2010 (6) TMI 835 - AT - Income Tax

Appellant's Marble Stone Operations Not Manufacturing for Tax Deduction

Royal Impex Versus Income-tax Officer Ward-3, Vapi

The appellant's activities of cutting and polishing marble stones were deemed not to constitute manufacturing for the purpose of deduction u/s 80IB of the ... - Issues Involved:1. Whether the activities of the appellant qualify as manufacturing for the purpose of deduction u/s 80IB of the Income-tax Act, 1961.2. Whether the appellant is entitled to deduction u/s 80IB of the Income-tax Act, 1961.3. General grounds and additional grounds of appeal.Summary:Issue 1: Manufacturing Activity for Deduction u/s 80IBDuring the assessment proceedings, the Assessing Officer (AO) analyzed the manufacturing activity of the assessee, who was engaged in the business of cutting and polishing marble stones. The AO concluded that the activities performed by the assessee, such as chiseling, polishing, and cutting edges, were merely forms of cutting and did not constitute manufacturing. Consequently, the AO denied the deduction u/s 80IB of the Income-tax Act, 1961, based on the findings for the AY 2003-04 and various judicial pronouncements, including CIT Vs. Sterling Foods and Pandian Chemicals Vs. CIT.On appeal, the CIT(A) upheld the AO's findings, reiterating that the activities of the appellant did not transform the original material into a new article or thing. The CIT(A) relied on several judicial pronouncements, including Niemla Textiles Finishing Mills (P) Ltd. Vs. ITO, V. M. Salgocar Bros. (P) Ltd. Vs. CIT, and CIT vs. Gem India Manufacturing Co., which held that improving marketability or giving a good finish to an article did not constitute manufacturing.The CIT(A) further emphasized the definition of manufacturing as given by the Hon'ble Supreme Court in various cases, such as Empire Jute Industries Limited V/s. Union of India, Dy. CST Vs. Pio Food Packers, and Aditya Mills Vs. Union of India, which stated that manufacturing involves a transformation resulting in a new commodity with distinct character, name, and use. The CIT(A) concluded that the appellant's activities did not meet this criterion and thus did not qualify as manufacturing.Issue 2: Entitlement to Deduction u/s 80IBThe assessee appealed against the CIT(A)'s decision, relying on an order dated 12.2.2010 of the ITAT Ahmedabad Bench-C in the assessee's own case for AY 2003-04, which concluded that the assessee was entitled to deduction u/s 80IB of the Act. The ITAT, in the present appeal, noted that the facts and circumstances for the year under consideration were similar to those in AY 2003-04. Therefore, the ITAT allowed the claim for deduction u/s 80IB, directing the AO to verify the calculation of the deduction and allow it in accordance with the law, after providing sufficient opportunity to the assessee.Issue 3: General and Additional GroundsGround nos. 1 and 6 in the appeal were deemed general in nature and did not require separate adjudication. No additional ground was raised in terms of the residuary ground no. 5, leading to the dismissal of these grounds.Conclusion:The appeal was partly allowed for statistical purposes, with the AO directed to verify and allow the deduction u/s 80IB in accordance with the law.Order pronounced in the court on 11-06-2010.