2019 (11) TMI 869 - AT - Income Tax

Deduction u/s.80-IA in respect of profits derived from its new industrial undertaking of manufacturing surface coating systems - HELD THAT - Location of the manufacturing action had to be therefore primarily outside the four walls of the assessee s establishment but by that fact the sanctity of the business of manufacturing is not lost. Thus, merely because some components are bought out or the parts are got fabricated under the direct supervision and control of the assessee on the basis of own drawing and designs cannot mean that the undertaking was not set up or it constitutes reconstruction of the existing business rather the drawing and designs constitutes the heart of the manufacturing process. CIT(A) has not dealt with the manufacturing processes/details and it is also not apparent from his order as to how he has come to a conclusion that (i) the surface coating systems is nothing but providing spray painting equipments at the site of the assessee with additional accessories; (ii) it is only minor modification of the existing product; (iii) surface coating systems constitutes as a reconstruction of the existing business. On careful perusal of the CIT(Appeals) s order and the findings arrived therein, he has not dealt with specifically as to why he has not accepted the analysis of the Assessing Officer. He has not passed a speaking order nor has reasons backing his order which is not apparent from his order. These issues (i) whether the factual parameters for getting deduction u/s.80-IA are complied by the assessee or not; (ii) whether surface coating systems constitutes reconstruction of the existing business requires detailed factual analysis and verification coupled with a speaking order. We set aside the orders of the Ld. CIT(Appeals) for both the assessment years and restore them back to his file for necessary adjudication as per law after following principles of natural justice. Appeals of the assessee for the assessment years 1995-96 and 1997-98 are allowed for statistical purposes.

Summary

Issues:
Appeal against rejection of deduction u/s.80-IA of the Income Tax Act for profits from new industrial undertaking of manufacturing surface coating systems.

Analysis:
The judgment involves two appeals by a common assessee challenging the rejection of deduction u/s.80-IA for profits from a new industrial undertaking. The Tribunal had previously remanded the issue to the Assessing Officer for fresh adjudication. The Department argued that the assessee did not set up a new industrial undertaking for manufacturing surface coating systems. The Assessing Officer denied the deduction citing reasons like lack of fresh capital investment, outsourcing of manufacturing works, and failure to prove satisfaction of Section 80-IA conditions. The Tribunal directed the issue back to the Assessing Officer for proper verification.

In the first round of litigation, the Assessing Officer concluded that most manufacturing works were outsourced, leading to the denial of the deduction. The Ld. CIT(Appeals) rejected the claim based on the assessment that the assessee only made minor modifications to existing products, thus rendering them ineligible for the deduction. The Tribunal analyzed the facts and found discrepancies in the Assessing Officer and Ld. CIT(Appeals) decisions. The assessee was engaged in designing, fabricating, and assembling industrial painting systems, constituting a new industrial undertaking. The Tribunal emphasized that the manufacturing process involved various activities integral to the overall manufacturing process, even if some components were bought out or fabricated elsewhere under the assessee's supervision.

The Tribunal noted that the Ld. CIT(Appeals) did not provide detailed reasoning for rejecting the Assessing Officer's analysis or explain why the surface coating systems were considered a reconstruction of the existing business. The lack of specific reasoning and a speaking order necessitated a detailed factual analysis and verification, prompting the Tribunal to set aside the Ld. CIT(Appeals) orders for both assessment years. The cases were remanded for further adjudication, emphasizing the importance of following natural justice principles and expediting the process due to the cases' age.

In conclusion, the Tribunal allowed both appeals of the assessee for the assessment years 1995-96 and 1997-98 solely for statistical purposes, directing the Ld. CIT(A) to reexamine the cases with detailed analysis and adherence to legal principles.

Order pronounced on 15th day of November, 2019.