2017 (5) TMI 1307 - AT - Income Tax

Denial of deduction u/s 80IC on the income on account of AMC - Held that - Such AMC charges are directly relatable to the business carried on by the assessee of manufacturing, commissioning and erection of electronic systems, machines and equipments as per customers varying specifications and, therefore, such AMC charges are directly relatable to the business carried on by the assessee. See ACIT Vs. Spray Engineering Devices Ltd. 2012 (7) TMI 587 - ITAT CHANDIGARH

Summary

Issues Involved:
1. Denial of deduction under Section 80IC of the Income-tax Act, 1961 on the income from service charges.

Detailed Analysis:

ITA No.1563/Del/2011 (AY: 2006-07):

Facts of the Case:
The assessee, a company engaged in the production of electronic systems/machines and equipment, filed its return of income declaring nil income. During assessment, the Assessing Officer (AO) noted that the assessee received ?42,67,468/- as service charges and claimed deduction under Section 80IC. The service charges pertained to Annual Maintenance Contracts (AMC) for products after the warranty period.

Assessing Officer's Stand:
The AO questioned the entitlement of the deduction under Section 80IC, arguing that service charges were not derived from the eligible business. The AO rejected the claim for deduction on AMC charges.

Assessee's Argument:
The assessee argued that service charges were a direct result of manufacturing and subsequent sale of equipment. The services provided were an extension of the manufacturing activity, thus qualifying for the Section 80IC deduction.

CIT(A)'s Decision:
The CIT(A) upheld the AO's decision, stating that profits eligible for deduction must arise directly from manufacturing operations, not from secondary activities like servicing. The CIT(A) provided minor relief by reallocating expenses between free and paid services.

Tribunal's Analysis:
The Tribunal considered precedents, including the Chandigarh Bench decision in ACIT Vs. Spray Engineering Devices Ltd. and the Bombay High Court decision in CIT Vs. International Data Management Ltd. Both cases supported the view that AMC charges were directly related to the business and eligible for deduction under Section 80IC.

Conclusion:
The Tribunal allowed the assessee's appeal, holding that the AMC charges were directly relatable to the manufacturing business and thus qualified for the deduction under Section 80IC.

ITA No.4376/Del/2011 (AY: 2007-08):

Facts and Arguments:
The grounds and arguments in this appeal were identical to those in ITA No.1563/Del/2011.

Tribunal's Decision:
Following the reasoning in ITA No.1563/Del/2011, the Tribunal held that the assessee was entitled to the deduction under Section 80IC for AMC charges.

Conclusion:
Both appeals by the assessee were allowed, affirming the entitlement to deductions under Section 80IC for AMC charges.

Final Decision:
The Tribunal pronounced the decision in favor of the assessee, allowing both appeals and granting the deduction under Section 80IC on AMC charges.