TMI Blog2014 (9) TMI 569X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri P. K. Bansal And Shri D. T. Garasia,JJ. For the Petitioner : Vardhama Jain, Adv. Sandip Bhandare, CA For the Respondent : Banjul Barthakur, Ld. DR ORDER Per P. K. Bansal 1. All these appeals have been filed by the Revenue against the common order of CIT(A) dt. 23-01-2014 by taking the following common effective grounds of appeal : 1. The Ld CIT(A) has erred in allowing the assessee s appeal by allowing the claim of deduction claimed u/s 80IB for unit-II without considering the merit of the case. 2. The Ld CIT(A), has erred in saying that unit-II is an independent manufacturing unit eligible for deduction u/s 80IB of the I.T. Act and allowed the deduction u/s 80IB(4) on profit of said unit. 2. The brief facts of this case are relating to the grounds of appeal taken by the Revenue are that during the Assessment Year 2008-09, the Assessing Officer while examining the claim of the assessee u/s 80IB(4) for Unit-I for Lift Control Penal eligible for 30% deduction as it was 7th Assessment Year and Unit-II for Wire Harness eligible for 100 % deduction as being 5th Assessment Year. It was noted that the Assessee is basically into the production of L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AY 2005-06 and, written submissions filed by the assessee with relevant case laws the claim of the assessee u/s 80IB for Unit-II is allowed. Against the said order, the Revenue went in appeal before the Tribunal. The Assessee went in appeal against the re-assessment which was re-opened u/s 147 relating to A.Y 2003-04 to 2007-08. CIT(A) disposed off all the appeals by one common order dt. 18.4.2013 relating to A.Y 2004-05 to 2009-10. When the matter went before the Tribunal, the Tribunal vide its consolidated order dt. 25.10.2013 set aside the order of the CIT(A) dt. 18.4.2013 for the A.Y 2004-05 to 2009-10 and directed the CIT(A) to re-decide the issue afresh in accordance with the law by holding as under : 5. We have heard the rival submission and carefully considered the same. We noted from the submission made by the Learned DR and not disputed by the Learned AR that the assessment order for the Assessment Year 2005-06 which was passed u/s 143(3) r.w. Section 263 dated 4.5.2010 was re-opened u/s 147 and the claim allowed to the assessee u/s 80IB in respect Unit-II during the Assessment Year 2005-06 vide order dated 4.5.2010 was disallowed by the Assessing Officer vide his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer u/s 143(3) r.w. Section 263 dated 4.5.2010 accepting the claim of the deduction u/s 80IB for Unit-II. This order, in our opinion, no more remains in existence as this assessment order has been re-opened by the Revenue u/s 147 and revenue has disallowed deduction U/s 80IB to assessee in this year also. CIT(A) subsequently re-decided all the appeals vide its order dt. 23.1.2014 i.e. impugned order before us. CIT(A) ultimately took the view that Unit-I and Unit-II are distinct and separate units and Unit-II is engaged in manufacturing activity and in consequence directed the AO to allow the claim of deduction u/s 80IB by observing as under : During the course of appellate proceedings, Shri Mahendra Khandeparkar, Director of the appellant company had also appeared and I tried to understand the difference between two products, i.e. Control Panels and wire-harnesses. What I understood is that Control Panels are more of electronic item. It receives and relays order electronically, so that the Lift moves from one floor to another at the wish of the operator. On the other hand wire-harness is used to take the Electrical commands of the entire lift. It s a importan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... momentum. Any malfunction shall result in a tragedy and therefore, one has to understand that the wire-harness is different and a highly specialised product and goes through complicated technical processes and strict quality testing. In view of the above, I have not even an iota of a doubt that this process is a process of manufacturing and nothing else. Since unit-II is engaged in the manufacturing of wire-harnesses, it is eligible for claim of deduction u/s 80IB. 3. The ld. DR before us relied on the order of the AO while the ld. AR reiterated the submissions made before the CIT(A). The Ld. AR contended that both the units are manufacturing different products. Unit-I is manufacturing control panels which is more of electrical and electronic equipment used in the installation and working of lift and elevators. Unit-II in respect of which the Assessee claimed deduction u/s 80IB @ 100% was started in the financial year 2003-04. Adjacent land to Unit-I was purchased for establishing Unit-II. Unit-II is engaged in manufacturing of wire harness which is completely different product than the control panels. The workers and employees working in Unit-I Unit-II are different. There a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... percentage and for such number of assessment years as specified in this section . Sub-section (2) lays down the conditions which must be fulfilled by an industrial undertaking which are re-produced as under : 80IB(2) This section applies to any industrial undertaking which fulfils all the following conditions, namely : (i) it is not formed by splitting up, or the reconstruction, of a business already in existence : Provided that this condition shall not apply in respect of an industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section ; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose ; (iii) it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India : Provided that the condition in this clause shall, in relation to a small scale industrial undertaking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... testing. The finished product which