Appeal details
Counselvise Citation
[2012] 140 COUNSELVISE.COM (IT) 60919 (ITAT-CHANDIGARH)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 6 month(s) 27 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
27-06-2012
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
A
Next Hearing Date
17-04-2012
Assessment Year
2006-2007
Appeal Filed On
30-11-2010
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.1273/CHD/2010 (ASSESSMENT YEAR : 2006-07) BNAL PREFAB PVT. LTD., VS. THE ADDL. C.I.T., S.R.NO.19, SECTOR 7, RANGE 1, CHANDIGARH. CHANDIGARH. PAN: AAACB7859D AND ITA NO.1361/CHD/2010 (ASSESSMENT YEAR : 2006-07) THE D.C.I.T., VS. BNAL PREFAB PVT. LTD. CIRCLE 1(1), S.R.NO.19, SECTOR 7, CHANDIGARH. CHANDIGARH. PAN: AAACB7859D (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VINEET KRISHAN SHRI ARVINDER SINGH DEPARTMENT BY : SHRI AKHILESH GUPTA, DR DATE OF HEARING : 17.04.2012 DATE OF PRONOUNCEMENT : 27.06.2012 O R D E R PER SUSHMA CHOWLA, J.M, : THESE CROSS APPEALS FILED BY THE ASSESSEE AND THE R EVENUE ARE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS), CHANDIGARH DATED 30.07.2010 RELATING TO ASSESSMENT YEAR 2006-07 AGAINST THE ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961. 2. BOTH THESE APPEALS BY THE ASSESSEE AND THE REVEN UE WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLI DATED ORDER FOR THE SAKE OF CONVENIENCE. 2 ITA NO.1273/CHD/2010(ASSESSEES APPEAL) 3. GROUND NO.1 RAISED BY THE ASSESSEE BEING GENERAL IS DISMISSED. 4. GROUND NO.2 RAISED BY THE ASSESSEE IS AGAINST AD DITION OF RS.47,302/- WAS NOT PRESSED BY THE ASSESSEE AND HEN CE THE SAME IS DISMISSED AS NOT PRESSED. 5. GROUND NO.4 RAISED BY THE ASSESSEE READS AS UNDE R: 4. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ID. COMMISSIONER OF INCOME TAX (APPEALS) GRAVELLY ERRED IN SUSTAINING THE ADDITION OF RS.50,642/- MADE BY THE ASSESSING OFFIC ER IN RESPECT OF BADDI UNIT ON ACCOUNT OF PAYMENT TO RATTAN BY INVOK ING THE PROVISIONS OF SECTION 40{A)(IA' 6. THE ISSUE RAISED VIDE GROUND NO.4 IS AGAINST THE ADDITION MADE ON ACCOUNT OF PAYMENT TO ONE SHRI RATTAN, WITHOUT DEDU CTION OF TAX AT SOURCE AND CONSEQUENTLY THE INVOKING OF PROVISIONS OF SECTION 40A(IA) OF THE ACT. THE LEARNED A.R. FOR THE ASSESSEE FAIRLY ADMITTED THAT OUT OF THE ERECTION CHARGES NO TAX WAS DEDUCTED AT SOURCE AND CONSEQUENTLY THE SAID AMOUNT IS TO BE DISALLOWED IN VIEW OF THE PROVISION S OF SECTION 40A(IA) OF THE ACT. IT WAS FURTHER POINTED OUT BY THE LEAR NED A.R. FOR THE ASSESSEE THAT DEDUCTION UNDER SECTION 80IC OF THE A CT IS TO BE ALLOWED ON REVISED PROFITS OF THE BUSINESS BEING THE ELIGIBLE PROFITS ENTITLED TO DEDUCTION UNDER SECTION 80IC OF THE ACT. RELIANCE WAS PLACED ON S.B. BUILDERS & DEVELOPERS VS. ITO [50 DTR 299 (MUMBAI B ENCH)]. 7. THE LEARNED D.R. FOR THE REVENUE PLACED RELIANCE ON THE OBSERVATIONS OF CIT (APPEALS) IN PARA 37 AT PAGE 27 OF THE APPELLATE ORDER. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HA D CREDITED THE ACCOUNT OF CONTRACTOR SHRI RATTAN BY SUM OF RS.50,6 42/- ON 31.3.2006 IN 3 BADDI UNIT. NO TAX WAS DEDUCTED AT SOURCE OUT OF T HE SAID PAYMENT UNDER SECTION 194C OF THE ACT AND CONSEQUENTLY THE PROVIS IONS OF SECTION 40A(IA) OF THE ACT ARE ADMITTEDLY ATTRACTED IN THE CASE. HOWEVER, FROM THE PERUSAL OF THE ORDER OF THE CIT (APPEALS) I.E P ARA 36 AT PAGE 27 OF THE APPELLATE ORDER WE FIND THAT THERE IS A MENTION OF SMALL AMOUNT BEING PAID IN CASH AND BALANCE AMOUNT BEING PAID THROUGH CHEQUE. IN CASE AMOUNT HAS BEEN PAID AS ON THE CLOSE OF THE YEAR, N O DISALLOWANCE IS WARRANTED UNDER SECTION 40 A(IA) OF THE ACT IN VIEW OF THE RATIO LAID DOWN BY THE SPECIAL BENCH OF VISHAKHAPATNAM TRIBUNA L IN ACIT VS. MERILYN SHIPPING & TRANSPORTS REPORTED IN [140 TTJ 1(SB)(VISHAKHAPATNAM)]. HOWEVER, IN CASE THE SAID PAYMENT HAS BEEN MADE AFTER THE CLOSE OF THE YEAR THEN THE SAID AMOU NT IS DISALLOWABLE IN VIEW OF THE PROVISIONS OF SECTION 40A(IA) OF THE AC T AND AS HELD BY THE SPECIAL BENCH OF VISHAKHAPATNAM TRIBUNAL IN ACIT VS . MERILYN SHIPPING & TRANSPORTS REPORTED IN [140 TTJ 1(SB)(VI SHAKHAPATNAM)] (SUPRA). FURTHER, WHERE THE AMOUNT IS DISALLOWED, THE SAID IS ADDED BACK TO THE PROFITS OF THE BUSINESS AND THE ASSESSEE IS ENTITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT ON THE SAID PROFITS BEING ELIGIBLE PROFITS FOR CLAIMING THE SAID DEDUCTION. IN VIEW THEREOF, WE REMIT THE ISSUE BACK TO THE FILE OF THE ASSESSING O FFICER TO DECIDE THE SAME IN LINE WITH OUR DIRECTION AFTER DUE VERIFICAT ION. REASONABLE OPPORTUNITY OF HEARING SHALL BE AFFORDED TO THE ASS ESSEE. GROUND NO.4 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL P URPOSES. 9. GROUND NO.3, 5 TO 7 RAISED BY THE ASSESSEE READ AS UNDER: 3. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E ID. COMMISSIONER OF INCOME TAX (APPEALS) GRAVELLY ERRED IN UPHOLDING THE ACTION OF THE ID. ASSESSING OFFICER, WHO RESTRICTED THE DEDUCTION UNDER SECTION 80IC AT RS. 1,22,43573/- AS AGAINST THE DED UCTION ALLOWABLE AT RS.1,74,08,870/-. 5. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ID. 4 COMMISSIONER OF INCOME TAX (APPEALS) GRAVELLY ERRED IN UPHOLDING THE ACTION OF THE ID. ASSESSING OFFICER IN TAKING THE R ATIO OF 59.32% : 40.6 % IN RESPECT OF EXPENSES AS AGAINST THE 56% : 44% ADO PTED BY THE ASSESSEE IN RESPECT OF BADDI AND CHANDIGARH UNIT RESPECTIVEL Y AND THUS ERRED IN MAKING AN ADDITION OF RS. 6,05,658/-. 6. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE ID. COMMISSIONER OF INCOME TAX (APPEALS) GRAVELLY ERRED IN UPHOLDING THE ACTION OF THE ID. ASSESSING OFFICER IN TREATING A S UM OF RS.1,12,44,060/- AS SALE AND AS TRADING RECEIPTS, WHICH IN FACT ARE MAN UFACTURING EXPENSES AND ESTIMATING THE TRADING PROFIT OF RS.22,79,170/- BYDISALLOWING DEDUCTION UNDER SECTION 80IC. 7. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE ID. COMMISSIONER OF INCOME TAX (APPEALS) GRAVELLY ERRED IN UPHOLDING THE ACTION OF THE ID. ASSESSING OFFICER, WHO IN RESPECT OF CIVIL WORKS EXECUTED IN BADDI UNITS HAD ERRED IN ESTIMATING THE NET PROFIT OF 33.53% AND WORKING OUT THE NET PROFIT OF RS. 12,65,558/-. 10. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE IS CARRYING ON ITS ACTIV ITIES WITH HEAD OFFICE AT CHANDIGARH UNIT AND BRANCH OFFICE AT BADDI UNIT. THE ASSESSEE HAD SHOWN RECEIPTS ON ACCOUNT OF ACTIVITIES RELATED TO PREFABRICATED STRUCTURE AS WELL AS SOME CIVIL WORK CARRIED OUT DURING THE Y EAR UNDER CONSIDERATION. THE ASSESSEE HAD CLAIMED PROFITS OF THE BADDI UNIT AS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE AC T AT RS.1,63,93,955/-. THE ASSESSEE HAD MAINTAINED SEPARATE BOOKS OF ACCOU NT FOR THE CHANDIGARH UNIT AND THE BADDI UNIT. THE ASSESSING OFFICER, HOWEVER, NOTED THAT LARGE AMOUNT OF ADMINISTRATIVE AND FINAN CIAL EXPENSES WERE DEBITED IN THE BOOKS OF THE CHANDIGARH UNIT, WHICH WAS ALSO THE HEAD OFFICE OF THE ASSESSEE. THE ASSESSEE HAD APPORTION ED PERCENTAGE OF SOME OF THESE EXPENSES IN CERTAIN RATIO BETWEEN THE CHAN DIGARH UNIT AND THE BADDI UNIT. THE ASSESSING OFFICER ASKED THE ASSESS EE TO FURNISH THE BASIS THEREOF AND JUSTIFY THE SAID APPORTIONMENT. THE SECOND ISSUE RAISED BY THE ASSESSING OFFICER WAS THAT THE PROFIT S OF THE BADDI UNIT INCLUDED CERTAIN PROFITS ON ACCOUNT OF VARIOUS CIVI L WORK EXECUTED BY THE ASSESSEE AND HOW THE SAME WERE ELIGIBLE FOR DEDUCTI ON UNDER SECTION 80IC OF THE ACT. THE ASSESSEE WAS ALSO ASKED TO ES TABLISH THAT ITS 5 ACTIVITIES AMOUNTED TO MANUFACTURE OR PRODUCTION OF ARTICLES OR THINGS MAKING IT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE F URNISHED DIFFERENT REPLIES, REWORKED THE RATIO OF THE DISALLOWANCE OF CERTAIN EXPENSES DEBITED TO THE CHANDIGARH UNIT TO BE CONSIDERED FOR WORKING OUT THE ELIGIBLE PROFITS OF BADDI UNIT. IN THE COMPUTATION OF INCOME THE ASSESSEE HAD ALLOCATED 53.77% OF SOME SPECIFIC EXPENSES DEBI TED TO CHANDIGARH UNIT TO THE BADDI UNIT, WHICH FIGURE WAS LATER REVI SED BY THE ASSESSEE TO RATIO OF 55.97% : 49.03 (BADDI UNIT : CHANDIGARH), WHICH DETAILS ARE ENCLOSED AT ANNEXURE A-2 TO THE ASSESSMENT ORDER. CONSEQUENTLY THE ASSESSEE ADMITTED THAT THE ADDITIONAL EXPENSES TO T HE EXTENT OF RS.4,03,445/- SHOULD HAVE BEEN ALLOCATED TO THE BAD DI UNIT AND THUS DEDUCTION UNDER SECTION 80IC OF THE ACT WAS TO BE S CALED DOWN. THE ASSESSING OFFICER AT PAGE 14 OF THE ASSESSMENT ORDE R COMPARED THE SALES OF BOTH THE UNITS I.E. THE CHANDIGARH UNIT AND BADD I UNIT AND WAS OF THE VIEW THAT THE EXCISE DUTY WHICH IS CHARGED FOR THE MANUFACTURING AT CHANDIGARH UNIT HAD TO BE EXCLUDED FROM THE SALES T URNOVER FOR THE PURPOSES OF COMPUTING THE RATIO OF TURNOVER BETWEEN THE CHANDIGARH UNIT AND BADDI UNIT AND COMPUTED THE RATIO AT 59.32% : 4 0.68% (BADDI : CHANDIGARH). BY THIS EXERCISE THE ADDITIONAL EXPEN SES TO BE ALLOCATED TO BADDI UNIT CAME TO RS.2,02,213/- AND THE CLAIM OF D EDUCTION UNDER SECTION 80IC OF THE ACT WAS REDUCED TO THIS EXTENT AND THE TAXABLE INCOME TO THE CHANDIGARH UNIT WAS ENHANCED TO THE E XTENT OF RS.6,05,658/-. 11. THE ASSESSING OFFICER FURTHER CONSIDERED SECOND ASPECT OF DEDUCTION UNDER SECTION 80IC OF THE ACT I.E. THOUGH THE ASSESSEE HAD CARRIED OUT CIVIL CONSTRUCTION WORK AT JAIPUR UNDER BADDI UNIT BUT THE PROFITS OF THE SAME WERE INCLUDED IN THE ELIGIBLE P ROFITS FOR CLAIMING 6 DEDUCTION UNDER SECTION 80IC OF THE ACT. THE ASSES SEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS ADMITTED THAT SUM OF RS.3 7,74,330/- ON ACCOUNT OF CIVIL WORKS, ERECTION CHARGES ETC. HAD N OTHING TO DO WITH THE MANUFACTURING ACTIVITIES, AS NOTED BY THE ASSESSING OFFICER IN PARA 9.4 AT PAGE 15 OF THE ASSESSMENT ORDER. THE ASSESSING OFF ICER REQUISITIONED THE ASSESSEE TO FURNISH THE DETAILS ATTRIBUTABLE TO SUCH RECEIPTS BY WAY OF CIVIL WORK, ERECTION CHARGES, ETC. IN THE ABSENCE OF ANY SATISFACTORY REPLY AND AFTER GOING THROUGH THE BOOKS OF ACCOUNT OF THE ASSESSEE FOUND THAT THE ASSESSEE HAD DEBITED AND TRANSFERRED THE E XPENSES OF JAIPUR UNIT TO THE BADDI UNIT AS ON 31.3.2006, TOTALING RS.25,2 8,772/-. THE SAID EXPENDITURE WAS HELD TO BE IN RELATION TO ITS WORKS CONTRACT WORK AND CONSEQUENTLY PROFITS FROM THE SAME WERE COMPUTED AT RS.12,65,558/-, WHICH GAVE PROFIT RATIO OF 33.53% OVER THE TOTAL TU RNOVER OF CIVIL CONTRACT WORK. THE ASSESSEE HAD DECLARED PROFITS @ 24.85% IN CHANDIGARH UNIT ON THE CIVIL WORK CARRIED OUT IN TH E AREAS URI AND JAMMU & KASHMIR. THE PROFITS OF JAIPUR UNIT WERE THUS FO UND TO BE REASONABLE IN COMPARISON TO THE RATES DECLARED AT CHANDIGARH U NIT AND CONSEQUENTLY THE CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE AC T OF THE BADDI UNIT WAS REDUCED BY SUM OR RS.12,65,558/-. 12. THE THIRD ISSUE RAISED BY THE ASSESSING OFFICER WAS IN RELATION AS TO HOW THE ACTIVITIES CARRIED OUT BY THE ASSESSEE W ERE MANUFACTURING ACTIVITIES AND NOT CONSTRUCTION ACTIVITIES. THE RE PLY OF THE ASSESSEE IN THIS REGARD IS REPRODUCED UNDER PARAS 9.7 AND 9.8 A T PAGES 18 TO 21 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER VIDE PARAS 9.9 TO 9.11 AT PAGES 21 TO 23 OF THE ASSESSMENT ORDER DELIBERATED UPON T HE ISSUE AND WAS OF THE VIEW THAT THE ACTIVITIES OF THE ASSESSEE COULD NOT BE ENTIRELY TREATED AS THAT OF MANUFACTURING OR PRODUCING OF ARTICLES O R THINGS AS IT INCLUDED TRADING OF THE GOODS AS WELL. THE EXPLANATION OF TH E ASSESSEE IS AT PAGE 7 24 OF THE ASSESSMENT ORDER IN WHICH IT EXPLAINED TH AT IT WAS MANUFACTURING PREFABRICATED STRUCTURE BUT WAS ALSO PURCHASING CERTAIN COMPONENTS I.E. PRIMER, PAINTS, BRUSH, ETC. FROM TH E MARKET AND WAS DELIVERING THE SAME. THE ARTICLES WHICH WERE MANUF ACTURED BY IT HAD TO BE TRANSPORTED TO FAR FLUNG AND REMOTE AREAS AND SA ID STRUCTURES WERE SENT ALONGWITH NUTS AND BOLTS AND PAINTS AND SAID S PARES WERE CLAIMED TO BE INTEGRAL PART OF MANUFACTURING ACTIVITIES. THE ASSESSING OFFICER NOTED THAT THE TOTAL SALES OF BADDI UNIT WERE RS.9. 58 CRORES AND APPROXIMATE PERCENTAGE OF BOUGHT OUT ITEMS WAS 2.25 % WHICH WORKS OUT TO RS.24,35,050/-. THE ASSESSING OFFICER HOWEVER, REJECTED THE PLEA OF THE ASSESSEE THAT ONLY 2.45% OF THE TOTAL SALE VALU E CONSTITUTED TRADING ITEMS. THE ASSESSING OFFICER VIDE PARA 9.13 ESTIMA TED THE VALUE OF ITEMS ENLISTED IN THE CHART AT RS.1.12 CRORES BEING TOTAL TRADING SALES TURNOVER. THE PROFITS @ 20.27% ON THE SAID TURNOVER WORKED OU T TO RS.22,79,170/- AND THE SAME WAS TREATED AS TRADING PROFITS ON WHIC H DEDUCTION UNDER SECTION 80IC OF THE ACT WAS NOT ALLOWABLE. 13. THE CIT (APPEALS) UPHELD THE ORDER OF THE ASSES SING OFFICER. 14. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT (APPEALS). THE LEARNED A.R. FOR THE ASSESSEE POINTED OUT THAT IN R ESPECT OF ALLOCATION OF EXPENSES BETWEEN CHANDIGARH UNIT AND BADDI UNIT THE CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT WAS REDUCED ON TWO AC COUNT I.E. EXCLUSION OF EXCISE DUTY AND REALLOCATION OF EXPENSES. THE L EARNED A.R. FOR THE ASSESSEE FAIRLY ADMITTED THAT NO DEDUCTION UNDER SE CTION 80IC OF THE ACT WAS ALLOWABLE ON THE PROFITS EARNED ON CIVIL WORKS AT JAIPUR. HOWEVER, RATE AND PERCENTAGE APPLIED FOR COMPUTING THE EXPEN DITURE AT JAIPUR UNIT WAS EXCESSIVE. 8 15. IN RESPECT OF THE THIRD ISSUE RAISED I.E. TRADI NG OR MANUFACTURING ACTIVITY CARRIED ON BY THE ASSESSEE, IT WAS EXPLAIN ED BY THE LEARNED A.R. FOR THE ASSESSEE THAT IT WAS ENGAGED IN THE MANUFAC TURING OF PREFABRICATED SHEDS/SHELTERS FOR INDIAN ARMY WHICH WAS USED FOR VARIOUS PURPOSES. THE SAID ITEMS WERE MANUFACTURED AND PUT TOGETHER AT UNIT OF THE ASSESSEE AND THE SAID STRUCTURE WAS DISENGAGED FOR THE TRANSPORTATION TO FAR AWAY PLACES. THE LEARNED A.R. FOR THE ASSES SEE POINTED OUT THAT THE ASSESSING OFFICER HAD ENLISTED CERTAIN ITEMS AN D HAD ESTIMATED ITS SALE PRICE BY HOLDING THAT THE ASSESSEE WAS TRADING IN THE SAID ITEMS. HOWEVER, THE ASSESSEE WAS CHARGING FOR THE WHOLE PA CKAGES AND NOT SEPARATELY FOR DIFFERENT ITEMS. FURTHER PAINTS WAS ALSO SUPPLIED FOR PAINTING THE SHEDS AT THE RESPECTIVE PLACES NOT FOR SELLING IT ITEM-WISE. RELIANCE WAS PLACED ON THE RATIO LAID DOWN IN M/S C LAAS INDIA LTD. VS. ACIT [8 DTR 347 (DELHI BENCH)]. 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF STEEL FABRIC ATION AND MANUFACTURING OF PREFABRICATED STRUCTURE WHICH WERE MAINLY SUPPLIED TO THE DEFENCE AND PARAMILITARY ORGANIZATION. THE ASS ESSEE HAS ITS UNITS AT BOTH CHANDIGARH AND BADDI. THE PROFITS OF THE BADD I UNIT ARE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE ACT. THE A SSESSEE HAD CLAIMED THE TOTAL PROFITS EARNED BY IT AT BADDI UNIT TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE ACT. HOWEVER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE SAID DEDUCTION CLAIMED U NDER SECTION 80IC OF THE ACT WAS RESTRICTED PARTIALLY ON ACCOUNT OF THRE E COMPONENTS : I. ALLOCATION OF EXPENSES BETWEEN THE CHANDIGARH AN D BADDI UNITS (CLAIM UNDER SECTION 80IC REDUCED BY RS.60565 8/-). II. PROFIT EARNED FROM CIVIL WORKS CONTRACT (CLAIM REDUCED BY RS.1265558/-) 9 III. TRADING VS. MANUFACTURING ACTIVITIES. TOTAL T RADING SALES TURNOVER OF RS.11244060/-. PROFIT AT 20.27% APPLIE D. THEREFORE, DEDUCTION NOT ALLOWED ON RS.2279170/-. 17. IN RESPECT OF ALLOCATION OF EXPENSES BETWEEN CH ANDIGARH UNIT AND BADDI UNIT WHERE THE CLAIM OF DEDUCTION UNDER SECTI ON 80IC OF THE ACT WAS REDUCED BY RS.6,05,658/-, THE PLEA OF THE ASSES SEE IN THIS REGARD WAS THAT INITIALLY IT HAD ALLOCATED 53.77% ON SOME SPEC IFIC EXPENSES, DEBITED TO THE CHANDIGARH UNIT TO BE RELATABLE TO THE BADDI UNIT AND WORKED OUT THE PROFITS OF THE BADDI UNIT. HOWEVER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE ON ITS OWN MOTION REWORKED RATIO OF 55.97% : 49:03% I.E. (BADDI : CHANDIGARH). THE SAID ALLOCAT ION IS AS PER ANNEXURE A-2 OF THE ASSESSMENT ORDER. AS PER THE S AID ALLOCATION THE ASSESSEE ITSELF ADMITTED THAT THE ADDITIONAL EXPENS ES TO THE EXTENT OF RS.4,03,445/- HAD TO BE ALLOCATED TO THE BADDI UNIT . 18. THE SECOND ASPECT OF ALLOCATION WAS THE WORKING OF THE NET SALES TURNOVER. THE TURNOVER OF THE CHANDIGARH UNIT WAS REWORKED BY EXCLUDING EXCISE DUTY FROM THE SALES AND CONSEQUENT LY HAD RESULTED IN REWORKING OF THE RATIO BETWEEN CHANDIGARH UNIT AND BADDI UNIT, AND CONSEQUENTLY DEDUCTION UNDER SECTION 80IC OF THE AC T WAS REDUCED BY RS.2,02,213/-. IN VIEW OF THE ADMISSION OF THE ASSE SSEE DURING THE ASSESSMENT PROCEEDINGS AS EVIDENCED BY THE RECALCUL ATION OF THE ALLOCATION OF THE RATIO BETWEEN BADDI UNIT AND CHAN DIGARH UNIT AS PER ANNEXURE A-2 TO THE ASSESSMENT ORDER, ADDITION TO T HE EXTENT OF RS.4,03,445/- IS UPHELD. FURTHER ALLOCATION OF RS. 2,02,213/- TO THE BADDI UNIT ON ACCOUNT OF EXCLUSION OF EXCISE DUTY FROM TH E SALES TURNOVER OF CHANDIGARH UNIT FOR COMPUTING PERCENTAGE RATIO IS A LSO UPHELD. CONSEQUENTLY, THE DEDUCTION UNDER SECTION 80IC OF T HE ACT BEING REDUCED TO THE EXTENT OF RS.6,05,658/- IS UPHELD. 