TaxTMI 
TaxTMI 
2013 (5) TMI 862
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....d., as "international transaction", alleging 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 c....
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....d AO & DRP erred in holding that rule 8D has to be applied 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 Rs. 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 Rs. 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 Rs. 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. 1....
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....u/s. 2(29BA) of the Act. 8.3 The Learned 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 commenceme....
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....ufacture or production" for the purpose of section 32(l)(iia) 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 Rs. 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.....
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....ulative 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 Rs. 3,95,27,600/- made by the Assessing Officer as transfer pr....
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....d 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 report, a copy of which is available at....
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....o 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 beyond that declared by him." Thus, it was....
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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....
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....s are deemed to be associated enterprises under certain conditions which are given in clause (a) to (m). It is not the case of the Assessing Officer that the transaction entered into by the Assessee for the purchase of coal is a transaction entered into between associated enterprises as defined under Section 92A(1). It is also not the case of the revenue that the provisions of Section 92A(2) as given under clause (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/201....
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....ishment of the fact that BHP Billiton, Switzerland is found to be an associated enterprises of Sesa Goa Ltd. The Learned DR could not produce any evidence or material which may prove that BHP Billiton, Switzerland is an associated enterprise of the Assessee Company. The letter dt. 30.11.2011 which is available at pg. 819 of the paper book has been written by the DCIT (TP)-VI to SFIO reads as under : (pg. 819 and 820) "OFFICE OF THE DEPUTY COMMISSIONER OF INCOMETAX (TRANSFER PRICING)-VI No.14/3, 6th 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, ....
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....aji, Goa under intimation to this office which will clearly establish the fact that BHP Billiton, Switzerland is an Associated Enterprise of M/s Sesa Goa Ltd so as to proceed with further proceedings under Income Tax Act, 1961. Yours truly, (KIRAN KATTA) Dy. Commissioner of Income-tax, Transfer Pricing-VI(i/c), Bangalore. Copy submitted to: 1) Commissioner of Income-Tax, Transfer pricing, Bangalore. 2) Addl. Commissioner of Income-tax, Range-I, Panaji, Goa." 2.5 In our view, the onus lies on the revenue to prove that the transactions entered into by the Assessee 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 T....
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....ions that the provisions of Sec. 14A are not applicable in the case of the Assessee as the conditions stipulated in the section are not complied with by the Assessing Officer and accordingly deleted the disallowance in the A.Y.2009-10. During the hearing, we noted that the Assessing Officer made the disallowance on the same basis as has been disallowed in A.Y. 2009-10. Therefore, in our opinion, this issue is duly covered by the decision of this Tribunal for the A.Y. 2009-10 on the same issue in which this Tribunal in para nos. 14 to 18 of its order elaborately held as under : "14. We have carefully considered the 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 incom....
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....tal income. The working of the said disallowance claimed by the assessee is given herein above in the submissions made by the assessee. The AO was not satisfied with the correctness of the claim of the assessee especially the explanation of the assessee that no administrative expenditure incurred on earning the dividend income. Considering the magnitude of the investments and the dividend income received, the AO was of the view that the disallowance made by the assessee u/s 14A of the IT Act towards the administrative expenditure is low on comparing the magnitude of purchase and sales made by the assessee and the investments 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....
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....part of the total income, in accordance with the prescribed method, arises if the AO is not satisfied with the correctness of the claim of the assessee in respect of the expenditure which the assessee claims to have incurred in relation to income which does not form part of the total income. Moreover, the satisfaction of the AO has to be arrived at, having regard to the accounts of the assessee. Hence, sub-sec (2) does not ipso facto enable the AO to apply the method prescribed by the rules straightaway without considering whether the claim made by the assessee in respect of the expenditure incurred in relation to income which does not form part of the total 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 sati....
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....s DCIT (supra) therefore at page-28 has clearly laid down that there must be proximate cause based on the relationship of the expenditure that tax exempt income is established, only then a disallowance would have to be effected u/s 14A of the IT Act. Therefore, in view of the decision of the jurisdictional High Court and the decision of the Hon‟ble Supreme Court, we are of the view that sec.14A cannot be applied unless there is a proximate cause for disallowance. The onus to establish that there is proximate cause based on the relationship of the expenditure with the exempt income in our opinion is on the Revenue. Thus, the application of the provisions of sec. (2) & (3) of Sec.14A and Rule 8D is not 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....
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....nd income has not been brought on record. Even the AO has not pointed out the expenses excluded by the assessee for disallowance has proximate connection with dividend income. In our opinion, the assessing officer before rejecting the disallowance computed by the assessee must give a clear cut finding having regard to the accounts of the assessee how the other expenditure claimed by the assessee out of non exempt income is related with the exempt income. No discrepancy in the claim of the assessee was pointed out. The assessing officer in our opinion in view of the jurisdictional High Court decision is bound to record satisfaction as to how the expenses claimed by the assessee have been incurred on earning dividend 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....
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.... of the Act. In "Maruti Udyog Vs. DCIT, 92 ITD 119 (Del.), it has been held that before making any disallowance u/s 14A of the Act, the onus to establish the nexus of the same with the exempt income, is on the revenue. In "Wimco Seedlings Limited Vs. DCIT", 107 ITD 267 (Del.) (TM), it has been held that there can be no presumption that the assessee must have incurred expenditure to earn tax free income. Similar are the decisions in: 1. Punjab National Bank Vs. DCIT, 103 TTJ 908 (Del.); 2. Vidyut Investment Ltd., 10 SOT 284 (Del.); and 3. D.J. Mehta Vs. Income Tax Officer, 290 ITR 238 (Mum.) (AT) In view of the above, finding no error with the order of the CIT(A) on the point at issue, the same is hereby confirmed. 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 n....
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....lower court or forum has no independent existence thereafter in relation to the issue which was carried before the appellate court or forum. It was held that where the High Court comes to the conclusion that no substantial question of law arises on a particular issue, it cannot be stated that the subject matter of controversy between the parties has not been dealt with by the High Court. It was held that when the decision of the Tribunal is affirmed on the issue brought before the High Court, it is the decision of the High Court which becomes operative and which is capable of being given effect to for all intents and purposes. Keeping in view the decision of Hon'ble Gujarat High Court in the case of Nirma Industries Ltd. (supra), we have no hesitation to hold that the 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 th....
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....und taken by the assessee in this regard is allowed. 3.4 Respectfully following the decision of this Tribunal in the case of the Assessee for the A.Y. 2009-10, we delete the disallowance made by the Assessing Officer under Section 14A r/w Rule 8D. Thus, ground no.2 taken by the Assessee is allowed. 4. Ground no. 3 : Ground no. 3 relates to the disallowance of Rs. 1,36,91,148/- as expenditure on R&D. Both the parties agreed that this issue is duly covered by the decision of this Tribunal in the case of the Assessee in ITA No. 72/PNJ/2012 for the A.Y 2009-10. We have heard the rival submissions and carefully considered the same. We noted that this issue has arisen during the A.Y. 2009-10 in Revenue's Appeal, ITA No. 85/PNJ/2012 in which this Tribunal vide order dtd. 8.3.2013 under 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 Rs. 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 o....
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....ission amounting to Rs. 17,72,05,217/-. 5.1 The Learned AR contended that this issue is duly covered by the decision of this Bench in the case of the assessee for the Assessment Year 2009-10. 5.2 The Learned DR made the following submissions : "The A.O. correctly disallowed the commission payments made to Non-residents for non-* deduction of TDS as the same is liable for tax in the hands of Non-residents. Reliance is placed on the following decisions: i) Income arising to the non-resident agents on account of commission payable to them for soliciting export order for the Indian company is to be deemed to accrue or arise in India and is taxable in view of the specific provisions of sec. 5(2)(b) r.w.s. 9(1 )(i) as the right to receive the commission would arise in India 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 fo....
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....ection 37 of the Income Tax Act. We have heard the rival submissions and carefully considered the same. We noted that this issue is duly covered in favour of the Assessee so far it relates to the disallowance made under Section 40(a)(i) by the decision of this Tribunal dtd. 10.3.2011 for A.Y. 2005-06 in ITA No. 113/PNJ/2010 in which this Tribunal relying on the decision of the Supreme Court in the case of GE India Technology Centre (P) Ltd. vs. CIT & Anr. (327 ITR 456) deleted the disallowance and allowed the appeal of the Assessee on this issue by holding as under : "9. We have heard the rival contentions of both the parties. Looking to the facts and circumstances of the case, we find that the issue in controversy whether the assessee requires to deduct tax at source for the commission paid to non-residents has been dealt by 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 ....
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.... applicable for the year under consideration. Therefore, we allow the appeal of the assessee on this ground." 3. So far as the issue relating to disallowance of the Commission under Section 37 is concerned, the issue is covered by the order dt. 8.3.2013 of this Tribunal in the case of the Assessee in ITA No. 72/PNJ/2012 in which this Tribunal took the view that the Commission has been incurred by the Assessee wholly and exclusively for the purpose of business of the Assessee by holding as under : "24. We have carefully considered the rival submissions along with the order of the tax authorities below and also the material relied upon by both the parties. The only issue before us is whether the commission paid by the assessee has been incurred by the assessee wholly and exclusively for the purpose of the business of the assessee. Now, coming to the relevant provision in which the assessee claimed deduction is section 37(1) of the Income Tax Act, 1961. Section 37(1) reads as under:- "Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), la....
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....parate entity; it may work as a human being in its own name but it does not require any expenditure to be incurred, as a human being requires for meeting out its personal needs. Therefore the expenditure incurred by the assessee company cannot be regarded to be the personal expenditure of the assessee. The personal expenditure of the management or the human beings who are controlling the company cannot be regarded to be the personal expenses of the assessee company. It may be remuneration or perquisite in the hands of the management or the human beings but it cannot regard to be the personal expenses of an incorporated body. 25. The only dispute in this case relates to the fact whether the commission paid can be regarded to have been incurred wholly and exclusively for the purposes of the business or profession of the assessee company. Before 1939, the phrase used was „Expenditure incurred solely for the purpose of earning profit‟. The Omnibus provision of section 37 as amended by 1939 Act allows of „Expenditure incurred wholly and exclusively in connection with such business/profession‟ as long as no personal/capital element is involved. The scope ....
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....223;ble Apex Court in 91 ITR 544 in the case of CIT Vs Dhanrajgiri Raja Narsinghgiri. No doubt every businessman is the best judge of his business expediency but the Assessing Officer in our opinion has the right to know whether the expenditure has been incurred for business purposes or not or whether it has been incurred for other extraneous consideration. Similar view has been taken by the Hon‟ble Rajasthan High Court in the case of Jaipur Electro Pvt. Ltd. Vs CIT, 134 CTR 237 (Raj). The Hon‟ble Bombay High Court has also taken the similar view in the case of Ramanand Sagar Vs DCIT, 255 ITR 134 (Bom) in which it was held that the mere fact that the payment has been made under a contract is not conclusive of expenditure being laid down wholly and exclusively for the purpose of the business. Once doubt arise about the bonafide nature of the payment, it is necessary to look into the necessary circumstances such as relationship of the payee to the assessee, the general standard of similar expenditure in comparable business, the true worth of the services or goods in question and so forth. It is also open to the A.O. to question the reality of the expenditure i.e., the tru....
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....er or oblique purpose outside the course of business then the expense is not deductible. In deciding whether a payment of money is a deductible expenditure one has to take into consideration questions of commercial expediency and the principles of ordinary commercial trading. If the payment or expenditure is incurred for the purpose of the trade of the assessee it does not matter that the payment may incur to the benefit of a third party (Usher‟s Wiltshire Brewery Limited v Bruce (1914) 6 Tax cases 399 (HL). Another test is whether the transaction is properly entered into as a part of the assessee‟s legitimate commercial undertaking in order to facilitate the carrying on of its business; and it is immaterial that a third party also benefits thereby. But in every case it is a question of fact whether the expenditure was expended wholly and exclusively for the purpose of trade or business of the assessee." 27. If we apply the principles of the law as enunciated in the various judgments, we are of the opinion that once the A.O. finds that the assessee has bonafidely incurred the expenditure for the business, the A.O. cannot decide the quantum of the expenditure to....
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....at those were being exchanged with the said two non-resident agents in actual performance of their services for which they had been engaged by the assessee as per the respective agreements entered into with them and for which commission had been paid to them. It is not the case of the Revenue that the impugned emails were fabricated or forged one. In fact, the CIT (A) has admitted in his appellate order that „it is possible that there may some correspondence with the two companies with regard to sale of iron ore abroad‟, but without going into the merits of the emails exchanged and without controverting how the same did not exhibit that actual services had not been rendered by those agents, he merely rejected the claim of the assessee as if the assessee has not incurred these expenses genuinely for the purpose of the business. It is cardinal principle of law that a disallowance cannot be made on mere surmises and conjectures. Where the explanation of the assessee is bonafide and evidences produced by it further corroborate its explanation, there is no reason for Revenue to disregard the same on whims without bringing forth any tangible and cogent material to th....
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....ssessee and its selling agents or payment of certain amounts as commission, assuming there were such payments, does not bind the ITO to hold that payment was made exclusively and wholly for the purpose of the assessee‟s business. Whereas in the instant case, the assessee has placed other documentary evidences on record besides the agreements, which clearly demonstrate that the requisite services under those agreements for which commission was paid to them, had actually been rendered by them. Thus, in the case of the assessee commercial expediency has clearly been proved. Therefore, the disallowance of Rs. 9,88,29,729/- for commission paid to non-resident agents is deleted by allowing this ground of appeal of the assessee." Respectfully following the decision of the Tribunal for A.Y 2005-06 and 2009-10 in the case of the Assessee, we allow the ground no. 1 and 2 taken by the Assessee and delete the disallowance." 5.4 Respectfully following the decision of the Tribunal for the A.Y. 2006-07 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 : ....
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....39;s Law Dictionary). 8. Section 172 of the Act 1961 is carefully considered by us. Chapter XV titles as "Liability in special cases". We have no concern with sections, starting from section 159, till section 171 from this Chapter XV. Section 172 comes under sub-title "H.-Profits of non-residents from occasional shipping business". Title of section 172 is "Shipping business of non-residents." For bringing a case under Chapter XV- H of the Act 1961, one has to establish a case of profits of non-residents from occasional shipping business. "Non-resident" is defined under section 2(30), as a person who is not a "resident" and for the purpose of sections 92, 93 and 168, includes a person who is not ordinarily resident within the meaning of clause (6) of section 6. The respondent-assessee is a company, incorporated under the provisions of Indian Companies Act, 1956, is fairly an admitted position. The assessee cannot be said to be non-resident. 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, t....
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.... 9. We may notice that the Judgment of the learned Appellate Tribunal is unreasoned and cryptic one. This judgment runs in around 20 to 25 lines. We are not oblivious of the fact, that not the form, but substance is material. The learned appellate Tribunal seems to have referred to the Circular of CBDT No. 723, dated 19-9-1995. 10. We have considered the submission of the learned Counsel appearing for the parties pertaining to the Circular No. 723, dated 19-9-1995 by CBDT (Annexure "C"). Section 119 empowers the Central Board of Direct Taxes to give instructions to subordinate authorities. We have considered section 119 of the Act 1961. We have also perused the Circular Annexure C. This Circular seems to have been issued by the CBDT, clarifying the scope of sections 172, 194C and 195 of the Act 1961. Advocate on behalf of the Revenue points out from para 4 of the Circular and submits that section 172 operates in 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....
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....of the learned Counsel appearing for the parties, in our view, the facts of the present case, are governed by section 40(a)(i ) of the Act 1961. Order passed by the Assessing Officer, in our view, is legal, proper and in accordance with the Scheme of Act 1961. In view of which we have taken in the matter, the appeal deserves to be allowed by quashing and setting aside the Order passed by the learned Commissioner of Income-Tax (Appeals) dated 28-8-2002 and the Order passed by the Income-tax Appellate Tribunal, Panaji dated 2-12-2004. The same are, accordingly, quashed and set aside and the Order passed by the Assessing Officer stands upheld. Appeal is, accordingly, allowed and disposed of with no order as to costs. 6.2 The decision of the Hon'ble High Court is binding on us. We, accordingly, confirm the order of CIT(A). Thus, ground nos. 5 and 6 stand dismissed. 7. Ground no. 7 : Ground no. 7 relates to claim 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 t....
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....: (i) M/s Sesa Goa Ltd., has claimed Codli Unit as newly established 100% EOU manufacturing or producing any article or thing. (ii) This unit do not extract iron ore itself. (iii) Entire profit from export from this unit is taken as exempt u/s 10B. No profit has been allocated to other activities, e.g. extraction etc. Section 10B(7) has totally been disregarded by not taking the input cost of iron ore at a market rate. 1 A. ITAT Panaji Bench's view on 10B deduction in similar case : ITAT, Panaji Bench interpreted CIT vs. Sesa Goa Ltd.,(266 ITR 126 (Bom) in the case of ACIT Circle-2 vs. M/s Chowgule & Co. Ltd., in ITA No. 162/PNJ/ 2006 and ITA No. 184/PNJ/2006. Production in relation to extraction and processing of Iron ore has been held as under. "The Supreme Court in fact has held in the case of Sesa Goa Ltd., that "extraction and processing of mining ore amounts to production". One should 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 ....
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....he A.Y. 2009-10 on this issue and therefore, the Department is preferring Miscellaneous Application for the A.Y. 2009-10 before this Hon'ble Tribunal. If the Hon'ble Bench decides to differ with the decision of the ITAT, Panaji Bench in the case of Chowgule & Company in ITA No. 162/PNJ/ 2006 and ITA No. 184/PNJ/2006, the Hon'ble Bench is requested to Constitute the special Bench to decide this issue. 1A.3 The assessee has not been able to demonstrate that in AY 2001-02, it had set up any new unit/undertaking, and that such undertaking had a separate existence in terms of plant and machinery, raw material, or products, depreciation chart, asset register, manpower employed etc. The computation of profits stated to be related to the unit, was not made in earlier years up to 2005-06, when the entire exports of the assessee was eligible for deduction 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 cour....
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.... between assessee and undertaking is explained by the Madras High Court in the 98 ITR 119. Similarly, the same persons are carrying on the same business and hence it cannot be treated as new undertaking. Reliance is placed on the Supreme Court decision in the case of Textile Machinery. Similarly, profit in the alleged unit generated by the Unit is transfers only and export if any were done by existing unit only. Reliance is placed in the case of CIT vs. Modi Xerox, reported in 344 ITR 435 (Del). The decisions on the above cases are enclosed in separate paper book." 8.3 We have heard the rival submissions and carefully considered the same. We noted that a similar issue has come in the case of the Assessee in respect of Codli unit as well as other units whether the Assessee is entitled for exemption under Section 10B or not. The revenue has taken similar objection whatever has been taken 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....
