TMI Blog2014 (8) TMI 1009X X X X Extracts X X X X X X X X Extracts X X X X ..... ered with. - Decided against revenue Disallowance of administrative expenses - CIT(A) deleted the disallowance - Held that:- No infirmity in the order of CIT(A) in deleting the addition made by the AO. Undisputedly, the expenditure incurred is towards salaries and benefits paid to the employees. That being the case, there is little scope for the assessee to inflate expenditure or make any bogus claim. In the aforesaid view of the matter, AO was not justified in making adhoc disallowance of 25% out of the total expenditure claimed without bringing any evidence on record that the expenditure claimed is either bogus or not supported by evidence.- Decided against revenue Disallowance made u/s 10B - CIT(A) deleted the disallowance - Held that:- So far as the observation that assessee has voluntarily offered not to claim any deduction u/s 10B is concerned, on a perusal of the statement recorded from Sri V.B Veera Reddy, dated 12/09/2008, we do not find any such specific reply given by him that no deduction would be claimed u/s 10B of the Act. In any case of the matter, it is clear from the assessment order that the assessee has shown more income in the return of income filed by hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO out of the total expenditure claimed under the head mining and processing charges , which was reduced to 10% by the CIT(A). 5. Facts being common, we deal with the facts as involved in ITA No. 256/Hyd/2012. Briefly the facts relating to the issue in dispute are, assessee is a company. Pursuant to a search and seizure operation conducted in the business premises of M/s GVPR Engineers Ltd., AO issued a notice u/s 153C of the Act calling for the return of income from the assessee. In response to the said notice, assessee filed return of income on 17/10/2009 declaring loss of ₹ 24,96,330/- as was shown in the original return filed by him earlier on 01/12/2013. In course of assessment proceeding, the AO while examining the profit Loss account noticed that the assessee has debited an amount of ₹ 43,22,000/- towards mining and processing expenses. In response to the query raised by the AO assessee produced bills and vouchers in support of the expenditure claimed. However, AO on verifying the same noticed that some of the vouchers are self-made and do not contain identity of the payee, quantum of work etc. and the payments are mostly made in cash. By observing that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , assessee produced bills and vouchers in respect of the expenditure claimed. AO on identical reasoning as was made in case of mining and processing expenses disallowed 25% out of the total expenditure claimed. The disallowance was challenged in appeal before the CIT(A). The CIT(A) after considering the submissions of the assessee and examining the facts and materials on record was of the view that disallowance made was not justified and accordingly deleted the same by holding as under: 8.5 The submissions of the appellant and the observations of the AO are perused. As contended by the appellant, the AO revisited the expenses under the head which was already accepted. For sake of completing the search assessments and that too without any evidence found in search related to it, the AO made the disallowances. As indicated, the amounts under the head Administrative Expenses , represent salaries and other benefits to employees, apart from other minor expenses. Salaries and other benefits are generally governed by other relevant statutes such as ESIC and EPF and applicable to big employers like the appellant under reference. There are no verifications/enquiries whatsoever conducted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008-09. 13. During the assessment proceeding, the Assessing Officer noticed that for the relevant asst. year, the company claimed deduction u/s 10B of the I.T. Act to the extent of ₹ 15,04,16,446/-. On interpreting the provision contained u/s 10B, the Assessing Officer was of the view that for claiming deduction u/s 10B a Company has to manufacture or produce articles or things or computer software. Whereas, according to the Assessing Officer the assessee was not involved in manufacture or production of any article or thing. He, therefore, called upon the assessee to explain why deduction claimed u/s 10B shall not be disallowed. 14. In reply, assessee stated that the company being a 100% EOU is eligible for deduction u/s 10B of the I.T. Act. Assessee also filed some documents I information in support of its claim. 15. However, the Assessing Officer referring to the audit report in form 3CD opined that as the assessee is involved in export of granite it is not manufacturing or producing any article or thing. The Assessing Officer observed that Iron Ore is itself in crude form and no value addition is made by the assessee-company before exporting the same. As regards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch as refrigeration, repacking, polishing, labeling, reconditioning, repair, remaking, referbushing, testing, calibration and re- engineering. Manufacture, for the purpose of Foreign Trade Policy shall also include agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisci-culture, poultry, sericulture, viticulture and mining. Further, the definition of word 'manufacture' as per sec.2(r) of the SEZ Act, 2005 is as under: The 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 uses and shall include processes such as refrigeration, cutting, polishing, blending, repair, remaking, re-engineering and includes agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining. 19. It was explained by the assessee that the entire process of mining to export involve a number of stages, which are as under: (a) Exploration and Excavation of Iron Ore Minerals (b) Clearing of subsoil and weathered boulders (c) Drilling and Blasting (d) Extraction, Excavation and Tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 100% EOUs eligible for the deductions u/s lOB, as enumerated in some of the judicial decisions referred above, the appellant is eligible for the deductions u/s 10B of the I.T.Act, 1961, though the said decisions are not entirely on the subject of deduction u/s 10B for export of iron ore. What is applicable to this case is the ratio of the decisions where the word 'production' is distinguished from 'manufacture' and in this case the word 'production' is applicable, and the word 'produce' connote wider meaning compared to the word 'manufacture', which was heavily relied upon by the Assessing Officer, while negating the claims of the appellant. 9.8 Further, as concluded in many leading judicial pronouncements, where the language used for definition of the words in the Act are not clear or where more than one meaning is possible, the harmonious interpretations/construction is best suitable remedy which involves either importing of the definition provided in the same Act or in other related statutes. In this case, definition of word 'manufacture', thought not used in sec. 10B, has been used in other provisions such as sec.32A, 80HH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Vs. CIT, 360 ITR 444. 22. The learned AR on the other hand strongly supporting the finding of the CIT(A) submitted that the assessee has never made any declaration during the search proceeding for not claiming deduction u/s 10B of the Act. The learned AR submitted that in fact assessee has declared more income in the return of income filed for AY under consideration and the subsequent AY i.e. 2009-10 than what was offered at the time of post search proceeding. For that reason alone, AO totally ignored the offer made by the assessee u/s 132(4) and started his computation with the profit disclosed in the P L a/c by the assessee filed along with the return of income. It was, therefore, submitted that while accepting the profit declared by the assessee in the P L a/c, there is no reason why the AO should not have allowed the claim of deduction u/s 10B of the Act. So far as the observation of the AO that mining activity is not eligible for claim of deduction u/s 10B of the Act, the learned AR submitted that such conclusion of the AO is factually not correct as during the year under consideration assessee has stopped granite mining activity and has only concentrated on iron ore mini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profit declared by the assessee in P L a/c. Therefore, 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 was not correct in observing that the assessee has not claimed any deduction in AY 2006-07. The third ground for denial of deduction u/s 10B is, assessee is not engaged in manufacturing activity. As can be seen from the elaborate discussion in the order of the CIT(A), the mining of iron ore as undertaken by the assessee passes through various processes and the final product is not similar to Iron ore in its natural form as found under the earth. The Hon ble Supreme court in the case of CIT Vs. Sesa Goa Ltd. (supra) had an occasion to examine the import of the term manufacture or produce while considering the issue as to whether pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the word production was used in a different sense in s. 32A. We are, therefore, of the opinion that extraction and processing of iron ore amounts to production within the meaning of the word in s. 32A(2)(b)(iii) of the Act and, consequently, the assessee is entitled to the benefit of s. 32A(1) of the Act. The question whether the High Court was 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 Supreme Court in case of CIT Vs. Sesa Goa Ltd. (supra) we are of the view that CIT(A) has correctly held that the assessee is eligible for deduction u/s 10B of the Act. So far as decisions relied upon by the learned DR are concerned, both of them are found to be factually distinguishable and do not apply to the facts of the present case. In case of ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
