TMI Blog2012 (9) TMI 320X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 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 man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of provisions of section 40a(ia) of the Act. The learned A.R. for the assessee fairly admitted that out of the erection charges no tax was deducted at source and consequently the said amount is to be disallowed in view of the provisions of section 40a(ia) of the Act. It was further pointed out by the learned A.R. for the assessee that deduction under section 80IC of the Act is to be allowed on revised profits of the business being the eligible profits entitled to deduction under section 80IC of the Act. Reliance was placed on S.B. Builders Developers Vs. ITO [50 DTR 299 (Mumbai Bench)]. 7. The learned D.R. for the Revenue placed reliance on the observations of CIT (Appeals) in para 37 at page 27 of the appellate order. 8. We have heard the rival contentions and perused the record. During the year under consideration the assessee had credited the account of contractor Shri Rattan by sum of Rs.50,642/- on 31.3.2006 in Baddi unit. Not a was deducted at source out of the said payment under section 194C of the Act and consequently the provisions of section 40a(ia) of the Act are admittedly attracted in the case. However, from the perusal of the order of the CIT (Appeals) i.e par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction under Section 80IC. 7. That in the facts and circumstances of the case, the Id. Commissioner of Income Tax (Appeals) gravelly erred in upholding the action of the Id. Assessing Officer, who in respect of civil works executed in Baddi Units had erred in estimating the net profit of 33.53% and working out the net profit of Rs. 12,65,558/-." 10. The brief facts relating to the issue are that during the year under consideration the assessee is carrying on its activities with head office at Chandigarh unit and branch office at Baddi unit. The assessee had shown receipts on account of activities related to prefabricated structure as well as some civil work carried out during the ye a r under consideration. The assessee had claimed profits of the Baddi unit as eligible for deduction under section 80IC of the Act at Rs.1,63,93,955/-. The assessee had maintained separate books of account for the Chandigarh unit and the Baddi unit. The Assessing Officer, however, noted that large amount of administrative and financial expenses were debited in the books of the Chandigarh unit, which was also the head office of the assessee. The assessee had apportioned percentage of some of these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee during the course of assessment proceedings admitted that sum of Rs.37,74,330/- on account of civil works, erection charges etc. had nothing to do with the manufacturing activities, as noted by the Assessing Officer in para 9.4 at page 15 of the assessment order. The Assessing Officer requisitioned the assessee to furnish the details attributable to such receipts by way of civil work, erection charges, etc. In the absence of any satisfactory reply and after going through the books of account of the assessee found that the assessee had debited and transferred the expenses of Jaipur unit to the Baddi unit as on 31.3.2006, totaling Rs.25,28,772/-. The said, expenditure was held to be in relation to its works contract work and consequently profits from the same were computed at Rs.12,65,558/-, which gave profit ratio of 33.53% over the total turnover of civil contract work. The assessee had declared profits @ 24.85% in Chandigarh unit on the civil work carried out in the areas Uri and Jammu Kashmir. The profits of Jaipur unit were thus found to be reasonable in comparison to the rates declared at Chandigarh unit and consequently the claim of deduction under section 80IC of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tage applied for computing the expenditure at Jaipur unit was excessive. 15. In respect of the third issue raised i.e. trading or manufacturing activity carried on by the assessee, it was explained by the learned A.R. for the assessee that it was engaged in the manufacturing of prefabricated sheds/shelters for Indian Arm y which was used for various purposes. The said items were manufactured and put together at unit of the assessee and the said structure was disengaged for the transportation to far away places. The learned A.R. for the assessee pointed out that the Assessing Officer had enlisted certain items and had estimated its sale price by holding that the assessee was trading in the said items. However, the assessee was charging for the whole packages and not separately for different items. Further paints was also supplied for painting the sheds at the respective places not for selling it item-wise. Reliance was placed on the ratio laid down in M/s Claas India Ltd. Vs. ACIT [8 DTR 347 (Delhi Bench)]. 16. We have heard the rival contentions and perused the record. The assessee is engaged in the business of steel fabrication and manufacturing of prefabricated structure wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for computing percentage ratio is also upheld. Consequently, the deduction under section 80IC of the Act being reduced to the extent of Rs.6,05,658/- is upheld. 19. The second related issue of computation of deduction under section 80IC of the Act is profits on civil works contract carried out at Jaipur. The Assessing Officer vide paras 9.5 to 9.6 had computed the profits of Jaipur unit of the works contract at Rs.12,65,558/-. Admittedly, t h e assessee is not entitled to deduction under section 80IC of the Act on the profits arising on civil contract work carried out by the assessee. However, in order to adjudicate the issue by following the principles of natural justice, we are of the view that the said computation of profits from civil works needs to be relooked by the Assessing Officer by considering actual expenditure of the said contract work. Accordingly, we remit this limited issue back to the file of the Assessing Officer to determine the profits from work contract by examining the issue de-novo after affording reasonable opportunity of hearing to the assessee. 20. The third component of disallowance of deduction under section 80IC of the Act worked out by the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim of the assessee was that it was entitled to claim of deduction under section 80IC of the Act on such bought out components. The issue of claim of deduction under section 80IC of the Act on such bought out items arose before the Mumbai Bench of the Tribunal in Mihir Engineers Ltd. Vs. JCIT [112 TTJ (Mum) 940]. 22. The Mumbai Bench of the Tribunal in Mihir Engineers Ltd. (supra) vide paras 23 to 30 held as under: 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 manufactured or produced by the assessee. The word manufacturing or production is not defined in the Act. The distinction of the word 'manufacturing' or 'production' was clarified by Hon'ble Supreme Court in CIT v. N.C. Budharaja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee 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 80-I." 26. The Delhi Bench of Tribunal in the case of Jackson Engineers (P.) Ltd. v. ITO [1989] 31 ITD 79 had held as under: "From the perusal of pictures given by the assessee in respect of diesel generator sets ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld 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 other parties and were assembling those components, equipments and accessories and thereby they were preparing fabricating and erecting a plant which was known as ETP. The ultimate end product which was prepared as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 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 equipment by way of Warranty as incorporated in the Quotation at page 245 of the paper book. The Warranty is against defect in materials and workmanship when erected and operated in a manner provided by us (the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 tower, the assessee is entitled to claim of deduction under section 80-IA of the Act on the whole inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09 and ITA No. 1021/Chd/2011 relating to assessment ye a r s 2006-07 and 2008-09, date of order 22.6.2012. Following the same we hold that the assessee is entitled to benefit of claim of deduction on the said bought out items and there is no need to rework the deduction under section 80IC of the Act. Reversing the order of CIT (Appeals) we direct the Assessing Officer to allow the claim of the assessee in respect of deduction under section 80IC of the Act on such bought out components. Ground Nos. 3, 5 to 7 raised by the assessee are partly allowed. 25. Ground Nos. 8 to 11 raised by the assessee being general are dismissed. ITA No.1361/Chd/2010 (Revenue's appeal) 25. Ground No.1 raised by the Revenue reads as under: "1. As per the facts and circumstances of the case and the provisions of law, the CIT (A) has erred in deleting the addition of Rs. 24,981/- u/s 36(l)(va) of the Income Tax Act,1961 made by Assessing Officer n the ground that the assessee company has failed to deposit the amounts on or before the due date. 26. The issue in ground No.1 raised by the Revenue is against the disallowance on account of employees share of PF being not deposited within t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Act. 1961." 28. The issues raised by the Revenue in ground Nos. 2 to 7 are against the various disallowances made by invoking the provisions of section 40a(ia) of the Act. The plea of the assessee in this regard was two folds that; a) Disallowance under section 40a(ia) of the Act is to be made only on such amounts which are payable on the close of the financial year and; b) in any case where any disallowance is made under section 40a(ia) of the Act, the profits of the business have to be increased by such amount for computing deduction under section 80IC of the Act. We find merits in both the pleas of the assessee that in view of the ratio laid down by the Special Bench of Vishakhapatnam Tribunal in ACIT Vs. Merilyn Shipping Transports (supra), provisions of section 40a (ia) of the Act for disallowance of expenses are to be invoked only in such cases where the amount is payable as on the close of the financial year, and not ax has been deducted out of such payments. However, in case any such amount is disallowed in view of the provisions of section 40a(ia) of the Act, profits eligible for deduction under section 80IC of the Act have to be reworked by adding the said disa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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