TMI Blog2008 (2) TMI 473X X X X Extracts X X X X X X X X Extracts X X X X ..... d product, but nevertheless it is clear that the finished product is certainly a separate and distinct commercial identity in the market and named as sand stone tiles/slate tiles. The word sand stone or slate has been used as prefix before the word tile/slabs to signify the origin and the material constituting the tile and also to distinguish and differentiate these tiles or another material like 'marble tiles'. Another aspect is also worth consideration that the term production is wider than the term manufacture. The distinction between manufacture and production was noticed and explained by the Supreme Court in CIT vs. N.C. Budharaja Co. Anr. Etc. [ 1993 (9) TMI 6 - SUPREME COURT] . 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 treated as manufacturing, the same in any case have to be treated as production. We also find that in AY 2002-03 also, the assessee made a claim under s. 80-IB on exactly same facts and circumstances and the Department accepted such a claim. The assessment stood completed, though unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar claim under s. 80-IB only was made and no claim under s. 80HHC was made. It is under this background that neither the assessee nor the ld AR could make a specific claim of deduction under s. 80HHC of the Act. Therefore such a failure appears to be not willful or unreasonable. In Jute Corporation of India Ltd. vs. CIT [ 1990 (9) TMI 6 - SUPREME COURT] , the Hon'ble Supreme Court held that an appellate authority has all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the powers of the AAC in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the ITO. However the learned CIT(A) neither referred to the decision of Jute Corporation nor distinguished the same and being a binding precedent, the learned CIT(A) was obliged to follow the same. In view of the arguments of the ld AR and decisions relied upon and circumstances and facts of the case, the learned CIT(A) was not justified in refusing to admit the additional ground taken before him. In the interest of justice, the same is admitted. However, the matter has to be examined by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and polishing them. The AO heavily relied upon the decision of Hon'ble Rajasthan High Court in the case of CIT vs. Lucky Mineral (P) Ltd. (1996) 134 CTR (Raj) 541 : (1997) 226 ITR 245 (Raj) and reproduced the same in the assessment order. The AO noted that in the aforesaid case Hon'ble Rajasthan High Court has taken note of the case of Dy. CST vs. Pio Food Packers (1980) 46 STC 63, 65 : (1980) Suppl. SCC 1 74, wherein the Supreme Court considered the meaning of the word "manufacture". He also relied upon Lucky Minmat (P) Ltd. vs. CIT (2000) 162 CTR (SC) 404 : (2000) 245 ITR 830 (SC) which affirmed the above decision of Rajasthan High Court. He further relied upon the decisions in CIT vs. Vijay Granites (P) Ltd. (2004) 267 ITR 606 (Mad) and also on CIT vs. Gometesh Granites (2001) 166 CTR (Mad) 167 : (2000) 246 ITR 737 (Mod). 5. As regards reliance of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 STC 118 (Raj) decided in the context of Sales-tax Act, wherein the graded silica prepared from boulders excavated from mines was held to be manufacturing, mainly on the ground that the process involved is quite complex and different from the process involved in the assessees' case. The decision in the case of CIT vs. Best Chem Limestone Industries (P) Ltd. (1993) 113 CTR (Raj) 298 : (1994) 210 ITR 883 (Raj) at p. 885 was not considered by the AO on the ground that in the case of Lucky Minerals (P) Ltd., the Hon'ble Court has itself distinguished the case. 9. The arguments of the assessee that the decision in the case of Lucky Minerals (P) Ltd. was given with reference to s. 80HH, as it stood in the statutory book upto 31st March, 1990. In sub-s. (10) of s. 80HH, it was further provided that nothing contained in section shall apply to any undertakin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 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). Accordingly, the activity of the assessee is held to be eligible for deduction under s. 80-IB as it is considered that the assessee is engaged in manufacturing or production and at worst even if it is presumed to be not engaged in manufacturing then it is held to be at least engaged in production of article or thing and thus qualifying for deduction under s. 80-IB." 11. The learned Departmental Representative heavily relied upon the findings recorded in the assessment order and vehemently supported the AO's conclusion that the assessee was not entitled to the deduction under s. 80-IB. As regards reliance of the assessee on the decision in the case of CIT vs. Mysore Minerals Ltd., he contended that this decision was based on the earlier decision of Karnataka High Court in the case of CIT vs. Mysore Minerals Ltd. Further the said decision has relied on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditions 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 stone boulders so acquired, are being processed and converted into tiles of different size, colour, design, quality, thickness and on the basis of some other technical specifications, according to the specific needs of the end customer or in the standard sizes commonly sold in the market under various brand names viz of Fossil, Rajgreen, Rajgreen vintage, Silver Grey Polished, Silver Grey Gauzed, Deoli Green Polished., Deoli Green Gauze, Buff Brown, Grey, Mint, Autumn Brown Mosaic Rounds Circles i.e. Rajgreen Circle and Modak Circle. The tiles so manufactured and processed need finishing and polishing. To give finish and to make polish on the sand/slate stone sometimes specific adhesives and chemicals are being used to coat the surface and to make it hard on the top. The pricing of these sand/slate stone tiles varies according to the quality and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lhi 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 