Case Law Details

Case Name : ACIT Vs Phonix Lamps India Ltd (ITAT Delhi)
Appeal Number : ITA No 390/Del/2009
Date of Judgement/Order : 23/10/2015
Related Assessment Year :
Courts : All ITAT (1730) ITAT Delhi (428)

Brief of the case:

ITAT New Delhi held in ACIT Vs Phonix Lamps India Ltd that if the assessee was selling its final product to particular parties continuously and there was no return of the final product. Moreover there was no complaint of any defect in the finished product. So, it was clear that the assessee had started its commercial production. Further huge wastage would not be criteria to determine the stage of trial production or commercial production. So the contention of the assessee that it was running trial production during the concerned period was wrong. So, sec 80IC would be applicable to the assessee.

Facts of the case:

The assessee company manufactured Compact Florescent Lamp (CF Lamps), Halogen Lamp, Metal Halide Lamps for which purpose it had three units. Unit-I was in NEPZ area and was claiming deduction u/s 10A of the Income Tax Act till financial year 2001-02. The second unit was outside the NEPZ area. The third unit was started during the Assessment Year 2003-04 at Dehradun. The assessee had claimed deduction u/s 80HHC on the basis that it was exporting CF Lamps to other countries. As per AO the special provision in respect of certain undertakings in certain special category states as laid down in Section 80IC of the Income Tax Act,1961 were applicable to this area. However, the assessee company had not claimed that the unit was covered under Section 80IC of the Income Tax Act, 1961 for the year under consideration on the basis that in its accounts the assessee had shown that this unit was under trail run.

Contention of the assessee:

Assessee was of the view that the unit was only trial run and not had commercial production during the year, and therefore, the year under consideration should not be treated as first year of deduction for

section 80IC (3) (ii) of the Income Tax Act, 1961. The assessee further submitted before the AO that the assessee was entitled to claim deduction for 100 percent of profit and gains for 5 assessment years commencing that the initial assessment year and thereafter 30%. The assessee company further submitted that commercial production of CF Lamps were not taken place in the year under consideration, but only trial production took place. The assessee further submitted that there was a huge wastage which caused a loss of Rs.90,98,986/- in the year of trial production i.e. A.Y 2004-05.

So, sec 80IC was not applicable to the assessee. Sec 80 HHC was applicable and claimed exemption accordingly.

Contention of the revenue:

Revenue was of the view that as the assessee had made sales of 3.13 Crores and also had stock of finished goods valued at Rs 1.46 Crores which depict that not only manufacturing activity had taken place but also substantial sales had been made from the unit. Moreover as per sec 80IC when the assessee begins to manufacture the production the deduction would be available to the assessee. It was not the commencement of commercial production when the deduction would be applicable. So, as the assessee began the production so sec 80IC would be applicable.

Held by ITAT:

ITAT held that as the assessee had made substantial amount of sales during the period under consideration. Moreover there were repeated orders from the parties which denote that there was no defect in the product and it was fully saleable in the market. It was evidenced from the fact that there were 34 transactions/invoices mentioned in the ledger to Bajaj Electricals Ltd and there was no mention that the products which was sold to Bajaj Electricals Ltd were of defective or any sort of wastage to the assessee. Thus, the benefit of trial production could not be claimed by the assessee company and section 80IC was clearly attracted in the case of assessee company.

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