TaxTMI 
TaxTMI 
2015 (12) TMI 463
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....on of common issue viz. whether the activity undertaken by the assessee comes within the scope and meaning of words "manufacture and production of article or thing: as used by the legislation in section 10B(2)(i) of the Act. Besides the aforesaid issue, appeals for assessment year 2006-07, 2007-08 and 2009-10- also involve consideration of another issue i.e. whether the ld. CIT was justified in law and on facts in revising the orders of assessment for said three assessment years passed u/s 143(3)/260A and 143(3)/260A of the Act respectively by invoking revisional provision of section 263 of the Act. 3. Briefly stated the facts giving rise to these appeals are that the assessee is a partnership firm and is engaged in the business of manufacture and export of wooden and brass articles, chess boards etc. for which unfinished and some finished articles are got manufactured from various artisans as per the instructions of the assessee. After receipt of aforesaid unfinished and semi finished articles, the assessee converts them into finished products by undertaking several manufacturing and mechanical process such as rubbing the raw material by sand paper, buffing, handcarving, polish....
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....43(3) of the Act on 20.12.10 wherein following the earlier orders, the claim of assessee being deduction u/s 10B of the Act was again disallowed. On 3.6.11, the ITAT dismissed the appeal of the revenue for assessment year 2006-07 and 2007-08 by holding that the CIT(A) is correct in allowing deduction and also referring to definition under FTP which is wider in connotation and includes activities of the assessee as manufacturing. It was also held by the Tribunal that the assembling of the various products in order to export is also manufacturing as per definition of section 10B of the Act. On 23.12.11, the Assessing Officer passed assessment order for assessment year 2009-10 by making enquiry of the manufacturing activities and after due examination, deduction u/s 10B was allowed. It is also pertinent to note that the revenue department carried the matter before the Hon'ble High Court against the order of the Tribunal dated 3.6.11 and the same was upheld by Hon'ble High Court confirming the concurrent finding of the ld. CIT and the Tribunal that the assessee firm has not been reconstituted by the reconstruction of the business already in existence and the assessee is not req....
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....said orders passed by the Assessing Officer and the CIT in pursuance to the order of Hon'ble High Court, the CIT issued notices u/s 263 of the Act to revise the orders of the assessment for assessment year 2006-07 and 2007-08 dated 22.3.13 passed u/s 143/260A of the Act in pursuance to the order of Hon'ble High Court. The CIT also issued notice us/ 263 of the Act against the assessment order dated 23.12.11 for assessment year 2009-10. Finally, the CIT passed order u/s 263 of the Act on 19.3.13, 16.9.14 and 19.9.14 for assessment year 2009-10, 2006-07 and 2007-08 respectively by holding that the assessee only polishes the finished products which cannot be termed as manufacture and production and denied the exemption u/s 10B of the Act. Now, the aggrieved assessee is before this Tribunal with three separate appeals challenging the invocation of revisionary powers of CIT u/s 263 of the Act. 9. First of all, we take grounds of appeal of the assessee in ITA No. 2531/Del/14 for assessment year 2009-10 which read as under:- "1. That the Ld Commissioner of Income Tax, Delhi - XI has erred in law as well as on facts in cancelling the assessment order allowing the deducti....
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.... appropriate to take note of written submissions of the assessee challenging the validity of notice and impugned orders us/ 263 of the Act. The relevant portion of written submissions of the assessee is being reproduced below:- "4. It is submitted that in the instant case, learned CIT has revised the orders of assessment for three assessment years i.e. AY 2006-07, 2007-08 and 2009-10 under section 263 of the Act. It is submitted that in so far as the orders of assessment for the AY 2006-07 and 2007-08 are concerned, such orders of assessments were framed under section 143(3)/260A of the Act in view of the judgment of the Hon'ble High Court of Delhi dated 17.09.2012 for the AY 2006-07 8s 2007-08, whereby Hon'ble High Court has remanded the case to the learned AO only to examine the condition as provided in section 10B(2)(i) of the Act in the light of the additional evidences brought on record as it has been held that learned AO did not get sufficient opportunity to verify the additional evidences. 5. It is submitted that after the set aside by the High Court, learned AO duly verified all the additional evidences furnished by the assessee before learned CIT(A) durin....
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....me of the workers were engaged in polishing, colouring, bar coding, assembling and packaging work.... On inspection of work being done there, it seems that the work was involved in finishing job on unfinished items." 7. That in view of the aforesaid facts, learned AO in his order dated 22.03.2013 passed under section 143(3)/260A of the Act allowed the deduction under section 10B of the Act by holding that activities undertaken by the assessee would amount to manufacture within the meaning of section 10B(2)(i) of the Act. It is submitted that aforesaid order of the learned AO was within the scope of judgment of the Hon'ble High Court as HonTile High Court has set aside the case to the AO only to examine the condition as provided in section 10B(2)(i) of the Act in the light of the additional evidences brought on record. It is therefore submitted that aforesaid order of the learned AO cannot be held to be erroneous either on facts or in law as learned AO has taken a view which was absolutely in accordance with law. 7.1 It is specific submission of the appellant that The learned CIT has exceeded in his jurisdiction and, has passed the impugned orders to revise the ord....
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....s order of assessments were neither passed on wrong assumption of facts nor by applying incorrect law. In fact, order of assessment is perfectly in accordance with law after detailed examination of the documentary evidences and also by making spot enquiries. Further in the instant case even the learned CIT(A) also before the set aside, after examining the entire evidences placed on record, in his order dated 30.03.2010 has held that assessee is undertaking manufacturing within the meaning of section 10B of the Act. For the sake of convenience, relevant finding of learned CIT(A) is reproduced hereinbelow: 8. On careful perusal of the various documents furnished before me, I find that there was a definite distinction in the way the industrial undertaking owned by the appellant firm operated in the current assessment year as compared to the earlier years. The partnership deed relating to the old firm, which was later reconstituted on 18th May, 2005 w.e.f. 1-4-2005 clearly provided the scope of the business of the firm, which was restricted to trading for exports of handicraftitems. However, vide the new partnership deed, the scope of the business of the appellant firm was enl....
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....f) "manufacture" includes any process:- (i) incidental or ancillary to the completion of a manufactured product; (ii) which is specified in relation to any goods in the section or chapter notes of the First Schedule to the Central Excise Trrif Act, 1985 (5 of 1985) as amounting to manufacture; or (iii)which, in relation to the goods specified in the "Third Schedule", involves packing or re-packing of such goods in a unit container or labelling or relabelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer, And the word 'manufacture' shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account;" 8.4 I find that in the business of export the work orders are placed on the basis of which only goods are manufactured. Looking to the facts of the case, I observe that these goods are purchased as per orders giving description of shape, size, d....
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....g, labelling, refurbishing' etc. 10.4 In our view, Hon'ble Supreme Court judgment in the case of Gwalior Rayon Silk Mfg. Co. Ltd. (supra), has thrown guiding light on the interpretation meaning and context. The word "manufacture" uis-a-uis section 10B can be correctly understood while keeping the interdependence and purport of section 10B, Foreign Trade Policy of Government of India and SEZ Act. The same principle has been adopted by the Hon'ble Kerala High Court in the case of Tata Tea Ltd. (supra), where, blending, packing and export of tea bag and tea packets was held to be covered and eligible for deduction under section 10B. In our view in this case what assessee purchased were different parts of handicrafts which were meticulously processed as above and then assembled in the form of a distinct commercial commodity i.e. 5 indoor games. The assessee carried out various activities of carving, polishing and bringing the different components into a commercial viable item, called as multiple indoor games which have been exported. The items ordered by the assessee as purchases are totally distinct form and could not have been exported. 10.5 Respectfully....
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....hased through auction held in Tea Board recognized Auction Centres and, thereafter, tea so purchased was processed in order to remove all dust and foreign substances. After processing, different varieties of tea were blended to make it of 'uniform and consistent' quality. Finally, the blended tea was packed in consumer packets or tea packs. The Assessing Officer, denied the claim of deduction under section 10B. Order of Assessing Officer was confirmed by the Commissioner (Appeals). Deduction was denied on ground that blending and processing undertaken by assessee could not qualify to be called as 'manufacture' as input used was tea and output obtained was also tea. On the aforesaid facts, after careful examination of the statutory provisions, it was held that assessee is engaged in manufacturing and hence entitled to deduction. iii. That in the case of CIT v. Deco De Trend reported in 360 ITR 1 (Mad.) (Pg. 21 - 26), wherein assessee was engaged in the business of the export of handicraft items of dried flowers and parts of plants. On going through the nature of activity undertaken, the Assessing Authority came to the conclusion that there was no manufacturi....
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....produce' to include the cutting and polishing of precious and semiprecious stones, as is relevant for the assessment years under consideration, the decision relied on by the Revenue is not of any assistance. Learned Standing counsel appearing for the Revenue brought to our attention Section 2(29)BA, inserted under the Finance (No.2) Act 2009, with effect from 1.4.2009, which defines 'manufacture' to mean a change in a non-living physical object or article or thing 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 bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure. 17. Even though the definition of 'manufacture' under Section 2(29)BA, as amended under Finance Act 2 of 2009, with effect from 1.4.2009 and Explanation 3 to Section 10B, as it stood prior to the Finance Act, 2001 are not of any relevance to the case on hand relating to the assessment years 2004-05, 2005- 06, 2006-07 and 2008- 09, yet, with Explanation 4 to Section 10B of the Income Tax Act, inserted by F....
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....out machine work in case of wooden articles such as smoothening and shaping structures, surfaces and edges of wooden items and then engraving, embossing, fixing metallic parts and assessories and, thereafter, polishing and painting thereof had also been done. Assessee also fixed artistic parts thereon to give it a commercial look, making it completely distinct in character and use - Likewise, in metallic items assessee carried more or less similar activities, to make them fascinating and marketable commodities different both in character and use than what these items were originally purchased by assessee. On the aforesaid facts, it was held that assessee is engaged in manufacturing activity and hence entitled for deduction under section 10B of the Act. v. In the case of Little Bee Impex v. Deputy Commissioner of Income-tax reported in [2015] 56 taxmann.com 201 (Chandigarh - Trib.), it was held that activity of removing moisture from raw honey and thereupon repacking and exporting same to various countries amounted to 'manufacturing' activity eligible for exemption under section 10B of the Act. 12. As such, in view of the aforesaid judicial pronouncements, it is su....
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....ore the CIT and before us as reproduced hereinabove and vehemently contended that the ld. CIT has exceeded his jurisdiction and has passed impugned orders to revise the orders of assessment in disregard of the fact and law because these are not the cases where required conditions for assumpiton of jurisdiction and exercise of powers u/s 263 of the Act are existing. Learned counsel of the assessee also pointed out that the Assessing Officer called report from the Inspector about the activities undertaken by the assessee in pursuance to the directions of Hon'ble High Court and on careful consideration of the same, the Assessing Officer took a correct view that the activities undertaken by the assessee on the semi-finished and finished goods are of nature of manufacturing activity and view taken by the Assessing Officer is reasonable and plausible view which cannot be held as unsustainable or not in accordance with the provisions of the Act. Ld. Counsel also contended that for invoking revisional powers u/s 263 of the Act, the CIT has to satisfy twin conditions, namely, the order of the Assessing Officer sought to be revised should be erroneous and it should be prejudicial to the ....
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....ib.) and Divij Exports vs ITO 33 taxmann.com 682 (Jodhpur-Trib.) and submitted that where the assessee after purchasing unfinished handicraft goods applied various processes like cutting, polishing, repairing, remaking etc. and for that purpose, incurred substantial labour and other expenses, then it could not be denied exemption u/s 10AA of the Act on the ground that it was not a manufacturing concern. Learned counsel of the assessee also pointed out that in the case of Divij Exports (supra), it was categorically held that where the assessee was purchasing semi-finished wooden articles which required other work of beautification and of artistic value and thereafter wooden articles took shape of antique look, then the assessee was rightly eligible for exemption u/s 10BA of the Act. Learned counsel of the assessee has lastly drawn our attention towards order of Kolkatta Special Bench in the case of Madhu Jayanti International Ltd. vs DCIT reported in (2012) 148 TTJ 1 (Kolkata)(SB) and submitted that for the purpose of section 10A, 10AA and 10B 'manufacture' is to be considered as defined in section 2(r) of the Special Economic Zone Act 2005. 15. On specific query from the Bench, ....
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....rity during the earlier appellate proceedings which was also noted by their lordships in para 24 of the judgment of Hon'ble High Court. The Assessing Officer considered affidavits of the suppliers confirming about supplying of unfinished, unassembled and incomplete goods to the assessee firm and also considered exhibits showing photographic detail of raw chess board, raw chess pieces and finished chess board and finished chess pieces respectively. During the reassessment proceedings in pursuance to the order of Hon'ble High Court, the Assessing Officer duly examined the relevant documents and the same were found to be genuine and the Assessing Officer also considered written submissions and replies of the assessee dated 21.1.13, 25.2.13 and 12.3.13 and 14.3.13 available on pages 14 to 21 of the assessee's paper book. It is also pertinent to note that on the basis of examination and verification of the said documentary evidence and submissions of the assessee, the Assessing Officer observed and noted that on receipt of specific orders from exporters, the assessee in its factory through its own workers and artisans performed activities of sanding, handcarving, fitting of kund....
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....t order of the Assessing Officer dated 23.2.13 and order for assessment year 2009-10. The main contention of the ld. CIT DR is that the view taken by the Assessing Officer in reassessment proceedings and in allowing the claim of the assessee u/s 10B of the Act is not a justified, reasonable and plausible view which was unsustainable and not in accordance with law, therefore, the CIT assumed jurisdiction to invoke powers u/s 263 of the Act. The contention of the assessee in brief is that the view taken by the Assessing Officer is a sustainable, reasonable and sustainable view as per facts and circumstances of the case and as per relevant provisions of the Act. Alternatively, the learned counsel of the assessee has submitted that there is no question of two possible views as the view taken by the Assessing Officer was the only possible view which could be taken in the facts and circumstances of the case, however, for the sake of argument if it is presumed that second view was also possible, then also CIT was not empowered to invoke provisions of section 263 of the Act where two views are possible and to support this contention, learned counsel of the assessee placed his reliance on t....
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....ner as in the Special Economic Zone Act, 2005, which is as under: '"Manufacture' means to make, produce, fabricate, assemble, process or bring into existence, by hand or by machine, a new product having a distinctive name, character or use and shall include processes such as refrigeration, repacking, polishing and labelling. Manufacture, for the purpose of this policy, shall also include agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining." "We, in view of the above, hold that when the products for which the assessee's unit is recognised as a 100 per cent, export oriented undertaking are tea bags, tea in packets and tea in bulk packs and the assessee, which is exclusively engaged in blending and packing of tea for export, may not be manufacturer or producer of any other article or thing in common parlance. However, for the purpose of sections 10A, 10AA and 10B, we have to consider the definition of the word "manufacture" as defined in section 2(r) of the SpecialEconomic Zones Act, Exim policy, Food Adulteration Rules, 1955, Tea (Marketing) Control Order, 2003, etc. We also find that ....
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....iew taken by the AO was not correct because the assessee purchased unfinished handicraft goods and applied various processes like cutting, polishing, repairing, remaking etc. and for that purpose, incurred expenses amounting to Rs. 56,47,777 for labour, which has not been doubted by the AO. The assessee also incurred electric expenses of Rs. 6,56,987 which was also accepted by the AO. The assessee was engaged in manufacturing activities, this fact is established from various certificates issued by the Government and concerned authorities, who after verification and scrutiny, issued the certificates which are to be issued only to the concerns engaged in manufacturing activities. Those certificates were as under : (i) Copy of registration certificate issued by District Industries Centre, Jodhpur, registering bio. 080151100653 (ii) Registration Certificate granted under the provision of Factories Act, 1948, No. 28531 dt. 22nd Nov., 2010. (iii) Copy of the registration certificate issued by Export Promotion Council for Handicrafts. (iv) Copy of approval issued as per SEZ Act, 2005 by office of the Development Commr., Noida Special Economic Zone, Mini....
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....observed as under ; 4.1 The assessee was asked vide order sheet noting dt. 12th March, 2009 to establish its case to cover by cl. (iii) of Expln. 1 to s. 10AA(8) of the Act i.e. manufacture shall have the same meaning as assigned to it in el. (r) of s. 2 of the SEZ Act, 2005. The assessee vide letter dt. 23rd March, 2009 has explained as under:- That assessee is manufacturer of all types of handicrafts. It is labour oriented unit and no heavy machinery is used for production. There is no fixed system of manufacturing; it depends upon the order of export. As and when assessee received the order, he decided the manufacturing process and style of working. Assessee is having good set up for manufacturing different types of handicrafts items. Assessee generally deals with iron handicrafts. A detailed process chart with photos of items showing the steps involved in manufacturing one after another process is enclosed. The steps involved in production and export is as under : (1) Receipt of purchase order from the foreign buyer. (2) Production planning for in-house and at outsides, (3) Issue of Pos and JOs to suppliers and in-house incharges wit....
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....nufacturing of its item through contractor also. Contractorship is must in this trade due to large volume of labour turnover. As assessee if keeps the employee on his roll and after two three, months he left and he has to give explanation for the same to the PF and ESI Department, hence it create one more problem. Second in contractorship assessee has to pay only for the work or items which he has completed and no payment without work if there is no work of said type with assessee. Assessee in handicraft industry due to variety of items each person or team of persons are specialized in the special work, which is also as needed from order to order. Hence, assessee prefers contractor over the direct employee, as there is no difference in working both are doing work in assessee's premises.' 4.2 The explanation of the assessee was examined with (he books of account, purchase bills/vouchers and vouchers raised by the contractor. As much as profit and gains raised to the assessee on export sales, the taking of goods commenced from SEZ i.e. vv.e.f. 3rd Jan., 2007, is eligible for 100 per cent deduction, being first year of the business under s. 1OAA of the IT Act, 1961.' ....
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....mentioned that ready wooden items were purchased by the assessee. The learned CIT issued a show-cause notice to the assessee by invoking the provisions of s. 263 of the Act. In response to the notice, the assessee filed written reply on 5th Feb., 2008 and the relevant para No. 2 had been reproduced by learned CIT in para 9 of the impugned order, which reads as under : "2. That we have manufactured or produced all the goods at our factory site which were exported out of country i.e. most of goods have been manufactured at our factory by purchase of wood, wooden article, hardware goods, polishing materials, consumable stores and thereafter seasoning the wood manufacturing of artistic wooden article and things. Further, in some of the cases the parts of wooden articles have been purchased either in agricultures/articles i.e. grooming, shaping or adhesing some more things to make them eligible articles or things by use of consumable and hardware goods and apply the labour. Further thereafter all the polishing work on these manufactured or produced articles has also been done at out factory site, which may be verified from out total payment of wages and salary and labour wood a....
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.... digging work or adhesing work which tantamounts to a production activity. Every manufacturing activity requires change i.e. different and distinct commodity used should be got changed or be different or distinct commodities whereas the commodities should become the valuable or salable after doing the production activities. Sec. 10BA(2)(a) requires the undertaking to manufacture or produce the eligible article or thing means the undertaking should do either the manufacturing activities or to do production activities. Production of goods is a wider meaning from manufacture of goods, which is having restricted to manufacture of new or distinct commodity whereas production requires application of labour only to make the things or articles as valuable or saleable." 4. The assessee vide reply dt. 5th March, 2008 also filed list of purchase vouchers and confirmations from various parties, who had sold handicraft items to the assessee. In all those confirmations, it was stated that skeleton pieces of wooden handicrafts or rough shape of wooden items were supplied. 5. The learned CIT was not satisfied with the reply of the assessee and observed that the assessee ....
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....ted that vide para 9 of the said letter it was explained that the assessee manufactured or produced all the goods at his factory site which were exported out of the country and most of the goods had been manufactured at factory by purchase of wood or wooden articles, hardware goods, polishing materials, consumable stores and thereafter seasoning the wood, manufacturing of artistic wood articles and things had been done. It was further stated that it was explained to the learned CIT that in some of the cases the parts of wooden articles or things had been purchased in the raw or rough form thereafter assembled at our factory site and thereafter artistic work and other work of artistic had been done i.e. grooming, shaping or adhesing some more things to make them eligible articles or things by use of consumable and hardware goods and by applying labour. It was contended that the assessee fulfilled the conditions laid down in s. 10BA of the Act and the AO after being satisfied took a possible view, therefore, the action of the learned CIT was not justified. Reliance was placed on the following case laws : 1. Goverdhan Prasad Singhal v. TTO [IT Appeal Nos. 200, 797 & 964 (Jp) ....
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....ged in the trading. On the other hand, the claim of the assessee was that it was purchasing semifinished wooden articles which required other work of beautification and of artistic value, thereafter the wooden articles took the shape of antique look. In the present case, it appears that the view taken by the AO was in consonance with the view of the Tribunal Jodhpur Bench 'A' in the cases of Goverdhan Prasad Singhal v. 1TO ITA No. 200/Jp/2008, 964/Jp/2007 and 797/Jp/2008 for the asst. yrs. 2007-08 and 2005-06 and ITA No. 964/.lp/2007 for the asst. yr. 2003-04, order dt. 24th Oct., 2008) (supra)], as well as the view expressed by Tribunal, Jaipur 'A' Bench in the case of Dy. CIT v. Manglam Arts (ITA No. 815/Jp/2007) (supra). Therefore, it can be held that the view taken by AO was one of the possible views on a similar issue. The Hon'ble apex Court in the case of C1T vs Max India Ltd. (supra) held as under : 'The phrase 'prejudicial to the interests of the Revenue' in s. 263 of the IT Act. 1961, has to be read in conjunction with the expression 'erroneous' order passed by the AO. Every loss of revenue as a consequence of an order of the AO....
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....that purpose, the assessee had incurred substantial labour and other expenses on packing etc., then it would be presumed that the assessee had undertaken manufacturing activities and thus, it is eligible for deduction u/s 10B of the Act. Accordingly, we reach to a conclusion that the view taken by the Assessing Officer in the reassessment order in pursuance to the directions of Hon'ble High Court and in passing impugned assessment order for assessment year 2006-07, 2007-08 and 2009-10 was a reasonable, justified and plausible view which could not be alleged as unsustainable or not in accordance with the provisions of the Act and therefore, the CIT could not be held as justified in issuing notice u/s 263 of the Act and in passing impugned orders revising and disturbing the reassessment order passed u/s 143(3), 260A and 143(3) of the Act in pursuance to the judgment of Hon'ble High Court. 24. Our view further finds support from the order of Hon'ble High Court of Delhi in the case of CIT vs NDTV 360 ITR 044 (Del) wherein it was held that where the Assessing Officer did conduct investigation and accepted the claim for deduction of the assessee on being satisfied that the....
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....e assessee, it was held thus:- "The phrase "prejudicial to the interests of the revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be termed as prejudicial to the interests of the revenue, for example, when an Income tax officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income tax officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income tax officer is unsustainable in law." 27. In view of above, in the facts and circumstances of the present case, we observe that the Assessing Officer adopted a reasonable, correct and plausible view based on logical analysis of documentary evidence of the assessee and fortified by the Inspector's spot and physical inspection report and the same cannot be held as unsustainable or not in accordance with the provisions of the Act. The Assessing Officer rightly held that the assessee is undertaking....