ACIT, Dehradun v. M/s Windlass Steel Crafts,, Dehradun

ITA 3245/DEL/2010 | 2005-2006
Pronouncement Date: 23-12-2011 | Result: Partly Allowed

Appeal Details

RSA Number 324520114 RSA 2010
Assessee PAN AAAFW0958M
Bench Delhi
Appeal Number ITA 3245/DEL/2010
Duration Of Justice 1 year(s) 5 month(s) 22 day(s)
Appellant ACIT, Dehradun
Respondent M/s Windlass Steel Crafts,, Dehradun
Appeal Type Income Tax Appeal
Pronouncement Date 23-12-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted I
Tribunal Order Date 23-12-2011
Date Of Final Hearing 23-11-2011
Next Hearing Date 23-11-2011
Assessment Year 2005-2006
Appeal Filed On 01-07-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I NEW DELHI) BEFORE SHRI RAJPAL YADAV AND SHRI A.N. PAHUJA ITA NOS. 3245 & 3246/DEL/2010 ASSESSMENT YEARS: 2005-06 & 2006-07 ASSISTANT COMMISSIONER OF IT VS. WINDLASS STEEL C RAFTS CIRCLE 1 11A RAJPU ROAD NEW DELHI. DEHRADUN. (PAN: AAAFW0958M) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI M. VERMA CIT(DR) RESPONDENT BY: S/SHRI K. SAMPATH & RAJ KUMAR ADV. DATE OF HEARING : 01.12.2011 DATE OF PRONOUNCEMENT : 23.12.2011 ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE PRESENT TWO APPEALS ARE DIRECTED AT THE INSTANC E OF THE REVENUE AGAINST THE SEPARATE ORDERS OF EVEN DATED I.E. 17.3 .2010 PASSED BY THE LEARNED CIT(APPEALS) FOR ASSESSMENT YEARS 2005-06 A ND 2006-07. THE ISSUES INVOLVE IN BOTH THE APPEALS ARE COMMON THER EFORE WE HEARD THEM TOGETHER AND DEEM IT APPROPRIATE TO DISPOSE OF THEM BY THIS COMMON ORDER. GROUND NO.2 TAKEN IN BOTH THE APPEALS ARE VERBATIM SAME. IN THIS GROUND IN BOTH THE YEARS THE REVENUE HAS PLEADED THAT LEARNE D CIT(APPEALS) HAS ERRED IN TREATING THE PRODUCTS MANUFACTURED BY THE ASSESS EE AS A HANDICRAFTS FOR THE PURPOSE OF ALLOWABILITY OF CLAIM UNDER SEC. 80IC OF THE INCOME-TAX ACT 1961. 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAS FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2005-06 ON 24 TH OCTOBER 2005 DECLARING NIL INCOME. SIMILARLY IN ASSESSMENT YEAR 2006-07 RETU RN WAS FILED ON 13.10.2006 DECLARING NIL INCOME. THE ASSESSEE HAS C LAIMED DEDUCTION UNDER SEC. 80-IC(2) OF THE ACT. ASSESSING OFFICER IN BOTH THE ASSESSMENT YEARS DID NOT EXAMINE THE ISSUE ELABORATELY RATHER IN ASSESSM ENT YEAR 2005-06 IT HAS REPRODUCED THE ORDER OF LEARNED CIT(APPEALS) PASSED IN ASSESSMENT YEAR 2004-05. THEREAFTER HE REPRODUCED THE