TMI Blog2006 (6) TMI 253X X X X Extracts X X X X X X X X Extracts X X X X ..... als filed by the revenue. The remaining two appeals for the assessment years 1999-2000 and 2000-01 in ITAs No. 3465/Mum./2003 and No. 466/Mum./2004 are filed by the revenue against the orders of the CIT(A), Central-I at Mumbai dated 26-2-2003 and 3-11-2003 respectively and arise out of the assessments completed under section 143(3), read with section 147, respectively. 3. First we will take up the block assessment appeal filed by the revenue along with the cross objection filed by the assessee. 4. The assessee-company, M/s. Okasa Pvt. Ltd. belongs to M/s. Cipla group of companies. M/s. Cipla Ltd. is a leading manufacturer of phar-maceuticals. There was a search under section 132 of the Income-tax Act, 1961 at the business premises of Cipla Ltd. and its associates concerns as also at the residential premises of its directors in the process of which the assessee was also covered. 5. In the course of search operations, one of the directors of the assessee-company, Shri AA Electricwala had made an admission under section 132(4) on 17-11-2000. The text of the admission is that the deduction claimed by the assessee-company under section 80-IA of the Income-tax Act, 1961 for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was available to assessee on profits arising to it on manufacturing done by Loan Licensee Manufacturers (sub-contractors) in an industrial undertaking which had already exhausted its period of eligibility under section 80-IA within the meaning of section 80-IA (6). ( ii )Without prejudice to the above, on the facts and circumstances of the case and in law, the learned CIT(A) erred in holding that there is no material difference between section 80-I as it stood during assessment year 1968-69 to assessment year 1972-73 and section 80-IA as it exists at present By Ignoring The provisions of section 80-IA(6), which specifically provides deduction for a specified number of years and not in perpetuity." 10. The assessee-company is engaged in the business of manufacturing pharmaceutical formulations. The assessee-company has got its own manufacturing facilities. But in order to cope up with the volume of work, the assessee-company was also engaging outside concerns to carry on manufacturing activities on its behalf. The assessee-company engaged such sub-manufacturers to execute the production work for and on behalf of the assessee-company. This arrangement is made on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its own facilities or from the facilities available with LLMs. But it is not sufficient that the assessee-company alone is eligible for deduction under section 80-IA. The LLMs to whom the manufacturing work has been sub-contracted by the assessee-company also by themselves, in their own stead, qualify for the deduction under section 80-IA. If the assessee is getting the work done by LLM, which is not by itself eligible for the deduction under section 80-IA, that much of the income should be excluded from the computation of the profits eligible for deduction under section 80-IA. The profits attributable to the manufacture done by the qualified LLM is entitled for section 80-IA deduction along with the profit out of the manufacture carried out by the assessee itself. In short, the principal as well as the agents should both be eligible for the deduction under section 80-IA in their own status. On the other hand, the case of the CIT(A) is that it is not necessary that the LLMs also should qualify themselves in their own stead as eligible units for the deduction under section 80-IA. According to the CIT(A), it is sufficient that if the assessee enjoyed the eligibility for the deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facturer, all other activities were admittedly undertaken by the assessee. Therefore, the court held that the assessee was engaged in the business of manufacture of sugar and tea machinery and was accordingly qualified for relief under section 80-I. 13. On considering all the aspects of the case we are inclined to agree with the findings arrived at by the CIT(A). We are of the considered view that the decision of the Hon ble jurisdictional High Court in the case of CIT v. Penwalt India Ltd. ( supra ) is applicable to the present case considered in this appeal. 14. In fact, the Hon ble jurisdictional High Court had considered a similar case way back in 1983 in the case of CIT v. Oricon (P.) Ltd. [1985] 151 ITR 296 (Bom.). The decision relied on by the CIT (A) in Penwalt India Ltd. was delivered by the Bombay High Court in 1991. The case of Oricon (P.) Ltd. ( supra ) was considered in 1983. In that case, the assessee was engaged in the business of construction work. The assessee-company claimed that it was engaged in the business of processing of goods and it was an "industrial undertaking"entitled to the concessional rate of tax at 55 per cent as against 65 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the manuscript and preparing the same for printing and book binding, yet the fact that printing and book binding was done by someone else did not imply that someone else was the manufacturer. It was the business of the assessee to get the books manufactured by getting the manuscript, designing the nature of the book, finishing the anticipated product and then selling the product after getting it made. The Court held that the assessee was an "industrial company" entitled for concession rate of tax. 17. In another case, the Hon ble Calcutta High Court in Griffon Laboratories (P.) Ltd. v. CIT [1979] 119 ITR 145 examined a similar issue that too in the case of a pharmaceutical company. There also the company was claiming the status of "industrial company" to avail the benefit of concessional rate of income-tax. The court held therein that the assessee need not own or possess plant or machinery to be a manufacturer of goods. The thing is that it should mainly engage itself in manufacture or processing of goods. The court held that manufacture may be either by the assessee itself or by someone under the assessee s supervisory control or direction. 18. The above cases were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e units which are eligible for the deduction under section 80-IA by themselves, in their own stead, could claim the benefit. Those LLMs, which are not by themselves entitled for the deduction under section 80-IA cannot claim any deduction under section 80-IA even in respect of the profit generated out the payments made by the assessee. An analysis of the above sequences clearly makes out that ultimately an LLM which is not entitled for the deduction under section 80-IA does not enjoy the said benefit of deduction. The benefit of deduction under section 80-IA is enjoyed by the assessee-company to a reduced extent. Therefore, the apprehension of the Assessing Officer that the assessee-company is having an undue advantage of deduction under section 80-IA is not well founded. 21. Therefore, factually also we find that the claim of the assessee was in order and the CIT(A) has justified in upholding the said claim made by the assessee. The first ground raised by the revenue, therefore, fails. 22. The alternate ground raised by the revenue is that the CIT(A) has erred in holding that there is no material difference between section 80-I as it stood up to the assessment year 1972-73 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e old provisions regarding new industrial undertaking and the present provisions contained in section 80-IA. 25. Various expressions, words, phrases and concept are same or similar in all the sections as they deal with same subject, but in a larger connotation from time to time on the basis of repetitive amendments. Therefore, in the light of the history and development of the provisions of law dealing with industrial concessions, there is no substance in the argument of the revenue that the CIT(A) has erred in holding that there is no material difference between sections 80-I and 80-IA. In fact, there is no material difference; on the other hand, as rightly put by the CIT(A) section 80-IA has enlarged the scope of operation compared to the earlier provisions of law contained in section 80-I. The reference made by the revenue to section 80-IA(6) in its ground is not relevant at all. The second ground also, therefore, fails. 26. The block assessment appeal filed by the revenue is not successful. 27. Now we may consider the cross objection filed by the respondent assessee. 28. The first ground raised by the assessee in its cross objection is that the CIT(A) has erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ector himself has retracted from his earlier admission through an affidavit filed before the completion of the block assessment. Therefore, it was the duty of the concerned authorities to make further investigations if they wanted to prove that the subsequent retraction was not acceptable. This legal infirmity also goes against the revenue. 30. Above all, it is to be seen that no incriminating evidence has been collected by the revenue against the assessee in the course of search with reference to its claim under section 80-IA. The claim has been made by the assessee in its regular returns of income filed before the department. Entire facts pertaining to the claim of deduction made by the assessee under section 80-IA. were wide open before the Revenue. There was nothing undisclosed; there was nothing which would not have been disclosed; the claim was made by the assessee on the basis of the books of account regularly maintained in the ordinary course of business. Therefore, there is no situation which would justify the conclusion that the assessee-company had not disclosed anything or would not have been disclosed, but for the search. The amendment brought in section 158B( b ) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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