2022 (6) TMI 1162 - AT - Income Tax

Tribunal affirms CIT(A)'s decision on 10AA deduction eligibility despite clerical error.

Income Tax Officer, Ward-2, Junagadh. Versus M/s. D. Jewel

Income Tax Officer, Ward-2, Junagadh. Versus M/s. D. Jewel - TMI Issues Involved:1. Eligibility for deduction under section 10AA of the Income Tax Act, 1961.2. Whether the assessee was engaged in manufacturing activities as required under section 10AA.Detailed Analysis:1. Eligibility for Deduction under Section 10AA:The Revenue contested that the CIT(A) erred in allowing the deduction under section 10AA, which was initially claimed under section 10A. The AO disallowed the deduction, arguing that the assessee did not claim it in the original or revised return and did not file the statutory form required for section 10AA. The AO suggested that the assessee claimed deduction under section 10A to avoid Alternate Minimum Tax (AMT) under section 115JC.The Tribunal noted that deduction under section 10A was discontinued from AY 2012-13 for new units, making it impossible for the assessee to claim it deliberately. The assessee had paid advance and self-assessment tax, indicating no intention to avoid AMT. The Tribunal emphasized that the assessee cannot be deprived of statutory benefits due to a technical error in filing. The Tribunal cited the Rajasthan High Court ruling in CIT vs. Rajasthan Fasteners Ltd., where a clerical mistake in claiming the correct section was not grounds for disallowing eligible exemptions. The Tribunal concluded that the assessee's use of form 56F (meant for section 10A) was due to the absence of a prescribed form for section 10AA at that time, and the error was inadvertent.2. Engagement in Manufacturing Activities:The AO argued that the assessee was not engaged in manufacturing activities, a prerequisite for section 10AA benefits. The AO based this on several findings, including the purchase of finished gold ornaments from a sister concern, lack of necessary plant and machinery, insufficient raw material purchases, and minimal salary expenses implying insufficient skilled manpower.The Tribunal examined the definition of 'manufacture' under section 10AA and the SEZ Act, which includes activities like assembling, processing, and bringing into existence a new product. The Tribunal found that the assessee's unit in SEZ Sachin was granted permission for manufacturing activities, and the assessee had entered into an agreement specifying responsibilities for assembling and processing gold ornaments into studded jewellery. The Tribunal noted that the assessee had sufficient labor and incurred significant labor expenses, supporting the claim of manufacturing activities.Conclusion:The Tribunal upheld the CIT(A)'s order, allowing the deduction under section 10AA. It found that the assessee was eligible for the deduction despite the initial clerical error in filing under section 10A and confirmed that the assessee was engaged in manufacturing activities as required under section 10AA. The appeal filed by the Revenue was dismissed.