1. This appeal filed by the assessee is directed against the order of the learned CIT(A)-II, Lucknow, dt. 31st March, 2003 relating to asst.
yr. 1998-99.
1. That the learned CIT(A) had no jurisdiction to overlook the consideration of ground No. 4 of the appeal and also to assess the appellant on different issue which was not the subject-matter of appeal on the report of non-technical personnel of Department.
2. That the withdrawal of deductions under Sections 80HH and 80-1 on the basis of two cases cited in the order is illegal as the facts of those cases are different in - comparison to this case.
3,That the appellant is a manufacturer in the real sense of the definition of the work 'manufacturer' as the useless transformers are put to use by the manufacturing process and hence the factory run for this purpose is an industrial undertaking.
4. That the benefits of Sections 80HH and 80-I are allowed to an industrial undertaking and not to any individual after satisfying the conditions mentioned in the section itself.
5. That the appellate order as a whole is bad in the eyes of law and justice.
3. In this case, the dispute relates to as to whether the assessee is entitled to deductions under Section 80HH and 80-1 of the IT Act, 1961.
The brief facts relating to this issue are that the assessee-company enjoys income from repair of transformers of U.P. State Electricity Board (hereinafter referred to as "UPSEB"). The AO framed the assessment for asst. yr. 1998-99 under Section 143(3) of the IT Act vide his order dt. 15th March, 2001 wherein he allowed deductions under Section 80HH at Rs. 83,366 and deduction under Section 80-I at Rs. 66,909 aggregating Rs. 1,50,545. The AO also made certain additions/disallowances.
4. The assessee challenged the order of the AO before the learned CIT(A). While examining the assessee's claim, the learned CIT(A) noticed that the assessee-company was engaged in the repair work of damaged transformers of UPSEB and was not engaged in the manufacturing or production of any article or thing, as was evident from the copies of relevant tender notices and orders placed by the various offices of the UPSEB. The learned CIT(A) issued a show-cause notice to the assessee to the effect that as to why the assessment made by the AO may not be enhanced by Rs. 1,50,545, withdrawing deductions under Sections 80HH and 80-I of the Act. In reply to show-cause notice, the assessee submitted before the learned CIT(A) that the coils which were used in the repair of transformers were manufactured by the assessee, on which it was paying excise duty also and under the Trade-tax law, the assessee-company was treated as "manufacturer". The learned CIT(A) took the view that the damaged transformers received for repair from the UPSEB could not be called a commercially different article after their repair. He further observed that the assessee could not produce any evidence to show that the coils manufactured for fitting in the damaged transformers were independently marketable articles. The learned CIT(A) also observed that even if these were so, no separate accounts have been maintained in respect of the activity of such coils by the assessee-company. According to him, the entire profits of the assessee's business cannot be said to have been derived from the manufacture of coils. The learned CIT(A) also stated that in fact, the receipts from UPSEB were for repairs of damaged transfomers. The learned CIT(A), therefore, held that the assessee was not entitled to the deductions under Sections 80HH and 80-I of the Act. While holding so, the learned CIT(A) relied on the decision of Hon'ble Supreme Court in the case of CIT v. Shanker Construction Co./N.C. Budhaiaja & Co.
. The learned CIT(A) withdrew the deductions under Sections 80HH and 80-I of the Act aggregating to Rs. 1,50,545 allowed by the AO.5. Now, the assessee is in appeal against the order of the learned CIT(A) before this Bench of the Tribunal. Sri Amit Shukla, learned Counsel for the assessee, submitted that the assessee-company had undertaken a contract with the U.P. Power Corporation Ltd. for repair and distribution of transformers out of damaged/burnt transformers as supplied by the Power Corporation. The execution of such contract required manufacturing and assembling of various components of transformers, which are as under: (i) H.V. and L.V. Leg Coil assembly--These are copper and aluminium wires which are transformed into coils and then it is assembled.
(ii) H.V. and L.V. Transformer Bushing and Metal Part Assembly-Assembling of various bushes and metal parts.
(iii) Conditioning of Transformer Oil Causing to Improve the Dielectic Strength Transformer Oil--Oil is purchased and then its conditioning and dielectic strength is done by assessee.
Sri Amit Shukla, learned Counsel for the assessee, submitted that the above components which are integral parts of an electrical transformer, are manufactured by the assessee with the aid and assistance of the plant and machinery. Sri Amit Shukla, learned Counsel for the assessee, also submitted that the working/modus' operandi of the assessee's unit is that it is provided only outer cover and inner core by the Power Corporation. All the internal damaged parts are retained by the Power Corporation and it supplies the assessee only a frame/outer steel tank, which normally can be made by any fabricator. After a long process of working, the assessee's unit converts it into full-fledged transformer which is subjected to all the tests prescribed as per relevant ISI specifications. The fact is that in the entire process, the assessee is using the tank and core provided by the Power Corporation, instead of purchasing it from the market. It was also submitted that in all the contents/ingredients of a transformer, undoubtedly, core and tank play a very important role. Apart from these two parts/ingredients rest of the items are manufactured/processed in the assessee's own unit. It was stated also that manufacturing process includes core assembly, coil manufacturing, core and coil assembly, baking metal part assembly, bushing and metal part assembly, tank up of assemblies, processing, conditioning and filling of transformer oil and testing of transformer. Accordingly, it was submitted by the learned Counsel for the assessee that entire activity is a compact manufacturing process and full-fledged transformers are produced. It was submitted that the assessee-company is engaged in the manufacturing of transformers and its entire process strictly comes within the definition of "manufacture" because the ultimate product, which is made/manufactured results in a new and different article. It was also stated that the Director of the Industries and Central Excise Department have granted registration certificate as a manufacturer and also the Sales-tax Department has recognized the assessee as a manufacturer. Sri Amit Shukla, learned Counsel for the assessee, submitted that in similar set of facts, Tribunal, Amritsar Bench, in the case of Saraf Electricals (P) Ltd. v. Asstt. CIT (2004) 89 TTJ (Asi) 761, held that process involved in manufacturing of new transformers and repairing the old transformers undisputably being the same involving the use of same machinery, benefit of deduction under Sections 80HH and 80-I could not be denied to the assessee for repairing old transformers.
6. Sri Amit Shukla, learned Counsel for the assessee, also submitted that the assessee-company is claiming deductions under Sections 80HH and 80-I since asst. yr. 1992-93 and the Department has allowed such deductions till asst. yr. 1997-98 and only in the year under consideration, the learned CIT(A) has withdrawn the deduction. Sri Amit Shukla, learned Counsel for the assessee, submitted that there is no material change in the facts and circumstances of the present year as compared to the asst. yrs. 1992-93 to 1997-98. He, therefore, submitted that the learned CIT(A) was not justified in taking a different view only in respect of the present assessment year when from the asst. yr.
1992-93, deductions under Sections 80HH and 80-I were being allowed to the assessee consistently. It was also submitted that such deduction is allowable for a period of 8 years and the assessment year under consideration is the last year for claiming the deduction. Accordingly, it was submitted that the learned CIT(A) has wrongly withdrawn the deduction under Sections 80HH and 80-I of the Act. Reliance was placed on the following decisions: In view of the above, Sri Amit Shukla, learned Counsel for the assessee, submitted that the order of the learned CIT(A) on this, issue may be reversed and that of the AO may be restored.
7. Sri Anadi Verma, learned senior Departmental Representative, strongly supported the order of the learned CIT(A). He further submitted that the question is whether damaged transformers received for repair from UPSEB can be called a commercially different article after their repair or not. According to the learned Departmental Representative, the Hon'ble Supreme Court in the case' of Sacs Eagles Chicory v. CIT has dealt with this issue and held that unless a commercially different item is produced, the same cannot be said to be manufactured. He further submitted that there is no material on record to show that the assessee was engaged in the manufacture and production of an article or thing. He also relied on the decision of the Hon'ble Supreme Court in the case of CIT v. N.C.Budharaja & Co. (supra), wherein the Hon'ble Supreme Court has defined the meaning of "manufacture" as under: Commonly, manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article that a manufacture can be said to take place.
In view of the above, Sri Anadi Verma, learned senior Departmental Representative, submitted that the learned CIT(A) has rightly withdrawn the deductions allowed by the AO under Sections 80HH and 80-I of the Act aggregating to Rs. 1,50,545. It was also submitted by the learned Departmental Representative that each assessment year being a unit, what is decided in one year may not apply in the following year. Thus, the assessee cannot take the benefit of this fact in this year that in earlier years, the Department has allowed deductions under Sections 80HH and 80-I of the Act. He, therefore, submitted that the order of the learned CIT(A) may be upheld.8. We have carefully considered the rival submissions and have also perused the orders of the authorities below. It is an admitted fact that the assessee-company is claiming deductions under Sections 80HH and 80-I of the Act since asst. yr. 1992-93. The Department has allowed deductions under Sections 80HH and 80-I for the asst. yrs. 1992-93, 1993-94, 1994-95, 1995-96, 1996-97 and 1997-98. Even the AO has allowed deductions under Sections 80HH and 80-I to the assessee for the asst.
yr. 1998-99. The deductions, in question, are available to an assessee for 8 years and the year under consideration is the last year. The learned CIT(A) has not brought any material on record to show that there was any change in the activities of the assessee as compared to earlier years. Thus, it is clear that since asst. yrs. 1992-93 to 1997-98, the assessee has been consistently getting deductions under Sections 80HH and 80-I of the Act. In our considered view, the learned CIT(A) was not justified in withdrawing the deductions in question. In the case of CTT v. Lagan Kala Upvan (supra), Hon'ble Delhi High Court following the decision of the Hon'ble Supreme Court in the case of Radhasoami Satsang (supra) held (p. 493) as under: We also find substance in the contention of learned Counsel for the assessee that in the absence of any change in the objects and activities of the assessee, the AO was not justified in taking a different view only in respect of the present assessment year when from the asst. yr. 1970-71, exemption under the said provision was being allowed to the assessee consistently. In this behalf it would be appropriate to notice the following observations of the apex Court in Radhasoami Satsang v. CIT : We are aware of the fact that, strictly speaking, res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.
We feel that the afore-extracted observations squarely apply on the facts in hand. For the foregoing reasons, we do not find any merit in this appeal and accordingly decline to entertain the same.
Dismissed.
In the above case, the Hon'ble Delhi High Court held that the AO was not justified in taking a different view only in respect of the asst.
yr. 1993-94 when from the asst. yr. 1970-71, exemption under the said provision was being allowed to the assessee consistently. Accordingly, the Hon'ble High Court held that the assessee was entitled to exemption under Section 10(22) in the asst. yr. 1993-94.
9. Similarly, the Hon'ble Delhi High Court in the case of Lovely Bal Shiksha Parishad (supra) held (at p. 350) as under: In view of the aforenoted factual position and keeping in view the fact that no change in the nature of activities has been pointed out and the assessee has been granted exemption under Section 10(22) of the Act not only in respect of the earlier years but subsequent years as well, we are of the opinion that the order of the Tribunal does not involve any substantial question of law.
In this regard we may usefully refer to the decision of the apex Court in Radhasoami Satsang v. CIT , wherein their Lordships of the Supreme Court had observed that though strictly speaking res judicata does not apply to income-tax proceedings but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. These observations squarely apply to the facts in hand. Resultantly, we decline to entertain the appeal and the same is, accordingly, dismissed.
In the above judgment, the Hon'ble Delhi High Court held that there was no change in the nature of activities and the assessee had been granted exemption under Section 10(22) of the IT Act not only in respect of earlier years but subsequent year as well, the assessee was entitled to the exemption in the asst. yr. 1991-92. In this case also, the Hon'ble Delhi High Court has applied the ratio laid down by the Hon'ble Supreme Court in the case of Radhasoami Satsang v. CIT (supra). In our considered view, the decision of the Hon'ble Supreme Court in the case of Radhasoami Satsang (supra) and also the decisions of Hon'ble Delhi High Court referred to above are squarely applicable to the facts of the present case. We, therefore, reverse the order of the learned CIT(A) and restore that of the AO. Accordingly, we allow the appeal filed by the assessee.