Sociedade De Fomento Industrial P. Ltd., Margao V. Dy. CIT, Circle 1, Margao

ITA 31/PAN/2013

• Counselvise Citation: 3124114 RSA 2013
• Duration Of Justice: 1 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 06-02-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 21-02-2013

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI P.K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA , HONBLE JUDICIAL MEMBER ITA NO. 321 / PNJ /201 3 ITA NO. 30 / PNJ /201 3 ITA NO. 31 / PNJ /201 3 : ASST. YEAR : 2002 - 03 ASST. YEAR : 200 7 - 0 8 ASST. YEAR : 2008 - 09 M/S. SOCIEDADE DE FOMENTO INDUSTRIAL PVT. LTD., MARGAO, GOA. PAN : AABCS8860Q (APPELLANT) VS. DY . COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, PANAJI, GOA. (RESPONDENT) ITA NO. 425 / PNJ /201 3 ITA NO. 35/PNJ/2013 ITA NO. 36/PNJ/2013 : ASST. YEAR : 2002 - 03 ASST. YEAR : 200 7 - 0 8 ASST. YEAR : 2008 - 09 ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 1, MARGAO, GOA. ( APPELLANT ) VS. M/S. SOCIEDADE DE FOMENTO INDUSTRIAL PVT. LTD., VILLA FLORES DA SILVA, ERASMO CARVALHO STREET, P.O. BOX NO. 31, MARGAO, GOA ( RESPONDENT ) PAN : AABCS8860Q ASSESSEE BY : P.J. PARDIWALLA, SR. ADV. NISHANT THAKKAR, ADV. REVENUE BY : SMT. ASHA DESAI, LD. DR DATE OF HEARING : 06 / 02/ 2014 DATE OF PRONOUNCEMENT : 28 /0 3 /2014 O R D E R PER P.K. BANSAL : ITA NOS . 321 & 425/PNJ/2013 : 1. BOTH THESE CROSS APPEALS HAVE BEEN FILED AGAINST THE ORDER OF CIT(A) DT. 27.9.2013. IN ITA NO. 321/PNJ/2013 THE ASSESSEE HAS TAKEN THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL : 2 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) 1. THAT THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), PANAJI, GOA (HEREINAFTER REFERRED TO AS CIT(A)) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. THAT TH E CIT(A) ERRED IN COMING TO THE CONCLUSION THAT THE ASSUMPTION OF JURISDICTION TO ISSUE NOTICE UNDER SECTION 148 OF THE ACT BY THE AO IS PROPER AND THAT THE AO HAS ADHERED TO ALL THE LEGAL REQUIREMENTS IN SO FAR AS PREREQUISITE CONDITIONS PRESCRIBED UNDER SECTION 147 OF THE ACT. 3.(A) THAT THE ALLEGED NOTICES UNDER SECTION 143(2) OF THE ACT DATED 22.09.2008 AND 21.08.2009 HAVING NOT BEEN SERVED UPON THE APPELLANT, THE REASSESSMENT ORDER DATED 30.12.2009 PASSED BY THE AO IS BAD IN LAW AND DESERVES TO BE QUASHED. (B) THAT THE APPELLANT HAVING DECLARED ON OATH THE NON - RECEIPT OF NOTICES UNDER SECTION 143(2) DATED 22.09.2008 AND 21.08.2009 AND IT HAVING BEEN FOUND THAT THERE IS NO PROOF/ACKNOWLEDGEMENT OF SERVICE OF NOTICE WITH THE DEPARTMENT, THE CIT(A) OUGHT TO HAVE QUASHED THE REASSESSMENT PROCEEDINGS FOR WANT OF SATISFACTION OF JURISDICTIONAL REQUIREMENT OF ISSUING NOTICE UNDER SECTION 143(2) WITHIN THE TIME LIMIT PRESCRIBED UNDER SECTION 143(2) OF THE ACT. 4. THE CIT(A) ERRED IN CONFIRMING THE EXCLU SION OF MISCELLANEOUS INCOME OF RS.2,01,314/ - , INTEREST FROM BANKS OF RS.3,062/ - , DESPATCH EARNED OF RS.2,41,542/ - AND SUNDRY CREDITORS WRITTEN BACK OF RS.3,22,820/ - FOR COMPUTATION OF ELIGIBLE PROFIT UNDER SECTION 10B OF THE ACT. WHEREAS IN ITA NO. 425/PNJ/2013 THE REVENUE HAS TAKEN THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL : 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ORDER IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. THE LD. CIT(A) ERRED IN ALLOWING DEDUCTION U/S 10B OF THE I.T. A CT, AMOUNTING TO RS.7,17,65,728/ - , WHICH AO HAS DISALLOWED, SINCE ENTITLEMENT FOR CLAIMING EXEMPTION U/S 10B FOR THE PERIOD OF 10 CONSECUTIVE ASSESSMENT YEAR EXHAUSTED IN THE A.Y. 2000 - 01. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ORIGINAL RETURN FOR T HE IMPUGNED ASSESSMENT YEAR WAS FILED BY THE ASSESSEE DECLARING INCOME OF RS.15,25,960/ - CLAIMING EXEMPTION U/S 10B OF THE INCOME TAX ACT IN RESPECT OF ITS UNIT, FERRO - MET CONCENTRATES WHICH DERIVES INCOME TOTALLY FROM EXPORTS. THE ASSESSMENT 3 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) U/S 143(3) W AS COMPLETED ON AN INCOME OF RS.15,25,961/ - AND SUBSEQUENTLY THE ORDER WAS RECTIFIED U/S 154 DUE TO THE WITHDRAWAL OF THE EXCESS CLAIM MADE U/S 80HHC AND THE INCOME WAS ASSESSED AT RS.27,71,708/ - . SUBSEQUENTLY, NOTICE U/S 148 DT. 1.4.2008 WAS ISSUED BY RE CORDING THE FOLLOWING REASONS : 1. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXTRACTION, PROCESSING AND SALE OF IRON ORE. IT HAS CLAIMED EXEMPTION U/S 10B ON THE INCOME OF M/S. FERRO - MET CONCENTRATES (M/S.GREATER FERRO - MET) AND THE SAME WAS ALLOWED IN T HE ASSESSMENTS. THE ASSSESSEE HAS SET UP A 100% EOU IN THE YEAR 1985 - 86 AND THE EOU WAS APPROVED BY THE MINISTRY OF INDUSTRY, DEPARTMENT OF INDUSTRIAL DEVELOPMENT UNDER INDUSTRIAL LICENSE NO. CIL.420 (1985) DT.26.12.1985 FOR A PERIOD OF 10 YEARS. THE COMP ANY CLAIMED EXEMPTION U/S 10B OF THE I.T. ACT. FROM THE A. Y. 1990 - 91 ONWARDS. ACCORDINGLY, THE ASSESSEE IS ENTITLED FOR EXEMPTION FOR A PERIOD OF 10 CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLE OR THINGS. THE PERIOD THEREFORE ENDED WITH THE A. Y 2000 - 01. THE ASSESSEE WAS, THEREFORE, NOT ENTITLED TO CLAIM EXEMPTION U/S 10B FOR THE A. Y 2002 - 03. THE C. A. OF THE ASSESSEE HAS MENTIONED IN ENCLOSU RE - 1 (ENCLOSED TO THE RETURN OF INCOME) THAT DURING THE F. Y. 1994 - 95 THE COMPANY DECIDED TO GO FOR SUBSTANTIAL INVESTMENT IN PLANT AND MACHINERY AND APPROVAL WAS SOUGHT AND OBTAINED FROM THE CENTRAL GOVERNMENT VIDE MINISTRY OF INDUSTRIAL DEVELOPMENTS LET TER DATED. 10 TH NOVEMBER 1994 WHICH WAS SUBSEQUENTLY AMENDED VIDE THEIR LETTER DATED 29.02.1996 WHEREIN STATUS OF 100% EOU WAS EXTENDED FOR FURTHER PERIOD OF 5 YEARS BEYOND 1996 AND AGAIN AMENDED BY THE CENTRAL GOVT. VIDE THEIR LETTER DATED 05.10.2001 ISSUE D BY THE OFFICE OF THE DEVELOPMENT COMMISSIONER SEEPZ, SPECIAL ZONE MINISTRY OF COMMERCE AND INDUSTRY, MUMBAI WHEREIN THE STATUS OF 100% TO FERROMET CONCENTRATES HAS BEEN EXTENDED FOR A FURTHER PERIOD OF 5 YEARS FROM 01.04.2001 ONWARDS. IT HAS BEEN CLAIMED THAT THE NEW UNIT (WHICH THE ASSESSEE IS NOW CALLING GREATER FERRO MET) COMMENCED ITS OPERATION IN THE PREVIOUS YEAR RELEVANT TO THE A. Y. 1999 - 00. FROM THE ABOVE IT IS CLEAR THAT THIS IS ONLY A CASE OF CAPACITY EXPANSION AND THEREFORE, THE ASSESSEE CAN NOT CLAIM THAT A NEW UNIT HAS COME INTO EXISTENCE WHICH LEADS THE ASSESSEE TO CLAIM EXEMPTION U/S 10B. THE C. A. OF THE ASSESSEE HAS ALSO OBSERVED THAT .......... THIS BEING A HIGHLY TECHNICAL ISSUE, WE HAVE RELIED UPON THE REPRESENTATION MADE BY THE COMP ANY IN THIS REGARD FOR THE PURPOSE OF REPORTING U/S 10B OF THE ACT 1961 FROM THE CAS REMARKS ALSO, THOUGH HE HAS SIGNED AND CERTIFIED THE EXEMPTION U/S 10B IN FORM NO 56G, HE IS NOT SURE OF CLAIMING EXEMPTION U/S 10B FOR THE SAID UNIT SET UP IN THE YEAR 1999 - 00.THEREFORE, FOR THE FOLLOWING REASONS THE EXEMPTION IS NOT ALLOWABLE TO THE ASSESSEE: I. TAX HOLIDAYS FOR AN EOU IS 10 CONSECUTIVE YEARS AND THE ASSESSEE COMPANY HAS AVAILED IT SINCE 1991 - 92 4 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) II. NO NEW UNIT HAS BEEN APPROVED BY DEVELOPMENT COMMISSIONER SWEEPZ AS SEEN FROM THE LOPS. THE EXISTING UNIT WAS GRANTED EXTENSION UPTO 2005 - 06 III. ONE OF THE ESSENTIAL CONDITIONS OF 10B IS THAT IT SHOULD NOT BE FORMED BY TRANSFER OF MACHINERY OR PLANT, PREVIOUSLY USED FOR ANY PURPOSE. VI. THE ACCOUNT ANT STATED THAT HE HAS RELIED UPON THE REPRESENTATIONS MADE BY THE COMPANY FOR THE PURPOSE OF REPORTING U/S 10B, RELYING MERELY ON THE REPRESENTATIONS BY THE ASSESSEE COMPANY, IN CONTRARY TO SECTION 10B OF THE I. T. ACT. IN THE CIRCUMSTANCES, THE ASSESSEE IS NOT ENTITLED FOR CLAIM OF EXEMPTION U/S 10B FOR THE ABOVE A.Y. SINCE THE CLAIM ITSELF IS NOT ADMISSIBLE WHICH HAS BEEN WRONGLY ALLOWED IN THE ASSESSMENT, IN VIEW OF THE EXPLANATION 2 TO SECTION 147 OF THE ACT IT HAS TO BE TREATED AS INCOME ESCAPED ASSESSMENT. RELIANCE IS ALSO PLACED ON THE DECISION OF THE HONOURABLE SUPREME COURT IN THE CASE PHOOL CHAND BAJRANG LAL 203 ITR 456 (1993) THEREFORE I HAVE REASON TO BELIEVE THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SE CTION 147 OF THE INCOME TAX ACT FOR THE ABOVE ASSESSMENT YEAR. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXTRACTION, PROCESSING AND SALE OF IRON ORE. THE ASSESSEE HAS CREDITED THE FOLLOWING AMOUNTS IN THE P&L ACCOUNT AND CLAIMED EXEMPTION U/S. 10B ON THESE AMOUNTS: A). FROM BANKS RS. 3,062 B). DESPATCH EARNED RS. 2,41,542 C). SUNDRY CREDITORS WRITTEN BACK RS. 3,22,820 D). MISCELLANEOUS INCOME RS. 2,01,314 THE EXEMPTION U/S 10B IS AVAILABLE IN RESPECT OF PROFITS AND GAINS AS ARE DERIVED BY THE UNIT FROM EXPORT OF ARTICLES OR THINGS. THE ASSESSEE HAS CLAIMED EXEMPTION U/S 10B ON THESE ITEMS ALSO AND THE SAME WAS ALLOWED IN THE ASSESSMENT. THEREFORE THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. 3. SIMILARLY, THE ASSESSEE HAS CLAIMED REPAIR S AND MAINTENANCE OF VEHICLES AT RS.18,42,471/ - . THIS EXPENSES HAVE BEEN DISPROPORTIONATELY CLAIMED IN THE EOU UNIT AND NON EOU UNIT. THESE ARE AS UNDER: THESE ARE AS UNDER: NON EOU EOU TOTAL 17,97,928 44,543 18,42,471 SINCE THESE EXPENSES ARE COMMON EXPENSES OF BOTH UNITS, THE ASSESSEE SHOULD HAVE CLAIMED THE EXPENSES PROPORTIONALLY AS PER THE TURNOVER OF THE EACH UNIT. THE TURNOVER IN THESE UNITS IS AS UNDER: NON EOU EOU TOTAL 14,47,07,843 (18%) 63,94,98,728 (82%) 78,42,06,571 ACCORDING TO THE TURNOVER THE ASESSEE SHOULD HAVE CLAIMED EXPENSES OF RS. 3,31,644/ - IN THE NON EOU WHEREAS THE SAME HAS BEEN CLAIMED AND ALLOWED AT RS.17,97,928/ - . IN THE CIRCUMSTANCES, THE ASSESSEE HAS CLAIMED EXCESS EXPENSES OF RS. 14,66,284/ - IN THE NON EOU THEREBY RED UCING THE TAXABLE INCOME TO THAT EXTENT. THEREFORE, THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. 5 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) 4. THE ASSESSEE IS AN INDIAN COMPANY HAS PAID A SUM OF RS. 13,40,982/ - TOWARDS REMUNERATION TO ITS JOINT MANAGING DIRECTOR SRI. PRASHANTH TIMBLO. THE J OINT DIRECTOR WAS POSTED AS MANAGER OF THE LIASON OFFICE AND AS SUCH HE WAS WORKING IN DUBAI. SINCE THE PAYMENT MADE TO THE JOINT DIRECTOR IS THE SALARY WITHIN THE MEANING OF SECTION 192 OF THE IT ACT, THE PROVISIONS OF CHAPTER XVIIB ARE APPLICABLE AND THE ASSESSEE SHOULD HAVE BEEN DEDUCTED TAX ON SUCH PAYMENT. HOWEVER, THE COMPANY HAS NOT DEDUCTED TAX ON THE REMUNERATION PAID TO SHRI. PRASHANT TIMBO. THEREFORE, THE SAID AMOUNT HAS TO BE DISALLOWED AS PER SECTION 40A(III) OF THE I. T. ACT. HOWEVER THE SAME WAS NOT DISALLOWED IN THE ASSESSMENT. THEREFORE THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. FOR ALL THE ABOVE REASONS I HAVE REASONS TO BELIEVE THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE INC OME TAX ACT FOR THE ABOVE ASSESSMENT YEAR. SINCE THE ASSESSMENT IN THIS CASE WAS COMPLETED U/S 143(3) AND FOUR YEARS HAVE BEEN LAPSED, A PROPOSAL U /S 147 IS SUBMITTED TO THE CIT(CENTRAL) BANGALORE, FOR NECESSARY APPROVAL FOR REOPENING THE ASSESSMENT U/S 1 47 THE I. T. ACT. IN RESPONSE THERETO, THE ASSESSEE SUBMITTED ITS RETURN ON 9.5.2008 DECLARING AN INCOME OF RS.27,71,710/ - . THE AO MENTIONED THAT THE NOTICE U/S 143(2)/142(1) DT . 22.9.2008 WAS ISSUED AND SERVED ON THE ASSESSEE FOR FIXING THE HEARING ON 26.9.2008. SUBSEQUENTLY, NOTICE U/S 142(1) WAS ISSUED ON 14.10.2009 ALONGWITH QUESTIONNAIRE. ASSESSEE FILED OBJECTION FOR THE RE - OPENING VIDE LETTER DT. 22.10.2009 AS REPRODUCED BY THE AO UNDER PARA 4 - 21 OF THE ASSESSMENT ORDER. THE AO REJECTED THE OBJECTIONS AS, IN HIS OPINION, THE OBJECTIONS WERE NOT TENABLE. THE AO COMPLETED THE ASSESSMENT ON A TOTAL INCOME OF RS.3,40,76,816/ - AS PER THE COMPUTATION MADE ON THE BASIS OF NORMA L PROVISIONS BUT UNDER THE MAT THE BOOK PROFIT U/S 115JB WAS COMPUTED AT RS. 2,29,07,838/ - . THE ASSESSEE WAS DENIED IN ADDITION TO THE VARIOUS DISALLOWANCES, THE EXEMPTION U/S 10B BUT THE ASSESSEE WAS ALLOWED DEDUCTION U/S 80HHC AT 70% OF THE BUSINESS PROFI T FROM THE EXPORTS BUSINESS VIDE ORDER DATED 30.12.2009 IGNORING THE FACT THAT THE FINDING OF THE CIT(A) VIDE ORDER DATED 4.12.2009 FOR THE ASSESSMENT YEAR 2006 - 07 HAS BECOME FINAL SO FAR THE ESTABLISHMENT OF THE NEW UNIT IS CONCERNED AS THE REVENUE HAS NO T FILED ANY APPEAL BEFORE THE TRIBUNAL . THE ASSESSEE WENT IN APPEAL BEFORE CIT(A). CIT(A) 6 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) DISMISSED THE CONTENTION OF THE ASSESSEE RELATING TO THE VALIDITY OF THE RE - ASSESSMENT AS WELL AS THE SERVICE OF THE NOTICE U/S 143(2) BUT ALLOWED EXEMPTION U/S 10B BY HOLDING AS UNDER : 5.3. DURING THE COURSE OF APPELLATE PROCEEDINGS, SHRI NISHANT THAKKAR CLAIMED THAT THE ISSUE OF NEW UNIT IS COVERED BY THE DECISION OF HONBLE ITAT IN ASSESSEES OWN CASE FOR A.Y. 2006 - 07, WHEREIN THE NEW UNIT HAS BEEN FOUND TO BE IN EXISTENCE AND IS FOUND TO BE ELIG IBLE FOR CLAIM OF DEDUCTION U/S 10B. THE HONBLE ITAT DECIDED AS UNDER: THE LEARNED CIT(A) VIDE PARA 2.5.4. OF THE IMPUGNED ORDER ADMITTED THE FACT THAT, THE CAPITAL INVESTMENT IN THE EXISTING UNIT WAS RS.3 WHICH WAS INCREASED TO RS. 30 CRORES, SIM ILARLY THE PRODUCTION CAPACITY WAS INCREASED FROM 2 LAKH TONNES PER ANNUM TO 15 LAKH TONNES PER ANNUM, WHICH MAKES THE UNDERTAKING AS A NEW INDUSTRIAL UNDERTAKING. THIS FINDING IS NOT SHOWN TO BE PERVERSE ON FACTS AS NEITHER ANY CROSS APPEAL OR CROSS - OBJE CTION HAVE BEEN FILED BY THE INCOME TAX DEPARTMENT NOR ANY PLEA HAS BEEN RAISED IN APPEAL BEFORE US. IT THEREFORE HAS TO BE TAKEN THAT THE FINDINGS SO REACHED BY LEARNED CIT(A) HAVE ACQUIRED FINALITY. 5.4. SINCE THE ISSUE OF NEW UNIT IS COVERED BY THE D ECISION OF HONBLE ITAT, THIS GROUND OF APPELLANT IS ALLOWED. SIMILARLY, THE ISSUE OF PRODUCTION IS ALSO COVERED BY THE RECENT DECISION OF HONBLE ITAT IN THE CASE OF M/S. SESA GOA LTD., RESPECTFULLY FOLLOWING THE DECISION OF HONBLE ITAT, THE NEW UNIT IS HELD TO BE ENGAGED IN PRODUCTION, ELIGIBLE FOR CLAIM OF DEDUCTION U/S 10B, THIS GROUND OF APPEAL OF THE APPELLANT IS, THEREFORE, ALLOWED AND THE A.O. IS DIRECTED TO GRANT DEDUCTION U/S 10B TO THE APPELLANT. THE CIT(A) DISMISSED THE GROUND OF THE ASSESSEE ABOUT THE EXCLUSION OF THE MISCELLANEOUS INCOME, INTEREST FROM BANK, DISPATCH EARNED AND SUNDRY CREDITORS WRITTEN BACK TAKING IT TO BE PART OF THE ELIGIBLE PROFIT U/S 10B. ITA NO. 321/PNJ/2013 : 1. GROUND NO. 1 IS GENERAL IN NATURE AND DOES NOT REQUIR E ADJUDICATION. 2. GROUND NO. 2 RELATES TO THE ASSUMPTION OF THE JURISDICTION BY THE AO U/S 147 OF THE INCOME TAX ACT. 7 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) 2.1 THE LD. SR. ADVOCATE BEFORE US VEHEMENTLY CONTENDED THAT THE ASSESSMENT AS BEEN RE - OPENED WITHOUT COMPLYING WITH THE PRE - REQUISITE CONDITIONS PRESCRIBED U/S 147. THE REASONS RECORDED WERE NOT BONA FIDE . OUR ATTENTION WAS DRAWN TOWARDS COPY OF THE REASONS AS HAS BEEN RE - PRODUCED IN THE PRECEDING PARAGRAPHS. IT WAS POINTED OUT THAT NOTICE U/S 148 DT. 1.4.2008 HAS BEEN ISSUED AFTER THE EXPIRY OF 4 YEARS FROM THE END OF THE A.Y 2002 - 03. THE ORIGINAL ASSESSMENT U/S 143(3) WAS COMPLETED ON 31.3.2005. THE ASSE SSMENT AFTER THE END OF THE 4 YEARS FROM THE ASSESSMENT ORDER CAN BE RE - OPENED IF THE AO HAS REASON TO BELIEVE THAT THE INCOME HAS ESCAPED ASSESSMENT. OUR ATTENTION WAS DRAWN TOWARDS THE PROVISO TO SEC. 147 AND IT WAS POINTED OUT THAT IF THE ASSESSMENT HA S BEEN COMPLETED U/S 143(3), ACTION AFTER THE EXPIRY OF 4 YEARS CAN BE TAKEN U/S 147 IF THE ASSESSEE FAILS TO MAKE A RETURN U/S 139 OR IN RESPONSE TO A NOTICE ISSUED U/S 142(1) OR 142 OR FAILS TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HI S ASSESSMENT FOR THAT ASSESSMENT YEAR. THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO MAKE A RETURN U/S 139 OR IN RESPONSE TO A NOTICE U/S 142(1) OR SEC. 148. THE ASSESSEE HAS DISCLOSED FULLY AND TRULY ALL THE MATERIAL FACTS NECESSARY FOR HIS ASSESSM ENT FOR THE IMPUGNED ASSESSMENT YEAR. IN THIS REGARD, ATTENTION WAS DRAWN TOWARDS THE REASONS TO BELIEVE AND IT WAS POINTED OUT THAT THE AO HAS ALLEGED THAT THE INCOME HAS ESCAPED ASSESSMENT IN RESPECT OF FOLLOWING 4 ITEMS : 1. THE ASSESSEE WAS NOT ENTITLED TO CLAIM EXEMPTION U/S 10B FOR THE IMPUGNED ASSESSMENT YEAR. 2. EXCESS CLAIM U/S 10B HAS BEEN GIVEN IN RESPECT OF CERTAIN INCOME CREDITED IN THE PROFIT & LOSS ACCOUNT. 3. THE ASSESSEE HAS CLAIMED DISPROPORTIONATE EXPENSES AGAINST EOU UNIT. 4. THE ASSESSEE HAS PAID REMUNERATION TO JT. MANAGING DIRECTOR WITHOUT DEDUCTION OF TAX. 8 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) THE ASSESSEE HAS DISCLOSED ALL THE PARTICULARS IN THE RETURN FILED AND NONE WAS PROVED TO BE UNTRUE BY THE REVENUE . THE ENTITLEMENT AS WELL AS QUANTIFICATION OF THE DEDUCTION CLAIMED BY THE ASSESSEE U/S 10B WAS DULY VERIFIED BY THE AO. THE ASSESSEE HAS CREATED A NEW UNIT GREATER FERRO - MET HAVING INDEPENDENT FUNCTIONING AND OPERATION. THE ESSENTIAL CONDITIONS FOR CLAIMING DEDUCTION U/S 10B WERE COMPLIED WITH. THE AUDITOR HAS SIMPLY STAT ED THE REPRESENTATION OF THE ASSESSEE TO THE EXTENT IT GIVES THE TECHNICAL REASONS, JUSTIFICATION AS TO THE NECESSITY OF SETTING UP A NEW UNIT. THE ASSESSEE HAS SUBMITTED ALONGWITH THE RETURN, FORM NO. 56G AS REQUIRED UNDER THIS SECTION FOR CLAIMING DEDUC TION U/S 10B. THIS FORM CLEARLY DEMONSTRATES ENTITLEMENT TO CLAIM DEDUCTION U/S 10B FOR THE GREATER FERRO - MET UNIT. THIS FORM CONTAINED AN ANNEXURE WHICH GAVE DETAILS OF THE HISTORY WITH RESPECT TO THE FORMATION OF THE NEW UNIT. THE AO WHILE RECORDING T HE REASONS, SIMPLY RELIED ON THE DETAILS CONTAINED IN THIS ANNEXURE. NO FURTHER INFORMATION OR MATERIAL WAS BROUGHT ON RECORD. ALL THE ALL THE INFORMATION AND MATERIAL INCLUDING THE DOCUMENTS REFERRED TO WERE DULY SUBMITTED EITHER ALONGWITH THE RETURN OR DURING THE COURSE OF ASSESSMENT PROCEEDINGS. IN RESPONSE TO THE QUERY RAISED BY THE AO, THE ASSESSEE HAS FILED VARIOUS LETTERS NAMELY, LETTER DT. 29.2.1996, COPY OF INVITATION LETTER DT. 20.11.1998 ADDRESSED TO THE COMMISSIONER OF CUSTOMS AND CENTRAL EXC ISE, GOA, COPY OF LETTER DT. 5.10.2001 WRITTEN BY THE DEVELOPMENT COMMISSIONER, SEEPZ SPECIAL ECONOMIC ZONE, MUMBAI AND NOTE ON THE WORKING OF THE BROUGHT FORWARD POSITION OF BUSINESS LOSS AND UNABSORBED DEPRECIATION AVAILABLE FOR SET OFF AND BIFURCATION O F THE SAME. FOR THIS, ATTENTION WAS DRAWN TOWARDS PG. 6 - 13 OF THE PAPER BOOK. IT WAS POINTED OUT THAT THE AO AFTER PASSING ORDER U/S 143(3) RECTIFIED THE ASSESSMENT ORDER VIDE ORDER DT. 25.5.2006 MENTIONING THEREIN CLEARLY THAT, THE ASSESSEE HAS CLAIMED EXEMPTION U/S 10B WHICH WAS ALLOWED TO THE ASSESSEE. THE MISTAKE RELATES TO THE HIGHER DEDUCTION U/S 80HHC. ATTENTION WAS DRAWN TO PG. 29 - 30 OF THE PAPER BOOK. REFERRING TO THE 9 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) COPY OF THE REASONS RECORDED, IT WAS STATED THAT THE REASONS IN RESPECT OF T HE CLAIM OF DEDUCTION U/S 10B ARE ALSO BASED ON AUDITORS REPORT WHICH WAS FILED ALONGWITH THE INCOME TAX RETURN. THE AUDITORS REPORT DOES NOT STATE THAT THE ASSESSEE IS NOT ENTITLED FOR THE CLAIM OF EXEMPTION U/S 10B AND THE UNIT ESTABLISHED BY THE ASSESS EE IS NOT A NEW UNIT. IT ONLY STATES ABOUT ITS RELIANCE ON THE REPRESENTATION OF THE MANAGEMENT. THE ASSESSEE HAS SUBMITTED THE OBJECTIONS VIDE LETTER DT. 22.10.2009 CLAIMING THEREIN THAT THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO FILE RETURN OR TO DISCLOSE MATERIAL FACTS. IT WAS ALSO OBJECTED THEREIN THAT THE CLAIM OF DEDUCTION OF THE ASSESSEE U/S 10B WAS DULY EXAMINED AND VERIFIED BY THE AO. THE REASONS NOWHERE WHISPERS OR ALLEGES ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE ALL THE REL EVANT FACTS FOR MAKING THE ASSESSMENT. THE MISCELLANEOUS INCOME HAS DULY BEEN CREDITED TO THE PROFIT & LOSS ACCOUNT ON WHICH THE ASSESSEE HAS CLAIMED DEDUCTION U/S 10B ON THE BASIS OF THE COMPUTATION MADE AS PER THE FORMULAE GIVEN U/S 10B(4). FOR THIS, A TTENTION WAS DRAWN TO PARA 2 OF THE REASONS TO BELIEVE IN RESPECT OF THE EXPENSES WHICH WERE CLAIMED BY THE ASSESSEE FOR DETERMINING THE INCOME OF THE EOU UNIT. IT WAS STATED THAT THE ASSESSEE HAD ANALYSED THE EXPENSES AND HAD FILED DETAILS HOW THE PROPOR TIONATE EXPENSES HAVE BEEN ALLOCATED. FOR THIS, ATTENTION WAS DRAWN TO PG. 89 OF THE PAPER BOOK. THE ASSESSEE HAS FULLY DISCLOSED THE SALARY BEING PAID TO MR. TIMBLO WHO IS A NON - RESIDENT. THE SALARY WAS PAID IN RESPECT OF THE SERVICES RENDERED BY HIM I N DUBAI WHICH DID NOT ACCRUE OR ARISE IN INDIA. THEREFORE, NO TDS WAS DEDUCTIBLE. THE DETAILS ARE GIVEN IN THE TAX AUDIT REPORT, FORM 3CD AS WELL AS ANNEXURE F AND EXHIBIT E TO THE COPY OF NOTES ON ACCOUNTS FOR WHICH ATTENTION WAS DRAWN TO PG. 86, 87 AS WELL AS 88 OF THE PAPER BOOK. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF HINDUSTAN LEVER LTD VS. R.B. WADKAR, 268 ITR 332 (BOM) FOR THE PROPOSITION OF LAW THAT THE REASONS RECORDED MUST BE BASED ON FACTS. IT MUST DISCLOSE THE REASONS AS TO WHICH FACT OR MATERIAL HAS NOT 10 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) BEEN DISCLOSED BY THE ASSESSEE FULLY AND TRULY SO AS TO ESTABLISH THE VITAL LINK BETWEEN THE REASONS AND EVIDENCE. THE REASONS CANNOT BE SUPPLEMENTED BY FILING THE AFFIDAVIT. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF SESA GOA LTD. VS. JCIT, 294 ITR 101 (BOM) FOR THE PROPOSITION OF LAW THAT THE REASONS MUST DISCLOSE THE NON - DISCLOSURE OF FACTS FULLY AND TRULY BY THE ASSESSEE. RELIANCE WAS ALSO PLACED IN THE CASE OF GRINDWELL NORTON LTD. VS. ACIT, 267 ITR 673 (BOM) FOR THE PROPOSITION OF LAW THAT THE REASONS MUST DISCLOSE THAT THERE WAS A FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE THE MATERIAL FACTS IN THE RETURN FILED BY THE ASSESSEE. REL IANCE WAS ALSO PLACED ON THE DECISION OF THE THIRD MEMBER IN THE CASE OF ACIT VS. VINDHYA TELELINKS LTD., 13 SOT 233 (JAB) (TM) IN WHICH THE THIRD MEMBER CONFIRMED THE DECISION OF THE UNDERSIGNED ACCOUNTANT MEMBER THAT THE REASONS MUST STATE THAT THERE WAS A FAILURE ON THE PART OF THE ASSESSEE TO FURNISH ANY MATERIAL FACT WHICH WAS NECESSARY FOR THE ASSESSMENT. ALTERNATELY, IT WAS SUBMITTED THAT THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXEMPTION U/S 10B WAS DULY EXAMINED BY THE AO AND AFTER EXAMINING AL L THE ISSUES RECORDED IN THE REASONS THE AO PASSED THE ASSESSMENT ORDER ALLOWING THE CLAIM OF THE ASSESSEE . NO FRESH TANGIBLE MATERIAL HAS COME TO THE KNOWLEDGE OF THE AO. THE ASSESSMENT HAS BEEN RE - OPENED MERELY ON THE BASIS OF MATERIAL WHICH WAS ALREAD Y ON RECORD WHICH TANTAMOUNT TO CHANGE IN OPINION. RELIANCE WAS PLACED IN THIS REGARD ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD., 320 ITR 561 (SC). RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. ORIENT CRAFT LIMITED, 354 ITR 536 (DEL.) AND THAT OF TELCO DADAJI DHACKJEE LTD , 59 - SOT - 46 AND OTHER VARIOUS DECISIONS . 2.2 THE LD. DR, ON THE OTHER HAND, VEHEMENTLY RELIED ON THE ORDER OF THE AO AS WELL AS THE ORDE R OF CIT(A). HE CONTENDED THAT THE REASONS RECORDED BY THE 11 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) AO WERE BONA FIDE . THE ASSESSMENT HAS BEEN RE - OPENED AS THE ASSESSEE HAS INCORRECTLY CLAIMED DEDUCTION U/S 10B FOR WHICH HE WAS NOT ENTITLED. THE TRIBUNAL CANNOT LOOK INTO THE SUFFICIENCY OF THE REASONS. THERE WAS MATERIAL BEFORE THE AO WHICH PROVES THAT THE ASSESSEE HAS NOT ESTABLISHED A NEW UNIT BUT HAS SIMPLY RENOVATED AN OLD UNIT. SUBSTANTIAL EXPANSION HAS BEEN CARRIED OUT. EXEMPTION HAS BEEN CLAIMED BY THE ASSESSEE U/S 10B FOR WHICH THE AS SESSEE WAS NOT ENTITLED. CIT(A) AFTER EXAMINING ALL THE FACTS HAS GIVEN A FINDING OF FACT AND THEREFORE THE ORDER OF CIT(A) MUST BE CONFIRMED ON THE ISSUE OF VALIDITY OF THE REASSESSMENT. 2.3 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS ALONGWITH T HE ORDER OF THE TAX AUTHORITIES BELOW AS WELL AS THE VARIOUS DOCUMENTS AS HAS BEEN REFERRED TO DURING THE COURSE OF THE HEARING . WE HAVE ALSO GONE THROUGH THE VARIOUS CASE LAWS CITED BEFORE US. BEFORE DECIDING THE ISSUE WHETHER THE PROCEEDINGS INITIATED U/S 147 ARE VALID OR NOT; WHETHER THE AO HAS ASSUMED VALID JURISDICTION FOR ISSUING NOTICE U/S 148; WHETHER THERE IS A CHANGE OF OPINION, IT IS ESSENTIAL TO LOOK INTO THE PROVISIONS OF SEC. 147, 148 AND 149 OF THE INCOME TAX ACT. THESE PROVISIONS READ AS UNDER : 147 . IF THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, HE MAY, SUBJECT TO THE PROVISIONS OF SECTIONS 148 TO 153 , ASSESS OR REASSESS SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION, OR RECOMPUTE THE LOSS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE, AS THE CASE MAY BE, FOR THE ASSESSMENT YEAR CONCERNED (HEREAFTER IN THIS SECTION AND IN SECTIONS 148 TO 153 REFERRED TO AS THE RELEVANT ASSESSMENT YEAR) : PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB - SECTION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE RELEVANT ASSESSMENT YEAR, NO ACTION SHALL BE TAKEN UNDER THIS SECTION AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF THE FAILURE ON THE PART OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB - SECTION (1) OF 12 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) SECTION 142 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSME NT, FOR THAT ASSESSMENT YEAR: PROVIDED FURTHER THAT NOTHING CONTAINED IN THE FIRST PROVISO SHALL APPLY IN A CASE WHERE ANY INCOME IN RELATION TO ANY ASSET (INCLUDING FINANCIAL INTEREST IN ANY ENTITY) LOCATED OUTSIDE INDIA, CHARGEABLE TO TAX, HAS ESCAPED A SSESSMENT FOR ANY ASSESSMENT YEAR: PROVIDED ALSO THAT THE ASSESSING OFFICER MAY ASSESS OR REASSESS SUCH INCOME, OTHER THAN THE INCOME INVOLVING MATTERS WHICH ARE THE SUBJECT MATTERS OF ANY APPEAL, REFERENCE OR REVISION, WHICH IS CHARGEABLE TO TAX AND HAS ESCAPED ASSESSMENT. EXPLANATION 1. PRODUCTION BEFORE THE ASSESSING OFFICER OF ACCOUNT BOOKS OR OTHER EVIDENCE FROM WHICH MATERIAL EVIDENCE COULD WITH DUE DILIGENCE HAVE BEEN DISCOVERED BY THE ASSESSING OFFICER WILL NOT NECESSARILY AMOUNT TO DISCLOSURE WIT HIN THE MEANING OF THE FOREGOING PROVISO. EXPLANATION 2. FOR THE PURPOSES OF THIS SECTION, THE FOLLOWING SHALL ALSO BE DEEMED TO BE CASES WHERE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, NAMELY : ( A ) WHERE NO RETURN OF INCOME HAS BEEN FURNISHED B Y THE ASSESSEE ALTHOUGH HIS TOTAL INCOME OR THE TOTAL INCOME OF ANY OTHER PERSON IN RESPECT OF WHICH HE IS ASSESSABLE UNDER THIS ACT DURING THE PREVIOUS YEAR EXCEEDED THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO INCOME - TAX ; ( B ) WHERE A RETURN OF INCOME H AS BEEN FURNISHED BY THE ASSESSEE BUT NO ASSESSMENT HAS BEEN MADE AND IT IS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS UNDERSTATED THE INCOME OR HAS CLAIMED EXCESSIVE LOSS, DEDUCTION, ALLOWANCE OR RELIEF IN THE RETURN ; ( BA ) WHERE THE ASSESSEE HAS FAILED TO FURNISH A REPORT IN RESPECT OF ANY INTERNATIONAL TRANSACTION WHICH HE WAS SO REQUIRED UNDER SECTION 92E ; ( C ) WHERE AN ASSESSMENT HAS BEEN MADE, BUT ( I ) INCOME CHARGEABLE TO TAX HAS BEEN UNDERASSESSED ; OR ( II ) SUCH INCOME HAS BEEN ASSESSED AT TOO LOW A RATE ; OR ( III ) SUCH INCOME HAS BEEN MADE THE SUBJECT OF EXCESSIVE RELIEF UNDER THIS ACT ; OR ( IV ) EXCESSIVE LOSS OR DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE UNDER THIS ACT HAS BEEN COMPUTED; ( D ) WHERE A PERSON IS FOUND TO HAVE ANY ASSET (INCLUDING FINANCIAL INTEREST IN ANY ENTITY) LOCATED OUTSIDE INDIA. EXPLANATION 3. FOR THE PURPOSE OF ASSESSMENT OR REASSESSMENT UNDER THIS SECTION, THE ASSESSING OFFICER MAY ASSESS OR REASSESS THE INCOME IN RESPECT OF ANY ISSUE, WHICH HAS ESCAPED ASSESSMENT, AND SUCH ISSUE COMES TO HIS NOTICE SUBSEQUENTLY IN 13 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION, NOTWITHSTANDING THAT THE REASONS FOR SUCH ISSUE HAVE NOT BEEN INCLUDED IN THE REASONS RECORDED UNDER SUB - SECTION (2) OF SECTION 148 . EXPLANATION 4. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT THE PROVISIONS OF THIS SECTION, AS AMENDED BY THE FINANCE ACT, 2012, SHALL ALSO BE APPLICABLE FOR ANY ASSESSMENT YEAR BEGINNING ON OR BEFORE THE 1ST DAY OF APRIL, 20 12. 148. (1) BEFORE MAKING THE ASSESSMENT, REASSESSMENT OR RECOMPUTATION UNDER SECTION 147 , THE ASSESSING OFFICER SHALL SERVE ON THE ASSESSEE A NOTICE REQUIRING HIM TO FURNISH WITHIN SUCH PERIOD, AS MAY BE SPECIFIED IN THE NOTICE, A RETURN OF HIS INCOME OR THE INCOME OF ANY OTHER PERSON IN RESPECT OF WHIC H HE IS ASSESSABLE UNDER THIS ACT DURING THE PREVIOUS YEAR CORRESPONDING TO THE RELEVANT ASSESSMENT YEAR, IN THE PRESCRIBED FORM AND VERIFIED IN THE PRESCRIBED MANNER AND SETTING FORTH SUCH OTHER PARTICULARS AS MAY BE PRESCRIBED; AND THE PROVISIONS OF THIS ACT SHALL, SO FAR AS MAY BE, APPLY ACCORDINGLY AS IF SUCH RETURN WERE A RETURN REQUIRED TO BE FURNISHED UNDER SECTION 139 : PROVIDED THAT IN A CASE (A) WHERE A RETURN HAS BEEN FURNISHED DURING THE PERIOD COMMENCING ON THE 1ST DAY OF OCTOBER, 1991 AND ENDING ON THE 30TH DAY OF SEPTEMBER, 2005 IN RESPONSE TO A NOTICE SERVED UNDER THIS SECTION, AND (B) SUBSEQUENTLY A NOTICE HAS BEEN SERVED UNDER SUB - SECTION (2) OF SECTION 143 AFTER THE EXPIRY OF TWELVE MONTHS SPECIFIED IN THE PROVISO TO SUB - SECTION (2) OF SECTION 143 , AS IT STOOD IMMEDIATELY BEFORE THE AMENDMENT OF SAID SUB - SECTION BY THE FINANCE ACT, 2002 (20 OF 2002) BUT BEFORE THE EXPIRY OF THE TIME LIMIT FO R MAKING THE ASSESSMENT, RE - ASSESSMENT OR RECOMPUTATION AS SPECIFIED IN SUB - SECTION (2) OF SECTION 153 , EVERY SUCH NOTICE REFERRED TO IN THIS CLAUSE SHALL BE DEEMED TO BE A VALID NOTICE: PROVIDED FURTHER THAT IN A CASE (A) WHERE A RETURN HAS BEEN FURNISHED DURING THE PERIOD COMMENCING ON THE 1ST DAY OF OC TOBER, 1991 AND ENDING ON THE 30TH DAY OF SEPTEMBER, 2005, IN RESPONSE TO A NOTICE SERVED UNDER THIS SECTION, AND (B) SUBSEQUENTLY A NOTICE HAS BEEN SERVED UNDER CLAUSE (II) OF SUB - SECTION (2) OF SECTION 143 AFTER THE EXPIRY OF TWELVE MONTHS SPECIFIED IN THE PROVISO TO CLAUSE (II) OF SUB - SECTION (2) OF SECTION 143 , BUT BEFORE THE EXPIRY OF THE TIME LIMIT FOR MAKING THE ASSESSMENT, REASSESSMENT OR RECOMPUTATION AS SPECIFIED IN SUB - SECTION (2) OF SECTION 153 , EVERY SUCH NOTICE REFERRED TO IN THIS CLAUSE SHALL BE DEEMED TO BE A VALID NOTICE. EXPLANATION. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT NOTHING CONTAINED IN THE FIRST PROVISO OR THE SECOND PROV ISO SHALL APPLY TO ANY RETURN WHICH 14 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) HAS BEEN FURNISHED ON OR AFTER THE 1ST DAY OF OCTOBER, 2005 IN RESPONSE TO A NOTICE SERVED UNDER THIS SECTION. (2) THE ASSESSING OFFICER SHALL, BEFORE ISSUING ANY NOTICE UNDER THIS SECTION, R ECORD HIS REASONS FOR DOING SO. 149. (1) NO NOTICE UNDER SECTION 148 SHALL BE ISSUED FOR THE RELEVANT ASSESSMENT YEAR, (A) IF FOUR YEARS HAVE ELAPSED FROM THE END OF THE RELEVANT ASSESSMENT YEAR, UNLESS THE CASE FALLS UNDER CLAUSE (B) OR CLAUSE (C); (B) IF FOUR YEARS, BUT NOT MORE THAN SIX YEARS, HAVE ELAPSED FROM THE END OF THE RELEVANT ASSESSMENT YEAR UNLESS THE INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AMOUNTS TO OR IS LIKELY TO AMOUNT TO ONE LAKH RUPEES OR MORE FOR THAT YEAR;] (C) IF FOUR YEARS, BUT NOT MORE THAN SIXTEEN YEARS, HAVE ELAPSED FROM THE END OF THE RELEVANT ASSESSMENT YEAR UNLESS THE INCOME IN RELATION TO ANY ASSET (INCLUDING FINANCIAL INTEREST IN ANY ENTITY) LOCATED OUTSIDE INDIA, CHARGEABLE TO TAX, HAS ESCAPED ASSESSMENT . EXPLANATION. IN DETERMINING INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT FOR THE PURPOSES OF THIS SUB - SECTION, THE PROVISIONS OF EXPLANATION 2 OF SECTION 147 SHALL APPLY AS THEY APPLY FOR THE PURPOSES OF THAT SECTION. (2) THE PROVISIONS OF SUB - SECTION (1) AS TO THE ISSUE OF NOTICE SHALL BE SUBJECT TO THE PROVISIONS OF SECTION 151 . (3) IF THE PERSON ON WHOM A NOTICE UNDER SECTION 148 IS TO BE SERVED IS A PERSON TREATED AS THE AGENT OF A NON - RESIDENT UNDER SECTION 163 AND THE ASSESSMENT, REASSESSMENT OR RECOMPUTATION TO BE MADE IN PURSUANCE OF THE NOTICE IS TO BE MADE ON HIM AS THE AGENT OF SUCH NON - RESIDENT, THE NOTICE SHALL NOT B E ISSUED AFTER THE EXPIRY OF A PERIOD OF SIX YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. EXPLANATION. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT THE PROVISIONS OF SUB - SECTIONS (1) AND (3), AS AMENDED BY THE FINANCE ACT, 2012, SHALL ALS O BE APPLICABLE FOR ANY ASSESSMENT YEAR BEGINNING ON OR BEFORE THE 1ST DAY OF APRIL, 2012. THUS, IN VIEW OF THE PROVISIONS OF SEC. 147 & 148 THE FOLLOWING CONDITIONS MUST BE SATISFIED FOR A VALID ACTION BEING TAKEN BY THE AO BEFORE PROCEEDING FOR MAKING THE ASSESSMENT/RE - ASSESSMENT : 15 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) A) AO MUST HAVE BONA FIDE REASONS TO BELIEVE THAT THE ASSESSEE HAS ESCAPED INCOME CHARGEABLE TO TAX. B) THE REASONS TO BELIEVE MUST BE RECORDED BY THE AO PRIOR TO ISSUE OF ANY NOTICE TO THE ASSESSEE. C) BEFORE MAKING ASSESSMENT, THE AO MUST SERVE NOTICE ON THE ASSESSEE REQUIRING HIM TO FURNISH THE RETURN IN ACCORDANCE WITH THE PROVISIONS OF SEC. 148(1). D) IN CASE PROVISO TO SEC. 147 IS APPLICABLE, FURTHER CONDITION AS STIPULATED IN THE PROVISO MUST BE SATISFIED. 2.3.1 THUS, FOR THE APP LICABILITY OF SEC. 147, THE AO MUST HAVE REASON TO BELIEVE. REASON TO BELIEVE IS THE FOUNDATION FOR INITIATING THE PROCEEDINGS U/S 147. THE WORD REASON IN THE PHRASE REASON TO BELIEVE WOULD MEAN CAUSE OR JUSTIFICATION. IF THE AO HAS THE CAUSE OR J USTIFICATION TO THINK OR SUPPOSE THAT INCOME HAS ESCAPED ASSESSMENT, HE CAN BE SAID TO HAVE REASON TO BELIEVE THAT SUCH INCOME HAS ESCAPED ASSESSMENT. THE WORDS REASON TO BELIEVE CANNOT MEAN THAT THE AO SHOULD HAVE FINALLY ASCERTAINED THE FACTS BY LEGAL EVIDENCE. IT ONLY MEANS THAT THE AO FORMS A BELIEF FROM THE EXAMINATION HE MAKES AND THE INFORMATION THAT HE RECEIVES. IF HE DISCOVERS OR FINDS OR SATISFIES PRIMA FACIE HIMSELF THAT TAXABLE INCOME HAS ESCAPED ASSESSMENT, IT WOULD AMOUNT TO SAYING THAT H E HAS REASON TO BELIEVE THAT SUCH INCOME HAS ESCAPED ASSESSMENT. THE JUSTIFICATION FOR HIS BELIEF CANNOT BE JUDGED FROM THE STANDARDS OF PROOF REQUIRED FOR COMING TO A FINAL DECISION WHETHER THE INCOME ESCAPED ASSESSMENT OR NOT. HIS FORMATION OF A BELIEF IS NOT A JUDICIAL DECISION BUT AN ADMINISTRATIVE DECISION. THE DECISION TO INITIATE THE PROCEEDINGS IS NOT TO BE PRECEDED BY ANY JUDICIAL OR QUASI - JUDICIAL INQUIRY. AT THIS STAGE HE IS NOT REQUIRED TO GIVE HEARING TO THE ASSESSEE TO PROVIDE MATERIAL OR INFORMATION WHICH HE HAS IN HIS POSSESSION FOR THE REBUTTAL OF THE ASSESSEE. THE REASON TO BELIEVE HAS BEEN THE MATTER OF JUDICIAL SCRUTINY BY THE APEX COURT IN SEVERAL CASES FROM TIME TO TIME. 16 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) IN THE CASE OF CALCUTTA DISCOUNT CO. LTD. VS. ITO, 41 ITR 19 1, THE HON'BLE SUPREME COURT HAS OBSERVED THAT IT IS THE DUTY OF THE ASSESSEE TO DISCLOSE ALL THE PRIMARY FACTS WHICH HAS A BEARING ON THE LIABILITY OF INCOME EARNED BY THE ASSESSEE TO BE SUBJECTED TO TAX. IT IS FOR THE AO TO DRAW INFERENCE FROM THE FACTS AND APPLY THE LAW DETERMINING THE LIABILITY OF THE ASSESSEE. THE ASSESSEE CANNOT FORESEE THE CONCLUSION DRAWN BY THE AO AND ONCE THE CONCLUSION IS DRAWN AND ASSESSMENT ORDER IS FRAMED, THE AO CANNOT, AT A LATER POINT OF TIME, FORM A DIFFERENT OPINION BY GIVING A SECOND THOUGHT TO THE FACTS DISCLOSED BY THE ASSESSEE HOLDING THAT HE COMMITTED AN ERROR IN COMPUTING THE TAXABLE INCOME AND RE - OPEN THE ASSESSMENT U/S 147. DISCOVERY OF NEW AND IMPROVED MATERIAL OR KNOWLEDGE OF FRESH FACTS WHICH WERE NOT PRESENT AT THE TIME OF ORIGINAL ASSESSMENT WOULD CONSTITUTE A REASON TO BELIEVE THAT THE INCOME HAD ESCAPED ASSESSMENT WITHIN THE MEANING OF SEC. 147. 