9911796707
TMI Blog2024 (4) TMI 662X X X X Extracts X X X X X X X X Extracts X X X X ..... stances of the case and in law, the Ld. CIT(A) erred in holding that the AO's action of rejection of books of accounts u/s. 145 is incorrect. 2. On the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in holding that undertakings at Ratlam & Nasik are not formed by transfer of machinery previously used. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that preparation of pickle & spices pastes are manufacturing activities. 4. On the facts and in the circumstances of the case and in law, Ld.CIT(A) erred in holding that undertaking at Ratlam & Nasik are eligible for exemption u/s. 10B. 5. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in holding that assessee company is entitled for exemption u/s. 10B in spite of applicability of subsection 9 of section 10B. 6. On the facts and in the circumstances of the case and in law, Ld.CIT(A) erred in applying the provisions of section 10B(9A), without appreciating that the same was not applicable in the year under consideration. 7. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act of rupees to .27 crores being hundred percent of the profits derived from the business of preparation and export of powder, seeds, pickles, spices, paste, chutney. On question, the learned AO found that. i. assessee is not manufacturing of producing any article or thing as the assessee is carrying on the activity of preparation and packing of pickles, powders of spices as well as exporting various seed ,the activities which do not constitute manufacture or production. ii. Assessee was also not eligible for deduction for the reason that Nasik undertaking is formed by transfer or taking on leasehold machinery is in plant and owned in the business of another company and Ratlam is formed by transfer or taking back the machinery in plant which were previously used by assessee on lease hold basis. iii. Further the beneficial interest in the undertaking at Nashik has been transferred by one private limited company to the assessee and a beneficial interest of Ratlam unit was also transferred by another entity. iv. The sale proceeds of article exported out of India are not proved to have been received within the period of six months from the end of the previous year. 6. Thus, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he factory including land and measuring about 3 acres and building along with used plant and machinery of that company on lease rent basis. In the registration of excise, the assessee also referred to its previous name of that private limited company. Therefore, the learned assessing officer held that on 7/4/2001 the assessee company did not have any Nashik unit as the factory or undertaking is taken on lease rent. Thus, that private limited company owns Nasik undertaking. 8. With respect to the Ratlam unit it was found that on 1/9/1993 M M Poonjiaji and company which is a proprietary concern of M/S Arte Indiana has taken over on lease the factory premises for preparation of pickles and masalas. This proprietary concern obtained excise registration for preparation of pickle's chutney and masala. On 27/1/1994 that company applied for registration to the Chief Manager District industries Centre stating that it is estimated date of commencement of production on 10/4/1994 and also disclosed main items of manufacturing activities as pickles. On 28/1/1994 the assessee was issued a provisional certificate by the district industries Centre. On 28/10/1994 District industries Centre issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that AO did not specifically mentioned anything in orders about the acquisition of the assets. 11. The learned assessing officer further found that various statements made by the assessee are incorrect. Therefore, he asked for information from central excise department Ratlam and Nasik, District industries Centre, sales tax department Mumbai and customs department New Mumbai. The information collected from these departments was shown to the assessee. Based on this information the learned AO reached at the conclusion that Nasik unit was started on 29/6/1992 by another company and not by the Assessee Company and plant and machinery of Ratlam unit was used by another company till 11/11/1999 and not by the assessee company. The assessee company did not have any units at Nasik and the assessee has taken plant and machinery previously used by another company. Thus, the business of the assessee is formed by transfer of old plants and machinery previously used in the business of another companies. Therefore, the assessee is not entitled to claim a deduction under section 10 B of the income tax act. 12. The second ground of disallowance of deduction was that that the beneficial interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng sweet mango slices, pickles and also exporting various seeds et cetera does not constrain you to manufacture or production within the meaning of section 10 B. 16. The learned AO further questioned the report under section 10 B in form number 56G of the act of the respective unit and held that the assessee has not fulfilled and complied with the provisions of section 10 B and rule 16 E and prescribed form number 56G are not proper. Accordingly, he held that assessee does not fulfill the criteria for the eligibility to claim the deduction under section 10 B. Accordingly the claim of deduction of Rs. 22,778,606/- was disallowed. 