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Income Tax Appellate Tribunal, “SMC” BENCH, COCHIN
Before: Shri George George K
This appeal at the instance of the Revenue is directed against the order of the CIT(A), dated 21.11.2019. The relevant assessment year is 2004-2005.
The grounds raised read as follows:-
“1. The order of the learned Commissioner of Income Tax (Appeals) is against the facts and circumstances of the case. 2. On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in treating that the income related to job works eligible for deduction U/s 80IB holding that the job work, the process of stitching, is an integral part of the whole chain of manufacturing process in contradiction to the view held by the Assessing Officer. 3. On the facts and circumstances of the case and in law, whether the term manufacturer under section 80IB would include manufacturing activity being carried out outsourced to another party. 4. The learned Commissioner of Income Tax (Appeals) is erred in law as well as in facts by giving relief to the assessee holding that the process of stitching is an integral part of the whole chain of manufacturing process and the process is eligible for deduction U/s 80IB, thereby
ITA No.151/Coch/2020 2 M/s.Veekesy Polymers Pvt.Ltd. allowing the profit relates to manufacturing through job works done by other parties. 5. The assessing officer reached the conclusion that the assessee is not eligible for deduction U/s 80IB in respect of the amount towards the portion of the manufacturing work done by other parties. In view of this, the decision of the Commissioner of Income Tax (Appeals) arrived at without appreciating the complete facts of the case and not considering the view that the assessee will not be eligible for 80IB deduction in respect of profit relating to articles manufactured through job work. 6. For these and other grounds that may be urged at the time of hearing, it is requested that the order of the CIT(A) may be set aside and that of the Assessing Officer restored.”
Though the tax effect in this case is below the monetary limit prescribed, since the audit objection has been accepted by the Department, I proceed to dispose off the same on merits.
The brief facts of the case are as follow: The assessee is a company engaged in the manufacture of footwear. For the assessment year 2004-2005, original assessment was completed u/s 143(3) of the I.T.Act on 15.12.2006 determining the total income at Rs.14,33,490. While completing the assessment u/s 143(3) of the I.T.Act, a sum of Rs.6,17,708 was allowed as deduction u/s 80IB of the I.T.Act. Subsequently, notice u/s 148 of the I.T.Act was issued. Accordingly to the A.O., deduction claimed and allowed in the original assessment was excessive. The assessment u/s 143(3) r.w.s. 147 was completed vide order dated 18.11.2010. In the said reassessment order, the Assessing Officer recomputed deduction u/s 80IB of the I.T.Act by excluding job work from the turnover and proportionately allowing the claim of deduction. The relevant finding of the Assessing Officer reads as follow:-
ITA No.151/Coch/2020 3 M/s.Veekesy Polymers Pvt.Ltd.
“The assessee is in the business of manufacture of PVC slippers. The assessee had claimed a sum of Rs.6,17,708 as deduction under section 80IB. Though the assessee is basically eligible for the deduction a mistake had crept in the calculation of the deduction. As per the details available the assessee had incurred Rs.6,67,507 towards “job work” which means that a portion of the manufacturing work was done by other parties and that the assessee is not eligible for the profit relating to articles manufactured through job work since the job work charges constituted 25% of the total manufacturing expenses (sch “Q”) a sum of Rs.5,14,757 being 25% of the gross total income will not be eligible for computing deduction u/s 80IB.”
Aggrieved by the reassessment order u/s 143(3) r.w.s. 147 of the I.T.Act, the assessee preferred the appeal to the first appellate authority. The CIT(A) held the process of outsourcing / job work was an integral part of the processing and manufacture undertaken by the assessee, hence was entitled to entire claim the deduction u/s 80IB of the I.T.Act. The relevant finding of the CIT(A) reads as follow:-
“I have considered the submission of the appellant. It is seen that the process of outsourcing namely stitching is not a separate profit making process to the appellant but is an integral part of the whole process of manufacture by the appellant. The AO himself has admitted that the appellant is entitled for deduction u/s 80IB. When the process like stitching is an integral part of the whole chain of manufacture process, the whole process has to be considered as manufacturing process eligible for deduction u/s 80IB. Considering these facts, the AO is directed to treat income related to job work estimated at 25% of gross total income as eligible for the purpose of computation of deduction u/s 80IB. The ground is allowed.”
Aggrieved by the order of the CIT(A), the Revenue has preferred this appeal before the Tribunal. The learned Departmental Representative relied on the ground raised and also the judgments of the Hon’ble Allahabad High Court in
ITA No.151/Coch/2020 4 M/s.Veekesy Polymers Pvt.Ltd. the case of R And P Exports v. CIT [(2005) 279 ITR 536 (All.)] and the Hon’ble Bombay High Court in the case of Daman Computers Pvt. Ltd. v. ITO [Income Tax Appeal No.1 of 2008 – judgment dated 10th August, 2018]. The learned AR, on the other hand, has filed a brief written submission relying on the order of the Delhi Benches of the Tribunal in the case of Rajiv Bhatnagar v. DCIT [ITA No.1026/Del/2011 – order dated 17th December, 2012].
I have heard the learned Departmental Representative and perused the written submission filed by the assessee. Section 80IB of the I.T.Act is with regard to deduction of profits and gains from certain industrial undertakings. In the instant case the job work / process of outsourcing is nothing but stitching of footwear and is done under the direct supervision of the assessee. It is an integral part of the whole process of manufacture of footwear undertaken by the assessee. The A.O. while completing the reassessment, admits that the assessee is eligible for deduction, but granted proportionate deduction by excluding job work estimated at 25% of the gross total income. The assessee has satisfied all the conditions for claiming deduction u/s 80IB of the I.T.Act and proportionate disallowance of job work for the purpose of computing deduction u/s 80IB of the I.T.Act is unwarranted and uncalled for. Therefore, I am of the view that the CIT(A) was correct in directing the A.O. to grant deduction u/s 80IB of the I.T.Act as claimed by the assessee.
ITA No.151/Coch/2020 5 M/s.Veekesy Polymers Pvt.Ltd. 7.1 The judgments relied on by the learned DR are distinguishable on facts. In the case considered by the Hon’ble Allahabad High Court (supra), the issue is concerning the number of people working in the industrial unit. The assessee in that case has claimed that the Artisans engaged by the assessee are persons employed by it and the threshold limit of employment exceeded the prescribed limit for getting the benefit of deduction u/s 80HH and 80I of the I.T.Act. The Hon’ble Allahabad High Court held that there was no employer / employee relationship between the assessee and the Artisans. Therefore, it was concluded by the Hon’ble Allahabad High Court that Artisans not being employees of the assessee, does not satisfy the condition mentioned u/s 80HH(2)(iv) of the I.T.Act.
7.2 The judgment of the Hon’ble Bombay High Court in the case of Daman Computers Pvt. Ltd. v. ITO (supra), is also distinguishable on facts. In the case considered by the Hon’ble Mumbai High Court there was a categorical finding that the job work undertaken by the third person was totally distinct and the assessee in that case did not retain its control over the manufacture / job work undertaken by the third party, whereas in this case, job work was done under the supervision of the assessee.
7.3 The Delhi Bench of the Tribunal in the case of Rajiv Bhatnagar v. DCIT (supra) held that when all the conditions to qualify for deduction u/s 80IB(2) of the I.T.Act has been
ITA No.151/Coch/2020 6 M/s.Veekesy Polymers Pvt.Ltd. satisfied, necessarily, deduction u/s 80IB of the I.T.Act has to be granted in full.
In view of the aforesaid reasoning and the order of the Delhi Tribunal, I uphold the order of the CIT(A). It is ordered accordingly.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced on this 6th day of July, 2020.
Sd/- (George George K.) JUDICIAL MEMBER
Cochin, dated 6th July, 2020 Devadas G*
Copy to : 1. The Appellant 2. The Respondent 3. The CIT(A), Kozhikode. 4. The Pr.CIT, Kozhikode. 5. The DR, ITAT, Kochi 6. Guard File.
Asst.Registrar/ITAT/Kochi