2009 (1) TMI 863 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement to deduction u/s 10B.
2. Disallowance u/s 40(a)(i).

Summary:

1. Entitlement to Deduction u/s 10B:
The assessee's appeal against the order of the CIT(A) confirming the Assessing Officer's (AO) decision to deny deduction u/s 10B was considered. The AO denied the deduction on three grounds: failure to seek fresh permission from the Ministry of Industry after a change in the company's name, the nature of the business being assembly rather than manufacturing, and domestic sales contravening the 100% EOU conditions.

The CIT(A) upheld the AO's decision, stating that the assessee's activities did not amount to manufacturing or production of articles or things as envisaged u/s 10B. The CIT(A) also noted that since the deduction u/s 10B was not allowable, the issue of seeking fresh permission was irrelevant.

The Tribunal, however, found that the assessee's processes involved significant transformation of raw materials into a new product, thus qualifying as manufacturing. It was noted that the change in the company's name did not alter the shareholding or ownership, and hence, did not constitute reconstruction of business. The Tribunal also held that the minor domestic sales did not disqualify the unit from being a 100% EOU, and the deduction should be computed as per section 10B(4). Consequently, the Tribunal allowed the deduction u/s 10B.

2. Disallowance u/s 40(a)(i):
The AO disallowed certain purchases amounting to Rs. 52,26,962/- u/s 40(a)(i) for non-deduction of TDS. The CIT(A) upheld this disallowance, relying on a decision by the Authority for Advance Rulings.

The Tribunal, however, found no specific provision requiring TDS deduction for the purchases in question. It was established that the purchases were genuine and no TDS was required. Therefore, the disallowance u/s 40(a)(i) was deleted.

Conclusion:
Both appeals were allowed, granting the assessee entitlement to deduction u/s 10B and deleting the disallowance u/s 40(a)(i). The judgment was pronounced in open court on 30.01.2009.