2015 (9) TMI 6 - AT - Income Tax

Eligibility for deduction u/s 10B - manufacturing activity or not - exporting granite blocks which were extracted from quarries and cut into dimensional blocks using wire-cutting machine - denial of exemption u/s 10B was resorted to by the AO on the premise that the process involved in the business of the assessee was removal of rock from parent rock by using wire cutting machine and thus according to the AO this did not amount to manufacture as defined u/s 2 (29BA) -CIT (A) allowed the assessee s claim Held that - After taking into account all the facts into consideration and also the ruling of the Hon ble Supreme Court in the case of Sesa Goa 2004 (11) TMI 14 - SUPREME Court we are of the view that as rightly observed by the CIT (A) though the case CIT v. Sesa Goa Ltd was prior to amendment to insertion of s. 2 (29BA) of the Act w. E.f. 1.4.2009 the process of extraction of rock and converting it into dimensional block had resulted in transformation of the object or article or thing into a new and a distinct object or thing having a different name character and use. Thus the dimensional block was a different name with distinct use and character. Thus the provisions of s. 2 (29BA) (a) of the Act the ruling of the jurisdictional High court in the case of Puttur Petro Products P Ltd 2013 (12) TMI 251 - KARNATAKA HIGH COURT and also the Board s circular No.729 dated 1.11.1995 clearly show that the process involved in the case of the assessee was manufacture as defined u/s 2 (29BA) of the Act. Therefore the assessee was entitled for deduction u/s 10B of the Act as the assessee s business activity amounted to manufacture or production of an article or thing as envisaged in s. 10B of the Act for both the AYs under consideration. In substance there is no infirmity in the findings of the CIT (A) which requires our intervention. - Decided in favour of assessee.

Summary

Issues:
1. Allowance of deduction u/s 10B of the Act for the assessee's business activity.

Analysis:
The Revenue contended that the CIT (A) erred in allowing the assessee's claim of deduction u/s 10B of the Act, asserting that the business activity did not qualify as manufacturing or production under s. 10A/10B of the Act. The AO disallowed the deduction, amounting to significant sums, based on the belief that the assessee's activities did not amount to manufacturing or production of any article or thing. The AO emphasized that the granite blocks extracted by the assessee were exported without further processing like polishing or value addition. Consequently, the AO disallowed the deductions claimed by the assessee for both the relevant assessment years. The CIT (A), after considering the assessee's submissions, allowed the appeals for both years by concluding that the assessee's activities indeed constituted manufacturing as defined under the Act.

The CIT (A) found that the process of extracting rock and converting it into dimensional blocks resulted in a transformation of the object into a new and distinct article or thing, meeting the definition of 'manufacture' as per the Act. The CIT (A) referenced relevant legal provisions, circulars, and the irreversible nature of the final product to support the assessee's claim. Additionally, the CIT (A) addressed the AO's concerns regarding the establishment of the business and transfer of machinery, ruling in favor of the assessee. The CIT (A) concluded that the appellant satisfied the conditions for deduction u/s 10B, directing the AO to allow the deduction for both assessment years.

Upon appeal by the Revenue, the Tribunal carefully evaluated the arguments presented by both parties, scrutinized the CIT (A)'s findings, and reviewed pertinent case law. The Tribunal focused on determining whether the process of preparing dimensional blocks constituted a transformation into a new and distinct object or article. Drawing parallels with a Supreme Court ruling in a similar context, the Tribunal upheld the CIT (A)'s decision, emphasizing that the extraction and conversion process indeed amounted to manufacturing under the Act. The Tribunal also referenced a previous Tribunal ruling regarding the eligibility for deduction under a different section of the Act, further supporting the decision to dismiss the Revenue's appeals for the relevant assessment years.

In conclusion, the Tribunal upheld the CIT (A)'s decision, affirming that the assessee's business activities qualified as manufacturing or production under the Act, entitling the assessee to the claimed deduction u/s 10B. The Tribunal dismissed the Revenue's appeals for the assessment years in question, thereby affirming the allowance of the deduction for the assessee's business activity involving the extraction and export of granite blocks.