2013 (9) TMI 1139 - AT - Income Tax

ITAT rules tailing rejects conversion to iron ore fines qualifies as 'manufacture' under Income Tax Act

M/s. Shree Bhavani Minerals Versus Commissioner of Income Tax Panaji, Goa

M/s. Shree Bhavani Minerals Versus Commissioner of Income Tax Panaji, Goa - TMI Issues Involved:1. Disallowance of the claim of deduction under Section 10B of the Income Tax Act, 1961 by the Revenue.Issue-wise Detailed Analysis:1. Disallowance of the claim of deduction under Section 10B:The primary issue in this case is the disallowance of the claim of deduction under Section 10B of the Income Tax Act, 1961, by the Revenue. The Assessee, a 100% Export-Oriented Unit (EOU), claimed exemption under Section 10B for converting unusable tailing rejects and mineral waste into usable iron ore fines and exporting the same. The Assessee argued that this process amounts to 'manufacture' or 'production' as defined under Section 2(29BA) of the Income Tax Act.The Assessing Officer (AO) disallowed the exemption, stating that the Assessee's activities could at best be termed as 'processing' and not 'manufacture' or 'production' of any article or thing. The AO emphasized that Section 10B is applicable only to units that 'manufacture or produce' and that the Assessee's activities did not meet this criterion.The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, relying on the Supreme Court's decision in the case of M/s. Sesa Goa Ltd., which held that 'extraction and processing' of iron ore amounts to production. The CIT(A) concluded that since the Assessee was only engaged in processing and not extraction, it did not qualify for the deduction under Section 10B.In the appeal before the ITAT, the Assessee contended that its process of converting tailing rejects and mineral waste into iron ore fines amounted to 'manufacture' or 'production.' The Assessee argued that the facts of its case were different from those in the Sesa Goa case, as it involved a more elaborate process resulting in a new product with different physical and chemical properties.The ITAT examined the relevant provisions of the Income Tax Act, including the definitions of 'manufacture' and 'production.' It also considered various judicial pronouncements, including the Supreme Court's decisions in the cases of CIT vs. Sesa Goa Ltd., CIT vs. N.C. Budharaja & Co., and Chowgule & Co. Pvt. Ltd. vs. Union of India. The ITAT noted that the definition of 'manufacture' under Section 2(29BA) includes bringing into existence a new and distinct object with a different chemical composition or integral structure.The ITAT referred to its own decision in the case of Sesa Goa Ltd. (ITA No. 72/PNJ/2012), where it held that processing tailing rejects into iron ore amounts to 'manufacture.' The Tribunal emphasized that the Assessee's process involved significant physical and chemical changes, resulting in a new and marketable product.The ITAT also considered the decisions of the Kerala High Court in the case of Tata Tea Ltd. vs. ACIT and the Special Bench of the ITAT in the case of Madhu Jayanti International Ltd. vs. DCIT. These decisions supported the view that processing activities, when recognized as part of a 100% EOU, qualify for deductions under Section 10B.In conclusion, the ITAT held that the Assessee's activities amounted to 'manufacture' and allowed the exemption under Section 10B. The Tribunal set aside the CIT(A)'s order and directed that the Assessee be granted the deduction as claimed.Conclusion:The ITAT allowed the appeal filed by the Assessee, holding that the Assessee's process of converting tailing rejects and mineral waste into iron ore fines qualifies as 'manufacture' under Section 10B. The Tribunal emphasized that the Assessee had fulfilled all other conditions for the deduction and directed the Revenue to grant the exemption.