2013 (9) TMI 197 - AT - Income Tax

Exemption u/s 10B of the Income Tax Act - manufacturing of special purpose plants - whether assembly activity is manufacturing activity - export in dissembled forum for the purpose of transporation - Assessee company was located in 100% EOU situated in Noida Export Processing Unit, Noida, U.P. This zone was custom bounded area - There is no indirect cost - The expenditure on the electricity for the year was nominal Held that - Equipment were purchased by assessee as per its technical specifications and drawings and after inspection they was assembled together to make a Down Shop Lead for the Electrically Operated Travelling Crane (EOT). After testing for current carrying capacity and other factors they were disassembled and properly packed. Facts show that the plants are supplied in the form of sub-assemblies and components manufactured or after getting manufactured as per the prescribed specifications. These sub-assemblies and components were manufactured outside transported to the NSEZ, Noida and thereafter, certain operations are carried out and disassembling was done prior to export the subassemblies and components to the ultimate destination. This process is also required for containerization and packing of these items on account of size which is necessary for transportation and installation. Reliance has been placed upon the judgment in the case of CIT vs. Jackson Engineers Ltd 2009 (12) TMI 649 - Delhi High Court , wherein it was held that activity of assembling gensets from various components amount to manufacture or production Apart from it, reliance has been placed upon various other case laws s.a. CIT vs. I. Tech Electronics 2012 (4) TMI 223 - Gauhati High Court ; CIT vs. Chiranjjeevi Wind Energy Ltd 2011 (1) TMI 421 - MADRAS HIGH COURT , wherein it was held that assembling amounting to manufacture In the present case, relying upon the judgments in above cases, it was held that assessee was engaged in the manufacturing of assembling the plants which were disassembled for exports Relief granted u/s 10B of the Income tax act Decided against the Revenue.

Issues Involved:
1. Deletion of addition made on account of disallowance of exemption claimed under section 10B of the Income Tax Act, 1961.
2. Rejection of admission of additional evidences filed by the assessee under Rule 46A of Income Tax Rules.
3. Disallowance of expenditure on proportionate basis under section 14A read with Rule 8D of the Income Tax Rules.
4. Not deleting the addition made on account of short-term capital gain.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made on Account of Disallowance of Exemption Claimed Under Section 10B:
The primary issue in the revenue's appeal was the deletion of the addition made by the Assessing Officer (AO) on account of the disallowance of exemption claimed under section 10B of the Income Tax Act, 1961. The AO contended that no manufacturing activity was carried out by the assessee at the NSEZ Unit, as evidenced by the nominal expenditure on electricity and the lack of business promotion expenses. The AO argued that the assessee did not deserve the deduction under section 10B.

The assessee, a private limited company engaged in the business of manufacturing engineering items and equipment, argued that it was a 100% Export Oriented Unit (EOU) located in the Noida Export Processing Zone (NSEZ). The assessee had been claiming the deduction under section 10B for several years, supported by audited reports and various documents demonstrating the manufacturing process. The assessee contended that the manufacturing activities included assembling and disassembling components, which constituted manufacturing under section 10B.

The Tribunal, after considering the facts and the legal precedents cited by the assessee, held that the assessee was indeed engaged in manufacturing activities at the NSEZ Unit. The Tribunal relied on the principle of consistency, noting that the deduction under section 10B had been allowed in earlier years. The Tribunal also referred to various judicial precedents supporting the assessee's claim that assembling and disassembling components amounted to manufacturing. Consequently, the Tribunal upheld the order of the CIT(A) granting relief to the assessee and dismissed the revenue's appeal.

2. Rejection of Admission of Additional Evidences Filed by the Assessee Under Rule 46A:
In the cross objection filed by the assessee, one of the issues was the rejection of the admission of additional evidences under Rule 46A of the Income Tax Rules. The Tribunal noted that this issue was not pressed by the assessee during the hearing. Therefore, the Tribunal dismissed this ground of the cross objection.

3. Disallowance of Expenditure on Proportionate Basis Under Section 14A Read with Rule 8D:
The issue in Cross Objection No.193/Del/2012 was the confirmation of the disallowance of expenditure amounting to Rs.3,14,240/- on a proportionate basis under section 14A read with Rule 8D of the Income Tax Rules. The Tribunal referred to the decision of the Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. vs. CIT. Based on this precedent, the Tribunal set aside the issue to the file of the Assessing Officer for a fresh decision. Thus, the cross objection was allowed for statistical purposes.

4. Not Deleting the Addition Made on Account of Short-Term Capital Gain:
Another issue in the cross objection was the non-deletion of the addition of Rs.46,643/- made on account of short-term capital gain. Similar to the issue of additional evidences, this ground was also not pressed by the assessee during the hearing. Consequently, the Tribunal dismissed this ground of the cross objection.

Conclusion:
In conclusion, the Tribunal dismissed both appeals filed by the revenue, upholding the CIT(A)'s decision to grant the exemption under section 10B to the assessee. The cross objections filed by the assessee were partly allowed for statistical purposes, with the issue of disallowance under section 14A being remanded to the Assessing Officer for a fresh decision. The other grounds in the cross objections were dismissed as they were not pressed during the hearing. The order was pronounced in open court on April 18, 2013.

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