2020 (7) TMI 691 - HC - Income Tax

Eligibility for deduction u/s.10AA - qualification as 'manufacture' - as per revenue assessee is not carrying on any manufacturing at its SEZ Unit - Tribunal allowed deduction - Whether the Tribunal was right in holding that the assessee is carrying on manufacturing activity even though a new product having a distinctive name, character or use was not brought into existence at its SEZ Unit by the assessee as per Special Economic Zone Act 2005? - HELD THAT - Revenue carried the matter by way of appeal to the tribunal and the tribunal once again re-appreciated the factual position and found that there is a process of 'manufacture' as defined under the SEZ Act, which takes place in the SEZ unit and also pointed out that the AO himself has accepted that the assessee's unit, processed the raw materials by removing 10 to 20% impurities. Cost comparison of the semi finished product with that of the raw material was also referred to and it was also pointed out that the AO could not establish that the assessee has suppressed the purchase cost of semi-finished goods in order to claim higher deduction under Section 10AA of the Act. Certificate issued by the Assistant Development Officer was accepted on the ground that the revenue could not prove the same to be not genuine. Therefore, the tribunal sustained the factual finding recorded by the CIT(A). Entire factual matrix has not only been analyzed by the CIT(A), but, also by the tribunal. Therefore, we are convinced to observe that no question of Law much less any Substantial Question of Law arises for consideration in this appeal.

Summary

Issues:
1. Eligibility for deduction under Section 10AA of the Income-tax Act, 1961 without manufacturing activity at SEZ Unit.
2. Determination of manufacturing activity under the Special Economic Zone Act, 2005.

Analysis:
1. The appeal by the revenue challenged the order rejecting the deduction under Section 10AA of the Act for the Assessment Year 2013-14. The Assessing Officer contended that no manufacturing activity occurred in the SEZ unit, as the raw material and finished product were considered the same. The CIT(A) overturned this decision, stating that the processes resulted in a new product as per the SEZ Act's definition of "manufacture."

2. The key issue was whether the activities in the SEZ unit constituted manufacturing under the SEZ Act. The tribunal affirmed the CIT(A)'s decision, emphasizing that a distinct manufacturing process occurred, removing impurities from raw materials. The tribunal also highlighted the lack of evidence supporting the revenue's claim of inflated deduction through suppressed purchase costs. The Assistant Development Officer's certificate confirming production commencement further supported the manufacturing activity.

3. The High Court analyzed the factual aspects thoroughly, concluding that no legal or substantial questions arose for consideration. The CIT(A) and tribunal meticulously reviewed the evidence, affirming the manufacturing process in the SEZ unit. The Court upheld the lower authorities' findings, dismissing the appeal and emphasizing the absence of legal issues warranting intervention. The judgment underscored the importance of factual analysis in determining eligibility for tax deductions under the relevant provisions.