IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "C"
[BEFORE S/SHRI D T G AR ASI A,JM & A N P AHUJ A, AM] ITA No.2921/Ahd/2007
Income-tax Officer, W ard- V/s Doshion Limited, 1(3), Ahmedabad Plot No.24 to 26, Phase-I, GIDC, Vatva, Ahmedabad
[PAN: AAACD 8771 G]
Revenue by :- Shri K M Mahesh, DR
Assessee by:- Shri S N Soparkar, AR
O R D E R
A N Pahuja: This appeal by the Revenue against an order dated 11-04-2007 of the ld. CIT(Appeals)-V, Ahmedabad, raises the following grounds :-
1 "The CIT(A) erred in law and on facts in directing to all deduction u/s 80IB of the IT Act amounting to Rs.59,711/- on the profit earned on 'High Seas Sales'.
2 The CIT(A) erred in law and on facts in directing to all deduction u/s 80IB of the IT Act amounting to Rs.19,69,530/- on the profit earned on 'Work Contracts Sales'.
3 On the facts and in the circumstances of the case and in law, the CIT(A)ought to have upheld the order of the Assessing Officer."
2 Adverting first to ground no.1 in the appeal, facts, in brief, as per relevant orders are that return declaring income of Rs.12,980/-under the normal provisions and book profit of Rs.2,30,12,097/-, filed by the assessee-company, manufacturing water treatment plants and ion exchange resins, after being processed on 11.2.2005 u/s 143(1) of the Income-tax Act, 1961 [hereinafter referred to as the "Act"], was taken up for scrutiny with the issue of notice u/s 143(2) of the Act on 15.4.2005. During the course of assessment proceedings, the Assessing Officer[AO ITA No.2921/Ahd/2007
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in short] noticed that the assessee claimed deduction of Rs.1,86,78,930/-u/s 80IB of the Act. Subsequently, the assessee filed a revised return, declaring income of Rs.33,59,380/-, after claiming deduction of Rs.1,35,94,058/- u/s 80IB of the Act and reflecting book profit of Rs.2,30,12,097/- u/s 115JB of the Act. The AO noticed that the assessee claimed deduction u/s 80IB of the Act, inter alia, on an amount of Rs.42,21,000/- on account of sale in High Seas . To a query by the AO, the assessee replied that it has been engaged in the manufacture of custom built water treatment plants and raises the different bills as per terms and conditions mentioned in the contract or agreement for sale and supply of machinery. In order to complete water treatment plant as a unit once the skids are fabricated, the work of piping, wiring, cabling, PLC programming, logic check, hydro testing, performance testing, painting, packing is done. During the process of such manufacturing and supply of plant, assessee sometimes purchases some of the components of entire machine directly from outside party and supplies such component directly to the customers, in order to avoid transportation cost in bringing the component to the factory and then transfer to the customer's premises . Since such component purchased is assembled or installed in the machine supplied from their Kathwada unit or plant manufactured at client's premises, the assessee stated that the sale of such component is an integral part of manufacturing and supply of plant. Therefore, any income derived from such sales is part of the bills raised for entire work order and thus, the assessee was entitled to deduction u/s. 80IB of the Act. The assessee added that they had received an order for supply of water treatment plant to TATA Projects Limited, with project cost of is Rs.3,51,00,000/- vide purchase order no. TPL/478/Aug/PO 001 dated 6.6.2003. In manufacturing of the said plant, the assessee imported two components ,being reverse osmosis membrane and turbo energy recovery on high sea sale basis as detailed under:
(1) Fluid Equipments Development Co.
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LLC, USA - US $ 24600 Rs.11,31,846/- (2) Dow Chemical Pacific Ltd. Hong
Kong - US $ 62640 Rs.28,89,583/- ------------------
2.1 The assessee explained that these components were transported directly to premises of Tata Projects Limited and bill no.667 dated 6/11/2003 and bill no.734 -dated 25/11/2003 totalling to Rs.42,21,000/-were part and parcel of total project cost of Rs.3.51 crores. These components were sold as part of high seas sales to save the time and cost of freight, Custom Duty etc. Since these components were integral part of plant supplied to customer, sale of these cannot be said to be a trading activity and therefore, the assessee is entitled to deduction u/s. 80IB of the Act on income derived from such activity. However, the AO did not accept these submissions and disallowed the claim for deduction u/s 80IB on the profit of Rs.1,99,571, therebeing no manufacturing activity in the transaction of high seas sale of Rs.42,21,000.
3. On appeal, the ld. CIT(A) allowed the claim on the ground that that supply of the aforesaid components was part and parcel of the project of supply of water treatment plant as a whole.
4. The Revenue is now in appeal before us against the aforesaid conclusion of the ld. CIT(A).The learned DR while carrying us through the impugned orders supported the findings of the AO and the ld. AR on behalf of the assessee supported the order of the ld. CIT(A) while relying upon the decision in the case of Mihir Engineers Ltd. vs. JCIT,109 ITD 349(Mumbai).
5. W e have heard both the parties and gone through the facts of the case as also the decision relied upon. As is apparent from the undisputed facts aforesaid, the AO denied deduction u/s 80IB of the Act on the profit earned on high seas sale of imported component to Tata Projects Ltd., treating the same as separate trading transaction
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while the ld. CIT(A) concluded that the said transaction was part and parcel of the project of supply of water treatment plant, costing Rs. 3.51 crores. Undisputedly, the assessee is in the business of manufacture and installation of water treatment plants. In the process of such manufacture & installation, the assessee imported the components as detailed in para 2 above and transported these directly to the premises of Tata Projects Limited, for which bill No.667 dated 6/11/2003 and bill No.734 -dated 25/11/2003 totalling to Rs.42,21,000/- were raised . These bills formed part and parcel of total project cost of Rs.3.51 crore. These components are stated to be part of the over all supply of water treatment plant and without these components, the plant could not be operational. What the assessee assembled and manufactured through assembling was not of the same name which was assigned to the parts. There is no material before us suggesting that the assessee is in the business of trading of components. In the process of manufacture alone, the assessee imported the components and installed the same in order to complete the project of water treatment plant. The deduction under section 80IB of the Act is available to an assessee whose gross total income includes profits and gains derived from an industrial undertaking as stipulated in section 80IB(2) of the Act and the requirement is manufacturing or production of an article or thing, not being any article or thing in the list in the Eleventh schedule. There is no dispute that the assessee is in the business of manufacture and installation of water treatment plants and not in trading of components of such plants. In these circumstances, we are of the opinion that the ld. CIT(A) was justified in accepting the claim of the assessee for deduction u/s 80IB of the Act on supply of water treatment plant worth Rs. 3.51 crores, which included the supply of aforesaid imported components even though these were billed separately and also shown distinctly in the profit and loss account. This view of ours finds support from the decision the Mumbai Bench of the Tribunal in Mihir Engineers Ltd.(supra) wherein while considering a similar claim in the context of supply and installation of cooling towers , the Bench concluded after analyzing various decisions as under:
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" 31. ................The assessee in the present case was not in the business of sale of components of cooling towers, but the cooling tower as a whole, as is evident from the enquiries of the client, Quotations and Performa Invoice raised by the assessee. In the instant case, the assessee purchases various bought out components, which along with manufacturing components are assembled at the client's site and the cooling tower is erected. The ultimate product erected by the assessee was a cooling tower, which was a distinct product from the various components, bought from outside or manufactured by it. The aforesaid activities of the assessee were covered within the definition of manufacture of an 'article' or 'thing'. The assessee had undertaken the job of erecting a cooling tower as per the individual specification of the client, and after erection, the assessee guarantees the performance of the cooling tower as a whole and not that of manufactured items only. All the activities carried on by the assessee fall within the ambit of 'manufacture' or 'production' of an article or thing. The end-product being the cooling tower, the assessee is entitled to claim of deduction under section 80-IA of the Act on the whole including profits on manufactured items and bought out components. As held by Tribunal in Sand Bharat Pedals (India) v. ITO  84 ITD 89 (Chd.), it is not necessary that the assessee should carry out all the manufacturing operations itself in order to be entitled to claim of deduction under section 80-IA of the Act. The situs of assembly of end-product being client's premises does not disentitle the assessee from its claim of deduction under section 80-IA of the Act in respect of bought out components utilized for the erection of the said cooling towers. There is no merit in the contention of the learned DR that excise duty is paid only on manufactured items. The levy of Excise Duty is governed by Excise Laws. There is no merit in denial of exemption under section 80-IA of the IT Act on bought out items as the same are not subjected to Excise Duty. The assessee prepares two different bills, one for excisable manufactures items and other for bought out components, both of which are utilized for the erection of cooling tower. The assessee raises separate bills for transportation, erection and service charges. The profits on sale of the manufactured items and bought out components are eligible for deduction under section 80-IA of the Act.
32. Thus, after considering the entire relevant material and decisions of the various High Courts and Tribunal, we are of the view that the assessee is entitled to the benefit of deduction under section 80-IA of the Act both on the manufactured items and the bought out components, used for the erection of cross flow (XE series) and counter flow (CM series) cooling towers. ..............".
5.1 In the instant case, as already stated, the assessee is , undisputedly, in the business of manufacture and installation of water treatment plants and not in trading of various components. In order to complete a water treatment project costing Rs. 3.51 crores for the Tata Projects Ltd., the assessee imported the components as detailed in para 2 above and in order to save costs, supplied the
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same on high seas to the said company . The said components were part and parcel of the said project of supply of water treatment plant and the plant could not be operational without these components.. In these circumstances and in the light of view taken in the aforesaid decision, especially when Revenue have not referred us to any material, which could enable us to take a different view in the matter, we do not find any merit in the conclusion of the AO, denying deduction on the profits on sale of imported components ,forming an integral part of supply of water treatment plant, under section 80IB of the Act . In view thereof, we are not inclined to interfere with the findings of the ld. CIT(A). Therefore, ground no.1 in the appeal is dismissed.
6. Ground no.2 relates to deduction u/s 80IB on profits under 'work contract sale". During the course of assessment proceedings, the AO noticed that the assessee claimed deduction on profit on sales of equipments to Adani W ilmar Ltd., under work contract. To a query by the AO, the assessee explained that in their line of business of manufacturing of huge water treatment plants, it was impossible to transfer such a huge plant through road transport vehicles. In such a situation, work contract agreement was entered in to ,whereunder execution\performance of work was done at the parties' sites. Under such an agreement, the assessee manufactured equipment at parties' site. Besides, the assessee also received order of carrying out necessary electrification / piping required for installation of water treatment plant manufactured at assessee's premises,for which assessee raised separate bills towards work contract. The aforesaid amount was recognized and shown separately as work contract income, to enable the calculations at the time of WCT assessments. Since the entire income received under work contract was towards manufacture and supply of water treatment plant, relying upon decision in Indochem Engg. System Pvt. Ltd. Vs. D.C.I.T., 60 ITD 649( Pune), the assessee contended that deduction u/s 80IB of the Act, on the income derived from work contract is admissible. Alternatively, the assessee argued that since they earned average net profit @ 15.87% (before depreciation) for the aforesaid
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Kathwada Unit, hence profit on such income worked out to Rs.65,94,185 and therefore, disallowance, if any, can only be made on aforesaid net profit (before depreciation) and not on the entire work contract income/ receipts. However, the AO did not accept the submissions of the assessee and after analyzing various agreements concluded that the assessee is not entitled to deduction u/s. 80IB on profit earned on gross receipts of works contract for an amount of Rs. 4,15,51,261 on account of civil construction at clients premises . Accordingly, applying the net profit rate of 15.80% (before depreciation) in respect of the Kathwada unit, the AO worked out profit of Rs.65,65,099.(4,15,51,261 X 15.80%) and consequently disallowed an amount of Rs.19,69,530 (65,65,099 X 30%).
7. On appeal, the learned CIT(A) while relying upon the decisions in the case of Indocan Engg. System Pvt. Ltd. Vs. D.C.I.T. 60 ITD 649(Pune), Degremont India Limited Vs. DCIT, 60 TTJ 473(Delhi) and Enviro Central Associates vs. ACIT,78 Taxman 214(Ahd.)(Mag.) allowed the claim of the assessee.
8. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. D R while carrying us through the impugned orders supported the findings of the AO and the ld. AR on behalf of the assessee supported the order of the ld. CIT(A) while relying upon the decisions in the case of Mihir Engineers Ltd. vs. JCIT,109 ITD 349(Mumbai), Indocan Engg. System Pvt. Ltd. Vs. D.C.I.T. 60 ITD 649(Pune), Degremont India Limited Vs. DCIT, 60 TTJ 473(Delhi) and Enviro Central Associates vs. ACIT,78 Taxman 214(Ahd.)(Mag.) .
9. We have heard both the parties and gone through the facts of the case as also the decisions relied upon. Undisputed facts on record reveal that the assessee obtained during the course of their business , various work orders on contract basis in the process of manufacturing and commissioning water
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treatment plants. As pointed out by the ld. CIT(A) since the assessee received the orders for execution of turnkey projects, it was impossible to transfer such huge plants through road transport vehicles etc. from its own premises, and the entire work was carried out at the site of the party. The provisions of sec.80IB of the Act nowhere stipulate that all the activities of manufacturing in the industrial undertaking should be undertaken in the premises of the assessee. There is no dispute that the assessee is engaged in the business of manufacturing and installation of water treatment plant, which is an article or thing in terms of provisions of sec. 80IB of the Act. In the process of installation of such water treatment plants, if the assessee entered in to any work contracts for carrying out necessary electrification / piping required for installation of water treatment plant, for which assessee raised separate bills , the receipt thereof would be part of profits of the business of industrial undertaking, entitled to deduction u/s 80IB of the Act. We find that the ld. CIT(A) relied on various decisions ,which have now been cited before us on behalf of the assessee and concluded that the assessee is entitled to deduction u/s. 80IB of the Act .In Degremont India Limited (supra), the Delhi Bench of the Tribunal after considering decision of Ahmedabad Bench in the case of Enviro Central Associates(supra) concluded that assessee is entitled to deduction u/s. 80HH / 80J on the profits of the industrial undertaking, engaged in the business of manufacturing water / air pollution control plant at the site of the customers. The Revenue have neither placed any contrary decision before us nor referred us to any material , controverting the findings of the ld. CIT(A). In these circumstances, we do not find any mistake in the approach of the ld. CIT(A) in accepting the clam of the assessee. Therefore, ground no.2 in the appeal is also dismissed.
10. Ground no.3 being general in nature, does not require any separate adjudication and is, therefore dismissed.
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11. In the result, appeal is dismissed.
Order pronounced in the court today on 18-6-2010
Sd/- Sd/- (D T G AR ASI A) (A N P AHUJ A) JUDICI AL MEMBER ACCOUNTANT MEMBER
Date : 18 -6 -2010
Copy of the order forwarded to:
1. Doshion Limited, Plot No.24 to 26, Phase-I, GIDC, Vatva, Ahmedabad
2. The ITO, W ard-1(3), Ahmedabad
3. CIT concerned
4. CIT(A)-V, Ahmedabad
5. The DR, 'C' ITAT, Ahmedabad
6. Guard File