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....tion to include any - (a) process or (b) assembling or (c) recording of programme on disc, tape, perforated media or other information storage device. Thus, „process‟ was included within the word manufacture for the purpose of sec. 10B. Explanation (iv) of the said sec. 10B further provided that the word „produce‟ for the purpose of said section, in relation to any article or thing shall include production of computer programme. CBDT vide its circular no. 528 dated 16/12/1988 176 ITR ST. 154 explained the [provisions enacted by the Finance Act, 1988 under para 8.2 of the (Asst. Year : 2008-09) circular. In this circular, CBDT had clearly explained that the said new sec. 10B had been inserted in the statute book with a view to provide further incentive for earning foreign exchange so as to secure that the income of a 100% EOU shall be exempt from tax for a period of five consecutive 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 expres....
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....s of the benefits of section 10A or section 10B, it will not be eligible for other tax exemptions available under other provisions of the Act during the period of 10 years - Sub-section (6); v. manufacture shall have the same meaning as assigned to it in clause (r) of section 2 of the Special Economic Zones Act, 2005. 43.3 Subsequently, Special Economic Zone Act, 2005 was passed by the Parliament in May, 2005, which was brought into effect w.e.f. 23/06/2005. Section 2(r) of Special Economic Zone Act defines the expression „manufacture‟ as under:- Manufacture means to make, produce, fabricate, assemble, process or bring into existence, by hand or by machine, a new product having a distinct name, character or use and shall include processes such as refrigeration, cutting, polishing, blending, repair, remaking, re-engineering and includes agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisci culture, 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....
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.... repacking. Where therefore any commodity is subjected to a process or treatment with a view to its "development or preparation for the market", as, for example, by sorting and repacking fruits and vegetables, it would amount to processing of the commodity within the meaning of Section 8(3)(b) and Rule 13. The nature and extent of processing may vary from case to case; in one case the processing may be slight and in another it may be extensive; but with each process suffered, the commodity would experience a change. Wherever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity. The nature and extent of change is not material. It may be that camphor powder may just be compressed into camphor cubes by application of mechanical force or pressure without addition or admixture of any other material and yet the operation would amount to processing of camphor powder as held by the Calcutta High Court in Om Prakash Gupta Vs Commissioner of Commercial Taxes [16 STC 935 (Cal)]. What is necessary in order to characterize an operation as "processing" is that the commodity mu....
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....eces of rocks as we noted during the course of hearing on the basis of sample shown to us) screening, washing, stacking, loading in barges, river transportation to the boat and export in ships. The finished product which comes out are called lumps and fines which are used for Ispat Industries and brought by the foreign buyers. The finished product technically after processing had different name. As shown to us during the course of hearing we noted that the lumps and fines are entirely different from crude ore. During conversion of crude ore into lumps and fines, waste is generated which is called tailing and discharged into tailing pond. In Codli Unit these tailings which are in liquid form are converted into ultra fine. In our opinion as we noted from this physical sample also crude ore is entirely different from the lumps and fine in physical appearance used and chemical compositions even technically names are also different, similarly what comes as output from the input in codli unit that is also different in physical appearance and chemical composition. We do not agree with the learned D.R that there is not any change in physical and chemical composition of the output than the ....
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....l English Dictionary, the verb "produce" means to bring forward, beget, etc. The juxtaposition of the word "manufacture" with „agriculture‟ and „horticulture‟ is significant and cannot be lost sight of. The intention in employing the word "produced" obviously was to introduce an element of volition and effort involving the employment of some process for bringing into existence some goods. 43.8 In paragraph 7 of its in the case of Chowgule & C0 (P) Ltd. Vs. UOI (supra), Hon‟ble Apex Court also considered the question whether the different brands of tea purchased and blended by the assesses for the purpose 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 their turnover under section 8(a), so as to preclude the value of the tea purchased by them. The relevant observations made by the Hon‟ble Supreme Court in this respective are quoted and set out herein below for ready reference: 7. The Revenue however relied on the decision of the Bombay High Court in Nilgiri Ceylon Tea Su....
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....ture which came into existence was of different quality and flavor than the different brands of tea which went into the mixture. There are, it is true, some observations in the judgment of the Bombay High Court which seem to suggest that if instead of manual application of energy in mixing the different brands of tea, there had been application of mechanical force in producing the tea mixture, the court might have come to a different conclusion and these observations were relied upon by the Assessee, since in the present case the blending was done by application of mechanical force, but we do not think that is the correct test to be applied for the purpose of determining whether there is ‗processing'. The question is not whether there is manual application of energy or there is application of mechanical force. Whatever be the means employed for the purpose of carrying out the operation, it is the effect of the operation on the commodity that is material for the purpose of determining whether the operation constitutes ‗processing' we are clearly of view that the blending of ore in the course of loading through the mechanical ore handling plant amounted to ‗processi....
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....es Tax Act, 1956. Hon‟ble Supreme Court, in the said judgment, did not consider the expression "manufacture" since the question was decided only on the expression "processing". However, considering the judgment of the Bombay High Court in the case of Nilgiri Tea Co. [1959] 10 STC 500, Hon‟ble Supreme Court observed that, for the purpose of producing a tea mixture of a different kind and quality according to a formula evolved by them, there was plainly and indubitably processing of the different brands of tea, because these brands of tea experienced, as a result of a qualitative change, in that the tea mixture which came into existence was of a quality and flavor from the different brands of tea which went into the mixture. 43.11 Hon‟ble Kerala High Court had the occasion to consider whether assessee is engaged in the manufacture or production of an article or thing when assessee was exclusively engaged in blending, packaging and export of tea bags, tea packets and bulk tea packs in the case of Tata Tea Ltd. Vs. ACIT 338 ITR 285. The assessee‟s unit was recognized as 100% EOU. The assessee claimed exemption u/s 10B of the Act for the assessment year ....
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....t of tea in the special economic zones and free trade zones, would continue to enjoy tax exemption under section 10A of the Act and section 10AA of the Act respectively. The assessee was allowed exemption on the profit derived by its 100% EOU engaged in blending, packing and export of tea bags and tea packets. Hon‟ble High Court held as under: The finding of this court is that the purpose of incorporation of section 2(r) of the Special Economic Zones Act, 2005, into section 10AA of the Income-tax Act is to provide a liberal meaning to the word manufacture which takes in even blending, refrigeration, etc. It was noticed by this court that the definitions of manufacture contained in the above definition clauses are very liberal which takes in even processing like blending. The contention of the counsel for the assessee is that the purpose of removal of the definition of manufacture from section 10B was not to provide a restricted meaning for that term contained in the main section because if that was so, then the Legislature would have only modified the definition clause. Further, the definition of 100 per cent export oriented unit even after the amendment is retained ....
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....8223;ble high court in this case, in our opinion, has clearly laid down that once the assessee is recognized as a 100% EOU for engaging in an activity and assessee is engaged in the same very activity, if the exemption is denied to the assessee on the ground that there is no production or manufacturing but only processing of the products exported in the 100% export oriented unit, the same would defeat the very object of section 10B. The Hon‟ble high court took the view that the decision of the Hon‟ble Supreme Court in Tara Agency‟s case 292 ITR 444 will not apply even though Hon‟ble Supreme Court in that case has held that blending of tea does not amount to manufacture or production of an article but is only processing. Thus, the Hon‟ble Kerala high court in the case of Tata Tea Ltd. (supra) gave the clear cut finding impliedly that even if the assessee is engaged in processing and is recognized as 100% EOU, it will be entitled for exemption claimed u/s 10B of the Act. 43.13 The crux of the submissions of the Ld. special Counsel for the department is that the assessee is engaged in these 100% export oriented units only in processing of iron or....
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.... provisions as well as the various decisions of High Court and the Supreme Court held as under:- "32. The provisions of section 10AA of the Act was inserted on the statute book by the Special Economic Zones Act, 2005 w.e.f. 10.02.2006. Even prior to the enactment of the said SEZ Act, Special Economic Zones (including units therein) were all along treated like EQU / FTZ / EPZ for all purposes whatsoever and were dealt within the Exim Policy accordingly. Section 2(k) of the Special Economic Zone Act, 2005 defines the expression "Existing Special Economic Zone" to mean every Special Economic Zone which is in existence on or before the commencement of the said Act. Section 2(e) defines the expression "existing unit" to mean every unit which has been set up on or before the commencement of the said Act in an existing Special Economic Zone. In other words, admittedly all Special Economic Zones were also being governed by the Exim Policy prior to the enactment of SEZ Act, 2005. Clause (iii) of Explanation 1 to section 1OAA lays down that the expression "manufacture" shall have the same meaning as assigned to it in section 2(r) of the Special Economic Zones Act, 2005, which defini....
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....Act, 2009 w.e.f. 01.04.2009 to define the expression "manufacture" as under: "manufacture", with its grammatical variations, means a change in a non-living physical object or article or thing, - (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure; The aforesaid definition of the expression "manufacture", although brought into the statute book w.e.f. 01.04.2009, was applied by the Hon'ble Supreme Court even for the assessment year 2001-02 in ITO v. Arihant Tiles and Marbles Pvt. Ltd. (2010) 320 ITR 79, 82 (SC) on the ground that Parliament had taken note of ground reality in inserting section 2(29BA) in the Income Tax Law. The said definition was again applied by the Hon'ble Supreme Court in CIT V. 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 ....
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....ng, packaging and export of tea bags, tea packets and bulk tea packs. The assessee's division enjoys recognition as a 100% EOU, which is granted by the Development Commissioner, Ministry of Commerce & Industry, Govt. of India. The assessee claimed exemption u/s. 10B of the Act for AYs 2000-01 onwards, which was granted upto the AY 2003-04. However, for the AY 2004-05, exemption was declined for the reasons that by the Finance Act, 2000, the definition of `manufacture' which included 'processing' contained in section 1OB of the Act was deleted w.e.f. 01.04.2001. The argument of the department is that manufacture or production had liberal meaning under the definition clause contained in section 10B of the Act until its deletion which covers even processing and, therefore, blending "and packaging of tea for export was treated as 'manufacture' or 'production' of an article qualifying for exemption. We are of the considered view that the contention of the 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. ....
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....er Section 10B of the Act on account of blending of tea. Similarly, in our view, the industrial units engaged in the very same activity i.e. blending, packing and export of tea in the free trade zone shall also be entitled to enjoy tax exemption under Section 10A of the Act. 37. Accordingly, we answer the question referred in favour of the assessee by holding that the assessees who are in the business of blending and processing of tea and export thereof, in 100% EOUs are manufacturer/ producer of the tea for the purpose of claiming exemption u/s.10B of the Act. Further, assessees who are in the business of blending and processing of tea hi respect of undertakings in free trade zones are manufacturer/producer of tea for the purpose of claiming exemption u/s. 10A of the Act. We have examined and discussed the facts in the case of Madhu Jayanti International Ltd. and found that there is blending of tea and consequently the assessee is eligible for exemption u/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 appe....
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.... would fall within the meaning of the words „manufacture or production‟ in section 80-IA of the Income-tax Act, 1961? In this case, Hon‟ble Supreme Court, after discussing the definition of „manufacture‟ given in section 2(29BA) of the Income-tax Act, 1961 and also discussing the provisions of section 80-IA(2)(iii) and after going through various decisions, held as under: 22. Applying the above tests laid down by this Court in CIT Vs. N.C. Budharaja and Co. 204 ITR 412 (SC) to the facts of the present cases, we are of the view that blocks converted into polished slabs and tiles after undergoing the process indicated above certainly results in emergence of a new and distinct commodity. The original block does not remain the marble block, it becomes a slab or tile. In the circumstances, not only there is manufacture but also an activity which is something beyond manufacture and which brings a new product into existence and, therefore, on the facts of these cases, we are of the view that 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 ....
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....g is also entitled for exemption. When the expression „processing‟ is omitted in section 10B, we are not supposed to fill up the omission. If something is not there we should accept as it is not there. We should not provide for the omission that amounts to judicial legislation. There is no confusion in the provision of law provided under section 10B. The exemption is available only to manufacture or production. It is not available for processing." Although subsequently this Tribunal has rectified the order under section 254 vide order dated 19th July, 2007 on the application of the assessee and took the view that the assessee is entitled for exemption under section 10B as the assessee-company itself is extracting the entire iron ore from own mines and mines taken on lease and thereafter processing the same. We cannot look into the finding of the coordinate Bench whether they have correctly interpreted the decision of Supreme Court in 271 ITR 331 or not. The Ld. AR vehemently contended that the decision dt. 12th July, 2007 of this Tribunal in 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. A....
