TaxTMI 
TaxTMI 
2015 (4) TMI 673
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....ect of the unit 'Mahaan Healthcare' on job works receipts of Rs. 1,25,32,704/- which was 'works contract' and not a manufacturing activity. 4. On the facts and in the circumstances of the case, Ld. CIT(A) has erred in allowing depreciation amounting to Rs. 43,80,673/- in respect of the assets of 'Mahaan Multipack' when the assets were not put to use. 5. On the facts and in the circumstances of the case, Ld. CIT(A) has erred in holding that the AO was not correct in arriving at a figure of WDV for individual assets failing within each of the block of assets of the assessee company while disallowing depreciation ignoring the fact that the assessee has itself attributed depreciation of Rs. 43,80,673/- to the assets of 'Mahann Multipack'." 2. The facts in brief as noted by the ld CIT(A) are that in this case Return declaring taxable income at 'NIL'; However, tax has been paid on Book Profit of Rs. 1,01,40,312/- u/s. 115JB of the Income Tax Act, 1961 (herein after 'the Act') was filed on 15.1.2006. The same was processed u/s. 143(1) of the Act. The case was selected for scrutiny. Notice u/s. 143(2) was issued within the stipulated time,....
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....ction 10 (29BA) has been introduced w.e.f. 01.04.2009. According to him, both activities i.e., manufacturing for own self or for any third party fall under the definition of 'manufacture or produce' in terms of the provisions of the Act. So according to him the assessing officer has wrongly not allowed deduction under section 80IC of the Act with reference to manufacturing activities carried out on contract/ job work basis in the said unit allegedly for the reason that the assessee has shown Job Work Charges of Rs. 1,25,32,704/- in Mahaan Healthcare, which according to AO is not a manufacturing activities as prescribed u/s 80-IC of the Act. The assessing officer further erroneously disallowed the entire claim of deduction under section 80IC of the Act for the entire unit including for the manufacturing activities carried out by the assessee company on its own account allegedly for the reason that since no separate profit & loss account for manufacturing and other activities has been submitted, no deduction under 80-IC is available to the assessee for the year under consideration. The ld AR pointed out that in its unit / undertaking of Mahaan Healthcare the assessee company ....
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....under section 80IC of the Act, the income has to be derived from the undertaking. Therefore, if there is nexus between the receipt of income and undertaking, it has to be treated as income derived from the undertaking. The immediate source of job charges received was from the undertaking itself. The job work charges have to be treated as income derived from the undertaking itself. The job work charges received by the assessee had a direct nexus with the manufacturing activity of the assessee since the assessee did the job work by utilizing its own machinery and labourers. Where the goods belonging to others were manufactured by the assessee and it derived profit by way of job charges, the assessee is entitled to deduction u/s 80-IC as the same tantamount to manufacture in terms of Excise rules, Income tax Act and all other applicable statutes. An industrial unit manufacturing or producing articles or things cannot be denied exemption u/s 80-IC merely on the ground that it is deriving profit by carrying out job work. Job work also tantamount to manufacture if otherwise the conditions required to classify the activity carried out by the undertaking result in manufacture of an article....
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....see job work charges have to be treated as manufacturing activity, and it is not envisaged u/s. 80-IC to maintain separate books of account for manufacturing on his own account and for job work. While an explanation has been added after section 80-IA(13) which states that nothing contained in this section, i.e., section 80-IA shall apply in relation to business which is in the nature of work contract etc, section 80-IC(7) only talks about the application of sub-section (5) and sub-section (7) to (12) of 80-IA. Thus, it appears that there is no denial of deduction u/s. 80-IC in case of manufacturing activities in the nature of job works, work contract etc. In the background of the aforesaid detailed discussions and precedents relied upon by the Ld. CIT(A) in his order as well as by the assessee, as aforesaid, we are of the view that no interference is called for in the well reasoned order passed by the Ld. CIT(A), hence, we uphold the same by rejecting the grounds no. 1, 2 & 3 filed by the Revenue in its Appeal. 8. With regard to ground no. 4 is concerned, we find during the hearing Ld. Counsel of the assessee submitted that the unit had started manufacturing operation w.e.f. 25.2.....
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....s reply it is found that Unit under consideration has not been put to use and the same fact has been admitted by the assessee itself. Since Unit has not been put to use, the question of producing articles/things, goods as the case may be does not arises. However, assessee company has claimed Depreciation in this unit as per IT Act which is self contradictory as no asset is put to use. Accordingly claim of the assessee company of Depreciation of Rs. 43,80,673/- is disallowed". 8.1 We find that the Ld. CIT(A) rightly observed that even though the Assessing officer had wrongly disallowed depreciation claimed by the said unit, once he had disallowed the depreciation, the profits of the unit increased automatically and such increased profits of the undertaking should have been considered by the assessing officer for calculating deduction available under section 80IC of the Act. The assessee company derived income from its undertaking named Mahaan Multipack during the year under consideration. This unit had started manufacturing operations w.e.f. 25.02.2004. Deduction under section 80IC of the Act was claimed in the return of income for A. Y. 05-06 and was allowed in the assessment for ....
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....in terms of and for the purposes of section 349 of the Companies Act, 1956. In fact under Companies Act. it is possible to revalue upwards the written down value of a fixed asset depending upto facts and circumstances of each case. 8.3 We find that Ld. CIT(A) observed that in terms of Explanation 5 to section 32, the provisions of section 32 are applicable even if the assessee has not claimed depreciation while computing his total income. Deprecation has to be allowed for the active as well passive use of the asset. It has been held in the case of Sanghvi Motors (P) Ltd. v. DCIT reported in (2008) 110 ITD 1 (Pune) (TM) that depreciation has to be allowed not only for active use of an asset but also for its passive use. Even passive use of an asset i.e. while it is kept ready for use, it would tantamount to use of the asset for the purposes of the business and assessee would be entitled to depreciation thereon. It has been held in the case of Siv Industries Ltd. v. DCIT reported in (2008) 306 ITR 114 (Mad.) that any machinery may not have been used on all days and every single day right throughout the year for it to be eligible to claim depreciation. It has been held by the h....
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....ciation. In Sanghvi Motors (P) Ltd. Vs. DCIT (2008), 110 ITD 1 (Pune) (TM) , it was held that depreciation is to be allowed even for passive use, i.e., while it is kept ready for use. Thus, the income derived by the assessee has sufficient nexus and is incidental to the main business of the industrial undertaking and is, therefore, eligible for deduction u/s.80-IA. In Pancharatna Cement P.Ltd. Vs. Union of India (2009) 317 ITR 259 , the Gauhati High Court, inter alia, held that the language of section 80-IC is of wider import and amplitude than that of section 80HH and the profits and gains to be allowable for deduction have to be derived from the business in which the industrial undertaking is engaged. Such profits and gains need not essentially be derived from the industrial undertaking. Though there has to be a direct and perceptible nexus between the profits and gains and the business of the industrial undertaking from which they are derived, the rigor of the essentiality of correlation with the industrial undertaking is not a stolid imperative as in section 80HH. In the background of the aforesaid detailed discussions and precedents relied upon by the Ld. CIT(A) in his order a....