2020 (7) TMI 215 - AT - Income Tax

Reopening of assessment - AO recomputed deduction u/s 80IB by excluding job work from the turnover and proportionately allowing the claim of deduction - CIT(A) held the process of outsourcing / job work was an integral part of the processing and manufacture undertaken by the assessee, hence was entitled to entire claim the deduction u/s 80IB - HELD THAT - Section 80IB of the I.T.Act is with regard to deduction of profits and gains from certain industrial undertakings. In the instant case the job work / process of outsourcing is nothing but stitching of footwear and is done under the direct supervision of the assessee. It is an integral part of the whole process of manufacture of footwear undertaken by the assessee. A.O. while completing the reassessment, admits that the assessee is eligible for deduction, but granted proportionate deduction by excluding job work estimated at 25% of the gross total income. The assessee has satisfied all the conditions for claiming deduction u/s 80IB and proportionate disallowance of job work for the purpose of computing deduction u/s 80IB is unwarranted and uncalled for. Therefore CIT(A) was correct in directing the A.O. to grant deduction u/s 80IB of the I.T.Act as claimed by the assessee. Delhi Bench of the Tribunal in the case of Rajiv Bhatnagar v. DCIT 2012 (12) TMI 1104 - ITAT DELHI held that when all the conditions to qualify for deduction u/s 80IB(2) of the I.T.Act has been satisfied, necessarily, deduction u/s 80IB of the I.T.Act has to be granted in full. - Decided against revenue.

Summary

Issues:
1. Eligibility of income related to job works for deduction under section 80IB.
2. Inclusion of manufacturing activity outsourced to another party under section 80IB.

Analysis:
1. The case involved a dispute regarding the eligibility of income related to job works for deduction under section 80IB of the Income Tax Act. The Assessing Officer disallowed a portion of the deduction claimed by the assessee, stating that job work charges constituted 25% of the total manufacturing expenses and, therefore, were not eligible for the deduction. However, the CIT(A) held that the job work was an integral part of the manufacturing process and allowed the entire claim for deduction under section 80IB. The Tribunal upheld the CIT(A)'s decision, emphasizing that the job work was essential to the manufacturing process and, therefore, eligible for the deduction.

2. Another issue raised was whether the term "manufacturer" under section 80IB would include manufacturing activity outsourced to another party. The Revenue contended that the job work done by other parties should not be considered for the deduction. However, the Tribunal disagreed, stating that the job work, in this case, was an integral part of the manufacturing process carried out under the direct supervision of the assessee. The Tribunal distinguished the judgments relied upon by the Revenue, highlighting that in those cases, the control over the manufacturing process was not retained by the assessee, unlike in the present case.

3. The Tribunal also referred to a judgment by the Delhi Bench of the Tribunal, which emphasized that if all conditions for qualifying for deduction under section 80IB(2) are met, the deduction must be granted in full. Based on this reasoning and the specific circumstances of the case, the Tribunal upheld the order of the CIT(A) and dismissed the appeal filed by the Revenue, affirming that the job work was an integral part of the manufacturing process and, therefore, eligible for the deduction under section 80IB.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved, the arguments presented by both parties, and the Tribunal's decision based on the interpretation of relevant legal provisions and precedents.