2012 (1) TMI 232 - AT - Income Tax

Denial of deduction u/s 80-IB - manufacturing - Held that - When the coordinate bench of the Tribunal in the case of Sheetal Diamonds Ltd. (2011 (3) TMI 1044 - ITAT MUMBAI ) has held that cutting and polishing of diamonds amounts to manufacture and deduction should be allowed there is no reason to deny deduction under similar circumstances. As such we overturn the impugned order on this issue and order for the granting of deduction u/s 80-IB in all the years in question.

Summary

Issues: Denial of deduction u/s 80-IB for assessment years 1998-1999, 1999-2000, and 2000-2001.

Analysis:
1. The appeals by the assessee revolve around the denial of deduction u/s 80-IB for the mentioned assessment years. The primary contention is whether cutting and polishing of diamonds, the activity undertaken by the assessee, qualifies as "manufacture" for the purpose of claiming the deduction.

2. The assessee, engaged in diamond manufacturing and export, claimed the deduction u/s 80-IB, which was disallowed by the Assessing Officer. The Tribunal directed the matter back to the A.O. for considering additional evidence supporting the deduction claim. However, the A.O. again rejected the claim in the subsequent proceedings, a decision upheld in the first appeal for all relevant years.

3. The crux of the issue lies in determining whether cutting and polishing of diamonds constitute "manufacture" for eligibility under u/s 80-IB. The assessee relied on a direct decision of the Mumbai Bench of the Tribunal in a related case, Sheetal Diamonds Ltd. Vs. ITO, which allowed deduction u/s 80-IA for similar activities. The Tribunal noted that since cutting and polishing of diamonds were considered as manufacturing in the Sheetal Diamonds Ltd. case, the deduction should be granted to the assessee as well.

4. The Departmental Representative argued that the Tribunal's direction to produce additional evidence was not complied with. However, the assessee contended that the additional evidence was indeed submitted, as indicated by the CIT(A)'s remarks in the order. Given the precedent set by the Sheetal Diamonds Ltd. case, the Tribunal concluded that denying the deduction for cutting and polishing of diamonds under u/s 80-IB was unjustified, overturning the impugned order and allowing the deduction for all relevant years.

5. Consequently, the Tribunal allowed all the appeals, emphasizing the eligibility of the assessee for deduction u/s 80-IB based on the manufacturing activity of cutting and polishing diamonds. The judgment was pronounced on January 25, 2012.