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TMI Blog2022 (7) TMI 1018X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in 13th schedule, between 07.01.2003 to 01.04.2012 in an Industrial Area notified by the CBDT. In the State of Himachal Pradesh, the industrial area of Parwanoo was so notified by the CBDT vide Notification No. 273/2003 dated 04.11.2003. The purpose of incorporation of Section 80IC manifestly was to invite long term investment, entrepreneurship etc. in the areas which were industrially backward. The incentive of deduction from the income generated from such enterprise for the limited years could not be used to negate the very purpose of the inclusion of Section 80IC. This facility could not be allowed to be used to camouflage the production by making only small investment in the areas specified in Section 80IC on one hand and abandon the production after lapse of incentive period on the other. The very small quantum of capital investment made by the assessee in establishing its unit at Parwanoo had also weighed with the Assessing Officer as one of the reasons to hold as above. The term manufacture or produce used in Section 80IC has to be construed in the true context of the object and purpose of the said provision. The ITAT has failed to consider this important aspect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1961 (for short the Act ) for the assessment year 2005-06. The Assessing Officer denied the deduction so claimed and vide assessment order dated 30.11.2007 passed under Section 143(3) of the Act assessed total income of assessee at Rs.1,66,61,240/-. The assessee assailed the assessment order in appeal No. IT/212/2007-08/SML. The appeal of assessee was dismissed by CIT(A), Shimla on 29.04.2009. The assessee filed further appeal before the ITAT, Chandigarh which was allowed on 30.11.2009 as ITA No. 499/Chd, 2009. Revenue assailed the order dated 30.11.2009 passed by the ITAT Chandigarh in ITA No. 15/2010 before this Court, which later came to be withdrawn by the Revenue on 22.12.2021 on account of involvement of low tax effect. 4. The point in issue in the aforesaid litigation was whether the process undertaken by the assessee in its industrial unit at Parwanoo amounted to manufacture or production of the Anchors so as to qualify the requirements of Section 80IC of the Act? Whereas, the Assessing Officer and CIT(A) concurrently held that since the substantial process involved in production of Anchors was being got done by the assessee from Ludhiana on work order basis and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and misunderstood the facts on record while setting aside the clear finding that the profit had been inflated by the assessee for the purpose of deduction u/s 801C. 8. We have heard Mr. Vinay Kuthiala learned Senior Advocate with Mrs. Vandana Kuthiala Advocate for the appellants and Mr. Vishal Mohan Advocate learned counsel for the assessee and have also gone through the records. Questions Nos. 3 and 4 9. Questions Nos 3 and 4, as noted above, are being taken up for consideration by us in the first instance. The consideration of these questions requires us to briefly recapitulate the material on record. 10. The Assessing Officer had found that the assessee, in the assessment year 2006-07 had declared total sale of Rs. 15,63,28,569/- and had shown profit of Rs.6,10,30,054/- which gave gross profit rate at 39.04% and net profit rate at 32.54%. The Assessing Officer, by making a comparison between the assessee and M/s Kay Pee Industries in respect of their sales during the relevant year and expenses incurred, held that the assessee had not fully debited expenses and profit shown by the assessee was not acceptable. Further, it was held by the Assessing Officer tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount and such books of account of the assessee had not been rejected under Section 145 of the Act. The Assessing Officer was held to have arrived at his conclusions merely on estimation. The basis for estimation of the GP NP ratio that too in comparison with the M/s Kay Pee Industries was not held to be correct as there was no similarity in the products manufactured by two different concerns. The Assessing Officer, according to the impugned order passed by the ITAT, had estimated profits of assessee on estimation, conjectures and surmises. No basis was found in documents in assuming declaration of inflated profits by the assessee. Further, the deduction at the rate of 5% of total sales on account of non-payment of charges to M/s Kay Pee industries for technical know-how and deduction of equivalent amount on account of non-payment of charges for goodwill etc., to the said concern, as concluded by the Assessing Officer, have also been held to be without any basis. 15. Learned counsel for the appellant has not been able to show that findings recorded by the ITAT, as noticed above, were against the records or were perverse. The ITAT being the final fact finding authority, in our c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner of Income Tax-V, New Delhi vs. Oracle Software India Limited, (2010) 2 SCC 677, the Hon ble Apex Court has further expounded as under: - 12. In our view, if one examines the above process in the light of the details given hereinabove, commercial duplication cannot be compared to home duplication. Complex technical nuances are required to be kept in mind while deciding issues of the present nature. The term manufacture implies a change, but, every change is not a manufacture, despite the fact that every change in an article is the result of a treatment of labour and manipulation. However, this test of manufacture needs to be seen in the context of the above process. If an operation/ process renders a commodity or article fit for use for which it is otherwise not fit, the operation/ process falls within the meaning of the word manufacture . 19. In Income Tax Officer vs. Arihant Tiles and Marbles, 2010(2) SCC 699, it has been noted that the expression used in Section 80IA - which is analogous to the expression used in Section 801B, which uses words manufactures or produces, as applicable to the present case mandates the Court to consider not only word manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer for declining the benefit of section 80IC to the assessee for both the assessment years i.e. 2006-07 and 2007-08. It was held that the enterprise of assessee was not involved in the manufacture or production of Anchors at Parwanoo. Such finding was based on the premise that substantial work in the entire process of production was got done by the assessee from Ludhiana in Punjab by outsourcing the jobs. Only minimal job was given effect to at Parwanoo which included threading of rods on both the ends, assembly of nuts/washers and application of asphalt coat thereon. The Assessing Officer, for arriving at such conclusion, had taken into consideration the findings of survey, report of Chartered Engineer, statements of partners of assessee recorded under Section 131 of the Act etc. Thus, there was clear finding of fact recorded by the Assessing Officer that only small part of entire process involved in production of the Anchors was done at Parwanoo and that by itself could not be considered sufficient to hold that the assessee was engaged in manufacture or producing the end product at Parwanoo. 23. The Assessing Officer had relied upon the following flow chart relating to man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.04.2012 in an Industrial Area notified by the CBDT. In the State of Himachal Pradesh, the industrial area of Parwanoo was so notified by the CBDT vide Notification No. 273/2003 dated 04.11.2003. 27. The purpose of incorporation of Section 80IC manifestly was to invite long term investment, entrepreneurship etc. in the areas which were industrially backward. The incentive of deduction from the income generated from such enterprise for the limited years could not be used to negate the very purpose of the inclusion of Section 80IC. This facility could not be allowed to be used to camouflage the production by making only small investment in the areas specified in Section 80IC on one hand and abandon the production after lapse of incentive period on the other. The very small quantum of capital investment made by the assessee in establishing its unit at Parwanoo had also weighed with the Assessing Officer as one of the reasons to hold as above. 28. In view of this matter, the term manufacture or produce used in Section 80IC has to be construed in the true context of the object and purpose of the said provision. The ITAT has failed to consider this important aspect which, in o ..... 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