DCIT, New Delhi v. Nanda Mint & Pine Chemicals Ltd., New Delhi

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL NEW DELHI BENCH E NEW DELHI BENCH E NEW DELHI BENCH E NEW DELHI BENCH E BEFORE SHRI C. L. SETHI JUDICIAL MEMBER AND SHRI K. D. RANJAN ACCOUTANT MEMBER ITA NO. 2148 /DEL/2010 (ASSESSMENT YEAR 2006-07) DCIT CIRCLE 13(1) VS. NANDA MINT & PINE CHEMICALS LTD. NEW DELHI. MUNSHI NIKETAN 1/10 ASAF ALI RD. NEW DELHI. (APPELLANTS) (RESPONDENTS) PAN / GIR NO. AACCN0965G APPELLANT BY: MS. SANGEETA GUPTA CIT DR RESPONDENT BY: SHRI K SAMPATH ADV. ORDER ORDER ORDER ORDER PER K. D. RANJAN AM: PER K. D. RANJAN AM: PER K. D. RANJAN AM: PER K. D. RANJAN AM: 1. THIS APPEAL OF THE REVENUE FOR THE ASSESSMENT YE AR 2006-07 ARISES OUT OF THE ORDER OF LD. CIT(A) XVI NEW DELH I. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE AS UNDER: 1) THAT ON HT FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN ALLOWING CLAIM OF DEDUC TION UNDER SECTION 80IB OF THE ACT OF ` 6 75 41 495/- DISALLO WED BY THE A.O. 2) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN CONSIDERING THE CONTRAC TUAL WORKERS ALSO FOR THE PURPOSE OF FULFILLMENT OF THE CONDITIO N OF MINIMUM NUMBER OF WORKERS PRESCRIBED UNDER THE PROVISIONS O F SECTION 80IB OF THE ACT. 2. THE ONLY ISSUE FOR CONSIDERATION IN THIS APPEAL RELATES TO DISALLOWANCE OF CLAIM FOR DEDUCTION U/S 80IB OF ` 6 75 41 495/-. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSE SSEE COMPANY DURING THE YEAR UNDER CONSIDERATION WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF ESSENTIAL OIL MENTHOL SOLUTION D MD AND MENTHOL FROM ITS INDUSTRIAL UNDERTAKING AT JAMMU. THE A.O. IN ORDER TO EXAMINE THE CLAIM FOR DEDUCTION U/S 80IB ASKED THE ASSESSEE TO FURNISH THE DETAILS. SINCE THE CONDITIONS FOR ALLO WABILITY OF DEDUCTION 2 U/S 80IB OF THE ACT INTER-ALIA INCLUDES THAT THE IN DUSTRIAL UNDERTAKING SHOULD EMPLOY 10 OR MORE WORKERS IN A MANUFACTURING PROCESS CARRIED ON WITH THE AID OF POWER OR EMPLOY 20 OR MO RE WORKERS IN A MANUFACTURING PROCESS CARRIED ON WITHOUT THE AID OF POWER. SINCE THE ASSESSEE WAS CARRYING ON MANUFACTURING PROCESS WITH THE AID OF POWER AND THEREFORE IT WAS REQUIRED TO EMPLOY 10 O R MORE WORKERS IN ITS MANUFACTURING PROCESS. AS PER THE SALARY RE GISTER PRODUCED BY THE ASSESSEE THE NUMBER OF WORKERS EMPLOYED WERE 8 OR 9. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE CLAIM F OR DEDUCTION U/S 80IB SHOULD NOT BE DISALLOWED. IT WAS SUBMITTED BY THE ASSESSEE THAT THERE WERE CERTAIN CASUAL WORKERS EMPLOYED IN THE MANUFACTURING PROCESS. IT WAS ALSO SUBMITTED THAT THE WORD WORKER INCLUDES CASUAL PERMANENT TEMPORARY WOR KER. THEREFORE THE REQUIREMENT OF LAW WAS COMPLETED. H OWEVER THIS CONTENTION OF THE ASSESSEE WAS REJECTED BY THE A.O. BY HOLDING THAT THE CONDITION OF EMPLOYING MINIMUM NUMBER OF WORKER S WAS NOT SATISFIED. 3. ON APPEAL BEFORE CIT(A) IT WAS SUBMITTED THAT THE A.O. HAS IGNORED THE NUMBER OF PERSONS EMPLOYED IN BUYING OF RAW MATERIAL AS WELL AS CONTRACT LABOUR ENGAGED BY IT. THE ASSE SSEE HAS EMPLOYED CONTRACT LABOUR ALSO THROUGH ONE SHRI CHAU DHARY AVRIM SOBAT WHO WAS REGISTERED FOR THIS PURPOSE WITH THE STATE GOVERNMENT AUTHORITIES. SALARY SHEETS ALONG WITH T HE RELEVANT REGISTER WERE ALSO PRODUCED FOR VERIFICATION. AS P ER THE DETAILED CHART SUBMITTED BY THE ASSESSEE IT WAS EXPLAINED T HAT THE NUMBER OF PERSONS ENGAGED IN MANUFACTURING PROCESS WERE RA NGING FORM 6 12; CASUAL AND CONTRACTED WORKERS WERE 8 TO 9; 2 P ERSONS WERE ASSISTING FOR PURCHASE AT BARABANKI. FURTHER 3 DI RECTORS WERE ALSO ENGAGED IN THE MANUFACTURING ACTIVITY. LD CIT(A) A FTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT AS P ER SALARY REGISTER AS WELL AS CERTIFICATE OF THE CONTRACTOR C LEARLY INDICATED THAT IN EACH OF THE MONTHS STARTING FORM JULY 2005 TO MA RCH 2006 THE 3 CONTACTOR PROVIDED WORKERS BETWEEN 8 TO 9 EVERY MON TH TO THE ASSESSEE FOR VARIOUS PURPOSES LIKE LOADING OF TRUCK S CARRYING RAW MATERIAL PUTTING IN GODOWNS ETC. VERIFICATION/CHEC KING OF DATE OF SUCH DRUMS COLLECTING SAMPLES FORM EACH DRUM LOAD ING OF RAW MATERIAL IN CHILLING UNIT/TANK FROM THE DRUMS WITH THE HELP OF MOTOR/ AFTER FILTRATION SPONGING/CLEANING OF THE DRUMS T RANSFERRING THE MANUFACTURED GOODS FROM PROCESS TANKS TO STORAGE TA NKS KEPT FOR EACH FINISHED GOODS CLEANING AND PAINTING OF DRUMS TRANSFERRING THE FINISHED GOODS TO DRUMS ETC. THE A.O. HAD NOT DISPUTED THESE FACTS. THE ONLY GROUND FOR DISALLOWING WAS WHETHER CONTRACT LABOUR PROVIDED BY THE CONTRACTOR AND THE WORKERS ENGAGED IN THE PURCHASE OF RAW MATERIAL WERE TO BE COUNTED FOR THE PURPOSE OF SECTION 80IB(2)(IV) OF THE ACT OR NOT. THE CIT(A) FURTHER NOTED THAT MANUFACTURING PROCESS SHOULD BE INTERPRETED IN ORDI NARY SENSE AND SHOULD NOT BE RESTRICTED TO THE ACTUAL MANUFACTURIN G ALONE. THE PROCESS WHICH INTIMATELY CONNECTED WITH THE ACTUAL MANUFACTURING PROCESS WOULD ALSO BE ADMITTED WITHIN EXPRESSION. EMPLOYING 10 OR MORE WORKERS IN MANUFACTURING PROCESS NORMALLY WOUL D COVER THE ENTIRE PROCESS CARRIED OUT BY THE INDUSTRIAL UNDERT AKING OF CONVERTING THE RAW MATERIAL TO FINISHED GOODS. THE WORK OF 10 OR MORE PERSONS EMPLOYED IN THE MANUFACTURING PROCESS SHOULD BE INTEGRALLY CONNECTED WITH THE MANUFACTURING PROCESS . THE WORK SHOULD BE REASONABLY CONNECTED AND BE PART OF MANUF ACTURING PROCESS. THE VARIOUS PROCESSES STARTING FROM PURCH ASE OF RAW MATERIAL AND SALE OF FINISHED GOODS FORM INTEGRAL P ART OF MANUFACTURING PROCESS AND THE WORKERS OR LABOUR EMP LOYED IN THESE PROCESSES WERE WORKERS EMPLOYED IN THE MANUFACTURIN G PROCESS. HE PLACED RELIANCE ON THE DECISION OF HON'BLE SUPRE ME COURT IN THE CASE OF J K COTTON PRINTING & WEAVING MILLS CO. LTD . 16 STC 563 WHEREIN IT HAS BEEN HELD THAT THE EXPRESSION IN TH E MANUFACTURING OF GOODS IN SECTION 8(3)(B) OF THE CENTRAL SALES T AX ACT NORMALLY ENCOMPASSES THE ENTIRE PROCESS CARRIED ON BY THE DE ALER OF CONVERTING THE RAW MATERIAL INTO FINISHED GOODS. H E FURTHER NOTED 4 THAT THOUGH THIS DECISION WAS RENDERED IN THE CONTE XT OF CENTRAL SALES TAX ACT INTERPRETATION CAN ALSO BE PUT TO EXP RESSION EMPLOYING 10 OR MORE WORKERS IN THE MANUFACTURING PROCESS. LD. CIT(A) ACCORDINGLY HELD THAT MANUFACTURING PROCESS SHOULD BE CONSTRUED AS EXPRESSION OF PROCUREMENT OF RAW MATER IAL PROCESSING THEREOF AND GENERATION OF FINISHED GOODS AND THE P ERSONS INVOLVED IN ALL THESE THREE PROCESSES HAVE TO BE TREATED AS EMPLOYED IN THE MANUFACTURING PROCESS. LD. CIT(A) REFERRED TO THE DECISION OF MADRAS HIGH COURT IN THE CASE OF SOFT BEVERAGES P. LTD. VS ESI CORPORATION (2001) (002) LLJ-0701-MAD CATEGORICALLY HELD THAT .. OF COURSE THE PERIOD OF EMPLOYMENT MAY BE SHORT OR IT MAY BE ON DAILY WAGES BUT STILL THERE IS NO FETTER CALLING T HE PERSON ENGAGED AS EMPLOYEE ESPECIALLY WHEN THE ENGAGEMENT IS IN CONNE CTION WITH THE MANUFACTURING PROCESS OR PROCEDURE WHICH ARE INTEGR AL AND INCIDENTAL TO THE EMPLOYMENT. HE ALSO REFERRED TO THE DECISION IN THE CASE OF SHRI PAR FRAGRANCE P. LTD. VS I.T.O. 20 SOT 440 IN WHICH ITAT MUMBAI BENCH DELIBERATED ON THE ISSUE OF PERS ON ENGAGED IN MANUFACTURING PROCESS IN CONTEXT OF SECTION 80IB O F THE ACT AND IT WAS HELD THAT THE WORKER IN THE CONTEXT OF SECTION 80-IB OF THE I. T. ACT 1961 WOULD INCLUDE ALL PERSONS ENGAGED IN THE MANUFACTURING PROCESS. THIS WOULD INCLUDE FACTORY MANAGER AND HI S ASSISTANTS FOR COMPUTING THE NUMBER OF WORKERS EMPLOYED. HOWEVER THE PERSONS EMPLOYED IN ACCOUNTING AND ADMINISTRATIVE FUNCTIONS WOULD NOT BE SO INCLUDED. LD. CIT(A) REFERRED TO THE DECISION OF HON'BLE HIGH COURT OF ALLAHABAD IN THE CASE OF SULTAN & SONS RIC E MILLS 272 ITR 181 (ALLD.) WHEREIN IT HAS BEEN HELD MANUFACTURING PROCESS INCLUDES PURCHASE OF RAW MATERIAL TO BE FILLED IN PLANT TILL THE SALE OF FINISHED GOODS WHICH MAY BE ACCEPTABLE. THE VARIOUS PROCESS STARTING FROM PURCHASE OF RAW MATERIAL AND SALE OF FINISHED GOODS FORM THE INTEGRAL PART OF MANUFACTURING PROCESS AND WORK OF LABOUR EMPLOYED IN THESE PROCESSES WERE WORKERS EMPLOYED IN MANUFAC TURING PROCESSES WITHIN THE MEANING OF SECTION 80J AND 80H H. 5 4. LD CIT(A) IN VIEW OF THE ABOVE FACTS WAS OF THE OPINION THAT THE A.O. WAS NOT JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSESSEE. HE WAS OF THE OPINION THAT NUMBER OF WORKER ENGAGED ON CASUAL BASIS THROUGH CONTRACTOR AS WELL AS PERSON EMPLOYED BY TH E ASSESSEE FOR PURCHASE OF RAW MATERIAL AT BARABANKI IN U.P. WERE REQUIRED TO BE CONSIDERED. HE ACCORDINGLY ALLOWED THE APPEAL IN F AVOUR OF THE ASSESSEE. 5. BEFORE US LD. CIT DR SUBMITTED THAT FOR ANY DED UCTION UNDER CHAPTER VIA THE REQUIREMENT OF PROVISIONS OF LAW S HOULD BE FULFILLED. AS PER LAW WHERE MANUFACTURING PROCESS IS CARRIED W ITH THE HELP OF ELECTRICITY/POWER AND NUMBER OF WORKERS EMPLOYED SH OULD BE 10 OR MORE. THE CONTRACTUAL WORKERS WERE NOT EMPLOYED WI TH THE ASSESSEE AND THEREFORE THERE WAS NO EMPLOYER EMPLO YEE RELATIONSHIP BETWEEN THE CONTRACTUAL WORKERS AND TH E ASSESSEE. THEREFORE CONDITION OF SECTION 80IB(2)(IV) IS NOT SATISFIED. ON THE OTHER HAND LD. A.R. SUPPORTED THE ORDER OF LD. CIT (A). IT HAS BEEN SUBMITTED THAT ENTIRE PROCESS OF MANUFACTURING SHOU LD BE TAKEN INTO CONSIDERATION FOR COMPUTATION OF NUMBER OF WORKERS ENGAGED IN THE MANUFACTURING PROCESSES. HE PLACED RELIANCE ON THE DECISIONS OF HON'BLE HIGH COURT OF ALLAHABAD IN THE CASE OF SULT AN & SONS RICE MILLS (SUPRA); CIT VS HANUMAN RICE MILLS 275 ITSDR 79 CIT VS PRITHVIRAJ BHOORCHAND 280 ITR 94 (GUJ.) AND ACIT VS PRITHVIRAJ BHOORCHAND 310 ITR 88 (GUJ.). 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. SECTION 80IB(2)(IV) STATES THAT WHERE INDUSTRIAL UNDERTAKING MANUFACTURES OR PRODUCES ART ICLES OR THINGS THE INDUSTRIAL UNDERTAKING SHOULD EMPLOY 10 OR MORE WORKERS IN MANUFACTURING PROCESS CARRIED ON WITH THE HELP OF P OWER OR 20 OR MORE WORKERS IN A MANUFACTURING PROCESS CARRIED ON WITHOUT THE AID OF POWER. IN THE CASE BEFORE US THE ASSESSEE HAD ENGAGED CONTRACTUAL LABOUR AS WELL AS THE STAFF EMPLOYED FO R PURCHASE OF RAW 6 MATERIAL. THE MANUFACTURING OR PROCESSING OF AN AR TICLE OR THING AS HELD BY VARIOUS COURTS WOULD INCLUDE THE PROCESS FR OM PURCHASE OF RAW MATERIAL TILL THE FINAL PRODUCT IS DERIVED. IN THE CASE BEFORE US THE ASSESSEE HAS ENGAGED 10 OR MORE WORKERS IN THE MONTHS OF AUGUST OCTOBER & NOVEMBER AND MARCH. IN JULY SEP . AND DECEMBER NUMBER OF REGULAR EMPLOYEES ARE LESS THAN 10. IN ADDITION TO REGULAR WORKERS CASUAL/CONTRACT WORKERS WERE ENGAGED 9 EACH IN THE MONTHS OF JULY AND AUGUSTS AND 8 EACH I N THE OTHER MONTHS. IN ADDITION TO THIS 2 PERSONS WERE REGULA RLY EMPLOYED FOR PURCHASE OF RAW MATERIAL AT BARABANKI. THEREFORE T HE REQUIREMENT OF 10 WORKERS IS FULFILLED IN ALL THE MONTHS AND TH EREFORE IN OUR CONSIDERED OPINION LD. CIT(A) WAS JUSTIFIED IN ALL OWING THE CLAIM OF THE ASSESSEE. AS PER THE DECISION OF HON'BLE SUPRE ME COURT IN THE CASE OF J K SPINNING & WEAVING MILLS THE MANUFACTU RING OF GOODS WOULD INCLUDE; ALL THE PROCESSES WHICH ARE DIRECTLY RELATED TO ACTUAL PRODUCTION. ACCORDINGLY IN OUR CONSIDERED OPINION LD .CIT(A) IS JUSTIFIED IN DELETING THE ADDITION. 6. IN THE RESULT THE APPEAL OF THE REVENUE STANDS DISMISSED. 7. PRONOUNCED IN THE OPEN COURT ON 18 TH FEB. 2011. SD./- SD./- (C. L. SETHI) (K. D. RANJAN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:18 TH FEB. 2011 SP. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT TRUE COPY: BY ORDER 4. CIT(A) 5. DR DY. REGISTRAR ITAT NEW DELHI