TMI Blog2013 (5) TMI 862X X X X Extracts X X X X X X X X Extracts X X X X ..... ton and the Appellant were associated enterprises within the meaning of section 92(2) (m) of the Act. The TPO ought to have appreciated that there was no relationship of mutual interest between the two enterprises either as prescribed or otherwise, and hence the two could not have been considered as associated enterprises . 1.3. The DRP erred in directing the transaction with BHP Billiton as international transaction with associated enterprises 1.4. The learned TPO erred in invoking clause (m) of section 92(2) of the Act -without appreciating and realizing that the same has no applicability since nothing has been prescribed so far to make the said provision effective. 1.5. The learned DRP made a misstatement that no information or material was provided to substantiate that there was no relationship of mutual interest between the assessee and the BHP Billiton from whom the coal purchase were made during the impugned year. The DRP clearly made a factually misstatement without appreciating and acknowledging the various information and material put on record before them during the course of personal hearing held on 27th August 2012. 1.6. The Learned TPO err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any clear finding by the AO to the effect that there are certain expensed incurred in relation to the incurrence of the exempt income and the same have not been disallowed by the assesse. 3.1 The Learned A.O. erred in disallowing and DRP erred in directing an expenditure of ₹ 1,36,91,148/- classified in the Appellant's Directors Report as expenditure on R D , holding that such expenditure cannot be considered under the definition of scientific research u/s. 43(4)(1) of the Act. 3.2 The Learned A.O. erred in disallowing the said expenditure of ₹ 1,36,91,148/- also for the reasons that the Appellant had not taken approval of the designated authority that this activity tantamount to scientific research. 4.1 The Learned A.O. erred in disallowing and DRP erred in directing the disallowance of an expenditure of ₹ 17,72,05,217/- towards payment of commission to the non-resident sales agent, purportedly u/s. 40(a)(i) of the Act, allegedly for either not deducting tax at source u/s. 195(1) of the Act, or not obtaining exemption certificates from the A.O. u/s. 195(2) of the Act. 4.2 The learned AO erred in concluding that there was no nece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he activity to produce/attain the marketable iron ore fines out of wastages (tailings) being part of the mining process, the activities carried on in the said EOU also amounted to production and that the said EOU was eligible for deduction u/s. 10-B of the Act, on this count also. 8.4 The Learned A.O. and DRP erred in rejecting the Appellant's claim for deduction u/s. 10-B of the Act in respect of the aforesaid EOU, also for the reasons that no separate book of accounts are maintained for EOU and for non-EOUs. The A.O. ought to have appreciated that the Appellant had provided a report of an Accountant as provided u/s. 10-B(5) of the Act, and that there is no specific condition in section 10-B of the Act to maintain separate book of Accounts in respect of an EOU, for the Appellant to become eligible for deduction u/s. 10-B of the Act. 8.5 The Learned A.O. and DRP erred in rejecting the Appellants claim for deduction u/s. 10-B of the Act in respect of the aforesaid EOU also for the alleged reason that no satisfactory evidence is produced regarding the date of commencement of manufacture or production. The A.O. ought to have considered that the letter from the Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciated that the Appellant's business of extraction and processing of iron ore has been specifically held by the Supreme Court in their decision in the Appellant's own case (reported in 271 ITR 331) as production , and hence that the A.O. ought not to have disallowed the Appellant's claim in this regards. 10.2 The Learned A.O. while disallowing the Appellants claim for additional depreciation of ₹ 2,95,73,254/- in respect of its iron ore division, also erred in holding that the Supreme Court's decision in the Appellants own case (supra) is not applicable on this point, in view of the introduction of definition of manufacture in the Act with effect from 1.4.1999. The A.O. ought to have appreciated that the Supreme Court in the aforesaid decision has held that the Appellant's business of extraction and processing of iron ore amount to production and that the said decision which has interpreted the word production , cannot be considered as superseded by the introduction of definition of the word manufacture in the Act. 10.3 The Learned A.O. erred in rejecting the Appellants claim for additional depreciation of ₹ 44,94,967/- in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion No. 3 - 2010 dated 23.3.2010. The A.O. ought to have held that the loss incurred by the Appellant on forward contracts has a direct nexuses with its business of mining and export of iron ore and that the said loss was not arising on transaction of the nature as defined in section 43(5) of the Act, and that the said CBDT Circular and instruction are not applicable therewith. 12.2 The Learned A.O. erred in rejecting the Appellants submission that the loss arising on forward contract was a hedging loss and hence that the same is allowable as deduction. The A.O. ought to have appreciated that the said forward contracts in fact were in the nature of hedging contracts intended to guard against the loss through future exchange fluctuations and that the said contracts were always entered into by the Appellant only to the extent of foreign exchange required for import or to the extent of foreign exchange realizable through exports in the course of its business. 2. Ground no. 1 : Ground no. 1 relates to the addition of ₹ 3,95,27,600/- made by the Assessing Officer as transfer pricing adjustment as determined by the Transfer Pricing Officer vide order dt. 31.10.2011. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iton Marketing Ltd. is hit by clause (m) of sub-section 2 of Sec. 92A and went on to compute the impugned addition. The DRP on the basis of the report of the TPO upheld the addition. It was vehemently submitted that the impugned addition has been made by invoking the provisions of Sec. 92A(2)(m) alleging that there is relationship of mutual interest between Sesa Goa and said BHP Billiton or BM Alliance. The said clause (m) could be invoked only when something has been prescribed for the applicability of this clause and the matter of the assessee falls within that prescribed category. Till date, nothing has been prescribed under Sec. 92A(2)(m) and therefore the said provision remains non-operative. The TPO had thoroughly examined the shareholding pattern of all the companies involved and had categorically concluded that BHP Billiton Marketing Ltd., Switzerland was a subsidiary of Mitsubishi and not Mitsui. The DRP asserted that since the matter was under investigation by SFIO, the remand report of TPO had to be considered as true. Referring to the remand report, a copy of which is available at pg. 817 of the paper book, it was stated that the TPO reiterated the finding that BHP Bil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urat City Gymkhana vs. DCIT 254 ITR 733 in which it was held that The law is well settled, a person who makes a positive averment is required to establish the same. It is not for the person against whom the averment is made to establish negatively that the state of affairs averred by the other person does not exist. Further, reliance was also placed on the decision of the apex court in the case of K.P. Varghese vs. ITO 131 ITR 597 (SC) in which it was held It is well-settled rule of law that the onus of establishing that the conditions of taxability are fulfilled is always on the revenue and the second condition being as much a condition of taxability as the first, the burden lies on the revenue to show that there is an understatement of the consideration and the second condition is fulfilled. Moreover, to throw the burden of showing that there is no understatement of the consideration, on the assessee would be to cast an almost impossible burden upon him to establish a negative, namely, that he did not receive any consideration beyond that declared by him. Thus, it was contended that clause (m) of Section 92A(2) is not applicable in the case of the Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upply was paid at the contractual price for FY 2007-08 only. A chart given below reflects all these factual details: Statement Showing contracted actual Coal Purchases during FY 2006-07 to 2008-09 F.Y. Contract Details Actual Supply Balance Remarks F.Y. Contract Details Actual Supply Balance Remarks Coal Type Qty MT Price US$ Qty MT Price US$ Qty MT Price US$ 2006-07 - Riverside Goonyella 1,60,000 50,000 115 114 1,11,831 46,135 115 115 48,169 3,865 115 114 2007-08 - - Riverside Riverside Goonyella 1,50,000 50,000 96 96 52,010 88,314 42,074 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a transaction between two or more associated enterprises either or both of whom are non-residents. The nature of the transactions is also given under Section 92B(1). Subsection 2 of Section 92B deems the transaction entered into by an enterprise with a person other than an associated enterprise to be a transaction entered into between two associated enterprises if the condition stipulated therein is fulfilled. Explanation to Section 92B which was inserted by the Finance Act, 2012 w.r.e.f. 1.4.2002 lays down the various transactions to be included within the expression international transaction . Therefore, for the applicability of provisions of Sec. 92(1) there must be two or more associated enterprises. The associated enterprises are defined under Section 92A(1). Under Section 92A(2), two enterprises are deemed to be associated enterprises under certain conditions which are given in clause (a) to (m). It is not the case of the Assessing