DCIT, New Delhi V. M/s. Arts Beauty Exports, New Delhi

ITA 2956/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3908 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 27-05-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 14-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAGJEET SINGH
• Assessee Lawyers: A K MONGA
• Keywords: Depreciation; Additional evidence; Competent authority; Assessment record; Set aside
• Section: 10AA; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI K.D. RANJAN ITA NOS. 2955 & 2956/DEL/10 ASSTT. YRS: 2006-07 & 2007-08 DCIT CIRCLE 31(1), VS. M/S ARTS BEAUTY EXPORTS, NEW DELHI. 31, PALIKA BAZAR, CONNAUGHT PLACE, NEW DELHI. PAN/GIR NO. AABFA1767B (APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI RAJIV SAXENA & SH. JAGJEET SINGH ADV. RESPONDENT BY : SHRI A.K. MONGA SR. DR O R D E R PER R.P. TOLANI, J.M : THESE ARE REVENUES APPEALS. ASSESSEE BEING SAME, B OTH THE APPEALS ARE DISPOSED OF BY THIS COMMON ORDER. 2. COMMON GROUNDS RAISED ARE AS UNDER: 1. THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON F ACTS BY NOT ALLOWING A REASONABLE OPPORTUNITY TO THE AO TO EXAM INE THE ADDITIONAL EVIDENCES AS SPECIALLY REQUESTED AND AS REQUIRED UNDER RULE 46A OF INCOME TAX RULE, 1962. 2. THE LD. CIT(A) HAS FURTHER ERRED IN LAW AND FACT S IN HOLDING THAT THE ASSESSEE IS ELIGIBLE FOR CLAIMING EXEMPTION U/S 10B OF THE INCOME TAX ACT, 1961, IT SATISFIES CUMUL ATIVELY ALL THE CONDITIONS NECESSARY FOR GRANT OF EXEMPTION U/S 10B OF THE ACT, WITHOUT CONSIDERING THE DETAIL GIVEN IN THE AS SESSMENT ORDER BY THE AO AS PER WHICH THE ASSESSEE DID NOT SATISFY A NUMBER OF CONDITIONS NECESSARY FOR GRANT OF SUCH EXEMPTION. ITA 2955 & 2956/DEL/10 M/S ARTS BEAUTY EXPORTS 2 3. BRIEF FACTS ARE, THE ASSESSEE IS A PARTNERSHIP F IRM, DEALING IN THE BUSINESS OF MANUFACTURING AND EXPORT OF HANDICRAFTS INCLUDING MULTIPLE INDOOR GAMES AND CLAIMS TO BE A HUNDRED PER CENT EX PORT ORIENTED UNIT. ASSESSEE CLAIMED DEDUCTION U/S 10B OF THE I.T. ACT. AO, HOWEVER, DENIED THE DEDUCTION ON FOLLOWING GROUNDS: (I) THERE WAS A CHANGE IN PARTNERSHIP-DEED W.E.F. 1-4-2 005, AS A NEW PARTNER MR. GAURAV ARORA WAS INTRODUCED. THE RECONS TITUTED FIRM CARRIED OUT THE BUSINESS ALREADY IN EXISTENCE. (II) SEC. 10B(I) REQUIRES THAT THE ASSESSEE SHOULD MANU FACTURE OR PRODUCE ANY ARTICLE OR THINGS OR COMPUTER SOFTWARE. IN THE PRESENT CASE, THE ASSESSEE HAS BEEN PURCHASING THE FINISHED HANDICRAFT ITEMS AND OTHER ALLIED ITEMS AND AS PER THE SALE IN VOICES FURNISHED, THE ITEMS EXPORTED ARE EXACTLY THE SAME AS HAVE BEE N PURCHASED, IN SUBSTANCE AND IN NOMENCLATURE ALSO. THEREFORE, NO N EW PRODUCT HAS COME INTO EXISTENCE BY NAME, BY SUBSTANCE AND BY NO MENCLATURE BETWEEN ITS PURCHASE AND SALE. THE ASSESSEE HAS BEE N PURCHASING FINISHED PRODUCTS AND BY WAY OF EXPORT SELLING THE SAME PRODUCTS. (III) THE ASSESSEE IS NOT ELIGIBLE FOR THIS CLAIM FOR ANO THER REASON. SEC. 10B CAN BE APPLIED ONLY WHEN THE ASSESSEE IS A 100% EXPORT ORIENTED UNDERTAKING. AS PER THE DEFINITION IN SEC. 10B (EXPLANATION 2)(IV), IT MEANS AN UNDERTAKING WHICH HAS BEEN APPROVED AS A 100% EXPORT ORIENTED UNDERTAKING BY T HE BOARD APPOINTED IN THIS BEHALF BY THE CENTRAL GOVERNMENT. CONSEQUENTLY, THE ASSESSEE SHOULD BE FIRST ELIGIBLE FOR THE SAME. IN THIS CASE, THE DATE OF APPROVAL IS CLAIMED TO BE 05.05.2005 ON THE BASIS OF THE ITA 2955 & 2956/DEL/10 M/S ARTS BEAUTY EXPORTS 3 LETTER DT. 05.05.2005 ISSUED BY DEVELOPMENT COMMISS IONER, SEZ, NOIDA. FROM THIS LETTER IT IS CLEAR THAT IT WAS ON LY A COMMUNICATION BY THE SEZ NOIDA, WHILE PROCESSING ASSESSEES APPLI CATION FOR APPROVAL AS 100% EOU, THE SEZ AUTHORITIES HAVE INFO RMED THAT PERMISSION WILL BE GRANTED SUBJECT TO 12 CONDITIONS WHICH INTER ALIA INCLUDED THE FOLLOWING CONDITIONS:- - UNIT WILL BE CUSTOM BONDED - THE DATE OF COMMENCEMENT OF PRODUCTION SHALL BE INT IMATED. - THE UNIT SHALL BE REQUIRED TO ENTER INTO A LEGAL AG REEMENT IN THE PRESCRIBED FORM WITH DEVELOPMENT COMMISSIONER, SPEC IAL ECONOMIC ZONE, NOIDA, FOR FULFILLING THE TERMS AND CONDITIONS MENTIONED IN LOP. THEREAFTER, THE ASSESSEE EXECUTED THE LEGAL AGREEME NT IN THE PRESCRIBED FORM WHICH WAS FURNISHED TO SEZ AUTHORITIES VIDE LE TTER DT. 17.04.2006. IT WAS RESPONDED BY SEZ AUTHORITIES VID E THEIR LETTER DT. 25.04.2006. IN THIS LETTER, THE AUTHORITIES ACCEPTE D THE LEGAL AGREEMENT AND INFORMED THE ASSESSEE THAT IT WILL BE TREATED A S WORKING UNDER 100% EOU SCHEME FROM THE DATE FROM WHICH IT STARTED FUNCTIONING UNDER CUSTOMS BONDING AND ALLOTTED REFERENCE NO. 12 -303/2005-100% EOU AND ISSUED GREEN CARD. THUS, FROM THIS LETTER I T IS CLEAR THAT TILL 25.04.2006, THE APPROVAL OF 100% EOU WAS NOT GRANTE D SINCE IT WAS SUBJECTED TO FUNCTIONING UNDER CUSTOM BONDING. ON I NQUIRY FROM CENTRAL EXCISE DEPTT., IN RESPECT OF CUSTOM BONDING IT HAS BEEN INFORMED BY ASSTT. COMMISSIONER CENTRAL EXCISE DIVI SION-II, KARAMPURA, NEW DELHI, VIDE THEIR LETTER BEARING NO. V(16) 126/C&AG- AUDIT/MISC./DIV-II/TECH/07/1595 DT. 27.08 .2008, THAT THE ASSESSEE HAS NOT APPROACHED THEM TILL DATE FOR BONDING OF THE UNIT. ITA 2955 & 2956/DEL/10 M/S ARTS BEAUTY EXPORTS 4 THUS, ON THE BASIS OF THESE DOCUMENTS, IT IS VERY C LEAR THAT THE ASSESSEE CANNOT CLAIM TO BE APPROVED AS A 100% EXPORT ORIENT ED UNDERTAKING BY THE BOARD APPOINTED BY THE CENTRAL GOVERNMENT IN THIS BEHALF SINCE, THE ASSESSEE FAILED TO SATISFY IN COMPLYING WITH THE REQUIREMENT OF SEZ AUTHORITIES AS COMMUNICATED TO HIM BY SEZ AU THORITIES VIDE LETTER DT. 25.04.2006 AS DISCUSSED ABOVE. IT IS A C ASE WHERE A LETTER OF COMMUNICATION ISSUED BY SEZ AUTHORITIES NOIDA DT. 0 5.05.2005 WHILE PROCESSING ASSESSEES APPLICATION FOR APPROVAL UNDE R 100% EOU SCHEME HAS BEEN PROJECTED BY THE ASSESSEE AS A FINA L APPROVAL CERTIFICATE. IT IS TO BE FURTHER NOTED THAT DATE OF COMMENCEMENT OF PRODUCTION HAS BEEN COMMUNICATED BY THE ASSESSEE HI MSELF TO SEZ AUTHORITIES AS 22.09.2006, WHICH DATE, DOES NOT LIE IN F.Y. 2005-06 RELEVANT TO A.Y. 2006-07. THUS, FROM THIS, THE POSI TION EMERGES THAT ASSESSEE APPLIED FOR APPROVAL AS 100% EOU, THE AUTH ORITIES COMMUNICATED TO HIM, VIDE LETTER DT. 05.05.2005 FOR FULFILLING CERTAIN CONDITIONS ONLY AFTER WHICH IT CAN BE FINALLY APPRO VED THEREAFTER THE ASSESSEE SIGNED A LEGAL AGREEMENT WITH THE SEZ AUTH ORITIES AND IN CONSEQUENCE TO THAT SEZ AUTHORITIES VIDE THEIR LETT ER DT. 25.04.2006 COMMUNICATED THE ASSESSEE FOR ACCEPTANCE OF LEGAL A GREEMENT, ALLOTTED A REFERENCE NO. AND GREEN CARD FOR 100% EOU STATUS WHICH WAS FURTHER SUBJECTED TO BE EFFECTIVE FROM THE DATE OF ISSUANCE OF BONDING LICENSE OF THE UNIT BY THE CENTRAL EXCISE AUTHORITI ES. THIS BONDING LICENSE HAS NOT BEEN OBTAINED TILL DATE AS ADMITTED BY THE ASSESSEE. FURTHER, THE DATE OF COMMENCEMENT HAS BEEN HIMSELF INTIMATED BY THE ASSESSEE TO SEZ AUTHORITIES AS 22.09.2006, WHICH DA TE IS ALSO BEYOND F.Y. 2005-06. FURTHER, EVEN BY TAKING AS 22.09.2006 , CLAIM U/S 10B CANNOT BE ALLOWED BECAUSE FOR THIS CLAIM, THE UNDER TAKING HAS TO BE ITA 2955 & 2956/DEL/10 M/S ARTS BEAUTY EXPORTS 5 FINALLY APPROVED BY THE SEZ AUTHORITIES, WHICH IN T HIS CASE IS NOT EVEN TILL DATE ON ACCOUNT OF NOT OBTAINING BONDING LICEN SE. 3.1. AGGRIEVED, ASSESSEE PREFERRED FIRST APPEAL, WH ERE CIT(A) DECIDED THE ISSUE OF RECONSTRUCTION IN FAVOUR OF THE ASSESSEE. IT WAS HELD THAT THE AO WAS NOT CORRECT IN TREATING THE INTRODUCTION OF A PARTN ER INTO A PARTNERSHIP FIRM AS THE SPLITTING OF RECONSTRUCTION OF BUSINESS ALREADY IN EXISTENCE. EARLIER THE ASSESSEE WAS IN TRADING AND ON RECONSTITUTION CARR IED ON THE BUSINESS OF TRADING AND EXPORT OF HANDICRAFT. A MERE CHANGE IN THE CONSTITUTION OF FIRM, WILL NOT AMOUNT TO SPLITTING OR RECONSTRUCTION OF BUSINESS. 3.2. IN RESPECT OF THE ISSUES ABOUT THERE BEING NO 100% EOU IN EXISTENCE DURING THE YEARS AND THE ASSESSEES ACTIVITIES NOT AMOUNTING TO MANUFACTURING OF ARTICLE OR THING, CIT(A) DECIDED T HESE ISSUES IN FAVOUR OF THE ASSESSEE BY FOLLOWING OBSERVATIONS: 7.2.3. ON CAREFUL AND COHERENT APPRECIATION OF THE SE TERMS, IT WILL BE SUFFICIENT TO TREAT EXISTENCE OF A 100% EOU, IF A VALID LETTER OF PERMISSION HAS BEEN ISSUED IN THI S REGARD BY THE DEVELOPMENT COMMISSIONER. THE CBDT HAS ALREADY CLAR IFIED THAT, WHEREVER SUCH AN ISSUE OF LETTER OF PERMISSIO N WAS FURTHER RATIFIED BY THE BOARD OF APPROVAL, THE APPROVAL SHA LL BE DEEMED TO HAVE BEEN ISSUED FROM THE DATE THE LETTER OF PE RMISSION WAS ISSUED. IN THE CASE OF THE APPELLANT, SINE THE LETT ER OF PERMISSION WAS ISSUED ON 5.5.2005 AND WHICH WAS FURTHER RATIFI ED ON 21.7.2005, THE EOU HAD COME IN EXISTENCE, FOR THE P URPOSE OF SECTION 10B OF THE I.T. ACT, 1961 ON 5.5.2005 ITSEL F. THE LEARNED AO HAS GONE BEYOND THE ABOVE ACCEPTED LEGAL DEFINIT ION OF EOU BY CONTEMPLATING THAT THE EOU SHALL COME INTO E XISTENCE ONLY WHEN VARIOUS PROCEDURAL FORMALITIES ENTAILED I N THE SAID LOP ARE ALSO FULFILLED. HOWEVER, THESE PROCEDURAL F ORMALITIES WERE RELEVANT FOR THE COMPETENT AUTHORITY, WHICH AR E EMPOWERED TO EVEN CANCEL OR REVOKE THE APPROVAL, IF SUCH ESSENTIAL CONDITIONS WERE NOT MET. HOWEVER, FOR THE PURPOSE OF ITA 2955 & 2956/DEL/10 M/S ARTS BEAUTY EXPORTS 6 CLAIMING DEDUCTION UNDER SECTION 10B, IT IS SUFFICI ENT THAT THE LETTER OF PERMISSION IS ISSUED FOR SETTING UP THE H UNDRED PERCENT EOU. SINCE THE RELEVANT COMPETENT AUTHORITIES HAVE DULY ISSUED THE NECESSARY APPROVAL AND HAVE ALSO SORTED OUT THE PROCEDURAL FORMALITIES SUBSEQUENTLY IN THEIR OWN WAY, E.G. EVE N THOUGH THE APPELLANT DID NOT REQUIRED THE FACILITY OF CUSTOM W AREHOUSE, PREVAILED UPON HIM TO HAVE A CUSTOM-BOUND WAREHOUSE AND BASED ON THAT, HAVE NOT REVOKE OR CANCELLED THE APP ROVAL, THEREFORE, THE DELAY IN MEETING THESE CONDITIONS, D ID NOT HAVE ANY BEARING ON THE STATUS OF 100% EOU. THEREFORE, THE OBSERVATIONS OF THE LEARNED AO THAT THE LEGAL AGREEMENT WAS SIGNED ON 24 TH OF JULY 2006 AND BASED ON WHICH, THE RECORD OF THE DEVELOPMENT COMMISSIONER, THE COMMENCEMENT DATE WAS RECORDED AT 22 SEPTEMBER 2006 , WERE NOT RELEVANT FOR DETERMINING WHETHER 100% EOU, IN T ERMS OF THE FOREIGN TRADE POLICY AND THE PROVISIONS OF SECT ION 10B OF THE I.T ACT, 1961, WAS IN EXISTENCE OR NOT W.E.F. 5 .5.2005. 7.3. THE SECOND ESSENTIAL REQUIREMENT FOR GRANT OF DEDUCTION U/S 10B IS VERIFICATION OF THE FACTUM OF COMMENCEME NT OF MANUFACTURING BY THE 100% EOU UNDERTAKING. ON THE B ASIS OF EXAMINATION OF THE VARIOUS EXPENSES CLAIMED BY THE APPELLANT, THE LEARNED AO HAD REACHED TO THE CONCLUSION THAT D ELIVERY EXPENSES ETC. WERE NOT SIGNIFICANT IN THE CASE OF T HE APPELLANT AND THE NEW MACHINERY OF RS. 35,100/- WHICH WAS ACQ UIRED BY THE APPELLATE FIRM DURING THE YEAR FOR THE HUNDRED PERCENT EOU, WAS SO INSIGNIFICANTLY SMALL THAT ANY FRUITFUL MANU FACTURING OPERATIONS CANNOT BE THOUGHT OF. OTHER THAN THIS, N O EVIDENCE WHATSOEVER WAS BROUGHT ON RECORD BY THE LD. AO, WHI CH COULD INDICATE THAT THE APPELLANT DID NOT COMMENCE THE MA NUFACTURING OPERATION DURING THE YEAR. 7.3.1. THE LEARNED APPELLATE COUNSEL ALSO SUBMITTED THAT THE LEARNED AO MADE PASSING REFERENCE TO THE LETTER OBT AINED FROM SEZ NOIDA AND THE EXCISE DEPARTMENT BUT THESE LETTE R WERE NEITHER SUPPLIED NOR ANY OPPORTUNITY PROVIDED TO TH E APPELLANT TO CROSS EXAMINE THEM OR TO EXPLAIN IN THE MATTER S O THAT NO ADVERSE VIEW COULD HAVE BEEN TAKEN BY THE AO OF THE INFORMATION CONTAINED IN SUCH REFERRED LETTERS. IN THIS REGARD, MY ITA 2955 & 2956/DEL/10 M/S ARTS BEAUTY EXPORTS 7 ATTENTION WAS DRAWN TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF KISHAN CHAND CHELLA RAM REPORT ED AT 125 ITR 713 (SC) IN WHICH IT WAS HELD THAT SUCH EVIDENC E CANNOT BE TAKEN INTO CONSIDERATION IF SUCH MATERIAL IS NOT PR OVIDED. 8. ON CAREFUL PERUSAL OF THE VARIOUS DOCUMENTS FURN ISHED BEFORE ME, I FIND THAT THERE WAS A DEFINITE DISTINC TION IN THE WAY THE INDUSTRIAL UNDERTAKING OWNED BY THE APPELLANT F IRM OPERATED IN THE CURRENT ASSESSMENT YEAR AS COMPARED TO THE E ARLIER YEARS. THE PARTNERSHIP DEED RELATING TO THE OLD FIRM, WHIC H WAS LATER RECONSTITUTED ON 18 MAY 2005 W.E.F. 1.4.2005 CLEARL Y PROVIDED THE SCOPE OF THE BUSINESS OF THE FIRM, WHICH WAS RE STRICTED TO TRADING FOR EXPORTS OF HANDICRAFT ITEMS. HOWEVER, V IDE THE NEW PARTNERSHIP DEED, THE SCOPE OF THE BUSINESS OF THE APPELLATE FIRM WAS ENLARGED TO INCLUDE MANUFACTURING FOR THE PURPO SE OF EXPORT OF HANDICRAFT ITEMS. THIS FACT WAS ALSO CLEA RLY BROUGHT ABOUT AND NOTED BY THE TAX AUDITORS WHILE FURNISHIN G THE TAX AUDIT REPORT UNDER SECTION 44AB. ON CAREFUL PERUSAL OF THE PROFIT AND LOSS ACCOUNT FOR THE ASSESSMENT YEAR 200 5-06 AND ASSESSMENT YEAR 2006-07, IT CAN BE CLEARLY OBSERVED THAT THERE WERE NO EXPENSES WHICH WERE ATTRIBUTABLE TO MANUFA CTURING IN THE P AND L ACCOUNT FOR THE PREVIOUS YEAR RELATING TO ASSESSMENT YEAR 2005-06. ON THE OTHER HAND, THE PROFIT AND LOS S ACCOUNT FOR THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2 006-07 SHOWS EXPENSES IN THE NATURE OF WAGES AND ALSO MANU FACTURING EXPENSES. FURTHER, A CAREFUL PERUSAL OF THE VARIOUS ASSETS SHOWN IN THE DEPRECIATION CHART FOR THE ASSESSMENT YEAR 2 005-06 CLEARLY SHOWS THAT THERE WAS NO PLANT OR MACHINERY, WHICH COULD BE UTILIZED FOR THE PURPOSE OF MANUFACTURING OF HANDICRAFT ITEMS. ON THE OTHER HAND, THE STATEMENT OF ASSET F OR THE ASSESSMENT YEAR 2006-07 CLEARLY SHOWS AN ADDITION O F MACHINERY OF RS. 35,100/- WHICH COMPRISED OF VARIOU S TOOLS/ MACHINES USED FOR THE MANUFACTURE OF HANDICRAFT ITE MS. IN THE BUSINESS OF MANUFACTURING OF HANDICRAFT ITEMS, AS T HE NAME SUGGEST, THE MAIN VALUE ADDITION COMES THROUGH HAND -MADE OPERATIONS, FOR WHICH SMALL TOOLS ARE NEEDED WHICH ARE, NOT VERY EXPENSIVE. THEREFORE, EVEN IF THERE IS INSIGNIFICAN T ADDITION IN VALUE TERMS IN THE ASSETS, THE SAME WERE RELEVANT F OR MANUFACTURING OPERATIONS AND CANNOT BE DISREGARDED SUMMARILY. ITA 2955 & 2956/DEL/10 M/S ARTS BEAUTY EXPORTS 8 8.2. THE LEARNED APPELLATE COUNSEL ALSO FURNISHED B EFORE ME A COPY OF THE ENTIRE RANGE OF BILLS OF PURCHASE OF VA RIOUS RAW MATERIALS, SEMI-FINISHED MATERIAL, UNFINISHED MATER IAL, WHICH WERE USED FOR THE PURPOSE OF MANUFACTURING BY THE A PPELLATE FIRM. THE APPELLANT FIRM ALSO FURNISHED EXHIBITS AN D SAMPLES IN ORDER TO EMPHASIZE THE NATURE OF VALUE ADDITION BRO UGHT ABOUT BY THE APPELLATE FIRM ON SUCH SEMI-FINISHED ITEMS. SOME SAMPLE EXHIBITS WERE ALSO FURNISHED TO THE LEARNED AO FOR OBTAINING HIS COMMENTS FOR ADMISSION OF ADDITIONAL EVIDENCE UNDER RULE 46A. HOWEVER, THE LEARNED AO DID NOT EXAMINE THE VALUE A DDITION IN SUCH SAMPLES. THE MINISTRY OF FINANCE, GOVERNMENT OF INDIA HAS CL ARIFIED THE SECTION 2(F) OF THE CENTRAL EXCISE ACT, 1944, TO DE FINE THE TERM MANUFACTURE VIDE TRADE NOTICE NO. 06/2006 DATED 2 4/7/2006, AS UNDER:- 2(F) MANUFACTURE INCLUDES ANY PROCESS:- (I) INCIDENTAL OR ANCILLARY TO THE COMPLETION OF A MANUFACTURED PRODUCT; (II) WHICH IS SPECIFIED IN RELATION TO ANY GOODS IN THE SECTION OR CHAPTER NOTES OF THE FIRST SCHEDULE TO T HE CENTRAL EXCISE TARRIF ACT, 1985 (5 OF 1986) AS AMOU NTING TO MANUFACTURE; OR (III) WHICH, IN RELATION TO THE GOODS SPECIFIED IN THE THIRD SCHEDULE, INVOLVES PACKING OR RE-PACKING OF SUCH GOODS IN A UNIT CONTAINER OR LABELING OR RELABELLIN G OF CONTAINERS INCLUDING THE DECLARATION OR ALTERATION OF RETAIL SALE PRICE ON IT OR ADOPTION OF ANY OTHER TREATMENT ON THE GOODS TO RENDER THE PRODUCT MARKETABLE TO THE CONSU MER, AND THE WORD MANUFACTURE SHALL BE CONSTRUED ACCORDINGLY AND SHALL INCLUDE NOT ONLY A PERSON WHO EMPLOYS HIRED LABOUR IN THE PRODUCTION OR MANUFACTU RE OF EXCISABLE GOODS, BUT ALSO ANY PERSON WHO ENGAGES IN THEIR PRODUCTION OR MANUFACTURE ON HIS OWN ACCOUNT; ITA 2955 & 2956/DEL/10 M/S ARTS BEAUTY EXPORTS 9 8.4. I FIND THAT IN THE BUSINESS OF EXPORT THE WORK ORDERS ARE PLACED ON THE BASIS OF WHICH ONLY GOODS ARE MANUFACTURED. LOOKING TO THE FACTS OF THE CASE, I OBSERVE THAT THESE GOODS ARE P URCHASED AS PER ORDERS GIVING DESCRIPTION OF SHAPE, SIZE, DESIGN, W EIGHT, ETC., WHICH WERE ULTIMATELY MANUFACTURED FOR THEM. THE APPELLAN T FIRM NOT ONLY IS CLEARLY ENGAGED IN THE BUSINESS OF MANUFACTURING FO R WHICH IT PURCHASED SEVERAL FINISHED AND UNFINISHED MATERIAL ON WHICH FURTHER, PROCESSING WAS CARRIED OUT TO MAKE IT SALEABLE IN T HE INTERNATIONAL MARKET. THEREFORE IN VIEW OF THE ABOVE FACTS, IT CA NNOT BE DENIED THAT THE APPELLATE FIRM HAD NOT DONE ANY MANUFACTURING ACTIVITY DURING THE YEAR FOR THE PURPOSE OF EXPORT OF HANDICRAFT IT EMS. 4. LEARNED DR RELIED ON THE ORDER OF AO AND CONTEND S AS UNDER: (I) CIT(A) DID NOT PROVIDE ADEQUATE OPPORTUNITY TO AO W HILE ADMITTING THE ADDITIONAL EVIDENCE, THEREFORE, THE O RDER OF CIT(A) BE SET ASIDE. (II) THE ASSESSEE WAS IN THE BUSINESS OF TRADING/ EXPORT OF THESE GOODS. BY INTRODUCTION OF A PARTNER, THE FIRM HAS BEEN REC ONSTITUTED AND EXPORT ACTIVITY HAS BEEN STARTED, THEREFORE, IT AMO UNTS TO THE FIRMS BUSINESS BEING RECONSTITUTED OUT OF THE EXISTING BU SINESS. (III) THE ASSESSEE DID NOT ACQUIRE CUSTOM BOUND PREMISES DURING THE PERIOD OF THESE TWO YEARS, CONSEQUENTLY, ALL THE OB LIGATIONS CONTAINED IN THE APPROVAL OF DEVELOPMENT COMMISSION ER SEZ, NOIDA WERE NOT FULFILLED. THEREFORE, ASSESSEE DID N OT BECOME A 100% EOU ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT DURING THESE YEARS. (IV) THE ASSESSEES ACTIVITIES OF CARVING, POLISHING, AS SEMBLING AND FINISHING WILL NOT AMOUNT TO MANUFACTURE. THE ASSES SEE BUYS THESE PRODUCTS AND AFTER MAKING SOME MINOR CHANGES THEY ARE EXPORTED IN THE SAME FORM, THEREFORE, NO NEW GOODS COME INT O EXISTENCE. ITA 2955 & 2956/DEL/10 M/S ARTS BEAUTY EXPORTS 10 ASSESSEE NEITHER MANUFACTURES NOR PRODUCED ANY ARTI CLE OR THING. REFERENCE IS MADE TO RELEVANT SECTION 10B(1), WHICH READ AS UNDER: 10B(1) SUBJECT TO THE PROVISIONS OF THIS SECTION, A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A HUNDRED PER CENT EXPORT ORIENTED UNDERTAKING FROM T HE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE F OR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNIN G WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS Y EAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PROD UCE ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CAS E MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE. 4.1. LEARNED DR CONTENDS THAT THE UNDERTAKING IN OR DER TO QUALIFY MUST MANUFACTURE OR PRODUCED ARTICLE OR THINGS WHEREAS I N THE INSTANT CASE ASSESSEE MERELY POLISHES, CARVES, ASSEMBLES AND REP ACKS HANDICRAFT ITEMS, THEREFORE, ACTIVITIES OF THE ASSESSEE DO NOT QUALIF Y FOR DEDUCTION U/S 10-B. RELIANCE IS PLACED ON AOS ORDER. 5. LEARNED COUNSEL FOR THE ASSESSEE AT THE OUT SET ASSAILED THE REVENUES GROUND THAT ADDITIONAL EVIDENCE WAS WRONGLY ENTERT AINED BY THE CIT(A) AND NO OPPORTUNITY WAS GIVEN TO AO. IT IS PLEADED THAT THE SO CALLED ADDITIONAL EVIDENCE WAS NOTHING BUT FOLLOWING DOCUMENTS: (I) COPY OF RTI APPLICATION DATED 11.01.2010 ADDRESSED TO MINISTRY OF COMMERCE AND INDUSTRY, UDYOG BHAWAN, NEW DELHI. (II) COPY OF REPLY DATED 19.01. 20 10 RECEIVED FROM EOU SECTION, MINISTRY OF COMMERCE AND INDUSTRY, GOVERNMENT OF INDIA. (III) AFFIDAVITS OF SUPPLIERS CONFIRMING ABOUT SUPPLYING THE ITA 2955 & 2956/DEL/10 M/S ARTS BEAUTY EXPORTS 11 UNFINISHED, UNASSEMBLED AND INCOMPLETE GOODS TO THE ASSESSEE. (IV) (IV) EXHIBITS 01 AND 02 AS RAW CHESS BOARD AND RAW CHESS PIECES RESPECTIVELY AND ALSO EXHIBITS 03 AND 04 AS FINISHED CHESS BOARD AND FINISHED CHESS PIECES RESPECTIVELY. 5.1. APART FROM THIS ALL THE EVIDENCES WAS PART OF ASSESSMENT PROCEEDINGS. THE LEARNED CIT (A) FORWARDED ALL THIS EVIDENCE TO THE ASSESSING OFFICER WHO FURNISHED A HALF HEARTED REMAND REPORT AND REQU ESTED FOR FURTHER TIME. ASSESSEE FILED REJOINDER TO REMAND REPORT HIGHLIGH TING THE CORRESPONDENCE MADE WITH AO DURING ASSESSMENT PROCEEDINGS ALONGWIT H VARIOUS DOCUMENTS. A REQUEST WAS MADE TO AO FOR SEEKING TIME FOR SUBMI TTING DOCUMENTS WHICH WAS NOT PROVIDED BY THE AO DUE TO WHICH ASSESSEE WA S COVERED BY CLAUSES (B), (C) & (D) OF RULE 46A(L) OF THE INCOME TAX RULES, 1962. 5.2. LEARNED COUNSEL THEN REFERRED TO THE OBSERVATI ON OF CIT(A) ON AOS ATTITUDE IN NOT RESPONDING TO THE REMAND REPORT PRO PERLY, AS UNDER: 6.4. THE LEARNED AO WAS GIVEN ADEQUATE OPPORTUNITY TO EXAMINE THE ADDITIONAL EVIDENCES AT THE TIME OF REM AND REPORT. THE LEARNED AO HOWEVER, DID NOT EXAMINE THE EVIDENC ES ON MERIT WHICH HE COULD HAVE DONE BEFORE SUBMITTING TH E REMAND REPORT. THE SUBMISSION OF THE LEARNED AO THAT HE MA Y BE GIVEN ONE MORE OPPORTUNITY FOR EXAMINING THE AFFIDAVITS B Y SUMMONING EACH AND EVERY DEPONENT IN PERSON, WHEN H E WAS ALREADY GIVEN THE OPPORTUNITY BY ME DURING THE COUR SE OF APPELLATE PROCEEDINGS, WHICH ARE ALREADY ON FOR MOR E THAN 15 MONTHS, IS UNJUSTIFIED AND NOT IN THE INTEREST OF J USTICE TO THE APPELLANT. IN ANY CASE, IT WILL NOT BE MATERIAL TO REST THE CASE ONLY ON THE TESTIMONY OF SUPPLIERS, AS THEY WILL BE ABLE TO CONFIRM SUPPLY OF RAW MATERIAL AND SEMI-FINISHED GO ODS, HOWEVER, WHETHER AND IF THE APPELLANT CARRIED OUT A NY FURTHER ITA 2955 & 2956/DEL/10 M/S ARTS BEAUTY EXPORTS 12 PROCESSING THEREON, WHICH IS A SUBSEQUENT PROCEDURE NOT IN THE KNOWLEDGE OF THE SUPPLIERS, CANNOT BE INFERRED. 5.3. THE REVENUES OBJECTION IS ONLY IN RESPECT OF NOT ALLOWING A REASONABLE OPPORTUNITY TO AO. THE ABOVE FINDINGS OF CIT(A) CLEARLY REVEAL THAT AO DID NOT FILE HIS REMAND REPORT FOR 15 MONTH S AND THEREAFTER AGAIN ASKED FURTHER TIME. THE AOS CONDUCT CANNOT BE ACCE PTED AND THE CIT(A) HAVING PROCEEDED TO DECIDE THE APPEAL AFTER A LONG WAIT OF 15 MONTHS, CANNOT AMOUNT TO NOT GIVING REASONABLE OPPORTUNITY TO THE AO, THEREFORE, THERE IS NO MERIT IN THIS GROUND OF THE REVENUE. 5.4. LEARNED COUNSEL THEN CONTENDS THAT THE AO REJE CTED THE CLAIM OF THE ASSESSEE ON FOLLOWING THREE POINTS: (I) THE ASSESSEE CLAIMED DEDUCTION AFTER RECONSTRU CTION OF THE BUSINESS ALREADY IN THE EXISTENCE. (II). THERE IS NO MANUFACTURING ACTIVITY UNDERTAKE N BY THE ASSESSEE. (III) DATE OF COMMENCEMENT OF PRODUCTION HAS BEEN COMMUNICATED BY THE ASSESSEE HIMSELF TO SEZ AUTHORI ZES ON 22.09.2006 WHICH DATE IS BEYOND FINANCIAL 2005-06. THE UNDERTAKING WILL BE TREATED AS COMMENCING BUSINESS FROM 22.09.2006 BUT NOT FROM THE DATE ON WHICH LOP WAS G RANTED BY DEVELOPMENT COMMISSIONER 05.05.2005. 6. APROPOS FIRST ISSUE I.E. RECONSTRUCTION OF BUSIN ESS, LEARNED COUNSEL SUBMITS THAT THE ASSESSING OFFICER HAS FAILED TO UN DERSTAND THE TERMS MENTIONED IN CLAUSE (II); THERE IS A DIFFERENCE BET WEEN RECONSTRUCTION OR SPLITTING UP WHICH ARE ATTACHED TO B USINESS ALREADY IN EXISTENCE OR CHANGE OF ITA 2955 & 2956/DEL/10 M/S ARTS BEAUTY EXPORTS 13 OWNERSHIP OF THE BUSINESS. IN THE PRESENT CASE, THE BUSINESS WAS NOT SPLIT UP OR RECONSTRUCTED BUT OWNERSHIP OF THE BUSINESS WAS CHANGED AND PART OF THE PROFITS WERE SHARED BY THE NEW PARTNER WHILE OLD P ARTNERS REMAIN THE SAME. ITAT DELHI BENCH IN TECH BOOKS ELECTRONICS SERVICES PVT LTD V ADDL. CIT RANGE-16 (2006 TIOL 107 - ITAT - DEL) HAS HELD AS U NDER: 10.3.4. THE MEANING OF THE WORD RECONSTRUCTION C AN ALSO BE UNDERSTOOD IN THE CONTEXT IN WHICH THIS WORD APPEAR S. IF WE CONSIDER THE SCHEME OF THE SPECIAL PROVISION AND GO THROUGH THE PROVISIONS OF SECTIONS 32, 32A AND 33B AND EXAMINAT ION OF THE SUB-CLAUSES OF SUB-SECTION (2) TOGETHER THEN IT WIL L BE CLEAR THAT THE LEGISLATURE INTENDED TO DISQUALIFY THOSE UNDERT AKINGS WHICH ARE FORMED BY REARRANGING THE COMPONENTS OR EQUIPME NTS OF THE EARLIER BUSINESS AND THAT IS THE REASON THAT SUB-CL AUSE (III) SAYS IN SPECIFIC TERMS THAT THE UNDERTAKING TO BE QUALIF IED FOR EXEMPTION U/S 10B SHOULD NOT BE FORMED BY THE TRANS FER TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. THUS, THE EMPHASIS IS ON THE PREVIOUS BUSI NESS, BUSINESS ALREADY IN EXISTENCE OR OLD BUSINESS ESTAB LISHMENT. HOWEVER, IF THE NEW UNDERTAKING HAS BEEN FORMED AND CONDITIONS LAID DOWN IN VARIOUS CLAUSES OF SUB-SECT ION (2) ARE NOT APPLICABLE, THEN THE EXEMPTION CANNOT BE DENIED TO THE UNDERTAKING MERELY BECAUSE AT SUBSEQUENT STAGE THER E WAS A CHANGE IN THE OWNERSHIP OF THE UNDERTAKING. THE BUS INESS STRUCTURE AND CONTINUITY OF THE BUSINESS ACTIVITY H AS TO BE SEEN AND NOT THE CONTINUITY OF THE SAME OWNERSHIP OF THE UNDERTAKING. THUS, THERE IS A DIFFERENCE BETWEEN TH E OWNERSHIP OF THE UNDERTAKING AND THE BUSINESS ACTIVITY OF THE UNDERTAKING AND IF THE LATTER REMAINS UNAFFECTED OR UNCHANGED B Y SUBSEQUENT CHANGE IN THE OWNERSHIP THEN IT CANNOT BE SAID THAT THE BUSINESS OF THE UNDERTAKING HAS BEEN RECONSTRUCTED. 6.1. ITAT AHMEDABAD BENCH IN ITO VS. ANITA SYNTHETI CS PVT. LTD. REPORTED IN 100 TTJ 277 (AHD) ALSO HELD THAT IN CA SE OWNERSHIP MANAGEMENT AND CONTROL OF THE ASSETS OF A BUSINESS CONTINUED TO REMAIN VESTED IN THE SAME ASSESSEE BOTH PRIOR TO AND SUBSE QUENT TO IT CANNOT BE ITA 2955 & 2956/DEL/10 M/S ARTS BEAUTY EXPORTS 14 TREATED AS RECONSTRUCTION OF THE BUSINESS. IN THIS CASE, THE FIRM REMAINED SAME AND ALL THE OLD PARTNERS CONTINUED AND SHARE O F ONE PARTNER I.E. SHARE OF FATHER WAS GIVEN TO HIS SON. THERE IS NO CHANGE IN OWNERSHIP OF BUSINESS IN THE HANDS OF THE FIRM WHICH IS CONSTITUTED W.E.F 01 .04.2005. THEREAFTER NEW MANUFACTURING ACTIVITIES WERE STARTED AND EOU WAS F ORMED BY THIS NEW FIRM. THE MANUFACTURING ACTIVITIES STARTED AFTER FORMING THIS RECONSTITUTED FIRM AND OLD FIRM DEALT ONLY IN TRADING. THE MACHINE AND TOO LS OF MANUFACTURING WERE PURCHASED BY THE NEW FIRM AND PREMISES WERE ALSO TA KEN FOR EOU FOR THIS NEW MANUFACTURING ACTIVITIES. 6.2. SINCE THE MANUFACTURING ACTIVITIES ARE STARTED NOW IT CANNOT BE HELD THAT THE OLD TRADING BUSINESS HAS BEEN RECONSTITUTE D. 6.3. IT IS PLEADED THAT THE ASSUMPTION OF AO THAT THE ASSESSEES BUSINESS CAME INTO EXISTENCE DUE TO RECONSTRUCTION OF BUSINE SS IS WRONG AND CIT(A) HAS RIGHTLY DECIDED THE ISSUE. 7. (A) THE PROVISIONS OF SECTION 10B DEFINE THE TER M 100% EOU AS UNDER: HUNDRED PERCENT EXPORT-ORIENTED UNDERTAKING MEANS AN UNDERTAKING WHICH HAS BEEN APPROVED AS A HUNDRED PE R CENT EXPORT-ORIENTED UNDERTAKING BY THE BOARD APPOI NTED IN THIS BEHALF BY THE CENTRAL GOVERNMENT IN EXERCIS E OF THE POWERS CONFERRED BY SECTION 14 OF THE INDUSTRIE S (DEVELOPMENT AND REGULATION) ACT, 1951 (65 OF 1951) , AND THE RULES MADE UNDER THAT ACT. (A) THE FOREIGN TRADE POLICY, AS NOTIFIED UNDER SECTION 5 OF THE FOREIGN TRADE (DEVELOPMENT AND REGULATION) ACT, 1992, DEFIN ES THE TERM EOU AS UNDER:- ITA 2955 & 2956/DEL/10 M/S ARTS BEAUTY EXPORTS 15 EOU MEANS AN EXPORT ORIENTED UNIT FOR WHICH AN LO P HAS BEEN ISSUED BY DEVELOPMENT COMMISSIONER. 7.1. IT IS PLEADED THAT AO MISCARRIED HIMSELF IN HO LDING THAT THERE WAS NO CUSTOM BOUND PREMISES AS MENTIONED IN THE APPROVAL IT IS PLEADED THAT THE 100% EOU CAN BE ESTABLISHED IN SEZ WITH OR WITHOUT CUSTOM BOUND PREMISES. IN CASE A PERSON WHO IMPORTS THE GOODS BY PAYING CUSTOM DUTY AND EXPORTS THE GOODS AND CLAIMS CENVAT/ MODVAT, TH E CUSTOM BOUND PREMISES ARE PROCURED. IN THE ASSESSEES CASE ALL T HE GOODS WERE INDIGENOUS PURCHASES AND NOTHING WAS IMPORTED, THEREFORE, THER E WAS NO NEED OF OBTAINING CUSTOM BOUND PREMISES OR APPLYING FOR THE SAME. THEREFORE, A REQUIREMENT WHICH IS NOT ESSENTIAL IN ASSESSEES CA SE HAS BEEN IMPOSED ON THE ASSESSEE AND WRONGLY TAKEN AS A REASON TO DENY THE CLAIM. LEARNED COUNSEL REFERS THE CIT(A)S ORDER AND CONTENDS THAT THE ISSUE ABOUT ASSESSEE HAVING THE PERMISSION OF DEVELOPMENT COMMISSIONER H AS NOT BEEN DISPUTED. THE CONTENTS OF CBDT CIRCULAR HAVE NOT BEEN DISPUTE D, THEREFORE, THERE IS NO BASIS IN THE OBSERVATION OF THE AO THAT ASSESSEE DI D NOT COMPLY WITH THESE LETTERS. 8. APROPOS THE ISSUE ABOUT ASSESSEES ACTIVITIES NO T AMOUNTING TO MANUFACTURING OR PRODUCTION OF ARTICLE OR THINGS, I T IS SUBMITTED THAT: (I) THE GOVERNMENT OF INDIA INTRODUCED SECTION LO-B W.E.F FROM 01.04.1989 WHICH WAS SUBSTITUTED BY THE FINANCE ACT 2000 W.E.F 01.04.2001. THE OBJECT OF THIS SECTION WAS TO ENHAN CE FOREIGN EXCHANGE FOR THE COUNTRY DUE TO WHICH THE POLICY OF THE GOVERNMENT IS INTRODUCED BY THE MINISTRY OF COMMERCE AND INDUS TRY THROUGH DIRECTOR GENERAL OF FOREIGN TRADE FROM TIME TO TIME . THE RELEVANT FOREIGN TRADE POLICY IS PLACED ON PAPER BOOK. IN TH IS POLICY ITA 2955 & 2956/DEL/10 M/S ARTS BEAUTY EXPORTS 16 DEFINITIONS ARE GIVEN AS 'DEVELOPMENT COMMISSIONER ' AT 9.19, 'EOU' AT 9.24, 'MANUFACTURE' AT 9.37, 'RAW MATERIAL ' AT 9.49 AND OF 'SEZ' AT 9.54. IN THE PREAMBLE APART FROM OBJECTIVE , STRATEGIES, PARTNERSHIP, IT ALSO MENTIONS ABOUT ROAD MAP WHICH INDICATES ABOUT THE INTENTION OF GOVERNMENT OF INDIA ABOUT THEIR PL ANNING IN ORDER TO IMPLEMENT THIS FOREIGN TRADE POLICY AND THERE IS A REQUIREMENT OF ITS CONTINUOUS UPDATION. TO ACHIEVE THESE ROAD MAPS, GO VT. OF INDIA INTRODUCED THE SPECIAL ECONOMIC ZONE ACT, 2005. LAT ER ON SECTION LO-AA WAS INTRODUCED BY THE GOVT. W.E.F 10.02.2006. THE DEFINITION OF 'MANUFACTURE' IN SECTION 10AA WAS REQUIRED TO BE TAKEN FROM SECTION 2(R) OF THE SEZ ACT, 2005. THIS DEFINITION PROVIDED UNDER SECTION 2(R) OF 'MANUFACTURE' WHICH IS ALMOST SAME AS PROVIDED IN 9.37 OF THE FOREIGN TRADE POLICY. THIS SHOWS THAT T HE GOVERNMENT OF INDIA INTENDED TO TAKE THE DEFINITION OF MANUFACTUR E IN LIBERAL SENSE AND NOT TO GIVE A RESTRICTED MEANING. THIS DEFINIT ION OF 'MANUFACTURE NOT ONLY MEANS TO MAKE, PRODUCE, FABRICATE, ASSEMBLE, PROCESS BY HAND OR BY MACHINE A NEW PRODUCT HAVING DISTINCTIVE NAME, CHARACTER OR USE. BUT IT SHALL AL SO INCLUDE PROCESSES SUCH AS CUTTING, POLISHING, BLENDING, REPACKING, LABELING, REFURBISHING' ETC. HON'BLE SUPREME COURT IN CIT V GAWLIOR RAYON SILK MANUFACTURING CO LTD 196 ITR 149 HELD THAT: 'IN THE TAX LAWS HAVE TO BE INTERPRETED REASONABLE AND IN CONSONANCE WITH JUSTICE ADOPTING A PURPOSIVE APPROACH. THE CONTEXTUAL MEAN HAS TO BE ASCERTAINED AND GIVEN EFFECT TO. A PROVISION FOR DEDUCTION, EXEMPTION OR RELIEF SHOULD BE CONSTRUCTED REASONABLY AND IN FAVOUR OF ASSESSEE. ITA 2955 & 2956/DEL/10 M/S ARTS BEAUTY EXPORTS 17 (II) THIS DECISION HAS BEEN REFERRED TO BY THE HIGH COURT OF KERALA IN THE CASE OF M/S TATA TEA LIMITED V ACIT IN ITA 8 7 OF 2009 DATED 21.01.2010 WHEREIN DEDUCTION UNDER SECTION LOB WAS DIRECTED TO BE GRANTED BY TAKING LIBERAL MEANING OF THE TERM 'MANU FACTURE' AS MENTIONED IN SECTION 2(R) OF THE SEZ ACT, 2005. THE HON'BLE HIGH COURT REFERRED TO INTENTION OF THE GOVERNMENT OF IN DIA MINISTRY OF COMMERCE IN INTRODUCING FREE TRADE ZONE, SEZ AND EO U IN ORDER TO ENHANCE FOREIGN EXCHANGE OF THE COUNTRY. IT IS HELD THAT THE PROVISIONS AND SCHEME OF SECTIONS LOA, LOAA AND SEC. 10B ARE SIMILAR IN NATURE AND THE WORDING USED IN ALL THESE SECTIONS CARRY S IMILAR MEANING. IT IS HELD THAT THE EOU ENGAGED IN BLENDING, PACKING AND EXPORT OF TEA BAG AND TEA PACKETS WOULD BE ENTITLED FOR DEDUCTION UNDER SECTION LOB. COPY OF THIS DECISION IS PLACED ON PAPER BOOK. (III). IN THE PRESENT CASE THE ASSESSEE IS ENGAGED IN BUSINESS OF MANUFACTURING OF HANDICRAFT AS PER THE ORDERS OF FO REIGN BUYER. AFTER GETTING THE ORDERS COMPLETED BY THE SUPPLIERS IN TH E RAW FORM THE ASSESSEE IN HIS OWN PREMISES GET THEM POLISHED, CAR VED, ASSEMBLED, LABELED AND PACKED. THE PROCESSES FLOW CHART/MANUFA CTURING PROCESS OF THE WORKSHOP HAS BEEN DESCRIBED AT PB 46 AND 47. BY THESE PROCESSES CARRIED ON BY ASSESSEE NEW AND SALEABLE P RODUCTS CAME INTO EXISTENCE WHICH ARE EXPORTED. (IV) THE PROCESSES CARRIED ON IN THE WORKSHOP OF T HE ASSESSEE IS 'MANUFACTURE' WITHIN THE DEFINITION OF SECTION 2(R) OF SEZ ACT, 2005 AS WELL AS UNDER 9.37 OF THE FOREIGN TRADE POLICY 2004 -2009. THE WORD 'SEZ' TILL INTRODUCTION OF SEZ ACT, 2005 WAS ALSO R EQUIRED TO BE TAKEN AS PER FOREIGN TRADE POLICY AND THE WORD 'RAW MATER IAL' INCLUDES ITA 2955 & 2956/DEL/10 M/S ARTS BEAUTY EXPORTS 18 EVEN THE GOODS 'PREVIOUSLY MANUFACTURED'. THUS EVEN IF THE GOOD ARE PREVIOUSLY MANUFACTURED SUPPLIED TO THE ASSESSEE WH ICH THEREAFTER POLISHED, LACQUERED, CARVED, LABELED, ASSEMBLED AND PACKED, THIS PROCESS INVOLVED IN THE WORK SHOP OF THE ASSESSEE I TSELF WOULD BE COVERED WITHIN THE MEANING OF 'MANUFACTURE' UNDER F TP. (V). THE ASSESSEE USED TO GET THE 'MANUFACTURED GO ODS' FROM ITS SUPPLIER AS PER THE 'ORDER FORMS', GIVING INSTRUCT IONS TO SUPPLY THE GOODS IN UNFINISHED/UNPOLISHED FORM ON THE BASIS OF APPROVED SAMPLES, ABOUT SPECIFICATION OF THE GOODS BY WAY OF ITS WEIGHT, THICKNESS AND VARIOUS OTHER INSTRUCTIONS WHICH ARE MENTIONED IN THESE ORDER FORMS. COPIES OF SUCH ORDER FORMS ARE FILED AT PB 24 43. THESE UNFINISHED PRODUCTS ARE CUSTOMARIZED BY THE PROCESS ES UNDERTAKEN BY ASSESSEES WORK SHOP. IN THESE CIRCUMSTANCES, EVEN THE 'MANUFACTURING DONE BY THE SUPPLIERS' WOULD BE TREA TED AS 'MANUFACTURING DONE BY THE ASSESSEE'. (VI) THIS VIEW HAS BEEN EXPRESSED BY THE HON'BLE C ALCUTTA HIGH COURT IN THE CASE OF ADDL CIT V A MUKHERJEE AND CO PVT LTD 113 ITR 718 WHICH HAS BEEN FOLLOWED ALONG WITH THE VARIOUS OTHER DECISIONS OF BOMBAY AND DELHI HIGH COURT, BY THE ITAT DELHI BENCH IN ITO V TECHDRIVE 124 ITD 249. IN THIS CASE, THE HON'BLE IT AT DISMISSED THE DEPARTMENT'S APPEAL AND ALLOWED THE DEDUCTION UNDER SECTION LOB WHEREIN THE SOFTWARE 'MANUFACTURED BY THE SISTER C ONCERN' WAS TREATED AS ASSESSEES MANUFACTURE WITHIN THE MEANIN G OF SECTION LOB. COPY OF THIS DECISION IS FILED IN THE SECOND PAPER OF BOOK JUDGMENTS AT PAGES 26-34. RELEVANT PARA IS AS UNDER: 23. ALL THE ABOVE FACTS, WHICH HAVE NOT BEEN DISPU TED BY THE ASSESSING OFFICER, SHOW THAT THOUGH THE ASSESSE E WAS ITA 2955 & 2956/DEL/10 M/S ARTS BEAUTY EXPORTS 19 USING THE INFRASTRUCTURE AND FACILITIES AVAILABLE W ITH SEACOM FOR PRODUCING THE COMPUTER SOFTWARE, IT WAS BEING DONE UNDER THE SUPERVISION AND CONTROL OF THE PERSONNEL OF THE ASSESSEE. THE ASSESSEE-COMPANY ALS O HAD ITS OWN COMPUTERS AND ITS PERSONNEL ALSO HAD TH EIR LAPTOP COMPUTERS FOR DOING THE INTEGRATION OF THE COMPONENT PROGRAMMMES PRODUCED AT SEACOM, PUNE. THIS ASPECT HAS BEEN BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER IN THE ASSESSEES NOTE DATED 6-9- 2004. THE SOFTWARE DEVELOPMENT CHARGES PAID BY THE ASSESS EE WERE PARTLY FOR THE WORK STATIONS PROVIDED BY SEACO M (RS.27,95,000) AND THE BALANCE OF RS. 12,43,577/- REPRESENTED REIMBURSEMENT OF SALARIES PAID BY SEACO M TO THE ASSESSEES EMPLOYEES (RS. 7,51,800) AND EXPENSE S ON TRAVELING, BOARDING AND LODGING FOR THEM REIMBURSED (RS. 4,91,777). APPARENTLY, THE ASSESSEES EMPLOYEES WER E REQUIRED TO STAY IN PUNE FOR SOMETIME TO CARRY OUT THE WORK OF DEVELOPING THE SOFTWARE AND THEY HAVE TO BE PAID SALARIES AND THE EXPENSES ON THEIR BOARDING AND LOD GING HAD TO BE TAKEN CARE OF. THE SALARIES AND EXPENSES WERE PAID BY SEACOM AND THE ASSESSEE REIMBURSED SEACOM T HE SAME. THE SOFTWARE DEVELOPED BY THE ASSESSEE WITH T HE HELP OF THE INFRASTRUCTURE AND EQUIPMENT PROVIDED B Y SEACOM WERE EXPORTED BY THE ASSESSEE AND FOR THE YE AR UNDER APPEAL SUCH EXPORTS AMOUNTED TO RS. 2,04,82,5 56. THE OTHER CONDITIONS OF THE SECTION, SUCH AS, RECEI PT OF THE SALE PROCEEDS INTO INDIA IN CONVERTIBLE FOREIGN EXC HANGE WITHIN THE PRESCRIBED PERIOD HAVE BEEN SATISFIED. I N THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CIT(APPE ALS) HAS RIGHTLY ACCEPTED THE ASSESSEES CLAIM FOR EXEMP TION UNDER SECTION 10B OF THE ACT. WE AFFIRM HIS ORDER A ND DISMISS THE APPEAL FIELD BY THE DEPARTMENT WITH NO ORDER AS TO COSTS. (VII) THIS ITAT ORDER HAS BEEN AFFIRMED BY DELHI HI GH COURT IN 186 TAXMAN 208. THEREFORE, THE ACTIVITIES OF FINISHING SEMI-FINISHED RAW MATERIAL, SUPPLIED UNDER THE CONTROL AND SUPERVISIO N OF THE ASSESSEE, AMOUNT TO 'MANUFACTURE' BY