Assessment Reopening Valid; Deductions Denied; Appeals Dismissed; Assessment Reopen Direction Vacated

The Tribunal upheld the validity of reopening the assessment for A.Y. 2006-07, denied the deduction u/s.10B for the assessee's activities not qualifying as manufacturing, and found the assessee did not meet conditions for deduction u/s.10B(2)(ii) & (iii). The Tribunal dismissed appeals for A.Y. 2008-09 to 2011-12, affirming the denial of deduction u/s.10B, and vacated the CIT(A)'s direction to reopen assessments for A.Y. 2003-04, 2004-05, and 2007-08.

---

---

Issues Involved:
1. Validity of reopening of assessment.
2. Whether the assessee is engaged in the business of manufacture or production of an article or thing.
3. Fulfillment of conditions laid down in section 10B(2)(ii) & (iii) of the Income Tax Act to claim deduction u/s.10B.
4. Direction to reopen the concluded assessments for previous years.

Detailed Analysis:

1. Validity of Reopening of Assessment:
The first issue pertains to the validity of reopening the assessment after the assessee disclosed all details with the return of income, arguing that the AO did not find any fresh information to justify reopening. The AO reopened the assessment for A.Y. 2006-07 based on findings from the A.Y. 2008-09, where the claim u/s.10B was disallowed due to non-fulfillment of conditions in sec.10B(2)(i) and 10B(2)(iii). The CIT(A) upheld the reopening, stating that there was no scrutiny assessment earlier and that the AO had correctly recorded reasons for believing there was escapement of income. The Tribunal agreed with the CIT(A), citing the Supreme Court judgment in ACIT v. Rajesh Jhaveri Stock Brokers P. Ltd. (291 ITR 500), which allows the AO to issue notice u/s.148 for income escaping assessment in an intimation under sec.143(1). Thus, the reopening of the assessment for A.Y. 2006-07 was deemed valid.

2. Whether the Assessee is Engaged in the Business of Manufacture or Production of an Article or Thing:
The second issue is whether the assessee's activities qualify as manufacturing or production under sec.10B. The assessee argued that their process of extracting meat from live crabs constitutes manufacturing. The CIT(A) and AO disagreed, stating that the activities did not result in a new article or thing, and thus did not qualify as manufacturing. The Tribunal upheld this view, emphasizing that the process did not change the original identity of the commodity and thus did not constitute manufacturing. The Tribunal referred to various judgments, including the Special Bench decision in B.G. CHITALE v. DCIT, which held that pasteurization of milk is processing, not manufacturing. The Tribunal concluded that the assessee's activities were processing, not manufacturing, and thus did not qualify for deduction u/s.10B.

3. Fulfillment of Conditions Laid Down in Section 10B(2)(ii) & (iii) of the Income Tax Act to Claim Deduction u/s.10B:
The third issue involves whether the assessee fulfilled conditions in sec.10B(2)(ii) & (iii), specifically whether the undertaking was formed by splitting up or reconstruction of a business already in existence and whether it was formed by transfer of used machinery. The CIT(A) and AO found that the assessee purchased machinery from M/s. Baby Marine Exports, which was previously used, and thus did not meet the conditions. The Tribunal supported this finding, noting that the assessee could not produce invoices to prove the machinery was new and that the onus of proof was on the assessee. The Tribunal concluded that the assessee did not meet the conditions for deduction u/s.10B.

4. Direction to Reopen the Concluded Assessments for Previous Years:
The final issue is the CIT(A)'s direction to reopen assessments for A.Y. 2003-04, 2004-05, and 2007-08. The Tribunal found that the CIT(A) exceeded their jurisdiction by directing the reopening of concluded assessments for years not under appeal. Thus, the Tribunal vacated this part of the CIT(A)'s order.

Conclusion:
The appeals for A.Y. 2005-06 and 2006-07 were partly allowed, affirming the validity of reopening the assessment and denying the deduction u/s.10B. The appeals for A.Y. 2008-09, 2009-10, 2010-11, and 2011-12 were dismissed, upholding the denial of deduction u/s.10B. The direction to reopen assessments for A.Y. 2003-04, 2004-05, and 2007-08 was vacated.

---