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2016 (5) TMI 295 - AT - Income TaxValidity of assessment u/s 153A - Held that - In the assessment year 2002-03 return has been processed under sec. 143(1) accepting the claimed deduction. No new fact has been revealed during the assessment years under consideration during the course of search. In other words, no incriminating material was found on the date of the search to justify the initiation of proceedings under sec. 153A of the Act. We thus respectfully following the ratio laid down by the Hon ble jurisdictional High Court of Delhi in the above cited case of Kabul Chawla (2015 (9) TMI 80 - DELHI HIGH COURT ) hold that the Assessing Officer was not justified in invoking the provisions of sec. 153A of the Act in the present case in the absence of incriminating material found during the course of search and in absence of pendency of assessment proceedings on the date of the search. The invocation of the provisions of section 153A of the Act is thus held as invalid and void-ab-initio. In consequence, the assessments for the assessment years under consideration framed in furtherance to the said initiation of proceedings under sec. 153A of the Act are held as void and the same are accordingly quashed. - Decided in favour of assessee Denial of deduction under sec. 80IB - activities not amounting to manufacturing - Held that - There is no dispute that activities of the assessee on the films purchased by it from Jindal Polyester Ltd. go through different activities like anti-static/corona treatment/quoting; slitting/cutting/rebinding of treated films; packing of finished products, finished goods (corona treatment films) and then dispatch. Thus, the films used as raw-material is converted into entirely a new product useful for its customer for printing the same useable as wrappers for the products of its customers like uncle chips/lays. The packets containing the products of its customers are made of the same films produced by the assessee after putting its activities discussed above on the said raw-films purchased from Jindal Polyester Ltd. It has not been rebutted by the Revenue that the raw-material is of such quality that no printing can be done on the same and it is possible only after the output made by the assessee through the above discussed process of the films which become ready for the metallic quoting on which final printing takes place. Thus, we find that the end-product has different identity after the manufacturing process of the assessee. Besides, in the earlier assessment years 2001-02 and 2002-03, the Revenue itself has accepted the claimed deduction under sec. 80IB of the Act of the assessee on the same manufacturing process and when there is no change in those facts of the case, the Revenue is not justified in deviating from its stand. We thus do not find infirmity in the first appellate order holding the assessee eligible for the claimed deduction under sec. 80IB of the Act as the activities were amounting to manufacturing - Decided in favour of assessee. Addition made on account of sales treated as unexplained receipts - Held that - CIT(Appeals) has accepted the submissions of the assessee with this finding that Mr. Yadav was acting as commission agent for purchasing and supplying the bank draft/pay orders to various parities against cash including the assessee and that there was no business of the assessee company other than trading and manufacturing of poly films and related products. Thus, it is not sustainable to hold that the entire receipts are taxable as unexplained deposits. The Learned CIT(Appeals) noted further that addition of bank credit, its peak and profit already having been taxed in the hands of Mr. Yadav cannot be sustained in the hands of the assessee company. - Decided in favour of assessee.
Issues Involved:
1. Maintainability of the appeal for the assessment year 2005-06. 2. Validity of initiation of proceedings under Section 153A of the Income-tax Act, 1961. 3. Eligibility of the deduction claimed under Section 80IB of the Income-tax Act, 1961. 4. Validity of the addition made on account of sales treated as unexplained receipts. Detailed Analysis: 1. Maintainability of the Appeal for the Assessment Year 2005-06: At the outset of the hearing, the Learned AR pointed out that the appeal for the assessment year 2005-06 preferred by the Revenue is having a tax effect below ? 10 lacs, hence, it is not maintainable in view of CBDT Circular No. 21/2015 dated 10.12.2015. The Learned CIT(DR) did not rebut the above submission. It is an admitted position that the CBDT Circular/instructions prescribing the monetary limit for preferring appeal by the Revenue at different forums have statutory force under Section 268A of the Income-tax Act, 1961. Consequently, the appeal was dismissed as not maintainable. 2. Validity of Initiation of Proceedings Under Section 153A: The assessee questioned the validity of the initiation of proceedings under Section 153A of the Act. The Learned AR submitted that no incriminating material was found during the search conducted on 28.8.2008, and on the date of the search, the assessment framed on the basis of the original return of income was not pending. The Hon’ble jurisdictional High Court of Delhi in the case of Kabul Chawla (ITA No. 707/2014) summarized the requirements for the validity of invocation of Section 153A, emphasizing that assessments can only be made on the basis of seized material. In the present case, no incriminating material was found, and the assessments were not pending on the date of the search. Therefore, the invocation of Section 153A was held invalid and void-ab-initio, and the assessments framed were quashed. 3. Eligibility of the Deduction Claimed Under Section 80IB: The Revenue questioned the validity of the action of the Learned CIT(Appeals) in deleting the addition made by the Assessing Officer on account of denial of deduction claimed by the assessee under Section 80IB of the Act. The Learned CIT(DR) argued that the assessee was not engaged in manufacturing or producing any goods different from the raw material purchased. However, the Learned AR submitted that the Department had accepted the claimed deduction under Section 80IB in the assessment years 2001-02 and 2002-03. The first appellate order was found to be comprehensive and reasoned, based on the fact that the assessee's activities on the films purchased involved a manufacturing process that changed the character and use of the raw material. The assessee was thus held eligible for the claimed deduction under Section 80IB. 4. Validity of the Addition Made on Account of Sales Treated as Unexplained Receipts: In the assessment years 2006-07, 2007-08, and 2008-09, the Revenue raised the issue of the validity of the action of the Learned CIT(Appeals) in deleting the addition made on account of sales treated as unexplained receipts. The Learned AR pointed out that the issue had already been decided in favor of the assessee in the case of DCIT vs. Northern Strips Ltd. The Assessing Officer had made additions based on the statement of Mr. Ravinder Yadav, who acted as a commission agent. The Learned CIT(Appeals) found that the receipts were duly accounted for in the books of account as sales. The Delhi Bench of the ITAT had also decided an identical issue in favor of the assessee, and the Hon’ble jurisdictional High Court of Delhi upheld the ITAT’s order. Consequently, the first appellate order was upheld, and the grounds involving the issue were rejected. Conclusion: In result, the appeals filed by the Revenue were dismissed, and those filed by the assessee were allowed. The order was pronounced in the open court on 30.03.2016.
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