2008 (8) TMI 1025 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of deduction u/s 80-IB due to submission of audit report in old form.
2. Determination of whether the business activity qualifies as manufacturing for deduction u/s 80-IB.

Summary:

Issue 1: Disallowance of Deduction u/s 80-IB Due to Submission of Audit Report in Old Form

The Commissioner (Appeals) upheld the disallowance of deduction u/s 80-IB on the ground that the audit report was furnished in an old form, although the amended form was submitted during the assessment proceedings. The Tribunal found that the defect was rectified during the assessment proceedings and substantive compliance was made. Citing the case of Punjab Financial Corporation, it was held that the provision relating to the submission of the audit report along with the return of income was not mandatory. Therefore, the objection was deemed unsustainable for denying the claim of deduction u/s 80-IB.

Issue 2: Determination of Whether the Business Activity Qualifies as Manufacturing for Deduction u/s 80-IB

The assessee, engaged in manufacturing exercise books and registers, claimed deduction u/s 80-IB. The assessing officer and Commissioner (Appeals) disallowed the claim, arguing that the process did not amount to manufacturing and the audit report was not in the prescribed form. The Tribunal examined the manufacturing process, which involved cutting, ruling, stitching, and binding of raw materials like plain paper sheets, cardboard, and gum to produce exercise books and registers. It was concluded that the final product was a commercially different commodity with a distinct character, use, and name, thus qualifying as manufacturing. The Tribunal referred to various case laws, including the Supreme Court's judgment in Union of India v. Delhi Cloth & General Mills Co. Ltd., which emphasized that 'manufacture' implies a transformation resulting in a new and different article.

Conclusion:

The Tribunal found no merit in both objections raised by the assessing officer. It set aside the order of the Commissioner (Appeals) and directed the assessing officer to allow the deduction u/s 80-IB as claimed by the assessee. The appeal of the assessee was allowed.