2018 (8) TMI 729 - HC - Income Tax

High Court Upholds Denial of Tax Deduction for Lack of Control Over Manufacturing Process

The High Court dismissed the appeal against the Income Tax Appellate Tribunal's decision regarding deduction under Section 80 IB of the Income Tax Act for ... Deduction u/s 80IB - manufacturing activity or not of electronics computer - whether the term manufacturer under Section 80 IB would include manufacturing activity being carried out outsourced to another party - Held that:- the assessee could not even produce the primary evidence in the shape of books of accounts, resolutions, even to suggest that it had deployed its manpower at the factory premises of M/s. Kobian ECS India Pvt. Ltd. and had retained the control over the manufacturing activity. The Appellants could not produce particulars like attendance register, qualifications of the employees in spite of being asked to do so by the Assessing Officer. - In fact, it appears even the packaging material was supplied to contract manufacturer by the Appellants-Company for finished products at Silvassa. Appellants were not carrying out manufacturing activity of electronic computer products within the meaning of Section 80 IB of the Act - Deduction u/s 80IB not allowed - Decided against the assessee. Issues Involved:1. Appeal against order of Income Tax Appellate Tribunal regarding deduction under Section 80 IB of the Income Tax Act, 1961 for Assessment Year 2004-05.Analysis:1. The appeal was admitted by the High Court based on substantial questions of law related to the entitlement of the Appellant for deduction under Section 80 IB of the Act, the nature of manufacturing activity of electronic computer products, and whether outsourcing manufacturing would qualify for the deduction.2. The Appellants claimed to be engaged in manufacturing electronic computers at Daman through a contract with another company located in Silvassa. The claim for deduction was rejected as the manufacturing activity was deemed not under direct supervision and control of the Appellants.3. The Assessing Officer found discrepancies in the evidence provided by the Appellants, such as lack of sufficient employees, low electricity consumption, and absence of proof of direct supervision over the manufacturing process.4. The Commissioner of Income Tax (Appeals) upheld the Assessing Officer's decision due to the Appellants' failure to provide evidence of supervision and control over the manufacturing activity.5. The Tribunal also concluded that the Appellants did not have direct supervision and control over the manufacturing process at the Silvassa factory, based on various factual findings and lack of evidence presented by the Appellants.6. The Appellants argued that ownership of factory premises or machinery is not a prerequisite for claiming the deduction under Section 80 IB, emphasizing the need for direct supervision and control over the manufacturing activity.7. The High Court reviewed the orders of the lower authorities and found that the Appellants failed to provide convincing evidence of retaining control over the manufacturing process. The absence of essential documentation and the supply of packaging material to the contract manufacturer indicated a lack of direct supervision.8. Consequently, the High Court held that the Appellants were not conducting manufacturing activity of electronic computer products as required by Section 80 IB of the Act. As a result, the appeal was dismissed in favor of the Revenue.This detailed analysis of the judgment highlights the key legal arguments, factual findings, and the court's decision regarding the deduction under Section 80 IB of the Income Tax Act for the Assessment Year 2004-05.