2022 (12) TMI 1315 - AT - Income Tax

Deduction u/s 80IB - Necessity to undergo manufacturing process - assessee is not engaged in the manufacturing process, not employed workers and not used machinery, therefore assessees claim in respect of 80IB was rejected - HELD THAT - This issue under consideration is squarely covered in favour of assessee in assessee s own case by the judgment of the Division Bench 2022 (8) TMI 1328 - ITAT SURAT as held assessee received orders from customers to supply the goods to them and the assessee executed these orders by way of manufacturing done by M/s Nangalwala Chemical Industries of Alwar, under the direct supervision of one of the partners. The assessee applies own technology, standard process, own raw material, own quality control/check, and the goods are manufactured as per the specification given by customers. Based on these facts and circumstances, we note that assessee is entitled to get deduction under section 80-IB - Decided in favour of assessee. Penalty u/s 271(1)(c) - HELD THAT - Since, we have deleted the penalty as the quantum addition was deleted by the Co-ordinate Bench of this Tribunal, therefore, additional ground raised by the assessee becomes infructuous and hence does not require adjudication. Addition of unsecured loan taken - AR failed to put up the details of confirmation and creditworthiness of these parties, however, the contention of ld.counsel for the assessee is that all the confirmations were duly placed on record of the ld.CIT(A) - HELD THAT - As decided in 2014 (1) TMI 1240 - ITAT AHMEDABAD after considering all aspects of the matter, we find that the order of the l;d.CIT(A) is cryptic and, therefore, in the interest of justice, this issue is restored back to the file of ld.CIT(A) to decide it afresh after verifying the details as submitted by the assessee.

Summary

Issues Involved:
1. Deduction under Section 80IB of the Income Tax Act.
2. Penalty under Section 271(1)(c) of the Income Tax Act.
3. Unexplained cash credit under Section 68 of the Income Tax Act.

Detailed Analysis:

1. Deduction under Section 80IB of the Income Tax Act:
The assessee filed appeals for AYs 2005-06 to 2007-08, 2009-10, and 2011-12 against the orders of the CIT(A) which upheld the AO's decision to disallow deductions under Section 80IB. The AO had rejected the deductions on the grounds that the assessee did not employ the required number of workers, did not engage in manufacturing activities, and did not use machinery for manufacturing. The CIT(A) confirmed the AO's findings after obtaining a remand report.

The Tribunal found merit in the assessee's submission that the issue was covered by a previous decision in the assessee's favor for AY 2004-05 (ITA No. 322/SRT/2018). The Tribunal noted that the assessee had provided substantial evidence, including power connection details, machinery installation, raw material purchases, and manufacturing processes. The Tribunal cited judgments from the Bombay High Court (Penwalt India Ltd. and Anglo French Drug Co. (Eastern) Ltd.) which supported the assessee's claim that manufacturing activities could be considered even if done under supervision at third-party premises. Consequently, the Tribunal allowed the appeals, directing the AO to grant the deductions under Section 80IB.

2. Penalty under Section 271(1)(c) of the Income Tax Act:
The assessee appealed against the penalty imposed under Section 271(1)(c) for AY 2007-08. The CIT(A) had confirmed the AO's penalty for concealment and furnishing inaccurate particulars of income. The Tribunal noted that since the quantum addition, which formed the basis for the penalty, had been deleted, the penalty could not survive. Citing the legal maxim "sublato fundamento cadit opus" (once the foundation fails, the superstructure also fails), the Tribunal deleted the penalty.

3. Unexplained Cash Credit under Section 68 of the Income Tax Act:
The assessee raised an additional ground regarding the addition of Rs. 25,35,000/- as unexplained cash credit, which the CIT(A) had not adjudicated despite the Tribunal's earlier direction. The Tribunal reiterated its previous order directing the CIT(A) to adjudicate the issue afresh, emphasizing the need for a detailed examination of the confirmations and creditworthiness of the loan parties. The Tribunal allowed the additional ground for statistical purposes, directing the CIT(A) to expedite the adjudication.

Conclusion:
The Tribunal allowed the appeals related to Section 80IB deductions, deleted the penalty under Section 271(1)(c), and directed the CIT(A) to adjudicate the issue of unexplained cash credits afresh. The appeals were thus allowed to the extent indicated, with the Registry directed to place a copy of the order in all appeal folders. The order was pronounced on 19/12/2022.