DCIT CC 3(2) CEN RG 3, MUMBAI V. VIVEK MEHROTRA, MUMBAI

ITA 2171/MUM/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 1760 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2021
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2014-2015
• Appeal Filed On: 06-04-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH JANPANGI
• Keywords: Search and seizure; Opportunity of being heard; Rule of consistency; Earning of tax free income; Corroborative evidences; Rule 8D; Set aside
• Section: 10AA; 80HHC; 153A; 14A; 10B; 80IA; 251; 80IC; 80HH; 80IC; 13; 22; 32; 27; 37; 132; 2; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F , MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI RAJESH KUMAR , ACCOUNTANT MEMBER ITA NO. 2171/MUM/2018 ASSESSMENT Y EAR: 2014 - 15 & ITA NO. 2172/MUM/2018 ASSESSMENT Y EAR: 2013 - 14 DCIT CC 3 (2), CENTRAL RANGE 3, ROOM NO. 1913, 19 TH FLOOR, AIR INDIA BUILDING, NARIMAN POINT, MUMBAI - 400021 VS. SHRI VIVEK MEHROTRA, OFFICE NO. 16, CHURCHGATE CHAMBER, ABOVE GREATER BANK, 5 NEW MARINE LINES, MUMBAI - 400020 PAN: AAHPM4127B (APPELLANT) (RESPONDENT) REVENUE BY : SHRI NARENDRA SINGH JANPANGI (D R) ASSESSEE BY : SHRI NITESH JOSHI (AR ) DATE OF HEARING: 11/03 /20 21 DATE OF PRONOUNCEMENT: 07 / 06 /202 1 O R D E R PER SAKTIJIT DEY , JM THE AFORESAID APPEALS BY THE REVENUE RELATE TO THE SAME ASSESSEE AND ARISE OUT OF TWO SEPARATE ORDERS , BOTH DATED 03.01.2018 , OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 51, MUMBAI FOR THE ASSESSMENT YEARS 2013 - 14 AND 2014 - 15. GROUNDS RAISED IN BOTH THE APPEALS ARE IDENTICAL. SINCE, THE RELEVANT FACTS RELATING TO DISPUTED ISSUE ARE MORE OR LESS COMMON IN BOTH THE APPEALS , FOR THE SAKE OF BRE VITY WE WILL DISCUSS THE FACTS AS TAKEN FROM ITA NO. 2172/MUM/2018 RELAT ING TO A SSESSMENT YEAR 2013 - 14. GROUND N O. 1 TO 3 A RE ON THE COMMON ISSUE OF ASSESSEE S CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT. 2 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 2. BRIEFLY THE FACTS ARE, THE ASSESSEE IS AN INDIVIDUAL . A S STATED B Y THE ASSESSING OFFICER (AO), THE ASSESSEE IS IN TH E BUSINESS OF MANUFACTURING OF ODORI F EROUS COMPOUNDS THROUGH HIS PROPRIETARY CONCERN M/S KHATTRI AROMAS . F OR TH E ASSESSMENT YEAR UNDER DISPUTE, T HE ASSESSEE HAD ORIGINALL Y FILED HIS RETURN OF INCOME UNDER SECTION 139 (1) OF THE ACT. SUBSEQUENTLY, ON 04.12.2014 A SEARCH AND SEIZURE OPERATION U NDER SECTION 132 OF THE INCOME TAX ACT, 1961 WAS CONDUCTED IN ASSESSEES RESIDENTIA L AS WELL AS BUSINESS PREMISES. IN CONSEQUENCE OF THE AFORESAID SEARCH AND SEIZURE OPERATION, THE AO INITIATED ASSESSMENT P ROCEEDINGS BY ISSUING NOTICE UNDER SECTION 153A OF THE ACT. IN RESPONSE TO THE SAID NOTICE THE ASSESSEE ON 28.07.2016 AGAIN FILED A RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 14,74,35,66 0/ - AFTER CLAIMING DEDUCTION UNDER SECTION 80IC OF THE ACT. IN COURSE OF ASSESSMENT PROCEEDINGS, THE AO , FROM THE M ATERIAL AVAILABLE ON RECORD , FOUND THAT THE IN COURSE OF SEARCH AND SEIZURE OPERATION IN THE FACTORY PREMISES OF THE ASSESSEE A STATEMENT ON OATH WAS RECORDED FROM ONE OF HIS EMPLOYEES , NAMELY , SHRI SANJEEV KUMAR AGARWAL, WHEREIN, THE CONCERNED EMPLOYEE , O N QUERY BEING RAISED REGARDING THE MANUFACTURING PROCESS ADOPTED BY THE ASSESSEE , STATED THAT THE MANUFACTURING ACTIVITY INVOLVES MI XING OF CERTAIN RAW MATERIALS AT A TIME IN A TANK AND MANUAL STIRRING IS DONE . BASED ON SUCH STATEMENTS RECOR DED FROM THE CO NCERNED EMPLOYEE, T HE AO CALLED UPON THE ASSESSEE TO EXPLAIN WHY THE DEDUCTION CLAIM ED UNDER SECTION 80IC OF THE ACT SHOULD NOT BE DISALLOWED , AS THERE IS NO MANUFACTURING ACTIVITY. 3. IN RESPONSE TO THE QUERY RAISED , THOUGH , THE ASSESSEE FURNISHED A DETA ILED REPLY WITH SUPPORTING EVIDENCES , INCLUDING A FLOW CHART EXPLAINING THE MANUFACTURING PROCESS, H OWEVER, THE AO WAS NOT CONVINCED . HE HELD THAT THE ASSESSEE IS ACTUALLY RE - MIXING CERTAIN CHEMICALS AND PREPARING SOME PRODUCTS. THUS, HE HELD THAT THE ASSE SSEE HAS NOT UNDERTAKEN ANY MANUFACTURING ACTIVITY. FURTHER, HE HELD THAT THE FINISHED PRODUCT MANUFACTURED BY THE ASSESSEE IS ORGANIC/INORGANIC CHEMICALS AS CLASSIFIED UNDER SCHEDULED XII PART B READ WITH CHAPTER 28 A ND 29 OF CENTRAL EXCISE TARIFF. THUS , HE HELD THAT AS PER SECTION 80IC (2) OF THE ACT , THE PRODUCT S MANUFACTURED BY THE ASSESSEE 3 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 ARE NOT ELIGIBLE FOR DEDUCTION . ACCORDINGLY, HE DISALLOWED ASSESSEES CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT. 4. THE ASSESSEE CONTESTED THE AF ORESAID DIS ALLOWANCE BEFORE LEARNED FIRST APPELLATE AUTHORITY. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE CONTEXT OF FACTS AND MATERIAL ON RECORD, LEARNED COMMISSIONER (APPEALS) OBSERVE D THAT THE AO HAS DISALLOWED A SSESSEES CLAIM OF DEDUCTION UNDER SEC TION 80IC OF THE ACT PRI MARILY RELYING UPON THE STATEMENT RECORDED FROM EMPLOYEE OF THE ASSESSEE I N COURSE OF SEARCH AND SEIZURE OPERATION. H OWEVER , HE OBSERVED , IN COURSE OF THE VERY SAME SEARCH AND SEIZURE OPERATION A STATEMENT WAS ALSO RECORDED FROM THE ASSESSEE, WHO WAS COMPLETELY IN - CHARGE OF THE MANUFACTURING PROCESS AND HE CLARIFIED WITH FACTUAL DETAILS THE M ANUFACTURING PROCESS UND ERTAKEN BY HIM. FURTHER, LEARNED COMMISSIONER (APPEALS) FOUND THAT SIMILAR DEDUCTION CLAIM BY THE ASSESSEE IN ASSESSMENT YEAR S 2010 - 11 AND 2011 - 12 WERE ALLOWED. EVEN , IN CASE OF ASSESSEES SISTER CONCERN M/S KHUSHBU INDUSTRIES , WHICH IS INVOLVED IN IDENTICAL MANUFACTURING ACTIVITY, THE TRIBUNAL HA S ALLOWED CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT BY HOLDING THAT THE ASSESSEE IS INVOLVED IN MANUFACTURING ACTIVITY. THUS, RELYING UPON THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF RADHASOAMI SATSANG VS CIT (193 ITR 321) , LEARNED COMMISSIONER (APPEALS) HELD THAT RULE OF CONSISTENCY WOULD APPLY AND ACCORDINGLY ALLOW ED ASSESSEES CLAIM OF DEDUCTION. FURTHER, AFTER ANALYZING THE FACTS AND MATERIAL ON RECORD, LEARNED COMMISSIONER (APPEALS) ALSO RECORDED A FACTUAL FINDING THAT THE ASSESSEE IS INVOLVED IN MANUFACTURING ACTIVITY. HENCE, ENTITLED FOR DEDUCTION U/S 80IC OF T HE ACT. ACCORDINGLY, HE ALLOWED ASSESSEES CLAIM. 5 . AT TH E OUTSET, SHRI NITESH JOSHI, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED , THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR S 2010 - 11, 2011 - 12 AN D 2012 - 13 , WHEREIN , THE TRIBUNAL FOLLOWING ITS OWN DECISION IN CASE OF ASSESSEES SISTER CONCERN M/S KHUSHBU INDUSTRIES HAS ALLOWED ASSESSEE S CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT. HE SUBMITTED , SIN CE THERE IS NO DIFFERENCE IN 4 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 FACTUAL POSITION IN THE IMPUGNED ASSESSMENT YEAR, THE DECISION OF THE TRIBUNAL WOULD SQUARELY APPLY . 6 . THE LEARNED DEPARTMENTAL REPRESENTATIVE , THOUGH , AGREED THAT THE TRIBUNAL IN THE PRECEDING ASSESSMENT YEAR S HAS ALLOWED A SSESSEES CLAIM OF DEDUCTION UNDER SECTION 80I C OF THE ACT, H OWEVER, HE RELIED U PON THE OBSERVATIONS OF THE AO. 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS COULD BE SEEN FROM THE FACTS ON RECORD, THE ASSESSEE IS ENGAGED IN MANUFACTURING OF ODORIFEROUS COMPOUNDS . UND ISPUTEDLY , ON THE PROFIT DE RIVED FROM SALE OF MANUFACTURED PRODUCTS, THE AS SESSEE HAS CLAIMED DEDUCTION UNDER SECTION 80IC OF TH E ACT. THE AO HAS DISALLOWED ASSESSEES CLAIM OF DEDUCTION PRIMARILY ON THE FOLLOWING TWO REASONS ; F IRSTLY , THE PROCESS UNDERTAK EN BY THE ASSESSEE DOES NOT AMOUNT TO MANUFACTURING ACTIVITY AND SECONDLY , THE FINISHED PRODUCTS ARE CLASSIFIED AS ORGANIC/INORGANIC CHEMICALS ON WHICH DEDUCTION UNDER SECTION 80IC OF THE ACT IS UNAVAILABLE. HOWEVER, ON A CAREFUL P ERUSAL THE IMPUGNED ORDER OF LEARNED COMMISSIONER (APPEALS), IT IS CLEARLY REVEALED THA T HE HAS GONE THROUGH THE ENTIRE FACTS AND MATERIAL RELATING TO THE MANUFACTURING PROCESS UNDERTAKEN BY THE ASSESSEE AND HAS ANALYZED THE ENTIRE PROCESS OF CON VERTING THE RAW MATERIALS INTO FINI SHED PRODUCTS. THIS FACTUAL ANALYSIS HAS BEE N ENUMERATED IN PARAGRAPH 7.8 TO 7.15 OF HIS ORDER. AFTER GOING THROUGH THE FLOW CHART AND STEP WISE PROCESS INVOLVED IN MANUFACTURIN G THE FINISHED PRODUCTS, LEARNED COMMISSIONE R (APPEALS) HAS RECORDED A FACTUAL FINDING THAT FINISHED PRODUCTS MANUFACTURED BY THE ASSESSEE AS PER THE DESIRE AND SPECIFICATION OF THE CUSTOMERS ARE COMPLETELY DIFFERENT FROM THE RAW MATERIALS USED. FURTHER, APPLYING THE RATIO LAID DOWN IN VARIOUS JUDICIAL PRECEDENT S, THE LEARNED COMMISS IONER (APPEALS) HAS CONCLUDED THAT THE PROCESS OF DERIVING THE FINISHED PRODUCTS AMOUNT TO MANUFACTURE. FURTHER, HE HAS ALSO RECORDED A FINDING OF FACT THAT THE FINISHED PRODUCTS MANUFACTURED BY THE ASSESSEEE ARE NOT CLASSIFIED AS ORGANIC/INORGANIC CHEMICA LS, BUT CLASSIFIED UNDER CHAPTER 33 OF THE CENTRAL EXCISE TARIFF AS ESSENTIAL O ILS, 5 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 RESINOIDS, PERFUMERY, COSMETICS OR TOILET P REPARATIONS , HENCE , THEY DO NOT FALL UNDER CHAPTER 28 AND 29 , AS ERRONEOUSLY OBSERVED BY THE AO. 8. THUS, FROM THE AFORESAID FAC TS, IT IS VERY MUCH CLEAR THA T THE ASSESSEE IS A MANUFACTURER OF FINISHED PRO DUCTS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE ACT. THE REVENUE HAS NOT CONTROVERTED THE VARIOUS FACTUAL FINDINGS OF LEARNED COMMISSIONER (APPEALS) REGARDING THE MANUFACTU RING PROCESS UNDERTAKEN BY THE ASSESSEE . IN ANY CASE OF THE MATTER, IT IS A FACT ON RECORD THAT THE AFORESAID MANUFACTURING ACTIVITY IS BEING CARRIED ON BY THE ASSESSEE FROM THE PRECEDING ASSESSMENT YEARS. PERTINENTLY , A SSESSEES CLAIM OF DEDUCTION UNDER S ECTION 80IC OF THE ACT WAS DISALLOWED BY THE AO IN ASSESSMENT YEAR S 2010 - 11 AND 2011 - 12 AND 2012 - 13 AS WELL. HOWEVER, LEARNED CO MMISSIONER (APPEALS) ALLOWED ASSESSEES CLAIM OF DEDUCTION. BEING AGGRIEVED, THE REVENUE CAME IN APPEAL BEFORE THE TRIBUNAL . W HI LE DECIDING REVENUES APPEALS IN ITA NO. 2173, 2174 AND 2175/MUM/2018 DATED 27.05.2020 , THE TRIBUNAL UPHELD THE DECISION OF LEARNED COMMISSIONER (APPEALS) OBSERVING AS UNDER: - 4. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THE ISSUE IN APPEAL IS SQUARELY CO VERED BY THE ORDER DATED 19TH OCTOBER 2016 PASSED BY A COORDINATE BENCH, IN THE CASE OF DCIT VS KHUSBOO ENTERPRISES [ITA NO. 371/LKW/2016; ORDER DATED 19TH OCTOBER 2016] - WHICH WAS ALSO COVERED BY THE SAME SEARCH AND SEIZURE OPERATIONS, FOR THE ASSESSMENT YEAR 2008 - 09, WHEREIN THE COORDINATE BENCH HAS, INTER ALIA, OBSERVED AS FOLLOWS: 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, CAREFULLY CONSIDERED THE SAME ALONG WITH THE ORDERS OF THE TAX AUTHORITIES BELOW AS WELL AS THE DOCUMENTS PLACED BEFORE US. THE ONLY Q UESTION BEFORE US IS WHETHER THE ASSESSEE IS ENGAGED IN MANUFACTURING ACTIVITIES TO BE ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT. THE PROVISION OF SECTION 80IC ALTHOUGH LAYS DOWN VARIOUS CONDITIONS TO BE COMPLIED WITH BY AN UNDERTAKING TO BE ELIGIBLE FOR DEDUCTION U/S 80IC(3) OF THE ACT BUT THE REVENUE DID NOT RAISE ANY OBJECTION IN THIS REGARD EXCEPT THAT THE ASSESSEE IS NOT ENGAGED IN 6 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 MANUFACTURING OR PRODUCTION OF AN ARTICLE. LEARNED D. R. EVEN THOUGH VEHEMENTLY RELIED ON THE ORDER OF THE ASSESSING OFFI CER BUT DID NOT DENY THAT THE ASSESSEE HAS NOT FAILED TO COMPLY WITH OTHER CONDITIONS AS STIPULATED U/S 80IC OF THE ACT FOR THE PURPOSE OF BEING ELIGIBLE FOR DEDUCTION 80IC OF THE ACT. HIS MAIN THRUST OF THE ARGUMENT WAS THAT THE ASSESSEE WAS NOT ENGAGED I N MANUFACTURING OR PRODUCTION OF AN ARTICLE. HE WAS SIMPLY MIXING THE VARIOUS CHEMICALS AND ON THAT BASIS HE WAS CLAIMING AS IF HE IS ENGAGED IN MANUFACTURING OR PRODUCTION OF AN ARTICLE. 5.1 ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE VEHEMEN TLY RELYING ON THE ORDER OF THE CIT(A) CONTENDED BEFORE US THAT THE ASSESSEE IS VERY MUCH ENGAGED IN MANUFACTURING/PRODUCTION OF AN ARTICLE. HE WAS CARRYING ON THE MANUFACTURING OPERATION. HE HAS SUBMITTED VARIOUS DOCUMENTS AND EVIDENCES BEFORE THE ASSESSI NG OFFICER AS WELL AS BEFORE THE CIT(A). THE ASSESSING OFFICER COULD NOT APPRECIATE THIS FACT WHILE THE CIT(A) WAS ABLE TO APPRECIATE THE LINE OF THE INDUSTRIES IN WHICH THE ASSESSEE IS ENGAGED. THE ASSESSEE IS ENGAGED IN MANUFACTURE OF ODORIFEROUS SUBSTAN CE. THERE ARE MORE THAN 1,500 RAW MATERIALS WHICH ARE BEING USED FOR MANUFACTURING. THE FINISHED GOODS PRODUCED ARE ALSO MORE THAN 500 ALL OF WHICH ARE DIFFERENT FROM EACH OTHER. THE FINISHED GOODS MANUFACTURED BY THE ASSESSEE ARE USED IN VARIOUS INDUSTRIE S WHICH INCLUDE (BUT ARE NOT LIMITED TO) SKIN CARE PRODUCTS, DETERGENTS AND TOILET SOAPS, CONSUMER EDIBLES, INCENSE STICKS AND ROOM FRESHENERS, INDUSTRIAL PERFUMES AND FLAVORS USED BY PAN MASALA AND OTHER INDUSTRIES. HE FURNISHED PRICE LIST OF THE FIRM SHO WING THE NATURE AND TYPE OF FINISHED GOODS MANUFACTURED OR PRODUCED AND IT WAS SUBMITTED THAT EACH OF THE ABOVE CATEGORY OF THE PRODUCT REQUIRE THE DIFFERENT CHEMICAL COMPOSITIONS AND PROPERTIES. FOR EXAMPLE, AN ESSENCE OF ROSE HAS TO HAVE DIFFERENT INGRED IENTS WHEN IT IS USED IN A TOILET SOAP, AS AN AGARBATTI COMPOUND, AS A FOOD FLAVOR AND AS A PERFUME SPRAY ETC. HE SUBMITTED A FLOW CHART IN THIS REGARD AND POINTED OUT THAT THE PROCESS OF MANUFACTURE INVOLVES MELTING, GRINDING, MIXING, STIRRING AT OPTIMAL TEMPERATURE TO PRODUCE A 7 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 DISTINCT PRODUCT. THERE IS PROPER REACTION AMONGST THE PRODUCTS TO PRODUCE A DISTINCT FLAVOR OR FRAGRANCE. IT WAS SUBMITTED THAT A PERFUME OR A FLAVOR MAY INVOLVE FROM AS LESS AS 10 TO AS MUCH AS 50 RAW MATERIALS TO MANUFACTURE THE PRODUCT. FURTHERMORE, A RAW MATERIAL MAY HAVE 0.1% TO EVEN 50% OF THE CONSTITUTION OF FINISHED GOODS. THE RAW MATERIALS HAVE TO BE ADDED IN A PROPER CHRONOLOGICAL MANNER AND A PROPER FORMULATION WITHOUT WHICH THE FINISHED GOODS CANNOT BE PRODUCED. THE MIX ING HAS TO BE DONE AT CONTROLLED TEMPERATURES TO GET THE DESIRED CHEMICAL REACTION. THE FINISHED GOODS ARE THEMSELVES A RESULT OF CHEMICAL REACTIONS ONLY. SEVERAL RAW MATERIALS USED BY THE ASSESSEE ARE HAZARDOUS CHEMICALS, WHICH ARE NOT PER SE FIT FOR HUMA N CONSUMPTION OR APPLICATION. HOWEVER, SCIENTIFICALLY DERIVED FORMULATIONS, WHEREBY OTHER CHEMICALS AND SUBSTANCES ARE MIXED WITH THE MATERIAL, SUCH THAT THE HAZARDOUS PROPERTIES ARE REMOVED, ARE USED BY THE ASSESSEE. SEVERAL NATURAL OILS AND FLAVORS, WHIC H MAY OTHERWISE ROT/DECAY WITH PASSAGE OF TIME, AND ARE IN CONCENTRATED FORM ARE REQUIRED TO BE TREATED AND BLENDED WITH OTHER CHEMICALS ETC. SO AS TO RENDER THEM USABLE IN VARIOUS TYPE OF INDUSTRIES AND APPLICATIONS. MIXING CANNOT BE DONE WITHOUT PROPER L AB TESTING TECHNIQUES AND WITHOUT STUDYING THE BEHAVIORAL PATTERN OF VARIOUS BLENDS OVER A PERIOD OF TIME, WHICH MAY RANGE FROM ONE HOUR TO 15 DAYS. THE BLENDED MIXTURES PROPERTIES CHANGE AS SOME CHEMICALS REACT OVER A PERIOD OF TIME, WHILE IN SOME CASES REACTIONS ARE INSTANT. IT WAS FURTHER SUBMITTED THAT THE TESTING IS DONE AT EACH STAGE BY AGAIN REACTING THE FINISHED PRODUCTS WITH OTHER CHEMICALS AND SUBSTANCES, AT VARIOUS TEMPERATURES DEPENDING ON THE INTENDED USE OF THE FINISHED PRODUCT. THUS, IT WAS EXPRESSED THAT THE INDUSTRY REQUIRES HIGH EXPERTISE, SPECIALIZATION AND KNOWLEDGE OF ORGANIC AS WELL AS INORGANIC CHEMISTRY. IT WAS SUBMITTED THAT ALL THE FINISHED GOODS ARE TOTALLY DISTINCT, AS IS EVIDENT FROM THE PRICE LIST AND ALL THE RAW MATERIALS ARE ALSO TOTALLY DIFFERENT. 8 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 5.2 THE ASSESSEE HAS ALSO POINTED OUT THAT THE ASSESSEE IS PAYING VAT DEPENDING ON THE ITEM PRODUCTS AND VAT RATES WERE DIFFERENT FOR DIFFERENT PRODUCTS AND ALSO FOR DIFFERENT RAW MATERIALS. THE VAT DEPARTMENT HAS PASSED ORDERS FO R ALL THE YEARS, INCLUDING THE YEAR UNDER APPEAL. THE ASSESSEE HAS COMMENCED THE PRODUCTION ON 04/10/2006 IN A NOTIFIED AREA AS PER NOTIFICATION NO.SO741(E) DATED 28/06/2004. THE ASSESSEE IS ENGAGED IN MANUFACTURE OF ODORIFEROUS COMPOUNDS AND INDUSTRIAL PE RFUMES WHICH ARE NOT SPECIFIED IN XIII SCHEDULE. OUR ATTENTION WAS ALSO DRAWN TOWARDS THE DEFINITION OF MANUFACTURE AS GIVEN U/S 2(29BA) OF THE ACT. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: (I) CIT VS. VINBROS & CO. 349 ITR 697 (SC) (II) CIT VS. VINBROS & CO. 218 ITR 634 (MAD) (III) SHREE PAR FRANGRANCES (P) LTD. VS. INCOME TAX OFFICER 20 SOT 440 (MUM) (IV) NATURAL FRANGRANCES BHIMTAL VS. DCIT NAINITAL, I.T.A. NO.4183/DEL/2011 (DEL) (V) DCIT NAINITAL VS. NATURAL FRAGRANCES 219 TM 28 (MAG) ( UTTARANCHAL) (VI) CIT VS. INNOVATIVE INDUSTRIES (GUJ) I.T.A. NO. 2570 OF 2010 (VII) INCOME TAX OFFICER UDAIPUR VS. ARIHANT TILES AND MARBLES (P) LTD. 320 ITR 79 (SC) (VIII) SHREE VEER AROMATIC HERB PRODUCTS VS. INCOME TAX OFFICER 147 ITD 86 (DEL) (IX) MADHU JAYANTI INTERNATIONAL LTD. VS. DCIT 137 ITD 377 KOLKATTA (SB) (X) SHREE BHAVANI MINERALS VS. CIT, I.T.A. NO.68/PNI/2013 (GOA) (XI) FIBERFILL ENGINEERS VS. ACIT, I.T.A. NO.1853/DEL/2015 (XII) ASPINWALL & CO. LTD. VS. CIT [2001] 251 ITR 323 (SC) 5. 3 LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY CONTENDED THAT IF THIS TRIBUNAL WANTS TO VERIFY WHETHER THE PRODUCT OR THE ARTICLE PRODUCED BY THE ASSESSEE IS DIFFERENT FROM THE RAW MATERIAL HAVING THE DIFFERENT MARKET VALUE AND WHICH CANNOT BE RECONVERTED I NTO THE RAW MATERIAL, THIS TRIBUNAL CAN VERIFY THE SAME BY VISITING THE INDUSTRIAL UNIT OF THE ASSESSEE. AFTER HAVING 9 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 THE DISCUSSION WITH D.R, WE DECIDED TO CALL FOR THE DEMONSTRATION OF THE MANUFACTURING PROCESS OF THE ASSESSEE IN RESPECT OF ONE OF THE IT EM AND THEREFORE, THE CASE WHEN IT WAS INITIALLY FIXED FOR 14/09/2016 WHEN THE DETAILED ARGUMENT HAS TAKEN PLACE, ADJOURNED THE CASE FOR 15/09/2016 TO SEE THE DEMONSTRATION OF TWO OF THE PRODUCTS OF THE ASSESSEE I.E. SWEET GULAB AND COMPOUND BELA. 5.4 ON 15/09/2016 THE REPRESENTATIVE OF THE ASSESSEE APPEARED ALONG WITH THREE CHEMICAL ENGINEERS OF THE ASSESSEE COMPANY HAVING DIFFERENT CHEMICALS IN SMALL BOTTLES ALONG WITH THE INDUCTION AND GLASS JARS. THE ASSESSEE FIRST DEMONSTRATED HOW THE SWEET GULAB IS M ANUFACTURED. THE CHEMICAL ENGINEER SHOWED US 15 ITEMS OUT OF WHICH TWO WERE IN SOLID FORM WHILE 13 WERE IN LIQUID FORM. HE POINTED OUT THAT THE ITEMS BROUGHT BY HIM FOR MANUFACTURING 100 GMS OF SWEET GULAB WERE AS UNDER: 1. ALDEHYDE C 11 UNDECYLIC 2. ALD EHYDE C 8 3. ALDEHYDE C 9 0.02 0.1 0.05 4. BENZOPHENONE 10 5. CIS - 3 - HEXANOL 0.05 6. CIS - 3 - HEXANYL ACETATE 0.08 7. CITRAL 0.5 8. CITRONELLOL 15 9. DAMASCONE BETA 0.04 10. GERANIOL 12 11. GERANIUM CHINESE 4 12. LINALOOL 0.8 13. PHENYL ETHYL ALCOHO L 47 14. ROSE CRYSTALS 10 15. ROSE OXIDE INDIAN 0.16 5.5 HE TOLD US ABOUT EACH AND EVERY ITEM AND ALSO POINTED OUT THAT EACH OF THE ITEMS HAS TO BE PUT UP IN THE JAR IN THE SAME SERIATIM AS IT APPEARED IN THE LIST. IF THESE ITEMS ARE MIXED UP IN DIFFERE NT ORDER, THE DESIRED SWEET GULAB WILL NOT COME AND THE PRODUCT WILL BE JUST A WASTE. TWO ITEMS NAMELY BENZOPHENONE 10 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 AND ROSE CRYSTALS BEING SOLID WERE PUT IN A JAR AND HE APPLIED HEATING PROCESS SO THAT THEY CAN BE CONVERTED INTO LIQUID FORM. BEFORE US AND BEFORE LEARNED D. R., THE CHEMICAL ENGINEER MIXED UP ALL THESE ITEMS IN A GLASS JAR IN THE SAME SERIATIM AND ULTIMATELY BROUGHT US THE SMELL OF THE PRODUCT MANUFACTURED CALLED SWEET GULAB, WHICH WAS IN LIQUID FORM. WHEN WE ASKED HIM TO MIX UP THESE PRODUC TS IN A DIFFERENT ORDER, THE CHEMICAL ENGINEER SHOWED US THE REACTION BY MIXING 3 - 4 RAW MATERIALS IN A DIFFERENT ORDER. SIMILARLY, THE DEMONSTRATION WAS ALSO MADE IN RESPECT OF THE COMPOUND BELA WHICH IS BEING MADE BY USING THE FOLLOWING CHEMICALS: 1 ALDE HYDE C 18 0.1 2 BENZYL PHENYL ACETATE 2.4 3 BENZYL ALCOHOL 5 4. BENZYL ACETATE 36.5 5 BENZYL BUTYRATE 0.5 6 DEP 36 7 EBANOL 0.2 8 GALAXOLIDE 100% 2.1 9 HEXYL CINNAMIC ALDEHYDE 1.7 10 HEDIONE 0.4 11 INDOLE 2.5 12 LINALOOL 6.1 13 METHYL ANTHRANILATE 2.8 14 FOLIONE 0.015 15 PHENYL ETHYL ALCOHOL 1.7 16 SANDELA 2 17 S ABSOLUTE 0.1 5.6 THE CHEMICAL ENGINEER HAS ALSO BROUGHT THE SMALL BOTTLE SHOWING THE FRAGRANCE AND THE SMELL OF THE PRODUCT WHICH WERE HANDED O VER TO LEARNED D. R. ON THE BASIS OF THE DEMONSTRATION HELD BEFORE US, WE NOTED THAT THE PRODUCT BEING PRODUCED BY MIXING THE VARIOUS CHEMICALS IS ENTIRELY DIFFERENT FROM THE RAW MATERIAL. ITS USAGE AS WELL AS THE UTILITY IS DIFFERENT. IT CANNOT BE CONVERT ED AGAIN IN THE SAME FORM OF THE RAW MATERIAL. IT HAS 11 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 RESULTED IN THE TRANSFORMATION OF THE OBJECT OR THE ARTICLE WHICH IS ENTIRELY NEW AND DISTINCT HAVING A DIFFERENT NAME, CHARACTER AND USE. WE NOTED THAT THE PROVISION OF SECTION 80IC WAS INSERTED IN THE STATUTE BY THE FINANCE ACT, 2003 WITH EFFECT FROM 2004. SECTION 80IC NOWHERE DEFINES THE WORD MANUFACTURE OR PRODUCTION OF AN ARTICLE. WE NOTED THAT THE WORD MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING HAS ALSO BEEN USED U/S 80IA AS WELL AS U /S 10B OF THE ACT. SECTION 10B DEFINED THE WORD MANUFACTURE FOR THE PURPOSE OF THE SAID SECTION TO INCLUDE ANY (A) PROCESS OR (B) ASSEMBLING OR (C) RECORDING OF PROGRAMME ON DISC, TAPE, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE. THUS, PROCE SS WAS INCLUDED WITHIN THE WORD MANUFACTURE FOR THE PURPOSE OF SEC. 10B. EXPLANATION (IV) OF THE SAID SEC. 10B FURTHER PROVIDED THAT THE WORD PRODUCE FOR THE PURPOSE OF SAID SECTION, IN RELATION TO ANY ARTICLE OR THING SHALL INCLUDE PRODUCTION OF COMPUT ER PROGRAMME. CBDT VIDE ITS CIRCULAR NO. 528 DATED 16/12/1988 176 ITR ST. 154 EXPLAINED THE [PROVISIONS ENACTED BY THE FINANCE ACT, 1988 UNDER PARA 8.2 OF THE CIRCULAR. IN THIS CIRCULAR, CBDT HAD CLEARLY EXPLAINED THAT THE SAID NEW SEC. 10B HAD BEEN INSERT ED IN THE STATUTE BOOK WITH A VIEW TO PROVIDE FURTHER INCENTIVE FOR EARNING FOREIGN EXCHANGE SO AS TO SECURE THAT THE INCOME OF A 100% EOU SHALL BE EXEMPT FROM TAX FOR A PERIOD OF FIVE CONSECUTIVE ASSESSMENT YEARS FALLING WITHIN THE BLOCK OF EIGHT ASSESSME NT YEARS. THE EXEMPTION PROVIDED UNDER THIS NEW SECTION WAS SIMILAR TO THE ONE PROVIDED UNDER SEC. 10A OF THE ACT TO INDUSTRIAL UNDERTAKING OPERATING UNDER THE FREE - TRADE ZONE. IT WAS ALSO CLARIFIED THEREIN THAT THE EXPRESSION MANUFACTURE FOR THE PURPOSE OF BOTH SECTIONS 10A AND 10B OF THE SAID ACT WOULD INCLUDE ANY PROCESSING OR ASSEMBLING OR RECORDING OF PROGRAMME ON DISC, TAPE, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE. 5.7 THIS DEFINITION OF MANUFACTURE WAS REMOVED WHEN SEC. 10A AND 10B OF THE ACT WERE AMENDED BY THE FINANCE ACT, 2001 W.E.F. 01/04/2001. SECTIONS 10A AND 10B OF THE ACT WERE FURTHER 12 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 AMENDED BY THE FINANCE ACT, 2003 W.E.F. 01/04/2004 AND THE DEFINITION OF MANUFACTURE WAS INSERTED AS UNDER: - EXPLANATION (IV) FOR THE PURP OSE OF THIS SECTION, MANUFACTURE OR PRODUCE SHALL INCLUDE THE CUTTING AND POLISHING OF PRECIOUS AND SEMI - PRECIOUS STONES. 5.8 UNDER SECTION 10B THE DEFINITION OF MANUFACTURE WAS AGAIN AMENDED TO MEAN MANUFACTURE SHALL HAVE THE SAME MEANING AS ASSI GNED TO IT IN CLAUSE OF SECTION 2 OF SPECIAL ECONOMIC ZONE ACT, 2005. SUBSEQUENTLY, SPECIAL ECONOMIC ZONE ACT, 2005 WAS PASSED BY THE PARLIAMENT IN MAY, 2005, WHICH WAS BROUGHT INTO EFFECT W.E.F. 23/06/2005. SECTION 2(R) OF SPECIAL ECONOMIC ZONE ACT DEFI NES THE EXPRESSION MANUFACTURE AS UNDER: - MANUFACTURE MEANS TO MAKE, PRODUCE, FABRICATE, ASSEMBLE, PROCESS OR BRING INTO EXISTENCE, BY HAND OR BY MACHINE, A NEW PRODUCT HAVING A DISTINCT NAME, CHARACTER OR USE AND SHALL INCLUDE PROCESSES SUCH AS REFRI GERATION, CUTTING, POLISHING, BLENDING, REPAIR, REMAKING, RE - ENGINEERING AND INCLUDES AGRICULTURE, AQUACULTURE, ANIMAL HUSBANDRY, FLORICULTURE, HORTICULTURE, PISCI CULTURE, POULTRY, SERICULTURE, AVICULTURE AND MINING. 5.9 THIS DEFINITION WAS ADOPTED BY THE LEGISLATURE IN SECTION 10AA W.E.F. 10/02/2006 AS ADOPTED BY THE SPECIAL ECONOMIC ZONES ACT, 2005 BY INSERTING EXPLANATION 1(III) TO SECTION 10AA OF THE ACT WHICH READS AS UNDER: - (III) MANUFACTURESHALL HAVE THE SAME MEANING AS ASSIGNED TO IT IN CLAU SE (R) OF SECTION 2 OF THE SPECIAL ECONOMIC ZONE ACT, 2005. 5.10 AS PER THE SAID DEFINITION PROCESS IS INCLUDED IN MANUFACTURE. SUBSEQUENTLY, BY THE FINANCE ACT, 2009 W.E.F 1.4.2009, CLAUSE (29BA) WAS INSERTED IN SECTION 2 OF THE INCOME TAX ACT, 1961DEF INING THE EXPRESSION MANUFACTURE AS UNDER: MANUFACTURE, WITH ITS GRAMMATICAL VARIATIONS, MEANS A CHANGE IN A NON - LIVING PHYSICAL OBJECT OR ARTICLE OR THING, - 13 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 (A) RESULTING IN TRANSFORMATION OF THE OBJECT OR ARTICLE OR THING INTO A NEW AND DISTINCT OBJ ECT OR ARTICLE OR THING HAVING A DIFFERENT NAME, CHARACTER AND USE OR (B) BRINGING INTO EXISTENCE OF A NEW AND DISTINCT OBJECT OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSITION OR INTEGRAL STRUCTURE. 5.11 IN CHOWGULE & CO. PVT. LTD. VS. UNION OF I NDIA (1981) 1 SCC 653 HONBLE SUPREME COURT, AFTER CONSIDERING THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN NILGIRI CEYLON TEA SUPPLYING CO. VS. STATE OF BOMBAY (1959) 10 STC 500 (BOM.), CLEARLY OBSERVED ON THE QUESTION WHETHER THE BLENDING OF ORE, WHILST LOADING IT IN THE SHIP BY MEANS OF THE MECHANICAL ORE HANDLING PLANT, CONSTITUTED MANUFACTURE OR PROCESSING OR ORE FOR SALE WITHIN THE MEANING OF SECTION 8(3)(B) AND RULE 13 OF THE CENTRAL SALES TAX ACT, 1956. DEALING WITH THIS QUESTION, THEIR LORDSHIPS H ELD AND OBSERVED AT PAGES 659 AND 660 OF THE REPORTS AS UNDER: - IT STILL REMAINS TO CONSIDER WHETHER THE ORE BLENDED IN THE COURSE OF LOADING THROUGH THE MECHANICAL ORE HANDLING PLANT CAN BE SAID TO UNDERGO PROCESSING WHEN IT IS BLENDED. THE ANSWER TO TH IS QUESTION DEPENDS UPON WHAT IS THE TRUE MEANING AND CONNOTATION OF THE WORD PROCESSING IN SECTION 8(3)(B) AND RULE 13. THIS WORD HAS NOT BEEN DEFINED IN THE ACT AND IT MUST THEREFORE BE INTERPRETED ACCORDING TO ITS PLAIN NATURAL MEANING. WEBSTERS DICT IONARY GIVES THE FOLLOWING MEANING OF THE WORD PROCESS: TO SUBJECT TO SOME SPECIAL PROCESS OR TREATMENT, TO SUBJECT (ESPECIALLY RAW MATERIAL) TO A PROCESS OF MANUFACTURE, DEVELOPMENT OF PREPARATION FOR THE MARKET ETC.; TO CONVERT INTO MARKETABLE FORM AS LIVESTOCK BY SLAUGHTERING GRAIN BY MILLING, COTTON BY SPINNING, MILK BY PASTEURIZING, FRUITS AND VEGETABLES BY SORTING AND REPACKING. WHERE THEREFORE ANY COMMODITY IS SUBJECTED TO A PROCESS OR TREATMENT WITH A VIEW TO ITS DEVELOPMENT OR PREPARATION FO R THE MARKET, AS, FOR EXAMPLE, BY SORTING AND REPACKING FRUITS AND VEGETABLES, IT WOULD AMOUNT TO PROCESSING OF THE COMMODITY WITHIN THE MEANING OF SECTION 8(3)(B) AND RULE 13. THE NATURE AND 14 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 EXTENT OF PROCESSING MAY VARY FROM CASE TO CASE; IN ONE CASE TH E PROCESSING MAY BE SLIGHT AND IN ANOTHER IT MAY BE EXTENSIVE; BUT WITH EACH PROCESS SUFFERED, THE COMMODITY WOULD EXPERIENCE A CHANGE. WHEREVER A COMMODITY UNDERGOES A CHANGE AS A RESULT OF SOME OPERATION PERFORMED ON IT OR IN REGARD TO IT, SUCH OPERATION WOULD AMOUNT TO PROCESSING OF THE COMMODITY. THE NATURE AND EXTENT OF CHANGE IS NOT MATERIAL. IT MAY BE THAT CAMPHOR POWDER MAY JUST BE COMPRESSED INTO CAMPHOR CUBES BY APPLICATION OF MECHANICAL FORCE OR PRESSURE WITHOUT ADDITION OR ADMIXTURE OF ANY OTHER MATERIAL AND YET THE OPERATION WOULD AMOUNT TO PROCESSING OF CAMPHOR POWDER AS HELD BY THE CALCUTTA HIGH COURT IN OM PRAKASH GUPTA VS COMMISSIONER OF COMMERCIAL TAXES [16 STC 935 (CAL)]. WHAT IS NECESSARY IN ORDER TO CHARACTERIZE AN OPERATION AS PROCESSI NG IS THAT THE COMMODITY MUST AS A RESULT OF THE OPERATION, EXPERIENCE SOME CHANGE. HERE, IN THE PRESENT CASE, DIVERSE QUANTITIES OF ORE PROCESSING DIFFERENT CHEMICAL AND PHYSICAL COMPOSITIONS ARE BLENDED TOGETHER TO PRODUCE ORE OF THE REQUISITE CHEMICAL AND PHYSICAL COMPOSITION DEMANDED BY THE FOREIGN PURCHASER AND OBVIOUSLY AS A RESULT OF THIS BLENDING, THE QUANTITIES OF ORE MIXED TOGETHER IN THE COURSE OF LOADING THROUGH THE MECHANICAL ORE HANDLING PLANT EXPERIENCE CHANGE IN THEIR RESPECTIVE CHEMICAL AN D PHYSICAL COMPOSITION, BECAUSE WHAT IS PRODUCED BY SUCH BLENDING IS ORE OF A DIFFERENT CHEMICAL AND PHYSICAL COMPOSITIONS. WHEN THE CHEMICAL AND PHYSICAL COMPOSITION OF EACH KIND OF ORE WHICH GOES INTO THE BLENDING IS CHANGED, THERE CAN BE NO DOUBT THAT THE OPERATION OF BLENDING WOULD AMOUNT TO PROCESSING OF ORE WITHIN THE MEANING OF SECTION 8(3)(B) AND RULE 13. IT IS NO DOUBT TRUE THAT THE BLENDING OF ORE OF DIVERSE PHYSICAL AND CHEMICAL COMPOSITIONS IS CARRIED OUT BY THE SIMPLE ACT OF PHYSICALLY MIX ING DIFFERENT QUANTITIES FOR SUCH ORE ON THE CONVEYOR BELT OF THE MECHANICAL ORE HANDLING PLANT, BUT TO OUR MIND IT IS IMMATERIAL AS TO HOW THE BLENDING IS DONE AND WHAT PROCESS IS 15 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 UTILIZED FOR THE PURPOSE OF BLENDING. WHAT IS MATERIAL TO CONSIDER IS WHE THER THE DIFFERENT QUANTITIES OF ORE WHICH ARE BLENDED TOGETHER IN THE COURSE OF LOADING THROUGH THE MECHANICAL ORE HANDLING PLANT UNDERGO ANY CHANGE IN THEIR PHYSICAL AND CHEMICAL COMPOSITION IS A RESULT OF BLENDING AND SO FAR AS THIS ASPECT OF THE QUESTI ON IS CONCERNED, IT IS IMPOSSIBLE TO ARGUE THAT THEY DO NOT SUFFER ANY CHANGE IN THEIR RESPECTIVE CHEMICAL AND PHYSICAL COMPOSITIONS. 5.12 THUS, THE HON'BLE SUPREME COURT ACCEPTED THAT THERE IS CHANGE IN CHEMICAL COMPOSITIONS AFTER PROCESSING OF THE IRON ORE. FROM THE SAID DECISION OF THE APEX COURT, IT IS APPARENT THAT HONBLE APEX COURT HELD EVEN BLENDING OF IRON ORE FOR THE PURPOSE OF EXPORT INVOLVES CHANGE IN THE CHEMICAL AND PHYSICAL COMPOSITION OF IRON ORE. IF WE LOOK TO THE FACTS OF THE IMPUGNED CA SE OF THE ASSESSEE, WE FIND THAT THE ASSESSEE IS MIXING VARIOUS CHEMICALS EITHER IN LIQUID OR SOLID FORM BY APPLYING A PREDETERMINED PROCESS AND MIXING THEM IN A PREDETERMINED MANNER SO THAT OUT OF THE MIXING, ENTIRELY A NEW PRODUCT COME AND ITS FINISHED P RODUCT TECHNICALLY AFTER HAVING THE PROCESS OF MIXING HAS DIFFERENT NAMES. THERE ARE DIFFERENT CHEMICALS AND THE ITEMS WHICH ARE BEING USED FOR DIFFERENT PRODUCT IN A DIFFERENT PROPORTION IN A PREDETERMINED ORDER OF THE MIXING, AS SHOWN TO US DURING THE CO URSE OF HEARING AND DURING THE COURSE OF DEMONSTRATION OF TWO ITEMS, AS GIVEN BY US IN THE PRECEDING PARAGRAPH, BOTH THE PRODUCTS MANUFACTURED ARE ENTIRELY DIFFERENT FROM THE VARIOUS CHEMICALS AND THE ITEMS USED BY THE ASSESSEE. THESE ITEMS SO PRODUCED HAV E A DIFFERENT NAME, DIFFERENT UTILITY AND THEY ARE BEING USED FOR DIFFERENT PURPOSES IN SOAPS, DETERGENTS, EDIBLE ITEMS, JUICES ETC. ACCORDING TO THE FRAGRANCES AND TASTE TO BE GIVEN TO THESE ITEMS. THESE ITEMS SO PRODUCED ARE DIFFERENT IN PHYSICAL APPEARA NCE AND CHEMICAL COMPOSITION. WE DO NOT AGREE WITH LEARNED D. R. THAT THERE IS NOT ANY CHANGE IN PHYSICAL AND CHEMICAL COMPOSITION OF THE OUTPUT THAN THE INPUT AS 16 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 IS BEING PROCESSED IN THE CASE OF THE ASSESSEE. IF WE GO TO SECTION 2 SUB - SECTION (29BC) INSE RTED WITH EFFECT FROM 01/04/2009, WE FIND THAT CLAUSE (B) OF THIS SECTION CLEARLY STATES THAT BRINGING INTO EXISTENCE OF NEW AND DISTINCT OBJECT OR ARTICLE OR THING WITH DIFFERENT CHEMICAL COMPOSITION OR INTEGRAL STRUCTURE, TANTAMOUNT TO MANUFACTURE. EVEN THOUGH THEY REMAIN IN LIQUID FORM BUT IT IS NOT A CASE THAT ALL THE INGREDIENTS WHICH ARE BEING MIXED ARE IN LIQUID FORMS. THE TASTE AS WELL AS THE SMELL AND THE UTILITY OF THE INPUT AND THE OUTPUT WHICH WE HAVE SEEN DURING THE COURSE OF DEMONSTRATION IN T HE COURT, ARE ENTIRELY DIFFERENT. IN OUR OPINION, IN VIEW OF THIS CLAUSE AND THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CHOWGULE & CO. (SUPRA), IT CANNOT BE HELD THAT THE ASSESSEE IS ENGAGED IN THESE UNITS IN MANUFACTURING. 5.13 FURTHER, IN CIT VS N.C. BUDHARAJA & CO. (1993) 204 ITR 412 (SC), HONBLE SUPREME COURT FURTHER OBSERVED THAT THE WORD PRODUCTION IS MUCH WIDER THAN THE WORD MANUFACTURE. IT WAS SAID (PAGE 423): THE WORD PRODUCTION HAS A WIDE 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 PROCES S WHICH MAY OR MAY NOT AMOUNT TO MANUFACTURE. IT ALSO TAKES IN ALL THE BY - PRODUCTS, INTERMEDIATE PRODUCTS AND RESIDUAL PRODUCTS WHICH EMERGE IN THE COURSE OF MANUFACTURE OF GOODS. 5.14 IN CHRISTIAN MICA INDUSTRIES LTD. VS. STATE OF BIHAR (1961) 12 STC 15 0 (SC), HONBLE SUPREME COURT DEFINED THE WORD PRODUCTION, ALBEIT, IN CONNECTION WITH THE BIHAR SALES TAX ACT, 1947. THE DEFINITION WAS ADOPTED FROM THE MEANING ASCRIBED TO THE WORD PRODUCTION IN THE OXFORD ENGLISH DICTIONARY, AS MEANING AMONGST OTHER THINGS THAT WHICH IS PRODUCED; A THING THAT RESULTS FROM ANY ACTION, PROCESS OR EFFORT, A PRODUCT; A PRODUCT OF HUMAN ACTIVITY OR EFFORT. FOR THE WIDE DEFINITION OF THE WORD PRODUCTION, IT HAS TO FOLLOW THAT MINING ACTIVITY FOR THE 17 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 PURPOSE OF PRODUCTIO N OF MINERAL ORES WOULD COME WITHIN THE AMBIT OF THE WORD PRODUCTION SINCE ORE IS A THING, WHICH IS THE RESULT OF HUMAN ACTIVITY OR EFFORT. 5.15 ACCORDING TO WEBSTER INTERNATIONAL ENGLISH DICTIONARY, THE VERB PRODUCE MEANS TO BRING FORWARD, BEGET, E TC. THE JUXTAPOSITION OF THE WORD MANUFACTURE WITH AGRICULTURE AND HORTICULTURE IS SIGNIFICANT AND CANNOT BE LOST SIGHT OF. THE INTENTION IN EMPLOYING THE WORD PRODUCED OBVIOUSLY WAS TO INTRODUCE AN ELEMENT OF VOLITION AND EFFORT INVOLVING THE EMPL OYMENT OF SOME PROCESS FOR BRINGING INTO EXISTENCE SOME GOODS. 5.16 IN PARAGRAPH 7 OF ITS IN THE CASE OF CHOWGULE & C0 (P) LTD. VS. UOI (SUPRA), HONBLE APEX COURT ALSO CONSIDERED THE QUESTION WHETHER THE DIFFERENT BRANDS OF TEA PURCHASED AND BLENDED BY THE ASSESSES FOR THE PURPOSE PRODUCING THE TEA MIXTURE COULD BE SAID TO HAVE BEEN PROCESSED, AFTER THE PURCHASE, WITHIN THE MEANING OF THE PROVISO TO SECTION 8(A), SO AS TO PRECLUDE THE ASSESSES FROM BEING ENTITLED TO DEDUCT THEIR TURNOVER UNDER SECTION 8(A), SO AS TO PRECLUDE THE VALUE OF THE TEA PURCHASED BY THEM. THE RELEVANT OBSERVATIONS MADE BY THE HONBLE SUPREME COURT IN THIS RESPECTIVE ARE QUOTED AND SET OUT HEREIN BELOW FOR READY REFERENCE: 7. THE REVENUE HOWEVER RELIED ON THE DECISION OF THE BOMBAY HIGH COURT IN NILGIRI CEYLON TEA SUPPLYING CO. VS. STATE OF BOMBAY [10 STC 500 (BOM HC)]. THE ASSESSEES IN THIS CASE WERE REGISTERED DEALERS IN TEA UNDER THE BOMBAY SALES TAX ACT, 1953 AND THEY PURCHASED IN BULK DIVERSE BRANDS OF TEA AND WITHOUT THE APPLICATION OF ANY MECHANICAL OR CHEMICAL PROCESS BLENDED THESE BRANDS OF DIFFERENT QUALITIES ACCORDING TO A CERTAIN FORMULA EVOLVED BY THEM AND SOLD THE TEA MIXTURE IN THE MARKET. THE QUESTION AROSE BEFORE THE SALES TAX AUTHORITIES WHETHER THE DIFFERENT BRANDS OF TEA PURCHASED AND BLENDED BY THE ASSESSEE FOR THE PURPOSE OF PRODUCING THE TEA MIXTURE COULD BE SAID TO HAVE 18 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 BEEN PROCESSED AFTER THE PURCHASE WITHIN THE MEANING OF THE PROVISO TO SECTION 8(A), SO AS TO PRECLUDE THE ASSESSES FROM BEING ENTITLED TO DEDUCT FROM THEIR TURNOVER UNDER SECTION 8(A), THE VALUE OF THE TEA PURCHASED BY THEM. THE HIGH COURT OF BOMBAY HELD THAT DIFFERENT BRANDS OF TEA PURCHASED BY THE ASSESSES COULD NOT BE REGARDED AS PROCESSED WITHIN THE MEANING OF THE PROVISO TO CLAUSE (A) OF SECTION 8, BECAUSE THERE WAS NOT EVEN APPLICATION OF MECHANICAL FORCE SO AS TO SUBJECT THE COMMODITY TO A PROCESS, MANUFACTURE, DEVELOPMENT OR PREPARATION AND THE COMMODITY REMAINED IN THE SAME CONDITION. THE ARGUMENT OF THE REVENUE BEFORE US WAS THAT THIS DECISION OF THE BOMBAY HIGH COURT WAS ON ALL FOURS WITH THE PRESENT CASE AND IF THE BLENDING OF DIFFERENT BRANDS OF TEA FOR THE PURPOSE OF PRODUCING A TEA MIXTURE IN ACCORDANCE WITH A FORMULA EVOLVED BY THE ASSESSES COULD NOT BE REGARDED AS PRO CESSING OF TEA, EQUALLY ON A PARITY OF REASONING, BLENDING OF ORE OF DIFFERENT CHEMICAL AND PHYSICAL COMPOSITIONS COULD NOT BE HELD TO CONSTITUTE PROCESSING OF THE ORE. NOW UNDOUBTEDLY THERE IS A CLOSE ANALOGY BETWEEN THE FACTS OF NILGIRI TEA COMPANY C ASE [10 STC 500 (BOM HC)] AND THE FACTS OF THE PRESENT CASE, BUT WE DO NOT THINK WE CAN ACCEPT THE DECISION OF THE BOMBAY HIGH COURT IN THE NILGIRI TEA COMPANY CASE [10 STC 500 (BOM HC)] AS LAYING DOWN THE CORRECT LAW. WHEN DIFFERENT BRANDS OF TEA WERE MIX ED BY THE ASSESSEE IN NILGIRI TEA COMPANY CASE [10 STC 500 (BOM HC)] FOR THE PURPOSE OF PRODUCING A TEA MIXTURE OF A DIFFERENT KIND AND QUALITY ACCORDING TO A FORMULA EVOLVED BY THEM, THERE WAS PLAINLY AND INDUBITABLY PROCESSING OF THE DIFFERENT BRANDS OF TEA, BECAUSE THESE BRANDS OF TEA EXPERIENCED, AS A RESULT OF MIXING, QUALITATIVE CHANGE, IN THAT THE TEA MIXTURE WHICH CAME INTO EXISTENCE WAS OF DIFFERENT QUALITY AND FLAVOR THAN THE DIFFERENT BRANDS OF TEA WHICH WENT INTO THE MIXTURE. THERE ARE, IT IS TR UE, SOME OBSERVATIONS IN THE JUDGMENT OF THE BOMBAY HIGH COURT WHICH SEEM TO SUGGEST THAT IF INSTEAD OF MANUAL APPLICATION OF ENERGY IN MIXING THE DIFFERENT BRANDS OF TEA, THERE HAD BEEN APPLICATION OF MECHANICAL FORCE IN PRODUCING THE TEA MIXTURE, THE COU RT MIGHT HAVE COME TO A DIFFERENT 19 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 CONCLUSION AND THESE OBSERVATIONS WERE RELIED UPON BY THE ASSESSEE, SINCE IN THE PRESENT CASE THE BLENDING WAS DONE BY APPLICATION OF MECHANICAL FORCE, BUT WE DO NOT THINK THAT IS THE CORRECT TEST TO BE APPLIED FOR THE PUR POSE OF DETERMINING WHETHER THERE IS PROCESSING. THE QUESTION IS NOT WHETHER THERE IS MANUAL APPLICATION OF ENERGY OR THERE IS APPLICATION OF MECHANICAL FORCE. WHATEVER BE THE MEANS EMPLOYED FOR THE PURPOSE OF CARRYING OUT THE OPERATION, IT IS THE EFFECT OF THE OPERATION ON THE COMMODITY THAT IS MATERIAL FOR THE PURPOSE OF DETERMINING WHETHER THE OPERATION CONSTITUTES PROCESSING WE ARE CLEARLY OF VIEW THAT THE BLENDING OF ORE IN THE COURSE OF LOADING THROUGH THE MECHANICAL ORE HANDLING PLANT AMOUNTED TO PROCESSING OF ORE WITHIN THE MEANING OF SECTION 8(3)(B) AND RULE 13 AND THE MECHANICAL ORE HANDLING PLANT FELL WITHIN THE DESCRIPTION OF MACHINERY, PLANT, EQUIPMENT USED IN THE PROCESSING OF ORE FOR SALE 5.17 IN DECIDING THE SAID QUESTION, THE HO NBLE SUPREME COURT AFTER CONSIDERING THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN NILGIRI CEYLON TEA SUPPLYING CO. VS. STATE OF BOMBAY [1959] 10 STC 500 (BOM), INTER ALIA, OBSERVED ASFOLLOWS: (I) WHEN DIFFERENT BRANDS OF TEA WERE MIXED BY THE ASSESSE E AS IN NILGIRI CEYLON TEA SUPPLYING CO.S CASE (1959) 10 STC 500 (BOM) FOR THE PURPOSE OF PURCHASING A TEA MIXTURE OF A DIFFERENT KIND AND QUALITY ACCORDING TO A FORMULA EVOLVED BY THEM, THERE WAS PLAINLY AND INDUBITABLY PROCESSING FOR THE DIFFERENT BRAND S OF TEA, BECAUSE THESE BRANDS OF TEA EXPERIENCED, AS A RESULT OF MIXING, A QUALITATIVE CHANGE, IN THAT THE TEA MIXTURE WHICH CAME INTO EXISTENCE WAS OF A DIFFERENT QUALITY AND FLAVOR THAN THE DIFFERENT BRANDS OF THE TEA WHICH WENT INTO THE MIXTURE; (II) THERE ARE, IT IS TRUE, SOME OBSERVATIONS IN THE JUDGMENT OF THE BOMBAY HIGH COURT WHICH SEEM TO SUGGEST THAT IF INSTEAD OF MANUAL APPLICATION OF ENERGY IN MIXING THE DIFFERENT BRANDS OF TEA, THERE HAD BEEN APPLICATION OF MECHANICAL FORCE IN PRODUCING THE T EA MIXTURE, THE COURT MIGHT HAVE COME TO A DIFFERENT CONCLUSION AND THESE OBSERVATIONS WERE RELIED UPON BY THE ASSESSEE, SINCE, IN THE PRESENT CASE, THE BLENDING WAS DONE BY 20 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 APPLICATION OF MECHANICAL FORCE, BUT THAT IS NOT THE CORRECT TEST TO BE APPLIED FO RTHE PURPOSE OF DETERMINING WHETHER THE OPERATION CONSTITUTES IS PROCESSING. (III) THE QUESTION IS NOT WHETHER THERE IS ANY MANUAL APPLICATION OF ENERGY OR THERE IS APPLICATION OF MECHANICAL FORCE. WHATEVER BE THE MEANS EMPLOYED FOR THE PURPOSE OF CARRY ING OUT THE OPERATION, IT IS THE EFFECT OF THE OPERATION ON THE COMMODITY THAT IS MATERIAL FOR THE PURPOSE OF DETERMINING WHETHER THE OPERATION CONSTITUTES PROCESSING. 5.18 THEREFORE, HONBLE SUPREME COURT, IN CONSTRUING THE EXPRESSION PROCESSING ALL OWED THE APPEAL OF THE ASSESSEE, IN CHOWGULE & CO. PVT. LTD. (SUPRA), HOLDING, INTER ALIA, THAT WHERE ANY COMMODITY IS SUBJECTED TO A PROCESS OR TREATMENT WITH A VIEW TO ITS DEVELOPMENT OR PREPARATION FOR THE MARKET IT WOULD AMOUNT TO PROCESSING OF THE C OMMODITY WITHIN THE MEANING OF CENTRAL SALES TAX ACT, 1956. HONBLE SUPREME COURT, IN THE SAID JUDGMENT, DID NOT CONSIDER THE EXPRESSION MANUFACTURE SINCE THE QUESTION WAS DECIDED ONLY ON THE EXPRESSION PROCESSING. HOWEVER, CONSIDERING THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF NILGIRI TEA CO. [1959] 10 STC 500, HONBLE SUPREME COURT OBSERVED THAT, FOR THE PURPOSE OF PRODUCING A TEA MIXTURE OF A DIFFERENT KIND AND QUALITY ACCORDING TO A FORMULA EVOLVED BY THEM, THERE WAS PLAINLY AND INDUBITABL Y PROCESSING OF THE DIFFERENT BRANDS OF TEA, BECAUSE THESE BRANDS OF TEA EXPERIENCED, AS A RESULT OF A QUALITATIVE CHANGE, IN THAT THE TEA MIXTURE WHICH CAME INTO EXISTENCE WAS OF A QUALITY AND FLAVOR FROM THE DIFFERENT BRANDS OF TEA WHICH WENT INTO THE MI XTURE. 5.19 HONBLE KERALA HIGH COURT HAD THE OCCASION TO CONSIDER WHETHER ASSESSEE IS ENGAGED IN THE MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING WHEN ASSESSEE WAS EXCLUSIVELY ENGAGED IN BLENDING, PACKAGING AND EXPORT OF TEA BAGS, TEA PACKETS AND BU LK TEA PACKS IN THE CASE OF TATA TEA LTD. VS. ACIT 338 ITR 285. HONBLE HIGH COURT NOTED IN THAT CASE THAT THE REVENUES STAND IS 21 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 THAT MANUFACTURE OR PRODUCTION HAD LIBERAL MEANING UNDER THE DEFINITION CLAUSE CONTAINED IN SECTION 10B OF THE ACT UNTIL ITS D ELETION WHICH COVERS EVEN PROCESSING AND, THEREFORE, BLENDING AND PACKAGING OF TEA FOR EXPORT WAS TREATED AS MANUFACTURE OR PRODUCTION OF AN ARTICLE QUALIFYING FOR EXEMPTION. HONBLE KERALA HIGH COURT CONSIDERED THE CONTENTION OF THE ASSESSEE THAT THE SCHEME OF INCOME TAX EXEMPTION AVAILABLE TO UNITS IN THE SEZ U/S 10A OF THE ACT AND UNITS IN THE FREE TRADE ZONE PROVIDED U/S 10AA OF THE ACT AND THE EXEMPTION AVAILABLE TO 100% EOU U/S 10B OF THE ACT ARE VERY SIMILAR IN NATURE AND THE WORDINGS OF THE STAT UTORY PROVISIONS ARE SIMILAR IN NATURE. HONBLE KERALA HIGH COURT ALSO CONSIDERED THE JUDGMENT IN THE DECISION OF SUPREME COURT IN TARA AGENCIES (292 ITR 444 (SC) RELIED UPON BY THE SR. STANDING COUNSEL FOR THE REVENUE, WHEREIN HONBLE SUPREME COURT CLEARL Y HELD THAT BLENDING OF TEA DOES NOT AMOUNT TO MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING, BUT IS ONLY PROCESSING. HONBLE HIGH COURT ALLOWING THE APPEAL OF THE ASSESSEE HELD THAT THE ASSESSEE WAS EXCLUSIVELY ENGAGED IN BLENDING AND PACKING OF TE A FOR EXPORT AND WAS NOT MANUFACTURING OR PRODUCING ANY OTHER ARTICLE OR THING. IT WAS RECOGNIZED AS A 100% EOU DIVISION AND THE DEPARTMENT HAD NO CASE THAT THE ASSESSEES UNIT ENGAGED IN EXPORT OF TEA BAGS AND TEA PACKETS WAS NOT A 100% EOU. IF EXEMPTION WAS DENIED ON THE GROUND THAT PRODUCTS EXPORTED WERE NOT PRODUCED OR MANUFACTURED IN THE INDUSTRIAL UNITS OF THE ASSESSEES 100% EOU, IT WOULD DEFEAT THE VERY OBJECT OF SECTION 10B OF THE ACT. (SIMILAR TO ASSESSEES CASE). FURTHER, INDUSTRIAL UNITS ENGAGED IN THE VERY SAME ACTIVITY, I.E., BLENDING, PACKING AND EXPORT OF TEA IN THE SPECIAL ECONOMIC ZONES AND FREE TRADE ZONES, WOULD CONTINUE TO ENJOY TAX EXEMPTION UNDER SECTION 10A OF THE ACT AND SECTION 10AA OF THE ACT RESPECTIVELY. THE ASSESSEE WAS ALLOWED EXEMPTION ON THE PROFIT DERIVED BY ITS 100% EOU ENGAGED IN BLENDING, PACKING AND EXPORT OF TEA BAGS AND TEA PACKETS. HONBLE HIGH COURT HELD AS UNDER: 22 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 THE FINDING OF THIS COURT IS THAT THE PURPOSE OF INCORPORATION OF SECTION 2(R) OF THE SPECIAL ECONOMIC ZONES ACT, 2005, INTO SECTION 10AA OF THE INCOME - TAX ACT IS TO PROVIDE A LIBERAL MEANING TO THE WORD MANUFACTURE WHICH TAKES IN EVEN BLENDING, REFRIGERATION, ETC. IT WAS NOTICED BY THIS COURT THAT THE DEFINITIONS OF MANUFACTURE CONTAINED IN THE ABOVE D EFINITION CLAUSES ARE VERY LIBERAL WHICH TAKES IN EVEN PROCESSING LIKE BLENDING. THE CONTENTION OF THE COUNSEL FOR THE ASSESSEE IS THAT THE PURPOSE OF REMOVAL OF THE DEFINITION OF MANUFACTURE FROM SECTION 10B WAS NOT TO PROVIDE A RESTRICTED MEANING FOR T HAT TERM CONTAINED IN THE MAIN SECTION BECAUSE IF THAT WAS SO, THEN THE LEGISLATURE WOULD HAVE ONLY MODIFIED THE DEFINITION CLAUSE. FURTHER, THE DEFINITION OF 100 PER CENT EXPORT ORIENTED UNIT EVEN AFTER THE AMENDMENT IS RETAINED IN THE SAID SECTION, WHICH DEFINES IT AS AN UNDERTAKING WHICH HAS BEEN APPROVED AS A 100 PER CENT EXPORT ORIENTED UNDERTAKING BY THE BOARD APPOINTED IN THIS BEHALF BY THE CENTRAL GOVERNMENT IN EXERCISE OF POWERS CONFERRED BY SECTION 40 OF THE INDUSTRIES (DEVELOPMENT & REGULATION) A CT, 1951, AND THE RULES MADE UNDER THAT ACT. IT IS PERTINENT TO NOTE THE PRODUCTS FOR WHICH THE ASSESSEES UNIT IS RECOGNIZED AS A 100 PER CENT EXPORT ORIENTED UNIT ARE TEA BAGS, TEA IN PACKETS AND TEA IN BULK PACKS. IN FACT, THE ASSESSEE IS EXCLUSIVELY EN GAGED IN BLENDING AND PACKING OF TEA FOR EXPORT AND IS NOT MANUFACTURING OR PRODUCING ANY OTHER ARTICLE OR THING. STILL IT IS RECOGNIZED AS A 100 PER CENT EXPORT ORIENTED UNIT BY THE CONCERNED AUTHORITY WITHIN THE MEANING OF THAT TERM CONTAINED IN THE DEFI NITION CLAUSE OF SECTION 10B OF THE INCOMETAX ACT AND THE DEPARTMENT HAS NO CASE THAT THE ASSESSEES UNIT ENGAGED IN EXPORT OF TEA BAGS AND TEA PACKETS IS NOT A 100 PER CENT EXPORT ORIENTED UNIT. SO MUCH SO, IN OUR VIEW, IF EXEMPTION IS DENIED ON THE GROUN D THAT PRODUCTS EXPORTED ARE NOT PRODUCED OR MANUFACTURED IN THE INDUSTRIAL UNIT OF THE ASSESSEES 100 PER CENT EXPORT ORIENTED UNIT, THE SAME WOULD DEFEAT THE VERY OBJECT OF SECTION 10B. FURTHER, INDUSTRIAL UNITS ENGAGED IN THE VERY SAME ACTIVITY, I.E., B LENDING, PACKING AND EXPORT OF TEA IN THE SPECIAL ECONOMIC ZONES AND FREE TRADE 23 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 ZONES, WILL CONTINUE TO ENJOY TAX EXEMPTION UNDER SECTION 10A AND SECTION 10AA RESPECTIVELY. THE STILL WORSE POSITION IS THAT THE APPELLANT WOULD BE DENIED OF EXPORT EXEMPTION AVAILABLE UNDER SECTION 80HHC EVEN TO A MERCHANT EXPORTER. IN OUR VIEW, THE DECISION OF THE SUPREME COURT IN TARA AGENCIES CASE [2007] 292 ITR 444 (SC) IS NOT APPLICABLE FOR THE PURPOSE OF CONSIDERING EXEMPTION FOR INDUSTRIES IN THE EXPORT PROCESSING ZONE S, FREE TRADE ZONES AND TO 100 PER CENT EXPORT ORIENTED UNITS COVERED BY SECTIONS 10A, 10AA AND 10B OF THE INCOME TAX ACT. THEREFORE, FOLLOWING THE JUDGMENT OF THIS COURT ABOVE REFERRED TO WE HOLD THAT THE ASSESSEE IS ENTITLED TO EXEMPTION ON THE PROFIT DE RIVED BY ITS 100 PER CENT EXPORT ORIENTED UNIT ENGAGED IN BLENDING, PACKING AND EXPORT OF TEA BAGS AND TEA PACKETS. CONSEQUENTLY, WE ALLOW THE APPEALS BY REVERSING THE ORDERS OF THE TRIBUNAL AND BY RESTORING THE ORDERS OF THE FIRST APPELLATE AUTHORITY DECL ARING THE APPELLANTS ENTITLEMENT FOR EXEMPTION. 5.20 HONBLE HIGH COURT IN THIS CASE, IN OUR OPINION, HAS CLEARLY LAID DOWN THAT ONCE THE ASSESSEE IS RECOGNIZED AS A 100% EOU FOR ENGAGING IN AN ACTIVITY AND ASSESSEE IS ENGAGED IN THE SAME VERY ACTIVITY, IF THE EXEMPTION IS DENIED TO THE ASSESSEE ON THE GROUND THAT THERE IS NO PRODUCTION OR MANUFACTURING BUT ONLY PROCESSING OF THE PRODUCTS EXPORTED IN THE 100% EXPORT ORIENTED UNIT, THE SAME WOULD DEFEAT THE VERY OBJECT OF SECTION 10B. THE HONBLE HIGH COU RT TOOK THE VIEW THAT THE DECISION OF THE HONBLE SUPREME COURT IN TARA AGENCYS CASE 292 ITR 444 WILL NOT APPLY EVEN THOUGH HONBLE SUPREME COURT IN THAT CASE HAS HELD THAT BLENDING OF TEA DOES NOT AMOUNT TO MANUFACTURE OR PRODUCTION OF AN ARTICLE BUT IS ONLY PROCESSING. THUS, THE HONBLE KERALA HIGH COURT IN THE CASE OF TATA TEA LTD. (SUPRA) GAVE THE CLEAR CUT FINDING IMPLIEDLY THAT EVEN IF THE ASSESSEE IS ENGAGED IN PROCESSING AND IS RECOGNIZED AS 100% EOU, IT WILL BE ENTITLED FOR EXEMPTION CLAIMED U/S 1 0B OF THE ACT. 5.21 THUS, HON'BLE KERALA HIGH COURT IN THE CASE OF TATA TEA LTD. (SUPRA) GAVE THE CLEAR CUT FINDING IMPLIES THAT EVEN IF THE ASSESSEE IS ENGAGED IN PROCESSING, IT WILL BE ENTITLED FOR 24 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 EXEMPTION AS IT CAN BE SAID TO HAVE BEEN ENGAGED IN MAN UFACTURING OR AN ARTICLE. 5.22 EVEN ON THIS ISSUE WE HAVE GONE THROUGH THE DECISION OF HONBLE SPECIAL BENCH IN THE CASE OF MADHU JAYANTI INTERNATIONAL LTD. AND OTHERS VS. DCIT. THE QUESTION FOR CONSIDERATION AND DECISION OF THE SPECIAL BENCH WAS: WHETHE R ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ASSESSEES, WHO ARE IN THE BUSINESS OF BLENDING & PROCESSING OF TEA AND EXPORT THEREOF, CAN BE SAID TO BE MANUFACTURE/PRODUCER OF THE TEA FOR THE PURPOSE OF SECTION 10A/10B OF THE I.T. ACT, 1961? 5.23 THE BRIEF FACTS IN THE CASE OF MADHU JAYANTI INTERNATIONAL LTD. IN ITA NO. 1463/KOL/2007 WERE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING, PROCESSING, EXPORTING AND DEALING IN VARIOUS COMMODITIES, MORE PARTICULARLY TEA, COFFEE, JUTE , PEPPER, CHILLIES, CARDAMOM, TURMERIC AND SIMILAR OTHER SPICES, ETC. THE ASSESSEE, AS PER THE CLAIM IS A 100% EOU WITHIN THE MEANING OF SECTION 10B OF THE I.T. ACT, 1961 AND CLAIMED EXEMPTION UNDER THAT SECTION. THE ASSESSEE BUYS TEA FROM AUCTIONS HELD IN TEA BOARD RECOGNIZED AUCTION CENTRES AT KOLKATA, GUWAHATI, SILIGURI, COCHIN, COIMBATORE AND COONOOR. THE ASSESSEE CONCEDED THE FACTUAL POSITION THAT IT IMPORTS SMALL QUANTITY OF TEA OF THE TYPE AND QUALITY NOT PRODUCED IN INDIA. IT FURTHER CONCEDED THE FA CTUAL POSITION THAT IT DOES NOT GROW OR MANUFACTURE ANY TEA. ACCORDING TO THE ASSESSEE, TEA SO BOUGHT IN DIFFERENT AUCTIONS IS PROCESSED WITH A VIEWTO REMOVE ALL DUST AND FOREIGN SUBSTANCES AND THEREAFTER IT BLENDS DIFFERENT VARIETIES OF TEA TO MAKE IT OF UNIFORM AND CONSISTENT QUALITY THROUGHOUT THE YEAR. THEREAFTER, IT IS PACKED IN CONSUMER PACKETS OF 50, 100, 250, 500 OR 1000 GMS. ETC. OR PACKED IN THE FORM OF TEA BAGS OF 1.94 GMS. OR 2 GMS. ETC., AS THE CASE MAY BE. THE ASSESSEE CLAIMED EXEMPTION U/S 10B OF THE ACT IN RESPECT OF ITS 100% EOU FOR EXPORT OF MANUFACTURED JUTE BAGS, PACKET TEA, TEA BAGS, BULK TEA, ETC. THE AO REJECTED THE CLAIM OF ASSESSEE OF EXEMPTION U/S 10B IN RESPECT OF EXPORT OF BLENDING OF TEA. THE REJECTION OF EXEMPTION U/S 10B WAS CONFIRMED BY THE CIT(A). WHEN THE 25 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 MATTER WENT BEFORE THE SPECIAL BENCH, SPECIAL BENCH AFTER DISCUSSION THE RELEVANT PROVISIONS AS WELL AS THE VARIOUS DECISIONS OF HIGH COURT AND THE SUPREME COURT HELD AS UNDER: - 32. THE PROVISIONS OF SECTION 10AA OF THE ACT WAS INSERTED ON THE STATUTE BOOK BY THE SPECIAL ECONOMIC ZONES ACT, 2005 W.E.F. 10.02.2006. EVEN PRIOR TO THE ENACTMENT OF THE SAID SEZ ACT, SPECIAL ECONOMIC ZONES (INCLUDING UNITS THEREIN) WERE ALL ALONG TREATED LIKE EQU / FTZ / EPZ FOR ALL PURPOSES W HATSOEVER AND WERE DEALT WITHIN THE EXIM POLICY ACCORDINGLY. SECTION 2(K) OF THE SPECIAL ECONOMIC ZONE ACT, 2005 DEFINES THE EXPRESSION 'EXISTING SPECIAL ECONOMIC ZONE' TO MEAN EVERY SPECIAL ECONOMIC ZONE WHICH IS IN EXISTENCE ON OR BEFORE THE COMMENCEMENT OF THE SAID ACT. SECTION 2(E) DEFINES THE EXPRESSION 'EXISTING UNIT' TO MEAN EVERY UNIT WHICH HAS BEEN SET UP ON OR BEFORE THE COMMENCEMENT OF THE SAID ACT IN AN EXISTING SPECIAL ECONOMIC ZONE. IN OTHER WORDS, ADMITTEDLY ALL SPECIAL ECONOMIC ZONES WERE AL SO BEING GOVERNED BY THE EXIM POLICY PRIOR TO THE ENACTMENT OF SEZ ACT, 2005. CLAUSE (III) OF EXPLANATION 1 TO SECTION 1OAA LAYS DOWN THAT THE EXPRESSION 'MANUFACTURE' SHALL HAVE THE SAME MEANING AS ASSIGNED TO IT IN SECTION 2(R) OF THE SPECIAL ECONOMIC ZO NES ACT, 2005, WHICH DEFINITION IS AS UNDER: 'MANUFACTURE' MEANS TO MAKE, PRODUCE, FABRICATE, ASSEMBLE, PROCESS OR BRING INTO EXISTENCE, BY HAND OR BY MACHINE, A NEW PRODUCT HAVING A DISTINCTIVE NAME, CHARACTER OR USE AND SHALL INCLUDE PROCESSES SUCH AS R EFRIGERATION, CUTTING, POLISHING, BLENDING, REPAIR, REMAKING, REENGINEERING AND INCLUDES AGRICULTURE, AQUACULTURE, ANIMAL HUSBANDLY, FLORICULTURE, HORTICULTURE, PISCICULTURE, POULTRY, SERICULTURE, VITICULTURE AND MINING'. IN EXIM POLICY, THE EXPRESSION 'M ANUFACTURE' IS DEFINED, IN PARAGRAPH 9.30 & 9.31 THEREOF ALMOST IN THE SAME MANNER AS IN THE SPECIAL ECONOMIC ZONE ACT, 2005, WHICH IS AS UNDER: 'MANUFACTURE' MEANS TO MAKE, PRODUCE, FABRICATE, ASSEMBLE, PROCESS OR BRING INTO EXISTENCE, BY HAND OR BY MACHI NE, A NEW PRODUCT HAVING A DISTINCTIVE NAME, CHARACTER OR USE AND SHALL 26 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 INCLUDE PROCESSES SUCH AS REFRIGERATION, REPACKING, POLISHING AND LABELING. MANUFACTURE, FOR THE PURPOSE OF THIS POLICY,SHALL ALSO INCLUDE AGRICULTURE, AQUACULTURE, ANIMAL HUSBANDRY, FLORICULTURE, HORTICULTURE, PISCICULTURE, POULTRY, SERICULTURE, VITICULTURE AND MINING.' BUT THE ONLY DIFFERENCE BETWEEN THE EXIM POLICY OF 2002 - 07 AND OF 2000 IS THAT WORDS 'AND SEGREGATION' WHICH WERE APPEARING IN THE DEFINITION OF THE EXPRESSION 'MANU FACTURE' IN THE EXIM POLICY OF 2000 WAS DELETED IN THE EXIM POLICY OF 2002 - 07. FURTHER, EVEN IN PREVENTION OF FOOD ALTERNATION RULES, 1955, IT HAS BEEN INTER ALIA STATED THAT TEA USED IN THE MANUFACTURE OF FLAVOURED TEA SHALL CONFORM TO THE STANDARDS OF T EA. THE FLAVOURED TEA : MANUFACTURERS SHALL REGISTER THEMSELVES WITH THE TEA BOARD BEFORE MAKING FLAVOUR TEA IN THE TEA (DISTRIBUTION & EXPORT) CONTROL ORDER, 1957 ISSUED BY THE GOVERNMENT OF INDIA, MINISTRY OF COMMERCE & INDUSTRY (DEPARTMENT OF COMMERCE) THE EXPRESSIONS 'FLAVOUR TEA', 'GREEN TEA' 'INSTANT TEA', 'PACKET TEA' 'QUICK BREWING BLACK TEA', 'TEA' AND 'TEST BAG' HAVE BEEN SEPARATELY DEFINED AS DISTINCT PRODUCT. IN TEA (MARKETING) CONTROL ORDER, 2003 ISSUED BY THE ' CENTRAL GOVERNMENT, IN EXERCISE OF THE POWERS CONFERRED BY SECTION 30(5)(3) OF THE TEA ACT, 1953, THE EXPRESSIONS 'MANUFACTURER', 'BUYER', 'PACKET TEA', 'TEA BAG', - 'GREEN TEA', 'QUICK BREWING BLACK TEA', 'INSTANT TEA' AND 'MADE TEA' HAVE ALSO BEEN DISTINCTLY AND SEPARATELY DEFINED. CLAU SE (29BA) WAS INSERTED IN SECTION 2 OF THE INCOME TAX ACT, 1961 BY THE FINANCE (NO.2) ACT, 2009 W.E.F. 01.04.2009 TO DEFINE THE EXPRESSION 'MANUFACTURE' AS UNDER: 'MANUFACTURE', WITH ITS GRAMMATICAL VARIATIONS, MEANS A CHANGE IN A NON - LIVING PHYSICAL OBJE CT OR ARTICLE OR 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; OR (B) BRINGING INTO EXISTENCE OF A NEW 27 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 AND DISTINCT OBJECT OR ARTIC LE OR THING WITH A DIFFERENT CHEMICAL COMPOSITION OR INTEGRAL STRUCTURE; THE AFORESAID DEFINITION OF THE EXPRESSION 'MANUFACTURE', ALTHOUGH BROUGHT INTO THE STATUTE BOOK W.E.F. 01.04.2009, WAS APPLIED BY THE HON'BLE SUPREME COURT EVEN FOR THE ASSESSMENT Y EAR 2001 - 02 IN ITO V. ARIHANT TILES AND MARBLES PVT. LTD. (2010) 320 ITR 79, 82 (SC) ON THE GROUND THAT PARLIAMENT HAD TAKEN NOTE OF GROUND REALITY IN INSERTING SECTION 2(29BA) IN THE INCOME TAX LAW. THE SAID DEFINITION WAS AGAIN APPLIED BY THE HON'BLE SUP REME COURT IN CIT V. EMPTEE POLY - YARN PVT. LTD. (2010) 'GREEN TEA' MEANS THE VARIETY OF MANUFACTURED TEA COMMERCIALLY KNOWN AS GREEN TEA; 320 ITR 665,667 (SC). 33. THE ASSESSEE COMPANY CARRIES OUT ITS OPERATIONS OF BLENDING, PACKAGING AND EXPORT OF TEA B AGS, TEA PACKETS AND BULK TEA PACKS IN ITS MODERN FACTORY, WELL EQUIPPED WITH ALL IMPORTED AND SOPHISTICATED AUTOMATIC PLANT AND MACHINERIES WITH THE HELP OF OVER 100 WORKMEN ENGAGED ON CONTRACT BASIS THROUGH M/S. TROT PVT. LTD. THE MANUFACTURING'. OPERATI ONS ARE CARRIED IN ITS SAID FACTORY SITUATED AT 19/4A, MUNSHIGANJ ROAD (UNDER FALTA EXPORT PROCESSING ZONE), KOLKATA. WE FIND FROM FACTS OF THE CASE THAT THE DETAILS OF TURNOVER OF THE ASSESSEE SHOWS BULK TEA (0.94%), PACKET TEA AND TEA BAGS .(99.06%),. AS . PER DIFFERENT DESCRIPTIONS, BRAND NAMES AND VARIETIES, AS LISTED APR. ASSESSEE COMPANY IS DULY REGISTERED AS A 100% EOU BY THE GOVERNMENT OF INDIA, MINISTRY OF INDUSTRY, DEPARTMENT OF INDUSTRIAL POLICY AND PROMOTION SECRETARIAL FOR INDUSTRIAL APPROVALS, ECU SECTION IN THE STATE OF WEST BENGAL FOR MANUFACTURE OF PACKET TEA, TEA BAGS/BULK TEA WITH ANNUAL CAPACITY OF 3110 MT. IN TERMS OF REGISTRATION CERTIFICATE DATED 26TH DECEMBER, 1995, INTER ALIA, WITH THE CONDITION THAT ITS 100% PRODUCTION (EXCLUDING REJ ECTS NOT EXCEEDING 5%) WOULD HAVE TO BE EXPORTED AND THAT ITS REGISTERED EOU UNIT SHALL MAKE VALUE ADDITION TO A MINIMUM EXTENT OF 79%. UNDISPUTEDLY, THE EXPORTED CONSUMER PRODUCTS, BLENDED BY ASSESSEE IN ITS SAID FACTORY PREMISES IS A CASE OF SUBSTANTIAL 28 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 VALUE ADDITION, AS COMPARED TO THE UNBLENDED BLACK TEA IN GRANULE AND DUST FORM NORMALLY AVAILABLE FOR SALE IN THE OPEN RETAIL MARKET THROUGHOUT INDIA. 34. THE SUBJECT FOR CONSIDERATION UNDER SECTIONS 10A AND/OR 10B OF THE SAID ACT IS MANUFACTURE / PRODUC TION OF TEA ; THE OBJECT BEING GRANT OF BENEFITS OF TAX EXEMPTION TO EXPORTERS CARRYING OUT THEIR OPERATIONS IN FTZ, EOU, EPZ & SEZ AREAS IN ACCORDANCE WITH THE EXIM POLICY DECLARED BY THE GOVERNMENT OF INDIA IN PARLIAMENT AND IN THE LIGHT OF ALLIED AND GO VERNING LAWS; IN THE LIGHT OF ALLIED LAWS E.G. THE TEA ACT, 1953, THE PREVENTION OF FOOD ADULTERATION ACT, 1953 READ WITH PREVENTION OF FOOD ADULTERATION RULES, 1955. THE TEA (MARKETING) CONTROL ORDER, 2003, THE TEA (DISTRIBUTION & EXPORT) CONTROL ORDER, 2 005 AS WELL AS THE RULES AND REGULATIONS FRAMED BY THE TEA BOARD AND ALSO CALCUTTA TEA TRADERS ASSOCIATION FROM TIME TO TIME AS DISCUSSED ABOVE. 35. WE FIND FROM THE ABOVE FACTS AND CIRCUMSTANCES AND CASE LAWS RELIED ON BY BOTH THE SIDES THAT THE ASSESSEE WAS EXCLUSIVELY ENGAGED IN BLENDING, PACKAGING AND EXPORT OF TEA BAGS, TEA PACKETS AND BULK TEA PACKS. THE ASSESSEE'S DIVISION ENJOYS RECOGNITION AS A 100% EOU, WHICH IS GRANTED BY THE DEVELOPMENT COMMISSIONER, MINISTRY OF COMMERCE & INDUSTRY, GOVT. OF IN DIA. THE ASSESSEE CLAIMED EXEMPTION U/S. 10B OF THE ACT FOR AYS 2000 - 01 ONWARDS, WHICH WAS GRANTED UPTO THE AY 2003 - 04. HOWEVER, FOR THE AY 2004 - 05, EXEMPTION WAS DECLINED FOR THE REASONS THAT BY THE FINANCE ACT, 2000, THE DEFINITION OF `MANUFACTURE WHICH INCLUDED 'PROCESSING' CONTAINED IN SECTION 1OB OF THE ACT WAS DELETED W.E.F. 01.04.2001. THE ARGUMENT OF THE DEPARTMENT IS THAT MANUFACTURE OR PRODUCTION HAD LIBERAL MEANING UNDER THE DEFINITION CLAUSE CONTAINED IN SECTION 10B OF THE ACT UNTIL ITS DELETIO N WHICH COVERS EVEN PROCESSING AND, THEREFORE, BLENDING 'AND PACKAGING OF TEA FOR EXPORT WAS TREATED AS 'MANUFACTURE' OR 'PRODUCTION' OF AN ARTICLE QUALIFYING FOR EXEMPTION. WE ARE OF THE CONSIDERED VIEW THAT THE CONTENTION OF THE ASSESSEE THAT THE SCHEME OF INCOME TAX EXEMPTION AVAILABLE TO UNITS IN THE SEZ U/S. TOA OF THE ACT AND UNITS IN THE FREE TRADE 29 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 ZONE PROVIDED U/S, 10AA OF THE ACT AND THE EXEMPTION AVAILABLE TO 100% EOU U/S. 1OB OF THE ACT ARE VERY SIMILAR IN NATURE AND THE WORDINGS OF THE STATUTOR Y PROVISIONS ARE SIMILAR IN NATURE IS CORRECT. WE FIND THAT HON'BLE KERALA HIGH COURT ALSO CONSIDERED THE JUDGMENT IN - THE DECISION OF SUPREME COURT IN TARA AGENCIES, SUPRA RELIED ON BY THE LD. CIT, DR, WHEREIN HON'BLE SUPREME COURT CLEARLY HELD THAT BLENDI NG OF TEA DOES NOT AMOUNT TO 'MANUFACTURE' OR 'PRODUCTION' OF AN ARTICLE, BUT IS ONLY PROCESSING. WE FIND THAT THE ASSESSEE WAS EXCLUSIVELY ENGAGED IN BLENDING AND PACKING OF TEA FOR EXPORT AND WAS NOT MANUFACTURING OR PRODUCING ANY OTHER ARTICLE ORTHING. IT WAS RECOGNISED AS A 100% EOU DIVISION AND THE DEPARTMENT HAD NO CASE THAT THE ASSESSEE'S UNIT ENGAGED IN EXPORT OF TEA BAGS AND TEA PACKETS WAS NOT A 100% EOU. IF EXEMPTION WAS DENIED ON THE GROUND THAT PRODUCTS EXPORTED WERE NOT PRODUCED OR MANUFACTURE D IN THE INDUSTRIAL UNIT OF THE ASSESSEE'S 100% EOU, IT WOULD DEFEAT THE VERY OBJECT OF SECTIONS 10B OF THE ACT. 36. WE, IN VIEW OF THE ABOVE, HOLD THAT WHEN THE PRODUCTS FOR WHICH THE ASSESSEE'S UNIT IS RECOGNIZED AS A 100% EOU ARE TEA BAGS, TEA IN PACK ETS AND TEA IN BULK PACKS AND THE ASSESSEE IS EXCLUSIVELY ENGAGED IN BLENDING AND PACKING OF TEA FOR EXPORT MAY NOT BE MANUFACTURER OR PRODUCER OF ANY OTHER ARTICLE OR THING IN COMMON PARLANCE. HOWEVER, FOR THE PURPOSE OF SECTION 10A, 10AA AND 10B, WE HAVE TO CONSIDER THE DEFINITION OF THE WORD 'MANUFACTURE' AS DEFINED IN SECTION 2(R) OF SEZ ACT, EXIM POLICY, FOOD ADULTERATION RULES, 1955, TEA (MARKETING) CONTROL ORDER, 2003, ETC. WE ALSO FIND THAT THE DEFINITION OF 'MANUFACTURE' AS PER SECTION 2(R) OF THE SEZ ACT, 2005 IS INCORPORATED IN SECTION 10AA OF THE INCOME - TAX ACT WITH EFFECT FROM 10.02.2006. HON'BLE KERALA HIGH COURT IN THE CASE OF GIRNAR INDUSTRIES (SUPRA) HAD HELD SUCH AMENDMENT IN SECTION 10AA TO BE OF CLARIFICATORY IN NATURE. THE DEFINITION OF 'MANUFACTURE' UNDER THE SEZ ACT, EXIM POLICY, FOOD ADULTERATION RULES AND TEA (MARKETING) CONTROL ORDER IS MUCH WIDER THAN WHAT IS THE MEANING OF THE TERM `MANUFACTURE UNDER 30 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 THE COMMON PARLANCE, AND IT INCLUDES PROCESSING, BLENDING, PACKAGING ETC. IN VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE OF GIRNAR INDUSTRIES (SUPRA) AND TATA TEA LIMITED (SUPRA), WE 'HOLD THAT THE ASSESSEE IS ENTITLED FOR EXEMPTION UNDER SECTION 10B OF THE ACT ON ACCOUNT OF BLENDI NG OF TEA. SIMILARLY, IN OUR VIEW, THE INDUSTRIAL UNITS ENGAGED IN THE VERY SAME ACTIVITY I.E. BLENDING, PACKING AND EXPORT OF TEA IN THE FREE TRADE ZONE SHALL ALSO BE ENTITLED TO ENJOY TAX EXEMPTION UNDER SECTION 10A OF THE ACT. 37. ACCORDINGLY, WE ANSW ER THE QUESTION REFERRED IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE ASSESSEES WHO ARE IN THE BUSINESS OF BLENDING AND PROCESSING OF TEA AND EXPORT THEREOF, IN 100% EOUS ARE MANUFACTURER/ PRODUCER OF THE TEA FOR THE PURPOSE OF CLAIMING EXEMPTION U/S.10B OF THE ACT. FURTHER, ASSESSEES WHO ARE IN THE BUSINESS OF BLENDING AND PROCESSING OF TEA HI RESPECT OF UNDERTAKINGS IN FREE TRADE ZONES ARE MANUFACTURER/PRODUCER OF TEA FOR THE PURPOSE OF CLAIMING EXEMPTION U/S. 10A OF THE ACT. WE HAVE EXAMINED AND DISCUSS ED THE FACTS IN THE CASE OF MADHU JAYANTI INTERNATIONAL LTD. AND FOUND THAT THERE IS BLENDING OF TEA AND CONSEQUENTLY THE ASSESSEE IS ELIGIBLE FOR EXEMPTION U/S. 10B OF THE ACT AS PRAYED FOR. THEIR APPEAL FOR THE AY 2004 - 05 IS ALLOWED. AS REGARDS OTHER APP EALS AND THAT OF THE INTERVENERS, THE MATTERS ARE RESTORED BACK TO THE DIVISION BENCH, WITH DIRECTIONS TO DECIDE THOSE APPEALS IN THE LIGHT OF PRINCIPLE LAID DOWN HEREIN, SO FAR AS THE CLAIM FOR RELIEF U/S. 10A OR 10B OF THE ACT IN ACCORDANCE WITH LAW. 5.24 FROM THE READING OF PARA 35 OF THE AFORESAID JUDGMENT WE NOTED THAT THE SPECIAL BENCH IN THIS CASE CLEARLY HELD THAT THE ASSESSEE WAS ENGAGED ONLY IN PROCESSING AND WAS NOT ENGAGED IN THE MANUFACTURE OR PRODUCTION BUT HAD ULTIMATELY UNDER PARA 36 IT T OOK THE VIEW IN VIEW OF THE FACT THAT THE DEFINITION OF MANUFACTURE U/S 2(R) OF THE SEZ ACT, 2005 WHICH IS INCORPORATED IN SECTION 10AA W.E.F. 10/02/2006 INCLUDES PROCESSING. 31 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 THEREFORE, FOLLOWING THE DECISION OF KERALA HIGH COURT IN THE CASE OF GIRNAR INDUSTRIES AND TATA TEA LTD. (WHICH WAS DISCUSSED BY US IN THE PRECEDING PARAGRAPHS) HELD THAT THE ASSESSEE IS ENTITLED FOR EXEMPTION U/S 10B OF THE ACT ON ACCOUNT OF BLENDING OF TEA. 5.25 WE HAVE ALSO GONE THROUGH THE DECISION OF HONBLE SUPREME COURT I N INDIAN CINE AGENCIES VS CIT 308 ITR 98. IN THIS CASE THE QUESTION BEFORE THE HONBLE SUPREME COURT WAS: WHEN THE ASSESSEE WAS ENGAGED IN THE ACTIVITY OF CUTTING JUMBO ROLL FILMS INTO FLAT AND SMALL ROLLS IN DESIRED SIZES, WHETHER SUCH ACTIVITY UNDERTAKEN BY THE ASSESSEE WAS MANUFACTURE OR PRODUCTION? IN THIS CASE, THE HONBLE SUPREME COURT AFTER DISCUSSING VARIOUS CASES, THE PROVISIONS OF DIFFERENT ACTS AND THE DICTIONARY MEANING TOOK THE VIEW THAT THE ASSESSEE WAS ENGAGED IN MANUFACTURE / PRODUCTION. WHI LE HOLDING SO UNDER PARA 12 OF ITS ORDER, HONBLE SUPREME COURT HAS GIVEN THE SAME ANALOGY FOR THE PURPOSE OF ELIGIBILITY OF DEDUCTION UNDER SECTION 80HH AND 80 - I AS HAS BEEN GIVEN BY THE KERALA HIGH COURT IN THE CASE OF TATA TEA DISCUSSED HEREIN ABOVE FOR THE PURPOSE OF SECTION 10B, THAT IF THERE WAS NO MANUFACTURING ACTIVITY, THEN THE QUESTION OF REFERRING TO ITEM 10 OF ELEVENTH SCHEDULE FOR THE PURPOSE OF EXCLUSION DOES NOT ARISE. FROM THIS JUDGMENT, THUS, IT IS APPARENT THAT THE HONBLE APEX COURT ACCEP TED THAT MANUFACTURE/PRODUCTION INCLUDES PROCESSING ALSO. 5.26 WE HAVE ALSO GONE THROUGH THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ITO VS. ARIHANT TILES AND MARBLES PVT. LTD. 320 ITR 79(SC). IN THIS CASE WHEN THE ASSESSEE WAS ENGAGED IN THE AC TIVITY OF CUTTING AND POLISHING OF MARBLE BLOCKS, THE QUESTION BEFORE THE SUPREME COURT WAS WHETHER THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE WOULD FALL WITHIN THE MEANING OF THE WORDS MANUFACTURE OR PRODUCTION IN SECTION 80 - IA OF THE INCOME - TAX ACT, 196 1? IN THIS CASE, HONBLE SUPREME COURT, AFTER DISCUSSING THE DEFINITION OF MANUFACTURE GIVEN IN SECTION 2(29BA) OF THE INCOME - 32 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 TAX ACT, 1961 AND ALSO DISCUSSING THE PROVISIONS OF SECTION 80 - IA(2)(III) AND AFTER GOING THROUGH VARIOUS DECISIONS, HELD AS UN DER: 22. APPLYING THE ABOVE TESTS LAID DOWN BY THIS COURT IN CIT VS. N.C. BUDHARAJA AND CO. 204 ITR 412 (SC) 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 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 MANUFAC TURE 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 MANUFACTUR E OR PRODUCTION IN TERMS OF SECTION 80IA OF THE INCOME TAX ACT, 1961. 23. 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 NO T 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 RECOGNIZED BY VARIOUS GOVERNMENT AUTHORI TIES 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 P AY 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 AN D, THEREFORE, THEY WOULD BE ENTITLED TO THE BENEFIT OF SECTION 80IA OF THE INCOME TAX ACT, 1961. 33 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 5.27 IN THIS CASE ALSO, HONBLE SUPREME COURT TOOK THE VIEW THAT CUTTING AND POLISHING OF THE MARBLE BLOCKS IS THE ACTIVITY WHICH CONSTITUTES MANUFACTURE O R PRODUCTION AS AFTER PROCESSING MARBLE BLOCK NO MORE REMAINS AS MARBLE BLOCK. THIS DECISION HAS ALSO DULY CONSIDERED, IN OUR OPINION, WHETHER THE ACTIVITY OF PROCESSING IS MANUFACTURE / PRODUCTION. 6. IN VIEW OF OUR AFORESAID DISCUSSION, WE HOLD THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING AND PRODUCTION OF AN ARTICLE AND THEREFORE, THE ASSESSEE SHALL BE ENTITLED FOR THE DEDUCTION AVAILABLE U/S 80IC OF THE ACT. WE ACCORDINGLY CONFIRM THE ORDER OF CIT(A) AS IN OUR OPINION, NO ILLEGALITY OR INFIRMITY IS FO UND IN THE ORDER OF CIT(A). 5 . DEALING WITH EXACTLY THE SAME GROUNDS OF APPEAL IN THE CASE OF SISTER CONCERN KHUSHBU INDUSTRIES, AND VIDE ORDER ON ITA NOS. 2164 TO 2169/MUMBAI/2018, A COORDINATE BENCH HAS DISMISSED IDENTICALLY WORDED APPEAL AND ADDED AS FOLLOWS: 5. LEARNED DEPARTMENTAL REPRESENTATIVE, HOWEVER, URGES US NOT TO FOLLOW THE AFORESAID ORDER. HE SUBMITS THAT EVEN THOUGH THE AFORESAID ORDER IS CONFIRMED BY HONBLE JURISDICTIONAL HIGH COURT, THEIR LORDSHIPS HAVE CONFIRMED THE ORDER ON TECHNICAL GROUNDS AND NOT ON MERITS. HE ALSO SUBMITS THAT WHAT HAS BEEN TERMED AS PRODUCTION IS JUST MIXING UP OF PRODUCTS AND REPACKING THE SAME. IN SUPPORT OF THIS CONTENTION, HE RELIES UPON THE STATEMENT GIVEN BY AN EMPLOYEE DURING THE COURSE OF SEARCH PROCEEDIN GS. NONE OF THESE SUBMISSIONS, HOWEVER, IMPRESS US. EVEN THOUGH THE ORDER OF THE COORDINATE BENCH IS CONFIRMED BY HONBLE HIGH COURT ON TECHNICAL GROUND, THAT DOES NOT MEAN, OR EVEN IMPLY, THAT THE BINDING NATURE OF THE DECISION, ON MERITS, IS AFFECTED. TH E DECISION OF THE COORDINATE BENCH BINDS US NEVERTHELESS. IN ANY CASE, WE HAVE CAREFULLY PERUSED THE ORDER OF THE COORDINATE BENCH AND WE ARE IN CONSIDERED AGREEMENT WITH THE VIEWS SO TAKEN BY THE COORDINATE BENCH. AS FOR THE STATEMENT OF AN EMPLOYEE RECOR DED DURING THE SEARCH OPERATION, IT IS NOT IN DISPUTE THAT, EVEN GOING BY THAT STATEMENT, THE INGREDIENTS ARE MIXED AND IT IS THIS MIXING OF INGREDIENTS, AS ANALYSED IN DETAIL BY THE COORDINATE BENCH, 34 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 CONSTITUTES MANUFACTURING IN THE LIGHT OF THE LAW LAI D DOWN BY HONBLE COURTS ABOVE. FOLLOWING THE STAND SO TAKEN BY THE COORDINATE BENCH, LEARNED CIT(A), FOR THE DETAILED REASONS SET OUT IN HIS ORDER, HAS HELD THAT THE CLAIM OF DEDUCTION UNDER SECTION 80IC IS ADMISSIBLE. WE HAVE ALSO NOTED THAT, AS NOTED BY THE ASSESSING OFFICER, JUST BECAUSE THE ASSESSEE HAS USED CERTAIN RAW MATERIALS IN THE ORGANIC AND INORGANIC CHEMICALS, IT DOES NOT MEAN THAT THE PRODUCT MANUFACTURED IS ALSO IN THE NATURE OF ORGANIC OR INORGANIC CHEMICALS. THERE IS ALSO A CATEGORICAL FIN DING TO THE EFFECT THAT THE PRODUCTS MANUFACTURED BY THE ASSESSEE FALL UNDER CHAPTER 33 RELATED TO ESSENTIAL OILS, RESINOIDS, PERFUMERY, COSMETIC OR TOILET PREPARATIONS AND DO NOT FALL UNDER CHAPTER 28 OR 29 DEALING WITH ORGANIC/ INORGANIC CHEMICALS. N OTHING HAS BEEN BROUGHT BEFORE US TO DISLODGE THESE FINDINGS. WE, THEREFORE, SEE NO MERITS IN THE GRIEVANCES OF THE ASSESSING OFFICER. 6. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH. IN ANY CASE, N O DISTINGUISHING FEATURES HAVE BEEN POINTED OUT TO US EITHER. IN THE LIGHT OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE AND FOLLOWING THE VIEWS OF THE COORDINATE BENCH WITH WHICH WE ARE IN CONSIDERED AGREEMENT, WE APPROVE THE CONCLU SIONS ARRIVED AT BY THE LEARNED CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 9 . ON CAREFUL ANALYSIS OF FACT S ON RECORD, WE ARE CONVINCED THAT THE MATERIAL FACTS BASED ON WHICH THE TRIBUNAL UPHELD ASSESSEES CLAIM OF DEDUCTION IN THE PRECEDING ASSESSMEN T YEARS ARE IDENTICAL TO THE FACTS INVOLVED IN THE IMPUGNED ASSESSMENT YEAR. IN FACT, THE REVENUE HAS NOT BEEN ABLE TO DEMONSTRATE ANY PERCEPTIBLE FACTUAL DIFFERENCE IN THE IMPUGNED ASSESSMENT YEAR TO PERSUADE AS TO TAKE A VIEW DIFFERENT FROM WHAT IS TAKEN IN ASSESSMENT YEAR S 2010 - 11, 2011 - 12 AND 2012 - 13. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH IN ASSESSEES OWN CASE , AS REFERRED TO ABOVE, W E UPHOLD THE DECISION OF LEARNED COMMI SSIONER (APPEALS) ON THE ISSUE. GROUNDS ARE DISM ISSED. 35 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 10 . IN GROUND NO. 4 THE R EVENUE HAS CHALLENGED D ELETION OF DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT. 11 . BRIEFLY THE FACTS ARE , IN COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS MADE SUBSTANTIAL INVESTMENT IN SHARES /SECURITIES ON WHICH EXEMPT INCOME BY W A Y OF DIVIDEND HAS BEEN EARNED. W HEREAS , THE ASSESSEE HAS NOT DISALLOWED ANY EXPENDITURE ATTRIBUTABLE TO SUCH EXEMPT INCOME. THEREFORE, H E CALLED UPON THE ASSESSEE TO EXPLAIN WHY DISALLOWANCE UNDER SECTION 14A R.W.R. 8D SHOULD NOT BE MADE. IN RESPONSE, IT WAS SUBMITTED THAT THE ASS ESSEE IS ENGAGED IN TRADING IN SHARES AND SECURITIES. HENCE, THEY ARE STOCK IN TRADE OF THE ASSESSEE . IT WAS SUBMITTED , SINCE DIVIDEND INCOME WAS EARNED OUT OF SUCH TRADING ACTIVITY AND NOT A S A RESULT OF ANY INVESTMENT ACTIVITY, NO DISALLOWANCE OF EXPENDITURE UNDER SECTION 14A CAN BE MADE. THE AO , HOWEVER, WAS NOT CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE AND PROCE EDED TO COMPUTE DISALLOWANCE UNDER SECTION 14A BY APPLYING RULE 8D. IN THE PROCESS, HE DISALLOWED AN AMOUNT OF RS. 2,58,24,377/ - . ASSESSEE CONTESTED THE AFORE SAID DISALLOWANCE BEFORE LEARNED COMMISSIONER (APPEALS) . A FTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE CONTEXT OF FACTS AND MATERIAL ON RECORD AND RELYING UPON C ERTAIN JUDICIAL PRECEDENT S, LEARNED COMMISSIONER (APPEALS) DELETED THE DISALLOWANCE ON THE REASONING THAT SINCE THE SHARE/ SECURITIES ARE HELD AS STOCK IN TRADE , THEY CANNOT BE CONSIDERE D FOR COMPUTING DISALLOWANCE UNDER SECTION 14A R.W.R. 8D. 12. THE LEAR NED DEPARTMENTAL REPRESENTATIVE SUBMITTED , LEARNED COMMISSIONER (APPEALS) GROSSLY ERRED IN DELETING THE DISALLOWANCE BY HOLDING THAT SHARES/SECURITIES ARE HELD AS STOCK IN TRADE. I N SUPPORT OF SUCH CONTENTION HE STRONGLY RELIED UPON THE DECISION OF THE HON BLE SUPREME COURT IN CASE OF MAXOPP INVESTMENT LTD. VS. CIT [ 2018 ] 402 ITR 640 (SC) . 13. IN REBUTTAL, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED , THE ASSESSEE MA INTAINS TWO SEPARATE PORTFOLIOS, INVESTMENT AND TRADING. HE SUBMITTED , THE ASSESSEE HAS N OT CLAIMED ANY EXPENDITURE FOR INVESTMENT PORTFO LIO. H E SUBMITTED , WHILE INVESTMENT IS SHOWN IN PERSONAL ACCOUNT TRADING IN SHARES IS 36 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 SHOW N IN BUSINESS ACCOUNT. HE SUBMITTED , THE ASSESSEE IS FOLLOWING THE AFORESAID METHODOLOGY FROM PAST ASSESSMENT YEARS. H E SUBMITTED , THE TRIBUNAL WHILE DECIDING THE ISSUE HAS ACCEPTED ASSESSEES CLAIM IN ASSESSMENT YEAR S 2008 - 09, 2009 - 10 AND 2010 - 11 . THEREFORE, H E SUBMITTED , THE ASSESSEE HAS FOLLOWED THE CORRECT METHOD. WHEREAS, AO HAS PASSED THE ASSESSMENT ORDER WITHOUT FO LLOWING THE ORDERS PASSED BY THE TRIBUNAL . THUS , HE SUBMITTED, WHEN THE ORDER PASSED BY THE TRIBUNAL WAS HOLDING THE FIELD, THE AO SHOULD NOT HAVE PROCEEDED TO DISALLOW EXPENDITURE UNDER SECTION 14A OF THE ACT. T HEREFORE , HE SUBMITTED , SINCE THE AO HAS DIS REGARDED THE DECISION OF THE TRIBUNAL WHILE REJECTIONG ASSESSEES CLAIM, IT AMOUNTS TO IMPROPER RECORDING OF SATISFACTION. IN SUPPORT, H E RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF CIT VS. MAX INDIA LTD. [2007] 295 ITR 282 (SC) . 14. W ITHOUT PREJUDICE , THE LEARNED COUNSEL SUBMITTED , THE DISALLOWANCE COMPUTED BY THE AO , IN ANY CASE , IS HIGH AND EXCESSIVE, AS HE HAS ALSO INCLUDED THOSE INVESTMENTS ON WHICH THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME DURING THE YEAR. HE SUBMITTED , AFTER EXCLUDING THE INVESTMENT ON WHICH THE ASSESSEE HAD NOT EARNED ANY EXEMPT INCOME , THE DISALLOWANCE WOULD WORK OUT TO RS. 90,42,703/ - IN ASSESSMENT YEAR 2013 - 14 AND RS. 31,10,164/ - IN ASSESSMENT YEAR 2014 - 15. IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE WO RKING OF SUCH DISALLOWANCE AS PLACED IN THE PAPER BOOK. 15 . WE HAVE CONSIDERED RIVAL SUBMISSIONS IN THE LIGHT OF THE DECISIONS RELIED UPON AND PERUSED THE M ATERIAL ON RECORD. AS FAR AS ASSESSEES CONTENTION THAT THE AO HAS NOT RECORDED PROPER SATISFACTIO N REGARDING CORRECTNESS OF ASSESSEES CLAIM REGARDING EXPENDITURE IN RELATION TO EARNING OF EXEMPT INCOME, WE ARE NOT CONVINCED. AS COULD BE SEEN , THE ASSESSE E S STAND FROM THE VERY BEGINNING FOR NOT DISALLOWING ANY EXPENDITURE IS , HE IS A TRADER IN SHARES AND SECURITIES AND SUCH S HARES ARE SECURITIES ARE HELD AS STOCK IN TRADE. LEARNED COMMISSIONER (APPEALS) HAS ACCEPTED THE AFORESAID CONTENTION OF THE ASSESSEE WHILE GRANTING RELIEF. HOWEVER, THE LEGAL POSITION HAS COMPLETELY CHANGED AFTER THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF MAXOPP INVESTMENTS VS. CIT (SUPRA), WHEREIN , THE HONBLE SUPREME COURT HAS VERY CLEARLY HELD THAT NO DISTINCT ION 37 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 CAN BE MADE BETWEEN INVESTMENT AND TRADING ACTIVITY WHILE APPLYING PROVISIONS OF SECTION 14A R.W.R. 8D. IN OTHER WORDS, THE HONBLE SUPREME COURT HAS HELD THAT THE DISALLOWANCE OF EXPENDITURE UNDER SECTION 14A HAS TO BE MADE EVEN ON SHARES AND SECURITIES HELD AS STOCK IN TRADE. AS PER ARTICLE 141 OF CONSTITUTION OF INDIA, THE LAW DECLARED BY HONBLE SUPREME CO URT IS THE LAW OF THE LAND. THEREFORE, THE LAW SO DECLARED BY THE HON BLE SUPREME COURT WOULD OVERRIDE ALL OTHER DECISIONS OF SUBORDINATE COURTS/TRIBUNALS. THAT BEING THE CASE, THE DECISION OF THE TRIBUNAL IN PRECEDING ASSESSMENT YEAR S WOULD BE OF NO HELP TO THE ASSESSEE AS BY THE EFFECT OF LAW DECLARED BY THE HONBLE SUPREME COURT, THE DECISION OF THE TRIBUNAL ON THE ISSUE HAVE BECOME REDUNDANT. MOREOVER, WHILE DECIDING THE ISSUE, AS A JUDICIAL BODY, WE CANNOT CLOSE OUR EYES TO THE LAW PROPOUNDED BY THE HO NBLE SUPREME COURT. THEREFORE, IN OUR VIEW, THE AO HAS COMMITTED NO ERROR WHILE REJECTING ASSESSEES CLAIM. 16. AT THIS STAGE, IT WILL BE RELEVANT TO OBSERVE , WHILE DECIDING ASSESSEES APPEAL FOR ASSESSMENT YEAR 2011 - 12 IN ITA NO. 3029/MUM/2017 DATED 21.0 1.2019, THE TRIBUNAL , AFTER RELYING UPON THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF MAXOPP INVESTMENTS LTD. (SUPRA) AND ACIT VS. VIREET INVESTMENTS PVT. LTD. 2017 82 TAXMANN.COM 415 (DELHI TRIBUNAL SPECIAL BENCH) , HAS RESTORED T HE ISSUE BACK TO T HE AO TO CONSIDER THE DISALLOWANCE COMPUTED BY THE ASSESSEE AFTER EXCLUDING INVES TMENTS WHICH HAVE NOT YIELDED ANY EXEMPT INCOME DURING THE YEAR. KEEPING IN VIEW THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN CASE OF MAX OPP INVESTMENTS LTD. (SUPRA) AN D FOLLOWING THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2011 - 12, W E SET ASIDE THE IMPUGNED ORDER OF LEARNED COMMISSIONER (AP PEALS) ON THE ISSUE AND RESTORE THE MATTER BACK TO THE AO TO COMPUTE THE DISALLOWANCE AFTER EXCL UDING THE INVESTMENT S WHICH HAV E NOT YIELDED ANY EXEMPT INCOME D URING THE YEAR AND ONLY AFTER VERIFYIN G ASSESS EES WORKING OF DISALLOWANCE UNDER SECTION 14A OF THE ACT. NE EDLESS TO MENTION, THE AO MUST AFFORD REASONABLE OPPORTUNITY OF BEING HEARD TO THE AS SESSEE BEFORE DECIDING THE ISSUE. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 38 ITA NO S . 2171 & 2172 / MUM/2018 ASSESSMENT YEAR S : 20 13 - 1 4 & 2014 - 15 17. OUR DECISION IN ITA NO. 2172/MUM/2018 WILL APPLY MUTATIS MUTANDIS TO ITA NO. 2171/MUM/2018. ACCORDINGLY, GR OUND N O. 1 TO 3 ARE DISMISSED AND GROUND NO. 4 IS ALLOWED FO R STATISTICAL PURPOSES. 18. IN THE RESULT, BOTH THE APPEAL S ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH JUNE , 2021 . SD/ - SD/ - ( RAJESH KUMAR ) ACCOUNTANT MEMBER ( SAKTIJIT DEY ) JUDICIAL MEMBER MUMBAI ; DATED: 07 / 06 /202 1 ALINDRA, PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI