The Commissioner Of Income Tax-1, Chandigarh v. M/S Micro Turners

IN THE HIGH COURT FOR THE STATES OF PUNJAB ANDHARYANA AT CHANDIGARH ITA No.225 of 2011 Date of decision: November 17, 2011. The Commissioner of Income Tax-1, Chandigarh ... Appellant v. M/s Micro Turners ... Respondent(s) CORAM: HON'BLE MR. JUSTICE HEMANT GUPTA HON'BLE MR. JUSTICE G.S. SANDHAWALIA Present:Ms. Urvashi Dugga, Advocate, for the appellant. Shri Ravi Shankar, Advocate for the respondent. Hemant Gupta , J. (Oral): The revenue is in appeal under Section 260-A of the IncomeTax Act, 1961 aggrieved against the order passed by the Income TaxAppellate Tribunal on 18.10.2010 in ITA No.553/Chandi/2010 for theassessment year 2006-07 raising following substantial questions of law:- “1. Whether the learned ITAT was right in law in allowingdeduction under Section 80IC of the Income Tax Act on stocktransfer to sister unit at Gurgaon ignoring the fact that stockhad either been moved in raw or in semi-finished form and thisdoes not constitute manufacturing activity? 2. Whether the learned ITAT was right in law in holding thatthe income from sale of scrap was eligible for deduction undersection 80IC of the Income Tax Act?” The assessee is a manufacturing unit at Parwanoo. The assesseeclaimed deduction under Section 80-IC of the Act to the tune of transfer sales of Rs.2,48,87,941 and scrap sales to the tune of Rs.12,49,436/-. TheAssessing Officer found that the scrap sales and stock transfer to sisterconcern at Gurgaon is not an income derived from manufacturing processand, therefore, not liable to deduction as contemplated under Section 80-ICof the Act. In respect of the first substantial question of law, it was foundby the Tribunal that the Gurgaon unit of the assessee has no manufacturingactivity as such unit does not have any plant and machinery but onlyfacility is of packaging and then transfer of the shaft assembly to MarutiUdyog Limited. It is, thus, concluded that the entire manufacturing processtakes place at Parwanoo unit, therefore, deduction claimed is in respect ofincome derived from manufacturing process. We do not find such finding isin any way erroneous which may give rise to said substantial question oflaw. In respect of second question of law, the Tribunal has reliedupon judgment of the Madras High Court in Fenner (India) Ltd. v. CIT, 241IR 803 (Madras), wherein industrial undertaking was engaged in themanufacturing of V-belts, oil seals, O-rings, rubber moulded products, etc.Certain scrap material resulted from process which has a saleable value.The Hon'ble Madras High Court has held that to say that the scrap materialhas no direct link or nexus with the industrial undertaking, cannot at all beaccepted to commend acceptability on the facts and in the circumstances ofthe case. In the present case, the assessee is engaged in themanufacturing of automobile shafts' accessories. In such process, scrap isgenerated. Such scrap has direct link with the manufacturing process, i.e., manufacturing of shafts is bound to be generated. Therefore, in view of thejudgment of the Madras High Court, with which we respectfully agree, nosubstantial question of law arises for our consideration. Learned counsel for the revenue relied upon another judgmentof Madras High Court in Pandian Chemicals Ltd. v. Commissioner ofIncome Tax, 254 ITR 562. But in the said judgment, a finding was recordedthat there is no detail in respect of scraps, gunny bags for which assesseehas claimed deduction. The judgment in Fenner India's case (supra) isapplicable to the facts of the present case and not the one in PandianChemicals' case. In view thereof, no substantial question of law arises forconsideration of this court. Consequently, the present appeal is dismissed. [ Hemant Gupta ] Judge [ G.S. Sandhawalia ] Judge