TaxTMI 
TaxTMI 
2017 (4) TMI 1556
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....ch was got done through outside parties. 4. The assessee has raised the following grounds of appeal : 1. That the Ld. Commissioner of Income Tax (Appeals) has erred in law as we as on facts in upholding the addition of Rs. 2,53,362/- made by disallowing the deduction u/s 80IC on sale of products got manufactured from others through job work in utter disregard of he explanations rendered which is illegal, arbitrary and unjustified. 2. That the Ld. Commissioner of Income Tax(Appeals) has further erred in sustaining the disallowance of Rs. 79,902/- as against Rs. 99,878/- made by the Assessing Officer out of car expenses for alleged personal use which is arbitrary and unjustified. 5. Ground No. 2 was not pressed before us and same is, therefore, being treated as dismissed. 6. Ground No. 1 raised by the assessee is against action of CIT (Appeals) in upholding the disallowance made on account of deduction claimed under section 80IC of the Act in relation to the manufacturing got done by outside parties. 7. Brief facts relating to the issue are that the AO noted that the gross total income declared by the assessee for the year included profits & gains of Rs.....
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.... last so many years and there had been no change in the circumstances of the appellant during the year. c) The assessee being allowed deduction without any such, restriction by the predecessor(s) of the Ld. AO in earlier years. d) Inability of the assessee to put up the required manufacturing facilities because of huge capital cost and non availability of sufficient material, to run such facilities at optimum level. The assessee further relied on few court judgments related to deduction under section 80IB on outsourced job as cited in its written submission. 8. The CIT (Appeals) after going through the assessee's submission and after analyzing the provisions of Section 80IC of the Act, held that for the purpose of claiming Section 80IC, the entire manufacturing has to be got done by the assessee itself and in any case, the assessee is eligible to claim deduction of profits to the extent relatable to manufacturing got done by it only. Ld.CIT(A) ,thereafter referred to sub-section(10) of section 80IA of the Act and held that the AO was correct in denying deduction u/s 80IC on the profit component of the manufacturing process not carried out by th ass....
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....l set of facts has been dealt with by the ITAT in the said case. In the said case also the assessee was manufacturing steel ingots and had outsourced the annealing of ingots and rolling to obtain SS flats to M/s Nahan Ferro Alloys & Chemicals Pvt. Ltd. The AO and CIT(A),in the said case, had held that the assessee was not eligible to claim deduction of profits relating to manufacturing not done by it.The ITAT,while adjudicating the issue, held that Section 80IC of the Act mandates that Undertaking or Enterprises eligible for deductions are those which "manufacture" any article or thing. It further elaborated on the scope and extent of manufacturing activity and after discussing various case laws on the same held that it is not essential for the assessee to carry out the entire manufacturing itself for the purpose of claiming deduction on the profits earned thereon and even if a part of activities were outsourced or for that matter, even if the whole manufacturing activities were outsourced but carried on under the supervision and control of the assessee, it would still tantamount to manufacturing activity being carried out by the assessee itself, making it eligible to claim deducti....
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....; or (iii) on the 24th day of December, 1997 and ending before the 1st day of April, 2007, in any Export Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or Industrial Park or Software Techno-logy Park or Industrial Area or Theme Park, as notified by the Board in accordance with the scheme framed and notified by the Central Government in this regard, in any of the North-Eastern States; (b ) which has begun or begins to manufacture or produce any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule, or which manufactures or produces any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule and undertakes substantial expansion during the period beginning- (i) on the 23rd day of December, 2002 and ending before the 1st day of April, 2012, in the State of Sikkim; or (ii) on the 7th day of January, 2003 and ending before the 1st day of April, 2012, in the State of Himachal Pradesh or the State of Uttaranchal; or (iii) on the 24th day of December, 1997 and ending be....
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.... to a manufacturing or processing activity in the light of the principles laid down by the Gujarat High Court in the case of Ajay Printery P.Ltd. [1965] 58 ITR 811 and by the Madras High Court in the case of M.R. Gopal [1965] 58 ITR 598 as stated above. It is no doubt true that the assessee does not have its own printing press. That, however, really does not make any material difference. The assessee's activity cannot be called purely a trading activity. A trader merely purchases the goods which have already been manufactured by others and then sells them. In this case, the assessee gets the books printed to suit its requirements and under its active supervision and guidance. Even after the printing is over, the assessee has to get the books bound which involves a considerable amount of processing. In other words it purchases paper and other printing materials and ultimately manufactures or processes publications for sale. The business that the assessee is doing can, therefore, be called a manufacture activity." The High Court upheld the findings as follows: "The findings of the Tribunal in our opinion conclusively show that the assessee was carrying on the ac....
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....nufacturing operations itself to be entitled for benefits of deduction u/s 80I. 23. Applying the above legal proposition to the facts in the present case we find that the assessee is a manufacturer of SS flats and all the process involved in manufacturing of SS flats were carried out at the assessee's premises/undertaking at Kala Amb, except for conversion of ingots into flats which the assessee outsourced to another company i.e. Nahan Ferro Alloys & Chemicals Private Limited, since it did not have the required infrastructure for the same. Undeniably all the activities undertaken in the order stated above resulted in the manufacture of SS Flats and thus constitute one integrated activity which tantamounts to manufacturing activity. Though the assessee does not carry out one process involved in the entire process of manufacturing, but the assessee also cannot be termed carrying out trading activity. Undeniably, the final product manufactured i.e. SS flats, was manufactured by the assessee itself for sale in the market and the process outsourced to Nahan Ferro Alloys & Chemicals Private Limited was as per its specification and requirement since it is not denied that the risk....
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....nnot be supplied by judicial interpretative process." 25. For the above stated reason, the assessee was only required to "manufacture" SS Flats to be eligible to claim deduction u/s 80IC,which since we have already held so above,the assessee was entitled to claim deduction of entire profits earned on the same u/s 80IC of the Act. For the said reason also we are not in agreement with the contention of the Ld. DR that the profits should be apportioned to different activities involved in manufacturing of a product and deduction u/s 80IC thereafter be restricted to profits on manufacturing carried out by the assessee only 26. It is pertinent to point out that while allowing deduction on part of the profits earned by the assessee, the Revenue admits that the assessee is involved in manufacturing activity. Also admittedly the assessee has been allowed deduction of entire profits in earlier years in identical set of facts. The Ld.DR has not controverted this fact contended by the Ld Counsel for the assessee. Therefore also there is no reason to restrict the deduction to the extent of manufacturing activity carried out by the assessee in the impugned year. 27. Ld....