DCIT Vs M/S Shyam Sunder Khemka (ITAT Delhi)
Assessee being a manufacturer substantial expansion was carried out in asst. yr. 2008-09 hence, initial assessment year would be refixed 2008-09 and assessee would be eligible to claim 100% deduction for next five assessment years and thereafter 25% for next 5 assessment years subject to restriction imposed under sub-section (6) of section 80-IC.
Since the deduction u/sec 80le shall not in any case exceeds 10 assessment years, as specified in sub section (6), the appellant shall be eligible to claim deduction upto A. Y. 2013-14 at rate of deduction as may be applicable.
FULL TEXT OF THE ITAT JUDGMENT
The Revenue has filed this Appeal against the impugned Order dated 25.8.2014 of the Ld. CIT(A)-VIII, New Delhi relevant to assessment year 2011-12.
2. The grounds raised in this Appeal read as under:-
(1) Whether on the facts & in the circumstances of the case & in law, the Ld. CIT(A) is justified in allowing 100% deduction u/s 801C.
(2) Whether on the facts & in the circumstances of the case & in law, Id. CIT(A) is justified in allowing the 100P/o deduction u/s 8BIC in the eighth year on the basis of expansion in the fifth year on the same unit which has already claimed 100% exemption in first five years whereas the I.T. Act clearly provides the 100% exemption for first five years & 25% exemption on the next five years whereas the Department has not accepted the 100% deduction from sixth year onwards.
(3) Whether on the facts & in the circumstances of the case & In law, Id. CIT(A) is justified in allowing 80lC exemption at 100% in eighth year on the basis of expansion of same unit in the fifth year after availing 100% exemption for first five years which means the unit will avail 100% exemption for 10 years and 25% exemption for next five years totaling exemption for 15 years which is against the provision of law which clearly says that any unit will claim exemption u/s 80lC for 10 years only from the initial assessment year as per provisions 80IC(3)(ii) as the unit is situated in Himachal Pradesh.
(4) Whether on the facts & in the circumstances of the case & in law, CIT(A) is justified in ignoring the observation and reasoning given by Assessing Officer in disallowing the deduction u/s 80lC on the other grounds as per the provisions of Section 80IC(4) of the I.T. Act, 1961.
5. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in accepting the additional evidence under Rule 46A of the I.T. Act without giving an opportunity to the AO for representing revenue’s view on it.
6. That the order of the CIT(A) is erroneous and not tenable in law and on facts.
7. That the grounds of appeal are without prejudice to each other.
8. The appellant craves leave to add, alter, amend or forego any ground(s) of the appeal raised above at the time of the hearing.
3. The brief facts of the case are that the assessee was having income from salary, rental income from house property and interest income under the head income from other sources. Apart from above, the assessee is a proprietor of M/s Food & healthcare Specailities and is engaged in the business of manufacturing, processing and packing of food products (Glucon-D) and other food products at Batamandi, Ponta Sahib, Himachal Pradesh. He has also claimed short term capital loss on sale of mutual funds. In this case the return was filed on 30.9.2011 declaring total income of Rs. 43,09,145/-. During the course of assessment proceedings, the taxable income was further revised at Rs. 15,58,287/- vide submissions dated 1.8.2013 in its computation of income. The return of the assessee was processed u/s. 143(1) of the I.T. Act. As the case was selected for scrutiny under CASS. Accordingly, notice u/s. 143(2) of the Act dated 7.9.2012 was issued. Due to change of incumbent notices u/s. 143(2) and 142(1) of the Act alongwith detailed questionnaire dated 23.7.2013 were issued and served upon the assessee to file necessary details. In response thereto, the A.R. of the assessee attended the proceedings from time to time and furnished the details/ information. Books of accounts were also produced. The same were examined by the AO and he observed that assessee is carrying on job work for HEINZ and has not carried out any manufacturing activity during the year under consideration. Nor any substantial expansion u/s. 80IC has been carried out by the assessee in FY 2007-08 to claim the benefit of 100% tax exemption beginning from AY 2009-10 onwards. Therefore, the claim of the assessee u/s. 80IC of the Act was rejected and amount of Rs. 6,71,37,497/- was added to the returned income of the assessee and assessment was completed vide order dated 29.3.2014 u/s. 143(3) of the Act. Against the aforesaid assessment order, assessee appealed before the Ld. CIT(A), who vide his impugned order dated 25.8.2014 has deleted the addition in dispute and partly allowed the appeal of the assessee. Aggrieved with the order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal.