10 19. THE SECOND RELATED ISSUE OF COMPUTATION OF DEDU CTION UNDER SECTION 80IC OF THE ACT IS PROFITS ON CIVIL WORKS CONTRACT CARRIED OUT AT JAIPUR. THE ASSESSING OFFICER VIDE PARAS 9.5 TO 9.6 HAD COM PUTED THE PROFITS OF JAIPUR UNIT OF THE WORKS CONTRACT AT RS.12,65,558/- . ADMITTEDLY, THE ASSESSEE IS NOT ENTITLED TO DEDUCTION UNDER SECTION 80IC OF THE ACT ON THE PROFITS ARISING ON CIVIL CONTRACT WORK CARRIED OUT BY THE ASSESSEE. HOWEVER, IN ORDER TO ADJUDICATE THE ISSUE BY FOLLOW ING THE PRINCIPLES OF NATURAL JUSTICE, WE ARE OF THE VIEW THAT THE SAID C OMPUTATION OF PROFITS FROM CIVIL WORKS NEEDS TO BE RELOOKED BY THE ASSESS ING OFFICER BY CONSIDERING ACTUAL EXPENDITURE OF THE SAID CONTRACT WORK. ACCORDINGLY, WE REMIT THIS LIMITED ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO DETERMINE THE PROFITS FROM WORK CONTRACT BY EXAMINI NG THE ISSUE DE-NOVO AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING T O THE ASSESSEE. 20. THE THIRD COMPONENT OF DISALLOWANCE OF DEDUCTIO N UNDER SECTION 80IC OF THE ACT WORKED OUT BY THE ASSESSING OFFICER WAS ON ACCOUNT OF THE ASSESSEE BEING IN BOTH MANUFACTURING AND TRADIN G ACTIVITIES IN THE SUPPLY OF PREFABRICATED SHEETS TO ITS CUSTOMERS. T HE CLAIM OF THE ASSESSEE WAS THAT IT WAS ENGAGED IN THE MANUFACTURI NG ACTIVITIES AT BADDI UNIT WHEREIN IT OBTAINS THE ORDER FROM THE DEFENCE WITH SPECIFICATIONS AND THEN MANUFACTURES THE SAME AS PER THE SPECIFICA TIONS OF THE CUSTOMERS. THE PRODUCT MANUFACTURED BY THE ASSESSE E WAS INSPECTED BY THE REPRESENTATIVES OF DGS&D OR DGQA OR MINISTRY OF DEFENCE, FOR QUALITY ASSURANCE BEFORE DISPATCH. THE UNITS OF TH E ASSESSEE WERE REGISTERED WITH DGS&D AND DGQA AND MINISTRY OF DEFE NCE. THE ASSESSEE HAD ELABORATELY EXPLAINED ITS MANUFACTURIN G ACTIVITIES STAGE- WISE AS REPRODUCED BY THE ASSESSING OFFICER AT PAGE S 19 TO 21 OF THE ASSESSMENT ORDER. THE EXPLANATION OF THE ASSESSEE WAS THAT IT WAS SUPPLYING PREFABRICATED SHELTERS TO THE ARMY AUTHOR ITIES IN WHOLE AND 11 MANUFACTURING ACTIVITIES OF CUTTING THE STEEL PIPES OF THE REQUIRED SIZE AND ITS WELDING, GRINDING. PAINTING AND FINISHING W AS BEING CARRIED OUT AT BADDI UNIT. CERTAIN BOUGHT OUT ITEMS WHICH WERE ES SENTIAL PARTS OF THE PREFABRICATED STRUCTURE WERE SUPPLIED ALONGWITH PRE FABRICATED SHELTERS. THE ASSESSING OFFICER AT PAGE 27 OF THE ASSESSMENT ORDER HAVE ENLISTED THE BOUGHT OUT ITEMS WHICH AS PER THE ASSESSING OFF ICER WERE BEING TRADED IN BY THE ASSESSEE. THE ESTIMATED VALUE OF THE SAID ITEMS WAS COMPUTED AT RS.1.12 CRORES BY THE ASSESSING OFFICER AS PER THE LIST AT PAGE 28 OF THE ASSESSMENT ORDER ON WHICH PROFITS @ 20.7% WAS WORKED OUT AT RS.22,79,170/-. 21. THE SECOND PLEA OF THE ASSESSEE WAS THAT CERTAI N PAINTS WERE BEING SUPPLIED ALONGWITH MANUFACTURED ITEMS BY THE ASSESS EE, AGAINST WHICH ASSESSEE CLAIMS THAT FINAL COAT OF PAINTS WAS NOT P UT ON THE SHEDS AS THE SAID ITEMS WERE BEING TRANSPORTED FOR A LONG DISTAN CE AND ONLY ON BEING ERECTED THE PAINTS WERE PUT BY THE ARMY ITSELF AND THE SAID ITEMS WERE NOT SOLD BY THE ASSESSEE, BUT WERE PART OF THE CONT RACT DEAL OF SUPPLY OF THE MANUFACTURED ITEMS. WE FIND MERIT IN THE PLEA OF THE ASSESSEE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFAC TURING OF PREFABRICATED SHEETS/CABINS AS PER ORDER RECEIVED F ROM THE MINISTRY OF DEFENCE. THE SAID ITEMS WERE BEING MANUFACTURED AT THE SPECIFICATION OF THE CUSTOMERS AND CERTAIN ITEMS WERE NOT MANUFACTUR ED BY IT, WERE PUT TOGETHER FOR SUPPLY THE COMPLETE UNIT. THE CLAIM O F THE ASSESSEE WAS THAT IT WAS ENTITLED TO CLAIM OF DEDUCTION UNDER SE CTION 80IC OF THE ACT ON SUCH BOUGHT OUT COMPONENTS. THE ISSUE OF CLAIM O F DEDUCTION UNDER SECTION 80IC OF THE ACT ON SUCH BOUGHT OUT ITEMS AR OSE BEFORE THE MUMBAI BENCH OF THE TRIBUNAL IN MIHIR ENGINEERS LTD . VS. JCIT [112 TTJ (MUM) 940]. 12 22. THE MUMBAI BENCH OF THE TRIBUNAL IN MIHIR ENGIN EERS LTD. (SUPRA) VIDE PARAS 23 TO 30 HELD AS UNDER: 23. THE DEDUCTION UNDER SECTION 80-IA OF THE ACT IS RESTRICTED TO THE PROFITS AND GAINS DERIVED FROM THE BUSINESS OF AN INDUSTRIA L UNDERTAKING BEING AN ELIGIBLE BUSINESS, SUBJECT TO CONDITIONS ENUMERATED IN SUB-SECTION (2) OF SECTION 80-IA OF THE ACT. THE CLAUSE (III) TO SECTI ON 80-IA(2) OF THE ACT PROVIDES THAT FOR THE ELIGIBILITY OF DEDUCTION, THE INDUSTRIAL UNDERTAKING SHOULD MANUFACTURE OR PRODUCE ANY ARTICLE OR THING, OTHER THAN THOSE SPECIFIED IN ELEVENTH SCHEDULE. THE DEDUCTION UNDER SECTION 80-I A OF THE ACT IS LIMITED TO THE ITEMS MANUFACTURED OR PRODUCED BY THE ASSESSEE. THE WORD MANUFACTURING OR PRODUCTION IS NOT DEFINED IN THE ACT. THE DISTIN CTION OF THE WORD MANUFACTURING OR PRODUCTION WAS CLARIFIED BY HO NBLE SUPREME COURT IN CIT V. N.C. BUDHARAJA & CO. [1993] 204 ITR 412 1 WHEREIN IT HAS BEEN HELD AS UNDER : 'THE WORD PRODUCTION HAS A WIDER CONNOTATION THAN THE WORD MANUFACTURE. WHILE EVERY MANUFACTURE CAN BE CHARA CTERIZED AS PRODUCTION, EVERY PRODUCTION NEED NOT AMOUNT TO MANUFACTURE. TH E TEST EVOLVED FOR DETERMINING WHETHER MANUFACTURE CAN BE SAID TO HAVE BEEN TAKEN PLACE IS, WHETHER THE COMMODITY WHICH IS SUBJECTED TO THE PRO CESS OF MANUFACTURING CAN NO LONGER BE REGARDED AS THE ORIGINAL COMMODITY BUT IS RECOGNIZED IN THE TRADE AS A NEW AND DISTINCT COMMODITY. THE WORD PRODUCTION OR PRODUCE WHEN USED IN JUX TAPOSITION WITH THE WORD MANUFACTURE TAKES IN BRINGING INTO EXISTENCE NEW GOODS BY A PROCESS WHICH MAY OR MAY NOT AMOUNT TO MANUFACTURE. IT ALSO TAKES IN ALL THE BY-PRODUCTS, INTERMEDIATE PRODUCTS AND RESIDUAL PRODUCTS WHICH E MERGE IN THE COURSE OF MANUFACTURE OF GOODS.' 24. FURTHER IT WAS HELD BY THE HONBLE BOMBAY HIGH COURT IN CIT V. TATA LOCOMOTIVE & ENGG. CO. LTD. [1968] 68 ITR 325 , WHEREIN IT HAS BEEN HELD AS UNDER : 'THE WORD MANUFACTURE HAS A WIDER AND ALSO A NARR OWER CONNOTATION. IN THE WIDER SENSE IT SIMPLY MEANS TO MAKE, OR FABRICA TE OR BRING INTO EXISTENCE AN ARTICLE OR A PRODUCT EITHER BY PHYSICAL LABOUR O R BY POWER, AND THE WORD MANUFACTURER IN ORDINARY PARLANCE WOULD MEAN A PE RSON WHO MAKES, FABRICATES OR BRINGS INTO EXISTENCE A PRODUCT OR AN ARTICLE BY PHYSICAL LABOUR OR POWER. THE OTHER SHADE OF MEANING, WHICH IS THE NARROWER MEANING, IMPLIES TRANSFORMING RAW MATERIALS INTO A COMMERCIA L COMMODITY OR A FINISHED PRODUCT WHICH HAS AN ENTITY BY ITSELF, BUT THIS DOES NOT NECESSARILY MEAN THAT THE MATERIALS WITH WHICH THE COMMODITY IS SO MANUFACTURED MUST LOSE THEIR IDENTITY. THUS, BOTH THE WORDS MANUFACT URE AND PRODUCE APPLY TO THE BRINGING INTO EXISTENCE OF SOMETHING WHICH IS D IFFERENT FROM ITS COMPONENTS. WHETHER ONE TAKES INTO ACCOUNT THE WIDE R OR NARROWER MEANING OF THE WORD MANUFACTURE, ASSEMBLING OF AUTOMOTIVE BUS OR TRUCK CHASIS FROM IMPORTED PARTS IN A KNOCKED DOWN CONDITION, COULD GIVE RISE TO AN ARTICLE WHICH IS TOTALLY DIFFERENT FROM THE PARTS AND COULD AMOUNT TO MANUFACTURE. THIS IS SO EVEN THOUGH THE COMPONENT PARTS FROM WHI CH THE AUTOMOTIVE CHASIS IS MADE, RETAIN THEIR INDIVIDUAL IDENTITY IN THE WH OLE ARTICLE WHICH IS THUS MANUFACTURED OR PRODUCED.' 25. THE REQUIREMENT OF LAW IS MANUFACTURING BUT TH E WHOLE PROCESS MAY NOT BE CARRIED OUT THE ASSESSEE HIMSELF. THE CHANDI GARH BENCH OF TRIBUNAL IN THE CASE OF SOND BHARAT PEDALS (INDIA) V. ITO [2003 ] 84 ITD 89 HAD HELD AS UNDER : 'IT IS NOT NECESSARY THAT THE ASSESSEE SHOULD CARRY OUT ALL THE MANUFACTURING OPERATIONS ITSELF, IN ORDER TO BE ENTITLED TO BENEF IT OF DEDUCTION UNDER SECTION 13 80-I. SUCH OPERATIONS CAN BE GOT DONE FROM OUTSIDE AGENCIES ON PAYMENT OF LABOUR SERVICE CHARGES. IN FACT CERTIFICATE ISSUED BY THE PUNJAB GOVERNMENT SHOWED THAT THE ASSESSEE WAS REGISTERED AS A SMALL SCALE INDUSTRIAL UNIT AND THE TRADING ACCOUNT SHOWED THE ASSESSEES SALES OF RS. 45.98 LAKHS FOR THE YEAR UNDER CONSIDERATION. SINCE THE ASSESSEE WAS EN GAGED IN THE BUSINESS OF MANUFACTURING CYCLE PEDALS, IT WOULD BE ENTITLED TO DEDUCTION UNDER SECTION 80-I EVEN THOUGH PART OF SUCH OPERATIONS WAS GOT DO NE FROM OUTSIDERS. THUS, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFAC TURING BICYCLE PEDALS AND, THEREFORE, WAS AN INDUSTRIAL UNDERTAKING ENTIT LED TO DEDUCTION UNDER SECTION 80-I.' 26. THE DELHI BENCH OF TRIBUNAL IN THE CASE OF JACK SON ENGINEERS (P.) LTD. V. ITO [1989] 31 ITD 79 HAD HELD AS UNDER : 'FROM THE PERUSAL OF PICTURES GIVEN BY THE ASSESSEE IN RESPECT OF DIESEL GENERATOR SETS ASSEMBLED OR MANUFACTURED BY THE ASS ESSEE IT WAS CLEAR THAT THE SAME WAS NAMED AS JACKSON. THE SAID ENGINES W ERE REQUIRED BY LARGE INDUSTRIAL HOUSE FOR MEETING THEIR POWER REQUIREMEN TS. THE LOGO WHICH WAS PLACED MAINLY ON THE ENGINE WAS JACKSON AND THE S AME WERE MADE IN VARIOUS KINDS AND RANGES IN 1000KVA. THERE WAS NO C ONTROVERSY ABOUT THE FACT THAT THERE WERE AS MANY COMPONENTS OF THE SAID MACHINE. THE PERUSAL OF LIST OF SALARIES AND WORKERS ALSO SHOWED THAT THE A SSESSEE WAS USING DIFFERENT COMPONENTS WHICH MIGHT NOT BE TECHNICALLY SPEAKING, RAW MATERIAL, BUT SOMETHING BETWEEN RAW MATERIAL AND GENERATING SET. THERE WAS NO CONTROVERSY ABOUT THE FACT THAT THE ASSESSEE PURCHA SES ITS ALTERNATORS AND ENGINES SEPARATELY FROM LEAD MANUFACTURERS. WHAT TH E ASSESSEE ASSEMBLED AND MANUFACTURED THROUGH ASSEMBLING WAS NOT THE SAM E NAME WHICH WAS ASSIGNED TO THE PARTS. THE ENGINE MADE BY THE ASSES SEE WAS KNOWN AS DIESEL GENERATING SET. WITH THIS PROCESS IN VIEW AND THERE BEING A SEPARATE NAME IN THE MARKET FOR WHAT THE ASSESSEE MADE THE ASSESSEE COULD NOT BE TREATED AS NON-INDUSTRIAL UNDERTAKING. THUS THE ORDER OF THE C OMMISSIONER (APPEALS) WAS NOT JUSTIFIED IN TREATING THE ASSESSEE AS THE I NDUSTRIAL UNDERTAKING.' 27. THE ISSUE OF PURCHASING DIFFERENT COMPONENTS, DIFFERENT EQUIPMENTS AND SPARE PARTS FROM VARIOUS CONCERNS AND THEIR ASSEMBL Y, FABRICATION AND ERECTION INTO PLANT KNOWN AS ETP WAS CONSIDERED AT LENGTH BY DELHI BENCH OF TRIBUNAL IN DEGREMONT INDIA LTD. V. DY. CIT [1996] 59 ITD 423 AND AFTER DELIBERATION AT LENGTH ON THE FACTS, DECISION OF AP EX COURT IN CIT V. N.C. BUDHARAJA & CO. [1993] 204 ITR 412 1 AND VARIOUS OTHER JUDICIAL PRONOUNCEMENTS OF VARIOUS COURTS, IT WAS HELD THAT THE ASSESSEE WAS COVERED WITHIN THE DEFINITION OF MANUFACTURING OF AN ARTICL E OR THING. THE DELHI BENCH OF TRIBUNAL IN DEGREMONT INDIA LTD.S CASE (SUPRA) HAD HELD AS UNDER : 'IT IS APPARENT FROM A PLAIN READING OF THE JUDGMEN T OF THE SUPREME COURT IN N.C. BUDHARAJA & CO.S CASE (SUPRA) THAT THE VARIOU S FINDINGS GIVEN RELATED SOLELY AND EXCLUSIVELY TO CONCERNS ENGAGED IN THE B USINESS OF CONSTRUCTION OF DAMS AND CIVIL WORKS. THERE WAS NOT A SINGLE WORD O R WHISPER IN THE SAID JUDGMENT BY WHICH IT COULD BE INFERRED THAT AN ASSE SSEE ENGAGED IN THE ACTIVITIES OF DESIGNING, FABRICATING, ERECTING, SUP PLYING, INSTALLATION AND COMMISSIONING OF A PLANT LIKE THE ONE SUPPLIED BY T HE ASSESSEE COULD BE COVERED BY THE AFORESAID JUDGMENT. IT IS WELL-SETTL ED LAW THAT THE JUDGMENT IN EACH CASE HAS TO BE SEEN IN THE LIGHT OF THE FACTS OF THAT CASE. A DECISION IS TO BE UNDERSTOOD IN THE CONTEXT OF THE FACTS IN WHICH THE DECISION IS RENDERED. A CASE IS PRECEDENT FOR WHAT IT EXPLICITLY DECIDES AN D NOTHING MORE IN THE CONDITIONS OF PEOPLE, EVEN THE WORDS OCCURRING IN A STATUTE ARE REQUIRED TO BE INTERPRETED DIFFERENTLY KEEPING IN MIND THE CONTEXT IN WHICH SUCH EXPRESSIONS HAVE BEEN USED IN THE RELEVANT PROVISIONS OF LAW. T HEREFORE, THE AFORESAID JUDGMENT DID NOT IN ANY MANNER SUPPORT THE REVENUE S CONTENTION. THE PROVISIONS OF SECTION 80-I ARE INTENDED TO PROVIDE AN INCENTIVE FOR INVESTMENT 14 IN CERTAIN DESIRED SECTORS AND PROMOTE INDUSTRIALIZ ATION IN DEVELOPING COUNTRIES WHICH HAS ADOPTED THE POLICY OF LIBERALIZ ATION.' IT WAS FURTHER HELD AS UNDER : 'IN THE INSTANT CASE, THE ASSESSEE WAS PURCHASING D IFFERENT COMPONENTS, DIFFERENT EQUIPMENTS AND SPARE PARTS FROM VARIOUS O THER PARTIES AND WERE ASSEMBLING THOSE COMPONENTS, EQUIPMENTS AND ACCESSO RIES AND THEREBY THEY WERE PREPARING FABRICATING AND ERECTING A PLANT WHI CH WAS KNOWN AS ETP. THE ULTIMATE END PRODUCT WHICH WAS PREPARED AS A RE SULT OF ASSEMBLING OF VARIOUS COMPONENTS WITH THE CONSTANT APPLICATION OF TECHNICAL KNOW-HOW WAS THE ETP. THE ETP WAS OBVI-OUSLY DISTINCT AND DIFFER ENT PLANT THAN THE VARIOUS COMPONENTS, EQUIP- MENTS, PURCHASED OR GOT MANUFACT URED ACCORDING TO THE TAILOR MADE REQUIREMENT FROM THE DIFFERENT SUPPLIER S. THE ACTIVITIES CARRIED OUT BY THE ASSESSEE WERE, THEREFORE, CLEARLY COVERE D WITHIN THE DEFINITION OF MANUFACTURE OF AN ARTICLE OR THING. THE ASSESSEE HAD UNDERTAKEN TO DESIGN, ENGINEER, MA NUFACTURE, SUPPLY, INSTALL AND COMMISSION THE ETP AND ALSO UNDERTOOK TO GIVE P ERFORMANCE TEST. THE OBLIGATION OF THE ASSESSEE WOULD COME TO A CONCLUDI NG STAGE ONLY AFTER SUCCESSFUL COMMISSIONING OF THE PLANT. THE VARIOUS BILLS PREPARED BY THE ASSESSEE FROM TIME TO TIME WAS MERELY A MODE OF PAY MENT DURING THE CURRENCY OF THE LONG PERIOD OF THE CARRYING OUT OF THE ENTIR E WORK. IT WOULD BE EVIDENT FROM THE CONTRACT EXECUTED BY THE ASSESSEE WITH THE PARTIES THAT SUCH MODE OF PAYMENT WAS MUTUALLY DECIDED BETWEEN THE PARTIES SO THAT THE ASSESSEE RECEIVED THE PAYMENTS ON PRO RATA BASIS WITH THE PR OGRESS OF THE WORK. SUCH AN ARRANGEMENT WAS QUITE USUAL AND NATURAL IN CASES OF SUCH TURN-KEY PROJECT SO THAT THE SUPPLIER RECEIVED THE PAYMENT FROM TIME TO TIME.' 28. FURTHER, THE AHMEDABAD BENCH OF TRIBUNAL IN THE CASE OF ENVIRO CENTRAL ASSOCIATES V. ASSTT. CIT [1995] 78 TAXMAN 214 (MAG.) HAD HELD AS UNDER : 'IN THE INSTANT CASE, THE ACTIVITIES OF THE ASSESSE E-FIRM WERE THAT OF MANUFACTURING OR THAT OF PRODUCING AN ARTICLE AS TH EY WERE CONSTRUCTING WATER AIR POLLUTION PLANTS. THUS, THE ASSESSEE-FIRM WAS AN INDUSTRIAL UNDERTAKING AND WAS ENGAGED IN MANUFACTURING OR PRO DUCING AN ARTICLE IN THE SHAPE OF AIR, WATER POLLUTION CONTROL. THAT THE ASS ESSEE WAS MANUFACTURING OR PRODUCING THE PLANT IN BACKWARD AREA, WAS ONE OF TH E REQUIREMENTS OF THE CLAIM UNDER SECTION 80HH. THE CONTENTION OF THE ASS ESSEE WAS THAT ONLY 11.45 PER CENT OF THE TOTAL RECEIPT HAD BEEN TAKEN FOR DE DUCTION UNDER SECTION 80HH AS THAT WORK ALONE WAS DONE IN BACKWARD AREA AND IT WAS NOT EXPECTED FROM THE ASSESSEE TO HAVE ITS OFFICE OR PLANT IN BACKWAR D AREA. THE CRUX OF THE CASE LAWS IS THAT IF AN INDUSTRIAL UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE OUTSIDE IN ANY BACKWARD AREA, IT IS ENTITLED TO DED UCTION UNDER SECTION 80HH. THE ASSESSEE FOR, SET UP ITS OWN INDUSTRIAL UNDERTA KING AT THE SITE OF ITS CUSTOMERS FOR WHOM WATER AIR POLLUTION CONTROL PLAN T WAS MANUFACTURED AND OF THE PLACES WHICH WERE FALLING UNDER THE BACKWARD AREA DECLARED UNDER THE ACT, THEN, NATURALLY THE ASSESSEE SHOULD BE GETTING BENEFIT OF THE SAME AND THE COMPUTATION MADE BY THE ASSESSEE-FIRM OF THE SAME W AS CORRECT ONE.' 29. THE OBJECTION OF THE LEARNED DR FOR THE REVENUE THAT SITUS OF ASSEMBLY IS IMPORTANT, HAS BEEN DEALT WITH BY THE PUNE BENCH OF TRIBUNAL IN INDOCAN ENGG. SYSTEMS (P.) LTD. V. DY. CIT [1997] 60 ITD 649 . THERE IS NO MERIT IN THE CONTENTION OF THE LEARNED DR FOR THE REVENUE TH AT MAIN ACTIVITY OF THE ASSESSEE IS OF ERECTION AT CLIENTS SITE. THE END-P RODUCT IS AN INTEGRATED UNIT. THE ASSESSEE IS REQUIRED BY ITS CLIENTS TO SUPPLY A COOLING TOWER, PARTS OF WHICH ARE MANUFACTURED BY ASSESSEE AND CERTAIN PART S/COMPONENTS ARE BOUGHT FROM OUTSIDE. THE END-PRODUCT IS THE COOLING TOWER SUPPLIED TO THE CLIENT. THE ASSESSEE IN ITS QUOTATION MADE TO ITS C LIENTS REQUISITIONS, ALSO GUARANTEES THE ABOVE-SAID EQUIPMENT BY WAY OF WARRA NTY AS INCORPORATED IN THE QUOTATION AT PAGE 245 OF THE PAPER BOOK. THE WA RRANTY IS AGAINST DEFECT 15 IN MATERIALS AND WORKMANSHIP WHEN ERECTED AND OPERA TED IN A MANNER PROVIDED BY US (THE ASSESSEE). 30. THE PUNE BENCH OF TRIBUNAL IN INDOCAN ENGG. SYS TEMS (P.) LTD. V. DY. CIT [1997] 60 ITD 649 HAD HELD AS UNDER : 'IT HAS BEEN HELD BY THE SUPREME COURT IN THE CASE OF CIT V. N.C. BUDHARAJA & CO. [1993] 204 ITR 412 / 70 TAXMAN 312 , THAT AN ARTICLE OR THING MUST BE UNDERSTOOD TO BE MOVABLE ONE. AN ARTICLE CAN BE SAI D TO BE A MOVABLE ITEM ONLY IF IT IS CAPABLE OF BEING MOVED FROM ONE PLACE TO ANOTHER. THE REASONING GIVEN BY THE COMMISSIONER (APPEALS) WAS THAT WHERE THE PLANT IS ERECTED, IT IS EMBEDDED TO THE EARTH AND, THEREFORE, CANNOT BE SAI D TO BE A MOVABLE PROPERTY. MERELY BECAUSE THE PLANT IS ATTACHED TO E ARTH BY FIXING THE SAME ON THE FOUNDATION BY NUT AND BOLTS, IT CANNOT BE SAID THAT IT IS EMBEDDED TO THE EARTH OR IT IS ATTACHED TO THE EARTH. IT CANNOT BE DISPUTED THAT SUCH PLANT CAN BE SHIFTED FROM ONE PLACE TO ANOTHER BY UNSCREWING THE SAME. THEREFORE, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURI NG AND FABRICATING OF PLANT WHICH WAS AN ARTICLE OR THING AS MENTIONED IN SECTION 80-I. ....FURTHER, MOST OF THE WORK WAS DONE BY THE SUB-C ONTRACTORS UNDER THE SUPERVISION OF THE EMPLOYEES OF THE ASSESSEE. THERE FORE, THE QUESTION OF SHOWING POWER EXPENSES DID NOT ARISE. IN THIS CONNECTION, I T HAS BEEN HELD IN CIT V. NEO PHARMA (P.) LTD. [1982] 137 ITR 879 (BOM.) THAT WHERE THE MANUFACTURING ACTIVITY HAS BEEN CARRIED ON BY ANOTHER CONCERN UND ER THE SUPERVISION OF QUALIFIED STAFF OF THE ASSESSEE THEN SUCH ACTIVITY CAN BE TREATED AS ACTIVITY OF THE ASSESSEE. ON THE BASIS OF THAT DECISION IT WAS TO B E HELD THAT THE ASSESSEE HAD BEEN CARRYING ON MANUFACTURING ACTIVITY.' 23. IN RESPECT OF THE DEDUCTION CLAIMED UNDER SECTI ON 80IA OF THE ACT ON BOUGHT OUT COMPONENTS THE TRIBUNAL HELD AS UNDER: 31. THE DEDUCTION UNDER SECTION 80-IA OF THE ACT IS AVAILABLE TO AN ASSESSEE WHOSE GROSS TOTAL INCOME INCLUDES PROFITS AND GAINS DERIVED FROM AN INDUSTRIAL UNDERTAKING AS PER STIPULATIONS IN SECTI ON 80-IA(2), WHICH INTER ALIA REQUIRES THE MANUFACTURING OR PRODUCTION OF AN ARTI CLE OR THING NOT BEING ANY ARTICLE OR THING SPECIFIED IN ELEVENTH SCHEDULE. IN THE INSTANT CASE BEFORE US, THE ASSESSEE WAS MANUFACTURING COMPONENTS OF COOLIN G TOWERS IN ITS FACTORY UNIT AT CHHATRAL, WHICH IN-TURN WERE EXIGIBLE TO EX CISE DUTY. THE PROFITS ON SALE OF SAID COMPONENTS WERE ENTITLED TO DEDUCTION UNDER SECTION 80-IA OF THE ACT AND AS ALLOWED BY ASSESSING OFFICER. THE ASSESS EE IN THE PRESENT CASE WAS NOT IN THE BUSINESS OF SALE OF COMPONENTS OF COOLIN G TOWERS, BUT THE COOLING TOWER AS A WHOLE, AS IS EVIDENT FROM THE ENQUIRIES OF THE CLIENT, QUOTATIONS AND PERFORMA INVOICE RAISED BY THE ASSESSEE. IN THE INSTANT CASE, THE ASSESSEE PURCHASES VARIOUS BOUGHT OUT COMPONENTS, WHICH ALON G WITH MANUFACTURING COMPONENTS ARE ASSEMBLED AT THE CLIENTS SITE AND T HE COOLING TOWER IS ERECTED. THE ULTIMATE PRODUCT ERECTED BY THE ASSESS EE WAS A COOLING TOWER, WHICH WAS A DISTINCT PRODUCT FROM THE VARIOUS COMPO NENTS, BOUGHT FROM OUTSIDE OR MANUFACTURED BY IT. THE AFORESAID ACTIVI TIES OF THE ASSESSEE WERE COVERED WITHIN THE DEFINITION OF MANUFACTURE OF AN ARTICLE OR THING. THE ASSESSEE HAD UNDERTAKEN THE JOB OF ERECTING A COOLI NG TOWER AS PER THE INDIVIDUAL SPECIFICATION OF THE CLIENT, AND AFTER E RECTION, THE ASSESSEE GUARANTEES THE PERFORMANCE OF THE COOLING TOWER AS A WHOLE AND NOT THAT OF MANUFACTURED ITEMS ONLY. ALL THE ACTIVITIES CARRIED ON BY THE ASSESSEE FALL WITHIN THE AMBIT OF MANUFACTURE OR PRODUCTION O F AN ARTICLE OR THING. THE END-PRODUCT BEING THE COOLING TOWER, THE ASSESSEE I S ENTITLED TO CLAIM OF DEDUCTION UNDER SECTION 80-IA OF THE ACT ON THE WHO LE INCLUDING PROFITS ON MANUFACTURED ITEMS AND BOUGHT OUT COMPONENTS. AS HE LD BY TRIBUNAL IN SOND 16 BHARAT PEDALS (INDIA) V. ITO [2003] 84 ITD 89 (CHD.), IT IS NOT NECESSARY THAT THE ASSESSEE SHOULD CARRY OUT ALL THE MANUFACTURING OPERATIONS ITSELF IN ORDER TO BE ENTITLED TO CLAIM OF DEDUCTION UNDER SECTION 80-IA OF THE ACT. THE SITUS OF ASSEMBLY OF END-PRODUCT BEING CLIENTS PREMISES DOES NOT DISENTITLE THE ASSESSEE FROM ITS CLAIM OF DEDUCTION UNDER SECTION 80-IA OF THE ACT IN RESPECT OF BOUGHT OUT COMPONENTS UTILIZED FOR THE ERECTION OF THE SAID COOLING TOWERS. THERE IS NO MERIT IN THE CONTENTION OF THE LEARNED DR THAT EXCISE DUTY IS PAID ONLY ON MANUFACTURED ITEMS. THE LEVY OF EXCISE DUTY IS GOVERNED BY EXCISE LAWS. THERE IS NO MERIT IN DENIAL OF EXEMPTION UNDE R SECTION 80-IA OF THE IT ACT ON BOUGHT OUT ITEMS AS THE SAME ARE NOT SUBJECT ED TO EXCISE DUTY. THE ASSESSEE PREPARES TWO DIFFERENT BILLS, ONE FOR EXCI SABLE MANUFACTURES ITEMS AND OTHER FOR BOUGHT OUT COMPONENTS, BOTH OF WHICH ARE UTILIZED FOR THE ERECTION OF COOLING TOWER. THE ASSESSEE RAISES SEPA RATE BILLS FOR TRANSPORTATION, ERECTION AND SERVICE CHARGES. THE P ROFITS ON SALE OF THE MANUFACTURED ITEMS AND BOUGHT OUT COMPONENTS ARE EL IGIBLE FOR DEDUCTION UNDER SECTION 80-IA OF THE ACT. 32. THUS, AFTER CONSIDERING THE ENTIRE RELEVANT MAT ERIAL AND DECISIONS OF THE VARIOUS HIGH COURTS AND TRIBUNAL, WE ARE OF THE VIE W THAT THE ASSESSEE IS ENTITLED TO THE BENEFIT OF DEDUCTION UNDER SECTION 80-IA OF THE ACT BOTH ON THE MANUFACTURED ITEMS AND THE BOUGHT OUT COMPONENTS, U SED FOR THE ERECTION OF CROSS FLOW (XE SERIES) AND COUNTER FLOW (CM SERIES) COOLING TOWERS. IN VIEW OF THE DECISION HEREINABOVE THAT ASSESSEE IS NOT EN TITLED TO ANY DEDUCTION UNDER SECTION 80-IA OF THE ACT ON ROUND BOTTLE (RB) COOLING TOWERS, NO DEDUCTION/BENEFIT UNDER SECTION 80-IA SHALL BE ALLO WED ON BOUGHT OUT COMPONENTS USED FOR ERECTION OF ROUND BOTTLE COOLIN G TOWERS. THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE DEDUCTION UNDER SE CTION 80-IA OF THE I.T. ACT ONLY ON PROFITS ON SALE OF CROSS FLOW (XE SERIES) A ND COUNTER FLOW (CM SERIES) COOLING TOWERS. 