TMI Blog2015 (4) TMI 673X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 80IC. There is no requirement under law for maintaining separate books of account for manufacturing and non-manufacturing activities of an undertaking. Where Assessee Company carries on both manufacturing and non-manufacturing activity in its undertaking the assessing officer ought to have allowed deduction under section 80IC of the Act on some logical, rational and scientific basis as all the applicable conditions for allowability of deduction under section 80IC of the Act have been met by the said unit of the assessee company. It appears that there is no denial of deduction u/s. 80-IC in case of manufacturing activities in the nature of job works, work contract etc. In the background of the aforesaid detailed discussions and precedents relied upon by the Ld. CIT(A) in his order as well as by the assessee, as aforesaid, we are of the view that no interference is called for in the well reasoned order passed by the Ld. CIT(A), hence, we uphold the same by rejecting the grounds no. 1, 2 & 3 filed by the Revenue in its Appeal. We find that the Ld. CIT(A) has rightly held that the receipts of the unit has direct nexus with the operations of the unit and being operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... job works receipts in respect of the unit 'Mahhan Multipack' 2. On the facts and in the circumstances of the case, Ld. CIT(A) has erred in allowing deduction u/s. 80IC in respect of the unit 'Mahaan Healthcare' especially when no separate accounts are prepared for manufacturing activity and job works. 3. Without prejudice to the ground no. 2 above, on the facts and in the circumstances of the case, Ld. CIT(A) has erred in allowing deduction u/s. 80IC in respect of the unit 'Mahaan Healthcare' on job works receipts of ₹ 1,25,32,704/- which was 'works contract' and not a manufacturing activity. 4. On the facts and in the circumstances of the case, Ld. CIT(A) has erred in allowing depreciation amounting to ₹ 43,80,673/- in respect of the assets of 'Mahaan Multipack' when the assets were not put to use. 5. On the facts and in the circumstances of the case, Ld. CIT(A) has erred in holding that the AO was not correct in arriving at a figure of WDV for individual assets failing within each of the block of assets of the assessee company while disallowing depreciation ignoring the fact that the assessee has itself attributed de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR, separate books have not been maintained by the assessee company for the manufacturing activities carried out for self and on job work/contract manufacturing, as section 80IC does not require separate books for eligible and non eligible activity of a unit. According to the ld AR, even in the absence of separate books for manufacturing and non manufacturing activity deduction u/s. 80IC should have been allowed on some rationale basis. While the term 'manufacture or produce' was not defined under the Act, section 10 (29BA) has been introduced w.e.f. 01.04.2009. According to him, both activities i.e., manufacturing for own self or for any third party fall under the definition of 'manufacture or produce' in terms of the provisions of the Act. So according to him the assessing officer has wrongly not allowed deduction under section 80IC of the Act with reference to manufacturing activities carried out on contract/ job work basis in the said unit allegedly for the reason that the assessee has shown Job Work Charges of ₹ 1,25,32,704/- in Mahaan Healthcare, which according to AO is not a manufacturing activities as prescribed u/s 80-IC of the Act. The assessing off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation to Section 80IA(13) is not applicable to Section 80IC of the Act. 7.2 We further find considerable cogency in the assessee's contention that that the production activity was not suspended in the current year and unit was kept ready for production stage at all times; and production did not take place as there was no work order from CCIPL; And even fixed minimum charges derived are income from and have direct nexus with the business of the undertaking. It is a well settled that for the purpose of claiming deduction under section 80IC of the Act, the income has to be derived from the undertaking. Therefore, if there is nexus between the receipt of income and undertaking, it has to be treated as income derived from the undertaking. The immediate source of job charges received was from the undertaking itself. The job work charges have to be treated as income derived from the undertaking itself. The job work charges received by the assessee had a direct nexus with the manufacturing activity of the assessee since the assessee did the job work by utilizing its own machinery and labourers. Where the goods belonging to others were manufactured by the assessee and it derived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount for manufacturing and non-manufacturing activities of an undertaking. Where Assessee Company carries on both manufacturing and non-manufacturing activity in its undertaking the assessing officer ought to have allowed deduction under section 80IC of the Act on some logical, rational and scientific basis as all the applicable conditions for allowability of deduction under section 80IC of the Act have been met by the said unit of the assessee company. 7.5 In view of the above, we find that Ld. CIT(A) has rightly held that the assessee job work charges have to be treated as manufacturing activity, and it is not envisaged u/s. 80-IC to maintain separate books of account for manufacturing on his own account and for job work. While an explanation has been added after section 80-IA(13) which states that nothing contained in this section, i.e., section 80-IA shall apply in relation to business which is in the nature of work contract etc, section 80-IC(7) only talks about the application of sub-section (5) and sub-section (7) to (12) of 80-IA. Thus, it appears that there is no denial of deduction u/s. 80-IC in case of manufacturing activities in the nature of job works, work contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ready stage means that the assets of unit were put to use specially when production was not carried out for lack of orders. The assessing officer did not allow depreciation amounting to ₹ 43,80,673/- relating to assets of the unit allegedly for the reason that:- It was also observed that the assessee. company has not claimed any Depreciation as per Companies Act, 1961 in the case of M/s. Mahaan Multipack whereas Depreciation as per IT Act of ₹ 43,80,673/- has been claimed in Computation of Assessable Income. On perusal of assessee's reply it is found that Unit under consideration has not been put to use and the same fact has been admitted by the assessee itself. Since Unit has not been put to use, the question of producing articles/things, goods as the case may be does not arises. However, assessee company has claimed Depreciation in this unit as per IT Act which is self contradictory as no asset is put to use. Accordingly claim of the assessee company of Depreciation of ₹ 43,80,673/- is disallowed . 8.1 We find that the Ld. CIT(A) rightly observed that even though the Assessing officer had wrongly disallowed depreciation claimed by the said unit, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n made by the assessing officer in the impugned assessment order is factually incorrect. The criteria for charging of depreciation and rates of depreciation are different under Companies Act, 1956 and Income tax Act, 1961. In terms of provisions of Companies Act, providing depreciation on year to year basis is not mandatory. Arrears of depreciation need to be provided before declaration of dividend in terms of section 205(1). This shows that there is a possibility of Companies not providing depreciation on year to year basis. Similarly depreciation has to be provided in terms of and for the purposes of section 349 of the Companies Act, 1956. In fact under Companies Act. it is possible to revalue upwards the written down value of a fixed asset depending upto facts and circumstances of each case. 8.3 We find that Ld. CIT(A) observed that in terms of Explanation 5 to section 32, the provisions of section 32 are applicable even if the assessee has not claimed depreciation while computing his total income. Deprecation has to be allowed for the active as well passive use of the asset. It has been held in the case of Sanghvi Motors (P) Ltd. v. DCIT reported in (2008) 110 ITD 1 (Pune) ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the operations of the unit and being operational income from main business activity of the unit, it would be eligible for deduction u/s.80IC of the IT Act. The assessee was required to keep its unit in ready for production stage at all times and the fixed minimum guarantee received by it was not possible without keeping the plant of the undertaking in ready for production stage throughout the year. The Hon'ble Delhi High Court in the case of Capital Bus Service Pvt.Ltd. Vs. CIT (1980) 123 ITR 404 has recognized that even passive use of assets is entitled for depreciation. In Sanghvi Motors (P) Ltd. Vs. DCIT (2008), 110 ITD 1 (Pune) (TM) , it was held that depreciation is to be allowed even for passive use, i.e., while it is kept ready for use. Thus, the income derived by the assessee has sufficient nexus and is incidental to the main business of the industrial undertaking and is, therefore, eligible for deduction u/s.80-IA. In Pancharatna Cement P.Ltd. Vs. Union of India (2009) 317 ITR 259 , the Gauhati High Court, inter alia, held that the language of section 80-IC is of wider import and amplitude than that of section 80HH and the profits and gains to be allowable for d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock. The individual assets losses its identity and the question whether an individual assets is put to use in a particular year is not relevant in as much as the requirement of law is to establish the use of block of assets and not the use of a particulars assets. 9.2 In view of the above, we find that Ld. CIT(A) has rightly held that the Written Down Value of each block of assets is a single figure and due to this fact and because of the method of calculating WDV for the block of assets, it is not possible to work out the WDV for individual assets falls within the block of assets. We also find that this view is also buttressed by the finding of the Hon'ble Delhi High Court in the case of CIT Vs. Bharat Alumunium Co. Ltd. ITA No.532 of 2006 , wherein, it was held that once a particular block of assets falls within the block, it is added to the Written Down Value and depreciation is to be allowed on the block. The individual asset loses its identity and the question whether an individual asset is put to use in a particular year or not is irrelevant inasmuch as the requirement of law is to establish the use of the block of assets and not the use of particular asset. Thus, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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