2014 (3) TMI 108 - HC - Income Tax

Process amounts to manufacture or not - Whether the process of jewellery making through job work in the manner undertaken by the appellant amounts to manufacturing for the purpose of Section 10A Held that - The decision in CIT v. Lovlesh Jain 2011 (12) TMI 93 - DELHI HIGH COURT followed the activity amounts to manufacturing Decided against Revenue. Claim of purchase of machinery and equipments Held that - The AO had queried the appellant as to whether transfer of any old machinery had taken place at the time of setting up of unit and he made an adverse comment in respect of non-production of such materials - whether the machinery was new or not was an aspect which the CIT (A) was within its rights to enquire into - he did so by invoking the Rule 46A of the Income Tax Act - The assessing authority was afforded an opportunity and a remand report appears to have been called for thus, finding of fact concurrently recorded cannot be gone into there was no question of law arises Decided against Revenue. Entitlement for benefit of section 10A of the Act Held that - The question formulated is limited to the findings of the CIT (A) and the Tribunal with respect to the setting aside of the disallowance - The ground of appeal urged before the Tribunal did not disclose that the Revenue had ever argued that the claim for deduction of these amounts (towards fabrication and designing charges) itself evidenced that the appellant did not carry on any manufacturing activity - The Tribunal noted that it might have been more appropriate for the CIT (A) to have forwarded the bills and vouchers for the examination of the AO it was in its discretion to make any directions towards remand - the approach of the CIT (A) confirmed by the ITAT cannot be considered perverse as to warrant interference under Section 260A Decided against Revenue.

Summary

Issues:
1. Interpretation of Section 10A of the Income Tax Act for deduction eligibility.
2. Validity of expenses claimed in relation to job work and machinery acquisition.
3. Disallowance of designing and fabrication charges for deduction under Section 10A.

Issue 1: Interpretation of Section 10A for deduction eligibility
The case involved a partnership firm engaged in manufacturing and export of plated and studded jewellery seeking the benefit of Section 10A. The firm claimed exemption in respect of profits derived from exporting jewellery manufactured in the industrial undertaking. The Assessing Officer initially declined the benefit, questioning the manufacturing activity and export process. However, the CIT (A) allowed the appeal, and the ITAT confirmed the decision. The High Court referred to a previous judgment establishing that jewellery making through job work amounts to manufacturing. Consequently, the questions related to deduction eligibility under Section 10A were answered in favor of the assessee.

Issue 2: Validity of expenses claimed in relation to job work and machinery acquisition
Regarding the claim for machinery and equipment purchase, the Assessing Officer disallowed the expenses due to lack of proof during the assessment. However, the assessee produced the materials during the appellate proceedings, and the CIT (A) allowed the expenses after following the prescribed procedure. The ITAT affirmed this decision, emphasizing the importance of Rule 46A of the Income Tax Rules. The High Court noted that the assessing authority had an opportunity to review the evidence, and the findings of fact could not be revisited. The question of law was answered against the Revenue.

Issue 3: Disallowance of designing and fabrication charges for deduction under Section 10A
The Assessing Officer disallowed expenses paid towards designing and fabrication charges, questioning the lack of details and the nature of machinery purchased. The CIT (A) and ITAT upheld the claim, emphasizing the submission of relevant details and bills. The High Court found that the Revenue could not raise new arguments under Section 260A and upheld the decisions of the CIT (A) and ITAT regarding the deduction of expenses. The appeals were dismissed, and all questions of law were answered against the Revenue in favor of the assessee.