THE COMMR. OF INCOME TAX-III, LDH. vs. M/S OSWAL KNIT INIDA LTD.

ITA/56/2005HC Punjab & HaryanaPHHC01069222200522 February 2012Author: MR. JUSTICE ALOK SINGH,MR. JUSTICE M.M. KUMAR14 pages
AI SummaryDismissed

What were the facts?

The Revenue (Commissioner of Income Tax) filed appeals against orders of the Income Tax Appellate Tribunal (ITAT) for Assessment Years 1994-95 and 1995-96 concerning M/s Oswal Knit India Ltd. The assessee, a hosiery garment manufacturer, declared an income of ₹1,47,810 for AY 1994-95. The Assessing Officer (AO) made an addition of ₹26,63,090 by disallowing deductions under Sections 80-HHC and 80-I, holding that the assessee did not manufacture pullovers but merely purchased 'Flats' from a sister concern and subjected them to minor processes. The CIT(A) partly upheld the disallowances. The ITAT dismissed the Revenue's appeals, partly allowing the assessee's appeals for statistical purposes.

What did the High Court hold?

The High Court held that the processing of 'Flats' into finished pullovers constituted 'manufacture' or 'production' under Section 80-I of the Income-tax Act, 1961. The Court reasoned that the numerous processes undertaken by the assessee, such as mending, tailoring, linking, and finishing, resulted in a new and distinct marketable product with a different character and use, as evidenced by the substantial cost of processing (`45/- per piece). This transformation satisfied the definition of 'manufacture' as per Section 2(29BA) of the Act. The Court distinguished this from the processing of blankets and mufflers, where the processes were deemed insignificant and did not result in a new marketable product. The Court approved the findings of the CIT(A) and the ITAT, noting that the activities were recognized as 'manufacture' by various authorities and that denying the benefit would have serious revenue consequences. The Revenue's appeals were dismissed.

What were the issues?

1. Whether the processing of 'Flats' (knitted sides of pullovers) into finished pullovers by the assessee constitutes 'manufacture' or 'production' of articles or things, thereby entitling the assessee to deductions under Section 80-I of the Income-tax Act, 1961, as a question of law? Assessee's contention: The assessee argued that substantial processing, involving multiple steps like mending, tailoring, linking, and finishing, transforms the 'Flat' into a distinct and marketable product (pullover), justifying the deduction. They relied on the cost incurred for processing (`45/- per pullover) to demonstrate the significance of the transformation. Revenue's contention: The Revenue contended that the assessee did not undertake manufacturing activities as they purchased 'Flats' and performed only minor operations, thus not fulfilling the basic statutory condition of manufacturing or producing articles. They argued that the processes did not amount to manufacturing.

Which sections of the Income-tax Act were involved?

Section 260A,Section 143(3),Section 80-HHC,Section 80-I,Section 80IA(2)(iii),Section 2(29BA)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

Date of Decision: February 22, 2012

1.

ITA No. 28 of 2004 (Assessment Year 1994-95)

The Commissioner of Income Tax-III, Ludhiana …Appellant Versus

M/s Oswal Knit India Ltd. Ludhiana …Respondents

2.

ITA No. 56 of 2005 (Assessment Year 1995-96)

The Commissioner of Income Tax-III, Ludhiana …Appellant Versus

M/s Oswal Knit India Ltd. Ludhiana …Respondents

CORAM: CORAM: CORAM: CORAM: HON'BLE MR. JUSTICE M.M. HON'BLE MR. JUSTICE M.M. HON'BLE MR. JUSTICE M.M. HON'BLE MR. JUSTICE M.M. KUMAR KUMAR KUMAR KUMAR

HON'BLE MR. JUSTICE ALOK SINGH HON'BLE MR. JUSTICE ALOK SINGH HON'BLE MR. JUSTICE ALOK SINGH HON'BLE MR. JUSTICE ALOK SINGH

Present: Mr. Rajesh Katoch, Advocate,

for the appellant.

Mr. Sandeep Goyal, Advocate and

Mr. Rishab Singla, Advocate,

for the respondent.

1.

To be referred to the Reporters or not? Yes

2.

Whether the judgment should be reported in the Digest? Yes

M.M. M.M. M.M. M.M. KUMAR, KUMAR, KUMAR, KUMAR, J.J.J.J.

1.

This order shall dispose of ITA Nos. 28 of 2004 and 56 of 2005, filed by the revenue under Section 260A of the

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 80-I

All 128 judgments and leading authorities on Section 80-I →

Recent GST High Court judgments

Search GST case law →