2.3.2 THE PROVISO TO SEC. 147 LAYS DOWN THAT IF THE ASSESSMENT HAS BEEN FRAMED U/S 143(3) OR U/S 147, NO ACTIO N U/S 147 CAN BE TAKEN AFTER THE EXPIRY OF 4 YEARS FROM THE END OF THE RELEVANT YEAR UNLESS THE INCOME CHARGEABLE TO TAX AS ESCAPED ASSESSMENT FOR THE ASSESSMENT YEAR BY REASON OF FAILURE ON THE PART OF THE ASSESSEE TO MAKE A RETURN U/S 139 OR MAKE A RETUR N IN RESPONSE TO A NOTICE ISSUED U/S 142(1) OR FAILURE TO FILE A RETURN IN RESPONSE TO A NOTICE ISSUED U/S 148 OR TO DISCLOSE FULLY AND TRULY ALL THE MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THAT ASSESSMENT YEAR. LOOKING INTO THE FACTS OF THIS CASE , WE NOTED THAT IN THIS CASE IMPUGNED ASSESSMENT YEAR ENDED ON 31.3.2003. NOTICE U/S 148 WAS ISSUED ON 1.4.2008 I.E. AFTER THE EXPIRY OF 4 YEARS FROM THE END OF THE ASSESSMENT YEAR. THE ORIGINAL RETURN WAS FILED BY THE ASSESSEE ON 31.10.2002 WHILE THE AS SESSMENT U/S 143(3) WAS COMPLETED BY THE AO ON 31.3.2005. SINCE THE ASSESSMENT U/S 143(3) WAS COMPLETED IN THIS CASE, THEREFORE, THE ASSESSMENT U/S 147 CANNOT BE RE - OPENED UNLESS AND UNTIL EITHER OF THE CONDITIONS STATED UNDER 17 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) THE PROVISO TO SEC. 147 IS C OMPLIED WITH IN ADDITION TO THE CONDITIONS STATED U/S 147 I.E. THE REASON TO BELIEVE . IT IS NOT THE CASE OF THE REVENUE THAT THERE IS A FAILURE ON THE PART OF THE ASSESSEE TO MAKE THE RETURN U/S 139. IT IS AN UNDISPUTED FACT THAT THE ORIGINAL RETURN IN THIS CASE HAS BEEN FILED BY THE ASSESSEE ON 31.10.2002 I.E. WITHIN THE DUE DATE. NO NOTICE U/S 142(1) WAS ISSUED TO THE ASSESSEE FOR FILING THE RETURN BY THE REVENUE . EXCEPT NOTICE U/S 148 DT. 1.4.2008, NO OTHER NOTICE U/S 148 PRIOR TO THIS NOTICE HAS B EEN ISSUED IN THE CASE OF THE ASSESSEE SO THAT IT CAN BE SAID THAT THERE IS A FAILURE ON THE PART OF THE ASSESSEE TO FILE THE RETURN IN RESPONSE TO NOTICE ISSUED U/S 148 . NOW, THE ONLY CONDITION REMAINS WHICH MUST BE FULFILLED BY THE AO BEFORE ISSUING THE NOTICE U/S 148 IS THAT THE ASSESSEE HAS FAILED TO DISCLOSE FULLY AND TRULY ALL THE MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THE IMPUGNED ASSESSMENT YEAR. WE HAVE GONE THROUGH THE REASON TO BELIEVE AS RECORDED BY THE AO. FOR READY REFERENCE, THE R EASONS ARE RE - PRODUCED HEREUNDER : 1. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXTRACTION, PROCESSING AND SALE OF IRON ORE. IT HAS CLAIMED EXEMPTION U/S 10B ON THE INCOME OF M/S. FERRO - MET CONCENTRATES (M/S.GREATER FERRO - MET) AND THE SAME WAS ALLOWED IN THE ASSESSMENTS. THE ASSSESSEE HAS SET UP A 100% EOU IN THE YEAR 1985 - 86 AND THE EOU WAS APPROVED BY THE MINISTRY OF INDUSTRY, DEPARTMENT OF INDUSTRIAL DEVELOPMENT UNDER INDUSTRIAL LICENSE NO. CIL.420 (1985) DT.26.12.1985 FOR A PERIOD OF 10 YEARS. THE COMPANY CLAIMED EXEMP TION U/S 10B OF THE I.T. ACT. FROM THE A. Y. 1990 - 91 ONWARDS. ACCORDINGLY, THE ASSESSEE IS ENTITLED FOR EXEMPTION FOR A PERIOD OF 10 CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGI NS TO MANUFACTURE OR PRODUCE ARTICLE OR THINGS. THE PERIOD THEREFORE ENDED WITH THE A. Y 2000 - 01. THE ASSESSEE WAS, THEREFORE, NOT ENTITLED TO CLAIM EXEMPTION U/S 10B FOR THE A. Y 2002 - 03. THE C. A. OF THE ASSESSEE HAS MENTIONED IN ENCLOSURE - 1 (ENCLOSED TO THE RETURN OF INCOME) THAT DURING THE F. Y. 1994 - 95 THE COMPANY DECIDED TO GO FOR SUBSTANTIAL INVESTMENT IN PLANT AND MACHINERY AND APPROVAL WAS SOUGHT AND OBTAINED FROM THE CENTRAL GOVERNMENT VIDE MINISTRY OF INDUSTRIAL DEVELOPMENTS LETTER DATED. 10 TH NO VEMBER 1994 WHICH WAS SUBSEQUENTLY AMENDED VIDE THEIR LETTER DATED 29.02.1996 WHEREIN STATUS OF 100% EOU WAS EXTENDED FOR FURTHER PERIOD OF 5 YEARS BEYOND 1996 AND AGAIN AMENDED BY THE CENTRAL GOVT. VIDE THEIR LETTER DATED 05.10.2001 ISSUED BY THE OFFICE O F THE DEVELOPMENT COMMISSIONER SEEPZ, SPECIAL ZONE MINISTRY OF COMMERCE AND 18 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) INDUSTRY, MUMBAI WHEREIN THE STATUS OF 100% TO FERROMET CONCENTRATES HAS BEEN EXTENDED FOR A FURTHER PERIOD OF 5 YEARS FROM 01.04.2001 ONWARDS. IT HAS BEEN CLAIMED THAT THE NEW UNI T (WHICH THE ASSESSEE IS NOW CALLING GREATER FERRO MET) COMMENCED ITS OPERATION IN THE PREVIOUS YEAR RELEVANT TO THE A. Y. 1999 - 00. FROM THE ABOVE IT IS CLEAR THAT THIS IS ONLY A CASE OF CAPACITY EXPANSION AND THEREFORE, THE ASSESSEE CANNOT CLAIM THAT A NEW UNIT HAS COME INTO EXISTENCE WHICH LEADS THE ASSESSEE TO CLAIM EXEMPTION U/S 10B. THE C. A. OF THE ASSESSEE HAS ALSO OBSERVED THAT .......... THIS BEING A HIGHLY TECHNICAL ISSUE, WE HAVE RELIED UPON THE REPRESENTATION MADE BY THE COMPANY IN THIS REGAR D FOR THE PURPOSE OF REPORTING U/S 10B OF THE ACT 1961 FROM THE CAS REMARKS ALSO, THOUGH HE HAS SIGNED AND CERTIFIED THE EXEMPTION U/S 10B IN FORM NO 56G, HE IS NOT SURE OF CLAIMING EXEMPTION U/S 10B FOR THE SAID UNIT SET UP IN THE YEAR 1999 - 00.THEREFORE , FOR THE FOLLOWING REASONS THE EXEMPTION IS NOT ALLOWABLE TO THE ASSESSEE: I. TAX HOLIDAYS FOR AN EOU IS 10 CONSECUTIVE YEARS AND THE ASSESSEE COMPANY HAS AVAILED IT SINCE 1991 - 92 II. NO NEW UNIT HAS BEEN APPROVED BY DEVELOPMENT COMMISSIONER SWEEPZ AS SEE N FROM THE LOPS. THE EXISTING UNIT WAS GRANTED EXTENSION UPTO 2005 - 06 III. ONE OF THE ESSENTIAL CONDITIONS OF 10B IS THAT IT SHOULD NOT BE FORMED BY TRANSFER OF MACHINERY OR PLANT, PREVIOUSLY USED FOR ANY PURPOSE. VI. THE ACCOUNTANT STATED THAT HE HAS REL IED UPON THE REPRESENTATIONS MADE BY THE COMPANY FOR THE PURPOSE OF REPORTING U/S 10B, RELYING MERELY ON THE REPRESENTATIONS BY THE ASSESSEE COMPANY, IN CONTRARY TO SECTION 10B OF THE I. T. ACT. IN THE CIRCUMSTANCES, THE ASSESSEE IS NOT ENTITLED FOR CLAIM OF EXEMPTION U/S 10B FOR THE ABOVE A.Y. SINCE THE CLAIM ITSELF IS NOT ADMISSIBLE WHICH HAS BEEN WRONGLY ALLOWED IN THE ASSESSMENT, IN VIEW OF THE EXPLANATION 2 TO SECTION 147 OF THE ACT IT HAS TO BE TREATED AS INCOME ESCAPED ASSESSMENT. RELIANCE IS ALSO P LACED ON THE DECISION OF THE HONOURABLE SUPREME COURT IN THE CASE PHOOL CHAND BAJRANG LAL 203 ITR 456 (1993) THEREFORE I HAVE REASON TO BELIEVE THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE INCOME TAX AC T FOR THE ABOVE ASSESSMENT YEAR. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXTRACTION, PROCESSING AND SALE OF IRON ORE. THE ASSESSEE HAS CREDITED THE FOLLOWING AMOUNTS IN THE P&L ACCOUNT AND CLAIMED EXEMPTION U/S. 10B ON THESE AMOUNTS: A). FROM BANKS RS. 3,062 B). DESPATCH EARNED RS. 2,41,542 C). SUNDRY CREDITORS WRITTEN BACK RS. 3,22,820 D). MISCELLANEOUS INCOME RS. 2,01,314 THE EXEMPTION U/S 10B IS AVAILABLE IN RESPECT OF PROFITS AND GAINS AS ARE DERIVED BY THE UNIT FROM EXPORT OF ARTICLES O R THINGS. THE ASSESSEE HAS CLAIMED EXEMPTION U/S 10B ON THESE ITEMS ALSO AND THE SAME WAS ALLOWED IN THE ASSESSMENT. THEREFORE THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. 19 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) 3. SIMILARLY, THE ASSESSEE HAS CLAIMED REPAIRS AND MAINTENANCE OF VEHICLES AT RS.18,42,471/ - . THIS EXPENSES HAVE BEEN DISPROPORTIONATELY CLAIMED IN THE EOU UNIT AND NON EOU UNIT. THESE ARE AS UNDER: THESE ARE AS UNDER: NON EOU EOU TOTAL 17,97,928 44,543 18,42,471 SINCE THESE EXPENSES ARE COMMON EXPENSES OF BOTH UNITS, THE ASSESSEE SHOULD HAVE CLAIMED THE EXPENSES PROPORTIONALLY AS PER THE TURN OVER OF THE EACH UNIT. THE TURNOVER IN THESE UNITS IS AS UNDER: NON EOU EOU TOTAL 14,47,07,843 (18%) 63,94,98,728 (82%) 78,42,06,571 ACCORDING TO THE TURNOVER THE ASESSEE SHOULD HAVE CLAIMED EXPENSES OF RS. 3,31,644/ - IN THE NON EOU WHEREAS THE SAME HAS BEEN CLAIMED AND ALLOWED AT RS.17,97,928/ - . IN THE CIRCUMSTANCES, THE ASSESSEE HAS CLAIMED EXCESS EXPENSES OF RS. 14,66,284/ - IN THE NON EOU THEREBY REDUCING THE TAXABLE INCOME TO THAT EXTENT. THEREFORE, THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. 4. THE ASSESSEE IS AN INDIAN COMPANY HAS PAID A SUM OF RS. 13,40,982/ - TOWARDS REMUNERATION TO ITS JOINT MANAGING DIRECTOR SRI. PRASHANTH TIMBLO. THE JOINT DIRECTOR WAS POSTED AS MANAGER OF THE LIASON OFFICE AND AS SUCH HE WAS WORKING IN DUBAI. SINCE THE PAYMENT MADE TO THE JOINT DIRECTOR IS THE SALARY WITHIN THE MEANING OF SECTION 192 OF THE IT ACT, THE PROVISIONS OF CHAPTER XVIIB ARE APPLICABLE AND THE ASSESSEE SHOULD HAVE BEEN D EDUCTED TAX ON SUCH PAYMENT. HOWEVER, THE COMPANY HAS NOT DEDUCTED TAX ON THE REMUNERATION PAID TO SHRI. PRASHANT TIMBO. THEREFORE, THE SAID AMOUNT HAS TO BE DISALLOWED AS PER SECTION 40A(III) OF THE I. T. ACT. HOWEVER THE SAME WAS NOT DISALLOWED IN THE A SSESSMENT. THEREFORE THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. FOR ALL THE ABOVE REASONS I HAVE REASONS TO BELIEVE THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE INCOME TAX ACT FOR THE ABOVE AS SESSMENT YEAR. SINCE THE ASSESSMENT IN THIS CASE WAS COMPLETED U/S 143(3) AND FOUR YEARS HAVE BEEN LAPSED, A PROPOSAL U /S 147 IS SUBMITTED TO THE CIT(CENTRAL) BANGALORE, FOR NECESSARY APPROVAL FOR REOPENING THE ASSESSMENT U/S 147 THE I. T. ACT. FROM THE REASONS, WE NOTED THAT THERE IS NO ALLEGATION LEVELLED BY THE AO ON THE ASSESSEE THAT THERE IS A FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ANY MATERIAL FACT RELATING TO THE INCOME FOR WHICH HE BELIEVES THAT THERE IS AN ESCAPEMENT OF INCOME BY THE ASSESSEE. IN THE REASONS AS HAS BEEN RIGHTLY SUBMIT TED BY THE LEARNED SR. ADVOCATE, THE AO HAS ALLEGED THAT THE INCOME HAS ESCAPED ASSESSMENT IN RESPECT OF FOLLOWING 4 ITEMS : 20 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) 1. THE ASSESSEE WAS NOT ENTITLED TO CLAIM EXEMPTION U/S 10B FOR THE IMPUGNED ASSESSMENT YEAR. 2. EXCESS CLAIM U/S 10B HAS BEEN GIVEN IN RESPECT OF CERTAIN INCOME CREDITED IN THE PROFIT & LOSS ACCOUNT. 3. THE ASSESSEE HAS CLAIMED DISPROPORTIONATE EXPENSES AGAINST EOU UNIT. 4. THE ASSESSEE HAS PAID REMUNERATION TO JT. MANAGING DIREC TOR WITHOUT DEDUCTION OF TAX. 2.3.3 THE REASONS REFER TO THE MATERIAL WHICH HAS BEEN FILED BY THE ASSESSEE EITHER ALONGWITH THE RETURN OR DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS IN RESPECT OF ALLEGED ESCAPEMENT OF THE INCOME AS STATED IN THE REASO NS TO BELIEVE . THE REASONS DO NOT TALK THAT THERE HAD BEEN ANY FRESH TANGIBLE MATERIAL BEING OBTAINED BY THE AO. THE REASONS ARE BASED ON THE BASIS OF THE INFORMATION WHICH WAS AVAILABLE AND PROCURED BY THE AO FROM THE INCOME TAX RETURN FILED BY THE ASSE SSEE OR FROM THE DOCUMENT/ MATERIAL SUBMITTED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE IMPUGNED ASSESSMENT YEAR. THEREFORE, THE AO, IN OUR OPINION, DID NOT ALLEGE THAT THERE IS A FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE F ULLY AND TRULY ALL THE MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT. THE LD. SR. ADVOCATE OF THE ASSESSEE CARRIED OUR ATTENTION TOWARDS THE PAPER BOOK FILED BY THE ASSESSEE WHICH WE HAVE PERUSED AND WE NOTED ALL THE MATERIAL, WHATEVER HAS BEEN REFERRED TO BY THE AO IN RESPECT OF THE ENTITLEMENT OF DEDUCTION U/S 10B, IN THE FORM OF COPY OF LETTERS FROM THE CENTRAL GOVERNMENT ISSUED BY THE MINISTRY OF INDUSTRIAL DEVELOPMENT OR BY THE OFFICE OF THE DEVELOPMENT COMMISSIONER OR FORM NO. 56G OR REPORT OF THE AUDI TOR WERE ALREADY IN THE POSSESSION OF THE AO. THE AO DOES NOT STATE THAT THE ASSESSEE FAILED TO DISCLOSE ANY OF THE SAID DOCUMENTS, LETTERS OR MATERIAL DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS. WE EVEN NOTED THAT THE APPORTIONMENT OF THE EXPENDITU RE HAS DULY BEEN POINTED OUT BY THE ASSESSEE TO 21 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) THE AO FOR DETERMINING THE INCOME OF GREATER FERRO - MET DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS WHICH IS APPARENT FROM PG. 89 OF THE PAPER BOOK. EVEN THE ASSESSEE HAS GIVEN THE DETAILS OF OTHER AND MI SCELLANEOUS INCOME IN RESPECT OF WHICH THE DEDUCTION U/S 10B HAS BEEN CLAIMED. THESE INCOMES HAVE DULY BEEN CREDITED IN THE PROFIT & LOSS ACCOUNT. NOT ONLY THIS, THE ASSESSEE HAS CLEARLY DISCLOSED THAT THE ASSESSEE HAS PAID REMUNERATION TO ITS JOINT MANA GING DIRECTOR, SHRI PRASHANTH TIMBLO WHO IS POSTED AS MANAGER OF THE LIAISON OFFICE IN DUBAI. IN THE REASONS, THEREFORE, THE AO NOWHERE STATED THAT THERE WAS ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ANY MATERIAL FACT WHICH IS NE CESSARY FOR THE ASSESSMENT. ON THE OTHER HAND, THE AO HIMSELF RECORDED ON THE BASIS OF THE ASSESSMENT RECORDS THAT THERE IS AN ESCAPEMENT OF INCOME. THUS, ALL THE FACTS STATED IN THE REASONS TO BELIEVE WERE ALREADY ON THE RECORD OF THE REVENUE. UNDER TH ESE FACTS, IT CANNOT BE SAID THAT THERE WAS A FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE TRULY AND FULLY ANY MATERIAL FACT . ALL THE FACTS, WHATEVER STATED IN THE REASONS, WERE ON THE RECORD OF THE DEPARTMENT AT THE TIME OF FRAMING THE ASSESSMENT, THE REFORE, THE QUESTION OF FAILURE IN DISCLOSING THE SAME BY THE ASSESSEE DOES NOT ARISE. THE ASSESSEE IS SUPPOSED TO DISCLOSE FACTS WHICH ARE IN THE SPECIAL KNOWLEDGE OF THE ASSESSEE. FROM THESE FACTS, WE ARE OF THE OPINION THAT THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE ANY MATERIAL FACT SO THAT THE PROCEEDINGS CAN BE INITIATED AFTER THE EXPIRY OF 4 YEARS FROM THE END OF THE ASSESSMENT YEAR. ON THIS BASIS ITSELF, IN OUR OPINION, DUE TO THE APPLICABILITY OF PROVISO TO SEC. 147, THE PROCEED INGS INITIATED U/S 147 ARE INVALID AND ARE TO BE QUASHED. WE NOTED THAT THE CASE OF THE ASSESSEE IS DULY COVERED BY THE DECISION OF THE JURISDICTION AL HIGH COURT IN THE CASE OF GRINDWELL NORTON LTD. VS. ACIT, 267 ITR 673 (BOM) ( SUPRA ) IN WHICH IT WAS HELD AS UNDER : 8. NOW TURNING TO THE FACTS OF THE PRESENT CASE, FROM THE REASONS RECORDED FOR REOPENING OF THE ASSESSMENT, IT IS CLEAR THAT THE SOLE REASON FOR REOPENING OF THE ASSESSMENT IS THE NET PROFIT AT 17 PER CENT OF THE TOTAL C OSTS ADOPTED BY THE AO FOR THE 22 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) ASST. Y R. 2000 - 01. NOWHERE IN THE REASONS RECORDED BY THE AO, IT IS STATED THAT THERE IS A FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE MATERIAL FACTS IN THE RETURN FILED BY THE ASSESSEE. IT IS NOT IN DISPUTE THAT IN THE PRESENT CASE, REOPENING OF THE ASSESSMENT IS BEYOND THE PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. THIS COURT IN THE CASE OF IPCA LABORATORIES (SUPRA) AND BHOR INDUSTRIES LTD. (SUPRA), HAS HELD THAT IF ONE READS EXPLN. 2 TO S. 147 I NCLUDING THE PROVISO THERETO, THEN IT IS CLEAR THAT THE CASES WHERE THE DEPARTMENT REOPENS ASSESSMENT WITHIN A PERIOD OF FOUR YEARS, IT CAN DO SO ON THE GROUND OF INCOME HAVING ESCAPED ASSESSMENT EVEN IF THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO D ISCLOSE FULLY AND TRULY ALL MATERIAL FACTS. HOWEVER, IN THE CASES OF REOPENING AFTER FOUR YEARS, THE AO MUST HAVE REASON TO BELIEVE THAT THE INCOME HAS ESCAPED ASSESSMENT BY REASON OF FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATE RIAL FACTS. IT IS HELD THAT THE EXPLN. 2 CANNOT BE READ WITHOUT READING THE PROVISO TO S. 147 OF THE SAID ACT. APPLYING THE RATIO LAID DOWN IN THE AFORESAID CASES, IT IS CLEAR THAT IN THE PRESENT CASE, IN THE ABSENCE OF ANY FAILURE ON THE PART OF THE ASSES SEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS, THE REOPENING OF THE ASSESSMENT BEYOND THE PERIOD OF FOUR YEARS CANNOT BE SUSTAINED. 2.3.4 IN THE CASE OF HINDUSTAN LEVER LTD VS. R.B. WADKAR, 268 ITR 332 (BOM) ( SUPRA) THE JURISDICTIONAL HIGH COURT HAS ALSO TAKEN THE SAME VIEW THAT THE REASONS RECORDED BY THE AO NOWHERE STATES THAT THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL THE MATERIAL FACTS NECESSARY FOR THE ASSESSMENT FOR THAT ASSESSMENT YEAR AND, THEREFORE, IN THAT CASE THE NOTICE ISSUED WAS QUASHED. THE RELEVANT FINDING OF THE HON'BLE HIGH COURT ARE RE - PRODUCED AS UNDER : WHERE AN ASSESSMENT UNDER SUB - S. (3) OF S. 143 HAS BEEN MADE FOR RELEVANT ASSESSMENT YEAR, NO ACTION CAN BE TAKEN UNDER S. 147 AFTER THE EXPIR Y OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASONS OF THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSM ENT FOR THAT ASSESSMENT YEAR. THE REASONS RECORDED BY THE AO NOWHERE STATE THAT THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT OF THAT ASSESSMENT YEAR. IT IS NEEDLESS TO MENTION THA T THE REASONS ARE REQUIRED TO BE READ AS THEY WERE RECORDED BY THE AO. NO SUBSTITUTION OR DELETION IS PERMISSIBLE. NO ADDITIONS CAN BE MADE TO THOSE REASONS. NO INFERENCE CAN BE ALLOWED TO BE DRAWN BASED ON REASONS NOT RECORDED. IT IS FOR THE AO TO DISCLOS E AND OPEN HIS MIND THROUGH REASONS RECORDED BY HIM. HE HAS TO SPEAK THROUGH HIS REASONS. IT IS FOR THE AO TO REACH TO THE CONCLUSION AS TO WHETHER THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR H IS ASSESSMENT FOR 23 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) THE CONCERNED ASSESSMENT YEAR. IT IS FOR THE AO TO FORM HIS OPINION. IT IS FOR HIM TO PUT HIS OPINION ON RECORD IN BLACK AND WHITE. THE REASONS RECORDED SHOULD BE CLEAR AND UNAMBIGUOUS AND SHOULD NOT SUFFER FROM ANY VAGUENESS. THE REASONS RECORDED MUST DISCLOSE HIS MIND. REASONS ARE THE MANIFESTATION OF MIND OF THE AO. THE REASONS RECORDED SHOULD BE SELF - EXPLANATORY AND SHOULD NOT KEEP THE ASSESSEE GUESSING FOR THE REASONS. REASONS PROVIDE LINK BETWEEN CONCLUSION AND EVIDENCE. THE REASONS RECORDED MUST BE BASED ON EVIDENCE. THE AO, IN THE EVENT OF CHALLENGE TO THE REASONS, MUST BE ABLE TO JUSTIFY THE SAME BASED ON MATERIAL AVAILABLE ON RECORD. HE MUST DISCLOSE IN THE REASONS AS TO WHICH FACT OR MATERIAL WAS NOT DISCLOSED BY THE ASSESSEE FUL LY AND TRULY NECESSARY FOR ASSESSMENT OF THAT ASSESSMENT YEAR, SO AS TO ESTABLISH VITAL LINK BETWEEN THE REASONS AND EVIDENCE. THAT VITAL LINK IS THE SAFEGUARD AGAINST ARBITRARY REOPENING OF THE CONCLUDED ASSESSMENT. THE REASONS RECORDED BY THE AO CANNOT B E SUPPLEMENTED BY FILING AFFIDAVIT OR MAKING ORAL SUBMISSION, OTHERWISE, THE REASONS WHICH WERE LACKING IN THE MATERIAL PARTICULARS WOULD GET SUPPLEMENTED BY THE TIME THE MATTER REACHES TO THE COURT, ON THE STRENGTH OF AFFIDAVIT OR ORAL SUBMISSIONS ADVANCE D. THE IMPUGNED NOTICE ITSELF BEING BEYOND THE PERIOD OF FOUR YEARS FROM THE END OF THE ASST. YR. 1996 - 97 AND NOT COMPLYING WITH THE REQUIREMENTS OF PROVISO TO S. 147, THE AO HAD NO JURISDICTION TO REOPEN THE ASSESSMENT PROCEEDINGS WHICH WERE CONCLUDED ON THE BASIS OF ASSESSMENT UNDER S. 143(3). ON THIS SHORT COUNT ALONE THE IMPUGNED NOTICE IS LIABLE TO BE QUASHED AND SET ASIDE. 2.3.5 SIMILAR VIEW HAS BEEN TAKEN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF SESA GOA LTD. VS. JCIT, 294 ITR 101 IN THE FOL LOWING MANNER : SEC. 147 IS THE SOURCE OF POWER OF THE AO FOR REOPENING OF THE ASSESSMENT. SEC. 148 CONTAINS PROCEDURAL RESTRICTIONS FOR ISSUANCE OF A NOTICE FOR EXERCISE OF THE POWER OF REOPENING OF AN ASSESSMENT CONFERRED UNDER S. 147. SEC. 149 PRESCRI BES THE TIME - LIMIT FOR ISSUANCE OF A NOTICE UNDER S. 148. THE CONDITIONS LAID DOWN UNDER S. 147 FOR THE PURPOSES OF REOPENING THE ASSESSMENT MUST BE SATISFIED BEFORE THE NOTICE CAN BE ISSUED. THE CONDITIONS LAID DOWN IN S. 147 ARE THE JURISDICTIONAL FACTS NECESSARY FOR THE PURPOSE OF EXERCISE OF THE POWER UNDER S. 147. THE JURISDICTIONAL FACTS PRESCRIBED UNDER S. 147 MUST EXIST BEFORE A NOTICE UNDER S. 148 CAN BE ISSUED. THE TIME - LIMIT PRESCRIBED UNDER S. 149 FOR ISSUANCE OF A NOTICE UNDER S. 148 IS IN ADDI TION TO AND NOT IN DEROGATION WITH THE NECESSARY CONDITIONS REQUIRED TO BE SATISFIED UNDER S.147. IN OTHER WORDS, IF THE BASIC JURISDICTIONAL FACTS REQUIRED FOR REOPENING OF AN ASSESSMENT UNDER S. 147 DO NOT EXIST IT WOULD NOT BE COMPETENT FOR THE AO TO IS SUE A NOTICE UNDER S. 148. EVEN WHERE THE JURISDICTIONAL FACTS PRESCRIBED UNDER S. 147 EXIST AND ALL CONDITIONS LAID DOWN UNDER S. 147 AND THE PROVISO THERETO ARE SATISFIED, THE NOTICE UNDER S. 148 CAN BE ISSUED ONLY AFTER THE AO HAS RECORDED HIS REASONS F OR DOING SO UNDER SUB - S. (2) OF S. 148 AND HAS FURTHER OBTAINED THE NECESSARY SANCTION FOR ISSUANCE OF THE NOTICE AS REQUIRED UNDER S. 151. SUCH NOTICE IS ALSO REQUIRED TO BE ISSUED WITHIN THE TIME - LIMIT PRESCRIBED UNDER S. 149. SEC. 149 DOES NOT RELAX T HE 24 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) RESTRICTION OF FOUR YEARS PRESCRIBED IN THE PROVISO TO S. 147 FOR ISSUANCE OF A NOTICE UNDER THE PROVISO TO S. 147. THE RESTRICTION OF FOUR YEARS WOULD BE APPLICABLE UNLESS THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT BY REASON OF FAILURE OF THE ASSESSEE TO MAKE A RETURN UNDER S. 139 OR IN RESPONSE TO A NOTICE UNDER S. 142 OR S. 148 OR THE FAILURE OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS. IF THE REASSESSMENT IS REQUIRED TO BE MADE ON ACCOUNT OF THE FAILURE OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT, OBVIOUSLY, THE RESTRICTION OF FOUR YEARS PUT UNDER THE PROVISO TO S. 147 WOULD NOT BE APPLICABLE AND NOTICE CAN BE ISSUED AFTER THE EXPIRY OF A PERIOD OF FOUR YEARS, BUT WITHIN THE T IME - LIMIT OF 7 OR 10 YEARS, AS THE CASE MAY BE, PRESCRIBED UNDER S. 149. THE OBJECT OF S. 149 IN IMPOSING THE RESTRICTION OF SEVEN YEARS OR TEN YEARS WHERE THE INCOME LIKELY TO HAVE ESCAPED ASSESSMENT IS LESS THAN RS. 50,000 OR RS. 1,00,000, AS THE CASE MA Y BE, IS NOT TO PERMIT REOPENING OF THE ASSESSMENT WHERE THE TAX LIABILITY WOULD NOT BE SIGNIFICANT AS COMPARED WITH THE EFFORTS THAT WOULD BE REQUIRED FOR REOPENING OF AN ASSESSMENT AFTER A PASSAGE OF SEVEN OR TEN YEARS, AS THE CASE MAY BE. TO REPEAT, THE TIME - LIMIT IMPOSED UNDER S. 149 FOR ISSUANCE OF THE NOTICE IS NOT IN DEROGATION OF AND IS NOT FOR ENLARGING THE TIME RESTRICTION IMPOSED UNDER THE PROVISO TO S. 147 BUT TO PUT AN ADDITIONAL TIME RESTRICTION EVEN WHERE THERE IS NO RESTRICTION OF TIME FOR R EOPENING OF THE ASSESSMENT ON ACCOUNT OF FAILURE OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS. 2.3.6 WE HAVE GONE THROUGH THE OTHER DECISIONS WHICH ARE HAVING BEARING ON THIS ISSUE IN THE CASE OF THE ASSESSEE. IN THE CASE OF WEL INTERTRADE (P) LTD. & ANR VS. ITO (2009) 308 ITR 22 (ASST YR. 2000 - 2001), HONBLE DELHI HIGH COURT HAS HELD THAT ASSESSEE HAVING FULLY AND TRULY DISCLOSED ALL THE MATERIAL FACTS NECESSARY FOR THE ASSESSMENT AS REQUIRED BY THE AO, THE PRECONDITION FOR INVOK ING THE PROVISO TO S. 147 WAS NOT SATISFIED AND THEREFORE AO ACTED WHOLLY WITHOUT JURISDICTION IN ISSUING NOTICE U/S. 148 BEYOND FOUR YEARS PERIOD MENTIONED IN S. 147. 2.3.7 THE HONBLE MUMBAI HIGH COURT AGAIN IN THE CASE OF PURITY TECHTEXTILE (P) LTD. VS. ACIT & ANR. (2010) 325 ITR 459 (BOM.) TOOK THE VIEW THAT W HERE THE DEDUCTION UNDER SECTION 80 - IB OF THE ACT WAS ALLOWED TO THE ASSESSEE BY THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT ORDER UNDER SECTION 143(3) OF THE ACT AFTER CONSIDERING THE AUDIT REPORT IN FORM 10CCB AND THE OTHER DETAILS FILED 25 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) BY THE ASSESSEE, IT CANNOT BE SAID THAT THERE WAS A FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL THE FACTS FOR THE ASSESSMENT SO AS TO INVOKE THE PROVISIONS OF SECTION 147 FOR RE - EXAMINING THE DEDUCTION UNDER SECTION 80 - IB OF THE ACT, AFTER EXPIRY OF FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR. 2.3.8 IN THE CASE OF MISTRY LALJI NARSI DEVELOPMENT CORP. VS. A CIT (2010) 229 CTR 359 (BOM) , THE HONBLE MUMBAI HIGH COURT CLEARLY LAID DOWN THAT O RDER OF ASSESSING OFFICER U/S. 143(3) REFLECTS THAT THE PRIMARY FACTS RELATING TO CASE WAS BEFORE THE ASSESSING OFFICER THEREFORE THERE WAS DISCLOSURE OF ALL PRIMARY FACTS RELATING TO CLAIM OF DEDUCTION U/S. 80 - IB(10). 2.3.9 IN THE CASE OF YASH RAJ FILMS P. LTD. VS. ACIT (2011) 332 ITR 428 (BOM.) , THE HONBLE MUMBAI HIGH COURT CLEARLY HELD REASSESSMENT TO BE INVALID WHEN A LLOWANCE OF BAD DEBT WAS SPECIFICALLY RAISED IN THE ORIGINAL ASSESSMENT PROCEEDINGS AND ON RECEIVING EXPLANATION FROM ASSESSEE THE CLAIM OF ASSESSEE WAS ALLOWED. 2.3.10 NOT ONLY THIS, ON THIS ISSUE THE HON'BLE SUPREME COURT IN THE CASE OF CALCUTTA DISCOUNT CO. LTD. VS. ITO, 41 ITR 191 ( SUPRA ) WHILE INTER PRETING THE PROVISIONS OF SEC. 34(1)(A) WHICH WAS THE PREDECESSOR PROVISION TO SEC. 147 HAS ALSO INTERPRETED THE WORDS FAILURE TO DISCLOSE. IN THAT CASE, IN THE ORIGINAL ASSESSMENTS OF THE COMPANY FOR THE ASSESSMENT YEARS 1942 - 43, 1943 - 44 AND 1944 - 45, P ROFITS REALIZED BY THE COMPANY BY THE SALES OF SHARES WERE NOT ASSESSED TO TAX. THE ITO PROPOSED TO INITIATE ASSESSMENT PROCEEDINGS AGAINST THE COMPANY U/S 34 OF THE IT ACT AND IN HIS REPORTS TO THE COMMISSIONER FOR THE PURPOSE OF OBTAINING HIS SANCTION, (AS IT WAS PROVIDED THEREIN) HE STATED THAT AT THE TIME OF THE ORIGINAL ASSESSMENTS, THE REPRESENTATION MADE ON BEHALF OF THE 26 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) COMPANY WAS THAT THE SALES OF SHARES WERE CASUAL TRANSACTIONS AND IN THE NATURE OF MERE CHANGE OF INVESTMENTS, WHICH WERE ACCEPTED , BUT THE RESULT OF THE COMPANYS TRADING FROM YEAR TO YEAR, HOWEVER, SHOWED THAT IT HAD REALLY BEEN SYSTEMATICALLY CARRYING ON THE TRADE IN THE SALE OF INVESTMENTS, AND THAT AS SUCH THE COMPANY HAD FAILED TO DISCLOSE THE TRUE INTENTION BEHIND THE SALE OF SHARES. THE ITO, THEREFORE, ISSUED NOTICES U/S 34 OF THE IT ACT CALLING UPON THE COMPANY TO SUBMIT FRESH RETURNS. THE COMPANY SUBMITTED THE RETURNS, BUT APPLIED TO THE HIGH COURT UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA SEEKING FOR THE ISSUE OF APP ROPRIATE WRITS, DIRECTING THE OFFICER NOT TO PROCEED TO ASSESS ON THE BASIS OF THESE NOTICES, ON THE GROUND, INTER ALIA, THAT THE ITO DID NOT HAVE REASON TO BELIEVE THAT UNDERSTATEMENT HAD OCCURRED BY REASON OF THE OMISSION OR FAILURE ON THE PART OF THE CO MPANY TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. THE ITO FILED AN AFFIDAVIT IN THE COURT ASSERTING THE FACT OF THE REPRESENTATION MADE IN THE COURT ASSERTING THE FACT OF THE REPRESENTATION MADE IN THE COURSE OF ASSESSMENT PRO CEEDINGS FOR THE YEAR 1994 - 95. AS THE ASSESSEE WAS NOT SUCCESSFUL BEFORE THE HIGH COURT, HE WENT IN APPEAL TO THE APEX COURT. THE APEX COURT WHILE NEGATIVING THE CONTENTION OF THE DEPARTMENT HELD AS UNDER (PAGE 200) : IN EVERY ASSESSMENT PROCEEDINGS, T HE ASSESSING AUTHORITY WILL, FOR THE PURPOSE OF COMPUTING OR DETERMINING THE PROPER TAX DUE FROM AN ASSESSEE, REQUIRE TO KNOW ALL THE FACTS WHICH HELP HIM IN COMING TO THE CORRECT CONCLUSION. FROM THE PRIMARY FACTS IN HIS POSSESSION, WHETHER ON DISCLOSURE BY THE ASSESSEE, OR DISCOVERED BY HIM ON THE BASIS OF FACTS DISCLOSED, OR OTHERWISE, THE ASSESSING AUTHORITY HAS TO DRAW INFERENCES AS REGARDS CERTAIN OTHER FACTS ; AND ULTIMATELY, FROM THE PRIMARY FACTS AND THE FURTHER FACTS INFERRED FROM THEM, THE AUTHO RITY HAS TO DRAW THE PROPER LEGAL INFERENCES ONCE ALL THE PRIMARY FACTS ARE BEFORE THE ASSESSING AUTHORITY, HE REQUIRES NO FURTHER ASSISTANCE BY WAY OF DISCLOSURE. IT IS FOR HIM TO DECIDE WHAT INFERENCES OF FACTS CAN BE REASONABLY DRAWN AND WHAT LEGAL I NFERENCES HAVE ULTIMATELY TO BE DRAWN. IT IS NOT FOR SOMEBODY ELSE FAR LESS THE ASSESSEE TO TELL THE ASSESSING AUTHORITY WHAT INFERENCES, WHETHER OF FACTS OR LAW, SHOULD BE DRAWN. 27 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) 2.3.11 IN THE CASE OF CIT V. HEMCHANDRA KAR (1970) 77 ITR 1 (SC), THE ASSESSEE, A HINDU UNDIVIDED FAMILY CONSISTING OF SIX MEMBERS HAD BEEN ASKED FOR THE ASSESSMENT YEAR 1946 - 47. FOLLOWING THE DEMONETIZATION OF HIGH DENOMINATION NOTES IN JANUARY 1946, THE ASSESSEE ENCASHED NOTES OF THE VALUE OF RS 19,000 / - AND FIVE MEMBERS OF THE FAMILY ENCASHED NOTES OF THE AGGREGATE VALUE OF RS 1,10,000 / - . THE ITO REOPENED THE ASSESSMENTS OF THE ASSESSEE AND OF THE FIVE MEMBERS AND BY HIS RE - ASSESSMENT ORDERS MADE ON 31.01.1955, INCLUDED THE SUM OF RS 19,000 / - IN THE RE - ASSESSMENT OF THE FAMILY AND THE SUM OF RS 1,10,000 / - SEPARATELY IN THE ASSESSMENTS OF THE FIVE MEMBERS IN RESPECT OF THE RESPECTIVE NOTES ENCASHED BY THEM. TWO DAYS LATER, I.E. ON 2.2.1955, THE ITO ISSUED A NOTICE U/S 34(1)(A) OF THE INDIAN INCOME - TAX ACT, 1922, SEEKING TO INCLUDE THE SUM OF RS 1,10,000 / - IN THE HANDS OF THE FAMILY. THE TRIBUNAL, BEING SATISFIED THAT THE NOTES ENCASHED BY THE FIVE MEMBERS BELONGED TO THE HUF, HELD THAT THE NOTICE ISSUED WAS VALID. ON A REFERENCE, THE HIGH COURT HELD THAT THE NOTICE ISSU ED U/S 34(1)(A) WAS NOT VALID SINCE IT WAS FOUND THAT WHEN THE FIRST RE - ASSESSMENT WAS MADE THE PRIMARY FACTS NECESSARY FOR RE - ASSESSMENT OF THE FAMILY WERE IN THE POSSESSION OF THE ITO, THAT THESE FACTS CAME INTO HIS POSSESSION NOT BY VIRTUE OF ANY DISCLO SURE MADE BY THE FAMILY BUT WERE DISCOVERED BY HIM OTHERWISE; THAT AT THE TIME OF THE FIRST REOPENING OF THE ASSESSMENT OF THE HUF AND OF THE INDIVIDUAL MEMBERS THE QUESTION OF ASSESSMENT OF THE ENTIRE AMOUNT REPRESENTED BY THE HIGH DENOMINATION NOTES WAS UNDER DIRECT CONSIDERATION; THAT IT WAS OPEN TO THE ITO TO ASSESS THE WHOLE AMOUNT OF RS 19,000 / - AND RS 1,10,000 / - IN THE HANDS OF THE HUF AT THAT STAGE AND THAT THE ESCAPEMENT, IF ANY, THEREFORE, TOOK PLACE BY REASON OF THE FAILURE OF THE ITO TO ASSESS T HE FAMILY WITH RESPECT OF THE SUM OF RS 1,10,000 / - WHEN HE WAS IN FULL POSSESSION OF ALL THE MATERIAL FACTS. WHEN THE MATTER WAS CARRIED ON IN APPEAL, THE APEX COURT WHILE CONFIRMING THE DECISION OF THE HIGH COURT HELD THAT, BECAUSE THE PRIMARY FACTS WERE WITHIN THE KNOWLEDGE OF THE ITO WHEN HE 28 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) COMPLETED THE FIRST RE - ASSESSMENT, THE ESCAPEMENT OF INCOME TOOK PLACE BY REASON OF THE FAILURE OF THE ITO TO INCLUDE THE SUM OF RS 1,10,000 / - IN THE ASSESSMENT OF THE HUF WHEN HE WAS IN FULL POSSESSION OF ALL THE N ECESSARY AND MATERIAL FACTS. IN SUCH A SITUATION, THE REQUIREMENTS OF SECTION 34(1)(A) WERE NOT SATISFIED. 2.3.12 IN THE CASE OF CHHUGAMAL RAJPAL V. S.P. CHALIHA (1971) , 79 ITR 603 (SC), IN PROCEEDINGS FOR ASSESSMENT FOR THE ASSESSMENT YEAR 1960 - 61, THE APPELLANT - FIRM HAD PRODUCED ITS BOOKS OF ACCOUNT AND ALSO A STATEMENT GIVING FULL NAMES AND ADDRESSES OF THE VARIOUS CREDITORS FROM WHOM IT HAD BORROWED ON HUNDIS DURING THE ACCOUNTING YEAR IN QUESTION. ASSESSMENT WAS COMPLETED AFTER ENQUIRY. THEREAFTER ON 3.6.1966, THE ITO ISSUED A NOTICE U/S 148 OF IT ACT, 1961, INITIATING RE - ASSESSMENT PROCEEDINGS FOR THAT YEAR. THE APPELLANT - FIRM FILED A WRIT PETITION IN THE HIGH COURT CHALLENGING THE VALIDITY OF THAT NOTICE, INTER ALIA, ON THE GROUND THAT THE REQUI REMENTS OF SECTION 151(2) WERE NOT COMPLIED WITH. BUT THE WRIT PETITION WAS DISMISSED BY THE HIGH COURT. ON APPEAL, THE SUPREME COURT DIRECTED THE DEPARTMENT TO PRODUCE THE RECORDS TO SHOW THAT THE ITO HAD COMPLIED WITH SECTIONS 148 AND 151(2). AFTER CO NSIDERING THE SAID RECORDS, IT WAS HELD THAT THE ITO HAD NOT EVEN COME TO A PRIMA FACIE CONCLUSION THAT THE LOAN TRANSACTIONS TO WHICH HE REFERRED WERE NOT GENUINE TRANSACTIONS; HE APPEARED TO HAVE LONELY A VAGUE FEELING THAT THEY MIGHT BE BOGUS TRANSACTIO NS. SUCH A CONDITION DID NOT FULFIL THE REQUIREMENTS OF SECTION 151(2). UNDER THAT SECTION, HE HAD TO GIVE PRIMA FACIE GROUNDS BEFORE HIM FOR TAKING ACTION U/S 148. HIS CONCLUSION THAT THERE WAS A CASE FOR INVESTIGATING THE TRUTH OF ALLEGED TRANSACTIONS WAS NOT THE SAME THING AS SAYING THAT THERE WERE REASONS FOR THE ISSUE OF THE NOTICE. THE ITO COULD NOT HAVE HAD REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT BY REASON OF THE APPELLANT - FIRMS FAILURE TO DISCLOSE MATERIAL FACTS AND IF THE COMMISSI ONER HAD 29 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) READ THE REPORT CAREFULLY HE COULD NOT HAVE COME TO THE CONCLUSION THAT THIS WAS A FIT CASE FOR ISSUING A NOTICE U/S 148. THE NOTICE ISSUED U/S 148 WAS THEREFORE HELD INVALID. 2.3.13 IN THE CASE OF DINESH CHANDRA H. SHAH (1971) 82 ITR 367 (SC), THE ASSESSEE, WHO WAS ASSESSED AT CALCUTTA, HAD DISCLOSED IN HIS RETURN FOR THE ASSESSMENT YEAR 1955 - 56, HIS SHARE IN THE INCOME OF A FIRM. SUCH INFORMATION WAS RECEIVED BY THE ITO AT CALCUTTA IN SEPTEMBER 1955 AND THIS WAS RECORDED IN THE ORDER SHEET. IN COMPLETING THE ASSESSMENT IN NOVEMBER 1958, THE ITO FAILED TO INCLUDE THE ASSESSEES SHARE OF PROFITS FROM THAT FIRM. THEREAFTER, A SUCCESSOR TO THE ITO ISSUED A NOTICE U/S 34(1)(B) OF THE INDIAN INCOME - TAX ACT, 1922, TO INCLUDE THE SHARE OF PROFITS FR OM THAT FIRM WHICH HAD ESCAPED ASSESSMENT, THE ONLY REASON GIVEN FOR SUCH ACTION BEING THAT HE HAD CHANGED HIS OPINION. THE APEX COURT HELD THAT THE FACT THAT THE SUCCESSOR OF THE ITO WHO HAD MADE THE ORIGINAL ASSESSMENT HAD CHANGED HIS OPINION DID NOT FU RNISH A JUSTIFIABLE REASON FOR TAKING ACTION U/S 34(1)(B). THE APEX COURT, HOWEVER, DID NOT FIND IT NECESSARY TO GO INTO THE QUESTION WHETHER AN INADVERTENT OMISSION IN THE ORIGINAL ASSESSMENT CAN JUSTIFY THE REOPENING OF THE ASSESSMENT U/S 34(1)(B) ON IT S SUBSEQUENT DISCOVERY BY THE ITO. 2.3.14 IN THE CASE OF GEMINI LEATHER STORES (1975) 100 ITR 1 (SC), IN PROCEEDINGS FOR THE ORIGINAL ASSESSMENT OF THE APPELLANT - FIRM, THOUGH THE APPELLANT DID NOT DISCLOSE CERTAIN TRANSACTIONS EVIDENCED BY CERTAIN DRAFTS, THE OFFICER HIMSELF DISCOVERED THE FACTS RELATING THERETO BUT BY OVERSIGHT DID NOT BRING THE AMOUNTS REPRESENTED BY THE DRAFTS TO TAX AS THE INCOME OF THE APPELLANT. SUBSEQUENTLY, THE ITO ISSUED A NOTICE U/S 147(A) OF THE IT ACT, 1961, WITH A VIEW TO ASS ESS THE AMOUNTS AS THE APPELLANTS INCOME FROM UNDISCLOSED SOURCES. ON A WRIT PETITION FILED BY THE APPELLANT, THE HIGH COURT HELD THAT THE ITO DID NOT APPLY HIS MIND TO THE QUESTION WHETHER THE AMOUNTS COULD BE 30 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) TREATED AS PART OF THE TOTAL INCOME OF THE APPELLANT AND AS THE APPELLANT DID NOT DISCLOSE THE SOURCE OF THOSE AMOUNTS WHICH WERE NOT RECORDED IN THE ACCOUNT BOOKS, ALL THE CONDITIONS FOR INVOKING THE JURISDICTION U/S 147(A) WERE PRESENT. ON APPEAL, THE APEX COURT HELD REVERSING THE DECISION OF TH E HIGH COURT, THAT AFTER DISCOVERY OF THE PRIMARY FACTS RELATING TO THE TRANSACTIONS EVIDENCED BY THE DRAFTS IT WAS FOR THE OFFICER TO MAKE THE NECESSARY ENQUIRIES AND DRAW PROPER INFERENCE AS TO WHETHER THE AMOUNTS REPRESENTED BY THE DRAFTS COULD BE TREAT ED AS PART OF THE TOTAL INCOME OF THE APPELLANT. THIS THE OFFICER DID NOT DO. IT WAS PLAINLY A CASE OF OVERSIGHT AND IT COULD NOT BE SAID THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT BY REASON OF THE OMISSION OR FAILURE ON THE PART OF THE APPELLA NT TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS. HE COULD NOT, THEREAFTER, TAKE RECOURSE TO SECTION 147(A) TO REMEDY THE ERROR RESULTING FROM HIS OWN OVERSIGHT. 2.3.15 IN THE CASE OF ITO V. LAKHMANI MEWAL DAS (1976) 103 ITR 437 (SC), THE RESPONDENT WAS ASSESSED FOR THE YEAR 1958 - 59 U/S 23(3) OF THE INDIAN INCOME - TAX ACT, 1922, ON 14.06.1960. HIS TOTAL INCOME WAS ASSESSED AT RS . 37,872 / - . WHILE MAKING THE ASSESSMENT, THE ITO ALLOWED DEDUCTION OF A SUM OF RS 15,991 / - BY WAY OF EXPENSES CLAIMED BY THE RESPONDENT. THE EXPENSES INCLUDED RS 10,494 4AS 3PS BY WAY OF INTEREST. ACCORDING TO THE ASSESSEE, HE PRODUCED THROUGH HIS AUTHORIZED REPRESENTATIVE, ALL BOOKS OF ACCOUNT, BANK STATEMENTS AND OTHER NECESSARY DOCUMENTS IN CONNECTION WITH THE RETURN. ON 1 4.03.1967, THE RESPONDENT RECEIVED NOTICE ISSUED BY THE APPELLANT U/S 148 OF THE ACT, STATING THAT THE APPELLANT HAD REASON TO BELIEVE THAT THE RESPONDENTS INCOME WHICH WAS CHARGEABLE TO TAX FOR THE ASSESSMENT YEAR 1958 - 59 HAD ESCAPED ASSESSMENT WITHIN TH E MEANING OF SECTION 147 OF THE ACT. THE RESPONDENT WAS CALLED UPON TO SUBMIT A RETURN FOR THAT YEAR. THE RESPONDENT THROUGH HIS LAWYER STATED THAT THERE WAS NO MATERIAL ON WHICH THE APPELLANT HAD 31 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) REASON TO BELIEVE THAT HIS INCOME HAD ESCAPED ASSESSMENT AND, THEREFORE, THE CONDITION PRECEDENT FOR THE ASSUMPTION OF JURISDICTION BY THE APPELLANT HAD NOT BEEN SATISFIED. THE APPELLANT WAS ALSO CALLED UPON TO FURNISH ALL THE MATERIALS ON WHICH HE HAD REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT. AS T HERE WAS NO RESPONSE, A PETITION UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA WAS FILED FOR QUASHING THE IMPUGNED NOTICE. IN THE AFFIDAVIT FILED BEFORE THE HIGH COURT, THE ITO HAS STATED THAT IT WAS DISCOVERED THAT SOME OF THE LOANS SHOWN TO HAVE TAKEN AND INTEREST ALLEGED TO HAVE BEEN PAID THEREON BY THE PETITIONER DURING THE RELEVANT ASSESSMENT YEAR WERE NOT GENUINE. THE REPORT FURNISHED BY THE ITO TO THE CIT WAS ALSO DIRECTED TO BE PRODUCED BEFORE THE HIGH COURT. A FULL BENCH OF THE CALCUTTA HIGH CO URT BY MAJORITY HELD THAT THE NOTICE U/S 148 WAS NOT VALID AND ACCORDINGLY ALLOWED THE WRIT PETITION. ON FURTHER APPEAL, THE APEX COURT HELD THAT FOR A VALID RE - ASSESSMENT BEFORE ISSUANCE OF NOTICE U/S 148, TWO CONDITIONS HAVE TO BE SATISFIED, VIZ (I) THA T THE ITO MUST HAVE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, AND (II) HE MUST HAVE REASON TO BELIEVE THAT SUCH INCOME HAS ESCAPED ASSESSMENT BY REASON OF THE OMISSION OR FAILURE ON THE PART OF THE ASSESSEE (A) TO MAKE A RETUR N U/S 139, OR (B) TO DISCLOSE FULLY AND TRULY MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. THE APEX COURT FURTHER OBSERVED THAT THE DUTY, WHICH IS CAST UPON THE ASSESSEE, IS TO MAKE A TRUE AND FULL DISCLOSURE OF THE PRIMARY FACTS AT THE TIME OF THE ORIGIN AL ASSESSMENT. PRODUCTION BEFORE THE ITO OF THE ACCOUNT BOOKS OR OTHER EVIDENCE FROM WHICH MATERIAL EVIDENCE COULD WITH DUE DILIGENCE HAVE BEEN DISCOVERED BY THE ITO WILL NOT NECESSARILY AMOUNT TO DISCLOSURE CONTEMPLATED BY LAW. THE DUTY OF THE ASSESSEE IN ANY CASE DOES NOT EXTEND BEYOND MAKING A TRUE AND FULL DISCLOSURE OF PRIMARY FACTS. ONCE HE HAS DONE THAT HIS DUTY ENDS. IT IS FOR THE ITO TO DRAW THE CORRECT INFERENCE FROM THE PRIMARY FACTS. IT IS NO RESPONSIBILITY OF THE ASSESSEE TO ADVISE THE ITO WITH REGARD TO THE INFERENCE WHICH HE SHOULD DRAW FROM THE PRIMARY FACTS. IF AN ITO 32 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) DRAWS AN INFERENCE, WHICH APPEARS SUBSEQUENTLY TO BE ERRONEOUS, MERE CHANGE OF OPINION WITH REGARD TO THAT INFERENCE WOULD NOT JUSTIFY INITIATION OF ACTION FOR REOPENING ASSESSMENT. 2.3.16 THE GROUNDS OR REASONS WHICH LEAD TO THE FORMATION OF THE BELIEF CONTEMPLATED BY SECTION 147(A) OF THE ACT MUST HAVE A MATERIAL BEARING ON THE QUESTION OF ESCAPEMENT OF INCOME OF THE ASSESSEE FROM ASSESSMENT BECAUSE OF HIS FAILURE OR OMISSION TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS. ONCE THERE EXIST REASONABLE GROUNDS FOR THE ITO TO FORM THE ABOVE BELIEF THAT WOULD BE SUFFICIENT TO CLOTHE HIM WITH JURISDICTION TO ISSUE NOTICE. WHETHER THE GROUNDS ARE ADEQUATE OR NOT IS NOT A M ATTER FOR THE COURT TO INVESTIGATE. THE SUFFICIENCY OF THE GROUNDS, WHICH INDUCE THE ITO, IS, THEREFORE, NOT A JUSTIFIABLE ISSUE. IT IS, OF COURSE, OPEN TO THE ASSESSEE TO CONTEND THAT THE OFFICER DID NOT HOLD THE BELIEF THAT THERE HAD BEEN SUCH NON - DISC LOSURE. THE EXISTENCE OF THE BELIEF CAN BE CHALLENGED BY THE ASSESSEE BUT NOT THE SUFFICIENCY OF REASONS FOR THE BELIEF. THE EXPRESSION REASON TO BELIEVE DOES NOT MEAN A PURELY SUBJECTIVE SATISFACTION ON THE PART OF THE ITO. THE REASON MUST BE HELD IN GOOD FAITH. IT CANNOT BE MERELY PRETENCE . IT IS OPEN TO THE COURT TO EXAMINE WHETHER THE REASONS FOR THE FORMATION OF THE BELIEF HAVE A RATIONAL CONNECTION WITH OR A RELEVANT BEARING ON THE FORMATION OF THE BELIEF AND ARE NOT EXTRANEOUS OR IRRELEVANT FO R THE PURPOSE OF THE SECTION. TO THIS LIMITED EXTENT, THE ACTION OF THE ITO IN STARTING PROCEEDINGS IN RESPECT OF INCOME ESCAPING ASSESSMENT IS OPEN TO CHALLENGE IN A COURT OF LAW. HOLDING SO, THE APEX COURT UPHELD THE MAJORITY VIEW EXPRESSED BY THE HIGH COURT QUASHING THE NOTICE ISSUED FOR INITIATING RE - ASSESSMENT PROCEEDINGS. 2.3.17 WE NOTED EVEN IN THE CASE OF SOUND CASTING (P) LTD VS. DY. CIT (2012) 250 CTR 119 (BOM.) , THE JURISDICTION AL HIGH COURT TOOK THE VIEW WHERE THE 33 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) ASSESSMENT WAS REOPENED AFT ER THE EXPIRY OF FOUR YEARS, A S THERE IS NO ALLEGATION IN THE REASONS FOR FAILURE TO DISCLOSE MATERIAL FACTS NECESSARY FOR ASSESSMENT REOPENING BEYOND FOUR YEARS WAS HELD TO BE NOT VALID. IN THIS CASE ASSESSMENT WAS COMPLETED UNDER SECTION 143 (3) ON 14TH DECEMBER, 2007 ACCEPTING THE MELTING LOSS AT 7.75 PER CENT. THE NOTICE FOR REOPENING WAS ISSUED ON THE GROUND THAT IN THE SIMILAR LINE OF BUSINESS OTHER ASSESSEES HAVE CLAIMED THE MELTING LOSS AT 5.5 PER CENT. THE OBJECTION OF ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER. THE ASSESSEE CHALLENGED THE REOPENING BY WRIT PETITION. THE COURT ALLOWED THE WRIT PETITION AND HELD THAT THERE IS NO ALLEGATION IN THE REASONS WHICH HAVE BEEN DISCLOSED TO THE ASSESSEE THAT THERE WAS ANY FAILURE ON HIS PART TO FULLY AND TRULY DISCLOSE MATERIAL FACTS NECESSARY FOR ASSESSMENT AND THEREFORE REOPENING BEYOND FOUR YEARS WAS NOT VALID. (A.Y. 2005 - 06) 2.3.18 THE HONBLE S UPREME C OURT IN THE CASE OF CIT VS. CORPORATION BANK LTD., 254 ITR 791 TOOK THE VIEW THAT DISCLOSURE IN BAL ANCE SHEET ALSO AMOUNTS TO DISCLOSURE. WE NOTED THAT IN THIS CASE FOR THE PREVIOUS YEAR ENDED 31.3.1968 THE ASSESSEE HAS SHOWN RS.54,485/ - WHICH REPRESENTED INTEREST ON LOAN RECOVERY OF WHICH WAS DOUBTFUL IN THE INTEREST SUSPENSE ACCOUNT AS UNREALISED AMOU NT OF INTEREST IN THE BALANCE SHEET FILED ALONGWITH THE RETURN. IN THE ORIGINAL ASSESSMENT, THE AO ACCEPTED THE RETURN EXCLUDING THIS AMOUNT FROM THE INCOME. SUBSEQUENTLY, WHEN THE NOTICE U/S 147A WAS ISSUED FOR BRINGING THE SAID AMOUNT TO TAX, WHEN THE MATTER TRAVELLED TO THE SUPREME COURT, THE HON'BLE SUPREME COURT TOOK THE VIEW THAT THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY THE MATERIAL FACTS NECESSARY FOR THE ASSESSMENT YEAR AND THEREFORE HELD THAT THE PROVISIONS OF SEC. 147A ARE NOT APPLICABLE. 34 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) 2.3.19 THE HONBLE JURISDICTION AL HIGH COURT OF MUMBAI IN THE CASE OF ARTHUR ANDERSOR & CO. VS. ACIT (2010) 324 ITR 240 (BOM) ALSO TOOK THE VIEW THAT DISCLOSURE IN BALANCE SHEE T ALSO AMOUNTS TO DISCLOSURE. 2.3.20 IN THE FOLLOWING CASES ALSO IT WAS HELD THAT WHEN THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL THE MATERIAL FACTS, REASSESSMENT IS INVALID AND VOID AB INITIO : - I) BHAGWATI SHANKARI KARKHANA (2004) 269 ITR 186 (BOM) II) WESTERN OUTDOOR INTERACTIVE (2006) 286 ITR 620 (BOM) III) PRASHANT PROJECT LTD. VS. ASST. CIT (2011) 333 ITR 368 (BOM) IV) HINDUSTAN PETROLEUM CORPORATION LTD. VS. DY. CIT (2010) 328 ITR 534(BOM) V) NIHILENT TECHNOLOGIES (P) LTD VS. DY CIT (2011) 59 DTR 281 (BOM) VI) SHRIRAM FOUNDRY LTD. VS. DY. CIT (2012) 250 CTR 116 (BOM.) VII) MONITOR INDIA (P) LTD. VS. UOI (2012) 68 DTR 313 (BOM) VIII) HCL CORPORATION LTD. VS. ACIT (2012) 66 DTR 473 (DELHI) (HIGH COURT) IX) KIMPLAS TRENTON FITTINGS LTD. VS. ACIT (2 012) 340 ITR 299 (BOM.) X) HINDUSTAN PETROLEUM CORPORATION LTD. VS. DCIT, 192 TAXMANN 178 (BOM) XI) OHM STOCK BROKERS (P) LTD. VS. CIT, 31 TAXMANN.COM XII) DYNACRAFT AIR CONTROLS VS. SMT. SNEHA JOSHI, 31 TAXMANN.COM 254 (BOM) XIII) CIT VS. DAIMLER CHRYSLER INDIA PVT. LTD., 33 TAXMANN.COM 419 (MUM) 2.3.21 IN VIEW OF THE PROVISO TO SECTION 147 AS WELL AS THE SETTLED LEGAL DICTUM PRONOUNCED BY THE HONBLE SUPREME COURT AS WELL AS THAT OF HONBLE HIGH COURT, WE QUASH THE REASSESSMENT ON THIS GROUND BY ALLOWING GROUND NO.2 TAKEN BY THE ASSESSEE. 2.3.22 NOW, COMING TO THE SUBMISSIONS OF THE SENIOR ADVOCATE ON BEHALF OF THE ASSESSEE THAT THE REASONS TO BELIEVE ARE NOT BONA FIDE AS IT TANTAMOUNTS TO MERE 35 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) CHANGE OF OPINION, ON THIS PLEA AS WE HAVE ALREADY OBSERVED IN THE PRECEDING PARAGRAPHS WHILE DECIDING THE ISSUE WHETHER THERE IS A FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE ALL THE MATERIAL FACTS THAT THE ASSESSEE HAS SUBMITTED ALL THE RELEVANT INFORMATION DURING THE COURSE OF THE ASSESSMENT, THE ASSESSEE HA S SUBMITTED THE EVIDENCE TO PROVE HIS CLAIM U/S 10B. THE AO HAS DULY EXAMINED THE CLAIM OF THE ASSESSEE AND VERIFIED IT AND ULTIMATELY IT CULMINATED INTO THE ASSESSMENT U/S 143(3). THIS FACT IS APPARENT FROM THE FOLLOWING PARAGRAPH OF THE ASSESSMENT ORDE R IN WHICH THE AO WHILE ALLOWING THE EXEMPTION TO THE ASSESSEE OBSERVED AS UNDER : THE ASSESSEE COMPANY CONSISTS OF TWO DIVISIONS, VIZ., M/S. SOCIEDADE DE FOMENTO INDUSTRIAL LTD. AND M/S. FERROMET CONCENTRATES. M/S. FERROMET CONCENTRATES DERIVES INCOME TOTALLY FROM EXPORTS. THIS DIVISION IS ELIGIBLE FOR EXEMPTION U/S 10B FROM A.Y. 1999 - 00. SINCE THIS DIVISION WAS NOT GETTING ANY TAXABLE INCOME DURING A.YS. 1999 - 00 TO 2001 - 02, EXEMPTION U/S 10B WAS NOT CLAIMED. DURING THE CAPTIONED YEAR, THE ASSESSEE H AS MADE PROFITS. SINCE THE INCOME FOR THE PURPOSE OF ASSESSMENT HAS BEEN COMPUTED BY COMBINING THE PROFITS OF BOTH THE DIVISIONS, IT IS NECESSARY TO ASCERTAIN THE CORRECT POSITION OF CARRY FORWARD BUSINESS LOSS AS WELL AS UNABSORBED DEPRECIATION IN THE SA ID TWO DIVISIONS SEPARATELY. THE ASSESSEES REPRESENTATIVE HAS FILED A REVISED DEPRECIATION CHART WHICH IS TAKEN INTO CONSIDERATION WHILE ARRIVING AT THE CARRY FORWARD POSITION. WE NOTED THAT SUBSEQUENTLY THE AO PASSED ORDER U/S 154 DT. 25.5.2006 AND FR OM PARA 1 OF THAT ORDER ALSO IT IS APPARENT THAT THE AO WAS FULLY AWARE ABOUT THE ALLOWANCE OF DEDUCTION TO THE ASSESSEE U/S 10B. THE RELEVANT OBSERVATION S OF THE AO ARE REPRODUCED AS UNDER : THE SCRUTINY ASSESSMENT ORDER U/S. 143(3) OF THE INCOME TAX A CT FOR THE ASST YEAR 2002 - 2003 WAS COMPLETED ON 31.03.2005. IN THE RETURN OF INCOME THE ASSESSEE CLAIMED DEDUCTION U/S 80HHC OF RS.12,45,747/ - BEING 70% OF 17,79,639/ - ON THE INCOME EARNED BY EXPORT OF GOODS THROUGH SUPPORTING EXPORTER. THE DEDUCTION AL LOWABLE U/S 80HHC IS ASS BASED DEDUCTION, WHEREAS, EXEMPTIONS U/S 10B IS UNIT BASED DEDUCTION. SINCE THE DIVISION OF THE COMPANY HAS CLAIMED EXEMPTION U/S 10B FURTHER GRANT OF DEDUCTION U/S 80HHC ON THE GOODS SUPPLIED TO EXPORT HOUSE/TRADING HOUSE IS NOT ALLOWABLE. THEREFORE, THE DEDUCTION ALLOWED U/S 80HHC IS A MISTAKE AND REQUIRED TO BE RECTIFIED. 36 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) IT IS A SETTLED LAW THAT THE REASON TO BELIEVE MUST BE BONA FIDE . UNDER THE GARB OF REASON TO BELIEVE, THE AO CANNOT BE EMPOWERED TO REVIEW ITS OWN ORD ER. SEC. 147 DOES NOT EMPOWER THE AO TO REVIEW HIS DECISION. WE NOTED THAT THE WORD AND PHRASE MERE CHANGE OF OPINION ALTHOUGH DO NOT APPEAR IN THE SECTION BUT THIS PHRASE IS OFTEN REFERRED ON THE BASIS OF THE JUDGE S MADE LAW. IN THE CASE OF CIT VS. K ELVINATOR OF INDIA LTD., 320 ITR 561 (SC) ( SUPRA ) ON WHICH THE LD. SR. ADVOCATE HAS VEHEMENTLY RELIED, HON'BLE JUSTICE S.H. KAPADIA HELD THAT CONCEPT OF CHANGE OF OPINION MUST BE TREATED AS AN IN - BUILT TEST TO CHECK THE ABUSE OF POWER BY THE AO AND THE R EASONS MUST HAVE A LINK WITH THE FORMATION OF THE BELIEF. IMPORTANT EXCERPTS OF THE DECISION ARE RE - PRODUCED AS UNDER : 'HOWEVER, ONE NEEDS TO GIVE A SCHEMATIC INTERPRETATION TO THE WORDS REASON TO BELIEVE, FAILING WHICH SECTION 147 WOULD GIVE ARBITRARY POWERS TO THE ASSESSING OFFICER TO REOPEN ASSESSMENTS ON THE BASIS OF MERE CHANGE OF OPINION, WHICH CANNOT BE PER SE R EASON TO REOPEN. ONE MUST ALSO KEEP IN MIND THE CONCEPTUAL DIFFERENCE BETWEEN POWER TO REVIEW AND POWER TO REASSESS. THE ASSESSING OFFICER HAS NO POWER TO REVIEW; HE HAS THE POWER TO REASSESS, BUT THE REASSESSMENT HAS TO BE BASED ON FULFILMENT OF CERTAIN P RE - CONDITIONS AND IF THE CONCEPT OF CHANGE OF OPINION IS REMOVED AS CONTENDED ON BEHALF OF THE DEPARTMENT, THEN IN THE GARB OF REOPENING THE ASSESSMENT, REVIEW WOULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF CHANGE OF OPINION AS AN IN - BUILT TEST TO CHE CK ABUSE OF POWER BY THE ASSESSING OFFICER. HENCE, AFTER 1 - 4 - 1989, THE ASSESSING OFFICER HAS POWER TO REOPEN, PROVIDED THERE IS TANGIBLE MATERIAL TO COME TO CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. UNDER THE DIRECT TAX LAWS (AMENDME NT) ACT, 1987, THE PARLIAMENT NOT ONLY DELETED THE WORDS REASON TO BELIEVE BUT ALSO INSERTED THE WORD OPINION IN SECTION 147. HOWEVER, ON RECEIPT OF REPRESENTATIONS FROM THE COMPANIES AGAINST OMISSION OF THE WORDS REASON TO BELIEVE, THE PARLIAMENT RE INTRODUCED THE SAID EXPRESSION AND DELETED THE WORD OPINION ON THE GROUND THAT IT WOULD VEST ARBITRARY POWERS IN THE ASSESSING OFFICER.' WE NOTED THAT IN TH IS CASE THE TRUE MEANING OF THE PHRASE REASON TO BELIEVE WAS ALSO EXPLAINED. CHANGE OF OPINION REBUTS THE FORMATION OF REASON TO BELIEVE WHICH IS THE CRUX. IF THERE IS 'CHANGE OF OPINION' IT IS ESSENTIALLY A REVIEW WHICH CANNOT BE DONE AS IT IS A SEPARATE S TATUTORY PROCESS. WE ALSO NOTED THAT ON THE BASIS OF THE FACTS AND MATERIAL AVAILABLE ON RECORD EITHER FILED 37 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) ALONGWITH THE RETURN OR DURING THE COURSE OF THE ASSESSMENT, THE AO TOOK A PARTICULAR VIEW AND ALLOWED DEDUCTION TO THE ASSESSEE U/S 10B AND DID NO T DISALLOW ANY EXPENDITURE U/S 40(A)(I). THEREFORE, IN OUR OPINION, ON THE BASIS OF THE SAME MATERIAL THE AO CANNOT TAKE A DIFFERENT VIEW BY TAKING SHELTER OF SEC. 147 THAT THERE IS AN ESCAPEMENT OF INCOME. NO FRESH OR TANGIBLE MATERIAL HAS COME TO THE K NOWLEDGE OF THE AO. THE CASE OF THE ASSESSEE, IN OUR OPINION, IS DULY COVERED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD., 320 ITR 561 (SC) ( SUPRA ). THERE IS NO WHISPER IN THE REASONS RECORDED OF ANY TANGIBLE MATERIAL WHICH CAME TO THE POSSESSION OF THE AO SUBSEQUENT TO THE ORIGINAL ASSESSMENT FRAMED. ON THE BASIS OF THE MATERIAL WHICH WAS AVAILABLE AT THE TIME OF THE ASSESSMENT, RE - OPENING OF THE ASSESSMENT, IN OUR OPINION, WILL NOT BE PERMISSIBLE AS THE REASONS CANNOT BE REGARDED TO BE A BONA FIDE ONE AND IT WILL TANTAMOUNT TO BE CHANGE OF OPINION. RE - OPENING CANNOT BE PERMITTED IN THE GARB OF REVIEW. ON THIS BASIS ALSO, THE ASSESSMENT ORDER, I N OUR OPINION, HAS TO BE QUASHED. 3. GROUND NO. 3 RELATES TO THE SERVICE OF THE NOTICE U/S 143(2) ON THE ASSESSEE. 3.1 THE LD. SR. ADVOCATE BEFORE US CONTENDED THAT ASSESSMENT U/S 147 R.W.S. 143(3) CANNOT BE FRAMED UNTIL AND UNLESS A NOTICE HAS BEEN IS SUED U/S 143(2) OF THE INCOME TAX ACT. IT WAS CONTENDED THAT IN VIEW OF PROVISO TO SEC. 148(1) ALL THE PROVISIONS OF THIS ACT SHALL, SO FAR AS MAY BE, APPLY IN RESPECT OF RETURN FILED IN RESPONSE TO A NOTICE U/S 148 AS ARE APPLICABLE TO A RETURN FILED U/S 139. THEREFORE, IT WAS CONTENDED THAT IN VIEW OF THE PROVISIONS OF SEC. 143(2) AS WAS IN EXISTENCE DURING THE IMPUGNED ASSESSMENT YEAR, THE NOTICE U/S 143(2) HAS TO BE ISSUED WITHIN 6 MONTHS FROM THE END OF THE FINANCIAL YEAR. THE ASSESSEE HAS SUBMITTED THE RETURN IN RESPONSE TO NOTICE U/S 148 ON 9.5.2008 AND THEREFORE, THE 38 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) NOTICE U/S 143(2) MUST HAVE BEEN SERVED ON THE ASSESSEE, IF THE AO WANTS TO MAKE ASSESSMENT U/S 143(3) R.W.S. 147, BY 30.9.2009. NO SUCH NOTICE WAS SERVED ON THE ASSESSEE PRIOR TO 30 .9.2009. REFERRING TO THE ASSESSMENT ORDER THAT NOTICE U/S 143(2) DT. 22.9.2008 WAS SERVED ON THE ASSESSEE, THE LD. SR. ADVOCATE CONTENDED THAT NO SUCH NOTICE WAS SERVED ON THE ASSESSEE. FOR THIS, OUR ATTENTION WAS DRAWN TOWARDS THE AFFIDAVIT FILED BY TH E DY. GENERAL MANAGER (TAXATION), COPY OF WHICH IS AVAILABLE AT PG. 6 - 7 OF THE PAPER BOOK STATING THEREIN THAT NO SUCH NOTICE WAS EVER SERVED ON THE ASSESSEE. REFERRING TO LETTER DT. 21.8.2009, WHICH IS AVAILABLE IN THE PAPER BOOK AT PG. 32, IT WAS POINTE D OUT THAT THIS IS A COVERING LETTER TO THE REASON TO BELIEVE. THE COVERING LETTER DOES NOT TALK OF ENCLOSURE OF NOTICE U/S 143(2). THE ONUS IS ON THE REVENUE TO PROVE THAT THE NOTICE HAS BEEN SERVED. UNTIL AND UNLESS THE NOTICE IS SERVED, ASSESSMENT CANNOT BE REGARDED TO BE A VALID ONE. THE LD. SR. ADVOCATE DREW OUR ATTENTION TOWARDS THE LETTER DT. 21.8.2009 ISSUED BY THE AO, AND STATED THAT THIS LETTER CLEARLY STATES THAT IT IS ONLY THE COPY OF THE REASONS WHICH HAS BEEN ENCLOSED ALONGWITH THIS. CO PY OF THE NOTICE HAS BEEN PUT SUBSEQUENTLY ALONGWITH THIS LETTER WHEN THE ASSESSEE TOOK THIS GROUND BEFORE THE AO. REFERRING TO PARA 4.3 OF THE ORDER OF CIT(A) IT WAS POINTED OUT THAT CIT(A) HAS ALSO OBSERVED THAT NO PROOF OF SERVICE OF THIS NOTICE IS NO T AVAILABLE ON THE RECORDS AVAILABLE WITH THE AO. THE NOTICE U/S 143(2) EVEN THOUGH ISSUED SUBSEQUENTLY DT. 14.10.2009, 11.11.2009 AND 16.11.2009, THE PROOF OF SERVICE OF THESE NOTICES ARE AVAILABLE ON RECORD. HE CONTENDED THAT THESE NOTICES WHICH HAVE BEEN ISSUED AND SERVED SUBSEQUENT TO 30.9.2009 DO NOT HAVE ANY LEGAL VALIDITY. THE NOTICE HAS TO BE SERVED ON THE ASSESSEE AS PER THE PROVISO TO SEC. 143(2) UPTO 30.9.2009. IN THE ABSENCE OF SERVICE OF THE NOTICE PRIOR TO 30.9.2009, THE ASSESSMENT IS INV ALID AND VOID AB INITIO AND HAS TO BE QUASHED. IT WAS REQUESTED THAT IN CASE THE BENCH IS NOT CONVINCED, THE BENCH MAY CALL FOR THE DISPATCH REGISTER WHEN THESE NOTICES WERE GIVEN TO THE NOTICE SERVER OR 39 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) DISPATCHED BY SPEED POST. RELIANCE WAS PLACED IN T HIS REGARD ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ACIT VS. HOTEL BLUE MOON, 321 ITR 362. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF R.L. NARANG VS. CIT, 136 ITR 108 (DEL) FOR THE PROPOSITIO N OF LAW THAT IN CASE SERVICE IS MADE THROUGH A PROCESS SERVER, THERE MUST BE A SERVICE REPORT AND EVIDENCE TO SHOW THE IDENTITY OF THE PERSON TO WHOM SERVICE WAS AFFECTED. 3.2 THE LD. DR, ON THE OTHER HAND, VEHEMENTLY CONTENDED THAT NOTICE U/S 143(2) W AS SENT TO THE ASSESSEE ALONGWITH THE LETTER DT. 21.8.2009. NOTICE WAS SENT ON THE SAME ADDRESS. ALL THE SUBSEQUENT NOTICES DT. 14.10.2009, 11.11.2009 AND 16.11.2009 WERE DULY SERVED ON THE ASSESSEE ON THE SAME VERY ADDRESS. THIS NOTICE MUST HAVE BEEN S ERVED ON THE ASSESSEE. ON THE QUESTION HOW THE SERVICE WAS MADE ON THE ASSESSEE, THE LD. DR WAS ASKED ON 3.1.14 TO PRODUCE DISPATCH REGISTER AS WELL AS THE REGISTER WHEN THE NOTICE WAS GIVEN TO THE NOTICE SERVER ON THE NEXT DATE OF HEARING. THESE REGISTER S ALONG WITH ASSESSMENT RECORDS WERE PRODUCED BY THE LD. DR ON THE DATE OF THE HEARING BEFORE US. COPY OF THESE REGISTERS WAS PUT ON FILE. THE LD. DR POINTED OUT THAT AS PER THE DISPATCH REGISTER, REASONS FOR ISSUE OF NOTICE U/S 148 FOR A.Y 2002 - 03 WAS D ISPATCHED THROUGH SPEED POST ON 21.8.2009, THEREFORE, THE NOTICE U/S 143(2) MUST HAVE BEEN ENCLOSED ALONGWITH THE REASONS BUT HE COULD NOT PRODUCE ANY EVIDENCE FOR SENDING THE NOTICE U/S 143(2) THROUGH SPEED POST. THE LD. DR PRODUCED BEFORE US BOTH THE RE GISTERS AND FROM THE DISPATCH REGISTER DT. 21.8.2009 IT IS APPARENT THAT ONLY REASONS FOR ISSUE OF NOTICE U/S 148 FOR A.Y 2002 - 03 WAS DISPATCHED THROUGH SPEED POST. FROM THE REGISTER WHICH IS BEING MAINTAINED FOR SERVICE THROUGH NOTICE SERVER IT IS APPARE NT THAT TWO LETTERS TO THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR WERE HANDED OVER TO THE NOTICE SERVER ON 1.10.2009 AND THE DATE OF DISPATCH IS MENTIONED AS 30.9.2009. WHEN 40 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) THE BENCH RAISED THE QUERY TO THE LD. DR THAT IF IT IS PRESUMED THAT THESE LET TERS CONTAINED NOTICE U/S 143(2) AND WHEN THESE LETTERS WERE HANDED OVER TO THE NOTICE SERVER ON 1.10.2009, HOW THESE CAN BE SERVED UPTO 30.9.2009, THE LD. DR WAS UNABLE TO SPEAK ANYTHING BUT VEHEMENTLY CONTENDED THAT NOTICE WOULD HAVE BEEN SENT THROUGH SP EED POST. RELIANCE WAS PLACED BY THE LD. DR ON THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF SHAHBAD COOPERATIVE SUGAR MILLS LTD. VS. DCIT, 38 TAXMANN.COM 204 (P&H) FOR THE PROPOSITION OF THE LAW THAT WHERE REVENUE DISPATCHED NOTICES U/S 143(2) FOR TWO A.YS TOGETHER IN SAME ENVELOPE THROUGH POST AND ASSESSEE ACCEPTS TO HAVE RECEIVED ONE WHILE DENIED RECEIPT OF OTHER ONE, PRESUMPTION OF SERVICE TO THE ASSESSEE WAS TO BE ACCEPTED. 3.3 TO COUNTER IT, THE LD. SR. ADVOCATE DREW OUR ATTEN TION TOWARDS THE DISPATCH REGISTER AND POINTED OUT THAT IT IS APPARENT FROM THE DISPATCH REGISTER THAT ON 21.8.2009 ONLY THE REASONS FOR ISSUE OF NOTICE U/S 148 FOR A.Y 2002 - 03 WAS SENT THROUGH SPEED POST. HAD THE NOTICE U/S 143(2) BEEN SENT THROUGH SPEED POST, IT WOULD HAVE BEEN SPECIFICALLY MENTIONED. REFERRING TO THE REGISTER SHOWING SERVICE THROUGH NOTICE SERVER, IT WAS POINTED OUT THAT IT IS ONLY THE ANNEXURE AND THE LETTER FOR THE IMPUGNED ASSESSMENT YEAR WHICH WAS HANDED OVER TO THE NOTICE SERVER O N 1.10.2009. EVEN IF IT IS PRESUMED THAT NOTICE U/S 143(2) IS HANDED OVER, IT CANNOT BE SERVED PRIOR TO 30.9.2009. BY REFERRING TO THE DISPATCH REGISTER AND THE NOTICE SERVER REGISTER, IT WAS POINTED OUT THAT WHEREVER THE NOTICE IS ISSUED TO ANY ASSESSEE , THIS ACTION HAS SPECIFICALLY BEEN MENTIONED IN THE THIRD COLUMN. REFERRING TO THE ASSESSMENT FILE SPECIALLY THE ORDER SHEET, IT WAS MENTIONED THAT IN THE ORDER SHEET ALSO THERE IS NO MENTION OF THE ISSUANCE OF THE NOTICE U/S 143(2) FOR THE IMPUGNED DATE . HOW THE NOTICE DT. 22.9.2008 WAS LYING TILL 21.8.20009. REFERRING TO THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT, IT WAS POINTED OUT THAT IN THAT CASE NOTICES WERE 41 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) SENT TO THE ASSESSEE THROUGH SPEED POST AND THE ENVELOPE NEVER RETURNED BACK. THEREFORE, IN VIEW OF SEC. 27 OF THE GENERAL CLAUSES ACT THERE IS A PRESUMPTION THAT THE SERVICE HAS TAKEN PLACE. IN THAT CASE, NOTICES FOR TWO A.YS WERE PUT IN THE SAME ENVELOPE BUT THE ASSESSEE ACCEPTED SERVICE IN RESPECT OF ONE ASSESSMENT YEAR BUT NOT FOR THE OTHER ASSESSMENT YEAR. UNDER THE CIRCUMSTANCES THE HON'BLE PUNJAB & HARYANA HIGH COURT HELD THAT THE ONUS TO REBUT PRESUMPTION OF SERVICE OF NOTICE SENT BY POST LIES UPON THE ASSESSEE. THIS DECISION WILL NOT APPLY TO THE FACTS OF THE CASE BEFORE US AS IN THE CASE OF THE ASSESSEE EVEN THERE IS NO PROOF FOR DISPATCHING NOTICE TO THE ASSESSEE THROUGH POST AND EVEN IF IT IS PRESUMED THAT NOTICE IS SENT THROUGH NOTICE SERVER, THE NOTICE WAS HANDED OVER TO THE NOTICE SERVER AFTER 30.9.2009 I.E. AFTER O NE YEAR OF ITS ISSUANCE. 3.4 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS ON THIS ISSUE AND WE HAVE ALSO GONE THROUGH THE RELEVANT PROVISIONS AS WELL AS MATERIALS AND ORDER OF THE AUTHORITIES BELOW ALONGWITH THE CASE LAWS AS HAS BEEN RELIED ON BEFOR E US. WE HAVE EXAMINED THE ASSESSMENT RECORD ALONGWITH ORDER SHEET AS WELL AS THE DISPATCH REGISTER AND NOTICE SERVER REGISTER AS PRODUCED BEFORE US. WE NOTED THAT IN THIS CASE THE ASSESSEE HAS CHALLENGED THE VALIDITY OF THE ASSESSMENT ON THE GROUND THAT N OTICE U/S 143(2) WAS NEITHER ISSUED NOR SERVED UPON THE ASSESSEE WITHIN THE TIME LIMIT PRESCRIBED UNDER THE ACT. THE ASSESSEE CLAIMED THAT IT IS ONLY THE NOTICE DT. 14.10.2009 WHICH WAS SERVED ON THE ASSESSEE AND NO NOTICE U/S 143(2) CLAIMED TO HAVE BEEN ISSUED ON 22.9.2008 WAS EVER SERVED ON THE ASSESSEE ALONGWITH LETTER DT. 21.8.2009. IT WAS ALSO DENIED THAT ANY HEARING WAS FIXED ON 26.9.2008. THESE OBJECTIONS WERE ALSO TAKEN BY THE ASSESSEE BEFORE THE AO VIDE ITS LETTER DT. 30.11.2009. WE PERUSED THE COPY OF THE LETTER DT. 21.8.2009. WE FIND THAT THIS LETTER STATES AS UNDER : SUB: REASON FOR ISSUE OF NOTICE U/S 148 OF THE I.T. ACT, IN 42 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) YOUR CASE AY 2002 - 03 REG REF: ASSESSEES LETTER DATED _____ PLEASE KINDLY REFER TO ABOVE. AS REQUESTED BY YOU, I AM FURNISHING HEREWITH THE REASON RECORDED FOR REOPENING OF THE CASE FOR THE AY 2002 - 03. YOURS FAITHFULLY, SD/ - (A.N. HONAVAR) ENCL. : AS ABOVE ASST. COMMISSIONER OF INCOME TAX CENTRAL RANGE, PANAJI FROM THIS LETTER WHICH IS ADDRESSED TO THE ASSESSEE IT IS APPARENT THAT THE AO HAS ENCLOSED ALONGWITH THIS LETTER THE REASONS FOR THE ISSUE OF THE NOTICE U/S 148 OF THE INCOME TAX ACT FOR THE A.Y 2002 - 03. THE ENCLOSURE WHICH HAS BEEN MARKED ON THE LEFT SI DE OF THIS LETTER AS ENCLOSED AS ABOVE TALKS OF ENCLOSURE OF THE REASONS FOR ISSUE OF THE NOTICE U/S 148. ENCLOSURE DOES NOT TALK OF ENCLOSING NOTICE U/S 143(2). THE AO, WE NOTED, IN THIS LETTER NOWHERE STATED EITHER IN THE SUBJECT OR THE BODY OF THE L ETTER OR IN THE ENCLOSURE THAT THE COPY OF THE NOTICE U/S 143(2) HAS BEEN ENCLOSED ALONGWITH THIS LETTER. ISSUANCE OF NOTICE U/S 143(2) IS THE FOUNDATION FOR MAKING ASSESSMENT. 3.4.1 CIT(A) HAS ALSO CALLED FOR THE REMAND REPORT FROM THE AO BUT OBSERVED THAT NOTICE U/S 143(2) WAS ISSUED BY THE AO ON 21.8.2009 AND HEARING WAS FIXED ON 28.8.2009. HOWEVER, PROOF OF SERVICE OF THIS NOTICE IS NOT AVAILABLE ON THE RECORDS AVAILABLE WITH THE AO EVEN THOUGH NOTICES U/S 143(2) ISSUED ON 14.10.2009, 11.11.2009 AN D 16.11.2009 WERE SERVED ON THE ASSESSEE AND PROOF OF SERVICE OF THE NOTICES ARE AVAILABLE ON RECORD. WE NOTED THAT AFFIDAVIT DT. 11.4.2012 GIVEN BY SHRI SITARAM P. BHAT IS FILED BEFORE THE CIT(A) WHICH IS ENCLOSED AT PG. 106 - 107 OF THE PAPER BOOK. THIS AFFIDAVIT READS AS UNDER : 43 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) AFFIDAVIT I, SITARAM P. BHAT, SON OF LATE SHRI PARAMESHWAR T. BHAT AGED 56 YEARS, RESIDENT OF MARGAO, GOA, SOLEMNLY DECLARE AND AFFIRM AS UNDER: 1. I SAY THAT I AM WORKING WITH M/S. SOCIEDADE DE FOMENTO INDUSTRIAL PVT. LTD., MARGAO, GOA, FOR LAST 28 YEARS AND PRESENTLY WORKING AS DEPUTY GENERAL MANAGER (TAXATION) AND I AM IN CHARGE OF ALL THE TAX MATTERS OF THE COMPANY. 2. I SAY THAT WE HAVE NOT BEEN SERVED WITH ANY NOTICE DATED 22.09.2008 ISSUE D UNDER SECTION 143(2)/142(1) OF THE ACT AS ALLEGED IN THE ASSESSMENT ORDER DATED 30.12.2009 FOR THE ASSESSMENT YEAR 2002 - 03. 3. I SAY THAT NO NOTICE ISSUED UNDER SECTION 143(2) WAS SERVED ALONG WITH THE LETTER DATED 21.08.2009 AS ALLEGED IN THE ASSESSME NT ORDER DATED 30.12.2009 FOR THE ASSESSMENT YEAR 2002 - 03 BUT ONLY COPY OF THE ORDER SHEET RECORDING THE REASONS FOR REOPENING THE ASSESSMENT WAS SERVED ALONG WITH THE SAID LETTER. 4. I SAY THAT FOR THE FIRST TIME NOTICE UNDER SECTION 143(2) WAS ISSUED O N 14.10.2009 AND WAS SERVED ON US ON 22.10.2009. 5. I SAY THAT WE HAD APPLIED FOR INSPECTION OF RECORDS VIDE OUR LETTER DATED FEBRUARY 03, 2011 AND THE SAME WAS DENIED BY THE ASSESSING OFFICER VIDE HIS LETTER DATED 08.03.2011. 6. I SAY THAT THE FACTS STATED HERE IN ABOVE ARE TRU E TO THE BEST OF MY KNOWLEDGE. IN THE SAID AFFIDAVIT THE ASSESSEE HAS CATEGORICALLY STATED THAT NO NOTICE ISSUED U/S 143(2) WAS SERVED ALONGWITH THE LETTER OF 21.8.2009 AS ALLEGED IN THE ASSESSMENT ORDER DT. 30.12.2009 AND EVE N NO NOTICE DT. 22.9.2008 WAS SERVED ON THE ASSESSEE. IT WAS STATED THAT ONLY THE COPY OF THE ORDER SHEET RECORDING REASONS FOR THE RE - OPENING OF THE ASSESSMENT WAS SERVED ALONGWITH THE LETTER DT. 21.8.2009. 3.4.2 ON OUR DIRECTION, THE LD. DR PRODUCED THE ASSESSMENT RECORD AS WELL AS THE DISPATCH REGISTER. IN THE ORDER SHEET WE DID NOT FIND ANY DESCRIPTION ON THIS DATE FOR THE ISSUE OF NOTICE TO THE ASSESSEE U/S 143(2). IN THE DISPATCH REGISTER WE NOTED THAT THERE IS MENTION ON 21.8.2009 FOR SENDING THE REASONS FOR ISSUE OF 44 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) NOTICE U/S 148 FOR A.Y 2002 - 03 THROUGH SPEED POST BUT THERE IS NO MENTION ABOUT THE SENDING OF NOTICE U/S 143(2) THROUGH SPEED POST. WE ALSO EXAMINED THE DISPATCH REGISTER THROUGH NOTICE SERVER . WE NOTED THAT ON 30.9.2009 LETTERS ARE MENTIONED (NOT NOTICE U/S 143(2) FOR THE IMPUGNED ASSESSMENT YEAR) WHICH WERE HANDED OVER TO THE NOTICE SERVER ON 1.10.2009. IN THE FIRST COLUMN THE DATE AGAINST THE NAME OF THE ASSESSEE HAS BEEN PUT AS 6.10.2009. THESE EVIDENCES, IN OUR OPINION, DO NOT PROVE THAT ANY NOTICE HAS BEEN SENT TO THE ASSESSEE THROUGH SPEED POST ON 21.8.2009 OR THROUGH NOTICE SERVER PRIOR TO 30.9.2009. THE LD. DR WAS NOT ABLE TO PRODUCE ANY EVIDENCE EXCEPT THE COPY OF THE NOTICE ISSUED U/S 143(2) WHICH MAY PROVE THAT THE NOTICE HAS BEEN SERVED ON THE ASSESSEE U/S 143(2) PRIOR TO 30.9.2009. UNTIL AND UNLESS THERE IS EVIDENCE TO PROVE THAT THE NOTICE HAS BEEN SENT TO THE ASSESSEE EITHER THROUGH SPEED POST OR THROUGH NOTICE SERVER PRIOR T O 30.9.2009 FOR THE IMPUGNED ASSESSMENT YEAR, THE ONUS CANNOT BE SAID TO HAVE BEEN DISCHARGED BY THE REVENUE AND SHIFTED ON THE ASSESSEE TO PROVE THAT THE ASSESSEE HAS NOT BEEN SERVED WITH THE NOTICE U/S 143(2). WE HAVE ALSO GONE THROUGH THE DECISION OF J ABALPUR BENCH IN THE CASE OF ACIT VS. VINDHYA TELELINKS LTD., 107 TTJ (JAB) AS RELIED ON BY THE LD. A.R IN RESPECT OF SERVICE OF NOTICE. IN THIS CASE IT WAS HELD : - AS PER S. 148, THE SERVICE OF NOTICE UPON THE ASSESSEE IS A CONDITION PRECEDENT TO THE V ALIDITY OF ANY REASSESSMENT UNDER S. 147. THE BURDEN IS UPON THE AO TO PROVE THAT THE NOTICE WAS DULY SERVED UPON THE ASSESSEE AFTER ISSUING THE SAME WITHIN THE PRESCRIBED PERIOD UNDER S. 149. THE NOTICE UNDER S. 148 WAS ISSUED ON 23RD OCT., 2000. HOWEVER, EXCEPT MENTIONING RPAD AT THE TOP OF THE NOTICE, NO OTHER EVIDENCE IS BROUGHT ON RECORD BY THE REVENUE ABOUT THE SERVICE OF THE NOTICE UPON THE ASSESSEE. WHEN THE NOTICE IS ISSUED BY RPAD, THE POSTAL AUTHORITIES WOULD RETURN THE ACKNOWLEDGEMENT OF SERVING THE NOTICE UPON THE ASSESSEE TO THE SENDER OF THE NOTICE, I.E. AO. APART FROM THIS, WHENEVER ANY DAK IS SENT BY RPAD, THE POSTAL AUTHORITIES GIVE THE RECEIPT FOR RECEIVING SUCH DAK. THE REVENUE IS UNABLE TO PRODUCE EITHER THE ACKNOWLEDGEMENT OF THE SERVIC E OF THE NOTICE UPON THE ASSESSEE OR EVEN THE RECEIPT ISSUED BY THE POSTAL AUTHORITIES PROVING THE SENDING OF THE NOTICE BY RPAD. THE DEPARTMENTAL REPRESENTATIVE WAS ALSO ASKED TO PRODUCE THE DESPATCH REGISTER WHEREIN THE SENDING OF THE NOTICE TO THE ASSES SEE IS RECORDED. HOWEVER, HE EXPRESSED HIS INABILITY TO DO SO ON THE GROUND THAT THE NOTICE WAS ISSUED BY JT. CIT (ASSTT.), SPL. RANGE, JABALPUR 45 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) WHICH POST IS NOW ABOLISHED AND, THEREFORE, SUCH REGISTER IS NOT TRACEABLE. THE REVENUE HAS NOT BROUGHT ANY EVI DENCE WITH REGARD TO THE INGREDIENTS WHICH WOULD AMOUNT TO DEEMED SERVICE OF NOTICE UNDER S. 27 OF THE GENERAL CLAUSES ACT. ONLY EVIDENCE FURNISHED IS THE COPY OF THE NOTICE ISSUED UNDER S. 148 AND THE ADDRESS READS: VINDHYA TELELINKS (P) LTD., REWA. WHE THER THIS ADDRESS IS FULL AND CORRECT ADDRESS IS DOUBTFUL BECAUSE REWA IS A DISTRICT PLACE AND NO ADDRESS OF THE OFFICE OF THE COMPANY IS MENTIONED IN THIS NOTICE. IN THE MEMO OF APPEAL FILED BY THE REVENUE, THE REVENUE HAS GIVEN THE ADDRESS OF THE ASSESSE E AS UNDER: M/S VINDHYA TELELINK LTD., UDYOG VIHAR, REWA (MP). IN THE NOTICE UNDER S. 148 IN THE ADDRESS OF THE ASSESSEE UDYO G VIHAR IS MISSING. THEREFORE, IT CANNOT BE SAID THAT THE NOTICE WAS CORRECTLY ADDRESSED. MOREOVER, NO EVIDENCE IS FURNISHED FO R THE PROPERLY STAMPING OF THE ENVELOPE AND ALSO DESPATCH OF THE SAID ENVELOPE. ONCE THE ASSESSEE HAS CLAIMED THAT THE NOTICE WAS NOT SERVED UPON IT, THE BURDEN WAS UPON THE AO TO PROVE HOW THE NOTICE WAS SERVED ON THE ASSESSEE. MERELY SAYING THAT THE NOTI CE WAS ISSUED AND IT MUST HAVE BEEN RECEIVED BY THE ASSESSEE, THE ONUS CANNOT BE SAID TO HAVE BEEN DISCHARGED. THE SERVICE OF THE NOTICE UNDER S. 148 IS A PRECONDITION FOR ASSUMING THE JURISDICTION FOR REASSESSMENT UNDER S. 147. THEREFORE, THE SERVICE OF T HE COPY OF THE NOTICE DURING REASSESSMENT PROCEEDING CANNOT BE SAID TO BE VALID SERVICE OF THE NOTICE, BECAUSE IT SHOULD BE SERVED BEFORE INITIATION OF SUCH REASSESSMENT PROCEEDING. IN VIEW OF THE ABOVE, THE NOTICE UNDER S. 148 WAS NOT PROPERLY SERVED UPON THE ASSESSEE. R.L. NARANG VS. CIT (1 982) 136 ITR 108 (DEL) APPLIED. WE THEREFORE HOLD THAT THE NOTICE WAS NOT SERVED ON THE ASSESSEE WITHIN THE PERMISSIBLE TIME AS STIPULATED U/S 143(2). 3.4.3 WE HAVE GONE THROUGH THE PROVISIONS OF SEC. 148 AS WELL AS SEC. 143(2) OF THE INCOME TAX ACT. SEC. 148(1) IS REPRODUCED HEREUNDER : 148 (1) BEFORE MAKING THE ASSESSMENT, REASSESSMENT OR RECOMPUTATION UNDER SECTION 147, THE ASSESSING OFFICER SHALL SERVE O N THE ASSESSEE A NOTICE REQUIRING HIM TO FURNISH WITHIN SUCH PERIOD, AS MAY BE SPECIFIED IN THE NOTICE, A RETURN OF HIS INCOME OR THE INCOME OF ANY OTHER PERSON IN RESPECT OF WHICH HE IS ASSESSABLE UNDER THIS ACT DURING THE PREVIOUS YEAR CORRESPONDING TO T HE RELEVANT ASSESSMENT YEAR, IN THE PRESCRIBED FORM AND VERIFIED IN THE PRESCRIBED MANNER AND SETTING FORTH SUCH OTHER PARTICULARS AS MAY BE PRESCRIBED; AND THE PROVISIONS OF THIS ACT SHALL, SO FAR AS MAY BE, APPLY ACCORDINGLY AS IF SUCH RETURN WERE A RETU RN REQUIRED TO BE FURNISHED UNDER SECTION 139 : PROVIDED THAT IN A CASE ( A ) WHERE A RETURN HAS BEEN FURNISHED DURING THE PERIOD COMMENCING ON THE 1ST DAY OF OCTOBER, 1991 AND ENDING ON THE 30TH DAY OF SEPTEMBER, 2005 IN RESPONSE TO A NOTICE SERVED UNDER THIS SECTION, AND 46 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) ( B ) SUBSEQUENTLY A NOTICE HAS BEEN SERVED UNDER SUB - SECTION (2) OF SECTION 143 AFTER THE EXPIRY OF TWELVE MONTHS SPECIFIED IN THE PROVISO TO SUB - SECTION (2) OF SECTION 143, AS IT STOOD IMMEDIATELY BEFORE THE AMENDMENT OF SAID SUB - SECTION BY THE FINANCE ACT, 2002 (20 OF 2002) BUT BEFORE THE EXPIRY OF THE TIME LIMIT FOR MAKING THE ASSESSMENT, RE - ASSESSMENT OR RECOMPUTATION AS SPECIFIED IN SUB - SECTION (2) OF SECTION 153, EVERY SUCH NOTICE REFERRED TO IN THIS CLAUSE SHALL BE DEEMED TO BE A VALID NOTICE: PROVIDED FURTHER THAT IN A CASE ( A ) WHERE A RETURN HAS BEEN FURNISHED DURING THE PERIOD COMMENCING ON THE 1ST DAY OF OCTOBER, 1991 AND ENDING ON THE 30TH DAY OF SEPTEMBER, 2005, IN RESPONSE TO A NOTICE SERVED UNDER THIS SECTION, AND ( B ) SUBSEQUENTLY A NOTICE HAS BEEN SERVED UNDER CLAUSE ( II ) OF SUB - SECTION (2) OF SECTION 143 AFTER THE EXPIRY OF TWELVE MONTHS SPECIFIED IN THE PROVISO TO CLAUSE ( II ) OF SUB - SECTION (2) OF SECTION 143, BUT BEFORE THE EXPIRY OF THE TIME LIMIT FOR MAKING THE ASSESSMENT, REASSESSMENT OR RECOMPUTATION AS SPECIFIED IN SUB - SECTION (2) OF SECTION 153, EVERY SUCH NOTICE REFERRED TO IN THIS CLAUSE SHALL BE DEEMED TO BE A VALID NOTICE.] EXPLANATION. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT NOTHING CO NTAINED IN THE FIRST PROVISO OR THE SECOND PROVISO SHALL APPLY TO ANY RETURN WHICH HAS BEEN FURNISHED ON OR AFTER THE 1ST DAY OF OCTOBER, 2005 IN RESPONSE TO A NOTICE SERVED UNDER THIS SECTION. WE NOTED FROM THE READING OF THE PROVISIONS THAT SEC. 147 & 148 DO NOT PROVIDE THE METHODOLOGY FOR MAKING THE ASSESSMENT. SEC. 147 STATES THAT THE AO SHALL ASSESS OR RE - ASSESS THE TOTAL INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT. THIS SECTION, IN FACT, CREATES A LEGAL FICTION THAT ALL THE PROVISIONS OF INCOME TAX ACT SO FAR THEY ARE APPLICABLE TO THE RETURN FILED U/S 139 SHALL APPLY TO THE RETURN FILED UNDER THIS SECTION. THIS IMPLIES THAT ALL THE PROCEDURES PRESCRIBED FOR THE PURPOSE OF ASSESSMENT SUBSEQUENT TO SEC. 139 WILL AUTOMATICALLY APPLY IN CASE OF RETURN FILED U/S 148 IN RESPONSE TO A NOTICE ISSUED U/S 148(1). THE PROVISIONS OF SEC. 148 & 139 BOTH ARE UNDER CHAPTER XIV OF THE INCOME TAX ACT. IT IS A SETTLED LAW THAT LEGAL FICTION HAS TO BE TAKEN TO ITS LOGICAL CONCLUSION AND THEREFORE WHAT IS VALID FOR THE RETURN FILED U/S 139 WILL BE VALID IN RESPECT OF RETURN FILED IN RESPONSE TO NOTICE U/S 148. THE WORD USED SHALL MAKES IT MANDATORY THAT ALL THE PROVISIONS OF THIS ACT AS ARE APPLICABLE TO 47 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) THE RETURN FILED U/S 139 WILL APPLY TO THE RETURN FILED IN RESPONSE TO A NOTICE ISSUED U/S 148. FROM THE PERUSAL OF SECTION 148 IT IS APPARENT THAT TWO PROVISOS WERE INSERTED THEREIN BY THE FINANCE ACT 2006. THE NOTICE U/S 143(2) IS NOT MERELY PROCEDURAL IN NATURE BUT THE MANDATORY PROVISION. NO DOUBT U /S 148 WHILE TREATING THE RETURN SO FILED AS IF IT IS A RETURN FURNISHED U/S 139, THE WORDS USED ARE SO FAR AS MAY BE FOR APPLICABILITY OF ALL THE PROVISIONS OF THIS ACT IN RESPECT OF RETURN FURNISHED 139. THE HONBLE SUPREME COURT HAS INTERPRETED THE WORD SO FAR AS MAY BE WHILE DISCUSSING THE APPLICABILITY OF PROVISION OF SECTION 144B IN RESPECT OF A RETURN FILED IN RESPONSE TO NOTICE ISSUED U/S 148 IN THE CASE OF R. DALMIA V/S CIT 236 ITR 480, BY HOLDING AS UNDER: - THE REOPENING OF AN ALREADY COMPLETE D ASSESSMENT FOR THE REASON THAT THE INCOME - TAX OFFICER HAS REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT IS A SERIOUS MATTER. THE ACT REQUIRES THE INCOME TAX OFFICER TO RECORD HIS REASONS FOR ISSUING A NOTICE UNDER SECTION 148 OF THE INCOME TAX ACT, 1961. THE ACT ALSO REQUIRES THAT SUCH NOTICE SHALL NOT BE ISSUED UNLESS THE HIGHER AUTHORITIES MENTIONED IN SECTION 151 SANCTIONS ITS ISSUE. A NOTICE HAVING BEEN ISSUED UNDER SECTION 148, THE PROCEDURE SET OUT IN THE SECTIONS SUBSEQUENT TO SECTION 139 HAS TO BE FOLLOWED SO FOR AS MAY BE. SECTION 144 B IS A PROCEDURAL PROVISION. IT CANNOT BE EXCLUDED BY REASON OF THE USE OF THE WORDS SO FAR AS MAY BE. NOR IS THERE ANY OTHER GOOD REASON TO EXCLUDE IT FROM THE PROCEDURE TO BE FOLLOWED S UBSEQUENT TO A NOTICE UNDER SECTION 148. SECTION 144B PROVIDES A MEASURE OF PROTECTION TO ASSESEES - THAT SUBSTANTIAL VARIATIONS, PREJUDICIAL TO THEM, SHOULD NOT BE MADE IN THEIR RETURNED INCOMES ONLY BY THE INCOME TAX OFFICERS: THESE SHOULD NOT BE MADE ONLY AFTER CONSIDERATION BY THE INSPECTING ASSISTANT COMMISSIONERS. THAT A LARGER NUMBER OF PROVISIONS OF SECTION 144B ARE INAPPLICABLE TO ASSESSMENTS AND REASSESSMENTS UNDER SECTION 147. ASSESSMENTS UNDER SECTION 143 AND ASSESSMENTS AND REASSESSMENTS UNDER SE CTION 147 ARE DIFFERENT, BUT IN MAKING ASSESSMENTS AND REASSESSMENTS UNDER SECTION 147 THE PROCEDURE LAID DOWN IN SECTIONS SUBSEQUENT TO SECTION 139, INCLUDING THAT LAID DOWN BY SECTION 144B, HAS TO BE FOLLOWED. SECTION 144B APPLIES TO ASSESSMENTS AND REAS SESSMENTS UNDER SECTION 147 AND THEREFORE THE EXTENDED PERIOD OF LIMITATION PROVIDED BY EXPLANATION 1(IV) TO SECTION 153 IS AVAILABLE FOR MAKING SUCH ASSESSMENTS AND REASSESSMENTS. 3.4.4 FROM THE AFORESAID DECISION OF THE HONBLE SUPREME COURT IT IS APPA RENT THAT EVEN IN AN ASSESSMENT AND REASSESSMENT U/S 147, THE PROCEDURE LAID DOWN IN 48 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) SECTIONS SUBSEQUENT TO SECTION 139 HAS TO BE FOLLOWED THEREFORE ISSUANCE AND SERVICE OF THE NOTICE U/S 143(2) IS NECESSARY. THE NON ISSUE AND SERVICE OF NOTICE UNDER THIS SECTION WITHIN THE TIME LIMIT PRESCRIBED STATUTORILY WILL RENDER THE ORDER PASSED U/S 143(3) AS INVALID. THE PROVISOS AS ADDED BY THE FINANCE ACT 2006 TO SECTION 148 TO SAVE ASSESSMENTS COMPLETED ON THE ASSUMPTION THAT NO SUCH NOTICE NEED BE ISSUED FOR COM PLETING SUCH ASSESSMENTS IF THE NOTICE WAS ISSUED BEFORE COMPLETION OF ASSESSMENT. THESE PROVISOS ARE HAVING RETROSPECTIVE EFFECT FROM OCTOBER 01, 1991 AND LAYS DOWN THAT IF NOTICE U/S 143(2) IS SERVED AFTER THE EXPIRY OF 12 MONTHS BUT BEFORE THE EXPIRY OF TIME LIMITS FOR MAKING ASSESSMENT/REASSESSMENT THAN SUCH NOTICE SHALL BE DEEMED TO BE A VALID NOTICE BUT THESE PROVISOS APPLIES ONLY TO RETURN FURNISHED DURING THE PERIOD COMMENCING ON 1 ST DAY OF OCTOBER 1991 AND ENDING ON 30 TH DAY OF SEPTEMBER 2005 IN RESPONSE TO A NOTICE ISSUED U/S 148. EXPLANATION TO THESE PROVISOS EXPLICITLY LAYS DOWN THAT THESE PROVISOS WILL NOT APPLY TO ANY RETURN WHICH IS FURNISHED ON OR AFTER 1ST DAY OF OCTOBER 2005 IN RESPONSE TO NOTICE SERVED U/S 148. T HIS IS A FACT ON RECORD THAT THE RETURN IN RESPONSE TO A NOTICE 148 IN THE CASE OF THE ASSESSEE IS FILED ONLY AFTER 1ST DAY OF OCTOBER 2005 AS THE NOTICE U/S 148 WAS ISSUED ON 30/03/2010. THESE PROVISOS IN FACT IN OUR OPINION SUPPORT THE CONTENTION OF THE LD. AR THAT ISSUANCE OF THE NOTICE U/S 143(2) IS MANDATORY. IN THE CASE OF THE ASSESSEE EVEN NO NOTICE U/S 143(2) WAS ISSUED AT ALL. THE JURISDICTIONAL HIGH COURT, MUMBAI IN THE CASE OF CIT 10 , MUMBAI V/S MS MALVIKA ARUN SOMAIYA, ITA NO. 994 OF 2008 HEL D: - WE HAVE HEARD THE LEARNED COUNSEL APPEARING FOR THE PARTIES. 2. WHILE CHALLENGING THE ORDER OF THE TRIBUNAL DATED 27 TH SEPTEMBER 2007, IT IS CONTENDED THAT THE ASSESSEE HAVING NOT FILED ANY FRESH RETURNS IN RESPONSE TO THE NOTICE UNDER SECTION 148 OF THE INCOME TAX ACT, THE TRIBUNAL ERRED IN HOLDING THAT NOTICE UNDER SECTION 143( 2 ) TO OUGHT TO HAVE BEEN SERVED UPON THE AS SESSEE BEFORE TAKING ANY FURTHER PROCEEDINGS AND ON THIS BASIS QUESTION OF LAW RAISED IS THAT THE TRIBUNAL HAS ERRED IN INTERPRETING SECTION 143( 2 ) OF THE INCOME TAX ACT AND HAS 49 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) INCORRECTLY COME TO THE CONCLUSION THAT THE ORDER OF ASSESSMENT WAS IN VIOLATI ON OF THE STATUTORY PROVISIONS. 3. IN OUR VIEW, THE FINDINGS RECORDED BY THE TRIBUNAL DO NOT CALL FOR ANY INTEREFERENCE IN FACE OF THE JUDGEMENT OF THIS COURT IN THE CASE OF THE COMMISSIONER OF WEALTH TAX VS HUF OF H H LATE SHRI J M SCINDIA, WEALTH TAX AP PEAL NO. 1001 OF 2007 DECIDED ON 5 TH FEBRUARY 2008 AND THE JUDGEMENT OF THE RAJASTHAN COURT IN THE CASE OF TIWARI KANHAIYA LAL VS COMMISSIONER OF INCOME TAX, 1985 VOL ITR 154 (RAJ.). NO QUESTION OF LAW MUCH LESS SUBSTANTIAL QUESTION OF LAW ARISES FOR DETER MINATION. APPEAL DISMISSED. NO ORDER AS TO COSTS. SEC. 143(2) STIPULATES AS UNDER : 143 (2) WHERE A RETURN HAS BEEN FURNISHED UNDER SECTION 139, OR IN RESPONSE TO A NOTICE UNDER SUB - SECTION (1) OF SECTION 142, THE ASSESSING OFFICER SHALL, ( I ) WHERE HE HAS REASON TO BELIEVE THAT ANY CLAIM OF LOSS, EXEMPTION, DEDUCTION, ALLOWANCE OR RELIEF MADE IN THE RETURN IS INADMISSIBLE, SERVE ON THE ASSESSEE A NOTICE SPECIFYING PARTICULARS OF SUCH CLAIM OF LOSS, EXEMPTION, DEDUCTION, ALLOWANCE OR RELIEF AND REQUIR E HIM, ON A DATE TO BE SPECIFIED THEREIN TO PRODUCE, OR CAUSE TO BE PRODUCED, ANY EVIDENCE OR PARTICULARS SPECIFIED THEREIN OR ON WHICH THE ASSESSEE MAY RELY, IN SUPPORT OF SUCH CLAIM: [ PROVIDED THAT NO NOTICE UNDER THIS CLAUSE SHALL BE SERVED ON THE ASSESSEE ON OR AFTER THE 1ST DAY OF JUNE, 2003;] ( II ) NOTWITHSTANDING ANYTHING CONTAINED IN CLAUSE ( I ), IF HE CONSIDERS IT NECESSARY OR EXPEDIENT TO ENSURE THAT THE ASSESSEE HAS NOT UNDERSTATED THE INCOME OR HAS NOT COMPUTED EXCESSIVE LOSS OR HAS NOT UN DER - PAID THE TAX IN ANY MANNER, SERVE ON THE ASSESSEE A NOTICE REQUIRING HIM, ON A DATE TO BE SPECIFIED THEREIN, EITHER TO ATTEND HIS OFFICE OR TO PRODUCE, OR CAUSE TO BE PRODUCED, ANY EVIDENCE ON WHICH THE ASSESSEE MAY RELY IN SUPPORT OF THE RETURN: [ PR OVIDED THAT NO NOTICE UNDER CLAUSE ( II ) SHALL BE SERVED ON THE ASSESSEE AFTER THE EXPIRY OF SIX MONTHS FROM THE END OF THE FINANCIAL YEAR IN WHICH THE RETURN IS FURNISHED.] FROM THE PERUSAL OF THE AFORESAID SECTION WE NOTED THAT SEC. 143(2)(I) POINTS TO A SITUATION WHERE THE RETURN IS FILED OR IN RESPONSE TO A NOTICE CALLING FOR RETURN U/S 142 IN WHICH THE AO HAS REASON TO BELIEVE THAT ANY CLAIM OF LOSS, EXEMPTION, 50 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) DEDUCTION, ALLOWANCE OR RELIEF MADE IN THE RETURN IS INADMISSIBLE, SERVED ON THE ASSESSEE S PECIFYING THE PARTICULARS OF SUCH LOSS, EXEMPTION, DEDUCTION, ALLOWANCE OR RELIEF AND REQUIRING THE ASSESSEE, ON A DATE TO BE SPECIFIED IN THE NOTICE, TO PRODUCE OR CAUSE TO BE PRODUCED, ANY EVIDENCE OR PARTICULARS AS SPECIFIED THEREIN ON WHICH THE ASSESSE E MAY RELY IN SUPPORT OF SUCH CLAIM. SUB - CLAUSE (II) OF SEC. 143(2) LAYS DOWN THAT WHERE A RETURN FILED OR IN RESPONSE TO A NOTICE IF THE AO CONSIDERS IT NECESSARY OR EXPEDIENT TO ENSURE THAT THE ASSESSEE HAS NOT UNDERSTATED THE INCOME OR HAS NOT COMPUTED EXCESSIVE LOSS OR HAS NOT UNDER - PAID THE TAX IN ANY MANNER, SERVE ON THE ASSESSEE A NOTICE REQUIRING HIM, ON A DATE TO BE SPECIFIED THEREIN, EITHER TO ATTEND HIS OFFICE OR TO PRODUCE, OR CAUSE TO BE PRODUCED, ANY EVIDENCE ON WHICH THE ASSESSEE MAY RELY IN SUPPORT OF THE RETURN . BUT BOTH THE CLAUSES; CLAUSE (I) AND (II) TO SEC. 143(2) HAVE PROVISO THERETO WHICH STATES IN RESPECT OF CLAUSE (I) THAT NO NOTICE U/S 142(1) SHALL BE SERVED ON THE ASSESSEE ON OR AFTER 1.6.2003 WHILE IN RESPECT OF SEC. 143(2)(II) THE PROVISO STATES THAT NO NOTICE UNDER THIS CLAUSE SHALL BE SERVED ON THE ASSESSEE AFTER THE EXPIRY OF 6 MONTHS FROM THE END OF THE FINANCIAL YEAR IN WHICH THE RETURN IS FILED. EARLIER, THE LIMIT OF 6 MONTHS WAS 12 MONTHS FROM THE END OF THE MONTH IN WHI CH THE RETURN IS FILED. THE ASSESSEE IN THIS CASE HAS FILED THE RETURN IN RESPONSE TO NOTICE U/S 148 ON 9.5.2008. THEREFORE, IN VIEW OF THE SAID PROVISO TO SEC. 143(2), THE AO WAS BOUND TO SERVE ON THE ASSESSEE NOTICE U/S 143(2) WITHIN 6 MONTHS FROM THE END OF THE FINANCIAL YEAR IN WHICH THE RETURN WAS FILED I.E. UPTO 30.9.2009. 3.4.5 THE SPECIAL BENCH OF THIS TRIBUNAL INTERPRETING THE WORDS AND THE PROVISIONS OF THIS ACT SHALL, SO FAR AS MAY BE, APPLY ACCORDINGLY AS IF SUCH RETURN WAS A RETURN REQUIR ED TO BE FURNISHED U/S 139 IN THE CASE OF RAJ KUMAR CHAWLA VS. ITO, 94 ITD 1 (DEL) (SB) WHEN THE QUESTION AROSE WHETHER THE PROVISIONS OF 51 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) SEC. 143(2) WILL BE APPLICABLE TO A RETURN FILED PURSUANT TO A NOTICE U/S 148 HELD AS UNDER : IN THE LIGHT OF THE ANALYSIS OF THE RELEVANT PROVISIONS OF LAW AND JUDICIAL PRECEDENTS, IT WAS HELD THAT THE RETURN FILED PURSUANT TO NOTICE UNDER SECTION 148 MUST BE ASSUMED AND TREATED TO BE A RETURN FILED UNDER SECTION 139 AND THE ASSESSMENT MUST THERE AFTER BE MADE UNDER SECTION 143 OR 144 AFTER COMPLYING WITH ALL THE MANDATORY PROVISIONS. ACCORDINGLY, IT IS INCUMBENT UPON THE ASSESSING AUTHORITY TO ISSUE NOTICE UNDER SECTION 143(2) WITHIN THE PERIOD AS STIPULATED IN THE PROVISO THEREUNDER. IN THAT VIEW OF THE MATTER, IT WAS HELD THAT THE PROVISO TO SECTION 143(2) WHICH MANDATES THE SERVICE OF NOTICE WITHIN 12 MONTHS FROM THE END OF THE MONTH IN WHICH RETURN IS FILED, ALSO APPLIES TO THE RETURNS FILED PURSUANT TO NOTICE UNDER SECTION 148. AS REGARDS THE ISSUE REGARDING EFFECT OF NON - SERVICE OF NOTICE UNDER THE PROVISO TO SECTION 143(2) TO RETURN FILED PURSUANT TO SECTION 148, IT WAS TO BE HELD THAT THE ASSESSMENT CAN BE MADE IF THE NOTICE UNDER SECTION 143(2) IS NOT SERVED WITHIN THE TIME PRESCRIBED B Y THE PROVISO UNDER SECTION 143 AND, THUS, THE RETURN FILED WILL BE DEEMED AS ACCEPTED. THOUGH THE APPELLANTS WERE NOT ABLE TO STATE THE EXACT DATE OF SERVICE OF NOTICE BUT THE ADMITTED FACT WAS THAT THE NOTICE UNDER SECTION 143(2) IN RESPECT OF THE APP ELLANTS HAD BEEN SERVED AFTER THE EXPIRY OF PERIOD OF 12 MONTHS AS PROVIDED UNDER PROVISO TO SECTION 143(2). SINCE THE ASSESSING AUTHORITY HAD FAILED TO SERVE THE NOTICES WITHIN THE STATUTORY PERIOD PROVIDED UNDER SECTION 143(2), THE ASSESSING OFFICER HAD LOST ITS JURISDICTION TO MAKE ASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 147. IN OUR OPINION, THIS JUDGMENT IS SQUARELY APPLICABLE IN THE CASE OF THE ASSESSEE. INCIDENTALLY, WHILE GOING THROUGH THE PROVISIONS OF SECTION 148, WE HAVE ALSO GONE THROUGH THE PROVISIONS OF CHAPTER XIV - B, SPECIAL PROCEDURE FOR THE ASSESSMENT OF SEARCH CA SES WHICH WERE APPLICABLE PRIOR TO THE PROVISIONS OF SECTION 153A, 153B AND 153C BY THE FINANCE ACT, 2003 W.E.F. 01.06.2003. I NOTED THAT UNDER THE HEAD PROCEDURE FOR BLOCK ASSESSMENT GIVEN UNDER SECTION 158BC(B), THE LEGISLATURE HAS NOT TREATED THE RET URN FILED AS IF SUCH RETURN WAS A RETURN REQUIRED TO BE FURNISHED UNDER SECTION 139, BUT HAS SPECIFICALLY LAID DOWN THAT THE PROVISIONS OF SECTION 142, SUB - SECTIONS (2) & (3) OF SECTION 143, SECTION 52 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) 144 AND SECTION 145 SHALL, SO FAR AS MAY BE, APPLICABLE T O BLOCK ASSESSMENT. WHILE INTERPRETING THESE PROVISIONS, A QUESTION ARISES WHETHER ISSUANCE OR SERVICE OF NOTICE UNDER SECTION 143(2) IS MANDATORY OR NOT. HONBLE SUPREME COURT IN THE CASE OF ACIT & ANOTHER VS. HOTEL BLUE MOON, 321 ITR 362 (SC) HAS HELD AS UNDER : - WE MAY NOW REVERT BACK TO S. 158BC(B) WHICH IS THE MATERIAL PROVISION WHICH REQUIRES OUR CONSIDERATION. SEC. 158BC(B) PROVIDES FOR ENQUIRY AND ASSESSMENT. THE SAID PROVISION READS 'THAT THE AO SHALL PROCEED TO DETERMINE THE UNDISCLOSED INC OME OF THE BLOCK PERIOD IN THE MANNER LAID DOWN IN S. 158BB AND THE PROVISIONS OF S. 142, SUB - SS. (2) AND (3) OF S. 143, S. 144 AND S. 145 SHALL, SO FAR AS MAY BE, APPLY.' AN ANALYSIS OF THIS SUB - SECTION INDICATES THAT, AFTER THE RETURN IS FILED, THIS CLAU SE ENABLES THE AO TO COMPLETE THE ASSESSMENT BY FOLLOWING THE PROCEDURE LIKE ISSUE OF NOTICE UNDER S. 143(2)/142 AND COMPLETE THE ASSESSMENT UNDER S. 143 (3). THIS SECTION DOES NOT PROVIDE FOR ACCEPTING THE RETURN AS PROVIDED UNDER S. 143(1)(A). THE AO HAS TO COMPLETE THE ASSESSMENT UNDER S. 143(3) ONLY. IN CASE OF DEFAULT IN NOT FILING THE RETURN OR NOT COMPLYING WITH THE NOTICE UNDER S. 143(2)/142, THE AO IS AUTHORIZED TO COMPLETE THE ASSESSMENT EX PARTE UNDER S. 144. CLAUSE (B) OF S. 158BC BY REFERRING TO SS. 143(2) AND 143(3) WOULD APPEAR TO IMPLY THAT THE PROVISIONS OF S. 143(1) ARE EXCLUDED. BUT S. 143(2) ITSELF BECOMES NECESSARY ONLY WHERE IT BECOMES NECESSARY TO CHECK THE RETURN, SO THAT WHERE BLOCK RETURN CONFORMS TO THE UNDISCLOSED INCOME INFERR ED BY THE AUTHORITIES, THERE IS NO REASON, WHY THE AUTHORITIES SHOULD ISSUE NOTICE UNDER S. 143(2). HOWEVER, IF AN ASSESSMENT IS TO BE COMPLETED UNDER S. 143(3) R/W S. 158BC, NOTICE UNDER S. 143(2) SHOULD BE ISSUED WITHIN ONE YEAR FROM THE DATE OF FILING OF BLOCK RETURN. OMISSION ON THE PART OF THE ASSESSING AUTHORITY TO ISSUE NOTICE UNDER S. 143(2) CANNOT BE A PROCEDURAL IRREGULARITY AND THE SAME IS NOT CURABLE AND, THEREFORE, THE REQUIREMENT OF NOTICE UNDER S. 143(2) CANNOT BE DISPENSED WITH. THE OTHER IMPORTANT FEATURE THAT REQUIRES TO BE NOTICED IS THAT THE S. 158BC(B) SPECIFICALLY REFERS TO SOME OF THE PROVISIONS OF THE ACT WHICH REQUIRES TO BE FOLLOWED BY THE AO WHILE COMPLETING THE BLOCK ASSESSMENTS UNDER CHAPTER XIV - B OF THE ACT. THIS LEGISLATION I S BY INCORPORATION. THIS SECTION EVEN SPEAKS OF SUB - SECTIONS WHICH ARE TO BE FOLLOWED BY THE AO. HAD THE INTENTION OF THE LEGISLATURE WAS TO EXCLUDE THE PROVISIONS OF CHAPTER XIV OF THE ACT, THE LEGISLATURE WOULD HAVE OR COULD HAVE INDICATED THAT ALSO. A READING OF THE PROVISION WOULD CLEARLY INDICATE, IN OUR OPINION, IF THE AO, IF FOR ANY REASON, REPUDIATES THE RETURN FILED BY THE ASSESSEE IN RESPONSE TO NOTICE UNDER S. 158BC(A), THE AO MUST NECESSARILY ISSUE NOTICE UNDER S. 143(2) OF THE ACT WITHIN THE T IME PRESCRIBED IN THE PROVISO TO S. 143(2) OF THE ACT. WHERE THE LEGISLATURE INTENDED TO EXCLUDE CERTAIN PROVISIONS FROM THE AMBIT OF S. 158BC(B) IT HAS DONE SO SPECIFICALLY. THUS, WHEN S. 158BC(B) SPECIFICALLY REFERS TO [SIC - S. 143(2)] APPLICABILITY OF TH E PROVISO THERETO CANNOT BE EXCLUDED. WE MAY ALSO NOTICE HERE ITSELF THAT THE 53 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) CLARIFICATION GIVEN BY CBDT IN ITS CIRCULAR NO. 717, DT. 14TH AUG., 1995, HAS A BINDING EFFECT ON THE DEPARTMENT, BUT NOT ON THE COURT. THIS CIRCULAR CLARIFIES THE REQUIREMENT OF LAW IN RESPECT OF SERVICE OF NOTICE UNDER SUB - S. (2) OF S. 143 OF THE ACT. ACCORDINGLY, WE CONCLUDE EVEN FOR THE PURPOSE OF CHAPTER XIV - B OF THE ACT, FOR THE DETERMINATION OF UNDISCLOSED INCOME FOR A BLOCK PERIOD UNDER THE PROVISIONS OF S. 158BC, THE P ROVISIONS OF S. 142 AND SUB - SS. (2) AND (3) OF S. 143 ARE APPLICABLE AND NO ASSESSMENT COULD BE MADE WITHOUT ISSUING NOTICE UNDER S. 143(2) OF THE ACT. HOWEVER, IT IS CONTENDED BY SRI SHEKHAR, LEARNED COUNSEL FOR THE DEPARTMENT THAT IN VIEW OF THE EXPRESS ION 'SO FAR AS MAY BE' IN S. 153BC(B), THE ISSUE OF NOTICE IS NOT MANDATORY BUT OPTIONAL AND ARE TO BE APPLIED TO THE EXTENT PRACTICABLE. IN SUPPORT OF THAT CONTENTION, THE LEARNED COUNSEL HAS RELIED ON THE OBSERVATION MADE BY THIS COURT IN DR. PARTAP SIN GH'S CASE (SUPRA). IN THIS CASE, THE COURT HAS OBSERVED THAT S. 37(2) PROVIDES THAT 'THE PROVISIONS OF THE CODE RELATING TO SEARCHES, SHALL SO FAR AS MAY BE, APPLY TO SEARCHES DIRECTED UNDER S. 37(2). READING THE TWO SECTIONS TOGETHER IT MERELY MEANS THAT THE METHODOLOGY PRESCRIBED FOR CARRYING OUT THE SEARCH PROVIDED IN S. 165 HAS TO BE GENERALLY FOLLOWED. THE EXPRESSION 'SO FAR AS MAY BE' HAS ALWAYS BEEN CONSTRUED TO MEAN THAT THOSE PROVISIONS MAY BE GENERALLY FOLLOWED TO THE EXTENT POSSIBLE. THE LEARN ED COUNSEL FOR THE RESPONDENT HAS BROUGHT TO OUR NOTICE THE OBSERVATIONS MADE BY THIS COURT IN THE CASE OF MAGANLAL VS. JAISWAL INDUSTRIES & ORS. (1989) 4 SCC 344, WHEREIN THIS COURT WHILE DEALING WITH THE SCOPE AND IMPORT OF THE EXPRESSION 'AS FAR AS PRAC TICABLE' HAS STATED 'WITHOUT ANYTHING MORE THE EXPRESSION 'AS FAR AS POSSIBLE' WILL MEAN THAT THE MANNER PROVIDED IN THE CODE FOR ATTACHMENT OR SALE OF PROPERTY IN EXECUTION OF A DECREE SHALL BE APPLICABLE IN ITS ENTIRETY EXCEPT SUCH PROVISION THEREIN WHIC H MAY NOT BE PRACTICABLE TO BE APPLIED.' THE CASE OF THE REVENUE IS THAT THE EXPRESSION 'SO FAR AS MAY BE APPLY' INDICATES THAT IT IS NOT EXPECTED TO FOLLOW THE PROVISIONS OF S. 142, SUB - SS. (2) AND (3) OF S. 143 STRICTLY FOR THE PURPOSE OF BLOCK ASSESS MENTS. WE DO NOT AGREE WITH THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE REVENUE, SINCE WE DO NOT SEE ANY REASON TO RESTRICT THE SCOPE AND MEANING OF THE EXPRESSION 'SO FAR AS MAY BE APPLY'. IN OUR VIEW, WHERE THE AO IN REPUDIATION OF THE RETURN FILED UNDER S. 158BC(A) PROCEEDS TO MAKE AN ENQUIRY, HE HAS NECESSARILY TO FOLLOW THE PROVISIONS OF S. 142, SUB - SS. (2) AND (3) OF S. 143. SEC. 158BH PROVIDES FOR APPLICATION OF THE OTHER PROVISIONS OF THE ACT. IT READS: 'SAVE AS OTHERWISE PROVIDED IN THIS C HAPTER, ALL THE OTHER PROVISIONS OF THIS ACT SHALL APPLY TO ASSESSMENT MADE UNDER THIS CHAPTER.' THIS IS AN ENABLING PROVISION, WHICH MAKES ALL THE PROVISIONS OF THE ACT, SAVE AS OTHERWISE PROVIDED, APPLICABLE FOR PROCEEDINGS FOR BLOCK ASSESSMENT. THE PRO VISIONS WHICH ARE SPECIFICALLY INCLUDED ARE THOSE WHICH ARE AVAILABLE IN CHAPTER XIV - B OF THE ACT, WHICH INCLUDES S. 142 AND SUB - SS. (2) AND (3) OF S. 143. 54 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) THUS, IN VIEW OF THE AFORESAID DISCUSSION AND THE DICTUM OF LAW PRONOUNCED BY THE APEX COURT, WE ARE OF THE VIEW THAT SERVICE OF NOTICE U/S 143(2) WITHIN THE PRESCRIBED TIME AS PER PROVISIONS OF SEC. 143(2) IS MANDATORY. IN THE ABSENCE OF SUCH SERVICE THE AO CANNOT PROCEED TO MAKE AN INQUIRY ON THE RETURN FILED IN COMPLIANCE WITH THE NOTICE ISSUED U/S 148 AND CONSEQUENTLY, THE AO CANNOT MAKE THE ADDITION IN THE INCOME OF THE ASSESSEE AND THE AO IS BOUND TO ACCEPT THE INCOME AS RETURNED BY THE ASSESSEE. SINCE IN THIS CASE WE HAVE NOTICED THAT NO EVIDENCE HAS BEEN BROUGHT ON RECORD FOR THE SERVICE OF T HE NOTICE ON THE ASSESSEE U/S 143(2) UPTO 30.9.2009 BY THE AO, WE, THEREFORE, QUASH THE RE - ASSESSMENT ON THIS BASIS ALSO. 3.4. 6 WE HAVE ALSO GONE THROUGH THE DECISION IN THE CASE OF SHAHBAD COOPERATIVE SUGAR MILLS LTD. VS. DCIT, 38 TAXMANN.COM 204 (P&H) (SUPRA ). WE NOTED THAT IN THIS CASE THE HONBLE HIGH COURT HAS HELD AS UNDER: - 4. WE HAVE HEARD COUNSEL FOR THE PARTIES, PERUSED THE IMPUGNED NOTICE AND THE IMPUGNED ORDERS. 5. THE DISPUTE, IN THE PRESENT CASE, REVOLVES AROUND THE ISSUANCE AND SERVICE OF NOTICES ISSUED UNDER SECTION 143(2) OF THE ACT FOR ASSESSMENT YEARS 1990 - 91. THERE IS NO DISPUTE THAT NOTICE UNDER SECTION 143 (2) OF THE ACT, HAS TO BE SERVED UPON AN ASSESSEE, BEF ORE THE EXPIRY OF 12 MONTHS FROM THE END OF THE MONTH IN WHICH THE RETURN FURNISHED. THE REVENUE RELIES UPON NOTICES DATED 22.5.1992, DISPATCHED TO THE PETITIONER, VIDE DISPATCH NO. 177 DATED 22.5.1992 ETC. A RELEVANT EXTRACT FROM PARAS 6,7 AND 8 OF THE RE PLY READS AS FOLLOWS: 6 THAT INITIAL NOTICE U/S 143(2) DATED 22.5.92 ISSUED VIDE DISPATCH NO. 177 DATED 22.5.92 HAS NEVER BEEN RECEIVED BACK BY THE OFF ICE AND AS SUCH THIS TANTAMOUNT TO BE A VALID SERVICE. MOREOVER THE PETITIONER APPEARED BEFORE THE A. O IN PURSUANCE TO NOTICE DATED 22.5.1992 FOR ASSESSMENT YEAR 1990 - 91 HENCE IT DOES NOT LIE IN HIS MOUTH TO CONTEND THAT NOTICE U/S 143(2) FOR THE ASSESSMENT YEAR 1991 - 92 IS NOT SERVED UPON PARTICULARLY WHEN BOTH THE NOTICES U/S 143 (2) FOR THE ASSESSMENT Y EAR 1990 - 91 & 1991 - 92 WERE DISPATCHED TOGETHER. 55 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) 7. THAT THIS NOTICE OF DATED 22.5.92 ALSO FALSIFIES THE CONTENTION OF THE ASSESSEE AS THE SAME NOTICE WAS ALSO ISSUED FOR THE ASSESSMENT YEAR 1990 - 91 VIDE THE SAME DISPATCH NO. I.E., 177 DATED 22.5.92 IN A S INGLE ENVELOP AND TO THIS ASSESSEE HAS DULY COMPLIED. 8. THAT SURPRISINGLY THE ASSESSEE HAS NOTHING UTTERED TOWARDS THE ISSUANCE OF NOTICE U/S 143(2) OF THE I.T. ACT WHICH WAS ISSUED VIDE DISPATCH NO. 177 DATED 22.5.92 FOR THE ASSESSMENT YEAR 1990 - 91. ONL Y THIS SCORE PROVES THAT THE NOTICES ISSUED U/S 143(2) OF THE INCOME TAX ACT VIDE DISPATCH NO. 177 DATED 22.5.1992 WERE VALIDLY ISSUED AND SERVED. 6. THE AVERMENTS IN THE REPLY, DULY SUPPORTED BY COPIES OF THE NOTICES, DISPATCHED VIDE DISPATCH NO.177 AND THE FACT THAT NOTICES WERE NOT RECEIVED BACK RAISE A PRESUMPTION OF SERVICE UNDER SECTION 27 OF THE GENERAL CLAUSES ACT, 1897. THE ONUS TO REBUT THE PRESUMPTION OF SERVICE OF NOTICE SENT BY POST, LIES UPON THE PETITIONER. THE PETITIONER HAS FAILED TO DISC HARGE THIS ONUS. THE BALD DENIAL BY THE PETITIONER THAT NOTICE WAS NEVER RECEIVED, IN OUR CONSIDERED OPINION, IS INSUFFICIENT, TO RECORD A FINDING IN FAVOUR OF THE PETITIONER. WE, THEREFORE, FIND NO REASON TO ACCEPT THE PETITIONERS AVERMENTS AND SUBMISSIO NS THAT NOTICE DATED 22.5.1992 WAS NOT SERVED UPON THE PETITIONER, WITHIN THE PERIOD 12 MONTHS PRESCRIBED BY THE PROVISO TO SECTION 143 (2) OF THE ACT. 7. THE JUDGMENT, RELIED BY THE PETITIONER IN HOTEL MOON BLUES CASE (SUPRA), DOES NOT ENURE TO THE PETI TIONERS BENEFIT AS IT HAS ONLY BEEN HELD THAT NOTICE UNDER SECTION 143 (2) OF THE ACT, SHOULD BE SERVED WITHIN ONE YEAR FROM THE DATE OF FILING OF RETURN AND OMISSION ON THE PART OF THE REVENUE TO SERVE NOTICE UNDER SECTION 143 (2) OF THE ACT, IS NOT A ME RE PROCEDURAL IRREGULARITY SO AS TO CURABLE. WE HAVE NO QUARREL WITH THE RATIO OF THIS JUDGMENT BUT AS CONTROVERSY, IN THE PRESENT CASE, IS NOT, WHETHER THE NOTICE SUFFERS FROM ANY CURABLE DEFECT, BUT WHETHER NOTICE WAS ISSUED AND SERVED WITHIN 12 MONTHS O F THE PERIOD PRESCRIBED BY PROVISO TO SECTION 143 (2) OF THE ACT, THE JUDGMENT DOES NOT ADVANCE THE PETITIONERS CASE. 8. IN VIEW OF WHAT HAS BEEN STATED HEREINABOVE, WE FIND NO ERROR OF JURISDICTION OR OF LAW IN THE IMPUGNED ORDER OR PROCEEDING AND DISMI SS THE PETITION WITH NO ORDERS AS TO COSTS. IN OUR OPINION, THIS DECISION WILL NOT ASSIST THE REVENUE AS THE FACTS INVOLVED IN THIS DECISION ARE ENTIRELY DIFFERENT. IN THIS CASE THE REVENUE DISPATCHED NOTICE U/S 143(2) FOR TWO ASSESSMENT YEARS TOGETHER IN THE SAME ENVELOPE THROUGH POST AND THE ASSESSEE HAS ACCEPTED TO HAVE RECEIVED ONE NOTICE BUT DENIED THE RECEIPT OF THE OTHER ONE. SINCE THE ENVELOPE WAS DULY SERVED ON THE ASSESSEE, 56 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) PRESUMPTION OF THE SERVICE OF THE OTHER NOTICE ON THE ASSESSEE WAS ACC EPTED. IN THIS CASE THE REVENUE HAS SUBMITTED ALL THE EVIDENCE INCLUDING DISPATCH NO. 177 DT. 22.5.1992. THE EVIDENCE THAT THE NOTICE WAS SENT THROUGH REGISTERED POST WAS ALSO SUPPORTED BY THE ENTRY IN THE DISPATCH REGISTER. THE NOTICE NEVER RETURNED BA CK. IN THE CASE OF THE ASSESSEE, THE ENTRY FOR THE ISSUE OF THE NOTICE U/S 143(2) IS NOT SUPPORTED EITHER BY ORDER SHEET, DISPATCH REGISTER OR BY THE NOTICE SERVER REGISTER. THIS DECISION, THEREFORE, IN OUR OPINION, WILL NOT BE APPLICABLE. ON THIS BASIS ITSELF, WE ALLOW THE GROUND TAKEN BY THE ASSESSEE. 4. GROUND NO. 4 RELATES TO THE CONFIRMATION OF THE EXCLUSION OF THE MISCELLANEOUS INCOME, INTEREST FROM BANK, DISPATCH EARNED AND SUNDRY CREDITORS WRITTEN BACK FOR COMPUTATION OF ELIGIBLE PROFIT U/S 10B OF THE ACT. 4.1 THE LD. SR. ADVOCATE BEFORE US REFERR ING TO THE PROVISIONS OF SEC. 10B(1) AND 10B(4) VEHEMENTLY CONTENDED THAT THE CIT(A) ALTHOUGH ALLOWED DEDUCTION TO THE ASSESSEE U/S 10B BUT INCLUDED THE MISCELLANEOUS INCOME, INTEREST FROM BANK, DISPATCH EARNED AND SUNDRY CREDITORS WRITTEN BACK ALTHOUGH TH ESE INCOMES HAVE BEEN ASSESSED BY THE AO UNDER THE HEAD INCOME FROM BUSINESS. OUR ATTENTION WAS DRAWN TOWARDS THE FORMULA GIVEN U/S 10B(4) WHICH STATES THAT FOR THE PURPOSE OF SUB - SECTION (1), PROFIT DERIVED FROM EXPORT OF AN ARTICLE OR THING OR COMPUTE R SOFTWARE SHALL BE THE AMOUNT WHICH BEARS TO THE PROFIT OF THE BUSINESS OF THE UNDERTAKING SAME PROPORTION AS EXPORT TURNOVER IN RESPECT OF SUCH ARTICLE OR THING OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED OUT BY THE UNDERTAKI NG. RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT DT. 11.12.2011 IN TAX APPEAL NO. 428 OF 2007 IN THE CASE OF CIT VS. MOTOROLA INDIA ELECTRONICS (P) LTD. 57 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) 4.2 THE LD. DR, ON THE OTHER HAND, RELIED ON THE ORDER OF THE AUTHORITIES BELOW. 4.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME. WE HAVE ALSO GONE THROUGH THE PROVISIONS OF SEC. 10B(1) & 10B(4). FOR READY REFERENCE THESE PROVISIO NS ARE REPRODUCED AS UNDER : 10B. (1) SUBJECT TO THE PROVISIONS OF THIS SECTION, ANY PROFITS AND GAINS DERIVED BY AN ASSESSEE FROM A HUNDRED PER CENT EXPORT - ORIENTED UNDERTAKING (THEREAFTER IN THIS SECTION REFERRED TO AS THE UNDERTAKING) TO WHICH THIS SE CTION APPLIED SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. (2) THIS SECTION APPLIED TO ANY UNDERTAKING WHICH FULFILS ALL THE FOLLOWING CONDITIONS, NAMELY: - (I) IT MANUFACTURE OR PRODUCES ANY ARTICLE OR THING: [(IA) IN RELATION TO AN UNDERTAKING WHICH BEGINS TO MANUFACTURE OR PRODUCE ANY ARTICLE OR THING ON OR AFTER THE 1 ST DAY OF APRIL, 1994, ITS EXPORTS OF SUCH ARTICLES AND THINGS ARE NOT LESS THAN SEVENTY - FIVE PER CENT OF THE TOTAL SALES THEREOF DURING THE PREVIOUS YEAR;] (II) IT IS NOT FORMED BY THE SPLITTING UP, OR THE RECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE: PROVIDED THAT THIS CONDITION SHALL NOT APPLY IN RESPECT OF ANY UNDERTAKING WHICH IS FORMED AS A RESULT OF THE RE - ESTABLISHMENT, RECONSTRUCTION OR REVIVAL BY THE ASSESSEE OF THE BUSINESS OF ANY SUCH INDUSTRIAL UNDERTAKING AS IS REFERRED TO IN SECTION 33B, IN THE CIRCUMSTANCES AND WITHIN THE PERIOD SPECIFIED IN THAT SECTION; (III) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. EXPLANATION. - THE PROVISIONS OF EXPLANATION 1 AND EXPLANATION 2 TO SUB - SECTION (2) OF SECTION 80 - I SHALL APPLY FOR THE PURPOSE OF CLAUSE (III) OF THIS SUB - SECTION AS THEY APPLY FOR THE PURPOSES OF CLAUSE (II) OF THAT SUB - SECTION. (3) THE PROFITS AND GAINS REFERRED TO IN SUB - SECTION (1) SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE IN RESPECT OF ANY [TEN] CONSECUTIVE ASSESSMENT YEARS, BE G IN NIN G WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAK ING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS. (4) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE LAST OF THE RELEVANT ASSESSMENT YEARS, OR OF ANY PREVIOUS YEAR RELEVANT TO ANY SUBSEQUENT ASSESSMENT YEAR, - 58 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) (I) SECTION 32, SECTION 32A, SECTION 33 AND CLAUSE (IX) OF SUB - SECTION (1) OF SECTION 36 SHALL APPLY AS IF EVERY ALLOWANCE OR DEDUCTION REFERRED TO THEREIN AND RELATING TO OR ALLOWABLE FOR ANY OF THE RELEVANT ASSESSMENT YEARS, IN RELATION TO ANY BUILDING, MACHINERY, PLANT OR FURNITURE USED FOR THE PURPOSES OF THE BUSINESS OF THE UNDERTAKING IN THE PREVIOUS YEAR RELEVANT TO SUCH ASSESSMENT YEAR OR ANY EXPENDITURE INCURRED FOR THE PURPOSES OF SUCH BUSINESS IN SUCH PREVIOUS YEAR HAD BEEN GIVEN FULL EFFECT TO FOR THAT ASSESSMENT YEAR ITSELF AND ACCORDINGLY SUB - SECTION (2) OF SECTION 32, CLAUSE (II) OF SUB - SECTION (3) OF SECTION 32A, CLAUSE (II) OF SUB - SEC TION (2) OF SECTION 33 OR THE SECOND PROVISO TO CLAUSE (IX) OF SUB - SECTION (1) OF SECTION 36, AS THE CASE MAY BE, SHALL NOT APPLY IN RELATION TO ANY SUCH ALLOWANCE OR DEDUCTION; (II) NO LOSS REFERRED TO IN SUB - SECTION (1) OF SECTION 72 OR SUB - SECTION (1) OR SUB - SECTION (3) OF SECTION 74, IN SO FAR AS SUCH LOSS RELATES TO THE BUSINESS OF THE UNDERTAKING, SHALL BE CARRIED FORWARD OR SET OFF WHERE SUCH LOSS RELATES TO ANY OF THE RELEVANT ASSESSMENT YEARS; (III) NO DEDUCTION SHALL BE ALLOWED UNDER SECTION 80HH OR SECT ION 80HHA OR SECTION 80 - I [OR SECTION 80 - IA] [OR SECTION 80 - IB] IN RELATION TO THE PROFITS AND GAINS OF THE UNDERTAKINGS; AND (IV) I N COMPUTING THE DEPRECIATION ALLOWANCE UNDER SECTION 32, THE WRITTEN DOWN VALUE OF ANY ASSET USED FOR THE PURPOSES OF THE BUSINE SS OF THE UNDERTAKING SHALL BE COMPUTED AS IF THE ASSESSEE HAD CLAIMED AND BEEN ACTUALLY ALLOWED THE DEDUCTION IN RESPECT OF DEPRECIATION FOR EACH OF THE RELEVANT ASSESSMENT YEARS. (5) WHERE THE UNDERTAKING HAS BEGUN TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS IN ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING BEFORE THE 1ST DAY OF APRIL, 1989, THE ASSESSEE MAY, AT HIS OPTION, BEFORE THE DUE DATE FOR FURNISHING THE RETURN OF HIS INCOME UNDER SUB - SECTION (1) OF SECTION 139 FOR THE ASSESSMEN T YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1989, FURNISH TO THE ASSESSING OFFICER A DECLARATION IN WRITING THAT THE PROVISIONS OF SUB - SECTION (1) MAY BE MADE APPLICABLE TO HIM FOR ANY FIVE CONSECUTIVE ASSESSMENT YEARS FALLING WITHIN A PERIOD OF EIGHT YEARS BEGINNING WITH THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1989, AND IF HE DOES SO, THEN, THE PROVISIONS OF SUB - SECTION (1) SHALL APPLY TO HIM FOR EACH OF SUCH ASSESSMENT YEARS AND THE PROVISIONS OF SUB - SECTION (4) SHALL ALSO APPLY IN COMPUTIN G THE TOTAL INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE LAST OF SUCH ASSESSMENT YEARS AND ANY SUBSEQUENT ASSESSMENT YEAR. (6) THE PROVISIONS OF SUB - SECTION (8) AND SUB - SECTION (9) OF SECTION 80 - I SHALL, SO FAR AS MAY BE, APP LY IN RELATION TO THE UNDERTAKING REFERRED TO IN THIS SECTION AS THEY APPLY FOR THE PURPOSES OF THE INDUSTRIAL UNDERTAKING REFERRED TO IN SECTION 80 - I. 59 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) (7) NOTWITHSTANDING ANYTHING CONTAINED IN THE FOREGOING PROVISIONS OF THIS SECTION, WHERE THE ASSESSEE, BEFORE THE DUE DATE FOR FURNISHING THE RETURN OF HIS INCOME UNDER SUB - SECTION (1) OF SECTION 139, FURNISHES TO THE ASSESSING OFFICER A DECLARATION IN WRITING THAT THE PROVISIONS OF THIS SECTION MAY NOT BE MADE APPLICABLE TO HIM, THE PROVISIONS OF THIS SEC TION SHALL NOT APPLY TO HIM FOR ANY OF THE RELEVANT ASSESSMENT YEARS. EXPLANATION. - FOR THE PURPOSES OF THIS SECTION. - (I) HUNDRED PER CENT EXPORT - ORIENTED UNDERTAKING MEANS AN UNDERTAKING WHICH HAS BEEN APPROVED AS A HUNDRED PER CENT EXPORT - ORIENTED UNDERTAKING BY THE BOARD APPOINTED IN THIS BEHALF BY THE CENTRAL GOVERNMENT IN EXERCISE OF THE POWERS CONF ERRED BY SECTION 14 OF THE INDUSTRIES (DEVELOPMENT AND REGULATION) ACT, 1951 (65 OF 1951), AND THE RULES MADE UNDER THAT ACT; (II) RELEVANT ASSESSMENT YEARS MEANS THE TEN CONSECUTIVE ASSESSMENT YEARS REFERRED TO IN SUB - SECTION (3); (III) MANUFACTURE INCLUDES ANY - (A) PROCES S, OR (B) ASSEMBLING, OR (C) RECORDING OF PROGRAMMES ON ANY DISC, TAPE, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE; (IV) PRODUCE , I N RELATION TO ANY ARTICLE OR THING REFERRED TO IN CLAUSE (I) OF SUB - SECTION (2) INCLUDES PRODUCTION OF COMPUTER PROGRAMMES. WE NOTED THAT WHILE INTERPRETING THE PROVISIONS OF THIS SECTION, THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. MOTOROLA INDIA ELECTRONICS (P) LTD (SUPRA) HAS OBSERVED AS UNDER : BY FINANCE ACT, 2001, WITH EFFECT FROM 01.04.2001, THE PRESENT SUBSECTION (4) IS SUBSTITUTED IN THE PLACE OF OLD SUBSECTION (4) NO DOUBT SUBSECTION 10(B) SPEAKS ABOUT DEDUCTION OF SUCH PROFITS AND GAINS AS DERIVED FROM 100% EOU FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE. THEREFORE, IT EXCLU DES PROFIT AND GAINS FROM EXPORT OF ARTICLES. BUT SUB - SECTION (4) EXPLAINS WHAT IS THE PROFIT DERIVED FROM EXPORT OF ARTICLES AS MENTIONED IN SUB - SECTION(1). THE SUBSTITUTED SUB - SECTION (4) SAYS THAT PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COM PUTER SOFTWARE SHALL BE THE ACCOUNT WHICH BARES TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING AND NOT THE PROFITS AND GAINS FROM EXPORT OF ARTICLES. THEREFORE, PROFITS AND GAINS DERIVED FROM EXPORT OF ARTICLES IS DIFFERENT FROM THE INCOME DERIVED FROM THE PROFITS OF THE BUSINESS OF THE UNDERTAKING. THE PROFITS OF THE BUSINESS OF THE UNDERTAKING INCLUDES THE PROFITS AND GAINS FROM EXPORT OF THE ARTICLES AS WELL AS ALL OTHER INCIDENTAL INCOMES DERIVED FROM THE BUSINESS OF THE UNDERTAKING. IT IS INTERESTIN G TO NOTE THAT SIMILAR PROVISIONS 60 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) ARE NOT THERE WHILE DEALING WITH COMPUTATION OF INCOME UNDER SECTION 80HHC. ON THE CONTRARY, THERE IS SPECIFIC PROVISIONS LIKE SECTION 80HHB WHICH EXPRESSLY EXCLUDES THIS TYPE OF INCOMES. THEREFORE, IN VIEW OF THE AFORESAI D PROVISIONS, IT IS CLEAR THAT, WHAT IS EXEMPTED IS NOT MERELY THE PROFITS AND GAINS FROM THE EXPORT OF ARTICLES BUT ALSO THE INCOME FROM THE BUSINESS OF THE UNDERTAKINGS 8. IN THE INSTANT CASE, THE ASSESSEE IS A 100% EOU, WHICH HAS EXPORTED SOFTWARE AND EARNED THE INCOME. A PORTION OF THAT INCOME IS INCLUDED IN EEFC ACCOUNT. YET ANOTHER PORTION OF THE AMOUNT IS INVESTED WITHIN THE COUNTRY BY WAY OF FIXED DEPOSITS, ANOTHER PORTION OF THE AMOUNT IS INVESTED BY WAY OF LOAN TO THE SISTER CONCERN WHICH IS DER IVING INTEREST OR THE CONSIDERATION RECEIVED FROM SALE OF THE IMPORT ENTITLEMENT, WHICH IS PERMISSIBLE IN LAW. NOW THE QUESTION IS WHETHER THE INTEREST RECEIVED AND THE CONSIDERATION RECEIVED BY SALE OF IMPORT ENTITLEMENT IS TO BE CONSTRUED AS INCOME OF TH E BUSINESS OF THE UNDERTAKING. THERE IS A DIRECT NEXUS BETWEEN THIS INCOME AND THE INCOME OF THE BUSINESS OF THE UNDERTAKING. THOUGH IT DOES NOT PAR TAKE THE CHARACTER OF A PROFIT AND GAINS FROM THE SALE OF AN ARTICLE, IT IS THE INCOME WHICH IS DERIVED FRO M THE CONSIDERATION REALIZED BY EXPORT OF ARTICLES. IN VIEW OF THE DEFINITION OF INCOME FROM PROFITS AND GAINS INCORPORATED IN SUBSECTION (4), THE ASSESSEE IS ENTITLED TO THE BENEFIT OF EXEMPTION OF THE SAID AMOUNT AS CONTEMPLATED UNDER SECTION 10B OF T HE ACT. THEREFORE, THE TRIBUNAL WAS JUSTIFIED IN EXTENDING THE BENEFIT TO THE AFORESAID AMOUNTS ALSO. WE DO NOT FIND ANY MERIT IN THESE APPEALS. THEREFORE, THE FIRST SUBSTANTIAL QUESTION OF LAW RAISED IN ITA NO 428/2007 IS ANSWERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE AND THE FIRST SUBSTANTIAL QUESTION OF LAW IN ITA NO 447/2007 IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. IN THE LIGHT OF THE AFORESAID FINDINGS, THE SECOND SUBSTANTIAL QUESTION OF LAW IN BOTH THE APPEALS DO NOT ARISE FOR CONSIDERATION. PARTIES TO BEAR THEIR OWN COSTS. IN VIEW OF THE SAID DECISION AND THE SPECIFIC PROVISION OF SEC. 10B(4), WE ARE OF THE VIEW THAT IN CASE THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 10B, WHICH IS THE GROUND TAKEN BY THE RE VENUE IN ITS APPEAL, THE AO WILL COMPUTE THE EXEMPTION TO THE ASSESSEE U/S 10B IN ACCORDANCE WITH THE FORMULA LAID DOWN U/S 10B(4). THE EXEMPTION UNDER THIS SECTION HAS TO BE BASED ON THE BASIS OF THE FORMULA. WE, THEREFORE, IN THE INTEREST OF JUSTICE AN D FAIR PLAY TO BOTH THE PARTIES SET ASIDE AND RESTORE THIS ISSUE TO THE FILE OF THE AO AND DIRECT THE AO THAT IN CASE HE FINDS THAT THE GROUND TAKEN BY THE REVENUE IN ITS APPEAL THAT THE ASSESSEES UNDERTAKING IS ENTITLED FOR DEDUCTION U/S 10B, THE EXEMPTI ON UNDER THIS SECTION 61 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) HAS TO BE COMPUTED IN ACCORDANCE WITH THE FORMULA GIVEN U/S 10B(4). WHILE COMPUTING THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THE AO SHOULD INCLUDE NOT ONLY THE PROFIT AND GAINS FROM THE EXPORT OF THE ARTICLES BUT ALSO ALL THE INCOMES WHICH ARE TAKEN BY THE ASSESSEE IN GROUND NO. 4 IF THESE INCOMES ARE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS AND RELATE TO AND ARE INCIDENTAL INCOME DERIVED FROM THE BUSINESS OF THE ELIGIBLE UNDERTAKING AND ALLOW DEDUCTION TO THE ASSESSEE AC CORDINGLY. THUS, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 425/PNJ/2013 : 5. THE ONLY ISSUE INVOLVED IN THE REVENUES APPEAL RELATES TO THE ELIGIBILITY OF THE CLAIM OF DEDUCTION BY THE ASSESSEE U/S 10B. 5.1 THE BRIEF FACTS RELATING TO THIS GROUND ARE THAT THE ASSESSEE COMPANY CONSISTS OF TWO DIVISIONS; M/S. SOCIEDADE DE FOMENTO INDUSTRIAL LTD. AND M/S. FERROMET CONCENTRATES. M/S. FERROMET CONCENTRATES DERIVED INCOME FROM EXPORTS ONLY. THE DIVISION WAS EXEMPT U/S 10B FROM A.Y 1999 - 2000 AND WAS NOT GETTING ANY TAXABLE INCOME DURING A.Y 1999 - 2000 TO 2001 - 02 AND THEREFORE NO EXEMPTION U/S 10B WAS CLAIMED. DURING THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE EARNED A SUM OF RS.7,42,37,232/ - FROM THIS DIVISION AND CLAIMED EXEMPTION U/S 10B WHIC H WAS ALLOWED WHILE MAKING ASSESSMENT U/S 143(3). SUBSEQUENTLY, AFTER RECORDING REASONS AS STIPULATED IN THE PRECEDING PARAGRAPHS, THE AO RE - OPENED THE ASSESSMENT ON THIS ISSUE ALONGWITH OTHER ISSUES. THE RE - OPENING WAS CHALLENGED BY THE ASSESSEE WHICH W E HAVE DECIDED IN FAVOUR OF THE ASSESSEE WHILE DEALING WITH THE ASSESSEES APPEAL BUT SINCE THE LD. SR. ADVOCATE AS WELL AS THE LD. DR VEHEMENTLY AND EXTENSIVELY ARGUED THE MATTER ON THIS ISSUE, THEREFORE, WE ARE DECIDING THIS ISSUE ALSO KEEPING IN VIEW TH AT THIS IS THE FIRST YEAR OF CLAIM OF EXEMPTION BY THE ASSESSEE U/S 10B AND IT WILL HAVE 62 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) BEARING IN THE CLAIM OF EXEMPTION BY THE ASSESSEE U/S 10B IN THE SUBSEQUENT YEARS. 