9911796707
TMI Blog2012 (7) TMI 699X X X X Extracts X X X X X X X X Extracts X X X X ..... said assessment year on 1.11.2005 showing income at Nil under normal provisions, after claiming deduction u/s. 80IB(5) of the Act. On scrutiny, the assessment was completed on the above book profit amount on 31.12.2007. However, later, the Assessing Officer noticed that in the said assessment the assessee has been allowed excess deduction to the extent of Rs. 51,91,951. Therefore, she re-opened. the u/s. 147 of the Act and accordingly, has issued a notice u/s. 148 for this assessment year on 24.3.2009. In response to this notice, the assessee has submitted that the original return filed may be treated as return filed in response to notice u/s., 148 of the Act. 4. During the re-assessment proceedings, the assessee has objected to such proceedings stating that all facts necessary for assessment have been disclosed by them and such present action of the Assessing Officer is a mere change of opinion. However, after discussing the factual position and referring to the proviso to section 147 of the Act, the Assessing Officer rejected such contention. She further noted that during the assessment proceedings for A.Y. 2006-07, while calling for details of excise duty liability, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or thing which is essential condition for claiming deduction u/s. 80IB. She clearly noted that the assessee is simply extracting the mineral from the earth and then simply crushes the same into smaller pieces of various sizes. 6. The Assessing Officer further noted that as per the P&L account of the assessee, it is not incurring any direct expenses for the purpose of manufacture of anything which is new in name and character. She noted that under the head 'direct expenses', the assessee has claimed expenses just for mining, transportation, loading and unloading etc., which cannot be construed as manufacturing expenses. Further comparing the figures of turn over shown in respect of PF Lumps, PF Chips and PF Granules and the sale price of each item per metric tonne, she noted that the raw material extracted from the mines i.e., PF Lumps were sold at a higher price than the other two items, obtained during crushing activity. She further mentioned that, the above fact contradicts the claim of the assessee that raw materials when extracted from mines are of insignificant value. With the above observations, the Assessing Officer concluded that the assessee company is not involved in m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer is ab initio void both under law and facts. In this regard, the AR relied on several decisions. 8. The learned DR submitted that he is not agreeing with the contention of the AR. In the letter dt. 17.11.2008 filed during assessment proceedings for A.Y. 2006-07, the assessee has stated that the final product is same as input and no other materials are added in the process, and the Assessing Officer has referred to such submission to prima facie reach the conclusion that the assessee is not engaged in manufacturing or production of any article or thing how can the AR submit that such observations made by the Assessing Officer are not correct? Secondly, from the assessment order, made in this case on 31.12.2007 u/s. 143(3) of the Act, the claim of such deduction u/s. 80IB made by the assessee has not been examined by the then Assessing Officer. In this context, it is pertinent to reproduce the entire observations made by the Assessing Officer in the said assessment order, before computation of total income and tax calculation made in that order: The assessee, M/s. Jumbo Mining Limited, Hyderabad, in the activity of extracting and processing of mines, has filed return of income f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer is entitled to reopen the assessment. Further in the case of ACIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (supra), it was held that the Assessing Officer is having jurisdiction to issue notice u/s. 148 for bringing to tax income escaping assessment on the ground that the assessee claimed excessive relief or deduction. In the present case considering the excessive claim of the assessee u/s. 80HHE, we are of the opinion that reopening of assessment is valid. 6. We have also carefully gone through the order of the Mumbai Bench of the Tribunal in the case of H.V. Transmissions Ltd. (supra). In this case the assessee incurred expenses towards Enterprise Resource Planning software amounting to Rs. 95.14 lakhs. In the accounts the assessee has debited 25% of this amount i.e., Rs. 23,78,500 whereas in the computation of income, the assessee has claimed the entire amount of Rs. 95.14 lakhs as deduction. The expenses incurred by the assessee is payment for acquisition of software which is capital in nature. Hence the assessment is reopened to disallow the same. On appeal to the Tribunal, it was held that there was no material coming to the possession of the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 06 showing income of Rs ,46,91,230, after claiming deduction for Rs. 1,00,78,425 u/s, 80-IB and for Rs. 1,200 u/s. 80G of the Act. After processing of the return u/s. 143(1) of the Act, the same was selected for scrutiny assessment. From the Audit Report in form 3CD filed with the return, the Assessing Officer noticed that the assessee has paid a sum of Rs, 49,93,369 towards service tax, which according to him is not allowable u/s, 40A(9) of the Act. Further stating that no clarification has been filed by the assessee, the Assessing Officer disallowed the said amount. From the said Audit Report the Assessing Officer further noticed that a sum of Rs. 82,624 towards employees' contribution towards Provident Fund, was paid by the assessee after the due dates, as defined under said Act / Regulation. Since the said contribution has not been paid by the due date, referring to provisions of Sec. 36(1)(va) of the Act, the Assessing Officer disallowed the said amount. The Assessing Officer further noticed that the assessee has debited an amount of Rs, 43,909/- to P&L a/c. towards loss on sale of assets. The same being a capital loss, the Assessing Officer disallowed the said amount. He furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the clarification furnished by the assessee on manufacturing process in its case, the Assessing Officer observed that the business activity in the case of the assessee is not a manufacturing activity because the final outcome of such activity is not a new article or thing which is having distinct individual identity, name and use. He noted that because of its blasting activity, the assessee is getting different items, viz., PF Lumps, FA Lumps, PF Power, Clay, PF Quarts and Chips. However, these items are not new articles or things and they do not have any new identity or name which is distinct from the original material. He further noted that the assessee is not using skilled labour and is not making significant value addition which is essential in the manufacturing activity. The assessee incurred expenditure towards 'direct expenses', that was for the purpose of simple mining, transportation, loading and unloading etc. The same cannot be construed as manufacturing expenses. He noted that the assessee is simply engaged in processing activity. In this regard, he relied on the following decisions- 1. Bharat Forge and Press Industries Pvt. Ltd. CCE (1 SCC 532) 2. Union of India vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 28/09/2006, received from Commissioner of Customs & Central Excise, Hyderabad. It was further submitted that the same has no impact over the financial statement as no entry for the said contingent liability is passed in the books of account. It was contended, therefore, there cannot be any disallowance on that account. 19. The lower authorities disallowed the claim of the assessee on the reason that the assessee is only extracting and processing of minerals from mines. It was further observed that the nature of activity carried out by the assessee is only crushing the lump ores extracted from the mines for obtaining smaller pieces of various sizes. Even though it has referred using of vibrator, conveyer system and ball mill etc. in its plant, it may be seen that the end products are only the same minerals of smaller sizes. There is no change in physical and chemical composition, after subjecting the original ores to different stages of processing at its plant at Kadthal Village. In the letter dated 17/11/2008, filed before the Assessing Officer, the assessee has admitted that Jumbo Mining Ltd., purchase / excavate mineral and process it for the different sizes. It is further sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Quartz Powder, the assessee has contended that it is entitled for deduction u/s. 80IB of the Act. In support of their claim for deduction under this section the AR has relied on several decisions stated above. Further he relied on the following judgements: 1. CIT v. Chiranjeevi Wind Energy Ltd. (333 ITR 192) (Mad). 2. CIT vs. Zainab Trading Pvt. Ltd. (333 ITR 144) (Mad) 3. CIT v. Jackson Engineers Ltd. (341 ITR 518) (Del) 4. CIT v. I. Tech Electronics (341 ITR 533) (Gau.) 5. CIT vs. Mallikarjun Georesources Associates (341 ITR 581) (Uttarakhand) 6. CIT v. Sesa Goa Ltd (271 ITR 331) (SC) 7. Bajaj Tempo Ltd v. CIT (196 ITR 188) (SC) 8. Aspinwall and Co v. CIT (251 ITR 323) (SC) 9. India Cine Agencies v. CIT(308 ITR 98) (SC) 10. CIT v. Emptee Poly-Yarn P .Ltd. (320 ITR 665) (SC) 11. CIT v. Oracle Software India Ltd. (320 ITR 546) (SC) 12. ITO v. Arihant Tiles and Marbles P. Ltd. (320 ITR 79) (SC) 13. Vijay Ship Breaking Corpn. & Ors.v. CIT (314 ITR 309) (SC) 14. Orissa State Warehousing Corporation v. CIT (237 ITR 589) (SC) 15. CIT v. Eastern Book Company (322 ITR 605) (All) 16. CIT v. Dimac Industries (2 DTR 355) (Bom) 17. CIT v. Mercantile Construction Co. (74 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bles P. Ltd v. I.T.O. (295 ITR 148W) (Raj) 57. CIT v. Vijay Ship Breaking Corporation (261 ITR 113W) (Guj) 58. Sri Balaji Metal Finishers v. I.T.O. (15 ITD 26) (Hyd)(TM) 59. DCIT Vs. Sri Sai Roller Flour Mills Pvt. Ltd. 2 ITR (Trib) 490 (Hyd) 60. ACIT v. Panachayil Industries (7 SOT 96) (Coch) 61. ACIT v. M/s.Vinayagar Silks Pvt. Ltd. (2010-TIOL-99-ITAT-MAD) 62. Vinbros and Co. v. ITO (297 ITR (AT) 280) (Chenn) 63. CIT v. Balaji Hotels and Enterprises Ltd. (311 ITR 389) (Mad) 64. Neyveli Lignite Corporation Ltd v. ACIT (2 SOT 863) (Chenn) 65. DCIT vs. Gem Granites (64 ITD (Mad) 296) 66. ITO v. Punchline Forms (278 ITR 165) (Mum) 67. ITO v. Agarwal Stone Industries (21 ITD 622) (Jaipur) 68. Suraj Marbles (P) Ltd and Ors v. ITO (104 TTJ 192) (Jaipur) 69. ITO vs. World Wide Stones (115 TTJ 613) (Jaipur) 70. Aravali Minerals and Chemicals Industries (P) Ltd. v. ACIT (108 ITD 163) (Jodh) 71. ACIT v. Wolkem India Ltd. (107 TTJ 439) (Jodh) 72. ACIT v. Tirupati Microtech (P) Ltd. (111 TTJ 149) (Jodh) 73. Kushal Bagh Marbles I(P) Ltd v. ACIT (111 TTJ 122) (Jodh) 74. ACIT v. National Lamination Industries (Ahd.) 75. V.M. Jog Engg. Ltd. v. Jt. CIT (104 TTJ 487) (Pune) 76. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uarts into smaller size of required dimension could not be considered as manufacture. Once there was no manufacturing activity, the assessee was definitely not entitled for the deduction under section 80-I." 23. The DR also relied on the order of the Tribunal in the case of ITO vs. Jitendra Stone Crushing Company (2007) 105 ITD 52, where it was held by Tribunal, Chandigarh Bench, that by breaking big boulders into 'gitty' or small pieces of stone, it cannot be said that the assessee was engaged in manufacturing of article and hence, it is not entitled for deduction u/s. 80-IB of the Act. In this context, it is pertinent to refer to the following observations made by the Hon'ble Tribunal in para 6.8 of the said decision: "6.8. The Hon'ble Supreme Court in the case of Aman Marble Industries (P.) Ltd. v. CCE [2003J 58 RLT 595 has held that cutting of marble block into marble slabs or tiles does not amount to manufacture, as in both the forms, marble remains marble. In the present case the boulder is the big stone while the pieces of the boulders i.e., gitty or bajri are small stones but there is no change in the composition of the material, so it cannot be said that the breaking of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal, Chennai Bench in G.T.C. Enterprises (cited supra) and Tribunal Chandigarh Bench in Jitendra Stone Crushing Company (cited supra) the assessee is not eligible for deduction u/s. 80IB of the Act. Accordingly he submitted that the decision Assessing Officer in denying the claim of deduction u/s. 80-IB of the Act is justified. 27. We have heard the lengthy arguments of both the parties and perused the material on record. The crucial issue to be decided before us is whether the crushing the lump ore extracted from the mines, for obtaining smaller pieces of various sizes is eligible for deduction under Section 80-IB or not. The deduction under Section 80-IB is available to an Industrial Undertaking if it manufactures or produces any article or thing not being any article or thing specified in the list in the Eleventh Schedule. The words 'Industrial Undertaking' has not been defined in the Income-tax Act, however, cropped up many a time before the Hon'ble Supreme Court and various High Courts. In the present case, interpretation of the words 'Industrial Undertaking' does not pose much difficulty before us because nobody has disputed that the assessee is an industrial undertaking. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of a particular commodity in the process of manufacturing of another commodity. The goods purchased should be consumed, the consumption should be in the process of manufacture and the result must be the manufacture of other goods. 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 stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article that a manufacture can be said to take place." 32. It is also relevant to point o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... haps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article that a manufacture can be said to take place'. The word 'production' or 'produce' when used in juxtaposition with the word 'manufacture' taken in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods." 34. From the combined reading of the ratios laid down in the aforesaid referred to cases, it can be concluded that when the change or a series of changes lakes one commodity to the point where commercially it can no longer be regarded as the original commodity, but instead is recognized as a new and distinct article, then it can be said that 'manufacture' takes place. In the present case, the assessee had broken the boulders in small pieces, but there is no change in the composit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll of similar nature though by size, they may be different. Even if 'gitty', 'kankar', stone, blast etc. may all be looked upon a separate in commercial character from stone boulders offered for sale in the market, yet it cannot be presumed that entry 40 of the Notification is intended to describe the same as not stone at all. In fact the term 'stone' is wide enough to include the various forms such as gitti, kankar, stone blast. 38. Similarly, in the case of Lucky Minmat (P.) Ltd. v. CIT (245 ITR 830), Their Lordships of the Hon'ble Apex Court at page No. 831 while distinguishing the judgment of the Hon'ble Rajasthan High Court in the case of CIT v. Best Chem & Limestone Industries (P.) Ltd. (210 ITR 883) had observed that the conversion into lime and lime dust or concrete by stone crusher could legitimately be considered to be a manufacturing process while the mere mining of lime stone and marble and cutting the same before it was sold in the market could not be so considered. In the present case also, there was cutting of boulders into small pieces. So, it cannot be said that it was a manufacturing activity, because by breaking the boulders i.e., big stone into small pieces i.e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction" but conversion into lime and lime dust are concrete by stone crushers could legitimately to be considered as a manufacturing process. While mere mining of limestone and marble and cutting the same before it was sold in the market could not be considered so. The assessee was not entitled to deduction u/s. 80HH. It was held by Supreme Court in the case of Dy. CST & Anr. Vs. Bherhaghat Minerals Industries (246 ITR 230) that the crushing of dolomite lumps into chips is not a process of manufacture that brings about new commercial commodity. In the case of ACIT vs. Wolkem India Ltd. (107 TTJ 439) (Jodh) held that if the assessee is engaged integrated activity of mining, processing and grinding of wollastonite and calcite products is engaged in the manufacture/production eligible for deduction u/s. 80IA and 80IB of the Act. In other words if an assessee is engaged in the activity of extracting granite, cutting the same into slabs/tiles, polishing and selling the end product in the market, that would amount to production of an article or thing. If the assessee only purchases granite/marble from the market and thereafter carries out further process like cutting, polishing, etc., it ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