Officer that the transaction entered into by the Assessee for the purchase of coal is a transaction entered into between associated enterprises as defined under Section 92A(1). It is also not the case of the revenue that the provisions of Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Sumathy Venkatraman) Assistant Commissioner of Income Tax TPO-VI, Bangalore 2.4 From the reading of 92A(2), it is apparent that for the applicability of clause (m) to Section 92A(2), the relationship of mutual interest must be prescribed. No such relationship of mutual interest has been prescribed so far for the purpose of Section 92A(2). The fact that the additions has been made by applying provisions of Section 92A(2)(m) even though this section cannot be applied till the relationship of mutual interest is not prescribed for the purpose of Section 92A(2)(m) is also clear from the letter written by the DCIT (TP)-VI to SFIO. The Transfer Pricing Officer in this letter clearly stated that the addition has been made to protect the interest of revenue subject to the establishment of the fact that BHP Billiton, Switzerland is found to be an associated enterprises of Sesa Goa Ltd. The Learned DR could not produce any evidence or material which may prove that BHP Billiton, Switzerland is an associated enterprise of the Assessee Company. The letter dt. 30.11.2011 which is available at pg. 819 of the paper book has been written by the DCIT (TP)-VI to SFIO reads as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... International Transactions can be made only if BHP Billiton, Switzerland is found to be an Associated Enterprise of M/s Sesa Goa Ltd. 4. As a matter of precaution to protect the interest of Revenue, an adjustment of ₹ 3.95 Crores is made to the Arm's Length Price of the International Transactions between M/s Sesa Goa Ltd, Panaji, Goa and its Associated Enterprises, BHP Mitsui Coal Pty and Mitsui Co subject to establishment of the fact that BHP Billiton, Switzerland is found to be an Associated Enterprise of M/s Sesa Goa Ltd. This was done to keep the issue alive until clear facts are established. In this event, you are requested to communicate any material information to the Assessing Officer, Addl. Commissioner of Income-tax, Range-I, Panaji, Goa under intimation to this office which will clearly establish the fact that BHP Billiton, Switzerland is an Associated Enterprise of M/s Sesa Goa Ltd so as to proceed with further proceedings under Income Tax Act, 1961. Yours truly, (KIRAN KATTA) Dy. Commissioner of Income-tax, Transfer Pricing-VI(i/c), Bangalore. Copy submitted to: 1) Commissioner of Income-Tax, Transfer pricing, Bang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay India Ltd. which the Learned DR vehemently relied. We noted that the Tribunal has given a clear-cut finding that once it is found that provisions of Sec. 14A of the Act are applicable, then, irrespective of the fact that there was no receipt of share of profit from the firm in the present year or the argument that disallowance cannot exceed the amount of share of profit received from the firm, cannot be accepted. Thus, it is clearly laid down that for the applicability of disallowance, it is necessary that there must be a finding that the provisions of Sec. 14A are applicable in the case of the Assessee. Whether the provisions of Sec. 14A are applicable in the case of the Assessee or not, this Tribunal has given a clear-cut finding going through various decisions that the provisions of Sec. 14A are not applicable in the case of the Assessee as the conditions stipulated in the section are not complied with by the Assessing Officer and accordingly deleted the disallowance in the A.Y.2009-10. During the hearing, we noted that the Assessing Officer made the disallowance on the same basis as has been disallowed in A.Y. 2009-10. Therefore, in our opinion, this issue is duly covered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-sec.(2) shall also apply where assessee claims that no expenditure had been incurred in relation to income not forming part of the total income. This is not the case of the assessee as in the case of the assessee, assessee himself estimated the expenses relating to the exempt income and disallowed the same. Rule 8D was inserted by gazette notification dated 24/3/2008 in view of the power conferred under sub-sec (2). This Rule prescribes the method for computing the expenditure incurred in relation to the income not forming part of the total income. This is an undisputed fact that in this case, the assessee has invested in debts mutual funds. The assessee computed disallowance u/s 14A(2) at ₹ 25,78,156/- and disallowed the same, while computing its total income. The working of the said disallowance claimed by the assessee is given herein above in the submissions made by the assessee. The AO was not satisfied with the correctness of the claim of the assessee especially the explanation of the assessee that no administrative expenditure incurred on earning the dividend income. Considering the magnitude of the investments and the dividend income received, the AO was of the vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxation is that only net income, namely, gross income minus expenditure that is taxable. Expenses incurred can be allowed only to the extent that they are relatable to the earning of taxable income (pages 22-23). The test which has been enunciated in Wallfort for attracting the provisions of sec.14A is that there has to be a proximate cause for disallowance which has its relationship with the tax exempt income. Once the test of proximate cause, based on the relationship of the expenditure with tax exempt income is established, a disallowance would have to be effected under section 14A (page 28) 5. What merits emphasis is that the jurisdiction of the AO to determine the expenditure incurred in relation to such income which does not form part of the total income, in accordance with the prescribed method, arises if the AO is not satisfied with the correctness of the claim of the assessee in respect of the expenditure which the assessee claims to have incurred in relation to income which does not form part of the total income. Moreover, the satisfaction of the AO has to be arrived at, having regard to the accounts of the assessee. Hence, sub-sec (2) does not ipso facto enable the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to. In this decision, we noted that the Hon‟ble Supreme Court in that case upheld the view of the Hon‟ble Mumbai High Court in the case of Wallfort Shares Stock Brokers Ltd. Vs ITO 310 ITR 421. The Hon‟ble Supreme Court in this decision, at page-31 of the order held as under; To attract Sec.14A there has to be proximate cause for disallowance which has its relationship with the tax exempt. Pay back or return of investment is not such proximate cause. Hence, Sec.14A is not applicable in the present case. Thus, in the absence of such proximate cause for disallowance, Sec.14A cannot be invoked . 16. The Hon‟ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. Vs DCIT (supra) therefore at page-28 has clearly laid down that there must be proximate cause based on the relationship of the expenditure that tax exempt income is established, only then a disallowance would have to be effected u/s 14A of the IT Act. Therefore, in view of the decision of the jurisdictional High Court and the decision of the Hon‟ble Supreme Court, we are of the view that sec.14A cannot be applied unless there is a proximate cause for disallowance. The o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee that no interest is incurred with regard to exempt income. He rejected the explanation of the assessee that no administrative expenditure incurred on earning dividend income considering the magnitude of the investments and dividend income received and the disallowance according to him made by the assessee u/s 14A towards administrative expenditure is very less. The assessing officer nowhere pointed out the proximate connection of other expenses not apportioned by the assessee for the earning of the dividend income. He merely observed that the administrative expenses disallowed by the assessee is very less but how they are less and how the other expenses incurred by the assessee related to the dividend income has not been brought on record. Even the AO has not pointed out the expenses excluded by the assessee for disallowance has proximate connection with dividend income. In our opinion, the assessing officer before rejecting the disallowance computed by the assessee must give a clear cut finding having regard to the accounts of the assessee how the other expenditure claimed by the assessee out of non exempt income is related with the exempt income. No discrepancy in the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A). It has not been done by the AO that any expenditure had been incurred by the assessee for earning its dividend income. Merely, an adhoc disallowance was made. The onus was on the AO to establish any such expenditure. This onus has not been discharged. In CIT Vs. Hero Cycles (P H) 323 ITR 518, under similar circumstances, it was held that the disallowance u/s 14A of the Act requires a clear finding of incurring of expenditure and that no disallowance can be made on the basis of presumptions. In ACIT Vs. Eicher Ltd. , 101 TTJ (Del.) 369, that it was held that the burden is on the AO to establish nexus of expenses incurred with the earning of exempt income, before making any disallowance u/s 14A of the Act. In Maruti Udyog Vs. DCIT, 92 ITD 119 (Del.), it has been held that before making any disallowance u/s 14A of the Act, the onus to establish the nexus of the same with the exempt income, is on the revenue. In Wimco Seedlings Limited Vs. DCIT , 107 ITD 267 (Del.) (TM), it has been held that there can be no presumption that the assessee must have incurred expenditure to earn tax free income. Similar are the decisions in: 1. Punjab National Bank Vs. DCIT, 103 TTJ 908 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion exercised by the High Court in the first instance decides whether or not substantial question of law arises from the order of the Tribunal, it cannot be said that the High Court does not exercise the appellate powers or that there is no decision on merit when the high court dismisses an appeal holding that no substantial question of law arises from the order of the Tribunal. It was held that whenever an order of the subordinate forum is carried in appeal before the higher appellate forum/court, operative part thereof merges into the judgment, decision or order of the higher court after the confirmation, modification or reversal, as the case may be, and the decision of the lower court or forum has no independent existence thereafter in relation to the issue which was carried before the appellate court or forum. It was held that where the High Court comes to the conclusion that no substantial question of law arises on a particular issue, it cannot be stated that the subject matter of controversy between the parties has not been dealt with by the High Court. It was held that when the decision of the Tribunal is affirmed on the issue brought before the High Court, it is the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A(2) of the IT Act,1961. The decision of ACIT Vs Premium Consolidated Capital Trust 83 TTJ (Bom.) relates to assessment year 1991-92 prior to insertion of 14A(2) hence will not assist the revenue. The other decision relied on are also not applicable to the facts of the case, except the decision of jurisdictional High Court in the case of Godrej Boyce Mfg. Co. Ltd. Vs DC IT Another 328 ITR 81(Bom.). In view of our aforesaid discussion and respectively following the decision of the jurisdictional High Court in the case of Godrej Boyce Mfg. co. Ltd. Vs. DCIT another 328 ITR 81 (Bom), we delete the disallowance made u/s 14A r.w. Rule 8D and accordingly, the ground taken by the assessee in this regard is allowed. 3.4 Respectfully following the decision of this Tribunal in the case of the Assessee for the A.Y. 2009-10, we delete the disallowance made by the Assessing Officer under Section 14A r/w Rule 8D. Thus, ground no.2 taken by the Assessee is allowed. 4. Ground no. 3 : Ground no. 3 relates to the disallowance of ₹ 1,36,91,148/- as expenditure on R D. Both the parties agreed that this issue is duly covered by the decision of this Tribunal in the case of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record. The learned DR although, vehemently relied on the order of the AO but could not deny that the AO himself observed that the case of the assessee is not covered under the definition of the scientific research. In view of this fact, in our opinion, no interference is called for in the order of the CIT(A) and the CIT(A)has rightly deleted the addition. We accordingly, confirm the order of the CIT(A) on this issue. Thus, ground no. 2 stands dismissed. 4.1 Respectfully following the decision of this Tribunal in the Assessee s case for the A.Y. 2009-10, we delete the disallowance. Thus, ground no. 3 is allowed. 5. Ground no. 4 : Ground no. 4 relates to the disallowance of the Commission amounting to ₹ 17,72,05,217/-. 5.1 The Learned AR contended that this issue is duly covered by the decision of this Bench in the case of the assessee for the Assessment Year 2009-10. 5.2 The Learned DR made the following submissions : The A.O. correctly disallowed the commission payments made to Non-residents for non-* deduction of TDS as the same is liable for tax in the hands of Non-residents. Reliance is placed on the following decisions: i) Income arising to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer during the Assessment Years 2005-06 to 2007-08 under Section 40(a)(i) of the Income Tax Act. The disallowance was also made apart from non-deduction of TDS under Section 40(a)(i) following the order of CIT(A) for the A.Y. 2006-07 under Section 37 of the Income Tax Act. We noted that the disallowance is duly covered in favour of the Assessee so far as it relates to the disallowance made under Section 40(a)(i) by the decision of this Tribunal. 2. The ground nos. 1 and 2 relate to the issue about the claim of the commission disallowed by the Assessing Officer under Section 40(a)(i) and confirmed by the CIT(A) under Section 40(a)(i) as well as under Section 37 of the Income Tax Act. We have heard the rival submissions and carefully considered the same. We noted that this issue is duly covered in favour of the Assessee so far it relates to the disallowance made under Section 40(a)(i) by the decision of this Tribunal dtd. 10.3.2011 for A.Y. 2005-06 in ITA No. 113/PNJ/2010 in which this Tribunal relying on the decision of the Supreme Court in the case of GE India Technology Centre (P) Ltd. vs. CIT Anr. (327 ITR 456) deleted the disallowance and allowed the appeal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tic that a Circular in operation through the assessment year 1998-99 cannot be held to be in operational simply by reason of the fact that it has been withdrawn in the year 2009. The withdrawal of such Circulars will be effective only after the said date of 22-10-2009 by which these Circulars will be effective only after the said date of 22-10-2009 by which these Circulars have been withdrawn with immediate effect. Accordingly, Circular No.7 of 2009 withdrawing the Circular No.23 of 1969,163 of 1975 and 786 of 2000 will be operative only from 22-10-2009 and not prior to that date. Thus, we are of the view that this assessment year is 2005-06 and it is not applicable for the year under consideration. Therefore, we allow the appeal of the assessee on this ground. 3. So far as the issue relating to disallowance of the Commission under Section 37 is concerned, the issue is covered by the order dt. 8.3.2013 of this Tribunal in the case of the Assessee in ITA No. 72/PNJ/2012 in which this Tribunal took the view that the Commission has been incurred by the Assessee wholly and exclusively for the purpose of business of the Assessee by holding as under : 24. We have carefully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hibited by law. The expenditure so incurred by the assessee company cannot be regarded to be the personal expenditure of the assessee. There is no evidence on record that these expenses were incurred to meet out the personal needs of the assessee company. The company is always incorporated for the purpose of carrying on the business as stipulated under its object clause laid down in the Memorandum of Association. The company so incorporated is not human being, which may have personal needs. The company is an artificial person incorporated under the legislature by having a separate entity. Although by having a separate entity; it may work as a human being in its own name but it does not require any expenditure to be incurred, as a human being requires for meeting out its personal needs. Therefore the expenditure incurred by the assessee company cannot be regarded to be the personal expenditure of the assessee. The personal expenditure of the management or the human beings who are controlling the company cannot be regarded to be the personal expenses of the assessee company. It may be remuneration or perquisite in the hands of the management or the human beings but it cannot regard t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SC), held that it is not only expenditure which directly results in benefit or advantage to the assessee‟s business that is entitled to deduction, but also any expenditure which is incurred with a view to facilitating the carrying on of the business. 26. We do agree with the submissions of the Ld. AR that it is not open to the department to prescribe what expenditure the assessee should incur and in what circumstances he should incur that expenditure. Every businessman knows his interest best as this has been clearly laid down by the Hon‟ble Apex Court in 91 ITR 544 in the case of CIT Vs Dhanrajgiri Raja Narsinghgiri. No doubt every businessman is the best judge of his business expediency but the Assessing Officer in our opinion has the right to know whether the expenditure has been incurred for business purposes or not or whether it has been incurred for other extraneous consideration. Similar view has been taken by the Hon‟ble Rajasthan High Court in the case of Jaipur Electro Pvt. Ltd. Vs CIT, 134 CTR 237 (Raj). The Hon‟ble Bombay High Court has also taken the similar view in the case of Ramanand Sagar Vs DCIT, 255 ITR 134 (Bom) in which it was held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re laid out or expended wholly, necessarily and exclusively for the purposes of the business or profession shall be allowed . In view of the protests raised by the taxpayers the word necessarily came to be dropped. It will be also noticed that in CIT Vs Chandulal Keshavlal and Co. (1960) 38 ITR 601, 610, it was observed as follows:- Another fact that emerges from these cases is that if the expense is incurred for fostering the business of another only or was made by way of distribution of profits or was wholly gratuitous or for some improper or oblique purpose outside the course of business then the expense is not deductible. In deciding whether a payment of money is a deductible expenditure one has to take into consideration questions of commercial expediency and the principles of ordinary commercial trading. If the payment or expenditure is incurred for the purpose of the trade of the assessee it does not matter that the payment may incur to the benefit of a third party (Usher‟s Wiltshire Brewery Limited v Bruce (1914) 6 Tax cases 399 (HL). Another test is whether the transaction is properly entered into as a part of the assessee‟s legitimate commercial undert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is possible that the assessee may have some kind of business relationship with the above two companies. It is also possible that there may be some correspondence with the two companies with regard to sales of iron ore abroad. But this shall not be sufficient justification to prove that the companies abroad have rendered necessary services for effecting sales so as to justify the claim of commission. Whereas in our considered view, the contents of the emails furnished by the assessee, which have been summarized herein above, clearly show that those were being exchanged with the said two non-resident agents in actual performance of their services for which they had been engaged by the assessee as per the respective agreements entered into with them and for which commission had been paid to them. It is not the case of the Revenue that the impugned emails were fabricated or forged one. In fact, the CIT (A) has admitted in his appellate order that it is possible that there may some correspondence with the two companies with regard to sale of iron ore abroad‟, but without going into the merits of the emails exchanged and without controverting how the same did not exhibit tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lemen in terms of their respective agreements with the assessee and, accordingly, commission was genuinely paid by the assessee for those services only, i.e., wholly and exclusively for the purpose of the business of the assessee. The decision in Laxminarayan Madanlal Vs CIT (1972) 86 ITR 439 (SC), relied upon by the Revenue is totally distinguishable on facts. In that case the assessee had only produced the agreements and the Hon‟ble apex court decided that the mere existence of an agreement between the assessee and its selling agents or payment of certain amounts as commission, assuming there were such payments, does not bind the ITO to hold that payment was made exclusively and wholly for the purpose of the assessee‟s business. Whereas in the instant case, the assessee has placed other documentary evidences on record besides the agreements, which clearly demonstrate that the requisite services under those agreements for which commission was paid to them, had actually been rendered by them. Thus, in the case of the assessee commercial expediency has clearly been proved. Therefore, the disallowance of ₹ 9,88,29,729/- for commission paid to non-resident agent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of the Income-tax Act . We have seen the facts obtaining in that case. In our view, the facts are distinguishable. The ratio of this Judgment also does not help the present assessee, i.e., the respondent in this appeal. We have noticed the various dates in the cited judgment. We have also considered the definition of word demurrage to which our attention was invited by learned Senior Advocate Shri Usgaonkar. Learned Senior Advocate also invited our attention to dictionary meaning of the word demurrage (Black's Law Dictionary). 8. Section 172 of the Act 1961 is carefully considered by us. Chapter XV titles as Liability in special cases . We have no concern with sections, starting from section 159, till section 171 from this Chapter XV. Section 172 comes under sub-title H.-Profits of non-residents from occasional shipping business . Title of section 172 is Shipping business of non-residents. For bringing a case under Chapter XV- H of the Act 1961, one has to establish a case of profits of non-residents from occasional shipping business. Non-resident is defined under section 2(30), as a person who is not a resident and for the purpose of sections 92, 93 and 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect that it is a case of occasional shipping, pleaded or raised by assessee. There is no dispute about interpretation of section 172 or section 195. Crucial point is as to how section 172 applies to the facts of the present case wherein the respondent-assessee is an Indian company, incorporated under the provisions of Indian Companies Act, 1956. In our view, the learned Vice President of the ITAT has recorded a perverse observation/finding in para 3 regarding application of sections 44B and 172 of the 1961 Act. 9. We may notice that the Judgment of the learned Appellate Tribunal is unreasoned and cryptic one. This judgment runs in around 20 to 25 lines. We are not oblivious of the fact, that not the form, but substance is material. The learned appellate Tribunal seems to have referred to the Circular of CBDT No. 723, dated 19-9-1995. 10. We have considered the submission of the learned Counsel appearing for the parties pertaining to the Circular No. 723, dated 19-9-1995 by CBDT (Annexure C ). Section 119 empowers the Central Board of Direct Taxes to give instructions to subordinate authorities. We have considered section 119 of the Act 1961. We have also perused the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e President of India. On 15-4-1970, the First Income-tax Officer, Margao, Goa issued a Demand Notice to the respondent Gosalia Shipping (P.) Ltd. for payment of ₹ 51,000 and odd amount, by way of Income-tax. We have noticed all these facts only to say that in the case on hand, there are no pleadings or material brought on record to show that the case is governed by occasional shipping within the meaning of section 172 of the Act, 1961 and said section applies. 12. Having considered the submissions of the learned Counsel appearing for the parties, in our view, the facts of the present case, are governed by section 40(a)(i ) of the Act 1961. Order passed by the Assessing Officer, in our view, is legal, proper and in accordance with the Scheme of Act 1961. In view of which we have taken in the matter, the appeal deserves to be allowed by quashing and setting aside the Order passed by the learned Commissioner of Income-Tax (Appeals) dated 28-8-2002 and the Order passed by the Income-tax Appellate Tribunal, Panaji dated 2-12-2004. The same are, accordingly, quashed and set aside and the Order passed by the Assessing Officer stands upheld. Appeal is, accordingly, allowed and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his Tribunal in ITA No. 72/PNJ/2012 for the A.Y. 2009-10 in which this Tribunal after considering the submissions of the DR took the view vide order dtd. 8.3.2013 that the Assessee is entitled for deduction in respect of Codli unit under Section 10B of the Income Tax Act. 8.2 The Learned DR on the other hand contended that the Tribunal has not examined whether the Codli unit is an independent unit or not and also relied on the written submission made by him which reads as under : 1. Facts of the case on 10B deduction : (i) M/s Sesa Goa Ltd., has claimed Codli Unit as newly established 100% EOU manufacturing or producing any article or thing. (ii) This unit do not extract iron ore itself. (iii) Entire profit from export from this unit is taken as exempt u/s 10B. No profit has been allocated to other activities, e.g. extraction etc. Section 10B(7) has totally been disregarded by not taking the input cost of iron ore at a market rate. 1 A. ITAT Panaji Bench's view on 10B deduction in similar case : ITAT, Panaji Bench interpreted CIT vs. Sesa Goa Ltd.,(266 ITR 126 (Bom) in the case of ACIT Circle-2 vs. M/s Chowgule Co. Ltd., in ITA No. 162/PNJ/ 2006 and ITA No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on regarding production in the case of iron ore. Therefore, it is submitted that the assessee company is not entitled for deduction u/s 10B. The Hon'ble Bench is requested to apply the covered case law of this Bench in the case of Chowgule Company in ITA No. 162/PNJ/2006 and ITA No. 184/PNJ/2006 to the assessee's case. Further, the present Hon'ble Bench decided this issue for the Asst. Year 2009-10 in favour of the assessee. However, certain material facts are not considered by the Hon'ble Bench for the A.Y. 2009-10 on this issue and therefore, the Department is preferring Miscellaneous Application for the A.Y. 2009-10 before this Hon'ble Tribunal. If the Hon'ble Bench decides to differ with the decision of the ITAT, Panaji Bench in the case of Chowgule Company in ITA No. 162/PNJ/ 2006 and ITA No. 184/PNJ/2006, the Hon'ble Bench is requested to Constitute the special Bench to decide this issue. 1A.3 The assessee has not been able to demonstrate that in AY 2001-02, it had set up any new unit/undertaking, and that such undertaking had a separate existence in terms of plant and machinery, raw material, or products, depreciation chart, asset regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of accounts for 10B unit and other non 10B units. The Supreme Court in the case of Arisudana Spinning Mills Vs. CIT reported in 348 ITR 385 (SC) (2002) held that maintenance of separate books of accounts is necessary to work out the profits of exempted unit/business and non-exempted units. The decision is enclosed in a separate paper book. 1 E. It is not a new undertaking : For availing the 10B deduction, it should be a new undertaking. There is no new undertaking in the assessee's case. The difference between assessee and undertaking is explained by the Madras High Court in the 98 ITR 119. Similarly, the same persons are carrying on the same business and hence it cannot be treated as new undertaking. Reliance is placed on the Supreme Court decision in the case of Textile Machinery. Similarly, profit in the alleged unit generated by the Unit is transfers only and export if any were done by existing unit only. Reliance is placed in the case of CIT vs. Modi Xerox, reported in 344 ITR 435 (Del). The decisions on the above cases are enclosed in separate paper book. 8.3 We have heard the rival submissions and carefully considered the same. We noted that a similar is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or produces any article or thing. Explanation (i) to sec. 10B provides that the expression 100% Export Oriented Unit‟ means an undertaking which has been approved by the Board appointed in this behalf by the Central Government in exercise of the powers confirmed by sec. 14 of the Industries (Development Regulation) Act, 1951 and the riles made there under. Explanation (iii) which was there at the time of the said sec. 10B defined the word manufacture‟ for the purpose of the said section to include any (a) process or (b) assembling or (c) recording of programme on disc, tape, perforated media or other information storage device. Thus, process‟ was included within the word manufacture for the purpose of sec. 10B. Explanation (iv) of the said sec. 10B further provided that the word produce‟ for the purpose of said section, in relation to any article or thing shall include production of computer programme. CBDT vide its circular no. 528 dated 16/12/1988 176 ITR ST. 154 explained the [provisions enacted by the Finance Act, 1988 under para 8.2 of the (Asst. Year : 2008-09) circular. In this circular, CBDT had clearly explained that the said new sec. 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proportion, as the export turnover in respect of such article or things or computer software bears to the total turnover of business Sub-section (4); iii. The assessee must furnish in the prescribed form No. 56G, along with his return of income, the report of a Chartered Accountant certifying that the deduction has been correctly claimed in accordance with the provisions of section 10B Sub-section (5); iv. Where the assessee avails of the benefits of section 10A or section 10B, it will not be eligible for other tax exemptions available under other provisions of the Act during the period of 10 years Sub-section (6); v. manufacture shall have the same meaning as assigned to it in clause (r) of section 2 of the Special Economic Zones Act, 2005. 43.3 Subsequently, Special Economic Zone Act, 2005 was passed by the Parliament in May, 2005, which was brought into effect w.e.f. 23/06/2005. Section 2(r) of Special Economic Zone Act defines the expression manufacture‟ as under:- Manufacture means to make, produce, fabricate, assemble, process or bring into existence, by hand or by machine, a new product having a distinct name, character or use and shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gives the following meaning of the word ‗process : to subject to some special process or treatment, to subject (especially raw material) to a process of manufacture, development of preparation for the market etc.; to convert into marketable form as livestock by slaughtering, grain by milling, cotton by spinning, milk by pasteurizing, fruits and vegetables by sorting and repacking. Where therefore any commodity is subjected to a process or treatment with a view to its development or preparation for the market , as, for example, by sorting and repacking fruits and vegetables, it would amount to processing of the commodity within the meaning of Section 8(3)(b) and Rule 13. The nature and extent of processing may vary from case to case; in one case the processing may be slight and in another it may be extensive; but with each process suffered, the commodity would experience a change. Wherever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity. The nature and extent of change is not material. It may be that camphor powder may just be compressed into camphor cubes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts in the impugned case of the assessee, the assessee is not only blending iron ore but carrying out various processes as to make iron ore called crude ore useable to Ispat Industries. The activity of the units of the assessee for Amona and Chitradurga involved converting input into output consist of crushing (crude ore called ROM which appeared to be pieces of rocks as we noted during the course of hearing on the basis of sample shown to us) screening, washing, stacking, loading in barges, river transportation to the boat and export in ships. The finished product which comes out are called lumps and fines which are used for Ispat Industries and brought by the foreign buyers. The finished product technically after processing had different name. As shown to us during the course of hearing we noted that the lumps and fines are entirely different from crude ore. During conversion of crude ore into lumps and fines, waste is generated which is called tailing and discharged into tailing pond. In Codli Unit these tailings which are in liquid form are converted into ultra fine. In our opinion as we noted from this physical sample also crude ore is entirely different from the lumps and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inition of the word production‟, it has to follow that mining activity for the purpose of production of mineral ores would come within the ambit of the word production‟ since ore is a thing‟, which is the result of human activity or effort. 43.7 According to Webster International English Dictionary, the verb produce means to bring forward, beget, etc. The juxtaposition of the word manufacture with agriculture‟ and horticulture‟ is significant and cannot be lost sight of. The intention in employing the word produced obviously was to introduce an element of volition and effort involving the employment of some process for bringing into existence some goods. 43.8 In paragraph 7 of its in the case of Chowgule C0 (P) Ltd. Vs. UOI (supra), Hon‟ble Apex Court also considered the question whether the different brands of tea purchased and blended by the assesses for the purpose producing the tea mixture could be said to have been processed‟, after the purchase, within the meaning of the proviso to section 8(a), so as to preclude the assesses from being entitled to deduct their turnover under section 8(a), so as to preclude t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f producing a tea mixture of a different kind and quality according to a formula evolved by them, there was plainly and indubitably processing of the different brands of tea, because these brands of tea experienced, as a result of mixing, qualitative change, in that the tea mixture which came into existence was of different quality and flavor than the different brands of tea which went into the mixture. There are, it is true, some observations in the judgment of the Bombay High Court which seem to suggest that if instead of manual application of energy in mixing the different brands of tea, there had been application of mechanical force in producing the tea mixture, the court might have come to a different conclusion and these observations were relied upon by the Assessee, since in the present case the blending was done by application of mechanical force, but we do not think that is the correct test to be applied for the purpose of determining whether there is ‗processing . The question is not whether there is manual application of energy or there is application of mechanical force. Whatever be the means employed for the purpose of carrying out the operation, it is the effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Co. Pvt. Ltd. (supra), holding, inter alia, that where any commodity is subjected to a process or treatment with a view to its development or preparation for the market it would amount to processing of the commodity within the meaning of Central Sales Tax Act, 1956. Hon‟ble Supreme Court, in the said judgment, did not consider the expression manufacture since the question was decided only on the expression processing . However, considering the judgment of the Bombay High Court in the case of Nilgiri Tea Co. [1959] 10 STC 500, Hon‟ble Supreme Court observed that, for the purpose of producing a tea mixture of a different kind and quality according to a formula evolved by them, there was plainly and indubitably processing of the different brands of tea, because these brands of tea experienced, as a result of a qualitative change, in that the tea mixture which came into existence was of a quality and flavor from the different brands of tea which went into the mixture. 43.11 Hon‟ble Kerala High Court had the occasion to consider whether assessee is engaged in the manufacture or production of an article or thing when assessee was exclusively engaged in ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its of the assessee‟s 100% EOU, it would defeat the very object of section 10B of the Act. (similar to assessee‟s case). Further, industrial units engaged in the very same activity, i.e., blending, packing and export of tea in the special economic zones and free trade zones, would continue to enjoy tax exemption under section 10A of the Act and section 10AA of the Act respectively. The assessee was allowed exemption on the profit derived by its 100% EOU engaged in blending, packing and export of tea bags and tea packets. Hon‟ble High Court held as under: The finding of this court is that the purpose of incorporation of section 2(r) of the Special Economic Zones Act, 2005, into section 10AA of the Income-tax Act is to provide a liberal meaning to the word manufacture which takes in even blending, refrigeration, etc. It was noticed by this court that the definitions of manufacture contained in the above definition clauses are very liberal which takes in even processing like blending. The contention of the counsel for the assessee is that the purpose of removal of the definition of manufacture from section 10B was not to provide a restricted meaning for that ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tea packets. Consequently, we allow the appeals by reversing the orders of the Tribunal and by restoring the orders of the first appellate authority declaring the appellant s entitlement for exemption. 43.12 Hon‟ble high court in this case, in our opinion, has clearly laid down that once the assessee is recognized as a 100% EOU for engaging in an activity and assessee is engaged in the same very activity, if the exemption is denied to the assessee on the ground that there is no production or manufacturing but only processing of the products exported in the 100% export oriented unit, the same would defeat the very object of section 10B. The Hon‟ble high court took the view that the decision of the Hon‟ble Supreme Court in Tara Agency‟s case 292 ITR 444 will not apply even though Hon‟ble Supreme Court in that case has held that blending of tea does not amount to manufacture or production of an article but is only processing. Thus, the Hon‟ble Kerala high court in the case of Tata Tea Ltd. (supra) gave the clear cut finding impliedly that even if the assessee is engaged in processing and is recognized as 100% EOU, it will be entitled for exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 10B in respect of export of blending of tea. The rejection of exemption u/s 10B was confirmed by the CIT(A). When the matter went before the special Bench, Special Bench after discussion the relevant provisions as well as the various decisions of High Court and the Supreme Court held as under:- 32. The provisions of section 10AA of the Act was inserted on the statute book by the Special Economic Zones Act, 2005 w.e.f. 10.02.2006. Even prior to the enactment of the said SEZ 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 Zone Act, 2005 defines the expression Existing Special Economic Zone to mean every Special Economic Zone which is in existence on or before the commencement of the said Act. Section 2(e) defines the expression existing unit to mean every unit which has been set up on or before the commencement of the said Act in an existing Special Economic Zone. In other words, admittedly all Special Economic Zones were also being governed by the Exim Policy prior to the enactment of SEZ Act, 2005. Clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rewing Black Tea , Instant Tea and Made Tea have also been distinctly and separately defined. Clause (29BA) was inserted in section 2 of the Income Tax Act, 1961 by the Finance (No.2) Act, 2009 w.e.f. 01.04.2009 to define the expression manufacture as under: manufacture , with its grammatical variations, means a change in a non-living physical object or article or thing, - (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure; The aforesaid definition of the expression manufacture , although brought into the statute book w.e.f. 01.04.2009, was applied by the Hon'ble Supreme Court even for the assessment year 2001-02 in ITO v. Arihant Tiles and Marbles Pvt. Ltd. (2010) 320 ITR 79, 82 (SC) on the ground that Parliament had taken note of ground reality in inserting section 2(29BA) in the Income Tax Law. The said definition was again applied by the Hon'ble Supreme Court in CIT V. Emptee Poly-Yarn Pvt. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussed above. 35. We find from the above facts and circumstances and case laws relied on by both the sides that the assessee was exclusively engaged in blending, packaging and export of tea bags, tea packets and bulk tea packs. The assessee's division enjoys recognition as a 100% EOU, which is granted by the Development Commissioner, Ministry of Commerce Industry, Govt. of India. The assessee claimed exemption u/s. 10B of the Act for AYs 2000-01 onwards, which was granted upto the AY 2003-04. However, for the 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 1OB 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 'production' of an article qualifying for exemption. We are of the considered view that the contention of the assessee that the scheme of income tax e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Hon'ble Kerala High Court 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 assessees who are in the business of blending and processing of tea and export thereof, in 100% EOUs are manufacturer/ producer of the tea for the purpose of claiming exemption u/s.10B of the Act. Further, assessees who are in the business of blending and processing of tea hi respect of undertakings in free trade zones are manufacturer/producer of tea for the purpose of claiming exemption u/s. 10A of the Act. We have examined and discussed the facts in the case of Madhu Jayanti International Ltd. 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 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vity of cutting and polishing of marble blocks, the question before the Supreme Court was whether the activities undertaken by the assessee would fall within the meaning of the words manufacture or production‟ in section 80-IA of the Income-tax Act, 1961? In this case, Hon‟ble Supreme Court, after discussing the definition of manufacture‟ given in section 2(29BA) of the Income-tax Act, 1961 and also discussing the provisions of section 80-IA(2)(iii) and after going through various decisions, held as under: 22. Applying the above tests laid down by this Court in CIT Vs. N.C. Budharaja and Co. 204 ITR 412 (SC) to the facts of the present cases, we are of the view that blocks converted into polished slabs and tiles after undergoing the process indicated above certainly results in emergence of a new and distinct commodity. The original block does not remain the marble block, it becomes a slab or tile. In the circumstances, not only there is manufacture but also an activity which is something beyond manufacture and which brings a new product into existence and, therefore, on the facts of these cases, we are of the view that the High Court was right in coming to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption for processing also, the law would have made it very clear by apparently stating that processing is also entitled for exemption. When the expression processing‟ is omitted in section 10B, we are not supposed to fill up the omission. If something is not there we should accept as it is not there. We should not provide for the omission that amounts to judicial legislation. There is no confusion in the provision of law provided under section 10B. The exemption is available only to manufacture or production. It is not available for processing. Although subsequently this Tribunal has rectified the order under section 254 vide order dated 19th July, 2007 on the application of the assessee and took the view that the assessee is entitled for exemption under section 10B as the assessee-company itself is extracting the entire iron ore from own mines and mines taken on lease and thereafter processing the same. We cannot look into the finding of the coordinate Bench whether they have correctly interpreted the decision of Supreme Court in 271 ITR 331 or not. The Ld. AR vehemently contended that the decision dt. 12th July, 2007 of this Tribunal in that case got overruled by the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n us as judicial discipline require that. This Tribunal is bound to consider those decisions and the Tribunal is not bound with the decision of the coordinate Bench. The jurisdictional Bombay High Court in the case of H.A. Shah Co. Vs. CIT (1956) 30 ITR 618, 625 (Bom.) even took the view that in case fresh material facts came to the knowledge of subsequent bench, the decision of coordinate bench is not binding. In this regard, Hon‟ble High Court observed as under :- Nor are we satisfied that in order to enable the second Tribunal to depart from the finding of the first Tribunal it is essential that there must be some fresh facts which must be placed before the second Tribunal which were not placed before the first Tribunal. If the first Tribunal failed to take into consideration material facts, facts which had a considerable bearing upon the ultimate decision, and if the second Tribunal was satisfied that the decision was arrived at because of the failure to take into consideration those material facts and that if these material facts had been taken into consideration the decision would have been different, then the second Tribunal would be in the same position to rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered by the subsequent decision of Special Bench, High Court and the Supreme Court cited by us in discussion held here in above. We noted that subsequent to the decision of this Tribunal in ITA No. 162/PNJ/2006 dt. 12th July, 2007, the Special Bench of this Tribunal in the case of Madhu Jayanti International Ltd. [2012-TIOL-424-ITAT-KOL-SB] has dealt with the issue exhaustibly whether the assessees who are in the business of blending of tea i.e processing of tea and export thereof in 100% EOU can be said to be manufacturer / producer of tea for the purpose of section 10A/10B. When the Supreme Court has already held in the case of Tara Agencies 292 ITR 444 that blending of tea is processing. Thus, the Special Bench has decided the issue in respect of 100% EOU for the purpose of exemption under section 10B whether an assessee who is engaged in processing can be said to be engaged in manufacture / processing. We also noted that Kerala High Court in the case of Tata Tea Ltd. Vs. ACIT 338 ITR 285 dealt with the issue in respect of 100% EOU for the purpose of exemption under section 10B whether the processing of tea is treated as manufacture or production of an article qualifying for e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Special Bench and Arihant Tiles Marbles (SC) as well as Kerala High Court in the case of Tata Tea (Supra) which would have disallowed the claim of the assessee u/s 10B on this basis after considering the Explanation (iii) of section 10AA as well as definition given u/s 2(29BA). Thus, due to the decision rendered by the Special Bench, High Courts and Supreme Court subsequent to the date of order in the case of Chowgule Co. Ltd. Vs. ACIT in ITA No. 162/PNJ/2006 in our opinion, the issue raised by the Revenue is not fit to be referred to Special Bench as the decisions of Special Bench / High Court / Supreme Court are binding on us in preference to the decision of the coordinate Bench. Thus, we have in our opinion germane reason not to refer this issue for constitution of a Special Bench as in our opinion even if the Special Bench is constituted the earlier decision of the Special Bench in the case of Madhu Jayanti will be binding until and unless there are special and germane reasons for constituting a large Special Bench. We, therefore, dismiss the application dt. 18/01/2013 moved by the Revenue for constituting the Special Bench. 45.8 Now coming back to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here the assessee was engaged in the business of blending the tea for upgrading for marketing. Thus, in view of the decision of the Special Bench and other decisions discussed in the preceding paragraphs and that of Hon‟ble Supreme Court in the case of Chowgule co (supra) as well as definition of manufacture‟ as inserted w.e.f 1.4.2009 by way of section 2 (29AB) of the Income Tax Act as referred to by both the parties, we hold that all the three 100% EOU engaged in processing so as to make crude ore and waste i.e tailings usable or marketable are entitled for exemption u/s 10B subject to the other conditions for exemption under section 10B are being fulfilled. 45.10 Now, we will deal with the contention whether the assessee has set new units or has merely reconstructed the business which was already in existence. We noted that the assessee had made the following investments in installing the Plant Machinery in these EOUs:- Fin.Year Amona Chitradurga Codli 1999-2000 9,00,78,574 2002-03 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machinery for its EOUs in each relevant financial year: i. Minutes of the meetings of Board of Directors of the appellant-company approving capital expenditure at Amona and Chitradurga Plants at page nos. 696, 699-700 702 of the paper book. ii. Photographs of Pants at Amona Chitradurga EOUs at page nos. 704-713 of the paper book. iii. Year-wise Tables of Plant Machinery capitalized for (a) Amona EOU for the FYs 2002-03 to 2008-09 (at page nos. 45-48 of the paper book), (b) Chitradurga EOU for the FYs 2005-06 to 2008-09 (at page nos. 54-55 of the paper book), and (c) Codli EOU for the FYs 1999-2000 to 2008-09 (at page nos. 38-40 of the paper book). iv. Audited Annual Accounts of the appellant-company for the financial years ended on 31/03/2003, 31/03/2006, 31/03/2007 and 31/03/2009 at page nos. 91-632 of the Additional paper book. v. Copies of bills of plant machinery items were submitted in respect of the EOUs as under: (a) Amona EOU for ₹ 3,57,03,426/- out of total investment of ₹ 3,96,10,020/- at page nos. 794-1146 and 1378-1435 of the Additional paper books. (b) Chitradura EOU for ₹ 8,18,50,910/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oject to set up a new undertaking during the FY 2005-06 in a phased manner to increase the capacity by employing latest technology/facility in place of existing production facility. The assessee applied to the Karnataka State Pollution Control Board vide its application dated 09/09/2005 for its Consent for Establishment under the Water and Air Acts for expansion of iron ore mining capacity from 1.6 MTPA to 2.5 MTPA. Subsequently, the management of the company also underwent a change from Mitsui group with M/s Vedanta Group. Due to this expansion/establishment project could be completed during the FY 2008-09 in three phases having a total production capacity of 6 MTPA. The investments were made in a phased manner which resulted in creation of new unit in place of the existing unit. In the FY 2005-06, i.e., the initial year for the purpose of section 10B, total investment of ₹ 93,84,633/- was made in acquisition of new plant machinery including dismantling of the old plant structures. The phase-II of project establishment was completed next year, i.e., FY 2006-07 in which fresh capital investment of ₹ 35,67,257/- was made in plant machinery. Finally the third phase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduction data of Chitradurga unit shows that the production increased without new investment in plant machinery. Moreover, no major plant machinery was installed at Chitradurga as could help in increasing the production capacity. 45.12 According to Revenue, all old machines were not replaced since there was no deletion in the book value of the existing plant shown in the depreciation charts for the concerned years. CIT(A) has complied charts in respect of Amona and Chitradurga units in his appellate order. In this regard the Ld. AR explained the basic cost of plant machinery in the case of an iron ore beneficiation plant is incurred on raising steel and concrete structures on which the conveyor belts, crushers, screens, etc. are installed. Though all existing items of machine were scrapped usable steel from the same was utilized in the erection of new machines and equipments for which only some additional charges were paid. Thus, the existing dismantled structure got merged within the new plant to that extent. Accordingly, instead of deleting the relatable value of existing plant, the cost of additional plant acquired during the year was recorded at net value. Also the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . AR and therefore do not agree on this with the authorities below. 45.14 We have examined the contention of the Revenue that in the case of Amona plant, correspondence with Village Panchayat shows that the construction activities were actually in the nature of repairs and renovation. The CIT(A) had referred to only a few correspondence exchanged with Panchayat to make a case that it was only some repairs or at best a renovation work undertaken at Amona, whereas several other pieces of correspondence were ignored by him which prove that the appellant had factually undertaken a major dismantling and demolition of the existing plant as well as erection and installation of new plant in its place there. From the correspondence exchanged with panchayat and newspaper clippings filed in PB (Pages 293,294,299 409-411), we noted the CIT(A) ignored the local newspaper clippings which in our opinion are vital piece of evidence in this regard. These clippings clearly bring out the fact that a complete destruction of old unit was done and altogether new plant was set-up at Amona, albeit, with the aid of some old machinery and parts thereof. Regarding the contention of the revenue that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and leaving the earlier undertaking totally untouched. We find that the processes for which the assessee entered into technological collaborations with M/s Rotacom Industries, B.V., Netherlands and M/s Seppo Ralli OY, Finland were the key processes of the assessee s industrial undertaking and other processes such as storage of milk in stainless steel storage tanks, pre-warming, pre-heating, pasteurization were only of preparatory nature for the manufacturing of the product of the assessee. The assessee appears to have introduced almost entirely new manufacturing technology and processes. 13. The reconstruction of a business or an industrial undertaking must necessarily involve the concept that the original business or undertaking is not to cease functioning, and its identity is not to be set to be lost or abandoned. The concept essentially rests on changes but the changes must be constructive and not destructive. There must be something positive about the whole matter as opposed to negative. The underlying idea of a reconstruction evidently must be - and this is brought out by the section itself - of a 'business already in existence'. There must be a continuation of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. The Tribunal and the High Court, in our opinion, rightly came to the conclusion that the undertaking could function with thirty hooker cells in the year 1957-58 and further numbers were added in the subsequent year. The undertaking having thus started, the commercial manufacture in the year 1957-58 could not claim the benefit of provisions of Section 84 of the Act because the unit as such had commenced in the year 1957-58 notwithstanding the fact that there had been an expansion thereto in the subsequent year. (iii) Taurus Merchandising (P) Ltd. Vs. ITO (2012) 143 TTJ (Del) 1 16. In Jt. CIT vs. Associated Capsules (P) Ltd. (2008) 117 TTJ (Mumbai) 399 : (2008) 9 DTR (Mumbai)(Trib) 95 : (2008) 304 ITR 85 (Mumbai)(AT), it has been held that where the assessee had established new plant and machinery at the same premises and was producing the same product as that done by the existing business, the new units were having separate and distinct identity of their own, profits and gains were derived from them and the assessee was treating each unit as a separate and independent unit in its accounts, the new units could not be held to be part of the existing business; and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by s. 14 of the Industries (Development and Regulation) Act, 1951 and the Rules framed under that Act; and that it was not the case of the Department that approval as required under the statute had not been accorded to the assessee (iv) Gujarat Alkalies and Chemicals Ltd. Vs. CIT (2012) 249 CTR (Guj.) 82 In the present case also, it is not the case of the Revenue that the new unit by itself is not capable of production of goods but the case of the Revenue is that it takes help of the old existing unit. We are of the view that, that itself should not be the reason to reject the claim under Section 80-I of the Act. Thus, whether an undertaking is a new industrial undertaking entitled to the exemption under Section 80-I of the Act depends on the facts of each case. No hard and fast rule can be laid down. Use by the assessee of the old undertaking for the purpose of production in its new undertaking is not a decisive test in construing Section 80-I of the Act. The new undertaking must not be substantially the same old business. Substantial investment of new capital is imperative and in the present case, there has been a huge substantial investment of around ₹ 7 cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... changed. (iii) There was least possible or insignificant usage of the plant and machinery of the old units. (iv) There was a negative act of the assessee to disturb the identity of the old unit as the plant and machinery was dismantled by the assessee in all these units. (v) The assessee had set up new units essentially producing the same commodity as in the existing units, though there is no such bar imposed in law. 45.17 Accordingly, after hearing both the parties and also going through the material placed on record and after considering the various decisions, we hold that new units had actually been established by the assessee in the FY 1999-2000 at Codli; in the FY 2002-03 at Amona; and in the FY 2005-06 at Chitradurga. 45.18 We noted after going through the provisions of sec.10B that there is no requirement that the assessee should maintain separate books of accounts in respect of 100% EOU Unit for claiming deduction. The only requirement in this regard u/s 10B(5) is that the assessee shall not be allowed deduction unless the assessee furnishes in the prescribed form along with the return of income the report of an accountant, as we find in the explan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outside parties, in our opinion can be regarded to be the best evidence for determining the market value of the crude ore used by the assessee extracting it from its own mines. Since determination of market value requires verification on the part of the revenue, we, therefore, restore this issue only for determining the market value of the crude ore consumed by the assessee on the basis of the value paid by the assessee for the crude ore to the outside parties during the year and thereby recomputing the profit derived by the assessee from the 100% EOU units eligible for exemption u/s 10B. Accordingly, we direct the Assessing Officer to recompute the exemption available u/s 10B to the assessee in respect of Amona as well as Chitradurga units after ascertaining the market value of the crude ores transferred by the assessee to these units from its extraction divisions on the basis of the average market value as the assessee has paid to the outside parties for the crude ores purchased by the assessee from these parties during the impugned assessment year and substituting as cost of the raw material in place of cost of the crude ore derived by the assessee from its own mines after givi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 9. Ground no. 9 : Ground no. 9 relates to the disallowance of ₹ 1,97,91,667/- contributed by the Assessee to Goa Mineral Ore Exporters Association towards contribution of a bridge on the river at Usgao. The Goa Mineral Ore Exporters Association made the financial contribution after making collection from all the members for the construction of the bridge. The brief facts relating to this ground are that the Assessee claimed these expenses to be a revenue expenditure as, as per the Assessee this expenses have been incurred to help business operations of the Assessee more efficiently as the Assessee as well as other iron ore exporters were facing difficulties in transporting goods through Usgao village road. The Assessing Officer did not agree with the Assessee and treated it to be capital expenditure as, in his opinion, this contribution gives an enduring benefit to the Assessee. Reliance was placed in this regard in the case of Mahesh B. Shah vs. ACIT (Kerala) 238 ITR 130. 9.1 The Learned AR contended that the issue is duly covered by the decision of Madras High Court in CIT vs. Coats Viyella India Ltd. 253 ITR 667 on merit. He reiterated the submission made before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue. In the case of Raza Buland Sugar Co. Ltd. vs. CIT (1980) 122 ITR 817 (All.), the quarters were built for the workers for which the Assessee made contribution were for the exclusive user of the Assessee for unlimited period of time and thus, Assessee got an asset of enduring nature. Under these facts, the Allahabad High court took the view that the expenditure is a capital expenditure. This case, in our opinion, will also not assist the revenue. The decision of the Madras High Court as reported in 253 ITR 667 which has been relied on by the Learned AR, in our opinion, is directly applicable to the facts of the case. In this case also, the Assessee has made contribution to the Govt. for building a new bridge in place of old one which had become unserviceable. The bridge was essential to provide access to the Assessee s factory. The bridge does not belong to the Assessee. It merely facilitates the movement of the workmen to the, and the goods to the, Assessee s factory. When the matter went to the High Court, the High Court took the view that the expenditure incurred was revenue expenditure. While holding so, the High court relied on the decision of the Hon ble Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led in any office premises or any residential accommodation, including accommodation in the nature of a guest house; or c) Any office appliances o road transport vehicles; or d) Any machinery or plant, the whole of the actual cost of which is allowed as a deduction(whether by way of depreciation or otherwise) in computing the income chargeable under the head Profits and gains of business or profession of any one previous year . 46.2 From the provisions of the section, it is apparent that the assessee is entitled in the case of any new machinery or plant which has been acquired or installed by him after 31.03.2005 for the additional depreciation if the assessee is engaged in the business of manufacture or production of any article or thing. Proviso to section denies the deduction to an assessee of the additional depreciation in certain cases. From the balance sheet and all other evidences filed before us it is apparently clear that the assessee is engaged primarily in the business of extraction of ore and its processing. The authorities below interpreted the provisions of section, correctly taking the view that the plant and machinery should be installed for the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT 250 ITR 146 as well as that of the Supreme Court in the case of CIT vs. Shoorji Vallabhdas Co. 46 ITR 144. 11.1 The Learned AR before us vehemently contended that the issue is squarely covered by the decision of the Supreme Court in CIT vs. Woodword Governor India Pvt. Ltd. 312 ITR 254. The loss relates to the restatement of the amounts payable and receivable in foreign currency at the year end at the prevailing exchange rate. The loss arising from the difference in rate of exchange had actually occurred as per mercantile method of accounting. It is not a notional or contingent loss but was computed on the basis of accounting standard AS-11 issued by the Institute of Chartered Accountants of India (ICAI) which is mandatory to be followed. It is not a speculative loss as stipulated in CBDT s instructions. Delhi High Court in the case of Woodward Governor India (P) Ltd. 294 ITR 451 held that the accounting standard issued by ICAI would have to be followed and applied and the increase in liability due to the foreign exchange fluctuations as per exchange rate prevailing on the last day of the financial year is allowable as a deduction and is not merely notional or contingent li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dry creditors are all monetary items which have to be valued at the closing rate under AS-11. Under paragraph 5, a transaction in a foreign currency has to be recorded in the reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction. This is known as recording of transaction of the effects of changes in exchange rates subsequent to initial recognition. Paragraph 7(a), inter alia, states that on each balance-sheet date monetary items, enumerated above, denominated in a foreign currency should be reported using the closing rate. In case of revenue items falling under section 37(1), paragraph 9 of AS-11 which deals with recognition of exchange differences, needs to be considered. Under that paragraph, exchange differences arising on foreign currency transactions have to be recognised as income or as expense in the period in which they arise, except as stated in paragraph 10 and paragraph 11 which deals with exchange differences arising on repayment of liabilities incurred for the purpose of acquiring fixed assets, which topic falls under section 43A of the 1961 Act. At this st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (emphasis supplied) In conclusion, we may state that in order to find out if an expenditure is deductible the following have to be taken into account (i) whether the system of accounting followed by the Assessee is the mercantile system, which brings into debit the expenditure amount for which a legal liability has been incurred before it is actually disbursed and brings into credit what is due, immediately it becomes due and before it is actually received; (ii) whether the same system is followed by the assessee from the very beginning and if there was a change in the system, whether the change was bona fide; (iii) whether the assessee has given the same treatment to losses claimed to have accrued and to the gains that may accrue to it; (iv) whether the assessee has been consistent and definite in making entries in the account books in respect of losses and gains; (v) whether the method adopted by the assessee for making entries in the books both in respect of losses and gains is as per nationally accepted accounting standards; (vi) whether the system adopted by the assessee is fair and reasonable or is adopted only with a view to reducing the incidence of taxation. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Badrida Gauridu(P) Ltd.,(261 ITR 256) took the view that the loss incurred by the assessee on forward contracts had a direct nexus with it export activities and therefore, such loss is a loss incidental to the business activities of the assessee. This loss cannot be regarded to be the speculation loss. The learned DR even though, before relied on the order of the AO could not bring to our knowledge any other decision of the jurisdictional High Court or that of the Supreme Court which would have taken a contrary view, what has been taken by the Hon‟ble Mumbai High Court into 261 ITR 256. Even this was not the case of the revenue that the said decision was not applicable in this case. Under these facts of the case, we are of the view, that no illegality and infirmity is caused in the order of the CIT(A) while deleting the disallowance on account of foreign exchange on forward contract. Thus, this is not a fit case which warrants our interference and we accordingly, dismiss the third ground taken by the revenue. 12.2 Respectfully following the said decision of the Tribunal, we delete the disallowance by setting aside the order of CIT(A). In the result, ground no. 12 stands ..... X X X X Extracts X X X X X X X X Extracts X X X X
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