DCIT, Circle-2(1), Hyderabad, Hyderabad V. Madhucon Granites Ltd., Khammam

ITA 253/HYD/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6144 (ITAT-HYDERABAD)
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 12-01-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 12-03-2015
• Court: TRIBUNAL
• Department Lawyers: K MYTHILI RANI
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Rectification of order; Search and seizure; Reasonable cause; Reassessment proceedings
• Section: 143(3); 80HHC; 153A; 260A; 10B; 132; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B , HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. AY . APPELLANT RESPONDENT 1908/HYD/14 2009 - 10 M/S. MADHUCON GRANITES LTD., KHAMMAM [ PAN: AABCM3717G ] D EPUTY C OMMISSIONER OF I NCOME T AX , CENTRAL CIRCLE - 3, HYDERABAD 1909/HYD/14 2010 - 11 90/HYD/15 2007 - 08 91/HYD/15 2008 - 09 1158/HYD/15 2011 - 12 ITA NO. AY . APPELLANT RESPONDENT 1924/HYD/14 2007 - 08 DEPUTY COMMISSIONER OF INCOME T AX, CENTRAL CIRCLE - 2(1), HYDERABAD M/S. MADHUCON GRANITES LTD., KHAMMAM [PAN:AABCM3717G] 1925/HYD/14 2008 - 09 1926/HYD/14 2009 - 10 1927/HYD/14 2010 - 11 250/HYD/15 2007 - 08 251/HYD/15 2008 - 09 252/HYD/15 2009 - 10 253/HYD/15 2010 - 11 254/HYD/ 15 2011 - 12 FOR ASSESSEE : SHRI P. MURALI MOHAN RAO , AR FOR REVENUE : SMT K. MYTHILI RANI, CIT - DR DATE OF HEARING : 12 - 01 - 201 6 DATE OF PRONOUNCEMENT : 22 - 01 - 201 6 O R D E R PER B ENCH : IN THESE BATCH OF APPEALS, THER E ARE FIVE APPEALS BY ASSESSEE (ITA NO S . 1908 /HYD/14 , 1909 /HYD/14 , 90/HYD/15, 91/HYD/15 & 1158 /HYD/15 ) AGAINST THE ORDER S OF THE COMMISSIONER OF INCOME TAX (APPEALS) - V I I, HYDERABAD DT. 30 - 09 - 2014, 2 9 - 1 0 - 201 4 AND 31 - 12 - 2014 AND FIVE CROSS - APPEALS BY REVENUE AGAINST THE SAME M/S. MADHUCON GRANITES LTD., : - 2 - : ORDERS (ITA NOS . 1924 /HYD/14 TO 1927 /HYD/14 & 254 /HYD/15 ) . THERE ARE FOUR MORE APPEALS BY REVENUE IN ITA NOS. 250/HYD/15, 251/HYD/15, 252/HYD/15 & 253/HYD/15 AGAINS T THE ORDERS U/S. 154 OF THE INCOME TAX ACT [ACT] PASSED BY THE CIT(A) - 12 , HYDERABAD, DT. 06 - 01 - 2015. ALL THESE APPEALS INVOLVE CLAIM OF SECTION 10B MADE BY THE ASSESSEE . 2. WE HAVE HEARD THE LD. COUNSEL AND LD. DR AND PERUSED THE PAPER BOOK PLACED ON RECORD PERTAINING TO PAGES 1 TO 147 AND ANOTHER PAPER BOOK CONTAINING PAG ES 1 TO 90 (PAPER BOOK NO.2). I N ITA NO. 1158/HYD/2015 FOR AY. 2011 - 12, ASSESSEE HAS FILED APPEAL BELATEDLY OF 192 DAYS. ASSESSEE HAS SUBMITTED AN AFFIDAVIT AND STATED THAT THIS PARTICULAR APPEAL PAPERS HAVE BEEN MISPLACED BY ONE OF THE OFFICE STAFF AND THE SAME COULD BE TRACED OUT AND APPEAL COULD BE FILED ON 14 - 09 - 2015 WITH A DELAY OF 192 DAYS AND SINCE MANY OF THE APPEALS HAVE ALREADY BEEN PENDING ON THE SAME ISSUE, THERE WAS NO DELIBERATE INTENTION TO DELAY IN FILING OF THE SAID APPEAL. 2.1. AFTER CONSIDERING THE RIVAL CONTENTIONS AND PERUSING THE SUBMISSIONS MADE THEREIN, WE ARE OF THE OPINION THAT THERE IS REASONABLE CAUSE OF FILING THE APPEAL BELATEDLY AND ACCORDINGLY , THE DELAY IS CONDONED AND SAID APPEAL IS ALLOWED. 3. BRIEFLY STATED, ASSESS EE IS IN THE EXPORT OF GRANITES. THERE WERE SEARCH AND SEIZURE OPERATIONS U/S. 132 OF THE ACT CARRIED OUT IN THE CASE OF ASSESSEE ON 04 - 02 - 2011 . AY. 2011 - 12 IS THE SEARCH YEAR, WHEREAS IN SIX EARLIER YEARS ALSO NOTICES WERE ISSUE D U/S. 153A. IN ALL THE IMPUGNED ASSESSMENTS, THE AO DISALLOWED THE CLAIM U/S. 80 - IB OF THE ACT . ASSESSEE HAD TWO M/S. MADHUCON GRANITES LTD., : - 3 - : UNITS, ONE AT HOSUR IN KARNATAKA AND ONE AT ON GOLE IN ANDHRA PRADESH WHICH AR E ENGAGED IN PROCESSING OF GRANITE AND EXPORTING THEM. INITIALLY, ASSESSEE S CLAIM OF 1 0B WAS DISALLOWED IN EARLIER YEARS AND ITAT IN BATCH OF APPEALS IN THE GROUP CASES OF MADHUCON GRANITES (ASSESSEE) , MADHUCON PROJE CTS FOR THE AYS. 2000 - 01 TO 2006 - 07 HAS CONSIDERED AND ALLOWED THE CLAIM OF 10B BY THE RESPECTIVE ASSESSEE S. IN THE ASSESSEE S OWN CASE IN THE ABOVE SAID ORDERS FROM ITA NOS. 666 /HYD/2010 TO 685 /HYD/2010 AND CROSS APPEALS FROM ITA NOS. 29/HYD/2012 TO 35/HYD/2012 FOR AYS. 2000 - 01 TO 2006 - 07 VIDE ITS ORDER DT. 28 - 12 - 2012 , IT WAS HELD THAT ASSESSEE S PROCESSING OF ROUGH BLOCKS AND EXPORTING THE SAME ARE ELIGIBLE FOR DEDUCTION U/S. 80HHC/10B OF THE ACT VIDE PARA NOS. 7 & 8 IN PAGE NOS. 5 & 6 OF THE SAID ORDER. IN THE CONSEQUENTIAL PROCEEDINGS U/S. 153A, AO NOTED THAT ITAT HAS ALLOWED DEDUCTION U/S. 10B (WRONGLY NOTED AS SECTION 80 - I B) IN EARLIER YEARS AND COMPANY IS ELIGIBLE FOR DEDUCTION U/S. 10B OF THE ACT EVEN FOR EXPORTING ROUGH BLOCKS OF GRANITE. IT WAS ALSO NOTED THAT ITAT WHILE FINALIZING THE SAID ORDER, RELIED ON THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V S. FATEH GRANITES PVT. LTD., [314 ITR 32] (BOM) , HELD THAT THE ACTIVITY OF CUTTING AND POLISHING ARISING OF GRANITES WOULD BE COVERED WITHIN THE MEANING OF EXPRESSION PRODUCTION AND ASSESSEE IS ENTITLED FOR DEDUCTION U/S. 10B. HOWEVER, AO DID NOT ALLOW THE DEDUCTION STATING THAT THE DECISION OF THE ITAT WAS NOT ACCEPTED BY THE DEPARTMENT AND HE IS IN THE PROCESS OF REFERRING APPEAL BEFORE THE HON'BLE HIGH COURT OF ANDHRA PRADESH U/S. 260A OF THE ACT. 4. SINCE THE DEDUCTION ORIGINALLY ALLOWED IN 143(3) PROCEEDINGS WAS DISTURBED IN THE REASSESSMENT PROCEEDINGS U/S. 153A, ASSESSEE CARRIED THE MATTER TO THE CIT(A) IN APPEAL. IN THE M/S. MADHUCON GRANITES LTD., : - 4 - : MEAN TIME, AO IN THE IMPUGNED YEARS , EXCEPT AY. 2011 - 12 , HAS PASSED AN ORDER U/S. 154 DT. 25 - 04 - 2013. IN THAT ORDER, AO PART IALLY ALLOWED THE CLAIM OF DEDUCTION U/S. 10B IN THE IMPUGNED ASSESSMENT YEARS. THE APPEAL ON THIS ORDER WAS DISMISSED BY THE CIT(A), AS MAIN APPEAL WHEREIN THE ENTIRE CLAIM WAS DISALLOWED WAS PENDING FOR ADJUDICATION. LD. CIT(A), WHILE ACCEPTING THAT TH E ITAT HAS ALLOWED THE DEDUCTION TO ASSESSEE IN EARLIER YEARS, NOTED THE SAME IN HIS ORDER (COMMON FOR ALL THE YE ARS EXCEPT THE AMOUNTS INVOLVED), AS UNDER: 5.2 IT IS ALSO SEEN FROM THE RECORDS THAT THE AO HOWEVER CONSIDERED THE CLAIM FOR DEDUCTION/EXEM PTION U/S L0B IN THE ORDER PASSED U/S 154 DATED 25.04.2013. IN THIS ORDER, THE AO PARTIALLY ALLOWED THE CLAIM OF DEDUCTION U/S L0B AS HE HAD NOT ALLOWED THE FULL CLAIM OF RS.31,78,02,614/ - BUT ALLOWED ONLY RS.19,34,41,639/ - AND DISALLOWED AN AMOUNT OF RS.1 2,43,60,975/ - . THE OPERATIVE PART OF THIS ORDER U/S 154 AT PARA 2.5 READS AS UNDER: 'AFTER EXAMINATION OF THE DATA BROUGHT ON RECORD AND ALSO IN LIGHT OF THE ITAT ORDER AND KEEPING IN VIEW THE DEPARTMENTAL STAND, THE EXEMPTION CLAIMED BY THE ASSESSEE COM PANY WITH REGARD TO EXPORT OF GRANITE SLABS U/S 10B IS CONSIDERED TO THE EXTENT OF CUT AND POLISHED GRANITE AND THE SAME IS PROPORTIONATELY ALLOWED. 5.3 AGGRIEVED AGAINST THE PARTIAL ALLOWANCE, THE APPELLANT PREFERRED AN APPEAL AGAINST THE 154 ORDER IN ITA NO. 0320/2013 - 14. THIS APPEAL WAS DISPOSED OFF BY THIS OFFICE ORDER DATED 27.10.2014. 5.4 FROM THE ABOVE WORDINGS, THE AO APPEARS TO HAVE DISALLOWED AN AMOUNT WHICH IS ATTRIBUTABLE TO EXPORT OF ROUGH BLOCKS. THE APPELLANT WAS THEREFORE ASKED TO FURNI SH THE DETAILS OF ALL THE INVOICES IN COURSE OF THE APPELLATE PROCEEDINGS. THESE DETAILS WERE FURNISHED. THE APPELLANT'S STAND WAS THAT EVEN THOUGH THE GOODS WERE DESCRIBED AS 'ROUGH GRANITE BLOCKS', THEY WERE ALSO DIMENSIONAL AND WERE CUT AS PER SPECIFIED DIMENSION AND THIS WAS NOT A NEW POINT. THIS ASPECT WAS EXAMINED BY THE HON'BLE ITAT AND DEDUCTION U/S 10 B WAS ALLOWED AS EVIDENT FROM PARA 7 ON PAGE 6 OF THE HON'BLE ITAT ORDER IN ITA NO.666/HYD/L0 & OTHERS. THE RELEVANT PORTION OF THIS PARA READS AS UNDER: '. FURTHER, THE CHENNAI BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS M/S JANANI HOLDINGS, CHENNAI IN ITA NO.1094/MDS/2010 VIDE ORDER DATED 25.02.2011 HELD THAT IF THE ASSESSEE IN THE SALE INVOICES DESCRIBED THE EXPORTED GOODS AS 'PROCESSED DIMENSIONAL ROUGH OR CRUDE GRANITE' M/S. MADHUCON GRANITES LTD., : - 5 - : AND THE GRANITE HAS BEEN PROCESSED IN TO BLOCK AND DRESSED BY THE ASSESSEE AND THESE WERE EXPORTED, BECAUSE THE ASSESSEE DESCRIBED AS ROUGH BLOCKS OR CRUDE BLOCKS IN SALE INVOICES BY WHICH THE ASSESSING OFFICER CANNOT DENY THE DEDUCTION U/S LOB OF THE ACT ON THE REASON THAT GRANITE HAS NOT BEE N POLISHED. BEING SO, THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S BOHHC/L0B OF THE ACT ON SIMILAR LINES FOR AY 2000 - 01 TO 2004 - 05. ACCORDINGLY, THE REVENUE APPEALS IN ITA NO.29 TO 33/HYD/2012 ARE DISMISSED. 8 FOR THE AY 2006 - 07 IN ITA NO.35/HYD/12, T HE ISSUE IS RELATING TO ALLOWABILITY OF DEDUCTION U/S L0B OF THE ACT WHICH IS DECIDED ON SIMILAR LINES AS ABOVE AS DISCUSSED IN THE ABOVE, THE REVENUE APPEAL IS DISMISSED. 5.5 IT WAS SUBMITTED THAT EVEN THE AO HAD QUOTED THIS FINDING OF THE ITAT IN THE VERY FIRST PARA 4.1 OF THE OPERATIVE PART OF HIS ASSESSMENT ORDER WHEN HE STATED THAT DEDUCTION WAS GRANTED BY THE ITAT EVEN FOR EXPORTING ROUGH BLOCKS OF GRANITE. 5.6 AS STATED BY THE APPELLANT, THOUGH DESCRIPTION IS 'ROUGH GRANITE BLOCK', THE DIMENSIO NS OF EACH BLOCK ARE CLEARLY MENTIONED AS TEST CHECKED IN THE APPELLATE PROCEEDINGS FOR AY 2007 - 08 AND 2008. THE CLAIM OF THE APPELLANT THAT THE HON'BLE ITAT HAS CONSIDERED THESE ASPECTS AND HAD ALLOWED DEDUCTION IN THE EARLIER YEARS (AY 2000 - 01 TO AY 2006 - 07) IS , THEREFORE IN ORDER. THE APPELLANT'S ARGUMENT THAT UNDER THESE CIRCUMSTANCES, IT IS NOT CORRECT TO DENY THE CLAIM OF DEDUCTION SIMPLY BECAUSE THE EARLIER ORDERS OF THE ITAT WERE NOT ACCEPTED BY THE DEPARTMENT, AND THAT, NO NEW MATERIAL HAS BEEN BR OUGHT ON RECORD TO DENY THE DEDUCTION, THEREFORE APPEARS VALID. RESPECTFULLY, FOLLOWING THE ORDERS OF THE ITAT ON THE SAME ISSUE, THE DEDUCTION U/S. 10B IS THEREFORE TO BE ALLOWED ON SUCH ROUGH GRANITE BLOCKS SUBJECT TO THE FOLLOWING OBSERVATIONS AT PAR A 5.7. 4.1. EVEN THOUGH ITAT IS VERY CATEGORICAL IN ITS ORDER AND ALLOW ED THE DEDUCTION EVEN ON EXPORT OF ROUGH GRANITE BLOCKS, LD. CIT(A), HOWEVER, WENT ON ANALYZING THE NATURE OF GRANITE BLOCKS EXPORTED FROM HOSUR AND ONGOLE UNITS AND CAME TO THE CONC LUSION THAT THERE ARE CERTAIN GRANITE BLOCKS WHICH DOES NOT HAVE ANY DIMEN S IONS AND CATEGORIZED R OUGH GRANITE BLOCKS (AS TYPE 3 INVOICES ) BY THE CIT(A) IN HIS ORDER AND STATED THAT ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S. 10B IN BOTH HOSUR AND ONGOLE UNITS ON TYPE - 1 AND TYPE - 2 INVOICES (WHERE DIMENSIONS ARE MENTIONED) AND M/S. MADHUCON GRANITES LTD., : - 6 - : DIRECTED THE AO TO DISALLOW THE DEDUCTION CLAIMED ON TYPE - 3 INVOICES (WHERE DIMENSIONS WERE NOT STATED) AND PASSED THE ORDERS ACCORDINGLY FROM AYS. 2007 - 08 TO 2010 - 11. HOWEVER, WHILE DISP O SING OFF THE APPEAL IN 2011 - 12 SUBSEQUENTLY ON 31 - 1 2 - 2014, THE LD. CIT(A) RE - EXAMIN ED THE WHOLE ISSUE AND CAME TO A FINDING THAT THE SO CALLED ROUGH GRANITES WITHOUT DIMENSIONS WAS WRONGLY CATEGORIZED BY HIM AND HE GAVE A FINDING THAT THOUGH INVOICE SPEAK S OF ROUGH BLOCKS IMPLYING THE UN - PROCESSED, THEY ARE ACTUALLY PROCESSED BLOCKS CUT INTO BLOCKS AND DIMENSIONS CAN ALSO BE FOUND IN THE PACKING LIST ISSUED AT THE TIME OF SHIPPING . THE DOCUMENTS FILED WE RE EXAMINED AND THE CLAIM OF THE APPELLANT IS IN ORD ER . ACCORDINGLY, DEDUCTION U/S. 10B IS THEREFORE TO BE ALLOWED . WHILE ALLOWING THE ENTIRE DEDUCTION U/S. 10B ON ALL THE BLOCKS EXPORTED BY ASSESSEE , LD. CIT(A) , HOWEVER NOTICED THAT AO ALLOWED THE DEDUCTION ON THE INCOME FROM EXPORT OF THE GRANITE OF HO SUR UNIT FULLY , WHILE DEDUCTION ON ONGOLE UNIT WAS RESTRICTED . S INCE NO REASONS WERE GIVEN IN THE ORDER, HE DIRECTED THE AO TO EXAMINE WHETHER THE ONGOLE UNIT IS ALSO ELIGIBLE FOR DEDUCTION U/S. 10B AND IF THE CONDITIONS ARE SATISFIED, THE DEDUCTION TO BE ALLOWED AS CLAIMED BY THE APPELLANT. TO THAT LIMITED EXTENT, THE MATTER WAS SENT TO THE AO TO PASS APPROPRIATE CONSEQUENTIAL ORDERS. 5. IN THE MEAN TIME, ASSESSEE FILED PETITIONS U/S. 154 T O THE LD. CIT(A) IN THE OTHER FOUR ASSESSMENT YEARS OF 2007 - 08 T O 2010 - 11 STATING THAT EXPORT OF ROUGH GRANITE BLOCKS CATEGORIZED TYPE - 3 ALSO INVOLVED SAME PROCESSING OF THE GRANITE BLOCKS FOR WHICH DIMENSIONS WE RE AVAILABLE. SINCE LD. CIT(A) EXAMINED THE ISSUE IN DETAIL IN AY. 2011 - 12, HE MODIFIED HIS EARLIER ORDERS BY PASSING A RECTIFICATION ORDER , WHEREIN HE ACCEPTED ASSESSEE S M/S. MADHUCON GRANITES LTD., : - 7 - : CONTENTIONS AND DIRECTED THE AO TO ALLOW THE ENTIRE DEDUCTION U/S. 10B , SUBJECT TO ONGOLE UNIT BEING ELIGIBLE FOR DEDUCTION. 6. ASSESSEE IS AGGRIEVED AND RAISED THE GROUNDS BASICALLY ON THE INITIAL DIRECTION GIVE BY THE CIT(A) TO EXAMINE THE ELIGIBILITY OF ONGOLE UNIT. REVENUE HAS RAISED FIVE APPEALS AGAINST THE ORDER S IN ITA NO S . 1924 /H/14 TO 1927 /H/14 AND 254/H/15 AND FURTHER FOUR APPEALS ON THE 154 ORDER PASSED BY HIM DT. 06 - 01 - 2015. REVENUE WAS AGGRIEVED ON ALLOWING THE 10B DEDUCTION IN ALL THE YEARS BY THE LD. CIT(A). 7. EVEN THOUGH ASSESSEE HAS FILED ADDITIONAL GROUNDS ON THE ISSUE THAT THE DISALLOWANCE U/S. 10B CANNOT BE MADE IN THE RE - ASSESSMENT PROCEEDINGS U/S. 153A , WITHO UT THERE BEING ANY INCRIMINATING MATERIAL FOUND DURING THE COURSE OF SEARCH, THESE ADDITIONAL GROUNDS DOES NOT ARISE OUT OF THE ORDERS OF THE AO OR CIT(A). EVEN THOUGH AO IN THE ASSESSMENT COMPLETED U/S. 153A RECORDS FINDING OF THE ITAT, HE DISALLOWED ONL Y ON THE ISSUE OF ITATS ORDER BEING NOT ACCEPTED BY THE DEPARTMENT. THERE IS NO DISCUSSION EITHER OF THE SEIZED MATERIAL OR EVEN OF THE ASSESSMENTS COMPLETED U/S. 143(3) EARLIER. ASSESSEE ALSO HAD NOT RAISED THE CONTENTIONS BEFORE CIT(A). THEREFORE, TH E ISSUE WHETHER THERE IS INCRIMINATING MATERIAL OR NOT , WHETHER THERE WAS ORIGINAL ASSESSMENT CONCLUDING THE ISSUES IN FAVOUR OR AGAINST ASSESSEE COULD NOT BE ASCERTAINED. THEREFORE, EVEN THOUGH THE ADDITIONAL GROUNDS ARE LEGAL IN NATURE, THE CORRESPONDIN G FACTS ARE NOT AVAILABLE SO AS TO ADMIT THEM AND ADJUDICATE. HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD., [289 ITR 26] (SC) HAS CATEGORICALLY STATED THAT ADDITIONAL GROUNDS OF APPEAL CANNOT BE ADMITTED , IF THERE ARE NO FACTS ON RECORD. SIMIL AR VIEW WAS ALSO M/S. MADHUCON GRANITES LTD., : - 8 - : EXPRESSED BY THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SOUTHERN GROUP INDUSTRIES LTD., [300 ITR 113] , WHERE IT WAS HELD THAT ADDITIONAL GROUND COULD NOT BE CONSIDERED IN THE ABSENCE OF FACTS ON RECORD. IN VIEW OF THIS, WE ARE U NABLE TO ADMIT THE ADDITIONAL GROUNDS AND ADJUDICATE THE SAME , AS THERE IS NO DISCUSSION EITHER OF THE INCRIMINATING MATERIAL OR OF THE EARLIER PROCEEDINGS IN THE ORDERS PASSED BY THE AUTHORITIES. THEREFORE, ADDITIONAL GROUNDS OF APPEAL ARE REJECTED IN AL L THE IMPUGNED YEARS OF ASSESSEE S APPEALS. 8. COMING TO THE MAIN ISSUE OF ALLOWING DEDUCTION U/S. 10B, AS ALREADY STATED ABOVE , THE ISSUE OF ALLOWING OF 10B HA S ALREADY BEEN CRYSTA L LISED BY THE ORDERS OF THE ITAT IN ASSESSEE S OWN CASE IN EARLIER YEARS UPTO AY. 2006 - 07 DT. 28 - 12 - 2012 . V IDE PARA 7 & 8, THE ISSUE WAS CONSIDERED AND ALLOWED AS UNDER: 7. AS PER THE LATEST CIRCULAR NO. 729 DATED 1.11.1995 CUTTING AND POLISHED GRANITE IS ELIGIBLE FOR DEDUCTION U/S. 80HHC OF THE ACT AS THEY FIND MENTION IN 12TH SCHEDULE OF INCOME - TAX ACT, 1961. ON THE REASON THAT IT WAS MENTIONED IN THE DIRECTOR'S REPORT THAT THE ASSESSEE HAS EXPORTED ONLY ROUGH BLOCKS OF GRANITE, ACCORDING TO THE DEPARTMENT THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S. 80HHC OF THE ACT. IT IS ALSO SUBMITTED BEFORE US BY THE DR THAT THE ASSESSEE HAS DESCRIBED IN THE SALES INVOICES ROUGH GRANITE. HOWEVER, IT WAS CLARIFIED BY THE ASSESSEE THAT GRANITE HAS BEEN PROCESSED INTO BLOCKS AND DRESSED BY THE ASSESSEE AND WHICH WAS SUBJECTED TO EXCISE DUTY AND SALES TAX, AS THE CASE MAY BE, BUT STILL THESE WERE MENTIONED IN THE INVOICES OR IN THE DI RECTOR'S REPORT AS 'ROUGH BLOCKS' IN SALE INVOICES. BUT IT DOES NOT MEAN THAT THEY ARE UNPROCESSED GRANITES. IT WAS NOT DISPUTED BY THE DEPARTMENT THAT THE ASSESSEE IS ENGAGED IN CUTTING AND POLISHING AND SIZING OF GRANITES INTO REQUIRED SIZES. ONCE THE AS SESSEE IS ENGAGED IN CUTTING, POLISHING AND SIZING OF THE GRANITE TO THE REQUIRED SIZED AND EXPORTING THE SAME, IT IS TO BE AND IT HAS TO BE CONCLUDED THAT THE ASSESSEE IS ENGAGED IN 'PRODUCTION'. IN SIMILAR CIRCUMSTANCES, THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. FATEH GRANITES PVT. LD. (314 ITR 32) (BOM) HELD THAT THE ACTIVITY OF CUTTING, POLISHING AND SIZING OF GRANITES WOULD BE COVERED WITHIN THE MEANING OF EXPRESSION 'PRODUCTION'. THEREFORE, THE ASSESSEE IS ENTITLED TO THE BENEFIT UJS. 80HHC/ L0B M/S. MADHUCON GRANITES LTD., : - 9 - : O F THE ACT. FURTHER, THE CHENNAI BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS. M/S. .JANANI HOLDINGS, CHENNAI IN ITA NO. 1094/MDS/2010 VIDE ORDER DATED 25.2.2011 HELD THAT IF THE ASSESSEE IN THE SALES INVOICES DESCRIBED THE EXPORTED GOODS 'AS PROCESSED DIM ENSIONAL ROUGH OR CRUDE GRANITE' AND THE GRANITE HAS BEEN PROCESSED INTO BLOCKS AND DRESSED BY THE ASSESSEE AND THESE WERE EXPORTED, BECAUSE THE ASSESSEE DESCRIBED AS 'ROUGH BLOCKS OR CRUDE BLOCK' IN SALE INVOICES BY WHICH THE ASSESSING OFFICER CANNOT DENY THE DEDUCTION U/S.L0B OF THE ACT ON THE REASON THAT GRANITE HAS NOT BEEN POLISHED. BEING SO, THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S. 80HHC/ L0B OF THE ACT ON SIMILAR LINES FOR THE A.YS. 2000 - 01 TO 2004 - 05. ACCORDINGLY, THE REVENUE APPEALS IN ITA NO. 2 9 TO 33/HYD/2012 ARE DISMISSED. 8. FOR THE ASSESSMENT YEAR 2006 - 07 IN ITA NO. 35/HYD/12, THE ISSUE IS RELATING TO ALLOWABILITY OF DEDUCTION U/S. L0B OF THE ACT WHICH IS DECIDED ON SIMILAR LINES AS ABOVE AS DISCUSSED IN THE ABOVE, THE REVENUE APPEAL IS DI SMISSED . 9. IN VIEW OF THE ABOVE, WE ARE OF THE OPINION THAT ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S. 10B, THE FACT OF WHICH WAS ALREADY ACKNOWLEDGED BY THE CIT(A) IN THE ORDER FOR AY 2011 - 12. H OWEVER, IN AYS. 2007 - 08 TO 2010 - 11, LD. CIT(A) IN HIS OWN WA Y CATEGORIZED THE EXPORT OF ROUGH GRANITE BLOCKS INTO DIMENSIONAL BLOCKS AND UN - DIMENSIONAL BLOCKS AND RESTRICTED THE DEDUCTION TO SO CALLED TYPE - 3 UN - DIMENSIONAL BLOCKS. EVEN THOUGH LD. CIT(A) DEVIATED FROM THE ISSUE IN ANALYZING THE NATURE OF ROUGH GRAN IT E BLOCKS EXPORTED , HOWEVER, HE MADE AMENDS IN THE ORDER FOR AY. 2011 - 12 AND ALLOWED THE DEDUCTION IN ALL THE GRANITE BLOCKS BEING EXPORTED BY ASSESSEE , SUBJECT TO EXAMINATION OF ELIGIBILITY OF ONGOLE UNIT. THIS UNIT IS ALSO ESTABLISHED MUCH EARLIER AND ASSESSEE WAS ALLOWED DEDUCTION ON THIS UNIT ALSO UPTO AY. 2006 - 07 . CONSEQUENTLY , THE DIRECTION OF THE CIT(A) ASKING THE AO TO EXAMINE THE ELIGIBILITY OF ONGOLE UNIT IS SUPERFLUOUS . THEREFORE, ALLOWING ASSESSEE S GROUND ON THIS ISSUE, WE DIRECT THE AO TO A LLOW THE DEDUCTION OF ONGOLE UNIT AS CLAIMED BY ASSESSEE . TO THAT EXTENT, ASSESSEE S APPEALS M/S. MADHUCON GRANITES LTD., : - 10 - : ARE ALLOWED WITH REFERENCE TO ALLOWING OF 10B CLAIM IN ALL THE IMPUGNED AYS. 2007 - 08 TO 2011 - 12. 10. THERE ARE TWO MORE ISSUES IN AY. 2011 - 12 , OTHER THAN CLAIM OF SECTION 10B. ASSESSEE VIDE HIS G ROUND NOS. 5 & 6 IS CONTESTING THE ADDITION OF RS. 23 LAKHS MADE TOWARDS EXCESS CASH AND IN GROUND NOS. 7 & 8 IS CONTESTING THE ADDITION OF RS. 1,24,01,063/ - MADE TOWARDS EXCESS STOCK AND IN GROUND NO. 9 WITHOUT PREJUDIC E TO THE ABOVE GROUNDS, IS CLAIMING THAT THE ADDITIONS TOWARDS EXCESS CASH AND EXCESS STOCK WOULD AUTOMATICALLY INCREASE THE PROFITS OF ASSESSEE AND DEDUCTION U/S. 10B SHOULD BE ALLOWED IN THE ALTERNATE. THESE ISSUES ARE CONSIDERED AS UNDER: EXCESS CASH : 11. IN THE COURSE OF SEARCH/SURVEY PROCEEDINGS, THE DEPARTMENT FOUND OUT CASH OF RS. 23 LAKHS AND THE SAME WAS SEIZED. ASSESSEE FILED T HE EXPLANATION THAT THE SALARIES AND OTHER ALLOWANCES WERE DEBITED IN THE BOOKS, BUT AMOUNT WAS NOT DISBURSED , AS THEI R UNITS ARE AVAILABLE AT DIFFERENT PLACES AND SO THERE WAS EXCESS CASH. THIS EXPLANATION OF ASSESSEE WA S NOT ACCEPTED AND THE AO MADE AN ADDITION OF THE ABOVE AMOUNT. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE EXCESS CASH FOUND DURING THE SEARCH WAS PER TAINING TO STAFF AND LABOUR PAYMENTS. THE EXPENSES WERE ENTERED IN THE BOOKS OF ACCOUNTS, PAYMENTS WERE NOT MADE AT THAT TIME. THE SEARCH WAS ON 04 - 02 - 2011 AND THOUGH THE CASH WAS DRAWN FROM THE BANK, BUT THE PAYMENT OF WAGES AND SALARIES WAS YET TO BE P AID. GENERALLY, LABOUR PAYMENTS ARE MADE, FOR SOME ON MONTHLY BASIS AND FOR SOME ON WEEKLY BASIS. PAYMENTS FOR THE MONTH OF JANUARY WERE NOT PAID BY THE M/S. MADHUCON GRANITES LTD., : - 11 - : DATE OF SEARCH. THE VARIATION IN THE CASH BOOK AND P HYSICAL CASH BALANCE WAS DUE TO THE FACT THAT CE RTAIN EXPENSES BOOKED IN THE CASH BOOK WERE YET TO BE PAID. THE CASH FOUND WAS NOT THEREFORE, UN - EXPLAINABLE. LD. CIT(A) HOWEVER, DID NOT AGREE WITH THE EXPLANATION OF ASSESSEE , RELYING ON THE SWORN STATEMENT OF MANAGER ACCOUNTS EXTRACTED IN PARA 6.2 OF THE ORDER. HE WAS OF THE OPINION THAT IT IS NO T A CASE OF EXPENSE BEING RECOR DED IN THE BOOKS OF ACCOUNTS BUT NOT PAID . S INCE NO SUPPORTING DOCUMENTS OR EVIDENCE INDICATING SUBSTANTIAL WITHDRAWALS FROM THE BANK WERE PRODUCED, THE CIT(A) CONFIRMED THE ADDI TION TOWARDS CASH. 11.1. IT WAS THE SUBMISSION THAT LD. CIT(A) HAS NOT EXAMINED THE CASH BOOK PLACED BEFORE HIM. REFERRING TO THE STATEMENT RECORDED, LD. COUNSEL SUBMITTED THAT THESE MONEYS WERE ALL PERTAIN ING TO ASSESSEE S BOOKS OF ACCOUNTS AND EVEN THE MANGER ADMITTED THAT VOUCHERS WERE NOT ENTERED , NOT ONLY OF ASSESSEE BUT ALSO THE BOOKS OF ACCOUNTS OF M/S. VARALAKSHMI GRANIT E S PVT. LTD ANOTHER GROUP COMPANY. IT WAS THE SUBMISSION THAT ASSESSEE HAS ENTERED THE RELEVANT VOUCHERS SUBSEQUENTLY AND THE ENTRIES WERE EXAMINED AND CASH PERTAINS TO THE BUSINESS. IT IS ALSO SUBMITTED THAT ASSESSEE BEING AN EXPORT ORIENTED COMPANY, THE INCOME OF WHICH IS EXEMPT U/S. 10B, THERE IS NO NEED FOR KEEPING ANY EXTRA CASH IN THE BUSINESS PREMISES. THERE ARE NO LOCA L SALES AND ENTIRE MONEY PERTAINS TO WITHDRAWALS FROM THE BANK TO BE PAID FOR STAFF SALARIES AND LABOUR PAYMENTS. HE SUBMITTED THAT THIS A SPECT THAT CASH BALANCE PERTAIN THE BOOKS CAN BE EXAMINED BY THE AO , SINCE CIT DID NOT ALLOW NECESSARY EXAMINATION EV EN THOUGH RELEVANT DETAILS WERE FURNISHED BY HIM . M/S. MADHUCON GRANITES LTD., : - 12 - : 11.2 . C ONSIDERING ASSESSEE S PLEA AND DOCUMENTS PLACED ON RECORD, WE ARE OF THE OPINION THAT THIS CONTENTION OF ASSESSEE HAS NOT BEEN EXAMINED BY THE AO AS WELL AS BY THE CIT(A). IF