2019 (1) TMI 1480 - HC - Income Tax

Deduction u/s 10B - manufacture for the purposes of Section 10B - conversion of gold into mountings, outsourced by the assessee - assessee is a partnership firm engaged in manufacturing of diamond studded gold jewellery - Held that - The respondent-assessee was granted permission by the Government to make only handmade jewelery. Accordingly, nature of manufacturing activity carried out by the respondent did not require huge plant and machinery and the absence of plant and machinery could not lead to conclusive presumption that there was no manufacturing activity. The Tribunal further recorded the fact that the material produced by the respondent has not been contradicted or shown to be incorrect by the Revenue. Further, the small amount of labour charges and wages being the basis of the disallowance was also considered by the Tribunal and it was found that the Revenue had not carried out any examination / enquiry to ascertain what would be the fair market value of the labour charges and wages in this sort of activity. Thus, there is no reason to disbeleive the respondent. - Decided against revenue.

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal regarding deduction under Section 10B of the Income Tax Act, 1961 for the Assessment Year 2010-11.

Analysis:
The appeal challenged the order of the Income Tax Appellate Tribunal regarding the conversion of gold into mountings outsourced by the assessee being considered as "manufacture" for the purposes of Section 10B of the Act. The respondent, a partnership firm engaged in manufacturing diamond-studded gold jewelry, claimed a deduction under Section 10B of the Act for the Assessment Year 2010-11. The Assessing Officer disallowed the claim, stating that no manufacturing activity was carried out by the respondent. The respondent then appealed to the Commissioner of Income Tax (Appeals) without success. The Tribunal, in its impugned order, noted that the Government of India had granted permission to the respondent to manufacture handmade jewelry, which did not necessarily require machinery. The Tribunal allowed the appeal, emphasizing that the manufacturing activity was evidenced by various factors, including supervision by Central Excise and Customs Authorities, inspection of statutory records, and payment of overtime fees to officers. The Tribunal found that the absence of machinery did not conclusively prove the absence of manufacturing activity, and the objection raised by the appellant's counsel was duly considered and rejected.

The appellant's counsel argued that the absence of machinery at the respondent's premises indicated a lack of manufacturing activity, supported by the small labor charges compared to the turnover. However, the Tribunal's order addressed this argument by highlighting that the nature of manufacturing undertaken by the respondent did not require extensive machinery. The Tribunal also noted that the Revenue had not conducted any examination to determine the fair market value of labor charges and wages, and the material produced by the respondent was not contradicted. The Tribunal's findings were considered as findings of fact, and no evidence was presented to establish them as perverse. Consequently, the question posed did not give rise to any substantial question of law, leading to the dismissal of the appeal.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing that the absence of machinery did not negate the manufacturing activity carried out by the respondent in making handmade jewelry. The Court found no reason to doubt the Tribunal's findings, which were deemed as possible views based on the evidence presented. As a result, the appeal was dismissed.