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TMI Blog2013 (7) TMI 353X X X X Extracts X X X X X X X X Extracts X X X X ..... t be disturbed or a contrary view can be taken without any change in the facts and circumstances or change in the law, thus assessee is entitled for deduction u/s 80IA as the same has been allowed in the earlier assessment years. In favour of assessee. Protective addition - Held that:- Computation of deduction u/s 80IB as made by the assessee is wholly erroneous in so far as, while computing the net income for the purpose of deduction u/s 80IB, the assessee has removed the interest paid on partners capital which has resulted into enhancement of profit. This working is wrong as the profit of the firm is always worked out after the interest and remuneration paid to the partner, which is an outgoing expense while computing the net profit of a partnership firm. Thus, the addition of Rs. 5,66,185/-, though made on protective basis by the AO stands confirmed. Since already held above, that the assessee is liable for claim for deduction under Section 80IB, therefore, this addition would be on substantive basis. Thus the ground raised by the assessee is dismissed. Disallowance u/s 40(a)(ia) - outward freight charges paid to different drivers - Held that:- The entire details for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance under Section 40(a)(ia) on account of outward freight charges paid to different drivers. (iv) Disallowance of 10% of Rs. 85,75,907/- on account of labour charges paid to different contractors. (v) Charging and levy of interest under Section 234B. 2. Brief facts, apropos the first issue are that, the assessee is a partnership firm which is registered as a Small Scale Industry with the Director of Industries, Government of Maharashtra. The assessee is exclusive suppliers of food packets for the "mid day meal scheme" of the Government. For this purpose, it has been stated that it is converting raw food material into therapeutic food in packets. During the assessment year, the assessee has disclosed total sales of Rs. 15.95 crores and has earned net profit of Rs. 39.26 lacs, from which the assessee has claimed deduction under Section 80IB of Rs. 15,75,080/- i.e. 25% of the net profit. During the course of assessment proceedings, the assessee was required to justify the claim made under Section 80IB with reference to the activities undertaken by the assessee during the year under consideration for conduct of its business. In response, the assessee submitted a note on the natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act where the assessee's claim under Section 80IB on manufacturing of same products have been allowed. The learned CIT(A) too rejected the assessee's contention after observing and holding as under :- "2.3 I have considered the appellant's submissions and the assessment order. As pointed out by the Assessing Officer, as a result of the processing undertaken no new and distinct commodity, having a different character has been brought into existence. The final product does not have different chemical composition or integral structure. The case laws cited by the Assessing Officer especially related to food stuffs are apt. In addition the following decisions also can be relied upon. In D.D. Shah Bros. vs. UOI [2006] 8 (I) ITCL 48 (Raj. HC), blending of different qualities of tea was held not to amount to manufacturer for the purpose of sec. 80IB. Similarly for blending and bottling of spirits the same principle was upheld in Shaw Scott Distilleries (P) Ltd. vs. ACIT [2000] 76 ITD 89 (Cal. Trib 503). The list of ingredients submitted by the appellant as raw materials final product does not indicate any new product has come into existence. Different food items (raw materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the finished product requires various stages of roasting, grinding and blending etc.. All these process of grinding, mixing and blending are to be done in a proper proportion by usage of machines and pulverisor. The case of the Assessing Officer is that, by mixing, grinding, roasting, blending, etc. there is no change in the chemical properties of the substance and there is no new and distinct product which comes into existence. Hence it cannot be held that assessee was engaged in any kind of manufacturing activities from the industrial undertaking. His main reliance apart from various other decisions has been on the decision of Hon'ble Supreme Court in the case of India Hotels Company Ltd. (supra). 7. One of the basic requirement for deduction under Section 80IB is that, an industrial undertaking should manufacture or produce an article or a thing. Over the period of time it has been well established principle by various judicial pronouncements that the end product, which has been manufactured, should be different in name, character and use. It should be distinct from the original raw material. The process should employ use of machines, skilled labours and a large outlay addin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see stands allowed. 8. The next ground relates to protective addition of Rs. 5,56,185/-. The learned Assessing Officer in para 7 of the assessment order observed that in case if the disallowance under Section 80IB does not stand the test of the appeal then amount of interest on partner's capital account has to be added back to the income, being excessive claim made under Section 80IB. This excessive claim was on account of fact that while computing the deduction, the assessee has reduced the interest paid on partners' capital account for an amount of Rs. 22,64,740/- to arrive at the taxable profit. Such a deduction in taxable profit is not permissible, accordingly, he worked out the excessive claim of Rs. 5,66,185/- in the following manner :- Profit as per P L A/c Rs. 39,26,376/- Add: Items considered separately Depreciation 1,54,557/- Interest on partners capital 22,64,740/- Amount disallowed u/s 43B 41,275/- Rs. 24,60,572/- Rs. 63,86,948/- Less Depreciation u/s 32 of the Act Rs. 86,629/- Rs. 63,00,319/- Less Interest on partner capital R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be held to show that the appellant is not liable to deduct TDS, while the records show that payments exceeding the specified amount are made in respect of truck Nos. as listed by the Assessing Officer in his order. The truck Nos. have been entered in the books of account. Thus addition u/s. 40(a)(ia) is called for. However the appellant's objection to application of ration basis is valid. The Assessing Officer is directed to examine the records and identity the specific violation and make disallowance u/s. 40(a)(ia) accordingly." 11. The learned counsel reiterated the same submissions made before the CIT(A) and submitted that once there is no privity of contract with the individual truck owners, there is no requirement to deduct TDS, therefore no disallowance under Section 40(a)(ia) can be made. He further submitted that the A.O. and CIT(A) had gone by truck wise instead of driver wise for working out the aggregate payments made during the year, which is not correct. On the other hand, learned Departmental Representative relied upon the findings of the AO as well as the CIT(A). 12. After carefully considering the rival contention, findings of the AO as well as the CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel could not rebut this findings of the CIT(A). However at the same time the payments made to the different parties have been made through account payee cheques and nothing has been brought on record that these payments are excessive looking to the fair market rate. Looking to fact that there are certain payments which are not open to full verification, therefore, under the facts and circumstances of the case we restrict the disallowance to 5% and accordingly the addition is reduced to Rs. 4,27,895/- thus ground no. 5, 6 and 7 is treated as partly allowed. 16. Regarding the levy of interest under Section 234B the learned counsel submitted that entire sale made have been subjected to TDS, therefore, no interest under 234B could have been levied. Accordingly, we direct the AO to examine the details of TDS and in case if it is found that TDS has been deducted on all the receipts/sales, then interest under Section 234B cannot be levied. Accordingly, this ground is treated as allowed subject to verification done by the AO. 17. In the result, appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 30 th April 2013. - - TaxTMI - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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