2016 (7) TMI 395 - AT - Income Tax

Eligibility of deduction under section 80IC - nature of activity undertaken by assessee - manufacturing of electric bike or mere assembly of parts - whether the activity amounts to manufacture or not? - Held that - The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes manufacture takes place and liability to duty is attracted. Etymologically the word manufacture properly construed would doubtless cover the transformation. It is the transformation of a matter into something else and that something else is a question of degree, whether that something else is a different commercial commodity having its distinct character, use and name and commercially known If the activity of the assessee is being examined, then, it would reveal that the parts imported by the assessee from China had undergone a change and new product came to the light. The assessee has produced flow chart giving different stages how the product has undergone changes. This flow chart has been reproduced by the ld.CIT(A) while taking cognizance of the assessee s written submissions. As far as the objection of the AO that the very meager machinery was being used by the assessee is concerned, the case of the assessee is that it requires only tools and not big plant to assemble parts. Similar, section 80IC nowhere laid down condition for employment of specific number of employees. Therefore, that objection of the AO is only irrelevant - Decided in favour of assessee

Summary

Issues:
- Appeal against order allowing deduction under section 80IC of the Income Tax Act.

Analysis:
1. The Revenue appealed against the order of the ld.CIT(A) regarding the deduction of &8377; 44,94,463 under section 80IC for the Asstt.Year 2008-09.
2. The AO disallowed the claim as the assessee was assembling parts from China, not manufacturing electric bikes. The AO questioned the capacity to generate the claimed turnover based on installed machinery value.
3. The ld.CIT(A) allowed the claim, noting the company's registration, activities, and compliance with excise laws. The AR argued the product's distinct nature and reliance on relevant case laws.
4. The ld.CIT(A) accepted the contentions, emphasizing the registration of design, excise duty exemption, and distinct product creation. Citing case laws, the ld.CIT(A) concluded the activity constituted manufacturing.
5. The Tribunal reviewed the dispute on whether assembling parts constituted manufacturing, referencing the statutory definition of "manufacture" under section 2(29BA).
6. The Tribunal discussed the interpretation of "manufacture" and "production" based on various court decisions, including those by the Hon'ble Supreme Court and High Courts.
7. Referring to the India Cine Agency case, the Tribunal elaborated on the definition of "manufacture" and emphasized the emergence of a new distinct product with unique characteristics.
8. The Tribunal upheld the ld.CIT(A)'s decision, considering the transformation of imported parts into a new product and the absence of specific machinery or employee requirements under section 80IC.
9. The Tribunal dismissed the Revenue's appeal, affirming the allowance of the deduction under section 80IC for the assessee's manufacturing activity.

This detailed analysis outlines the key arguments, legal interpretations, and court precedents leading to the decision to allow the deduction under section 80IC for the assessee's manufacturing of electric bikes.