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TMI Blog2023 (1) TMI 756X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessee : Shri Ajay Singh, A.R. For the Revenue : Shri Krishna Kumar, D.R. ORDER PER : KULDIP SINGH, JUDICIAL MEMBER: The appellant, Dy. Commissioner of Income Tax, Mumbai (hereinafter referred to as the Revenue ) by filing the present appeal, sought to set aside the impugned order dated 23.11.2021 passed by the National Faceless Appeal Centre(NFAC) [Commissioner of Income Tax (Appeals), Delhi] (hereinafter referred to as CIT(A)] qua the assessment year 2011-12 on the grounds inter-alia that :- 1. Whether on the facts and in circumstances of the case and in Law, the Ld. CIT(A) has erred in granting relief of erroneous claim of deduction u/s 80IB of the Income Tax Act, 1961? 2. Whether on the facts and in the circumstances of the case and in Law, the Ld. CIT (A) failed to appreciate the fact that the assesses got its own goods manufactured at an non-80IB Unit and had paid labour charges of Rs.45,18,797/- thereby not satisfying one of the conditions of section 80IB(2) (iv) of the Income Tax Act, 1961? 3. The appellant craves leave to add, alter, amend and modify any of the above grounds of appeal. 2. Assessee by moving an application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. CIT(A) has duly thrashed the facts in the light of the law applicable thereto particularly case decided by the coordinate Bench of the Tribunal cited as Sunrise Metal Industries vs. ITO 89 ITD 406 and Board Circular No.347 dated 07.07.1982 137 ITR (ST) 14. Operative findings of the Ld. CIT(A) are as under: 8. I have considered the facts of the case, assessment order, appellant's written submissions and case-laws relied on by the appellant. In the instant case, the assessee's case for the AY 2005-06 was reopened on the basis of audit objection that the deduction u/s 80 IB was wrongly allowed to the extent of Rs. 13,20,693/- as assessee got its own goods manufactured at non-80-IB unit, had paid labour charges of Rs 45,18,797/- and it was eligible for the deduction to the extent of Rs. 7,73,9697-. During the reassessment proceedings, the assessee submitted before the AO that it had rightly claimed deduction u/s. 80IB of the Act and only on the basis of part of the manufacturing activity being done from outside unit, the deduction u/s. 80IB could not be disallowed. However, the AO was not satisfied with the assessee's submission. The AO mentioned that since the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose; (iii) it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any pail of India : Provided that the condition in this clause shall, in relation to a small scale industrial undertaking or an industrial undertaking referred to in sub-section (4) shall apply as if the words not being any article or thing specified in the list in the Eleventh Schedule had been omitted. Explanation 1.-For the purposes of clause (//'), any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namely :- (a) such machinery or plant was not, at any time previous to the date of the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 83 [2002]. 84 (4) The amount of deduction in the case of an industrial undertaking in an industrially backward State specified in the Eighth Schedule shall be hundred per cent of the profits and gains derived from such industrial undertaking for five assessment years beginning with the initial assessment year and thereafter twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains derived from such industrial undertaking : ------------------------------------------------------------------------------------- From plain reading of this section, it is clear that to claim deduction u/s 80IB, an industrial undertaking must satisfy the following conditions: A. It should be a new undertaking, not formed by splitting up, or the reconstruction, of a business already in existence. B. It should not be formed by transfer of machinery or plant previously used for any purpose. C. It manufactures or produces any articles or things (not being an article or thing specified in the Eleventh Schedule) or operates cold storage plant, in any part of India. D. It begins to manufacture or produce of articles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . That is an irrelevant or immaterial factor. The sole question is, whether on a consideration of the totality of the activities including the one relating to fumigation by the treatment with methyl bromide which enables the goods to be exported as a marketable commodity, amounted to the business of processing of goods..... The Hon'ble Calcutta High Court in the case of Addl. CIT Vs. A.Mukherjee Co. (P) Ltd. reported in 113 ITR 718 observed as below. In order that a publisher of books should be a manufacturer of books it is wholly unnecessary for him either to be an owner of a printing press or to be a book-binder himself. A paper is not a book, though it is printed on papers. A publisher may get the books printed from any printer but the printer is not the manufacturer but a mere contractor. 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. The argument, namely, that the assessee was not mainly carrying on manufacturing or processing activities in view of the Tribunal's finding that the assessee's activity cannot be called ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act, 1961. Reference has been made in this connection to the decisions of the Madras and Calcutta High Courts in the cases of CIT, Madras v. Commercial Laws of India Pvt. Ltd. [1977] 107 ITR 822, and Addl. CIT, West Bengal-11 v. A. Mukherjee Co. (P.) Ltd. [1978] 113 ITR 718, respectively. In the Madras decision it has been held that folding and stitching the printed sheets and converting them into parts or books, as the case may be, constituted processing of goods. In the Calcutta decision it was held that it is wholly unnecessary for a publisher of books to be an owner of a printing press or to be himself a book binder to be a manufacturer of books. A publisher may get the books printed from any printer, but the printer is a mere contractor and the publisher carries on the business of manufacturing and processing of goods. 2. The Board has been advised to accept these decisions. In view thereof, book publishing companies even though they may themselves not be engaged in the printing or binding of books qualify to be treated as industrial companies for the purpose of section 104 as well as for the concessional tax treatment given to industrial companies . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... processing was done by the outside agency for and on behalf of the assessee and the charges incurred therefore were met by the assessee directly. The books of account of the assessee disclose, as found by the Tribunal, that the labour charges have been directly paid by the assessee under various heads in respect of the processing done in the factories of outside agencies. This means that, for the purpose of processing the goods entrusted by the assessee, the men employed in the factory of the outside agency are, for all practical purposes, the employees of the assessee itself... Further, in the following judgment it has been held that where the work is being processed by third parties under the direct control and supervision of the assessee, the same amounts to manufacture and eligible for deduction under the Act. Neelu Textiles v. Addl. CIT-128 Taxman 93 (Jodh) The assessee-firm was engaged in cloth manufacturing. Entire production process included, inter alia, purchase of yam, weaving of yarn and production of grey cloth, mending, processing and putting the logo/name of company, its trade name and to market the products. However, a part of the production pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said case, all the raw materials including packing materials were supplied to third party for manufacturing the drug and the drug was manufactured under the direct control and supervision of the principal party. It was held to be a manufacturing concern. In the case of CIT Vs. Talwar Khuller (P.) Ltd. reported in 235 ITR 70, it was held as below:- Held, that a processor of goods need not himself carry out all the processes resulting in the end product: he may get some of them done by a third party. The artisans were not free to manufacture any item of their own in any shape or pattern they liked but they were guided by the assessee itself as to which pattern and design they were required to manufacture. Applying the test of close supervision and control, the Tribunal was right in holding that the assessee was an industrial company as defined in section 8(c) of the Finance Act, 1975, entitled to the concessional rate of tax . In the case of CIT Vs. Indian Resins and Polymers reported in 235 ITR 5, it was held as below:- The assessee carried on business in respect of kernels and shell oils. The assessee purchased raw cashew nuts and after drying the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a reference: Held, affirming the decision of the Tribunal, that the conversion of raw cashew nuts into cashew kernels would be a manufacturing or processing activity and that the assessee was an industrial undertaking entitled to deduction under sections 80HH and 80J of the Act. Similar view as above was pronounced in the case of Sunrise Metal Industries Vs. ITO reported in 89 ITD 406. 10. The words control and supervision have not been defined anywhere in the Income Tax Act. Law lexicon defines control to mean to check, to regulate, to govern, keep under check, to dominate, to exercise a direct influence over to have authority over the particular matter and supervision to mean power of inspection and superintendances of the manual work of others. It can be noted that the work given on job was verified by the appellant and then only payments were made. Control and supervision does not mean that it must be constant. It can vary according to the nature of work. Control and supervision does not mean that either the appellant or his agent should daily go and inspect the work as also the quality. Needles to mention that the ownership over the goo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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