2013 (12) TMI 236 - AT - Income Tax

Deduction u/s 80-IA Held that - The assessee was engaged in the activity of blending, processing and packaging of tea in its small scale industrial undertaking - In order to claim exemption under section 80-IA it is not enough that the unit should fall in the expression industrial undertaking for the purposes of sub-section (1) of section 80-IA alone, rather section 80-IA(1) itself prescribes that the exemption is available to an industrial undertaking, to which this section applies which reflects the import of the fulfilment of condition prescribed in sub-section (2) of section 80-IA - The assessee s activity amounts to processing only and it does not amount to either manufacture or production - The term processing has not been included in section 80-IA on account of clause (iii) of sub-section (2) of section 80-IA - The assessee is not entitled for deduction under section 80-IA Decided in favour of Revenue. Validity of reopening of assessment Held that - There was no fresh material or a rational belief that certain income had escaped assessment on account of allowance of deduction under section 80-IA - The objection taken by the assessee has not been dealt with by the Commissioner of Income-tax (Appeals) in its proper perspective - The revisionary proceedings for the assessment year 2003-04 under section 263 has been initiated by the CIT on November 15, 2006 - The notice under section 148 in the instant assessment year was issued on March 30, 2006. Therefore, the CIT(Appeals) was wrong in his belief that the revisionary proceedings under section 263 by the Commissioner for the assessment year 2003-04 would constitute information for the AO in the instant assessment year The issue was restored for fresh decision.

Summary

Issues Involved:
1. Eligibility for deduction under section 80-IA of the Income-tax Act, 1961.
2. Validity of reopening of assessment under section 147/148 of the Income-tax Act, 1961.

Detailed Analysis:

1. Eligibility for Deduction under Section 80-IA of the Income-tax Act, 1961:

The primary issue in the appeals was the eligibility of the assessee for deduction under section 80-IA of the Income-tax Act, 1961, for the assessment year 1999-00. The assessee, a company engaged in blending, processing, and packaging of tea, claimed a deduction of Rs. 4,51,283 under section 80-IA. The Assessing Officer denied this claim on the grounds that the assessee did not fulfill the condition under section 80-IA(2)(iii) which mandates that the industrial undertaking should "manufacture" or "produce" any article or thing.

The Commissioner of Income-tax (Appeals) allowed the deduction, interpreting that the assessee's activity of processing tea qualified it as an "industrial undertaking" under section 80-IA(12)(b) read with the Explanation to section 33B of the Act. This decision was challenged by the Revenue, arguing that the activity of the assessee did not amount to "manufacture" or "production" as required by section 80-IA(2)(iii).

The Tribunal examined the rival submissions and noted that the activity of blending tea amounted to "processing" but not to "manufacture" or "production," as established by the Supreme Court in CIT v. Tara Agencies [2007] 292 ITR 444 (SC). The Tribunal also distinguished the case from the Special Bench decision in Madhu Jayanti International Ltd. [2012] 18 ITR (Trib) 1 (Kol), which dealt with sections 10A/10B and not section 80-IA.

The Tribunal concluded that although the assessee's activity amounted to "processing," it did not fulfill the condition of "manufacture" or "production" under section 80-IA(2)(iii). Therefore, the assessee was not entitled to the deduction under section 80-IA for the assessment year 1999-00. The order of the Commissioner of Income-tax (Appeals) was reversed, and the Assessing Officer's denial of the deduction was restored.

2. Validity of Reopening of Assessment under Section 147/148 of the Income-tax Act, 1961:

The assessee also challenged the reopening of the assessment under section 147/148 for the assessment year 1999-00. The argument was that the reopening was based on a mere "change of opinion" as the Assessing Officer had already examined the issue in the assessment year 2003-04.

The Commissioner of Income-tax (Appeals) upheld the reopening, noting that the return for the year under consideration was processed under section 143(1) and that the assessment for the year 2003-04 was taken up for revision under section 263 by the Commissioner of Income-tax-II, Kolhapur. This, according to the Commissioner, constituted sufficient information for the Assessing Officer to reopen the assessment.

The Tribunal found that the Commissioner of Income-tax (Appeals) had misdirected himself, as the revisionary proceedings under section 263 for the assessment year 2003-04 were initiated after the issuance of the notice under section 148 for the assessment year 1999-00. The Tribunal set aside the order of the Commissioner of Income-tax (Appeals) on this aspect and remanded the matter back to him to reconsider the objection against the reopening of the assessment.

Other Years and Sections:

The Tribunal applied the same reasoning to the appeals for the assessment years 2000-01 to 2007-08, where the issue was the eligibility for deduction under section 80-IB. The Tribunal held that the conditions for section 80-IA applied similarly to section 80-IB, and thus, the assessee was not entitled to the deduction for these years as well.

Conclusion:

The appeals of the Revenue were allowed, the appeals of the assessee were dismissed, and the cross-objections filed by the assessee were partly allowed for statistical purposes. The decision was pronounced on October 31, 2012.