comes out cannot be regarded to be raw material. Manufacturing is the end result of one or more processes through which the original commodity is made to pass. Sec. 80IB does not define the word manufacture‟. The word manufacture‟ was earlier defined under explanation (3) to Sec. 10B for the purpose of that section to include any (a) process or (b) assembling or (c) recording of programme on disc, tape, perforated media or other information storage device. Thus, process‟ was included within the word manufacture for the purpose of sec. 10B. Explanation (iv) of the said sec. 10B further provided that the word produce‟ for the purpose of said section, in relation to any article or thing shall include production of computer programme. The definition given under this section is, in our opinion, equally applicable for the word manufacture‟ and production‟ to determine whether the Assessee manufactures or produces any article or thing. CBDT in its circular no. 528 dt. 16.12.1988 clarified that the expression manufacture‟ for the purpose of both sections 10A and 10B of the said Act would include any proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticle or thing into a new and distinct object or article or thing having a different name, character and use or (b) Bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure. 4.2 In CIT Vs N.C. Budharaja Co. (1993) 204 ITR 412 (SC), Hon ble Supreme Court further observed that the word production is much wider than the word manufacture . It was said (page 423): The word production has a wide connotation than the word manufacture . While every manufacture can be characterized as production, every production need not amount to manufacture The word production or produce when used in juxtaposition with the word manufacture takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods. 4.3 In Christian Mica Industries Ltd. Vs. State of Bihar (1961) 12 STC 150 (SC), Hon ble Supreme Court defined the word production‟, albeit, in connection with the Bihar Sales Tax Act, 1947. The definition was adopted from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ble High Court allowing the appeal of the assessee held that the assessee was exclusively engaged in blending and packing of tea for export and was not manufacturing or producing any other article or thing. It was recognized as a 100% EOU division and the Department had no case that the assessee‟s unit engaged in export of tea bags and tea packets was not a 100% EOU. If exemption was denied on the ground that products exported were not produced or manufactured in the industrial units of the assessee‟s 100% EOU, it would defeat the very object of section 10B of the Act. (similar to assessee‟s case). Further, industrial units engaged in the very same activity, i.e., blending, packing and export of tea in the special economic zones and free trade zones, would continue to enjoy tax exemption under section 10A of the Act and section 10AA of the Act respectively. The assessee was allowed exemption on the profit derived by its 100% EOU engaged in blending, packing and export of tea bags and tea packets. Hon ble High Court held as under: The finding of this court is that the purpose of incorporation of section 2(r) of the Special Economic Zones Act, 2005, into secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case [2007] 292 ITR 444 (SC) is not applicable for the purpose of considering exemption for industries in the export processing zones, free trade zones and to 100 per cent export oriented units covered by sections 10A, 10AA and 10B of the Income-tax Act. Therefore, following the judgment of this court above referred to we hold that the assessee is entitled to exemption on the profit derived by its 100 per cent export oriented unit engaged in blending, packing and export of tea bags and tea packets. Consequently, we allow the appeals by reversing the orders of the Tribunal and by restoring the orders of the first appellate authority declaring the appellant s entitlement for exemption. The Hon ble High Court in this case, in our opinion, has clearly laid down that once the assessee is recognized as a 100% EOU for engaging in an activity and assessee is engaged in the same very activity, if the exemption is denied to the assessee on the ground that there is no production or manufacturing but only processing of the products exported in the 100% export oriented unit, the same would defeat the very object of section 10B. The Hon ble high court took the view that the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption u/s 10B in respect of export of blending of tea. The rejection of exemption u/s 10B was confirmed by the CIT(A). When the matter went before the special Bench, Special Bench after discussion the relevant provisions as well as the various decisions of High Court and the Supreme Court held as under:- 32. The provisions of section 10AA of the Act was inserted on the statute book by the Special Economic Zones Act, 2005 w.e.f. 10.02.2006. Even prior to the enactment of the said SEZ Act, Special Economic Zones (including units therein) were all along treated like EQU / FTZ / EPZ for all purposes whatsoever and were dealt within the Exim Policy accordingly. Section 2(k) of the Special Economic Zone Act, 2005 defines the expression Existing Special Economic Zone to mean every Special Economic Zone which is in existence on or before the commencement of the said Act. Section 2(e) defines the expression existing unit to mean every unit which has been set up on or before the commencement of the said Act in an existing Special Economic Zone. In other words, admittedly all Special Economic Zones were also being governed by the Exim Policy prior to the enactment of SEZ Act, 2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Black Tea , Instant Tea and Made Tea have also been distinctly and separately defined. Clause (29BA) was inserted in section 2 of the Income Tax Act, 1961 by the Finance (No.2) Act, 2009 w.e.f. 01.04.2009 to define the expression manufacture as under: manufacture , with its grammatical variations, means a change in a non-living physical object or article or thing, - (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure; The aforesaid definition of the expression manufacture , although brought into the statute book w.e.f. 01.04.2009, was applied by the Hon'ble Supreme Court even for the assessment year 2001-02 in ITO v. Arihant Tiles and Marbles Pvt. Ltd. (2010) 320 ITR 79, 82 (SC) on the ground that Parliament had taken note of ground reality in inserting section 2(29BA) in the Income Tax Law. The said definition was again applied by the Hon'ble Supreme Court in CIT V. Emptee Poly-Yarn Pvt. Ltd. (2010) Green ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We find from the above facts and circumstances and case laws relied on by both the sides that the assessee was exclusively engaged in blending, packaging and export of tea bags, tea packets and bulk tea packs. The assessee's division enjoys recognition as a 100% EOU, which is granted by the Development Commissioner, Ministry of Commerce Industry, Govt. of India. The assessee claimed exemption u/s. 10B of the Act for AYs 2000-01 onwards, which was granted upto the AY 2003-04. However, for the AY 2004-05, exemption was declined for the reasons that by the Finance Act, 2000, the definition of `manufacture which included 'processing' contained in section 1OB of the Act was deleted w.e.f. 01.04.2001. The argument of the department is that manufacture or production had liberal meaning under the definition clause contained in section 10B of the Act until its deletion which covers even processing and, therefore, blending and packaging of tea for export was treated as 'manufacture' or 'production' of an article qualifying for exemption. We are of the considered view that the contention of the assessee that the scheme of income tax exemption available to uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court in the case of Girnar Industries (supra) and Tata Tea Limited (supra), we hold that the assessee is entitled for exemption under Section 10B of the Act on account of blending of tea. Similarly, in our view, the industrial units engaged in the very same activity i.e. blending, packing and export of tea in the free trade zone shall also be entitled to enjoy tax exemption under Section 10A of the Act. 37. Accordingly, we answer the question referred in favour of the assessee by holding that the assessees who are in the business of blending and processing of tea and export thereof, in 100% EOUs are manufacturer/ producer of the tea for the purpose of claiming exemption u/s.10B of the Act. Further, assessees who are in the business of blending and processing of tea hi respect of undertakings in free trade zones are manufacturer/producer of tea for the purpose of claiming exemption u/s. 10A of the Act. We have examined and discussed the facts in the case of Madhu Jayanti International Ltd. and found that there is blending of tea and consequently the assessee is eligible for exemption u/s. 10B of the Act as prayed for. Their appeal for the AY 2004-05 is allowed. As regards ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee would fall within the meaning of the words manufacture or production‟ in section 80-IA of the Income-tax Act, 1961? In this case, Hon ble Supreme Court, after discussing the definition of manufacture‟ given in section 2(29BA) of the Income-tax Act, 1961 and also discussing the provisions of section 80-IA(2)(iii) and after going through various decisions, held as under: 22. Applying the above tests laid down by this Court in CIT Vs. N.C. Budharaja and Co. 204 ITR 412 (SC) to the facts of the present cases, we are of the view that blocks converted into polished slabs and tiles after undergoing the process indicated above certainly results in emergence of a new and distinct commodity. The original block does not remain the marble block, it becomes a slab or tile. In the circumstances, not only there is manufacture but also an activity which is something beyond manufacture and which brings a new product into existence and, therefore, on the facts of these cases, we are of the view that the High Court was right in coming to the conclusion that the activity undertaken by the respondents-assessees did constitute manufacture or production in terms of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This product no more remains the ordinary wire. Therefore, we agree with the ld. AR that Unit-II is engaged in manufacturing of a separate product. We do not agree with the ld. DR that if two units are established under the same roof even though they are having separate identity they cannot be regarded to be separate industrial undertaking. Both the units are having independent identity, manufacturing different products, having different machinery. They are not inter-dependent for manufacturing their product, therefore, it cannot be said that the units are not independent. It is not the case of the Revenue that the Assessee has established the unit by splitting up or reconstruction of business which is already in existence. The new unit has also not been formed by transferring to the new business machinery and plant previously used for any purpose. In respect of the condition about the employment of the employees, we noted that the CIT(A) has given a clear-cut finding that there are more than 10 employees employed in Unit-II in addition to the contract and casual labour. We, therefore, do not find any illegality or infirmity in the order of CIT(A). CIT(A) has given a finding of f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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