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TMI Blog2016 (7) TMI 187X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivities. However, for want of adequate material on the record of the Tribunal, it is not possible for us to calculate quantum of deduction and thus we find it appropriate to send the issue for limited purposes i.e. for calculation of deduction u/s 80HH on the income earned from manufacturing activities during the relevant periods under consideration for all five assessment years. Hence, we direct the AO to calculate the quantum of deduction for all the five assessment years under consideration. - ITA No. 2144/Del/1989, ITA No. 544/Del/1989, ITA No. 3186/Del/1990, ITA No. 2192/Del/1991, ITA No. 525/Del/1995 - - - Dated:- 1-7-2016 - CHANDRA MOHAN GARG, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER For The Assessee : Shri Ved Jain, Adv. Shri Pranjal Srivastava, Adv. For The Department : Ms. Sulekha Verma, CIT(DR) ORDER PER CHANDRA MOHAN GARG, JUDICIAL MEMBER These appeals have been filed by the assesee against the order of the CIT(A)-I, Delhi passed in respective appeals for assessment years 1984-85 to 1987-88 and 1991-92. 2. It is pertinent to note that these appeals have been set aside by the Hon ble High Court of Delhi order dated 27.4.2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y is to complete main construction project hence the same is not eligible for deduction u/s 80HH and 80I of the Act. The Ld. CIT(DR) also drawn our attention to para 3 of the order of the Commissioner passed u/s 263 of the Act dated 7.2.1989 for asstt. year 1984-85 and contended the assessee failed to establish that the assessee is an industrial undertaking eligible for deduction u/s 80HH and 80I of the Act. Hence, there is no requirement for sending this issue to the file of the AO for computation of deduction. The Ld. CIT(DR) also pointed out that as per order of the Tribunal dated 28.4.2006 which was challenged by the same before the Hon ble High Court, in para 6 the Tribunal has also observed that manufacturing activity of the assesee was not very significant compared to the total turnover of the assesee which again goes against the claim of deduction placed by the assessee. The Ld. CIT(DR) also contended that the conclusion recorded by the Tribunal in para 9 to 11 of the Tribunal order dated 28.4.2006 (Supra) has been discussed by Hon ble High Court order (supra) hence claim the assessee is not sustainable. The Ld. CIT(DR) also contended that as per profile of assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eters laid down by the Hon ble Supreme Court in the case of N.C. Budhiraja (Supra). The relevant para 28 to 34 are being respectfully reproduced below for the sake of completeness in this order : 28. The Supreme Court, in appeal preferred by the Revenue against the judgment of the High Court, reversed the decision of the High Court. The Supreme Court noted that Section 80HH occurs 'in Chapter VI-A, which provides for deductions to be made in computing total income . Sub-section (1) of Section 80HH provides that where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the, total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof'. Sub-section (2) say that section 80HH applies to any industrial undertaking which fulfils at the four conditions prescribed therein. 29. Thereafter, sub-section (2) of Section 80-HH was set out by the Apex Court, which lays down the conditions for the applicabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacture and produce are normally associated with movables - articles and goods, big and small - but they are never employed to denote the construction activity of the nature involved in the construction of a dam or for that matter a bridge, a road or a building. (emphasis supplied) 30. It is dear from the above that: (i) while interpreting the words 'manufacture' or 'production, the Court drew distinction between manufacture/produce on the one hand and 'construction' on the other hand; (ii) things like dam or, for that matter, bridge, roads, canals, buildings, are constructed and not manufactured; (iii) the expression 'manufacture' or 'produce' are normally associated with movables, i.e. articles and goods, but not with construction activity; (iv) the construction activity may be composed of articles, but that by itself will not become production of articles. For this purpose, it is the 'end product' which is the test and not various components/articles which go into the construction of the said end product. 31. Applying the aforesaid test. when we examine the case of the assessee in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year 1983-84 (which was based on the High Court judgment in N.C. Budhiraja and overruled by the Supreme Court), the Tribunal allowed the appeal of the assessee herein. We are of the opinion that the matter needs to be re-examined by the ITAT keeping in view the aforesaid parameters laid down by the Supreme Court in N.C. Budhiraja. For want of adequate material before us, it is not possible to give the answer by ourselves. In that view of the matter, question No. 1 requires no answer. 8. In view of above observations and conclusion of Hon ble High Court Order (supra) in our humble understanding, the Hon ble High Court categorically held that the activity of lying railway line cannot amount to activity of manufacture or produce and the same is construction activity and an income earned by the assessee therefrom is not eligible for deduction u/s 80HH and 80I of the Act. However, the Hon ble High Court in the light of observations of the Hon ble Supreme Court in the case of N.C. Budhiraja (supra) as reproduced in para 37 of the Hon ble High Court order (supra) and in subsequent para 33 observed that the Hon ble Supreme Court categorically mentioned that the assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a public sector company incorporated under the Companies Act and is under the administrative control of the Ministry of Railways. It is engaged in the manufacturing of large number of items such as ballast, concrete sleepers, specialised mechanical track laying/relaying equipments, railway panels, steel roof panels, columns, gentry, girders, wind girdles, frames, dressings? erection towers, tackles, etc., track laying equipment, cantilever assemblies, termination assemblies, droppers, multi-track portal structures, structure and earth steel bonds, earth mats, jumpers of different sizes, drop arms, super masts for feeders, multiple crosschannels of different sizes, double .track cantilevers, aluminum bus bars, reel wagons, flat top coaches for pentagraph checking, special beat attachment for pedestal insulators, signals and signal operating systems, relay racks, relays, signalling truck circuiting power packs, ground gears etc., all of which are used in the fabrication and installation of railway tracks. 12. From the above it is vivid that besides construction activity and lying of railway line the assessee during the relevant financial periods was engaged in manufacturing act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the case of the assessee was not examined by the Tribunal from this angle at all. 15. On the basis of foregoing discussion we observe that the assessee is also engaged in the manufacturing of large number of items used which are used in fabrication and installation of railway lines/tracks. The Ld. CIT(DR) pointed out that this fact was not disclosed or placed before AO and CIT but we decline to accept this contention of the as from para 3 at page 2 of the order of CIT dated 7.2.1989 passed u/s 263 of the Act, we note that vide written submission dated 27.9.1988 the assessee submitted this fact that the assessee company is suppose to manufacture various articles like cement concrete sleepers, track lying equipment, rail penal etc. which shows that the fact of manufacturing activity was informed to lower authorities and this fact was subsequently noticed in the Tribunal order for asstt. year 1983-84 (supra) and Hobn ble High Court order (supra) thus it would be not fair to the assessee to say as contended by Ld. CIT(DR) that the Ld. Standing counsel tried to make out a new case by placing factually incorrect arguments, as noted by Hon ble High Court in para 32 (supra) that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on (2) but the case of the AO is that the assessee is primarily engaged in the business of construction and lying of railways track / line and hence it is not entitled for deduction of u/s 80 HH 80I of the Act. The CIT has in order u/s 263 of the Act for asstt. year 1984-85 (supra), in para 4 dismissing said claim of the assessee in regard to manufacturing activities, observed as follows :- 4. At the outset, I would like to point out that the department has never doubted the status of the company as not being an Industrial Undertaking. Therefore, the arguments of the assessee company in this context are redundant. Regarding the manufacturing activity as listed in the reply, the claim of the assessee company is still inadmissible because the end product after the execution of the project is a Railway track or a bridge. As already explained, they do not constitute an article or a thing being immovable in character. There might be a minor activity of manufacture of articles but the purpose of this activity is to complement the main project i.e laying of Railway track. In view of this, the arguments of the assessee company are devoid of any substance and, therefore, the same ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturing activities may be placed before the competent authority to discharge onus cast upon the assessee to substantiate its claim of deduction. The Ld. CIT(DR) has objected to above submissions of assessee by contending that when there is not separate accounts then and details and amount of income from small and insignificant manufacturing are not on record then it would be futile exercise to grant an opportunity to assessee to submit the same at this belated stage hence, claim of the assessee should be dismissed. 20. On careful consideration above it was the duty and onus on the shoulder of the assessee to show that he was also engaged in manufacturing activities and the gross total income declared by it also include income from manufacturing activity and on the basis of foregoing discussion we have held that the assessee is entitled for deduction u/s 80HH and 80I of the Act on the part of income earned from manufacturing activities. However, for want of adequate material on the record of the Tribunal, it is not possible for us to calculate quantum of deduction and thus we find it appropriate to send the issue for limited purposes i.e. for calculation of deduction u/s 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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