2010 (12) TMI 662 - AT - Income Tax

Reopening - Whether reopening of the assessment is bad in law - It is stated that this is the third year of the assessee s business and in the earlier years deduction claimed by the assessee was allowed by the Department itself - The Assessing Officer has reopened the assessment on the basis of the decision of the hon ble Supreme Court, therefore, initiation of proceedings under section 147/148 are not bad in law - In the earlier year the decision of the hon ble Supreme Court in the case of Lucky Minmat P. Ltd. 2000 -TMI - 5818 - SUPREME Court was not available - This decision came after passing the order under section 143(1) and within the time allowed the Assessing Officer issued notice under section 147/148 based on the judgment of the hon ble Supreme Court - Therefore, it cannot be said that reopening of the assessment was bad in law Regarding deduction u/n 80-IB - The hon ble Rajasthan High Court in the case of Arihant Tiles and Marbles P. Ltd. (2007 -TMI - 2290 - HIGH COURT, RAJASTHAN) has examined the issue in depth and found that the decision of Lucky Minmat P. Ltd. (2000 -TMI - 5818 - SUPREME Court) is distinguishable on the facts of that case - Held that conversion of marble blocks into slabs and tiles amounts to manufacture of thing or article within the meaning of section 80-IA/80-IB entitled to claim deduction thereunder - The undertaking of the assessee employed 10 or more workers which carried on the manufacturing process with the aid of power and where the manufacturing activity is carried out with the aid of power, then requirement as per section 80-IB is to employ workers 10 or more. In the case of the assessee there are 15 workers employed. Copies of power bills are also placed in the compilation - Decided in the favour of assessee

Issues Involved:
1. Reopening of the assessment under sections 147/148.
2. Disallowance of deduction under section 80-IB.
3. Deletion of trading addition.
4. Deletion of addition on account of unexplained sundry creditors.
5. Deletion of addition by way of disallowance out of stone cutting expenses.

Issue-wise Detailed Analysis:

1. Reopening of the assessment under sections 147/148:
The assessee challenged the reopening of the assessment by issuing a notice under sections 147/148. The assessee argued that the reasons recorded by the Assessing Officer were illegal and merely a change in opinion. The assessee pointed out that in previous years, the deduction claimed was allowed, and the reopening was based on a change of opinion. The Assessing Officer reopened the assessment based on the Supreme Court's decision in Lucky Minmat P. Ltd. v. CIT and CIT v. Gem India Manufacturing Co., which held that certain activities did not qualify as manufacturing. The tribunal held that the Assessing Officer was justified in reopening the assessment based on the Supreme Court's decision, which was not available in earlier years. Thus, the reopening of the assessment was not considered bad in law, and the cross-objection by the assessee was rejected.

2. Disallowance of deduction under section 80-IB:
The Assessing Officer disallowed the deduction claimed under section 80-IB, relying on the Supreme Court's decisions in Lucky Minmat P. Ltd. and Gem India Manufacturing Co. The assessee argued that the activities of sawing and cutting stone blocks into slabs and tiles amounted to manufacturing, fulfilling the conditions for deduction under section 80-IB. The Commissioner of Income-tax (Appeals) allowed the deduction, considering the decision in Arihant Tiles and Marbles P. Ltd., which held that such activities constituted manufacturing. The tribunal upheld the Commissioner's decision, noting that the facts of the assessee's case were similar to those in Arihant Tiles and Marbles P. Ltd., and all conditions for deduction under section 80-IB were satisfied.

3. Deletion of trading addition:
The Assessing Officer made a trading addition by enhancing the turnover and applying a higher gross profit rate, citing unverifiable turnover and gross profit. The Commissioner of Income-tax (Appeals) deleted the addition, observing that the Assessing Officer did not follow the prescribed procedure under sections 144 and 145 and had no material basis for enhancing the turnover. The tribunal found no infirmity in the Commissioner's decision, noting that the accounts were audited with no defects pointed out, and there was no reason to disturb the declared turnover.

4. Deletion of addition on account of unexplained sundry creditors:
The Assessing Officer added an amount as unexplained sundry creditors, treating it as income from undisclosed sources. The Commissioner of Income-tax (Appeals) deleted the addition, stating that the Assessing Officer did not follow the prescribed procedure. The tribunal upheld the Commissioner's decision, noting that there was no material evidence to treat the sundry credits as ingenuine.

5. Deletion of addition by way of disallowance out of stone cutting expenses:
The Assessing Officer disallowed a percentage of stone cutting expenses without any basis. The Commissioner of Income-tax (Appeals) deleted the disallowance, observing that the Assessing Officer did not follow the prescribed procedure. The tribunal upheld the Commissioner's decision, noting that the disallowance was without any basis.

Conclusion:
The tribunal dismissed both the Department's appeal and the assessee's cross-objection, confirming the actions of the Commissioner of Income-tax (Appeals) in all respects. The order was pronounced in the open court on December 10, 2010.

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