2008 (5) TMI 669 - AT - Income Tax

Summary

Issues Involved:
1. Legality of the assessment framed under Section 153A of the IT Act.
2. Denial of claim under Section 80-IB due to the number of workers being less than the required 10.
3. Computation of property income.
4. Consideration of expenditure incurred on furniture and repairs.
5. Levy of interest under Section 234B.
6. Levy of interest under Section 234D.
7. Denial of relief under Section 80-IB by holding that the unit does not perform any manufacturing operations.

Issue-wise Detailed Analysis:

1. Legality of the Assessment Framed under Section 153A of the IT Act:
The appeals for the assessment years 2003-04 and 2004-05 questioned the legality of the assessment framed under Section 153A. The learned CIT(A) did not adjudicate this issue in the case of Metro Thermoformers as it was not pressed before him. The assessee claimed that the notices issued under Section 153A were invalid as no prescribed form was available at the time. This contention was not pressed during the hearing, and the order of the CIT(A) was confirmed.

2. Denial of Claim under Section 80-IB:
The issue of denial of claim under Section 80-IB arose in the cases of Mr. Rajesh Kapila, M/s Metro Thermoformers, Sun Media Technologies, and Microsign Corporation due to the number of workers being less than the required 10. The AO denied the claim based on the attendance register found during a survey and the statement of Mr. Madhukar Misal. The assessee was not granted an opportunity to cross-examine Mr. Misal during the assessment proceedings, but this was remedied at the appeal stage. Mr. Misal clarified that the attendance register only recorded permanent employees, not casual workers. The assessee provided evidence of casual workers, certified by the labor inspector and supported by the auditor's report. The denial of deduction under Section 80-IB based on the attendance register was deemed unjustified.

3. Computation of Property Income:
In the case of Mona Kapila for the assessment year 2004-05 and O.N. Kapila for multiple years, the issue was whether properties used by the firm could be excluded from 'Income from house property' under Section 22 of the IT Act. The CIT(A) followed decisions favoring the assessee and deleted the property income computed under Section 22. The decision of the Karnataka High Court in CIT vs. K.N. Guruswamy was not followed, as the rejection of SLP by the Supreme Court did not affirm the High Court's view. The order of the CIT(A) was confirmed.

4. Consideration of Expenditure Incurred on Furniture and Repairs:
For the assessment years 2003-04 and 2004-05, the issue related to the expenditure on furniture and repairs on a flat belonging to Sri O.N. Kapila. The firm had declared the income, but the AO made a protective assessment, suggesting the income should be assessed in the hands of Sri O.N. Kapila. The CIT(A) confirmed the addition in the firm's hands on a substantive basis, and the Tribunal agreed, directing the AO accordingly.

5. Levy of Interest under Section 234B:
The issue of levy of interest under Section 234B arose in multiple appeals. The assessee argued that no interest under Section 234B was payable based on assessments made under Section 143(1) and that interest should be applied under Section 234B(3) for assessments under Section 153A. The Tribunal agreed, stating that interest under Section 234B is not justified where there was no original assessment under Section 143(1). Consequential relief was directed for the assessment year 2005-06.

6. Levy of Interest under Section 234D:
For the assessment year 2003-04, the issue of levy of interest under Section 234D was contested. The Tribunal confirmed the levy, citing the decision of the Bangalore Bench in Sigma Aldrich Foreign Holding Co. vs. Asstt. CIT, which held that Section 234D is applicable to all regular assessments made after 1st June 2003.

7. Denial of Relief under Section 80-IB:
The denial of relief under Section 80-IB was based on the AO's findings that the eligible unit did not carry out the entire manufacturing operations at Daman, the operations did not amount to manufacturing, and the unit did not employ more than ten workers. The CIT(A) disagreed, concluding that the activities at Daman involved manufacturing and that part of the job done by an outside agency did not disqualify the unit from Section 80-IB benefits. The Tribunal upheld the CIT(A)'s decision, confirming the eligibility for deduction under Section 80-IB.

Conclusion:
The appeals of the Revenue were dismissed, and the appeals of the assessees were partly allowed, confirming the CIT(A)'s decisions on the various issues.