TMI Blog2012 (8) TMI 673X X X X Extracts X X X X X X X X Extracts X X X X ..... done on cloth when embroidery work is done. It is not a question of simple value addition. Not only has the original raw material undergone a qualitative change but in the process a number of materials have been used. The process cannot be reversed to obtain the original material back. Hence, assessee was indeed engaged in manufacturing activity and eligible for deduction u/s 80-IB – Decided against Revenue. - I.T.A. No. 700/Mds/2010 C.O. No. 100/Mds/2010 - - - Dated:- 15-6-2012 - SHRI ABRAHAM P. GEORGE, AND SHRI CHALLA NAGENDRA PRASAD, JJ. Revenue by : Shri Shaji P. Jacob, Addl. CIT Assessee by : Shri T. Banusekar, CA O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : These are appeal filed by the Revenue and cross-objection filed by the assessee, both directed against order dated 5.3.2010 of Commissioner of Income Tax (Appeals) I, Coimbatore, for the impugned assessment year. 2. Appeal of the Revenue is taken up first for disposal. Two effective grounds have been taken by the Revenue. First one questions the quashing of assessment by the CIT(Appeals) for a reason that the reopening was done merely on change of opinion and second one questions the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the assessee came to Rs. 1,43,11,850/-, whereas, embroidery and other income came to Rs. 2,00,63,914/-. As per the A.O., assessee was not producing any product like crackers with the help of raw material but doing only embroidery work on sarees and other cloth received from other parties. The work done simply resulted in some value addition and the end product remained nothing but sarees with such value addition. He, therefore, refused to consider the assessee as eligible to claim deduction under Section 80-IB of the Act. Such deduction earlier allowed was disallowed in the re-assessment and the re-assessment was completed accordingly. 5. Assessee, in its appeal before CIT(Appeals) assailing the reopening, submitted that the allowance under Section 80-IB of the Act was a subject matter of rectificatory proceedings initiated prior to the scrutiny proceedings and therefore, the A.O. was seized of the issue of claim of deduction under Section 80-IB of the Act. Original assessment was completed duly considering the claim under Section 80-IB. Further, as per the assessee, there was no additional information which would warrant a reopening, but only a change of opinion on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er had never applied his mind on this aspect during the course of original assessment proceedings. He simply presumed that assessee was eligible under Section 80-IB of the Act and proceeded accordingly. No details were submitted by the assessee during the course of original assessment proceedings. Unless there was an opinion formed, there cannot be a change of opinion. According to him, decision of Hon ble Apex Court in the case of Kelvinator of India Ltd. (supra) relied on by the CIT(Appeals) was misplaced since the question there was whether a reopening could be done based on a change of opinion. No doubt, as per the learned D.R., it was held by Hon ble Apex Court that reopening could not be on a change of opinion. But, here since there was no opinion formed by the Assessing Officer at the time of original assessment proceedings. Thus, it was not a question of change of opinion at all. It was a total nonapplication of mind. Assessee was also not saved by Explanation to Section 147 of the Act since the reopening was admittedly done within four years from the end of the relevant assessment year. Therefore, according to him, the re-assessment was perfectly done. As per learned D.R., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice was issued by the Assessing Officer on 17.5.2005 under Section 154 of the Act, wherein it was proposed to rectify a mistake in the 143(1) intimation. Such mistake was stated to be non filing of Form No.10CCB in support of the claim of deduction under Section 80-IA of the Act. As per the learned A.R., the original assessment was done on 16.5.2006 and Assessing Officer having already issued a notice under Section 154 of the Act, prior to the date of completion of assessment, it could not be stated that he was not aware of the claim of deduction under Section 80- IB. The only claim made by the assessee under Chapter VI-A was the claim of Rs. 7,59,396/- under Section 80-IB of the Act and a sum of Rs. 2500/- under Section 80G of the Act, totalling to Rs. 7,61,896/-. The computation statement signed by the Assessing Officer clearly mentioned that a claim of Rs. 7,61,896/- was being allowed under Chapter VI-A. When a rectification notice stood already issued under Section 154 of the Act on the claim under Section 80-IA, pointing out non-filing of the audit report, it could not be stated that Assessing Officer was not at all aware about such deduction claimed by the assessee under Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Hon ble Apex Court in the case of Honda Siel Power Products Ltd. v. DCIT (340 ITR 64). 11. We have perused the orders and heard the rival submissions. First we will consider the issue whether reopening of assessment was mandated or not. There is no dispute that in the return of income filed, assessee had claimed deduction under Section 80-IB of the Act. There is also no dispute that such a deduction under Section 80-IB of the Act was allowed by the Assessing Officer in the original assessment dated 16.5.2006 without any discussion. Assessing Officer had accepted the claim and the amount has been mentioned clearly in the computation form signed by the Assessing Officer and appended to the original assessment order. As stated by the assessee, it had made two claims under Chapter VI-A of the Act. One was for deduction Rs. 7,59,396/- under Section 80-IB and the other was for deduction Rs. 2500/- under Section 80G. The total profits of the business against which the claim made was Rs. 25,31,319/- as it comes out of the Tax Computation Form appended to the assessment order. The claim for deduction under Section 80G was negligible, coming to Rs. 2500/- only. The body of assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only conclusion that is possible is that when the Assessing Officer was doing the original assessment on 16.5.2006, he was very well aware about the claim of the assessee under Section 80-IB and also aware that Form No.10CCB required for claiming of such deduction was not yet filed by the assessee. On the face of such facts, it is difficult to believe that the Assessing Officer had not formed any opinion regarding the claim of Section 80-IB deduction when he was framing the original assessment. Opinion was certainly formed though not expressed. Hon ble Delhi High Court in the case of CIT v. Kelvinator of India Ltd. (256 ITR 1) (which was upheld by Hon ble Apex Court), had held as under at para 23 of its order:- 23. We also cannot accept submission of Mr. Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded on analysis of the materials on the record by itself may justify the A.O. to initiate a proceeding under s. 147 of the Act. The said submission is fallacious. An order of assessment can be passed either in terms of sub-s. (1) of s. 143 or sub-s. (3) of s. 143. When a regular order of assessment is passed in terms of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue addition. Not only has the original raw material undergone a qualitative change but in the process a number of materials have been used. The process cannot be reversed to obtain the original material back. We cannot obtain the thread or other items used back in original shape. To think that cloth in the original form and shape could have been retrieved, is an error. Further, the CIT(Appeals) has given a finding that assessee was not doing embroidery work on cloth, but, was also producing badges, stickers, special designs, etc. on which also embroidery was done. We are of the opinion that the end product could not be considered as mere value addition or original material. Learned D.R. strongly relied on the decision of Hon ble jurisdictional High Court in Veena Textiles P. Ltd. s case (supra). However, as pointed out by the learned A.R., this decision stood reversed by Hon ble Apex Court in the case of S.S.M. Bros (P) Ltd. (supra). The said appeal before Hon ble Apex Court arose from two civil appeals, namely, Civil Appeal Nos.931 of 1991 and 1775 of 1992. Civil Appeal No.1775 emanated from the decision of jurisdictional High Court in T.C. No.146 of 1979 reported as CIT v. Veena ..... X X X X Extracts X X X X X X X X Extracts X X X X
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