC. 80IB OF THE ACT AND DECISIONS IN SINGH ENGINEERING WORK S PVT. LTD. VS. CIT 119 ITR 891 LUCKY MINMAT PVT. LTD. VS. COMMISS IONER OF INCOME-TAX. 245 ITR 830 (SC) COMMISSIONER OF INCOM E-TAX VS. N. C. BUDHARAJA AND CO. AND ANOTHER 204 ITR 412 (SC) CIT VS SHIVALIK POULTRIES (2005) 274 ITR 529 CIT VS. AGRA CONST. CORPN. (2005) 146 TAXMAN 31 (ALL) CIT VS MINOCHA BROS. 16 0 ITR 134(DEL.) CIT VS. NUC PVT. LTD. 126 ITR 377 (BOM) CIT VS. BHAKHTAWAR SINGH BAL KISHAN BHITAL 234 ITR 652 (199 7) (MP) AND R.M.ENTERPRISES VS. ITO (1992) 43 TTJ (BOM)(SPECIAL BENCH) 165: 42 ITD 23 (SB) DESCRIBING DISTINCTION BETWEEN MANUF ACTURE & ITA N OS.1863 TO 1867/A/09 AND OTHERS 8 PROCESSING CONCLUDED THAT SHELTERS ERECTED BY THE ASSESSEE WERE BUILDING I.E. IMMOVABLE PROPERTY AND COULD AT THE MOST BE CALLED AS PROCESSING AND NOT MANUFACTURE OR PRODUCTION BECAUS E ALL THE RAW MATERIAL ITEMS DO NOT UNDERGO CHEMICAL CHANGE THE RAW MATERIAL BEING THE SAME COMPOSITION AS IT WAS BEFORE ERECTIO N. THE AO ALSO CONCLUDED THAT SHELTERS COULD NOT BE TERMED ARTICL E OR THING AS UNDERSTOOD IN THE COMMON PARLANCE AND IN THIS CONNE CTION RELIED UPON DECISION IN CIT VS. MADGUL UDYOG 208 ITR 541(O RISSA) HOLDING THAT THE WORD 'ARTICLE' REFERS TO GOODS ONLY AND DOES NOT INCLUDE IMMOVABLE PROPERTY . THEREFORE THE AO HELD THAT T HE ASSESSEE COMPANY WAS NOT AN INDUSTRIAL UNDERTAKING AND WAS N OT MANUFACTURING OR PRODUCING ANY ARTICLE NOR THE SHEL TERS ERECTED BY THE ASSESSEE WERE NOT AN ARTICLE OR THING WITHIN TH E MEANING OF PROVISIONS OF SEC. 80IB OF THE ACT. ACCORDINGLY CL AIM FOR DEDUCTION OF RS.71 09 267/- U/S 80IB OF THE ACT WAS DENIED VI DE ORDER DATED 26.12.2006 IN THE AY 2004-05. 2.1 THE AO ALSO REOPENED THE ASSESSMENTS FOR THE AYS. 2001- 02 TO 2003-04 & 2005-06 AND DENIED THE CLAIM FOR DE DUCTION U/S 80IB OF THE ACT ON SIMILAR LINES AS AFORESAID. SIMI LAR CLAIM IN THE AYS. 2006-07 & 2007-08 WAS ALSO DENIED IN THE SCRUT INY ASSESSMENTS FOR THE RELEVANT YEARS. 3. ON APPEAL THE ASSESSEE CONTENDED BEFORE THE LD. CIT(A) VIDE LETTER DATED 26-12-2008 THAT THE TELECOM SHELTERS W ERE HIGHLY SPECIALIZED AND ENVIRONMENTALLY CONTROLLED PROTECTION CELL FOR HOUSING SOPHISTICATED TELECOM EQUIPMENT USED BY THE MOBILE PHONE SERVICE PROVIDER S BOTH GSM & CDMA IN THE COUNTRY AND ABROAD. THESE SHELTERS PROTECT THE EQUI PMENT INSIDE FROM INGRESS OF MOISTURE DUST AND HUMIDITY AND WERE VANDAL PROOF. IDEALLY THE SHELTERS SHOULD BE SUPPLIED TO THE CUSTOMERS IN FULLY BUILT-UP COND ITION AS WAS DONE IN FOREIGN COUNTRIES. BUT BECAUSE OF THE CONSTRAINTS OF TRANSP ORTATION LIFTING FACILITIES AT THE SITES ETC. THESE WERE DISPATCHED AS KITS IN KNOCKED DOWN CONDITION AND ERECTED AT THE SITES. SOME OF THE MANUFACTURING PROCESSES WERE THEN COMPLETED AT THE SITES. ITA N OS.1863 TO 1867/A/09 AND OTHERS 9 IT WAS POINTED OUT THAT THE SHELTERS MAY HAVE THEI R OUTER AND INNER SKINS OF EITHER STEEL OR ALUMINUM FORMED SHEETS WHICH WERE IN THE FORM OF RIGID PANELS WITH INJECTED POLYURETHANE FOAM AS INSULATION MATERIAL. THE SHELTER SIZES WERE GOVERNED BY THE QUALITATIVE REQUIREMENTS (QR) AND S PECIFICATIONS GIVEN BY THE CUSTOMERS BASED ON THE QRS. BASED ON THE DESIGN PAR AMETERS SET PRODUCTION DRAWINGS OF THE PANELS WERE MADE FOR MANUFACTURING. THE MAIN RAW MATERIAL AND COMPONENTS REQUIRED FOR THESE SHELTERS WAS DETAILED AS UNDER:- - PANELS MADE OF STEEL / ALUMINIUM SHEETS AND INJE CTED WITH PU FOAM AS PER THE DRAWINGS AND SPECIFICATIONS LAID DOWN BY THE DESIGN DEPARTMENT. - GI COILS FOR EXTERNAL AND INTERNAL ANGLES. - LOCKING MECHANISM USING LOCKS AND RODS MANUFACTUR ED TO OUR EXCLUSIVE DESIGN. - ANTISTATIC PVC ROLLS FOR MAKING THE FLOORING. - MARINE GRADE / WATER RESISTANT PLY BOARDS FOR MAK ING THE BASE FOR THE ANTISTATIC PVC LAID ON THE FLOOR. - GI COILS / ALUMINIUM COILS FOR MANUFACTURING SUN ROOF - GI /ALUMINIUM COILS FOR MANUFACTURING 'Z' SECTION S FOR FIXING THE SUN ROOF AND FOR MAKING FLASHING FOR AC AND ROXTEC. - SKID CLAMPS MANUFACTURED FROM STEEL SHEETS. - PAINTS AND CHEMICALS INCLUDING PRIRMERS SURFACES SEALANT ADHESIVES THINNER ETC. - EXTRUDED ALUMINIUM DOOR AND JAMB PROFILES 'C' RA ILS MANUFACTURED STRICTLY AS PER OUR DESIGNS SPECIFICATIONS AND DRA WINGS. - BASE FRAMES MANUFACTURED OUT OF ISMBS & ISMCS AS PER OUR DESIGN AND SPECIFICATIONS. - BOUGHT OUT ITEMS LIKE INSERT NUTS HARDWARE ITEMS LIKE NUTS / BOLTS RIVETS DOOR CLOSERS. 3.1 IT WAS EXPLAINED THAT THE ASSESSEE'S MANUFACTU RED PRODUCT I.E. 'PRE- FABRICATED BUILDING' (TELECOM SHELTER) HAD THE TARI FF HEADING NO.94060069L IN THE CENTRAL EXCISE TARIFF ACT FOR THE PURPOSE OF LEVYIN G OF EXCISE DUTY AND SALES TAX. THE SHELTERS WERE MOBILE IN NATURE EVEN AFTER THEY WERE MOUNTED ON ISMB SUPPORTED BY PILLARS AS THE FOUR COMERS . WHILE REF ERRING TO PURCHASE ORDERS IT WAS SUBMITTED THAT SINCE THE TELECOM SHELTERS WERE ACTUALLY TAKEN BY THE ASSESSEE TO THE CUSTOMER PLACE QUESTION AS TO THE NATURE OF GOODS SOLD OR ITS MOVABILITY SHOULD NOT ARISE. SINCE THE ASSESSEE PAI D EXCISE DUTY ON THE TELECOM SHELTERS THE PROCESS AMOUNTED TO MANUFACTURE .BESI DES SALES TAX LEVIABLE ON SALE OF MOVABLE PROPERTY WAS PAID ON SALE OF THE SE SHELTERS . THESE COULD NOT ITA N OS.1863 TO 1867/A/09 AND OTHERS 10 BE REGARDED AS IMMOVABLE PROPERTY. INTER ALIA THE ASSESSEE REFERRED TO DECISIONS IN LOKASHAN JAIN UDYOG MANDIR LTD. VS. KALOORAM AIR 1965 RAJ. 15 MEGHRAJ & OTHERS AIR 1924 ALLAHABAD 365 PERUMAL NAICKER VS . J. RAMASWAMI KONE AND ANOTHER AIR 1969 MADRAS 346 CIT VS. TATA LOCOMOTIV E & ENGINEERING CO. LTD. 68 ITR 325 (BOM) SHIP SCRAP TRADERS VS. CIT 251 ITR 806 (BOM.) AND DISTINGUISHED THE DECISIONS RELIED UPON BY THE AO IN COMMISSIONER OF INCOME TAX V. N. C. BUDHARAJA & CO. 204 ITR 412 (SC) & LUC KY MINMAT PRIVATE LIMITED V. COMMISSIONER OF INCOME TAX 245 ITR 830 (SC) . 4. IN THE LIGHT OF AFORESAID DECISIONS THE LEAR NED CIT(A) ALLOWED THE CLAIM FOR DEDUCTION U/S 80IB OF THE ACT IN THE AY 2004-05 IN THE FOLLOWING TERMS:- 7.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSIONS OF THE A.R. CAREFULLY. THE A.O. HAS DISALLOWED THE CLAIM O F DEDUCTION U/S.80 IB OF THE ACT ON TWO GROUNDS FIRST THAT THE FINAL PRODUC T IS AN IMMOVABLE PROPERTY AND SECONDLY THE PROCESS OF BRINGING THE F INAL PRODUCT INTO EXISTENCE IS NOT MANUFACTURING. AS REGARDS FIRST I SSUE THE APPELLANT HAS CONTENDED THAT ITS FINAL PRODUCT IS AN ARTICLE OR T HING AND IT IS 'MOVABLE' AND THAT THE TEST OF MOVABILITY OR IMMOVABILITY IS NOT DEFINED IN IT. ACT ; RATHER IT IS GOVERNED BY GENERAL LAW. THE A.O. HAS RELIED UPO N THE DECISION OF THE APEX COURT IN THE CASE OF N.C.BUDHIRAJA & CO. TO TR EAT THE SHELTERS AS IMMOVABLE PROPERLY AS IN THAT CASE IT WAS HELD THAT DAM IS NOT AN ARTICLE. AS CONTENDED BY THE A.R. AND AS CAN BE SEEN FROM TH E PURCHASE ORDER ISSUED BY RELIANCE COMMUNICATIONS LIMITED FILED AT PAGE B-89 OF THE PAPER BOOK SUBMITTED BY THE A.R. THE TRANSACTION I S LIABLE TO EXCISE DUTY AND SALES TAX WHICH IMPLIES THAT THE TRANSACTION IN VOLVES A MOVABLE PROPERTY .THE PURCHASE ORDER ALSO INVOLVES TRANSPOR TATION PACKING FORWARDING AND UNLOADING OF GOODS THESE FACTS LEAD TO THE CONCLUSION THAT THE PRODUCT IS A MOVABLE PROPERTY. FURTHER AS PER T HE DECISIONS CITED UNDER EXCISE LAW I.E. KAILASH OIL CAKE INDUSTRIES V. CCE 63 ELT 693 (CEGAT) & NATIONAL RADIO V. CCE 76 ELT 436 (CEGAT) IMMOVAB LE PROPERTY OR PROPERTY ATTACHED TO EARTH IS NOT 'GOODS'; AND HENC E EXCISE DUTY IS NOT LEVIABLE THEREON. AS IN THE CASE OF THE APPELLANT E XCISE DUTY HAS BEEN PAID ON THE TELECOM SHELTERS SOLD BY IT IT CAN BE REAS ONABLY SAID THAT THE PROCESS AMOUNTS TO MANUFACTURE AND THE RESULTANT PR ODUCT IS MOVABLE PROPERTY. FURTHER TELECOM SHELTER IS NOT A THING WH ICH IS FASTENED TO THE EARTH LIKE BUILDING OR DAM AND THE SAME CAN BE DISM ANTLED AND INSTALLED AT A NEW PLACE. HENCE I AGREE WITH THE CONTENTION OF T HE A.R. THAT THE PRODUCT IS NOT AN IMMOVABLE PROPERTY THOUGH IT HAS TO BE F ITTED BY SCREWS FOR THE PURPOSE OF OPERATIONAL EFFICIENCY. THE APPELLANT DO ES CARRY OUT MOUNTING AND ERECTION OR INSTALLATION ACTIVITIES FOR OPERATI ONAL EFFICIENCY PURPOSE. HOWEVER THERE IS A FUNDAMENTAL DIFFERENCE BETWEEN THE TWO THINGS AND ITA N OS.1863 TO 1867/A/09 AND OTHERS 11 THAT IS PERMANENCY I.E. WHETHER SUCH ATTACHMENT IS FOR PERMANENT BENEFICIAL ENJOYMENT OF THE IMMOVABLE PROPERTY TO W HICH IT IS ATTACHED. THE EXAMPLE CITED BY THE A.R. OF OIL ENGINE ATTACHED TO EARTH SO LONG AS THE ENGINE IS USED AND THAT WHEN IT IS NOT USED IT CAN BE DETACHED AND SHIFTED TO SOME OTHER PLACE DOES NOT MAKE IT IMMOVABLE PROP ERTY IS A LUCID ILLUSTRATION OF PERMANENCY. THE A.O. HAS RIGHTLY PO INTED OUT THAT SHELTERS ARE ATTACHED TO EARTH OR ROOFTOP BY SCREWS HOWEVER HE HAS FAILED TO CARRY OUT THE PERMANENCY TEST AND VERIFY WHETHER DIFFEREN CES IN PERMANENCY WOULD RENDER THE DECISION IN CASE OF N. C. BUDHARAJ A APPLICABLE IN THE PRESENT CASE. I AGREE WITH THE CONTENTION OF THE A. R. THAT 'IMMOVABLE' DOES NOT DERIVE ITS MEANING FROM THE TAX LAWS AND THEREF ORE IT HAS TO BE REFERRED TO GENERAL CLAUSES ACT AND OTHER RELEVANT STATUTES DEALING WITH PROPERTY FOR ITS MEANING. GENERAL CLAUSES ACT AS WELL AS REG ISTRATION ACT LAYS DOWN CONDITION OF PERMANENCY IN ADDITION TO THE PROPERTY BEING ATTACHED TO EARTH TO QUALIFY AS IMMOVABLE PROPERTY. THUS IMMOVABLE P ROPERTY WOULD CARRY CHARACTERISTICS OF ATTACHMENT TO EARTH AS WELL AS P ERMANENCY. THIS WAS NOT EXAMINED BY THE A.O. AND APPLICATION OF DECISION IN CASE OF N. C. BUDHARARAJA HAS BEEN STRETCHED ON SIMILARITY OF ONE FACT (ATTACHMENT TO EARTH) WITHOUT CONSIDERING DIFFERENCES IN VITAL FAC TOR (PERMANENCY). FURTHER EXCISE & SALES TAX LAWS TYPICALLY DO NOT DEAL WITH IMMOVABILITY BUT AS FAR AS THEIR APPLICATION IS CONCERNED BOTH THE LEVIES ARE NOT APPLICABLE IF THE PROPERTY IS IMMOVABLE. BASED ON THE ABOVE SAID CRIT ERIA AND THE CASE LAWS CITED BY THE A.R. I HOLD THAT TELECOM SHELTERS ARE MOVABLE PROPERTIES. 