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TMI Blog2016 (8) TMI 1518X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006-07. This ground of appeal of the assessee is dismissed. Deduction u/s.10B - manufacturing activities under section 2(29BA) - as assessee has not discharged the onus of proving that the undertaking was set up without transferring any machinery used for any other purpose earlier Revenue has denied the deduction claimed u/s.10B - HELD THAT:- Assessee-company has not undertaken any manufacturing activity. The assessee has not manufactured any new article or thing distinct from the original raw material. The final product i.e., article or thing cannot be called by any other name than the original name. The assessee has purchased live crab and finally sold the crab in the form of meat. The assessee does only processing activity for the purpose of preservation and marketing the same. The assessee purchased crab from fishermen and sells to the public/customers. Whatever activity is undertaken by the assessee is for only to preserve the product. Whereas the contention of the ld.A.R is that at the time of purchase from the fishermen/agents, it was live crab and it was undergone various manufacturing activities before selling it for human consumption. After purchase of the live c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... First we take up ITA No.499/Mds./2016 (A.Y.2006-07) 2. The First ground for our consideration is with regard to validity of reopening of assessment after the assessee disclosing all the details along with the return of income, since the AO had not found any fresh information to reopen the assessment. 3. The brief facts of the case are that the assessee is a company engaged in the business of manufacturing, processing and export of sea foods of all kind. The assessee is having one 100% Export Oriented Unit(EOU) at Tuticorin which processes pasteurized crab meat in respect of which deduction u/s.10B was claimed. The assessee filed its return of income on 26.10.2006 admitting income of ,23,39,780/-, which was accepted u/s.143(1). In the assessment made the entire claim of 3,21,08,861/- u/s.10B was allowed. Subsequently, the AO reopened the assessment u/s.148 after recording the reasons as under:- For assessment year 2008-09, the claim u/s.10B was disallowed and brought to tax in the order passed u/s.143(3) dated 24.12.2011 since the basic conditions laid down in sec.10B(2)(i) and 10B(2)(iii) are found not satisfied. For allowance of deduction u/s.10B, all the conditions l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year and also the claim of the assessee that there is no failure on the part of the appellant to disclose the material facts is not applicable as this is not a case where the original assessment was completed u/s.143(3) and four years lapsed from the end of the Asst. year. According to Ld.CIT(A), the Assessing Officer has correctly recorded the reasons which led him to form a belief that there was escapement of income and he has also taken the approval of Addl.CIT before issuing notice u/s.148. According to Ld.CIT(A), the assessee objected to reopening of assessment after obtaining the reasons recorded from the Assessing Officer and the same was disposed by the Assessing Officer by his order dated 06.03.2014 in which he has mentioned that only based on the documents which were filed by the assessee during the course of assessment proceedings for Asst.year 2008-09, the Assessing Officer could form an opinion that there was escapement of income. This means that the documents filed during the course of assessment proceedings for Asst.year 2008-09, would constitute tangible material / information based on which the Assessing Officer reopened the assessment. Ld.CIT(A) was of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld.D.R argued in support of reopening of assessment. 6. We have heard both the parties and perused the material on record. The main contention of the ld. AR is that reassessment was completed after the expiry of four years from the end of the relevant assessment year though there was no failure on the part of the assessee to disclose fully and truly all material facts for the purpose of assessment. It is an admitted fact that in this assessment year, there is no assessment u/s.143(3) of the Act. The return was processed u/s.143(1) of the Act. Being so, 1st Proviso to sec.147 cannot be applied in the case of the assessee to restrict the AO to reopen the assessment after the expiry of four years from the end of the relevant assessment year. Further, as argued by the ld. DR while framing the assessment for the assessment year 2008-09, it came to the knowledge of the AO that the assessee has not fulfilled requisite conditions laid down in sec.10B of the Act and the assessee could not be said to be a manufacturer and producer of any article or thing as specified in sec.10B of the Act. It is also came to the knowledge of the AO that the machineries used by the assessee were earlier u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act only in Explanation 10AA of the Income Tax Act. It is only by Finance Act, 2009 w.e.f.1.4.2009 the term manufacture was specifically defined under the Act in sec.2(29BA). In the said definition the scope of the word manufacture was restricted to non-living physical object. The observation of the Ld.CIT(A) that [page 10 para 4.2 of the appellate order for the ASSESSMENT YEAR 2006-07) the definition of manufacture was inserted in the IT act by considering all the judicial pronouncement which were on the subject is amiss, since, if the intent of the legislature was so, than the definition of the word manufacture would have been with retrospective effect and not prospective. The observation of the learned CIT(A) only supports the case of the Appellant. 2. It is only after the definition of the word manufacture in section 2(29BA) of the Income Tax Act, the processing, preservation, packaging of meat and meat products or poultry or marine products or dairy products was removed from the realm of manufacturing activity. Proviso to section 80IB(11A) was introduced w.e.f 1.4.2010. 3. Although section 801B(11A) of the Income Tax Act was effective from 1.4.2002. It is only after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oved the judgement in the case of Marwell sea foods reported in 166 ITR 624 (Ker) and has not found any defect in the judgement of the Hon ble Kerala High Court. 6. According to the ld. AR, the Judgment of the Kerala High Court in the case of Marwell sea Foods stands approved by the Full Bench of the Kerala High Court in the case of Bharath Sea foods reported in 237 ITR 46. 7. The Appellant in the instant case is recognized as an industrial undertaking and also as a 100% EOU for the purpose of manufacturing pasteurized canned crab. The Appellant is also registered as manufacturer under the Central Excise Act and Sales Tax Act. The manufacturing operation in the abovementioned 100 % EOU unit involves various activities such as boiling, cooling, removing shells, segregating the crabs into various parts, grading the crabs according to sizes, places of catch etc before converting the live crab into edible canned product. The pasteurization and canned meat is quiet distinct from the raw material-and the rnanufacturing activity is undertaken with various machinery items and skilled labour. The case of Sterling foods reported by the learned assessing officer and CIT(A) is on a fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cks otherwise can also be produced by conventional o.r natural method the only difference seems to be that, by application of mechanical methods, the mortality rate of chicks is less and the assessee may get chicks more in number. This, however, would not mean that the assessee produces chicks. 8.2 He submitted that in the light of the Judgement of the Kerala High Court in the case of Marwell Industry reported in 166 ITR 624 which stands approved by the Full Bench of the KeralaHigh Court in the case of Bharath Sea foods reported In 237 ITR 46 and in the absence of definition of the term manufacture in the Income Tax Act until 1.4.2009 and in the light of the Judgment of the Hon ble Apex Court in the case of Aspinwall Co that in the absence of a defihition of the word manufacture1 it has to be given a meaning as is understood in common parlance and the explanation of the term manufacture being given only Explanation to sec.1OAA of Income Tax Act. I is humbly submitted that prior to 1.4.2009 the word manufacture should be assigned the meaning it is given in Explanation to section 1OAA of the Income Tax Act and that processing, preservation, packaging of meat and meat products ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing of crab meat was never put to use and that no depreciation was ever claimed by the firm on any of the machineries sold to the Appellant. The fact that the firm has not claimed depreciation on the machineries sold to the Appellant is confirmed/ affirmed by the assessing officer of M/s. Baby Marine Exports based on the queries made by the assessing officer of the Appellant company(Annexure Vu-A B of the typed set furnished before CIT(A)). (iv). The Marine Products Export Development Authority, a agency under Ministry of Commerce, Government Of India has certified that M/s. Baby Marine Exports did nt process and export pasteurized meat during the period when Baby Marine Exports was alleged to be in possession of processing plant . (v). The Appellant purchased .45 acres of land along with machinery from M/s. Baby Marine Product as per the. MOU dated 6.12.2001. The Appellant commenced commercial production, since 8.4.2002. The appellant is recognized as 100% EOU by the statutory authority for the purpose of producing pasteurized canned crab meat. (vi). The sequence, chronology of events mentioned in point no s (i), (ii), (iii) and (iv), supra, would factually establish t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a benevolent provision of law. (ix). According to the ld. AR, the Assessing officer seems to have been unduly influenced by the introduction of definition of the word Manufacture under section 2(29BA) of the Income Tax Act w.e.f 1.4.2009 as also to the insertion of proviso to section 801B(11A) of the Income Tax Act w.e.f :1.4.2010,. While the assessing officer had no ambiguity to the claim of the Appellant on eligibility of deduction under section 10B until the introduction of the aforesaid definition and proviso, however the assessing officer seems to have taken a diagonally opposite view after the introduction of the term manufacture in the statue and also with insertion of proviso to section 801B(11A). The assessing officer failed to look into the intent of the legislature while bringing in the definition to the word manufacture as well as the insertion of proviso to section 801B(11A). The legislature with no ambiguity has stated that the definition of the word Manufacture would be only w.e.f 1.4.2009 and the insertion of proviso to section 801B(11A) will be w.e.f 1.4.2010. (x). He submitted that the exercise carried out by the appellant for the A.Y.2008-09 would have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poultry business would not amount to manufacture or production of article or thing as it is a natural biological phenomena. Further, ld. DR submitted that as per sec/80IB(11A) undertaking, the assessee derived profit from the business of processing, preservation and packaging of meat and meat products or marine products shall be treated as eligible business for the purpose of allowing deduction u/s.80-IB, where the undertaking begins such business after 01.04.2009. Hence, the assessee was not engaged in the business of manufacture or production of article or thing within the meaning of sec.10B of the Act. Further, ld.D.R submitted that since the assessee has not fulfilled the conditions as provided in Sec.10B of the Act, the assessee cannot be treated as manufacture to claim deduction under this Sec.10B. 9.1 Further the ld. DR submitted that whether the appellant has fulfilled the condition laid down in sec.10B(2)(ii) (iii). It has to be examined whether the industrial undertaking was not formed by the splitting up or reconstruction of business already in existence and was not formed by transfer to a new business of machinery or plant previously used for any purpose. Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chinery, and some were imported from United States of America. To the best of our remembrance and knowledge, please find attached the details. From the above letter, it is clear that the invoices copies were not produced before the Assessing Officer. Sec.10B is to be allowed as deduction from the computation of total income and it is the responsibility of the assessee to prove that all the conditions are fulfilled with necessary evidences. Accordingly, the onus of proving the fact that the undertaking was not formed by transfer of machineries already used for other purchase squarely lies on the assessee. The appellant was unable to discharge this onus of proof before the lower authorities. Hence, it could not be assumed that M/s. Baby Marine Exports purchased only new machinery in India and few old machinery from USA based on the certificate issued by them. In any case as remarked by the Assessing Officer, the machineries were purchased in the year 1996 to 1998 whereas the same were transferred to the assessee only on 06.12.2001 and the appellant started commercial production on 08.04.2002. It is not clear why it took so much time and how M/s. Baby Marine Exports kept the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommenced commercial production on 08.04.2002 after purchasing the industrial undertaking from M/s. Baby Marine Exports. Hence, ld.D.R pleaded that appellant was unable to substantiate the claim that M/s. Baby Marine Exports set up the industrial undertaking only with the new machinery purchased in India in the absence of invoices for purchases by M/s. Baby Marine Exports. Therefore, the assessee has not discharged the onus of proving that the undertaking was set up without transferring any machinery used for any other purpose earlier. Accordingly, Revenue has denied the deduction claimed u/s.10B on this ground. 9.2 According to ld.D.R, as per Board s Circular No.07/DV/2013 dated 16.07.2013, it was clarified in para-5, 5.1,5,2 and 5.3 that only after setting off of losses from other units including ineligible units is to be considered for deduction u/s. 1oB. The relevant Paras i.e. 5, 5.1, 5.2,5.3 6 of the above circular are reproduced below :-. 5. From the above it is evident that irrespective of their continued placement in Chapter III, section WA and lOB as substituted by Finance Act, 2000 provide for deduction of the profits and gains derived from the export of articles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onditions specified in the said sections. In view of the above circular, even assuming but not admitting that the appellant is entitled to deduction u/s.10B, the same can be allowed only after the adjustment of losses of other units which are not entitled to deduction u/s.10B. 10. We have heard both the parties and perused the material on record. Now, the question before us is with regard to nature of activities carried on by the assessee whether it is manufacturer or production of an article or thing. The assessee in this case procured live crab from fishermen which are processed after cleaning and pasteurization and canned for ready to use the meat. According to ld.A.R, the amended provision of section 2(29BA) which was inserted by Finance No.92), 2009 with effect from 01.04.2009 cannot be applied to the assessee s case as the assessment year involved herein is 200607. Without going into the applicability of this provision, in our opinion we have to see whether the activities carried on by the assessee is manufacturing or processing activities. The deduction under section 10B is available to the undertaking which manufactures or produces any article or thing and exports th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of the live crab it is processed by various treatments which are cleaning, grading, separating, laboratory testing, preserving treatment and packing and labeling. After these treatments, the crab becomes a consumable crab for human consumption. There is no change in the biological component of the crab. It is to be noted that the live crab would have been used in the same manner as the crab meat is used for human consumption. There is no change in the substance using in live crab or using it as by extracting it as meat from the same live crab. The crab meat is crab meat only. In other words, live crab would be used for human consumption as crab meat used for human consumption. In other words, input and output is same, which is crab only. 10.1 It is well settled law that process of standardization, preservation, grading cannot be treated as manufacture activity or production. The ld.A.R placed reliance on the decision of Special Bench in the case of B.G. CHITALE v.DCIT, Solapur(115 ITD 97)(SB) Pune, wherein the special Bench held that pasteurization of milk is only processing of milk and milk remains milk, even after such processing, though more clean and more fit for consumpt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transfer to a new business of machinery or plant already used in business. Evidently, the conditions in clauses (i) and (ii) can only be examined at the time of formation of a unit, which is the initial year. Clause (iii), which is under consideration, does not imply any such interpretation. In our considered opinion, the import of the condition prescribed in clause (iii) is that the industrial undertaking ought to be a small scale undertaking in the year of claim of deduction, be it be the initial year or any of the subsequent years, so long as it manufactures products listed in the Eleventh Schedule. Quite clearly, in this case admittedly the assessee is manufacturing articles or things stated in the Eleventh Schedule and it does not quality to be a small scale industrial undertaking in the instant year and, thus, the said condition is not fulfilled. 10. Much has been argued by the appellant to the effect that the conditions are to be verified only in the initial year and such examination is not intended by the Legislature to be carried out in the subsequent years by the Assessing Officer. For this proposition, heavy reliance has been placed on the judgment of the Hon ble G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relief for the initial year. In the words of the Hon ble High Court, -- No doubt, the relief of tax holiday under section 80J can be withheld or discontinued provided the relief granted in the initial year of assessment is disturbed or changed on valid grounds. But without disturbing the relief granted in the initial year, the ITO cannot examine the question again and decide to withhold or withdraw the relief which has been already once granted. 11. As the aforesaid discussion shows, the matrix of the dispute in Saurashtra Cement Chemicals Ltd. (supra) stood on an altogether different footing. The assessment year in dispute was 1969-70, which was the second year of claim of deduction under section 80J of the Act. In the initial assessment year of 1968-69 the claim was allowed by treating the expansion in capacity as formation of a new industrial undertaking. Whether expansion in capacity amounted to formation of a new industrial undertaking was a condition required to be examined only in the initial year, and which was done in the course of assessment for the assessment year 1968-69, being the initial year. In the assessment year 1969-70, the Assessing Officer sought to den ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n relied upon by the appellant is in the case of Paul Brothers (supra) wherein the facts were as follows. In the case of Paul Brothers (supra), the issue related to jurisdiction assumed by the Commissioner under section 263 of the Act for assessment years 1981-82 and 1982-83 which was quashed by the Tribunal, which was appealed by the Revenue before the Hon ble High Court. The facts were that the assessee firm had branches in backward areas carrying on the business of construction of buildings, transportation and manufacture and supply of bricks. For the use in construction activity, assessee also manufactured windows, concrete slabs etc. For assessment years 1980-81 and 1981-82 it claimed deduction under section 80HH of the Act, which was allowed for the assessment year 1980-81 by the Assessing Officer without discussion and such assessment had become final. In the assessment year 1981-82 also the deduction was allowed by the Assessing Officer and while allowing deduction, reliance was placed on the judgment of the Hon ble Orissa High Court in the case of CIT v N.C. Budharaja Co 121 ITR 212 (Ori) which was the only decision then operating in the field. For the assessment year 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the result, we hereby affirm the orders of the authorities below denying relief to the assessee under section 80-IB of the Act. The assessee fails. In view of this above, in our opinion there is no merit in the argument of the ld.A.R that in earlier assessment year deduction u/s.10B was granted, even in the assessment year under consideration, the same view must be adopted. In our considered view, the assessee can be allowed deduction, but the satisfaction of the conditions envisaged in the law could not be said that it was fulfilled merely because it was erroneously allowed deduction in the earlier years. It is a settled position that res judicata is not applicable in the administration of tax laws. No vested right can be held to be created in favour of the assessee merely because of allowance or deduction in the earlier years which is not legally entitled to. In view of the above, we upheld the order of Ld.CIT(A) on denying the deduction u/s.10B of the Act. Since, we, have dismissed the main issue of allowability of deduction u/s.10B of the Act, at the threshold, there is no question of going to the other grounds raised by the assessee with regard to granting of deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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