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TMI Blog2014 (4) TMI 484X X X X Extracts X X X X X X X X Extracts X X X X ..... essees would put the imported material to series of manual and mechanical processes and through such exercise so undertaken, bring into existence entirely new, distinct and different commodities which are marketable – the Tribunal correctly came to the conclusion that this process amounted to manufacturing - the assessee, as an EOU is required to carry out manufacturing activity and on its DTA sales is also required to pay excise duty which admittedly, the assessee paid and excise department collected - It would be a dichotomy if on the same activity the assessees were to pay excise duty on the ground that the same amounted to manufacturing activity but would be declined deduction under the Income Tax Act on the ground that the same did not - the Tribunal has merely remanded the entire issue before the AO for fresh consideration - The assessing officer shall examine whether on DTA sales by the assessee, claim of deduction u/s 10B of the Act would be allowable. Deduction u/s 80IB and u/s 80HHC of the Act – Held that:- Any ground, legal contention or even a claim would be permissible to be raised for the first time before the appellate authority or the Tribunal when facts necessar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground of appeal taken by the revenue? 2. We would refer to facts arising in Tax Appeal No.2562 of 2009. It would be convenient to deal with Questions No.(1) and (2) together. First question pertains to Revenue s objection to the assessee s deduction under section 10B of the Income Tax Act, 1961 ( the Act for short) on the ground that the activity carried on by the assessee did not amount to manufacturing activity. The assessee being a 100% Export Oriented Unit ( EOU for short) had sold part of its goods to units situated in Domestic Tariff Area ( DTA for short), which were also EOUs and claimed deduction qua such profits also under section 10B of the Act. The Revenue contends that in any case such sales by the assessee in DTA would not qualify for deduction under section 10B of the Act. This has given rise to the second question noted above. 3. The respondent assessee is a 100% EOU and is engaged in the activity of segregation and processing of metal scrap of various natures. Out of such separate segregated scrap, part of it would be used by the assessee for manufacture of iron ingots. Some parts of the scrap would be reprocessed and resold. With respect to the details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the written submission made by assessee vide letter dated 20/10/2004 pressing for the deduction u/s.10B of the Act. He has rejected this submission that deduction u/s 10B is allowed only in case goods are exported out of India. He held that deemed export is not mentioned u/s. 10B therefore, deduction is not allowable u/s.10B on these sales. Learned CIT(A) has also disallowed the claim of the assessee on this ground. In the grounds of appeal assessee has stated that sales consideration is received in foreign currency relating to deemed exports whereas Ld CIT(A) has held that sales consideration is received in Indian currency. However, before us neither party has put that how deemed exports are defined under Export and Import policies vis a vis condition of deduction u/s 10B. No facts are also put before us by either party about receipt of sale proceeds vis a vis conditions envisaged u/s. 10B(3) of the IT Act. It is also not clear whether it is third party export or not. These facts are also not clear from the assessment order as well as appellate order of CIT(A). Therefore we set aside claim, of the assessee regarding deduction u/s.10B on deemed exports to the file of assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost of the times mechanically to remove jackets, upper layer and paper and for making them suitable for feeding in different cable cutting machines and stripping machines. After a process various strips in the cables are removed, the sorted cable scraps put in to cable cutting machine for cutting and stripping. Out of this process, several types of copper wire are generated. This process also generates several types of impurities such as plastic, dust and other metals. Clean copper material emerges out of this process, which is different and distinct from the cable wire scrap. The pure copper obtained from this process is then bailed in bailing machine. This makes this metal in different sizes and weights as required. Then this material is packed and exported. a) Mix Metal Scrap Mix metal scrap is imported from various countries. This scrap is consisting of several substances such as stones, rubber, steel, metal-ferrous as well as non-ferrous etc. It is generally the scrap generated from dismantling of buildings or other structures and plants etc. after importing them several processes are being carried out manually and mechanically through various machines and Metal is deriv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a person should be engaged in manufacturing or production. Anybody not doing manufacturing is not granted EOU status. During the course of hearing the ld.AR drawn out attention to section 10AA in IT Act granting tax benefits to SEZ (Special Economic Zone) units and the definition of manufacture was same as section 2(r) of SEZ Act, 2005. That definition was very wide and included the process of cutting, repair; assemble etc, within the meaning of manufacture. As per section 10B has to be understood as per Income Tax Act. We find that the word Manufacturing is also defined in DGFT and similarly, about the definition of manufacturing in SEZ Act, 2005. We find that the definition used in section 10B has to be read altogether and what shown in the definition of manufacturing in Custom Act cannot be same while examining the claim of the assessee u/s. 10B of the Act. 23. We have examined the basic requirement of word Manufacturing and Production . The assessee has used three types of raw material viz. mixed cable scrap, mixed metal scrap and old/used transformers. An electric cable is a product which contains a plastic cover, a protecting access sheet or wire mesh, below that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is melting the final scrap material obtained from any of these processes and foundry to make ingots. We find that this activity there is no doubt that it amounts to production. Although the AO has denied the entire claim, it is submitted by the learned AR of the assessee that in some other cases, the AO has considered the activity of making ingots as manufacturing. 12. The term manufacture was not defined in the Act till the year 2009. Currently under section 2(29BA) introduced with effect from 1.4.2009, the term manufacture is defined as under:- 2(29BA) manufacture , with its grammatical variations, means a change in a non-living physical object or article or thing,- (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use;or (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure; 13. The Central Excise Act, 1944 contains definition of the term manufacture in section 2(f) as under:- 2(f) manufacture includes any process- (i) incidental or ancillary to the completion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticle must emerge having a distinct name, character or use. Reference may be made in this respect to the decision of the Supreme Court in the case of M/s. Tungabhadra Industries Ltd., Kurnool vs. The Commercial Tax Officer, Kurnool reported in AIR 1961 SC 412. 17. In the present case, as pointed out by the counsel for the assessee, in case of mix cable scrap the material would be sorted and segregated in the factory in different diameters of various lengths. Thereafter, jackets and upper layers would be removed mechanically in order to make them suitable for feeding in different cable cutting machines and stripping machines. Thereafter various strips in the cables are removed and sorted cable scrap would be put in cable cutting machines for cutting and stripping. In the process, several types of copper wires would be generated. Impurities such as plastic, dust and other metals would be separated through this detailed process and clean copper material would be sold after baling them on the baling machines and packing for export sale. 18. Likewise, mix metal scrap would consist of several substances such as stones,rubber,steel, ferrous as well as non-ferrous metals. This would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nufacture' or 'production'. Therefore, the word 'production' cannot derive its colour from the word 'manufacture'. Further, even according to the dictionary meaning of word 'production', the word 'produce' is defined as something which is brought forth or yielded either naturally or as a result of effort and work (see Webster's new international dictionary). It is important to note that the word 'new' is not used in the definition of the word 'produce'. 21. In the case of Income-tax officer vs. Arihant Tiles and Marbles P.Ltd. reported in [2010] 320 ITR 79 (SC) in the context of the assessee s claim for deduction under section 80IA of the Act on its activity of cutting and polishing marbles, the Apex Court held and observed as under:- 22. Applying the above tests laid down by this Court in Budharaja's case [1993] 204 ITR 412(SC) to the facts of the present cases, we are of the view that blocks converted into polished slabs and tiles after undergoing the process indicated above certainly results in emergence of a new and distinct commodity. The original block does not remain the marble block, it becomes a sl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut any observations and/or directions, we do not see any reason to interfere. The assessing officer shall examine whether on DTA sales by the assessee, claim of deduction under section 10B of the Act would be allowable. It is clarified that whether the remittances on such sales have been received in foreign exchange or not would be just one of the additional aspects of the matter. 24. It would be useful to club Questions (3) and (4) for common consideration. Both questions pertain to Revenue s stand that the assessees could not have raised a new claim for the first time before CIT(Appeals)without revising return before the assessing officer. 25. Question (3) pertains to such fresh claim under section 80IB of the Act. Question No.(4) pertains to the assessees claim under section 80HHC of the Act. Legal issue is, however, common. 26. Brief facts are that in the return filed, the assessees did not raise any claims under section 80IB or 80HHC of the Act. (In the case of Mitesh Implex Tax Appeal No.2562 of 2009, such claim was though initially made but later on dropped by filing revised return). In appeal before CIT(Appeals) such claims were made. In the case of Mitesh Implex, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 37. In the instant case, on hand, the assessee has filed all the required documents before AO. We find that in support of the claim, audit report in form no.10CCAC was also submitted and that claim was also forwarded to the AO. Therefore, we are of the view that CIT(A) is justified in allowing the claim. As about the deduction u/s. 80IB, the condition required for being eligible to the deduction are similar to that of the conditions applicable for section 10B. Moreover, there is specific bar in granting two benefits. The audit report in form no.10CCB was furnished in support of the claim. The provision of section 10B(6) applied to post holiday period applicable for section 10B. Therefore, when the assessee is eligible for deduction under section 80IB. However, first part of production of assessee held not to be from manufacturing activities, the profit derived from the undertaking is eligible for deduction is to be proportionately reduced. Secondly, the quantum of deduction under section 10B is to be reduced from the business profit from the eligible profit for undertaking for computing the deduction under section 80IB. Accordingly, the deduction under 80IB has to be recomput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f appellate power. Even otherwise an Appellate Authority while hearing appeal against the order of a subordinate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations if any prescribed by the statutory provisions. In the absence of any statutory provision the Appellate Authority is vested with all the plenary powers which the subordinate authority may have in the matter. There appears to be no good reason and none was placed before us to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income Tax Officer. 32. In case of National Thermal Power Co. Ltd. vs. Commissioner of Income-tax reported in [1998] 229 ITR 383 (S.C.) when the question of law was raised for the first time before the Tribunal though facts were already on record, the Supreme Court observed that there is no reason why the assessee should be prevented from raising such a question before the Tribunal for the first time so long as the relevant facts are on record in respect of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a pragmatic view and not a technical one as to what is required to be determined in taxable income. In that sense assessment proceedings are not adversarial in nature. With these observations Court confirmed the view of the Tribunal reversing the decision of the assessing officer rejecting the claim of the assessee on the ground that no revised return was filed. 37. In case of Commissioner of Income-tax, Gujarat-I vs. Cellulose Products of India Ltd. reported in [1985] 151 ITR 499, full Bench of this Court held that merely because a ground has not been raised though it could have been raised in support of the relief sought in the appeal, it cannot be said that such ground cannot be raised before the Tribunal. Such ground can be raised provided it falls within the contours of the subject matter of the appeal. 38. It thus becomes clear that the decision of the Supreme Court in the case of Goetze (India) Ltd. vs. Commissioner of Income-tax (supra) is confined to the powers of the assessing officer and accepting a claim without revised return. This is what Supreme Court observed in the said judgment while distinguishing the judgment in the case of National Thermal Power Co. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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