1992 (1) TMI 147 - AT - Income Tax

Summary

Issues:
- Appeal by Department against CIT(A)'s order for asst. yr. 1986-87.
- Dispute over assessee's eligibility for deduction under s. 80-I of IT Act as an industrial undertaking.
- CIT(A)'s finding in favor of assessee's claim.
- Department's appeal to Tribunal against CIT(A)'s order.

Analysis:
The Department appealed against the CIT(A)'s order for the assessment year 1986-87, specifically challenging the finding that the assessee-company qualifies as an industrial undertaking eligible for deduction under section 80-I of the Income Tax Act. The Income Tax Officer (ITO) had denied the deduction, contending that the assessee merely purchased woollen and jute carpets from manufacturers, performed some processing work, and sold the finished carpets to Hindusthan Motors, without engaging in actual manufacturing. Consequently, the ITO disallowed the deduction under section 80-I based on the absence of manufacturing activity by the assessee.

Upon appeal, the CIT(A) ruled in favor of the assessee, directing the Assessing Officer (AO) to allow the deduction under section 80-I. The CIT(A) referred to the definition in the Explanation to section 5(xxxi) of the Wealth Tax Act and analyzed the business activities of the appellant, emphasizing the manufacturing of carpets tailored to Hindusthan Motors' specifications. The CIT(A) concluded that the appellant qualified as an industrial undertaking, thereby instructing the AO to grant the deduction under section 80-I.

Subsequently, the Department filed an appeal with the Tribunal challenging the CIT(A)'s directive to allow the deduction under section 80-I. The Departmental Representative argued that the assessee did not meet the criteria of an industrial undertaking as it did not engage in manufacturing or processing goods. The Representative contended that the assessee's activities of cutting and selling carpet rolls did not amount to manufacturing or processing, urging the Tribunal to reverse the CIT(A)'s decision.

In response, the assessee's Authorized Representative supported the CIT(A)'s order, presenting a certificate from the Government of West Bengal recognizing the assessee as a small-scale industry. Additionally, the Representative submitted a detailed manufacturing process chart demonstrating the various stages involved in producing car carpet sets for Hindusthan Motors. The process included quality control checks, application of Latex compound, cutting, stitching, molding, and other intricate steps to customize the carpets according to specific requirements. The Authorized Representative argued that these processes qualified the assessee for the deduction under section 80-I.

After considering the arguments from both parties, the Tribunal sided with the assessee, upholding the CIT(A)'s decision. The Tribunal acknowledged the small-scale industrial status of the assessee and deemed the manufacturing processes described as sufficient evidence to support the eligibility for the deduction under section 80-I. Consequently, the Tribunal dismissed the Department's appeal, affirming the CIT(A)'s ruling in favor of the assessee.