M/s Vashisht Alloys, Kala Amb V. JCIT, Yamunanagar

ITA 573/CHANDI/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5197 (ITAT-CHANDIGARH)
• Duration Of Justice: 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 13-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO. 573/CHD/2016 ASSESSMENT YEAR : 2011-12 M/S VASHISHT ALLOYS, VS THE JCIT, NAHAN ROAD, YAMUNA NAGAR RANGE, KALA AMB, YAMUNA NAGAR. ( H.P. ) PAN: AAAFV8967F & ITA NO. 535/CHD/2016 ASSESSMENT YEAR : 2012-13 M/S VASHISHT ALLOYS, VS THE DCIT, NAHAN ROAD, CIRCLE, KALA AMB, YAMUNA NAGAR. ( H.P.) PAN: AAAFV8967F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI TEJ MOHAN SING H RESPONDENT BY : SHRI MANJIT SINGH DATE OF HEARING : 07.03.2017 DATE OF PRONOUNCEMENT : 25.04.2017 O R D E R PER ANNAPURNA GUPTA,AM BOTH THE APPEALS RELATE TO THE SAME ASSESSEE AGAINST ORDERS PASSED BY LD. CIT(APPEALS), PANCHKUL A DATED 18.04.2016 AND CIT (APPEALS)-2 GURGAON DATED 03.03.2016 FOR ASSESSMENT YEARS 2011-12 AND 2012-13 RESPECTIVELY. 2. SINCE COMMON ISSUE IS INVOLVED IN BOTH THE APPEALS, THEREFORE, BOTH THE APPEALS WERE HEARD TOG ETHER AND ARE BEING DISPOSED OFF BY A CONSOLIDATED ORDER FOR 2 THE SAKE OF CONVENIENCE WE SHALL BE DEALING WITH T HE FACTS IN THE CASE OF ITA NO.573/CHD/2016. ITA NO.573/CHD/2016 A.Y 2011-12 3. THE ONLY ISSUE IN THE PRESENT APPEAL PERTAINS TO DISALLOWANCE OF DEDUCTION CLAIMED UNDER SECTION 80I C OF INCOME TAX ACT,1961 ( IN SHORT THE ACT) ON SALE O F PRODUCTS,TO THE EXTENT OF PROFITS RELATING TO MANUFACTURING WHICH WAS GOT DONE THROUGH OUTSIDE PARTIES. 4. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) H AS ERRED IN LAW AS WE AS ON FACTS IN UPHOLDING THE ADDITION OF RS.2,53,36 2/- MADE BY DISALLOWING THE DEDUCTION U/S 80IC ON SALE OF PRODUCTS GOT MANU FACTURED FROM OTHERS THROUGH JOB WORK IN UTTER DISREGARD OF HE EXPLANATI ONS RENDERED WHICH IS ILLEGAL, ARBITRARY AND UNJUSTIFIED. 2. THAT THE LD. COMMISSIONER OF INCOME TAX(APPEALS) H AS FURTHER ERRED IN SUSTAINING THE DISALLOWANCE OF RS.79,902/- AS AGAIN ST RS.99,878/- MADE BY THE ASSESSING OFFICER OUT OF CAR EXPENSES FOR ALLEG ED PERSONAL USE WHICH IS ARBITRARY AND UNJUSTIFIED. 5. GROUND NO. 2 WAS NOT PRESSED BEFORE US AND SAME IS, THEREFORE, BEING TREATED AS DISMISSED. 6. GROUND NO. 1 RAISED BY THE ASSESSEE IS AGAINST ACTION OF CIT (APPEALS) IN UPHOLDING THE DISALLOWAN CE MADE ON ACCOUNT OF DEDUCTION CLAIMED UNDER SECTION 80IC OF THE ACT IN RELATION TO THE MANUFACTURING GO T DONE BY OUTSIDE PARTIES. 3 7. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE A O NOTED THAT THE GROSS TOTAL INCOME DECLARED BY THE ASSESSEE FOR THE YEAR INCLUDED PROFITS & GAINS OF RS.53,63,479/- FROM ITS INDUSTRIAL UNDERTAKING AT K ALA AMB. AGAINST THE PROFIT, THE DEDUCTION OF RS.L 3,40,870/- WAS CLAIMED U/S 801C OF THE ACT, THE A.O . OBSERVED THAT STAINLESS STEEL INGOTS PRODUCED BY TH E ASSESSEE AT ITS FACTORY PREMISES WERE SENT TO AN ASSOCIATE COMPANY, NAHAN FERRO ALLOYS & CHEMICALS P VT. LTD. (NFA). THE STEEL INGOTS WERE ROLLED INTO STAIN LESS STEEL FLATS ON JOB WORK BASIS BY NF. THE STAINLESS STEEL FLATS WERE RECEIVED BACK AT ASSESSEE FACTORY PREMIS ES FOR CUTTING AND THEN SALE IN THE MARKET. THE AO FOUND T HAT THE DEDUCTION INCLUDED THE PROFIT AND GAINS RELATI NG TO CONVERSION OF STEEL INGOTS INTO STEEL FLATS ON JOB WORK BASIS BY THE ASSOCIATE COMPANY. THE AO. RAISED THE QUERY THAT ACCORDING TO THE PROVISIONS OF SECTION 8 0IC ONLY THE PROFIT AND GAINS OF MANUFACTURING ACTIVITY UNDERTAKEN BY THE ASSESSEE ITSELF CAN BE CONSIDERED FOR DEDUCTION. THE ASSESSEE REPLIED THAT IN VIEW OF THE ECONOMIC VIABILITY OF THE PROCESS AND VO LUME OF AVAILABLE IN HOUSE FACILITY THE PART PROCESS OF MANUFACTURING HAD TO BE OUTSOURCED. THE ASSESSEE CONTENDED THAT NO PART OF THE EXPENSES INCURRED BY THE ASSESSEE ON JOB WORK COULD LEGALLY BE DISALLOWED. A FTER CONSIDERING THE ASSESSEE'S REPLY, THE ASSESSING OFF ICER HELD THAT THE PROFIT & GAINS OF THE MANUFACTURING ACTIVITIES UNDERTAKEN BY THE ASSESSEE COMPANY ITSEL F 4 COULD ONLY BE CONSIDERED AS ELIGIBLE FOR DEDUCTION U/S 80IC. THE AO HELD THAT THE PROFIT OF OUTSOURCED PRO CESS WAS TO BE DEDUCED BY AN AMOUNT COMPUTED @ 2.08% OF TOTAL JOB WORK CHARGES PAID/PAYABLE TO NAHAN FERRO ALLOYS & CHEMICALS PVT. LTD. FOR THE PREVIOUS YEAR RELEVANT TO THE A.Y. 2011.12. THUS, 2.08% OF RS.1,12,06,584/-, I.E., OF RS.2,53,362/-WAS CONSIDE RED AS THE PROFIT & GAINS OF THE ASSESSEE NOT ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT AND WAS ADDED TO THE INCOME OF THE ASSESSEE. 7.1 DURING THE APPELLATE PROCEEDINGS, THE COUNSEL F OR THE APPELLANT SUBMITTED THAT THE LD. AO MISDIRECTED HERSELF IN DISALLOWING A SUM OF RS. 2,53,362/- BEIN G THE PART OF THE PROFIT EARNED BY M/S NAHAN FERRO ALLOYS & CHEMICAL PVT. LTD, TO WHICH A PART OF THE MANUFACTU RING PROCESS WAS OUTSOURCED ON ACCOUNT OF THE FOLLOWING : A) THERE BEING NO SPECIFIC REQUIREMENT OF HAVING THE WHOL E OF THE MANUFACTURING PROCESS IN HOUSE OR ANY BAR ON HAV ING A PART OF THE MANUFACTURING BEING OUTSOURCED U/S 801 C OF THE ACT, B) THE POSITION BEING CONTINUING FOR THE LAST SO MANY Y EARS AND THERE HAD BEEN NO CHANGE IN THE CIRCUMSTANCES OF THE APPELLANT DURING THE YEAR. C) THE ASSESSEE BEING ALLOWED DEDUCTION WITHOUT ANY SUCH, RESTRICTION BY THE PREDECESSOR(S) OF THE LD. AO IN EARLIER YEARS. D) INABILITY OF THE ASSESSEE TO PUT UP THE REQUIRED MANUFACTURING FACILITIES BECAUSE OF HUGE CAPITAL COST AND NON AVAILABILITY OF SUFFICIENT MATERIAL, TO RUN SUCH FACILITIES AT OPTI MUM LEVEL. 5 THE ASSESSEE FURTHER RELIED ON FEW COURT JUDGM ENTS RELATED TO DEDUCTION UNDER SECTION 80IB ON OUTSOURCED JOB AS CITED IN ITS WRITTEN SUBMISSION. 8. THE CIT (APPEALS) AFTER GOING THROUGH THE ASSESSEE'S SUBMISSION AND AFTER ANALYZING THE PROVI SIONS OF SECTION 80IC OF THE ACT, HELD THAT FOR THE PURPO SE OF CLAIMING SECTION 80IC, THE ENTIRE MANUFACTURING HAS TO BE GOT DONE BY THE ASSESSEE ITSELF AND IN ANY CASE, THE ASSESSEE IS ELIGIBLE TO CLAIM DEDUCTION OF PROFITS TO THE EXTENT RELATABLE TO MANUFACTURING GOT DONE BY IT ON LY. LD.CIT(A) ,THEREAFTER REFERRED TO SUB-SECTION(10) O F SECTION 80IA OF THE ACT AND HELD THAT THE AO WAS CO RRECT IN DENYING DEDUCTION U/S 80IC ON THE PROFIT COMPONE NT OF THE MANUFACTURING PROCESS NOT CARRIED OUT BY TH ASSESSEE.HE, THEREFORE, UPHELD THE DISALLOWANCE MAD E BY THE ASSESSING OFFICER REJECTING THE CONTENTIONS RAI SED BY THE ASSESSEE BEFORE HIM. 9. DURING THE COURSE OF HEARING BEFORE US, LD. COUN SEL FOR THE ASSESSEE STATED THAT IDENTICAL ISSUE HAS BE EN DEALT WITH BY THE ITAT CHANDIGARH BENCH IN THE CASE OF M/S JAISWAL METALS PVT. LTD. VS JCIT IN ITA 576 & 577/CHD/2016 DATED 16.02.2017 WHEREIN THE ITAT HAD HELD THAT EVEN IF THE PORTION OF THE MANUFACTURING PROCESS WAS OUTSOURCED, IT COULD NOT BE SAID THAT T HE MANUFACTURING WAS NOT DONE BY THE ASSESSEE TO THAT EXTENT AND THE CONDITION NECESSARY FOR CLAIMING DEDUCTION UNDER SECTION 80IC WAS ONLY THAT THE ASSE SSEE 6 WAS REQUIRED TO MANUFACTURE THE PRODUCT. THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT IN IDENTI CAL FACTS AND CIRCUMSTANCES, THE ITAT IN THE SAID CASE HAD DELETED THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF DEDUCTION OF PROFITS REL ATABLE TO MANUFACTURING GOT DONE BY THE ASSESSEE FROM OUTS IDE PARTIES. 9(I) THE LD. DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF CIT (APPEALS) BUT AT THE SAME TIME DID NOT DISPUTE THAT IDENTICAL ISSUE HAD BEEN DEALT BY THE ITAT IN THE CASE OF M/S JAISWAL METALS PVT. LTD. VS JCIT (SUPRA) AND HAD BEEN ADJUDICATED IN THE SAID CASE I N FAVOUR OF THE ASSESSEE. 10. WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTI ES, PERUSED THE ORDERS OF AUTHORITIES BELOW AND GONE THROUGH THE DOCUMENTS PLACED BEFORE US. THE SOLE I SSUE IN THE PRESENT CASE RELATES TO DISALLOWANCE OF DEDU CTION ON ELIGIBLE PROFITS CLAIMED UNDER SECTION 80IC BY T HE ASSESSEE, RELATABLE TO THE PART PROCESS OF MANUFACT URING BEING GOT DONE BY OUTSIDE PARTIES.THE UNDISPUTED FA CTS ARE THAT THE ASSESSEE PRODUCES STAINLESS STEEL INGO TS AT ITS FACTORY PREMISES IN KALA AMB AND IS ENTITLED TO DEDUCTION OF ITS ELIGIBLE PROFITS U/S 80IC OF THE A CT.IT IS ALSO NOT DISPUTED THAT ALL ACTIVITIES INVOLVED IN T HE PROCESS OF MANUFACTURING THE INGOTS ARE CARRIED OUT BY THE ASSESSEE EXCEPT ANNEALING OF INGOTS IN A FURNAC E AND ROLLING THEM TO OBTAIN SS FLATS,WHICH IS GOT DONE 7 THROUGH ITS ASSOCIATE COMPANY M/S NAHAN FERRO ALLOY S & CHEMICALS PVT. LTD.IT IS PROFIT COMPONENT ON THIS PROCESS WHICH HAS BEEN HELD TO BE INELIGIBLE FOR DEDUCTION U/S 80IC BY THE REVENUE. 11. WE HAVE GONE THROUGH THE ORDER OF ITAT IN THE CASE OF M/S JAISWAL METALS PVT. LTD. VS JCIT (SUPRA) AND WE FIND THAT IDENTICAL ISSUE ON IDENTICAL SET OF FACTS HAS BEEN DEALT WITH BY THE ITAT IN THE SAID CASE. IN TH E SAID CASE ALSO THE ASSESSEE WAS MANUFACTURING STEEL INGO TS AND HAD OUTSOURCED THE ANNEALING OF INGOTS AND ROLL ING TO OBTAIN SS FLATS TO M/S NAHAN FERRO ALLOYS & CHEMICALS PVT. LTD. THE AO AND CIT(A),IN THE SAID CASE, HAD HELD THAT THE ASSESSEE WAS NOT ELIGIBLE T O CLAIM DEDUCTION OF PROFITS RELATING TO MANUFACTURIN G NOT DONE BY IT.THE ITAT,WHILE ADJUDICATING THE ISSUE, H ELD THAT SECTION 80IC OF THE ACT MANDATES THAT UNDERTAK ING OR ENTERPRISES ELIGIBLE FOR DEDUCTIONS ARE THOSE WH ICH MANUFACTURE ANY ARTICLE OR THING. IT FURTHER ELABORATED ON THE SCOPE AND EXTENT OF MANUFACTURING ACTIVITY AND AFTER DISCUSSING VARIOUS CASE LAWS ON THE SAME HELD THAT IT IS NOT ESSENTIAL FOR THE ASSESSEE TO CARRY OUT THE ENTIRE MANUFACTURING ITSELF FOR THE P URPOSE OF CLAIMING DEDUCTION ON THE PROFITS EARNED THEREO N AND EVEN IF A PART OF ACTIVITIES WERE OUTSOURCED OR FOR THAT MATTER, EVEN IF THE WHOLE MANUFACTURING ACTIVITIES WERE OUTSOURCED BUT CARRIED ON UNDER THE SUPERVISION AND CONTROL OF THE ASSESSEE, IT WOULD STILL TANTAMOUNT TO 8 MANUFACTURING ACTIVITY BEING CARRIED OUT BY THE ASS ESSEE ITSELF, MAKING IT ELIGIBLE TO CLAIM DEDUCTION OF PR OFIT EARNED THEREON. THE ITAT, THEREAFTER APPLYING THE SAID LEGAL PROPOSITION TO THE FACTS OF THE CASE AS PER WHICH THE ASSESSEE CARRIED OUT ALL THE PROCESSES INVOLVED IN THE MANUFACTURING OF S.S. FLATS EXCEPT ONE AND THE FINAL PRODUCT, IN ANY CASE, WAS MANUFACTURED BY THE ASSES SEE ITSELF AND FURTHER THAT THE PROCESS OUTSOURCED WAS AS PER ITS SPECIFICATION AND REQUIREMENT,HELD THAT IN SUCH CIRCUMSTANCES, THE ONLY CONCLUSION WHICH COULD BE DRAWN WAS THAT THE PRODUCT HAD BEEN MANUFACTUREDB Y THE ASSESSEE. IT WAS, THEREFORE, HELD THAT IN VIEW OF THE SAME, THERE WAS NO QUESTION OF DENYING THE ASSESSEE THE BENEFIT OF DEDUCTION OF ITS ELIGIBLE PROFITS UNDER SECTION 80IC TO ANY EXTENT AT ALL. THE RELEVANT FINDINGS O F THE ITAT AT PARA 14 TO 30 OF THE SAID ORDER IS AS UNDER : 14. EVIDENTLY THE ISSUE BEFORE US RELATES TO THE QUANTUM OF DEDUCTION U/S 80IC QUA MANUFACTURING CARRIED OUT BY THE ASSESSEE. THE RELEVANT PROVISION OF SECTION 80IC ALLOWING DEDUCTION TO ENTITIES CARRYING OUT MANUFACTURING ACTIVITY READS AS UNDER: 80IC (2) THIS SECTION APPLIES TO ANY UNDERTAKING OR ENTERPR ISE, (A ) WHICH HAS BEGUN OR BEGINS TO MANUFACTURE OR PROD UCE ANY ARTICLE OR THING, NOT BEING ANY ARTICLE OR THING SPECIFIED IN THE THIRTEENTH SCHEDULE, OR WHICH MANUFACTURES OR PRODUCES ANY ART ICLE OR THING, NOT BEING ANY ARTICLE OR THING SPECIFIED IN THE THIRTEE NTH SCHEDULE AND UNDERTAKES SUBSTANTIAL EXPANSION DURING THE PERIOD BEGINNING 9 (I) ON THE 23RD DAY OF DECEMBER, 2002 AND EN DING BEFORE THE 1ST DAY OF APRIL, 2012, IN ANY EXPORT PROCESSING ZONE OR INTEG RATED INFRASTRUCTURE DEVELOPMENT CENTRE OR INDUSTRIAL GRO WTH CENTRE OR INDUSTRIAL ESTATE OR INDUSTRIAL PARK OR SOFTWARE TE CHNOLOGY PARK OR INDUSTRIAL AREA OR THEME PARK, AS NOTIFIED BY THE B OARD IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED BY THE CENTRAL GOVERNMENT IN THIS REGARD, IN THE STATE OF SIKKIM; OR (II) ON THE 7TH DAY OF JANUARY, 2003 AND ENDI NG BEFORE THE 1ST DAY OF APRIL, 2012, IN ANY EXPORT PROCESSING ZONE OR INTEGRATED I NFRASTRUCTURE DEVELOPMENT CENTRE OR INDUSTRIAL GROWTH CENTRE OR I NDUSTRIAL ESTATE OR INDUSTRIAL PARK OR SOFTWARE TECHNOLOGY PARK OR I NDUSTRIAL AREA OR THEME PARK, AS NOTIFIED BY THE BOARD IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED BY THE CENTRAL GOVERNMENT IN TH IS REGARD, IN THE STATE OF HIMACHAL PRADESH OR THE STATE OF UTTARANCH AL; OR (III) ON THE 24TH DAY OF DECEMBER, 1997 AND EN DING BEFORE THE 1ST DAY OF APRIL, 2007, IN ANY EXPORT PROCESSING ZONE OR INTEG RATED INFRASTRUCTURE DEVELOPMENT CENTRE OR INDUSTRIAL GRO WTH CENTRE OR INDUSTRIAL ESTATE OR INDUSTRIAL PARK OR SOFTWARE TE CHNO-LOGY PARK OR INDUSTRIAL AREA OR THEME PARK, AS NOTIFIED BY THE B OARD IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED BY THE CENTRAL GOVERNMENT IN THIS REGARD, IN ANY OF THE NORTH-EASTERN STATES; (B ) WHICH HAS BEGUN OR BEGINS TO MANUFACTURE OR PROD UCE ANY ARTICLE OR THING, SPECIFIED IN THE FOURTEENTH SCHEDULE OR COMM ENCES ANY OPERATION SPECIFIED IN THAT SCHEDULE, OR WHICH MANU FACTURES OR PRODUCES ANY ARTICLE OR THING, SPECIFIED IN THE FOU RTEENTH SCHEDULE OR COMMENCES ANY OPERATION SPECIFIED IN THAT SCHEDULE AND UNDERTAKES SUBSTANTIAL EXPANSION DURING THE PERIOD BEGINNING (I) ON THE 23RD DAY OF DECEMBER, 2002 AND EN DING BEFORE THE 1ST DAY OF APRIL, 2012, IN THE STATE OF SIKKIM; OR (II) ON THE 7TH DAY OF JANUARY, 2003 AND ENDI NG BEFORE THE 1ST DAY OF APRIL, 2012, IN THE STATE OF HIMACHAL PRADESH OR THE STATE OF UTTARANCHAL; OR (III) ON THE 24TH DAY OF DECEMBER, 1997 AND EN DING BEFORE THE 1ST DAY OF APRIL, 2007, IN ANY OF THE NORTH-EASTERN STATES. 10 15. CLEARLY THE SECTION MANDATES THAT UNDERTAKINGS OR ENTERPRISES ELIGIBLE FOR DEDUCTION ARE THOSE WHICH MANUFACTURE ANY ARTICLE OR THING. 16. IT IS THE SCOPE AND EXTENT OF THIS MANUFACTURING ACTIVITY VIS-A-VIS THE ASSESSEE AND ITS CORRELATION WITH THE QUANTUM OF DEDUCTION, WHIC H IS THE ISSUE IN DISPUTE IN THE PRESENT APPEAL, GIVI NG RISE TO THE FOLLOWING QUESTION WHICH NEEDS TO BE ADDRESSED BY US: WHETHER DEDUCTION U/S 80IC IS TO BE ALLOWED ONLY ON PROFITS VIS A VIS THE MANUFACTURING ACTIVITY CARRIED OUT BY THE ASSESSEE, ALTERNATIVELY, IF A PART OF THE MANUFACTURING ACTIVITY IS OUTSOURCED ,DOES IT TANTAMOUNT TO THE ASSESSEE NOT CARRYING OUT MANUFACTURING. 17. WE FIND THAT COURTS IN A NUMBER OF CASES HAVE BEEN SEIZED WITH THE ISSUE OF ALLOWABILITY OF DEDUCTION U/S 80I/IB, WHICH GRANT DEDUCTION OF PROFITS DERIVED FROM MANUFACTURING ANY ARTICLE OR THING, WHEN THE ASSESSEE OUTSOURCED PART OR WHOLE OF THE MANUFACTURING PROCESS. AFTER CONSIDERING TH E FACTS OF EACH CASE, THE COURTS RULED THAT IT IS NO T ESSENTIAL FOR THE ASSESSEE TO CARRY OUT THE ENTIRE MANUFACTURING ACTIVITY ITSELF, FOR THE PURPOSE OF CLAIMING DEDUCTION ON THE PROFITS EARNED THEREON AND EVEN IF A PART OF THE ACTIVITY IS OUTSOURCED OR FOR THAT MATTER EVEN IF THE WHOLE MANUFACTURING ACTIVIT Y IS OUTSOURCED, BUT CARRIED ON UNDER THE SUPERVISION AND CONTROL OF THE ASSESSEE, IT WOULD STILL TANTAMOUNT TO MANUFACTURING BEING CARRIED OUT BY THE ASSESSEE ITSELF, MAKING IT ELIGIBLE TO CLAIM DEDUCTION OF PROFITS EARNED THEREON. 11 18. IN THE CASE OF ADD.CIT VS. A. MUKHERJEE & CO. (P) LTD., 113 ITR 718,(CAL) THE HON'BLE HIGH COURT UPHELD THE FINDINGS OF THE TRIBUNAL WHICH WERE AS FOLLOWS : THE ASSESSEE IS A PUBLISHER OF BOOKS. THE ASSESSEE JOB IS TO GET THE MANUSCRIPT FOR PUBLICATION, HIT UPON A SUITABLE FORMAT FOR THE BOOK, GET IT PRINTED AS PER ITS REQUIREMENTS UNDER ITS SUPERVISION, GET THE BOOK BOUND AFTER SUITABLE CHANGES AND THEN PUT OUT THE PUBLICATION FOR SALE. IN ALL THESE ACTIVITIES, THE ASSESSEE HAS TO PLAY AN ACTIVE ROLE BY CO- ORDINATING ITS ACTIVITIES IN A BUSINESS-LIKE MANNER. ALL THESE ACTIVITIES DOVETAIL INTO ONE ANOTHER AND THE STAGE FROM THE ACQUISITION OF THE MANUSCRIPT RIGHT UP TO THE PUBLICATION IS ONE INTEGRATED ACTIVITY WHICH TANTAMOUNTS TO A MANUFACTURING OR PROCESSING ACTIVITY IN THE LIGHT OF THE PRINCIPLES LAID DOWN BY THE GUJARAT HIGH COURT IN THE CASE OF AJAY PRINTERY P.LTD. [1965] 58 ITR 811 AND BY THE MADRAS HIGH COURT IN THE CASE OF M.R. GOPAL [1965] 58 ITR 598 AS STATED ABOVE. IT IS NO DOUBT TRUE THAT THE ASSESSEE DOES NOT HAVE ITS OWN PRINTING PRESS. THAT, HOWEVER, REALLY DOES NOT MAKE ANY MATERIAL DIFFERENCE. THE ASSESSEE'S ACTIVITY CANNOT BE CALLED PURELY A TRADING ACTIVITY. A TRADER MERELY PURCHASES THE GOODS WHICH HAVE ALREADY BEEN MANUFACTURED BY OTHERS AND THEN SELLS THEM. IN THIS CASE, THE ASSESSEE GETS THE BOOKS PRINTED TO SUIT ITS REQUIREMENTS AND UNDER ITS ACTIVE SUPERVISION AND GUIDANCE. EVEN AFTER THE PRINTING IS OVER, THE ASSESSEE HAS TO GET THE BOOKS BOUND WHICH INVOLVES A CONSIDERABLE AMOUNT OF PROCESSING. IN OTHER WORDS IT PURCHASES PAPER AND OTHER PRINTING 12 MATERIALS AND ULTIMATELY MANUFACTURES OR PROCESSES PUBLICATIONS FOR SALE. THE BUSINESS THAT THE ASSESSEE IS DOING CAN, THEREFORE, BE CALLED A MANUFACTURE ACTIVITY.' THE HIGH COURT UPHELD THE FINDINGS AS FOLLOWS: THE FINDINGS OF THE TRIBUNAL IN OUR OPINION CONCLUSIVELY SHOW THAT THE ASSESSEE WAS CARRYING ON THE ACTIVITY OF MANUFACTURING AND ALSO OF PROCESSING OF BOOKS WHICH ARE ALSO GOODS 19. IN THE CASE OF CIT VS. NEO PHARMA P. LTD., 137 ITR 879 (BOM) ON THE QUESTION BEFORE THE COURT, WHETHER THE ASSESSEE COMPANY WAS A MANUFACTURING COMPANY, ENTITLED TO REBATE AT HIGH RATE, THE HON'BLE COURT HELD AS FOLLOWS : IN THE PRESENT CASE, ALTHOUGH THE PLANT AND MACHINERY EMPLOYED FOR THE PURPOSE OF MANUFACTURE BELONGED TO PHARMED AND THE SERVICES OF CERTAIN EMPLOYEES TO PHARMED WERE ALSO UTILISED IN THAT PROCESS, THE MANUFACTURING ACTIVITY WAS REALLY THAT OF THE ASSESSEE. IT WAS THE ASSESSEE WHICH PAID THE HIRE CHARGES FOR THE MACHINERY AND THE PLANT. IT WAS THE ASSESSEE WHICH PURCHASED THE RAW MATERIALS AND THE PACKING MATERIALS. THE EMPLOYEES OF PHARMED CARRIED OUT THE MANUFACTURE OF DRUGS AND PHARMACEUTICALS UNDER THE DIRECT TECHNICAL SUPERVISION OF THE EXPERT STAFF EMPLOYED BY THE ASSESSEE AND THE PRODUCTS MANUFACTURED WERE OF THE QUALITY PRESCRIBED BY THE ASSESSEE. THE RISK FOR THE ENTIRE OPERATION WAS THAT OF THE ASSESSEE. IN VIEW OF THIS, WE FAIL TO SEE HOW IT CAN BE SAID THAT IT WAS NOT THE ASSESSEE BUT 13 PHARMED WHICH MANUFACTURED THE SAID DRUGS AND PHARMACEUTICALS, THE GOODS IN QUESTION. 20. IN THE CASE OF CIT VS. INDIAN RESINS & POLYMERS (1998) 235 ITR 5 (KER), THE ASSESSEE WAS ENGAGED IN BUSINESS OF EXPORT OF CASHEW KERNELS AND SHELL OIL. THE ASSESSEE PURCHASED CASHEWNUTS AND ENTRUSTED TO A THIRD PARTY FOR PROCESSING. SIMILARLY' ROASTING AND DEHUSKING OF CASHEW KERNELS WAS GOT DONE FROM A THIRD PARTY UNDER ASSESSEE'S OWN SUPERVISION. ON THESE FACTS, IT WAS HELD THAT ASSESSEE WAS AN INDUSTRIAL UNDERTAKING ENTITLED TO SPECIAL DEDUCTIONS UNDER SECTION 80HH. 21. IN THE CASE OF CIT VS. ANGLO FRENCH DRUG CO. (EASTERN) LTD. (1991) 191 ITR 92 (BOM), THE HON'BLE BOMBAY HIGH COURT HAS HELD THAT IT IS N OT NECESSARY THAT THE MANUFACTURING ACTIVITY SHOULD UNDERTAKEN BY THE ASSESSEE ITSELF. THE ASSESSEE CAN EMPLOY ANOTHER COMPANY TO MANUFACTURE GOODS UNDER ITS SUPERVISION AND CONTROL AND THE ASSESSEE WAS HELD TO BE AN INDUSTRIAL UNDERTAKING. 22. ALL THE ABOVE DECISIONS WERE RELIED UPON BY THE MUMBAI BENCH OF THE I.T.A.T. IN THE CASE OF P.L. PATEL VS. ITO (SUPRA), RELIED UPON BY THE LD. A.R. BEFORE US, AND IT WAS HELD IN THAT CASE BY THE TRIBUNAL, THAT IT IS NOT NECESSARY THAT THE ASSESSE E SHOULD CARRY OUT ALL THE MANUFACTURING OPERATIONS ITSELF TO BE ENTITLED FOR BENEFITS OF DEDUCTION U/S 80I. 23. APPLYING THE ABOVE LEGAL PROPOSITION TO THE FACTS IN THE PRESENT CASE WE FIND THAT THE ASSESSEE IS A MANUFACTURER OF SS FLATS AND ALL THE PROCESS INVOLVED IN MANUFACTURING OF SS FLATS WERE CARRIED OUT AT THE ASSESSEES PREMISES/UNDERTAKING AT KALA 14 AMB, EXCEPT FOR CONVERSION OF INGOTS INTO FLATS WHI CH THE ASSESSEE OUTSOURCED TO ANOTHER COMPANY I.E. NAHAN FERRO ALLOYS & CHEMICALS PRIVATE LIMITED, SINCE IT DID NOT HAVE THE REQUIRED INFRASTRUCTURE F OR THE SAME. UNDENIABLY ALL THE ACTIVITIES UNDERTAKEN IN THE ORDER STATED ABOVE RESULTED IN THE MANUFACTURE OF SS FLATS AND THUS CONSTITUTE ONE INTEGRATED ACTIVITY WHICH TANTAMOUNTS TO MANUFACTURING ACTIVITY. THOUGH THE ASSESSEE DOES NOT CARRY OUT ONE PROCESS INVOLVED IN THE ENTIRE PROCESS OF MANUFACTURING, BUT THE ASSESSEE ALSO CANNOT BE TERMED CARRYING OUT TRADING ACTIVITY. UNDENIABLY, THE FINAL PRODUCT MANUFACTURED I.E. SS FLATS, WAS MANUFACTURED BY THE ASSESSEE ITSELF FOR SALE IN THE MARKET AND THE PROCESS OUTSOURCED TO NAHAN FERRO ALLOYS & CHEMICALS PRIVATE LIMITED WAS AS PER ITS SPECIFICATION AND REQUIREMENT SINCE IT IS NOT DENIED THAT THE RISK ASSOCIATED WITH THE SALE OF THE FINAL PRODUCT WAS WITH THE ASSESSEE AND THE ASSESSEE WAS RESPONSIBLE FOR THE SALE OF THE SAME. FURTHER, WE FIND, THAT IT IS NOT THE REVENUE S CASE THAT THE OUTSOURCED ACTIVITY WAS NOT UNDER THE SUPERVISION AND CONTROL OF THE ASSESSEE. THEREFORE , CLEARLY, THE ENTIRE MANUFACTURING ACTIVITY OF SS FL ATS WAS UNDER THE SUPERVISION AND CONTROL OF THE ASSESSEE ITSELF AND TOOK PLACE EITHER IN ITS OWN PREMISES OR WAS OUTSOURCED AS PER ITS OWN SPECIFICATION. THEREFORE, IN VIEW OF THE DECISIONS OF VARIOUS HIGH COURTS ON THE ISSUE, IT CAN BE SAID WITHOUT ANY HESITATION THAT IT WAS THE ASSESSEE WHO WAS INDULGING IN THE MANUFACTURING OF SS FLATS. WE MAY ADD THAT IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE WAS BUYING SS FLATS FROM AN OUTSIDE PARTY AND THEN SELLING IT. THEREFORE, FOR THE AFORESAID REASONS, WE HOLD THAT THE ASSESSEE UNDERTOOK THE MANUFACTURING OF SS FLATS AND WAS 15 ENTITLED TO CLAIM DEDUCTION ON ENTIRE PROFITS EARNE D FROM THE SAME. 24. WE MAY ADD THAT THE SECTION DOES NOT QUALIFY THE WORD MANUFACTURE BY PRECEDING IT WITH THE WORD WHOLLY OR ANY SUCH ADJECTIVE. A BARE READING OF THE PROVISIONS OF SECTION 80IC OF THE AC T REVEALS THAT THE ONLY CONDITION REQUIRED FOR CLAIMI NG DEDUCTION IS THAT THE ELIGIBLE UNDERTAKING SHOULD B E INVOLVED IN MANUFACTURING ACTIVITY. THEREFORE, THE MEANING AND PURPORT OF SECTION WOULD HAVE TO BE GATHERED FROM A LITERAL INTERPRETATION OF THE SAME, WHICH IS THE BASIC RULE OF INTERPRETATION, AND THER E IS NO REASON TO READ MORE THAN WHAT IS STATED IN TH E SECTION OR GO TO THE INTENT BEHIND INTRODUCING THE SECTION WHEN THERE IS NO AMBIGUITY IN THE SAME. TH E HON,BLE APEX COURT IN THE CASE OF PADMASUNDARA RAO (DECD.) & OTHERS VS. STATE OF TAMIL NADU & OTHERS HELD AS FOLLOWS: THE COURT CANNOT READ ANYTHING INTO STATUTORY PROVISION WHICH IS PLAIN AND UNAMBIGUOUS. A STATUTE IS THE EDICT OF THE LEGISLATURE. THE LANGUAGE EMPLOYED IN A STATUTE IS THE DETERMINATIVE FACTOR OF LEGISLATIVE INTENT. THE FIRST AND PRIMARY RULE OF CONSTRUCTION IS THAT THE INTENTION OF THE LEGISLATION MUST BE FOUND IN THE WORDS USED BY THE LEGISLATURE ITSELF. THE COURT ONLY INTERPRETS THE LAW AND CANNOT LEGISLATE. IF A PROVISION OF LAW IS MISUSED AND SUBJECTED TO THE ABUSE OF THE PROVES OF LAW, IT IS FOR THE LEGISLATURE TO AMEND, MODIFY OR REPEAL IT, IF DEEMED NECESSARY. LEGISLATIVE CASUS OMISSUS CANNOT BE SUPPLIED BY JUDICIAL INTERPRETATIVE PROCESS. 16 25. FOR THE ABOVE STATED REASON, THE ASSESSEE WAS ONLY REQUIRED TO MANUFACTURE SS FLATS TO BE ELIGIBLE TO CLAIM DEDUCTION U/S 80IC,WHICH SINCE WE HAVE ALREADY HELD SO ABOVE,THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION OF ENTIRE PROFITS EARNE D ON THE SAME U/S 80IC OF THE ACT. FOR THE SAID REASON ALSO WE ARE NOT IN AGREEMENT WITH THE CONTENTION OF THE LD. DR THAT THE PROFITS SHOULD BE APPORTIONED TO DIFFERENT ACTIVITIES INVOLVED IN MANUFACTURING OF A PRODUCT AND DEDUCTION U/S 80IC THEREAFTER BE RESTRICTED TO PROFITS ON MANUFACTURIN G CARRIED OUT BY THE ASSESSEE ONLY 26. IT IS PERTINENT TO POINT OUT THAT WHILE ALLOWING DEDUCTION ON PART OF THE PROFITS EARNED BY THE ASSESSEE, THE REVENUE ADMITS THAT THE ASSESSEE IS INVOLVED IN MANUFACTURING ACTIVITY. ALSO ADMITTEDLY THE ASSESSEE HAS BEEN ALLOWED DEDUCTION OF ENTIRE PROFITS IN EARLIER YEARS IN IDENTICAL SE T OF FACTS. THE LD.DR HAS NOT CONTROVERTED THIS FACT CONTENDED BY THE LD COUNSEL FOR THE ASSESSEE. THEREFORE ALSO THERE IS NO REASON TO RESTRICT THE DEDUCTION TO THE EXTENT OF MANUFACTURING ACTIVITY CARRIED OUT BY THE ASSESSEE IN THE IMPUGNED YEAR. 27. LD.DR HAS ALSO RELIED UPON THE FINDINGS OF THE LD. CIT (APPEALS), WHO WE FIND HAS APPLIED THE PROVISIONS OF SECTION 80 IA(10) TO THE FACTS OF THE CASE AND STATED THAT SINCE THE JOB WORK WAS GOT DONE BY THE ASSESSEE THROUGH ITS ASSOCIATE CONCERN, THE PROVISIONS OF 80 IA(10) WERE ATTRACTED IN THE PRESENT CASE AND IN VIEW OF THE SAME HE DENIED DEDUCTION OF PROFITS TO THE EXTENT OF WORK GOT DONE THROUGH THE ASSOCIATE CONCERN. 28. THIS INTERPRETATION OF THE PROVISIONS OF SECTION 80IA(10), WE HOLD, IS GROSSLY INCORRECT. 17 SECTION 80IA(10) DEALS WITH THE SITUATION WHERE BY VIRTUE OF THE ARRANGEMENT IN BUSINESS TRANSACTIONS BY THE APPELLANT WITH ANY OTHER PERSON FOR ANY REASON PROVIDES MORE THAN THE ORDINARY PROFIT WHICH MIGHT BE EXPECTED TO ARISE FROM THE ELIGIBLE BUSINE SS OF THE APPELLANT. IN SUCH CIRCUMSTANCES THE ASSESSING OFFICER HAS BEEN GIVEN THE POWER TO ESTIMATE THE REASONABLE PROFITS IN SUCH CASES AND ALLOW DEDUCTION TO THAT EXTENT ONLY. THE PROVISION OF SECTION 80IA (10) IS TO CHECK THE TENDENCY OF ELIGI BLE UNITS TO INFLATE THEIR PROFITS BY ENTERING INTO TRANSACTIONS WITH RELATED CONCERNS OR CLOSELY CONNECTED CONCERNS IN SUCH A MANNER SO AS TO RESORT TO SHOWING UNREASONABLY HIGHER PROFITS IN THEIR OWN BUSINESSES AND CLAIM HUNDRED PERCENT DEDUCTION OF THE SAME UNDER THE PROVISIONS OF THE ACT. IN THE PRESENT CIRCUMSTANCE WE FIND THAT THE CASE IS EXACTLY THE OPPOSITE. THE LD. CIT (APPEALS) WE FIND HAS STATED THAT BY GETTING THE WORK DONE BY ITS ASSOCIATE CONCERN A PART OF THE PROFITS HAVE BEEN SIPHONED OFF TO THE ASSOCIATE CONCERN WHICH MAY ALSO HAVE CLAIMED DEDUCTION UNDER SECTION 80IC ON THE SAME. HAVING SAID SO IT IS EVIDENT THAT IN TH E CASE OF THE ASSESSEE THE PROFITS HAVE BEEN REDUCED TO THAT EXTENT. THE PROFITS HAVING BEEN REDUCED TO THAT EXTENT, BEING THE FINDING OF THE CIT (APPEALS) IN THE PRESENT CASE, SECTION 80IA(10) HAS NO APPLICABILITY AT ALL SINCE AS STATED ABOVE IT APPLI ES TO CASES WHERE THE PROFITS APPEAR TO BE INFLATED ON ACCOUNT OF TRANSACTIONS ENTERED INTO WITH AN ASSOCIATE CONCERN. EVEN OTHERWISE FOR THE APPLICABILITY OF SECTION 80IA(10) IT HAS TO BE DEMONSTRATED THAT THERE WAS AN ARRANGEMENT BETWEEN THE TWO PARTIES WHICH RESULTED IN THE INFLATION OF PROFITS IN THE CASE OF THE ASSESSEE. I N THE ABSENCE OF BOTH THE CONDITIONS SPECIFIED UNDER SECTION 80IA(10) WE HOLD THAT THE SAID PROVISION OF 18 HAS BEEN INCORRECTLY APPLIED BY THE LD. CIT(APPEALS ) TO THE FACTS OF THE CASE AND THE ADDITION MADE BY APPLYING THE SAME IS THEREFORE GROSSLY INCORRECT. 29. IN VIEW OF THE ABOVE, WE HOLD THAT THE MANUFACTURING OF SS FLATS WAS CARRIED OUT BY THE ASSESSEE AND THUS IT WAS ENTITLED TO CLAIM DEDUCTION OF ENTIRE PROFITS EARNED ON THE SAME U/S 80IC OF THE ACT. WE, THEREFORE, DELETE THE DISALLOWANCE OF DEDUCTION OF RS.4,26,970/- ON ACCOUNT OF THE MANUFACTURING PROCESS OUTSOURCED BY THE ASSESSEE . 30. THE APPEAL OF THE ASSESSEE, THEREFORE, STANDS ALLOWED. 12. SINCE THE FACTS IN THE PRESENT CASE ARE IDENTIC AL TO THAT IN THE CASE OF M/S JAISWAL METALS PVT. LTD. VS JCIT (SUPRA), THE DECISION RENDERED THEREIN SQUARELY APP LIES TO THE PRESENT CASE ALSO, FOLLOWING WHICH WE HOLD T HAT THE ASSESSEE IS ENTITLED TO DEDUCTION OF ITS ENTIRE ELIGIBLE PROFITS UNDER SECTION 80IC OF THE ACT. THE ADDITIO N, THEREFORE, MADE AMOUNTING TO RS.2,53,362/-IS DIRECT ED TO BE DELETED. GROUND OF APPEAL NO. 1 RAISED BY TH E ASSESSEE IS, THEREFORE, ALLOWED. 13. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 535/CHD/2016 14. THE ASSESSEE IN THE PRESENT APPEAL HAS RAISED FOLLOWING GROUNDS : 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) H AS ERRED IN LAW AS WE AS ON FACTS IN UPHOLDING THE ADDITION OF RS.3 ,15,175/- MADE BY DISALLOWING THE DEDUCTION U/S 80IC ON SALE OF PRODU CTS GOT MANUFACTURED FROM OTHERS THROUGH JOB WORK IN UTTER DISREGARD OF THE EXPLANATIONS RENDERED WHICH IS ILLEGAL, ARBITRARY AND UNJUSTIFIE D. 19 2. THAT THE LD. COMMISSIONER OF INCOME TAX(APPEALS) H AS FURTHER ERRED IN UPHOLDING THE DISALLOWANCE OF RS.89,563/- OUT OF CAR EXPENSES FOR ALLEGED PERSONAL USE WHICH IS ARBITRARY AND UNJ USTIFIED. 15. AT THE OUTSET, IT IS STATED THAT GROUND NO. 2 W AS NOT PRESSED BEFORE US AND THE SAME IS THEREFORE TO BE TREATED AS DISMISSED. 16. ON GROUND NO. 1, ISSUES AND FACTS ARE IDENTICAL TO THAT IN GROUND NO. 1 OF ITA 573/CHD/2016. THEREFOR E, DECISION RENDERED IN THAT CASE WOULD APPLY MUTATIS- MUTANDIS IN THIS CASE ALSO. 17. IN THE RESULT, APPEAL IS PARTLY ALLOWED. 18. IN THE RESULT, BOTH APPEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) ( ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 25 TH APRIL, 2017. POONAM COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT,DR ASSISTANT REGISTRAR, ITAT/CHD 20