7.3 THE SECOND ISSUE IS WHETHER THE ACTIVITY OF THE APPELLANT CAN BE SAID TO BE MANUFACTURING OR NOT. THE A.O. HAS RELIE D UPON THE DECISION IN THE CASE OF LUCKY MINMAT PVT. LTD. VS. CIT. HOWEVER THE SAID DECISION HAS BEEN RENDERED ON A DIFFERENT SET OF FACTS AND P ROCESS. THE APPELLANT FILLS RIGHTLY POINTED OUT THAT IN CASE OF LUCKY MIN MAT EVEN AFTER MINING OR CUTTING LIMESTONE AND MARBLE THE END PRODUCT REMAI NS SAME COMMODITY AS COMMERCIALLY KNOWN AND MERE IS NO CHANGE IN ITS CHARACTER OR ITS USE AND BASED ON SUCH REASONING IT WAS NOT TREATED AS MANUFACTURE. IN THE APPELLANT'S CASE HOWEVER IT USES VARIOUS RAW MATE RIALS AS LISTED IN ITS SUBMISSIONS LIKE PANELS MADE OF STEEL OR ALUMINIUM SHEETS GI COILS PVC ROLLS GI / ALUMINUM COILS AND SKID CLAMPS AND MANY SUCH MATERIALS ARE USED TO PROVIDE A WEATHER PROOF SHELTER AND ONCE TH E TELECOM SHELTER IS PREPARED ONE CAN NOT RECOGNIZE THE PANELS SKID AN D SCREWS ETC. USED TO PREPARE THE SHELTERS .THE FINAL PRODUCT IS KNOWN AS TELECOM SHELTER WHICH IS NOT THE SAME AS MATERIALS USED. THE FINAL PRODUC T IS A DISTINCT MARKETABLE COMMODITY AND IT HAS A SEPARATE MARKET O F ITS OWN. IN THIS REGARD I WOULD LIKE TO HOLD THAT THE PROCESS CARRIE D OUT BY THE APPELLANT IS ASSEMBLING OF DIFFERENT RAW MATERIALS WHICH ARE ALS O CHANGED IN ITS SHAPE IN THE PROCESS OF ASSEMBLING. THE RESULTANT PRODUCT OF THE APPELLANT IS A SPECIALIZED PRODUCT FOR THE SPECIFIC INDUSTRY LIKE TELECOM SERVICE PROVIDERS' INDUSTRY WHICH IS IN ITSELF A HIGHLY SPECIALIZED AN D TECHNICAL INDUSTRY. SUCH INDUSTRY VISUALIZES THE FINAL PRODUCT OF THE APPELL ANT WITH CERTAIN UTILITIES SPECIFIC TO ITS REQUIREMENTS WHICH IT COULD NEVER H AVE BEEN ABLE TO FULFILL ON ITS OWN. THE CORRECT ISSUE TO BE ADDRESSED IS WHETH ER SUCH ACTIVITY OF SHAPING UP THE FINAL PRODUCT IS MANUFACTURE OR NOT. IN THIS REGARD I WOULD ITA N OS.1863 TO 1867/A/09 AND OTHERS 12 LIKE TO RELY ON THE LANDMARK DECISION OF THE APEX C OURT IN THE CASE OF NARNE TULAMAN MANUFACTURERS PVT. LTD. V. COLLECTOR OF C.E . REPORTED IN 182 ITR 577 (SC). FOLLOWING IS THE RELEVANT EXTRACT OF THE SAID CASE: MANUFACTURE: ASSEMBLY OF THREE COMPONENTSPLATFORM LOAD CELLS AND INDICATOR SYSTEM INTO A NEW PRODUCT (WEIGH BRID GE) IS MANUFACTURE. BOTH THE SEPARATE PARTS AND THE END PR ODUCT ARE EXCISABLE. THE PROCESS BY WHICH THE WEIGHBRIDGE COM ES INTO BEING IS NOT RELEVANT. IF RULES PERMIT SET OFF CAN BE CL AIMED OF DUTY ALREADY PAID ON THE PARTS. 'THE APPELLANT HOWEVER DID THE WORK OF ASSEMBLING. AS A RESULT OF THE WORK OF THE APPELLAN T A NEW PRODUCT KNOWN IN THE MARKET AND KNOWN UNDER THE EXCISE ITEM 'WEIGH BRIDGE' COMES INTO BEING. THE APPELLANT WILL BECOME A MANUFACTURER OF THAT PRODUCT AND AS SUCH LEVIABLE TO DUTY. THAT IS PRECISELY WHAT THE TRIBUNAL FOUND ON THE FACTS OF THE CASE. IF THE INDICATOR SYSTEM IS A SEPARATE PART AND DUTY HAD BEEN PAID ON IT AND IF THE RULES SO PROVIDE THEN THE APPELLANT MAY BE ENTITLED TO ABATE MENT UNDER THE RULES. BUT IF THE END PRODUCT IS A SEPARATE PRODUCT WHICH COMES INTO BEING AS A RESULT OF THE ENDEAVOUR AND ACTIVITY OF THE APPELLANT THEN THE APPELLANT MUST BE HELD TO HAVE MANUFACTURED THE SAID ITEM. WHEN PARTS AND THE END PRODUCT ARE SEPARATELY DUTIA BLE-BOTH ARE TAXABLE. THE APPELLANT'S CASE THAT IT IS LIABLE ONL Y FOR THE COMPONENT PART AND NOT THE END PRODUCT CANNOT BE ENTERTAINED. THE TRIBUNAL WAS THEREFORE RIGHT IN THE VIEW IT TOOK.' IN THE DECISION IN THE CASE OF CIT VS. TATA LOCOMOT IVE & ENGINEERING CO. LTD. F 1968] 68 .TR 325 (BOM.) ALSO THE PREVAILING SET OF FACTS ARE SIMILAR TO THOSE PREVAILING IN THE CASE OF THE APPELLANT. T HE SAID RATIO IS DIRECTLY APPLICABLE IN THE CASE OF THE APPELLANT. BASED ON THE ABOVE REFERRED RELEVANT EXTRACTS OF TH E SAID DECISION OF THE APEX COURT I HOLD THAT THE APPELLANT DOES FULFILL T HE TEST OF MANUFACTURING ALSO. ALSO THE DECISION OF SHIP SCRAP TRADERS CITED BY THE A.R. SUPPORTS THE CASE OF THE APPELLANT. THE SAID DECISION HOLDIN G SHIP BREAKING ACTIVITY AS A MANUFACTURING ACTIVITY HAS BEEN CONFIRMED BY T HE APEX COURT IN CASE OF VIJAY SHIP BREAKING CORPORATION AS REPORTED IN 1 75 TAXMAN 77 ( SC). IN THE CASE OF ASPINWALL & CO. LTD. VS. CIT 251 ITR 32 3 THE SUPREME COURT HAD HELD AS UNDER: 'HELD REVERSING THE DECISION OF THE HIGH COURT TH AT THE ASSESSEE AFTER PLUCKING OR RECEIVING THE RAW COFFEE BERRIES MADE THEM UNDERGO NINE PROCESSES TO GIVE THEM THE SHAPE OF CO FFEE BEANS. THE FINAL PRODUCT WAS ABSOLUTELY DIFFERENT AND SEPA RATE FROM THE INPUT. THE CHANGE MADE IN THE ARTICLE RESULTED IN A NEW AND DIFFERENT ARTICLE WHICH WAS RECOGNIZED IN THE TRADE AS A NEW AND DISTINCT COMMODITY. THE COFFEE BEANS HAD AN INDEPENDENT IDEN TITY FROM THE RAW MATERIAL FROM WHICH THEY WERE PRODUCED. CONVERS ION OF THE RAW BERRY INTO COFFEE BEANS WAS A MANUFACTURING ACTIVIT Y. THE ASSESSEE ITA N OS.1863 TO 1867/A/09 AND OTHERS 13 WAS THEREFORE ENTITLED TO THE INVESTMENT ALLOWANC E UNDER SECTION 32A. THE WORD 'MANUFACTURE' HAS NOT BEEN DEFINED IN THE INCOME-TAX ACT. IN THE ABSENCE OF A DEFINITION THE WORD 'MANU FACTURE' HAS TO BE GIVEN A MEANING AS IS UNDERSTOOD IN COMMON PARLANCE . IT IS TO BE UNDERSTOOD AS MEANING THE PRODUCTION OF ARTICLES FO R USE FROM RAW OR PREPARED MATERIALS 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 MANUFACTURING ACTIVITY. AS HELD IN THE CASE OF ASPINWALL AND CO. LTD. 251 I TR 323 (SC ) MANUFACTURING IMPLIES A COMPLETE TRANSFORMATION IN THE ORIGINAL ARTICLE SO AS TO PRODUCE A COMMERCIALLY DIFFERENT ASIDE OR COM MODITY AND THE NET PRODUCT SHOULD BE ABSOLUTELY DIFFERENT AND SEPARATE FROM TIC INPUT .THE CHANGE MADE IN THE ARTICLE RESULTS IN A NEW AND DIF FERENT ARTICLE WHICH IS RECOGNIZED IN THE TRADE AS A NEW AND DISTINCT COMMO DITY I.E. THE NAME USE AND CHARACTER RE END PRODUCT SHOULD BE DIFFERENT. C ONSIDERING THE ABOVE FACTS AND CASE LAWS I HOLD THAT THE PRODUCT DEVELO PED BY THE APPELLANT IS A DISTINCT MARKETABLE COMMODITY HAVING DISTINCT NAME CHARACTER AND USE DIFFERENT FROM THE RAW MATERIALS HENCE I HOLD THA T IT IS A MANUFACTURING ACTIVITY AND SO THE APPELLANT IS ENTITLED TO DEDUCT ION U/S. 80IB. HENCE I DIRECT THE A.O. TO ALLOW DEDUCTION U/S.801B OF THE IT. ACT. 4.1 FOLLOWING HIS AFORESAID FINDINGS THE LD. C IT(A) ALLOWED THE CLAIM FOR DEDUCTION U/S 80IB IN THE AYS. 2001-02 TO 2003-04 2005-06 TO 2007-08 ALSO. 5. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE FINDINGS OF THE LEARNED CIT(A) IN THE AFORESAID ASSESSMENT YEAR S. THE LEARNED DR WHILE CARRYING US THROUGH THE IMPUGNED ORDERS SU PPORTED THE CONCLUSION OF THE AO. INTER ALIA THE LD. DR RELIED UPON DECISION IN COMMISSIONER OF CENTRAL EXCISE VS. HUTCHISON MAX TE LECOM PVT. LTD. 2007-TIOL-809-HC-MUM-CX. ON THE OTHER HAND TH E LD. AR ON BEHALF OF THE ASSESSEE SUPPORTED THE FINDINGS OF TH E LD. CIT(A) AND FURTHER CONTENDED THAT TELECOM SHELTERS WERE KNOWN BY DIFFERENT TRADE NAME THAN THE COMPONENTS USED INTO MAKING OF THE PRODUCT. SINCE THESE HAVE DIFFERENT NAME CHARACTER AND USE THAN ITS COMPONENTS APPARENTLY THE ASSESSEE MANUFACTURED O R PRODUCED AN ARTICLE OR THING IN THEIR INDUSTRIAL UNDERTAKIN G. WHILE REFERRING TO ITA N OS.1863 TO 1867/A/09 AND OTHERS 14 PHOTOGRAPHS OF THE PRODUCT PLACED BEFORE US THE L D. AR POINTED OUT THAT THESE CAN BE DISMANTLED AND RE-ERECTED AT DIF FERENT SITES. MOREOVER THE ASSESSEE PAID EXCISE DUTY AND SALES T AX ON SUCH PRODUCTS. HAD THESE SHELTERS NOT BEEN MOVEABLE AND MARKETABLE THESE ACTS WOULD NOT BE APPLICABLE. THE PRODUCT WAS COVERED IN SUBSTANTIVE DEFINITION OF MANUFACTURE AND FELL IN T ARIFF ENTRY NO.9406 AND CAN BE CONTRASTED WITH THE LABELLING AND RELAB ELLING OF TOBACCO PRODUCTS CONSIDERED AS A PROCESSING LIABLE TO EXCI SE DUTY. THE LD. AR POINTED OUT THAT THE DECISION OF BOMABY HIGH COU RT IN CASE OF HUTCHISON MAX TELECOM PVT. LTD.