DAMAN COMPUTERS PVT. LTD. , MUMBAI vs. INCOME TAX ASSESSING OFFICER , CITY V, MUMBAI

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1 OF 2008 Daman Computers Pvt. Ltd., a company incorporated under the Companies Act, 1956 and having its registered office at E­11, Sunita Apartment, 62­C, Peddar Road, Mumbai­400 036 .. Appellant. V/s. 1 Income Tax Assessing Officer, City V, Ward 5(1)(3), Ayakar Bhavan, Maharshi Karve Road, Mumbai 400 020 2 The Commissioner of Income Tax, City V, Ward 5(1)(3), Ayakar Bhavan, Maharshi Karve Road, Mumbai 400020. .. Respondents. Ms. Sneha Phene with Ms. Priyanka Pol and Mr. Pratik Divkar I/by Little & Co. for Appellants. Mr. Abhay Ahuja with Ms. Sangeeta Yadav for Respondents. CORAM                 : M.S.SANKLECHA &

SANDEEP K. SHINDE, JJ. RESERVED ON       : 24TH  July, 2018. PRONOUNCED ON :      10th August, 2018. JUDGMENT: [Per Sandeep K. Shinde, J.] This Appeal under Section 260­A of the Income Tax Act, 1961 ('Act')   is   preferred   against   the   order   dated   11.7.2007   passed   by   the Shivgan 1 of 10 CNR No : HCBM020256102007 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:45:05 Income Tax Appellate Tribunal ('Tribunal'), Mumbai Bench “D”, Mumbai in Income Tax Appeal No.2179/M/07 in relation to the Assessment Year 2004­05. 2 The Appeal was admitted by this Court on 15.7.2008 on the following substantial questions of law: “(a) Whether on the facts and in the circumstances of the case and in law, the Tribunal erred in holding that the Appellant is not entitled to the deduction under Section 80 IB of the Act ? (b) Whether on the facts and in the circumstances of the case and in law the Appellant carries on manufacturing activity of electronics computer products within the meaning of section 80 IB of the Act ? (c) Whether on the facts and in the circumstances of the case and in law the term manufacturer under Section 80 IB   would   include   manufacturing   activity   being   carried   out outsourced to another party ?” 3 That   disallowance   of   the   claim   of   the   Appellant   of Rs.90,14,908/­ being deduction under Section 80 IB of the Act has given rise to this Appeal. 4 The Appellants have claimed to be engaged in manufacturing of electronic computers at Daman and entered into an agreement with M/s. Kobian ECS India Pvt. Ltd. for contract manufacturing of its product. The factory of M/s. Kobian ECS India Pvt. Ltd. is located at Silvassa. That to substantiate that such manufacturing activity was being carried out under its supervision and direct control, the Appellants have relied upon Shivgan 2 of 10 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:45:05 various clauses of the agreement dated 26.8.2003 entered into with M/s. Kobian ECS India Pvt. Ltd.

The Appellants' claim for deduction under Section 80 IB of the Act was rejected throughout having found that the manufacturing activity undertaken by M/s. Kobian ECS India Pvt. Ltd. for and on behalf of the Appellants was not under its direct supervision and control. 6 The   Assessing   Officer   upon   appreciating   the   evidence, recorded the finding  which are as under: “1 The salary register of the appellant shows that during the entire year till December, 2003 there was only one lady accountant   on   the   roles.   For   the   remaining   period   of   the previous year five more employees have joined. 2 In   the   course   of   the   assessment   proceedings,   the appellant has not given the designation and qualification of the employees. 3 During the year, the total electricity consumed is only 884 units which is not even enough for running the bare office equipments. Therefore, the assessee is not using electricity in its manufacturing and accordingly is required to have at least 20 workers to qualify itself for deduction u/s.80IB. 4 The A.O. has observed that appellant filed another list of eleven persons employed by them which includes three directors, one accountant and for the remaining no designations were available and accordingly has concluded that at the most only seven employees were utilized. The A.O. has also observed that the assessee did not submit the qualification of these workers despite the proceedings going on for 8 months. 5 The A.O. issued a show cause incorporating therein the intention of the legislature behind Section 80 IB to encourage employment in backward areas, which in the facts of the case was not met with and proposed to disallow deduction on the so Shivgan 3 of 10 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:45:05 claimed manufacturing activity.”

The Appellants being aggrieved by the rejection of claim by   the   Assessing   Officer   had   preferred   an   Appeal   before   the Commissioner   of   Income   Tax   (Appeals)   [CIT(A)].   In   Appeal proceedings, the Appellants were asked to submit; (i)   Minute book of the company authorizing any director   or   employee   to   undertake   supervision   at Silvassa. (ii) Evidence of any director or employee going regularly to Silvassa for supervision. The CIT (A) in its order has recorded finding that the the Appellants had not filed any evidence called for as above and as such, the CIT (A) dismissed the appeal by order dated 18.1.2007 and upheld the order of Assessing Officer. 8 Aggrieved   by   the   order   of   the   CIT(A),   the Appellants  filed an appeal before the Tribunal being ITA No. 2179/M/07. The Tribunal in terms recorded the following findings of facts: (I)     The assessee has no immovable asset like factory premises. (ii) List of the assets as given in depreciation schedule shows that no asset was available with the assessee which could be used for manufacturing activities. (iii) Assessee has a small office at Daman and has taken some galas on rent and obtained excise registration on the Shivgan 4 of 10 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:45:05 same. (iv) The   Assessing   Officer   after   scrutiny   of   record recorded the finding that salary register of the assessee shows during the first nine months ending December, 03, there was only one lady accountant on the rolls of the assessee and for the remaining period of three months of the relevant year, five more employees had joined. (v) The  assessee has not given the designation and qualification of its employees in spite of specific query put by   the   Assessing   Officer   during   the   course   of   the assessment proceedings itself. (vi) There   was  no  evidence on  record  to   show   that director or any employee of the Appellants was going regularly   to   Silvassa   for   supervision   of   manufacturing process. (vii) That the distance between the assessee's office and Silvassa is about 50 kms. and regular supervision by the director   of   the   assessee­company   would   entail   huge conveyance expenses which is conspicuously missing. (viii) Assessee   could   not   produce   full   address, attendance   register   and   qualification   of   employees deployed at Daman Unit in spite of being asked to do so by the Assessing Officer. (ix) Even the packaging material was supplied to the contract manufacturer M/s. Kobian ECS India Pvt. Ltd.  by the assessee company for finished products at Silvassa and as such, even product was packed by M/s. Kobian ECS India Pvt. Ltd. Only. 9 Thus, after considering the entire evidence on record Shivgan 5 of 10 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:45:05 and the facts of the case, the Tribunal concluded that claim of the assessee   that,   the   manufacturing   at   Silvassa   in   the   factory premises of M/s. Kobian ECS India Pvt. Ltd. was being carried out under its direct supervision and control, was not tenable. 11 The   learned   counsel   appearing   for   the   Appellants would contend that authorities below have failed to appreciate the evidence in the right perspective and misconstrued the recitals of the Contract/Agreement entered into with M/s. Kobian ECS India Pvt. Ltd.  She would further contend that for claiming deduction under Section 80 IB of the Act, it is not pre­condition that the Assessee   must   own   factory   premises   or   machinery;   but   only requirement is that manufacturing activity must be undertaken under   the   supervision   and   direct   control   of   the   assessee.   In support of her submission, she has relied on the judgment of this Court in the case of CIT v. Anglo French Drug Co. (Eastern) Ltd. ITR 191 Page 92. In   Anglo French Drug Co. (Eastern) Ltd. (Supra),  the assessee had transferred its machinery to its associate concern, i.e., Roche Products Ltd. another pharmaceutical concern, and started getting its products manufactured from Roche Products retaining its control over the manufacture. In the said judgment, it Shivgan 6 of 10 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:45:05 is observed that 'it is not absolutely necessary that the assesssee must depute the supervisory staff or exercise direct supervision over the manufacturing process of  the kind suggested  by the  learned counsel. It is sufficient if, on an overall view of the matter, it is found that it was the assessee­company which was the real manufacturer and the assessee had merely employed the agency of some one else through whom the goods were caused to be manufactured. It is also not necessary that the assessee must pay the wages of the workers employed in the manufacturing process.' Relying on the aforesaid observations the learned counsel for   the   Appellants   would   submit   that   the   Assessing   Officer disallowed   the   claim   only   on   the   ground   that   there   was   no evidence   to   show   that   the   employees   and   directors   of   the Appellants­Company   were   visiting   the   manufacturing   unit   at Silvassa. She would, therefore, submit that upon taking overall view of the matter, the Appellants have established the fact that the manufacturing activity of the computers by M/s. Kobian ECS India Pvt. Ltd. was under direct control and supervision of the Appellants and, therefore, claim ought to have been allowed. 11 Mr. Abhay Ahuja the learned counsel appearing for the Revenue on other hand, would submit that the authorities Shivgan 7 of 10 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:45:05 below have recorded  findings of fact and no interference is called for in these proceedings. He would submit that the appeal does not give rise to question of law. He would, therefore, urge that this Court may not interfere with the finding of the fact recorded by the authorities below and as such, appeal may be dismissed. 12 We have perused the orders passed by the Assessing Officer, CIT(A) as well as the order passed by the Tribunal. The findings   recorded   by   the   authorities   and   by   the   Tribunal   are findings of fact. Neither before the Assessing Officer nor at the appellate stage, Appellants adduced any convincing evidence to hold that it  had  retained  its   control  over the  manufacture of electronic computers at the factory premises of M/s. Kobian ECS India Pvt. Ltd. in Silvassa. In fact, the observations in the findings recorded by the Assessing Officer, CIT(A) show that the assessee could not even produce the primary evidence in the shape of books   of   accounts,   resolutions,   even   to   suggest   that   it   had deployed its manpower at the factory premises of M/s. Kobian ECS   India   Pvt.   Ltd.   and   had   retained   the   control   over   the manufacturing   activity.   The   Appellants   could   not   produce particulars   like   attendance   register,   qualifications   of   the employees   in   spite   of   being   asked   to   do   so   by   the   Assessing Shivgan 8 of 10 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:45:05 Officer.   In   fact,   it   appears   even   the   packaging   material   was supplied to contract manufacturer by the Appellants­Company for finished products at Silvassa. All these facts cumulatively leads to hold   that   the   Appellants   did   not   retain     control   over   the manufacturing of the electronic computers at the factory premises of   M/s.   Kobian   ECS   India   Pvt.   Ltd.   at   Silvassa.   In   the circumstances, we do not find any reason to interfere with the findings   recorded   by   the   Assessing   Officer,   CIT   (A)   and   the Tribunal. 13 That   for   the   reasons   aforesaid,   we   hold   that   the Appellants   were   not   carrying   out   manufacturing   activity   of electronic computer products within the meaning of Section 80 IB of the Act and as such, Questions (a) and (b) are answered in negative,   i.e.   in   favour   of   the   Revenue   and   the   against   the Assessee. 14 Having   answered   Questions   (a)   and   (b)   in   the negative i.e. in favour of the Revenue and against the Assessee, the question (c) becomes academic and need not be answered. Shivgan 9 of 10 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:45:05 In view of the above, Appeal is dismissed. No order as to costs.

(SANDEEP K. SHINDE,J.) (M.S.SANKLECHA,J.) Shivgan 10 of 10 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:45:05 Powered by TCPDF (www.tcpdf.org)