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TMI Blog2012 (9) TMI 320X X X X Extracts X X X X X X X X Extracts X X X X ..... d circumstances of the case, the Id. Commissioner of Income Tax (Appeals) gravelly erred in sustaining the addition of Rs.50,642/- made by the Assessing Officer in respect of Baddi Unit on account of payment to Rattan by invoking the provisions of Section 40{a)(ia)" 6. The issue raised vide ground No.4 is against the addition made on account of payment to one Shri Rattan, without deduction of tax at source and consequently the invoking of provisions of section 40a(ia) of the Act. The learned A.R. for the assessee fairly admitted that out of the erection charges no tax was deducted at source and consequently the said amount is to be disallowed in view of the provisions of section 40a(ia) of the Act. It was further pointed out by the learned A.R. for the assessee that deduction under section 80IC of the Act is to be allowed on revised profits of the business being the eligible profits entitled to deduction under section 80IC of the Act. Reliance was placed on S.B. Builders & Developers Vs. ITO [50 DTR 299 (Mumbai Bench)]. 7. The learned D.R. for the Revenue placed reliance on the observations of CIT (Appeals) in para 37 at page 27 of the appellate order. 8. We have heard the rival ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i and Chandigarh Unit respectively and^ thus erred in making an addition of Rs. 6,05,658/. 6. That in the facts and circumstances of the case, the Id. Commissioner of Income Tax (Appeals) gravelly erred in upholding the action of the Id. Assessing Officer in treating a sum of Rs.1,12,44,060/- as sale and as trading receipts, which in fact are manufacturing expenses and estimating the trading profit of Rs.22,79,170/-by disallowing deduction under Section 80IC. 7. That in the facts and circumstances of the case, the Id. Commissioner of Income Tax (Appeals) gravelly erred in upholding the action of the Id. Assessing Officer, who in respect of civil works executed in Baddi Units had erred in estimating the net profit of 33.53% and working out the net profit of Rs. 12,65,558/-." 10. The brief facts relating to the issue are that during the year under consideration the assessee is carrying on its activities with head office at Chandigarh unit and branch office at Baddi unit. The assessee had shown receipts on account of activities related to prefabricated structure as well as some civil work carried out during the ye a r under consideration. The assessee had claimed profits of the Bad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duced to this extent and the tax able income to the Chandigarh unit was enhanced to the extent of Rs.6,05,658/-. 11. The Assessing Officer further considered second aspect of deduction under section 80IC of the Act i.e. though the assessee had carried out civil construction work at Jaipur under Baddi unit but the profits of the same were included in the eligible profits for claiming deduction under section 80IC of the Act. The assessee during the course of assessment proceedings admitted that sum of Rs.37,74,330/- on account of civil works, erection charges etc. had nothing to do with the manufacturing activities, as noted by the Assessing Officer in para 9.4 at page 15 of the assessment order. The Assessing Officer requisitioned the assessee to furnish the details attributable to such receipts by way of civil work, erection charges, etc. In the absence of any satisfactory reply and after going through the books of account of the assessee found that the assessee had debited and transferred the expenses of Jaipur unit to the Baddi unit as on 31.3.2006, totaling Rs.25,28,772/-. The said, expenditure was held to be in relation to its works contract work and consequently profits from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee pointed out that in respect of allocation of expenses between Chandigarh unit and Baddi unit the claim of deduction under section 80IC of the Act was reduced on two account i.e. exclusion of excise duty and reallocation of expenses. The learned A.R. for the assessee fairly admitted that no deduction under section 80IC of the Act was allowable on the profits earned on civil works at Jaipur. However, rate and percentage applied for computing the expenditure at Jaipur unit was excessive. 15. In respect of the third issue raised i.e. trading or manufacturing activity carried on by the assessee, it was explained by the learned A.R. for the assessee that it was engaged in the manufacturing of prefabricated sheds/shelters for Indian Arm y which was used for various purposes. The said items were manufactured and put together at unit of the assessee and the said structure was disengaged for the transportation to far away places. The learned A.R. for the assessee pointed out that the Assessing Officer had enlisted certain items and had estimated its sale price by holding that the assessee was trading in the said items. However, the assessee was charging for the whole packages a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,02,213/-. In view of the admission of the assessee during the assessment proceedings as evidenced by the recalculation of the allocation of the ratio between Baddi unit and Chandigarh unit as per Annexure A-2 to the assessment order, addition to the extent of Rs.4,03,445/- is upheld. Further allocation of Rs.2,02,213/- to the Baddi unit on account of exclusion of excise duty from the sales turnover of Chandigarh unit for computing percentage ratio is also upheld. Consequently, the deduction under section 80IC of the Act being reduced to the extent of Rs.6,05,658/- is upheld. 19. The second related issue of computation of deduction under section 80IC of the Act is profits on civil works contract carried out at Jaipur. The Assessing Officer vide paras 9.5 to 9.6 had computed the profits of Jaipur unit of the works contract at Rs.12,65,558/-. Admittedly, t h e assessee is not entitled to deduction under section 80IC of the Act on the profits arising on civil contract work carried out by the assessee. However, in order to adjudicate the issue by following the principles of natural justice, we are of the view that the said computation of profits from civil works needs to be relooke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract deal of supply of the manufactured items. We find merit in the plea of the assessee that the assessee was engaged in the business of manufacturing of prefabricated sheets/cabins as per order received from the Ministry of Defence. The said items were being manufactured at the specification of the customers and certain items were not manufactured by it, were put together for supply the complete unit. The claim of the assessee was that it was entitled to claim of deduction under section 80IC of the Act on such bought out components. The issue of claim of deduction under section 80IC of the Act on such bought out items arose before the Mumbai Bench of the Tribunal in Mihir Engineers Ltd. Vs. JCIT [112 TTJ (Mum) 940]. 22. The Mumbai Bench of the Tribunal in Mihir Engineers Ltd. (supra) vide paras 23 to 30 held as under: 23. The deduction under section 80-IA of the Act is restricted to the profits and gains derived from the business of an industrial undertaking being an eligible business, subject to conditions enumerated in sub-section (2) of section 80-IA of the Act. The clause (iii) to section 80-IA(2) of the Act provides that for the eligibility of deduction, the industrial u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '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 and the trading account showed the assessee's sales of Rs. 45.98 lakhs for the year under consideration. Since the assessee was engaged in the business of manufacturing cycle pedals, it would be entitled to deduction under section 80-I even though part of such operations wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the relevant provisions of law. Therefore, the aforesaid judgment did not in any manner support the revenue's contention. The provisions of section 80-I are intended to provide an incentive for investment in certain desired sectors and promote industrialization in developing countries which has adopte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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] 60 ITD 649. There is no merit in the contention of the learned DR for the revenue that main activity of the assessee is of erection at client's site. The end-product is an integrated unit. The assessee is required by its clients to supply a cooling tower, parts of which are manufactured by assessee and certain parts/componen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 by it. The aforesaid activities of the assessee were covered within the definition of manufacture of an 'article' or 'thing'. The assessee had undertaken the job of erecting a cooling tower as per the individual specification of the client, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t only on profits on sale of cross flow (XE series) and counter flow (CM series) cooling towers. 24. We find that the issue raised before us is identical to the issue arising before the Mumbai Bench of the Tribunal in Mihir Engineers Ltd. Vs. JCIT (supra) which in turn was followed by the Chandigarh Bench of the Tribunal in ACIT Vs. Spray Engineering Devices Ltd. in ITA No.701, 646/Chd/2009 and ITA No. 1021/Chd/2011 relating to assessment ye a r s 2006-07 and 2008-09, date of order 22.6.2012. Following the same we hold that the assessee is entitled to benefit of claim of deduction on the said bought out items and there is no need to rework the deduction under section 80IC of the Act. Reversing the order of CIT (Appeals) we direct the Assessing Officer to allow the claim of the assessee in respect of deduction under section 80IC of the Act on such bought out components. Ground Nos. 3, 5 to 7 raised by the assessee are partly allowed. 25. Ground Nos. 8 to 11 raised by the assessee being general are dismissed. ITA No.1361/Chd/2010 (Revenue's appeal) 25. Ground No.1 raised by the Revenue reads as under: "1. As per the facts and circumstances of the case and the provisions of law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Income Tax Act in view of the amended provisions of Sec 194C3(i) of the Income Tax Act. 7. Whether on facts and in the circumstances of the case and as per provisions of law the goods supplied by the supplier not being inclusive of freight and therefore the freight charges charged separately by the supplier fall under the provisions of section 194C of the Income Tax Act. 1961." 28. The issues raised by the Revenue in ground Nos. 2 to 7 are against the various disallowances made by invoking the provisions of section 40a(ia) of the Act. The plea of the assessee in this regard was two folds that; a) Disallowance under section 40a(ia) of the Act is to be made only on such amounts which are payable on the close of the financial year and; b) in any case where any disallowance is made under section 40a(ia) of the Act, the profits of the business have to be increased by such amount for computing deduction under section 80IC of the Act. We find merits in both the pleas of the assessee that in view of the ratio laid down by the Special Bench of Vishakhapatnam Tribunal in ACIT Vs. Merilyn Shipping & Transports (supra), provisions of section 40a (ia) of the Act for disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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