2010 (11) TMI 961 - AT - Income Tax

Summary

Issues Involved:
1. Deduction u/s 80IA of the Income Tax Act, 1961.
2. Disallowance of freight and octroi expenses.
3. Addition due to difference in conversion charges.
4. Addition due to suppressed conversion charges on account of excess burning loss.

Summary:

Issue 1: Deduction u/s 80IA of the Income Tax Act, 1961
The Tribunal addressed the issue of deduction u/s 80IA for Assessment Year 2002-03. The Assessing Officer (AO) disallowed the claim on several grounds, including non-payment of sales tax, lack of finished goods, and non-furnishing of the Audit Report in Form 10CCB. The CIT(A) reversed the AO's decision, citing various case laws and concluding that the job-work activity constituted manufacturing. The Tribunal upheld the CIT(A)'s decision, noting that the Audit Report was filed before the completion of the assessment, thus fulfilling the requisite condition.

Issue 2: Disallowance of Freight and Octroi Expenses
For Assessment Year 2002-03, the AO disallowed freight and octroi expenses, arguing that these should be borne by the holding company. The CIT(A) examined the nature of the expenses and found the disallowance unfounded. The Tribunal upheld the CIT(A)'s decision, referencing a similar ruling for Assessment Year 2003-04, where it was established that the expenses were incurred on consumables and stores materials.

Issue 3: Addition Due to Difference in Conversion Charges
The AO added Rs. 4,34,824/- due to a discrepancy between the conversion charges paid and those recorded in the Profit & Loss account. The CIT(A) found that the amount was included in the fitting and heat treatment charges and thus deleted the addition. The Tribunal, referencing a similar case for Assessment Year 2003-04, restored the issue to the AO for fresh adjudication, emphasizing the need for verification of connected accounts.

Issue 4: Addition Due to Suppressed Conversion Charges on Account of Excess Burning Loss
The AO added an amount due to a higher average burning loss of 10.92%, which he deemed excessive. The CIT(A) reversed this finding. The Tribunal, following a precedent set for Assessment Year 2003-04, restored the matter to the AO for re-examination, requiring comprehensive data on industry standards and historical loss rates.

Assessment Year 2004-05:
For this year, the Tribunal followed the decisions made for Assessment Year 2002-03. The issues of freight and octroi expenses and suppressed conversion charges were addressed similarly, with the former being dismissed and the latter restored for fresh adjudication.

Conclusion:
Both appeals of the Revenue were partly allowed, with specific issues restored to the AO for further examination. The order was signed, dated, and pronounced in the Court on 19/11/2010.