2020 (1) TMI 1109 - AT - Income Tax

Deduction u/s 10B - products namely CT/PT manufactured or not? - current transformers (CT) and potential transformers (PT) - assessee is a partnership firm and engaged in the business of manufacturing epoxy cast insulators, bushing, epoxy molded components etc a 100% Export Oriented Unit approved by the Development commissioner, Kandla Special Economic Zone, Gandhidham, Ministry of Commerce Industry - HELD THAT - Regarding the use of the machineries in the manufacturing of CT/PT products, we note that the AO has not brought anything on record evidencing that the assessee was not in possession of the requisite machineries. Though the assessee during the assessment proceedings has claimed that it is using APG machines and vacuum casting machines for the manufacture of its alleged products, but the AO has not controverted the submission of the assessee based on any documentary evidence. We also note that the list of such machineries are appearing in its financial statement as evident from the submission of the assessee. Books of accounts of the assessee were duly audited which were filed during the assessment proceedings and no defect whatsoever was pointed out by the Assessing Officer in such books of accounts. On one hand the Assessing Officer has accepted the books of account and, on the other hand, he is making the addition merely on the basis of the statement obtained under Section 132(2)/133A which was immediately retracted after the date of survey. In such facts and circumstances, the Assessing Officer should have rejected the books of account under Section 145(3) of the Act as he disbelieved the purchase bills and sales bills which were not entered in the books of accounts of the assessee as on the date of survey. But, the Assessing Officer has not done so; which implies that the Assessing Officer has accepted the books of accounts and financial statement of the assessee. Assessee during the year has paid the job worker the labour charges to its associated concern as evident from the copies of the ledgers. Therefore, the finding of the AO that there was no labour charge paid by the assessee is based on wrong assumption of facts. There was goods movement register maintained by the assessee for transferring the goods on job work basis as evident from the details maintained under Excise Act, which are placed on pages 243 to 308 of the paper book. CIT (A) has given very exhaustive finding elaborating that the assessee is engaged in the manufacturing activity of the alleged products. Therefore, we are of the view that no interference in the order of the learned CIT (A) is warranted in the given facts and circumstances. Hence the ground of appeal of the revenue is dismissed.

Summary

Issues Involved:
1. Eligibility of the assessee for deduction under section 10B of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Eligibility for Deduction under Section 10B:
The primary issue raised by the Revenue was whether the assessee was eligible for the deduction under section 10B of the Income Tax Act, 1961, for the Assessment Year 2008-09. The Revenue contended that the Learned Commissioner of Income Tax (Appeals) [CIT(A)] erred in allowing the deduction without appreciating the evidences available on record.

Facts and Submissions:
- The assessee, a partnership firm engaged in manufacturing epoxy cast insulators, bushings, and epoxy molded components, claimed deduction under section 10B as a 100% Export Oriented Unit (EOU) approved by the Development Commissioner.
- A search and seizure operation under section 132 was conducted, during which the partner of the firm admitted that the deduction under section 10B was wrongly claimed for manufacturing activities related to current transformers (CT) and potential transformers (PT).
- The assessee later retracted this statement and provided various documents to support its claim of manufacturing activities, including a manufacturing process flowchart, details of machinery used, and job work details.

Assessing Officer's (AO) Findings:
- The AO disallowed the deduction on the grounds that the assessee did not have sufficient machinery for manufacturing CT/PT and that part of the manufacturing process was outsourced to sister concerns without proper job charges being paid.
- The AO relied on statements made during the search operation and videography evidence, which allegedly showed insufficient manufacturing facilities.

CIT(A)'s Findings:
- The CIT(A) observed that the AO's reliance on videography and statements was not corroborated by documentary evidence. The CIT(A) noted that the assessee had provided sufficient evidence, such as certificates from independent engineers, excise documents, and job work details, to substantiate its claim.
- The CIT(A) held that outsourcing part of the manufacturing process does not disqualify the assessee from claiming deduction under section 10B, as long as substantial value addition is done in-house.
- The CIT(A) found that the AO did not adequately consider the documentary evidence provided by the assessee and that the statements recorded during the search were not sufficient to deny the deduction.

Tribunal's Analysis:
- The Tribunal noted that the AO failed to provide concrete evidence to refute the assessee's claim of manufacturing activities. The books of accounts were audited, and no defects were pointed out by the AO.
- The Tribunal emphasized that statements recorded during search operations cannot form the sole basis for disallowance unless corroborated by evidence. The CBDT's instructions discourage making additions based solely on uncorroborated statements.
- The Tribunal found that the assessee had indeed paid job work charges and maintained proper records for goods movement under the Excise Act.
- The Tribunal upheld the CIT(A)'s decision, concluding that the assessee was engaged in manufacturing activities and eligible for the deduction under section 10B.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order that allowed the deduction under section 10B to the assessee. The decision was based on the comprehensive evaluation of documentary evidence provided by the assessee, which substantiated its claim of manufacturing activities and compliance with the conditions for deduction under section 10B.