2002 (11) TMI 248 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of deduction u/s 80-IA of the Income-tax Act, 1961.
2. Levy of interest u/s 234B and 234C.

Summary:

Issue 1: Disallowance of Deduction u/s 80-IA

The assessee, engaged in manufacturing copper rods, segment sections, wires, sheets, plates, etc., claimed a deduction u/s 80-IA amounting to Rs. 1,29,60,659. The Assessing Officer (AO) disallowed this deduction, arguing that the assessee's activities amounted to processing and finishing rather than manufacturing, primarily because significant labor charges were paid to outside parties for hot rolling, while minimal factory wages and electricity charges were incurred internally.

The CIT(A) upheld the AO's decision, noting that substantial activities were outsourced, and thus the profits could not be said to be derived solely from manufacturing. The assessee contended that the deduction had been allowed in previous and subsequent years and presented various certificates and judgments to support their claim. The assessee argued that the hot rolling was done externally due to pollution control regulations in Daman, but effective control and supervision were maintained over the job work.

The Tribunal, referencing judgments from the Bombay High Court and other relevant cases, concluded that the assessee was indeed engaged in manufacturing activities. It was held that outsourcing part of the manufacturing process did not disqualify the assessee from claiming the deduction u/s 80-IA, especially when effective supervision and control were exercised. The Tribunal reversed the CIT(A)'s order and directed the AO to allow the deduction.

Issue 2: Levy of Interest u/s 234B and 234C

The second ground of appeal concerned the levy of interest u/s 234B and 234C. The assessee's counsel acknowledged that this issue was consequential to the first. Following the relief granted on the first issue, the AO was directed to recalculate the interest, if any, under sections 234B and 234C.

Conclusion:

The appeal of the assessee was allowed, with the Tribunal directing the AO to grant the deduction u/s 80-IA and to recalculate the interest under sections 234B and 234C accordingly.