TaxTMI 
TaxTMI 
2013 (5) TMI 862
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....lleging that the said M/s. BHP Billiton and the Appellant were "associated enterprises" within the meaning of section 92(2) (m) of the Act. The TPO ought to have appreciated that there was no relationship of mutual interest between the two enterprises either as prescribed or otherwise, and hence the two could not have been considered as "associated enterprises". 1.3. The DRP erred in directing the transaction with BHP Billiton as "international transaction with associated enterprises" 1.4. The learned TPO erred in invoking clause (m) of section 92(2) of the Act -without appreciating and realizing that the same has no applicability since nothing has been prescribed so far to make the said provision effective. 1.5. The learned DRP made a misstatement that no information or material was provided to substantiate that there was no relationship of mutual interest between the assessee and the BHP Billiton from whom the coal purchase were made during the impugned year. The DRP clearly made a factually misstatement without appreciating and acknowledging the various information and material put on record before them during the course of personal hearing....
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....pplied irrespective whether there is any clear finding by the AO to the effect that there are certain expensed incurred in relation to the incurrence of the exempt income and the same have not been disallowed by the assesse. 3.1 The Learned A.O. erred in disallowing and DRP erred in directing an expenditure of ₹ 1,36,91,148/- classified in the Appellant's Directors Report as "expenditure on R & D", holding that such expenditure cannot be considered under the definition of "scientific research" u/s. 43(4)(1) of the Act. 3.2 The Learned A.O. erred in disallowing the said expenditure of ₹ 1,36,91,148/- also for the reasons that the Appellant had not taken approval of the designated authority that this activity tantamount to "scientific research. 4.1 The Learned A.O. erred in disallowing and DRP erred in directing the disallowance of an expenditure of ₹ 17,72,05,217/- towards payment of commission to the non-resident sales agent, purportedly u/s. 40(a)(i) of the Act, allegedly for either not deducting tax at source u/s. 195(1) of the Act, or not obtaining exemption certificates from the A.O. u/s. 195(2) of the Act. 4.2 The lear....
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....A.O. also ought to have appreciated that the activity to produce/attain the marketable iron ore fines out of wastages (tailings) being part of the mining process, the activities carried on in the said EOU also amounted to "production" and that the said EOU was eligible for deduction u/s. 10-B of the Act, on this count also. 8.4 The Learned A.O. and DRP erred in rejecting the Appellant's claim for deduction u/s. 10-B of the Act in respect of the aforesaid EOU, also for the reasons that no separate book of accounts are maintained for EOU and for non-EOUs. The A.O. ought to have appreciated that the Appellant had provided a report of an Accountant as provided u/s. 10-B(5) of the Act, and that there is no specific condition in section 10-B of the Act to maintain separate book of Accounts in respect of an EOU, for the Appellant to become eligible for deduction u/s. 10-B of the Act. 8.5 The Learned A.O. and DRP erred in rejecting the Appellants claim for deduction u/s. 10-B of the Act in respect of the aforesaid EOU also for the alleged reason that no satisfactory evidence is produced regarding the date of commencement of manufacture or production. The A.O. ought to h....
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....ia) of the Act. The A.O. ought to have appreciated that the Appellant's business of extraction and processing of iron ore has been specifically held by the Supreme Court in their decision in the Appellant's own case (reported in 271 ITR 331) as "production", and hence that the A.O. ought not to have disallowed the Appellant's claim in this regards. 10.2 The Learned A.O. while disallowing the Appellants claim for additional depreciation of ₹ 2,95,73,254/- in respect of its iron ore division, also erred in holding that the Supreme Court's decision in the Appellants own case (supra) is not applicable on this point, in view of the introduction of definition of "manufacture" in the Act with effect from 1.4.1999. The A.O. ought to have appreciated that the Supreme Court in the aforesaid decision has held that the Appellant's business of extraction and processing of iron ore amount to "production" and that the said decision which has interpreted the word "production", cannot be considered as superseded by the introduction of definition of the word "manufacture" in the Act. 10.3 The Learned A.O. erred in reje....
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....ed during the year, holding it as a speculative loss, relying on the CBDT Circular No. 23(XXXIV-4)D of 1960 dated 12.9.1960 and instruction No. 3 - 2010 dated 23.3.2010. The A.O. ought to have held that the loss incurred by the Appellant on forward contracts has a direct nexuses with its business of mining and export of iron ore and that the said loss was not arising on transaction of the nature as defined in section 43(5) of the Act, and that the said CBDT Circular and instruction are not applicable therewith. 12.2 The Learned A.O. erred in rejecting the Appellants submission that the loss arising on forward contract was a hedging loss and hence that the same is allowable as deduction. The A.O. ought to have appreciated that the said forward contracts in fact were in the nature of hedging contracts intended to guard against the loss through future exchange fluctuations and that the said contracts were always entered into by the Appellant only to the extent of foreign exchange required for import or to the extent of foreign exchange realizable through exports in the course of its business." 2. Ground no. 1 : Ground no. 1 relates to the addition of ₹ 3,95,27,600/- made by ....
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....on was the subsidiary of Mitsubishi and not of Mitsui & Co. but the TPO averred that 'however the supply of the coal by BHP Billiton Marketing Ltd. is hit by clause (m) of sub-section 2 of Sec. 92A' and went on to compute the impugned addition. The DRP on the basis of the report of the TPO upheld the addition. It was vehemently submitted that the impugned addition has been made by invoking the provisions of Sec. 92A(2)(m) alleging that there is relationship of mutual interest between Sesa Goa and said BHP Billiton or BM Alliance. The said clause (m) could be invoked only when something has been prescribed for the applicability of this clause and the matter of the assessee falls within that prescribed category. Till date, nothing has been prescribed under Sec. 92A(2)(m) and therefore the said provision remains non-operative. The TPO had thoroughly examined the shareholding pattern of all the companies involved and had categorically concluded that BHP Billiton Marketing Ltd., Switzerland was a subsidiary of Mitsubishi and not Mitsui. The DRP asserted that since the matter was under investigation by SFIO, the remand report of TPO had to be considered as true. Referring to the remand r....
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....th BHP Billiton, Switzerland. Reliance was also placed in this regard on the decision of the Gujarat High Court in the case of Surat City Gymkhana vs. DCIT 254 ITR 733 in which it was held that - "The law is well settled, a person who makes a positive averment is required to establish the same. It is not for the person against whom the averment is made to establish negatively that the state of affairs averred by the other person does not exist." Further, reliance was also placed on the decision of the apex court in the case of K.P. Varghese vs. ITO 131 ITR 597 (SC) in which it was held - "It is well-settled rule of law that the onus of establishing that the conditions of taxability are fulfilled is always on the revenue and the second condition being as much a condition of taxability as the first, the burden lies on the revenue to show that there is an understatement of the consideration and the second condition is fulfilled. Moreover, to throw the burden of showing that there is no understatement of the consideration, on the assessee would be to cast an almost impossible burden upon him to establish a negative, namely, that he did not receive any consideration....
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....nt Showing contracted & actual Coal Purchases during FY 2006-07 to 2008-09 F.Y. Contract Details Actual Supply Balance Remarks F.Y. Contract Details Actual Supply Balance Remarks Coal Type Qty MT Price US$ Qty MT Price US$ Qty MT Price US$ 2006-07 - Riverside Goonyella 1,60,000 50,000 115 114 1,11,831 46,135 115 115 48,169 3,865 115 114 2007-08 - - Riverside Riverside Goonyella 1,50,000 50,000 96 96 52,010 88,314 42,074 115 96 96 61,686 7,926 96 96 Spill over qty wrt FY 06-07 2008-09 Riverside Riverside Goonyell 1,50,000 50,000 300 300 25,699 30489 300 300 124301 19,511 300 300 Spill over qty wrt FY 07-08 Thus, on merits it was vehemently contended that there was no excess payment of the price. 2.2 The Learned DR on the other hand relied on the order of the authorities below and drew our attention to pg. 729 and contended that BM Alliance Coal Marketing Pvt. Ltd. is the company in which Mitsubishi Development Pvt. Ltd., Australia was holding 50% shares and 50% shares are held by BHP Billiton group. The Mitsubishi Development Pvt. Ltd. is 100% subsidiary of Mitsubishi Corporation. The shareholding of the Mitsubishi Co....
