DCIT, Bangalore V. M/s. Vakkal Impex Pvt. Ltd, Bangalore

ITA 138/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63651 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 04-06-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 14-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNDARARAJAN A
• Assessee Lawyers: P DINESH
• Section: 10B

Judgement Text

PAGE 1 OF 13 ITA NO.1 38/BANG/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH C BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO. 138/BANG/2011 (ASST. YEAR 2006-07) THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE- 12(5), BANGALORE-1. VS M/S VAKKALL IMPEX PVT. LTD., NO.480, IIND FLOOR, KHB COLONY, 5 TH BLOCK, KORAMANGALA, BANGALORE-95. PA NO.AABCV4517H (APPELLANT) (RESPONDENT) DATE OF HEARING : 05.09.2012 DATE OF PRONOUNCEMENT : 14.09.2012 APPELLANT BY : SHRI SUNDARARAJAN, A., JCIT RESPONDENT BY : SHRI P DINESH, ADVOCATE OR DER PER GEORGE GEORGE K : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER OF THE CIT (A)-III, BANGALORE DATED 4.10.2010. THE RELEVANT ASSESSMENT YEAR IS 2006-07. 2. THE REVENUE, IN ITS GROUNDS OF APPEAL, HAS RAI SED FOUR GROUNDS. GROUND NO.1, 3 AND 4 ARE GENERAL IN NATURE AND, THUS, THEY HAVE BECOME INCONSEQUENTIAL. THE SOLITARY GROUND SURVIVED FOR AD JUDICATION RELATES TO THE PAGE 2 OF 13 ITA NO.1 38/BANG/2011 2 ISSUE THAT THE CIT (A) HAD ERRED IN HOLDING THAT THE ASSESSEE IS ENTITLED TO CLAIM OF RS.50,30,143/- U/S 10B OF THE ACT. 3. BRIEFLY STATED, THE FACTS OF THE ISSUE ARE AS U NDER: THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF RECYCLING OF FERROUS AND NON-FERROUS SCRAPS. IT IMP ORTS DIFFERENT TYPES OF SCRAP LIKE UNSERVICEABLE TRANSFORMER SCRAP, UNSERVI CEABLE CABLE SCRAP, MOTOR SCRAP, MIXED FERROUS AND NON-FERROUS METALS WITH AT TACHED SCRAP. FURTHER, THE NON-FERROUS METAL IS BEING SOLD OVERSEAS WHEREA S THE FERROUS METAL IS SOLD IN LOCAL MARKETS. DURING THE YEAR UNDER CONSID ERATION, THE ASSESSEE HAD SHOWN A TURNOVER OF RS.18.5 CRORES AND A NET PROFIT OF RS.1.44 CRORES. AFTER CLAIMING EXEMPTION OF RS.50,30,143/- AND OTHER ADJU STMENTS, THE NET INCOME OF RS.84,14,027/- WAS OFFERED FOR TAXATION. AFTER DUE CONSIDERATION OF THE DETAILS FURNISHED DURING THE COURSE OF ASSESSMENT P ROCEEDINGS, THE AO WAS OF THE VIEW THAT THE ASSESSEE HAD, AFTER DOWN-LOADI NG THE FERROUS AND NON- FERROUS SCRAPS WITH ATTACHMENTS IMPORTED FROM VARIO US COUNTRIES, CARRIED OUT RECYCLING/CLEANING PROCESS AND EXPORTED THE SAME TO DIFFERENT COUNTRIES. THEREFORE, THE AO TOOK A STAND THAT THE ASSESSEE HAD NOT ENGAGED IN ANY KIND OF MANUFACTURING OF THINGS/ITEMS WHEREAS THE ASSESSEES NATURE OF BUSINESS WAS MERELY IMPORTING OF SCRAPS WI TH ATTACHMENTS AND AFTER CARRYING OUT THE RECYCLING/CLEANING PROCESS, EX PORTED THE SAME TO VARIOUS DESTINATIONS. ANALYZING THE ISSUE WITH REFE RENCE TO THE PROVISIONS OF SECTION 10B OF THE ACT, THE AO CAME TO A CONCLUSION THAT THE ASSESSEE FAILED TO PROVE THAT IT HAD ACTUALLY MANUFACTURED OR PRODUC ED ANY NEW ARTICLE OR THING. SHE HAD, FURTHER, POINTED OUT THAT THE ASSE SSEE IS BASICALLY ENGAGED PAGE 3 OF 13 ITA NO.1 38/BANG/2011 3 IN RECYCLING/CLEANING OF THE SCRAPS FROM ITS ATTACHM ENTS WHICH IS THE PRINCIPAL BUSINESS OF THE ASSESSEE. 3.1 BESIDES, THE ASSESSEE IS ALSO ENGAGED IN MANU FACTURING OF ALUMINIUM INGOTS FROM ITS ALUMINIUM DIVISION AND TH E SALE IS EFFECTED WITHIN INDIA. THIS ACTIVITY OF THE ASSESSEE HAS, ACCORDING TO THE AO, NOTHING TO DO WITH ITS EXPORTS DIVISION. 3.2 REVERTING BACK TO THE ISSUE, THE AO BY REJECTI NG THE ASSESSEES CLAIM THAT THE PROCESS OF RECYCLING OF SCRAP WAS IN THE NATURE OF PRODUCING AN ARTICLE AND EXPORTING OF THE SAME IS ELIGIBLE FO R DEDUCTION U/S 10B OF THE ACT, SHE TOOK A STAND, BY EXTENSIVELY QUOTING THE PRO VISIONS OF S. 10B OF THE ACT, THAT THE ASSESSEE HAD FAILED TO PROVE THAT IT HAD ACTUALLY INDULGED IN MANUFACTURE OR PRODUCING ANY ARTICLE OR THING SO AS TO QUALIFY FOR DEDUCTION U/S 10B OF THE ACT. THE CONCLUSION OF THE AO WAS T HAT THE ASSESSEE HAD FAILED TO FURNISH ANY CONCLUSIVE PROOF IN THE PROCES S OF RECYCLING SO AS TO CLAIM DEDUCTION. ACCORDINGLY, THE ENTIRE CLAIM OF E XEMPTION OF RS.50.3 LAKHS WAS NEGATED. 4. AGGRIEVED, THE ASSESSEE TOOK UP THE ISSUE, AMO NG OTHERS, WITH THE CIT (A) FOR RELIEF. DURING THE COURSE OF APPEL LATE PROCEEDINGS, THE ASSESSEE SUBMITTED A NOTE WHEREIN IT HAD EXHAUSTIVE LY DETAILED ITS MANUFACTURING PROCESS. 5. AFTER GIVING DUE WEIGHT-AGE TO THE CONTENTIONS OF THE ASSESSEE COUPLED WITH VARIOUS CASE LAWS, THE CIT (A) HAD DIR ECTED THE AO TO GRANT PAGE 4 OF 13 ITA NO.1 38/BANG/2011 4 THE EXEMPTION CLAIMED BY THE ASSESSEE U/S 10B OF THE ACT. THE REASONS RECORDED BY THE CIT (A) FOR SUCH A STAND ARE AS UNDE R: 11.0.I FIND MUCH FORCE IN THE CONTENTION OF THE APPELLANT THAT THE ACTIVITY CARRIE D OUT BY THE APPELLANT AMOUNTS TO MANUFACTURING ACTIVITY. AFTER CONSIDERING THE SUBMISSIONS AND THE EXPLANATI ON GIVEN BY THE APPELLANT AS REGARD TO THE ACTIVITY CAR RIED OUT BY THE APPELLANT IN THE PROCESS OF EXPORTING THE RECYCLED SCRAP WHICH ARE REPRODUCED IN THE PRECEDING PARAGRAPHS, I HOLD THAT THE ACTIVITY CARRIED OUT BY T HE APPELLANT AMOUNTS TO MANUFACTURING. FURTHER, IN SUPPORT OF THE CASE, THE APPELLANT HAS RELIED ON CE RTAIN JUDICIAL PRONOUNCEMENTS WHICH I HAVE PERUSED AND IN MY CONSIDERED OPINION, THE PRINCIPLES LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF INDIA CINE AGE NCIES VS. CIT 308 ITR 98 (SC) AND THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SHIP SCRAP TRADERS, ISPAT BROT HERS, BANSAL BROTHERS V. CIT 251 ITR 806 (BOM) ARE AKIN T O THE FACTS OF THE PRESENT CASE. HENCE, I AM OF THE OPINION THAT THE IMPORTING OF SCRAP FORM (SIC) FROM OTHER COUNTRIES AND THE PROCESS INVOLVED BY THE APPELLANT TO RECYCLE FERROUS AND NON-FERROUS SCRAP AMOUNTS TO MANUFACTURING ACTIVITY AND IS WELL IN THE DEFINITION OF MANUFACTURE AS PER SECTION 2 (29BA) OF THE INCOME- TAX ACT, 1961 AND, HENCE, THE APPELLANT IS ELIGIBLE TO CLAIM EXEMPTION UNDER SECTION 10B OF THE ACT 6. AGGRIEVED, THE REVENUE HAS COME UP WITH THE PR ESENT APPEAL. 7. DURING THE COURSE OF HEARING, THE LEARNED DR S UBMITTED THAT THE CIT (A) HAD GROSSLY ERRED IN HOLDING THAT THE AS SESSEES ACTIVITY OF RECYCLING OF FERROUS AND NON-FERROUS SCRAPS IMPORTED FROM OTHER COUNTRIES AMOUNTS TO MANUFACTURING WITHIN THE MEANING OF THE DEFINITION OF THE TERM PAGE 5 OF 13 ITA NO.1 38/BANG/2011 5 MANUFACTURE AS PER SECTION 2(29BA) OF THE INCOME- TAX ACT SO AS TO ENTITLE TO CLAIM EXEMPTION U/S 10B OF THE ACT. FOR THIS PR OPOSITION, THE LEARNED DR HAS PLACED RELIANCE ON THE FOLLOWING CASE LAWS: CIT V. VIJAYA RETREADERS 253 ITR 53 (KER); CIT V. MADURAI PANDIAN ENGINEERING CORPORATION LTD 239 ITR 375 (MAD); DCIT V. APOLLO VIKAS STEELS (P) LTD ITA NO.926, 9 27 DT.30.9.1997 ITAT, AHMEDABAD BENCH; & GATTA MALLAIAH SONS V. ITO 60 ITD 131 8. ON THE OTHER HAND, THE LEARNED AR SUPPORTED TH E FINDINGS OF THE CIT (A). HE HAD, FURTHER, SUBMITTED A NOTE CAP TIONED MANUFACTURING PROCESS WHICH WAS ALSO FURNISHED BEFORE THE FIRST APPELLATE AUTHORITY. TO STRENGTHEN HIS SUBMISSION, THE LEARNED AR HAD FURNI SHED A PAPER BOOK CONTAINING 1 7 PAGES WHICH CONSIST OF COPY OF A LE TTER FROM (I) THE MINISTRY OF COMMERCE AND INDUSTRIES, GOVERNMENT OF INDIA, VI SAKHAPATNAM; AND (II) SMALL INDUSTRIES SERVICE INSTITUTE [SISI], HYDERABAD . 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS, PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORDS AND ALSO TH E CASE LAWS ON WHICH EITHER PARTY HAD PLACED RELIANCE. THE REASONING OF T HE AO IN DENYING THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 10B OF THE ACT WAS, BRIEFLY, THAT THE ASSESSEE HAD FAILED TO PROVE THAT IT HAD ACTUALLY MA NUFACTURED OR PRODUCED ANY NEW ARTICLE OR THING. ACCORDING TO THE AO, THE ASSESSEE WAS BASICALLY ENGAGED IN RECYCLING/CLEANING OF SCRAPS FROM ITS ATT ACHMENTS WHICH WAS THE PRINCIPAL BUSINESS OF THE ASSESSEE. PAGE 6 OF 13 ITA NO.1 38/BANG/2011 6 9.1 HOWEVER, THE ASSESSEE HAD, IN ITS NOTE DETAIL ED THE VARIOUS STAGES OF PROCESS BEING UNDERTAKEN BY IT TO SEGREGAT E THE FERROUS AND NON- FERROUS SCRAPS FROM THE DIFFERENT TYPES OF SCRAPS SU CH AS UNSERVICEABLE TRANSFORMERS, CABLES, MOTOR SCRAPS IMPORTED FROM VA RIOUS COUNTRIES. THE ENTIRE CONTENTS OF THE ASSESSEES NOTE HAVE SINCE B EEN EXTRACTED VERBATIM BY THE CIT (A) IN HIS ORDER UNDER CONSIDERATION. 9.2 ON A CAREFUL CONSIDERATION OF THE PROCESS TECHNIQUE BEING APPLIED BY THE ASSESSEE, WE FIND THAT THE DIFFERENT TYPE OF SCRAPS IMPORTED BY THE ASSESSEE WAS SUBJECTED TO VARIOUS TYPES OF REC YCLING AND CLEANING PROCESSES. THE NON-FERROUS METALS SUCH AS COPPER, ALUMINIUM, BRASS ETC., ARE BEING SEPARATED FROM THE SCRAPS WITH ATTACHMENTS BY EMPLOYING HYDRAULIC PUSHERS. COPPER, ALUMINIUM ETC., SO EXTRACTED IS F ED TO HYDRAULIC BUNDLING MACHINES TO BUNDLE THEM IN DIFFERENT SIZES ACCORDIN G TO THE NEED OF ITS CUSTOMERS. LIKEWISE, THE COPPER EMBODIED WITH THE SCRAPS WILL ALSO UNDERGO DIFFERENT TYPES OF CLEANING SO AS TO PEEL OFF THE IN SULATED MATERIAL, CUTTING OF THE SAME INTO VARIOUS SIZES TO COMMENSURATE TO THE REQUIREMENTS OF THE CUSTOMERS. 9.3 OBVIOUSLY, THE AO HAD COME TO THE CONCLUSION T HAT THE ASSESSEE WAS DOING ONLY CLEANING PROCESS OF SCRAPS AND ULTIMA TELY EXPORTING THE NON- FERROUS AND FERROUS METALS WHICH, ACCORDING TO HER, DOES NOT INVOLVE IN ANY MANUFACTURING OR PRODUCING OF AN ARTICLE OR THING O N THE PREMISE THAT THE ASSESSEE HAD FAILED TO FURNISH ANY CONCLUSIVE PROOF WITH REGARD TO THE PROCESS OF RECYCLING [SOURCE: PARA 7 OF ASST. ORDER] . HAD THERE BEEN THE DETAILS OF PROCESS OF RECYCLING/CLEANING OF THE SCRA PS FURNISHED BY THE PAGE 7 OF 13 ITA NO.1 38/BANG/2011 7 ASSESSEE BEFORE HER, WE SUPPOSE, THE AO WOULD NOT H AVE RESORTED TO REJECT THE ASSESSEES CLAIM FOR DEDUCTION U/S 10B OF THE A CT? 9.4 TURNING OUR ATTENTION TO THE VARIOUS CASE LAW S ON WHICH THE RIVAL PARTIES HAD PLACED RELIANCE, WE HAVE COME ACROSS AN IDENTICAL ISSUE TO THAT OF THE PRESENT ONE ON HAND, WHICH HAD CROPPED UP BEFOR E THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SHIP SCRAP TRADERS & ORS V. CIT & ORS REPORTED IN (2001) 251 ITR 806 (BOM). BRIEFLY, THE ISSUE BEF ORE THE HONBLE HIGH COURT WAS THAT THE ASSESSEES WERE ENGAGED IN THE BU SINESS OF SHIP-BREAKING. THE DEDUCTIONS CLAIMED BY THE ASSESSEES UNDER SECTI ONS 80HHA AND 80-I OF THE ACT WERE REJECTED BY THE REVENUE ON THE GROUN D THAT THE BUSINESS AND ACTIVITY OF SHIP-BREAKING CARRIED ON BY THEM DID NOT AMOUNT TO MANUFACTURE OR PRODUCTION OF ARTICLE OR THING. THE ASSESSEES WERE CLAIMING THAT THEY WERE TREATED AS INDUSTRIAL UNDERTAKINGS BY VARIOUS TAX AUTHORITIES; AND THAT THEY WERE HOLDING LICENCE UNDER CENTRAL EXC ISE RULES 1944 AS IRON AND STEEL OBTAINED BY BREAKING OF SHIPS WERE EXCISAB LE AND THAT THEY WERE REGISTERED AS SMALL SCALE INDUSTRIAL UNITS WITH THE DIRECTOR OF INDUSTRIES. HOWEVER, THE CLAIMS OF THE ASSESSEES WERE REJECTED BY THE AO ON THE GROUND THAT THE ACTIVITY OF SHIP-BREAKING DID NOT AM OUNT TO MANUFACTURE OR PRODUCTION OF THINGS OR ARTICLES. HOWEVER, THE CIT (A) DID OBLIGE THE ASSESSEES IN ACCEPTING THEIR CONTENTIONS AND HELD T HAT THE SHIP-BREAKING AMOUNTS TO MANUFACTURE AND/OR PRODUCTION OF ARTICLE S OR THINGS. ON APPEALS, THE TRIBUNAL REVERSED THE FINDINGS OF THE CIT (A) A ND AGREED WITH THE FINDINGS RECORDED BY THE AO. PAGE 8 OF 13 ITA NO.1 38/BANG/2011 8 9.5 ON FURTHER APPEALS, THE HONBLE COURT, BEFORE PROCEEDING FURTHER WITH DISCUSSION ON LEGAL ISSUES, HAD PENETR ATED WITH THE BASIC CONCEPT OF SHIP-BREAKING ACTIVITY AND ITS UNDERSTA NDING OF IT HAS BEEN SUMMARIZED AS UNDER: (A) OLD SHIPS WERE BROUGHT FOR THE PURPOSE OF BREAKING TO THE BREAKING YARDS. IN THE COURSE OF BREAKING ACTIVITY, THE SHIP LOSES ITS IDENTITY AND RESULTS INTO PRODUCTION OF TH E FOLLOWING ITEMS: FERROUS METALS, RE-ROLLABLE STEEL, MELTING STEEL, C AST IRON SCRAP, NON-FERROUS METALS, ALUMINIUM, BRASS, COPPER ETC., (B) THE SHIP-BREAKING ACTIVITY CALLS FOR EXPERTISE IN TH E TECHNIQUE TO BE ADOPTED; AND CUTTING OF STEEL OF TH E SHIP IS DONE BY USING LPG AND OXYGEN GAS ETC; (C) THE SHIP-BREAKING ACTIVITY HAS BEEN CONSIDERED IN VA RIOUS LEGISLATION AS MANUFACTURING ACTIVITY. THE DEVELOPM ENT COMMISSIONER, SMALL SCALE INDUSTRIES BOARD, NEW DEL HI HAD ALSO RECOGNIZED SHIP-BREAKING AS AN INDUSTRIAL ACTI VITY. THAT IS HOW THE SHIP-BREAKING ACTIVITY IS UNDERSTOOD AND CARRIED OUT IN THE COUNTRY TREATING IT AS AN INDUSTRIAL UND ERTAKING; & (D) THE PETITIONERS HAVE ALSO PRODUCED ON RECORD VISUAL MATERIAL IN SUPPORT OF THEIR CONTENTIONS AS TO HOW THE SHIP- BREAKING ACTIVITIES WERE CARRIED OUT AND TRIED TO IMPRESS TH AT IT IS A SYSTEMATIC ORGANIZED COMMERCIAL BUSINESS VENTURE INV OLVING THE COMPONENT OF FINANCE, LABOUR, SKILL SO AS TO GI VE BIRTH TO ALTOGETHER A NEW IDENTIFIABLE COMMERCIAL PRODUCT I. E., ARTICLES OR THINGS DIFFERENT FROM ITS ORIGINAL RAW MATERIAL I.E., SHIP. 9.6 AFTER TAKING INTO CONSIDERATION OF RIVAL CONT ENTIONS, THE HONBLE COURT HAD OBSERVED THUS: PAGE 9 OF 13 ITA NO.1 38/BANG/2011 9 16. THE WORD MANUFACTURE USED AS A VERB IS GENE RALLY UNDERSTOOD TO MEAN AN BRINGING INTO EXISTENCE A NE W SUBSTANCE AND DOES NOT MEAN MERELY TO PRODUCE SOME CHANGE IN A SUBSTANCE, HOWEVER, MINOR IN CONSEQUEN CE THE CHANGE MAY BE. THIS DISTINCTION IS WELL BROUGHT ABOUT IN A PASSAGE THUS QUOTED IN PERMANENT EDITION OF WO RDS AND PHRASES. VOL. 26, FROM AN AMERICAN JUDGMENT. THE PASSAGE RUNS THUS: MANUFACTURE IMPLIES A CHANGE, BUT EVERY CHANGE IS NOT MANUFACTURE AND YET EVERY CHANGE OF AN ARTICLE IS THE RESULT OF TREATMENT, LABOUR AND MANIPULATION. BUT, SOMETHING MORE IS NECESSARY AND THERE MUST BE TRANSFORMATION A NEW LAND, DIFFERENT ARTICLE MUST EMERGE HAVING A DISTINCTIVE NAME, CHARACTER OR USE. 17. THE EXPRESSION MANUFACTURE HAS IN ORDINARY ACCEPTATION A WIDE CONNOTATION. IT MEANS MAKING OF ARTICLES, OR MATERIAL COMMERCIALLY DIFFERENT FROM TH E BASIC COMPONENTS, BY PHYSICAL LABOUR OR MECHANICAL PROCESS. HOWEVER, IT ALSO NEEDS TO BE CONSIDERED T HAT WHEN THE WORD MANUFACTURE IS APPEARING IN THE COMPA NY OF WORD PRODUCTION WHICH HAS A WIDER CONNOTATION THEN THE WORD MANUFACTURE, THE WORD PRODUCTION OR PROD UCE WHEN USED IN JUXTAPOSITION WITH THE WORD MANUFACTUR E TAKES IN BRINGING INTO EXISTENCE NEW GOODS BY A PROC ESS WHICH MAY OR MAY NOT AMOUNT TO MANUFACTURE. THE ASSOCIATED WORDS ARE INDICATIVE OF THE MIND OF LEGISLATURE. WHERE A WORD IS DOUBTFUL OR AMBIGUOUS IN NATURE THE MEANING HAS TO BE ASCERTAINED BY CONSIDER ING THE COMPANY IN WHICH IT IS FOUND AND THE MEANING OF THE WORD ASSOCIATED WITH IT. THE WORDS MANUFACTURE AND PRODUCTION HAVE RECEIVED EXTENSIVE JUDICIAL ATTENTI ON BOTH UNDER THE ACT AS WELL AS THE CENTRAL EXCISES A CT AND THE VARIOUS SALES-TAX LAWS. THE WORD PRODUCTI ON HAS A WIDER CONNOTATION THAN THE WORD MANUFACTURE. I N PAGE 10 OF 13 ITA NO. 138/BANG/2011 10 ORDER TO APPRECIATE AND UNDERSTAND THE SCOPE AND MEANING OF THE SAID WORDS, IT IS NECESSARY TO TURN T O THE VARIOUS JUDGMENTS DEALT WITH THE SAID SUBJECT AND L AW LAID DOWN BY THE VARIOUS HIGH COURTS INCLUDING THIS COURT AND THE VIEWS EXPRESSED BY THE APEX COURT WHILE DEALING WITH SUCH CONTENTIONS. 9.7 AFTER EXTENSIVELY QUOTING THE RULING OF THE HO NBLE APEX COURT IN THE CASE OF CIT V. N.C. BUDHARAJA & CO REP ORTED IN (1993) 114 CTR (SC) 420 AND ALSO REFERRING THE WORD PRODUCE AS PER WEBSTERS NEW INTERNATIONAL DICTIONARY AND THE SHORTER OXFORD ENGL ISH DICTIONARY, THE HONBLE COURT HAD COME TO THE CONCLUSION THAT: 19. APPLYING THE PRINCIPLES SPELT OUT BY THE APEX CO URT IN THE AFOREMENTIONED DECISION AND THE ORDINARY MEAN ING OF THE WORD PRODUCE AS DISCLOSED BY THE DICTIONARY AND BY ITS ORDINARY CONNOTATION, WE ARE OF THE OPINION TH AT WHEN THE WORD MANUFACTURE IS APPEARING IN THE COMPA NY OF THE WORD PRODUCTION WHICH HAS WIDER CONNOTATION THAN THE WORD MANUFACTURE, THEN IN THAT EVENT, THE WORD MANUFACTURE WILL HAVE TO BE INTERPRETED IN WIDER SENSE AND WILL HAVE TO BE UNDERSTOOD AS PAR WITH THE MEAN ING ASSIGNED TO THE WORD PRODUCTION AND IF SUCH APPRO ACH AS CONTEMPLATED BY LEGISLATURE IS ADOPTED THEN IN THAT EVENT IT IS NOT DIFFICULT TO REACH TO THE CONCLUSIO N THAT THE ASSESSEES ARE THE INDUSTRIAL UNDERTAKINGS, ENG AGED IN MANUFACTURE AND PRODUCTION OF ARTICLES AND THINGS. 23. THE APEX COURT IN THE CASE OF CIT V. N.C. BUDH ARAJA & CO. (SUPRA) OBSERVED THAT THE WORD PRODUCTION O R PRODUCE TAKES INTO ACCOUNT ALL THE BY-PRODUCTS, INTERMEDIATE PRODUCTS AND RESIDUAL PRODUCTS WHICH EMERGE IN THE COURSE OF MANUFACTURE OF GOODS. THE APEX COURT WHILE CONSIDERING THE NEXT WORD ARTICLES OC CURRING PAGE 11 OF 13 ITA NO. 138/BANG/2011 11 IN THE SAID CLAUSE AND NOTICED THAT THE WORD ARTIC LES IS PRECEDED BY THE WORDS IT HAS BEGUN OF BEGINS TO MANUFACTURE OR PRODUCE AND REACHED TO THE CONCLUSI ON THAT THE EXPRESSIONS MANUFACTURE AND PRODUCE AR E NORMALLY ASSOCIATED WITH MOVABLES IE., ARTICLES AND GOODS, BIG AND SMALL. APPLYING THE SAID YARDSTICK ADOPTED B Y THE APEX COURT AND CONSIDERING THE PECULIAR NATURE OF T HE SHIP-BREAKING ACTIVITY AS MAPPED IN PARA 6 (SUPRA) W E ARE OF THE VIEW THAT THE SHIP-BREAKING ACTIVITY GIVES RI SE TO MANUFACTURE AND PRODUCTION OF ALTOGETHER A NEW COMMERCIAL ARTICLES OR THINGS WHICH ARE COMMERCIALL Y IDENTIFIABLE IN THE COMMERCIAL WORLD OTHER THAN THE SHIP AND, THEREFORE, THE ASSESSEES SHOULD BE HELD ENTITL ED TO CLAIM DEDUCTIONS UNDER SS. 80HHA AND 80-I OF THE AC T. 9.8 ON A SIMILAR ISSUE, THE HONBLE SUPREME COURT HAD, IN THE CASE OF VIJAY SHIP BREAKING CORPORATION & ORS V. CIT REPO RTED IN (2009) 314 ITR 309 (SC), REINFORCED AN IDENTICAL VIEW. IT WAS HELD THUS: THE IMPORTANT TEST WHICH DISTINGUISHES THE WORD PRODUCTION FROM MANUFACTURE IS THAT THE WORD PRODUCTION IS WIDER THAN THE WORD MANUFACTURE. FURTHER, IT IS TRUE THAT IN BUDHARAJAS CASE, THE D IVISION BENCH HAS USED THE WORD NEW ARTICLE. HOWEVER, WH AT THE DIVISION BENCH MEANT WAS THAT A DISTINCT ARTICLE EM ERGES WHEN THE PROCESS OF SHIP-BREAKING IS UNDERTAKEN. FURTHER, THE LEGISLATURE HAS USED THE WORDS MANUFACTURE OR PRODUCTION. THEREFORE, THE WORD PRODUCTION CANNOT DERIVE ITS COLOUR FROM THE WORD MANUFACTURE. FURTHER, EVEN ACCORDING TO THE DICTI ONARY MEANING OF WORD PRODUCTION, THE WORD PRODUCE IS DEFINED AS SOMETHING WHICH IS BROUGHT FORTH OR YIELD ED EITHER NATURALLY OR AS A RESULT OF EFFORT AND WORK. IT IS IMPORTANT TO NOTE THAT THE WORD NEW IS NOT USED I N THE DEFINITION OF THE WORD PRODUCE. TRIBUNAL IN THE PRESENT CASE WAS RIGHT IN ALLOWING THE DEDUCTION UNDER SS. 80HH AND 80-I TO THE ASSESSEE HOLDING THAT THE SHIP-BREA KING PAGE 12 OF 13 ITA NO. 138/BANG/2011 12 ACTIVITY GAVE RISE TO THE PRODUCTION OF A DISTINCT A ND DIFFERENT ARTICLE: 