The ACIT, Ernakulam V. M/s.Nitta Gelatine India Ltd, Cochin

ITA 301/COCH/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 5487 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 01-08-2019
• Assessment Year: 2009-2010
• Appeal Filed On: 07-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A S BINDHU
• Assessee Lawyers: V SATYANARAYANAN
• Keywords: Depreciation; Additional depreciation; Cost of acquisition; Benefit of exemption; Commercial expediency; Set aside
• Section: 43B; 40A(3); 32(1)(iia); 191; 192; 32; 10

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFOR E S/ SHRI CHANDRA POOJARI , AM & GEORGE GEORGE K., J M I .T.A. NO. 301 & 303 /COCH / 2017 ASSESSMENT YEAR S : 2009 - 10 & 2010 - 11 THE ASSISTANT COMMISSIONER OF INCOME - TAX, CORPORATE CIRCLE - 2(1), KOCHI. VS. M/S. NITTA GELATIN INDIA LTD., 50/1002, SBT AVENUE, PANAMPILLY NAGAR, KOCHI - 682 036. [PAN:AABCK 1582H] (REVENUE - AP PELLANT) (ASSESSEE - RESPONDENT) REVENUE BY SMT. A.S. BINDHU, SR. DR ASSESSEE BY SHRI V. SATYANARAYANAN, CA D ATE OF HEARING 01/08/2019 DATE OF PRONOUNCEMENT 26 / 0 8 /201 9 O R D E R PER CHANDRA POOJARI, AM: TH ESE TWO APPEAL S FILED BY THE REVENUE ARE DIRECTED AGAINST THE DIFFERENT ORDER S OF THE CIT(A) - I , KOCHI DATED 30/03/2017 AND PERTAIN TO THE ASSESSMENT YEAR S 2009 - 10 AND 2010 - 11. 2. THE REVENUE HAS R AISED THE FOLLOWING GROUNDS OF APPEAL IN ITA NO.301/COCH/2017 AS FOLLOWS: 1. THE ASSESSEE COMPANY, M/S. NITTA GELATIN INDIA LIMITED I S ENGAGED IN THE BUSINESS OF MANUFACTURE AND TRADE OF OSSEIN, DICALCIUM PHOSPHATE AND GELATIN AND FILED ITS RETURN OF INCOM E FOR THE A.Y.2009 - 10 ON 28 - 09 - 2009, DECLARING TOTAL INCOME OF RS.25,63,73 , 738/. THE REGULAR ASSESSMENT WAS COMPLETED U/S.143(3) VIDE ORDER DATED 25 - 03 - 2013 AND THE TOTAL INCOME WAS ASSESSED AT I.T.A. NOS. 301 & 303/COCH/2017 2 RS.27,57,98,420/ - AFTER MAKING VARIOUS ADDITIONS/DISALLOWANCE, INCLUDING THE DISALLOWANCES OF RS.42,18,575 / - AND R S.1,50,03,709/ - . 2. THE ASSESSEE FILED APPEAL AGAINST THE ASSESSMENT BEFORE THE CIT(APPEALS). THE CIT(APPEALS) VIDE ORDER IN ITA N O. 38/R - 4 /E/C I T(A) - II/2013 - 14 DATED 29 - 03 - 2017 DELETED THE DISALLOWANCE OF RS. 42,18,575/ - MADE BY THE AO. THE AO HAS RIGHTLY DISALLOWED THE SAME, SINCE THE PLANT AND MACHINERY WERE ADDED AND PUT TO USE DURING THE PREVIOUS YEAR R ELEVANT TO THE A.Y. 2008 - 09. THE CIT (APPEALS) WAS, THEREFORE, NOT JUSTIFIED IN DELETING THE IMPUG NED DISALLOWANCE . 3. ON THE ISSUE OF DELETION OF ADDITION OF RS.1,50,03,7 0 9/ - U/S.40A(3) OF THE ACT. THIS BEING THE CASH PAYMENT TO THE SUPPLIERS SINCE THE ASSESSEE HA S NOT MADE CASH PURCHASE FROM PRODUCERS BUT FROM MIDDLEMEN AND ALSO NOT FULFILLED THE CONDITIONS OF THE CBDT CIRCULAR NO. 8/2006. THE CIT (A) ALLOWED THE SAID EXPENSE AND DIRECTED TO ALLOW WHILE COMPUTING THE ASSESSED INCOME. 4. BEING AGGRIEVED WITH THE ORDE R OF THE CIT(APPEALS), THE REVENUE PREFERS TO FILE APPEAL U/S.253(1) OF THE ACT BEFO RE THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN. 2.1 THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL IN ITA NO. 303/COCH/2017 AS FOLLOWS: 1. THE ORDER S OF THE CIT(A) - I, KOCHI OPPOSED TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE CIT(A) FAILED TO APPRECIATE ADDITION OF RS.90,32,137/ - MADE BY THE AO ON ACCOUNT OF CLAIM OF ADDITIONAL DEPRECIATION OF 10% RELATING TO ASSETS ACQUIRED AND PUT TO USE IN THE IMMEDIATE PREVIOUS AY 2009 - 10. THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE SAME, SINCE THE PLANT AND MACHINERY WERE ADDED DURING THE PREVIOUS YEAR RELEVANT TO THE AY 2008 - 09. AS PER CLAUSE (II A) OF SUB - SECTION (1) OF SECTION 32 PROVIDES ADDITIONAL DEPRECIATION ONLY IN THE YEAR IN WHICH THE ASSET WAS PUT TO USE. 3. DELETING THE DISALLOWANCE MADE ON ACCOUNT OF CLAIM OF ADDITIONAL DEPRECIATION ON THE COST OF ACQUISITION OF THE EFFLUENT TREATMENT PLANT. THE AO HAS RIGHTLY DISALLOWED THIS CLAIM SINCE THE ASSESSEE HAS NOT CLAIMED IT IN THE RETURN OF INCOME. 4. D E LETION OF ADDITION MADE ON ACCOUNT OF DEDUCTION IN RESPECT OF PROVISION FOR LEAVE ENCASHMENT. THE AO RIGHTLY D ISALLOWED THE CLAIM OF RS.2,17, 266/ - , AS THE ASSESSEE HAS MADE ONLY A PROVISION AND NO PREMIUM WAS PAID. IT MAY BE ALLOWED IN THE SUBSEQUENT YEAR ON PAYMENT BASIS. I.T.A. NOS. 301 & 303/COCH/2017 3 5. DELETING ADDITION OF RS.1,92,16,851/ - BEING AN EXPORT INCENTIVE UNDER THE DUTY ENTITLEMENT PASS BOOK (DEPB) SCHEME. THE AO DISALLOWED THE CLAIM STATING THAT IT CANNOT BE ALLOWED FOR THE NEXT YEAR, AS THE ASSESSEE ALREADY OFFERED TH E TAX IN THEIR RETURN OF INCOME VOLUNTARILY. 6. IT IS PRAYED THAT THE ORDERS OF THE CIT (APPEALS) BE REVERSED AND THAT OF THE ASSESSING OFFICER RESTORED. 7. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS REQUESTED THAT T HE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 3. THE FIRST COMMON GROUND IN THESE APPEALS IS WITH REGARD TO GRANT OF ADDITIONAL DEPRECIATION. 4. THE FACTS OF THE CASE ARE THAT THE DEPRECIATION STATEMENT FILED AS FORM BCD, CLAIMED AN ADDITIONAL DEPRECIATION OF RS.42,18,575/ - IN RESPECT OF PLANT AND MACHINERY WHICH WERE ADDED DURING THE PREVIOUS YEAR RELEVANT TO AY 2008 - 09. A SSESSEE VIDE ITS LETTER DATED 03 - 09 - 2012 STATED THAT, SECTIO N 32(L)(IIA) VESTS WITH THE ASSESSEE THE RIGHT TO CLAIM ADDITIONAL DEPRECIATION AT THE RATE OF 20% OF THE ACTUAL COST OF SUCH MACHINERY OR PLANT. SECTION 32(L)(IIA) NOWHERE SPECIFICALLY DENIES THE ASSESSEE THE RIGHT TO CLAIM THE ADDITIONAL DEPRECIATION ON A RESTRICTIVE BASIS (50%) FOR AN ASSET WHICH IS PUT TO USE FOR THE PURPOSE OF BUSINESS OR PROFESSION FOR A PERIOD OF LESS THAN 180 DAYS. ACCORDING TO THE ASSESSING OFFICER, CLAUSE (II A) OF SUBSECTION (1) OF SECTION 2 PROVIDES ADDITIONAL DEPRECIATION ONLY 'IN THE YEAR IN WHICH THE ASSET WAS PUT TO USE'. IN THE PRESENT CASE, THE ASSET WAS PUT TO USE IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2008 - 09, AND NOT IN THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2009 - 10, HENCE THE ADDITION AL DEPRECIATION CLAIMED I.T.A. NOS. 301 & 303/COCH/2017 4 WAS DISALLOWED. THE ASSESSEE RELIED ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF BAJAJ TEMPO LTD. VS. CIT (196 ITR 188) WHEREIN IT WAS THAT PROVISIONS SHOULD BE APPLIED REASONABLE AND LIBERALLY IN KEEPING WITH THE SPIRIT OF SECTION 32(1)(IIA) OF T HE ACT. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE SAID PROVISO WAS BROUGHT INTO THE ACT TO PROVIDE INCENTIVE OR CREATING JOB AND INCREASE THE PRODUCTION AND IT IS NOT MERELY FOR BUYING MORE PLANT AND MACHINERY. ACCORDING TO THE ASSESSING OFFICER, TO ACHIEVE THE OBJECTIVE, THE NEW PLANT AND MACHINERY SHOULD BE UTILISED FOR MAXIMUM DURATION. THUS, THE ASSESSING OFFICER RESTRICTED THE ADDITIONAL DEPRECIATION TO THE YEAR IN WHICH THE ASSET WAS PUT TO USE AND DISALLOWED THE ADDITIONAL DEPRECIATION CLAI MED BY THE ASSESSEE. 5. ON APPEAL, AFTER EXAMINING THE PROVISIONS OF SECTION 32 AND INTERPRETING THE SAME IN THE LIGHT OF THE JUDGMENT OF THE MADRAS HIGH COURT IN THE CASE OF MM FORGINGS LTD. (349 ITR 673), THE DECISION OF THE ITAT, CHENNAI BENCH IN TH E CASE OF BRAKES INDIA VS. DCIT (144 ITD 403), THE DECISION OF THE ITAT COCHIN BENCH IN THE CA S E OF APOLLO TYRES LTD. (45 TAXMANN.COM 337(COCHIN - TRIB.), THE JUDG MENT OF THE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. RITTAL INDIA PRIVATE LIMITED (380 ITR 428)/ (66 TAXMANN.COM 4) AND OTHER JUDICIAL DECISIONS, THE CIT(A) DELETED THE DISALLOWANCE OF ADDITIONAL DEPRECIATION. 6. THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER. I.T.A. NOS. 301 & 303/COCH/2017 5 7. THE LD. AR SUBMITTED THAT THE ADDITIONAL DEPRECIATION IS A STATUTOR Y INCENTIVE ALLOWANCE U/S. 32(1)(IIA) AS A ONE TIME BENEFIT TO ENCOURAGE INDUSTRIALIZATION. FOR THIS, THE LD. AR PLACED RELIANCE ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF BAJAJ TEMPO LTD. VS. CIT (196 ITR 188) WHEREIN IT WAS HELD THAT THE SAME S HOULD BE CONSTRUCTED REASONABLY, LIBERALLY AND PURPOSIVELY TO MAKE THE PROVISION MEANINGFUL. IT WAS SUBMITTED THAT ONE TIME BENEFIT EXTENDED TO ASSESSEE IS EARNED IN THE YEAR OF ACQUISITION OF NEW PLANT AND MACHINERY AND THE ALLOWANCE WAS RESTRICTED TO 50 % ONLY ON ACCOUNT OF THE USAGE OF PLANT AND MACHINERY FOR LESS THAN 180 DAYS IN THE YEAR OF ACQUISITION, AND IT COULD NOT BE THE INTENT OF THE LEGISLATURE TO DENY THE ASSESSEE THE BENEFIT OF ALLOWANCE OF BALANCE IN THE SUBSEQUENT YEAR, SINCE THE EXPRESSION USED IN SECTION 32(1) (IIA) IS SHALL BE ALLOWED AND AS SUCH, THE ALLOWANCE AS PROVIDED THEREIN IS A MANDATORY ALLOWANCE. IT WAS SUBMITTED THAT THE RESTRICTION BASED ON THE PERIOD OF USAGE CANNOT DIVEST THE ASSESSEES STATUTORY RIGHT OF FULL BENEFIT OF ADDITIONAL DEPRECIATION UNDER SECTION 32(1) (IIA) WHICH IS MANDATORY IN NATURE. IT WAS SUBMITTED THAT THERE IS NO PROVISION IN THE ACT PROVIDING THAT THE BALANCE 50% WILL NOT BE ALLOWED IN SUCCEEDING YEAR. IN SUPPORT OF T HIS CONTENTION, THE LD. AR RELIED ON THE FOLLOWING CASE LAWS: 1. ACIT VS. KITEX GARMENTS LTD. IN ITA NO. 216/COCH/2015 DATED 03/08/2016. 2. APOLLO TYRES LTD. VS. ACIT (45 TAXMANN.COM 337 (COCHIN - TRIB.) 3. ACIT VS. SUD CHEMIE INDIA PVT. LTD. IN ITA NO. 41/COCH/2017 DATED 22/01/20 19 (ITAT, COCHIN BENCH) 4. CIT VS. RITTAL INDIA (P.) LTD. (66 TAXMANN.COM 4 (KARNATAKA) 5. CIT VS. SHRI T.P. TEXTILES (P.) LTD. (79 TAXMANN.COM 411(MADRAS) 6. MITC ROLLING MILLS PVT. LTD. VS. ACIT (ITAT, MUMBAI) 7. DCIT VS. COSMO FILMS LTD. (139 ITD 628) ( DEL.) 8. ACIT VS. SIL INVESTMENTS LTD. (54 SOT 54 (DELHI) I.T.A. NOS. 301 & 303/COCH/2017 6 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. IN OUR OPINION THIS ISSUE WAS CONSIDERED BY THE KARNATAKA HIGH COURT IN THE CASE OF CIT (LTU) AND ANOTHER VS. RITTAL INDIA PVT. LTD. (2016) (380 ITR 428) WHEREIN IT WAS HELD AS UNDER: ADDITIONAL DEPRECIATION ALLOWABLE UNDER SECTION 32(1)(IIA) OF THE INCOME TAX ACT, 1961 IS A ONE - TIME BENEFIT TO ENCOURAGE INDUSTRIALIZATION AND THE RELEVANT PROVISIONS HAVE TO BE CONSTRUED REASONABLY AND PURPOSIVELY. THE ADDITIONAL DEPRECIATION IS ALLOWED IN THE YEAR OF PURCHASE AND IF IN THE YEAR OF PURCHASE, THE ASSESSEE IS ELIGIBLE ONLY FOR 50 PER CENT, DEPRECIATION, THE BALANCE 50 PER CENT, CAN BE CARRIED FORWARD FOR THE SUBSEQUENT YEAR. 8.1 IN T HE PRESENT CASE, THE ASSESSEE HAS PURCHASED PLANT AND MACHINERY IN THE SECOND HALF OF THE FINANCIAL YEAR 2008 - 09 RELEVANT TO THE ASSESSMENT YEAR 2009 - 10 AND CLAIMED 50% ADDITIONAL DEPRECIATION, THEREFORE, THE BALANCE ADDITIONAL DEPRECIATION OF 50% IS TO BE ALLOWED IN THE NEXT ASSESSMENT YEAR, I.E., 2010 - 11 AS HELD BY THE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. RITTAL INDIA PVT. LTD. CITED SUPRA. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN ALLOWING BALANCE 50% DEPRECIATION IN T HE I MMEDIATE NEXT YEAR. THUS, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED . 9. THE NEXT GROUND, GROUND NO. 3 IN ITA NO. 301/COCH/2017 IS WITH REGARD TO THE DISALLOWANCE OF CASH PAYMENTS MADE TO SUPPLIERS OF ANIMAL CRUSHED B ONES U/S . 40A(3 ) OF THE AC T. 10. THE FACTS OF THE CASE ARE THAT ONE OF THE MAIN RAW MATERIALS USED BY THE ASSESSEE IS C RUSHED ANIMAL BONE (CB). CB IS A PRODUCE OF ANIMAL HUSBANDRY, BY I.T.A. NOS. 301 & 303/COCH/2017 7 MINIMAL PROCESS OF CRUSHING THE BONES OF BOVINE ANIMALS, WITH MINIMAL PROCESS OF CLEANING AND DR YING. THE ASSESSEE GENERALLY MAKES PAYMENT TO THE CB SUPPLIERS BY ACCOUNT PAYEE CHEQUES. HOWEVER, IT WAS NOTICED THAT SOME OF THE PURCHASES WERE MADE ON DELIVERY AT ASSESSEE'S FACTORY BASIS WITH PRICES INCLUSIVE OF FREIGHT . IN SUCH CASES THE SUPPLIERS TR ANSPORTS GOODS BY MOTOR LORRIES TO ASSESSEE'S FACTORY. AS PER THE INDUSTRY PRACTICE THE MOTOR LORRIES ARE HIRED BY THE SUPPLIER ON ONETIME BASIS, DEPENDING ON THE AVAILABILITY. IN THE ABSENCE OF REGULAR CONTACTS, THE LORRY FREIGHT IS REQUIRED TO BE PAID IN CASH AT THE TIME OF DELIVERY AT FACTORY. HOWEVER, CB SUPPLIERS INDICATE THE LORRY NUMBER AND THE FREIGHT PAYABLE IN THE INVOICES. ASSESSEE PAY THE FREIGHT IN CASH TO LORRY DRIVERS BY DEBIT TO RESPECTIVE CB SUPPLIER ACCOUNT. AFTER REDUCING THE FREIGHT PAID IN CASH THE BALANCE AMOUNT DUE TO SUPPLIERS WERE MADE BY ACCOUNT PAYEE CHEQUES. ACCORDING TO ASSESSEE THE FREIGHT COMPONENT PAID IN CASH TO CB SUPPLIERS ARE COVERED BY PROVISIONS OF RULE 6DD AND HENCE NOT TO BE DISALLOWED U/S 40A (3) OF THE I.T ACT BEING PAYMENT IS MADE FOR THE PURCHASE OF 'PRODUCE OF ANIMAL HUSBANDRY'. HOWEVER, THE ASSESSING OFFICER HELD THAT THE CB IS AN INDUSTRIAL PRODUCT AND NOT A PRODUCE OF ANIMAL HUSBANDRY AND THE CERTIFICATE ISSUED BY THE LIVESTOCK PRODUCTS INSPECTING OFFICER OF KE RALA STATE ANIMAL HUSBANDRY DEPARTMENT MERELY STATE S THAT THE CRUSHED BONE IS A PRODUCT FALLING UNDER THE PURVIEW OF THAT DEPARTMENT ACCORDING TO THE ASSESSING OFFICER VIDE CIRCULAR NO. 8/2006 (6 - 10 - 2006) , IT WAS CLARIFIED THAT EXEMPTION WILL NOT BE AVAIL ABLE IN RESPECT OF PAYMENTS FOR THE PURCHASE OF LIVESTOCK, MEAT, HIDES AND SKINS FROM A PERSON WHO IS NOT PROVED TO BE THE PRODUCER OF THESE GOODS AND IS ONLY A TRADER , BROKER OR ANY OTHER MI DDLEMEN BY WHATEVER NAME CALLED . THE SAME CIRCULAR ALSO I.T.A. NOS. 301 & 303/COCH/2017 8 GIVE ADD ED BENEFIT BY INCLUDING ANY PERSON, BY WHATEVER NAME CALLED, WHO BUYS ANIMALS FROM THE FARMERS, SLAUGHTERS THEM AND THEN SELLS THE RAW MEAT CARCASSES TO THE MEAT PROCESSING FACTORIES OR TO THE TRADERS/RETAIL OUTLETS WOULD BE CONSIDERED AS PRODUCER OF LIVES TOCK AND MEAT. THUS, THE ASSESSING OFFICER WAS OF THE VIEW THAT IN ORDER TO AVAIL THE BENEFIT AS PER RULE 6DD THE PRODUCER NEED TO FURNISH. I) A DECLARATION FROM THE PERSON RECEIVING THE PAYMENT THAT HE IS A PRODUCER OF MEAT; II) A CONFIRMATION THA T THE PAYMENT, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT, WAS MADE ON HIS INSISTENCE; AND III ) A FURTHER CONFIRMATION FROM A VETERINARY DOCTOR CERTIFYING THAT THE PERSON SPECIFIED IN THE CERTIFICATE IS A PRODUCER OF MEAT A ND THAT SLAUGHTERING WAS DONE UNDER HIS SUPERVISION. 10.1 ACCORDING TO THE ASSESSING OFFICER, IN THE CASE OF FISH AND FISH PRODUCTS CIRCULAR NO 10/2008 DATED 5/12/2008 CLEARLY STATED THAT EXCEPTION WILL NOT BE AVAILABLE ON THE PAYMENT FOR THE PURCHASE OF FISH OR FISH PRODUCTS FROM A PERSON WHO IS NOT PROVED TO BE A PRODUCER OF THESE GOODS AND IS ONLY A TRADER, BROKER OR ANY OTHER MIDDLEMEN, BY WHATEVER NAME CALLED. 10.2 ACCORDING TO THE ASSESSING OFFICER, EVEN IF THE ARGUMENT OF THE ASSESSE THAT CRU SHED BONE IS AN ANIMAL PRODUCE, BENEFIT OF RULE 6DD IS NOT AVAILABLE, AS THE ASSESSEE IS NOT PURCHASING THE CRUSHED BONE FROM THE PRODUCER. 11 . ON APPEAL, THE CIT (A) EXTENSIVELY DISCUSSED THE ISSUE AND DELETED THE DISALLOWANCE OF RS.1,50,03,709/ - BY OBSE RVING AS FOLLOWS: I.T.A. NOS. 301 & 303/COCH/2017 9 1) THE DEPARTMENT OF ANIMAL HUSBANDRY, MINISTRY OF AGRICULTURE, GOVERNMENT OF INDIA HAS CLARIFIED THAT CRUSHED BONES IS A MATTER WITHIN THE JURISDICTION OF ANIMAL HUSBANDRY AND AGRICULTURE. 2) A NARROW INTERPRETATION THAT EXCLUDES CRUSH ED BONE, THAT MAY MERELY BE CRUSHED AND THEREBY RETAINING THEIR ORIGINAL ELEMENT FORM AND CHEMICAL CONFIGURATION), AS A PRODUCE OF LIVESTOCK BY THE A O IS NOT PROPER AS THE DEPARTMENT OF ANIMAL HUSBANDRY OF GOVERNMENT OF INDIA HAS CLASSIFIED CRUSHED BONE AS A PRODUCE OF ANIMAL HUSBANDRY. 3) THE TERM 'PRODUCE OF ANIMAL HUSBANDRY' PROVIDED IN RULE 6DD (E) IS AN INCLUSIVE DEFINITION AND INCLUDES LIVESTOCK, MEAT, HIDES AND SKINS. THEREFORE, CRUSHED BONES WOULD STAND INCLUDED THEREIN. 4) IF THE AO'S ARGUMENTS WE RE ACCEPTED AND EVEN CASH PURCHASE OF HIDES AND SKINS WOULD NEED TO BE MADE IN THEIR RAW AND DRIPPING WITH BLOOD AND LADEN WITH REMAINS OF MEAT FORM TO RENDER THE PURCHASE MADE IN CASH SUFFICIENTLY QUALIFIED TO AVAIL THE BENEFIT OF RULE 6DD. 5) AO APPEAR S TO HAVE NOT OBSERVED OR IGNORED THAT CBDT'S CIRCULAR NUMBER 10/ 2008 DATED 5 DECEMBER 2008 REFERENCED BY AO RELATE TO 'THE PAYMENT FOR PURCHASE OF FISH OR FISH PRODUCTS' AND SIGNIFICANTLY DID NOT EMPLOY THE TERM 'FISH PRODUCE'. THEREFORE, RULE 6DD ITSELF AND READ WITH CBDT CIRCULAR NUMBER 10/2008 AS ABOVE AS INCLUDED WITHIN 'PRODUCTS' OF ANIMAL ORIGIN AND HAS NOT CONTEXTUALLY DISTINGUISH SUCH PRODUCTS FROM PRODUCE. 6) THE RULE 6DD AND THE CIRCULARS REFERENCED BY AO ARE MORE CONCERNED ABOUT PRESENCE OF TR ADERS, MIDDLEMEN AND BROKERS TRYING TO MAKE RAPID KILLINGS OUT OF STATUTORY PROVISIONS BEING THE BENEFICIAL EXEMPTIONS PROVIDED TO PAYMENTS MADE IN CASH A N D THEREFORE ARE SEEN TO ATTEMPT TO CUT OFF AND CLOSE SUCH UNDESIRABLE BENEFICIARIES FROM THE PURVIEW OF BENEFITS CONCERNED. THE PROCESSES UNDERGONE BY THE PRODUCE OR PRODUCTS ARE SUBSUMED BY THE POSITION THAT SUCH PRODUCE OR PRODUCTS ARE PURCHASED DIRECTLY FROM PRODUCERS, IF SUCH POSITION IS PROVED TO BE FACT. 7) IN VIEW OF THE ABOVE THE CIT (A) HELD TH AT PROCESSES UNDERGONE BY CRUSHED BONES DIRECTLY FROM PRODUCERS PRIOR TO THEIR ARRIVAL FOR USE IN THE FACTORY PREMISES OF THE RESPONDENT - ASSESSEE DO NOT RENDER THEM AS NON - PRODUCE OF ANIMAL HUSBANDRY IN ANY MANNER AND THAT THE MATTER OF WHAT REALLY CONSTIT UTE A PRODUCE OF ANIMAL HUSBANDRY WILL NEED TO BE DEALT AND DECIDED UPON A REASONABLE, PRACTICABLE AND FAIR MANNER AFTER TAKING INTO CONSIDERATION THE NATURE OF CLAIMANTS BUSINESS ACTIVITIES AND THE NATURE OF PROCESSES UNDERGONE BY SUCH PRODUCE AND THE DEF INITIONS AND OPINIONS OF GOVERNMENT AUTHORITIES PROCESSED OF THE NECESSARY JURISDICTION. I.T.A. NOS. 301 & 303/COCH/2017 10 8) THE CIT(A) ALSO EXAMINED THE DECISIONS OF SUPREME COURT IN THE CASE OF ATTAR SINGH GURMU K H SINGH ( 191 ITR 667 ) , CIT VS . CPL TANNERY ( 31 8 1TR 179 ) (CAL), CIT VS . CRESCENT E XPORT S YNDICATE (ITA NUMBER 202 OF 2008 ) 9) THE ASSESSING OFFICER HAD NOT QUESTIONED THE GENUINENESS OF THE TRANSACTIONS OR THE PAYMENTS OR THE IDENTITY OF THE SUPPLIERS. 11.1 THUS, O N THE BASIS OF ABOVE THE CIT(A) HELD THAT THE ASSESSEE PA SSED THE TEST OF EXEMPTION OFFERED UNDER RULE 6DD AND THE CB THAT HAVE BEEN PURCHASED AND PAID FOR IN CASH ARE PRODUCE OF ANIMAL HUS BANDRY . 12. AGAINST THIS , THE REVENUE IS IN APPEAL BEFORE US. THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER. 13. THE LD. AR SUBMITTED THAT THE EXEMPTION FROM APPLICATION OF SECTION 40A(3) AS PROVIDED IN CLAUSE (E) OF RULE 6D D OF THE ACT (COVERED BY CLAUSE (F) THEREOF UPTO 7 TH AMENDMENT RULES W.E.F. AY 2009 - 10 STATES AS UNDER: E) WHERE THE PAYMENT IS MADE FOR THE PURCHASE OF - I) AGRICULTURAL OR FOREST PRODUCE; OR II)THE PRODUCE OF ANIMAL HUSBANDRY (INCLUDING LIVESTOCK, MEAT, HIDES AND SKINS) OR DAIRY OR POULTRY FARMING; OR III) FISH OR FISH PRODUCTS; OR IV) THE PRODUCTS OF HORTICULTURE OR APICULTURE TO THE CULTIVATOR, GROWER OR PRODUCER OF SUCH ARTICLES, PRODUCE OR PRODUCTS. THE EXEMPTION AS PER CLAUSE (II) STATE THAT THE PRODUCE OF ANIMAL HUSBANDRY INCLUDE LIVESTOCK, MEAT, HIDES AND SKINS. AS PER THESE PROVISIONS WHERE THE PAYMENT IS MADE FOR PURCHA SE OF VARIOUS ITEMS MENTIONED THEREIN, WHICH INCLUDES THE PRODUCE OF ANIMAL HUSBANDRY INCLUDING LIVESTOCK, MEAT, HIDES AND SKINS OR DIARY OR POULTRY I.T.A. NOS. 301 & 303/COCH/2017 11 FARMING TO THE CULTIVATOR, GROWER OR PRODUCER OF SUCH ARTICLES, PRODUCE OR PRODUCTS, ARE NOT TO BE SUBJECTE D TO DISALLOWANCE U/S. 40A(3). IN VIEW OF THE A BOVE, IT WAS SUBMITTED THAT WHAT IS IMPORTANT IS NOT THE ACTIVITY OF ANIMAL HUSBANDRY PER SE, BUT WHETHER THE PAYMENT IS MADE FOR THE PURCHASE OF THE PRODUCE OF ANIMAL HUSBANDRY TO THE PRODUCER OF SUCH ARTICL ES, PRODUCE OR PRODUCTS. IT WAS SUBMITTED THAT THE ANNUAL REPORT OF THE DEPARTMENT OF ANIMAL HUSBANDRY AND DAIRY & POULTRY FARMING UNDER THE MINISTRY OF AGRICULTURE, GOVERNMENT OF INDIA, CLEARLY LIST THE LIVESTOCK PRODUCTS AS PER ANNEXURE XII OF THE SAID ANNUAL REPORT CLEARLY MENTIONS BONE & BONE PRODUCTS (INCLUDING CRUSHED BONES, GRIST, BUTTONS, PEARLS, HANDICRAFT ITEMS ETC) AS PRODUCE OF ANIMAL HUSBANDRY. IT WAS SUBMITTED THAT LIVESTOCK PRODUCTS INSPECTING OFFICER, STATE LABORATORY FOR LIVESTOCK, MARINE AND AGRI PRODUCTS, GOVT OF KERALA HAS ISSUED A CERTIFICATE THAT CRUSHED BONE UNDER REFERENCE IS A PRODUCT FALLING UNDER THE PURVIEW OF ANIMAL HUSBANDRY DEPARTMENT . IT WAS SUBMITTED THAT THE V IEW TAKEN BY THE AO THAT THE LIVESTOCK PRODUCT INSPECTING OFFICE R, GOVT OF KERALA MERELY STATES THAT CRUSHED BONE IS A PRODUCT FALLING UNDER THE PURVIEW OF THAT DEPARTMENT ITSELF CONFIRMS THAT CRUSHED BONE 'IS A PRODUCT FALLING UNDER THE PURVIEW OF ANIMAL HUSBANDRY DEPARTMENT.' WHICH IS IN LINE WITH THE OFFICIAL VIEW O F MINISTRY OF AGRICULTURE, GOVT OF INDIA, AS REFLECTED IN THEIR ANNUAL REPORT REFERRED ABOVE. IT WAS SUBMITTED THAT THE A O WAS NOT JUSTIFIED IN REJECTING THE CERTIFICATE WITHOUT GIVING ANY VALID REASONS. THE ASSESSEE'S SUBMISSION WAS SUPPORTED BY THE FACT THAT CRUSHED BONE IS A PRODUCE OF LIVESTOCK IS CONFIRMED BY MINISTRY OF AGRICULTURE, DEPARTMENT OF ANIMAL HUSBANDRY REFERRED ABOVE. I.T.A. NOS. 301 & 303/COCH/2017 12 13.1 PROCESSING DONE ON THE 'BONE' TO 'CRUSHED BONE' INVOLVE ONLY SIMPLE CLEANING, DRYING AND CRUSHING OF RAW ANIMAL BON ES OF BOVINE ORIGIN. IT WAS SUBMITTED THAT THE ASSESSING OFFICER ERRED IN TREATING 'CRUSHED BONES' AS AN INDUSTRIAL PRODUCT AGAINST THE SETTLED JUDICIAL VIEWS IN THE MATTER AS BELOW: I. CIT VS. INTERSEA S, SEA FOOD EXPORTERS (233 CTR 77) (KER.) WHEREIN T HE ASSESSEE MADE MASSIVE PURCHASES FROM VARIOUS SUPPLIERS OF PROCESSED FISH BY PAYING CASH INSTEAD OF MAKING PAYMENT THROUGH ACCOUNT PAYEE CHEQUES OR DEMAND DRAFTS AS REQUIRED UNDER SECTION 40A(3) OF THE IT ACT . WHEN PROPOSAL WAS MADE IN THE ASSESSMENT TO MAKE DISALLOWANCES OF PURCHASES IN EXCESS OF RS . 20000 THROUGH PAYMENT IN CASH, THE ASSESSEE CLAIMED THE BENEFIT OF EXEMPTION PROVIDED UNDER R. 6DD (F)(III) 'IT IS WORTHWHILE TO NOTE THAT PRODUCE OF ANIMAL HUSBANDRY COVERED BY SUB - CL.(II) OF CL. ( F) TAKES IN EVEN HIDES AND SKINS. HIDES AND SKINS ARE OBTAINED IN THE PROCESS OF TAKING MEAT FROM THE SLAUGHTERED ANIMAL. PAYMENTS MADE TO EVEN INDUSTRIES ENGAGED IN MANUFACTURE OF FISH PRODUCTS ARE COVERED BY THE EXEMPTION CLAUSE CONTAINED IN CL ( III). WE FEEL THE EXEMPTION CLAUSE GENERALLY COVERS A CLASS OF GOODS IN ALL FORMS WITHOUT CONFINING ITSELF TO ANY PARTICULAR FORM LEAVING OTHER FORMS OF IT FROM THE VERY SAME CLASS. WHEN FISH AND EVEN MANUFACTURED PRODUCTS OF FISH ARE COVERED BY THE EXCEPTION CLAUSE, WE SE E NO REASON WHY THE PROCESSED FISH WHICH IS AN INTERMEDIARY, SHOULD BE TAKEN OUT OF THE SCOPE CAUSE THE GOVERNMENT UNDER THE RULE CONSIDERS FISH ONLY IN TWO FORMS, EITHER FISH AS SUCH OR IN ITS PRODUCT FORM. IN OTHER WORDS, SUB - R ( III ) OF R.6DD( F) COVERS A LL FORMS OF FISH, THOUGH THE BROAD CLASSIFICATION IS ONLY BETWEEN FISH AND FISH PRODUCTS. SO MUCH SO, IN OUR VIEW, SINCE THE PROCESSED FISH PURCHASED IS NOT FISH IN THE SAME FORM IT IS OBTAINED, IT FALLS WITHIN THE MEANING OF FISH PRODUCT UNDER THE ABOVE R ULE. SINCE WE HAVE ACCEPTED THE CONTENTION OF THE ASSESSEE THAT THE PROCESSED FISH PURCHASED IS FISH PRODUCT WITHIN THE MEANING OF THAT TERM IN THE RULE, WE HAVE TO NECESSARILY HOLD THAT THE SUPPLIER NAMELY, THE PROCESSOR OFFISH, IS CERTAINLY PRODUCER TO W HOM PAYMENTS ARE MADE. THEREFORE, WE ARE OF THE VIEW THAT THE TRIBUNAL RIGHTLY HELD THAT R.6DD ( F )( II ) OF THE IT RULES SQUARELY APPLY TO THE PROCESSED FISH PURCHASED BY THE ASSESSEE AND SO MUCH SO, THEY ARE ENTITLED TO EXEMPTION AVAILABLE UNDER S. 40A(3 ) . W E THEREFORE, ANSWER THE FIRST QUESTION STATED ABOVE IN FAVOUR OF THE ASSESSEE AND AGAINST REVENUE. IN RESPONDENT ASSESSEE'S CASE, THE PRODUCT IS CRUSHED BONE WHICH IS A DIRECT PRODUCT PRODUCED OF ANIMAL HUSBANDRY (LIVESTOCK) BY EXTRACTING THE BONE AT THE TIME OF SLAUGHTERING AND BY DOING CERTAIN MINOR PROCESS (LIKE REMOVING WASTE, I.T.A. NOS. 301 & 303/COCH/2017 13 WASHING, DRYING AND CRUSHING), AND AS PER THE PROVISIONS OF SUB CL.(E) (II) OF RULE 6DD, PAYMENT CAN BE MADE EVEN TO THE PRODUCER OF SUCH ARTICLE WHICH INCLUDES PRODUCE OF ANIMA L HUSBANDRY OR DIARY OR POULTRY FARMING. II . CIT VS. CPL TANNERY (318 ITR 179 ) ( KOL ) WHEREIN THE COURT CONCURRED WITH THE FINDING OF THE TRIBUNAL A ND HELD; 'WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE ARGUMENTS ADVANCED FROM, BOTH SIDES AND ALSO P ERUSED CAREFULLY THE RELEVANT PAPERS. WE FIND THAT THE ASSESSING OFFICER IN HIS ORDER AT PARAGRAPH 3.8 STATES THAT 'THE ASSESSEE HAS ALSO ADMITTED THAT THEY COLLECT RAW HIDES/SKINS FROM VILLAGES FROM THE ORIGINAL SKIN PEELERS, PROCESS THESE HIDES AND SKINS TO SOME EXTENT AND ONLY AFTER THAT, THOSE SKINS/HIDES ARE SOLD TO TANNERY'. THUS, THE ASSESSING OFFICER ADMITS THAT THE SMALL SUPPLIERS OF HIDES AND SKINS DO CARRY OUT PROCESSING AFTER OBTAINING THE GOODS FROM ORIGINAL SKIN PEELERS. THE COMMISSIONER OF IN COME TAX (APPEALS) ALSO IN HIS ORDER AT PARAGRAPH 2.2 DESCRIBES THAT PROCESSING IS DONE BY THESE SUPPLIERS. THUS, THE FACT THAT PROCESSING IS DONE IS NOT DISPUTED BY THE AUTHORITIES BELOW. THE VIEW THAT PROCESSING IN THIS CASE CANNOT BE EQUATED TO PRODUC TION WILL RENDER THE INTERPRETATION OF THE WORD 'PRODUCTION' USED IN RULE 6DD(F) EXTREMELY TECHNICAL AND MEANINGLESS AND WILL FRUSTRATE THE PROVISIONS OF THE RULE. RULE 6DD WAS CREATED TO CARVE OUT EXCEPTIONS OF THE RIGOROUS OF SECTION 40A(3) AND SUCH EXCE PTIONS ARE TO BE UNDERSTOOD IN THE BACKGROUND OF COMMERCIAL . 'WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE ARGUMENTS ADVANCED FROM BOTH SIDES AND ALSO PERUSED CAREFULLY THE RELEVANT PAPERS. WE FIND THAT THE ASSESSING OFFICER IN HIS ORDER AT PARAGRAP H 3.8 STATES THAT 'THE ASSESSES HAS ALSO ADMITTED THAT THEY COLLECT RAW HIDES/SKINS FROM VILLAGES FROM THE ORIGINAL SKIN PEELERS, PROCESS THESE HIDES AND SKINS TO SOME EXTENT AND ONLY AFTER THAT, THOSE SKINS/ HIDES ARE SOLD TO TANNERY'. THUS, THE ASSESSING OFFICER ADMITS THAT THE SMALL SUPPLIERS OF HIDES AND SKINS DO CARRY OUT PROCESSING AFTER OBTAINING THE GOODS FROM ORIGINAL SKIN PEELERS. THE COMMISSIONER OF INCOME TAX (APPEALS ) ALSO IN HIS ORDER AT PARAGRAPH 2.2 DESCRIBES THAT PROCESSING IS DONE BY THESE SUPPLIERS. THUS, THE FACT THAT PROCESSING IS DONE IS NOT DISPUTED BY THE AUTHORITIES BELOW. THE VIEW THAT PROCESSING IN THIS CASE CANNOT BE EQUATED TO PRODUCTION WILL RENDER THE INTERPRETATION OF THE WORD 'PRODUCTION' USED IN RULE 6DD(F) EXTREMELY TECHNIC AL AND MEANINGLESS AND WILL FRUSTRATE THE PROVISIONS OF THE RULE. RULE 6DD WAS CREATED TO CARVE OUT EXCEPTIONS OF THE RIGOROUS OF SECTION 40A(3) AND SUCH EXCEPTIONS ARE TO BE UNDERSTOOD IN THE BACKGROUND OF COMMERCIAL EXPEDIENCY AND OTHER RELEVANT FACTORS. THIS HAS BEEN ACCEPTED BY THE CENTRAL BOARD OF DIRECT TAXES BY ISSUING PRESS NOTE DT. MAY 2, 1969, AND THE VIEW THAT PRODUCTS OTHERWISE COVERED UNDER RULE 6DD, WHEN SUBJECT TO SOME PROCESSING SHOULD ALSO QUALIFY I.T.A. NOS. 301 & 303/COCH/2017 14 FOR EXEMPTION HAS BEEN ADMITTED. IN THIS VI EW OF THE MATTER AND AFTER CONSIDERING THE ISSUE IN GREAT DETAIL, WE ARE OF OUR CONSIDERED VIEW THAT THE ADDITION O R S.2.50 LACS UNDER SEC. 40A (3) IS UNCALLED FOR AND, HENCE, DELETED. THE FIRST GROUND OF APPEAL THUS SUCCEEDS'. III. DCIT. KANPUR VS. AL LIED LEATHER FINISHERS P.LTD - 32 SOT 549 ( LUCK. ) WHEREIN THE ASSESSEE COMPANY PURCHASED RAW HIDES/SKINS FOR THE PURPOSE OF MANUFACTURING LEATHER AND LEATHER PRODUCTS DIRECTLY FROM PRODUCERS OF SUCH RAW HIDES AND SKINS OR THROUGH THEIR AGENTS. THE TRIBUNAL HELD THAT IN SO FAR AS THE ADDITION U/S 40A(3) WAS CONCERNED, IT IS NOWHERE DENIED THAT THE ASSESEE HAS NOT PURCHASED PART OF ITS RAW MATERIAL DIRECTLY FROM THE PRODUCERS. ACCORDINGLY, THE ENTIRE PAYMENT MADE BY THE ASSESSEE TO PRODUCERS OF THE RAW HIDES/ SKINS OR TO THEIR AGENTS FOR SUCH PURCHASES WOULD NOT BE HIT BY THE PROVISIONS OF SECTION 40A(3). IN VIEW OF THE ABOVE, IT WAS SUBMITTED THAT THE AO ERRED IN HOLDING THAT CRUSHED BONE IS NOT A PRODUCE OF ANIMAL HUSBANDRY BUT AN INDUSTRIAL PRODUCT. 13.2 IT WAS SUBMITTED THAT THE AO ERRED IN FINDING THAT THE ASSESSE IS NOT ENTITLED TO THE EXEMPTION IN VIEW OF THE CIRCULAR NO 8/2006 DATED 6.10.2006 ISSUED BY CBDT.) P ARA 1 OF THE SAID CIRCULAR STATE S: IT WAS FURTHER CLARIFIED THAT THE ABOVE EXCEPTION WILL NOT BE AVAILABLE IN RESPECT OF PAYMENT FOR THE PURCHASE OF LIVESTOCK, MEAT, HIDES AND SKINS FROM A PERSON WHO IS NOT PROVED TO BE THE PRODUCER OF THESE GOODS AND IS ONLY A TRADER, BROKER OR ANY OTHER MIDDLEMAN BY WHATEVER NAME CALLED. IN THE RESPONDENT AS SESSEE'S CASE, WE HAVE PURCHASED CRUSHED BONE DIRECTLY FROM THE PRODUCERS AND NOT FROM ANY TRADER, BROKER OR MIDDLEMEN. ACCORDINGLY, IT WAS SUBMITTED THAT THE ASSESSE E WAS ELIGIBLE FOR EXEMPTION UNDER THE SAID CIRCULAR. UNLESS THE MANUFACTURER HIMSELF DESI RES TO BE COVERED UNDER THE PROVISIONS OF THE SAID ORDER, NAMELY: - (EMPHASIS SUPPLIED); (I) MEAT EXTRACTS, MEAT CONSOMME AND STOC K , MEAT SAUCES AND SIMILAR PRODUCTS NOT CONTAINING FRAGMENTS OF MEAT; I.T.A. NOS. 301 & 303/COCH/2017 15 (II) WHOLE , BROKEN O R CRUSHED BONES, MEAT PEPTONES, ANI MAL GELATIN, MEAT POWDER, PORK - RIND POWDER, BLOOD PLASMA, DRIED BLOOD, DRIED BLOOD PLASMA, CELLULAR PROTEINS, BONE EXTRACTS AND SIMILAR PRODUCTS; (EMPHASIS SUPPLIED) ; ( III ) FATS MELTED DOWN FROM ANIMAL TISSUES; (IV) STOMACHS, BLADDERS AND INTESTINES, CLE AN AND BLEACHED, SALTED OR DRIED; (V) PRODUCTS CONTAINING FRAGMENTS OF MEAT, BUT WHICH CONTAIN A QUANTITY OF MEAT OR MEAT PRODUCT NOT EXCEEDING TEN PERCENT OF THE TOTAL WEIGHT OF THE FINAL PRODUCT; (VI) PATTIES, PUFFS, ROLLS, SAMOSAS, CUTLETS, KOFTAS, KA BABS, CHOPS, TIKKAS AND SOUPS MADE FROM MUTTON, CHICKEN, GOAT MEAT, BUFFALO MEAT, BEEF AND GRILLED CHICKEN WHICH ARE PREPARED FOR IMMEDIATE CONSUMPTION, THE AMPOULES OF CHICKEN ESSENCE, HOT - DOGS AND HAMBURGERS PREPARED FOR IMMEDIATE CONSUMPTION WHICH CANNO T BE STORED EVEN UNDER REFRIGERATED CONDITIONS;' IT WAS SUBMITTED THAT A S PER RULE 6DD (E), NO DISALLOWANCE CAN BE MADE IN RESPECT OF THE PAYMENT MADE FOR PURCHASE OF SPECIFIED ITEMS IN SUB CLAUSES (I) TO (IV) TO CULTIVATOR, GROWER OR PRODUCERS OF SUCH AR TICLE OR PRODUCTS. THIS HAS BEEN CLEARLY INTERPRETED IN THE JUDICIAL DECISIONS REFERRED EARLIER. THUS , THE RELIANCE PLACED BY THE LEARNED AO IS CLEARLY MISPLACED AND HAVE NO APPLICATION TO THE FACTS OF THE CASE . 1 3 .3 SIMILARLY, IT WAS SUBMITTED THAT CIR CULAR NO 10/2008 DATED 05/12/2008 RELATES TO 'FISH OR FISH PRODUCTS UNDER SUB CLAUSE ( III ) OF CLAUSE (E) OF RULE 6DD, AND CLARIFY THE EXPRESSION FISH OR FISH PRODUCE' AND PRODUCERS OF FISH OR FISH PRODUCTS FOR THE PURPOSE OF RULE 6DD (E) OF IT RULES , 1962 WHICH ALSO HAS NO APPLICATION TO THE FACTS OF THE CASE. I.T.A. NOS. 301 & 303/COCH/2017 16 13.4 THUS, IT WAS SUBMITTED THAT THE PROVISION OF RULE 6DD IS CLEAR. RULE 6DD DO NOT SPECIFY ANY CONDITIONS FOR ELIGIBILITY FOR CLAIMING EXEMPTIONS AS PER SECTION. THE CBDT CIRCULAR CANNOT EXPAND OR RESTRICT THE SCOPE OF LAW. IN THIS REGARD, THE LD. AR PLACED RELIANCE ON THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF PRINCIPAL CIT VS GEE SQUARE EXPORTS 100 TAXMANN.COM 46 1) , WHEREIN THE COURT UP HELD THE VIEW OF THE TRIBUNAL THAT ASSESSING OFFICER CANNOT DENY THE BENEFIT OF PROVISO TO SECTION 40A(3J AND RULE 6DD(E) ON GROUND OF NON - SATISFACTION OF CONDITION PROVIDED IN CBDT CIRCULAR NO. 8 OF 2006 DATED 6 - 10 - 2006. THE TRIBUNAL OPINED THAT CBDT CIRCULAR COULD NOT PUT IN NEW CONDITIONS FOR GRANT OF B ENEFIT UNDER RULE 6DD WHICH WERE NOT PROVIDED EITHER IN ACT OR IN RULES FRAMED THEREUNDER. ACCORDING TO TRIBUNAL , ASSESSEE HAVING SATISFIED REQUIREMENTS UNDER RULE 6DD(E), COULD NOT BE SUBJECTED TO DISALLOWANCE UNDER SECTION 40A(3). THE HIGH COURT OF BOM BAY UPHELD THE ORDER PASSED BY TRIBUNAL. THE SLP FILED AGAINST THE DECISION OF THE HIGH COURT WAS DISMISSED BY THE SUPREME COURT. THUS, IT WAS SUBMITTED THAT THE AO ERRED IN STATING THAT THE ASSESSEE HAD NOT ADHERED TO THE CONDITIONS LAID DOWN BY THE CBD T CIRCUL AR MENTIONED ABOVE AS THERE IS NO SPECIFIC CBDT CIRCULAR RELATING TO THE ITEM RELATING TO THE ASSESSEES CASE. FURTHER, IT WAS SUBMITTED THAT THE AO HA D NOT RELIED ON LEGAL DECISIONS OR ANY SPECIFIC AUTHORITY FOR DENIAL OF BENEFIT TO THE ASSESSE A ND ALSO HAS NOT STATED ANY SPECIFIC REASON FOR TREATING THE CASE LAWS RELIED ON BY THE ASSESSE AS DISTINGUISHABLE. IT WAS SUBMITTED THAT THESE CASE LAWS ARE SELF - EXPLANATORY AND RENDERED ON THE BASIS OF IDENTICAL FACTS AND CIRCUMSTANCES. THE LD. AR ALSO PL ACED RELIANCE ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF ATTAR SINGH GURMUKH SINGH (191 1TR 667) WHEREIN IT WAS HELD AS UNDER: I.T.A. NOS. 301 & 303/COCH/2017 17 'THE TERMS OF SECTION 40A(3) ARE NOT ABSOLUTE. CONSIDERATION OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE N OT EXCLUDED. GENUINE AND BONA FIDE TRANSACTIONS ARE NOT TAKEN OUT OF THE SWEEP OF THE SECTION. IT IS OPEN TO THE ASSESSEE TO FURNISH TO THE SATISFACTION OF THE ASSESSING OFFICER THE CIRCUMSTANCES UNDER WHICH THE PAYMENT IN THE MANNER PRESCRIBED IN SECTION 40A(3) WAS NOT PRACTICABLE OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYEE.' 13.5 THE LD. AR RELIED ON THE JUDGMENT OF THE GAUHATI HIGH COURT IN THE CASE OF WALFARD TRANSPORT (EASTERN) LTD. INDIA V. C1T [2002] 124 TAXMA N 538/240 ITR 902 (GAU.) & TH E JUDGMENT OF MADRAS HIGH COURT IN THE CASE OF CIT V S . CHROME LEATHER CO, (P.) LTD. [1999] 235 ITR 708 (MAD . ) WHEREIN IT WAS HELD THAT WHERE THE TRANSACTION WAS FOUND TO BE GENUINE AND THE IDENTITY OF THE PAYEE IS ESTABLISHED, A LIBERAL VIEW OF COMPELLING AND MITIGATING CIRCUMSTANCES SHOULD BE TAKEN. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. AS SEEN FROM THE FACTS OF THE CASE, THE ASSESSEE HAS MADE PAYMENTS FOR PURCHASE OF PRODUCE OF ANIMAL HUSBANDRY, I.E., CRUSHED ANIMAL BONES FRO M THE SUPPLIER WHO IS THE PRODUCER OF THE CRUSHED BONES. ACCORDING TO THE LD. AR, IT IS NOT NECESSARY TO MAKE SUCH PAYMENTS BY ACCOUNT PAYEE CHECK OR CROSSED DEMAND DRAFT WHEN IT IS IN EXCESS OF RS.20,000/ - . WHEREAS THE CASE OF THE DEPARTMENT IS THAT IN THE CASE OF PURCHASE OF ANY OF PRODUCE OR PRODUCTS MENTIONED IN RULE 6DD(E) OF THE ACT, THE PAYMENT MUST HAVE BEEN MADE TO THE CULTIVATOR, GROWER OR PRODUCER OF SUCH ARTICLES ALONE TO AVAIL BENEFIT OF THE SAID CLAUSE. FOR CLARITY , WE REPRODUCE RULE 6DD(E ) OF THE ACT: RULE 6DD NO DISALLOWANCE UNDER SUB - SECTION (3) OF SECTION 40A SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFI T S AND GAINS OF BUSINESS OR PROFESSION UNDER SUB - SECTION 3 OF SEC T I O N 40A : I.T.A. NOS. 301 & 303/COCH/2017 18 (E) WHERE A PAYMENT IS MADE FOR THE PURCH ASE OF: I) AGRICULTURAL OR FOREST PRODUCE; OR II) THE PRODUCE OF ANIMAL HUSBANDRY (INCLUDING LIVESTOCK, MEAT, HIDES AND SKINS) OR DAIRY OR POULTRY FARMING; OR III) FISH OR FISH PRODUCTS; OR IV) THE PRODUCTS OF HORTICULTURE OR AGRICULTURE TO THE CULTIVA TOR, GROWER OR PRODUCER OF SUCH ARTICLES, PRODUCE OR PRODUCTS; 14.1 ON A READING OF THE CLAUSE, WE ARE OF THE OPINION THAT THE CONTENTION URGED THE REVENUE IS JUSTIFIED. IN THE FIRST TWO SUB - CLAUSES, THE WORD PRODUCE IS USED AND IN THE NEXT TWO SUB - CLAUSES, THE WORD PRODUCTS IS USED. BOTH THESE WORDS PRODUCE AND PRODUCTS ARE USED IN THE CONCLUDING WORDS. IF THE ASSESSEES CONTENTION IS RIGHT, THE USE OF THE WORD PRODUCE IN THESE CONCLUDING WORDS QUALIFY ONLY SUB - CLAUSE (IV) USES ONLY HE WORK PRODUCTS BUT NOT THE WORD PRODUCE. THE INTENTION UNDERLYING CLAUSE (F) ALSO SUPPORTS OUR CONTENTION. THE IDEA WAS THAT SINCE THE CULTIVATORS, GROWERS OR PRODUCERS OF AGRICULTURAL OR FOREST PRODUCE, PRODUCE OF ANIMAL HUSBANDRY, FISH OR FISH PRODUCTS A RE MOSTLY RESIDENTS OF RURAL AREAS NOT USED TO BANKING SYSTEMS OR NOT HAVING BANK ACCOUNTS, THE REQUIREMENT OF SUB - SECTION(3) OF SECTION 40A WAS IMPRACTICABLE AND WOULD LEAD TO DIFFICULTIES IN ITS APPLICATION. THE IDEA COULD NEVER HAVE BEEN TO EXEMPT ALL THE PRODUCERS OF FOREST PRODUCE OR OTHER PRODUCE AND PRODUCTS MENTIONED IN SUB - CLAUSES (I) TO (III) FROM WHOMSOEVER THEY ARE PURCHASED. THUS, THE WORDS CULTIVATOR, GROWER OR PRODUCER OCCURRING AT THE END OF RULE 6DD(F) QUALIFY THE WORDS OCCURRING IN ALL THE PRECEDING FOUR SUB - CLAUSES AND NOT ONLY IN SUB - CLAUSE(IV). THIS VIEW WAS FORTIFIED BY THE JUDGMENT OF THE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. PEHLAJ RAI DARYANMAL (190 ITR 242). H OWEVER, THERE IS A JUDGMENT FROM THE JURISDICTIONAL HIGH C OURT IN THE CASE OF CIT I.T.A. NOS. 301 & 303/COCH/2017 19 VS. INTERSEAS, SEA FOOD EXPORTERS (233 CTR 77) WHEREIN IT WAS HELD THAT RULE MAKERS NEVER INTENDED PROCESSED FISH TO BE TAKEN OUT OF THE SCOPE OF SUB - CL.(III) OF CL.(F) OF R.6DD BECAUSE THE GOVERNMENT UNDER THE RULE CONSIDERS FISH O NLY IN TWO FORMS, EITHER FISH AS SUCH OR IN ITS PRODUCT FORM. IN OTHER WORDS, SUB - R. (III) OF R.6DD(F) COVERS ALL FORMS OF FISH, THOUGH THE BROAD CLASSIFICATION IS ONLY BETWEEN FISH AND FISH PRODUCTS. SO MUCH SO, IN OUR VIEW, SINCE THE PROCESSED FISH PU RCHASED IS NOT FISH IN THE SAME FORM IT IS OBTAINED, IT FALLS WITHIN THE MEANING OF FISH PRODUCT UNDER THE ABOVE RULE. SINCE WE HAVE ACCEPTED THE CONTENTION OF THE ASSESSEE THAT THE PROCESSED FISH PURCHASED IS FISH PRODUCT WITHIN THE MEANING OF THAT TERM IN THE RULE, WE HAVE TO NECESSARILY HOLD THAT THE SUPPLIER NAMELY, THE PROCESSOR OF THE FISH, IS CERTAINLY PRODUCER TO WHOM PAYMENTS ARE MADE. THEREFORE, WE ARE OF THE VIEW THAT THE TRIBUNAL RIGHTLY HELD THAT R. 6DDF(III) OF THE IT RULES SQUARELY APPLY T O THE PROCESSED FISH PURCHASED BY THE ASSESSEE AND SO MUCH SO, THEY ARE ENTITLED TO EXEMPTION AVAILABLE UNDER S. 40A(3). WE, THEREFORE, ANSWER THE FIRST QUESTION STATED ABOVE IN FAVOUR OF THE ASSESSEE AND AGAINST REVENUE. BY APPLYING THAT ANOLOGY, THE P RODUCT DEALT BY THE ASSESSEE BEING CRUSHED BONE, WHICH IS A DIRECT PRODUCT PRODUCED FROM LIVESTOCK OR ANIMAL HUSBANDRY BY EXTRACTING THE BONE AT THE TIME OF SLAUGHTERING AND BY DOING CERTAIN MINOR PROCESS (LIKE REMOVING WASTE, WASHING, DRYING AND CRUSHING) IN WHICH THE ASSESSEE HAS MADE PAYMENT BY WAY OF CASH IN EXCESS OF RS.20,000/ - , THE PROVISIONS OF RULE 6DD(F) (III) IS APPLICABLE . THEREFORE, IT CANNOT BE SAID THAT PROVISIONS OF SECTION 40A(3) HAS BEEN VIOLATED BY THE ASSESSEE BY MAKING PAYMENTS IN EXCE SS OF RS.20,000/ - IN CASH. BEING SO, THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. INTERSEAS, SEA FOOD I.T.A. NOS. 301 & 303/COCH/2017 20 EXPORTERS IS DIRECTLY APPLICABLE TO THE FACTS OF THE PRESENT CASE. ACCORDINGLY, WE DISMISS THIS GROUND TAKEN BY THE REVENUE. 15. THE NEXT GROUND IN ITA NO. 303/COCH/2017 IS WITH REGARD TO DELETION OF DISALLOWANCE OF ADDITIONAL DEPRECIATION ON THE COST OF ACQUISITION OF THE EFFLUENT TREATMENT PLANT. 16. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAD NOT MADE THE CLAIM AT T HE TIME OF FILING OF RETURN OF INCOME. THEREFORE, THE ASSESSING OFFICER HELD THAT THIS BEING A FRESH CLAIM CANNOT BE ENTERTAINED DURING THE COMPLETION OF THE ASSESSMENT PROCEEDINGS. 17. ON APPEAL, THE CIT(A) ANALYSED THE PROVISIONS OF LAW IN THE LIGHT OF THE DECISIONS OF SUPREME COURT IN THE CASE OF GOETZE INDIA LTD. (284 ITR 323) , ITAT, MUMBAI IN THE CASE OF CHICAGO PNEUMATIC INDIA LTD. (15 SOT 252), CIT VS. DHAMPUR SUGAR LTD. (90 ITR 236), BOMBAY HIGH COURT IN THE CASE OF PRUTHVI BROKERS & SHAREHOLD ERS PVT. LTD. (349 ITR 336), ITAT, COCHIN BENCH IN THE CASE OF THOMAS KURIAN VS. ACIT (106 ITD 158), SOLARIS BIO CHEMICALS LTD. VS. DCIT (ITA NO.987/2011 DATED 13/07/2012 (DELHI) AND ALLOWED THE CLAIM OF THE ASSESSEE. 18. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER. I.T.A. NOS. 301 & 303/COCH/2017 21 19. THE LD. AR SUBMITTED THAT THE ASSESSING OFFICERS FINDING THAT AS SESSEE WAS MAKING A FRESH CLAIM WHICH WAS NOT MADE IN THE RETURN OF INCOME FILED , WAS NOT CORRECT . IT WAS SUB MITTED THAT THE A SSESSEE HAD ALREADY MADE THE CLAIM FOR ADDITIONAL DEPRECIATION U/S 32 (L)(IIA) IN THE RETURN OF INCOME. THE ASSESSEE HA D ONLY REVISED THE CLAIM OF ADDITIONAL DEPRECIATION ALREADY MADE IN THE RETURN OF INCOME. IT WAS SUBMITTED THAT THE ASSE SSEE WAS ELIGIBLE FOR ADDITIONAL DEPRECIATION ON THE COST OF ADDITIONS MADE TO THE EFFLUENT TREATMENT PLANT MADE DURING THE YEAR. HOWEVER, THE SAME WAS NOT CLAIMED IN THE RETURN OF INCOME DUE TO LACK OF CLARITY IN THIS REGARD AT THE TIME OF FILING THE RETU RN. THIS ISSUE NOW STANDS CLARIFIED BY THE DECISION OF THE HIGH COURT OF MADRAS IN THE CASE OF CIT VS HI TECH ARAI LTD (MADRAS) (HTTP://WWW.INDIANKANOON.ORG/DOC/954914/), WHEREIN THE H IGH C OURT HAS HELD AS UNDER: 'THE PRIMARY CONDITION FOR CLAIMING ADDITIO NAL DEPRECIATION WAS THAT THE TAXPAYER SHOULD INVEST IN NEW PLANT AND MACHINERY AND THAT THE TAXPAYER SHOULD MANUFACTURE ANY ARTICLE OR THING. THE SECTION DID NOT PROVIDE FOR ANY CONNECTION BETWEEN THE NEW MACHINES FOR WHICH ADDITIONAL DEPRECIATION WAS CLA IMED AND THE GOODS MANUFACTURED. IT HELD THAT THE TAXPAYER WAS ENTITLED TO THE ADDITIONAL DEPRECIATION AND ALLOWED THE CLAIM OF THE TAXPAYER'. THUS, IT WAS SUBMITTED THAT IN VIEW OF THE DECISION OF MADRAS HIGH COURT IN THE CASE OF CIT VS HI - TECH ARAI LTD , THE CLAIM OF THE ASSESSEE WAS ALLOWABLE . IT WAS ALSO SUBMITTED THAT CIT(A) HA D THE POWER TO CONSIDER THE CLAIM AS HELD BY THE SUPREME COURT IN THE CASE OF CIT VS. JUTE CORPORATION OF INDIA LTD. (1991) (AIR 241, 1990 SCR SUPL (1)(340). 20. W E HAVE HEA RD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. THE ASSESSING OFFICER DENIED ADDITIONAL DEPRECIATION ON THE COST OF ADDITIONS MADE TO THE EFFLUENT I.T.A. NOS. 301 & 303/COCH/2017 22 TREATMENT PLANT MADE DURING THE YEAR. IN OUR OPINION, THE ASSESSEE IS ENTITLED FOR ADDITIONAL DEPRECIATION ON THE COST OF ADDITIONS MADE TO THE EFFLUENT TREATMENT PLANT MADE DURING THE YEAR ONLY IF THE ASSESSEE HAS NOT CLAIMED THE WHOLE OF THE ACTUAL COST AS DETERMINED IN COMPUTING THE INCOME CHARGED UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION. IN OTHER WORDS, IF THE ASSESSEE HAS NOT CLAIMED 100% DEPRECIATION ON THE ACTUAL COST OF ADDITIONS MADE TO THE EFFLUENT TREATMENT PLANT IN THE ASSESSMENT YEAR UNDER CONSIDERATION , THE ASSESSING OFFICER HAS TO GRANT ADDITIONAL DEPRECIATION ON IT. HENCE, TH IS ISSUE IS REMITTED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION. THUS THIS GROUND OF APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 21. THE NEXT GROUND IN ITA NO. 303/COCH/2017 IS WITH REGARD TO DELETION OF THE DISAL LOWANCE MADE ON ACCOUNT OF DEDUCTION IN RESPECT OF THE PROVISION FOR LEAVE ENCASHMENT. 22. THE FACTS OF THE CASE ARE THAT THE A SSESSEE HAD IN ITS PROFIT & LOSS ACCOUNT DEBITED P ROVISION FOR L EAVE ENCASHMENT LIABILITY ON THE BASIS OF INDEPENDENT ACTUARIA L VALUATION AS PER THE MANDATORY REQUIREMENTS OF THE COMPANIES ACT. BEFORE THE ASSESSING OFFICER, IT WAS SUBMITTED THAT THE ASSESSEE HA D DISALLOWED IN THE RETURN OF INCOME THE PROVISION FOR LEAVE ENCASHMENT U/S 43B (F) OF THE INCOME TAX ACT 1961. THE LD. AR RELIED ON THE JUDGMENT OF THE HIGH COURT OF KERALA IN THE CASE OF CIT VS HINDUSTAN LATEX LTD . (209 TAXMAN 42) WHEREIN SUBSEQUENTLY IT W AS HELD THAT PROVISION FOR LEAVE ENCASHMENT IS NOT TO BE DISALLOWED U/S 43B (F) OF THE I.T.A. NOS. 301 & 303/COCH/2017 23 INCOME TAX ACT 1961. THE ASSES SEE SUBMITTED BEFORE THE AO THAT IN VIEW OF THE ABOVE DECISION OF KERALA HIGH COURT , THE SAME MAY BE ALLOWED AS A DEDUCTION. HOWEVER, THE AO DID NOT ALLOW THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE FACTS IN THE CASE ARE DISTINGUISHABLE AND THE PROVIS ION FOR LEAVE ENCASHMENT MADE BY THE RESPONDENT IS CONTINGENT IN NATURE AND IS NOT ALLOWABLE. 23. ON APPEAL, THE CIT(A) A NALYSED THE PROVISIONS OF LAW IN THE LIGHT OF THE JUDGMENTS OF THE SUPREME COURT IN THE CASE OF BHARATH EARTH MOVERS VS CIT (245 ITR 428), CALCUTTA HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LTD VS UNION OF INDIA (292 ITR 470), HIGH COURT OF KERALA IN THE CASE OF HINDUSTAN LATEX LTD . (209 TAXMAN 42), HIGH COURT OF KERALA IN THE CASE OF SOUTH INDIAN BANK LTD . (363 ITR 111) AND ALLOWED THE CLAIM OF THE ASSESSEE. THE CIT(A) ALSO FOLLOWED THE DECISION OF THE SUPREME COURT IN THE CASE OF VEGETABLE PRODUCTS LTD ( 88 ITR 192 ) WHEREIN IT WAS HELD THAT IF TWO REASONABLE CONSTRUCTIONS OF A TAXING PROVISIONS ARE POSSIBLE, THAT CONSTRUCTION WHICH FAVOURS THE ASSESSEE MUST BE ADOPTED. THE CIT(A) ALSO CONSIDERED THAT THERE IS NO CONTRARY BINDING DECISION OF THE KERALA HIGH COURT TO THAT HELD IN THE CASE O F CIT VS HINDUSTAN LATEX LTD. , CITED SUPRA. 24. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER. 25. THE LD. AR SUBMITTED THAT THE ASSESSEE HAD CREATED THE PROVISION ON THE BASIS OF THE INDEPENDENT ACTUARIAL VALUATION OF ITS LIABILITY TO EMPLOYEES TOWARDS I.T.A. NOS. 301 & 303/COCH/2017 24 LEAVE ENCASHMENT BENEFITS, AS P ER THE MANDATORY REQUIREMENTS OF THE COMPANIES ACT. 26. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. THE JURISDICTIONAL HIGH COURT IN THE CASE OF SOUTH INDIAN BANK LTD. VS.CIT (363 ITR 111) HAD HELD THAT DEDUCTION OF ANY SUM PAYABLE BY TH E ASSESSEE AS EMPLOYER IN LIEU OF LEAVE AT CREDIT OF ITS EMPLOYEE SHOULD BE ALLOWED ONLY IN COMPUTING THE INCOME OF PREVIOUS YEAR . THIS GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 27. THE NEXT GROUND IN ITA NO. 303/COCH/2017 IS WITH REGARD TO DE LETION OF THE ADDITION OF RS.1,92,16,851/ - BE ING AN EXPORT INCENTIVE UNDER THE DUTY ENTITLEMEN T PASS BOOK (DEPB). 28. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAD OFFERED IN THE RETURN OF INCOME AN AMOUNT OF RS. 1,92,16,851/ - IN RESPECT OF EXPORT I NCENTIVE (DEPB) AND RS.53,07,847/ - TOWARDS DUTY DRAW BACK ON THE BASIS OF AMOUNTS CREDITED TO PROFIT & LOSS A/C. HOWEVER, THE ASSESSING OFFICER DENIED THE CLAIM OF THE ASSESSEE AS TH ERE CANNOT BE TWO OPINIONS ON THE JUDGMENT OF THE SUPREME COURT IN THE CA SE OF CIT VS EXCEL INDUSTRIES LTD AND MAFATLAL INDUSTRIES P LTD (358 ITR 295 ) , BUT IN THE A SSESSEE' S CASE THE CLAIM CANNOT BE ENTERTAINED MAINLY BECAUSE T HE ASSESSEE S CASE PERTAINS TO THE FINANCIAL YEAR 2009 - 10 RELEVANT TO THE ASSESSMENT YEAR 2010 - 11. BUT , ACCORDING TO THE ASSESSING OFFICER, THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT VS . EXCEL INDUSTRIES LTD AND MAFATLAL INDUSTRIES LTD (358 ITR 295 ) CAME ONLY I.T.A. NOS. 301 & 303/COCH/2017 25 IN THE OCTOBER 2013, WHICH PERTAINS TO THE FINANCIAL YEAR 2013 - 14 RELEVANT TO THE ASSES SMENT YEAR 2014 - 15. FURTHER, THE AO RELIED ON THE JUDGMENT OF THE SUP REME COURT IN THE CASE OF GEM GRANITES VS CIT ( 271 ITR 322 ) WHEREIN IT WAS HELD THAT ' NO RETROSPECTIVITY UNLESS EXPRESSLY STATED OR CLEARLY IMPLIED . ON PERUSAL OF THE CASE CITED BY THE ASSESSEE, THE SUPREME COURT HAS NOT GIVEN ANY SUCH DIRECTION AND THE ABOVE DECISION PRONOUNCED WILL APPLY RETROSPECTIVELY . THE ASSESSING OFFICER ALSO RELIED ON THE JUDGMENT OF THE RAJASTHAN HIGH COURT I N THE CASE OF MARLBOROUGH POLYCHEM LTD VS CIT ( 321 IT R 395 ) WHEREIN IT WAS HELD THAT 'JUDGMENT OPERATIVE FROM THE DATE IT IS PRONOUNCED'. BASED ON THE ABOVE DISCUSSION AND THE CASE LAWS QUOTED, THE ASSESSING OFFICER REJECTED THE ASSESSEE S CLAIM IN RESPECT OF EXPORT INCENTIVE AND DISA LLOWED FOR THE NEXT YEAR AS THE ASSESSEE ALREADY OFFERED THE TAX IN ITS RETURN OF INCOME VOLUNTARILY. 29. ON APPEAL, THE CIT(A) A FTER EXAMINING THE CLAIM OF THE ASSESSEE IN THE LIGHT OF THE DECISION OF THE SUPREME COURT IN THE CASE OF EXCEL INDUSTRIES AND MAFATLAL INDUSTRIES ( S UPRA) ALLOWED THE CLAIM OF THE ASSESSEE. 30. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER. 31. THE LD. AR SUBMITTED THAT D UTY ENTITLEMENT PASS BOOK (DEPB) SCHEME WAS COVERED BY THE EXIM P OLICY AND THIS SCHEME PROVIDE D FOR REIMBURSEMENT OF DUTY PAID ON MATERIALS CONSUMED FOR PRODUCTION OF GOODS FOR EXPORT AND AS THE DEPB I.T.A. NOS. 301 & 303/COCH/2017 26 WAS ISSUED ON THE BASIS OF EXPORTS MADE BY THE MANUFACTURER, WITH REFERENCE TO THE DUTY PAID FOR IMPORT OF MATERIALS USED IN THE MANUFACTURE. ACCORDING TO THE LD. AR DEPB IS TAKEN TO THE CREDIT OF P&L ACCOUNT IN THE YEAR OF EXPORT AND THE OBJECT OF DEPB IS TO NEUTRALIZE THE INCIDENCE OF DUTY PAID ON THE IMPORT CONTENT OF EXPORT PRODUCT . IT WAS SUBMITTED THAT DEPB CAN BE USE D BY THE ASSESSEE BY CLAIMING SET OFF WHEN SUBSEQUENT IMPORTS ARE MADE OR WHERE THERE IS NO SUCH IMPORT REQUIRED DEPB COULD BE TRANSFERRED FOR A CONSIDERATION TO OTHER COMPANIES WHO COULD IMPORT MATERIALS REQUIRED BY THEM AFTER SETOFF OF DEPB. T HE ASSESSE E DOES NOT DERIVE ANY REAL INCOME OR BENEFIT IN THE YEAR OF EXPORT WHEN DEPB IS CREDITED TO THE P&L ACCOUNT. IF THIS IS TAXED IN THE YEAR OF EXPORT, IT WOULD BE TAX LEVIED ON A NOTIONAL BENEFIT. IT WAS SUBMITTED THAT THE A SSESSEE DERIVE D BENEFIT WHEN DEPB IS ACTUALLY UTILISED FOR EXPORT OR WHEN IT IS TRANSFERRED FOR A CONSIDERATION AND THE REAL TAXABLE BENEFIT IS ACCRUED IN THAT YEAR FOR TAX PURPOSES. THE LD. AR RELIED ON THE JUDGMENT OF THE SUPRE ME COURT IN THE CASE OF CIT VS. EXCEL INDUSTRIES LTD AND MAFA TLAL INDUSTRIES P . LTD (358 ITR 295 (SC) THE SUPREME COURT HAD IN THE CASE OF CIT VS. EXCEL INDUSTRIES LTD AND MAFATLAL INDUSTRIES P. LTD (358 ITR 295 ) HELD AS FOLLOWS: E VEN IF IT WAS ASSUMED THAT THE ASSESSEE WAS ENTITLED TO THE BENEFITS UNDER THE ADVANC E LICENCES AS WELL AS UNDER THE DUTY ENTITLEMENT PASS BOOK, THERE WAS NO CORRESPONDING LIABILITY ON THE CUSTOMS AUTHORITIES TO PASS ON THE BENEFIT OF DUTY FREE IMPORTS TO THE ASSESSEE UNTIL THE GO O DS WERE ACTUALLY IMPORTED AND MADE AVAILABLE FOR CLEARANCE. THE BENEFITS REPRESENTED, AT BEST, A HYPOTHETICAL INCOME WHICH MIGHT OR MIGHT NOT MATERIALIZE AND THEIR MONEY VALUE WAS, THEREFORE, NOT THE INCOME OF THE ASSESSEE. APPLYING THE THREE TESTS, NAMELY, WHETHER THE INCOME ACCRUED TO THE ASSESSEE IS REAL OR HYP OTHETICAL, WHETHER THERE IS A CORRESPONDING LIABILITY OF THE OTHER PARTY TO PASS ON THE BENEFITS OF DUTY FREE IMPORT TO THE ASSESSEE EVEN WITHOUT ANY IMPORTS HAVING BEEN MADE, AND THE PROBABILITY OR IMPROBABILITY OF REALIZATION OF THE BENEFITS BY THE ASSES SEE CONSIDERED FROM A REALISTIC AND PRACTICAL POINT OF VIEW (THE ASSESSEE MIGHT NOT HAVE MADE IMPORTS), IT WAS QUITE CLEAR THAT IN FACT NO REAL INCOME BUT ONLY HYPOTHETICAL INCOME HAD ACCRUED TO THE ASSESSEE A N D SECTION 28(IV) OF THE IT ACT, I.T.A. NOS. 301 & 303/COCH/2017 27 1961, WOULD BE INAPPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE. (CIT VS.SHOORJI VALLABHDAS & CO.(1962) 46 TTR 144(SC), MORVI INDUSTRIES LTD VS. CIT(CENTRAL) (1971) 82 FTR 835 (SC) AND GODHRA ELECTRICITY CO. LTD VS.CIT (1997) 225 ITR 746(SC) APPLIED). 31.1 THE SUPREME COURT ALSO HELD THAT SINCE THE ASSESSEE DERIVES THE BENEFIT IN A SUBSEQUENT YEAR, THE SAID BENEFIT WILL BE OFFERED FOR TAX AND THEREFORE THE DEPARTMENT IS NOT DEPRIVED OF ANY TAX. THE RATE OF TAX REMAINS THE SAME IN THE SUBSEQUENT YEAR. THEREFORE, DEPARTMENT HAD NOT BEEN DEPRIVED OF ANY TAX. IN OTHER WORDS, THE DEPB BENEFIT CREDITED TO THE P&L A/C FOR THE CURRENT YEAR CANNOT BE ASSESSED IN THE CURRENT YEAR BEING HYPOTHETICAL AND NOTIONAL AND NOT REAL INCOME OF THE YEAR. ACCORDINGLY, THE LD. AR SUBM ITTED THAT THE BENEFIT SHOULD BE ASSESSED IN THE SUBSEQUENT ASSESSMENT YEAR (AY 2011 - 12) ONLY, IN WHICH THE DEPB INCOME BECAME THE REAL INCOME OF THE ASSESSEE AND ACTUALLY ACCRUED AND ASSESSABLE AS PER THE ABOVE JUDGMENT OF THE SUPREME COURT. U NDER THE C IRCUMSTANCES, THE LD. AR SUBMITTED THAT DEPB/DRAWBACK SHOULD BE TAXED ON THE BASIS A S HELD BY THE ABOVE JUDGMENT OF THE APEX COURT AND NOT AT THE AMOUNT CREDITED TO P&L A/C. THE LD. AR SUBMITTED THAT THE ABOVE JUDGMENT OF THE SUPREME COURT DEFINES/CLARIFI ES THE LAW APPLICABLE AND IS TO BE FOLLOWED BY THE AO IN DECIDING AN IDENTICAL ISSUE AND HENCE , THE QUESTION OF APPLICATION OF THE ABOVE JUDGMENT RETROSPECTIVELY DOES NOT ARISE. IN VIEW OF THE ABOVE, IT WAS SUBMITTED THAT THE CIT(A ) HAD RIGHTLY ALLOWED TH E GROUND OF THE ASSESSEE. 32. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. WE FIND THAT THE CONTENTION OF THE LD.AR IS SUPPORTED BY THE JUDGMENT OF THE SUPREME COURT IN THE I.T.A. NOS. 301 & 303/COCH/2017 28 CASE OF HOWEVER, WE DIRECT THE ASSESSING OFFICER TO VERIFY W HETHER THE ASSESSEE HAS OFFERED THE DEPB FOR TAXATION IN SUBSEQUENT YEARS IN ACCORDANCE WITH THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT VS. EXCEL INDUSTRIES LTD AND MAFATLAL INDUSTRIES P. LTD (358 ITR 295 ) . IN VIEW OF THIS, WE REMIT THE ISSUE IN DISPUTE TO THE FILE OF THE A O FOR FRESH CONSIDERATION. THIS GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 33. IN THE RESULT, THE A PPEAL OF THE REVENUE IN ITA NO.301/COCH/2017 IS DISMISSED AND THE APPEAL OF THE REVENUE I N ITA NO.30 3 /COCH/2017 IS PARTLY ALLOWED FOR STATISTICAL F OR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 26 TH AUGUST, 2019 SD/ - SD/ - (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 26 TH AUGUST , 2019 GJ COPY TO: 1 . M/S. NITTA GELATIN INDIA LTD., 50/1002, SBT AVENUE, PANAMPILLY NAGAR, KOCHI - 682 036. 2. HE ASSISTANT COMMISSIONER OF INCOME - TAX, CORPORATE CIRCLE - 2(1), KOCHI. 3 . THE COMMISSIONER OF INCOME - TAX (AP P EALS) - I , KO CHI. 4. THE PR. COMMISSIONER OF INCOME - TAX, KO CHI . 5 . D. R., I.T.A.T., COCHIN BENCH, COCHIN. 6 . GUARD FILE. 7 . I.T.A.T., COCHIN BY ORDER (ASSISTANT REGIST RAR) ITAT, COCHIN BENCH I.T.A. NOS. 301 & 303/COCH/2017 29