more is such transformation of a production as brings into existence a new and different article having distinct name, character or use. He also referred to the case of Empire Industries Ltd. vs. Union of India (1986) 162 ITR 846 (SC). It is not necessary that one should absolutely make out a new thing. It is the transformation of one matter into something else which would amount to manufacture. It is a question of degree that something else is a different commercial commodity having its distinct character, use and name and commercially known as such. In other words, if by application of labour and skill the commodity is transformed to the extent that it is commercially known differently, it will suffice to say that manufacture has taken place. The moment there is a transformation into a new commodity having its own character, use and name wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in the case of Mysore Minerals, the Hon'ble Court placed reliance on various earlier decisions reported in (1994) 205 ITR 461 (Kar), (1991) 94 CTR (Kar) 155 : (1991) 189 ITR 463 (Kar) and those decisions have already been considered in the case of N.C. Budharaja, he submitted that such non-consideration of the Mysore Minerals' case by the AO is based on wrong appreciation of facts. In fact, as has been elaborately mentioned by the learned Authorised Representative of the assessee, the issue before the Hon'ble Supreme Court in the case of CIT vs. N.C. Budharaja Co., was whether the construction of dam can be considered to be manufacturing or production of article or thing. In the case of Shanker Construction also, the firm was engaged in the construction of dam. It was in this context that the Hon'ble Supreme Court held that the dam cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, 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 the deduction claimed under s. 80-IB and the written submissions filed before him. 15. We have carefully considered the facts of the case, rival contentions of the parties with reference to the material available from record in the light of the judicial pronouncements available. Although large number of authorities have been cited by the AO and the assessee both, yet we have the benefit of the recent decision in the case of Arihant Tiles Marbles (P) Ltd. vs. ITO dt. 30th May, 2007, wherein, broadly the controversies is the same as in hand before us. 16. Before proceeding further, we deal with one of the contentions raised by the learned Departmental Representative that the Hon'ble High Court in that case was concerned with the commodity marble, whereas in the case in hand, the commodity involved was sand stone or slate stone. However, we ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 manufacture 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." 18. In the case of Dy. CST vs. Pio Food Packers, the Supreme Court considered the meaning of the word "manufacture" with reference to several decisions and stated the test in the following words: "There are several criteria for determining whether a commodity is consumed in the manufacture of another. The generally prevalent test is whether the article produced is regarded in the trade, by those who deal in it, as distinct in identity from the commodity involved in its manufacture. Commonly, manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne 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 machines are also used. For preparing mutual medallions. boarders, handicraft articles further process is undertaken. Sometimes specific adhesive and chemicals are also used to coat the surface and to make it hard on the top so that it becomes scratchless. These tiles of different size, colour, design. quality and thickness are sold under the different brand names for e.g. Fossil, Rajgeer, Rajgreen Vintage, Silver Grey Polished etc. It is seen that it was the sand stone/slate excavated from the mines in the form of boulder which was used as raw material and it was consumed by the assessee firm. The finished products are mainly tiles also murals, medallion etc. In our opinion, certainly, these finished products are having separate and distinct commercial identity in the market in comparison to the original raw material, which was sand ston ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 Court was as to whether an assessee engaged in conversion of limestone by crushing into Rodi or lime dust is entitled to investment allowance under s. 32A. The Court, after referring the decision in CIT vs. Bikaner Gypsum Ltd. (1986) 61 STC 264 (Raj), held that process of conversion of limestone by crushing into Rodi or lime dust amounts to manufacture and therefore, assessee was entitled to investment allowance. Once the Hon'ble Rajasthan High Court has treated even the conversion of the mineral into the form of radium powder to be a manufacturing process, the present case stands on a much stronger footing and has to be held a manufacturing/production. However the AO, tried to distinguish the decision of Best Chem, stating that the said case has already been considered in the case of Lucky Mineral. However, the AO has not at all all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and in the process of affirming the aforementioned judgment of Karnataka High Court in Mysore Mineral's case, wherein, the activity of converting marble block, which is not usable as such, into slabs and polishing them and making it marketable commodity was held to be manufacturing activity." We also concur with the view of the learned CIT(A) that the Hon'ble Rajasthan High Court in the case of Lucky Mineral, was concerned with the interpretation of the term manufacture only. The Hon'ble Court in (1996) 134 CTR (Raj) 541 : (1997) 226 ITR 245 (Raj), at p. 249 observed that "the meaning of the word 'manufacture', in the context of language of s. 80HH is therefore, required to be construed in the popular sense in which it is commonly understood by the people". The learned CIT(A) further rightly concluded in para 5.4.3 and further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cture 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 treated as manufacturing, the same in any case have to be treated as production. 