THE ASSESSEE UNDER SECTI ON LOB OF THE ITA 2955 & 2956/DEL/10 M/S ARTS BEAUTY EXPORTS 20 INCOME TAX ACT. (VIII). HON'BLE SUPREME COURT IN THE CASE OF ORACLE SOFTWARE INDIA LTD. [CA NO. 235/2010 @ SLP NO. 4719/2008 DATED 13 -1-2010], HELD THAT IN LOB THE WORD 'MANUFACTURE' HAS TO BE INTERPRETED IN THE LIBERAL MANNER SUITABLE TO MODERN TECHNOLOGY CHANGE S, AS UNDER: 12. BEFORE CONCLUDING, WE MAY ONCE AGAIN REFER TO THE JUDGMENT OF THIS COURT IN TATA CONSULTANCY SERVICES (SUPRA) IN WHICH AS STATED ABOVE, IT HAS BEEN HELD THAT THERE IS NO DIFFERENCE BETWEEN A SALE OF SOFTWARE PROGRAMME ON A CD/ FLOPPY AND A SALE OF MUSIC ON A CD/ CASSETTE. THERE FORE, IN OUR VIEW, THE JUDGMENT OF THIS COURT IN THE CASE OF GRA MOPHONE CO. OF INDIA LTD. V. COLLECTOR OF CUSTOMS, CALCUTTA, 11 4 ELT 770 WOULD APPLY. IN THAT CASE, THE QUESTION WHICH AROSE FOR DETERMINATION WAS WHETHER RECORDING OF AUDIO CASSET TES ON DUPLICATING MUSIC SYSTEM AMOUNTS TO MANUFACTURE. TH E ANSWER WAS IN THE AFFIRMATIVE. IT WAS HELD THAT A BLANK AU DIO CASSETTE IS DISTINCT AND DIFFERENT FROM A PRE-RECORDED AUDIO CA SSETTE AND THE TWO HAVE DIFFERENT USE AND NAME. APPLYING THE TEST TO THE FACTS OF THE PRESENT CASE, WE HOLD THAT A BLANK CD IS DIF FERENT AND DISTINCT FROM A PRE-RECORDED CD. IN GRAMOPHONE CO. OF INDIA LTD. (SUPRA), IT WAS HELD THAT AN INPUT/ RAW-MATERI AL IN THE ABOVE PROCESS IS A BLANK AUDIO CASSETTE. IT WAS FURTHER H ELD THAT RECORDING OF AN AUDIO CASSETTE ON DUPLICATING MUSIC SYSTEM AMOUNTS TO MANUFACTURE BECAUSE BLANK AUDIO CASSETTE IS DISTINCT AND DIFFERENT FROM PRE-RECORDED AUDIO CASSETTE AND THE TWO HAVE DIFFERENT USES AND NAMES. IN OUR VIEW, THE HIGH COU RT WAS RIGHT IN COMING TO THE CONCLUSION THAT THE JUDGMENT OF TH IS COURT IN GRAMOPHONE CO. OF INDIA LTD. (SUPRA) IS SQUARELY AP PLICABLE TO THE FACTS OF THE PRESENT CASE. WE MAY ADD THAT IN T HE CASE OF TATA CONSULTANCY SERVICES (SUPRA), AS STATED ABOVE, IT HAS BEEN HELD THAT A SOFTWARE PROGRAMME MAY CONSIST OF COMMA NDS WHICH ENABLE THE COMPUTER TO PERFORM DESIGNATED TA SK, BUT THE MOMENT COPIES ARE MADE AND MARKETED, THEY BECOME GO ODS. THEREFORE, APPLYING THE ABOVE JUDGMENT TO THE FACTS OF THE PRESENT CASE, WE ARE OF THE VIEW THAT MARKETED COPI ES ARE GOODS AND IF THEY ARE GOODS THEN THE PROCESS BY WHICH THE Y BECOME ITA 2955 & 2956/DEL/10 M/S ARTS BEAUTY EXPORTS 21 GOODS WOULD CERTAINLY FALL WITHIN THE AMBIT OF SECT ION 80IA(12)(B) READ WITH SECTION 33B BECAUSE AN INDUST RIAL UNDERTAKING HAS BEEN DEFINED IN SECTION 33B TO COVE R MANUFACTURE OR PROCESSING OF GOODS. 13. FOR THE AFORE-STATED REASONS, WE FIND NO MERIT IN THE CIVIL APPEALS FILED BY THE DEPARTMENT, WHICH ARE ACCORDIN GLY DISMISSED WITH NO ORDER AS TO COSTS. 8.1. THUS ACTIVITY OF THE ASSESSEE WOULD ALSO BE C OVERED IN IT AS WITH THIS ACTIVITY AND PROCESS IT RENDERS THE COMMODITY OR AR TICLE FIR FOR USE WHICH OTHERWISE IS NOT FIT FOR USE FOR THE CUSTOMERS AND SO IT CANNOT BE EXPORTED ALSO. HENCE, SUCH OPERATION FALLS WITHIN THE LETTER AND SPIRIT OF MANUFACTURE. 9. APROPOS THIRD OBJECTION ABOUT DATE OF COMMENCEME NT OF EOU, LEARNED COUNSEL CONTENDS THAT THE FINDING OF THE AO THAT ASSESSEE HIMSELF GAVE THE DATE OF COMMENCEMENT OF MANUFACTURING ACTI VITIES TO SEZ AUTHORITIES AS 22-09-2006, IS WITHOUT ANY BASIS BEC AUSE THERE IS NO SUCH LETTER FILED BY THE ASSESSEE NOR ANY SUCH LETTER WAS FOUND IN THE ASSESSMENT RECORD WHICH WAS SENT BY THE DEPARTMENT OF SEZ NOIDA. IN F ACT, THE ASSESSEE REPLIED AND CLARIFIED ABOUT THE SAME IN THE LETTER DATED 19.11.2008 TO THE ASSESSING OFFICER PLACED AT PB 19-20. IN THIS LETTE R THERE WAS SPECIFIC REFERENCE OF THE LETTERS ADDRESSED TO SEZ NOIDA FOR RECTIFYING THE MISTAKES COMMITTED BY THEM. SUBSEQUENTLY ALSO VIDE LETTER D ATED 05.12.2008 AND 12.12.2008 (PB 22 AND 23) SIMILAR CLARIFICATIONS WE RE MADE. IT IS SUBMITTED THAT DURING THE COURSE OF INSPECTION THERE WERE NO SUCH LETTERS FOUND FROM SE.Z NOIDA AND DESPITE REQUEST (PB 48) TO SUPPLY CO RRESPONDENCE MADE BY AO WITH SEZ NOIDA AND CENTRAL EXCISE DIVISION NOTHI NG WAS PROVIDED TO THE ASSESSEE. TILL THE COMPLETION OF THE ASSESSMENT THE ASSESSEE COULD NOT GET THE CLARIFICATIONS FROM SEZ NOIDA OR MINISTRY O F COMMERCE AS TO FROM WHICH DATE IT WOULD BE ENTITLED TO FOR DEDUCTION UN DER SECTION LOB. AT THE ITA 2955 & 2956/DEL/10 M/S ARTS BEAUTY EXPORTS 22 FIRST APPELLATE PROCEEDINGS IT CAME TO THE KNOWLEDG E OF THE ASSESSEE THAT THE CBDT HAD CLARIFIED ABOUT THEIR DECISION TO TAKE VAL IDITY OF APPROVAL GRANTED BY DEVELOPMENT COMMISSIONER WILL BE CONSIDERED VALI D ONCE SUCH AN APPROVAL IS RATIFIED BY THE BOARD OF APPROVAL UNDER EOU SCHEME(PB 44). SUBSEQUENTLY, UNDER RTI, CLARIFICATIONS WERE SOUGHT FROM MINISTRY OF COMMERCE (PB 163), WHICH IN TRUE INFORMED IN THE CA SE OF ASSESSEE ITSELF ABOUT THE RATIFICATION BY BOARD OF APPROVAL ON 21.7 .2005 (PB 164). THESE DOCUMENTS CLEARLY INDICATE THAT THE ASSESSEE WOULD BE ENTITLED FOR DEDUCTION UNDER SECTION 10 B FROM THE DATE ON WHICH LOP WAS G RANTED BY THE DEVELOPMENT COMMISSIONER I.E. 05.05.2005 (PB 160-16 1). IT IS SUBMITTED THAT THIS OBJECTION OF THE AO WAS ALSO WITHOUT ANY BASIS OR MATERIAL ON RECORD WHICH MAY HAVE BEEN OCCASIONED BY SOME COMMU NICATION ERROR, WHICH IS IRRELEVANT. 9.1. FURTHER RELIANCE IS PLACED ON THE ORDER OF ITA T DELHI BENCH IN THE CASE OF DCIT VS. VALLIANT COMMUNICATION LTD. 2010-T IOL-452-ITAT-DEL PB 35-42. 10. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. COMING TO THE FIRST ISSUE ABOUT ADDITIONAL EVIDENCE, WE DO NOT FIND MERIT IN THE GROUND RAISED BY THE REVENUE INASMUCH AS CIT(A) AS A QUASI JUDICIAL AUTHORITY FORWARDED THE ADDITIONAL EVIDENC E FILED BY THE ASSESSEE WHICH IS MENTIONED ABOVE, FOR THE REMAND REPORT/ CO MMENTS OF AO. THE AO DID NOT CARE TO FURNISH THE SAME DESPITE A PERIOD O F 15 MONTHS. IN OUR VIEW, THE AO DID NOT DISCHARGE ITS DUTIES PROPERLY FOR WH ICH CIT(A) CANNOT BE BLAMED. IN VIEW THEREOF, WE DO NOT FIND ANY MERIT I N THE ARGUMENT THAT NO REASONABLE OPPORTUNITY WAS GIVEN TO AO. THIS GROUND OF REVENUE IS REJECTED. ITA 2955 & 2956/DEL/10 M/S ARTS BEAUTY EXPORTS 23 10.1. COMING TO THE ISSUE ON MERITS ABOUT THE ASSES SEES BUSINESS BEING RECONSTITUTED BUSINESS, WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) WHICH CATEGORICALLY HOLDS THAT THE EXPORT BUSINESS OF THE ASSESSEE WAS NOT BECAUSE OF SPLITTING OF RECONSTRUCTION OF BUSINESS, BUT WAS STARTED FROM 1-4-2005. WE FIND MERIT IN THE RELIANCE ON ITAT DELHI JUDGMENT I N THE CASE OF TECH BOOKS ELECTRONICS SERVICES PVT. LTD. VS. ADDL. CIT (2006 TIOL 107-ITAT- DEL); AND ITAT AHMEDABAD BENCH DECISION IN THE CAS E OF ITO VS. ANITA SYNTHETICS PVT. LTD. 100 TTJ 277 (AHD.), MERE INTRO DUCTION OF A PARTNER WILL NOT AMOUNT TO RECONSTRUCTION OF BUSINESS. IT IS ALS O NOT DISPUTED THAT THE MANUFACTURING ACTIVITIES WERE STARTED FOR THE FIRST TIME AS EOU IN THIS YEAR. CONSEQUENTLY, WE UPHOLD THE ORDER OF CIT(A) ON THI S ISSUE. 10.2. COMING TO THE ISSUE ABOUT ASSESSEES ACTIVITY NOT AMOUNTING TO MANUFACTURE OR PRODUCTION OR ARTICLE OR THINGS, LEARNED COUNSEL HAS REFERRED TO VARIOUS PURCHASES FROM DIFFERENT PARTIE S IN WHICH DIFFERENT HANDICRAFT ITEMS AND COMPONENTS OF GAMES ARE ORDERE D. ASSESSEE HAS DEMONSTRATED THAT FINISHED PRODUCT IS A COMMERCIALL Y DISTINCT COMMODITY I.E. 5 INDOOR GAMES, WHICH ARE VERY POPULAR IN F OREIGN COUNTRIES. IT IS PLEADED THAT INDIVIDUAL COMPONENTS ARE ORDERED AS R AW/ SEMI-FINISHED COMPONENTS, WHICH ARE CARVED, POLISHED, FINISHED PU TTING VARIOUS EMBLEMS AND DESIGNS THEREON. THEREAFTER THE REQUISITE GAME S ARE POLISHED, PACKED IN DIFFERENT PACKINGS AND THE FINISHED PRODUCT WORKS A S A DISTINCT AND SEPARATE COMMERCIAL COMMODITY I.E. COMPLETE SET OF 5 GAMES W HEREAS PURCHASES ARE FOR DIFFERENT ITEMS. THE SCOPE AND MEANING OF WORDS MANUFACTURE AND PRODUCTION OF ARTICLE OR THING, AS USED IN SECTION 10B HAS CLOSE RELATIONSHIP WITH THE DEFINITION OF MANUFACTURE IN SEZ ACT A ND THE MEANING REFERRED TO IN FOREIGN TRADE POLICY OF INDIA. SECTION 10B, SEZ ACT AND FOREIGN ITA 2955 & 2956/DEL/10 M/S ARTS BEAUTY EXPORTS 24 TRADE POLICY ARE MUTUALLY INTERDEPENDENT AND THE ME ANING OF THESE WORDS IS TO BE TAKEN IN HARMONIOUS BACKDROP AND NOT IN CONTR ADICTORY CONTEXT. 10.3. THE GOVT. OF INDIA BY WAY OF FOREIGN TRADE PO LICY HAS DEFINED MANUFACTURE NOT ONLY MEANING TO MAKE, PRODUCE, FABRICATE, ASSEMBLE, PROCESS, CALIBRATE BY HAND OR BY MACHINE A NEW PRODUCT HAVING DISTINCTIVE NAME, CHARACTER OR USE SHOULD COME INTO EXISTENCE. THE PROCESS INCLUDE PROCESSES SUCH AS CUTTING, POLISHING, BLENDING, REPACKING, LABELING, REFURBISHING' ETC. 10.4. IN OUR VIEW, HONBLE SUPREME COURT JUDGMENT I N THE CASE OF CIT VS. GAWLIOR RAYON SILK MANUFACTURING CO. LTD. 196 ITR 1 49, HAS THROWN GUIDING LIGHT ON THE INTERPRETATION MEANING AND CON TEXT. THE WORD MANUFACTURE VIS A VIS SEC. 10B CAN BE CORRECTLY U NDERSTOOD WHILE KEEPING THE INTERDEPENDENCE AND PURPORT OF SEC. 10B, FOREIG N TRADE POLICY OF GOVERNMENT OF INDIA AND SEZ ACT. THE SAME PRINCIPLE HAS BEEN ADOPTED BY THE HONBLE KERALA HIGH COURT IN THE CASE OF M/S T ATA TEA LTD. VS. ACIT (SUPRA), WHERE, BLENDING, PACKING AND EXPORT OF TE A BAG AND TEA PACKETS WAS HELD TO BE COVERED AND ELIGIBLE FOR DEDUCTION U/S 1 0B. IN OUR VIEW IN THIS CASE WHAT ASSESSEE PURCHASED WERE DIFFERENT PARTS OF HANDICRAFTS WHICH WERE METICULOUSLY PROCESSED AS ABOVE AND THEN ASSEMBLED IN THE FORM OF A DISTINCT COMMERCIAL COMMODITY I.E. 5 INDOOR GAMES. THE ASSES SEE CARRIED OUT VARIOUS ACTIVITIES OF CARVING, POLISHING AND BRINGING THE D IFFERENT COMPONENTS INTO A COMMERCIAL VIABLE ITEM, CALLED AS MULTIPLE INDOOR G AMES WHICH HAVE BEEN EXPORTED. THE ITEMS ORDERED BY THE ASSESSEE AS PURC HASES ARE TOTALLY DISTINCT FORM AND COULD NOT HAVE BEEN EXPORTED. ITA 2955 & 2956/DEL/10 M/S ARTS BEAUTY EXPORTS 25 10.5. RESPECTFULLY FOLLOWING THE ABOVE AUTHORITIES AND THE CASE LAWS I.E. HONBLE KOLKATA HIGH COURT IN THE CASE OF MUKHERJEE & CO. (SUPRA); ITAT DELHI BENCH DECISION IN THE CASE OF TECH BOOKS ELEC TRONICS SERVICES PVT. LTD. (SUPRA), WE HOLD THAT THE ASSESSEES ACTIVITIE S AMOUNTED TO MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING I.E. MULTIPLE INDOOR GAMES, AS CONTEMPLATED BY SEC. 10B. 10.6. COMING TO THE LAST ISSUE ABOUT ASSESSEES ACT IVITIES HAVING COME INTO EXISTENCE FROM 22-9-2006, IN OUR VIEW THE LEARNED C OUNSEL FOR THE ASSESSEE HAS REFERRED TO VARIOUS DOCUMENTS AND RTI APPLICATI ONS WHICH CLARIFY THE ISSUE AND DEMONSTRATES THAT THE ASSESSEES LOP WAS GRANTED BY THE DEVELOPMENT COMMISSIONER W.E.F. 5-5-2005 WHICH HAS BEEN RATIFIED BY 21- 7-2005 AND THE COMMENCEMENT OF UNIT BY THIS RATIFIC ATION DATES BACK TO 5-5- 2005. THUS, THE ASSESSEE BECAME ELIGIBLE AS A UNIT FOR A.Y. 2005-06 & 2006- 07. THE REFERENCE BY AO TO ASSESSEES LETTER, TREAT ING THE DAE OF COMMENCEMENT AS 22-9-2006 IS MISTAKEN AND IS NOW CL EAR BY RTI CORRESPONDENCE AND CIT(A)S FINDINGS. IN OUR VIEW C IT(A) HAS RIGHTLY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, WHICH WE UPHOLD. 10.7. THE OTHER ASPECT OF CUSTOM BOUND WAREHOUSE IS ALSO CLARIFIED INASMUCH AS THE ASSESSEE NOT BEING AN IMPORTER OF G OODS, THERE WAS NO OCCASION FOR HIM TO CLAIM CENVAT/ MODVAT AND THERE WAS NO REQUIREMENT TO HOLD A CUSTOM BOUND PREMISES. IN OUR VIEW, THE ADVERSE INFERENCE ON THIS ACCOUNT DRAWN BY AO IS NOT CORREC T. IN THE ENTIRETY OF FACTS AND CIRCUMSTANCES, WE ARE INCLINED TO UPHOLD THE OR DER OF CIT(A) ON THESE ISSUES. ITA 2955 & 2956/DEL/10 M/S ARTS BEAUTY EXPORTS 26 7. IN THE RESULT, WE HOLD THAT THE ASSESSEE IS ELIG IBLE FOR ITS CLAIM OF DEDUCTION U/S 10B. CONSEQUENTLY, REVENUES APPEALS FOR BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 03-06-2011. SD/- SD/- ( K.D. RANJAN ) ( R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 03-06-2011. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR