Benefit of Deduction can’t be given to an Industry If has No Control over Manufacturing Process: Bombay HC [Read Judgment]

Deduction - Bombay High Court - Taxscan

A division bench of the Bombay High Court has held that the benefit of deduction under section 80-IB of the Income Tax Act, 1961 cannot be given to an industry if it does not have any direct control over the manufacturing at the factory premises.

The appellants are engaged in manufacturing of electronic computers at Daman and entered into an agreement with M/s. Kobian ECS India Pvt. Ltd. for contract manufacturing of its product. The factory of M/s. Kobian ECS India Pvt. Ltd. is located at Silvassa. The Assessing Officer rejected the appellants’ claim for deduction under Section 80 IB of the Act on the ground that the manufacturing activity undertaken by M/s. Kobian ECS India Pvt. Ltd. for and on behalf of the Appellants was not under its direct supervision and control.

The Tribunal also denied the benefit to the assessee.

Relying on the decision in CIT v. Anglo French Drug Co. (Eastern) Ltd, the appellant contended that for claiming deduction under Section 80 IB of the Act, it is not pre-condition that the Assessee must own factory premises or machinery; but only requirement is that manufacturing activity must be undertaken under the supervision and direct control of the assessee.

The bench comprising Justices M.S. Sanklecha and Sandeep K. Shinde noted that during the appellate proceedings, the assessee could not even produce the primary evidence in the shape of books of accounts, resolutions, even to suggest that it had deployed its manpower at the factory premises of M/s. Kobian ECS India Pvt. Ltd. and had retained the control over the manufacturing activity.

“The Appellants could not produce particulars like attendance register, qualifications of the employees in spite of being asked to do so by the Assessing Officer. In fact, it appears even the packaging material was supplied to contract manufacturer by the Appellants-Company for finished products at Silvassa. All these facts cumulatively leads to hold that the Appellants did not retain control over the manufacturing of the electronic computers at the factory premises of M/s. Kobian ECS India Pvt. Ltd. at Silvassa. In the circumstances, we do not find any reason to interfere with the findings recorded by the Assessing Officer, CIT (A) and the Tribunal.”

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