ACIT CIRCLE-2(I), BHOPAL vs. MAPAAEX REMEDIES (P) LTD., BHOPAL

आदेश / O R D E R

Per B.M. Biyani, A.M.:

Feeling aggrieved by appeal-order dated 06.12.2018 passed by learned Commissioner of Income-Tax (Appeals)-1, Bhopal [“Ld. CIT(A)”], which in turn arises out of assessment-order dated 29.12.2016 passed by learned DCIT-2(1), Bhopal [“Ld. AO”] u/s 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2014-15, the assessee has filed this appeal on following ground:

“(1) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made by AO of Rs. 1,48,77,146/- on account of disallowance of deduction claimed by the assessee under section 80IC of the Income-tax Act, 1961.”

Mapaaex Remedies Pvt. Ltd. ITA No.214/Ind/2019 Assessment year 2014-15 2. Heard the learned Representatives of both sides at length and case- records perused.

“7. Ground no. 2 is against disallowance of deduction under section 80IC of the Act. 7.1 During the year, the assessee was manufacturing pharmaceutical products on job work for Proctor & Gamble at Baddi in State of Himachal Pradesh which was the area notified for deduction u/s 80IC. The assessee had been claiming deduction u/s 80IC since A.Y 2008-09 and the deduction had been allowed in all years. It has been informed that

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Mapaaex Remedies Pvt. Ltd. ITA No.214/Ind/2019 Assessment year 2014-15 the assessment in all the years had been completed u/s 143(3). The assessments of the assessee were also completed u/s 153A pursuant to a search and the deduction u/s 80IC was allowed to the assessee in that assessment also. However during the year the AO disallowed the deduction on following reasons:- i. The manufacturing unit including the building, plant & machinery and major portion of the land is owned by M/s P&G. ii. The raw material for manufacture and the technology required is supplied by P&G. iii. The assessee is simply a operator of the plant on behalf of P&G for which job work charges has been paid to it. iv. M/s P&G has also claimed deduction u/s 80-IC with respect to the production at the Unit. 7.2 The relevant portion of appellant’s submissions is reproduced below: XXX 7.3 It has been submitted that the manufacturing unit including the building, plant & machinery and major portion of the land is owned by M j s P&G. The assessee was manufacturing the pharma products required by using its own manpower, staff, power and consumables for which a fixed per kg job work charges of quantity manufactured is received by the assessee. It has been argued that for eligibility of deduction u/s 80IC the law does not require that the assessee should own the infrastructure and that the law simply requires that the assessee should earn income from a new manufacturing business which should not use plant and machinery being already in use. It has been contended that the section does not require that the assessee should be doing the manufacture on its own accountj or the assessee should own plant and machinery or building. 7.4 The provisions of section 80IC and section 2(29BA) of the act are summarized below: 8OIC (1): The profits or gains should be derived by an undertaking ... from any business referred to in sub section (2). Provisions of sub section (2) provide that the undertaking should: (a) Begin manufacture or production of any article or thing ..... Provision of sub section (4) prescribes various other conditions which are required to be fulfilled by the undertaking to become eligible for deduction, namely:

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Mapaaex Remedies Pvt. Ltd. ITA No.214/Ind/2019 Assessment year 2014-15 (i) It is not formed by splitting or reconstruction of a business already in existence (ii) It is not formed by transfer to a new business of machinery or plant previously used for any purpose 7.5 It is not the case of the A.O. that the assessee was a company formed by splitting or reconstruction of any existing business. As the assessee company did not own the plant and machinery rather it was a loan licensee of Proctor & Gamble and availed manufacturing facilities owned by a licensee in Form 25, there was no question of transfer of plant and machinery from any other business. 7.6 Section 2(29BA) of the act defines manufacture as " ... means a change in a non living physical object or article or thing- (a) Resulting In the transformation of the object or article or thing into a new and distinct object or article or thing having different name, character and use or (b) Bringing into existence of a new and distinct object or article or thing with a different chemical component or integral structure. 7.7 In this case, the assessee used to receive raw material in the shape of sugar, flavors, colors, menthol, camphor, glucose etc which was utilized by the assessee for manufacture of Vicks cough drops which was distinct and different commodity from the raw material consumed and thus the fact that the assessee was manufacturing article or thing is not in dispute. 7.8 From the definition of manufacturing as provided in the Act, it is observed that the law does not require that use of self owned plant and machinery is mandatory for any manufacturing activity. Further, provisions of section 80IC also do not require that use of self owned plant and machinery is a must. 7.9 It has been held by Hon 'ble Madras High Court in CIT v. Taj Fire Works Industry (2006) 204 CTR (Mad) 108 that use/availability of self owned Plant and Machinery is not necessary for manufacture of goods. Thus the reasoning of disallowance that the assessee is not the owner of the manufacturing unit is not relevant as the law does not require that the manufacturing can be done only by aid of machinery and further in this case the manufacturing was done by the assessee under a license obtained for conducting manufacturing activity using the infrastructure of a third party. 7.10 Another ground of disallowance is that the raw material for manufacture and the technology required was supplied by P&G. It is observed that the manufacturing is done by using raw material and technology as may be required for the purpose. The source of