24. WE FIND THAT THE ISSUE RAISED BEFORE US IS IDEN TICAL TO THE ISSUE ARISING BEFORE THE MUMBAI BENCH OF THE TRIBUNAL IN MIHIR ENGINEERS LTD. VS. JCIT (SUPRA) WHICH IN TURN WAS FOLLOWED BY THE CHANDIGARH BENCH OF THE TRIBUNAL IN ACIT VS. SPRAY ENGINEERING DEVICES LTD. IN ITA NO.701, 646/CHD/2009 AND ITA NO.1021/CHD/2011 RELATING TO A SSESSMENT YEARS 2006-07 AND 2008-09, DATE OF ORDER 22.6.2012. FOLL OWING THE SAME WE HOLD THAT THE ASSESSEE IS ENTITLED TO BENEFIT OF CL AIM OF DEDUCTION ON THE SAID BOUGHT OUT ITEMS AND THERE IS NO NEED TO REWOR K THE DEDUCTION UNDER SECTION 80IC OF THE ACT. REVERSING THE ORDER OF CI T (APPEALS) WE DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASS ESSEE IN RESPECT OF DEDUCTION UNDER SECTION 80IC OF THE ACT ON SUCH BOU GHT OUT COMPONENTS. GROUND NOS. 3, 5 TO 7 RAISED BY THE ASSESSEE ARE PA RTLY ALLOWED. 25. GROUND NOS. 8 TO 11 RAISED BY THE ASSESSEE BEIN G GENERAL ARE DISMISSED. 17 ITA NO.1361/CHD/2010 (REVENUES APPEAL) 25. GROUND NO.1 RAISED BY THE REVENUE READS AS UNDE R: 1. AS PER THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE PROVISIONS OF LAW, THE CIT (A) HAS ERRED IN DELETIN G THE ADDITION OF RS. 24,981/- U/S 36(L)(VA) OF THE INCOME TAX ACT ,1961 MADE BY ASSESSING OFFICER N THE GROUND THAT THE ASSESSEE C OMPANY HAS FAILED TO DEPOSIT THE AMOUNTS ON OR BEFORE THE DUE DATE. 26. THE ISSUE IN GROUND NO.1 RAISED BY THE REVENUE IS AGAINST THE DISALLOWANCE ON ACCOUNT OF EMPLOYEES SHARE OF PF BE ING NOT DEPOSITED WITHIN THE PRESCRIBED LIMITS. THE CLAIM OF THE ASS ESSEE WAS THAT IT HAD DEPOSITED THE SAME WITHIN THE GRACE PERIOD OR BEFOR E THE DUE DATE OF FILING THE RETURN OF INCOME. WE FIND THAT THE ISSU E IN THE PRESENT GROUND OF APPEAL IS COVERED BY THE RATIO LAID DOWN BY THE PUNJAB & HARYANA HIGH COURT IN CIT VS. M/S NUCHEM LTD. IN ITA NO.323 OF 2009 AND FOLLOWING THE SAME WE UPHOLD THE ORDER OF CIT (APPE ALS) AND DISMISS GROUND NO.1 RAISED BY THE REVENUE. 27. GROUND NOS. 2 TO 7 RAISED BY THE REVENUE READ A S UNDER: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND AS PER PROVISIONS OF LAW LD.CIT (A) HAS ERRED IN ALLOWING THE RELIEF TO THE ASSESSEE ON THE ADDITIONS OF RS.2,98,555/-MADE BY T HE ASSESSING OFFICER IN CHANDIGARH UNIT ON ACCOUNTOFPAYMENTORS.2 .98,555/- MADE TO EVEREST INDUSTRIES BY INVOKING THE PROVISIONSOFSECTION40(A)(IA)OF THE INCOME TAX ACT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND AS PER PROVISIONS O FLAW LD. CIT(A) HAS ERRED IN ALLOWING THE RELIEF TO THE ASSESSEE ON THE ADDITIONS OF RS.2,98,555/- MADE BY THE ASSESSING OFFICER IN CHANDIGARH UNIT ON ACCOUNT OF PAYMENT OF RS.2.98,555/- MADE TO EVEREST INDUSTRIES BY INVOKIN G THE PROVISIONS OF SECTION 40 (A) (IA) OF THE INCOME TAX ACT. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A D AS PER 18 PROVISIONS OF LAW LD.CIT (A) HAS ERRED IN ALLOWING THE RELIEF TO THE ASSESSEE ON THE ADDITIONS OF RS.16,53,036/- MAD E BY THE ASSESSING OFFICER ON FREIGHT PAYMENTS (EACH PAYMENT TO A TRUCK OWNER BEING LESS THAN RS. 20,000/-) BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE INCOME TAX ACT. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND AS PER PROVISIONS OF LAW LD.CIT() HAS ERRED IN ALLOWING TH E RELIEF TO THE ASSESSEE ON THE ADDITION RS.1,29,270/-INBADDIUNIT I N ACCOUNT OF EXPENSES OF FREIGHT BY INVOKING THE PROVISIONS OF S ECTION 40 (A)(IA). 6. WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND AS PER PROVISIONS OF LAW LD.CIT(A) WAS RIGHT IN LAW IN DEL ETING THE DISALLOWANCES MADE UNDER SECTION 40A(IA) OF THE INC OME TAX ACT IN VIEW OF THE AMENDED PROVISIONS OF SEC 194C3(I) OF T HE INCOME TAX ACT. 7. WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND AS PER PROVISIONS OF LAW THE GOODS SUPPLIED BY THE SUPPLIE R NOT BEING INCLUSIVE OF FREIGHT AND THEREFORE THE FREIGHT CHAR GES CHARGED SEPARATELY BY THE SUPPLIER FALL UNDER THE PROVISION S OF SECTION 194C OF THE INCOME TAX ACT. 1961.' 28. THE ISSUES RAISED BY THE REVENUE IN GROUND NOS. 2 TO 7 ARE AGAINST THE VARIOUS DISALLOWANCES MADE BY INVOKING THE PROV ISIONS OF SECTION 40A(IA) OF THE ACT. THE PLEA OF THE ASSESSEE IN THI S REGARD WAS TWO FOLDS THAT; A) DISALLOWANCE UNDER SECTION 40A(IA) OF THE ACT IS TO BE MADE ONLY ON SUCH AMOUNTS WHICH ARE PAYABLE ON THE CLOSE OF THE FINANCIAL YEAR AND; B) IN ANY CASE WHERE ANY DISALLOWANCE IS MADE UNDER SECTION 40A(IA) OF THE ACT, THE PROFITS OF THE BUSINESS HAV E TO BE INCREASED BY SUCH AMOUNT FOR COMPUTING DEDUCTION UNDER SECTION 8 0IC OF THE ACT. WE FIND MERITS IN BOTH THE PLEAS OF THE ASSESSEE THAT IN VIEW OF THE RATIO LAID DOWN BY THE SPECIAL BENCH OF VISHAKHAPATNAM TRIBUNA L IN ACIT VS. MERILYN SHIPPING & TRANSPORTS (SUPRA), PROVISIONS O F SECTION 40A(IA) OF THE ACT FOR DISALLOWANCE OF EXPENSES ARE TO BE INVO KED ONLY IN SUCH 19 CASES WHERE THE AMOUNT IS PAYABLE AS ON THE CLOSE O F THE FINANCIAL YEAR, AND NO TAX HAS BEEN DEDUCTED OUT OF SUCH PAYMENTS. HOWEVER, IN CASE ANY SUCH AMOUNT IS DISALLOWED IN VIEW OF THE PROVIS IONS OF SECTION 40A(IA) OF THE ACT, PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE ACT HAVE TO BE REWORKED BY ADDING THE SAID DISA LLOWANCE TO THE PROFITS OF THE BUSINESS. IN ORDER TO ADJUDICATE TH E ISSUE, AS THE RELEVANT DETAILS ARE NOT AVAILABLE ON RECORD, WE REMIT THE I SSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE SAME IN LINE WI TH OUR OBSERVATIONS, AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING T O THE ASSESSEE. GROUND NOS.2 TO 7 RAISED BY THE REVENUE ARE ALLOWED FOR ST ATISTICAL PURPOSES. 29. GROUND NOS. 8 AND 9 BEING GENERAL ARE DISMISSED . 30. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED AND THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH DAY OF JUNE, 2012. SD/- SD/- (T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 27 TH JUNE, 2012 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 20
