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TMI Blog2012 (12) TMI 1104X X X X Extracts X X X X X X X X Extracts X X X X ..... urviving ground is concerned, same relates to confirmation of disallowance of deduction u/s 80IB of the Act to the extent of ₹ 57,25,080/- in respect of profit earned by industrial unit, M/s M.J. Packaging, being a proprietorship concern of the assessee. 4. The Assessing Officer from the perusal of the record has noticed that the assessee has reduced its income by ₹ 57,25,080/- in the statement of assessable income by claiming the amount as expenditure u/s 80I of the Act. There is no provision of allowing expenses u/s 80I against income of the assessee. Further, it was also noticed that in the audit report in form 3CD enclosed with the return of income at point No.26 it was mentioned that the deduction admissible under chapter VIA was 'Nil'. Moreover, the assessee did not claim any deduction u/s 80I in its return of income filed in form 2D for assessment year 2002-03 in the status of individual. Therefore, the Assessing Officer had reason to believe that income had escaped assessment to the extent of ₹ 57,25,080/-. A notice u/s 148 was therefore issued to the assessee on 11.05.2006 and subsequently notice u/s 142(1) and 143 were issued to the assessee. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it has been judicially held that the entire manufacturing process may be outsourced but as long it is under the assessee's supervision and control deduction u/s 80lB is allowable. As regards the learned Assessing Officer is objection that the appellant and M.J. Enterprises Ltd. are claiming 80-1B deduction for the same amount is factually incorrect since the amount paid to M.J. Enterprises Ltd. has been claimed as expenses by the appellant which has reduced the income and consequently the claim u/s 801B. It is easy to understand that Income of one unit is an expense of the other. The same amount cannot be income for both." 7. Ld.CIT(A) observed as per para.6.3 as under: "I have carefully considered the submissions made by the appellant and the findings recorded by the Ld. AO as per the assessment order and noted that one of the conditions for allowance of deduction uls 80I is that an assessee must employ 10 or more workers in a manufacturing process carried on with the aid of power, or employ 20 or more workers in a manufacturing process carried on without the aid of power. It is an admitted fact that the appellant had employed only 4 workers. It has been ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ours a day. 6 days a week to execute the job work of ₹ 1,02,20,815/-. In any case the workers used in the course of outsourcing from another concern can also be considered as employed by the assessee. We, therefore, submit that the learned A. O. has merely on surmises and conjectures determined the quantitative labour requirement· for the appellant for the purposes of achieving a turnover of Re. 1 crore plus in its business of manufacture of corrugated boxes. " 7.1 CIT(A) while considering, but not accepting the plea of the assessee has concluded to first adjudicate upon the issue of allowablity of deduction u/s 80I after discussing legislative intent as provided in the statute has concluded to reject the appeal of the assessee from para.6.4 to 6.10 by discussing and following decisions: 1. In the case of Commissioner of Income-tax v. A. R. Balaraman (Deed.) (242 ITR 470) 2. In the case of Commissioner of Wealth-tax V. Venkatachalam Pillai (5.) (215 ITR 406) 3. In the case of Hon'ble Madras High Court decision in CWT vs. Ramalingam (V.O.) (216 ITR 566) 4. In the case of Liberty Group Marketing Division vs. ACIT, the Hon'ble ITAT, Delhi ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts and circumstances of the case and manpower required was also not established, therefore, assessee was was not entitled to deduction u/s 80IA of the Act which has rightly been refused by the Assessing Officer whose action has justifiably been confirmed by the CIT(A). It was thus pleaded for confirmation of the impugned order. 10. We have heard both the sides, considered the material on record as well as precedents relied upon Ld.CIT(A) and by rival sides, it is seen that before Assessing Officer assessee has furnished his explanation with regard to deduction u/s 80I as under: "Payment of job work charges to sister concern : The company has paid a sum of ₹ 39,36,030/- to M/s M.J. Enterprises Limited for getting those jobs done for which it had not installed machines itself as they were already available with a company in the immediate vicinity and having surplus capacity. We would like to point out that all manufacturing companies get job work done from other companies having surplus capacities in order to save on both capital and revenue costs. Having job work done for payment of the manufacturing process does not amount to outsourcing of the manufacturing process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not have machinery to corrugate, therefore, outsourcing it as the other party who had spare capacity to do job work and expenses constitute 90% of the total expenses, since the raw material etc. i.e. kraft paper was supplied by the customers and other expenses like salary and wages, labour charges, hiring of machine, technical service charges etc. did not require much expenditure, as compared to corrugation charges, and so far as workers involved are concerned, permanent were 4 and hired workers were 8 borrowed from sister concern taken on permanent basis. So, the requirement of employing 10 workers is also met. 12. After having considered the facts, material on record and other relevant details, we find that all the conditions to qualify for deduction u/s 80IB of the Act is found to have been fulfilled by the assessee, inasmuch as, first conditions of employing 10 or more labour when use of power is not disputed has been fulfilled because courts have held that contract labour also qualifies for deduction as envisaged under relevant provisions and useful reference can be made by the decision of Hon'ble Gujarat High Court in the case of CIT vs. Prithviraj Bhoorchand, 280 ITR 94 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. That flat positioned paper corrugated boxes are the final products of the respondent/assessee. 3. According to the appellant, since the corrugated sheet in the process of being folded into a box, it has not lost its original characteristics of corrugated sheet, no manufacturing activity had taken place and therefore, the ingredients of Section 80IB of the Act, are not attracted. 4. The Commissioner of Income-tax (Appeals) however differed from the Assessing Authority and took the view that the corrugated sheets once are shaped into corrugated boxes, that would amount to a 'manufacturing activity' and therefore, the respondent/assessee was entitled for deduction under Section 80IB of the Act. The Commissioner of Income-tax (Appeals) therefore directed the Assessing Officer to ascertain the exact quantum of deduction after making proper verification to grant the relief. 5. The Tribunal also took the same view and held that the conversion of corrugated sheets into boxes would amount to 'manufacture' having noted the nature of activity of the respondent/assessee, which disclose that the plain corrugated sheets are put into the designing machine in order to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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