9.9. THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT AS WELL AS THE HONBLE SUPREME COURT (SUPRA) ARE, IN OUR CONSI DERED VIEW, AKIN TO THE FACTS AND CIRCUMSTANCES OF THE ISSUE UNDER DISPUTE. FURTHER, AS HIGHLIGHTED BY THE HONBLE COURT [COURTESY: PARA 6(C) OF THE ORDE R], THE DEVELOPMENT COMMISSIONER, MINISTRY OF COMMERCE & INDUSTRIES, GOV ERNMENT OF INDIA, VISKHAPATNAM VIDE HER LETTER NO.PER 155 (2002)/EOU/ VEPZ/2002/3701 DATED 27.5.2002 HAD PERMITTED [UNDER 100% EOS] THE ASSESSEE FOR RECYCLING OF IMPORTED FERROUS AND NON-FERROUS SCRAP [REFER: P 1 3 OF PB AR]. LIKEWISE, THE DEVELOPMENT COMMISSIONER, SPECI AL ECONOMIC ZONE [SISI] VIZAG VIDE HIS LETTER DATED 28.11.2007 HAD P ERMITTED THE ASSESSEE TO RECYCLE THE IMPORTED FERROUS AND NON-FERROUS SCRAP F OR A FURTHER PERIOD OF FIVE YEARS FROM 2.1.2008, THE RELEVANT PORTION OF WH ICH, IS EXTRACTED AS UNDER: I AM DIRECTED TO REFER YOUR LETTER DATED 21.11.200 7 ON THE SUBJECT MENTIONED ABOVE AND TO CONVEY THAT IN VI EW OF THE CERTIFICATION GIVEN BY THE DIRECTOR, SISI, GO VT. OF INDIA THAT THE PROCESS IS UNDERGOING MANUFACTURING, APPROVAL HAS BEEN ACCORDED BY THE DEVELOPMENT COMMISSIONER, VSEZ EXTENDING THE VALIDITY.. [COURTESY: P4 OF PB AR]. 9.10 TAKING INTO ACCOUNT ALL THESE FACTS AND CIRC UMSTANCES OF THE ISSUE AND ALSO IN CONFORMITY WITH THE RATIOS LAID DO WN BY THE HONBLE BOMBAY HIGH COURT AS WELL AS THE HONBLE SUPREME COURT CIT ED SUPRA, WE ARE OF THE FIRM VIEW THAT THE RECYCLING OF FERROUS AND NON-FERR OUS SCRAPS BY THE ASSESSEE AMOUNTS TO MANUFACTURING ACTIVITY AND IS WELL WITHIN THE DEFINITION PAGE 13 OF 13 ITA NO. 138/BANG/2011 13 OF MANUFACTURE. THUS, THE ASSESSEE WAS WITHIN ITS REALM TO CLAIM EXEMPTION U/S 10B OF THE ACT. IT IS ORDERED ACCOR DINGLY. 9.11 BEFORE PARTING WITH THE ISSUE, WE WOULD LIKE TO POINT OUT THAT THE CIT (A), PERHAPS BY MISCONCEPTION, DREW STRENGTH FROM THE PROVISIONS OF S.2 (29BA) OF THE ACT TO THE EFFECT THAT THE PROCES S EMPLOYED BY THE ASSESSEE TO RECYCLE FERROUS AND NON-FERROUS SCRAPS A MOUNTS TO MANUFACTURING ACTIVITY. WHILE DOING SO, THE CIT (A) HAD FAILED TO NOTICE THAT THE PROVISION OF S.2 (29BA) WAS INSERTED BY FINANCE (NO.2) ACT, 2009 WITH EFFECT FROM 1.4.2009 WHICH APPLIES IN RELATION TO A SSESSMENT YEAR 2009-10 AND SUBSEQUENT YEARS, BUT , DOES NOT RELATE TO THE ASSESSMENT YEAR 2006-07 UNDER CONSIDERATION. 10. IN THE RESULT, THE REVENUES APPEAL IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH DAY OF SEPTEMBER, 2012 SD/- SD/- (JASON P BOAZ) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONCERNE D. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/ BY ORDER SENIOR PRIVATE SECRETARY, ITAT, BANGALORE.