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October, 01st 2014
$~7, 8 & 9.
+       INCOME TAX APPEAL NOS. 509/2014, 510/2014 & 515/2014

                                            Date of decision: 12th September, 2014

                                                                    ..... Appellant
                                   Through Mr. Kamal Sawhney, Sr. Standing


                                                                  ..... Respondent
                                   Through Nemo.



     CM No. 13629/2014 in ITA No. 510/2014
     CM No. 13862/2014 in ITA No. 515/2014

        Exemption applications are allowed, subject to all just exceptions.

     INCOME TAX APPEAL NOS. 509/2014, 510/2014 & 515/2014

        These appeals by the Revenue pertain to Assessment Years 2006-07,

2008-09 and 2009-10. The common issue raised is whether the respondent-

assessee was engaged in manufacture of goods and things to claim

deduction under Section 80-IC of the Income Tax Act, 1961 (,,Act, for

short). The claim was disallowed by the Assessing Officer, but stands

ITA Nos. 509/2014, 510/2014 & 515/2014                                   Page 1 of 5
allowed by the Commissioner of Income Tax (Appeals), a finding affirmed

by the Income Tax Appellate Tribunal (,,Tribunal, for short).

2.      The respondent-assessee was engaged in the business of manufacture

of health care and surgical items and in the returns filed for Assessment

Years 2006-07, 2008-09 and 2009-10 had declared taxable income of

Rs.26,25,230/-, Rs.94,90,363/- and Rs.32,18,350/- respectively. The

deduction claimed under Section 80-IC of the Act was to the tune of

Rs.42,90,162/-, Rs.35,69,594/- and Rs.2,46,13,965/- respectively. The

respondent-assessee had set up a manufacturing unit for manufacture of air

purifier or air purification systems. The Assessing Officer held that the

aforesaid activities would not qualify as ,,manufacturing activity as the

respondent-assessee was a mere assembler and did not have requisite tools

or machinery. He referred to the value of the fixed assets of about

Rs.1,25,000/- and the assessee had produced bills worth Rs.1,00,000/- for

purchase of tools, etc. Before the Assessing Officer, the respondent-

assessee had given the following explanation:-

             "Steri -Air air     purification systems use
             multiple     technologies    like  ozone   gas,
             electrostatic    precipitation,   Ultra  violet
             germicidal irradiation, multiple mechanical
             filters like synthetic pre filters, secondary
             filters, activated carbon filters, HEPA (High
             efficiency particulate arrestor) filets in
             various permutations and combinations. The
             combinations depend upon the need of the
             customer and the area of application. This is

ITA Nos. 509/2014, 510/2014 & 515/2014                            Page 2 of 5
             probably for the first time in India that an
             array of technologies for air purification,
             which were available, has been combined into
             a single system for the highest efficiency.
             Apart from this in order to make the system
             user    friendly    we    have    incorporated
             programmable timers in the system so that the
             user can pre define the time of switching on
             and off and the time of running of the system.
             The system has been appreciated and well
             accepted by the health care industry workers.
             We have been promoting it aggressively all
             dyer the North Indian Market. Details regarding
             our marketing activities and already existing
             approvals have been given in the latter part of
             this report.

             Steri-Air is a versatile system, which can be
             used in almost all areas of a hospital on a
             continuous 24x7 basis.

             Manufacturing of Steri-Air is an assembly
             process,    where    we     procure    various
             parts/components of the system from different
             vendors and assemble the same at our facility
             in Roorkee. All the electronic and electrical
             components are received in the form of cards,
             with suitable connectors and all the required
             cards are connected using connectors".

3.      The term ,,manufacture has been defined in Section 2(29BA) of the

Act, which is as under:-

             "2(29BA) "manufacture", with its grammatical
             variations, means a change in a non-living physical
             object or article or thing,-

(a)          resulting in transformation of the object or article or
             thing into a new and distinct object or article or thing
             having a different name, character and use; or
(b)          bringing into existence of a new and distinct object or
             article or thing with a different chemical composition

ITA Nos. 509/2014, 510/2014 & 515/2014                                  Page 3 of 5
             or integral structure;"

4.      The finding of the appellate authorities, including the Tribunal is that

the product produced and sold by the respondent-assessee was air

purification system. For manufacturing the said product, the assessee had

purchased parts like base motors, filters, UV lights etc. but the final

product produced was entirely different from its constituents or parts. The

product manufactured or produced, i.e. the air purifier or air purification

system, was completely a new and an entirely different commodity having

distinct name, character and use. The respondent-assessee had even filed

photographs before the Assessing Officer to support his contentions on the

manufacturing activities undertaken. The respondent-assessee had filed a

flow chart of the manufacturing process. The manufacturing unit stood

registered with District Industries Centre, Roorkee, Pollution Control

Department, Commercial Tax Department, Uttaranchal, etc.

5.      The Assessing Officer did not dispute or question the purchases of

the parts used for manufacturing as well as the sale consideration received

by the respondent-assessee from sale of the air purifiers but did doubt the

purchases of the tools and implements required to undertake the

manufacturing activities. It is not the case of the Revenue that the air

purifiers were not actually manufactured or sold to third parties and there

was bogus purchase of parts or transactions for sale of the manufactured

goods. The stand of the respondent-assessee was that they had used simple

ITA Nos. 509/2014, 510/2014 & 515/2014                                 Page 4 of 5
tools and testing equipments like frequency tester, multi meter, VV

intensity meter, wires, CFM flow meter, ozone intensity monitor, nuts and

bolts, hand drill, screw driver set, plier cutting set, etc. to carry out

assembling and manufacturing of the air purifiers.

6.      In view of the aforesaid factual findings, we do not think any

substantial question of law arises for consideration in the present appeals.

The appeals are thus dismissed.

                                                     SANJIV KHANNA, J.

                                                V. KAMESWAR RAO, J.
SEPTEMBER 12, 2014

ITA Nos. 509/2014, 510/2014 & 515/2014                             Page 5 of 5
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