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TMI Blog2008 (4) TMI 342X X X X Extracts X X X X X X X X Extracts X X X X ..... er s. 80-IB of the IT Act, 1961 (in short 'the Act') at Rs. 23,44,244 to Rs. 18,39,930 on the ground that the assessee was engaged in trading activities on which the deduction under s. 80-IB was impermissible. The CIT(A) has since allowed the claim of the assessee for deduction under s. 80-IB on such income of Rs. 5,26,458, which according to the AO was on account of trading activities. Against the said decision of the CIT(A) the Revenue is in appeal before us. 3. In this connection the learned Representative for the respondent assessee quite fairly pointed out that similar dispute was before the Tribunal in the case of the assessee for the asst. yr. 2003-04 and the Tribunal vide its order ITA No. 499/Chd/2007 dt. 17th Jan., 2008 has restored the issue back to the file of the AO for passing an order afresh in accordance with law. A copy of the order of the Tribunal has also been placed on record. 4. The learned Departmental Representative appearing for the Revenue has not disputed the aforesaid factual matrix. According to him the reasons prevailing with the AO to deny the claim of deduction under s. 80-IB of the Act in this year stand on similar footing to those in the asst. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tems, like, motors, panels, inverters etc. of various capacities and the same are fitted into the machines according to the specifications approved by the customers. The assessee while raising the invoice for the sale of machinery considers such electrical items separately. The bill raised by the assessee contains a separate value for the machinery and items, like geared motors. The item of geared motors is a bought out item. The difference between the cost of purchase and the value, at which it is sold, is thus identifiable and the same has been reflected by the assessee separately in the trading account. In fact a separate trading account has been drawn for this purpose. The gross profit of such activity at Rs. 4,85,705 has been considered by the AO as profits not derived from the industrial undertaking. The case made out is that the geared motor is as such fitted into the machines and no value addition is imparted by the assessee. The profits on this element of sale are only by way of trading and not from any manufacturing activity. The moot question to be decided is as to whether the stand of the AO is justified or not. No doubt the assessee is engaged in the business of manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mponent required along with a computer but the computer by itself is a complete machine. A monitor thus cannot be said to be a component of the computer but is merely an aid to run the computer. Similarly, in the instant case the question to be addressed is whether the geared motor is an aid to run the machine or is a part of the machinery itself, without which the machinery cannot be said to be complete. The test of indispensability applied by the CIT(A), in our view, is grossly inadequate to decide the controversy in hand. Therefore we are unable to sustain the order of the CIT(A). The order of the AO is also conspicuous by its silence on this aspect. Neither are the relevant fact position regarding the functional features of the machinery available on record. Ostensibly no such enquiry has been made by the IT authorities in this regard. Therefore we deem it fit and proper to set aside the order of the CIT(A) and restore the issue to the file of the AO. Before the AO the assessee shall justify its stand that the geared motor is not merely an aid to run the machinery but is a component of the biscuit making machinery itself without which the machinery is incomplete. In case the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which it earned labour charges indeed constituted a manufacturing activity. It was submitted that the assessee was receiving raw materials from the other concerns and it manufactured a new item and supplied it back to the other concern and earned labour charges in turn. It was submitted that except for the raw material which was supplied by the other concern all other costs related to the manufacturing activity namely labour, electricity, consumable, fuel, tools etc. are borne by the assessee and are debited in the manufacturing account. That therefore merely because the articles have been manufactured for the other concern does not distract from the fact that the processes undertaken by the assessee tantamount to a manufacturing activity; thus, the income earned from such activity can be said to constitute income derived from an industrial undertaking eligible for claim of deduction under s. 80-IB of the Act. The CIT(A) has since upheld the plea of the assessee by making the following discussion: "9. I have carefully considered the contention of the learned counsel and perused the relevant record. No doubt deduction under s. 80-IB is allowable to an assessee on the profits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustrial undertaking and, therefore these charges earned by the appellant are not eligible for deduction under s. 80-IB of the IT Act, 1961. The AO, is, therefore, directed to accordingly consider this income also to be eligible for such deduction and recompute and allow the deduction under s. 80-IB of the IT Act, 1961." 8. In his submissions the learned Departmental Representative appearing for the Revenue has primarily relied on the order of the AO in support of the case of the Revenue. The learned Departmental Representative has submitted that the income by way of labour charges is earned by the assessee from providing of services to the outside parties. It is submitted that the industrial undertaking of the assessee eligible for s. 80-IB benefits is engaged in the business of manufacture of biscuit making machines whereas for earning the labour charges the assessee does not manufacture the biscuit making machines but merely carries out one or more processes on behalf of other parties on the raw materials supplied by them. Thus the AO was justified in concluding that the income by way of labour charges cannot be said to have been derived from the industrial undertaking and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng income by way of selling the machines manufactured, the industrial undertaking also undertakes job work for its sister concern, who is also engaged in the manufacture of different types of biscuit making machines. The sister concern supplies the raw material to the assessee who in turn subjects the same to one or more processes depending on the requirement of the sister concern of the component to be manufactured. The assessee utilizes its existing manufacturing process to undertake the job work for the sister concern. The income by way of job work charges earned from the sister concern have been included in the incomes eligible for s. 80-IB benefits by the assessee. The case of the AO is that the assessee is only providing services to the sister concern and does not manufacture the complete biscuit making machines but is only carrying out one or more processes involved in the manufacture of a complete machine and that too is carried out for the other concern. Therefore according to the AO such income cannot be said to have been derived from the industrial undertaking. In our considered opinion it clearly emerges from the stand of the AO as manifested in the assessment order tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on this ground the Revenue fails. 11. In the last ground the issue relates to the action of the AO in applying the provisions of s. 80-IA(9) and holding that for the purpose of computing deduction under s. 80HHC, the deduction under s. 80-IB is to be reduced from the profit of the business. The assessee, on the other hand, had claimed both deductions under ss. 80-IB and 80HHC independently. The CIT(A) has upheld the claim of the assessee by referring to the following judgments: (1) CIT vs. Chokshi Contacts (P) Ltd. (2001) 166 CTR (Raj) 383 : (2001) 251 ITR 587(Raj); (ii) J.P. Tobacco Products (P) Ltd. vs. CIT (1997) 140 CTR (MP) 329 : (1998) 229 ITR 123 (MP); (iii) Toshica Creation vs. ITO (2005) 96 TTJ (Jp) 651; (iv) Mittal Clothing Co. vs. Dy. CIT (2005) 4 SOT 626 (Bang). 12. Before us the learned Departmental Representative has relied upon the decision of the Chennai Special Bench of the Tribunal in the case of Asstt. CIT vs. Rogini Garments Ors. (2007) 111 TTJ (Chennai)(SB) 274 to contend that in the instant case the relief under s. 80-IB should be reduced from the profits of business before computing the relief eligible under s. 80HHC of the Act. According ..... X X X X Extracts X X X X X X X X Extracts X X X X
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