24. The learned Authorised Representative drew our attention towards the case of Suraj Marble (P) Ltd. and Patwari Marbles (P) Ltd. in ITA Nos. 512, 513 514/Jp/2003 452 and 453/Jp/2003, order dt. 18th Aug., 2006 [reported at (2006) 104 TTJ (Jp) 192-Ed.], wherein this Bench followed the said decision of Sesa Goa in place of the aforesaid two decisions of Lucky Minerals and Lucky Minmets and held that the lower authorities were not justified in denying the claimed deduction under s. 80-IA. 25. Further, we find that different Government agencies under different laws treated the assessee a manufacturing unit viz the District Industrial Central, Tonk, The Department of SSI, Agro and Rural Industries, of Ministry of Industries, Central Gove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 every part of a statute for a purpose and the legislative intention is that every part of the statute should have effect. These presumptions will have to be made in the case of rule-making authority as decided in J.K. Cotton Spinning Weaving Mills Co. Ltd. vs. State of Uttar Pradesh AIR 1961 SC 1170. Thus, it is of universal application that efforts should be made to give meaning to each and every word used by the legislature-Mohammed Ali Khan vs. CWT (1997) 139 CTR (SC) 335 : (1997) 224 ITR 672 (SC). Therefore, the use of word production in s. 80-IB is not purposeless/meaningless and has to be given full effect. 27. The AO has cited various other decisions. However we are satisfied that none of them is near to the controversy in hand and more particularly, the learned Authorised Representative in its written subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 exports were also required to be received within the stipulated time, however admittedly no such details were furnished along with the return of income. The reliance placed by the assessee on a CBDT circular is devoid of any merit as firstly the assessee cannot be said to be ignorant as was advised by tax expert and secondly, the circular was in relation to such claim of rebate or relief, which is apparent from the record and is otherwise legally allowable, which was not the case here. Further placing reliance on the decision in the case of Goetze (India) Ltd. vs. CIT (2006) 204 CTR (SC) 182 : (2006) 284 ITR 323 (SC), and rejected the claim. 32. The learned Departmental Representative strongly relied upon the order of the learned CIT(A) and prayed not to admit such a claim, made before the CIT(A) for the first t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 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 assessee was an exporter and in any case was entitled to a deduction under s. 80HHC. It is further submitted that Deoli is a small town in Tonk District which is an undeveloped and backward area, mainly dominated by Mohmden community. The humble assessee was not aware of the technicalities and complexities of the tax laws. No doubt, the assessee was assisted by the services of a chartered accountant yet a bona fide confusion prevailed over that once the assessee is entitled to the claim of deduction of entire business income of the undertaking under s. 80-IB, it was not further required to pursue the claim under s. 80HHC, to which, otherwise, the assessee was duly and fully entitled to. Moreover in asst. yr. 2002-03 also similar claim under s. 80-IB only was made and no claim under s. 80HHC was made. It is under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. Further it has been held that filing of the audit reports even at the appellate stage is permissible in the cases of CIT vs. Jayant Patel (2000) 163 CTR (Mad) 367 : (2001) 248 ITR 199 (Mad) dealing with s. 80J(6A) and CIT vs. Shahzadanand Charity Trust (1998) 145 CTR (P H) 492 : (1997) 228 ITR 292 (P H), while dealing with s. 12A(b). Therefore, it was prayed to admit the ground and direct the AO to allow the deduction under s. 80HHC, as claimed. 34. We have carefully considered the facts of the case, the rival contentions and the material available on record in the light of the judicial pronouncements. We are of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the AO. In other words, it cannot be denied that the AO was not aware of the basic fact that the assessee was an exporter and in any case was entitled to a deduction under s. 80HHC. It is further submitted that Deoli is a small town in Tonk District which is an undeveloped and backward area, mainly dominated by Mohammedan community. The humble assessee was not aware of the technicalities and complexities of the tax laws. No doubt, the assessee was assisted by the services of a chartered accountant yet a bona fide confusion prevailed over that once the assessee is entitled to the claim of deduction of entire business income of the undertaking under s. 80-IB, it was not further required to pursue the claim under s. 80HHC, to which, otherwise, the assessee was duly and fully entitled to. Moreover in asst. yr. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Further it has been held that filing of the audit reports even at the appellate stage is permissible as held in the cases of CIT vs. Jayant Patel dealing with s. 80J(6A) and CIT vs. Shahzadanand Charity Trust, while dealing with s. 12A(b). In view of the arguments of the learned Authorised Representative and decisions relied upon and circumstances and facts of the case, the learned CIT(A) was not justified in refusing to admit the additional ground taken before him. In the interest of justice, the same is admitted. However, the matter has to be examined by the AO. Therefore, we direct the AO to consider the claim in accordance with law but by providing adequate opportunity of being heard to the assessee and to file the necessary documents. In view of the decisions of various Courts of law hereinbefore and c ..... 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