2013 (4) TMI 231 - AT - Income Tax

Deduction u/s. 80IB - CIT(A) allowed the claim - Held that - On perusal of the assessment order passed by the A.O. it is found that he has held the assessee to be engaged in the assembling and not manufacturing. CIT (A) while granting the deduction has held that the goods manufactured by the assessee are subject to payment of Excise Duty. He has further given a finding that as per the Registration Certificate for the Sales Tax and Central Sales Tax Act the business of the is shown to be manufacturing activity , the assessee has been granted provisional SSI Registration prior to 31st March, 2004 the assessee has been granted electrical connection vide letter dated 30-12-2003 with load of 50 HP. He has further given a finding that though most of the job has been got done by the assessee from outside parties final process has been undertaken at the assessee s factory premises and which is evident from the Excise Duty payment made by the assessee. He has also given a finding after considering the bills of raw material used and the sales bills that the product sold by the assessee is distinct and different from the original raw material. After conversion of raw material assembling of parts and after testing the machineries the same are packed in various parts and dispatched to the customers where the erection is done. The aforesaid facts could not be controverted by Revenue by bringing any contrary material on record. What is find from the process indicated hereinabove is that there are various stages through which the blocks have to go through before they become polished slabs addition tiles. In the circumstances there is certainly an activity which will come in the category of manufacture or production under section 80-IA of the Income Tax Act. As find from the facts of the case in the year under appeal are identical to that of A.Y. 2005-06 also find that certain new facts were brought on record by the Assessing Officer like on production of lorry receipts by assessee before A.O. to prove that the goods have not been manufactured by the assessee. CIT (A) has followed the order of A.Y. 2005-06 while deciding the appeal of A.Y. 2006-07. Thus the additional facts brought on record by A.O. should have been considered by CIT (A) while passing the order. Therefore in the interest of justice, the matter be remanded back to the file of CIT (A) for considering the additional facts brought by A.O. and pass a speaking order thereafter. Thus this ground of the Revenue is allowed for statistical purpose. In the result, appeal of the Revenue for A.Y. 2005-06 is dismissed and appeal of Revenue for A.Y. 2006-07 is allowed for statistical purposes.

Summary

Issues Involved:
1. Eligibility for deduction under Section 80IB of the Income Tax Act.
2. Determination of whether the assessee's activities constitute manufacturing or merely assembling.
3. Consideration of new facts and evidence in the assessment year 2006-07.

Detailed Analysis:

1. Eligibility for Deduction Under Section 80IB:
The central issue in both appeals is the eligibility for deduction under Section 80IB of the Income Tax Act. The assessee, a partnership firm engaged in manufacturing textile machinery, claimed deductions under this section, which were disallowed by the Assessing Officer (A.O.). The A.O. concluded that the assessee's activities were not manufacturing but merely assembling, thus not qualifying for the deduction. The CIT (A) reversed this decision, allowing the deduction, which led to the Revenue's appeal.

2. Determination of Manufacturing vs. Assembling:
The A.O. disallowed the deduction on the grounds that the assessee's activities were limited to assembling parts manufactured by various vendors and not actual manufacturing. The A.O. noted the low expenditure on power and fuel and the significant labor charges, suggesting that the work was done outside the assessee's factory. The CIT (A), however, found that the assessee's activities constituted manufacturing based on several factors:
- The assessee had a provisional Small Scale Industries (SSI) registration and an electrical connection for manufacturing purposes.
- The final products were subject to excise duty, indicating a manufacturing process.
- Judicial precedents, such as the case of Prabhudas Kishordas (282 ITR 568), supported the view that the transformation of raw materials into a distinct product constitutes manufacturing.
- The CIT (A) concluded that the assessee's activities met the criteria for manufacturing as the final products were distinct from the raw materials used.

3. Consideration of New Facts in Assessment Year 2006-07:
For the assessment year 2006-07, the A.O. introduced new facts, such as the lack of lorry receipts to prove the transportation of parts and significant payments to sister concerns for labor charges. The CIT (A) followed the reasoning of the previous year without addressing these new facts. The Tribunal found that the CIT (A) should have considered these additional facts and remanded the matter back to the CIT (A) for a detailed examination and a speaking order.

Conclusion:
- For the assessment year 2005-06, the Tribunal upheld the CIT (A)'s decision to allow the deduction under Section 80IB, dismissing the Revenue's appeal.
- For the assessment year 2006-07, the Tribunal remanded the case back to the CIT (A) to consider the new facts presented by the A.O. and issue a detailed order, allowing the Revenue's appeal for statistical purposes.