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Deputy Commissioner of Income-tax, Circle-4, Kolkata Versus M/s. V.N. Enterprises Ltd. and Vica-Versa

2015 (8) TMI 845 - ITAT KOLKATA

Entitlement to exemption u/s 10B - Held that:- There is a blending of tea in the present case of assessee and assessee before AO during remand proceedings have proved the complete procedure explaining that there is blending of tea. This is exactly in line with the order of ITAT Kolkata Special Bench in the case of Madhu Jayanti International Ltd (2012 (7) TMI 531 - ITAT KOLKATA) wherein held that the assessee who are in the business of blending and processing of tea and export thereof, in 100% E .....

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A HIGH COURT) wherein considered that assessee made payment of commission in consideration of services rendered. The CIT(A) held that the commission on export activity was fully disclosed in all correspondence and activities in relation to export, the commission was paid through banking channels with the Reserve Bank approval and it was paid pursuant to an agreement approved by the Government of India and the United Nations, that the payment of commission was for business consideration and there .....

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e United Nations. - Decided against revenue. - I. TA No.1777/Kol/2008, C.O. No. 121/Kol/2008, ITA No.1818/Kol/2009, ITA No. 1761/Kol/2009, ITA No.1379/Kol/2008 - Dated:- 14-8-2015 - Shri Mahavir Singh and Shri B. P. Jain, JJ. For The Revenue : Dr. Adhir Kr. Bar, CIT, DR and Shri David Z. Chawngthu, Addl. CIT-DR For The Assessee : Shri R.P. Agarwal & J. M. Thard, Advocate ORDER Per Bench: These five appeals - two by assessee, two by Revenue and one Cross Objection by assessee, are arising out .....

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e proceedings u/s. 147 were validly initiated. For this, assessee has raised following ground no.1: 1. For that the Ld. CIT(A) erred in holding that the proceedings u/s. 147 were validly initiated. He erred in rejecting the grounds against the initiation of the proceedings u/s. 147 and passing of the order in pursuance thereof. 3. At the time of hearing Ld. counsel for the assessee Shri R. P. Agarwal, Sr. Advocate made statement at Bar that he is not pressing this ground. Hence, this ground is d .....

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see has raised following ground no.2 in its CO and ground no. 1 in its appeal: Ground for Cross Objection: 2. a) For that the Ld. CIT(A) erred in rejecting the ground Nos. 4, 5, 6 & 7 taken before him against denial of exemption of ₹ 3,49,07,028/- u/s. 10B of the I. T. Act on the basis of his order in the appeal for the Asst. Yr. 2003-04 in the appellant s case. b) For that the Ld. CIT(A) failed to notice that the assessee had filed appeal against the denial of the exemption u/s. 10B i .....

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the submission made in respect of the said appeal will apply mutatis mutandis for this year also. 5. Briefly stated facts are that assessee claimed exemption u/s 10B of the Act in respect of 100% EOU and in support of its claim, assessee filed report in Form No. 56G u/s 10B of the Act. But AO denied exemption to the assessee. Aggrieved, assessee preferred appeal before CIT(A), who also confirmed the action of AO and denied the exemption u/s 10B of the Act by observing in para-4 as under:- 4. Th .....

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ubmissions of the appellant on facts because the Hon'ble Supreme Court in a recent decision delivered on July 9, 2007 in the case of CIT - Vs- Tara Agencies (2007) - 292 ITR-444 (SC) has held that the activity of blending of Tea does not constitute manufacture. The Hon'ble Court has also held that The word produce when used in juxtaposition with the word manufacture takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all by .....

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n was permissible to the assessee who exported goods manufactured or produced in a small scale Industrial undertaking owned by the assessee. The terminology used for allowance of deduction u/s. 10B also requires that the deduction will be admissible only in respect of the undertaking which manufactures or produces an article or thing. The aforesaid decision of the Apex Court has set at rest the controversy as to - whether blending or Tea amounts to manufacture or production of article or thing, .....

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d by the appellant in this regard. The denial of the deduction u/s/. 10B by the AO is upheld. Aggrieved, now assessee has filed this appeal and cross objection. 6. At the outset, Ld. counsel for assessee, Shri R.P. Agarwal, Senior advocate stated that the issue now stands covered by the order of Special Bench of ITAT Kolkata in the case of Madhu Jayanti International Ltd. v. Dy. CIT (2012) 137 ITD 377 (Kol) (SB) and he referred to relevant para 35 to 37 of the order, which reads as under:- 35. W .....

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e AY 2004-05, exemption was declined for the reasons that by the Finance Act 2000, the definition of manufacture which included processing contained in section 10B of the Act was deleted w. E. F. 01.04.2001. The argument of the department is that manufacture or production had liberal meaning under the definition clause contained in section 10B of the Act until its deletion which covers even processing and, therefore, blending and packaging of tea for export was treated as manufacture or producti .....

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he decision of Supreme Court in Tara Agencies, (supra) relied on by the Ld. CIT, DR, wherein Hon ble Supreme Court clearly held that blending of tea does not amount to manufacture or production of an article, but is only processing. We find that the assessee was exclusively engaged in blending and packing of tea for export and was not manufacturing or producing any other article or thing. It was recognised as a 100% EOU division and the Department had no case that the assessee s unit engaged in .....

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or export may not be manufacturer or producer of any other article or thing in common parlance. However, for the purpose of Section 10A, 10AA and 10B, we have to consider the definition of the word manufacture as defined in Section 2(r) of SEZ Act, Exim Policy, Food Adulteration Rules, 1955, Tea (Marketing) Control Order, 2003, etc. We also find that the definition of manufacture as per Section 2(r) of the SEZ Act, 2005 is incorporated in Section 10AA of the Income-tax act with effect from 10.02 .....

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in the case of Girnar Industries (supra) and Tata Tea Limited (supra), we hold that the assessee is entitled for exemption under Section 10B of the Act on account of blending of tea. Similarly, in our view, the industrial units engaged in the very same activity i. E. blending, packing and export of tea in the free trade zone shall also be entitled to enjoy tax exemption under Section 10A of the Act. 37. Accordingly, we answer the question referred in favour of the assessee by holding that the a .....

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. and found that there is blending of tea and consequently the assessee is eligible for exemption u/s. 10B of the Act as prayed for. Their appeal for the AY 2004-05 is allowed. As regards other appeals and that of the interveners, the matters are restored back to the Division Bench, with directions to decide those appeals in the light of principle laid down herein, so far as the claim for relief u/s. 10A or 10B of the Act in accordance with law. When a query was put to Ld. Senior advocate in ter .....

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ase - as they emerge from the records as well as the assessee s submission in the form of a paper book - are that the appellant company purchases tea from auction centres located in various parts of the country and then the teas of different qualities / grades as selected are laid down on the floor of the Warehouse. Thereafter, the tea of one type/grade are mixed/blended with another type/grade of tea to achieve the required standard of tea - on the basis of Blendsheets as selected by experts. S .....

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Tax Act 1961 in an exhaustive manner, the assessee has argued in its paper book hat for the purposes of section 100B of the Income Tax Act 1961 an exclusive definition has been given in respect of the said two words and that the expression manufacture has been defined to include inter alia any process for the purposes of section 10B of the Income Tax Act 1961. Placing reliance on various judicial pronouncements, the assessee has pleaded that the activity of blending carried out by it leads to pr .....

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h, Ld. CIT-DR Shri Adhir Kumar Bar relied on the order of AO. 7. We find that factual there is a blending of tea in the present case of assessee and assessee before AO during remand proceedings have proved the complete procedure explaining that there is blending of tea. This is exactly in line with the order of ITAT Kolkata Special Bench in the case of Madhu Jayanti International Ltd (supra). Hence, respectfully following the order of ITAT Kolkata Special Bench, in the case of Madhu Jayanti Inte .....

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u/s. 234B and 234C of the Act. This issue is consequential in nature, hence we refrain from dealing with the same and is dismissed. Now we are coming to Revenue s appeals 9. Ground no. 1 of revenue s appeal i. E. ITA No. 1777/K/2008 is against the order of CIT(A) in deleting the disallowance of claim of deduction u/s. 80HHC, made by the AO based on the facts that the claim was not made by the assess3ee neither in the original return of income or in the return of income filed in response to noti .....

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0. At the time of hearing Ld. counsel for the assessee Shri R. P. Agarwal, Sr. Advocate made statement at Bar that he is not pressing this ground. Hence, this ground is dismissed as not pressed. 11. Next common issue in Revenue s appeal in ITA No. 1777/Kol/2008 for AY 2002-03 and ITA No. 1761/Kol/2009 for AY 2005-06 is as regards to the order of CIT(A) deleting the disallowance commission payment. For this, Revenue has raised identical issue and the ground vide ground no.3 raised in ITA No. 1777 .....

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ainst Revenue exactly on identical facts and circumstances of Hon'ble jurisdictional High Court in the case of CIT v. Rajarani Exports P. Ltd. (2014) 361 ITR 152 (Cal). Further, we find that Hon'ble jurisdictional High Court has considered that assessee made payment of commission in consideration of services rendered. The CIT(A) held that the commission on export activity was fully disclosed in all correspondence and activities in relation to export, the commission was paid through banki .....

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e recipient of the commission and stated that neither the assessee nor the Government of India was involved in parting with some of the funds so received as commission under a pact between the Iraq Government and the United Nations. The Tribunal held that the assessee was concerned with commercial expediency of the payment and not with the actual costs incurred in rendering the services for which the payment was made. Hon ble Calcutta High Court confirmed the order of Tribunal in the case of CIT .....

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a party other than the agent to whom commission is paid is wholly immaterial so far as deductibility in the hands of the assessee is concerned. As for the position that the payment was highly excessive vis-à-vis the local costs, even if that be so, that aspect of the matter does not affect the deductibility in the hands of the assessee either. The assessee is concerned with commercial expediency of the said payment and not with what are the actual costs incurred in rendering the services .....

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