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.... and the Tribunal is not bound with the decision of the coordinate Bench. The jurisdictional Bombay High Court in the case of H.A. Shah & Co. Vs. CIT (1956) 30 ITR 618, 625 (Bom.) even took the view that in case fresh material facts came to the knowledge of subsequent bench, the decision of coordinate bench is not binding. In this regard, Hon‟ble High Court observed as under :- "Nor are we satisfied that in order to enable the second Tribunal to depart from the finding of the first Tribunal it is essential that there must be some fresh facts which must be placed before the second Tribunal which were not placed before the first Tribunal. If the first Tribunal failed to take into consideration material facts, facts which had a considerable bearing upon the ultimate decision, and if the second Tribunal was satisfied that the decision was arrived at because of the failure to take into consideration those material facts and that if these material facts had been taken into consideration the decision would have been different, then the second Tribunal would be in the same position to revise the earlier decision as if fresh facts had been placed before it. On principle there....
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.... cited by us in discussion held here in above. We noted that subsequent to the decision of this Tribunal in ITA No. 162/PNJ/2006 dt. 12th July, 2007, the Special Bench of this Tribunal in the case of Madhu Jayanti International Ltd. [2012-TIOL-424-ITAT-KOL-SB] has dealt with the issue exhaustibly whether the assessees who are in the business of blending of tea i.e processing of tea and export thereof in 100% EOU can be said to be manufacturer / producer of tea for the purpose of section 10A/10B. When the Supreme Court has already held in the case of Tara Agencies 292 ITR 444 that blending of tea is processing. Thus, the Special Bench has decided the issue in respect of 100% EOU for the purpose of exemption under section 10B whether an assessee who is engaged in processing can be said to be engaged in manufacture / processing. We also noted that Kerala High Court in the case of Tata Tea Ltd. Vs. ACIT 338 ITR 285 dealt with the issue in respect of 100% EOU for the purpose of exemption under section 10B whether the processing of tea is treated as manufacture or production of an article qualifying for exemption. Not only these decisions subsequent to the decision of the coordinate Benc....
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....) as well as Kerala High Court in the case of Tata Tea (Supra) which would have disallowed the claim of the assessee u/s 10B on this basis after considering the Explanation (iii) of section 10AA as well as definition given u/s 2(29BA). Thus, due to the decision rendered by the Special Bench, High Courts and Supreme Court subsequent to the date of order in the case of Chowgule & Co. Ltd. Vs. ACIT in ITA No. 162/PNJ/2006 in our opinion, the issue raised by the Revenue is not fit to be referred to Special Bench as the decisions of Special Bench / High Court / Supreme Court are binding on us in preference to the decision of the coordinate Bench. Thus, we have in our opinion germane reason not to refer this issue for constitution of a Special Bench as in our opinion even if the Special Bench is constituted the earlier decision of the Special Bench in the case of Madhu Jayanti will be binding until and unless there are special and germane reasons for constituting a large Special Bench. We, therefore, dismiss the application dt. 18/01/2013 moved by the Revenue for constituting the Special Bench. 45.8 Now coming back to the issue whether an assessee who is engaged in processing fo....
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....ss of blending the tea for upgrading for marketing. Thus, in view of the decision of the Special Bench and other decisions discussed in the preceding paragraphs and that of Hon‟ble Supreme Court in the case of Chowgule & co (supra) as well as definition of „manufacture‟ as inserted w.e.f 1.4.2009 by way of section 2 (29AB) of the Income Tax Act as referred to by both the parties, we hold that all the three 100% EOU engaged in processing so as to make crude ore and waste i.e tailings usable or marketable are entitled for exemption u/s 10B subject to the other conditions for exemption under section 10B are being fulfilled. 45.10 Now, we will deal with the contention whether the assessee has set new units or has merely reconstructed the business which was already in existence. We noted that the assessee had made the following investments in installing the Plant & Machinery in these EOUs:- Fin.Year Amona Chitradurga Codli 1999-2000 9,00,78,574 2002-03 3,96,10,020 2005-06 93,84,633 (Phase-I) 2006-07 35,67,257 (Phase-II) 2008-09 7,....
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....apitalized for - (a) Amona EOU for the FYs 2002-03 to 2008-09 (at page nos. 45-48 of the paper book), (b) Chitradurga EOU for the FYs 2005-06 to 2008-09 (at page nos. 54-55 of the paper book), and (c) Codli EOU for the FYs 1999-2000 to 2008-09 (at page nos. 38-40 of the paper book). iv. Audited Annual Accounts of the appellant-company for the financial years ended on 31/03/2003, 31/03/2006, 31/03/2007 and 31/03/2009 at page nos. 91-632 of the Additional paper book. v. Copies of bills of plant & machinery items were submitted in respect of the EOUs as under: (a) Amona EOU for Rs. 3,57,03,426/- out of total investment of Rs. 3,96,10,020/- at page nos. 794-1146 and 1378-1435 of the Additional paper books. (b) Chitradura EOU for Rs. 8,18,50,910/- out of total investment of Rs. 8,33,34,046/- at page nos. 1147-1355 and 1436-1472 of the Additional paper books. 45.11 These evidences clearly prove, in our opinion, that the assessee made huge investments in these units. Even the assessee submitted the evidences for selling the old and obsolete dismantled machines as scrap sales. We do agree that the assessee had no....
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....pacity from 1.6 MTPA to 2.5 MTPA. Subsequently, the management of the company also underwent a change from Mitsui group with M/s Vedanta Group. Due to this expansion/establishment project could be completed during the FY 2008-09 in three phases having a total production capacity of 6 MTPA. The investments were made in a phased manner which resulted in creation of new unit in place of the existing unit. In the FY 2005-06, i.e., the initial year for the purpose of section 10B, total investment of Rs. 93,84,633/- was made in acquisition of new plant & machinery including dismantling of the old plant & structures. The phase-II of project establishment was completed next year, i.e., FY 2006-07 in which fresh capital investment of Rs. 35,67,257/- was made in plant & machinery. Finally the third phase of new plant was completed in the FY 2008-09 with an addition of Rs. 7,03,82,158/- to plant & machinery. The WDV as on 01/04/2005 of the plant & machinery at Chitradurga was just Rs. 6,93,596/- which was either dismantled completely or wherever structural steel was usable it was utilized in the erection of new machinery. The cost of new machinery acquired in FY 2005-06 was Rs. 93,84,633/-. T....
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.... depreciation charts for the concerned years. CIT(A) has complied charts in respect of Amona and Chitradurga units in his appellate order. In this regard the Ld. AR explained the basic cost of plant & machinery in the case of an iron ore beneficiation plant is incurred on raising steel and concrete structures on which the conveyor belts, crushers, screens, etc. are installed. Though all existing items of machine were scrapped usable steel from the same was utilized in the erection of new machines and equipments for which only some additional charges were paid. Thus, the existing dismantled structure got merged within the new plant to that extent. Accordingly, instead of deleting the relatable value of existing plant, the cost of additional plant acquired during the year was recorded at net value. Also the scrap of the remaining existing plant was sold and shown separately in the relevant audited profit & loss account for the concerned financial year under the head "Service and Other Proceeds" for which attention was drawn to P & L account and accordingly these meager sums were not reduced from the schedule of fixed assets. In this regard, our attention was drawn to Schedule 14 of t....
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.... a case that it was only some repairs or at best a renovation work undertaken at Amona, whereas several other pieces of correspondence were ignored by him which prove that the appellant had factually undertaken a major dismantling and demolition of the existing plant as well as erection and installation of new plant in its place there. From the correspondence exchanged with panchayat and newspaper clippings filed in PB (Pages 293,294,299 & 409-411), we noted the CIT(A) ignored the local newspaper clippings which in our opinion are vital piece of evidence in this regard. These clippings clearly bring out the fact that a complete destruction of old unit was done and altogether new plant was set-up at Amona, albeit, with the aid of some old machinery and parts thereof. Regarding the contention of the revenue that there is only one bill of Rs. 3,522/- which contains demolition or dismantling charges, we noted that in the same bill Rs. 65,346/- and Rs. 79,060/- at sl. nos. 13 & 14 for dismantling of structural steel and crusher hopper respectively were also stated (page nos. 1443-1445 of the Additional paper book Vol.III). In the case of the assessee we noted and as has been accepted by....
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....ng, pre-heating, pasteurization were only of preparatory nature for the manufacturing of the product of the assessee. The assessee appears to have introduced almost entirely new manufacturing technology and processes. 13. The reconstruction of a business or an industrial undertaking must necessarily involve the concept that the original business or undertaking is not to cease functioning, and its identity is not to be set to be lost or abandoned. The concept essentially rests on changes but the changes must be constructive and not destructive. There must be something positive about the whole matter as opposed to negative. The underlying idea of a reconstruction evidently must be - and this is brought out by the section itself - of a 'business already in existence'. There must be a continuation of the activities and business of the same industrial undertaking. The undertaking must continue to carry on the same business though in some altered or varied form. If the alteration and changes are substantial, there would be little scope for describing what emerges as a reconstruction of the business. (See CIT v. Gaekwar Foam and Rubber Co. Ltd. [1959] 35 ITR 662 [Bom.] ....
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....ion 84 of the Act because the unit as such had commenced in the year 1957-58 notwithstanding the fact that there had been an expansion thereto in the subsequent year. (iii) Taurus Merchandising (P) Ltd. Vs. ITO (2012) 143 TTJ (Del) 1 16. ...In Jt. CIT vs. Associated Capsules (P) Ltd. (2008) 117 TTJ (Mumbai) 399 : (2008) 9 DTR (Mumbai)(Trib) 95 : (2008) 304 ITR 85 (Mumbai)(AT), it has been held that where the assessee had established new plant and machinery at the same premises and was producing the same product as that done by the existing business, the new units were having separate and distinct identity of their own, profits and gains were derived from them and the assessee was treating each unit as a separate and independent unit in its accounts, the new units could not be held to be part of the existing business; and that the assessee was entitled to deduction under ss. 80-I and 80-IA of the Act. 17. Further, the existence of business is a presupposition for the formation of a new undertaking by the reconstruction or the splitting up thereof. In the present case, there had been no business in the old unit of the assessee for over five years before the....
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....In the present case also, it is not the case of the Revenue that the new unit by itself is not capable of production of goods but the case of the Revenue is that it takes help of the old existing unit. We are of the view that, that itself should not be the reason to reject the claim under Section 80-I of the Act. Thus, whether an undertaking is a new industrial undertaking entitled to the exemption under Section 80-I of the Act depends on the facts of each case. No hard and fast rule can be laid down. Use by the assessee of the old undertaking for the purpose of production in its new undertaking is not a decisive test in construing Section 80-I of the Act. The new undertaking must not be substantially the same old business. Substantial investment of new capital is imperative and in the present case, there has been a huge substantial investment of around Rs. 7 crore almost three decades ago. The words the capital employed in the principal clause of Section 80-I of the Act are significant, for fresh capital must be employed in the new undertaking claiming exemption. Manufacture or production of articles yielding additional profit attributable to the new outlay of capital in a separat....
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.... assessee had set up new units essentially producing the same commodity as in the existing units, though there is no such bar imposed in law. 45.17 Accordingly, after hearing both the parties and also going through the material placed on record and after considering the various decisions, we hold that new units had actually been established by the assessee in the FY 1999-2000 at Codli; in the FY 2002-03 at Amona; and in the FY 2005-06 at Chitradurga. 45.18 We noted after going through the provisions of sec.10B that there is no requirement that the assessee should maintain separate books of accounts in respect of 100% EOU Unit for claiming deduction. The only requirement in this regard u/s 10B(5) is that the assessee shall not be allowed deduction unless the assessee furnishes in the prescribed form along with the return of income the report of an accountant, as we find in the explanation below sub-sec.2 of sec.288, certifying that deduction has been correctly claimed in accordance with provisions of the IT Act, 1961. We have gone through the case laws, as relied by the learned AR and we find that the case of the assessee is duly covered by the decision in the case....