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....se (a) to (l) are applicable in the case of the Assessee and the transaction relating to purchase of coal from two companies, BHP Billiton Marketing A.G or BM Alliance Coal Marketing Pvt. Ltd. This is apparent from the letter dt. 16.8.2012 written by the TPO to the DRP which is reproduced as under : "OFFICE OF THE ASSISTANT COMMISSIONER OF INCOME-TAX (TRANSFER PRICING OFFICER-VI) No. 14/3, 6th floor, R.P.Bhavan.Nrupathunga Road, Ban galore - 560001. No. TP-90/TP-VI/2012-13 Date: 16.8.2012 The Income Tax Officer, o/o The Hon Dispute Resolution Panel-II Mumbai Madam, Sub: Submission of report on the clarification sought in the case of M/s Sesa Goa Ltd. AY 2008-09 -reg Ref: Letter in No.DRP-II/Sea Goa/2012-13 dated 8.8.2012 Please refer to the above. 2. In this matter, as mentioned in para 2.3 of the TP order dated 31.10.2011, M/s BMP Billiton Ltd is not a subsidiary of M/s Mitsui & Co. M/s Sesa Goa Ltd belongs to M/s Mitsui & Co group of companies and therefore, M/s BHP Billiton Ltd cannot be categorized as AE of M/s Mitsui. 3. Under these circumstances, taking a liberal view of the provisions of section 92A(2)(m) of the Income tax Act, 1961, adjustme....
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....th Floor, R. P. Bhavan, Nrupathunga Road, Bangalore-1. 080-22130069_______________________________________email: [email protected] 30.11.2011 To, The Additional Director (FA-II), Serious Fraud Investigation Office, Ministry of Corporate Affairs, 2nd Floor, Paryaveran Bhavan, CGO Complex, Lodhi Road, Delhi-110003. Sub : Information regarding Transfer Pricing adjustment in case of M/s Sesa Goa Ltd, Panaji,Goa. Please refer to the information given by you to this office in case of M/s Sesa Goa Ltd, Goa regarding purchase of riverside coal by M/s Sesa Goa Ltd, Panaji, Goa from BHP Coal Pty, which is informed to be a subsidiary of Mitsui & Co. This office has received information that M/s Sesa Goa Ltd, Panaji, Goa, which is a subsidiary of Mitsui & Co has made purchases from BHP Mitsui Coal Pty at an inflated price. 2. Based on the above information, Transfer Pricing proceedings were initiated in the case of M/s Sesa Goa Ltd, Panaji, Goa and an adjustment of ₹ 3.95 Crores is made to the Arm's Length Price of the International Transactions between M/s Sesa Goa Ltd, Panaji, Goa and its Enterprises, BHP Mitsui Coal Pty and Mitsui & Co for the A.....
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....ee with BHP Billiton for the supply of coal is a transaction entered into between two associated enterprises and BHP Billiton is an associated enterprise of the Assessee. The additions just cannot be sustained merely on assumptions and presumptions and for the purpose of protecting the interest of the revenue. The provisions of Section 92A(2)(m) in our opinion are not applicable in the case of the Assessee and accordingly, we delete the addition. Thus, ground no. 1 stands allowed. 3. Ground no. 2 : Ground no. 2 deals with the disallowance made under Section 14A r/w Rule 8D. 3.1 The Learned AR in this regard relied on the order of this Tribunal in the case of the Assessee for the A.Y. 2009-10 and contended that the case of Assessee is duly covered by the decisions of this Tribunal for the A.Y. 2008-09. 3.2 The Learned DR on the other hand stated that the satisfaction has already been recorded by the Assessing Officer in the order passed under Section 143(3) regarding disallowance made under Section 14A and for applying Rule 8D. Once the satisfaction is arrived at about incorrectness of the Assessee's claim, the Assessing Officer has to compute the disallowance as per Rule 8D of t....
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....rival submissions along with the order of the authorities below. We have also gone through various case laws and the provisions of the IT Act in this regard. The issue involved before us relate to the disallowance made by the AO by applying the provisions of sec.14A of the IT Act read with Rule 8D of the IT Rules. Sec.14A was inserted by the Finance Act, 2001 w.e.f. 1.4.1962. Originally this sec. provides that in computing the total income of the assessee no deduction shall be allowed in respect of the expenditure incurred by the assessee in relation to the income which does not form part of the total income under the Act. Subsequently, by Finance Act, 2002 with retrospective effect from 11/5/2001 proviso was added which states that this sec. shall not empower the AO either to re-assess or pass an order enhancing the assessment or reducing the refund already made or otherwise increasing the liability of the assessee for any assessment year beginning on or before 1/4/2001. With effect from 1/4/2007 by Finance Act, 2006 sub-sec. (2) empowers the AO to determine the amount of expenditure incurred in relation to such income which does not form part of the total income in accordance wit....
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....ments of large magnitude cannot be made without proper analysis of the market condition/stock movement etc. The revenue was of the opinion, that the assessee has worked out the administrative expenditure and had not considered all the administrative expenditure. Both the parties before us vehemently relied on the decision of Godrej Boyce Mfg Co. Ltd. Vs DCIT 328 ITR 81 (Mum). 15. We have gone through this decision and we noted that in this case, the assessee claimed exemption in respect of dividend income of 34.34 crores u/s 10(33). The AO issued notices for disallowance of interest u/s 14A of the IT Act. The explanation of the assessee was that (i) 95% of the shares were bonus shares for which no cost was incurred; (ii) No investment in shares was made in the current year and no disallowance was made in earlier years and (iii) There were sufficient interest free funds available in the form of share capital, reserves etc. which were more than investment in shares. The AO was not satisfied with the explanation of the assessee and he made disallowance u/s 14A on prorata basis. The CIT(A) following his orders for earlier years, accepted the appeal of the assessee. The Tribunal foll....
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....al income is correct. The AO must, in the first instance, determine whether the claim of the assessee in that regard is correct and the determination must be made having regard to the accounts of the assessee. The satisfaction of the AO must be arrived at on an objective basis. It is only when the AO is not satisfied with the claim of the assessee, that the legislature directs him to follow the method that may be prescribed. In a situation where the accounts of the assessee furnish an objective basis for the AO to arrive at a satisfaction in regard to the correctness of the claim of the assessee of the expenditure which has been incurred in relation to income which does not form part of the total income, there would be no warrant for taking recourse to the method prescribed by the rules. For, it is only in the event of the AO not being so satisfied that recourse to the prescribed method is mandated by law (pages 31-32). 6. In the event that the AO is not satisfied with the correctness of the claim made by the assessee, he must record reasons for his conclusion (page-79). 7. The effect of sec.14A is to widen the theory of the apportionment of expenditure (page 49). 8. The e....
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....ot automatic in each and every case, where there is income not forming part of the total income. Sub-sec. (2) & (3) are intended to enforce and implement the provisions of sub-sec. (1). Therefore, it is necessary for the AO first to ascertain whether there is proximate connection between the expenditure incurred and the income not forming part of the total income. If such proximate connection is established with the exempt income, the AO would be justified in applying the provisions of sub-sec (2) & (3) of sec.14A and Rule 8D of the IT Act, 1961. The expenditure incurred u/s 14A would include direct and indirect expenditure, but relationship with exempted income must be proximate. If there is material to establish that there is direct nexus between the expenditure incurred and the income not forming part of total income then disallowance would be justified even where there is no receipt of exempted income u/s 10 in the year under consideration in view of the decision of Special Bench in the case of Cheminvest Ltd. 124 TTJ 577 (Del)(SB). 17. The basic principle of taxation is to tax the net income. On the same analogy, the exemption is also to be allowed on net basis i.e. gross re....
