2016 (11) TMI 68 - AT - Income Tax

Validity of reopening of assessment - whether the assessee failed to challenge the jurisdiction within the prescribed time of 30 day as per section 124(3)(a) of the Act? - Held that - From the reading of section 124(2)(a) of the Act, it is seen that this section mandates that no person shall be entitled to call in question the jurisdiction of an Income Tax Officer after the expiry of one month from the date on which he has furnished the return u/s 139(1) from the date on which he was served with a notice under sub section (1) of section 142 or sub section (2) of section 143 or after the completion of the assessment whichever is earlier. Clause (a) of section 124(3) does not talk of any time limit for questioning the jurisdiction of the Assessing Officer for the service of notice u/s 148 of the Act. This provision provides a time limit of one month to question the jurisdiction of the Assessing Officer to issue notice u/s 143(2) and 142(1) of the Act. If we look into the said clause (b) of section 124(3), we noted that this clause talks of challenge of jurisdiction not after the expiry of the time allowed by the notice issued u/s 148 but clause (b) is applicable only in case where the assessee has not furnished the return. In the case of the assessee, the assessee has furnished the return u/s 139(1) therefore, it is only clause (a) of section 124(3) which is applicable. Clause (a) of section 124(3) does not refer to notice issued u/s 148 of the Act. Therefore, we do not find any illegality or infirmity in the order of CIT(A) which warrants our interference so far it relates to ground taken by the Revenue in respect of the provision of section 124(3)(a) of the Act is concerned. We also noted that the CIT(A) has annulled the assessment not only on the basis of jurisdiction but has also annulled the reassessment on the basis of provision of section 151 as in his opinion, the Assessing Officer has not taken approval in accordance with the provisions of section 151(2) before issue of notice u/s 148 of the Act.The Revenue has not come in appeal against the aforesaid finding of CIT(A). - Decided against revenue Claim of the assessee u/s 80IC - Held that - The assessee is engaged in manufacturing and production of an article and therefore, the assessee shall be entitled for the deduction available u/s 80IC of the Act. We accordingly confirm the order of CIT(A) as in our opinion, no illegality or infirmity is found in the order of CIT(A).

Summary

Issues Involved:
1. Annulment of the assessment order under sections 147/143(3) of the Income Tax Act.
2. Deletion of the addition made on account of disallowance under section 80IC of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Annulment of the Assessment Order under Sections 147/143(3) of the Income Tax Act:

The first issue concerns the annulment of the assessment order passed by the Assessing Officer (AO) under sections 147/143(3) of the Income Tax Act. The Revenue argued that the assessee failed to challenge the jurisdiction within the prescribed time of 30 days as per section 124(3)(a) of the Act. The Tribunal examined the provisions of section 124(3)(a), which mandates that no person shall be entitled to call in question the jurisdiction of an Income Tax Officer after the expiry of one month from the date on which he was served with a notice under section 142(1) or section 143(2).

The Tribunal noted that the provision of section 124(3)(a) does not provide a time limit for questioning the jurisdiction in respect of the notice issued under section 148. The Tribunal found that the notice under section 148 was issued by an officer who did not have jurisdiction over the assessee, and the jurisdiction lay with the Deputy Commissioner of Income Tax (Dy.C.I.T.), Range-4, Lucknow. The Tribunal upheld the CIT(A)'s decision to annul the assessment on the basis of jurisdiction and also on the basis that the AO did not take approval in accordance with section 151(2) before issuing the notice under section 148. The Tribunal dismissed the Revenue's ground of appeal regarding the provision of section 124(3)(a).

2. Deletion of the Addition Made on Account of Disallowance under Section 80IC of the Income Tax Act:

The second issue pertains to the deletion of the addition made on account of disallowance under section 80IC of the Income Tax Act. The AO disallowed the claim under section 80IC on the ground that the assessee was not engaged in manufacturing or processing activities but was merely mixing and repacking various ingredients. The CIT(A), however, allowed the deduction under section 80IC, concluding that the assessee was engaged in manufacturing activities.

The Tribunal examined the manufacturing process and relevant evidence provided by the assessee, which included the use of over 1500 raw materials to produce more than 500 distinct finished goods. The Tribunal noted that the manufacturing process involved melting, grinding, mixing, and stirring at optimal temperatures to produce distinct products with different chemical compositions and properties. The Tribunal also considered various judicial pronouncements and the definition of "manufacture" under section 2(29BA) of the Income Tax Act.

The Tribunal conducted a demonstration of the manufacturing process in the court, which showed that the finished products were entirely different from the raw materials used. The Tribunal concluded that the assessee's activities constituted manufacturing and production of an article, thereby entitling the assessee to the deduction under section 80IC. The Tribunal confirmed the order of the CIT(A) and dismissed the Revenue's appeal on this ground.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to annul the assessment order under sections 147/143(3) of the Income Tax Act and to allow the deduction under section 80IC. The Tribunal found no illegality or infirmity in the CIT(A)'s order and held that the assessee was engaged in manufacturing and production activities, thereby entitling the assessee to the claimed deduction.