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2016 (8) TMI 1518 - AT - Income TaxValidity of reopening of assessment - claim u/s.10B was disallowed - main contention of the ld.A.R that the reopening is invalid cannot be accepted because there was no scrutiny assessment earlier for this assessment year and also there is no failure on the part of the assessee to disclose the material facts - A.R pleaded that the re-opening of assessment is without jurisdiction and that fresh application of mind by the AO on similar facts would tantamount to review of own decision and that the amended section u/s.147 does not authorize it - HELD THAT - AO had jurisdiction to issue notice u/s.148 for bringing to tax income escaping assessment in an intimation under sec.143(1)(a) on the ground that the claim of deduction by the assessee was not acceptable as the conditions for allowance not fulfilled. Failure to take steps u/s.143(3) of the Act will not render the AO powerless to initiate reassessment proceedings when intimation u/s.143(1) has been issued. Being so, we do not find any infirmity in the reopening of assessment for the A.Y. 2006-07. This ground of appeal of the assessee is dismissed. Deduction u/s.10B - manufacturing activities under section 2(29BA) - as assessee has not discharged the onus of proving that the undertaking was set up without transferring any machinery used for any other purpose earlier Revenue has denied the deduction claimed u/s.10B - HELD THAT - Assessee-company has not undertaken any manufacturing activity. The assessee has not manufactured any new article or thing distinct from the original raw material. The final product i.e., article or thing cannot be called by any other name than the original name. The assessee has purchased live crab and finally sold the crab in the form of meat. The assessee does only processing activity for the purpose of preservation and marketing the same. The assessee purchased crab from fishermen and sells to the public/customers. Whatever activity is undertaken by the assessee is for only to preserve the product. Whereas the contention of the ld.A.R is that at the time of purchase from the fishermen/agents, it was live crab and it was undergone various manufacturing activities before selling it for human consumption. After purchase of the live crab it is processed by various treatments which are cleaning, grading, separating, laboratory testing, preserving treatment and packing and labeling. After these treatments, the crab becomes a consumable crab for human consumption. There is no change in the biological component of the crab. It is to be noted that the live crab would have been used in the same manner as the crab meat is used for human consumption. There is no change in the substance using in live crab or using it as by extracting it as meat from the same live crab. The crab meat is crab meat only - live crab would be used for human consumption as crab meat used for human consumption. In other words, input and output is same, which is crab only. It is well settled law that process of standardization, preservation, grading cannot be treated as manufacture activity or production. No merit in the argument of the ld.A.R that in earlier assessment year deduction u/s.10B was granted, even in the assessment year under consideration, the same view must be adopted - assessee can be allowed deduction, but the satisfaction of the conditions envisaged in the law could not be said that it was fulfilled merely because it was erroneously allowed deduction in the earlier years. It is a settled position that res judicata is not applicable in the administration of tax laws. No vested right can be held to be created in favour of the assessee merely because of allowance or deduction in the earlier years which is not legally entitled to. In view of the above, we upheld the order of Ld.CIT(A) on denying the deduction u/s.10B Similarly, alternate claim u/s.80IB(11A) of the Act has no merit.- Decided against assessee.
Issues Involved:
1. Validity of reopening of assessment. 2. Whether the assessee is engaged in the business of manufacture or production of an article or thing. 3. Fulfillment of conditions laid down in section 10B(2)(ii) & (iii) of the Income Tax Act to claim deduction u/s.10B. 4. Direction to reopen the concluded assessments for previous years. Detailed Analysis: 1. Validity of Reopening of Assessment: The first issue pertains to the validity of reopening the assessment after the assessee disclosed all details with the return of income, arguing that the AO did not find any fresh information to justify reopening. The AO reopened the assessment for A.Y. 2006-07 based on findings from the A.Y. 2008-09, where the claim u/s.10B was disallowed due to non-fulfillment of conditions in sec.10B(2)(i) and 10B(2)(iii). The CIT(A) upheld the reopening, stating that there was no scrutiny assessment earlier and that the AO had correctly recorded reasons for believing there was escapement of income. The Tribunal agreed with the CIT(A), citing the Supreme Court judgment in ACIT v. Rajesh Jhaveri Stock Brokers P. Ltd. (291 ITR 500), which allows the AO to issue notice u/s.148 for income escaping assessment in an intimation under sec.143(1). Thus, the reopening of the assessment for A.Y. 2006-07 was deemed valid. 2. Whether the Assessee is Engaged in the Business of Manufacture or Production of an Article or Thing: The second issue is whether the assessee's activities qualify as manufacturing or production under sec.10B. The assessee argued that their process of extracting meat from live crabs constitutes manufacturing. The CIT(A) and AO disagreed, stating that the activities did not result in a new article or thing, and thus did not qualify as manufacturing. The Tribunal upheld this view, emphasizing that the process did not change the original identity of the commodity and thus did not constitute manufacturing. The Tribunal referred to various judgments, including the Special Bench decision in B.G. CHITALE v. DCIT, which held that pasteurization of milk is processing, not manufacturing. The Tribunal concluded that the assessee's activities were processing, not manufacturing, and thus did not qualify for deduction u/s.10B. 3. Fulfillment of Conditions Laid Down in Section 10B(2)(ii) & (iii) of the Income Tax Act to Claim Deduction u/s.10B: The third issue involves whether the assessee fulfilled conditions in sec.10B(2)(ii) & (iii), specifically whether the undertaking was formed by splitting up or reconstruction of a business already in existence and whether it was formed by transfer of used machinery. The CIT(A) and AO found that the assessee purchased machinery from M/s. Baby Marine Exports, which was previously used, and thus did not meet the conditions. The Tribunal supported this finding, noting that the assessee could not produce invoices to prove the machinery was new and that the onus of proof was on the assessee. The Tribunal concluded that the assessee did not meet the conditions for deduction u/s.10B. 4. Direction to Reopen the Concluded Assessments for Previous Years: The final issue is the CIT(A)'s direction to reopen assessments for A.Y. 2003-04, 2004-05, and 2007-08. The Tribunal found that the CIT(A) exceeded their jurisdiction by directing the reopening of concluded assessments for years not under appeal. Thus, the Tribunal vacated this part of the CIT(A)'s order. Conclusion: The appeals for A.Y. 2005-06 and 2006-07 were partly allowed, affirming the validity of reopening the assessment and denying the deduction u/s.10B. The appeals for A.Y. 2008-09, 2009-10, 2010-11, and 2011-12 were dismissed, upholding the denial of deduction u/s.10B. The direction to reopen assessments for A.Y. 2003-04, 2004-05, and 2007-08 was vacated.
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