- (1.) Following is the substantial question of law raised by the Revenue seeking admission of this Tax Case (Appeal) relating to the assessment year 2006-07: "Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the disallowance of deduction of Rs.8,84,78,097/- made under Section 80 IC is to be allowed?"
(2.) The assessee is engaged in the business of manufacture and service of communication and networking products, mainly to State Government and Central Government undertakings. It supplied communication device to TNEB and BSNL to the extent of Rs.37.62 crores, out of the total sale of Rs.52.61 crores. In order to comply with the purchase order of Tamil Nadu Electricity Board for decentralization of various collection centres with the administrative network for the whole State, the assessee is stated to have purchased imported PCBs, RAMs, high and low transmission wireless adaptors, wireless antennae components, flash ram software, Red Hat Linux software and other networking components. Using these components, the assessee redesigned, developed and manufactured a single product to suit the requirement of the project. As the end product was a distinct article and a marketable product, the assessee claimed deduction under Section 80 IC of the Income Tax Act. The Assessing Officer viewed that the assessee was only doing assembling work and not manufacture and hence, not eligible for deduction under Section 80IC of the Income Tax Act. Aggrieved by this, the assessee went on appeal before the Commissioner of Income Tax (Appeals).
(3.) It is seen from the order of the Commissioner of Income Tax (Appeals) that the assessee had provisional registration from Himachal Pradesh State Industrial Development Corporation on 22.8.2005 and it started its manufacturing/production activity from a rented premises in Himachal Pradesh. The assessee constructed its own factory in the year 2006 and got permanent registration certificate on 12.12.2008. The first Appellate Authority pointed out that after procuring raw materials and designing the product, on the structured steel panel, an empty chip called E-Prom was fixed at the designated place. Subsequently, based on the requirements of high or low transmission, wireless adaptor was built in on the structured steel panel inside the CPU. A software named Red Hat Linux software specifically developed for the TNEB project was then transferred from the master data to the empty E-Prom chip. This software loaded chip was only allowed to access the frequency with the centralized administration network of the TNEB and other customers, thus emerged as a distinct and different new product to suit the specific requirement of the particular customer. The indigenously designed and manufactured product would not be available in the market to any other person. It is stated that in the course of manufacture, the raw material/inputs used therein underwent several processes and a new commercial product emerged, which was a distinct and separate commodity, having its own character, use and name.;