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Income Tax Appellate Tribunal, BENCH – “SMC”, AHMEDABAD
Before: SHRI RAJPAL YADAV
आदेश/O R D E R
Revenue is in appeal before the Tribunal against order of the ld.CIT(A)-1, Ahmedabad dated 4.6.2015 passed for the Asstt.Year 2002-03. On receipt of notice on Revenue’s appeal, the assessee has filed CO bearing no.188/Ahd/2015.
With the assistance of the ld.representatives, we have gone through the record carefully. So far as Revenue’s appeal is concerned it has challenged allowance of deduction under section 80IA of the Income Tax Act, 1961 by the ld.CIT(A) of a sum of Rs.12,17,063/- which represents foreign exchange rate difference. It is pertinent to observe that tax effect by virtue of relief
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given by the ld.CIT(A) is below Rs.10 lakhs. Therefore, the present appeal is not maintainable in view of recent CBDT instruction no.21 of 2015 dated 10.12.2015. Hence, the appeal of the Revenue is dismissed.
So far as CO of the assessee is concerned, grievance of the assessee is that the ld.CIT(A) has erred in law and on facts in holding that gross service charges received by the assessee for pattern development amounting to Rs.19,17,761/- is not eligible for grant of deduction under section 80IA or 80HHC of the Income Tax Act.
Brief facts of the case are that the assessee has filed its return of income on 29.10.2002 declaring total income at Rs.7,06,028/-. An assessment under section 143(3) r.w.s Section 147 was complete on 19.12.2006 vide which income of the assessee was determined Rs.49,22,934/-. It emerges out from the record that the issue regarding allowance of deduction under section 80IA of alleged pattern development charges travelled upto ITAT in ITA No.176 and 177/Ahd/2009. The Tribunal has remitted this issue to the file of AO for re-adjudication. The ld.AO has decided the issue vide impugned order and net income of service charges for pattern development was taken at Rs.13,23,938/- which was being considered as not eligible profit for grant of deduction under section 80IA. On appeal, the ld.CIT(A) has without issuing notice for enhancement of income has directed the AO to exclude gross service charges. Thus, the assessee has two fold of grievance. In its first fold of grievance, it was contended before me that in A.Y.2001-02 such service charges were considered as eligible for grant of deduction under section 80IA. Alternatively, it was contended that only net service charges could be excluded and not the gross one. The ld.cousnel for the assessee further contended that against order of the Tribunal passed in ITA
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No.2703/Ahd/2004 in Asstt.Year 2001-02, Department went in appeal before the Hon’ble Court vide Tax Appeal No.1503 of 2010. This appeal was dismissed by the Hon’ble Court vide order dated 4.2.2016 on account of low tax effect involved in it. Copy of this order has been placed at page no.121 to 123 of the paper book.
On due consideration of the above facts, we find that the Tribunal has allowed deduction under section 80IA that the alleged service charges earned by the assessee on pattern development. The discussion made by the tribunal on this issue reads as under:
“On the other hand, the Learned Authorised Representative of the Assessee relied upon the order of the Learned Commissioner of Income –tax (Appeals) and submitted that the development of pattern was a part and parcel of the business of manufacturing of components and parts. We find that the assessee is engaged in manufacturing of components and parts for process control instrumentation and other products income of which qualifies for deduction u/s 80IA of the Act. The assessee’s business of manufacturing of components and parts for process control instrumentation and other products starts with the receipt of drawings of parts and components required by its customers. The assessee for manufacturing parts and components had to develop firstly pattern or moulds. Thus, the develop ment of pattern and moulds was undertaken by the assessee as a first step in the various stages or processes involved in manufacturing of parts and components. The Revenue has brought no material to show that pattern development charges was undertaken by the assessee as a separate and independent activity or business. According to the assessee this activity could not be independent business without manufacturing components and parts. The assessee made separate charges for the pattern development not because it was a separate business but as because one stage in the manufacturing of components and parts were completed and so as to realize some revenue before completion of complete manufacturing activity. The contention of the assessee that entire pattern development
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activity was carried out under its supervision and guidance at its own cost and risk was not controverted by the Revenue. We find that the Revenue has brought no material before us to show that manufacturing of components and parts could have been done by the assessee without manufacturing moulds or developing pattern. Further, it is also not the case of the Revenue that the assessee could have undertaken activity of development of pattern even without its business of manufacturing of components and pasts so that this activity could be treated as independent and separate business. Thus, on the above facts, we find that the pattern development activity undertaken by the assessee was a part and parcel of the business of manufacturing of components and parts for process control instrumentation and other products and the same was not a separate and independent business of the assessee. We therefore do not find any error in the order of the Learned Commissioner of Income-tax (Appeals ) which is confirmed and the ground of appeal of the Revenue is dismissed.”
Respectfully following the order of the Tribunal, I do not see any reasons to deviate myself from the conclusion drawn by the Division Bench of the Tribunal. Therefore, I allow this ground of appeal and direct the AO to grant deduction under section 80IA of the Act for service charges earned by the assessee for pattern development. In other words, service chares earned by the assessee on pattern development will be considered as eligible profit for grant of deduction under section 80IA.
In the result, appeal of the Revenue is dismissed and CO of the assessee is allowed.
Order pronounced in the Court on 11th October, 2017 at Ahmedabad.
Sd/- (RAJPAL YADAV) JUDICIAL MEMBER
Ahmedabad; Dated 11/10/2017