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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED&
PER Ms. MADHUMITA ROY - JM: The bunch of appeals filed by the assessee are directed against the order passed by the Learned Commissioner of Income Tax (Appeals)-VIII, Ahmedabad under section 143(3) of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) for A.Ys. 2009-10, 2010-11 and 2011-12 respectively.
Since all the appeals relate to the same assessee, all are heard analogously and are being disposed of by a common order.
ITA Nos.2837-Ahd-2014 & 3055 & 3056-Ahd-2013 Electronic Instrumentations & Control Pvt. Ltd. vs. ACIT Asst.Years –2011-12, 2009-10 & 2010-11 ITA No.2837/Ahd/2014 for A.Y. 2011-12:
Ground No. 1 is general in nature, thus needs no separate adjudication.
Ground No. 2:- The brief facts leading to this case is this that the assessee company, filed its return of income on 30.09.2011 for A.Y. 2011- 12 declaring total income at Rs.76,98,740/- which was processed u/s 143(1) of the Act. Subsequently, under scrutiny notice u/s 143(2) dated 20.09.2012 was served upon the assessee on 22.09.2012. During the course of assessment proceeding, it appears from the records submitted by the assessee that the assessee has claimed deduction u/s 80IB of the Act on the other income also. Upon perusal of the Profit and Loss account, it was further found that the assessee has shown income from other sources at Rs.7,93,823/- and Rs.12,18,000/- as supervision income. According to the Learned AO such income cannot be considered as income attributable to manufacturing activities and hence clarification asked for as to why the said income from supervision of Rs.12,18,000/- and other income of Rs.7,93,823/- considered as income from other than manufacturing activities. The assessee in response to the same submitted as follows: “Deduction u/s 80IB and other Income : We are submitting herewith a statement showing nature of other income. We have considered interest income from bank FDR as income from other source and balance income being relate to manufacturing activities of the company it is treated as business income. The statement is self explanatory.
ITA Nos.2837-Ahd-2014 & 3055 & 3056-Ahd-2013 Electronic Instrumentations & Control Pvt. Ltd. vs. ACIT Asst.Years –2011-12, 2009-10 & 2010-11 Supervision Income and 80IB Claim : We have submitted a statement showing the nature of supervision income wherein we have stated that this income is earned on account of manufacturing sales made to the parties to whom we have rendered this supervision work. Some of the parties are not paying separately but including this supervision work in the price of the panel purchase order while some of the parties are paying separately for the supervision work. The income shown under supervision work is for separately charged for this work. In addition to supervision charges received against our sales we have also done supervision work for other client who place order because we are having speciliasion on account of in this line of business hence this income also treated as income-from manufacturing business. Moreover, the company has to depute representative for supervision work. In view of what we have stated above this income is derived from the manufacturing business of the company and our claim of deduction under section 80-IB on this income is proper and lawful. Therefore there is no question of any disallowance of claim of deduction under section 80-IB on account of supervision income." However, such argument advanced by the assessee was not found acceptable by the Learned Assessing Officer. The Learned AO, thus, following the disallowances made by his predecessor in A.Y. 2010-11 of Rs.6,68,727/- as the income from manufacturing activities of the assessee disallowed Rs.12,18,000/- , the claim u/s. 80IB of the Act in the year under consideration. In appeal, the same has been confirmed by the Learned CIT(A). Hence, the instant appeal is before us.
The Learned Counsel appearing for the assessee vehemently argued that supervision work relating to the manufacturing activities of the assessee should be allowed as income from manufacturing activities. In support of his contention he relied upon the judgment passed by the Hon’ble ITA Nos.2837-Ahd-2014 & 3055 & 3056-Ahd-2013 Electronic Instrumentations & Control Pvt. Ltd. vs. ACIT Asst.Years –2011-12, 2009-10 & 2010-11 in Tax Appeal No.27/2003 which, in fact, followed the judgment passed by the Bombay High Court in the matter of International Data Management Limited reported in 261 ITR 177. With all his fairness, the Learned Counsel took us to the written submission made before us on this fact of the matter that the prevailing practice of the business is this that while the Electric Panels are supplied for industrial use, the installation and commissioning of the same becomes the responsibility of the assessee and as an evident he further relied upon the purchase order of BPCL. He, therefore, prays for deletion of such addition made by the authorities below.
On the contrary, Learned D.R relied upon the order passed by the authorities below.
Heard the parties, perused the relevant materials available on records. It appears that the purchase order of BPCL substantially states the following.
M/s. EIC has to depute its representative at BPCL & at our client’s site for supervision of commissioning on free of cost basis. We have also gone through the details regarding the supervision bills and/invoices raised by the assessee to other customers commencing from page 3 to 21 of the paper book submitted before us by the assessee.
It is an admitted fact that in terms of the purchase order of BPCL it is the duty incumbent upon the assessee to supervise the commissioning work at free of cost; the supervision cost is a part of the bills raised to the BPCL though the separate bills were not issued by the assessee to that effect like other clients. Thus, the case of the assessee that the supervision and maintenance is a part and parcel of the trading and supply to the electric
ITA Nos.2837-Ahd-2014 & 3055 & 3056-Ahd-2013 Electronic Instrumentations & Control Pvt. Ltd. vs. ACIT Asst.Years –2011-12, 2009-10 & 2010-11 panels has been proved beyond doubts. In that view of the matter the assessee is entitled to supervision charges raised by it. We also get the inspiration from the judgment passed by the juri ictional High Court in the matter of Miles India Ltd. vs. DCIT in Tax Appeal No. 27/2003 on this aspect where it has been clarified that the income for rendering services and maintenance facility to the clients of the assessee is allowable since it relates to the goods manufacturing and supplied to the industrial undertaking. Thus the assessee is eligible for deduction u/s.80IA of the Act as claimed before the Revenue; the relevant portion of the said order is reproduced herein below: “…3. While admitting this appeal on 17.02.2003, the Court had formulated the following substantial question of law:-
"Does the Income derived from an industrial undertaking include income from Service/maintenance contracts in respect of the goods manufactured and supplied by the industrial undertaking soas to be eligible for deduction under section 80I of the Income Tax Act" ?
Mr.Shah, learned advocate for the appellant-assessee has contended that the Tribuna has failed to appreciate the fact that in previous years Section 80I relief was granted to the assessee in respect of service charges, and therefore, it ought to have been granted in this year also. He further submitted that the aforesaid fact has already been ascertained before the Assessing Officer. ,
He further contended that in the assessment Years 1989-90 and 1990-91, similar relief was claimed by the assessee. Therefore, he submitted that the Tribunal has committed error in not granting the relief under Section 801 of the Income Tax Act for the assessment Year 1992-
ITA Nos.2837-Ahd-2014 & 3055 & 3056-Ahd-2013 Electronic Instrumentations & Control Pvt. Ltd. vs. ACIT Asst.Years –2011-12, 2009-10 & 2010-11
Learned advocate for the appellant has relied upon the decision of the Apex Court in the case of commissioner of Income Tax v. Excel Industries Ltd., reported in [2013] 358 ITR 296] and the decision of the Bombay High Court in the case of Commissioner of Income Tax v. International Date Management Ltd., reported in [2003] 261 ITR 177. 5. Learned advocate for the respondent revenue has supported the impugned judgment andorder of the Tribunal and submitted that the Tribunal after appreciating the material on record has passed the impugned judgment and order. Therefore, he urged that there is no germane reason to interfere with the impugned judgment and order of the Tribunal.
We have heard learned advocate for theparties and perused the material on record. Itappears from the record that in previous yearsalso, the assessee had claimed for the benefit of Section 80-1 of the Income Tax Act and the samewas granted to the assessee. Further, it appearsthat before the Assessing Officer, the assessee also ascertained the aforesaid fact, which is evident from the Assessment Order, wherein it hasbeen mentioned that"It was also claimed that as the amount has been allowed in the past for the sake of uniformity it should be allowed in thisyear also. The assessee relied on the Bombay High Court's decision in the case of CIT Vs. Buckau Wolk NewIndia Engg. Works, reported in 160 ITR
The Apex Court in the case of Excel Industries (supra) held that in several assessment Years, the Department accepted the order of the Tribunal in favour of the assesse and did not pursue the matter any further but in respect of some assessment years the matter was taken up in appeal before the High Court. The Department could not be allowed to flip flop on the issue and it ought let the matter rest rather than pursue litigation.
ITA Nos.2837-Ahd-2014 & 3055 & 3056-Ahd-2013 Electronic Instrumentations & Control Pvt. Ltd. vs. ACIT Asst.Years –2011-12, 2009-10 & 2010-11
The Bombay High Court in the case of International Data Management Ltd. (supra) held that the assessee derived income as it rendered services and maintenance facility to its clients for which it charged for maintenance and services. Therefore, there was a direct nexus between the receipts from rendering services and maintenance facility to its clients and lease rent and the main business activity of the assessee. There was also recorded as a finding offact by the Tribunal. The assessee was entitleto deduction under Section 801 in respect of that income.
Considering the facts of the case and also considering the principle laid, down in the case of Excel Industries Ltd. (supra) and International Date Management Ltd. (supra), we are of the considered opinion that the Tribunal ought to have granted the benefit to the assessee under Section 801 of the Income Tax Act for the assessment Year 1992-92 also.
In view of the above, the present appeal-deserves to be allowed and the same is accordingly allowed. The question of law raised in this appeal is answered in negative i.e. in favour of the assessee and against the revenue. Therefore, we hold that the assessee is eligible for deduction under section 801..of the Income Tax Act…”
Taking into consideration the entire aspect of the matter, the case made out by the assessee, the documents in support of such claim on record before us and respectfully relying on the ratio laid down on this issue of allowability of supervision charges by the Juri iction High Court, we find no alternative but to allow the claim of the assessee for deduction u/s. 80IA of the Act since we find the income is attributable to the manufacturing activities. Consequently the addition is deleted. Hence, the assessee appeal is allowed.
ITA Nos.2837-Ahd-2014 & 3055 & 3056-Ahd-2013 Electronic Instrumentations & Control Pvt. Ltd. vs. ACIT Asst.Years –2011-12, 2009-10 & 2010-11 ITA No.3055/Ahd/2013 for A.Y. 2009-10:
Ground No. 1 is general in nature and thus needs no separate adjudication.
Ground Nos. 2 & 3:- The assessee has challenged the disallowance of Rs. 7,65,700/- of drawing charges and Rs. 2,48,050/- of PLC Programming Charges on account of non-deduction of TDS under section 194J of the Act. The assessee claimed Rs. 7,65,700/- under head drawing charges. Such charges were paid for job work to different persons which according to the Ld. AO is fees for technical services rendered by those persons and thus covered under section 194J of the Act. The same was, therefore, disallowed by the Ld. AO. Similarly payment of Rs. 2,84,050/- of PLC Programming has not been considered as contract payment under section 194C of the Act and disallowed by the Ld. AO. Both the disallowance were confirmed by the Ld. CIT(A). Hence, the instant appeal before us.
The case of the assessee is this that the drawing charges which was paid to the contractor do not involve any kind of technical work rather all the work which involves engineering or technical activities is carried out in- house at the premises of the assessee by its own employed engineers and technical contractors. Only to overcome the shortage of semi-skilled man power, all the associated clerical work is handled to suitable contractors meaning thereby the payments made to labour contractors only for providing semi-skilled man power which has nothing to do with any kind of technical or professional services; thus applicability of Sec. 119J of the Act as made by the authorities below for non-deduction of tax at source is not ITA Nos.2837-Ahd-2014 & 3055 & 3056-Ahd-2013 Electronic Instrumentations & Control Pvt. Ltd. vs. ACIT Asst.Years –2011-12, 2009-10 & 2010-11 permissible in the eye of law as the case made out by the assessee. Similarly Rs. 2,84,050/- incurred for PCL Programming Charges paid to the contractors only for the purpose for carrying out the work given to them with their semi-skilled labour as per specifications and drawings provided to them by the technical engineers of the company as the case of the assessee. Therefore, no technical work is involved on the part of the contractors. It is the further case of the assessee that in both the counts neither any single payment to the contractor exceeds Rs. 20,000 nor aggregate payments to only single contractor exceeds Rs. 50,000/-. Hence, question of deduction of tax even under section 194C is not justifiable. Such stand of the assessee was also reiterated before us by the Ld. AR at the time of hearing of the instant appeal. He has also relied upon the Circular No. 715 dated 08.08.1995 regarding TDS payment to electrician.
Apart from that, it was the argument, that where the assessee is of a bona fide wrong impression regarding the applicability of Sec. 194C or 194J to such nature of payments i.e. for short deduction, if any, the same can be considered as assessee-in-default, under Section 201 but still no disallowance under section 40(a)(ia) of the Act can be made. Alternatively, he further argued that in the event the assessee is found to be not complied with the TDS provision under section 194C of the Act, the disallowance shall be restricted to 30% of the expenditure claimed under section 40(a)(ia) of the Act in terms of its amendment brought by Finance (No. 2) Act, 2014, which reads as follows:-
“14.4 Accordingly, Section 40(a)(ia) of the Income-tax Act has been amended to provide that in case of non-deduction of tax at source or non-payment of tax so deducted on payments made to residents as ITA Nos.2837-Ahd-2014 & 3055 & 3056-Ahd-2013 Electronic Instrumentations & Control Pvt. Ltd. vs. ACIT Asst.Years –2011-12, 2009-10 & 2010-11 specified in section 40(a)(ia) of the Income-tax Act, the disallowance shall be restricted to 30% of the amount of expenditure claimed.” On this aspect the Ld. AR relied upon the judgment passed by the Co-ordinate Bench in ITA No. 1841/Ahd/2018 (M/s. Amruta Quarry Works vs. ITO). On the contrary, the Ld. DR relied upon the orders passed by the authorities below.
Heard the parties, perused the relevant materials available on record, including the orders passed by the authorities below.
It is a fact that the assessee has made such payment to the contractors but TDS has not been deducted under section 194C and hence the disallowance was made under section 40(a)(ia) by the authorities below. It is also a fact that the assessee was with the bona fide wrong impression regarding the applicability of the provision of Sec. 194C or Sec. 194J to such nature of payments. It is also a fact that Sec. 40(a)(ia) after its amendment brought in by Finance (No. 2) Act, 2014 given a specific relief to the assessee that in case of non-deduction of tax at source or non- payment of tax though was deducted on payments made to residents as specified in Sec. 40(a)(ia) of the Act, the disallowance shall be restricted to 30% of the expenditure so claimed by the assessee. If that be so, the disallowance of entire expenditure of Rs. 7,65,700/- for drawing charges and Rs. 2,84,050/- towards PLC Programming Charges ought not to have been made by the authorities below. We, therefore, taking into consideration the amended provision of Sec. 40(a)(ia) of the Act, restrict 30% of such disallowance. In the result, these grounds of assessee’s appeal are partly allowed.
ITA Nos.2837-Ahd-2014 & 3055 & 3056-Ahd-2013 Electronic Instrumentations & Control Pvt. Ltd. vs. ACIT Asst.Years –2011-12, 2009-10 & 2010-11 Ground No. 4:- This ground of appeal is identical to that of the issue 11. already been dealt with by us in ITA No. 2837/Ahd/2014 for A.Y. 2011-12 and in the absence of any changed circumstances the same shall apply Mutatis Mutandis. Hence, this ground of assesse’s appeal is allowed.
ITA No.3056/Ahd/2013 for A.Y. 2010-11:
Ground No. 1 is general in nature needs no separate adjudication and hence dismissed.
Ground Nos. 2 to 3 are identical to that of the issue already been dealt with by us in ITA No. 3055/Ahd/2013 for A.Y. 2009-10 and in the absence of any changed circumstances, the same shall apply Mutatis Mutandis. Hence, both the ground of assesse’s appeal are partly allowed.
Ground No. 4 is identical to that of the issue already been dealt with by us in ITA No. 2837/Ahd/2014 for A.Y. 2011-12 and in the absence of any changed circumstances the same shall apply Mutatis Mutandis. Hence, this ground of assessee’s appeal is partly allowed.
In the result, the assessee’s appeals are partly allowed. This Order pronounced in Open Court on 14/10/2019 ( WASEEM AHMED) ( Ms. MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 14/10/2019 Manish .PS
ITA Nos.2837-Ahd-2014 & 3055 & 3056-Ahd-2013 Electronic Instrumentations & Control Pvt. Ltd. vs. ACIT Asst.Years –2011-12, 2009-10 & 2010-11 आदेश क" ""त"ल"प अ"े"षत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant
""यथ" / The Respondent. 3. संबं"धत आयकर आयु"त / Concerned CIT 4. आयकर आयु"त(अपील) / The CIT(A)-
"वभागीय ""त"न"ध, आयकर अपील"य अ"धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड" फाईल / Guard file.
आदेशानुसार/ BY ORDER, स"या"पत ""त //// उप/सहायक पंजीकार (Dy./Asstt.