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....dend income were not sufficient and correct. We have already held that the onus to prove in this regard lies on the assessing officer. Although the Ld. DR had vehemently contended and tried to build up his case by substituting the reasons given by the CIT(Appeal) in place of the AO, but failed to bring any cogent material or evidence in this regard which may prove that the other expenses claimed by the Revenue for apportionment had proximate connection with the earning of the dividend income. In our opinion until and unless this is proved or established by the revenue, the assessing officer does not have any power to reject the accounts of the assessee and take the shelter of Rule 8D for computing the disallowance out of the exempt income. We are not at all convinced with the submission of the Ld. DR relying on the decision of CIT(Appeal) in respect of Explanation bb to sec. 80HHC that 10% of the receipts under the sources mentioned therein are deemed to be the expenditure. This in our opinion will strengthen the case of the assessee as Explanation bb to sec. 80HHC does not recognize amount of the investment made in other receipt to be the basis of computing the expenditure being i....
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....ed. Ground no.3 is thus rejected." In the case of Jindal Photo Ltd. Vs. DCIT held in I.T.A.T. Delhi bench dated 23.9.2011 it was held as follows: "In the year under consideration, it is seen that it is not incorrect when the assessee contends that no satisfaction has been recorded by the AO regarding the assessee‟s calculation being incorrect. Even so, Rule 8D of the Rules has been applied. This, in our opinion, is not correct. Such satisfaction of the Assessing Officer is a pre-requisite to invoke the provisions of Rule 8D of the Rules. The Learned CIT(A), therefore, erred in partially approving the action of the Assessing Officer." In the case of Avshesh Mercantile P. Ltd. Vs. DCIT in I.T.A.T. Mumbai Bench (I.T. Act No.5779/Mum/2006 & 208/Mum/2009) it was held as follows: "At the time of hearing, the contention raised by the learned DR in this regard is that the appeal of the Revenue on the issue having been dismissed by the Hon'ble Bombay High Court merely observing that no question arises, it cannot be treated as a decision rendered by the Hon'ble High Court on the merit of the issue which is binding on this Tribunal. We are unable to accept this content....
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.... decision of the Hon'ble Bombay High Court in the case of Delite Enterprise Ltd. (supra) is a decision on merit which is binding precedent on us. As the issue involved in the present cases as well as all the material facts relevant thereto are similar to that of the case of Delite Enterprise (supra), we respectfully follow the said decision of the jurisdictional High Court and delete the disallowance made by the AO and confirmed by the learned CIT(A) on account of premium paid by the assessees on redemption of premium notes (OCPN) by invoking the provisions of section 14A of the Act. As regards the case laws cited by the Learned DR, it is observed that in none of these cases, the facts involved were similar to the case of the present assessees in as much as the investment made therein was not found to be capable of earning taxable as well as exempt income which was actually not earned by the assessee in the relevant period as are the facts of the present case or that of the case of Delite Enterprise (supra) decided by the Hon'ble Bombay High Court. Accordingly, we decide the common issue involved in all these appeals in favour of the assessees following the decision of juri....
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....er para 48 and 49 held as under : 48. The second ground relates to deletion of the disallowance of expenditure on research & Development. The brief facts relating to the ground is that the AO disallowed a sum of ₹ 1,94,55,376/ considering the same as scientific research expenditure by treating it as expenditure of capital in nature. The AO has dealt with this issue under para-2 page-5 of the order. When the matter went before the CIT(A), the CIT(A) after getting remand report on the submissions of the assessee noted that the assessee has not claimed the sum of ₹ 2,60,32,608/- as Research & Development expenditure neither in the books of accounts nor in the computation of income. The AO has treated this expenditure which were incurred in usual course under various heads to be scientific research as in the Director‟s report such expenditure was classified as expenditure for Research & Development. It was also noted by him that out of total expenditure of ₹ 2,60,32,608/- an amount of ₹ 65,77,232/- was considered capital expenditure by the assessee and only the balance amounting to ₹ 1,94,55,376/- debited to the profit & loss account. The AO has no....
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.... when the order is executed by the Indian company in India. SKF Boilders & Driers (P) Ltd., In Re (AAR) 68 DTR 106 ii) Resident Indian organizing food and wine show in India wherein all business operations for holding the show are to be carried on in India - Appointed a non-resident agent to furnish information about terms and conditions to potential foreign participants and for booking space in exhibition - Commission is payable to the agent only if the exhibitor participates in the exhibition in India and makes full and final payment in India - Commission income taxable in India in view of sec. 5(2)(b) r.w.s. 9(1 )(i) - Fact that the agent is to render services abroad and the commission is to be remitted to it abroad are wholly irrelevant for the purpose of determining the situs of income since income is from a source in India. Rajiv Malhotra, IN RE (AAR) 284 ITR 564 In view of the above judicial decisions/opinions, the income on account of commission payment received by the non-residents are taxable in India. Once it is taxable the assessee is bound to deduct IDS for claiming the expenditure. In GE India Technology Centre (P) Ltd., Vs. CIT & Anr. (327 ITR 456) Suprem....
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....Hon'ble Supreme Court in Ge India Technology Centre P. Ltd. wherein it has been held as under : The most important expression in section 195(1) of the Income Tax Act, 1961 dealing with deduction of tax at source consists of the words "chargeable under the provisions of the Act." A person paying interest or any other sum to a non-resident is not liable to deduct tax if such sum is not chargeable to tax under the Act. Section 195 contemplates not merely amounts, the whole of which are pure income payments; it also covers composite payments which have an element of income imbedded or incorporated in them. The obligation to deduct tax at source is, however, limited to appropriate proportion of income chargeable under the Act forming part of the gross sum of money payable to the non-resident. It is for this reason that the CBDT has clarified in Circular No.728 dated October 31, 1995, that the tax deductor can take into consideration the effect of the DTAA in respect of payments of royalties and technical fees while deducting tax at source. The expression "chargeable under the provisions of the Act" in section 195(1) shows that the remittance has got to be o....
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....ssee. 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 purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure" From the aforesaid section, it is apparently clear that expenditure to be eligible for deduction u/s 37(1) must fulfill the following conditions:- a) The expenditure should not be covered by the provision of section 30 to 36 as these sections provide its specific treatment to expenditure laid down in those sections. ....
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.... 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 expenditure incurred voluntarily for the purpose of the business would be allowable u/s 37(1). The Hon‟ble Apex Court in the case of Eastern Investment Ltd. Vs. CIT, 20 ITR 14 (SC), laid down the following principles for evaluation of „wholly and exclusively for the purpose of business‟: - (i) Even if the question must be decided on the facts of each case, the concluding decision will be one of law. (ii) It is not necessary that the expenditure be incurred for earning profit. (iii) It is enough that the money was expended "not of necessit....
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....ee, 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 the test of commercial expediency, for determining whether the expenditure was wholly and exclusively laid out for the purpose of the business the reasonableness of the expenditure has to be judged from the point of view of the businessman and not the Revenue, as held in CIT Vs Walchand and Co. (P) Ltd. (1967) 65 ITR 381 (SC). The similar view has been taken in the cases of JK Woollen Manufacturers Vs CIT (1969) 72 ITR 612 (SC); Aluminum Corporation of India Ltd. Vs CIT (1972) 86 ITR 11 (SC) and CIT Vs Panipat Woollen and General Mills Co. Ltd. (1976) 103 ITR 66 (SC). Consi....
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....ted 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 commission payment made to the non-resident agents took the view that the assessing officer was not justified in disallowing the commission payment by invoking the provision of sec. 40(a)(i). The CIT(A), however, disallowed the commission paid by the assessee to the foreign non-resident agents by applying the provisions of sec. 37 as according to him the assessee had not able to substantiate the claim for payment of commission to non-resident agents by adducing specific and tangible evidence to demonstrate that the services were rendered by the sales agents to justify the commi....
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....afide 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 after the parties are introduced the actual work of a commission agent starts. Here in the instant case of the assessee, the buyers had been introduced by the said agents in the past. The emails exhibit that the agents were deeply involved with the buyers vis-à-vis the assessee in actual transportation of goods and securing payments to the assessee. Emails show that the agent was confirming vessel nomination from the buyer, which was later accepted by the assessee. Other emails show the assessee‟s request to the agent for opening of LC and subsequently requestin....
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....in the case of the Assessee, we allow ground no. 4 taken by the Assessee and delete the disallowance made on account of Commission paid by the Assessee. 6. Ground nos. 5 & 6 : Ground no. 5 and 6 relates to disallowance of ₹ 1,27,25,674/- and ₹ 23,36,879/- in respect of Demurrage paid by the Assessee. The Learned AR in this regard contended that this issue is duly covered by the decision of this Bench in the case of the Assessee in ITA No. 72/PNJ/2012 for the A.Y. 2009-10. On the other hand, the Learned DR contended that the Assessee was liable to deduct TDS on Demurrage as per decision of Bombay High Court in the case of CIT vs. Orient Goa Co. Pvt. Ltd. and accordingly the Assessing Officer has rightly made the disallowance. The Learned DR neither gave the copy of the judgement nor filed the citation. 6.1 After hearing the rival submissions and searching the decision through internet in the case of CIT vs. Orient Goa Co. Pvt. Ltd., we find that the issue relating to demurrage charges is duly covered by the decision of the Hon'ble High Court. In this case, the Hon'ble High Court while dealing with a similar issue decided the issue in favour of the Revenue by ho....
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....ent. We have also taken notice of section 6, i.e., "Residence in India". In short, respondent-assessee cannot be said to be non-resident. The present appeal pertains to the respondent-assessee. In our view, in the facts of the present case, the respondent-assessee cannot lay fingers on section 172, since we are not dealing with profits of non-residents. The other aspect is that such profits of non-residents should be from occasional shipping business. It is not the case that the respondent-assessee has earned some profit from occasional shipping and is a non-resident. In our view, section 172 does not have application in relation to the respondent-assessee and in the facts and circumstances of the present case. The company from Japan viz., Mitsui & Co. Ltd., Japan, recipient of demurrage amount is not before us. In other words, we are not examining the tax liability of the foreign company, i.e., Mitsui & Co. Ltd., Japan. On our query to the learned Senior Advocate Shri Usgaonkar as to material on record for occasional shipping, part of para 3 from the Judgment of the learned Commissioner of Income-tax has been pointed out to us. His observations are in very few lines. We ....
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....n the area of computation of profits from shipping business of non-residents and there is no overlapping in the areas of operation of these sections. Learned Senior Advocate Shri Usgaonkar, appearing on behalf of the respondent-assessee, also drew our attention to the Judgment of the Hon'ble Supreme Court in the matter of Commissioner of Sales Tax v. Indra Industries [2001] 248 ITR 338. It is a three Bench Judgment of the Hon'ble Supreme Court. It has been held by the Hon'ble Supreme Court that the circulars issued by Commissioner of Sales Tax not binding on assessee or Court, however, binding on the Department. In the case on hand, in our view, learned Commissioner of Income-tax (Appeals) and the learned appellate Tribunal have wrongly interpreted the Circular dated 19-9-1995 issued by the CBDT. This circular, in our opinion, cannot be considered in the facts and circumstances of the present case, in aid to the respondent-assessee. The learned Assessing Officer, in fact, has passed a legal, proper and reasoned order, holding that the provisions laid down under section 40(a)( i) of the 1961 Act apply to the case on hand. 11. We may notice here the Judgment of the Hon&....
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....aim of deduction by the Assessee in respect of Education Cess. Both the parties agree that this issue is duly covered in favour of the revenue by the order of this Tribunal. After hearing the rival submissions, we noted that this issue is duly covered by the decision of this Tribunal in ITA No. 72/PNJ/2012 for the A.Y. 2009-10 in which this Tribunal vide order dtd. 8.3.2013 held as under :- "6.6 In the present case, it is significant to note that assessee is an established iron ore exporter and has been exporting iron ore to the same countries year after year for substantially long time. It is also observed that the assessee has been transacting with known business concerns and therefore, there was no real necessity for an agent to render any service for promoting sales with such concerns with whom the assessee has been transacting for long. As far as Mitusi & Co., Japan, is concerned, it is pertinent to note that assessee has been exporting iron to this concern for substantially long time, which should normally not require any sales promotion. Considering the facts of the case as discussed above, the assessee has not been able to substantiate the claim for payment of commission t....
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....read the expression "extraction" and "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 assesses ;'s 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 hugte 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 ....
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....on u/s 80HHC for the entire export of iron ore, processed as well as unprocessed. The assessee has more than one benificiation plants/units at Codli, which all carry out the similar activities of processing and producing lumps and fines, after processing. 1 B. Why Special Bench : i. Observation of the bench during the course of hearing of the present case were that the decision in ITA No.162/PNJ/2006 and ITA No.1841/PNJ/2006 have been reversed and the same cannot be applied to the case of the assessee-company. ii) However, There is no reversal of the judgement. In fact, no ITAT can reverse or review its own decision. Only mistakes apparent from record can be rectified. iii) If this view is taken then it would be contrary to the earlier findings of ITAT in Chowgule's case. iv). The decision of Gujarat High Court in the case of Affection Investment Ltd., Vs. ACIT.reported in 222 CTR 2009, Sayaji Iron & Engg. Co. Vs. CIT (2002) 172 CTR (Guj). 339 (2002) 253 ITR 749 (Guj) and decision of Madras High Court in the case of CIT Vs. L.G. Ramamurthi reported in 110 ITR 453, clearly mandates that the ITAT has to refer to the Larger Bench on the issue if it is to take a contrary view....
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....en in the written submission filed before us. Even the issue whether the Codli unit is an independent unit or not has also been examined. Even the inspection of the unit was also carried out by this Bench. This Bench after hearing the submission from both the sides ultimately under para 42.7 to 45.22 of its order dt. 8.3.2013 in ITA No. 72/PNJ/2012 for the A.Y. 2009-10 held as under : "42.7 In our opinion, the common issue involved on the facts of the case in the case of the assessee is whether all the three units in respect of which the assessee claimed the exemption u/s 10B are engaged in any manufacture or production of article or thing for the purpose availing of exemption u/s 10B. If engaged in processing, whether assessee is entitled for exemption u/s 10B in respect of all these three units. The nature of activities in the case of Amona plant as well as Chitradurga is similar as explained in the earlier paras. Both these units as well as Codli plant are approved as 100% EOU units. The necessary Board approvals are placed in respect of each unit by the assessee on record. For Codli Unit, approval was given initially for five years, which was subsequently extended to which we....
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....utive assessment years falling within the block of eight assessment years. The exemption provided under this new section was similar to the one provided under sec. 10A of the Act to industrial undertaking operating under the free-trade zone. It was also clarified therein that the expression „manufacture‟ for the purpose of both sections 10A and 10B of the said Act would include any processing or assembling or recording of programme on disc, tape, perforated media or other information storage device. 43.1 This definition of „manufacture‟ was removed when sec. 10A and 10B of the Act were amended by the Finance Act, 2001 w.e.f. 01/04/2001. Sections 10A and 10B of the Act were further amended by the Finance Act, 2003 w.e.f. 01/04/2004 and the definition of „manufacture‟ was inserted as under:- "Explanation (iv) - For the purpose of this section, „manufacture or produce‟ shall include the cutting and polishing of precious and semi-precious stones." 43.2 The EOUs were allowed to sell 25% production within the country. With a view to rationalize the concession and to phase these out by the end of the assessment year 2009-10, the provis....