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....e this issue only for determining the market value of the crude ore consumed by the assessee on the basis of the value paid by the assessee for the crude ore to the outside parties during the year and thereby recomputing the profit derived by the assessee from the 100% EOU units eligible for exemption u/s 10B. Accordingly, we direct the Assessing Officer to recompute the exemption available u/s 10B to the assessee in respect of Amona as well as Chitradurga units after ascertaining the market value of the crude ores transferred by the assessee to these units from its extraction divisions on the basis of the average market value as the assessee has paid to the outside parties for the crude ores purchased by the assessee from these parties during the impugned assessment year and substituting as cost of the raw material in place of cost of the crude ore derived by the assessee from its own mines after giving proper and sufficient opportunity to the assessee to adduce the material and evidence in this regard. 45.22 With regard to Codli unit, the assessee claimed before us that the input in this case is „tailings‟ which is merely a waste product and does not involve ....
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.... contribution after making collection from all the members for the construction of the bridge. The brief facts relating to this ground are that the Assessee claimed these expenses to be a revenue expenditure as, as per the Assessee this expenses have been incurred to help business operations of the Assessee more efficiently as the Assessee as well as other iron ore exporters were facing difficulties in transporting goods through Usgao village road. The Assessing Officer did not agree with the Assessee and treated it to be capital expenditure as, in his opinion, this contribution gives an enduring benefit to the Assessee. Reliance was placed in this regard in the case of Mahesh B. Shah vs. ACIT (Kerala) 238 ITR 130. 9.1 The Learned AR contended that the issue is duly covered by the decision of Madras High Court in CIT vs. Coats Viyella India Ltd. 253 ITR 667 on merit. He reiterated the submission made before the Assessing Officer that the Assessee and other exporters were facing a lot of difficulties in transporting their cargo through the village roads due to environmental problems and the transport cost was very high. Therefore, the Goa Mineral Ore Exporters Association took up....
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....time and thus, Assessee got an asset of enduring nature. Under these facts, the Allahabad High court took the view that the expenditure is a capital expenditure. This case, in our opinion, will also not assist the revenue. The decision of the Madras High Court as reported in 253 ITR 667 which has been relied on by the Learned AR, in our opinion, is directly applicable to the facts of the case. In this case also, the Assessee has made contribution to the Govt. for building a new bridge in place of old one which had become unserviceable. The bridge was essential to provide access to the Assessee's factory. The bridge does not belong to the Assessee. It merely facilitates the movement of the workmen to the, and the goods to the, Assessee's factory. When the matter went to the High Court, the High Court took the view that the expenditure incurred was revenue expenditure. While holding so, the High court relied on the decision of the Hon'ble Supreme Court in the case of L.H. Sugar Factory & Oil Mills Pvt. Ltd. (SC) 125 ITR 293. This was a case where the road was constructed in order to facilitate transport of the sugarcane and the outflow of the manufactured sugar to the market. The con....
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....the whole of the actual cost of which is allowed as a deduction(whether by way of depreciation or otherwise) in computing the income chargeable under the head „Profits and gains of business or profession" of any one previous year". 46.2 From the provisions of the section, it is apparent that the assessee is entitled in the case of any new machinery or plant which has been acquired or installed by him after 31.03.2005 for the additional depreciation if the assessee is engaged in the business of manufacture or production of any article or thing. Proviso to section denies the deduction to an assessee of the additional depreciation in certain cases. From the balance sheet and all other evidences filed before us it is apparently clear that the assessee is engaged primarily in the business of extraction of ore and its processing. The authorities below interpreted the provisions of section, correctly taking the view that the plant and machinery should be installed for the production of an article or thing. The assessee‟s plants at Codli, Amona and Chitradurga whether engaged for the manufacture or production independently, in our view, is not relevant. The relevant co....
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....the decision of the Supreme Court in CIT vs. Woodword Governor India Pvt. Ltd. 312 ITR 254. The loss relates to the restatement of the amounts payable and receivable in foreign currency at the year end at the prevailing exchange rate. The loss arising from the difference in rate of exchange had actually occurred as per mercantile method of accounting. It is not a notional or contingent loss but was computed on the basis of accounting standard AS-11 issued by the Institute of Chartered Accountants of India (ICAI) which is mandatory to be followed. It is not a speculative loss as stipulated in CBDT's instructions. Delhi High Court in the case of Woodward Governor India (P) Ltd. 294 ITR 451 held that the accounting standard issued by ICAI would have to be followed and applied and the increase in liability due to the foreign exchange fluctuations as per exchange rate prevailing on the last day of the financial year is allowable as a deduction and is not merely notional or contingent liability. This decision was confirmed by the Supreme Court in 312 ITR 254. Reliance was also placed on the latest decision of the Mumbai Tribunal in Reliance Communications Ltd. vs. ACIT [2013-TIOL-134-ITA....
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....y applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction. This is known as "recording of transaction of the effects of changes in exchange rates subsequent to initial recognition. Paragraph 7(a), inter alia, states that on each balance-sheet date monetary items, enumerated above, denominated in a foreign currency should be reported using the closing rate. In case of revenue items falling under section 37(1), paragraph 9 of AS-11 which deals with recognition of exchange differences, needs to be considered. Under that paragraph, exchange differences arising on foreign currency transactions have to be recognised as income or as expense in the period in which they arise, except as stated in paragraph 10 and paragraph 11 which deals with exchange differences arising on repayment of liabilities incurred for the purpose of acquiring fixed assets, which topic falls under section 43A of the 1961 Act. At this stage, we are concerned only with paragraph 9 which deals with revenue items. Paragraph 9 of AS-11 recognises exchange differences as income or expense. In cases where, e.g., the rate of dollar ris....
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....counting followed by the Assessee is the mercantile system, which brings into debit the expenditure amount for which a legal liability has been incurred before it is actually disbursed and brings into credit what is due, immediately it becomes due and before it is actually received; (ii) whether the same system is followed by the assessee from the very beginning and if there was a change in the system, whether the change was bona fide; (iii) whether the assessee has given the same treatment to losses claimed to have accrued and to the gains that may accrue to it; (iv) whether the assessee has been consistent and definite in making entries in the account books in respect of losses and gains; (v) whether the method adopted by the assessee for making entries in the books both in respect of losses and gains is as per nationally accepted accounting standards; (vi) whether the system adopted by the assessee is fair and reasonable or is adopted only with a view to reducing the incidence of taxation." 11.4 We have also gone through the decision of the Madras High Court in Indian Overseas Bank vs. CIT 250 ITR 146 (supra). This decision, in our opinion, is not applicable. This relates to ....