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TMI Blog2014 (2) TMI 1176X X X X Extracts X X X X X X X X Extracts X X X X ..... f the IT. Act, by holding that assembling of various components amounts to manufacture; without appreciating that no manufacturing activity is possible without sophisticated machinery or skilled manpower. 3. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in ignoring the significance of amendment of Sec. 10A and 10B by the Finance Act, 2000 whereby definition of manufacturing, which included any process or ASSEMBLING, has been deleted w.e.f. 01/04/2001 thereby meaning that those involved in assembling and processing would not be entitled to benefits intended for manufacturing concerns. 4. Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in not applying the ratio of Hon'ble Calcutta High Court in the case of CIT Vs. Babcock & Wilcox of India Ltd reported in 241 ITR 583 wherein it has been held that the activity of erecting of boiler at site by assembling of parts cannot be equated with manufacture of an article or thing. 5. Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in not applying the ratio of Hon'ble Supreme Court in the case of CIT Vs. N.C. Budhiraja & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) of I.T. Act which was 100% in respect of Silvassa Unit. 4. The main ground pertains to action of disallowing claim of deduction u/s.80IB(5)(i) of I.T. Act holding that the Unit was not engaged in the manufacturing of gensets but merely assembling the gensets. The Assessing Officer noticed that the assessee company was outsourcing various components i.e. engines, alternators, control panels etc. from various manufacturers and assembling gensets under the brand name "Kala". The Assessing Officer observed that Silvassa Unit was engaged in assembling of gensets. The Assessing Officer also observed that no component was manufactured by Silvassa Unit. He also took note of the fact that Silvassa Unit as on 31.03.2007 was having plant and machinery of 15.85 lacs consisting of three cranes only with furniture at Rs. 3.15 lacs and WDV of vehicles at 16.46 lacs. Having satisfied with the fact that the Unit of Silvassa was engaged in assembling of gensets, the Assessing Officer confronted the assessee regarding admissibility of deduction u/s 80IB(5)(i) of Income-tax Act. The stand of the assessee has been that in the past more particularly in A.Y. 2005-06 & 2006- 07 of deduction has been a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was at 30% of the profit while in respect of Silvassa Unit, the deduction was available at 100% of the profit of the unit. 4.3 Thus, the assessee company has claimed deduction in respect of profits for both units. The deduction claimed in respect of Silvassa Unit was of Rs. 7,74,08,854/- for A.Y. 2007-08. The Assessing Officer had disallowed the claim of the deduction made by the assessee in respect of Silvassa unit because the assessee was not engaged in manufacturing of article in Silvassa unit, but he was simply assembling various components of gensets. According to the Assessing Officer, the assessee itself has admitted that it was engaged in the assembling with various parts, hence deduction u/s.80IB(5)(i) was not allowable to the assessee. The Assessing Officer has relied upon the decision of Calcutta High Court in the case of CIT Vs. Babcock and Wilcox of India Ltd. reported in (2000) 241 ITR 583 in order to support his case that the deduction u/s.80IB(5)(i) was not available to a unit engaged in assembling of various parts. In appeal before CIT(A), the assessee has explained the various steps which were followed for manufacturing of gensets. The assessee pointed out that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill and assembled the same, it could not amount to either 'manufacture' or 'production' of any article or thing, as spelt out in Section 80IB(2)(iii). Thus such contention was rejected by the Tribunal. Having heard both the parties, the High Court held that: The different parts procured by the assessee by themselves cannot be treated as windmill. Those different parts bear distinctive names and when assembled together, they get transformed into a final product, which is commercially known as a windmill. However, there can be no difficulty in holding that such an activity carried out by the assessee would amount to "manufacture" as well as "production" of a thing or article as set out in Section 80IB(2)(iii)." 4.6 The Hon'ble High Court of Delhi in the case of Jackson Engineers [(2012) 341 ITR 518(Delh)] has decided a similar issue. The relevant portion of the same is as under: "Deduction under s. 80-IA-Manufacture or production- Assembling of diesel generating sets-Assembling of various components of diesel generating sets involves coupling and aligning the engine with the alternator-C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missed. The other grounds raised by revenue are similar to that of issues raised in assessee's appeal which will be taken care in the assessee's appeal on the said issue. 4.8 As a result, both the revenue's appeals are dismissed. 5. In ITA No.1866/PN/2012 for A.Y. 2007-08, the assessee has raised the following grounds: 1. The learned Assessing officer erred law and on facts in making an assessment and therefore order under section 143(3) is illegal, without jurisdiction and / or ab initio void and deserves to be quashed. 2. On the facts and circumstances of the case as narrated in the Statement of Facts and evidence and material on record and legal position, the learned Assessing Officer erred in holding entire income of Rs,7,74,08,854 Silvasa unit as taxable disallowing the entire deduction under 80 IB Claim. The addition based on incorrect interpretation of law that Silvasa is not manufacturing Gensets is not correct and therefore liable to be deleted in toto. 3. The learned Assessing officer erred in assuming the profit of Silvassa unit disproportionately higher as compared to unit at Chakan, Pune, when higher profit is not a factor for disallowing the deduction when the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of profit of Rs. 10,000/- each in respect of 3141 units at Rs. 2,96,40,000/- (3141-177) x Rs. 10,000/- in order to justify his point that profit of Silvassa unit was disproportionately higher. Accordingly, he held that the provisions of section 80IA(10) r.w.s. 80IB(13) applicable in this case and same should be considered while granting any relief to the assessee company. 6.1 The matter was carried before the first appellate authority, who after considering the same has observed that higher profit in respect of Silvassa unit was alleged to be for following reasons (i) supply canopies to Silvassa unit at lesser price compared to third parties loading and (ii) loading of administrative costs to Chakan unit. The stand of the assessee has been that sale of canopies to third party was made to order while quality of canopies supplied to Silvassa unit was different. Regarding loading and other administrative expenses to Chakan unit claimed by assessee has been that the same was not by way of arrangement. Rejecting the contention of assessee, the CIT(A) held that the assessee has inflated the profit of Salvassa unit, therefore amount of inflated profit was worked out by applying the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enefit granted to the Silvassa unit. Thus, he has computed the indirect benefit by reducing 177 canopies for which direct evidence was available out of 3141 canopies sold during the year and has worked out the excess benefit granted to Silvassa unit at Rs. 2,96,40,000/- as discussed above. 6.5 The assessee objected to the action of the Assessing Officer. He has stated that the price charged by Chakan unit was much higher than the price of the canopies purchased from third parties. The stand of the assessee has been that the comparable rates adopted by the Assessing Officer were not correct since the canopies sold to third parties i.e. Kirloskar Oil Engines Ltd. were having totally different features. The assessee also explained various reasons for which the net margin in the Chakan unit was lesser as compared to the net margin in Silvassa unit. In appeal, the CIT(A) held that the assessee was not able to substantiate the variation in the net profit margin between the two units. Accordingly, in para 24 of his order, the CIT(A) has held that the same net profit ratio should be considered for both the units and hence, he has calculated the excess profit loaded to Silvassa unit at Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, excess employee and excessive manufacturing expenses, the profit margin of Chakan unit was low. It was further explained that in view of the guidelines issued by Central Pollution Control Board, certain specific directions for controlling noise levels were to be maintained. Hence, the D.G. sets could not be sold without canopies which act as a noise dampening agent. Hence, the assessee company started manufacturing canopies in Chakan unit. The lower authorities have not appreciated that the difference in depreciation was basically because substantial plant and machinery was pertaining to canopy manufacturing division. The relevant chart is enclosed on page 49 of the Paper Book. The higher employee and manufacturing expenses were because of the fact that the canopies were being manufactured in Chakan unit which was not the case in Silvassa unit. The chart giving the details of the profit earned by the two units as enclosed on page 146 of the Paper Book. 6.8 The Assessing Officer has invoked sub section 10 of Section 80IA. In this regard, the stand of the assessee is that sub section 10 is not applicable since it is applicable to the transactions between the assessee and thir ..... X X X X Extracts X X X X X X X X Extracts X X X X
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