DCIT, CHENNAI V. Cauvery Stone Impex Pvt. Ltd., CHENNAI

ITA 2098/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7681 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-01-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 30-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B LAKSHMINARAYANAN IRS
• Section: 10B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . ! ' , #'$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO. 2098/MDS/2015 # % &% / ASSESSMENT YEAR : 2010-2011 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(2) CHENNAI 600 034 VS. M/S.CAUVERY STONE IMPEX PVT. LTD, NO.8, 2 ND STREET, GANAPATHY COLONY, GOPALAPURAM, CHENNAI 600 086. [PAN AACCC 3310J] ( / APPELLANT) ( /RESPONDENT) '( ) * / APPELLANT BY : SHRI. B. LAKSHMINARAYANAN, IRS, JCIT. +,'( ) * /RESPONDENT BY : SHRI. PHILIP GEORGE, ADVOCATE ! ) - / DATE OF HEARING : 11-01-2016 ./& ) - / DATE OF PRONOUNCEMENT : 31-03-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THE REVENUE HAS FILED AN APPEAL AGAINST ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-1, CHENNAI IN ITA NO.427/13- 14/A-I, DATED 14.08.2015 FOR THE ASSESSMENT YEAR 20 10-2011 PASSED U/S.143(3) AND 250 OF THE INCOME TAX ACT, 1961 (H EREIN AFTER REFERRED TO AS THE ACT). ITA NO. 2098/MDS/2015 :- 2 -: 2. THE SOLE SUBSTANTIVE GROUND RAISED BY THE REVENUE T HAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DIREC TING THE ASSESSING OFFICER TO ALLOW DEDUCTION U/S.10B WITHOUT APPRECIA TING THE EXPLANATIONS AND ALSO DEFINITIONS OF MANUFACTURE DEFINED U/S.2(29BA) OF THE ACT AND THE FINANCE ACT, 2009. 3. THE BRIEF FACTS OF THE CASE, THE ASSESSEE IS A COMP ANY ENGAGED IN PRODUCTION AND EXPORTING OF GRANITE MONU MENTS HAVING 100% EOU UNDERTAKING MANUFACTURING GRANITE PRODUCTS . THE RETURN OF INCOME WAS FILED ON 30.09.2010 WITH TOTAL INCOME OF @50,94,176/-. SUBSEQUENTLY, THE RETURN WAS PROCESSED AND UNDER SC RUTINY NORMS, THE CASE WAS SELECTED AND ASSESSING OFFICER ISSUED NOTI CE U/S.143(2) OF THE ACT WITH DETAILED QUESTIONNAIRE. IN COMPLIANCE TO NOTICE, THE LD. AUTHORISED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FILED DETAILS AS PER QUESTIONNAIRE AND FURNISHE D CLARIFICATIONS. THE LD. ASSESSING OFFICER FOUND THAT THE ASSESSEE COMP ANY HAS CLAIMED DEDUCTION U/S.10B OF THE ACT @4,03,69,875/-. THE C OMPANY SUBMITTED REPORT IN FORM 56G MENTIONING THE NATURE OF BUSINE SS OF UNDERTAKING AS MANUFACTURERS OF PROCESSED DIMENSIONAL GRANITE D RESSED, CUT AND POLISHED GRANITE SLABS/GRANITE MONUMENTS, MOLDED BR ONZE ETC., THE LD. ASSESSING OFFICER UNDER IMPRESSION THAT THE BUS INESS IS ONLY CUTTING AND POLISHING GRANITES INTO REQUIRED SHAPES OF MONU MENTS AND ISSUED ITA NO. 2098/MDS/2015 :- 3 -: SHOW CAUSE NOTICE BASED ON THE DEFINITION OF MANU FACTURER U/SEC.2(29BA) OF THE FINANCE ACT, 2009 W.E.F. 01.04 .2009. IN COMPLIANCE TO SHOW CAUSE NOTICE THE ASSESSEE SUBMIT TED IN DETAIL, THE PROCESS INVOLVED IN CONVERSION OF GRANITE BLOCKS IN TO GRANITE MONUMENTS AND THE PROCESS OF CONVERSION COMES WITHI N THE DEFINITION OF MANUFACTURING AND JUDICIAL DECISIONS. THE L D. AUTHORISED REPRESENTATIVE SUBSTANTIATED THE PROCESS OF MANUFAC TURING OF MONUMENTS BEFORE THE ASSESSING OFFICER REFERRED AT PAGE 2 AND 3 OF ASSESSMENT ORDER AND RELIED ON THE DECISION OF CIT VS. N.C. BOOTHARAJA & CO 204 ITR 412 (SC), TAMIL NADU MINERA LS LTD VS. CIT 210 TAXMANN 257 AND ITO VS. ARIHANT TILES & MARBLES PVT. LTD 320 ITR 79 (SC). THE LD. ASSESSING OFFICER CONSIDERED THE SUBMISSION S AND INTERPRETED THE DEFINITION INTRODUCED IN FINANCE AC T, 2009 IN HIS ORDER AS UNDER:- MANUFACTURE WITH ITS GRAMMATICAL VARIATIONS, M EANS A CHANGE IN A NON-LIVING PHYSICAL OBJECT OR ARTICLE O R THING, (A) RESULTING IN TRANSFORMATION OF THE OBJECT OR ARTICLE OR THING INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFERENT NAME, CHARACTER AND USE; OF (B) BRINGING INTO EXISTENCE OF A NEW AND DISTINCT OBJECT OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSITION OR INTEGRAL STRUCTURE . THE LD. ASSESSING OFFICER IS UNDER A PRESUMPTION T HAT THE GRANITE BLOCK DOES NOT CHANGE INTO A DISTINCT OBJECT AND THE CHAR ACTER AND USE FOR ITA NO. 2098/MDS/2015 :- 4 -: PLACING IT AS MEMORIAL STONES FOR THE DEPARTED PERS ONS AND IT IS NOT DISTINCTIVELY DIFFERENT FROM A GRANITE BLOCK AND G AVE A FINDING THAT GRANITE BLOCK CAN BE USED AS MONUMENTS AND THE FINA L OUTCOME OF GRANITE BLOCK INTO A GRANITE MONUMENT AS PER THE S PECIFICATION OF THE CUSTOMER IS VERY SUBJECTIVE AND NOT OBJECTIVE. THE PROCESS OF SCULPTURING, ENGRAVING AND CARVING OF GRANITE BLOCK INTO A MEMORIAL STONE DOES NOT LOOSE ITS CHARACTER AND USAGE AND VA LUE ADDITION IS ACHIEVED WITH POLISHING, CUTTING, CHIPPING INTO A DIFFERENT AND DISTINCT OBJECT. THE LD. ASSESSING OFFICER HAS DEPEND ON LEGISLATIVE INTENT AND USAGE OF PRODUCT AND EXPRESSED UNILATERAL OPINION, THAT GRANITE BLOCK/ MONUMENTS CAN BE PLACED AS MEMORIAL STONES AND DEPE NDS ONLY IN THE EYES OF OBSERVER. FURTHER ALLEGED THAT DEDUCTION U/S.10B OF THE ACT CANNOT BE GRANTED FOR EXPORTING GRANITE BLOCK WITH LITTLE VALUE ADDITION AND CONVERSION OF GRANITE BLOCK DOES NOT FIT INTO DEFINITION OF MANUFACTURE AND DISTINGUISHED THE JUDICIAL DEC ISION RELIED BY THE ASSESSEE AND REJECTED THE DEDUCTION U/S.10B OF THE ACT. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). 4. IN THE APPELLATE PROCEEDINGS, THE LD. AUTHORISED REPRESENTATIVE ARGUED THE GROUNDS ON THE DEFINITION OF MANUFACTURE AND USAGE OF CONVERSION OF GRANITE BLOCK INTO MONU MENTS. ITA NO. 2098/MDS/2015 :- 5 -: THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ON PER USAL OF THE GROUNDS OF APPEAL, SUBMISSIONS, FINDINGS OF THE ASS ESSING OFFICER ON FINANCE ACT 2009 HAS DEALT ELABORATIVELY IN PAGE NOS. 2 TO 5 OF HIS ORDER, THE LD. AUTHORISED REPRESENTATIVE ALSO EXPLA INED WITH CHART, RAW MATERIAL AND RESULTANT PRODUCTS IN THE PROCESS OF MANUFACTURING. FURTHER, THE ASSESSEE COMPANY ALSO COMPLIED THE CO NDITIONS FOR CLAIMING DEDUCTION U/S.10B AND RELIED ON THE SUPREM E COURT AND HIGH COURTS DECISIONS AS UNDER:- (I) ARIHANT TILES AND MARBLES P. LTD ( 320 ITR 7 9) (SC) (II) AMBIKA RECYCLING (2014) (45 TAXMANN.COM 386) (GUJ) (III) BUDHARAHA AND CO. (204 ITR 412) (SC) (IV) SESAGOA LTD. (271 ITR 331) (SC) (V) VIJAY SHIPPING CORPORATION (314 ITR 309) (SC) (VI) TAMILNADU MINERALS LTD (210 TAXMAN 257) (VII) GEM GRANITIES (141 TAXMAN 528) (VII) JOHN BROWN TECHNOLOGIES INDIA P. LTD (257CTR 370) KAR THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONSID ERED THE FACTS, OBSERVATIONS OF THE ASSESSING OFFICER AND RELEVANT MATERIALS, IS OF THE OPINION THAT PRIME FACIE GRANITE BLOCK DOES NOT HAV E VALUE AND USED FOR MANUFACTURE OF MONUMENT FROM RAW MATERIAL STAGE TO PACKING AND GAVE A ELABORATE FINDINGS IN HIS ORDER AND ALLOWED THE ASSESSEES APPEAL AND OBSERVED AT PARA 4.6.1 & 4.6.2 AS UNDER :- 4.6.1 IT IS THE PLEA OF THE APPELLANT THAT THE PR OCESS UNDERGONE AMOUNTS TO 'MANUFACTURE' AS PER THE DEFINITION IN THE FINANCE ACT, 2009 WHICH MEANS A CHANGE IN NON-LIVING PHYSICAL OBJECT OR ARTICLE OR THING, RESULTING IN TRANSFORMATION OF THE OBJECT OR ARTICL E INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING, HAVING A ITA NO. 2098/MDS/2015 :- 6 -: DIFFERENT NAME, CHARACTER AND USE. IT IS FURTHER PL EADED THAT A GRANITE BLOCK IS NOT THE SAME AS A MONUMENT AND IT TAKES MANY STAGES AND PROCESSES TO MAKE ONE SUCH MONUMENT. IT HAS BEEN PLEADED THAT ALTERNATIVE LY THE PROCESS AMOUNTS TO PRODUCTION AS IS UNDERSTOOD IN THE CONTEXT OF S.32A AND 80LA OF THE ACT. THE ORIGI NAL BLOCK, THEREFORE, DOES NOT REMAIN THE ORIGINAL BLOC K AND THE FINAL PRODUCT IS DISTINCTLY DIFFERENT. THE APPELLANT HAS RELIED ON THE RATIOS IN N.C. BUDHIRAJ A CASE 204 ITR 412 (SC), GRACE EXPORTS V. ITO 254 CTR 449, CIT V. FATEH GRANITE P LTD 314 ITR 32, CIT V. SALGROMKAR & BROS P LTD 47 TAXMANN.COM 21, ITO V. ARIHANT TILES AND MARBLES P LTD 320 ITR 79 (SC), CIT V. SESA GOA LTD 271 ITR 331 (SC), VIJAY SHIPPIN G CORPORATION V. CIT 314 ITR 309 (SC), GEM GRANITES V . CIT 141 TAXMAN 528 ETC. A REFERENCE TO THE DECISION S RELIED UPON BY THE APPELLANT AMPLY MAKES IT CLEAR T HAT THE RATIOS ARE IN FAVOUR OF THE APPELLANT. IN THE C ASE OF ARIHANT TILES (SUPRA), IT WAS HELD THAT THE ORIGINA L BLOCK DOES NOT REMAIN A MARBLE BLOCK, IT BECOMES A SLAB O R A TILE AND HELD THAT CUTTING AND POLISHING OF MARBLE AMOUNT TO PRODUCTION OR MANUFACTURE OF AN ARTICLE O R THING. IN VIJAY SHIPPING CORPORATION (SUPRA) IT WAS HELD SIMILARLY THAT CONVERSION OF JUMBO ROLLS OF PHOTOGR APHIC FILMS INTO SMALL FLATS AND ROLLS IN DESIRED SIZES A MOUNTS TO MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING . 4.6.2 TAKING THE ENTIRE CONSPECTUS OF THE CASE BEFO RE ME INTO ACCOUNT AS DISCUSSED IN THE FOREGOING, I HA VE NO HESITATION IN HOLDING THAT THE ACTIVITY ENGAGED IN BY THE APPELLANT CONSTITUTES MANUFACTURE OR PRODUCTION OF ARTICLE OR THING WITHIN THE MEANING OF S.10B OF THE I.T .ACT. THE AO'S ORDER WHICH HAS HELD TO THE CONTRARY CANNOT BE UPHELD. THE AO IS DIRECTED TO ALLOW THE DEDUCTION U/S 10B OF THE I.T.ACT. THIS GROUND OF AP PEAL IS ALLOWED. AGGRIEVED BY THE ORDER OF THE COMMISSIONER OF INCOM E TAX (APPEALS), THE REVENUE HAS ASSAILED AN APPEAL WITH TRIBUNAL. 5. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE ARG UED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN N OT APPRECIATING ITA NO. 2098/MDS/2015 :- 7 -: THE FINDINGS OF THE ASSESSING OFFICER AND GRANITE BLOCK WILL NOT CHANGE ITS ORIGINAL CHARACTER BY CONVERTING INTO MONUMENTS AND SUCH ACTIVITY DOES NOT FALL IN DEFINITION OF MANUFACTURE INSE RTED BY THE FINANCE ACT, 2009. THE ASSESSEE CLAIMED DEDUCTION U/S.10B OF THE ACT ON LITTLE VALUE ADDITION TO THE BLOCK AND PROCESS DOES NOT GIVE ANY RIGHT TO THE ASSESSEE TO CLAIM DEDUCTION U/S.10B OF THE ACT AND RELIED ON THE FINDINGS OF THE ASSESSING OFFICER AND PRAYED FOR S ETTING ASIDE THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) AND A LLOW THE APPEAL. 6. CONTRA, LD. AUTHORISED REPRESENTATIVE OF THE ASSESS EE REITERATED THE SUBMISSIONS OF THE ASSESSMENT AND APPELLATE PROCEEDINGS. THE CONVERSION OF RAW MATERIAL INTO M ANUFACTURING OF FINAL PRODUCT INVOLVES PROCESS. THE FINISHED PRODU CT IS IDENTIFIED AND ELIGIBLE FOR DEDUCTION U/S.10B OF THE ACT AND ALSO RELIED ON THE COMMISSIONER OF INCOME TAX (APPEALS)ORDER AND PRAYE D FOR DISMISSAL OF APPEAL. 7. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATER IAL ON RECORD AND JUDICIAL DECISION CITED. THE LD. DEPART MENTAL REPRESENTATIVE ARGUED THAT THE COMMISSIONER OF INCO ME TAX (APPEALS) HAS MISINTERPRETED THE DEFINITION OF MANUFACTURE WI THOUT GOING INTO ACTUAL PROCESS SYSTEM AS THERE IS ONLY VALUE ADDI TION TO THE PRODUCT AND NO NEW DISTINCT ITEM IS PRODUCED. WE FIND THE SUBMISSION OF THE ITA NO. 2098/MDS/2015 :- 8 -: LD. DEPARTMENTAL REPRESENTATIVE ARE RESTRICTED TO T HE EXCLUSIVE DEFINITION OF MANUFACTURE WITHOUT CONSIDERING THE P ROCESS OF CHIPPING, CUTTING, POLISHING AND MILLING WHICH ARE NECESSARIL Y CARRIED OUT FOR MONUMENTS AND FIXED IN THE MEMORY OF DEPORTED SOUL SUCH DISTINCT PRODUCT HAS EMERGED FROM RAW MATERIAL HAVING SEPAR ATE IDENTITY AND SOLD INDEPENDENTLY. THE DEDUCTION U/S.10B OF THE A CT APPLIES TO ANY UNDERTAKING AS UNDER:- (I) IT MANUFACTURES OR PRODUCES ANY ARTICLE OR T HING OR COMPUTER SOFTWARE; (II) IT IS NOT FORMED BY THE SPLITTING UP, OR THE R ECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE: PROVIDED THAT THIS CONDITION SHALL NOT APPLY IN RES PECT OF ANY UNDERTAKING WHICH IS FORMED AS A RESULT OF THE RE- ESTABLISHMENT, RECONSTRUCTION OR REVIVAL BY THE ASSESSEE OF THE BU SINESS OF ANY SUCH INDUSTRIAL UNDERTAKING AS IS REFERRED TO IN SE CTION 33B, IN THE CIRCUMSTANCES AND WITHIN THE PERIOD SPECIFIED I N THAT SECTION; (III) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUS INESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE . THE ASSESSEE COMPANY HAS COMPLIED THE CONDITIONS F OR CLAIMING 10B DEDUCTION AS THERE IS NO DISPUTE EXCEPT THE ALLEGAT ION THAT PROCESS IS NOT MANUFACTURE. ON PERUSAL OF DEFINITION U/SE C. 2(29BA) OF THE ACT AS UNDER:- MANUFACTURE WITH ITS GRAMMATICAL VARIATION, MEANS A CHANGE IN A NON-LIVING PHYSICAL OBJECT OR ARTICLE O R THING ITA NO. 2098/MDS/2015 :- 9 -: (A) RESULTING IN TRANSFORMATION OF THE OBJECT OR AR TICLE OR THING INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFERENT NAME, CHARACTER AND USE OR , (B) BRINGING INTO EXISTENCE OF A NEW AND DISTINCT O BJECT OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSIT ION OR INTEGRAL STRUCTURE. MANUFACTURE DEFINITION HAS COME INTO EFFECT FROM 01 .04.2009, FURTHER ON COMBINED READING OF BOTH THE CONDITIONS OF SEC. 10B OF INCOME TAX ACT AND DEFINITION OF MANUFACTURE. THE MAIN REQU IREMENT OF PRODUCT IS ACTIVITY SHOULD BE IN MANUFACTURING ITEMS AND S HOULD RESULT IN TRANSFORMATION OF THE OBJECT OR ARTICLE OR THING IN TO A NEW AND DISTINCT OBJECT WITH DIFFERENT CHARACTER. THE GRANITE RAW BLOCK IS MOUNTED AND WITH THE PROCESS OF CUTTING, CLIPPING AND POLI SHING INTO A MONUMENT HAS DISTINCT CHARACTER AND USAGE. THE LD . AUTHORISED REPRESENTATIVE SUPPORTED AND RELIED ON DECISION OF ITO VS. ARIHANT TILES & MARBLES (P) LTD 320 ITR 0079 (SC) WERE THE CONVERSION OF MARBLE BLOCK INTO POLISHED SLABS AND TILES CONSTITU TES MANUFACTURE OR PRODUCTION AS IT RESULTS IN EMERGENCE OF A NEW A ND DISTINCT COMMODITY, THEREFORE, ASSESSEE UNDERTAKING SUCH ACT IVITY IS ENTITLED TO THE BENEFIT OF SEC.80IA. SO, CONSIDERING THE APPAR ENT FACTS, DEFINITIONS, USAGE AND THE PROCESS OF MANUFACTURING , AND ASSESSEES OWN CASE ON THE NATURE OF BUSINESS OF MANUFACTURING OF MONUMENTS AND THE PROCESS OF CONVERSION OF RAW MATERIAL INTO FINISHED PRODUCT IS ITA NO. 2098/MDS/2015 :- 10 -: IDENTIFIED AND SALEABLE AND WE RELY ON APEX COURT DECISION OF ARIHANT TILES & MARBLES (P) LTD (SUPRA) WERE THE LORDSHIP HAS CONSIDERED CONVERSION OF MARBLE BLOCK INTO POLISHED SLABS AND TILES CONSTITUTES MANUFACTURE AND SAME ANALOGY APPLY FOR PROCESS OF GRANITE BLOCK. THEREFORE, WE ARE NOT INCLINED TO INTERFERE WITH TH E ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) WHO HAS DEALT THE ISSUE IN DETAIL VIZ-A-VIZ THE EXPLANATIONS OF THE ASSESSEE A ND WE UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) A ND DISMISS THE REVENUE APPEAL. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.2098/MDS/2015 IS DISMISSED. ORDER PRONOUNCED ON THURSDAY, THE 31ST DAY OF MARCH, 2016, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ! ' ) (G. PAVAN KUMAR) /JUDICIAL MEMBER / CHENNAI 0 / DATED:31.03.2016 KV 1 ) +#-23 43&- / COPY TO: 1 . '( / APPELLANT 3. ! 5- () / CIT(A) 5. 3 89 +#-# / DR 2. +,'( / RESPONDENT 4. ! 5- / CIT 6. 9:% ; / GF