JUDGMENT judgment of court was delivered by S. Ravindra Bhat J.-The following questions of law are urged: 1. Did Income-tax Appellate Tribunal fall into error in holding that claim under section 80HH in respect of Namoli unit and section 80-I in respect of Malanpur unit were admissible (common to I. T. A. Nos. 220 of 2007 and 232 of 2007)? 2. Did Income-tax Appellate Tribunal err in regard to assessee's depreciation claim in respect of Namoli unit (common to both appeals I. T. A. Nos. 220 and 232 of 2007)? 3. Was suppression of sale to tune of Rs. 1.79 crores as alleged by Revenue for assessment year 1994-95 (I. T. A. No. 232 of 2007) justified? 4. Did Income-tax Appellate Tribunal fall into error in its findings of loss with regard to unit No. 1 at Noida? (in I. T. A. No. 232 of 2007) 5. Did Income-tax Appellate Tribunal fall into error in respect of claim for foreign exchange fluctuation made by assessee? (in I. T. A. No. 232 of 2007) Questions Nos. 1 and 2 brief facts are that assessee engages itself in manufacturing, inter alia, of cassettes. At relevant time, i.e., 1994-95 and 1995-96, assessee had owned five production units. Two were located at Noida; one at Delhi and two at Namoli and Malanpur (UP). assessee's production process entails manufacturing of audio magnetic tapes (AMT) in bulk-an activity carried out in two Noida units. These articles were, thereafter, transported to other units-in present instance Namoli and Malanpur where final products-marketed by assessee were assembled. assessee had claimed benefit of section 80HH and section 80-I in respect of Namoli unit and section 80-IA in respect of Malanpur unit which had been granted from years 1991-92. In course of assessment for assessment year 1994-95, based upon assessee's returns, Assessing Officer formed opinion that no manufacturing activity was carried out in Namoli and Malanpur. This, he surmised based upon (a) loss declared by Noida unit, (b) transfer of tapes manufactured in Noida unit and fact that manufacturing was not carried on in Malanpur and Namoli units, and (c) that assembling of articles produced at Noida unit did not amount to manufacture and that there was other material to indicate functional integrality of all units. On basis of these findings, Assessing Officer disallowed claims under section 80HH, section 80-I and section 80-IA (the latter being in respect of Malanpur unit) and brought to tax deductions claimed. assessee appealed to Commissioner of Income-tax (Appeals) who, in his elaborate order, considered entire materials on record with respect to different nature of activities carried on in units in question; lack of evidence to show that goods sold or transferred to Namoli and Malanpur units were not based on market price; overwhelming evidence establishing that both units had machinery, were filing sales tax and excise returns and were also employing workers; and concluded that claim under sections 80HH and 80-I and 80-IA, respectively, were justified in given circumstances of case. Commissioner of Income-tax (Appeals), however, remitted matter with respect to certain adjustment indicated by him in order. decision of Commissioner of Income-tax (Appeals) was appealed against by Revenue. Income-tax Appellate Tribunal by its own elaborate order considered matter and entire factual matrix and affirmed order of Commissioner of Income-tax (Appeals). Regarding question No. 1, Revenue urges that findings of Commissioner of Income-tax (Appeals) and Income-tax Appellate Tribunal in this case with respect to units being separate and not functionally same are erroneous and contrary to record. It was emphasised that mere assembling of tapes would not constitute manufacturing. Learned counsel relied upon decision in Krishak Bharti Co-operative Ltd. v. Deputy CIT (I. T. A. No. 1248 of 2010, decided on July 24, 2013)-since reported in [2013] 358 ITR 168 (Delhi) to urge that expression "derived from" is narrower in connotation as compared to expression "attributable to" which occurs in other provisions. It was submitted that ownership by assessee of industrial undertaking, has to necessarily be established. It was also contended that losses claimed by Noida unit and profits claimed correspondingly by Malanpur and Namoli units also should disclose that there was functional integrality and that latter units which claimed exemption were in fact entirely derived from manufacturing activity carried on by Noida unit. Assessing Officer's findings in regard to functionality are extracted below: "(A) expenditure pertaining to vehicles have not been debited by units having ownership of their on. use of vehicles is not confined to units having ownership. But depreciation is claimed by owner units declared. (B) employees of one unit are working for other unit. But their salary is debited in unit of their enrolment. Some time, travelling expenses have been paid to non employees of company, namely, by Malanpur unit. In Malanpur unit, payments have been made for 65 trips in respect of persons who are not employees of Malanpur unit. This expenditure amounted to Rs. 62,659. Similarly, unit II has claimed expenditure in respect of 5 persons who are not employees of unit II. (C) No separate bank account for each and every unit except Malanpur are maintained. profits and accumulated funds of any unit is not marked separately, w hereas company makes such demarcation in respect of inter transfer of various raw materials. In order to arrive at correct and factual income of any unit, it is necessary to account for utilisation of funds also. However, it would not amount to change ultimate final results of company as whole. It is also relevant to note that even day-to-day fund base need of other units are also monitored by unit II for all purposes except for availing of deductions. company admits that all units are one and same for all other purposes, i.e., before Sales Tax Department and other departments. (D) Before sales tax authorities of Uttar Pradesh, company declares various units as branches and there by one assessment of company is made by them by virtue of having one registration number. If all units are declared independent assessee-company would have to take separate registration of unit. But it was not so. (E) Unit II has acted as mediator even for procurement of raw material by so-called independent unit, namely, Namoli and Malanpur. This fact is evident from information that all audio components worth Rs. 36.50 lakhs have been transferred to Malanpur unit and audio components worth Rs. 128.61 lakhs to Namoli unit. Though unit II has not manufactured even single component (refer pages 61 and 62 of report of S. A.) (F) Material on loan basis is transferred to M/s. SCI Ltd. by unit II and vice versa. While passing such entries there is no actual or real transfer of money. Similarly, material on loan has also been given by unit I also. This again proves that no real profit could be arrived for separate units." Commissioner of Income-tax (Appeals), however, went into records and materials placed before him rather elaborately. These materials included, inter alia, employees' details in form of 14 reports and documents including factory inspection reports for period 1992-97. These reports as well as other materials established that units in question in Malanpur and Namoli were employing substantial number of workers between 95-108; electricity billing patterns for said period and amounts paid were also taken into consideration. Furthermore, Commissioner of Income- tax (Appeals) noticed that sales tax assess ments for period 1991-96 also substantiated assessee's claim of second manufacturing activity for said two units. Commissioner of Income-tax (Appeals) also took note of fact that AMT produced and marketed by assessee became excisable and that application had been made on August 5, 1997, to Assistant Commissioner of Excise, Noida, claiming modvat under rule 57H. There was physical verification of inventory at Namoli and Excise Department had in fact granted credit to assessee under modvat scheme. Furthermore, other collateral material in form of show-cause notice issued by Excise Department and correspondence with Sales Tax Department, bonus registers and returns of statistics filed with Government authorities, etc., were all taken into consideration. Commissioner of Income-tax (Appeals) also extracted charts indicating number of workers engaged by assessee based upon records produced by it; these are found at paragraph 11 of order. Commissioner of Income-tax (Appeals) made detailed comparison of price of similar goods manufactured by other producers. chart was prepared; same has been reproduced in paragraph 2.23 of Commissioner of Income-tax (Appeals)'s order. Based upon these materials, Commissioner of Income-tax (Appeals) adjusted profits of various units in following terms: Particulars Unit I Unit II Unit IV Unit V D. Ganj Total (Namoli) (Malanpur) Turnover 56,00,627 6,68,35,883 5,04,99,228 1,19,92,944 1,29,820 13,51,58,503 in Rs. Turnover 4 50 37 9 0 100 % Profit (before taxation) as per (77,86,038) (67,12,448) 2,23,68,626 12,32,723 (8,651) 90,94,212 profit and loss account Add: selling, distribution and administrative expenditure, 15,99,985 28,82,673 1,93,865 6,79,067 8,681 53,64,271 excluding loss due to foreign exchange fluctuation Add: Financial 77,588 6,92,726 9,484 7,79,798 charges Total (61,08,465) (31,37,049) 2,25,62,491 19,21,274 30 1,52,38,281 Less: Pro- rata selling, distribution and administrative expenses and 2,54,595 30,42,788 22,95,607 5,45,178 5,901 61,44,069 financial charges on basis of turn- over. Less: excess profit as per 2,95,000 paragraph 3.7 below Adjusted (63,63,060) (61,79,837) 2,02,66,884 10,81,096 (5,871) 90,94,212 profit Assessing Officer is, therefore, directed to allow deductions under section 80HH and section 80-I in respect of Namoli unit on profit of Rs. 20,266,884 and in respect of Malanpur unit on profit of Rs. 10,81,096. This direction is, however, subject to one qualification. Since sale bills of comparable producers have been filed in course of appeal proceedings and Assessing Officer has not had opportunity to examine them, Assessing Officer may do so before giving effect to this order. In case Assessing officer finds that sale bills of comparable producers filed by assessee do not indicate correct market prices of relevant products, he may ascertain correct market prices of those products independently, and may make further necessary adjustment to profits of Namoli and Malanpur units as worked out in chart above." Income-tax Appellate Tribunal concluded that assembling of cassettes from finished components amounted to manufacturing and held as follows: "21. On this question, we are of view that blank audio or video cassettes assembled from various components is distinct and separate marketable commercial commodity and, therefore, assembly of components amounts to manufacture. Commissioner of Income-tax (Appeals) does not appear to have examined this question in details presumably because he addressed himself in great details, to question whether Namoli unit did actually function during relevant previous year and produced cassettes. It seems to us that implicit in findings that Namoli unit did function during relevant previous year, is finding that assembly also amounts to manufacture. Even otherwise, finding can be supported by fact that Central excise authorities did consider production of cassettes as manufacturing activity as can be seen from fact that audio cassettes became excisable product from February 28, 1997. Though this date falls outside accounting year relevant to assessment year 1995-96 it supports findings that activity amounts to manufacturing activity and was brought into excise net only from February, 1997. We, therefore, hold that assembly of c assettes from finished components does amount to manufacturing and agree with Commissioner of Income-tax (Appeals)." Income-tax Appellate Tribunal also affirmed findings with regard to actual functioning of two units which claimed exemptions during relevant previous years in following terms: "In support of contention, that these two units actually functioned during relevant previous year, assessee adduced copious materials and evidence before Commissioner of Income-tax (Appeals) which were sent to Assessing Officer by Commissioner of Income-tax (Appeals) by letter dated April 13, 1999, and he was asked to give his comments in respect of them. Assessing Officer gave his comments by letter dated April 16, 1999, stating that evidence had been created by assessee and also questioning claim of assessee by pointing out that Namoli unit did not have power connection. Commissioner of Income-tax (Appeals) took into account evidence and also comments of Assessing Officer and proceeded to examine matter closely. He recorded his findings as under: (i) Namoli unit did have electricity connection. This is clear from electricity bills issued by UP State Electricity Board in respect of period March 26, 1990, to December 2, 1998, and includes accounting year under consideration. (ii) assessee also produced photographs of electricity cable, electricity pole, energy meter, tube box, etc. (iii) Namoli unit mainly relied on captive power generation and incurred total expenditure of Rs. 2,97,360 on purchase of HSD and mobile oil during year. (iv) assessee also filed copy of order dated March 6, 1998, passed by Commissioner of Sales Tax, Lucknow, in which, after referring to survey report and evidence produced by assessee he held that there was no proof "that production at unit under reference was suspended continuously for more than six months nor was it proved that sales tax exemptions was misused by assessee. (v) assessee had filed several items of evidence to show crossing of goods through sales tax barrier and seal affixed on all invoices of components imported from Noida and Delhi into Namoli unit. Assessing Officer had commented that this evidence had been created by assess ee by taking goods to sales tax checkpost, getting invoices stamped and then taking goods back to Noida instead of taking them to Namoli. This allegation of Assessing Officer was not supported by any evidence and Commissioner of Income-tax (Appeals) himself felt that it would be impossible for anyone to collude with entire Government Department regularly for seven years and that comment had been made in sweeping and incredible manner without any evidence. (vii) Several Government departments such as Department of Industries, U. P., Additional Labour Commissioner, Ghaziabad, Director of Factories, Meerut, etc., have conducted physical inspection of Namoli unit under different laws and have filed reports pointing out discrepancy in functioning of assessee's factory. Some inspection reports referred to consumption of electricity for purpose of manufacturing and also referred to fact that 162 employees were found at time of inspection out of 199 employees on pay roll. Some reports also mention number of employees with aid of power. There were enquiries about storage of chemicals and gases in factory at Namoli. Central excise authority had also conducted physical verification of inventory available at Namoli on February 28, 1997, and allowed modvat benefit to assessee. Various other evidence such as attendance register, bonus register, Factories Act register, employment exchange returns, returns of statistics, etc., have also been maintained by assessee. All this evidence is adverted to by Commissioner of Income-tax (Appeals) between pages 23 and 31 of his appellate order. (viii) Inspector of income-tax had submitted report dated April 18, 1998, in which he has stated that Namoli unit was not functional. assessee's claim was that Inspector never visited unit and in support of claim visitors register was produced before Commissioner of Income-tax (Appeals). assessee also challenged Inspector to mention name of guard, who had allegedly told him that no production was carried on in Namoli unit. names of guards present on November 18, 1998, at Namoli unit were furnished to Commissioner of Income-tax (Appeals) and duty register was also produced. Inspector was not able to mention name of guard in his report. assessee also produced guards who were on duty on date of inspection before Commissioner of Income-tax (Appeals) and Commissioner of Income-tax (Appeals) called upon inspector to identify guard, who had stated that no production was carried on in unit. Inspector did not turn up before Commissioner of Income-tax (Appeals) to do so. Commissioner of Income-tax (Appeals), therefore, did not attach much credence to report of Inspector and rejected same as unsubstantiated. 23. On basis of above findings, based on material produced before him, Commissioner of Income-tax (Appeals) concluded that both Namoli and Malanpur units did function during relevant accounting year and employed requisite labour to produce articles which resulted in profits. He, accordingly, directed Assessing Officer to allow deduction. On careful consideration of findings of Commissioner of Income-tax (Appeals) and material placed before him, which were all compiled in paper book filed before us, we are of view that no interference is required in his decision. No material or evidence was produced before us to contradict findings of Commissioner of Income-tax (Appeals) or to impeach authenticity of evidence adduced before Commissioner of Income-tax (Appeals). findings of Commissioner of Income-tax (Appeals) having been passed on unimpeachable evidence adduced before him, which had also being scrutinised by Assessing Officer and commented upon, we see no reason to upset finding. We, therefore, uphold his decision that units did actually functioned during relevant previous year." It is thus evident that both Commissioner of Income-tax (Appeals) and Income-tax Appellate Tribunal carried out elaborate factual analysis about existence of manufacturing activity at Namoli and Malanpur. Based on this analysis, these fact finding authorities concurrently ruled in favour of assessee. In contrast, Assessing Officer-as is evident from extracts of his order-based his decision entirely on assumptions. Those assumptions stemmed out of his belief that claim for losses of Noida unit could not co-exist with profits derived from Namoli and Malanpur units. We also noticed that Assessing Officer's order did not take into account materials which were ulti mately considered by Commissioner of Income-tax (Appeals). latter, in fact, took care to call for Assessing Officer's comments during course of appellate proceedings. material in form of factory register, employee's rolls, periodic sales tax and excise returns, evidence of electricity payments, etc., was decisive enough for both Commissioner of Income-tax (Appeals) and Income-tax Appellate Tribunal to be satisfied that in fact two units in question functioned. This court, therefore, is of opinion that there is no infirmity with factual findings of Income-tax Appellate Tribunal in assessee's favour. So far as question whether activity carried out in Malanpur and Namoli amounted to manufacturing goes, fact that assessee claimed and was granted modvat credit under rule 57H of Central Excise Rules at relevant time itself is indicative that for purposes of excise, "the assembling of cassettes amounted to manufacture". It goes without saying that goods in question, i.e., audio video tapes are manufactured in bulk-as in present instance in Noida, which in turn constitute raw materials for ultimate assembly of marketable products into cassettes in which several intervening stages would be involved. These would be cutting of tapes into requisite levels, their placement in cassettes shells, packaging of such finished cassettes and labelling, etc. In these circumstances, Revenue's argument that no manufacturing activity was involved in assembling of cassettes is unsustainable. We also hold that decision in Krishak Bharti (supra) is only authority for proposition that expression "derived from", is with respect to activity and not ownership of unit. This court is of opinion that said decision has no relevance in circumstances of present case. Having regard to above conclusion, first question is answered against Revenue and in favour of assessee. second question framed in these cases pertains to depreciation claims for Namoli unit. In view of concurrent findings of Commissioner of Income-tax (Appeals) and Income-tax Appellate Tribunal that in fact Namoli unit actually functioned during relevant year, depreciation was correctly allowed. This question, too, is answered in favour of assessee and against Revenue. Question No. 3 - Alleged suppression of sale In 1993-94, one of Noida units transferred 5000 pieces of VMT to Malanpur unit for Rs. 97 per piece including excise duty component of Rs. 55.05. Malanpur unit had moved 1960 video cassettes in two years in question, i.e., 1993-94 and 1994-95. reduced excise duty led to fall in price of video cassettes. Consequently, average market price also went down. In order to compensate Malanpur unit, M/s. Super Cassettes Industries purchased video cassettes at price of Rs. 104. concurrent findings of fact are that there was no suppression of sale prices since 83 per cent. of total video cassettes sales was exported at average price of Rs. 27.79. Commissioner of Income-tax (Appeals) held that these exports are substantial enough and that allegations that there was underinvoicing of exports by assessee could not be validly returned. These findings were affirmed by Income-tax Appellate Tribunal in paragraphs 41-43 of impugned order. Again, being entirely factual in nature, court sees no reason to interfere with them. This question is, accordingly, answered against Revenue and in favour of assessee. Question No. 4 As far as loss claimed, i.e., of Rs. 66,25,885 by assessee in respect of Noida unit goes, Assessing Officer disallowed it in entirety. Commissioner of Income-tax (Appeals) in his order-as was noticed earlier, made elaborate and detailed analysis of facts and held that even if total production and sales were ignored, fixed cost attributable to unit were substantial. These costs were in nature of employees' wages, bonus, compensation, electricity, water charges, repairs and maintenance, etc. Consequently, disallowance to extent of Rs. 26,80,087 was sustained. What was allowed to assessee was Rs. 39,45,798. facts in respect of this were noticed in paragraph 44 of Income-tax Appellate Tribunal's order which is reproduced below: "44. assessee is engaged in production of audio magnetic tapes (AMT) since July 18, 1985, in unit I. From details of production relevant to financial year 1985-86 relevant to assessment year 1986-87 and all subsequent years see table in paragraph 6.1 of order of Commissioner of Income-tax (Appeals), Assessing Officer noted decline in production of AMT which altogether stopped in assessment year 1994-95 and later on picked up and reached figure of 1175 million running meters in financial year 1997-98. assessee had explained that production at unit was stopped with effect from April 1, 1993, for major repairs and renovation and regular production was resumed only from May 6, 1996. During above period of more than 3 years following repairs and additions were carried out to plant and machinery of unit No. II. Financial 1993-94 1994-95 1995-96 1996-97 Total year Repairs 19,63,265 5,99,619 4,04,886 29,35,220 59,02,990 (Rs.) Addition Nil 20,60,156 5,346 3,65,484 46,10,986 (Rs.) It was further stated that during accounting years relevant to assessment years 1995-96 and 1996-97 there was only trial production of plant resulting in 81 million running meter and 45 million running meters of AMT were being produced. Details of trial production during these years were furnished by assessee. For assessment year 1995-96 despite stoppage of production assessee continued to incur expenditure under various heads such as raw materials, manufacturing expenses, excise duty, selling and distributing expenses, depreciation, financial charges, etc., aggregating to Rs. 133.87 lakhs. gross income came to Rs. 56 lakhs including income from production of magnetic tapes. result was loss of Rs. 77.86 lakhs in unit I." Income-tax Appellate Tribunal noticed that after unit was started again on May 6, 1996, electricity connection of unit 2 was utilised since unit's initial connection was disconnected on July 25, 1994. position, therefore, was that in February and March, 1995, when assessee had conducted trial production, unit had only six workers. Noticing that Assessing Officer disbelieved all these facts and after consideration rival claims (since Revenue and assessee preferred appeals on this aspect), Income-tax Appellate Tribunal agreed with findings of Commissioner of Income-tax (Appeals) in view of circumstance that electricity connection was in fact surrendered on July 25, 1994, and, therefore, it was not clear how trial production could have commenced in February/March, 1995. In view of these findings, Income-tax Appellate Tribunal held as follows: "50. However, we also agree with Commissioner of Income-tax (Appeals) that entire book results cannot be rejected under section 145(2) merely because trial production was not proved. In our opinion, he has rightly re-cast profit and loss account of unit and has allowed expenditure which is in any case allowable, details of which have already been noticed. On overall survey of order Commissioner of Income- tax (Appeals) and material on which his conclusions are based we are unable to say that he has taken erroneous view of matter. We, accordingly, affirm his decision to allow loss to extent of Rs. 39,45,798 and to sustain balance loss of Rs. 26,80,087. Thus, both grounds taken by Department and those taken by assessee in respect of this point stand dismissed." Apart from stating that findings are erroneous, Revenue has not pointed out either perversity or unreason ableness or that any of these findings were not based upon inference that could not have been drawn in circumstances of case. Consequently, no substantial question of law arises. Question No. 5 On account of foreign exchange fluctuation, purchase costs of raw materials increased by Rs. 29,36,000. Assessing Officer was of view that this could not be allowed as revenue expenditure. Commissioner of Income-tax (Appeals) and Income-tax Appellate Tribunal reversed that finding. It is not disputed that this head of expense was correctly treated as falling in revenue stream in view of decision of this court in CIT v. Woodward Governor India P. Ltd. [2007] 294 ITR 451 (Delhi). That decision was affirmed by Supreme Court in CIT v. Woodward Governor India (P.) Ltd. [2009] 312 ITR 254 (SC). question of law, therefore, is answered against Revenue and in favour of assessee. I. T. A. Nos. 220 and 232 of 2007 are, accordingly, dismissed. *** Commissioner of Income-tax v. Tony Electronics Ltd