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Mapaaex Remedies Pvt. Ltd. ITA No.214/Ind/2019 Assessment year 2014-15 these raw materials and technology is not relevant to determine whether the assessee has carried on any manufacturing or not. It is very common in the business that the customers for whom goods are manufactured, with an object to ensure the quality and to take advantage of the most competitive rates available in the market procure the raw material required and supply it to the person manufacturing the goods. Thus no adverse inference could be drawn by the A.O. from this fact. 7. 11 Another ground of disallowance is that the assessee was simply an operator of the plant on behalf of P&G for which job work charges had been paid to it. In the succeeding paragraphs it is seen that the inference drawn by the A.O. was erroneous. 7.12 The assessee was doing manufacturing activities as a Loan Licensee under the Drugs Act under which the assessee was duly registered as the manufacturer which is a fact confirmed by the AO herself in the assessment order. The Loan license is issued ul s 69A of the Drugs & Cosmetic Act and the relevant provisions relied upon by the appellant are reproduced below: 69- A. Loan Licences. [(1) Application for the grant or renewal of loan licences to manufacture for sale or for distribution of drugs other than those specified in Schedule C. Explanation. _ For the purpose of this rule a loan licence means a licence which a licensing authority may issue to an applicant who does not have his own arrangements for manufacture but who intends to avail himself of the manufacturing facilities owned by a licensee in Form 25. It is observed that as per the above provision, any person intending to carry on any manufacturing and does not have infrastructure available for such manufacture can manufacture the goods by availing of the manufacturing facilities owned by third party by obtaining registration as Loan Licensee. Thus the assessee had been awarded a license for manufacture of drugs by using the manufacturing facilities owned by some other party. 7.13 A copy of the factory License was issued by the Chief Inspector of Factories Himachal Pradesh, in the name of the assessee. Copy of license and copy of registration certificate showing that the assessee was registered with the Department of Industries H.P. has been submitted. 7.14 It has also been shown that the power used for the purpose of manufacturing was in the name of the assessee and the power charges were paid by the assessee. 7.15 The appellant has also shown that the labour used for the manufacturing were employed by it. Copy of profit & loss account

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Mapaaex Remedies Pvt. Ltd. ITA No.214/Ind/2019 Assessment year 2014-15 showing labour charges and copy of returns submitted before PF authorities have been filed. 7.16 Similarly, the consumable required for maintenance of the machinery is borne by the assessee. 7.17 All these facts clearly show that the assessee had been carrying out the manufacturing activity by availing the infrastructure facility not owned by it for which a valid license as required by law had been obtained by it. 7.18 Another ground of disallowance is that Mis P&G has also claimed deduction u/s 80IC with respect to the production at the Unit. The appellant has shown that there is no Bar in the Act that the deduction cannot be allowed to more than one person. The only condition which needs to be verified is whether the assessee has manufactured the goods and whether the income offered to tax was earned out of such manufactured goods and whether the terms and conditions of section 80IC have been complied with. It is observed that here the manufacturing had been done by the assessee as a contractor. However, there is no bar in the Act prohibiting claim of deduction by the contractor. 7.19 It is observed that in CIT v Northern Aeromatics Ltd (2005) 196 CTR 0479 (Delhi), the Hon 'ble High Court on similar facts has held that it will be regarded as manufacturing activity irrespective of the fact whether the products manufactured therein are for its own business or it is done for others on job work basis. 7.20 In view of the above discussion, it is found that the A.O. was not justified in disallowing deduction u/s 80IC. It has been shown by the appellant that the deduction had been allowed in earlier years and the assessments were finalized u/s 143(3) or 153A. It is observed that the production in the case of the assessee first started in A.Y 2008-09. The details of the assessment of the assessee for the years since then are as under:

A.Y Returned Date Assessmen Assessing Date of Income Of filing t Officer order return Completed u/s 2008-09 6341188 27.09.08 143(3) ACIT 2(1), 29.12.10 & also uls Bhopal & & 153A DCIT (C) 22.03.13 1 (3) Ahmadabad 2009-10 1541590 29.09.09 153A DCIT (C) 22.03.13 I (3) Ahmadabad 2010-11 169166 27.09.10 153A DCIT (C) 22.03.13 1(3) Ahmadabad 2011-12 6471370 26.09.11 153A DCIT (C) 22.03.13 1(3) Ahmadabad

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Mapaaex Remedies Pvt. Ltd. ITA No.214/Ind/2019 Assessment year 2014-15 2012-13 0 26.09.12 143(3) ITO 2(2), Bhopal 13.11.14 2013-14 25666390 28.09.13 143(3) ACIT 2(1), Bhopal 11.02.16 7.21 It is, therefore, observed that the assessments in all the years were completed under scrutiny u/s 143(3)/153A of the Act and the deduction claimed by the assessee u/s 80IC was allowed in all the years. Copies of assessment orders have been submitted. As these activities were being done since last over 6 years by the assessee and there was no change in the same during the year and it was never the case of the A.O. that the activities of the assessee during the year were different from the activities of the assessee done in past, the abrupt disallowance in A.Y. 2014-15 without any change in facts is clearly arbitrary and unreasonable. Reliance in this regard is placed on following decisions:- Radhasoami Satsang Saomi Beas v. CIT, [1992] 193 ITR 321 (SC) CIT v Excel Industries Ltd (2013)358 ITR 295(SC) DCIT vs Sulabh Intemational Social Service Organisation (2011) 57 DTR 0008 (Patna HC) 7.22 Further, on identical facts, the Delhi High Court in the case of CIT v. A. K. J. Security Printers, (2003) 264 ITR 276 has held as follows:- "we are of the view that having accepted at least in three assessment years that the assessee's business activity fell within the ambit of S. 80-1 of the Act, the Revenue cannot be allowed to now tum around and contend that deduction under the said section is not available to them in respect of the present assessment years. " 7.23 In view of the overall discussion made above, it is held that the A.O. was not justified in disallowing deduction u/s 80IC as on facts the appellant was eligible for the deduction and considering that the deduction was consistently been allowed to the appellant in earlier years. The AO is directed to allow the claim of deduction u/s 80IC. 7.28 This ground of appeal is allowed.” 7. Before us, Ld. DR vehemently supported the assessment-order passed by Ld. AO. He argued that the Ld. AO has disallowed deduction after a careful consideration and by assigning valid reasoning. Ld. DR, accordingly, prayed to uphold the action of Ld. AO.

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Mapaaex Remedies Pvt. Ltd. ITA No.214/Ind/2019 Assessment year 2014-15

assessment/special-assessment u/s 143(3)/153A and thoroughly examined the claim of assessee and allowed the same in all years. Ld. AR has also filed copies of assessment-orders of earlier years in the form of a Paper-Book running over 21 pages to demonstrate this. The details of past assessments completed by various assessing authorities are also mentioned in the order of Ld. CIT(A), as under:

A.Y Returned Date Assessmen Assessing Date of Income Of filing t Officer order return Completed u/s 2008-09 6341188 27.09.08 143(3) ACIT 2(1), 29.12.10 & also uls Bhopal 153A & & DCIT (C) 22.03.13 1 (3) Ahmedabad 2009-10 1541590 29.09.09 153A DCIT (C) 22.03.13 I (3) Ahmadabad 2010-11 169166 27.09.10 153A DCIT (C) 22.03.13 1(3) Ahmadabad 2011-12 6471370 26.09.11 153A DCIT (C) 22.03.13 1(3) Ahmadabad 2012-13 0 26.09.12 143(3) ITO 2(2), Bhopal 13.11.14 2013-14 25666390 28.09.13 143(3) ACIT 2(1), Bhopal 11.02.16

Ld. AR drew our specific attention to Page No. 13 to 15 of the Paper-Book containing assessment-order of AY 2012-13 where in Para No. 3, the Ld. AO has categorically mentioned that the assessee is engaged in the manufacturing of pharmaceutical products on job work basis and that the assessee has claimed deduction u/s 80-IC and thereafter on Page No. 15 of the Paper-Book allowed deduction u/s 80-IC as well. Then the Ld. has carried us to Page No. 17 to 21 of the Paper-Book containing assessment- order of AY 2013-14 where in Para No. 1, the Ld. AO has categorically analysed the deduction under the heading “Claim of deduction as per section 80IC” and allowed deduction.

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Mapaaex Remedies Pvt. Ltd. ITA No.214/Ind/2019 Assessment year 2014-15 AR submitted that in absence of change in facts or circumstances or law, the Ld. AO cannot disallow deduction. To support his submissions, Ld. AR placed a heavy reliance on the decision of Hon’ble ITAT, Delhi Bench “F” in the case of Vimoni India (P) Ltd. Vs. DCIT (2012) 143 taxmann.com 136, order dated 14.07.2022 where it was held thus:

“7. Before us, Sh. Ajay Wadhwa, learned Counsel appearing for the assessee, submitted, the assessee had commenced its manufacturing process in the financial year relevant to the assessment year 2005-06 and deduction was claimed for the first time in assessment year 2005-06. He submitted, assessee's claim of deduction under section 80IC of the Act has been allowed from assessment year 2005-06 till 2009-10. He submitted, in the financial year 2006-07, the assessee had undertaken substantial expansion of the unit by investing an amount of Rs. 3,99,49,251/-. He submitted, all relevant and necessary documents relating to setting up of unit, the investment made in substantial expansion of the unit, approval of the competent authority, registration under the Central Excise Act as well as returns filed under the Central Excise Act were also furnished before the departmental authorities. Drawing our attention to section 80IC of the Act, learned Counsel submitted that all the conditions of the said provision, including the conditions relating to substantial expansion have been fulfilled by the assessee. He submitted, fulfillment of conditions for claiming deduction under section 80IC of the Act has to be examined in the first year of claim of deduction. He submitted, once, the issue is examined in the first year of claim and the Assessing Officer, having factually examined the issue, if comes to a conclusion that all the conditions of section 80IC of the Act are satisfied, the matter ends there and fulfillment of conditions under section 80IC cannot be examined in any future assessment year. He submitted, assessee's claim of deduction under section 80IC of the Act was not only examined in assessment year 2005-06, the first year of claim, but, was also examined in subsequent assessment years. Rebutting the observations of the departmental authorities that in subsequent years, the assessments have been made under section 143(1) and not under section 143(3), learned counsel drew our attention to the assessment order passed under section 143(3) of the Act for the assessment year 2007-08, wherein the Assessing Officer, after examining assessee's claim of deduction under section 80IC of the Act, has allowed. Thus, he submitted, deduction claimed under section 80IC of the Act should be allowed. In support of such contention, learned counsel relied upon the following decisions: 1. CIT Vs. International Tractor Ltd. {2017} 397 ITR 696 (Delhi High Court) 2. CIT Vs. Tata Communications Interned Services Ltd. [2012] 251 CTR 290 (Delhi High Court) 3. CIT Vs. Delhi Press Patra Prakashan Ltd. [2013] 355 ITR 14 (Delhi High Court)

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Mapaaex Remedies Pvt. Ltd. ITA No.214/Ind/2019 Assessment year 2014-15 4. M/s. Hughes Communications India Ltd. Vs. DCIT (ITA No.2346/Del/2014 along with other appeals, dated 14.09.2021) 5. Shree Veer Aromatics Herbs Products Vs. ITO [2014] 147 ITD 86 (Delhi ITAT)] 6. ACIT Vs. M/s. LVP Foods Pvt. Ltd. (ITA No. 937/Del/2017). 7. M/s. Ace Multi Axes Systems Ltd. Vs. DCIT (ITA No. 477 of 2013) 8. DCIT Vs. Selvel Advertising (P.) Ltd. [2015] 58 taxmann.com 196 (Kolkata - Trib.) 8. Learned Departmental Representative strongly relied upon the observations of learned Commissioner (Appeals). 9. We have considered rival submissions in the light of decisions relied upon and perused the materials on record. Undisputedly, the assessee has set up a manufacturing unit for manufacture of PET, HDPE bottles etc. at Barotiwala, Himachal Pradesh. As per form No. 10CCB, a copy of which, is placed at page 61 of the paper-book, the date of commencement of manufacturing activity is 17.06.2004 and the first year of claim of deduction under section 80IC of the Act is assessment year 2005-06. It is further evident, the assessee had undertaken expansion of the unit in financial year 2007-08 and has invested an amount of about Rs. 4 crores in plant and machinery. On a careful reading of the assessment order, it is evident, the only reason on which the Assessing Officer has rejected assessee's claim of deduction under section 80IC of the Act is, the products manufactured by the assessee come within Schedule 13 of the Act, hence, do not fulfill the condition of section 80IC(2)(a) of the Act. The Assessing Officer has not specifically assigned any other reasons for denying assessee's claim of deduction under section 80IC of the Act. While deciding the issue in appeal, learned Commissioner (Appeals) has held that the finding of the Assessing Officer that the products manufactured by the assessee come within Schedule 13 of the Act is unsustainable in view of the decision of the Hon'ble Delhi High Court. Admittedly, against the aforesaid observation of learned Commissioner (Appeals), the Revenue has not come in appeal. 10. Be that as it may, there is no other specific reason or observation by the departmental authorities for denial of assessee's claim of deduction under section 80IC of the Act. Of course, learned Commissioner (Appeals) has made a general observation that the assessee failed to furnish required details without specifying, what are the details required to be furnished by the assessee. Of course, one more reason learned Commissioner (Appeals) has assigned for denying assessee's claim of deduction is, on earlier assessment years the fulfillment of condition of section 80IC were not examined as the returns of income filed by the assessee were processed under section 143(1) of the Act. From the materials placed before us, the aforesaid finding of learned Commissioner (Appeals) and the Assessing Officer are found to be not borne out from record.

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Mapaaex Remedies Pvt. Ltd. ITA No.214/Ind/2019 Assessment year 2014-15 11. On the contrary, it is a fact on record that assessee's claim of deduction under section 80IC of the Act was not only examined in the first year of claim, i.e., assessment year 2005-06 but also in assessment year 2007-08, wherein, the assessment was completed under section 143(3) of the Act vide order dated 31.12.2009. A reading of the aforesaid assessment order would clearly reveal that the Assessing Officer has specifically examined the issue relating to assessee's claim of deduction under section 80IC of the Act. Thus, when assessee's claim of deduction under section 80IC of the Act was thoroughly examined in the preceding assessment years and after getting satisfied that the conditions prescribed for claiming deduction have been fulfilled, the Assessing Officer allowed the deduction claimed, such claim of deduction in a subsequent assessment year cannot be rejected without bringing any new fact and material on record, that too, purely on general observations. The decisions cited before us by learned counsel for the assessee support this view. 12. In view of the aforesaid, we hold that the disallowance of deduction claimed by the assessee under section 80IC of the Act is unsustainable. Accordingly, we direct the Assessing Officer to allow assessee's claim of deduction under section 80IC of the Act. This ground is allowed.” 10. We have considered submissions of both sides. On a careful consideration, we observe that the assessee has been engaged in the same line of business and claiming deduction year after year regularly from AY 2008-09. We further observe that the assessing authorities have all along allowed the deduction during scrutiny/ special assessment and not simply by way of summary-assessment. We also observe that the Ld. AO has disallowed deduction for the first time during current-year even without pointing out any change in the activity of assessee or the applicable law. We further observe that in Vimoni India (P) Ltd. (supra), the Hon’ble ITAT, Delhi has allowed identical deduction on exactly same set of facts. During hearing before us, Ld. DR is neither able to report any change in the activity of assessee or the relevant facts or law, nor been able to contradict the applicability of the aforesaid decision in Vimoni India (P) Ltd. Being so, we do not find any good reason for not allowing deduction to the assessee. We also observe that the Ld. CIT(A) has rightly, elaborately and after due consideration, allowed deduction to assessee and no infirmity can be found in his action. Thus, in our view the assessee is entitled to the deduction u/s 80-IC and the Ld. AO had not justification to disallow the same. Being so,

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Mapaaex Remedies Pvt. Ltd. ITA No.214/Ind/2019 Assessment year 2014-15 we uphold the action of Ld. CIT(A) whereby he has allowed deduction to the assessee. The revenue fails in this appeal.

Order pronounced as per Rule 34 of I.T.A.T. Rules, 1963 on 26/12/2022. Order pronounced in the open court on ….../……/…...

Sd/- Sd/-

(CHANDRA MOHAN GARG) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore �दनांक /Dated : 26.12.2022. Patel/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Assistant Registrar Income Tax Appellate Tribunal Ahmedabad Benches, Ahmedabad

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Mapaaex Remedies Pvt. Ltd. ITA No.214/Ind/2019 Assessment year 2014-15

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