17. As the assessee did not produce the books of accounts and did not submit the supporting bills and vouchers during the year, he found that the expenses debited to the profit and loss account were not explained after giving sufficient opportunity to the assessee. Therefore, he rejected the book results and completed the assessment on the basis of material facts available on record under section 144 of the act. 18. The AO further examined the claim of the assessee of deduction under section 80 HHC of the act. As the assessee has not submitted the prescr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 - 2001, 2001 - 2002 and 2002 - 2003 were reopened. Further assessment year 2004 - 2005 was also taken under scrutiny. The first appeal for the assessment year 2003 - 04 is decided by the CIT - A as per appellate order dated 27/9/2006 wherein the exemption under section 10 B has been allowed to the assessee. In that order the first appellate authority detailed reasons were given on the various issues raised by the AO and has given a categorical finding regarding the fulfillment of various conditions prescribed under section 10 B. On the basis of the learned CIT - A the learned assessing officer has discussed the issue in paragraph number 2 on page number 2 - 37 of the assessment order. Assessee made detailed submissions before him with respect to each of the units and each of the reasons of the AO. The assessee categorically stated that the learned assessing officer has recorded incorrect facts in the assessment order. Same are reproduced by the learned CIT - A at page number 38 of appellate order. These were the observations for the Nasik unit. The assessee also made similar statements and submissions of Ratlam Unit. 24. The learned CIT - A forwarded the written submission made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned assessing officer. After becoming a company, the assessee being an approved hundred percent export-oriented unit, there has not been any transfer of ownership and beneficial interest. Therefore, the above provision does not apply. v. With respect to the sale proceeds of export not received within the permitted time, he noted that in the remand proceedings the learned assessing officer has agreed that the proceeds have been received but the bank realization certificates have not been produced. He noted that assessee is not able to reconcile a sum of Rs. 598,738/- only which is part of certain charges, freight and exchange fluctuation et cetera. He further noted that for several assessment years the export turnover and realization as per the bank statement shows that assessee has received the export proceeds. vi. With respect to whether the assessee is a manufacturing undertaking or not and whether it is manufactured or produced a new article or thing, he referred to the procedure for preparation of pickle and various produce exported by the assessee, held that for assessment year 1997 - 1998 the assessee was carrying on the similar activity and the learned assessing off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee for assessment year 2003 - 04 wherein the addition was deleted. He found that the stock of raw materials and work in progress shown in the balance sheet are higher than that shown in the bank statement. Though the stock of finished goods in the balance sheet is at a lower figure but that stands explained as the goods invoiced but pending shipment are not considered as a sale by the bankers in contrast to the treatment given in the books of accounts. Even otherwise the stock in question pertains to export of goods qualifying for exemption under section 10 B further the addition is not of much significance as the enquiries in closing stock of this year would mean increase in opening stock for the next assessment year. Accordingly, he deleted the addition. xii. The appellate order was passed on 28/2/2008. 