9911796707
TMI Blog2016 (11) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... nulment of the assessment order passed by the Assessing Officer u/s 147/143(3) of the I.T. Act. According to Learned D. R. the assessee is to challenge the jurisdiction to make the assessment u/s 147 within the prescribed time of 30 days as provided u/s 124(3)(a) of the I.T. Act. Learned counsel for the assessee, on the other hand, vehemently contended that the Revenue has challenged the order of the CIT(A) annulling the assessment passed u/s 147/143(3) only on the ground that the assessee failed to challenge the jurisdiction within the prescribed time of 30 day as per section 124(3)(a) of the Act. The provisions of section 124(3)(a) are apparently clear. This clause is applicable in the case of the assessee who has filed the return u/s 139(1) of the Act. Clause (b) of the said section is applicable to the assessee who has not filed such return of income. The assessee has filed the return of income u/s 139(1) of the Act on 30/09/2008 for the impugned assessment year at an income of Rs. 7,120/-, therefore, it is only the provision of section 124(3)(a) which is to be looked into. The provision of section 124(3)(a) of the Act do not provide for any time limit for questioning the juris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time allowed by the notice under sub-section (2) of section 115WD or sub-section (1) of section 142 or under sub-section (1) of section 115WH or under section 148 for the making of the return or by the notice under the first proviso to section 115WF or under the first proviso to section 144 to show cause why the assessment should not be completed to the best of the judgment of the Assessing Officer, whichever is earlier." 3.1 From the reading of section 124(2)(a) of the Act, it is seen that this section mandates that no person shall be entitled to call in question the jurisdiction of an Income Tax Officer after the expiry of one month from the date on which he has furnished the return u/s 139(1) from the date on which he was served with a notice under sub section (1) of section 142 or sub section (2) of section 143 or after the completion of the assessment whichever is earlier. Clause (a) of section 124(3) does not talk of any time limit for questioning the jurisdiction of the Assessing Officer for the service of notice u/s 148 of the Act. This provision provides a time limit of one month to question the jurisdiction of the Assessing Officer to issue notice u/s 143(2) and 142 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant to grant the said approval under section 151 of the Act. Hence, I hold that the reassessment on the basis of an illegal notice under section 148 of the Act is not sustainable and accordingly I annul the assessment order passed by the AO in consequence of the notice under section 148 of the Act which was invalid. Ground of appeal numbers 2 and 3 are allowed." 3.2 The Revenue has not come in appeal against the aforesaid finding of CIT(A). Even if the first ground of appeal taken by the Revenue is allowed, the finding of the CIT(A) that the assessment order passed u/s 147 read with section 143(3) will remain to be final and the ground taken by the Revenue will become to be infructuous. In view of the aforesaid discussion, we dismiss ground No. 1 taken by the Revenue. 4. The second ground taken by the Revenue relates to the claim of the assessee u/s 80IC, which was disallowed by the Assessing Officer but allowed by the CIT(A). The facts relating to this ground are that the Assessing Officer found that there had been search in the case of the assessee and during the course of search conducted at the residential and business premises, the statement of the employee of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m each other. The finished goods manufactured by the appellant are used in various industries which include Skin care products, Detergents and toilet soaps, Consumer edibles, Incense Sticks and room fresheners etc, Industrial perfumes and Flavors used by pan masala and other industries. The manufacturing activity carried on by the appellant is explained as under - The process of manufacture involves, melting, grinding, mixing, stirring at optimal temperature to produce a distinct product. There is a proper reaction amongst the products to produce a distinct flavor or fragrance. It may be submitted that a perfume or a flavor may involve from as less as 10 to as much as 50 raw materials to manufacture the product. Furthermore, a raw material may have 0.1% to even 50% of the constitution of finished goods. The raw materials have to be added in a proper chronological manner and a proper formulation without which the finished goods cannot be produced. 6(6)(ii) Some of the features explained by the appellant outline the following significant characteristics - * Mixing has to be done at controlled temperatures to get the desired chemical reaction. * The finished goods are themselv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmulations, R & D etc. 6(8) The facts and evidences brought on record therefore clearly establish that the activity carried on by the appellant is manufacturing process where a finished product distinct from the raw material has come into existence. The appellant is registered with Excise Department. The Hon'ble Supreme Court in the case of Arihant Tiles & Marbles Pvt. Ltd. 320 ITR 79 (SC) has observed that when the activity undertaken by the assessee involves levy of excise duty then to say that the said activity does not amount to manufacture or production under section 80IA of the Act will have disastrous consequences. The appellant has demonstrated that it is engaged in the manufacturing of article and things. It fulfills all the essential conditions for availing deduction under section 80IC of the Act. I therefore direct the AO to allow deduction of Rs. 31,31,98,995/- to the appellant. The appellant gets consequent relief." 5. We have heard the rival submissions, carefully considered the same along with the orders of the tax authorities below as well as the documents placed before us. The only question before us is whether the assessee is engaged in manufacturing activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the process of manufacture involves melting, grinding, mixing, stirring at optimal temperature to produce a distinct product. There is proper reaction amongst the products to produce a distinct flavor or fragrance. It was submitted that a perfume or a flavor may involve from as less as 10 to as much as 50 raw materials to manufacture the product. Furthermore, a raw material may have 0.1% to even 50% of the constitution of finished goods. The raw materials have to be added in a proper chronological manner and a proper formulation without which the finished goods cannot be produced. The mixing has to be done at controlled temperatures to get the desired chemical reaction. The finished goods are themselves a result of chemical reactions only. Several raw materials used by the assessee are hazardous chemicals, which are not per se fit for human consumption or application. However, scientifically derived formulations, whereby other chemicals and substances are mixed with the material, such that the hazardous properties are removed, are used by the assessee. Several natural oils and flavors, which may otherwise rot/decay with passage of time, and are in concentrated form are required to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o.1853/Del/2015 (xii) Aspinwall & Co. Ltd. vs. CIT [2001] 251 ITR 323 (SC) 5.3 Learned counsel for the assessee vehemently contended that if this Tribunal wants to verify whether the product or the article produced by the assessee is different from the raw material having the different market value and which cannot be reconverted into the raw material, this Tribunal can verify the same by visiting the industrial unit of the assessee. After having the discussion with D.R, we decided to call for the demonstration of the manufacturing process of the assessee in respect of one of the item and therefore, the case when it was initially fixed for 14/09/2016 when the detailed argument has taken place, adjourned the case for 15/09/2016 to see the demonstration of two of the products of the assessee i.e. sweet gulab and compound bela. 5.4 On 15/09/2016 the representative of the assessee appeared along with three chemical engineers of the assessee company having different chemicals in small bottles along with the induction and glass jars. The assessee first demonstrated how the sweet gulab is manufactured. The chemical engineer showed us 15 items out of which two were in solid form while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter and use. We noted that the provision of section 80IC was inserted in the statute by the Finance Act, 2003 with effect from 2004. Section 80IC nowhere defines the word 'manufacture' or 'production' of an article. We noted that the word 'manufacture' or 'production' of an article or thing has also been used u/s 80IA as well as u/s 10B of the Act. Section 10B defined the word 'manufacture' for the purpose of the said section to include any - (a) process or (b) assembling or (c) recording of programme on disc, tape, perforated media or other information storage device. Thus, 'process' was included within the word manufacture for the purpose of sec. 10B. Explanation (iv) of the said sec. 10B further provided that the word 'produce' for the purpose of said section, in relation to any article or thing shall include production of computer programme. CBDT vide its circular no. 528 dated 16/12/1988 176 ITR ST. 154 explained the [provisions enacted by the Finance Act, 1988 under para 8.2 of the circular. In this circular, CBDT had clearly explained that the said new sec. 10B had been inserted in the statute book with a view to provide further incentive for earning foreign exchange so as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (29BA) was inserted in section 2 of the Income Tax Act, 1961defining the expression "manufacture" as under: "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. 5.11 In Chowgule & Co. Pvt. Ltd. Vs. Union of India (1981) 1 SCC 653 Hon'ble Supreme Court, after considering the judgment of Hon'ble Bombay High Court in Nilgiri Ceylon Tea Supplying Co. Vs. State of Bombay (1959) 10 STC 500 (Bom.), clearly observed on the question whether the blending of ore, whilst loading it in the ship by means of the mechanical ore handling plant, constituted 'manufacture or processing or ore for sale within the meaning of section 8(3)(b) and Rule 13 of the Central Sales Tax Act, 1956. Dealing with this question, their lordships held and observed at pages 659 and 660 of the reports as under:- "It still remains to consider whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng plant experience change in their respective chemical and physical composition, because what is produced by such blending is ore of a different chemical and physical compositions. When the chemical and physical composition of each kind of ore which goes into the blending is changed, there can be no doubt that the operation of blending would amount to "processing" of ore within the meaning of Section 8(3)(b) and Rule 13. It is no doubt true that the blending of ore of diverse physical and chemical compositions is carried out by the simple act of physically mixing different quantities for such ore on the conveyor belt of the mechanical ore handling plant, but to our mind it is immaterial as to how the blending is done and what process is utilized for the purpose of blending. What is material to consider is whether the different quantities of ore which are blended together in the course of loading through the mechanical ore handling plant undergo any change in their physical and chemical composition is a result of blending and so far as this aspect of the question is concerned, it is impossible to argue that they do not suffer any change in their respective chemical and physic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese units in manufacturing. 5.13 Further, in CIT Vs N.C. Budharaja & Co. (1993) 204 ITR 412 (SC), Hon'ble Supreme Court further observed that the word "production" is much wider than the word "manufacture". It was said (page 423): "The word "production" has a wide connotation than the word "manufacture". While every manufacture can be characterized as production, every production need not amount to manufacture... The word 'production' or 'produce' when used in juxtaposition with the word 'manufacture' takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods." 5.14 In Christian Mica Industries Ltd. Vs. State of Bihar (1961) 12 STC 150 (SC), Hon'ble Supreme Court defined the word 'production', albeit, in connection with the Bihar Sales Tax Act, 1947. The definition was adopted from the meaning ascribed to the word "production" in the Oxford English Dictionary, as meaning "amongst other things that which is produced; a thing that results from any action, process or effort, a product; a product of human act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meaning of the proviso to clause (a) of Section 8, because there was "not even application of mechanical force so as to subject the commodity to a process, manufacture, development or preparation" and the commodity remained in the same condition. The argument of the Revenue before us was that this decision of the Bombay High Court was on all fours with the present case and if the blending of different brands of tea for the purpose of producing a tea mixture in accordance with a formula evolved by the assesses could not be regarded as 'processing' of tea, equally on a parity of reasoning, blending of ore of different chemical and physical compositions could not be held to constitute 'processing' of the ore. Now undoubtedly there is a close analogy between the facts of Nilgiri Tea Company case [10 STC 500 (Bom HC)] and the facts of the present case, but we do not think we can accept the decision of the Bombay High Court in the Nilgiri Tea Company case [10 STC 500 (Bom HC)] as laying down the correct law. When different brands of tea were mixed by the assessee in Nilgiri Tea Company case [10 STC 500 (Bom HC)] for the purpose of producing a tea mixture of a different kind and qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent into the mixture; (ii) There are, it is true, some observations in the judgment of the Bombay High Court which seem to suggest that if instead of manual application of energy in mixing the different brands of tea, there had been application of mechanical force in producing the tea mixture, the court might have come to a different conclusion and these observations were relied upon by the assessee, since, in the present case, the blending was done by application of mechanical force, but that is not the correct test to be applied for the purpose of determining whether the operation constitutes is 'processing'. (iii) The question is not whether there is any manual application of energy or there is application of mechanical force. Whatever be the means employed for the purpose of carrying out the operation, it is the effect of the operation on the commodity that is material for the purpose of determining whether the operation constitutes "processing". 5.18 Therefore, Hon'ble Supreme Court, in construing the expression "processing" allowed the appeal of the assessee, in Chowgule & Co. Pvt. Ltd. (supra), holding, inter alia, that where any commodity is subjected to a process or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... packing of tea for export and was not manufacturing or producing any other article or thing. It was recognized as a 100% EOU division and the Department had no case that the assessee's unit engaged in export of tea bags and tea packets was not a 100% EOU. If exemption was denied on the ground that products exported were not produced or manufactured in the industrial units of the assessee's 100% EOU, it would defeat the very object of section 10B of the Act. (similar to assessee's case). Further, industrial units engaged in the very same activity, i.e., blending, packing and export of tea in the special economic zones and free trade zones, would continue to enjoy tax exemption under section 10A of the Act and section 10AA of the Act respectively. The assessee was allowed exemption on the profit derived by its 100% EOU engaged in blending, packing and export of tea bags and tea packets. Hon'ble High Court held as under: "The finding of this court is that the purpose of incorporation of section 2(r) of the Special Economic Zones Act, 2005, into section 10AA of the Income-tax Act is to provide a liberal meaning to the word "manufacture" which takes in even blending, refrigeration, et ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, free trade zones and to 100 per cent export oriented units covered by sections 10A, 10AA and 10B of the Income- tax Act. Therefore, following the judgment of this court above referred to we hold that the assessee is entitled to exemption on the profit derived by its 100 per cent export oriented unit engaged in blending, packing and export of tea bags and tea packets. Consequently, we allow the appeals by reversing the orders of the Tribunal and by restoring the orders of the first appellate authority declaring the appellant's entitlement for exemption." 5.20 Hon'ble high court in this case, in our opinion, has clearly laid down that once the assessee is recognized as a 100% EOU for engaging in an activity and assessee is engaged in the same very activity, if the exemption is denied to the assessee on the ground that there is no production or manufacturing but only processing of the products exported in the 100% export oriented unit, the same would defeat the very object of section 10B. The Hon'ble high court took the view that the decision of the Hon'ble Supreme Court in Tara Agency's case 292 ITR 444 will not apply even though Hon'ble Supreme Court in that case has held that b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act in respect of its 100% EOU for export of manufactured jute bags, packet tea, tea bags, bulk tea, etc. The AO rejected the claim of assessee of exemption u/s 10B in respect of export of blending of tea. The rejection of exemption u/s 10B was confirmed by the CIT(A). When the matter went before the special Bench, Special Bench after discussion the relevant provisions as well as the various decisions of High Court and the Supreme Court held as under:- "32. The provisions of section 10AA of the Act was inserted on the statute book by the Special Economic Zones Act, 2005 w.e.f. 10.02.2006. Even prior to the enactment of the said SEZ Act, Special Economic Zones (including units therein) were all along treated like EQU / FTZ / EPZ for all purposes whatsoever and were dealt within the Exim Policy accordingly. Section 2(k) of the Special Economic Zone Act, 2005 defines the expression "Existing Special Economic Zone" to mean every Special Economic Zone which is in existence on or before the commencement of the said Act. Section 2(e) defines the expression "existing unit" to mean every unit which has been set up on or before the commencement of the said Act in an existing Special Eco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s conferred by section 30(5)(3) of The Tea Act, 1953, the expressions "manufacturer", "Buyer", "Packet Tea", "Tea Bag",- "Green Tea", "Quick Brewing Black Tea", "Instant Tea" and "Made Tea" have also been distinctly and separately defined. Clause (29BA) was inserted in section 2 of the Income Tax Act, 1961 by the Finance (No.2) Act, 2009 w.e.f. 01.04.2009 to define the expression "manufacture" as under: "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; The aforesaid definition of the expression "manufacture", although brought into the statute book w.e.f. 01.04.2009, was applied by the Hon'ble Supreme Court even for the assessment year 2001-02 in ITO v. Arihant Tiles and Marbles Pvt. Ltd. (2010) 320 ITR 79, 82 (SC) on the ground that Parliament had taken note of ground reality in inserting section 2(29BA) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l as the Rules and Regulations framed by the Tea Board and also Calcutta Tea Traders Association from time to time as discussed above. 35. We find from the above facts and circumstances and case laws relied on by both the sides that the assessee was exclusively engaged in blending, packaging and export of tea bags, tea packets and bulk tea packs. The assessee's division enjoys recognition as a 100% EOU, which is granted by the Development Commissioner, Ministry of Commerce & Industry, Govt. of India. The assessee claimed exemption u/s. 10B of the Act for AYs 2000-01 onwards, which was granted upto the AY 2003-04. However, for the AY 2004-05, exemption was declined for the reasons that by the Finance Act, 2000, the definition of `manufacture' which included 'processing' contained in section 1OB of the Act was deleted w.e.f. 01.04.2001. The argument of the department is that manufacture or production had liberal meaning under the definition clause contained in section 10B of the Act until its deletion which covers even processing and, therefore, blending "and packaging of tea for export was treated as 'manufacture' or 'production' of an article qualifyin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it includes processing, blending, packaging etc. In view of the above and respectfully following the decision of Hon'ble Kerala High Court in the case of Girnar Industries (supra) and Tata Tea Limited (supra), we "hold that the assessee is entitled for exemption under Section 10B of the Act on account of blending of tea. Similarly, in our view, the industrial units engaged in the very same activity i.e. blending, packing and export of tea in the free trade zone shall also be entitled to enjoy tax exemption under Section 10A of the Act. 37. Accordingly, we answer the question referred in favour of the assessee by holding that the assessees who are in the business of blending and processing of tea and export thereof, in 100% EOUs are manufacturer/ producer of the tea for the purpose of claiming exemption u/s.10B of the Act. Further, assessees who are in the business of blending and processing of tea hi respect of undertakings in free trade zones are manufacturer/producer of tea for the purpose of claiming exemption u/s. 10A of the Act. We have examined and discussed the facts in the case of Madhu Jayanti International Ltd. and found that there is blending of tea and consequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case when the assessee was engaged in the activity of cutting and polishing of marble blocks, the question before the Supreme Court was whether the activities undertaken by the assessee would fall within the meaning of the words 'manufacture or production' in section 80-IA of the Income-tax Act, 1961? In this case, Hon'ble Supreme Court, after discussing the definition of 'manufacture' given in section 2(29BA) of the Income-tax Act, 1961 and also discussing the provisions of section 80- IA(2)(iii) and after going through various decisions, held as under: "22. Applying the above tests laid down by this Court in CIT Vs. N.C. Budharaja and Co. 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 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, we are of the view that the High C ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
