M/s. Jyot Overseas Pvt.Ltd., Ahmedabad V. The CIT., Gandhinagar

ITA 1350/AHD/2009

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 2094 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 13-01-2011
• Assessment Year: 1999-2000
• Appeal Filed On: 27-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHELLEY JINDAL
• Assessee Lawyers: N C AMIN
• Keywords: Business income; Retrospective amendment; Assessment record; Reassessment proceedings
• Section: 143(3); 80HHC; 80IB; 80G; 147; 148; 263

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI, JM AND D.C.AGRAWAL, A M JYOT OVERSEAS (P) LTD., 604/B MAHALAY, OPP. HOTEL PRESIDENT, OFF C.G. ROAD, AHMEDABAD. VS. THE COMMISSIONER OF INCOME-TAX, GANDHINAGAR. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI N. C. AMIN, AR RESPONDENT BY:- SHRI SHELLEY JINDAL, CIT, DR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THESE ARE THREE APPEALS INVOLVING COMMON ISSUES FI LED BY THE ASSESSEE AGAINST THE ORDERS OF LD. CIT PASSED UNDER SECTION 263 FOR ASST. YEARS 1999-2000, 2002-03 & 2005-06 RESPECTIVELY AND HENCE THEY ARE TAKEN UP TOGETHER FOR THE SAKE OF CONVENIENCE. THE ASSESSEE HAS RAISED VERY LENGTHY AND ARGUMENTATIVE GROUNDS IN ITS APPEA LS AND HENCE THEY ARE NOT REPRODUCED FOR THE SAKE OF BREVITY. ASST. YEAR 1999-2000 2. THE ASSESSEE IS ENGAGED IN DERIVING INCOME FROM MANUFACTURING VARIOUS PRODUCTS FROM ISABGOL AND ALSO ACTING AS CO MMISSION AGENT. THE RETURN FILED ON 31.12.1999 WAS PROCESSED UNDER SECT ION 143(1) ON 25/6/2001. SUBSEQUENTLY THE ASSESSMENT WAS REOPENED UNDER SECTION 148 ITA NOS.1350 TO 1352/AHD/2009 ASST. YEARS 1999-2000,2002-03 & 2005-06 ITA NOS.135 TO 1352/AHD/2009 ASST. YEARS 1999-2000, 2002-03 & 2005-06 2 ON THE GROUND THAT CLAIM U/S 80IA WAS NOT ALLOWABLE . THE ASSESSEE HAD CLAIMED DEDUCTION U/S 80IA FOR RS.3,10,105/-. IN TH E REASSESSMENT PROCEEDINGS ORDER WAS PASSED ON 26 TH DECEMBER,2006 AND THE CLAIM WAS DISALLOWED ON THE GROUND THAT ASSESSEE IS NOT ENGAG ED IN THE MANUFACTURING OR PRODUCTION OF AN ARTICLE OR THING . THIS DEDUCTION WAS NOT AVAILABLE TO A PERSON WHO IS ONLY ENGAGED IN PR OCESSING. VARIOUS PROCESSES UNDERTAKEN BY THE ASSESSEE DID NOT BRING INTO EXISTENCE ANY NEW PRODUCT TOTALLY NEW FROM THE RAW MATERIAL. THE RAW MATERIAL, ACCORDING TO THE AO IS ISABGOL AND THE PRODUCT IS ALSO ISOBGOL. THE ASSESSEE HAD EXPLAINED TO THE AO THAT IT IS UNDERTAKING FOLLOWIN G PROCESSES TO MAKE ISOBGOL FROM ISABGOL SEEDS. THEY ARE AS UNDER :- MANUAL LIFTING IT IS DEFINITELY NOT A PROCESS WHICH GIVES RISE T O A NEW PRODUCT. CLEANING THE ASSESSEE HAS NOTED THAT WITH THE HELP OF CLEA NING MACHINES, STONES, MUD DEBRIS, WASTE, SAND ETC. ARE SEPARATED. CLEANING AGAIN BY NO STRETCH OF IMAGINATION GIVES RISE TO A NEW PRODUCT. DE-HUSKING THE ASSESSEE HAS NOTED THAT DE-HUSKING OF THE PS YLLIUM SEEDS IS DONE BY WAY OF GRINDING. DE-HUSKING IS MER ELY A PROCESS BY WHICH THE OUTER HUSK OF THE SEED IS SEPARATED. HERE AGAIN, NO NEW PRODUCT IS BROUGHT INTO EXISTENCE. GRADATION BY AIR BLOWING GRADATION IS THE PROCESS BY WHICH THE HUSK IS SEPARATED IN VARIOUS GRADES AND THUS DOES NOT AM OUNT TO BRINGING A NEW PRODUCT INTO EXISTENCE. PACKING THIS AGAIN IS NOT A STEP WHICH GIVES RISE TO A T OTALLY DIFFERENT PRODUCT. THUS IT IS SEEN THAT THE VARIOUS PROCESSES ENGAGED BY THE ASSESSEE NEITHER INDIVIDUALLY NOR COLLECTIVELY GIVE S RISE TO A NEW PRODUCT, COMMERCIALLY DIFFERENT FROM ITS RAW MATERIAL. ITA NOS.135 TO 1352/AHD/2009 ASST. YEARS 1999-2000, 2002-03 & 2005-06 3 THE ASSESSEE HAS RELIED ON THE FOLLOWING JUDGMENTS IN RESPECT OF ITS CLAIM THAT PRODUCTION OF ISABGOL HUSK FROM PSYLLIUM SEEDS IS MANUFACTURING ACTIVITY:- TARAL DEVELOPMENT CORPORATION VS. CIT TC 25R 729 CIT VS. E.I.D.PARRY (INDIA) LTD. (1996) 218 ITR 713 (MAD)/134 CTR (MAD) 222 ON THE OTHER HAND, THE AO REFERRED TO FOLLOWING JUD GMENTS IN RESPECT OF HIS CONCLUSION THAT ASSESSEE IS NOT ENGAGED IN MANU FACTURING ACTIVITIES :- CIT VS. RELISH FOODS (1999)237 ITR 59 (SC) INDIAN HOTELS CO. LTD. VS. ITO (2000) 245 ITR538 (S C) SACS EAGLES CHICORY VS. CIT (2002) 255 ITR 178 CIT VS. GEM INDIA MFG. CO. (2001) 249 ITR 307 (SC) ARRIVING AT THIS CONCLUSION THE AO DENIED THE CLAIM OF DEDUCTION UNDER SECTION 80IA. 3. THE LD. CIT ISSUED A NOTICE TO THE ASSESSEE UNDE R SECTION 263 HOLDING THAT THE CLAIM OF DEDUCTION UNDER SECTION 8 0IA SHOULD HAVE BEEN DISALLOWED TO THE EXTENT OF RS.4,13,271/- WHEREAS T HE AO HAS ONLY DISALLOWED DEDUCTION AT RS.3,10,105/- AND ACCORDING LY THERE IS AN EXCESS ALLOWANCE OF CLAIM TO THE EXTENT OF RS.1,03,105/-. IN ADDITION TO THIS LD. CIT HELD THAT DEDUCTION UNDER SECTION 80HHC HAS BEE N WRONGLY ALLOWED FOR THE FOLLOWING REASONS :- (I) THE FIGURE WAS WORKED OUT ON ADHOC BASIS AT 3.15% O F EXPORT CONSIDERING IT AVERAGE PROFIT. AS SUCH, IT WORKED O UT AS PER PRESCRIBED FORMULA, THE DEDUCTION WOULD BE NIL AS T HE OTHER INCOME OF RS.4,34,032/- WAS NOT DEDUCTED FROM PROFI T. (II) THE CERTIFICATE REQUIRED TO BE GIVEN IN FORM 10CCA WAS NOT AS PER FORM 10BBA OF THE IT RULES, 1962. ITA NOS.135 TO 1352/AHD/2009 ASST. YEARS 1999-2000, 2002-03 & 2005-06 4 4. IN RESPONSE TO SHOW CAUSE NOTICE THE ASSESSEE FU RNISHED DETAILED REPLY WHICH IS REPRODUCED BY THE LD. CIT IN PARA 9 OF HIS ORDER UNDER SECTION 263. THE DETAILED REPLY GIVEN BY THE ASSESS EE IS REPRODUCED FOR THE SAKE OF CONVENIENCE:- ' WITH REFERENCE TO THE ABOVE, WE HAVE FILED INCOME -TAX RETURN FOR THE A.Y.1999-2000 ON 3-12-1999, THE RETURN WAS PROCESSE D U/S 147 R.W.S. 143(3) OF THE I.T.ACT, 1961 AND ASSESSMENT MADE ACCORDINGL Y. NOW YOUR GOODSELF HAS SOUGHT TO REVISE THE ASSESSED INCOME ON THE GROUND THAT CLAIMED U/S 80IA WHICH HAS BEEN CONFIRMED BY T HE CIT(A), GANDHINAGAR. ALSO, YOU HAVE MENTIONED THAT THE ACTI VITY CARRIED OUT BY US IS NOT OF MANUFACTURING AND PRODUCTION OF ARTICLE OR T HINGS AS PROVIDED UNDER RELEVANT PROVISION OF SECTION 801 OF THE I.T.ACT, 1 961 AND THE ORDER PASSED BY THE ASSESSING OFFICER FOR THE A.Y.1999-2000 U/S 143(3) OF THE ACT, IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E. ALSO, YOU HAVE STATED IN THE ORDER THAT THE DEDUCTI ON CLAIM BY US U/S 80HHC HAS BEEN WRONGLY ALLOWED BY THE ASSESSING OFFICER U /S 143(3) OF THE ACT. ON THE GROUND THAT THE WORKING IS MADE ON ADHOC BASIS @ 3.15% AND CERTIFICATE U/S 10CCA WAS NOT AS PER FORM 10BBA OF THE I.T.RULES, 1962. WE STRONGLY OPPOSE ANY SUCH NOTICE FOR THE REASON T HAT U/S 263 AN ORDER PASSED BY THE ASSESSING OFFICER SHALL INCLUDE (I) A N ORDER OF ASSESSMENT MADE BY THE ASSTT. COMMISSIONER OR INCOME-TAX OFFIC ER ON THE BASIS OF DIRECTION ISSUED BY THE COMMISSIONER U/S 144A. AS T HE APPELLANT AUTHORITY HAS CONSIDERED THE ISSUE ON MERIT AND ADDITION MADE HAS BEEN DELETED BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-XXI, AHMEDABAD VIDE APPEAL NO.CLT(A)-XXI/MEH/191/06-07 DATED 12-9-2007. COPY O F APPELLATE ORDER AND GROUND OF DECISION IS ENCLOSED HEREWITH FOR YOUR RE ADY REFERENCE. WE ARE ALSO ENCLOSING HEREWITH 'ORDER GIVING EFFECT TO CIT(A)'S ORDER 1 DATED 12-10-2007 ISSUED BY ASSTT.COMMISSIONER OF INCOME-T AX, MEHSANA CIRCLE, MEHSANA, FOR YOUR KIND CONSIDERATION. IT IS ALSO MENTIONED IN YOUR NOTICE THAT THE ASSESS ING OFFICER HAS WRONGLY ALLOWED DEDUCTION U/S 80HHC U/S 143(3) OF THE I.T.A CT, WHICH WAS COMPLETED ON 26-12-2006. IN THIS CONNECTION, WE WOULD LIKE TO BRING TO YOUR KIND NOTICE THAT THE OTHER INCOME OF RS.4,34,032/- INCLUDES SAL ES COMMISSION (PREMIUM) AND FOREIGN EXCHANGE FLUCTUATION AND SALES-TAX REFU ND AS PER THE DETAILED BREAKUP MENTIONED HEREUNDER: ITA NOS.135 TO 1352/AHD/2009 ASST. YEARS 1999-2000, 2002-03 & 2005-06 5 ACCOUNT HEAD AMOUNT (RS) SALES COMMISSION (PREMIUM) - 2,04,647 FOREIGN EXCHANGE FLUCTUATION ., 89,58 1 SALES TAX 1,38,804 TOTAL 4.34.032 YOU WILL APPRECIATE THAT AS PER THE AMENDMENT OF SE CTION 80HHC BROUGHT BY THE FINANCE (NO.2) ACT, 1991 W.E.F. 1.4.1992, BUSIN ESS PROFIT WILL NOT INCLUDE RECEIPT BY WAY OF BROKERAGE, COMMISSION, INTEREST, SERVICE CHARGES, ETC. WE ARE ENCLOSING HEREWITH COPY OF JUDGMENT OF K.K.DOSHI & CO. V. CIT (2008) 207 ITR 28 (SC) AND THEREFORE, WE HAVE RIGHTLY CLAIMED DEDUCTION U/S 80HHC. ALSO, AS PER THE NEW AMENDMENT, THE TURNOVER WAS AL SO BELOW RS.10 CRORES, WE ARE ELIGIBLE FOR THE CLAIM OF 80HHC. WE HAVE ALREADY SUBMITTED FORM NO.10CCA BUT YOU HAV E STATED THAT THE SAME IS NOT AS PER FORM 10BBA OF THE IT. RULES, 1962 BUT AS HELD IN THE CASE OF CIT V. GUJARAT OIL & ALLIED INDUSTRIES (1993) 201 ITR, 325 (GU.), ZENITH PROCESSING MILLS V. CIT (1996) 219 ITR, 721 (GUJ.) AND CIT V. NAGPUR HOTEL OWNERS ASSOCIATE (2001) 247 ITR, 201 (SC) THAT 'NON -FURNISHING OF AUDIT REPORT AT THE TIME OF FILING OF RETURN OF INCOME BU T AT SUBSEQUENT STAGE AND, IN ANY CASE BEFORE THE ASSESSMENT PROCEEDING IS TO BE COMPLETED, THE ASSESSES CLAIM FOR DEDUCTION U/S 80HHC COULD NOT BE DISALLOW ED. AS PER THE PROVISO OF SECTION 263(1) EXPLANATION {Q , THE ISSUE IN QUESTION WAS SUBJECT MATTER OF APPEAL AND, THEREFORE, OUT OF PURVIEW OF SECTION 263 OF THE I.T ACT, 1961. THE CERTIFICATE WAS GIVEN IN FORM NO.L0CCA WAS DEFE CT AND THE LEARNED ASSESSING OFFICER OUGHT TO GIVEN US AN OPPORTUNITY BEFORE COMPLETION OF ASSESSMENT AND, THEREFORE, IT IS DEEMED TO HAVE BEE N ACCEPTED AND ASSESSMENT HAVE BEEN MADE ON THE BASIS OF SAME. THE AUDIT REPORT WAS ACCEPTED AND FORM WAS ALSO ACC EPTED FOR MAKING AN ASSESSMENT AND ON THIS GROUND, THE ORDER PASSED BY THE LEARNED ASSESSING OFFICER IS NOT ERRONEOUS. THE DEDUCTION CLAIMED BY US AS PER THE PROVISIONS O F THE ACT AND, THEREFORE, IT WAS CORRECTLY ALLOWED BY LEARNED ASSESSING OFFICER. THE SHOW-CAUSE NOTICE GIVEN BY YOUR HONOUR FOR THE ABOVE ISSUE MENTIONED IN PARA 4, DOES NOT FULFILL CONDITION ENUMERATED IN SECTION 263 OF THE I.T.ACT, 1961. THE ORDER PASSED BY ASSESSING OFFICER U/S 147 R.W.S . 143(1) AFTER ISSUE OF VARIOUS QUESTIONNAIRE AND EXPLANATION OFFERED BY US THROUGH VERIFICATION AND EXPLANATION, THE CLAIM WAS ALLOWED U/S 80HHC OF THE I.T.ACT, 1961 AND THEREAFTER, AS PER PROVISION OF SECTION 263, THE OR DER IS NOT ERRONEOUS AND THEREBY IT IS NOT PREJUDICIAL TO THE INTEREST OF RE VENUE AND THEREFORE, PROPOSAL ITA NOS.135 TO 1352/AHD/2009 ASST. YEARS 1999-2000, 2002-03 & 2005-06 6 PUT FORTH BY YOUR HONOUR IS AGAINST THE PROVISIONS OF ACT AND HENCE NOTICE ISSUED BY YOUR HONOUR MAY PLEASE BE CANCELLED. THE ACTUAL WORKING OF 80HHC IS MENTIONED HEREUNDER: - BUSINESS PROFIT X EXPORT TURNOVER + 90% OF EX[PORT INCENTIVE X EXPORT TURNOVER ___TOTAL TURNOVER _____________TOTAL TURNOVER 1687696 X 9844614 +90% OF 294234 X 9844614 =359065 53531990 53531990 YOU WILL APPRECIATE FROM THE ABOVE, WE HAVE CLAIMED AMOUNT OF RS.3,10,105/-AGAINST THE ELIGIBLE AMOUNT OF RS.3,59 ,065/- AND, THEREFORE, THE ORDER IS NOT PREJUDICIAL AND ERRONEOUS TO THE INTER EST OF THE REVENUE.' 5. THE LD. CIT, HOWEVER, REJECTED THE EXPLANATION O F THE ASSESSEE BY HOLDING FIRSTLY THAT ASSESSEES NATURE OF BUSINESS IS NOT OF MANUFACTURING AND PRODUCTION OF ANY ARTICLE OR THING. SECONDLY THERE IS NO MERGER WITH THE ORDER OF LD. C IT(A) XXI, AHMEDABADS ORDER DATED 12.9.2007. ACCORDING TO THE LD. CIT THE LD. CIT(A) HAS NOT GIVEN AN INDEPENDENT FINDING VIS--V IS THE DISALLOWANCE MADE BY THE AO BECAUSE THE LD. CIT(A) XXI HAD SIMPL Y FOLLOWED THE ORDER OF LD. CIT(A)XX IN ASSESSEES OWN CASE FOR AS ST. YEAR 2003-04. THIRDLY, THE LD. CIT(A) HAS IN ASST. YEAR 2004-05 C ONFIRMED THE ACTION OF THE AO IN COMPUTING DEDUCTION UNDER SECTI ON 80IA BY EXCLUDING THE PROFIT ON SALE OF DEPB LICENSE FROM T HE PROFIT OF ELIGIBLE BUSINESS. FOURTHLY DEDUCTION UNDER SECTION 80 HHC HAS WRONGL Y BEEN CALCULATED. FIIFTHLY DEDUCTION HAS BEEN CLAIMED IN WRONG FORM. IT SHOULD HAVE BEEN IN FORM 10CCA AND NOT IN FORM 10BBA. ITA NOS.135 TO 1352/AHD/2009 ASST. YEARS 1999-2000, 2002-03 & 2005-06 7 FINALLY THE ASSESSEE HAD CLAIMED DEDUCTION U/S 80I A AT RS.4,13,271/- WHEREAS THE AO HAS DISALLOWED THE CLA IM AT RS.3,01,105/-. OBSERVING AS ABOVE, THE LD. CIT CANCELLED THE ORDER OF AO DATED 26.12.2006 DIRECTING HIM TO MAKE FRESH ASSESSMENT B Y VERIFYING THE FACTS AND AFFORDING REASONABLE OPPORTUNITY TO THE ASSESSE E. ASST. YEAR 2002-03 6. IN THIS YEAR THE AO HAD HELD THAT DEDUCTION UNDE R SECTION 80IA IS NOT ALLOWABLE ON SALE OF DEPB LICENSE WHICH WAS SHO WN AT RS.38,43,675/-. HOWEVER, PROPORTIONATE DISALLOWANCE DEDUCTION UNDER SECTION 80IA AT RS.13,83,936/- WAS MADE. THE LD. CI T ISSUED A SHOW CAUSE NOTICE UNDER SECTION 263 TO THE ASSESSEE ON 5 .12.2008 WHEREIN HE OBSERVED THAT ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 80IA AT RS.92,26,246/- WHEREAS THE AO HAS DISALLOWED ONLY A SUM OF RS.13,83,936/-, OBSERVING THAT AO HAS DISALLOWED EN TIRE DEDUCTION UNDER SECTION 80IA IN ASST. YEAR 2004-05. THE AO OUGHT TO HAVE DISALLOWED ENTIRE DEDUCTION UNDER SECTION 80IA IN ASST. YEAR 2 002-03 ALSO, THEREFORE, THERE WAS EXCESS ALLOWANCE OF THE CLAIM TO THE EXTENT OF RS.78,42,310/-. IN RESPONSE TO THIS SHOW CAUSE NOTI CE THE ASSESSEE SUBMITTED FOLLOWING REPLY :- WITH REFERENCE TO THE ABOVE, WE HAVE SUBMITTED INC OME-TAX RETURN FOR THE ASST. YEAR 2002-03 ON 31.10.2002, THE RETURN WA S PROCESSED U/S 143(3) R.W.S. 148 OF THE IT ACT, 1961 AND ASSESSMEN T MADE ACCORDINGLY. NOW YOUR GOODSELF HAS SOUGHT TO REVISE THE ASSESSED INCOME ON THE GROUND THAT CLAIM U/S 80IA WHICH HAS BEEN CONFIRMED BY THE CIT(A), GANDHINAGAR. ALSO, YOU HAVE MENTIONED THAT THE ACTI VITY CARRIED OUT BY US IS NOT OF MANUFACTURING AND PRODUCTION OF ARTICL E OR THINGS AS PROVIDED UNDER RELEVANT PROVISION OF SECTION 80I OF THE IT A CT, 1961 AND THE ORDER PASSED BY THE AO FOR ASST. YEAR 2002-03 U/S 143(3) OF THE ACT, IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E. ITA NOS.135 TO 1352/AHD/2009 ASST. YEARS 1999-2000, 2002-03 & 2005-06 8 WE STRONGLY OPPOSE ANY SUCH NOTICE FOR THE REASON T HAT U/S 263 AN ORDER PASSED BY THE AO SHALL INCLUDE (I) AN ORDER OF ASSE SSMENT MADE BY THE ASSTT. COMMISSIONER OR INCOME-TAX OFFICER ON THE BA SIS OF DIRECTION ISSUED BY THE COMMISSIONER U/S 144A. AS THE APPELLA NT AUTHORITY HAS CONSIDERED THE ISSUE ON MERIT AND ADDITION MADE HAS BEEN DELETED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) XXI, AHMEDABAD VIDE APPEAL NO.CIT(A)-XXI/MEH/191/06-07 DATED 12.9.2007. COPY O F APPELLATE ORDER AND GROUND OF DECISION IS ENCLOSED HEREWITH FOR YOU R READY REFERENCE AND THE ACTIVITY OF THE CONCERN HAS BEEN CONSIDERED AS MANUFACTURING ACTIVITY. IT IS NOT WORTHY THAT WHILE CONSIDERING THE ISSUE O F TREATING THE UNIT AS MANUFACTURING UNIT, THE SAME HAS BEEN DECIDED BY TH E LD. CIT(A) XXI, AHMEDABAD AS UNDER: IT IS CLEAR THAT THE APPELLANT IS ENGAGED IN THE M ANUFACTURING OF ISABGOL AND OTHER BI-PRODUCTS FROM THE PSYLLIUM SEEDS AND HENCE, IS E NTITLE TO DEDUCTION U/S 80IA WITH RESPECT OF THE PROFIT OF SUCH BUSINESS OF MANUFACTU RING ISABGOL. HENCE THE AO IS DIRECTED TO ALLOW DEDUCTION U/S 80IA AS CLAIMED BY THE APPELLANT. REGARDING ALLOWABILITY OF CLAIM U/S 80I THE LD. CIT (A), GANDHINAGAR HAS VIDE ITS ORDER DATED 21.10.2008 THE ADDITION OF RS. 13,83,936/- HAS BEEN DELETED. COPY OF ORDER BEARING APPEAL NO.CIT(A) GNR /278/2007-08 DATED 21.10.2008 IS SUBMITTED HEREWITH FOR YOUR KIN D CONSIDERATION. THE LD. CIT REJECTED THE ABOVE CONTENTION FOR SIMIL AR REASONS AS HE HAS GIVEN IN ASST. YEAR 1999-2000. HE OBSERVED IN HIS O RDER THAT PROFIT ON SALE OF DEPB SHOULD BE EXCLUDED FROM THE PROFITS OF ELIGIBLE BUSINESS OF THE UNDERTAKING FOR COMPUTING DEDUCTION UNDER SECTI ON 80IA. HE ACCORDINGLY CANCELLED THE ORDER OF THE AO DIRECTING HIM TO MAKE FRESH ASSESSMENT. ASST. YEAR 2005-06 7. THE AO HAD FOUND SALE OF DEPB LICENSE AT RS.22,6 2,394/-. HE WORKED OUT DEDUCTION UNDER SECTION 80IA AT RS.77,06 4/- AND DISALLOWED THE CLAIM OF DEDUCTION UNDER THAT SECTION BY THIS A MOUNT. ITA NOS.135 TO 1352/AHD/2009 ASST. YEARS 1999-2000, 2002-03 & 2005-06 9 8. THE LD. CIT ISSUED NOTICE UNDER SECTION 263 TO T HE ASSESSEE ON 5.12.2008 AND POINTED OUT THAT ASSESSEE HAD CLAIMED DEDUCTION U/S 80IA AT RS.5,13,759/-. THE AO HAD DISALLOWED ONLY AT RS. 77,064/-. THUS THERE WAS EXCESS ALLOWANCE OF RS.4,38,195/-. FOR THIS REA SON THE ORDER WAS CONSIDERED ERRONEOUS. IN RESPONSE TO SHOW CAUSE NOT ICE ASSESSEE FURNISHED FOLLOWING REPLY:- ' WITH REFERENCE TO THE ABOVE, WE HAVE SUBMITTED IN COME-TAX RETURN FOR THE A.Y.2005-06 ON 20-10-2005, THE RETURN WAS PROCESSED U/S 143(3) R.W.S. 148 OF THE I.T.ACT, 1961 AND ASSESSMENT MADE ACCORDINGLY. NOW YOUR GOODSELF HAS SOUGHT TO REVISE THE ASSESSED INCOME ON THE GROUND THAT CLAIMED U/S 80IA WHICH HAS BEEN CONFIRMED BY THE CI T{A), GANDHINAGAR. ALSO, YOU HAVE MENTIONED THAT THE ACTIVITY CARRIED OUT BY US IS NOT OF MANUFACTURING AND PRODUCTION OF ARTICLE OR THINGS AS PROVIDED UND ER RELEVANT PROVISION OF SECTION 80! OF THE I.T.ACT, 1961 AND THE ORDER PASS ED BY THE ASSESSING OFFICER FOR THE A.Y.2005-06 U/S 143(3) OF THE ACT, IS ERRON EOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. WE STRONGLY OPPOSE ANY SUCH NOTICE FOR THE REASON T HAT U/S 263' AN ORDER PASSED BY THE ASSESSING OFFICER SHALL INCLUDE (I) A N ORDER OF ASSESSMENT MADE BY THE ASST. COMMISSIONER OR INCOME-TAX OFFICER ON THE BASIS OF DIRECTION ISSUED BY THE 'COMMISSIONER' U/S 144A. AS THE APPEL LANT AUTHORITY HAS CONSIDERED THE ISSUE ON MERIT AND ADDITION MADE HAS BEEN DELETED BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-XXI, AHMEDABAD VIDE APPEAL NO. CIT(A)-XXI/MEH/191/06-07 DATED 12-9-2007. COPY OF A PPELLATE ORDER AND GROUND OF DECISION IS ENCLOSED HEREWITH FOR YOUR RE ADY REFERENCE. IT IS NOT WORTHY THAT WHILE CONSIDERING THE ISSUE O F TREATING THE UNIT AS A MANUFACTURING UNIT, THE SAME HAS BEEN DECIDED BY TH E LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-XXI, AHMEDABAD AS UNDER. IT IS CLEAR THAT APPELLANT IS ENGAGED IN THE MANUF ACTURING OF ISABGOL AND OTHER BI- PRODUCTS FROM THE PSYLLIUM SEEDS AND HENCE, IS ENTI TLED TO DEDUCTION U/S 80IA WITH RESPECT OF THE PROFIT OF SUCH BUSINESS OF MANUFACTU RING ISABGOL. HENCE THE AO IS DIRECTED TO ALLOW DEDUCTION U/S 80IA AS CLAIMED BY THE APPELLANT. THE LD. CIT FOR THE SIMILAR REASONS AS GIVEN BY HIM IN ASST. YEAR 2002-03 HELD THAT ENTIRE CLAIM OF DEDUCTION UNDER SECTION 8 0IA OF RS.5,13,759/- SHOULD HAVE BEEN DISALLOWED. ITA NOS.135 TO 1352/AHD/2009 ASST. YEARS 1999-2000, 2002-03 & 2005-06 10 9. BEFORE US, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT CLAIM OF DEDUCTION UNDER SECTION 80IA WAS CONSIDERED BY LD. CIT(A) IN ASST. YEAR 2003-04 AND THE CLAIM WAS ALLOWED IN ASSESSEES FAV OUR AS UNDER :- 27. I HAVE CONSIDERED THE OBSERVATIONS AND FINDING S OF THE ITAT IN THE ABOVE CASE. HOWEVER, WITH DUE RESPECT, I AM UNABLE TO AGREE WIT H THE VIEWS EXPRESSED BY ITAT. THOUGH THE WORKING OF SECTION 80IA AND 80I ARE DIFF ERENT, IT SHALL NOT MAKE ANY DIFFERENCE. THE EMPHASIS IS ON THE WORD DERIVED A ND NOT THE BUSINESS. DERIVED FROM THE BUSINESS OF THE UNDERTAKING SHOULD BE INTERPRET ED TO MEAN DIRECTLY DERIVED FROM THE ELIGIBLE BUSINESS OF THE UNDERTAKING FOR DEDUCT ION U/S 80IA AND NOT ANY INCOME. THE BUSINESS UNDERTAKING ELIGIBLE FOR DEDUCTION U/S 80I IS MANUFACTURING ACTIVITY AND NOT MAKING DEPOSITS AND INVESTMENTS. HENCE EVEN IF THE DEPOSIT IS MADE IN A BANK FOR A BUSINESS PURPOSE, STILL INTEREST INCOME IS ONLY I NCOME ATTRIBUTABLE TO THE BUSINESS, OF THE UNDERTAKING, BUT SHALL NOT BECOME INCOME DERIVE D FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING. 28. AS UNDERTAKING CANNOT HAVE INCOME UNLESS THERE IS A BUSINESS. EVEN IF AN UNDERTAKING HAS SOME INCOME OTHER THAN FROM BUSINES S, IT CANNOT BE CALLED AS AN UNDERTAKING AT ALL. IN FACT, THE WORD DERIVED FROM THE BUSINESS UNDERTAKING IS LIMITED IN SCOPE, THAN DERIVED FROM THE INDUSTRIAL UNDERTAK ING FOR THE REASON AS INDUSTRIAL UNDERTAKING CAN HAVE INCOME BY WAY OF INTEREST/RENT ETC. SOMETIMES BEFORE THE COMMENCEMENT OF BUSINESS, BUT THEY ARE NOT ELIGIBLE FOR DEDUCTIONS U/S 80IA, 80IB. HENCE WITH DUE RESPECT I AM UNABLE TO FOLLOW THE DE CISION OF THE ITAT, MUMBAI, CITED ABOVE. 29. IN THE LIGHT OF ABOVE DISCUSSION, INCOME FROM S ALE OF DEPB LICENCE IS CLEARLY NOT PART OF PROFIT DERIVED FROM BUSINESS OF THE UND ERTAKING TO BE ELIGIBLE FOR DEDUCTION U/S 80IA. HENCE, THE AO SHOULD COMPUTE DEDUCTION, B Y EXCLUDING THE PROFIT ON SALE OF DEPB LICENCE FROM THE PROFITS OF THE ELIGIBLE BUSIN ESS OF THE UNDERTAKING WHILE COMPUTING THE DEDUCTION U/S 80IA/80IB OF THE ACT TO BE ALLOWED IN THE APPELLANTS CASE. HENCE, THIS GROUND OF APPEAL IS PARTLY ALLOWE D. THE LD. AR SUBMITTED THAT THE DEPARTMENT HAS NOT PR EFERRED ANY APPEAL AGAINST THIS ORDER, THEREFORE, THE ORDER OF THE LD. CIT(A) DATED 19.12.2006HAS BECAME FINAL. IN OTHER WORDS, THE DEP ARTMENT HAD ACCEPTED THE POSITION THAT DEDUCTION UNDER SECTION 80IA SHOU LD BE CALCULATED BY EXCLUDING THE PROFITS ON SALE OF DEPB FROM THE PROF ITS OF ELIGIBLE BUSINESS UNDERTAKING. EVEN THOUGH THIS DECISION OF THE LD. CIT(A) HAS REDUCED THE CLAIM OF DEDUCTION UNDER SECTION 80IA A S MADE BY THE ASSESSEE BUT STILL THIS POSITION BECAME FINAL. THER EFORE, THE LD. CIT COULD ITA NOS.135 TO 1352/AHD/2009 ASST. YEARS 1999-2000, 2002-03 & 2005-06 11 NOT HOLD THAT ENTIRE DEDUCTION UNDER SECTION 80IA S HOULD HAVE BEEN DISALLOWED AND NOT PROPORTIONATE DEDUCTION BY EXCLU DING PROFIT ON SALE OF DEPB LICENCE. 10. IN ASST. YEAR 1999-2000 THE LD. AR SUBMITTED TH AT THE ASSESSEE HAD CHALLENGED THE FINDINGS GIVEN BY THE AO AND THE LD. CIT(A) HAD ALLOWED THE CLAIM OF ASSESSEE VIDE HIS ORDER DATED 12.9.200 7 AS UNDER :- GROUND NOS.3 & 4 PERTAINING TO THE DISALLOWANCE OF DEDUCTION OF RS.3,10,105/- CLAIMED BY THE APPELLANT U/S 80IA. THE OBSERVATION OF THE AO IS RECORDED SUPRA. THE APPELLANT HAS ALSO RELIED ON THE DECISION OF HON. C IT(A) XX IN THE ASSESSEES OWN CASE FOR THE ASST. YEAR 2003-04 IN THIS REGARD. WHI LE DECIDING APPEAL FOR THE ASST. YEAR 2003-04, THE CIT(A) HAS DEALT IN DETAIL VARIOU S CASE LAWS TAKEN UP BY THE AO IN SUPPORT OF HIS OBSERVATION AND DISALLOWING THE CLAI M OF THE APPELLANT AND ALSO THE DECISION OF APEX COURT AND OTHER AUTHORITIES IN FAV OUR OF THE APPELLANT TO ARRIVE AT A CONCLUSION IN FAVOUR OF THE APPELLANT. I HAVE CAREFULLY GONE THROUGH THE OBSERVATION MADE BY THE AO IN HIS ORDER AND SUBMISSION BY THE COUNSEL OF THE APPELLANT ALONGWIT H VARIOUS DECISIONS AND ESPECIALLY THE DECISION OF CIT(A) XX IN THIS REGARD. THE FACTS OF THE CASE FOR THE ASST. YEAR 2003- 04 AND THE INSTANT APPEAL ARE IDENTICAL. I, THEREFO RE, AGREE WITH THE FINDING OF THE CIT(A) XX IN ALLOWING THE DEDUCTION U/S 80IA FOR TH E SAKE OF UNIFORMITY AND CONSISTENCY ON THE ISSUE. THE CIT(A) HAS DEALT ALL THE CASE LAWS IN FAVOUR AND AGAINST THE APPELLANT AND AS HELD IN VIEW OF THE DECISION O F THE HON. SUPREME COURT IN THE CASE OF ASPINWALL & COMPANY LTD. VS. CIT REPORTED A T 251 ITR 322 AND ITS OBSERVATION ON THE INTERPRETATION OF THE WORK MANUF ACTURE MENTIONED IN PARA 16 ABOVE CLEARLY APPEARS TO THE PRESENT CONTEXT AND SU PPORTS THE APPELLANTS CLAIM THAT IT IS ENGAGED IN THE PRODUCTION/MANUFACTURING OF ISABG OL AND HUSK AND OTHER BI- PRODUCTS. THE OTHER CASE LAWS RELIED UPON BY THE AP PELLANT ALSO SUPPORT THIS CLAIM. IN THE LIGHT OF DISCUSSION ON THE FACTS OF THE CASE AN D CASE LAWS ON THE SUBJECT SUBMITTED DURING THIS YEAR AND IN THE ASST. YEAR 2003-04 IT I S CLEAR THAT THE APPELLANT IS ENGAGED IN THE MANUFACTURE OF ISABGOL AND OTHER BI-PRODUCTS FROM THE PSYLLIUM SEEDS AND HENCE, IS ENTITLED TO DEDUCTION U/S 80IA WITH RESPE CT OF THE PROFITS OF SUCH BUSINESS OF MANUFACTURING ISABGOL. HENCE THE AO IS DIRECTED TO ALLOW DEDUCTION U/S 80IA AS CLAIMED BY THE APPELLANT. THIS GROUND OF APPEAL IS ALLOWED. THIS ORDER OF THE LD. CIT(A) WAS CHALLENGED BY THE REVENUE BEFORE THE TRIBUNAL. THE APPEAL OF THE DEPARTMENT WAS DISMISSE D ON ACCOUNT OF LOW REVENUE EFFECT VIDE TRIBUNALS ORDER DATED 28.03.20 08 IN ITA NO.4169/AHD/2007 ALONG WITH CO NO.379/AHD/2007 ASST . YEAR 1999- 2000. THEREFORE, THE CLAIM OF DEDUCTION UNDER SECTI ON 80IA HAS BECOME ITA NOS.135 TO 1352/AHD/2009 ASST. YEARS 1999-2000, 2002-03 & 2005-06 12 FINAL AND THE LD. CIT COULD NOT HAVE SET ASIDE THE ISSUE FOR FRESH ADJUDICATION BY THE AO. 11. IN ASST. YEAR 2002-03, THE ISSUE REGARDING DISA LLOWANCE OF THE CLAIM OF DEDUCTION U/S 80IA AT RS.13,83,936/- WAS C ONSIDERED BY LD. CIT(A) AND IT WAS HELD THAT ENTIRE SALE OF DEPB LIC ENCE IS BUSINESS INCOME, THEREFORE, ENTIRE SUM IS ELIGIBLE FOR DEDUC TION UNDER SECTION 80IA. HE HAD ACCORDINGLY DELETED THE DISALLOWANCE A S UNDER :- 6.3 THE CASE LAW CITED BY THE AUTHORISED REPRESENT ATIVE HAS BEEN GONE THROUGH AND IS FOUND THAT THE ASSESSEES CASE IS SQUARELY C OVERED BY IT. IT HAS BEEN HELD THAT ONCE THE PROFIT FROM THE SALE OF DEPB LICENCE IS HE LD TO BE BUSINESS INCOME, CONSEQUENT TO THE RETROSPECTIVE AMENDMENT IN THE LA W, IT NATURALLY FOLLOWS THAT THE SALE IS THE BUSINESS INCOME IT DERIVES FROM THE IND USTRIAL UNDERTAKING AND HENCE IS PART OF THE ELIGIBLE PROFITS FOR COMPUTATION OF DED UCTION U/S 80IA. IN VIEW OF THIS LEGAL POSITION, THE AO IS DIRECTED TO RECOMPUTED THE DEDU CTION U/S 80IA. CONSEQUENTLY THE ADDITION OF RS.13,83,936/- SHALL STAND DELETED. ONCE ISSUE IS CONSIDERED BY LD. CIT(A) VIDE HIS ORD ER DATED 21.10.2008 THEN LD. CIT OUGHT NOT HAVE HELD THAT AO SHOULD HA VE DISALLOWED ENTIRE DEDUCTION UNDER SECTION 80IA IN HIS ORDER DATED 22. 1.2009. THE ORDER OF AO MERGED INTO THE ORDER OF LD. CIT(A) AND, THEREFO RE, LD. CIT WAS NOT WITHIN HIS JURISDICTION TO CANCEL THE ORDER UNDER S ECTION 263. 12. IN ASST. YEAR 2005-06 THE AO HAD DISALLOWED CLA IM OF DEDUCTION UNDER SECTION 80IA AT RS.77,064/- VIDE HIS ORDER DA TED 20.12.2007. THIS DISALLOWANCE WAS MADE IN RESPECT OF PROFIT ON SALE OF DEPB LICENCE. THE ASSESSEE HAD APPEALED TO LD. CIT(A) WHO FOLLOWING H IS ORDER FOR ASST. YEAR 2002-03 DIRECTED THE AO TO INCLUDE THE PROFIT ON SALE OF DEPB LICENCE AT RS.22,63,394/- IN THE ELIGIBLE PROFIT FO R COMPUTATION UNDER SECTION 80IA. THIS ORDER WAS CHALLENGED BY THE REVE NUE BEFORE THE TRIBUNAL WHICH VIDE ITS ORDER PRONOUNCED ON 15.5.20 09 IN ITA NOS.86 & ITA NOS.135 TO 1352/AHD/2009 ASST. YEARS 1999-2000, 2002-03 & 2005-06 13 87/AHD/2009 & C.O. NOS.27 & 28/AHD/2009, HAD DISMIS SED THE APPEAL FILED BY THE REVENUE AS UNDER :- 6. WE HAVE HEARD THE LD. DR AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. I N THE INSTANT CASE THE ASSESSEE CLAIMED DEDUCTION U/S 80IA OF THE ACT ON P ROFIT ON SALE OF DEPB. THE AO HAS DISALLOWED THE CLAIM FOR DEDUCTION TO TH E ASSESSEE U/S 80IA OF THE ACT ON THE PROFIT FROM SALE OF DEPB FOR THE REA SONS THAT IT IS NOT THE PROFIT DERIVED FROM THE INDUSTRIAL UNDERTAKING. THE CIT(A)FOLLOWING THE DECISION OF THE HON. RAJASTHAN HIGH COURT ALLOWED T HE CLAIM OF THE ASSESSEE FOR DEDUCTION ON PROFITS FROM SALE OF DEPB . IN THAT CASE THE HON. RAJASTHAN HIGH COURT HAS HELD THAT A COMBINED READING OF S.80IB(4) AND S.28(IIID) DOES MAKE CLEAR, THAT THE PROFIT DERIVED ON TRANSFER OF DEPB LICENSES, DOES VERY MUCH FALL WITHIN FOUR CORNERS OF PROFITS AND G AINS, DERIVED FROM SUCH INDUSTRIAL UNDERTAKING AND IS CAPABLE OF BEING TAXED ONLY UNDE R S.28, SUBJECT TO EXEMPTION, AS PROVIDED IN S.80IB, AND/OR OTHER ELIGIBLE PROVISION S. THE TRIBUNAL WAS NOT JUSTIFIED IN HOLDING THAT THE INCOME DERIVED BY THE ASSESSEE FRO M THE SALE OF DEPB LICENCES WAS NOT PROFIT AND GAIN FROM INDUSTRIAL UNDERTAKING, WH ICH WAS HELD TO BE ELIGIBLE TO CLAIM DEDUCTION UNDER S.80IB-B. DESRAJ VS.CIT (2008) 216 CTR (SC) 348; (2008) 301 ITR 439 (SC) AND CIT VS. SHARDA GUM & CHEMICALS (2007) 209 CTR (RAJ) 143; (2007) 288 ITR 116 (RAJ) RELIED ON; CIT VS. STERLING FOODS (1999) 153 CTR (SC) 439; (1999) 237 ITR 579 (SC) AND PANDIAN CHEMICALS LTD. VS. CIT (2003) 183 CTR (SC) 99; (2003) 262 ITR 278 (SC) DISTINGUISHED . WE FIND THAT THE PROVISIONS OF SECTION 80IB AND 80IA OF THE ACT ARE PARA MATERIAL. THE LD. DR COULD NOT CITE ANY CONTRARY DECISION OF ANY HIGH COURT OR SUPREME COUR T. IN VIEW OF THE ABOVE DECISION OF THE HON. RAJASTHAN HIGH COURT WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LD. CIT(A). HENCE WE DISM ISS THIS GROUND OF APPEAL OF THE REVENUE. 13. ON THE BASIS OF ABOVE DECISION OF THE TRIBUNAL AND THE DECISION OF LD. CIT(A) FOR ASST. YEAR 2003-04 WHICH BECAME FINA L, THE LD. AR SUBMITTED THAT FIRSTLY THERE WAS A MERGER OF THE IS SUE IN THE ORDER OF LD. CIT(A) AND SECONDLY THE VIEW OF THE LD. CIT(A) FOR ASST. YEAR 2005-06 WAS CONFIRMED BY THE TRIBUNAL AND THE APPEAL OF THE REVENUE IN ASST. YEAR 1999-00 WAS DISMISSED BY THE TRIBUNAL. THEREFO RE, THE ORDERS OF THE AO CANNOT BE SAID TO BE ERRONEOUS AND PREJUDICIAL T O THE INTEREST OF REVENUE. 14. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORD ERS OF LD. CIT. ITA NOS.135 TO 1352/AHD/2009 ASST. YEARS 1999-2000, 2002-03 & 2005-06 14 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE ORDERS OF LD. CIT UNDER SECTION 263 ARE NOT SUSTAINABLE IN LAW. AS POINTED OUT BY THE L D. AR THE ISSUE REGARDING ALLOWABILITY OF CLAIM OF DEDUCTION UNDER SECTION 80IA IN ASST. YEAR 2003-04 HAD BECOME FINAL AS THE REVENUE HAD NO T CHALLENGED THE SAME. BY THAT ORDER OF THE LD. CIT(A) DEDUCTION UND ER SECTION 80IA HAD TO BE WORKED OUT BY EXCLUDING PROFITS ON SALE OF DE PB WHICH WAS DONE BY THE AO. SIMILAR CALCULATION WAS DONE BY HIM IN OTHER TWO AS ST. YEARS ALSO IN RESPECT OF WHICH THE ORDER OF LD. CIT(A) ARE CHA LLENGED. THE ORDER OF LD. CIT(A) FOR ASST. YEAR 2003-04 WAS AVAILABLE WIT H THE LD. CIT WHEN HE ISSUED SHOW CAUSE NOTICE ON 5/12/2008 AS THE ORDER OF LD. CIT(A) FOR THAT YEAR WAS PASSED ON 19/12/2006. AS PER CLAUSE (C) OF SECTION 263, THE LD. CIT WOULD HAVE POWER TO SET ASIDE THE ORDER OF AO O N AN ISSUE WHICH IS NOT THE SUBJECT MATTER OF APPEAL BEFORE LD. CIT(A) OR BEFORE THE TRIBUNAL. CLAUSE (C) OF THE EXPLANATION OF SEC.263 READS AS U NDER :- (C) WHERE ANY ORDER REFERRED TO IN THIS SUB-SECTI ON AND PASSED BY THE AO HAD BEEN THE SUBJECT MATTER OF ANY APPEAL [FILED ON OR BEFORE OR AFTER THE 1 ST DAY OF JUNE, 1988] THE POWERS OF THE COMMISSIONER UNDER TH IS SUB-SECTION SHALL EXTEND [AND SHALL BE DEEMED ALWAYS TO HAVE EXTENDED ] TO SUCH MATTERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN SUCH APPEAL.] THE ISSUE WHETHER DEDUCTION UNDER SECTION 80IA WOUL D NOT BE AVAILABLE ON PROFIT ON SALE OF DEPB LICENCE WAS BEFORE THE LD . CIT(A) IN ASST. YEAR 2003-04 AS REFERRED TO ABOVE. IN FACT LD. CIT HAS C ONSIDERED TO DISALLOW ENTIRE CLAIM OF DEDUCTION UNDER SECTION 80IA WITHOU T BIFURCATING IT INTO DIFFERENT SEGMENTS SUCH AS ONE ARISING FROM MANUFAC TURING ACTIVITIES DIRECT, FROM SALE PROCEEDS OF DEPB LICENCE AND THIR DLY FROM PROFIT ON SALE OF DEPB LICENCE. SINCE THE AO HAD ONLY DISCUSSED IN HIS ORDER ABOUT ITA NOS.135 TO 1352/AHD/2009 ASST. YEARS 1999-2000, 2002-03 & 2005-06 15 DISALLOWANCE OF DEDUCTION UNDER SECTION 80IA ON PRO FIT ON SALE OF DEPB LICENCE AND HE HAD ALLOWED PRO-RATA CLAIM, NOW THE LD. CIT WITHOUT ASSIGNING ANY REASON COULD NOT COME TO AN INFERENCE THAT ENTIRE CLAIM IS DISALLOWABLE. SINCE THE ISSUE AS TO THE EXTENT TO W HICH DEDUCTION U/S 80IA IS ALLOWABLE HAS BEEN CONSIDERED BY THE AO AND ALSO BY THE LD. CIT(A), AOS ORDER MERGED INTO THE ORDER OF LD. CIT(A) AND COULD NOT BE SUBJECT MATTER OF REVISION UNDER SECTION 263. 