Gujarat H.C : Whether the assessee carries on the manufacturing activity on its own behalf or on behalf of others on job work basis, the income derived therefrom, is income from the industrial undertaking

High Court Of Gujarat

CIT Vs. Ambuja Ginning Pressing And Oil Co. (P.) Ltd.

Ms. Harsha Devani And H.B. Antani, JJ.

Tax Appeal No. 987 Of 2009

November 29, 2010

JUDGMENT

Ms. Harsha Devani, J. – In this appeal under section 260A of the Income-tax Act, 1961 (the Act), the appellant-Revenue has proposed the following three questions :

“(A)   Whether the Appellate Tribunal is right in law and on the facts in confirming the order passed by the Commissioner of Income-tax (Appeals) and thereby deleting the addition of Rs.25,00,000 made under section 68 in respect of share capital received by the assessee ?

(B)   Whether the Appellate Tribunal is right in law and on the facts in confirming the order passed by the Commissioner of Income-tax (Appeals) and thereby deleting the addition of Rs. 45,05,000 made under section 68 in respect of deposits received by the assessee from its shareholders ?

(C)   Whether the Appellate Tribunal is right in law and on the facts in confirming the order passed by the Commissioner of Income-tax (Appeals) in holding that the job work receipt of the assessee (net of expenses) are eligible for deduction under section 80-IA of the Act ?”

2. The assessment year is 1998-99 and the relevant accounting period is the financial year 1997-98. The respondent-assessee, a company, who is engaged in the business of ginning and pressing of cotton etc., filed the return of income for the assessment year 1998-99 on November 27, 1998, declaring total income of Rs. 30,16,300. The return was processed under section 143(3) of the Act and was finalized vide assessment order dated March 29, 2001, determining the total income at Rs. 1,13,13,970, making the following additions/disallowances :

  Rs.
(1) Disallowance of claim of deduction under section 80-IA 12,92,668
(2) Fresh share capital treated as undisclosed income under section 68 25,00,000
(3) Loans received by the assessee treated as undisclosed income under section 68 45,05,000

3. The assessee carried the matter in appeal before the Commissioner (Appeals) who deleted the aforesaid additions made on account of undisclosed income under section 68 of the Act and allowed the deduction claimed under section 80-IA of the Act in respect of job work receipts. Against the order of the Commissioner (Appeals), the Revenue preferred an appeal before the Tribunal, who vide the impugned order dated December 31, 2007, confirmed the order made by the Commissioner (Appeals) and dismissed the appeal.

4. Mrs. M. M. Bhatt, learned senior standing counsel appearing for the appellant vehemently assailed the impugned order of the Tribunal submitting that the Assessing Officer had brought sufficient material on record to prove that the creditors for deposits as well as the share application money received from directors/others have not been satisfactorily explained and the source of monies received was either not substantiated or where the statements were recorded by the Assessing Officer, the creditors could not explain the source of cash deposit deposited in their banks. In fact, they claimed to have received money from the assessee-company itself for selling cotton but could not furnish any evidence of sale of cotton or the quantum of income earned by them from agriculture. In relation to allowance of the deduction under section 80-IA of the Act, it was submitted that the assessee is only a supporting service provider doing job work of ginning cotton for others. Hence, it is the owner/real manufacturer who would be entitled to get the benefit of deduction under section 80-IA of the Act and not the assessee who has done only the job works. It was, accordingly, submitted that the impugned order of the Tribunal is erroneous in relation to all the three issues and as such, the appeal requires to be admitted by framing substantial questions of law, as proposed or as may be formulated by the court.

5. In relation to proposed question No. 1 which pertains to addition of Rs.25,00,000 made under section 68 of the Act in respect of share capital received by the assessee, before the Commissioner (Appeals) on behalf of the assessee it was submitted that the Assessing Officer had proceeded on the basis of presumptions. It was pointed out that the amount coming in as share capital from persons other than Shri Vallabhbhai Patel was already lying with the assessee-company in the form of loan. The loans were repaid and the creditors were allotted the share capital on contribution of the requisite amounts. The transactions were bank transactions. The Commissioner (Appeals) upon perusal of the copies of the material stated to be furnished before the Assessing Officer as part of the paper book, noted that Shri Laljibhai Patel, Shri Jinabhai Patel, Shri Mansukhbhai Patel and Shri Jivrajbhai Patel had made the investments from withdrawals out of loan accounts with the company as was apparent from the bank passbooks. Shri Labhubhai and Shri Arjanbhai had received payment from the company against sale of goods which had been reinvested as share capital. It was found that as regards Rs. 10 lakhs invested by the director Shri Vallabhbhai Patel, Rs. 5,60,000 thereof was by way repayment of deposits, whereas Rs.2,41,250 had been received from the assessee-company against the sale of cotton and Rs. 2,00,000 was by way of repayment of loan from one Smt. Bhanumatiben Thakordas, and that all the said transactions were by cheques. On the basis of the aforesaid findings of fact recorded by him, the Commissioner (Appeals) was of the view that the assessee had discharged its primary onus to prove that the amounts received by furnishing evidence in support thereof and accordingly, deleted the addition of Rs. 25,00,000.

6. The Tribunal concurred with the findings of fact recorded by the Commissioner (Appeals) and was of the opinion that the primary onus to prove the identity and creditworthiness of the creditors as well as the genuineness of the transactions had been discharged by the assessee. Thus, both, the Commissioner (Appeals) as well as the Tribunal have based their conclusions on the findings of fact recorded by them upon appreciation of the evidence on record. In the light of the concurrent findings of fact recorded by both the Commissioner (Appeals) as well as the Tribunal, it is not possible to state that the conclusion arrived at by the Tribunal is not reasonable or contrary to the record. On behalf of the Revenue nothing has been pointed out to indicate that the Tribunal has considered any irrelevant material or that relevant material has been ignored. In the circumstances, the decision of the Tribunal being based solely upon concurrent findings of fact recorded after appreciating the evidence on record, the said ground of appeal does not give rise to any substantial question of law so as to warrant interference.

7. In relation to proposed question No. 2 which relates to the addition of Rs. 45,05,000 under section 68 of the Act in respect of deposits received by the assessee from its shareholders, the Commissioner (Appeals) took note of the fact that all the depositors had furnished confirmations, complete particulars of payments like cheque numbers and date, extract of bank passbooks, explanations of credits appearing in the bank passbook and evidence of agricultural income of the depositors and was accordingly of the view that the assessee had discharged its primary burden of proving source of cash credits. According to the Commissioner (Appeals) the Assessing Officer was then required to prove with positive evidence that the information furnished by the assessee is not correct or that the alleged creditors were not available at the addresses given or that they had no means to advance loans to the extent claimed by the assessee. However, no such inquiry was made by the Assessing Officer. It was further noticed that the Assessing Officer had not made any addition on account of bogus purchases in the hands of the assessee and at the same time he had alleged that the sale transactions between the assessee-company and some of the creditors were bogus and fake, which further supported the contention of the assessee that the Assessing Officer had made the addition without appreciating and evaluating the evidence furnished and the explanation given during the course of the assessment proceedings. The Tribunal, in the impugned order, has concurred with the findings recorded by the Commissioner (Appeals) and has found that the assessee had discharged its onus by proving the genuineness and the creditworthiness of the depositors. On behalf of the Revenue nothing has been brought on record to dislodge the concurrent findings of fact recorded by the Tribunal. On the findings of fact recorded by the Tribunal upon appreciation of the evidence on record, it is not possible to state that the view adopted by the Tribunal is in any manner unreasonable or perverse so as to give rise to a question of law.

8. In relation to proposed question No. 3, a perusal of the assessment order indicates that the Assessing Officer appears to be confused about the facts of the case. He has referred to the decisions cited on behalf of the Revenue for the proposition that the deduction under section 80-IA of the Act is admissible on income derived from an industrial undertaking by virtue of manufacture and production. He, then says that the decisions would not be applicable to the facts of the present case as the assessee has got his finished goods manufactured and produced by other concerns and has simply sold such finished goods. Such receipts are not connected with manufacture/production in the assessee’s concern. The Assessing Officer has also reproduced an extract from Chaturvedi and Pithisaria’s Income-tax Law which says that one who makes himself and one who gets a thing made by others, both are manufacturers. He then says that a person who manufactures for others cannot claim that receipts on account of such activity are from manufacture. The confusion is worst confounded when he concludes by saying that the assessee has incurred expenditure on account of job work that is to say, it had got its finished goods manufactured by other parties and was claiming deduction under section 80-IA of the Act on account of sale of such finished goods and as such cannot be permitted to claim the deduction on account of goods related to manufacture by others. Thus, the Assessing Officer has not appreciated the basic fact that it was the assessee who was carrying on the manufacturing process on job work basis for others and not the other way round.

9. As can be seen from the order of the Commissioner (Appeals), before the Commissioner (Appeals) it was pointed out on behalf of the assessee that the deduction claimed in respect of job work charges was in respect of amounts received for doing work for others. The assessee had idle capacity of processing of cotton and manufacturing of cotton and seed oil and oil cake and took work of other parties during the relevant period. It received Rs. 46,91,033 as ginning and processing job work receipts, which was an income and not expenditure. The income was derived from manufacturing work. It was also submitted that the argument of the Assessing Officer that allowing the deduction in the hands of the assessee would lead to allowance of the double deduction in the hands of the principal was misconceived because the amount received by the assessee would be expenditure in the hands of the principal. The Commissioner (Appeals) after appreciating the evidence on record has recorded a finding to the effect that the job work receipt was against the services for which the assessee had incurred expenses and was accordingly of the view that the net income was to be computed after deducting such expenses. The Commissioner (Appeals) was further of the view that the contention of the Assessing Officer that the allowance of the deduction to the assessee would result in double deduction was not supported by the facts, as the receipt was expense in the hands of the principal. The Commissioner (Appeals) was accordingly of the view that as the income was derived from the main activity of the company of ginning and pressing of cotton and manufacturing of cotton seed oil and oil cake, the same was eligible for deduction under section 80-IA of the Act.

10. The Tribunal, in the impugned order, has concurred with the findings recorded by the Commissioner (Appeals) and has held that the job work charges were in connection with rendering services to other parties including manufacturing and processing of cotton seed oil and oil cake. Hence, these were the receipts derived from manufacturing or producing articles and things within the meaning of section 80-IA of the Act.

11. Under section 80-IA of the Act, deduction is allowed in computing taxable income in respect of profits and gains derived from an industrial undertaking which fulfils the conditions laid down under sub-section (2) thereof. There is no dispute as regards the fact that the assessee is an industrial undertaking which otherwise fulfils the conditions laid down in sub-section (2) of section 80-IA of the Act. The only dispute is as to whether the assessee is entitled to deductions in relation to the manufacturing activities carried out by it by way of job work for other manufacturers. On a plain reading of the provisions of section 80-IA of the Act, it is apparent that the same lays down that an assessee whose gross total income includes profits and gains derived from any business of an industrial undertaking to which the section applies, shall, while computing the total income of the assessee be allowed a deduction as laid down under the said provision. In the facts of the present case, the assessee carries on the activity of processing of cotton and manufacturing cotton seed oil and oil cakes. The assessee in the year under consideration, inter alia, carried on such manufacturing activities by way of job work for other manufacturers. It, therefore, cannot be said that the job work done by the assessee on account of others was not a manufacturing activity carried out by the industrial undertaking. Consequently it cannot be said that the income derived therefrom was not income derived from the industrial undertaking. Whether the assessee carries on the manufacturing activity on its own behalf or on behalf of others on job work basis, the income derived therefrom, is income from the industrial undertaking and therefore would be entitled to allowance of deduction under section 80-IA of the Act. In the circumstances, it is not possible to state that the Tribunal has committed any legal error in holding that the assessee is entitled to deduction under section 80-IA of the Act in relation to the job work receipts, so as to warrant interference.

12. In the light of the aforesaid, it is not possible to state that the impugned order of the Tribunal suffers from any legal infirmity so as to warrant interference. In the absence of any question of law, much less, a substantial question of law, the appeal is dismissed.

[Citation : 332 ITR 434]

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