V. N. Enterprises Ltd., Kolkata V. ACIT, Circle - 4, Kolkata, Kolkata

CO 121/KOL/2008

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 1268 (ITAT-KOLKATA)
• Duration Of Justice: 6 year(s) 9 month(s) 29 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 14-08-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 28-10-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 16-10-2008
• Court: TRIBUNAL
• Department Lawyers: DAVID Z CHAWNGTHU; DR ADHIR KR BAR
• Keywords: Commercial expediency
• Section: 10AA; 234B; 37(1); 10B; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOLKATA [BEFORE SHRI MAHAVIR SINGH, JM & SHRI B. P. JAIN, AM ] I.TA NO. 1 777 /KOL/20 0 8 ASSESSMENT YEAR : 200 2 - 0 3 DEPUTY COMMISSIONER OF INCOME - TAX, VS. M/S. V. N. ENTERPRISES LTD. CIRCLE - 4, KOLKATA. (PAN: A AAC V8991L ) (APPELLANT) (RESPONDENT) & C.O. NO. 121/KOL/2008 IN I.TA NO.1 777 /KOL/20 08 ASSESSMENT YEAR : 200 2 - 03 M/S. V. N. ENTERPRISES LTD. VS. DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE - 4, KOLKATA. (CROSS OBJECTOR) (RESPONDENT) & ITA NO. 1 818 /KOL/20 0 9 ASSESSMENT YEAR : 200 5 - 0 6 M/S. V. N. ENTERPRISES LTD. VS. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE - 4, KOLKATA ( APPELLANT ) (RESPONDENT) & ITA NO. 1761/KOL/2009 ASSESSMENT YEAR: 2005 - 06 DEPUTY COMMISSIONER OF INCOME - TAX, VS. M/S. V. N. ENTERPRISES LTD. CIRCLE - 4, KOLKATA. ( APPELLANT ) (RESPONDENT) & ITA NO.1379/KOL/2008 ASSESSMENT YEAR: 2003 - 04 M/S. V. N. ENTERPRISES LTD. VS. DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE - 4, KOLKATA. ( APPELLANT ) (RESPONDENT) DATE OF HEARING: 0 2 .0 7 .2015 DATE OF PRONOUNCEMENT: 1 4 . 0 8 . 2015 FOR THE REVENUE : DR. ADHIR KR. BAR , CIT, DR & SHRI DAVID Z. CHAWNGTH U , ADDL. CIT - DR FOR THE ASSESSEE/CROSS OBJECTOR : S/SHRI R.P. AGARWAL & J.M. THARD , ADVOCATE ORDER 2 ITA NO. 1777, 1379/K/2008, 1818, 1761/K/2009 & CO NO. 121/K/2008 M/S. V. N. ENTERPRISES L TD. AYS. 02 - 03, 03 - 05 & 05 - 06, PER BENCH : THESE FIVE APPEALS - T WO BY ASSESSEE , TWO BY REVENUE AND ONE CROSS OBJECTION BY ASSESSEE , ARE ARISING OUT OF ORDER S OF CIT(A) - IV KOLKATA IN APPEAL NO S . 158 /CIT(A) - IV/07 - 08 /C - 4 ; 225/ CIT(A) - IV /07 - 08 AND 46 /CIT(A) - IV /06 - 07 DATED 3 0 . 07 .20 0 8 , 3 0 .0 7 .200 9 & 2 3 .0 5 .2008 . ASSESSMENTS WERE FRAMED BY ACIT/DCIT, CIRCLE - 4, KOLKATA U/S 143(3)/147 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) VIDE ORDERS DATED 2 0 .12.2007, 28. 12 .200 7 & 2 8 . 03 .200 6 FOR ASSESSMENT YEARS 2002 - 03, 2005 - 06 AND 2003 - 04 . 2. THE FIRST ISSUE IN THIS CO OF ASSESSEE IS AGAINST THE ORDER OF CIT(A) IN HOLDING THAT THE PROCEEDINGS U/S. 147 WERE VALIDLY INITIATED. FOR THIS, ASSESSEE HAS RAISED FOLLOWING GROUND NO.1: 1. FOR THAT THE LD. CIT(A) ERRED IN HOLDING THAT THE PROCEEDINGS U/S. 147 WE RE VALIDLY INITIATED. HE ERRED IN REJECTING THE GROUNDS AGAINST THE INITIATION OF THE PROCEEDINGS U/S. 147 AND PASSING OF THE ORDER IN PURSUANCE THEREOF. 