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TMI Blog2007 (2) TMI 351X X X X Extracts X X X X X X X X Extracts X X X X ..... "1. The CIT(A) erred in upholding the action of the Assessing Officer of restricting the deduction to which the appellant was entitled under section 80-IA of the I.T. Act to the sum of Rs. 6,76,642 - as against the sum of Rs. 47,66,512 - claimed by the Appellant. 2. The CIT(A) s order of confirming the action of the Assessing Officer of restricting the appellant s claim for a deduction under section 80-IA of the Act to a sum of Rs. 6,76,642 is vitiated inter alia by : ( i )A failure to consider the material and evidence on record. ( ii )Its being based on conjectures and surmises. ( iii )Its being contrary to the material and the evidence on record. ( iv )The CIT(A) s wrongly attributing non-existent motives to the appellant. 3. The CIT(A) ought to have held that no interest was chargeable on the appellant under section 234B or section 234C of the Act and ought to have cancelled the same. 4. The CIT(A) erred in holding that the issue of chargeability of interest under sections 234B and 234C of the Act was not appealable and erred in not admitting the appellant s Grounds of Appeal challenging the legality of the levy of such interest. 5. The CIT(A) ought to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee had one unit at Odhav for manufacturing of certain components required for round bottle cooling towers . The said unit was closed down during 1992 and the plant and machinery including the moulds of the said unit were shifted to the new unit at Chhatral. The assessee-company in order to revamp its business activities entered into collabora- tion agreement with Netherlands Company and obtained tech- nical know-how for making "cross flow" and "counter flow" cool- ing towers and thereby investing an amount of Rs. 19.32 lakhs in technical know-how. In order to set up the new manufactur- ing unit at Chhatral the assessee-company acquired lease hold land for Rs. 6.39 lakhs and constructed factory building worth Rs. 46.79 lakhs and made an addition of Rs. 47.67 lakhs in the plant and machinery and Rs. 19.32 lakhs for aquiring the technical know-how during the financial year 1991-92. The assessee-company started the business of supplying round bottle, cross flow and counter flow cooling towers. The plant and machinery and moulds from the Odhav unit were transferred to the new unit at Chhatral and as per the claim of the assessee the total extent of such items transferred was 11.60 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent but the assessee-company started manufacturing both under one roof for the sake of convenience. As the old equipment was acquired in the year 1985 and the new equipment was purchased in 1992, the Assessing Officer held that the items, machinery shifted from the old unit are not eligible for deduction under section 80-IA of the Act as according to him by shifting the old equipment to the new place and keeping it along with other equipment did not result in set up of new unit as far as old equipment is concerned. The assessee had already availed of all benefits/deductions while manufacturing items at old unit. Accordingly the profits arising from the sale of items manufactured by the assessee for round bottle cooling towers were held to be not eligible for deduction under section 80-IA of the Act. In addition the Assessing Officer was of the view that bought out components purchased by the assessee from the market were never integrated at the assessee s factory into the cooling tower and tested. The Assessing Officer accordingly was of the view that the assessee was not manufacturing the cooling tower but manufacturing only certain parts required for cooling towers and assembling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowing the benefit of deduction under section 80-IA of the Act as the said unit has been in existence for more than 8 years. Only in respect of the unit producing the CM/XE type of cooling towers the assessee is entitled to the benefit of deduction under section 80-IA of the Act which has been allowed by the Assessing Officer. The CIT(A) further was of the view that the assessee-company was not entitled to the claim of the deduction under section 80-IA of the Act, in view of the section 80-IA(2)( ii ) which provided that in order to claim the deduction the industrial undertaking should not be formed by the transfer of machinery or plant previously used for any purpose to a new business. The Explanation 2 to section 80-IA(2) of the Act under which the assessee-company had taken the shelter is not applicable to the facts of the present case as the cost of the old equipment acquired in 1985 cannot be compared to the cost of equipment acquired in 1992, due to inflation. 10. The CIT(A) also confirmed the action of the Assessing Officer in denying the benefit of deduction under section 80-IA of the Act, on the bought out components as according to him they have been straightaway ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material and the evidence on record. ( iv )The CIT(A) s wrongly attributing non-existent motives to the appellant. 12. The learned AR for the assessee relied on various judicial pronouncements and orders of the Tribunal which are being dealt with hereinunder. The learned DR for the revenue placing reliance on the order of Assessing Officer and CIT(A) argued that in order to claim the deduction under section 80-IA of the I.T. Act, the situs of assembly is important. In the facts of the present case, the manufactured and bought out components are assembled at clients premises. The learned DR further submitted that the said bought out components are not tested in the factory premises of the assessee and as such the assessee is not entitled to the claim of deduction under section 80-IA of the I.T. Act. Reliance was placed on the decision of Degremont India Ltd. v. Dy. CIT [1996] 59 ITD 423 (Delhi), CIT v. Minocha Bros. (P.) Ltd. [1986] 160 ITR 134 (Delhi) and CIT v. Shah Construction Co. Ltd. [1983] 142 ITR 696 2 (Bom.). The learned DR further stated that the assessee has not paid any excise duty on the bought out components which further proves the claim of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g towers as per GEA Polacels design had been completed. It is further submitted by the Managing Director of the assessee-company that the first cooling tower was delivered to M/s. Dupell Laboratory, Aurangabad in January, 1993. During the year ending March, 1993, the assessee had shown total turnover of Rs. 350.11 lakhs which included sale of 277 sets of cooling towers as incorporated in the significant accounting policies at pages 51 to 55 of the paper book. During the year ending March, 1993, the assessee had shown addition to leasehold land of Rs. 18,29,087, building account Rs. 46,78,712, plant and machinery Rs. 46,66,855, office equipment Rs. 1,91,587 and vehicles Rs. 2,88,715, as per list of assets at page No. 42 of the paper book. The first year of operation of the new plant was assessment year 1993-94. During the year ending March, 1994 the assessee had shown turnover of Rs. 329.82 lakhs which in turn includes sale of 423 cooling tower sets along with sale of spares of Rs. 31,74,331, services of Rs. 10,85,883 and sale of trading items and components at Rs. NIL . The details of which are incorporated in the significant accounting policies at pages 82 to 84 of the paper book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at pages 194 to 197 of the paper book. The Managing Director in his Director s Report at pages 170 and 171 of the paper book admitted that there was stiff competition in sale of components of cooling towers . During the preceding year ending March, 1997 and there was marginal addition in the office equipment and vehicles account but during the year ending March, 1998, the assessee has shown addition to building account of Rs. 16,48,750 and addition of Rs. 17,655 office equipment account and Rs. 5,43,975 furniture and fixtures as incorporated in the schedule of assets at page 183 of the paper book. 15. The first year of start of operations was assessment year 1993-94. The assessee is in appeal before us relating to assessment years 1996-97 to 1998-99. It is the claim of the assessee that the appeal for the assessment year 1997-98 was decided first and the appeals for the assessment years 1993-94, 1994-95 and 1995-96 are pending for disposal wherein the assessee has made a claim for deduction under section 80-IA of the I.T. Act. The assessee has filed on record the copies of the orders of CIT(A) relating to assessment years 1993-94 and 1994-95, wherein the claim of the issue wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purchase of plant and machinery. 18. On perusal of the details of addition to plant and machinery, the Assessing Officer observed at page 12 of his order, the assessee-company made an investment of Rs. 17.21 lakhs in moulds, Rs. 1.50 lakhs on plant and machinery, Rs. 1.06 lakhs on electric installations and the balance included in Rs. 47.67 lakhs was on account of an addition by way of new vehicles, computers, air-conditioners, office equipment etc. The assessee also shifted all its moulds and machineries from the old unit at Odhav, which were required for manufacturing the items, components required for assembling the round bottle cooling towers. The aim of the assessee was to manufacture both the round bottle cooling towers and CM/XE type cooling towers under one roof. The extent of value of plant and machinery transferred from Odhav to Chhatral amounted to 11.60 per cent of the total new plant in terms of cost and 0.63 per cent in terms of WDV as claimed by assessee in response to queries raised by the Assessing Officer. The assessee further claims that most of the employees of Odhav unit were transferred to the new unit and certain new employees were also recorded. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... av unit were shifted to Chhatral unit by the assessee-company. 21. The manufacturing process of cross flow and counter flow type of cooling towers are wet type of cooling towers manufactured in technical collaboration with GEA Polacel. The import of know-how and the establishment of the new unit was technically for the production of the XE series and CM series of cooling towers which as claimed by the assessee-company are being manufactured in technical collaboration with GEA Polacel, whereas the round bottle cooling towers are being manufactured independent of the collaboration with GEA Polacel thereby using its old plant and machinery and moulds shifted from Odhav unit. The manufacturing process of components for round bottle cooling towers and counter flow/cross flow cooling towers are distinct and independent as the items manufactured by each type go to assemble different types of cooling towers. Same is colloborated by the fact that the assessee has entered into a collaboration agreement with GEA Polacel for the manufacture of cross flow and counter flow type of cooling towers. The technical know-how has been obtained for the purpose of manufacture of components of cross f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. The manufacturing process of the assessee-company is limited to the production of certain components required to be utilized for the erection of cooling towers. The assessee purchases certain items from the market, which in-turn are used for the manufacture of the cooling towers. The perusal of the purchase orders placed by different customers, copies of which have been filed on record revealed that the assessee was entrusted with the job of supply of cooling towers in its entirety which include the components manufactured in the factory premises of the assessee and also certain other items bought directly from the market to be utilized for the manufacture of the cooling towers in entirety. Both the items, i.e. , the manufactured components and bought out items were then carried over to the premises of the customers wherein the cooling tower was erected as per the requirements of the customers. The said exercise was undertaken by the assessee-company at the site of the client because of the voluminous nature of the cooling tower manufactured by the assessee. 23. The deduction under section 80-IA of the Act is restricted to the profits and gains derived from the business of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re and produce apply to the bringing into existence of something which is different from its components. Whether one takes into account the wider or narrower meaning of the word manufacture , assembling of automotive bus or truck chasis from imported parts in a knocked down condition, could give rise to an article which is totally different from the parts and could amount to manufacture. This is so even though the component parts from which the automotive chasis is made, retain their individual identity in the whole article which is thus manufactured or produced." 25. The requirement of law is manufacturing but the whole process may not be carried out the assessee himself. The Chandigarh Bench of Tribunal in the case of Sond Bharat Pedals (India) v. ITO [2003] 84 ITD 89 had held as under : "It is not necessary that the assessee should carry out all the manufacturing operations itself, in order to be entitled to benefit of deduction under section 80-I. Such operations can be got done from outside agencies on payment of labour service charges. In fact certificate issued by the Punjab Government showed that the assessee was registered as a small scale industrial unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee was covered within the definition of manufacturing of an article or thing. The Delhi Bench of Tribunal in Degremont India Ltd. s case ( supra ) had held as under : "It is apparent from a plain reading of the judgment of the Supreme Court in N.C. Budharaja Co. s case ( supra ) that the various findings given related solely and exclusively to concerns engaged in the business of construction of dams and civil works. There was not a single word or whisper in the said judgment by which it could be inferred that an assessee engaged in the activities of designing, fabricating, erecting, supplying, installation and commissioning of a plant like the one supplied by the assessee could be covered by the aforesaid judgment. It is well-settled law that the judgment in each case has to be seen in the light of the facts of that case. A decision is to be understood in the context of the facts in which the decision is rendered. A case is precedent for what it explicitly decides and nothing more in the conditions of people, even the words occurring in a statute are required to be interpreted differently keeping in mind the context in which such expressions have been used in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticle in the shape of air, water pollution control. That the assessee was manufacturing or producing the plant in backward area, was one of the requirements of the claim under section 80HH. The contention of the assessee was that only 11.45 per cent of the total receipt had been taken for deduction under section 80HH as that work alone was done in backward area and it was not expected from the assessee to have its office or plant in backward area. The crux of the case laws is that if an industrial undertaking begins to manufacture or produce outside in any backward area, it is entitled to deduction under section 80HH. The assessee for, set up its own industrial undertaking at the site of its customers for whom water air pollution control plant was manufactured and of the places which were falling under the backward area declared under the Act, then, naturally the assessee should be getting benefit of the same and the computation made by the assessee-firm of the same was correct one." 29. The objection of the learned DR for the revenue that situs of assembly is important, has been dealt with by the Pune Bench of Tribunal in Indocan Engg. Systems (P.) Ltd. v. Dy. CIT [1997] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act is available to an assessee whose gross total income includes profits and gains derived from an industrial undertaking as per stipulations in section 80-IA(2), which inter alia requires the manufacturing or production of an article or thing not being any article or thing specified in Eleventh Schedule. In the instant case before us, the assessee was manufacturing components of cooling towers in its factory unit at Chhatral, which in-turn were exigible to Excise Duty. The profits on sale of said components were entitled to deduction under section 80-IA of the Act and as allowed by Assessing Officer. The assessee in the present case was not in the business of sale of components of cooling towers, but the cooling tower as a whole, as is evident from the enquiries of the client, Quotations and Performa Invoice raised by the assessee. In the instant case, the assessee purchases various bought out components, which along with manufacturing components are assembled at the client s site and the cooling tower is erected. The ultimate product erected by the assessee was a cooling tower, which was a distinct product from the various components, bought from outside or manufactured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tle (RB) Cooling Towers, no deduction/benefit under section 80-IA shall be allowed on bought out components used for erection of Round Bottle Cooling Towers. The Assessing Officer is directed to allow the deduction under section 80-IA of the I.T. Act only on profits on sale of cross flow (XE series) and counter flow (CM series) cooling towers. 33. The next issue before us is whether assessee is entitled to deduction under section 80-IA of the Act on the installation charges, forwarding charges and service charges received from the clients. The Assessing Officer disallowed the claim of the assessee observing that all these charges have no connection with the manufacturing activities of the assessee. In the present case, the assessee is engaged in the manufacturing of cooling towers, which are manufactured as per the specific requirements of the clients, who in turn attach it to their industrial units. The cooling tower being voluminous, the erection of the same is carried out at the sites of the clients. The forwarding charges and installation charges are billed to the clients. The service charges are received from clients against services provided to them. The said charges are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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