TMI Blog2005 (10) TMI 423X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaking in free trade zone. Assessee set up a new manufacturing unit at EPZ, Sachin in Gujarat. The nature of business in the requisite format, certified by the Auditor, has been mentioned as "manufacturers and exporters of diamonds" and the date of commencement of manufacture/production was 31-3-2000. When questioned, why the claim should not be disallowed, assessee stated vide reply dated 9-12-2002 and 18-12-2003, briefly as under : Vide letter dated 9-12-2002 it was submitted that the assessee established a new undertaking in Surat Export Processing Zone, Sachin in the assessment year 2000-01 at Plot No. 270, for manufacturing, importing and exporting of diamonds, for which permission has been obtained. The manufacturing activity commenced during the financial year 1999-2000 and export activity started during the said financial year as well. Assessee complied with the conditions laid down under section 10A of the Act as the undertaking began manufacturing/producing article or thing. The undertaking was formed not splitting up or reconstruction of business or by transfer of old machinery. All export proceeds have been realised within the prescribed time. Vide letter d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. CIT [2001] 251 ITR 323, Ujagar Prints v. Union of India [1989] 179 ITR 317 and Empire Industries Ltd. v. Union of India [1986] 162 ITR 846. It was contended, cut and polished diamonds are not the same thing as raw or rough diamonds. 7. Assessing Officer held, the contention taken by the assessee cannot be accepted. He held that the assessee vide letter dated 27-11-2003 admitted that import and export for 10A unit have been made from and to M/s. Niru Diamonds Israel (1987) Ltd., Diamond Exchange Building, 1 Jabotinsky Road, Ramat Gan, Israel. Assessing Officer noticed that the assessee has not denied the fact that they imported rough diamonds and after cutting and polishing, exported to the same party. M/s. Niru Diamonds Israel (1987) Ltd. is an associate concern of the assessee group and this is evidenced from the Tax Audit Report of M/s. Impex Diamonds. He held, therefore, the assessee had not made any real import and export and was not having manufacturing activity but only done labour work of cutting and polishing of diamonds, which does not amount to manufacturing. He held, the benefit under section 10A is allowable only to an undertaking, which manufactures ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme of section 10A is a beneficial section. Assessee established an undertaking at SEPZ, Sachin. There is no dispute that the assessee has satisfied all the conditions necessary to avail the benefit. Once the assessee established and gets the benefit contemplated under section 10A, and according to section 10A if the assessee is entitled for the benefit for a period of ten consecutive assessment years, beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things, there is no justification to deny the benefit only for a period intervening in between. Hence the learned counsel submitted, the denial of benefit for the year under consideration is not tenable in law. The section makes it clear that the benefit will be available to all those assessees who commenced the activities from the assessment year 2001-02 onwards. 11. Relying upon the following judgments, learned counsel submitted, if the benefit is given to the assessee once satisfying all the conditions, the conditions unless breached, cannot be withdrawn by the Government. (1) Saurashtra Cement Chemical Industries Ltd. v. CIT [1980] 123 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, item No. 4 - Custom Notification showing different entry for rough diamonds and cut and polished diamonds, exhibited at Paper Book Page 31 and item No. 5 - i.e., Diamond, Gem Jewellery Export Promotion Scheme (source Handbook of Procedures ), exhibited at paper book pages 32 to 35, establishing rough diamond and cut and polished diamond are different articles. 14. Learned counsel further submitted, the decision relied upon by the Assessing Officer is distinguishable on facts. The case was decided in a summary manner. In the instant case of the assessee, learned counsel submitted, the assessee is giving details and evidences why that decision is not applicable as far as the assessee is concerned. Hence learned counsel submitted, there is no justification in withdrawing the benefit extended to the assessee under section 10A in the preceding year and it is available to the assessee also in the light of Explanation 4 brought into statute book with effect from 1-4-2004 onwards by the Finance Act, 2003. 15. On the other hand, the learned Departmental Representative supported the orders of the revenue authorities. Relying upon the decisions of the Hon ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ushaldas Teckchandani v. O.D. Mohindra [1999] 240 ITR 796 for the above proposition. 18. We have heard the rival submissions and gone through the orders of the revenue authorities and the decisions cited. We are of the view that the issue has to go in assessee s favour. It is to be seen that the unit at SEPZ, Sachin, was set up by the assessee in the financial year 1999-2000 relevant to assessment year 2000-01. Deduction under section 10A was claimed and the same was allowed as per the Income-tax Act for the assessment year 2000-01. Explanation ( iii ) to section 10A for the relevant period in force defines "manufacture" as follows : "manufacture" includes any ( a )process, or ( b )assembling, or ( c )recording of programmes on any disc, tape, perforated media or other information storage device. 19. Section 10A(3), as it stood at the relevant point of time, reads as under : "10A(3) The profits and gains referred to in sub-section (1) shall not be included in the total income of the assessee in respect of any ten consecutive assessment years, beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22. It means assessee will be getting the benefit again from the financial year 2004-05 and onwards. Consequently, the assessee is deprived the benefit in the intervening period, which can never be the intention of the Legislature. We hold that Explanation 4 introduced with effect from 1-4-2004 is clarificatory in nature and the assessee is entitled for the benefit in the intervening period of ten years as per section 10A. This Explanation brought into the statute book is clarificatory in nature and retrospective in operation. 23. The Hon ble Supreme Court in the case of Union of India v. Godfrey Philips India Ltd. [1986] 158 ITR 574 held "the doctrine of estoppel is applicable against the Government in the exercise of its governmental, public or executive functions and the doctrine of executive necessity or freedom of future executive action cannot be invoked to defeat the applicability of the doctrine of promissory estoppel". However, their Lordships further observed "There can be no promissory estoppel against the Legislature in the exercise of its legislative functions nor can the Government or public authority be debarred by promissory estoppel from enforcing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date the industry goes into production. In the instant case of the assessee the benefit was withdrawn by the revenue on the basis of the decision of the Hon ble Supreme Court dealing with a different section. In section 80-I, the word "manufacture" was not defined. As we noted hereinabove, Explanation 4 to section 10A defines what amounts to manufacture. This Explanation makes clear that Legislature for this section always intended it to be so. It never intended that the assessees who came forward and acted upon the promise should be deprived their benefit subsequently. 26. In view of the above, we allow the appeal by the assessee for the year under consideration on this point. 27. The second effective ground (Ground Nos. 4 and 5) urged by the assessee is directed against the order of the CIT(A) in disallowing deduc- tion under section 80HHC of the Act, on account of labour charges at Navsari Unit. 28. It was the claim of the assessee that the job work activity is linked with diamond cutting and polishing activity at SEPZ, Sachin. Assessee relied upon the decision of the Hon ble jurisdictional High Court in the case of CIT v. Bangalore Clothing Co. [2003] 260 I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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