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2015 (12) TMI 463 - ITAT DELHI

2015 (12) TMI 463 - ITAT DELHI - TMI - Revision u/s 263 - whether the activity undertaken by the assessee comes within the scope and meaning of words “manufacture and production of article or thing" as used by the legislation in section 10B(2)(i) of the Act? - Held that:- Assessing Officer, in his reassessment order dated 20.2.13 passed in pursuance to the directions of Hon'ble High Court, allowed deduction us/ 10B of the Act to the assessee by holding that the activities undertaken by the asses .....

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nquiry report of the departmental Inspector and then concluded that the activities undertaken by the assessee would amount to manufacture within the meaning of section 10(B)(2)(i) of the Act on the basis of said conclusion, the assessee’s claim for deduction u/s 10B of the Act was allowed.

we observe that the Assessing Officer adopted a reasonable, correct and plausible view based on logical analysis of documentary evidence of the assessee and fortified by the Inspector’s spot and phy .....

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ction to issue notice and to pass revisional order u/s 263 of the Act. Hence, we are inclined to hold that the CIT has no valid reason to assume jurisdiction to invoke section 263 - Decided in favour of assessee. - I.T.A. No. 2531/Del/2014, I.T.A. No. 5702/Del/2014, I.T.A. No. 5703/Del/2014, I.T.A.No.924/Del/2014 - Dated:- 30-11-2015 - Shri Chandra Mohan Garg, Judicial Member And Shri L. P. Sahu, Accountant Member For the Appellant : Shri Rajiv Saxena, Adv. Sumangla Saxena, Adv For the Responden .....

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ue against the order of the CIT(A) dated 25.11.13 in Appeal No. 207/13-14. 2. It is pertinent to note that all the aforesaid appeals involve consideration of common issue viz. whether the activity undertaken by the assessee comes within the scope and meaning of words manufacture and production of article or thing: as used by the legislation in section 10B(2)(i) of the Act. Besides the aforesaid issue, appeals for assessment year 2006-07, 2007-08 and 2009-10- also involve consideration of another .....

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ed articles are got manufactured from various artisans as per the instructions of the assessee. After receipt of aforesaid unfinished and semi finished articles, the assessee converts them into finished products by undertaking several manufacturing and mechanical process such as rubbing the raw material by sand paper, buffing, handcarving, polishing, antiquing, packaging, fitting of kundis, pasting of velvet on the coins and boxes, assembling to form a new game called 3-in one game and 5-in-one .....

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rein the Assessing Officer disallowed the claim of deduction u/s 10B of the Act on three grounds viz. the assessee firm has been reconstituted by the reconstruction of business already in existence; ii) the undertaking of assessee has not been approved by the revenue authorities on account of not obtaining custom bonding licence; iii) the assessee has been purchasing the finished handicraft items of other allied items and as per the sale invoices furnished, the items exported are exactly the sam .....

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e assessment years, it was held that the assessee is entitled to claim deduction u/s 10B of the Act. The CIT reversed the findings of the Assessing Officer and held that the assessee firm is engaged in the business of manufacturing for which it purchased several semi finished and unfinished material on which further processing was carried out to make it saleable in the international market as different commodities because goods were manufactured in raw form as per their directions and further th .....

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the CIT(A) is correct in allowing deduction and also referring to definition under FTP which is wider in connotation and includes activities of the assessee as manufacturing. It was also held by the Tribunal that the assembling of the various products in order to export is also manufacturing as per definition of section 10B of the Act. On 23.12.11, the Assessing Officer passed assessment order for assessment year 2009-10 by making enquiry of the manufacturing activities and after due examination .....

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t of admission of additional evidence, the Hon'ble High Court held that the additional evidence submitted before the CIT was not properly verified by the Assessing Officer and the matter was sent back to the Assessing Officer for limited purpose with following directions:- We, therefore, restore this issue to the file of the Assessing Officer to enable him to process the claim of the assessee afresh in the light of the evidence brought on record. It is clarified that the Assessing Officer wi .....

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igh Court has neither upset nor adversely commented upon the findings of the CIT(A) and the Tribunal that the assessee is undertaking manufacturing activity within the meaning of section 10B(2)(i) of the Act. In pursuance of the order of the Hon'ble High Court, the Assessing Officer passed order u/s 143(3)/260A for assessment year 2006-07 and 2007-08 on 22.3.2013 after detailed verification of the additional evidence and other evidences placed before him. The Assessing Officer also submitted .....

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the Act as the assessee is undertaking manufacturing activity within the provisions of section 10B(2) of the Act on 25.10.13. The CIT(A) allowed the appeal of the assessee for assessment year 2009-10 allowing the claim of deduction u/s 10B of the Act for which the revenue has filed I.T.A. No. 924/D/14. 8. After all aforesaid orders passed by the Assessing Officer and the CIT in pursuance to the order of Hon'ble High Court, the CIT issued notices u/s 263 of the Act to revise the orders of the .....

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as manufacture and production and denied the exemption u/s 10B of the Act. Now, the aggrieved assessee is before this Tribunal with three separate appeals challenging the invocation of revisionary powers of CIT u/s 263 of the Act. 9. First of all, we take grounds of appeal of the assessee in ITA No. 2531/Del/14 for assessment year 2009-10 which read as under:- 1. That the Ld Commissioner of Income Tax, Delhi - XI has erred in law as well as on facts in cancelling the assessment order allowing th .....

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ot;manufacture" applicable as per clause (r) of the Special Economic Zones Act, 2005 as provided under section 10 AA of IT Act to an entrepreneur referred to in clause (j) of that Act in which assessee firm is also covered. c) She has failed to appreciate that assessee firm was granted 100% EOU by Ministry of Commerce under the Foreign Trade Policy as per Scheme of Special Economic Zone by Development Commissioner till that time legislature has not implemented SEZ Act, 2005. d) She has igno .....

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as the Ld Assessing Officer has made thorough enquiry before reaching to the conclusion during the assessment that assessee firm is involved in manufacturing process. f) She has failed to appreciate the limited directions of the Hon'ble Delhi High Court in AY 2006-07 & 2007-08 on which the AO deputed the inspector who made the inspection on site and thereafter allowed the deduction u/s 10 B. 10. It is relevant to note that the assessee has also alleged invocation of section 263 of the Ac .....

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of the Act. The relevant portion of written submissions of the assessee is being reproduced below:- 4. It is submitted that in the instant case, learned CIT has revised the orders of assessment for three assessment years i.e. AY 2006-07, 2007-08 and 2009-10 under section 263 of the Act. It is submitted that in so far as the orders of assessment for the AY 2006-07 and 2007-08 are concerned, such orders of assessments were framed under section 143(3)/260A of the Act in view of the judgment of the .....

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furnished by the assessee before learned CIT(A) during appellate proceedings which has also been taken note of in the judgment of the Hon ble High Court in para 24. The additional evidences furnished by the assessee before the learned CIT(A) during the appellate proceedings were as under: i. Copy of RTI Application dated 11.01.2010 addressed to Ministry of Commerce and Industry, Udvoy, Biawan. New Delhi. ii. Copy of reply dated 19.01.2010 received from EOU Section, Ministry of Commerce and indu .....

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si. (iii) & (iv) are related to the issue which was set aside. Further, after the set aside, learned AO duly examined the aforesaid documents and none of the aforesaid additional evidences was found as non genuine by the learned AO. That in the set aside proceedings, assessee also filed various replies vide letters dated January 21, 2013 (PB 14), February 25, 2013(PB 15-17), dated Nil (PB 18- 19) and dated 12 & 14 March, 2013 (PB 20- 21). On the basis thereof, learned AO took note of fac .....

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examine that whether the assessee is engaged in the manufacturing activity, apart from the extensively examining the documentary evidences and written submissions furnished by the assessee, learned AO also deputed the inspector to make spot enquiries who in his report has stated as under: these workers were engaged in manufacturing work on sanding machine, buffing machine, cutting machine and bolt fixing machine. Some of the workers were engaged in polishing, colouring, bar coding, assembling a .....

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was within the scope of judgment of the Hon ble High Court as HonTile High Court has set aside the case to the AO only to examine the condition as provided in section 10B(2)(i) of the Act in the light of the additional evidences brought on record. It is therefore submitted that aforesaid order of the learned AO cannot be held to be erroneous either on facts or in law as learned AO has taken a view which was absolutely in accordance with law. 7.1 It is specific submission of the appellant that T .....

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Director of Income Tax has to satisfy the twin conditions, namely, (i) the order of the Assessing Officer sought to be revised should be erroneous (ii) it should be prejudicial to the interests of the revenue. Both the conditions must be satisfied. In case the order of the Assessing Officer is erroneous but is not prejudicial to the interests of the revenue, the Commissioner would not be competent to exercise jurisdiction under section 263. The order under section 263 could be considered as err .....

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on of jurisdiction under section 263, is that the order should also be prejudicial to the interests of the revenue. The order could be said to be prejudicial to the interests of the revenue if due to an erroneous order of the Assessing Officer, the revenue has lost tax lawfully payable by a person. The expression prejudicial to the interests of the revenue has to be read in conjunction with an erroneous order passed by an Assessing Officer. However, every loss of revenue as a consequence of an o .....

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assessments were neither passed on wrong assumption of facts nor by applying incorrect law. In fact, order of assessment is perfectly in accordance with law after detailed examination of the documentary evidences and also by making spot enquiries. Further in the instant case even the learned CIT(A) also before the set aside, after examining the entire evidences placed on record, in his order dated 30.03.2010 has held that assessee is undertaking manufacturing within the meaning of section 10B o .....

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business of the firm, which was restricted to trading for exports of handicraftitems. However, vide the new partnership deed, the scope of the business of the appellant firm was enlarged to include manufacturing for the purpose of export of handicraft items. This fact was also clearly brought about and noted by the tax auditors while furnishing the tax audit report under section 44AB. On careful perusal of the profit and loss account for the assessment year 2005-06 and assessment year 2006-07, i .....

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o plant or machinery, which could be utilized for the purpose of manufacturing of handicraft items. On the other hand, the statement of asset for the assessment year 2006-07 clearly shows an addition of machinery of ₹ 35,100 which comprised of various tools/machines used for the manufacture of handicraft items. In the business of manufacturing of Handicraft items, as the name suggest, the main value addition comes through hand-made operations, for which small tools are needed which are, no .....

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r to emphasize the nature of value addition brought about by the appellant firm on such semi-finished items. Some sample exhibits were also furnished to the learned Assessing Officer for obtaining his comments for admission of additional evidence under rule 46A. However, the learned Assessing Officer did not examine the value addition in such samples. The Ministry of Finance, Government of India has clarified the section 2(f) of the Central Excise Act, 1944, to define the term "manufacture& .....

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h goods in a unit container or labelling or relabelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer, And the word 'manufacture' shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account .....

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ied out to make it saleable in the international market. Therefore in view of the above facts, it cannot be denied that the appellant firm had not done any "manufacturing" activity during the year for the purpose of export of handicraft items. 9. It is submitted that against the aforesaid order of the learned CIT(A) revenue preferred an appeal and such finding of the learned CIT(A) was also upheld by the Hon ble Tribunal in its order dated For the sake of convenience, the finding of th .....

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pleaded that individual components are ordered as raw/semifinished components, which are carved, polished, finished putting various emblems and designs thereon. Thereafter the requisite games are polished, packed in different packings and the finished product works as a distinct and separate commercial commodity i.e. complete set of 5 games whereas purchases are for different items. The scope and meaning of words "manufacture and production of article or thing", as used in section 10B .....

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or by machine a new product having distinctive name, character or use should come into existence. The process include processes such as cutting, polishing, blending, repacking, labelling, refurbishing' etc. 10.4 In our view, Hon'ble Supreme Court judgment in the case of Gwalior Rayon Silk Mfg. Co. Ltd. (supra), has thrown guiding light on the interpretation meaning and context. The word "manufacture" uis-a-uis section 10B can be correctly understood while keeping the interdepen .....

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stinct commercial commodity i.e. 5 indoor games. The assessee carried out various activities of carving, polishing and bringing the different components into a commercial viable item, called as multiple indoor games which have been exported. The items ordered by the assessee as purchases are totally distinct form and could not have been exported. 10.5 Respectfully following the above authorities and the case laws i.e. Hon'ble Kolkata High Court in the case of Mukherjee & Co. (supra); ITA .....

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(A) and Hon ble Tribunal has also not adversely been commented by the Hon ble High Court, and case has been set aside only on account of the finding of the Hon ble High Court that before admitting the additional evidences, no proper opportunity was provided to the learned AO and hence to provide opportunity, the case was set aside. Further, in AY 2008-09 wherein learned AO has disallowed the deduction on the same grounds as was taken in AY 2006-07 and in the appeal filed by the assessee, learned .....

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e of ITO v. Makers Mart reported in 50 Taxmann.com 106 (Jodhpur) (Pgs. 73 - 87), where assessee after purchasing unfinished handicraft goods applied various processes like cutting, polishing, repairing, remaking, etc., and for that purpose, incurred substantial labour expenses, it has been held that it could not be denied exemption under section 10AA on ground that it was not a manufacturing concern. ii. In the case of Madhu Jayanti International Ltd. v. DCIT reported in [2012] 148 TTJ 1 (Kolkat .....

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#39; quality. Finally, the blended tea was packed in consumer packets or tea packs. The Assessing Officer, denied the claim of deduction under section 10B. Order of Assessing Officer was confirmed by the Commissioner (Appeals). Deduction was denied on ground that blending and processing undertaken by assessee could not qualify to be called as 'manufacture' as input used was tea and output obtained was also tea. On the aforesaid facts, after careful examination of the statutory provisions .....

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the AO was reversed by the learned CIT(A) and Tribunal. In the appeal filed by the revenue, Hon ble High Court held as under: 15. We agree with the contentions made by the learned senior counsel appearing for the assessee that the process which the assessee had undertaken satisfies the test of manufacture to qualify for relief under Section 10B of the Income Tax Act. As already narrated in the preceding paragraph, the emphasis of the Revenue is that in the absence of any definition under the Act .....

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ial and what is exported as a product for export are totally different items. The process that the assessee had undertaken clearly points out the irreversible nature of the final end product from a raw material purchased and given the above said fact, which the Revenue does not deny, we have no hesitation in accepting the contention of the assessee that there was, in fact, 'manufacture'. 16. We accept the contention of the assessee in this regard drawing support from the decision of the .....

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information storage device are brought under the definition of 'manufacture'. In any event, with the definition of 'manufacture' available as under Explanation 4 to Section 10B of the Income Tax Act, inserted by Finance Act, 2003, with effect from 1.4.2004, which defines 'manufacture or produce' to include the cutting and polishing of precious and semiprecious stones, as is relevant for the assessment years under consideration, the decision relied on by the Revenue is no .....

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ct or article or thing with a different chemical composition or integral structure. 17. Even though the definition of 'manufacture' under Section 2(29)BA, as amended under Finance Act 2 of 2009, with effect from 1.4.2009 and Explanation 3 to Section 10B, as it stood prior to the Finance Act, 2001 are not of any relevance to the case on hand relating to the assessment years 2004-05, 2005- 06, 2006-07 and 2008- 09, yet, with Explanation 4 to Section 10B of the Income Tax Act, inserted by F .....

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a definition, the word "manufacture" has to be given a meaning as is understood in common parlance. It is to be understood as meaning the production of articles for use from raw or prepared materials by giving such materials new forms, qualities or combinations whether by hand labour or machines. If the change made in the article results in a new and different article then it would amount to manufacturing activity." Thus the Apex Court pointed out that if the commodity can no lon .....

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1A) of the Income Tax act, the Supreme Court pointed out on facts that the assessee's activity amounted to processing only and the activity did not amount to production or manufacture. Thus the case relied on by the Revenue is distinguishable on facts. 20. Given the admitted fact that what was purchased by the assessee as raw material and exported goods are totally different items and commercially known as a different product, going by the definition 'manufacture' in Explanation 4 to .....

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ges of wooden items and then engraving, embossing, fixing metallic parts and assessories and, thereafter, polishing and painting thereof had also been done. Assessee also fixed artistic parts thereon to give it a commercial look, making it completely distinct in character and use - Likewise, in metallic items assessee carried more or less similar activities, to make them fascinating and marketable commodities different both in character and use than what these items were originally purchased by .....

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Act. 12. As such, in view of the aforesaid judicial pronouncements, it is submitted that since the assessee is undertaking manufacturing activity within the meaning of section 10B(2)(i) of hte Act as such, view taken by the learned AO that the assessee is undertaking manufacturing within the meaning of section 10B(2)(i) of the Act cannot be held to be erroneous. At this stage, appellant seeks to refer the judgment of the Apex Court in the case of Malabar Industrial Co. Ltd. Vs. CIT reported in .....

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the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. 13. It is submitted that same view has been taken in following judicial pronouncements: i. CIT vs. Max India Ltd. (2007) 295 ITR 282 (SC) ii. CIT v. Honda Siel Power Products Ltd. 333 ITR 547 HC ) Delhi iii. CIT vs Saluja Exim Ltd. 329 ITR 603 HC (Punjab and Haryana) iv. Grasim Indu .....

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ed that the view taken by the learned AO that assessee is undertaking manufacturing within the meaning of section 10Bt2)(il of the Act is one of the possible view as such, power exercised by the learned CIT to revise the order of assessment under section 263 is unsustainable in law. 12. Ld. Counsel of the assessee reiterated his submissions made before the CIT and before us as reproduced hereinabove and vehemently contended that the ld. CIT has exceeded his jurisdiction and has passed impugned o .....

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k a correct view that the activities undertaken by the assessee on the semi-finished and finished goods are of nature of manufacturing activity and view taken by the Assessing Officer is reasonable and plausible view which cannot be held as unsustainable or not in accordance with the provisions of the Act. Ld. Counsel also contended that for invoking revisional powers u/s 263 of the Act, the CIT has to satisfy twin conditions, namely, the order of the Assessing Officer sought to be revised shoul .....

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sment order should be said to be prejudicial to the interest of revenue if due to an erroneous order of the Assessing Officer, the revenue has lost tax lawfully payable by a person. Learned counsel of the assessee parted the argument that a final submission that in the present case, the view taken by the Assessing Officer after due inquiry, as per directions of the Hon'ble High Court is quite a correct, plausible, reasonable and sustainable view and there could be no other view possible on t .....

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ising the assessment orders passed by the Assessing Officer in pursuance to the directions of the Hon'ble High Court. Learned Departmental Representative submitted that merely because the assessee has undertaken some finishing and polishing activity on the finished and semi-finished goods, it cannot be said that the assessee was engaged in manufacturing work or activities. Learned Departmental Representative submitted that the view taken by the Assessing Officer was not a plausible and susta .....

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ur-Trib.) and submitted that where the assessee after purchasing unfinished handicraft goods applied various processes like cutting, polishing, repairing, remaking etc. and for that purpose, incurred substantial labour and other expenses, then it could not be denied exemption u/s 10AA of the Act on the ground that it was not a manufacturing concern. Learned counsel of the assessee also pointed out that in the case of Divij Exports (supra), it was categorically held that where the assessee was pu .....

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10B manufacture is to be considered as defined in section 2(r) of the Special Economic Zone Act 2005. 15. On specific query from the Bench, learned Departmental Representative could not assist us to show that the case laws/orders of Hon ble Special Bench and Coordinate Bench of the Tribunal as discussed supra have been modified or set aside in any manner by any higher forum. 16. On careful consideration of above rival submissions of both the sides on the issue of invocation of provisional power .....

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T admitted additional evidence in the form of exhibits of finished and unfinished products u/s 46A of the Income Tax Rules 1962 and also referred to various grounds for granting relief. The consolidated order of the first appellate authority for assessment year 2006-07 and 2007-08 was upheld by the Tribunal and against this order, the department filed appeal before the Hon'ble Delhi High Court raising questions on the admission of additional evidence and grant of deduction u/s 10B of the Act .....

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favour of the assessee and against the revenue and the third question was answered in favour of the revenue subject to the order of their lordships to remit the matter to the file of the Assessing Officer for limited purpose as stated above. 17. The Assessing Officer framed assessment order u/s 143(3) r/w section 260 A of the Act in view of the judgement of Hon'ble High Court dated 17.9.12 for assessment year 2006-07 and 2007-08 and duly verified all additional evidence submitted by the ass .....

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the reassessment proceedings in pursuance to the order of Hon'ble High Court, the Assessing Officer duly examined the relevant documents and the same were found to be genuine and the Assessing Officer also considered written submissions and replies of the assessee dated 21.1.13, 25.2.13 and 12.3.13 and 14.3.13 available on pages 14 to 21 of the assessee s paper book. It is also pertinent to note that on the basis of examination and verification of the said documentary evidence and submissio .....

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duct purchased by it from its suppliers. The Assessing Officer went in detail and deep to further examine as to whether the assessee is engaged in manufacturing activities. The Assessing Officer deputed the Inspector to visit factory of the assessee and to make spot inquiries about the actual work undertaken by the assessee. For the sake of clarity in our findings, it would be appropriate to reproduce the report of the Inspector wherein he stated as under:- these workers were engaged in manufact .....

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owed deduction us/ 10B of the Act to the assessee by holding that the activities undertaken by the assessee would amount to manufacture within the meaning of section 10B(2)(i) of the Act in the context of aforesaid proceedings undertaken by the Assessing Officer during reassessment proceedings carried out in pursuance to the order of Hon'ble High Court, we appreciate that the Assessing Officer followed directions of Hon'ble High Court in its letter and spirit and properly and deeply veri .....

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ction to issue notice u/s 263 of the Act and in passing impugned orders under the said provision, revised the reassessment order of the Assessing Officer dated 23.2.13 and order for assessment year 2009-10. The main contention of the ld. CIT DR is that the view taken by the Assessing Officer in reassessment proceedings and in allowing the claim of the assessee u/s 10B of the Act is not a justified, reasonable and plausible view which was unsustainable and not in accordance with law, therefore, t .....

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facts and circumstances of the case, however, for the sake of argument if it is presumed that second view was also possible, then also CIT was not empowered to invoke provisions of section 263 of the Act where two views are possible and to support this contention, learned counsel of the assessee placed his reliance on the decision of Hon ble Supreme Court in the case of CIT vs Max India 295 ITR 282 (S.C.) on the judgment of Hon'ble Jurisdictional High Court of Delhi in the case of CIT vs NDT .....

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of the Act was inserted on the statute book by the Special Economic Zones Act, 2005 with effect from February 10, 2006. Even prior to the enactment of the said Special Economic Zones Act, special economic zones (including units therein) were all along treated like EQU/FTZ/EPZ for all purposes whatsoever and were dealt within the Exim policy accordingly. Section 2(k) of the Special Economic Zones Act, 2005 defines the expression "existing Special Economic Zone" to mean every Special Eco .....

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ssion "manufacture" shall have the same meaning as assigned to it in section 2(r) of the Specia]_Ecpnomic Zones Act, 2005, which definition is as under: "'Manufacture' means to make, produce, fabricate, assemble, process or bring into existence, by hand or by machine, a new product having a distinctive name, character or use and shall include processes such as refrigeration, cutting, polishing, blending, repair, remaking, re-engineering and includes agriculture, aquacultur .....

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ll include processes such as refrigeration, repacking, polishing and labelling. Manufacture, for the purpose of this policy, shall also include agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining. We, in view of the above, hold that when the products for which the assessee's unit is recognised as a 100 per cent, export oriented undertaking are tea bags, tea in packets and tea in bulk packs and the assessee, which .....

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2(r) of the Special Economic Zones Act, 2005 is incorporated in section 10AA of the income-tax Act with effect from February 10, 2006. The hon'ble Kerala High Court in the case of Girnar Industries [2011] 338 ITR 277 (Ker) had held such amendment in section 10AA to be clarificatory in nature. The definition of "manufacture" under the Special \ Economic Zones Act, Exim policy, Food Adulteration Rules and Tea (Marketing) Control Order is much wider than what is the meaning of the te .....

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packing and export of tea in the free-trade zone shall also be entitled to enjoy tax exemption under section 10A of the Act. 21. Furthermore, in the case of ITO vs Makers Mart (supra), ITAT Jodhpur Bench after analysing the relevant provisions of the Act categorically held that where the assessee after purchasing unfinished handicraft goods applied various processes like cutting, polishing, repairing, remaking etc. and for the purpose, incurred substantial labour expenses, then it could not be d .....

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items, because only handicraft items are VAT free under Sch. I of Rajasthan» Value Added Tax Act, 2003. On the contrary, the claim of the assessee is that the goods purchased by it were unfinished handicraft items, which were also verified by the custom authorities, who clearly remarked on the purchase invoices as "unfinished items". In our opinion, the view taken by the AO was not correct because the assessee purchased unfinished handicraft goods and applied various processes l .....

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be issued only to the concerns engaged in manufacturing activities. Those certificates were as under : (i) Copy of registration certificate issued by District Industries Centre, Jodhpur, registering bio. 080151100653 (ii) Registration Certificate granted under the provision of Factories Act, 1948, No. 28531 dt. 22nd Nov., 2010. (iii) Copy of the registration certificate issued by Export Promotion Council for Handicrafts. (iv) Copy of approval issued as per SEZ Act, 2005 by office of the Develop .....

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ture of handicrafts. 12. In the present case, it is also admitted fact that in the preceding asst. yrs. 2007-08 and 2008-09. the deduction claimed by the assessee under s. 10AA of the Act was allowed while passing the assessment orders under s. 143(3) of the Act. Copies of the said assessment orders are placed at page Nos. 232 to 249 of the assessee's paper book. In the instant case, nothing is brought on record to substantiate, that there is any change in the facts of the present year vis-a .....

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ther the firm is manufacturing the articles of its own or not. The inspector of this Ward, vide his report dt. 29th March, 2010 has reported that the assessee's factory and production house is situated at G- 185 and 186, F-204 and 205 which is in SEZ, Boranada. He further reported that the assessee manufactures the articles of its own. The submission of the assessee was examined with reference to books of account, purchase bills/vouchers etc. produced/ filed. Considering all the facts and ci .....

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March, 2009 to establish its case to cover by cl. (iii) of Expln. 1 to s. 10AA(8) of the Act i.e. manufacture shall have the same meaning as assigned to it in el. (r) of s. 2 of the SEZ Act, 2005. The assessee vide letter dt. 23rd March, 2009 has explained as under:- That assessee is manufacturer of all types of handicrafts. It is labour oriented unit and no heavy machinery is used for production. There is no fixed system of manufacturing; it depends upon the order of export. As and when assess .....

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t outsides, (3) Issue of Pos and JOs to suppliers and in-house incharges with the specified 'models' each for production of 'semi-finished' goods, which too in different steps. Iron sheets or angles were cut down in the shape of items, which is done by different persons which are specialized in different items as per size and frame and some time these skeletons was purchased directly from supplier to save time and headache of scrap. (4) These cut size items are assembled and engr .....

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d by checking the accuracy of item as per requirement and as per order and specification of size and finishing and glass accessories were fitted or final accessories were fitted as per specifications. (8) Special packaging is done as per item and individual item is packed in separate box and than each is packed in big boxes with use of different kind of packing material after labelling and tagging the items. (9) Labelling of boxes and putting it in container for export of the same. That manufact .....

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nd shaping of the item is done in inhouse. Assessee is having good and efficient staff which is sufficient for it working and all the staff is on roll and also having some contractors which are also registered under assessee and working in assessee's premises and PF and ESI liability is taken by the assessee if it is not paid by the contractor. Hence, directly and indirectly assessee gives employment for the manufacturing of its item through contractor also. Contractorship is must in this tr .....

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ialized in the special work, which is also as needed from order to order. Hence, assessee prefers contractor over the direct employee, as there is no difference in working both are doing work in assessee's premises.' 4.2 The explanation of the assessee was examined with (he books of account, purchase bills/vouchers and vouchers raised by the contractor. As much as profit and gains raised to the assessee on export sales, the taking of goods commenced from SEZ i.e. vv.e.f. 3rd Jan., 2007, .....

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the Tribunal in the case of Suraj Exports India (supra). We, therefore, considering the totality of facts as discussed hereinabove, are of the view that learned CIT(A) was fully justified in directing the AO to allow the claim of the assessee under s. 1OAA of the Act. Accordingly, we do not see any merit on this issue in the appeal of Department. 22. It is also pertinent to note that in the case of Divij Exports vs ITO, Jodhpur Bench has also examined similar question in the similar set of fact .....

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CIT exercised the powers under s. 263 of the Act by observing that the assessee's business had been mentioned as manufacturing and trading of all kinds of hand made articles or things (handicraft goods) which were of artistic value and which required the use of wood as the main raw material. According to learned CIT. the report of the assessee intimated that it was not only manufacturing but also engaged in trading activity during the relevant period and since the manufacturing activity is t .....

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ready wooden items were purchased by the assessee. The learned CIT issued a show-cause notice to the assessee by invoking the provisions of s. 263 of the Act. In response to the notice, the assessee filed written reply on 5th Feb., 2008 and the relevant para No. 2 had been reproduced by learned CIT in para 9 of the impugned order, which reads as under : "2. That we have manufactured or produced all the goods at our factory site which were exported out of country i.e. most of goods have been .....

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polishing work on these manufactured or produced articles has also been done at out factory site, which may be verified from out total payment of wages and salary and labour wood and polish worth ₹ 13,70,844 for a total sale of ₹ 88.73,135 i.e. 14.45 per cent of total sales and 18.57 per cent of cost of goods sold which shows that the production activities have been carried over at our factory site on the goods which have been purchased as rough or raw more purchase of raw or rough .....

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f the IT Act, 1961, which the assessee has to fulfil are as under: 'It manufactures or produces the eligible articles or things without the use of imported raw materials.' After reading the above clause it is clear that the undertaking should manufacture or produce the eligible articles or things. The expression production has wider meaning than the word 'manufacture'. The word 'production' includes the activities of manufacturing by applying human endeavor on some existi .....

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n done at out factory site, hence the commodity purchased in raw and rough has been made usable or valuable at our factory site which amounts to production, manufacturer means a different or independent article should be course by applying manufacturing activities whereas in our case it has done so by use wood but in negligible cases not more than 15 per cent rough or new article has been purchased either in loto or in their parts thereafter assembled at our factory site and thereafter artistic .....

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taking should do either the manufacturing activities or to do production activities. Production of goods is a wider meaning from manufacture of goods, which is having restricted to manufacture of new or distinct commodity whereas production requires application of labour only to make the things or articles as valuable or saleable." 4. The assessee vide reply dt. 5th March, 2008 also filed list of purchase vouchers and confirmations from various parties, who had sold handicraft items to the .....

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e of the items in the bills was itself a complete entry to suggest that complete chair/table/almirah/lamp etc. were purchased could not be purchased in parts or pieces. Had it been so i.e. purchased in part the bills would have definitely stated so. The learned CIT was of the view that the confirmation now filed that only parts were purchased was merely an afterthought and make to believe story. The learned CIT also referred to the case law relied upon by the assessee at pp. 9 and 10 of the impu .....

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f any type for the various expenses i.e. power expenses salary and wages, electrical expenses and telephone expenses. Now the assessee is in appeal. 6. The learned counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the AO thoroughly examined and investigated the case of the assessee before framing the assessment under s. 143(3) of the Act and only after being satisfied allowed the deduction under s. 10BA of the Act. It was further sub .....

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erred to pp. 2 to 7 of the assessee's compilation which is a copy of reply dt. 5th Feb., 2008 to the learned CIT-II, Jodhpur and submitted that vide para 9 of the said letter it was explained that the assessee manufactured or produced all the goods at his factory site which were exported out of the country and most of the goods had been manufactured at factory by purchase of wood or wooden articles, hardware goods, polishing materials, consumable stores and thereafter seasoning the wood, man .....

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r. It was contended that the assessee fulfilled the conditions laid down in s. 10BA of the Act and the AO after being satisfied took a possible view, therefore, the action of the learned CIT was not justified. Reliance was placed on the following case laws : 1. Goverdhan Prasad Singhal v. TTO [IT Appeal Nos. 200, 797 & 964 (Jp) of 2008]; 2. Sunil Kumar Pugalia (HUF) v. ITO r20091 120TTJ 1001 (JP); 3. Dy. CIT v. Jaipur Manglam Arts [2009] 28 SOT 57 (JP); 4. Sarnath Infrastructure (P) Ltd. v. .....

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he submissions of both the parties and carefully gone through the material available on record. In the present case, it is not in dispute that the assessee was engaged in manufacturing and export of goods but learned CIT was of the view that apart from manufacturing and exporting goods, the assessee was engaged in the trading activity. That view was taken on the basis of certain invoices wherein it was mentioned that the assessee purchased wooden articles. The explanation of the assessee before .....

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he Act. The assessee also furnished report under s. 10BA of the Act in Form No. 5614 which is placed at pp. 21 to 26 of the assessee's compilation. In the said report, no defect was pointed out by the learned CIT, however, he considered the assessment order passed by the AO as erroneous as well as prejudicial to the interest of Revenue only on this basis that at serial No. 5 of Annex. A', appended to Form No. 56H, the business of the assessee was mentioned as "manufacturing and trad .....

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th the view of the Tribunal Jodhpur Bench 'A' in the cases of Goverdhan Prasad Singhal v. 1TO ITA No. 200/Jp/2008, 964/Jp/2007 and 797/Jp/2008 for the asst. yrs. 2007-08 and 2005-06 and ITA No. 964/.lp/2007 for the asst. yr. 2003-04, order dt. 24th Oct., 2008) (supra)], as well as the view expressed by Tribunal, Jaipur 'A' Bench in the case of Dy. CIT v. Manglam Arts (ITA No. 815/Jp/2007) (supra). Therefore, it can be held that the view taken by AO was one of the possible views o .....

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d it has resulted in loss of revenue, or where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the AO is unsustainable in law." 9. Since in the present case, the AO had taken one of the possible views, therefore, by keeping in view the ratio laid down by the Hon'ble Supreme Court in the aforesaid referred to case, we are of the view that the assessment .....

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the Assessing Officer in pursuance to the directions of Hon'ble High Court not only examined and verified additional evidence and all relevant submissions and documentary evidence of the assessee but also called a physical spot inspection report by the Inspector of the department wherein it was informed that the workers of the assessee firm were engaged in manufacturing work on sanding machine, buffing, cutting and bolt fixing machine. The Inspector also observed that some of the workers wer .....

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in the order of Divij Exports vs ITO (supra) strongly support the contention of the assessee that where the assessee after purchasing unfinished handicraft goods applied various processes like cutting, polishing, repairing, remarking etc. and for that purpose, the assessee had incurred substantial labour and other expenses on packing etc., then it would be presumed that the assessee had undertaken manufacturing activities and thus, it is eligible for deduction u/s 10B of the Act. Accordingly, we .....

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rders revising and disturbing the reassessment order passed u/s 143(3), 260A and 143(3) of the Act in pursuance to the judgment of Hon'ble High Court. 24. Our view further finds support from the order of Hon'ble High Court of Delhi in the case of CIT vs NDTV 360 ITR 044 (Del) wherein it was held that where the Assessing Officer did conduct investigation and accepted the claim for deduction of the assessee on being satisfied that the conditions stipulated in the relevant provision of the .....

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e the claim of the assessee as to whether the assessee has undertaken manufacturing activities as required u/s 10B(2)(i) of the Act, then in pursuance to the said order, the Assessing Officer himself verified and examined the claim of the assessee and after calling and considering the spot inspection report of the Departmental Inspector, he held that the activities undertaken by the assessee in its workshop/factory was manufacturing activity and thus the Assessing Officer held that the assessee .....

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enue. 25. In this judgement of CIT vs NDTV, their lordships speaking for Jurisdictional High Court also considered and referred to its earlier judgments in the case of Sunbeam Auto Ltd. 332 ITR 167 (Del) and ITO vs D.G. Housing Projects Ltd. 343 ITR 329 (Del). In the case of DG Housing (supra), after referring to the decision of Sunbeam Auto (supra), it was held that the CIT must come to a conclusion that the order is erroneous and is unsustainable in law. In the present case, the CIT has not sa .....

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Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be termed as prejudicial to the interests of the revenue, for example, when an Income tax officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income tax officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the vie .....

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essee is undertaking manufacturing activities and thus it is entitled for deduction/exemption u/s 10B of the Act. In our humble understanding, this is not a case of two possible views but the present case is the case of one acceptable and sustainable view and in this situation, it cannot be held that the CIT assumed valid jurisdiction to issue notice and to pass revisional order u/s 263 of the Act. Hence, we are inclined to hold that the CIT has no valid reason to assume jurisdiction to invoke s .....

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tis mutandis. We order accordingly. Finally, impugned notices issued u/s 263 of the Act and orders passed by the CIT u/s 263 of the Act dated 19.3.14 for assessment year 2009-10, dated 16.9.2010 for assessment year 2006-07 and dated 19.9.2014 for assessment year 2007-08 are hereby quashed. All three appeals of the assessee are allowed. Revenue appeal in I.T.A. No. 924/D/2014 for A.Y. 2008-09 29. This appeal has been directed against the order of ld. CIT(A)-XXIV, New Delhi dated 25.11.2013 in app .....

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refore, no controversy left remained. It would be apt to mention that during the appellate proceeding, my predecessors sought remand report from the AO because the Hon ble Delhi High Court has remitted one of the issues on section 10 B (2) (i). Subsequently, the assessing officer has passed orders u/s 143 (3)/ 260 A on 22.03.2013 which were also placed on record before my predecessors. It was argued that in the year in concern the AO has merely followed reasoning given in the assessment orders f .....

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