3. AT THE TIME OF HEARING LD. COUNSEL FOR THE ASSESSEE SHRI R. P. AGARWAL, SR. ADVOCATE MADE STATEMENT AT BAR THAT HE IS NOT PRESSING THIS GROUND. HENCE, THIS GROUND IS DISMISSED AS NOT PRESSED. 4. THE SECOND ISSUE IN ASSESSEE S CO AND THE SOLE ISSUE OF A PPEAL OF ASSESSEE I.E. ITA NO. 1818/K/2009 IS AGAINST THE ORDER OF CIT(A) DENYING THE EXEMPTION U/S 10B OF THE ACT IN RESPECT TO TEA BLEND ED AND EXPORTED BY IT, BY HOLDING THAT EVEN THOUGH ASSESSEE - COMPANY IS A 100% EXPORTED ORIENTED UNIT (EOU FOR SHORT) BUT MERELY ENGAGED IN TRADING ACTIVITY IN PURCHASE AND SALE OF TEA AND THERE WAS NO PROCESSING OR BLENDING OUT OF ACTIVITIES CARRIED OUT BY IT. FOR THIS, ASSESSEE HAS RAISED FOLLOWING GROUND NO.2 IN ITS CO AND GROUND NO. 1 IN ITS APPEAL : GROUND FOR CROSS OBJECTION: 2 . A ) FOR THAT THE LD. CIT(A) ERRED IN REJECTING THE GROUND NOS. 4, 5, 6 & 7 TAKEN BEFORE HIM AGAINST DENIAL OF EXEMPTION OF RS.3,49,07,028/ - U/S. 10B OF THE I. T. ACT ON THE BASIS OF HIS ORDER IN THE APPEAL FOR THE ASST. YR. 2003 - 04 IN THE AP PELLANT S CASE. B) FOR THAT THE LD. CIT(A) FAILED TO NOTICE THAT THE ASSESSEE HAD FILED APPEAL AGAINST THE DENIAL OF THE EXEMPTION U/S. 10B IN THE ASST. YR. 2003 - 04 AND ISSUE REGARDING NON - ALLOWANCE OF EXEMPTION U/S. 10B IN THE ASST. YR. 2003 - 04 WAS SUBJU DICE BEFORE THE APPELLATE TRIBUNAL. 3 ITA NO. 1777, 1379/K/2008, 1818, 1761/K/2009 & CO NO. 121/K/2008 M/S. V. N. ENTERPRISES L TD. AYS. 02 - 03, 03 - 05 & 05 - 06, GROUND FOR APPEAL: 1A) THAT THE LD. CIT(A) ERRED IN UPHOLDING THE REJECTION OF THE CLAIM FOR EXEMPTION U/S. 10B OF THE I. T. ACT OF RS.1,62,00,753/ - BY RELYING ON HIS DECISION FOR THE ASST. YR. 2003 - 04. B) THAT THE DECISION OF THE LD. CIT(A) REJECTING THE CLAIM FOR EXEMPTION U/S. 10B IN ASST. YR. 2003 - 04 IS STILL SUBJUDICE BEFORE THE ITAT, AND THE SUBMISSION MADE IN RESPECT OF THE SAID APPEAL WILL APPLY MUTATIS MUTANDIS FOR THIS YEAR ALSO. 5 . BRIEFLY STATED FACTS A RE THAT ASSESSEE CLAIMED EXEMPTION U/S 10B OF THE ACT IN RESPECT OF 100% EOU AND IN SUPPORT OF ITS CLAIM, ASSESSEE FILED REPORT IN FORM NO. 56G U/S 10B OF THE ACT. BUT AO DENIED E XEMPTION TO THE ASSESSEE. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALSO CONFIRMED THE ACTION OF AO AND DENIED THE EXEMPTION U/S 10B OF THE ACT BY OBSERVING IN PARA - 4 AS UNDER: - 4. THE APPELLANT HAS MADE DETAILED SUBMISSIONS IN THE STATEMENT OF FACTS AND NOTES OF ARGUMENTS SUBMITTED ON 12.02.2007 IN PARAS - 1 TO 63 THE REOF AT PAGES 4 TO29 OF THE PAPER BOOK. THE SUBMISSIONS MADE ARE VERY DETAILED AND HAVE REFERRED TO NUMEROUS DOCUMENTS COPIES OF WHICH ARE INCLUDED IN THE PAPER BOOK. REFERENCE HAS BEEN MADE OF VARIOUS COURT DECISIONS ALSO IN SUPPORT OF THE SUBMISSIONS MAD E BY THE APPELLANT. I DO NOT CONSIDER