AO's claim That The Assessee Is Only Into Job Work And Not Manufacturing Rejected, Deduction Allowed By ITAT Delhi

The two-member bench consisting of Anubhav Sharma (Judicial Member) and Anil Chaturvedi (Accountant Member) held that the transformation of articles to bring new articles into existence amounts to "manufacturing" and allowed deduction under section 80IC of the Income Tax Act, 1961.

The respondent/assessee, a company that is in the business of manufacturing motor vehicle parts. The assessee electronically filed its return of income, declaring nil income after claiming a deduction under section 80IC of the Income Tax Act.

The case was selected for scrutiny and an assessment was framed. The total income was determined by denying the claim of deduction under section 80IC of the Income Tax Act.

Under Section 80IC of the Income Tax Act, a deduction is allowed on the profits and gains derived from an industrial undertaking or business from the manufacture of an article or thing other than the article or thing.

During the course of assessment proceedings, the AO noticed that the assessee had claimed a deduction under section 80IC of the Income Tax Act. He, on perusing the details of the purchase of raw materials and the sale of the final product, noted that the name of the goods purchased and the goods sold were the same. The assessee was asked to furnish and explain as to what the raw materials were purchased, what process was done on those raw materials, and what was sold as the final product.

The assessee was also asked to justify in what way the company was manufacturing a new product. The submissions were made by the assessee but it was not found acceptable to AO as he noticed that only drilling, turning and boring related works was done on the material in order to convert it as saleable item and which according to AO was part of job work and not manufacturing activity.

The AO held that the assessee was not eligible for the claim of deduction under section 80IC of the Income Tax Act and denied the claim of deduction amounting to Rs. 3,21,71,012/-.

Aggrieved by the order of the AO, the assessee carried the matter before the CIT (A), who allowed the appeal of the assessee. CIT (A) noted that in A.Y. 2012-13, his predecessor had allowed the appeal of the assessee. He noted that the facts in the year under consideration were identical to those of earlier years. He thus, following the order of his predecessor, held that the assessee was eligible for deduction under section 80IC of the Act and accordingly directed the AO to allow the claim of deduction.

The Counsel for the assessee supported the order of CIT(A) and submitted that identical issue arose in assessee's own case in A.Y. 2009-10 and 2010-11 in which the claim of deduction under section 80IC of the Income Tax Act was denied by the AO. When assessee carried the matter before CIT(A), CIT(A) decided the issue in favour of the assessee. He submitted that against the order of CIT(A), Revenue carried the matter before the Tribunal and the Tribunal decided the issue in favour of the assessee by upholding the order of CIT(A). He therefore submitted that in the absence of any change in facts, no interference to the order of CIT(A) is called for.

The ITAT while relying on assessments of the previous years held that the assessee has been engaged in the business of manufacturing and held that the assessee is eligible for a deduction under section 80IC of the Income Tax Act.

Case Title: DCIT Versus Himalayan Auto Era (India) Pvt. Ltd.

Citation: ITA No. 3943/Del/2018

Counsel For Appellant: Sr. D.R. Brij Mohan Singh

Counsel For Respondent: C.A. Amit Goel

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