2012 (8) TMI 673 - AT - Income Tax

Tribunal rules against Revenue's appeal, upholds assessee's deduction eligibility.

The Tribunal dismissed the Revenue's appeal, affirming that the reopening of the assessment was invalid as it was based on a change of opinion. It also ... Validity of reopening of assessment on ground of inadmissible deduction u/s 80IB – assessee being industrial undertaking manufacturing embroidery material and doing job work of embroidery garments, claimed deduction u/s 80IB in its return, assessment of which had been completed u/s 143(3) - assessee contended change of opinion – Held that:- It is undisputed that AO had accepted the claim and the amount has been mentioned clearly in the computation form signed by the AO and appended to the original assessment order. Also, prior to the completion of original assessment on 16.5.2006, there was a proceeding initiated u/s 154 on 17.5.2006. On the face of such facts, it is difficult to believe that the AO had not formed any opinion regarding the claim of Section 80-IB deduction when he was framing the original assessment. Opinion was certainly formed though not expressed. Reopening hence not justified. On merits it is held that it is an admitted position that assessee was doing embroidery work on cloth. There is a processing which has been done on cloth when embroidery work is done. It is not a question of simple value addition. Not only has the original raw material undergone a qualitative change but in the process a number of materials have been used. The process cannot be reversed to obtain the original material back. Hence, assessee was indeed engaged in manufacturing activity and eligible for deduction u/s 80-IB – Decided against Revenue. Issues Involved:1. Jurisdiction of reopening the assessment under Section 147 of the Income-tax Act, 1961.2. Eligibility of the assessee for deduction under Section 80-IB of the Income-tax Act, 1961.Detailed Analysis:1. Jurisdiction of Reopening the Assessment:The Revenue questioned the quashing of the assessment by the CIT(Appeals), arguing that the reopening was based on a change of opinion. The assessee, engaged in embroidery works, had filed its return declaring income and claimed deductions under Sections 80-IA and 80G. The original assessment was completed under Section 143(3), accepting the returned income. The reopening notice under Section 148 was issued later, questioning the eligibility for deduction under Section 80-IB.The CIT(Appeals) held that the reopening was based on a mere change of opinion without any tangible material, thus invalid under the amended Section 147. The Revenue argued that the original assessment did not consider the Section 80-IB claim, implying non-application of mind, and thus, reopening was justified.The Tribunal found that the Assessing Officer (A.O.) was aware of the Section 80-IB claim during the original assessment, as evidenced by a prior Section 154 notice. The Tribunal cited the principle from CIT v. Kelvinator of India Ltd. that an assessment order implies application of mind, and reopening based on a change of opinion is invalid. Thus, the Tribunal upheld the CIT(Appeals) decision, dismissing the Revenue's ground on jurisdiction.2. Eligibility for Deduction under Section 80-IB:The second issue was whether the assessee's activity of embroidery work constituted manufacturing, qualifying for deduction under Section 80-IB. The A.O. argued that the assessee's work was mere value addition, not manufacturing, and thus disallowed the deduction in the reassessment.The CIT(Appeals) found that the assessee's process transformed raw materials into a distinctly different end product, constituting manufacturing. The Tribunal supported this view, noting that the end product was not merely value-added cloth but entirely different items like badges and designs, which could not revert to their original form.The Tribunal referenced the Supreme Court's reversal of the jurisdictional High Court's decision in CIT v. Veena Textiles P. Ltd., affirming that embroidery work constitutes manufacturing. Thus, the Tribunal upheld the CIT(Appeals) decision, confirming the assessee's eligibility for deduction under Section 80-IB.Conclusion:The Tribunal dismissed the Revenue's appeal, affirming that the reopening of the assessment was invalid as it was based on a change of opinion. It also confirmed that the assessee's embroidery work qualified as manufacturing, making it eligible for deduction under Section 80-IB. Consequently, the cross-objection by the assessee was deemed infructuous. The judgment was pronounced on June 15, 2012, in Chennai.