TMI Blog2015 (3) TMI 707X X X X Extracts X X X X X X X X Extracts X X X X ..... profits and gains arising from such activity were eligible for deduction under section 10B of the Act as the assessee fulfils the condition of being 100 per cent. export oriented unit and total sale proceeds were received in foreign exchange by the assessee. In the totality of the facts and circumstances, we are in conformity with the finding of the Assessing Officer that the assessee was eligible for the claim of deduction under section 10B of the Act. - Thus where the order of the Assessing Officer in coming to the conclusion that the assessee is entitled to claim of deduction under section 10B of the Act, was erroneous, there was no merit in exercise of revisionary jurisdiction by the Commissioner of Income-tax under section 263 of the Act. Accordingly, we cancel the directions issued by the Commissioner of Income-tax under section 263 of the Act in setting aside the assessment made by the Assessing Officer in this regard and hold that there was no error in the order of the Assessing Officer in granting exemption under section 10B of the Act. - Decided in favour of assessee. Set aside the issue of claim of allowance of additional depreciation - CIT(A) in view of holding tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shi Upaj Yojna" as an export incentive were given to the assessee to neutralise the incidence of high transport cost and also to offset other disadvantages. The said neutralisation as in the case of the hon'ble Supreme Court in the case Liberty India v. CIT [2009 (8) TMI 63 - SUPREME COURT ] is linked to the FOB value of exports by way of duty credit scrip. The said benefits are provided by DGFT in the case of the assessee and the said scheme being similar to the scheme of grant of Duty Drawback/DEPB and in turn applying the ratio laid down by the hon'ble Supreme Court in the case of Liberty India v. CIT [supra] we hold that the assessee is not entitled to the claim of deduction under section 10B of the Act on the said incentives. In view thereof, we uphold the order of enhancement passed by the Commissioner of Income-tax in exercise of its jurisdiction under section 263 of the Act - Decided against assessee. Claim of expenditure of commission paid to Shri Parminder Thapar - CIT(A)had set aside the issue observing that the Assessing Officer had accepted the expenses without making any verification and without application of mind - Held that:- It is an admitted position ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Income-tax-II, Ludhiana, dated March 24, 2011, relating to the assessment year 2006-07 against the order passed under section 263 of the Income-tax Act, 1961. The appeal in I. T. A. Nos.1210 and 1211/Chd/2012 are filed by the assessee against the consolidated order of the Commissioner of Income-tax (Appeals) dated September 20, 2012, against the order passed under section 143(3) read with section 263 and 143(3) of the Act, respectively. The appeal in I. T. A. No. 690/Chd/2011 is filed by the Revenue against the order of the Commissioner of Income-tax (Appeals) dated April 13, 2011, against the order passed under section 143(3) of the Act. All the four appeals relating to the same assessee were heard together and are being disposed of by this consolidated order for the sake of convenience. 2. The assessee in I. T. A. No. 553/Chd/2011 has raised the following grounds of appeal: 1. That order under section 263 by the learned Commissioner of Income-tax-II, Ludhiana, is against law and facts on the file inasmuch as the assessment framed by the learned Assessing Officer cannot be said to be erroneous inasmuch as prejudicial to the interests of the Revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duced at page 4 of the order of the Commissioner of Income-tax, Ludhiana. The submission of the assessee are reproduced at pages 5 to 7 of the order passed under section 263 of the Act. One of the planks of arguments made by learned counsel before the Commissioner of Income-tax was that similar claim of exemption under section 10B of the Act has been decided by the Chandigarh Bench of the Tribunal in the assessee's own case relating to the assessment years 2004-05 and 2005-06. The Commissioner of Income-tax, Ludhiana, observed as under: The decision of the hon'ble Income-tax Appellate Tribunal, Chan digarh Bench, dated March 31, 2009, mentioned above has been rendered in favour of the assessee on the ground that the Assessing Officer had adopted one view which was possible and that the Commissioner of Income-tax could not substitute his view in a subjective manner under the provisions of section 263 of the Act. However, in the case of the assessee for the assessment year 2006-07, which is under consideration, as brought out in the notice dated May 29, 2009, reproduced above, my predecessor clearly brought out a number of issues different from those for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in India Cine Agencies v. CIT [2009] 308 ITR 98 (SC), which was in respect of the provisions of section 80HH/80-I of the Act. As the assessee had failed to draw distinction between various judgments pointed out in the notice issued under section 263 of the Act and the Assessing Officer's reliance on other decisions and also non-following of specific directions of the Additional Commissioner of Income-tax, under section 144A of the Act, as per the Commissioner of Income-tax, makes the order erroneous and as the