2015 (12) TMI 463 - AT - Income Tax

Revision u/s 263 - whether the activity undertaken by the assessee comes within the scope and meaning of words manufacture and production of article or thing as used by the legislation in section 10B(2)(i) of the Act? - Held that - Assessing Officer, in his reassessment order dated 20.2.13 passed in pursuance to the directions of Hon ble High Court, allowed deduction us/ 10B of the Act to the assessee by holding that the activities undertaken by the assessee would amount to manufacture within the meaning of section 10B(2)(i) of the Act in the context of aforesaid proceedings undertaken by the Assessing Officer during reassessment proceedings carried out in pursuance to the order of Hon ble High Court, we appreciate that the Assessing Officer followed directions of Hon ble High Court in its letter and spirit and properly and deeply verified and examined the claim of the assessee on the basis of additional evidence as well as spot inspection and inquiry report of the departmental Inspector and then concluded that the activities undertaken by the assessee would amount to manufacture within the meaning of section 10(B)(2)(i) of the Act on the basis of said conclusion, the assessee s claim for deduction u/s 10B of the Act was allowed. we observe that the Assessing Officer adopted a reasonable, correct and plausible view based on logical analysis of documentary evidence of the assessee and fortified by the Inspector s spot and physical inspection report and the same cannot be held as unsustainable or not in accordance with the provisions of the Act. The Assessing Officer rightly held that the assessee is undertaking manufacturing activities and thus it is entitled for deduction/exemption u/s 10B of the Act. In our humble understanding, this is not a case of two possible views but the present case is the case of one acceptable and sustainable view and in this situation, it cannot be held that the CIT assumed valid jurisdiction to issue notice and to pass revisional order u/s 263 of the Act. Hence, we are inclined to hold that the CIT has no valid reason to assume jurisdiction to invoke section 263 - Decided in favour of assessee.

Issues Involved:
1. Whether the activity undertaken by the assessee comes within the scope and meaning of "manufacture and production of article or thing" as used in section 10B(2)(i) of the Income Tax Act.
2. Whether the CIT was justified in revising the assessment orders for the years 2006-07, 2007-08, and 2009-10 by invoking the revisional provision of section 263 of the Act.

Detailed Analysis:

1. Scope of "Manufacture and Production of Article or Thing" under Section 10B(2)(i):
The assessee, a partnership firm engaged in the manufacture and export of wooden and brass articles, claimed deductions under section 10B of the Income Tax Act. The Assessing Officer initially disallowed these claims on three grounds:
i) the firm was reconstituted by the reconstruction of an existing business,
ii) the undertaking was not approved by revenue authorities due to the lack of a custom bonding license, and
iii) the items exported were the same as those purchased, implying no manufacturing activity was undertaken.

The CIT, however, reversed the Assessing Officer's findings, holding that the assessee was engaged in manufacturing activities. The CIT's decision was upheld by the ITAT and the High Court, which confirmed that the activities undertaken by the assessee amounted to manufacturing as per section 10B(2)(i). The High Court remanded the matter to the Assessing Officer for limited verification of additional evidence, which was duly examined and found satisfactory, leading to the allowance of the deduction under section 10B.

2. Justification of CIT's Revision under Section 263:
The CIT issued notices under section 263 to revise the assessment orders for 2006-07, 2007-08, and 2009-10, arguing that the assessee's activities did not constitute manufacturing. The assessee challenged this, asserting that the Assessing Officer had conducted a thorough inquiry and that the activities met the definition of manufacturing under section 10B(2)(i).

The Tribunal examined the CIT's invocation of section 263, noting that the Assessing Officer had followed the High Court's directions, verified additional evidence, and conducted a spot inspection. The Tribunal concluded that the Assessing Officer's view was reasonable and sustainable, and that the CIT had exceeded his jurisdiction in revising the orders. The Tribunal quashed the CIT's orders under section 263, reaffirming the assessee's entitlement to deductions under section 10B.

Conclusion:
The Tribunal allowed the assessee's appeals for the years 2006-07, 2007-08, and 2009-10, holding that the activities undertaken by the assessee constituted manufacturing and thus qualified for deductions under section 10B. The Tribunal also dismissed the revenue's appeal for the year 2008-09, upholding the CIT(A)'s decision to grant the deduction. The Tribunal emphasized that the CIT's invocation of section 263 was unjustified as the Assessing Officer's orders were neither erroneous nor prejudicial to the interests of the revenue.

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