Commissioner Of Income Tax, Circle - 1, Tirunelveli v. M/S Vetrivel Minerals Keeraikaran Thattu Tisayanvilai

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 06.10.2020 CORAM: THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMandTHE HONOURABLE Mrs.JUSTICE V.BHAVANI SUBBAROYAN Tax Case Appeal No.726 of 2018 Commissioner of Income Tax, Circle - 1,Tirunelveli ... AppellantVs. M/s Vetrivel Minerals Keeraikaran ThattuTisayanvilai. ... Respondent Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961, against the order made in ITA No.1933/Mds/2017 dated08.02.2018 passed by the Income Tax Appellate Tribunal, 'B'Bench, Chennai for the Assessment Year 2014-2015.This appealfiled against the order of the Income Tax Appellate Tribunal'B'Bench Chennai, dated 08/02/2018 in ITA No.1933/Mds/2017inAssessment Year 2014-2015 against the Commissioner of Income Tax(Appeals) -3, madurai in ITA no. 245/2016-2017 dated 19/05/2017in PAN No. in Assessment Year 2014-2015 against theAssistant Commissioner of Income Tax Tirunelveli PANNo.AAHFV2400N for the Assessment Year 2014-2015 For Appellant: Mr.M.Swaminathan Senior Standing Counsel assisted by Ms.V.Pushpa Junior Standing Counsel For Respondent : Mr.S.Rajmakesh J U D G M E N T [Judgment of the Court was delivered by T.S.SIVAGNANAM, J.] This appeal, at the instance of the revenue filed underSection 260A of the Income Tax Act, 1961 (the 'Act' forbrevity), is directed against the order passed by the Income TaxAppellate Tribunal, Madras 'B' Bench, Chennai in ITA https://hcservices.ecourts.gov.in/hcservices/ No.1933/Chny/2017 dated 08.02.2018 for the Assessment Year 2014-2015. 2. The appeal was admitted on 12.11.2018 to consider thefollowing substantial questions of law:“Whether the Income Tax Appellate Tribunal isright in law in following that the activity of theassessee of purchasing illuminate and removing dustfrom it and selling the dust removed illuminateamounts to 'manufacture', when Clause(r) of Section 2of the special Ezonomic Zones Act, 2005 defines'manufacture' otherwise and that the assessee iseligible for deduction under Section 10AA of theIncome Tax Act, 1961?" 3. We have heard Mr. M.Swaminathan, Senior Standing Counselassisted by Ms.V.Pushpa, Junior Standing Counsel for theappellant / revenue and Mr.S.Rajmakesh, learned counsel for therespondent. 4. The learned counsel on either side submitted that thisCourt in the assessee's own case in T.C.A.No.605 of 2018 hasdecided the above mentioned substantial question of law againstthe revenue and this appeal is covered by the earlier decision. 5. For better appreciation, the operative portion of theJudgment is stated herein below.'2. The Tax Case Appeal was admitted on 24.08.2018on the following Substantial Questions of Law. "(a) Whether the Tribunal was right in holding thatthe assessee is eligible for deduction U/s.10AA of theIncome-tax Act 1961, even though the assessee is notcarrying on any manufacturing at its SEZ Unit? (b) Whether the Tribunal was right in holding thatthe assessee is carrying on manufacturing activity eventhough a new product having a distinctive name,character or use was not brought into existence at itsSEZ Unit by the assessee as per Special Economic ZoneAct 2005?" 3. We have heard Mrs.Premalatha, learned standingcounsel for the appellant/revenue and Mr.S.Raj Makesh,learned counsel appearing for the respondent /assessee. 4. The assessee filed their return of income for theAssessment Year under consideration 2013-14 on27.09.2013, admitting total income of Rs.3,16,61,350/-.The assessment was selected for scrutiny by issuance of notice under Section 143[2] dated 02.09.2014 and theAssessing Officer rejected the claim of the assessee,who claimed deduction under Section 10AA of the Act, onthe ground that the raw material and the finishedproduct are one and the same and there was nomanufacturing activity having taken place in the SEZunit of the assessee. 3. We have heard Mrs.Premalatha, learned standingcounsel for the appellant/revenue and Mr.S.Raj Makesh,learned counsel appearing for the respondent /assessee. 4. The assessee filed their return of income for theAssessment Year under consideration 2013-14 on27.09.2013, admitting total income of Rs.3,16,61,350/-.The assessment was selected for scrutiny by issuance of notice under Section 143[2] dated 02.09.2014 and theAssessing Officer rejected the claim of the assessee,who claimed deduction under Section 10AA of the Act, onthe ground that the raw material and the finishedproduct are one and the same and there was nomanufacturing activity having taken place in the SEZunit of the assessee. 5. The assessee filed an appeal before theCommissioner of Income Tax (Appeals)-III, Madurai, (theCIT(A), for brevity). The appeal was allowed by anorder dated 07.12.2016, alleging that the processescarried out by the assessee in their SEZ unit, resultsin a new product having a different name, character oruse, as per the definition of "manufacture", as definedunder Section 2(r) of the Special Economic Zone Act,2005 [the 'SEZ Act', for brevity]. 