TaxTMI 
TaxTMI 
2007 (2) TMI 351
X X X X Extracts X X X X
X X X X Extracts X X X X
....eal, which are as under : "1. The CIT(A) erred in upholding the action of the Assessing Officer of restricting the deduction to which the appellant was entitled under section 80-IA of the I.T. Act to the sum of Rs. 6,76,642 - as against the sum of Rs. 47,66,512 - claimed by the Appellant. 2. The CIT(A)'s order of confirming the action of the Assessing Officer of restricting the appellant's claim for a deduction under section 80-IA of the Act to a sum of Rs. 6,76,642 is vitiated inter alia by : (i)A failure to consider the material and evidence on record. (ii)Its being based on conjectures and surmises. (iii)Its being contrary to the material and the evidence on record. (iv)The CIT(A)'s wrongly attributing non-existent motives to the appellant. 3. The CIT(A) ought to have held that no interest was chargeable on the appellant under section 234B or section 234C of the Act and ought to have cancelled the same. 4. The CIT(A) erred in holding that the issue of chargeability of interest under sections 234B and 234C of the Act was not appealable and erred in not admitting the appellant's Grounds of Appeal challenging the legality of the levy of such interest. 5. The CIT(A) ought t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o revamp its business activities entered into collabora- tion agreement with Netherlands Company and obtained tech- nical know-how for making "cross flow" and "counter flow" cool- ing towers and thereby investing an amount of Rs. 19.32 lakhs in technical know-how. In order to set up the new manufactur- ing unit at Chhatral the assessee-company acquired lease hold land for Rs. 6.39 lakhs and constructed factory building worth Rs. 46.79 lakhs and made an addition of Rs. 47.67 lakhs in the plant and machinery and Rs. 19.32 lakhs for aquiring the technical know-how during the financial year 1991-92. The assessee-company started the business of supplying round bottle, cross flow and counter flow cooling towers. The plant and machinery and moulds from the Odhav unit were transferred to the new unit at Chhatral and as per the claim of the assessee the total extent of such items transferred was 11.60 per cent of the total investment in new plant in terms of cost and 0.63 per cent in terms of WDV. Most of the employees of the old unit were also transferred to the new unit and certain new employees were also recruited. 7. The modus operandi of the assessee-company in carrying out of busines....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... under section 80-IA of the Act as according to him by shifting the old equipment to the new place and keeping it along with other equipment did not result in set up of new unit as far as old equipment is concerned. The assessee had already availed of all benefits/deductions while manufacturing items at old unit. Accordingly the profits arising from the sale of items manufactured by the assessee for round bottle cooling towers were held to be not eligible for deduction under section 80-IA of the Act. In addition the Assessing Officer was of the view that bought out components purchased by the assessee from the market were never integrated at the assessee's factory into the cooling tower and tested. The Assessing Officer accordingly was of the view that the assessee was not manufacturing the cooling tower but manufacturing only certain parts required for cooling towers and assembling the cooling tower at the clients' place as per the requirement of the clients. Accordingly, the Assessing Officer held that the profit earned by the assessee on the bought out components did not have any nexus with the manufacturing activity carried out by the assessee in its factory and the said profit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessing Officer. The CIT(A) further was of the view that the assessee-company was not entitled to the claim of the deduction under section 80-IA of the Act, in view of the section 80-IA(2)(ii) which provided that in order to claim the deduction the industrial undertaking should not be formed by the transfer of machinery or plant previously used for any purpose to a new business. The Explanation 2 to section 80-IA(2) of the Act under which the assessee-company had taken the shelter is not applicable to the facts of the present case as the cost of the old equipment acquired in 1985 cannot be compared to the cost of equipment acquired in 1992, due to inflation. 10. The CIT(A) also confirmed the action of the Assessing Officer in denying the benefit of deduction under section 80-IA of the Act, on the bought out components as according to him they have been straightaway purchased from the market and have not been tested in the factory as the assessee-company do not have any testing machines apparatus in the factory. Applying the ratio of the Hon'ble Apex Court in the case of CIT v. Sterling Foods [1999] 237 ITR 579 the CIT(A) confirmed the denial of deduction under section 80-IA of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... argued that in order to claim the deduction under section 80-IA of the I.T. Act, the situs of assembly is important. In the facts of the present case, the manufactured and bought out components are assembled at clients premises. The learned DR further submitted that the said bought out components are not tested in the factory premises of the assessee and as such the assessee is not entitled to the claim of deduction under section 80-IA of the I.T. Act. Reliance was placed on the decision of Degremont India Ltd. v. Dy. CIT [1996] 59 ITD 423 (Delhi), CIT v. Minocha Bros. (P.) Ltd. [1986] 160 ITR 134 (Delhi) and CIT v. Shah Construction Co. Ltd. [1983] 142 ITR 6962 (Bom.). The learned DR further stated that the assessee has not paid any excise duty on the bought out components which further proves the claim of the assessee. The learned AR in reply submitted that the observations of CIT(A) are wrong as the unit of the assessee is an integrated unit and the bought out components are tested in the factory premises. Reliance was placed in the case of Indocan Engg. Systems (P.) Ltd. v. Dy. CIT [1997] 60 ITD 649 (Pune) and Degremont India Ltd.'s case (supra). 13. With regard to the ground....