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2015 (4) TMI 673 - ITAT DELHI

2015 (4) TMI 673 - ITAT DELHI - TMI - Deduction u/s 80IC - Deduction denied on account of job work - No separate accounts prepared for manufacturing activity and job works - Depreciation on passive use of assets - Depreciation disallowed on the basis of individual assets in block of assets - Held that:- An industrial unit manufacturing or producing articles or things cannot be denied exemption u/s 80-IC merely on the ground that it is deriving profit by carrying out job work. Job work also tanta .....

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by the assessee company and it derives a profit by way of job work charges, it is entitled to deduction under 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 sc .....

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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 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 .....

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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.

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 .....

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ear 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. - Decided against the revenue. - ITA No. 1650/Del/2010 - Dated:- 27-3-2015 - R. S. Syal, AM And A. T. Varkey, JM,JJ. For the Petitioner : Shri J P Chandrakar, Sr. DR For the Respondent : Shri Dinesh Gupta, CA ORDER Per A. T. Varkey, Judicial Member This appeal of the Revenue is directed against the Order dated 29.1.2010 passed by the Ld. Commissioner of .....

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cturing 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 th .....

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n brief as noted by the ld CIT(A) are that in this case Return declaring taxable income at 'NIL'; However, tax has been paid on Book Profit of ₹ 1,01,40,312/- u/s. 115JB of the Income Tax Act, 1961 (herein after 'the Act') was filed on 15.1.2006. The same was processed u/s. 143(1) of the Act. The case was selected for scrutiny. Notice u/s. 143(2) was issued within the stipulated time, which was also served in time. In response thereto, assessee's authorized representati .....

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ppeal of the assessee for statistical purposes. 4. Now the Revenue is aggrieved against the impugned order dated 29.1.2010 and filed the present appeal before the Tribunal. 5. At the time of hearing Ld. DR relied upon the order of the AO and reiterated the contentions raised by the Revenue in the grounds of appeal. 6. On the contrary, Ld. Counsel of the assessee relied upon the order of the Ld. CIT(A) and submitted that the same may be upheld. 7. We have heard both the parties and perused the re .....

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Powders and food supplements etc. These are manufactured by the assessee company either as its own products and / or for other companies on job work / contract manufacturing basis. For its unit Mahaan Healthcare the assessee company maintains separate books of account. However, as per the ld 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 boo .....

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cture 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 officer fu .....

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e the assessee company achieved a turnover of ₹ 8,35,11,233 during financial year 2005-06. This turnover according to him included job work charges amounting to ₹ 1,25,32,704. In the opinion of the assessing officer however job work is not a manufacturing activity. And according to the ld AR, it is not the case of the assessing officer that job work charges had not been derived from the said undertaking or that assessee company did not utilize its machinery and labourers for earning .....

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work / contract manufacturing basis. The process of manufacturing for own self and job work is same i.e. dry blending of various raw materials under controlled conditions. Both types of manufacturing activities i.e., for own self or for any third party would fall under the definition of 'manufacture'. The job work charge had a direct nexus with the manufacturing activity of the assessee since the assessee did the job work by utilizing its machinery and labourers. The manufacturing proces .....

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rable 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 u .....

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bourers. Where the goods belonging to others were manufactured by the assessee and it derived profit by way of job charges, the assessee is entitled to deduction u/s 80-IC as the same tantamount to manufacture in terms of Excise rules, Income tax Act and all other applicable statutes. An industrial unit manufacturing or producing articles or things cannot be denied exemption u/s 80-IC merely on the ground that it is deriving profit by carrying out job work. Job work also tantamount to manufactur .....

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d be entitled to deduction, if it manufactures or produces articles or things, exclusively belonging to it. Therefore, when the goods belonging to others are manufactured by the assessee company and it derives a profit by way of job work charges, it is entitled to deduction under section 80IE. 7.4 We find force in the submission of the ld AR that explanation after section 80IA(13) is not applicable to section 80IC. This explanation which related to applicability of section 80lA to a works contra .....

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ahaan Healthcare, the Chartered Accountants has clearly mentioned that he has examined the balance sheet, profit and loss account of the industrial undertaking which were in agreement with the books of account maintained. As such separate books of account of the undertaking have been maintained by the assessee company. Unit wise Balance Sheet and Profit account were filed vide letter dated 15.12.2004 of the assessee. There is no requirement under law for maintaining separate books of account for .....

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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-sec .....

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grounds no. 1, 2 & 3 filed by the Revenue in its Appeal. 8. With regard to ground no. 4 is concerned, we find during the hearing Ld. Counsel of the assessee submitted that the unit had started manufacturing operation w.e.f. 25.2.2004 (A.Y. 2004-05); he further submitted that assessee received job charges as unit is in existence and is in running condition; in the absence of work orders the unit was kept in ready for production stage throughout the year; as per Income Tax Act depreciation al .....

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that during the year under consideration the assessee company had an agreement with Coca-Cola India (P) Ltd. (CCIPL) for manufacturing on job work/contract basis through its undertaking named Mahaan Multipack. As per term of the contract the assessee company was to receive from CCIPL job work charges based on quantum of production subject to a fixed minimum guaranteed charge. However, the assessee company was required to keep its unit in 'ready for production' stage at all times. Since t .....

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nover of this unit for the year under consideration. Keeping the unit/plant in production 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 .....

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radictory 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, once he had disallowed the depreciation, the profits of the unit increased automatically and such increased profits of the undertaking should have been considered by the assessing officer for calculating deducti .....

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profits derived by the undertaking. Once an undertaking is eligible for deduction u/s 80IC of the Act, it is not material whether production was actually carried out in a subsequent period (provided period falls within the tax holiday period) as long as there are profits derived by the undertaking. In any case the assessee company had kept the unit ready for production based on its contract with M/s. Coca-Cola India Private Limited. The profits of the undertaking had a direct nexus with the man .....

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this unit, no deduction U/s 80-IC of the IT Act, 1961 is available and allowable to the assessee company for the year under consideration and claim of the assessee company that otherwise also profit of this unit is eligible for deduction u/s 80-IC of the IT Act, 1961 is rejected". 8.2 We find force in the Ld. CIT(A)'s remarks that the assessing officer was wrong in stating that the assessee company has accepted that there was no production in the said unit during the year due to suspens .....

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sis 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. .....

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en passive use of an asset i.e. while it is kept ready for use, it would tantamount to use of the asset for the purposes of the business and assessee would be entitled to depreciation thereon. It has been held in the case of Siv Industries Ltd. v. DCIT reported in (2008) 306 ITR 114 (Mad.) that any machinery may not have been used on all days and every single day right throughout the year for it to be eligible to claim depreciation. It has been held by the hon'ble Delhi High Court in the cas .....

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used" found in section 10(2)(vi) of the 1922 Act, as under: "But, I think that the word 'used' in this section may be given a wider meaning and embraces passive as well as active user. Machinery which is kept idle may well depreciate,' particularly during the monsoon season. It seems to me that the ultimate test is, whether, without the particular user of the machinery relied upon the profits sought to be taxed could have been made; and as I read the agreement in the case, .....

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ncome from the main business activity of the unit it would be eligible for deduction under section 80IC of the Act (Sony India (P) Ltd., v. DCIT) reported in (2008) 114 ITD 448 (Delhi) . 8.5 In view of the above, 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 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 .....

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eciation 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 .....

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ound 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. 4 filed by the Revenue in its Appeal. 9. With regard to ground nos. 5 is concerned, we find that that the total assets of all undertakings / units of the assessee company form part of its block o .....

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le of the block of assets and is a single value. This can't be broken into independent value for individual assets. The written down value for each block of assets is a single figure. 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 written down value for individual assets falling within that block of assets. As such the assessing officer erred in law and on facts in arriving at a figure of WDV for individual assets fall .....

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