2008 (1) TMI 903 - AT - Income Tax

Summary

Issues Involved:
1. Denial of deduction u/s 80-IA of the Income-tax Act.
2. Confirmation of disallowance on account of certain payments towards inflation on purchase price.
3. Re-opening of the assessment for the assessment years 1996-97 and 1997-98.

Summary:

1. Denial of Deduction u/s 80-IA:
The Assessee's claim for deduction u/s 80-IA was denied by the Assessing Officer (AO) on grounds including the absence of a factory at the given address, non-existence of a fumigation chamber, minimal electricity consumption, and the entire produce being sold to a single party. The CIT(Appeals) acknowledged the manufacturing process but upheld the AO's denial based on the aforementioned reasons. The Tribunal, however, found that the Assessee's processes, including drying, fumigation, grinding, sieving, blending, quality control, and packaging, constituted manufacturing activities. It was noted that low electricity consumption was justified due to the nature of the processes. The Tribunal also referenced the case of Elgi Ultra Industries Ltd., where it was held that job work does not disqualify an Assessee from claiming deductions u/s 80-IA. Consequently, the Tribunal directed the AO to allow the deduction for the assessment years 1996-97 and 1997-98 but clarified that the claim for 1998-99 was not pressed.

2. Confirmation of Disallowance on Account of Inflation on Purchase Price:
The AO disallowed certain payments, alleging that the Assessee inflated purchase prices through transactions with unrelated parties. The CIT(Appeals) confirmed these disallowances. The Tribunal, however, found that the transactions were genuine and conducted with unrelated parties who were regular Income-tax assessees. The Tribunal emphasized that commercial expediency should be viewed from the businessman's perspective, not the Department's. Citing the case of Global Motor Service (P.) Ltd., the Tribunal held that the Assessee's business arrangements, including outsourcing certain activities, were legitimate. Therefore, the Tribunal set aside the CIT(Appeals)'s order and deleted the additions made on account of inflated purchase prices.

3. Re-opening of the Assessment:
The re-opening of assessments for the years 1996-97 and 1997-98 was challenged by the Assessee. The Tribunal found that the AO had obtained new material within four years, justifying the re-opening of assessments. Thus, this ground was dismissed.

Conclusion:
The appeals filed by the Assessee were partly allowed, with the Tribunal directing the AO to allow the deduction u/s 80-IA for the assessment years 1996-97 and 1997-98 and deleting the additions made on account of inflated purchase prices. The re-opening of assessments for 1996-97 and 1997-98 was upheld.