TMI Blog1997 (5) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) of section 80HHC, read with item No. (X) of the Twelfth Schedule to the Income-tax Act. It was furthermore stated in the adjustment note accompanying the intimation under section 143(1)(a) that the matter had been clarified by the Circular of CBDT No. 693, dated 17-11-1994. 3. The assessee filed a writ petition before the Karnataka High Court against the abovementioned action of the Assessing Officer challenging firstly the validity of the Circular No. 693, dated 17-11-1994 and secondly the legality of the adjustment made in the intimation under section 143(1)(a) disallowing the claim of the assessee under section 80HHC therein. The High Court dismissed the first contention of the assessee and held the Circular to be valid. As regards the adjustment made in the intimation under section 143(1)(a) is, however, concerned, the High Court held the said adjustment to be illegal and beyond the scope of 'prima facie adjustments' as envisaged under section 143(1)(a) and struck down the disallowance. In the present assessment under section 143(3), the Assessing Officer once more referred to the abovementioned Circular of the CBDT No. 693, dated 17-11-1994 and disallowed the claim of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is, therefore, of the view that while granite can alone be considered as mineral, any process applied to granite would deprive the quality of rough mineral from the dimensional blocks of granite, which is a value added marketable commodity. When rough granite is cut to dimensional blocks of uniform colour and size, it not only undergoes mechanical process of cutting and also certain amount of dressing and polishing is involved to remove various natural flaws such as colour variations, grain variations, joints, fissures, moles, patches, hair line cracks, etc. The profits derived from the export of such granite dimensional blocks would accordingly, be eligible for deduction under section 80HHC of the Act." The learned counsel for the assessee has also relied on the order of this Bench of ITAT dated 16-7-1996 in ITA No. 607 Bang. 1995 in the case of a similar organisation viz., M/s. Ruby Granite (assessment year: 1993-94), in which case, in similar circumstances, the ITAT held that in view of the latter Circular of the CBDT, dated 1-11-1995, the assessee would be entitled to deduction under section 80HHC. The learned DR, during the course of his arguments before us, has strongly co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egatived the contention of the assessee in this regard and held that minerals include rocks and rocks include granites and furthermore that item No. (X) of the Twelfth Schedule referred to only cut and polished granites. The High Court held that the Circular No. 693, dated 17-11-1994 was perfectly valid and in accordance with the same, export of granites which were not cut into blocks and also polished would not entitle the exporter to the deduction under section 80HHC. There is no doubt about the fact that in the aforesaid judgment, the High Court made the following obiter : "In this case, admittedly, the 'rock' or 'granite' exported by the petitioner has not undergone any of the processes including polishing and cutting, listed in the Explanation to the Twelfth Schedule. Hence, the petitioner is not entitled to claim deduction under section 80HHC in regard to the profits derived by export of such unpolished granite while computing its total income." 7. There is no doubt about the fact that in delivering the above judgment, the Hon'ble Judge of the Karnataka High Court was influenced by the idea expressed by the CBDT in its Circular dated 17-11-1994 to the effect that ordinar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at their end. The same consideration also applies to the case of final polishing. The extent of final polishing required to granite blocks would depend on their actual use. It is up to everybody's knowledge that for granite blocks being used for flooring purpose, the polishing need not be very fine as there would be chances of people slipping on the same, whereas, on the other hand, granite blocks to be used as decorative pieces on walls and other places would require a very fine and mirror-like polishing. Furthermore, the exports of granite blocks are required to be made essentially in the form of large pieces of blocks, otherwise, it will not be possible for the blocks to withstand the hazard of rough handling during the process of export. Needless to say, final polishing cannot be given before exporting the blocks inasmuch as the polish is apt to be damaged considerably during the rough handling of granite blocks in the process of export. Ultimately, therefore, we are of the view that although some amount of cutting and polishing is rendered to the granite blocks before export, it is not physically plausible to put them into finally cut and polished form at that stage. The Karna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nks." The learned DR has also relied on the following two further decisions in support of his argument in this regard: Dhansiram Agarwalla v. CIT [1993] 201 ITR 192 (Gauhati) and Tip Top Plastic Industries (P.) Ltd. v. ITO [1995] 214 ITR 778 (Mad.). We are not convinced with the argument put forward by the assessee that the stock of granite lying at the quarry did not have any value. It may be that processing by way of cutting the same into dimensional blocks was not done to the said stock. That, however, does not render the said stock as completely valueless. It is also worthwhile to note that the assessee has followed the system of valuing the closing stock at cost only, and not at cost or market value, whichever is lower. There is no doubt about the fact that quarrying expenses were incurred on raising this stock of granite now lying at the quarries. The amount of such expenses corresponding to the said stockists, therefore, required to be taken into consideration for evaluating the value of the same at cost. We, therefore, uphold the action of the lower authorities in including the quantity of 97.090 cu. mt. of granite lying at the quarry also within the closing stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urred not in connection with the day-to-day quarrying process, but towards creating the infrastructure. This is evident from the fact that whereas in this particular year, heavy expenses to the extent of Rs. 49 lakhs approximately were incurred. In this connection, not a single paisa was, however, incurred in the immediately preceding year. Whether the expenses are required to be disallowed as capital expense or not is altogether a different question. Anyway, the Assessing Officer has not attacked the issue from that angle and, hence, we are unable to give any judgment from this angle. The BD hire charges and the repairs and maintenance expenses in connection thereto also seem to be items not directly related to the quarrying process, but towards maintaining the infrastructure. These, again, appear to be items to be included in the profit and loss account only. The same applies to the insurance expenses. So far as the welfare expenses are concerned, we fail to understand that when salaries, wages, bonus and also the medical expenses of the staff have not been considered by the Assessing Officer, how and why he has taken into consideration the welfare expenses alone. The welfare exp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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