2009 (9) TMI 21 - HC - Income Tax

Deduction u/s 80IA - AO denied the deduction - Held that - the assessee neither produced the records of purchasing raw material nor explained the process of manufacturing and also no proof of sale. For claiming deduction under Section 80IA, the assessee is supposed to explain that the end product, if any, is commercially known differently. However, in the present appeal the assessee even has not explained what is manufactured by it or whether the assessee is actually manufacturing anything, therefore, in the absence of all these facts, the benefit of deduction cannot be extended to the assessee

Summary

Issues:
1. Denial of benefit under Section 80IA
2. Interpretation of 'manufacture' under Section 80IA
3. Consideration of certificates and reports by ITAT
4. Rejection of evidence by authorities
5. Finding of fact on manufacturing and selling

Analysis:

Issue 1: Denial of benefit under Section 80IA
The assessee appealed against the rejection of its claim for deduction under Section 80IA. The claim was turned down by the Assessing Officer, CIT(A), and the Tribunal. The Tribunal found that the assessee failed to establish the manufacturing activity as claimed. The absence of evidence such as electricity bills, ESI or PF returns, and sales records weakened the assessee's case. Despite the production of certain documents, including a certificate from the General Manager, Solan, and extracts from the payment of wages register, the evidence presented was insufficient to support the claim.

Issue 2: Interpretation of 'manufacture' under Section 80IA
The Tribunal determined that the process of diluting latex in a drum did not qualify as 'manufacturing' as required by Section 80IA. The lack of proof regarding the manufacturing process and the nature of the end product further weakened the assessee's position. The Tribunal emphasized that for claiming deduction under Section 80IA, the assessee must demonstrate the commercial identity of the end product, which was not done in this case. The failure to establish the manufacturing activity and the absence of supporting evidence led to the denial of the benefit under Section 80IA.

Issue 3: Consideration of certificates and reports by ITAT
The assessee contended that the ITAT erred in not considering certificates issued by the Industries Department, Government of Himachal Pradesh, and a report from the Labour Inspector. However, the Tribunal found that these documents did not sufficiently prove the manufacturing activity. The failure to provide concrete evidence of purchasing raw materials, the manufacturing process, and sales transactions undermined the credibility of the assessee's claims.

Issue 4: Rejection of evidence by authorities
The authorities, including the Assessing Officer, CIT(A), and the Tribunal, rejected the evidence presented by the assessee. The lack of documentation supporting the manufacturing process, sales, and other relevant aspects of the business led to the consistent dismissal of the assessee's claims. The rejection of the evidence was based on the failure to establish the essential elements required for claiming the deduction under Section 80IA.

Issue 5: Finding of fact on manufacturing and selling
The Tribunal's findings regarding the absence of concrete evidence to prove manufacturing and selling activities were considered as findings of fact. Since the factum of manufacturing and selling was not established by the assessee, the Tribunal concluded that no substantial question of law arose. The decision to dismiss the appeal was based on the lack of verifiable evidence supporting the manufacturing and selling operations claimed by the assessee.

In conclusion, the High Court upheld the Tribunal's decision to dismiss the appeal, emphasizing the importance of substantiating claims with concrete evidence, especially in cases involving deductions under Section 80IA of the Income Tax Act, 1961.