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

D.B. INCOME TAX APPEAL NO.20/2010M/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 dated29.06.2009 as passed by the Income Tax Appellate Tribunal,Jodhpur Bench, Jodhpur ('the ITAT') in ITA No.49/JU/2007 for theassessment year 2001-02. This appeal has been admitted on thefollowing substantial questions of law:- “(1) Whether the Tribunal was justified in disallowingthe benefit available to assessee under Section 10B ofthe Income Tax Act and if so whether the view taken bythe Tribunal is in conformity with the law laid down bytheir 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 underSection 10B in the base year, whether it could bedenied to the assessee for the subsequent 9 years? (3)Whether the Tribunal was justified on facts inremanding the case to the Assessing Officer forexamining the question as to whether the assessee isentitled to claim the benefit under Section 80HHC?” D.B. INCOME TAX APPEAL NO.20/2010M/s Grace Exports Vs. ITO Ward-2 (1), Udaipur 2 The factual aspects so far relevant for the purpose ofdetermination of the questions aforesaid could be noticed in brief asfollows: 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 2001-02 claimed exemption underSection 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 Lucky Minmet's case: 245 ITR 830. 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 Actwhile holding that the appellant's case definitely fell under thescheme of production and the appellant was entitled for the claimeddeduction. 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 both theparties, it is found that undisputedly the assessee is carrying onthe activity of processing of rough marble slabs by edge-cuttingthem and polishing them before exporting and it is an EOU notthe Tribunal in the light of the submissions made by both theparties, it is found that undisputedly the assessee is carrying onthe activity of processing of rough marble slabs by edge-cuttingthem and polishing them before exporting and it is an EOU not 3 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 both theparties, it is found that undisputedly the assessee is carrying onthe activity of processing of rough marble slabs by edge-cuttingthem and polishing them before exporting and it is an EOU notthe Tribunal in the light of the submissions made by both theparties, it is found that undisputedly the assessee is carrying onthe activity of processing of rough marble slabs by edge-cuttingthem and polishing them before exporting and it is an EOU not 3 trading in domestic market. The assessee is contending that byactivity of processing marble slabs by edge-cutting and polishingthem amounts to manufacture in the light of the decision of theHon'ble Apex Court rendered in the case of Sesa Goa Ltd [supra]wherein it was held that extraction and processing of mineral oreamounts to production within the meaning of the word in section32A(20)(b)(iii) of the I.T. Act. It was further held that excavatingand processing of ore amount to production within the meaning ofsec. 80I of the Act and the ld. CIT(A) while agreeing to thecontentions of the assessee, gained further support from thedefinition of 'produce' mentioned in sub-section (1) of section 10Bwhich included from F.Y. 1.4.2000 to 31.3.2001, the word'manufacture' includes any process from the F.Y. 1.4.2000 to31.3.2001 onwards this term 'manufacture' has been replaced bythe word 'produce'. The said word 'produce' is not definedanywhere in the section. Therefore, taking into consideration inthe normal sense of the word produce which is derived from theword 'production' is taken by the ld. CIT(A) as normal meaning ofproduction which is involvement of manpower, skill and somedegree of complexity. However, the Hon'ble Apex Court in thecase of Lucky Minmat P. ltd [supra] held that mining of limestones, marble blocks and cutting and sizing the same do notinvolve any manufacturing 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 in both the assessment years under consideration.” 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 hold that the issue required to be verified afresh by theAssessing Officer with reference to the books of account maintainedby the assessee for all the periods of business so as to find the factas to whether the partners had withdrawn any amount from the firmon account of their remuneration and interest on their capital. Withthese observations, the ITAT restored the issue to the file of theAssessing Officer for de novo consideration. 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 hold that the issue required to be verified afresh by theAssessing Officer with reference to the books of account maintainedby the assessee for all the periods of business so as to find the factas to whether the partners had withdrawn any amount from the firmon account of their remuneration and interest on their capital. Withthese observations, the ITAT restored the issue to the file of theAssessing Officer for de novo consideration. 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, andwhile 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, 5 the appeal as filed by the revenue before ITAT (ITA No.49/JU/2007)for the assessment year 2001-02 shall stand dismissed as regardsthe 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 2001-02 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 Question No.3 is concerned, the learned counsel forthe parties are ad idem that this question is rendered academicbecause the assessing authority, pursuant to the order of remand ofITAT, has decided the issue relating to the benefit under Section 80-HHC of the Act afresh on 30.12.2010. Accordingly, it is held that thisquestion is rendered academic and is not required to be answered. 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.MK