ACIT, Kozhikkode V. M/s.Veekesy Polymers P. Ltd, Kozhikkode

ITA 151/COCH/2020

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 9731 (ITAT-COCHIN)
• Duration Of Justice: 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2004-2005
• Appeal Filed On: 06-03-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRITUNJAYA SHARMA
• Keywords: Audit objection; Tax effect; Set aside
• Section: 143(3); 80IB; 80HH; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, COCHIN BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA N O . 151 /COC H/20 20 : ASST.YEAR 200 4 - 200 5 THE ASSTT.COMMISSIONER OF INCOME - TAX, CIRCLE 2(1) KOZHIKODE. VS. M/S.VEEKESY POLYMERS PVT.LTD. RAMANATTUKARA POST KOZHIKODE 673 633. PAN : AAACV7735N. (APPELLANT) (RESPONDENT) APPELLANT BY : SRI. MRIT U NJAYA SHARMA, SR.DR RESPONDENT BY : NONE --- WRITTEN SUBMISSION --- DATE OF HEARING : 30.06.2020 DATE OF PRONOUNCEMENT : 06 .07 .2020 O R D E R THIS APPEAL AT THE INSTANCE OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A), DATED 21.11.2019. THE RELEVANT ASSESSMENT YEAR IS 2004 - 2005. 2. THE GROUNDS RAISED READ AS FOLLOWS: - 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX ( AP PEA L S) I S AGAINST TH E FACTS AND CIRC UM STANCES OF THE CASE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LE A RNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N TREATING THAT THE INCOM E R ELA T ED TO J OB WORKS ELIGIBLE FOR DEDUCTION U/S 80IB HOLDING THAT THE JOB WORK , T H E PROCESS OF STITCHING, I S AN INTEGRAL PART OF THE WHOLE CHAIN OF MAN U FACTURING PRO C ES S IN CONTRAD I CTION T O THE VIEW HELD BY THE ASSESSING OFFICER . 3. ON THE FACTS AND CIRCUMSTANCES O F THE CASE AND IN LA W, WHETHE R TH E T E RM MANUFACTURER UNDER SECTION 80IB WOULD INCLUDE MANUFA CTU RING AC TI VITY BEING CARR I ED OUT OUTSOURCED TO ANOTHER PAR T Y . 4. THE LEARNED COMM I SSIONER OF INCOME TAX (APPEALS) IS ERR ED I N L AW A S WE LL AS IN FACTS B Y GIVING RELIEF TO THE ASSESSEE HOLDING THAT THE P R OCESS OF ST I TCHING I S AN INT EG RAL PAR T O F THE WHO L E CHAIN O F MANUFACTURING PROC E SS AND T HE PROCESS I S ELI G IBL E FOR DEDUCTION U/S 80IB , THEREBY ITA NO . 151 /COCH/2020 M/S.VEEKESY POLYMERS PVT.LTD . 2 ALLOWING THE PROFI T RELATES TO MANUFACT U RING THR OUGH J OB WORKS DONE BY O T HER PARTIES . 5. THE ASSESSING OFFICE R R EACHED THE CONCLUSION THAT THE ASSE S S E E IS NO T ELIGIBLE FO R DE D UCTI O N U/S 80IB IN R ESPECT O F THE AMOUNT TOWAR DS T HE POR TI O N O F T HE M ANUFACT U R I NG WO R K D ONE BY OTHER PARTIES . IN VIEW OF T H IS, T HE DEC I SION OF T HE COMMISSIONER O F I NCOME T AX (APPEALS) ARRIVED AT WI TH OU T APPRECIA T I N G T HE COMPLETE FACTS OF T HE CASE AND NOT CO N SIDERING THE VIEW TH A T T H E ASSESSEE WILL NO T BE ELIGIBLE FOR 80IB DEDUCTION IN RESPECT OF PROFIT RELATING T O AR T ICLES MANUFACTURED THROUGH JOB WORK . 6. FOR THESE AND OTHER GROUNDS T HAT MAY BE URGED AT THE TIM E OF HEARING , I T IS REQUESTED THAT THE ORDER OF THE CIT(A ) MAY BE SET ASIDE AN D TH AT OF T HE ASSESSING OFFICER RESTORED . 3. THOUGH THE TAX EFFECT IN THIS CASE IS BELOW THE MONETARY LIMIT PRESCRIBED, SINCE THE AUDIT OBJECTION HAS BEEN ACCEPTED BY THE DEPARTMENT, I PROCEED TO DISPOSE OFF THE SAME ON MERITS. 4. THE BRIEF FACTS OF THE CASE ARE AS FOLLOW: THE ASSESSEE IS A COMPAN Y ENGAGED IN THE MANUFACTURE OF FOOTWEAR. FOR THE ASSESSMENT YEAR 2004 - 2005, ORIGINAL ASSESSMENT WAS COMPLETED U/S 143(3) OF THE I.T.ACT ON 15.12.2006 DETERMINING THE TOTAL INCOME AT RS.14,33,490. WHILE COMPLETING THE ASSESSMENT U/S 143(3) OF THE I.T.ACT, A SUM OF RS.6,17,708 WAS ALLOWED AS DEDUCTION U/S 80IB OF THE I.T.ACT. SUBSEQUENTLY, NOTICE U/S 148 OF THE I.T.ACT WAS ISSUED . ACCORDINGLY TO THE A.O., DEDUCTION CLAIMED AND ALLOWED IN THE ORIGINAL ASSESSMENT WAS EXCESSIVE. T HE ASSESSMENT U/S 143(3) R.W.S. 147 WAS COMPLETED VIDE ORDER DATED 18.11.2010. IN THE SAID REASSESSMENT ORDER, THE ASSESSING OFFICER RECOMPUTED DEDUCTION U/S 80IB OF THE I.T.ACT BY EXCLUDING JOB WORK FROM THE TURNOVER AND PROPORTIONATELY ALLOWING THE CLAIM OF DEDUCTION. THE RELEVANT FIN DING OF THE ASSESSING OFFICER READS AS FOLLOW: - ITA NO . 151 /COCH/2020 M/S.VEEKESY POLYMERS PVT.LTD . 3 THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURE OF PVC SLIPPERS. THE ASSESSEE HAD CLAIMED A SUM OF RS.6,17,708 AS DEDUCTION UNDER SECTION 80IB. THOUGH THE ASSESSEE IS BASICALLY ELIGIBLE FOR THE DEDUCTION A MISTAKE HAD CREPT IN THE CALCULATION OF THE DEDUCTION. AS PER THE DETAILS AVAILABLE THE ASSESSEE HAD INCURRED RS.6,67,507 TOWARDS JOB WORK WHICH MEANS THAT A PORTION OF THE MANUFACTURING WORK WAS DONE BY OTHER PARTIES AND THAT THE ASSESSEE IS NOT ELIGIBLE FOR THE PROFIT RELATING TO ARTICLES MANUFACTURED THROUGH JOB WORK SINCE THE JOB WORK CHARGES CONSTITUTED 25% OF THE TOTAL MANUFACTURING EXPENSES (SCH Q) A SUM OF RS.5,14,757 BEING 25% OF THE GROSS TOTAL INCOME WILL NOT BE ELIGIBLE FOR COMPUTING DEDUCTION U/S 80IB. 5. AGGRIEVED BY THE REASSESSMENT ORDER U/S 143(3) R.W.S. 147 OF THE I.T.ACT, THE ASSESSEE PREFERRED THE APPEAL TO THE FIRST APPELLATE AUTHORITY. THE CIT(A) HELD THE PROCESS OF OUTSOURCING / JOB WORK WAS AN INTEGRAL PART OF THE PROCESS ING AND MANUFACTURE UNDERTAKEN BY THE ASSESSEE , HENCE WAS ENTITLED TO ENTIRE CLAIM THE DEDUCTION U/S 80I B OF THE I.T.ACT . THE RELEVANT FINDING OF THE CIT(A) READS AS FOLLOW: - I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT. IT IS SEEN THAT THE PROCESS OF OUTSOURCING NAMELY STITCHING IS NOT A SEPARATE PROFIT MAKING PROCESS TO THE APPELLANT BUT IS AN INTEGRAL PART OF THE WHOLE PROCESS OF MANUFACTURE BY THE APPELLANT. THE AO HIMSELF HAS ADMITTED THAT THE APPELLANT IS ENTITLED FOR DEDUCTION U/S 80IB. WHEN THE PROCESS LIKE STITCHING IS AN INTEGRAL PART OF THE WHOLE CHAIN OF MANUFACTURE PROCESS, THE WHOLE PROCESS HAS TO BE CONSIDERED AS MANUFACTURING PROCESS ELIGIBLE FOR DEDUCTION U/S 80IB. CONSIDERING THESE FACTS, THE AO IS DIRECTED TO TREAT INCOME RELATED T O JOB WORK ESTIMATED AT 25% OF GROSS TOTAL INCOME AS ELIGIBLE FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80IB. THE GROUND IS ALLOWED. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE GROUND RAISED AND ALSO THE JUDGMENT S OF THE HONBLE ALLAHABAD HIGH COURT IN ITA NO . 151 /COCH/2020 M/S.VEEKESY POLYMERS PVT.LTD . 4 THE CASE OF R AND P EXPORTS V. CIT [(2005) 279 ITR 536 (ALL.)] AND THE HONBLE BOMBAY HIGH COURT IN THE CASE OF DAMAN COMPUTERS PVT. LTD. V. ITO [INCOME TAX APPEAL NO.1 OF 2008 JUDGMENT DATED 10 TH AUGUST, 2018] . THE LEARNED AR, ON THE OTHER HAND, HAS FILED A BRIEF WRITTEN SUBMISSION RELYING ON THE ORDER OF THE DELHI BENCHES OF THE TRIBUNAL IN THE CASE OF RAJIV BHATNAGAR V. DCIT [ITA NO.102 6/DEL/2011 ORDER DATED 17 TH DECEMBER, 2012] . 7. I HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIVE AND PERUSED THE WRITTEN SUBMISSION FILED BY THE ASSESSEE . SECTION 80IB OF THE I.T.ACT IS WITH REGARD TO DEDUCTION OF PROFITS AND GAINS FROM CERTAIN INDU STRIAL UNDERTAKINGS. IN THE INSTANT CASE T HE JOB WORK / PROCESS OF OUTSOURCING IS NOTHING BUT STITCHING OF FOOTWEAR AND IS DONE UNDER THE DIRECT SUPERVISION OF THE ASSESSEE. I T IS AN INTEGRAL PART OF THE WHOLE PROCESS OF MANUFACTURE OF FOOTWEAR UNDERTAKEN BY THE ASSESSEE. THE A.O. WHILE COMPLETING THE REASSESSMENT, ADMITS THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION, BUT GRANTED PROPORTIONATE DEDUCTION BY EXCLUDING JOB WORK ESTIMATED AT 25% OF THE GROSS TOTAL INCOME. THE ASSESSEE HAS S ATISFIED ALL THE CONDITIONS FOR CLAIMING DEDUCTION U/S 80IB OF THE I.T.ACT AND PROPORTIONATE DISALLOWANCE OF JOB WORK FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80IB OF THE I.T.ACT IS UNWARRANTED AND UNCALLED FOR. THEREFORE, I AM OF THE VIEW THAT THE CIT(A ) WAS CORRECT IN DIRECTING THE A.O. TO GRANT DEDUCTION U/S 80IB OF THE I.T.ACT AS CLAIMED BY THE ASSESSEE. ITA NO . 151 /COCH/2020 M/S.VEEKESY POLYMERS PVT.LTD . 5 7.1 THE JUDGMENTS RELIED ON BY THE LEARNED DR ARE DISTINGUISHABLE ON FACTS. IN THE CASE CONSIDERED BY THE HONBLE A LLAHABAD HIGH COURT (SUPRA) , THE ISSUE IS CONCERNING THE NUMBER OF PEOPLE WORKING IN THE INDUSTRIAL UNIT. THE ASSESSEE IN THAT CASE HAS CLAIMED THAT THE ARTISANS ENGAGED BY THE ASSESSEE ARE PERSONS EMPLOYED BY IT AND THE THRESHOLD LIMIT OF EMPLOYMENT EXCEEDED THE PRESCRIBED LIMIT FOR GETTING THE BENEFIT OF DEDUCTION U/S 80HH AND 80I OF THE I.T.ACT. THE HONBLE ALLAHABAD HIGH COURT HELD THAT THERE WAS NO EMPLOYER / EMPLOYEE RELATIONSHIP BETWEEN THE ASSESSEE AND THE ART ISANS. THEREFORE, IT WAS CONCLUDED BY THE HONBLE ALLAHABAD HIGH COURT THAT ARTISANS NOT BEING EMPLOYEES OF THE ASSESSEE, DOES NOT SATISFY THE CONDITION MENTIONED U/S 80HH(2)(IV) OF THE I.T.ACT. 7.2 THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CAS E OF DAMAN COMPUTERS PVT. LTD. V. ITO (SUPRA) , IS ALSO DISTINGUISHABLE ON FACTS. IN THE CASE CONSIDERED BY THE HONBLE MUMBAI HIGH COURT THERE WAS A CATEGORICAL FINDING THAT THE JOB WORK UNDERTAKEN BY THE THIRD PERSON WAS TOTALLY DISTINCT AND THE ASSESSEE IN THAT CASE DID NOT RETAIN ITS CONTROL OVER THE MANUFACTURE / JOB WORK UNDERTAKEN BY THE THIRD PARTY , WHEREAS IN THIS CASE, JOB WORK WAS DONE UNDER THE SUPERVISION OF THE ASSESSEE. 7.3 THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF RAJIV BHATNAGAR V. DC IT (SUPRA) HELD THAT WHEN ALL THE CONDITIONS TO QUALIFY FOR DEDUCTION U/S 80IB(2) OF THE I.T.ACT HAS BEEN ITA NO . 151 /COCH/2020 M/S.VEEKESY POLYMERS PVT.LTD . 6 SATISFIED, NECESSARILY, DEDUCTION U/S 80IB OF THE I.T.ACT HAS TO BE GRANTED IN FULL. 8. IN VIEW OF THE AFORESAID REASONING AND THE ORDER OF THE DELH I TRIBUNAL, I UPHOLD THE ORDER OF THE CIT(A). IT IS ORDERED ACCORDINGLY. 9 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 6 TH DAY OF JU LY , 2020 . SD/ - (GEORGE GEORGE K.) JUDICIAL MEMBER COCHIN , DATED 6 TH JU LY , 2020 DEVADAS G* COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A), KOZHIKODE . 4. THE PR.CIT, KOZHIKODE . 5. THE DR, ITAT, KOCHI 6. GUARD FILE. ASST.REGISTRAR/ITAT/KOCHI