Shri Manoj Kothari, SILVASSA V. The Income tax Officer,Vapi Ward-2, Vapi

ITA 1588/AHD/2012

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 2176 (ITAT-SURAT)
• Duration Of Justice: 6 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 22-05-2017
• Assessment Year: 2004-2005
• Appeal Filed On: 20-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R P RASTOGI
• Assessee Lawyers: LOKESH KHADANIA
• Section: 143(3); 80IB; 250; 80IA

Judgement Text

MANOJ KOTHARI VS. ITO, VAPI WARD-2, VAPI/I.T.A. NO.1588/AHD/2012/SRT/A.Y.:2004-05 PAGE 1 OF 6 , , IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT . . , . . , BEFORE SHRI C.M.GARG, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER . . ./I.T.A NO.1588/AHD/2012/SRT /ASSESSMENT YEAR : 2004-05 MANOJ KOTHARI, B/6/1, BASERA HOUSING COMPLEX, SILVASA, U.T. OF D. & N.H 396 230. [PAN: ABQPK 1130 N] VS. THE INCOME TAX OFFICER, VAPI WARD-2, VAPI. APPELLANT /RESPONDENT /ASSESSEE BY SHRI LOKESH KHADANIA CA /REVENUE BY SHRI R.P.RASTOGI SR.DR / DATE OF HEARING: 3 0 .0 7 .2018 /PRONOUNCEMENT ON 18 .0 9 . 2018 /O R D E R PER O. P. MEENA, ACCOUTANT MEMBER: 1. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)VALSAD, (IN SHORT THE CIT (A)) DATED 31.03.2012 PERTAINING TO ASSESSMENT YEAR 2004-05, WHICH IN TURN HAS ARISEN FROM THE ORDER PASSED BY THE INCOME TAX OFFICER, VAPI WARD-2, VAPI (IN SHORT THE AO) DATED 31.03.2005 UNDER SECTION 143(3) R.W.S. 147 OF INCOME TAX ACT,1961 (IN SHORT THE ACT). MANOJ KOTHARI VS. ITO, VAPI WARD-2, VAPI/I.T.A. NO.1588/AHD/2012/SRT/A.Y.:2004-05 PAGE 2 OF 6 2. GROUND NO.1 TO 3 OF APPEAL RELATES TO NOT GRANTING DEDUCTION U/S.80IB OF THE ACT TO THE ASSESSEE. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS NOT GRANTED DEDUCTION U/S.80IB TO THE APPELLANT ON THE GROUND THAT THE ACTIVITIES OF THE APPELLANT DO NOT CONSTITUTE MANUFACTURING OR PRODUCTION WITHIN THE MEANING OF SECTION 80IB OF THE ACT. IT WAS SUBMITTED THAT THE ASSESSEE PURCHASES KOTAH OR KADDAPA STONES, WHICH ARE THEREAFTER CUT, CHISELED, MACHINE CUT AND POLISHED AND SOLD AS TILES. THE SIZE, SHAPE AND PROPERTIES OF THE STONES UNDERGO A SUBSTANTIAL CHANGE AND A NEW ARTICLE FIT FOR USE EMERGES WHICH IS COMMERCIALLY KNOWN AS TILES. THEREFORE, THE NATURE OF RAW MATERIAL IS LIKE MARBLES WHICH IS A MINERAL / ROCK WHICH IS EXTRACTED FROM THE MINERAL AND CUT FROM LAYER BY USING VARIOUS TOOLS SUCH AS CUT STONE ARE SUBJECT TO VARIOUS MANUFACTURING PROCESS TYPES OF SIZES. HOWEVER, THE CIT(A) HAS ALSO UPHELD THE ORDER OF THE AO WHILE OBSERVING THAT MANUFACTURE IMPLIES A CHANGE BUT EVERY CHANGE IS NOT MANUFACTURE ALTHOUGH EVERY CHANGE IN THE ARTICLE IS THE RESULT OF TREATMENT, LABOUR AND MANIPULATION. TO BRING ABOUT THE CHANGE QUALIFIED AS MANUFACTURE SOMETHING MORE IS NECESSARY AND THAT SOMETHING IS TRANSFORMATION THAT IS A NEW AND DIFFERENT ARTICLE HAVING A DISTINCT NAME, MANOJ KOTHARI VS. ITO, VAPI WARD-2, VAPI/I.T.A. NO.1588/AHD/2012/SRT/A.Y.:2004-05 PAGE 3 OF 6 CHARACTER AND USE MUST EMERGE. ALTHOUGH AT SOME POINT PROCESSING AND MANUFACTURING WILL EMERGE BUT WHERE THE COMMODITIES RETAINS