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TMI Blog2009 (5) TMI 588X X X X Extracts X X X X X X X X Extracts X X X X ..... ken business activity amounting to manufacture or production of articles in these years under appeal before us and the income thereof is thus eligible for exemption under s. 10B of the Act. - IT APPEAL NOS. 543 TO 545 (JODH.) OF 2007 AND 415 (JODH.) OF 2008 - - - Dated:- 29-5-2009 - Member(s) : B. R. JAIN., K. S. S. PRASADA RAO. ORDER-BY THE BENCH: These appeals by the assessee against the orders dt. 29th March, 2007 and 14th March, 2008 of the learned CIT(A), Jodhpur, raises the following grounds: Grounds in Appeal No. 545/Jd/2007 "1. That the order under s. 250, dt. 29th March, 2007, passed by the learned CIT(A), Jodhpur, in the case of the assessee for the asst. yr. 2004-05, is bad in law and on facts. 2. That the learned CIT(A), Jodhpur, on the facts and in the circumstances of the case, erred in confirming the withdrawal of exemption under s. 10B made by the learned AO. The said exemption is required to be fully allowed." ITA No. 543/Jd/2007 "1. That the order under s. 250, dt. 29th March, 2007, passed by the learned CIT(A), Jodhpur, in the case of the assessee for the asst. yr. 2002-03, is bad in law and on facts. 2. That the learned CIT(A), Jodhpur, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. The facts alleged to be the same, the AO justified his action under s. 148 and thus disposed of the objection raised by the assessee. Thereafter, an opportunity was given vide letter dt. 27th Oct., 2006 to explain as to why the claim may not be disallowed in view of the order under s. 263 passed by the learned CIT for the asst. yr. 2001-02. This was duly replied by the assessee vide his letter dt. 20th Dec., 2006 in detail. In response, books of account, bills and vouchers and other subsidiary record, relevant information/details and written submissions, as required, were submitted before the AO, who examined the same and discussed with the learned Authorised Representative and the accountant. Not feeling satisfied, the AO however, heavily relied upon the decision of the Tribunal. He alleged that no manufacturing or production of the items, was done by the assessee on its own. The assessee simply carried out trading of manufactured items purchased from local traders. He reproduced the figures of the manufacturing, trading and P L a/c for the period ending on 31st March, 2002, as under: ------------------------------------------- Particulars Opening stock Closing stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble Tribunal referred to above in the asst. yr. 2001-02 he held that the assessee has not manufactured or produced any article or thing as contemplated under s. 10B but was simply engaged in the polishing and finishing of the fully manufactured items purchased by it and hence one of the conditions laid down in s. 10B are not fulfilled as the nature of the business and activities of the assessee are the same as in the asst. yr. 2000-01. Keeping all the facts, circumstances and also following the decision of the Hon'ble Tribunal referred to above the deduction claimed under s. 10B has been denied and assessment stood completed accordingly. 4. In the first appeal, the learned CIT(A) noted that the learned Authorised Representative fairly admitted that the similar issue also arose in the asst. yr. 2001-02, which was decided against the assessee by the Hon'ble Tribunal, Jodhpur Bench against which appeal has already been filed before the Hon'ble Rajasthan High Court, Jodhpur. He further observed that the facts of the present case and the issue in dispute relating to denial of deduction under s. 10B is fully covered by the decision of the Hon'ble Tribunal, Jodhpur Bench in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. vs. Asstt. CIT (1999) 70 ITD 406 (Mad) that after taking into consideration the judgment of the Hon'ble Supreme Court in CIT vs. Brij Lal Lohia Mahabir Prasad Khemka 1974 CTR (SC) 167 : (1972) 84 ITR 273 (SC) and the decision of the Madras High Court in CIT vs. L.G. Ramamurthi Ors. 1977 CTR (Mad) 416 : (1977) 110 ITR 453 (Mad), the Court is of the well considered opinion that the principle of res judicata is strictly not applicable if there are facts and circumstances or material to justify a different decision by the subsequent Bench of the Tribunal from the earlier decision of the Tribunal or there is relevant material before the Tribunal even in the case of the same assessee on the same issue which persuades the Tribunal to come to a different decision. (Source: Comprehensive Income-tax Commentary by Dr. Avdesh Ojha, Vol. 4 at p. 5852 Edn. 2001). He also drew attention towards the decision in Distributors (Baroda) (P) Ltd. vs. Union of India (1985) 47 CTR (SC) 349 : (1985) 155 ITR 120 (SC) at p. 124. He also submitted that Tribunal can consider a question which was not gone into in an earlier appeal as held in CIT vs. Mohanlal Ranchhoddas (1992) 108 CTR (Guj) 22 : (1993) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... small purchases of raw material, which indicated that it was not engaged in manufacturing or production. However, the Tribunal has not given any decision on this aspect in asst. yr. 2001-02, as the same was not before it. He further submitted that in asst. yr. 2001-02, the Tribunal stressed that the assessee was involved in processing however, in the subjected years, the assessee did not raise any such contention. 6.5 Further that the Tribunal in its order in paras 13. 16, 17 and 20 heavily relied on its own decision in Arihant Tiles Marbles (P) Ltd. vs. ITO (2006) 104 TTJ (Jd)(TM) 149, wherein the benefit of deduction under s. 80-IA of the Act was denied by holding that the activities of the assessee do not tantamount to manufacturing or production. However, this decision now stands fully reversed by the Hon'ble Rajasthan High Court in the case of Arihant Tiles Marbles (P) Ltd. vs. ITO (2007) 211 CTR (Raj) 169 : (2007) 295 ITR 148 (Raj) by taking a diametrically opposite view and process of cutting and sawing or sizing or polishing of marble blocks into slabs and tiles which results in making raw marble usable was held to amount to manufacture for the purpose of deduction u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court read and understood and not having found applicable by the Hon'ble Court here also these decisions cannot be applied in later years before the Tribunal. Referring to CIT vs. Thana Electricity Supply Ltd. (1993) 112 CTR (Bom) 356, he submitted that the decision of the Hon'ble jurisdictional High Court is completely binding and therefore, the rule of consistency, should not come in the way for deciding the issue de novo. 6.7 It was further contended that there are various later decisions that have come after the Tribunal order in asst. yr. 2001-02 including those of Supreme Court, affecting the very decision to be taken in the later years. Such recent decisions are in the cases of jumbo rolls to films amount to manufacturing and production as held in India Cine Agencies vs. CIT (2008) 220 CTR (SC) 223 : (2008) 15 DTR (SC) 121 : (2009) 308 ITR 98 (SC). Others are in CIT vs. Mahesh Chandra Sharma (2009) 221 CTR (P H) 163 : (2009) 17 DTR (P H) 42 : (2009) 308 ITR 222 (P H), CIT vs. Groz Beckert Saboo Ltd. (2009) 222 CTR (P H) 427 : (2009) 18 DTR (P H) 174 : (2009) 308 ITR 397 (P H) and P.R.P. Granites vs. Asstt. CIT Anr. (2009) 221 CTR (Mad) 371 : (2009) 17 DTR (Mad) 234. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Ltd. and in order to render substantial justice as also adhering to the principles of natural justice, the Tribunal vide its direction dt. 20th March, 2009 required the parties to argue these appeals on merits with specific reference to the factual difference if any, with the earlier year in which Tribunal has already answered the issue against the assessee. 10. In the subsequent hearings, counsel Shri Gargieya accompanied by Shri Raj Bodhra, chartered accountant produced books of account along with registers, bills, vouchers for expenses and contemporary records to support his claim that he is engaged in manufacturing of articles eligible for exemption under s. 10B of the Act. It was claimed that the assessee purchased raw material or unfinished articles/structures and various steps undertaken consist of: 1. Designing; 2. Sample making and testing; 3. Procurement of sales order from foreign customers; 4. Purchases of wood, glass, hardware etc.; 5. Treatment of raw material like wood for manufacturing of articles or outsourcing of structures through orders with specifications (i.e., procurement of unfinished articles); 6. Grinding, surface smoothening or sanding; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sked, elaborate details of activities undertaken by the assessee by way of examples, were submitted, with the help of a table (below) for quick reference. The items have been selected and highlighted showing a chain of activities in relation to few exemplary items. The same was prepared in respect of asst. yr. 2005-06. Similar details were submitted for the other three years in appeal. ------------------------------------------------------------------ Particulars Date of document Page No. ------------------------------------------------------------------ Chart showing processes involved in 1848 manufacturing and production ------------------------------------------------------------------ Details of machinery purchased and 22-9-2003/27-9-2003/ 185-192 used by the unit in manufacturing 29-9-2003/12-10-2003/ and production (copies of some 12-9-2003/24-11-2003/ invoices) for surface smoothening, 21-3-2005 cutting, welding, nickle plating, packing ------------------------------------------------------------------ Proforma sales order from foreign buyer detailing items to be exported 13- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 208 ------------------------------------------------------------------ - Wax. bill used in polishing and finishing [Dara Polishing (P) Ltd.] 22-10-2004 209 ------------------------------------------------------------------ - Fevicol (V. K. Traders) for fixing 10-12-2004 212 ------------------------------------------------------------------ - Red oxide, matt black, bulb, colour etc. (Vensimal Co.) for designing and painting 26-11-2004 213 ------------------------------------------------------------------ - Thinner, red oxide, matt black, bulb, acid etc. (Vensimal Co.) used in painting, cleaning 26-11-2004 214 ------------------------------------------------------------------ Job bill for polishing and painting work (Vinod Kumar Mali) 13-11-2003 242 ------------------------------------------------------------------ Salary sheet showing carpenters, Helpers, workers involved in production, painting, packing, repairing activities January, 2005 210-211 -------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04) 12 SCC 742 this Court has taken the same view. This Court in the said judgment observed that s. 80HHC has been incorporated with a view to provide incentive to export house and this section must receive liberal interpretation". For this purpose, he also referred to a very recent decision of CIT vs. B. Suresh (2009) 222 CTR (SC) 513 : (2009) 20 DTR (SC) 93 para 9. He also cited the recent decision in P.R.P. Granites vs. Asstt. CIT Anr. To explain the object for bringing this provision, he drew our attention to a CBDT Circular No. 528, dt. 16th Dec., 1988 para 18.2 [(1989) 76 CTR (St) 69 : (1989) 176 ITR (St) 154] (copy of which is available at decision paper book 51-53): "With a view to providing other incentive for earning foreign exchange, a new s. 10B has been inserted by the Act so as to secure that income of a hundred per cent EOU shall be exempted from tax for a period of five consecutive assessment years falling within the block of eight assessment years. The exemption provided under the new section is similar to the one provided to industrial undertakings operating in free trade zones. 9.4 As defined in the Expln. (i) below sub-s. (7) of the newly inserted s. 10B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articles should be derived from the export and not from the manufacturing/production. 13.3 He then took us to the definitions of the words manufacture or production, given in the different dictionaries and considered in India Cine Agencies vs. CIT (decision paper book 58-65). 13.4 As regards the context he referred to the EXIM Policy 1997-2002 (relevant extract at paper book 7 placed at paper book 87), wherein the term 'manufacture' has been defined in very wide sense with a view to encourage the setting up of export units in India to provide a boost to the international trade of the country and thereby to improve balance of trade position by maintaining Forex reserves. The same has been defined to mean "to make, produce, fabricate, assemble, process or bring into existence by hand or by machine, a new product having a distinctive character or use and shall include processes, such as refrigeration, repacking, polishing, labelling and segregation". Manufacture for the purpose of this policy also includes "agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining". On this aspect he also cited the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one with the help of machine and that number of workers employed were below the required number of 20 under s. 10BA(2)(e)-According to AO, conditions laid down in s. 10BA were not satisfied and hence claim was rejected-AO however allowed deduction of Rs. 21,38,250 under s. 80-IB-CIT(A) sustained the action of AO. Considering the argument of assessee and the detailed facts of this case, Tribunal has observed that stress of legislature has not been on manufacturing or production and that what legislature required that the subjected articles should be a wooden handicraft article having artistic value and the profit is derived from the export thereof-Tribunal have further observed that what the assessee purchased ultimately resulted into an altogether different commodity reflecting complete change in the product as recognized by the commercial world i.e., importers outside India-Activities undertaken by the assessee brought beauty to the articles so as to convert these into antique articles fit for export and that ultimate product is altogether different then it was originally purchased inasmuch as what comes out is a wooden handicraft item of artistic value-The ultimate product no m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x rolls were held to be manufacturing because the jumbo rolls as such could not have been used as ribbons in typewriter and vice versa and they are not interchangeable. He also took us to the write-up by the learned author s. Rajaratanam titled as Landmark Cases in (2009) 308 ITR 20 (decision paper book 54-57) and cited the decisions in the case of India Cine Agencies vs. CIT, wherein it is held that the conversion of jumbo rolls of photographic films into small flats and roles in the desired sizes, as manufacture or production. 13.8 In CIT vs. Mahesh Chandra Sharma (decision paper book 79-81) wherein the assembly of wheels. In CIT vs. Groz Beckert Saboo Ltd. (decision paper book 82-86), manufacturing of needles, was held manufacturing or production. 13.9 In the case of Dy. CIT vs. Pio Food Packers (1980) Suppl. SCC 174, wherein the Hon'ble the Supreme Court considered the meaning of the word "manufacture" with, reference to several decisions and the same is guiding and hence the test laid therein may be applied on the facts of the present case. 13.10 He submitted that the recent judicial thinking in this regard is very liberal. Moreover, the word 'new' is not there. In India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2002-03 to 2005-06 ----------------------------------------------------------------------- Sl. Purchases Asst. yr. Asst. yr. Asst. yr. Asst. yr. Asst. yr. No. 2001-02 2002-03 2003-04 2004-05 2005-06 (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) ----------------------------------------------------------------------- 1. Purchases 50,25,047 14,93,005 10,46,607 1,46,800 1,23,342 against Form 178 ----------------------------------------------------------------------- 2. Purchase 4,47,796.21 88,328 - - - of raw material ----------------------------------------------------------------------- 3. Purchases - - 48,265 7,09,022 1,756 against Form D ----------------------------------------------------------------------- 4. Purcha- 25,89,500.84 1,85,82,597 1,85,62,780 2,15,99,514 1,72,14,518 ses of ST exempted ----------------------------------------------------------------------- 5. Purchases - - - 561 1,56,000 under Form C --------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y only on 27th March, 2000 as per the certificate. According to the stipulations placed in such approval, the appellant has to work in a bonded warehouse and carry out the activities which amount to manufacturing as per the EXIM Policy in force. It is not out of place to mention here that the said approval is still in force and no invention (sic) had ever been made by these authorities even on frequent inspection made by them for each and every lot before exporting them. 15.1 He also referred to the certification by the customs and central excise authorities to show that the periodical inspection is being carried out by the customs and central excise authorities. 16. He further submitted that s. 10B is an incentive provision, meant for the promotion of export of handicraft/handmade items. It has been held that an incentive provision has to be construed liberally. Kindly refer Bajaj Tempo Ltd. Vs. CIT (1992) 104 CTR (SC) 116 : (1992) 196 ITR 188 (SC). The present case also helps achieving the avowed object. Once the underlying purpose of an enactment is served, there is no reason why the deduction should be restricted on one pretence or the other. Also kindly refer CIT vs. Krish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and precedents cited at the Bar. The finding of fact reached by the assessing authority that the assessee simply carried out trading of manufactured items purchased from local traders is found perverse on facts. The finding that no manufacturing has been undertaken by the assessee on its own and only job charges paid for the work done by other manufacturers is also not correct. The examination of books of account with reference to purchases, sales and other expenses vouchers along with contemporary record reveal that the appellant purchased not only the raw material but also purchased semi-finished goods and articles of like description as that of exported goods on which it carried out machine work in case of wooden articles such as smoothening and shaping the structures. The surfaces and the edges of wooden items and then engraving, embossing, fixing metallic parts and accessories and thereafter polishing and painting thereof has also been done. The assessee has also fixed artistic parts thereon to give it a commercial look making it completely distinct in character and use. Likewise in metallic items, the assessee carried the activities such as smoothening of the surfaces and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the absence of a definition, the word 'manufacture' has to be given a meaning as is understood in common parlance. It is to be understood as meaning the production of articles for use from raw or prepared materials by giving such materials new forms, qualities or combinations whether by hand labour or machines. If the change made in the article results in a new and different article then it would amount to manufacturing activity." 20.5 Hon'ble Madras High Court in CIT vs. Jamal Photo Industries (I) (P) Ltd. (2006) 205 CTR (Mad) 427 : (2006) 285 ITR 209 (Mad) observed as under: "The expression 'manufacture' involves the concept of changes effected to the basic raw material resulting in the emergence of, or transformation into, a new commercial commodity. But it is not necessary that the original article or material should have lost its identity completely. All that is required is to find out whether as a result of the operation in question, a totally different commodity has been produced having its own name, identity character and end use." 20.6 Hon'ble apex Court in the case of CIT vs. N.C. Budharaja Co. (1993) 114 CTR (SC) 420 : (1993) 204 ITR 412 (SC) has observed as fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by P. Ramanatha Aiyar, the expressions "production" and "manufacture" are described as under: "'Production' with its grammatical variations and cognate expressions; includes- (i) packing, labeling, relabelling of containers (impugned order) repacking from bulk packages to retail packages, and (iii) the adoption of any other method to render the product marketable. 'Production' in relation to a feature film, includes any of the activities in respect of the making thereof. [Cine Workers and Cinema Theatre Workers (Regulation of Employment] Act, (50 of 1981) s. 2(1). The word 'production' may designate as well a thing produced as the operation of producing (as) production of commodities or the production of a witness. 'Manufacture' includes any art process or manner of producing, preparing or making an article and also any article prepared or produced by manufacture Patents and Designs Act, (2 of 1911) s. 2(10). 'Manufacture' includes any process- (i) incidental or ancillary to the completion of a manufactured product; and (impugned order) which is specified in relation to any goods in the section or chapter notes of the First Schedule to the Central Excise Tariff A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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