THERE IS ENOUGH CA SH BALANCE ON THE DAY WHICH CAN BE EXPLAINED, THERE CANNOT BE ANY EXCESS CASH , CONSIDERING THAT ASSESSEE HAS NO LOCAL SALES AND NO NEED FOR GENERATING CASH OUTSIDE THE BOOKS OF ACCOUNTS WHEN THE INCOMES ARE EXEMPT FROM TAX. IN VIEW OF THAT WITH REFERENCE TO THE ADDITION OF CASH, WE SET ASIDE THE ORDERS OF THE AO AND CIT(A) ON THE ISSUE AND RESTORE THE MATTER TO THE FILE OF AO FOR FRESH EXAMINATION OF ASSESSEE S CONTENTIONS AND ADJUDICATION. THE GROUND IS CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. EXCES S STOCK I N THE COURSE OF SEARCH/SURVEY AT HOSUR : 12. THE ISSUE PERTAIN TO STOCK VALUATION AND DIMENSIONS OF THE STOCK AVAILABLE. IT TURNED OUT THAT IN THE VALUATION DONE BY THE OFFICERS ON THE DATE O F SEARCH/ SURVEY, THERE ARE DIFFERENCES IN THE QUANTIT Y OF THE FINISHED GOODS WITH REFERENCE TO ENTRIES IN THE BOOKS AND THE DIFFERENCE WAS QUANTIFIED FINISHED GOODS OF RS. 64,62,321/ - AND REJECTS AT RS. 59,38,742/ - . IN THE BRIEF ORDER BY THE AO, AO RECORDED THAT AS ASSESSEE HAS FAILED TO GIVE REASONABLE EX PLANATION REFERRING EXCESS STOCK FOUND, THE VALUE OF THE SAME AMOUNTING TO RS. 1,24,01,063/ - IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE . WHAT WAS THE EXPLANATION GIVEN AND WHY IT IS NOT REASONABLE COULD NOT BE ASCERTAINED FROM THE ORDER OF THE AO AS NO REASON WAS FURNISHED WHILE MAKING THE ADDITION. ASSESSEE SUBMITTED BEFORE THE CIT(A) THAT ASSESSEE HAS VALUED THE STOCK AT COST PRICE OR MARKET PRICE WHICHEVER IS LESS. THE ADDITION IN RESPECT OF FINISHED GOODS WAS NOT CORRECTLY WORKED OUT AND IS NOT JU STIFIED. IT WAS EXPLAINED THAT VALUE OF REJECT AND SCRAP CAN ONLY M/S. MADHUCON GRANITES LTD., : - 13 - : BE CONCLUDED AFTER THEIR FINAL SALE. TOTAL REJECTS ARE ALWAYS SALABLE AND HENCE THE VALUE C AN BE LESSER THAN COST PRICE OR ZERO. AT THE TIME OF TAKING OF STOCK ON THE DATE OF SEARCH, STOC K WAS VALUED AT MARKET PRICE WITHOUT CONSIDERING THAT THE STOCK WAS FIT FOR SALE FOR EXPORT OR NOT. THE UN - FINISHED GRANITE BLOCKS WITH CROSS WERE REJECTED BUT THESE UN - SALABLE WERE ALSO CONSIDERED AT MARKET PRICE AND VALUED AT RS. 59.38 LAKHS. ASSESSEE RELIED ON THE DECISION OF HON'BLE ITAT DELHI IN THE CASE OF AJ AY KUMAR AGARWAL IN ITA NO. 2210/DEL/ 2011, WHEREIN ITAT DELETED THE ADDITION MADE ON ACCOUNT OF VALUATION OF STOCK ON MRP AND NOT ON THE COST OF GOODS. IT ALSO MADE A CONTENTION THAT ASSESSEE D EALS IN ROUGH GRANITE SLABS AND THERE WILL BE DEFECTS LIKE ODD SIZE SLABS AND HOLES IN SLABS ETC., THERE IS A POSSIBILITY OF DIFFERENCE IN MEA SUREMENTS MADE EDGE TO EDGE VIS - - VIS NET AREA WORKED OUT IN THE QUANTIFICATION. ASSESSEE RELIED ON THE DECISION IN THE CASE OF MIDWEST GOLD LTD ., VS. ACIT ITA NO. 1294/HYD/2014 . WITHOUT PREJUDICE TO THE ABOVE, IT WAS CONTENDED THAT EXCESS CASH AND EXCESS STOCK WOULD INCREASE THE PROFIT OF THE UNIT AND CONSEQUENT REJECTION U/S. 10B IS ELIGIBLE AND RELIED ON THE DECI SION OF ITAT, HYDERABAD IN THE CASE OF DCIT VS. PLANET ONLINE PVT. LTD., IN ITA NO. 1016/HYD/200 7 . LD. CIT(A) HOWEVER, DID NOT AGREE ON THE REASON THAT STOCK OF RAW - MATERIALS AND WORK IN PROGRESS HAS TALLIED AND DIFFERENCE AROSE ONLY ON FINISHED GOODS AND REJECTS. IT WAS ALSO NOTED THAT QUANTIFICATION AND MEASUREMENTS WERE ALSO DONE BY ASSESSEE - COMPANYS OFFICIALS THEMSELVES. ACCORDINGLY, HE REJECTED THE CONTENTIONS. BEFORE US, WHILE CONTENDING THAT THE EXCESS STOCK IF ANY SHOULD BE CORRECTLY VALUED, LD . COUNSEL ALSO MADE ALTERNATE PLEA THAT THE SAME AMOUNT IS ELIGIBLE FOR DEDUCTION U/S. 10B AND THE SAME IS ORDERED. THERE IS NO ISSUE ON QUANTIFICATION OF STOCK M/S. MADHUCON GRANITES LTD., : - 14 - : WHICH ASSESSEE WOULD BE GETTING BENEFIT IN THE LATER YEAR AS OPENING STOCK. 13. AFTER CONSID ERING THE RIVAL CONTENTIONS, WE ARE OF THE OPINION THAT AT THIS POINT OF TIME, IT IS NOT POSSIBLE TO EXAMINE W HETHER THERE IS AN EXCESS STOCK OF GRANITE BLOCKS IN THE QUANTITY OR IN THE VALUATION , CONSIDERING THE FACT THAT THIS VALUE WAS DO N E WITH THE HELP OF ASSESSEE - COMPANYS OFFICIALS. IT IS ALSO CONTENDED THAT SO CALLED EXCESS VALUATION IS LESS THAN 5% OF THE TOTAL STOCK AVAILABLE WITH ASSESSEE AND AO ACCEPTED THE CLOSING STOCK VALUE AS THE BOOKS OF ACCOUNTS WERE NOT REJECTED. EVEN THOUGH THERE IS MER IT IN ASSESSEE S CONTENTIONS, IT IS DIFFICULT TO ADJUDICATE WHETHER THERE IS EXCESS S TOCK CONSIDERING THE FACT THAT THE SALES AND STOCK WERE RECONCILED ON THE DATE OF SEARCH AND CERTAIN AMOUNTS WERE QUANTIFIED. EVEN THOUGH AN ESTIMATION OF EXCESS TOCK IN THE MIDDLE OF THE YEAR , WHILE ACCEPTING THE BOOKS OF ACCOUNTS OF THE YEAR , IS NOT GENERALLY PERMITTED BY VARIOUS DECISIONS OF THE ITAT, SINCE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S. 10B ON THE ADDITIONS/DISALLOWANCE MADE ON THE SE UNITS, W E ARE OF THE OPINI ON THAT THE SAME AMOUNT CAN BE ALLOWED FOR DEDUCTION U/S. 10B AS THE STOCK PERTAINS TO HOSUR AND ONGOLE UNITS , WHICH ARE ELIGIBLE FOR DEDUCTION U/S. 10B. ASSESSEE S ALTERNATE CONTENTION IS ACCORDINGLY ALLOWED. 14. FURTHER, IN CASE AO WAS NOT SATISFIED WITH THE EXCESS CASH BROUGHT TO TAX, WE ARE OF THE OPINION THAT THE SAME IS ALSO ELIGIBLE FOR DEDUCTION U/S. 10B , AS ASSESSEE HAS NO OTHER BUSINESS AND EXCESS CASH IF ANY COULD HAVE BEEN GENERATED OUT OF NON - PAYMENT OF EXPENDITURE EVEN THOUGH BOOKED. IN THAT CASE, THE PROFIT TO THAT EXTENT WOULD GO UP , IF THE CASH PERTAINS TO NON M/S. MADHUCON GRANITES LTD., : - 15 - : PAYMENT OF EXPENDITURE. IN CASE OF ANY EXCESS CASH ADDITION BY AO IS CONSIDERED, THE CORRESPONDING DEDUCTION OF 10B HAS TO BE CONSIDERED BY THE AO ON THE FACTS OF THE CASE. WIT H THESE DIRECTIONS, THE GROUND NOS. 5 & 6 ARE CONSIDERED ALLOWED FOR STATISTICAL PURPOSES AND GROUND NOS. 7, 8 & 9 ARE CONSIDERED ALLOWED. 1 5 . AS ASSESSEE S CLAIM U/S. 10B IS VALID AND ALLOWED IN ASSESSEE S APPEALS, THE REVENUE APPEALS CONTESTING THE ALL OWANCE BY THE CIT(A) PARTLY IN THE ORIGINAL ORDER AND FULLY IN THE ORDERS U/S. 154/CORRIGENDUM ORDERS BECOMES INFRUCTUOUS. THERE IS NO MERIT IN REVENUE S APPEALS , AS THE ISSUES WE RE ALREADY CRYSTA L LISED IN FAVOUR OF ASSESSEE BY THE ORDERS OF ITAT IN EARLI ER YEARS. EV EN AO ACKNOWLEDGES THE SAME IN THE ORDERS U/S. 153A . THE ITAT FOLLOWED NOT ONLY THE BOARD CIRCULAR, BUT ALSO THE DECISION OF THE BOMBAY HIGH COURT ON THE ISSUE. IN VIEW OF THIS, WE DO NOT FIND ANY MERIT IN REVENUES APPEALS. REVENUES APPEAL S ARE ACCORDINGLY DISMISSED. 1 6. IN THE RESULT, ALL THE FOUR APPEALS OF ASSESSEE IN ITA NOS. 1908/HYD/14 , 1909/HYD/14 , 90/HYD/15 & 91/HYD/15 ARE CONSIDERED ALLOWED AND ASSESSEE S APPEAL IN ITA NO.1158/HYD/15 FOR THE AY . 2011 - 12 IS ALLOWED FOR STATISTIC AL PURPOSES AND NINE APPEALS OF THE REVENUE IN ITA NOS. 1924 TO 1927 /HYD/14 & 250 TO 254 /HYD/15 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JANUARY, 2016 SD/ - SD/ - (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 22 ND JANUARY, 2016 TNMM M/S. MADHUCON GRANITES LTD., : - 16 - : COPY TO : 1. M/S. MADHUCON GRANITES LTD., # 1 - 7 - 70, JUBILPURA, KHAMMAM. C/O. P. MURALI & CO., CHARTERED ACCOUNTANTS, 6 - 3 - 655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD. 2. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 3 , HYDERABAD. 3. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 2(1) , 3 RD FLOOR, POSNETT BHAVAN, RAMKOTE, TILAK ROAD, HYDERABAD. 4 . CIT (APPEALS) - V I I, HYDERABAD. 5 . CIT (APPEALS) - 12 , HYDERABAD. 6 . CIT - (CENTRAL) , HYDERABAD. 7 . D.R. ITAT, HYDERABAD. 8 . GUARD FILE.