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2015 (10) TMI 2110 - ITAT HYDERABAD

2015 (10) TMI 2110 - ITAT HYDERABAD - TMI - Entitlement to eduction U/s. 10B on the unit established in SEZ - manufacture - in earlier years, the deduction claimed U/s. 10B was not allowed - disallowance of 25% of expenditure on earth development expenses taking into account the non-verifiable nature of the expenditure. - Held that:- Explanation 4 of section 10B makes it clear that the term ‘manufacture and produce’ as contemplated under section 10B is inclusive and not exhaustive. Therefore, co .....

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e : Smt Nivedita Biswas, CIT-DR For The Assessee : Shri D.V. Anjaneyulu and Miss Pravallika, ARs ORDER PER B. RAMAKOTAIAH, A.M. : This is a Revenue s appeal against the order of the Commissioner of Income Tax (Appeals)-VII, Hyderabad dated 25-02-2014. Assessee filed Cross Objection in support of the orders of CIT(A). We have heard Ld. DR and Ld. Counsel. 2. Briefly stated, assessee is a company and has claimed deduction U/s. 10B on the unit established in SEZ. In the scrutiny assessment, the Ass .....

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also disallowed an amount of ₹ 2,55,34,208/- being 25% of expenditure on earth development expenses taking into account the non-verifiable nature of the expenditure. Ld. CIT(A) following his own orders in earlier years, allowed assessee s claim U/s. 10B. Further, on enquiry from assessee, who furnished the same documents furnished before the AO, noticed that assessee has engaged M/s. GVPR Engineers Ltd., for laying roads and doing earth development work and the said company has also accou .....

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he AY. 2010-11 qualify as manufacturer. 2. On the facts and circumstances of the case and in law, the ld. CIT(A) in allowing relief of ₹ 2,55,34,208/- by admitting additional evidence in the form of the agreement with GVPR Engineers Ltd., and the work order without giving an opportunity to the AO to examine the same in violation of 46A . 3. On the issue of Ground No.1, the orders of CIT(A) in earlier years were upheld by the ITAT vide ITA Nos. 256 to 261/Hyd/2012 dt. 08-08- 2014 wherein el .....

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s clear that the AO has denied deduction u/s 10B basically for the following reasons. 1) Assessee during the search proceeding had voluntarily admitted undisclosed income of ₹ 1817.05 lakhs without claiming deduction u/s 10B. 2) assessee has not claimed deduction u/s 10B for ten consecutive assessment years beginning from AY 2006-07 and 3) assessee is not engaged in any manufacturing or production activity. So far as the observation that assessee has voluntarily offered not to claim any de .....

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AO s observation that the assessee has offered not to claim any deduction u/s 10B is of little relevance and as otherwise is also not borne out from the facts on record. So far as the second allegation of the AO that assessee has not claimed deduction u/s 10B for 10 consecutive assessment years is concerned, on a perusal of facts on record, it becomes clear that the iron ore mining activity was started by the assessee in FY 2007-08 corresponding to the AY under consideration. Therefore, the AO .....

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esa Goa Ltd. (supra) had an occasion to examine the import of the term manufacture or produce while considering the issue as to whether plant installed for extracting mining and processing iron ore would qualify for investment allowance held as under: 9. The reasoning given by the High Court, in the decisions noted by us earlier, is, in our opinion, unimpeachable. This Court had, as early as in 1961, in Chrestian Mica Industries Ltd. vs. State of Bihar (1961) 12 STC 150 (SC), defined the word &q .....

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uld come within the ambit of the word "production" since ore is "a thing", which is the result of human activity or effort. It has also been held by this Court in CIT vs. N.C. Budharaja & Co. & Anr. (1993) 114 CTR (SC) 420 : (1993) 204 ITR 412 (SC) that the word "production" is much wider than the word "manufacture". It was said : "The word production has a wider connotation than the word manufacture . While every manufacture can be characteri .....

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enue, that the mined ore must be a commercially new product. The decisions and other authorities on the definition of the word "ore", as cited by the appellant, are irrelevant. 10. Learned counsel appearing on behalf of the assessee, correctly submitted that the other provisions of the Act, particularly s. 33(1)(b)(B) r/w item No. 3 of the Fifth Schedule to the Act, would show that mining of ore is treated as "production". Sec. 35E also speaks of production in the context of .....

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correct in holding that the activity did not amount to "manufacture" is left open. 24. Further, Board s Instruction No. 2 of 2009 dated 09/03/2009, also clarifies that 100% export oriented units are eligible for deduction u/s 10B of the Act if they are certified by Development Commissioners. There is no dispute to the fact that assessee has been certified by the Development Commissioner. Therefore, considered in the aforesaid context and applying the ratio laid down by the Hon ble Sup .....

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lant on which deduction was claimed was for sizing and washing of iron ore. Therefore, the Hon ble High Court held that since there is no manufacture or production of new article or thing deduction cannot be allowed. However, in the present case, assessee is engaged in the mining as well as processing activity. It not only extracts iron ore from beneath the earth but also converts it to a specific grade through certain processes. Therefore, certainly assessee can be considered to be engaged in p .....

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ent. Further, sub-section (10) of section 80HH specifically excludes mining activities from availing deduction. The Hon ble Jurisdictional High Court keeping in view the aforesaid statutory provision held that assessee is not entitled for benefit u/s 80HH. Whereas, there is no such provision akin to section 80HH(10) under section 10B of the Act restricting benefit to mining activity. On the contrary, explanation 4 of section 10B makes it clear that the term manufacture and produce as contemplate .....

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