2006 (3) TMI 210 - AT - Income Tax

Deductions u/s 80-IB - whether the breaking of boulders into stones i.e., 'gitty' is a industrial undertaking manufacturing and producing article or thing or not - Prayer to quash the assessment order passed u/s 143(3)/147 - change of opinion - HELD THAT - In our considered view, the Assessing Officer while processing the return, is not supposed to express any opinion, but only an intimation is to be sent to the assessee specifying if any tax or interest is due on the basis of such return after adjustment of any tax deducted at source/advance tax paid/tax paid on self-assessment and any amount paid otherwise by way of tax or interest. In other words, the Assessing Officer initially process the return u/s 143(1)(a) and determine the amount payable or refundable on that basis and it is not necessary for him to frame an assessment in each and every case. In the present case, the Assessing Officer was of the opinion that the deduction claimed by the assessee u/s 80-IB was excessive. The Assessing Officer, on the basis of judgment in the case of Gem India Mfg. Co. 2000 (12) TMI 7 - SUPREME COURT recorded his satisfaction that the activity of the assessee in breaking the boulders into small stones was not manufacturing activity. Therefore, he has reasons to believe that the deduction claimed by the assessee was not correct. As such, a part of his income chargeable to income-tax has escaped assessment. In our opinion, in view of the ratio laid down by the Hon'ble jurisdictional High Court in the aforesaid referred to case i.e., the case of Swaraj Engine Ltd. 2002 (8) TMI 27 - PUNJAB AND HARYANA HIGH COURT , the Assessing Officer rightly started the reassessment proceedings. Thus, we set aside the order of the learned CIT (Appeals) and accordingly, this ground of the departmental appeal is allowed. In the result, appeals of the department are allowed.

Summary

Issues Involved:
1. Deduction under section 80-IB of the Income-tax Act, 1961.
2. Whether the activity of crushing stones constitutes manufacturing.
3. Comparison of case laws cited by both parties.
4. Validity of reassessment proceedings under section 147.

Issue-wise Detailed Analysis:

1. Deduction under section 80-IB of the Income-tax Act, 1961:
The primary issue was whether the assessee was entitled to a deduction under section 80-IB of the Income-tax Act, 1961. The Department contended that the assessee did not fulfill the conditions for claiming this deduction as prescribed under the Act. The Assessing Officer (AO) disallowed the claim, arguing that the activity of crushing boulders into smaller stones did not constitute manufacturing or production, which is a requirement for the deduction under section 80-IB. The AO relied on various case laws, including CIT v. Gem India Mfg. Co. [2001] 249 ITR 307 (SC).

2. Whether the activity of crushing stones constitutes manufacturing:
The crucial issue was whether the activity of converting boulders into smaller stones (bajri) amounted to manufacturing. The AO argued that this activity was merely processing and not manufacturing. The CIT (Appeals) disagreed, stating that the process involved a manufacturing activity and allowed the deduction under section 80-IB. The Tribunal, however, concluded that breaking boulders into smaller pieces did not change the composition of the material, thus it was not a manufacturing activity. The Tribunal relied on the Supreme Court's decision in Commissioner of Sales Tax v. Lal Kunwa Stone Crusher (P.) Ltd. AIR 2000 SC 1161, which held that crushing stone boulders into smaller pieces did not amount to manufacturing.

3. Comparison of case laws cited by both parties:
Both parties cited numerous case laws to support their arguments. The Department relied on cases like Divisional Dy. CST v. Bheraghat Minerals Industries [2000] 246 ITR 230 (SC) and Lucky Minmat (P.) Ltd. v. CIT [2000] 245 ITR 830 (SC), which supported the view that mere breaking of stones did not constitute manufacturing. The assessee cited cases like CIT v. Hemsons Industries [2001] 251 ITR 693 (AP) and Aspinwal & Co. Ltd. v. CIT [2001] 251 ITR 323 (SC) to argue that their activity should be considered manufacturing. The Tribunal noted that the Supreme Court's decisions in Lal Kunwa Stone Crusher (P.) Ltd. and Lucky Minmat (P.) Ltd. were not considered in the cases cited by the assessee.

4. Validity of reassessment proceedings under section 147:
The Department also raised an issue regarding the reassessment proceedings under section 147, arguing that the CIT (Appeals) erred in quashing the assessment order on the grounds of change of opinion. The Tribunal admitted this additional ground, noting that no new investigation was required. The Tribunal held that the AO had valid reasons to believe that income had escaped assessment due to the incorrect claim of deduction under section 80-IB. The Tribunal cited the case of Swaraj Engine Ltd. v. Asstt. CIT [2003] 260 ITR 202 (Punj. & Har.) to support the validity of the reassessment proceedings.

Conclusion:
The Tribunal concluded that the activity of breaking boulders into smaller stones did not constitute manufacturing and thus, the assessee was not eligible for the deduction under section 80-IB. The Tribunal reversed the orders of the CIT (Appeals) and restored that of the AO. Additionally, the Tribunal upheld the validity of the reassessment proceedings under section 147, setting aside the CIT (Appeals)'s order on this ground. The appeals of the Department were allowed.