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Income Tax Appellate Tribunal, ‘A’ BENCH, BENGALURU
Before: SHRI CHANDRA POOJARI & SHRI PAVAN KUMAR GADALE
The assessee has filed the appeal against the order of the CIT(A), Bengaluru-2, Bengaluru, in dated 24/02/2016 passed u/s 143(3) r.w.s. 250 of the Income- tax Act,1961 ['the Act' for short] for the assessment year 2006- 07.
2. The assessee has raised the following the grounds of appeal:
I. “The Order of the learned respondent is bad in law and opposed to the facts and circumstances of the case and deserves to be set aside.
The learned respondent has tried to read non existent provision in the law while holding that the deduction envisaged in Section 80 IB is to be understood only for the profits and gains derived from the manufacturing activity, when the factual position is that the section talks of "profits and gains of any business of the new industrial undertaking and thereby arrived at wrong conclusion to restrict the actual deduction u/s 80 IB.
3. The learned respondent has grossly erred to appreciate the contents and meaning of the actual wordings used in the law, in as much as the emphasis in the said section 80 IB is on the profits and gains of the "business of the new industrial undertaking" and it is a settled position of law that the term "business' is wide enough to encompass all related activities which are integral part of the manufacturing activity. 4. The Hon'ble CIT(A) has erred in upholding the addition made AO on account of "Service Income" which is very much integral part of Industrial Undertaking and are eligible for deduction u/s 80IB. The Hon'ble CIT(A) has failed to appreciate the fact that the income reflected as "Service Income" is in fact integral part of the manufacturing activity of the appellant. The deduction provided under Section 80IB is for the profits and gains of any business undertaken by the new industrial unit and the item of income reflected under "Service Income" forms part of the integral activity of the undertaking. Therefore the conclusion to restrict the actual deduction u/s 80 IB, is bad in law and opposed to the facts and circumstances of the case.
5. The Hon'ble CIT(A) has grossly erred to appreciate the contents and meaning of the actual wordings used in the law., in as much as the emphasis in the said section 80 IB is on the profits and gains of the "business of the new industrial undertaking" and it is a settled position of law that the term "business is wide enough to encompass all related activities which are integral part of the manufacturing activity.
6. The above position of law has not been properly interpreted by the learned respondent and due to his the appellant is now saddled with tax liability. Hence the order of the respondent deserves to be set aside.
7. The Appellant craves leave to add, delete, alter or substitute any of the grounds urged above.
In view of the above facts and pleadings and submission, the Appellant Humbly prays that: i) The assessment order is bad in law as the deduction u/s 80 IB claimed by the appellant is in accordance with the provisions of Section 80IB and deserves to be allowed;
ii) The levy of interest under section 234B and 234C are not in accordance with the law under the facts and circumstances of the Appellant's case and needs to be cancelled; iii) Grant other such relief and benefits as applicable to the Appellant in accordance with law.
In view of the above and other grounds that may be urged at the time of hearing of the appeal, your Appellant prays that the appeal may be allowed in the interest of Justice and Equity.
Brief facts of the case are that the assessee is engaged in the business of distribution of contrast media (related to medical films & X-Ray accessories), manufacturing of automatic film processors, X-Ray and Ultra Sound equipment dealership, filed the Return of income for assessment year 2006-07 on 28/11/2006 declaring total income of Rs.1,07,63,125/- and the Return of income was processed u/s 143(1) of the Act.
Subsequently, the case was selected for scrutiny and notice u/s 143(2) of the Act was issued. In compliance, the Director of the assessee-company appeared and filed details and books of account were produced. The AO found that the assessee claimed deduction u/s 80-IB of the Act to the extent of Rs.59,37,033/- being 30% of profit of manufacturing business of Rs.1,67,00,158/-. The AO observed that said profits were arrived by the assessee after considering the service income of Rs.56,90,789/- and net profit worked therefrom being Rs.14,46,239/-. When showcause notice was issued by the AO to explain reasons for claim of deduction u/s 80-IB and profits on service income, the assessee has filed the letter dated 10/12/2018. Whereas the AO, on perusal of the provisions, came to conclusion that deduction u/s 80-IB should be restricted to profit from manufacturing activities, therefore, the claim of the assessee that service charges are integral part of profits is not acceptable and the AO has recalculated the deduction u/s 80-IB and assessed the total income at Rs.1,11,96,997/- and passed the order u/s 143(3) of the Act dated 15/12/2008.
Aggrieved by the order, the assessee preferred an appeal before the CIT(A). Whereas the CIT(A), after hearing the submissions of the assessee came to conclusion that the AO was correct in restricting the claim and dismissed the assessee’s appeal.
Aggrieved by the order of the CIT(A), the assessee is in appeal before the Tribunal. Before us, learned AR of the assessee submitted that the assessee is entitled for deduction in respect of service charges which form part of the manufacturing activity and also supported his stand with the decision of the Tribunal in the assessee’s own case for assessment year 2009-10 in dated 05/05/2017 where the Tribunal followed the decision for assessment year 2007-08 and directed the AO to recompute deduction u/s 80-IB. Therefore, prayed that the assessee’s appeal be allowed.
Contra, learned DR supported the order of the CIT(A).
We heard rival submissions and perused material on record.
Prima facie, the only claim of the assessee in the present appeal being the claim for deduction u/s 80-IB, as the learned AR submits in respect of manufacturing activity and service charges and the learned AR brought to the notice of the Bench that the decision on this disputed issue in in para.6 of the order, which reads as under:
“6. I have considered the rival submissions as well as the relevant material on record. At the outset, it is noted that an identical issue has been considered by the co-ordinate bench of this Tribunal in assessee's own case for the Assessment Year 2007-08 (supra) in para 9 as under: “ 9. It was submitted by the ld. AR that although the income from these activities of rendering of service and earning service income etc. is eligible for deduction u/s.80IB but even if these are to be excluded, then also not the gross receipts but net income therefrom should be reduced from business profit of the assessee for computing deduction allowable to the assessee u/s. 80IB. Ld. DR of the revenue supported the assessment order.” To maintain rule of consistency and by following the decision of the co-ordinate bench (supra), the Assessing Officer is directed to recompute the deduction under Section 80IB by excluding the net income of service charges after reducing the expenses incurred for earning such income.” We found that the disputed issue in question is also applicable to the assessee’s case and accordingly, following judicial precedence and relying on the order of the co-ordinate bench for assessment year 2009-10, we direct the AO to recompute deduction u/s 80- IB excluding net income of service charges after reducing expenses incurred for earning such income.
In the result, the assessee’s appeal is allowed for statistical purposes.
Order pronounced in the open court on 31st January, 2019.