TMI Blog2012 (6) TMI 231X X X X Extracts X X X X X X X X Extracts X X X X ..... f the CIT does not call for any interference. - appeal of the assessee is dismissed - IT APPEAL NO. 785 (PN) OF 2007 - - - Dated:- 28-3-2011 - I.C. SUDHIR, D. KARUNAKARA RAO, JJ. Surendra Gadre for the Appellant. Hareshwar Sharma and Abhay Damle for the Respondent. ORDER D. Karunakara Rao, Accountant Member This appeal by the assessee arise from the order of CIT(A)-II, Kolhapur dated 28/03/2007. The Grounds raised read as under: "1. The Learned Commissioner of Income Tax (CIT) erred on facts and in law, in invoking the provisions of section 263 of the Income Tax Act, 1961 when the AO while making the assessment u/s. 143(2) has fully examined the claim of the Appellant for deduction u/s. 80IA/80IB of Rs. 20,81,018/- and allowed the claim after fully satisfying about the admissibility of the claim." 2. Without prejudice to the above, "2. The Learned CIT erred in holding that the order of the AO passed u/s. 143(3) was in any way erroneous and prejudicial to the interest of the Revenue. 3. The Learned CIT erred in holding that the deduction u/s. 80IA/80IB is not allowable to the Appellant Company on the ground that the unit owned by the Appellant Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the AO is not so expressive as he allowed the deduction. Usually, the assessment order contains elaborate discussion on the matter, which lead to the addition in the order. Otherwise, they are silent on the matter, which does not lead to additions. Subsequently, during the revision proceedings u/s 263 of the Act, the CIT found that the modus operandi of assessee's business shows that various teas are blended to produce various flavors of tea, which are sold in the market after making requisite packing of the product. Considering various citations of the judicial fora, the CIT is of the opinion that this activity is only a processing and not manufacturing within the meaning of section 80IB(2)(iii) of the Act. Hence, CIT issued a show case notice on 15.11.2006 u/s 263 of the Act and called for submissions/objection, if any on this issue. In response, the assessee vehemently opposed the proposal of the CIT and made elaborate submissions in support of the claim allowed by the A.O. in the assessment proceedings. Gist of the submissions as summed up by the CIT in the impugned order are as under : "( i ) What we sell is not the dry leaf tea that we purchase at the auctions or direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 10B of the Act notwithstanding the deletion of "definition to manufacture" w.e.f. 1.4.2001. The fact of distinguishing the Supreme Court judgment in the case of CIT v. Tara Agencies [2007] 292 ITR 444/162 Taxman 337 by the Hon'ble Kerala High Court was also brought to our notice. 5. On the other hand, Ld. D.R. for the Revenue argued vehemently relying on the Apex Court judgment in the case of Tara Agencies ( supra ) for the proposition that assessee, a small-scale undertaking, engaged and produced the tea of diverse grades and brands by blending and mixing different kinds of tea constitutes only processing and not manufacture or producing of goods/things. This decision was taken in the context of assessee's claim for weighted deduction u/s 35B(1A) of the Act. In the process, as per the D.R. the expression "processing" and "manufacturing" or "production" are of different meanings, therefore, the processing is not part of the manufacture at any point of time for the purpose of section 80IB(2)(iii) of the Act. As per the D.R, the identical views of the Hon'ble Rajasthan High Court are confirmed by the Supreme Court in the case of Tara Agencies ( Supra ) vide D.D. Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meaning of section 80IB(2)(iii) of the Act. This view is further cemented by the none other than the supreme court in the case of Tara Agencies ( supra ). 7. Further, we have examined the scope of the provisions of section 263 of the Act and the same is determined by the propositions pro-founded by the Hon'ble Apex Court as well as other courts on the subject. Accordingly, for the revenue, an incorrect assumption of fact, incorrect assumption of law, failure of the AO to or routinely to conduct investigation in to the issue and when such assumptions or failures led to creating damages to 'the interest of revenue', constitutes the approved grounds for assuming the jurisdiction u/s 263 of the Act. Limiting the aspects of 'incorrect assumption of law', which is the issue in the instant case, as well as 'prejudicial to the interest of revenue', the view of the supreme court and the High court of Bombay in the cases of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83/109 Taxman 66 (SC) and CIT v. Gabriel India Ltd. [1993] 203 ITR 108/71 Taxman 585 (Bom.) respectively are relevant. It is a settled matter that the judicial discipline demands that the Income tax Authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done by the AO in the said proceedings. It is not the requirement that the order must speak on such enquiries. 9. Considering the above said scope of the provisions, we have examined the factual matrix in this case. In far as the nature of the business is concerned there is no dispute between the parties and therefore, the assessee is undisputedly engaged in the business of blending of various teas and making various flavors for trading in the market after packaging of the same. No binding or any other judgment is brought to our notice by the AR of the assessee to indicate that there is an opinion on the explaining of the meaning of the expression 'manufacturing' in the context of clause (iii) of section 80IB(2) and in the blending of various tea. The case laws relied upon by the assessee before the revenue authorities relate to different products and the provisions of the Act with the exception of the one delivered by the Kerala High Court in the case of Tata Tea Ltd. ( supra ), which is in the context of section 10B of the Act. Otherwise, at the relevant point of time i.e. 16/1/2005 the date of the assessment order, the AO has the judgments of the benefit of the judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tured in the small scale industrial undertaking or export. The benefit cannot be extended in case the goods are merely processed by the small scale industrial undertaking. In order to derive benefit under s. 35B(1A) the goods have to be either manufactured or produced by the small scale industrial undertaking. All the three stages, namely, production, manufacturing and processing of tea can be enumerated as under. The tea is produced in the tea gardens. This first stage is called production of tea. The second stage is manufacture of tea. In this stage, the tea leaves are plucked from the tea bushes and by mechanical process, tea leaves are converted to tea. This second stage is considered manufacturing of tea. The third stage is blending of different qualities of tea in order to smoothen its marketability. This third stage is considered processing of tea. The term 'manufacture' has not been defined in the IT Act. According to the dictionary, the term 'manufacture' means a process which results in an alteration or change in the goods which are subjected to the process of manufacturing leading to the production of a commercially new article. In determining what constitutes 'manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bros. ( Supra ) stands approved by the above mentioned judgment in the case of Tara Agencies ( supra ). C. Further, we have also gone through the Kerala High Court judgment in the case of Tata Tea Ltd. ( Supra ). The conclusion of this judgment reads as under : "Assessee, engaged in blending and packing of tea for export which is recognised as a 100 per cent export oriented unit, is entitled to exemption under s. 10B notwithstanding deletion of the definition of "manufacture" w.e.f. 1st April, 2001 from s. 10B, under which "processing" was covered by "manufacture". We find that the said judgment in the case of Tata Tea Ltd. ( supra ) was pronounced taken in the context of Section 10B of the Act and the said decision merely distinguished the judgment in the case of Tara Agencies ( Supra ) of the Supreme Court and therefore, it is not in contradiction. We have perused the Rajasthan High Court judgment in the case of D.D. Shah Bros. ( supra ) which was directly on the issue of interpretation of Section 80IB (2) (iii) which explain the expressions "manufacture" or 'processing' and held that blending of tea does not amount to manufacturing or production and held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. The provisions of Section 80IB (2)(iii) refers to the expression of "manufacturing" or 'production', therefore, said Apex Court judgment read with Rajasthan High Court judgment in the case of D.D. Shah Bros. ( Supra ) are relevant for deciding this case. Considering the applicability of the Supreme Court decision with retrospective application, we are of the opinion that there is an erroneous in assumption of law by the A.O. to the extent of negative revenue implication amounting to Rs. 20,81,018/- claimed by the assessee u/s. 80 IB of the Act. Therefore, we are of the opinion that CIT has rightly and validly assumed jurisdiction in directing A.O. in para 7 8 of the impugned order. F. For the sake of completeness, the said paragraphs are reproduced as under: "7. As already highlighted, the assessee is engaged in the business of buying different types of tea from the market, blending them in different proportions and thereafter sells the tea in the market. The assessee has claimed that it is an industrial undertaking engaged in manufacturing activity and entitled for deduction u/s. 80IA/80IB of the Act. 7.1 In this context, it may be noted that the Legislature has u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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