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.... poultry, sericulture, aviculture and mining . 43.4 This definition was adopted by the Legislature in section 10AA w.e.f. 10/02/2006 as adopted by the Special Economic Zones Act, 2005 by inserting Explanation 1(iii) to section 10AA of the Act which reads as under:- (iii) Manufacture' shall have the same meaning as assigned to it in clause (r) of section 2 of the Special Economic Zone Act, 2005. As per the said definition „process‟ is included in manufacture. Subsequently, by the Finance Act, 2009 w.e.f 1.4.2009, clause (29BA) was inserted in section 2 of the Income Tax Act, 1961defining 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. 43.5 In Chowgule & Co. Pvt. Ltd. Vs. Union of India (1981) 1 SCC 653 Hon‟ble Supreme Court, after considering the....
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....sioner of Commercial Taxes [16 STC 935 (Cal)]. What is necessary in order to characterize an operation as "processing" is that the commodity must as a result of the operation, experience some change. Here, in the present case, diverse quantities of ore processing different chemical and physical compositions are blended together to produce ore of the requisite chemical and physical composition demanded by the foreign purchaser and obviously as a result of this blending, the quantities of ore mixed together in the course of loading through the mechanical ore handling plant experience change in their respective chemical and physical composition, because what is produced by such blending is ore of a different chemical and physical compositions. When the chemical and physical composition of each kind of ore which goes into the blending is changed, there can be no doubt that the operation of blending would amount to "processing" of ore within the meaning of Section 8(3)(b) and Rule 13. It is no doubt true that the blending of ore of diverse physical and chemical compositions is carried out by the simple act of physically mixing different quantities for such ore on the conveyor belt....
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....t agree with the learned D.R that there is not any change in physical and chemical composition of the output than the input as is being processed in all the three units. If we go to section 2(29BA) inserted w.e.f. 1.4.2009, we find clause (b) of this section clearly states that bringing into existence of new and distinct object or article or thing with a different chemical composition or integral structure tantamount to „manufacture‟. The Crude ore once processed is made marketable and had a different chemical and physical composition than the ROM (Crude Ore) even though in common paralance both may be called iron ore. It is no more remains as crude ores. Tailing no more remains tailing but converted into a powder.In view of this clause and the decision of Supreme Court in the case of Chowgule & CO. (Supra), it can be held that the assessee is engaged in these units in „manufacturing‟. Further, in CIT Vs N.C. Budharaja & Co. (1993) 204 ITR 412 (SC), Hon‟ble Supreme Court further observed that the word "production" is much wider than the word "manufacture". It was said (page 423): The word production has a wide connotation than the word manufactur....
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....owever relied on the decision of the Bombay High Court in Nilgiri Ceylon Tea Supplying Co. Vs. State of Bombay [10 STC 500 (Bom HC)]. The assessees in this case were registered dealers in tea under the Bombay Sales Tax Act, 1953 and they purchased in bulk diverse brands of tea and without the application of any mechanical or chemical process blended these brands of different qualities according to a certain formula evolved by them and sold the tea mixture in the market. The question arose before the Sales Tax Authorities whether the different brands of tea purchased and blended by the assessee for the purpose of producing the tea mixture could be said to have been ‗processed' after the purchase within the meaning of the proviso to Section 8(a), so as to preclude the assesses from being entitled to deduct from their turnover under Section 8(a), the value of the tea purchased by them. The High Court of Bombay held that different brands of tea purchased by the assesses could not be regarded as ‗processed' within the meaning of the proviso to clause (a) of Section 8, because there was not even application of mechanical force so as to subject the commodity to a process, manu....
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....ing through the mechanical ore handling plant amounted to ‗processing' of ore within the meaning of Section 8(3)(b) and Rule 13 and the mechanical ore handling plant fell within the description of machinery, plant, equipment used in the processing of ore for sale…… 43.9 In deciding the said question, the Hon‟ble Supreme Court after considering the judgment of the Hon‟ble Bombay High Court in Nilgiri Ceylon Tea Supplying Co. Vs. State of Bombay [1959] 10 STC 500 (Bom), inter alia, observed as follows: (i) When different brands of tea were mixed by the assessee as in Nilgiri Ceylon Tea Supplying Co.'s case (1959) 10 STC 500 (Bom) for the purpose of purchasing a tea mixture of a different kind and quality according to a formula evolved by them, there was plainly and indubitably processing for the different brands of tea, because these brands of tea experienced, as a result of mixing, a qualitative change, in that the tea mixture which came into existence was of a different quality and flavor than the different brands of the tea which went into the mixture; (ii) There are, it is true, some observations in the judgment of the Bombay High Court whic....
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..../s 10B of the Act for the assessment year 1996-97 onwards which was granted up to the assessment year 2000-2001, but for the assessment years 2001-02 and 2002-03 the exemption was denied for the reason that by the Finance Act, 2000, the definition of ‟manufacture‟ which included processing contained in sec. 10B of the Act was deleted w.e.f. 01/04/2001. (The same reasoning as has been given by the coordinate bench in the case of Chowgule & co. ITA 162 & 184 heavily relied by the department under para 14 of their order dt. 12.7.2007.) Hon‟ble High court noted in that case that the Revenue‟s stand 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. Hon‟ble Kerala High Court considered the contention of the assessee that the scheme of income tax exemption available to units in the SEZ u/s 10A of the Act and units in the free trade zone provided u/s 10AA of the Act and the exemption....
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....en after the amendment is retained in the said section, which defines it as an undertaking which has been approved as a 100 per cent export oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of powers conferred by section 40 of the Industries (Development & Regulation) Act, 1951, and the Rules made under that Act. It is pertinent to note the products for which the assessee's unit is recognized as a 100 per cent export oriented unit are tea bags, tea in packets and tea in bulk packs. In fact, the assessee is exclusively engaged in blending and packing of tea for export and is not manufacturing or producing any other article or thing. Still it is recognized as a 100 per cent export oriented unit by the concerned authority within the meaning of that term contained in the definition clause of section 10B of the Income-tax Act and the Department has no case that the assessee's unit engaged in export of tea bags and tea packets is not a 100 per cent export oriented unit. So much so, in our view, if exemption is denied on the ground that products exported are not produced or manufactured in the industrial unit of the assessee's 100 per cent ex....
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....n processing of iron ore and by processing it get it upgraded for export, therefore it is not entitled for exemption u/s 10B does not have any leg to stand in view of the decision of Kerala High Court (supra), Supreme Court in the case of Chowgule & Co(supra). Even on this issue we have gone through the decision of Hon‟ble Special Bench in the case of Madhu Jayanti International Ltd. and Others Vs. DCIT. The question for consideration and decision of the Special Bench was: Whether on the facts and in the circumstances of the case, the Assessees, who are in the business of blending & processing of tea and export thereof, can be said to be Manufacture/Producer of the tea for the purpose of Section 10A/10B of the I.T. Act, 1961? 44. The brief facts in the case of Madhu Jayanti International Ltd. in ITA No. 1463/Kol/2007 were that the assessee was engaged in the business of manufacturing, processing, exporting and dealing in various commodities, more particularly tea, coffee, jute, pepper, chillies, cardamom, turmeric and similar other spices, etc. The assessee, as per the claim is a 100% EOU within the meaning of section 10B of the I.T. Act, 1961 and claimed exemption under....
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....omic Zones Act, 2005, which definition 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, cutting, polishing, blending, repair, remaking, re-engineering and includes agriculture, aquaculture, animal husbandly, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining". In Exim Policy, the expression "manufacture" is defined, in paragraph 9.30 & 9.31 thereof almost in the same manner 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 labeling. Manufacture, for the purpose of this Policy, shall also include agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining." But the only difference betwee....
