2022 (8) TMI 1328 - AT - Income Tax

Tribunal grants deduction under Section 80IB for manufacturing activities.

N Core Cables Versus Assistant Commissioner of Income-tax, Vapi.

The Tribunal allowed the appeal, directing the Assessing Officer to grant the deduction under Section 80IB to the assessee. The Tribunal found that the ... Deduction u/s 80-IB - manufacturing by the industrial undertaking - Denial of deduction as assessee firm has not caried out any manufacturing activity at its industrial undertaking at Daman on or before 31.03.2004 - HELD THAT:- From the above judgment of the Hon`ble Bombay High Court in the case of Anglo French Drug Co. (Eastern) Ltd [1991 (2) TMI 63 - BOMBAY HIGH COURT] it is abundantly clear that it is not necessary that the manufacturing company must manufacture the goods by its own plant and machinery at its own factory. If in substance the manufacturing company has employed another company for getting the goods manufactured by it under its own supervision or control, the assessee can be considered as a company engaged in manufacture of goods and, thus, an industrial company. Therefore, we note that in the assessee`s case under consideration, assessee received orders from customers to supply the goods to them and the assessee executed these orders by way of manufacturing done by M/s Nangalwala Chemical Industries of Alwar, under the direct supervision of one of the partners. The assessee applies own technology, standard process, own raw material, own quality control/check, and the goods are manufactured as per the specification given by customers. Based on these facts and circumstances, we note that assessee is entitled to get deduction under section 80-IB of the Act. Hence, we direct the assessing officer to allow deduction under section 80IB - Appeal filed by the assessee is allowed. Issues Involved:1. Denial of deduction under Section 80IB of the Income Tax Act.2. Determination of whether the assessee conducted manufacturing activities.3. Validity of the use of external facilities for manufacturing.4. Assessment of power usage and its impact on eligibility for deductions.5. Evaluation of plant and machinery installation and operational details.Issue-wise Detailed Analysis:1. Denial of Deduction under Section 80IB:The primary issue is the denial of the assessee's claim for a deduction under Section 80IB of the Income Tax Act. The assessee filed its return for the assessment year 2004-05, claiming a deduction of Rs. 8,00,308/- under Section 80IB. The Assessing Officer (AO) disallowed this claim, concluding that the assessee did not engage in manufacturing activities as required by the section.2. Determination of Manufacturing Activities:The AO observed that the assessee did not utilize power in its unit and relied on job work from M/s Nangalwala Chemical Industries for manufacturing rubber cables. The AO issued show-cause notices questioning the eligibility for the deduction, to which the assessee responded by stating that manufacturing was done under the direct supervision of a partner, using their technical know-how and raw materials. The AO, however, concluded that the assessee did not carry out any manufacturing activities and disallowed the deduction.3. Validity of Use of External Facilities:The assessee argued that due to the delay in getting an electricity connection, they used a generator and external facilities for manufacturing. The assessee cited the jurisdictional Bombay High Court decision in Anglo French Drug Co. (Eastern) Ltd., which held that manufacturing at third-party premises under the supervision of the assessee qualifies as manufacturing by the assessee. The Tribunal agreed, noting that the assessee used its own technology, raw materials, and quality control, and thus should be considered as engaged in manufacturing.4. Assessment of Power Usage:The assessee contended that the power connection was sanctioned on 01.03.2004 and released on 30.03.2004. They argued that even if the machinery operated for one day, it should qualify for the deduction. The Tribunal found that the lower authorities overlooked this critical evidence and agreed with the assessee's contention that the delay in power connection should not disqualify the deduction.5. Evaluation of Plant and Machinery Installation:The assessee provided detailed evidence of the installation and commissioning of plant and machinery, purchase of raw materials, and manufacturing process. The Tribunal noted that the AO did not dispute the purchase of raw materials or the installation of machinery. The Tribunal also referenced the Bombay High Court's decision in Penwalt India Ltd., which supported the view that using external facilities under the assessee's supervision qualifies as manufacturing.Conclusion:The Tribunal concluded that the assessee is entitled to the deduction under Section 80IB. The manufacturing activities, though partially conducted at an external facility, were under the direct supervision and control of the assessee, using their technology and raw materials. The Tribunal directed the AO to allow the deduction of Rs. 8,00,308/-.Result:The appeal filed by the assessee was allowed, and the order was pronounced on 04/08/2022.