SUBMISSIONS OF THE ASSESSEE AND IN CONCLUDING PARAGRAPH HE OBSERVED THAT SINCE THIS OR DER HAS NOT BEEN ACCEPTED AND AN APPEAL HAS BEEN FILED BEFORE THE ITAT THERE FORE ASSESSEE IS NOT ENTITLED FOR DEDUCTION UNDER SEC. 80-IC OF THE ACT. HE FURTHER OBSERVED THAT IN CASE THAT DEDUCTION UNDER SEC. 80-IC IS TO BE GR ANTED TO THE ASSESSEE THEN INTEREST INCOME ON FDRS WILL BE EXCLUDED. HE RESTRI CTED THE AMOUNT ON WHICH DEDUCTION UNDER SEC. 80-IC WOULD BE ALLOWED A T RS.5 53 42 051 AS AGAINST RS.5 60 17 456. SIMILARLY IN ASSESSMENT YE AR 2006-07 HE EXCLUDED THE AMOUNT OF FLUCTUATION GAIN AMOUNTING TO RS.3 96 655 FROM THE ELIGIBLE AMOUNT ON WHICH SECTION 80-IC WOULD BE COMPUTED. 3. ON APPEAL LEARNED CIT(APPEALS) HAS ALLOWED THE DEDUCTION TO THE ASSESSEE. 3 4. WITH THE ASSISTANCE OF LEARNED REPRESENTATIVES WE HAVE GONE THROUGH THE RECORD CAREFULLY. WE FIND THAT THE ORDER OF LE ARNED CIT(APPEALS) IN ASSESSMENT YEAR 2004-05 HAS BEEN UPHELD BY THE ITAT IN ITA NO.2768/DEL/2007. IN THAT ORDER THE DEDUCTION UNDE R SEC. 80-IC WAS NOT DISALLOWED TO THE ASSESSEE ON THE GROUND THAT PRODU CT MANUFACTURED BY THE ASSESSEE AS HANDICRAFTS WOULD NOT COME WITHIN THE A MBIT OF SECTION 80IC RATHER IT WAS DISALLOWED ON THE GROUND THAT ASSESSE E FAILED TO DEMONSTRATE THAT IT HAS MADE SUBSTANTIAL EXPANSION IN THIS YEAR . LEARNED CIT(APPEALS) HAS OBSERVED THAT ASSESSEE DEMONSTRATED THE SUBSTAN TIAL EXPANSION AND THIS REASONING OF THE LEARNED CIT(APPEALS) MET THE APPRO VAL OF THE ITAT. IN THE PRESENT THESE TWO ASSESSMENT YEARS WE FIND THAT LE ARNED FIRST APPELLATE AUTHORITY HAS DISCUSSED ALL THESE ISSUES ELABORATEL Y. THE FINDING OF THE LEARNED CIT(APPEALS) IN ASSESSMENT YEAR 2005-06 COV ERING BOTH THESE ISSUES AND INCORPORATING THE OBSERVATIONS OF THE IT AT READS AS UNDER: 5.5. 5.5. 5.5. 5.5. I HAVE CONSIDERED THE ABOVE SUBMISSION OF THE COUNSEL OF THE I HAVE CONSIDERED THE ABOVE SUBMISSION OF THE COUNSEL OF THE I HAVE CONSIDERED THE ABOVE SUBMISSION OF THE COUNSEL OF THE I HAVE CONSIDERED THE ABOVE SUBMISSION OF THE COUNSEL OF THE APPELLANT AND THE FACTS INDICATED BY THE AO IN THE ASS ESSMENT ORDER AND THE APPELLANT AND THE FACTS INDICATED BY THE AO IN THE ASS ESSMENT ORDER AND THE APPELLANT AND THE FACTS INDICATED BY THE AO IN THE ASS ESSMENT ORDER AND THE APPELLANT AND THE FACTS INDICATED BY THE AO IN THE ASS ESSMENT ORDER AND THE REMAND REPORT IT IS OBSERVED T REMAND REPORT IT IS OBSERVED T REMAND REPORT IT IS OBSERVED T REMAND REPORT IT IS OBSERVED THAT FOR CLAIMING DEDUCTIO N U/S 80 HAT FOR CLAIMING DEDUCTION U/S 80 HAT FOR CLAIMING DEDUCTION U/S 80 HAT FOR CLAIMING DEDUCTION U/S 80- -- -IC OF THE I.T. IC OF THE I.T. IC OF THE I.T. IC OF THE I.T. ACT AN EXISTING UNIT HAS TO SATISFY THE FOLLOWING C ONDITIONS AS PER PROVISIONS OF ACT AN EXISTING UNIT HAS TO SATISFY THE FOLLOWING C ONDITIONS AS PER PROVISIONS OF ACT AN EXISTING UNIT HAS TO SATISFY THE FOLLOWING C ONDITIONS AS PER PROVISIONS OF ACT AN EXISTING UNIT HAS TO SATISFY THE FOLLOWING C ONDITIONS AS PER PROVISIONS OF SECTION 80 SECTION 80 SECTION 80 SECTION 80- -- -IC(2)(A)(II) OF THE I.T. ACT 1961 : IC(2)(A)(II) OF THE I.T. ACT 1961 : IC(2)(A)(II) OF THE I.T. ACT 1961 : IC(2)(A)(II) OF THE I.T. ACT 1961 : I)THE BUSINESS OF MANUFACTURING OR PRODUCING ANY ART ICLE OR THING SHOULD BE IN THE NOTIFIED AREA LIKE ANY EXPORT PROCESSING ZONE OR 4 INTEGRATED INFRASTRUCTURE DEVELOPMENT CENTRE OR INDUSTRIAL GROWTH CENTRE OR INDUSTRIAL ESTATE OR INDUSTRIAL PARK OR SOFTW ARE TECHNOLOGY PARK OR INDUSTRIAL AREA OR THEME PARK AS NOTIFIED BY TH E BOARD IN ACCORDANCE WITH THE SCHEME FRAMED BY THE CENTRAL GOVERNME NT IN THIS REGARD IN THE STATE OF HIMACHAL PRADESH OR IN THE STATE OF UTTARANCHAL ; II) THE INDUSTRIAL UNDERTAKING OR ENTERPRISE IS NOT PR ODUCING ANY ARTICLE OR THING SPECIFIED IN THE THIRTEENTH SCHEDULE. III) AN EXISTING MANUFACTURING UNIT SHOULD UNDERTAKE S UBSTANTIAL EXPANSION BEGINNING 7.1.2003 AND ENDING BEFORE 1.4.201 2. THE ADMISSIBILITY OF DEDUCTION U/S 80-IC IS ALSO AVAI LABLE AS PER PROVISION OF SECTION 80-IC(2)(B)(II) OF THE I.T. ACT AND NECESSARY CRITERIA FOR AN EXISTING MANUFACTURING UNIT ARE AS UNDER :- (I) THE BUSINESS OF MANUFACTURING OR PRODUCING ANY ARTICL E OF THING SHOULD BE IN THE STATE OF HIMACHAL PRADESH OR STATE OF UTTARANCHAL. (II) THE UNDERTAKING OR ENTERPRISE MANUFACTURES OR PRODUCES ANY ARTICLE OR THINGS SPECIFIED IN FOURTEENTH SCHEDULE. (III) AN EXISTING MANUFACTURING UNIT SHOULD UNDERTAKE SUBST ANTIAL EXPANSION BEGINNING FROM 7.1.2003 AND ENDING BEFORE 1.4.2012. 5 5.5 IN THE ASSESSMENT FOR A.Y. 2004-05 THE AO WAS SATISFIED ABOUT THE FIRST TWO CONDITIONS BUT NOT ON THE THIRD C ONDITION THAT THE APPELLANT HAS UNDERTAKEN SUBSTANTIAL EXPANSION DURING THE PERIOD B EGINNING 7.1.2003 AND ENDING BEFORE 1.4.2012. THE MAIN REASON FOR NOT AC CEPTING THE APPELLANTS PLEA THAT SUBSTANTIAL EXPANSION HAS ACTUAL LY TAKEN PLACE DURING A.Y. 2004-05 IS THAT THE APPELLANT FIRM COULD NOT PR OVIDE THE BOOK VALUE OF PLANT AND MACHINERY EXISTING AS ON THE FIRST DAY OF TH E FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR 2004-05. IN FACT THE APPELLANT FIRM PROVIDED THE WDV OF PLANT AND MACHINERY AS ON 31.3.1991 AND ADDITION MAD E IN PLANT AND MACHINERY THEREAFTER. THE APPELLANT HAS TAKEN THE DOUBLE OF WDV AS ON 31.3.1991 AS THE BOOK VALUE OF ASSETS BEFORE DEPRECIATION AND SUBSEQUENT TO THAT THE ADDITIONS TO PLANT AND MACHINERY HAVE BEEN ADD ED TO ARRIVE AT THE BOOK VALUE OF PLANT AND MACHINERY AS ON THE FIRST DAY OF FINANCIAL YEAR AT ` 2 43 93 718/- AND SINCE THE EXPANSION BY WAY OF PLANT AND MACHINERY FOR FINANCIAL YEAR 2004-05 WAS MORE THAN 50% OF SUCH BOO K VALUE THE CLAIM OF DEDUCTION U/S 80-IC WAS MADE IN THAT ASSESSMENT YEAR. HO WEVER THE AO DID NOT ACCEPT THE FIGURE OF DOUBLE OF WDV AS BOOK VALU E OF ASSET AS ON 31.3.1991 IN ABSENCE OF PROPER EVIDENCE TO JUSTIFY THE SA ME. WITH THESE FINDINGS THE AO HAS REJECTED THE CLAIM OF DEDUCTION U/S 80-IC OF THE I.T. ACT. THE MATTER CAME UP IN APPEAL BEFORE LD. CIT(A) AND VIDE ORDER NO. 293/DDN/2005-06 DATED 28.03.2007 LD. CIT(A) HAS ALL OWED THE CLAIM 6 OF DEDUCTION U/S 80-IC OF THE I.T. ACT. IN THIS REGARD THE DETAILED OBSERVATIONS AS NOTED IN THE APPELLATE ORDER ARE MENTIONED AS UNDER :- IT IS TRUE THAT PLANT AND MACHINERY TO THE EXTENT OF ` 99 55 929/- OUT OF TOTAL PLANT AND MACHINERY INSTALLED OF `. 1 35 89 347/- BETW EEN APRIL 2003 TO MARCH 2004 HAS BEEN INSTALLED IN THE MONTH OF FEBRUARY 2004. HOWEVER THIS IN MY OPINION IS NOT A VALID REASON FOR DENYING DEDUCTION TO THE APPELLANT. IT IS A WELL KNOWN FACT THAT ASSESSEES IN PA ST USED TO BUY TRUCKS AS THE LAST WEEK ON MARCH AND THEY WERE ALLOWED DEPRECIATION F OR THE FULL YEAR. SIMILARLY IN THE CASES OF NEWLY SET UP BUSINESS IF PLA NT AND MACHINERY IS READY FOR PRODUCTION AND IS PUT TO USE SAY IN THE MON TH OF MARCH FULL DEPRECIATION IS ALLOWABLE FOR THE ENTIRE 12 MONTHS PERIOD (BEFORE THE 2 ND PROVISO TO SECTION 32 RESTRICTING THE DEPRECIATION TO 50 % IF THE ASSET WAS PURCHASED/INSTALLED AFTER 30 TH OF SEPTEMBER OF THE PREVIOUS YEAR). THUS PLANT AND MACHINERY MUST BE USED FOR THE PURPOSE OF BUSINESS DU RING THE PREVIOUS YEAR AND IT IS NOT NECESSARY THAT THE USER SHOULD BE FOR THE ENTIRE PREVIOUS YEAR (CIT VS. MOTORS & GEN. STORES 14 ITR 130 CIT VS. BANARASI DAS & SONS 61 ITR 414) CIRCULAR NO. 378 DATED 3.3.84 ALSO CLAR IFIES THE INTENTION OF THE LEGISLATURE WITH REFERENCE TO RELIEF U/S 80J. ACCORDING TO THE CIRCULAR RELIEF U/S 80J IS AVAILABLE FOR THE ENTIRE PREVIOUS YEAR IRRESPECT IVE OF THE PERIOD OF OPERATION OF THE NEW INDUSTRIAL UNDERTAKING. THE BOARD A CCEPTED THIS INTERPRETATION GIVEN BY KARNATAKA HIGH COURT IN THE CA SE OF CIT VS. MYSORE 7 PETROCHEMICAL LTD. 145 ITR 416. THE AO WAS THEREFORE NO T RIGHT IN NOT ALLOWING EXEMPTION U/S 80-IC OF THE I.T. ACT ON THE GRO UND THAT MAJOR INVESTMENT IN PLANT AND MACHINERY WAS MADE IN FEBRUARY 2004. COMING TO THE SUBSTANTIAL EXPANSION I FIND THAT THE F IRM IS A VERY OLD FIRM CONSTITUTED IN 1964 WITH ONLY TWO PARTNERS SHRI VED PRAKASH WINDLASS AND SHRI VINAY KUMAR WINDLASS. THEREFORE THE FIRM HAS B EEN RECONSTITUTED FROM TIME TO TIME AND IT WAS IN THE YEAR 1989 THAT LAND WAS PURCHASED IN BALAWALA AND ADDITIONS TO THE PLANT AND MACHINERY WERE MADE IN THE YEAR 1990. THE APPELLANT FURNISHED BEFORE THE AO REPORT OF MALI K & CO. DATED 16.6.2003 WHEREIN THE GROSS BLOCK OF PLANT AND MACHINER Y AS ON 1.4.1993 HAS BEEN TAKEN AT `. 13 13 243/- (WDV `. 4 11 450/-). THE APPELLANT VIDE ITS LETTER DATED 17.3.2004 INFORMED THE CIT DEHRADUN AND THE DCIT CIRCLE-1 DEHRADUN ABOUT THE CERTIFICATE OF THE CHARTERED ACCOUNTAN T DATED 16.6.2003 ABOUT THE GROSS BLOCK OF PLANT AND MACHINER Y. THE GROSS VALUE OF THIS MACHINERY AS ON 1.4.1990 CANNOT BE MORE THAN ABOU T `. 25.50 LAKHS TAKING DEPRECIATION @ 20% IN THE YEAR 1990 TO 1993. BEFORE 1989 THE APPELLANTS FACTORY WAS SITUATED AT 11-A RAJPUR ROAD DEHRADUN. THE PLANT AND MACHINERY WAS MERELY IN THE FORM OF BHATTIS FOR C ASTING THE IRON AND BUFFING FACILITY. I AGREE WITH THE APPELLANT THAT THE VALUE OF SUCH PLANT AND MACHINERY MUST HAVE BEEN IN THOUSAND IN THE YEAR OF INVEST MENT. THE DIFFICULTY ON THE PART OF THE ASSESSEE TO KEEP RECORD OF TRANSACTIONS WHICH 8 TOOK PLACE BETWEEN 1964 TO 1989 HAS TO BE BORNE IN MIND B Y THE DEPARTMENT AND SHOULD UNDER NO CIRCUMSTANCES BE UNDERESTI MATED OR TAKEN ADVANTAGE OF. AFTER A LAPSE OF OVER 30 YEARS AN ASSESSEE CANNOT BE EXPECTED TO KEEP ACCORD OF THE GROSS BLOCK ESPECIALLY WHEN D EPARTMENT UNDER RULE 6F EXPECTS BOOKS OF ACCOUNT TO BE MAINTAINED O NLY FOR SIX YEARS. I AM THEREFORE OF THE OPINION THAT APPELLANT HAS SATISFI ED THE CONDITION OF SUBSTANTIAL EXPANSION. ALL OTHER CONDITIONS FOR GRA NT OF DEDUCTION U/S 80- IC ARE ALSO SATISFIED VIZ. THE APPELLANTS FACTORY IS S ITUATED IN THE NOTIFIED AREA APPELLANT IS NOT PRODUCING GOODS OR ARTICLE MENTI ONED IN XIII SCHEDULE AND BEING AN EXISTING UNIT HAS INVESTED ENOUGH MONEY IN PLANT AND MACHINERY FULFILLING THE CRITERIA OF SUBSTANTIAL EXPA NSION. THE AO WAS THEREFORE NOT RIGHT IN DENYING THE EXEMPTION. HE IS DIRECTED TO ALLOW DEDUCTION U/S 80-IC OF THE I.T. ACT. 5.7 THE DEPARTMENT FILED APPEAL BEFORE HONBLE ITAT AND VID E ORDER IN ITA NO. 2768/DEL/2007 DATED 24.12.2008 THE HONBLE ITA T DELHI HAS UPHELD THE ORDER OF THE CIT(A) GRANTING THE CLAIM OF DEDUCTION U/S 80-IC OF THE I.T. ACT 1961. IN THIS RESPECT THE FINDING OF THE HONBLE ITAT IS REPRODUCED AS UNDER :- 5. WE HAVE CONSIDERED THE FACTS OF THE CASE AND RIVAL SUB MISSIONS. IT IS TRUE THAT THE ISSUE OF SUBSTANTIAL EXPANSION HAS TO BE D ETERMINED ON THE BASIS OF THE VALUE OF GROSS BLOCK OF THE PLANT AND MACHINERY ON THE FIRST DAY OF THE 9 PREVIOUS YEAR IN WHICH SUCH SUBSTANTIAL EXPANSION IS U NDERTAKEN. HOWEVER THAT DOES NOT MEAN THAT THE ISSUE OF SUBSTANTIAL EXPANSI ON CANNOT BE RESOLVED IN THE ABSENCE OF NON-AVAILABILITY OF THE VALU E OF GROSS BLOCK ON THE FIRST DAY OF THE PREVIOUS YEAR. THE LD. CIT(A) HAS TAKEN INTO ACCOUNT THE PROBABLE VALUE OF GROSS BLOCK ON 1.4.1990 AS WORKED O UT BY THE CA AT ABOUT `. 25.50 LAKHS BY REVERSE CALCULATION FROM THE WD V. TO OUR MIND SUCH A WORKING CANNOT BE SAID TO BE DEVOID OF ANY MEANING OR THAT IT DOES NOT LEAD TO THE PRESENTATION OF A FAIR VALUE OF THE GROSS BLO CK AS ON THE FIRST DAY OF THE PREVIOUS YEAR. IDEALLY THE ASSESSEE SHOULD HAVE FURN ISHED THE VALUE OF GROSS BLOCK ON THE FIRST DAY OF THE PREVIOUS YEAR. BUT LOOKING TO INSURMOUNTABLE DIFFICULTIES IN FURNISHING THE VALUE ESP ECIALLY WHEN IT WAS NOT EXPECTED TO MAINTAIN THE PAST BOOKS OF MORE THAN 6 YEARS THE APPROACH OF THE LD. CIT(A) WAS REASONABLE IN DETERMINING THIS ISSUE. THEREFORE WE DO NOT FIND ANY SUCH ERROR IN HIS ORDER WHICH REQUIRES ANY COR RECTION FROM OUR SIDE. THUS THIS GROUND IS DISMISSED. 5.8 HAVING REGARD TO THE ABOVE FINDING OF THE LD. CIT(A ) FOR A.Y. 2004- 05 AND UPHOLDING THE SAME BY HONBLE ITAT THE ISSUE REGA RDING THE FACT THAT APPELLANT HAS UNDERTAKEN SUBSTANTIAL EXPANSION WIT HIN THE MEANING OF SECTION 80-IC(8) (IX) STANDS SETTLED IN THE FIRST YEAR O F SUCH CLAIM OF DEDUCTION U/S 80-IC OF THE I.T. ACT I.E. FOR A.Y. 2004-05. IT A PPEARS THAT THE DEPARTMENT HAS NOT AGITATED AGAINST THIS ISSUE FOR FURT HER APPEAL BEFORE THE 10 HONBLE HIGH COURT OF UTTARANCHAL AND THUS HONBLE IT AT BEING THE LAST FACT FINDING AUTHORITY THE CRITERIA OF SUBSTANTIAL EXPANSI ON HAS BEEN ACCEPTED TO BE FULFILLED IN THE FIRST YEAR OF SUCH CLAIM OF DEDUCTI ON U/S 80IC IN A.Y. 2004- 05. THE INSTANT ASSESSMENT YEAR IS THE SECOND YEAR OF SUC H CLAIM OF DEDUCTION U/S 80-IC AND THEREFORE SUCH CLAIM OF DEDUCTIO N U/S 80IC CANNOT BE DENIED ON IDENTICAL FACTS. 5.9 COMING TO THE QUESTION AS TO WHETHER THE APPELLANT HA S BEEN MANUFACTURING OR PRODUCING HANDICRAFT AS MENTIONED IN SCHEDULE XIV PART C READ WITH SECTION 80-IC (2)(B) OF IT. ACT THE REPORT OF THE AO HAS BY AND LARGE SETTLED THIS ISSUE WITH DETAILED FINDINGS AS REGARDS THE FACTS OF THE CASE. IN FACT THE HONBLE SUPREME COURT IN THE CASE OF CCE VS. LOUIS SHOPPE (19967) 65 ECR 246 (SC) HAS LAID DOWN THE FOLLOWING TEST FOR DETERMINATION OF HANDICRAFT:- I) IT MUST BE PREDOMINANTLY MADE BY HAND. IT DOES NOT MATT ER IF SOME MACHINERY IS ALSO USED IN THE PROCESS. II) IT MUST BE GRACED WITH VISUAL APPEAL IN THE NATURE OF OR NAMENTATION OR IN- LAY WORK OR SIMILAR WORK OR LENDING IT AN ELEMENT OF AR TISTIC IMPROVEMENT. SUCH ORNAMENTATION MUST BE OF A SUBSTANTIAL NATURE AND NOT A MERE PRETENCE. THE APPELLANT IS FOUND TO PRODUCE OR MANUFACTURE A LARG E NUMBER OF ITEMS ABOUT 51 IN NOS. WHICH INVOLVE DIFFERENT STAGES IN THE MANUFACTURING 11 PROCESS BOTH IN RESPECT OF HAND AND SKILL AND USE OF MA CHINE. IT CANNOT BE CONCLUSIVELY SAID THAT THE ARTICLES PRODUCED HAVE BEEN PRED OMINANTLY MADE BY HAND BECAUSE THE MACHINES HAVE ALSO BEEN UTILIZED AS A ND WHEN REQUIRED IN THE MANUFACTURING OPERATIONS. 5.10 IN MY CONSIDERED OPINION THE PERCENTAGE OF UTILIZAT ION OF HUMAN SKILLS THROUGH MANUAL INTERVENTION CANNOT BE MEASURED BECAUSE TH ERE IS NO OBJECTIVE STANDARD TO MEASURE SUCH INVOLVEMENT OF HUMAN SKILL TOWARDS PRODUCTION OR MANUFACTURING OF THE FINISHED GOODS. HO WEVER AS REGARDS THE SECOND TEST THE AO HAS RIGHTLY OBSERVED THAT THE FACTS O F THE CASE OF THE APPELLANT ARE IN HARMONY WITH SUCH TEST WITHOUT DEVIAT ING FROM LAW LAID DOWN BY THE APEX COURT. THE AO HAS ALSO BROUGHT ON RECO RD THAT THE APPELLANT HAS SUBSTANTIAL SKILLS WORK FORCE AND LOOKI NG TO THEIR SKILLS AND ABILITY TO DO CRAFT WORK THESE SKILLED WORKERS ARE ARTIS ANS VIZ CARPENTER KNIFE- MAKER BLACKSMITH METAL SMITH LEATHER WORKERS ETC. THE AO HAS SCRUTINIZED THE FINAL PRODUCTS WHICH WERE AVAILABLE AT THE FACTORY P REMISES AND HAS OBSERVED THAT THESE ARTICLES ARE SURELY GRACED WITH VISUAL APPEAL IN THE NATURE OF ORNAMENTATION WITH AN ELEMENT OF ARTISTIC IMPR OVEMENT. IT HAS ALSO BEEN NOTED THAT THE VALUE ADDED BY WAY OF HUMAN SKILL OR CRAFTSMANSHIP OR ARTISANSHIP HAS NOT GOT CONSUMED OR OBLITERATED BY THE USE OF MACHINE AND TO THAT EXTENT THE END PRODUCT CAN BE DEFINITELY TERMED AS HANDICRAFT. 5. ON DUE CONSIDERATION OF THE ABOVE FINDINGS WE A RE OF THE VIEW THAT LEARNED ASSESSING OFFICER IN THE REMAND REPORT HIMS ELF ACCEPTED THAT THE PRODUCT MANUFACTURED BY THE ASSESSEE I.E. HANDICRAF T ITEMS COMES WITHIN THE AMBIT OF SEC. 80IC OF THE ACT. LEARNED FIRST APPELL ATE AUTHORITY HAS REFERRED 12 THE CONCLUSION DRAWN BY THE ASSESSING OFFICER IN TH E REMAND PROCEEDINGS. IN THIS WAY IT IS NOT JUSTIFIABLE AT THE END OF THE R EVENUE TO CHALLENGE THE ORDER OF THE LEARNED CIT(APPEALS) IN FURTHER APPEAL BEFOR E THE ITAT ON THIS ISSUE. IN VIEW OF THE ABOVE DISCUSSION GROUND NO.2 IS REJ ECTED IN BOTH THE YEARS. 6. AS FAR AS THE INCLUSION OF INTEREST INCOME EARNE D ON THE FDRS IN THE ELIGIBLE PROFIT FOR WORKING OUT THE DEDUCTION UNDER SEC. 80-IC IS CONCERNED THIS GROUND HAS NOT BEEN ADJUDICATED BY THE LEARNED CIT(APPEALS) IN ASSESSMENT YEAR 2005-06 THEREFORE WE REMIT THIS G ROUND TO THE LEARNED FIRST APPELLATE AUTHORITY FOR ADJUDICATION. 7. AS FAR AS THE GAIN ON ACCOUNT OF EXCHANGE DIFFER ENCE IS CONCERNED WE FIND THAT THE ASSESSING OFFICER HAS ASSESSED THIS A MOUNT UNDER THE HEAD INCOME FROM OTHER SOURCES. HOWEVER THIS AMOUNT H AS RESULTED TO THE ASSESSEE ON THE UNREALIZED SALES MADE BY THE ASSESS EE. IT DESERVES TO BE TREATED AT PAR WITH THE SALES REALIZED BY THE ASSES SEE. LEARNED FIRST APPELLATE AUTHORITY HAS RIGHTLY TREATED IT AS A BUSINESS INCO ME AND WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LEARNED CIT(APPEALS). IN THIS WAY THE APPEAL FOR ASSESSMENT YEAR 2005-06 I.E. 3245/DEL/2010 IS PARTL Y ALLOWED FOR STATISTICAL 13 PURPOSES AND APPEAL FOR ASSESSMENT YEAR 2006-07 I.E . ITA NO.3246/DEL/2010 IS DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT. SD/- SD/- ( A.N. PAHUJA ) ( RA JPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 23/12/2011 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR