TaxTMI 
TaxTMI 
2013 (9) TMI 233
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....tion 14A. 2. The Learned CIT(A) erred in confirming the disallowance by the A.O. of the' expenditure of Rs. 9,88,29,729/- towards payment of sales commission to the nonresident agents. 3. The Learned CIT (A) erred in confirming the disallowance made by the A.O., u/s. 40(a)(i) of the Act, of the expenditure of Rs. 36,05,767/-incurred by the Appellant by way of payment of demurrage to the non-resident Buyers of iron ore. 4. The Learned CIT(A) erred in confirming the disallowance by the A.O. the expenditure of Rs. 1,19,70,782/- towards demurrage on ships payable to the non resident ship-owners, having failed to appreciate that neither the provisions of section 195 nor section 40(a)(i) were applicable to such tax payments. 5. The Learned CIT (A) erred in holding that the Appellant's claim for deduction of expenditure towards payment of the Education cess and the Secondary and High Secondary Cess of Rs. 19,72,00,814 /-, was not maintainable. 6. The Learned CIT(A) erred in holding that the Appellant is not eligible for deduction u/s. 10B of the Act, totaling Rs. 257,23,14,771 in respect of its 100% Export Oriented Unit at Amona in Goa.....
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....llowance of Expenditure on Research & Development" to the tune of Rs. 1,94,55,376 for Assessment Year 2009-10, as Section 43(4)(i) of the I.T. Act, 1961 defines scientific research as any activities for the extension of knowledge in the fields of natural or applied science including agriculture, animal husbandry or fisheries. The case of the assessee is clearly not covered under this definition. Moreover, the assessee has also not taken approval of the designated authority that this activity tantamount to scientific research. For the A.Y. 2006-07 also same issue was confirmed by CIT (Appeal). 3. The learned CIT (A) has failed to appreciate the "Disallowance of Foreign exchange notional loss/loss on forward contracts" to the tune of Rs. 1,59,00,000/-. Board's Circular No. 23 (XXXIV-4) D of 1960 dated: 12/09/1960 and Instruction No.3 - 2010 dated: 23/03/2010 clearly says that the losses incurred by the assessee on forward contracts is to be treated as speculative loss and not hedging loss. 4. The learned CIT (A) has failed to appreciate the addition with respect to "Expenditure incurred in respect of issue of Bonus Shares" to the tune of Rs. 61,35,482/-, which i....
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....lowing formula, namely:- [AxB]/C = A. Amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year - Nil B. The average of value of investment, income from which does not or shall not form part of the total income appearing in the balance sheet of the assessee on the first day and the last day of the previous year Rs.20,00,44,93,634 + Rs. 30,19,67,88,502 = Rs. 50,20,12,82,136/- Average of the above = Rs. 25,10,06,41,068/- C. The average of total assets as appearing in the balance sheet of the assessee, on the first day of the last day of the previous year - Nil (i) an amount equal to one-half percent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year. = Rs. 25,10,06,41,068x.005 = Rs. 12,55,03,205 Less: Administrative expenditure already disallowed by the assessee Rs. 25,78,156 Rs.12,29,25.049 Accordingly, a sum of Rs. 12,29,25,049/- is disallowed u/s 1....
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....s of the Assessing Officer. The primary contention of the assessee is that before invoking the provisions of section 14A for making disallowance of expenditure by applying rule 8D of the Income tax Rules, the assessing officer ought to have recorded his dissatisfaction for rejecting the quantification of the expenditure relating to the tax exempted income made by the assessee. Before proceeding further it will be relevant to examine the provisions of section 14A providing for disallowance of expenditure relating to exempt income. Section 14A: For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001. (2) The Assessing Officer shall determine the am....
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....he assessee. The fact that the assessing officer had properly examine the matter and had applied his mind to the issue of disallowance of expenditure is also evident from the fact that the assessing officer had considered and accepted the explanation of the assessee regarding the claim that no borrowed funds were used by the company for such investments and hence no disallowance of interest u/s14A was called for. 4.4 On careful consideration of the facts of the case, it is observed that there is an inherent contradiction in the submissions made by the assessee. While on one hand the assessee vehemently claims that no direct expenditure was incurred to earn the dividend income, on the other hand it had quantified certain expense on a notional basis which could relate to earning of dividend income from such investments. The fact, that the assessee had made an notional disallowance of Rs. 25,78,156/- as the estimated administrative expenditure relatable to the earning of dividend income, shows that it was only an adhoc quantification of the expenditure without having any direct co-relation with the actual expenditures incurred. In this regard it is relevant to refer ....
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....end income. Therefore, allocating the expenditure taking income as the basis in the case of dividend income and turnover as the basis in the case of other receipts, gives rise to major distortion in the allocation of expenditure. Further, it is also seen that the allocation of the expenditure incurred towards Salary, Gratuity, PF etc, which alone accounted for 38% of the total administrative expenditure, has not been made on a proportionate basis. No justification has been adduced in this regard. If the total salary expenditure of Rs. 21.85 crores is allocated on a pro rata basis, the proportionate amount relatable to dividend income will be Rs. 62.10 lacs instead of Rs. 17.03 lacs, as computed by the assessee in the annexure. This clearly shows that the basis adopted by the assessee for quantification of the expenditure incurred in relation to the exempted income is grossly flawed and erroneous. Further, it is also seen that the sales and other receipts of the assessee, excluding dividend income is around Rs. 4853 crores. The average value of the investments as per the balance sheet is found to be Rs. 2510 crores. Put together, the total turnover including investment in m....
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....ction 14A(2) of the I.T. Act. 4.6 The assessee has relied on various judicial decisions such as in the case of CIT vs. Hero Cycles Ltd, 323 ITR 518(P&H) and CIT vs Walfort Share and Stock Brokers (P) Ltd, 326 ITR (SC), to substantiate this ground of appeal. However, on examination of these cases it is observed that these decisions relate to the assessment year 2004-05 and 2000-01 respectively, which was prior to the insertion of rule 8D. Careful reading of both section 14A(2) as well as rule 8D(1) clearly brings out that the Assessing Officer can derive jurisdiction to invoke the provisions of this section only if he is not satisfied with the correctness of the claim of the assessee in respect of the expenditure, which the assessee claims to have incurred in relation to the exempt income. Section 14A clearly mandates that once the Assessing Officer is satisfied that the claim of the assessee is not correct, he has no other option but to invoke the methods prescribed in Rule 8D for quantifying the expenditure incurred in relation to the exempt income. In the present case, there are more than sufficient reasons, as discussed above, for the Assessing Officer to reject the cla....
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....eeds from various services 114783174 31652 14040 34164 Interest 428301292 118107 52389 127478 Dividends 1427251668 393575 174578 424801 1703935 Profit on sale of assets 629444 174 77 187 Other receipts 14278125 3937 1746 4250 Profit on sale of investments 301014801 83007 36819 89593 Provision for doubtful debts written back 49962317722 13777486 6111258 14870566 1703935 2696889 Allocation of Expenditure on exempt income (on Dividends) DIVIDENDS SGL - Dividends 1,42,72,51,668 25,78,156 SIL - Dividends 6,57,29,601 1,18,733 Total Dividends 1,49,29,81,269 26,96,889 Designation of Employee Treasury Officer Chief Financial Officer Managing Director Total Salary CTC Basis 4,02,475 25,48,920 1,32,84,603 1,62,35,998 Percentage of salary 100% 25% 5% Amount 4,02,475 6,37,230 6,64,230 17....
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....rent types of receipts such as sales, hire charges, sale of gas and carbon credits. However, in respect of dividends, the assessee has considered the dividend income instead of total investment in mutual funds which is wrong because the basis of allocation should be similar for all items. d) Further, salary has not been allocated correctly on proportionate basis. If the entire salary expenditure of Rs. 21.85 crores is allocated then proportionate amount relatable to dividend income would be Rs. 62.10 lacs instead of Rs. 17.03 lacs as computed by the assessee. e) If the total administrative expenses of Rs. 56.59 Crores are allocated among the sale and other receipts of business (Rs. 4,853 Crores) and value of investments in mutual funds (Rs. 2,510 crores), then it shall amount to Rs. 19.29 crores in respect of dividends. f) As per section 80HHC Explanation baa, 10% of receipts could reasonably be held as the expenditure in relation to other receipts. Then the expenditure comes to Rs. 25.10 crores being 10% of the investment of Rs. 2,510 crores which is very close to the estimation of the AO. g) On the basis of above deviations and discrepancies, i....
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....e also pre-assigned accordingly. It must be appreciated that the primary business of the appellant is 'mining' which definitely entails a huge manpower need and in comparison to which the manpower required to assist in investing surplus funds with mutual funds is absolutely insignificant Thus, the entire salary expenses of the entire staff cannot be allocated proportionately between taxable and exempt incomes as averred by the CIT (A), especially when a proper person-wise allocation to the investment activity is practically possible. 10. The assessee has also made the proportionate disallowance out of certain expenses relatable to earning of exempt income as mentioned on Page No. 108 of (Initial) PB Vol.l, which was considered relatable to earning exempt income. No expenses such as rent, legal and professional fees, travelling expenses of director, etc., were particularly incurred for this investment activity and therefore no disallowance was made. Hon'ble Supreme Court in CIT Vs Walfort Share & Stock Brokers (P) Ltd. (2010) 326 ITR 1 (SC) held that the AO is required to prove that the disallowance is necessary due to proximate cause and nexus of expenditure to earn ....
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....ent of assessee. The assessee stated that there was no directly relatable expenditure which was incurred to earn dividends and the disallowance was made for other expenses. This was, in fact, accepted by the AO who also did not make any disallowance u/r 8D(1)(i). The CIT (A) tried to justify the application of Rule 8D by the assessing officer on surmises and presumptions which is not permissible at all. One assertion made by the CIT (A) was that the amount of investment corresponds to the amount of turnover/sales in case of dividends and therefore the same should be considered for the purpose of allocation of indirect expenses, but it is submitted that it is not correct proposition. The corresponding base figure to the value of investment made in mutual funds can at best be the stock of iron-ore/finished goods, but it can never be said to correspond to the turnover of iron-ore, etc. in any manner because the basic nature of receipts and income is such that they can never correspond to stock or value of investment at all. Further, the turnover of mutual funds, i.e., the value of redemption of mutual funds is subject to tax as capital gains [since exemption/s 10(38) is not available ....
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..../2011. But this decision, in our opinion, is not applicable to the facts of the case as in this case, the assessee has not claimed any expenditure being incurred for earning the exempt income. Reliance was also placed on the decision of the 'F' Bench, Mumbai in ITA No. 5779/2006 and ITA No. 208/2009 in the case of Avshesh Mercantile Pvt. Ltd. and others Vs. DCIT for the proposition of the income when the assessee has both taxable as well as exempt income, the provisions of section 14A will not apply. Reliance was also placed on the decision of apex court in the case of CIT Vs. Walfort Share and Stock Brokers Ltd., 326 ITR 1, it was stressed that the intention beyond provision laid down in rule 8D is not embarked upon an unwarranted high level of disallowance of expenditure when the available factors and circumstances do suggest that an ad-hoc application would provide such result as has happened in assessee's case. It was pointed out that, as a result of computation of disallowance by the assessing officer u/s 14A, the disallowance in relation to exempt income comes at Rs. 12,55,03,205/- i.e. about 8.8% of total exempt dividend income. Whereas, as per the audited accoun....
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....prorate basis was worked out by taking into consideration the turnover of different types of receipts such as sales, higher charges of trans chipper, sale of gas, sale of carbon credits etc., However, in respect of dividend income assessee has taken into consideration income as the basis. Accuracy of assessee's ad-hoc quantification not correct. Sales and other receipts (excluding dividend). Rs.4,853 crores Average value of investment as per balance sheet Rs.2,510 crores Total turnover is Rs.7,363 crores Total administrative expenditure declared is Rs.56.59 crores Proportionate expenditure of dividend income Rs.19.29 crores Whereas, assessee had declared Rs.25.78 lakhs as expenses. Satisfaction of the Assessing Officer has been clearly recorded in order to invoke Section 14A of the Act. Satisfaction of the Assessing Officer must in the first instance make the determination, it does not prohibit the Appellate Commissioner to revise the determination or exercise the power which the ITO could exercise. Admittedly, assessee works out the administrative expense which is found to be incorrect. Admittedly, assessee cannot workout the ex....
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....st be satisfied with the correctness of the claim of the assessee having regard to the accounts of the assessee. Such satisfaction is an objective satisfaction that it has to be judicious and based on the material on record. It cannot be an impression that it is much more than the gossip or hearsay, it means judgment or belief that it is a belief or a connection resulting from what one thinks on a particular question. It must be based on the reasons and ground as seems good to him and while making such satisfaction, the AO must give regard to the accounts of the assessee. He must record deficiency in the accounts with regards to the claim of the assessee. Sub-sec.(3) provides that provisions of sub-sec.(2) shall also apply where assessee claims that no expenditure had been incurred in relation to income not forming part of the total income. This is not the case of the assessee as in the case of the assessee, assessee himself estimated the expenses relating to the exempt income and disallowed the same. Rule 8D was inserted by gazette notification dated 24/3/2008 in view of the power conferred under sub-sec (2). This Rule prescribes the method for computing the expenditure incurred i....
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.... as Writ Petition challenging the constitutional validity of sub-sec. (2) & (3) and Rule D. The Hon'ble High Court gave the following findings; 1. The provisions of sec. 14A and Rule 8D are constitutionally valid. 2. The provisions of sub-sec. (2) & (3) of Sec. 14A and Rule 8D are prospective and not retrospective, in nature and therefore, would apply from assessment year 2007-08. 3. The basic object of Sec.14A is to disallow the direct and indirect expenditure incurred in relation to income which does not form part of the total income (page 21). 4. The insertion of sec. 14A was curative and declaratory of the intent of the Parliament The basic principle of taxation is that only net income, namely, gross income minus expenditure that is taxable. Expenses incurred can be allowed only to the extent that they are relatable to the earning of taxable income (pages 22-23). The test which has been enunciated in Walfort for attracting the provisions of sec. 14A is that there has to be a proximate cause for disallowance which has its relationship with the tax exempt income. Once the test of proximate cause, based on the relationship of the expenditure....
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....he provisions of sub-sec (1) (pages 50). 10. Even in the absence of sub-section (2) of sec.14A the AO would have to apportion the expenditure and to disallow the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. The AO would have to follow a reasonable method of apportioning the expenditure consistent with what the circumstances of the case would warrant and having regard to all relevant facts and circumstances". The said decision of the jurisdictional High Court is binding on us. While deciding this case, the decision of the Hon'ble Supreme Court in the case of CIT Vs Wallfort Shares & Stock Brokers Ltd., 233 CTR (SC) 42 was referred to. In this decision, we noted that the Hon'ble Supreme Court in that case upheld the view of the Hon'ble Mumbai High Court in the case of Wallfort Shares & Stock Brokers Ltd. Vs ITO 310 ITR 421. The Hon'ble Supreme Court in this decision, at page-31 of the order held as under; "To attract Sec.14A there has to be proximate cause for disallowance which has its relationship with the tax exempt. Pay back or return of investment is not such proximate ....
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....me, it cannot be allowed to be set off against the exempted income merely because some incidental benefit has arisen towards exempted income. Before making any disallowance u/s 14A, the AO is required to record a satisfaction, having regard to the accounts of the assessee, that claim of assessee that expenditure incurred is not related to the income forming part of the total income is incorrect. Such satisfaction must be arrived at on the objective basis. He is also required to record the reasons for arriving at such satisfaction. The assessing officer in this case, we noted is not satisfied with the correctness of the disallowance made by the assessee even though he has accepted the explanation of the assessee that no interest is incurred with regard to exempt income. He rejected the explanation of the assessee that no administrative expenditure incurred on earning dividend income considering the magnitude of the investments and dividend income received and the disallowance according to him made by the assessee u/s 14A towards administrative expenditure is very less. The assessing officer nowhere pointed out the proximate connection of other expenses not apportioned by the assesse....
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....ow as per section 14A(2) of the Act, if the AO, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to income which does not form part of the assessee's total income under the Act, the AO shall determine the amount incurred in relation to such income, in accordance with such method as may be prescribed, i.e., under Rule 8D of the I.T. Rules. However, in the present case, the assessment order does not evince any such satisfaction of the AO regarding the correctness of the claim of the assessee. As such, Rule 8D of the Rules was not appropriately applied by the AO as correctly held by the CIT(A). It has not been done by the AO that any expenditure had been incurred by the assessee for earning its dividend income. Merely, an adhoc disallowance was made. The onus was on the AO to establish any such expenditure. This onus has not been discharged. In "CIT Vs. Hero Cycles" (P&H) 323 ITR 518, under similar circumstances, it was held that the disallowance u/s 14A of the Act requires a clear finding of incurring of expenditure and that no disallowance can be made on the basis of p....
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....e decision of lower forum gets merged with the judgment and order of the High Court and it becomes binding precedent even though approval to decision of lower forum/court is summarily recorded. Similar situation had arisen for consideration before the Hon'ble Gujarat High Court in the case of Nirma Industries Ltd. 283 ITR 402 wherein the effects of summary disposal of appeal by the High Court were analysed and explained by their Lordships. It was clarified that while hearing an appeal even for deciding whether substantial question of law arises or not from the order of the Tribunal, the High Court does not exercise either the original jurisdiction or the jurisdiction to issue writs and the only jurisdiction exercised by the High Court in the first instance decides whether or not substantial question of law arises from the order of the Tribunal, it cannot be said that the High Court does not exercise the appellate powers or that there is no decision on merit when the high court dismisses an appeal holding that no substantial question of law arises from the order of the Tribunal. It was held that whenever an order of the subordinate forum is carried in appeal before the higher ap....
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....ITICORP Finance (Ind.) Ltd., 108 ITD 457 (Bom.) is no more relevant, in view of the decision of the Hon'ble Mumbai High Court in the case of Godrej Boyce Mfg Co. Ltd. (Supra). The decision of SPIC Vs DCIT 93 TTJ (Chennai) 161 is not applicable to the facts of the case. As in that case, the assessee was regularly investing in the shares. The assessee has not disallowed any expenditure with regard to the earning of the dividend income. Under these facts, the Hon'ble Tribunal held that whether to invest or not to invest is a very strategic decision and top management involve in taking the decisions. This decision relate to assessment year 2000-01 much prior to the insertion of provision of sec.14A(2) of the IT Act,1961. The decision of ACIT Vs Premium Consolidated Capital Trust 83 TTJ (Bom.) relates to assessment year 1991-92 prior to insertion of 14A(2) hence will not assist the revenue. The other decision relied on are also not applicable to the facts of the case, except the decision of jurisdictional High Court in the case of Godrej & Boyce Mfg. Co. Ltd. Vs DC IT & Another 328 ITR 81 (Bom.). In view of our aforesaid discussion and respectively following the decision of t....
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....ervations of the CIT(A) on the similar issue for the assessment year 2006-07 and stated as under. "For the reasons elaborately discussed by the CIT (A) in the Appellate order ITA No.136/PNJ/2009-10 dt. 30.08.2011 for the A. Y. 2006-07 in the assessee's own case, the commission payments made by the assessee also needs to be disallowed as the issues during the year under consideration are also similar to the issues for the A.Y. 2006-07, apart from the ground of non-deduction of TDS u/s 40a(ia). In view of the aforesaid discussion, the amount of Rs. 9,88,29,729/- is added back to the total income of the assessee." It is therefore, necessary to refer to the order of the CIT(Appeal) for the assessment year 2006-07 in connection with the allowability of commission payment. During the year 2005-06 (relevant for assessment year 2006-07) commission was paid to three concerns including, Rs. 15,21,98,212/- to Mitsui & Co., Japan, Rs. 2,71,86,975/- to Ahmed Jaffar & Co. Ltd., Karachi and Rs. 66,86,324/- to Arimpeks Dis Ticaret Ve Mum Ltd. In this regard, in the order of the CIT (Appeal), it was held that since the assessee company is dealing with the purchasers of iron or....
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....that entering an agreement does not necessarily imply that services are rendered. Similarly, the assessee has not been able to counter the observations made by the CIT(Appeal) in respect of commission payment to M/s Mitsui & Co. for the assessment year 2006-07. It is established in law that mere existence of an agreement for payment of commission shall not justify the claim of deduction u/s 37 of the I.T. Act. In this regard, it is relevant to note the following observations of the Supreme Court in the case of Laxminarayan Madanlal Vs CIT (1972) 86 ITR 439 (SC). "The question whether an amount claimed as an expenditure was laid out or expended wholly and exclusively for the purpose of the business has to be decided on the facts and in the light of the circumstances in each case. The mere existence of an agreement between the assessee and its selling agents or payment of certain amounts as commission, assuming there was such payment, does not bind the ITO to hold that payment was made exclusively and wholly for the purpose of the assessee's business. Although there might be such an agreement in existence and the payments might have been made, it is still open to the ITO....
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.... 2178584 6686324 6125101 3886760 Nissho Iwai Corporation 19th Floor, Tradepia Odaiba, 3-1, Daiba 2 Chome, Minato-Ku, Tokyo, Japan 25374360 5268486 Ahmed Jaffer & Co. 113A, Sindhi Muslim Co-op Housing Society, PO Box 7482 Main Shahrah e-Faisal, Karachi 7400, Pakistan 21431717 28898391 27186975 32209631 27999688 Omega Private Limited, 68B, Sindhi Muslim Co-operative Housing 5490159 Society, Karachi, 74000, Pakistan Others Difference in rate of exchange Add (Less) Previous years adjustments Service Tax 11072690 136168783 18607151 220641759 15980927 8816969 5 1 0 4 3 2639868 0 0 -1764641 -257580 19160584 1091761  ....
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....that it must be appreciated that the sometimes commission is paid to the agent only in the first year for finding a buyer. However, mostly it is paid regularly year after year for smooth execution of the contracts with the said buyers. It always depends upon the terms and conditions of the contract with agent which mention about the service to be rendered by the agents. The agent may/may not assist in settling the terms of the transactions because that is the subject matter between the seller and the buyer. But the agents are entitled for commission for services rendered by them for smooth and perfect execution of contracts without hindrances. The services of the sale agents are utilized, besides getting the sales contracts, also in settling the problems arising to the buyers. These agents arrange meetings, prepare presentations, communicate shipping documents, nomination of vessel for export by the buyers, dealing with the difficulties arising on such nominations, assist in fixing shipment schedules, opening letter of credit by the buyers and any amendments whereon, various issues cropping in connection with letter of credit, follow-up with buyers for payments and settlement of in....
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....mmission does not justify the expenditure. The assessee agrees to it but the agreements are supporting evidences to show the nature of services rendered by the agent. These agreements read with other supporting evidences like emails, etc. prove the rendering of services by the agents and are therefore an important piece of evidence. Reliance was placed by the Ld. AR on the judgement of CIT Vs Shriram Pistons & Rings Ltd. wherein it has been held that when the assessee pays up commission based on agreements, any disallowance cannot be made of the same by disputing that the agents did not render any service. The assessee-company has been paying commission to Mitsui & Co. in the preceding years which has been allowed to it even prior to AY 2006-07. The commission paid to Mitsui & Co. Ltd. Was considered by the Transfer Pricing Officer in AY 2004-05 and 2005-06 and it was held by him that the transactions were at Arm's Length Prices. Photocopies of the TPO orders are enclosed at Page nos. 424-427 of (Initial) PB Vol. ll. The said Mitsui & Co. Ltd. was an AE (Associated Enterprise) of the assessee till AY 2008-09 and till then, the transactions with the AE including payment of commi....
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....th the agents are given in the following table available at page 135 of the paper book. Page No. Email No. Date Contents 1 1 23.12.08 The agent confirming vessel nomination from the buyer 1 2 23.12.08 Our acceptance to the above nomination 1 3 24.12.08 Our request to the agent for opening of LC 2-6 4-11 09.12.08-24.12.08 Request for LC amendments and LC acceptances 7 12 12.11.08 The Agent confirming vessel nomination from the buyer 7 13 12.11.08 The Agent advising changes in the sale contract with the buyer 8 14 11.11.08 Our acceptance to the above. 8 15 11.11.08 The agent confirming changes in the contract to be conveyed to the buyer 10 16 20.11.08 We are suggesting amendments to the draft LC 12 17 21.11.08 The agent confirming/suggesting amendments to the LC 13 18 17.11.08 The Agent confirms vessel nomination from the buyer 13-14 19 17.11.08 Our Acceptance to the above. 15 21 17.11.08 The agent forwarding draft LC 15-16 20 19.11.08 Our suggestion towards the amendments to the draft LC 17 22 24.....
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.... sufficient to justify the payment of the commission. Reliance was placed on the decision of Hon'ble Supreme Court in the case of Laxminarayan Madanlal Vs. CIT 86 ITR 439 (Supreme Court). 24. We have carefully considered the rival submissions along with the order of the tax authorities below and also the material relied upon by both the parties. The only issue before us is whether the commission paid by the assessee has been incurred by the assessee wholly and exclusively for the purpose of the business of the assessee. Now, coming to the relevant provision in which the assessee claimed deduction is section 37(1) of the Income Tax Act, 1961. Section 37(1) reads as under:- "Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purpose of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession. Explanation: For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any p....
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....nagement or the human beings who are controlling the company cannot be regarded to be the personal expenses of the assessee company. It may be remuneration or perquisite in the hands of the management or the human beings but it cannot regard to be the personal expenses of an incorporated body. 25. The only dispute in this case relates to the fact whether the commission paid can be regarded to have been incurred wholly and exclusively for the purposes of the business or profession of the assessee company. Before 1939, the phrase used was 'Expenditure incurred solely for the purpose of earning profit'. The Omnibus provision of section 37 as amended by 1939 Act allows of 'Expenditure incurred wholly and exclusively in connection with such business/profession' as long as no personal/capital element is involved. The scope of the term 'For the purpose of business' is surely wider than the term 'for the purpose of earning profit'. In our opinion the Income Tax Department cannot prescribe what expenditure an assessee should incur and under what circumstances. Every businessman knows his interest best. The assessee may not be a prudent man and yet an expen....
