BY TIOL News Service

MUMBAI, AUG 14, 2018: THE issue at hand before the bench is whether deduction u/s 80IB can be claimed on contract manufacturing activity done by another company, where the claimant puts forward no evidence showing control over the contract manufacturer. NO is the answer.

Facts of the case

The assessee company, engaged in manufacturing computers, forged a contract with another entity for manufacture of computers. Although the factory of the other entity is located in another city the assessee claimed that such manufacturing activity was carried out by the other firm under the assessee's supervision & direct control. During the relevant AY, the assessee claimed deduction u/s 80IB on such manufacturing activity carried on by the other entity. On assessment, the AO denied such deduction on grounds that the manufacturing activity being carried out for and on behalf of the assessees, was in fact not being done under its direct supervision & control. On appeal, the CIT(A) upheld the AO's order on grounds that the assessee failed to produce evidence authorizing any director or employee of the assessee company to undertake supervision at the premises of the other entity. Later, the Tribunal too upheld such findings.

On appeal, the High Court held that,

++ the findings recorded by the authorities and by the Tribunal are findings of fact. Neither before the AO nor at the appellate stage, did the assessee adduce any convincing evidence to hold that it had retained its control over the manufacture of electronic computers at the factory premises of M/s. Kobian ECS India Pvt. Ltd. in Silvassa. In fact, the observations in the findings recorded by the AO, CIT(A) show that the assessee could not even produce the primary evidence in the shape of books of accounts, resolutions, even to suggest that it had deployed its manpower at the factory premises of M/s. Kobian ECS India Pvt. Ltd. and had retained the control over the manufacturing activity. The assessee could not produce particulars like attendance register, qualifications of the employees in spite of being asked to do so by the AO. In fact, it appears even the packaging material was supplied to contract manufacturer by the assessee for finished products at Silvassa. All these facts cumulatively leads to hold that the assessee did not retain control over the manufacturing of the electronic computers at the factory premises of M/s. Kobian ECS India Pvt. Ltd. at Silvassa. In the circumstances, we do not find any reason to interfere with the findings recorded by the AO, CIT (A) and the Tribunal. Hence the assessee was not carrying out manufacturing activity of electronic computer products within the meaning of Section 80 IB of the Act.

(See 2018-TIOL-1611-HC-MUM-IT)