2011 (7) TMI 1273 - AT - Income Tax

Tribunal Upholds Income Tax Exemption for Manufacturing Activities

The Income-tax Officer Ward 6 (2), Jaipur Versus Smt. Ranjana Johari, Prop. M/s. Global Art Exports and vice-versa

The Income-tax Officer Ward 6 (2), Jaipur Versus Smt. Ranjana Johari, Prop. M/s. Global Art Exports and vice-versa - TMI Issues Involved:1. Reopening of assessment by issuing notice under section 148.2. Disallowance of exemption under section 10BA.3. Disallowance on account of belated deposit of employees' contribution.Issue-Wise Detailed Analysis:1. Reopening of Assessment by Issuing Notice Under Section 148:The assessee challenged the reopening of the assessment by issuing notice under section 148. However, during the course of the hearing, the counsel for the assessee did not press this issue. Consequently, the cross-objections related to this issue were dismissed as not pressed.2. Disallowance of Exemption Under Section 10BA:The primary issue in the appeals was the disallowance of exemption under section 10BA. The Assessing Officer (AO) disallowed the exemption claimed by the assessee, arguing that the business activity carried out by the assessee did not qualify as a manufacturing process. The AO contended that the assessee was engaged in purchasing readymade furniture, performing minor polishing and finishing work, and then exporting it. The AO cited various judicial decisions to support the view that the activities performed by the assessee did not constitute manufacturing.The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who allowed the exemption under section 10BA. The CIT(A) examined the detailed submissions and evidence provided by the assessee, including affidavits from suppliers and contractors. The CIT(A) concluded that the assessee was engaged in manufacturing eligible articles or things with artistic value, fulfilling all the conditions specified under section 10BA. The CIT(A) noted that the assessee carried out substantial manufacturing activities, transforming raw materials into distinct commercial products recognized by the importers.The CIT(A) also referenced similar cases, such as the decisions in the cases of Kwal Pro Exports and Mangalam Arts, where the Tribunal had allowed the exemption under section 10BA. The CIT(A) found that the assessee's activities were in line with these precedents and allowed the exemption for all three assessment years.The department appealed against the CIT(A)'s decision, arguing that the assessee was merely a processor and did not perform substantial manufacturing activities. However, the Tribunal upheld the CIT(A)'s decision, noting that the assessee incurred substantial expenditure on manufacturing activities and employed both its own labor and contract labor. The Tribunal found no evidence to contradict the assessee's claim of manufacturing eligible articles and confirmed the CIT(A)'s findings.3. Disallowance on Account of Belated Deposit of Employees' Contribution:For the assessment years 2004-05 and 2005-06, the department challenged the deletion of disallowance made on account of the belated deposit of employees' contribution. The CIT(A) deleted the disallowance, observing that the payments were made before the due date for filing the return. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in the case of Vinay Cement Ltd., which held that no disallowance should be made under section 43B if the payments were deposited before the due date for filing the return.Conclusion:The Tribunal dismissed the department's appeals and the assessee's cross-objections, confirming the CIT(A)'s findings on all issues. The assessee was entitled to the exemption under section 10BA, and no disallowance was warranted for the belated deposit of employees' contributions.