4. Ld. DR relied upon the Order of the AO and reiterated the contentions raised in the grounds of appeal. He further stated that assessee is carrying on job work for HEINZ and has not carried out any manufacturing activity during the year under consideration and nor any substantial expansion u/s. 80IC has been carried out by the assessee in FY 2007-08 to claim the benefit of 100% tax exemption beginning from AY 2009-10 onwards. Therefore, the claim of the assessee u/s. 80IC of the Act was rightly rejected and amount of Rs. 6,71,37,497/- was added to the returned income of the assessee, which does not need any interference.
5. On the contrary, Ld. Counsel of the assessee relied upon the order of the Ld. CIT(A) and stated that he has passed a well reasoned order. He filed a copy of Paper Book containing pages 1 to 52 in which he has attached the copy of assessment order passed u/s. 143(3) dated 31.10.2011 in the case of the assessee for AY 2009-10; copy of CIT(A) order dated 18.7.2013 in the case of assessee for AY 2009-10; Copy of ITAT order dated 29.7.2016 in the case of assessee for AY 2009-10; copy of assessment order passed u/s. 143(3) dated 8.2.2013 in the case of assessee for AY 2010-11; copy of show cause notice u/s. 263 dated 12.9.2014 in the case of assessee for AY 2010-11; copy of order u/s. 263 dated 19.2.2015 in the case of assessee for AY 2010-11 and copy of assessment order passed u/s. 143(3) dated 23.3.2015 in the case of the assessee for AY 2012-13. We note that in the aforesaid orders, the authorities have allowed 100% deduction u/s. 80IC of the Act, as claimed by the assessee in the previous year as well as in succeeding year. We find that in the instant year, Ld. CIT(A) has elaborately discussed the issues in dispute from page no. 3 to 12 while dealing with ground no. 1 to 3 raised before him. For the sake of convenience, we are reproducing herewith the relevant portion of the finding of the Ld. CIT(A) as under:-
“Ground nos. 1 and 2 In these grounds of appeal, appellant has challenged the action of AO in disallowance of Benefit of 100% deduction claimed uls. 80lC of the Income Tax Act of Rs. 6,17,37,497.00/- and adding the same to the taxable income of the assessee.
During the course of assessment proceedings, the AO disallowed the claimed of 100% deduction on the ground that the appellant was doing “job work” for Heinz India Pvt. Limited. The appellant is manufacturing Glucon-D an allied product (Complan) and it is marketed by Heinz (lndia)(P) Ltd.
It is observed from the impugned assessment order that the dispute is as to whether the appellant is entitle to claim of 100% deduction of profits since the AO is of the opinion that the assessee is doing job work.
I have heard the Ld. Counsel, and considered the written submissions filled by him in argument to the AO’s observation and also considered the observations made by the AO in the impugned assessment orders.
The appellant has explained the detailed manufacturing process undertaken by the appellant to manufacture Glucon and other allied food products. As justified in various case laws relating to the definition and activity of term manufacturing and understanding the process of manufacturing undertaken by the appellant, it become crystal clear that Glucon and other allied food products are totally different and distinct from the raw material which goes into the manufacturing of product known as Glucon. It is an accepted principle of law that once from the fact that manufacture product known as Glucon is sold in the market with its manufactured, individual ingredients lose their character to form a uniform product as it is clear manufacture name. Also it is not possible to separate these ingredients since this is not the case of simply mixing the raw material as has been erroneously presumed by the Ld. AO. The appellant has submitted that the nature of the activity of the manufacture and process of manufacturing of Glucon and other allied products remain same as in the preceding assessment years.
The appellant has submitted that the manufacturing unit at Batamandi, Paonta Sahib, Himachal Pradesh is owned, controlled and managed by the appellant itself. The land and building, plant & Machinery is owned by the appellant and depreciation is being allowed on these assets by the AO right from the inception and starting of unit. The appellant has informed and submitted that right from the day. One appellant is registered as a manufacturer with various statutory and government bodies like Central sales tax department, Central Excise department, SSI registration with District Industries Centre and various authorities like Provident fund, Employees state Insurance, Weight & Measure Department etc. at Himachal Pradesh. This is the 5th year of claim of 80lC deduction by appellant.
The appellant has claimed that in view of the complete independent manufacturing set up of the appellant after complying with the regulatory formalities with various aforesaid government bodies in support of which the appellant has placed on records various registration certificates, approvals etc. granted to it by various government departments and these have been so granted not merely for the year under appeal but from the very first year A Y 2004-05 when the unit was set up. The appellant has also stated that the provision of section SOIC together with provision required to be complied with in terms of section 80IA has been complied particularly the provision contained in sub-section (5) and sub- section (7) to (12) of Section 80IA. Thus to prove the fact the appellant is manufacturer the appellant has taken care to comply with all the conditions as are necessary to be eligible to claim the deduction as an industrial undertaking in the special category state of Himachal Pradesh and this has been done by the appellant right from the day one of establishment of the unit and in the year under appeal (AY 11-12) the same nature and activity continued.
The appellant, in support of hi submission, has relied on the following case to ensure It this is a manufacturing activity:
1. Empire Industries Ltd. v. Union of India 1985 (2) BLR 179
2. CIT v. J.B. Kharwar and Sons, 163- ITR 394 (1987)
3. Sri Balaji Metal Finishers vs. ITO 15 ITD 26 (Hyd.)
4. ITO vs. A Joseph Louis 33 ITI? 485 (Mad)
5. Durandel Foods Pvt. Ltd. vs. ITO 6 ITD 207 (Hyd.)
6. Torrent Drugs & Chemicals Pvt. Ltd. vs. DC IT 64 TTJ 52 (Ahd.)
7. CIT vs. Sree Krishna Pulverising Mills 106 Taxman 347 (AP)
8. Aspinwall & Co. Ltd. vs. CIT 251 ITR 323(SC)
9. Decision of Central Excise and Gold Tribunal (CEGAT), Special Bench ‘D’, New Delhi in the case of Vijaya Packers V s. Collector of Central Excise 1993(07) LCX0073 dated 21.07.1993.
It is further observed from the paper filled by the appellant that the appellant is giving direct employment to local peoples. The salaries and terms and conditions of employment are settled by the assessee.
I have considered the above facts and various judgment of authorities as also relied by the appellant in which activity of such kind of manufacturing activity taken by the appellant tantamount to manufacturing and therefore I do not find any reason of not allowing the benefit u/sec 80IC on the ground that it was not manufacturing.
I also do not find any merit in the Ld. AO conclusion that the deduction u/sec 80lC could be denied because the appellant was doing job work for M/s Heinz. The appellant has strongly relied on the decision of the jurisdictional tribunal in the case of Gorawara Plastics and General Industries Pvt. Limited vs. DCIT 63
TT J 329 where the principle was exposited thus:
“There is no distinction between the activity for manufacturing on own account as also for the third parties, because the same process was involved in the manufacturing of electron guns on the part of itself in the preceding year. The only requirement of section 80-1 is that the industrial undertaking should manufacture or produce articles or things. The provisions of section 80-1 also nowhere specifically provide that the industrial undertaking owned by the assessee should engage itself in the manufacture of its own goods and not the goods belonging to other parties. If the industrial undertaking is engaged in the activity of manufacture or production of an article or thing, regardless of the fact that such article of thing belongs to the assessee or to some third. party for whom the assessee is doing such manufacturing or production activity on job basis, would be clearly entitled to grant of deduction under s. 80-/ provided other conditions mentioned in the said section are fulfilled”.
Thus I feel that to avail the benefit u/sec 80IC one may be the manufacturer irrespective of whether on own account or for third party and the fact of doing manufacturing for third party does not lead to non-eligibility of the deduction u/sec 80lC.
The appellant has relied in support of his claim on various case laws which are as under:-
