The ACIT, Circle-4,, Surat v. M/s. Sahajanand Technologies Pvt.Ltd.,, Surat

ITA 82/AHD/2007 | 2003-2004
Pronouncement Date: 08-01-2010 | Result: Dismissed

Appeal Details

RSA Number 8220514 RSA 2007
Bench Ahmedabad
Appeal Number ITA 82/AHD/2007
Duration Of Justice 3 year(s) 2 day(s)
Appellant The ACIT, Circle-4,, Surat
Respondent M/s. Sahajanand Technologies Pvt.Ltd.,, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 08-01-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 08-01-2010
Date Of Final Hearing 16-12-2009
Next Hearing Date 16-12-2009
Assessment Year 2003-2004
Appeal Filed On 05-01-2007
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' (BEFORE S/SHRI T K SHARMA AND D C AGRAWAL) ITA NO.82/AHD/2007 (ASSESSMENT YEAR: 2003-04) THE ASSISTANT COMMISSIONER OF INCOME- TAX CIRCLE-4 SURAT V/S M/S SAHAJANAND TECHNOLOGIES PVT. LTD. SAHAJANAND HOUSE SAIYEDPURA PARSI SHERI SURAT (APPELLANT) (RESPONDENT) APPELLANT BY :- SHRI GOVIND SINGHAL SR. DR RESPONDENT BY:- SHRI R K MALPANI AND SHRI RAJESH KUMAR SHAH O R D E R PER D C AGRAWAL (ACCOUNTANT MEMBER) : THIS IS AN APPEAL BY THE REVENUE RAISING THE FOLLOWING GROUNDS: 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A)-III SURAT HAS ERRED IN DELETING THE ADD ITION OF RS.33 03 141/- OUT OF INTEREST EXPENSES MADE BY THE AO. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A)-III SURAT HAS ERRED IN DIRECTING THE AO TO ALLOW DEDUCTION U/S 80IB OF THE I.T. ACT 1961 ON THE DEA S MACHINE. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A)-VI SURAT HAS NOT APPRECIATED THE FACT T HAT THE ACTION OF THE AO WAS ON RIGHT TRACK FOR DENYING THE DEDUCTION U/S 80IB OF THE ACT ON THE DEAS MACHINES AS DISCUSSED IN DETAIL IN THE ORDER PASSED U/S 143(3) OF THE ACT ON 23.2.2006. 2 4 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A) SURAT OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 5 IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD. CIT(A) MAY BE SET ASIDE AND THAT OF THE AO MAY BE RESTORED. 2 THE FACTS OF THE CASE ARE THAT THE ASSESSEE-COMP ANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF (I) LAS ER SYSTEMS FOR DIAMOND AND MATERIAL PROCESSING (II) DIAEXPERT AND DIAMENSION AND (III) POLISHING MACHINES. RETURN OF INCOME DECLARING TOTAL INCOME OF RS.31 41 867/- WAS FILED ON 23-10-2003 ALONG WITH AUDIT REPORT U/S 44AB OF THE INCOME-TAX ACT 1961 [THE ACT FOR SHORT]. 3 DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAS GIVEN FOLLOWING LOANS A ND ADVANCES TO ASSOCIATE CONCERNS FREE OF INTEREST: CAMP AVIATION & EXPORT PVT. LTD. RS. 1 00 000 DHIRAJLAL V KOTADIA RS.2 99 26 122 SAHAJANAND BIOTECH PVT. LTD. RS. 5 00 225 SAHAJANAND VASCULAR TECHNOVENTION RS. 18 10 00 0 P. LTD. SHIV LASER TECH PVT. LTD. RS. 26 89 357 ------------------- TOTAL RS.3 50 25 704 ------------------- ON THE OTHER HAND THE ASSESSEE HAD BORROWED INTERE ST BEARING FUNDS FROM THE BANKS AND FROM OTHER PERSONS. WHEN A SKED TO EXPLAIN IT WAS SUBMITTED TO THE AO THAT THE ASSESS EE IS OCCUPYING OFFICE PREMISES OF SHRI DHIRAJLAL V KOTAD IA A DIRECTOR AND NO RENT HAS BEEN PAID. ACCORDINGLY IN TEREST-FREE ADVANCE HAS BEEN GIVEN TO HIM. IT WAS FURTHER SUBMI TTED THAT THE 3 ASSESSEE-COMPANY HAS OPENING RESERVE OF RS.12.11 CR ORES WHICH WERE INTEREST-FREE. THEREFORE NO INTEREST DISALLOW ANCE IS WARRANTED. THE AO HOWEVER REJECTED THE ARGUMENTS OF THE ASSESSEE BY HOLDING THAT (I) THERE IS NO AGREEMENT FOR OCCUPYING THE PROPERTY OF SHRI DHIRAJLAL V KOTADIA. (II) THERE IS NO EVIDENCE TO SHOW THAT THE ASSESSEE HAS GIVEN ADVANCE TO SHRI DHIRAJLAL V KOTADIA FOR OCCUPYING THE SAID PROPERTY. (III) ONCE THE ASSESSEE HAD ENOUGH OPENING RESERVE THERE WAS NO NEED FOR IT TO BORROW FUNDS ON INTEREST EITH ER FROM THE BANK OR FROM OTHER PARTIES. (IV) THE ASSESSEE IS NOT A FINANCE COMPANY. IT IS NOT TH E BUSINESS TO LEND SUCH HUGE AMOUNT TO ITS SISTER CONCERN AND DIRECTORS FREE OF INTEREST. ON ONE HAND THE ASSESSEE NEEDS TO PAY HUGE AMOUNT OF INTEREST O N BORROWED BY IT FROM THE BANK AND ON THE OTHER IT I S LENDING SUCH INTEREST BEARING FUNDS AS INTEREST-FRE E ADVANCES TO ASSOCIATE CONCERNS AND DIRECTORS. THE AO THEREAFTER DISALLOWED THE PROPORTIONATE INTE REST PAID FOLLOWING THE DECISION OF THE ALLAHABAD HIGH COURT IN THE CASE OF H R SUGAR FACTORY LTD. 187 ITR 363 (ALL). 4 THE LEARNED CIT(A) HELD THAT THE ASSESSEE HAD SUFFICIENT CAPITAL AND OPENING FREE RESERVE APART F ROM CURRENT YEARS PROFITS ON WHICH NO INTEREST IS PAID BY THE ASSESSEE. THERE IS NO DIRECT NEXUS BETWEEN THE AMOUNT BORROWED AS I NTEREST-FREE FUNDS TO ASSOCIATE CONCERN AND DIRECTORS. THE LD. C IT(A) FOLLOWED THE DECISION OF THE ITAT AHMEDABAD BENCH IN THE CASE OF ACIT VS. VIPUL INDUSTRIES LTD. IN ITA NO.2140/AH D/2004 DATED 21-07-2006 FOR THE PROPOSITION THAT WHERE ASS ESSEE HAS SUFFICIENT INTEREST-FREE FUNDS AVAILABLE NO INTERE ST NEED BE 4 DISALLOWED ON ACCOUNT OF INTEREST-FREE ADVANCES GIV EN TO ASSOCIATE CONCERNS / DIRECTORS. THE LD. CIT(A) ALSO FOLLOWED THE DECISION OF THE ITAT IN THE CASE OF ACIT VS. TORREN T FINANCIERS 73 TTJ 624. 5 BEFORE US THE LEARNED DR SUBMITTED THAT THE ONU S IS ON THE ASSESSEE TO ESTABLISH THE NEXUS THAT THE INT EREST-FREE ADVANCES WERE GIVEN OUT OF INTEREST-FREE CAPITAL AN D RESERVES. AT THE BEGINNING OF THE YEAR ALL INTEREST-FREE CAPITA L AND RESERVES WERE LOCKED IN DIFFERENT ASSETS AND NO CASH WAS AVA ILABLE TO LEND TO THE DIRECTORS FREE OF INTEREST. THUS IT IS CLEA RLY OUT OF INTEREST BEARING BORROWED FUNDS. 6 ON THE OTHER HAND THE LEARNED AR RELIED ON THE ARGUMENTS TAKEN BEFORE THE CIT(A) AND IN ADDITION S UBMITTED THAT ITS CASE IS COVERED BY THE DECISION OF THE HON 'BLE SUPREME COURT IN THE CASE OF S A BUILDERS LTD. VS. CIT (200 6) 288 ITR 1 (SC) AND FURTHER THAT THE ONUS IS ON THE REVENUE TO ESTABLISH THE NEXUS IN CASE THE ASSESSEE IS ABLE TO SHOW THAT IT HAS SUFFICIENT INTEREST-FREE CAPITAL. 7 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. A SIMILAR VIEW WE HAVE TAKE N IN THE CASE OF CORE HEALTH CARE LTD. IN ITA NOS.85 AND 86/AHD/2 007 FOR ASSESSMENT YEARS 1996-97 AND 1997-98 DECIDED ON 16- 10-2009. THEREIN WE HAVE HELD THAT IF ASSESSEE HAS SUFFICIEN T INTEREST-FREE CAPITAL AND RESERVES THEN THE ONUS IS ON THE REVEN UE TO SHOW THAT INSPITE OF ASSESSEE HAVING SUFFICIENT INTEREST -FREE CAPITAL AND RESERVES IT DID NOT HAVE ENOUGH CASH AT THE POINT OF TIME WHEN MONEY WAS LENT INTEREST-FREE TO THE SISTER CONCERNS / THEIR DIRECTORS AND SUCH LENDING WAS ACTUALLY OUT OF INTE REST BEARING 5 BORROWINGS. FOR THE SAKE OF CONVENIENCE WE REPRODU CE PARAS-7 TO 12 FROM THAT ORDER AS UNDER:- 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSING THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW TH E CASE IS PRIMARILY COVERED BY THE DECISION OF HON'BLE DELHI HIGH COURT IN MANGLAM RICINUS CASE (SUPRA). THE TOTAL INCOME DECLARED AN D ASSESSED FOR THE ASSESSEE FOR THE ASSESSMENT YEAR 1996-97 IS. R.I. (-) RS. 81 30 22 320/- A.I. (-) RS. 37 42 343/- AND FOR ASSESSMENT YEAR 1997-98 IT IS R.I. (-) RS.124 74 11 325/- A.I. (-) RS. 53 35 24 749/- THEREFORE APPEAL IS NOT MAINTAINABLE. HON'BLE DEL HI HIGH COURT IN MANGLAM RICINUS LIMITEDS CASE HELD AS UNDER: 4. ON THE BASIS THE TRIBUNAL CAME TO THE CONCLUSI ON THAT EVEN IF THE ORDER OF THE ASSESSING OFFICER IS UPHELD THE INCOM E OF THE ASSESSEE WOULD BE NEGATIVE AND THEREFORE THE TAX EFFECT WO ULD BE CERTAINLY LESS THAN RS. 1 LAKH. ON THIS BASIS THE TRIBUNAL DECLI NED TO ENTERTAIN THE APPEAL. THAT IS HOW THE REVENUE IS BEFORE US UNDER SECTION 260A OF THE INCOME-TAX ACT 1961. 5. WE ARE IN AGREEMENT WITH THE VIEW OF THE TRIBUNA L THAT EVEN IF THE ORDER OF THE ASSESSING OFFICER IS UPHELD THE TAX RE COVERY SO FAR AS THE REVENUE IS CONCERNED WOULD BE NIL. IN THE EVENT TH E QUESTION HAS ANY IMPACT ON SUBSEQUENT YEARS WE LEAVE IT OPEN TO THE REVENUE TO RAISE IT IN THE SUCCEEDING YEARS IF NEED ARISES. 6. LEARNED COUNSEL FOR THE REVENUE SUBMITS THAT THE TAX EFFECT IS NOT REQUIRED TO BE SEEN BUT THE TAX EFFECT ON THE ISSUE INVOLVED IS TO BE SEEN. THIS PRECISELY WHAT THE TRIBUNAL HAS DONE. WE DO NOT FIND ANY ERROR IN THE VIEW TAKEN BY THE TRIBUNAL. THIS JUDGMENT WAS FOLLOWED BY ITAT AHMEDABAD BENCH IN DCIT VS. SANBHAV MEDIA LIMITED ITA NO. 2733/A/2006 ASSE SSMENT YEAR 6 2003-04 PRONOUNCED ON 24-04-2009 WHEREIN IT IS HE LD THAT IF RETURNED INCOME AND ASSESSED INCOME BOTH ARE NEGATI VE THEN APPEAL FILED BY THE DEPARTMENT IN LIMINE IS NOT MAINTAINAB LE. RESPECTFULLY FOLLOWING THESE DECISIONS WE HOLD THAT APPEAL FILE D BY THE REVENUE IN BOTH THE YEARS IS NOT MAINTAINABLE. 8. NOTWITHSTANDING AT THE INSTANCE OF THE DEPARTME NT THAT THE ISSUE IS OF LEGAL NATURE SHOULD BE CONSIDERED ON MERIT AL SO WE FIND THAT THE FACTS OF THE CASE ARE SIMILAR TO THE FACTS IN THE C ASE OF YASHVANT S. TEJANI WHEREIN TRIBUNAL RENDERED TO SEVERAL DECISI ONS AND FINALLY CONCLUDED THAT THE BURDEN CAST ON THE ASSESSEE SHOU LD BE TREATED AS DISCHARGED IF IT IS SHOWN BY THE ASSESSEE THAT IT H AS SUFFICIENT INTEREST FREE CAPITAL OUT OF WHICH IT COULD GIVE INTEREST FR EE ADVANCES. IT IS THEREAFTER FOR THE REVENUE TO SHOW THAT IN SPITE O F THE ASSESSEE HAVING INTEREST FREE CAPITAL INTEREST FREE ADVANCES ARE G IVEN OUT OF INTEREST BEARING FUNDS. EVEN THEREAFTER REVENUE HAS TO MEE T THE ARGUMENT THAT INTEREST FREE ADVANCES WERE GIVEN FOR BUSINESS PURPOSES FOLLOWING THE DECISION OF HON'BLE SUPREME COURT IN SA BUILDER S V/S CIT(A) (2007) 288 ITR 01. ACCORDING TO HON'BLE SUPREME CO URT IF INTEREST FREE ADVANCES ARE GIVEN FOR BUSINESS PURPOSES THEN NO DISALLOWANCE OF INTEREST IS REQUIRED TO BE MADE IRRESPECTIVE OF WHETHER THEY ARE GIVEN OUT OF INTEREST FREE CAPITAL OR INTEREST BEAR ING FUNDS. IN THE PRESENT CASE REVENUE HAS NOT DISPROVED THE CLAIM O F THE ASSESSEE ARISING FROM THE DETAILS OF THE INTEREST FREE ADVAN CES GIVEN AND REFERRED TO ABOVE IN THE CHART THAT SUCH INTEREST F REE ADVANCES ARE GIVEN FOR BUSINESS PURPOSES. 9. NOTWITHSTANDING THE REVENUE RELIED ON THE DECIS ION OF HON'BLE PUNJAB AND HARYANA HIGH COURT IN ABHISHEK INDUSTRIE S (SUPRA). THIS DECISION WAS FOLLOWED BY HON'BLE PUNJAB HIGH COURT IN MUNJAL SALES CORPORATION VS. CIT (2008) 298 ITR 288 (P&H) WHICH WAS SUBSEQUENTLY REVERSED BY HON'BLE SUPREME COURT IN M UNJAL SALES CORPORATION V/S. CIT (2008) 298 ITR 298 (SC). THE REFORE THE DECISION OF HON'BLE PUNJAB AND HARYANA HIGH COURT I N ABHISHEK INDUSTRIES (SUPRA) IS NO LONGER A GOOD LAW. 10. FOR THE SAKE OF CONVENIENCE WE REPRODUCE PARA 13 TO 16 FROM OUR DECISION IN YASHWANT S. TEJANIS CASE AS UNDER: 13. HE ALSO RELIED ON THE FOLLOWING JUDGMENTS. I. SHREE DIGVIJAY CEMENT CO. LTD V/S CIT 138 ITR 4 5 (GUJ) 7 II. CIT V/S GOPIKRISHNA MURALIDHAR 47 ITR 469 (AP ) III. CIT V/S HOTEL SAVERA 239 JTR 795 (MAD) IV. GNFC V/S CIT 73 TTJ 787 (AHD) V. SHHIBAUG ENTERPRISES V/S CIT 49 TTJ 554 (AHD) AND VI. TORRENT FINANCIERS V/S CII 73 TTJ 624 (AHD) VII. CIT V/S ALOK PAPER INDUSTRIES 138 JTR 729 VIII. R. V. JOSHI V/S CIT 251 ITR 332 M.P.) 14. WE HAVE HEARD LD. A.R. AND LD. D.R. THE LD. D.R . SUBMITTED THAT ASSESSEE FAILED TO ESTABLISH NEXUS BETWEEN INT EREST FREE FUNDS AND INTEREST FREE ADVANCES GIVEN TO RELATED PERSONS. ON THE OTHER HAND LD. A.R. SUBMITTED THAT NO SUCH DISALLOWANCES WERE MADE IN RESPECT OF ADVANCES TO FIRST 2 PERSONS VIZ. SHRI CHANDUBHAI PA TEL AND KOKILABEN TEJANI TO WHOM ADVANCE IN EARLIER YEAR WERE ALSO GI VEN. SECONDLY SHRI. MANISH TEJANI IS EMPLOYEE OF THE COMPANY AND ADVANCE IS GIVEN TO STAFF. THIRDLY ASSESSEE HAS SUFFICIENT INTEREST . FREE FUNDS AS STATED BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEA LS). FOLLOWING ADDITIONAL DECISIONS SUPPORT THE CASE OF THE ASSESS EE. TORRENT FINANCIERS V. ACIT (2001) 73 TTJ624 (AHD) CIT. PREM HEA VY ENGG. WORKS (P.) LTD. (2006) 285 I TR 554 CIT. BRITAPINIA INDUSTRIESLTD. (2006) 280 JTR 525 ( CAL) CIT V. RADICO KHAITAN LTD. (2005) 274 ITR 354 (ALL) CIT V. TIN BOX CO. (2003) 260 ITR 637 (DEL) MUNJAL SALES CORPORATION 298 ITR 298 (SC) 15. FINALLY LD. A.R. REFERRED TO THE DECISIONS OF H ONBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE SECURITIES AND POWER LIMI TED (2009) 313 ITR 340 BOMBAY FOR THE PROPOSITION THAT PRESUMPTION IS THAT INTEREST FREE ADVANCES WERE GIVEN OUT F INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. 16. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW LEARNED COMMISSIO NER OF INCOME TAX(APPEALS) WAS JUSTIFIED IN DELETING THE ADDITION . IT IS BECAUSE INTEREST FREE ADVANCES TO KOKILABEN TEJANI & MAHESH S. TEJANI WERE 8 OLD BALANCES AND NO DISALLOWANCE IN THE PAST HAS BE EN MADE. SECONDLY SHRI. MANISH TEJANI IS AN EMPLOYEE AND IN TEREST FREE ADVANCES ARE GIVEN TO HIM FOR COMMERCIAL EXPEDIENCY . THIRDLY LOAN TAKEN FROM BANK ARE APPARENTLY USED FOR PURCHASING PLANT AND MACHINERY AS EXPLAINED BY LD. A.R. NOTWITHSTANDING ASSESSEE HAS INTEREST FREE FUNDS AND ASSESSING OFFICER IS EXPECT ED TO SHOW THAT EXPLANATION FURNISHED BY THE ASSESSEE THAT IT IS ON LY OUT OF INTEREST FREE FUNDS FROM WHICH INTEREST FREE ADVANCES ARE GIVEN I S NOT CORRECT BY POINTING OUT THAT WHEN MONEY WAS GIVEN TO THE FRIEN DLY PERSONS THE ASSESSEE HAD BUILT UP CASH BALANCES BY BORROWING IN TEREST BEARING LOANS FROM THE BANK OR FROM OTHER PERSONS AND HAD H E NOT BORROWED FUNDS ON INTEREST HE COULD NOT HAVE GIVEN SUCH ADV ANCES TO FRIENDLY PERSONS WITHOUT INTEREST AS HE WOULD NOT HAVE ADEQ UATE CASH BALANCE AT THE POINT OF TIME WHEN HE MADE INTEREST FREE ADV ANCES. THE ONUS IS NEVER FIXED IT GOES ON SHIFTING FROM ASSESSING OFF ICER TO ASSESSEE AND FROM ASSESSEE TO ASSESSING OFFICER DEPENDING UPON EVIDENCE AND EXPLANATION FURNISHED BY THE PARTIES. IF THE ASSES SEE HAS FURNISHED AN EXPLANATION THAT IT HAS SUFFICIENT INTEREST FREE AD VANCES THEN ASSESSEE HAS PRIMA-FACIE DISCHARGED THE ONUS AND IT IS NOW T HE DUTY OF THE ASSESSING OFFICER TO SHOW THAT ASSESSEE DID NOT HAV E SUFFICIENT INTEREST FREE FUND AVAILABLE AT THE POINT OF TIME WHEN HE H AD GIVEN INTEREST FREE ADVANCES. HE CAN DO SO BY CALLING DIRECTLY OR FROM ASSESSEE. COPIES OF BANK ACCOUNT SHOWING RECEIPT & TRANSFER O F THE FUNDS IN QUESTION. MERELY REJECTING THE EXPLANATION OF THE ASSESSEE IS NOT SUFFICIENT. THE VIEW OF HONBLE BOMBAY HIGH COURT I N RELIANCE UTILITIES AND POWER LIMITED GIVES CLEAR INDICATION THAT IF ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS THEN IT SHALL BE PR ESUMED THAT INTEREST FREE ADVANCES WAS GIVEN OUT OF INTEREST FREE FUNDS. SUCH PRESUMPTION IS REBUTTABLE AND THE ASSESSING OFFICER IS EXPECTE D TO GIVE HIS FINDING ON THE AVAILABILITY OF CASH AT THE POINT OF TIME WH EN SUCH INTEREST FREE ADVANCES ARE GIVEN. F HE CHOOSES NOT TO DO SO THEN HE LOSES THE RIGHT TO MAKE ADDITION. THIS IS EXACTLY WHAT HAS HAPPENED IN THIS CASE. THEREFORE ADDITION MADE BY THE ASSESSING OFFICER C ANNOT BE JUSTIFIED. AS A RESULT THIS GROUND OF REVENUE IS REJECTED. 17. FINALLY APPEAL FILED BY THE REVENUE IS DISMISS ED. 12. RESPECTFULLY FOLLOWING ABOVE DECISIONS WE HOLD THAT EVEN ON MERIT REVENUE HAS NO CASE. SINCE IT IS UNDISPUTED FACT THAT THE ASSESSEE HAD S UFFICIENT INTEREST-FREE CAPITAL AND RESERVES OF MORE THAN RS.12 CRORES AND IN ADDIT ION TO THIS THERE WERE 9 CURRENT YEARS PROFITS THEN PRESUMPTION ARISES IN VIEW OF THE ABOVE JUDGMENT THAT INTEREST-FREE ADVANCES WERE OUT GIVEN OUT OF S UCH INTEREST-FREE FUNDS. THE ONUS SHIFTS NOW TO THE REVENUE TO SHOW THAT AT THE POINT OF TIME WHEN SUCH INTEREST-FREE ADVANCES WERE GIVEN ASSESSEE DI D NOT HAVE SUFFICIENT CASH OF ITSELF AND LENDING WAS ACTUALLY DONE OUT OF INTE REST BEARING BORROWINGS. SINCE THERE IS NO MATERIAL ON RECORD TO SUPPORT THI S VIEW AND REVENUE HAS NOT DISCHARGED THE ONUS LYING ON IT WE UPHOLD THE ORDER OF THE CIT(A). THIS GROUND OF REVENUE IS THEREFORE REJECTED. 8 GROUND NOS.2 AND 3 RELATE TO ALLOWING CLAIM OF DEDUCTION U/S 80IB ON DIAMOND EVALUATION AND ANALYS IS SYSTEM [DEAS] MACHINE. THE FACTS OF THE CASE ARE THAT DU RING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80IB ON DEAS MACHINE. ON FURTHER VERIFICATION OF THE DOCUMENTS FOUND DURING THE COUR SE OF SURVEY AND ON THE BASIS OF STATEMENTS OF SHRI DHIRAJLAL V KOTADIA AND OTHERS THE AO CONCLUDED THAT THE ASSESSEE-COMPANY WAS NOT MANUFACTURING DEAS MACHINE. ACCORDING TO THE AO TH E ASSESSEE-COMPANY WAS DIRECTLY IMPORTING DEAS MACHIN E FROM ONE ISRAEL CONCERN VIZ. M/S SARIN INC. IT WAS ALSO ACTING AS AN AGENT FOR SARIN INC. THE AO FURTHER NOTICED THAT TH E ASSESSEE- COMPANY HAD FILED A CIVIL SUIT AGAINST SARIN INC. I SRAEL WHEREIN IT HAS REFERRED ITSELF AS DISTRIBUTOR OF TH AT COMPANY. AS PER THE AO (I) THE ASSESSEE-COMPANY HAS IMPORTED AL L THE PRODUCTS FROM SARIN INC. ISRAEL (II) NOT A SINGLE PAPER WAS FOUND TO SHOW THAT THE PRODUCTS IMPORTED FROM SARIN INC. WERE AS PER THE ASSESSEE-COMPANYS SPECIFICATIONS; AND ( III) AS PER THE STATEMENT OF DIRECTOR SHRI DHIRAJLAL V KOTADIA IT TRANSPIRED THAT THE ASSESSEE-COMPANY HAS NEITHER MANUFACTURED NOR A SSEMBLED DEAS MACHINE. THE MACHINES WERE BROUGHT FROM ISRAEL AND 10 SOFTWARE WERE LOADED THEREON. AS PER THE STATEMENT OF ONE LAB TECHNICIAN JAYESHBHAI PATEL THE ASSESSEE CARRIES O UT ONLY TESTING OF IMPORTED PARTS AND LOADING OF SOFTWARE AT SURAT OFFICE. THE ASSESSEE-COMPANY WAS NOT FOUND HAVING SEPARATE PLAN T AND MACHINERY OR ANY OTHER FACILITIES BY WHICH IT CAN M ANUFACTURE OR ASSEMBLE THE DEAS MACHINE. ACCORDINGLY THE AO DISA LLOWED THE CLAIM OF DEDUCTION U/S 80IB OF THE ACT. 9 THE LEARNED CIT(A) ON THE OTHER HAND NOTICED T HAT THE ASSESSEE-COMPANY IS ENGAGED SINCE FY 1998-99 IN THE MANUFACTURING OF VARIOUS TYPES OF HIGHLY AUTOMATED MACHINES USED IN EVALUATION OF ROUGH AND POLISHED DIAMONDS. ACCORDING TO HIM THE ASSESSEE-COMPANY IS MANUFACTURING THREE TY PES OF MACHINES VIZ. (I) LASER MACHINES (II) DIAMOND POLI SHING MACHINES AND (III) DIAMOND EVALUATION AND ANALYSIS SYSTEM MACHINE WHICH ARE MENTIONED AS DEAS. THE AO HAD ALL OWED DEDUCTION U/S 80IB IN RESPECT OF FIRST TWO TYPES OF MACHINES BUT HAD DISALLOWED PROPORTIONATE DEDUCTION IN RESPECT O F THIRD TYPE OF MACHINE. HE FINALLY CONCLUDED AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS AND I HAVE GONE THROUGH THE DETAILS FILED BY THE APPELLANT. I HAVE ALSO GONE TH ROUGH THE COPIES OF VARIOUS BILLS OF IMPORT OF PARTS FROM M/S SARIN OF ISRAEL AND THE STATEMENT OF THE DIRECTOR OF THE CO. RECORDED DURIN G THE COURSE OF SURVEY OPERATIONS. THE PRESENT AO WAS ALSO REQUESTE D TO BE PRESENT DURING THE COURSE OF APPELLATE PROCEEDINGS AND HE A LSO EXAMINED THE VARIOUS BILLS. IT IS SEEN THAT ALL THE BILLS ARE OF PARTS OF MACHINES AND NOWHERE DOES THE COMPLETE MACHINE APPEAR ON THE BIL LS. IT IS ALSO SEEN THAT THE APPELLANT ALSO USED INDIGENOUS PARTS WHICH ARE COMPUTER SYSTEM AND OPERATING SOFTWARES WITHOUT WHICH THE MA CHINES ARE NOT COMPLETE AND CANNOT BE USED. IT IS SEEN THAT THE AO IS ALSO CONVINCED AS PER HIS OBSERVATIONS IN PARA-6 OF THE ASSESSMENT ORDER THAT FINAL PRODUCT WAS ARRIVED AT AFTER LOADING OF SOFTWARE ON LY. THE STATEMENT OF SHRI RAHULBHAI WHO WAS IN CHARGE OF THE COMPUTER DI VISION HAS ALSO BEEN TAKEN OUT OF CONTEXT BY THE AO WHERE SHRI RAHU LBHAI STATED THAT 11 THE SOFTWARE PROGRAM WAS LOADED IN THE FACTORY OF T HE APPELLANT. IT IS FURTHER SEEN THAT THE APPELLANT IS HAVING INFRASTRU CTURE INCLUDING VARIOUS TYPES OF MACHINES LABORATORY AND EQUIPMENT S FOR TESTING ALL MATERIALS AS WELL AS THE FINISHED PRODUCTS. EVEN TH E STOCK INVENTORY PREPARED BY THE SURVEY PARTY CONTAINS VARIOUS SOFTW ARE OF SAID MACHINES AND PARTS THEREOF. IT IS ALSO SEEN THAT TH E AGREEMENT BETWEEN THE APPELLANT AND SARIN OF ISRAEL TALKS ABOUT THE D ISTRIBUTORSHIP OF PRODUCTS AND NOT THE COMPLETE MACHINE AND THE PRIC E LIST ALSO CONTAINS DESCRIPTION OF PARTS ONLY. AFTER EXAMINATION OF THE MATERIAL ON RECORD I AM ALSO SATISFIED THAT THE SOFTWARE WAS LOADED AS PER THE DEMAND OF THE CUSTOMERS. IT IS ALSO SEEN THAT THE INVENTORY P REPARED AT THE TIME OF SURVEY LISTS VARIOUS PARTS AS RAW MATERIAL IMPORTE D OR INDIGENOUS IN THE FORM OF COMPONENTS. THIS IS ALSO CLEAR FROM THE QUESTIONS PUT TO THE MANAGING DIRECTOR DURING THE COURSE OF SURVEY O PERATIONS WHEREIN HE WAS ASKED ABOUT VARIOUS EQUIPMENTS INCLU DING HARDWARE AND SOFTWARE AND OTHER ACCESSORIES PURCHASED FROM S ARIN OF ISRAEL. THEREFORE THERE IS NO DOUBT IN MY MIND ABOUT THE F ACT THAT ONLY COMPONENTS AND PARTS WERE IMPORTED BY THE APPELLANT WHICH WERE ASSEMBLED IN THE PREMISES OF THE APPELLANT AND AFTE R ADDITION OF VARIOUS LOCAL HARDWARE AND LOADING THE CUSTOMER OR IENTED SOFTWARE AND ONLY THEN THE MACHINES WERE SOLD TO THE CUSTOME RS. SINCE A NEW PRODUCT HAS COME INTO EXISTENCE BY THE ACTIVITIES U NDER TAKEN BY THE APPELLANT THERE IS NO REASON FOR DENYING THE BENEF IT OF DEDUCTION U/S 80IB OF THE IT ACT TO THE APPELLANT ONLY ON THE GR OUNDS OF SUSPICIOUS CONJECTURES AND MISCONSTRUCTION OF THE FACTS. IT IS HEREBY DIRECTED THAT DEDUCTION U/S 80IB OF THE IT ACT BE ALLOWED TO THE APPELLANT AS PER LAW. 10 THE LEARNED DR SUBMITTED THAT THE ASSESSEE IS N OT MANUFACTURING ANY MACHINES MAJOR PARTS ARE IMPORTE D FROM M/S SARIN INC. ISRAEL AND ONLY SMALL ADJUSTMENTS ARE D ONE IN INDIA IT CANNOT BE CALLED TO BE MANUFACTURING. BASIC STRU CTURE AND DESIGN REMAIN THE SAME. ONLY SOFTWARE IS LOADED ACC ORDING TO THE REQUIREMENTS OF THE CUSTOMERS BUT THIS ALONE CAN NO T BE THE REASON TO DECLARE THE ASSESSEE AS A MANUFACTURING U NIT. 11 THE LEARNED AR FOR THE ASSESSEE ON THE OTHER H AND SUBMITTED THAT DURING THE COURSE OF SURVEY THE DEP ARTMENT DID NOT FIND SINGLE PURCHASE OF A COMPLETE MACHINE. THE ASSESSEE HAS 12 BEEN PURCHASING VARIOUS TYPES OF PARTS FOR FITTING INTO LASER MACHINES DIAMOND POLISHING MACHINES AND DIAMOND EV ALUATION AND ANALYSIS SYSTEM (DEAS) MACHINES. THESE PARTS IN CLUDED MECHANICAL PARTS ELECTRICAL AND OPTICAL PARTS COM PUTER SYSTEM AND HARDWARE AND COMPUTER SOFTWARE. IT IS A MATTER OF RECORD THAT THE ASSESSEE-COMPANY HAS PURCHASED VARIOUS TYPES OF PARTS FROM M/S SARIN INC. ISRAEL WHICH WERE AS PER SPECIFICAT IONS OF THE ASSESSEE-COMPANY. THE ASSESSEE-COMPANY IS IN TOUCH WITH THE CUSTOMERS AND ACCORDINGLY FOR MANUFACTURING DEAS AS PER THEIR REQUIREMENTS IT IMPORTS PARTS AND ASSEMBLE THEM TO SUIT THE REQUIREMENTS OF THE CUSTOMERS. IN THE PARTS IMPORTE D FROM M/S SARIN INC. ISRAEL THE ASSESSEE PUTS INDIGENOUS RA W MATERIAL. MANUFACTURING PROCESS CONSISTED OF ARRANGEMENT OF V ARIOUS MECHANICAL PARTS ELECTRICAL PARTS OPTICAL PARTS COMPUTER HARDWARE AND COMPUTER SOFTWARE. REGARDING THE STATE MENT OF SHRI JAYESHBHAI PATEL LAB TECHNICIAN IT WAS SUBMITTED B Y THE LEARNED AR THAT THAT OFFICER IS ONLY A LAB TECHNICIAN AND L OOKING AFTER THE WORK IN THE LABORATORY AND HE DOES NOT HAVE EXP OSURE TO VARIOUS OTHER TYPES OF FUNCTIONS AND MANUFACTURING ACTIVITIES CARRIED OUT BY THE COMPANY. IN FACT THE MACHINES M ANUFACTURED / ASSEMBLED BY THE ASSESSEE-COMPANY ARE GIVEN FOR TES TING IN THE LABORATORY AND LABORATORY TECHNICIAN HAS EXPERIENCE OF TESTING SUCH MACHINES ONLY. THE FACTORY OF THE ASSESSEE-COM PANY IS REGISTERED UNDER CUSTOM AND EXCISE DUTY ACT AS MANU FACTURING UNIT. IT IS MAINTAINING DAILY RECEIPTS AND ISSUES O F INDIGENOUS AND IMPORTED RAW MATERIALS IN THE REGISTER AT THE FACTO RY PREMISES. THE ENTRIES ARE MADE AT THE TIME OF RECEIPT AND AT THE TIME OF ISSUE OF SUCH SPARE PARTS AND RAW MATERIALS. THE ST OCK COUNTED BY THE SURVEY TEAM AT THE FACTORY PREMISES INCLUDED VA RIOUS TYPES OF SPARE PARTS AND SOFTWARE. HE REFERRED TO THE STO CK IN THE STOCK 13 INVENTORY PREPARED BY THE SURVEY TEAM. FURTHER IT WAS SUBMITTED THAT THE ASSESSEE IS A DISTRIBUTOR FOR TH E PRODUCTS MANUFACTURED BY M/S SARIN INC. ISRAEL AND NOT FOR A COMPLETE MACHINE. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAD PURCHASED PLANT AND MACHINERY FOR RS.45 40 387/- UP TO 31-3- 2002 AND FURTHER MACHINES WORTH RS.71 22 109 PURCHA SED DURING THE YEAR. HE REFERRED TO THE PAPER BOOK SHOWING LIS T OF VARIOUS EQUIPMENTS PURCHASED FROM M/S SARIN INC. ISRAEL W HICH INCLUDED DIASCAN HARDWARE OPTICAL PLATFORM SOFTWA RE FOR DIASCAN SYSTEM PROPORTION MEASUREMENT RECUT SOFTW ARE ROUGH-EVALUATION SOFTWARE FANCY EVALUATION SOFTWAR E DIAEXPERT 2000 HARDWARE INCLUDING 3 LENSES AND LIG HT HOOD DIAEXPERT 28 MM HARDWARE INCLUDING 4 LENSES LIGHT H OOD AND LASER MAPPING DIAEXPERT 2000 SOFTWARE PRODUCTION MEASUREMENT SOFTWARE LASER MAPPING ETC. 12 HE FURTHER SUBMITTED THAT SIMILAR IMPORT OF SPA RE PARTS FROM M/S SARIN INC. ISRAEL AND PURCHASES FROM INDI A AND THEREAFTER ASSEMBLING INTO DIFFERENT TYPES OF MACHI NES AS PER CUSTOMERS SPECIFICATIONS WERE CARRIED OUT IN THE E ARLIER YEARS ALSO WHICH WAS ACCEPTED BY THE DEPARTMENT AND NO DI SALLOWANCE OF SUCH DEDUCTION U/S 80IB HAS BEEN MADE IN AY 2000 -2001 TO 2002-03. FURTHER THE SURVEY WAS CARRIED OUT BY THE DEPARTMENT ON 4/5-11-04 AND TIME LIMIT WAS AVAILABLE TO REOPEN THE ASSESSMENTS FOR THE AYS 2001-02 AND 2002-03 BUT NO SUCH ACTION HAS BEEN TAKEN BY THE DEPARTMENT [PRESUMING THAT TH E ASSESSMENTS WITHIN FOUR YEARS COULD BE REOPENED WIT HOUT REFERRING TO ANY OMISSION OR FAILURE ON THE PART OF ASSESSEE TO DISCLOSE ANY MATERIAL FACTS]. THEREFORE FOLLOWING THE PRINCIPLES 14 OF CONSISTENCY AS THE FACTS REMAIN THE SAME THE DE PARTMENT SHOULD NOT HAVE DISTURBED THE CLAIM MADE BY THE ASS ESSEE. 13 IN ADDITION TO THIS THE LEARNED AR RELIED ON T HE DECISION OF THE HONBLE PUNJAB AND HARYANA HIGH COU RT IN THE CASE OF CIT VS. MAHESH CHANDRA SHARMA (2009) 221 CT R (P&H) 163: (2009) 308 ITR 222: (2009) 178 TAXMAN 22: (200 9) 17 DTR 42 FOR THE PROPOSITION THAT WHERE ASSESSEE IS ENGA GED IN ASSEMBLING OF MOTORCYCLE WHEEL IT IS ENTITLED FOR DEDUCTION U/S 80IB AS THE FINAL PRODUCT IS DIFFERENT IN NAME CHA RACTER AND USE. HE ALSO REFERRED TO THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. TATA LOCOMOTIVE & ENGINEERIN G CO. LTD. (1968) 68 ITR 325 (BOM) FOR THE PROPOSITION THAT W HERE ASSESSEE IS ENGAGED IN ASSEMBLING OF BUS OR TRUCK C HASIS FROM IMPORTED PARTS IN A KNOCKED DOWN CONDITION IS ENG AGED IN MANUFACTURE OR PRODUCTION. 14 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE RE IS NO CASE FOR INTERFERENCE IN THE ORDER OF THE CIT(A). WE FIN D THAT THE ASSESSEE IS IMPORTING VARIOUS TYPES OF SPARE PARTS SUCH AS LASER SYSTEM DEAS SYSTEM POLISHING MACHINES AND PARTS T HEREOF. DURING THE ASSESSMENT YEAR IN QUESTION THE ASSESSEE HAS CONSUMED LASER SYSTEM MACHINE WORTH RS.18 11 10 559 /- PARTS THEREOF AT RS.2 63 735/- DEAS MACHINE VALUED AT RS.33 58 47 905/- PARTS THEREOF VALUED AT RS.14 25 245/-. IN ADDITION THE ASSESSEE HAS CLAIMED MANUFACTURING EX PENSES OF RS.1 29 34 836/- WHICH HAS BEEN ALLOWED BY THE AO. THE ASSESSEE IS ALSO IN ADDITION TO IMPORTING MACHINES AND PARTS FROM ISRAEL IT IS PURCHASING IN INDIA VARIOUS OTHER PAR TS. THE LEARNED 15 AR HAD REFERRED TO PAGE-24 OF THE PAPER BOOK WHICH SHOWED VARIOUS TYPES OF SPARE PARTS RAW MATERIAL NUMBERIN G 40 APPROXIMATELY. THEY INCLUDED AUTO FACET MACHINE BA LL SCREW BEAM BENDING MIRROR CROSS ROLLER GUIDE CCD CAMERA CCTV CAMERA LENS CW: ND YAG LASER ETC. ALL THESE ITEMS ARE USED IN ASSEMBLING LASER MACHIN ES DIAMOND POLISHING MACHINES AND DIAMOND EVALUATION AND ANAL YSIS SYSTEM MACHINE. THUS FROM THE PERUSAL OF THE MATER IAL AVAILABLE BEFORE US WE HAVE NO DOUBT IN OUR MIND THAT THE AS SESSEE IS PURCHASING / IMPORTING VARIOUS PARTS WHICH HAVE DIF FERENT NATURE CHARACTER AND USE AND ASSEMBLING FOUR DIFFERENT TYP ES OF MACHINES WHICH HAVE DIFFERENT NAME CHARACTER AND U SE. WHAT IS PRODUCED IS DIFFERENT THAN WHAT WAS USED AS INPUT. THEREFORE THE OUTPUT GIVEN BY THE ASSESSEE IS CLEARLY COMES WITHI N DOMAIN OF MANUFACTURING AS PER DEFINITION LAID DOWN BY DIFFER ENT COURTS. IT HAS BEEN HELD BY THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF (1993) 201 ITR 17 THAT THE EXPRESSION MANUFACTURE IS GENERALLY UNDERSTOOD TO MEAN BRINGING INTO EXISTENC E A NEW SUBSTANCE. THE HONBLE PATNA HIGH COURT IN THE CASE OF CIT VS. NATRAJ PROCESSING INDUSTRIES (1993) 203 ITR 833 HEL D THAT THE MANUFACTURING PROCESSES IS THE ONE WHERE COMPLETE TRANSFORMATION OF OLD COMPONENTS TAKES PLACE SO AS TO PRODUCE COMMERCIALLY DIFFERENT ARTICLES OR COMMODITY. THE H ONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. JAMAL PHOT O INDUSTRIES (I) P. LTD. (2006) 285 ITR 209 (MAD) EXPLAINED THE CONCEPT OF MANUFACTURE HOLDING THAT IT INVOLVES CONCEPT OF CHA NGES EFFECTED TO A BASIC RAW MATERIAL RESULTING INTO COMING INTO EXISTENCE OF A NEW COMMERCIAL COMMODITY. IT IS NOT NECESSARY THAT THE ORIGINAL ARTICLE OR MATERIAL SHOULD HAVE LOST ITS IDENTITY C OMPLETELY. ALL 16 THAT IS REQUIRED TO FIND OUT IS WHETHER AS A RESULT OF OPERATION A TOTALLY DIFFERENT COMMODITY HAD BEEN PRODUCED HAVIN G ITS OWN NAME IDENTITY CHARACTER AND USE. SINCE THE ISSUE IS DIRECTLY COVERED BY THE ABOVE DECISIONS ASSEMBLING OF A MAC HINE FROM SPARE PARTS AND THE MACHINES SO RESULTED IS DISTINC T IN NAME CHARACTER AND USE IT WILL TANTAMOUNT TO MANUFACTURE ENTITLED FOR DEDUCTION U/S 80IB. AS A RESULT WE UPHOLD THE DECI SION OF THE CIT(A). IN ADDITION RULE OF CONSISTENCY REQUIRED T HAT SUCH DEDUCTION ALLOWED IN AYS 2001-02 AND 2002-03 SHOUL D BE ALLOWED THIS YEAR ALSO WHEN FACTS REMAIN THE SAME. 15 IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 08-01-2010 SD/- SD/- (T K SHARMA) JUDICIAL MEMBER (D C AGRAWAL) ACCOUNTANT MEMBER DATE : 08-10-2010 COPY OF THE ORDER FORWARDED TO : 1. M/S SAHAJANAND TECHNOLOGIES PVT. LTD. SAHAJANAN D HOUSE SAIYEDPURA PARSI SHERI SURAT 2. THE ACIT CIRCLE-4 ROOM NO.216 AAYAKAR BHAVAN SURAT 3. THE CIT CONCERNED 4. THE CIT(A)-III SURAT 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER DY.R/AR ITAT AHMEDABAD