M/s Jaiswal Metals Pvt. Ltd., Yamunanagar V. JCIT, Yamunanagar

ITA 576/CHANDI/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8282 (ITAT-CHANDIGARH)
• Duration Of Justice: 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 13-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL

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.576 & 577/CHD/2016 (ASSESSMENT YEARS : 2010-11 & 2011-12) M/S JAISWAL METALS PVT. LTD., VS. THE J.C.I.T., DURGA GARDEN, JAGADHRI, YAMUNA NAGAR RANGE, YMUNA NAGAR. YAMUNA NAGAR. PAN: AAACJ3896N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI TEJ MOHAN SINGH RESPONDENT BY : SHRI SUSHIL KUMAR, CIT DR DATE OF HEARING : 15.02.2017 DATE OF PRONOUNCEMENT : 16.02.2017 O R D E R PER ANNAPURNA GUPTA, A.M . : BOTH THE ABOVE APPEALS HAVE BEEN FILED BY THE SAME ASSESSEE AGAINST SEPARATE ORDERS OF COMMISSION ER OF INCOME TAX (APPEALS), PANCHKULA BOTH DATED 18.04.20 16 AND RELATING TO A.YS 2010-11 & 2011-12. SINCE THE ISSUE INVOLVED IN BOTH THE APPEALS IS COMMON, THE SAME WE RE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CO MMON ORDER. 2. FOR THE SAKE OF CONVENIENCE WE SHALL BE DISCUSSING THE FACTS IN ITA NO. 576/CHANDIGARH/2016 . 2 ITA NO. 576/CHANDIGARH/2016 : 3. THE ASSESSEE IN THE PRESENT APPEAL HAS RAISED THE FOLLOWING GROUNDS: 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN LAW AS WELL AS ON FACTS IN UPHOLDING THE ADDITION OF RS.4,26,970/- MADE BY DISALLOWING THE DEDUCTION U/S 80IC ON SALE OF PRODUCTS GOT MANUFACTURED FROM OTHERS THROUGH JOB WORK IN UTTER DISREGARD OF THE EXPLANATIONS RENDERED WHICH IS ILLEGAL, ARBITRARY AND UNJUSTIFIED. 2. THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX(APPEALS) IS ERRONEOUS, ARBITRARY, OPPOSED TO LA W AND FACTS OF THE CASE AND IS, THUS, UNTENABLE. 4. BRIEF FACTS RELATING TO THE ISSUE RAISED IN APP EAL IS THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE GROSS TOTAL INCOME DECLARED BY THE ASSESSEE FOR THE YEAR INCLUDED PROFIT AND GAINS OF RS.1,51,36,157/- FROM ITS INDUSTRIAL UNDERTAKING AT KALA AMB,HIMACHAL PRA DESH. AGAINST THE SAID PROFIT, THE ASSESSEE HAD CLAIMED DEDUCTION OF RS.1,19,24,801/-UNDER SECTION 80 IC OF THE ACT. THE AO OBSERVED THAT THE ASSESSEE WAS IN THE BUSINESS OF MANUFACTURING STAINLESS STEEL FLATS(HER EINAFTER REFERRED TO AS SS FLATS) AND THAT DURING THE COURSE OF MANUFACTURING THE SAME, THE STAINLESS STEEL INGOTS PRODUCED BY THE ASSESSEE AT ITS FACTORY PREMISES WE RE SENT TO ITS ASSOCIATE COMPANY, NAHAN FERRO ALLOYS & CHEM ICALS PRIVATE LIMITED (NEA), FOR GETTING ROLLED INTO STAI NLESS STEEL FLATS ON JOB WORK BASIS. THE AO FURTHER NOTED THAT 3 THE STAINLESS STEEL FLATS WERE RECEIVED BACK AT THE ASSESSEES FACTORY PREMISES FOR CUTTING AND THEN WE RE SOLD IN THE MARKET. THE AO FOUND THAT THE DEDUCTION INCL UDED THE PROFIT AND GAINS RELATED TO CONVERSION OF STEEL INGOTS INTO STEEL FLATS ON JOB WORK