TaxTMI 
TaxTMI 
2008 (2) TMI 473
X X X X Extracts X X X X
X X X X Extracts X X X X
.... mining of slate and sand stone boulders from its own mines as well as purchasing the same from the market, cutting them into tiles at its factory premises, calibrating and polishing the tiles with a view to make them usable by the end-user and then selling them into market. It is being used mostly outside India as a decorative tiles for the interior and exterior decoration and designing. The assessee treated such activities as a manufacturing activity hence claimed deduction under s. 80-IB of the IT Act, 1961 on its net profit. There is no dispute on the fact that all the other conditions as mentioned under s. 80-IB have been fulfilled by the assessee. The AO however, disallowed the entire claim for the reason detailed in the impugned assessment order. Thus, the only dispute is whether the activities undertaken by the assessee amounted to manufacture or production or not, so as to be entitled to the deduction under s. 80-IB of the IT Act, 1961. The AO noted that the assessee is engaged in mining of slate and sand stone boulders from its mines as well as purchasing them from market and thereafter cutting them into slabs and afterwards into tiles as its factory premises, calibrating....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f CIT vs. Gem India manufacturing Co. (2002) 172 CTR (SC) 615 : (2001) 249 ITR 307 (SC), wherein cutting and polishing of the diamonds was not held to be manufacture or production of article or thing. 7. Regarding reliance placed by the assessee on the decision of the Hon'ble Supreme Court in the case of CIT vs. Sesa Goa Ltd. (2004) 192 CTR (SC) 577 : (2004) 271 ITR 331 (SC), the AO observed that in that case, the issue involved was whether the extraction and processing of iron ore amounted to "production" and Hon'ble Court has held that this amounted to "production". Though the AO has himself further observed that vide this judgment Hon'ble Supreme Court has also disposed of the appeal in the case of CIT vs. Mysore Minerals Ltd. decided by Hon'ble Karnataka High Court and has held that deduction under s. 80-I is allowable in this case but the AO did not accept the decision of the Hon'ble Supreme Court in the case of CIT vs. Mysore Minerals Ltd. on the ground that main thrust of their Lordships was to consider whether extraction of iron ore is production and manufacturing or not. 8. The AO did not accept the decision in the case of Asstt. CTO vs. Girrota Silica Udhyog (1994) 93 S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....upheld, the activity of the assessee does not amount to manufacturing or production. In the crux, he finally held that the assessee's business activity cannot be termed as manufacturing and production qualifying the deduction under s. 80-IB and hence the deduction claimed by the assessee was disallowed in its entirety. Thus, the assessee was held not entitled to deduction under s. 80-IB. 10. In the first appeal, the learned CIT(A) after discussing the entire legal and factual position in a great detail, held as under: "Considering these facts and circumstances and the legal position on the above issue under consideration, it is held that it will be more appropriate to apply the case of CIT vs. Mysore Minerals Ltd (2001) 166 CTR (Kar) 142 : (2001) 250 ITR 725 (Kar) which has been affirmed by the Hon'ble Supreme Court in the case of CIT vs. Sesa Goa Ltd. (2004) 192 CTR (SC) 577 : (2004) 271 ITR 331 (SC), in view of the discussion made hereinabove. This decision of CIT vs. Mysore Minerals Ltd. of Hon'ble High Court was later on reaffirmed in the subsequent decision in the same case reported as Dy. CIT vs. Mysore Minerals Ltd. (2001) 167 CTR (Kar) 11 : (2001) 250 ITR 730 (Kar). Accor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and the controversy, are exactly the same as in the present matter. It has been held that conversion of marble block into slates and tiles amounts to manufacturing of thing or article within the meaning of s. 80-IA/80-IB of the IT Act and assessee is entitled to claim deduction thereunder. He further submitted that the same has been recently followed by the Tribunal Jodhpur Bench in case of Jagdish Chandra Bhambhani vs. AO in ITA No. 243/Jd/2005 dt. 17th July, 2007. It was submitted that the assessee made a claim of deduction under s. 80-IB of the Act. The assessee treated such activities as a manufacturing activity hence claimed deduction under s. 80-IB of the IT Act, 1961 on its net profit. It is being used mostly outside India as a decorative tiles for the interior decoration and designing. There is no dispute on the fact that all the other conditions as mentioned under s. 80-IB have been fulfilled by the assessee. It was further submitted that in order to make the sand/slate stone into usable condition, further process is required to convert them into a tile, which has a separate and distinct commercial identity in the market than its original form. For that purpose, sand/slate....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rried out by the assessee for a better understanding and appreciation. He further submitted that thus, what comes out is altogether a totally new and distinct entity i.e. new article or new product than what it was originally at the time of mining purchases by the assessee. Needless to say that because of highly skilled and specialized work on the sand stone, the price of such product multiply many times more than what it was at the time of mere mining. He submitted that the Act nowhere defines these two terms, hence for our purpose, we have to look for some cases. as decided by the Hon'ble Courts for a judicial guideline. He therefore referred to the case of Dy. CST vs. Pio Food Packers, the Supreme Court considered the meaning of the word "manufacture" with reference to several decisions. He further referred to the case of Union of India vs. Delhi Cloth & General Mills (1977) ELT (J) 199 where it was observed that manufacture implies a change, but every change in the raw material is not manufacture although every change of an article is the result of treatment, labour or manipulation. In order to make a change amount to "manufacture" something more is necessary and that something....
