KARP IMPEX LTD, MUMBAI V. DCIT 5(2), MUMBAI

ITA 3034/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8339 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 14-08-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 03-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS
• Assessee Lawyers: B V JHAVERI
• Keywords: Wrong claim
• Section: 32; 27

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI , ! ! ! ! , ' ' ' ' BEFORE SHRI B R BASKARAN, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER . : . : . : . : 3034 3034 3034 3034/ // / / // / 2012, ) ! *! 2005-06 ITA NO. : 3034/MUM/2012 , AY 2005-06 KARP IMPEX LTD., 1411, PRASAD CHAMBER, OPERA HOUSE, MUMBAI -400 004 / .: PAN: AABCK 1823 F VS DCIT -5(2), CHURCHGATE, MUMBAI /0 (APPELLANT) 12/0 (RESPONDENT) APPELLANT BY : MR. B V JHAVERI RESPONDENT BY : MR. PITAMBAR DAS )345 /DATE OF HEARING : 14-08-2014 67* 345/ DATE OF PRONOUNCEMENT : 22-08-2014 8 8 8 8 O R D E R ! ! ! ! , . . . . . .. . PER VIVEK VARMA, J.M. : THE APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORD ER OF CIT(A) 9, MUMBAI, DATED 16.02.2012, WHEREIN, THE FOLLOWING GR OUNDS HAVE BEEN TAKEN: ON THE FACTS AND CIRCUMSTANCES, OF THE CASE AND IN LAW, THE PETITIONER COMPANY STATES THAT THE LEARNED CIT APPEALS HAS ERR ED IN :- 1. CONFIRMING, THE CONCEALMENT PENALTY AT RS. 11,47,607 /- U/S 271(1)(C) OF THE ACT LEVIED BY AO ALTHOUGH THE PETITI ONER HAD SUPPLIED CORRECT AND TRUE FACTS IN RESPECT OF CLAIM MADE U/S 80JAA OF THE INCOME TAX ACT, 1961. YOUR PETITIONER CRAVES YOUR LEAVE TO ADD/AMEND AND OR ALTER ANY OF THE GROUNDS OF APPEAL ON OR BEFORE THE DATE OF HEAR ING. 2. THE SOLITARY ISSUE PERTAINS TO THE LEVY AND SUST AINING THE PENALTY OF RS. 11,47,607/- U/S 271(1)(C). 3. THE FACTS ARE THAT THE ASSESSEE COMPANY IS ENGA GED IN TRADING, PROCESSING AND EXPORTING OF CUT AND POLISHED DIAMON DS. THE ASSESSEE, THUS CLAIMED A DEDUCTION U/S 80JJAA AT RS. 31,36,181/-. THIS DEDUCTION WAS DENIED BY THE AO AND LATER BY THE CIT(A), FOLLOWING THE DECISION RENDERED BY KARP IMPEX LTD. ITA 3034/M/2012 2 THE HONBLE SUPREME COURT IN THE CASE OF CIT VS GEM INDIA MANUFACTURING CO., REPORTED IN 249 ITR 307 (SC), WHEREIN IT WAS H ELD THAT CUTTING AND POLISHING OF DIAMONDS DOES NOT AMOUNT TO MANUFACTUR E OR PRODUCTION OF ARTICLE AND THAT IT IS ONLY PROCESSING. ON DENIAL O F DEDUCTION CLAIMED BY THE ASSESSEE, THE AO PROCEEDED TO LEVY THE PENALTY U/S 271(1)(C). 4. IN THE PENALTY PROCEEDINGS AS WELL, THE AO PLAC ED RELIANCE ON THE CASE OF GEM INDIA ( SUPRA ) AND HELD THAT AS PER THE RATIO LAID DOWN BY THE H ONBLE SUPREME COURT, THE ASSESSEE WAS NOT ENTITLED FOR TH E DEDUCTION, AS THE WRONG CLAIM OF DEDUCTION WHICH WAS NOT AVAILABLE TO THE ASSESSEE, AMOUNTED TO FURNISHING OF INACCURATE PARTICULARS . 5. IN THE APPEAL BEFORE THE CIT(A), THE ASSESSEE R ETREATED ITS BONA FIDES , BUT THE CIT(A) SUSTAINED THE OBSERVATION OF THE AO WITH REGARD TO FURNISHING OF INACCURATE PARTICULARS OF INCOME AND, HE, THEREF ORE SUSTAINED THE LEVY OF PENALTY. 6. AGGRIEVED, THE ASSESSEE IS NOW BEFORE THE ITAT. 7. BEFORE US, THE AR SUBMITTED THAT THE ONLY GROUND FOR THE LEVY OF PENALTY WAS THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF GEM INDIA ( SUPRA ). THE AR REFERRED TO THE CASE OF SHEETAL DIAMONDS LTD. VS ITO, REPORTED IN 47 SOT 75 (MUMBAI), WHEREIN THE TWO DEC ISIONS OF THE HONBLE SUPREME COURT HAD BEEN REFERRED AND DEALT WITH, I.E . GEM INDIA ( SUPRA ) AND ARIHANT TILES MARBLES (P) LTD. REPORTED IN 320 ITR 79 (SC). IN THE CASE OF SHEETAL DIAMONDS LTD., THE COORDINATE BENCH, DEALIN G WITH THE ISSUE, (AS EXTRACTED) COMING TO THE SECOND ASPECT WHETHER CUTTING AND PO LISHING OF DIAMONDS WOULD CONSTITUTE MANUFACTURING ACTIVITY OR NOT, HE SUBMITTED THAT THE DECISION OF HONBLE SUPREME COUR T IN THE CASE OF CIT VS. GEM INDIA MFG. CO. [2001] 249 ITR 30 7/117 TAXMAN 368 WAS RENDERED IN PECULIAR CIRCUMSTANCES. HE READ OUT FROM THE HEAD NOTE AND POINTED OUT THAT HONBLE SUPREME COURT HAS CLEARLY OBSERVED THAT POLISHING OR CUTTIN G OF DIAMONDS CANNOT BE CALLED MANUFACTURING ACTIVITY IN THE ABSE NCE OF ANY MATERIAL. HE FURTHER READ FROM LAST PARA AT PAGE 30 8 WHEREIN IT IS CLEARLY OBSERVED THAT THERE WAS NO MATERIAL ON R ECORD FROM WHICH IT COULD BE CONCLUDED BY THE TRIBUNAL THAT SU CH ACTIVITY KARP IMPEX LTD. ITA 3034/M/2012 3 WOULD CONSTITUTE TRANSFER. THUS, IT IS CLEAR THAT T HIS DECISION WAS RENDERED IN THE CONTEXT WHERE NO MATERIAL WAS PRODU CED BEFORE THE TRIBUNAL OR LOWER AUTHORITIES FOR COMING TO THE CONCLUSION THAT CUTTING AND POLISHING OF DIAMONDS WOULD CONSTI TUTE MANUFACTURING ACTIVITY. HE VEHEMENTLY ARGUED THAT T HIS DECISION IS TO BE SEEN IN THE LIGHT OF LATER DECISION OF HON BLE SUPREME COURT IN THE CASE OF ITO V. ARIHANT TILES & MARBLES (P.) LTD. [2010] 320 ITR 79/186 TAXMAN 439 WHEREIN EVEN THE A CTIVITY OF CUTTING AND POLISH OF MARBLE SLABS WAS HELD TO BE O F MANUFACTURING NATURE. IT WAS OBSERVED NOW COMING TO THE TWO DECISIONS OF HONBLE SUPREME COURT, LET US FIRST GO TO THE DECISION IN THE CASE OF GEM INDI A MFG. CO (SUPRA). THE HONBLE SUPREME COURT OBSERVED THE FAC TS OF THE CASE AS UNDER: SECTION 80-I GIVES A DEDUCTION IN RESPECT OF PROFI TS AND GAINS FROM INDUSTRIAL UNDERTAKINGS WHICH, AMONG OTHER CON DITIONS, MANUFACTURE OR PRODUCE ANY ARTICLE OR THING. THE QU ESTION, THEREFORE, IS WHETHER THE ASSESSEE, IN CUTTING AND POLISHING DIAMONDS MANUFACTURES OR PRODUCES ANY ARTICLE OR TH ING. THE TRIBUNAL TOOK THE VIEW THAT IT DID BECAUSE IN COMMON PARLANCE AND COMMERCIAL SENSE RAW DIAMONDS ARE NOT THE SAME THING AS POLISHED AND CUT DIAMONDS. THE TWO ARE DIF FERENT ENTITIES IN THE COMMERCIAL WORLD. THOUGH THE CHEMIC AL COMPOSITION REMAINS THE SAME THE PHYSICAL CHARACTER ISTICS OF SHAPE AND CLASS, ETC., ARE SUBSTANTIALLY DIFFERENT . IT WOULD APPEAR THAT NO MATERIAL HAD BEEN PLACED ON THE RECO RD BEFORE THE TRIBUNAL UPON WHICH IT COULD HAVE REACHED THE C ONCLUSION THAT, EITHER IN COMMON OR COMMERCIAL PARLANCE, RAW DIAMONDS WERE NOT THE SAME THING AS POLISHED AND CUT DIAMOND S, AND THAT THEY WERE DIFFERENT ENTITIES IN THE COMMERCIAL WORLD. AN IPSE DIXIT OF THE TRIBUNAL IS NOT BEST FOUNDATION F OR A DECISION. ON THE ABOVE FACTS, IT WAS HELD BY THE APEX COURT A S UNDER: THERE CAN BE LITTLE DIFFICULTY IN HOLDING THE RAW AND UNCUT DIAMOND IS SUBJECTED TO A PROCESS OF CUTTING AND PO LISH WHICH YIELDS THE POLISHED DIAMOND, BUT THAT IS NOT TO SAY THAT THE POLISHED DIAMOND IS A NEW ARTICLE OR THING WHICH IS THE RESULT OF MANUFACTURE OR PRODUCTION. THERE IS NO MATERIAL ON RECORD UPON WHICH SUCH A CONCLUSION CAN BE REACHED. THUS, FROM THE ABOVE, IT IS CLEAR THAT THE HONBLE SUPREME COURT HAS HELD THAT CUTTING AND POLISHING OF UNCUT DIAMON DS WOULD NOT RESULT IN MANUFACTURE OR PRODUCTION. BUT THIS C ONCLUSION SEEMS TO HAVE BEEN GIVEN ON THE BASIS THAT THERE WA S NO MATERIAL TO HOLD OTHERWISE. IN THE CASE OF ARIHANT TILES & MARBLES (P.) LTD. (SU PRA) AGAIN THE HONBLE SUPREME COURT OBSERVED WHETHER MANUFACTURE/PRODUCTION OF POLISHED SLABS AND TILES WOULD CONSTITUTE MANUFACTURE FOR THE PURPOSE OF SECTION 8 0-IA. THE HEAD-NOTE OF THE JUDGMENT READS AS UNDER: THE ASSESSEE, WHICH WAS BASICALLY A FACTORY OWNER AND NOT A MINE OWNER, WAS ENGAGED IN PRODUCING POLISHED SLABS AND TILES WHICH WERE PARTLY EXPORTED. THE STEPWISE ACTIVITIES UNDERTAKEN BY THE ASSESSEE WERE AS FOLLOWS: (I) RAW MARBLE BLO CKS IN KARP IMPEX LTD. ITA 3034/M/2012 4 UNEVEN SHAPE WERE SORTED OUT AND MARKED; (II) SUCH BLOCKS WERE PROCESSED ON SINGLE BLADE/WIRE SAW MACHINES TO SQUA RE THEM BY SEPARATING WASTE MATERIAL; (III) SQUARED UP BLOC KS WERE SAWN FOR MAKING SLABS; (VI) SAWN SLABS WERE REINFORCED B Y FILLING CRACKS; (V) SLABS WERE POLISHED IN POLISHING MACHIN ES AND CUT INTO REQUIRED DIMENSIONS/TILES; AND (VI) POLISHED S LABS AND TILES WERE BUFFED BY SHINERS. THE QUESTION WAS WHETHER TH E ASSESSEE WAS ENTITLED TO THE BENEFIT OF DEDUCTION UNDER SECT ION 80-IA OF THE INCOME-TAX ACT, 1961. THE HIGH COURT ACCEPTED TH E CLAIM OF THE ASSESSEE THAT IT WAS ENTITLED TO THE CLAIM OF D EDUCTION UNDER SECTION 80-IA SINCE THE POLISHED SLABS WERE MANUFACTURED/PRODUCED FROM THE MARBLE BLOCKS. ON AP PEAL TO THE SUPREME COURT: HELD, AFFIRMING THE DECISION OF THE HIGH COURT, THA T THIS WAS NOT A CASE OF MERELY CUTTING MARBLE BLOCKS INTO SLABS. THERE WAS THE FURTHER ACTIVITY OF POLISHING AND ULTIMATE CONVERSI ON OF THE BLOCKS INTO POLISHED SLABS AND TILES. THERE WERE VARIOUS S TAGES THROUGH WHICH THE BLOCKS HAD TO GO THROUGH BEFORE THEY BECA ME POLISHED SLABS AND TILES. THE ORIGINAL BLOCKS DID NOT REMAIN MARBLE BLOCK; IT BECAME A SLAB OR TILE. BLOCKS WERE CONVERTED INT O POLISHED SLABS AND TILES RESULTING IN THE EMERGENCE OF A NEW AND DISTINCT COMMODITY. SUCH AN ACTIVITY WAS SOMETHING BEYOND MANUFACTURE AND BROUGHT A NEW PRODUCT INTO EXISTENC E. THE STEPWISE ACTIVITY CONSTITUTED MANUFACTURE OR PRODU CTION IN TERMS OF SECTION 80-IA. THE HONBLE SUPREME COURT HAS FURTHER OBSERVED AT P LACITUM 17, 18 [PAGES 86 & 87] OF THE REPORT AS UNDER: IN THE PRESENT CASE, WE HAVE EXTRACTED IN DETAIL T HE PROCESS UNDERTAKEN BY EACH OF THE RESPONDENTS BEFORE US. IN THE PRESENT CASE, WE ARE NOT CONCERNED ONLY WITH CUTTING OF MAR BLE BLOCKS INTO SLABS. IN THE PRESENT CASE, WE ARE ALSO CONCER NED WITH THE ACTIVITY OF POLISHING AND ULTIMATE CONVERSION OF BL OCKS INTO POLISHED SLABS AND TILES. WHAT WE FIND FROM THE PRO CESS INDICATED HEREINABOVE IS THAT THERE ARE VARIOUS STA GES THROUGH WHICH THE BLOCKS HAVE TO GO THROUGH BEFORE THEY BEC OME POLISHED SLABS AND TILES. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT ON THE FACTS OF THE CASES IN HAND, THERE IS CERTAINLY AN ACTIVITY WHICH WILL COME IN THE CATEGORY OF MANUFA CTURE OR PRODUCTION UNDER SECTION 80-IA OF THE INCOME-TAX ACT. AS STATED HEREINABOVE, THE JUDGMENT OF THIS COURT IN A MAN MARBLE INDUSTRIES P. LTD. [2003] 157 ELT 393 (SC) WAS NOT REQUIRED TO CONSTRUE THE WORD PRODUCTION IN ADDITION TO THE W ORD MANUFACTURE. ONE HAS TO EXAMINE THE SCHEME OF THE ACT ALSO WHILE DECIDING THE QUESTION AS TO WHETHER THE ACTIV ITY CONSTITUTES MANUFACTURE OR PRODUCTION. THEREFORE, L OOKING TO THE NATURE OF THE ACTIVITY STEPWISE, WE ARE OF THE VIEW THAT THE SUBJECT ACTIVITY CERTAINLY CONSTITUTES MANUFACTURE OR PRODUCTION IN TERMS OF SECTION 80-IA. IN THIS CONN ECTION, OUR VIEW IS ALSO FORTIFIED BY THE FOLLOWING JUDGMENTS O F THIS COURT WHICH HAVE BEEN FAIRLY POINTED OUT TO US BY LEARNED COUNSEL APPEARING FOR THE DEPARTMENT. IN THE CASE OF CIT V. SESA GOA LTD. [2004] 271 ITR 3 31 (SC), THE MEANING OF THE WORD PRODUCTION CAME UP FOR CONSID ERATION. KARP IMPEX LTD. ITA 3034/M/2012 5 THE QUESTION WHICH CAME BEFORE THIS COURT WAS WHETH ER THE INCOME-TAX APPELLATE TRIBUNAL WAS JUSTIFIED IN HOLD ING THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION UNDER SECTION 32 A OF THE INCOME-TAX ACT, 1961, IN RESPECT OF MACHINERY USED I N MINING ACTIVITY IGNORING THE FACT THAT THE ASSESSEE WAS EN GAGED IN EXTRACTION AND PROCESSING OF IRON ORE, NOT AMOUNTIN G TO MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING. THE HIGH COURT IN THAT CASE, WHILE DISMISSING THE APPEAL PRE FERRED BY THE REVENUE, HELD THAT EXTRACTION AND PROCESSING OF IRON OR DID NOT AMOUNT TO MANUFACTURE. HOWEVER, IT CAME TO THE CO NCLUSION THAT EXTRACTION OF IRON ORE AND THE VARIOUS PROCESS ES WOULD INVOLVE PRODUCTION WITHIN THE MEANING OF SECTION 32A(2)(B)(III) OF THE INCOME-TAX ACT, 1961, AND CONSEQUENTLY, THE ASSESSEE WAS ENTITLED TO THE BENEFIT OF INVESTMENT ALLOWANCE UNDER SECTION 32A OF THE INCOME-TAX ACT. IN THAT MATTER, IT WAS ARGUED ON BEHALF OF THE REVENUE THAT EXTRACTION AND PROCESS ING OF IRON ORE DID NOT PRODUCE ANY NEW PRODUCT WHEREAS IT WAS ARGUED ON BEHALF OF THE ASSESSEE THAT IT DID NOT PRODUCE A DI STINCT NEW PRODUCT. THE VIEW EXPRESSED BY THE HIGH COURT THAT THE ACTIVITY IN QUESTION CONSTITUTED PRODUCTION HAS BEEN AFFIR MED BY THIS COURT IN SESA GOAS CASE [2004] 271 ITR 331 SAYING T HAT THE HIGH COURTS OPINION WAS UNIMPEACHABLE. IT WAS HELD BY THIS COURT THAT THE WORD PRODUCTION IS WIDER IN AMBIT AND IT HAS A WIDER CONNOTATION THAN THE WORD MANUFACTURE. IT W AS HELD THAT WHILE EVERY MANUFACTURE CAN CONSTITUTE PRODUCT ION, EVERY PRODUCTION DID NOT AMOUNT TO MANUFACTURE. IN OUR VIEW, APPLYING THE TESTS LAID DOWN BY THIS C OURT IN SESA GOAS CASE [2004] 271 ITR 331 AND APPLYING IT TO THE ACTIVITIES UNDERTAKEN BY THE RESPONDENTS HEREIN, REPRODUCED HE REINABOVE, IT IS CLEAR THAT THE SAID ACTIVITIES WOULD COME WIT HIN THE MEANING OF THE WORD PRODUCTION. ONE MORE ASPECT NEEDS TO BE HIGHLIGHTED. BY THE SAI D JUDGMENT, THIS COURT AFFIRMED THE DECISION OF THE KARNATAKA H IGH COURT IN THE CASE OF CIT V. MYSORE MINERAL LTD., (NO. 1) [20 01] 250 ITR 725. IN THE CASE OF CIT V. N.C. BUDHARAJA AND CO. [1993] 204 ITR 412 (SC), THE QUESTION WHICH AROSE FOR DETERMINATION BE FORE THIS COURT WAS WHETHER CONSTRUCTION OF A DAM TO STORE WA TER (RESERVOIR) CAN BE CHARACTERIZED AS AMOUNTING TO MA NUFACTURING OR PRODUCING AN ARTICLE. IT WAS HELD THAT THE WORD MANUFACTURE AND THE WORD PRODUCTION HAVE RECEIVED EXTENSIVE J UDICIAL ATTENTION BOTH UNDER THE INCOME-TAX AS WELL AS UNDE R THE CENTRAL EXCISE AND THE SALES TAX LAWS. THE TEST FOR DETERMINING WHETHER MANUFACTURE CAN BE SAID TO HAVE TAKEN PLA CE IS WHETHER THE COMMODITY, WHICH IS SUBJECTED TO A PROC ESS CAN NO LONGER BE REGARDED AS THE ORIGINAL COMMODITY BUT IS RECOGNIZED IN TRADE AS A NEW AND DISTINCT COMMODITY. THE WORD PRODUCTION, WHEN USED IN JUXTAPOSITION WITH THE W ORD MANUFACTURE, TAKES IN BRINGING INTO EXISTENCE NEW GOODS BY A PROCESS WHICH MAY OR MAY NOT AMOUNT TO MANUFACTURE. THE WORD PRODUCTION TAKES IN ALL THE BYE-PRODUCTS, IN TERMEDIATE PRODUCTS AND RESIDUAL PRODUCTS WHICH EMERGE IN THE COURSE OF MANUFACTURE OF GOODS. KARP IMPEX LTD. ITA 3034/M/2012 6 APPLYING THE ABOVE TESTS LAID DOWN BY THIS COURT IN N.C. BUDHARAJAS CASE [1993] 204 ITR 412 (SC) TO THE FACT S OF THE PRESENT CASES, WE ARE OF THE VIEW THAT BLOCKS CONVE RTED INTO POLISHED SLABS AND TILES AFTER UNDERGOING THE PROCE SS INDICATED ABOVE CERTAINLY RESULTS IN EMERGENCE OF A NEW AND D ISTINCT COMMODITY. THE ORIGINAL BLOCK DOES NOT REMAIN THE M ARBLE BLOCK; IT BECOMES A A SLAB OR TILE. IN THE CIRCUMSTANCES, NOT ONLY IS THERE MANUFACTURE BUT ALSO AN ACTIVITY WHICH IS SOMETHING BEYOND MANUFACTURE AND WHICH BRINGS A NEW PRODUCT INTO EXI STENCE AND, THEREFORE, ON THE FACTS OF THESE CASES, WE ARE OF THE VIEW THAT THE HIGH COURT WAS RIGHT IN COMING TO THE CONC LUSION THAT THE ACTIVITY UNDERTAKEN BY THE RESPONDENTS-ASSESSEE DID CONSTITUTE MANUFACTURE OR PRODUCTION IN TERMS OF SE CTION 80-IA OF THE INCOME-TAX ACT, 1961. BEFORE CONCLUDING, WE WOULD LIKE TO MAKE ONE OBSERV ATION. IF THE CONTENTION OF THE DEPARTMENT IS TO BE ACCEPTED, NAM ELY, THAT THE ACTIVITY UNDERTAKEN BY THE RESPONDENTS HEREIN IS NO T A MANUFACTURE, THEN, IT WOULD HAVE SERIOUS REVENUE CONSEQUENCES. AS STATED ABOVE, EACH OF THE RESPONDEN TS IS PAYING EXCISE DUTY, SOME OF THE RESPONDENTS ARE JOB WORKERS AND THE ACTIVITY UNDERTAKEN BY THEM HAS BEEN RECOGN IZED BY VARIOUS GOVERNMENT AUTHORITIES AS MANUFACTURE. TO S AY THAT THE ACTIVITY WILL NOT AMOUNT TO MANUFACTURE OR PRODUCTI ON UNDER SECTION 80-IA WILL HAVE DISASTROUS CONSEQUENCES, PAR TICULARLY IN VIEW OF THE FACT THAT THE ASSESSEE IN ALL THE CASES WOULD PLEAD THAT THEY WERE NOT LIABLE TO PAY EXCISE DUTY, SALES TAX, ETC. BECAUSE THE ACTIVITY DID NOT CONSTITUTE MANUFACTURE . KEEPING IN MIND THE ABOVE FACTORS, WE ARE OF THE VIEW THAT IN THE PRESENT CASES, THE ACTIVITY UNDERTAKEN BY EACH OF THE RESPO NDENTS CONSTITUTES MANUFACTURE OR PRODUCTION AND, THEREFOR E, THEY WOULD BE ENTITLED TO THE BENEFIT OF SECTION 80-IA O F THE INCOME- TAX ACT, 1961. 8. THE COORDINATE BENCH, THUS CONCLUDED, THUS FROM THE ABOVE DECISION IT IS CLEAR THAT PROCESSING OR PRODUCTION OF ARTICLES IS ALSO ELIGIBLE FOR DEDUCTION U/S 80IA . 9. THE AR ALSO REFERRED TO THE CASE OF DCIT VS UNIT Y CHOPRA (JV), ITA NO. 320 TO 324/MUM/2011 (WHERE ONE OF US WAS A PARTY) , IT WAS OBSERVED, WE HAVE HEARD BOTH THE PARTIES, PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE DECISIONS RELIED UPON BY THE LD. REPRESENTATIVES OF BOTH THE PARTIES. IT IS AN UN DISPUTED FACT THAT THE ASSESSEE COMPANY IS UNDER A BONA FIDE BELI EF THAT IT IS ELIGIBLE FOR DEDUCTION U/S 80-IA OF THE ACT AND THE S AME IS EVIDENT FROM THE CONDUCT OF THE ASSESSEE, WHO HAS N OT FILED APPEAL BEFORE THE CIT(A) AGAINST QUANTUM ADDITIONS. FROM THE ABOVE WRITE UP GIVEN BY THE ASSESSEE, IT IS EVIDENT THAT THE ASSESSEE WOULD HAVE OWN THE APPEAL ON QUANTUM ADDIT IONS IF KARP IMPEX LTD. ITA 3034/M/2012 7 WERE TO FILE. THEREFORE, THE ATTAINING FINALITY ON THE QUANTUM ADDITIONS AGAINST THE ASSESSEE IS NO ISSUE FOR CONF IRMING THE PENALTIES. AS SUCH THERE EXISTS DISPUTE ON THE DEBAT ABLE NATURE OF THE SAID PROVISIONS. AS PER THE JUDGMENT OF THE H ONBLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETROP RODUCTS PVT. LTD. (322 ITR 158), IT IS A SETTLED LAW THAT NO PE NALTY SHOULD BE LEVIED WHEN THE ISSUE IS A DEBATABLE ONE AND WHEN T HE CLAIM IS WRONGLY MADE IN THE RETURN OF INCOME. CONSIDERING T HE SETTLED NATURE OF THE ISSUE, CIT(A) HAS RIGHTLY DELETED THE PENALTY MADE BY THE AO U/S 271(1)(C) OF THE ACT AND IT DOES NOT CA LL FOR ANY INTERFERENCE. ACCORDINGLY, GROUNDS RAISED BY THE REVE NUE IN ALL THE REMAINING FOUR APPEALS ARE DISMISSED. 10. LIKEWISE, THE AR HAS REFERRED TO OTHER DECISION S, WHICH WE HAVE TAKEN NOTE OF AND PLEADED THAT PENALTY WAS NOT LEVIABLE, THUS NEEDS TO BE DELETED. 11. THE DR ON THE OTHER HAND STRONGLY DEFENDED THE ORDERS OF THE REVENUE AUTHORITIES AND SUBMITTED THAT AT THE TIME WHEN THE ASSESSEE FILED ITS RETURN, ONLY GEM INDIA ( SUPRA ) WAS AVAILABLE AND SINCE THE ASSESSEE WENT AGAINST THE RATIO LAID DOWN BY THE HO NBLE SUPREME COURT, IT WAS A STRAIGHT JACKET CASE OF FURNISHING OF INACCURATE PARTICULARS OF INCOMES AND, THEREFORE, THE REVENUE AUTHORITIES WERE CORRECT. THE DR ALSO SUBMITTED THAT THERE CANNOT BE ANY CASE OF TWO VIEWS, BECAUSE, AT THE GIVEN POINT OF TIME, ONLY TH E VIEW OF HONBLE SUPREME COURT WAS THERE IN GEM INDIA. HENCE, THE AR GUMENTS OF THE AR THAT THERE COULD BE TWO VIEWS, CANNOT STAND. 12. THE DR RELIED ON THE DECISIONS OF CIT VS ZOOM C OMMUNICATIONS (P) LTD. REPORTED IN 327 ITR 510 (DEL), CIT VS ESCO RT FINANCE LTD., REPORTED IN 188 TAXMAN 87 (DEL) TO SUPPORT HIS ARGU MENT. 13. THE AR IN THE REJOINDER SUBMITTED THAT THE TIME WHEN GEM INDIA ( SUPRA ) WAS DELIVERED, DEFINITION OF THE WORD MANUFACTURE WAS NOT THERE. BUT THE LEGISLATURE, BROUGHT OUT AN AMENDMEN T AND INSERTED EXPLANATION 4 TO SECTION 10A W.E.F. 01.04.2004, GIV ING THE DEFINITION OF THE WORD MANUFACTURE , WHICH INCLUDED CUTTING AND POLISHING OF ROUGH DIAMONDS WITHIN ITS FOLD. THE AR IN ALL FAIRNESS AC CEPTED THE FACT THAT KARP IMPEX LTD. ITA 3034/M/2012 8 NO SUCH DEFINITION WAS INSERTED IN THE IMPUGNED SEC TION, I.E. SECTION 80JJAA, BUT HE SUBMITTED THAT THE INSERTION OF EXPL ANATION CLEARLY TALKS ABOUT CUTTING AND POLISHING OF ROUGH DIAMONDS WOULD AMOUNT TO MANUFACTURE AND SINCE THE ASSESSEE WAS IN THE BUSINESS OF CUTTI NG AND POLISHING OF ROUGH DIAMONDS, THE MODUS OF THE A SSESSEE AMOUNTED TO MANUFACTURE AND ITS FACILITY WOULD BE A N UNDERTAKING. THE AR, FINALLY SUBMITTED THAT THE CASE OF THE ASSE SSEE IN ANY CASE IS FORTIFIED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS RELIANCE PETRO PRODUCTS LTD. REPORTED IN 322 ITR 15 8 (SC), WHEREIN, THE HONBLE SUPREME COURT OBSERVED THAT PENALTY IS NOT TO BE LEVIED, IN CASE ALL THE FACTS WERE WITH AND BEFORE THE AO, EVE N IF THE CLAIM IS LEGALLY UNSUSTAINABLE. 14. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED TH E ORDERS AND THE CASE LAWS CITED. THE ONLY QUESTION BEFORE US IS WHETHER PENALTY IS EXIGIBLE WHERE THE ISSUE IS COVERED BY THE HONBLE SUPREME COURT, ONLY BECAUSE, HONBLE SUPREME COURT INTERPRETS THE LAW. THE ASSESSEE BEING IN THE BUSINESS OF TRADING, PROCESSING AND EX PORTING OF CUT AND POLISHED DIAMONDS HAD DURING THE YEAR UNDER CONSIDE RATION, ENGAGED NEW REGULAR EMPLOYEES, TO WHOM THE ASSESSEE HAD PAI D ADDITIONAL WAGES AND IN THAT VIEW OF FACT, CLAIMED THE DEDUCTI ON U/S 80JJAA ON THOSE ADDITIONAL WAGES. THE REVENUE AUTHORITIES, PL ACING RELIANCE ON THE DECISION OF GEM INDIA (SUPRA), HELD THAT THE ASSESSEE WAS NOT ENGAGED IN ANY ACTIVITY OF MANUFACTURE OR PRODUCTIO N OF ARTICLE AND SINCE THE BUSINESS OF THE ASSESSEE WAS CUTTING AND POLISHING OF DIAMONDS, IT COULD NOT AMOUNT TO MANUFACTURE OR PRO DUCTION, AS PER THE DECISION OF THE HONBLE SUPREME COURT OF INDIA IN GEM INDIA (SUPRA) . THE AO, ON THIS ANALOGY, HELD THAT THE DEDUCTION AS CLAIMED CANNOT BE ALLOWED, SINCE THERE WAS NO MANUFACTURE O R PRODUCTION OF ANY ARTICLE BY THE UNDERTAKING. ON THE OTHER HAND, WHEN THE KARP IMPEX LTD. ITA 3034/M/2012 9 DEDUCTION WAS CLAIMED, I.E. IN ASSESSMENT YEAR 2005 -06, EXPLANATION 4 TO SECTION 10A W.E.F. 01.04.2004, WAS ALREADY IN THE STATUTE BOOK, WHICH READ AS, FOR THE PURPOSES OF THIS SECTION, MANUFACTURE OR PRODUCE SHALL INCLUDE THE CUTTING AND POLISHING OF PRECIOUS AND SEMI- PRECIOUS STONES . 15. THE FACT THAT THE FINANCE ACT, 2003 INSERTED EXPLANATION 4 I N SECTION 10A OF THE ACT W.E.F. 01.04.2004, THE ASSES SEE WAS UNDER BONA FIDE BELIEF THAT THE SAID DEFINITION CAN BE EXTENDED FO R CLAIMING DEDUCTION U/S 80JJAA OF THE ACT AS WELL, AS THE BUS INESS OF THE ASSESSEE WAS CUTTING AND POLISHING OF ROUGH DIAMOND S. ACCORDINGLY, THE AR SUBMITTED THAT THE ASSESSEE MADE THE IMPUGNE D CLAIM, HAVING A BONA FIDE BELIEF. BESIDES THE ABOVE, THE AR SUBMITTED THAT T HE QUESTION WHETHER CUTTING AND POLISHING OF DIAMOND I S MANUFACTURING OR NOT WAS A DISPUTE IN MANY CASES AND THE COORDINA TE BENCH OF THE ITAT, IN THE CASE OF SHEETAL DIAMONDS LTD. ( SUPRA ) WHERE IT WAS HELD THE SAME TO BE MANUFACTURING ACTIVITY ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. 16. IN THESE CIRCUMSTANCES, THE VIEW AS CANVASSED BY THE AR/ASSESSEE IS WELL SUPPORTED BY EXPLANATION 4, INS ERTED IN SECTION 10A WITH EFFECT FROM 01.04.2004 AND ALSO CERTAIN DE CISIONS, WHICH ARE RELIED UPON BY THE AR, HAS TO BE HELD TO BE BONA FI DE. THIS IS CASE WHERE THE CLAIM MADE BY THE ASSESSEE U/S 80JJAA HAS ONLY BEEN REJECTED. IT IS NOT THE CASE OF THE AO THAT THE ASS ESSEE HAS CONCEALED THE PARTICULARS OF INCOME, NOR IN THE WAKE OF EXPLA NATION 4 TO SECTION 10A, IT CAN BE HELD THAT THE ASSESSEE HAD FURNISHED INACCURATE PARTICULARS OF INCOME. IN OUR OPINION, THEREFORE, T HE EXPLANATION GIVEN BY THE ASSESSEE WITH REGARD TO ITS BELIEF FOR THE C LAIM OF THE IMPUGNED DEDUCTION CANNOT BE SAID TO BE MALA FIDE. THE HONB LE SUPREME COURT IN THE CASE OF RELIANCE PETOPRODUCTS PVT. LTD. (SUPRA) HAS SUCCINCTLY KARP IMPEX LTD. ITA 3034/M/2012 10 HELD THAT THE CLAIM MADE BY THE ASSESSEE, WHICH CAN NOT BE SUSTAINED IN LAW, WILL NOT GIVE RISE TO PENALTY TO SECTION 27 1(1)(C) OF THE INCOME TAX ACT. 17. UNDER THESE CIRCUMSTANCES, WE ARE OF THE VIEW T HAT PENALTY U/S 271(1)(C) IS NOT EXIGIBLE IN RESPECT OF DISALLOWANC E OF CLAIM OF DEDUCTION, MADE BY THE ASSESSEE. ACCORDINGLY, WE SE T ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO DELETE THE PENAL TY REFERRED ABOVE. 18. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND AUGUST, 2014. SD/- SD/- ( ) ( ! ! ! !) (B R BASKARAN) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 22 ND AUGUST, 2014 14/ COPY TO:- 1) /0/ THE APPELLANT. 2) 12/0/ THE RESPONDENT. 3) THE CIT (A)-9, MUMBAI. 4) ; 5 , MUMBAI / THE CIT-5, MUMBAI. 5) <=14) A , THE D.R. A BENCH, MUMBAI. 6) =>!? COPY TO GUARD FILE. 8) / BY ORDER / / TRUE COPY / / [ @/AB , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *DEA) .).