TaxTMI 
TaxTMI 
2019 (11) TMI 603
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....ssessment Year 2002-03 is the initial Assessment Year, as contemplated under clause (c) of subsection 14 of Section 80IB of the Income Tax Act ? (iii) Whether the Appellate Tribunal is justified in law by holding that the testing of optical fiber cable purchased from open market and then selling it after testing, in market amount to production of optical fiber cable? 3. The Assessee is a Public Limited Company engaged in the business of manufacturing and trading of optical fiber cable and accessories, insulated wires and power cable and other telecommunication equipment. On 14th November, 2007, the Appellant filed return of income for the Assessment Year (AY) 2007-08 declaring the income of Rs. Nil, after claiming deduction of Rs. 15,98,63,200/- under Section 80IB of the Income Tax Act, 1961 (IT Act). 4. This return was selected for scrutiny and notice under Sections 142(1) and 143(2) of the IT Act came to be issued to the Appellant. The Appellant filed responses on 4th December, 2009, 14th December, 2009 and 22nd December, 2009. Upon consideration of the same, the Assessing Officer allowed deduction of only 30% of the profit under Section 80IB of the IT Act as again....
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.... Appellant's industrial undertakings began manufacturing in the Assessment Year 2002-03. He relies on Commissioner of Income Tax, Poona Vs Hindustan Antibiotics Ltd. 93 ITR 548 (BOM) to submit that the trial production or production for the purpose of testing does not amount to manufacture for the purpose of Section 80IB of the IT Act. He submits that inasmuch as this aspect has not been considered by both the Assessing Officer and the ITAT in its proper legal perspective, the substantial questions of law as framed, are required to be answered in favour of the Appellant and against the Revenue. 9. Mr. Rivankar submits that both the Assessing Officer as well as the ITAT have failed to appreciate that the object of the provisions in Section 80IB was to encourage the establishment of new industrial undertakings in backward areas and in that sense the provisions in Section 80IB are the provisions of beneficial to the Assessee. He submits that the Assessing Officer as well as the ITAT should therefore have adopted the principles of beneficial and construction in the matter, even when it came to appreciating the material on record, which clearly establishes that the actual manufac....
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....ference in the impugned orders. 12. Ms. Razaq points out that the substantial questions of law urged by the Appellant proceed on the basis that the manufacturing activities and the production of finished goods in Assessment Year 2002-03 was admitted to be on trial basis or for the purpose of testing by the Revenue. She submits that such position was never admitted but on the contrary it was consistent case of the Revenue that the manufacturing began in the Assessment Year 2002-03. Accordingly, she submits that the decisions in Hindustan Antibiotics Ltd., (supra), Himalayan Magnesite Ltd.,(supra) and Emptee Poly-Yarn P. Ltd., (supra) are clearly distinguishable and inapplicable. 13. Ms. Razaq relies on Income Tax Officer, Udaipur Vs Arihant Tiles and Marbles (P) Ltd., 320 ITR 79 (SC) to submit that even the conversion of marble blocks by sawing into slabs and tiles and polishing amounts to manufacture or production of articles or thing under Section 80IA of the IT Act. She submits that the material on record clearly establishes that the Appellant made value additions to the material procured from outside sources and thereafter finished products were sold in terms of purchase o....
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....ustries, Sales Tax Authority and even the Central Excise Authority, in which they categorically stated that they had commenced manufacture in the Assessment Year 2002-03. Mr. Rivankar himself pointed out that in the Assessment Year 2007-08, there was no definition "manufacture" in the IT Act. Since the Appellant itself declared that it had commenced the manufacture during the Assessment Year 2002- 03, it was for the Appellant to explain as to how such manufacture was not required to be treated as manufacture for the purpose of provisions in Section 80IB of the IT Act. Merely stating that the position under the various enactments is different and is too vague and the explanation to trickle out from the admissions made by the Appellant themselves before various statutory authorities. It is pertinent to note that on the basis of such declarations and returns the Appellant derived advantages under the respective statutes. 17. The ITAT has noted that the Appellant has went to the extent of contending that the declarations made in the Assessment Year 2002-03 were result of inadvertent mistake. The ITAT however noted that no material was produced on record to indicate that any admissio....
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.... Accordingly, the first substantial question of law is required to be answered against the Appellant and in favour of the Revenue. 22. In Hindustan Antibiotics Ltd., (supra), the factual position was very clear inasmuch as crude penicillin which was produced as a precursor to sterile penicillin which was final saleable product, was not even ultimately sold by the Assessee. In the said case, there was no material that the products were actually sold to any purchasers and it is in this context, it was held that mere trial production or production for the purpose of testing does not amount to any manufacture. Taking into consideration the established factual position in the present case, the decision in the case of Hindustan Antibiotics Ltd. (supra) can be of no assistance to the Appellant. 23. In Himalayan Magnesite Ltd.,(supra), it was held that there should be manufacturing, the production must be with a view to sell the manufactured goods or articles in the market. In the present case, the material on record establishes that the Appellant on the basis of purchase orders received, processed the material by making value additions. The final product sold which was quite differe....