TaxTMI 
TaxTMI 
2008 (10) TMI 642
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....cturing, trading and exporting of handmade wooden handicraft antique furniture. The appellant declared total turnover of Rs. 9.65 crores with gross profit of Rs. 2.20 crores and net profit of Rs. 1.5 crores. There was no local sale. The appellant made a claim of exemption of Rs. 98,61,295 under Section 10BA. However in case of denial of this exemption, the appellant also made alternative claim of deductions under Section 80-IB and Section 80HHC, to which also the appellant was equally entitled. The assessing officer, however, rejected such a claim mainly on the grounds that the subjected articles were not eligible articles inasmuch as there was no manufacturing involved therein and the furniture purchased as such, was exported without doing anything thereupon. There are some other allegations also as mentioned in the assessment order. The conclusions of the assessing officer are at pp. 11 to 16, who finally denied the entire claim so made by the appellant. In the first appeal, the learned Commissioner (Appeals) also confirmed the same. 5. Shri Mahendra Gargieya, advocate learned Counsel for the assessee vehemently argued that the assessee was fully entitled to the claim of exemp....
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....2007) 211 CTR (Raj) 169 recently followed by this Bench in the case of Income Tax Officer v. World Wide Stones (2008) 115 TTJ (Jp) 613 which equally applies on the facts of the present case as well. He further submitted that although the learned assessing officer has referred to various decisions, explaining the meanings of word manufacturing or production. However the settled rule of interpretation, is that the word has always to be interpreted in the context in which it has been used and not out of the same. He referred to CIT v. Sun Engineering Works (P) Ltd. (1992) 198 ITR 297 (SC). All those decisions, which lay down a proposition by defining these two words, therefore, have again to be understood and read in the context of Section 10BA and more particularly with reference to the definition of eligible articles or things and not beyond that. He submitted that the major objection of the learned assessing officer therefore, that the appellant made purchases of routine furniture i.e., dining table, TV cabinet and almirah etc. which remained the same even after the activities carried out by the appellant and they are known even by the same name, is a misconception. In view of the ....
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....ferred to the P&L a/c at p. 97 to the paper book and submitted that there are substantial expenditures, which evidentially prove that the appellant did carry out various activities amounting to manufacturing or production say for e.g. on factory staff salary Rs. 4,89,755, firewood expenses Rs. 7,38,692, wages Rs. 15,23,520, packing material Rs. 35,50,387, electric and water expenses Rs. 7,65,394, seasoning charges Rs. 39,094, artistic wages (shown as polish charges) Rs. 44,74,467. These facts themselves make it very clear that these expenses were not incurred for a simple trading. The appellant definitely carried manufacturing or production activities and that is why these expenses were incurred. Thereafter he referred to the allegations of the assessing officer at pp. 11 and 12 of the assessment order to the effect that such contentions were not correct inasmuch as substantial amount of Rs. 80,24,854 was spent on polishing and packing which constituted 74 per cent of the total expenditure hence it cannot be said that the appellant was engaged in manufacturing, which is a purported confusion as firstly polishing charges are only of Rs. 44,74,467, secondly, this was, wages paid to t....
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...., assuming the word manufacturing or production is to be read, is that the outcome should be a handmade wooden item having artistic value. Therefore, even assuming a dining table was purchased and remains the same not only as a nomenclature but also in use it remains a dining table, what is important to be seen is, whether it is handmade item having artistic value or not. The assessing officer has totally failed to bring any cogent evidence on record to show that what the appellant finally exported, were not the items having artistic value. In other words, therefore, even a dining table, does not ipso facto become ineligible item. Otherwise also such an allegation is factually incorrect inasmuch as the name of the raw material is mostly different than the name of the final product exported. To support the contentions the learned Counsel referred to the copies of some purchase and sale bills at paper book pp. 136 to 138. He also drew our pointed attention towards the fact of verification even by the customs authorities, as evident from the fact that on every export bill, there is a specific certification after due examination of the goods, to the effect that "goods are artistic hand....
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....ficate enclosed (paper book 10). These apart of Director General of Foreign Trade (DGFT) has also given import/export code (IEC), treated the appellant to be a manufacturer exporter registration No. EPCH/REGN/16719/2001. Copy of certificate enclosed (paper book 11). The assessee has been treated as manufacture even by the organizers of ISO 9001:2000 dated 19th June, 2002, in these words manufacturing not elsewhere classified. Copy of certificate enclosed (paper book 13). He further submitted that notably the Development Commr. Handicraft, New Delhi (DC), Ministry or Textiles has recently granted subsidy of Rs. 24 lakhs after having made on the spot inspection and finding that the appellant was manufacturing only handcraft items made by the export artisans by hand. Reference letter dated 27th Feb., 2006 and 25th Oct., 2006 (paper book 129-130). As a matter of the prevailing practice and procedure, the conclusion or verdict of the DC, handicraft is final, in case there is doubt and dispute by any other Government/semi-Government agencies on the question whether the unit is a handicraft manufacturer or not. Moreover the assessee has recently been awarded for highest growth of wooden h....
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....stly it is a type of exemption from the payment of sales-tax on a dealer (seller) who wanted exemption on the plea that the goods sold by him are meant for the further sale through export by the concerned buyer. The said buyer gives a certificate in sales-tax Form 17B that the goods so supplied have been sold. The use of such goods is only to identify the goods sold by the seller and exported by the buyer are the same. The certificate (paper book 14) given by the buyer appellant in sales-tax Form 17B support this interpretation wherein the goods purchased by the buyer appellant has to be identified with reference to purchase order number, challan number etc. He further referred to the allegation that most of the work has been done with the help of machineries which again is a misconception. In fact the role of the machinery is only to prepare the wood purchased by the appellant with a view to make it fit for further steps nothing but a preparatory stage, before handwork is commenced. The machine work is confined to seasoning of wood which normally contains moisture, thickness plaining and cutting. The entire expenditure incurred, of negligible share out of manufacturing cost. There....
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....ame is not factually correct inasmuch as copies of the wages register submitted to assessing officer (paper book 23-72) clearly show the minimum of 37 workers throughout the year (though named as supervisors, helpers, artisans etc.) were employed. The law simply requires the workers to be employed more than a stipulated figure in manufacturing process and do not make any distinction with reference to their designations. All the above persons are basically workers firstly as directly involved in the production activities. The grading of the workers is because of better management control, to comply with the labour laws and to make payment of wages accordingly. Hence the fact of absence of bifurcation of 22 employees is not relevant. Further, factually number of such persons is 37 as evident from the copies of wages register already filed and not 22 as wrongly mentioned. Not only this, in fact there are various other Karigars employed by the appellant (apart from these in wages register) and to whom payments are being made on piece rate basis. Such Karigars are equally employed by the appellant however, simply because of the manner of payment they are not covered by the provisions of....
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....ve submissions and case laws he further submitted that if still there are certain against decisions, the issue involved is clearly debatable and it is settled that the view favourable to the assessee has to be adopted, as held in the case of CIT v. Vegetable Products Ltd. (1973) 88 ITR 192 (SC) followed in CIT v. Multi Metals Ltd. (1991) 188 ITR 151 (Raj), CIT v. Bharat Nidhi Ltd. (1983) 141 ITR 740 (Del) and CIT v. International Computers Ltd. (1981) 131 ITR 1 (Bom). Concluding his arguments he prayed that under these facts and circumstances, the order of the learned Commissioner (Appeals) deserves to be completely quashed and the appellant be held fully entitled to the deduction, as claimed. 9. On the other hand, the learned departmental Representative opposed the claim of the assessee made under Section 10BA of the Act and prayed that under the circumstances and facts of the case, the ground taken by the assessee be rejected. He strongly relied upon the orders of the authorities below. 10. We have carefully considered the pleadings of the parties in the light of the material placed, before us and various judicial pronouncements referred to by them. Before proceeding furthe....
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....on 10BA, has to be understood in the context of the specific language and other requirements of the said provision. We agree with the contention that the legislature did not intend here to read and understand the requirement of manufacturing or production in a deep technical sense, which is evident from a difference between the titles of similar provisions. This is further from the definition of eligible articles or things as provided under Explanation (b) below Section 10BA which reads, "eligible articles or things" mean all handmade articles or things, which are of artistic value and which require the use of wood as the main raw material. Further, since the terms manufacturing or production have not been defined under the Act we need to have the guidance laid down by the various judicial pronouncements of the Hon'ble High Court including the Hon'ble Rajasthan High Court, which is recently available. The Hon'ble Supreme Court in the case of Dy. CST v. Pio Food Packers (supra), considered the meaning of the word "manufacture" with reference to several decisions and stated the test in the following words: There are several criteria for determining whether a comm....
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....ficer alleged that the furniture remained the furniture only before and after but he did not appreciate the quality and value addition contemplated by law. We also find that in all these decisions the essential test laid to determine whether the activity in hand amounts to manufacturing and production is whether the final product is treated to be something different in the commercial world by those, who deal in it. The Hon'ble Supreme Court in the case of Dy. CST v. Pio Food Packers (supra) has held that the prevalent test is whether the product regarded by the persons dealing in it as distinct in identify from the commodity involved in its manufacturing. The raw material in hand after the claimed activities one or more must reach to a point where commercially it can no longer be regarded as the original commodity but recognised as a new and distinct article. In any case, the Hon'ble court is CIT v. Sesa Goa (supra) has already held that production is a much wider term as compared to manufacturing. We are of the firm view that while interpreting the golden rule is that the given word has to be given a contextual meaning. In this regard, the learned Authorised Representative....
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.... (x) Thereafter, various wooden items are fitted according to the need and design of the exportable wooden article, i.e., wooden moulding is fitted. Inlay is done. 13. Looking to the various activities carried out by the appellant and as mentioned hereinabove, we are satisfied that what the appellant purchased, ultimately resulted into an altogether different commodity being recognized by the commercial world i.e. the importers outside India, who were keen to import even at a much higher price than what the appellant incurred here. Admittedly, there has been a substantial value addition even upto 278.94%, as submitted at paper book p. 181. We have also seen the various photographs available at paper book pp. 15 to 22, 139, and find that there has been various types of additions made by the appellant after the purchase of the raw material, which was in the shape of sometime pure wood, sometime in semi-finished/partly made up e.g. table top only without legs, artistic designs, brass fittings, inlay carving etc. which brings beauty to the subjected articles or things. The authorities below vaguely alleged that the appellant purchased the furniture and exported the same simpliciter....
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....ant are the same. There is no requirement as such in the rule and form that the goods so purchased by the buyer appellant has to be exported as such i.e. in the same condition in which it was purchased without any change. Such goods cannot he read as the same. The certificate p. 14 given by the buyer appellant in Form ST 17B also supports this interpretation wherein the goods purchased by the buyer appellant has to be identified with reference to purchase order number challan number etc. Otherwise also, instead of drawing inference to reach to the conclusion whether the activities tantamount to manufacturing/production, the better course for the authorities below was to consider the various activities undertaken by the appellant after the purchase of the raw material, which has been discussed in detail in the earlier part. There was no warrant to jump to the provisions of the sales-tax laws which otherwise do not support the case of the revenue. We find the contention of the learned CIT departmental Representative contradictory inasmuch with regard to the certification by the customs authorities as to the nature of the export of the disputed articles of being of artistic value, whe....
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....e object of granting incentive to earners of foreign exchange. This court is Sea Pearl Industries v. CIT (2001) 2 SCC 33 also observed that the object of selection Section 80HHC is to grant incentive to earners of foreign exchange. In IPCA Laboratory Ltd. v. Dy. CIT (2004) 187 CTR (SC) 513 : (2004) 12 SCC 742 this court has taken the same view. This court in the said judgment observed that Section 80HHC has been incorporated with a view to provide incentive to export house and this Section must receive liberal interpretation. The totality of facts and circumstances and in view of the factual position and evidence we are fully satisfied that the appellant was engaged in the manufacturing and production of the eligible articles under the provisions of Section 10BA and hence the appellant is fully entitled to get the deductions. The assessing officer is therefore directed to allow the same. Thus ground No. 2 of the assessee is allowed. Ground No. 3: The deduction claimed under Section 80HHC reduced by Rs. 23,66,404 from Rs. 29,58,782. 15. The brief facts of the case that the assessee first claimed deduction under Section 80HHC at Rs. 29,58,782 and also separately made a claim of....
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....Section 80-IB at Rs. 21,38,250 totally without any discussion thereon. The assessing officer computed the business income at Rs. 85,53,001 (excluding total interest income). However, he further reduced the same by Rs. 14,61,460 being 90 per cent of duty drawback of Rs. 16,23,845. In absence of any detail, it was presumed that he computed the deduction under Section 80-IB @ 25 per cent over such profit. However, the assessee was entitled to such deduction on the amount of duty drawback of Rs. 14,61,460 also. Accordingly the deduction @ 25 per cent of business income of Rs. 1,00,14,461 comes to Rs. 25,03,615 as against Rs. 21,38,250 and thus there was short deduction by Rs. 3,65,365. The learned Commissioner (Appeals) also confirmed the short deduction by Rs. 3,65,365 under Section 80-IB of the Act by supplementing the order of the assessing officer that the amount of duty drawback cannot be said as derived from the such business. 19. We have heard the rival contentions and perused the facts of the case. Although, we have already held the entire income of the assessee exempt under Section 10BA of the Act hereinbefore. However, since the assessee has taken an alternative ground for....
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...., hence the assessing officer made disallowance of Rs. 4,08,171 under Section 57(iii). The learned CIT(A) confirmed the disallowance made by the assessing officer. 23. We have heard the rival contentions and perused the facts of the case. In view of the consistent decision of this Bench in the cases of Jt. CIT v. Dhadda Export in ITA No. 529/Jp/2000, dated 28-4-2006, Vcdlabh Das Khandelwal v. Asstt. CIT in ITA No. 645/Jp/2003, dated 10-3-2006 and Special Bench decision in the case of Dy. CIT v. Allied Construction (2007) 105 ITD 1 (Delhi) (SB), the interest income has rightly been treated as income from other sources and the interest paid cannot be allowed as deduction under Section 57(iii) of the Act. However, since whole of the income of the assessee has been held to be exempt by us under Section 10BA of the Act, hereinbefore, therefore, no addition under this ground will remain. Thus ground No. 6 of the assessee is allowed. Ground No. 7: Disallowance of various expenses of Rs. 73,909. 24. The brief facts of the case are that the assessing officer has made certain disallowances @ 20 per cent of the claim on account of conveyance and depreciation on account of personal us....
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....rniture items and exporting the same after polishing and packing. On this basis in para 3.1 of the assessment order, the assessing officer has given a finding that no new item was manufactured or produced by the assessee for export. In para 3.2, he has discussed that since stock of finished goods was more as compared to consumable material, therefore, it is clear that the assessee is purchasing readymade furniture and exporting the same just after minor polishing and processing, with this background, a survey action was carried out under Section 133A of the Act at the business premises of the assessee on 17-11-2006 wherein it was noticed that various conditions specified under Section 10BA were not fulfilled by the assessee. In reply to question No. 14, the assessee had admitted that such exemption was wrongly claimed for assessment year 2006-07. However, in respect of such claim for assessment year 2005-06, it was made clear that his claim of exemption under Section 10BA was correct. The assessing officer has stated in the order that out of total purchases in this year of Rs. 6,52,73,340, the purchase of Rs. 2,25,97,771 was made against sales-tax Form No. 17B and such purchases co....
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.... profit working for these two types of activities therefore, it shall be quite justifiable to allow such deduction under Section 10BA on such purchases which is other than purchases against sales-tax Form No. 17B which constitutes 70.57 per cent. In other words, the assessee shall be eligible for exemption under Section 10BA for proportionate profit @ 70.57 per cent on remaining profit, it shall be eligible for the deduction under Section 80-IB. 29. We have heard the rival contentions and perused the facts of the case. The issue before us has already been decided by us in assessees own case for the assessment year 2004-05 in ITA No. 200/Jp/2008 on identical facts. Therefore, following the same, the assessee is entitled to exemption under Section 10BA of the Act as claimed. The learned Commissioner (Appeals) is not justified in partly denying the exemption. Thus the solitary ground of the revenue is dismissed and the solitary ground of the assessee is allowed. ITA No. 964/Jp/2007 (Assessee) Ground No. 1 of the assessee: The learned Commissioner (Appeals) erred of firewood expenses Rs. 5,13,024 and out of seasoning charges Rs. 3,05,162. 30. The brief facts of the case are....
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....ioner (Appeals) confirmed the action of the assessing officer. 33. We have heard the rival contentions and perused the facts of the case. The assessing officer has ignored the explanation given by the assessee that the car was taken in possession on 28-3-2003 as per delivery note on record. The assessee has also provided the copy of the cover note of insurance dated 29-3-2003. The copy of the bill for fuel purchased and used to run the vehicle dated 29-3-2004 was also produced and is on record. In the circumstances and facts of the case, the asset is considered as put to use in the impugned year and the assessee is entitled to depreciation. The assessing officer is therefore, directed to allow the claim of depreciation. Thus, ground No. 2 of the assessee is allowed. Ground No. 3 of the assessee: The learned Commissioner (Appeals) has erred confirming disallowance out of interest @ 18 per cent of following persons specified under Section 40A(2)(b). Shri Avinash Singhal Rs. 32,748 Smt. Bhagwani Devi Rs. 20,532 Smt. Leela Devi Rs. 12,600 34. The brief facts of the case are that the assessing officer after giving an opportunity had given a finding that interest rat....
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....payment could be proved as incurred to earn such interest/dividend income and therefore, he disallowed the said claim and included entire income of Rs. 2,74,705 under the head "Income from other sources". The learned Commissioner (Appeals) confirmed the action of the assessing officer. 39. We have heard the rival contentions and perused the facts of the case. In view of the consistent decisions of this Bench decision in the case of Jt. CIT v. Dhadda Exports in ITA No. 529/Jp/2000, dated 28-4-2006, Vallabh Das Khandelwal v. Asstt. CIT in ITA No. 645/Jp/2003, dated 10-3-2006 and Special Bench decision in the case of Dy. CIT v. Allied Construction (supra), the interest income has rightly been treated as income from other sources and the interest paid cannot be allowed as deduction under Section 57(iii) of the Act. However, since whole of the income of the assessee has been to be exempt by us under Section 10BA of the Act, hereinbefore, therefore, no addition under this ground will remain. Thus, ground No. 6 of the assessee is allowed. Ground No. 7 of the assessee: The learned Commissioner (Appeals) has erred in confirming the view taken by the assessing officer in allowing de....