2015 (12) TMI 1186 - HC - Income Tax

Deduction under Section 80IC - fabrication of steel Held that - the fabrication of steel as undertaken by the Assessee, which involves several of the processes does fall within the definition of manufacture for the purposes of Section 80 IC of the Act Assessee furnished the requisite documents to demonstrate that it carried on the manufacturing activity at its Agartala unit. The Assessee produced during the assessment proceedings as well the appellate proceedings copies of the excise returns filed by it before the Central Excise authority at Agartala, the bills of machinery and of raw material purchased, details of freight and cartage for purchase of raw material, and details of job work paid. Documents to show that the Assessee paid ₹ 1.66 crores for the fabrication work carried out with the help of contract labour were produced. Further, the documents of registration with the VAT, CST, Service Tax, and Central Excise Authorities were furnished. The Assessee also produced details of the rent paid to the Tripura Industrial Development Corporation Ltd., the bills of construction of the factory sheds and the details of payment of electricity charged to Tripura State Electricity Corporation Ltd. The appellant has produced the bills purchase of the machinery installed at the premises, comprising drilling machines, welding machines, motors, gas cutting machines. air compressor, etc. It produced details and bills of purchase of raw material comprising nuts, bolts, rods M.S. angles, channels, HR sheets metal etc. As rightly pointed out by the Assessee there was no requirement under Section 80 IC that the Assessee had to employ 10 or more workers directly. In the circumstances there appears to have been no justification for the AO to disallow the deduction under Section 80IC of the Act for the AYs in question. - Decided in favour of assessee

Issues Involved:
1. Exemption application.
2. Condonation of delay in re-filing the appeal.
3. Eligibility for deduction under Section 80IC of the Income Tax Act, 1961.
4. Determination of manufacturing activity by the Assessee.
5. Evaluation of survey findings and their impact on the eligibility for deduction.

Issue-wise Detailed Analysis:

1. Exemption Application:

Exemption allowed subject to all just exceptions. The application is disposed of.

2. Condonation of Delay in Re-filing the Appeal:

For the reasons stated in the application, the delay in re-filing the appeal is condoned. The application is disposed of.

3. Eligibility for Deduction under Section 80IC:

The common question that is sought to be urged in three appeals concerns the correctness of the order of the ITAT, upholding the order of the Commissioner of Income Tax (Appeals) ['CIT (A)'] holding that the Assessee was eligible to the deduction under Section 80IC of the Act and deleting the disallowance ordered by the Assessing Officer (AO) for the AYs in question.

4. Determination of Manufacturing Activity by the Assessee:

The Assessee, a partnership firm, claimed deduction under Section 80IC for AY 2006-07, 2008-09, and 2010-11, asserting it was engaged in the manufacturing and fabrication of steel structures. The AO disallowed the claim, stating the Assessee's activities did not constitute manufacturing. The CIT (A) and ITAT disagreed with the AO, holding that the Assessee was engaged in manufacturing and thus eligible for the deduction.

The AO's disallowance was based on the observation that the tax auditor did not describe the finished goods and referenced Supreme Court decisions indicating that construction activities do not qualify as manufacturing. However, the CIT (A) and ITAT found that the Assessee's activities, including fabrication, shot/sand blasting, painting, and erection of steel structures, did constitute manufacturing.

In Commissioner of Income Tax v. Beehive Engineering Co. & Allied Industries (P) Ltd. (1996) 221 ITR 561 (AP), it was held that activities similar to those undertaken by the Assessee qualified as manufacturing. The present case's fabrication of steel falls within the definition of 'manufacture' for Section 80IC purposes.

5. Evaluation of Survey Findings and Their Impact on the Eligibility for Deduction:

The Revenue argued that the CIT (A) and ITAT failed to consider a survey conducted on 9th March 2010, which revealed minimal employees and machinery at the Assessee's units, questioning the feasibility of manufacturing activities. The CIT (A) noted that no work was being carried out in one unit for several years, and the last order in the other unit was completed in July 2009. The Assessee explained that the manufacturing and fabrication work was done with contract labor, providing documents to support this.

The ITAT agreed with the CIT (A)'s findings, which included extensive discussion of the survey report. The Assessee furnished documents demonstrating its manufacturing activities, including excise returns, bills of machinery and raw material, freight and cartage details, job work payments, and registrations with various authorities. There was no requirement under Section 80IC for the Assessee to employ a specific number of workers directly.

The court found no justification for the AO to disallow the deduction under Section 80IC for the AYs in question, as the Assessee provided sufficient evidence of its manufacturing activities.

Conclusion:

No substantial question of law arises for determination. The appeals are dismissed with no order as to costs.

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