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TMI Blog2011 (6) TMI 173X X X X Extracts X X X X X X X X Extracts X X X X ..... ing various emblems and designs thereon - The scope and meaning of words "manufacture and production of article or thing", as used in section 10B has close relationship with the definition of "manufacture" in SEZ Act and the meaning referred to in Foreign Trade Policy of India assessee's activities having come into existence from 22-9-2006, in our view the learned counsel for the assessee has referred to various documents and RTI applications which clarify the issue and demonstrates that the assessee's LOP was granted by the Development Commissioner w.e.f. 5-5-2005 which has been ratified by 21-7-2005 and the commencement of unit by this ratification dates back to 5-5-2005 - Decided in favour of the assessee - IT APPEAL NOS. 2955 & 2956 (DELHI) OF 2010 - - - Dated:- 3-6-2011 - R.P. TOLANI, K.D. RANJAN, JJ. Rajiv Saxena and Jagjeet Singh for the Appellant. A.K. Monga for the Respondent. ORDER R.P. Tolani, Judicial Member. ‑ These are revenue's appeals. Assessee being same, both the appeals are disposed of by this common order. 2. Common grounds raised are as under : "1. The Ld. CIT(A) has erred in law as well as on facts by not allowing a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was only a communication by the SEZ Noida, while processing assessee's application for approval as 100 per cent EOU, the SEZ authorities have informed that permission will be granted subject to 12 conditions which inter alia included the following conditions: - Unit will be custom bonded - The date of commencement of production shall be intimated. - The unit shall be required to enter into a legal agreement in the prescribed form with Development Commissioner, Special Economic Zone, Noida, for fulfilling the terms and conditions mentioned in LOP. Thereafter, the assessee executed the legal agreement in the prescribed form which was furnished to SEZ authorities vide letter dated 17-4-2006. It was responded by SEZ authorities vide their letter dated 25-4-2006. In this letter, the authorities accepted the legal agreement and informed the assessee that it will be treated as working under 100 per cent EOU scheme from the date from which it started functioning under Customs Bonding and allotted reference No. 12-303/2005-100 per cent EOU and issued green card. Thus, from this letter it is clear that till 25-4-2006, the approval of 100 per cent EOU was not grant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.1 Aggrieved, assessee preferred first appeal, where CIT(A) decided the issue of reconstruction in favour of the assessee. It was held that the Assessing Officer was not correct in treating the introduction of a partner into a partnership firm as the splitting of reconstruction of business already in existence. Earlier the assessee was in trading and on reconstitution carried on the business of trading and export of handicraft. A mere change in the constitution of firm, will not amount to splitting or reconstruction of business. 3.2 In respect of the issues about there being no 100 per cent EOU in existence during the years and the assessee's activities not amounting to manufacturing of article or thing, CIT(A) decided these issues in favour of the assessee by following observations : "7.2-3 On careful and coherent appreciation of these terms, it will be sufficient to treat existence of a 100 per cent EOU, if a valid letter of permission has been issued in this regard by the Development Commissioner. The CBDT has already clarified that, wherever such an issue of letter of permission was further ratified by the Board of Approval, the approval shall be deemed to have been issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is, no evidence whatsoever was brought on record by the Ld. Assessing Officer, which could indicate that the appellant did not commence the manufacturing operation during the year. 7.3-1 The learned appellant counsel also submitted that the learned Assessing Officer made passing reference to the letter obtained from SEZ Noida and the Excise Department but these letter were neither supplied nor any opportunity provided to the appellant to cross examine them or to explain in the matter so that no adverse view could have been taken by the Assessing Officer of the information contained in such referred letters. In this regard, my attention was drawn to the decision of the Hon'ble Supreme Court in the case of Kishan Chand Chella Ram reported at 125 ITR 713 (SC) in which it was held that such evidence cannot be taken into consideration if such material is not provided. 8. On careful perusal of the various documents furnished before me, I find that there was a definite distinction in the way the industrial undertaking owned by the appellant firm operated in the current assessment year as compared to the earlier years. The partnership deed relating to the old firm, which was later reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue addition in such samples. The Ministry of Finance, Government of India has clarified the section 2(f) of the Central Excise Act, 1944, to define the term "manufacture" vide trade notice No. 06/2006, dated 24-7-2006, as under:- "2(f) "manufacture" includes any process:- (i) incidental or ancillary to the completion of a manufactured product; (ii) which is specified in relation to any goods in the section or chapter notes of the First Schedule to the Central Excise Tarrif Act, 1985 (5 of 1986) as amounting to manufacture; or (iii) which, in relation to the goods specified in the "Third Schedule", involves packing or re-packing of such goods in a unit container or labelling or relabelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer, And the word 'manufacture' shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account;" 8.4 I find that in the business of export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be allowed from the total income of the assessee." 4.1 Learned DR contends that the undertaking in order to qualify must manufacture or produced article or things whereas in the instant case assessee merely polishes, carves, assembles and repacks handicraft items, therefore, activities of the assessee do not qualify for deduction under section 10B. Reliance is placed on Assessing Officer's order. 5. Learned counsel for the assessee at the outset assailed the revenue's ground that additional evidence was wrongly entertained by the CIT(A) and no opportunity was given to Assessing Officer. It is pleaded that the so called additional evidence was nothing but following documents: (i) Copy of RTI Application, dated 11-1-2010 addressed to Ministry of Commerce and Industry, Udyog Bhawan, New Delhi. (ii) Copy of reply dated 19-1-2010 received from EOU section, Ministry of Commerce and Industry, Government of India. (iii) Affidavits of suppliers confirming about supplying the unfinished, unassembled and incomplete goods to the Assessee. (iv) Exhibits 01 and 02 as Raw Chess Board and Raw Chess Pieces respectively and also Exhibits 03 and 04 as Finished Chess Board and Fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er rejected the claim of the assessee on following three points : (i) The Assessee claimed deduction after reconstruction of the business already in the existence. (ii) There is no manufacturing activity undertaken by the Assessee. (iii) Date of commencement of production has been communicated by the Assessee himself to SEZ authorizes on 22-9-2006 which date is beyond financial year 2005-06. The undertaking will be treated as commencing business from 22-9-2006 but not from the date on which LOP was granted by Development Commissioner 5-5-2005. 6. Apropos first issue i.e. reconstruction of business, learned counsel submits that the Assessing Officer has failed to understand the terms mentioned in clause (ii); there is a difference between reconstruction or splitting up which are attached to business already in existence or change of ownership of the business. In the present case, the business was not split up or reconstructed but ownership of the business was changed and part of the profits were shared by the new partner while old partners remain the same. ITAT Delhi Bench in Tech Books Electronics Services (P.) Ltd. v Addl. CIT [2006] 100 ITD 125 has held as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring activities. 6.2 Since the manufacturing activities are started now it cannot be held that the old trading business has been reconstituted. 6.3 It is pleaded that the assumption of Assessing Officer that the assessee's business came into existence due to reconstruction of business is wrong and CIT(A) has rightly decided the issue. 7. (a) The provisions of section 10B define the term "100 per cent EOU" as under : "hundred per cent export-oriented undertaking means an undertaking which has been approved as a hundred per cent export-oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 14 of the Industries (Development and Regulation) Act, 1951 (65 of 1951), and the rules made under that Act". (b) The Foreign Trade Policy, as notified under section 5 of the Foreign Trade (Development and Regulation) Act, 1992, defines the term "EOU" as under:- "EOU" means an export oriented unit for which an LOP has been issued by Development Commissioner." 7.1 It is pleaded that Assessing Officer miscarried himself in holding that there was no custom bound premises as mentioned in the approval it is pleade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'manufacture' in liberal sense and not to give a restricted meaning. This definition of "manufacture" not only means to make, produce, fabricate, assemble, process by hand or by machine a new product having distinctive name, character or use. But it shall also include processes such as cutting, polishing, blending, repacking, labelling, refurbishing etc. Hon'ble Supreme Court in CIT v Gwalior Rayon Silk Mfg. Co. Ltd. [1992] 196 ITR 149/62 Taxman 471 held that : "in the tax laws have to be interpreted reasonable and in consonance with justice adopting a purposive approach. The contextual mean has to be ascertained and given effect to. A provision for deduction, exemption or relief should be constructed reasonably and in favour of assessee." (ii) This decision has been referred to by the High Court of Kerala in the case of Tata Tea Ltd. v Asstt. CIT [2010] 189 Taxman 303 wherein deduction under section 10B was directed to be granted by taking liberal meaning of the term "manufacture" as mentioned in section 2(r) of the SEZ Act, 2005. The Hon'ble High Court referred to intention of the Government of India, Ministry of Commerce in introducing Free Trade Zone, SEZ and EOU in order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bombay and Delhi High Court, by the ITAT Delhi Bench in ITO v Techdrive India (P.) Ltd. [2010] 124 ITD 249. In this case, the Hon'ble ITAT dismissed the department's appeal and allowed the deduction under section 10B wherein the software "manufactured by the sister concern" was treated as assessee's manufacture within the meaning of section 10B. Copy of this decision is filed in the second paper of book judgments at pages 26-34. Relevant para is as under : "23. All the above facts, which have not been disputed by the Assessing Officer, show that though the assessee was using the infrastructure and facilities available with Seacom for producing the computer software, it was being done under the supervision and control of the personnel of the assessee. The assessee-company also had its own computers and its personnel also had their Laptop computers for doing the integration of the component programmes produced at Seacom, Pune. This aspect has been brought to the notice of the Assessing Officer in the assessee's note dated 6-9-2004. The software development charges paid by the assessee were partly for the work stations provided by Seacom (Rs. 27,95,000) and the balance of Rs. 12,43 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o have different use and name. Applying the test to the facts of the present case, we hold that a blank CD is different and distinct from a pre-recorded CD. In Gramophone Co. of India Ltd. (supra), it was held that an input/raw-material in the above process is a blank audio cassette. It was further held that recording of an audio cassette on duplicating music system amounts to manufacture because blank audio cassette is distinct and different from pre-recorded audio cassette and the two have different uses and names. In our view, the High Court was right in coming to the conclusion that the judgment of this Court in Gramophone Co. of India Ltd. (supra) is squarely applicable to the facts of the present case. We may add that in the case of Tata Consultancy Services (supra), as stated above, it has been held that a software programme may consist of commands which enable the computer to perform designated task, but the moment copies are made and marketed, they become goods. Therefore, applying the above judgment to the facts of the present case, we are of the view that marketed copies are goods and if they are goods then the process by which they become goods would certainly fall with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . These documents clearly indicate that the Assessee would be entitled for deduction under section 10B from the date on which LOP was granted by the Development Commissioner i.e. 5-5-2005 (PB 160-161). It is submitted that this objection of the Assessing Officer was also without any basis or material on record which may have been occasioned by some communication error, which is irrelevant. 9.1 Further reliance is placed on the order of ITAT Delhi Bench in the case of Dy. CIT v. Valliant Communication Ltd. [IT Appeal No. 2706 (Delhi) of 2008, dated 23-4-2010]. 10. We have heard rival contentions and perused the material available on record. Coming to the first issue about additional evidence, we do not find merit in the ground raised by the revenue inasmuch as CIT(A) as a quasi-judicial authority forwarded the additional evidence filed by the assessee which is mentioned above, for the remand report/comments of Assessing Officer. The Assessing Officer did not care to furnish the same despite a period of 15 months. In our view, the Assessing Officer did not discharge its duties properly for which CIT(A) cannot be blamed. In view thereof, we do not find any merit in the argument th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lishing, blending, repacking, labelling, refurbishing' etc. 10.4 In our view, Hon'ble Supreme Court judgment in the case of Gwalior Rayon Silk Mfg. Co. Ltd. (supra), has thrown guiding light on the interpretation meaning and context. The word "manufacture" vis-a-vis section 10B can be correctly understood while keeping the interdependence and purport of section 10B, Foreign Trade Policy of Government of India and SEZ Act. The same principle has been adopted by the Hon'ble Kerala High Court in the case of Tata Tea Ltd. (supra), where, blending, packing and export of tea bag and tea packets was held to be covered and eligible for deduction under section 10B. In our view in this case what assessee purchased were different parts of handicrafts which were meticulously processed as above and then assembled in the form of a distinct commercial commodity i.e. 5 indoor games. The assessee carried out various activities of carving, polishing and bringing the different components into a commercial viable item, called as multiple indoor games which have been exported. The items ordered by the assessee as purchases are totally distinct form and could not have been exported. 10.5 Respectfull ..... X X X X Extracts X X X X X X X X Extracts X X X X
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