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TMI Blog2014 (1) TMI 1883X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961 after considering the judgment of Hon'ble High Court of Punjab & Haryana in the case of Abhishek Industries Ltd., 2. That on the facts and circumstances of the case and in law Ld. CIT(A) has gravely erred in deleting the addition of Rs. 15,13,623/- on account of disallowance under section 80 1C of the Income Tax Act 1961 pertaining to Unit-ll Baddi. 3. The appellant craves to add or amend any ground any grounds of appeal before the appeal is heard or disposed off. 4. It is prayed that the order of the Ld. CIT(A) be cancelled and that of the assessing officer may be restored. 4. The assessee has raised the following grounds in the Cross Objections : 1. That the order of the Assessing Officer as upheld by the Commissioner of Income Tax (Appeals), Chandigarh disallowing Rs. 1,94,000/-- being the actual amount appropriated for the purchase of residential flats bad in law and needs to be set aside. 2. That the order of the Assessing Officer as upheld by the Commissioner of Income Tax (Appeals) Chandigarh disallowing an amount of Rs. 4,11,787/- in the facts and circumstances of the case is bad in law and needs to be set aside. 3. That the appellant craves leav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the submissions made before the Commissioner of Income Tax (Appeals) explaining each of the debit entry. 9. We have heard the rival contentions and perused the record. The assessee during the year under consideration had declared income from business as sole proprietor of B.K. Raman & Co. Chandigarh and Unit II at Baddi. In the Chandigarh office, the assessee had claimed interest expenditure of Rs. 14,24,481/- on account of the interest paid on secured loans. As against this, the assessee had shown certain debit balances on which no interest was charged. The first concern to whom amount had been advanced was the Unit No. II at Baddi. In the Chandigarh office, debit balance of Rs. 33,17,606/- is reflected which admittedly is nothing but working capital of the assessee for running the Unit No. II at Baddi and it also includes the profit declared by the Baddi Unit. The assessee in the Chandigarh Unit had shown a capital of Rs. 49,34,981/- and had also shown debit balance in the name of B.K. Raman & Co. Unit II Rs. 37,17,608/-. In the first instance, the said Rs. 37,17,608/- includes the profit earned by B.K.Raman & Co. Unit II, Baddi which is not to be considered for computing the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of account of the assessee. Though the said concern is a business associate of the assessee i.e. to whom goods have been sold by the assessee but that does not justify the advancement of interest free loan to the said concern. Accordingly, we hold that interest relatable to such interest free advance is to be disallowed in view of the provisions of section 36(1)(iii) of the Act. However, the rate of interest to be applied in such case is to be on the basis of average cost ratio i.e. taking into consideration the interest free advances available to the assessee and the interest bearing advances available with the assessee. 12. Before the Commissioner of Income Tax (Appeals), the assessee had submitted that the average rate of interest is not 18% which has been applied by the Assessing Officer to work out the disallowance under section 36(1)(iii) of the Act. The Assessing Officer is thus, directed to apply average cost ratio in order to compute the disallowance under section 36(1)(iii) of the Act in respect of the advance of Rs. 370,627/- made to M/s Singal Polymer. The ground No. 1 raised by the revenue is thus, partly allowed. 13. The issue in ground No. 2 raised by the revenue i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... item falling under the Schedule. Since the plastic items were prohibited under the 13 t h Schedule, the assessee was held to be not eligible for deduction under section 80IC of the Act. 15. The Commissioner of Income Tax (Appeals) after deliberating upon the definition of the term 'manufacturing' and the various judicial pronouncements on the issue observed that a liberal view on the meaning of 'manufacture' has been taken by various courts and in the absence of any definition in the Act, the word has to be given an ordinary meaning. Further reliance was placed on the ratio laid down by the Hon'ble Punjab & Haryana High Court in CIT Vs Impel Forge & Allied Industries Ltd. (2009) 183 Taxman 38 (P&H) that where the assessee is engaged in the business of manufacturing and trading of tractor and auto parts and was also doing job work of similar nature, it would be entitled to the deduction claimed under section 80IB of the Act both in respect of the income derived from its own manufacturing and income derived from job work done for the others. In view thereof, the Commissioner of Income Tax (Appeals) deleted the addition made by the Assessing Officer. The revenue is in appeal aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was engaged in the manufacturing of banned items under 13 t h Schedule of the Act, the assessee was not engaged in any manufacturing activities. Further it was noted by the Assessing Officer that the assessee was carrying on similar activity on job work basis on which the assessee was not entitled to any deduction under section 80IC of the Act. The Commissioner of Income Tax (Appeals), on the other hand, had allowed the claim of the assessee in entirety. The first aspect to be considered in the present appeal is whether the assessee is carrying on any manufacturing activities. 19. The ld. AR for the assessee at page 67 of the Paper Book has filed the copy of letter regarding acknowledgement of entrepreneur issued by the Single Window Clearing Agency, Department of Industries, Baddi, District Solan dated 06.08.2007 under which the Unit of the assessee under the micro/small/medium scale enterprises is recognized for the manufacturing and job work of plastic bottles and plastic measuring cups. The assessee further at pages 68 to 72 of the Paper Book has placed on record the Custom Tariff Schedule III Chapter 39, under which at item No. 3923, the articles for the conveyance or pack ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he manufacture of items which are prohibited under the 13 t h Schedule to Income Tax Act. In view thereof, we hold that once assessee is engaged in an activity of manufacture, which is not prohibited under the 13 t h Schedule of the Income Tax Act, then it cannot be said that the assessee was not engaged in any manufacturing. The assessee has declared income from carrying on of such activity and in addition the assessee had carried on the said activity on job work basis. The assessee is thus, entitled to the claim of deduction under section 80IC of the Act on profits arising from its own manufacturing activity and also the activity carried on, on job work basis. We find support from the ratio laid down by the Hon'ble Punjab & Haryana High Court in CIT Vs Impel Forge & Allied Industries Ltd. (supra), wherein it has been held that where the assessee is engaged in any manufacturing activity and in addition carries on the same activity on job work basis, the assessee is eligible for the claim of deduction under section 80IB of the Act. Following the same parity of reasoning, we hold that the assessee is entitled to the claim of deduction under section 80IC of the Act on its total p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merit in the ground No. 2 raised by the assessee in its Cross Objection. 22. Now coming to the ground No. 1 raised by the assessee in the Cross Objection. The claim was in respect of the deduction under section 54F of the Act. The assessee during the year under consideration had declared long term capital gains on sale of a flat against which it had claimed to have made investment for the purchase of another flat in Amaravati Aggarwal Builders Pvt. Ltd. On the letter of intent of the said builder dated 22.10.2005, the assessee had deposited a sum of Rs. 1,94,000/- within the stipulated period as initial payment and the balance had to be paid in installments. The Assessing Officer noted that though the assessee had claimed deduction under section 54F of the Act at Rs. 12,96,000/- the assessee had failed to comply with the provisions of the said Act. 23. The ld. AR for the assessee before us, restricted the claim to Rs. 1,94,000/- which was paid as down payment. The ld. AR for the assessee has placed on record copy of the receipt of having paid the sum of Rs. 1,94,000/-. In the totality of the facts and circumstances, where the assessee has deposited the said sum of Rs. 1,94,000/- ..... 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