Asst. Commissioner of Income tax, Circle-1, Margao V. M/s Macbrout Engineering Pvt. Ltd., Goa

ITA 77/PAN/2013

• Counselvise Citation: 7724114 RSA 2013
• Duration Of Justice: 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 18-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NISHANT K
• Section: 143(3); 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI P.K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER ITA NO. 77/PNJ/2013 : (ASST. YEAR : 2006 - 07 ) ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 1, MARGAO (APPELLANT) VS. M/S. MACBROUT ENGINEERING PVT. LTD. D - 2/5, MARGAO INDUSTRIAL ESTATE, SAN JOSE DE AREAL, SALCETE - GOA PAN : AABCP1043L (RESPONDENT) APPELLANT BY : NISHANT K., DR RESPONDENT BY : TATA KRISHNA, CA DATE OF HEARING : 22/08/2013 DATE OF PRONOUNCEMENT : 13 /0 9 /2013 O R D E R PER D.T. GARASIA : 1. THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) DT. 4.3.2013 FOR A.Y. 2006 - 07 BY TAKING THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL : 1. THE ORDER OF LD. CIT(A) IS OPPOSED TO LAW AND FACT OF THE CASE. 2. THE LD. CIT(A) PANAJI, HAS ERRED IN DELETING THE ADDITION U/S 80IB OF THE I.T. ACT MADE BY AO AMOUNTING TO RS. 46,20,216/ - . 3. THE ASSESS EE BUSINESS ACTIVITY IS NOT AT ALL FALLING UNDER MANUFACTURING ACTIVITIES WITHIN THE AMBIT OF SECTION 80IB OF THE I.T. ACT. THEREFORE, THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S 80IB OF THE I.T. ACT. 2. SINCE ALL THE GROUNDS ARE INTERCONNECTED, THERE FORE, DISPOSED OFF BY THIS COMMON ORDER. 3. SHORT FACTS OF THE CASE ARE AS UNDER : 2 ITA NO. 77/PNJ/2013 (ASST. YEAR : 2006 - 07) 3.1 IN THE ORDER PASSED U/S 143(3) R.W.S. 263, THE A.O. DISALLOWED ENTIRE CLAIM OF DEDUCTION U/S 80IB(4) WITH THE FOLLOWING REMARKS: 'THE ASSESSEE COMPANY HAS CLAIMED DEDUCTION U/S 80IB OF RS. 46,20,216/ - . THE TOTAL TURNOVER OF THE ASSESSEE CONSISTS OF THE FOLLOWING: - SI. NO. PARTICULARS AMOUNT 1. SALES 11,05,984/ - 2. MACHINING CHARGES 1,22,66,2227 - TOTAL 1,33,72,2267 - ON EXAMINATION OF THE RELEVANT FACTS IN CONNECTION WITH DEDUCTION U/S 80IB IT IS FOUND THAT THE ASSESSEE IS USED TO GET MACHINING CHARGES FOR THE MACHINING OF SPACERS (INSULATORS) AND TURBO MACHINERY COMPONENTS AND CLAIMING DEDUCTIONS U/S 80IB ON MACHINING CHARGES, WHICH DOES NOT FIT WITHIN THE AMBIT OF 80IB DEDUCTIONS DUE TO THE FOLLOWING REASONS: A) MACHINERY CHARGE IS A LABOUR CHARGE WHICH IS NOT AN INCOME DERIVED FROM SALE OF MANUFACTURED PRODUCT. B) AS PER THE REGISTRATION CERTIFICATE ISSUED BY DIRECTORATE OF INDUSTRIES AND MINES, PANAJI, SI. NO. 10 I.E. NATURE OF ACTIVITY - MANUFACTURING/ASSEMBLING, (01), PROCESSING (02), JOB WORK (04, REPAIRING/ SERVICING (08), ACTUAL CODE ALLOTTED (05) WHICH IS NOT AT ALL FALLING UNDER MANUFACTURING ACTIVITIES. C) AS PER SR. NO. 28(B) OF THE 3CD REPORT, THE COMPANY IS USING RAW MATERIALS SUCH AS TITANIUM BLANKS, S.S. BLANKS AND THE FINISHED PRODUCTS OF THE COMPANY ARE 'NOZZLE RINGS'. THE CONSUMPTION OF RAW MATERIALS IS FOUND TO BE MEAGER IN COMPARISON TO THE TOTAL TURNOVER, WHICH IMPLIES THAT THE ASSESSEE DOES NOT PROCURE ITS OWN RAW MATERIAL AND PERFORM JOB WORK FOR OTHERS. IN VIEW OF THE ABOVE, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE'S OBJECTION IF ANY WAS CALLED FOR TO DISALLOW THE DEDUCTION CLAIMED U/S 80IB OF THE I . T. ACT VIDE THIS OFFICE LETTER DATED 07.07 .2011. IN REPLY TO THIS LETTER, THE ASSESSEE FILED ITS OBJECTION IN ITS LETTER DATED 26.07.2011 AND SUBMITTED THAT THE DEDUCTION U/S 80IB WAS ALLOWED 'IN EARLIER A.Y. BY THE DEPARTMENT IN ITS CASE. IT IS ALSO SUBMITTED THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURE OF TURBO MACHINERY PARTS, COMPONENTS VIZ. COMPRESSOR WHEELS, COMPRESSOR BLADES, SPACERS ETC. THE RAW MATERIALS /, C - / * * - 3 ITA NO. 77/PNJ/2013 (ASST. YEAR : 2006 - 07) REQUIRED FOR THE SAID PARTS/ COMPONENTS ARE PROCURED BY THE COMPANY AND SOMETIMES IT IS BEING SUPPLIED BY THE CUSTOMERS AND THE EN D PRODUCT IS COMMERCIALLY DIFFERENT FROM THE MATERIALS OUT OF WHICH IT IS PRODUCED. THE ASSESSEE HAS ALSO QUOTED VARIOUS COURT FINDINGS WHICH IS FAVO URABLE TO IT IN THIS CONNECTION. THE EXPLANATION SUBMITTED BY THE ASSESSEE HAS BEEN CAREFULLY PERUSED. IT IS ASSESSEE'S SUBMISSION THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING ACTIVITY. HOWEVER, IT IS SEEN FROM THE REVENUE RECEIPTS DECLARED IN THE P&L ACCOUNT THAT ITS MAJOR RECEIPTS ARE OUT OF 'MACHINING CHARGES'. THES E MACHINING CHARGES ARE IN THE NATURE OF LABOUR CHARGES. AS PER THE ASSESSEE ALSO, IT IS GETTING THE RAW MATERIAL DIRECTLY FROM THE CUSTOMERS. THAT MEANS TO SAY THAT THE ASSESSEE IS DOING THE 'JOB WORK' OF ITS CUSTOMERS. THIS FACT IS EVIDENT FROM THE REVENUE RECEIPT DECLARED BY THE ASSESSEE IN ITS P&L ACCOUNT WHICH IS ALMOST 92% (MACHINING CHARGES OF RS. 1,22,66,222/ - ) OF TOTAL RECEIPTS. THESE RECEIPTS ARE NOTHING BUT LABOUR CHARGES RECEIVED FROM THE CUSTOMERS. IN THIS CONNECTION, THE ASSESSEE'S SUBMIS SION FROM THE LETTER DATED 26.07.2011 QUOTED HEREUNDER: ' SOMETIMES RAW MATERIALS SUCH TITANIUM BLANKS, FIBRE SPACER BLANKS, ALUMINUM BLANKS/RODS, STEEL BLANKS/RODS ETC. ARE SUPPLIED BY THE CUSTOMERS AND THE PARTS/ COMPONENTS AS PER THE SPECIFICATION OF THE CUSTOMERS ARE MANUFACTURED AND SUPPLIED.' IN VIEW OF THE ABOVE, IT IS CLEAR THAT THE ASSESSEE IS NOT IN THE BUSINESS OF MANUFACTURING ACTIVITY AND IT IS IN THE BUSINESS OF ASSEMBLING, PROCESSING, JOB WORK, REPAIRING, SERVICING ETC. THIS FACT IS FURTHER EVIDENT FROM THE REGISTRATION CERTIFICATE ISSUED BY DIRECTORATE OF INDUSTRIES AND MINES, PANAJI. THEREFORE, IT IS CONCLUDED THAT THE ASSESSEE BUSINESS ACTIVITY IS NOT AT ALL FALLING UNDER MANUFACTURING ACTIVITIES WITHIN THE AMBIT OF SEC. 80IB OF THE I.T. ACT. THEREFORE, THE ASSESSEE IS NOT ENTITLED FOR DEDUCTIONS U/S 80IB OF THE I.T.ACT. IN VIEW OF THE ABOVE DISCUSSIONS, THE DEDUCTION CLAIMED U/S 80IB OF RS.46,20,216/ - IS FULLY DISALLOWED AND ADDED TO THE RETURNED INCOME. 3.2 MATTER CARRIED TO CIT(A) AND CIT(A) HAS ALLOWED THE CLAIM BY OBSERVING AS UNDER : 7. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND HAVE PERUSED THE SUBMISSION OF THE APPELLANT. THE MAIN ISSUE IN QUESTION IS WHETHER THE 4 ITA NO. 77/PNJ/2013 (ASST. YEAR : 2006 - 07) ACTIVITIES CARRIED ON BY THE ASSESSEE IS TO BE REGARDED AS MANUFACTURING OR LABOUR CHARGES. IN THE ASSESSMENT ORDER, THE A. O. HAS TREATED THE ACTIVITIES OF THE APPELLANT COMPANY AS BEING ENGAGED IN ASSEMBLING, PROCESSING, JOB WORK, REPAIRING AND SERVICING ETC. THE MAIN REASON, WHY THE A.O. HAS NOT TREATED THE ACTIVITY OF THE ASSESSEE AS MANUFACTURING IS; THAT THE ASSESSEE IS S UPPLIED THE RAW MATERIAL FROM THE PRINCIPAL AND AFTER CARRYING OUT MACHINING, THE APPELLANT RETURNS THE FINISHED PRODUCT TO THE SAME PRINCIPAL. ON THE BASIS OF THIS FACT, THE A.O. REACHED A CONCLUSION THAT SINCE NO SALE/ PURCHASE IS DONE BY THE APPELLANT, HIS RECEIPTS CAN QUALIFY AS 'LABOUR CHARGES' ONLY AND HIS ACTIVITY CANNOT BE TREATED AS MANUFACTURING. ON THE BASIS OF HIS FINDING, THE A.O. DISALLOWED THE ENTIRE CLAIM OF DEDUCTION U/S 80IB, TO THE EXTENT THAT NO DEDUCTION WAS ALLOWED EVEN ON THE 'OWN SAL E RECEIPTS' OF THE ASSESSEE COMPANY. 3.3 WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING OF MACHINE COMPONENTS VIS - - VIS SPARES, COMPRESSOR PARTS, NOZZLE RINGS AND OTHER TURBO MACHINERY PARTS. THE ASSESSEE IS LOCATED IN INDUSTRIALLY BACKWARD AREA AS NOTIFIED IN 8 TH SCHEDULE OF THE ACT AND CLAIMED DEDUCTION U/S 80I B(4) OF THE ACT FOR A.Y. 2006 - 07 AND THIS IS THE THIRD YEAR OF THE CLAIM. THE CLAIM OF THE ASSESSEE FOR A.Y S 2004 - 05 AND 2005 - 06 HAVE BEEN ALLOWED. DURING THE COURSE OF HEARING THE LD. A R WAS ASKED WHETHER IN A.Y. 2004 - 05 THE DEPARTMENT HAD OBJECTED OR R E - OPENED THE ASSESSMENT ORDER. THE LD. AR SUBMITTED THAT IT WAS ACCEPTED FOR A.Y. 2004 - 05. WE FIND THAT THE DEDUCTION U/S 80IB(4) WAS ALLOWED IN THE EARLIER YEARS BY THE DEPARTMENT IN ASSESSEES CASE. THEREFORE, WHEN IT IS ALLOWED IN THE INITIAL ASSESSM ENT ORDER, THERE IS NO REASON FOR DISALLOWING THE CLAIM IN THE YEAR UNDER CONSIDERATION. WE FIND THAT THE AO HAS CONFIRMED THAT THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE QUALIFIES TO BE REGARDED AS MANUFACTURE AND ALLOWED THE CLAIM OF THE ASSESSEE FOR A.Y . 2004 - 05. THE PRINCIPLES OF CONSISTENCY WOULD APPLY AND HENCE IT IS NOT OPEN FOR THE DEPARTMENT TO 5 ITA NO. 77/PNJ/2013 (ASST. YEAR : 2006 - 07) QUESTION THE VALIDITY OF THE ALLOWABILITY OF THE CLAIM OF DEDUCTION U/S 80IB(4) FOR THE IMPUGNED ASSESSMENT YEAR BY HOLDING THAT THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE CANNOT BE REGARDED AS MANUFACTURE MORE PARTICULARLY WHEN THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE ASSESSEE. THIS VIEW IS SUPPORTED BY THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHI T, 336 ITR 287. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDICTION HIGH COURT, WE DISMISS THE DEPARTMENTS APPEAL. 4. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED. 5. ORDER PRONOUNCED IN THE OPEN COURT ON 13 /0 9 /2013. SD/ - (P.K. BANSAL) ACCOUNTANT MEMBER SD/ - (D.T.GARASIA) JUDICIAL MEMBER PLACE : PANAJI / GOA DATED : 13 /0 9 / 2013 *SSL* COPY TO : (1) APPELLANT (2) RESPONDENT (3) CIT, PANAJI (4) CIT(A), PANAJI (5) D.R (6) GUARD FILE TRUE COPY, BY ORDER , SR. P RIVATE S ECRETARY ITAT, PANAJI, GOA