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TMI Blog2014 (2) TMI 1176X X X X Extracts X X X X X X X X Extracts X X X X ..... deration, the deduction of claim u/s.80IB(5)(i) is restricted to 15% as against done by the CIT(A). As a result, this issue is partly allowed in favour of assesse. - ITA Nos.2056 & 2057/PN/2012, ITA Nos.1866 & 1867/PN/2012 - - - Dated:- 28-2-2014 - SHRI SHAILENDRA KUMAR YADAV AND SHRI R.K. PANDA, JJ. For the Appellant : Shri Nikhil Pathak For the Respondent : Shri S.P. Walimbe ORDER PER SHAILENDRA KUMAR YADAV, J.M: All these cross appeals are arising out of respective orders of CIT(A)-V, Pune pertaining to the same assessee on almost common issues. So these were heard together and are being disposed off by this consolidated order for the sake of convenience. 2. In ITA No.2056/PN/2012, the revenue raised the following grounds: 1. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in allowing the assessee's claim of ₹ 7,74,08,854/-claimed as deduction u/s 80IB of the I.T.Act, 1961, when the assessee is not involved in manufacturing or producing activity but is only carrying out the activity of assembling at its Silvassa Unit. 2. Whether on the facts and circumstances of the case and in law, the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in manufacturing and assembling generator sets under the brand name Kala' has three units, two at Chakan, near Pune and one at Silvassa. Unit -I at Chakan is engaged in manufacturing of canopies which is part of generator sets which controls the noise level. Unit-ll at Chakan as well as Silvassa are engaged in manufacturing / assembling of Generator sets. While in case of Chakan Unit claim of deduction u/s.80IB(5)(i) has been made at 30% and in case of Silvassa Unit the claim of deduction has been made at 100%. At Silvassa, the assessee company has been doing the assembly of gensets prior to 31.03.2004 and the claim of deduction was accepted in the earlier years of assessment as well. However, in A.Y. 2007-08, the Assessing Officer took a different view holding that Silvassa Unit was not entitled to deduction u/s.80IB(5)(i) as it was not engaged in manufacturing of gensets but only assembly of the same. Further, the Assessing Officer held that profitability of Silvassa Unit was artificially inflated in the sense that most of the expenditure were loaded on Chakan Unit where deduction was claimed at 30% while virtually very less expenditure was booked in Silvassa Unit in order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it. The CIT(A) was not justified in allowing deduction u/s.80IB(5)(i) by holding that assembling of various components amounting to manufacture without appreciating that no manufacturing activity was possible without sophistication machinery or skilled man power. It was also submitted that CIT(A) has ignored the significance of amendment of sec. 10A 10B of Income-tax Act by Finance Act 2000, whereby the definition of manufacture which included in the process or assembling has been deleted w.e.f. 01.04.2001, meaning thereby that those involved in assembling and processing would not be entitled to the benefit intended for manufacturing concern. Thus, Learned Departmental Representative relied on the order of Assessing Officer on the issue and requested to uphold the same on this issue. On the other hand, learned Authorized Representative has supported the order of CIT(A) on the issue. 4.2 After going through the rival submissions and material on record, we find that the assessee is engaged in the business of manufacturing generator sets under the brand name Kala . The assessee company has two units at Chakan as stated above and one unit at Silvassa. The assessee company has cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 308 ITR 222 (P H)] 4.5 The stand of the assessee has been that the raw materials were engine, batteries, canopies, alternators, etc. and the final product was generator set which was totally different product having a separate name and identity in the market. Accordingly, the assessee submitted that assembly amounts to manufacture and hence, the deduction should be allowed. The assessee has assembled gensets. According to him, the assessee is paying excise duty on the gensets manufactured. Secondly, he has also accepted that the final product i.e. generator set is a new product vis-a-vis the raw material used. Accordingly, he has accepted the claim of the assessee and has allowed the deduction. The Hon ble Madras High Court in the case of Chiranjeevi Wind Energy Ltd.[2011-TIOL-91-HC-MAD-IT] has held that the assessee engaged in the activity of procuring different parts of windmills and thereafter, assembling them to form windmill was engaged in manufacturing activity. The relevant para of the decision is as under: The assessee was engaged in the activity of procuring different parts for assembling windmills. According to the appellant, since the assessee mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Tata Locomotive and Engineering Company Ltd. (supra) has decided a similar issue in favour of assessee. 4.7 The decision of Calcutta High Court in the case of CIT v. Babcock and Wilcox India Ltd. (supra) is not applicable to the facts of the present case. In said case, the assessee was engaged in the activity of erection of boilers as a sub contractor. It was held that such an activity of erection of boilers did not amount to manufacture. In the said case, the issue was whether assembly amounts to manufacture was not involved. Accordingly, the ratio of Babcock and Wilcox India Ltd. (supra) is not applicable to the facts of the present case. In this background, we hold that CIT(A) was justified in allowing the claim of the assessee u/s.80IB(5)(i) by holding that assembling various components amounts to manufacturing. This reasoned factual and legal finding of CIT(A) on the issue needs no interference from our side. We uphold the same. Similar issue arose in ITA No.2057/PN/2012 for A.Y. 2008-09. Facts being similar, so following the same reasoning, We uphold the order of CIT(A) on the issue. Accordingly, we hold that grounds Nos.1-5 of revenue s appeal are dismissed. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned Assessing Officer erred in changing interest under section 234A, 234B and 234C of the Income Tax Act, 1961, when no such interest is chargeable. 8. The learned Assessing Officer erred in law as well as in fact in initiating penalty proceedings u/s.271(1)(c) of the Income Tax Act, 1961 which does not accord with the settled legal principles. 9. The appellant craves leave to add, alter, amend and / or withdraw any of the ground either before or at the time of hearing, as may be necessary. 6. The Assessing Officer observed that profits of Silvassa unit was artificially inflated in order to claim higher deduction. The Assessing Officer has observed that profit of Silvassa unit was extra high compared to profit of Chakan unit. He found that Silvassa unit had profit @ 9.65% while Chakan unit was showing net profit @ 1.78%. He further observed that canopy was supplied to Silvassa unit by its Chakan unit. It was comparatively at lesser price compared to canopy supplied to third party. The Assessing Officer observed that in respect of 177 units, due to this arrangement of transactions in respect of canopy, profit of ₹ 53,85,100/- was inflated. Accordingly, he e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,38,75,693 6.2 In view of above, the CIT(A) has observed that the excess profit of ₹ 1,38,75,693/- has been loaded to Silvassa unit. Accordingly the addition of ₹ 1,38,75,693/- was confirmed and the Assessing Officer was directed to substitute the figure of disallowance to ₹ 138,75,693/- in place of ₹ 7,74,08,854/- while finalizing the claim of deduction u/s.80IB(10) of Act. The same has been opposed before us by both sides as contended in the grounds of appeal before us as discussed above. 6.3 After going through the rival submissions and material on record, we find that according to the Assessing Officer, the profit of Silvassa unit was eligible for 100% deduction while profit of Chakan unit was eligible for deduction at 30%. According to the Assessing Officer, the assessee has shown higher profit in Silvassa unit. The Assessing Officer stated that net profit ratio of Chakan was 1.78% while that of Silvassa unit was 9.65%. The Assessing Officer further stated that the assessee has arranged his affairs in such a manner that higher profits are shifted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to Kirloskar were of totally different features. On page 57 of the paper book, the assessee has given the points of difference in respect of the canopies sold to the Silvassa unit and those sold to Kirloskar. From the above, we find that the canopies sold to Silvassa unit were semi finished while those sold to Kirloskar were fully finished canopies. Moreover, from the explanation of assessee, it is found that the specifications were also different. The noise levels were also different. The gauge of steel used in above two was different. The assessee also gave details of the difference in the cost of the manufacturing the canopies as enclosed on pages 91 92 of the Paper Book. Considering the different features and specifications in the canopies sold to Kirloskar, the assessee had charged higher rate to Kirloskar as evident from the detailed working of cost difference submitted by the assessee as discussed above. Considering the various differences between the canopies sold to Kirloskar and Silvassa unit, the comparison made by the Assessing Officer is not justified. 6.6 The assessee further has explained that it had purchased canopies from third parties. The relevant details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection (8), the Assessing Officer can make disallowance on concrete basis and not on presumptions and surmises. The Assessing Officer has not been able to point out that the market value of the canopies sold by Chakan unit to Silvassa unit was much higher. The assessee has clarified that the canopies sold to Kirloskar were not comparable to the canopies sold to Silvassa Unit. Secondly, he has considered an indirect benefit of Rs.l0,000/- for the canopies in respect of which no comparable price has been cited. Thus, this addition is not justified and method adopted by the Assessing Officer is not correct and the addition in question is on presumptions and surmises. The lower authorities have not properly appreciated the facts. They have not properly considered the various contentions raised on behalf of assessee for higher net profit margin in Silvassa unit. The assessee has given detailed charts given basis of allocation of common expenses to both the units. In respect of common expenses, the assessee has allocated most of the expenses on turnover basis. There is no concrete evidence that the assessee had shifted the profits of Chakan unit to Silvassa unit at such magnitude and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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