X X X X Extracts X X X X
X X X X Extracts X X X X
....). Needless to say that because of highly skilled and specialized work on the sand stone, the price of such product multiplies many times than what it was at the time of mere mining. Whereas the cost to the assessee at the time of mere mining and thereafter but before the manufacturing and production activity of the blocks of sand stone stands @ Rs. 1,500 to 2,000 per MT only whereas after doing all these activities, the final product is rated around Rs. 300 to 400 per sq. mtr. Thus, in the commercial parlance the final product is understood totally differently, by altogether a different name and value. The ratio laid down in the aforesaid cases, thus fully supports the case in hand. The aforesaid facts clearly reveal that the judgment of the Supreme Court in the case of Lucky Minerals does not in any way support the invalid and unjust action on the part of the AO of denying deduction under s. 80-IA/80-IB to the assessee. 13. With regard to the contentions of the AO and supported by the learned Departmental Representative that the assessee wrongly relied upon the decision in case of Mysore Minerals Ltd. [affirmed by the Hon'ble apex Court in the case of Sesa Goa Ltd.], inasmuch as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es of the assessee are not treated as manufacturing, the same in any case has to be treated as production. He also contended that the different agencies under the different laws have treated the assessee a manufacturing unit. He further contended that in asst. yr. 2002-03 also on similar facts, similar claim made by the assessee is allowed by the Revenue and there is no allegation of change in the subjected year. He also advocated for a liberal interpretation of an incentive provision, placing reliance on Bajaj Tempo Ltd. vs. CIT (1992) 104 CTR (SC) 116 : (1992) 196 ITR 188 (SC) as also various decision on this aspect. Thereafter, he dealt with various case law cited by the assessment order and submitted that none of them in controversy in hand. He further submitted that the relevant incentive provisions are capable of more than one interpretation, the view which is favourable to the assessee should be adopted in view of judgment of the apex Court in various cases, such as in the case of CIT vs. Vegetable Products Ltd. 1973 CTR (SC) 177 : (1973) 88 ITR 192 (SC). Lastly the learned Authorised Representative strongly relied upon the order of the learned CIT(A), who rightly allowed th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt case. Here also, the original commodity namely marble block could not be used for building purposes as such until it is cut into different sizes to be used as building material. It is only by the process of cutting the marble block into slabs and tiles that it is made marketable. The marble block cannot be used for the same purpose as the marble slab or tile can be used and after the marble block has been cut into different sizes, the end product by putting it simultaneously cannot be used as a block." The Hon'ble High Court further held in para 26 that: "On parity of reasoning, this principle can be extended to the facts of present case. Marble block as a mineral produced from earth by itself is not usable for any purpose, thereafter, to make it usable, various processes which could be applied to bring it to that stage would amount to manufacturing. After it has been brought to that stage, further processing is merely for the purpose of making its marketability easy or smooth would not amount to manufacturing process." Finally in para 28 the Hon'ble Court held that: "In the facts and circumstances of the case, conversion of marble blocks into slabs and tiles amount to manuf....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a sand are taken out. The same is used for different industries like tiles, ceramic, glass etc. Hon'ble High Court held that the above act was manufacturing in the context of Sales-tax Act. 21. Coming to the facts of the case, it is seen that the slate stone and sand stone blocks/boulders of random shape and size are excavated from the mines or are procured from other mine owners by the assessee. These stones blocks/boulders of random shapes and sizes are splitted into the slabs of random shape and size. These slabs are converted/cut into tiles of specific shape and size, which may be different in each case (e.g. 6"*6*12* 12,12*24,24*24 and so on). The thickness of these tiles ranges between 10 MM to 20 MM, which are given to the persons who are masters of slicing the slabs/pieces. After the slicing, calibration of the stone is done for maintaining equal thickness throughout the length and breath by diamond calibrating machines. These tiles are finally polished individual tiles/slabs, same is fed to edge cutting machine with double blade to parallel cutting of the two edges. The edge polishing may also be done. Sometimes, for providing special shape, tumbling and vibrating machine....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tiles that it is made marketable. The stone block cannot be used for the same purpose as the stone slab or tile can be used. The sand/slate block produced from earth by itself is not usable for any purpose. Therefore, to make it usable, various processes which could be applied to bring it to that stage would amount to manufacturing. Needless to say that because of highly skilled and specialized work on the sand stone, the price of such product multiplies many times more than what it was at the time of mere mining. Whereas the cost to the assessee at the time of mere mining and thereafter but before the manufacturing and production activity, of the blocks of sand stone stands @ Rs. 1,500 to 2,000 per MT only whereas after doing all these activities, the final product is rated around Rs. 300 to 400 per sq. mtr. Thus in the commercial parlance the final product is understood totally differently, by altogether a different name and value. The ratio laid down in the aforesaid cases, thus fully supports the case in hand. The learned Authorised Representative also rightly relied upon the decision in CIT vs. Best Chem & Limestone Industries (P) Ltd., wherein the issue before the Hon'ble Cou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er judgment in CIT vs. Best Chem & Limestone Industries (P) Ltd. in which the business of extracting limestone and its sale either as converted into 'lime Rodi' or lime dust were held to be manufacturing activity. The only argument before the Supreme Court was that the High Court judgment in the case of Best Chem had wrongly been distinguished. That contention has been rejected by the Supreme Court. It is apparent that the aforesaid judgment is founded on the ground that the commodity in Best Chem's being differing than what was in the case in hand, the judgment was rightly distinguished. The Supreme Court was not examining the issue about the fact whether the business of mining of limestone and marble blocks, thereafter cutting and sizing the same before it is sold in market is manufacturing or production, as the case may be. Apparently, the earlier decision of the Supreme Court in Chowgule & Co. (P) Ltd. vs. Union of India & Ors. which the activity of mining was held to result in production of goods, and the later judgment of Supreme Court in CIT vs. Sesa Goa Ltd. with the equal strength of Judges constituting the Bench had taken different views by examining the issue directly a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by a process, which mayor may not amount to manufacture. Thus, production has very wide scope as compared to manufacturing. This judgment of Sesa Goa stands affirmed in CIT vs. Sesa Goa Ltd. The Hon'ble Rajasthan High Court also in the case of Arihant Tiles took note of the above stated decision thus, as under: "There is substance in the contention of learned counsel for the respondents that expression 'production' has a wider connotation than the expression 'manufacture' and, therefore, the question whether any activity falls within the ambit of s. 80-IA/80-IB, the examination from the point of view of only manufacturer is not the final test. The essential distinction between expressions 'manufacture' and 'production' had received attention of the judicial pronouncement from time to time. The distinction between manufacture and production was noticed and explained by the Supreme Court in CIT vs. N.C. Budharaja & Co. & Anr. Etc. (1993) 114 CTR (SC) 420 : (1993) 204 ITR 412 (SC). The apex Court clearly opined that all activities falling within the ambit of manufacture result in production but converse is not true." Thus, even assuming that the activities of the assessee are not ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....-IB on exactly same facts and circumstances and the Department accepted such a claim. The assessment stood completed, though under s. 143(1), however the statutory period for the issuance of a notice under s. 143(2), having already expired, the assessment so made attained finality and is binding upon the Revenue. There is no allegation of any change in the facts and circumstances of the case from the past and no other reason has been shown, hence, the AO could not have departed from the settled position in the past. 26A. We also find substance in the contention of the learned Authorised Representative Mr. Mahendra Gargieya, that liberal interpretation is required for incentive provision. While interpreting taxing statutes, the Supreme Court in Bajaj Tempo Ltd. vs. CIT held as under at p. 189: "A provision in a taxing statute granting incentives for promoting growth and development should be construed liberally; and since a provision for promoting economic growth has to be interpreted liberally, the restriction on it too has to be construed so as to advance the objective of the provision and not to frustrate it." The Hon'ble Courts always presume that the legislature inserted eve....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion under s. 80HHC of the Act. It was submitted that vide ground of appeal 4, a prayer for allowance of deduction was made and in view of s. 250(5) technically, it was not an additional ground of appeal. It was submitted that since the assessee filed nil return of income claiming deduction of the entire income @ 100 per cent under s. 80-IB, the assessee was advised and therefore, it was under the impression that no separate deduction under other provisions of the Act is required to be claimed separately. Although the assessee being an exporter was also equally entitled to get a deduction @ 50 per cent under s. 80HHC on export profits. In any case, the AO was within the knowledge of such entitlement and therefore, was duty-bound. Hence he should have invited the attention of the assessee towards this deduction. 3!. The learned CIT(A), however rejected the additional ground and such a claim on the plea that the assessee neither made any claim in the return of income nor the fact that the assessee was entitled to the deduction under s. 80HHC was mentioned. The legal requirements like filing audit report under s. 80HHC was also not fulfilled. Moreover, the sale proceeds from the expor....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the computation of total income. Rather such a claim may weaken its case under s. 80-IB. In any case, however the basic fact that the assessee was an exporter, was well known to the AO. The AO was also aware of the fact that the assessee did comply with all the requirements in law to allow the deduction under s. 80HHC of the Act, except the fact of obtaining an audit report by the assessee under s. 80HHC of the Act. It is submitted that complete books of account consisting of financial as well as quantitative records and other supporting bills, vouchers and subsidiary records were produced before the AO time and again, which fact has been admitted by the AO also at p. 1 para 1 of the impugned order. The required details were also filed during the course of assessment proceedings and the matter was discussed. He also drew our attention towards P&L a/c at paper book 50 wherein there is a mention of "FOB", paper book 51 and thereafter paper book 58, where the nature of the business was mentioned as exporter in the TAR. He also drew our attention towards written submission submitted to the AO. In other words, it cannot be denied that the AO was aware of the basic fact that the assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Chokshi Metal Refinery vs. CIT (1977) 107 ITR 63 (Guj) and in particular our attention was drawn to the observations made by the Hon'ble High Court at p. 71 of the Report, which was followed in Dy. CIT vs. Suprint Textile (2006) 100 TTJ (Jp) 352 : 34 Tax World 25 (Jp). The learned AO, therefore was supposed to have advised the assessee in this regard, which he has not done. He also submitted that the said circular does not say that the details must be available, on record and then only, the AO should discharge his duties. He further submitted that even an audit report under s. 80HHC was filed before the learned CIT(A). It was further submitted that the various Courts have held that filing of an audit report along with the return is not mandatory and can be filed later also to get deduction under s. 80HHC. He referred the cases of CIT vs. Gupta Fabs (2005) 274 ITR 620 (P&H) following CIT vs. Punjab Financial Corporation (2002) 172 CTR (P&H)(FB) 561 : (2002) 254 ITR 6 (P&H)(FB). Further in the case of CIT vs. Magnum Export (P) Ltd. (2003) 183 CTR (Cal) 75 : (2003) 262 ITR 10 (Cal) at p. 19 it was held that existence of the audit report to make a claim for deduction under s. 80HHC is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....under s. 80-IB, there was no necessity of making a separate claim of deduction under s. 80HHC in the computation of total income. Rather such a claim may weaken his case under s. 80-IB. In any case, however the basic fact that the assessee was an exporter, was well known to the AO. The AO was also aware of the fact that the assessee did comply with all the requirements in law to allow the deduction under s. 80HHC of the Act, except the fact of obtaining an audit report by the assessee under s. 80HHC of the Act. It was argued that complete books of account consisting of financial as well as quantitative records and other supporting bills, vouchers and subsidiary records were produced before the AO time and again, which fact has been admitted by the AO also at p. 1 para 1 of the impugned order. The required details were also filed and during the course of assessment proceedings and the matter was discussed. He also drew our attention towards P&L a/c at paper book 50 wherein there is a mention of "FOB", paper book 51 and thereafter paper book 58, where the nature of the business was mentioned as exporter in the TAR. He also drew our attention towards written submission submitted to th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... old Circular dt. 11th April, 1955. He also relied upon Choksi Metal Refinery vs. CIT and in particular our attention was drawn to the observations made by the Hon'ble High Court at p. 71 of the Report, which was followed in Dy. CIT vs. Suprint Textile. The AO, therefore was supposed to have advised the assessee in this regard, which he has not done. The learned counsel also argued that the said circular does not say that the details must be available, on record and then only, the AO should discharge his duties. He further argued that even an audit report under s. 80HHC was filed before the learned CIT(A). Various Courts have held that filing of an audit report along with the return is not mandatory and can be filed later also to get deduction under s. 80HHC. He referred to CIT vs. Gupta Fabs following CIT vs. Punjab Financial Corporation. Further in the case of Magnum Exports (P) Ltd. at p. 19 it was held that existence of the audit report to make a claim for deduction under s. 80HHC is mandatory although the time of furnishing thereof is not mandatory. Audit report furnished even before the Tribunal, in that case was held permissible and the appeal of the Revenue was dismissed. F....