2010 (9) TMI 548 - AT - Income Tax

Deduction u/s 80-IB - Scrutiny - The term manufacture or produce in section 80IB of the Act can be considered only when a commercially new and distinct product comes into existence after undergoing manufacturing activities - If the intension of the Legislature is to include processing also to claim exemption under section 80IB of the Act, the condition precedent for granting exemption under this section, the words manufacturing or processing would have been used instead of manufacture or produce - After purchase of the grain it is processed by various treatments which are acid treatment, pre-cleaning, grading, needle separator, laboratory testing, poison treatment and packing and labeling - Hence, the order of the CIT A is reversed and that of the assessing officer is restored - Decided against the assessee Regarding interest u/s 234A - The learned CIT (A) erred in holding that interest u/s 234A is leviable particularly when the assessee filed the return of income within the time allowed under section 139(1) of the I T Act Regarding reassessment - The provisions of section 147 clearly empower the assessing officer to initiate reassessment proceedings and the notice issued under section 148 was within four years from the end of the assessment year involved - Decided against the assessee

Issues Involved:
1. Eligibility for deduction under section 80-IB of the Income Tax Act.
2. Validity of the notice issued under section 148 of the Income Tax Act.
3. Deduction of interest income from UTI bonds under section 80-IB.
4. Levy of interest under sections 234A and 234B of the Income Tax Act.

Detailed Analysis:

1. Eligibility for Deduction under Section 80-IB:
Summary of the Revenue's Appeal (ITA No.361/Hyd/06):
The revenue challenged the CIT (A)'s decision to allow the assessee's claim for deduction under section 80-IB. The assessing officer had disallowed this deduction on the grounds that the assessee's activities did not constitute "manufacturing." The process described involved purchasing raw seeds, treating them, and then selling the treated seeds. The assessing officer argued that no new product was created; the seeds remained seeds, albeit treated. The CIT (A) had allowed the deduction, stating that the treated seeds were unfit for human consumption and were used for reproduction, thus constituting a new product.

Tribunal's Decision:
The Tribunal agreed with the assessing officer, stating that the process undertaken by the assessee did not result in a new product with a distinct identity. The input and output remained seeds, and the activities performed were merely to increase the shelf life of the seeds. Therefore, the assessee was not eligible for the deduction under section 80-IB. The Tribunal reversed the CIT (A)'s order and restored the assessing officer's decision.

2. Validity of the Notice Issued under Section 148:
Summary of the Assessee's Appeal (ITA No.293/Hyd/06):
The assessee contested the validity of the notice issued under section 148, arguing that it was not legally valid. The return filed by the assessee was processed under section 143(1), and the notice under section 148 was issued after recording reasons.

Tribunal's Decision:
The Tribunal found that the notice under section 148 was issued within four years from the end of the assessment year, as allowed by the provisions of section 147. Therefore, the Tribunal upheld the validity of the notice and rejected the assessee's claim.

3. Deduction of Interest Income from UTI Bonds under Section 80-IB:
Summary of the Assessee's Appeal (ITA No.293/Hyd/06):
The assessee argued that the interest income from UTI bonds, which was used to provide discounts to dealers, should be eligible for deduction under section 80-IB. The CIT (A) had held that this interest income was not eligible for the deduction.

Tribunal's Decision:
Since the Tribunal had already determined that the assessee was not eligible for deduction under section 80-IB for its primary activities, this ground became infructuous and was dismissed.

4. Levy of Interest under Sections 234A and 234B:
Summary of the Assessee's Appeal (ITA No.293/Hyd/06):
The assessee contested the levy of interest under sections 234A and 234B, arguing that the return was filed within the time allowed under section 139(1).

Tribunal's Decision:
The Tribunal found these grounds to be merely consequential and rejected them accordingly.

Conclusion:
The Tribunal allowed all the revenue's appeals and dismissed the assessee's appeal. The primary issue was the eligibility for deduction under section 80-IB, which was denied on the grounds that the assessee's activities did not constitute manufacturing. The notice under section 148 was deemed valid, and the interest income from UTI bonds was not eligible for deduction under section 80-IB. The levy of interest under sections 234A and 234B was upheld.

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