2010 (8) TMI 1016 - AT - Income Tax

Summary

Issues Involved:
1. Whether the assessee was engaged in the manufacture or production of an article or thing.
2. Whether the order u/s 263 by the CIT was justified.

Summary:

Issue 1: Whether the assessee was engaged in the manufacture or production of an article or thing.

The assessee, a company engaged in the business of manufacturing galvanized steel tapes and Cold Rolled (CR) strips, claimed a deduction of 100% of the profits u/s 80IB(3)(4) of the Act for A.Y. 2005-06. The Assessing Officer initially allowed this claim. However, the CIT, exercising powers u/s 263, contended that the assessee was merely engaged in the process of galvanizing steel tapes and CR strips, which did not constitute the manufacture or production of a new article or thing. The CIT argued that the end product retained the original quality, character, and commercial name of the raw material, and thus, the assessee was not entitled to the deduction claimed.

Issue 2: Whether the order u/s 263 by the CIT was justified.

The Tribunal examined the detailed manufacturing process provided by the assessee, which included multiple stages such as pickling, rolling, annealing, slitting, and galvanizing. The Tribunal also considered various judicial pronouncements, including the Supreme Court's decisions in Dy.CST Vs. Pio Food Products, CIT Vs. Budhiraja, and Aspinwall and Co.Ltd. v. CIT, which established that a new and distinct article must emerge from the manufacturing process for it to be considered as such.

The Tribunal found that the assessee's process resulted in a commercially different product with distinct identity and use, thus constituting manufacturing. The Tribunal noted that the raw material (hot rolled coils) and the end product (galvanized steel tapes and CR strips) had different commercial names, uses, and physical properties. The Tribunal concluded that the CIT's view was narrow and that the assessee was indeed engaged in manufacturing an article or thing.

Conclusion:

The Tribunal held that the assessee was engaged in the manufacture of an article or thing and quashed the order u/s 263 by the CIT. The order of the Assessing Officer allowing the deduction u/s 80IB was upheld. The appeal by the assessee was allowed.