25. Thus learned AO is aggrieved with the same and is in appeal before us. 26. Ground number 1 - 8 is with respect to the claim of deduction under section 10 B of the act with respect to Nasik and Ratlam units. The learned departmental representative Shri C M Kacha, SR DR vehemently supported the order of the learned assessing officer. He submitted that the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egetables and has a definite process. He referred that in absence of specific definition of the town manufacture under section 10 B as well as under section 2 (29BA) for assessment year 2003 - zero for the term manufacture would include every process which would result in production of a new article or thing having a different character with respect to its marketability, its value and use. He submits that conversion from a vegetable to pickle would be considered manufacture for the purpose of section 10 B. He further referred to several judicial precedents. It was his argument that assessee is engaged in business of producing of massage of different varieties from raw spices purchase from the market was a manufacturing concern entitled to deduction under section 10 B of the act. ii. He referred to notification issued by the wherein making of pickles et cetera are considered as manufacturing. He further stated that that the deduction claimed under section 80 HHC in earlier years has also been allowed considering the appellant is a manufacturer/exporter. The registration certificate under the Central Excise Department of both Nasik and Ratlam units that the status of appellant as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical issue arose in case of Sterling Agro Products Processing (P.) Ltd. [2011] 13 taxmann.com 174 (Chennai)/[2011] 48 SOT 80 wherein the coordinate bench has held as under:- "3. ITA Nos. 598 to 600/Mds/2011: It was submitted by the learned authorised representative that the only issue in the assessee's appeals was as to whether the assessee is entitled to the benefit of deduction u/s 10B of the Income-tax Act, 1961 ('the Act' in short) in regard to its business of manufacturing of gherkin pickles. It was the submission that gherkins are commonly known as cucumbers. The assessee purchased gherkins and put them through various processes for manufacture of gherkin pickles. The learned authorised representative placed before us the process involved which is extracted herein below : "Process involved in the manufacture of the end product 'pickle' (a) Gherkins are procured from the individual farmers and the same are unloaded at the receiving centre of the appellants EOUs; (b) Gherkins are stored in cold storages at particular temperatures; (c) Thereafter, various defects are removed from the gherkins to get the desired quality of the raw materials. This pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... again taken into process. These gherkins are put into a machine which washes them, cuts them into required pieces and automatically packs in bottles. These bottles are filled with the aforesaid chemicals to convert them into a distinct product namely sweet pickle or hot pickle. Sugar is added to the sweet pickle and chilly is added to the hot pickle at the process of topping up the chemicals. This process involves chemical reactions like fermentation; neutralization and oxidization." 4. It was fairly agreed by the learned authorised representative that in the assessee's own case for the assessment years 2000-01 to 2003-04 in ITA Nos. 2416 to 2418/Mds/2007 vide order dated 06-02-2009 the co-ordinate Bench of this Tribunal has held the issue against the assessee by following the decision of the Hon'ble Supreme Court in the case of Indian Hotels Co. Ltd. v. ITO [2000] 245 ITR 538/ 112 Taxman 46. It was the submission that after the decision of the Hon'ble Supreme Court in the case of Indian Hotels Co. Ltd. (supra) referred to supra, the issue of 'manufacture or production' has undergone substantial debate. It was the submission that the Hon'ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that the provisions of section 10B had been substituted by the Finance Act, 2000 w.e.f. 1-4-2001. It was the submission that when the assessee had made its claim for deduction u/s 10B, the provisions of the Explanation to section 10B had categorically provided that "manufacture" includes any "process". It was the submission that in any case the activities of the assessee in converting raw gherkins into gherkin pickles involved multiple processes and the same, in view of the Explanation to section 10B as it stood at the year of commencement of its claim, were "manufacture". It was the further submission that the Hon'ble Kerala High Court in the case of Tata Tea Ltd. v. Asstt. CIT [2010] 189 Taxman 303 , for the purpose of section 10B of the Act had held that blending, packing and exporting of tea bags, tea in packets and tea in bulk packs was manufacture. The learned authorised representative further relied upon the decision of the Hon'ble jurisdictional High Court in the case of CIT v. Jamal Photo Industries (I) (P.) Ltd. [2006] 287 ITR 620 (Mad.) wherein it had been held that for the purpose of section 80-IA, the expression "manufacture" involves the concept of changes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision in the case of Pio Food Packers (supra), referred to supra, also recognized that what was being done there was processing. It was the submission that for the purpose of Kerala General Sales Tax Act, 1963, the processing of pineapple into pineapple slices was not manufacture but as per the Explanation to section 10B of the Income Tax Act, 1961 as process has been held to be inclusive in the term "manufacture", the assessee should be held to be eligible for the deduction under section 10B of the Act. 8. We have considered the rival submissions. A perusal of the provisions of section 10-B of the Act in the present case clearly shows that it is the provision of section 10-B before its substitution w.e.f. 1.4.2001 which is applicable in the assessee's case. This is because the assessment year 2006-07 is the 7th year of its business and it remains undisputed that the assessee had started its production on 1.4.1999 and its first year of claim is 2000-01. Before its substitution, section 10B and the Explanation thereto has categorically held that "manufacture" includes any "process". A perusal of the various decisions as have been quoted above clearly shows that the conversi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d residual products which emerge in the course of manufacture of goods. Here again the word "process" is used. A perusal of the decision in the case of Indian Hotels Co. Ltd., referred to supra, also clearly recognizes the process. However, for the purpose of the deduction under section 80J, 80IA etc. the process is not being treated as a "manufacture" as process does not amount to "manufacture" for the said sections. However, for the purpose of section 10B the term "manufacture" has been held to include "process". This is where the difference comes. Sec. 80J, 80IA etc. did not explain or define the term "manufacture". This led to the interpretation of the term "manufacture" or "production". However, sec. 10B before its substitution w.e.f. 1.4.2001 defined "manufacture" to include "process". 10. Now coming to the decision of the co-ordinate Bench of this Tribunal in the assessee's own case for the assessment years 2001-02 to 2003-04, it is noticed that the co-ordinate Bench has held that there was no production or manufacture of article or thing. It is noticed that the co-ordinate Bench of this Tribunal had not taken into consideration the Explanation to section 10B where the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned authorized representative during the pendency of this appeal has raised several applications, revising existing grounds of appeal, filing additional ground of appeal, revised concise grounds of appeal etc. those are not pressed before us but merely the issue with respect to deduction under section 10 B are raised. It was also raised that the learned CIT - A has admitted the additional evidence, but we find that same has been admitted after obtaining the remand report from the learned assessing officer and giving the detailed reasons thereof. Accordingly, all the grounds with respect to allowability of deduction under section 10 B of the act raised by the learned assessing officer are dismissed. 37. The second issue is with respect to the difference of stock submitted to the banker and book stock. The learned assessing officer has noted that there was a difference of stock shown in the books of account in the statement shown to the banks and that the difference to the total income of the assessee of Rs. 21,909,800. CIT - A held that a similar issue arose in the case of the assessee for assessment year 2003 - 04 and on the basis of reconciliation the addition was deleted as dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year 2001 - 02 unrelated the addition. Further, as in the case of the assessee for assessment year 2001 - 02 we have confirmed the order of the learned CIT - A, for similar reasons, we confirm the order of the learned CIT - A for this year also and dismiss this ground of appeal. 42. Accordingly, all the grounds of appeal of the learned assessing officer for assessment year 2002 - 2003 in ITA number 4987/M/2008 are dismissed. 43. For assessment year 2003 - 04 the learned assessing officer in ITA number 537/M/2006 has challenged the order of the learned CIT - A and deduction under section 10 B of the act to the assessee. The facts and circumstances relating to the disallowance of deduction under section 10 B are similar. As we have categorically held in assessment year 2001 - 02 in ITA number 2943/M/2000 date that assessee is eligible for deduction under section 10 B of the act, giving similar reasons for this year also, we dismiss the appeal of the learned assessing officer and confirmed the order of learned CIT - A grant deduction to the assessee under section 10 B of the income tax act amounting to Rs. 25,050,587/-. 44. The argument of the learned authorized representative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year 2001 - 02 wherein we have confirmed the order of the learned CIT - A deleting the addition. Therefore, for similar reasons we also confirm the order of the learned CIT - A on this issue for this assessment year. 50. Ground number 9 of the appeal is with respect to the order of the learned CIT - A in allowing the laws in trading and spices. During the year under consideration the assessee has undertaken some trading sales and has incurred loss to the extent of Rs. 419,635/-. The assessee explained that it was on account of trading operations however the learned assessing officer without verifying the details filed is held that the trading activities nothing but a speculation loss which the appellant is not entitled to get set of against the normal business income. Therefore, such loss was disallowed. The learned CIT - A holding it to be a regular trading loss. 51. On careful consideration of the argument of the parties it was found that that it is a loss arising from the sale of goods and high seas. Therefore, it cannot be said to be a speculation loss. Accordingly, the order of the learned CIT - A holding it to be a regular trading loss is upheld. Ground number 9 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellate order passed by the learned CIT - A on 7/7/2009. 59. Ground number 1 of the appeal is against the deletion of disallowance of deduction under section 10 B of Rs. 31,009,477/-. This issue is identical to the appeal of learned AO for earlier years starting from assessment year 2001 - 02. As the arguments of the parties remains the same and there is no change in the facts and circumstances of the case, following our own decision for assessment year 2001 - 02 wherein we have confirmed the order of the learned CIT - A and that the learned assessing officer to allow the deduction under section 10 B of the act, we also dismiss ground number 1 of this appeal. 60. Ground number 2 is with respect to the addition of Rs. 26,539,393/- deleted by the learned CIT - A. The learned assessing officer has made the addition on account of difference in closing stock which could not be reconciled by the assessee and therefore rejecting the books of accounts estimated the profit at the rate of 26%. The learned CIT - A deleted the addition partly considering the gross profit rate of 1% as fair and reasonable against the gross profit declared by the assessee of 0.34%. Thus, the learned CIT - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be any question of double disallowance. Thus, ground number 4 of the appeal of the assessee is dismissed. 63. In the result ITA number 5539/M/2009 filed by the learned assessing officer is dismissed and ITA number 5047/M/2009 filed by the assessee for assessment year 2006 - 07 is partly allowed. 64. For assessment year 2007 - 08, ITA number 3409/M/2011 is filed by the learned assessing officer against the order of the learned CIT - A - 11 Mumbai dated 10/2/2011 raising 2 grounds of appeal. The first ground of appeal is with respect to the disallowance of deduction under section 10 B of Rs. 3,44,04,950/- under section 10 B of the act is squarely covered in favour of the assessee by the decision of the coordinate bench in ITA number 2943/M/2008 wherein the order of the learned CIT - A is in appeal for assessment year 2001 - 02. As the issue is the same, we follow our own decision for assessment year 2001 - 02 in above ITA, dismiss ground number 1 of the appeal. 65. Ground number 2 of the appeal is with respect to the deletion of the addition of Rs. 15,639,254 on account of suppression of profit by rejecting the books of accounts. Briefly stated the facts shows that on the basis o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under section 10 B of Rs. 3,515,120/- with respect to the eligible profit of Nasik unit. This issue was first decided by this order for assessment year 2001 - 02 wherein we have confirmed the order of the learned CIT - A deleting the above disallowance. One of the eligible units considered therein is Nasik unit. The facts and circumstances, arguments of the parties and the orders of the lower authorities remains the same, therefore, following the order for assessment year 2001 - 02 in assessee's own case, we dismiss ground number 1 and confirmed the order of the learned CIT - A. 69. Ground number 2 is with respect to the deleting the disallowance amount in two Rs. 12,870,429 on account of suppression of profit. during the course of assessment proceedings, it was found that as on 31/3/2008 the assessee company has submitted to the Bank the stock statement having value of Rs. 23.01 crores however the closing stock as per the books of accounts was 24.89 crores and therefore there was a difference of Rs. 1.88 crores. The learned assessing officer rejected the books of accounts and applying the provisions of section 145 (3) of the act estimated the profits at 50.03% and made an ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
