Deduction under s 80-IB

Manufacturing of forging involved the purchase of steel, cutting the same, making of forging parts, giving heat treatment and machining. Die making was stated to be the primary process and is a separate industry by itself. The heat treatment is one of the processes through which the forgings are given the desired temperature and then cooled in a different manner, which results in changing the mechanical properties desired by the customers. The process of heat treatment is absolutely essential for rendering them marketable. Without the heat treatment, the material is not fit for the automobile industry. The activity of forging was “manufacturing” within the ambit of s 80-IB. It was immaterial that the assessee was doing the job of forging also for customers and was charging them on job-work basis or on the basis of labour charges. It will still be qualified as carrying eligible business under s 80-IB. Further, manufacturing activity of the type of material being undertaken by the assessee would also generate scrap in the process of manufacturing. The receipts of sale of scrap being part and parcel of the activity and being proximate thereto would also be within the ambit of gains derived from industrial undertaking for the purpose of computing a deduction under s 80-IB.

The activity of forging is “manufacturing” within ambit of s 80-IB, thus income received from job work/labour charges on work done based on material supplied by the customers and scrap sale charges qualifies for deduction under s 80-IB — as held by DelHC in CIT v Sadhu Forging Ltd. — In favour of: The Assessee ; ITA Nos. 167 and 351 of 2011

Decided on: 3 June 2011