2013 (9) TMI 160 - AT - Income Tax

Precendentiary value of previous year decision - Deduction u/s 80IB - Held that - Unless and until there is a specific finding in relation to the satisfaction of all the conditions of section 80-IB(1), i.e., under which the deduction is being claimed, with no new fact coming to the surface for the current year, it cannot be held that the Revenue is bound by its decision for the earlier year/s; res judicata being not applicable to the proceedings under the Act - Decided in favour of Revenue. Deduction u/s 80IB - Whether assessee is manufacturer u/s 80IB - Held that - manufacture is the end result of one or more process through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps different kinds of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but indeed is recognized as a new distinct article that a manufacture can be said to take place - a number of processes have been undertaken, as explained by the assessee . Procurment of goods on a contract basis from the contractors - Held that - If the contractors were only labour contractors, the bills raised by them would only state the number of persons supplied on a per month or per day (i.e., per unit of time) basis. On the other hand, the bills make it clear that the charges raised are in respect of the specific work performed, and it is only on the basis of the completed work that the terms of the contract get fulfilled and the contractor entitled to his charges. The same is only, therefore, a work contract - work in also carried out at the customer s site, which may be of commissioning, and charges in respect of which are on time basis. The details in respect of labour charges stand provided by the assessee - production being carried out in the assessee s factory premises, as per the specifications provided by the assessee, and under its supervision, it would matter little whether the labour engaged for the production work is paid for on time basis or on per unit production basis, as in the instant case. Low power consumption - Held that - as evident, the processes involved are cutting, drilling, welding, wiring and assembling. The same clearly entail power consumption. Further, as apparent, the machines employed for the purpose require low power, which explains the low power consumption, which stands in fact also partly explained in terms of the low power tariff. Low quantum of plant and machinery - Held that - Mere low investment in machinery, which is only on account of the various processes carried out being elementary, requiring low power, besides being labour intensive, would be to no effect. In fact, the assessee in this regard has also clarified that per mistake one air compressor machine purchased during the year from M/s. Bimpex Machines Pvt. Ltd. for Rs.56,060/- had been inadvertently debited to the purchase account, so that the necessary adjustment may be made, i.e., increasing its profit to that extent, while allowing depreciation @ 25% on the said machinery. No such adjustment has been directed by the ld. CIT(A), which he ought to have in view to the assessee conceding to the said error in its accounts for the year - Decided against Revenue.

Issues Involved:
1. Maintainability of the assessee's claim under Section 80-IB(1) read with Section 80-IB(4) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Maintainability of the Assessee's Claim under Section 80-IB(1) read with Section 80-IB(4):
The primary issue in this appeal is the maintainability of the assessee's claim under Section 80-IB(1) read with Section 80-IB(4) of the Income Tax Act, 1961. The assessee, a manufacturer of electrical power distribution and control equipment, claimed a deduction of 100% of its profit for its unit located in Daman, a backward area specified in the Eighth Schedule of the Act. The Assessing Officer (A.O.) contested this claim, arguing that the assessee was only engaged in assembling jobs rather than manufacturing, as evidenced by the low value of plant and machinery and the minimal electricity expenditure. The A.O. also pointed out that the assessee did not meet the requirement of employing at least twenty workers, as it had only fourteen workers.

2. Examination by the Commissioner of Income Tax (Appeals):
Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] examined the matter in detail. The CIT(A) found that the assessee operated under a factory license issued by the Daman Government, which confirmed that the assessee was engaged in manufacturing electrical power and distribution control units, which are excisable. The unit was also registered with the Central Excise Department, and a power connection of 40 HP had been sanctioned. The CIT(A) reviewed the process flow chart and found that the manufacturing process involved several stages, including assembly, wiring, and testing, which culminated in the production of electrical control panels.

3. Countering the A.O.'s Objections:
The CIT(A) addressed each of the A.O.'s objections. The argument that the assessee was merely assembling components without manufacturing was countered by demonstrating that the process involved significant labor and minor modifications, which qualified as manufacturing. The CIT(A) also dismissed the A.O.'s claim that the low value of plant and machinery disqualified the assessee from claiming the deduction, noting that the law does not stipulate a minimum investment in plant and machinery for the deduction. Additionally, the CIT(A) found that the assessee employed more than ten workers, meeting the threshold for units operating with the aid of power.

4. Tribunal's Analysis:
The Tribunal reviewed the findings and upheld the CIT(A)'s decision. It noted that the processes undertaken by the assessee led to the production of a new and distinct product, the electrical control panels, which qualified as manufacturing. The Tribunal emphasized that the nature of the processes and the transformation of raw materials into a new product met the criteria for manufacturing as defined by law. The Tribunal also dismissed the A.O.'s objections regarding the low power consumption and the procurement of goods from contractors, finding that the work was carried out at the assessee's factory under its supervision.

5. Conclusion:
The Tribunal concluded that the processes undertaken by the assessee amounted to the production of electrical power distribution and control equipment at its unit in Daman, a backward area specified in the Eight Schedule of the Act. Therefore, the profits derived from this industrial unit were eligible for deduction under Section 80-IB(1) read with Section 80-IB(4) of the Act. The Tribunal found that the objections raised by the Revenue were not valid and upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

Result:
The Revenue's appeal was dismissed, and the assessee's claim for deduction under Section 80-IB(1) read with Section 80-IB(4) was upheld. The order was pronounced in the open court on 21/06/2013.

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