TaxTMI 
TaxTMI 
2014 (8) TMI 1009
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.... a search and seizure operation conducted in the business premises of M/s GVPR Engineers Ltd., AO issued a notice u/s 153C of the Act calling for the return of income from the assessee. In response to the said notice, assessee filed return of income on 17/10/2009 declaring loss of Rs. 24,96,330/- as was shown in the original return filed by him earlier on 01/12/2013. In course of assessment proceeding, the AO while examining the profit & Loss account noticed that the assessee has debited an amount of Rs. 43,22,000/- towards mining and processing expenses. In response to the query raised by the AO assessee produced bills and vouchers in support of the expenditure claimed. However, AO on verifying the same noticed that some of the vouchers are self-made and do not contain identity of the payee, quantum of work etc. and the payments are mostly made in cash. By observing that the assessee has not discharged the onus of proving the claim of expenditure fully and satisfactorily, he disallowed 25% out of total expenditure claimed and added an amount of Rs. 10,80,525/-. Being aggrieved of such addition, assessee preferred appeal before the CIT(A). 6. The CIT(A) after considering the submi....
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.... assessee and examining the facts and materials on record was of the view that disallowance made was not justified and accordingly deleted the same by holding as under: "8.5 The submissions of the appellant and the observations of the AO are perused. As contended by the appellant, the AO revisited the expenses under the head which was already accepted. For sake of completing the search assessments and that too without any evidence found in search related to it, the AO made the disallowances. As indicated, the amounts under the head 'Administrative Expenses', represent salaries and other benefits to employees, apart from other minor expenses. Salaries and other benefits are generally governed by other relevant statutes such as ESIC and EPF and applicable to big employers like the appellant under reference. There are no verifications/enquiries whatsoever conducted by the AO, to point out the overstatement or the wrongful nature of the claims under the head. Under the circumstances, the disallowances are not justified. Generally, lack of information or enquiry leads to estimation but estimation without any information may lead to absurdity. Under this head of disallowances, the basi....
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.... has to manufacture or produce articles or things or computer software. Whereas, according to the Assessing Officer the assessee was not involved in manufacture or production of any article or thing. He, therefore, called upon the assessee to explain why deduction claimed u/s 10B shall not be disallowed. 14. In reply, assessee stated that the company being a 100% EOU is eligible for deduction u/s 10B of the I.T. Act. Assessee also filed some documents I information in support of its claim. 15. However, the Assessing Officer referring to the audit report in form 3CD opined that as the assessee is involved in export of granite it is not manufacturing or producing any article or thing. The Assessing Officer observed that Iron Ore is itself in crude form and no value addition is made by the assessee-company before exporting the same. As regards granite business also, the Assessing Officer observed that assessee has failed to substantiate its claim with necessary documentary evidence as to how a commercially new article was produced by it. He also noted that no bifurcation in respect of the above two businesses is produced by the assessee. The assessee has also not maintained and draw....
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...., the definition of word 'manufacture' as per sec.2(r) of the SEZ Act, 2005 is as under: "The 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 uses and shall include processes such as refrigeration, cutting, polishing, blending, repair, remaking, re-engineering and includes agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining." 19. It was explained by the assessee that the entire process of mining to export involve a number of stages, which are as under: (a) Exploration and Excavation of Iron Ore Minerals (b) Clearing of subsoil and weathered boulders (c) Drilling and Blasting (d) Extraction, Excavation and Transportation (e) Crushing, Primary screening and secondary screening (f) Sizing and segregation (g) Grading etc. (h) Loading & Exporting It was submitted that all the aforesaid operations were carried with the deployment of huge plant & machinery for the purpose of getting the products of required grade and derived the products standard as per the specifications of....
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....on' is distinguished from 'manufacture' and in this case the word 'production' is applicable, and the word 'produce' connote wider meaning compared to the word 'manufacture', which was heavily relied upon by the Assessing Officer, while negating the claims of the appellant. 9.8 Further, as concluded in many leading judicial pronouncements, where the language used for definition of the words in the Act are not clear or where more than one meaning is possible, the harmonious interpretations/construction is best suitable remedy which involves either importing of the definition provided in the same Act or in other related statutes. In this case, definition of word 'manufacture', thought not used in sec. 10B, has been used in other provisions such as sec.32A, 80HH & 80-1 of the I.T.Act, apart from other statutes which deal with the subject matter of exports. It is also a settled principle that the benevolent provisions, intended for providing incentives may be interpreted liberally. Further, the Assessing Officer has not brought out any material to keep on record to prove that appellant has not produced or manufactured an article or thing wh....
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....uent AY i.e. 2009-10 than what was offered at the time of post search proceeding. For that reason alone, AO totally ignored the offer made by the assessee u/s 132(4) and started his computation with the profit disclosed in the P&L a/c by the assessee filed along with the return of income. It was, therefore, submitted that while accepting the profit declared by the assessee in the P&L a/c, there is no reason why the AO should not have allowed the claim of deduction u/s 10B of the Act. So far as the observation of the AO that mining activity is not eligible for claim of deduction u/s 10B of the Act, the learned AR submitted that such conclusion of the AO is factually not correct as during the year under consideration assessee has stopped granite mining activity and has only concentrated on iron ore mining activity. It was submitted that this is the first year of mining activity in iron ore for which assessee claimed deduction u/s 10B. Therefore, AO was not correct in observing that assessee has not claimed any deduction in the AY 2007-08. So far as AO's finding that mining activity does not come within the term 'manufacture' or 'production', learned AR submitted that mining of iron o....
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.... record, it becomes clear that the iron ore mining activity was started by the assessee in FY 2007-08 corresponding to the AY under consideration. Therefore, the AO was not correct in observing that the assessee has not claimed any deduction in AY 2006-07. The third ground for denial of deduction u/s 10B is, assessee is not engaged in manufacturing activity. As can be seen from the elaborate discussion in the order of the CIT(A), the mining of iron ore as undertaken by the assessee passes through various processes and the final product is not similar to Iron ore in its natural form as found under the earth. The Hon'ble Supreme court in the case of CIT Vs. Sesa Goa Ltd. (supra) had an occasion to examine the import of the term 'manufacture or produce' while considering the issue as to whether plant installed for extracting mining and processing iron ore would qualify for investment allowance held as under: "9. 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 (SC), defined the word "production", albeit, in connect....
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....ot amount to "manufacture" is left open." 24. Further, Board's Instruction No. 2 of 2009 dated 09/03/2009, also clarifies that 100% export oriented units are eligible for deduction u/s 10B of the Act if they are certified by Development Commissioners. There is no dispute to the fact that assessee has been certified by the Development Commissioner. Therefore, considered in the aforesaid context and applying the ratio laid down by the Hon'ble Supreme Court in case of CIT Vs. Sesa Goa Ltd. (supra) we are of the view that CIT(A) has correctly held that the assessee is eligible for deduction u/s 10B of the Act. So far as decisions relied upon by the learned DR are concerned, both of them are found to be factually distinguishable and do not apply to the facts of the present case. In case of B.M. Salgaonkar Brothers Vs. CIT(supra), the Honb'le Karnataka High court while considering assessee's entitlement to deduction u/s 80J found that the plant on which deduction was claimed was for sizing and washing of iron ore. Therefore, the Hon'ble High Court held that since there is no manufacture or production of new article or thing deduction cannot be allowed. However, in the present case, ass....