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2014 (4) TMI 484 - HC - Income TaxSegregation of metal scrap from cable scrap Deemed export - Whether the Tribunal erred in treating the processes employed by the assessee in segregating the metal scrap from cable scrap as Manufacture or produce within the meaning of section 10B of the Income-tax Act Held that - Where the change or series of changes brought about by the application of processes take the commodity to the point where, commercially, it can no longer be regarded as the original commodity but is, instead, recognised as a distinct and new article that has emerged as a result of the process, it would amount to manufacture of an article or thing Relying upon Reference in this respect may be made to the decision of the Supreme Court in the case of M/s. Ujagar Prints and others (II) vs. Union of India and others 1988 (11) TMI 106 - SUPREME COURT OF INDIA - the word manufacture implies a change but every change in the raw material is not manufacture - There must be such a transformation that a new and different article must emerge having a distinct name, character or use. The assessees would put the imported material to series of manual and mechanical processes and through such exercise so undertaken, bring into existence entirely new, distinct and different commodities which are marketable the Tribunal correctly came to the conclusion that this process amounted to manufacturing - the assessee, as an EOU is required to carry out manufacturing activity and on its DTA sales is also required to pay excise duty which admittedly, the assessee paid and excise department collected - It would be a dichotomy if on the same activity the assessees were to pay excise duty on the ground that the same amounted to manufacturing activity but would be declined deduction under the Income Tax Act on the ground that the same did not - the Tribunal has merely remanded the entire issue before the AO for fresh consideration - The assessing officer shall examine whether on DTA sales by the assessee, claim of deduction u/s 10B of the Act would be allowable. Deduction u/s 80IB and u/s 80HHC of the Act Held that - Any ground, legal contention or even a claim would be permissible to be raised for the first time before the appellate authority or the Tribunal when facts necessary to examine such ground, contention or claim are already on record - In such a case the situation would be akin to allowing a pure question of law to be raised at any stage of the proceedings - This is precisely what has happened in the present case - The Appellate Commissioner and the Tribunal did not need to nor did they travel beyond the materials already on record, in order to examine the claims of the assessees for deductions under section 80IB and 80HHC of the Act Decided against Revenue.
Issues Involved:
1. Whether the processes employed by the assessee in segregating the metal scrap from cable scrap amount to 'Manufacture or produce' within the meaning of section 10B of the Income-tax Act. 2. Whether the Appellate Tribunal erred in setting aside the issue relating to DEEMED EXPORT (DTA sales) to the file of the Assessing Officer. 3. Whether the Appellate Tribunal is right in allowing deduction under section 80IB of the Income Tax Act, 1961. 4. Whether the Appellate Tribunal is right in confirming the order of the CIT (A) in allowing deduction under section 80HHC without adjudicating on the ground of appeal taken by the revenue. Detailed Analysis: 1. Manufacture or Produce under Section 10B: The first issue pertains to the Revenue's objection to the assessee's deduction under section 10B of the Income Tax Act, 1961, on the ground that the activity carried on by the assessee did not amount to manufacturing activity. The assessee, a 100% Export Oriented Unit (EOU), engaged in the segregation and processing of metal scrap, claimed deduction under section 10B. The Tribunal, after examining the detailed processes employed by the assessee, concluded that the activities amounted to manufacturing. The Tribunal relied on the Supreme Court's decision in Vijay Ship Breaking Corporation vs. Commissioner of Income-tax, which held that such processes resulting in new, distinct, and marketable commodities qualify as manufacturing. The Court upheld the Tribunal's decision, noting that the processes involved significant manual and mechanical operations resulting in new products with distinct identities and uses. 2. DEEMED EXPORT (DTA Sales): The second issue concerns the assessee's sales to Domestic Tariff Area (DTA) units and whether such sales qualify for deduction under section 10B. The Tribunal remanded the issue to the Assessing Officer to examine the claim in detail, including whether the sales proceeds were received in foreign exchange. The Court did not interfere with this decision, allowing the Assessing Officer to re-examine the matter. 3. Deduction under Section 80IB: The third issue involves the assessee's claim for deduction under section 80IB of the Act, which was made for the first time before the CIT(Appeals) without revising the return before the Assessing Officer. The Tribunal allowed the claim, and the Court upheld this decision, noting that appellate authorities have the jurisdiction to consider additional claims based on material already on record. The Court referred to several precedents, including the Supreme Court's decisions in Jute Corporation of India Ltd. vs. Commissioner of Income-tax and National Thermal Power Co. Ltd. vs. Commissioner of Income-tax, which support the principle that appellate authorities can entertain new claims if the necessary facts are already on record. 4. Deduction under Section 80HHC: The fourth issue pertains to the assessee's claim for deduction under section 80HHC of the Act, also made for the first time before the CIT(Appeals). Similar to the section 80IB claim, the Tribunal allowed the claim, and the Court upheld this decision, reiterating that appellate authorities can consider new claims based on existing records. The Court emphasized that income tax proceedings are not strictly adversarial and that the intention is to tax real income, allowing for claims to be raised at appellate stages if they are based on material already on record. Conclusion: The Court dismissed all appeals, answering the questions in favor of the assessee and against the Revenue. The processes employed by the assessee were deemed to qualify as manufacturing under section 10B, and the remand of the DTA sales issue to the Assessing Officer was upheld. Additionally, the claims under sections 80IB and 80HHC were allowed to be raised at the appellate stage, provided the necessary facts were already on record.
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