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2008 (10) TMI 642 - AT - Income TaxClaim of exemption u/s 10BA - income from the business of manufacturing, trading and exporting of handmade wooden handicraft antique furniture - whether the activities tantamount to manufacturing/production - HELD THAT:- We find the contention of the learned CIT departmental Representative contradictory inasmuch with regard to the certification by the customs authorities as to the nature of the export of the disputed articles of being of artistic value, whereas by drawing inferences only, it is argued that no activity was carried out and it was a matter of simple purchases. Such an approach of the revenue is disapproved. We further agree with the contention of the learned Counsel that the use of the machinery is only to prepare the wood purchased by the appellant with a view to make it fit for further technical steps to be carried out by artisans. It is nothing but a preparatory stage, before handwork is commenced. The machine work is confined to seasoning of wood which normally contains moisture, thickness plaining and cutting. Further the objections as regards the shortfall of workers the required number i.e. 20 u/s 10BA(2)(e) also not factually correct. A perusal of copies of the wages registers submitted to assessing officer (paper book 23-72) clearly show that there were more than 20 workers in any case throughout the year engaged in the manufacturing activities. There apart the other karigars being paid on piece rate basis are also the persons engaged and deserve consideration for this purposes. Even the learned Commissioner (Appeals) has also now recorded a finding that the assessee had employed more than 20 workers as required u/s 10BA. The heavy reliance placed by the revenue on the decision of Kwal Pro Exports [2006 (10) TMI 193 - ITAT JODHPUR] is also misplaced, the Tribunal placed reliance upon the Third Member decision in case of Arihant Tiles & Marbles (P) Ltd. v. ITO[2006 (6) TMI 157 - ITAT JODHPUR]. However, the same now stands reversed in the case of Arihant Tiles & Marbles (P) Ltd. v. ITO [2007 (5) TMI 132 - HIGH COURT, RAJASTHAN]. Moreover, there is a specific definition of the eligible article u/s 10BA, which is not the case u/s 10B with which Kwal Pro Exports [2006 (10) TMI 193 - ITAT JODHPUR] was concerned. Therefore, the said decision cannot be applied being totally distinguishable. It has been held that an incentive provision has to be construed liberally as held in Bajaj Tempo Ltd. [1992 (4) TMI 4 - SUPREME COURT]. The present case also helps achieving the avowed object. Once the underlying purpose of an enactment is served, there is no reason why the deduction should be restricted on one pretence or order. Recently in CIT v. Baby Marine Exports [2007 (3) TMI 206 - SUPREME COURT], the Hon'ble Supreme Court strongly advocated for a liberal interpretation. It was held that Section 80HHC was incorporated with the object of granting incentive to earners of foreign exchange. This court is Sea Pearl Industries v. CIT[2001 (1) TMI 78 - SUPREME COURT] also observed that the object of selection Section 80HHC is to grant incentive to earners of foreign exchange. In IPCA Laboratory Ltd. v. Dy. CIT [2004 (3) TMI 9 - SUPREME COURT] this court has taken the same view. This court in the said judgment observed that Section 80HHC has been incorporated with a view to provide incentive to export house and this Section must receive liberal interpretation. Thus, we are fully satisfied that the appellant was engaged in the manufacturing and production of the eligible articles under the provisions of Section 10BA and hence the appellant is fully entitled to get the deductions. The assessing officer is therefore directed to allow the same. Thus ground No. 2 of the assessee is allowed. Disallowance of interest payment u/s 40A(2)(b) - HELD THAT:- It has been explained that the rate of interest was @ 15 per cent and not @ 18 per cent p.a. The market rate of interest on loan from bank is though 15 per cent p.a. but including several types of other charges and cost the effective rate of interest is 18 per cent p.a. Various other formalities of hypothecation and pledge are also required in the case of bank loan. Moreover, the assessing officer has not brought on record that interest paid is excessive or unreasonable. In the circumstances and facts of the case, the assessing officer is not justified in disallowing the interest. The same is directed to be deleted. Thus, ground No. 5 of the assessee is allowed. As regard the disallowance made, the assessing officer failed to appreciate that the gross profit rate declared by the assessee during the impugned year was 21.35 per cent as compared to gross profit rate of 19.68 per cent in the immediately preceding year. The increase in expenditure on account of firewood expenses and seasoning charges has been duly explained which has not been taken into consideration by the assessing officer. Therefore, the assessing officer is not justified in making addition in the income of the assessee. The same is directed to be allowed. Thus ground No. 1 of the assessee is allowed. Disallowance of depreciation claimed on car purchased and delivery - put to use after duly provisionally registered with RTO and deposit of road tax - HELD THAT:- The assessing officer has ignored the explanation given by the assessee that the car was taken in possession on 28-3-2003 as per delivery note on record. The assessee has also provided the copy of the cover note of insurance dated 29-3-2003. The copy of the bill for fuel purchased and used to run the vehicle dated 29-3-2004 was also produced and is on record. In the circumstances and facts of the case, the asset is considered as put to use in the impugned year and the assessee is entitled to depreciation. The assessing officer is therefore, directed to allow the claim of depreciation. Thus, ground No. 2 of the assessee is allowed. Disallowance of deduction of interest paid - interest under the head "Income from other sources" - In view of the consistent decision of the Special Bench decision in the case of Dy. CIT v. Allied Construction [2006 (11) TMI 242 - ITAT DELHI-A], the interest income has rightly been treated as income from other sources and the interest paid cannot be allowed as deduction u/s 57(iii) of the Act. However, since whole of the income of the assessee has been to be exempt by us u/s 10BA of the Act, hereinbefore, therefore, no addition under this ground will remain. Thus, ground No. 6 of the assessee is allowed.
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