2018 (6) TMI 60 - AT - Income Tax

ITAT upholds CIT(A) decision on deduction claim under Section 80IC

The Income Tax Appellate Tribunal (ITAT) upheld the Commissioner of Income Tax (Appeals) [CIT(A)]'s decision, dismissing the Revenue's appeal regarding ... Allowability of deduction under section 80IC - manufacturing versus job-work - relevance of employee statements in assessment - evaluation of substantial expansion of plant and machinery - finality of appellate order and its preclusive effect in subsequent years - classification as manufacturer under Central Excise - reopening under section 148Allowability of deduction under section 80IC - manufacturing versus job-work - evaluation of substantial expansion of plant and machinery - finality of appellate order and its preclusive effect in subsequent years - classification as manufacturer under Central Excise - relevance of employee statements in assessment - Deduction under section 80IC allowed for Assessment Year 2009-10 (and applied mutatis mutandis to AYs 2006-07, 2007-08 and 2008-09). - HELD THAT: - The Tribunal upheld the CIT(A)'s finding that the assessee was engaged in manufacturing of plastic packaging material and was therefore entitled to deduction under section 80IC. The CIT(A)'s allowance was supported by the remand report under section 250(4) which, after examination of books, bills of plant and machinery, certificates of expansion and approvals, recorded that plant and machinery had increased by more than 50% in the relevant period. The Assessing Officer's contrary conclusion rested heavily on statements of two employees that the assessee performed job-work for packaging; the Tribunal found those statements of limited probative value because one witness admitted joining after the relevant year and because the assessee had produced process charts, details of raw materials, machine lists and statutory registrations (including Central Excise classification and District Industries Centre approvals) demonstrating technical and machine-driven processes (dies, moulds, thermoforming, thermal/pneumatic/hydraulic controls) which go beyond mere packing. Given the prior appellate acceptance (AY 2005-06) based on the remand inquiry and absence of any departmental appeal against that order, the allowability for the earlier year attained finality and the same conclusion governs the subsequent years. The Tribunal dismissed the Revenue's contention that the activity was only job-work and sustained the deletion of the addition. [Paras 9, 10, 12, 13, 14]Order of the CIT(A) allowing deduction under section 80IC for AY 2009-10 is upheld; same finding applied to AYs 2006-07, 2007-08 and 2008-09.Reopening under section 148 - Cross objections challenging validity of reopening under section 148 were not pressed and dismissed accordingly. - HELD THAT: - The assessee raised grounds in cross objections against reopening for AYs 2006-07, 2007-08 and 2008-09. At hearing the learned counsel did not press those grounds; the Tribunal therefore dismissed the cross objections as not pressed without adjudicating the validity of reopening on merits. [Paras 15, 16]Cross objections on reopening under section 148 dismissed as not pressed; appeals and cross objections otherwise dismissed.Final Conclusion: The Tribunal dismissed the Revenue's appeals and the assessee's cross objections (as not pressed on the reopening point), upholding the CIT(A)'s allowance of deduction under section 80IC for AY 2009-10 and applying that conclusion mutatis mutandis to AYs 2006-07, 2007-08 and 2008-09. Issues Involved:1. Deletion of addition on account of claim of deduction under Section 80IC.2. Validity of reopening under Section 148 for Assessment Years 2006-07, 2007-08, and 2008-09.Detailed Analysis:1. Deletion of Addition on Account of Claim of Deduction under Section 80IC:The Revenue was aggrieved by the deletion of an addition of Rs. 1,09,84,998/- on account of the claim of deduction under Section 80IC, which was disallowed by the Assessing Officer (AO). The assessee-firm, engaged in manufacturing plastic packaging materials since 1998 at its unit in Baddi, Himachal Pradesh, claimed eligibility for deduction under Section 80IC due to its location in a notified industrial area. The AO disallowed the deduction, asserting that the assessee was only engaged in packaging for M/s. Gillette India Ltd. and not in manufacturing activities.The assessee provided a detailed explanation of its manufacturing process and agreement with M/s. Gillette India Ltd., arguing that the packaging involved mechanical processes. The AO, however, rejected this contention.Before the Commissioner of Income Tax (Appeals) [CIT(A)], the assessee rebutted the AO’s findings, presenting detailed submissions and material evidence. The CIT(A) noted that a similar issue had arisen in the assessee’s case for the Assessment Year 2005-06, where the claim of deduction under Section 80IC was allowed after detailed discussion. The CIT(A) highlighted that the AO’s primary evidence for denying the deduction was the statement of an employee, who had joined after the relevant financial year, thus lacking knowledge of prior activities.The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)’s decision, noting that the initial claim of deduction under Section 80IC had been allowed after due inquiry and examination of facts, and such allowability had attained finality as no appeal was filed by the Revenue against the CIT(A)’s order for the Assessment Year 2005-06. The ITAT emphasized that the assessee’s activities involved a complex manufacturing process, supported by various certificates and approvals categorizing it as a manufacturer under different laws. The ITAT found no merit in the Revenue’s grounds and upheld the CIT(A)’s order, dismissing the Revenue’s appeal.2. Validity of Reopening under Section 148 for Assessment Years 2006-07, 2007-08, and 2008-09:The assessee challenged the validity of reopening under Section 148 for the Assessment Years 2006-07, 2007-08, and 2008-09 in its Cross Objections. However, at the time of hearing, the assessee’s counsel did not press these grounds. Consequently, the ITAT dismissed the Cross Objections as not pressed.Conclusion:The ITAT dismissed both the Revenue’s appeals and the assessee’s Cross Objections, upholding the CIT(A)’s order allowing the deduction under Section 80IC and confirming the validity of the initial assessment proceedings. The ITAT’s decision emphasized the consistency in allowing the deduction based on substantial evidence and the finality of previous favorable findings for the assessee.