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TMI Blog2010 (2) TMI 936X X X X Extracts X X X X X X X X Extracts X X X X ..... only ten workers in accordance with s. 80-IB(2)(iv) to be eligible for deduction under s. 80-IB, 3. Without prejudice to above it is further submitted that the learned CIT(A) erred in rejecting submission of the appellant that the appellant had substantially complied with the requirement of s. 80-IB. 4. The learned CIT(A) erred in confirming action of the AO in not granting deduction under s. 80-IB in respect of interest earned of Rs. 73,844 on performance guarantee bond and earnest money deposit." 3. The issue is in respect of the deduction claimed by the assessee under s. 80-IB which was denied by the AO. 4. The facts which reveal from the record are as under : The assessee is carrying on the proprietary business in the name and style as M/s Environmental Research & Technology (India). It is claimed that the assessee is engaged in the manufacture and sale of industrial and commercial water systems and equipment, and also drinking water purification systems. The assessee applied for registration of his unit with the relevant authorities on 21st Aug., 1997 and commenced production in April 1998. It is claimed that manufacturing of various water purification systems is made ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces in the form of statutory documents, identity of persons involved in the production, photographs and signature on the Revenue stamp, then, the claim of the assessee that more than 20 workers were employed would have been in a sound base. In absence of the same, the AO held that the condition of employing 20 or more workers as the assessee was not using power or carrying out its manufacturing activity without the aid of the power as per s. 80-IB was not fulfilled. It was noticed by the AO that the assessee was not paying any excise duty and hence, the activity carried out by the assessee cannot be treated as manufacturing. The AO therefore, 'denied the claim of the assessee under s. 80-IB. The assessee carried the issue before the first appellate authority who puts the stamp of approval on the view taken by the AO in respect of the denial of the deduction by the assessee under s. 80-IB of the Act, by giving the following reasons : "3. I have given extremely careful consideration to the arguments of the learned Authorised Representative in the context of the appellant's claims for deduction under s. 80-IB. However, I am unable to agree with him that the necessary conditions pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is, therefore, clear that the appellant is not engaged in the manufacturing or processing of any article or thing and on this ground also, therefore, it will not be entitled to any deduction under s. 80-IB. 3.2 It is also claimed that if the appellant were to get the items manufactured by outside units, which it is claimed to have been doing, it would still be entitled to deduction under s. 80-IB. I am, however, unable to agree with this proposition. In the case of CCE v. Kutty Flush Doors & Furniture Co. (P) Ltd. 1988 (35) ELT 6 (SC), the Apex Court held that excise duty becomes chargeable when a new and different article emerges having a distinct name, character and use. In the instant matter before me, it is seen that the appellant is not paying any excise duty. This in effect leads to the inference that the appellant is not manufacturing any article or thing, as it would otherwise become liable for payment of excise duty." Now the assessee is in appeal before us. 6. The learned counsel for the assessee assailed the findings of the learned CIT(A) and vehemently submitted that both the lower authorities have erroneously denied the legitimate claim of the assessee under s. 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO as well as the CIT(A) erroneously concluded that as the excise duty was not payable, hence the assessee is not involved in the manufacturing process. The learned counsel also referred to copy of the Circular No. 659/50/2002-CX, dt. 6th Sept., 2002 which was issued by the Government for exemption of water treatment plants and equipments from the customs and Central excise duty. He also argued that in the subsequent years and in the preceding years, the assessee has been granted the deduction and hence once the deduction made is allowed in the preceding year, there is no justification to deny the same in the asst. yr. 2001-02. 7. Per contra, the learned Departmental Representative supported the order of the AO and vehemently argued that the assessee is involved only in the assembly of the system and it cannot be treated as a manufacturing. It is argued that in the case of B.G. Chitale v. Dy. CIT [2008] 115 ITD 97/23 SOT 189 (Pune)(SB) (Tribunal) has held that each process cannot be treated as manufacture. He further argued that both the authorities have rightly denied the deduction to the assessee. 8. We have given our anxious considerations to the rival submissions of the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fabricator for heat treatment of nickel plating. The assessee also purchased some more components like pedal rubber, pedal cup, pedal cap, steel balls, washers etc. The claim of the assessee under s. 80-IB was denied on the reason that the said assessee was not engaged in the manufacture or production of article or thing as it got manufacturing done from outside parties. Accepting the plea of the assessee, the Tribunal held as under : "7. Now the next issue which required to be considered is that whether there is requirement of manufacturing or producing the articles by the assessee itself or the assessee can get part of these activities done from outsiders and still be entitled to deduction under s. 80-I. It is an admitted fact that the assessee, on its own, does not have necessary wherewithal to undertake all activities for manufacturing the pedals. This issue came up for consideration before the Hon'ble Calcutta High Court in the case of A, Mukherjee & Co. (P) Ltd. (supra) where the assessee was carrying on business of publishing of books. The assessee did not own any press. It got the manuscript for publication printed and bound from outsiders. The printing and binding were d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of manufacture of bidis for which the assessee purchased tendu leaves and tobacco. These were given to contractors for getting the bidis manufactured. On these facts the Allahabad High Court held that the assessee was an industrial undertaking for the purpose of s. 5(1)(xxxi). (iv) CIT v. Indian Resins & Polymers [1998] 148 CTR (Ker) 143 : [1999] 235 ITR 5 (Ker.)-in this ease, the assessee was engaged in business of export of cashew kernels and shell oil. The assessee purchased cashewnuts and entrusted to a third party for processing. Similarly, roasting and dehusking of cashew kernels was got done from a third party under assessee's own supervision. On these facts, it was held that assessee was an industrial undertaking entitled to special deduction under s. 80HH. (v) CIT v. Anglo French Drag Co. (Eastern) Ltd. [1991] 95 CTR (Bom.) 176 : [1991] 191 ITR 92 (Bom.)-in this case also Bombay High Court has held that it is not necessary that the manufacturing activity should be undertaken by the assessee itself. The assessee can employ another company to manufacture goods under its supervision and control and the assessee was held to be an industrial undertaking. 8. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 55,000 at Rs. 3,56.262. The details of raw materials purchased had been given before the AO and the same have also been filed in the paper book. The memorandum of association of the assessee empowers the assessee to carry on the business of manufacturing mechanical and industrial plants and machineries, machine tools etc. From the facts on record it is obvious that the assessee had manufactured during the year under consideration plate bending machine and had sold the same. It is true that the components were manufactured by other engineering units and that they were assembled at the workshop of the assessee. However, this would not mean that the assessee had not manufactured the said machine. The manufacture of components at other engineering units had taken place under the supervision of the directors of the assessee-company. The necessary raw materials, components tools etc., were purchased by the assessee-company itself from various parties as per the list enclosed in the paper book and various components were mostly got manufactured as per designs and drawings submitted by the assessee-company under the supervision of the two directors of the assessee-company who were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch i.e. Sond Bharat Pedals (India) (supra) and Rashron Heavy Engg. (P) Ltd. (supra). 12. So far as the issue of payment of the excise is concerned, we have perused the Circular No. 659/50/2002-CX, dt. 6th Sept., 2002 (copy placed on record). The said circular is giving exemption from customs, excise and Central excise duty to the water treatment plants. In our opinion, the conclusion drawn by the AO is totally erroneous as rightly argued by the counsel. We, therefore, hold that the assessee is engaged in the manufacturing of water purification systems. 13. Another reservation of the AO is in respect of the employment of the minimum number of workers. On the perusal of the assessment order itself, we find that the assessee has employed twenty or more workers in the months of April, May, June, September, October, November etc., and hence, as held by the Hon'ble High Court of Bombay in the cases of Ormerods India (P.) Ltd. (supra) and Harit Synthetic Fabrics (P.) Ltd. (supra), there is substantial compliance and as rightly argued by the learned counsel, we have to take the liberal interpretation of the incentive provision. So far as the non-deduction of the PF and ESI etc., is conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncentive schemes enacted by the Government of India or from s. 75 of the Customs Act, 1962. Hence, according to the Department, in the present cases, the first degree source is the incentive scheme/provisions of the Customs Act. In this connection, Department places heavy reliance on the judgment of this Court in Sterling Food (supra). Therefore, in the present cases, in which we are required to examine the eligible business of an industrial undertaking, we need to trace the source of the profits to manufacture [see CIT v. Kirloskar Oil Engines Ltd. [1985] 44 CTR (Bom.) 98 : [1986] 157 ITR 762 (Bom.)] : 15. Continuing our analysis of s. 80-IA/80-IB it may be mentioned that sub-s. (13) of s. 80-IB provides for applicability of the provisions of sub-s (5) and sub-ss. (7) to (12) of s. 80-IA, so far as may be. applicable to the eligible business under s. 80-IB. Therefore, at the outset, we stated that one needs to read ss. 80-I, 80-IA and 80-IB as having a common scheme. On perusal of sub-s. (5) of s. 80-IA, it is noticed that it provides for manner of computation of profits of an eligible business. Accordingly, such profits are to be computed as if such eligible business is the only ..... X X X X Extracts X X X X X X X X Extracts X X X X
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