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2013 (6) TMI 878

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..... year under consideration sales worth of ₹ 15,37,683/- were made to an another SEZ unit. The assessee has claimed those sales as an export sales and claimed deduction under Section 10B of the IT Act. According to AO since those sales were made to another SEZ Unit in India and the amount was also received in Indian rupees, therefore, the claim of deduction under Section 10B was not to be allowed. Against the said disallowance the matter was carried before the first appellate authority who had affirmed the action of the AO by following his predecessor s view taken in A.Y. 2004-05. 1.3 Now before us an order of ITAT D Bench Ahmedabad pronounced in the case of assessee, i.e., M/s. Fine Line Circuit s Company, Plot No. E-8, GIDC, Manjusar, Salvi, Baroda Vs. ACIT, Circle-3, Baroda, bearing ITA No.1144/Ahd/2008 for A.Y:2004-05, ITA No.1899/Ahd/2010 for A.Y:2005-06 and ITA No.3110/Ahd/2009 for A.Y:2006-07, dated 5th day of April, 2011 wherein an another order of the Tribunal was discussed by reproducing relevant paragraphs and the issue was decided in favour of the Revenue. A portion of the relevant paragraphs which was reproduced in the said order is as follows: Thus it has to be see .....

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..... ability of deduction u/s 10B. 2.1 Facts in brief as emerged from the corresponding assessment order passed under Section 143(3) for A.Y. 2007-08 dated 31.12.2009 were that it was noted by the AO that the assessee had claimed the deduction in respect of sales made to its two sisters concern situated in USA. It was not disputed that assessee firm and those firms situated in USA are the sister concerns. It was noted by the AO that the raw material was Copper Cladded Epoxy Glass laminate (in short CCGL ). It was claimed that the PCB s were manufactured as per the specific drawings supplied by the end users. According to the AO, facts have revealed that although the PCB s were exported to the sisters concern in USA but those were actually meant for some others end users. The AO has also noted that in the Audit Report, the raw material is mentioned as X instead of stating the raw material as CCGL . According to the AO by mentioning X the assessee had tried to consciously hide the information in respect of the raw material. 2.2 Further, the AO had noted that the assessee had sold CCGL to its sister concern and the details were as under: Date Amount in $ Amount in Rs. 27.05.2006 102018.39 .....

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..... o Store Department for identity and issuance of required material to production department viz. Copper Claded Glass Epoxy Laminates d. Raw material is sent to Shearing Department. e. The shearing machine is set for desired size and the laminates are cut into specified sizes decided by the customer. f. After shearing, production inspection takes place where laminates are checked for oxidation effect. g. A thorough surface cleaning is done to remove the oxidation. h. The cut pieces of laminates are checked by Quality Control Department for final inspection. This department verifies various quality parameters like thickness of material, thickness of copper using Alco Meter (Copper thickness gauge), Micrometer, Measuring Tape, Vernier caliper and magnifying glass. i. Such inspected laminates are packed by Packing Department. At this stage the product is called as CCGL. The same is registered under the Excise and Kandla Economic Zone as "Sorting/Checking/cleaning/packing/ re-packing of Copper claded Laminates". It must be borne in mind that each of the CCGL supplied to the client is as per the specific requirement and design of the customer and the cutting, shearing and other .....

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..... d CCGL of ₹ 1,67,47,045/- against the claim of total deduction. The AO restricted the claim under Section 10B at ₹ 1,37,55,955/-. It was reiterated that CCGL was purchased in the form of long sheets. Those long sheets were cutted into different small sixes. Those sheets were then cleaned by removing oxidization effect. CCGL sold is called as PCB General Blank Board So the claim of the assessee was that the product purchase and the product sold, both were commercial different product. According to the assessee deoxidization was done by using various chemicals. However, the learned CIT(A) was not convinced and held that the steps taken by the assessee did not result into a manufacturing of a new product. According to the learned CIT(A) even the cutting of long sheets into small sheets did not amount to a manufacturing activities. According to him, the surface cleaning was also not the manufacturing activity. The issue was stated to be covered by VM Salgaonkar Brother Pvt. Ltd. Vs. CIT (217 ITR 849), wherein it was held that mere cleaning of iron ore was not a manufacturing activity. Few more case laws have been narrated by learned CIT(A) and thereafter affirmed the action .....

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..... sion that there was no change happened after the alleged manufacturing activity because the description of the purchase and the description of the export sales of the said product were identical. 5. We have heard both he sides. We have also perused the material placed before us. According to us, these technical questions about the manufacturing activity cannot be decided merely on the basis of certain documentation. To appreciate the correct factual position, it is always advisable to personally watch the process of manufacturing, if possible. Due to certain procedural difficulties as also paucity of time, it is not possible for a Revenue Officer to personally visit and inspect the manufacturing unit so as to understand the manufacturing activity. Therefore, this type of issue remains a matter of controversy, however, while looking at the second stage of appeal we have to depend upon the factual findings of the lower authorities, as also the documents placed before us. In the present case, on analyzing all these materials, we have noticed that CCGL has been purchased by the assessee, stated to be in long sheets. The CCGL sheets were cleaned by removing the oxidization effect. Upto .....

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..... Gandhinagar. In this regard, we have noted that there is no denial of fact that the assessee as a whole is a manufacturing-unit because a deduction was claimed in respect of the items manufactured of ₹ 1,67,47,045/-. But the dispute is only in respect of those sales which have not undergone manufacturing process. Even this argument is not very convincing that the product in question was an intermediary product manufactured by the assessee. In this regard, the Hon ble Kerala High Court (supra) has examined the process of tyre manufacturing and then arrived at the finding of fact that the said intermediary was manufactured from which the tyres were manufactured. As far as the present factual position is concerned, we are unable to give such a finding unless and until the correct factual position in respect of the manufacturing activity, alleged to have been carried out by the assessee, is placed on record. Even in the case of National Laminate Industries (supra). The respected third member has identified the original commodity and the commodity found to be manufactured by the said appellant. A clear cut finding was given that there was a transformation into a new commodity whic .....

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..... the action of AO in reopening the assessment without satisfying the conditions mentioned in proviso to section 147, especially when there was regular assessment u/s. 143(3) framed on 29.12.2006 and notice u/s. 148 was issued beyond the period of 4 years from the end of the relevant assessment year. 1.2 Facts in brief as emerged from the corresponding assessment order passed under Section 143(3) read with Section 147 dated 14.12.2011 were that a survey action under Section 133A(1)(b) was carried out on 25.3.2010. On account of certain information, it was decided to issue a notice under Section 147 of the Act. As per the reasons recorded, as noted by the AO, the assessee was found to be selling only raw materials (CCGL) and there was no manufacturing activity. Since, the assessee had claimed deduction under Section 10B on export of CCGL sheets without manufacturing process, therefore, as per the AO the assessee had not fallen within the ambit of deduction under Section 10B of the IT Act. The assessee has contended that the reopening was beyond the period of four years. However, we are of the considered opinion that the reopening was done after a survey action was carried out on 25.3. .....

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..... assessment. According to learned AR, the reopening was made within four years. The Revenue made assessment under Section 143(3) on 28.12.2007 in the regular assessment. The claim of deduction under Section 10B was examined. However, we are not convinced with this argument of learned AR. In fact, the reopening proceedings were started on account of incriminating material which was found after the survey action. Therefore, this is not a case of change of opinion. It is a clear cut case that prima facie the AO had definite reason to believe that the income chargeable to tax had escaped assessment on the basis of the result of the survey operation. We, therefore, hold that the action under Section 147/148 was correctly initiated for the year under consideration. The view expressed by learned CIT(A) in this regard is hereby affirmed. This ground of the assessee is, therefore, dismissed. 1.2 Rest of the grounds, i.e., grounds no.2 and 3 are identical as disclosed hereinabove hence, to be decided de novo as per the directions. In the result, these grounds may be treated as allowed for statistical purpose. Resultantly, the appeal for A.Y. 2005-06 may be treated as partly allowed that to fo .....

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