M.M. Sundresh JUDGMENT
M.R. Shah, J.
1. Feeling aggrieved and dissatisfied with the impugned judgment and order dated 25.02.2014 passed by the High Court of Karnataka at Bengaluru in Income Tax Appeal No. 623/2007, by which the High Court has allowed the said appeal preferred by the Revenue, the Assessee has preferred the present appeal.
2. The facts leading to the present appeal in nutshell are as under:
That the Appellant - Assessee is having a manufacturing unit at Pune in which the Appellant - Assessee is manufacturing 'polyurethane foam,' which is ultimately used as automobile seat. The Assessee filed its return of income for the assessment year 2003-04 and claimed deduction Under Section 80-IB of the Income Tax Act (for short, 'IT Act'). The assessing officer disallowed the deduction Under Section 80-IB of the IT Act by observing that the nature of the business of the Assessee is "manufacturer of polyurethane foam seats" which falls under entry 25 to the Eleventh Schedule of the IT Act and therefore the Assessee shall not be entitled to deduction Under Section 80-IB. However, it was the case on behalf of the Assessee that different sizes of polyurethane foam are used as automobile seats and therefore the end product can be said to be the automobile seat which is different than the polyurethane foam and therefore the same does not fall under entry 25 to the Eleventh Schedule of the IT Act. However, the assessing officer did not accept the same by observing that as 'polyurethane foam' is made of Polyol and Isocyanate and other components, the deduction Under Section 80-IB of the IT Act cannot be given to the Assessee-company as Section 80-IB(2)(iii) states that the benefit of deduction under the said Section cannot be given if the Assessee manufactures or produces any Article or thing specified in the list in the Eleventh Schedule of the IT Act.
2.1. The Assessee preferred an appeal before the Commissioner of Income Tax (Appeals) (for short, 'CIT(A)) against the assessment order. The CIT(A) upheld the order of the assessing officer. The CIT(A) observed that the two chemicals, namely, Polyol and Isocyanate used in the manufacture of polyurethane foam seats assemblies were the basic ingredients of polyurethane foam and therefore the case would squarely fall in what is specified in the Eleventh Schedule.
2.2. Against the order of the CIT(A), the Assessee filed an appeal before the Income Tax Appellate Tribunal (for short, 'ITAT'). The ITAT set aside the assessment order as well as the order passed by the CIT(A) and allowed the appeal filed by the Assessee by observing that polyurethane foam was neither produced as a final product nor is an intermediate product nor is a by-product by the Assessee and the same was used as automobile seat and therefore does not fall within entry 25 to Eleventh Schedule of the IT Act and therefore the Assessee shall be entitled to claim deduction Under Section 80-IB of the IT Act. The order passed by the ITAT has been set aside by the High Court, by the impugned judgment and order specifically observing that what ........