2013 (9) TMI 1103 - AT - Income Tax

Reopening of assessment - deduction u/s 80IB(4) - Held that - We find that the AO has confirmed that the activities undertaken by the Assessee qualifies to be regarded as manufacture and allowed the claim of the Assessee for A.Y. 2004-05. The principles of consistency would apply and hence it is not open for the Department to question the validity of the allowability of the claim of deduction u/s 80IB(4) for the impugned assessment year by holding that the activities undertaken by the Assessee cannot be regarded as manufacture more particularly when there is no change in the facts and circumstances of the case of the Assessee. This view is supported by the decision of Hon ble Bombay High Court in the case of CIT vs. Gopal Purohit 2010 (1) TMI 7 - BOMBAY HIGH COURT .

Summary

Issues:
- Disallowance of deduction under section 80IB of the Income Tax Act for the assessment year 2006-07.
- Determination of whether the business activity qualifies as manufacturing activities within the ambit of section 80IB.

Analysis:
1. The appeal was filed by the Revenue against the order of CIT(A) for the assessment year 2006-07, challenging the deletion of the addition made by the Assessing Officer under section 80IB of the Income Tax Act amounting to Rs. 46,20,216. The Revenue contended that the assessee's business activity did not fall under manufacturing activities within the scope of section 80IB, thus not entitled to the deduction. The dispute revolved around whether the machining charges claimed by the assessee qualified for the deduction under section 80IB.

2. The Assessing Officer disallowed the deduction claimed under section 80IB based on the nature of the activities carried out by the assessee. It was observed that the assessee received machining charges for machining Spacers and Turbo Machinery components, which were considered as labor charges not derived from the sale of manufactured products. The AO also highlighted that the company's activities were categorized as assembling, processing, job work, and repairing, rather than manufacturing, based on various factors such as the type of raw materials used and the nature of the end products.

3. The matter was appealed to the CIT(A), who allowed the claim by emphasizing that the assessee was engaged in manufacturing machine components like spares, compressor parts, and nozzle rings. The CIT(A) noted that the assessee had been allowed the deduction under section 80IB in previous assessment years without objection from the Department. The principle of consistency was applied, and it was concluded that since the activities were considered as manufacturing previously, there was no valid reason to disallow the claim for the current assessment year. The decision was supported by the jurisdiction High Court's ruling in a similar case.

4. Ultimately, the Tribunal dismissed the Department's appeal, upholding the CIT(A)'s decision to allow the deduction under section 80IB for the assessment year 2006-07. The Tribunal's decision was based on the principle of consistency and the previous acceptance of the deduction in the assessee's case for earlier assessment years. The judgment highlighted the importance of maintaining consistency in tax assessments and adhering to past decisions unless there are substantial changes in the facts and circumstances of the case.