BASIS BY THE ASSOCIATE COMPANY. HE THEREFORE RAISED THE QUERY THAT ACCORDI NG TO THE PROVISIONS OF SECTION 80 IC ONLY THE PROFIT AND GAINS OF MANUFACTURING ACTIVITY UNDERTAKEN BY THE ASSESSEE I TSELF CAN BE CONSIDERED FOR DEDUCTION. THE ASSESSEE REPLI ED THAT IN VIEW OF ECONOMIC VIABILITY OF THE PROCESS AND VO LUME AVAILABLE IN-HOUSE, THE PART PROCESS OF MANUFACTURI NG HAD BEEN OUTSOURCED. THE ASSESSEE SUBMITTED THAT NO PAR T OF EXPENSES INCURRED BY THE ASSESSEE ON JOB WORK COULD LEGALLY BE DISALLOWED. AFTER CONSIDERING THE ASSESS EES REPLY, THE AO HELD THAT THE PROFITS AND GAINS OF TH E MANUFACTURING ACTIVITY AS UNDERTAKEN BY THE ASSESSE E COMPANY ITSELF CAN ONLY BE CONSIDERED AS ELIGIBLE F OR DEDUCTION UNDER SECTION 80 IC. THE AO HELD THAT THE PROFIT OF OUTSOURCED PROCESS WAS TO BE REDUCED AND COMPUTE D THE SAME BY APPLYING A RATE OF 3.81% TO THE TOTAL J OB WORK CHARGES PAID/PAYABLE TO NAHAN FERRO ALLOYS AND CHEMICALS PRIVATE LIMITED OF RS. 1,12,06,584 .ACCOR DINGLY RS.4,26,970/-WAS CONSIDERED AS THE PROFIT AND GAINS OF THE ASSESSEE NOT ELIGIBLE FOR DEDUCTION UNDER SECTI ON 80IC OF THE ACT AND WAS ADDED TO THE INCOME OF THE ASSES SEE. 5. AGGRIEVED BY THE SAME THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT (APPEALS) AND ARGUED THAT THE 4 DISALLOWANCE OF DEDUCTION MADE BY THE AO WAS INCORR ECT SINCE THERE WAS NO SPECIFIC REQUIREMENT UNDER SECTI ON 80IC OF THE ACT OF HAVING THE WHOLE MANUFACTURING P ROCESS IN-HOUSE, THAT THE ASSESSEE HAD BEEN CONTINUING IN THE LIKEWISE FASHION FOR THE LAST MANY YEARS AND HAD BE EN ALLOWED THE DEDUCTION WITHOUT ANY RESTRICTION BY TH E PREDECESSORS IN EARLIER YEARS AND FURTHER THAT THE ASSESSEE HAD TO OUTSOURCE THE WORK ON ACCOUNT OF ITS INABILI TY TO PUT UP THE REQUIRED MANUFACTURING FACILITIES BECAUS E OF HUGE CAPITAL COST AND NON-AVAILABILITY OF SUFFICIEN T MATERIAL TO RUN SUCH FACILITIES AT OPTIMUM LEVEL. L D. CIT (APPEAL) CONSIDERED THE ASSESSEES SUBMISSIONS AND A FTER ELABORATING AND REFERRING TO THE PROVISIONS OF SECT ION 80IC OF THE ACT, HELD THAT THE CLAIM OF DEDUCTION UNDER SECTION 80IC HAD TO BE CONSIDERED IN VIEW OF THE APPLICABLE SUBSECTIONS OF 80 IA AS SPECIFIED BY 80IC(7) OF TH E ACT. THEREAFTER LD. CIT(APPEALS) REFERRED TO PARA 49 OF CBDT CIRCULAR NO. 7/2003 DATED 5/9/2003, WHICH CONSTITUT ED THE EXPLANATORY NOTES OF FINANCE ACT 2003 THROUGH W HICH THE DEDUCTION UNDER SECTION 80IC OF THE INCOME TAX ACT WAS INTRODUCED IN THE STATUTE AND STATED THAT THE I NTENT OF PROVIDING DEDUCTION WAS TO ENCOURAGE MANUFACTURING ACTIVITY BY AN UNDERTAKING IN SPECIFIED AREAS FOR O VERALL ECONOMIC DEVELOPMENT OF THE AREA. LD. CIT (APPEALS) THEREAFTER STATED THAT THE ASSESSEE WITHOUT MAKING INVESTMENT IN SETTING UP MANUFACTURING FACILITY COU LD NOT CLAIM BENEFIT OF SECTION 80IC. LD. CIT (APPEALS) FU RTHER HELD THAT THE ARGUMENT THAT SECTION 80IC DOES NOT S PECIFY 5 ANY REQUIREMENT OF HAVING THE WHOLE MANUFACTURING PROCESS IN-HOUSE IS AGAINST THE INTENT OF THE PROVI SIONS OF SECTION 80IC SINCE IT PROVIDES DEDUCTION ON ACCOUNT OF MANUFACTURE OR PRODUCTION OF ANY SPECIFIED ARTICLE OF THING. LD. CIT (APPEALS) FURTHER HELD THAT THE CONV ERSION OF INGOTS INTO FLATS IS THE MAJOR PROCESS IN THE MANUFACTURING FOR WHICH THE APPELLANT HAD NO DIRECT OR INDIRECT CONTROL OR ANY INPUT. THEREAFTER, REFERRIN G TO SUB- SECTION (10) OF SECTION 80IA OF THE ACT LD. CIT (AP PEALS) HELD THAT THE AO WAS CORRECT IN DENYING DEDUCTION U NDER SECTION 80IC ON THE PROFIT COMPONENT OF THE MANUFACTURING PROCESS OF CONVERSION OF STAINLESS ST EEL INGOTS INTO STAINLESS STEEL FLATS WHICH MANUFACTURI NG ACTIVITY WAS NOT CARRIED OUT BY THE ASSESSEE BUT BY ITS ASSOCIATE CONCERN. THUS THE LD. CIT (APPEAL) DISMIS SED THE ASSESSEES APPEAL ON THIS GROUND. 6. AGGRIEVED BY THE SAME, THE ASSESSEE FILED THE PRESENT APPEAL BEFORE US. 7. BEFORE US LD. COUNSEL FOR THE ASSESSEE REITERAT ED THE ARGUMENTS MADE BEFORE THE LOWER AUTHORITIES AND STATED THAT FOR THE PURPOSE OF CLAIMING DEDUCTION U NDER SECTION 80IC THERE IS NO SPECIFIC REQUIREMENT OF TH E ASSESSEE ITSELF CARRYING OUT THE ENTIRE MANUFACTURI NG ACTIVITY. LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION OF THE MUMBAI BENCH OF THE ITAT IN THE CAS E OF P.L PATEL VS. INCOME TAX OFFICER IN ITA NO. 65/MUMBAI/2005 REPORTED IN 142 TTJ 57 (MUM) AND FUR THER 6 ON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS METALMAN AUT O PVT. LTD.(2011) 52 DTR 385 (P&H) IN SUPPORT OF ITS ABOVE CONTENTION. 8. LD.DR ON THE OTHER HAND RELIED ON THE ORDER OF THE CIT (APPEALS) AND DREW OUR ATTENTION TO THE OBSERVATION OF THE LD CIT (APPEALS) THAT THE JOB WO RK CHARGES PAID BY THE ASSESSEE OF RS.1,16,23,023/-WAS A SUBSTANTIAL AMOUNT IN THE ENTIRE PROCESS OF CONVERS ION OF STAINLESS STEEL INGOTS TO STAINLESS STEEL FLATS, WH ICH PROVED THAT A MAJOR CHUNK OF THE MANUFACTURING PROCESS WAS NOT BEING CARRIED OUT BY THE ASSESSEE AND IN VIEW OF TH E INTENTION OF THE LEGISLATURE IN INTRODUCING SECTION 80IC AS BROUGHT OUT BY THE LD. CIT(APPEALS), THE AO HAD RIG HTLY DENIED DEDUCTION TO THE EXTENT OF PROFITS ATTRIBUTA BLE TO THE JOB WORK UNDERTAKEN BY THE ASSESSEES ASSOCIATE COMPANY. 9. WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE ORDERS OF THE AUTHORITIES B ELOW AS ALSO THE DOCUMENTS AND CASE LAWS RELIED UPON BY TH EM. 10. THE UNDISPUTED FACTS ARISING IN THE PRESENT CASE ARE THAT THE ASSESSEE IS A MANUFACTURER OF STAINLES S STEEL FLATS, WHICH ACTIVITY IT CARRIES OUT IN ITS UNDERTA KING AT KALA AMB, HIMACHAL PRADESH AND WHICH IT COMMENCED ON 16.6.2005. THE ALLOWABILITY OF THE ASSESSEE TO CLA IM DEDUCTION U/S 80IC IS NOT IN DISPUTE AND AS ALSO TH E FACT 7 THAT THE ASSESSEE HAS BEEN CLAIMING THE SAME SINCE 2006- 07 WHEN IT COMMENCED ITS MANUFACTURING ACTIVITY. T HE IMPUGNED YEAR IS 6 TH YEAR OF COMMENCEMENT OF MANUFACTURING ACTIVITY. THE PROCESS TO MANUFACTURE STAINLESS STEEL FLATS INCLUDES THE FOLLOWING: I) CONVERSION OF SS/MS SCRAP TO MOLTEN MASS II) POURING OF MOLTEN MASS INTO MOULDS TO OBTAIN S S INGOT. III) ANNEALING OF INGOTS IN A FURNACE AND ROLLING T O OBTAIN SS FLATS. IV) GRINDING, TRIMMING AND END CUTTING TO MAKE SALEABLE SS FLATS. 11. ADMITTEDLY AND UNDISPUTEDLY ALL THE ABOVE PROCESSES ARE CARRIED OUT IN THE UNDERTAKING OF THE ASSESSEE AT KALA AMB EXCEPT THE PROCESS AT SR.NO.3 BEING ANNEALING/CONVERSION OF INGOTS TO SS FLATS, WHICH I S CARRIED OUT IN ANOTHER COMPANY M/S NAHAN FERRO ALLO YS & CHEMICALS PRIVATE LIMITED. 12. THE CASE OF THE REVENUE IS THAT THE PROFITS RELATING TO THIS OUTSOURCED PROCESS ARE NOT ELIGIBL E FOR DEDUCTION U/S 80IC TO THE ASSESSEE FOR THE REASON : A) THIS ACTIVITY WAS NOT UNDERTAKEN BY THE ASSESSEE. B) THE UNIT WHICH UNDERTAKES THIS ACTIVITY IS ALSO LOCATED IN SECTION 80IC SPECIFIED AREA AND MUST HAVE ALSO CLAIMED DEDUCTION ON THE PROFITS EARNED ON CONVERSION OF INGOT TO FLATS AND; C) IN VIEW OF THE PROVISIONS OF SECTION 80IA(10), WHICH BECOME APPLICABLE IN THE PRESENT CASE IN VIEW OF THE PROVISIONS OF SECTION 80IC(7) OF THE 8 ACT, THE ASSESSING OFFICER IS EMPOWERED TO COMPUTE REASONABLE PROFITS AND GAINS FROM BUSINESS TRANSACTION BETWEEN THE ELIGIBLE AND OTHER UNIT WHICH ARE SO ARRANGED. 13. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, CONTENDED THAT FOR THE PURPOSE OF CLAIMING DEDUCTION U/S 80IC THERE IS NO REQUIREMENT UNDER TH E ACT FOR CARRYING OUT THE ENTIRE MANUFACTURING ACTIVITY BY THE CLAIMANT ASSESSEE AND THERE IS NO PROVISION UNDER T HE ACT FOR ALLOCATING PROFITS TO OUTSOURCED ACTIVITIES AND DENYING DEDUCTION ON THE SAME. 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 CARRYIN G 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 ARTICLE OR TH ING, NOT BEING ANY ARTICLE OR THING SPECIFIED IN THE THIRTEENTH SCHEDU LE 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 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 INDU STRIAL AREA OR THEME PARK, AS NOTIFIED BY THE BOARD IN ACCORDANCE WITH T HE SCHEME FRAMED AND NOTIFIED BY THE CENTRAL GOVERNMENT IN THIS REGARD, IN THE STATE OF SIKKIM; OR 9 (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 INDU STRIAL AREA OR THEME PARK, AS NOTIFIED BY THE BOARD IN ACCORDANCE WITH T HE SCHEME FRAMED AND NOTIFIED BY THE CENTRAL GOVERNMENT IN THIS REGARD, 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 EXPORT PROCESSING ZONE OR INTEGRATED I NFRASTRUCTURE DEVELOPMENT CENTRE OR INDUSTRIAL GROWTH CENTRE OR I NDUSTRIAL ESTATE OR INDUSTRIAL PARK OR SOFTWARE TECHNO-LOGY PARK OR IND USTRIAL 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 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 MANUFACTURES O R PRODUCES ANY ARTICLE OR THING, SPECIFIED IN THE FOURTEENTH SCHEDULE OR C OMMENCES 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. 15. CLEARLY THE SECTION MANDATES THAT UNDERTAKINGS OR ENTERPRISES ELIGIBLE FOR DEDUCTION ARE THOSE WHI CH MANUFACTURE ANY ARTICLE OR THING. 16. IT IS THE SCOPE AND EXTENT OF THIS MANUFACTURI NG ACTIVITY VIS-A-VIS THE ASSESSEE AND ITS CORRELATION WITH THE 10 QUANTUM OF DEDUCTION, WHICH IS THE ISSUE IN DISPUTE IN THE PRESENT APPEAL, GIVING RISE TO THE FOLLOWING QUESTI ON 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 DEDUC TION U/S 80I/IB, WHICH GRANT DEDUCTION OF PROFITS DERIVED FROM MANUFACTURING ANY ARTICLE OR THING, WHEN THE ASSESS EE OUTSOURCED PART OR WHOLE OF THE MANUFACTURING PROCE SS. AFTER CONSIDERING THE FACTS OF EACH CASE, THE COURT S RULED THAT IT IS NOT ESSENTIAL FOR THE ASSESSEE TO CARRY OUT THE ENTIRE MANUFACTURING ACTIVITY ITSELF, FOR THE PURPO SE OF CLAIMING DEDUCTION ON THE PROFITS EARNED THEREON AN D EVEN IF A PART OF THE ACTIVITY IS OUTSOURCED OR FOR THAT MATTER EVEN IF THE WHOLE MANUFACTURING ACTIVITY IS OUTSOUR CED, BUT CARRIED ON UNDER THE SUPERVISION AND CONTROL OF THE ASSESSEE, IT WOULD STILL TANTAMOUNT TO MANUFACTURIN G 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 B Y 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 MATERIALS AND ULTIMATELY MANUFACTURES OR 12 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., 13 7 ITR 879 (BOM) ON THE QUESTION BEFORE THE COURT, WHE THER 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 PHARMED WHICH 13 MANUFACTURED THE SAID DRUGS AND PHARMACEUTICALS, THE GOODS IN QUESTION. 20. IN THE CASE OF CIT VS. INDIAN RESINS & POLYMER S (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 TH IRD PARTY FOR PROCESSING. SIMILARLY' ROASTING AND DEHUS KING OF CASHEW KERNELS WAS GOT DONE FROM A THIRD PARTY UNDE R ASSESSEE'S OWN SUPERVISION. ON THESE FACTS, IT WAS HELD THAT ASSESSEE WAS AN INDUSTRIAL UNDERTAKING ENTITLE D 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 NOT NECESSARY THAT THE MANUFACTURING ACTIVITY SHOULD UNDERT AKEN BY THE ASSESSEE ITSELF. THE ASSESSEE CAN EMPLOY ANO THER COMPANY TO MANUFACTURE GOODS UNDER ITS SUPERVISION AND CONTROL AND THE ASSESSEE WAS HELD TO BE AN INDUSTRI AL UNDERTAKING . 22. ALL THE ABOVE DECISIONS WERE RELIED UPON BY TH E MUMBAI BENCH OF THE I.T.A.T. IN THE CASE OF P.L. P ATEL 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 N OT NECESSARY THAT THE ASSESSEE SHOULD CARRY OUT ALL TH E MANUFACTURING OPERATIONS ITSELF TO BE ENTITLED FOR BENEFITS OF DEDUCTION U/S 80I. 14 23. APPLYING THE ABOVE LEGAL PROPOSITION TO THE FA CTS IN THE PRESENT CASE WE FIND THAT THE ASSESSEE IS A MANUFACTURER OF SS FLATS AND ALL THE PROCESS INVOLV ED IN MANUFACTURING OF SS FLATS WERE CARRIED OUT AT THE ASSESSEES PREMISES/UNDERTAKING AT KALA AMB, EXCEPT FOR CONVERSION OF INGOTS INTO FLATS WHICH THE ASSESSEE OUTSOURCED TO ANOTHER COMPANY I.E. NAHAN FERRO ALLO YS & CHEMICALS PRIVATE LIMITED, SINCE IT DID NOT HAVE TH E REQUIRED INFRASTRUCTURE FOR THE SAME. UNDENIABLY A LL THE ACTIVITIES UNDERTAKEN IN THE ORDER STATED ABOVE RES ULTED IN THE MANUFACTURE OF SS FLATS AND THUS CONSTITUTE ONE INTEGRATED ACTIVITY WHICH TANTAMOUNTS TO MANUFACTUR ING ACTIVITY. THOUGH THE ASSESSEE DOES NOT CARRY OUT O NE PROCESS INVOLVED IN THE ENTIRE PROCESS OF MANUFACTU RING, 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 PROC ESS OUTSOURCED TO NAHAN FERRO ALLOYS & CHEMICALS PRIVAT E LIMITED WAS AS PER ITS SPECIFICATION AND REQUIREME NT SINCE IT IS NOT DENIED THAT THE RISK ASSOCIATED WI TH 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 REVENUES CASE THAT THE OUTSOURCED ACTIVITY WAS NOT UNDER THE SUPERVISION A ND CONTROL OF THE ASSESSEE. THEREFORE, CLEARLY, THE E NTIRE MANUFACTURING ACTIVITY OF SS FLATS WAS UNDER THE SUPERVISION AND CONTROL OF THE ASSESSEE ITSELF AND TOOK 15 PLACE EITHER IN ITS OWN PREMISES OR WAS OUTSOURCED AS PER ITS OWN SPECIFICATION. THEREFORE, IN VIEW OF THE D ECISIONS OF VARIOUS HIGH COURTS ON THE ISSUE, IT CAN BE SAID WITHOUT ANY HESITATION THAT IT WAS THE ASSESSEE WHO WAS IND ULGING IN THE MANUFACTURING OF SS FLATS. WE MAY ADD THAT IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE WAS B UYING 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 AN D WAS ENTITLED TO CLAIM DEDUCTION ON ENTIRE PROFITS EARNE D FROM THE SAME. 24. WE MAY ADD THAT THE SECTION DOES NOT QUALIFY T HE WORD MANUFACTURE BY PRECEDING IT WITH THE WORD W HOLLY OR ANY SUCH ADJECTIVE. A BARE READING OF THE PROVIS IONS OF SECTION 80IC OF THE ACT REVEALS THAT THE ONLY CO NDITION REQUIRED FOR CLAIMING DEDUCTION IS THAT THE ELIGIBL E UNDERTAKING SHOULD BE INVOLVED IN MANUFACTURING ACT IVITY. 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 THE SECT ION OR GO TO THE INTENT BEHIND INTRODUCING THE SECTION WHE N THERE IS NO AMBIGUITY IN THE SAME. THE HON,BLE APEX COUR T IN THE CASE OF PADMASUNDARA RAO (DECD.) & OTHERS VS. S TATE OF TAMIL NADU & OTHERS HELD AS FOLLOWS: THE COURT CANNOT READ ANYTHING INTO STATUTORY PROVISION WHICH IS PLAIN AND 16 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. 25. FOR THE ABOVE STATED REASON, THE ASSESSEE WAS ONLY REQUIRED TO MANUFACTURE SS FLATS TO BE ELIGI BLE TO CLAIM DEDUCTION U/S 80IC,WHICH SINCE WE HAVE ALREAD Y HELD SO ABOVE,THE ASSESSEE WAS ENTITLED TO CLAIM DE DUCTION OF ENTIRE PROFITS EARNED ON THE SAME U/S 80IC OF TH E ACT. FOR THE SAID REASON ALSO WE ARE NOT IN AGREEMENT WI TH 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 ALLOWI NG DEDUCTION ON PART OF THE PROFITS EARNED BY THE ASSE SSEE, THE REVENUE ADMITS THAT THE ASSESSEE IS INVOLVED IN MANUFACTURING ACTIVITY. ALSO ADMITTEDLY THE ASSESSE E HAS BEEN ALLOWED DEDUCTION OF ENTIRE PROFITS IN EARLIER YEARS 17 IN IDENTICAL SET OF FACTS. THE LD.DR HAS NOT CONTRO VERTED THIS FACT CONTENDED BY THE LD COUNSEL FOR THE ASSES SEE. THEREFORE ALSO THERE IS NO REASON TO RESTRICT THE D EDUCTION 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 PRO VISIONS OF SECTION 80 IA(10) TO THE FACTS OF THE CASE AND S TATED THAT SINCE THE JOB WORK WAS GOT DONE BY THE ASSESSE E THROUGH ITS ASSOCIATE CONCERN, THE PROVISIONS OF 80 IA(10) WERE ATTRACTED IN THE PRESENT CASE AND IN VIEW OF T HE SAME HE DENIED DEDUCTION OF PROFITS TO THE EXTENT OF WOR K GOT DONE THROUGH THE ASSOCIATE CONCERN. 28. THIS INTERPRETATION OF THE PROVISIONS OF SECT ION 80IA(10), WE HOLD, IS GROSSLY INCORRECT. SECTION 80 IA(10) DEALS WITH THE SITUATION WHERE BY VIRTUE OF THE ARRANGEMENT IN BUSINESS TRANSACTIONS BY THE APPELLA NT WITH ANY OTHER PERSON FOR ANY REASON PROVIDES MORE THAN THE ORDINARY PROFIT WHICH MIGHT BE EXPECTED TO ARIS E FROM THE ELIGIBLE BUSINESS OF THE APPELLANT. IN SUCH CIRCUMSTANCES THE ASSESSING OFFICER HAS BEEN GIVEN THE POWER TO ESTIMATE THE REASONABLE PROFITS IN SUCH CA SES 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 TRANSACTI ONS WITH RELATED CONCERNS OR CLOSELY CONNECTED CONCERNS IN S UCH A MANNER SO AS TO RESORT TO SHOWING UNREASONABLY HIGH ER 18 PROFITS IN THEIR OWN BUSINESSES AND CLAIM HUNDRED P ERCENT DEDUCTION OF THE SAME UNDER THE PROVISIONS OF THE A CT. IN THE PRESENT CIRCUMSTANCE WE FIND THAT THE CASE IS E XACTLY THE OPPOSITE. THE LD. CIT (APPEALS) WE FIND HAS STA TED 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 EVID ENT THAT IN THE 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 T HE PRESENT CASE, SECTION 80IA(10) HAS NO APPLICABILITY AT ALL SINCE AS STATED ABOVE IT APPLIES TO CASES WHERE THE PROFITS APPEAR TO BE INFLATED ON ACCOUNT OF TRANSACTIONS EN TERED INTO WITH AN ASSOCIATE CONCERN. EVEN OTHERWISE FOR THE APPLICABILITY OF SECTION 80IA(10) IT HAS TO BE DEMO NSTRATED THAT THERE WAS AN ARRANGEMENT BETWEEN THE TWO PARTI ES WHICH RESULTED IN THE INFLATION OF PROFITS IN THE C ASE OF THE ASSESSEE. IN THE ABSENCE OF BOTH THE CONDITIONS SPE CIFIED UNDER SECTION 80IA(10) WE HOLD THAT THE SAID PROVIS ION OF 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 AS SESSEE AND THUS IT WAS ENTITLED TO CLAIM DEDUCTION OF ENTI RE PROFITS EARNED ON THE SAME U/S 80IC OF THE ACT. WE , 19 THEREFORE, DELETE THE DISALLOWANCE OF DEDUCTION OF RS.4,26,970/- ON ACCOUNT OF THE MANUFACTURING PROCE SS OUTSOURCED BY THE ASSESSEE . 30. THE APPEAL OF THE ASSESSEE, THEREFORE, STANDS ALLOWED. ITA NO.577/CHD/2016 : 31. IT IS RELEVANT TO OBSERVE HERE THAT THE FACTS AND CIRCUMSTANCES OF THIS APPEAL ARE SIMILAR TO THE FAC TS AND CIRCUMSTANCES IN ITA NO.576/CHD/2016 AND THE FINDIN GS GIVEN IN ITA NO.576/CHD/2016 SHALL APPLY TO THIS AP PEAL ALSO WITH EQUAL FORCE. 32. THE APPEAL OF THE ASSESSEE IS ALLOWED. 33. IN THE RESULT BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 16 TH FEBRUARY, 2017 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR,