2018 (6) TMI 60 - AT - Income Tax

Claim of deduction u/s.80IC - proof of manufacturing activities - as per revenue the assessee was doing job work for packaging of products in small and large boxes for which it was paid job work charges from M/s. Gillette India and hence such packaging does not amount to manufacturing - Held that - The initial claim of 80IC has been allowed after due inquiry and examination of facts on record and such allowability of deduction has attained finality, because as stated by the learned counsel no appeal has been filed by the Revenue against the said order dated 17.11.2009. Whence it has been accepted that assessee firm has been carrying out manufacturing activities and its claim of deduction u/s.80IC has been allowed, then in the subsequent year such a claim cannot be disallowed. Assessee firm has been categorized under the Central Excise Tariff Act as a manufacturer, because it manufactures dyes and moulds for making and designing the packaging materials. It has also granted approval from District Industries Center, Solan.- If assessee is making packaging material as per the requirement of the product with the aid and help of various kinds of machines as incorporated above and it is also registered as manufacturer under the various laws, then such a general inference based on statement of employees cannot be given much credence. Thus, we do not find any substantial merits in the grounds raised by the Revenue that assessee is not engaged in the manufacturing of packaging material - Decided in favour of assessee

Summary

Issues Involved:
1. Deletion of addition on account of claim of deduction under Section 80IC.
2. Validity of reopening under Section 148 for Assessment Years 2006-07, 2007-08, and 2008-09.

Detailed Analysis:

1. Deletion of Addition on Account of Claim of Deduction under Section 80IC:

The Revenue was aggrieved by the deletion of an addition of ?1,09,84,998/- on account of the claim of deduction under Section 80IC, which was disallowed by the Assessing Officer (AO). The assessee-firm, engaged in manufacturing plastic packaging materials since 1998 at its unit in Baddi, Himachal Pradesh, claimed eligibility for deduction under Section 80IC due to its location in a notified industrial area. The AO disallowed the deduction, asserting that the assessee was only engaged in packaging for M/s. Gillette India Ltd. and not in manufacturing activities.

The assessee provided a detailed explanation of its manufacturing process and agreement with M/s. Gillette India Ltd., arguing that the packaging involved mechanical processes. The AO, however, rejected this contention.

Before the Commissioner of Income Tax (Appeals) [CIT(A)], the assessee rebutted the AO’s findings, presenting detailed submissions and material evidence. The CIT(A) noted that a similar issue had arisen in the assessee’s case for the Assessment Year 2005-06, where the claim of deduction under Section 80IC was allowed after detailed discussion. The CIT(A) highlighted that the AO’s primary evidence for denying the deduction was the statement of an employee, who had joined after the relevant financial year, thus lacking knowledge of prior activities.

The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)’s decision, noting that the initial claim of deduction under Section 80IC had been allowed after due inquiry and examination of facts, and such allowability had attained finality as no appeal was filed by the Revenue against the CIT(A)’s order for the Assessment Year 2005-06. The ITAT emphasized that the assessee’s activities involved a complex manufacturing process, supported by various certificates and approvals categorizing it as a manufacturer under different laws. The ITAT found no merit in the Revenue’s grounds and upheld the CIT(A)’s order, dismissing the Revenue’s appeal.

2. Validity of Reopening under Section 148 for Assessment Years 2006-07, 2007-08, and 2008-09:

The assessee challenged the validity of reopening under Section 148 for the Assessment Years 2006-07, 2007-08, and 2008-09 in its Cross Objections. However, at the time of hearing, the assessee’s counsel did not press these grounds. Consequently, the ITAT dismissed the Cross Objections as not pressed.

Conclusion:

The ITAT dismissed both the Revenue’s appeals and the assessee’s Cross Objections, upholding the CIT(A)’s order allowing the deduction under Section 80IC and confirming the validity of the initial assessment proceedings. The ITAT’s decision emphasized the consistency in allowing the deduction based on substantial evidence and the finality of previous favorable findings for the assessee.