Appeal dismissed for violating CBDT instruction; Assessee allowed deduction for manufacturing activities

The Revenue's appeal was found not maintainable due to violating CBDT Instruction No. 2 of 2005, which limits appeals based on tax effect. The Tribunal upheld the assessee's entitlement to deduction u/s 80-IB for manufacturing activities. The notice u/s 148 was deemed invalid as it was issued after four years and constituted a change of opinion. The addition for low household withdrawals was upheld but became irrelevant due to the invalid notice. The Department's appeal was dismissed, and the assessee's cross-objection was partly allowed.

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Issues Involved:
1. Maintainability of the appeal by the Revenue in light of CBDT Instructions and s. 268A.
2. Entitlement of the assessee to deduction u/s 80-IB.
3. Validity of notice u/s 148.
4. Addition on account of low household withdrawals.

Summary:

Issue 1: Maintainability of the Appeal

The Revenue's appeal was challenged based on CBDT Instruction No. 2 of 2005, which restricts appeals where the tax effect is up to Rs. 2 lacs. The learned Authorised Representative argued that s. 268A, inserted by the Finance Act, 2008, gives statutory recognition to these instructions. The Tribunal agreed, stating that the monetary limit must be considered before admitting the appeal. The Tribunal found the appeal not maintainable as it violated CBDT Instruction No. 2 of 2005.

Issue 2: Entitlement to Deduction u/s 80-IB

On the merits, the Tribunal upheld the first appellate order allowing the deduction u/s 80-IB. The assessee, a small-scale industrial undertaking, was engaged in manufacturing and producing tiles and slabs from raw sandstone blocks. The Tribunal noted that the activities were regarded as manufacturing by the District Industrial Forum and the Department of Commercial Taxes. The Tribunal also referenced the jurisdictional High Court's decision in Arihant Tiles & Marbles (P) Ltd. vs. ITO, which supported the assessee's claim. The ground raised by the Revenue was rejected.

Issue 3: Validity of Notice u/s 148

The assessee objected to the issuance of notice u/s 148, arguing it was based on a change of opinion and issued after four years of filing the return. The Tribunal found merit in this objection, noting that the jurisdictional High Court had already decided a similar issue in favor of the assessee in Arihant Tiles & Marbles (P) Ltd. vs. ITO. The Tribunal held the notice u/s 148 invalid and set aside the assessment made in furtherance to the said notice.

Issue 4: Addition on Account of Low Household Withdrawals

On the addition of Rs. 34,250 for low household withdrawals, the Tribunal found no reason to interfere with the lower authorities' findings. The AO had rightly estimated household expenses for a family of six members. However, this finding became academic due to the invalidity of the notice u/s 148.

Conclusion:

The appeal by the Department was dismissed, and the cross-objection by the assessee was partly allowed.

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