TMI Blog2007 (1) TMI 224X X X X Extracts X X X X X X X X Extracts X X X X ..... apital expenditure. Once this conclusion is reached, there is no justification for making disallowance for the expenditure incurred in this year notwithstanding the fact that in the books of account a different treatment has been given. If the expenditure is of revenue nature, the same would call for deduction in the year in which it is incurred. In our considered opinion, the ld. CIT(A) was justified in granting deduction for this sum. Addition on account of 2/3rd disallowance out of ISO 9002 certification expenses - HELD THAT:- This certificate is basically issued and renewed from time to time to bring forth the fact that the systems and procedures of operations implemented in the organization are in accordance with the standards laid down. We note that by making payments for obtaining ISO 9002 certification, the fixed capital of the company has not enhanced in any manner. It rather created a positive image of the products of the assessee for the smooth conduct of the business. In our considered opinion, the ld. CIT(A) was justified in treating the entire amount as revenue in nature. This ground is, therefore, not allowed. Deduction u/s 80-IB(3)(ii) - HELD THAT:- The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 91 crores including other incomes, etc. The Gross Profit rate declared in this year at 10.61 per cent was found to be on the lower side as against 12.6 per cent shown in the immediately preceding year. The Assessing Officer noted that the assessee had shown the value of closing stock at Rs. 1,03,01,207, which included value of finished goods at Rs. 37,01,064. The method of valuation of closing stock was "cost or net realizable value whichever is less". The finished goods consisted of different grades of Zircon powder, such as, Zircon 500, 325, 240, 100, 10, 5, etc. The manufacturing cost as per the working given by the assessee was at Rs. 19,722.04 PMT in all cases. However, the Net Realizable Value (hereinafter called as 'NRV') was different in these cases. In the case of Zircon 100 'NRV average' was shown at Rs. 17,473.61 against the manufacturing cost at Rs. 19,722.04. The value of this item was taken at Rs. 17,473, being the average NR V and other items at cost. The Assessing Officer noticed that Zircon 100 was the main item of the closing stock of finished goods, which was valued at the rate less than the manufacturing cost by Rs. 2,248.43 PMT, which was incredible. The Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w deduction for Rs. 5,10,583 (Rs. 6,52,040 minus Rs. 1,41,457). The ld. CIT(A) accepted the assessee's claim and deleted the addition. 7. We have heard both the sides and perused the relevant material on record. The claim of the assessee before the authorities below is that the mill lining is affixed on ball mill to protect the finished goods from any type of contamination and such mill lining is a recurring expenditure. The Assessing Officer has not disputed the nature of mill lining but proceeded to make the disallowance only on the ground that the assessee was supposed to claim deduction only for mill lining expenses claimed in the P L account and unamortized amount could not have been claimed as revenue expenditure. Thus, the position, which emerges is that the nature of mill lining expenses has been established to be a recurring cost, which falls upon the assessee from time to time and hence cannot be treated a capital expenditure. Once this conclusion is reached, there is no justification for making disallowance for the expenditure incurred in this year notwithstanding the fact that in the books of account a different treatment has been given. If the expenditure is of reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the advantage received on incurring expense facilitates the carrying on of the business more efficiently and more profitably leaving the fixed capital untouched, expenditure would be treated as revenue in nature. The principle, which follows is that the advantage resulting from the incurring of the expenditure may extend beyond the year in question. It would be treated as capital expenditure only if it enhances the capital structure by way of addition to the assets. If, however, the fixed capital remains unchanged, the incurring of expenditure would be taken as revenue if it simply facilitates the carrying on of business more efficiently and profitably. Adverting to the facts of the case, we note that by making payments for obtaining ISO 9002 certification, the fixed capital of the company has not enhanced in any manner. It rather created a positive image of the products of the assessee for the smooth conduct of the business. In our considered opinion, the ld. CIT(A) was justified in treating the entire amount as revenue in nature. This ground is, therefore, not allowed. 11. Last ground is against the allowing of deduction under section 80-IB(3)(ii) amounting to Rs. 8,33,264. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er has not been negatived by the Assessing Officer. The other decision taken note of by the Assessing Officer is Lucky Minmat (P.) Ltd. v. CIT [2000] 245 ITR 830 (SC) which lays down that no manufacturing process is involved in the mining of lime stones and marble blocks and cutting and sizing the same. There are sizeable number of decisions by the Hon'ble Supreme Court as per which the processes of cutting and crushing etc. do not amount to manufacture. The Hon'ble Supreme Court in the case of Sacs Eagles Chicory v. CIT [2002] 255 ITR 178 has ruled that no manufacture or production is involved in the preparation of chicory powder or chicory roots and therefore, the assessee engaged in such activity cannot be allowed deduction under sections 80HH and 80-I. 14. The case of the ld. A.R. before us is that the assessee is neither involved in crushing nor cutting and sizing of Zircon Sand. Our attention was drawn towards pages 48 and 49 of the impugned order to show the Flow sheet for production/manufacture of Zircon Opacifiers, which is reproduced as under: Screening; of raw Zircon sand using a Vibratory Screen for removal of tramp | ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of the final product takes place in the ball mill with the help of Alumina liners and Alumina media with temperatures in the ball mill ranging between 80 degrees to 100 degrees. In the next stage the product quality is determined and this gyrotor segregates the product into processed finished goods or semi-processed material, which is returned back to the mill for further processing. On taking note of the above processes cumulatively, it becomes clear that the zircon sand purchased by the assessee, being used as raw material, finally gets converted into micronized zircon powder. A certificate has been placed on record of M/s. Indian Rare Earth Ltd. [An undertaking of the Government of India under the department of Atomic Energy] to the effect that "Process of manufacture of micronized Opacifier from Zircon Sand is irreversible". In other words, after production of micronized Opacifier by the assessee from zircon sand, it is technically not possible to convert the micronized Opacifier into zircon sand again. Moreover, the use/application of micronized Opacifier are overwhelmingly different. To put simply, the processes undertaken by the assessee initially filter out the zircon sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s decision is not applicable to the facts of the instant case. 17. We are reminded of the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Best Chem Lime Stone Industries (P.) Ltd. [1994] 210 ITR 883 (Raj.) in which the assessee was engaged in extracting lime stone and converting in the form of lime and Rodi. The Hon'ble High Court held that "crushing of the mineral so extracted which resulted in production of Rodi and powder is a process of manufacture". So far as the conversion of the mineral in the form of Rodi and powder is concerned, it is evident that it does not retain the physical characteristics, which the raw material has and is understood as a different commercial commodity by the business community. In these circumstances, the Tribunal was held to be justified in coming to the conclusion that the crushing of lime stone into Rodi or lime dust is a process of manufacture. In the case of CIT v. Lucky Minerals (P.) Ltd [1997] 226 ITR 245 (Raj.) the Hon'ble Jurisdictional High Court had an occasion to consider the process of cutting of marble stones into slabs and it was held that the assessee was not entitled to deduction under section 80HH/80-I a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed product cannot be reversed back to the original raw material because of the processes through which it had undergone. 18. This case has another interesting aspect also. The assessee has admittedly claimed this deduction in the preceding years, which was allowed by the Assessing Officer. It is only in this year that the claim was refused. The well-settled principle of consistency has been consistently followed by all the courts of the country to hold that the view adopted by the Assessing Officer in a particular year should not be deviated from in the subsequent years unless there is some change in the legal or factual scenario justifying departure therefrom. In the case of CIT v. A.R.J. Security Printers [2003] 264 ITR 276 (Delhi) when the department wanted to negative the assessee's claim, which was accepted in the past, the Hon'ble High Court held that; "having accepted in three assessment years that the assessee's business activity of printing lottery tickets fall within the ambit of section 80-I, the revenue cannot be allowed to turn around and contend that the deduction under the said section is not allowable in respect of the assessment years in question". The SLP filed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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