2016 (4) TMI 562 - AT - Income Tax

Appeal granted for manufacturing activities at Sitarganj, entitling assessee to deduction under section 80IC.

M/s Fiberfill Engineers Versus ACIT Circle 38 (1), New Delhi

The Tribunal allowed the appeal, determining that the activities at Sitarganj amounted to manufacturing, making the assessee eligible for the deduction ... Deduction u/s 80IC - DR in course of her arguments submitted that there was no substantial investment in fixed assets at the premises so as to enable one to conclude that assessee was carrying out manufacturing activity - Held that:- We do not find any substance in this plea of ld. DR because the requirement of investment depends on the nature of activity being carried out by assessee. It is not the case of revenue that with the investment at site the activities could not be carried out by assessee. The assessee has also referred to the tender documents and the third party inspection carried out at the vender’s premises. From these documents it is evident that the third party inspection was carried out at Sitarganj Unit and, therefore, it cannot be said that no activity was carried out at the said premises. The submissions of ld. DR to the contrary are not correct when the entire report is considered. Assessee has also relied on the decision in the case of Faith Biotech Pvt. Ltd. (2014 (9) TMI 724 - DELHI HIGH COURT), where even though assessee was carrying out assembling and manufacturing of air purifier by using sample tools and testing equipments. It was held that assessee would be entitled to deduction u/s 80IC.This decision clearly counters the claim of revenue that the value of fixed asset is one of the deciding criteria for arriving at a finding whether assessee was carrying out manufacturing or not. The assessee has filed copies of invoices in the paper book from which it is evident that the raw material was purchased at Sitarganj unit during the relevant year under consideration and the fabricated items were transported from the Sitarganj to the site of contratees. We do not find any reason to doubt the credentials of these invoices particularly when ld. CIT(A) has not referred to the specific invoices to which she has referred in her order in para no. 5.4.2 reproduced earlier. The next objection is regarding employees, the details of which have been referred to by ld. counsel for the assessee, noted in his arguments. From those details it is evident that keeping in view the nature of activity carried out by assessee, the number of employees and their qualifications could not be disputed. As far as the objection regarding ESI and PF is concerned, we do not find much substance in the same because that is no where the criteria for concluding whether assessee had actually carried out activity or not. If there is any default on the part of assessee in regard to ESI and PF provision, then under the relevant Act it would be liable for action, but on that count deduction u/s 80IC cannot be denied. 48. Further it is noticeable from the observation of ld. CIT(A), reproduced earlier, that she has in the alternative accepted that assessee would be entitled to 25% deduction u/s 80IC. This also cannot be accepted particularly when assessee had produced separate ledgers for the activities carried out at Sitarganj unit. First issue stands answered in favour of assessee and on the alleged ground that no activity was carried out at Sitarganj unit, deduction u/s 80IC cannot be denied.- Decided in favour of assessee Whether the activity carried out by assessee amounted to manufacture or production of any article or thing as contemplated u/s 80IC or not? - Held that:- Assessee was primarily carrying out the process of procurement, fabrication and installation of the retail visual identity (RVI), which can be subdivided into following activities: - i) Procurement of material, both imported and indigenous, ii) Fabrication of structural as per drawings given in the tender for each item, iii) Galvanising, powder coating of painting of the structural members in the workshop of vendor, Cutting, bending to shape and fabrication ACM as per given drawings .All these activities definitely culminate into producing of an article, which has different utility in commercial sense. The fabricated item cannot be said to be the same as was the raw material for producing the same. The raw material may not be undergoing any chemical changes but nonetheless the same is fabricated in a manner so as to create an article which is of use to assessee’s customer as per their specifications. - Decided in favour of assessee Whether in view of the provision of section 80AC, the assessee is entitled to deduction u/s 80IC on account of late filing of return. ? - Held that:- the legislature itself has allowed the assessee to file return belatedly subject to fulfillment of conditions written in the said section. Therefore, once those conditions are met, then return filed by the assessee would for all technical purposes be considered being filed u/s 139(1). Thus, keeping in view the various decisions noted earlier, we do not find any reason to deny the claim of assessee on the ground of filing the return belatedly. - Decided in favour of assessee Issues Involved:1. Whether the activity carried out by the assessee at Sitarganj constituted manufacturing or production of any article or thing as contemplated under section 80IC.2. Whether the assessee was entitled to deduction under section 80IC despite filing the return belatedly under section 139(4).3. Whether any activity was actually carried out by the assessee at Sitarganj.Issue-wise Detailed Analysis:1. Whether the activity carried out by the assessee at Sitarganj constituted manufacturing or production of any article or thing as contemplated under section 80IC:The assessee firm, engaged in assembling and undertaking civil contracts, claimed a deduction under section 80IC for manufacturing various items at its Sitarganj unit. The AO contended that the assessee was merely assembling materials and not manufacturing any new article or substance as required under section 80IC. The CIT(A) upheld this view, noting that the activities at Sitarganj involved only cutting, welding, and galvanizing, which did not amount to manufacturing a new and distinct commodity. However, the Tribunal considered the detailed processes involved, such as procurement, fabrication, galvanizing, and installation, and concluded that these activities produced commercially different products with distinct uses. Citing the Supreme Court's decision in CIT vs. Oracle Software India Ltd. and other relevant judgments, the Tribunal held that the assessee's activities amounted to manufacturing, making it eligible for the deduction under section 80IC.2. Whether the assessee was entitled to deduction under section 80IC despite filing the return belatedly under section 139(4):The assessee filed the return belatedly under section 139(4) and argued that this should be considered an extension of section 139(1). The AO and CIT(A) denied the deduction, citing section 80AC, which mandates filing the return within the time specified under section 139(1). The Tribunal, however, referred to various judicial pronouncements, including CIT vs. Ms. Jagriti Aggarwal and CIT vs. Rajesh Kumar Jalan, which interpreted section 139(4) as a proviso to section 139(1). The Tribunal emphasized that incentive provisions should be liberally construed to advance economic activities and held that the assessee was entitled to the deduction under section 80IC despite the belated filing.3. Whether any activity was actually carried out by the assessee at Sitarganj:The CIT(A) questioned the actual activities at Sitarganj, citing issues like the nature of employees, lack of substantial machinery, and the timing of the factory license. The Tribunal, however, found that the license was effective from 31.08.2009, and substantial evidence, including invoices, tender documents, and third-party inspection reports, supported the claim that manufacturing activities were carried out at Sitarganj. The Tribunal dismissed the objections regarding the employees and ESI/PF compliance, noting that these were not criteria for denying the deduction under section 80IC. The Tribunal concluded that the assessee had indeed carried out the manufacturing activities at Sitarganj and was eligible for the deduction.Conclusion:The Tribunal allowed the assessee's appeal, holding that the activities at Sitarganj constituted manufacturing, the deduction under section 80IC was permissible despite the belated return, and the actual activities at Sitarganj were substantiated by substantial evidence.