2006 (12) TMI 172 - AT - Income Tax

Summary

Issues Involved:
1. Denial of deduction u/s 80-IA of IT Act, 1961.
2. Whether the assessee is engaged in manufacturing activity.
3. Whether job work qualifies for deduction u/s 80-IA.

Summary:

Issue 1: Denial of deduction u/s 80-IA of IT Act, 1961
The solitary issue in these appeals is the denial of deduction u/s 80-IA of the IT Act, 1961, to the assessee concerning the profits of its Parwanoo Unit. The AO denied the deduction on the ground that the assessee was not engaged in any manufacturing activity that would qualify for the benefit under the said section.

Issue 2: Whether the assessee is engaged in manufacturing activity
The assessee, a partnership firm, owns a factory in Himachal Pradesh and produces automobile filter elements. The AO concluded that the processes carried out by the assessee did not amount to manufacturing as they merely involved assembling components provided by another concern, M/s Purolator India Ltd. The CIT(A) upheld the AO's decision. However, the Tribunal found that the assessee's activities resulted in a new and commercially different product, thus qualifying as manufacturing. The Tribunal referred to various judgments, including Union of India vs. Delhi Cloth & General Mills Co. Ltd. and Gramophone Company India Ltd. vs. Collector of Customs, to support its conclusion that the assessee's processes amounted to manufacturing.

Issue 3: Whether job work qualifies for deduction u/s 80-IA
The Revenue argued that since the assessee was performing job work for another concern, it did not qualify for the deduction. The Tribunal rejected this objection, stating that the assessee met the criteria for manufacturing and that the job work nature did not detract from this fact. The Tribunal referred to the Madras High Court's decision in CIT vs. Taj Fire Works Industries to support its conclusion.

Conclusion:
The Tribunal held that the assessee is engaged in manufacturing activity and is entitled to claim the benefits of s. 80-IA of the Act. The Tribunal set aside the order of the CIT(A) and directed the AO to allow the deduction to the assessee u/s 80-IA with respect to the profits derived from its industrial undertaking (Parwanoo Unit). The appeals of the assessee were allowed.