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Issues Involved:
1. Restriction on deduction under section 80-IA of the Income-tax Act. 2. Chargeability of interest under sections 234B and 234C of the Income-tax Act. Detailed Analysis: 1. Restriction on Deduction under Section 80-IA: Background: The assessee-company, engaged in manufacturing cooling towers, claimed deductions under section 80-IA for assessment years 1996-97 to 1998-99. The Assessing Officer (AO) restricted these deductions, which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. Key Points: - Manufactured Items for Round Bottle Cooling Towers: The AO and CIT(A) denied deductions for components manufactured for round bottle cooling towers, stating that the old machinery from Odhav unit, transferred to Chhatral unit, did not constitute a new unit eligible for deductions under section 80-IA. - Judgment: The Tribunal upheld this view, confirming that the manufacturing of round bottle cooling towers was independent and not part of the new integrated unit for XE and CM series cooling towers. The assessee was not entitled to deductions for these components. - Bought-Out Components: The AO and CIT(A) also denied deductions on profits from bought-out components, arguing they were not integrated into the cooling towers at the factory and thus not part of the manufacturing process. - Judgment: The Tribunal disagreed, stating that the end product (cooling tower) included both manufactured and bought-out components, assembled at the client's site. The Tribunal cited various precedents to support that the entire process, including bought-out components, fell within the definition of manufacturing. The assessee was entitled to deductions on profits from these components for XE and CM series cooling towers. - Installation, Forwarding, and Service Charges: The AO and CIT(A) denied deductions on these charges, considering them unrelated to manufacturing activities. - Judgment: The Tribunal found these charges directly linked to the manufacturing and installation process of cooling towers. Thus, they should be included in the profits derived from manufacturing operations, allowing the assessee deductions on net receipts from these charges. 2. Chargeability of Interest under Sections 234B and 234C: Background: The assessee contested the chargeability of interest under sections 234B and 234C, which was dismissed by the CIT(A) as non-appealable. Key Points: - Judgment: The Tribunal upheld the CIT(A)'s decision, referencing the Special Bench decision in Lalsons Enterprises v. Dy. CIT, which held that charging interest under these sections is consequential. Conclusion: The appeals were partly allowed. The Tribunal directed the AO to allow deductions under section 80-IA for XE and CM series cooling towers, including profits from bought-out components and net receipts from installation, forwarding, and service charges. The denial of deductions for round bottle cooling towers and the chargeability of interest under sections 234B and 234C were upheld.
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