A1-Gayathri Trading co. P.Ltd, Chengannur V. DCIT, Thiruvalla

ITA 232/COCH/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1034 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 18-12-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 26-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA; M ANIL KUMAR
• Keywords: Depreciation; Proportionate interest; Commercial expediency
• Section: 10AA; 80HHC; 10B

Judgement Text

1 ITA NO.232 & 235/COCH/2010 ITA NO.221 & 222/COCH/2012 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKA RAN(AM) I.T.A NO. 232/COCH/2010 - A.Y. 2004-05 I.T.A NO. 221/COCH/2012 - A.Y. 2005-06 I.T.A NO. 222/COCH/2012 - A.Y. 2006-07 AL-GAYATHRI TRADING CO PVT LTD VS DY.CIT, CIR.1 363-A, GAYATHRI HOUSE THRIUVALLA CHERIYANAD, CHENGANNUR PAN : AABCA9766B (APPELLANT) (RESPONDENT) I.T.A. NO.235/COCH/2010 (ASSESSMENT YEAR 2004-05) A.C.I.T., CIR. 1 VS AL-GAYATHRI TRADING CO P LT D THIRUVALLA CHERIYANAD, CHENGANNUR (APPELLANT) (RESPONDENT) TAXPAYER BY : SHRI ARUN RAJ S REVENUE BY : SHRI M ANIL KUMAR, C.I.T. & SMT. S VIJAYAPRABHA DATE OF HEARING : 18-12-2012 DATE OF PRONOUNCEMENT : 11-01-2013 2 ITA NO.232 & 235/COCH/2010 ITA NO.221 & 222/COCH/2012 O R D E R PER N.R.S. GANESAN (JM) THE TAXPAYER AND THE DEPARTMENT HAVE FILED APPEAL FOR ASSESSMENT YEAR 2004-05. THE TAXPAYER HAS ALSO FILED TWO APPE ALS FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07. THEREFORE, WE HEARD ALL THE APPEALS TOGETHER AND DISPOSE OF THE SAME BY THIS COMMON ORDER. 2. FOR THE ASSESSMENT YEAR 2004-05 THE FIRST GRIEVA NCE OF THE TAXPAYER IS WITH REGARD TO DISALLOWANCE OF INTEREST. 3. SHRI ARUN RAJ S, THE LD.COUNSEL FOR THE TAXPAYER SUBMITTED THAT FOR THE YEAR UNDER CONSIDERATION A SUM OF RS.13,44,278 WAS ADVANCED TO AG INFO SOLUTIONS, A PARTNERSHIP CONCERN IN WHICH THE DIREC TORS OF THE TAXPAYER COMPANY HAVE FULL INTEREST. ACCORDING TO THE LD.CO UNSEL, THE OBJECT OF THE PARTNERSHIP FIRM AG INFO SOLUTIONS WAS TO DEVELOP I N-HOUSE SOFTWARE FOR THE TAXPAYER COMPANY. THE TAXPAYER COMPANY ADVANCED IN TEREST FREE AMOUNT ONLY FOR THE REASON THAT THE TAXPAYER COMPANY WOULD BE BENEFITED IN TERMS OF ITS OWN SOFTWARE DEVELOPMENT. ACCORDING TO THE LD.REPRESENTATIVE, THE ASSESSING OFFICER DISALLOWED PROPORTIONATE INTEREST TO THE EXTENT OF 3 ITA NO.232 & 235/COCH/2010 ITA NO.221 & 222/COCH/2012 RS.1,61,313. THE LD.COUNSEL FOR THE TAXPAYER SUBMI TTED THAT THE PARTNERSHIP FIRM AG INFO SOLUTIONS STARTED ITS BUSI NESS FOR DEVELOPMENT OF SOFTWARE. HOWEVER, THE FIRM COULD NOT PICK UP AND FINALLY IT HAD TO CLOSE DOWN THE BUSINESS. ACCORDING TO THE LD.REPRESENTAT IVE THERE WAS A COMMERCIAL EXPEDIENCY IN ADVANCING FUNDS TO THE SIS TER CONCERN. 4. ON THE CONTRARY, SHRI M ANIL KUMAR, THE LD.DR SU BMITTED THAT THE PARTNERSHIP FIRM AG INFO SOLUTIONS IS ALSO OCCUPYIN G THE PREMISES OF THE TAXPAYERS BUILDING AS A TENANT. THE PARTNERSHIP F IRM STARTED ITS COMPUTER BUSINESS. HOWEVER, IT COULD NOT PICK UP THE BUSINE SS. SUBSEQUENTLY IT WAS CLOSED DOWN. SINCE THE BUSINESS OF THE PARTNERSHIP FIRM WAS CLOSED DOWN, ACCORDING TO THE LD.DR THERE WAS NO COMMERCIAL EXPE DIENCY. ACCORDING TO THE LD.DR, THE BUSINESS OF THE TAXPAYER IS BLENDING AND PACKING OF TEA FOR EXPORT. DEVELOPMENT OF SOFTWARE IS NOT THE BUSINES S OF THE TAXPAYER COMPANY. THEREFORE, THE PARTNERSHIP FIRM WHICH WAS SAID TO BE ESTABLISHED FOR DEVELOPMENT OF SOFTWARE HAS NO BUSINESS CONNECT ION WITH THE TAXPAYER. SINCE THERE WAS NO BUSINESS CONNECTION, ACCORDING T O THE LD.REPRESENTATIVE, THE ADVANCE OF MONEY BY THE TAXPAYER COMPANY TO THE PARTNERSHIP FIRM IS 4 ITA NO.232 & 235/COCH/2010 ITA NO.221 & 222/COCH/2012 NOT FOR COMMERCIAL EXPEDIENCY. THE LD.DR HAS PLACE D RELIANCE ON THE JUDGMENT OF THE KERALA HIGH COURT IN THE CASE OF C.I .T. VS V.I. BABY & CO (2002) 254 ITR 248 (KER). THEREFORE, ACCORDING TO THE LD.DR, THE LOWER AUTHORITIES HAVE RIGHTLY REJECTED THE CLAIM OF THE T AXPAYER. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS NO T IN DISPUTE THAT THE PARTNERSHIP FIRM AG INFO SOLUTIONS WAS PROMOTED FOR DEVELOPMENT OF IN- HOUSE SOFTWARE WHICH WOULD BE USED IN THE BUSINESS OF THE TAXPAYER. THE DIRECTORS OF THE TAXPAYER COMPANY ARE PARTNERS IN T HE PARTNERSHIP FIRM AG INFO SOLUTIONS AND THE COMPANY HAS FULL INTEREST ON AG INFO SOLUTIONS. THE QUESTION ARISES FOR CONSIDERATION IS WHETHER THE IN TEREST FREE AMOUNT ADVANCED TO AG INFO SOLUTIONS IS FOR COMMERCIAL EXP EDIENCY OR NOT? 6. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF TH E APEX COURT IN THE CASE OF S.A. BUILDERS LTD VS C.I.T. (2007) 288 ITR 1 (SC). IN THE CASE BEFORE THE APEX COURT, AFTER CONSIDERING VARIOUS CA SE LAWS ON THE SUBJECT, THE APEX COURT ULTIMATELY FOUND THAT WHENEVER THERE WAS A NEXUS BETWEEN 5 ITA NO.232 & 235/COCH/2010 ITA NO.221 & 222/COCH/2012 THE EXPENDITURE AND THE PURPOSE OF BUSINESS WHICH N EED NOT NECESSARILY BE FOR THE BUSINESS OF THE TAXPAYER ITSELF, THE PAYMEN T OF INTEREST CANNOT BE DISALLOWED. IN FACT, THE APEX COURT HELD AS FOLLOW S AT PAGES 9 & 10 OF THE ITR: WE AGREE WITH THE VIEW TAKEN BY THE DELHI COURT I N CIT V. DALMIA CEMENT (B.) LTD. [2002] 254 ITR 377 THAT ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPEND ITURE AND THE PURPOSE OF THE BUSINESS (WHICH NEED NOT NECESSA RILY BE THE BUSINESS OF THE ASSESSEE ITSELF), THE REVENUE CANNO T JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARM-CHAIR OF THE BUSINES SMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE R OLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING RE GARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE HIS PROFIT. THE INCOME-TAX A UTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AN D SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. THE AUTHORITIES M UST NOT LOOK AT THE MATTER FROM THEIR OWN VIEW POINT BUT TH AT OF A PRUDENT BUSINESSMAN. AS ALREADY STATED ABOVE, WE H AVE TO SEE THE TRANSFER OF THE BORROWED FUNDS TO A SISTER CONCERN FROM THE POINT OF VIEW OF COMMERCIAL EXPEDIENCY AND NOT FROM THE POINT OF VIEW WHETHER THE AMOUNT WAS ADVANCED F OR EARNING PROFITS. 6 ITA NO.232 & 235/COCH/2010 ITA NO.221 & 222/COCH/2012 WE WISH TO MAKE IT CLEAR THAT IT IS NOT OUR OPINIO N THAT IN EVERY CASE INTEREST ON BORROWED LOAN HAS TO BE ALLO WED IF THE ASSESSEE ADVANCES IT TO A SISTER CONCERN. IT ALL D EPENDS ON THE FACTS AND CIRCUMSTANCES OF THE RESPECTIVE CASE. FO R INSTANCE, IF THE DIRECTORS OF THE SISTER CONCERN UTILIZE THE AMO UNT ADVANCED TO IT BY THE ASSESSEE FOR THEIR PERSONAL BENEFIT, O BVIOUSLY IT CANNOT BE SAID THAT SUCH MONEY WAS ADVANCED AS A ME ASURE OF COMMERCIAL EXPEDIENCY. HOWEVER, MONEY CAN BE SAID TO BE ADVANCED TO A SISTER CONCERN FOR COMMERCIAL EXPEDIE NCY IN MANY OTHER CIRCUMSTANCES (WHICH NEED NOT BE ENUMERA TED HERE). HOWEVER, WHERE IT IS OBVIOUS THAT A HOLDING COMPANY HAS A DEEP INTEREST IN ITS SUBSIDIARY, AND HENCE IF THE HOLDING COMPANY ADVANCES BORROWED MONEY TO A SUBSIDIARY AND THE SAME IS USED BY THE SUBSIDIARY FOR SOME BUSINESS PU RPOSES, THE ASSESSEE WOULD, IN OUR OPINION, ORDINARILY BE ENTIT LED TO DEDUCTION OF INTEREST ON ITS BORROWED LOANS. 7. IN VIEW OF THE ABOVE, IT NEEDS TO BE EXAMINED WH ETHER THE FUNDS ADVANCED TO THE PARTNERSHIP FIRM WERE USED BY THE P ARTNERSHIP FIRM FOR THE BUSINESS OR IT WAS USED FOR THE PERSONAL NEEDS OF T HE PARTNERS. SINCE SUCH AN EXAMINATION WAS NOT MADE BY THE ASSESSING OFFICE R, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RE-EXAMINED. 7 ITA NO.232 & 235/COCH/2010 ITA NO.221 & 222/COCH/2012 8. WE HAVE ALSO CAREFULLY GONE THROUGH THE JUDGMENT OF THE KERALA HIGH COURT IN C.I.T. VS V.I. BABY & CO (SUPRA). IN THE CASE BEFORE THE KERALA HIGH COURT, THE ASSESSING OFFICER DISALLOWED THE PROPORT IONATE INTEREST PAYMENT TO THE BANK IN RESPECT OF AMOUNTS ADVANCED BY THE T AXPAYER TO THE PARTNERS. THE TAXPAYER BEFORE THE KERALA HIGH COUR T WAS A PARTNERSHIP FIRM. THE PARTNERSHIP FIRM PAID INTEREST FOR THE B ORROWINGS MADE FOR BUSINESS PURPOSE. HOWEVER, THE ASSESSING OFFICER F OUND THAT THE TAXPAYER TRANSFERRED SIZEABLE AMOUNTS TO THE PERSONAL ACCOUN TS OF THE PARTNERS. IN THOSE CIRCUMSTANCES, THE KERALA HIGH COURT FOUND TH AT SO LONG AS THE TAXPAYER IS NOT A BENEFICIARY OF THE INVESTMENT MAD E BY THE PARTNERS, THE ASSESSING OFFICER WAS PERFECTLY JUSTIFIED IN DISALLO WING THE INTEREST IN PROPORTION TO THE ADVANCE MADE. 9. IN VIEW OF THE ABOVE JUDGMENT OF THE KERALA HIGH COURT AND THE JUDGMENT OF THE APEX COURT CITED SUPRA, IT HAS TO BE EXAMINED WHETHER THE FUNDS ADVANCED BY THE TAXPAYER COMPANY WAS USED FOR THE PERSONAL PURPOSE OR FOR BUSINESS OF THE FIRM WHERE THE TAXPA YER COMPANY HAS ITS FULL INTEREST. SINCE THIS ASPECT WAS NOT EXAMINED, THIS TRIBUNAL IS OF THE 8 ITA NO.232 & 235/COCH/2010 ITA NO.221 & 222/COCH/2012 CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RE-E XAMINED. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE A ND THE ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASS ESSING OFFICER SHALL EXAMINE THE ISSUE AFRESH IN THE LIGHT OF JUDGMENT OF THE APE X COURT IN THE CASE OF S.A. BUILDERS (SUPRA) AND THE JUDGMENT OF THE KERALA HIGH COURT IN THE CASE OF V.I. BABY & CO (SUPRA) AND DECIDE THE ISSUE IN A CCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO THE TAX PAYER. 10. THE NEXT ISSUE ARISES FOR CONSIDERATION IS DISA LLOWANCE OF DEPRECIATION IN RESPECT OF BUSINESS PREMISES KNOWN AS DD MILESTONE. 11. SHRI ARUN RAJ S, THE LD.COUNSEL FOR THE TAXPAYER SUBMITTED THAT OUT OF TOTAL AREA OF 3,728 SQ.FT., 2,928 SQ.FT. WAS USED F OR BUSINESS PURPOSE AND A SMALL PORTION OF 800 SQ.FT. WAS LET OUT AND THE TAX PAYER WAS RECEIVING RENTAL INCOME. THE LOWER AUTHORITY DISALLOWED THE CLAIM O F THE TAXPAYER ON THE GROUND THAT THE PROPERTY WAS LET OUT. THE FACT REM AINS IS THAT ONLY A SMALL PORTION OF THE BUILDING WAS LET OUT AND THE OTHER M AJOR PORTION WAS USED FOR THE BUSINESS OF THE TAXPAYER. ACCORDING TO THE LD.COUNSEL, IF AT ALL ANY 9 ITA NO.232 & 235/COCH/2010 ITA NO.221 & 222/COCH/2012 DISALLOWANCE IS CALLED FOR, THEN ONLY THE PROPORTIO NATE DEPRECIATION PERTAINING TO THE LET OUT PORTION CAN ONLY BE DISAL LOWED AND NOT THE ENTIRE CLAIM OF DEPRECIATION. 12. ON THE CONTRARY, SHRI M ANIL KUMAR, THE LD.DR S UBMITTED THAT ADMITTEDLY, THE PROPERTY WAS LET OUT TO EARN RENTAL INCOME. AS PER SECTION 24 OF THE INCOME-TAX ACT, WHEN A PROPERTY IS LET OU T, THE TAXPAYER IS NOT ENTITLED FOR DEPRECIATION. THE DEPRECIATION CANNOT BE ALLOWED AS A DEDUCTION WHILE COMPUTING THE RENTAL INCOME. ON A QUERY FROM THE BENCH, WHETHER THE ENTIRE BUILDING WAS LET OUT OR PART OF THE BUILDING WAS LET OUT, THE LD. DR SUBMITTED THAT THIS FACT WAS NOT EXAMINE D BY THE LOWER AUTHORITIES AND IF PART OF THE BUILDING WAS LET OUT THEN THE TAXPAYER MAY NOT BE ENTITLED FOR DEPRECIATION OF THAT PART OF THE BU ILDING WHICH WAS LET OUT TO THIRD PARTIES. THE LD.DR HAS SUBMITTED THAT THE MA TTER MAY BE SET ASIDE FOR VERIFICATION. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TAXP AYER CLAIMS THAT OUT OF 10 ITA NO.232 & 235/COCH/2010 ITA NO.221 & 222/COCH/2012 TOTAL AREA OF 3,728 SQ.FT., ONLY 800 SQ.FT. WAS LET OUT TO THIRD PARTIES AND THE OTHER PORTION OF 2,928 SQ.FT WAS USED FOR THE BUSIN ESS OF THE TAXPAYER. THEREFORE, IT HAS TO BE VERIFIED WHETHER THE TAXPAY ER HAS BEEN USING 2,928 SQ.FT. OF AREA OF THE BUILDING FOR ITS BUSINESS PUR POSE AND ONLY 800 SQ.FT. WAS LET OUT. IF ONLY 800 SQ.FT. OUT OF TOTAL AREA OF 3,728 SQ.FT. WAS LET OUT AND THE OTHER PORTION OF THE AREA WAS USED FOR THE BUSI NESS OF THE TAXPAYER, THEN ONLY THE DEPRECIATION PERTAINING TO 800 SQ.FT. CAN BE DISALLOWED. ACCORDINGLY WE SET ASIDE THE ORDERS OF THE LOWER AU THORITIES ON THIS ISSUE AND RESTORE THE ISSUE BACK TO THE FILE OF THE ASSES SING OFFICER. THE ASSESSING OFFICER SHALL VERIFY WHETHER OUT OF TOTAL AREA OF 3 ,728 SQ.FT., 2,928 SQ.FT. OF THE BUILDING WAS USED FOR BUSINESS PURPOSE OF THE T AXPAYER AND ONLY 800 SQ.FT. WAS LET OUT TO THE THIRD PARTIES AND BASED O N THAT FINDING THE ASSESSING OFFICER SHALL DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTUNITY TO THE TAXPAYER. 14. THE TAXPAYER HAS ALSO RAISED ONE MORE GROUND WI TH REGARD TO DEPRECIATION ON TWO FLATS OWNED BY THE TAXPAYER IN LINK HORIZON, MARINE DRIVE, ERNAKULAM AND UNI-HOUSING AT ERNAKULAM. THE CLAIM OF THE TAXPAYER 11 ITA NO.232 & 235/COCH/2010 ITA NO.221 & 222/COCH/2012 IS THAT THE FLAT WAS GIVEN TO THE DIRECTORS FOR THE PURPOSE OF BUSINESS. ACCORDING TO THE LD.COUNSEL FOR THE TAXPAYER, THE D IRECTORS OCCUPIED THE HOUSES TO FACILITATE THE CARRYING OUT THE BUSINESS OF THE TAXPAYER COMPANY. 15. ON THE CONTRARY, THE LD.DR SUBMITTED THAT THE D IRECTORS HAVE OTHER BUSINESS INTEREST ALSO. THEREFORE, THE FLATS WERE NOT USED EXCLUSIVELY FOR THE BUSINESS OF THE TAXPAYER ALONE. 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE DEPR ECIATION WITH REGARD TO DD MILESTONE BUILDING HAS ALREADY BEEN REMITTED B ACK TO THE FILE OF THE ASSESSING OFFICER. IN RESPECT OF THE OTHER TWO FLA TS IN LINK HORIZON, MARINE DRIVE, ERNAKULAM AND IN UNI-HOUSING AT ERNAKULAM TH E CLAIM OF THE TAXPAYER IS THAT THE FLATS WERE GIVEN TO THE DIRECT ORS FOR THE PURPOSE OF TAXPAYERS BUSINESS. THEREFORE, IT HAS TO BE EXAMI NED WHETHER THE FLATS WERE IN FACT GIVEN TO THE DIRECTORS FOR THE BUSINES S PURPOSE OF THE TAXPAYER OR NOT. FOR THE SAKE OF CONSISTENCY, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THIS ISSUE ALSO NEEDS TO BE RE-EXAMINE D BY THE ASSESSING 12 ITA NO.232 & 235/COCH/2010 ITA NO.221 & 222/COCH/2012 OFFICER. ACCORDINGLY, THE ORDERS OF THE LOWER AUTH ORITIES ON THIS ISSUE ARE SET ASIDE AND THE ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR RE-CONSIDERATION. THE ASSESSING OFFICER SHALL RE-E XAMINE THE ISSUE AFRESH AND FIND OUT WHETHER THE FLATS IN QUESTION WERE USE D BY THE DIRECTORS FOR THE BUSINESS NEEDS OF THE TAXPAYER AND THEREAFTER W ILL DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING OPPORTUNITY OF HEA RING TO THE TAXPAYER. 17. NOW COMING TO THE DEPARTMENTAL APPEAL, THE ONLY ISSUE ARISES FOR CONSIDERATION IS EXEMPTION U/S 10A OF THE ACT. 18. SHRI. M ANIL KUMAR, THE LD.DR SUBMITTED THAT TH E TAXPAYER IS ADMITTEDLY BLENDING AND PACKING TEA FOR EXPORT. AC CORDING TO THE LD.DR, BLENDING AND PACKING OF TEA CANNOT BE CONSTRUED AS MANUFACTURE SO AS TO BE ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT. REFE RRING TO THE JUDGMENT OF THE KERALA HIGH COURT IN THE CASE OF GIRNAR INDUSTR IES VS C.I.T. (2011) 338 ITR 277 (KER), THE LD.DR SUBMITTED THAT THE KERALA HIGH COURT HAS NOT CONSIDERED THE JUDGMENT OF THE APEX COURT IN THE CAS E OF C.I.T. VS TARA 13 ITA NO.232 & 235/COCH/2010 ITA NO.221 & 222/COCH/2012 AGENCY 292 ITR 444 (SC). THE APEX COURT, AFTER CON SIDERING THE ACTIVITY OF BLENDING AND PACKING OF TEA FOUND THAT BLENDING A ND PACKING OF TEA DOES NOT AMOUNT TO MANUFACTURE. IN VIEW OF THIS JUDGMENT OF THE APEX COURT, ACCORDING TO THE LD.DR, THE JUDGMENT OF THE KERALA H IGH COURT IN THE CASE OF GIRNAR INDUSTRIES (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE CASE. ACCORDING TO THE LD.DR, MERE BLENDING AND PACKING O F TEA DOES NOT AMOUNT TO MANUFACTURE, THEREFORE, THE TAXPAYER IS NOT ENTI TLED FOR ANY EXEMPTION U/S 10A OF THE ACT. 19. ON THE CONTRARY, SHRI ARUN RAJ S, THE LD.COUNSE L FOR THE TAXPAYER SUBMITTED THAT THE KERALA HIGH COURT IN GIRNAR INDU STRIES (SUPRA) EXAMINED THE PROVISIONS OF SECTION 10A AND THE EXIM POLICY A ND FOUND THAT MANUFACTURE AS DEFINED UNDER THE EXIM POLICY HAS A WIDER AND LITERAL MEANING COVERING TEA BLENDING AS WELL. THE KERALA HIGH COURT FURTHER FOUND THAT BLENDING AND PACKING OF TEA QUALIFIES FOR EXEM PTION U/S 10A OF THE ACT. THE COMMISSIONER OF INCOME-TAX(A) BY FOLLOWING THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT ALLOWED THE CLAIM OF THE T AXPAYER. THEREFORE, NO INTERFERENCE IS CALLED FOR. 14 ITA NO.232 & 235/COCH/2010 ITA NO.221 & 222/COCH/2012 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ONLY ISSUE ARISES FOR CONSIDERATION IS WHETHER, BLENDING AND PACKING OF T EA AMOUNTS TO MANUFACTURE SO AS TO QUALIFY THE TAXPAYER FOR CLAIM ING EXEMPTION U/S 10A OF THE ACT. NO DOUBT, THE APEX COURT IN THE CASE O F TARA AGENCY (SUPRA) EXAMINED AN IDENTICAL ISSUE AND FOUND THAT BLENDING AND PACKING OF TEA DOES NOT AMOUNT TO MANUFACTURE, THEREFORE, NOT EL IGIBLE FOR WEIGHTED DEDUCTION ON EXPORT MARKET DEVELOPMENT ALLOWANCE U/ S 35B(1A) OF THE ACT. WE FIND THAT THE SPECIAL BENCH OF THIS TRIBUN AL AT KOLKATA IN THE CASE OF MADHU JAYANTI INTERNATIONAL LTD ITA NO.1463/KOL/200 7 ORDER DATED 20/07/2012 (137 ITD 377) EXAMINED THIS ISSUE ELABOR ATELY AND AFTER CONSIDERING THE JUDGMENT OF THE APEX COURT IN THE CA SE OF TARA AGENCY (SUPRA); THE JUDGMENT OF THE KERALA HIGH COURT IN T HE CASE OF GIRNAR INDUSTRIES (SUPRA); TATA TEA LTD VS A.C.I.T. (2011 ) 338 ITR 285 (KER) FOUND THAT BLENDING AND PACKING OF TEA AMOUNTS TO MANUFA CTURE, THEREFORE, THE TAXPAYER IS ELIGIBLE FOR DEDUCTION U/S 10A OF THE A CT. 15 ITA NO.232 & 235/COCH/2010 ITA NO.221 & 222/COCH/2012 21. WE HAVE ALSO CAREFULLY GONE THROUGH THE JUDGMEN T OF THE KERALA HIGH COURT IN THE CASE OF TATA TEA LTD (SUPRA). THE KER ALA HIGH COURT, AFTER CONSIDERING ITS EARLIER JUDGMENT IN GIRNAR INDUSTRIE S AND THE JUDGMENT OF THE APEX COURT IN TARA AGENCIES (SUPRA) FOUND THAT THE JUDGMENT OF THE APEX COURT IN THE CASE OF TARA AGENCIES (SUPRA) IS NOT APPLICABLE FOR THE PURPOSE OF CONSIDERING EXEMPTION FOR INDUSTRIES IN THE EXPORT PROCESSING ZONE, FREE TRADE ZONE, AND TO 100% EXPORT ORIENTED UNIT COVERED UNDER SECTIONS 10A, 10AA AND 10B OF THE ACT. IN FACT, TH E KERALA HIGH COURT HAS OBSERVED AS FOLLOWS AT PAGE 290 OF THE ITR: . FURTHER, INDUSTRIAL UNITS ENGAGED IN THE VERY SA ME ACTIVITY; I.E., BLENDING, PACKING AND EXPORT OF TEA IN THE SP ECIAL ECONOMIC ZONES AND FREE TRADE ZONES, WILL CONTINUE TO ENJOY TAX EXEMPTION UNDER SECTION 10A AND SECTION 10AA RESPECTIVELY. THE STILL WORSE POSITION IS THAT TH E APPELLANT WOULD BE DENIED OF EXPORT EXEMPTION AVAILABLE UNDER SECTION 80HHC EVEN TO A MERCHANT EXPORTER. IN OUR VIEW, TH E DECISION OF THE SUPREME COURT IN TARA AGENCIES CASE [2007] 292 ITR 444 (SC) IS NOT APPLICABLE FOR THE PURPOSE OF CONSI DERING EXEMPTION FOR INDUSTRIES IN THE EXPORT PROCESSING Z ONES, FREE TRADE ZONES AND TO 100 PER CENT EXPORT ORIENTED UNI TS COVERED 16 ITA NO.232 & 235/COCH/2010 ITA NO.221 & 222/COCH/2012 BY SECTIONS 10, 10AA AND 10B OF THE INCOME-TAX ACT. THEREFORE, FOLLOWING THE JUDGMENT OF THIS COURT ABOV EREFERRED TO WE HOLD THAT THE ASSESSEE IS ENTITLED TO EXEMPTI ON ON THE PROFIT DERIVED BY ITS 100 PER CENT. EXPORT ORIENTED UNIT ENGAGED IN BLENDING, PACKING AND EXPORT OF TEA BAGS AND TEA PACKETS. 22. IN VIEW OF THE ABOVE JUDGMENT OF THE JURISDICTIO NAL HIGH COURT IN WHICH IT WAS FOUND THAT THE JUDGMENT OF THE APEX CO URT IN THE CASE OF TARA INDUSTRIES (SUPRA) IS NOT APPLICABLE FOR THE PURPOS E OF EXEMPTION U/S 10A, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE COMMISSIONER OF INCOME- TAX(A) HAS RIGHTLY ALLOWED THE CLAIM OF THE TAXPAYE R. THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IS BINDING ON THIS TRIBUNA L. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY THE SAME IS CONFIRMED. 23. IN THE RESULT, THE APPEAL OF THE TAXPAYER IS AL LOWED FOR STATISTICAL PURPOSE AND THE DEPARTMENTAL APPEAL IS DISMISSED. 24. NOW COMING TO ASSESSMENT YEARS 2005-06 & 2006-0 7, THE FIRST ISSUE IS WITH REGARD TO DISALLOWANCE OF PROPORTIONATE INT EREST AND THE ADVANCE 17 ITA NO.232 & 235/COCH/2010 ITA NO.221 & 222/COCH/2012 MADE TO PARTNERSHIP FIRM FREE OF INTEREST. THIS IS SUE WAS EXAMINED BY THIS TRIBUNAL IN THE EARLIER PART OF THE ORDER FOR ASSES SMENT YEAR 2004-05 AND THE MATTER IS REMANDED BACK TO THE FILE OF THE ASSE SSING OFFICER. SINCE THE ISSUE IS IDENTICAL, THIS TRIBUNAL IS OF THE CONSIDE RED OPINION THAT THIS ISSUE SHOULD BE RE-EXAMINED BY THE ASSESSING OFFICER FOR THE YEAR UNDER CONSIDERATION ALSO. ACCORDINGLY THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE SAME IS RESTORED TO THE FILE OF THE A SSESSING OFFICER. THE ASSESSING OFFICER SHALL RE-EXAMINE THE ISSUE AFRESH IN THE LIGHT OF THE DIRECTION ISSUED FOR THE ASSESSMENT YEAR 2004-05 IN THIS ORDER AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING OPPORTUNITY OF HEARING TO THE TAXPAYER. 25. THE NEXT ISSUE IS WITH REGARD TO THE DEPRECIATI ON. THIS ISSUE WAS EXAMINED BY THIS TRIBUNAL IN THE EARLIER PART OF TH E ORDER FOR ASSESSMENT YEAR 2004-05 AND THE MATTER IS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER. SINCE THE ISSUE IS IDENTICAL, THIS TRIBUN AL IS OF THE CONSIDERED OPINION THAT THE ISSUE SHOULD BE RE-EXAMINED BY THE ASSESSING OFFICER FOR THE YEAR UNDER CONSIDERATION ALSO. ACCORDINGLY THE ORDERS OF THE LOWER 18 ITA NO.232 & 235/COCH/2010 ITA NO.221 & 222/COCH/2012 AUTHORITIES ARE SET ASIDE AND THE SAME IS RESTORED TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE-EXAMINE TH E ISSUE AFRESH IN THE LIGHT OF THE DIRECTION ISSUED FOR THE ASSESSMENT YEAR 200 4-05 IN THIS ORDER AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING OPPORTUNITY OF HEARING TO THE TAXPAYER. 26. IN RESPECT OF FLATS AT LINK HORIZON AND UNI-HOU SING, THIS ISSUE HAS ALSO BEEN EMITTED BACK TO THE FILE OF THE ASSESSING OFFI CER. THEREFORE, FOR THE VERY SAME REASONINS THIS TRIBUNAL IS OF THE OPINION THAT FOR THE ASSESSMENT YEARS 2005-06 & 2006-07 ALSO THIS ISSUE NEEDS TO BE RE-EXAMINED BY THE ASSESSING OFFICER. ACCORDINGLY THE ORDERS OF THE L OWER AUTHORITIES ARE SET ASIDE AND THE SAME IS RESTORED TO THE FILE OF THE A SSESSING OFFICER. THE ASSESSING OFFICER SHALL RE-EXAMINE THE ISSUE AFRESH IN THE LIGHT OF THE DIRECTION ISSUED FOR THE ASSESSMENT YEAR 2004-05 IN THIS ORDER AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING OPPORTUNITY OF HEARING TO THE TAXPAYER. 19 ITA NO.232 & 235/COCH/2010 ITA NO.221 & 222/COCH/2012 27. IN THE RESULT, THE APPEAL OF THE TAXPAYER FOR T HE ASSESSMENT YEARS 2004-05, 2005-06 & 2006-07 ARE ALLOWED FOR STATISTI CAL PURPOSE AND THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2004- 05 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 11 TH JANUARY, 2013. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 11 TH JANUARY, 2013 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE COMMISSIONER OF INCOME-TAX 4. THE COMMISSIONER OF INCOME-TAX(A) 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH