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TMI Blog2017 (2) TMI 1498X X X X Extracts X X X X X X X X Extracts X X X X ..... lace either in its own premises or was outsourced as per its own specification - it can be said without any hesitation that it was the assessee who was indulging in the manufacturing of SS flats - it is not the case of the Revenue that the assessee was buying SS flats from an outside party and then selling it. Therefore, for the aforesaid reasons, we hold that the assessee undertook the manufacturing of SS flats and was entitled to claim deduction on entire profits earned from the same. Assessee was only required to manufacture SS Flats to be eligible to claim deduction u/s 80IC,which since we have already held so above,the assessee was entitled to claim deduction of entire profits earned on the same u/s 80IC of the Act. For the said reason also we are not in agreement with the contention of the Ld. DR that the profits should be apportioned to different activities involved in manufacturing of a product and deduction u/s 80IC thereafter be restricted to profits on manufacturing carried out by the assessee only While allowing deduction on part of the profits earned by the assessee, the Revenue admits that the assessee is involved in manufacturing activity. Also admittedly the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the gross total income declared by the assessee for the year included profit and gains of ₹ 1,51,36,157/- from its industrial undertaking at Kala Amb,Himachal Pradesh. Against the said profit, the assessee had claimed deduction of ₹ 1,19,24,801/-under section 80 IC of the Act. The AO observed that the assessee was in the business of manufacturing stainless steel flats(hereinafter referred to as SS Flats) and that during the course of manufacturing the same, the stainless steel ingots produced by the assessee at its factory premises were sent to its associate company, Nahan Ferro Alloys Chemicals Private Limited (NEA), for getting rolled into stainless steel flats on job work basis. The AO further noted that the stainless steel flats were received back at the assessee s factory premises for cutting and then were sold in the market. The AO found that the deduction included the profit and gains related to conversion of steel ingots into steel flats on job work basis by the associate company. He therefore raised the query that according to the provisions of section 80 IC only the profit and gains of manufacturing activity undertaken by the assessee itself can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated that the assessee without making investment in setting up manufacturing facility could not claim benefit of section 80IC. Ld. CIT (Appeals) further held that the argument that section 80IC does not specify any requirement of having the whole manufacturing process in-house is against the intent of the provisions of section 80IC since it provides deduction on account of manufacture or production of any specified article of thing. Ld. CIT (Appeals) further held that the conversion of ingots into flats is the major process in the manufacturing for which the appellant had no direct or indirect control or any input. Thereafter, referring to subsection (10) of section 80IA of the Act Ld. CIT (Appeals) held that the AO was correct in denying deduction under section 80IC on the profit component of the manufacturing process of conversion of stainless steel ingots into stainless steel flats which manufacturing activity was not carried out by the assessee but by its associate concern. Thus the Ld. CIT (appeal) dismissed the assessee s appeal on this ground. 6. Aggrieved by the same, the assessee filed the present appeal before us. 7. Before us Ld. Counsel for the assessee reitera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kala Amb except the process at Sr.No.3 being annealing/conversion of ingots to SS flats, which is carried out in another company M/s Nahan Ferro Alloys Chemicals Private Limited. 12. The case of the Revenue is that the profits relating to this outsourced process are not eligible for deduction u/s 80IC to the assessee for the reason : a) This activity was not undertaken by the assessee. b) The unit which undertakes this activity is also located in section 80IC specified area and must have also claimed deduction on the profits earned on conversion of ingot to flats and; c) In view of the provisions of section 80IA(10), which become applicable in the present case in view of the provisions of section 80IC(7) of the Act, the Assessing Officer is empowered to compute reasonable profits and gains from business transaction between the eligible and other unit which are so arranged. 13. The Ld. counsel for the assessee, on the other hand, contended that for the purpose of claiming deduction u/s 80IC there is no requirement under the Act for carrying out the entire manufacturing activity by the claimant assessee and there is no provision under the Act for allocating prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Schedule and undertakes substantial expansion during the period beginning- (i) on the 23rd day of December, 2002 and ending before the 1st day of April, 2012, in the State of Sikkim; or (ii) on the 7th day of January, 2003 and ending before the 1st day of April, 2012, in the State of Himachal Pradesh or the State of Uttaranchal; or (iii) on the 24th day of December, 1997 and ending before the 1st day of April, 2007, in any of the North-Eastern States. 15. Clearly the section mandates that undertakings or enterprises eligible for deduction are those which manufacture any article or thing. 16. It is the scope and extent of this manufacturing activity vis-a-vis the assessee and its correlation with the quantum of deduction, which is the issue in dispute in the present appeal, giving rise to the following question which needs to be addressed by us: whether deduction u/s 80IC is to be allowed only on profits vis a vis the manufacturing activity carried out by the assessee, Alternatively, If a part of the manufacturing activity is outsourced ,does it tantamount to the assessee not carrying out manufacturing . 17. We find that Courts in a number of cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther printing materials and ultimately manufactures or processes publications for sale. The business that the assessee is doing can, therefore, be called a manufacture activity. The High Court upheld the findings as follows: The findings of the Tribunal in our opinion conclusively show that the assessee was carrying on the activity of manufacturing and also of processing of Books which are also Goods 19. In the case of CIT Vs. Neo Pharma P. Ltd., 137 ITR 879 (Bom) on the question before the Court, whether the assessee company was a manufacturing company, entitled to rebate at high rate, The Hon'ble Court held as follows : In the present case, although the plant and machinery employed for the purpose of manufacture belonged to Pharmed and the services of certain employees to Pharmed were also utilised in that process, the manufacturing activity was really that of the assessee. It was the assessee which paid the hire charges for the machinery and the plant. It was the assessee which purchased the raw materials and the packing materials. The employees of Pharmed carried out the manufacture of drugs and pharmaceuticals under the direct technical supervision of the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t trading activity. Undeniably, the final product manufactured i.e. SS flats, was manufactured by the assessee itself for sale in the market and the process outsourced to Nahan Ferro Alloys Chemicals Private Limited was as per its specification and requirement since it is not denied that the risk associated with the sale of the final product was with the assessee and the assessee was responsible for the sale of the same. Further, we find, that it is not the Revenues case that the outsourced activity was not under the supervision and control of the assessee. Therefore, clearly, the entire manufacturing activity of SS flats was under the supervision and control of the assessee itself and took place either in its own premises or was outsourced as per its own specification. Therefore, in view of the decisions of various High Courts on the issue, it can be said without any hesitation that it was the assessee who was indulging in the manufacturing of SS flats. We may add that it is not the case of the Revenue that the assessee was buying SS flats from an outside party and then selling it. Therefore, for the aforesaid reasons, we hold that the assessee undertook the manufacturing of SS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of facts. The Ld.DR has not controverted this fact contended by the Ld Counsel for the assessee. Therefore also there is no reason to restrict the deduction to the extent of manufacturing activity carried out by the assessee in the impugned year. 27. Ld.DR has also relied upon the findings of the Ld. CIT (Appeals), who we find has applied the provisions of section 80 IA(10) to the facts of the case and stated that since the job work was got done by the assessee through its associate concern, the provisions of 80 IA(10) were attracted in the present case and in view of the same he denied deduction of profits to the extent of work got done through the associate concern. 28. This interpretation of the provisions of section 80IA(10), we hold, is grossly incorrect. Section 80IA(10) deals with the situation where by virtue of the arrangement in business transactions by the appellant with any other person for any reason provides more than the ordinary profit which might be expected to arise from the eligible business of the appellant. In such circumstances the assessing officer has been given the power to estimate the reasonable profits in such cases and allow deduction to that ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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