2013 (6) TMI 878 - AT - Income Tax

Summary

Issues Involved:

1. Disallowance of deduction u/s 10B on sales to SEZ units received in Indian Rupees.
2. Eligibility of deduction u/s 10B for the manufacture of Copper Cladded Glass Epoxy Laminates (CCGL).
3. Reopening of assessment u/s 147 beyond four years.

Summary:

Issue 1: Disallowance of deduction u/s 10B on sales to SEZ units received in Indian Rupees

The assessee, a 100% Export Oriented Unit (EOU) engaged in manufacturing and trading of Printed Circuit Boards (PCB), claimed deduction u/s 10B for sales worth Rs. 15,37,683/- to another SEZ unit. The Assessing Officer (AO) disallowed the deduction since the sales were made to an SEZ unit in India and the proceeds were received in Indian Rupees. This disallowance was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The ITAT, following a precedent in the assessee's own case, dismissed the assessee's ground, holding that the assessee had not brought convertible foreign exchange into India, hence not entitled to exemption u/s 10B.

Issue 2: Eligibility of deduction u/s 10B for the manufacture of CCGL

The AO disallowed the deduction u/s 10B for the export of CCGL, asserting that the assessee was not engaged in manufacturing but merely processing the raw material. The CIT(A) upheld this view. The ITAT noted that the AO and CIT(A) concluded the activities performed by the assessee (cutting, shearing, de-oxidation) did not result in manufacturing a new product. The ITAT restored the issue to the AO to examine the exact position of the Excise Department regarding CCGL export, requiring a detailed factual analysis to determine if the process constituted manufacturing.

Issue 3: Reopening of assessment u/s 147 beyond four years

For A.Y. 2004-05, the AO reopened the assessment based on new information from a survey conducted u/s 133A, revealing the assessee was selling raw materials without manufacturing. The ITAT upheld the reopening, stating it was based on tangible material indicating income had escaped assessment due to the assessee's failure to disclose all material facts. Similarly, for A.Y. 2005-06 and 2006-07, the ITAT affirmed the reopening of assessments, noting it was justified by incriminating material found during the survey, and not merely a change of opinion.

Conclusion:

The ITAT dismissed the assessee's grounds regarding the disallowance of deduction u/s 10B on sales to SEZ units received in Indian Rupees. The issue of deduction u/s 10B for the manufacture of CCGL was restored to the AO for further examination. The reopening of assessments u/s 147 was upheld for A.Y. 2004-05, 2005-06, and 2006-07 based on new material from the survey. All appeals were partly allowed for statistical purposes.