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2020 (12) TMI 677 - HC - Income TaxDeduction u/s 10B - activity the Assessee undertakes amount to manufacturing or processing to entail it to the benefit or not? - denial of deduction as Assessee does not carry on any manufacturing of iron ore - CIT (A) reversed the AO's finding - Tribunal has held that the Assessee has purchased ROM- that is, material extracted from mine on as is where is basis-and that ROM included a lot of impurities such as mad, silica, sulphur, limestone, and so on - HELD THAT - As rightly, held that ROM is crude ore, practically of no use unless it is processed and made suitable for steel making industry. Describing the manufacturing process undertaken by the Assessee, the Tribunal has held that in the iron ore production, the ROM is a raw material in a very crude form. When extracted, ROM contains a lot of waste material called 'impurities'. According to the Tribunal, very low-grade iron ore cannot be used in metallurgical plants, for it needs to be upgraded to increase the iron content. In the Assessee's case, iron ore concentrates are manufactured by the process of magnetic separation. For this purpose, the Assessee uses High-Intensity Magnetic Separator, which increases the iron content through concentration. Eventually, the assessee manufactures Iron Ore Concentrate Fines, by upgrading the iron content to around 58%. Assessee purchases ROM, which includes a lot of impurities; it is crude ore, practically of no use unless it is processed and made suitable for its intended end-use. True, very low-grade iron ore cannot be used in metallurgical plants, for it needs to be upgraded to increase the iron content. In the Assessee's case, iron ore concentrates are manufactured by the process of magnetic separation. It essentially amounts to manufactures or process . Therefore, we find no reason to interfere with the Tribunal's findings on this sole substantial question of law. - Decided in favour of assessee.
Issues Involved:
1. Whether the Assessee's activity qualifies as "manufacturing" under section 10B of the Income Tax Act. 2. Whether the ITAT was correct in allowing the deduction under section 10B amounting to ?4,85,30,680/- to the Assessee. Issue-Wise Detailed Analysis: 1. Whether the Assessee's activity qualifies as "manufacturing" under section 10B of the Income Tax Act: Introduction and Facts: The Assessee, a partnership firm engaged in the export of Iron Ore Concentrate Fines, claimed benefits under section 10B of the Income Tax Act (IT Act), asserting that its activities constituted "manufacturing." The Assessment Officer (AO) rejected this claim, but the Assessee succeeded at the appellate levels. The Revenue then appealed to the High Court. Assessment and Appeals: The AO disallowed the deduction claimed under section 10B and preoperative expenses. The Commissioner of Income Tax (Appeals) [CIT (A)] reversed the AO’s decision on the deduction claim but partly upheld the disallowance of preoperative expenses. The Income Tax Appellate Tribunal (ITAT) dismissed the Revenue’s appeal and allowed the Assessee’s. Legal Submissions: The Revenue contended that the Assessee did not engage in "manufacturing" and relied on statutory definitions and judicial interpretations to support their argument. The Assessee argued that its process of magnetic separation to purify iron ore amounted to "manufacturing." Court's Analysis: The court examined the definitions and judicial interpretations of "manufacture" and "production." It referred to various precedents, including Union of India v. Delhi Cloth and General Mills Co. Ltd., Union of India v. G. Glass Industries Ltd., and CIT v. Sesa Goa Ltd., to understand whether the Assessee’s activities could be classified as "manufacturing." Key Findings: - The court noted that the Assessee’s process involved significant changes to the raw material (Run-of-Mines or ROM), which contained impurities and was practically of no use unless processed. - The process of magnetic separation used by the Assessee to upgrade the iron content was considered a form of "beneficiation," which is recognized as a manufacturing process. - The court emphasized that the term "manufacture" includes processes that transform raw materials into a new product with a different name, character, or use. Conclusion: The court concluded that the Assessee’s activities constituted "manufacturing" under section 10B of the IT Act. It held that the Assessee's process of upgrading iron ore through magnetic separation met the criteria for "manufacture" as defined in various legal precedents and statutory provisions. 2. Whether the ITAT was correct in allowing the deduction under section 10B amounting to ?4,85,30,680/- to the Assessee: Introduction and Facts: The Revenue challenged the ITAT’s decision to allow the Assessee’s deduction under section 10B, arguing that the Assessee did not engage in "manufacturing" and had under-invoiced purchases from its sister concern. Legal Submissions: The court had earlier admitted the appeal on the question of "manufacturing" but rejected the Revenue’s contention regarding under-invoicing, as both the CIT (A) and ITAT found no evidence of under-invoicing. Court's Analysis: The court reiterated that the Assessee’s activities amounted to "manufacturing" and noted that the Revenue failed to show how the findings of the CIT (A) and ITAT were perverse or arbitrary. Conclusion: The court upheld the ITAT’s decision to allow the deduction under section 10B, affirming that the Assessee’s activities qualified as "manufacturing" and rejecting the Revenue’s appeal. Result: The court answered the sole substantial question of law against the appellant-Revenue and in favor of the Respondent-Assessee, thereby dismissing the appeals. No order on costs.
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