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....eme Court in CIT V. Emptee Poly-Yarn Pvt. Ltd. (2010) "Green Tea" means the variety of manufactured tea commercially known as green tea; 320 ITR 665,667 (SC). 33. The Assessee Company carries out its operations of blending, packaging and export of tea bags, tea packets and bulk tea packs in its modern factory, well equipped with all imported and sophisticated automatic plant and machineries with the help of over 100 workmen engaged on contract basis through M/s. Trot Pvt. Ltd. The manufacturing'. operations are carried in its said factory situated at 19/4A, Munshiganj Road (under Falta Export Processing Zone), Kolkata. We find from facts of the case that the details of turnover of the assessee shows Bulk Tea (0.94%), Packet Tea and Tea Bags .(99.06%),. as. per different descriptions, brand names and varieties, as listed APR. Assessee Company is duly registered as a 100% EOU by the Government of India, Ministry of Industry, Department of industrial Policy and Promotion Secretarial for Industrial Approvals, ECU Section in the state of West Bengal for manufacture of Packet Tea, Tea Bags/Bulk Tea with annual capacity of 3110 Mt. in terms of Registration Certificate dat....
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....on of the assessee that the scheme of income tax exemption available to units in the SEZ u/s. TOA of the Act and units in the free trade zone provided u/s, 10AA of the Act and the exemption available to 100% EOU u/s. 1OB of the Act are very similar in nature and the wordings of the statutory provisions are similar in nature is correct. We find that Hon'ble Kerala High Court also considered the judgment in-the decision of Supreme Court in Tara Agencies, supra relied on by the Ld. CIT, DR, wherein Hon'ble Supreme Court clearly held that blending of tea does not amount to 'manufacture' or 'production' of an article, but is only processing. We find 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 recognised 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 unit of the assessee's 100% EOU, it would defeat the very object of sections 10B of the ....
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....s. 10B of the Act as prayed for. Their appeal for the AY 2004-05 is allowed. As regards other appeals and that of the interveners, the matters are restored back to the Division Bench, with directions to decide those appeals in the light of principle laid down herein, so far as the claim for relief u/s. 10A or 10B of the Act in accordance with law 44.1 From the reading of para 35 of the aforesaid judgment we noted that the Special Bench in this case clearly held that the assessee was engaged only in processing and was not engaged in the manufacture or production but had ultimately under para 36 it took the view in view of the fact that the definition of „manufacture‟ u/s 2(r) of the SEZ Act, 2005 which is incorporated in section 10AA w.e.f. 10/02/2006 includes „processing‟. Therefore, following the decision of Kerala High Court in the case of Girnar Industries and Tata Tea Ltd. (which was discussed by us in the preceding paragraphs) held that the assessee is entitled for exemption u/s 10B of the Act on account of blending of tea. 45. We have also gone through the decision of Hon‟ble Supreme Court in Indian Cine Agencies Vs CIT 308 ITR 98. In this c....
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....se cases, we are of the view that the High Court was right in coming to the conclusion that the activity undertaken by the respondents-assessees did constitute manufacture or production in terms of Section 80IA of the Income Tax Act, 1961. 23. Before concluding, we would like to make one observation. If the contention of the Department is to be accepted, namely that the activity undertaken by the respondents herein is not a manufacture, then, it would have serious revenue consequences. As stated above, each of the respondents is paying excise duty, some of the respondents are job workers and the activity undertaken by them has been recognized by various Government Authorities as manufacture. To say that the activity will not amount to manufacture or production under Section 80IA will have disastrous consequences, particularly in view of the fact that the assessees in all the cases would plead that they were not liable to pay excise duty, sales tax etc. because the activity did not constitute manufacture. Keeping in mind the above factors, we are of the view that in the present cases, the activity undertaken by each of the respondents constitutes manufacture or production and, the....
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....sion dt. 12th July, 2007 of this Tribunal in that case got overruled by the decision of this Tribunal vide order dt. 19th July, 2007 but we do not agree on this with the Ld. AR. We have gone through the order dt. 12th July, 2007 as well as order dt. 19th July, 2007 but we noted that the Tribunal rectified the order as the Tribunal noted the assessee itself was extracting the entire ores and processing the same. Thus, the assessee complied with both the conditions of extracting and processing of iron ore. This Tribunal did not reverse the finding that the processing is not entitled for the exemption. The Tribunal did not reverse the finding that extraction and processing should go together. Even that bench / tribunal did not visualize that 100% EOU is approved for a particular location and its boundry cannot extend beyond that location. It is only the profit derived by the 100% EOU Unit situated within that location, can be regarded to be the profit derived by the 100% EOU. The assessee in that case has taken the mines on lease which were not approved as part of 100% EOU but still the assessee was allowed exemption u/s 10B even though the iron ore extracted from those mines which we....
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....n different, then the second Tribunal would be in the same position to revise the earlier decision as if fresh facts had been placed before it. On principle there is not much difference between fresh facts being placed before the second Tribunal and the second Tribunal taking into consideration certain material facts which the first Tribunal failed to take into consideration. 45.5 The other exception is for non-binding of the coordinate Bench decision is when there had been amendment in law subsequent to the decision on the basis of which the coordinate bench rendered the decision and the co-ordinate Bench could not be able to consider the said amendments, the decision of the co-ordinate Bench is not binding. From para 14 of the order of the Co-ordinate Bench it is apparently clear while deciding the appeal in the case of Chowgule & Co. (ITA 162 & 184), it had got impressed that the expression "processing" is omitted in Section 10B. The appeal relates to A.Y.2002-03 not relating to impugned A.Y. Clause (iii) of Explanation 1 to section 1OAA, which lays down that the expression "manufacture" shall have the same meaning as assigned to it in section 2(r) of the Special Eco....
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....ing of tea is treated as manufacture or production of an article qualifying for exemption. Not only these decisions subsequent to the decision of the coordinate Bench, Supreme Court has also decided following cases in which also, in our opinion, similar issue whether processing is manufacture or production has been decided. These decisions are given as under:- i) India Cine Agencies 308 ITR 98 (SC) ii) Oracle Software India Ltd. 320 ITR 546 (SC) iii) Arihant Tiles and Marbles (P) Ltd. 320 ITR 79 (SC). 45.6 We noted that in all these decisions except in the case of Oracle Software the decision of the Supreme Court in the case of CIT vs. Sesa Goa Ltd. 271 ITR 331 was referred to by the court. Hon‟ble Punjab & Haryana High Court in the case of CIT Vs. Abhishek Industries Ltd. 286 ITR 1 (P&H) has observed as under on the responsibility of the Tribunal while deciding the case: "The Tribunal being the last fact-finding authority, a higher responsibility is cast by the Legislature on it to decide the cases by recording complete facts and assigning cogent reasons. It is the duty of the Tribunal to decide the cases on the basis of the law laid down by the Supreme Court/High....
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....onstituting the Special Bench. 45.8 Now coming back to the issue whether an assessee who is engaged in processing for upgrading and making the commodity fit for export and which is a 100% EOU approved by the competent authority can be said to have been engaged in manufacture or production of an article or thing. We have noted that this issue is duly covered by the decision of the Special Bench in the case of Madhu Jayanti International Ltd.(supra). The relevant paragraph of this judgement has been reproduced by us in the preceding paras. 45.9 In this decision, Special Bench has exhaustively dealt with the provisions of section 10B, section 2(29BA) of the Income-tax Act, 1961 and section 2(r) of the Special Economic Zones Act, 2005; and the various decisions of the Supreme Court as well as the High Court which dealt with the similar issue and even the decision of Chowgule & CO (SC) as was referred to by us in the preceding paras herein above. The Special Bench clearly noted in this decision, the decision of the Supreme Court in Tara Agencies‟ case 292 ITR 444 in which it was held blending and packing of tea amounts to processing and is not manufacturing or producing of an....
