2017 (2) TMI 1268 - HC - Income Tax

Court rules in favor of assessee on deductions and late deposits, affirming Tribunal decision. Precedent cited for disallowed payments.

The court held in favor of the assessee on both issues. Regarding the eligibility for deduction under section 10BA, the court found that the activities ... Deduction under section 10BA - proof of fulfillment of the conditions laid down in the Act for claiming the said deduction - scope of manufacturing activity - Held that:- In view of the observations made by the Supreme Court in the case of ITO v. Arihant Tiles and Marbles (P.) Ltd. (2009 (12) TMI 1 - SUPREME COURT) we are of the opinion that the process which has been prescribed by the Tribunal in para 10 clearly covers the process and will cover under section 10BA. Therefore, in our view, the view taken by the Tribunal is just and proper and no interference in the judgment of the Tribunal is called for. The issue is answered in favour of the assessee and against the Department. Issues Involved:1. Eligibility for deduction under section 10BA of the Income-tax Act.2. Deletion of additions for depositing ESI and PF beyond the prescribed time under section 36(1)(va) of the Income-tax Act.Issue-wise Detailed Analysis:1. Eligibility for Deduction under Section 10BA:The primary issue addressed by the court was whether the Income-tax Appellate Tribunal (ITAT) was justified in allowing the deduction under section 10BA of the Income-tax Act, despite the Department's contention that the assessee did not fulfill the conditions laid down in the Act for claiming such deduction.Arguments by the Department:The Department argued that the Tribunal erred in dismissing its appeals and upholding the order of the Commissioner of Income-tax (Appeals) (CIT(A)), which had partly allowed the assessee's appeal and modified the order of the Assessing Officer (AO). The Department emphasized that the assessee did not fulfill the conditions for deduction under section 10BA, as evidenced by the purchases made through form 17B of sales tax and findings during survey proceedings. The Department cited the Supreme Court's decision in CIT v. Gem India Manufacturing Co. [2001] 249 ITR 307 (SC), which held that mere processing of goods does not amount to manufacturing or production.Arguments by the Respondent:The respondent countered by detailing the various processes undertaken by the assessee, which included purchasing semi-finished materials, assembling, hammering nails, fitting brass and iron items, filling, sanding, carving, and polishing. The respondent cited the Supreme Court's decision in ITO v. Arihant Tiles and Marbles (P.) Ltd. [2010] 320 ITR 79 (SC), which held that the term 'production' has a broader meaning than 'manufacture' and includes activities that result in a new product.Court's Analysis:The court examined the detailed processes undertaken by the assessee and found that these activities constituted 'manufacture or production' under section 10BA. The court referred to the Supreme Court's observations in ITO v. Arihant Tiles and Marbles (P.) Ltd., which emphasized that the term 'production' includes activities beyond mere manufacture. The court concluded that the Tribunal's view was just and proper, and the process described by the Tribunal fell under the purview of section 10BA.Judgment:The court held that the Tribunal was justified in allowing the deduction under section 10BA, and the issue was answered in favor of the assessee and against the Department.2. Deletion of Additions for Depositing ESI and PF Beyond the Prescribed Time:The second issue was whether the Tribunal was justified in confirming the deletion of additions for depositing ESI and PF beyond the time prescribed under section 36(1)(va) of the Income-tax Act.Arguments by the Department:The Department contended that the Tribunal erred in confirming the deletion of additions for late deposits of ESI and PF, without appreciating the provisions of section 36(1)(va) of the Act.Court's Analysis:The court referred to its earlier decision in CIT v. State Bank of Bikaner and Jaipur [2014] 363 ITR 70 (Raj), which held that if PF and other contributions are paid after the due date under respective Acts but before filing the return of income under section 139(1), they cannot be disallowed under section 43B or section 36(1)(va) of the Income-tax Act.Judgment:The court noted that an SLP is pending against the aforesaid decision, but for the time being, the issue was answered in favor of the assessee and against the Department.Conclusion:The court dismissed all the appeals, upholding the Tribunal's decision on both issues. The judgment affirmed that the activities undertaken by the assessee qualified for deduction under section 10BA and that the deletion of additions for late deposits of ESI and PF was justified. A copy of the judgment was ordered to be placed in each of the files.