TaxTMI 
TaxTMI 
2011 (6) TMI 173
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.... order by the Assessing Officer as per which the assessee did not satisfy a number of conditions necessary for grant of such exemption." 3. Brief facts are, the assessee is a partnership firm, dealing in the business of manufacturing and export of handicrafts including multiple indoor games and claims to be a hundred per cent export oriented unit. Assessee claimed deduction under section 10B of the I.T. Act. Assessing Officer, however, denied the deduction on following grounds : (i) There was a change in partnership-deed w.e.f. 1-4-2005, as a new partner Mr. Gaurav Arora was introduced. The reconstituted firm carried out the business already in existence. (ii) Section 10B(i) requires that the assessee should manufacture or produce any article or things or computer software. In the present case, the assessee has been purchasing the finished handicraft items and other allied items and as per the sale invoices furnished, the items exported are exactly the same as have been purchased, in substance and in nomenclature also. Therefore, no new product has come into existence by name, by substance and by nomenclature between its purchase and sale. The asse....
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....s, on the basis of these documents, it is very clear that the assessee cannot claim to be approved as a 100 per cent Export Oriented Undertaking by the Board appointed by the Central Government in this behalf since, the assessee failed to satisfy in complying with the requirement of SEZ authorities as communicated to him by SEZ authorities vide letter dated 25-4-2006 as discussed above. It is a case where a letter of communication issued by SEZ authorities Noida dated 5-5-2005 while processing assessee's application for approval under 100 per cent EOU scheme has been projected by the assessee as a final approval certificate. It is to be further noted that date of commencement of production has been communicated by the assessee himself to SEZ authorities as 22-9-2006, which date, does not lie in F.Y. 2005-06 relevant to assessment year 2006-07. Thus, from this, the position emerges that assessee applied for approval as 100 per cent EOU, the authorities communicated to him, vide letter dated 5-5-2005 for fulfilling certain conditions only after which it can be finally approved thereafter the assessee signed a legal agreement with the SEZ authorities and in consequence to that SEZ aut....
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.... EOU shall come into existence only when various procedural formalities entailed in the said LOP are also fulfilled. However, these procedural formalities were relevant for the competent authority, which are empowered to even cancel or revoke the approval, if such essential conditions were not met. However, for the purpose of claiming deduction under section 10B, it is sufficient that the letter of permission is issued for setting up the hundred per cent EOU. Since the relevant competent authorities have duly issued the necessary approval and have also sorted out the procedural formalities subsequently in their own way, e.g. even though the appellant did not required the facility of custom warehouse, prevailed upon him to have a custom-bound warehouse and based on that, have not revoke or cancelled the approval, therefore, the delay in meeting these conditions, did not have any bearing on the status of 100 per cent EOU. Therefore, the observations of the learned Assessing Officer that the legal agreement was signed on 24th of July, 2006 and based on which, the record of the Development Commissioner, the commencement date was recorded at 22nd September, 2006, were not relevant fo....
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.... tax auditors while furnishing the tax audit report under section 44AB. On careful perusal of the profit and loss account for the assessment year 2005-06 and assessment year 2006-07, it can be clearly observed that there were no expenses which were attributable to manufacturing in the P and L account for the previous year relating to assessment year 2005-06. On the other hand, the profit and loss account for the previous year relevant to the assessment year 2006-07 shows expenses in the nature of wages and also manufacturing expenses. Further, a careful perusal of the various assets shown in the depreciation chart for the assessment year 2005-06 clearly shows that there was no plant or machinery, which could be utilized for the purpose of manufacturing of handicraft items. On the other hand, the statement of asset for the assessment year 2006-07 clearly shows an addition of machinery of Rs. 35,100 which comprised of various tools/machines used for the manufacture of handicraft items. In the business of manufacturing of Handicraft items, as the name suggest, the main value addition comes through hand-made operations, for which small tools are needed which are, not very expensive. Th....
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.... purchased several finished and unfinished material on which further, processing was carried out to make it saleable in the international market. Therefore in view of the above facts, it cannot be denied that the appellant firm had not done any "manufacturing" activity during the year for the purpose of export of handicraft items." 4. Learned DR relied on the order of Assessing Officer and contends as under: (i) CIT(A) did not provide adequate opportunity to Assessing Officer while admitting the additional evidence, therefore, the order of CIT(A) be set aside. (ii) The assessee was in the business of trading/export of these goods. By introduction of a partner, the firm has been reconstituted and export activity has been started, therefore, it amounts to the firm's business being reconstituted out of the existing business. (iii) The assessee did not acquire custom bound premises during the period of these two years, consequently, all the obligations contained in the approval of Development Commissioner SEZ, Noida were not fulfilled. Therefore, assessee did not become a 100 per cent EOU eligible for deduction under section 10B of the Act dur....
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....r to remand report highlighting the correspondence made with Assessing Officer during assessment proceedings along with various documents. A request was made to Assessing Officer for seeking time for submitting documents which was not provided by the Assessing Officer due to which assessee was covered by Clauses (b), (c) & (d) of Rule 46A(1) of the Income-tax Rules, 1962. 5.2 Learned counsel then referred to the observation of CIT(A) on Assessing Officer's attitude in not responding to the remand report properly, as under : "6.4 The learned Assessing Officer was given adequate opportunity to examine the additional evidences at the time of remand report. The learned Assessing Officer however, did not examine the evidences on merit which he could have done before submitting the remand report. The submission of the learned Assessing Officer that he may be given one more opportunity for examining the affidavits by summoning each and every deponent in person, when he was already given the opportunity by me during the course of appellate proceedings, which are already on for more than 15 months, is unjustified and not in the interest of justice to the appellant. In any case, it wil....
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....he sub-clauses of sub-section (2) together then it will be clear that the Legislature intended to disqualify those undertakings which are formed by rearranging the components or equipments of the earlier business and that is the reason that sub-clause (iii) says in specific terms that the undertaking to be qualified for exemption under section 10B should not be formed by the transfer to a new business of machinery or plant previously used for any purpose. Thus, the emphasis is on the previous business, business already in existence or old business establishment. However, if the new undertaking has been formed and conditions laid down in various clauses of sub-section (2) are not applicable, then the exemption cannot be denied to the undertaking merely because at subsequent stage there was a change in the ownership of the undertaking. The business structure and continuity of the business activity has to be seen and not the continuity of the same ownership of the undertaking. Thus, there is a difference between the ownership of the undertaking and the business activity of the undertaking and if the latter remains unaffected or unchanged by subsequent change in the ownership then it c....
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....red. In the assessee's case all the goods were indigenous purchases and nothing was imported, therefore, there was no need of obtaining custom bound premises or applying for the same. Therefore, a requirement which is not essential in assessee's case has been imposed on the assessee and wrongly taken as a reason to deny the claim. Learned counsel refers the CIT(A)'s order and contends that the issue about assessee having the permission of Development Commissioner has not been disputed. The contents of CBDT circular have not been disputed, therefore, there is no basis in the observation of the Assessing Officer that assessee did not comply with these letters. 8. Apropos the issue about assessee's activities not amounting to manufacturing or production of article or things, it is submitted that : (i) the Government of India introduced section 10B w.e.f from 1-4-1989 which was substituted by the Finance Act, 2000 w.e.f 1-4-2001. The object of this section was to enhance foreign exchange for the Country due to which the policy of the Government is introduced by the Ministry of Commerce and Industry through Director General of Foreign Trade from time to time. The rele....
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....It is held that the EOU engaged in blending, packing and export of Tea Bag and Tea packets would be entitled for deduction under section 10B. Copy of this decision is placed on paper book. (iii) In the present case the Assessee is engaged in business of manufacturing of handicraft as per the orders of foreign buyer. After getting the orders completed by the suppliers in the raw form the assessee in his own premises get them polished, carved, assembled, labelled and packed. The processes flow chart/manufacturing process of the workshop has been described at PB 46 and 47. By these processes carried on by assessee new and saleable products came into existence which are exported. (iv) The processes carried on in the workshop of the assessee is 'manufacture' within the definition of section 2(r) of SEZ Act, 2005 as well as under 9.37 of the Foreign Trade Policy, 2004-2009. The word "SEZ" till introduction of SEZ Act, 2005 was also required to be taken as per Foreign Trade Policy and the words "Raw Material" includes even the goods "previously manufactured". Thus even if the good are previously manufactured supplied to the Assessee which thereafter polished, lacqu....
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..... 4,91,777). Apparently, the assessee's employees were required to stay in Pune for sometime to carry out the work of developing the software and they have to be paid salaries and the expenses on their boarding and lodging had to be taken care of. The salaries and expenses were paid by Seacom and the assessee reimbursed Seacom the same. The software developed by the assessee with the help of the infrastructure and equipment provided by Seacom were exported by the assessee and for the year under appeal such exports amounted to Rs. 2,04,82,556. The other conditions of the section, such as, receipt of the sale proceeds into India in convertible foreign exchange within the prescribed period have been satisfied. In these circumstances, we are of the view that the CIT (Appeals) has rightly accepted the assessee's claim for exemption under section 10B of the Act. We affirm his order and dismiss the appeal field by the department with no order as to costs." (vii) This ITAT order has been affirmed by Delhi High Court in 186 Taxman 208. Therefore, the activities of finishing semi-finished raw material, supplied under the control and supervision of the assessee, amount to "manufacture" by ....
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.... 13. For the afor-stated reasons, we find no merit in the civil appeals filed by the Department, which are accordingly dismissed with no order as to costs." 8.1 Thus activity of the assessee would also be covered in it as with this activity and process it renders the commodity or article fit for use which otherwise is not fit for use for the customers and so it cannot be exported also. Hence, such operation falls within the letter and spirit of manufacture. 9. Apropos third objection about date of commencement of EOU, learned counsel contends that the finding of the Assessing Officer that assessee himself gave the date of commencement of manufacturing activities to SEZ authorities as 22-9-2006, is without any basis because there is no such letter filed by the Assessee nor any such letter was found in the assessment record which was sent by the department of SEZ Noida. In fact, the Assessee replied and clarified about the same in the letter dated 19-11-2008 to the Assessing Officer placed at PB 19-20. In this letter there was specific reference of the letters addressed to SEZ Noida for rectifying the mistakes committed by them. Subsequently also vide letter dated 5-12-2008 a....
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....being reconstituted business, we find no infirmity in the order of CIT(A) which categorically holds that the export business of the assessee was not because of splitting of reconstruction of business, but was started from 1-4-2005. We find merit in the Reliance on ITAT Delhi judgment in the case of Tech Books Electronics Services (P.) Ltd. (supra) and ITAT Ahmedabad Bench decision in the case of ITO v. Anita Synthetics (P.) Ltd. (supra), mere introduction of a partner will not amount to reconstruction of business. It is also not disputed that the manufacturing activities were started for the first time as EOU in this year. Consequently, we uphold the order of CIT(A) on this issue. 10.2 Coming to the issue about assessee's activity not amounting to 'manufacture' or 'production' or article or things, learned counsel has referred to various purchases from different parties in which different handicraft items and components of games are ordered. Assessee has demonstrated that finished product is a commercially "distinct commodity i.e. 5 indoor games", which are very popular in foreign countries. It is pleaded that individual components are ordered as raw/semi-finished components, wh....