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....hase-III) Total: 3,96,10,020 8,33,34,046 (All Phs) 9,00,78,574 The contention of the assessee is that it had set up all these units as new units and had also got the approval for them from the competent authority as 100% EOU units. The old machinery and part of old machineries wherever used, the value of these machineries were less than 20% in each units. The old units situated in Amona, Chtradurga and Codli were eroded, non-productive and non-economical. The revenue has strongly contended that none of these units even though 100% EOU but were setup long ago. The assessee had merely renovated these units during the period as claimed by the assessee. The revenue on the other hand accepted that the assessee had invested in Amona plant ₹ 3,96,10,020/- during the year 2002-03 and in Chitradurga unit during F.Y. 2005-06 to 2008-09 ₹ 8,33,34,046/- but the assessee had not submitted any evidence in respect of the investments made in the Codli unit and in which year. We noted that CIT(A) in his appellate order at page nos. 48-50 has given „Depreciation Charts‟ in respect of Plant & Machinery previously Used at Amona plant. Likewise, at page nos. 65-66 similar ....
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....er of the transaction. We find force in the submission of the assessee that in the case of Amona EOU, old unit set-up in 1985 had become outdated, obsolete, even dangerous and uneconomical to run after a span of 17 years. Therefore, the assessee had to take an immediate action to either abandon it or revamp it entirely. This fact is also proved with the fact that the production capacity of this plant which was 1 MTPA earlier got doubled at 2 MTPA coupled with further flexibility created to increase it more in future after setting up new unit. The newly increased production capacity had not been denied by the revenue. The cost of new plant and machinery for all major / critical processes and civil structures for those plants amounted to ₹ 3,96,10,020/- during the FY 2002-03, whereas the WDV of the old plant used in the new undertaking was just ₹ 26,17,714/-, which is a mere 6.7% of the cost of new plant & machinery, i.e., within the permissible limit of 20%. The CIT(A), in our opinion, was not correct in comparing the number of machines and equipments installed in mining division to be part of old plant and machinery installed in 100% EOU Units when in fact mining divisi....
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.... of the cost of new plant & machinery; which is also within the permissible limit. The accounts books in that year were duly audited and were not rejected by the Assessing officer in those assessment years. Now coming to Codli UFR unit, we noted that neither the assessing officer nor the CIT (Appeals) has disputed the capital investment made in new plant & machinery in the FY 1999-2000, they have merely expressed their dissatisfaction on the evidences furnished by the assessee in respect of the date of commencement of manufacturing or production, which was stated as 08/03/2000 by the assessee on the strength of documentary evidences such as the Approval from the Board of Approvals, intimation of commencement of commercial production on 08/03/2000 to the Ministry of Industries, etc., which have discussed separately in this order by us. The main contentions of the revenue before us are as under:- (i) That all old machines were not replaced since there was no deletion in the book value of the existing plant shown in the depreciation charts for the concerned years. (ii) That by carrying out repairs a new unit is not set-up. In the case of Chitradurga unit, some bills were found for....
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....eeds" provided at page nos. 1356 and 1365 of the paper book for the said two financial years respectively. Gross receipt from sale of scrap for Goa (Amona unit) amounting to ₹ 71,41,971/- was declared in the FY 2002-03; and that of ₹ 4,67,163/- was declared for the year ended on 31/03/2006 in respect of Karnataka (Chitradurga unit). We find substance in the explanation of the Ld. AR that the said contention of the Revenue does not, therefore, hold good in our opinion. Otherwise also, we have noted that the value of the existing plant was much below the threshold limit of 20% required for substantial investment for setting-up of a new unit for the purpose of section 10B. 45.13 With regard to the contention of the Revenue that in the case of Chitradurga unit, some bills were found for undertaking fabrication, erection and other such works which appear to be revenue in nature and not capital in nature. We noted the explanation of the Ld. AR that the assessments for the AYs 2006-07 and 2007-08 had been framed u/s 143(3) where depreciation vis-à-vis capital expenditure (fixed assets) had duly been examined by the AOs and even some disallowances had been made in res....
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....late only to the EOU units whether they are new or not, therefore in our view, revenue is not correct in adding the value of the extraction division for determining 20% threshold limit of old plant and machinery for establishing the new unit. On the one side, the revenue is taking the contention that extraction division is not the part of 100% EOU, therefore the assessee‟s EOU units cannot be regarded to have been engaged in extraction of ore and iron ore processing, on the other hand, while determining the threshold limit of 20% of old plant and machinery, the revenue cannot be permitted to take a contrary contention. We are of the firm view that while determining the eligibility of a particular unit u/s 10B, its only the value of old plant and machinery installed in that very unit will be considered for determining the threshold limit of 20%. Thus, this contention of the revenue stand dismissed. Production date submitted by the assessee on record clearly prove that the production in each of these units got substantially increased as compared to the production in the old units dismantled or discarded. There is no cogent evidence or material being brought on record by the rev....
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....d existing smaller industrial undertaking is absorbed by a new much bigger industrial undertaking. 15. In the present case, only capacity was increased and there was expansion of old business with some modifications. As for reconstruction of the business, it is nowhere evident that the old industrial unit was split up or damaged or destroyed that was supposedly reconstructed as a new unit by the assessee. What the assessee has done is to set up an industrial undertaking with latest technology and with increased capacity and of course, with a fairly good amount of fresh investment. (ii) Mettur Chemicals & Industrial Corporation Ltd. Vs. CIT (1996) 217 ITR 768 (SC) 11. It is found as a fact that the appellant had begun to manufacture or produce articles in the previous year ended on 31-3-1957 with the help of thirty hooker cells. It is true that rectifier had not been installed in the year 1957-58 but it is not in dispute that with suitable adjustment being made to the power system, the thirty hooker cells which had been installed were utilised. The use of these new hooker cells had resulted in the capacity of the unit gradually increasing and the production so made was not e....
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.... in existence. Then, the authorities below have observed that mere registration as a one hundred per cent EOU is not the sole criterion for grant of deduction under s. 10B of the Act. This observation itself amounts to an admission of the unit being registered as a one hundred per cent unit with the Development Commr., NEPZ. Explanation 2(iv) to s. 10B of the Act provides for a one hundred per cent EOU to mean an undertaking which has been approved as a one hundred per cent EOU by the board appointed in this behalf by the Central Government in exercise of the powers conferred by s. 14 of the Industries (Development and Regulation) Act, 1951 and the Rules made thereunder. For facility, the said Expln. 2(iv) to s. 10B is being reproduced as follows:- "Hundred per cent export-oriented undertaking" means an undertaking which has been approved as a hundred per cent export-oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by s. 14 of the Industries (Development and Regulation) Act, 1951 (65 of 1951), and the Rules made under that Act." 18. Therefore, registration as a one hundred per cent EOU is a ....
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....ly does, would not on that score deprive him of the benefit under Section 80-I. Every new creation in business is some kind of expansion and advancement. The true test is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is a new identifiable endeavour where substantial investment of fresh capital is made to enable earning of profit attributable to that new capital. In the circumstances, the question referred for the opinion of this Court is answered in the negative, i.e., against the Revenue and in favour of the assessee… (v) Bajaj Tempo Ltd. Vs. CIT (1992) 104 CTR (SC) 116 Deduction under s. 15C of 1922 Act (s. 80J of 1961 Act) - Allowability - Industrial undertaking established in a building taken on lease used previously for other purpose - Tools and implements worth ₹ 3,500 of the previous undertaking also transferred - Relief under s. 15C is allowable - Clause (i) of sub-s. (2) of s. 15C does not apply - The provision granting relief was enacted to encourage industrialization and has to be construed liberally - Tools and implements transferred were of insignificant value as compared to th....
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....We noted that in respect of the Amona plant the assessee has duly informed the DC, SEZ Bombay vide his letter dated 9.3.2008 i.e., commercial production started on 8.3.2000 and copy of the said letter was duly sent to Customs Department which was not disputed by these competent authorities. 45.20 In the case of Chitradurga plant also we noted that the assessee vide its letter dated 14.7.2008 duly intimated to the DC, SEZ that the converted 100% EOU is started commercial production on 6.6.2008. The premises of the said unit was bonded and the licence no.1/2008 dated 5.6.2008 was issued u/s 58 of the Customs Act. Similarly, we noted that in the case of Codli Unit the assessee has duly intimated to the Ministry of Industry vide letter dated 9.3.2000 that the commercial production is started on 8.3.2000. None of the aforesaid Government authority has disputed that the assessee has not started commercial production on that date. 45.21 In view of the aforesaid discussion, we are of the view that the assessee is entitled for exemption u/s 10B in respect of all the three 100% Export Oriented Units, but during the course of the hearing, we noted that the assessee while computing the ex....
