IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI J BENCH BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER & SHRI R.S.PADVEKAR, JUDICIAL MEMBER I.T.A.NO.2198/MUM/2007 A.Y 2003-04 M/S SAPHALE RECYCLING, 33/275, UNNAT NAGAR II, OFF S.V.ROAD, GOREGAON (W), MUMBAI 400 062. PAN: AANFS 1398 G VS. INCOME TAX OFFICER, 24 (3)(3), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : S/SHRI K.SHIVRAM & RAHUL HAKANI. RESPONDENT BY : SHRI SUMEET KUMAR, SR. DR O R D E R PER T.R.SOOD, AM: IN THIS APPEAL, ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THE LEARNED CIT[A] ERRED IN DENYING THE EXEMPTION U /S.10B OF THE ACT ON THE GROUND THAT THE ASSESSEE IS NOT ENGA GED IN THE ACTIVITY OF MANUFACTURING OR PRODUCE ARTICLES O R THINGS WITHOUT APPRECIATING THE NATURE AND PROCESS OF ACTI VITY INVOLVED IN THE ASSESSEES BUSINESS INVOLVES PHYSICAL LABOUR BY WHICH THE NEW COMMODITY EMERGES WHICH HAS A DISTINCT NAME , USE AND CHARACTER. 2. THE LEARNED CIT[A] ERRED IN UPHOLDING THE ORDER OF ASSESSING OFFICER DETERMINING THE PROFIT FROM EXPORT SALES A T ` `` ` .4,84,019/- AND DTA SALES AT ` `` ` .4,32,184/- AFTER APPORTIONING THE DIRECT COST OF ` `` ` .67,87,669/- IN PROPORTION TO THE EXPORT SALES AND DTA SALES. 3. THE LEARNED CIT[A] FAILED TO APPRECIATE THAT AFTER SEGREGATION OF THE MATERIAL THE PURE PART OF THE MATERIAL ARE E XPORTED AND THE BALANCE RESIDUARY MATERIAL IS SOLD IN DTA AND THERE FORE THE METHOD ADOPTED BY THE ASSESSING OFFICER IS NOT FAI R AND CORRECT. 4. THE ASSESSEE IS ENTITLED TO AN ALTERNATIVE CLAIM FO R DEDUCTION U/S.80HHC OF THE ACT. 2. GROUND NO.1 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF IMPORTI NG OF FERROUS AND 2 NON-FERROUS MATERIAL SCRAP AND AFTER SEGREGATION OF THE SAME EXPORTING THE PURE MATERIAL. DURING ASSESSMENT PROCEEDINGS, A O ASKED THE ASSESSEE TO EXPLAIN HOW ASSESSEE FULFILLED THE COND ITIONS OF SEC.10B. IN RESPONSE, ASSESSEE VIDE LETTER DATED 23-11-2004 REP LIED AS UNDER: 1) WE HAVE CLAIMED DEDUCTION U/S.10B OF THE I.T.ACT AS PROVIDED FOR HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING FROM TH E EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURING OR PRODUCE ARTI CLES OR THINGS. THE DEDUCTION IS AVAILABLE IN CASES WHER E THE ANY UNDERTAKING MANUFACTURES OR PRODUCES ARTICLES OR TH INGS SUBJECT TO FULFILL THE OTHER THREE CONDITIONS MENTI ONED IN SLUB-SEC.2 OF SEC.10B. IN THIS CONNECTION, WE WOULD LIKE TO ST ATE THAT ALL THE THREE CONDITIONS ARE FULFILLED BY US U/S.10B(2). WE ARE 100% EXPORT ORIENTED UNIT AS GREEN CARD AND LETTER OF PE RMISSION [LOP] ISSUED BY GOVERNMENT OF INDIA SEEPZ SPECIAL E CONOMIC ONE, MINISTRY OF COMMERCE & INDUSTRIES (AS PER ANNEXURE A) ENCLOSED HEREWITH). 2) OUR ACTIVITIES OF PROCESSING OR SEGREGATION OF FERR OUS OR NON- FERROUS METAL ARE TREATED AS MANUFACTURING ACTIVITI ES AS LOP ISSUED BY GOVERNMENT OF INDIA SEEPZ SPECIAL ECONOMI C ONE, MINISTRY OF COMMERCE & INDUSTRIES (ANNEXURE B). 3) OUR AUDITORS HAS CORRECTLY MENTIONED OUR ACTIVITIES IN TAX AUDIT REPORT (FORM NO. 3CD) AS TRADING AND EXPORT ALLOYS METAL SCRAP. THIS IS A BROAD DESCRIPTION AS PER OUR PARTNERSHIP DEED BUT WHILE CLAIMING DEDUCTION U/S.10B THEY ARE SPECIFICALLY ME NTIONED OUR ACTIVITIES AS PROCESSING OF FORM NO.=58G U/S.10B (A NNEXURE A). HENCE THE NATURE OF BUSINESS MENTIONED IN THEIR REP ORT IS CORRECT. 4) OUR ACTIVITIES OF BUSINESS ARE STRICTLY MONITORED B Y THE BY MINISTRY OF COMMERCE & INDUSTRIES SEEPZ SPECIAL ECONOMIC ZON E AND THESE AUTHORITIES HAVE PERMITTED US AS 100% EXPORT ORIENTED UNIT. THE REQUIRED CONDITION UNDER SEC.10B(9B)(IV) IS ALS O FULFILLED BY US. 5) WE HAVE OBTAINED A LETTER FROM THE CENTRAL GOVT. MI NISTRY OF COMMERCE & INDUSTRIES SEEPZ SPECIAL ECONOMIC ZONE S PECIFYING THAT FERROUS/NON-FERROUS METAL TREATING AS MANUFACT URING ACTIVITIES (ANNEXURE C). THE AO AFTER EXAMINING THE SUBMISSIONS OBSERVED THA T SEC.10B HAS PRESCRIBED CONDITIONS FOR ALLOWING EXEMPTION AND ON E OF THE MAIN CONDITION IS THAT ASSESSEE SHOULD BE ENGAGED IN THE MANUFACTURING, PRODUCTION OF ARTICLES OR THINGS. ACCORDING TO HIM , THE ASSESSEE WAS 3 MERELY IN THE BUSINESS OF SEGREGATION OF SCRAP AND, THEREFORE, NO MANUFACTURING TOOK PLACE. HE ALSO REFERRED TO THE D ECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ASPINWALL AND CO. LTD. VS. CIT [251 ITR 323]. ON THE BASIS OF THIS MATERIAL, AO FU RTHER OBSERVED THAT ASSESSEE HAS NOT PRODUCED ANY NEW ARTICLE OR THING BECAUSE SCRAP DOES NOT UNDERGO ANY CHANGE. AS FAR AS THE CERTIFICATE I SSUED BY DEVELOPMENT COMMISSIONER, SEEPZ IS CONCERNED, THE S AME WAS ISSUED TO ENABLE THE ASSESSEE TO GET PRIORITY TREATMENT, T HEREFORE, SAME COULD NOT BE DISPROVED THAT ASSESSEE IS NOT ENGAGED IN TH E MANUFACTURING ACTIVITY. AO FURTHER RELIED ON THE FOLLOWING DECISI ONS: A) CIT VS. MADURAI PANDIAN ENGG. CORPN. LTD. 239 ITR 3 75 [MAD] B) ITO VS. PANCHLINE FORMS 278 ITR (AT) 165 [MUM] C) CHOWGULE & CO. PVT. LTD. VS. UNION OF INDIA 47 STC 124 (SC) D) CIT VS. GOMATESH GRANITES 118 TAXMAN 141 (MAD) ON THE BASIS OF THE ABOVE DISCUSSION, THE AO ULTIMA TELY HELD THAT SINCE ASSESSEE WAS NOT ENGAGED IN THE BUSINESS OF MANUFAC TURING OR PROCESSING, THEREFORE, NOT ENTITLED TO DEDUCTION U/ S.10B. 3. BEFORE THE CIT[A] THE SUBMISSIONS MADE BEFORE TH E AO WERE REITERATED. HOWEVER, LD. CIT[A] AFTER EXAMINING THE SAME REJECTED THE ASSESSEES CLAIM VIDE PARA 3.3. WHICH IS AS UNDER: 3.3 I HAVE CONSIDERED THE FACTS AND SUBMISSIONS OF THE APPELLANT CAREFULLY. I FULLY AGREE WITH THE ASSESSING OFFICER THAT THE APPELLANT DID NOT DO ANY MANUFACTURING OR PRODUCTION. NO NEW ARTICLE OR THING WAS PRODUCED BY IT. ONLY METAL ITEMS WERE SEPARATED FROM OTHER ITEMS MANUALLY. SEPARATED ITEMS WERE THE SAME AS THE ORIG INAL ITEMS. PHYSICAL SEPARATION OF TWO OR MORE ITEMS FIXED TOGE THER CANNOT BE SAID AS MANUFACTURING OR PRODUCTION OF NEW ARTICLES OR T HINGS. IT IS A SETTLED 4 LAW THAT IN THE ACTIVITY OF MANUFACTURING OR PRODUC TION THE END PRODUCTS ARE ALTOGETHER DIFFERENT ARTICLES THAN THE INPUTS. NORMALLY THE INPUTS UNDERGO THROUGH DIFFERENT STAGES OF MANUFACT URING EFFECTING MATERIAL CHANGE AT EACH STAGE AND FINALLY FINAL PRO DUCTS ARE SO DIFFERENT THAT ANY CANNOT BE IDENTIFIED WITH INPUTS. CHARGES ARE SUBSTANTIAL. MANUFACTURING PROCESS ARE NORMALLY IRREVERSIBLE. TH IS CASE DOES NOT FIT INTO THAT CATEGORY AT ALL. THE ACTIVITY OF THE APPE LLANT CANNOT COME WITHIN THE PURVIEW OF MANUFACTURING OR PRODUCTION B Y ANY STRETCH OF IMAGINATION. THE JUDGMENTS RELIED UPON BY THE ASSES SING OFFICER ARE FULLY APPLICABLE TO THE FACTS OF THE CASE WHEREAS T HE JUDGMENTS RELIED UPON BY THE APPELLANT CANNOT BE OF ANY HELP TO IT. I THEREFORE HOLD THAT THE APPELLANT WAS NOT ENGAGED IN THE ACTIVITY OF MA NUFACTURING OR PRODUCING OF ANY ARTICLE OR THING AND SO IT WAS NOT ENTITLED TO DEDUCTION U/S.10B. I CONFIRM THE ORDER OF THE ASSESSING OFFIC ER AND REJECT THESE GROUNDS. 4. BEFORE US, LD. COUNSEL OF THE ASSESSEE AFTER NAR RATING THE FACTS, REFERRED TO PAGES 50 TO 55 OF THE PAPER BOOK, WHICH IS A COPY OF THE LETTER WRITTEN BY THE DEVELOPMENT COMMISSIONER, SEE PZ, THROUGH WHICH THE FACILITIES AND PRIVILEGES OF THE ASSESSEE HAVE BEEN EXTENDED AND HAVE BEEN MENTIONED AS MANUFACTURING. THEN HE REFERRED TO THE LEGAL AGREEMENT FOR EXPORT ORIENTED UNIT, COPY OF W HICH IS PLACED AT PAGES 56 TO 62 OF THE PAPER BOOK, WHICH HAS BEEN EN TERED INTO BY THE ASSESSEE WITH THE GOVERNMENT OF INDIA AND AGAIN AT PAGE 56 WHEREIN THE UNIT OF THE ASSESSEE HAS BEEN DESCRIBED AS EOU UNIT FOR MANUFACTURING AND SEGREGATION OF FERROUS AND NON-FE RROUS SCRAP. THEN HE REFERRED TO THE LETTER OF THE DEVELOPMENT COMMIS SIONER, SEEPZ, DATED 24-7-2004 WHEREIN ASSESSEES STATUS AS MANUF ACTURE UNDER EXIM POLICY 2002-2004 HAS BEEN CONFIRMED. THEN HE R EFERRED TO PAGES 72 TO 74 OF THE PAPER BOOK, WHICH IS A COPY OF THE APPEAL ORDER BY COMMISSIONER (APPEALS), CENTRAL EXCISE, MUMBAI ZONE -I, WHEREIN THE ASSESSEES ACTIVITY HAS BEEN HELD TO BE MANUFACTUR ING ACTIVITY. 5 5. HE ALSO FILED A COPY OF PROCESS CHART AND SUBMIT TED THAT PROCESS OF SEGREGATION INCLUDES, DISMANTLING, BREAKING, EXT RACTING, GRADING AND SEGREGATING OF THE SCRAP, AND SAME WOULD FALL UNDER THE CATEGORY OF PRODUCTION OR MANUFACTURING. HE THEN REFERRED TO TH E DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF VIJAY SHIP BRE AKING CORPN. VS. CIT [314 ITR 309], WHEREIN SHIP BREAKING ACTIVITY W AS HELD TO BE FALLING UNDER THE CATEGORY OF PRODUCTION. HE THEN REFERRED TO ANOTHER DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. CIT. EMPEE POLY YARN P. LTD. [320 ITR 665], WHEREIN CONVERSION OF P ARTIALLY ORIENTED YARN INTO A TWISTED AND TEXTERISED YARN WAS HELD TO BE MANUFACTURING. HE SUBMITTED THAT IN THE LIGHT OF THESE DECISIONS, THE ACTIVITY OF THE ASSESSEE SHOULD BE HELD THAT OF MANUFACTURING. 6. ON THE OTHER HAND, LD. DR POINTED OUT THAT AO HA S VERY CLEARLY GIVEN A FINDING THAT ASSESSEE WAS ENGAGED IN ONLY S EGREGATION OF SCRAP AND THIS ACTIVITY CANNOT BE CONSTRUED AS MANUFACTUR ING. HE THEN REFERRED TO PAGE 37 OF THE PAPER BOOK, WHICH IS A C OPY OF THE TAX AUDIT REPORT, WHEREIN THE NATURE OF BUSINESS OR PROFESSIO N HAS BEEN SHOWN AS TRADING AND EXPORT OF ALLOYED METAL SCRAP. THIS FURTHER MAKES IT CLEAR THAT ASSESSEE WAS NOT A MANUFACTURER. HE ARGU ED THAT THE APPELLATE ORDER OF THE EXCISE COMMISSIONER HAS NO R ELEVANCE BECAUSE EXCISE DEALS WITH DIFFERENT SITUATIONS. HE ALSO REF ERRED TO PAGE 12 OF THE PAPER BOOK, WHICH IS A COPY OF THE PROFIT & LOS S ACCOUNT, WHEREIN NO MANUFACTURING EXPENSES HAVE BEEN DEBITED; EVEN T HE LABOUR CHARGES OF ` `` ` .1,31,584/- HAVE BEEN SHOWN ONLY AS CASUAL LABOUR 6 CHARGES. IT CLEARLY SHOWS THAT NO MANUFACTURING OPE RATIONS WERE CARRIED OUT. HE ALSO STRONGLY RELIED ON THE DECISIO N OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. GOMATESH G RANITES [246 ITR 737]. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. WE FIND THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF IMPORTING TH E SCRAP METAL. THE ASSESSEE HAD CARRIED OUT THE ONLY ACTIVITY OF SEGRE GATION OF SCRAP AND PURE METAL HAS BEEN SEGREGATED FROM THE SCRAP AND E XPORTED. THIS ACTIVITY CANNOT BE CALLED MANUFACTURING ACTIVITY AT ALL. PERUSAL OF THE BALANCE SHEET OF THE ASSESSEE WHICH WAS FILED IN TH E PAPER BOOK, PARTICULARLY THE SCHEDULE OF FIXED ASSETS AT PAGE 1 8 CLEARLY SHOWS THAT ASSESSEE DOES NOT OWN ANY PLANT AND MACHINERY, EVEN A SMALL MACHINE LIKE CUTTER OR DRILLING MACHINE. FURTHER, PAGE 12 W HICH IS THE COPY OF THE PROFIT & LOSS ACCOUNT, SHOWS THAT ONLY A SUM OF ` `` ` .1,31,584/- HAS BEEN DEBITED AS CASUAL LABOUR CHARGES. THIS MEANS T HAT AT BEST ASSESSEE HAD EMPLOYED TWO ORDINARY CASUAL WORKERS. THOUGH EVEN IF IT IS PRESUMED THAT SALARY OF ABOUT ` `` ` .5000/- P.M. WAS PAID THEN ONLY ABOUT TWO PEOPLE CAN BE EMPLOYED, NATURALLY, THESE PERSONS MUST HAVE BEEN USED FOR LOADING, UNLOADING, AS WELL AS SEGREG ATION OF THE SCRAP. APART FROM THIS, SALARY HAS BEEN DEBITED AT ` `` ` .1,04,643/- AND EVEN IF IT IS ASSUMED THAT ASSESSEE HAS EMPLOYED ONLY ONE ACCO UNTANT-CUM- ADMINISTRATIVE OFFICER AND ASSUMING A SALARY OF ABO UT ` `` ` .8,500/- P.M. ONE PERSON COULD HAVE BEEN EMPLOYED. APART FROM THI S, NO OTHER EXPENDITURE, WHICH CAN BE TREATED TOWARDS MANUFACTU RING. ALL THESE 7 FACTORS CLEARLY SHOW THAT NO MANUFACTURING ACTIVITY HAS BEEN UNDERTAKEN. BEFORE THE CIT[A] AND THE AO ALL THROUG H ASSESSEE MAINTAINED THAT ONLY SEGREGATION OF THE SCRAP WAS D ONE, WHEREAS FOR THE FIRST TIME BEFORE US THE WORD DISMANTLING HAS ALSO BEEN INTRODUCED. DISMANTLING WOULD DEFINITELY INVOLVE US ING OF MACHINES LIKE CUTTER AND DRILLING, OTHERWISE NO DISMANTLING CAN T AKE PLACE. PERHAPS THIS WAS DONE TO COVER THE CASE OF THE ASSESSEE WIT H THE CASE OF VIJAY SHIP BREAKING CORPN. VS. CIT [SUPRA] DECIDED BY THE HON'BLE SUPREME COURT. WE FURTHER FIND THAT THE HON'BLE SUPREME COU RT IN THE CASE OF CIT. EMPEE POLY YARN P. LTD. [SUPRA] CLEARLY OBSERV ED THAT POLYESTER I.E. PARTIALLY ORIENTED YARN SIMPLICITOR IS NOT FIT FOR BEING USED IN MANUFACTURE OF FABRICS. IT BECOMES USABLE ONLY AFTE R IT UNDERGOES OPERATION/PROCESS WHICH IS CALLED THERMO MECHANICAL PROCESS WHICH CONVERTS POLYESTER INTO TEXTERISED YARN AND, THEREF ORE, THIS WOULD AMOUNT TO PROCESSING OF THE YARN. BUT IN THE CASE B EFORE US, NO PROCESS IS INVOLVED AND ASSESSEE HAS ONLY DONE SEGR EGATION OF THE SCRAP. 8. AS FAR AS THE ARGUMENT THAT EVEN EXCISE AUTHORIT IES HAVE HELD THE ACTIVITY OF SEGREGATION AS MANUFACTURING IS CON CERNED, THE SAME CANNOT BE TAKEN AS AID TO INTERPRET THE TERM MANUF ACTURE GIVEN IN SEC.10B. THIS IS SO BECAUSE, IN THE CASE BEFORE COM MISSIONER (APPEALS) EXCISE, SOME OF THE GOODS OF THE ASSESSEE HAVE BEEN SEIZED BY HOLDING THAT NO MANUFACTURING PROCESS WAS INVOLVED AND, THE REFORE, ASSESSEE WAS REQUIRED TO PAY CUSTOMS DUTY, WHEREAS COMMISSIO NER (APPEALS) 8 CENTRAL EXCISE HELD THAT ACTIVITY OF SEGREGATION AM OUNTING TO MANUFACTURE IN TERMS OF THE POLICY DECISION TAKEN B Y THE GRIEVANCE REDRESSAL COMMITTEE, DEPARTMENT OF COMMERCE, NEW DE LHI. THUS, IT IS CLEAR THAT THE ACTIVITY WAS HELD TO BE MANUFACTU RE FOR THE PURPOSE OF CUSTOMS DUTY. IN VIEW OF THE ABOVE DISCUSSION, WE A RE OF THE VIEW THAT THE ACTIVITY CARRIED ON BY THE ASSESSEE COULD NOT B E TERMED AS MANUFACTURING ACTIVITY AND, ACCORDINGLY, ASSESSEE I S NOT ENTITLED TO DEDUCTION U/S.10B. 9. GROUND NOS.2 & 3 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURING ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSES SEE HAD GIVEN THE FOLLOWING WORKING OF DEDUCTION U/S.10B: PARTICULARS EXPORT SALES DTA SALES TOTAL 1) SALES LESS: DIRECT COST MATERIAL CONSUMED EXPORT EXPENSES 48,27,312 20,58,412 89,220 43,10,344 47,29,257 35,00,000/- 91,27,656 67,87,669 89,220 TOTAL A > 21,47,632 47,29,257 68,76,889 LESS: OVER HEADS EXPENSES 7,10,317 6,34,247 13,44,564 TOTAL B > 7,10,317 53,63,504 82,21,453 2) TOTAL A> + B > 28,57,949 53,63,504 82,21,453 H.P . (1) (2) 18,68,382 10,63,180 8,21,203 ON THE BASIS OF THE ABOVE STATEMENT, AO WAS OF THE VIEW THAT ASSESSEE HAS NOT ALLOCATED THE COST OF RAW MATERIAL IN PROPO RTION TO THE TURNOVER. THE AO OBSERVED VIDE PARA 5.3 AS UNDER: 5.3 THE QUESTION DOES NOT RELATE TO THE PRICE AT W HICH THE EXPORT SALES AND DTA SALES HAVE TAKEN PLACE, BUT THE APPLI CATION OF DIFFERENT METHODS FOR APPORTIONING THE DIRECT AND INDIRECT EX PENSES TOWARDS THE EXPORT SALES AND DTA SALES. THE ASSESSEE IS NOT IMPORTING OR 9 PURCHASING ANY MATERIAL FOR THE PURPOSE OF EXPORTIN G ONLY, BUT THE TOTAL IMPORTS ARE FOR DOMESTIC AS WELL AS FOR EXPORT SALE S. THE MATERIAL PURCHASED IS VARIOUS METAL SCRAPS AND AFTER SEGREGA TING THE MATERIAL ITEM-WISE THE PURE PART OF THE METAL IS EXPORTED AN D THE REMAINING MATERIAL IS SOLD IN DTA MARKET. THUS, NO PURCHASE C AN BE LINKED TO EITHER EXPORT SALES OF DTA SALES. THEREFORE, THE CO ST OF MATERIAL CONSUMED REQUIRED TO BE APPORTIONED BETWEEN THE EXP ORT SALES AND DTA SALES IN THE SAME RATIO AS THE OTHER EXPENSES H AVE BEEN APPORTIONED. THE DISPROPORTIONATE ALLOCATION OF THE DIRECT EXPENSES [MATERIAL CONSUMED] TOWARDS EXPORT SALES AND DTA SA LES, IS WITH A VIEW TO INCREASE THE EXPORT PROFIT AND THUS CLAIM E XEMPTION U/S.10B OF A HIGHER AMOUNT IN ORDER TO REDUCE ITS TAXABILITY. THIS TREATMENT IS NOT ACCEPTABLE. EVEN THE LOSS ON ACCOUNT OF WASTAGE IS DIRECTLY DEBITED BY THE ASSESSEE TO THE PROFIT & LOSS ACCOUNT AND NO SE PARATE TREATMENT HAS BEEN GIVEN. IN LIGHT OF THE ABOVE PARA, HE RE-WORKED THE PROFIT ON EXPORT SALES AS WELL AS DTA SALES. 10. THE LD. CIT[A] ADJUDICATED THIS ISSUE VIDE PARA 2.4 WHICH IS AS UNDER: 2.4 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSIONS OF THE APPELLANT. THE NATURE OF BUSINESS IS SUCH THAT NO PARTICULAR PURCHASE CAN BE SEPARATELY LINKED TO EITHER EXPORT SALES OR DTA SALES. SO, FAIR ESTIMATION IS THE ONLY WAY TO APPORTION THE EXPENSE S ON MATERIAL CONSUMED. THE ESTIMATE MADE BY THE APPELLANT HAD NO BASIS. WHEREAS THE BASIS ADOPTED BY THE ASSESSING OFFICER WAS SCIE NTIFIC AND FAIR. IN FACT THE APPELLANT ITSELF HAD ADOPTED THE SAME METH OD FOR ALLOCATING INDIRECT EXPENSES BETWEEN EXPORT SALES AND DTA SALE S. WHEN THE APPELLANT HAD PURCHASED SCRAP FOR A CERTAIN PRICE, IT WOULD HAVE VERY WELL EXAMINED THE CONTENT OF PURE MATERIAL THEREIN. THE PRICE OF SCRAP IS DECIDED MAINLY ON THAT FACTOR. AFTER SEGREGATION , THE QUANTITY OF PURE MATERIAL MAY NOT BE VERY HIGH. BUT THAT IS THE MAIN CONTENT FOR WHICH THE SCRAP WAS PURCHASED. SO A LARGER PORTION OF THE COST OF PURCHASE OF SCRAP WOULD BE ATTRIBUTED TO ITS PURE PART. THE REM AINING PART MIGHT HAVE LARGER VOLUME. BUT, THE COST ATTRIBUTED TO IT WOULD NOT BE SUBSTANTIAL. THE ASSESSING OFFICER WAS THEREFORE VE RY REASONABLE TO APPORTION THE COST OF PURCHASE IN THE RATIO OF EXPO RT SALES AND DTA SALES. AS THE METHOD ADOPTED BY HIM WAS VERY FAIR, I CONFIRM IT. THESE GROUNDS ARE REJECTED. 11. BEFORE US IT WAS MAINLY ARGUED THAT DOMESTIC SA LES WERE MAINLY MADE TO EOU UNIT AND, THEREFORE, SAME ALSO COULD BE TREATED AS EXPORT 10 SALES AND EXEMPTION U/S.10B WAS AVAILABLE IN RESPEC T OF THE WHOLE PROFIT AND IN THIS REGARD RELIANCE WAS PLACED ON TH E DECISION OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. ANITA SYNTHETICS PVT. LTD. 100 TTJ 277. 12. ON THE OTHER HAND, LD. DR STRONGLY SUPPORTED TH E ORDER OF THE CIT[A]. 13. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE UNABLE TO AGREE WITH THE CONTENTIONS OF THE LD. COUNSEL OF THE ASSE SSEE. FIRST OF ALL, THE ISSUE RAISED BY THE AO IS REGARDING ALLOCATION OF R AW MATERIAL, WHEREAS BEFORE US, ARGUMENTS HAVE BEEN MADE ONLY IN RESPECT OF THE ISSUE THAT ASSESSEE IS ENTITLED TO DE U/S.10B IN RESPECT OF SA LES MADE TO THE EOU. SECONDLY, THE AHMEDABAD BENCH OF THE TRIBUNAL IN TH E CASE OF ITO VS. ANITA SYNTHETICS PVT. LTD. [SUPRA], CLEARLY NOTED I N PARA 6.1 THAT SINCE THERE WAS NO CONDITION THAT SALE PROCEEDS OF THE GO ODS SHOULD BE IN CONVERTIBLE EXCHANGE AND THAT IS WHY PROVISIONS OF SEC.10B WOULD EXTEND TO THE SALES MADE TO EOU. HOWEVER, IN PARA 6 .1 ITSELF IT HAS BEEN NOTED THAT SEC.10B STANDS AMENDED W.E.F. 1-4-2 001 CONTAINED A PROVISION REGARDING EXPORT SALES. THE CASE OF ITO V S. ANITA SYNTHETICS PVT. LTD. [SUPRA] WAS DECIDED FOR A.Y 1999-2000 WHE REAS THE YEAR BEFORE US IS A.Y 2003-04 AND, THEREFORE, THAT DECIS ION IS NOT APPLICABLE. 14. IN ANY CASE, WHILE ADJUDICATING THE FIRST GROUN D WE HAVE ALREADY HELD THAT ASSESSEE IS NOT ENTITLED TO DEDUCTION U/S .10B AT ALL BECAUSE NO MANUFACTURING ACTIVITY HAS BEEN CONDUCTED. HENCE THIS ISSUE HAS BECOME INFRUCTUOUS AND, THEREFORE, THIS GROUND IS R EJECTED. 11 15. GROUND NO.4 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT CLAI M FOR DEDUCTION U/S.80HHC AS AN ALTERNATE CLAIM WAS M ADE BEFORE THE CIT[A] FOR THE FIRST TIME. THIS HAS BEEN REJECTED B Y THE LD. CIT[A] BY OBSERVING THAT NO SUCH PLEA WAS TAKEN BEFORE THE AO AND, THEREFORE, THIS CLAIM COULD NOT BE ENTERTAINED. 16. BEFORE US, LD. COUNSEL OF THE ASSESSEE SUBMITTE D THAT IF IT IS HELD THAT ASSESSEE IS NOT ENGAGED IN THE BUSINESS O F MANUFACTURING, THEN ALTERNATIVELY DEDUCTION U/S.80HHC SHOULD BE AL LOWED. HE FURTHER ARGUED THAT THERE IS NO BAR FOR RAISING THE CLAIM B EFORE THE APPELLATE AUTHORITIES. 17. ON THE OTHER HAND, LD. DR RELIED ON THE ORDER O F THE CIT[A]. 18. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. WE HAVE ALREADY HELD THAT ASSESSEE IS NOT ENGAGED IN THE MANUFACTURING A CTIVITY BUT HAS DEFINITELY MADE CERTAIN EXPORTS WHICH, FACT HAS NOT BEEN DENIED BY THE DEPARTMENT. FOR CLAIMING DEDUCTION U/S.80HHC, IT IS NOT NECESSARY THAT ASSESSEE SHOULD BE A MANUFACTURER. FURTHER, THERE I S NO BAR FOR MAKING AN ALTERNATE CLAIM BEFORE THE APPELLATE AUTHORITY. EVEN THE HON'BLE SUPREME COURT IN THE CASE OF GOETZ (INDIA) LTD. VS. CIT [284 ITR 323] HAS OBSERVED AS UNDER: THE DECISION IN QUESTION IS THAT THE POWER OF THE TRIBUNAL UNDER SECTION 254 OF THE INCOME-TAX ACT, 1961, IS TO ENTE RTAIN FOR THE FIRST TIME A POINT OF LAW PROVIDED THE FACT ON THE BASIS OF WHICH THE ISSUE OF LAW CAN BE RAISED BEFORE THE TRIBUNAL. THE DECISION DOES NOT IN ANY WAY RELATE TO THE POWER OF THE ASSESSING OFFICER TO ENTERTAIN A CLAIM FOR DEDUCTION OTHERWISE THAN BY FILING A REVISED RE TURN. IN THE CIRCUMSTANCES OF THE CASE, WE DISMISS THE CIVIL APP EAL. HOWEVER, WE 12 MAKE IT CLEAR THAT THE ISSUE IN THIS CASE IS LIMITE D TO THE POWER OF THE ASSESSING AUTHORITY AND DOES NOT IMPINGE ON THE POW ER OF THE INCOME- TAX APPELLATE TRIBUNAL UNDER SECTION 254 OF THE INC OME-TAX ACT, 1961. THUS, IT IS CLEAR THAT THERE IS NO BAR FOR MAKING C LAIM FOR THE FIRST TIME BEFORE THE APPELLATE QAUTHORITIES. THEREFORE, WE SE T ASIDE THE ORDER OF THE LD. CIT[A] AND DIRECT THE AO TO ALLOW THE CLAIM U/S.80HHC IN ACCORDANCE WITH LAW. 19. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED FOR STATISTICAL PURPOSES. 20. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 3/3/2011. SD/- SD/- (R.S.PADVEKAR) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 23/3/2011. P/-*