IT NECESSARY TO DEAL WITH EACH AND EVERY CONTENTION OF THE AO AND THE SUBMISSIONS OF THE APPELLANT ON FACTS BECAUSE THE HON'BLE SUPREME COURT IN A RECENT DECISION DELIVERED ON JULY 9, 2007 IN THE CASE OF CIT VS - TARA AGENCIES (2007) 292 ITR - 444 (SC) HAS HELD THAT THE ACTIVITY OF BLENDING OF TEA DOES NOT CONSTITUTE MANUFACTURE. THE HON'BLE COURT HAS ALSO HELD THAT THE WORD PRODUCE WHEN USED IN JUXTAPOSITION WITH THE WORD MANUFACTURE TAKES IN BRINGING INTO EXISTE NCE NEW GOODS BY A PROCESS WHICH MAY OR MAY NOT AMOUNT TO MANUFACTURE. IT ALSO TAKES IN ALL BY - PRODUCTS, INTERMEDIATE PRODUCTS AND RESIDUAL PRODUCTS WHICH EMERGE IN THE COURSE OF MANUFACTURE OF GOODS . IN THEIR DECISION THE HON'BLE COURT IN PARA 70 AT PAGE 464 OF THE REPORT FINALLY HELD AS UNDER: - WE ARE CLEARLY OF THE OPINION THAT THE RESPONDENT S ACTIVITY AMOUNTS TO PROCESSING ONLY AND THE ACTIVITY DOES NOT AMOUNT TO EITHER PRODUCTION OR MANUFACTURE . THIS DECISION RELATED TO A DEDUCTION CLAIMED U /S. 35B(1A) OF THE ACT FOR THE ASST. YR. 1979 - 80 WHEREIN ALSO THE ALLOWANCE OF DEDUCTION WAS PERMISSIBLE TO THE ASSESSEE WHO EXPORTED GOODS MANUFACTURED OR PRODUCED IN A SMALL SCALE INDUSTRIAL UNDERTAKING OWNED BY THE ASSESSEE. THE TERMINOLOGY USED FOR ALL OWANCE OF DEDUCTION U/S. 10B ALSO REQUIRES THAT THE DEDUCTION WILL BE ADMISSIBLE ONLY IN RESPECT OF THE UNDERTAKING WHICH MANUFACTURES OR PRODUCES AN ARTICLE OR THING. THE AFORESAID DECISION OF THE APEX COURT HAS SET AT REST THE CONTROVERSY AS TO WHETHER BLENDING OR TEA AMOUNTS TO MANUFACTURE OR PRODUCTION OF ARTICLE OR THING, BY HOLDING THAT BLENDING OF TEA DOES NOT AMOUNT TO MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING. THE APPELLANT IS THEREFORE, NOT ENTITLED TO THE DEDUCTION / EXEMPTION CLAIMED U /S. 10B IN RESPECT OF THE TEA EXPORTED BY THEM. SINCE THE APPELLANT S CLAIM FOR DEDUCTION U/S. 10B IS HELD TO BE NOT ADMISSIBLE FOR THE BASIC REASON THAT BLENDING OF TEA DOES NOT AMOUNT TO MANUFACTURE OR PRODUCTION OF A ARTICLE OR THING. I DO NOT CONSIDER IT NECESSARY TO DEAL WITH THE OTHER FACETS OF THE GROUNDS 4 ITA NO. 1777, 1379/K/2008, 1818, 1761/K/2009 & CO NO. 121/K/2008 M/S. V. N. ENTERPRISES L TD. AYS. 02 - 03, 03 - 05 & 05 - 06, RAISED BY THE APPELLANT IN THIS REGARD. THE DENIAL OF THE DEDUCTION U/S/. 10B BY THE AO IS UPHELD. AGGRIEVED, NOW ASSESSEE HAS FILED THIS APPEAL AND CROSS OBJECTION. 6 . AT THE OUTSET, LD. COUNSEL FOR ASSESSEE, SHRI R.P. AGARWAL, SENIOR ADVOCATE STATED THAT THE ISSUE NOW S T ANDS COVERED BY THE ORDER OF SPECIAL BENCH OF ITAT KOLKATA IN THE CASE OF MADHU JAYANTI INTERNATIONAL LTD. V. DY . CIT (2012) 137 ITD 377 (KOL) (SB) AND HE REFERRED TO RELEVANT PARA 35 TO 37 OF THE ORDER , WHICH READS AS UNDER: - 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 - 0 1 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 10B 