M/S. ALKRAFT THERMOTECHNOLOGIES PVT. LTD.,CHENNAI vs. DCIT, CC-1(1), CHENNAI

आदेश / O R D E R PER ABY T. VARKEY, JM: These are appeals preferred by the assessee against the order of

the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter

referred to as ‘Ld.CIT(A)‘), Delhi, dated 09.05.2025 & 08.05.2025 for the

Assessment Years (hereinafter referred to as ‘AY‘) 2011-12 to 2013-14,

2017-18 & 2018-19. Since the issues involved are common, all the

appeals for all the assessment years were heard together. Both the

parties also argued them together raising similar arguments on these

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issues. Accordingly, for the sake of convenience and brevity, we dispose

all the appeals by this consolidated order.

deduction claimed by the assessee u/s 80-IC of the Act in respect of the

profits derived by its Uttarakhand Unit (in short ‘UTK Unit’). The facts in

brief are that, the assessee is engaged in the business of manufacture of

engine cooling systems, having its principal manufacturing unit at

Chennai. The major customers of the assessee are Tata Motors and Ashok

Leyland. In FY 2010-11, the assessee had set-up additional

manufacturing and assembly unit in a notified area of Uttarakhand

pursuant to Investment Subsidy Scheme bearing No. 1(10)/2001-NER

dated 01.08.2003 read with Excise Notification No. 50/2003 dated

10.06.2003. It was brought to our notice that, the UTK facility was

established to cater to the requirements of complete cooling systems of

Ashok Leyland, who had also set up a new truck manufacturing unit in

Uttarakhand. The assessee procured the principal items viz., radiator and

inter-cooler from its Chennai Unit and all other parts were procured locally

and thereafter processed and assembled at the UTK Unit, and the

complete engine cooling system module was supplied to Ashok Leyland.

According to the assessee, the UTK manufacturing unit qualified as an

‘eligible unit’ u/s 80-IC of the Act. Accordingly, separate accounts were

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drawn up and audit report in Form 10CCB was obtained by the assessee

and the profits derived by the UTK Unit was claimed by way of deduction

u/s 80-IC of the Act.

of claim i.e. AY 2011-12. The AO is noted to have called for various

details and explanations to examine the deduction claimed u/s 80-IC of

the Act. After examining the submissions, the AO was of the view that,

the assessee did not meet the requirements of Section 80-IC(2)(a) i.e.,

the assessee was not manufacturing any product in the UTK Unit and

that, the assessee was also in violation of Section 80-IC(4)(i) of the Act

as it was formed by splitting up of its existing business. The AO

accordingly disallowed the deduction of Rs.1,78,27,430/- claimed u/s 80-

IC of the Act in AY 2011-12 on the ground of no manufacturing and

splitting up of the existing business. On appeal, the Ld. CIT(A) confirmed

the action of the AO. It is seen that, the AO’s successors following the

order of AY 2011-12, disallowed the deduction claimed by the assessee

u/s 80-IC of the Act in succeeding AYs 2012-13, 2013-14, 2017-18 &

2018-19 as well and, the Ld. CIT(A) also following the order of his

predecessor confirmed the impugned disallowance(s).

appeals are similar, we first take up the appeal filed by the assessee for

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AY 2011-12 in ITA No.1946/Chny/2025 as the lead case whose result

shall follow mutatis mutandis in the subsequent AYs.

assessee had three facilities viz., principle manufacturing unit at Chennai

and assembling units at Uttarakhand and Jharkhand. He noted that, the

raw materials were imported and locally procured to manufacture

radiators, inter coolers and oil coolers at Chennai. The AO observed that,

the assessee had setup an assembly plant at UTK Unit which would

procure the radiators and inter coolers from Chennai Plant, and other

components required for assembly were purchased locally, and thereafter

the radiators, inter coolers and other parts were being assembled at UTK

Unit and supplied exclusively to Ashok Leyland. According to the AO, the

analysis of the nature of business of the UTK Unit showed that, it was

only an assembly unit and not a manufacturing unit. The AO was of the

view that, the assessee had split up its manufacturing process whereby

the core manufacturing process of radiators and inter coolers was

undertaken at Chennai plant and that the UTK Unit was only assembling

and fitting these components along with other parts in a frame to form a

module. The AO observed that, the final product i.e. the complete cooling

systems supplied to Ashok Leyland at Uttarkhand was being

manufactured and supplied by the Chennai Plant to Ashok Leyland at

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Chennai as well. The AO observed that, the product was the same and

customer was the same and that, only splitting was done due to location

of the consumer manufacturing facility. The AO observed that the vital

test of ‘splitting-up of business’ is that whether there was any addition to

the existing capacity of the assessee, by putting up new unit. According to

AO, the manufacturing capacity did not increase due to the UTK Unit and

therefore the assessee was formed by splitting up of the existing business

at the Chennai Unit. The AO further observed that, the UTK Unit was not

undertaking any ‘manufacture’ as its input and output remained the same

and therefore, the assembly process cannot be termed as ‘manufacture’

or ‘production’. For arriving at this conclusion, the AO referred to the

investment of Rs.1.98 crores made by the assessee at UTK Unit, which in

his view, was a meagre investment and did not commensurate with a

manufacturing facility. With these observations, the AO held that the

conditions laid down in Section 80-IC had not been met by the assessee

and thus disallowed the deduction claimed u/s 80-IC of the Act.

matter in appeal before the Ld. CIT(A), who confirmed the impugned

disallowance, by observing as under:-

“The submissions of the appellant have been perused. The appellant has not been able to counter the findings of the Ld. AO that the critical component of the engine cooling system viz. radiator, intercoolers and oil coolers are manufactured only at Chennai unit and not in the other two units at

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Uttarakhand and Jharkhand. The other two units are only the assembling units. Out of the two assembling units, for one assembling unit at Uttarakhand, the assessee has claimed deduction u/s 80IC of the Act. It is further noticed that there is no difference between the products manufactured at Chennai and products coming out of Uttarakhand Unit including the product variant supplied to a particular variant or model of Ashok Leyland Vehicle. It is seen that out of the entire manufacturing cycle from raw material to module which was carried out at Chennai was split and the last stage of assembling was only taken to Uttarakhand which points to the splitting of the business of the assessee. Further, the Uttarakhand unit caters to the same customers i.e. Ashok Leyland. The appellant contention that complete engine cooling system was being manufactured at Uttarakhand is not correct. The contention of the appellant in respect of additional capacity addition and value addition cannot be considered as the both are linked to increased production but cannot at the same time justify the splitting of the business. The Ld. AO’s findings that the appellant had claimed deduction u/s 80IC of the Act wrongly by splitting up of his business is found to be correct and is sustained.

In respect of the contention of the appellant that manufacturing of an article or thing was been done at the Uttarakhand Plant is also not found to be tenable. It is seen that the identity of the raw material and the end product remains the same. ‘Manufacture’ is a transformation of an article, which is commercially different from the one, which is converted. The essence of manufacture is the change of one object to another for the purpose of making it marketable. The essential point thus is that, in manufacture something is brought into existence, which is different from that, which originally existed in the sense that the things produced is by itself a commercially different commodity whereas in the case of processing, it is not necessary to produce a commercially different article. These facts are not attested to by the process undertaken by the appellant. The appellant contention that it had got Central Excise Department Registration Certificate as a manufacturing unit cannot be considered as the criteria adopted by the Excise Department to declare a manufacturing is different from the criteria as mention in Income Tax Act. Further, Section 2(29BA) of the Act does not apply to the appellant.

Hence, the Ld. AO’s finding that the appellant had not undertaken manufacturing is found to be correct and the findings is sustained.”

Being aggrieved by the above order, the assessee is now in appeal 7.

before us.

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first took us through the relevant provisions of Section 80-IC of the Act

and submitted that, the assessee had complied with the requirements by

setting up a new manufacturing industrial undertaking in State of

Uttarakhand with new plant & machinery, ensuring that the value of old

machinery does not exceed 20% of the total investment in plant and

machinery and, it is a new and fresh business and, not formed by splitting

or reconstruction of the existing business. Countering the findings of the

lower authorities, the Ld. AR took us through the flowchart of the

manufacturing process carried out at the Uttarakhand plant, which is

found placed at Pages 3–5 of Paper Book I. It was shown to us that, the

final product viz., the complete engine cooling system module

manufactured at the UTK Unit was a result of multiple technical processes

undertaken at Uttarakhand. The Ld. AR pointed out the details of

components sourced from Chennai and locally procured parts which are

calibrated, processed, assembled, tested and brought into a commercially

distinct article. He invited our attention to Page Nos. 7-20 of Paper Book I

which contained the pictures of the components of the complete engine

cooling system module and thereafter, Pg. No. 21 of the Paper Book I

which had the picture of the final product and thus argued that, the final

product delivered is a commercially distinct and individually different

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identifiable article than the inputs as, it is not a radiator or intercooler,

but it is a complete cooling system. The Ld. AR thus argued that, the

assembly of parts procured from outside will amount to manufacture

when the completed product is known commercially as a different

product.

manufacture, the Ld. AR invited our attention to the excise registration

and exemption wherein it is mentioned that, the UTK Unit is engaged in

manufacture of Engine Cooling System Module and is entitled to

exemption for Excise Duty. He thus submitted that, unless the assessee

carries out manufacture and liable for excise duty, requirement of

granting exemption will not arise. The Ld. AR further took us through the

details of value additions undertaken at UTK Unit to show that the UTK

Unit was not a pass-through unit, as being alleged by lower authorities,

but was actually manufacturing a distinct product. It was brought to our

notice that, the value of goods procured from Chennai plant was in the

range of Rs.5800/- (approx.) whereas the value-added cost incurred by

the UTK Unit locally was Rs.3000/- (approx.) which was 35% to 40% of

the total cost. He thus submitted that, the UTK Unit was indeed engaged

in manufacture and thus qualified for deduction u/s 80-IC of the Act.

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up of existing business, the Ld. AR submitted that, it was a case of

expansion of business and not splitting up. The Ld. AR demonstrated

through the details of quantities manufactured by Chennai & UTK Units

that, there was an increase in the overall capacity of the assessee. The

Ld. AR explained to us that, when Ashok Leyland had established a new

unit in Uttarakhand, the assessee was required to augment its capacity to

service both Ashok Leyland Chennai & Uttarakhand. He submitted that, it

is a universal commercial practice that component manufacturers (Tier-

I,II vendors) set up satellite units near the Original Equipment

Manufacturer (‘OEM’), to avoid high transport costs and to ensure real-

time supply, as otherwise the customer would source the product from

another vendor situated nearby. It was thus submitted that, only because

the product and the customer at Chennai and Uttarakhand was the same

does not suggest that there was no manufacturing or splitting up of

business. Rather, according to the Ld. AR, the fact that Ashok Leyland

had increased its capacity by setting up new unit at Uttarakhand supports

the assessee’s case that the customer’s new facility created fresh

demand, and this additional demand was met by additional capacity at

UTK Unit and not by splitting up existing production capacity. The Ld. AR

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of the assessee has also filed written submissions which has been taken

on record.

supported the order of the lower authorities. The Ld. DR submitted that,

the activities being conducted by the assessee at the UTK Unit was not

manufacture but more of a packing for convenience for the end-customer.

According to him, the critical components were being manufactured at the

Chennai Unit and the UTK Unit was only packing the same using frames,

which in his view was not manufacture. The Ld. DR urged that,

manufacture implies a change by which a new and distinct article must

emerge having a distinct name, character and use. He placed reliance on

the decision of the ITAT Ahmedabad in the case of Acqua Minerals

(P.) Ltd vs. DCIT (96 ITD 417), wherein the activity of packaging

drinking mineral water was not held to be ‘manufacturing’. He further

referred to several decisions rendered in the context of excise laws

wherein, in absence of any value addition, it was held that there was no

manufacture as there was no change in the character of the goods. The

Ld. DR further submitted that, the reliance placed by the assessee on the

excise license granted to the UTK Unit was misplaced. He further argued

that, the UTK Unit was a consequence of splitting up of the existing

business as the product being manufactured and the customer being

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serviced was same as that of the Chennai Unit. According to him, the

quantitative details furnished by the assessee was not relevant in the

context of the case and that there was no evidence of any additional

production capacity. According to him therefore, the decision of the

Hon’ble Supreme Court in the case of Textile Machinery Corporation

Ltd. vs CIT (107 ITR 195) was squarely applicable to the present case.

relevant materials on record. It is not in dispute that, the assessee had

set up a new unit in the backward area of Uttarakhand, prior to

01.04.2012 and therefore such unit qualified as an eligible unit for the

purposes of Section 80-IC of the Act. The question before us however is

whether the assessee had fulfilled the conditions precedent in Section 80-

IC(2) of the Act so as to claim deduction in respect of the profits derived

by their UTK Unit. The lower authorities have observed that, Section 80-

IC(2)(a) of the Act provides that, it applies to an undertaking which

begins to ‘manufacture’ or ‘produce’ any article or thing. According to the

lower authorities, the UTK Unit set up by the assessee was not engaged in

‘manufacture or production of any article or thing’ because the input and

output product remained the same. Even the Ld. DR before us has

claimed that, the UTK Unit was essentially a packing of convenience unit

and was not engaged in manufacturing. From the facts placed before us,

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the assessee has shown that, the UTK Unit was selling engine cooling

system module to its customer, M/s Ashok Leyland. The assessee is not

disputing the fact that, the UTK Unit was procuring critical components

such as radiator and inter-coolers from its Chennai Unit but it is their case

that, value additions took place at the UTK Unit which was processing and

assembling the final product in a scientific and complex manner involving

different steps and processes. Having perused the flow charts placed

before us, at Pages 3-6 of Paperbook-I, it is observed that, the assessee

would obtain the radiators and inter-coolers from their non-eligible unit at

Chennai and thereafter, the UTK Unit acquired several additional

components locally which was then processed and assembled at the UTK

Unit, resulting in a final integrated engine cooling system module. The

question which arises for our consideration is whether, the act of

processing and assembling of different components into an integrated

engine cooling system module system which is carried out in a scientific

manner with the use of plant & machinery, would qualify as a

manufacturing activity or not, u/s 80-IC(2)(a) of the Act.

parties and perusal of the judicial decisions relied upon by the Ld. AR, we

note that the findings rendered by the lower authorities are not well

founded. From the material on record, it is observed that the UTK Unit

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was sourcing components from Chennai and the locally procured parts

were being calibrated, processed and assembled into a commercially

different product, i.e. a complete cooling system. The Ld. AR has

explained in detail the production process employed for production of the

complete cooling system by showing us the pictures of the different

components, forming part of the final product, which was placed at Pages

7 to 20 of the Paper Book and the picture of the final product which is

available at Page No. 21 of the Paper Book. It is observed that the

components though individually identifiable after assembly into a final

product, the resultant product is known commercially as a different and

distinct product. Further, having gone through the process diagram placed

before us at Pages 3-6 of the Paperbook, it is observed that, every

component plays a critical role, and without the products acquired and

assembled at the UTK unit and each stage of processing at UTK, the final

integrated module could not exist. It is also noted that, the final product

i.e. the complete engine cooling system is not a radiator or an inter-cooler

and therefore in our considered view, the lower authorities were

unjustified in holding that the input and output remained the same at the

UTK Unit.

We also note that, the main components, viz. radiator and inter 14.

cooler are functionally different than an integrated engine cooling system

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module. Merely because, all these three products in themselves are

essential heat exchangers in vehicles, it is observed that they serve

different purposes. It was pointed out to us that functionally, a radiator

cools the engine to prevent over-heating, and an inter cooler compresses

the hot intake air to improve engine performance, whereas an integrated

cooling system combines all these functions often using water to air

systems for more efficient and compact cooling. According to us

therefore, not only the contents of these products were different and

distinct but their commercial use and application was also independent

from each other and therefore, the activity being carried out at the UTK

Unit constitutes ‘production’ or ‘manufacture’.

decision of the Hon’ble Supreme Court in the case of CIT vs. N.C.

Budharaja & Co. (204 ITR 412) wherein it was held that the word

‘production’ is much wider than the word ‘manufacture’ and the findings

relevant to the present issue [Page 423] is as follows:

“The word 'production' has a wider connotation than the word 'manufacture'. While every manufacture can be characterised as production, every production need not amount to manufacture ....

The word 'production' or 'produce' when used in juxtaposition with the word 'manufacture' takes in bringing into existence new goods by a process which mayor may not amount to manufacture. It also takes in all the by-products, intermediate products and reside rodeos which emerge in the course of manufacture of goods. "

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The Hon’ble Supreme Court in the case of India Cine Agencies vs. 16.

CIT (308 ITR 98) had held that, even the activity involving conversion

of jumbo rolls of photographic films into small flats and rolls in the desired

sizes constitutes ‘manufacture’. The relevant findings of the Apex Court

having a bearing on the assessee’s case is as follows:

"3. In Black's Law Dictionary (5th Edition), the word "manufacture" has been defined as, "the process or operation of making goods or any material produced by hand, by machinery or by other agency; by the hand, by machinery, or by art. The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand labour or machine". Thus by process of manufacture something is produced and brought into existence which is different from that, out of which it is made in the sense that the thing produced is by itself a commercial commodity capable of being sold or supplied. The material from which the thing or product is manufactured may necessarily lose its identity or may become transformed into the basic or essential properties. (See Dy. CST (Law), Board of Revenue (Taxes) Coca Fibres [1992] Supp. 1 SCC 290).

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the ultimate production of goods that but for that process processing of goods would be impossible or commercially inexpedient, that process is one in relation to the manufacture.

…

" ... There is no dispute that the plant in respect of which the assessee claimed deduction was owned by it and WDS installed after 31-3-1976, in the assessee's industrial undertaking for excavating, mining and processing mineral ore Mineral ore is not excluded by the Eleventh Schedule. The only question is whether such business is one of manufacture or production of ore. The issue had arisen before different High Courts over a period of time. The High Courts have held that the activity amounted to 'production' and answered the issue in question in favour of the assessee. The High Court of Andhra Pradesh did so in CIT v. Singareni Collieries Co. Ltd. [1996] 221 ITR 48, the Calcutta High Court in Khalsa Brothers v. CIT [1996] 217 ITR 185 and

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CIT v. Mercantile Construction Co. [1994] 74 Taxman 41 (Cal.) and the Delhi High Court in CIT v. Univmin Ltd. [1993] 202 ITR 825. The Revenue has not questioned any of these decisions, at least not successfully, and the position of law. therefore, was taken as settled.

The reasoning given by the High Court, in the decisions noted by us earlier, is in our opinion, unimpeachable. This Court had as early as in 1961, in Chrestian Mica Industries Ltd. v. State of Bihar [1961] 12 STC 150, defined the word 'production' Albeit, in connection with the Bihar Sales Tax Act, 1947. The definition was adopted from the meaning ascribed to the word in the Oxford English Dictionary as meaning 'amongst other things that which is produced; a thing that results from any action, process or effort, a product; a product of human activity or effort. From the wide definition of the word 'production', it has to follow that mining activity for the purpose of production of mineral ores would come within the ambit of the word 'production' since ore is 'a thing', which is the result of human activity or effort.…

The word 'production' or 'produce' when used in juxtaposition with the word 'manufacture' takes in bringing into existence new goods by a process which mayor may not amount to manufacture. It also takes in all the by-products, intermediate products and reside rodeos which emerge in the course of manufacture of goods. "

observed that the jurisdictional Madras High Court in the case of CIT vs.

Gemini Communication (37 taxmann.com 321) had held that, where

the assessee imported the critical networking components and designed

and developed it into a radio frequency identification device, such activity

would qualify as ‘manufacture’ and therefore the assessee would be

entitled to deduction u/s 80IC of the Act. The relevant findings are as

follows:

“6. Learned Standing Counsel appearing for the Revenue contended that the mere assembling work could not amount to manufacture. Consequently, the assessee was not entitled for deduction under Section 80-IC of the Income Tax Act.

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the case of CIT vs. Esquire Translam Industries (344 ITR 308). In

the instant case, the assessee would procure electrical steel which would

be assorted and converted as per their grade, size, thickness, etc. into

lamination. According to the AO, the raw material and the final product

was the same and that there was no change in the product and hence

cannot be regarded as manufacture. Following the ratio laid down by the

Hon’ble Apex Court in the case of India Cine Agencies (supra), it was held

that, what is sufficient to be seen is whether a different commodity

having a distinct name emerges from the raw material and since, the

laminations was a different commodity to the electrical steel, it was held

that the assessee was engaged in ‘manufacture’.

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We also gainfully refer to the decision of the Hon’ble Bombay High 19.

Court in the case of CIT vs. Tata Locomotive & Engineering Co. Ltd

(68 ITR 325) wherein the assessee which was engaged in assembling a

chassis out of the complete knocked-down packs imported from abroad,

was also held to be ‘manufacture’. The relevant findings having a bearing

on the present issue is as follows:

“11. Thus looked at from any point of view and whether one takes into account the wider or narrower meaning of the word "manufacture", it is clear that assembling of automotive bus/truck chassis from imported parts in a knocked down condition would give rise to an article which is totally different from the parts. This is so even though the component parts from which the automotive chassis is made, retain their individual identity in the whole article which is thus manu-factured or produced. To take the simplest illustration, if a child takes strips of metal, bolts, nuts, bars and wheels from out of a "meccano" set and assembling them together makes a wheel-barrow or a chair, we would say that the child has produced a wheel-barrow or a chair if not manufactured it. In the present case, the process is the same but only more sophisticated. The transformation of the components into the finished product is only more marked. Innumerable parts are put together with considerable effort and skill with the aid of specialized tools and machinery run on some form of power; and sometimes modified to fit each other by mechanical process. The bars which go to make up the chassis on which the foot-boards rest are either welded or rivetted together to make the chassis. Ultimately, the completed chassis is fitted with an engine and the whole becomes an automobile, which propels itself. The initial parts or components could not propel themselves. Beyond doubt, therefore, it must be held that the assembling of those parts into the finished product which is an automobile, amounts to the manufacture or production of the automobile.

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meaning of the words "manufacture" or "produce" what the company was doing in this industrial undertaking was to "manufacture" and "produce" automobiles without bodies.

that the assessee utilizes plant & machinery in this production process.

The Revenue has contended that the assessee was using simple tools and

machinery and therefore, it was not sufficient to demonstrate that any

‘manufacturing activity’ was being carried out at the UTK Unit. To this, we

find that similar aspect was considered by the Hon’ble Himachal Pradesh

High court in the case of CIT vs. Megha Dadoo (57 taxmann.com

309) wherein it was held that the manufacture of route markers by

undertaking the process of cutting stainless steel pipes of large sizes with

electric cutter including painting and welding, would amount to

‘manufacture’. Similarly, the Hon’ble Delhi High Court in CIT vs. Faith

Biotech Pvt. Ltd (54 taxmann.com 212) held that, even though the

assessee carried out assembling of air purifiers by using simple tools and

testing equipments, it would qualify as ‘manufacture’ and the assessee

shall be entitled to deduction u/s 80IC of the Act. The relevant findings

are as follows:

“4. The finding of the appellate authorities, including the Tribunal is that the product produced and sold by the respondent-assessee was air purification system. For manufacturing the said product, the assessee had purchased parts like base motors, filters, UV lights etc. but the final product produced was entirely different from its constituents or parts. The product manufactured or produced, i.e. the air purifier or air purification system, was completely a new and an entirely different commodity having distinct name,

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character and use. The respondent-assessee had even filed photographs before the Assessing Officer to support his contentions on the manufacturing activities undertaken. The respondent-assessee had filed a flow chart of the manufacturing process. The manufacturing unit stood registered with District Industries Centre, Roorkee, Pollution Control Department, Commercial Tax Department, Uttaranchal, etc. 5. The Assessing Officer did not dispute or question the purchases of the parts used for manufacturing as well as the sale consideration received by the respondent-assessee from sale of the air purifiers but did doubt the purchases of the tools and implements required to undertake the manufacturing activities. It is not the case of the Revenue that the air purifiers were not actually manufactured or sold to third parties and there was bogus purchase of parts or transactions for sale of the manufactured goods. The stand of the respondent-assessee was that they had used simple tools and testing equipments like frequency tester, multi meter, VV intensity meter, wires, CFM flow meter, ozone intensity monitor, nuts and bolts, hand drill, screw driver set, plier cutting set, etc. to carry out assembling and manufacturing of the air purifiers.

employed by the assessee in production of the integrated engine cooling

system module is considered as manufacture under the provisions of the

Central Excise Act, 1944 and on production of the same, the assessee

pays excise duty. If under the provisions of Central Excise Act, 1944, it is

considered to be a manufacturing activity, then it does not appeal to our

logic that the same activity does not amount to manufacture under the

Income-tax Act, 1961. We find that this particular aspect as to whether

the definition of ‘manufacture’ or ‘production’ employed for the levy of

Central Excise should also be employed for this Act, was examined by the

Hon’ble Supreme Court in the case of ITO vs. Arihant Tiles & Marbles

ITA Nos.1946-1950/Chny/2025 (AYs 2011-12 to 2013-14, 2017-18 & 2018-19) M/s. Alkraft Thermotechnologies Pvt. Ltd. :: 22 ::

Pvt. Ltd (320 ITR 79) and it was answered in favour of the assessee.

The relevant findings as noted by us are as under:

“20. Before concluding, we would like to make one observation. If the contention of the Department is to be accepted, namely that the activity undertaken by the respondents herein is not a manufacture, then, it would have serious revenue consequences. As stated above, each of the respondents is paying excise duty, some of the respondents are job workers and the activity undertaken by them has been recognised by various Government Authorities as manufacture. To say that the activity will not amount to manufacture or production under section 80-IA will have disastrous consequences, particularly in view of the fact that the assessees in all the cases would plead that they were not liable to pay excise duty, sales tax etc. because the activity did not constitute manufacture. Keeping in mind the above factors, we are of the view that in the present cases, the activity undertaken by each of the respondents constitutes manufacture or production and, therefore, they would be entitled to the benefit of section 80-IA of the Income-tax Act, 1961.”

In so far as the decisions relied upon by the Ld. CIT, DR is 22.

concerned, we have gone through the same and find that they were

factually distinguishable. It is seen that, on their given facts, the judicial

forums noted that the original input and the final output was the same

product having same use and function. For instance, in the case of Acqua

Minerals (P.) Ltd vs. DCIT (supra), the assessee was packaging

drinking water, and it was held that the packaged water served the same

purpose as normal water and therefore, there was no commercially

distinct product. Similarly, in the case of Maruti Suzuki India vs. CCE

(2015) 318 ELT 353, the facts were that the assessee was putting ED

coating on bumpers and grills and therefore, it was held that the bumpers

ITA Nos.1946-1950/Chny/2025 (AYs 2011-12 to 2013-14, 2017-18 & 2018-19) M/s. Alkraft Thermotechnologies Pvt. Ltd. :: 23 ::

and grills, irrespective of the ED coating remained the same and there

was no change in the character of the goods. In the present case

however, as noted above, the raw materials procured by the UTK Unit,

the assembling process carried out and the final product made resulted in

a commercially different and distinct product and thus the aforesaid

decisions cited by the Revenue were of no relevance.

Upon considering the decisions (supra) in light of the facts of the 23.

present case, we are of the considered view that the assessee was

undertaking ‘manufacture’ or ‘production’ of an integrated cooling system

module in a scientific manner with use of machinery and the activity

resulted in a commercially distinct product having distinct end use. We

thus have no hesitation in holding that the assessee was engaged in

manufacture or production of an article or thing, in terms of Section 80-

IC(2)(a) of the Act.

consequence of reconstruction / splitting up of the existing Chennai Unit.

The expression ‘splitting-up of the business already in existence’ indicates

a case where the integrity of a business earlier in existence is broken up

and different sections of the activities previously conducted are carried on

independently. Splitting-up or reconstruction of business suggests that

the new unit and the old unit taken together are essentially doing the

ITA Nos.1946-1950/Chny/2025 (AYs 2011-12 to 2013-14, 2017-18 & 2018-19) M/s. Alkraft Thermotechnologies Pvt. Ltd. :: 24 ::

same thing, what the old unit had already been doing. This particular

concept was explained by the Hon’ble Delhi High Court in the case of CIT

v. Hindustan General Industries Ltd (137 ITR 851). In the decided

case, the assessee was manufacturing storage tanks, steel safes etc. at

its Qutab Road factory. The assessee had set up a new factory at Nangoli

to manufacture iron & steel equipments comprising of railway wagons,

storage tanks etc. Some of the assets which were being used at Qutab

Road factory were transferred to Nangoli factory. The Hon’ble Court noted

that the value of assets transferred were less than twenty percent and

therefore the Explanation to Section 15C read with Section 15C(2)(ii) of

the Act was not attracted. Accordingly, the two issues before the Hon’ble

Court were whether the new unit was formed by ‘splitting-up’ or

‘reconstruction’ of business already in existence. While examining the

issue of ‘splitting-up’ of business, the Court noted that both the units

were principally manufacturing different products and that there has been

no suggestion at any stage that the two factories together were now

doing only what the old factory had already been doing. The Court while

holding so, categorically held that, even in a case a company sets up or

establishes a totally independent and viable industrial unit for carrying on

the same business it might be so set up by way of expanding the already

ITA Nos.1946-1950/Chny/2025 (AYs 2011-12 to 2013-14, 2017-18 & 2018-19) M/s. Alkraft Thermotechnologies Pvt. Ltd. :: 25 ::

existing business and therefore it cannot be construed as ‘splitting-up’ or

‘reconstruction’ of business already in existence.

new company is said to be formed by way of splitting up of business if the

existing unit and the new unit taken together are doing the same

quantum of business which, otherwise the existing unit was already

doing. It is only if the assessee is able to substantiate that the formation

of the new unit has resulted in expansion of the already existing business,

that it shall not constitute ‘splitting up of business’. In the present case,

we find that the number of engine cooling system modules manufactured

and sold at the Chennai Unit remained unaltered even after the setting up

of the UTK Unit. Rather, the facts placed before us shows that the goods

supplied by the Chennai Unit other than the units sold at the UTK Unit had

increased over the years, whose details, as provided to us, are as follows:

Financial Supplies made to Ashok Leyland other Year than AL UTK (Unit Nos.) 2009-10 16,030 2010-11 15,863 2011-12 26,650 2012-13 23,726 2013-14 21,729 2014-15 31,532

ITA Nos.1946-1950/Chny/2025 (AYs 2011-12 to 2013-14, 2017-18 & 2018-19) M/s. Alkraft Thermotechnologies Pvt. Ltd. :: 26 ::

It is further observed that the vehicles produced by the UTK Unit 26.

(over and above the production at the Chennai Unit) was as follows:

No. of Vehicles No. of Units sold by Financial Year Produced – Ashok Assessee Leyland UTK 2010-11 10,532 8,979 2011-12 29,292 15,926 2012-13 28,832 19,327 2013-14 20,097 11,989 2014-15 24,496 14,885 2015-16 49,910 31,998

and the new installed capacity of the UTK Unit taken together, suggests

expansion of business. On these facts therefore, the lower authorities had

erred in holding that the UTK Unit had been formed by ‘splitting up of

business’ already in existence.

The Ld. AR further explained to us that, the assessee is a 28.

component supplier of an automobile behemoth like Ashok Leyland.

According to him, when the OEM establishes a new unit at a different

location, then, as a necessary corollary, the component manufacturers

like the assessee also sets up units near to their customer. The Ld. AR

reasoned with us that, since the customer (Ashok Leyland) had expanded

its business / capacity, the assessee being their component supplier had

evidently undertaken expansion by setting up the UTK Unit, which was

ITA Nos.1946-1950/Chny/2025 (AYs 2011-12 to 2013-14, 2017-18 & 2018-19) M/s. Alkraft Thermotechnologies Pvt. Ltd. :: 27 ::

meant to serve the needs of the UTK factory of Ashok Leyland, over and

above, the existing capacity and supply requirements of Ashok Leyland at

Chennai. There is merit in the Ld. AR’s plea that, though the UTK Unit was

manufacturing the same item as was being manufactured at the Chennai

Unit, it was not a case of ‘splitting up’ or ‘reconstruction’ of their business

already in existence as alleged by the lower authorities, but ‘expansion’ of

their existing business.

The assessee has also brought to our notice that, it was not a case 29.

where the UTK Unit was simply passing on the components transferred by

the Chennai Unit. The Ld. AR has demonstrated the value additions made

to the final product at the UTK Unit which was around 35% to 40% of the

total cost. The break-up of the value of components procured from the

Chennai unit and the value additions undertaken at the UTK Unit for FY

2011-12 is noted to be as under:

Value at which Semi finished Local Component Total Cost of % of value goods are purchase, Other cost Product code Finished addition @ transferred etc., - Total cost at Product UTK from Chennai UTK to UTK 06 RIC 001250000UTK 5,680 3030.58 8710.76 35% 06 RIC 001750000UTK 5,833 2895.6 8728.7 33% 06 RIC 001800000UTK 5,680 3030.58 8710.76 35% 06 RIC 001900000UTK 5,833 2926.98 876008 33% 06 RIC 0021100000 5833.1 2985.92 8819.02 34% 06 RIC 0020900000 5833.1 3241.58 9074.68 36% 06 RIC 001820000UTK 5680.18 3030.58 8710.76 35% 06 RIC 0017200000 5833.1 2859.85 8692.95 33% 33% 06 RIC 001810000UTK 5833.1 2917.1 8750.2

ITA Nos.1946-1950/Chny/2025 (AYs 2011-12 to 2013-14, 2017-18 & 2018-19) M/s. Alkraft Thermotechnologies Pvt. Ltd. :: 28 ::

The Ld. AR similarly, showed us the value additions undertaken 30.

across all the years before us. Having gone through the same, it is

observed that substantial value addition was being made at the UTK Unit,

and therefore, we are of the view that, the AO had erred in observing that

there was no increase in the manufacturing capacity as the UTK Unit did

not have the necessary facility to manufacture.

We find that, much emphasis has been laid by the Revenue on the 31.

fact that the UTK Unit was not manufacturing radiators and inter-coolers,

which was being procured from the Chennai Unit. According to us, only

because, certain critical components were being transferred by a non-

eligible unit cannot be the basis to assume that the eligible unit was not

engaged in manufacture or was formed by splitting up. There may be

varied commercial considerations, due to which, certain core components

were being manufactured at one location and that the eligible unit was

carrying out the other independent operations, viz. calibration, processing

of locally procured components, fabrication, fitting, integration, quality

testing and deliver ready products. We find that the Legislature was also

aware that such arrangements may be the inter-se units of the assessee

and therefore to address the same, necessary safeguards and provisions

have been incorporated in Section 80-IA(8)/(10) to ensure that the

transfer of such materials/components between non-eligible and eligible

ITA Nos.1946-1950/Chny/2025 (AYs 2011-12 to 2013-14, 2017-18 & 2018-19) M/s. Alkraft Thermotechnologies Pvt. Ltd. :: 29 ::

units are at arm’s length. It is not the Revenue’s case before us that the

inter-unit transfers were at low prices and not at arm’s length. Rather we

find that, such inter-unit transactions were permissible as long as it was

being undertaken at arm’s length value in terms of Section 80-IA(8)/(10)

of the Act. We find that, there is no material or any evidence brought on

record by the AO which would show that, the radiators and inter-coolers

were not being procured at arm’s length price by the UTK Unit. Hence, we

are unable to countenance this line of reasoning propounded by the lower

authorities.

that, the UTK Unit of the assessee was engaged in production or

manufacture and therefore satisfied the condition laid down in Section

80IC(2)(a) of the Act and also, the said eligible unit was not formed by

splitting up or reconstruction of the business already in existence and

thus, the condition precedent in Section 80IC(4)(i) was also met. We thus

are of the view that the lower authorities were unjustified in denying the

benefit of deduction in respect of the profits derived by the eligible UTK

unit u/s 80IC of the Act and direct the AO to allow the same and delete

the impugned disallowance. Accordingly, the appeal of the assessee in AY

2011-12 stands allowed.

ITA Nos.1946-1950/Chny/2025 (AYs 2011-12 to 2013-14, 2017-18 & 2018-19) M/s. Alkraft Thermotechnologies Pvt. Ltd. :: 30 :: Our decision rendered in the lead case under consideration, being 33. AY 2011-12 in ITA No. 1946/Chny/2025, our decision in the case of ITA No. 1380/Mum/2019, shall apply mutatis mutandis to the assessee`s appeals in ITA Nos.1947-1950/Chny/2025. The AO is accordingly directed to allow the deduction claimed by the assessee u/s 80-IC in AYs 2012-13, 2013-14, 2017-18 & 2018-19 and delete the impugned disallowance(s) made in these respective years.

In the result, the appeals of the assessee for AYs 2011-12, 2012- 34. 13, 2013-14, 2017-18 & 2018-19 are allowed

Order pronounced on the 18th day of February, 2026, in Chennai.

Sd/- Sd/- (जगदीश) (एबी टी. वक�) (JAGADISH) (ABY T. VARKEY) लेखा सद�/ACCOUNTANT MEMBER �याियक सद�य/JUDICIAL MEMBER चे�ई/Chennai, �दनांक/Dated: 18th February, 2026. TLN आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड फाईल/GF