2019 (5) TMI 1308 - AT - Income Tax

Addition u/s 80-I 80-IA - in respect of industrial unit No. 1 2 - grinding units for soap stone - AO denied the claim by holding that the process of crushing boulders to obtain stones of smaller size termed as gitti cannot be regarded as a process manufacturing or production - CIT(A) upheld on the ground that primarily the certificate in Form No. 10CCB was incomplete to the extent of computing of amount of deduction was not mentioned in the said certificate and secondly unit no. 2 was not having the necessary infrastructure to carry out the activity has been claimed by the assessee - proof of production or manufacturing HELD THAT - Once, the books of accounts of the assessee are audited then the computation of deduction cannot be questioned without find out any apparent mistake. Therefore, this technical objection of the ld. CIT(A) in the certificate in Form No. 10CCB cannot be a reason for denial of deduction U/s 80I IA of the Act in the reassessment and set aside proceedings when the AO has already allowed the claim of the assessee while passing the assessment U/s 143(3) of the Act. The AO has reopened the assessment to deny the claim only on the ground that in view of the decision of Hon ble Bombay High Court in case of CIT vs. Premier Construction Co. (supra) the activity carried out by the assessee does not ambit production or article. Hence, the AO never disputed the nature of actually activity carried out by the assessee. Thus, question of genuineness of the activity in the set aside proceeding that too arising from reassessment proceeding after allowing the claim in the assessment frame U/s 143(3) of the Act is not permitted. Hence, in the facts and circumstances of the case, we do not concur with view of the ld. CIT(A) on this objection of incomplete certificate in Form No. 10CCB. The assessee is undertaking the process of broking the big boulders into small size of required dimension then removing the impurities from the surface of the lumbs through machinery boulders, the process is known as dressing process of lumbs then washed by water to remove siliceous and other impurities and therefore, these are crushed to reduce in the desired size and grade of soap stone powder. These different grades of soap powder is being used by different industries and the assessee is accordingly converting raw soap stone into powder as per requirement of industries. Therefore, the outcome being the soap stone powder of different grades is a different and distinct marketable article from the input which is raw boulder soap stone. Accordingly, the process which is undertaken by the assessee is production and manufactured eligible for deduction U/s 80I IA of the Act. AR has also filed the balance sheet of these years to show the closing stock of the preceding year is reflected as opening stock of the subsequent year in the financial accounts of the assessee and therefore, the assessee has produced all the requisite details and material to show that the claim of deduction under the provisions of U/s U/s 80I IA of the Act is in order. Accordingly, we set aside the orders of the authorities below and allow the claim of the assessee - Decided in favour of assessee.

Issues Involved:
1. Sustaining the disallowance of deduction under Sections 80-I and 80-IA of the Income Tax Act.
2. Validity of the reassessment proceedings.
3. Genuineness and completeness of the certificate in Form 10CCB.
4. Determination of whether the process undertaken by the assessee constitutes "manufacture" or "production."

Detailed Analysis:

1. Sustaining the Disallowance of Deduction under Sections 80-I and 80-IA:
The primary issue revolves around the disallowance of the deduction claimed by the assessee under Sections 80-I and 80-IA. The assessee, an HUF, operates two grinding units for soapstone and claimed deductions for these units. The AO initially allowed the deduction but later reopened the assessment, citing the decision of the Hon'ble Bombay High Court in CIT vs. Premier Construction Co., which held that grinding of soapstone does not amount to manufacture. The Tribunal, however, found that the process undertaken by the assessee, which involves multiple stages such as segregation, cleaning, crushing, and blending to produce soapstone powder of different grades, constitutes production. The Tribunal relied on the Supreme Court's decision in CIT vs. Arihant Tile and Marbles Pvt. Ltd., which recognized similar processes as manufacturing or production.

2. Validity of the Reassessment Proceedings:
The reassessment was initiated based on the decision of the Hon'ble Bombay High Court, which the AO believed applied to the assessee's case. However, the Tribunal noted that the AO did not dispute the actual activities carried out by the assessee but only questioned whether these activities fell within the ambit of production or manufacture. The Tribunal emphasized that once the AO had allowed the claim in the original assessment, reopening the assessment on the same facts without any new material was not justified.

3. Genuineness and Completeness of the Certificate in Form 10CCB:
The CIT(A) denied the deduction partly because the certificate in Form 10CCB was incomplete, lacking the computation of the amount of deduction. The Tribunal found this to be a minor error on the part of the auditor and noted that neither the AO nor the CIT(A) had disputed the correctness of the computation of the deduction as claimed by the assessee. The Tribunal held that such a technical objection should not be a ground for denying the deduction, especially when the books of accounts were audited and the computation was not questioned.

4. Determination of Whether the Process Undertaken by the Assessee Constitutes "Manufacture" or "Production":
The Tribunal analyzed the processes undertaken by the assessee, which included breaking large soapstone boulders into smaller pieces, removing impurities, washing, and crushing to produce soapstone powder of different grades. The Tribunal found that these processes resulted in a distinct and marketable product different from the raw material. The Tribunal referred to the Supreme Court's decision in CIT vs. Arihant Tile and Marbles Pvt. Ltd., which held that similar processes constituted manufacturing or production. The Tribunal also noted that the soapstone powder produced by the assessee was used by various industries, indicating that the final product was distinct and had added marketable value.

Conclusion:
The Tribunal concluded that the processes undertaken by the assessee constituted production and manufacturing, making the assessee eligible for deductions under Sections 80-I and 80-IA. The Tribunal set aside the orders of the lower authorities and allowed the assessee's claim for all three assessment years in question. The appeals of the assessee were allowed, and the order was pronounced in the open court on 13/05/2019.

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