16. IN ASST. YEAR 1999-00 LD. CIT HAS TAKEN UP THE ISSUE OF DEDUCTION UNDER SECTION 80IA IN RESPECT OF SUM OF RS.4,13,271 /- OUT OF WHICH LD. AO HAD DISALLOWED THE CLAIM TO THE EXTENT OF RS.3,1 0,105/-. THE LD. CIT WANTED THAT FURTHER DISALLOWANCE TO THE EXTENT OF R S.1,03,105/- SHOULD HAVE BEEN MADE. BARE READING OF THE ORDER OF AO IND ICATES THAT HE HAS CONSIDERED RS.4,13,271/- AS THE DEDUCTION UNDER SEC TION 80IA AND RS.3,10,105/- UNDER SECTION 80HHC. IN THIS REGARD H IS OBSERVATIONS ARE AS UNDER :- 3. THE ASSESSEE IS ENGAGED IN DERIVING VARIOUS PRO DUCTS FROM ISABGOL AND ALSO ACTING AS COMMISSION AGENT. VARIOUS DETAIL S PERTAINING TO THE BUSINESS OF THE ASSESSEE WERE CALLED FOR DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS. THE SAME WERE EXAMINED AND RELEVANT DETAILS WERE KEPT ON RECORD. BOOKS OF ACCOUNTS AND SUPPORTI NG EVIDENCES WERE DULY VERIFIED DURING THE COURSE OF ASSESSMENT PROCE EDINGS. THE ASSESSEE HAS DURING THE YEAR CLAIMED DEDUCTION UNDER CHAPTER VIA TO THE TUNE OF RS.7,60,882/- CONSISTING OF RS.4,13,271/- ON ACCOUN T OF 80IA ON AMOUT OF RS.3,10,105/- U/S 80 HHC AND RS.37,500/- U/S 80G OF THE IT ACT. HE HAS, HOWEVER, FINALLY DISALLOWED THE CLAIM OF RS .3,10,105/- TREATING IT AS ARISING FROM NON-MANUFACTURING ACTIVITY. THE LD. CIT(A) HAD HELD THAT ASSESSEE IS ENGAGED IN THE MANUFACTURING/PRODUCTION OF ISABGUL HUSKING AND OTHER BI-PRODUCTS AS REFERRED TO ABOVE WHILE QU OTING FROM THE ORDER OF LD. CIT(A). THUS IT IS IMMATERIAL WHETHER DEDUCTION OF RS.4,13,271/- WOULD TO HAVE BEEN DISALLOWED OR NOT, OR THE AO WOU LD HAVE FURTHER ITA NOS.135 TO 1352/AHD/2009 ASST. YEARS 1999-2000, 2002-03 & 2005-06 16 DISALLOWED THE DEDUCTION OF RS.1,03,105/-. ONCE LD. CIT(A) HELD THAT WHAT IS DONE BY THE ASSESSEE IS MANUFACTURING ACTIV ITY, THEN ANY ERROR IN COMPUTATION OF QUANTUM IS IRRELEVANT. EVEN IF THE F IGURE IS TAKEN AT RS.4,13,271/-, THE AO WOULD HAVE TO ALLOW THE SAME IN VIEW OF THE DECISION OF LD. CIT(A). THIS ORDER WAS CONFIRMED BY THE TRIBUNAL AS REFERRED TO ABOVE BY DISMISSING THE APPEAL OF THE R EVENUE ON LOW REVENUE EFFECT. THUS THE ISSUE THAT THE ACTIVITIES OF ASSES SEE IS MANUFACTURING AND THEREFORE, ELIGIBLE FOR DEDUCTION UNDER SECTION 80I A WAS SUBJECT MATTER OF APPEAL BEFORE LD. CIT(A) AS WELL AS BEFORE THE TRIB UNAL AND, THEREFORE, THE ISSUE MERGED IN THE ORDER OF SUPERIOR COURT AND IS THEREFORE, BEYOND THE JURISDICTION OF LD. CIT TO REVISE THE SAME. 17. THE NEXT ISSUE ON WHICH THE LD. CIT HAD CONSIDE RED THE ORDER OF THE AO ERRONEOUS WAS THE DEDUCTION UNDER SECTION 80 HHC . IN THIS REGARD LD. CIT HAD GIVEN FOLLOWING FINDING :- 10.(V) IT IS SEEN FROM THE RECORDS THAT THE CLAIM MADE BY THE ASSESSEE U/S 80HHC OF THE IT ACT, 1961 HAS ALSO BEE N WRONGLY ALLOWED BY THE AO U/S 143(3) OF THE IT ACT, 1961 WHICH WAS COMPLETED ON 26.12.2006. IN THIS REGARD, THERE IS NO MERIT IN TH E STATEMENT MADE BY THE LD. COUNSEL ON THE ACTUAL WORKING OF DEDUCTION U/S 80 HHC OF THE IT ACT, 1961 AS THE FIGURE HAS BEEN WORKED OUT ON AN ADHOC BASIS AT 3.15% OF EXPORTS CONSIDERED AT AVERAGE PROFIT. AS SUCH IF TH E WORK OUT IS AS PER PRESCRIBED FORMULA, THE DEDUCTION WOULD BE NIL AS T HE OTHER INCOME OF RS.4,34,032/- WOULD NOT BE DEDUCTED FROM THE PROFIT . WE NOTICE THAT THE AO HAS NOT DISCUSSED THIS SUM IN HIS ASSESSMENT ORDER PASSED ON 25.12.2006 BUT THE LD. CIT HAS ALSO FAILE D TO SHOW OTHER INCOME OF RS.4,32,032/-. THE ASSESSEE IN HIS REPLY EXPLAIN ED THE DETAILS OF THIS INCOME AND HAD SUBMITTED THAT THESE AMOUNTS ARE BUS INESS PROFIT AS PER AMENDMENT MADE UNDER SECTION 80 HHC W.E.F. 1.4.1992 AND WHICH IS ALSO IN ACCORDANCE WITH THE JUDGMENT OF HON. SUPREM E COURT IN K.K.DOSHI & CO. VS. CIT (2008) 207 ITR 28 (SC). APP ARENTLY THE ITA NOS.135 TO 1352/AHD/2009 ASST. YEARS 1999-2000, 2002-03 & 2005-06 17 EXPLANATION FURNISHED BY THE ASSESSEE IS REASONABLE AND ACCEPTABLE. THE LD. CIT DID NOT POINT OUT IN HIS ORDER HOW AND WHY INSPITE OF THE AMENDMENT MADE IN SECTION 80 HHC THE SUM OF RS.4,32 ,032/- WHICH IS BUSINESS PROFIT WOULD NOT BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80 HHC OR HAS TO BE DEDUCTED FROM THE BUSINESS PROFIT. IN ABSENCE OF CLARITY IN THE MIND OF THE LD. CIT IT CANNOT BE HELD THAT ORDER OF THE AO WAS ERRONEOUS. EVEN OTHERWISE THE CHARACTER OF THESE RECEIPTS ARE HELD AS BUSINESS PROFITS AND, THEREFORE, THEY CANNOT BE EXCLUDED FROM BUSINE SS PROFIT FOR COMPUTATION OF DEDUCTION UNDER SECTION 80 HHC. THUS FROM BOTH COUNTS, THE ORDER OF LD. CIT IS NOT SUSTAINABLE. 18. IN ASST. YEAR 2002-03 THE ONLY ISSUE ON WHICH L D. CIT HAD SET ASIDE THE ORDER OF AO WAS THE DEDUCTION UNDER SECTION 80I A WHICH WAS DISALLOWED BY THE AO IN RESPECT OF THE PROFIT ON SA LE OF DEPB LICENCE WHEREAS THE LD. CIT CONSIDERED THAT ENTIRE CLAIM AS SUCH SHOULD HAVE BEEN DISALLOWED. THE APPARENT REASONS GIVEN BY HIM IN TH E SHOW CAUSE NOTICE WAS THAT ASSESSEE IS NOT ENGAGED IN THE MANUFACTURI NG AND PRODUCTION OF ANY ARTICLE OR THING. THE SHOW CAUSE NOTICE GIVEN B Y THE LD. CIT IN THIS REGARD IS AS UNDER :- AN EXAMINATION OF YOUR ASSESSMENT RECORD FOR THE A CCOUNTING PERIOD 1998-99 RELEVANT TO ASST. YEAR 2002-03 REVEALS THAT THE ASS ESSMENT ORDER PASSED BY THE ACIT, MEHSANA CIRCLE, MEHSANA U/S 143(3) OF THE IT ACT, 1 961 ON 27.12.2007 IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE FOR THE REASONS MENTIONED HEREUNDER:- ON VERIFICATION OF YOUR CASE RECORDS FOR THE ASST. YEAR 2002-03 IT IS SEEN THAT YOU HAVE CLAIMED DEDUCTION U/S 80IA OF THE IT ACT, 1961 FOR AN AMOUNT OF RS.92,26,246/-. THE AO HAS DISALLOWED AN AMOUNT OF RS.13,83,936/-. IN OTHER WORDS, THE AO HAS ALLOWED DEDUCTION UNDER THE AFORESAID SECTION FOR A N AMOUNT OF RS.78,42,310/-. IT IS SEEN FROM THE RECORDS FOR ASST. YEAR 2004-05 THAT T HE ENTIRE AMOUNT WAS DISALLOWED AND THE SAME WAS CONFIRMED BY THE CIT(A), GANDHINAG AR. IN OTHER WORDS, THE AO HAS WRONGLY ALLOWED YOU THE AFORESAID CLAIM OF RS.78,42 ,310/- U/S 80IA OF THE IT ACT, 1961 FOR ASST. YEAR 2002-03. FURTHERMORE, IT IS SEE N FROM THE RECORDS THAT THE NATURE OF BUSINESS IN WHICH YOU ARE ENGAGED IS NOT OF MANU FACTURING AND PRODUCTION OF ARTICLE OR THING AS PROVIDED UNDER THE RELEVANT PRO VISIONS OF SECTION 80IA OF THE IT ACT,. ACCORDINGLY, THE ASSESSMENT ORDER PASSED BY T HE AO FOR ASST. YEAR 2002-03 U/S ITA NOS.135 TO 1352/AHD/2009 ASST. YEARS 1999-2000, 2002-03 & 2005-06 18 143(3) OF THE ACT ON 27.12.2007 IS ERRONEOUS AND PR EJUDICIAL TO THE INTEREST OF REVENUE. YOU ARE, THEREFORE, HEREBY GIVEN AN OPPORTUNITY TO SHOW CAUSE AS TO WHY THE ASSESSMENT ORDER PASSED BY THE AO (SUPRA) SHOULD NO T BE CANCELLED U/S 263 OF THE IT ACT, 1961 AND DIRECTED TO MAKE FRESH ASSESSMENT AS PER THE LAW. YOUR EXPLANATION IN THE MATTER SHOULD REACH THE UNDERSIGNED WITHIN 7 DA YS OF THE RECEIPT OF THIS NOTICE. IN ASST. YEAR 1999-00 IT HAS BEEN HELD BY THE AO TH AT ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND PRODUCTION OF ARTICLE OR THINGS AND THIS ORDER IS CONFIRMED BY THE LD. CIT(A) AND FURTH ER BY THE TRIBUNAL. 19. IN ASST. YEAR 2002-03 IT HAS BEEN HELD THAT ACT IVITIES OF THE ASSESSEE IS MANUFACTURING ACTIVITIES AND DISALLOWAB LE AMOUNT WOULD BE ONLY THE DEDUCTION CLAIM. HE ALSO DISMISSED THE ACT ION OF THE AO IN DISALLOWING PART OF THE CLAIM WHICH RELATED TO PROF IT ON SALE OF DEPB. THIS ORDER OF THE LD. CIT(A) WAS CONFIRMED BY THE T RIBUNAL AS REFERRED TO ABOVE. IN OTHER WORDS, NOT ONLY THE ACTIVITIES OF T HE ASSESSEE WAS HELD AS MANUFACTURING ACTIVITY BUT PROFIT ON SALE OF DEPB W AS ALSO HELD AS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA. THIS ORD ER OF THE AO MERGED IN THE ORDER OF LD. CIT(A) AND THAT OF THE TRIBUNAL AND THE SAME CANNOT BE REVISED BY THE LD. CIT VIDE HIS ORDER U/S 263. 20. IN ASST. YEAR 2005-06 THE LD. CIT TOOK THE SAME VIEW AS IN THE ASST. YEAR 2002-03 AND HELD THAT THE ENTIRE CLAIM S HOULD HAVE BEEN DISALLOWED AS ASSESSEE IS NOT ENGAGED IN THE MANUFA CTURING ACTIVITY. THE ORDER OF THE AO WAS, HOWEVER, MERGED IN THE ORDER O F TRIBUNAL WHICH HAS UPHELD THE ORDER OF LD. CIT(A) IN HOLDING THAT ACTI VITIES OF THE ASSESSEE IS MANUFACTURING ACTIVITIES. 21. IN VIEW OF THE ABOVE ORDERS OF AO MERGED INTO T HE ORDER OF THE TRIBUNAL AND, THEREFORE, IT IS BEYOND THE SCOPE OF REVISION UNDER SECTION 263. ITA NOS.135 TO 1352/AHD/2009 ASST. YEARS 1999-2000, 2002-03 & 2005-06 19 22. HON. MADRAS HIGH COURT IN THE CASE OF CIT VS. T UBE INVESTMENTS OF INDIA LTD. (2000) 243 ITR 846 (MAD) HELD THAT PR E-CONDITION OF MERGER OF AN ORDER OF A LOWER AUTHORITY IN THE ORDER OF HI GHER AUTHORITIES IS THAT MATTER IN QUESTION DECIDED BY LOWER AUTHORITY SHOUL D HAVE BEEN CONSIDERED AND DECIDED BY HIGHER AUTHORITY IN APPEA L PREFERRED AGAINST THE ORDER OF LOWER AUTHORITY. ONLY THAT PART OF THE ORD ER OF LOWER AUTHORITY WILL NOT MERGE WHICH IS NOT CONSIDERED AND DECIDED BY THE APPELLATE AUTHORITY. SIMILAR VIEW HAS BEEN TAKEN BY HONBLE M.P. HIGH C OURT IN CIT VS. SHALIMAR HOUSING & FINANCE LTD. (2010) 320 ITR 157 (M.P.) AND CONFIRMED BY HONBLE APEX COURT IN THE CASE OF CIT VS. SHALIMAR HOUSING & FINANCE LTD. [322 ITR (ST.) 14]. 23. IN THE PRESENT CASE BASIC ISSUE WHETHER ACTIVIT IES OF THE ASSESSEE ARE MANUFACTURING ACTIVITIES OR NOT, HAS BEEN DECIDED B Y APPELLATE AUTHORITIES IN FAVOUR OF THE ASSESSEE AND IT IS ALSO DECIDED BY APPELLATE AUTHORITIES THAT THE CLAIM OF DEDUCTION UNDER SECTION 80IA COUL D BE DISALLOWED ONLY TO THE EXTENT OF PROFIT ON SALE OF DEPB LICENCE AS DECIDED BY AO AND ALSO BY APPELLATE AUTHORITIES. THEREFORE, THESE TWO ISS UES CLEARLY MERGED WITH THEIR ORDERS. THUS FROM THE DOCTORINE OF MERGER AS IS APPARENT FROM THE PRESENT CASE, THE LD. CIT COULD NOT REVISE THE ORDE RS OF AO. AS A RESULT, THE APPEALS FILED BY THE ASSESSEE IN ALL THE THREE ASST. YEARS ARE ALLOWED. ITA NOS.135 TO 1352/AHD/2009 ASST. YEARS 1999-2000, 2002-03 & 2005-06 20 24. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E ARE ALLOWED. ORDER WAS PRONOUNCED IN OPEN COURT ON 28.1.11. SD/- SD/- (BHAVNESH SAINI) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD, DATED : 28.1.11. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 17/1/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 21/1/ 2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..