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.... Hon'ble Rajasthan High Court in the case of Jaipur Electro Pvt. Ltd. Vs CIT, 134 CTR 237 (Raj). The Hon'ble Bombay High Court has also taken the similar view in the case of Ramanand Sagar Vs DCIT, 255 ITR 134 (Bom) in which it was held that the mere fact that the payment has been made under a contract is not conclusive of expenditure being laid down wholly and exclusively for the purpose of the business. Once doubt arise about the bonafide nature of the payment, it is necessary to look into the necessary circumstances such as relationship of the payee to the assessee, the general standard of similar expenditure in comparable business, the true worth of the services or goods in question and so forth. It is also open to the A.O. to question the reality of the expenditure i.e., the true nature of the payment, the true consideration for it and so forth. Once the A.O. considers the payment and the purpose to be bonafide, it is not open for him to substitute his own judgment what is the reasonable quantum of expenditure for the assessee. The A.O. can only decide whether the expenditure is real, whether it relates to the business and is wholly spent for that purpose. In applying ....
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....t may incur to the benefit of a third party (Usher's Wiltshire Brewery Limited v Bruce (1914) 6 Tax cases 399 (HL). Another test is whether the transaction is properly entered into as a part of the assessee's legitimate commercial undertaking in order to facilitate the carrying on of its business; and it is immaterial that a third part also benefits thereby. But in every case it is a question of fact whether the expenditure was expended wholly and exclusively for the purpose of trade or business of the assessee." 27. If we apply the principles of the law as enunciated in the various judgments, we are of the opinion that once the A.O. finds that the assessee has bonafidely incurred the expenditure for the business, the A.O. cannot decide the quantum of the expenditure to be incurred by the assessee. In this case before us the assessing officer has disputed the fact that commission has been paid for the purpose of the business and also disallowed the said expenditure by applying the provisions of sec. 40(a)(i) as well as on the basis of the genuineness of the expenditure incurred. The CIT (A) while holding that the assessee was not liable to deduct tax in respect of the co....
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....9;it is possible that there may some correspondence with the two companies with regard to sale of iron ore abroad', but without going into the-merits of the emails exchanged and without controverting how the same did not exhibit that actual services had not been rendered by those agents, he merely rejected the claim of the assessee as if the assessee has not incurred these expenses genuinely for the purpose of the business. It is cardinal principle of law that a disallowance cannot be made on mere surmises and conjectures. Where the explanation of the assessee is bonafide and evidences produced by it further corroborate its explanation, there is no reason for Revenue to disregard the same on whims without bringing forth any tangible and cogent material to the contrary. 27.2 The said two non-resident agents had been engaged by the asseseee in the past and they have been paid commission on sales abroad since last so many years. There is no law which mandates that a middleman is entitled to his commission only for the first time when he introduces both the parties to each other. We agree with the ld. AR that in fact, it is a normal business practice all over the world that afte....
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....paid to them, had actually been rendered by them. Thus, in the case of the assessee commercial expediency has clearly been proved. Therefore, the disallowance of Rs. 9,88,29,729/- for commission paid to non-resident agents is deleted by allowing this ground of appeal of the assessee. 28. The ground nos. 3 & 4 relate to the common issue about the disallowance of the demurrage charges paid amounting to Rs. 36,05,767/- to the buyers as reimbursement and Rs. 1,19,70,782/- paid to the Shipping Companies/Ship owners u/s 40(a)(i) of the Income-tax Act. The brief facts of the case are that the assessee has noted that the assessee has paid an amount of Rs. 36,05,767/- to its buyer in Pakistan without deduction of tax at source and therefore he disallowed the same u/s 40(a)(i). In respect of sum of Rs. 119,70,782/-, the AO noted that the assessee deposited the taxes deducted on behalf of the shipping companies of the countries with whom India has no DTAA. The taxes were paid on its PAN on behalf of those shipping companies but were not paid within the due dates and therefore said amount was disallowed u/s 40(a)(i). When the matter went before the CIT(A), CIT(A) confirmed both the disallow....
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....s to pay demurrage to the ship owner. The assessee has to compensate the buyer for the same. The assessee has remitted the said sum to Pakistan buyers which they said buyer had paid to ship owners in addition to the Freight Charges due to delay in loading of the ships at the India Port. The said sum was paid as per the export contract. Tax is to be deducted at source only when income is chargeable to tax under this Act. So it is necessary to determine whether this income is taxable or not. Such payment is not in the nature of any income since this is merely offsetting the additional cost incurred by the said buyer due to the lack of operational efficiency and non-adherence to the stipulated timelines (terms of performance) by the seller. In fact this amount must be considered as an additional discount by the assessee to the buyer. It was akin to price reduction due to fault in product/service and is equivalent to discount/rebate which can be adjusted against the sale price. It goes to reduce the sale price rather than to be considered as an expense in the hands of the assessee. Further, even if for the sake of argument, it is assumed that there is an incidence of income in the hand....
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....can be made. 29.1 For the sum of Rs. 1,19,70,782/-, it was contended that the assessee has export sales contract with the buyer on CIF basis. The assessee engages a ship on its own and paid the Freight directly to ship owners which are also non-residents. Sometimes there is delay in loading the ship within the pre agreed time line which results into payment of demurrage by the assessee to such ship owners. The CIT (A) did not deal with this amount separately but got it merged with payment made to Pakistani buyer without appreciating the defect of these payments were entirely different from demurrage reimbursed to Pakistani buyer. The said amount was paid to foreign shipping companies. U/s 172 demurrage is to receive the same treatment as Freight payment the assessee has not deducted any tax on these payments but in some cases the assessee assisted ship owners in discharging their legal obligation by making payment to the department for and on behalf of such ship owners and not as TDS. Assessing Authority misunderstood that the assessee has deducted the tax and deposited it. In the earlier year also similar payments were made without TDS and were allowed as deduction. Circular No....
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....to accrue or arise in India in the hands of the foreign buyer and therefore it cannot be taxable in India and is not liable to tax deduction at source. On this basis, no disallowance can be made u/s 40(a)(ia) and accordingly we delete the disallowance of Rs. 36,05,767/-. 32.1 Now coming to the submission of the Ld. DR that these charges are the demurrage liable to tax in India u/s 172(8) of the I.T. Act and have been incurred by the assessee for making payment to the shipping company through foreign buyer. We have gone through the circular no.723 dated 19/9/1995 which deals with the provisions of section 172, 194C & 195 of the Income-tax Act. It reads as under: "Section 172 deals with shipping business of non-residents. Section 172(1) provides the mode of the levy and recovery of tax in the case of any ship, belonging to or chartered by a non-resident, which carries passengers, live-stock, mail or goods shipped at a port in India. An analysis of the provisions of section 172 would show that these provisions have to be applied to every journey a ship, belonging to or chartered by a non-resident, undertakes from any port in India. Section 172 is a self-contained code for ....
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.... income tax to the revenue for which they were liable u/s 172 of the IT. Act. This is not a case where assessee has deducted TDS as the assessee was not liable to deduct any TDS in respect of payment made to the ship owner for the demurrage. There is no dispute that the income of the foreign shipping companies were chargeable to tax u/s 172 of the I.T. Act. The demurrage paid to these shipping companies were also to be treated as freight in view of specific provision of section 172(8). We have already held in the preceding paragraph that in view of circular number 723 dt. 19/09/1995, the provision of section 194C and 195 relating to tax deduction at source are not applicable to the income which is chargeable to tax u/s 172. In view of this circular the assessee was not obliged to deduct tax at source on the demurrage paid to the shipping owners during the year. Since the provision of TDS were not applicable, therefore no disallowance can be sustained u/s 40(a)(ia). We therefore, set aside the order of the CIT(A) on these issues and delete the disallowance of Rs. 36,05,767/- and Rs. 1,19,70,782/-. Thus the ground nos. 3 & 4 are allowed. 33.2. The ground no. 5 relates to the disal....
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....e Supreme Court, the claim of the assessee is also liable to be rejected. 8.3 In view of the above discussion, I am of the considered opinion that the assessee's claim for deduction of Education Cess and Secondary & Higher Secondary Education Cess is not maintainable and therefore the same has been rightly rejected by the Assessing Officer. Accordingly, I confirm the action of the Assessing Officer in rejecting the claim of the assessee. This ground of appeal is accordingly, dismissed." 34. The Learned. A.R. contended that the education cess and secondary and higher education cess are paid for providing finance for quality education and therefore it has been incurred for the purpose of the business. The payment of said cess is not specifically covered within the provisions of disallowance u/s 40(a)(ia) & 40(a)(ii) or any other provisions of the Act. The Learned D.R. on the other hand contended that no deduction towards the payment of the education cess and higher secondary education cess was claimed in the original return. Even no revised return was filed making this claim. The education cess and secondary and higher secondary education cess forms an integral part o....
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....e treated as new units eligible for the benefit u/s 10B merely on the ground that there was expansion of these units by way of purchase of new plant and machinery in the years 2002-03 & 2005-06 respectively. In respect of ultra fines recovery plant at Codli, the assessing officer gave the reasons mainly that (a) the said unit does not fulfill the conditions of manufacture or production as required u/s 10B (b) no satisfactory evidence has been produced regarding the date of commencement of manufacture or production (c) The fresh approval of the board is not available to the unit and (d) the unit is not debiting any purchase cost in respect of the purchase of wastage from other units. In respect of three units in general, the assessing officer held (a) the iron ore processing cannot be treated as "manufacture or production in view of the insertion of new section 2(29BA) defining the meaning of manufacture/production" (b) the assessee had not maintained separate books of accounts for the EOU units and for non-EOU units and setting up of a unit in the old mines which are already being operated by the assessee cannot be treated as new unit. The assessee went in appeal before the CIT(A).....
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....d by the Development Commissioner in such cases will be considered as valid. One such approval is ratified by the board of approval for EOU scheme. The approval was ratified by the Board on 14.1.11. Therefore, for the assessment year 2009-10, there was no approval of the board. CIT(A) ultimately took the view that the assessee was not engaged in manufacturing or production. The iron ore at Amona and Chitradurga plants of the assessee are not entirely from the iron ore extracted by the assessee from its mines. Part of the iron ores fed to the beneficiation unit at Amona is purchased by the company. Mines of the assessee from which iron ores are fed to the Amona and Chitradurga plants are very old which are being exploited by the company since long. The CIT(A) took the view that since the mines of the assessee are not new, it cannot be said that they formed part of the undertaking at Amona and Chitradurga, even if these two units are considered to be new. It was further held that the Amona and Chitradurga units cannot be said to have been engaged in extraction activities, therefore, the activities of Amona and Chitradurga plants cannot be held as manufacturing or production keeping i....
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.... on the decision of the Supreme Court in assessee's own case 271 ITR 331 for the proposition that extraction and processing of iron ore together constitutes production. CIT (A) also held that the assessee company has not produced any satisfactory evidence with regard to date/year of commencement of business of the unit. Ultimately the disallowance of the claim of the assessee u/s 10B in respect of all the three units was sustained. 38. The Learned. A.R. contended that the assessee has 9 units, out of which it claimed exemption u/s 10B of the Act in respect of profit derived from 3 units. The profits from the 3 units i.e. the EOUs are in the same proportion as to the other units. Profits from EOU were 48% on sales of Rs. 931/- crores while profit from other units were Rs. 1,706/- crores on sale of Rs. 3,352/-crores. Thus the profits from the EOU were 48% while from the other units were 51%. For the sake of convenience and as argued by both the sides, we would like to deal with ground relating to exemption u/s 10B in respect of each of the three units owned by the assessee separately. 38.1 In respect of the Amona plant the assessee claimed exemption u/s 10B for a sum of Rs.....
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....as submitted that not only the new/latest technology on the main process of the machines i.e., screening / Schenck (Australia) Banana Screening machine was introduced but the capacity of the plant was also enhanced from 1 MTPA (Million Tons Per Annum) to aprox. 2 MTPA with further flexibility to increase the same further. Our attention was drawn towards the production data from the year 1999-2000 to 2000-01 submitting that production has increased drastically which was 9.17 lacs MT in 1999-2000 and was 10.38 lacs MT in 2000-01. It was pointed out that during the year 2002-03 the production was 11.29 lac MT and this year was a transition year. Attention was also drawn to page-239 of the paper book, which gives the details of production data of few years after set-up. These are reproduced as under: FY MT (Lacs) 2002-03 11.29 2003-04 15.50 2004-05 15.14 2005-06 16.78 2006-07 17.62 2007-08 21.46 2008-09 29.87 2009-10 30.70 2010-11 22.86 Thus it was contended that the production had increased in a phased manner from 9.17 lac MT in Financial Year 1999-2000 to 30.7 lac MT in Financial Year 2009-10. 38.2 It was sta....
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....sessing Officer would not have understood the facts properly and therefore, a wrong interpretation of the decision of the Supreme Court in the case of Sesa Goa Ltd., 271 ITR 331 was taken. As per the Assessing Officer the ratio of the aforesaid case that both extraction and processing of crude ore are necessary to make a case of production whereas in High Court decision which was confirmed by the Supreme Court on appeal by the department no such reasoning was recorded anywhere. In fact the references were made to three High Court's decision in which it was held that the extraction itself was production. The famous case of Chowgule (Supreme Court) in sales tax matter was also distinguished in this case. In fact based upon Sesa Goa (Supreme Court) several cases have been delivered by the Supreme Court including 'Oracle' where one simple process of copying software onto a blank CD was also held to be production. Reliance was placed on the following other cases; a) Arihant Tile & Marbles Ltd Vs Income Tax Officer (2007) 295 ITR 1348 (Raj.) b) CIT Vs Fateh Granite (P) Ltd.,(2009) 314 ITR 32 (Bom.) c) CIT Vs Oracle Software India Ltd.,(2010) 320 ITR....
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....d) Mettur Chemical & Ind. Corpn. Ltd Vs CIT 217 ITR 768 (Supreme Court) e) CIT Vs Mahaan Foods Ltd. (2008) 216 CTR (Del) 148 f) Gujarat Alkalies and Chemical ltd., Vs CIT 249 CTR (Guj.) 82 g) Taurus Merchandise (P) Ltd., Vs Income Tax Officer (2012) 143 TTJ (Del.). 38.6 It was submitted that as the first unit was set up during the year 1985 had become outdated, obsolete and uneconomical and it became dangerous to run the old unit. The assessee has to take up immediate action for setting up the new plant during 2002-03. Substantial capital of Rs. 6.5 crores was inducted while the old machinery worth Rs. 26.00 lakhs was used and no identity of the old unit was retained and the capacity of the plant was substantially increased from 1 MTPA to 2 MTPA and further in-built flexibility to expand thereafter which took place during the financial year 2008-09. If the new unit was not set up, the existing business of the assessee would have come to an end. All major machineries were installed afresh with capacities more than doubled and with scope to make further expansion. The earlier physical layout/foundations were totally dismantled and in place of the same, n....
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.... submitted that the Bills were filed as under; P & M bills Amount PB Reference Submitted before the AO NIL Submitted before CIT(A) 2,21,69,787 Page nos. 1378-1435 of Addl. PB Vol.lll Submitted before the ITAT 1,35,23,639 Page nos. 794-1146 of Addl. PB Vol.ll Balance 39,16,594 (9.88%) Total capital expenditure 3,96,10,020 38.10 . During the course of hearing learned AR showed samples of the input called ROM (Run of Mines) which appeared to be pieces of rocks; and output in the form of iron fines and iron ore lumps, which were much less in size as compared to ROM. It was pointed out that practically crude ore is of no use, but the usage of lumps and fines is absolutely essential for steel making industry, which are produced after processing in the beneficiation plant. The activity involved in converting input into output consists of crushing, screening, washing, stacking, loading in barges; river transportation to the port, and export in ships. Even the learned AR by showing the sample requested the Bench to have a site visit by exercising the power u/s 255(6) of the IT Act. The learned DR objected....
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....t or by changing the location/foundation of the old equipments or installing a few new machines in the entire plant comprising of several such equipments, the assessee cannot claim that it has set up a new unit. Appellant's explanation (common to both the of the above observations) The CIT(A) ignored to consider the explanation of the assessee that the basic cost of plant & machinery in case of an iron ore beneficiation plant is incurred on raising steel and concrete structures on which the conveyor belts, crushers, screens and other such equipments are installed. The CIT(A) overlooked the basic composition of production apparatus required in an iron ore beneficiation plant and made the above naive assertion in a casual manner without any real understanding of the actual production mechanism involved. It is erroneous to compare the number of machines and equipments to conclude whether substantial expansion took place, when the Act itself provides the threshold limit of 20% for the said purpose in Explanation 2 to section 80-l(2) read with Explanation to sec.10B(2). 2.4 At page 48-49, as per CIT(A) vide para 10.7: There was no deletion in the block val....
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.... output of the unit, which essentially remains as iron ore. Appellants explanation This observation is patently wrong. The input is crude ore whereas the output is lumps and fines. Not only the physical appearance is absolutely different but even the commercial name and usage are both far different. There is practically no use of crude ore but the usage of lumps and fins is absolutely essential for steel making industry. It seems that the CIT(A) got misled by the loose usage of the term iron ore without verifying the actual facts. Moreover during the course of hearing before the Hon'ble ITAT, the assessee company showed samples of the input in the form of crude ore and the output in the form of iron ore and lumps. The activity was explained in detail which encompass transportation of crude ore, crushing, screening and washing, stacking, loading in barges, river transportation to the port and export in ships. The assessee has also mentioned that it would be willing to show the nature of activity inviting the Hon'ble Members for a site visit in order to have on the spot understanding of factual matters. It was requested that though the claim was mad....
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.... mining activity, ignoring the fact that the assessee is engaged in extraction and processing of iron ore not amounting to manufacture or production of any article or thing?", held as under (266 ITR 126): At the end of last but one para of the order.... "The Act also contains internal evidence to show that the legislature has treated raw ore differently from processed ore. A Division Bench of this court in CIT Vs Emirates Commercial Bank Ltd., (2003) 262 ITR 55 = (2003-TII-01-SC-INTL) has given the benefit even in respect of data processing done on computers. In other words, the legislation being a beneficial piece of legislation, an expanded meaning should be so given and has to be given." Thus, the Hon'ble Bombay High Court ratified the position that raw ore was different from processed ore. Further, while agreeing with the decision reached on 262 ITR 55 = (2003-TII-01-SC-INTL) (supra) in respect of the data processing that the same amounted to production, it has basically decided that the processing of iron ore also amounts to production following the same analogy. It can be so concluded since the data processing on computers does not involve extraction of ....
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....ng given by the High Court on the meaning of word production as unimpeachable in its opinion, and since a common phase 'extraction and processing of iron ore' had been employed in the question. It was also answered in the singular manner only by the Apex Court. However, what must be understood is that the Hon'ble High Court in 266 ITR 126 nowhere held that both extraction and processing of ore shall have to be undertaken together to constitute production. Therefore, it cannot be understood that the Apex Court decided the issue in any different manner and it must be safely concluded that extraction of iron ore and processing of iron ore were independently held as production. Accordingly, the assertion of the department that extraction and processing should both be undertaken together in order to pass the test of production is just misgiving and against the spirit of the above decisions of the Hon'ble Bombay High Court and the Supreme Court. Furthermore, even in the case of Chowgule & Co., Ltd., relied upon by the department, it must be appreciated the order dated 12/07/2007 of the Hon'ble Panaji Bench of ITAT in ITA No.162/Pnj/2006 was immediately rectified by....
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....old that a EOU qualifying for deduction u/s 10B must undertake both these activities together, rather it was held that if the assessee extracted the ore by itself and also undertook processing of the ore as its EOU, it would qualify for deduction u/s 10B for its ore processing EOU. In the present case of the assessee also, there is no dispute that the assessee-company namely M/s Sesa Goa Ltd., also undertook both the activities of extraction and processing and has correctly claimed the deduction u/s 10B in respect of profits arising from processing of ore at its EOUs. Thus, the parameters laid down in the above case of Chowgule & Co., by the Hon'ble ITAT are squarely met by the assessee. 2.8 At page 89. as per CIT(A) vide para-16: For determining the percentage of old equipments used in the new units even the assets held at the extracting unit must be taken into consideration. The CIT(A) has asserted that to determine the percentage of the old machine reused in the new set up it is necessary to take in to consideration all the old and existing machines of the respective units along with the plant and machinery deployed in the mines of the assessee. He has further avert....
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....s substantial modification in the old unit so as to disturb the identity of the old unit. - There should be lest possible or insignificant usage of the plant and machinery of the old unit, - There should be a negative act to disturb the identity of the old unit. - There is no bar on the existing assessee to set up new units essentially producing the same commodity as in the existing units. Thus, it was vehemently contended that the AO as well as the CIT(A) were not correct in taking the view that the assessee is not entitled for exemption u/s 10B in respect of Amona plant. It was also specifically pointed out by referring to the decision of the CIT(A) at page-48 that the CIT(A) has wrongly observed that the assessee has not made any addition in the plant and machinery. The assessee has invested the amount in the plant and machinery in Amona plant for this attention was drawn to page-45 to 48 of the paper book. Attention was also drawn towards the Board's resolution, annual accounts as well as schedule of the depreciation for the different years. The learned AR vehemently stated that the chart given at page-48 has been compiled by the CIT(A) without....
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....gard was received vide approval no.1/64/2007:PER:EOU:KR:Commissioner, Ministry of Commerce & Industry, Bangalore, which was ratified by the Board of Approval in its meeting held on 14-01-2011. The premises of the undertaking was bonded and License No.1/2008 dated 05-06-2008 was issue u/s 58 of the Customs Act and the commercial production for the converted EOU began on 06-06-2008 and the same was intimated to the Development Commissioner vide letter dated 14-07-2008. 39.3 The assessee submitted the copies of the documents to the AO and the same has been furnished before this Tribunal in the paper book detailed as under; (a) LOP No.1/64/2007 PER:EOU:KR:CSZ/243 dated 15/02/2008 (Page nos. 49-52 of PB Vol.l) (b) Board of Approval NO.1/64/2007/EOU/CSEZ/225 dated 21/02/2011 (Page No.53 of PB Vol.l) (c) Letter dated 14/07/2008 intimating the DC, about the commencement of commercial production on 06/06/2008 (Page no.63 of PB Vol.l) (d) Green card No.1052 (Page nos. 319-320 PB Vol.ll) (e) Chartered Accountant's report on Form NO.56G(Page nos.13-15 of PB Vol.l) (f) Details of computation of deduction u/s 10B (Page no.7 of PB Vol.l....
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....well as in the new plant during 2002-03 are given at page-385 of the paper book, vol.l. No crude or processed ore was purchased from anyone in this unit and for this attention was drawn to page-392 of the paper book. Ore costing Rs. 20,27,01,4548/-was processed/produced in Chitradurga Unit only out of the ore extracted by the assessee from own mines which are declared in the head 'cost of production'. In the computation of exemption claimed u/s 10B for this unit 39.6 The beneficiation plant mainly consists of various types of conveyors and screens which are fitted on huge steel structures, whereas the specialised items of plant & machinery are comparatively few in terms of physical quantity and size. Thus, usable steel from the dismantled plant was also re-used along with fresh steel purchases and the fabrication charges were incurred on the same in setting up of the new unit. A summary year wise amounts and related bills submitted before the authorities was given as under; FY Total Amount Before AO Before CIT(A) Before ITAT Balance 2005-06 93,84,634 Nil 54,65,761 29,70,530 948,342 2006-07 35,67,255 Nil 713,988 27,87,493....
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....is regard. Appellant's explanation; However, it is categorically submitted that nowhere such point was made by the assessee. Admittedly, it was a renovation project carving out new unit done in a phased manner spread over 4 long years. Thus, there was no question of demolishing the entire plant in one go. It must be appreciated that due to advancements in science and technology all across, nowadays, Metro can be laid out without disrupting the traffic in the concerned area even for a day. As far as the bill of M/s Bhella Constructions is concerned (page nos. 1443- 1445 of additional PB Vol.lll) it is explained that the CIT(A) picked up just one item sl.No.7 of Rs. 3,522/- in the said bill which he found as directly attributable to the dismantling work. Whereas the said bill clearly shows two other items also for charges towards the dismantling work of Rs. 65.3346/- and Rs. 79,060/- at Sl.Nos,.13 & 14 respectively, which had been made towards dismantling of structural steel and crusher hopper respectively. Thus, not only does the charge of CIT(A) get demolished on facts, but even the explanation of the assessee gets proved from the said bill itself tha....
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....ack to those earlier years to hold otherwise that the impugned bills showed that the related expenditure was in the nature of repairs. This was beyond the jurisdiction of the CIT(A) and therefore, the said finding is perverse and has no legal footing. At page 67 as per CIT(A) vide para 11.7: Production data shows that it increased without investment in plant & machinery. Production increased from 5.4 metric tons in the year 1999-2000 to 11.49 metric tons in the year 2004-05 without any investment in plant & machinery. Similarly, the production increased from 10.71 metric tons in the year 2006-07 to 21.26 metric tons in the year 2007-08 without any investment in plant & machinery during the year 2007-08. Appellant's explanation The conclusion drawn by the CIT(A) that without any addition of plant & machinery, production had sizably increased in the year 2004-05 from that in the year 1999-2000 and asserting that therefore, in the later years increase in production could not be attributed to installation of new plant & machinery is totally misplaced. CIT(A) has ignored the basic fact that the Chitradurga Plant had the existing production capacit....
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.... said expansion, grew up to 21.26 lakh MT in the following year i.e., 2007-08. There is nothing unusual about it. Moreover, it is not understood how production can increase is on a large scale. Therefore, no parity can be drawn between investment in plant & machinery in the year 2007-08 and the production level achieved in that very year as has been attempted by the CIT(A). At page 68 as per CIT(A): No major plant & machinery installed. The CIT(A) has asserted that except for a few items like vibrating screen and hydrocone crusher, no other major equipment or machine was installed during the period which could have helped in increasing the production capacity. Appellant's explanation It has already been explained at length that the basic cost of plant and machinery in case of an iron ore beneficiation plant is incurred on raising steel and concrete structures on which the conveyor belts, crushers, screens and other such equipments are installed. The CIT(A) has overlooked the basic composition of production apparatus required in an iron ore beneficiation plant and made the above naive assertion in a casual manner without any real understanding....
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.... was delivered by the Hon'ble Supreme Court in assessee's own case. The facts were that the assessee owned transport vehicles like dumpers, etc. which were employed in conveying crude ore from its mines to the beneficiation plant for processing and thus, declared as plant and machinery. It was explained that instead of installing the conventional conveyor belt system from the mines to the beneficiation plant for conveying crude ore, the assessee had chosen the cost effective way of conveying it through an on-wheel conveying system i.e. through dumpers etc., and which machines did not have any other use. Therefore, for all practical purposes these were not vehicles as understood in the ordinary sense, but plant and machinery in the case of the assessee. Accordingly, the assessee claimed investment allowance u/s 32A on the said assets, but it was disallowed by the assessing authority under the averment that those assets had not been used in the manufacturing process. After passing through the course of appellate proceedings before the CIT(A) and the ITAT the matter travelled to the High Court. The Hon'ble Panaji Bench of the High Court of Bombay, while answering the quest....
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....gh Court was re-examined by the Apex Court. The Apex Court held as under (271 ITR 331).... The reasoning given by the High Court, in the decisions noted by us earlier, is in our opinion, unimpeachable. This court had, as early as in 1961 in Chrestian Mica Industries Ltd. Vs State of Bihar (1961) 12 STC 150 defined the word production albeit in connection with the Bihar Sales Tax Act, 1947. The definition was adopted from the meaning ascribed to the word in the Oxford English Dictionary as meaning 'amongst other things that which is produced, a thing that results from any action, process or effort, a product, product of human activity or effort. From the wide definition of the word production, it has to follow that mining activity for the purpose of production of mineral ores would come within the ambit of the word production, since ore is a thing which is the result of human activity or effort. It has also been held by this court in CIT Vs N.C. Budharaja & Co., (1993) 204 ITR 412 that the word production is much wider than the word 'manufacture'. "We are therefore, of the opinion that extraction and processing of iron ore amounts to production within t....
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....d processing of iron ore must be carried out by the EOU itself to claim exemption u/s 10B. It must be understood that the mines and processing units are always at a safe distance with each other because mine blasting would otherwise disturb the functioning of the processing units. EOU unit has to be a custom bonded area but the mines are spread over kilometers in area which cannot be made custom bonded. Thus, the mines cannot be mad part of the EOU unit in any manner. However, even if the extraction of iron ore is carried out by the assessee at mines owned by him or by third party (which cannot be covered under EOU unit as explained above) and only the processing is carried out by EOU unit, even then the assessee will be eligible for 10B deduction for the said EOU as the assessee is extracting as well as processing the ore. This is the decision of the Chowgule because in that case the EOU was using the iron ore extracted by the said company from its own mines and from the mines of Antao Brothers which could not be part of the EOU unit of that assessee is any manner as explained above. Thus, the basic condition for allowing exemption u/s 10B by holding h extraction....
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....value of plant and machinery employed in the mines of the company are taken into consideration, then the percentage of old machine will certainly be exceeding the threshold limit of 20% as prescribed, is nothing but presumptuous. Moreover, it has already been explained that in Hon'ble Supreme Court judgment in 271 ITR 331 read with Bombay High Court's ruling in 266 ITR 126 in the case of Sesa Goa it has actually decided that extraction of ore and processing of ore are independently held as production'. Codli Unit 40. The assessee claimed exemption u/s 10B in respect of Codli Plant at Rs. 87052701/-. The assessee for making use of dumps (waste / tailings left out of normal iron ore for process) established this plant. The commercial production started on 8.3.2000. An application to SIA DIPP, Ministry of Industry was moved in 1997 to accord EOU status for such plant vide letter dated 15.8.1997. In the application assessee stated the raw material cost as raw material used in the wastage of other plants (pg 376) PB. This plant produces Ultra Fine Recovery. This plant was approved vide approval No. PER303(1997)EOB/318/97 dated 27.10.1997 as EOU plant (pgs.32-37 PB). Th....
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....is engaged manufacturing or production of an article or thing on the same decision which has been relied on in respect of similar issue arising in other two units. 40.2 On the objection of the AO that the assessee has not maintained separate books of accounts for EOU units and non-EOU units submissions made in respect of other units were reiterated. 40.3 On the objection of the AO that no satisfactory evidence was produced by the assessee about the date of manufacturing or production. It was submitted that the assessee submitted that the approval dated 27.10.1997 (pg.33-37 PB). In the approval one of the conditions was that the assessee has to implement the project and commence commercial production within 3 years and had to intimate this to Ministry. The assessee accordingly, intimated the Ministry vide its letter dated 9.3.2000 i.e., commercial production started on 8.3.2000. 40.4 On the objection of the AO that setting up of a unit on the old mines which are already operated by the assessee cannot be treated as new unit. It was contended that Sec. 10B nowhere prohibits the assessee to set up the unit by itself was new and is engaged in the manufacture or production acti....
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....eristics of iron ore the tailings can never be considered as iron ore extracted from the mines and therefore, recycling of such waste materials cannot be considered to be the same as processing of extracted iron ore.' This assertion rather proves the stand of the appellant that the output of Codli unit is a "new" product having different characteristics and use. 2.2 At Page 105 as per CIT(A) vide para 21: The unit is not engaged in any manufacturing or production of article or thing since the unit is not engaged in 'extraction and processing of iron ore', which together constitutes 'production', as interpreted by the Supreme Court in Sesa Goa 271 ITR331. Appellant's Explanation: The judgment in CIT Vs. Sesa Goa Ltd. (2004) 271 ITR 331 was delivered by the Hon'ble Supreme Court in assessee's own case. The facts were that the assessee owned transport vehicles like dumpers, etc. which were employed in conveying crude ore from its mines to the beneficiation plant for processing and, thus, declared as 'plant and machinery'. It was explained that instead of installing the conventional conveyor belt system from the mines t....
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.... of the said judgment here can only be in respect of 'processing' of the ore and not 'extraction' of the ore. Further, in the last para of their order, the Hon'ble Bombay High Court held: "The ore has to be extracted or raised from the earth in which it is embedded and has to be brought to the surface. What is brought to the surface is something new which comes into existence, as an article or thing. If that be the case, winning or extracting of ore would fall within the expression "production". Thus, on the question put before the Hon'ble High Court "whether 'extraction and processing' of iron ore amounted to 'manufacture or production'", it decided that 'processing of ore' was 'production' and also that 'extraction of ore' was also 'production'. However, the department preferred further appeal before the Hon'ble Supreme Court, where the same question as put before the High Court was re-examined by the apex court. The Apex Court held as under [271 ITR 331]: "The reasoning given by the High Court, in the decisions noted by us earlier, is, in our opinion, unimpeachable. Th....
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....appreciated the order dated 12/07/07 of the Hon'ble Panaji Bench of ITAT in ITA No. 162/PNJ/2006 was immediately rectified by the same bench in Miscellaneous Application moved by the assessee in M.A. No. 23/PNJ/2007 order dated 19/07/07 where it was finally held: "We hold that the assessee-company itself is extracting the entire iron ores and thereafter processing the same, and, therefore, entitled for the deduction u/s 10B as held by the Supreme Court in the case of Sesa Goa." The need for rectification arose since in the original order the Hon'ble ITAT had held that the assessee was only 'processing' iron ore but was not 'extracting' the ore (Please see para 5 of order dated 19/07/07 in MA). But the Hon'ble ITAT found during the MA proceedings (in the light of sub-para 8 in para 4 of order dated 19/07/07) that the assessee-company was extracting as well as processing the ore, and, therefore, 10B deduction was allowed to the assessee-company. It must be understood that 'EOU' and 'assessee' have different meaning. It is not necessary that both the extraction of iron ore and processing of iron ore must be carried out by t....
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....ellant's Explanation; Reference is invited to the judgments in Tata Tea Ltd. Vs. ACIT (2011) 338 ITR 285 (Ker.) and Madhu Jayanti International Ltd. Vs. DCIT (Kol. ITAT)(SB) . In case of an EOU, regard has to be given to the definition of manufacture contained in the relevant EXIM policy. Even if definition of "manufacture" has been inserted in the Income-tax Act, it is submitted that it would not deter to draw the definition of production from EXIM policy. Since it is settled law that production is wider than manufacture and every case of manufacture can be included in Production, hence the definition given in EXIM policy for "manufacture" would stand good for the word "Production" [Please refer to Page Nos. 174-179 of (Initial) PB Vol. (I) 2.4 At Page 112 as per CIT( A) vide para 22: The assessee-company has not produced any satisfactory evidence with regard to date / year of commencement of business of the unit. Appellant's Explanation: The above averment has been made without checking from the record that a copy of letter furnished to SIA, DIPP (as well as custom department) had been furnished by the appellant. These letters were duly....
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....ise break-up of the 'cost of production'. A copy of the same was also furnished before the Hon'ble Bench on 20/12/12. It is also reproduced herein below: Amona Unit Amount (Rs.) Ore Mining Cost (Ore Input Cost from own mines in Goa) 45,25,03,692 Ore Dressing Cost 10,46,39,225 Total (as per 10B Computation Sheet): 55,71,42,917 Chitradurga Unit Ore Mining Cost (Ore Input Cost from own mines in Karnataka) 20,27,01,458 Ore Dressing Cost 6,90,45.428 Total (as per 10B Computation Sheet): 27,17,46.886 Codli Unit Ore Mining Cost @ Nil Ore Dressing Cost 2,49.57.787 Total (as per 10B Computation Sheet): 2,49, 57,787 @ Raw-material for Codli is Tailings' which is a total waste and has no value. Thus, ore input cost has been duly and correctly declared in the computations for deduction claimed u/s 10B in respect of all three EOUs by the assessee. 3.2 Vide para 3c (page 8) of DR's PB Vol-II It is averred that letter signed by the Executive Assistant to Development Commissioner, SEEPZ SEZ stat....
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....1.2011 S. 10B claim A.Y.2005-06 AY. 2009-10 A.Y. 2009-10 Claim u/s. 10B Rs.8,70,52,701 Rs.257,23,14,771/- Rs.185,34,16,650/- Section 80IB of the Act claimed in respect of all the three units of Codli, Amona and Chitradurga division of Rs. 451,27,84,122/-. 41.1 It was stated that all the three units commenced processing of iron ore in the years 1973, 1958 & 1952. Section 10B of the Act, came under the Statute Book by Finance Act, 1988 w.e.f. 01.04.1989. In the assessment year 2005-06 (Codli unit), assessment year 2009-10 both Amona unit and Chitradurga unit made a claim of deduction u/s.10B of the Act. All the three units as stated above had commenced processing nearly 25 years earlier to the assessment year in which the claim u/s. 10B of the Act was made. Admittedly, the three units under which Section 10B of the Act claim has been made are not new units as contemplated under Section 10B of the Act. Relaxation of the new unit has been subsequently provided in the section by way of amendment only under certain conditions stipulated in the section, which were stated as under: a. For a period of TEN consecutive assessment years beginnin....
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....Codli unit. The addition made to the old machinery cannot be termed as a new undertaking. v. The judgments relied on by the assessee of the Apex court interpreting of Section 15C of the Income Tax Act 1922, will not be applicable to the facts of the present case as the wordings of Section 10B of the Act and 15C of the Act are not identical. The words "beginning with the assessment years relevant to the previous year in which the undertaking begins to manufacture or produce article or thing", which is prominent and the genesis of Section 10B of the Act is totally absent in Section 15C of the Act. Hence, the principle enunciated by the Apex court in those judgments cannot be made applicable to the facts of the present case. vi. In fact, when the legislature has deemed it fit to extent such addition to machinery as a new machinery. It has specifically stated so as in Explanation to Section 80IA of the Act. Reliance was placed on the following cases;- 1. (2011) 334 ITR 157 (Kar) Sami Labs Ltd., Vs. ACIT 2. SLP(C).No.14937/2011 M/s. Sami Labs Ltd., Vs. ACIT 3. Board Circular No.1 of 2005 dated 06.01.2005 4. (1990) 181 ITR 51....
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....ot filed any such application under sub-section (8) of section 10B of the Act. Therefore the assessee will not be entitled to claim exemption u/s.10B of the Act. The DR relied in the case of Hemalatha Gargya Vs. CIT, A.P. (2003) 9 SCC 510 d. "Relevant assessment years" Means any assessment years falling within a period of TEN CONSECUTIVE ASSESSMENT YEARS referred to in this section. [Section 10B Explanation 2(v)]. The claim u/s.10B of the Act can be made: a. In respect of a new unit. b. In the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce article or thing. c. Period of ten consecutive assessment years. d. Exempted only if assessee applies and is exempted by the Assessing Officer. Admittedly, the assessee has not satisfied any of these mandatory conditions. Hence assessee is not entitled to the claim u/s.10B of the Act. e. Deduction of such profits and gains as are derived by a hundred percent export oriented undertaking from the export of articles or things.[10B(1)] The deduction of such profits and gains are substantiated and has to be worked o....
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....red the approval of Board of Approvals" in respect of Codli Unit. This letter is not signed by the authorized person in accordance with the provisions of the Act. iii. In respect of Chitradurga Unit no approval for the current Assessment Year 2009-10 has been obtained. iv. Hence, the assessee does not have the requisite permission to claim benefit u/s.10B of the Act in respect of Codli Unit as well as Chitradurga Unit. 41.2 The learned DR made following written submissions ;- "Conditions stipulated by Section (Sub-section 2 of Section 10B) h. It manufactures or produces any articles or things or computer software. [Section 10B(2)(i)] a. Facts: - In the Codli unit, Amona Unit as well as Chitradurga Unit, assessee is carrying on the process of feeding iron ore which is grinded, washed of impurity as well as dry blown and the output again is iron ore. Both Assessing Officer as well as Appellate Commissioner examining the facts, find that all the three units are involved in processing of iron ore. The plant and machinery which is situated in the premises of these three units are benefication plants. It is mainly in....
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....t in CIT vs. Sesa Goa Ltd., (2004) 271 ITR 331 (SC) has held as under: iii. "We are, therefore, of the opinion that extraction and processing of iron ore amounts to "production" within the meaning of the word in S.32A(2)(b)(iii) of the Act and, consequently, the assessee is entitled to the benefit of S.32A(1) of the Act. The question whether the High Court was correct in holding that the activity did not amount to "manufacture" is left open." iv. It should be noted that out of the number of processes carried on by the assessee as noticed in the judgment of the jurisdictional High Court, the Codli unit, Amona Unit and Chitradurga Unit carries on (iii) washing, screening and dressing the ore. It is the contention of the revenue that this washing, screening and dressing of the ore or such other process carried on in the benefication plants of the three units does not amount to manufacture or production. It is further submitted that this controversy is now fairly concluded by the judgment of the jurisdictional High Court in the case of the assessee itself. v. Firstly, examining the term "manufacture", the jurisdictional High Court has concluded that not only ....
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....y a process is carried on. ix. Hence, the Codli unit of the assessee does not carry on any manufacture of production activity. It is hit by the restriction imposed u/s.10B(2)(i) of the Act. x. Assessee's arguments was being addressed regarding the actual activity being carried on in respect of Codli, Amona & Chitradurga units. This is reflected in the assessee's website, which is enclosed along with this submission. e. Important Note: Assessee's activity has not changed from the inception. The plants under which section 10B deduction is claimed continues to be the same. The same products are fed. This chain of production to ultimate sale cannot be cut into number of independent activity. Therefore the contention of the assessee is incorrect to say that this is an independent unit. The input which was made earlier and now is the same. The contention that it is the end product, tailings, by- products etc., are all contentions made to divert the attention from the actual controversy. f. Case Laws: 1. 1981 AIR (SC) 1014 Chowgule & Co., P. Ltd., Vs. Union of India & ors., 2. 1980 SCC (Tax) 319 Dy. Commissioner of Sales Ta....
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.... on seven different activities. The Codli unit, Amona Unit & Chitradurga Unit was carrying on one such activity. The assessee by claiming this activity as a separate activity would amount to splitting up of bifurcation of the original integrated activity of extraction of iron ore and export of the same. Hence, the assessee has split up its original activity of business already in existence which is contrary to Section 10B(2)(ii) of the Act. e. Reconstruction of business: "to rebuild or to reconstitute" must necessarily involve the concept that the original business or undertaking is not to cease functioning and its identity is not to be lost or abandoned. The underlying idea of reconstruction evidently must be - and this is brought out by the section itself - of a business already in existence. There must be a continuation of the activities and the business of the same industrial undertaking. The undertaking must continue to carry on the same business though in some altered or varied form. If the alterations and changes are substantial, there would be little scope for describing what emerges as a reconstruction of the business. (1959) 35 ITR 662 (Bom) CIT Vs. Gaekwar Foam ....
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....m deduction u/s.10B of the Act. Case Law: 1. Civil Appeal No.2978/2008 & Civil Appeal No. 1070/2009 M/s. Arisudana Spinning Mills Ltd., Vs. CIT, Ludhiana 2. Civil Appeal No. 1679/2004 CIT, Guwahati VS Bongaigaon Refinery & Petrochemicals Ltd. 8. Assessee in respect of Codli Unit had claimed deduction from the assessment year 2005-06 From the assessment year 2005-06 to the assessment year 2008-09, the original orders passed by the Tribunal is not on merits. It has proceeded to grant relief on other issues. Hence the orders passed in the earlier assessment years cannot be treated as a binding precedent. Case Law: 1. Bharat Sanchar Nigam Ltd., & Anr. VS Union of India & Ors. (2006) 282 ITR 273 (SC) ". 42. We have carefully considered the rival submissions along with the orders of the tax authorities below as well as the material referred before us from the paper books. We have also gone through the various case laws as relied upon from both the sides. In respect of all the three units established by the assessee which are approved as EOU by the competent authority, the assessee has claimed exemption u/s 10B of the Incom....
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....s lighter material, is pumped to two stage cyclones - primary and secondary. xi. Primary cyclone segregates high grade fines which are removed as an underflow, and the overflow is fed to secondary cyclones to recover further iron ore fines. Primary and secondary cyclone underflow is dewatered by slow speed spiral classifiers, and collected as fines. xii. The secondary cyclone's overflow is a waste, called "tailings" and it is discharged into the tailing pond. xiii. Iron ore lumps and fines are then moved through conveyor belts to the Barges, which are stationed on the river bank besides the plant. Here, different sizes of lumps having different chemical and physical compositions are mixed mechanically as per the product composition ordered by the overseas buyers. Processes undertaken at Chitradurga Beneficiation Plant i. The crude iron ore (Run of Mines - ROM) extracted from the mines is received at the plant. ii. Crude iron ore is fed to the Hopper. iii. Screening of crude iron ore is done on a vibrating screen or the "vibrating grizzly feeder" having opening of the particular desired size. Thus, oversized products....
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....onsisting of 'gang' material is channeled out to the tailing thicker. iii. Screened slurry is then fed to the Medium Intensity Magnetic Separator, which operates at around 7 Tesla of magnetic intensity. This instrument recovers the Magnetite and Martite material present in the slurry feed. This product is called as 'MAGS'. iv. The overflow from MIMS, i.e., non-mags, is again treated in a very high intensity magnetic environment, which facilitates further recovery. To achieve this, Ferrous Wheel Separator, which generates magnetic intensity of around 14 Tesla is used. With this equipment very fine Hematite particles are recovered from Mags. v. Mags from both MIMS and Ferrous Wheel are the agitated for homogeneous mixing with the help of Agitator, and then de-watered with the help of Ceramic Filter. The de-watered "Ultra Fines", which is the final product, is stacked at a shed erected for the purpose. vi. Non-mags from MIMS/ Ferrous Wheel and De-sliming Cyclone overflow is treated at the tailing thicker for water recovery before the same is sent to the tailing pond as waste material. 42.1 Each of these units was approved as EOU u....
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....ng through a conveyor system, after which it is carried to the screens of various sizes, yet again through an organized mechanism of conveyor belts. The whole plant we noted consists of huge steel structures of about 6-10 meters height on which the banana screen and the conveyors were found installed. The process of crushing and screening were told to be repeated till the desired sizes were obtained. It was explained that the products then pass through log washers where the impurities are further removed. Some of the conveyors were found open to sky whereas some were found covered with Galvanized Iron (GI) sheets. It was seen that the conveyors were made to carry ore of various sizes from the screens to the log washers where the output is washed. Log washer was found to be a rectangular drum fitted with a spiral pinion made of MS plates. The final product, 'lumps and fines' were noted to be totally physically different in appearance and use from the initial input product. We were also shown metallurgical coke plant but that is not relevant for exemption u/s 10B. 42.4 The hearing was earlier concluded on 20/12/2012 after hearing counsels from both the sides continuously o....
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.... "processing" together. The ruling of the Supreme Court is not that extraction as well as processing, independently amounts to production, (emphasise supplied). If an assessee carries on the business of extracting mineral ore, it amounts to manufacture or production as per the above judgement. If the same assessee in addition to extraction, also process the mineral ore, the combined activity obviously amounts to production/manufacture. But processing the mineral ore without extraction of the ore has not been held to be production / manufacture by the Supreme Court in the said decision of Sesa Goa." "In the present case also, the process carried on by the assessee is providing value addition to Iron ore by enhancing its quality. It is in fact upgrading the quality for apt industrial use. Even though the process employed by the assessee might require deployment of huge capital and large plant and machinery, such things do not change the basic character of the activities carried on by the assessee-company. What is received by the assessee-company is iron ore; what is processed by the assessee-company is iron-ore and again what is sent outside the assessee company is still the....
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....ich hearing had already been concluded. In this regard he relied upon certain decisions such as M/s Roger Enterprises Pvt Ltd. Vs. DCIT SPL Range 5, New Delhi ITA No. 1515,1516,1517/del/97 dt. 8.5.2003, Denso India Ltd. Vs. JCIT, TDs Range 22, New Delhi ITA Nos. 3233 to 3242/Del/2003 dt. 2.9.2004 and that of Madras High Court in the case of S Govindaraja Mudaliar Vs. Income Tax Appellate Tribunal 206 ITR 62 but on the basis of natural justice as the order was not finalized and especially when CCIT had personally appeared, we permitted CCIT to argue on this application. The CCIT carried us to the order of the ITAT in ITA No. 162 and 184 in Chowgule and Company and also the MA No.23 order to press that the Coordinate Bench of this Tribunal has taken the view that extraction and processing of iron ore is necessary for holding that assessee has manufactured or produced an article or thing. Mere processing of iron ore will not tantamount to be manufacture / production. The decision of co-ordinate bench dated 12.7.2007 is binding on us. This finding of coordinate bench has not been reversed by the order passed in M.A No.23 dated 19.7.2007. It was vehemently contended, that in case this b....
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.... etc., and sec. 10AA of the Act which deals with the special provisions in respect of the newly established units in special economic zones; and also sec. 10B of the Act which deals with the special provisions in respect of the newly established 100% export oriented undertakings were inserted by the Finance Act, 1988 w.e.f. 01/04/1989. Sec. 10B provides that any profits and gains derived by an assessee from a 100% EOU shall not be included in the total income of the assessee. This provision applies to any undertaking which manufactures or produces any article or thing. Explanation (i) to sec. 10B provides that the expression '100% Export Oriented Unit' means an undertaking which has been approved by the Board appointed in this behalf by the Central Government in exercise of the powers confirmed by sec. 14 of the Industries (Development & Regulation) Act, 1951 and the riles made there under. Explanation (iii) which was there at the time of the said sec. 10B defined the word 'manufacture' for the purpose of the said section to include any - (a) process or (b) assembling or (c) recording of programme on disc, tape, perforated media or other information storage device. ....
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....rs in a graded manner. The new provisions contained the following additional conditions: i. The sale proceeds of articles or things or computer software exported out of India, should be received in or brought into India within a period of 6 months from the end of the previous year or within such further period as the competent authority may allow - Sub-section (3); ii. The profits derived from the export of articles or things or computer software shall be the amount which bears to the profits of the business, the same proportion, as the export turnover in respect of such article or things or computer software bears to the total turnover of business - Sub-section (4); iii. The assessee must furnish in the prescribed form No. 56G, along with his return of income, the report of a Chartered Accountant certifying that the deduction has been correctly claimed in accordance with the provisions of section 10B- Sub-section (5); iv. Where the assessee avails of the benefits of section 10A or section 10B, it will not be eligible for other tax exemptions available under other provisions of the Act during the period of 10 years - Sub-section (6); v. ....
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....les Tax Act, 1956. Dealing with this question, their lordships held and observed at pages 659 and 660 of the reports as under:- "It still remains to consider whether the ore blended in the course of loading through the mechanical ore handling plant can be said to undergo processing when it is blended. The answer to this question depends upon what is the true meaning and connotation of the word "processing" in Section 8(3)(b) and Rule 13. This word has not been defined in the Act and it must therefore be interpreted according to its plain natural meaning. Webster's Dictionary gives the following meaning of the word 'process': "to subject to some special process or treatment, to subject (especially raw material) to a process of manufacture, development of preparation for the market etc.; to convert into marketable form as livestock by slaughtering, grain by milling, cotton by spinning, milk by pasteurizing, fruits and vegetables by sorting and repacking." Where therefore any commodity is subjected to a process or treatment with a view to its "development or preparation for the market", as, for example, by sorting and repacking fruits and vegetables, it would a....
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....l composition is a result of blending and so far as this aspect of the question is concerned, it is impossible to argue that they do not suffer any change in their respective chemical and physical compositions. Thus the Hon'ble Supreme Court accepted that there is change in chemical compositions after processing of the iron ore in this case. From the said decision of the Apex Court, it is apparent that Hon'ble Apex Court held even blending of iron ore for the purpose of export involves change in the chemical and physical composition of iron ore. But if we look to the facts in the impugned case of the assessee, the assessee is not only blending iron ore but carrying out various processes as to make iron ore called crude ore useable to Ispat Industries. The activity of the units of the assessee for Amona and Chitradurga involved converting input into output consist of crushing (crude ore called ROM which appeared to be pieces of rocks as we noted during the course of hearing on the basis of sample shown to us) screening, washing, stacking, loading in barges, river transportation to the boat and export in ships. The finished product which comes out are called lumps and fine....
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....s, intermediate products and residual products which emerge in the course of manufacture of goods." 43.6 In Christian Mica Industries Ltd. Vs. State of Bihar (1961) 12 STC 150 (SC), Hon'ble Supreme Court defined the word 'production', albeit, in connection with the Bihar Sales Tax Act, 1947. The definition was adopted from the meaning ascribed to the word "production" in the Oxford English Dictionary, as meaning "amongst other things that which is produced; a thing that results from any action, process or effort, a product; a product of human activity or effort". For the wide definition of the word 'production', it has to follow that mining activity for the purpose of production of mineral ores would come within the ambit of the word 'production' since ore is 'a thing', which is the result of human activity or effort. 43.7 According to Webster International English Dictionary, the verb "produce" means to bring forward, beget, etc. The juxtaposition of the word "manufacture" with 'agriculture' and 'horticulture' is significant and cannot be lost sight of. The intention in employing the word "produced" obviously was to introdu....
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....processing' of tea, equally on a parity of reasoning, blending of ore of different chemical and physical compositions could not be held to constitute 'processing' of the ore. Now undoubtedly there is a close analogy between the facts of Nilgiri Tea Company case [10 STC 500 (Bom HC)] and the facts of the present case, but we do not think we can accept the decision of the Bombay High Court in the Nilgiri Tea Company case [10 STC 500 (Bom HC)] as laying down the correct law. When different brands of tea were mixed by the assessee in Nilgiri Tea Company case [10 STC 500 (Bom HC)] for the purpose of producing a tea mixture of a different kind and quality according to a formula evolved by them, there was plainly and indubitably processing of the different brands of tea, because these brands of tea experienced, as a result of mixing, qualitative change, in that the tea mixture which came into existence was of different quality and flavor than the different brands of tea which went into the mixture. There are, it is true, some observations in the judgment of the Bombay High Court which seem to suggest that if instead of manual application of energy in mixing the differ....
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....chanical force, but that is not the correct test to be applied for the purpose of determining whether the operation constitutes is 'processing'. (iii) The question is not whether there is any manual application of energy or there is application of mechanical force. Whatever be the means employed for the purpose of carrying out the operation, it is the effect of the operation on the commodity that is material for the purpose of determining whether the operation constitutes "processing". 43.10 Therefore, Hon'ble Supreme Court, in construing the expression "processing" allowed the appeal of the assessee, in Chowgule & Co. Pvt. Ltd. (supra), holding, inter alia, that where any commodity is subjected to a process or treatment with a view to its "development or preparation for the market" it would amount to processing of the commodity within the meaning of Central Sales Tax Act, 1956. Hon'ble Supreme Court, in the said judgment, did not consider the expression "manufacture" since the question was decided only on the expression "processing". However, considering the judgment of the Bombay High Court in the case of Nilgiri Tea Co. [1959] 10 STC 500, Hon'ble ....
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....nding of tea does not amount to 'manufacture' or 'production' of an article or thing, but is only processing, Hon'ble High Court allowing the appeal of the assessee held that the assessee was exclusively engaged in blending and packing of tea for export and was not manufacturing or producing any other article or thing. It was recognized as a 100% EOU division and the Department had no case that the assessee's unit engaged in export of tea bags and tea packets was not a 100% EOU. If exemption was denied on the ground that products exported were not produced or manufactured in the industrial units of the assessee's 100% EOU, it would defeat the very object of section 10B of the Act, (similar to assessee's case). Further, industrial units engaged in the very same activity, i.e., blending, packing and export of tea in the special economic zones and free trade zones, would continue to enjoy tax exemption under section 10A of the Act and section 10AA of the Act respectively. The assessee was allowed exemption on the profit derived by its 100% EOU engaged in blending, packing and export of tea bags and tea packets. Hon'ble High Court held as under: ....
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....enied of export exemption available under section 80HHC even to a merchant exporter. In our view, the decision of the Supreme Court in Tara Agencies' case [2007] 292 ITR 444 (SC) is not applicable for the purpose of considering exemption for industries in the export processing zones, free trade zones and to 100 per cent export oriented units covered by sections 10A, 10AA and 10B of the Income-tax Act. Therefore, following the judgment of this court above referred to we hold that the assessee is entitled to exemption on the profit derived by its 100 per cent export oriented unit engaged in blending, packing and export of tea bags and tea packets. Consequently, we allow the appeals by reversing the orders of the Tribunal and by restoring the orders of the first appellate authority declaring the appellant's entitlement for exemption." 43.12 Hon'ble high court in this case, in our opinion, has clearly laid down that once the assessee is recognized as a 100% EOU for engaging in an activity and assessee is engaged in the same very activity, if the exemption is denied to the assessee on the ground that there is no production or manufacturing but only processing of the produ....
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....10B in respect of export of blending of tea. The rejection of exemption u/s 10B was confirmed by the CIT(A). When the matter went before the special Bench, Special Bench after discussion the relevant provisions as well as the various decisions of High Court and the Supreme Court held as under:- "32. The provisions of section 10AA of the Act was inserted on the statute book by the Special Economic Zones Act, 2005 w.e.f. 10.02.2006. Even prior to the enactment of the said SEZ Act, Special Economic Zones (including units therein) were all along treated like EQU / FTZ / EPZ for all purposes whatsoever and were dealt within the Exim Policy accordingly. Section 2(k) of the Special Economic Zone Act, 2005 defines the expression "Existing Special Economic Zone" to mean every Special Economic Zone which is in existence on or before the commencement of the said Act. Section 2(e) defines the expression "existing unit" to mean every unit which has been set up on or before the commencement of the said Act in an existing Special Economic Zone. In other words, admittedly all Special Economic Zones were also being governed by the Exim Policy prior to the enactment of SEZ Act, 2005. Clause....
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.... "Quick Brewing Black Tea", "Instant Tea" and "Made Tea" have also been distinctly and separately defined. Clause (29BA) was inserted in section 2 of the Income Tax Act, 1961 by the Finance (No.2) Act, 2009 w.e.f. 01.04.2009 to define the expression "manufacture" as under. "manufacture", with its grammatical variations, means a change in a non-living physical object or article or thing, - (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure; The aforesaid definition of the expression "manufacture", although brought into the statute book w.e.f. 01.04.2009, was applied by the Hon'ble Supreme Court even for the assessment year 2001-02 in ITO v. Arihant Tiles and Marbles Pvt. Ltd. (2010) 320 ITR 79, 82 (SC) on the ground that Parliament had taken note of ground reality in inserting section 2(29BA) in the Income Tax Law. The said definition was again applied by the Hon'ble Supreme Court in CIT V. Emp....
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....on from time to time as discussed above. 35. We find from the above facts and circumstances and case laws relied on by both the sides that the assessee was exclusively engaged in blending, packaging and export of tea bags, tea packets and bulk tea packs. The assessee's division enjoys recognition as a 100% EOU, which is granted by the Development Commissioner, Ministry of Commerce & Industry, Govt. of India. The assessee claimed exemption u/s. 10B of the Act for AYs 2000-01 onwards, which was granted upto the AY 2003-04. However, for the AY 2004-05, exemption was declined for the reasons that by the Finance Act, 2000, the definition of 'manufacture' which included 'processing' contained in section 10B of the Act was deleted w.e.f. 01.04.2001. The argument of the department is that manufacture or production had liberal meaning under the definition clause contained in section 10B of the Act until its deletion which covers even processing and, therefore, blending "and packaging of tea for export was treated as 'manufacture' or 'production' of an article qualifying for exemption. We are of the considered view that the contention of the asses....
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....the above and respectfully following the decision of Hon'ble Kerala High Court in the case of Girnar Industries (supra) and Tata Tea Limited (supra), we "hold that the assessee is entitled for exemption under Section 10B of the Act on account of blending of tea. Similarly, in our view, the industrial units engaged in the very same activity i.e. blending, packing and export of tea in the free trade zone shall also be entitled to enjoy tax exemption under Section 10A of the Act. 37. Accordingly, we answer the question referred in favour of the assessee by holding that the assessees who are in the business of blending and processing of tea and export thereof, in 100% EOUs are manufacturer/producer of the tea for the purpose of claiming exemption u/s. 10B of the Act. Further, assessees who are in the business of blending and processing of tea hi respect of undertakings in free trade zones are manufacturer/producer of tea for the purpose of claiming exemption u/s. 10A of the Act. We have examined and discussed the facts in the case of Madhu Jayanti International Ltd. and found that them is blending of tea and consequently the assessee is eligible for exemption u/s. 10B of t....
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....assessee was engaged in the activity of cutting and polishing of marble blocks, the question before the Supreme Court was whether the activities undertaken by the assessee would fall within the meaning of the words 'manufacture or production' in section 80-IA of the Income-tax Act, 1961? In this case, Hon'ble Supreme Court, after discussing the definition of 'manufacture' given in section 2(29BA) of the Income-tax Act, 1961 and also discussing the provisions of section 80-IA(2)(iii) and after going through various decisions, held as under: "22. Applying the above tests laid down by this Court in CIT Vs. N.C. Budharaja and Co. 204 ITR 412 (SC) to the facts of the present cases, we are of the view that blocks converted into polished slabs and tiles after undergoing the process indicated above certainly results in emergence of a new and distinct commodity. The original block does not remain the marble block, it becomes a slab or tile. In the circumstances, not only there is manufacture but also an activity which is something beyond manufacture and which brings a new product into existence and, therefore, on the facts of these cases, we are of the view that....
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....that "if section 10B provides exemption for processing also, the law would have made it very clear by apparently stating that processing is also entitled for exemption. When the expression 'processing' is omitted in section 10B, we are not supposed to fill up the omission. If something is not there we should accept as it is not there. We should not provide for the omission that amounts to judicial legislation. There is no confusion in the provision of law provided under section 10B. The exemption is available only to manufacture or production. It is not available for processing." Although subsequently this Tribunal has rectified the order under section 254 vide order dated 19th July, 2007 on the application of the assessee and took the view that the assessee is entitled for exemption under section 10B as the assessee-company itself is extracting the entire iron ore from own mines and mines taken on lease and thereafter processing the same. We cannot look into the finding of the coordinate Bench whether they have correctly interpreted the decision of Supreme Court in 271 ITR 331 or not. The Ld. AR vehemently contended that the decision dt. 12th July, 2007 of this Tribunal in....
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....bsequent decisions are binding on us as judicial discipline require that. This Tribunal is bound to consider those decisions and the Tribunal is not bound with the decision of the coordinate Bench. The jurisdictional Bombay High Court in the case of H.A. Shah & Co. Vs. CIT (1956) 30 ITR 618, 625 (Bom.) even took the view that in case fresh material facts came to the knowledge of subsequent bench, the decision of coordinate bench is not binding. In this regard, Hon'ble High Court observed as under :- "Nor are we satisfied that in order to enable the second Tribunal to depart from the finding of the first Tribunal it is essential that there must be some fresh facts which must be placed before the second Tribunal which were not placed before the first Tribunal. If the first Tribunal failed to take into consideration material facts, facts which had a considerable bearing upon the ultimate decision, and if the second Tribunal was satisfied that the decision was arrived at because of the failure to take into consideration those material facts and that if these material facts had been taken into consideration the decision would have been different, then the second Tribunal wo....
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.... amendments have duly been considered by the subsequent decision of Special Bench, High Court and the Supreme Court cited by us in discussion held here in above. We noted that subsequent to the decision of this Tribunal in ITA No. 162/PNJ/2006 dt. 12th July, 2007, the Special Bench of this Tribunal in the case of Madhu Jayanti International Ltd. has dealt with the issue exhaustibly whether the assessees who are in the business of blending of tea i.e processing of tea and export thereof in 100% EOU can be said to be manufacturer / producer of tea for the purpose of section 10A/10B. When the Supreme Court has already held in the case of Tara Agencies 292 ITR 444 that blending of tea is processing. Thus, the Special Bench has decided the issue in respect of 100% EOU for the purpose of exemption under section 10B whether an assessee who is engaged in processing can be said to be engaged in manufacture / processing. We also noted that Kerala High Court in the case of Tata Tea Ltd. Vs. ACIT 338 ITR 285 dealt with the issue in respect of 100% EOU for the purpose of exemption under section 10B whether the processing of tea is treated as manufacture or production of an article qualifying fo....
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....on of the Special Bench and Arihant Tiles & Marbles (SC) as well as Kerala High Court in the case of Tata Tea (Supra) which would have disallowed the claim of the assessee u/s 10B on this basis after considering the Explanation (iii) of section 10AA as well as definition given u/s 2(29BA). Thus, due to the decision rendered by the Special Bench, High Courts and Supreme Court subsequent to the date of order in the case of Chowgule & Co. Ltd. Vs. ACIT in ITA No. 162/PNJ/2006 in our opinion, the issue raised by the Revenue is not fit to be referred to Special Bench as the decisions of Special Bench / High Court / Supreme Court are binding on us in preference to the decision of the coordinate Bench. Thus, we have in our opinion germane reason not to refer this issue for constitution of a Special Bench as in our opinion even if the Special Bench is constituted the earlier decision of the Special Bench in the case of Madhu Jayanti will be binding until and unless there are special and germane reasons for constituting a large Special Bench. We, therefore, dismiss the application dt. 18/01/2013 moved by the Revenue for constituting the Special Bench. 45.8 Now coming back to the issue wh....
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....ssee was engaged in the business of blending the tea for upgrading for marketing. Thus, in view of the decision of the Special Bench and other decisions discussed in the preceding paragraphs and that of Hon'ble Supreme Court in the case of Chowgule & co (supra) as well as definition of 'manufacture' as inserted w.e.f 1.4.2009 by way of section 2 (29AB) of the Income Tax Act as referred to by both the parties, we hold that all the three 100% EOU engaged in processing so as to make crude ore and waste i.e tailings usable or marketable are entitled for exemption u/s 10B subject to the other conditions for exemption under section 10B are being fulfilled. 45.10 Now, we will deal with the contention whether the assessee has set new units or has merely reconstructed the business which was already in existence. We noted that the assessee had made the following investments in installing the Plant & Machinery in these EOUs:- Fin. Year Amona Chitradurga Codli 1999-2000 9,00,78,574 2002-03 3,96,10,020 2005-06 93,84,633 (Phase-I) 2006-07 35,67,257 (Phase-II) ....
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....e Tables of Plant & Machinery capitalized for - (a) Amona EOU for the FYs 2002-03 to 2008-09 (at page nos. 45-48 of the paper book), (b) Chitradurga EOU for the FYs 2005-06 to 2008-09 (at page nos. 54-55 of the paper book), and (c) Codli EOU for the FYs 1999-2000 to 2008-09 (at page nos. 38-40 of the paper book). iv. Audited Annual Accounts of the appellant-company for the financial years ended on 31/03/2003, 31/03/2006, 31/03/2007 and 31/03/2009 at page nos. 91-632 of the Additional paper book. v. Copies of bills of plant & machinery items were submitted in respect of the EOUs as under: (a) Amona EOU for Rs. 3,57,03,426/- out of total investment of Rs. 3,96,10,020/- at page nos: 794-1146 and 1378-1435 of the Additional paper books. (b) Chitradurga EOU for Rs. 8,18,50,910/- out of total investment of Rs. 8,33,34,046/- at page nos. 1147-1355 and 1436-1472 of the Additional paper books. 45.11 These evidences clearly prove, in our opinion, that the assessee made huge investments in these units. Even the assessee submitted the evidences for selling the old and obsolete dismantled machines as scrap sales. We do agree that....
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....f iron ore mining capacity from 1.6 MTPA to 2.5 MTPA. Subsequently, the management of the company also underwent a change from Mitsui group with M/s Vedanta Group. Due to this expansion/establishment project could be completed during the FY 2008-09 in three phases having a total production capacity of 6 MTPA. The investments were made in a phased manner which resulted in creation of new unit in place of the existing unit. In the F.Y 2005-06, i.e., the initial year for the purpose of section 10B, total investment of Rs. 93,84,633/- was made in acquisition of new plant & machinery including dismantling of the old plant & structures. The phase-II of project establishment was completed next year, i.e., FY 2006-07 in which fresh capital investment of Rs. 35,67,257/- was made in plant & machinery. Finally the third phase of new plant was completed in the FY 2008-09 with an addition of Rs. 7,03,82,158/- to plant & machinery. The WDV as on 01/04/2005 of the plant & machinery at Chitradurga was just Rs. 6,93,596/- which was either dismantled completely or wherever structural steel was usable it was utilized in the erection of new machinery. The cost of new machinery acquired in FY 2005-06 w....
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....nt shown in the depreciation charts for the concerned years. CIT(A) has complied charts in respect of Amona and Chitradurga units in his appellate order. In this regard the Ld. AR explained the basic cost of plant & machinery in the case of an iron ore beneficiation plant is incurred on raising steel and concrete structures on which the conveyor belts, crushers, screens, etc. are installed. Though all existing items of machine were scrapped usable steel from the same was utilized in the erection of new machines and equipments for which only some additional charges were paid. Thus, the existing dismantled structure got merged within the new plant to that extent. Accordingly, instead of deleting the relatable value of existing plant, the cost of additional plant acquired during the year was recorded at net value. Also the scrap of the remaining existing plant was sold and shown separately in the relevant audited profit & loss account for the concerned financial year under the head "Service and Other Proceeds" for which attention was drawn to P & L account and accordingly these meager sums were not reduced from the schedule of fixed assets. In this regard, our attention was drawn to S....
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....ase that it was only some repairs or at best a renovation work undertaken at Amona, whereas several other pieces of correspondence were ignored by him which prove that the appellant had factually undertaken a major dismantling and demolition of the existing plant as well as erection and installation of new plant in its place there. From the correspondence exchanged with panchayat and newspaper clippings filed in PB (Pages 293,294,299 & 409-411), we noted the CIT(A) ignored the local newspaper clippings which in our opinion are vital piece of evidence in this regard. These clippings clearly bring out the fact that a complete destruction of old unit was done and altogether new plant was set-up at Amona, albeit, with the aid of some old machinery and parts thereof. Regarding the contention of the revenue that there is only one bill of Rs. 3,522/- which contains demolition or dismantling charges, we noted that in the same bill Rs. 65,346/- and Rs. 79,060/- at sl. nos. 13 & 14 for dismantling of structural steel and crusher hopper respectively were also stated (page nos. 1443-1445 of the Additional paper book Vol.III). In the case of the assessee we noted and as has been accepted by the....
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....-heating, pasteurization were only of preparatory nature for the manufacturing of the product of the assessee. The assessee appears to have introduced almost entirely new manufacturing technology and processes. 13. The reconstruction of a business or an industrial undertaking must necessarily involve the concept that the original business or undertaking is not to cease functioning, and its identity is not to be set to be lost or abandoned. The concept essentially rests on changes but the changes must be constructive and not destructive. There must be something positive about the whole matter as opposed to negative. The underlying idea of a reconstruction evidently must be - and this is brought out by the section itself - of a 'business already in existence'. There must be a continuation of the activities and business of the same industrial undertaking. The undertaking must continue to carry on the same business though in some altered or varied form. If the alteration and changes are substantial, there would be little scope for describing what emerges as a reconstruction of the business. (See CIT v. Gaekwar Foam and Rubber Co. Ltd. [1959] 35 ITR 662 [Bom.] ....
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.... of the Act because the unit as such had commenced in the year 1957-58 notwithstanding the fact that there had been an expansion thereto in the subsequent year." (iii) Taurus Merchandising (P) Ltd. Vs. ITO (2012) 143 TTJ (Del) 1 "16. ...In Jt. CIT vs. Associated Capsules (P) Ltd. (2008) 117 TTJ (Mumbai) 399 : (2008) 9 DTR (Mumbai)(Trib) 95 : (2008) 304 ITR 85 (Mumbai)(AT), it has been held that where the assessee had established new plant and machinery at the same premises and was producing the same product as that done by the existing business, the new units were having separate and distinct identity of their own, profits and gains were derived from them and the assessee was treating each unit as a separate and independent unit in its accounts, the new units could not be held to be part of the existing business; and that the assessee was entitled to deduction under ss. 80-I and 80-IA of the Act. 17. Further, the existence of business is a presupposition for the formation of a new undertaking by the reconstruction or the splitting up thereof. In the present case, there had been no business in the old unit of the assessee for over five years before the sta....
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....resent case also, it is not the case of the Revenue that the new unit by itself is not capable of production of goods but the case of the Revenue is that it takes help of the old existing unit We are of the view that, that itself should not be the reason to reject the claim under Section 80-I of the Act. Thus, whether an undertaking is a "new industrial undertaking" entitled to the exemption under Section 80-I of the Act depends on the facts of each case. No hard and fast rule can be laid down. Use by the assessee of the old undertaking for the purpose of production in its new undertaking is not a decisive test in construing Section 80-I of the Act. The new undertaking must not be substantially the same old business. Substantial investment of new capital is imperative and in the present case, there has been a huge substantial investment of around Rs. 7 crore almost three decades ago. The words "the capital employed" in the principal clause of Section 80-I of the Act are significant, for fresh capital must be employed in the new undertaking claiming exemption. Manufacture or production of articles yielding additional profit attributable to the new outlay of capital in a separate and....
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....d set up new units essentially producing the same commodity as in the existing units, though there is no such bar imposed in law. 45.17 Accordingly, after hearing both the parties and also going through the material placed on record and after considering the various decisions, we hold that new units had actually been established by the assessee in the FY 1999-2000 at Codli; in the FY 2002-03 at Amona; and in the FY 2005-06 at Chitradurga. 45.18 We noted after going through the provisions of sec.10B that there is no requirement that the assessee should maintain separate books of accounts in respect of 100% EOU Unit for claiming deduction. The only requirement in this regard u/s 10B(5) is that the assessee shall not be allowed deduction unless the assessee furnishes in the prescribed form along with the return of income the report of an accountant, as we find in the explanation below sub-sec.2 of sec.288, certifying that deduction has been correctly claimed in accordance with provisions of the IT Act, 1961. We have gone through the case laws, as relied by the learned AR and we find that the case of the assessee is duly covered by the decision in the case of DCIT Vs Arabian Expo....
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....ket value of the crude ore consumed by the assessee on the basis of the value paid by the assessee for the crude ore to the outside parties during the year and thereby recomputing the profit derived by the assessee from the 100% EOU units eligible for exemption u/s 10B. Accordingly, we direct the Assessing Officer to recompute the exemption available u/s 10B to the assessee in respect of Amona as well as Chitradurga units after ascertaining the market value of the crude ores transferred by the assessee to these units from its extraction divisions on the basis of the average market value as the assessee has paid to the outside parties for the crude ores purchased by the assessee from these parties during the impugned assessment year and substituting as cost of the raw material in place of cost of the crude ore derived by the assessee from its own mines after giving proper and sufficient opportunity to the assessee to adduce the material and evidence in this regard. 45.22 With regard to Codli unit, the assessee claimed before us that the input in this case is 'tailings' which is merely a waste product and does not involve any cost and also has not fetched any price in the ....
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....coke. The division is not associated with any kind of extraction of coal or any other ore as part of its business activity. In the case of CIT Vs Sesa Goa Ltd., 271 ITR 331 (SC) the Hon'ble Apex Court held that for an activity to be production, it should comprise of both extraction of iron ore and its processing. The learned AR reiterated the submissions made before the CIT(A). It was contended that the assessee engaged in the business of extraction and processing of iron ore. The assessee is processing the iron ore not only one which is extracted out of its own mines, but also the one which is extracted from the mines which are hired. The Hon'ble Supreme Court has clearly held that the extraction and processing of iron ore amounts to production. There is no subsequent amendment in this regard or introduction of the definition of the word production in the Act. Sec.32(1)(iia) used both the word 'manufacture' or 'production' and does not require that the assessee should be engaged in the manufacture and production. Sec.2(29BA) of the Act defines the word 'manufacture'. The CIT(A) took the view that the iron ore processing plant at Codli, Amona and Chi....
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....ing the income chargeable under the head 'Profits and gains of business or profession" of any one previous year". 46.2 From the provisions of the section, it is apparent that the assessee is entitled in the case of any new machinery or plant which has been acquired or installed by him after 31.03.2005 for the additional depreciation if the assessee is engaged in the business of manufacture or production of any article or thing. Proviso to section denies the deduction to an assessee of the additional depreciation in certain cases. From the balance sheet and all other evidences filed before us it is apparently clear that the assessee is engaged primarily in the business of extraction of ore and its processing. The authorities below interpreted the provisions of section, correctly taking the view that the plant and machinery should be installed for the production of an article or thing. The assessee's plants at Codli, Amona and Chitradurga whether engaged for the manufacture or production independently, in our view, is not relevant. The relevant consideration is that the assessee must be engaged in the business of manufacture or production of any article or thing and the ne....
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.... play only if the expenditure is claimed as expenditure for scientific research. However, in the present case, considering the definition of scientific research provided u/s 43(4)(i) the AO observed that the case of the assessee is not covered under the definition of scientific research. The CIT(A) in view of the conclusion of the AO took the view that the AO should have not again treated this expenditure to be scientific expenditure and therefore, he deleted the addition. 49. We have heard the rival submissions and carefully considered the material on record. The learned DR although, vehemently relied on the order of the AO but could not deny that the AO himself observed that the case of the assessee is not covered under the definition of the scientific research. In view of this fact, in our opinion, no interference is called for in the order of the CIT(A) and the CIT(A)has rightly deleted the addition. We accordingly, confirm the order of the CIT(A) on this issue. Thus, ground no. 2 stands dismissed. 50. The third ground relate to the deletion of the disallowance made by the AO as exchange loss incurred on the foreign exchange forward contract. The AO noted that the assesse....