Hindsutan Zinc Limited, UDAIPUR V. CIT, UDAIPUR

ITA 194/JODH/2011

• Counselvise Citation: 19423314 RSA 2011
• Duration Of Justice: 2 year(s) 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 19-02-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 09-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR DEEPAK SEHGALCIT
• Keywords: Depreciation; Additional depreciation
• Section: 143(3); 263

Judgement Text

IN THE INCOMETAX APPELLATE TRIBUNAL JODHPUR BENCH: JODHPUR (BEFORE SHRI H.M. MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER) I.T.A. NO. 194/JODH/2011 ASSTT. YEAR- 2007-08 HINDUSTAN ZINC LIMITED VS THE CIT, YASHAD BHAWAN, SAHELI MARG, UDAIPUR. UDAIPUR. PAN NO. AAACH7354K (APPELLANT) (RESPONDENT) ASSESSEES BY : SHRI K. SAMPATH. DEPARTMENT BY : DR. DEEPAK SEHGAL-CIT- D.R. DATE OF HEARING : 19/02/2014 DATE OF PRONOUNCEMENT : 28/02/2014 O R D E R PER: HARI OM MARATHA, J.M. THIS APPEAL OF THE ASSESSEE-COMPANY FOR A.Y. 2007- 08, IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX , UDAIPUR, DATED 14.03.2011, PASSED U/S 263 OF THE INCOME TAX ACT, 1 961 (THE ACT FOR SHORT). 2 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE-COMPANY FILED ITS RETURN OF INCOME FOR A.Y. 2007-08 ON 30.1 0.2007 DECLARING TOTAL TAXABLE INCOME OF RS. 54,43,88,93,250/-. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON 23.03.2009 AT A TOTAL TAXABLE INCOME OF RS. 61,65,85,62,500/-. FROM THE ASSESSMEN T RECORDS THE LD. CIT FOUND THAT THE AO HAS ALLOWED ADDITIONAL DEPREC IATION OF RS. 18,87,27,973/- U/S 32(I)(IIA) OF THE ACT. ON THE EN ERGY SAVING DEVICES, INSTALLED AT CAPTIVE POWER PLANT, CHANDERIA AND ON WIND POWER PLANT. AS PER LD. CIT ADDITIONAL DEPRECIATION IS FURTHER A LLOWABLE TO ANY ASSESSEE WHO IS ENGAGED IN THE BUSINESS OF MANUFACT URE OR PRODUCTION OF ANY ARTICLE OR THING EQUAL TO 20% OF THE ACTUAL COST OF THE MACHINERY / PLANT AS A DEDUCTION U/S 32(I)(IIA) OF THE ACT, I N CASE OF ANY NEW MACHINERY OR PLANT WHICH HAS BEEN ACQUIRED AND INST ALLED AFTER 31 ST MARCH, 2005. THIS ASSESSEE HAS NOT BEEN TREATED AS ENGAGED IN THE BUSINESS OF MANUFACTURE / PRODUCTION OF ANY ARTICLE OR THING AS IT IS GENERATING POWER FROM THE CAPTIVE POWER PLANT AND W IND POWER PLANT WHICH DONT TANTAMOUNT EITHER TO MANUFACTURE OR PRO DUCTION OF ANY ARTICLE OR THING. THEREFORE, ACCORDING TO HIM BY AL LOWING ADDITION AND DEPRECIATION THE AO HAS COMMITTED AN ERROR. RESULTA NTLY, THE ASSESSMENT ORDER HAS BECOME ERRONEOUS IN SO FAR AS IT IS ALSO 3 PREJUDICIAL TO THE INTEREST OF THE REVENUE. THUS, A FTER ASSESSING POWER U/S 263 OF THE ACT HE HAS SHOW CAUSED THE ASSESSEE US/ 263. 3. FURTHER, HE ALSO NOTICED THAT WHILE CLAIMING DED UCTION U/S 80IA IN RESPECT OF UNIT OF CPP, CHANDERIA AND DEBARI, THE S ALE OF ELECTRICITY HAS BEEN INCREASED BY INCLUDING THE ELECTRICITY DUTY AN D FIXED DEMAND CHARGES, WHICH HAS RESULTED INTO EXCESS CLAIM OF DE DUCTION U/S 80IA OF THE ACT. ACCORDINGLY, HE HAS ALSO SHOW CAUSED THE A SSESSEE ON THE ISSUES. A NOTICE U/S 263 OF THE ACT DATED 18.02.201 1 WAS ISSUED TO THE ASSESSEE-COMPANY. 4. TO THE ABOVE SHOW CAUSE NOTICE THE ASSESSEE-COMP ANY HAS REPLIED BY STATING THAT THE ENTIRE PLANT AND MACHINERY OF C APTIVE POWER PLANT AND THE WIND POWER PLANT ARE NEW MACHINERY. THAT TH E ACTIVITY OF GENERATION, TRANSMISSION, SUPPLY AND DISTRIBUTION O F ELECTIVE POWER AMOUNT TO MANUFACTURE OR AT LEAST PRODUCTION OF ANY NEW ARTICLE OR THING. THE ASSESSEE HAS RELIED ON THE DEFINITION OF PRODUCTION GIVEN IN THE ELECTRICITY ACT, 2003 APART FROM DERIVING SUPPO RT FROM VARIOUS PRECEDENTS. REGARDING ELIGIBILITY FOR DEDUCTION U/S 80IA OF THE ACT IN RESPECT OF TWO UNITS ON CPP CHANDERIA AND CPP DEBAR I IT WAS STATED THAT THE TRANSFER PRICE IS DETERMINED BARRED ON THE ALP I.E. IF 4 CONSUMING UNIT WILL BUY POWER FROM OUTSIDERS IN PLA CE OF CAPTIVE POWER PLANT IN THAT CASE WHAT WOULD BE LANDED COST FOR TH EM. BUT AS PER LD. CIT THE PROFITS OF THESE TWO UNITS HAVE BEEN SUBSTA NTIALLY ENHANCED BY CHARGING ELECTRICITY DUTY AND FIXED DEMAND CHARGES @ RS. 0.40 AND 0.13 PER UNIT, RESPECTIVELY. HE HAS TREATED THIS ACT AS DIVERSION OF PROFIT FROM THE TAXABLE UNITS TO THE NON TAXABLE UNITS. TH US, ACCORDING TO HIM THOUGH THE AO HAS DISALLOWED THE ENTIRE CLAIM OF DE DUCTION OF RS. 297.19 CRORES /S 80IA OF THE ACT BUT WHILE CALCULAT ING SUCH DEDUCTION THE SALE HAS NOT BEEN REDUCED TO THAT EXTENT. THERE FORE, ON BOTH ISSUE SHE HAS SET ASIDE THE ASSESSMENT ORDER AND HAS DIRE CTED TO PASS A FRESH ASSESSMENT ORDER AS HIS ORDER HAS BEEN FOUND BOTH E RRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE U/S 263 OF THE ACT. AGGRIEVED, THE ASSESSEE HAS COME IN APPEAL. 5. WE HAVE HEARD BOTH THE SIDES. WE HAVE ALSO CAREF ULLY TREATED FROM THE ASSESSMENT ORDER AND THE APPELLATE ORDER A PART FROM THE OTHER EVIDENCE AVAILABLE ON RECORD. IT IS TRITE THA T AN ORDER CAN BE REVISED ONLY AND ONLY IF TWIN CONDITIONS OF ERROR IN THE ORDER AND PREJUDICE CAUSED TO THE REVENUE CO-EXIST. THE SU BJECT OF REVISION UNDER SECTION 263 HAS BEEN VASTLY EXAMINED AND ANA LYZED BY VARIOUS COURTS INCLUDING THAT OF HONBLE APEX COURT. THE R EVISIONAL POWER 5 CONFERRED ON THE CIT VIDE SECTION 263 IS OF VIDE AM PLITUDE. IT ENABLES THE CIT TO CALL FOR AND EXAMINE THE RECORDS OF ANY PROCEEDING UNDER THE ACT. IT EMPOWERS THE CIT TO MAKE OR CAUSE TO B E MADE SUCH AN ENQUIRY AS HE DEEMS NECESSARY IN ORDER TO FIND OUT IF ANY ORDER PASSED BY ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT I S PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE ONLY LIMITATION ON H IS POWERS IS THAT HE MUST HAVE SOME MATERIAL(S) WHICH WOULD ENABLE HIM T O FORM A PRIMA FACIE OPINION THAT THE ORDER PASSED BY THE ASSESSIN G OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT EREST OF THE REVENUE. ONCE HE COMES TO THE ABOVE CONCLUSION ON THE BASIS OF THE MATERIAL THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOU S AND ALSO PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THE CIT IS EMPOWER ED TO PASS AN ORDER