A CONTINUING SUBSTANTIAL IDENTITY THROUGH THE PROCESSING SUCH ONE CANNOT SAY THAT IT HAS BEEN MANUFACTURE. THEREFORE, KOTAH SLAB / BULK RETAINS ITS CONTINUING SUBSTANTIAL IDENTITY THROUGHOUT THE ACTIVITIES CARRIED OUT BY ASSESSEE. HENCE, THE ASSESSEE IS NOT ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION PROCESSING, HENCE NOT ELIGIBLE FOR DEDUCTION U/S.80IB OF THE ACT. 3. THE LD.COUNSEL SUBMITTED THAT ISSUE IS NO LONGER RES-INTEGRA AS IT IS COVERED BY DECISION OF HON'BLE SUPREME COURT IN THE CASE OF ITO, UDAIPUR VS. ARIHANT TILES AND MARBLE PVT. LTD 320 ITR 79 (SC) AND ALSO ITO VS. SESA GOA LIMITED [2004] 271 ITR 331 (SC) WHEREIN IT WAS HELD AS UNDER : IN THE PRESENT CASE, WE HAVE EXTRACTED IN DETAIL THE PROCESS UNDERTAKEN BY EACH OF THE RESPONDENTS BEFORE US. IN THE PRESENT CASE, WE ARE NOT CONCERNED ONLY WITH CUTTING OF MARBLE BLOCKS INTO SLABS. IN THE PRESENT CASE WE ARE ALSO CONCERNED WITH THE ACTIVITY OF POLISHING AND ULTIMATE CONVERSION OF BLOCKS INTO POLISHED SLABS AND TILES. WHAT WE FIND FROM THE PROCESS INDICATED HEREIN-ABOVE IS THAT THERE ARE VARIOUS STAGES THROUGH WHICH THE BLOCKS HAVE TO GO THROUGH BEFORE THEY BECOME POLISHED SLABS AND TILES. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT ON THE FACTS OF THE CASES IN HAND, THERE IS CERTAINLY AN ACTIVITY WHICH WILL COME IN THE CATEGORY OF 'MANUFACTURE' OR 'PRODUCTION' UNDER SECTION 80IA OF THE INCOME TAX ACT. AS STATED HEREIN- ABOVE, THE JUDGMENT OF THIS COURT IN AMAN MARBLE INDUSTRIES PVT. LTD. WAS NOT REQUIRED TO CONSTRUE THE WORD 'PRODUCTION' IN ADDITION TO THE WORD 'MANUFACTURE'. ONE HAS TO EXAMINE THE SCHEME OF THE ACT ALSO WHILE DECIDING THE QUESTION AS TO WHETHER THE ACTIVITY CONSTITUTES MANUFACTURE OR PRODUCTION. THEREFORE, LOOKING TO THE NATURE OF THE ACTIVITY STEPWISE, WE ARE OF THE VIEW THAT THE SUBJECT ACTIVITY CERTAINLY CONSTITUTES 'MANUFACTURE OR PRODUCTION' IN TERMS OF SECTION 80IA. IN THIS CONNECTION, OUR VIEW IS ALSO FORTIFIED BY THE FOLLOWING MANOJ KOTHARI VS. ITO, VAPI WARD-2, VAPI/I.T.A. NO.1588/AHD/2012/SRT/A.Y.:2004-05 PAGE 4 OF 6 JUDGMENTS OF THIS COURT WHICH HAVE BEEN FAIRLY POINTED OUT TO US BY LEARNED COUNSEL APPEARING FOR THE DEPARTMENT. IN THE CASE OF COMMISSIONER OF INCOME TAX VS. SESA GOA LTD., REPORTED IN 271 ITR 331 (SC), THE MEANING OF THE WORD 'PRODUCTION' CAME UP FOR CONSIDERATION. THE QUESTION WHICH CAME BEFORE THIS COURT WAS WHETHER THE ITAT WAS JUSTIFIED IN HOLDING THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION UNDER SECTION 32A OF THE INCOME TAX ACT, 1961, IN RESPECT OF MACHINERY USED IN MINING ACTIVITY IGNORING THE FACT THAT THE ASSESSEE WAS ENGAGED IN EXTRACTION AND PROCESSING OF IRON ORE, NOT AMOUNTING TO MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING. THE HIGH COURT IN THAT CASE, WHILE DISMISSING THE APPEAL PREFERRED BY THE REVENUE, HELD THAT EXTRACTION AND PROCESSING OF IRON ORE DID NOT AMOUNT TO 'MANUFACTURE'. HOWEVER, IT CAME TO THE CONCLUSION THAT EXTRACTION OF IRON ORE AND THE VARIOUS PROCESSES WOULD INVOLVE 'PRODUCTION' WITHIN THE MEANING OF SECTION 32A(2)(B)(III) OF THE INCOME TAX ACT, 1961 AND CONSEQUENTLY, THE ASSESSEE WAS ENTITLED TO THE BENEFIT OF INVESTMENT ALLOWANCE UNDER SECTION 32AOF THE INCOME TAX ACT. IN THAT MATTER, IT WAS ARGUED ON BEHALF OF THE REVENUE THAT EXTRACTION AND PROCESSING OF IRON ORE DID NOT PRODUCE ANY NEW PRODUCT WHEREAS IT WAS ARGUED ON BEHALF OF THE ASSESSEE THAT IT DID PRODUCE A DISTINCT NEW PRODUCT. THE VIEW EXPRESSED BY THE HIGH COURT THAT THE ACTIVITY IN QUESTION CONSTITUTED 'PRODUCTION' HAS BEEN AFFIRMED BY THIS COURT IN SESA GOA'S CASE SAYING THAT THE HIGH COURT'S OPINION WAS UNIMPEACHABLE. IT WAS HELD BY THIS COURT THAT THE WORD 'PRODUCTION' IS WIDER IN AMBIT AND IT HAS A WIDER CONNOTATION THAN THE WORD 'MANUFACTURE'. IT WAS HELD THAT WHILE EVERY MANUFACTURE CAN CONSTITUTE PRODUCTION, EVERY PRODUCTION DID NOT AMOUNT TO MANUFACTURE. IN OUR VIEW, APPLYING THE TESTS LAID DOWN BY THIS COURT IN SESA GOA'S CASE (SUPRA) AND APPLYING IT TO THE ACTIVITIES UNDERTAKEN BY THE RESPONDENTS HEREIN, REPRODUCED HEREIN- ABOVE), IT IS CLEAR THAT THE SAID ACTIVITIES WOULD COME WITHIN THE MEANING OF THE WORD 'PRODUCTION'. ONE MORE ASPECT NEEDS TO BE HIGHLIGHTED. BY THE SAID JUDGMENT, THIS COURT AFFIRMED THE DECISION OF THE KARNATAKA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. MYSORE MINERALS LTD, (2001) 250 ITR 725 (KAR). IN THE CASE OF COMMISSIONER OF INCOME TAX VS. N.C. BUDHARAJA & CO., REPORTED IN 204 ITR 412 (SC), THE QUESTION WHICH AROSE FOR DETERMINATION BEFORE THIS COURT WAS WHETHER CONSTRUCTION OF A DAM TO STORE WATER (RESERVOIR) CAN BE CHARACTERISED AS AMOUNTING TO MANUFACTURING OR PRODUCING AN ARTICLE. IT WAS HELD THAT THE WORD 'MANUFACTURE' AND THE WORD 'PRODUCTION' HAVE RECEIVED EXTENSIVE JUDICIAL ATTENTION BOTH UNDER THE INCOME TAX AS WELL AS UNDER THE CENTRAL EXCISE AND THE SALES TAX LAWS. THE TEST FOR DETERMINING WHETHER 'MANUFACTURE' CAN BE SAID TO HAVE TAKEN PLACE IS WHETHER THE COMMODITY, WHICH IS SUBJECTED TO A PROCESS CAN NO LONGER BE REGARDED AS THE ORIGINAL COMMODITY BUT IS RECOGNISED IN TRADE AS A NEW AND DISTINCT COMMODITY. THE WORD 'PRODUCTION', WHEN USED IN JUXTAPOSITION WITH THE WORD 'MANUFACTURE', TAKES IN BRINGING INTO EXISTENCE NEW GOODS BY A PROCESS WHICH MAY OR MAY NOT AMOUNT TO MANUFACTURE. THE WORD 'PRODUCTION' TAKES IN ALL THE BYPRODUCTS, INTERMEDIATE PRODUCTS AND RESIDUAL PRODUCTS WHICH EMERGE IN THE COURSE OF MANUFACTURE OF GOODS. APPLYING THE ABOVE TESTS LAID DOWN BY THIS COURT IN BUDHARAJA'S CASE (SUPRA) TO THE FACTS OF THE PRESENT CASES, WE ARE OF THE VIEW THAT BLOCKS CONVERTED INTO POLISHED SLABS AND TILES AFTER UNDERGOING THE PROCESS INDICATED ABOVE CERTAINLY RESULTS IN EMERGENCE OF A MANOJ KOTHARI VS. ITO, VAPI WARD-2, VAPI/I.T.A. NO.1588/AHD/2012/SRT/A.Y.:2004-05 PAGE 5 OF 6 NEW AND DISTINCT COMMODITY. THE ORIGINAL BLOCK DOES NOT REMAIN THE MARBLE BLOCK, IT BECOMES A SLAB OR TILE. IN THE CIRCUMSTANCES, NOT ONLY THERE IS MANUFACTURE BUT ALSO AN ACTIVITY WHICH IS SOMETHING BEYOND MANUFACTURE AND WHICH BRINGS A NEW PRODUCT INTO EXISTENCE AND, THEREFORE, ON THE FACTS OF THESE CASES, WE ARE OF THE VIEW THAT THE HIGH COURT WAS RIGHT IN COMING TO THE CONCLUSION THAT THE ACTIVITY UNDERTAKEN BY THE RESPONDENTS-ASSESSEES DID CONSTITUTE MANUFACTURE OR PRODUCTION IN TERMS OF SECTION 80IA OF THE INCOME TAX ACT, 1961. BEFORE CONCLUDING, WE WOULD LIKE TO MAKE ONE OBSERVATION. IF THE CONTENTION OF THE DEPARTMENT IS TO BE ACCEPTED, NAMELY THAT THE ACTIVITY UNDERTAKEN BY THE RESPONDENTS HEREIN IS NOT A MANUFACTURE, THEN, IT WOULD HAVE SERIOUS REVENUE CONSEQUENCES. AS STATED ABOVE, EACH OF THE RESPONDENTS IS PAYING EXCISE DUTY, SOME OF THE RESPONDENTS ARE JOB WORKERS AND THE ACTIVITY UNDERTAKEN BY THEM HAS BEEN RECOGNISED BY VARIOUS GOVERNMENT AUTHORITIES AS MANUFACTURE. TO SAY THAT THE ACTIVITY WILL NOT AMOUNT TO MANUFACTURE OR PRODUCTION UNDER SECTION 80IA WILL HAVE DISASTROUS CONSEQUENCES, PARTICULARLY IN VIEW OF THE FACT THAT THE ASSESSEES IN ALL THE CASES WOULD PLEAD THAT THEY WERE NOT LIABLE TO PAY EXCISE DUTY, SALES TAX ETC. BECAUSE THE ACTIVITY DID NOT CONSTITUTE MANUFACTURE. KEEPING IN MIND THE ABOVE FACTORS, WE ARE OF THE VIEW THAT IN THE PRESENT CASES, THE ACTIVITY UNDERTAKEN BY EACH OF THE RESPONDENTS CONSTITUTES MANUFACTURE OR PRODUCTION AND, THEREFORE, THEY WOULD BE ENTITLED TO THE BENEFIT OF SECTION 80IA OF THE INCOME TAX ACT, 1961. 4. PER CONTRA, THE LEARNED SENIOR DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF AO AND LEARNED CIT(A). 5. WE HAVE HEARD THE BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF ITO, UDAIPUR VS. M/S.ARIHANT TILES & MARBLE (P) LTD. DATED 2 ND DECEMBER 2009 AS WELL AS DECISION OF HON'BLE SUPREME COURT IN THE CASE OF ITO VS. SESA GOA LTD. (SUPRA) WHEREIN IT WAS HELD AS UNDER : WE ARE OF THE VIEW THAT BLOCKS CONVERTED INTO POLISHED SLABS AND TILES AFTER UNDERGOING THE PROCESS INDICATED ABOVE CERTAINLY RESULTS IN EMERGENCE OF A NEW AND DISTINCT COMMODITY. THE ORIGINAL BLOCK DOES NOT REMAIN THE MARBLE BLOCK, IT BECOMES A SLAB OR TILE. IN THE CIRCUMSTANCES, NOT ONLY THERE IS MANUFACTURE BUT ALSO AN ACTIVITY WHICH IS SOMETHING BEYOND MANUFACTURE AND WHICH BRINGS A NEW PRODUCT INTO EXISTENCE AND, THEREFORE, ON THE FACTS OF THESE CASES, WE ARE OF THE VIEW THAT THE HIGH COURT WAS RIGHT IN COMING TO THE CONCLUSION THAT THE ACTIVITY UNDERTAKEN BY THE RESPONDENTS-ASSESSEE MANOJ KOTHARI VS. ITO, VAPI WARD-2, VAPI/I.T.A. NO.1588/AHD/2012/SRT/A.Y.:2004-05 PAGE 6 OF 6 DID CONSTITUTE MANUFACTURE OR PRODUCTION IN TERMS OF SECTION 80IA OF THE INCOME TAX ACT, 1961. 6. SINCE, THE KOTA STONE BLOCK ARE CONVERTED INTO POLISHED MARBLES AND TILES AFTER UNDERGOING PROCESS, HENCE, THE FACTS OF THIS CASE ARE SQUARELY COVERED. ACCORDINGLY, GROUND NO.1 TO 3 OF APPEAL ARE ALLOWED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. 8. THE ORDER PRONOUNCED IN THE OPEN COURT ON 18-09-2018. SD/- SD/- ( . . /C.M. GARG) ( . . / O.P.MEENA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER / SURAT, DATED : 18 TH SEP , 2018/ S.GANGADHARA RAO, SR.PS COPY OF ORDER SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A)/ ITAT (DR)/GUARD FILE OF ITAT. BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, SURAT