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2015 (3) TMI 707 - AT - Income TaxRevision u/s 263 - set aside for fresh consideration the issue of exemption under section 10B - Held that - the product, i.e., finished honey in the case of the assessee is at variance with the raw honey collected from the bee hives. The process carried out by the assessee changes both the physical and chemical characteristics of raw honey to convert it into finished product and the said product is different in form, i.e., raw honey and has a better shelf life than raw honey. Further finished honey is prepared on the specific requirements of the buyers or the respective country and the product has a different market than raw honey. We are of the view that the activities carried on by the assessee bring into form the product which has a different market and thus fulfils the test of marketability as laid down by the hon'ble Supreme Court in the case of India Cine Agencies v. CIT 2008 (11) TMI 15 - SUPREME COURT . In view thereof, we hold that the assessee was engaged in the production of finished honey and the profits and gains arising from such activity were eligible for deduction under section 10B of the Act as the assessee fulfils the condition of being 100 per cent. export oriented unit and total sale proceeds were received in foreign exchange by the assessee. In the totality of the facts and circumstances, we are in conformity with the finding of the Assessing Officer that the assessee was eligible for the claim of deduction under section 10B of the Act. - Thus where the order of the Assessing Officer in coming to the conclusion that the assessee is entitled to claim of deduction under section 10B of the Act, was erroneous, there was no merit in exercise of revisionary jurisdiction by the Commissioner of Income-tax under section 263 of the Act. Accordingly, we cancel the directions issued by the Commissioner of Income-tax under section 263 of the Act in setting aside the assessment made by the Assessing Officer in this regard and hold that there was no error in the order of the Assessing Officer in granting exemption under section 10B of the Act. - Decided in favour of assessee. Set aside the issue of claim of allowance of additional depreciation - CIT(A) in view of holding that the assessee was not engaged in the manufacture or production of any article or thing, held that the assessee was not entitled to the claim of additional depreciation - Held that - The said issue is linked to the first issue raised by the Commissioner of Income-tax, i.e., the issue of exemption allowable under section 10B of the Act. Where the assessee is engaged in the business of manufacture of things then the claim of additional depreciation is allowable as prescribed under the Act. However, in the facts of the case before us, the learned authorised representative for the assessee had pointed out that during the assessment proceedings itself, the assessee had pointed out to the Assessing Officer that no additional depreciation had been claimed during the year under consideration. Our attention was drawn to the questionnaire raised by the Assessing Officer placed at page 58 of the paper book and the reply of the assessee as placed at page 65 of the paper book. In view of there being no claim of additional depreciation during the year under consideration, the order of the Commissioner of Income-tax on this ground in holding the order of the Assessing Officer to be erroneous and prejudicial to the interests of the Revenue is invalid and the same is set aside. - Decided in favour of assessee. Profits on sale of incentives received from the Ministry of Commerce, Government of India - whether the same were eligible for deduction under section 10B of the Act? - Held that - In the present case before us the copy of the scheme of Vishesh Krishi Upaj Yojna is placed. The objective of the said scheme was to promote the exports of agricultural produce and their value added products, minor forest produce, gram udyog products, forest based products and other products which may be notified from time to time. Further benefits are also given under the scheme, but the relevant benefits of the scheme vis-a-vis assessee are as referred to by us in the above paragraph. In view of the scheme under which the assessee is entitled to the incentives which in turn are to compensate high transport cost and to offset other advantages to the exporters, and also in view of the fact that the incentives are to be allowed at reduced rates where the assessee is in receipt of duty drawback, DEPB, we are of the view that the incentives received by the assessee under the Vishesh Krishi Upaj Yojna as an export incentive were given to the assessee to neutralise the incidence of high transport cost and also to offset other disadvantages. The said neutralisation as in the case of the hon'ble Supreme Court in the case Liberty India v. CIT 2009 (8) TMI 63 - SUPREME COURT is linked to the FOB value of exports by way of duty credit scrip. The said benefits are provided by DGFT in the case of the assessee and the said scheme being similar to the scheme of grant of Duty Drawback/DEPB and in turn applying the ratio laid down by the hon'ble Supreme Court in the case of Liberty India v. CIT supra we hold that the assessee is not entitled to the claim of deduction under section 10B of the Act on the said incentives. In view thereof, we uphold the order of enhancement passed by the Commissioner of Income-tax in exercise of its jurisdiction under section 263 of the Act - Decided against assessee. Claim of expenditure of commission paid to Shri Parminder Thapar - CIT(A)had set aside the issue observing that the Assessing Officer had accepted the expenses without making any verification and without application of mind - Held that - It is an admitted position that the Assessing Officer had raised queries with regard to the said expenditure and the assessee had furnished complete details in respect of the amount paid to Shri Parminder Thapar against exports made to the U. S. A. All these aspects are mentioned by the Commissioner of Income-tax in paragraph 7 of the order passed under section 263 of the Act. Where the queries have been raised and in response the Assessing Officer had accepted the claim of the assessee merely because elaborate references were not made, while allowing the said expenditure to the assessee in the assessment order, it cannot be said that the Assessing Officer has not applied his mind because writing of the said order is not in the control of the assessee and in view thereof the order of the Assessing Officer being cryptic and non-descriptive, cannot be said to be erroneous and prejudicial to the interests of the Revenue. We find no merit in exercise of jurisdiction under section 263 of the Act by the Commissioner of Income-tax in this regard - Decided in favour of assessee. Allowing 100 per cent. of the deduction instead of 90 per cent. under section 10B by CIT(A) - Held that - Under the provisions of section 10B of the Act the assessee is entitled to the claim of deduction of such profits and gains as are derived from 100 per cent. export oriented unit. The second proviso under section 10B of the Act provides that for the assessment year beginning on the first day of April, 2003, the deduction shall be 90 per cent. of the profits and gains derived by an undertaking from the export of such articles or things or computer software. In view of the provisions of the Act wherein it has been provided that for the assessment year beginning on the first day of April, 2003, the deduction would be restricted to 90 per cent. of the profits of the export oriented unit, we find no merit in the claim of the assessee and the same is rejected. - Decided against assessee.
Issues Involved:
1. Validity of the order under section 263 of the Income-tax Act. 2. Eligibility for exemption under section 10B of the Income-tax Act. 3. Allowance of additional depreciation. 4. Deduction under section 10B on incentives received under 'Vishesh Krishi Upaj Yozna'. 5. Examination of commission expenses paid to Shri Parvinder Thapar. Issue-wise Detailed Analysis: 1. Validity of the Order under Section 263: The Commissioner of Income-tax (CIT) invoked section 263, stating that the assessment order was erroneous and prejudicial to the interests of the Revenue. The CIT noted procedural lapses and lack of proper verification by the Assessing Officer (AO). The Tribunal, however, observed that the AO had followed due process, including referring to the Additional Commissioner and obtaining necessary reports. The Tribunal held that the CIT's invocation of section 263 was not justified as the AO had taken a possible view, supported by the Tribunal's earlier decisions in the assessee's own case for previous years. The Tribunal emphasized that merely because the CIT disagreed with the AO's view, it did not render the order erroneous. 2. Eligibility for Exemption under Section 10B: The Tribunal examined whether the assessee was engaged in the manufacture or production of honey, which would qualify for exemption under section 10B. The assessee had established a 100% export-oriented unit and followed rigorous processes to convert raw honey into finished honey, which involved significant changes in physical and chemical properties. The Tribunal noted that the finished honey had different marketability and characteristics compared to raw honey. The Tribunal concluded that the assessee's activities amounted to manufacturing, making it eligible for the exemption under section 10B. 3. Allowance of Additional Depreciation: The CIT had set aside the issue of additional depreciation, questioning the manufacturing status of the assessee. The Tribunal found that the AO had raised queries during the assessment, and the assessee had clarified that no additional depreciation was claimed during the year under consideration. The Tribunal held that the CIT's order on this ground was invalid, as the issue was already addressed during the assessment proceedings. 4. Deduction under Section 10B on Incentives Received: The CIT disallowed the deduction under section 10B on incentives received under 'Vishesh Krishi Upaj Yozna', relying on the Supreme Court's decision in Liberty India v. CIT, which held that such incentives were not derived from the industrial undertaking. The Tribunal upheld this view, stating that the incentives were ancillary profits and not directly derived from the manufacturing activities. Therefore, the assessee was not entitled to the deduction under section 10B for these incentives. 5. Examination of Commission Expenses: The CIT had set aside the issue of commission expenses paid to Shri Parvinder Thapar, citing lack of verification by the AO. The Tribunal noted that the AO had raised queries, and the assessee had furnished complete details. The Tribunal held that the AO had applied his mind and accepted the expenses, and the CIT's order was not justified merely because it was non-descriptive. The Tribunal reversed the CIT's order on this ground. Conclusion: The Tribunal allowed the appeals partly, upholding the assessee's eligibility for exemption under section 10B for manufacturing activities but denying the deduction for incentives under 'Vishesh Krishi Upaj Yozna'. The Tribunal set aside the CIT's order on additional depreciation and commission expenses, as the AO had duly considered these issues during the assessment. The Revenue's appeal was dismissed, and the Tribunal directed the AO to allow the deduction under section 10B as per its findings.
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