2014 (4) TMI 625 - AT - Income Tax

Eligibility for deduction u/s 80IB(2) of the Act Process amounts to manufacture or not u/s 80IB(2)(iii) of the Act Held that - The decision in ACIT Vs National Lamination Industries 2007 (6) TMI 230 - ITAT AHMEDABAD followed There cannot be two opinions that the shape of lamination has undergone a complete change after performing various processes - the raw material from which the core is made, is called CRGO coils whereas the item, which emerges after various processes, is called transformer core - Also the CRGO coils, even with few processes, cannot be used in a transformer unless all the processes are complete - It is the transformer core only, which is the end-product, which can be used in the manufacturing of transformer - due to various processes, the product has distinct name, shape and uses - By these processes, the raw material loses its identity and new product comes into existence, which is commercially recognized as new product - the assessee were engaged in the manufacturing or producing an article or thing and had rightly allowed exemption u/s 80 IB of the Act thus, the process used by the assessee in its business is eligible for deduction u/s. 80IB of the Act Decided against Revenue. Eligibility for deduction u/s. 80IB of the Act - Assessee did not employ 20 or more workers in the process carried on by the assessee without the aid of power Held that - The issue needs further verification thus, the matter is remitted back to the AO for examination of the register of wages and in particular the Revenue stamps affixed - If the entries in the register of wages are found correct and genuine, the AO shall allow the deduction so claimed by the assessee u/s. 80IB of the Act and if found otherwise, the assessee will not be eligible for deduction u/s. 80IB of the Act Decided partly in favour of Revenue.

Summary

Issues involved:
1. Eligibility for deduction u/s. 80IB(2) due to the nature of the manufacturing process.
2. Eligibility for deduction u/s. 80IB based on the number of workers employed in the process.

Analysis:

Issue 1: Eligibility for deduction u/s. 80IB(2) - Nature of Manufacturing Process
The Tribunal considered whether the assessee's manufacturing process qualified for deduction under section 80IB(2) of the Income Tax Act. The Tribunal referred to a previous decision by the Ahmedabad Bench, emphasizing that manufacturing involves transforming raw materials into a new commercial commodity. The Tribunal analyzed the process of making transformer cores, highlighting various steps such as slitting, cutting, and annealing, which resulted in a distinct product with its own characteristics. Expert opinions supported the manufacturing nature of the activities. The Tribunal concluded that the assessee's process met the criteria for manufacturing, leading to eligibility for the deduction under section 80IB.

Issue 2: Eligibility for deduction u/s. 80IB - Number of Workers Employed
Regarding the requirement of employing 20 or more workers without power aid for claiming deduction under section 80IB, the Tribunal examined the wages register provided by the assessee. While the register indicated the employment of more than 20 workers, the Tribunal deemed further verification necessary. The Tribunal directed the Assessing Officer (AO) to scrutinize the register, particularly focusing on the authenticity of revenue stamps affixed. The AO was instructed to seek external assistance if needed and grant the assessee a fair opportunity to present their case. The issue was remanded to the AO solely for this verification purpose. Depending on the AO's findings, the deduction under section 80IB would be allowed or disallowed accordingly.

In conclusion, the Tribunal partially allowed the Revenue's appeals for statistical purposes, indicating a favorable decision on the manufacturing process issue while ordering further verification on the employment of workers issue. The judgment highlighted the importance of meeting the statutory requirements for claiming deductions under the Income Tax Act.