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Issues Involved:
1. Eligibility for deduction under section 80-IB of the Income Tax Act. 2. Nature of the assessee company's business activity (manufacturing vs. trading/installation). 3. Interpretation of 'manufacture' and 'production' under the Income Tax Act. Issue-wise Detailed Analysis: 1. Eligibility for Deduction under Section 80-IB: The primary issue concerns the assessee company's eligibility for deduction under section 80-IB of the Income Tax Act for the assessment year 2003-04. The assessee company, engaged in the business of buying, selling, assembling, and servicing wireless communication equipment, claimed that its unit was a Small Scale Industrial (SSI) unit eligible for such deduction. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] denied this claim, leading to the appeal. 2. Nature of Business Activity: The AO and CIT(A) concluded that the assessee company's activities did not constitute 'manufacturing' or 'production' as required for the deduction under section 80-IB. They argued that the company's activities were limited to the assembly and installation of components, which did not transform the components into a new product. The assessee contended that their activities involved significant engineering and integration processes that resulted in a new product distinct from its components. 3. Interpretation of 'Manufacture' and 'Production': The tribunal examined various judicial pronouncements to interpret the terms 'manufacture' and 'production.' The assessee argued that the absence of a definition in the Income Tax Act should lead to a broader interpretation of these terms, favoring the taxpayer. The tribunal considered several cases, including CIT vs. Shri Mahesh Chandra Sharma, CIT vs. Punjab Wireless System Limited, and Arihant Tiles and Marbles P. Ltd. vs. ITO, which supported the view that transformation of goods into a new commodity qualifies as manufacturing. Tribunal's Findings: The tribunal analyzed the facts and judicial precedents extensively. It noted that the assessee's activities involved substantial engineering and integration processes, resulting in a new product with a distinct character and use. The tribunal was convinced by a demonstration conducted by the assessee, showing how various components were integrated into a new product. Conclusion: The tribunal concluded that the assessee's activities constituted 'manufacturing' under section 80-IB. It directed the AO to allow the deduction claimed by the assessee. The tribunal's decision was based on a detailed consideration of the facts, judicial interpretations, and a practical demonstration of the manufacturing process. Appreciation: The tribunal expressed sincere appreciation for the efforts of the assessee's Authorized Representative (AR) in demonstrating the manufacturing process, which significantly influenced their decision. Outcome: The appeal was allowed, and the assessee was granted the deduction under section 80-IB of the Income Tax Act. Pronouncement: The judgment was pronounced in the open court on 10.7.2009.
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