Commissioner Of Income Tax (Central),Ludhiana v. Ita

ITA No. 770 of 2010 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH 1) ITA No. 770 of 2010 (O&M) Date of Decision: 10.12.2014 Commissioner of Income Tax (Central),Ludhiana...... Appellant Versus Smt. Bimla Rani .... Respondent 2)ITA No. 771 of 2010 (O&M)Commissioner of Income Tax (Central),Ludhiana...... Appellant Versus Smt. Bimla Rani .... Respondent 3)ITA No. 772 of 2010 (O&M) Commissioner of Income Tax (Central),Ludhiana...... Appellant Versus Smt. Bimla Rani .... Respondent 4)ITA No. 773 of 2010 (O&M) Commissioner of Income Tax (Central),Ludhiana. ..... Appellant Versus Smt. Bimla Rani.... Respondent 5)ITA No. 774 of 2010 (O&M) Commissioner of Income Tax (Central),Ludhiana. ..... Appellant Versus Smt. Bimla Rani .... Respondent ITA No. 770 of 2010 -2- 6)ITA No. 776 of 2010 (O&M) Commissioner of Income Tax (Central),Ludhiana...... Appellant Versus Smt. Bimla Rani.... Respondent 7)ITA No. 837 of 2010 (O&M) Commissioner of Income Tax (Central),Ludhiana...... Appellant Versus Smt. Bimla Rani.... Respondent CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE B.S. WALIA Present: Sh. Rajesh Sethi, Advocate for the appellant. ..... B.S. WALIA, J. Vide this judgment we propose to dispose of ITA Nos. 770 to774, 776 and 837 of 2010 filed by the revenue under Section 260A ofthe Income Tax Act, 1961 (hereinafter to be referred as the 'Act'), asall these appeals have been filed against order dated 29.05.2009passed by the Income Tax Appellate Tribunal, Chandigarh,Bench (A), Chandigarh (hereinafter to be referred to as the “ITAT”),in ITA Nos. 284 to 290/Chd/2009 for the assessment years1999-2000 to 2005-06. The following substantial questions of law have been framedin all the appeals :- ITA No. 770 of 2010 -3- (i)“Whether, on the facts and in the circumstances of the case,and in law, the Hon'ble ITAT was justified in holding thatthe assessee fulfills the provisions of Section 80 IB (2) (iv)of the Act, 1961, where the basic condition for deduction isthat the industrial undertaking employs ten or more workersin a manufacturing process whereas it has actuallyemployed only 8 workers as certified in form No. 10 CCBfiled alongwith audit report?” (ii)“Without prejudice to the ground No. 1 above, whether onthe facts and the circumstances of the case and in law, theITAT was right in holding that the respondent fulfills theconditions of necessary employment of ten workers forclaiming deduction u/s 80 IB without appreciating that outof the ten workers, two persons working as manager andsupervisor are also working partners in the two sisterconcerns of the respondent and actively engaged in theaffairs of those firms and in lieu of that getting salary therefrom?” In ITA No. 770 of 2010, the following substantial questionof law has been framed in addition to the aforementioned substantialquestions of law :- (iii) Whether on the facts and in the circumstances of thecase, the memoranda books could be considered as regularbooks of accounts explaining the discrepancy of cash foundin the premises during search?” ITA No. 770 of 2010 -4- In ITA No. 770 of 2010, the following substantial questionof law has been framed in addition to the aforementioned substantialquestions of law :- (iii) Whether on the facts and in the circumstances of thecase, the memoranda books could be considered as regularbooks of accounts explaining the discrepancy of cash foundin the premises during search?” ITA No. 770 of 2010 -4- Brief facts of the case as per narrative in the appeal are thatthe respondent-assessee is an individual engaged in the business ofmanufacturing of polythene bags and tubes (packing material). Asearch and seizure operation was carried out in the case of therespondent during the financial year 2004-05 on 03.09.2004 leadingto service of notice on the respondent under Section 153A of the Actrequiring her to file return of income within one month of the serviceof the notice. The respondent filed return on 04.05.2006 declaringincome of Rs.19,62,604/-. After issuing notices under Section 143(2)and 142(1) the case was taken up for scrutiny. During the course ofsearch at the respondent's residence, cash amounting toRs.20,73,470/- was found from different rooms of the familymembers. However, from Smt. Bimla Rani's room alone, i.e. therespondent, cash of Rs.17,74,765/- was found. During the course ofassessment proceedings, the respondent could not explain cash to thetune of Rs.6,55,270/-, therefore, the Assessing Officer made anaddition of Rs.6,55,270/- under Section 69A on account ofunexplained cash found during the search operation. During the course of assessment proceedings, it was alsonoticed that the respondent had claimed deduction underSection 80 IB of the Act and that as per the provisions ofSection 80 IB (2) (iv) of the Act, one of the basic conditions forentitlement of deduction under Section 80 IB was that the industrialundertaking employs ten or more workers in a manufacturing processcarried on with the aid of power. Section 80 IB (2) (iv) is reproduced ITA No. 770 of 2010 -5- as under :- “ In a case where the industrial undertaking manufactures orproduces articles or things, the undertaking employs ten ormore workers in a manufacturing process carried on with theaid of power” In order to justify the claim under Section 80 IB, therespondent furnished list of 8 workers involved in the manufacturingprocess besides two other employees, one working as Supervisor andthe other as Manager. However, as per certificate in FormNo. 10 - CCB furnished alongwith audit report, the respondent wasemploying only eight workers in the manufacturing process in theassessment years 2004-05 and 2005-06. However, on furtherinvestigation, the Assessing Officer found that the two persons statedto be working as Supervisor and Manager i.e. Shri Surinder Mittal -Supervisor and Shri Narinder Mohan Mittal-Manager, were none elsethan the sons of the respondent and further that the aforesaid twopersons were also working partners in (i) M/s Euro Containers and(ii) M/s Plastic Sales India i.e. sister concerns of the concerns ownedand run by the respondent and were also drawing salary in theaforementioned capacity from the aforementioned concerns. On thebasis of the above, it was observed that only eight workers had beenemployed in the manufacturing process and the insertion of two othernames i.e. Supervisor and Manager in the list of workers was an afterthought to justify the claim for deduction under Section 80 IB.Consequently, while passing order under Section 153A read with ITA No. 770 of 2010 -6- Section 143 (3) on 27.12.2006, the Assessing Officer did not allowthe respondent the deduction claimed under Section 80 IB. ITA No. 770 of 2010 -6- Section 143 (3) on 27.12.2006, the Assessing Officer did not allowthe respondent the deduction claimed under Section 80 IB. Being aggrieved with the order of the Assessing Officer, therespondent-assessee filed appeals before the CIT (A), who vide orderdated 29.1.2009 allowed the same with respect to the matters in issue. Dissatisfied with the orders of the CIT (A), the revenuepreferred appeals before “the ITAT” qua the issue of admissibility ofclaim under Section 80 IB as also qua deletion of disallowance ofRs.6,55,270/- under Section 69A. The ITAT upheld the order of the CIT (A) and dismissed theappeal of the revenue. Grievance of the revenue as advanced by the learned counselfor the revenue qua substantial question of law Nos. 1 & 2 is that asper Section 80-IB (2) (iv) of the Act, one of the basic conditions forclaiming the deduction is that the industrial undertaking employs tenor more workers in the manufacturing process and that the same doesnot include the Manager or Supervisor, thereby clearly indicating theover all intention to claim deduction under section 80 IB of the Actand that the said two employees i.e. Supervisor and Manager, apartfrom not being directly involved with the manufacturing process,were also active working partners in sister concerns viz. M/s EuroContainers and M/s Plastic Sales India, devoting their time and fullenergies therein and getting salary in lieu of the same from the sisterconcerns. Therefore, they could not be stated to be actively involvedin the manufacturing process and thus could not be covered under the ITA No. 770 of 2010 -7- term “workers” as given under Section 80 IB (2) (iv) of the Act, thatreliance placed on the orders of the jurisdictional High Court in thecase of CIT vs. M/s Ansysco (ITA 344-2004) (2006) (P&H), was notapplicable in the facts of the case and was distinguishable since inAnsysco's case (Supra), the debate was with regard to workersinvolved in packing and despatch being not actively involved inmanufacturing, whereas in the instant case the alleged employeesmanaging and supervising the overall activity of the manufacturingundertaking of the respondent were simultaneously working partnersin the sister concerns namely, M/s Euro Containers andM/s Plastic Sales India and were getting salary from them as workingpartners ; that as per explanation 4 to Section 40 of the Act titledAmount not deductible, 'working partners' means an individual whois actively engaged in conducting the affairs of business or professionof the firm of which he is a partner ; that in the instant case, the saidfirms were M/s Euro Containers and M/s Plastic Sales India, i.e. sisterconcerns of the respondent in which Surinder Mittal and RavinderMittal, allegedly working as Supervisor and Manager, respectively, inthe respondent's concern, were working partners and thus activelyengaged in their business activities and apparently not in themanufacturing activities of the respondent's concern. Therefore,contention of the respondent that the said two persons were workingin the respondent's concern was only a ploy to claim the deductionunder Section 80 IB, which was not legally admissible. Qua additional substantial question i.e. No. 3 framed in ITA ITA No. 770 of 2010 -8- Qua additional substantial question i.e. No. 3 framed in ITA ITA No. 770 of 2010 -8- No. 770/2010 with regard to deletion of disallowance ofRs.6,55,270/- under Section 69A in addition to the other twosubstantial questions of law framed in the other ITA's, revenues pleais that the memoranda of accounts, not being books of accountwritten in regular course of business are not admissible as evidenceand therefore could not be relied upon. Further, availability of cashof Rs.25,000/- with each member of the family was accepted taking afair view and taking into consideration status of the family, but thisacceptance did not amount to acceptance of memoranda books asregular books of accounts. We have heard learned counsel for the appellant, perused theorders passed by the Assessing Officer, CIT (A), as well as theimpugned order but are not inclined to interfere with the orderspassed by the ITAT, Chandigarh. The main argument of the revenue that two persons, namely,Surinder Mittal-Supervisor and Narinder Mohan Mittal-WorksManager, could not be counted as workers in addition to other eightworkers, although is attractive but we are not inclined to accept theaforesaid plea on behalf of the revenue, since various processesstarting from purchase of raw material and till the sale of finishedgoods, form an integral part of the manufacturing process. Therefore,the words “employs ten or more workers in a manufacturing process”normally would cover the entire process carried on by the industrialundertaking for converting the raw material into finished goods. Forthe aforesaid proposition, reference can be made to CIT vs. Sultan ITA No. 770 of 2010 -9- and Sons Rice Mill ( 272 ITR 181) (All), CIT vs. Hanuman RiceMills ( 275 ITR 79) ( All) and CIT vs. Ajmani Industries (153Taxman 43) (All). We are of the considered opinion that the view ofthe ITAT that normally owner could not be counted as a worker butin the instant case, the dispute revolved around works manager andsupervisor, therefore substantial compliance about the number ofworkers would satisfy the requirement under the Act and the positionduring abnormal situations could not be counted is absolutelyjustified. Likewise reliance by the ITAT on the decision of thejurisdictional High Court in M/s Ansysco's case (Supra), is also wellplaced. In M/s Ansysco's case (Supra), the issue was whether theTribunal was justified in upholding the order of the first AppellateAuthority in allowing deduction under Section 80 IA of the Act on theground that manufacturing process includes packing, stitching,mounting and dispatch of finished goods, therefore, workersemployed in allied activities were to be treated as those employed inmanufacturing process. However, in the instant case, admittedly, aWorks Manager is like a highly technical qualified worker havingmanagerial responsibility, likewise, a Supervisor is also like a highlyskilled supervisory worker. Therefore, both these persons cannot betaken out from the categories of workers. It is well known that'manufacturing process' includes all activities in relation tomanufacture, therefore, the same encompasses the entire process ofconverting raw material into finished goods to make it commerciallyexpedient and even handling and transfer of raw material is integrallyBANITA CHUGH2015.01.16 13:57I attest to the accuracy andauthenticity of this documentchandigarh ITA No. 770 of 2010 -10- connected with the process of manufacture. In the aforementionedbackground, we see no reason to disagree with the finding recordedby the ITAT upholding the findings of the CIT (A) qua deductionunder Section 80 IB. ITA No. 770 of 2010 -10- connected with the process of manufacture. In the aforementionedbackground, we see no reason to disagree with the finding recordedby the ITAT upholding the findings of the CIT (A) qua deductionunder Section 80 IB. We also take note of the fact that for the assessment year2002-03, on identical facts, the claim of the assessee was allowed,that too in an order under Section 143(3). In the circumstances, it isnot open to the department to take up inconsistent stand until andunless contrary facts are brought on the record. Reference in thiscontext is made to the decision in CIT vs. Kelvinator of India Ltd.(256 ITR 1) (Delhi), wherein the Delhi High Court held that merechange of opinion cannot form the basis of reopening a completedassessment. Consequently, for the sake of consistency, thedepartment is not permitted to change its stand unless and until somefact contrary to the facts earlier taken into account are brought onrecord. However no contrary facts have been pointed out by therevenue. Reference in this context is made to the decision inCWT Vs. Allied Finance Pvt. Ltd. (289 ITR 318) (Del), BurgerPaints India Ltd. vs. CIT (266 ITR 99) (SC), DCIT vs. UnitedVanaspati Ltd. [275 ITR (AT) 124 (Chd.)] and Union of India andothers vs. Kaumudni Narayan Dalal and others(249 ITR 219) (SC). ITA No. 770 of 2010 -11- assessee. Qua plea of the revenue regarding the deletion of addition ofRs.6,55,270/- the ITAT in its order noted that as on 02.09.2004 theavailability of cash with the firms and various members as per detailsgiven in the assessment order were as under :- On analysis of the aforementioned details, the ITAT observed that even as per facts mentioned in the assessment order the assessee withdrew Rs. 5 lacs from her proprietary concern M/s Indian Plastic ITA No. 770 of 2010 -12- Packers on different dates which amount was claimed to be spent onmarriage. The amount of Rs. 1,35,000/- was the cash as per regularbooks of account of manufacturing unit and the same was stated to beexplained. Cash of Rs.21,14,686/- was claimed to be explained onthe basis of accounts, however, the Assessing Officer was of the viewthat the same was an after thought as the regular books of accountwere not maintained during the regular course of business. The ITATtook into account that even the Assessing Officer had noted thatkeeping in view the status of the family every person including HUFand ladies were having cash of Rs.25,000/- each, children's money tothe extent of Rs.50,000/- lying with the grandmother i.e. assessee wasalso treated as explained. Likewise shaguns from 320 personsamounting to Rs.4,58,200/- was also explained as list of the personswas furnished by the assessee. On the basis of the same, total cash ofRs.14,18,200/- including Rs.6,35,000/- withdrawn from books wasconsidered to be explained. However, remaining cashof Rs.6,55,270/- was treated as un-explained under Section 69of the Act. The ITAT also took into account the explanation given by therespondent-assessee before the CIT (A) regarding cash amount ofRs.6,55,270/- treated as un-explained under Section 69 of the Act asalso the conclusion of the CIT (A) that the explanation given by therespondent-assessee had not been accepted by the Assessing Officerprimarily on the ground that memoranda books of the familymembers of the assessee as per which the cash availability wasBANITA CHUGH2015.01.16 13:57I attest to the accuracy andauthenticity of this documentchandigarh ITA No. 770 of 2010 -13- The ITAT also took into account the explanation given by therespondent-assessee before the CIT (A) regarding cash amount ofRs.6,55,270/- treated as un-explained under Section 69 of the Act asalso the conclusion of the CIT (A) that the explanation given by therespondent-assessee had not been accepted by the Assessing Officerprimarily on the ground that memoranda books of the familymembers of the assessee as per which the cash availability wasBANITA CHUGH2015.01.16 13:57I attest to the accuracy andauthenticity of this documentchandigarh ITA No. 770 of 2010 -13- explained could not be admitted as evidence and the evidence asabove was unreliable and self serving but that the said stand of theAssessing Officer was held to be not justified by the CIT (A), besidesthe Assessing Officer had not brought out the sources of cashexplained in the said memoranda books were not acceptable or if theassessee's family was found to have spent / invested some amountover and above the amount mentioned in the memoranda books, thatthe evidence in the shape of memoranda books might not beadmissible as evidence as per the Evidence Act as brought in theassessment order by the Assessing Officer, however, the evidence forthe purpose of issue in hand could not be dismissed straightway onthat ground alone, the said evidence might not be relevant in a civilcase, but in a field like income tax, such evidence was very muchrelevant, as without proving that entries recorded in the so calledmemoranda books were not correct, the same could not be construedagainst the assessee and since the Assessing Officer had not pointedany defect or discrepancies in the books, therefore the inferencedrawn by him was not sustainable, that although the AssessingOfficer had considered availability of cash of Rs.25,000/- for eachmember of the family to be reasonable and said position had beenaccepted with reference to the entries made in the memoranda books,therefore there was, in the circumstances, no justification in partlyaccepting the entries made in the memoranda books and rejecting thesame partly. On the aforementioned conclusions of the CIT (A), the ITAT upheld the order of the CIT (A) that the addition of Rs.6,55,270/-made by the Assessing Officer was not justified and therefore, thesame accordingly stood deleted. The ITAT while upholding the order of CIT (A) observedthat it was very clear that the Assessing Officer had not pointed outany defect or discrepancies in the books and that even the availabilityof cash of Rs.25,000/- with each member of the family was alsoconsidered to be reasonable, therefore, in the circumstances, therewas no justification in partly accepting the entries made in thememoranda books and partly rejecting the same. According, thefinding of CIT (A) in respect of deletion of addition of Rs.6,55,270/-was upheld by the ITAT by dismissing the appeal of the revenue. In view of the above we see no reason to disagree with thefinding recorded by the ITAT qua all the three substantial questions oflaw. Accordingly, all the substantial questions of law are answeredagainst the revenue and in favour of the respondent assessee.Resultantly, all the appeals filed by the revenue are dismissed, whileleaving the parties to bear their own costs. 10.12.2014chugh JUDGE ( RAJIVE BHALLA )( B.S. WALIA ) JUDGE JUDGE