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TMI Blog2007 (5) TMI 351X X X X Extracts X X X X X X X X Extracts X X X X ..... IT Act. Ground No. 1( a ) reads as under : "1( a ) The ld. Assessing Officer had excluded the export of Rough Diamonds aggregating to Rs. 24,55,216 from the export turnover of the firm on the ground that the "Rough Diamonds" as exported by the firm are minerals and therefore not eligible for deduction under section 80HHC of the Act. It is submitted that Rough Diamonds as exported by the firm are not the minerals excluded from the scope of section 80HHC of the Act. The conclusion arrived at by the ld. Assessing Officer is erroneous and contrary to the facts." 3. At the assessment stage, the assessee claimed before the Assessing Officer that it was engaged in the business of importing rough diamonds, cutting and polishing them and then exporting cut and polished diamonds. It claimed that the rough diamonds as imported were assorted according to their technical specifications and were used for cutting and polishing. It submitted before the Assessing Officer that during the course of cutting and polishing, it was found at times that the rough diamonds were technically not suitable for further processing and that these semi-processed rough diamonds did not have any ready market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has come to my notice that Hon ble ITAT has confirmed the inclusion of the export receipts of rough diamonds as part of total turnover, but the issue of the inclusion of the same as a part of export turnover has not been decided in favour of the appellant. Therefore appellant s plea that the export receipts of rough diamonds should be considered as part of export turnover is not acceptable. The decision of Mumbai Tribunal cited by the appellant in the case of Agarwal Family Trust is also not applicable at all to the facts of the appellant as it was about the broken pieces of diamonds and not in respect of the rough diamonds. Moreover, it is a Single Member Bench unreported decision which is very old while the decision of Hon ble ITAT, Mumbai in the case of Classic Diamonds is the recent reported decision comprising of Two Members. In totality of these facts and circumstances, I have come to the conclusion that the appellant is not eligible for deduction under section 80HHC in respect of the export receipts of rejected rough diamonds. Therefore, appellant s appeal is dismissed on this ground." 4. Aggrieved by the aforesaid order of the CIT(A), the assessee is now in appeal bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. counsel submits that section 80HHC of the IT Act envisages tax benefits on export of goods or merchandise out of India in hard currency. He submits that the benefit under section 80HHC is undoubtedly not available in respect of export of minerals and mineral ores but "processed" minerals are specifically excluded from the minerals. According to him, the diamonds exported by the assessee are processed minerals, namely, rough diamonds and not minerals per se as envisaged in section 80HHC. He contended that the legislative intent was to exclude only minerals per se and not those minerals to which value has been added by processing them and therefore such value added minerals were eligible for special relief under section 80HHC. 8. In reply, the ld. Departmental Representative supported the orders passed by the Assessing Officer and the ld. CIT(A). 9. We have heard the parties. Clause ( b ) of sub-section (2) of section 80HHC excludes "( i ) mineral oil; and ( ii ) minerals and ores (other than processed minerals and ores specified in the Twelfth Schedule)" from the purview of section 80HHC(1) in that the benefit of section 80HHC is not available in respect of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... destitute of organization or life. Mineral bodies occur in three physical conditions of solid, liquid and gas. The word "minerals" would thus mean and cover all substances other than the agricultural surface of the grounds which may be got for manufacturing or mercantile purposes, such as stone or clay, whether got from a mine, or by open working, and whether containing metallic substances or substances entirely non-metallic. Tested on the aforesaid parameters, diamonds will fall in the category of minerals. 11. As stated earlier in this Order, the learned counsel for the assessee has referred to two orders passed by the Single Member Benches of this Tribunal. First order is in the case of Agarwal Family Trust ( supra ) in which the learned Single Member has held: "Such small pieces of broken diamond cannot be considered in my opinion as mineral ore. They are the export of diamonds only." The aforesaid decision has been followed by another Single Member Bench in Premier Diamond s case ( supra ). It is well established that the decisions rendered by the Single Member Benches are not binding on Division Benches of two Members or larger Benches. On merits also, what has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to obtain concentrates after removal of gangue and unwanted deleterious substances or through other means without altering the mineralogical identity; ( b )pulverisation, calcination or micronisation ; ( c )agglomeration from fines ; ( d )cutting and polishing ; ( e )washing and levigation ; ( f )benefication by mechanical screening or crushing and screening through dry process ; ( g )sizing by crushing, screening, washing and classifications through wet process ; ( h )other upgrading techniques such as removal of impurities through chemical treatment, refining by gratuity separation, bleaching, floatation or filtration. 13. The case of the Department is that it is only "cut and polished minerals and rocks including cut and polished granite", which have been classified as "processed minerals and ores" and hence rough diamonds, which are not cut and polished minerals, are not eligible for deduction under section 80HHC. The case of the assessee, on the other hand, is that the rough diamonds are "processed" minerals within the meaning of the term "processed" occurring in the Explanation in the Twelfth Schedule. 14. We have given serious consideration to the riv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), the minerals, and the diamonds are minerals as held above, must be "Cut and polished minerals and rocks including cut and polished granite" and not rough diamonds. Thus the case of the assessee is squarely hit by item No. ( x ) of the Twelfth Schedule which classifies "Cut and polished minerals and rocks including cut and polished granite" alone as processed mineral. The emphasis in item ( x ) is on "cut and polished minerals" and not on cut or polished minerals. Quite apparently, the case of the assessee does not fall under item No. ( x ) of the Twelfth Schedule and hence the rough diamonds exported by it cannot be considered as eligible for deduction under section 80HHC of the IT Act. We hold accordingly. The order of the learned CIT(A) is confirmed in this behalf. 15. The Assessing Officer has referred to and extracted relevant portion of the Circular F. No. 178/2006/83-IT (A-1) dated 22-5-1984 issued by the Central Board of Direct Taxes in the assessment order in which it has been clarified that the export of cut and polished diamonds and Gems stones will not amount to export of minerals and ores. By Finance (No. 2) Act, 1991, sub-clause ( ii ) of clause ( b ) of sub-sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 involving similar issue, the succeeding Division Bench would have been obliged to follow the decision of a Co-ordinate Division Bench in Classic Diamonds (I) Ltd. s case ( supra ) in terms of the decision of the Hon ble Supreme Court in Union of India v. Paras Laminates (P.) Ltd. [1990] 186 ITR 722, in which it has been held that a Bench of two members must not lightly disregard the decision of another Bench of the same Tribunal on an identical question. In an identical situation a Co-ordinate Bench of this Tribunal has taken the following view in Mehratex India Ltd. v. Dy. CIT [2005] 3 SOT 539 (Mum.) : "9. It is thus beyond dispute that a decision which is per incuriam is not a binding judicial precedent. It is also well-settled that when it is not open to a High Court Bench to differ from the decision of a Bench of equal strength, it cannot also be open to a Bench of this Tribunal to differ from the view taken by a co-ordinate Bench of equal strength. The only option in case one doubts the correctness of such a decision is to refer the matter for constitution of a larger Bench. A decision ignoring this rule of precedent, which is duly approved by the Hon ble Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re that the assessee had advanced temporary loans on interest pursuant to which it received interest amounting to Rs. 15,73,681 in assessment year 1995-96 and Rs. 73,463 in assessment year 2000-01. The assessee had also paid interest to the banks for availing credit facilities and also to others for obtaining unsecured loans. The Assessing Officer treated the interest received on amounts advanced as income from other sources and consequently brought the same to the charge of income-tax under section 56 of the Income-tax Act. He did not allow set off of interest paid as interest paid was claimed by the assessee to be a business expenditure under section 36(1)( iii ) of the Income-tax Act. On appeal the ld. CIT(A) has confirmed the order of the Assessing Officer in this behalf. He held that impugned interest receipts were rightly taxed by the Assessing Officer as income from other sources. Without prejudice to the aforesaid finding, the ld. CIT(A) has also held that even if the interest receipts were treated as business receipts, the benefit of set off of interest payments against interest receipts would not be available as they did not have any correlation and nexus. Being aggrieved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obtained and set apart by the assessee for that business purpose for which they were obtained so as to reduce the interest burden. If the assessee satisfies the aforesaid test to the satisfaction of the Assessing Officer, the interest so received should be assessed under section 28 as non-operational business income in terms of the judgment in CIT v. Bangalore Clothing Co. [2003] 260 ITR 371 1 (Bom.) and, in that case, should be set off against the interest payments under section 36(1)( iii ) in terms of the decision of a Special Bench of this Tribunal in Lalsons Enterprises case ( supra ) in which it has been held that "it is only the 90 per cent of the net interest remaining after allowing a set-off of interest paid, which has a nexus with the interest received, that can be reduced and not 90 per cent of the gross interest". ( ii )If the assessee, on the other hand, fails to establish to the satisfaction of the Assessing Officer that interest bearing advances or deposits were made as a temporary measure out of the interest bearing credit facilities obtained from the banks and set apart by it for the purpose for which they were obtained or the Assessing Officer, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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