Deduction U/s. 80IB cannot be denied for low electricity Consumption when majority of work is Manual

First ground of the assessee for claiming the deduction under section 80IB was that it had started production in Asstt.Year 2004-05. Asstt.Year 2006-07 is the third year. Deduction under section 80IB was granted in Asstt.Year 2005-06 in a scrutiny assessment. The ld.CIT(A) while considering this aspect made reference to the decision of the Hon’ble Gujarat High Court in the case of Saurashtra Cement & Chemical Industries Ltd. vs. CIT, 123 ITR 669 (Guj) and has observed that without disturbing relief granted in the earlier years, the AO cannot examine the question again and decide to withhold or withdraw the relief which has already been granted in the earlier year. We are conscious of the fact that assessment in Asstt.Year 2005-06 was reopened and in re-assessment, this deduction was denied. But it is pertinent to note that assessment was reopened for the reasons that deduction in A.Y.2006-07 was denied to the assessee. It was not reopened that something new was found and came to the possession of the AO. He has re-appreciated these very circumstance on the strength of the finding recorded in Asstt.Year 2006-07. Apart from the above, let us examine objections of the AO. First suspicion in the mind of the AO was that how 12 workers can produce goods of Rs.3.18 crores, and how it is  possible to manufacture goods of this magnitude with the electricity charges of Rs.9857/-. The stand of the assessee was that it was engaged in manufacturing of all types of fancy, artificial, silver jewellery. The assessee has demonstrated in the detail that major components and raw-material was of silver, which is a valuable metal. The assessee has demonstrated that 15 to 20 silvers sets were manufactures and it was possible by 12 workers. It also pointed out its manufacturing and minimum use of machinery. The assessee has placed on record a copy of the letter written by the machinery supplier. This letter is available at page no.27 of the paper book. It contemplates that machinery used in this activity consume approx. 210 WATT of electricity per hour. Thus, the assessee has demonstrated that electricity consumption was very less on this machinery and maximum work was manual. This aspect has been highlighted before the AO in the explanation of the assessee and also before the CIT(A). The ld.AO failed to appreciate this peculiar nature of the assessee’s business. The explanation of the assessee is being noticed by us in page 11 of this order. This explanation justifies the consumption of low electricity. This fact can be cross verified with the letter of machinery manufacturer at page no.27 of the paper book.

The second reason assigned by the AO is that the assessee failed to give capacity of manufacturing of goods of each machine. In this connection, it was pointed by the assessee that major work was manual and number of art jewelleries was solely not depended upon machinery though assistance of machinery was required. As far as objection of the AO with regard non- production of day-today production register is concerned, it was pointed out by the assessee that in this line of business it was not possible to maintain such details. The assessee-firm was not manufacturing proto-type of jewellery. It has produced variety of items containing numerous designs, shape, size and specification. It is not feasible or possible to maintain any quantitative records on daily basis.

With regard to non-production of challans and transport bills are concerned, the assessee pointed out to the AO that jewellery by its nature is a very small item and it is not being transported through transporter. These items were carried out by its employees or by the purchasers. Help of transporter would not be required in this line of business. It is also pertinent to observe that the AO wants to prove certain negative facts, i.e. to demonstrate how 12 persons can produce jewellery having value of Rs.3.18 crores. Now, it is very difficult situation for any assessee to explain. The assessee has submitted all its details and pointed out how it has produced. Before the ld.CIT(A) detailed written submissions were made which have been noticed exhaustively, and thereby the ld.CIT(A) has accepted the claim of the assessee. After going through the detailed finding of the ld.CIT(A) we do not see any reason to interfere in it. Accordingly, all the appeals of the Revenue are dismissed.