2018 (6) TMI 1058 - HC - Income Tax

Additions made u/s 68 - assessee has not been able to prove source along with genuineness and creditworthiness of the stated entity - Held that - Assessee has filed all relevant details along with assessment records of the said entity explaining source of the loans to the above entity s balance sheet indicating sufficient reserves, surplus and share premium as followed by repayment in succeeding assessment year. Learned Departmental Representative fails to rebut CIT (A) s conclusion that the assessee has been having regular loan transactions with the said entity - reliance is placed on DEPUTY COMMISSIONER OF INCOME-TAX VERSUS ROHINI BUILDERS. 2001 (3) TMI 9 - GUJARAT HIGH COURT upholding tribunal s conclusion deleting Section 68 addition - hence the addition is deleted - Decided in favor of assessee. Claim for Depreciation on crimping of yarn - manufacturing activity - Held that - As in the case of COMMISSIONER OF INCOME-TAX VERSUS EMPTEE POLY-YARN P. LTD. 2008 (2) TMI 313 - BOMBAY HIGH COURT examined this very question and came to the conclusion that the activity of texturizing and twisting of yarn amounts to manufacturing or article or thing distinct from the original - because in impugned process original commodity loses its identify - thus such activity is held to be manufacturing activity - Decided in favor of assessee.

Summary

Issues:
1. Addition of ?1 Crore under Section 68 of the Income-tax Act
2. Whether crimping of yarn constitutes manufacturing activity

Analysis:

Issue 1: Addition of ?1 Crore under Section 68 of the Income-tax Act
The High Court considered the appeal against the Tribunal's decision to delete the addition of ?1 Crore made by the Assessing Officer under Section 68 of the Income-tax Act. The Tribunal confirmed the deletion by the CIT [A] stating that the identity of the creditor, M/s. Raj Capital & Finance Pvt. Ltd., was not in dispute. The Tribunal noted that the assessee had provided relevant details explaining the source of loans, the entity's balance sheet, and regular loan transactions with the said entity. Referring to judicial precedents, the High Court upheld the CIT [A]'s findings, emphasizing the factual nature of the issue and concluding that no question of law arose. The High Court declined the first substantive ground of the appeal based on the Tribunal's order and the documents on record.

Issue 2: Whether crimping of yarn constitutes manufacturing activity
The second issue involved determining whether the activity of crimping of yarn could be considered a manufacturing activity. The High Court referred to a Bombay High Court case where it was held that the process of texturizing and twisting of yarn amounted to manufacturing, resulting in a new and distinct product with different properties. The Bombay High Court concluded that such activity constituted manufacturing as the original commodity lost its identity, and the resulting product was recognized as a distinct commodity in trade. The High Court agreed with the Bombay High Court's reasoning and decision. Consequently, the High Court dismissed the Tax Appeal, affirming that crimping of yarn could be categorized as a manufacturing activity based on the principles established in the Bombay High Court case.

In summary, the High Court upheld the Tribunal's decision regarding the addition of ?1 Crore under Section 68 of the Income-tax Act and agreed with the classification of crimping of yarn as a manufacturing activity based on the principles established in a Bombay High Court case.