6. The revenue filed an appeal before the tribunaland by the impugned order, the appeal was dismissed. 7. After elaborately hearing the learned counselsfor the parties, we find that the entire issue involvedin the instant case is fully factual and in ourconsidered view, no question of Law much less anySubstantial Question of Law, arises for consideration.We support such conclusion with the following reasons. 8. The Assessing Officer denied the benefit of thededuction claimed by the assessee on the grounds thatwhat was imported by the assessee and what was exportedare the same product and therefore, there was nomanufacturing activity done by the assessee to beeligible to claim deduction. In fact, an Inspector fromthe department had visited the factory to acquainthimself with the process adopted by the assessee intheir SEZ Unit. This fact has been recorded by theAssessing Officer in the order of assessment dated30.03.2016. But, the Assessing Officer, chose to referto the 'Gate Pass' issued by the Government wherein thedescription of the goods, is shown as 'Tailings rich inilemnite'. Further the Assessing Officer opined that aminor activity of sieving to separate TCA No.605 of2018 dust particles only is carried out in the SEZunits and hence, it does not amount to manufacturing. 9. Before the CIT(A), the assessee had explained indetail about the process adopted by them. A certificatehas been given by the Assistant Development Officerdated 28.03.2013, certifying that the assessee's unithas commenced production on 29.02.2012. Further, the assessee has stated that the export invoice wassubmitted to the Assessing Officer during theassessment procedure. However, the same was ignored andwas not taken into consideration. 10. The CIT(A) after considering the factualposition accepted the submission of the assessee thatthe semi finished material purchased by the assessee isnot marketable and usable in the industry, as what ispurchased by the assessee includes silicon, sand andwaste, which cannot be marketed as such, unless thewaste materials are removed. The flow chart, which wasproduced by the assessee before the Assessing Officer,was referred to CIT(A) and he came to the conclusionthat the Assessing Officer was himself mislead by thenomenclature used in the Gate Pass. After consideringthe factual materials, the CIT(A) concluded that theprocess done by the assessee would qualify as'manufacture', under the SEZ Act. 10. The CIT(A) after considering the factualposition accepted the submission of the assessee thatthe semi finished material purchased by the assessee isnot marketable and usable in the industry, as what ispurchased by the assessee includes silicon, sand andwaste, which cannot be marketed as such, unless thewaste materials are removed. The flow chart, which wasproduced by the assessee before the Assessing Officer,was referred to CIT(A) and he came to the conclusionthat the Assessing Officer was himself mislead by thenomenclature used in the Gate Pass. After consideringthe factual materials, the CIT(A) concluded that theprocess done by the assessee would qualify as'manufacture', under the SEZ Act. 11. The Revenue carried the matter by way of appealto the tribunal and the tribunal once again re-appreciated the factual position and found that thereis a process of 'manufacture' as defined under the SEZAct, which takes place in the SEZ unit and also pointedout that the Assessing Officer himself has acceptedthat the assessee's unit, processed the raw materialsby removing 10 to 20% impurities. Cost comparison ofthe semi finished product with that of the raw materialwas also referred to and it was also pointed out thatthe Assessing Officer could not establish that theassessee has suppressed the purchase cost of semi-finished goods in order to claim higher deduction underSection 10AA of the Act. Furthermore, the certificateissued by the Assistant Development Officer wasaccepted on the ground that the revenue could not provethe same to be not genuine. Therefore, the tribunalsustained the factual finding recorded by the CIT(A).12. Thus, in our considered view, the entire factualmatrix has not only been analyzed by the CIT(A), but,also by the tribunal. Therefore, we are convinced toobserve that no question of Law much less anySubstantial Question of Law arises for consideration inthis appeal. Accordingly the Tax Case Appeal fails andthe same is dismissed. No Costs.' Thus following the above mentioned decision, the present TaxCase Appeal is dismissed and the Substantial Question of Law isanswered against the Revenue. No costs. Sd/- Assistant Registrar(CCC) //True Copy// Sub Assistant Registrar ssdTo1.The Income Tax Appellate Tribunal, 'B' Bench, Chennai.2. The Commissioner of Income Tax (Appeals)-3 Madurai.3.The Assistant Commissioner of Income Tax Circle-1 Tirunelveli.+1 CC to M/s. M. Swaminathan, Advocate SR No. 32840.Tax Case Appeal No.726 of 2018RR (CO)NRA(08/12/2020)