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2015 (7) TMI 872 - AT - Income TaxDisallowing the claim u/s. 80IC - Not treating the activity at Kala Amb as a manufacturing activity by revenue - definition of manufacture u/s. 2(29BA) - whether a mosquito repellant is distinct from the parts constituting it such as mould, plug, wire, porcelain, led etc. and therefore is manufacture? - Held that - Revenue Authorities has given a sufficient opportunity to the assessee for filing the Satisfaction Note for filing the eligibility condition for claiming deduction u/s. 80IC of the I.T. Act, with the proof of documentary evidence. The assessee failed to produce the sufficient evidence before the revenue authorities. Revenue Authorities has considered the reply dated 12.12.2007 and has rightly held that it is apparent that dies and moulds which form bulk portion of the plant and machinery are being used at Delhi because there is no tool room facility at Kala Amb. Dies and moulds are very heavy so their movement is restricted. If this is true, then machincery wort of ₹ 10,400/- odd is being used at Kala Amb (HP). So it can be visualized what portion of the complete manufacturing process is being carried out at Kala Amb. We fully agree with the findings given by the revenue authorities. Secondly, the assessee has also not produced the electricity bill issued by the concerned electricity department. After examining the details of electricity bill, we find that as much as ₹ 35,124/- were incurred for electricity in Delhi whereas as paltry sum of ₹ 3135/- has been incurred on electricity at Kala Amb. For this also assessee has not produced any electricity bills received from the electricity department. In our considered view that no manufacturing activity is being carried out at Kala Amb. If there is any activity i.e. neglible activity was carried out. Therefore, the Revenue Authorities has rightly denied the deduction u/s. 80IC of the I.T. Act to the assessee. Assessee has not filed any documentary evidence for substantial its claim before the Assessing Officer, Ld. CIT(A) as well as before us establishing that assessee is in manufacturing of Mosquito Repellant machines etc. The entire machine was not made at Kala Amb. Only assembling of machine was done at Kala Amb (HP). The assessee has also not furnished any purchase bills of machinery to show that it was a new purchase. The assessee was in the business of manufacturing of Mosquito Repellant machine from the year 1998, that means the business of manufacturing and export of Mosquito Repellant was already in existence. A unit was set up at Kala Amb where the same activity or rather part of the activity was done. The entire machine was not made in Kala Amb. Only the assembly of the machine was done at Kala Amb. The same business was continued but only a part was shifted to Kala Amb. Therefore, it is a reconstruction of the existing business and assessee has failed to establish its claim before the revenue authorities. The company at Delhi is doing major part of the work and the unit at Kala Amb gets the article in the same condition in which it is to be sold. The cabinet or the main part of the machine is made at Delhi. The plug is made in the moulding machines and the pins in the plug are procured. The resistance wire and LED are procured from Delhi and the machinery is assembled at Kala Amb (H.P.). The main machines for making this item are moulds which are used to give shape to the plugs and heaters. Therefore conditions uls 80IC 4(i)& (ii) are not satisfied. - Decided against assessee.
Issues Involved:
1. Disallowance of the claim under Section 80IC of the Income Tax Act of Rs. 12,97,007/-. 2. Determination of whether the activity at Kala Amb qualifies as a manufacturing activity. 3. Assessment of whether the business at Kala Amb was formed by splitting up or reconstructing an existing business. 4. Evaluation of whether a mosquito repellent is distinct from its parts and qualifies as manufacturing. 5. Consideration of the definition of manufacture under Section 2(29BA) of the Income Tax Act, 1961. Detailed Analysis: 1. Disallowance of the Claim under Section 80IC: The assessee filed a return declaring income of Rs. 2,22,215/-, claiming a deduction under Section 80IC of the Income Tax Act. The Assessing Officer (AO) noted that the major production activities were carried out outside the Kala Amb factory. The AO confronted the assessee regarding the satisfaction of conditions under Section 80IC(2)(b) and 80IC(4)(i) and (ii) of the Act. The AO found that the assessee's investment in plant and machinery at Kala Amb was minimal, and most manufacturing activities were conducted in Delhi. The AO disallowed the deduction, concluding that the substantial expansion claimed by the assessee was stage-managed to avail the benefit of Section 80IC. 2. Determination of Manufacturing Activity at Kala Amb: The AO observed that the major part of the manufacturing process was conducted outside Kala Amb. The assessee's plant and machinery at Kala Amb were minimal, with most equipment being used in Delhi. The electricity bills further supported the AO's conclusion, showing higher electricity consumption in Delhi compared to Kala Amb. The AO concluded that negligible manufacturing activity was carried out at Kala Amb, and the substantial expansion claim was not genuine. 3. Formation of Business by Splitting or Reconstruction: The AO noted that the assessee's business was already in existence since 1998, involved in manufacturing mosquito repellent machines. The AO concluded that the unit at Kala Amb was formed by the substantial expansion of an existing business, not a new undertaking, thus failing to satisfy the conditions under Section 80IC(4)(i). 4. Distinction of Mosquito Repellent from Its Parts: The assessee argued that the mosquito repellent machine was distinct from its parts and qualified as manufacturing. However, the AO and CIT(A) concluded that the major parts were manufactured outside Kala Amb, and only assembly was done at Kala Amb. The AO determined that the entire machine was not manufactured at Kala Amb, thus not qualifying for the deduction under Section 80IC. 5. Definition of Manufacture under Section 2(29BA): The assessee contended that the manufacturing process at Kala Amb met the definition of 'manufacture' under Section 2(29BA) of the Income Tax Act. However, the AO and CIT(A) found that the substantial manufacturing activities were conducted outside Kala Amb, and the investment in plant and machinery at Kala Amb was insufficient to qualify as substantial expansion. The AO concluded that the assessee's claim did not meet the criteria for deduction under Section 80IC. Conclusion: The ITAT upheld the findings of the AO and CIT(A), concluding that the assessee failed to substantiate the claim of substantial expansion and manufacturing activity at Kala Amb. The appeal was dismissed, and the disallowance of the deduction under Section 80IC was upheld. The ITAT emphasized that deductions and exemptions are meant to encourage industrial activity in backward areas, and hollow claims defeat the purpose of such provisions.
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