M/s Little Bee Impex, Ludhiana V. Assessing Officer, Ludhiana

ITA 1210/CHANDI/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73411 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 18-07-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 19-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR AMA RVEER SINGH
• Keywords: Depreciation; Search and seizure; Principle of natural justice; Additional depreciation; Question of law; Competent authority; Assessment record; Tax effect; Benefit of exemption; Reason to believe
• Section: 143(3); 10AA; 133A; 80IB; 10B; 27; 263; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.553/CHD/2011 (ASSESSMENT YEAR : 2006-07) M/S LITTLE BEE IMPEX, VS. THE D.C.I.T., VILL.MALLIPUR, GT ROAD, DORAHA CIRCLE LUDHIANA. KHANNA. PAN: AABFL9170D ITA NO.1210/CHD/2012 (ASSESSMENT YEAR : 2006-07) & ITA NO.1211/CHD/2012 (ASSESSMENT YEAR : 2009-10) M/S LITTLE BEE IMPEX, VS. THE ASSESSING OFFICER , GT ROAD, KHANNA CIRCLE VILL.MALLIPUR, DORAHA KHANNA. LUDHIANA. LUDHIANA. PAN: AABFL9170D & ITA NO.690/CHD/2011 (ASSESSMENT YEAR : 2008-09) THE A.C.I.T., VS. M/S LITTLE BEE IMPEX, CIRCLE GT ROAD, DORAHA KHANNA. LUDHIANA. PAN: AABFL9170D (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ASHWANI KUMAR DEPARTMENT BY : DR. AMARVEER SINGH DATE OF HEARING : 31.10.2013 DATE OF PRONOUNCEMENT : 03.01.2014 O R D E R PER SUSHMA CHOWLA, J.M, : OUT OF THESE FOUR APPEALS, THE APPEAL IN ITA NO.553 /CHD/2011 IS FILED BY THE ASSESSEE IS AGAINST THE ORDER OF THE C OMMISSIONER OF INCOME-TAX-II, LUDHIANA DATED 24.3.2011 RELATING T O ASSESSMENT YEAR 2 2006-07 AGAINST THE ORDER PASSED UNDER SECTION 263 OF THE INCOME TAX ACT, 1961. THE APPEAL IN ITA NOS.1210 & 1211/CHD/2 012 ARE FILED BY THE ASSESSEE AGAINST THE CONSOLIDATED ORDER OF CIT (APPEALS) DATED 20.9.2012 AGAINST ORDER PASSED UNDER SECTION 143(3) R.W.S. 263/143(3) OF THE ACT RESPECTIVELY. THE APPEAL IN ITA NO. 690/ CHD/2011 IS FILED BY THE REVENUE AGAINST THE ORDER OF CIT (APPEALS) D ATED 13.4.2011 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF TH E ACT. ALL THE FOUR APPEAL RELATING TO THE SAME ASSESSEE WERE HEARD TOG ETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER FOR THE SAK E OF CONVENIENCE. 2. THE ASSESSEE IN ITA NO.553/CHD/2011 HAS RAISED T HE FOLLOWING GROUNDS OF APPEAL: 1. THAT ORDER U/S 263 BY THE LD. COMMISSIONER OF INCOME-TAX-II, LUDHIANA IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS THE ASSESSMENT FRAMED BY THE LD. ASSESSING OFFICER CANNOT BE SAID TO BE ERRONEOUS IN AS MUCH AS PREJUDICIAL TO THE INTEREST OF REVENUE. 2. THAT THE LD. COMMISSIONER OF INCOME-TAX FAILED T O APPRECIATE THE IMPORT OF DETAILED SUBMISSIONS MADE AND FACTS AND CIRCUMSTANCES OF THE CASE WHILE ARRIVING AT A CONCLUSION THAT THE ASSESSMENT ORDER PASSED BY THE LD. ASSESSING OFFICER IS ERRONEOUS IN AS MUCH AS PREJUDICIAL TO THE INTEREST OF REVENUE. 3. THAT THE LD. COMMISSIONER OF INCOME-TAX WAS NOT JUSTIFIED TO ARBITRARY SET ASIDE FOR FRESH CONSIDERATION THE ISSUE OF EXEMPTION U/S 10B WHICH HAD BEEN ALLOWED TO THE APPELLANT BY THE LD. ASSESSING OFFICER AFTER DUE VERIFICATION. 4. THAT THE LD. COMMISSIONER OF INCOME-TAX WAS NOT JUSTIFIED TO SET ASIDE THE ISSUE OF CLAIM OF ALLOWANCE OF ADDITIONAL DEPRECIATION WHICH HAD BEEN ALLOWED TO THE APPELLANT BY THE LD. ASSESSING OFFICER AFTER DUE APPLICATION OF MIND. 5. THAT THE LD. COMMISSIONER OF INCOME-TAX WAS NOT JUSTIFIED TO ENHANCE THE INCOME OF THE APPELLANT BY RS.2,57,88,457/- BY NEGATING THE CLAIM OF DEDUCTION U/S 10B ON THE AMOUNT OF INCENTIVE RECEIVED BY THE APPELLANT UNDER VISHESH KRISHI UPAJ YOZNA. 3 6. THAT THE LD. COMMISSIONER OF INCOME-TAX WAS NOT JUSTIFIED TO SET ASIDE THE ISSUE OF CLAIM OF EXPENSES AMOUNTING TO RS.27,43,200/- PAID BY WAY OF COMMISSION TO SH.PARVINDER THAPAR. 3. THE ISSUE ARISING IN THE PRESENT APPEAL IS AGAIN ST THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX-II, LUDHIA NA UNDER SECTION 263 OF THE INCOME TAX ACT. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAD FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.10,20,443/- ON 30.10.2006. THEREAFTER THE ASSESSMENT WAS COMPLETED UNDER SECTI ON 143(3) OF THE ACT VIDE ORDER PASSED DATED 30.12.2008 UNDER WHICH CERTAIN DISALLOWANCES/ADDITIONS WERE MADE. THE COPY OF THE ASSESSMENT ORDER IS AVAILABLE ON RECORD. THE COMMISSIONER OF INCOME TAX ON EXAMINATION OF THE ASSESSMENT RECORD NOTED THAT THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER WAS BOTH ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. ACCORDINGLY, SHOW NOT ICE UNDER SECTION 263 OF THE INCOME TAX ACT WAS ISSUED TO THE ASSESSE E. THE SHOW CAUSE NOTICE ISSUED TO THE ASSESSEE IS INCORPORATED AT PAGES 1 TO 3 OF THE ORDER PASSED UNDER SECTION 263 OF THE ACT. SUB SEQUENTLY ANOTHER NOTICE UNDER SECTION 263 OF THE ACT WAS ISSUED ON 6 .7.2009 WHICH IS REPRODUCED AT PAGE 4 OF THE ORDER OF COMMISSIONER O F INCOME TAX, LUDHIANA. THE SUBMISSION OF THE ASSESSEE ARE REPRO DUCED AT PAGES 5 TO 7 OF THE ORDER PASSED UNDER SECTION 263 OF THE A CT. ONE OF THE PLANKS OF ARGUMENTS MADE BY THE LEARNED COUNSEL BEF ORE THE COMMISSIONER OF INCOME TAX WAS THAT SIMILAR CLAIM O F EXEMPTION UNDER SECTION 10B OF THE ACT HAS BEEN DECIDED BY TH E CHANDIGARH BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE RELATI NG TO ASSESSMENT 4 YEARS 2004-05 AND 2005-06. THE COMMISSIONER OF INC OME TAX, LUDHIANA OBSERVED AS UNDER: DECISION OF HON'BLE ITAT, CHANDIGARH BENCH DATED 31.03.2009 MENTIONED ABOVE HAS BEEN RENDERED IN FAVOUR OF THE ASSESSEE ON THE GROUND THAT THE ASSES SING OFFICER HAD ADOPTED ONE VIEW WHICH WAS POSSIBLE AND THAT THE CIT COULD NOT SUBSTITUTE HIS VIEW IN A SUBJECTIVE MANNER UNDER THE PROVISIONS OF SECTION 2 63 OF THE ACT. HOWEVER, IN THE CASE OF THE ASSESSEE F OR ASSESSMENT YEAR 2006-07, WHICH IS UNDER CONSIDERATI ON, AS BROUGHT OUT IN THE NOTICE DATED 29.05.2009 REPRODUCED ABOVE, MY PREDECESSOR CLEARLY BROUGHT OU T A NUMBER OF ISSUES DIFFERENT FROM THOSE FOR ASSESSMEN T YEAR 2004-05 AND ASSESSMENT YEAR 2005-06. HE HAS MENTIONED THAT THE PROCEDURE EMPLOYED BY THE AO TO INSPECT THE FACTORY OF THE ASSESSEE BY INSPECTORS U NDER SECTION 133B OF THE ACT WAS UNAUTHORIZED IN LEGAL TERMS. FURTHER, THERE WAS NOTHING ON RECORD TO SUG GEST THAT THE INSPECTORS, WHO WERE ASKED TO MAKE SPOT ENQUIRIES DURING THE ASSESSMENT PROCEEDINGS IN THIS CASE, WERE QUALIFIED TO ADJUDGE THE CHEMICAL PROPER TIES AS BROUGHT OUT BY THEM IN THERE REPORTS. IT IS ALS O CLEARLY MENTIONED IN THE NOTICE THAT NOTHING WAS BROUGHT ON RECORD SUCH AS ANY TECHNICAL BENCHMARKS OR STANDARDS TO SUBSTANTIATE THE CLAIM THAT THE FINISH ED HONEY REPRESENTED A DISTINCT PRODUCT AT LEAST IN TECHNICAL TERMS. THE RECORDS, AS FURTHER MENTIONED IN THE SAID NOTICE, ONLY COULD SHOW THAT THE TRANSFORM ATION OF HONEY IN THE UNDERTAKING OF THE ASSESSEE APPEARE D TO BE ONLY PROCESSING OF HONEY IN SUCH A MANNER AND TO THE LIMITED EXTENT OF MAKING THE HONEY FIT FOR MARKETABILITY AND HUMAN CONSUMPTION AND THAT SUCH TRANSACTION COULD NOT BE CALLED MANUFACTURE OR PRODUCTION. THE CIT HAD ALSO CLEARLY MENTIONED T HAT ONLY THE PROCESSING SPECIFICALLY MENTIONED IN THE PROVISIONS OF SECTION 10B OF THE ACT (I.E. CUTTING AND POLISHING OF PRECIOUS AND SEMI PRECIOUS STONES) IS ELIGIBLE FOR DEDUCTION UNDER THESE PROVISIONS AND T HAT PROCESSING OF HONEY WAS NOT INCLUDED FOR THIS CONCESSION. 5. THE SECOND DISTINCTION DRAWN BY THE COMMISSIONER OF INCOME TAX WAS THAT THE ASSESSING OFFICER HAD IGNORED THE LAW OF PRECEDENCE ON THE ISSUE OF ALLOWABILITY OF CLAIM OF EXEMPTION UNDER SECTION 10B OF THE ACT AND HAD IN TURN FOLLOWED THE DECISION PE RTAINING TO DEDUCTION UNDER SECTION 80HH/80I OF THE ACT. FURTH ER THE ASSESSING OFFICER HAD FAILED TO FOLLOW THE DIRECTIONS ISSUED BY THE ADDL.CIT, RANGE KHANNA UNDER SECTION 144A OF THE ACT FOR FOLL OWING THE RATIO 5 LAID DOWN BY HON'BLE SUPREME COURT IN CIT VS. RELIS H FOODS [237 ITR 59 (SC)] AND IN CIT VS. VENKATESHWARA HATCHERIE S (P) LTD. [237 ITR 174(SC)]. THE COMMISSIONER OF INCOME TAX FURTH ER HELD THAT WHILE DECIDING THE ISSUE IN THE HANDS OF THE ASSESS EE RELATING TO ASSESSMENT YEARS 2004-05 AND 2005-06, CHANDIGARH B ENCH OF TRIBUNAL VIDE ORDER DATED 31.3.2009, HAD APPLIED THE DECISIO N OF HON'BLE SUPREME COURT IN INDIA CINE AGENCIES VS. CIT [308 I TR 98 (SC)], WHICH WAS IN RESPECT OF PROVISIONS OF SECTION 80HH/ 80I OF THE ACT. AS THE ASSESSEE HAD FAILED TO DRAW DISTINCTION BETWEEN VARIOUS JUDGMENTS POINTED OUT IN THE NOTICE ISSUED UNDER SECTION 263 OF THE ACT AND ASSESSING OFFICERS RELIANCE ON OTHER DECISIONS AND ALSO NON-FOLLOWING OF SPECIFIC DIRECTIONS OF ADDL.CIT UNDER SECTION 14 4A OF THE ACT, AS PER THE COMMISSIONER OF INCOME TAX, MAKES THE ORDER ERRONEOUS AND AS THE EXEMPTION RESULTED INTO REDUCTION IN TAX LIA BILITY OF THE ASSESSEE, THE SAME WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE COMMISSIONER OF INCOME TAX FURTHER NOTED THAT THE A SSESSMENT IN THE CASE WAS COMPLETED BY THE ASSESSING OFFICER IN GREA T HASTE AS THE MAIN WORK OF ASSESSMENT AND DECISION MAKING WAS CARRIED OUT ON THE LAST DATE I.E. 30.12.2008, WHEN SURVEY REPORT UNDER SECT ION 133B OF THE ACT WAS ALSO HANDED OVER TO THE ASSESSING OFFICER. AS NO SURVEY UNDER SECTION 133A OF THE ACT WAS CARRIED OUT BY THE ASSE SSING OFFICER, THE COMMISSIONER OF INCOME TAX OBSERVED THAT FURTHER EN QUIRY WAS NECESSARY IN THE CASE AND MERE FAILURE TO MAKE SUCH ENQUIRY MAKES THE ORDER ERRONEOUS. FURTHER THE REVENUE HAS ALSO FILE D AN APPEAL AGAINST THE ORDER OF TRIBUNAL RELATING TO ASSESSMENT YEARS 2004-05 AND 2005- 06. IN VIEW THEREOF, THE COMMISSIONER OF INCOME TA X WAS OF THE VIEW THAT THE TWIN CONDITIONS OF APPLICABILITY OF SECTION 263 OF THE ACT IN THIS CASE WITH REGARD TO THE ISSUE OF ALLOWING OF C LAIM OF EXEMPTION UNDER SECTION 10B OF THE ACT ARE, THEREFORE, VERY M UCH SATISFIED. THE 6 ORDER OF THE ASSESSING OFFICER PASSED UNDER SECTION 143(3) OF THE ACT FOR THE ASSESSMENT YEAR 2006-07 IS ACCORDINGLY SET ASIDE WITH A DIRECTION TO PASS THE ORDER AFRESH IN THE LIGHT OF ABOVE DISCUSSED OBSERVATIONS AND AFTER MAKING NECESSARY INQUIRIES/V ERIFICATION AND TAKING INTO ACCOUNT LATEST LEGAL POSITION ON THE IS SUE . 6. IN RESPECT OF SECOND ISSUE WHETHER THE ASSESSEE IS MANUFACTURING OR PRODUCING ANY ARTICLE OR THING?, THE ISSUE OF ALLOWANCE OF ADDITIONAL DEPRECIATION WAS ALSO SET A SIDE TO THE FILE OF THE ASSESSING OFFICER. 7. THE NEXT ISSUE WAS IN RELATION TO DEDUCTION UNDE R SECTION 10B OF THE ACT ON SALE OF INCENTIVES RECEIVED FROM MINISTR Y OF COMMERCE, GOVERNMENT OF INDIA. THE SAID RECEIPT WAS CLAIMED TO BE DIRECTLY LINKED WITH THE INCOME FROM EXPORT OF THE ARTICLES BY THE ASSESSEE AS THE ASSESSEE WAS 100% EXPORT ORIENTED UNIT. RELYIN G ON THE RATIO LAID DOWN IN LIBERTY INDIA VS. CIT [317 ITR 218 (SC)], T HE COMMISSIONER OF INCOME TAX HELD THAT SUCH RECEIPTS COULD NOT BE TAKEN AS INCOME DERIVED FROM INDUSTRIAL UNDERTAKING OF THE ASSESSEE AND WERE NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 10B OF THE ACT . THE INCOME ON THIS ACCOUNT WAS HELD TO BE ENHANCED BY RS.2,57,88 ,457/- AND COMMISSIONER OF INCOME TAX PASSED ORDER OF ENHANCEM ENT. 8. THE LAST ISSUE RAISED IN THE SHOW CAUSE NOTICE I SSUED UNDER SECTION 263 OF THE ACT WAS IN RELATION TO PAYMENT O F COMMISSION OF RS.27,43,200/- TO SHRI PARVINDER THAPAR. THE SAID PAYMENT WAS CLAIMED TO BE MADE ON ACCOUNT OF EXPORTS TO USA. A S THE ASSESSING OFFICER HAD FAILED TO EXAMINE THE GENUINENESS OF TH E SAID TRANSACTION, THE ORDER OF THE ASSESSING OFFICER ON THIS ISSUE WA S, THEREFORE SET ASIDE WITH THE DIRECTION TO MAKE NECESSARY ENQUIRIE S. THE ASSESSING 7 OFFICER WAS ALSO DIRECTED TO DISALLOW INTEREST CORR ESPONDING TO INTEREST FREE ADVANCES GIVEN TO M/S GREEN GRAM UDYOG & SONS AT RS.8076/-. 9. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF T HE COMMISSIONER OF INCOME TAX. THE LD. AR FOR THE ASSESSEE POINTED OUT THAT THE ASSESSEE IN THE CASE WAS COMPLETED UNDER SECTION 14 3(3) OF THE ACT VIDE ORDER DATED 30.10.2008 AT TOTAL INCOME OF RS. 77,84,513/-. IT WAS FURTHER POINTED OUT BY THE LD. AR FOR THE ASSESSEE THAT THEREAFTER SHOW CAUSE NOTICE WAS ISSUED BY THE COMMISSIONER OF INCO ME TAX IS PLACED AT PAGES 1 TO 4 OF THE PAPER BOOK AND THE REPLY OF THE ASSESSEE DATED 09.02.2010 IS PLACED AT PAGES 6 TO 10 OF THE PAPER BOOK. IN THE SAID SHOW CAUSE NOTICE ISSUED, THE LEARNED A.R. FOR THE ASSESSEE MET WITH ALL THE OBJECTIONS RAISED IN SHOW CAUSE NOTICE OF T HE COMMISSIONER OF INCOME TAX PARAWISE. IN RESPECT OF FIRST OBJECTION OF CLAIM OF EXEMPTION UNDER SECTION 10B OF THE ACT, THE LEARNED A.R. FOR THE ASSESSEE POINTED OUT THAT DURING THE ASSESSMENT PRO CEEDINGS, QUERIES WERE RAISED TO WHICH REPLY WAS FILED BY THE ASSESSE E AND REFERENCE WAS MADE UNDER SECTION 144A OF THE ACT AND FURTHER REPL IES WERE FILED DURING THE ASSESSMENT PROCEEDINGS. THE ASSESSING O FFICER THEREAFTER PASSED ORDER UNDER SECTION 143(3) OF THE ACT AND IN VOKING OF THE JURISDICTION BY THE COMMISSIONER OF INCOME TAX UNDE R SECTION 263 OF THE ACT ON THIS ACCOUNT WAS CLAIMED TO BE WRONG. F URTHER RELIANCE WAS PLACED ON THE ORDER OF THE TRIBUNAL DATED 31.3.2009 RELATING TO ASSESSMENT YEARS 2004-05 AND 2005-06 WHEREIN SIMILA R BUSINESS WAS CARRIED OUT AND THE ASSESSEE WAS HELD TO BE ELIGIBL E FOR CLAIM OF EXEMPTION UNDER SECTION 10B OF THE ACT. IT WAS FURT HER POINTED OUT BY THE LD. AR FOR THE ASSESSEE THAT REGISTRATION WITH VARIOUS GOVERNMENT AGENCIES I.E. UNDER THE FACTORIES ACT, WITH THE DEP ARTMENT OF INDUSTRIES AND UNDER THE CENTRAL EXCISE ACT WAS MAD E BY THE ASSESSEE 8 AS MANUFACTURING UNIT. FURTHER CONTENTION WAS THAT THOUGH THE UNIT OF THE ASSESSEE WAS REGISTERED UNDER THE EXCISE ACT BU T NO EXCISE DUTY WAS PAYABLE AS IT WAS AN 100% EXPORT ORIENTED UNIT. IT WAS STRESSED BY THE LD. AR FOR THE ASSESSEE THAT FACTS OF THE PR ESENT CASE WERE IDENTICAL TO THE FACTS OF THE EARLIER TWO YEARS AND THE DEDUCTION CLAIMED UNDER SECTION 10B OF THE ACT WAS ALLOWABLE TO THE ASSESSEE. THE LD. AR FOR THE ASSESSEE FURTHER PLACED RELIANCE ON THE UNDER MENTIONED CASE LAWS : I) MALABAR INDUSTRIAL CO. LTD. VS CIT 243 ITR 83 ( S.C) II) CIT VS MUNJAL CASTINGS LTD. 303 ITR 23 (P&H) III) MAX INDIA LTD. 295 ITR 282 (S.C.) 10. IT WAS THE CONTENTION OF THE LD. AR FOR THE ASS ESSEE THAT WHERE TWO VIEWS WERE POSSIBLE, THE ASSESSING OFFICER HAVI NG ADOPTED ONE VIEW, CANNOT BE SUPER IMPOSED BY THE COMMISSIONER O F INCOME TAX WITH THE OTHER VIEW. FURTHER CONTENTION OF THE LD. AR FOR THE ASSESSEE WAS THAT THE COMMISSIONER OF INCOME TAX HAD TRIED T O IMPOSE HIS OPINION WHICH WAS NOT PERMISSIBLE UNDER THE ACT. I N THE FACTS OF THE PRESENT CASE, EACH AND EVERY ARGUMENT WAS CONSIDERE D BY THE ASSESSING OFFICER. RELIANCE WAS PLACED ON CIT VS G ABRIAL INDIA LTD. 203 ITR 108 (BOM). THE LD. AR FURTHER SUBMITTED TH AT WHILE CLAIMING THE DEDUCTION UNDER SECTION 80IC OF THE ACT, LIST O F ITEMS MANUFACTURED WERE PROVIDED UNDER 14 TH SCHEDULE AND ONE OF THE ITEMS RECOGNIZED WAS MANUFACTURE OF HONEY UNDER PART-B AT POINT 12 AND UNDER PART C AT POINT 3 UNDER THE 14 TH SCHEDULE TO THE INCOME TAX ACT. IN RESPECT OF THE OTHER QUERY RAISED BY THE CO MMISSIONER OF INCOME TAX UNDER SECTION 263 OF THE ACT, THE LEARNE D A.R. FOR THE ASSESSEE POINTED OUT THAT THERE WAS NO CLAIM OF ADD ITIONAL DEPRECIATION DURING THE YEAR UNDER CONSIDERATION. OUR ATTENTION WAS DRAWN TO THE 9 QUERY RAISED BY THE ASSESSING OFFICER AND REPLIES B Y THE ASSESSEE. THIRD OBJECTION OF THE COMMISSIONER OF INCOME TAX W AS IN RESPECT OF INCENTIVES RECEIVED BY THE ASSESSEE. THE LEARNED A .R. FOR THE ASSESSEE POINTED OUT THAT THE ASSESSEE IS IN THE BUSINESS OF EXPORT AND INCENTIVES RECEIVED WERE BY VIRTUE OF EXPORTS AND T HE SAME IS NOT DISPUTED. THE ASSESSING OFFICER HAD CONSIDERED THE REPLIES OF THE ASSESSEE AND ALLOWED THE CLAIM, WHEREAS THE COMMISS IONER OF INCOME TAX HAS HELD THE ASSESSEE NOT ENTITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 10B OF THE ACT ON THE SAID INCENTIVES AND I NCOME HAS BEEN ENHANCED BY THE COMMISSIONER OF INCOME TAX. IT WAS POINTED OUT BY THE LD. AR FOR THE ASSESSEE THAT ON MERITS OF THE C ASE, THE ASSESSEE WAS ENTITLED TO THE SAID DEDUCTION. FURTHER CONTENTION OF THE LEARNED A.R. FOR THE ASSESSEE WAS THAT ONCE THE ISSUE HAS BEEN D ECIDED BY THE ASSESSING OFFICER, THE COMMISSIONER OF INCOME TAX C ANNOT SUPER IMPOSE HIS VIEW ON THE SAME. THE LEARNED A.R. FOR THE ASSESSEE FURTHER SUBMITTED THAT IN RESPECT OF COMMISSION, NO SPECIFIC QUERY WAS RAISED THOUGH THE ASSESSEE HAD PRODUCED BOOKS OF AC COUNT. HOWEVER, THE ASSESSEE HAD REPLIED TO THE QUERY RAISED IN THE SHOW CAUSE NOTICE AND COMPLETE DETAILS WERE FURNISHED BEFORE THE COMM ISSIONER OF INCOME TAX. THE LEARNED A.R. FOR THE ASSESSEE STRE SSED THAT THIS WAS A CASE WHERE BASIC INVOKING OF THE JURISDICTION UNDER SECTION 263 OF THE ACT NEEDS TO BE STRUCK DOWN. 11. THE LEARNED D.R. FOR THE REVENUE IN REPLY PO INTED OUT THAT THERE WAS NON-APPLICATION OF MIND BY THE ASSESSING OFFICE R IN RESPECT OF GRANT OF EXEMPTION UNDER SECTION 10B OF THE ACT AND FURTHER THE ASSESSMENT WAS MADE IN HASTE. THE LEARNED D.R. FOR THE REVENUE POINTED OUT THAT RATIO LAID DOWN BY THE TRIBUNAL IN THE EARLIER YEARS IS NOT APPLICABLE TO THE FACTS OF THE CASE IN THE ABSE NCE OF ANY ENQUIRY 10 REPORT UNDER SECTION 133B OF THE ACT IN THE SAID YE ARS. THE LD. DR FOR THE REVENUE POINTED OUT THAT THE TRIBUNAL IN TH E EARLIER ORDER HAD ONLY CONSIDERED THE TEST OF MARKETABILITY IN ISOLAT ION AND HAD NOT CONSIDERED THE ISSUE AT LENGTH. IN RESPECT OF THE ASSESSMENT PROCEEDINGS, THE LD. DR FOR THE REVENUE POINTED OUT THAT THERE WAS NO DISCUSSION IN THE ASSESSMENT ORDER ABOUT SAID PROCE EDINGS THOUGH THERE WERE LOTS OF CORRESPONDENCE BETWEEN THE ASSESSEE AN D THE ADDL. COMMISSIONER OF INCOME TAX AND ALSO THE ASSESSING OFFICER BUT THE ASSESSING OFFICER RELIED UPON THE REPORT OF THE INS PECTOR. IT WAS FURTHER CONTENDED BY THE LD. DR THAT THERE WAS NO D ISCUSSION BY THE ASSESSING OFFICER DESPITE DIRECTIONS OF THE ADDL. C OMMISSIONER OF INCOME TAX AND IN THE ABSENCE OF THE SAME AND ALSO THERE WAS NO APPLICATION OF MIND BY THE ASSESSING OFFICER. CONS EQUENTLY, THE ORDER OF THE COMMISSIONER OF INCOME TAX HOLDING THE ASSES SMENT ORDER TO BE BOTH ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS : I) MALABAR INDUSTRIAL CO. LTD. VS CIT, 243 ITR 83 ( S.C) II) CIT VS SMT. PUSHPA DEVI, 173 ITR 445 (PATNA) III) SWARUP VEGETABLE PRODUCTS INDUSTRIES LTD. VS CIT, 1 87 ITR 412 (P&H). IV) CIT VS RELISH FOODS, 237 ITR 59 (S.C) V) CIT VS VENKATESHWARA HATCHERIES P. LTD., 237 ITR 17 4 (S.C) VI) B.G.CHITALE VS DCIT 115 ITD 97 (SB) (PUNE) 12. THE LD. DR FURTHER SUBMITTED THAT WHAT THE ASSE SSEE WAS DOING COLLECTING HONEY, PROCESSING AND MAKING THE SAME MA RKETABLE AND THE SAME DOES NOT TANTAMOUNT TO MANUFACTURE. IN RESPEC T OF ISSUE OF ADDITIONAL DEPRECIATION, THE LEARNED D.R. FOR THE R EVENUE POINTED OUT THAT NO DIRECTIONS WERE ISSUED BY THE COMMISSIONER OF INCOME TAX IN 11 THIS REGARD. THE NEXT ISSUE WAS THE INCENTIVES RECEIVED BY THE ASSESSEE AND THE SAME BEING ELIGIBLE FOR DEDUCTION UNDER SECTION 10B OF THE ACT. THE LEARNED D.R. FOR THE REVENUE POINTE D OUT THAT THOUGH THE ASSESSING OFFICER HAD CALLED FOR DETAILS BUT NO T DISCUSSED THE LEGAL POSITION AND THE SAID LEGAL POSITION HAD BEEN ADDRE SSED BY THE COMMISSIONER OF INCOME TAX AT PAGE 13 IN PARA 6 OF HIS ORDER. IT WAS FURTHER POINTED OUT BY THE LD. DR FOR THE REVENUE T HAT 5% OF EXPORT VALUE WAS GIVEN AS LICENSE BY DGFT AND NO MONEY IN CASH WAS GIVEN. THE MONEY WAS RECEIVED BY THE ASSESSEE ON SALE OF L ICENCE. IT WAS THE SUBMISSION OF THE LD. DR FOR THE REVENUE THAT IN CA SE OF ALL SUBSIDIES, THE INCOME DERIVED WAS OF SECOND CATEGORY AND WAS T AXABLE IN VIEW OF THE RATIO LAID DOWN BY HON'BLE SUPREME COURT IN LIB ERTY INDIA 317 ITR 218 (S.C). IN RESPECT OF THE PAYMENT OF COMMISS ION, THE LEARNED D.R. FOR THE REVENUE STRESSED THAT NO QUERIES WERE RAISED BY THE ASSESSING OFFICER. THE COMMISSIONER OF INCOME TAX HAVING RIGHTLY ISSUED THE NOTICE OF WRONG APPLICATION OF LAW, THE ORDER OF COMMISSIONER OF INCOME TAX PASSED UNDER SECTION 263 OF THE ACT, AS PER THE LEARNED D.R. FOR THE REVENUE, MERITS TO BE UPHELD. 13. THE LEARNED A.R. FOR THE ASSESSEE IN REJOINDER POINTED OUT THAT THE MERITS OF THE ALLOWABILITY OF CLAIM OF EXEMPTIO N UNDER SECTION 10B OF THE ACT HAS BEEN DELIBERATED UPON BY THE TRIBUNA L AND IT WAS HELD THAT THE ACTIVITY CARRIED OUT BY THE ASSESSEE WAS P RODUCTION. IT WAS FURTHER CLAIMED BY THE LEARNED A.R. FOR THE ASSESSE E THAT THE OBSERVATIONS OF THE COMMISSIONER OF INCOME TAX THAT THE ASSESSMENT WAS DONE IN HASTE, WERE NOT CORRECT. OUR ATTENTION WAS DRAWN TO VARIOUS NOTICES ISSUED IN THIS CASE AND THEREAFTER PROVISIONS OF SECTION 144A OF THE ACT AND ELABORATE ENQUIRIES BY DEPUTATI ON OF INSPECTOR, THE LEARNED A.R. FOR THE ASSESSEE STRESSED THAT THE ASSESSMENT WAS 12 GETTING TIME BARRED BY LIMITATION OF 30.12.2008 AND HENCE ORDER WAS PASSED ON THAT DATE. 14. THE LD. AR FOR THE ASSESSEE POINTED OUT THAT TH E ASSESSING OFFICER HAD RESTRICTED THE CLAIM OF DEDUCTION UNDER SECTION 10B OF THE ACT TO 90% AND IT COULD NOT BE SAID THAT THE ASSESS ING OFFICER HAD NOT CONSIDERED ONE LEG OF THE SAID SECTION. IT WAS FUR THER POINTED OUT BY THE LD. AR FOR THE ASSESSEE THAT THE HON'BLE SUPREM E COURT IN INDIA CINE AGENCIES (SUPRA) HAD CONSIDERED CIT VS VENTAKATESHWARA HATCHERIES 237 ITR 174 (S.C) (SUPRA). IN RESPECT OF THE RATIO LAID DOWN IN RELISH FOODS (SUPRA), IT WAS CLARIFIED BY T HE LD. AR FOR THE ASSESSEE THAT NO DETAILS WERE FILED BEFORE THE HON' BLE HIGH COURT AND IT HAS BEEN MENTIONED IN THE SAID JUDGEMENT THAT IN THE ABSENCE OF THE SAID DETAILS, SUCH VIEW WAS BEING TAKEN. THE LD. A R FOR THE ASSESSEE FURTHER SUBMITTED THAT THERE WAS NO DEFINITION OF T HE WORD MANUFACTURE UNDER SECTION 10B OF THE ACT BUT THE DEFINITION AS PROVIDED IN EXPLANATION 1 (III) TO SECTION 10AA OF THE ACT MAY BE CONSIDERED. THE LD. AR FOR THE ASSESSEE HAD FURNIS HED COMPILATION OF DOCUMENTS WHICH WOULD BE CONSIDERED IN PARAS HEREIN AFTER. THE COPY OF CHART SHOWING DIFFERENCES BETWEEN RAW HONEY AND FINISHED HONEY IS ALSO PLACED AT PAGES 131 AND 132 OF THE PAPER BOOK. 15. THE LD. DR FOR THE REVENUE, AFTER THE CLOSE OF THE APPELLATE PROCEEDINGS VIDE LETTER DATED 16/29.07.2013 HAD FIL ED WRITTEN SUBMISSIONS AND IT WAS POINTED OUT THAT THE FACT OF THE CASE IN ASSESSMENT YEAR 2006-07 WERE DIFFERENT FROM THAT IN ASSESSMENT YEAR 2004-05 AND 2005-06 AS THE ORDER IN THE ASSESSMENT YEAR 2006-07 HAS BEEN PASSED BY THE ASSESSING OFFICER WITHOUT ANY EN QUIRY AND APPLICATION OF MIND TO BOTH THE ISSUES AND HENCE, T HE COMMISSIONER OF INCOME TAX WAS JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 263 OF 13 THE ACT. RELIANCE IS PLACED ON VARIOUS DECISIONS F OR THE SAID PROPOSITION. THE LD. DR FOR THE REVENUE FURTHER PO INTED OUT THAT THE TERM MANUFACTURE HAS BEEN DEFINED IN SECTION 2(29 BA) OF THE ACT W.E.F. 01.04.2009 AND THE MEANING OF THE TERM MANU FACTURE OR PRODUCTION FOR THE YEAR PRIOR TO ASSESSMENT YEAR 2009-10 HAD TO BE UNDERSTOOD FROM THE JUDICIAL RULINGS OF HON'BLE SUP REME COURT. 16. THE NEXT CONTENTION OF THE LD. DR FOR THE REVEN UE WAS THAT THE LEARNED COUNSEL HAS RELIED UPON THE DEFINITION OF T ERM MANUFACTURE GIVEN IN CLAUSE (III) OF EXPLANATION BELOW SUBSECTI ON (9) OF SECTION 10AA OF THE INCOME TAX ACT. IT PROVIDES THAT MANUFA CTURE SHALL HAVE THE SAME MEANING AS ASSIGNED TO IT IN CLAUSE (R) OF SECTION 2 OF THE SPECIAL ECONOMIC ZONES ACT, 2005. HOWEVER, SECTION 10AA WAS INCORPORATED IN THE INCOME TAX ACT BY THE SPECIAL E CONOMIC ZONES ACT, 2005 AND BODILY LIFTED FROM SCHEDULE-II OF SEZ ACT. SECTION 27 OF THE SEZ ACT WHICH PROVIDES FOR MODIFICATION OF INCO ME TAX ACT TO THE EXTENT OF SECOND SCHEDULE OF SEZ ACT. THEREFORE, TH E DEFINITION OF TERM MANUFACTURE IN SECTION 10AA OF THE INCOME TAX ACT IS APPLICABLE TO THE UNDERTAKINGS/ENTERPRISES HAVING THEIR BUSINE SS IN SEZ ONLY AND HAS NO APPLICATION TO OTHER SECTIONS/PROVISIONS OF THE INCOME TAX ACT. HENCE, THE MEANING OF TERM MANUFACTURE UNDER THE S EZ ACT CANNOT BE EXTENDED TO SECTION 10B OF THE ACT BUT ONLY FOR THE PURPOSE OF SECTION 10AA OF THE INCOME TAX ACT. THE LD. DR FOR THE REVENUE FURTHER STRESSED THAT THE MERE MENTION OF WORD HONEY IN S CHEDULE 14 OF THE INCOME TAX ACT WOULD NOT LEAD TO THE INFERENCE THAT HONEY WAS MANUFACTURED PRODUCT. THEREAFTER, RELIANCE WAS MAD E TO THE DEFINITION OF TERM MANUFACTURE UNDER THE CENTRAL EXCISE ACT BY THE LD. DR FOR THE REVENUE AND IT WAS POINTED OUT THAT THE SCOPE O F THE TERM MANUFACTURE IN THE FIRST SCHEDULE TO THE CENTRAL EXCISE TARIFF ACT, 14 1985 BY INCLUDING ONLY ARTIFICIAL HONEY, WHETHER OR NOT MIXED WITH NATURAL HONEY, BY THE FINANCE BILL, 2002. AS PER L D. DR FOR THE REVENUE, THE NATURAL HONEY CONTINUE TO BE EXEMPT FR OM EXCISE DUTY I.E. CENVAT AND MERE REGISTRATION UNDER THE CENTRAL EXCI SE OR OTHER GOVERNMENT AUTHORITIES FOR THE PURPOSE OF ADMINISTR ATIVE OR STATUTORY COMPLIANCE WAS HELD TO BE NOT SUFFICIENT GROUND TO CONCLUDE THAT THE ASSESSEE WAS ENGAGED IN MANUFACTURE OR PRODUCTION O F HONEY. RELIANCE WAS PLACED ON SERIES OF DECISIONS BY THE L D. DR FOR THE REVENUE AND IT WAS FURTHER CONTENDED THAT IF THE CH ANGE MADE IN THE ARTICLE RESULTS IN NEW AND DIFFERENT ARTICLE, THEN THE SAME WOULD AMOUNT TO MANUFACTURING ACTIVITY. RELIANCE WAS PLA CED ON THE RATIO LAID DOWN BY THE HON'BLE MUMBAI CUSTOMS, EXCISE AND GOLD TRIBUNAL IN THE CASE OF CHARAK PHARNRACEUTICALS INDIA PVT. L TD. VS. COMMISSIONER OF CENTRAL EXCISE (COPY PLACED ON RECO RD) WHEREIN THE HON'BLE BENCH HAS HELD THAT HONEY PROCURED FROM API ARIES AND SUBJECTED TO PROCESSING SUCH AS HEATING, COOLING, S TAINING, FILTRATION AND THEN PACKED IN THE CONTAINERS FOR MARKETING DOE S NOT AMOUNT TO MANUFACTURE AND NOT EXCISABLE. 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. ORIGINAL ASSESSMENT IN THE CASE OF THE ASSESSEE WAS COMPLETED UNDER SECTION 143(3) OF THE INCOME TAX ACT AND THE ASSESS EE WAS HELD TO BE ELIGIBLE FOR CLAIM OF DEDUCTION UNDER SECTION 10B O F THE INCOME TAX ACT ON MANUFACTURE OF HONEY. THE ASSESSEE HAS PLAC ED ON RECORD THE COPY OF CORRESPONDENCE BEFORE THE ASSESSING OFFICER DURING THE ORIGINAL PROCEEDINGS. IT WAS POINTED OUT BY THE LD . AR FOR THE ASSESSEE THAT THE ADDITIONAL COMMISSIONER OF INCOME TAX VIDE LETTER DATED 22.10.2008 HAD ISSUED DIRECTIONS UNDER SECTIO N 144A OF THE ACT DURING THE COURSE OF SCRUTINY PROCEEDINGS. THE COP Y OF THE SAID 15 COMMUNICATION IS PLACED AT PAGES 58 TO 64 OF THE PA PER BOOK TO DECIDE VARIOUS OTHER QUERIES RAISED, THE ADDL. COMMISSIONE R OF INCOME TAX HAD VIDE POINT NO.2 RAISED THE ISSUE OF CLAIM OF DE DUCTION UNDER SECTION 10B OF THE ACT AND THE ASSESSEE WAS ASKED T O JUSTIFY ITS CLAIM ON VARIOUS CONDITIONS OF SECTION 10B OF THE ACT AND ALSO IN RESPECT OF THE RATIO LAID DOWN BY THE HON'BLE APEX COURT IN CI T VS VENTAKATESHWARA HATCHERIES 237 ITR 174 (S.C) AND RELISH FOODS 237 ITR 59 (SC) AS PER THE RELEVANT OBSERVATIONS AT PAG ES 55 TO 60 OF THE PAPER BOOK. THE REPLY OF THE ASSESSEE DATED 28.11. 2008 IS PLACED AT PAGES 65 TO 72 OF THE PAPER BOOK AND THE ASSESSEE E XPLAINED THE PROCESS OF MANUFACTURE OF HONEY IN DETAIL UNDER PAR A 2 AND IT WAS ALSO POINTED OUT THAT THE SAID UNIT WAS ESTABLISHED WITH NEW MACHINERY AND ELIGIBILITY OF CLAIM OF DEDUCTION UNDER SECTION 10B OF THE ACT WAS EXPLAINED. THE COPY OF THE SAID REPLY IS PLACED AT PAGES 65 TO 72 OF THE PAPER BOOK. THE ADDL. COMMISSIONER OF INCOME T AX, THEREAFTER ISSUED ANOTHER LETTER DATED 11.12.2008 WHICH IS PLA CED AT PAGES 73 TO 77 OF THE PAPER BOOK IN WHICH THE ISSUE RAISED BY T HE ADDL. COMMISSIONER OF INCOME TAX WAS WHETHER THE ASSESSEE WAS ENTITLED TO THE DEDUCTION UNDER SECTION 10B OF THE ACT @ 100% O R 90% OF THE PROFITS. THE REPLY OF THE ASSESSEE DATED 22.12.200 8 IS PLACED AT PAGES 78 TO 81 OF THE PAPER BOOK IN WHICH THE ASSESSEE AD MITTED THAT BY AN ERROR, IT HAD CLAIMED THE DEDUCTION UNDER SECTION 1 0B OF THE ACT AT 100% INSTEAD OF 90% AND ON POINTING OUT OF THE MIST AKE, IT DEPOSITED THE INCOME TAX PLUS INTEREST THEREON SUO-MOTTO WITH OUT ANY INSTRUCTIONS FROM THE INCOME TAX OFFICE. THE ASSES SING OFFICER, THEREAFTER ISSUED A QUESTIONNAIRE DATED 23.12.2008 WHICH IS PLACED AT PAGES 82 TO 83 OF THE PAPER BOOK IN WHICH QUERIES W ERE RAISED IN RESPECT OF THE ALLOWABILITY OF DEDUCTION UNDER SECT ION 10B OF THE ACT WITH RESPECT TO THE CONCEPT OF MANUFACTURING. THE REPLY OF THE 16 ASSESSEE DATED 26.12.2008 IN THIS REGARD IS PLACED AT PAGES 86 TO 90 OF THE PAPER BOOK IN WHICH THE ASSESSEE EXPLAINED VARI OUS ASPECTS OF ITS MANUFACTURE AND ALSO POINTED OUT THAT THE DEFINITIO N OF PRODUCTION AND MANUFACTURE HAVE BEEN CONSIDERED BY THE HON'BLE SUP REME COURT IN INDIA CINE AGENCIES VS CIT (SUPRA) AND THE TERM PR ODUCTION INCLUDES PACKING, LABELING, RE-LABELING OF CONTAINERS; RE-PA CKING FROM BULK PACKAGES TO RETAIL PACKAGES AND ADOPTION OF ANY OTH ER METHOD TO RENDER THE PRODUCE MARKETABLE. IN VIEW OF THE DEFI NITION, AS REFERRED BY THE HON'BLE SUPREME COURT IN INDIA CINE AGENCIES VS CIT (SUPRA), IT WAS POINTED OUT THAT THE ASSESSEE WAS ENGAGED IN THE MANUFACTURE/PRODUCTION OF HONEY AS THE DEFINITION W AS WIDE ENOUGH TO INCLUDE ALL TYPES OF MANUFACTURING ACTIVITIES UNDER TAKEN BY THE ASSESSEE. THE LD. AR FOR THE ASSESSEE ALSO POINTED OUT THAT THE FINISHED HONEY WAS DISTINCT IN CHARACTER AND PROPER TIES FROM THE RAW HONEY AND VARIOUS IMPURITIES, WAX, MOISTURE WERE RE DUCED AND AFTER PASTEURIZATION, SAME WERE BOTTLED, LABELED AND PACK ED TO MAKE IT MARKETABLE/EXPORTABLE. IT WAS ALSO POINTED OUT BY T HE ASSESSEE THAT VARIOUS GOVERNMENT AGENCIES INCLUDING CENTRAL EXCIS E, ABEVA AND NEPZ (DEVELOPMENT COMMISSIONER) HAD REGARDED THE UN IT AS ENGAGED IN MANUFACTURE OF HONEY AND THE ASSESSEE WAS AVAILI NG ALL THE BENEFITS AVAILABLE UNDER THE LAW. ANOTHER QUESTIONNAIRE WAS ISSUED BY THE ASSESSING OFFICER VIDE LETTER DATED 26.12.2008 PLAC ED AT PAGES 84-85 OF THE PAPER BOOK IN WHICH THE ASSESSEE WAS ASKED T O FURNISH SPECIFIC REPLY REGARDING ALLOWABILITY OF DEDUCTION UNDER SEC TION 10B OF THE ACT INCLUDING POINTING OUT THE DIFFERENCE BETWEEN RAW H ONEY AND FINISHED HONEY. THE REPLY OF THE ASSESSEE DATED 29.12.2008 IS PLACED AT PAGES 91 TO 96 OF THE PAPER BOOK IN WHICH THE ASSESSEE HA S INCLUDED FLOW CHART OF MANUFACTURING HONEY AND ALSO POINTED OUT T HE CHANGE IN CHARACTERISTICS BOTH IN PHYSICAL AND CHEMICAL ASPEC TS OF RAW HONEY AND 17 FINISHED HONEY AND ALSO THE VARIOUS ASPECTS OF MARK ETABILITY OF THE TWO ITEMS. ANOTHER REPLY WAS FURNISHED BY THE ASSESSEE ON 30.12.2008 WHICH IS PLACED AT PAGES 97 TO 100 OF THE PAPER BOO K. IN THE ABOVESAID REPLY, THE ASSESSING OFFICER HAD PERIODIC ALLY RAISED THE ISSUE OF CLAIM OF DEDUCTION ON THE RECEIPTS ON ACCO UNT OF THE VISHESH KRISHI UPAJ YOGANA AND ITS TAXABILITY. IT MAY BE P OINTED OUT THAT DURING THE PENDENCY OF THE ASSESSMENT PROCEEDINGS, SURVEY REPORT WAS OBTAINED BY THE ASSESSING OFFICER BY DEPUTING INSPE CTORS UNDER SECTION 133B OF THE ACT WHICH WAS ALSO CONFRONTED T O THE ASSESSEE AND VARIOUS QUERIES WERE RAISED IN THIS REGARD. THEREA FTER, THE ASSESSMENT WAS COMPLETED BY THE ASSESSING OFFICER VIDE ORDER D ATED 30.12.2008. 18. THE COMMISSIONER OF INCOME TAX ISSUED SHOW CAUS E NOTICE UNDER SECTION 263 OF THE INCOME TAX ACT AS TO WHY T HE EXEMPTION ALLOWED UNDER SECTION 10B OF THE ACT SHOULD NOT BE WITHDRAWN FOR THE FOLLOWING REASONS : A. FIRST, THE PROCEDURE EMPLOYED TO INSPECT THE PR OCESSING FACILITIES BY THE INSPECTORS UNDER SECTION 133B WAS UNAUTHORIZED IN LEGAL TERMS. THE LIMITED OBJECTIVE OF THE PROCESS UNDER SECTION 133B IS TO OBTAIN THE INFORMATION STIPULATED SPECIFICALLY IN FORM NO 45 D WHICH DOES NOT CONTEMPLATE THE INSPECTION AND SUBMISSION OF THE RE PORT BUY THE INSPECTORS ON THE ASPECT OF PROCESSING OF HONEY. THE PROCEDURE ADOPTED IS ERRONEOUS AND SUBVERSIVE OF THE LEGALLY AUTHORIZED INSPE CTION PROCESSES. SUCH UNAUTHORIZED INSPECTION PROCEDURES ARE PREJUDICIAL TO THE SANCTITY OF THE TAX ADMINISTRATION AND ANY FINDINGS MADE THERE SUFFER F ROM IRREGULARITY. B. SECONDLY, TO ADJUDGE CHANGES IN THE CHEMICAL PR OPERTIES, AS FOUND BY THE INSPECTORS, TECHNICAL QUALIFICATION AND KNOWLED GE IS OBVIOUSLY NECESSARY. THERE IS NOTHING ON RECORD TO SUGGEST THAT THE INSP ECTORS WERE SO QUALIFIED. THEREFORE, THE FINDINGS OF THE INSPECTORS SHOULD NO T HAVE BEEN TAKEN INTO CONSIDERATION BY THE AO IN THE PROCESS OF ADJUDICAT ING THE CLAIM FOR DEDUCTION UNDER SECTION 10B. C. THIRDLY, THOUGH IT IS CLAIMED THAT THE EXTENT OF TRANSFORMATION OF RAW HONEY RESULTS IN THE FINISHED HONEY BECOMING A DIST INCT COMMODITY, NOTHING IS BROUGHT ON RECORD SUCH AS ANY TECHNICAL BENCHMARKS OR STANDARDS TO SUBSTANTIATE THE CLAIM THAT THE FINISHED HONEY REPR ESENTS A DISTINCT PRODUCT AT LEAST IN TECHNICAL TERMS. THE RECORDS DO NOT INDIC ATE THAT THE TECHNICAL PARAMETERS OF FINISHED HONEY ARE DISTINCT FROM THOS E OF RAW HONEY. MERE VARIATIONS IN PERCENTAGE TERMS OF CONTENTS OF SUGAR , MOISTURE AND MICRO BIOLOGICAL PROPERTIES CANNOT IMPART TECHNICAL DISTI NCTIVENESS TO FINISHED HONEY. D. THEREFORE, THE ONLY MATERIAL ON RECORD TO JUSTIF Y THE TRANSFORMATION APPEARS TO BE THE PROCESSING OF HONEY IN SUCH A MAN NER AND TO THE LIMITED 18 EXTENT OF MAKING THE HONEY FIT FOR MARKETABILITY AN D HUMAN CONSUMPTION. SUCH A LIMITED CHANGE CANNOT BE CALLED MANUFACTURE OR PRODUCTION. IT IS NOTEWORTHY THAT WHERE THE BENEFIT IS SOUGHT TO BE A LLOWED UNDER SECTION 10 B ON THE BASIS OF MERE PROCESSING WHICH DOES NOT RESU LT IN TOTAL TRANSFORMATION OF THE INPUT, A SPECIFIC PROVISION IS MADE TO THIS EFFECT IN THE EXPLANATION. PROCESSING OF HONEY IS NOT ALLOWED THIS CONCESSION. E. IT APPEARS THAT THE GRANT OF EXEMPTION ON TH E MERE BASIS OF MARKETABILITY IS BASED ON THE DECISION OF HON'BLE S UPREME COURT IN THE CASE OF INDIAN CINE AGENCIES. IT APPEARS THAT THE AO HAS AGREED WITH CONTENTION THAT DISTINCT NATURE OF FINAL OUTPUT IS NOT THE CON DITION FOR GRANT OF DEDUCTION SO LONG AS THE TEST OF MARKETABILITY IS SATISFIED. T HE FINDING OF THE AO IS ERRONEOUS FOR THE FOLLOWING REASONS: 1. THE HON'BLE SUPREME COURT WAS CONCERNED WITH THE PROVISIONS OF SECTION 80HH/80I WHEREAS THE QUE STION IN YOUR CASE IS THE INTERPRETATION OF SECTION 10 B, WHERE AMONG OTHERS, THE CONDITION OF MANUFACTURE OR PRODUCTION IS MADE EXP LICIT BY PROVIDING THE BENEFIT FOR MERE PROCESSING IN A RESTRICTED MANNER. NEXT THE FACTS ARE NOT AT ALL COMPARABLE. 2. THE AO HAS IGNORED THE LAW OR PRECEDENTS WHICH STIP ULATES THAT THE DECISION OF A BENCH OF COURT WITH HIGHER N UMBER OF JUDGES IS A BINDING PRECEDENT VIS--VIS THE JUDGEMENT RENDERED BY THE BENCH OF COMPARATIVELY LOWER STRENGTH THERE ARE CATENA OF TH E DECISIONS RENDERED BY HON'BLE COMPARED TO THE BENCH OF TWO JUDGES IN T HE CASE OF INDIA CINE AGENCIES WHERE THE DISTINCTIVENESS OF THE FINAL OUT PUT HAS BEEN HELD TO BE THE CONDITION PRODUCTION. THE ASSESSING OFFICER FAILED TO TAKE INTO CONSIDERATION SOME OF THE DECISIONS OF THE HON'BLE SC RENDERED BY THE FULL BENCH AND DIVISION BENCH SUCH AS COMMISSIONER OF INCOME TAX V RELISH FOODS 237 ITR 59 (SC). STERLING FOODS' CASE [1986] 63 STC 239 (SC), INDIAN HOTELS COMPANY LTD. VS. ITO 245 ITR 538 (SC), SACS EAGLES CHICORY VS. CIT 255 ITR 178 (SC)), CIT VS. VENKATESHWARA HATCHE RIES (P) LTD,), CIT VS. GEM INDIA MANUFACTURING COMPANY 249 ITR 307 (SC), LUCKY MINMAT (P) LTD. VS. CIT 245 ITR 830 (SC), CIT VS. TARA AGENCIES 292 ITR 444 (SC.237ITR 174 (SC), CIT VS. KA/A CARTOONS (P) LTD . 252 ITR 658 (SC), COMMISSIONER OF INCOME TAX V TARA AGENCIES 29 2 ITR 444 (SC) ETC. 3. THE ASSESSING OFFICER FAILED TO TAKE INTO CONSID ERATION THE DECISION OF THE HON'BLE SC IN COMMISSIONER OF INCOME TAX V R ELISH FOODS 237 ITR 59 (SC) AND CIT VS. VENKATESHWARA HATCHERIES (P) LT D. 237 ITR 174 (SC) WHICH HE WAS DIRECTED TO DO SO BY THE ADDL.CIT RANG E VIDE HIS DIRECTION U/S 144A ISSUED ON 22-10-2008. [INSTRUCTION. NO-1]. IN VIEW OF THESE FACTS I HAVE REASON TO BELIEVE THA T THE ASSESSING OFFICER HAS ERRED IN LAW AND ON FACTS IN ALLOWING DEDUCTION U/S 10B OF RS. 57959512/-. ON THE PROCESSING OF HONEY DONE BY YOU. 19. THE ISSUE ARISING BEFORE US IS TWO FOLD. THE F IRST ASPECT OF THE ISSUE RAISED BEFORE US IS WHETHER THE ASSESSEE IS E NGAGED IN THE MANUFACTURING ACTIVITIES WHICH ENTITLES IT TO THE C LAIM OF EXEMPTION UNDER SECTION 10B OF THE ACT. THE SECOND ASPECT O F THE ISSUE IS WHETHER THE EXERCISE OF REVISIONARY JURISDICTION BY THE COMMISSIONER 19 OF INCOME TAX UNDER THE PROVISIONS OF SECTION 263 O F THE ACT HAS BEEN CORRECTLY EXERCISED. 20. WE PROCEED TO DECIDE THE FIRST ASPECT OF THE IS SUE THAT WHETHER THE ASSESSEE IS ENGAGED IN MANUFACTURING OF HONEY. IN THE FACTS OF THE CASE BEFORE US THE ASSESSEE CLAIMED TO BE MANUFACTU RING VARIOUS TYPES OF FINISHED HONEY WHICH IS BEING PRODUCED FROM NECT AR (I.E. RAW HONEY). THE ASSESSEE HAD ESTABLISHED HUNDRED PERCE NT EXPORT ORIENTED UNIT UNDER WHICH IT HAD SOUGHT PERMISSION FROM VARI OUS DEPARTMENTS TO MANUFACTURE AND EXPORT HONEY. THE SOURCE OF THE AC TIVITY CARRIED ON BY THE ASSESSEE IS NECTAR (KACHA HONEY) AND 96% OF THE MANUFACTURING/PRODUCTION IS OUT OF THE SAID NECTAR BEING PROCURED FROM THE MARKET AND ONLY SMALL PORTION FROM OWN BEE KEEPING ACTIVITIES. IT IS NOT THE CASE OF THE ASSESSEE TH AT BREEDING OF BEES AND COLLECTION OF NECTAR WAS THE FIRST CATEGORY OF OPER ATION, WHICH ADMITTEDLY WAS NATURAL PHENOMENA AND THE ASSESSEE H AS NOT CLAIMED IT TO BE PROCESSING OR ITS MANUFACTURING ACTIVITY. THE SAID FACT HAS BEEN ACCEPTED BY THE REVENUE. REFERENCE IS BEING MADE T O THE REPLY OF THE ACIT, DATED 07.08.2012 BEARING NO.ACIT/CIRCLE-KHANN A/2012-13/117 FILED BEFORE THE CIT-III, LUDHIANA IN THE APPEAL PR OCEEDINGS RELEVANT TO ASSESSMENT YEAR 2006-07 AND 2009-10 PLACED AT PA GES 67 TO 72 OF THE PAPER BOOK. THE ASSESSEE CLAIMED THAT RAW MATE RIAL PURCHASED BY IT WAS TESTED FOR ITS QUALITY PARAMETERS INCLUDING MOISTURE CONTENT, IMPURITIES, SUCROSE CONTENT ETC. THE PROCESSING I NVOLVED CLEANING, HEATING, FILTRATION, MOISTURE REDUCTION, PASTEURIZA TION, LAB TEST FOR BOTH RAW AND FINISHED HONEY TO KNOW THE PARASITES PRESEN T IN THE RAW MATERIAL AND FINISHED PRODUCT. BLENDING OF DIFFERE NT TYPES OF RAW HONEY IS BEING DONE TO GET THE FINISHED PRODUCTS OF EXPORTABLE QUALITY OF HONEY. THE MANUFACTURING AND PROCESSING OF HONE Y IS DONE MAINLY 20 TO PREVENT FERMENTATION AND RETARD GRANULATION. TH E FINISHED PRODUCT OBTAINED AFTER PROPER BLENDING IS UNIFORM, CONSISTE NT AND OF DESIRED QUALITY FOR EXPORT AND TO GET RIGHT KIND OF COLOUR AND CHARACTER ACCORDING TO THE REQUIREMENTS/PARAMETERS PRESCRIBED BY THE OVERSEAS BUYERS. AGAIN FINISHED HONEY IS PACKED IN BOTTLES, LABELED ACCORDING TO THEIR BRAND NAME, PACKED IN BOXES, AND LOADED FO R THEIR SHIPMENT INTO CONTAINERS. THE ASSESSEE HAS FURNISHED ON REC ORD THE FLOW CHART AT PAGES 29 TO 31 OF THE PAPER BOOK WHICH EXPLAINS THE ACTIVITIES CARRIED ON BY THE ASSESSEE FOR PROCESSING RAW HONEY INTO FINISHED HONEY. 21. THE GOVERNMENT OF INDIA VIDE FOREIGN TRADE POLI CY, 2002 UNDER CHAPTER 25 HAD FORMULATED SCHEME FOR EXPORT ORIENTE D UNITS(EOUS). THE PURPOSE OF THE SCHEME WAS TO BOOST THE EXPORTS BY CREATING ADDITIONAL PRODUCTION CAPACITY. UNDER THE SCHEME T HE EXPORTERS WERE WILLING TO SET UP UNITS WITH LONG TERM COMMITMENT T O EXPORTS UNDER CUSTOMS BOND OPERATIONS AND FREEDOM WAS GIVEN TO TH E SAID PERSONS TO SET UP THE UNITS AT THE PLACES OF CHOICE AND WAS NO T NECESSARY TO SET UP UNITS IN FREE TRADE ZONE/EXPORT PROCESSING ZONE. H OWEVER, THE BENEFITS UNDER THE SAID SCHEME WERE PROVIDED AS PROVIDED TO THE UNITS SET UP IN ZONE. THE BENEFITS WHICH WAS EXTENDED TO EOUS WERE PROVIDED TO GIVE THEM A COMPETITIVE EDGE TO COMPETE IN EXPORT MARKET AND THE SAME WERE AS FOLLOWS: I. EOUS ARE ALLOWED TO PROCURE RAW MATERIALS/CAPITA L GOODS DUTY FREE, EITHER THROUGH IMPORT OR THROUGH DOMESTI C SOURCES; II. REIMBURSEMENT OF CENTRAL SALES TAX (CST); III. REIMBURSEMENT OF DUTY PAID ON FUELS PROCURED F ROM DOMESTIC OIL COMPANIES; IV. CENVAT CREDIT ON THE GOODS AND SERVICE AND REFU ND THEREOF; 21 V. FAST TRACK CLEARANCE FACILITIES; AND VI. EXEMPTION FROM INDUSTRIAL LICENSING FOR MANUFAC TURE OF ITEMS RESERVED FOR SSI SECTOR. 22. UNDER THE SAID FOREIGN TRADE POLICY OF 2000, TH E EOUS WERE ENTITLED TO IMPORT/PROCURE LOCALLY DUTY FREE RAW MA TERIAL, CAPITAL GOODS AND OFFICE EQUIPMENT ETC., AS PER CUSTOMS NOTIFICA TION I.E. FOR DUTY FREE IMPORTS AND CENTRAL EXCISE NOTIFICATION DATED 31.3.2003 FOR DUTY FREE PROCUREMENTS. IN OTHER WORDS, THE EOUS WAS GI VEN BOTH THE CUSTOMS AND CENTRAL EXCISE EXEMPTION FOR SETTING UP 100% EOU UNIT. UNDER THE SCHEME IT WAS PROVIDED THAT THE PROJECTS HAVING A MINIMUM INVESTMENT OF RS.1 CRORE AND ABOVE IN BUILDING, PL ANT AND MACHINERY WERE USUALLY CONSIDERED FOR ESTABLISHMENT UNDER EOU SCHEME. MINIMUM INVESTMENT CRITERIA WAS TO BE FULFILLED AT THE TIME OF COMMENCEMENT OF PRODUCTION BY THE UNIT. THE MINIMUM INVESTMENT CRITERIA DOES NOT APPLY FOR CERTAIN SECTORS LIKE EL ECTRONIC, HARDWARE, TECHNOLOGY PARK UNIT, SOFTWARE TECHNOLOGY PARK UNIT , HANNDICRAFTS, AGRICULTURE AND AQUACULTURE. SETTING UP OF TRADING UNITS WAS NOT PERMITTED UNDER EOU SCHEME. 23. FOR SETTING UP OF EOU, AN APPLICATION IN THE PR ESCRIBED FORM WAS REQUIRED TO BE SUBMITTED TO THE DEVELOPMENT COMMISS IONER, WHO IN TURN ISSUED A LETTER OF PERMISSION (LOP/LOI) SPECIF YING THE CAPACITY AND THE ITEMS OF MANUFACTURE AND EXPORT, CAPITAL GO ODS PERMITTED TO BE IMPORTED/PROCURED. THE LOP/LOI ISSUED WAS TO BE CO NSTRUED AS A LICENCE FOR ALL PURPOSES. THEREAFTER EOU UNIT WAS REQUIRED TO APPLY FOR A LICENCE FOR PRIVATE BONDED WAREHOUSE AND IN B OND MANUFACTURING SANCTION ORDER UNDER PROVISIONS OF SECTIONS 58 AND 65 OF THE CUSTOMS ACT RESPECTIVELY FROM THE JURISDICTIONAL ASSISTANT/ DEPUTY COMMISSIONER OF CENTRAL EXCISE AND CUSTOMS. THE E OUS SET UP TO FUNCTION UNDER THE ADMINISTRATIVE CONTROL OF THE DE VELOPMENT 22 COMMISSIONER OF THE SPECIAL ECONOMIC ZONES(SEZ), WH OSE JURISDICTION WAS NOTIFIED BY THE MINISTRY OF COMMER CE. THE SAID DEVELOPMENT COMMISSIONERS OF THE SEZ WERE THE LICEN CING AUTHORITIES IN RESPECT OF THE UNITS UNDER THE EOU SCHEME, AS PE R SPECIFIED TERRITORIAL JURISDICTION. FURTHER THE PROVISIONS O F THE CUSTOMS AND CENTRAL EXCISE LAW IN RESPECT OF THE EOUS ARE ADMIN ISTERED BY THE COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE. ON THE POLICY FRONT, ALL DECISIONS RELATING TO THE EOUS WERE TAKEN BY THE BO ARD OF APPROVALS SET UP UNDER THE DEPARTMENT OF COMMERCE, WHICH IN T URN IS CHAIRED BY THE SECRETARY, MINISTRY OF COMMERCE. ONE OF THE RE QUIREMENTS TO SET UP A UNIT AS AN EOU WAS THAT THE PREMISES OF EOU WE RE TO BE APPROVED AS A CUSTOMS BONDED WAREHOUSE UNDER THE WAREHOUSING PROVISIONS OF THE CUSTOMS ACT. THE MANUFACTURING AND OTHER OPERA TIONS WERE CARRIED OUT UNDER CUSTOMS BOND AND THE UNIT BORE AP PROPRIATE CHARGES FOR OFFICERS ON COST RECOVERY BASIS. IN CASE OF UN ITS IN AQUACULTURE, HORTICULTURE, FLORICULTURE, GRANITE QUARRYING ETC E XEMPTION FROM BONDING WAS GIVEN FOR ADMINISTRATIVE REASONS WITH C ERTAIN OTHER SAFEGUARDS BEING PUT IN PLACE TO CHECK THAT DUTY FR EE BENEFITS WHERE AVAILED WERE NOT ABUSED. THE EOUS WERE REQUIRED TO EXECUTE MULTIPURPOSE BOND WITH SURETY/SECURITY WITH JURISDI CTIONAL CENTRAL EXCISE AND CUSTOMS OFFICERS (REFER CIRCULAR NO.15/9 5-CUS. DATED 23.2.1995). FURTHER UNDER THE EOU SCHEME, THE UNIT S WERE ALLOWED TO IMPORT OR PROCURE LOCALLY WITHOUT PAYMENT OF DUTY, ALL TYPES OF GOODS INCLUDING CAPITAL GOODS, RAW MATERIALS, COMPONENTS, PACKING MATERIAL, CONSUMABLES, SPARES AND VARIOUS OTHER SPECIFIED CAT EGORIES OF EQUIPMENTS LIKE MATERIAL HANDLING EQUIPMENTS, UPSS, QUALITY ASSURANCE EQUIPMENTS, CAPTIVE POWER PLANTS, CENTRAL AIR CONDITIONING EQUIPMENTS, SECURITY SYSTEMS, POLLUTION CONTROL EQU IPMENTS, MODULAR FURNITURE AND PARTS THEREOF ETC. REQUIRED FOR THE P RODUCTION/JOB WORK 23 AND OTHER OPERATION IN TERMS OF LETTER OF PERMISSIO N (LOP). (REFER CIRCULAR NO.17/2006-CUS DATED 1.6.2006). 24. AS PER THE SCHEME, DUTY FREE IMPORT AND PROCUREMENT OF EXPORT PROMOTION MATERIAL LIKE BROCHURES, LITERATURES, PAM PHLETS, HOARDINGS, CATALOGUES AND POSTERS OF PRODUCTS TO THE EXTENT OF 1.5% OF THE VALUE OF EXPORTS OF THE PREVIOUS YEAR WAS ALSO ALLOWED. THE EXPORT VALUE OF SUPPLIES OF SUCH PROMOTIONAL MATERIAL SHALL NOT BE COUNTED TOWARDS FULFILLMENT OF NFE AND FOR AVAILING DTA ENTITLEMENT AS SPECIFIED IN PARA 6.8 OF FTP. HOWEVER, IMPORT OF SUCH PROMOTIONAL MAT ERIAL SHALL BE CONSIDERED FOR COMPUTATION OF SUM TOTAL OF ALL IMPO RTED GOODS FOR ARRIVING AT NFE. ( REFER CIRCULAR NO. 17/2006-CUS DATED 1-6-2006). UN DER THE SCHEME EOUS ARE PRIVATE BONDED WAREHOUSE UNDER PROVISIONS OF SECTION 58 OF THE CUSTOMS ACT, 1962. TO UNDERTAKE MANUFACTU RING OR OTHER OPERATIONS IN THE WAREHOUSE IN RELATION TO WAREHOUS ED GOODS, THE REQUIRED PERMISSION WAS GRANTED UNDER SECTION 65 OF THE CUST OMS ACT, 1962, READ WITH 'MANUFACTURE AND OTHER OPERATIONS IN WAREHOUSE REGULATIONS, 1966'. THE DEGREE OF SUPERVISION OF THE DEPARTMENTA L OFFICERS ON MOVEMENT OF RAW MATERIALS, COMPONENTS, FINISHED GOO DS AND MANUFACTURING PROCESS AND ACCOUNTING IN AN EOU IS A IMED AT PROVIDING OPERATIONAL FLEXIBILITY, EASING RESTRICTIONS AND RE MOVING PRACTICAL DIFFICULTIES FACED BY EOUS. ACCORDINGLY, THE MANUFA CTURE WAS NOW ALLOWED WITHOUT ANY PHYSICAL SUPERVISION OF THE CEN TRAL EXCISE AND CUSTOMS AUTHORITIES, LOCKING OF THE WAREHOUSE PREMI SES, CONTROL OVER THE ISSUE AND RETURN OF IMPORTED GOODS. FURTHER, ALL MO VEMENTS FROM AND TO THE UNITS LIKE CLEARANCE OF RAW MATERIALS/ COMPONEN TS TO THE JOB WORKER'S PREMISES, RETURN OF GOODS FROM THE JOB WORKER'S PRE MISES, CLEARANCE TO OTHER EOUS, EXPORT AND SALE INTO DTA COULD BE MADE BY THE MANUFACTURER SUBJECT TO RECORDING OF EACH TRANSACTION IN THE REC ORDS PRESCRIBED BY THE 24 BOARD/COMMISSIONERS OR THEIR PRIVATE RECORDS APPROV ED BY THE COMMISSIONER. ( REFER CIRCULAR NO. 88/98-CUS., DATED 2-12-1998). I MPORT/PROCUREMENT OF GOODS BY AN EOU FOR USE IN MAN UFACTURE OR IN CONNECTION WITH PRODUCTION OR PACKAGING OF GOODS FO R EXPORT IS EXEMPTED FROM PAYMENT OF CUSTOMS AND CENTRAL EXCISE DUTIES. EOUS EXECUTE A GENERAL PURPOSE B-17 BOND ALONG WITH SURE TY OR SECURITY COVERING THE DUTY FOREGONE ON IMPORTED GOODS. THIS BOND IS PRESCRIBED UNDER NOTIFICATION NO. 6/98-CE (NT) DATED 02.03.199 8 AS GENERAL BOND TO BE EXECUTED BY THE EOUS FOR PROVISIONAL ASS ESSMENT OF GOODS TO CENTRAL EXCISE DUTY, FOR EXPORT OF GOODS AND FOR ACCOUNTING/DISPOSAL OF EXCISABLE GOODS PROCURED WIT HOUT PAYMENT OF DUTY. THIS BOND ALSO TAKES CARE OF THE INTEREST OF REVENUE AGAINST RISKS ARISING OUT OF GOODS LOST IN TRANSIT, GOODS TAKEN I NTO DOMESTIC TARIFF AREA FOR JOB WORK/ REPAIR/ DISPLAY ETC BUT NOT BROU GHT BACK. BASICALLY THE B-17 BOND IS AN 'ALL PURPOSE' BOND COVERING LIA BILITIES OF THE EOU BOTH UNDER CUSTOMS AND CENTRAL EXCISE ACTS. HOWEVER , IT DOES NOT COVER THE DIFFERENTIAL DUTY AMOUNT AGAINST ADVANCE DTA SALE FOR WHICH A SEPARATE BOND IS TO BE EXECUTED. THE DEVELOPMENT COMMISSIONER IS RESPONSIBLE FOR MONITORING FOREIGN EXCHANGE REALIZA TION/REMITTANCES OF EOUS IN COORDINATION WITH THE CONCERNED GENERAL MAN AGER OF RBI. (REFER RBI CIRCULAR NO.COEXD.3109/05.62.05/1999-200 0, DATED 21.02.2000). WITH REGARD TO CLEARANCE OF IMPORT CA RGO, THE EOUS ARE PLACED IN A SPECIAL CATEGORY ELIGIBLE FOR FAST TRAC K CLEARANCE THROUGH THE CUSTOMS ON THE STRENGTH OF PROCUREMENT CERTIFIC ATE ISSUED BY THE JURISDICTIONAL ASSISTANT/DEPUTY COMMISSIONER. THE ASSESSEE IN ORDER TO SET UP ITS 100% EOU APPLI ED FOR AND WAS GRANTED REGISTRATION BY THE COMPETENT AUTHORITY I.E . DEVELOPMENT COMMISSIONER, NEPZ, NOIDA VIDE LETTER 25 NO.11/183/2003)/100%EOU/7380 DATED 24.11.2003 DECLA RING IT AS MANUFACTURER OF HONEY & BEE WAX, COPY OF WHICH IS P LACED AT PAGES 127 AND 128 OF THE PAPER BOOK. FURTHER THE ASSESSE E WAS ALSO ISSUED GREEN CARD NO.1163 DATED 11.12.2003 WHICH MENTIONS LITTLE BEE IMPEX HAS BEEN APPROVED UNDER THE SPECIAL SCHEME OF THE GOI AS A 100% EXPORT ORIENTED UNIT. THE UNIT IS ENTITLED TO TOP PRIORITY TREATMENT FROM ALL CONCERNED CENTRAL AND STATE GOVE RNMENT DEPARTMENTS IN RELATION TO ALL MATTERS RELATING TO THE PROJECT . THE COPY OF THE SAID GREEN CARD IS PLACED AT PAGE 129 O F THE PAPER BOOK. IN ADDITION THE ASSESSEE REGISTERED ITSELF UNDER TH E FACTORIES ACT, VAT/CST DEVELOPMENT COMMISSIONER, NEPZ, NOIDA AS 10 0% EOU FOR MANUFACTURING OF HONEY AND BEE WAX. THE ASSESSEE H AS PLACED ON RECORD THE REGISTRATION CERTIFICATE DATED 30.1.2004 ISSUED BY THE OFFICE OF DEPUTY COMMISSIONER, CENTRAL EXCISE, DIVISION LU DHIANA UNDER WHICH IT HAS BEEN GRANTED REGISTRATION FOR CARRYING ON MANUFACTURING PROCESS AND OTHER OPERATIONS IN THE WAREHOUSE UNDER SECTION 65 OF THE CUSTOMS ACT READ WITH MANUFACTURE AND OTHER OPERAT IONS IN WAREHOUSE REGULATIONS, 1966. UNDER THE SAID REGIS TRATION CERTIFICATE THE ASSESSEE I.E. M/S LITTLE BEE IMPEX WAS REGISTER ED AS MANUFACTURER OF HONEY WITH ANNUAL CAPACITY OF 5000 MT AND MANUFA CTURER OF BEE WAX WITH CAPACITY OF 25 MT. IT WAS PROVIDED UNDER THE SAID REGISTRATION CERTIFICATE THAT THE HOLDER OF THE CER TIFICATE WOULD BE ENTITLED TO CARRY ON MANUFACTURE IN THE BOND OF THE SCHEDULED COST, IN THE PREMISES AND FROM THE IMPORTED MATERIALS DESCRI BED IN THE SAID APPLICATION. THE ASSESSEE HAS FURTHER PLACED THE C OPY OF THE LICENCE ISSUED BY THE DEPUTY COMMISSIONER, CENTRAL EXCISE D IVISION-I, LUDHIANA DATED 20.4.2004 AND CUSTOMS BOND REGISTRAT ION CERTIFICATE UNDER WHICH THE ASSESSEE IS AUTHORIZED TO BE ENGAGE D IN THE MANUFACTURE OF OTHER OPERATION IN THE MANUFACTURE O F HONEY, BEE WAX 26 SHEETS. FURTHER THE ASSESSEE AT PAGE 180 HAD PLACE D ON RECORD FORM RC I.E. CENTRAL EXCISE REGISTRATION CERTIFICATE ISS UED BY THE DEPUTY COMMISSIONER, CENTRAL EXCISE DIVISION-I, LUDHIANA O N 30.1.2004 FOR REGISTERING THE ASSESSEE FOR OPERATING AN EXPORT OR IENTED UNDERTAKING AT G.T. ROAD, VILLAGE MALLIPUR, DORAHA, LUDHIANA FO R THE PURPOSE OF CARRYING ON THE ACTIVITY FOR WHICH AN APPLICATION W AS MOVED. THE COPY OF REGISTRATION-CUM-PARTNERSHIP CERTIFICATE IS SUED BY THE AGRICULTURAL AND PROCESSED FOOD PRODUCTS EXPORT DEV ELOPMENT AUTHORITY (APEDA), MINISTRY OF COMMERCE ISSUED ON 1 0.2.2004 IS PLACED AT PAGE 185 OF THE PAPER BOOK UNDER WHICH AL SO THE ASSESSEE IS REGISTERED AND RECOGNIZED AS MANUFACTURER. IN ORDE R TO ESTABLISH ITS UNIT THE ASSESSEE MADE INVESTMENT IN BUILDING AND M ACHINERY AND VARIOUS OTHER ASSETS. THE COPY OF DETAILS OF ADDIT ION MADE TO THE PLANT AND MACHINERY FROM FINANCIAL YEARS 2003-04 TO 2008- 09 ARE FURNISHED AT PAGES 246 TO 248 OF THE PAPER BOOK. IN ADDITION , THE ASSESSEE HAD ALSO FURNISHED COPIES OF THE TAX AUDIT REPORT ALONG WITH COPIES OF BALANCE SHEET, PROFIT & LOSS ACCOUNT AND LIST OF FI XED ASSET FOR THE FINANCIAL YEARS 2003-04 TO 2008-09 AT PAGES 191 TO 245 OF THE PAPER BOOK. IN THE ABOVE SAID FACTS AND CIRCUMSTANCES TH E ISSUE RAISED BEFORE US IS IN RELATION TO THE CLAIM OF THE ASSESS EE THAT IT WAS ENGAGED IN MANUFACTURING/PROCESSING OF HONEY AND WAS ENTITL ED TO THE BENEFIT OF EXEMPTION UNDER SECTION 10B OF THE ACT. 25. THE FIRST OBJECTION RAISED BY THE AUTHORITIES B ELOW TO HOLD THAT THE ASSESSEE IS NOT ENTITLED TO THE CLAIM OF EXEMPTION UNDER SECTION 10B OF THE ACT FLOWS FROM THE CONCLUSION THAT THE RAW HONE Y AND PROCESSED HONEY WERE NOT DIFFERENT. THE SECOND ASPECT OF THE ISSUE WAS THAT THE ASSESSEE WAS ONLY COLLECTING THE HONEY AFTER REMOVI NG MOISTURE FROM THE SAME AND HENCE WAS NOT ENGAGED IN ANY MANUFACTU RING ACTIVITIES. 27 THE THIRD ASPECT WAS THAT THERE WAS NO QUALITY DIFF ERENCE BETWEEN RAW HONEY AND FINISHED HONEY AND AS SUCH NO NEW PRODUCT CAME INTO EXISTENCE AFTER SO-CALLED MANUFACTURING ACTIVITIES. THE LAST OBJECTION OF THE AUTHORITIES BELOW WAS THAT THE ASSESSEE HAD NOT ESTABLISHED ANY MANUFACTURING UNIT TO CARRY OUT ITS MANUFACTURING A CTIVITIES AND IT WAS ONLY REMOVING MOISTURE FROM RAW HONEY AND RE-PACKIN G THE SAME, WHICH IN NO CIRCUMSTANCES COULD BE CALLED MANUFACTU RING ACTIVITIES. 26. AFTER CONSIDERATION OF THE TOTALITY OF THE FAC TS AND CIRCUMSTANCES OF THE PRESENT CASE, WE FIND THAT THE CLAIM OF THE ASSESSEE WAS THAT IT HAD ESTABLISHED A 100% EOU UNIT IN ORDER TO AVAIL E XEMPTION UNDER SECTION 10B OF THE ACT. UNDER THE PROVISIONS OF SE CTION 10B OF THE ACT IT IS PROVIDED THAT DEDUCTION OUT OF SUCH PROFI TS AND GAINS AS ARE DERIVED BY 100% EXPORT ORIENTED UNDERTAKING, IS TO BE ALLOWED FROM THE EXPORT OF SUCH ARTICLES OR THINGS OR COMPUTER S OFTWARE, WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICL ES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE. SUCH DEDUCT ION IS TO BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE FOR A PERIOD OF 10 CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASS ESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE MANUFACT URE OR PRODUCTION IS STARTED BY THE UNDERTAKING. UNDER THE PROVISION S OF SECTION 10B OF THE ACT EXEMPTION IS ALLOWED TO SUCH PERSON WHO HAD ESTABLISHED 100% EOUS UNDER WHICH IT MANUFACTURES OR PRODUCES ARTICL ES OR THINGS OR COMPUTER SOFTWARE. AS REFERRED TO BEFORE US IN THE PARAS HEREINABOVE THE SCHEME FOR ESTABLISHMENT OF EOUS HAS BEEN FORMULATED BY THE FO REIGN TRADE POLICY, 2002 WHICH LAYS DOWN VARIOUS PROCEDURES TO BE FOLLOWED IN ADDITION VARIOUS REGISTRATIONS TO BE OBTAINED BY TH E MANUFACTURING UNIT AND RESTRICTIONS ARE PLACED UPON THE WAREHOUSING BE ING CUSTOMS 28 BONDED WAREHOUSE. THE ASSESSEE IN THE PRESENT CASE AND AS REFERRED TO BEFORE US IN THE PARAS HEREINABOVE HAS BEEN REGISTE RED AS 100% EOU. THE PURPOSE OF THE SCHEME ITSELF REFLECTS THAT ESTA BLISHMENT OF SUCH EOUS IS BASICALLY TO BOOST EXPORTS BY CREATING ADDI TIONAL PRODUCTION CAPACITY. SO IN ORDER TO RECOGNIZE AS AN EXPORT OR IENTED UNIT, THE ASSESSEE HAS TO BE ENGAGED IN MANUFACTURE OR PRODUC TION OF ANY ARTICLES OR THINGS OR COMPUTER SOFTWARE. THE STATU TE HAS CLEARLY LAID DOWN THAT THE SETTING UP OF TRADING UNITS IS NOT PE RMITTED UNDER THE EOU SCHEME. THE ASSESSEE BEFORE US HAS BEEN GIVEN RECOGNITION BY WAY OF REGISTRATION AS AN EOU UNIT BY DEPUTY COMMIS SIONER, CENTRAL EXCISE DIVISION-I, LUDHIANA BOTH UNDER THE CUSTOMS AND EXCISE ACT. FURTHER THE ASSESSEE HAD BEEN REGISTERED WITH NEPZ, NOIDA, AGRI. PROCESSING & EXPORT DEVELOPMENT AGENCY (APEDA) AND OTHER AUTHORITIES AS REQUISITIONED UNDER THE FOREIGN TRAD E POLICY, 2002 WHICH HAD ENLISTED THE REQUIREMENTS FOR THE ESTABLI SHMENT OF EXPORT ORIENTED UNITS. 27. NOW COMING TO THE ACTIVITY CARRIED ON BY THE AS SESSEE, THE FLOW CHART HAS BEEN SUBMITTED BY THE ASSESSEE UNDER WHIC H VARIOUS STEPS WERE TAKEN BY THE ASSESSEE TO CONVERT THE RAW HONEY INTO FINISHED HONEY. THE FLOW CHART IS AS UNDER:- PROCESS FLOW CHART FROM RAW HONEY TO FINISHED HONEY RECEPTION OF RAW HONEY SAMPLING & TESTING REJECTION KEPT IN REJECTION AREA/RETURN TO SUPPLIER MELTING (LIQUIFACTION OF RAW HONEY (NECTAR) & CONVERTED INT O LIQUID FORM) HEAT EXCHANGER (BREAKING OF MICRO CRYSTALS ) PRIMARY FILTRATION MOISTURE CONTROL (TAKING THE EXTRA MOISTURE OUT OF NECTAR AT TEMPERA TURE BELOW 55) HOMOGENIZATION 29 (BLENDING OF HONEY) SETTLING (IN TANKS) (REMOVAL OF BY-PRODUCTS OF HONEYBEES/ ORGANIC ACIDS & OTHER UNDESIRABLE CHEMICAL CONSTITUENTS) FLOW BED TECHNOLOGY (TO REMOVE CONTAMINANTS / RESIDUAL CONTROL) PASTEURIZATION (KILLING OF MICRO ORGANISM, YEAST, MOULD, SALMUNDIA ETC) MICROFILTRATION (REMOVAL OF EXTRA POLLEN & OTHER MICRO PARTICLES OF FOREIGN OR NATIVE) PACKING/ FILLING IN DRUMS & IN HOUSE BOTTLE ( FILLING IN CONSUMER PACK) THE FIRST STEP WAS SAMPLING AND TESTING OF VARIOUS VARIETIES OF RAW HONEY PROCURED FROM THE MARKET AND BLENDED TO A CERTAIN EXTENT. THEREAFTER THE SAID RAW HONEY WAS LIQUEFIED, CONVER TED INTO LIQUID FORM WHICH WAS THE PROCESS OF MELTING. AFTER THAT THERE WAS BREAKING OF MICROCRYSTAL BY HEAT EXCHANGE AND PRIMARY FILTRA TION IS THEN CARRIED OUT. THE ASSESSEE THEREAFTER DOES THE PROCESS OF M OISTURE CONTROL WHEREIN RAW HONEY WAS KEPT AT THE TEMPERATURE BELOW 55 DEGREE. IN ORDER TO PROCURE THE FINISHED PRODUCT, THE BLENDING OF DIFFERENT VARIETIES OF HONEY WAS CARRIED OUT TO HOMOGENEOUS P RODUCT. THEREAFTER SHORT STEPS OF REMOVAL OF CONTAMINATES/R ESIDUAL CONTROL, PASTEURIZATION I.E. KILLING OF MICRO- FILTRATION I. E. REMOVAL OF EXTRA POLLENS AND OTHER MICRO PARTICLES. THEN THE FINISH ED HONEY WAS PACKED IN DRUMS OR BOTTLES. THE ASSESSEE WAS ALSO ENGAGED IN THE MANUFACTURE OF PACKING MATERIAL AND ALSO THE LABELS, IN WHICH T HE FINAL PRODUCT WAS KEPT. THE CLAIM OF THE ASSESSEE WAS THAT RAW HONEY HAD LIMITED SHELF LIFE AND THE SAME CONTAINS VARIOUS IMPURITIES, DUST , DEAD BEES, MOISTURE AND ANTI-BIOTIC. SUCH HONEY WAS NOT ACCEP TABLE IN THE MARKET. IN ANY CASE, SUCH RAW HONEY COULD NOT BE EXPORTED. FURTHER THE ASSESSEE BESIDES BEING ENGAGED IN BASIC ACTIVIT IES WAS ALSO 30 ENGAGED IN MIXING OF VARIOUS VARIETIES OF HONEY IN ORDER TO GIVE DIFFERENT VARIETIES OF FINISHED PRODUCT. 28. ANOTHER ASPECT TO BE CONSIDERED IS THAT THE MAN UFACTURE OF HONEY IS MENTIONED AS AN ITEM TO MANUFACTURE IN SCHEDULE XIV OF THE INCOME TAX ACT. THE SAID SCHEDULE ALLOWS EXEMPTION TO THE UNITS PRODUCING HONEY IN THE STATE OF HIMACHAL PRADESH AND UTTRANCH AL. AS SCHEDULE- XIV OF INCOME TAX ACT IS MEANT FOR PROMOTION FOR TH INGS/PRODUCTS WHICH ARE MANUFACTURED AND NOT FOR TRADING OF ITEMS , THE SCHEDULE GIVEN UNDER SECTION 80IC OF THE ACT CATEGORICALLY L AYS DOWN THAT THE SECTION APPLIES TO ANY UNDERTAKING OR ENTERPRISE WH ICH HAS BEGUN OR BEGINS TO MANUFACTURE OR PRODUCE ANY ARTICLE OR THI NG, NOT BEING ANY ARTICLE OR THING SPECIFIED IN THE THIRTEENTH SCHEDU LE. FOLLOWING THE ABOVE SAID REASONING IT COULD NOT BE SAID THAT THE ASSESSEE WAS NOT ENGAGED IN THE MANUFACTURE OF HONEY, THOUGH NOT IN STATE OF HP. 29. THE DIFFERENCE BETWEEN RAW HONEY & FINISHED HON EY HAS BEEN POINTED OUT BY THE ASSESSEE AND THERE IS CHANGE IN CHARACTERISTICS I.E. BOTH THE PHYSICAL AND CHEMICAL AND ALSO THE PURITY ASPECTS OF RAW HONEY& FINISHED HONEY. ALL THE ASPECTS OF BOTH THE RAW HONEY AND FINISHED HONEY HAD BEEN TABULATED AT PAGE 188 OF TH E PAPER BOOK WHICH ARE AS UNDER: III. CHANGE IN CHARACTERISTICS: PHYSICAL, CHEMICAL, RESIDUAL & PURITY ASPECTS SR. NO. PARAMETER RAW HONEY (NECTAR) FINISHED HONEY (COUNTRY/BUYER SPECIFIC REQUIREMENT MAINTAINED DURING MANUFACTURING PROCESS) 1. COLOR 8MM -114 MM & ABOVE ON P-FUND SCALE WHITE -17 MM TO 34 MM EXTRA LIGHT - 35 MM TO 50 MM AMBER DARK AMBER - 85MM TO 114 MM DARK - ABOVE 114 MM 2. HMF 2 - 400 MG/KG OR MORE 10 - 40 MG/KG 3. F/G 0.80 - 1.48 0.9 - 1.18 (COUNTRY/BUYER 31 4. SUCROSE 2 - 17% OR MORE MAX. 5 % (IN FEW CASES 8%) 5. TRS 43 - 65 % ABOVE 65 - 82.5% 6. MOISTURE 23-28% 16.5 - 20% 7. ASH UP TO 5% LESS THAN 0.5% 8. C - 4 SUGAR(S) 2 - 85% LESS THAN 7% 9. PROLINE 80 - 500 LESS THAN 200 10. GLYCEROL 20- 6500PPM SOOPPM (MAX) 11. LEAD 20 - 2500 PPM LESS THAN 100 PPB (EU, USA, CANADA) 12. TETRACYCLINE(S) 9 - 2400 PPB (2 - 10) 10 PPB MA X. 13. STREPTOMYCIN 2 - 800 PPB (2 - 10) 10 PPB MAX. 14. FLUOROQUINOLONES 2 - 1000 PPB 2-10 PPB 15. SULPHONAMIDES 2 - 800 PPB 2 -100 PPB (10 PPB MAX. EUROPE) 30. FURTHER CONTENTION OF THE ASSESSEE WAS THAT TH E MARKETABILITY OF RAW HONEY AND FINISHED HONEY WAS AT VARIANCE AND TH E DETAILS ARE FURNISHED AT PAGE 189 OF THE PAPER BOOK WHICH ARE A S UNDER: IV. MARKETABILITY I). RAW HONEY (NECTAR) FINISHED HONEY SOLD BY BEEKEEPERS/TRADERS SOLD BY MANUFACTURI NG AND AT LOW RATES EXPORTING UNITS AT HIGHER RATES TO EARN FOREIGN EXCHANGE. II). HAS NO BRANDING IT HAS BRAND VALUE/NAME SUCH AS DABUR, ADITYA BIRLA, SPENCER. RELIANCE SOLD AT 4 - 5 TIMES OF THE BEE HONEY (NECTAR) PRICES. III). AVERAGE RATE VARIES BETWEEN AVERAGE RATE VARI ES BETWEEN RS 50 TO 100 RS/KG. 170 TO 500 RS/ KG. IV). NO OVERSEAS BUYERS HAS OVERSEAS BUYERS, AS IT MEETS THEIR QUALITY PARAMETERS & REGULATORY REQUIREMENTS. ACTIVITY AT FIELD LEVEL BY SMALL LARGE SCALE AT FAC TORY LEVEL DUE FARMERS/BEEKEEPERS TO TESTING, SOPHISTICATED MANUFACTURING PLANT & TECHNOLOGY AND HIGHER MARKETABILITY. 32 31. THE PERUSAL OF THE ABOVE SAID DETAILS REFLECTS THAT THE PRODUCT I.E. FINISHED HONEY IN THE CASE OF THE ASSESSEE IS AT VARIANCE WITH THE RAW HONEY COLLECTED FROM THE BEE HIVES. THE PROCES S CARRIED OUT BY THE ASSESSEE CHANGES BOTH THE PHYSICAL AND CHEMICAL CHARACTERISTIC OF RAW HONEY TO CONVERT IT INTO FINISHED PRODUCT AND T HE SAID PRODUCT IS DIFFERENT IN FORM I.E. RAW HONEY AND HAS BETTER SHE LF LIFE THAN RAW HONEY. FURTHER FINISHED HONEY IS PREPARED ON THE S PECIFIC REQUIREMENTS OF THE BUYERS OR THE RESPECTIVE COUNTR Y AND THE PRODUCT HAS A DIFFERENT MARKET THAN RAW HONEY. WE ARE OF T HE VIEW THAT THE ACTIVITIES CARRIED ON BY THE ASSESSEE BRING INTO FO RM THE PRODUCT WHICH HAS A DIFFERENT MARKET AND THUS FULFILLS THE TEST O F MARKETABILITY AS LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF IN DIA CINE AGENCIES VS. CIT (SUPRA). 32. IN VIEW THEREOF, WE HOLD THAT THE ASSESSEE WAS ENGAGED IN THE PRODUCTION OF FINISHED HONEY AND THE PROFITS AND GA INS ARISING FROM SUCH ACTIVITY WERE ELIGIBLE FOR DEDUCTION UNDER SEC TION 10B OF THE ACT AS THE ASSESSEE FULFILLS THE CONDITION OF BEING 100 % EXPORT ORIENTED UNIT AND TOTAL SALE PROCEEDS WERE RECEIVED IN FOREI GN EXCHANGE BY THE ASSESSEE. IN THE TOTALITY OF THE FACTS AND CIRCUMS TANCES, WE ARE IN CONFORMITY WITH THE FINDING OF THE ASSESSING OFFICE R THAT THE ASSESSEE WAS ELIGIBLE FOR THE CLAIM OF DEDUCTION UNDER SECTI ON 10B OF THE ACT. 33. WE FIND THAT THE TRIBUNAL IN ASSESSEE'S OWN CASE IN ITA NO. 36 & 37/CHD/2009 IN ASSESSMENT YEARS 2004-05 AND 20 05-06, VIDE ORDER DATED 31.3.2009, CONSIDERED THE ISSUE OF EXER CISE OF REVISIONARY POWERS OF THE COMMISSIONER UNDER SECTION 263 OF THE INCOME TAX ACT AND ALSO TOOK INTO CONSIDERATION FACTUAL ASPECTS OF THE ACTIVITY CARRIED OUT BY THE ASSESSEE AS TO WHETHER THE SAME AMOUNTED TO MANUFACTURE OR PRODUCTION, OR NOT. THE TRIBUNAL VIDE PARA 13 OBSERVED AS UNDER : 33 13. THE WHOLE CONTROVERSY CAN BE GAUGED FROM THE A FORESAID. THE SUBSTANTIVE DIFFERENCE BETWEEN THE COMMISSIONER AND THE ASSESSING OFFICER IS ON THE ISSUE AS TO WHETHER THE ACTIVITY CARRIED OUT BY THE ASSESSEE AMOUNTS TO MANUFACTURE OR PRODUCTION. THE ASSESSEE SUCCESSFULLY CONTENDED BEF ORE THE ASSESSING OFFICER THAT THE PRODUCT PRODUCED BY IT W AS A DIFFERENT MARKETABLE COMMODITY THAN THE RAW MATERIA L AND THEREFORE, IT AMOUNTED TO 'MANUFACTURE' OR 'PRODUCTION'. REFERENC E WAS MADE TO THE JUDGEMENT OF HON'BLE JURISDICTIONAL HIGH COURT I N THE CASE OF EAST INDIA COTTON MANUFACTURING CO. PVT. LTD. (SUPRA ) AS IS EVIDENT FROM THE PORTION OF THE 'OFFICE NOTE' EXTRACTED ABOVE. THE ARGUMENT OF THE COMMISSIONER IS THAT THE ACTI VITY CARRIED OUT BY THE ASSESSEE CANNOT BE TREATED AS A 'MANUFACTURE ' OR 'PRODUCTION' BY APPLYING A MARKETABILITY TEST, BUT IT IS DISTINCTIVENESS OF THE OUTPUT IN THE COMMERCIAL, SE NSE, WHICH HAS TO BE CONSIDERED. IN OTHER WORDS, IN THE OPINION O F THE COMMISSIONER, THE QUESTION IS NOT WHETHER THE PROCE SS EMPLOYED BY THE ASSESSEE RENDERS THE FINAL PRODUCT AS MARKETABLE BEFORE US THE QUESTION IS AS TO WHETHER THE FINAL PRODUCT IS A DISTINCT COMMERCIAL COMMODITY VIS--VI S THE RAW MATERIAL. ACCORDING TO THE COMMISSIONER, THE TEST TO BE APPLIED IN THIS CASE IS NOT THE MARKETABILITY TEST BUT THE DISTINCTIVENESS OF THE OUTPUT IN THE COMMERCIAL SEN SE. IN PARA 3(B) OF HIS ORDER, THE COMMISSIONER HAS POINTE D OUT THIS AND ACCORDING TO HIM THIS BASIC ISSUE HAS BEEN OVERLOOKED. IN THE OPINION OF THE COMMISSIONER, TH E ASSESSMENT ORDER IS RENDERED ERRONEOUS BECAUSE IT I S BASED ON THE FORMER PROPOSITION AND NOT THE LATTER PROPOS ITION, WHICH ACCORDING TO HIM WAS REQUIRED TO BE APPLIED. NOW, THE LIMITED POINT WHICH EMERGES FOR CONSIDERATION I S AS TO WHETHER THE ACTION OF THE ASSESSING OFFICER IN TREA TING THE PROCESS OF THE ASSESSEE AS AMOUNTING TO MANUFACTUR E OR PRODUCTION BY APPLYING THE MARKETABILITY TEST CAN BE SAID TO BE ERRONEOUS WITHIN THE MEANING OF SECTION 263 O F THE ACT. THIS QUESTION HAS TO BE CONSIDERED IN THE LIGHT OF THE PROPOSITION CANVASSED BY THE COMMISSIONER THAT THE TEST TO BE APPLIED IS AS TO WHETHER THE FINAL PRODUCT WAS D ISTINCT IN COMMERCIAL SENSE. WE HAVE CAREFULLY PONDERED OVER THIS ASPECT. WE ARE REMINDED OF THE JUDGEMENT OF THE HO N'BLE MADRAS HIGH COURT IN THE CASE OF INDIAN CINE AGENCI ES, REPORTED AT 261 ITR 491 (MAD). THE HON'BLE HIGH CO URT HELD THAT THE REDUCTION OF THE SIZE OF JUMBO PHOTOG RAPHIC PAPER ROLLS INTO EASILY MARKETABLE DESIRED SIZES WITH THE HELP OF SLITTING MACHINES DID NOT AMOUNT TO EITHER 'MANUFAC TURE' OR 'PRODUCTION'. OSTENSIBLY, THE ASSESSEE CLAIMED BEFO RE THE HON'BLE MADRAS HIGH COURT THAT, ON THE BASIS OF THE MARKETA BILITY TEST, THE SLITTING OF JUMBO PHOTOGRAPHIC PAPER INTO SMALLER R OLLS AMOUNTED TO 'MANUFACTURE' OR 'PRODUCTION'. THE HON'B LE HIGH COURT CONSIDERED THE MARKETABILITY TEST BEING PROPOUNDED BEFORE IT AND HELD THAT THE SLITTING OF JUMBO PHOTOGRAPHIC PAPERS INTO SMAL LER ROLLS DOES NOT AMOUNT TO 'MANUFACTURE'. IN FACT, SEEN IN THE PRESENT CONTEXT, THE CASE MADE OUT BY THE ASSESSEE BEFORE THE ASSESSIN G OFFICER AND WHICH HAS BEEN ACCEPTED BY THE ASSESSING OFFICER IS ON A PA RALLEL TO THAT BEFORE THE HON'BLE MADRAS HIGH COURT. THE PROPOSITION DID NOT FIND FAVOUR WITH THE , HON'BLE MADRAS HIGH COURT. SO HOWEVER, THE DECISION OF THE HON'BLE MADRAS HIGH C OURT WAS CARRIED BEFORE THE HON'BLE SUPREME COURT AND THE PROPOSITI ON HAS SINCE BEEN 34 ACCEPTED BY THE HON'BLE SUPREME COURT IN THE CASE OF INDIAN CINE AGENCIES REPORTED IN 308,ITR98(SC)AND THE JUDGEMENT OF THE HON'BLE MADRAS .HIGH COURT STANDS OVERRULED. THE SLITTI NG OF JUMBO PHOTOGRAPHIC PAPERS INTO SMALLER ROLLS HAS BEEN H ELD TO BE AMOUNTING TO 'MANUFACTURE' OR 'PRODUCTION'. FROM THE AFOR ESAID, A PREMISE WHICH EMERGES IS THAT EVEN THE MARKETABILITY TEST IS A GOOD TEST TO EVALUATE WHETHER OR NOT AN ACTIVITY AMOUNTS TO 'MANUFACTURE' OR PRODUCTION', IF, ON THE TEST OF MARKETABILITY OF THE COMMODITY BEING F INALLY PRODUCED,----- --IS RENDERED MARKETABLE, IT WOULD AMOUNT TO 'MANUFACTURE' OR 'PRODUCTION'. THEREFORE, THE TEST WHICH HAS BE EN APPLIED BY THE ASSESSING OFFICER STANDS APPROVED BY THE HON'BLE SUPREME COURT CONSIDERED IN THE LIGHT OF THE PURITY OF R EASONING ENUNCIATED IN THE CASE OF INDIAN CINE AGENCIES (SUPRA). THE MOOT QUE STION IS, CAN SUCH ACTION OF THE ASSESSING OFFICER BE CONSIDERED AS ER RONEOUS WITHIN THE MEANING OF SECTION 263 OF THE ACT? IN OUR CONSIDERED OPINION, THE APPROACH OF THE ASSESSING OFFICER CANNOT BE CONSIDERED AS ERRONEOUS WITHIN THE MEANING OF SECTION 263 OF THE ACT. ON THIS POINT, WE MAY ALSO MAKE A MENTION THAT EVEN ON THE COMMERCIAL DISTINCTIVENESS TEST SOUGHT TO BE APPLIED BY THE COMMISSIONER, THERE IS NO FINDING BY THE COM MISSIONER AS TO HOW DOES IT OPERATE IN CONTRADICTION TO THE FIN AL OUTCOME, CONCLUDED BY THE ASSESSING OFFICER. THUS, THIS IS A CA SE WHERE THE VIEW OF THE ASSESSING OFFICER IS SOUGHT TO BE SUB STITUTED BY THE COMMISSIONER IN A SUBJECTIVE MANNER, WITHOUT RECORD ING A FINDING AS TO HOW THE ULTIMATE CONCLUSION OF THE ASSESSING OFFICER IS ERRONEOUS IN LAW. FOR ALL THE ABOVE REASONS, IN OUR CONSIDERED OPINION, COMMISSION ERRED IN INVOKING THE P ROVISIONS OF SECTION 263 OF THE ACT IN HOLDING, THAT THE ASSE SSING OFFICER WAS NOT CORRECT IN ACCEPTING THE ACTIVITY UNDERTAKE N BY THE ASSESSES AS AMOUNTING TO 'MANUFACTURE' OR 'PRODUCTION'. 34. IT MAY BE NOTED THAT THE ABOVE DECISION HAS BEE N RENDERED BY THE TRIBUNAL ON THE BASIS OF HONBLE HIGH COURT DECISIO N IN INDIA CINE AGENCIES REPORTED IN 261 ITR 491 (MAD). HOWEVER AS DISCUSSED EARLIER, THIS DECISION WAS LATER ON CONFIRMED BY TH E APEX COURT IN 308 ITR 98 (SC) AND ONE OF THE IMPORTANT TEST FOR MANUF ACTURING LAID DOWN IS THAT OF TEST OF MARKETABILITY. THE TRIBUNAL, ON THE BASIS OF THE MARKETABILITY TEST, HELD THE ASSESSEE TO BE ENGAGED IN THE PRODUCTION OF HONEY AND THE EXERCISE OF POWER UNDER SECTION 26 3 OF THE ACT BY THE COMMISSIONER IN HOLDING THAT THE ASSESSING OFFICER WAS NOT CORRECT IN ACCEPTING THE ACTIVITY UNDERTAKEN BY THE ASSESSEE A S AMOUNTING TO MANUFACTURE OR PRODUCTION, WAS HELD TO BE NOT C ORRECT. AFTER COMING TO THE CONCLUSION IN RESPECT OF THE APPLICAT ION OF TEST OF MARKETABILITY TO THE FACTS OF THE PRESENT CASE, ANO THER ASPECT 35 CONSIDERED BY THE TRIBUNAL WAS VIDE PARAS 15 & 16, WHICH READ AS UNDER : 15. BEFORE WE PART, WE MAY ALSO REFER TO THE APPRO ACH OF THE COMMISSIONER AS IT EMERGES FROM A READING OF THE CO NCLUDING LINES OF THE OFFICE NOTE APPENDED TO THE ASSESSMENT ORDER . IN THIS CASE, THE OFFICE NOTE OF THE ASSESSING OFFICER CLEARLY POINTS OUT THAT THE CASE WAS ALSO DISCUSSED WITH THE THEN COMMISSIO NER OF INCOME- TAX, II LUDHIANA, IN DETAIL AND THE ORDER IS PASSE D AFTER TAKING VERBAL CONCURRENCE. DURING THE HEARING IT WAS CON FRONTED TO THE LD. DR AS TO WHEN THE ASSESSMENT HAS BEEN FINALIZED WITH THE CONCURRENCE OF THE COMMISSIONER, SUCH ASSESSMENT CO ULD NOT BE HELD TO BE ERRONEOUS BY THE COMMISSIONER SUBSEQUE NTLY BY INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT. WE FIND THAT THERE IS NO REBUTTAL IN THE IMPUGNED ORDER WITH REG ARD TO THE NOTING MADE BY THE ASSESSING OFFICER IN THE OFFICE NOTE. THEREFORE, IN THESE CIRCUMSTANCES, INVOKING OF THE PROVISIONS OF SECTION 263 OF THE ACT, IN SUCH A CASE IS EX-FACIE IMPERMISSIBLE A ND WE ARE SUPPORTED BY THE DECISION OF THE HON'BLE JURISDICTI ONAL HIGH COURT IN THE CASE OF HARI IRON TRADING COMPANY (SUPRA). THE HON'BLE HIGH COURT IN SOMEWHAT SIMILAR CIRCUMSTANCE S HAS HELD AS UNDER:- ONCE THE ASSESSMENT ORDER HAD BEEN PASSED WITH THE APPROVAL OF THE COMMISSIONER OF INCOME-TAX, WE ARE AFRAID THAT THE SUCCESSOR COMMISSIONER OF INCOME-TAX COULD NOT POSSIBLY SAY T HAT THE MATTER HAD BEEN DECIDED WITHOUT APPLICATION OF MIND BY THE ASSESSING OFFICER. 16. FOLLOWING THE AFORESAID, WE HOLD THAT THE COMMI SSIONER WAS NOT JUSTIFIED IN INVOKING HIS POWER OF REVISION PROVIDED IN SECTION 263 OF THE ACT TO EXTENT STATED EARLIER. 35. IN THE FACTS OF THE CASE BEFORE THE TRIBUNAL, T HE ASSESSING OFFICER VIDE OFFICE NOTE HAD DISCUSSED THE ISSUE WI TH THE THEN COMMISSIONER OF INCOME TAX-III, LUDHIANA AND PASSED CONSEQUENT ORDER AND THE TRIBUNAL IN THE ABOVESAID CIRCUMSTANC ES, ALSO HELD THAT THE COMMISSIONER WAS NOT JUSTIFIED IN INVOKING POWE R OF REVISION UNDER SECTION 263 OF THE ACT. THE ABOVE SHOWS THAT THE TRIBUNAL HAD, FIRST DECIDED THE ISSUE ON MERITS OF THE CASE AND T HEREAFTER, HAD ALSO CONSIDERED THE ADMINISTRATIVE ASPECT OF THE DECISIO N BEING TAKEN BY THE CIT AND HAD HELD THAT THE ORDER PASSED UNDER SECTIO N 263 OF THE ACT BY THE COMMISSIONER RELATING TO ASSESSMENT YEAR 2004-0 5 AND 2005-06 WAS NOT JUSTIFIED IN THE SAID FACTS AND CIRCUMSTANC ES. 36 36. THE LEARNED D.R. FOR THE REVENUE HAS STRONGLY O BJECTED T THE SUBMISSIONS MADE BY THE LEARNED A.R. FOR THE ASSESS EE AND HAS PLACED STRONG RELIANCE ON THE OBSERVATIONS OF THE COMMISSI ONER OF INCOME TAX. THE FIRST GRIEVANCE OF THE DEPARTMENT WAS TH AT THE ASSESSING OFFICER WHILE PASSING THE ASSESSMENT ORDER HAS IGNO RED HE DIRECTIONS OF THE ADDL.CIT VIS--VIS THE GROUND OF EXEMPTION U NDER SECTION 10B OF THE ACT. IT WAS POINTED OUT BY THE LEARNED D.R. FOR THE REVENUE THAT THE ORDER PASSED BY THE ASSESSING OFFICER WAS ERRONEOUS IN IGNORING THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. VENKATESWARA HATCHERIES (P.) LTD. & OTHE RS (SUPRA) AND CIT VS. RELISH FOODS (SUPRA) 37. IN REJOINDER THE LEARNED A.R. FOR THE ASSESSEE POINTED OUT THAT BOTH THE SAID DECISIONS ARE NOT APPLICABLE TO THE F ACTS OF THE CASE AS IN THE FACTS OF THE CASE BEFORE THE HON'BLE SUPREME CO URT IN CIT VS. VENKATESWARA HATCHERIES (P.) LTD. & OTHERS (SUPRA) THE ACTIVITY CARRIED ON BY THE ASSESSEE WAS THE BIOLOGICAL PHENO MENA I.E. HATCHING OF EGGS AND HENCE IT WAS HELD THAT THE ASSESSEE WAS NOT ENGAGING IN ANY MANUFACTURING ACTIVITIES. ON THE OTHER HAND, TH E ASSESSEE WAS NOT ENGAGED IN ANY BIOLOGICAL ACTIVITIES. 38. WE FIND MERIT IN THE PLEA OF THE ASSESSEE AS TH ERE ARE TWO STEPS INVOLVED IN BRINGING INTO EXISTENCE THE FINISHED PR ODUCT I.E. FINISHED HONEY. THE PROCESS OF FORMATION OF HONEY IN THE RA W FORM IS BIOLOGICAL PHENOMENA WHICH IS UNDERTAKEN BY THE BEE S. THEREAFTER THE SAID HONEY IS COLLECTED BY THE FARMERS OR BEE-KEEPE RS FROM WHOM PURCHASES ARE MADE BY THE ASSESSEE AND THE SAID PRO DUCT WAS THEN SUBJECTED TO VARIOUS PROCESSES TO BRING INTO EXISTE NCE THE FINISHED HONEY AS PER THE SPECIFIC REQUIREMENTS OF THE FOREI GN BUYERS. THE SECOND PROCESS OF CONVERTING HONEY INTO FINISHED HO NEY CANNOT BE 37 TERMED AS BIOLOGICAL AS POINTED OUT BY US IN THE PA RAS HEREINABOVE. THE PROCESS CARRIED ON BY THE ASSESSEE CLEARLY REFL ECTS VARIOUS STEPS UNDERTAKEN BY THE ASSESSEE TO BRING INTO EXISTENCE THE FINISHED PRODUCT WHICH IS DISTINCT FROM RAW HONEY WHICH IS COLLECTED BY THE FARMERS/BEE-KEEPERS FROM THE BEE-HIVES. IN VIEW TH EREOF, WE FIND NO MERIT IN THE RELIANCE PLACED UPON BY THE LEARNED D. R. FOR THE REVENUE UPON THE RATIO LAID DOWN BY THE HON'BLE SUPREME COU RT IN CIT VS. VENKATESWARA HATCHERIES (P.) LTD. & OTHERS (SUPRA) 39. THE LEARNED D.R. FOR THE REVENUE FURTHER PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN CIT VS. RELISH FOODS (SUPRA) WHEREIN THE HON'BLE SUPREME COURT HAD HELD THE ASSESSEE NOT ENGAGED IN MANUFACTURING ACTIVITIES, ON THE BASIS C OMPLETE FACTS WERE NOT AVAILABLE ON RECORD. SUCH RELIANCE HAS NO MERIT IN THE ABSENCE OF DETAILS. IN VIEW THEREOF, WE FIND NO MERIT IN THE R ELIANCE PLACED BY THE LEARNED D.R. FOR THE REVENUE. 40. FURTHER THE SAID ISSUE WAS RAISED IN THE PROCEE DINGS UNDER SECTION 144A OF THE ACT, WHICH WAS REPLIED BY THE A SSESSEE AND THEREAFTER THE ADDL. CIT RAISED FURTHER QUERIES VIS --VIS ALLOWABILITY OF CLAIM OF DEDUCTION U/S 10B OF THE ACT. IN SUCH C IRCUMSTANCES, THE ASSESSING OFFICER HAVING TAKEN A VIEW IN GRANT OF E XEMPTION U/S 10B OF THE ACT, CANNOT BE SAID TO HAVE ERRED. 41. THE LEARNED D.R. FOR THE REVENUE HAS FURTHER PL ACED RELIANCE ON THE RATIO LAID DOWN BY THE HON'BLE MUMBAI CUSTOMS, EXCISE & GOLD TRIBUNAL IN THE CASE OF CHARAK PHARMACEUTICALS INDI A PVT. LTD. VS. COMMISSIONER OF CENTRAL EXCISE DELIVERED ON 17.3.20 06 WHEREIN IT HAS BEEN LAID DOWN THAT MANUFACTURE OF HONEY HAS BEEN L EFT OUT FROM THE CENTRAL EXCISE TARRIF AS IT IS NOT A MANUFACTURED P RODUCT, ON WHICH 38 EXCISE DUTY COULD BE CHARGED. THE LD. AR HAS PLACE D ON RECORD THE EXCISE TARIFF LIST AND HONEY IS ENLISTED THEREIN FO R THE PURPOSE OF LEVY OF EXCISE DUTY. IN VIEW THEREOF AND OUR DELIBERATIO N UPON THE ISSUE HEREINABOVE, WE FIND NO MERIT IN THE STAND OF THE R EVENUE IN THIS REGARD AS WE HAVE ALREADY HELD THAT THE ASSESSEE IS ENGAGED IN THE PROCESSING OF HONEY. 42. THE ISSUE RISING IN THE PRESENT APPEAL IS IN RE LATION TO THE EXERCISE OF REVERSIONARY POWERS BY THE COMMISSIONER OF INCOM E TAX UNDER SECTION 263 OF THE ACT. THE CIT UNDER SECTION 263 O F THE ACT IS EMPOWERED TO REVISE SUCH ORDER PASSED BY THE ASSESS ING OFFICER WHICH ARE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF RE VENUE. THE TWIN CONDITIONS OF THE ORDER BEING ERRONEOUS AND PREJUDI CIAL TO THE INTEREST OF REVENUE ARE TO BE SATISFIED SIMULTANEOUSLY FOR T HE CIT TO EXERCISE HIS POWERS UNDER SECTION 263 OF THE ACT. IF EITHER OF THE CONDITIONS ARE NOT SATISFIED, THEN THE CIT CANNOT TAKE RECOURSE TO SECTION 263 OF THE ACT. 43. THE HONBLE SUPREME COURT IN MALABAR INDUSTRIES COMPANY LTD VS CIT [243 ITR 83 (SC)] HELD AS UNDER:- THERE CAN BE NO DOUBT THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASS ESSING OFFICER; IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTR ACTED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATIS FY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. IN THE SAME CATEGORY FALL ORDERS P ASSED WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATIO N OF MIND. THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE REV ENUE IS NOT AN EXPRESSION OF ART AND IS NOT DEFINED IN THE ACT. UNDERSTOOD IN ITS OR DINARY MEANING, IT IS OF WIDE IMPORT AND IS NOT CONFINED TO LOSS OF TAX. THE HIGH COURT OF CALCUTTA IN DAWJEE DADABHOV & CO. V. S.P. JAIN [1957] 31 ITR 872 , THE HIGH COURT OF KARNATAKA IN CIT V. T. NARAYANA PAI [1975] 98 ITR 422 , THE HIGH COURT OF BOMBAY IN CIT V. GABRIEL INDIA LTD. [1993] 203 ITR 208 AND THE HIGH COURT OF GUJARAT IN CIT V. SMT. MINALBEN S. PARIKH [1995] 215 ITR 81 / 79 TAXMAN 184 TREATED LOSS OF TAX AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. MR. ABRAHAM RELIED ON THE JUDGMENT OF THE DIVISION BENCH OF THE HIGH COURT OF MADRAS IN VENKATAKRISHNA RICE CO. V. CIT [1987] 163 ITR 129 INTERPRETING PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE HIGH COURT HELD, 'IN THIS CONTEXT, IT MUST BE REGARDED AS INVOLVING A CONCEPTION OF ACTS OR ORDERS WHICH ARE SUBVERSIVE OF THE ADMINISTRATION OF REVENUE. THERE MUST BE SOM E GRIEVOUS ERROR IN THE ORDER 39 PASSED BY THE ITO, WHICH MIGHT SET A BAD TREND OR P ATTERN FOR SIMILAR ASSESSMENTS, WHICH ON ABROAD RECKONING, THE COMMISSIONER MIGHT T HINK TO BE PREJUDICIAL TO THE INTERESTS OF REVENUE ADMINISTRATION'. IN OUR VIEW, THIS INTERPRETATION IS TOO NARROW TO MERIT ACCEPTANCE. THE SCHEME OF THE ACT IS TO LE VY AND COLLECT TAX IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AND THIS TASK IS ENT RUSTED TO THE REVENUE. IF DUE TO AN ERRONEOUS ORDER OF THE ITO THE REVENUE IS LOSING TA X LAWFULLY PAYABLE BY A PERSON, IT WILL CERTAINLY BE PREJUDICIAL TO THE INTERESTS OF T HE REVENUE. THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE REV ENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE A SSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE R EVENUE, FOR EXAMPLE, WHEN AN ITO ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW A ND IT HAS RESULTED IN LOSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANN OT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW. 44. THE HONBLE PUNJAB AND HARYANA HIGH COURT IN CI T VS MUNJAL CASTING [303 ITR 23 (P&H)] HAD HELD AS UNDER:- NO QUESTION OF LAW WARRANTING ADMISSION OF THE APPE AL WOULD ARISE BECAUSE THERE WOULD BE NO TAX EFFECT AS THE INTEREST INCOME REALISED FROM THE CAPITAL INVESTED BY THE PARTNERS WAS BOUND TO BE ASSESSED I N THEIR HANDS. THEY COULD NOT IN ANY CASE BE TAXED TWICE. MOREOVER, IF THE VI EW TAKEN BY THE ASSESSING OFFICER IS ONE OF THE POSSIBLE VIEWS, THEN IT CANNO T CONSTITUTE THE BASIS FOR THE COMMISSIONER TO BRUSH ASIDE THAT VIEW IN PREFERENCE TO HIS OWN VIEW IN EXERCISE OF JURISDICTION UNDER SECTION 263. IN THAT REGARD, THE TRIBUNAL HAD RIGHTLY PLACED RELIANCE ON A JUDGMENT OF THE SUPREM E COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. (SUPRA). IT WAS, THUS, EVIDENT THAT THE ASSESSING OFFICER HA D TAKEN ONE VIEW WHICH WAS PROBABLE IF THE SAME WAS EXAMINED IN THE LIGHT OF T HE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT V. R.M. CHIDAMBARAM PILLAI [1977] 106 ITR 292 . THE TRIBUNAL HAD ALSO HELD THAT IT MIGHT STILL BE P OSSIBLE TO TAKE ANOTHER VIEW. THEREFORE, MERELY ON THE BASIS THAT ANOTHER VIEW IS POSSIBLE, THE COMMISSIONER CANNOT ACQUIRE REVISIONAL JURISDICTION AS CONTEMPLATED BY SECTION 263. THEREFORE, THE APPEAL COULD NOT BE ADM ITTED AND THE SAME WAS TO BE DISMISSED. 45. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIR CUMSTANCES WHERE THE ORDER OF THE ASSESSING OFFICER IN COMING TO THE CONCLUSION THAT ASSESSEE IS ENTITLED TO CLAIM OF DEDUCTION UNDER SE CTION 10B OF THE ACT, WAS ERRONEOUS, THERE WAS NO MERIT IN EXERCISE OF REVISIONARY JURISDICTION BY THE COMMISSIONER OF INCOME TAX UNDE R SECTION 263 OF THE ACT. ACCORDINGLY, WE CANCEL THE DIRECTIONS ISSU ED BY THE COMMISSIONER OF INCOME TAX UNDER SECTION 263 OF THE ACT IN SETTING ASIDE THE ASSESSMENT MADE BY THE ASSESSING OFFICER IN THIS REGARD AND 40 HOLD THAT THERE WAS NO ERROR IN THE ORDER OF ASSESS ING OFFICER IN GRANTING EXEMPTION U/S 10B OF THE ACT. THE GROUND NOS.1 TO 3 RAISED BY THE ASSESSEE ARE THUS ALLOWED. 46. THE SECOND ISSUE RAISED BY THE COMMISSIONER OF INCOME TAX IN EXERCISE OF THE POWERS UNDER SECTION 263 OF THE ACT WAS IN RESPECT OF THE ALLOWANCE OF ADDITIONAL DEPRECIATION OF RS.11,4 6,012/-. THE COMMISSIONER OF INCOME TAX IN VIEW OF HOLDING THAT THE ASSESSEE WAS NOT ENGAGED IN THE MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING, HELD THAT THE ASSESSEE WAS NOT ENTITLED TO THE CLAI M OF ADDITIONAL DEPRECIATION. THE SAID ISSUE IS LINKED TO THE FIRS T ISSUE RAISED BY THE COMMISSIONER OF INCOME TAX I.E. THE ISSUE OF EXEMPT ION ALLOWABLE UNDER SECTION 10B OF THE ACT. WHERE THE ASSESSEE I S ENGAGED IN THE BUSINESS OF MANUFACTURE OF THINGS THEN THE CLAIM OF ADDITIONAL DEPRECIATION IS ALLOWABLE AS PRESCRIBED UNDER THE A CT. HOWEVER, IN THE FACTS OF THE CASE BEFORE US, THE LEARNED A.R. F OR THE ASSESSEE HAD POINTED OUT THAT DURING THE ASSESSMENT PROCEEDINGS ITSELF, THE ASSESSEE HAD POINTED OUT TO THE ASSESSING OFFICER THAT NO AD DITIONAL DEPRECIATION HAD BEEN CLAIMED DURING THE YEAR UNDER CONSIDERATION. OUR ATTENTION WAS DRAWN TO THE QUESTIONNAIRE RAISED BY THE ASSESSING OFFICER PLACED AT PAGE 58 OF THE PAPER BOOK AND THE REPLY OF THE ASSESSEE AS PLACED AT PAGE 65 OF THE PAPER BOOK. I N VIEW OF THERE BEING NO CLAIM OF ADDITIONAL DEPRECIATION DURING TH E YEAR UNDER CONSIDERATION, THE ORDER OF THE COMMISSIONER OF INC OME TAX ON THIS GROUND IN HOLDING THE ORDER OF THE ASSESSING OFFICE R TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE IS INVALID AND THE SAME IS SET ASIDE. THE GROUND NO. 4 RAISED BY ASSESSEE I S THUS ALLOWED 47. THE NEXT ISSUE RAISED BY THE COMMISSIONER OF IN COME TAX IN THE ORDER PASSED UNDER SECTION 263 OF THE ACT WAS IN RE LATION TO THE PROFITS 41 ON SALE OF INCENTIVES RECEIVED FROM MINISTRY OF COM MERCE, GOVERNMENT OF INDIA AND WHETHER THE SAME WERE ELIGI BLE FOR DEDUCTION UNDER SECTION 10B OF THE ACT. THE ASSESSEE UNDER T HE SCHEME OF MINISTRY OF COMMERCE, GOVERNMENT OF INDIA TITLED AS VISHESH KRISHI UPAJ YOJNA HAD RECEIVED 5% OF FOB VALUE OF EXPORTS AND DIRECT INCOME OF RS.2,80,87,433/-. THE ASSESSEE CLAIMED T HAT THE SAID RECEIPTS WERE DIRECTLY LINKED TO THE EXPORT OF ARTI CLES MADE BY THE ASSESSEE, AGAINST WHICH THE ASSESSEE CLAIMED DEDUCT ION UNDER SECTION 10B OF THE ACT. THE INCOME FROM THE SAID SCHEME CO MPUTED AT RS.2,57,88,457/- WAS CLAIMED TO BE DERIVED FROM HUN DRED PER CENT EOU. HOWEVER, THE COMMISSIONER OF INCOME TAX HELD THE ASSESSEE NOT ELIGIBLE FOR THE SAID DEDUCTION UNDER SECTION 1 0B OF THE ACT IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN LIBERTY INDIA VS. CIT (SUPRA) AND THE INCOME OF THE ASSESSE E WAS ENHANCED BY RS.2,57,88,457/- BY THE COMMISSIONER OF INCOME TAX. 48. THE ASSESSEE IS IN APPEAL AGAINST THE SAID ORDE R OF ENHANCEMENT. THE LEARNED A.R. FOR THE ASSESSEE POINTED OUT THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS HAD RAISED A QUERY VIDE SHOW CAUSE NOTICE PLACED AT PAGE 58 ONWA RDS OF THE PAPER BOOK IN THIS REGARD AND THE ASSESSEE VIDE ITS REPLY DATED 28.11.2008 HAD EXPLAINED THE ISSUE IN DETAIL WHICH IS PLACED A T PAGES 65 AND 66 OF THE PAPER BOOK. IT WAS FURTHER POINTED OUT BY THE LEARNED A.R. FOR THE ASSESSEE THAT AS PER THE CIT THE ASSESSEE WAS NOT E NTITLED TO DEDUCTION UNDER SECTION 10B OF THE ACT ON THE SAID INCENTIVES RECEIVED. HOWEVER, THE ASSESSEE BEING IN EXPORT WAS ENTITLED TO THE INCENTIVES RECEIVED BY VIRTUE OF EXPORTS AND THE SAME WAS NOT DISPUTED. ONCE THE INCENTIVE RECEIVED BY THE ASSESSEE IS DIRECTLY RELA TABLE TO THE EXPORT 42 MADE BY THE ASSESSEE, THE CLAIM OF DEDUCTION UNDER SECTION 10B OF THE ACT WAS ALLOWABLE. 49. THE LEARNED D.R. FOR THE REVENUE FAIRLY ADMITTE D THAT THE ASSESSING OFFICER CALLED FOR THE DETAIL BUT HAS NOT DISCUSSED THE LEGAL POSITION AND IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN LIBERTY INDIA VS. CIT (SUPRA) AND ALSO THE ASSESSEE BEING NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 10B OF THE ACT , THE SAID CLAIM IS NOT ALLOWABLE IN THE HANDS OF THE ASSESSEE AND THE ORDER OF ENHANCEMENT IN THE CASE HAS BEEN CORRECTLY PASSED B Y THE COMMISSIONER OF INCOME TAX. 50. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HA D RECEIVED INCENTIVES FROM MINISTRY OF COMMERCE, GOVERNMENT OF INDIA UNDER VISHESH KRISHI UPAJ YOJNA @ 5% OF FOB VALUE OF EX PORTS. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS BOOKE D INCENTIVES FOR THE FINANCIAL YEAR 2005-06 AND 2004-05 ON ACCRUAL B ASIS. THE DETAILS OF THE INCENTIVES ACCRUED/RECEIVED WERE FILED BEFOR E THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS IS APPARENT FROM THE LETTER DATED 28.11.2008 PLACED AT PAGES 65 TO 72 OF THE PAPER BOOK TO WHICH THE DETAILS WERE ANNEXED AS ANNEXURE- I. THE SAID LICENCES ARE GRANTED BY THE DGFT, MINISTRY OF COMME RCE AND IS EQUIVALENT TO 5% OF FOB VALUE OF THE EXPORTS MADE B Y THE ASSESSEE, WHICH IN TURN IS CALCULATED ON THE BASIS OF SHIPPIN G BILLS/BRCS FILED WITH DGFT. THE VALUE OF LICENCES WORKED TO RS.2.23 CRORES ON EXPORT SALES OF RS.46.46 CRORES FOR FINANCIAL YEAR 2005-06 AND RS.76.33 LACS ON EXPORT SALES OF 16.17 CRORES RELATING TO FINANCI AL YEAR 2004-05. THE SAID LICENCES WERE SOLD BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION FOR RS.2.16 CRORES AND RS.61 LACS RES PECTIVELY TOTALING 43 RS.2.78 CRORES. FURTHER AMOUNT OF RS.30 LACS WAS P ROVIDED ON ESTIMATE BASIS FOR PENDING LICENSES AND THE INCOME OF RS.2.80 CRORES WAS SHOWN IN THE BOOKS OF ACCOUNT ON THE BASIS OF A CTUAL SALE PRICE OF THE LICENCES/PROVISION. THE DEDUCTION UNDER SECTIO N 10B OF THE ACT ON THE SAME HAD BEEN CLAIMED AT RS.2,57,88,457/-. IN THE FIRST INSTANCE WHERE THE QUERIES HAD BEEN RAISED BY THE ASSESSING OFFICER, WHICH IN TURN HAD BEEN REPLIED TO BY THE ASSESSEE AND THE IS SUE HAVING BEEN CONSIDERED BY THE ASSESSING OFFICER AND ONE POSSIBL E VIEW OF ALLOWING THE DEDUCTION UNDER SECTION 10B OF THE ACT HAVING B EEN PASSED, THE ISSUE ARISES, WHETHER THE SAME IS OPEN TO REVISION UNDER SECTION 263 OF THE ACT. THE HON'BLE COURTS HAVE HELD THAT THE COMM ISSIONER OF INCOME TAX BY WAY OF THE PROCEEDINGS INITIATED UNDE R SECTION 263 OF THE ACT IS NOT EMPOWERED TO SUBSTITUTE ONE VIEW ADO PTED BY THE ASSESSING OFFICER BY ANOTHER VIEW IN THIS REGARD. IN VIEW THEREOF, THE ORDER OF REVISION ORDER PASSED UNDER SECTION 263 OF THE ACT BY THE COMMISSIONER OF INCOME TAX IS WITHOUT JURISDICTION OR NOT IS TO BE SEEN IN LINE WITH THE ALLOWABILITY OF THE SAID CLAI M IN THE HANDS OF THE ASSESSEE. 51. UNDER THE SAID SECTION 10B OF THE ACT IT IS PRO VIDED THAT DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A HUNDRED PER CENT EXPORTS ORIENTED UNDERTAKING FROM THE EXPORT O F ARTICLES OR THINGS FROM THE YEAR IN WHICH THE UNDERTAKING BEGINS TO MA NUFACTURE THE ARTICLES OR THINGS, DEDUCTION IS TO BE ALLOWED ON T HE TOTAL INCOME OF THE ASSESSEE. THE ASSESSEE IS ADMITTEDLY ENGAGED I NTO HUNDRED PER CENT EXPORTS AND IS A HUNDRED PER CENT EOU UNIT. W E HAVE ALREADY HELD THE ASSESSEE TO BE ENTITLED TO THE CLAIM OF DE DUCTION UNDER SECTION 10B OF THE ACT IN THE ABOVE SAID PARAS. NOW THE ON LY ISSUE TO BE SEEN IS WHETHER THE RECEIPTS AS SUCH I.E. THE INCENTIVES RECEIVED UNDER 44 VISHESH KRISHI UPAJ YOJNA, WHICH IN TURN IS DETER MINED @ 5% AND THE FOB VALUE OF THE EXPORT SALES MADE BY THE ASSES SEE, IS DERIVED FROM THE UNDERTAKING. BOTH THE COMMISSIONER OF INC OME TAX AND THE LEARNED D.R. FOR THE REVENUE HAVE PLACED RELIANCE O N THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN LIBERTY INDIA VS. CIT (SUPRA) TO HOLD THAT THE ASSESSEE IS NOT ENTITLED TO THE SA ID DEDUCTION. 52. THE PERUSAL OF THE SAID DECISION REFLECTS THAT THE ISSUE BEFORE THE HON'BLE SUPREME COURT IN LIBERTY INDIA VS. CIT (SUP RA) WAS THE CLAIM OF DEDUCTION U/SS 80I/80IA AND 80IB OF THE ACT WHIC H ALSO PROVIDES FOR DEDUCTION WITH REFERENCE TO THE PROFITS DERIVED FROM ELIGIBLE BUSINESS. THE HON'BLE APEX COURT IN LIBERTY INDIA VS. CIT (SUPRA) OBSERVED AS UNDER : THE INCOME-TAX ACT, 1961, BROADLY PROVIDES FOR TWO TYPES OF TAX INCENTIVES, VIZ., INVESTMENT-LINKED INCENTIV ES AND PROFIT- LINKED INCENTIVES. CHAPTER VI-A OF THE ACT WHICH P ROVIDES FOR INCENTIVES IN THE FORM OF DEDUCTIONS ESSENTIALLY BE LONGS TO THE CATEGORY OF PROFIT-LINKED INCENTIVES. THEREFORE, WHEN SECTION 80-IA/80-IB REFERS TO PROFITS DERIVED FROM ELIGIBLE BUSINESS, IT IS NOT THE OWNERSHIP OF THAT BUSINESS WHICH ATTRACTS T HE INCENTIVES: WHAT ATTRACTS THE INCENTIVES UNDER SECTION 80-IA/80 IB IS THE GENERATION OF PROFITS (OPERATIONAL PROFITS). IT IS FOR THIS REASON THAT PARLIAMENT HAS CONFINED DEDUCTION OF PROFITS D ERIVED FROM ELIGIBLE BUSINESS MENTIONED IN SUB-SECTIONS (3) TO (11A). EACH OF THE BUSINESSES MENTIONED IN SUB-SECTIONS (3) TO (11A) CONSTITUTES A STAND-ALONE ITEM IN THE MATTER OF COM PUTATION OF PROFITS. SECTIONS 80-IB AND 80-IA ARE A CODE BY THEMSELVES AS THEY CONTAIN BOTH SUBSTANTIVE AS WELL AS PROCEDURAL PROV ISIONS. SECTION 80-IB PROVIDES FOR THE ALLOWING OF DEDUCTIO N IN RESPECT OF PROFITS AND GAINS DERIVED FROM THE ELIGI BLE BUSINESS. THE CONNOTATION OF THE WORDS DERIVED FROM IS NARR OWER AS COMPARED TO THAT OF THE WORDS ATTRIBUTABLE TO. B Y USING THE EXPRESSION DERIVED FROM PARLIAMENT INTENDED TO CO VER SOURCES NOT BEYOND THE FIRST DEGREE. SECTIONS 80-I, 80-IA AND 80-IB PROVIDE FOR INCENTIV ES IN THE FORM OF DEDUCTIONS WHICH ARE LINKED TO PROFITS AND NOT INVESTMENT. ON ANALYSIS OF SECTIONS 880-IA AND 80- IB IT BECOMES CLEAR THAT ANY INDUSTRIAL UNDERTAKING WHICH BECOMES ELIGIBLE ON SATISFYING SUB-SECTION (2) WOULD BE ENTITLED TO DED UCTION UNDER SUB-SECTION (1) ONLY TO THE EXTENT OF PROFITS DERIV ED FROM SUCH INDUSTRIAL UNDERTAKING AFTER THE SPECIFIED DATE. A PART FROM 45 ELIGIBILITY, SUB-SECTION (1) PURPORTS TO RESTRICT T HE QUANTUM OF DEDUCTION TO A SPECIFIED PERCENTAGE OF THE PROFITS. THIS IS THE IMPORTANCE OF THE WORDS DERIVED FROM AN INDUSTRIAL UNDERTAKING AS AGAINST PROFITS ATTRIBUTABLE TO AN INDUSTRIAL UNDERTAKING. 53. THE HON'BLE APEX COURT FURTHER OBSERVED AS UND ER: THE WORD DERIVED FROM ARE NARROWER IN CONNOTATIO N AS COMPARED TO THE WORDS ATTRIBUTABLE TO. IN OTHER WORDS, BY USING THE EXPRESSION DERIVED FROM, PARLIAMENT INT ENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGREE. ON AN ANALYSIS OF SECTIONS 80-IA AND 80-IB IT BECOM ES CLEAR THAT ANY INDUSTRIAL UNDERTAKING, WHICH BECOME S ELIGIBLE ON SATISFYING SUB-SECTION (2) WOULD BE ENTITLED TO DED UCTION UNDER SUB-SECTION (1) ONLY TO THE EXTENT OF PROFITS DERIV ED FROM SUCH INDUSTRIAL UNDERTAKING AFTER SPECIFIED DATE(S). HE NCE, APART FROM ELIGIBILITY, SUB-SECTION (1) PURPORTS TO RESTR ICT THE QUANTUM OF DEDUCTION TO A SPECIFIED PERCENTAGE OF PROFITS. THIS IS THE IMPORTANCE OF THE WORDS DERIVED FROM INDUSTRIAL UN DERTAKING AS AGAINST PROFITS ATTRIBUTABLE TO INDUSTRIAL UNDE RTAKING. 54. THE APEX HON'BLE COURT THUS HELD AS UNDER: DEPB IS AN INCENTIVE. IT IS GIVEN UNDER THE DUTY EXEMPTION REMISSION SCHEME. ESSENTIALLY, IT IS AN EXPORT INCENTIVE. NO DOUBT, THE OBJECT BEHIND DEPB IS TO NEUTRALIZE THE INCIDENCE OF CUSTOMS DUTY PAYMENT ON THE IMPORT CON TENT OF EXPORT PRODUCT. THIS NEUTRALIZATION IS PROVIDED FO R BY CREDIT TO CUSTOMS DUTY AGAINST EXPORT PRODUCT. UNDER DEPB, A N EXPORTER MAY APPLY FOR CREDIT AS A PERCENTAGE OF THE FOB VAL UE OF EXPORTS MADE IN FREELY CONVERTIBLE CURRENCY. CREDIT IS AVA ILABLE ONLY AGAINST THE EXPORT PRODUCT AND AT RATES SPECIFIED B Y THE DGFT FOR IMPORT OF RAW MATERIALS, COMPONENTS, ETC., DEPB CREDIT UNDER THE SCHEME HAS TO BE CALCULATED BY TAKING INT O ACCOUNT THE DEEMED IMPORT CONTENT OF THE EXPORT PRODUCT AS PER BASIC CUSTOMS DUTY AND SPECIAL ADDITIONAL DUTY PAYABLE ON SUCH DEEMED IMPORTS. THEREFORE, IN OUR VIEW, DEPB/DUTY DRAWBACK ARE INCENTIVES WHICH FLOW FROM THE SCHEMES FRAMED B Y CENTRAL GOVERNMENT OR FROM SECTION 75 OF THE CUSTOMS ACT, 1 962, HENCE, INCENTIVES PROFITS ARE NOT PROFITS DERIVED FROM THE ELIGIBLE BUSINESS UNDER SECTION 80-IB. THEY BELONG TO THE C ATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKINGS. 55. IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE S UPREME COURT IN LIBERTY INDIA VS. CIT (SUPRA) THE ISSUE TO BE CONSI DERED IS WHETHER THE INCENTIVES RECEIPTS UNDER THE VISHESH KRISHI UPAJ YOJNA ARE THE RECEIPTS ON FIRST DEGREE AND ENTITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 10B OF THE ACT. WHILE DENYING THE BENEFIT OF DEDUCTION U/SS 46 80I/80IA AND 80IB OF THE ACT ON DEPB RECEIPTS, IT W AS OBSERVED BY THE HON'BLE SUPREME COURT IN LIBERTY INDIA VS. CIT( SUPRA) THAT THE OBJECT BEHIND DEPB IS TO NEUTRALIZE THE INCIDENCE O F CUSTOMS DUTY PAYMENT ON THE IMPORT CONTENT OF EXPORT PRODUCT, WHICH WAS PROVIDED FOR BY WAY OF CREDIT TO CUSTOMS DUTY AGAINST EXPORT PRODUCT. THE EXPORTER WAS ENTITLED TO APPLY FOR CREDIT AS A PERC ENTAGE OF THE FOB VALUE OF EXPORT UNDER THE INCENTIVE SCHEME OF GRANT OF DEPB. THE SAID CREDIT WAS AVAILABLE AT RATES SPECIFIED BY THE DGFT FOR IMPORT OF RAW MATERIAL/COMPONENTS ETC. THE HON'BLE SUPREME C OURT FURTHER HELD THAT DEPB/DUTY DRAWBACK WERE INCENTIVES WHICH FLOW FROM THE SCHEMES FRAMED BY CENTRAL GOVERNMENT. 56. IN THE PRESENT CASE BEFORE US THE COPY OF THE S CHEME OF VISHESH KRISHI UPAJ YOJNA IS PLACED AT PAGES 20 AND 21 OF THE PAPER BOOK. THE OBJECTIVE OF THE SAID SCHEME WAS TO PROMOTE THE EXPORTS OF AGRICULTURAL PRODUCE AND THEIR VALUE ADDED PRODUCTS , MINOR FOREST PRODUCE, GRAM UDYOG PRODUCTS, FOREST BASED PRODUCTS AND OTHER PRODUCTS WHICH MAY BE NOTIFIED FROM TIME TO TIME. THE ENTITLEMENT TO THE SCHEME AS PER CLAUSE 3.13.2 IS AS UNDER: 3.13.2 DUTY CREDIT SCRIP BENEFITS AS GRANTED WITH AN AIM TO COMPENSATE HIGH TRANSPORT COSTS AND TO OFFSET OTHER DISADVANTAGES. EXPORTERS OF PRODUCTS NOTIFIED IN APPENDIX 37A OF HBPVL, SHALL BE ENTITLED FOR DUTY CREDIT SCRIP EQUIVALENT TO 5% OF FOB VALUE OF EXPORTS (IN FREE FOREIGN EXCHANGE) FOR EXPORTS MADE FROM 27.8.2009 ONWARDS. 57. UNDER CLAUSE 3.13.3 IT IS PROVIDED THAT DUTY CR EDIT SCRIP BENEFITS UNDER THE SCHEME WOULD BE GRANTED ONLY AT THE REDUCED RATE OF 3% OF FOB VALUE OF EXPORTS IN CASES WHERE EXPORTER HAS AVAILED THE BENEFIT OF: 47 (I) DRAWBACK AT RATES HIGHER THAN 1% AND/OR (II) SPECIFIC DEPB RATE (I.E. OTHER THAN MISCELLANEOUS CATEGORY SR.NOS.22C & 22D OF PRODUCT GROUP 90%); AND/OR (III) ADVANCE AUTHORIZATION OR DUTY FREE IMPORT AUTHORIZATION IMPORT OF INPUTS (OTHER THAN CATALYST, CONSUMABLE AND PACKING MATERIALS)FOR THE EXPORTED PRODUCT FOR WHICH DUTY CREDIT SCRIP UNDER VKGUY IS BEING CLAIMED. 58. FURTHER BENEFITS ARE ALSO GIVEN UNDER THE SCHEM E, BUT THE RELEVANT BENEFITS OF THE SCHEME VIS--VIS ASSESSEE ARE AS REFERRED TO BY US IN THE ABOVE PARA. IN VIEW OF THE SCHEME UNDER WHICH THE ASSESSEE IS ENTITLED TO THE INCENTIVES WHICH IN TURN ARE TO COMPENSATE HIGH TRANSPORT COST AND TO OFFSET OTHER ADVANTAGES TO TH E EXPORTERS, AND ALSO IN VIEW OF THE FACT THAT THE INCENTIVES ARE TO BE A LLOWED AT REDUCED RATES WHERE THE ASSESSEE IS IN RECEIPT OF DUTY DRAW BACK, DEPB, WE ARE OF THE VIEW THAT THE INCENTIVES RECEIVED BY THE ASS ESSEE UNDER THE VISHESH KRISHI UPAJ YOJNA AS AN EXPORT INCENTIVE WERE GIVEN TO THE ASSESSEE TO NEUTRALIZE THE INCIDENCE OF HIGH TRANSP ORT COST AND ALSO TO OFFSET OTHER DISADVANTAGES. THE SAID NEUTRALIZATIO N AS IN THE CASE OF HON'BLE SUPREME COURT IN THE CASE LIBERTY INDIA VS. CIT (SUPRA) IS LINKED TO THE FOB VALUE OF EXPORTS BY WAY OF DUTY C REDIT SCRIP. THE SAID BENEFITS ARE PROVIDED BY DGFT IN THE CASE OF T HE ASSESSEE AND THE SAID SCHEME BEING SIMILAR TO THE SCHEME OF GRANT OF DUTY DRAWBACK/DEPB AND IN TURN APPLYING THE RATIO LAID D OWN BY THE HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT (SUPRA) WE HOLD THAT THE ASSESSEE IS NOT ENTITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 10B OF THE ACT ON THE SAID INCENTIVES. IN VIEW THEREOF, WE UPHOLD THE ORDER OF ENHANCEMENT PASSED BY THE COMMI SSIONER OF INCOME TAX IN EXERCISE OF ITS JURISDICTION UNDER SE CTION 263 OF THE ACT. THE GROUND NO.5 RAISED BY THE ASSESSEE IS THU S DISMISSED. 48 59. THE LAST ISSUE RAISED IN THE REVISIONARY ORDER PASSED UNDER SECTION 263 OF THE ACT IS IN RELATION TO THE CLAIM OF EXPENDITURE OF COMMISSION PAID TO SHRI PARMINDER THAPAR AMOUNTING TO RS.27,43,200/-. THE COMMISSIONER OF INCOME TAX HAD SET ASIDE THE ISSUE OBSERVING THAT THE ASSESSING OFFICER HAD ACCE PTED THE EXPENSES WITHOUT MAKING ANY VERIFICATION AND WITHOUT APPLICA TION OF MIND. IT IS AN ADMITTED POSITION THAT THE ASSESSING OFFICER HAD RAISED QUERIES WITH REGARD TO THE SAID EXPENDITURE AND THE ASSESSEE HAD FURNISHED COMPLETE DETAILS IN RESPECT OF THE AMOUNT PAID TO SHRI PARMI NDER THAPAR AGAINST EXPORTS MADE TO USA. ALL THESE ASPECTS ARE MENTION ED BY THE COMMISSIONER OF INCOME TAX IN PARA 7 OF THE ORDER P ASSED UNDER SECTION 263 OF THE ACT. WHERE THE QUERIES HAVE BEE N RAISED AND IN RESPONSE THE ASSESSING OFFICER HAD ACCEPTED THE CLA IM OF THE ASSESSEE MERELY BECAUSE ELABORATE REFERENCES WERE NOT MADE, WHILE ALLOWING THE SAID EXPENDITURE TO THE ASSESSEE IN THE ASSESSMENT ORDER, IT CANNOT BE SAID THAT THE ASSESSING OFFICER HAS NOT APPLIED HIS MIND BECAUSE WRITING OF THE SAID ORDER IS NOT IN THE CONTROL OF THE ASSESSEE AND IN VIEW THEREOF THE ORDER OF THE ASSESSING OFFICER BEI NG CRYPTIC AND NON- DESCRIPTIVE, CANNOT BE SAID TO BE ERRONEOUS AND PRE JUDICIAL TO THE INTERESTS OF THE REVENUE. WE FIND NO MERIT IN EXER CISE OF JURISDICTION UNDER SECTION 263 OF THE ACT BY THE COMMISSIONER OF INCOME TAX IN THIS REGARD. REVERSING THE SAME WE HOLD THAT THE O RDER PASSED BY THE ASSESSING OFFICER IN THIS REGARD IS TO BE UPHELD. THE GROUND NO.6 RAISED BY THE ASSESSEE IS THUS ALLOWED. ITA NO.1210/CHD/2012 :: ASSESSMENT YEAR 2006-07 60. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS O F APPEAL : 49 1. THAT THE LD. CIT (A) HAS ERRED IN LAW AND ON TH E FACTS IN CONFIRMING THE DISALLOWANCE OF DEDUCTION U/S 10B OF THE INCOME TAX ACT, 1961. 2. THAT THE ORDER OF THE LD. CIT(A) NOT ENTERTAININ G ADDITIONAL GROUND OF APPEAL OF ALLOWING 100% OF THE DEDUCTION INSTEAD OF 90% U/S 10B IS ILLEGAL, ARBITRARY AND AGAINST THE FACTS OF THE CASE. 3. THAT ASSESSEE CRAVES THE RIGHT TO ADD, AMEND, DELETE ANY GROUND/S OF APPEAL. 4. ACCORDINGLY, IT IS HUMBLY PRAYED TO ALLOW DEDUCTION U/S 10B OF THE ACT & 100% &/OR ANY OTHER RELIEF/S YOUR HONOUR MAY DEEM FIT. 61. THE ASSESSEE IN ITA NO.1210/CHD/2012 IS IN APPE AL AGAINST THE ORDER PASSED UNDER SECTION 143(3) READ WITH SECTION 263 OF THE ACT. IN VIEW OF OUR DECISION IN PARAS 17 TO 45 HE REINABOVE, WHERE WE HAVE HELD THE ASSESSEE TO BE ENGAGED IN THE PROCESS ING OPF HONEY, AND ENTITLED TO CLAIM OF DEDUCTION UNDER SECTION 10B OF THE ACT, THE ORDER OF THE CIT (APPEALS) IS THUS REVERSED. THE ASSESSI NG OFFICER IS DIRECTED TO ALLOW DEDUCTION UNDER SECTION 10B OF TH E ACT TO THE ASSESSEE. THE GROUND NO.1 RAISED BY THE ASSESSEE I S ALLOWED. 62. THE ISSUED VIDE GROUND OF APPEAL NO.2 IS AGAINS T THE ALLOWANCE OF DEDUCTION UNDER SECTION 10B OF THE ACT @ 100% IN STEAD OF 90% ALLOWED BY THE ASSESSING OFFICER. UNDER THE PROVIS IONS OF SECTION 10B OF THE ACT THE ASSESSEE IS ENTITLED TO THE CLAI M OF DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED FROM 100% EOU UNIT. THE SECOND PROVISO UNDER SECTION 10B OF THE ACT PROVIDE S THAT FOR THE ASSESSMENT YEAR BEGINNING ON THE FIRST DAY OF APRIL , 2003, THE DEDUCTION SHALL BE 90% OF THE PROFITS AND GAINS DER IVED BY AN UNDERTAKING FROM THE EXPORT OF SUCH ARTICLES OR THI NGS OR COMPUTER SOFTWARE. IN VIEW OF THE PROVISIONS OF THE ACT WH EREIN IT HAS BEEN PROVIDED THAT FOR THE ASSESSMENT YEAR BEGINNING ON THE FIRST DAY OF APRIL, 2003, THE DEDUCTION WOULD BE RESTRICTED TO 9 0% OF THE PROFITS OF 50 THE EOU UNIT, WE FIND NO MERIT IN THE CLAIM OF THE ASSESSEE AD THE SAME IS REJECTED. THE GROUND RAISED BY THE ASSESSE E IS THUS DISMISSED. ITA NO.1211/CHD/2012 :: ASSESSMENT YEAR 2009-10 63. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS O F APPEAL : 1. THAT THE LD. CIT (A) HAS ERRED IN LAW AND ON TH E FACTS IN CONFIRMING THE DISALLOWANCE OF DEDUCTION U/S 10B OF THE INCOME TAX ACT, 1961 AMOUNTING TO RS.9,96,55,179/-. 2. THAT THE ORDER OF THE LD. CIT(A) NOT ENTERTAININ G ADDITIONAL GROUND OF APPEAL OF ALLOWING 100% OF THE DEDUCTION INSTEAD OF 90% U/S 10B IS ILLEGAL, ARBITRARY AND AGAINST THE FACTS OF THE CASE. 3. THAT ASSESSEE CRAVES THE RIGHT TO ADD, AMEND, DELETE ANY GROUND/S OF APPEAL. 4. ACCORDINGLY, IT IS HUMBLY PRAYED TO ALLOW DEDUCTION U/S 10B OF THE ACT & 100% &/OR ANY OTHER RELIEF/S YOUR HONOUR MAY DEEM FIT. 64. THE FACTS IN ITA NO.1211/CHD/2012 ARE IDENTICAL TO THE FACTS IN ITA NO.1210/CHD/2012 AND OUR DECISION IN ITA NO.121 0/CHD/2012 SHALL APPLY MUTATIS MUTANDI TO THE FACTS IN ITA NO. 1211/CHD/2012. ITA NO.690 /CHD/2011 :: ASSESSMENT YEAR 2008-09 65. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1.(A) THAT THE LD. CIT (A)-II HAS ERRED IN LAW AND ON THE FACTS IN DELETING THE ADDITION OF RS.6,42,87,405/- ON ACCOUNT OF DISALLOWANCE OF DEDUCTION U/S 10B OF THE I.T. ACT, 1961. (B) THAT THE LD. CIT (A)-II HAS FAILED TO APPRECIATE THAT NO NEW COMMODITY IS PRODUCED BY THE ASSESSEE AND HONEY REMAINS HONEY EVEN AFTER PROCESSING. 2. THAT THE ORDER OF THE CIT(A)-II BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUND OF APPEAL BEFORE IT IS FINALLY DISPOSED. 51 66. IN ASSESSMENT YEAR 2008-09, THE CIT (APPEALS) H AD ALLOWED THE CLAIM OF THE ASSESSEE IN RELATION TO THE DEDUCTION UNDER SECTION 10B OF THE ACT AND IN VIEW OF OUR DECISION IN PARAS 17 TO 45 HEREINABOVE, WE UPHOLD THE ORDER OF THE CIT (APPEALS) AND DISMISS T HE GROUNDS OF APPEAL RAISED BY THE ASSESSEE. 67. IN THE RESULT, APPEALS IN ITA NO.553/CHD/2011, ITA NOS.1210 & 1211/CHD/2012 ARE PARTLY ALLOWED. THE APPEAL IN I TA NO.690/CHD/2011 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD DAY OF JANUARY, 2014. SD/- SD/- (T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 3 RD JANUARY, 2014 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH