TMI Blog2014 (12) TMI 1060X X X X Extracts X X X X X X X X Extracts X X X X ..... raw material supplied by others - Thus such an income from job work is nothing, but income derived from industrial undertaking as per the provisions of section 80IB – CIT(A) is upheld – Decided against revenue. Disallowance on sale if manufactured product to be treated as "trading receipt" deleted – Held that:- The genesis of the controversy started when the AO noted that in the P&L Account, the assessee as debited more labour charges has compared to the labour charges shown in the TDS certificate - When required to reconcile the difference, the assessee submitted that the amount of ₹ 98,08,414/- was not on account of labour charges but on account of trading receipts - such a reconciliation statement given before the AO was not correct as the correct position is that, the said amount represents sales of manufactured goods and no trading receipt - the assesse had shown income from two kind of activities, one form job work of manufacturing and sale of manufactured goods and other on account of trading activities - under the head manufacturing, the assesse had shown opening stock of manufactured goods as on 31.07.2007 at ₹ 95,57,961/-The sale of manufactured goods was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facturing activity by an industrial undertaking and therefore eligible for deduction u/s. 80IB of the Act 3. Whether on the facts and in the circumstances of the cases and in law, the Ld. CIT(A) is correct in disallowing the sale if manufactured product to be treated as trading receipt as held by the Assessing Officer in his assessment order. 4. Whether on the facts and in the circumstances of the cases and in law, the Ld. CIT(A) is justified in disallowing the reallocation of expenditure such as interest charges, repairs maintenance and insurance charges between trading and manufacturing activity and subsequent determination of net profit by the Assessing Officer. 2. Regarding disallowance of claim of deduction u/s 80IB, the AO s case had been that assessee is engaged in the business of trading in plastic bags and also doing labour work on job work during the year and for the income generated out of job work activity, the assessee is not entitled for deduction u/s 80IB. The assessee s claim was that the labour charge received was on account of manufacturing activity only, as it was carrying out job work from the some machinery which was utilized by the assessee f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.313,34,736 1.6 Page Nos. 57 58 of the paper book contains the details with regard to the sale of manufactured goods. Further, the perusal of manufacturing, trading a/c. shows that ₹ 95,57,961/- was shown as opening stock under the head Manufacturing . It was the claim of the appellant that this manufactured goods were only sold for ₹ 98,08,414/- during the assessment year and hence, it cannot be said that the entire profit of the appellant arose only out of job work. The profit component of this manufactured sales is also embedded into the claim of 80IB(10). 1.7 It was the contention of the appellant that separate books of accounts were maintained for manufacturing activity and trading business. Therefore, the profit derived from manufacturing activity includes income out of labour job work also. It was also submitted that since the same P M which is used for manufacturing is also used for job work, the income out of contract job work is derived income for the purpose of sec. 801B. The question to be answered in this case is whether the appellant is entitled for deduction u/s 80lB of the Act in respect of the job work activity undertak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the series decisions of the High Court as referred by the Ld.CIT(A). 6. After considering the rival submissions and also on the perusal of the findings given in the impugned orders, we find that the assessee s claim for deduction u/s 80IB is mainly on account of job work which was carried out from the plant and machineries installed by the assesse for its own manufacturing purposes. The various courts have held that the only requirement for claim of deduction u/s 80IB is that, income should be derived from the industrial undertaking and assessee is liberty to manufacture the goods for itself or for others. The section does not make any difference for the purpose of claiming deduction u/s 80IB. If the job work has been done from the raw material supplied by the customers and assessee has manufactured the goods from those raw materials, then it amounts to manufacturing from the industrial undertaking. In all the decisions as have been referred before us, the Hon ble High Courts have reiterated the same proposition. A finding of fact has been recorded by the Ld.CIT(A) that the plant and machinery were used for manufacturing of plastic bags and polypropylene sheets to carry out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertains to goods manufactured i.e., DOPP films and in support of this contention extract of sales register of the manufactured product for the period 01.04.2007 to 31.07.2007 was filed along with the sample copy of the sale invoices. The relevant clarification by the assesse has been reproduced at pages 7 to 8 of the appellate order. The bifurcation of sales of the trading activity and manufactured goods was also worked out. 9. The Ld.CIT(A) noted that the assesse had shown opening stock of manufactured goods at ₹ 95,57,961/- and the sale of manufactured goods of ₹ 98,08,414/-. It was due to some misrepresentation at the assessment stage, it was stated that the said sales belong to the trading receipts. However, such a statement is not correct which is evident from the sales register of manufacturing and also the sale invoices. After perusing and examining these documents, the Ld.CIT(A) directed the AO to accept the gross profit declared by the assesse and allow the deduction u/s 80IB on labour charges. The relevant finding of the Ld.CIT(A) reads as under:- I have perused the copies of the sample invoice and it clearly indicates that it was towards sale of BOPP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e controversy started when the AO noted that in the P L Account, the assessee as debited more labour charges has compared to the labour charges shown in the TDS certificate. When required to reconcile the difference, the assessee submitted that the amount of ₹ 98,08,414/- was not on account of labour charges but on account of trading receipts. Before the Ld.CIT(A), it was clarified that such a reconciliation statement given before the AO was not correct as the correct position is that, the said amount represents sales of manufactured goods and no trading receipt. On the perusal of the records, it is seen that the assesse had shown income from two kind of activities, one form job work of manufacturing and sale of manufactured goods and other on account of trading activities. Under the head manufacturing, the assesse had shown opening stock of manufactured goods as on 31.07.2007 at ₹ 95,57,961/-. The sale of manufactured goods was shown at ₹ 3,13,34,736/- which also included sale on account of job charges out of ₹ 2,15,25,722/-. The amount was finally reconciled in the accounts. Though there has been some misrepresentation of facts before the AO however, Ld.CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of account he could thinker with the book results. The turn over basis of allocating be expenditure and to arrive at the net profit to work out the deduction u/s 80IB is quite reasonable. Thus he held that the basis of working adopted by the assessee is liable to be accepted. Ld. CIT(A) further analyzed the interest and the purpose of which it loans were taken. Regarding interest allocation, his finding is as under:- As far as interest expenditure is concerned, the Assessing Officer has taken value of the factory building and the value of P M as RS.61 crore for both manufacturing as well as job work activities. It was the contention of the appellant that the Assessing Officer has lost sight of trading activity which has contributed ₹ 22.28 crores out of total business of ₹ 35.36 cores and the factory/office premises have been used for the trading activity also. The Assessing Officer ignored this fact while allocating the expenditure on ad hoc basis. It was also brought to my notice that ₹ 150 crores was employed for trading activity and interest was paid exclusively for the trading activity is as under: 1. Interest paid to ICICI bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the sales mentioned already and accordingly, directed to apportion in the ratio of 87:13 between the trading activity, manufacturing and job working activity. 3.12 It was submitted before me that if interest apportionment is taken as ₹ 26.85 lakhs for trading and ₹ 11.49 lakhs towards manufacturing and job work activity, coupled with allocation of 87:13 on repairs and maintenance and insurance expenditure then the 80-18(10) deduction would be ₹ 1,44,20,837 as against ₹ 1,50,96,981 claimed by the appellant. However, in the light of my finding in the earlier para, the Assessing Officer is directed to rework the deduction u/s 80IB of the I.T. Act and properly apportioning the net profit between the trading activity and manufacturing and job work activity and subject to this condition, this ground of appeal is allowed. 15. After hearing both the parties, we find that the finding of the Ld.CIT(A) appears to be correct, firstly, the assessee has maintained separate books of account, one for the manufacturing activity and other for trading account. The book results of manufacturing and trading activity has not been disturbed by the AO in as much as, no dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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