exemption resulted into reduction in tax liability of the assessee, the same was prejudicial to the interests of the Revenue. The Commissioner of Income-tax further noted that the assessment in the case was completed by the Assessing Officer in great haste as the main work of assessment and decision making was carried out on the last date, i.e., December 30, 2008, when survey report under section 133B of the Act was also handed over to the Assessing Officer. As no survey under section 133A of the Act was carried out by the Assessing Officer, the Commissioner of Income-tax observed that further enquiry was necessary in the case and mere failure to make such enquiry make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Commissioner of Income-tax. The learned authorised representative for the assessee pointed out that the assessment in the case was completed under section 143(3) of the Act vide order dated October 30, 2008, at total income of ₹ 77,84,513. It was further pointed out by the learned authorised representative for the assessee that thereafter show-cause notice was issued by the Commissioner of Income-tax is placed at pages 1 to 4 of the paper book and the reply of the assessee dated February 9, 2010, is placed at pages 6 to 10 of the paper book. In the said show-cause notice issued, the learned authorised representative for the assessee met with all the objections raised in show-cause notice of the Commissioner of Income-tax para-wise. In respect of the first objection of claim of exemption under section 10B of the Act, the learned authorised representative for the assessee pointed out that during the assessment proceedings, queries were raised to which reply was filed by the assessee and reference was made under section 144A of the Act and further replies were filed during the assessment proceedings. The Assessing Officer thereafter passed order under section 143(3) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. In respect of the other query raised by the Commissioner of Income-tax under section 263 of the Act, the learned authorised representative for the assessee pointed out that there was no claim of additional depreciation during the year under consideration. Our attention was drawn to the query raised by the Assessing Officer and replies by the assessee. The third objection of the Commissioner of Income-tax was in respect of incentives received by the assessee. The learned authorised representative for the assessee pointed out that the assessee is in the business of export and incentives received were by virtue of exports and the same is not disputed. The Assessing Officer had considered the replies of the assessee and allowed the claim, whereas the Commissioner of Income-tax has held the assessee not entitled to the claim of deduction under section 10B of the Act on the said incentives and income has been enhanced by the Commissioner of Income-tax. It was pointed out by the learned authorised representative for the assessee that on merits of the case, the assessee was entitled to the said deduction. Further contention of the learned authorised representative for the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rup Vegetable Products Industries Ltd. v. Commissioner of Income-tax (No. 1) [1981] 187 ITR 412 (All) ; (iv) CIT v. Relish Foods [1999] 237 ITR 59 (SC) ; (v) CIT v. Venkateswara Hatcheries (P.) Ltd. [1999] 237 ITR 174 (SC) ; and (vi) B. G. Chitale v. Deputy CIT [2008] 305 ITR (AT) 81 (Pune) [SB]. 12. The learned Departmental representative further submitted that what the assessee was doing collecting honey, processing and making the same marketable and the same is not tantamount to manufacture. In respect of issue of additional depreciation, the learned Departmental representative for the Revenue pointed out that no directions were issued by the Commissioner of Income-tax in this regard. The next issue was the incentives received by the assessee and the same being eligible for deduction under section 10B of the Act. The learned Departmental representative for the Revenue pointed out that though the Assessing Officer had called for details but not discussed the legal position and the said legal position had been addressed by the Commissioner of Income-tax at page 13 in paragraph 6 of his order. It was further pointed out by the learned Departmental representative for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were filed before the hon'ble High Court and it has been mentioned in the said judgment that in the absence of the said details, such view was being taken. The learned authorised representative for the assessee further submitted that there was no definition of the word manufacture under section 10B of the Act but the definition as provided in Explanation 1 (iii) to section 10AA of the Act may be considered. The learned authorised representative for the assessee had furnished compilation of documents which would be considered in paragraphs herein- after. The copy of chart showing differences between raw honey and finished honey is also placed at pages 131 and 132 of the paper book. 15. The learned Departmental representative for the Revenue, after the close of the appellate proceedings vide letter dated July 16/29, 2013 had filed written submissions and it was pointed out that the fact of the case in the assessment year 2006-07 were different from that in the assessment years 2004-05 and 2005-06 as the order in the assessment year 2006-07 has been passed by the Assessing Officer without any enquiry and application of mind to both issues and hence, the Commissioner of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from excise duty, i.e., CENVAT and mere registration under the central excise or other Government authorities for the purpose of administrative or statutory compliance was held to be not sufficient ground to conclude that the assessee was engaged in manufacture or production of honey. Reliance was placed on series of decisions by the learned Departmental representative for the Revenue and it was further contended that if the change made in the article results in new and different article, then the same would amount to manufacturing activity. Reliance was placed on the ratio laid down by the hon'ble Mumbai Customs, Excise and Gold Tribunal in the case of Charak Pharmaceuticals India Pvt. Ltd. v. CCE (copy placed on record) wherein the hon'ble Bench has held that honey procured from apiaries and subjected to processing such as heating, cooling, staining, filtration and then packed in the containers for marketing does not amount to manufacture and not excisable. 17. We have heard the rival contentions and perused the record. Original assessment in the case of the assessee was completed under section 143(3) of the Income-tax Act and the assessee was held to be eligible for c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of the allowability of deduction under section 10B of the Act with respect to the concept of manufacturing. The reply of the assessee dated December 26, 2008, in this regard is placed at pages 86 to 90 of the paper book in which the assessee explained various aspects of its manufacture and also pointed out that the definition of production and manufacture have been considered by the hon'ble Supreme Court in India Cine Agencies v. CIT [2009] 308 ITR 98 (SC) and the term production includes packing, labelling, relabelling of containers ; repacking from bulk packages to retail packages and adoption of any other method to render the produce marketable. In view of the definition, as referred to by the hon'ble Supreme Court in India Cine Agencies v. CIT [2009] 308 ITR 98 (SC), it was pointed out that the assessee was engaged in the manufacture/production of honey as the definition was wide enough to include all types of manufacturing activities undertaken by the assessee. The learned authorised representative for the assessee also pointed out that the finished honey was distinct in character and properties from the raw honey and various impurities, wax, moisture were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rroneous and subversive of the legally authorised inspec tion processes. Such unauthorised inspection procedures are prejudicial to the sanctity of the tax administration and any findings made there suffer from irregularity. B. Secondly, to adjudge changes in the chemical properties, as found by the inspectors, technical qualification and knowledge is obviously necessary. There is nothing on record to suggest that the inspectors were so qualified. Therefore, the findings of the inspectors should not have been taken into consideration by the Assessing Officer in the process of adjudicating the claim for deduction under section 10B. C. Thirdly, though it is claimed that the extent of transformation of raw honey results in the finished honey becoming a distinct commodity, nothing is brought on record such as any technical benchmarks or standards to substantiate the claim that the finished honey represents a distinct product at least in technical terms. The records do not indi cate that the technical parameters of finished honey are distinct from those of raw honey. Mere variations in percentage terms of contents of sugar, moisture and micro biological propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .) Ltd. [1999] 237 ITR 174 (SC), CIT v. Gem India Manufacturing Co. [2001] 249 ITR 307 (SC), Lucky Minmat Pvt. Ltd. v. CIT [2000] 245 ITR 830 (SC), CIT v. Tara Agencies [2007] 292 ITR 444 (SC), CIT v. Kala Cartoons P. Ltd. [2001] 252 ITR 658 (SC), etc. 3. The Assessing Officer failed to take into consideration the deci sion of the hon'ble Supreme Court in CIT v. Relish Foods [1999] 237 ITR 59 (SC) and CIT v. Venkateswara Hatcheries (P.) Ltd. [1999] 237 ITR 174 (SC) which he was directed to do so by the Additional Com missioner of Income-tax, Range vide his direction under section 144A issued on October 22, 2008. (Instruction. No-1). In view of these facts I have reason to believe that the Assessing Officer has erred in law and on facts in allowing deduction under sec tion 10B of ₹ 5,79,59,512 on the processing of honey done by you. 19. The issue arising before us is two fold. The first aspect of the issue raised before us is whether the assessee is engaged in the manufacturing activities which entitles it to the claim of exemption under section 10B of the Act. The second aspect of the issue is whether the exercise of revisionary jurisdiction by the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chart at pages 29 to 31 of the paper book which explains the activities carried on by the assessee for processing raw honey into finished honey. 21. The Government of India vide Foreign Trade Policy, 2002, under Chapter 25 had formulated scheme for export oriented units (EOUs). The purpose of the scheme was to boost the exports by creating additional production capacity. Under the scheme the exporters were willing to set up units with long-term commitment to exports under customs bond operations and freedom was given to the said persons to set up the units at the places of choice and was not necessary to set up units in free trade zone/ export processing zone. However, the benefits under the said scheme were provided as provided to the units set up in zone. The benefits which was extended to export oriented units were provided to give them a competitive edge to compete in the export market and the same were as follows : I. Export oriented units are allowed to procure raw materials/capital goods duty free, either through import or through domestic sources ; II. Reimbursement of Central Sales Tax (CST) ; III. Reimbursement of duty paid on fuels procured from domestic oil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted units are administered by the Commissioner of Customs and Central Excise. On the policy front, all decisions relating to the export oriented units were taken by the board of approvals set up under the Department of Commerce, which in turn is chaired by the Secretary, Ministry of Commerce. One of the requirements to set up a unit as an export oriented unit was that the premises of export oriented unit were to be approved as a customs bonded warehouse under the warehousing provisions of the Customs Act. The manufacturing and other operations were carried out under customs bond and the unit bore appropriate charges for officers on cost recovery basis. In case of units in aquaculture, horticulture, floriculture, granite quarrying, etc., exemption from bonding was given for administrative reasons with certain other safeguards being put in place to check that duty free benefits where availed of were not abused. The export oriented units were required to execute multi-purpose bond with surety/security with jurisdictional Central Excise and Customs officers (Refer Circular No. 15/ 95-Cus., dated February 23, 1995). Further under the EOU scheme, the units were allowed to import or procu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturer subject to recording of each transaction in the records prescribed by the Board/Commissioners or their private records approved by the Commissioner. (Refer Circular No.88/98-Cus., dated December 2, 1998). Import/procurement of goods by an export oriented unit for use in manufacture or in connection with production or packaging of goods for export is exempted from payment of customs and central excise duties. Export oriented units execute a general purpose B-17 bond along with surety or security covering the duty foregone on imported goods. This bond is prescribed under Notification No. 6/ 98-CE (NT) dated March 2, 1998, as general bond to be executed by the export oriented units for provisional assessment of goods to central excise duty, for export of goods and for accounting/disposal of excisable goods procured without payment of duty. This bond also takes care of the interests of Revenue against risks arising out of goods lost in transit, goods taken into domestic tariff area for job work/repair/display, etc., but not brought back. Basically the B-17 bond is an all purpose bond covering liabilities of the export oriented unit both under Customs and Central Excise A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e holder of the certificate would be entitled to carry on manufacture in the bond of the scheduled cost, in the premises and from the imported materials described in the said application. The assessee has further placed the copy of the licence issued by the Deputy Commissioner, Central Excise Division-I, Ludhiana, dated April 20, 2004 and Customs Bond Registration Certificate under which the assessee is authorised to be engaged in the manufacture of other operation in the manufacture of honey, beeswax sheets. Further the assessee at page 180 had placed on record Form RC, i.e., Central Excise Registration Certificate issued by the Deputy Commissioner, Central Excise Division-I, Ludhiana, on January 30, 2004, for registering the assessee for operating an export oriented undertaking at G.T. Road, Village Mallipur, Doraha, Ludhiana for the purpose of carrying on the activity for which an application was moved. The copy of registration-cum-partnership certificate issued by the Agricultural and Processed Food Products Export Development Authority (APEDA), Ministry of Commerce issued on February 10, 2004, is placed at page 185 of the paper book under which also the assessee is registered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecutive assessment years beginning with the assessment year relevant to the previous year in which the manufacture or production is started by the undertaking. Under the provisions of section 10B of the Act exemption is allowed to such person who had established 100 per cent. export oriented units under which it manufactures or produces articles or things or computer software. As referred to before us in the paras hereinabove the scheme for establishment of export oriented units has been formulated by the Foreign Trade Policy, 2002, which lays down various procedures to be followed in addition various registrations to be obtained by the manufacturing unit and restrictions are placed upon the warehousing being customs bonded warehouse. The assessee in the present case and as referred to before us in the paras hereinabove has been registered as 100 per cent. export oriented unit. The purpose of the scheme itself reflects that establishment of such export oriented units is basically to boost exports by creating additional production capacity. So in order to recognize it as an export oriented unit, the assessee has to be engaged in manufacture or production of any articles or things ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The said Schedule allows exemption to the units producing honey in the State of Himachal Pradesh and Uttranchal. As Schedule-XIV of Income-tax Act is meant for promotion for things/products which are manufactured and not for trading of items, the Schedule given under section 80-IC of the Act categorically lays down that the section applies to any undertaking or enterprise which has begun or begins to manufacture or produce any article or thing, not being any article or thing specified in the Thirteenth Schedule. Following the abovesaid reasoning it could not be said that the assessee was not engaged in the manufacture of honey, though not in the State of Himachal Pradesh. 29. The difference between raw honey and finished honey has been pointed out by the assessee and there is change in characteristics, i.e., both physical and chemical and also the purity aspects of raw honey and finished honey. All the aspects of both the raw honey and finished honey had been tabulated at page 188 of the paper book which are as under : III. Change in characteristics : Physical, chemical, residual and purity aspects Sr. No Parameter Raw hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It has brand value/name such as Dabur, Aditya Birla, Spencer, Reliance sold at 4-5 times of the bee honey (nectar) prices. (iii) Average rate varies between ₹ 50 to 100 /kg. Average rate varies between ₹ 170 to 500 /kg. (iv) No overseas buyers Has overseas buyers, as it meets their quality parameters and regulatory requirements. (v) Activity at field level by small farmers/beekeepers Large scale at factory level due to testing, sophisticated manufacturing plant and technology and higher marketability. 31. The perusal of the abovesaid details reflects that the product, i.e., finished honey in the case of the assessee is at variance with the raw honey collected from the bee hives. The process carried out by the assessee changes both the physical and chemical characteristics of raw honey to convert it into finished product and the said product is different in form, i.e., raw honey and has a better shelf life than raw honey. Further finished honey is prepared on the specific requireme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commercial sense, which has to be considered. In other words, in the opinion of the Commissioner, the question is not whether the process employed by the assessee renders the final product as marketable before us the question is as to whether the final product is a distinct commercial commodity vis-a-vis the raw material. According to the Commissioner, the test to be applied in this case is not the marketability test but the distinctiveness of the output in the commercial sense. In paragraph 3(b) of his order, the Commissioner has pointed out this and according to him this basic issue has been overlooked. In the opinion of the Commissioner, the assessment order is rendered erroneous because it is based on the former propo sition and not the latter proposition, which according to him was required to be applied. Now, the limited point which emerges for consideration is as to whether the action of the Assessing Officer in treating the process of the assessee as amounting to 'manufacture' or 'production' by applying the marketability test can be said to be erroneous within the meaning of section 263 of the Act. This question has to be considered in the light of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such action of the Assessing Officer be considered erroneous within the meaning of section 263 of the Act ? In our considered opinion, the approach of the Assessing Officer cannot be considered erroneous within the meaning of section 263 of the Act. On this point, we may also make a mention that even on the commercial distinctiveness test sought to be applied by the Commissioner, there is no finding by the Commissioner as to how does it operate in contradiction to the final outcome, concluded by the Assessing Officer. Thus, this is a case where the view of the Assessing Officer is sought to be substituted by the Commissioner in a subjec tive manner, without recording a finding as to how the ultimate conclusion of the Assessing Officer is erroneous in law. For all the above reasons, in our considered opinion, the Commissioner erred in invoking the provisions of section 263 of the Act in holding, that the Assessing Officer was not correct in accepting the activity undertaken by the assessee as amounting to 'manufacture' or 'production'. 34. It may be noted that the above decision has been rendered by the Tribunal on the basis of the hon'ble High Court decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out application of mind by the Assessing Officer.' 16. Following the aforesaid, we hold that the Commissioner was not justified in invoking his power of revision provided in section 263 of the Act to the extent stated earlier. 35. In the facts of the case before the Tribunal, the Assessing Officer vide office note had discussed the issue with the then Commissioner of Income- tax-III, Ludhiana and passed consequent order and the Tribunal in the abovesaid circumstances, also held that the Commissioner was not justified in invoking power of revision under section 263 of the Act. The above shows that the Tribunal had, first decided the issue on merits of the case and thereafter, had also considered the administrative aspect of the decision being taken by the Commissioner of Income-tax and had held that the order passed under section 263 of the Act by the Commissioner relating to assessment years 2004-05 and 2005-06 was not justified in the said facts and circumstances. 36. The learned Departmental representative for the Revenue has strongly objected to the submissions made by the learned authorised representative for the assessee and has placed strong reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue further placed reliance on the ratio laid down by the hon'ble Supreme Court in CIT v. Relish Foods [1999] 237 ITR 59 (SC) wherein the hon'ble Supreme Court had held that the assessee not engaged in manufacturing activities, on the basis complete facts were not available on record. Such reliance has no merit in the absence of details. In view thereof, we find no merit in the reliance placed by the learned Departmental representative for the Revenue. 40. Further the said issue was raised in the proceedings under section 144A of the Act, which was replied by the assessee and thereafter the Additional Commissioner of Income-tax raised further queries vis-a-vis allowability of claim of deduction under section 10B of the Act. In such circumstances, the Assessing Officer having taken a view in grant of exemption under section 10B of the Act, cannot be said to have erred. 41. The learned Departmental representative for the Revenue has further placed reliance on the ratio laid down by the hon'ble Mumbai Customs, Excise and Gold Tribunal in the case of Charak Pharmaceuticals India Pvt. Ltd. v. CCE delivered on March 17, 2006, wherein it has been laid down that manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rests of the Revenue. Mr. Abraham relied on the judgment of the Division Bench of the High Court of Madras in Venkatakrishna Rice Company v. CIT [1987] 163 ITR 129 interpreting 'prejudicial to the interests of the Revenue'. The High Court held (page 138) : 'In this context, it must be regarded as involving a conception of acts or orders which are subversive of the administration of Revenue. There must be some grievous error in the order passed by the Income-tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of the Revenue administration'. In our view, this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income- tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in setting aside the assessment made by the Assessing Officer in this regard and hold that there was no error in the order of the Assessing Officer in granting exemption under section 10B of the Act. The ground Nos. 1 to 3 raised by the assessee are thus allowed. 46. The second issue raised by the Commissioner of Income-tax in exercise of the powers under section 263 of the Act was in respect of the allowance of additional depreciation of ₹ 11,46,012. The Commissioner of Income- tax in view of holding that the assessee was not engaged in the manufacture or production of any article or thing, held that the assessee was not entitled to the claim of additional depreciation. The said issue is linked to the first issue raised by the Commissioner of Income-tax, i.e., the issue of exemption allowable under section 10B of the Act. Where the assessee is engaged in the business of manufacture of things then the claim of additional depreciation is allowable as prescribed under the Act. However, in the facts of the case before us, the learned authorised representative for the assessee had pointed out that during the assessment proceedings itself, the assessee had pointed out to the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee was not entitled to deduction under section 10B of the Act on the said incentives received. However, the assessee being in export was entitled to the incentives received by virtue of exports and the same was not disputed. Once the incentive received by the assessee is directly relatable to the export made by the assessee, the claim of deduction under section 10B of the Act was allowable. 49. The learned Departmental representative for the Revenue fairly admitted that the Assessing Officer called for the detail but has not discussed the legal position and in view of the ratio laid down by the hon'ble Supreme Court in Liberty India v. CIT [2009] 317 ITR 218 (SC) and also the assessee being not eligible for deduction under section 10B of the Act, the said claim is not allowable in the hands of the assessee and the order of enhancement in the case has been correctly passed by the Commissioner of Income-tax. 50. We have heard the rival contentions and perused the record. The assessee during the year under consideration had received incentives from Ministry of Commerce, Government of India under Vishesh Krishi Upaj Yojna at 5 per cent. of FOB value of exports. Dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the year in which the undertaking begins to manufacture the articles or things, deduction is to be allowed on the total income of the assessee. The assessee is admittedly engaged into hundred per cent. exports and is a hundred per cent. export oriented unit. We have already held that the assessee to be entitled to the claim of deduction under section 10B of the Act in the above said paragraphs. Now the only issue to be seen is whether the receipts as such, i.e., the incentives received under Vishesh Krishi Upaj Yojna , which in turn is determined at 5 per cent. and the FOB value of the export sales made by the assessee, is derived from the undertaking. Both the Commissioner of Income-tax and the learned Departmental representative for the Revenue have placed reliance on the ratio laid down by the hon'ble Supreme Court in Liberty India v. CIT [2009] 317 ITR 218 (SC) to hold that the assessee is not entitled to the said deduction. 52. The perusal of the said decision reflects that the issue before the hon'ble Supreme Court in Liberty India v. CIT [2009] 317 ITR 218 (SC) was the claim of deduction under sections 80-I/80-IA and 80-IB of the Act which also provides for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation as compared to the words 'attributable to'. In other words, by using the expression 'derived from', Parliament intended to cover sources not beyond the first degree. On an analysis of sections 80-IA and 80-IB it becomes clear that any industrial undertaking, which becomes eligible on satisfying sub- section (2), would be entitled to deduction under sub-section (1) only to the extent of profits derived from such industrial undertaking after specified date(s). Hence, apart from eligibility, sub-section (1) purports to restrict the quantum of deduction to a specified percent age of profits. This is the importance of the words 'derived from industrial undertaking' as against 'profits attributable to industrial undertaking'. 54. The hon'ble apex court thus held as under (page 233 of 317 ITR) : DEPB is an incentive. It is given under the Duty Exemption Remission Scheme. Essentially, it is an export incentive. No doubt, the object behind DEPB is to neutralise the incidence of customs duty payment on the import content of export product. This neutralisation is provided for by credit to customs duty against export product. Und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efits as granted with an aim to com pensate high transport costs and to offset other disadvantages. Exporters of products notified in appendix 37A of HBPvl, shall be entitled for duty credit scrip equivalent to 5 per cent. of FOB value of exports (in free foreign exchange) for exports made from August 27, 2009, onwards. 57. Under clause 3.13.3 it is provided that duty credit scrip benefits under the scheme would be granted only at the reduced rate of 3 per cent. of FOB value of exports in cases where exporter has availed the benefit of : (i) Drawback at rates higher than 1 per cent. and/or (ii) Specific DEPB rate (i.e., other than miscellaneous category Sr.Nos. 22C and 22D of product group 90 per cent.) ; and/or (iii) Advance authorization or duty free import authorisation import of inputs (other than catalyst, consumable and packing materials for the exported product for which duty credit scrip under VKUY is being claimed. 58. Further benefits are also given under the scheme, but the relevant benefits of the scheme vis-a-vis assessee are as referred to by us in the above paragraph. In view of the scheme under which the assessee is entitled to the incentives ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d order is not in the control of the assessee and in view thereof the order of the Assessing Officer being cryptic and non-descriptive, cannot be said to be erroneous and prejudicial to the interests of the Revenue. We find no merit in exercise of jurisdiction under section 263 of the Act by the Commissioner of Income-tax in this regard. Reversing the same we hold that the order passed by the Assessing Officer in this regard is to be upheld. Ground No. 6 raised by the assessee is thus allowed. I. T. A. No. 1210/Chd/2012 : assessment year 2006-07 60. The assessee has raised the following grounds of appeal : 1. That the learned Commissioner of Income-tax (Appeals) has erred in law and on the facts in confirming the disallowance of deduction under section 10B of the Income-tax Act, 1961. 2. That the order of the learned Commissioner of Income-tax (Appeals) not entertaining additional ground of appeal of allowing 100 per cent. of the deduction instead of 90 per cent., under section 10B is illegal, arbitrary and against the facts of the case. 3. That assessee craves the right to add, amend, delete any ground/s of appeal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal. 4. Accordingly, it is humbly prayed to allow deduction under section 10B of the Act and 100 per cent. and/or any other relief/s your honour may deem fit. 64. The facts in I. T. A. No. 1211/Chd/2012 are identical to the facts in I. T. A. No. 1210/Chd/2012 and our decision in I. T. A. No. 1210/Chd/2012 shall apply mutatis mutandis to the facts in I. T. A. No. 1211/Chd/2012. I. T. A. No. 690 /Chd/2011 : assessment year 2008-09 65. The Revenue has raised the following grounds of appeal : 1.(a) That the learned Commissioner of Income-tax (Appeals)-II has erred in law and on the facts in deleting the addition of ₹ 6,42,87,405 on account of disallowance of deduction under section 10B of the Income-tax Act, 1961. (b) That the learned Commissioner of Income-tax (Appeals)-II has failed to appreciate that no new commodity is produced by the assessee and honey remains honey even after processing. 2. That the order of the Commissioner of Income-tax (Appeals)-II be set aside and that of the Assessing Officer be restored. 3. That the appellant craves leave to add or amend any ground of appeal before it is finally disposed of . 66. In the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