(SUPRA) WAS NOT APPL ICABLE TO THE FACTS OF THE CASE OF THE ASSESSEEE AS THAT RELATED TO A TELECOM SERVICE PROVIDER AND THE PRODUCT WAS TELECOM TOWER WHEREAS ASSESSEE SUPPLIED TELECOM SHELTERS TO SUCH MOBILE S ERVICE PROVIDER AND THEIR PRODUCT WAS DIFFERENT FROM THE ONE CONSID ERED BY BOMBAY HIGH COURT IN HUTCHISON'S CASE. INTER ALIA THE LD . AR RELIED ON A DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F COMMISSONER OF CENTRAL EXCISE VS. SOLID AND CORRECT ENGINEERING WORKS 2010- 5 SCC 122 AND SUBMITTED THE PRODUCT MANUFACTURED BY THE ASSESSEE WAS NOT AN IMMOVABLE PROPERTY. THE LD. AR ADDED THA T ASSEMBLING VARIOUS RAW MATERIAL AMOUNTS TO MANUFACTURE OR PROD UCTION AND RELIED UPON DECISIONS IN CIT VS. TATA ENGINEERING. & LOCOMOTIVE CO. LTD. 68 ITR 325 (BOM) CHIRENJEEV WIND ENERGY LTD. VS. ACIT (CHENNAI BENCH) (2010) 4 ITR (TRIB) 9 SHILP SCRAP T RADERS VS. CIT 251 ITR 806 (BOM) APPROVED BY SC IN CASE OF VIJAY S HIPBREAKING LTD. IN 314 ITR 309 CIT VS. MAHESHCHANDRA SHARMA 30 8 ITR 222 (P&H) AND CIT VS. ANAND AFFILIATED 221 CTR 167 (P&H ) AS ALSO IN ITO VS. ARIHANT TILES AND MARBLE PRIVATE LTD. 320 I TR 79(SC) 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON. THE ISS UE BEFORE US IS AS TO WHETHER OR NOT THE TELECOM SHELTER ERECTED BY TH E ASSESSEE AT THE SITE OF MOBILE TELEPHONE SERVICE PROVIDERS IS AN ARTICLE OR THING OR IS JUST AN IMMOVABLE PROPERTY AS CONCLUDED BY THE AO AND WHETHER THE P ROCESS INVOLVED IN BRINGING ITA N OS.1863 TO 1867/A/09 AND OTHERS 15 THE TELECOM SHELTERS INTO EXISTENCE IS MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING WITHIN THE MEANING OF PROVISIONS OF SEC. 80IB OF THE ACT. INDISPUTABLY RAW MATERIAL NECESSARY FOR CREATING A TELECOM SHEL TER COMPRISED ITEMS DETAILED IN PARA 3 ABOVE. ACCORDING TO THE AS SESSEE THE SAID TELECOM SHELTERS ARE MANUFACTURED BY THE ASSESSEE IN THEIR INDUSTRIAL UNDERTAKING AND THEN BROUGHT TO THE SITE OF A CUSTOMER IN COMPLETELY KNOCKED DOWN CONDITION FOR ERECTION. THE PROCESS OF MANUFACTURING A TELECOM SHELTER AS NARRATED BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES IS AS UNDER: (A) THE ISMBS I.E. GALVANIZED STEEL GIRDERS ARE PL ACED ON THE PILLARS. (B) THE FLOOR PANELS ARE JOINED TOGETHER AFTER PUTT ING POLYURETHANE OR SILICON SEALANT BETWEEN THE JOINTS AND THE CAM LOCKS ARE OPERATED. THEREAFTER ON THE BOTTO M OF THE FLOOR PANELS INSERT NUTS ARE INSERTED WITH SPEC IAL TOOLS AND THE FLOOR PANEL IS THEN ATTACHED TO THE SKIDS B Y BOLTING SKID CLAMPS TO THE FLOOR PANELS. (C) ANGLES ARE RIVETED ON ALL FOUR SIDES OF THE FLO OR PANELS. ANY DIMENSIONAL VARIATION IN THE ANGLES IS FILED TO FIT THE ANGLES ACCURATELY AROUND THE PERIPHERY OF THE FLOOR PANEL. (D) THE SIDE WALL PANELS ARE JOINED TOGETHER TO MAK E FULL WALLS AND THE LONGER SIDE WALLS AND THE REAR WALL A RE PLACED ON TOP OF THE FLOOR PANELS AND THEY ARE RIVE TED WITH THE ANGLES ALREADY FITTED ON THE FLOOR PANELS. (E) THE FRONT WALL IS PUT TOGETHER BY CONNECTING TH E TWO SIDE PANELS AND THE SMALL PANEL ABOVE THE DOOR OPENINGS AND THE THRESHOLD STRIPS. BEFORE INSERTING THE THRESHOL D STRIPS THE DOOR FRAME IS INSERTED AND RIVETED TO THE SIDE PANELS. (F) THE SIDE WALLS ARE RIVETED TO THE FLOOR ANGLE. ONCE ALL FOUR WALLS ARE STANDING THE VERTICAL CORNER ANGLES ARE RIVETED TO THE SIDE WALLS THE ROOF PANELS ARE JOIN ED TOGETHER BY APPLYING THE SEALANT AND OPERATING THE CAM LOCK. IT IS THEN PLACED ON TOP OF THE SIDE WALLS. (G) ONCE THE SIDE WALLS HAVE BEEN MATCHED ACCURATEL Y WITH THE WALLS THEN THE ROOF ANGLES ARE JOINED TO THE RO OF PANEL AND THE WALL PANELS. A TOTAL OF APPROXIMATELY 3000 RIVETS ITA N OS.1863 TO 1867/A/09 AND OTHERS 16 ARE USED IN THE INSTALLATION OF A SHELTER WITH THE HELP OF A RIVETING GUN WHICH IS OPERATED BY AN AIR COMPRESSO R. (H) ONCE THE BOX OF THE SHELTER IS READY THE DOOR P ANEL IS PLACED IN THE DOORFRAME AND INSERT NUTS ARE ACCURAT ELY PLACED BOTH ON THE DOOR PANEL AND THE RIGHT SIDE WA LL PANEL TO FIX THE HINGES. THIS IS A VERY PRECISE OPE RATION AND REQUIRES EXTREME SKILLS FOR DOING IT. THEN HOLE S ARE MADE IN THE DOORFRAME AND THE DOOR PROFILE TO FIX T HE SECURITY NUTS TO ENSURE THAT THE SHELTER DOOR CANNO T BE REMOVED EVEN IF THE HINGES ARE UNSCREWED. A LOCK WE DGE IS THEN FITTED INSIDE THE DOOR AND THE DOOR LOCKS A RE TESTED FOR OPERATING SMOOTHLY. (I) THE SUNROOF SHEETS ARE JOINED TOGETHER AND MADE INTO ONE BIG COVER FOR THE ENTIRE SHELTER TO PROVIDE AN EXTRA WATERPROOF ROOF OVER THE SHELTER. TO PROVIDE PROPER SLOPE ON THE TOP SUNROOF SHEET EXTENDED POLYETHYLENE (EP E) SHEETS ARE PLACED IN PROPER ORDER TO ENSURE THAT TH E WATER DOES NOT COLLECT ON ROOF OF THE SHELTER. (J) THE C RAILS TO MOUNT THE EQUIPMENT REQUIRED IN THE SHELTER ARE CUT TO THE REQUIRED LENGTH AND RIVETED ON THE WALLS AND CEILING OF THE SHELTERS AS MAY BE REQUIRE D. THEREFORE CABLE TRAYS TO CARRY THE VARIOUS CABLES T O THE ELECTRIC EQUIPMENT ARE FITTED JUST BELOW THE ROOF (K) A RAIN SHADE IS FITTED ABOVE THE DOOR OUTSIDE T HE SHELTER AND A STEEL LADDER TO GET INTO THE SHELTER. (L) PLASTIC GUARD FILM OF THE PANELS IS REMOVED AND SEALANT IS APPLIED ON ALL THE JOINTS AND THE EDGES OF THE ANGL E TO ENSURE THAT NO LEAKAGE TAKES PLACE. IN NUTSHELL THE SHELTERS ARE ROOMS MADE UP OF A M ATERIAL OTHER THAN THAN CEMENT & BRICK ETC. 6.1 INDISPUTABLY THE PRODUCT MANUFACTURED BY TH E ASSESSEE IS LIABLE TO EXCISE DUTY AND SALES TAX AND ACCORDINGLY THE LD. CIT(A) AFTER ANALYSING THE PROCESS OF MANUFACTURE AND ITS ERECTION CONCLUDED THAT THE PRO DUCT BROUGHT IN TO EXISTENCE BY THE ASSESSEE THROUGH THE AFORESAID PROCESS WAS A MOVABLE PROPERTY AND NOT AN IMMOVABLE PROPERTY LIKE A BUILDING OR DAM SINCE THE SAME CAN BE DISMANTLED AND INSTALLED AT A NEW PLACE . WE MAY INITIALLY CONSIDER AS TO WHETHER TELECOM SHELTER COULD BE CATEGORIZED AS AN IMMOVABLE PROPE RTY . NOW WHETHER SIMPLY ITA N OS.1863 TO 1867/A/09 AND OTHERS 17 BECAUSE SHELTERS ARE ATTACHED TO EARTH OR ROOFTOP BY SCREWS IN ORDER TO AVOID SKIDDING MEAN THAT THESE SHELTERS ATTACHED TO EA RTH BECOME AN IMMOVABLE PROPERTY. THE EXPRESSION MOVABLE PROPERTY OR IMMOVABLE PRO PERTY IS NOWHERE DEFINED IN THE ACT. THE EXPRESSION 'MOVEABLE PROPERTY' HAS BEEN DEFINED IN SECTION 3(36) OF THE GENERAL CLAUSES ACT 1897 AS U NDER : 'SECTION 3(36) : 'MOVABLE PROPERTY' SHALL MEAN PROP ERTY OF EVERY DESCRIPTION EXCEPT IMMOVABLE PROPERTY.' THUS THE REPLY TO THE QUESTION WHETHER THE TELEC OM SHELTERS ARE MOVABLE PROPERTY WOULD DEPEND UPON WHETHER THE SAME ARE IM MOVABLE PROPERTY. SECTION 3 OF THE TRANSFER OF PROPERTY ACT 1882 PROVIDES TH AT UNLESS THERE IS SOMETHING REPUGNANT IN THE SUBJECT OR CONTEXT 'IMMOVABLE PROP ERTY' UNDER THE TRANSFER OF PROPERTY ACT 1882 DOES NOT INCLUDE STANDING TIMBER GROWING CROPS OR GRASS. SECTION 3(26) OF THE GENERAL CLAUSES ACT 1897 SIM ILARLY DOES NOT PROVIDE AN EXHAUSTIVE DEFINITION OF THE SAID EXPRESSION. IT RE ADS : 'SECTION 3(26) : 'IMMOVABLE PROPERTY' SHALL INCLUDE LAND BENEFITS TO ARISE OUT OF LAND AND THINGS ATTACHED TO THE EARTH OR PERMA NENTLY FASTENED TO ANYTHING ATTACHED TO THE EARTH.' THE AO IN THE ASSESSMENT ORDER WHILE RELYING UPON THE DECISION IN NC BUDHRAJA & ANOTHER(SUPRA) AND SHIVALIK POULTRIES (SUPRA) CON CLUDED THAT THE ASSESSEE DID NOT MANUFACTURE OR PRODUCE AN ARTICLE OR THING. IN BOTH THESE DECISIONS ISSUE WAS ALTOGETHER DIFFERENT. IN THE FORMER THE HONBLE AP EX COURT WAS EXAMINING THE ISSUE AS TO WHETHER CONSTRUCTION OF DAM WAS MANUFAC TURE OR PRODUCTION OF AN ARTICLE AND IN THE LATTER THE ISSUE WAS AS TO WHET HER POULTRY SHED COULD BE TREATED AS PLANT WITHIN THE MEANING OF SEC. 43 OF T HE ACT. THE ISSUE AND CONTEXT IN THESE DECISIONS WERE APPARENTLY ALTOGETHER DIFF ERENT . THE CONSTRUCTION OF DAM OR SHEDS COULD NOT BE EQUATED WITH MANUFACTURE OR PRODUCTION OF TELECOM SHELTERS. IN THE INSTANT CASE ADMITTEDLY THE TELE COM SHELTERS ERECTED BY THE ASSESSEE ARE LIABLE TO SALES TAX AND EXCISE DUTY .S IMPLY BECAUSE THESE SHELTERS ARE ATTACHED TO EARTH OR PERMANENTLY FASTENED TO A NY THING ATTACHD TO EARTH WITH SCREWS I.E FIXED TO A FOUNDATION IMBEDDED IN EARTH DOES NOT IMPLY THAT THESE BECOME IMMOVABLE PROPERTY NOR THESE SHELTERS ARE L IABLE TO REGISTRATION OR ITA N OS.1863 TO 1867/A/09 AND OTHERS 18 PAYMENT OF STAMP DUTY UNDER THE RELEVANT ENACTMENTS . THE TERM 'ATTACHED TO THE EARTH' HAS NOWHERE BEEN DEFINED IN THE GENERAL CLAU SES ACT 1897. SECTION 3 OF THE TRANSFER OF PROPERTY ACT HOWEVER GIVES THE FO LLOWING MEANING TO THE EXPRESSION 'ATTACHED TO THE EARTH' : '(A) ROOTED IN THE EARTH AS IN THE CASE OF TREES A ND SHRUBS; (B) IMBEDDED IN THE EARTH AS IN THE CASE OF WALLS AND BUILDINGS; (C) ATTACHED TO WHAT IS SO IMBEDDED FOR THE PERMANE NT BENEFICIAL ENJOYMENT OF THAT TO WHICH IT IS ATTACHED.' IT IS APPARENT FROM THE AFORESAID MEANING OF THE EXPRESSION 'ATTACHED TO THE EARTH' THAT THE TELECOM SHELTERS FIXED TO A FOUND ATION WITH THE HELP OF NUTS AND BOLTS TO PROVIDE STABILITY TO THE SHELTER DOES NO T QUALIFY FOR BEING DESCRIBED AS ATTACHED TO THE EARTH UNDER ANY ONE OF THE THREE CL AUSES EXTRACTED ABOVE. THE ATTACHMENT OF THE SHELTERS TO THE FOUNDATION IS NOT COMPARABLE OR SYNONYMOUS WITH THE TREES AND SHRUBS ROOTED IN EARTH NOR WITH THE IMBEDDING IN EARTH OF THE PLANT AS IN THE CASE OF WALLS AND BUILDINGS FOR TH E OBVIOUS REASON THAT A BUILDING IMBEDDED IN THE EARTH IS PERMANENT AND CANNOT BE DE TACHED WITHOUT DEMOLITION. IMBEDDING OF A WALL IN THE EARTH IS ALSO IN NO WAY COMPARABLE TO ATTACHMENT OF THESE SHELTERS TO A FOUNDATION MEANT ONLY TO PROVID E STABILITY TO THE PLANT ESPECIALLY BECAUSE THE ATTACHMENT IS NOT PERMANENT AND WHAT IS ATTACHED CAN BE EASILY DETACHED FROM THE FOUNDATION. SO ALSO THE AT TACHMENT OF THE SHELTERS TO THE FOUNDATION AT WHICH IT RESTS DOES NOT FALL IN THE T HIRD CATEGORY FOR AN ATTACHMENT TO FALL IN THAT CATEGORY IT MUST BE FOR PERMANENT BENE FICIAL ENJOYMENT OF THAT TO WHICH THE PLANT IS ATTACHED. IT IS NOT THE CASE OF THE RE VENUE THAT ATTACHMENT OF SHELTERS TO THE FOUNDATION WAS MEANT FOR PERMANENT BENEFICIA L ENJOYMENT OF EITHER THE FOUNDATION OR THE LAND IN WHICH THE SAME WAS IMBEDD ED . 6.2 HONBLE APEX COURT WHILE ADJUDICATING THE ISSUE AS TO WHETHER THE SETTING UP OF AN ASPHALT DRUM MIX PLANT BY USING DU TY PAID COMPONENTS TANTAMOUNTS TO MANUFACTURE OF EXCISABLE GOODS WITHI N THE MEANING OF SECTION 2(D) OF THE CENTRAL EXCISE ACT 1944 OBSERVED IN THEIR DECISION IN COMMISSIONER OF CENTRAL EXCISE AHMEDABAD VS. SOLID & CORRECT E NGINEERING WORKS & ITA N OS.1863 TO 1867/A/09 AND OTHERS 19 ORS 2010-(005)-SCC -0122SC THAT THE ISSUE HAS TO BE EXAMINED AS TO WHETHER THE ANNEXATION OF THE PLANT IS WITH THE OBJECT OF P ERMANENT BENEFICIAL ENJOYMENT OF THE LAND OR BUILDING. ACCORDINGLY THE HONBLE APEX COURT ADJUDICATED THE ISSUE IN THE FOLLOWING TERMS: APPLYING THE ABOVE TESTS TO THE CASE AT HAND WE HAVE NO DIFFICULTY IN HOLDING THAT THE MANUFACTURE OF THE PLANTS IN QUESTION DO N OT CONSTITUTE ANNEXATION HENCE CANNOT BE TERMED AS IMMOVABLE PROPERTY FOR THE FOLL OWING REASONS : (I) THE PLANTS IN QUESTION ARE NOT PER SE IMMOVABLE PROPERTY. (II) SUCH PLANTS CANNOT BE SAID TO BE 'ATTACHED TO THE EARTH' WITHIN THE MEANING OF THAT EXPRESSION AS DEFINED IN SECTION 3 OF THE TRAN SFER OF PROPERTY ACT. (III) THE FIXING OF THE PLANTS TO A FOUNDATION IS M EANT ONLY TO GIVE STABILITY TO THE PLANT AND KEEP ITS OPERATION VIBRATION FREE. (IV) THE SETTING UP OF THE PLANT ITSELF IS NOT INTE NDED TO BE PERMANENT AT A GIVEN PLACE. THE PLANT CAN BE MOVED AND IS INDEED MOVED A FTER THE ROAD CONSTRUCTION OR REPAIR PROJECT FOR WHICH IT IS SET UP IS COMPLET ED. 6.21 THEREAFTER WHILE REFERRING TO THE DECI SIONS IN SIRPUR PAPER MILLS LTD. V. COLLECTOR OF CENTRAL EXCISE HYDERABAD (1998 (1) SC C 400) M/S. NARNE TULAMAN MANUFACTURERS PVT. LTD. HYDERABAD V. COLLECTOR OF C ENTRAL EXCISE HYDERABAD 1989 (1) SCC 172 (SC) TRIVENI ENGINEERING & INDUST RIES LTD. & ANR. V. COMMISSIONER OF CENTRAL EXCISE 2000 (120) ELT 273 ( SC) THE HONBLE APEX COURT CONCLUDED AS UNDER:. . IN THE INSTANT CASE ALL THAT HAS BEEN SAID BY T HE ASSESSEE IS THAT THE MACHINE IS FIXED BY NUTS AND BOLTS TO A FOUNDATION NOT BECA USE THE INTENTION WAS TO PERMANENTLY ATTACH IT TO THE EARTH BUT BECAUSE A FO UNDATION WAS NECESSARY TO PROVIDE A WOBBLE FREE OPERATION TO THE MACHINE. AN ATTACHMENT OF THIS KIND WITHOUT THE NECESSARY INTENT OF MAKING THE SAME PER MANENT CANNOT IN OUR OPINION CONSTITUTE PERMANENT FIXING EMBEDDING OR ATTACHMENT IN THE SENSE THAT WOULD MAKE THE MACHINE A PART AND PARCEL OF THE EAR TH PERMANENTLY. IN THAT VIEW OF THE MATTER WE SEE NO DIFFICULTY IN HOLDING THAT THE PLANTS IN QUESTION WERE NOT IMMOVABLE PROPERTY SO AS TO BE IMMUNE FROM THE LEVY OF EXCISE DUTY. 6.3 IN THE INSTANT CASE INDISPUTABLY THE PRODUCT MANUFACTURED BY THE ASSESSEE IS LIABLE TO EXCISE DUTY AND FALLS WITHIN THE CLASSIFICATION EXCISE TARIFF ENTRY NO. 9406 OF CHAPTER 94 OF THE RELEVANT EXCIS E LAW AND IS ALSO LIABLE TO SALES TAX .AFTER ANALYSING THE MANUFACTURING PROCE SS AS EVIDENT FROM THE ITA N OS.1863 TO 1867/A/09 AND OTHERS 20 IMPUGNED ORDERS AND EXPLAINED BEFORE US WE ARE OF THE OPINION THE PRODUCT I E TELECOM SHELTER BROUGHT IN TO EXISTENCE BY THE ASSE SSEE THROUGH THE AFORESAID PROCESS WAS A MOVABLE PROPERTY AND NOT AN IMMOVABLE PROPERTY LIKE A BUILDING OR DAM . THE ASSEMBLING OF THE COMPONENTS OF THE TELECOM SH ELTERS BROUGHT INTO EXISTENCE A COMPLETELY NEW PRODUCT; HAD A DISTINCT IVE NAME CHARACTER AND USE.[M/S. NARNE TULAMAN MANUFACTURERS PVT. LTD. HYD ERABAD (SUPRA)]. THE USE OF VARIOUS RAW MATERIAL AS LISTED ABOVE LIKE PANEL S MADE UP OF STEEL OR ALUMINIUM SHEETS GI COILS PVC ROLLS GI / ALUMINU M COILS AND SKID CLAMPS AND MANY SUCH MATERIALS AS ARE USED TO PROVIDE A WEATH ER PROOF SHELTER RESULTED IN PRODUCTION OF TELECOM SHELTER A NEW PRODUCT WHICH CAN NOT BE CATEGORISED SAME AS THE MATERIAL USED. THE RESULTANT PRODUCT IS A SPECIALIZED PRODUCT FOR THE SPECIFIC INDUSTRY LIKE TELECOM SERVICE PROVIDERS' I NDUSTRY .SINCE THE END PRODUCT IS A SEPARATE PRODUCT WHICH CAME INTO BEING AS A RESUL T OF THE ENDEAVOUR AND ACTIVITY OF THE ASSESSEE APPARENTLY THE PRODUCT WA S MANUFACTURED BY THE ASSESSEE. SINCE THE PRODUCT IS MOVABLE AS CONCLUDED BY US ALREADY AND THE ACTIVITIES FULLFILL THE CONDITIONS STIPULATED U/S 8 0IB OF THE ACT NOTHING PREVENTS THE ASSESEE FROM CLAIMING DEDUCTION U/S 80IB OF THE ACT . THIS VIEW OF OURS IS SUPPORTED BY DECISION IN CIT VS. TATA LOCOMOTIVE & ENGINEERING CO. LTD. F 1968] 68 .TR 325 (BOM.) WHEREIN THE ASSEMBLING OF THE PAR TS RECEIVED BY THE ASSESSEE IN C. K. D. CONDITION AND TRANSFORMING THOSE BASIC MATERIALS INTO THE FINISHED PRODUCT NAMELY A FULLY AUTOMOTIVE TRUCK/BUS CHASI S WAS HELD TO BE 'MANUFACTURE'. THE HONBLE SUPREME COURT IN THE MATTER OF CIT V. N . C. BUDHARAJA & CO. [1993] 204 ITR 412 (SC) HELD THE TEST FOR DETERMINING WHETHER MANUFACTURE CAN BE SAID TO HAVE TAKEN PLACE IS WHET HER THE COMMODITY WHICH IS SUBJECTED TO THE PROCESS OF MANUFACTURE CAN NO LONG ER BE REGARDED AS THE ORIGINAL COMMODITY BUT IS RECOGNISED IN THE TRADE A S A .NEW AND DISTINCT COMMODITY. THE HONBLE SUPREME COURT IN THE CASE O F CIT V SESA GOA LTD. REPORTED IN 271 ITR 331 WHILE CONSIDERING THE QUEST ION UNDER SECTION 32A(2)(B)(III) FOR GRANT OF INVESTMENT ALLOWANCE DE ALT WITH THE QUESTION OF PRODUCTION IN A CASE WHERE THE ASSESSEES UNDERTA KING WAS ENGAGED IN THE BUSINESS OF EXCAVATING MINING AND PROCESSING MINER AL ORE. MINERAL ORE WAS NOT EXCLUDED BY THE ELEVENTH SCHEDULE. THE ONLY QUESTIO N WAS WHETHER SUCH ITA N OS.1863 TO 1867/A/09 AND OTHERS 21 BUSINESS WAS ONE OF MANUFACTURE OR PRODUCTION OF OR E. THE HONBLE SUPREME COURT HELD AS UNDER :- : THE REASONING GIVEN BY THE HIGH COURT IN THE DECI SIONS NOTED BY US EARLIER IS IN OUR OPINION UNIMPEACHABLE: THIS COURT HAD AS EARL Y AS IN 1961 IN CHRESTIAN MICA INDUSTRIES LTD. V. STATE OF BIHAR {1961] 12 ST C 150 DEFINED THE WORD PRODUCTION ALBEIT) IN CONNECTION WITH THE BIHAR SALES .TAX ACT 1947. THE DEFINITION WAS ADOPTED FROM THE MEANING ASCRIBED TO THE WORD IN THE J OXFORD ENGLISH DICTIONARY AS MEANING AMONGST OTHER THINGS THAT WHICH IS PRODUCED: A THING THAT RESULTS FROM ANY ACTION PROCESS OF EFFO RT; A PRODUCT: A PRODUCT OF HUMAN ACTIVITY OR EFFORT. FROM THE WIDE DEFINITION OF TH E WORD PRODUCTION IT HAS TO FOLLOW THAT MINING ACTIVITY FOR THE PURPOSE OF PRODUCTION OF MINERAL ORES SHOULD COME WITHIN THE AMBIT OF THE WORD PRODUCTION SINCE ORE IS A THING THAT WHICH IS THE RESULT OF HUMAN ACTIVITY OF EFFORT .. 6.4 IN UNION OF INDIA AND OTHERS V. J.G. GLASS INDUSTRIES-LTD. AND OTHERS (1998) 2 SCC 32 THE HONBLE SUPREME COURT LAID DOW N A TWO-FOLD TEST FOR DETERMINING WHETHER A PARTICULAR PROCESS AMOUNTS TO MANUFACTURE OR NOT ? FIRST WHETHER BY THE SAID PROCESS A DIFFERENT COMMERCIAL COMMODITY COMES INTO EXISTENCE OR WHETHER THE IDENTITY OF THE ORIGINAL C OMMODITY CEASES TO EXIST. SECONDLY WHETHER THE COMMODITY WHICH WAS ALREADY I N EXISTENCE WOULD NOT SERVE THE DESIRED PURPOSE BUT FOR THE SAID PROCESS. 6.5 THE WORD MANUFACTURE IS NOW DEFINED IN THE SEC. 2(29BA) OF THE ACT W.E.F. 1.4.2009 AS UNDER: ( 29BA) MANUFACTURE WITH ITS GRAMMATICAL VARIATION S MEANS A CHANGE IN A NON-LIVING PHYSICAL OBJECT OR ARTICLE O R THING (A) RESULTING IN TRANSFORMATION OF THE OBJECT OR AR TICLE OR THING INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFERENT NAME CHARACTER AND USE; OR (B) BRINGING INTO EXISTENCE OF A NEW AND DISTINCT O BJECT OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSIT ION OR INTE- GRAL STRUCTURE; 6.6 IN THE LIGHT OF AFORESAID DEFINITION AND AS IS GENERALLY UNDERSTOOD `MANUFACTURE IMPLIES A CHANGE AND SUCH CHANGE MUS T ENTAIL A TRANSFORMATION; A NEW AND DIFFERENT ARTICLE MUST EMERGE HAVING A DIST INCTIVE NAME CHARACTER OR USE. THUS `MANUFACTURE ORDINARILY SIGNIFIES EME RGENCE OF NEW AND DIFFERENT ITA N OS.1863 TO 1867/A/09 AND OTHERS 22 GOODS AS UNDERSTOOD IN RELEVANT COMMERCIAL CIRCLES. THE CORPUS JURIS SECUNDUM DEFINES IT AS THE PRODUCTION OF ARTICLE FOR USE FRO M RAW OR PREPARED MATERIAL BY GIVING THESE MATERIALS NEW FORMS QUALITIES PROPER TIES OR COMBINATIONS WHETHER BY HAND LABOUR OR MACHINERY; ALSO ANYTHING MADE FOR USE FROM RAW OR PREPARED MATERIALS. ACCORDING TO WEBSTERS DICTIONARY MANU FACTURE MEANS TO WORK RAW OR PARTLY WROUGHT MATERIALS INTO SUITABLE FORMS FO R USE AS TO MANUFACTURE WOOL IRON ETC. TO MAKE (WARES OR OTHER PRODUCTS) BY HAN D BY MACHINERY OR OTHER AGENCY. THUS LITERALLY SPEAKING THE PROCESS OF MAN UFACTURE INVOLVES SOME TRANSFORMATION OR CHANGE IN THE MATERIAL AS A RESUL T OF APPLICATION OF ART OR A MECHANICAL MANIPULATION. THE MATERIAL WHICH IS THU S FASHIONED INTO A NEW PRODUCT MAY BE DISTINCT IN FORM OR IN USE. IN THE LIGHT OF THESE FEATURES OF THE WORD MANUFACTURE WE REITERATE THAT THE ASSEMBL ING OF VARIOUS MATERIAL USED BY THE ASSESSEE INTO AN ALTOGETHER DIFFERENT FINIS HED PRODUCT I.E TELECOM SHELTERS RECOGNIZED IN THE TRADE AS A NEW AND DIS TINCT COMMODITY AMOUNTS TO THE MANUFACTURE OR PRODUCTION ELIGIBLE FOR DEDUCTI ON U/S 80IB OF THE ACT. 6.7 THE DECISION OF HONBLE BOMBAY HIGH COURT IN CASE OF HUTCHISON MAX TELECOM PVT. LTD.(SUPRA) IS NOT APPLI CABLE TO THE FACTS OF THE CASE OF THE ASSESSEEE AS THE SAID DECI SION RELATED TO A TELECOM SERVICE PROVIDER AND THE PRODUCT WAS TELEC OM TOWER CONSTRUCTED BY THAT ASSESSEE WHEREAS IN THE INSTANT CASE THE ASSESSEE SUPPLIED TELECOM SHELTERS TO SUCH MOBILE S ERVICE PROVIDER AND THEIR PRODUCT WAS ALTOGETHER DIFFERENT FROM THE ONE CONSIDERED BY THE HONBLE BOMBAY HIGH COURT IN THE HUTCHISON 'S CASE. THUS RELIANCE BY THE LD. DR ON THE SAID DECISION IS TOTA LLY OUT OF CONTEXT. 7. IN VIEW OF THE FOREGOING ESPECIALLY WHEN THE REVENUE HAVE NOT PLACED BEFORE US ANY MATERIAL CONTROVERTING THE AFORESAID FINDINGS OF THE LD. CIT(A) SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER WE ARE NOT INCLINED TO INTERFERE. THEREFORE GROUND NO.1 IN THE APPEALS FILED BY THE REVENUE FOR THE AYS 2001-02 TO 2003-04 AND 2005-06 TO 2007-08 AND G ROUND NO.2 IN THEIR APPEAL FOR THE AY 2004-05 ARE DISMISSED . ITA N OS.1863 TO 1867/A/09 AND OTHERS 23 8. NOW COMING TO GROUND NO.1 IN THE APPEAL OF THE R EVENUE FOR THE AY 2004-05 RELATING TO DISALLOWANCE OF RS.4 13 416/- ON ACCOUNT OF FOREIGN TRAVEL EXPENSES THE AO NOTICED THAT TH E ASSESSEE DEBITED AN AMOUNT OF RS.17 78 400/- UNDER THE HEAD TRAVELLING AND CONVEYANCE WHICH INCLUDED AN AMOUNT OF RS.4 13 4 16/- ON FOREIGN TRAVELLING. TO A QUERY BY THE AO THE ASSESSEE DID NOT FURNISH THE PURPOSE OF VISIT OF DIRECTOR/EMPLOYEE(S) ABROAD AND EVIDENCE OF WORK DONE DURING FOREIGN TRAVEL. IN THE ABSENCE OF SUCH EVIDENCE AND PURPOSE OF TRAVEL THE AO DISALLOWED THE CLAIM ON THE GROUND THAT THE ASSESSEE FAILED TO DISCHARGE THE ONUS OF ESTAB LISHING THE NATURE AND GENUINENESS OF THE EXPENDITURE DESPITE SUFFICIENT OPPORTUNITY ALLOWED. 9. ON APPEAL THE ASSESSEE CONTENDED THAT OUT OF T HE EXPENSES OF RS.10 38 343/- AN AMOUNT OF RS.6 24 851/- WAS INCU RRED IN CONNECTION WITH VISIT TO GERMANY WHERE THE HOLDING COMPANY WAS LOCATED A ND THE REMAINING AMOUNT OF RS.4 13 542/- WAS INCURRED TOWARDS DIRECTOR'S BU SINESS VISITS AND PROJECT IMPLEMENTATIONS TO BHUTAN BAHRAIN DUBAI AND KUWAI T. LT. GEN (RETD.) S K BAHRI A DIRECTOR OF THE COMPANY VISITED GERMANY T O ATTEND THE BOARD MEETINGS OF THE COMPANY HELD IN GERMANY IN AUGUST & DECEMBER 2003 WHILE VISITS TO GULF WERE FOR SOLICITING ORDERS FOR THE TELECOM SHELTERS AS EVIDENCED BY THE ORDERS FROM ALWALEED SYSCOM W.I.I. ALAN DICK & CO. AND EX PORT WORTH RS.19.52 LACS . WHILE POINTING OUT THAT VISIT TO BAHRAIN & BHUTAN W AS FOR INSTALLATION OF TELECOM SHELTERS SUPPLIED BY THE COMPANY IT WAS CONTENDED THAT THE DOCUMENTARY EVIDENCE FILED BY THE ASSESSEE HAD NOT BEEN QUESTIO NED BY THE ASSESSING OFFICER NOR THE PURPOSE OF VISIT AND THAT THE EXPENDITURE W AS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IN THE LIG HT OF THESE SUBMISSIONS THE LD. CIT(A) CONCLUDED AS UNDER: 6.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE A.R. CAREFULLY. THE APPELLANT HAS FURNISHED DETAILS OF EXPENSES ALONG WITH PURPOSE OF SUCH EXPENSES. AS THE EXPENSES HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS AND THE FOREIGN VISIT WAS UNDER TAKEN FOR ATTENDING BOARD MEETINGS IN GERMANY BY THE DIRECTORS AND FOR PROCURING ORDERS FROM FOREIGN COUNTRIES I DO NOT FIND ANY JUSTIFICATION FOR DISALLOWANCE OF THESE EXPENSES. THE A.O. IN HIS REMAND REPORT HAS STATED THAT THE DISALLOWANCE ITA N OS.1863 TO 1867/A/09 AND OTHERS 24 OF FOREIGN TRAVELING EXPENSES BE ENHANCED FROM RS.4 .31 LAKHS TO RS.10.38 LAKHS WHICH IS THE TOTAL FOREIGN TRAVELING EXPENSES . BUT AS I FIND THAT THE TRAVELING EXPENSES HAVE BEEN INCURRED WHOLLY AND EX CLUSIVELY FOR BUSINESS PURPOSE I DO NOT FIND ANY JUSTIFICATION FOR ENHANC EMENT IN THIS REGARD. THUS THE DISALLOWANCE IS DELETED CONSIDERING THE NATURE OF EXPENSES AND RELYING ON THE CASES CITED BY THE A.R. 10. THE REVENUE IS IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUPP ORTED THE ORDER OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE ASS ESSEE SUPPORTED THE FINDINGS OF THE LEARNED CIT(A). 11. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. INDISPUTABLY THE ASSESSEE DID NOT FURNIS H THE RELEVANT DETAILS SOUGHT BY THE AO IN RESPECT OF PURPOSE OF V ISIT OF DIRECTOR/EMPLOYEES AND EVIDENCE OF ACTUAL WORK DONE BY THEM ABROAD DESPITE SUFFICIENT OPPORTUNITY ALLOWED AS EVIDENT FROM THE FINDINGS IN THE ASSESSMENT ORDER. ON APPEAL THE AS SESSEE IS STATED TO HAVE PLEADED BEFORE THE LD. CIT(A) THAT DETAIL S WERE SUBMITTED VIDE LETTER DATED 28.12.2006 BEFORE THE AO IN RESPO NSE TO A LETTER DATED 28.7.2006 OF THE AO. HOWEVER WE FIND THAT TH E ASSESSMENT WAS COMPLETED IN THIS CASE ON ON 26.12.2006. THER E IS NO MATERIAL BEFORE US TO ESTABLISH THAT THESE DETAILS WERE AVAI LABLE BEFORE THE AO BEFORE COMPLETION OF THE ASSESSMENT. IN ANY CASE THE LD. CIT(A) DELETED THE DISALLOWANCE AFTER HAVING A REPORT FRO M THE AO. A COPY OF THE SAID REPORT IS ALSO NOT AVAILABLE BEFORE US. ON PERUSAL OF PAGE 34 TO 64 OF THE PAPER BOOK WHERE IN COPIES OF LEDG ER ACCOUNTS AND COPIES OF SOME OF THE BILLS ARE PLACED IT TRANSPI RES THAT INTER ALIA MRS. BAHRI ALSO ACCOMPANIED THE DIRECTOR MR. S.K. BAHRI TO KUWAIT & DUBAI. SINCE BREAK UP OF THE EXPENDITURE OR EVEN IN RESPECT OF THE AMOUNT OF RS. 10 38 343/- OR OF RS.4 13 542/- IS NO T EVIDENT FROM THE IMPUGNED ORDERS NOR THE DETAILS OF EXPENDITURE INCU RRED ON VISIT OF EACH OF THE PERSON ABROAD IS AVAILABLE BEFORE US IT IS NOT KNOWN AS TO HOW MUCH EXPENDITURE HAS BEEN INCURRED ON TH E VISIT OF EITHER EACH OF THE DIRECTOR/EMPLOYEES OR MRS. BAHRI. MOREO VER THERE IS ITA N OS.1863 TO 1867/A/09 AND OTHERS 25 NOTHING TO SUGGEST AS TO WHETHER HER VISIT TO KUWAI T/DUBAI WAS FOR THE PURPOSE OF BUSINESS OF THE COMPANY . IN ANY CASE THE EVIDENCE OF PURPOSE OF VISIT OF EACH OF THE PERSON ABROAD IS NOT AVAILABLE BEFO RE US NOR ANY SUCH EVIDENCE IS SUBJECT MATTER OF DISCUSSION IN THE IMPUGNED ORDER. AS IS APPARENT FROM THE ORDERS OF LOWER AUTHORITIES THE ASSESSEE DID NOT FURNISH EVE N DETAILS OF PLACES VISITED ABROAD BEFORE THE AO NOR ANY EVIDENCE OF PURPOSE OF VISIT AT EACH OF TH E PLACES SO VISITED ABROAD NOR EVEN FURNISHED BREAK UP OF EXPENDITURE INCURRED AT EACH OF THESE PLACES. THE ONUS IS ON THE ASSESSEE TO PROVE THAT EXPENDITU RE IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE SAID O NUS HAS NOT BEEN DISCHARGED BY THE ASSESSEEE EVEN WHEN THE AO SOUGHT DETAILS/EVIDE NCE OF PURPOSE OF VISIT TO FOREIGN COUNTRIES. THE LD. CIT(A) WITHOUT HAVING COMPLETE FACTS AND DETAILS DELETED THE DISALLOWANCE. APPARENTLY THE ORDER OF THE LD. CIT(A) IS NOT WELL REASONED OR SPEAKING. EVEN BEFORE US DETAILS OF EACH OF THE PL ACES/COMPANIES OR PERSONS VISITED BY THE DIRECTOR/EMPLOYEES OF THE ASSESSEE HAS NOT BEEN FILED NOR EVEN BREAK OF EXPENSES INCURRED BY THE ASSESSEE AT EACH OF THESE PLACES SO VISITED ABROAD NOR THE LD. AR EVEN REFERRED TO US ANY EVIDENCE REGARD ING PURPOSE OF VISIT AT EACH OF THE PLACES VISITED ABROAD . THE LD. AR MERELY INVITED OUR ATTENTION TO PAGE 34-64 OF THE PAPER BOOK WHEREIN ONLY COPY OF LEDGER ACCOUNT IS PLACED AND REITERATED THAT THE EXPENDITURE IS FOR THE PURPOSE OF BUSINESS. NOT AN IOTA OF EVIDENCE HAS BEEN REFERRED TO BEFORE US THAT THE FOREIGN VI SIT OF THE DIRECTOR OR HIS WIFE OR EMPLOYEES WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF BUSINESS OF THE ASSESSEE COMPANY. ONE OF THE REQUIREMENTS OF THE PROVISIONS OF SECTION 37(1) OF THE ACT IS THAT THE EXPENDITURE MUST HAVE BEEN LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE HONBLE SUPREME COURT IN CASE OF CIT V. CHANDULAL KESHAVLAL & CO. [1960] 38 ITR 601 POINTED OUT THAT IT IS FOR THE A SSESSEE WHO CLAIMS DEDUCTIONS OF THE EXPENDITURE TO SATISFY THE DEPARTMENT FOR WH ICH THE AMOUNT IS SPENT. IN RAM BAHADUR THAKUR LTD. V. CIT [2003] 261 ITR 390(KERALA) IT HAS BEEN HELD THAT WHERE THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF TRADE AND BUSINESS OF THE ASSESSEE IS REQUIRED TO BE DETERMI NED AND WHERE THE ASSESSEE SEEKS TO DEDUCT FROM HIS OR ITS BUSINESS PROFITS C ERTAIN ITEMS OF EXPENDITURE THE ONUS OF PROVING THAT SUCH DEDUCTIONS ARE PERMISSIBLE IS ON THE ASSESSEE. THIS IS PARTICULARLY SO WHEN THE CLAIMS ARE BASED ON FACTS WHICH ARE EXCLUSIVELY WITHIN THE KNOWLEDGE OF THE ASSESSEE. THUS IT IS FOR THE ASSE SSEE TO PLEAD AND PROVE BEFORE THE ITA N OS.1863 TO 1867/A/09 AND OTHERS 26 AUTHORITIES THAT THE FOREIGN TRAVEL EXPENSES ON THE VISIT OF DIRECTOR OR HIS WIFE OR EMPLOYEES TO GERMANY BHUTAN BAHARIN DUBAI OR KUW AIT WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. IN THE ABSENCE OF ANY EVIDENCE OF PURPOSE OF VISIT AT EACH OF THE PLACES/ PERSONS VISITED OR EVEN BREAK UP OF EXPENSES INCURRED AT EACH OF SUCH PLACES THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE. IN THESE CIRCUMSTANCES WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTOR E THE MATTER TO HIS FILE FOR DECIDING THE ISSUE RAISED IN THE GROUND NO.1 IN THE APPEA L OF THE REVENUE FOR THE AY 2004- 05 AFRESH IN ACCORDANCE WITH LAW IN THE LIGHT OF OUR AFORESAID OBSERVATIONS AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES . NEEDLESS TO SAY THAT WHILE REDECIDING THE ISSUE THE LEARNED CIT(A) SHALL PASS A SPEAKING ORDER KEEPING IN MIND INTER ALIA THE MANDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT BRINGING OUT CLEARLY AS TO THE PURPOSE OF VISIT AT EACH OF THE PLACES/PERSONS VISITED BY THE ASSESSEE ABROAD. THEREFORE GROUND NO.1 IN THE APP EAL OF THE REVENUE FOR THE AY 2004-05 IS DISPOSED OF . 12. NEXT GROUND NO.2 IN THIS APPEAL OF THE REV ENUE FOR THE AY 2006-07 RELATES TO DEPRECIATION ON COPY RIGHT EX PENSES @ 25% OF RS.4 47 000/-. WHILE GROUND NO.1 IN THE CORRESPO NDING CO RELATES TO TREATING THE AMOUNT OF RS. 2 23 500/-CAPITAL I N NATURE. THE ASSESSEE CLAIMED EXPENSES OF RS. 2 23 500/- IN THE IR P&L ACCOUNT. TO A QUERY BY THE AO THE ASSESSEE SUBMITTED THAT T HE SAID EXPENSE REPRESENTED THE AMOUNT PAID TO A FOREIGN COMPANY C LIMATOR AB TOWARDS CHARGES FOR AGREEING TO SELL THEIR PRODUCTS EXCLUSIVELY TO THE ASSESSEE FOR A PERIOD OF ONE YEAR. TOTAL AMOUNT INCURRED FOR THE ABOVE SAID PURP OSE WAS RS.4 47 000/-. HOWEVER ONLY HALF OF THE AMOUNT WAS EXPENSED OUT A ND BALANCE WAS CARRIED AS PREPAID EXPENSES. SINCE EXCLUSIVITY RIGHT WAS GRA NTED TO THE ASSESSEE ONLY FOR ONE YEAR AND DID NOT HAVE ENDURING BENEFIT THE SAM E SHOULD BE TREATED AS REVENUE EXPENDITURE THE ASSESSEE PLEADED. ALTERNAT IVELY THE ASSESSEE CLAIMED DEPRECIATION U/S 32 OF THE ACT @ 25% TREATING THE S AME AS AN INTANGIBLE ASSET. HOWEVER THE AO DID NOT ACCEPT THE SUBMISSIONS OF T HE ASSESSEE AND CONCLUDED THAT COPYRIGHT EXPENSES WERE CAPITAL IN NATURE AND ARE ENTITLED FOR DEPRECIATION AS LAID OUT IN SEC. 3 2(1)(III) OF THE ACT. ITA N OS.1863 TO 1867/A/09 AND OTHERS 27 THE AO ALSO OBSERVED THAT IT WAS NOT THE DURATION B UT THE CHARACTER OF THE EXPENSE THAT DETERMINED WHETHER AN EXPENSE W AS CAPITAL EXPENSE OR REVENUE ONE AND COPYRIGHT EXPENSE AS T HE ASSESSEE ITSELF ADMITTED PROVIDED EXCLUSIVITY RIGHTS TO THE ASSESSEE COMPANY AND THEREFORE IT WAS A CAPITAL EXPENSE. ACCORDINGL Y THE EXPENSE OF RS.2 23 500/- WAS DISALLOWED AND AFTER ALLOWING DEP RECIATION OF RS.55 875/- @ 25% AN ADDITION OF RS.1 67 625/- WAS MADE TO THE INCOME OF THE ASSESSEE. 13. ON APPEAL THE LEARNED CIT(A) DIRECTED THE AO T O ALLOW DEPRECIATION @ 25% ON RS.4 47 000/- WITH THE FOLLOW ING OBSERVATIONS:- 4.1 BEFORE ME THE A.R. MADE SUBMISSIONS AS UNDER: 'IN THIS REGARDS THE APPELLANT SUBMITS TO YOUR GOO D HONOUR THAT THAT EXCLUSIVITY RIGHT WAS GRANTED TO THE APPELLANT ONLY FOR ONE YEAR AND THEREFORE IT DOES NOT HAVE ENDURING BENEFIT AND ACC ORDINGLY THE SAME SHOULD BE TREATED AS REVENUE EXPENDITURE. WE WOULD LIKE TO STATE THAT ANY EXPENDITURE CAN BE SAID TO HAVE ENDURING BENEFIT IF ITS BENEFIT IS AVAILABLE FOR MORE THAN A YEAR. IN THE PRESENT CASE SINCE TH E BENEFIT LASTS FOR ONLY ONE YEAR NO ENDURING BENEFIT CAN BE SAID TO HAVE A CCRUED. WE ALSO DRAW YOUR ATTENTION TO THE DECISION IN CASE OF AMWAY IND IA ENTERPRISES V. DCIT - 111 ITD 112 (DELHI) (SPECIAL BENCH). 30. WITHOUT PREJUDICE TO OUR CONTENTION THAT THE SA ME IS REVENUE EXPENDITURE IT IS SUBMITTED THAT IN CASE YOUR GOOD SELF TREATS THE SAME AS CAPITAL EXPENDITURE THE ASSESSEE SHOULD BE ENTITLE D TO DEPRECIATION AT 25% (EXPENDITURE INCURRED IN AUGUST 05) OF RS.4 47 000 (I.E. AMOUNT OF TOTAL EXPENDITURE) AS AGAINST 25% OF RS.2 23 500.' 4.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE A.R. CAREFULLY. I AGREE WITH THE FINDING OF THE A.O . THAT IT IS A CAPITAL EXPENDITURE .HOWEVER THE AO IS DIRECTED TO ALLOW DE PRECIATION @25% ON RS.4 47 000/-. 14. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A) IN DIRECTING TO ALLO W DEPRECIATION @25% ON THE ENTIRE AMOUNT OF RS.4 47 000/- WHILE TH E ASSESSEE IN THEIR CROSS-OBJECTION DISPUTED THE FINDINGS OF THE LD. CIT(A) IN ITA N OS.1863 TO 1867/A/09 AND OTHERS 28 TREATING THE EXPENDITURE CAPITAL IN NATURE.. THE LE ARNED DR SUPPORTED THE ORDER OF THE AO. ON THE OTHER HAND T HE LEARNED AR ON BEHALF OF THE ASSESSEE REITERATED THEIR SUBMISSIONS BEFORE THE LEARNED CIT(A). 15. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. THOUGH THE ASSESSEE SUBMITTED BEFORE THE LOWER AUTHORITIES AND EVEN BEFORE US THAT THE AMOUNT OF RS.4 47 000/- REPRESENTED THE AMOUNT PAID TO A FOREIGN COMPANY C LIMATOR AB TOWARDS CHARGES FOR AGREEING TO SELL THEIR PRODUCTS EXCLUSIVELY TO THE ASSESSEE FOR A PERIOD OF ONE YEAR THE RELEVANT TERMS AND CONDITIONS OR A COPY O F THE AGREEMENT HAS NOT BEEN PLACED BEFORE US . AS IS APPARENT FROM THE AFORES AID FINDINGS IN THE IMPUGNED ORDER IN THE INSTANT CASE THE LD. CIT(A) WHILE AGR EEING WITH THE AO DID NOT ANALYSE THE ISSUES RAISED BY THE ASSESSEE IN T HEIR EXPLANATION NOR EVEN BROUGHT OUT AS TO HOW THE EXPENDITURE IS C APITAL IN NATURE AND WHY THE ENTIRE AMOUNT OF RS. 4 47 000/- IS ENT ITLED TO DEPRECIATION IN THE YEAR UNDER CONSIDERATION. A MER E GLANCE AT THE IMPUGNED ORDER REVEALS THAT THE ORDER PASSED BY THE LD. CIT(A) IS CRYPTIC AND GROSSLY VIOLATIVE OF ONE OF THE FACETS OF THE RULES OF NATURAL JUSTICE NAMELY THAT EVERY JUDICIAL/QUASI-JUDICIAL BODY/AUTHORITY M UST PASS REASONED ORDER WHICH SHOULD REFLECT APPLICATION OF MIND BY THE CONCERNED AUTHORITY TO THE ISSUES/POINTS RAISED BEFORE IT. THE APPLICATION OF MIND TO THE MA TERIAL FACTS AND THE ARGUMENTS SHOULD MANIFEST ITSELF IN THE ORDER. SECTION 250(6) OF THE INCOME TAX ACT 1961 MANDATES THAT THE ORDER OF THE CIT(A) WHILE DISPOSI NG OF THE APPEAL SHALL BE IN WRITING AND SHALL STATE THE POINTS FOR DETERMINATIO N THE DECISION THEREON AND THE REASON FOR THE DECISION. THE REQUIREMENT OF RECORD ING OF REASONS AND COMMUNICATION THEREOF HAS BEEN READ AS AN INTEGRAL PART OF THE CONCEPT OF FAIR PROCEDURE. THE REQUIREMENT OF RECORDING OF REASONS BY THE QUASI-JUDICIAL AUTHORITIES IS AN IMPORTANT SAFEGUARD TO ENSURE OBS ERVANCE OF THE RULE OF LAW. IT INTRODUCES CLARITY CHECKS THE INTRODUCTION OF EXTR ANEOUS OR IRRELEVANT CONSIDERATIONS AND MINIMIZES ARBITRARINESS IN THE D ECISION-MAKING PROCESS. WE MAY REITERATE THAT A DECISION DOES NOT MERELY MEA N THE CONCLUSION. IT EMBRACES WITHIN ITS FOLD THE REASONS FORMING BASIS FOR THE C ONCLUSION.[MUKHTIAR SINGH VS. ITA N OS.1863 TO 1867/A/09 AND OTHERS 29 STATE OF PUNJAB (1995)1SCC 760(SC)]. AS IS APPARENT THE IMPUGNED ORDER SUFFERS FROM LACK OF REASONING AND IS NOT A SPEAKI NG ORDER. IN VIEW OF THE FOREGOING ESPECIALLY WHEN THE LD. CIT(A) HAS NOT P ASSED A SPEAKING ORDER ON THE AFORESAID ISSUES RAISED IN THESE GROUNDS WE CONSI DER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE T HE MATTER TO HIS FILE FOR DECIDING THE ISSUES AFRESH IN ACCORDANCE WITH LAW AFTER AL LOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES. NEEDLESS TO SAY THAT WHILE REDECI DING THE APPEAL THE LEARNED CIT(A) SHALL PASS A SPEAKING ORDER KEEPING IN MIND INTER ALIA THE MANDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT AND VARIOUS JU DICIAL PRONOUNCEMENTS ON THE ISSUES. WITH THESE OBSERVATIONS GROUND NO.2 IN THI S APPEAL OF THE REVENUE FOR THE AY 2006-07 AND GROUND NO.1 IN THE C ORRESPONDING CO ARE DISPOSED OF. 16. GROUND NO.2 IN THE APPEAL OF THE REVENUE FOR AY 2007- 08 RELATES TO CLAIM OF ADDITIONAL DEPRECIATION ON MACH INERY. THE AO NOTICED THAT THE ASSESSEE CLAIMED ADDITIONAL DEPR ECIATION @ 20% ON MACHINERY OF RS.2 44 495/- U/S 32(1)(III) OF THE ACT. SINCE THE AO CONCLUDED THAT THE ASSESSEE WAS NOT ENGAGED IN MANU FACTURE OR PRODUCTION OF ARTICLE OR THING THE AO DISALLOWED THE CLAIM FOR ADDITIONAL DEPRECIATION. 17. ON APPEAL THE LEARNED CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE IN THE FOLLOWING TERMS:- 4.2 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A R OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFFICER IN TH E ASSESSMENT ORDER. IT IS SEEN THAT MY PREDECESSOR VIDE HIS ORDER NO. CIT(A)- XIV/CIR.8/146/07-08 DATED 06-01-2009 CLEARLY HELD THAT THE ACTIVITIES O F THE APPELLANT COMPANY ARE MANUFACTURING ACTIVITY. HENCE THE PROVISIONS O F SECTION 32(1)(IIA) ARE APPLICABLE TO THE INSTANT CASE. THE PROVISIONS OF T HE SAID SECTION LAID DOWN AS UNDER:- IN THE CASE OF ANY NEW MACHINERY OR PLANT (OTHER THAN SHIPS AND AIRCRAFTS) WHICH HAS BEEN ACQUIRED AND INSTALLED A FTER THE 31 ST DAY OF MARCH 2005 BY AN ASSESSEE ENGAGED IN THE BUSIN ESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING A FURTHER SUM EQUAL TO TWENTY PERCENT OF THE ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTION UNDER CLAUSE (I I). ITA N OS.1863 TO 1867/A/09 AND OTHERS 30 4.2.1 THEREFORE HAVING CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE I AM INCLINED TO DIRECT THE ASSESSING OFF ICER TO ALLOW THE ADDITIONAL DEPRECIATION U/S 32(1)(IIA) OF THE ACT AS CLAIMED B Y THE APPELLANT AND THEREBY TO DELETE THE ADDITION MADE BY HIM OF RS.2 44 495/-. THUS THIS GROUND OF APPEAL IS ALLOWED. 18. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUPP ORTED THE ORDER OF THE AO. ON THE OTHER HAND THE LEARNED AR ON BEH ALF OF THE ASSESSEE SUPPORTED THE FINDINGS OF THE LEARNED CIT( A). 19. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE. SINCE WE HAVE ALREADY CONCLUDED THAT THE ASSESSEE IS MANUFACTURING PREFABRICATED TELECOM SHELTERS ENTI TLED TO DEDUCTION U/S 80IB OF THE ACT AND THE LD. DR HAS NOT PLACED B EFORE US ANY MATERIAL CONTROVERTING THE AFORESAID FINDINGS OF TH E LD. CIT(A) WE ARE NOT INCLINED TO INTERFERE. THEREFORE GROUND NO . 2 IN THE APPEAL OF THE REVENUE FOR AY 2007-08 IS DISMISSED. 20. AS REGARDS GROUND NOS.1 TO 1.3 IN CO NO.159 /A/09 GROUND NOS.1 AND 1.1 IN CO NO.160& 162/AHD/09 AND GROUND N OS.1 TO 1.2 IN CO NO.161/AHD/09 RELATING TO VALIDITY OF REOPENING OF THE RESPECTIVE ASSESSMENTS THOUGH THE LD. AR INITIALLY TRIED TO A RGUE THE ISSUE IN THE LIGHT OF HIS WRITTEN SUBMISSIONS; AFTER DISCUSS ION THE LEARNED AR ON BEHALF OF THE ASSESSEE DID NOT PRESS THESE GROU NDS AND ACCORDINGLY SOUGHT TO WITHDRAW THESE GROUNDS UNCON DITIONALLY. THE LD. DR DID NOT OPPOSE THESE SUBMISSIONS ON BEHALF O F THE ASSESSEE. ACCORDINGLY THE GROUNDS RAISED IN THESE COS ARE DI SMISSED AS SUCH. . 21. GROUND NOS.2 AND 2.1 IN THE CO FOR THE AY 2006-07 RELATES TO DISALLOWANCE ON ACCOUNT OF PROVISION RS.1 49 49 0/-FOR SLOW MOVING INVENTORY. THE AO NORICED THAT THE ASSESSEE HAD WRITTEN OFF SLOW MOVING INVENTORY OF RS.1 49 490/- IN ITS P&L A CCOUNT. TO A QUERY BY THE AO THE ASSESSEE EXPLAINED THAT DURING THE YEAR UNDER ITA N OS.1863 TO 1867/A/09 AND OTHERS 31 CONSIDERATION NO ORDERS WERE RECEIVED FOR SUCH SHE LTERS IN WHICH THE SPECIFIED MATERIAL WAS TO BE USED AND THEREFORE THE COMPANY DECIDED TO WRITE THEM OFF CLAIMING THE SAME U/S 28 / 37 OF THE ACT AS A LOSS ARISING IN THE COURSE OF BUSINESS. HOWEVER THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE ON THE GROUN D THAT THE ASSESSEE FAILED TO FURNISH ANY EVIDENCE REGARDING T HE IRRECOVERABILITY OF THE ALLEGED TRADING LOSS AND HA D MERELY MADE A PROVISION IN THEIR BALANCESHEET. ACCORDINGLY THE A O DISALLOWED THE CLAIM OF RS.1 49 490/-. 22. ON APPEAL THE LEARNED CIT(A) UPHELD THE DISA LLOWANCE IN THE FOLLOWING TERMS:- 6.1 BEFORE ME THE AR MADE SUBMISSIONS AS UNDER: THE APPELLANT HAD MADE PROVISION OF SLOW MOVING I NVENTORY OF RS.1 49 490/- IN ITS PROFIT AND LOSS ACCOUNT AS NO ORDERS WERE RECEIVED FOR SUCH SHELTERS IN WHICH THE SPECIFIED MATERIAL WAS U SED CLAIMING THE SAME U/S 28 /37 OF THE ACT BEING THE LOSS ARISING IN THE COURSE OF BUSINESS. 33. DETAILS OF THE PROVISION MADE OF SLOW MOVING I NVENTORY IS AS UNDER:- S.N O. ITEM NAME UNIT QTY VALUE 1 SKID CLAMP (AMBULANCE) NOS 36.00 3 100.00 2 AIR FILTER 275 X 275 (ALUMINIUM) NOS 35.00 7 264.72 3 DOOR HANDLE 100 MM NOS 32.00 1 876.95 4 ALUMINIUM JAMB PROFILE 100 X 3200 MM KGS 190.00 38 408.91 5 ALUMINIUM DOOR PROFILE 100 X 3100 MM KGS 160.000 42 415.22 6 LOCK SET GODREJ (DOUBLE LATCH) NOS 7.00 8 492.40 7 GODREJ ULTRA MOTISE-CK LOCK (SINGLE LATCH) NOS 35.00 48 931.80 140 490.00 34 HOWEVER THE LEARNED AO DISALLOWED THE SAME ON NO N AVAILABILITY OF ANY EVIDENCE REGARDING THE IRRECOVERABILITY OF THE ALLEGED LOSS. IN THIS CONNECTION THE APPELLANT SUBMITS THAT THE AS NO OR DERS RELATED TO THE MATERIALS WERE RECEIVED THE SAME WERE WRITTEN OFF T O THE PROFIT AND LOSS ACCOUNT. THE SAID LOSS BEING INCIDENTAL TO THE CARR YING OF BUSINESS SHALL BE ALLOWED AND HENCE THE SAID DISALLOWANCE BEING UNTEN ABLE NEEDS TO BE DELETED. 35 IT IS SUBMITTED THAT SUCH PROVISION OF SLOW MOV ING INVENTORY IS IN ACCORDANCE WITH SOUND ACCOUNTING PRINCIPLES WHICH R EQUIRES THE APPELLANT ITA N OS.1863 TO 1867/A/09 AND OTHERS 32 TO ACCOUNT FOR SUCH LOSSES. IN VIEW THEREOF IT IS SUBMITTED THAT THE SAME MUST BE ALLOWED AS BUSINESS LOSS U/S 28. 36 WITHOUT PREJUDICE TO THE ABOVE SAID CONTENTION IT IS SUBMITTED THAT IN CASE YOUR GOODSELF DOES NOT ALLOW THE SAME IN TH E CURRENT YEAR WE REQUEST YOUR GOODSELF TO DIRECT AO TO ALLOW THE SAM E IN THE YEAR IN WHICH IT IS ACTUALLY WRITTEN OFF / WRITTEN BACK. 6.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE AR CAR EFULLY. AS THE AMOUNT IS A PROVISION THE SAME CAN NOT BE ALLOWED AS DEDUCTION. HENCE THE DISALLOWANCE IS CONFIRMED. 23. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAI NST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR REITERATED T HEIR SUBMISSIONS BEFORE THE LD. CIT(A). ON THE OTHER HAND THE LEARN ED DR SUPPORTED THE FINDINGS OF THE LEARNED CIT(A). 24. WE HAVE HEARD BOTH THE PARTIES AND GONE THR OUGH THE FACTS OF THE CASE. WE FIND THAT THE LD. CIT(A) UPHELD THE D ISALLOWANCE SINCE AMOUNT CLAIMED WAS MERELY A PROVISION AND HAD NOT B EEN ACTUALLY WRITTEN OFF. THE LD. AR ON BEHALF OF THE ASSESSEE DID NOT PLACE ANY MATERIAL BEFORE US CONTROVERTING THE AFORESAID FIND INGS OF FACTS RECORDED BY THE LD. CIT(A) SO AS TO ENABLE US TO T AKE A DIFFERENT VIEW IN THE MATTER. IN THE ABSENCE OF ANY BASIS WE ARE NOT INCLINED TO INTERFERE. THEREFORE GROUND NOS.2 AND 2.1 IN TH E CO FOR THE AY 2006-07 ARE DISMISSED. 25. NEXT GROUND NOS.1 TO 1.2 IN THE CO FOR THE AY 2007-08 RELATE TO DISALLOWANCE OF RS.1 14 491/- BY INVOKING PROVISIONS OF SECTION 14A OF THE ACT. THE AO NOTICED THAT THOUGH THE ASSESSEE HAD SHOWN EXEMPT INCOME OF RS.332314/- IT DID NOT ADD BACK ANY EXPENDITURE CORRESPONDING TO THE EARNING OF EXEMPT INCOME. TO A QUERY BY THE AO THE ASSESSEE EXPLAINED THAT DIVIDE ND OF RS.3 32 314 CLAIMED EXEMPT U/S. 10(35) OF THE ACT WAS RECEIVE D AGAINST INVESTMENT OF RS.60 LACS IN THE MUTUAL FUNDS IN EARLIER YEARS. THE INVE STMENT WAS MADE IN EARLIER YEARS OUT OF OWN FUNDS OF THE COMPANY. SINCE NO INT EREST-BEARING FUNDS HAVE BEEN USED TO EARN EXEMPT INCOME WHILE THE MUTUAL FU NDS WERE REDEEMED DURING ITA N OS.1863 TO 1867/A/09 AND OTHERS 33 THE YEAR UNDER CONSIDERATION NO DISALLOWANCE IN RE SPECT OF INTEREST OR ADMINISTRATIVE EXPENSES SHOULD BE MADE U/S. 14A OF THE ACT. ATERNATIVELY THE ASSESSEE SUGGESTED THAT AT THE MOST DISALLOWANCE CAN BE MADE @ 0.5% OF AVERAGE INVESTMENT IN TERMS OF RULE 8D OF THE IT RU LES 1962 . HOWEVER THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE AND COMPUTED THE DISALLOWANCE U/S. 14A R.W.R. 8D OF THE IT RULES 1962 AS UNDER: DIRECT EXPENDITURE RS. NIL INTEREST EXP. 6264000 X [ 33 30 000 ] 213193000 RS.97 841/- ADMINISTRATIVE EXP. % OF ( 3330000 ) RS.16 550/- ---------------- TOTAL RS.1 14 491/- 26. ON APPEAL THE LEARNED CIT(A) UPHELD THE DI SALLOWANCE MADE BY THE AO IN THE FOLLOWING TERMS:- 5.2. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A. R. OF THE APPELLANT. I HAVE ALSO GONE THROUGH THE DECISIONS REFERRED TO ABOVE WHICH ARE RELIED UPON BY THE A. R. AND THE OBSERVATIONS O F THE ASSESSING OFFICER IN THE ASSESSMENT ORDER I AM NOT INCLINED TO ACCE PT THE CONTENTIONS PUT FORTH BY THE AR OF THE APPELLANT. IN THE CASE OF IT O VS. DAGA CAPITAL MANAGEMENT (312 ITR (AT) 1) MUMBAI SPECIAL BENCH HE LD THAT THE ONUS IS ON ASSESSEE TO PROVE THAT EXPENDITURE WAS INCURRED TO EARN TAXABLE INCOME AND FURTHER IN VIEW OF RULE 8D ONUS AND APPO RTIONING EXPENDITURE HAVE BECOME ACADEMIC. 5.2.1. THE APPELLANT DID NOT FURNISH THE YEAR(S) OF INVESTMENT IN MUTUAL FUNDS. THEY COULD NOT SUBSTANTIATE THE CLAIM THAT I N THE YEAR(S) OF INVESTMENT THEY HAD NON-INTEREST-BEARING FUNDS WH ICH WERE UTILIZED FOR THE SAID INVESTMENT. 5.2.2. RULE 8D WAS INTRODUCED W.E.F. 24-03-2008. HO WEVER AS HELD IN THE CASE CITED AT 312 ITR (AT)1 (SUPRA) WHEN SUB-SECTI ON (1) OF SEC. 14A ITSELF IS CLARIFICATORY RESULTANTLY SUB-SECTION (2 ) AND (3) PROVIDING MECHANISM TO DO CANNOT BE CONSTRUED AS SUBSTANTIVE AND HENCE PROSPECTIVE. 5.2.1. FURTHER THE SIMILAR ISSUE AROSE IN THE APPE LLANT'S OWN CASE FOR A. Y. 2004-05. MY PREDECESSOR VIDE HIS ORDER REFERRED TO ABOVE DECIDED THE SAME BY HOLDING AS UNDER:- ITA N OS.1863 TO 1867/A/09 AND OTHERS 34 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SU BMISSIONS OF THE A. R. CAREFULLY. AS THE APPELLANT MUST HAVE INCURRE D EXPENDITURE WHETHER DIRECT OR INDIRECT FOR EARNING EXEMPT DIVI DEND INCOME I FIND THAT THE A. O. HAS RIGHTLY MADE THE DISALLOWANCE. I THEREFORE DO NOT AGREE WITH THE SUBMISSIONS OF THE A. R. FURTHER TH E ITAT CHENNAI BENCH HAS HELD IN THE CASE OF SOUTHERN PETRO CHEMIC ALS INDUSTRIES VS. CIT 93 TTJ 161 THAT INVESTMENT DECISIONS ARE VERY STRATEGIC DECISIONS IN WHICH TOP MANAGEMENT IS INVOLVED. THER EFORE PROPORTIONATE MANAGEMENT EXPENSES ARE REQUIRED TO B E DEDUCTED CO COMPUTING DIVIDEND INCOME. FURTHER IT WAS HELD IN THE CASE OF RHYTHEM EXPORTS (PVT.) LTD. VS ITO 2 SOT 429 (MUM. ) THAT THE EXPENDITURE INCURRED IN RELATION TO EARNING INCOME WHICH IS EXEMPT SHOULD BE TAKEN OUT AND IN CASE THE APPELLANT FAILS TO DO SO THE AO HAS NO OPTION THAN TO TAKE THE SAME ON PROPORTIONAT E BASIS. THEREFORE THE ADDITION IS CONFIRMED ON THIS GROUND . ' 5.2.2. THEREFORE HAVING CONSIDERED THE FACTS AND C IRCUMSTANCES .OF THE CASE I UPHOLD THE DISALLOWANCES MADE BY THE A O. THIS GROUND OF APPEAL IS DISMISSED. 27. THE ASSESSEE IS NOW IN APPEAL BEFORE US T HROUGH THE CO AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A ). THE LEARNED AR ON BEHALF OF THE ASSESSEE REITERATED THEIR SUBMISSI ONS BEFORE THE LD. CIT(A).THE LEARNED DR ON THE OTHER HAND SUPPORTED THE FINDINGS OF THE LEARNED CIT(A). 28. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE AFORESAID DECISIONS RELIED UPO N BY THE LEARNED AR. WE FIND THAT THE AO MADE AN ESTIMATED DISALLOWA NCE OF AFORESAID EXPENSES ON ACCOUNT OF INTEREST AND ADMIN ISTRATIVE EXPENSES SINCE THE ASSESSEE EARNED EXEMPT INCOME INVOKING PROVISIONS OF SEC. 14A OF THE ACT. THE LD. CIT(A) W HILE RELYING ON DECISION OF HIS PREDECESSOR IN THE AY 2004-05 AND D ECISIONS IN ITO VS. DAGA CAPITAL MANAGEMENT (312 ITR (AT) 1) MUMBAI SPECIAL BENCH SOUTHERN PETRO CHEMICALS INDUSTRIES VS. CIT 93 TTJ 161(CHEN NAI) AND RHYTHEM EXPORTS (PVT.) LTD. VS ITO 2 SOT 429 (MUM.) UPHELD THE D ISALLOWANCE. 28.1 WE FURTHER FIND THAT RECENTLY HONBLE BOMB AY HIGH COURT IN THEIR DECISION DATED 12.8.2010 IN CASE OF GODREJ & BOYCE MFG.CO.LTD. MUMBAI. IN ITA N OS.1863 TO 1867/A/09 AND OTHERS 35 THE ITA NO. 626/2010 WHILE ADJUDICATING A SIMILAR I SSUE IN THE CONTEXT OF PROVISIONS OF SEC. 14A OF THE ACT AND RULE 8D OF TH E IT RULES 1962 CONCLUDED THAT RULE 8D INSERTED W.E.F 24.3.2008 CANNOT BE R EGARDED AS RETROSPECTIVE BECAUSE IT ENACTS AN ARTIFICIAL METHOD OF ESTIMATIN G EXPENDITURE RELATABLE TO TAX- FREE INCOME. IT APPLIES ONLY W.E.F AY 2008-09. FOR THE ASSESSMENT YEARS WHERE RULE 8D DOES NOT APPLY THE AO WILL HAVE TO DETERMI NE THE QUANTUM OF DISALLOWABLE EXPENDITURE BY A REASONABLE METHOD HAV ING REGARD TO ALL FACTS AND CIRCUMSTANCES THE HONBLE HIGH COURT CONCLUDED. 28.2. HONBLE SUPREME COURT IN THEIR DECI SION DATED 6.7.2010 IN CIT V. WALFORT SHARE & STOCK BROKERS (P.) LTD. 326 ITR 1 INTER ALIA OBSERVED THAT FOR ATTRACTING SECTION 14A OF THE ACT THERE HAS TO BE A PROXIMATE CAUSE FOR DISALLOWANCE WHICH IS ITS RELATIONSHIP WITH THE TA X EXEMPT INCOME. HONBLE APEX COURT OBSERVED IN THE CONTEXT OF PROVISIONS SEC.14 A OF THE ACT IN THE FOLLOWING TERMS: 17. THE INSERTION OF SECTION 14A WITH RETROSPECTIVE EFF ECT IS THE SERIOUS ATTEMPT ON THE PART OF THE PARLIAMENT NOT TO ALLOW DEDUCTIO N IN RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHI CH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT AGAINST THE TAXABLE INCO ME (SEE CIRCULAR NO. 14 OF 2001 DATED 22-11-2001). IN OTHER WORDS SECTION 14 A CLARIFIES THAT EXPENSES INCURRED CAN BE ALLOWED ONLY TO THE EXTENT THEY ARE RELATABLE TO THE EARNING OF TAXABLE INCOME. IN MANY CASES THE NATURE OF EXPENSE S INCURRED BY THE ASSESSEE MAY BE RELATABLE PARTLY TO THE EXEMPT INCOME AND PA RTLY TO THE TAXABLE INCOME. IN THE ABSENCE OF SECTION 14A THE EXPENDITURE INCURRE D IN RESPECT OF EXEMPT INCOME WAS BEING CLAIMED AGAINST TAXABLE INCOME. TH E MANDATE OF SECTION 14A IS CLEAR. IT DESIRES TO CURB THE PRACTICE TO CLAIM DEDUCTION OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME AGAINST TAXABLE INCOME AN D AT THE SAME TIME AVAIL THE TAX INCENTIVE BY WAY OF EXEMPTION OF EXEMPT INCOME WITHOUT MAKING ANY APPORTIONMENT OF EXPENSES INCURRED IN RELATION TO E XEMPT INCOME. THE BASIC REASON FOR INSERTION OF SECTION 14A IS THAT CERTAIN INCOMES ARE NOT INCLUDIBLE WHILE COMPUTING TOTAL INCOME AS THESE ARE EXEMPT UNDER CE RTAIN PROVISIONS OF THE ACT. IN THE PAST THERE HAVE BEEN CASES IN WHICH DEDUCTI ON HAS BEEN SOUGHT IN RESPECT OF SUCH INCOMES WHICH IN EFFECT WOULD MEAN THAT TAX INCENTIVES TO CERTAIN INCOMES WAS BEING USED TO REDUCE THE TAX PAYABLE ON THE NON-EXEMPT INCOME BY DEBITING THE EXPENSES INCURRED TO EARN THE EXEMPT INCOME AGAINST TAXABLE INCOME. THE BASIC PRINCIPLE OF TAXATION IS TO TAX T HE NET INCOME I.E. GROSS INCOME MINUS THE EXPENDITURE. ON THE SAME ANALOGY THE EXEM PTION IS ALSO IN RESPECT OF NET INCOME. EXPENSES ALLOWED CAN ONLY BE IN RESPECT OF EARNING OF TAXABLE INCOME. THIS IS THE PURPORT OF SECTION 14A. IN SECT ION 14A THE FIRST PHRASE IS 'FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER TH IS CHAPTER' WHICH MAKES IT CLEAR THAT VARIOUS HEADS OF INCOME AS PRESCRIBED UN DER CHAPTER IV WOULD FALL ITA N OS.1863 TO 1867/A/09 AND OTHERS 36 WITHIN SECTION 14A. THE NEXT PHRASE IS 'IN RELATIO N TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT'. IT MEANS THAT IF AN INCOME DOES NOT FORM PART OF TOTAL INCOME THEN THE RELATED EXPENDITURE IS OU TSIDE THE AMBIT OF THE APPLICABILITY OF SECTION 14A. FURTHER SECTION 14 S PECIFIES FIVE HEADS OF INCOME WHICH ARE CHARGEABLE TO TAX. IN ORDER TO BE CHARGEA BLE AN INCOME HAS TO BE BROUGHT UNDER ONE OF THE FIVE HEADS. SECTIONS 15 TO 59 LAY DOWN THE RULES FOR COMPUTING INCOME FOR THE PURPOSE OF CHARGEABILITY T O TAX UNDER THOSE HEADS. SECTIONS 15 TO 59 QUANTIFY THE TOTAL INCOME CHARGEA BLE TO TAX. THE PERMISSIBLE DEDUCTIONS ENUMERATED IN SECTIONS 15 TO 59 ARE NOW TO BE ALLOWED ONLY WITH REFERENCE TO INCOME WHICH IS BROUGHT UNDER ONE OF T HE ABOVE HEADS AND IS CHARGEABLE TO TAX. IF AN INCOME LIKE DIVIDEND INCOM E IS NOT A PART OF THE TOTAL INCOME THE EXPENDITURE/DEDUCTION THOUGH OF THE NAT URE SPECIFIED IN SECTIONS 15 TO 59 BUT RELATED TO THE INCOME NOT FORMING PART OF TOTAL INCOME COULD NOT BE ALLOWED AGAINST OTHER INCOME INCLUDIBLE IN THE TOTA L INCOME FOR THE PURPOSE OF CHARGEABILITY TO TAX. THE THEORY OF APPORTIONMENT O F EXPENDITURES BETWEEN TAXABLE AND NON-TAXABLE HAS IN PRINCIPLE BEEN NOW WIDENED UNDER SECTION 14A. READING SECTION 14 IN JUXTAPOSITION WITH SECTIONS 15 TO 59 IT IS CLEAR THAT THE WORDS 'EXPENDITURE INCURRED' IN SECTION 14A REFERS TO EXP ENDITURE ON RENT TAXES SALARIES INTEREST ETC. IN RESPECT OF WHICH ALLOWA NCES ARE PROVIDED FOR (SEE SECTIONS 30 TO 37) 28.3. WE ALSO FIND THAT HONBLE KERALA HIGH COUR T IN THEIR DECISION DATED 17.6.2010 IN THE CASE OF CIT VS. SMT. LEENA RAMACHANDRAN IN ITA.NO. 1784 OF 2009 HELD IN THE CONTEXT OF PRO VISIONS OF SEC.14A OF THE ACT AS UNDER: 4. ON FACTS WE FIND THAT THE INTEREST PAID BY THE ASSESSEE DURING THE PREVIOUS YEAR FOR THE FUNDS BORROWED FOR ACQUISITION OF SHAR ES IN THE COMPANY WAS AT THE RATE OF 24% P.A. AND THE TOTAL INTEREST PAID IN THE ACCOUNTING YEAR ALONE IS AS MUCH AS RS.17 44 310/-. IT IS ON RECORD THAT ASSESS EE HAD RECEIVED ONLY A DIVIDEND INCOME OF RS.3 LAKHS AND NO OTHER BENEFIT IS DERIVED FROM THE COMPANY FOR THE BUSINESS CARRIED ON BY IT. THE DISALLOWANCE PROHIBITED UNDER SECTION 14A IS EXPENDITURE INCURRED FOR EARNING ANY INCOME WHIC H DOES NOT CONSTITUTE TOTAL INCOME OF THE ASSESSEE. IN OTHER WORDS ANY EXPENDI TURE INCURRED FOR EARNING ANY INCOME WHICH IS NOT TAXABLE UNDER THE ACT IS NOT A N ALLOWABLE EXPENDITURE. DIVIDEND INCOME IS EXEMPT UNDER SECTION 10(33) OF T HE INCOME TAX ACT AND SO MUCH SO DIVIDEND EARNED BY THE ASSESSEE ON THE SHA RES ACQUIRED BY HER WITH BORROWED FUNDS DOES NOT CONSTITUTE TOTAL INCOME IN THE HANDS OF THE ASSESSEE. SO MUCH SO IN OUR VIEW DISALLOWANCE WAS RIGHTLY MADE BY THE ASSESSING OFFICER. IN FACT THE TRIBUNAL ITSELF HAS ESTIMATED DISALLOWANC E OF RS.2 LAKHS BY APPLYING SECTION 14A. WE DO NOT KNOW HOW THE TRIBUNAL CAN RE STRICT THE DISALLOWANCE TO RS.2 LAKHS AND ALLOW BALANCE ABOVE RS.15 LAKHS WHEN THE WHOLE BORROWED FUNDS WERE UTILISED BY THE ASSESSEE FOR PURCHASE OF SHARE S IN THE COMPANY. IN OUR VIEW THE REASONING GIVEN BY THE TRIBUNAL FOR DISALLOWANC E OF RS.2 LAKHS I.E. BY APPLYING SECTION 14A SQUARELY APPLIES FOR THE INTEREST PAID ON BORROWED FUNDS BECAUSE IT IS ON RECORD THAT THE ENTIRE FUNDS BORROWED WERE UT ILISED FOR ACQUISITION OF SHARES ITA N OS.1863 TO 1867/A/09 AND OTHERS 37 BY THE ASSESSEE IN THE COMPANY. IN FACT IN OUR VIE W ASSESSEE WOULD BE ENTITLED TO DEDUCTION OF INTEREST UNDER SECTION 36(1)(III) O F THE ACT ON BORROWED FUNDS UTILISED FOR THE ACQUISITION OF SHARES ONLY IF SHAR ES ARE HELD AS STOCK IN TRADE WHICH ARISES ONLY IF THE ASSESSEE IS ENGAGED IN TRADING I N SHARES. SO FAR AS ACQUISITION OF SHARES IS IN THE FORM OF INVESTMENT AND THE ONLY BENEFIT ASSESSEE DERIVED IS DIVIDEND INCOME WHICH IS NOT ASSESSABLE UNDER THE A CT THE DISALLOWANCE UNDER SECTION 14A IS SQUARELY ATTRACTED AND THE ASSESSING OFFICER IN OUR VIEW RIGHTLY DISALLOWED THE CLAIM. AS ALREADY POINTED OUT THE C ALCUTTA HIGH COURT DECISION WHICH PERTAINS TO THE PERIOD PRIOR TO INTRODUCTION OF SECTION 14A HAS NO APPLICATION. THE DECISION OF THE SUPREME COURT ALSO DOES NOT APPLY BECAUSE IN THIS CASE APART FROM INVESTMENT IN SHARES OF THE CO MPANY THERE IS NOTHING TO INDICATE THAT THE ASSESSEE'S BUSINESS WAS FULLY LIN KED WITH THE BUSINESS OF THE LEASING COMPANY OR THAT ASSESSEE'S BUSINESS IS SOLE LY DEPENDENT ON THE BUSINESS OF THE LEASING COMPANY. IN FACT THE WHOLE TRANSACTION WAS A TOTAL FIASCO IN AS MUCH AS AS AGAINST RS.17 44 310/- PAID TOWAR DS INTEREST ON BORROWED FUNDS SERVICED AT THE RATE OF INTEREST OF 24% P.A. THE DIVIDEND INCOME RECEIVED BY THE ASSESSEE DURING THE PREVIOUS YEAR WAS A MEAGRE SUM OF RS.3 LAKHS. THIS ONLY SHOWS THAT THE BUSINESS CARRIED ON BY THE LEAS ING COMPANY WAS NOT VERY SUBSTANTIAL TO JUSTIFY THE ASSESSEE'S INVESTMENT TH ROUGH BORROWED FUNDS. THEREFORE IN OUR VIEW THE PRINCIPLE OF COMMERCIAL EXPEDIENCY GONE INTO BY THE SUPREME COURT DOES NOT APPLY TO THE FACTS OF THIS C ASE. THEREFORE WE HOLD THAT THE TRIBUNAL IN PRINCIPLE RIGHTLY HELD THAT THE UTI LISATION OF BORROWED FUNDS FOR ACQUISITION OF SHARES WILL NOT ENTITLE THE ASSESSEE FOR CLAIMING DEDUCTION OF INTEREST PAID ON SUCH BORROWED FUNDS. HOWEVER WE H OLD THAT THE TRIBUNAL WAS NOT JUSTIFIED IN ALLOWING THE CLAIM IN EXCESS OF RS.2 L AKHS. FOR THE SAME REASONING APPLIED BY THE TRIBUNAL THE ASSESSEE IS NOT ENTITL ED TO DEDUCTION OF ANY AMOUNT TOWARDS INTEREST PAID ON FUNDS BORROWED BY WAY OF F IXED DEPOSITS TAKEN FOR ACQUISITION OF SHARES IN THE COMPANY WHICH HE LPED THE ASSESSEE ONLY TO EARN SOME DIVIDEND. 28.4 HONBLE PUNJAB & HARYANA HIGH COURT IN THEI R DECISION IN CIT VS. HERO CYCLES LTD. 323 ITR 518 ALSO OBSERVED THAT DISALLOWANCE UNDER SECTION 14A REQUIRES FINDING OF INCURRING OF EXPENDITURE AND WHERE IT IS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITU RE HAS BEEN INCURRED DISALLOWANCE UNDER SECTION 14A CANNOT STAND. 28.5 AS IS APPARENT FROM THE IMPUGNED ORDER SIN CE THE LD. CIT(A) DID NOT SUCCINCTLY BROUGHT OUT AS TO WHETHER OR NOT BORROWED FUNDS HAD INDEED BEEN INVESTED IN MUTUAL FUNDS OR ANY OTH ER EXPENDITURE HAD NEXUS WITH EARNING OF AFORESAID DIVIDEND INCOME NOR HE HAD THE BENEFIT OF THE VIEW TAKEN IN THE AFORESAID DECISION S WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. C IT(A) AND RESTORE THE MATTER TO ITA N OS.1863 TO 1867/A/09 AND OTHERS 38 HIS FILE FOR DECIDING THE ISSUES RAISED IN THE G ROUND NOS.1 TO 1.2 IN THE CO FOR THE AY 2007-08 AFRESH IN ACCORDANCE WITH LAW IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS INCLUDING THOSE REFERRED T O ABOVE AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES. NEEDLES S TO SAY THAT WHILE REDECIDING THE ISSUE THE LEARNED CIT(A) SHALL PASS A SPEAKING ORDER KEEPING IN MIND INTER ALIA THE MANDATE OF PROVISIONS OF SEC. 250(6) OF T HE ACT. WITH THESE OBSERVATIONS GROUND NOS.1 TO 1.2 IN THE CO FOR THE AY 2007-08 A RE DISPOSED OF. 29. GROUND NOS.3 AND 4 IN THE APPEAL OF THE REVEN UE FOR AY 2004- 05 2006-07 & 2007-08 AS ALSO GROUND NOS. 2 & 3 IN T HEIR APPEALS FOR THE AYS 2001-02 2002-03 2003-04 2005-06 BEING GE NERAL IN NATURE AND DO NOT REQUIRE ANY SEPARATE ADJUDICATION WHILE NO ADDITIONAL GROUND HAVING BEEN RAISED BEFORE US IN T ERMS OF RESIDUARY GROUND IN THE COS ALL THESE GROUNDS ARE THEREFORE DISMISSED. 30. IN THE RESULT APPEALS FILED BY THE REVENU E FOR THE AYS.2001- 02 2002-03 2003-04 & 2005-06 & CORRESPONDING COS FI LED BY THE ASSESSEE ARE DISMISSED AS ALSO THE APPEAL OF THE R EVENUE FOR THE AY 2007-08 WHILE THE APPEALS OF THE REVENUE FOR THE AY 2004-05 & 2006-07 & THE CO FILED BY THE ASSESSEE FOR THE A Y 2006-07 & 2007-08 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE COURT TODAY ON 22-03-2011 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 22 -03-2011 COPY OF THE ORDER FORWARDED TO: 1. ZEPPELIN MOBILE SYSTEMS (INDIA) LTD. ABHIJEET B UILDING 7 TH FLOOR 701-704 MITHAKHALI SIX ROADS NAVRANGPURA AHMEDABAD 2. THE ACIT CIRCLE-8 AHMEDABAD ITA N OS.1863 TO 1867/A/09 AND OTHERS 39 3. CIT CONCERNED 4. CIT(A)-XIV AHMEDABAD 5. DR ITAT AHMEDABAD BENCH-C AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD