2017 (8) TMI 848 - AT - Income Tax

Claim of deduction u/s 80IB - denial of claim on the ground of the last year that the assessee was not manufacturing DG sets at Jammu Unit - Held that - The process flow chart of manufacturing of DG sets filed by the assessee exhaustively describes the manufacturing process which involves three stages i.e. manufacturing of canopy of DG sets, manufacturing of DG set and manufacturing of AMF panel which also includes drilling, cutting acoustic foam pasting, fixing of electrical items, drilling of mounting plate fixing of switch gear, load testing, sound testing etc. The process of manufacturing DG sets does not involve mere ascending of parts but is actually a manufacturing process resulting in the manufacture of new product from the raw materials by giving them new properties. The CIT(A) has gone through the details of plant and machinery and also the copies of bills relating to the purchase of the same filed by the assessee. The CIT(A) has also given clear finding that the Assessing Officer has picked out and highlighted only those machines which are used for lifting and shifting work and ascending on the DG set and ignored the other machines used by the assessee for various purposes deployed by the assessee in its manufacturing process. After careful consideration, the CIT(A) held that the assessee is entitled to claim deduction u/s 80 IB of the Act. There is no need to interfere with the detailed finding on record given by the CIT(A) TDS u/s 194C - addition u/s 40(a) (ia) - Held that - The provisions of Section 194C (a) does not become applicable in the instant ase because the assessee is an individual being the proprietor of M/s GSP Power Projects and M/s Cromwell Industries with the Assessment Year involved under reference is 2007-08 i.e after 1/6/2007 since for the year under consideration no liability for deduction of TDS u/s 194C (1) is attracted in the present case. The Assessing Officer s attempt in disallowing the amount u/s 40(a)(ia) is unwarranted. There is no need to interfere with the said findings. Therefore, this ground of appeal for Assessment Year 2007-08 taken by the Revenue is dismissed. Excise Duty refund - Held that - CIT(A) has rightly relied upon the Hon ble Supreme Court decision in case of Liberty India 2009 (8) TMI 63 - SUPREME COURT wherein it is held that the payment f Central Excise Duty had a direct nexus with the manufacturing activity and similarly of the refund of Central Excise Duty also had a direct nexus with the manufacturing activity. The issue of payment of Central Excise Duty would not arise in the absence of any industrial activity. There is inextricable link between the manufacturing activity, payment of Central Excise Duty and its refund. Therefore, the CIT(A) has rightly directed the Assessing Officer to allow deduction u/ s 80IB on the Excuse Duty refund received by the assessee. There is no need to interfere with the same finding.

Summary

Issues Involved:

1. Admission of new additional evidence/documents by CIT(A) in violation of Rule 46A of Income Tax Rules 1962.
2. Deduction claims under sections 80IB and 80IC of the Income Tax Act.
3. Disallowance under section 40(a)(ia) of the Income Tax Act.
4. Allocation of expenses among different units of the assessee.

Issue-wise Detailed Analysis:

1. Admission of New Additional Evidence/Documents:

The Revenue contended that the CIT(A) erred in admitting new additional evidence/documents without considering their reasonableness, genuineness, and reliability, violating Rule 46A of Income Tax Rules 1962. The CIT(A) directed the AO to examine the additional evidence under Rule 46A, but the AO failed to submit the report within the stipulated time. The CIT(A) admitted the additional evidence and verified it, concluding that the assessee was indeed manufacturing DG sets and pre-fabricated shelters. The Tribunal upheld the CIT(A)'s decision, noting that the CIT(A) acted judiciously and did not violate Rule 46A, as the CIT(A) has the power to call for information and examine evidence independently.

2. Deduction Claims under Sections 80IB and 80IC:

For A.Y. 2006-07, the AO denied the assessee’s claim of deduction under section 80IB, arguing that the assessee was not manufacturing DG sets at the Jammu unit. The CIT(A) allowed the deduction, stating that the assessee conclusively proved manufacturing activities through various evidences, including registration with statutory authorities and third-party certificates. The Tribunal upheld the CIT(A)'s decision, confirming that the assessee was engaged in manufacturing and entitled to the deduction under section 80IB.

For A.Y. 2007-08, the CIT(A) allowed the deduction under section 80IB, and the Tribunal upheld this decision. Additionally, the Tribunal agreed with the CIT(A) that no TDS liability under section 194C(1) was attracted, thus deleting the disallowance under section 40(a)(ia).

For A.Y. 2008-09, the CIT(A) allowed deductions under sections 80IB and 80IC, based on the earlier years' findings. The Tribunal upheld the CIT(A)'s decision, confirming that the business activities remained the same, involving manufacturing of DG sets and pre-fabricated shelters.

For A.Y. 2009-10, the CIT(A) allowed the deductions under sections 80IB and 80IC, and the Tribunal upheld this decision. The Tribunal also confirmed the CIT(A)'s allocation of common expenses in proportion to the turnover of various units.

3. Disallowance under Section 40(a)(ia):

For A.Y. 2007-08, the AO made an addition under section 40(a)(ia), which the CIT(A) deleted, stating that no TDS liability under section 194C(1) was attracted. The Tribunal upheld the CIT(A)'s decision, confirming that the disallowance was unwarranted.

4. Allocation of Expenses:

The AO allocated certain expenses to the exempt units, reducing their profits and the consequential claim of deductions under sections 80IB and 80IC. The CIT(A) upheld the allocation, and the Tribunal agreed, stating that the establishment expenses could not be attributed solely to the head office, as the assessee coordinated business affairs across all units.

Conclusion:

The Tribunal dismissed the Revenue's appeals and the assessee's cross-objection, upholding the CIT(A)'s decisions across all issues. The Tribunal confirmed that the CIT(A) acted judiciously, correctly admitted additional evidence, and rightly allowed the deductions under sections 80IB and 80IC, along with the appropriate allocation of expenses. The Tribunal also upheld the deletion of disallowance under section 40(a)(ia), confirming that no TDS liability was attracted in the given circumstances.