Income-tax Appeal No.468 of 2010 -1- *** IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Income-tax Appeal No.468 of 2010 Date of decision: 27.9.2010 Commissioner of Income-Tax-I, Ludhiana ...Petitioner Versus M/s Vallabh Yarns (P) Ltd., Ludhiana ...Respondent CORAM: HON'BLE MR.JUSTICE ADARSH KUMAR GOEL HON'BLE MR.JUSTICE AJAY KUMAR MITTAL Present: Mr. Rajesh Katoch, Advocate for the petitioner. **** AJAY KUMAR MITTAL, J. 1. The revenue has preferred this appeal under Section 260A of the Income Tax Act, 1961 (for short “the Act”) against the order passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'A' Chandigarh, (in short “the Tribunal”) in ITA No.226/Chd/2009, for the assessment year 2004-05 claiming that the following substantial questions of law arise in this appeal:- “(i). Whether on the facts and in law, the Hon'ble Income Tax Appellate was justified in holding that the CIT has exceeded his jurisdiction which is not permissible under the provisions of the Act, ignoring the fact that the order of the Assessing Officer passed u/s 143(3) on 15.12.2006 was erroneous in so far as it was Income-tax Appeal No.468 of 2010 -2- *** prejudicial to the interest of revenue? (ii). Whether on the facts and in law, the Hon'ble Income Tax Appellate Tribunal was justified in observing that the income earned on job work basis amounts to manufacturing ignoring the fact that the income earned on account of fabrication has no nexus with the business of industrial undertaking of the assessee company? (iii). Whether on the facts and in law, the Hon'ble Income Tax Appellate Tribunal was justified in observing that the assessment was framed with due application of mind whereas the Assessing Officer has nowhere discussed the issue under consideration in the assessment order? (iv). Whether on the facts and in law, the Hon'ble Income Tax Appellate Tribunal was justified in viewing that the expenditure incurred on repair which included the cost to be replaced against which insurance was claimed, the only excess amount, if any, can only be disallowed ignoring the fact that the insurance claim receipts has no nexus with the business of industrial undertaking and is not eligible for deduction u/s 80IB? (v) Whether on the facts and in law, the Hon'ble Income Tax Appellate Tribunal was justified in the assessee's case restricting its decision to the justification of the jurisdiction assumed u/s 263 of the Act and not deciding the issue on merits of the case? Income-tax Appeal No.468 of 2010 -3- *** 2. Briefly stated, the fact of the case are that the respondent-assessee-company derives income from manufacturing and sale of finished knitted fabrics and readymade garments. The assessee filed return of income for the assessment year 2004-05 on 21.10.2004 disclosing taxable income of Rs.34,57,734/-. The return was processed under Section 143(1) of the Act on 14.1.2005. The assessment under Section 143 (3) of the Act was finalised on 15.12.2006 at income of RS.36,43,252/-. The Assessing Officer had allowed the deductions under Section 80IB of the Act to the assessee and disallowed deduction on receipts of lease rent on machinery and interest income. 3. The Commissioner of Income Tax-I, Ludhiana (for short “the CIT”) in exercise of powers under Section 263 of the Act came to the conclusion that the assessee was not entitled to deduction under Section 801B on the following amounts:- “(i) Fabrication charges Rs. 2,98,25,810/- (ii) Insurance claim Rs. 1,01,129/- Rs. 2,99,27,739/- Accordingly, the CIT while invoking the powers under Section 263 of the Act concluded that order of the Assessing Officer was erroneous and prejudicial to the interest of revenue. The CIT disallowed the fabrication charges on the ground that the assessee had done the job work for others and was, thus, not entitled to deduction under Section 80IB of the Act. The insurance claim was also held not to be admissible for deduction under Section 80IB as the same had no nexus with the business of industrial undertaking. Income-tax Appeal No.468 of 2010 -4- *** 4. The respondent-assessee being aggrieved against the order of CIT passed under Section 263 of the Act invoked the appellate jurisdiction of the Tribunal. The Tribunal allowed the appeal of the assessee observing that fabrication charges on account of job work done by the assessee for others amounted to manufacturing and also that the assessee had not received any real income on account of insurance claim which could be disallowed. The Tribunal, thus, concluded that the order of the CIT passed under Section 263 of the Act was unsustainable as the assessment order dated 15.12.2006 passed by the Assessing Officer was neither erroneous nor prejudicial to the interest of revenue. 5. The Revenue being aggrieved against the order of Tribunal preferred the present appeal. 6. The issue for consideration in this appeal is whether the order passed by the CIT under Section 263 of the Act was justified or not. In order to arrive at the said conclusion, it would be worthwhile to delve on the merits of the issue as well. 7. As noticed earlier, CIT had exercised revisional jurisdiction in respect of fabrication charges on account of job work done for others and insurance claim. 8. Learned counsel for the revenue could not point out any error in the order of the Tribunal whereby the fabrication charges received by the assessee on account of job work done for others was held to be on account of business of industrial undertaking of the assessee, more particularly in view of the decision of this Court dated 5.12.2008 in ITA No.543 of 2008 (The Commissioner of Income-tax Appeal No.468 of 2010 -5- *** Income tax I, Ludhiana Vs. M/s Impel Forge and Allied Industries Limited, Ludhiana) reported in (2010) 326 ITR 27 (P&H). 9. Further the Tribunal while allowing the appeal of the assessee regarding insurance claim in para 5 of the order had recorded the following finding:- “On the issue of insurance charges, it was explained by the assessee that there was some damage to the machinery and insurance was given to the assessee company as repair expenses. It was contended that even the insurance charges are denied still no prejudice is caused because still there is negative figure if the impugned amount is denied because ultimately nothing is to be disallowed. We are of the view, that the expenditure incurred on repair which included the cost to be replaced against which insurance was claimed, the only excess income, if any, can only be disallowed and if there is any real income from insurance company, can only be disallowed. For this proposition, the assessee is fortified by the decision in the case of CIT Vs. G.K.Steel Tubes Pvt. Ltd. (2005) 27 IT Rep 349 (P&H). Even otherwise, in principle, the learned CIT itself agrees that assessee is doing the activity of manufacturing. The learned CIT, on the other hand, itself denied the deduction under section 80 IB and did not ask the Assessing Officer to reexamine the claim of the assessee. Such an order cannot be sustained. In view of these facts, this appeal of the Income-tax Appeal No.468 of 2010 -6- *** assessee is allowed. 10. The Tribunal had recorded that expenditure incurred on repair which included the cost to be replaced against which insurance was claimed, the only excess income, if any, can be disallowed. In other words, on facts, the Tribunal came to the conclusion that assessee had not received any real income on account of insurance claim which could be disallowed. The said finding has not been shown to be erroneous or perverse which may warrant interference by this Court. Accordingly, no substantial question of law arises in this appeal which requires consideration by this Court. 11. The appeal is consequently dismissed. (Ajay Kumar Mittal) Judge September 27, 2010 (Adarsh Kumar Goel) Pka Judge