PR. C.I.T.UDAIPUR vs. M/S TIRUPATI MICROTECH PVT.LTD.

Facts

The assessee, M/s Tirupati Microtech Pvt. Ltd., was engaged in crushing Zircon sand into Zircon powder, claiming deduction under Section 80IB of the Income Tax Act, 1961. The Assessing Officer (AO) denied the deduction, stating the activity was not manufacturing. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the deduction, holding it was a manufacturing process. The Income Tax Appellate Tribunal (ITAT) and the High Court upheld this decision. The revenue also challenged an addition of ₹6,00,000 made by the AO under Section 68, considering it a suspect entry. The CIT(A) had deleted this addition, finding the evidence insufficient. The revenue filed a review petition against the High Court's order, arguing that the ₹6,00,000 addition was not adequately considered.

Held

The High Court, in its review petition, addressed the issue concerning the ₹6,00,000 addition. It noted that while the AO provided reasons for the addition under Section 68, the CIT(A) had examined the record and found the addition to be based on a third-party statement of an alleged accommodation entry provider. This statement was impeached in cross-examination and subsequently retracted. The Court found that, apart from this statement, there was no other evidence to support the AO's conclusion. The Court reiterated the settled law that if the identity, credit-worthiness, and genuineness of a transaction are prima facie shown, the onus shifts to the revenue. The Court found the CIT(A)'s approach and conclusion on this point to be reasoned and legally supportable. Therefore, the Court held that the absence of a detailed reason in the ITAT's order regarding this aspect did not constitute sufficient cause for recalling the impugned judgment. The review petition was dismissed.

Key Issues

1. Whether the process of converting Zircon Sand into Zircon Powder constitutes manufacturing or production, thereby qualifying for deduction under Section 80IB of the Income Tax Act, 1961? The revenue contended that the activity was not manufacturing. The assessee argued that the end product, zirconium opacifier, was distinct from the raw material, Zircon sand, and resulted from a comprehensive manufacturing process. The High Court had previously upheld the CIT(A) and ITAT's view that it was a manufacturing process. 2. Whether the addition of ₹6,00,000 under Section 68 of the Income Tax Act, 1961, was justified? The revenue argued for the addition. The assessee contended that the addition was based on a third-party statement that was impeached in cross-examination and retracted, with no other supporting evidence. The review petition specifically urged that this aspect had not received adequate consideration by the ITAT and the Court.