Income Tax Deduction to Manufacturing Unit cannot be Disallowed Even If Part of Activities are done Outside Unit: ITAT [Read Order]

The Income Tax Appellate Tribunal ( ITAT ), Mumbai bench has held that the income tax deduction under section 80IB of the Income Tax Act, 1961 cannot be disallowed even if the part of manufacturing activities are being done from outside the unit.

The Assessee, M/s ACE Plastics is into the business of manufacturing of plastic containers, bottles, caps etc., filed return by declaring its income at Rs.39,62,080/- and also claimed deduction under section 80IB of the Income Tax Act, 1961. The AO, while concluding the re-assessment proceedings, disallowed Rs.5,46,724/- out of the total deduction claimed by the assessee under section 80IB of the Act amounting to Rs.13,20,693/-.

On first appeal, the CIT(A) passed an order in favour of the assessee by allowing deduction.

Granting relief to the assessee, Shri Kuldip Singh, Judicial Member upheld the first appellate order and observed that the CIT(A) has passed valid order by taking the view that even if the part of manufacturing activities are being done from outside the unit, the deduction under section 80IB could not be disallowed.

Dismissing the appeal filed by the income tax department, the ITAT held that “This view has also been affirmed by the Hon’ble Bombay High Court in case of Penwalt India Ltd. 196 ITR 813 (Bom.) and CIT vs. Oricon P. Ltd. 151 ITR 296. So merely because of the fact that part of the manufacturing process resulting in N products was carried on by an outside agency the assessee would still be considered as manufacturer. The coordinate Bench of the Tribunal has also taken identical view in case of Sunrise Metal Industries (supra). The Ld. D.R. for the Revenue has failed to bring on record if this settled proposition of law has been overturned by any higher forum.”

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