2010 (8) TMI 355 - AT - Income Tax

Deduction under section 80IC - leather products - Leather waist belts - process of edge cutting, hole punching, hot pressing embossing and fixing of buckle - Supreme Court in the case of CIT v. Emptee Poly-Yarn (P.) Ltd. 2010 -TMI - 35228 and CIT v. Oracle Software India Ltd. 2010 -TMI - 35190 has held that The duplicating process changes the basic character of a blank CD, dedicating it to a specific use. Without such processing, blank CDs would be unfit for their intended purpose. Therefore, processing of blank CDs would be unfit for their intended purposes. Therefore, processing of blank CDs dedicating them to a specific use, constitutes a manufacture in terms of section 80-IA(12) read with section 33B of the Income-tax Act. Held that The assessee was carrying out the manufacturing activities by producing Leather waist belts from the raw material used as leather strips and buckles by using machinery and man work. The assessee is entitled for deduction under section 80-IC. The appeal of the assessee is allowed on this count.

Summary

Issues:
1. Disallowance of deduction under section 80-IC.
2. Disallowance made on account of sales tax penalty.

Analysis:

Issue 1: Disallowance of deduction under section 80-IC
The appeal concerned the disallowance of deduction under section 80-IC for the assessment year 2006-07. The assessee, a company engaged in manufacturing and sale of leather products, claimed deduction under section 80-IC for setting up a new undertaking in Himachal Pradesh. The Assessing Officer and CIT(A) rejected the claim, stating that the assessee did not provide sufficient evidence of manufacturing activities at the new unit. The Assessing Officer questioned the commencement date of business, while the CIT(A) deemed the activities as mere packing and not manufacturing. The AR of the assessee presented evidence including purchase and sale invoices, machinery details, employee information, and registration certificates to support the claim. The AR argued that the activities undertaken, such as hole punching and embossing, transformed raw materials into a distinct commercial commodity, qualifying as manufacturing. The Tribunal noted that the assessee had the necessary infrastructure and facilities for manufacturing leather belts, concluding that the activities constituted manufacturing under section 80-IC. Citing relevant Supreme Court decisions, the Tribunal allowed the appeal, granting the assessee the deduction under section 80-IC.

Issue 2: Disallowance made on account of sales tax penalty
During the hearing, the AR of the assessee informed that the ground related to the disallowance on account of sales tax penalty was not pressed. The DR did not object, leading the Tribunal to dismiss this ground as not pressed. Consequently, the appeal of the assessee was partly allowed, with the disallowance on sales tax penalty not being pursued further.

In conclusion, the Appellate Tribunal ITAT, Mumbai ruled in favor of the assessee regarding the disallowance of deduction under section 80-IC, recognizing the manufacturing activities carried out by the assessee at the new unit. The Tribunal dismissed the issue of sales tax penalty disallowance as not pressed during the hearing.