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he significant accounting policies at pages 51 to 55 of the paper book. During the year ending March, 1993, the assessee had shown addition to leasehold land of Rs. 18,29,087, building account Rs. 46,78,712, plant and machinery Rs. 46,66,855, office equipment Rs. 1,91,587 and vehicles Rs. 2,88,715, as per list of assets at page No. 42 of the paper book. The first year of operation of the new plant was assessment year 1993-94. During the year ending March, 1994 the assessee had shown turnover of Rs. 329.82 lakhs which in turn includes sale of 423 cooling tower sets along with sale of spares of Rs. 31,74,331, services of Rs. 10,85,883 and sale of trading items and components at Rs. NIL. The details of which are incorporated in the significant accounting policies at pages 82 to 84 of the paper book. During the year ending March, 1994, there is marginal addition of plant and machinery, office equipment, furniture and fixture and addition of Rs. 2,22,616, in the vehicles account as reflected in the schedule of assets at page 71 of the paper book. In the year ending 31-3-1995, the total turnover was Rs. 445.76 lakhs, which includes sale of 534 sets of cooling towers, sale of spares of Rs....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... addition to building account of Rs. 16,48,750 and addition of Rs. 17,655 office equipment account and Rs. 5,43,975 furniture and fixtures as incorporated in the schedule of assets at page 183 of the paper book. 15. The first year of start of operations was assessment year 1993-94. The assessee is in appeal before us relating to assessment years 1996-97 to 1998-99. It is the claim of the assessee that the appeal for the assessment year 1997-98 was decided first and the appeals for the assessment years 1993-94, 1994-95 and 1995-96 are pending for disposal wherein the assessee has made a claim for deduction under section 80-IA of the I.T. Act. The assessee has filed on record the copies of the orders of CIT(A) relating to assessment years 1993-94 and 1994-95, wherein the claim of the issue with regard to deduction under section 80-IA of the I.T. Act has been rejected because of the adjudication in appellate proceedings for the assessment year 1997-98. 16. The assessee entered into a collaboration agreement with GEA Germany for the acquisition of technical know-how for engineering and making wet cooling towers. Necessary permission was sought from the Government of India, Ministry o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mputers, air-conditioners, office equipment etc. The assessee also shifted all its moulds and machineries from the old unit at Odhav, which were required for manufacturing the items, components required for assembling the round bottle cooling towers. The aim of the assessee was to manufacture both the round bottle cooling towers and CM/XE type cooling towers under one roof. The extent of value of plant and machinery transferred from Odhav to Chhatral amounted to 11.60 per cent of the total new plant in terms of cost and 0.63 per cent in terms of WDV as claimed by assessee in response to queries raised by the Assessing Officer. The assessee further claims that most of the employees of Odhav unit were transferred to the new unit and certain new employees were also recorded. The assessee-company sold the land at Odhav in assessment year 1996-97. 19. The modus operandi of the assessee-company for the conduct of its business of supplying round bottle and counter flow/cross flow cooling towers is that on receipt of enquiries from the clients it designs the cooling towers required by the customers and submit quotations based on detailed analysis. On receipt of orders from the customers t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eing manufactured in technical collaboration with GEA Polacel, whereas the round bottle cooling towers are being manufactured independent of the collaboration with GEA Polacel thereby using its old plant and machinery and moulds shifted from Odhav unit. The manufacturing process of components for round bottle cooling towers and counter flow/cross flow cooling towers are distinct and independent as the items manufactured by each type go to assemble different types of cooling towers. Same is colloborated by the fact that the assessee has entered into a collaboration agreement with GEA Polacel for the manufacture of cross flow and counter flow type of cooling towers. The technical know-how has been obtained for the purpose of manufacture of components of cross flow and counter flow type of cooling towers for the purpose of which GEA Polacel stands guarantee. The assessee in order to consolidate its manufacturing activities under one roof had transferred the unit at Odhav manufacturing round bottle cooling towers in entirety to Chhatral unit. The manufacturing of components for round bottle cooling towers is an independent process which is not part and parcel of the collaboration with ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....with the job of supply of cooling towers in its entirety which include the components manufactured in the factory premises of the assessee and also certain other items bought directly from the market to be utilized for the manufacture of the cooling towers in entirety. Both the items, i.e., the manufactured components and bought out items were then carried over to the premises of the customers wherein the cooling tower was erected as per the requirements of the customers. The said exercise was undertaken by the assessee-company at the site of the client because of the voluminous nature of the cooling tower manufactured by the assessee. 23. The deduction under section 80-IA of the Act is restricted to the profits and gains derived from the business of an industrial undertaking being an eligible business, subject to conditions enumerated in sub-section (2) of section 80-IA of the Act. The clause (iii) to section 80-IA(2) of the Act provides that for the eligibility of deduction, the industrial undertaking should manufacture or produce any article or thing, other than those specified in Eleventh Schedule. The deduction under section 80-IA of the Act is limited to the items manufactur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....automotive chasis is made, retain their individual identity in the whole article which is thus manufactured or produced." 25. The requirement of law is manufacturing but the whole process may not be carried out the assessee himself. The Chandigarh Bench of Tribunal in the case of Sond Bharat Pedals (India) v. ITO [2003] 84 ITD 89 had held as under :-- "It is not necessary that the assessee should carry out all the manufacturing operations itself, in order to be entitled to benefit of deduction under section 80-I. Such operations can be got done from outside agencies on payment of labour service charges. In fact certificate issued by the Punjab Government showed that the assessee was registered as a small scale industrial unit and the trading account showed the assessee's sales of Rs. 45.98 lakhs for the year under consideration. Since the assessee was engaged in the business of manufacturing cycle pedals, it would be entitled to deduction under section 80-I even though part of such operations was got done from outsiders. Thus, the assessee was engaged in the business of manufacturing bicycle pedals and, therefore, was an industrial undertaking entitled to deduction under section ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aid judgment by which it could be inferred that an assessee engaged in the activities of designing, fabricating, erecting, supplying, installation and commissioning of a plant like the one supplied by the assessee could be covered by the aforesaid judgment. It is well-settled law that the judgment in each case has to be seen in the light of the facts of that case. A decision is to be understood in the context of the facts in which the decision is rendered. A case is precedent for what it explicitly decides and nothing more in the conditions of people, even the words occurring in a statute are required to be interpreted differently keeping in mind the context in which such expressions have been used in the relevant provisions of law. Therefore, the aforesaid judgment did not in any manner support the revenue's contention. The provisions of section 80-I are intended to provide an incentive for investment in certain desired sectors and promote industrialization in developing countries which has adopted the policy of liberalization." It was further held as under : "In the instant case, the assessee was purchasing different components, different equipments and spare parts from various....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... undertaking begins to manufacture or produce outside in any backward area, it is entitled to deduction under section 80HH. The assessee for, set up its own industrial undertaking at the site of its customers for whom water air pollution control plant was manufactured and of the places which were falling under the backward area declared under the Act, then, naturally the assessee should be getting benefit of the same and the computation made by the assessee-firm of the same was correct one." 29. The objection of the learned DR for the revenue that situs of assembly is important, has been dealt with by the Pune Bench of Tribunal in Indocan Engg. Systems (P.) Ltd. v. Dy. CIT [1997] 60 ITD 649. There is no merit in the contention of the learned DR for the revenue that main activity of the assessee is of erection at client's site. The end-product is an integrated unit. The assessee is required by its clients to supply a cooling tower, parts of which are manufactured by assessee and certain parts/components are bought from outside. The end-product is the cooling tower supplied to the client. The assessee in its Quotation made to its client's requisitions, also Guarantees the above-said....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tled to deduction under section 80-IA of the Act and as allowed by Assessing Officer. The assessee in the present case was not in the business of sale of components of cooling towers, but the cooling tower as a whole, as is evident from the enquiries of the client, Quotations and Performa Invoice raised by the assessee. In the instant case, the assessee purchases various bought out components, which along with manufacturing components are assembled at the client's site and the cooling tower is erected. The ultimate product erected by the assessee was a cooling tower, which was a distinct product from the various components, bought from outside or manufactured by it. The aforesaid activities of the assessee were covered within the definition of manufacture of an 'article' or 'thing'. The assessee had undertaken the job of erecting a cooling tower as per the individual specification of the client, and after erection, the assessee guarantees the performance of the cooling tower as a whole and not that of manufactured items only. All the activities carried on by the assessee fall within the ambit of 'manufacture' or 'production' of an article or thing. The end-product being the cooling....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lients. The Assessing Officer disallowed the claim of the assessee observing that all these charges have no connection with the manufacturing activities of the assessee. In the present case, the assessee is engaged in the manufacturing of cooling towers, which are manufactured as per the specific requirements of the clients, who in turn attach it to their industrial units. The cooling tower being voluminous, the erection of the same is carried out at the sites of the clients. The forwarding charges and installation charges are billed to the clients. The service charges are received from clients against services provided to them. The said charges are linked to the manufacturing activity carried on by the assessee. The said receipts are to be included in profits derived from manufacturing operations. 34. Reliance is placed on the decision of Tribunal in the case of Dy. CIT v. Unitherm Engineers (P.) Ltd. [2004] 141 Taxman 38 (Mum.) (Mag.), which held as under : "Though the assessee was engaged in the manufacturing of goods the customers of the assessee requested it for erection, commissioning and installation of the furnace boiler, etc. After such installation and commissioning the....