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2021 (1) TMI 167 - HC - Income TaxEligibility for exemption under section 10AA - Whether assessee is engaged in manufacturing activity? - Whether the Appellate Tribunal has erred in holding that the SEZ Act, 2005 override the Income Tax Act ignoring that the taxation of such SEZs is decided wholly and solely by Income-tax Act and that SEZ Act does not have any bearing on the same? - HELD THAT:- The essence of manufacture is the change of one object to another for the purpose of making it marketable. As held by the Supreme Court in India Cine Agencies (2008 (11) TMI 15 - SUPREME COURT) that the essential point is that, in manufacture, something is brought into existence which is different from that which originally existed, in the sense that the thing produced is, by itself, a commercially different commodity, whereas in the case of processing, it is not necessary to produce a commercially different article. It is the cumulative effect of the various processes, to which, the raw material is subjected to that the manufactured product emerges. Therefore, each step towards such production would be a process in relation to the manufacture. We are not inclined to admit this tax appeal on the first two proposed questions of law. This appeal stands dismissed so far as the question Nos.2(A) and (B) are concerned. However, we clarify that Question No.2(A) also raises the issue with regard to the trading activities of the assessee. Although both the authorities below have held in favour of the assessee on this ground, yet we do not propose to go into the question of “trading activities” and keep this question open for being considered in any other appropriate case. Disallowance u/s 14A - sufficiency of own funds - HELD THAT:- Substantial question of law in view of the decision of this High Court in the case of Commissioner of Income Tax-I vs. UTI Bank Ltd. [2013 (8) TMI 238 - GUJARAT HIGH COURT]. The ratio of this decision is that if there are sufficient interest free funds to meet the tax free investments, they are presumed to be made from the interest free funds and not the loaned fund and no disallowance can be made under Section 14A. Tax appeal is admitted on the following two substantial questions of law; “(C) Whether the Appellate Tribunal has erred in law in holding that the assessee is eligible for deduction with respect to income on account of currency fluctuation, interest income and that it is entitled to deduction under Section 10AA? (D) Whether the Appellate Tribunal has erred in law and in holding that the assessee's claim of loss shall increase the deduction under Section 10AA by ignoring that the documentary evidences have not been furnished and that assessee's eligibility under Section 10AA has been challenged?”
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