AS THE CIRCUMSTANCES OF THE CASE MAY WARRANT. HE M AY PASS AN ORDER ENHANCING THE ASSESSMENT OR HE MAY MODIFY THE ASSES SMENT. HE IS ALSO EMPOWERED TO CANCEL THE ASSESSMENT AND DIRECT TO FR AME A FRESH ASSESSMENT. HE IS EMPOWERED TO TAKE RECOURSE TO AN Y OF THE THREE COURSES INDICATED IN SECTION 263. SO, IT IS CLEAR THAT THE CIT DOES NOT HAVE UNFETTERED AND UNCHEQUERED DISCRETION TO REVIS E AN ORDER. THE CIT IS REQUIRED TO EXERCISE REVISIONAL POWER WITHIN THE BOUNDS OF THE LAW AND HAS TO SATISFY THE NEED OF FAIRNESS IN ADMI NISTRATIVE ACTION AND FAIR PLAY WITH DUE RESPECT TO THE PRINCIPLE OF AUDI ALTERAM PARTEM AS 6 ENVISAGED IN THE CONSTITUTION OF INDIA AS WELL AS IN SECTION 263. AN ORDER CAN BE TREATED AS ERRONEOUS IF IT WAS PASSE D IN UTTER IGNORANCE OR IN VIOLATION OF ANY LAW; OR PASSED WITHOUT TAKIN G INTO CONSIDERATION ALL THE RELEVANT FACTS OR BY TAKING INTO CONSIDERAT ION IRRELEVANT FACTS. THE PREJUDICE THAT IS CONTEMPLATED UNDER SECTION 263 IS THE PREJUDICE TO THE INCOME TAX ADMINISTRATION AS A WHOLE. THE R EVISION HAS TO BE DONE FOR THE PURPOSE OF SETTING RIGHT DISTORTIONS A ND PREJUDICES CAUSED TO THE REVENUE IN THE ABOVE CONTEXT. THE FUNDAMENT AL PRINCIPLES WHICH EMERGE FROM THE SEVERAL CASES REGARDING THE P OWERS OF THE CIT UNDER SECTION 263 MAY BE SUMMARIZED BELOW: (I) THE CIT MUST RECORD SATISFACTION THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. BOTH THE CONDITIONS MUST BE FULFILLED. (II) SECTION 263 CANNOT BE INVOKED TO CORRECT EAC H AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER AND IT IS ONLY WHEN AN ORDER IS ERRONEOUS, THAT THE SECTION WILL BE ATTRACTED. 7 (III) AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SUFFICE FOR THE REQUIREMENT OR ORDER BEING ERRONEOUS. (IV) IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND, SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORDER. (V) EVERY LOSS OF REVENUE CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF THE REVENUE AND IF THE ASSESSING OFFICER HAS ADOPTED ONE OF THE COURSES PERMISSIBLE UNDER LAW OR WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ONE VIEW UNDER WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER, UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE UNDER THE LAW. (VI) IF WHILE MAKING THE ASSESSMENT, THE ASSE SSING OFFICER EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME, THE CIT, WHILE EXERCISING HIS POWER UNDER SECTION 263, IS NOT PERMITTED TO SUBSTITUTE HIS ESTIMATE OF INCOME IN PLACE OF THE INCOME ESTIMATED BY THE ASSESSING OFFICER. 8 (VII) THE ASSESSING OFFICER EXERCISE QUASI-JUDICIA L POWER VESTED IN HIM AND IF HE EXERCISE SUCH POWER IN ACCORDANCE WITH LAW AND ARRIVES AS A CONCLUSION, SUCH CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEEL SATISFIED WITH THE CONCLUSION. (VIII) THE CIT, BEFORE EXERCISING HIS JURISDICTION UNDER SECTION 263, MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION. (IX) IF THE ASSESSING OFFICER HAS MADE ENQUIRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND THE ASSESSEE HAS GIVEN DETAILED EXPLANATION BE A LETTER IN WRITING AND THE ASSESSING OFFICER ALLOWED THE CLAIM ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, THE DECISION OF THE ASSESSING OFFICER CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DOES NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. 7. ADVERTING TO THE FACTS OF THE GIVEN CASE WE HAVE FOUND THAT THE AO HAS NOT ALLOWED THE CLAIM OF DEDUCTION OF RS. 29 7.19 CRORES U/S 80IA OF THE ACT. IN APPEAL, THE LD. CIT(A) HAS ALLOWED T HIS CLAIM OF THE ASSESSEE. THEREFORE, THE ASSESSMENT ORDER CANNOT BE SAID TO BE EITHER ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF THE REV ENUE TO THAT EXTENT, 9 MUCH LESS THAN BOTH. ANY ITEM WHICH HAS ALREADY BE EN DISALLOWED BY THE A.O. CANNOT BE CONSIDERED AS ERRONEOUS AND THE FINDING OF THE A.O. CANNOT BE THE SUBJECT MATTER OF JURISDICTION U/S 26 3 OF THE ACT. THEREFORE, THE REQUISITE TWIN CONDITIONS DO NOT CO EXIST IN RESPECT OF THIS ISSUE. THE CIT HAS EXCEEDED HIS JURISDICTION O N THIS GROUND. THEREFORE, THE FINDING OF LD. CIT ON THIS ISSUE IS SET ASIDE AND ASSESSMENT ORDER IS RESTORED. 8. IN RESPECT OF ADDITIONAL DEPRECIATION, IT IS FOU ND THAT DURING F.Y. 2006-07 CORRESPONDING TO A.Y. 2007-08, THE ASSESSEE COMPANY HAS CLAIMED ADDITIONAL DEPRECIATION OF RS. 9,90,887/- O N THE CAPTIVE POWER PLANT AT CHANDERIYA UNIT AND OF RS. 18,77,37,086/- ON THE WIND POWER PLANT SAMANA, PHASE-I, GUJARAT. THIS ADDITIONAL D EPRECIATION HAS BEEN CLAIMED U/S 32(1)(IIA) OF THE ACT. UNDER THIS SECT ION, ADDITIONAL DEPRECIATION OF 20% OF THE ACTUAL COST IS ALLOWED T O THE ASSESSEE WHO IS ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTIO N OF ARTICLE OR THING ONLY ON NEW MACHINERY OR PLANT. THIS CLAIM I S ALLOWABLE ON ASSETS CLAIMING DEPRECIATION ON BLOCK OF ASSETS [CLAIMING DEPRECIATION ON THE WRITTEN DOWN VALUE METHOD]. IT IS FOUND THAT THE E NTIRE PLANT AND MACHINERY OF THE CAPTIVE POWER PLANT AND WIND POWER PLANT WHICH HAVE BEEN ACQUIRED AND INSTALLED ARE NEW MACHINERY ONLY AND NOT OLD. 10 9. LET US NOW EXAMINE IF THE ASSESSEE-COMPANY IS EN GAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ARTICLE OR THING. IT WAS ARGUED THAT THE EXPRESSIONS PRODUCTION OR PRODUC TION USED IN SECTION 32(1)(IIA) OF THE ACT HAS A MUCH WIDER MEAN ING AND SCOPE AS COMPARED TO THE MEANING OF THE EXPRESSION MANUFACT URE. THE ACTIVITY OF GENERATION, TRANSMISSION, SUPPLY AND DI STRIBUTION OF ELECTRIC POWER [ENERGY] HAS A WIDER MEANING AND SCOPE. THE GENERATION BEING THE PRODUCTION OF ELECTRICAL ENERGY FROM MECHANICAL ENERGY TAKES PLACE AT CENTRAL STATIONS THAT MAY BE EITHER THERMAL POWE R PLANTS IN WHICH THE ENERGY SOURCE IS STEAM-DRIVEN TURBINES; OR HYDR OELECTRIC PLANTS - IN WHICH THE ENERGY SOURCE IS WATER DRIVEN TURBINES. THE TRANSMISSION IS THE MOVING OF THIS ELECTRICAL ENERGY FROM THE GENERATING PLANTS TO BULK DELIVERY POINTS [THE STATIONS] WHEREFROM IT IS DELIVERED. THE TERM 'PRODUCTION' / 'PRODUCE' HAVE BEEN DEFINED BY HON'B LE SUPREME COURT IN THE CASE OF CIT V/S. SESA GOA LTD 271 ITR 331 (S C) AS UNDER:- 'IT HAS ALSO BEEN HELD BY THIS COURT IN CIT V. N.C. BUDHARAJA AND CO. (1993) 204 ITR 412 THAT THE WORD 'PRODUCTIO N' IS MUCH WIDER THAN THE WORD 'MANUFACTURE'. IT WAS SAID (PAGE 423) : 'THE WORD 'PRODUCTION' HAS A WIDER CONNOTATI ON THAN THE WORD 'MANUFACTURE'. WHILE EVERY MANUFACTURE CAN BE CHARACTERISED AS PRODUCTION, EVERY PRODUCTION NEED NOT AMOUNT TO MANUFACTURE....... 11 THE WORD 'PRODUCTION' OR 'PRODUCE' 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. IT ALSO TAKES IN ALL THE BY- PRODUCTS, INTERMEDIATE PRODUCTS AND RESIDUAL PRODUC TS WHICH EMERGE IN THE COURSE OF MANUFACTURE OF GOODS' . WEBSTER'S NEW INTERNATIONAL DICTIONARY, FOR THE WOR D 'PRODUCE', WHICH IS DEFINED TO MEAN 'SOMETHING THAT IS BROUGHT FORTH OR YIELDED EITHER NATURALLY OR AS A RESULT OF EFFORT AND WORK'. IN SH ORTER OXFORD ENGLISH DICTIONARY, THE MEANING GIVEN IS: 'TO BRING FORWA RD, BRING FORTH OR OUT; TO BRING INTO BEING OR EXISTENCE'. 10. THE HON'BLE RAJASTHAN HIGH COURT HAS HELD IN TH E CASE OF M/S ARIHANT TILES AND MARBLES P. LTD. V/S ITO REPORTED IN (2007) 211 CTR (RAJ) 169 AS UNDER: 'IT IS WELL SETTLED THAT INTERPRETATION OF ANY EXPR ESSION USED IN THE CONTEXT OF ANY STATUTE IS NOT AUTOMATICALLY TO BE IMPORTED WHILE INTERPRETING THE LIKE EXPRESSION OF OTHER STA TUTES. THE EXPRESSION USED IN ANY STATUTE HAS TO BE INTERPRETE D IN LIGHT OF ITS OWN CONTEXT AND OBJECT. THERE IS SUBSTANCE IN THE CONTENTION OF LEARNED COU NSEL FOR THE 12 RESPONDENTS THAT EXPRESSION 'PRODUCTION' HAS A WIDE R CONNOTATION THAN THE EXPRESSION 'MANUFACTURE' AND, THEREFORE, T HE QUESTION WHETHER ANY ACTIVITY FALLS WITHIN THE AMBIT OF S, 8 0-IA/80-IB, THE EXAMINATION FROM THE POINT OF VIEW OF ONLY MANUFACT URER IS NOT THE FINAL TEST. THE ESSENTIAL DISTINCTION BETWEEN E XPRESSIONS 'MANUFACTURE' AND 'PRODUCTION' HAD RECEIVED ATTENTI ON OF THE JUDICIAL PRONOUNCEMENT FROM TIME TO TIME. 11. THE DISTINCTION BETWEEN MANUFACTURE AND PRODUCT ION WAS NOTICED AND EXPLAINED BY THE SUPREME COURT IN CIT VS. N.C. BUDHARAJA AND CO. AND AM. ETC. ETC. (1993) 114 CTR (SC) 420 : (1993) 204 ITR 412 (SC). THE HON'BLE APEX COURT CLEARLY OPINED THAT ALL ACTI VITIES FALLING WITHIN THE AMBIT OF MANUFACTURE RESULT IN PRODUCTION BUT C ONVERSE IS NOT TRUE. THE PRINCIPLE WAS REITERATED IN CHOWGULE AND CO. (P ) LTD. UNION OF INDIA AND ORS. (1981) 47 STC 124 (SC). IN AMAN MARB LE INDUSTRIES (P) LTD VS. CCE (SUPRA), THE COURT CONSIDERING THE ENTRIES UNDER THE CENTRAL EXCISE AND TARIFF ACT HELD THAT ACTIVITY OF CUTTING OF MARBLE BLOCKS INTO MARBLE SLABS DOES NOT AMOUNT TO MANUFACTURE SO AS T O BRING IT WITHIN THE NET OF LEVY OF EXCISE DUTY. IN COMING TO THIS C ONCLUSION, THE COURT RELIED ON RSEB VS. ASSOCIATED STONE INDUSTRIES AND ORS. JT 2000 (6) SC 522 IN WHICH THE APEX COURT OBSERVED THAT EXCAVATIO N OF STONES FROM A MINE AND THEREAFTER CUTTING THEM AND POLISHING THEM INTO SLABS DID NOT 13 AMOUNT