Vill Bilanwala Labana, Circle, Parwanoo PRG Dharamshala, Baddi Solan PAN No. AAJFK6184C (Appellant) (Respondent) Assessee By : Shri Sudhir Sehgal Revenue By : Shri Manjit Singh Date of hearing : 28/11/2017 Date of Pronouncement : 24/01/2018 ORDER PER DIVA SINGH, J.M. The present appeal has been filed by the assessee assailing the correctness of the order dated 16/01/2017 of CIT(A) Shimla, pertaining to 2012 13 assessment year on the following grounds: 1. That the Worthy Commissioner of Income Tax (A) has erred in confirming the order of the Assessing Officer with regard to disallowance of deduction u/s 80IC on manufacturing of External Hard Disk and External DVD Writer and further enhancing the income of the assessee by disallowing the deduction u/s 80IC, entirely to the tune of Rs. 1,84,64,919/ as claimed by the assessee. 2. That the finding of the Ld. CIT(A) that the activity undertaken with regard to the manufacturing of Laptop and Mouse, External Hard Disc and 'External DVD Writer' do not amount to manufacturing, is not a correct finding and deserves to be quashed. 3. That the finding of the Worthy CIT(A) while disallowing the deduction u/s 80IC is against the facts and circumstances of the case and the submission as made during the course of appellate proceedings have not been considered properly. 2. The relevant facts of the case are that the assessee declared an income of Rs. 18,140 after claiming deduction under section 80 IC. The said return was selected for scrutiny. The assessing officer takes note of the fact that the assessee firm claimed that it was engaged in manufacturing and trading of computer parts and peripherals from village Billanwalau Ibana, PRG Dharmshala. The assessee firm it was noted by him comprised of five partners 1 ITA No. 377/Chd/2017 namely M/s Champion computers Pvt. Ltd. (5% share), Sh. Kapil Wadhwa (25%), Sh. Sanjay Wadhwa (25%), Kapil Wadhwa HUF (15%), Sanjay Wadhwa HUF(15%) and V.P. Wadhwa HUF(15% Share). In the course of the scrutiny proceedings, he required the assessee to explain the manufacturing process of the specific items claimed to have been manufactured by it. In response to the same flow chart of processes reproduced at pages 2 and 3 of the assessment order and details of manufacturing activities set out in pages 4 and 5 of the assessment order were provided. The AO was of the view that the assessee needed to demonstrate that the commodity which was subjected to the process of manufacture could be identified as a different character in name as well as in use i.e; a distinct commodity had come into creation as a result of his manufacturing activity. Reliance was placed upon the decision of Hon'ble Supreme Court in case of Dy. CST vs. Pio Food Packers, (1980) 46 STC 63. 2.1 Accordingly for the reasons set out in para 6 and 6.1 the AO allowed the deduction for the manufacturing of laptops and mouse and rejected the claim of manufacture / production of External DVD Writer and External DVD. 2.2 The assessee carried the issue in appeal before the CIT(A) who considering the submissions advanced concluded that infact there was no manufacturer of any product. He noted that the manufacturing expenses, salary expenses etc. debited in the profit & loss account were negligible. There was no machinery to carry on the manufacturing process. The assessee was accordingly required to justify its claims. After hearing the assessee he held that the AO was justified in denying relief qua the two products and issued an enhancement notice for justifying why even the deduction allowed by the AO not be withdrawn for Laptops and mouse. The specific reason set out in the show cause notice read as under: a. There is no machinery at all in your fixed assets schedule. b. The cost of manufacturing as shown in P&L account includes only purchase cost and cartage inwards cost. c. No expense