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 O F TEA FOR EXPORT WAS TREATED AS MANUFACTURE OR PRODUCTION OF AN ARTICLE QUALIFYING FOR EXEMPTION. WE ARE OF THE CONSIDERED VIEW THAT THE CONTENTION OF THE ASSESSEE THAT THE SCHEME OF INCOME TAX EXEMPTION AVAILABLE TO UNITS IN THE SEZ U/S. 10A OF THE AC T AND UNITS IN THE FREE TRADE ZONE PROVIDED U/S. 10AA OF THE ACT AND THE EXEMPTION AVAILABLE TO 100% EOU U/S. 10B OF THE ACT ARE VERY SIMILAR IN NATURE AND THE WORDINGS OF THE STATUTORY PROVISIONS ARE SIMILAR IN NATURE IS CORRECT. WE FIND THAT HON BLE KERA LA HIGH COURT ALSO CONSIDERED THE JUDGMENT IN THE DECISION OF SUPREME COURT IN TARA AGENCIES, (SUPRA) RELIED ON BY THE LD. CIT, DR, WHEREIN HON BLE SUPREME COURT CLEARLY HELD THAT BLENDING OF TEA DOES NOT AMOUNT TO MANUFACTURE OR PRODUCTION OF AN ARTIC LE, BUT IS ONLY PROCESSING. WE FIND THAT THE ASSESSEE WAS EXCLUSIVELY ENGAGED IN BLENDING AND PACKING OF TEA FOR EXPORT AND WAS NOT MANUFACTURING OR PRODUCING ANY OTHER ARTICLE OR THING. IT WAS RECOGNISED AS A 100% EOU DIVISION AND THE DEPARTMENT HAD NO CA SE 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 UNIT OF THE ASSESSEE S 100% EOU, IT WOULD DEFEAT THE VERY OBJECT OF SECTIONS 10B OF THE ACT. 36. WE, IN VIEW OF THE ABOVE, HOLD THAT WHEN THE PRODUCTS FOR WHICH THE ASSESSEE S UNIT IS RECOGNIZED AS A 100% EOU ARE TEA BAGS, TEA IN PACKETS AND TEA IN BULK PACKS AND THE ASSESSEE IS EXCLUSIVELY ENGAGED IN BLENDING AND PACKING OF TEA FOR EXPORT MAY NOT BE MANUFACTURER OR PRODUCER OF ANY OTHER ARTICLE OR THING IN COMMON PARLANCE. HOWEVER, FOR THE PURPOSE OF SECTION 10A, 10AA AND 10B, WE HAVE TO CONSIDER THE DEFINITION OF THE WORD MANUFACTURE AS DEFINED IN SECTION 2(R) OF SEZ ACT, EXIM POLICY, FOOD ADUL TERATION RULES, 1955, TEA (MARKETING) CONTROL ORDER, 2003, ETC. WE ALSO FIND THAT THE DEFINITION OF MANUFACTURE AS PER SECTION 2(R) OF THE SEZ ACT, 2005 IS INCORPORATED IN SECTION 10AA OF THE INCOME - TAX ACT WITH EFFECT FROM 10.02.2006. HON BLE KERALA HIG H COURT IN THE CASE OF GIRNAR INDUSTRIES (SUPRA) HAD HELD SUCH AMENDMENT IN SECTION 10AA TO BE OF CLARIFICATORY IN NATURE. THE DEFINITION OF MANUFACTURE UNDER THE SEZ ACT, EXIM POLICY, FOOD ADULTERATION RULES AND TEA (MARKETING) CONTROL ORDER IS MUCH WID ER THAN WHAT IS THE MEANING OF THE TERM MANUFACTURE UNDER THE COMMON PARLANCE, AND IT 5 ITA NO. 1777, 1379/K/2008, 1818, 1761/K/2009 & CO NO. 121/K/2008 M/S. V. N. ENTERPRISES L TD. AYS. 02 - 03, 03 - 05 & 05 - 06, 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 IN 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 CONSEQUENT LY THE ASSESSEE IS ELIGIBLE FOR EXEMPTION U/S. 10B OF THE ACT AS PRAYED FOR. THEIR APPEAL FOR THE AY 2004 - 05 IS ALLOWED. AS REGARDS OTHER APPEALS AND THAT OF THE INTERVENERS, THE MATTERS ARE RESTORED BACK TO THE DIVISION BENCH, WITH DIRECTIONS TO DECIDE TH OSE APPEALS IN THE LIGHT OF PRINCIPLE LAID DOWN HEREIN, SO FAR AS THE CLAIM FOR RELIEF U/S. 10A OR 10B OF THE ACT IN ACCORDANCE WITH LAW. WHEN A QUERY WAS PUT TO LD. SENIOR ADVOCATE IN TERM OF THE DECISION OF SB OF ITAT KOLKATA IN THE CASE OF MADHU JAYAN TI INTERNATIONAL LTD.(SUPRA), AS TO, WHETHER THERE IS A BLENDING OR NOT AND BLEND SH EET S WERE PRODUCED BEFORE THE AO OR NOT, HE REPLIED BY REFERRING TO AO S REMAND REPORT NO. ACIT, CIRCLE - 4/MISC/06 - 07/KOL/1227 DATED 06/03/2007 , WHICH IS GIVEN IN ASSESSEE S PAPER BOOK AT PAGES 255 TO 263 AND PARTICULARLY HE DREW OUR ATTENTION TO FOLLOWING PARA OF THE REMAND REPORT, WHEREIN THE AO HAS DISCUSSED THE FACT AS UNDER: - THE FACTS OF THE CASE AS THEY EMERGE FROM THE RECORDS AS WELL A S THE ASSESSEE S SUBMISSION IN THE FORM OF A PAPER BOOK ARE THAT THE APPELLANT COMPANY PURCHASES TEA FROM AUCTION CENTRES LOCATED IN VARIOUS PARTS OF THE COUNTRY AND THEN THE TEAS OF DIFFERENT QUALITIES / GRADES AS SELECTED ARE LAID DOWN ON THE FLOOR OF THE WAREHOUSE. THEREAFTER, THE TEA OF ONE TYPE/GRADE ARE MIXED/BLENDED WITH ANOTHER TYPE/GRADE OF TEA TO ACHIEVE THE REQUIRED STANDARD OF TEA ON THE BASIS OF BLENDSHEETS AS SELECTED BY EXPERTS. SUBSEQUENTLY, AFTER COMPLETION OF EACH BLEND THE TEA IS THEN PACKED, AS PER BUYERS REQUIREMENT IN THE PACKING MATERIALS PROCURED FROM DIFFERENT SUPPLIERS AND EVEN IMPORTED AND THEN STUFFED IN CONTAINERS FOR ONWARD TRANSMISSION TO PORT FOR SHIPMENT TO OVERSEAS BUYERS. IN THE BACKGROUND OF THESE FACTS, THE ASSESSEE HAS PLEADED THAT SUCH MIXING / BLENDING /PACKING AMOUNTS TO PROCESSING OF GOODS. MENTIONING FURTHER THAT THE EXPRESSIONS MANUFACTURE AND / OR PRODUCE HAVE NOT BEEN DEFINED IN THE INCOME TAX ACT 1961 IN AN EXHAUSTIVE MANNER, THE ASSESSEE HAS ARGUED IN ITS PAPER BOOK HAT FOR THE PURPOSES OF SECTION 100B OF THE INCOME TAX ACT 1961 AN EXCLUSIVE DEFINITION HAS BEEN GIVEN IN RESPECT OF THE SAID TWO WORDS AND THAT THE EXPRESSION MANUFACTURE HAS BEEN DEFINED TO INCLUDE INTER ALIA ANY PROCESS FOR THE PURPOS ES OF SECTION 10B OF THE INCOME TAX ACT 1961. PLACING RELIANCE ON VARIOUS JUDICIAL PRONOUNCEMENTS, THE ASSESSEE HAS PLEADED 6 ITA NO. 1777, 1379/K/2008, 1818, 1761/K/2009 & CO NO. 121/K/2008 M/S. V. N. ENTERPRISES L TD. AYS. 02 - 03, 03 - 05 & 05 - 06, THAT THE ACTIVITY OF BLENDING CARRIED OUT BY IT LEADS TO PRODUCTION OF TEA AND IS, THEREFORE, ELIGIBLE FOR BENEFIT OF DEDUCTION U/ S. 10B OF THE INCOME TAX ACT 1961. IN VIEW OF THE ABOVE REMAND REPORT OF AO, LD. COUNSEL FOR ASSESSEE ARGUED THAT ASSESSEE HAS SUBMITTED COMPLETE PROCEDURE OF BLENDING OF TEA ALONG WITH BLEND SHEETS DURING THE REMAND PROCEEDINGS AND ONCE THE AO HAS ADMIT T ED THAT THERE IS BLENDING AND THIS IS EXACTLY IN LINE WITH ORDER OF ITAT KOLKATA SPECIAL BENCH IN THE CASE OF MADHU JAYANTI INTERNATIONAL LTD. (SUPRA). ON QUERY FROM THE BENCH, LD. CIT - DR SHRI ADHIR KUMAR BAR RELIED ON THE