TO MANUFACTURE OF GOODS. WHETHER EXCAVATION OF STONE FROM MINES AMOUNTS TO PRODUCTION WAS NOT THE ISSUE BEFOR E RAJASTHAN HIGH COURT OR SUPREME COURT. HON'BLE KARNATAKA HIGH COUR T IN CIT VS. MYSORE MINERALS LTD. (2001) 166 CTR (KAR) 142 : (2001) 250 ITR 725 (KAR) WAS CONSIDERING WHETHER THE ACTIVITY OF CUTTING GRANITE BLOCKS INTO SLABS AND SIZES AND POLISHING THEM FALLS WITHIN THE PURVIEW O F S. 32A OF IT ACT, 1961 SO AS TO ALLOW THE MACHINERY USED FOR SUCH ACT IVITY ELIGIBLE FOR INVESTMENT ALLOWANCE AND WHETHER IT ALSO BECOMES EL IGIBLE TO DEDUCTION UNDER S. 80-1 WHICH IS AVAILABLE TO 'INDU STRIAL UNDERTAKING ENGAGED IN MANUFACTURING OR PRODUCTION OF GOODS'. T HE KARNATAKA HIGH COURT OPINED AS UNDER : SECTION 32A REFERS TO INVESTMENT ALLOWANCE ON PLAN T AND MACHINERY. PLANT AND MACHINERY SHOULD BE USED IN MANUFACTURE OR PROCESS OF ANY ARTICLE OR THING AND IT SHOULD BE OF AN INDUSTRIAL UNDERTAKING. THERE ARE A NUMBER OF CONDITIONS MENTIONED IN THE SECTION. IN ORDER TO FI ND OUT WHETHER A PARTICULAR ACTIVITY IS A MANUFACTURING AC TIVITY OR NOT IT HAS TO BE OBSERVED THAT THERE SHOULD BE AN A CTION OR PROCESS OF MAKING AN ARTICLE BY APPLICATION OF PHYS ICAL OR MECHANICAL LABOUR AND THE PRODUCT MUST BE COMMERCIA LLY A NEW OR DIFFERENT ARTICLE. MANUFACTURING RESULTS IN ALTERATION OR CHANGE IN THE NATURE OF THE GOODS WHI CH ARE SUBJECTED TO PROCESS. GRANITE BLOCKS ARE CONVERTED INTO SLABS AND CUT INTO SIZES AND THEREAFTER POLISHED. I T IS NOT 14 THE SAME COMMODITY, I.E., THE BLOCK. THIS MATTER WA S EXAMINED IN THE CASE OF THE ASSESSEE IN CIT VS. MYS ORE MINERALS LTD. (1994) 205 ITR 461 (KAR)F AND IT WAS HELD THAT THE ASSESSEE IS AN INDUSTRIAL UNDERTAKING ENTITLED TO INVESTMENT ALLOWANCE UNDER S. 32A. IT IS POINTED OU T THAT THE SPECIAL LEAVE HAS BEEN GRANTED AGAINST THE SAID JUDGMENT [SEE (1993) 201 ITR (ST) 59]. SEC. 80-1 ALSO REFERS TO PROFITS AND GAINS IN RESPE CT OF AN INDUSTRIAL UNDERTAKING. IN VIEW OF THE DECISION GIVEN IN THE C ASE OF THE ASSESSEE, WE ARE OF THE VIEW THAT THE TRIBUNAL IS RIGHT IN LA W IN COMING TO THE CONCLUSION THAT THE ORIGINAL ASSESSMENT WHICH GRANT ED THE RELIEF UNDER SS. 32A AND 80-1 TO THE ASSESSEE WAS NOT ERRONEOUS AND THE INFERENCE OF THE CIT UNDER S. 263 WAS NOT PROPER. THE TRIBUNAL I S ALSO RIGHT IN LAW IN HOLDING THAT EXTRACTING GRANITE FROM QUARRY AND CUT TING IT TO VARIOUS SIZES AND POLISHING SHOULD BE CONSIDERED AS MANUFAC TURE OR PRODUCTION OF ANY ARTICLE OR THING AND THE ASSESSEE'S BUSINESS ACTIVITY MUST BE CONSIDERED AS AN INDUSTRIAL UNDERTAKING FOR THE PUR POSE OF GRANTING RELIEFS U/SS, 32A AND 80-1 OF THE IT ACT, 1961. 12. THIS JUDGMENT WAS UNDER APPEAL BEFORE THE SUPRE ME COURT IN CIT VS. SESA GOA LTD. (2004) 192 CTR (SC) 577 : (2004) 271 ITR 331 (SC). REFERRING TO APPEAL ARISING FROM THE ABOVE JUDGMENT OF HON'BLE 15 KARNATAKA HIGH COURT AND BY REFERRING THE PRINCIPLE ENUNCIATED IN CTT VS. SESA GOA LTD. CASE (SUPRA), THE APPEALS WERE DI SMISSED. THE COURT SAID THAT EXTRACTION AND PROCESSING OF IRON ORE AMO UNT TO 'PRODUCTION' WITHIN THE MEANING OF THE WORD IN S. 32A(2)(B)(III) OF THE IT ACT, 1961. ON THAT PREMISE THE INVESTMENT ALLOWANCE WAS HELD D EDUCTIBLE IN TERMS OF PLANT AND MACHINERY INSTALLED BY THE ASSES SEE FOR EXCAVATION AND PROCESSING MINERAL ORE UNDER S. 32A. IT ALSO HE LD THAT IT IS NOT NECESSARY THAT THE MINED ORE MUST BE A COMMERCIALLY NEW PRODUCT FOR THE PURPOSE OF S. 32A. OTHER PROVISIONS OF THE ACT SUCH AS S. 33(1B)(B) SHOWS THAT MINING OF ORE IS STATED TO BE PRODUCTION . THUS THE DECISION OF KARNATAKA HIGH COURT AFFIRMED BY THE SUPREME COU RT DEALS WITH THE SAME COMMODITY AND SAME EXPRESSION IN THE SAME ENAC TMENT WITH WHICH WE ARE CONCERNED AND CLINCHES THE ISSUE IN FA VOUR OF THE APPELLANT,' 13. IN CIT V/S. SESA GOA LTD., (2004) 271 ITR 331 ( SC) THE HON'BLE SUPREME COURT HELD AS UNDER : ' AT THE OUTSET, IT MAY BE NOTED THAT SECTION 32A(2)( B)(III) MAKES IT CLEAR THAT INVESTMENT ALLOWANCE IS DEDUCTI BLE IN RESPECT OF, INTER ALIA, A PLANT OWNED BY THE ASSESS EE WHICH IS WHOLLY USED FOR THE PURPOSES OF THE ASSESSEE'S B USINESS 16 UNDER SECTION 32A(1) IF THE PLANT IS INSTALLED AFTE R MARCH 31, 1976, IN AN INDUSTRIAL UNDERTAKING FOR THE PURP OSES OF THE BUSINESS OF CONSTRUCTION OR MANUFACTURE OR PROD UCTION OF ANY ARTICLE OR THING, EXCEPT THOSE ARTICLES OR T HINGS MENTIONED IN THE ELEVENTH SCHEDULE TO THE ACT. THER E IS NO DISPUTE THAT THE PLANT IN RESPECT OF WHICH THE ASSE SSEE CLAIMED DEDUCTION WAS OWNED BY IT AND WAS INSTALLED AFTER MARCH, 31, 1976, IN THE ASSESSEE'S INDUSTRIAL UNDER TAKING FOR EXCAVATING, MINING AND PROCESSING MINERAL ORE. MINE RAL ORE IS NOT EXCLUDED BY THE ELEVENTH SCHEDULE. THE ONLY QUESTION IS WHETHER SUCH BUSINESS IS ONE OF MANUFAC TURE OR PRODUCTION OF ORE. THE ISSUE HAD ARISEN BEFORE DIFF ERENT HIGH COURTS OVER A PERIOD OF TIME. THE HIGH COURTS HAVE HELD THAT THE ACTIVITY AMOUNTED TO 'PRODUCTION' AND ANSWERED THE ISSUE IN QUESTION IN FAVOUR OF THE ASS ESSEE. THE HIGH COURT OF ANDHRA PRADESH DID SO IN CIT V. S INGARENI COLLIERIES CO. LTD. (1996) 221 ITR 48, THE CALCUTTA HIGH COURT IN KHALSA BROTHERS V. CIT (1996) 217 ITR 185 AND CIT V. MERCANTILE CONSTRUCTION C. (1994) 74 TAXMAN 41 ( CAL) AND THE DELHI COURT IN CIT V. UNIVMINE (P.) LTD. (1 993) 202 ITR 825. THE REVENUE HAS NOT QUESTIONED ANY OF THES E DECISIONS, AT LEAST NOT SUCCESSFULLY, AND THE POSIT ION OF LAW, THEREFORE, WAS TAKEN AS SETTLED. THE REASONING GIVEN BY THE HIGH COURT, IN THE DECIS IONS NOTED BY US EARLIER, IS, IN OUR OPINION, UNIMPEACHA BLE. THIS COURT HAD, AS EARLY AS IN 1961, IN CHRESTIAN MICA I NDUSTRIES LTD. V. STATE OF BIHAR (1961) 12 STC 150, DEFINED T HE WORD 17 'PRODUCTION', ALBEIT, IN CONNECTION WITH THE BIHAR SALES TAX ACT, 1947. THE DEFINITION WAS ADOPTED FROM THE MEAN ING ASCRIBED TO THE WORD IN THE OXFORD ENGLISH DICTIONA RY AS MEANING 'AMONGST OTHER THINGS THAT WHICH IS PRODUCE D; A THING THAT RESULTS FROM ANY ACTION, PROCESS OR EFFO RT, A PRODUCT; A PRODUCT OF HUMAN ACTIVITY OR EFFORT'. FR OM THE WIDE DEFINITION OF THE WORD 'PRODUCTION', IT HAS TO FOLLOW THAT MINING ACTIVITY FOR THE PURPOSE OF PRODUCTION OF MINERAL ORES WOULD COME WITHIN THE AMBIT OF THE WOR D 'PRODUCTION' SINCE ORE IS 'A THING', WHICH IS THE R ESULT OF HUMAN ACTIVITY OR EFFORT. IT HAS ALSO BEEN HELD BY THIS COURT IN CIT V. N.C. BUD HA RAJA AND CO. (1993) 204 ITR 4 12 THAT THE WORD 'PRODUCTION' IS MUCH WIDER THAN THE WORD 'MANUFACTURE'. IT WAS SAID (PAGE 423) : 'THE WORD 'PRODUCTION' HAS A WIDER CONNOTATION THAN THE WORD 'MANUFACTURE'. WHILE EVERY MANUFACTURE CAN BE CHARACTERIZED AS PRODUCTION, EVERY PRODUCTION NEED NOT AMOUNT TO MANUFACTURE....... THE WORD 'PRODUCTION' OR 'PRODUCE' 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. IT ALSO TAKES IN ALL THE BY- PRODUCTS, INTERMEDIATE PRODUCTS AND RESIDUAL PRODUC TS WHICH EMERGE IN THE COURSE OF MANUFACTURE OF GOODS' . IT IS, THEREFORE, NOT NECESSARY, AS HAS BEEN SOUGHT TO BE CONTENDED BY LEARNED COUNSEL FOR THE REVENUE, THAT THE 18 MINED ORE MUST BE A COMMERCIALLY NEW PRODUCT. THE DECISIONS AND OTHER AUTHORITIES ON THE DEFINITION O F THE WORD 'ORE', AS CITED BY THE APPELLANT, ARE IRRELEVA NT. LEARNED COUNSEL APPEARING ON BEHALF OF THE ASSESSES , CORRECTLY SUBMITTED THAT THE OTHER PROVISIONS OF TH E ACT, PARTICULARLY SECTION 33(L)(B)(B) READ WITH ITEM NO. 3 OF THE FIFTH SCHEDULE TO THE ACT, WOULD SHOW THAT MINING O F ORE IS TREATED AS 'PRODUCTION'. SECTION 35E ALSO SPEAKS OF PRODUCTION IN THE CONTEXT OF MINING ACTIVITY. THE L ANGUAGE OF THESE SECTION IS SIMILAR TO THE LANGUAGE OF SECT ION 32A(2). THERE IS NO REASON FOR US TO ASSUME THAT TH E WORD 'PRODUCTION' WAS USED IN A DIFFERENT SENSE IN SECTI ON 32A. WE ARE, THEREFORE, OF THE OPINION THAT EXTRACTION A ND PROCESSING OF IRON ORE AMOUNTS TO 'PRODUCTION' WITH IN THE MEANING OF THE WORD IN SECTION 32A(2)(B)(III) OF TH E ACT AND, CONSEQUENTLY, THE ASSESSEE IS ENTITLED TO THE BENEFIT OF SECTION 32A(1) OF THE ACT. THE QUESTION WHETHER THE HIGH COURT WAS CORRECT IN HOLDING THAT THE ACTIVITY DID NOT AMOUNT TO 'MANUFACTURE' IS LEFT OPEN.' 14. WE HAVE FOUND THAT THE ASSESSEE HAS INSTALLED N EW MACHINERY AND PLANT OF CAPTIVE POWER PLANT AND WIND POWER PLANT. THE CIT HAS NOT DISPUTED THIS CONTENTION OF THE ASSESSEE-COMPANY. H E HAS OBSERVED THAT THE ASSESSEE NEITHER MANUFACTURES NOR PRODUCES ANY NEW ARTICLE OR THING. BUT WE HAVE FOUND IT OTHERWISE. IN VIEW OF T HE ABOVE JUDICIAL 19 VERDICTS, THE ASSESSEE IS PRODUCING NEW ARTICLE OR THING AS REQUIRED UNDER THE LAW. THEREFORE, THERE IS NO ERROR IN THE FINDING OF THE A.O. IN THIS REGARD. ACCORDINGLY, THE ORDER OF THE LD. CI T(A) DATED 14.3.2011 IS SET ASIDE AND THE ASSESSMENT ORDER IS RESTORED. 15. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH FEBRUARY, 2014. SD/- SD/- (N.K. SAINI ) (HARI OM MARATH A) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 28 TH FEBRUARY, 2014 VL COPY FORWARDED TO :- 1. APPELLANT 2. RESPONDENT- 3. THE CIT (A) 4. THE CIT 5. THE D/R BY ORDER, AR ITAT JODHPUR.