D.b. Income Tax Appeal v. Ito Ward-2 (1), Udaipur

D.B. INCOME TAX APPEAL NO.16/2010M/s Grace Exports Vs. ITO Ward-2 (1), Udaipur .. Date of Order :: 29[th]August 2012. HON'BLE MR. JUSTICE DINESH MAHESHWARI'HONBLE MR. JUSTICE NARENDRA KUMAR JAIN-II Mr.Anjay Kothari for the appellant.Mr. KK Bissa for the respondents. <<>> This appeal under Section 260-A of the Income Tax Act, 1961('the Act') is directed against the judgment and order dated13.07.2009 as passed by the Income Tax Appellate Tribunal,Jodhpur Bench, Jodhpur ('the ITAT') in ITA No.357/JU/2008 for theassessment year 2004-05. This appeal has been admitted on thefollowing substantial questions of law:- “(1) Whether the Tribunal was justified in disallowing the benefitavailable to assessee under Section 10B of the Income Tax Actand if so whether the view taken by the Tribunal is in conformitywith the law laid down by their lordships of the Supreme Court in–Income Tax Officer Vs. Arihant Tiles reported in (2010) 320 ITR 79 (SC)? (2)Having granted the benefit to the assessee under Section10B in the base year, whether it could be denied to the assesseefor the subsequent 9 years? (3)Whether the Tribunal was justified on facts found byholding that the assessee is not entitled to claim the benefit underSection 80HHC on the goods in question?” The factual aspects so far relevant for the purpose ofdetermination of the questions aforesaid could be noticed in brief as follows: The appellant-assessee, said to be engaged in the businessof manufacture and export of finished marble slabs and tiles, in itsreturn for the assessment year 2004-05 claimed exemption under 2 Section 10-B of the Act in respect of its Unit-2 as being 100% ExportOriented Undertaking with the essential submissions that it had beenengaged in the activity of manufacturing, producing and processingof marble slabs and tiles from its own plants and machineries andwhole of the manufactured material was sold outside the country.The claim of the assessee before the Assessing Officer was that thedefinition as given in EXIM Policy would be applicable in respect of'manufacturing' for the purpose of Section 10-B of the Act but thesame was not accepted by the Assessing Officer with theobservations that the conversion of marble blocks by sawing intoslabs, tiles and polishing did not amount to manufacture of article orthings while relying, inter alia, on the decision of the Hon'bleSupreme Court in Aman Marble's case: 257 ELT 393 and that of thisCourt in Lucky Minmet's case: 226 ITR 245. The Assessing Officeralso relied on a decision of ITAT in ITA No.86-87/JU/2004 in thecase of Arihant Tiles and Marble. In appeal, the Commissioner of Income-Tax (Appeals),Udaipur ['the CIT(A)'] accepted the contention as urged on behalf ofthe assessee for allowing the claim under Section 10-B of the Actwith reference to the fact that such claim had been allowed inrespect of the assessee in the appellate orders passed for theassessment years 2001-02 and 2003-04. The ITAT, however,proceeded to accept the appeal filed by the revenue with the following observations and findings:- “8.On careful analysis of the material made available beforethe Tribunal in the light of the submissions made by ld. D.R., it isfound that undisputedly the assessee is carrying on the activity ofprocessing of rough marble slabs by edge-cutting them andpolishing them before exporting and it is an EOU not trading indomestic market. The assessee is contending that by activity ofprocessing marble slabs by edge-cutting and polishing themthe Tribunal in the light of the submissions made by ld. D.R., it isfound that undisputedly the assessee is carrying on the activity ofprocessing of rough marble slabs by edge-cutting them andpolishing them before exporting and it is an EOU not trading indomestic market. The assessee is contending that by activity ofprocessing marble slabs by edge-cutting and polishing them 3 3 amounts to manufacture in the light of the decision of the Hon'bleApex Court rendered in the case of Sesa Goa Ltd [supra] whereinit was held that extraction and processing of mineral ore amountsto production within the meaning of the word in section 32A(20)(b)(iii) of the I.T. Act. It was further held that excavating andprocessing of ore amount to production within the meaning of sec.80I of the Act and the ld. CIT(A) while agreeing to the contentionsof the assessee, gained further support from the definition of'produce' mentioned in sub-section (1) of section 10B whichincluded from F.Y. 1.4.2000 to 31.3.2001, the word 'manufacture'includes any process from the F.Y. 1.4.2000 to 31.3.2001onwards this term 'manufacture' has been replaced by the word'produce'. The said word 'produce' is not defined anywhere in thesection. Therefore, taking into consideration in the normal senseof the word produce which is derived from the word 'production' istaken by the ld. CIT(A) as normal meaning of production which isinvolvement of manpower, skill and some degree of complexity.However, the Hon'ble Apex Court in the case of Lucky Minmat P.ltd [supra] has unambiguously held that mining of lime stones,marble blocks and cutting and sizing the same do not involve anymanufacturing process. In the present case on hand,undisputedly the assessee is carrying on the activity of processingof rough marble slabs by edge cutting and polishing them beforetheir export. So, in view of similarity of the facts in the presentcase on hand with that of the facts in the case of Lucky Minmat P.Ltd [supra], it is to be held that the activity of the assessee will notamount to manufacture, which word is used in sec. 10B.Therefore, under these facts and circumstances of the case, weare of the considered view that the reasoning given by the ld. CIT(A) is going contra to the dictum laid by the Hon'ble Apex Court inthe case of Lucky Minmat P. ltd [supra] and relied on by theAssessing Officer. Therefore, we are of the considered view thatthe ld. CIT(A)'s finding on this issue is not sustainable for legalscrutiny and hence the same is hereby set aside by restoring thatof the Assessing Officer by allowing the ground raised by thedepartment.” Another issue involved in the matter had been in relation to theclaim of benefit under Section 80-HHC of the Act that had also beendecided by the CIT(A) in favour of the assessee but the ITATproceeded to rule in favour of the revenue. The amount involved onthis score had been Rs.33,426/- and the learned counsel for theappellant has frankly not pressed on this ground for meagre financialimplication and further for the fact that on the other part of issue, therevenue has not filed any appeal. Thus, the claim for benefit underSection 80-HHC would not require adjudication in the presentmatter. 4 So far the question of benefit under Section 10-B of the Act isconcerned, the learned counsel for the appellant-assessee hassubmitted that the view as taken by the ITAT cannot be sustainedfor the authoritative pronouncement of the Hon'ble Supreme Court inthe case of Income-Tax Officer Vs. Arihant Tiles and Marbles P. Ltd.:(2010) 320 ITR 79 (SC) holding, inter alia, that step-wise activity ofcutting marble blocks and converting into the polished slab and tilesconstitute manufacture or production in terms of Section 80-IA of theAct while distinguishing the decision in Aman Marble's case, and while observing, inter alia, held as under:- “......What we find from the process indicated hereinaboveis that there are various stages through which the blocks have togo through before they become polished slabs and tiles. In thecircumstances, we are of the view that on the facts of the casesin hand, there is certainly an activity which will come in thecategory of “manufacture” or “production” under section 80-IA ofthe Income-tax Act....” The learned counsel for the revenue is not in a position tocontrovert the submissions so made on behalf of the assessee-appellant. while observing, inter alia, held as under:- “......What we find from the process indicated hereinaboveis that there are various stages through which the blocks have togo through before they become polished slabs and tiles. In thecircumstances, we are of the view that on the facts of the casesin hand, there is certainly an activity which will come in thecategory of “manufacture” or “production” under section 80-IA ofthe Income-tax Act....” The learned counsel for the revenue is not in a position tocontrovert the submissions so made on behalf of the assessee-appellant. Having gone through the decision of the Hon'ble SupremeCourt in Arihant Tiles and Marbles (supra), we are clearly of theopinion that the view as taken by the ITAT cannot be sustained. Accordingly, the answer to Question No.1 is that the Tribunalwas not justified in disallowing the benefit available to the assesseeunder Section 10-B of the Income Tax Act; and the view as taken bythe Tribunal does not stand in conformity with the law declared bythe Hon'ble Surpeme Court in the case of Income Tax Officer Vs.M/s Arihant Tiles & Marbles P. Ltd. (2010) 320 ITR 79. Accordingly,the appeal as filed by the revenue before ITAT (ITANo.357/JU/2008)for the assessment year 2004-05 shall stand MK 5 dismissed as regards the claim under Section 10-B of the Act. In view of what has been found hereinabove in Question No.1,there appears no necessity of much dilatation on Question No.2.Suffice is to observe that if the benefits have been granted for theabove year 2004-05 under Section 10-B of the Act; and the benefitis available for a block of 10 years, it cannot, ordinarily, be withdrawnwhen the nature of work and benefits remain the same. So far as the benefit under Section 80-HHC is concerned, thelearned counsel for the appellant has rightly not pressed on thesame for the meagre financial implications and further for the factthat the revenue has not filed any appeal in this particular matter onthe other part of the issue. The order of the Tribunal in this regard istherefore, not disturbed. Accordingly, and in view of the above, this appeal of theassessee is partly allowed to the extent and in the manner indicatedabove. (NARENDRA KUMAR JAIN-II), J. (DINESH MAHESHWARI), J.