ORDER OF AO. 7 . WE FIND THAT FA CTUAL THERE IS A BLENDING OF TEA IN THE PRESENT CASE OF ASSESSEE AND ASSESSEE BEFORE AO DURING REMAND PROCEEDINGS HAVE PRO V ED THE COMPLETE PROCEDURE EXPLAINING THAT THERE IS BLENDING OF TEA. THIS IS EXACTLY IN LINE WITH THE ORDER OF ITAT KOLKATA SPECIAL BENCH IN THE CASE OF MADHU JAYANTI INTERNATIONAL LTD (SUPRA). H ENCE, RESPECTFULLY FOLLOWING THE ORDER OF ITAT KOLKATA SPECIAL BENCH, IN THE CASE OF MADHU JAYANTI INTERNATIONAL LTD. (SUPRA), WE FEEL THAT ISSUE IS NOW COVERED AGAINST REVENUE AND IN FAVOUR OF ASSESSEE. ACCORDINGLY, THIS ISSUE OF ASSESSEE S APPEAL AND CO ARE ALLOWED. SINCE WE HAVE ALLOWED THE ASSESSEE S GROUND OF APPEAL AND GROUND OF CROSS OBJECTIO N IN RESPECT OF DEDUCTION U/S. 10B OF THE ACT, THE GROUND OF APPEAL FILED BY REVENUE IN RESPECT OF DEDUCTION U/S. 10B OF THE ACT IN ITA NO.1379/KOL/2008 FOR AY 2003 - 04 IS DISMISSED. 8. GROUND NO. 3 OF ASSESSEE S CO IS IN RESPECT OF CHARGING OF INTEREST U/ S. 234B AND 234C OF THE ACT. THIS ISSUE IS CONSEQUENTIAL IN NATURE, HENCE WE REFRAIN FROM DEALING WITH THE SAME AND IS DISMISSED. NOW WE ARE COMING TO REVENUE S APPEALS 9 . GROUND NO. 1 OF REVENUE S APPEAL I.E. ITA NO. 1777/K/2008 IS AGAINST THE ORDER OF CIT(A) IN DELETING THE DISALLOWANCE OF CLAIM OF DEDUCTION U/S. 80HHC, MADE BY THE AO BASED ON THE FACTS THAT THE CLAIM WAS NOT MADE BY THE ASSESS3EE NEITHER IN THE 7 ITA NO. 1777, 1379/K/2008, 1818, 1761/K/2009 & CO NO. 121/K/2008 M/S. V. N. ENTERPRISES L TD. AYS. 02 - 03, 03 - 05 & 05 - 06, ORIGINAL R ETURN OF INCOME OR IN THE RETURN OF INCOME FILED IN RESPONSE TO NOTICE U/S. 147 OF THE ACT. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.2: 2. THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAD ERRED IN DELETING THE DISALLOWANCE OF CL AIM OF DEDUCTION U/S. 80HHC, MADE BY THE AO BASED ON THE FACTS THAT THE CLAIM WAS NOT MADE BY THE ASSESS3EE NEITHER IN THE ORIGINAL RETURN OF INCOME OR IN THE RETURN OF INCOME FILED IN RESPONSE TO NOTICE U/S. 147. EVEN THE ASSESSEE DID NOT PRODUCE THE REP ORT FROM A CHARTERED ACCOUNTANT, REQUIRED IN THIS REGARD. 10. AT THE TIME OF HEARING LD. COUNSEL FOR THE ASSESSEE SHRI R. P. AGARWAL, SR. ADVOCATE MADE STATEMENT AT BAR THAT HE IS NOT PRESSING THIS GROUND. HENCE, THIS GROUND IS DISMISSED AS NOT PRESSED . 11. NEXT COMMON ISSUE IN REVENUE S APPEAL IN ITA NO. 177 7 /KOL/2008 FOR AY 2002 - 03 AND ITA NO. 176 1 /KOL/2009 FOR AY 200 5 - 0 6 IS AS REGARDS TO THE ORDER OF CIT(A) DELETING THE DISALLOWANCE COMMISSION PAYMENT. FOR THIS, REVENUE HAS RAISED IDENTICAL ISSUE A ND THE GROUND VIDE GROUND NO.3 RAISED IN ITA NO. 177 7 /KOL/2008 FOR AY 2002 - 03, READS AS UNDER: - 3 ) THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE ASSESSEE, L D . CIT(A) HAD ERRED IN DELETING THE ADDITION OF RS.63,55,889/ - MADE BY THE AO BASED ON THE FACT THAT SUCH PAYMENT OF THE COMMISSION BROKERAGE, MADE BY THE ASSESSEE, WAS NOT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 12 . WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. AT THE OUTSET, WE FIND THAT ISS UE IS COVERED IN FAVOUR OF ASSESSEE AND AGAINST REVENUE EXACTLY ON IDENTICAL FACTS AND CIRCUMSTANCES OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. RAJARANI EXPORTS P. LTD. (2014) 361 ITR 152 (CAL). FURTHER, WE FIND THAT HON'BLE JURISDICTIONAL HIGH COURT HAS CONSIDERED THAT ASSESSEE MADE PAYMENT OF COMMISSION IN CONSIDERATION OF SERVICES RENDERED. THE CIT (A) HELD THAT THE COMMISSION ON EXPORT ACTIVITY WAS FULLY DISCLOSED IN ALL CORRESPONDENCE AND ACTIVITIES IN RELATION TO EXPORT, THE COMMISSION WAS PAID THROUGH BANKING CHANNELS WITH THE RESERVE BANK APPROVAL AND IT WAS PAID PURSUANT TO AN AGREEMENT APPROVED BY THE GOVERNMENT OF INDIA AND THE UNITED NATIONS, THAT THE PAYMENT OF COMMISSION WAS FOR BUSINESS CONSIDERATION AND THERE WAS NO ILLEGALITY IN IT, THAT BESIDES THIS, NOTHING WAS BROUGHT ON RECORD TO SHOW THAT THE TRANSACTION RELATING TO PAYMENT OF COMMISSION WERE NOT GENUINE OR THAT THE PAYMENTS WERE EXCESSIVE OR UNREASONABLE, THAT THE VOLKER COMMITTEE REPORT 8 ITA NO. 1777, 1379/K/2008, 1818, 1761/K/2009 & CO NO. 121/K/2008 M/S. V. N. ENTERPRISES L TD. AYS. 02 - 03, 03 - 05 & 05 - 06, HAD DISCUSSED THE UTILISATION OF M ONEY BY THE RECIPIENT OF THE COMMISSION AND STATED THAT NEITHER THE ASSESSEE NOR THE GOVERNMENT OF INDIA WAS INVOLVED IN PARTING WITH SOME OF THE FUNDS SO RECEIVED AS COMMISSION UNDER A PACT BETWEEN THE IRAQ GOVERNMENT AND THE UNITED NATIONS. THE TRIBUNAL HELD THAT THE ASSESSEE WAS CONCERNED WITH COMMERCIAL EXPEDIENCY OF THE PAYMENT AND NOT WITH THE ACTUAL COSTS INCURRED IN RENDERING THE SERVICES FOR WHICH THE PAYMENT WAS MADE. HON BLE CALCUTTA HIGH COURT CONFIRMED THE ORDER OF TRIBUNAL IN THE CASE OF CIT V S. RAJARANI EXPORTS P. LTD. (2014) 361 ITR 152 (CAL) BY OBSERVING AS UNDER: AGGRIEVED B Y THE ORDER OF THE COMMISSIONER (APPEALS) THE REVENUE PREFERRED AN APPEAL BEFORE THE TRIBUNAL. THE TRIBUNAL DISMISSED THE A PPEA L HOLDING, INTER ALIA, AS FOLLOWS: THE ASSESSEE HAS MADE PAYMENT FOR COMMISSION AND HAS BEEN RENDERED SERVICES IN CONSIDERATION OF THE SAME. AS A MATTER OF FACT, IT IS NOT EVEN THE REVENUE S CASE THAT NO SERVICES HAVE BEEN RENDERED AT ALL. THE FACT THAT SERVICES HAVE BEEN RENDERED BY A PARTY O THER THAN THE AGENT TO WHOM COMMISSION IS PAID IS WHOLLY IMMATERIAL SO FAR AS DEDUCTIBILITY IN THE HANDS OF THE ASSESSEE IS CONCERNED. AS FOR THE POSITION THAT THE PAYMENT WAS HIGHLY EXCESSIVE VIS - - VIS THE LOCAL COSTS, EVEN IF THAT BE SO, THAT ASPECT OF THE MATTER DOES NOT AFFECT THE DEDUCTIBILITY IN THE HANDS OF THE ASSESSEE EITHER. THE ASSESSEE IS CONCERNED WITH COMMERCIAL EXPEDIENCY OF THE SAID PAYMENT AND NOT WITH WHAT ARE THE ACTUAL COSTS INCURRED IN RENDERING THE SERVICES FOR WHICH THE PAYMENT IS MA DE. AS WE HAVE SEEN EARLIER IN THIS ORDER, FROM THE EXTRAS OF THE VOLKER COMMITTEE REPORT ITSELF, IT WAS ABSOLUTELY NECESSARY FOR THE ASSESSEE TO MAKE THE IMPUGNED PAYMENTS AND, IN ANY EVENT, THE COMMERCIAL EXPEDIENCY OF THESE PAYMENTS HAS NOT EVEN BEEN CA LLED INTO QUESTION BY THE ASSESSING OFFICER. THE CASE OF THE REVENUE IS CONFINED TO INVOKING THE EXPLANATION TO SECTION 37(1). THE OBJECTIONS TO THE SAID COMMISSION PAYMENT ARE, THEREFORE NOT SUSTAINABLE IN LAW, SO FAR AS DEDUCTIBILITY UNDER SECTION 37(1) IS CONCERNED. THE DEPARTMENT HAS COME UP IN APPEAL. MRS. SMITA DAS DE, LEARNED ADVOCATE, APPEARING IN SUPPORT OF THE APPEAL, COULD NOT SATISFY US AS TO WHY WERE THE FINDINGS INDICATED ABOVE AS RECORDED BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL INCORRECT EITHER ON FACT OR IN LAW. THERE IS, AS SUCH, NO REASONS WHY THE APPEAL SHOULD BE ENTERTAINED. 13 . WE FIND THAT THIS ISSUE STAND S COVERED IN FAVOUR OF ASSESSEE AND AGAINST REVENUE AND RESPECTFULLY FOLLOWING THE JUDGMENT OF HON'BLE JURISDICTIO NAL HIGH COURT IN THE CASE OF RAJARANI EXPORTS P. LTD. (SUPRA) WE CONFIRM THE ORDER OF CIT(A) IN DELETING THE DISALLOWANCE. THIS ISSUE OF REVENUE S APPEALS ARE DISMISSED. 9 ITA NO. 1777, 1379/K/2008, 1818, 1761/K/2009 & CO NO. 121/K/2008 M/S. V. N. ENTERPRISES L TD. AYS. 02 - 03, 03 - 05 & 05 - 06, 14 . THE NEXT ISSUE IN THE APPEAL IN ITA NO. 13 79 /K/2008 FILED BY ASSESSEE IS AGAIN ST THE ORDER OF CIT(A) IN HOLDING THAT THE SURPLUS OF RS.1, 09 , 33 , 433 / - ARISING FROM THE VALUATION OF FOREIGN CURRENCY BALANCE IN THE EEFC ACCOUNT OF THE ASSESSEE AS ON 31.03.2003 WAS LIABLE TO BE INCLUDED IN THE TAXABLE INCOME OF THE ASSESSEE. FOR THIS, AS SESSEE HAS RAISED FOLLOWING GROUND NO.2: 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN HOLDING THAT THE SURPLUS OF RS. 1,09,33,433/ - ARISING FROM THE VALUATION OF FOREIGN CURRENCY BALANCE IN THE EEFC ACCOUNT OF THE APPELLANT AS ON 31.03.2003 WAS LIABLE TO BE INCLUDED IN THE TAXABLE INCOME OF THE APPELLANT. 1 5 . AT THE TIME OF HEARING LD. COUNSEL FOR THE ASSESSEE SHRI R. P. AGARWAL, SR. ADVOCATE MADE STATEMENT AT BAR THAT HE IS NOT PRESSING THIS GROUND. HENCE, THIS GROUND IS DISMISSED AS NOT PRESSED. 1 6 . IN THE RESULT , REVENUE S APPEALS ARE DISMISSED AND C.O. OF ASSESSEE IS PARTLY ALLOWED. 17 . ORDER IS PRONOUNCED IN THE OPEN COURT ON 1 4 . 0 8 . 2 0 1 5 S D / - 1 0 . 0 8 . 2 0 1 5 S D / - ( B.P. JAIN ) (MAHAVIR SINGH) ACCOUNTANT MEMBER J UDICIAL MEMBER DATED : 1 4 T H A U G U S T , 201 5 JD SR. P.S COPY OF THE ORDER FORWARDED TO: 1 . ASSESSEE V. N. ENTERPRISES, 6 , OLD POST OFFICE STREET, 4 TH FLOOR, KOLKATA - 01 2 REVENUE DCIT/ ACIT, CIRCLE - 4, AAYAKAR BHAWAN, P - 7, CHOWRINGHEE SQUARE, 8 TH FLOOR, KOLKATA - 700 0 69 . 3 . THE CIT (A), KOLKATA 4. 5. CIT KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .