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2012 (9) TMI 320 - AT - Income TaxDeduction u/s 80IC - partial dis-allowance - assessee engaged in the business of steel fabrication and manufacturing of prefabricated structure, mainly supplied to the Defence and Paramilitary Organization - units at both Chandigarh and Baddi - profits of the Baddi unit claimed as deduction u/s 80IC - deduction claimed u/s 80IC restricted partially on account of three components - apportionment of administrative and general expenses in certain ratio between the Chandigarh unit and the Baddi unit - ineligibility of deduction u/s 80IC on ground of profit earned from civil works contract - Trading vs. Manufacturing activities Held that:- In view of the admission of the assessee during the assessment proceedings as evidenced by the recalculation of the allocation of the ratio between Baddi unit and Chandigarh unit, addition to the extent of Rs.4,03,445/- is upheld. Further allocation of Rs.2,02,213/- to the Baddi unit on account of exclusion of excise duty from the sales turnover of Chandigarh unit for computing percentage ratio is also upheld. Consequently, the deduction u/s 80IC being reduced to the extent of Rs.6,05,658/- is upheld. Profit earned from civil works contract - Admittedly, assessee is not entitled to deduction u/s 80IC on the profits arising on civil contract work carried out by the assessee. However, following the principles of natural justice, we remit this limited issue back to the file of the AO to determine the profits from work contract. Trading vs. Manufacturing activities - Held that:- Merit is found in the plea of the assessee that the assessee was engaged in the business of manufacturing of prefabricated sheets/cabins as per order received from the Ministry of Defence. The said items were being manufactured at the specification of the customers and certain items were not manufactured by it, but were put together for supply the complete unit, i.e. certain paints were bought and supplied alongwith manufactured items, final coat of paints was not put on the sheds as the said items were being transported for a long distance and only on being erected the paints were put by the army itself and the said items were not sold by the assessee, but were part of the contract deal of supply of the manufactured items. Therefore, it is held that assessee is entitled to benefit of claim of deduction on the said bought out items and there is no need to rework the deduction u/s 80IC Dis-allowance u/s 40(a)(ia) - non-deduction of tax at source from payment of erection charges - Held that:- In case amount has been paid as on the close of the year, no disallowance is warranted u/s 40 a(ia) in view of the ratio laid down in case of ACIT V. Merilyn Shipping & Transports (2012 (4) TMI 290 - ITAT VISAKHAPATNAM). However, in case the said payment has been made after the close of the year then the said amount is dis-allowable. Further, where the amount is disallowed, the said is added back to the profits of the business and the assessee is entitled to the claim of deduction u/s 80IC on the said profits being eligible profits for claiming the said deduction. Matter remitted back to file of AO for requisite verification
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