2017 (11) TMI 1194 - AT - Income Tax

Eligibility for deduction u/s.80IC - whether the assessee is carrying on any manufacturing activity at Dehradun unit? - Held that - The expenses debited in the Profit & Loss A/c which are re-produced for the AY 2010-11 and 2011-12 clearly indicates that no substantial manufacturing activity was carried out by the assessee from the Dehradun unit. Out of the total expenses incurred on power ₹ 28,50,372/- the Chennai unit has accounted for a sum of ₹ 28,04,127/- and Dehradun unit is ₹ 46,245/- which clearly shows no manufacturing activity is being done at Dehradun unit. Similarly other production expenses accounted for in Dehradun unit were meager or nominal compared to Chennai unit, though the assessee is declaring huge sales from the Dehardun unit and compared to Chennai unit. Therefore we are of the considered opinion that the assessee is not carrying on any manufacturing activity in Dehradun Unit and the Hon ble ITAT s Order in the assessee s own case for the AYs 2007-08 & 2008-09 is squarely applicable. Since we do not find any difference in the facts of the case we hold that the assessee is not carrying on substantial manufacturing activity in Dehradun unit and not entitled for deduction u/s.80IC and uphold the orders of the Ld.CIT(A). - Decided against assessee.

Summary

Issues:
Whether the assessee is carrying on any manufacturing activity at Dehradun Unit eligible for deduction u/s.80IC.

Analysis:

Issue 1: Manufacturing Activity at Dehradun Unit
The primary issue in this case revolves around whether the assessee is engaged in substantial manufacturing activity at the Dehradun unit, making it eligible for deduction u/s.80IC. The Revenue disallowed the deduction for AY 2010-11 and AY 2011-12, alleging that the assessee was falsely claiming the deduction by transferring stocks from Chennai to Dehradun and inflating expenses. The AO held that the assessee was not carrying out manufacturing activity at Dehradun, leading to the disallowance of the deduction. The Ld.CIT(A) upheld this decision, citing previous rulings in the assessee's case for AYs 2007-08 & 2008-09.

Issue 2: Arguments Presented
The Ld.AR argued that the assessee did engage in manufacturing activity at both Chennai and Dehradun units, supported by separate VAT payments and distinct bookkeeping. On the contrary, the Ld.DR highlighted the expenses debited to the Profit & Loss A/c, suggesting that no substantial manufacturing occurred at Dehradun, with the majority of goods invoiced from there but produced in Chennai. The Tribunal was tasked with determining the veracity of these claims.

Issue 3: Tribunal's Findings
Upon reviewing the expenses for AY 2010-11 and 2011-12, the Tribunal observed a significant disparity between expenses and sales at the Dehradun unit, indicating minimal manufacturing activity. Notably, power consumption, maintenance costs, administrative overheads, and asset deployment were substantially lower at Dehradun compared to Chennai, despite higher sales figures in Dehradun. The Tribunal referenced its previous order, emphasizing that the assessee was exploiting the law's provisions by misrepresenting manufacturing activities. Consequently, the Tribunal concluded that the assessee was not entitled to the deduction u/s.80IC due to the lack of substantial manufacturing activity at the Dehradun unit.

Conclusion
The Tribunal dismissed the appeal, affirming that the assessee was not engaged in significant manufacturing activity at the Dehradun unit, thereby upholding the disallowance of the deduction u/s.80IC. The judgment serves as a cautionary tale against misusing statutory benefits and emphasizes the importance of genuine compliance with tax laws to prevent exploitation of fiscal incentives.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved, the arguments presented, and the Tribunal's findings, ensuring a thorough understanding of the legal intricacies and implications of the case.