2002 (6) TMI 163 - AT - Income Tax

Tribunal grants deduction claim for manufacturing bicycle pedals under section 80-I for assessment year 1990-91.

The Tribunal overturned the CIT(A)'s decision to sustain the disallowance of a deduction claim u/s 80-I amounting to Rs. 29,616 for the assessment year ... Profit And Gains From Industrial Undertakings Issues Involved:1. Justification of CIT(A) in sustaining the disallowance of the claim u/s 80-I amounting to Rs. 29,616.Summary:Issue 1: Justification of CIT(A) in sustaining the disallowance of the claim u/s 80-I amounting to Rs. 29,616The assessee filed an appeal against the order of CIT(A), Ludhiana, for the assessment year 1990-91, challenging the disallowance of a deduction claim u/s 80-I amounting to Rs. 29,616. The Assessing Officer initially allowed the claim but later reopened the assessment u/s 147, issuing a notice u/s 148, on the grounds that the assessee was not engaged in manufacturing or producing articles or things. The assessee contended that it was involved in manufacturing bicycle pedals by purchasing MS rounds and MS wire, converting them into pedal axles and rods through outside fabricators, and assembling various components using power-driven machines. However, the Assessing Officer disallowed the claim, stating that the assessee was not directly engaged in manufacturing.Upon appeal, the CIT(A) upheld the disallowance, noting that the assessee did not meet the conditions for an industrial undertaking as per section 80-I. The CIT(A) observed that the assessee's machinery was minimal and old, the space was insufficient, and the operations were conducted in a room rented from a partner's relative without paying rent. Additionally, the CIT(A) noted that the initial claim for deduction was made only in the assessment year 1990-91, not in previous years.The assessee argued that it was engaged in manufacturing activities and cited various judgments to support its claim that manufacturing could be done through outside agencies. The Tribunal considered these arguments and referenced several judgments, including those from the Gujarat High Court, Supreme Court, Calcutta High Court, and Bombay High Court, which supported the view that manufacturing could involve outside agencies.The Tribunal concluded that the assessee was engaged in manufacturing bicycle pedals, fulfilling the conditions for deduction u/s 80-I. It noted that the final product, bicycle pedals, was distinct from the raw materials, and the assessee's activities constituted manufacturing. The Tribunal also highlighted that the assessee was registered as a Small Scale Industrial Unit and had significant sales.Therefore, the Tribunal set aside the order of CIT(A) and directed the Assessing Officer to allow the deduction of Rs. 29,616 u/s 80-I, allowing the appeal of the assessee.