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....ir play to both the parties, in respect of this unit also we direct the assessing officer to recompute the profit of this unit eligible for exemption after satisfying himself about the fair market value of „tailings‟ after giving proper and sufficient opportunity to the assessee to prove the market value of the tailings used in the Codli unit and allow the assessee exemption to the assessee u/s 10B of the Income-tax Act, 1961 for Codli unit on the profit so recomputed accordingly. The assessee is directed to adduce the necessary evidence on which it may rely to prove the market value of inputs before the assessing officer. Thus, the ground nos. 7, 8 & 9 are partly allowed." 8.4 Respectfully following the decision of this Tribunal, we hold that the Assessee is entitled for exemption under Section 10B in respect of Codli unit. In respect of the said unit although the Assessee claimed that the input in this case is tailings which does not involve any cost and does not fetch any price in the open market and the market value of the same is NIL, for the purpose of computation, the profit eligible for exemption under Section 10B from this unit. We restore the issue relating t....
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.... The Assessee has not got any ownership right or preferential access for the use of the bridge. The bridge remained property of the Govt. of Goa. Expenditure has been incurred for the purpose of the business. Reliance was also placed in this regard on the following decisions : i) ITAT Panaji Bench in Chowgule & Co. Pvt. Ltd. for A.Y. 2002-03 in ITA No. 162/PNJ/2006 and ITA No. 184/PNJ/2006 dtd. 12.7.2007 ii) CIT vs. Gujarat Mineral Development Corporation (1981) 132 ITR 377(Guj) iii) CIT vs. Chemicals & Plastics India Ltd. (2007) 292 ITR 115 (Mad) iv) Mafatlal Fine Spg. & Wvg. Co. Ltd. vs. CIT (1993) 69 Taxman 385 (Bom.) v) Palani Andavar Mills Ltd. vs. CIT (1977) 110 ITR 742 (Mad) vi) Empire Jute Co. Ltd. vs. CIT (1980) 124 ITR 1 (SC) 9.2 The Learned DR on the other hand relied on the order of the authorities below as well as the decisions of Kerala High Court in the case of Mahesh B. Shah vs. ACIT (supra). 9.3 We have heard the rival submissions and carefully considered the same. We have also gone through the decision of Mahesh B. Shah vs. ACIT (supra). The facts of this case was that the Assessee being member of stock exchange made contribution to the stock exchang....
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....hich the Assessee is one of the members for the construction of the bridge. The bridge so constructed does not give any ownership right to the Assessee. Even it was not for the exclusive use of the Assessee. The expenditure was incurred, in our opinion, to facilitate the business of the Assessee and has been incurred wholly and exclusively for the purpose of business. We, accordingly, delete the disallowance of ₹ 1,97,91,667/-. Thus, this ground stands allowed. 10. Ground no. 10 : Ground no. 10 relates to disallowance of additional depreciation. Both the parties agreed that this issue is duly covered by the decision of this Tribunal in ITA No. 72/PNJ/2012. After hearing the rival submissions and going through the decision of this Tribunal in ITA No. 72/PNJ/2012 dt. 8.3.2013 in which this Tribunal while dealing with similar issue regarding allowability of depreciation to the Assessee which was disallowed by the Assessing Officer under para 46.1 to 46.2 held as under : "46.1 We have carefully considered the rival contentions alongwith the order of the tax authorities. Sec.32(1)(iia) laid down as under; " iia) in the case of any new machinery or plant (other than ships and....
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....71 ITR 331(SC) (supra). This section used the word „business of manufacture or production‟ not the word „manufacture and production‟. We do not agree with the revenue that the case of the assessee is not covered by the decision of the Hon‟ble Supreme Court in assessee‟s own case. Respectfully following the decision of the Hon‟ble Supreme Court in assessee‟s own case, we delete the disallowance and allow the additional depreciation to the assessee amounting to ₹ 10,91,75,435/-." 10.1 No contrary decision or facts were brought to our notice. Respectfully following the decision of this Tribunal in the case of the Assessee as reproduced hereinabove, we delete the disallowance. Thus, this ground stands allowed. 11. Ground no. 11 : Ground no. 11 relates to the disallowance of ₹ 28,96,685/- being notional loss incurred due to the revaluation of the debtors as at the year end, due to fluctuations of the exchange rate. The brief facts of this ground are that the Assessing Officer noticed that the Assessee claimed notional loss of ₹ 28,96,685/- in respect of amount payable/receivable in foreign currency as on 31.3.2008. Thi....
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....stinguishable. The Assessee has declared in preceding year, gain arising due to foreign exchange fluctuation amounting to ₹ 37,02,412/- which was duly taxed by the revenue. 11.2 The Learned DR on the other hand relied on the order of the Assessing Officer. 11.3 We have carefully considered the rival contentions and perused the material on record. In our view, this issue is no more res integra in view of the decision of the Supreme Court in the case of CIT vs. Woodward Governor India (P) Ltd. (2009) 312 ITR 254 in which the Supreme Court confirmed the decision of the Delhi High Court in CIT vs. Woodward Governor India (P) Ltd. (2007) 294 ITR 451 as under : "Having come to the conclusion that valuation is a part of the accounting system and having come to the conclusion that business losses are deductible under section 37(1) on the basis of ordinary principles of commercial accounting and having come to the conclusion that the Central Government has made Accounting Standard -11 mandatory, we are now required to examine the said Accounting Standard ("AS"). AS-11 deals with giving of accounting treatment for the effects of changes in foreign exchange rates. AS-11 deals wit....
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....ing to import of raw materials using the closing rate of exchange. Any difference, loss or gain, arising on conversion of the said liability at the closing rate, should be recognised in the profit and loss account for the reporting period. A company imports raw material worth US $ 250000 on January 15, 2002, when the exchange rate was ₹ 46 per US $. The company records the transaction at that rate. The payment for the imports is made on April 15, 2002, when the exchange rate is ₹ 49 per US $. However, on the balance-sheet date, March 31, 2002, the rate of exchange is ₹ 50 per US $. In such a case, in terms of AS-11, the effect of the exchange difference has to be taken into the profit and loss account. Sundry creditors is a monetary item and hence such item has to be valued at the closing rate, i.e., ₹ 50 at March 31, 2002, irrespective of the payment for the sale subsequently at a lower rate. The difference of ₹ 4 (50-46) per US $ is to be shown as an exchange loss in the profit and loss account and is not to be adjusted against the cost of raw materials. In the case of Sutlej Cotton Mills Ltd. v. CIT reported in [1979] 116 ITR 1 this court has ob....
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....nting when the income has actually accrued to the Assessee. The decision of the Supreme Court is binding on us. We, accordingly, respectfully following the decision of the Hon'ble Supreme Court delete the disallowance. Thus, this ground is allowed. 12. Ground no. 12 deals with the actual loss incurred on account of forward contract in foreign exchange amounting to ₹ 26,01,697/-. The Learned AR contended that this issue is duly covered by the decision of this Tribunal in ITA no. 72/PNJ/2012 for the A.Y. 2009-10 dtd. 8.3.2013. On the other, the Learned DR contended that forward contract loss is to be treated as speculative loss and hence same cannot be set off against regular business income. Reliance was placed in this regard to the case of K. Mohan & Co. (Exports) Pvt. Ltd. reported in ITA No. 113/Bang/2009 copy of which is filed before us. 12.1. We have carefully considered the rival contentions of both the parties and perused the material on record. We find that this issue is duly covered by the decision of this tribunal in ITA No. 72/PNJ/2012 for the A.Y. 2009-10 dtd. 8.3.2013 in which this Tribunal under para 50 of its order held as under: "50. The third ground relate....