2015 (2) TMI 625 - AT - Income Tax

Assembly of air purifier systems qualifies as manufacturing under Section 80IC for tax deductions

The Tribunal upheld the CIT(A)'s decision that the assessee's assembly of air purifier systems constituted manufacturing under Section 80IC, qualifying ... Eligibility of deduction u/s 80IC - Held that:- In the present case before us there is no dispute that assembling of different components / parts has resulted in formation of a commercially new and distinct products from the inputs used in its manufacture / production. In another words the parts used in isolation cannot purify the air which is object of the air purifier unless these parts are assembled to achieve the object. We thus fully concur with the finding of t he Ld. CIT(A) and the reasoning given by him which is fully supported by the decisions followed by him in this regard that the assessee was involved in the process of manufacturing of the air purifier and was thus eligible for claiming deduction u/s 80IC of the Act. Besides it is also worth to note that the local authorities like District Industries Centre, etc. have also recognized the assessee as a manufacturer. We are thus not inclined to interfere with the finding of the Ld. CIT(A) in this regard. - Decided in favour of assessee. Issues Involved:1. Eligibility of the assessee for deduction under Section 80IC of the IT Act 1961.2. Determination of whether the activities of the assessee amount to manufacturing for the purposes of Section 80IC.Detailed Analysis:1. Eligibility for Deduction under Section 80IC:The primary issue raised by the revenue in these appeals is the eligibility of the assessee for deduction under Section 80IC for the assessment years 2006-07, 2008-09, and 2009-10. The assessee claimed deductions of Rs. 42,90,162/-, Rs. 85,69,594/-, and Rs. 2,46,13,965/- respectively for these years. The Assessing Officer (AO) disallowed these claims on the grounds that no manufacturing expenses were incurred, and no machinery was available, despite allowing depreciation on machinery and tools for the Roorkee division.2. Determination of Manufacturing Activities:The assessee contended that it was involved in manufacturing air purifier systems by assembling various components procured from different vendors. The AO argued that this activity could not be termed as manufacturing since it only involved assembling parts, which does not qualify for the incentives provided under Section 80IC. The AO also noted the absence of machinery and manufacturing expenses in the balance sheet and profit and loss account, questioning the authenticity of the tools purchased.Judicial Findings and Reasoning:Assessment of Manufacturing Process:The assessee provided detailed descriptions, flowcharts, and photographs depicting the manufacturing process, which involved various operations on each component before assembly. The assessee argued that the assembly of components resulted in a commercially new and distinct product, thus qualifying as manufacturing under Section 80IC. The CIT(A) agreed with this assessment, referencing several judicial precedents, including the Supreme Court decisions in Union of India vs. Delhi Cloth & General Mills and Dy. CST vs. PIO Food Packers, which established that assembling parts into a new product constitutes manufacturing.Supporting Judicial Precedents:The CIT(A) cited multiple decisions to support the claim that assembling parts amounts to manufacturing, including:- Ramit Kumar Sharma (2009) 309 ITR 344 (AAR)- CIT vs. N.C. Budhiraja & Co. (1993) 204 ITR 412 (SC)- Aspinwall & Co. Ltd. vs. CIT (2001) 251 ITR 323 (SC)- CIT vs. Tata Locomotive 68 ITR 325 (Bom)The CIT(A) concluded that the assessee successfully demonstrated that the process resulted in a new and distinct product, and thus qualified for the deduction under Section 80IC. The Tribunal upheld this finding, emphasizing that the parts used in isolation could not achieve the objective of air purification, which is only possible through the assembly process.Conclusion:The Tribunal concurred with the CIT(A)'s findings and reasoning, affirming that the assessee was involved in manufacturing and thus eligible for the deduction under Section 80IC. The appeals by the revenue were dismissed, and the order was pronounced in the open court on 10th January 2014.