2012 (7) TMI 699 - AT - Income Tax

Validity of initiation of re-assessment proceedings u/s. 147 - allowance of excess deduction u/s. 80IB(5) - Held that - As the assessment was reopened on noticing that excess deduction to u/s. 80IB(5) was granted to the assessee. This re-opening of assessment is falling under the purview of clause (b) to Explanation 2 to proviso 2 of section 147 and considering the ratio laid down by the tribunal in the case of M/s. Kernex Micro Systems (India) Ltd. 2012 (7) TMI 647 - ITAT HYDERABAD that where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the AO that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return, the AO is entitled to reopen the assessment no infirmity in the order of the CIT(A) - against assessee. Disallowance of deduction claimed u/s. 80IB - AO stated that assessee was not manufacturing any new article or thing as required u/s. 80IB - Held that - When the change or a series of changes lakes one commodity to the point where commercially it can no longer be regarded as the original commodity, but instead is recognized as a new and distinct article, then it can be said that manufacture takes place. In the present case, the assessee had broken the boulders in small pieces, but there is no change in the composition of the boulder. Only the big size had been reduced to small size. So, it cannot be said that breaking of boulders into small pieces of stone is a manufacturing activity - the assessee has not carried on the integrated activity of mining, processing and polishing and it is engaged only mining and crushing into small pieces - against assessee. Dis allowance of claim for grant of TDS - Held that - If the TDS is relating to the assessment year under consideration and AO whenever determines an amount of tax due from the assessee, he should consider the TDS certificate relevant to assessment years under consideration. Accordingly, we direct the Assessing Officer to consider the TDS certificate filed by the assessee relating to these assessment years and give credit for the same - in favour of assessee. Disallowance being employee share of contribution to PF - Held that - As decided in CIT vs. ANZ Information Technology Pvt. Ltd. 2007 (7) TMI 169 - KARNATAKA HIGH COURT that as contribution made towards provident fund belatedly but before the due date of furnishing return of income u/s. 139(1) dis allowance need to be deleted - in favour of assessee. Levy of interest u/s. 234B and 234C - Held that - As Levy of this interest is consequential and mandatory in nature and interest has to be computed by the AO in accordance with law - against assessee.

Summary

Issues Involved:
1. Validity of initiation of re-assessment proceedings under Section 147 of the Income-tax Act, 1961.
2. Disallowance of deduction claimed under Section 80IB of the Income-tax Act, 1961.
3. Claim for TDS credit for Assessment Years 2005-06 and 2007-08.
4. Disallowance of employee share of contribution to PF after the prescribed date but within the financial year.
5. Levy of interest under Sections 234B and 234C of the Income-tax Act, 1961.

Detailed Analysis:

1. Validity of initiation of re-assessment proceedings under Section 147 of the Income-tax Act, 1961:

The assessee's original assessment for AY 2005-06 was completed on 31.12.2007 on a book profit of Rs. 69,41,578. The Assessing Officer (AO) later noticed an excess deduction of Rs. 51,91,951 granted under Section 80IB(5) and issued a notice under Section 148 on 24.3.2009. The assessee argued that all necessary facts were disclosed and the re-assessment was a mere change of opinion. However, the AO rejected this contention, citing new facts from a letter dated 17.11.2008, which indicated that the goods produced were not subject to excise duty. The Tribunal upheld the AO's decision, referencing the case of M/s. Kernex Micro Systems (India) Ltd., and concluded that the re-opening of the assessment was justified under clause (b) to Explanation 2 of Section 147.

2. Disallowance of deduction claimed under Section 80IB of the Income-tax Act, 1961:

The assessee claimed deduction under Section 80IB for profits from manufacturing activities. The AO disallowed the claim, stating that the assessee was not engaged in manufacturing any new article or thing but was merely crushing minerals into smaller pieces. The AO's conclusion was based on the fact that no significant change occurred in the physical or chemical properties of the minerals. The Tribunal upheld the AO's decision, citing various legal precedents, including the Supreme Court's decision in Lucky Minerals Pvt. Ltd. vs. CIT, which held that mere mining and crushing do not constitute manufacturing or production for the purpose of Section 80IB.

3. Claim for TDS credit for Assessment Years 2005-06 and 2007-08:

The assessee sought credit for TDS for AYs 2005-06 and 2007-08. The CIT(A) rejected the claim, stating that it did not arise from the impugned assessment order. The Tribunal disagreed with the CIT(A), directing the AO to consider the TDS certificates and give credit for the same if they relate to the relevant assessment years.

4. Disallowance of employee share of contribution to PF after the prescribed date but within the financial year:

The AO disallowed the PF contributions under Section 36(1)(va) as they were paid after the due date. The Tribunal referred to the Karnataka High Court's decisions in CIT v. Sabari Enterprises and CIT vs. ANZ Information Technology Pvt. Ltd., which allowed such deductions if payments were made before the due date of filing the return under Section 139(1). The Tribunal directed the AO to allow the deductions accordingly.

5. Levy of interest under Sections 234B and 234C of the Income-tax Act, 1961:

The levy of interest under Sections 234B and 234C was deemed consequential and mandatory. The Tribunal directed the AO to compute the interest in accordance with the law.

Conclusion:
The Tribunal upheld the re-assessment proceedings, disallowed the Section 80IB deduction, directed the AO to grant TDS credit, allowed PF contributions paid before the due date of filing the return, and confirmed the mandatory levy of interest under Sections 234B and 234C. The appeals were partly allowed.