TMI Blog2008 (6) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Sales Export FOB 29,65,50,905 40,28,46,121 63,09,27,581 SFT 62,60,902 56,62,289 66,96,039 Local 56,53,249 77,23,597 1,15,10,010 Total 30,84,65,056 41,62,32,007 64,91,33,630 2. Gross profit 12,51,65,024 16,90,31,373 26,08,73,585 3. Gross profit rate 40.58% 40.61% 40.19% 4. Net profit 7,51,67,641 10,19,64,102 14,42,22,167 5. Net profit rate 24.73% 24.50% 22.22% 6. Export incentive received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previously used by any purpose. The word machinery or plant previously used for any purpose is significant word for claiming the deduction under s. 10BA of the IT Act. The assessee himself has admitted that this unit was already in existence before the asst. yr. 2004-05 and opening balance of plant and machinery as on 1st April, 2003 was ₹ 2,52,321 and there was only very nominal addition of ₹ 71,624 in the plant and machinery during the period relevant to asst. yr. 2004-05. Therefore, the assessee used old machinery amounting to ₹ 2,52,321 which was previously used in this unit. By addition of machinery of ₹ 71,624 during this year, the assessee is not entitled for claim because the previously used machinery is more than 78 per cent of the total machinery. Considering all these facts, the partner of the firm Shri Rajendra Kumar Rawat after consulting with tax consultant has admitted that the above unit is not eligible for deduction under s. 10BA and agreed to withdraw the claim of deduction under s. 10BA of ₹ 14,07,39,801 in this unit for this asst. yr. 2004-05. (2) Kusum Sarovar Unit-II, FCI Godown, Durgapura, Jaipur The above submissions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r s. 10BA amounting to ₹ 5,78,968 is not justified and therefore, the same is disallowed in this unit for this asst. yr. 2004-05. 4. The learned CIT(A) vide paras 2.3(i), 2.3(ii) and 2.3(iii) after considering the explanation of the assessee allowed the claimed deduction under s. 10BA of the Act for the reasons mentioned therein. 5. We have heard the rival contentions and perused the facts of the case. On going through the orders of the authorities below, we observe that most of the issues involved in the three units are common that the assessee has not fulfilled the conditions laid down under s. 10BA(2) of the Act. Sec. 10BA of the Act was inserted by the Finance Act, 2003 w.e.f. 1st April, 2004. Sec. 10BA(2) lays down certain conditions which have to be fulfilled by any undertaking for claiming the deduction under s. 10BA(1) which are reproduced as under : (2) This section applies to any undertaking which fulfils the following conditions namely : (a) it manufactures or produces the eligible articles or things without the use of imported raw material. (b) it is not formed by the splitting up, or the reconstruction, of a business already in existence : Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section. There is no mention that the undertaking which has enjoyed benefits under s. 80HHC is also similarly disentitled. To put it otherwise, all existing units are duly so entitled except those who have enjoyed benefits under s. 10A or 10B of IT Act. Sec. 10BA(b) already clearly says that in case any assessee gets the benefits under s. 10BA the said assessee shall not be entitled to any other deduction (including under s. 80HHC) under the IT Act. Sec. 10BA is a special provision to encourage export of wooden handicraft articles. It has been introduced under special circumstances and the working of other sections providing similar deduction for profits from export of other goods and the difference can be seen. In s. 10A, deduction is for FTZ and the said section is for software which begins to manufacture software from asst. yr. 1981-82 or transfer for FTZ 1994-95 or thereafter (electronic hardware industry). Sec. 10B is for software for 10 years starting from asst. yr. 1994-95. Sec. 10C is for industrial undertakings in North East, which start production on or after 1st April, 1998. Similarly ss. 80-I, 80-IA, 80-IB and 80-IC which provide for deduction of certain percentage of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g used during the impugned year and therefore, the deduction under s. 10BA cannot be claimed and therefore, considering the law above all, the partner of the assessee firm withdrew the said claim. 10. The assessee has claimed the deduction in the return filed under s. 139(1) of the Act and the assessee after the withdrawal of the claim under s. 10BA of the Act during the course of survey has not revised the return of income on the advice of his legal counsel. Since the return under s. 139(5) can be revised if there is an omission or furnishing of wrong statement in filing the return under s. 139(1) of the Act, the claim which is legally available to the assessee cannot be withdrawn on the advice of the Departmental officers. Moreover, there is no deliberate omission or wrong statement in the original return. We appreciate the act of the assessee for not revising the return of income since there is no deliberate omission or furnishing of wrong statement in the return filed under s. 139(1) of the Act. The reliance is placed on the decisions of the various Courts of law as under : (1) Padma Ram Bharali vs. CIT (1977) 110 ITR 54 (Gau); (2) Amjad Ali Nazir Ali vs. CIT (1976) CT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pport from the decision of Hon'ble Supreme Court of India in the case of Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363(SC) where the facts and the decision of Hon'ble Supreme Court of India were that the assessee company which followed the mercantile system of accounting, incurred a liability of ₹ 1,49,776 on account of sales-tax determined to be payable by the sales-tax authorities on the sales made by it during the calendar year 1954, the previous year relevant to the asst. yr. 1955-56. The sales-tax demand was raised pending the income-tax assessment for that year. The ITO rejected the assessee's claim for deduction of that amount on the ground (i) that the assessee had contested the sales-tax liability in appeals and (ii) that it had made no provisions in its books of account with regard to the payment of that amount. The appeals to higher authorities or Courts taken by the assessee contesting its liability to pay the sales-tax ultimately failed : Held : That the moment a dealer made either purchase or sale which was subject to sales-tax, the obligation to pay the tax arose. Although that liability could not be enforced till quantification was eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of the assessee and against the Revenue. The assessee will be entitled to costs in this Court and in the High Court'Appeal allowed. 12. Moreover, the provisions contained in s. 10BA are special provisions to encourage the export of wooden handicraft articles which have been introduced under special circumstances. Both the authorities below have interpreted the provisions in s. 10BA differently and in such circumstances and facts of the case when the provisions contained in s. 10BA are special provisions to encourage the export of wooden handicraft articles which confer benefit on the assessee and such provisions should be so interpreted and the words used therein should be assigned such meanings as would enable the assessee to secure the benefit intended to be given by the legislature to the 'assessee and where there are two possible interpretations of a taxing provision, the one which is favourable to the assessee should be preferred as decided by the Hon'ble Supreme Court of India in the case of Mysore Minerals Ltd. vs. CIT (1999) 156 CTR (SC) 1: (1999) 239 ITR 775(SC). The case of the assessee also finds support from the decision of Hon'ble Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under : Sec. 2(k) of Factories Act, 1948 defines : Worker means any person employed directly or by or through any agency including a contractor with or without knowledge of principal employer, whether for remuneration or not, in any manufacturing process or in cleaning of any part of machinery or premises used for manufacturing process or in any other kind or work incidental to or connected with the manufacturing process. Sec. 2(1C) of Employees' Provident Fund and Miscellaneous Provisions Act, 1952 Employee means any person, who is employed for wages in any kind of work manual or otherwise, in or in connection with, the work of any establishment and who gets his wages directly or indirectly from the employer and includes any person. (i) employed by or through a contractor in connection with the work of the establishment. As per Industrial Disputes Act, 1947 'Industry' means systematic activity carried on with the co-operation between any employers and his workmen (whether such workmen are employed by such employer directly or by or through any agency, including a contractor). 'Workman' means any person (including an apprentice) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f manufacturing carborundum. The assessee claimed deductions under ss. 80HH and 80J of the IT Act, 1961, on the ground that it had employed ten or more persons in the manufacturing process. The ITO, however, disallowed the claim on the ground that assessee got certain processes done from outsiders on piecemeal basis and that the assessee had not provided regular employment to any person in its manufacturing process. The AO observed that mere providing of jobwork to some persons could not be said to be regular employment and accordingly disallowed the deduction. The AAC confirmed the above order. The Tribunal came to the conclusion that the persons doing the work were employed by the assessee because the assessee was controlling not only the work to be done by those persons but also the manner of doing the work. It held that the assessee was entitled to the special deduction under ss. 80HH and 80J. On a reference : Held, that it appeared from the tenor of the order of the AAC that because the workers were being paid on jobwork basis and not on the basis of wages payable for a fixed number of hours such workers were considered to be outsiders i.e. outside the regular employment. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Ltd. (1996) 134 CTR (AP) 123 : (1996) 220 ITR 84 (AP) It was held that employment of minimum number need not be for the whole year and the period for which the factory remained closed may be excluded since jobwork is accepted as 'manufacture', where it is alone under the supervision of the assessee, there is no reason as to why the job workers in such cases should not be counted as employees for this purpose. Therefore, in the circumstances and facts of the present case, definitions in the various Acts and decisions of various Courts of law, we are of the view that the assessee has employed more than 20 workers during the year and therefore, satisfies the conditions contained in s. 10BA(2)(e) of the Act. 15. The assessee has narrated the various steps involved in the production and manufacture of the items as under : (1) Receipt of purchase order from the foreign buyer. (2) Production planning for in-house and at outsides. (3) Issue of POs and JOs to suppliers and in house in charges with the specified 'models' each for production of 'semi-finished' goods. (4) Purchase orders for unique brass fittings as per each foreign buyer's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e machine are only aid to the workmen and play a secondary role and help. The real role is that of the expert creative workmen with their dexterity. 17. The assessee has further submitted the explanation that the goods manufactured or produced by the assessee are eligible articles or things having the artistic value and in this regard the explanation was that Webster Dictionary defines artistic as under : (1) of or pertaining to art or artists. (2) Confirming or conformable to the principles of art carefully executed. (3) Sensitive to art'when a man whose work involves thought, skill, and constructive power, produces a model, the product is of artistic nature. In the case of Advertising Corporation of India vs. Barendra Chandra Nag (1955) LLJ 448 wherein it was held that the assistant artists in the present case got the idea from the chief artist and they were to give expression to the idea in their drawings. The mere fact that the original index. During the course of survey under s. 133A on 23rd Dec., 2005, the authorized officers themselves had occasion to visit and see Manglam Arts woodbased more than 850 items of artistic nature developed by Manglam Arts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e items so produced or manufactured will be treated as manufacture or production by the assessee employing more than 20 persons. The reliance in this respect is placed on decisions of various Courts of law as under : (1) CIT vs. N.C. Budharaja Co. (1993) 114 CTR (SC) 420 : (1993) 204 ITR 412 (SC); (2) CIT vs. Penwalt India Ltd. (1991) 96 CTR (Bom) 20 : (1992) 196 ITR 813 (Bom); (3) Arihant Tiles Marbles (P) Ltd. vs. ITO (2007) 211 CTR (Raj) 169 : (2007) 295 ITR 148 (Raj); (4) Jayanti Hosiery Mills vs. Upendra Das AIR 1946 Cal 317; (5) CIT vs. Tata Locomotive Engineering Co. Ltd. (1968) 68 ITR 325 (Bom); (6) CIT vs. Singareni Collieries Co. Ltd. (1996) 221 ITR 48 (AP); (7) CIT vs. Laxmi Art Studio (2001) 168 CTR (Raj) 380 : (2001) 249 ITR 710 (Raj); (8) CIT vs. Indian Resins Polymers (1998) 148 CTR (Ker) 143 : (1999) 235 ITR 5 (Ker); (9) CIT vs. Talwar Khuller (P) Ltd. (1998) 149 CTR (All) 117 : (1998) 235 ITR 70 (All); (10) CIT vs. Rajmohan Cashews (I) Ltd. (1994) 122 CTR (Ker) 376 : (1995) 211 ITR 659 (Ker); (11) CIT vs. S.H. Kelkar Co. (P) Ltd. (1991) 96 CTR (Bom) 18 : (1991) 191 ITR 612 (Bom); (12) CIT vs. Madhav Marbles Granite Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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