2016 (6) TMI 594 - AT - Income Tax

Revision u/s 263 - Exemption u/s 80-IC - manufacturing activity or not - buying jumbo rolls and slitting into smaller rolls - Held that - These rolls are converted into round strips and thereafter printing is done on such round strips. The assessee is duly registered with the Director of Industries. It is registered with the Excise Department and it has been filing its returns in respect of the manufacturing process carried on by it. In these circumstances, we are of the opinion that the learned CIT was not justified in holding that assessee is not engaged in manufacture or processing any article or thing and hence not eligible for claiming deduction under Section 80-IC of the Act. Accordingly, the order passed by the Assessing Officer allowing deduction cannot be said to be erroneous so as to be prejudicial to the interest of the Revenue. We thus hold that the order passed by the CIT is not a valid order and the same is quashed. In the result, assessment order dated 30.12.2010 passed by the AO is restored and grounds of the appeal of the assessee are allowed.

Summary

Issues Involved:
1. Validity of the revisional order under Section 263 of the Income-tax Act, 1961.
2. Determination of whether the assessee's activities qualify as "manufacture" or "processing" under Section 80-IC of the Income-tax Act.
3. Examination of the Assessing Officer's original order allowing deduction under Section 80-IC.
4. Evaluation of the learned CIT's decision to set aside the Assessing Officer's order.
5. Consideration of relevant judicial precedents and their applicability to the case.

Detailed Analysis:

1. Validity of the Revisional Order Under Section 263:
The assessee challenged the revisional order passed by the CIT under Section 263 of the Income-tax Act, 1961, which directed the reassessment of the original assessment order dated 30th December 2010. The CIT's order was based on the view that the assessee did not manufacture any article or thing, a precondition for claiming exemption under Section 80-IC. The assessee contended that the CIT's order was bad in law and on facts, arguing that the original assessment was neither erroneous nor prejudicial to the interest of the Revenue.

2. Determination of Manufacturing or Processing:
The core issue was whether the assessee's activities constituted "manufacture" or "processing" of an article or thing, making it eligible for deduction under Section 80-IC. The assessee argued that its business involved manufacturing aluminium foils through processes like slitting, printing, and air drying. The assessee provided detailed explanations and evidence, including the installation of plant and machinery and the nature of the manufacturing process.

3. Examination of the Assessing Officer's Original Order:
The original assessment by the Assessing Officer under Section 143(3) allowed the deduction claimed by the assessee under Section 80-IC. The Assessing Officer had examined the details and explanations provided by the assessee during the assessment proceedings. The assessee argued that the Assessing Officer had thoroughly examined the issue and allowed the deduction after being satisfied with the eligibility.

4. Evaluation of the CIT's Decision:
The CIT set aside the Assessing Officer's order, concluding that the assessee was engaged only in printing and not manufacturing or processing. The CIT's order was challenged on the grounds that it substituted the Assessing Officer's judgment without providing a specific finding of error or prejudice to the Revenue. The assessee argued that the CIT's reliance on certain judicial precedents was misplaced and not relevant to the present case.

5. Consideration of Judicial Precedents:
The assessee relied on several judicial precedents to support its claim of being engaged in manufacturing. Key judgments included:
- India Cine Agencies v. CIT [2009] 308 ITR 98 (SC): The Supreme Court held that the conversion of jumbo rolls into smaller sizes amounted to manufacture.
- CIT v. Delhi Press Patra Prakashan Ltd. [2013] 355 ITR 14 (Del): The Delhi High Court held that printing activities constituted manufacturing.
- ITO, Udaipur vs. Arihant Tiles and Marbles Pvt. Ltd.: The Supreme Court held that cutting larger pieces into smaller sizes amounted to manufacture.

The tribunal found these precedents applicable, noting that the assessee's activities involved significant transformation of raw materials into new products, qualifying as manufacturing.

Conclusion:
The tribunal concluded that the assessee's activities qualified as manufacturing or processing of an article or thing, making it eligible for deduction under Section 80-IC. The CIT's order was deemed invalid as it failed to establish that the original assessment was erroneous or prejudicial to the interest of the Revenue. Consequently, the tribunal quashed the CIT's order and restored the original assessment order dated 30.12.2010, allowing the appeal in favor of the assessee.

Order:
The appeal was allowed, and the original assessment order was restored. The decision was pronounced in the open court on 14.06.2016.