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TMI Blog2013 (5) TMI 225X X X X Extracts X X X X X X X X Extracts X X X X ..... ified in reopening impugned assessment under section 147 read with section 148 of the Act. 2. The Learned Commissioner of Income-tax (Appeals) erred in law as well as on the facts and circumstances of the case in confirming the disallowance of Rs. 41,68,101/- on account of convertible foreign exchange brought in India within extended period, which is eligible or exemption under section 10B of the Act. 3. The Learned Commissioner of Income-tax (Appeals) erred in law as well as on the facts and circumstances of the case in confirming the disallowance to the extent of Rs. 50,000/- representing the transport expenses out of lump sum addition of trading profit of Rs. 1,00,000/- made by the assessing officer. 4. The Learned Commissioner of Income-tax (Appeals) erred in law as well as on the facts and circumstances of the case in confirming he disallowance of Rs. 14,472/- made by the assessing officer u/s 40A (3) of the Act. 5. The appellant reserves the right to add to the above grounds of appeal and/or to amend, modify and to delete any of them on or before hearing of appeal. 2.2 The grounds raised by the Department in its appeal in ITA No.201/Jodh/2011 read as under:- ''On the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income filed earlier may be treated as return filed in response to notice u/s 148 of the Act. The Assessing Officer famed the assessment vide order dated 27-12-2007 at an income of Rs. 38,80,270/- by making various additions and also did not allow exemption u/s 10B of the Act. 3.3 The assessee challenged the reopening of the assessment u/s 148 of the Act before the ld. CIT(A) and submitted that the Assessing Officer should have reasons to believe and not reasons to suspect that any income chargeable to tax has escaped assessment and there must be some material to enable the Assessing Officer to entertain the necessary belief and the said reasons must have direct nexus or live link between the material coming to the notice of the Assessing Officer and leads to the formation of his belief that income had escaped assessment. It was submitted that the assessee fully and truly disclosed all primary and material facts pertaining to claim u/s 10B of the Act and there was no under assessment or excessive relief or escaped income chargeable to tax and there were no materials or reasons to believe that income had escaped assessment. It was stated that the case had been reopened beyond the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther submitted that reopening was done only on the basis of judgement of Hon'ble Supreme Court in the case of Lucky Minmat Pvt. Ltd. vs CIT (supra). A reference was made to page 48 and 49 of the assesee's paper book which are the copies of notice issued u/s 148 of the Act and the reasons recorded for initiation of proceedings u/s 147 of the Act. It was also submitted that the decision of Hon'ble Supreme Court relied upon bythe Assessing Officer was subsequently distinguished by the Hon'ble Jurisdictional High Court in the case of Arihant Tiles and Marbles Pvt. Ltd. (supra) which was upheld by the Hon'ble Supreme Court. Therefore, the reopening was bad in law. Reliance was placed on the following case laws:- 1. Koushal Bagh Marbles Pvt. Ltd. vs ACIT, 111 TTJ 122 (Jd) 2. Farrukhabad Gramin Bank vs ITO, 273 ITR 113 (All.) 3. CIT vs Dr. Devendra Gupta, 220 CTR 629 (Raj.) 4. Ranbaxy Laboratories Ltd. vs CIT, 336 ITR 136 (Del.) 5. Arihant Tiles & Marbles Pvt. Ltd. vs ITO, 295 ITR 148 (Raj.) 6. ITO vs Arihant Tiles & Marbles Pvt. Ltd. , 320 ITR 79 (SC) 7. Lucky Minmat Pvt. Learned vs CIT, 245 ITR 830 (SC) 8. Rajasthan Financial Corporation vs DCIT, 66 ITD 193 (JP) 9. Wipro Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, it is crystal clear that the assessee was not considered to be a manufacturer and eligible for exemption u/s 10B of the Act only on the basis of the judgment of Hon'ble Supreme Court in the case of Lucky Minmat Pvt. Ltd. vs CIT (supra).However, the Assessing Officer did not consider this vital fact that conversion of Marble Blocks into slabs and tiles i.e. the activity in which the assessee was engaged was held to be a manufacturing activity by the Hon'ble Jurisdictional High Court in the case of Arihant Tiles & Marbles Pvt. Ltd. vs ITO (2007), 295 ITR 148. In the said judgement, earlier judgment of Hon'ble Supreme Court in the case of Lucky Minmat Pvt. Ltd. vs CIT (supra) was considered, subsequently the Hon'ble Supreme Court affirmed the judgemnt of Hon'ble Rajasthan High Court and held in the case of ITO vs Arihant Tiles and Marbles Pvt. Ltd. (2010) 320 ITR 79 that conversion of Marble Blocks into polished slabs and tiles constitutes 'manufacture or production' as it results in emergence of a new and distinct commodity. Since the assessee was involved in the conversion of Marble Blocks into slabs and tiles, therefore, it was engaged in the manufacturing activity. In the prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised by the assessee, therefore, our findings given for the assessment year 2002-03 in the former part of this order shall apply mutatis-mutandis and accordingly re-assessment order of the Assessing Officer is quashed. 4.1 In the assessment year 2007-08, the Department in its appeal in ITA No. 203/Jodh/2011 has raised the following grounds. '' On the facts and in present circumstances of the case, the ld. CIT(A) has erred in:- 1. Relying upon the decision of Hon'ble Supreme Court in the case of M/s Arihant Tiles & Marbles Pvt. Ltd. where the facts are entirely different from the facts of the case under consideration 2. In allowing exemption u/s 10B of Income Tax Act of Rs. 32,49,937/- without considering the fact that the deduction u/s 10B of the Income Tax Act is allowable only on export of slabs and tiles and not on export of marble blocks.'' 4.2 During the course of hearing, the ld. counsel for the assessee at the very outset stated that this issue is covered in favour of the assessee by the judgement of Hon'ble Supreme Court in the case of ITO vs Arihant Tiles & Marbles Pvt. Ltd. (supra) and also order dated 20-04-2012 in assessee's own case for the assessment years 2003-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they become polished slabs and tiles. In the circumstances, on the facts of the cases in hand, there is certainly an activity which will come in the category of "manufacture" or "production" under section 80-IA. Looking to the nature of the activity stepwise, the subject activity certainly constitutes "manufacture or production" in terms of s. 80-IA. Blocks converted into polished slabs and tiles after undergoing the process certainly results in emergence of a new and distinct commodity, The original block does not remain the marble block, it becomes a slab or tile. In the circumstances; not only there is manufacture but also an activity which is something beyond manufacture and which brings a new product into existence and, therefore, on the. facts of these cases, the High Court was right in coming to the conclusion that the activity undertaken by the respondents did constitute manufacture or production in terms of section. 80-IA". Accordingly it was concluded that conversion of marble blocks into polished slabs and tiles constitute manufacture or production as it results in emergence of a new and distinct commodity, and therefore, the assessee undertaking is entitled to benefit u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities below but could not controvert that this issue is covered by the aforesaid order dated 20-04-2012, in assessee's own case. 7.4 After considering the submissions of both the parties, it is noticed that while deciding the appeal for the assessment years 2003-04 and 2006-07 in ITA Nos. 302 & 302/Jodh/2010, it has been held vide para 9.1of the order dated 20-04-2012 as under:- ''9.1 Regarding trading addition, the Id. CIT (A) has given a fact of finding that there is no defect in the maintenance of record from which it can be said that assessee has manipulated its profit. Therefore, the trading addition was deleted. Alternatively, it was also observed by Id. CIT (A) that even if trading addition is sustained, then also deduction under section 10B will be allowable on the same as the trading addition is made on account of manufacturing. activity. Therefore, we see no unreasonableness in the findings of ld. CIT(A) on this aspect. Accordingly, we confirm his order on this issue also.'' 7.5 We therefore, without going into the details of the disallowance and by following the aforesaid order of the ITAT Jodhpur bench, are of the view that even if this disallowance of Rs. 96,000/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Other expenses paid Rs. 3,61,682/- 3. Ocean Freight Paid Rs. 4,87,407/- 4. Other expenses paid Rs. 1,50,960/- 5. Service Tax Paid Rs. 1,21,869/- 6. Ocean Freight Paid Rs. 3,34,623/- Total Rs. 73,98,549/- 9.3 Accordingly, the Assessing Officer issued notice to the assessee u/s 154 of the Act. However, the Assessing Officer accepted the contention of the assessee with regard to interest income of FDR amounting to Rs. 6,164/- and Rs. 10,638/- being interest on security and both income were treated as eligible for deduction u/s 10B of the Act, the balance amount of Rs. 5,80,976/- was not treated as eligible for deduction u/s 10B of the Act and disallowed by passing the order u/s 154 of the Act. As regards the issue relating to disallowance u/s 40(a)(ia) of the Act, it was stated by the assessee before the Assessing Officer that service tax of Rs. 1,21,869/- was paid to Central Govt. account and the same did not attract TDS and no TDS liability arose on reimbursement of the expenses The Assessing Officer accepted the contention of the assessee in respect of payment of service tax but as regards the other payment amounting to Rs. 72,76,680/-, it has been held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the Assessing Officer u/s 40(a)(ia) of the Act by observing in para 4.3 of his order as under:- ''4.3. I have considered the submission of the appellant as well as the order passed under section 154 . The appellant stated that it is an 100% export oriented unit eligible for exemption under section 10B. In this regard it is seen that the A.O. has relied upon the circular No.715 dated 08.08.1995 for upholding that the TDS liability is applicable on the reimbursement of expenses which are in the nature of ocean fight paid and other expenses paid by the assessee being an exporter. As per the appellant, this issue was examined by the A.O. during the original assessment proceedings under section 143(3) dated 29.12.2009 . It is seen that in the original order passed by the A.O. under section 143(3), the A.O. has made computation at page 5 of the order for purpose 40(a)(ia) and has specifically excluded the above amounts for determining the disallowance under section 40(a)(ia) From this it is apparent that this exclusion has been made after considering the issue. Further, applicability of TDS on the reimbursement of expenses in the case of exporters i.e. Ocean freight paid and o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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