5.2 THE LD. DR, RELIED ON THE ORDER OF THE AO AND VEHEMENTLY CONTENDED THAT IT IS A CASE OF SUBSTANTIAL EXPANSION AND NOT A CASE OF SETTING UP A NEW UNIT AND FOR THIS OUR ATTENTION WAS DRAWN TOWARDS LETTER DT. 29.2.1996 ISSUED BY THE EOU SECTION OF SECRETARIAT FOR INDUSTRIAL APPROVALS, DEPT. OF INDUSTRIAL POLICY AND PROMOTION, MINISTRY OF COMMERCE & INDUSTRY, GOVERNMENT OF INDIA, LETTER DT. 5.10.2001 ISSUED BY THE DEVELOPMENT COMMISSIONER, SEEPZ, MINISTRY OF COMMERCE AND INDUSTRY, GOVERNMENT OF INDIA AND AUDIT REPORT IN FORM 56G ISSUED U/S 10B OF THE INCOME TAX ACT. IT WAS POINTED OUT THAT NO FRESH INDUSTRIAL LICENCE ETC. WAS OBTAINED BY THE ASSESSEE FOR ESTABLISHING A NEW UNIT. THE ASSESSEE HAS REQUESTED FOR EXTENSION IN THE INDUSTRIAL LICENCE ALREADY OBTAINED. IT IS ONLY INCREASE IN THE PRODUCTION CAPACITY OF THE EXISTING UNIT. SIN CE NO NEW UNIT CAME INTO EXISTENCE, NO QUESTION OF ALLOWING THE EXEMPTION U/S 10B ARISES. ON A QUERY FROM THE BENCH WHETHER ANY APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) FOR A.Y 2006 - 07 IN WHICH THE CIT(A), IN PURSUANCE OF GROUND NO. 5 TAKEN BY THE ASSESSEE AGAINST THE DENIAL OF THE EXEMPTION TO THE ASSESSEE BY THE AO U/S 10B, UNDER PARA 2.5.4 OF HIS ORDER TOOK THE VIEW THAT THE ASSESSEE ESTABLISHED NEW UNIT BUT DENIED THE SAME AS, IN HIS OPINION, THE NEW UNIT DID NOT COMPLY WITH T HE CONDITION AS APPROVAL WAS NOT GRANTED BY THE BOARD AS PER LICENCE DT. 26.12.1985 AND DEDUCTION IS TO BE ALLOWED ONLY UPTO 10 YEARS, THE LD. DR WAS FAIR ENOUGH TO CONCEDE THAT THE REVENUE HAS NOT GONE IN APPEAL AGAINST THE FINDING OF CIT(A) THAT THE ASSE SSEE ESTABLISHED A NEW UNDERTAKING AND THE FINDING OF THE CIT(A) ON THIS POINT HAS BECOME FINAL. HE WAS ALSO FAIR ENOUGH TO CONCEDE THAT THE TRIBUNAL VIDE ITS ORDER DT. 7.4.2011 IN ITA NO. 42/PNJ/2010 ALLOWED EXEMPTION TO THE ASSESSEE U/S 10B BY SETTING A SIDE THE ORDER OF CIT(A). 63 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) 5.3 THE LD. SR. ADVOCATE BEFORE US CONTENDED THAT THE BENEFIT OF EXEMPTION U/S 10B OF THE ACT WHICH REPRESENTS ALL THE PROFITS OF THE NEW UNIT I.E. GREATER FERRO - MET WAS ERRONEOUSLY DENIED BY OBSERVING THAT (I) TAX HOLIDAY FOR EOU IS 10 CONSECUTIVE YEARS AND THE ASSESSEE COMPANY HAS AVAILED IT SINCE 1991 - 92, (II) NO NEW UNIT HAS BEEN APPROVED BY THE DEVELOPMENT COMMISSIONER, S W EEPZ AS SEEN FROM THE LOP S. THE EXISTING UNIT WAS GRANTED EXTENSION UPTO A.Y 2005 - 06 , (III) O NE OF THE ESSENTIAL CONDITIONS OF SEC. 10B IS THAT IT SHOULD NOT BE FORMED BY TRANSFER OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE, (IV) THE CHARTERED ACCOUNTANT STATED THAT HE HAS RELIED UPON THE REPRESENTATION MADE BY THE COMPANY FOR T HE PURPOSE OF REPORTING U/S 10B RELYING MERELY ON THE REPRESENTATION MADE BY THE ASSESSEE COMPANY IN CONTRARY TO SEC. 10B OF THE INCOME TAX ACT. (V) LETTER DT. 5.10.2001 IS ADDRESSED TO M/S. FERRO - MET CONCENTRATES, A DIVISION OF SOCIEDADE FOMENTO INDUSTR IAL LTD., AND IT HAS BEEN PERMITTED TO CONTINUE AS A 100% EOU FOR A FURTHER PERIOD OF 5 YEARS FROM 2001 - 02 TO 2005 - 06. NO REFERENCE IS MADE AS TO SO CALLED DIVISION OF GREATER FERRO MET CONCENTRATES REFERRED BY THE ASSESSEE. (VI) LETTER DT. 20.6.2006 IS A DDRESSED TO M/S. GREATER FERRO - MET, A DIVISION OF SOCIEDADE DE FOMENTO INDUSTRIAL LTD., CONTINUING AS EOU FOR A FURTHER PERIOD OF 5 YEARS FROM 1.4.2006 ONWARDS FOR THE PERIOD OF 5 YEARS FROM 2006 - 07 TO 2010 - 11. THE ASSESSEE ESTABLISHED THE NEW UNIT IN F.Y 1998 - 99. THIS FACT IS APPARENT FROM THE FOLLOWING FACTS : 64 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) I) THE COMPANY MADE AN APPLICATION TO THE MINISTRY OF INDUSTRIES, DEPT. OF INDUSTRIAL DEVELOPMENT FOR SETTING UP INDUSTRIAL UNDERTAKING ON 10.2.1984. THE MINISTRY GRANTED APPROVAL VIDE ITS LETTER DT. 26.12.1985. ATTENTION WAS DRAWN TOWARDS PG. 1 - 30 OF THE PAPER BOOK. UNDER THIS LICENCE A UNIT CALLED FERRO - MET CONCENTRATES (REFERRED TO AS OLD UNIT) CAME INTO EXISTENCE IN WHICH THE COMMERCIAL PRODUC TION STARTED IN JULY, 1986. THIS UNIT WAS DESIGNED TO PRODUCE IRON ORE CONCENTRATES OF EXPORTABLE QUALITY WHEN THE RUN OF MINES (ROM) FED TO THE SAID PLANT WAS HAVING FE CONTENT OF 60% AND ABOVE. THIS UNIT WAS SET UP AT A TOTAL COST OF RS. 3 CRORES AND W AS HAVING PRODUCTION CAPACITY OF 2 LAC TONS PER ANNUM ONLY. THE SALIENT FEATURES OF THIS UNIT WERE A. FRESH WATER REQUIREMENT - 400 CUBIC METER PER HOUR B. FEED CAPACITY - 150 TONS PER HOUR C. PRODUCTION ACTIVITY INVOLVED WAS SCRUBBING, CRUSHING AN D DESLIMING. II) THIS UNIT SERVED ITS DESIGNED PURPOSE F ROM 1986 TO 1994 AS LONG AS THE MINE COULD SUPPORT PRODUCTION OF ROM ORE OF ABOVE 60 % FE CONTENT. I T WAS ANTICIPATED THAT BY 1994 THE FE CONTENT WOULD FALL BELOW 60 % RESULTING IN PRODUCTION OF NON - MARKETABLE ORE FROM THE OLD UNIT. THEREFORE, THE ASSESSEE ON 8.8. 1994 MADE AN APPLICATION FOR APPROVAL OF SETTING UP OF A NEW UNIT UNDER THE SAME INDUSTRIAL LICENSE. BY THE SAID APPLICATION THE ASSESSEE SOUGHT APPROVAL TO IMPORT DUTY FREE CAPITAL GOODS CO STING RS.7 CRORES AS ALSO INDIGENOUS PLANT AND MACHINERY, COMPONENTS, SPARES ETC. WORTH RS . 13 CRORES AND ALSO DUTY FREE IMPORTED AND INDIGENOUS SPARE PARTS OF RS.2 CRORES PER YEAR FOR 10 YEARS. AS A CONSEQUENCE OF THE FRESH INVESTMENT IT WAS EXPECTED THAT THE ANNUAL PRODUCTION CAPACITY WOULD STAND INCREASED FROM 2 LAC TONS TO 15 LAC TONS PER ANNUM AND PERMISSION WAS SOUGHT FOR THE SAME. APPROVAL FOR THIS NEW UNIT WAS ACCORDED TO THE COMPANY BY THE MINISTRY OF INDUSTRY ON 10 .11. 1994. PURSUANT TO THE APPROVA L AN AGREEMENT DT. 24.6. 1995 WAS ENTERED INTO BETWEEN 65 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) THE ASSESSEE COMPANY AND THE GOVERNMENT FOR FULFI LMENT OF THE EXPORT OBLIGATION . FOR THIS, ATTENTION WAS DRAWN TO PG. 31 - 41 OF THE PAPER BOOK. III) IT WAS STATED THAT THE INITIAL COST ESTIMATE GOT SHOT UP AND THEREFORE THE COMPANY MA D E REVISED APPLICATION FOR APPROVAL ON 2 .11.1 995 AND IT REQUESTED FOR ADDITIONAL IMPORT OF CAPITAL GOODS OF US $ 13,00,000/ - AND IMPORT OF SPARES OF US $ 3,00,000/ - PER ANNUM DURING THE PERIOD OF EXPORT. THE MINISTRY OF INDUSTRY ACCEDED TO THE REVISED APPLICATION BY ITS LETTER DT . 29 .2. 1996. PURSUANT TO THE APPROVAL , A FRESH AGREEMENT DT. 26 .8. 1996 FOR THE FULFILMENT OF THE EXPORT OBLIGATION OF THE NEW UNIT WAS EXECUTED BETWEEN THE ASSESSEE COMPANY AND THE GOVERNMENT ENH ANCING THE EXPORT OBLIGATIONS. ATTENTION WAS DRAWN TOWARDS PG. 42 - 47 OF THE PAPER BOOK. THUS, IT WAS CONTENDED THAT THE ASSESSEE WAS PERMITTED TO SET UP A NEW UNIT APPROVED AS 100% EOU. THE EXPORT OBLIGATION WOULD COMMENCE FROM THE DATE OF THE COMMENCEM ENT OF THE COMMERCIAL PRODUCTION OF THE NEW UNIT AND WOULD CONTINUE FOR A PERIOD OF 5 YEARS THEREAFTER. A GGREGATE EXPORT TURNOVER TO BE ACHIEVED BY THE NEW UNIT IN THE SAID 5 YEARS PERIOD WAS FIXED AT RS.13,512.19 LA CS COUPLED WITH VALUE ADDITION OF 86%. ALL THE TERMS AND CONDITIONS PRESCRIBED IN THE INDUSTRIAL LICENSE OF 1985 WERE MADE APPLICABLE TO THIS NEW UNIT. THE CONSTRUCTION OF THIS NEW UNIT CALLED THE GREATER FERRO - MET STARTED IN 1994 AND COMPLETED IN 1998. PRODUCTION ACTIVITY COMMENCED IN THE FINANCIAL YEAR 1998 - 99 RELEVANT TO THE ASST. YEAR 1999 - 2000. THE NEW UNIT WAS SETUP AT A COST OF OVER RS.30 CRORES. THIS UNIT IS FULLY INDEPENDENT UNIT WITH PRODUCTION CAPACITY OF 15 LAC TONS PER ANNUM AS COMPARED TO THE EARLIER CAPACITY OF 2 LAC TONS PER ANNUM OF OLD UNIT. THE NEW UNIT WAS BUILT TO ACHIEVE THE FOLLOWING CRITERIA VIZ. PRODUCTION OF EXPORTABLE, IMPROVED QUALITY PRODUCTS (HIGH FE, LOW ALUMINA) AT 75% , RECOVERY WEIGHT EVEN BY FEEDING SUB - GRADE ROM ORES OF BELOW 60% FE CONTENT WHICH PRODUCTION COULD NOT BE ACHIEVED BY THE OLD UNIT. THE STATUS OF 100% EOU TO 66 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) THE NEW UNIT WAS INITIALLY GIVEN FOR A PERIOD OF 5 YEARS AND WAS SUBSEQUENTLY EXTENDED BY TWO FUR THER TERMS OF 5 YEARS EACH (ENDING 2011). THE PRESENT OPERATING LICENSE ISSUED IN THE NAME OF GREATER FERRO - MET BY THE SAID AUTHORITY VIDE THEIR LETTER DT. 20 .4. 2006 IS FOR 5 YEARS STARTING FROM 1 .4.2006 AND ENDING WITH 31.03.2011. ATTENTION WAS DRAWN T O PG. 48 & 51 OF THE P APER B OOK). THE SALIENT FEATURES OF THE NEW UNIT ARE A. FRESH WATER REQUIREMENT - 300 CUBIC METER PER HOUR B. FEED CAPACITY - 300 TONS PER HOUR C. PRODUCTION ACTIVITY INVOLVED ARE : I. TWO STAGES SCRUBBING IN ATTRITION SCRUBBERS AND DESLIMING IN SCREW WASHERS IS DONE ON FINES TO ELIMINATE GANGUE CONSTITUENTS SUCH AS ALUMINA, SILICA AND TO IMPROVE FE CONTENT. II. LOG WASHERS ARE USED TO TREAT CALIBRATED LUMPY ORE TO BREAK ADHERING CLAY AND IMPROVE ITS FE CONTENT AND TUMLE R INDEX. III. TO RECOVER ULTRAFINE ORE FROM WASHINGS FINE - CUT HYDROCYCLONES ARE USED AS ROUGHER, SCAVENGER, DUTY. IV. HGMS (HIGH GRADIENT MAGNETIC SEPARATOR) IS USED AS CLEANER - SEPARATING EQUIPMENT, FOR RECOVERING HIGH QUALITY ULTRA FINES, FIRST TIME IN INDIA. IT HAD EVEN PROMPTED THE SECRETARY OF MINISTRY OF STEEL TO CONDUCT VISITATION TO THE PLANT. V. USE OF HYDROCYCLONE AND HGMS (HIGH GRADIENT MAGNETIC SEPARATOR) HAS MADE IT POSSIBLE TO RECOVER HIGH QUALITY ULTRA FINES BY REJECTING TAILINGS AT LESS THA N 42% FE AND LESS THAN 25% WEIGHT LOSS. VI. USE OF HIGH RATE THICKNER (HRT) FOR RECOVERY OF PROCESS WATER FOR RECIRCULATION BEFORE TAILINGS ARE DISCHARGED, HAS MADE IT POSSIBLE TO OPERATE THE GREATER FERRO - MET WITH ONLY 200 CUBIC METER PER HOUR OF FRESH WA TER, WHICH IS LESS THAN HALF OF THE WATER REQUIRED FOR OPERATION OF FERRO - MET. 67 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) VII. TAILINGS ARE CONDITIONED TO 50% SOLIDS BY WT., TO FACILITATE STORAGE IN SELF DRAINING STACKS WHICH OTHERWISE WOULD NOT HAVE BEEN POSSIBLE TO HANDLE NEARLY 0.5 MILLION TONS OF TAILINGS, ANNUALLY. VIII. ALL THE IRON ORE EXPORTED FROM 1998 ONWARDS WAS OF HIGH FE CONTENT PRODUCED BY THE NEW UN I T . THUS, IT WAS SUBMITTED THAT THE AO FAILED TO APPRECIATE : - I. THAT THE ASSESSEE COMPANY HAS AVAILED TAX HOLIDAY BENEFIT SINCE 1991 - 92 IS FACTUALLY INCORRECT. II. THAT THE NEW UNIT HAD COMMENCED PRODUCTION ONLY IN THE FINANCIAL YEAR 1998 - 99 RELEVANT TO ASSESSMENT YEAR 1999 - 2000 AND OWING TO LOSSES IN THE INITIAL YEARS DID NOT CLAIM DEDUCTION FOR ASSESSMENT YEAR 1999 - 2000 TO ASSESSMENT YEAR 2001 - 2002; III. THAT THE PERIOD OF 10 YEARS REFERRED TO IN SECTION 10 B(1) FOR THE NEW UNIT COMMENCES FROM ASSESSMENT YEAR 1999 - 00 AND CONCLUDES WITH ASSESSMENT YEAR 2008 - 09; IV . THAT THE OLD UNIT BECAME UNVIABLE DUE TO IT S INCAPACITY TO PRODUCE THE HI GH GRADE ORE OF ABOVE 63% FE BY FEEDING THE LOW GRADE ROM HENCE SETTING UP OF A NEW UNIT WAS PLANNED AND ACCORDINGLY, THE APPELLANT ON AUGUST 8, 1994 MADE AN APPLICATION FOR APPROVAL OF SETTING UP OF A NEW UNIT UNDER THE SAME INDUSTRIAL LICENSE; APPROVAL FOR THIS NEW UNIT WAS ACCORDED TO THE COMPANY BY THE MINISTRY OF INDUSTRY ON NOVEMBER 10, 1994; PURSUANT TO THE APPROVAL AN AGREEMENT DATED 24 TH JUNE , 1995 CAME TO BE ENTERED INTO BETWEEN THE COMPANY AND THE GOVERNMENT FOR FULFILMENT OF THE EXPORT OBLIGAT ION OF THE NEW UNIT; THEREAFTER CERTAIN MODIFICATIONS WERE MADE TO THIS APPROVAL AND THE NEW UNIT WAS FINALLY COMMISSIONED IN FINANCIAL YEAR 1998 - 99; 68 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) V . THAT SINCE ITS COMMISSIONING, THE NEW UNIT HAS BEEN OPERATING INDEPENDENTLY, I.E. ROM IS FED INTO THE N EW UNIT WHICH IS THEN BENEFICIATED TO PRODUCE VARIOUS TYPES OF MARKETABLE ORE; VI. THAT THE NEW UNIT HAS BEEN SETUP WITH A SUBSTANTIAL CAPITAL INVESTMENT OF OVER RS. 30 CRORES; VII. THAT THE NEW UNIT WAS COVERED UNDER THE E O U APPROVAL INITIALLY GIVEN FOR A PERIOD OF 5 YEARS, WHICH TERM WAS THEREAFTER EXTENDED BY TWO FURTHER TERMS OF 5 YEARS EACH (ENDING 2011); AND, THE PRESENT OPERATING LICENSE ISSUED IN THE NAME OF GREATER FERRO - MET BY THE SAID AUTHORITY VIDE THEIR LETTER DT. 20 TH APRIL, 2006 IS FOR 5 YE ARS STARTING FROM 1 ST APRIL 2006 AND ENDING WITH 3 1. 03.2011; VIII. THAT THE APPELLANT IS NOT REQUIRED TO PROCURE A NEW INDUSTRIAL LICENSE TO SET UP A NEW UNIT, IN THAT, SEVERAL UNITS COULD BE SET UP UNDER THE SAME INDUSTRIAL LICENSE; IX. THAT THE NEW UNIT WAS AND IS BEING GRANTED ALL THE BENEFITS UNDER 100% EXPORT - ORIENTED UNDERTAKING REGIME; X. THAT THE SIMULTANEOUS EXISTENCE OF THE OLD UNIT ALONGSIDE THE NEW UNIT SUPPORTS THE CLAIM OF THE APPELLANT UNDER SECTION 10 B OF THE ACT WITH RESPECT TO THE PROFITS DERIVED BY THE NEW UNIT; XI. THAT EVEN ASSUMING, WITHOUT ADMITTING, THAT THE FORMATION OF NEW UNIT IS ONLY A CASE OF CAPACITY EXPANSION, THE SUBSTANTIAL EXPANSION RESULTING INTO THE FORMATION OF A NEW INDEPENDENT UNIT AND SUCH NEW UNIT WOULD EQUALLY BE E NTITLED TO WHATEVER DEDUCTIONS THAT ARE PERMISSIBLE IN LAW; XII. THAT THERE WAS NO MATERIAL TO SUPPORT THE ALLEGATION / SUGGESTION THAT THE NEW UNIT WAS FORMED BY TRANSFER OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE, XIII. THAT THE PHOTOGRAPH ENC LOSED AT REGULAR ASSESSMENT STAGE (PG. 52 OF THE P APER B OOK) ESTABLISHES THAT THE OLD UNIT WHICH WAS NOT IN A POSITION TO 69 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) PRODUCE THE REQUIRED HIGH GRADE OF FE CONTENT ORE STANDS AS IT WAS AND THE NEW UNIT SETUP ADJACENT TO THIS OLD UNIT IS A STANDALONE UN IT CAPABLE OF PRODUCING ON IT S OWN; XIV. THAT THE TOTAL CAPITAL INVESTMENT IN THE NEW UNIT (BOTH IN INDIGENOUS AND IMPORTED MACHINERIES) IS OVER RS. 30 CRORES WHICH IS TEN TIMES OF THE CAPITAL INVESTMENT OF THE OLD UNIT, AND HENCE, EVEN ASSUMING WITHOUT AD MITTING, THE PLANT AND MACHINERIES OF OLD UNIT ARE REGARDED TO HAVE BEEN TRANSFERRED TO THIS NEW UNIT THEY ARE LESS THAN 20% IN VALUE WHEN COMPARED WITH THE TOTAL INVESTMENT OF THE NEW UNIT; XV. THAT THE STATEMENT MADE BY THE CHARTERED ACCOUNT IN THE ANNEXURE TO THE TAX AUDIT REPORT TO THE EFFECT THAT HE HAD RELIED UPON THE REPRESENTATIONS MADE BY THE COMPANY AND RELIED UPON BY THE ACCOUNTANT FOR THE PURPOSE OF REPORTING UNDER SECTION 10 B WAS NOT CONTRARY TO SECTION 10 B OF THE ACT, THAT THE CHARTERED A CCOUNTANT CORRECTLY CERTIFIED THE QUANTUM OF DEDUCTION AVAILABLE TO YOUR ASSESSEE IN THE PRESCRIBED FORM NO.56G (PG . 53 - 60 OF THE P APER B OOK) IN THAT BEING A NON - TECHNICAL PERSON HE HAD RELIED ON THE REPRESENTATIONS OF THE COMPANYS QUALIFIED TECHNICAL ENG INEER WITH REGARD TO THE OPERATIONAL ACTIVITIES OF THE NEW UNIT I.E. GREATER FERRO - MET (PG. 61 OF THE P APER B OOK). IT WAS VEHEMENTLY SUBMITTED THAT DETERMINATION TEST FOR ASCERTAINING WHETHER AN UNDERTAKING IS A NEW UNDERTAKING WERE LAID DOWN BY THE APEX COURT IN THE CASE OF TEXTILE MACHINERY CORPORATION LTD. VS. CIT, 107 ITR 195 . THE LD. SR. ADVOCATE CARRIED US TOWARDS THE DECISION. IT WAS SUBMITTED THAT IN THE ORIGINAL ASSESSMENT THE AO AFTER EXAMINING THE RECORD TOOK THE VIEW THAT GREATER FERRO - MET CO NCENTRATES IS A NEW UNIT AND ELIGIBLE FOR EXEMPTION U/S 10B AND ACCORDINGLY THE EXEMPTION U/S 10B WAS ALLOWED. THE CIT(A) VI, BANGALORE FOR A.Y 2006 - 07 VIDE HIS ORDER DT. 4.12.2009 AFTER EXAMINING THE FACTS IN TOTAL HELD THAT THE UNIT FORMED IN 1998 IS A NEW UNIT. OUR ATTENTION WAS DRAWN 70 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) TOWARDS THE RELEVANT OBSERVATION OF THE COMMISSIONER IN PARA 2.5.4 AT PG. 17 OF THE SAID ORDER. IT WAS POINTED OUT THAT THE FINDING OF THE CIT(A) FOR A.Y. 2006 - 07 HAS BEEN ACCEPTED BY THE REVENUE BY NOT FILING ANY SECO ND APPEAL BEFORE THE TRIBUNAL, PANAJI BENCH, GOA AND THE ITAT PANAJI BENCH, GOA VIDE ITS ORDER DT. 7.4.2011 ALSO NOTED THIS FACT WHILE DISPOSING OFF THE APPEAL FILED BY THE ASSESSEE IN ITA NO. 42/PNJ/2010 FOR A.Y. 2006 - 07 AGAINST THE ORDER CIT(A) DENYING D EDUCTION TO THE ASSESSEE ON THE GROUND THAT THE ASSESSEE DID NOT HAVE NECESSARY APPROVAL UNDER THE 100% EOU SCHEME AS REQUIRED U/S 10B OF THE INCOME TAX ACT FOR CONSIDERING IT A NEW UNIT. THIS TRIBUNAL VIDE ITS ORDER DT. 7.4.2011 ALLOWED THE APPEAL OF THE ASSESSEE ALLOWING EXEMPTION TO THE ASSESSEE U/S 10B. ON THE BASIS OF THE ORDER OF THIS TRIBUNAL , IT WAS CONTENDED THAT THE CASE OF THE ASSESSEE IS DULY COVERED AGAINST THE REVENUE AND THIS BENCH IS BOUND TO FOLLOW THE SAME. COMING TO THE MERITS OF THE CASE, RELIANCE WAS PLACED ON THE DECISION OF THE ITAT PANAJI BENCH IN THE CASE OF SESA GOA IN ITA NO. 89/PNJ/2012 FOR A.Y 2008 - 09. IT WAS VEHEMENTLY CONTENDED THAT THE NATURE OF THE PRODUCT MANUFACTURED BY THE ASSESSEE IS THE S AME AS IN THE CASE OF SESA GOA. ATTENTION WAS DRAWN TOWARDS THE PROVISIONS OF SEC. 10B AS WAS IN EXISTENCE DURING THE IMPUGNED ASSESSMENT YEAR. IT WAS POINTED OUT THAT CLAUSE (III) OF EXPLANATION DEFINES MANUFACTURE TO INCLUDE ANY PROCESS OR ASSEMBLING OR RECORDING OF PROGRAMMES O N ANY DIS C , TAPE, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE. THIS DEFINITION HAS BEEN REMOVED SUBSEQUENTLY BUT WAS APPLICABLE DURING THE IMPUGNED ASSESSMENT YEAR. IT WAS FURTHER SUBMITTED THAT THE GREATER FERRO - MET PRIMARILY CONSISTS OF (A) PRIMARY BENEFICIATION SECTION AND OTHER RELATED PLANT AND MACHINERY AND (B) SLIME TREATMENT PLANT. THE PRIMARY BENEFICIATION SECTION WAS COMMISSIONED ON 1.4.1998 AND THE SLIME TREATMENT PLANT WAS COMMISSIONED ON 1.10.1998. THE OLD UNIT WAS SET UP IN THE YEAR 1986 71 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) HAVING PRODUCTION CAPACITY OF 2 LAC TONS P.A. AND COULD BENEFICIATE THE ORE I.E. INCREASE THE FERROUS (FE) CONTENT BY MAXIMUM OF 2% BY FEEDING LOW GRADE OF ROM. OVER THE PERIOD, THE ORE DEPOSITS DEPLETED AND FE GRADE O RE HAS FALLEN DOWN AS LOW AS 56 - 57%. THE ORE PLANT COULD HAVE PRODUCED IRON ORE OF FE 58 - 59% WHICH COULD NOT MEET THE CONTRACTUAL REQUIREMENT AND WAS NOT COMMERCIALLY SALEABLE. THIS NEW UNIT IS CAPABLE OF INDEPENDENTLY PROCESSING ORE TO INCREASE THE FE C ONTENT AND REDUCE THE ALUMINA AND SILICA CONTENT. THE FINAL PRODUCT RANGES IN FE CONTENT BETWEEN 63 & 65% WHICH IS COMPARATIVELY SALEABLE IN THE INTERNATIONAL MARKET. OUR ATTENTION WAS ALSO DRAWN TOWARDS PG. 184 OF THE PAPER BOOK WHICH CONTAINS PHOTOGRAP H OF THE NEW PLANT. 5.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME ALONGWITH THE ORDER OF THE TAX AUTHORITIES BELOW. WE HAVE ALSO PERUSED THE VARIOUS CASE LAWS AS HAS BEEN REFERRED BEFORE US. WE HAVE ALSO GONE THROUGH THE VARIOUS DOCUMENTS IN THE PAPE R BOOK TO WHICH OUR ATTENTION WAS DRAWN DURING THE COURSE OF THE HEARING BY BOTH THE PARTIES. WE NOTED THAT A SIMILAR ISSUE HAD ARISEN IN A.Y 2006 - 07 WHEN THE AO REJECTED THE CLAIM OF THE ASSESSEE FOR EXEMPTION U/S 10B OF THE INCOME TAX ACT. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A) BY TAKING THE FOLLOWING GROUND : THAT THE AO ERRED IN REJECTING THE APPELLANTS CLAIM FOR DEDUCTION/EXEMPTION OF RS.90,75,14,396/ - U/S 10B OF THE INCOME TAX ACT. 5.4.1 THE CIT( A) ON THE BASIS OF THE MATERIAL AND DOCUMENTS, COPY OF WHICH HAS BEEN FILED BY THE ASSESSEE BEFORE US IN THE PAPER BOOK DURING THE COURSE OF THE HEARING AND WHICH HAS BEEN REFERRED TO AND RELIED ON BY BOTH PARTIES, ULTIMATELY TOOK THE VIEW UNDER PARA 2.5.4 THAT THE GREATER FERRO - MET IS A NEW INDUSTRIAL UNDERTAKING BUT HE TOOK THE VIEW THAT ALL THE NEWLY ESTABLISHED INDUSTRIAL UNDERTAKINGS ARE NOT ENTITLED FOR EXEMPTION U/S 10B. IT IS LIMITED ONLY 72 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) TO THE NEWLY ESTABLISHED 100% EOU AND ULTIMATELY BY REFERR ING TO THE PROVISIONS OF SEC. 10B(1), 10B(2), 10B(3) AND 10B(5) HE DENIED THE DEDUCTION TO THE ASSESSEE AS ACCORDING TO HIM THE NEWLY ESTABLISHED INDUSTRIAL UNDERTAKING WAS NOT APPROVED AS 100% EOU BY THE BOARD. THE RELEVANT FINDING OF CIT(A) DT. 4.12.200 9 ARE REPRODUCED AS UNDER : 2.5.4 IF THE RATIO LAID DOWN BY THE VARIOUS DECISIONS DISCUSSED ABOVE IS APPLIED TO THE CASE OF THE APPELLANT, THERE IS NO DOUBT THAT THE CAPITAL INVESTMENT IN THE EXISTING UNITS WAS RS 3 CRORES WHICH WAS INCREASED TO RS 30 CR ORES, SIMILARLY THE PRODUCTION CAPACITY WAS INCREASED FROM 2 LAKHS TONES PER ANNUM TO 15 LAKHS PER TONE PER ANNUM WHICH MAKE THE EXPANDED UNDERTAKING AS NEW INDUSTRIAL UNDERTAKING. HOWEVER, ALL THE ABOVE DECISIONS HAVE BEEN RENDERED IN THE CONTEXT OF SECT ION 15C OF INCOME TAX ACT 1922 AND SECTION 80J OF INCOME TAX ACT 1961. THE DEDUCTION UNDER SECTION 15C AND ALSO UNDER SECTION 80J WAS ALLOWABLE TO NEWLY ESTABLISHED INDUSTRIAL UNDERTAKING BUT NEW INDUSTRIAL UNDERTAKING WAS NOT DEFINED IN THOSE SECTIONS. HOWEVER, TO HOLD THE UNDERTAKING AS A NEW INDUSTRIAL UNDERTAKING, CERTAIN CONDITIONS WERE PUT IN THE SECTION TO ARRIVE AT THE CONCLUSION AS TO WHETHER THE INDUSTRIAL UNDERTAKING IS ELIGIBLE FOR DEDUCTION OR NOT. IT HAS BEEN OBSERVED BY THE HON'BLE MADRAS HIGH COURT THAT EVEN THOUGH, THE HEADING OF THE SECTION 80J INDICATES THAT DEDUCTION IS IN RESPECT OF THE NEWLY ESTABLISHED INDUSTRIAL UNDERTAKING BUT ANY UNDERTAKING WHICH FULFILLS ALL THE CONDITIONS LAID DOWN IN THE SECTION BECOME ELIGIBLE FOR DEDUCTION UNDER SECTION 80J. IN THE CASE OF THE APPELLANT, IF THE DEDUCTION UNDER SECTION 10B WAS ALLOWABLE TO THE NEW ESTABLISHED UNDERTAKING, THE DEDUCTION NEED BE ALLOWED IN VIEW OF THE JUDICIAL PRONOUNCEMENTS DISCUSSED ABOVE, BUT THE DEDUCTION UNDER SECTION 10B IS NOT ALLOWABLE TO ALL THE NEWLY ESTABLISHED INDUSTRIAL UNDERTAKING, BUT IT IS LIMITED ONLY TO NEWLY ESTABLISHED 100% EXPORT ORIENTED UNDERTAKING . WHICH IS EVIDENT FROM THE HEADING OF THE SECTION AND PLAIN READING OF SUB SECTION (1) OF SECTION 10B WHICH READS AS UNDER : SUBJECT TO THE PROVISIONS OF THIS SECTION, A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A HUNDRED PERCENT EXPORT ORIEN TED UNDERTAKING FROM THE EXPORT OF ARTICLE OR THING OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THI NGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE , SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE. THE HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING HAS BEEN DEFINED IN CLAUSE (IV) TO EXPLANATION 2 TO SECTION 10B AS UNDER : - 73 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING MEANS AN UNDERTAKING WHICH HAS BEEN APPROVED AS A HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING BY THE BOARD APPOINTED IN THIS BEHALF BY THE CENTRAL GOVERNMENT IN EXERCISE OF POWERS CONFERRED BY SECTION 14 OF THE INDUSTRIAL (DEVELOPMEN T AND REGULATION ACT 1951 AND THE RULES MADE UNDER THAT ACT (BOARD APPOINTED IN THIS BEHALF BY THE CENTRAL GOVERNMENT IN EXERCISE OF POWERS CONFERRED BY SECTION 14 OF THE INDUSTRIAL (DEVELOPMENT AND REGULATION ACT 1951 AND THE RULES MADE UNDER THAT ACT HEREUNDER REFERRED AS BOARD ) FROM THE ABOVE DEFINITION, IT IS CLEAR THAT THE UNDERTAKING WHICH HAVE BEEN APPROVED BY THE COMPETENT AUTHORITY AS MENTIONED IN CLAUSE (IV) OF EXPLANATION TO SECTION 10B SHALL ONLY BE ELIGIBLE FOR DEDUCTION UNDER SECTION 10B. NOW, IN THE CASE OF THE APPELLANT, IT IS ADMITTED FACT THAT THE FIRST APPLICATION FOR APPROVAL AS HUNDRED PERCENT EXPORT UNDERTAKING WAS FILED ON 13.02.1984. THE APPROVAL WAS GRANTED BY THE BOARD AS PER LETTER DATED 21.05.1984. IN THE APPROVAL, I T IS STATED THAT THE INDUSTRIAL UNDERTAKING FOR THE MANUFACTURE OF IRON ORE CONCENTRATE HAS BEEN APPROVED AS HUNDRED PERCENTAGE EXPORT ORIENTED UNDERTAKING BY THE BOARD SPECIALLY CONSTITUTED FOR APPROVAL OF HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING. IT IS ADMITTED BY THE APPELLANT THAT FERRO - MET CONCENTRATES DIVISION OF THE APPELLANT COMPANY WAS APPROVED AS HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING UNDER INDUSTRIAL LICENSE DATED 26.12.1985 FOR A PERIOD OF 10 YEARS. IT IS ALSO ADMITTED BY THE APPELLA NT THAT THE APPROVED UNIT COMMENCED COMMERCIAL PRODUCTION IN JULY 1986. THE APPELLANT CLAIMED DEDUCTION UNDER SECTION 10B FROM THE ASSESSMENT YEAR 1990 - 1991 ONWARDS. SECTION 10B WAS NOT IN STATUTE WHEN THE UNDERTAKING COMMENCED THE PRODUCTION IN JULY 1986 . SECTION 10B WAS INSERTED BY FINANCE ACT 1988 WITH EFFECT FROM 01.04.1989, THE SUB SECTION (1) OF WHICH READ AS UNDER : - SUBJECT TO THE PROVISIONS OF THE SECTION, ANY PROFITS AND GAINS AS ARE DERIVED BY AN ASSESSEE FROM A HUNDRED PERCENT EXPORT ORIENT ED UNDERTAKING (HEREAFTER IN THIS SECTION REFERRED TO THE UNDERTAKING) TO WHICH THE SECTION APPLIES SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. THE DEFINITION OF THE HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING WAS PROVIDED IN CLAUSE (I) TO EXPLANATION OF SECTION 10B WAS SAME AS EXISTING IN THE PRESENT SECTION. SUB SECTION (3) PROVIDED THAT THE PROFITS AND GAINS REFERRED TO IN SUB SECTION (1) SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE IN RESPECT OF ANY TEN CONSECUTIVE ASSESSMENT YEARS, BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE, OR PRODUCE ARTICLES OR THING . SUB SECTION (5) OF SECTION 10B WITH EFFECT FROM 01.04.1989 READ AS UNDER : - WHERE THE UNDE RTAKING HAS BEGAN TO MANUFACTURE OR PRODUCE ARTICLES OR THING IN 74 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING BEFORE THE FIRST DAY OF APRIL 1989, THE ASSESSEE MAY, AT HIS OPTION, BEFORE THE DUE DATE FOR FURNISHING THE RETURN OF HIS INCOME U NDER SUB SECTION (1) OF SECTION 139 FOR THE ASSESSMENT YEAR COMMENCING ON 1 ST DAY OF APRIL 1989, FURNISH TO THE ASSESSING OFFICER A DECLARATION IN WRITING THAT THE PROVISIONS OF SUB SECTION (1) MAY BE MADE APPLICABLE TO HIM FOR ANY FIVE CONSECUTIVE ASSESSM ENT YEARS FALLING WITHIN A PERIOD OF 8 YEARS BEGINNING WITH THE ASSESSMENT YEAR COMMENCING ON THE 1 ST DAY OF APRIL 1989, AND IF HE DOES SO, THEN, THE PROVISIONS OF SUB SECTION (1) SHALL APPLY TO HIM FOR EACH OF SUCH ASSESSMENT YEAR AND THE PROVISION OF SUB SECTION (4) APPLY IN COMPUTING THE TOTAL INCOME OF THE ASSSSEE FOR THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE LAST OF SUCH ASSESSMENT YEAR AND ANY SUBSEQUENT ASSESSMENT YEARS. THE APPELLANT, ACCORDING TO THIS SUB SECTION CLAIMED THE DEDUCTION UNDER SECTION 10B FROM ASSESSMENT YEAR 1990 - 1991 ONWARDS. HOWEVER, DUE TO SUBSTITUTION OF SECTION 10B WITH EFFECT FROM 01.04.2001, IN VIEW OF PROVISO TO SUB SECTION (1) OF SECTION 10B THE APPELLANT BECOME ELIGIBLE FOR DEDUCTION FOR UNEXPIRED PERIOD OF TEN CONSE CUTIVE ASSESSMENT YEARS. NOW THE ISSUE FOR DETERMINATION HERE IS AS TO WHETHER THE UNDERTAKING ON WHICH THE DEDUCTION IS NOW CLAIMED UNDER SECTION 10B IS THE UNDERTAKING WHICH HAVE BEEN APPROVED BY THE BOARD AS REFERRED IN CLAUSE (IV) OF EXPLANATION 2 TO SECTION 10B. TO ARRIVE AT THIS CONCLUSION, IT IS NECESSARY TO GO THROUGH THE CORRESPONDENCE MADE BY THE APPELLANT WITH THE GOVERNMENT OF INDIA AND THE RESPONSE OF THE GOVERNMENT OF INDIA ON SUCH CORRESPONDENCE. THE ANALYSIS OF THESE CORRESPONDENCE IS GIVEN AS UNDER : - (I) FERRO MET CONCENTRATES (PROPOSED HUNDRED PERCENT EXPORT ORIENTED UNIT) DIVISION OF THE APPELLANT COMPANY FILED AN APPLICATION ON 10.02.1984 TO THE SECRETARY, MINISTRY OF INDUSTRIES, NEW DELHI FOR OBTAINING APPROVAL GOVT. OF INDIA A S HUNDRED PERCENT EXPORT ORIENTED UNIT. (II) THE GOVT. OF LNDIA, MINISTRY OF INDUSTRY AS PER LETTER DATED 21.05.1984, INFORMED THAT THE GOVT. ARE PREPARED TO ISSUE AN INDUSTRIAL LICENSE UNDER THE INDUSTRIES (DEVELOPMENT & REGULATION ACT 1951) FOR ESTABLIS HMENT OF NEW UNDERTAKING UNDER THE HUNDRED PERCENT EXPORT ORIENTED SCHEME FOR THE MANUFACTURE OF IRON ORE CONCENTRATES OF ANNUAL CAPACITY OF 2 LAKHS TONS. IN PARA 3 OF THIS LETTER THE APPROVAL IS COMMUNICATED AS PLEASE NOTE THAT YOUR INDUSTRIAL UNDERTAKI NG FOR THE MANUFACTURER OF IRON ORE CONCENTRATES (PELLETS) IS A HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING AND, THEREFORE, YOUR APPLICATION FOR MANUFACTURE OF IRON ORE CONCENTRATES (PELLETS) WAS CONSIDERED AN APPROVED BY THE SPECIALLY CONSTITUTED BOARD FO R APPROVAL FOR HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING FORMED UNDER RESOLUTION NO.8(15/78 - EP DATED 31.12.1980) ISSUED BY THE MINISTRY OF COMMERCE. ALL THE CONCESSIONS/FACILITIES WHICH ARE AVAILABLE TO 75 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING WILL BE AVAILABLE TO YOUR UNDERTAKING ALSO . (III) IN THE TERM OF THE CONDITIONS OF THE APPROVAL THE APPELLANT ENTERED IN TO A LEGAL AGREEMENT IN FORM APPENDIX 42 ON 24.08.1984 IN THIS AGREEMENT THE REFERENCE TO THE APPROVAL DATED 21.05.1984 IS INCORPORATED AS UNDER: WHEREAS THE GOVT. HAS COMMUNICATED VIDE LETTER DATED 21.05.1984 TO THE UNIT THE TERMS AND CONDITIONS FOR SETTING UP THE HUNDRED PERCENT EXPORT ORIENTED UNIT FOR THE MANUFACTURE OF IRON ORE CONCENTRATES AND THE UNIT HAS DULY ACCEPTED THE SAID TERMS AND CONDITIONS VIDE THEIR LETTER NO.PCH/29/84 DATED 16 TH JULY 1984. IN PARA 2 OF THE AGREEMENT IT IS AGREED THAT THE UNIT SHALL INTIMATE THE DATE OF COMMENCEMENT OF PRODUCTION FOR HUNDRED PERCENT EXPORT WITHIN ONE MONTH OF SUCH DATE TO THE CONCERN ASST. CHIEF CONTROLLER OF IMPORTS AND EXPORTS, PANJIM - GOA. (IV) BY LETTER DATED 26.12.1985 DEPARTMENT OF INDUSTRIAL DEVELOPMENT GOVERNMENT OF INDIA, IN REFERENCE TO THE APPLICATION DATED 13.02.1984 GRANTED THE LICENSE TO THE APPELLANT SUBJECT TO THE CONDITIONS MENTIONED THEREIN. PARA 7 OF THIS LETTER REPEATED THE CONDITIONS THAT PLEASE NOTE THAT YOUR INDUSTRIAL UNDERTAKING FOR THE MANUFACTURER OF IRON ORE CONCENTRATES (PELLETS) IS A HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING AND, THEREFORE, YOUR APPLICATION F OR MANUFACTURE OF IRON ORE CONCENTRATES (PELLETS) WAS CONSIDERED AN APPROVED BY THE SPECIALLY CONSTITUTED BOARD FOR APPROVAL FOR HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING FORMED UNDER RESOLUTION NO.8(15/78 - EP DATED 31.12.1980) ISSUED BY THE MINISTRY OF C OMMERCE. ALL THE CONCESSIONS/FACILITIES WHICH ARE AVAILABLE TO HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING WILL BE AVAILABLE TO YOUR UNDERTAKING ALSO . (V) THE APPELLANT MADE AN APPLICATION TO THE SECRETARY, MINISTRY OF COMMERCE GOVT OF INDIA ON 8/8/1994 IN WHICH IT WAS REQUESTED TO THE GOVT THAT IN TERM OF LICENSE NO.LI - 368(84)/IV - O.M 49 (84)/IL DATED 21.05.1984, SUBSEQUENTLY CONVERTED INTO INDUSTRIAL LICENSE ------ DATED 26.12.1985. WE WERE ALLOWED TO ESTABLISHED A NEW INDUSTRIAL UNDERTAKING --------- NOW WE WISH TO MODERNIZE AND SUBSTANTIALLY EXPAND OUR PLANT AND MACHINERY TO BE ABLE TO MAINTAIN COMPETITIVENESS OF OUR PRODUCT IN OVERSEAS OR IN OUR MARKET WHICH WILL KEEP PHASE WITH MODERN DEVELOPMENT ------- WILL RESULT IN SUBSTANTIAL EXPANSION , IN TH IS CASE MORE THAN THREE HUNDRED PERCENT OF THE ORIGINAL GROSS BLOCK VALUE ---- IT IS THEREFORE REQUESTED THAT THE APPROVAL / SANCTION MAY PLEASE BE GRANTED FOR : (1) INCREASING ANNUAL CAPACITY TO 15 LAKH TONS (2) DUTY FREE IMPORT OF PLANT AND MACHINERY CO STING RS.7 CRORES. (3) PROCURING FREE OF EXCISE DUTY AND SALES TAX, INDIGENOUS PLANT AND MACHINERY, COMPONENTS, SPARES, CONSUMABLE, ETC., VALUED AT 13 CRORES. 76 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) (4) DUTY FREE IMPORTED AND INDIGENOUS (EXCISE, SALES TAX FREE) SPARE PARTS RS 2 CRORES, EVERY YEA R, FOR 10 YEARS. * THE MAIN REASON FOR IMPORT AND/OR DOMESTIC CONSUMPTION OF SPARES WORTH RS 2 CRORES, EVERY YEAR, FOR 10 YEARS IS TO MAINTAIN THE QUALITY OF OUR PRODUCT TO BE COMPETITIVE, KEEPING IN VIEW THE TECHNOLOGICAL DEVELOPMENTS IN OVERSEAS COUNTRIES AND TO MAINTAIN T HE PLANT AT THE STATE OF ART LEVEL. IT MAY BE NOTED THAT IRON ORE BEING VERY ABRASIVE COMMODITY, A LOT OF WEAR AND TEAR PLACE ON THE PLANT. OUR EFFORTS, HOWEVER, WILL BE TO INDIGENIZE, WHEREVER POSSIBLE, AS WE HAVE DONE IN THE PAST. IN REFERENCE TO ABOVE APPLICATION, THE UNDER SECRETARY TO THE GOVT. OF INDIA, DEPT OF INDUSTRIAL DEVELOPMENT, AS PER LETTER DATED 10.11.1994 COMMUNICATED TO THE APPELLANT AS UNDER : - I AM DIRECTED TO REFER TO YOUR LETTER ADDRESSED TO MINISTRY OF COMMERCE ON THE ABOVE SUBJECT AND TO SAY THAT YOU PROPOSED TO UNDERTAKE MODERNIZATION AND SUBSTANTIAL EXPANSION OF THE PROJECT IT IS ALSO MENTIONED IN THE LETTER THAT CONSEQUENT UPON SUBSTANTIAL EXPANSION OF THE PROJECT THE VALUE OF ADDITION OF THE PROJECT STANDS REVISED FROM 57% TO 85% AS PER NEW FORMULA ------- THE PARA 6 OF THE LETTER STATES THAT THE INDUSTRIAL LICENSE DATED 26.12.1985 UNDER REFERENCE MAY DEEMED TO HAVE BEEN AMENDED TO THE ABOVE EXTENT (VI) AN APPLICATION WAS MADE ON NOVEMBER 2 , 1995 TO THE SECRETARY GOVERNMEN T OF INDIA ON THE SUBJECT EXTENTION OF EOU STATUS FOR 5 YEARS. THIS APPLICATION STARTS AS WE ARE 100% EXPORT ORIENTED UNIT OPERATING UNDER THE INDUSTRIAL LICENSE NO CIL - 420(85) DATED 26/12/1985 . IT WAS REQUESTED BY THIS APPLICATION FOR EXTENTION OF 10 0% EOU STATUS FOR FURTHER PERIOD OF 5 YEARS W.E.F. 27.12.1995 AND ONE TIME APPROVAL OF IMPORT OF CAPITALIZED GOODS. (VII) AS PER LETTER DATED 29/2/1996, UNDER SECRETARY TO GOVERNMENT OF INDIA, MINISTRY OF INDUSTRY INFORMED THAT I AM DIRECTED TO REFER TO YOUR LETTER ADDRESSED TO THE MINISTRY OF COMMERCE (EP DIVISON) ON THE ABOVE SUBJECT. IT IS NOTED THAT THE EXPORT OBLIGATION TO THE PERIOD OF 10 YEARS IN RESPECT OF YOUR 100% EOU PROJECT, COVERED BY THE INDUSTRIAL LICENSE DATED 26/12/1985 WILL BE EXPIRING IN OCTOBER 1996 AND YOU WISH TO CONTINUE AS 100% EOU FOR A PERIOD OF 5 YEARS BEYOND OCTOBER 1996 ONWARDS. PARA.2 OF THE LETTER READS AS IN VIEW OF THE POSITION EXPLAINED ABOVE, GOVT PERMIT YOU TO CONTINUE AS 100% EOU FOR FURTHER PERIOD OF 5 YEARS IT IS MENTIONED IN PARA 6 THAT THE INDUSTRIAL LICENSE ISSUED ON 26/12/1985 REFERENCE STANDS AMENDED TO THE ABOVE EXTENT. (VIII) THE DEVELOPMENT COMMISSIONER GOVERNMENT OF INDIA AS PER LETTER DATED 5.10.2001, IN REFERENCE TO INDUSTRIAL LICENSED ---------- DATED 26/12/1985 FOR MANUFACTURE OF IRON ORE CONCENTRATES UNDER 100 % EOU SCHEME WITH REFERENCE TO REQUEST FOR EXTENTION OF 100% EOU STATUS. IN THIS LETTER IN PARA 2 IT IS STATED 77 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) THAT IN VIEW OF THE POSITION EXPLAINED ABOVE, THE DEVELOPMENT COMMISSIONER SEEPZ, PERMITS YOU TO CONTINUE AS 100% EOU FOR A FURTHER PERIOD OF 5 YEARS FROM 2001 TO 2005 - 06 IT IS ALSO MENTIONED IN PARA 4 OF THIS LETTER THAT THE INDUSTRIAL LICENSE NO. ------- DATED 26/12/1985 AS AMENDED UNDER REFERENCE STANDS AMENDED TO THE ABOVE EXTEN T W.E.F.1.4.2001. THE PARA NO.8 OF THE LETTER ALSO STATES THAT ALL OTHER TERMS AND CONDITIONS MENTIONED IN THE INDUSTRIAL LICENSE NO. ------- -- DATED 26/12/1985 SHALL REMAIN UNCHANGED. (IX) THERE IS ANOTHER LETTER DATED 20.04.2006 FROM THE ASST. DEVELOPM ENT COMMISSIONER IN WHICH IT IS STATED THAT I AM DIRECTED TO REFER TO YOUR LETTER DATED 29/3/2006 ON THE SUBJECT STATED ABOVE AND TO SAY THAT IN VIEW OF THE POSITION EXPLAINED THEREIN, THE DEVELOPMENT COMMISSIONER, AS SEEPZ SEZ, APPROVES YOUR REQUEST TO CONTINUE AS EOU FOR FURTHER PERIOD OF 5 YEARS FORM 1.4.2006 ONWARDS . IN PARA 3 OF THE LETTER IT IS STATED THAT INDUSTRIAL LICENSE DATED 26/12/1985 IS AMENDED TO THE ABOVE EXTENT AND PARA 6 STATES THAT OTHER TERMS AND CONDITIONS MENTIONED IN THE LICENSE ST ATED SHALL REMAIN UNCHANGED. (X) THE AUDIT REPORT IN FORM 56G FILED WITH THE RETURN OF INCOME TO CLAIM DEDUCTION UNDER SECTION 10B, REVEALS THE FOLLOWING FACTS: (A) FERRO - MAT CONCENTRATES A DIVISION OF THE APPELLANT COMPANY WAS APPROVED AS 100% EOU UNDER INDUSTRIAL LICENSE DATED 26.12.1985 FOR A PERIOD OF 10 YEARS. THE APPELLANT CLAIMED EXEMPTION UNDER SECTION 10B FROM THE ASSESSMENT YEAR 1990 - 91 ONWARDS. (B) THE IND USTRIAL LICENSE WAS EXTENDED FOR A FURTHER PERIOD OF 5 YEARS BEYOND OCTOBER 1996 AND IT WAS FURTHER EXTENDED FOR A FURTHER PERIOD OF 5 YEARS FROM 01.04.2001 ONWARDS. (C) IT WAS CLAIMED BEFORE THE CHARTERED ACCOUNTANT ISSUING THE AUDIT CERTIFICATE THAT OLD 100% EOU FERROMET CONCENTRATES IS OBSOLETE, ECONOMICAL NON VIABLE AND CANNOT PRODUCE THE EXPORTABLE QUALITY OF ORE ON ITS OWN WITHOUT NEW PLANT AND MACHINERY OF GREATER FERROMET. THUS THE COMPANY CLAIMS THAT ENTIRE PRODUCTION ;AND SALE OF ORE IS RELATABLE TO GREATER FERROMET 100% EOU DIVISION AND IS ELIGIBLE FOR 100 % TAX BENEFIT UNDER SECTION 10B OF THE INCOME TAX ACT 1961. (D) THE PBS AND OTHER RELATED PLANT AND MACHINERY WERE COMMISSIONED ON 01.04.1998 AND SLIME TREATMENT PLANT WAS COMMISSIONED ON 01 .10.1998. (E) THE FERROMET DIVISION COMMENCED ITS OPERATION IN FINANCIAL YEAR 1998 - 1999 RELEVANT TO ASSESSMENT YEAR 1999 - 2000 IS ACCORDINGLY ELIGIBLE FOR DEDUCTION UNDER SECTION 10B FOR 10 ASSESSMENT YEARS. HOWEVER, THE COMPANY 78 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) HAS NOT CLAIMED THE DEDU CTION FOR ASSESSMENT YEAR 1999 - 2000 TO ASSESSMENT YEAR 2001 - 2002. (F) A SEPARATE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT AS ON 31 ST MARCH 2006 WAS PRODUCED BEFORE THE AUDITOR. THE FACTS WHICH ARE EMERGES FROM THE ABOVE CORRESPONDENCE ARE ANALYZED HER E UNDER: - (I) THE HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING WAS APPROVED BY THE COMPETENT BOARD FIRST AS PER THE LETTER DATED 21.05.1984 AND SUBSEQUENTLY, AS THE APPELLANT COULD NOT COMMENCE THE PRODUCTION WITHIN THE TIME, THE APPROVAL WAS GRANTED AS PE R LETTER DATED 26.12.1985. IN BOTH THESE APPROVALS, IT HAS BEEN MENTIONED THAT THE UNDERTAKING HAS BEEN APPROVED BY THE BOARD CONSTITUTION FOR THIS PURPOSE AND ALL THE CONCESSIONS/FACILITIES WHICH ARE AVAILABLE TO THE HUNDRED PERCENT EXPORT ORIENTED UNDER TAKING WILL BE AVAILABLE TO THE UNDERTAKING. (II) ON 08.08.1994, THE APPELLANT APPROACHED TO THE GOVERNMENT OF INDIA WITH A REQUEST THAT IT WANT TO MODERNIZE AND SUBSEQUENTLY EXPAND THE PLANT AND MACHINERY TO MAINTAIN COMPETITIVENESS OF THEIR PRODUCT IN O VERSEAS MARKET. A REQUEST WAS MADE TO GRANT SANCTION FOR INCREASING ANNUAL CAPACITY, DUTY FREE IMPORT OF PLANT AND MACHINERY, CONCESSION IN EXERCISE DUTY AND SALES TAX FOR PURCHASE OF INDIGENOUS PLANT AND DUTY FREE IMPORT OF INDIGENOUS SPARE PARTS OF RS 2 CRORES EVERY YEAR. THE GOVERNMENT OF INDIA APPROVED THE SCHEME OF MODERNIZATION AND EXPANSION OF THE PLANT AS PER LETTER DATED 10.11.1994. HOWEVER, IT WAS CLEARLY MENTIONED THAT THE INDUSTRIAL LICENSE DATED 26.12.1985 IS AMENDED TO THE ABOVE EXTENT. THE AP PROVAL FOR EXPANSION WAS NOT GIVEN BY THE BOARD APPOINTED UNDER THE INDUSTRIAL (DEVELOPMENT AND REGULATION) ACT 1951, BUT BY THE CONCERNED DEPARTMENT OF THE GOVERNMENT OF INDIA. FURTHER, THROUGH THIS LETTER NO FRESH LICENSE WAS GRANTED, IT IS IN CONTINUATI ON TO THE LICENSE DATED 26.12.1985. (III) AS PER LETTER DATED 02.11.1995, THE APPELLANT SOUGHT AN EXTENSION OF EOU STATUS FOR FIVE YEARS. IT IS CLEARLY MENTIONED BY THE APPELLANT THAT IT WANT EXTENSION OF HUNDRED PERCENT EXPORT ORIENTED UNIT OPERATING UN DER THE INDUSTRIAL LICENSE DATED 26.12.1985. THE GOVERNMENT RESPONDED THROUGH LETTER DATED 29.02.1996 IN WHICH THE GOVERNMENT PERMITTED THE APPELLANT TO CONTINUE AS HUNDRED PERCENT EXPORT ORIENTED FOR FURTHER PERIOD OF FIVE YEARS BEYOND OCTOBER 1996. NOWHE RE IN THIS LETTER, IT HAS BEEN MENTIONED THAT THE APPROVAL HAS BEEN GRANTED BY THE BOARD APPOINTED FOR THE PURPOSE OF APPROVING HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING. HERE ALSO, IT IS CLARIFIED THAT THE ORIGINAL INDUSTRIAL LICENSE IS AMENDED TO THE ABOVE EXTENT. 79 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) (IV) THROUGH THE LETTER DATED 05.10.2001, IT IS CLEARLY MENTIONED THAT THE INDUSTRIAL LICENSE DATED 26.12.1985 IS PERMITTED TO CONTINUE AS HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING FOR FURTHER PERIOD OF FIVE YEARS FROM 2001 - 2002 TO 2005 - 2006. THIS APPROVAL WAS ALSO GRANTED BY THE DEVELOPMENT COMMISSIONER AND NOT BY THE BOARD APPOINTED FOR THIS PURPOSE. (V) THE FIRST TIME THE LETTER DATED 24.02.2006 WRITTEN BY ASST DEVELOPMENT COMMISSIONER SEEPZ, OFFICE OF DEVELOPMENT COMMISSIONER, MUMBAI, IS ADDRESSED TO M/S GREATER FERRO MET, DIVISION OF SOCIEDADALE FORMENTO INDUSTRIAL PVT LTD., IT IS STATED IN REFERENCE TO THE LETTER DATED 29.03.2006, THE DEVELOPMENT COMMISSIONER HAS APPROVED THE REQUEST OF THE APPELLANT TO CONTINUE AS EOU FOR FUR THER PERIOD OF FIVE YEARS FROM 01.04.2006 ONWARDS. HERE ALSO, THE EXTENSION HAS BEEN GRANTED IN REFERENCE TO INDUSTRIAL LICENSE DATED 26.12.1985. ALL THE ABOVE FACTS PROVES BEYOND DOUBT THAT EXCEPT THE UNDERTAKING WHICH WAS APPROVED BY THE BOARD CONST ITUTED FOR THE PURPOSE OF THE GRANTING HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING WAS THE UNDERTAKING APPROVED AS PER LICENSE DATED 26.12.1985. IN SUBSEQUENT REQUEST FOR MODERNIZATION OR EXTENSION, THERE WAS NO APPROVAL FROM THE BOARD. AS PER PROVISIONS OF SECTION 10B, THE UNDERTAKING WHICH IS ELIGIBLE FOR DEDUCTION IS THE UNDERTAKING WHICH HAVE BEEN APPROVED AS HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING BY THE BOARD. THE UNDERTAKING ADMITTEDLY AVAILED THE DEDUCTION UNDER SECTION 10B OF THE INCOME TAX ACT FROM ASSESSMENT YEAR 1990 - 1991 ONWARD. AS PER PROVISO TO SUB SECTION (1) OF SECTION 10B, WHERE IN COMPUTING THE TOTAL INCOME OF THE UNDERTAKING FOR ANY ASSESSMENT YEAR, ITS PROFITS AND GAINS HAS NOT BEEN INCLUDED BY APPLICATION OF THE PROVISION OF T HE SECTION AS IT IS STOOD IMMEDIATELY BEFORE ITS SUBSTITUTION BY THE FINANCE ACT 2000, THE UNDERTAKING SHALL BE ENTITLED TO THE DEDUCTION REFERRED TO IN THIS SUB SECTION ONLY FOR THE UNEXPIRED PERIOD OF AFORESAID TEN CONSECUTIVE ASSESSMENT YEARS . THE UNEX PIRED PERIOD EXPIRES IN ASSESSMENT YEAR 1999 - 2000. THEREFORE, THE DEDUCTION UNDER SECTION 10B FOR THE EXPANDED AND MODERNIZED UNDERTAKING CANNOT BE ALLOWED BEYOND THE TEN CONSECUTIVE ASSESSMENT YEARS TO THE UNDERTAKING TO WHICH THE APPROVAL WAS GRANTED BY THE BOARD AS PER LICENSE DATED 26.12.1985. THERE IS NO APPROVAL BY THE BOARD, AFTER 26.12.1985, IT IS ALSO CLEAR FROM THE SUBSEQUENT APPROVALS THAT THE APPELLANT WILL ONLY BE ELIGIBLE FOR CERTAIN RELIEFS LIKE DUTY FREE IMPORT, EXCISE DUTY AND SALES TAX AS NARRATED IN THOSE LETTERS. HOWEVER, ALL OTHER CONCESSIONS WHICH INCLUDES DEDUCTION UNDER SECTION 10B ALSO SHALL NOT BE AVAILABLE AS THE SAME WAS ALLOWED ONLY THROUGH APPROVAL DATED 21.05.1985 AND 26.12.1985. DURING THE COURSE OF THE HEARING, THE AP PELLANT REPEATEDLY DRAWN THE ATTENTION TOWARDS THE AGREEMENT ENTERED AND ARGUED THAT NEW HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING WAS APPROVED. HOWEVER THE APPELLANT FAILED TO SUBSTANTIATE THAT THE APPROVAL WAS 80 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) GRANTED BY THE BOARD THEREFORE, IN VIEW OF THE FACT THAT NO SEPARATE APPROVAL WAS GRANTED BY THE BOARD AFTER THE LICENSE WAS ISSUED ON 26.12.1985, SUBSEQUENTLY, THE CONCESSIONS SOUGHT BY THE APPELLANT WERE ALLOWED BY THE GOVERNMENT BY EXTENDING THE PERIOD OF EOU UNIT FOR FURTHER PERIOD. FOR EXAMPLE AS PER THE LETTER DATED 08.08.1994 THE APPELLANT REQUESTED FOR DUTY FREE IMPORT OF PLANT AND MACHINERY COSTING RS 7 CRORES, PROCURING FREE OF EXCISE DUTY AND SALES TAX, INDIGENOUS PLANT AND MACHINERY, COMPONENT, SPARES, CONSUMABLES VALUED AT RS 13 CRORES AND DUTY FREE IMPORTED AN INDIGENOUS (EXCISE COMMERCIAL TAX FREE) SPARE PARTS OF RS 2 CRORES FOR EVERY YEAR FOR TEN YEARS. THE GOVERNMENT APPROVED THE CONCESSIONS SOUGHT, THE AGREEMENT WITH THE DEVELOPMENT COMMISSIONER WAS MADE NECESSARY TO ENSURE T HAT APPELLANT SHOULD NOT ONLY GET CONCESSIONS BUT SHOULD ALSO FULFILL THE TARGET OF EARNING MINIMUM NET FOREIGN EXCHANGE. IT IS ALSO AGREED THAT IF THE UNDERTAKING FAILS TO FULFILL THE EXPORT OBLIGATION, THE AMOUNT OF THE CUSTOM DUTIES/EXCISE DUTY ALONG W ITH THE INTEREST @ 18% FROM THE DATE OF THE IMPORT SUPPLY WILL BE RECOVERED ACCORDING TO THE PROVISIONS OF THE CUSTOM ACT 1962 AND CENTRAL EXCISE AND SALT ACT 1944. SIMILARLY AS PER THE LETTER DATED 02.11.1995, A REQUEST WAS MADE FOR APPROVING ONE TIME IM PORT OF CAPITALIZED GOODS INCLUDING SPARES OF US DOLLAR RS 35,00,000/ - AND IMPORT SPARES OF US DOLLAR RS 3,00,000/ - PER ANNUM DURING THE EXTENDED PERIOD OF EXPORT. THE GOVERNMENT APPROVES THE REQUEST OF THE APPELLANT AS PER LETTER DATED 19.02.1996 TO IMPOR T ADDITION CAPITAL GOODS WORTH RS 1,225 LAKHS FOR THE PROJECT AS AGAINST THE ADDITIONAL CAPITAL GOODS WORTH RS 700 LAKHS APPROVED AS PER LETTER DATED 10.11.1994. AS PER LETTER DATED 05.10.2001, THE EXTENSION OF HUNDRED PERCENT EOU WAS EXTENDED FOR FIVE YEA RS FROM 2001 - 2002 TO 2005 - 2006 SUBJECT TO THE CONDITIONS MENTIONED IN THE LETTER. SIMILARLY AS PER LETTER DATED 20.04.2006 THE DEVELOPMENT COMMISSIONER EXTENDED THE STATUS OF EOU FOR FURTHER PERIOD OF FIVE YEARS FROM 01.04.2006. WITHOUT APPROVAL FROM THE BOARD NO UNDERTAKING WILL BE ELIGIBLE FOR DEDUCTION UNDER SECTION 10B, THIS IS ALSO EVIDENT FROM THE CIRCULAR NO.1 OF 2005 ISSUED BY THE CBDT ON 06.01.2005, THE RELEVANT PARAS OF THE ABOVE CIRCULAR ARE REPRODUCED HEREUNDER : - 3. REPRESENTATIONS HAVE BE EN RECEIVED FROM VARIOUS QUARTERS AS TO WHETHER AN UNDERTAKING SET UP IN DOMESTIC TARIFF AREA, WHICH IS SUBSEQUENTLY APPROVED AS 100% EOU BY THE BOARD APPOINTED BY THE CENTRAL GOVERNMENT IN EXERCISE OF POWERS CONFERRED UNDER SECTION 14 OF THE INDUSTRIES (D EVELOPMENT AND REGULATION) ACT, 1951, IS ELIGIBLE FOR DEDUCTION UNDER SECTION 10B OF THE INCOME TAX ACT. 4. THE MATTER HAS BEEN EXAMINED AND IT IS HEREBY CLARIFIED THAT AN UNDERTAKING SET UP IN DOMESTIC TARIFF AREA (DTA) AND DERIVING PROFIT FROM EXPORT O F ARTICLES OR THINGS OR COMPUTER SOFTWARE MANUFACTURED OR PRODUCED BY IT, WHICH IS SUBSEQUENTLY CONVERTED INTO A EOU, SHALL BE ELIGIBLE FOR DEDUCTION UNDER SECTION 10B OF THE IT ACT, ON GETTING 81 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) APPROVAL AS 100% EXPORT ORIENTED UNDERTAKING. IN SUCH A CASE, THE DEDUCTION SHALL BE AVAILABLE ONLY FROM THE YEAR IN WHICH IT HAS GOT THE APPROVAL AS 100% EOU AND SHALL BE AVAILABLE ONLY FOR THE REMAINING PERIOD OF TEN CONSECUTIVE YEARS, BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE U NDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS A DTA UNIT. FURTHER, IN THE YEAR OF APPROVAL, THE DEDUCTION SHALL BE RESTRICTED TO THE PROFITS DERIVED FROM THE EXPORTS, FROM AND AFTER THE DATE OF APPROVAL OF THE DTA UNIT AS 100% EOU. MOREOVER, THE DEDUCTION TO SUCH UNITS IN ANY CASE WILL NOT BE AVAILABLE AFTER ASSESSMENT YEAR 2009 - 10. IN VIEW OF THE ABOVE, IT IS CLEAR THAT THE DEDUCTION CLAIMED UNDER SECTION 10B FOR THE ASSESSMENT YEAR IS NOT ALLOWABLE TO THE APPELL ANT, ACCORDINGLY DISALLOWANCE OF DEDUCTION UNDER SECTION 10B MADE BY THE ASSESSING OFFICER IS UPHELD. THE APPEAL ON THIS GROUND IS ACCORDINGLY DISMISSED. 5.4.2 THE REVENUE DID NOT FILE ANY APPEAL AGAINST THE SAID ORDER OF CIT(A) BEFORE THE ITAT BUT THE A SSESSEE WENT IN APPEAL BEFORE THE TRIBUNAL VIDE ITA NO. 42/PNJ/2010 AGAINST THE FINDING OF CIT(A) THAT THE NEW UNIT ESTABLISHED BY THE ASSESSEE DOES NOT HAVE THE NECESSARY APPROVAL OF 100% EOU AS REQUIRED U/S 10B. THE TRIBUNAL AFTER CONSIDERING THE RIVAL SUBMISSIONS AND AFTER DISCUSSING THE FACT ULTIMATELY IN PARA 29 TO 32 OF ITS ORDER DT. 7.4.2011 AS IS REPRODUCED BELOW TOOK THE VIEW THAT THE APPROVAL IS ACCORDED TO THE ASSESSEE AND THE ASSESSEE HAS MET OUT THE REQUIREMENT OF SEC. 10B OF THE ACT AND THEREFORE THE TRIBUNAL ALLOWED THE GROUND OF APPEAL OF THE ASSESSEE CLAIMING THE EXEMPTION U/S 10B : - 29. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALSO PERUSED THE ENTIRE MATERIAL ON RECORD. THE ASSESSEE HAD APPROVAL DATED 26.12.1985 AS 100% EOU AND CLAIMED DEDUCTION UNDER SECTION 10B OF THE ACT FOR ASSESSMENT YEARS 1990 - 91 TO 1994 - 95. THEREAFTER ASSESSEE GOT RENEWAL OF ITS STATUS AS 100% EOU BY THE MINISTRY OF INDUSTRIES UNDER THE SAME LICENCE NO.CIL/420(1985) OF 26.12.1985 WHICH WAS MADE VALID UPTO 31.3.2001. THIS RENEWAL FURTHER STOOD EXTENDED FOR A PERIOD OF 5 YEARS IN TERMS OF SANCTIONED LETTER NO. SEE PZ/28(24/85/EPD/VOL - IV) 876 DATED 5.10.2001. THE APPELLANTS CLAIM BEFORE THE AUTHORITIES BELOW IS THAT IT HAD SET UP AN ALTOGETHER A NEW AND INDEPENDENT UNDERTAKING BY USING MODERN TECHNOLOGY AND THEREAFTER COMMENCED PRODUCTION IN THE FINANCIAL YEAR 1998 - 99 RELEVANT TO ASSESSMENT YEAR 82 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) 1999 - 2000 BUT DUE TO LOSSES IN ASSESSMENT YEARS 1999 - 2000 TO 2001 - 02 IT DID NOT CLAIM ANY DEDUCTION UNDER SECTION 10 B OF THE ACT OF ITS PROFIT FROM THIS 100% EOU. THE CLAIM OF DEDUCTION UNDER SECTION L0B WAS MADE FOR THE FIR ST TIME IN ASSESSMENT YEAR 2002 - 03 AND STOOD ALLOWED BY THE ASSESSING OFFICER AND THEREAFTER FROM YEAR TO YEAR ALSO THE CLAIM WAS ALLOWED. IN THE RELEVANT YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER FOR THE FIRST TIME IN MAKING ASSESSMENT, REFUSED TO A LLOW THE RELIEF TO THE ASSESSEE. 30. THE ASSESSEE CLAIMS TO HAVE DEMONSTRATED BEFORE THE AUTHORITIES BELOW THAT IT HAS MET ALL THE TESTS OF BEING AN INDEPENDENT AND NEW UNIT AS ARE LAID DOWN BY THE SUPREME COURT IN THE CASE OF TEXTILE MACHINERY CORPORATIO N LTD VS CIT(1977) 107 ITR 195 (SC) AND ALSO IN CIT VS PREMIER COTTON MILLS LTD 240 ITR 434 (MAD.) 31. THE LEARNED CIT(A) VIDE PARA 2.5.4 OF THE IMPUGNED ORDER ADMITTED THE FACT THAT THE CAPITAL INVESTMENT IN THE EXISTING UNIT WAS RS. 3 CRORES WHICH WAS INCREASED TO RS. 30 CRORES, SIMILARLY THE PRODUCTION CAPACITY WAS INCREASED FROM TWO LAKH TONES PER ANUM TO 15 LAKH TONES PER ANUM, WHICH MAKES THE UNDERTAKING AS A NEW INDUSTRIAL UNDERTAKING. THIS FINDING IS NOT SHOWN TO BE PERVERSE ON FACTS AS NEITHER ANY CROSS APPEAL OR CROSS OBJECTION HAVE BEEN FILED BY THE INCOME TAX DEPARTMENT NOR ANY PLEA HAS BEEN RAISED IN APPEAL BEFORE US. IT THEREFORE HAS TO BE TAKEN THAT THE FINDINGS SO REACHED BY LEARNED CIT(A) HAVE ACQUIRED FINALITY. 32. THE LEARNED CIT(A) H OWEVER HOLDS THAT REQUIREMENT OF EXPLANATION 2(IV) OF SECTION 10B OF THE ACT HAS NOT BEEN SATISFIED AS NO SEPARATE APPROVAL IN THIS CASE HAS BEEN ACCORDED BY THE BOARD APPOINTED IN THIS BEHALF BY THE CENTRAL GOVERNMENT IN EXERCISE OF POWERS CONFERRED BY SE CTION 14 OF THE INDUSTRIAL (DEVELOPMENT AND REGULATION) ACT 1951 AND THE RULES MADE UNDER THAT ACT. THE DEVELOPMENT COMMISSIONER EXTENDED THE STATUS OF EOU WITHOUT THERE BEING AN APPROVAL FROM THE BOARD. NO UNDERTAKING WILL BE ELIGIBLE FOR DEDUCTION UNDER SECTIONS 10B OF THE ACT. THE APPELLANT HOWEVER HAS PLACED ON RECORD THAT THE APPROVAL GRANTED TO IT BY THE DEVELOPMENT COMMISSIONER IS IN EXERCISE OF THE POWERS DELEGATED TO HIM BY THE BOARD OF APPROVAL UNDER CLAUSE NO. 9.37 OF THE HAND BOOK ON PROCEDURES AND THUS THE APPROVAL GRANTED BEING DELEGATED AUTHORITY, AMOUNTS TO EXERCISE OF POWERS BY THE BOARD ITSELF. RELIANCE HAS ALSO BEEN PLACED ON SUPREME COURT JUDGEMENT IN THE CASE OF ROOPCHAND VS STATE OF PUNJAB AIR (1963) (SC) 1503. THE PRINCIPLE THAT EMERGE S FROM THIS JUDGEMENT IS THAT ORDER PASSED BY THE DELEGATEE PURSUANT TO POWERS BY THE GOVERNMENT, WOULD BE THE ORDER OF THE GOVERNMENT. IN THE PRESENT CASE IN APPEAL, THE DEVELOPMENT COMMISSIONER ACCORDED APPROVAL TO THE APPELLANT PURSUANT TO THE POWERS DE LEGATED IN HIM BY THE BOARD OF APPROVAL. IT THEREFORE, WOULD BE AN APPROVAL ACCORDED BY THE BOARD. THE DELEGATEE IS NOT SHOWN TO HAVE ACTED BEYOND THE PRESCRIBED SPHERE OF AUTHORITY NOR IT IS SHOWN THAT THE PARENT LAW DID NOT PERMIT HIM TO DO SO. IN THIS V IEW OF THE MATTER AND GOING BY THE ORDER DATED 31.3.2006 IN ITA NO.5439/MUM/200L BY MUMBAI D BENCH OF THE APPELLATE 83 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) TRIBUNAL IN THE CASE OF JAYANT AGRO ORGANICS LTD VS JCIT, MADE BY LEARNED MEMBERS SHRI PRAMOD KUMAR AND SMT P. MADHAVI DEVI WHERE IT IS HE LD IT IS NOT A STATUTORY REQUIREMENT THAT THERE HAS TO BE SEPARATE PERMISSION FOR EACH UNIT AND, THEREFORE, JUST BECAUSE THE PERMISSION IS GRANTED BY THE GOVERNMENT BY WAY OF AMENDING THE ORIGINAL PERMISSION LETTER, DOES NOT AFFECT THE ELIGIBILITY FOR DED UCTION UNDER SECTION 10B IN ANY MANNER, THE APPROVAL THUS ACCORDED TO THE APPELLANT SHALL BE TAKEN TO HAVE MET OUT THE REQUIREMENT OF SECTION 10 B OF THE ACT AND THUS THE DENIAL OF DEDUCTION OF 100% PROFITS OF EOU IN THE YEAR UNDER CONSIDERATION ON BASIS TAKEN BY LEARNED CIT(A) IS NOT JUSTIFIED. WE THEREFORE SET ASIDE HIS ORDER TO THAT EXTENT AND ALLOW THE GROUNDS NO. 6 TO 8 RAISED IN APPEAL BY THE ASSESSEE. SINCE THE REVENUE DID NOT FILE ANY APPEAL AGAINST THE ORDER OF CIT(A), ESPECIALLY THE FINDING THA T THE IMPUGNED UNIT IS A NEWLY ESTABLISHED UNDERTAKING, THIS FINDING OF CIT(A), IN OUR OPINION, HAS BECOME FINAL. THE ORDER OF CIT(A) IS DT. 4.12.2009. THE AO ON THIS BASIS ITSELF, VIDE HIS ORDER DT. 30.12.2009 CANNOT TAKE A DIFFERENT VIEW. IN OUR OPINI ON, THE REVENUE IS BOUND WITH THE FINDING OF CIT(A) WHICH HAS NOT BEEN DISPUTED BY THE REVENUE THAT THE GREATER FERRO - MET IS A NEWLY ESTABLISHED UNDERTAKING. ON THIS BASIS ITSELF WE ARE BOUND TO CONFIRM THE ORDER OF CIT(A) AND DISMISS THE GROUND TAKEN BY THE REVENUE. IT IS NOT DISPUTED BY BOTH THE PARTIES THAT THE FACTS INVOLVED AND CONSIDERED BY THE CIT(A) WHILE RENDERING THE DECISION FOR THE ASSESSMENT YEAR 2006 - 07 ARE SAME. THEREFORE, ON THE BASIS OF THE PRINCIPLE OF THE PRECEDENT THE REVENUE IS BOUND W ITH THE EARLIER DECISION. HONBLE SUPREME COURT ON THE APPLICABILITY OF PRINCIPLE OF RES JUDICATA IN THE CASE OF BHARAT SANCHAR NIGAM LTD VS UNION OF INDIA 282 ITR 273 (SC) AT PAGE 286 OBSERVED AS UNDER : - THE DECISIONS CITED HAVE UNIFORMLY HELD THAT RES JUDICATA DOES NOT APPLY IN MATTERS PERTAINING TO TAX FOR DIFFERENT ASSESSMENT YEARS BECAUSE RES JUDICATA APPLIES TO DEBAR COURTS FROM ENTERTAINING ISSUES ON THE SAME CAUSE OF ACTION WHEREAS THE CAUSE OF ACTION FOR EACH ASSESSMENT YEAR IS DISTINCT. THE COURSE WILL GENERALLY ADOPT AN EARLIER PRONOUNCEMENT OF LAW OR A CONCLUSION OF FACT UNLESS THERE IS A NEW GROUND URGED OR A MATERIAL CHANGE IN THE FACTUAL POSITION. THE REASON WHY COURTS HAVE HELD PARTIES TO THE OPINION EXPRESSED IN A DECISION IN ONE ASSES SMENT YEAR TO THE SAME ASSESSMENT IN THE SUBSEQUENT YEAR IS NOT BECAUSE OF ANY PRINCIPLE OF RES JUDICATA BUT BECAUSE OF THEORY OF PRECEDENT OR THE PRECEDENTIAL VALUE OF THE EARLIER PRONOUNCEMENT. WHERE FACTS AND LAW IN A SUBSEQUENT ASSESSMENT YEAR ARE THE SAME, NO AUTHORITY WHETHER QUASI - JUDICIAL OR JUDICIAL CAN GENERALLY BE PERMITTED TO TAKE A DIFFERENT VIEW. THIS MANDATE IS SUBJECT 84 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) ONLY TO THE USUAL GATEWAYS OF DISTINGUISHING THE EARLIER DECISION OR WHERE THE EARLIER DECISION IS PER INCURIAM. SIMILAR VIEW HAS BEEN TAKEN IN THE CASE OF CIT VS J.K CHARITABLE TRUST(SC) 308 ITR 161 . IN THE CASE OF RADHASOAMI SATSANG VS CIT 193 ITR 321 (SC) .WE NOTED HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS ARJ SECURITY PRINTERS 264 ITR 276 (DELHI) ALSO TOOK THE SIMIL AR VIEW WHEN THE TRIBUNAL ALLOWED RELIEF TO THE ASSESSEE U/S 80I FOR THE ASSESSMENT YEAR 1992 - 93, 1995 - 96 AND 1997 - 98 BUT THE REVENUE DID NOT CHALLENGE THE ORDER OF THE TRIBUNAL BUT THE REVENUE CHALLENGED THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 1991 - 92, 1993 - 94, 1994 - 95 AND 1996 - 97. THE HONBLE HIGH COURT CATEGORICALLY HELD THAT EARLIER DECISION ON THE SAME QUESTION CANNOT BE RE - OPENED UNLESS SOME FRESH FACTS ARE FOUND IN THE SUBSEQUENT YEAR. IN VIEW OF SAID SETTLE D POSITION OF LAW IN OUR OPINION THE REVENUE CANNOT NOW AGAIN RAISE THE SAME ISSUE AND THIS ISSUE IS LIABLE TO BE DISMISSED ON THIS BASIS ITSELF. SO FAR AS THE COMPLIANCE OF OTHER CONDITIONS ARE CONCERNED, WHETHER THE NEWLY ESTABLISHED UNDERTAKING IS 100% EOU, WHETHER IT COMPLIED WITH ALL THE CONDITIONS STIPULATED U/S 10B, WE NOTED THAT THIS ISSUE HAS ALREADY BEEN EXAMINED BY THIS BENCH OF THE TRIB UNAL IN A.Y 2006 - 07. THE RELEVANT PARAGRAPHS HAVE BEEN REPRODUCED BY US IN THE PRECEDING PARAGRAPH . WE ARE BOUND TO FOLLOW THE ORDER OF THIS TRIBUNAL. THE LD. DR EXHAUSTIVELY ARGUED ON THE ISSUE THAT THE IMPUGNED UNIT OF THE ASSESSEE IS NOT A NEWLY ESTABLISHED UNDERTAKING BUT IT IS MERELY A CASE OF SUBSTANTIAL EXPANSION OF THE ALREADY EXISTING UNIT . T HE REVENUE HAS ALSO TAKEN THE SUBMISSION BEFORE US THAT THE UNIT IS NOT ENGAGED IN MANUFACTURING OR PRODUCTION OF AN ARTICLE OR THING. WE NOTED THAT A SIMILAR ISSUE HAD ARISEN BEFORE THIS BENCH IN THE CASE OF ACIT VS. SESA GOA LTD. IN ITA NO S . 72/PNJ/2012 AND 85/PNJ/2012 FOR A.Y 2009 - 10 AS WELL AS IN ITA NO. 89/PNJ/2012 FOR A.Y. 2008 - 09 IN WHICH THIS TRIBUNAL VIDE ORDER 85 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) DATED 8.3.2013 AND 17.5.2013 RESP ECTIVELY, AFTER DISCUSSING THE VARIOUS CASE LAWS AND THE RELEVANT PROVISIONS OF THE INCOME TAX ACT AND AFTER CONSIDERING SAME ARGUMENTS AS HAS BEEN ADVANCED BY BOTH THE PARTIES IN THIS CASE TOOK THE VIEW THAT THE UNIT OF THE ASSESSEE WHICH IS ALSO CARRYING ON UNDISPUTEDLY SIMILAR ACTIVITIES AS THE IMPUGNED UNIT OF THE ASSESSEE IS CARRYING TOOK THE VIEW THAT 100% EOU ENGAGED IN PROCESSING OF THE CRUDE ORE ARE ENTITLED FOR EXEMPTION U/S 10B SUBJECT TO THE OTHER CONDITIONS FOR EXEMPTION U/S 10B. THE RELEVANT FINDING OF THE TRIBUNAL ARE REPRODUCED AS UNDER : 42.7 IN OUR OPINION, THE COMMON ISSUE INVOLVED ON THE FACTS OF THE CASE IN THE CASE OF THE ASSESSEE IS WHETHER ALL THE THREE UNITS IN RESPECT OF WHICH THE ASSESSEE CLAIMED THE EXEMPTION U/S 10B ARE ENGAG ED IN ANY MANUFACTURE OR PRODUCTION OF ARTICLE OR THING FOR THE PURPOSE AVAILING OF EXEMPTION U/S 10B. IF ENGAGED IN PROCESSING, WHETHER ASSESSEE IS ENTITLED FOR EXEMPTION U/S 10B IN RESPECT OF ALL THESE THREE UNITS. THE NATURE OF ACTIVITIES IN THE CASE OF AMONA PLANT AS WELL AS CHITRADURGA IS SIMILAR AS EXPLAINED IN THE EARLIER PARAS. BOTH THESE UNITS AS WELL AS CODLI PLANT ARE APPROVED AS 100% EOU UNITS. THE NECESSARY BOARD APPROVALS ARE PLACED IN RESPECT OF EACH UNIT BY THE ASSESSEE ON RECORD. FOR CODL I UNIT, APPROVAL WAS GIVEN INITIALLY FOR FIVE YEARS, WHICH WAS SUBSEQUENTLY EXTENDED TO WHICH WE ARE SATISFIED AS THE REVENUE DID NOT PROVE THAT THE LETTER ISSUED IS BOGUS OR FORGED ONE. TO DECIDE THE ISSUE WHETHER ALL THESE UNITS ARE ENGAGED IN ANY MANUFA CTURING OR PRODUCTION OF ARTICLE OR THING, IT IS NECESSARY TO REFER TO THE RELEVANT PROVISIONS OF THE INCOME - TAX ACT, 1961. 43. PROVISION OF SEC. 10A OF THE ACT WHICH DEALS WITH THE SPECIAL PROVISIONS IN RESPECT OF THE NEWLY ESTABLISHED UNDERTAKINGS IN FREE - TRADE ZONE, ETC., AND SEC. 10AA OF THE ACT WHICH DEALS WITH THE SPECIAL PROVISIONS IN RESPECT OF THE NEWLY ESTABLISHED UNITS IN SPECIAL ECONOMIC ZONES; AND ALSO SEC. 10B OF THE ACT WHICH DEALS WITH THE SPECIAL PROVISIONS IN RESPECT OF THE NEWLY ESTABL ISHED 100% EXPORT ORIENTED UNDERTAKINGS WERE INSERTED BY THE FINANCE ACT, 1988 W.E.F. 01/04/1989. SEC. 10B PROVIDES THAT ANY PROFITS AND GAINS DERIVED BY AN ASSESSEE FROM A 100% EOU SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. THIS PROVISION APPLIES TO ANY UNDERTAKING WHICH MANUFACTURES OR PRODUCES ANY ARTICLE OR THING. EXPLANATION (I) TO SEC. 10B PROVIDES THAT THE EXPRESSION 100% EXPORT ORIENTED UNIT MEANS AN UNDERTAKING WHICH HAS BEEN APPROVED BY THE BOARD APPOINTED IN THIS BEHALF BY THE C ENTRAL GOVERNMENT IN EXERCISE OF THE POWERS CONFIRMED BY SEC. 14 OF THE INDUSTRIES (DEVELOPMENT ®ULATION) ACT, 1951 AND THE RILES MADE THERE UNDER. EXPLANATION (III) WHICH WAS THERE AT THE TIME OF THE SAID SEC. 10B DEFINED THE WORD MANUFACTURE FOR TH E PURPOSE OF THE SAID SECTION TO INCLUDE ANY (A) PROCESS OR (B) ASSEMBLING OR (C) RECORDING OF PROGRAMME ON DISC, TAPE, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE. THUS, PROCESS WAS INCLUDED WITHIN THE WORD MANUFACTURE FOR THE PURPOSE OF SEC. 10B. EXPLANATION (IV) OF THE SAID SEC. 10B FURTHER PROVIDED THAT THE WORD PRODUCE FOR THE PURPOSE OF SAID SECTION, IN RELATION TO ANY ARTICLE OR THING SHALL INCLUDE PRODUCTION OF COMPUTER 86 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) PROGRAMME. CBDT VIDE ITS CIRCULAR NO. 528 DATED 16/12/1988 176 I TR ST. 154 EXPLAINED THE [PROVISIONS ENACTED BY THE FINANCE ACT, 1988 UNDER PARA 8.2 OF THE CIRCULAR. IN THIS CIRCULAR, CBDT HAD CLEARLY EXPLAINED THAT THE SAID NEW SEC. 10B HAD BEEN INSERTED IN THE STATUTE BOOK WITH A VIEW TO PROVIDE FURTHER INCENTIVE FOR EARNING FOREIGN EXCHANGE SO AS TO SECURE THAT THE INCOME OF A 100% EOU SHALL BE EXEMPT FROM TAX FOR A PERIOD OF FIVE CONSECUTIVE ASSESSMENT YEARS FALLING WITHIN THE BLOCK OF EIGHT ASSESSMENT YEARS. THE EXEMPTION PROVIDED UNDER THIS NEW SECTION WAS SIMILAR TO THE ONE PROVIDED UNDER SEC. 10A OF THE ACT TO INDUSTRIAL UNDERTAKING OPERATING UNDER THE FREE - TRADE ZONE. IT WAS ALSO CLARIFIED THEREIN THAT THE EXPRESSION MANUFACTURE FOR THE PURPOSE OF BOTH SECTIONS 10A AND 10B OF THE SAID ACT WOULD INCLUDE ANY PRO CESSING OR ASSEMBLING OR RECORDING OF PROGRAMME ON DISC, TAPE, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE. 43.1 THIS DEFINITION OF MANUFACTURE WAS REMOVED WHEN SEC. 10A AND 10B OF THE ACT WERE AMENDED BY THE FINANCE ACT, 2001 W.E.F. 01/04/20 01. SECTIONS 10A AND 10B OF THE ACT WERE FURTHER AMENDED BY THE FINANCE ACT, 2003 W.E.F. 01/04/2004 AND THE DEFINITION OF MANUFACTURE WAS INSERTED AS UNDER: - EXPLANATION (IV) FOR THE PURPOSE OF THIS SECTION, MANUFACTURE OR PRODUCE SHALL INCLUDE THE CUTTING AND POLISHING OF PRECIOUS AND SEMI - PRECIOUS STONES. 43.2 THE EOUS WERE ALLOWED TO SELL 25% PRODUCTION WITHIN THE COUNTRY. WITH A VIEW TO RATIONALIZE THE CONCESSION AND TO PHASE THESE OUT BY THE END OF THE ASSESSMENT YEAR 2009 - 10, THE PROVISIONS OF SEC. 10A AND 10B WERE SUBSTITUTED BY THE NEW PROVISIONS BY THE FINANCE ACT, 2000. CBDT VIDE CIRCULAR NO. 794 DATED 09/08/2000 245 ITR ST. 21, 34 - 35 UNDER PARA 15.3 EXPLAINED THAT THE DEDUCTION U/S 10B WOULD BE GRANTED IN RESPECT OF PROFITS AND GAINS DE RIVED BY AN UNDERTAKING WHICH MANUFACTURES OR PRODUCES ARTICLE OR THINGS OR COMPUTER SOFTWARE AND DERIVED PROFITS AND GAINS FROM THE EXPORTS THEREOF. THE SAID EXEMPTION WAS AVAILABLE FOR A PERIOD OF 10 CONSECUTIVE YEARS IN A GRADED MANNER. THE NEW PROVISIO NS CONTAINED THE FOLLOWING ADDITIONAL CONDITIONS: I. THE SALE PROCEEDS OF ARTICLES OR THINGS OR COMPUTER SOFTWARE EXPORTED OUT OF INDIA, SHOULD BE RECEIVED IN OR BROUGHT INTO INDIA WITHIN A PERIOD OF 6 MONTHS FROM THE END OF THE PREVIOUS YEAR OR WITHIN SUCH FURTHER PERIOD AS THE COMPETENT AUTHORITY MAY ALLOW SUB - SECTION (3); II. THE PROFITS DERIVED FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS, THE SAME PROPORTION, AS THE EXPORT TURNOV ER IN RESPECT OF SUCH ARTICLE OR THINGS OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURNOVER OF BUSINESS SUB - SECTION (4); III. THE ASSESSEE MUST FURNISH IN THE PRESCRIBED FORM NO. 56G, ALONG WITH HIS RETURN OF INCOME, THE REPORT OF A CHARTERED ACCOUNTANT CERTIFYING THAT THE DEDUCTION HAS BEEN CORRECTLY CLAIMED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 10B SUB - SECTION (5); 87 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) IV. WHERE THE ASSESSEE AVAILS OF THE BENEFITS OF SECTION 10A OR SECTION 10B, IT WILL NOT BE ELIGIBLE FOR OTHER TAX EXEMPTIONS AVAILABL E UNDER OTHER PROVISIONS OF THE ACT DURING THE PERIOD OF 10 YEARS SUB - SECTION (6); V. MANUFACTURE SHALL HAVE THE SAME MEANING AS ASSIGNED TO IT IN CLAUSE (R) OF SECTION 2 OF THE SPECIAL ECONOMIC ZONES ACT, 2005. 43.3 SUBSEQUENTLY, SPECIAL ECONOMIC ZON E ACT, 2005 WAS PASSED BY THE PARLIAMENT IN MAY, 2005, WHICH WAS BROUGHT INTO EFFECT W.E.F. 23/06/2005. SECTION 2(R) OF SPECIAL ECONOMIC ZONE ACT DEFINES THE EXPRESSION MANUFACTURE AS UNDER: - MANUFACTURE MEANS TO MAKE, PRODUCE, FABRICATE, ASSEMBLE, PR OCESS OR BRING INTO EXISTENCE, BY HAND OR BY MACHINE, A NEW PRODUCT HAVING A DISTINCT NAME, CHARACTER OR USE AND SHALL INCLUDE PROCESSES SUCH AS REFRIGERATION, CUTTING, POLISHING, BLENDING, REPAIR, REMAKING, RE - ENGINEERING AND INCLUDES AGRICULTURE, AQUACUL TURE, ANIMAL HUSBANDRY, FLORICULTURE, HORTICULTURE, PISCI CULTURE, POULTRY, SERICULTURE, AVICULTURE AND MINING. 43.4 THIS DEFINITION WAS ADOPTED BY THE LEGISLATURE IN SECTION 10AA W.E.F. 10/02/2006 AS ADOPTED BY THE SPECIAL ECONOMIC ZONES ACT, 2005 BY I NSERTING EXPLANATION 1(III) TO SECTION 10AA OF THE ACT WHICH READS AS UNDER: - (III) MANUFACTURE SHALL HAVE THE SAME MEANING AS ASSIGNED TO IT IN CLAUSE (R) OF SECTION 2 OF THE SPECIAL ECONOMIC ZONE ACT, 2005. AS PER THE SAID DEFINITION PROCESS IS IN CLUDED IN MANUFACTURE. SUBSEQUENTLY, BY THE FINANCE ACT, 2009 W.E.F 1.4.2009, CLAUSE (29BA) WAS INSERTED IN SECTION 2 OF THE INCOME TAX ACT, 1961DEFINING THE EXPRESSION MANUFACTURE AS UNDER: MANUFACTURE, WITH ITS GRAMMATICAL VARIATIONS, MEANS A CHANGE IN A NON - LIVING PHYSICAL OBJECT OR ARTICLE OR THING, - (A) RESULTING IN TRANSFORMATION OF THE OBJECT OR ARTICLE OR THING INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFERENT NAME, CHARACTER AND USE OR (B) BRINGING INTO EXISTENCE OF A NEW AND DISTINCT OBJECT OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSITION OR INTEGRAL STRUCTURE. 43.5 IN CHOWGULE & CO. PVT. LTD. VS. UNION OF INDIA (1981) 1 SCC 653 HONBLE SUPREME COURT, AFTER CONSIDERING THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN NILGIRI CEYLON TEA SUPPLYING CO. VS. STATE OF BOMBAY (1959) 10 STC 500 (BOM.), CLEARLY OBSERVED ON THE QUESTION WHETHER THE BLENDING OF ORE, WHILST LOADING IT IN THE SHIP BY MEANS OF THE MECHANICAL ORE HANDLING PLANT, CONSTITUTED MANUFACTURE OR PROCESSING OR ORE FOR SALE WITHIN THE MEANING OF SECTION 8(3)(B) AND RULE 13 OF THE CENTRAL SALES TAX ACT, 1956. DEALING WITH THI S QUESTION, THEIR LORDSHIPS HELD AND OBSERVED AT PAGES 659 AND 660 OF THE REPORTS AS UNDER: - 88 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) IT STILL REMAINS TO CONSIDER WHETHER THE ORE BLENDED IN THE COURSE OF LOADING THROUGH THE MECHANICAL ORE HANDLING PLANT CAN BE SAID TO UNDERGO PROCESSING WHEN IT IS BLENDED. THE ANSWER TO THIS QUESTION DEPENDS UPON WHAT IS THE TRUE MEANING AND CONNOTATION OF THE WORD PROCESSING IN SECTION 8(3)(B) AND RULE 13. THIS WORD HAS NOT BEEN DEFINED IN THE ACT AND IT MUST THEREFORE BE INTERPRETED ACCORDING TO ITS PLAIN NATURAL MEANING. WEBSTERS DICTIONARY GIVES THE FOLLOWING MEANING OF THE WORD PROCESS: TO SUBJECT TO SOME SPECIAL PROCESS OR TREATMENT, TO SUBJECT (ESPECIALLY RAW MATERIAL) TO A PROCESS OF MANUFACTURE, DEVELOPMENT OF PREPARATION FOR THE MARKET ETC.; TO CONVERT INTO MARKETABLE FORM AS LIVESTOCK BY SLAUGHTERING, GRAIN BY MILLING, COTTON BY SPINNING, MILK BY PASTEURIZING, FRUITS AND VEGETABLES BY SORTING AND REPACKING. WHERE THEREFORE ANY COMMODITY IS SUBJECTED TO A PROCESS OR TREATMENT WITH A VIEW TO ITS DEVELOPMENT OR PREPARATION FOR THE MARKET, AS, FOR EXAMPLE, BY SORTING AND REPACKING FRUITS AND VEGETABLES, IT WOULD AMOUNT TO PROCESSING OF THE COMMODITY WITHIN THE MEANING OF SECTION 8(3)(B) AND RULE 13. THE NATURE AND EXTENT OF PROCESSING MAY VARY FR OM CASE TO CASE; IN ONE CASE THE PROCESSING MAY BE SLIGHT AND IN ANOTHER IT MAY BE EXTENSIVE; BUT WITH EACH PROCESS SUFFERED, THE COMMODITY WOULD EXPERIENCE A CHANGE. WHEREVER A COMMODITY UNDERGOES A CHANGE AS A RESULT OF SOME OPERATION PERFORMED ON IT OR IN REGARD TO IT, SUCH OPERATION WOULD AMOUNT TO PROCESSING OF THE COMMODITY. THE NATURE AND EXTENT OF CHANGE IS NOT MATERIAL. IT MAY BE THAT CAMPHOR POWDER MAY JUST BE COMPRESSED INTO CAMPHOR CUBES BY APPLICATION OF MECHANICAL FORCE OR PRESSURE WITHOUT AD DITION OR ADMIXTURE OF ANY OTHER MATERIAL AND YET THE OPERATION WOULD AMOUNT TO PROCESSING OF CAMPHOR POWDER AS HELD BY THE CALCUTTA HIGH COURT IN OM PRAKASH GUPTA VS COMMISSIONER OF COMMERCIAL TAXES [16 STC 935 (CAL)]. WHAT IS NECESSARY IN ORDER TO CHARAC TERIZE AN OPERATION AS PROCESSING IS THAT THE COMMODITY MUST AS A RESULT OF THE OPERATION, EXPERIENCE SOME CHANGE. HERE, IN THE PRESENT CASE, DIVERSE QUANTITIES OF ORE PROCESSING DIFFERENT CHEMICAL AND PHYSICAL COMPOSITIONS ARE BLENDED TOGETHER TO PRODUC E ORE OF THE REQUISITE CHEMICAL AND PHYSICAL COMPOSITION DEMANDED BY THE FOREIGN PURCHASER AND OBVIOUSLY AS A RESULT OF THIS BLENDING, THE QUANTITIES OF ORE MIXED TOGETHER IN THE COURSE OF LOADING THROUGH THE MECHANICAL ORE HANDLING PLANT EXPERIENCE CHANGE IN THEIR RESPECTIVE CHEMICAL AND PHYSICAL COMPOSITION, BECAUSE WHAT IS PRODUCED BY SUCH BLENDING IS ORE OF A DIFFERENT CHEMICAL AND PHYSICAL COMPOSITIONS. WHEN THE CHEMICAL AND PHYSICAL COMPOSITION OF EACH KIND OF ORE WHICH GOES INTO THE BLENDING IS CHAN GED, THERE CAN BE NO DOUBT THAT THE OPERATION OF BLENDING WOULD AMOUNT TO PROCESSING OF ORE WITHIN THE MEANING OF SECTION 8(3)(B) AND RULE 13. IT IS NO DOUBT TRUE THAT THE BLENDING OF ORE OF DIVERSE PHYSICAL AND CHEMICAL COMPOSITIONS IS CARRIED OUT BY T HE SIMPLE ACT OF PHYSICALLY MIXING DIFFERENT QUANTITIES FOR SUCH ORE ON THE CONVEYOR BELT OF THE MECHANICAL ORE HANDLING PLANT, BUT TO OUR MIND 89 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) IT IS IMMATERIAL AS TO HOW THE BLENDING IS DONE AND WHAT PROCESS IS UTILIZED FOR THE PURPOSE OF BLENDING. WHAT IS MATERIAL TO CONSIDER IS WHETHER THE DIFFERENT QUANTITIES OF ORE WHICH ARE BLENDED TOGETHER IN THE COURSE OF LOADING THROUGH THE MECHANICAL ORE HANDLING PLANT UNDERGO ANY CHANGE IN THEIR PHYSICAL AND CHEMICAL COMPOSITION IS A RESULT OF BLENDING AND SO FA R AS THIS ASPECT OF THE QUESTION IS CONCERNED, IT IS IMPOSSIBLE TO ARGUE THAT THEY DO NOT SUFFER ANY CHANGE IN THEIR RESPECTIVE CHEMICAL AND PHYSICAL COMPOSITIONS. THUS THE HONBLE SUPREME COURT ACCEPTED THAT THERE IS CHANGE IN CHEMICAL COMPOSITIONS AFTER PROCESSING OF THE IRON ORE IN THIS CASE.FROM THE SAID DECISION OF THE APEX COURT, IT IS APPARENT THAT HONBLE APEX COURT HELD EVEN BLENDING OF IRON ORE FOR THE PURP OSE OF EXPORT INVOLVES CHANGE IN THE CHEMICAL AND PHYSICAL COMPOSITION OF IRON ORE. BUT IF WE LOOK TO THE FACTS IN THE IMPUGNED CASE OF THE ASSESSEE, THE ASSESSEE IS NOT ONLY BLENDING IRON ORE BUT CARRYING OUT VARIOUS PROCESSES AS TO MAKE IRON ORE CALLED C RUDE ORE USEABLE TO ISPAT INDUSTRIES. THE ACTIVITY OF THE UNITS OF THE ASSESSEE FOR AMONA AND CHITRADURGA INVOLVED CONVERTING INPUT INTO OUTPUT CONSIST OF CRUSHING (CRUDE ORE CALLED ROM WHICH APPEARED TO BE PIECES OF ROCKS AS WE NOTED DURING THE COURSE OF HEARING ON THE BASIS OF SAMPLE SHOWN TO US) SCREENING, WASHING, STACKING, LOADING IN BARGES, RIVER TRANSPORTATION TO THE BOAT AND EXPORT IN SHIPS. THE FINISHED PRODUCT WHICH COMES OUT ARE CALLED LUMPS AND FINES WHICH ARE USED FOR ISPAT INDUSTRIES AND BROUG HT BY THE FOREIGN BUYERS. THE FINISHED PRODUCT TECHNICALLY AFTER PROCESSING HAD DIFFERENT NAME. AS SHOWN TO US DURING THE COURSE OF HEARING WE NOTED THAT THE LUMPS AND FINES ARE ENTIRELY DIFFERENT FROM CRUDE ORE. DURING CONVERSION OF CRUDE ORE INTO LUMPS A ND FINES, WASTE IS GENERATED WHICH IS CALLED TAILING AND DISCHARGED INTO TAILING POND. IN CODLI UNIT THESE TAILINGS WHICH ARE IN LIQUID FORM ARE CONVERTED INTO ULTRA FINE. IN OUR OPINION AS WE NOTED FROM THIS PHYSICAL SAMPLE ALSO CRUDE ORE IS ENTIRELY DIFF ERENT FROM THE LUMPS AND FINE IN PHYSICAL APPEARANCE USED AND CHEMICAL COMPOSITIONS EVEN TECHNICALLY NAMES ARE ALSO DIFFERENT, SIMILARLY WHAT COMES AS OUTPUT FROM THE INPUT IN CODLI UNIT THAT IS ALSO DIFFERENT IN PHYSICAL APPEARANCE AND CHEMICAL COMPOSITI ON. WE DO NOT AGREE WITH THE LEARNED D.R THAT THERE IS NOT ANY CHANGE IN PHYSICAL AND CHEMICAL COMPOSITION OF THE OUTPUT THAN THE INPUT AS IS BEING PROCESSED IN ALL THE THREE UNITS. IF WE GO TO SECTION 2(29BA) INSERTED W.E.F. 1.4.2009, WE FIND CLAUSE (B) OF THIS SECTION CLEARLY STATES THAT BRINGING INTO EXISTENCE OF NEW AND DISTINCT OBJECT OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSITION OR INTEGRAL STRUCTURE TANTAMOUNT TO MANUFACTURE. THE CRUDE ORE ONCE PROCESSED IS MADE MARKETABLE AND HAD A DI FFERENT CHEMICAL AND PHYSICAL COMPOSITION THAN THE ROM (CRUDE ORE) EVEN THOUGH IN COMMON PARALANCE BOTH MAY BE CALLED IRON ORE. IT IS NO MORE REMAINS AS CRUDE ORES. TAILING NO MORE REMAINS TAILING BUT CONVERTED INTO A POWDER.IN VIEW OF THIS CLAUSE AND THE DECISION OF SUPREME COURT IN THE CASE OF CHOWGULE & CO. (SUPRA), IT CAN BE HELD THAT THE ASSESSEE IS ENGAGED IN THESE UNITS IN MANUFACTURING. FURTHER, IN CIT VS N.C. BUDHARAJA & CO. (1993) 204 ITR 412 (SC), HONBLE SUPREME COURT FURTHER OBSERVED THAT T HE WORD PRODUCTION IS MUCH WIDER THAN THE WORD MANUFACTURE. IT WAS SAID (PAGE 423): 90 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) THE WORD PRODUCTION HAS A WIDE CONNOTATION THAN THE WORD MANUFACTURE. WHILE EVERY MANUFACTURE CAN BE CHARACTERIZED AS PRODUCTION, EVERY PRODUCTION NEED NOT AMOU NT TO MANUFACTURE THE WORD PRODUCTION OR PRODUCE WHEN USED IN JUXTAPOSITION WITH THE WORD MANUFACTURE TAKES IN BRINGING INTO EXISTENCE NEW GOODS BY A PROCESS WHICH MAY OR MAY NOT AMOUNT TO MANUFACTURE. IT ALSO TAKES IN ALL THE BY - PRODUCTS, INTERMEDIATE PRODUCTS AND RESIDUAL PRODUCTS WHICH EMERGE IN THE COURSE OF MANUFACTURE OF GOODS. 43.6 IN CHRISTIAN MICA INDUSTRIES LTD. VS. STATE OF BIHAR (1961) 12 STC 150 (SC), HONBLE SUPREME COURT DEFINED THE WORD PRODUCTION, ALBEIT, IN CONNECTION W ITH THE BIHAR SALES TAX ACT, 1947. THE DEFINITION WAS ADOPTED FROM THE MEANING ASCRIBED TO THE WORD PRODUCTION IN THE OXFORD ENGLISH DICTIONARY, AS MEANING AMONGST OTHER THINGS THAT WHICH IS PRODUCED; A THING THAT RESULTS FROM ANY ACTION, PROCESS OR EFF ORT, A PRODUCT; A PRODUCT OF HUMAN ACTIVITY OR EFFORT. FOR THE WIDE DEFINITION OF THE WORD PRODUCTION, IT HAS TO FOLLOW THAT MINING ACTIVITY FOR THE PURPOSE OF PRODUCTION OF MINERAL ORES WOULD COME WITHIN THE AMBIT OF THE WORD PRODUCTION SINCE ORE IS A THING, WHICH IS THE RESULT OF HUMAN ACTIVITY OR EFFORT. 43.7 ACCORDING TO WEBSTER INTERNATIONAL ENGLISH DICTIONARY, THE VERB PRODUCE MEANS TO BRING FORWARD, BEGET, ETC. THE JUXTAPOSITION OF THE WORD MANUFACTURE WITH AGRICULTURE AND HORTICULTUR E IS SIGNIFICANT AND CANNOT BE LOST SIGHT OF. THE INTENTION IN EMPLOYING THE WORD PRODUCED OBVIOUSLY WAS TO INTRODUCE AN ELEMENT OF VOLITION AND EFFORT INVOLVING THE EMPLOYMENT OF SOME PROCESS FOR BRINGING INTO EXISTENCE SOME GOODS. 43.8 IN PARAGRAPH 7 OF ITS IN THE CASE OF CHOWGULE & C0 (P) LTD. VS. UOI (SUPRA), HONBLE APEX COURT ALSO CONSIDERED THE QUESTION WHETHER THE DIFFERENT BRANDS OF TEA PURCHASED AND BLENDED BY THE ASSESSES FOR THE PURPOSE PRODUCING THE TEA MIXTURE COULD BE SAID TO HAVE BEEN PROCESSED, AFTER THE PURCHASE, WITHIN THE MEANING OF THE PROVISO TO SECTION 8(A), SO AS TO PRECLUDE THE ASSESSES FROM BEING ENTITLED TO DEDUCT THEIR TURNOVER UNDER SECTION 8(A), SO AS TO PRECLUDE THE VALUE OF THE TEA PURCHASED BY THEM. THE RELEVANT OBSERV ATIONS MADE BY THE HONBLE SUPREME COURT IN THIS RESPECTIVE ARE QUOTED AND SET OUT HEREIN BELOW FOR READY REFERENCE: 7. THE REVENUE HOWEVER RELIED ON THE DECISION OF THE BOMBAY HIGH COURT IN NILGIRI CEYLON TEA SUPPLYING CO. VS. STATE OF BOMBAY [10 STC 50 0 (BOM HC)]. THE ASSESSEES IN THIS CASE WERE REGISTERED DEALERS IN TEA UNDER THE BOMBAY SALES TAX ACT, 1953 AND THEY PURCHASED IN BULK DIVERSE BRANDS OF TEA AND WITHOUT THE APPLICATION OF ANY MECHANICAL OR CHEMICAL PROCESS BLENDED THESE BRANDS OF DIFFERENT QUALITIES ACCORDING TO A CERTAIN FORMULA EVOLVED BY THEM AND SOLD THE TEA MIXTURE IN THE MARKET. THE QUESTION AROSE BEFORE THE SALES TAX AUTHORITIES WHETHER THE DIFFERENT BRANDS OF TEA PURCHASED AND BLENDED BY THE ASSESSEE FOR THE PURPOSE OF PRODUCING THE TEA MIXTURE COULD BE SAID TO HAVE 91 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) BEEN PROCESSED AFTER THE PURCHASE WITHIN THE MEANING OF THE PROVISO TO SECTION 8(A), SO AS TO PRECLUDE THE ASSESSES FROM BEING ENTITLED TO DEDUCT FROM THEIR TURNOVER UNDER SECTION 8(A), THE VALUE OF THE TEA PURCHASED BY THEM. THE HIGH COURT OF BOMBAY HELD THAT DIFFERENT BRANDS OF TEA PURCHASED BY THE ASSESSES COULD NOT BE REGARDED AS PROCESSED WITHIN THE MEANING OF THE PROVISO TO CLAUSE (A) OF SECTION 8, BECAUSE THERE WAS NOT EVEN APPLICATION OF MECHANICAL FORCE SO AS TO SUBJECT THE COMMODITY TO A PROCESS, MANUFACTURE, DEVELOPMENT OR PREPARATION AND THE COMMODITY REMAINED IN THE SAME CONDITION. THE ARGUMENT OF THE REVENUE BEFORE US WAS THAT THIS DECISION OF THE BOMBAY HIGH COURT WAS ON ALL FOURS WITH THE PRESENT CASE AND IF THE BLENDING OF DIFFERENT BRANDS OF TEA FOR THE PURPOSE OF PRODUCING A TEA MIXTURE IN ACCORDANCE WITH A FORMULA EVOLVED BY THE ASSESSES COULD NOT BE REGARDED AS PROCESSING OF TEA, EQUALLY ON A PARITY OF REASONING, BLENDING OF ORE OF DIFFERENT CHEM ICAL AND PHYSICAL COMPOSITIONS COULD NOT BE HELD TO CONSTITUTE PROCESSING OF THE ORE. NOW UNDOUBTEDLY THERE IS A CLOSE ANALOGY BETWEEN THE FACTS OF NILGIRI TEA COMPANY CASE [10 STC 500 (BOM HC)] AND THE FACTS OF THE PRESENT CASE, BUT WE DO NOT THINK WE CAN ACCEPT THE DECISION OF THE BOMBAY HIGH COURT IN THE NILGIRI TEA COMPANY CASE [10 STC 500 (BOM HC)] AS LAYING DOWN THE CORRECT LAW. WHEN DIFFERENT BRANDS OF TEA WERE MIXED BY THE ASSESSEE IN NILGIRI TEA COMPANY CASE [10 STC 500 (BOM HC)] FOR THE PURPOSE OF PRODUCING A TEA MIXTURE OF A DIFFERENT KIND AND QUALITY ACCORDING TO A FORMULA EVOLVED BY THEM, THERE WAS PLAINLY AND INDUBITABLY PROCESSING OF THE DIFFERENT BRANDS OF TEA, BECAUSE THESE BRANDS OF TEA EXPERIENCED, AS A RESULT OF MIXING, QUALITATIVE CHA NGE, IN THAT THE TEA MIXTURE WHICH CAME INTO EXISTENCE WAS OF DIFFERENT QUALITY AND FLAVOR THAN THE DIFFERENT BRANDS OF TEA WHICH WENT INTO THE MIXTURE. THERE ARE, IT IS TRUE, SOME OBSERVATIONS IN THE JUDGMENT OF THE BOMBAY HIGH COURT WHICH SEEM TO SUGGEST THAT IF INSTEAD OF MANUAL APPLICATION OF ENERGY IN MIXING THE DIFFERENT BRANDS OF TEA, THERE HAD BEEN APPLICATION OF MECHANICAL FORCE IN PRODUCING THE TEA MIXTURE, THE COURT MIGHT HAVE COME TO A DIFFERENT CONCLUSION AND THESE OBSERVATIONS WERE RELIED UPON BY THE ASSESSEE, SINCE IN THE PRESENT CASE THE BLENDING WAS DONE BY APPLICATION OF MECHANICAL FORCE, BUT WE DO NOT THINK THAT IS THE CORRECT TEST TO BE APPLIED FOR THE PURPOSE OF DETERMINING WHETHER THERE IS PROCESSING. THE QUESTION IS NOT WHETHER THERE IS MANUAL APPLICATION OF ENERGY OR THERE IS APPLICATION OF MECHANICAL FORCE. WHATEVER BE THE MEANS EMPLOYED FOR THE PURPOSE OF CARRYING OUT THE OPERATION, IT IS THE EFFECT OF THE OPERATION ON THE COMMODITY THAT IS MATERIAL FOR THE PURPOSE OF DETERMINING W HETHER THE OPERATION CONSTITUTES PROCESSING WE ARE CLEARLY OF VIEW THAT THE BLENDING OF ORE IN THE COURSE OF LOADING THROUGH THE MECHANICAL ORE HANDLING PLANT AMOUNTED TO PROCESSING OF ORE WITHIN THE MEANING OF SECTION 8(3)(B) AND RULE 13 AND THE MECHA NICAL ORE HANDLING PLANT FELL WITHIN THE DESCRIPTION OF MACHINERY, PLANT, EQUIPMENT USED IN THE PROCESSING OF ORE FOR SALE 92 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) 43.9 IN DECIDING THE SAID QUESTION, THE HONBLE SUPREME COURT AFTER CONSIDERING THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN NILGIRI CEYLON TEA SUPPLYING CO. VS. STATE OF BOMBAY [1959] 10 STC 500 (BOM), INTER ALIA, OBSERVED AS FOLLOWS: (V) WHEN DIFFERENT BRANDS OF TEA WERE MIXED BY THE ASSESSEE AS IN NILGIRI CEYLON TEA SUPPLYING CO.S CASE (1959) 10 STC 500 (BOM) FOR THE PURPOSE OF PURCHASING A TEA MIXTURE OF A DIFFERENT KIND AND QUALITY ACCORDING TO A FORMULA EVOLVED BY THEM, THERE WAS PLAINLY AND INDUBITABLY PROCESSING FOR THE DIFFERENT BRANDS OF TEA, BECAUSE THESE BRANDS OF TEA EXPERIENCED, AS A RESULT OF MIXING, A QUAL ITATIVE CHANGE, IN THAT THE TEA MIXTURE WHICH CAME INTO EXISTENCE WAS OF A DIFFERENT QUALITY AND FLAVOR THAN THE DIFFERENT BRANDS OF THE TEA WHICH WENT INTO THE MIXTURE; (VI) THERE ARE, IT IS TRUE, SOME OBSERVATIONS IN THE JUDGMENT OF THE BOMBAY HIGH COURT WHICH SEEM TO SUGGEST THAT IF INSTEAD OF MANUAL APPLICATION OF ENERGY IN MIXING THE DIFFERENT BRANDS OF TEA, THERE HAD BEEN APPLICATION OF MECHANICAL FORCE IN PRODUCING THE TEA MIXTURE, THE COURT MIGHT HAVE COME TO A DIFFERENT CONCLUSION AND THESE OBSERVAT IONS WERE RELIED UPON BY THE ASSESSEE, SINCE, IN THE PRESENT CASE, THE BLENDING WAS DONE BY APPLICATION OF MECHANICAL FORCE, BUT THAT IS NOT THE CORRECT TEST TO BE APPLIED FOR THE PURPOSE OF DETERMINING WHETHER THE OPERATION CONSTITUTES IS PROCESSING. (VII) T HE QUESTION IS NOT WHETHER THERE IS ANY MANUAL APPLICATION OF ENERGY OR THERE IS APPLICATION OF MECHANICAL FORCE. WHATEVER BE THE MEANS EMPLOYED FOR THE PURPOSE OF CARRYING OUT THE OPERATION, IT IS THE EFFECT OF THE OPERATION ON THE COMMODITY THAT IS MATER IAL FOR THE PURPOSE OF DETERMINING WHETHER THE OPERATION CONSTITUTES PROCESSING. 43.10 THEREFORE, HONBLE SUPREME COURT, IN CONSTRUING THE EXPRESSION PROCESSING ALLOWED THE APPEAL OF THE ASSESSEE, IN CHOWGULE & CO. PVT. LTD. (SUPRA), HOLDING, INTER AL IA, THAT WHERE ANY COMMODITY IS SUBJECTED TO A PROCESS OR TREATMENT WITH A VIEW TO ITS DEVELOPMENT OR PREPARATION FOR THE MARKET IT WOULD AMOUNT TO PROCESSING OF THE COMMODITY WITHIN THE MEANING OF CENTRAL SALES TAX ACT, 1956. HONBLE SUPREME COURT, IN T HE SAID JUDGMENT, DID NOT CONSIDER THE EXPRESSION MANUFACTURE SINCE THE QUESTION WAS DECIDED ONLY ON THE EXPRESSION PROCESSING. HOWEVER, CONSIDERING THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF NILGIRI TEA CO. [1959] 10 STC 500, HONBLE SUPREME COURT OBSERVED THAT, FOR THE PURPOSE OF PRODUCING A TEA MIXTURE OF A DIFFERENT KIND AND QUALITY ACCORDING TO A FORMULA EVOLVED BY THEM, THERE WAS PLAINLY AND INDUBITABLY PROCESSING OF THE DIFFERENT BRANDS OF TEA, BECAUSE THESE BRANDS OF TEA EXPERIENCED, A S A RESULT OF A QUALITATIVE CHANGE, IN THAT THE TEA MIXTURE WHICH CAME INTO EXISTENCE WAS OF A QUALITY AND FLAVOR FROM THE DIFFERENT BRANDS OF TEA WHICH WENT INTO THE MIXTURE. 43.11 HONBLE KERALA HIGH COURT HAD THE OCCASION TO CONSIDER WHETHER ASSESSEE I S ENGAGED IN THE MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING WHEN ASSESSEE WAS 93 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) EXCLUSIVELY ENGAGED IN BLENDING, PACKAGING AND EXPORT OF TEA BAGS, TEA PACKETS AND BULK TEA PACKS IN THE CASE OF TATA TEA LTD. VS. ACIT 338 ITR 285. THE ASSESSEES UNIT WAS RECOGNIZED AS 100% EOU. THE ASSESSEE CLAIMED EXEMPTION U/S 10B OF THE ACT FOR THE ASSESSMENT YEAR 1996 - 97 ONWARDS WHICH WAS GRANTED UP TO THE ASSESSMENT YEAR 2000 - 2001, BUT FOR THE ASSESSMENT YEARS 2001 - 02 AND 2002 - 03 THE EXEMPTION WAS DENIED FOR THE REAS ON THAT BY THE FINANCE ACT, 2000, THE DEFINITION OF MANUFACTURE WHICH INCLUDED PROCESSING CONTAINED IN SEC. 10B OF THE ACT WAS DELETED W.E.F. 01/04/2001. (THE SAME REASONING AS HAS BEEN GIVEN BY THE COORDINATE BENCH IN THE CASE OF CHOWGULE & CO. ITA 162 & 184 HEAVILY RELIED BY THE DEPARTMENT UNDER PARA 14 OF THEIR ORDER DT. 12.7.2007.) HONBLE HIGH COURT NOTED IN THAT CASE THAT THE REVENUES STAND IS THAT MANUFACTURE OR PRODUCTION HAD LIBERAL MEANING UNDER THE DEFINITION CLAUSE CONTAINED IN SECTION 10B OF THE ACT UNTIL ITS DELETION WHICH COVERS EVEN PROCESSING AND, THEREFORE, BLENDING AND PACKAGING OF TEA FOR EXPORT WAS TREATED AS MANUFACTURE OR PRODUCTION OF AN ARTICLE QUALIFYING FOR EXEMPTION. HONBLE KERALA HIGH COURT CONSIDERED THE CONTENTION OF TH E ASSESSEE THAT THE SCHEME OF INCOME TAX EXEMPTION AVAILABLE TO UNITS IN THE SEZ U/S 10A OF THE ACT AND UNITS IN THE FREE TRADE ZONE PROVIDED U/S 10AA OF THE ACT AND THE EXEMPTION AVAILABLE TO 100% EOU U/S 10B OF THE ACT ARE VERY SIMILAR IN NATURE AND THE WORDINGS OF THE STATUTORY PROVISIONS ARE SIMILAR IN NATURE. HONBLE KERALA HIGH COURT ALSO CONSIDERED THE JUDGMENT IN THE DECISION OF SUPREME COURT IN TARA AGENCIES (292 ITR 444 (SC) RELIED UPON BY THE SR. STANDING COUNSEL FOR THE REVENUE, WHEREIN HONBLE SUPREME COURT CLEARLY HELD THAT BLENDING OF TEA DOES NOT AMOUNT TO MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING, BUT IS ONLY PROCESSING. HONBLE HIGH COURT ALLOWING THE APPEAL OF THE ASSESSEE HELD THAT THE ASSESSEE WAS EXCLUSIVELY ENGAGED IN BLENDI NG AND PACKING OF TEA FOR EXPORT AND WAS NOT MANUFACTURING OR PRODUCING ANY OTHER ARTICLE OR THING. IT WAS RECOGNIZED AS A 100% EOU DIVISION AND THE DEPARTMENT HAD NO CASE THAT THE ASSESSEES UNIT ENGAGED IN EXPORT OF TEA BAGS AND TEA PACKETS WAS NOT A 100 % EOU. IF EXEMPTION WAS DENIED ON THE GROUND THAT PRODUCTS EXPORTED WERE NOT PRODUCED OR MANUFACTURED IN THE INDUSTRIAL UNITS OF THE ASSESSEES 100% EOU, IT WOULD DEFEAT THE VERY OBJECT OF SECTION 10B OF THE ACT. (SIMILAR TO ASSESSEES CASE). FURTHER, INDU STRIAL UNITS ENGAGED IN THE VERY SAME ACTIVITY, I.E., BLENDING, PACKING AND EXPORT OF TEA IN THE SPECIAL ECONOMIC ZONES AND FREE TRADE ZONES, WOULD CONTINUE TO ENJOY TAX EXEMPTION UNDER SECTION 10A OF THE ACT AND SECTION 10AA OF THE ACT RESPECTIVELY. THE A SSESSEE WAS ALLOWED EXEMPTION ON THE PROFIT DERIVED BY ITS 100% EOU ENGAGED IN BLENDING, PACKING AND EXPORT OF TEA BAGS AND TEA PACKETS. HONBLE HIGH COURT HELD AS UNDER: THE FINDING OF THIS COURT IS THAT THE PURPOSE OF INCORPORATION OF SECTION 2(R) OF TH E SPECIAL ECONOMIC ZONES ACT, 2005, INTO SECTION 10AA OF THE INCOME - TAX ACT IS TO PROVIDE A LIBERAL MEANING TO THE WORD MANUFACTURE WHICH TAKES IN EVEN BLENDING, REFRIGERATION, ETC. IT WAS NOTICED BY THIS COURT THAT THE DEFINITIONS OF MANUFACTURE CONTA INED IN THE ABOVE DEFINITION CLAUSES ARE VERY LIBERAL WHICH TAKES IN EVEN PROCESSING LIKE BLENDING. THE CONTENTION OF THE COUNSEL FOR THE ASSESSEE IS THAT THE PURPOSE OF REMOVAL OF THE DEFINITION OF MANUFACTURE FROM SECTION 10B WAS NOT TO PROVIDE A RESTR ICTED MEANING FOR THAT TERM CONTAINED IN THE MAIN SECTION BECAUSE IF THAT WAS SO, THEN THE LEGISLATURE WOULD HAVE ONLY MODIFIED THE DEFINITION CLAUSE. FURTHER, THE DEFINITION OF 100 PER CENT EXPORT 94 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) ORIENTED UNIT EVEN AFTER THE AMENDMENT IS RETAINED IN THE SAID SECTION, WHICH DEFINES IT AS AN UNDERTAKING WHICH HAS BEEN APPROVED AS A 100 PER CENT EXPORT ORIENTED UNDERTAKING BY THE BOARD APPOINTED IN THIS BEHALF BY THE CENTRAL GOVERNMENT IN EXERCISE OF POWERS CONFERRED BY SECTION 40 OF THE INDUSTRIES (DEVELOPM ENT & REGULATION) ACT, 1951, AND THE RULES MADE UNDER THAT ACT. IT IS PERTINENT TO NOTE THE PRODUCTS FOR WHICH THE ASSESSEES UNIT IS RECOGNIZED AS A 100 PER CENT EXPORT ORIENTED UNIT ARE TEA BAGS, TEA IN PACKETS AND TEA IN BULK PACKS. IN FACT, THE ASSESSE E IS EXCLUSIVELY ENGAGED IN BLENDING AND PACKING OF TEA FOR EXPORT AND IS NOT MANUFACTURING OR PRODUCING ANY OTHER ARTICLE OR THING. STILL IT IS RECOGNIZED AS A 100 PER CENT EXPORT ORIENTED UNIT BY THE CONCERNED AUTHORITY WITHIN THE MEANING OF THAT TERM CO NTAINED IN THE DEFINITION CLAUSE OF SECTION 10B OF THE INCOME - TAX ACT AND THE DEPARTMENT HAS NO CASE THAT THE ASSESSEES UNIT ENGAGED IN EXPORT OF TEA BAGS AND TEA PACKETS IS NOT A 100 PER CENT EXPORT ORIENTED UNIT. SO MUCH SO, IN OUR VIEW, IF EXEMPTION IS DENIED ON THE GROUND THAT PRODUCTS EXPORTED ARE NOT PRODUCED OR MANUFACTURED IN THE INDUSTRIAL UNIT OF THE ASSESSEES 100 PER CENT EXPORT ORIENTED UNIT, THE SAME WOULD DEFEAT THE VERY OBJECT OF SECTION 10B. FURTHER, INDUSTRIAL UNITS ENGAGED IN THE VERY SA ME ACTIVITY, I.E., BLENDING, PACKING AND EXPORT OF TEA IN THE SPECIAL ECONOMIC ZONES AND FREE TRADE ZONES, WILL CONTINUE TO ENJOY TAX EXEMPTION UNDER SECTION 10A AND SECTION 10AA RESPECTIVELY. THE STILL WORSE POSITION IS THAT THE APPELLANT WOULD BE DENIED OF EXPORT EXEMPTION AVAILABLE UNDER SECTION 80HHC EVEN TO A MERCHANT EXPORTER. IN OUR VIEW, THE DECISION OF THE SUPREME COURT IN TARA AGENCIES CASE [2007] 292 ITR 444 (SC) IS NOT APPLICABLE FOR THE PURPOSE OF CONSIDERING EXEMPTION FOR INDUSTRIES IN THE EX PORT PROCESSING ZONES, FREE TRADE ZONES AND TO 100 PER CENT EXPORT ORIENTED UNITS COVERED BY SECTIONS 10A, 10AA AND 10B OF THE INCOME - TAX ACT. THEREFORE, FOLLOWING THE JUDGMENT OF THIS COURT ABOVE REFERRED TO WE HOLD THAT THE ASSESSEE IS ENTITLED TO EXEMPT ION ON THE PROFIT DERIVED BY ITS 100 PER CENT EXPORT ORIENTED UNIT ENGAGED IN BLENDING, PACKING AND EXPORT OF TEA BAGS AND TEA PACKETS. CONSEQUENTLY, WE ALLOW THE APPEALS BY REVERSING THE ORDERS OF THE TRIBUNAL AND BY RESTORING THE ORDERS OF THE FIRST APPE LLATE AUTHORITY DECLARING THE APPELLANTS ENTITLEMENT FOR EXEMPTION. 43.12 HONBLE HIGH COURT IN THIS CASE, IN OUR OPINION, HAS CLEARLY LAID DOWN THAT ONCE THE ASSESSEE IS RECOGNIZED AS A 100% EOU FOR ENGAGING IN AN ACTIVITY AND ASSESSEE IS ENGAGED IN THE SAME VERY ACTIVITY, IF THE EXEMPTION IS DENIED TO THE ASSESSEE ON THE GROUND THAT THERE IS NO PRODUCTION OR MANUFACTURING BUT ONLY PROCESSING OF THE PRODUCTS EXPORTED IN THE 100% EXPORT ORIENTED UNIT, THE SAME WOULD DEFEAT THE VERY OBJECT OF SECTION 10B. THE HONBLE HIGH COURT TOOK THE VIEW THAT THE DECISION OF THE HONBLE SUPREME COURT IN TARA AGENCYS CASE 292 ITR 444 WILL NOT APPLY EVEN THOUGH HONBLE SUPREME COURT IN THAT CASE HAS HELD THAT BLENDING OF TEA DOES NOT AMOUNT TO MANUFACTURE OR PRODUCTION O F AN ARTICLE BUT IS ONLY PROCESSING. THUS, THE HONBLE KERALA HIGH COURT IN THE CASE OF TATA TEA LTD. (SUPRA) GAVE THE CLEAR CUT FINDING IMPLIEDLY THAT EVEN IF THE ASSESSEE IS ENGAGED IN PROCESSING AND IS RECOGNIZED AS 100% EOU, IT WILL BE ENTITLED FOR EXE MPTION CLAIMED U/S 10B OF THE ACT. 95 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) 43.13 THE CRUX OF THE SUBMISSIONS OF THE LD. SPECIAL COUNSEL FOR THE DEPARTMENT IS THAT THE ASSESSEE IS ENGAGED IN THESE 100% EXPORT ORIENTED UNITS ONLY IN PROCESSING OF IRON ORE AND BY PROCESSING IT GET IT UPGRADED FOR EXPORT, THEREFORE IT IS NOT ENTITLED FOR EXEMPTION U/S 10B DOES NOT HAVE ANY LEG TO STAND IN VIEW OF THE DECISION OF KERALA HIGH COURT (SUPRA), SUPREME COURT IN THE CASE OF CHOWGULE & CO(SUPRA). EVEN ON THIS ISSUE WE HAVE GONE THROUGH THE DECISION OF HON BLE SPECIAL BENCH IN THE CASE OF MADHU JAYANTI INTERNATIONAL LTD. AND OTHERS VS. DCIT. THE QUESTION FOR CONSIDERATION AND DECISION OF THE SPECIAL BENCH WAS: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ASSESSEES, WHO ARE IN THE BUSINESS OF BLENDING & PROCESSING OF TEA AND EXPORT THEREOF, CAN BE SAID TO BE MANUFACTURE/PRODUCER OF THE TEA FOR THE PURPOSE OF SECTION 10A/10B OF THE I.T. ACT, 1961? 44. THE BRIEF FACTS IN THE CASE OF MADHU JAYANTI INTERNATIONAL LTD. IN ITA NO. 1463/KOL/200 7 WERE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING, PROCESSING, EXPORTING AND DEALING IN VARIOUS COMMODITIES, MORE PARTICULARLY TEA, COFFEE, JUTE, PEPPER, CHILLIES, CARDAMOM, TURMERIC AND SIMILAR OTHER SPICES, ETC. THE ASSESSEE, AS PER THE CLAIM IS A 100% EOU WITHIN THE MEANING OF SECTION 10B OF THE I.T. ACT, 1961 AND CLAIMED EXEMPTION UNDER THAT SECTION. THE ASSESSEE BUYS TEA FROM AUCTIONS HELD IN TEA BOARD RECOGNIZED AUCTION CENTRES AT KOLKATA, GUWAHATI, SILIGURI, COCHIN, COIMBATORE AN D COONOOR. THE ASSESSEE CONCEDED THE FACTUAL POSITION THAT IT IMPORTS SMALL QUANTITY OF TEA OF THE TYPE AND QUALITY NOT PRODUCED IN INDIA. IT FURTHER CONCEDED THE FACTUAL POSITION THAT IT DOES NOT GROW OR MANUFACTURE ANY TEA. ACCORDING TO THE ASSESSEE, TEA SO BOUGHT IN DIFFERENT AUCTIONS IS PROCESSED WITH A VIEW TO REMOVE ALL DUST AND FOREIGN SUBSTANCES AND THEREAFTER IT BLENDS DIFFERENT VARIETIES OF TEA TO MAKE IT OF UNIFORM AND CONSISTENT QUALITY THROUGHOUT THE YEAR. THEREAFTER, IT IS PACKED IN CONSUMER PACKETS OF 50, 100, 250, 500 OR 1000 GMS. ETC. OR PACKED IN THE FORM OF TEA BAGS OF 1.94 GMS. OR 2 GMS. ETC., AS THE CASE MAY BE. THE ASSESSEE CLAIMED EXEMPTION U/S 10B OF THE ACT IN RESPECT OF ITS 100% EOU FOR EXPORT OF MANUFACTURED JUTE BAGS, PACKET TEA , TEA BAGS, BULK TEA, ETC. THE AO REJECTED THE CLAIM OF ASSESSEE OF EXEMPTION U/S 10B IN RESPECT OF EXPORT OF BLENDING OF TEA. THE REJECTION OF EXEMPTION U/S 10B WAS CONFIRMED BY THE CIT(A). WHEN THE MATTER WENT BEFORE THE SPECIAL BENCH, SPECIAL BENCH AFT ER DISCUSSION THE RELEVANT PROVISIONS AS WELL AS THE VARIOUS DECISIONS OF HIGH COURT AND THE SUPREME COURT HELD AS UNDER: - 32. THE PROVISIONS OF SECTION 10AA OF THE ACT WAS INSERTED ON THE STATUTE BOOK BY THE SPECIAL ECONOMIC ZONES ACT, 2005 W.E.F. 10.02.2006. EVEN PRIOR TO THE ENACTMENT OF THE SAID SEZ ACT, SPECIAL ECONOMIC ZONES (INCLUDING UNITS THEREIN) WERE ALL ALONG TREATED LIKE EQU / FTZ / EPZ FOR ALL PURPOSES WHATSOEVER AND WERE DEALT WITHIN THE EXIM POL ICY ACCORDINGLY. SECTION 2(K) OF THE SPECIAL ECONOMIC ZONE ACT, 2005 DEFINES THE EXPRESSION 'EXISTING SPECIAL ECONOMIC ZONE' TO MEAN EVERY SPECIAL ECONOMIC ZONE WHICH IS IN EXISTENCE ON OR BEFORE THE COMMENCEMENT OF THE SAID ACT. SECTION 2(E) DEFINES THE E XPRESSION 'EXISTING UNIT' TO MEAN EVERY UNIT WHICH HAS BEEN SET UP ON OR BEFORE THE COMMENCEMENT OF THE SAID ACT IN AN EXISTING SPECIAL ECONOMIC ZONE. IN OTHER WORDS, ADMITTEDLY ALL SPECIAL ECONOMIC ZONES WERE ALSO BEING GOVERNED BY THE EXIM POLICY PRIOR 96 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) T O THE ENACTMENT OF SEZ ACT, 2005. CLAUSE (III) OF EXPLANATION 1 TO SECTION 1OAA LAYS DOWN THAT THE EXPRESSION 'MANUFACTURE' SHALL HAVE THE SAME MEANING AS ASSIGNED TO IT IN SECTION 2(R) OF THE SPECIAL ECONOMIC ZONES ACT, 2005, WHICH DEFINITION IS AS UNDER: 'MANUFACTURE' MEANS TO MAKE, PRODUCE, FABRICATE, ASSEMBLE, PROCESS OR BRING INTO EXISTENCE, BY HAND OR BY MACHINE, A NEW PRODUCT HAVING A DISTINCTIVE NAME, CHARACTER OR USE AND SHALL INCLUDE PROCESSES SUCH AS REFRIGERATION, CUTTING, POLISHING, BLENDING, R EPAIR, REMAKING, RE - ENGINEERING AND INCLUDES AGRICULTURE, AQUACULTURE, ANIMAL HUSBANDLY, FLORICULTURE, HORTICULTURE, PISCICULTURE, POULTRY, SERICULTURE, VITICULTURE AND MINING'. IN EXIM POLICY, THE EXPRESSION 'MANUFACTURE' IS DEFINED, IN PARAGRAPH 9.30 & 9 .31 THEREOF ALMOST IN THE SAME MANNER AS IN THE SPECIAL ECONOMIC ZONE ACT, 2005, WHICH IS AS UNDER: 'MANUFACTURE' MEANS TO MAKE, PRODUCE, FABRICATE, ASSEMBLE, PROCESS OR BRING INTO EXISTENCE, BY HAND OR BY MACHINE, A NEW PRODUCT HAVING A DISTINCTIVE NAME, CHARACTER OR USE AND SHALL INCLUDE PROCESSES SUCH AS REFRIGERATION, REPACKING, POLISHING AND LABELING. MANUFACTURE, FOR THE PURPOSE OF THIS POLICY, SHALL ALSO INCLUDE AGRICULTURE, AQUACULTURE, ANIMAL HUSBANDRY, FLORICULTURE, HORTICULTURE, PISCICULTURE, POU LTRY, SERICULTURE, VITICULTURE AND MINING.' BUT THE ONLY DIFFERENCE BETWEEN THE EXIM POLICY OF 2002 - 07 AND OF 2000 IS THAT WORDS 'AND SEGREGATION' WHICH WERE APPEARING IN THE DEFINITION OF THE EXPRESSION 'MANUFACTURE' IN THE EXIM POLICY OF 2000 WAS DELETED IN THE EXIM POLICY OF 2002 - 07. FURTHER, EVEN IN PREVENTION OF FOOD ALTERNATION RULES, 1955, IT HAS BEEN INTER ALIA STATED THAT TEA USED IN THE MANUFACTURE OF FLAVOURED TEA SHALL CONFORM TO THE STANDARDS OF TEA. THE FLAVOURED TEA : MANUFACTURERS SHALL REGISTER THEMSELVES WITH THE TEA BOARD BEFORE MAKING FLAVOUR TEA IN THE TEA (DISTRIBUTION & EXPORT) CONTROL ORDER, 1957 ISSUED BY THE GOVE RNMENT OF INDIA, MINISTRY OF COMMERCE & INDUSTRY (DEPARTMENT OF COMMERCE) THE EXPRESSIONS 'FLAVOUR TEA', 'GREEN TEA ' 'INSTANT TEA', 'PACKET TEA' 'QUICK BREWING BLACK TEA', 'TEA' AND 'TEST BAG' HAVE BEEN S EPARATELY DEFINED AS DISTINCT PRODUCT. IN TEA (MARKETING) CONTROL ORDER, 2003 ISSUED BY THE ' CENTRAL GOVERNMENT, IN EXERCISE OF THE POWERS CONFERRED BY SECTION 30(5)(3) OF THE TEA ACT, 1953, THE EXPRESSIONS 'MANUFACTURER', 'BUYER', 'PACKET TEA', 'TEA BAG' , - 'GREEN TEA', 'QUICK BREWING BLACK TEA', 'INSTANT TEA' AND 'MADE TEA' HAVE ALSO BEEN DISTINCTLY AND SEPARATELY DEFINED. CLAUSE (29BA) WAS INSERTED IN SECTION 2 OF THE INCOME TAX ACT, 1961 BY THE FINANCE (NO.2) ACT, 2009 W.E.F. 01.04.2009 TO DEFINE THE EX PRESSION 'MANUFACTURE' AS UNDER: 'MANUFACTURE', WITH ITS GRAMMATICAL VARIATIONS, MEANS A CHANGE IN A NON - LIVING PHYSICAL OBJECT OR ARTICLE OR THING, - (A) RESULTING IN TRANSFORMATION OF THE OBJECT OR ARTICLE OR THING INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFERENT NAME, CHARACTER AND USE; OR (B) BRINGING INTO EXISTENCE OF A NEW AND DISTINCT OBJECT OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSITION OR INTEGRAL STRUCTURE; THE AFORESAID DEFINITION OF THE EXPRESSION 'MANUFACTUR E', ALTHOUGH BROUGHT INTO THE STATUTE BOOK W.E.F. 01.04.2009, WAS APPLIED BY THE HON'BLE SUPREME COURT EVEN FOR THE 97 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) ASSESSMENT YEAR 2001 - 02 IN ITO V. ARIHANT TILES AND MARBLES PVT. LTD. (2010) 320 ITR 79, 82 (SC) ON THE GROUND THAT PARLIAMENT HAD TAKEN NOT E OF GROUND REALITY IN INSERTING SECTION 2(29BA) IN THE INCOME TAX LAW. THE SAID DEFINITION WAS AGAIN APPLIED BY THE HON'BLE SUPREME COURT IN CIT V. EMPTEE POLY - YARN PVT. LTD. (2010) 'GREEN TEA' MEANS THE VARIETY OF MANUFACTURED TEA COMMERCIALLY KNOWN AS GREEN TEA; 320 ITR 665,667 (SC). 33. THE ASSESSEE COMPANY CARRIES OUT ITS OPERATIONS OF BLENDING, PACKAGING AND EXPORT OF TEA BAGS, TEA PACKETS AND BULK TEA PACKS IN ITS MODERN FACTORY, WELL EQUIPPED WITH ALL IMPORTED AND SOPHISTICATED AUTOMATIC PLANT AND MACHINERIES WITH THE HELP OF OVER 100 WORKMEN ENGAGED ON CONTRACT BASIS THROUGH M/S. TROT PVT. LTD. THE MANUFACTURING'. OPERATIONS ARE CARRIED IN ITS SAID FACTORY SITUATED AT 19/4A, MUNSHIGANJ ROAD (UNDER FALTA EXPORT PROCESSING ZONE), KOLKATA. WE FIND FROM FACTS OF THE CASE THAT THE DETAILS OF TURNOVER OF THE ASSESSEE SHOWS BULK TEA (0.94%), PACKET TEA AND TEA BAGS .(99.06%),. AS. PER DIFFERENT DESCRIPTIONS, BRAND NAMES AND VARIETIES, AS LISTED APR. ASSESSEE COMPANY IS DULY REGISTERED AS A 100% EOU BY THE GOVERNMENT OF INDIA, MINISTRY OF INDUSTRY, DEPARTMENT OF INDUSTRIAL POLICY AND PROMOTION SECRETARIAL FOR INDUSTRIAL APPROVALS, ECU SECTION IN THE STATE OF WEST BENGAL FOR MANUFACTURE OF PACKET TEA, TEA BAGS/BULK TEA W ITH ANNUAL CAPACITY OF 3110 MT. IN TERMS OF REGISTRATION CERTIFICATE DATED 26TH DECEMBER, 1995, INTER ALIA, WITH THE CONDITION THAT ITS 100% PRODUCTION (EXCLUDING REJECTS NOT EXCEEDING 5%) WOULD HAVE TO BE EXPORTED AND THAT ITS REGISTERED EOU UNIT SHALL MA KE VALUE ADDITION TO A MINIMUM EXTENT OF 79%. UNDISPUTEDLY, THE EXPORTED CONSUMER PRODUCTS, BLENDED BY ASSESSEE IN ITS SAID FACTORY PREMISES IS A CASE OF SUBSTANTIAL VALUE ADDITION, AS COMPARED TO THE UNBLENDED BLACK TEA IN GRANULE AND DUST FORM NORMALLY A VAILABLE FOR SALE IN THE OPEN RETAIL MARKET THROUGHOUT INDIA. 34. THE SUBJECT FOR CONSIDERATION UNDER SECTIONS 10A AND/OR 10B OF THE SAID ACT IS MANUFACTURE / PRODUCTION OF TEA ; THE OBJECT BEING GRANT OF BENEFITS OF TAX EXEMPTION TO EXPORTERS CARRYING OUT THEIR OPERATIONS IN FTZ, EOU, EPZ & SEZ AREAS IN ACCORDANCE WITH THE EXIM POLICY DECLARED BY THE GOVERNMENT OF INDIA IN PARLIAMENT AND IN THE LIGHT OF ALLIED AND GOVERNING LAWS; IN THE LIGHT OF ALLIED LAWS E.G. THE TEA ACT, 1953, THE PREVENTION OF FOOD ADULTERATION ACT, 1953 READ WITH PREVENTION OF FOOD ADULTERATION RULES, 1955. THE TEA (MARKETING) CONTROL ORDER, 2003, THE TEA (DISTRIBUTION & EXPORT) CONTROL ORDER, 2005 AS WELL AS THE RULES AND REGULATIONS FRAMED BY THE TEA BOARD AND ALSO CALCUTTA TEA TRADERS ASSOCIATION FROM TIME TO TIME AS DISCUSSED ABOVE. 35. WE FIND FROM THE ABOVE FACTS AND CIRCUMSTANCES AND CASE LAWS RELIED ON BY BOTH THE SIDES THAT THE ASSESSEE WAS EXCLUSIVELY ENGAGED IN BLENDING, PACKAGING AND EXPORT OF TEA BAG S, TEA PACKETS AND BULK TEA PACKS. THE ASSESSEE'S DIVISION ENJOYS RECOGNITION AS A 100% EOU, WHICH IS GRANTED BY THE DEVELOPMENT COMMISSIONER, MINISTRY OF COMMERCE & INDUSTRY, GOVT. OF INDIA. THE ASSESSEE CLAIMED EXEMPTION U/S. 10B OF THE ACT FOR AYS 2000 - 01 ONWARDS, WHICH WAS GRANTED UPTO THE AY 2003 - 04. HOWEVER, FOR THE AY 2004 - 05, EXEMPTION WAS DECLINED FOR THE REASONS THAT BY THE FINANCE ACT, 2000, THE DEFINITION OF `MANUFACTURE WHICH INCLUDED 'PROCESSING' CONTAINED IN SECTION 1OB OF THE ACT WAS DELETED W.E.F. 01.04.2001. THE ARGUMENT OF THE DEPARTMENT IS THAT 98 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) MANUFACTURE OR PRODUCTION HAD LIBERAL MEANING UNDER THE DEFINITION CLAUSE CONTAINED IN SECTION 10B OF THE ACT UNTIL ITS DE LETION WHICH COVERS EVEN PROCESSING AND, THEREFORE, BLENDING 'AND PACKAGING OF TEA FOR EXPORT WAS TREATED AS 'MANUFACTURE' OR 'PRODUCTION' OF AN ARTICLE QUALIFYING FOR EXEMPTION. WE ARE OF THE CONSIDERED VIEW THAT THE CONTENTION OF THE ASSESSEE THAT THE SC HEME OF INCOME TAX EXEMPTION AVAILABLE TO UNITS IN THE SEZ U/S. TOA OF THE ACT AND UNITS IN THE FREE TRADE ZONE PROVIDED U/S, 10AA OF THE ACT AND THE EXEMPTION AVAILABLE TO 100% EOU U/S. 1OB OF THE ACT ARE VERY SIMILAR IN NATURE AND THE WORDINGS OF THE STATUTORY PROVISIONS ARE SIMILAR IN NATURE IS CORRECT. WE FIND THAT HON'BLE KERALA HIGH COURT ALSO CONSIDERED THE JUDGMENT IN - THE DECISION OF SUPREME COURT IN TARA AGENCIES, SUPRA RELIED ON BY THE LD. CIT, DR, WHER EIN HON'BLE SUPREME COURT CLEARLY HELD THAT BLENDING OF TEA DOES NOT AMOUNT TO 'MANUFACTURE' OR 'PRODUCTION' OF AN ARTICLE, BUT IS ONLY PROCESSING. WE FIND THAT THE ASSESSEE WAS EXCLUSIVELY ENGAGED IN BLENDING AND PACKING OF TEA FOR EXPORT AND WAS NOT MANU FACTURING OR PRODUCING ANY OTHER ARTICLE OR THING. IT WAS RECOGNISED AS A 100% EOU DIVISION AND THE DEPARTMENT HAD NO CASE THAT THE ASSESSEE'S UNIT ENGAGED IN EXPORT OF TEA BAGS AND TEA PACKETS WAS NOT A 100% EOU. IF EXEMPTION WAS DENIED ON THE GROUND THAT PRODUCTS EXPORTED WERE NOT PRODUCED OR MANUFACTURED IN THE INDUSTRIAL UNIT OF THE ASSESSEE'S 100% EOU, IT WOULD DEFEAT THE VERY OBJECT OF SECTIONS 10B OF THE ACT. 36. WE, IN VIEW OF THE ABOVE, HOLD THAT WHEN THE PRODUCTS FOR WHICH THE ASSESSEE'S UNIT IS RECOGNIZED AS A 100% EOU ARE TEA BAGS, TEA IN PACKETS AND TEA IN BULK PACKS AND THE ASSESSEE IS EXCLUSIVELY ENGAGED IN BLENDING AND PACKING OF TEA FOR EXPORT MAY NOT BE MANUFACTURER OR PRODUCER OF ANY OTHER ARTICLE OR THING IN COMMON PARLANCE. HOWEVER, FOR THE PURPOSE OF SECTION 10A, 10AA AND 10B, WE HAVE TO CONSIDER THE DEFINITION OF THE WORD 'MANUFACTURE' AS DEFINED IN SECTION 2(R) OF SEZ ACT, EXIM POLICY, FOOD ADULTERATION RULES, 1955, TEA (MARKETING) CONTROL ORDER, 2003, ETC. WE ALSO FIND THAT THE DEFIN ITION OF 'MANUFACTURE' AS PER SECTION 2(R) OF THE SEZ ACT, 2005 IS INCORPORATED IN SECTION 10AA OF THE INCOME - TAX ACT WITH EFFECT FROM 10.02.2006. HON'BLE KERALA HIGH COURT IN THE CASE OF GIRNAR INDUSTRIES (SUPRA) HAD HELD SUCH AMENDMENT IN SECTION 10AA TO BE OF CLARIFICATORY IN NATURE. THE DEFINITION OF 'MANUFACTURE' UNDER THE SEZ ACT, EXIM POLICY, FOOD ADULTERATION RULES AND TEA (MARKETING) CONTROL ORDER IS MUCH WIDER THAN WHAT IS THE MEANING OF THE TERM `MANUFACT URE UNDER THE COMMON PARLANCE, AND IT INCLUDES PROCESSING, BLENDING, PACKAGING ETC. IN VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE OF GIRNAR INDUSTRIES (SUPRA) AND TATA TEA LIMITED (SUPRA), WE 'HOLD T HAT THE ASSESSEE IS ENTITLED FOR EXEMPTION UNDER SECTION 10B OF THE ACT ON ACCOUNT OF BLENDING OF TEA. SIMILARLY, IN OUR VIEW, THE INDUSTRIAL UNITS ENGAGED IN THE VERY SAME ACTIVITY I.E. BLENDING, PACKING AND EXPORT OF TEA IN THE FREE TRADE ZONE SHALL AL SO BE ENTITLED TO ENJOY TAX EXEMPTION UNDER SECTION 10A OF THE ACT. 37. ACCORDINGLY, WE ANSWER THE QUESTION REFERRED IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE ASSESSEES WHO ARE IN THE BUSINESS OF BLENDING AND PROCESSING OF TEA AND EXPORT THEREOF, IN 1 00% EOUS ARE MANUFACTURER/ PRODUCER OF THE TEA FOR THE PURPOSE OF CLAIMING EXEMPTION U/S.10B OF THE ACT. FURTHER, ASSESSEES WHO ARE IN THE BUSINESS OF 99 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) BLENDING AND PROCESSING OF TEA HI RESPECT OF UNDERTAKINGS IN FREE TRADE ZONES ARE MANUFACTURER/PRODUCER O F TEA FOR THE PURPOSE OF CLAIMING EXEMPTION U/S. 10A OF THE ACT. WE HAVE EXAMINED AND DISCUSSED THE FACTS IN THE CASE OF MADHU JAYANTI INTERNATIONAL LTD. AND FOUND THAT THERE IS BLENDING OF TEA AND CONSEQUENTLY THE ASSESSEE IS ELIGIBLE FOR EXEMPTION U/S. 10B OF THE ACT AS PRAYED FOR. THEIR APPEAL FOR THE AY 2004 - 05 IS ALLOWED. AS REGARDS OTHER APPEALS AND THAT OF THE INTERVENERS, THE MATTERS ARE RESTORED BACK TO THE DIVISION BENCH, WITH DIRECTION S TO DECIDE THOSE APPEALS IN THE LIGHT OF PRINCIPLE LAID DOWN HEREIN, SO FAR AS THE CLAIM FOR RELIEF U/S. 10A OR 10B OF THE ACT IN ACCORDANCE WITH LAW. 44.1 FROM THE READING OF PARA 35 OF THE AFORESAID JUDGMENT WE NOTED THAT THE SPECIAL BENCH IN THIS CASE CLEARLY HELD THAT THE ASSESSEE WAS ENGAGED ONLY IN PROCESSING AND WAS NOT ENGAGED IN THE MANUFACTURE OR PRODUCTION BUT HAD ULTIMATELY UNDER PARA 36 IT TOOK THE VIEW IN VIEW OF THE FACT THAT THE DEFINITION OF MANUFACTURE U/S 2(R) OF THE SEZ ACT, 2005 WHI CH IS INCORPORATED IN SECTION 10AA W.E.F. 10/02/2006 INCLUDES PROCESSING. THEREFORE, FOLLOWING THE DECISION OF KERALA HIGH COURT IN THE CASE OF GIRNAR INDUSTRIES AND TATA TEA LTD. (WHICH WAS DISCUSSED BY US IN THE PRECEDING PARAGRAPHS) HELD THAT THE ASSE SSEE IS ENTITLED FOR EXEMPTION U/S 10B OF THE ACT ON ACCOUNT OF BLENDING OF TEA. 45. WE HAVE ALSO GONE THROUGH THE DECISION OF HONBLE SUPREME COURT IN INDIAN CINE AGENCIES VS CIT 308 ITR 98. IN THIS CASE THE QUESTION BEFORE THE HONBLE SUPREME COURT WAS : WHEN THE ASSESSEE WAS ENGAGED IN THE ACTIVITY OF CUTTING JUMBO ROLL FILMS INTO FLAT AND SMALL ROLLS IN DESIRED SIZES, WHETHER SUCH ACTIVITY UNDERTAKEN BY THE ASSESSEE WAS MANUFACTURE OR PRODUCTION? IN THIS CASE, THE HONBLE SUPREME COURT AFTER DISCUSSING VARIOUS CASES, THE PROVISIONS OF DIFFERENT ACTS AND THE DICTIONARY MEANING TOOK THE VIEW THAT THE ASSESSEE WAS ENGAGED IN MANUFACTURE / PRODUCTION. WHILE HOLDING SO UNDER PARA 12 OF ITS ORDER, HONBLE SUPREME COURT HAS GIVEN THE SAME ANALOGY FOR THE PURPO SE OF ELIGIBILITY OF DEDUCTION UNDER SECTION 80HH AND 80 - I AS HAS BEEN GIVEN BY THE KERALA HIGH COURT IN THE CASE OF TATA TEA DISCUSSED HEREIN ABOVE FOR THE PURPOSE OF SECTION 10B, THAT IF THERE WAS NO MANUFACTURING ACTIVITY, THEN THE QUESTION OF REFERRING TO ITEM 10 OF ELEVENTH SCHEDULE FOR THE PURPOSE OF EXCLUSION DOES NOT ARISE. FROM THIS JUDGMENT, THUS, IT IS APPARENT THAT THE HONBLE APEX COURT ACCEPTED THAT MANUFACTURE/PRODUCTION INCLUDES PROCESSING ALSO. 45.1 WE HAVE ALSO GONE THROUGH THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ITO VS. ARIHANT TILES AND MARBLES PVT. LTD. 320 ITR 79(SC). IN THIS CASE WHEN THE ASSESSEE WAS ENGAGED IN THE ACTIVITY OF CUTTING AND POLISHING OF MARBLE BLOCKS, THE QUESTION BEFORE THE SUPREME COURT WAS WHETHER THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE WOULD FALL WITHIN THE MEANING OF THE WORDS MANUFACTURE OR PRODUCTION IN SECTION 80 - IA OF THE INCOME - TAX ACT, 1961? IN THIS CASE, HONBLE SUPREME COURT, AFTER DISCUSSING THE DEFINITION OF MANUFACTURE GIVEN IN SECTIO N 2(29BA) OF THE INCOME - TAX ACT, 1961 AND ALSO DISCUSSING THE PROVISIONS OF SECTION 80 - IA(2)(III) AND AFTER GOING THROUGH VARIOUS DECISIONS, HELD AS UNDER: 22. APPLYING THE ABOVE TESTS LAID DOWN BY THIS COURT IN CIT VS. N.C. BUDHARAJA AND CO. 204 ITR 4 12 (SC) TO THE FACTS OF THE PRESENT CASES, WE ARE OF 100 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) THE VIEW THAT BLOCKS CONVERTED INTO POLISHED SLABS AND TILES AFTER UNDERGOING THE PROCESS INDICATED ABOVE CERTAINLY RESULTS IN EMERGENCE OF A NEW AND DISTINCT COMMODITY. THE ORIGINAL BLOCK DOES NOT REMA IN THE MARBLE BLOCK, IT BECOMES A SLAB OR TILE. IN THE CIRCUMSTANCES, NOT ONLY THERE IS MANUFACTURE BUT ALSO AN ACTIVITY WHICH IS SOMETHING BEYOND MANUFACTURE AND WHICH BRINGS A NEW PRODUCT INTO EXISTENCE AND, THEREFORE, ON THE FACTS OF THESE CASES, WE AR E OF THE VIEW THAT THE HIGH COURT WAS RIGHT IN COMING TO THE CONCLUSION THAT THE ACTIVITY UNDERTAKEN BY THE RESPONDENTS - ASSESSEES DID CONSTITUTE MANUFACTURE OR PRODUCTION IN TERMS OF SECTION 80IA OF THE INCOME TAX ACT, 1961. 23. BEFORE CONCLUDING, WE WOULD LIKE TO MAKE ONE OBSERVATION. IF THE CONTENTION OF THE DEPARTMENT IS TO BE ACCEPTED, NAMELY THAT THE ACTIVITY UNDERTAKEN BY THE RESPONDENTS HEREIN IS NOT A MANUFACTURE, THEN, IT WOULD HAVE SERIOUS REVENUE CONSEQUENCES. AS STATED ABOVE, EACH OF THE RESPONDENTS IS PAYING EXCISE DUTY, SOME OF THE RESPONDENTS ARE JOB WORKERS AND THE ACTIVITY UNDERTAKEN BY THEM HAS BEEN RECOGNIZED BY VARIOUS GOVERNMENT AUTHORITIES AS MANUFACTURE. TO SAY THAT THE ACTIVITY WILL NOT AMOUNT TO MANUFACTURE OR PRODUCTION UNDE R SECTION 80IA WILL HAVE DISASTROUS CONSEQUENCES, PARTICULARLY IN VIEW OF THE FACT THAT THE ASSESSEES 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 RESPONDENTS CONSTITUTES MANUFACTURE OR PRODUCTION AND, THEREFORE, THEY WOULD BE ENTITLED TO THE BENEFIT OF SECTION 80IA OF THE INCOME TAX ACT, 196 1. 45.2 IN THIS CASE ALSO, HONBLE SUPREME COURT TOOK THE VIEW THAT CUTTING AND POLISHING OF THE MARBLE BLOCKS IS THE ACTIVITY WHICH CONSTITUTES MANUFACTURE OR PRODUCTION AS AFTER PROCESSING MARBLE BLOCK NO MORE REMAINS AS MARBLE BLOCK. THIS DECISION H AS ALSO DULY CONSIDERED, IN OUR OPINION, WHETHER THE ACTIVITY OF PROCESSING IS MANUFACTURE / PRODUCTION. 45.3 NOW, WE WOULD LIKE TO DEAL WITH THE SUBMISSIONS OF THE REVENUE WHETHER THIS ISSUE SHOULD BE SENT TO SPECIAL BENCH OR NOT. WE HAVE GONE THROUGH T HE DECISION OF THIS TRIBUNAL IN ITA NO. 162/PNJ/2006 DT. 12 TH JULY, 2007 READ WITH MISC. APPLICATION IN MA NO. 23/PNJ/2007 DT. 19 TH JULY, 2007 IN THE CASE OF CHOWGULE & CO. IN THIS CASE WE NOTED THAT THE COORDINATE BENCH OF THE TRIBUNAL HAS INTERPRETED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SESA GOA 271 ITR 331 THAT EXTRACTION AND PROCESSING OF MINING ORE AMOUNTS TO PRODUCTION; AND ONE SHOULD READ THE EXPRESSION EXTRACTION AND PROCESSING TOGETHER (THIS DECISION WAS NOT RENDERED IN RESPEC T OF EXEMPTION AVAILABLE U/S 10B). EVEN THE COORDINATE BENCH OF THIS TRIBUNAL FURTHER HELD THAT IF SECTION 10B PROVIDES EXEMPTION FOR PROCESSING ALSO, THE LAW WOULD HAVE MADE IT VERY CLEAR BY APPARENTLY STATING THAT PROCESSING IS ALSO ENTITLED FOR EXEMPTI ON. WHEN THE EXPRESSION PROCESSING IS OMITTED IN SECTION 10B, WE ARE NOT SUPPOSED TO FILL UP THE OMISSION. IF SOMETHING IS NOT THERE WE SHOULD ACCEPT AS IT IS NOT THERE. WE SHOULD NOT PROVIDE FOR THE OMISSION THAT AMOUNTS TO JUDICIAL LEGISLATION. THERE I S NO CONFUSION IN 101 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) THE PROVISION OF LAW PROVIDED UNDER SECTION 10B. THE EXEMPTION IS AVAILABLE ONLY TO MANUFACTURE OR PRODUCTION. IT IS NOT AVAILABLE FOR PROCESSING. ALTHOUGH SUBSEQUENTLY THIS TRIBUNAL HAS RECTIFIED THE ORDER UNDER SECTION 254 VIDE ORDER D ATED 19 TH JULY, 2007 ON THE APPLICATION OF THE ASSESSEE AND TOOK THE VIEW THAT THE ASSESSEE IS ENTITLED FOR EXEMPTION UNDER SECTION 10B AS THE ASSESSEE - COMPANY ITSELF IS EXTRACTING THE ENTIRE IRON ORE FROM OWN MINES AND MINES TAKEN ON LEASE AND THEREAFTER PROCESSING THE SAME. WE CANNOT LOOK INTO THE FINDING OF THE COORDINATE BENCH WHETHER THEY HAVE CORRECTLY INTERPRETED THE DECISION OF SUPREME COURT IN 271 ITR 331 OR NOT. THE LD. AR VEHEMENTLY CONTENDED THAT THE DECISION DT. 12 TH JULY, 2007 OF THIS TRIBUNAL IN THAT CASE GOT OVERRULED BY THE DECISION OF THIS TRIBUNAL VIDE ORDER DT. 19 TH JULY, 2007 BUT WE DO NOT AGREE ON THIS WITH THE LD. AR. WE HAVE GONE THROUGH THE ORDER DT. 12 TH JULY, 2007 AS WELL AS ORDER DT. 19 TH JULY, 2007 BUT WE NOTED THAT THE TRIBUNAL RECTIFIED THE ORDER AS THE TRIBUNAL NOTED THE ASSESSEE ITSELF WAS EXTRACTING THE ENTIRE ORES AND PROCESSING THE SAME. THUS, THE ASSESSEE COMPLIED WITH BOTH THE CONDITIONS OF EXTRACTING AND PROCESSING OF IRON ORE. THIS TRIBUNAL DID NOT REVERSE THE FINDING T HAT THE PROCESSING IS NOT ENTITLED FOR THE EXEMPTION. THE TRIBUNAL DID NOT REVERSE THE FINDING THAT EXTRACTION AND PROCESSING SHOULD GO TOGETHER. EVEN THAT BENCH / TRIBUNAL DID NOT VISUALIZE THAT 100% EOU IS APPROVED FOR A PARTICULAR LOCATION AND ITS BOUND RY CANNOT EXTEND BEYOND THAT LOCATION. IT IS ONLY THE PROFIT DERIVED BY THE 100% EOU UNIT SITUATED WITHIN THAT LOCATION, CAN BE REGARDED TO BE THE PROFIT DERIVED BY THE 100% EOU. THE ASSESSEE IN THAT CASE HAS TAKEN THE MINES ON LEASE WHICH WERE NOT APPROVE D AS PART OF 100% EOU BUT STILL THE ASSESSEE WAS ALLOWED EXEMPTION U/S 10B EVEN THOUGH THE IRON ORE EXTRACTED FROM THOSE MINES WHICH WERE TAKEN ON LEASE WERE NOT PART OF THE 100% EOU 45.4 NO DOUBT THE DECISION OF THE COORDINATE BENCH IS BINDING ON US IN VIEW OF THE SETTLED JUDICIAL PRINCIPLES IN THE VARIOUS DECISIONS EVEN RELIED ON BY THE LD. CCIT BUT THERE ARE CERTAIN EXCEPTIONS TO THIS CARDINAL PRINCIPLE OF JUDICIAL DISCIPLINE. ONCE THE DECISION OF SPECIAL BENCH OR THIRD MEMBER HAS COME ON SIMILAR I SSUE SUBSEQUENTLY, THE DECISION OF THE SPECIAL BENCH WILL BE BINDING ON US. IF THE DECISION OF JURISDICTIONAL HIGH COURT / SUPREME COURT HAS COME SUBSEQUENTLY ON THE SIMILAR ISSUE, IN VIEW OF THE ARTICLE 141 OF THE CONSTITUTION OF INDIA THAT DECISION WILL BE BINDING ON US. EVEN THIS WILL BE REGARDED A MISTAKE OF LAW IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS SAURASHTRA KUTCH STOCK EXCHANGE 305 ITR 227 (SC).IF THERE IS NO JURISDICTIONAL HIGH COURT DECISION AND SUBSEQUENTLY ANY OT HER HIGH COURT HAS DECIDED THE SIMILAR ISSUE, THIS IS THE SETTLED PRINCIPLE OF LAW THAT THE DECISION OF THAT HIGH COURT HAS TO BE FOLLOWED AS THE HIGH COURT IS ALWAYS SUPERIOR TO THE TRIBUNAL IN PREFERENCE TO THE DECISION OF COORDINATE BENCH. THE DECISION SO PRONOUNCED SUBSEQUENTLY IF AFFECTS THE ISSUE RELATING TO THE ASSESSEE, IN OUR OPINION, THESE SUBSEQUENT DECISIONS ARE BINDING ON US AS JUDICIAL DISCIPLINE REQUIRE THAT. THIS TRIBUNAL IS BOUND TO CONSIDER THOSE DECISIONS AND THE TRIBUNAL IS NOT BOUND WI TH THE DECISION OF THE COORDINATE BENCH. THE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF H.A. SHAH & CO. VS. CIT (1956) 30 ITR 618, 625 (BOM.) EVEN TOOK THE VIEW THAT IN CASE FRESH MATERIAL FACTS CAME TO THE KNOWLEDGE OF SUBSEQUENT BENCH, THE DECISION OF COORDINATE BENCH IS NOT BINDING. IN THIS REGARD, HONBLE HIGH COURT OBSERVED AS UNDER : - NOR ARE WE SATISFIED THAT IN ORDER TO ENABLE THE SECOND TRIBUNAL TO DEPART FROM THE FINDING OF THE FIRST TRIBUNAL IT IS ESSENTIAL THAT THERE MUST BE SOME FRESH FACTS 102 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) WHICH MUST BE PLACED BEFORE THE SECOND TRIBUNAL WHICH WERE NOT PLACED BEFORE THE FIRST TR IBUNAL. IF THE FIRST TRIBUNAL FAILED TO TAKE INTO CONSIDERATION MATERIAL FACTS, FACTS WHICH HAD A CONSIDERABLE BEARING UPON THE ULTIMATE DECISION, AND IF THE SECOND TRIBUNAL WAS SATISFIED THAT THE DECISION WAS ARRIVED AT BECAUSE OF THE FAILURE TO TAKE INTO CONSIDERATION THOSE MATERIAL FACTS AND THAT IF THESE MATERIAL FACTS HAD BEEN TAKEN INTO CONSIDERATION THE DECISION WOULD HAVE BEEN DIFFERENT, THEN THE SECOND TRIBUNAL WOULD BE IN THE SAME POSITION TO REVISE THE EARLIER DECISION AS IF FRESH FACTS HAD BEEN PLACED BEFORE IT. ON PRINCIPLE THERE IS NOT MUCH DIFFERENCE BETWEEN FRESH FACTS BEING PLACED BEFORE THE SECOND TRIBUNAL AND THE SECOND TRIBUNAL TAKING INTO CONSIDERATION CERTAIN MATERIAL FACTS WHICH THE FIRST TRIBUNAL FAILED TO TAKE INTO CONSIDERATION. 45.5 THE OTHER EXCEPTION IS FOR NON - BINDING OF THE COORDINATE BENCH DECISION IS WHEN THERE HAD BEEN AMENDMENT IN LAW SUBSEQUENT TO THE DECISION ON THE BASIS OF WHICH THE COORDINATE BENCH RENDERED THE DECISION AND THE CO - ORDINATE BENCH COULD NOT BE ABLE TO CONSIDER THE SAID AMENDMENTS, THE DECISION OF THE CO - ORDINATE BENCH IS NOT BINDING. FROM PARA 14 OF THE ORDER OF THE CO - ORDINATE BENCH IT IS APPARENTLY CLEAR WHILE DECIDING THE APPEAL IN THE CASE OF CHOWGULE & CO. (ITA 162 & 184), IT HAD GOT IMPRESSED TH AT THE EXPRESSION PROCESSING IS OMITTED IN SECTION 10B. THE APPEAL RELATES TO A.Y.2002 - 03 NOT RELATING TO IMPUGNED A.Y. CLAUSE (III) OF EXPLANATION 1 TO SECTION 1OAA, WHICH LAYS DOWN THAT THE EXPRESSION 'MANUFACTURE' SHALL HAVE THE SAME MEANING AS ASSIG NED TO IT IN SECTION 2(R) OF THE SPECIAL ECONOMIC ZONES ACT, 2005, AND SECTION 2(29BA) WERE SUBSEQUENTLY BROUGHT INTO THE STATUTE AFTER THE RENDERING OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SESA GOA 271 ITR ON THE BASIS OF CO - ORDINATE BENC H DECIDED THE CASE OF CHOWGULE & CO. EVEN THESE PROVISIONS WERE NOT IN THE STATUTE DURING THE ASSESSMENT YEAR 2002 - 03 TO WHICH YEAR THE CO - ORDINATE BENCH WAS ENTRUSTED WITH THE ISSUE OF CLAIM OF EXEMPTION U/S 10B. THE CO - ORDINATE BENCH COULD NOT HAVE ANY OCCASION TO CONSIDER THE SAME EVEN THOUGH THE CLAUSE (III) OF EXPLANATION 1 TO SECTION 10AA HAS ALREADY COME INTO FORCE AFTER THE DECISION OF HONBLE APEX COURT IN THE CASE OF SESA GOA LTD 271 ITR 331 WHEN THE DECISIONS WAS RENDERED BUT WAS NOT INSERTED WI TH RETROSPECTIVE EFFECT. EVEN THE PROVISION OF SECTION 2(29BA) WAS ALSO INSERTED AFTER THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SESA GOA LTD(SUPRA). BOTH THESE AMENDMENTS ARE IN THE STATUTE AS ON TODAY AND ARE TO BE CONSIDERED FOR THE IMPUGNE D ASSESSMENT YEAR. THE DECISION OF SUPREME COURT IN THE CASE OF CHOWGULE & CO AS CITED BY US EARLIER WAS ALSO NOT CONSIDERED BY THE COORDINATE BENCH AS THE WORD PROCESSING WAS OMITTED IN SECTION 10B DURING THAT YEAR FOR WHICH CASE WAS DECIDED. BOTH THES E AMENDMENTS HAVE DULY BEEN CONSIDERED BY THE SUBSEQUENT DECISION OF SPECIAL BENCH, HIGH COURT AND THE SUPREME COURT CITED BY US IN DISCUSSION HELD HERE IN ABOVE. WE NOTED THAT SUBSEQUENT TO THE DECISION OF THIS TRIBUNAL IN ITA NO. 162/PNJ/2006 DT. 12 TH JULY, 2007, THE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF MADHU JAYANTI INTERNATIONAL LTD. [2012 - TIOL - 424 - ITAT - KOL - SB] HAS DEALT WITH THE ISSUE EXHAUSTIBLY WHETHER THE ASSESSEES WHO ARE IN THE BUSINESS OF BLENDING OF TEA I.E PROCESSING OF TEA AND EXPO RT THEREOF IN 100% EOU CAN BE SAID TO BE MANUFACTURER / PRODUCER OF TEA FOR THE PURPOSE OF SECTION 10A/10B. WHEN THE SUPREME COURT HAS ALREADY HELD IN THE CASE OF TARA AGENCIES 292 ITR 444 THAT BLENDING OF TEA IS PROCESSING. THUS, THE SPECIAL BENCH HAS DEC IDED THE ISSUE IN RESPECT 103 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) OF 100% EOU FOR THE PURPOSE OF EXEMPTION UNDER SECTION 10B WHETHER AN ASSESSEE WHO IS ENGAGED IN PROCESSING CAN BE SAID TO BE ENGAGED IN MANUFACTURE / PROCESSING. WE ALSO NOTED THAT KERALA HIGH COURT IN THE CASE OF TATA TEA LTD. V S. ACIT 338 ITR 285 DEALT WITH THE ISSUE IN RESPECT OF 100% EOU FOR THE PURPOSE OF EXEMPTION UNDER SECTION 10B WHETHER THE PROCESSING OF TEA IS TREATED AS MANUFACTURE OR PRODUCTION OF AN ARTICLE QUALIFYING FOR EXEMPTION. NOT ONLY THESE DECISIONS SUBSEQUENT TO THE DECISION OF THE COORDINATE BENCH, SUPREME COURT HAS ALSO DECIDED FOLLOWING CASES IN WHICH ALSO, IN OUR OPINION, SIMILAR ISSUE WHETHER PROCESSING IS MANUFACTURE OR PRODUCTION HAS BEEN DECIDED. THESE DECISIONS ARE GIVEN AS UNDER: - I) INDIA CINE AGENCIE S 308 ITR 98 (SC) II) ORACLE SOFTWARE INDIA LTD. 320 ITR 546 (SC) III) ARIHANT TILES AND MARBLES (P) LTD. 320 ITR 79 (SC). 45.6 WE NOTED THAT IN ALL THESE DECISIONS EXCEPT IN THE CASE OF ORACLE SOFTWARE THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT VS. SESA GOA LTD. 271 ITR 331 WAS REFERRED TO BY THE COURT. HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD. 286 ITR 1 (P&H) HAS OBSERVED AS UNDER ON THE RESPONSIBILITY OF THE TRIBUNAL WHILE DECIDING THE CASE: THE TRIBUNAL BEING THE LAST FACT - FINDING AUTHORITY, A HIGHER RESPONSIBILITY IS CAST BY THE LEGISLATURE ON IT TO DECIDE THE CASES BY RECORDING COMPLETE FACTS AND ASSIGNING COGENT REASONS. IT IS THE DUTY OF THE TRIBUNAL TO DECIDE THE CASES ON THE BASIS OF THE LAW LAID D OWN BY THE SUPREME COURT/HIGH COURT AND NOT WHAT THE TRIBUNAL DECIDES ON THE PARTICULAR ISSUE. EVERY EFFORT MUST BE MADE BY THE TRIBUNAL TO DECIDE THE ISSUE BY TAKING HELP FROM THE DECISIONS OF THE SUPREME COURT AND IF THERE IS NO DIRECT AUTHORITY OF THE SUPREME COURT ON THE POINT THEN OF THE JURISDICTIONAL HIGH COURT AND LASTLY OF ANY OTHER HIGH COURT. 45.7 WE NOTED THAT THE COORDINATE BENCH IN THE CASE OF CHOWGULE & CO. LTD. ITA NO. 162/PNJ/2006 DECIDED THE ISSUE ONLY ON THE BASIS OF THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT VS. GEM INDIA MANUFACTURING CO. 249 ITR 307, WHILE THE SAID DECISION HAS NOT BEEN FOLLOWED BY THE SUPREME COURT IN THEIR SUBSEQUENT DECISIONS. EVEN THE CASE RELATE TO A.Y.2002 - 03. NO CONTRARY DECISION SUBSEQUENT TO THE DECISION OF THE SPECIAL BENCH, KERALA HIGH COURT AND THAT OF THE SUPREME COURT RENDERED IN THE CASE OF INDIA CINE AGENCY (SUPRA) AS WELL AS ARIHANT TILES & MARBLES (SUPRA) WAS BROUGHT TO OUR KNOWLEDGE WHICH MAY HAVE TAKEN A DIFFERENT VIEW THAT 100% EOU APP ROVED BY THE COMPETENT AUTHORITY IF ENGAGED IN PROCESSING ACTIVITY FOR UPGRADING A COMMODITY FOR THE PURPOSE OF MARKETABILITY FOR EXPORT WOULD NOT BE ALLOWED EXEMPTION U/S 10B. THE LD. SPECIAL COUNSEL EVEN COULD NOT BRING TO OUR KNOWLEDGE ANY DECISION SUBS EQUENT TO THE DECISION OF THE SPECIAL BENCH AND ARIHANT TILES & MARBLES (SC) AS WELL AS KERALA HIGH COURT IN THE CASE OF TATA TEA (SUPRA) WHICH WOULD HAVE DISALLOWED THE CLAIM OF THE ASSESSEE U/S 10B ON THIS BASIS AFTER CONSIDERING THE EXPLANATION (III) OF SECTION 10AA AS WELL AS DEFINITION GIVEN U/S 2(29BA). THUS, DUE TO THE DECISION RENDERED BY THE SPECIAL BENCH, HIGH COURTS AND SUPREME COURT SUBSEQUENT TO THE DATE OF ORDER IN THE CASE OF CHOWGULE & CO. LTD. VS. ACIT IN ITA NO. 162/PNJ/2006 IN OUR OPINION , THE ISSUE RAISED BY THE REVENUE IS NOT FIT TO BE REFERRED TO 104 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) SPECIAL BENCH AS THE DECISIONS OF SPECIAL BENCH / HIGH COURT / SUPREME COURT ARE BINDING ON US IN PREFERENCE TO THE DECISION OF THE COORDINATE BENCH. THUS, WE HAVE IN OUR OPINION GERMANE REASON NOT TO REFER THIS ISSUE FOR CONSTITUTION OF A SPECIAL BENCH AS IN OUR OPINION EVEN IF THE SPECIAL BENCH IS CONSTITUTED THE EARLIER DECISION OF THE SPECIAL BENCH IN THE CASE OF MADHU JAYANTI WILL BE BINDING UNTIL AND UNLESS THERE ARE SPECIAL AND GERMANE RE ASONS FOR CONSTITUTING A LARGE SPECIAL BENCH. WE, THEREFORE, DISMISS THE APPLICATION DT. 18/01/2013 MOVED BY THE REVENUE FOR CONSTITUTING THE SPECIAL BENCH. 45.8 NOW COMING BACK TO THE ISSUE WHETHER AN ASSESSEE WHO IS ENGAGED IN PROCESSING FOR UPGRADING AND MAKING THE COMMODITY FIT FOR EXPORT AND WHICH IS A 100% EOU APPROVED BY THE COMPETENT AUTHORITY CAN BE SAID TO HAVE BEEN ENGAGED IN MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING. WE HAVE NOTED THAT THIS ISSUE IS DULY COVERED BY THE DECISION OF THE SPECIAL BENCH IN THE CASE OF MADHU JAYANTI INTERNATIONAL LTD.(SUPRA). THE RELEVANT PARAGRAPH OF THIS JUDGEMENT HAS BEEN REPRODUCED BY US IN THE PRECEDING PARAS. 45.9 IN THIS DECISION, SPECIAL BENCH HAS EXHAUSTIVELY DEALT WITH THE PROVISIONS OF SECTION 10B , SECTION 2(29BA) OF THE INCOME - TAX ACT, 1961 AND SECTION 2(R) OF THE SPECIAL ECONOMIC ZONES ACT, 2005; AND THE VARIOUS DECISIONS OF THE SUPREME COURT AS WELL AS THE HIGH COURT WHICH DEALT WITH THE SIMILAR ISSUE AND EVEN THE DECISION OF CHOWGULE & CO (SC) AS WAS REFERRED TO BY US IN THE PRECEDING PARAS HEREIN ABOVE. THE SPECIAL BENCH CLEARLY NOTED IN THIS DECISION, THE DECISION OF THE SUPREME COURT IN TARA AGENCIES CASE 292 ITR 444 IN WHICH IT WAS HELD BLENDING AND PACKING OF TEA AMOUNTS TO PROCESSING AND IS NOT MANUFACTURING OR PRODUCING OF AN ARTICLE OR THING. IN THIS DECISION THE SPECIAL BENCH ALSO NOTED THAT KERALA HIGH COURT IN THE CASE OF TATA TEA LTD. VS. ACIT 338 ITR 285 (KER.) WHICH TOOK THE VIEW THAT 100% EOU ENGAGED IN PROCESSING CANNOT BE DENIE D EXEMPTION ON THE BASIS THAT THE UNITS ARE NOT ENGAGED IN MANUFACTURE OR PRODUCTION. MOREOVER, ON FACTS EXACTLY SIMILAR TO THE FACTS OF THE ASSESSEE, IN THE CASE OF CHOWGULE & CO. PVT. LTD. VS UNION OF INDIA (1981) 1 SCC 653 AIR 1981 SC 014, HONBLE SUPRE ME COURT WERE CONCERNED WITH THE QUESTION WHETHER THE BLENDING OF ORE, WHILST LOADING IT IN THE SHIP BY MEANS OF THE MECHANICAL ORE HANDLING PLANT, CONSTITUTED MANUFACTURE OR PROCESSING OF ORE FOR SALE WITHIN THE MEANING OF SECTION 8(3)(B) AND RULE 13 OF CENTRAL SALES TAX ACT, 1956. THE HONBLE SUPREME COURT, IN CONSTRUING THE EXPRESSION PROCESSING ALLOWED THE APPEAL OF THE ASSESSEE, IN CHOWGULE & CO. PVT. LTD. (SUPRA), HOLDING, INTER ALIA, THAT WHERE ANY COMMODITY IS SUBJECTED TO A PROCESS OR TREATME NT WITH A VIEW TO ITS DEVELOPMENT OR PREPARATION FOR THE MARKET IT WOULD AMOUNT TO PROCESSING OF THE COMMODITY WITHIN THE MEANING OF CENTRAL SALES TAX ACT, 1956. THE SPECIAL BENCH ULTIMATELY ALLOWED EXEMPTION TO THE ASSESSEE ON THE SIMILAR ISSUE WHERE TH E ASSESSEE WAS ENGAGED IN THE BUSINESS OF BLENDING THE TEA FOR UPGRADING FOR MARKETING. THUS, IN VIEW OF THE DECISION OF THE SPECIAL BENCH AND OTHER DECISIONS DISCUSSED IN THE PRECEDING PARAGRAPHS AND THAT OF HONBLE SUPREME COURT IN THE CASE OF CHOWGULE & CO (SUPRA) AS WELL AS DEFINITION OF MANUFACTURE AS INSERTED W.E.F 1.4.2009 BY WAY OF SECTION 2 (29AB) OF THE INCOME TAX ACT AS REFERRED TO BY BOTH THE PARTIES, WE HOLD THAT ALL THE THREE 100% EOU ENGAGED IN PROCESSING SO AS TO MAKE CRUDE ORE AND WASTE I.E TAILINGS USABLE OR 105 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) MARKETABLE ARE ENTITLED FOR EXEMPTION U/S 10B SUBJECT TO THE OTHER CONDITIONS FOR EXEMPTION UNDER SECTION 10B ARE BEING FULFILLED. 5.4.3 WE NOTED, AS HAS BEEN ARGUED BY THE LD. SR. COUNSEL, THAT THE CASE OF THE ASSESSEE IS EVEN BETTER THAN THE CASE OF SESA GOA LTD. AS THE TERM MANUFACTURE WAS DEFINED DURING THE IMPUGNED ASSESSMENT YEAR UNDER EXPLANATION TO SEC. 10B IN THE FOLLOWING MANNER : (III) MANUFACTURE INCLUDES ANY - (A) PROCESS, OR (B) ASSEMBLING, OR (C) RECORDING OF PROGRAMMES ON ANY DISC, TAPE, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE;] FROM THE AFORESAID DEFINITION IT IS APPARENT THAT EVEN IF 100% EOU IS ENGAGED IN PROCESSING, IT HAS TO BE SAID THAT IT IS ENGAGED IN MANUFACTURING OF AN ARTICLE. AS THE NATURE OF THE ACTIVITIES CARRIED OUT BY THE IMPUGNED UNIT OF THE ASSESSEE IS SIMILAR TO THE UNIT OF SESA GOA, WE, THEREFORE, HOLD THAT THE IMPUGNED UNIT OF THE ASSESSEE IS ENGAGED IN MANUFACTURING OR PRODUCTION OF AN ARTICLE. 5.4.4 NOW, COMING TO THE QUESTION WHETHER THE ASSESSEE HAS ESTABLISHED A NEW UNIT OR RECONSTRUCTED ITS BUSINESS, IN OUR OPINION, AS THE FINDING OF CIT(A) GIVEN IN A.Y 2006 - 07 HAS NOT BEEN DISPUTED BY THE REVENUE, THE AO, IN OUR OPINION, CANNOT AGAIN DENY THE BENEFIT TO THE ASS ESSEE ON THIS BASIS. EVEN OTHERWISE ALSO, THIS TRIBUNAL HAS DEALT WITH THIS ISSUE IN THE CASE OF SESA GOA IN ITA NO. 72/PNJ/2012 FOR THE A.Y. 2009 - 10 AND BY ORDER DT. 8.3.2013 THIS TRIBUNAL HAS ALSO TAKEN THE VIEW AS HAS BEEN TAKEN BY THE CIT(A) IN THE CA SE OF THE ASSESSEE DURING ASSESSMENT YEAR 2006 - 07 ON THE SIMILAR FACTS . THE RELEVANT FINDING OF THE TRIBUNAL ARE REPRODUCED AS UNDER : 45.10 NOW, WE WILL DEAL WITH THE CONTENTION WHETHER THE ASSESSEE HAS SET NEW UNITS OR HAS MERELY RECONSTRUCTED THE BUSINESS WHICH WAS ALREADY IN EXISTENCE. WE NOTED THAT 106 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) THE ASSESSEE HAD MADE THE FOLLOWING INVESTMENTS IN INSTALLING THE PLANT & MACHINERY IN THES E EOUS: - FIN.YEAR AMONA CHITRADURGA CODLI 1999 - 2000 9,00,78,574 2002 - 03 3,96,10,020 2005 - 06 93,84,633 (PHASE - I) 2006 - 07 35,67,257 (PHASE - II) 2008 - 09 7,03,82,158 (PHASE - III) TOTAL: 3,96,10,020 8,33,34,046 (ALL PHS) 9,00,78,574 THE CONTENTION OF THE ASSESSEE IS THAT IT HAD SET UP ALL THESE UNITS AS NEW UNITS AND HAD ALSO GOT THE APPROVAL FOR THEM FROM THE COMPETENT AUTHORITY AS 100% EOU UNITS. THE OLD MACHINERY AND PART OF OLD MACHINERIES WHEREVER USED, THE VALUE OF THESE MACHINERIES WERE LESS THAN 20% IN EACH UNITS. THE OLD UNITS SITUATED IN AMONA, CH I TRADURGA AND CODLI WERE ERODED, NON - PRODUCTIVE AND NON - ECONOMICAL. THE REVENUE HAS STRONGLY CONTENDED THAT NONE OF THESE UNITS EVEN THOUGH 100% EOU BUT WERE SETUP LONG AGO. THE ASSESSE E HAD MERELY RENOVATED THESE UNITS DURING THE PERIOD AS CLAIMED BY THE ASSESSEE. THE REVENUE ON THE OTHER HAND ACCEPTED THAT THE ASSESSEE HAD INVESTED IN AMONA PLANT RS.3,96,10,020/ - DURING THE YEAR 2002 - 03 AND IN CHITRADURGA UNIT DURING F.Y. 2005 - 06 TO 2 008 - 09 RS.8,33,34,046/ - BUT THE ASSESSEE HAD NOT SUBMITTED ANY EVIDENCE IN RESPECT OF THE INVESTMENTS MADE IN THE CODLI UNIT AND IN WHICH YEAR. WE NOTED THAT CIT(A) IN HIS APPELLATE ORDER AT PAGE NOS. 48 - 50 HAS GIVEN DEPRECIATION CHARTS IN RESPECT OF PLA NT & MACHINERY PREVIOUSLY USED AT AMONA PLANT. LIKEWISE, AT PAGE NOS. 65 - 66 SIMILAR CHARTS IN RESPECT OF CHITRADURGA UNIT HAVE BEEN GIVEN. COLUMN ADDITIONS HAS BEEN LEFT BLANK. THESE CHARTS HAVE BEEN COMPILED BY THE CIT(A) OR BY THE DEPARTMENT. THIS GIVE S AN IMPRESSION AS IF NO ADDITION TO PLANT & MACHINERY HAD BEEN MADE DURING THE FINANCIAL YEARS CONCERNED IN THESE PLANTS BY THE ASSESSEE WHILE WE VERIFIED FROM PAGE 45 TO 58 OF FIRST PB THAT THERE ARE ADDITIONS IN THE PLANT AND MACHINERY OF THE UNITS. THI S FACT IS ALSO VERIFIABLE FROM THE MINUTES OF THE BOARD MEETING AND SCHEDULE OF FIXED ASSETS FORMING PART OF THE BALANCE SHEET FOR THE RESPECTIVE FINANCIAL YEARS, WHICH WERE DULY AUDITED. THE ASSESSEE PRODUCED THE FOLLOWING DOCUMENTS IN SUPPORT OF THE FRES H CAPITAL INVESTMENT MADE BY IT IN ACQUISITION OF PLANT & MACHINERY FOR ITS EOUS IN EACH RELEVANT FINANCIAL YEAR: I. MINUTES OF THE MEETINGS OF BOARD OF DIRECTORS OF THE APPELLANT - COMPANY APPROVING CAPITAL EXPENDITURE AT AMONA AND CHITRADURGA PLANTS AT PAGE NOS. 696, 699 - 700 & 702 OF THE PAPER BOOK. II. PHOTOGRAPHS OF PANTS AT AMONA & CHITRADURGA EOUS AT PAGE NOS. 704 - 713 OF THE PAPER BOOK. III. YEAR - WISE TABLES OF PLANT & MACHINERY CAPITALIZED FOR (A) AMONA EOU FOR THE FYS 2002 - 03 TO 2008 - 09 (AT PAGE NOS. 45 - 48 OF THE PAPER BOOK), 107 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) (B) CHITRADURGA EOU FOR THE FYS 2005 - 06 TO 2008 - 09 (AT PAGE NOS. 54 - 55 OF THE PAPER BOOK), AND (C) CODLI EOU FOR THE FYS 1999 - 2000 TO 2008 - 09 (AT PAGE NOS. 38 - 40 OF THE PAPER BOOK). IV. AUDITED ANNUAL ACCOUNTS OF THE APPELLANT - COMPANY FOR THE FINANCIAL YEARS ENDED ON 31/03/2003, 31/03/2006, 31/03/2007 AND 31/03/2009 AT PAGE NOS. 91 - 632 OF THE ADDITIONAL PAPER BOOK. V. COPIES OF BILLS OF PLANT & MACHINERY ITEMS WERE SUBMITTED I N RESPECT OF THE EOUS AS UNDER: (A) AMONA EOU FOR RS. 3,57,03,426/ - OUT OF TOTAL INVESTMENT OF RS. 3,96,10,020/ - AT PAGE NOS. 794 - 1146 AND 1378 - 1435 OF THE ADDITIONAL PAPER BOOKS. (B) CHITRADURA EOU FOR RS. 8,18,50,910/ - OUT OF TOTAL INVESTMENT OF RS. 8,33,34,046/ - AT PAGE NOS. 1147 - 1355 AND 1436 - 1472 OF THE ADDITIONAL PAPER BOOKS. 45.11 THESE EVIDENCES CLEARLY PROVE, IN OUR OPINION, THAT THE ASSESSEE MADE HUGE INVESTMENTS IN THESE UNITS. EVEN THE ASSESSEE SUBMITTED THE EVIDENCES FOR SELLING THE OLD AND OBSOLETE DISMANTLED MACHINES AS SCRAP SALES. WE DO AGREE THAT THE ASSESSEE HAD NOT REDUCED THE BLOCK OF ASSETS WITH THESE AMOUNTS BUT THIS IN OUR OPINION WILL NOT CHANGE THE TRUE CHARACTER OF THE TRANSACTION. WE FIND FORCE IN THE SUBMISSION OF THE ASSESSEE THAT IN THE CASE OF AMONA EOU, OLD UNIT SET - UP IN 1985 HAD BECOME OUTDATED, OBSOLETE, EVEN DANGEROUS AND UNECONOMICAL TO RUN AFTER A SPAN OF 17 YEARS. THEREFORE, THE ASSESSEE HAD TO TAKE AN IMMEDIATE ACTION TO EITHER ABANDON IT OR REVAMP IT ENTIRELY. THIS FACT IS ALSO PROVED WITH THE FACT THAT THE PRODUCTION CAPACITY OF THIS PLANT WHICH WAS 1 MTPA EARLIER GOT DOUBLED AT 2 MTPA COUPLED WITH FURTHER FLEXIBILITY CREATED TO INCREASE IT MORE IN FUTURE AFTER SETTING UP NEW UNIT. THE NEWLY INCREASED PRODUCTION CAPACIT Y HAD NOT BEEN DENIED BY THE REVENUE. THE COST OF NEW PLANT AND MACHINERY FOR ALL MAJOR / CRITICAL PROCESSES AND CIVIL STRUCTURES FOR THOSE PLANTS AMOUNTED TO RS. 3,96,10,020/ - DURING THE FY 2002 - 03, WHEREAS THE WDV OF THE OLD PLANT USED IN THE NEW UNDERT AKING WAS JUST RS. 26,17,714/ - , WHICH IS A MERE 6.7% OF THE COST OF NEW PLANT & MACHINERY, I.E., WITHIN THE PERMISSIBLE LIMIT OF 20%. THE CIT(A), IN OUR OPINION, WAS NOT CORRECT IN COMPARING THE NUMBER OF MACHINES AND EQUIPMENTS INSTALLED IN MINING DIVISIO N TO BE PART OF OLD PLANT AND MACHINERY INSTALLED IN 100% EOU UNITS WHEN IN FACT MINING DIVISION IS NOT PART OF 100% EOU AS PER THE APPLICATION MADE BY THE ASSESSEE AND THE APPROVAL ALLOWED BY THE COMPETENT AUTHORITIES TO ASCERTAIN WHETHER SUBSTANTIAL E XPANSION HAD TAKEN PLACE IN THE FY 2002 - 03 AT AMONA PLANT OR NOT. SIMILARLY, WE FIND FORCE IN THE SUBMISSIONS OF THE LD. AR IN THE ABSENCE OF ANY CONTRARY EVIDENCE THAT THE PRESENT UNIT IN CHITRADURGA, KARNATAKA WAS INITIALLY SET - UP AND RUN BY A COMPANY C ALLED M/S A. NARRAIN MINES LTD. THE SAID COMPANY WAS ACQUIRED BY THE ASSESSEE - COMPANY IN THE FY 1998 - 99 AND IT WAS LATER MERGED INTO THE ASSESSEE - COMPANY. THE EXISTING PLANT IN THE SAID UNIT WAS QUITE OLD AND HAD BECOME INEFFICIENT DUE TO THE COMPLETION OF ITS ECONOMIC LIFE. THE ASSESSEE UNDERTOOK A PROJECT TO SET UP A NEW UNDERTAKING DURING THE FY 2005 - 06 IN A PHASED MANNER TO INCREASE THE CAPACITY BY EMPLOYING LATEST TECHNOLOGY/FACILITY IN PLACE OF EXISTING PRODUCTION FACILITY. THE ASSESSEE APPLIED TO THE KARNATAKA STATE POLLUTION CONTROL BOARD VIDE ITS APPLICATION DATED 09/09/2005 FOR ITS CONSENT FOR ESTABLISHMENT 108 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) UNDER THE WATER AND AIR ACTS FOR EXPANSION OF IRON ORE MINING CAPACITY FROM 1.6 MTPA TO 2.5 MTPA. SUBSEQUENTLY, THE MANAGEMENT OF THE COMPANY A LSO UNDERWENT A CHANGE FROM MITSUI GROUP WITH M/S VEDANTA GROUP. DUE TO THIS EXPANSION/ESTABLISHMENT PROJECT COULD BE COMPLETED DURING THE FY 2008 - 09 IN THREE PHASES HAVING A TOTAL PRODUCTION CAPACITY OF 6 MTPA. THE INVESTMENTS WERE MADE IN A PHASED MANNER WHICH RESULTED IN CREATION OF NEW UNIT IN PLACE OF THE EXISTING UNIT. IN THE FY 2005 - 06, I.E., THE INITIAL YEAR FOR THE PURPOSE OF SECTION 10B, TOTAL INVESTMENT OF RS. 93,84,633/ - WAS MADE IN ACQUISITION OF NEW PLANT & MACHINERY INCLUDING DISMANTLING OF T HE OLD PLANT & STRUCTURES. THE PHASE - II OF PROJECT ESTABLISHMENT WAS COMPLETED NEXT YEAR, I.E., FY 2006 - 07 IN WHICH FRESH CAPITAL INVESTMENT OF RS. 35,67,257/ - WAS MADE IN PLANT & MACHINERY. FINALLY THE THIRD PHASE OF NEW PLANT WAS COMPLETED IN THE FY 2008 - 09 WITH AN ADDITION OF RS.7,03,82,158/ - TO PLANT & MACHINERY. THE WDV AS ON 01/04/2005 OF THE PLANT & MACHINERY AT CHITRADURGA WAS JUST RS.6,93,596/ - WHICH WAS EITHER DISMANTLED COMPLETELY OR WHEREVER STRUCTURAL STEEL WAS USABLE IT WAS UTILIZED IN THE ERE CTION OF NEW MACHINERY. THE COST OF NEW MACHINERY ACQUIRED IN FY 2005 - 06 WAS RS. 93,84,633/ - . THUS, THE VALUE OF PLANT & MACHINERY EXISTING AS ON 01/04/2005 WAS MERELY 7.4% OF THE COST OF NEW PLANT & MACHINERY; WHICH IS ALSO WITHIN THE PERMISSIBLE LIMIT. THE ACCOUNTS BOOKS IN THAT YEAR WERE DULY AUDITED AND WERE NOT REJECTED BY THE ASSESSING OFFICER IN THOSE ASSESSMENT YEARS. NOW COMING TO CODLI UFR UNIT, WE NOTED THAT NEITHER THE ASSESSING OFFICER NOR THE CIT (APPEALS) HAS DISPUTED THE CAPITAL INVESTMENT MADE IN NEW PLANT & MACHINERY IN THE FY 1999 - 2000, THEY HAVE MERELY EXPRESSED THEIR DISSATISFACTION ON THE EVIDENCES FURNISHED BY THE ASSESSEE IN RESPECT OF THE DATE OF COMMENCEMENT OF MANUFACTURING OR PRODUCTION, WHICH WAS STATED AS 08/03/2000 BY THE ASS ESSEE ON THE STRENGTH OF DOCUMENTARY EVIDENCES SUCH AS THE APPROVAL FROM THE BOARD OF APPROVALS, INTIMATION OF COMMENCEMENT OF COMMERCIAL PRODUCTION ON 08/03/2000 TO THE MINISTRY OF INDUSTRIES, ETC., WHICH HAVE DISCUSSED SEPARATELY IN THIS ORDER BY US. THE MAIN CONTENTIONS OF THE REVENUE BEFORE US ARE AS UNDER: - (I) THAT ALL OLD MACHINES WERE NOT REPLACED SINCE THERE WAS NO DELETION IN THE BOOK VALUE OF THE EXISTING PLANT SHOWN IN THE DEPRECIATION CHARTS FOR THE CONCERNED YEARS. (II) THAT BY CARRYING OUT REPAIRS A NEW UNIT IS NOT SET - UP. IN THE CASE OF CHITRADURGA UNIT, SOME BILLS WERE FOUND FOR UNDERTAKING FABRICATION, ERECTION AND OTHER SUCH WORKS WHICH APPEAR TO BE REVENUE IN NATURE AND NOT CAPITAL IN NATURE. (III) THAT IN THE CASE OF AMONA PLANT, CORRESPONDENCE WIT H VILLAGE PANCHAYAT SHOWS THAT THE CONSTRUCTION ACTIVITIES WERE ACTUALLY IN THE NATURE OF REPAIRS AND RENOVATION. (IV) THAT THE ASSESSEE HAD INCORRECTLY CLAIMED THAT THE ENTIRE EXISTING PLANT AT CHITRADURGA WAS DEMOLISHED IN THE FY 2005 - 06 ITSELF, WHEREAS ONLY ONE BILL OF RS. 3,522/ - CONTAINED DEMOLITION OR DISMANTLING CHARGES. (V) THAT FOR DETERMINING THE PERCENTAGE OF OLD EQUIPMENT USED IN THE NEW UNIT, EVEN THE ASSETS HELD AT THE EXTRACTION UNITS MUST BE TAKEN INTO CONSIDERATION. 109 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) (VI) THAT YEAR - WISE PRODUCTION DATA OF CHITRADURGA UNIT SHOWS THAT THE PRODUCTION INCREASED WITHOUT NEW INVESTMENT IN PLANT & MACHINERY. MOREOVER, NO MAJOR PLANT & MACHINERY WAS INSTALLED AT CHITRADURGA AS COULD HELP IN INCREASING THE PRODUCTION CAPACITY. 45.12 ACCORDING TO REVENUE, ALL OL D MACHINES WERE NOT REPLACED SINCE THERE WAS NO DELETION IN THE BOOK VALUE OF THE EXISTING PLANT SHOWN IN THE DEPRECIATION CHARTS FOR THE CONCERNED YEARS. CIT(A) HAS COMPLIED CHARTS IN RESPECT OF AMONA AND CHITRADURGA UNITS IN HIS APPELLATE ORDER. IN THIS REGARD THE LD. AR EXPLAINED THE BASIC COST OF PLANT & MACHINERY IN THE CASE OF AN IRON ORE BENEFICIATION PLANT IS INCURRED ON RAISING STEEL AND CONCRETE STRUCTURES ON WHICH THE CONVEYOR BELTS, CRUSHERS, SCREENS, ETC. ARE INSTALLED. THOUGH ALL EXISTING ITEM S OF MACHINE WERE SCRAPPED USABLE STEEL FROM THE SAME WAS UTILIZED IN THE ERECTION OF NEW MACHINES AND EQUIPMENTS FOR WHICH ONLY SOME ADDITIONAL CHARGES WERE PAID. THUS, THE EXISTING DISMANTLED STRUCTURE GOT MERGED WITHIN THE NEW PLANT TO THAT EXTENT. ACC ORDINGLY, INSTEAD OF DELETING THE RELATABLE VALUE OF EXISTING PLANT, THE COST OF ADDITIONAL PLANT ACQUIRED DURING THE YEAR WAS RECORDED AT NET VALUE. ALSO THE SCRAP OF THE REMAINING EXISTING PLANT WAS SOLD AND SHOWN SEPARATELY IN THE RELEVANT AUDITED PROFI T & LOSS ACCOUNT FOR THE CONCERNED FINANCIAL YEAR UNDER THE HEAD SERVICE AND OTHER PROCEEDS FOR WHICH ATTENTION WAS DRAWN TO P & L ACCOUNT AND ACCORDINGLY THESE MEAGER SUMS WERE NOT REDUCED FROM THE SCHEDULE OF FIXED ASSETS. IN THIS REGARD, OUR ATTENTION WAS DRAWN TO SCHEDULE 14 OF THE PROFIT & LOSS ACCOUNT FOR THE YEARS ENDED ON 31/03/2003 AND 31/03/2006 AND ALSO THE BREAK - UP OF SERVICE AND OTHER PROCEEDS PROVIDED AT PAGE NOS. 1356 AND 1365 OF THE PAPER BOOK FOR THE SAID TWO FINANCIAL YEARS RESPECTIVEL Y. GROSS RECEIPT FROM SALE OF SCRAP FOR GOA (AMONA UNIT) AMOUNTING TO RS. 71,41,971/ - WAS DECLARED IN THE FY 2002 - 03; AND THAT OF RS. 4,67,163/ - WAS DECLARED FOR THE YEAR ENDED ON 31/03/2006 IN RESPECT OF KARNATAKA (CHITRADURGA UNIT). WE FIND SUBSTANCE IN THE EXPLANATION OF THE LD. AR THAT THE SAID CONTENTION OF THE REVENUE DOES NOT, THEREFORE, HOLD GOOD IN OUR OPINION. OTHERWISE ALSO, WE HAVE NOTED THAT THE VALUE OF THE EXISTING PLANT WAS MUCH BELOW THE THRESHOLD LIMIT OF 20% REQUIRED FOR SUBSTANTIAL INVES TMENT FOR SETTING - UP OF A NEW UNIT FOR THE PURPOSE OF SECTION 10B. 45.13 WITH REGARD TO THE CONTENTION OF THE REVENUE THAT IN THE CASE OF CHITRADURGA UNIT, SOME BILLS WERE FOUND FOR UNDERTAKING FABRICATION, ERECTION AND OTHER SUCH WORKS WHICH APPEAR TO BE REVENUE IN NATURE AND NOT CAPITAL IN NATURE. WE NOTED THE EXPLANATION OF THE LD. AR THAT THE ASSESSMENTS FOR THE AYS 2006 - 07 AND 2007 - 08 HAD BEEN FRAMED U/S 143(3) WHERE DEPRECIATION VIS - - VIS CAPITAL EXPENDITURE (FIXED ASSETS) HAD DULY BEEN EXAMINED BY THE AOS AND EVEN SOME DISALLOWANCES HAD BEEN MADE IN RESPECT OF DEPRECIATIO N ON ASSETS OTHER THAN PLANT & MACHINERY, WHICH WAS NOT DISTURBED, HENCE, ACCEPTED AS CORRECT BY THE AOS. THE COPIES OF THE SAID ASSESSMENT ORDERS WERE FURNISHED. THUS, WHEN THE FACTUM OF CAPITAL INVESTMENT IN PLANT & MACHINERY IN THOSE YEARS STOOD ACCEPTE D BY THE DEPARTMENT, IT IS BEYOND THE JURISDICTION OF THE FIRST APPELLATE AUTHORITY TO TRAVEL BACK TO THE COMPLETED ASSESSMENTS AND HOLD OTHERWISE. MOREOVER, THESE BILLS SUPPORT THE EXPLANATION OF THE ASSESSEE THAT IT HAD PAID FABRICATION AND OTHER SUCH CH ARGES FOR REUSING THE EXISTING STEEL AND CONCRETE STRUCTURES WHEREVER POSSIBLE IN THE PROCESS OF ERECTING ITS NEW PLANTS. WE FIND NO FAULT 110 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) WITH THE EXPLANATION OF THE LD. AR AND THEREFORE DO NOT AGREE ON THIS WITH THE AUTHORITIES BELOW. 45.14 WE HAVE EXAM INED THE CONTENTION OF THE REVENUE THAT IN THE CASE OF AMONA PLANT, CORRESPONDENCE WITH VILLAGE PANCHAYAT SHOWS THAT THE CONSTRUCTION ACTIVITIES WERE ACTUALLY IN THE NATURE OF REPAIRS AND RENOVATION. THE CIT(A) HAD REFERRED TO ONLY A FEW CORRESPONDENCE EXC HANGED WITH PANCHAYAT TO MAKE A CASE THAT IT WAS ONLY SOME REPAIRS OR AT BEST A RENOVATION WORK UNDERTAKEN AT AMONA, WHEREAS SEVERAL OTHER PIECES OF CORRESPONDENCE WERE IGNORED BY HIM WHICH PROVE THAT THE APPELLANT HAD FACTUALLY UNDERTAKEN A MAJOR DISMANTL ING AND DEMOLITION OF THE EXISTING PLANT AS WELL AS ERECTION AND INSTALLATION OF NEW PLANT IN ITS PLACE THERE. FROM THE CORRESPONDENCE EXCHANGED WITH PANCHAYAT AND NEWSPAPER CLIPPINGS FILED IN PB (PAGES 293,294,299 & 409 - 411), WE NOTED THE CIT(A) IGNORED T HE LOCAL NEWSPAPER CLIPPINGS WHICH IN OUR OPINION ARE VITAL PIECE OF EVIDENCE IN THIS REGARD. THESE CLIPPINGS CLEARLY BRING OUT THE FACT THAT A COMPLETE DESTRUCTION OF OLD UNIT WAS DONE AND ALTOGETHER NEW PLANT WAS SET - UP AT AMONA, ALBEIT, WITH THE AID OF SOME OLD MACHINERY AND PARTS THEREOF. REGARDING THE CONTENTION OF THE REVENUE THAT THERE IS ONLY ONE BILL OF RS.3,522/ - WHICH CONTAINS DEMOLITION OR DISMANTLING CHARGES, WE NOTED THAT IN THE SAME BILL RS. 65,346/ - AND RS. 79,060/ - AT SL. NOS. 13 & 14 FOR D ISMANTLING OF STRUCTURAL STEEL AND CRUSHER HOPPER RESPECTIVELY WERE ALSO STATED (PAGE NOS. 1443 - 1445 OF THE ADDITIONAL PAPER BOOK VOL.III). IN THE CASE OF THE ASSESSEE WE NOTED AND AS HAS BEEN ACCEPTED BY THE REVENUE ITSELF THAT THE EXTRACTION DIVISION AN D EOU UNITS ARE ENTIRELY DIFFERENT, AND THE DISPUTE BEFORE US RELATE ONLY TO THE EOU UNITS WHETHER THEY ARE NEW OR NOT, THEREFORE IN OUR VIEW, REVENUE IS NOT CORRECT IN ADDING THE VALUE OF THE EXTRACTION DIVISION FOR DETERMINING 20% THRESHOLD LIMIT OF OLD PLANT AND MACHINERY FOR ESTABLISHING THE NEW UNIT. ON THE ONE SIDE, THE REVENUE IS TAKING THE CONTENTION THAT EXTRACTION DIVISION IS NOT THE PART OF 100% EOU, THEREFORE THE ASSESSEES EOU UNITS CANNOT BE REGARDED TO HAVE BEEN ENGAGED IN EXTRACTION OF ORE AND IRON ORE PROCESSING, ON THE OTHER HAND, WHILE DETERMINING THE THRESHOLD LIMIT OF 20% OF OLD PLANT AND MACHINERY, THE REVENUE CANNOT BE PERMITTED TO TAKE A CONTRARY CONTENTION. WE ARE OF THE FIRM VIEW THAT WHILE DETERMINING THE ELIGIBILITY OF A PARTICUL AR UNIT U/S 10B, ITS ONLY THE VALUE OF OLD PLANT AND MACHINERY INSTALLED IN THAT VERY UNIT WILL BE CONSIDERED FOR DETERMINING THE THRESHOLD LIMIT OF 20%. THUS, THIS CONTENTION OF THE REVENUE STAND DISMISSED. PRODUCTION DATE SUBMITTED BY THE ASSESSEE ON REC ORD CLEARLY PROVE THAT THE PRODUCTION IN EACH OF THESE UNITS GOT SUBSTANTIALLY INCREASED AS COMPARED TO THE PRODUCTION IN THE OLD UNITS DISMANTLED OR DISCARDED. THERE IS NO COGENT EVIDENCE OR MATERIAL BEING BROUGHT ON RECORD BY THE REVENUE WHICH MAY PROVE THAT THE OLD UNIT REMAINS IN EXISTENCE MERELY BY RECONSTITUTING THE SAME. 45.15 WE HAVE GONE THROUGH THE VARIOUS CASES RELIED ON BEFORE US. THESE CASES LAID DOWN AS UNDER: - (I) CIT VS. MAHAAN FOODS LTD. (2009) 177 TAXMAN 274 (DEL) : (2008) 216 CTR (DEL) 148: 12. AS PER FINDINGS OF FACT RECORDED BY THE TRIBUNAL, IT HAS BEEN STATED THAT IN THE PRESENT CASE THE OLD UNDERTAKING NO LONGER EXISTED AND REMAINED IDENTIFIABLE. IT WAS COMPLETELY SUBMERGED IN THE NEW INDUSTRIAL UNDERTAKING OF 111 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) THE ASSESSEE. THE P ROVISIONS OF SECTION 80IA OF THE ACT WITH REFERENCE TO EXPLANATION 2 DO NOT REQUIRE THAT NEW INDUSTRIAL UNDERTAKING SHOULD BE RAISED ON SEPARATE PLOT OF LAND LEAVING THE EARLIER UNDERTAKING TOTALLY UNTOUCHED. WE FIND THAT THE PROCESSES FOR WHICH THE ASSES SEE ENTERED INTO TECHNOLOGICAL COLLABORATIONS WITH M/S ROTACOM INDUSTRIES, B.V., NETHERLANDS AND M/S SEPPO RALLI OY, FINLAND WERE THE KEY PROCESSES OF THE ASSESSEES INDUSTRIAL UNDERTAKING AND OTHER PROCESSES SUCH AS STORAGE OF MILK IN STAINLESS STEEL STOR AGE TANKS, PRE - WARMING, PRE - HEATING, PASTEURIZATION WERE ONLY OF PREPARATORY NATURE FOR THE MANUFACTURING OF THE PRODUCT OF THE ASSESSEE. THE ASSESSEE APPEARS TO HAVE INTRODUCED ALMOST ENTIRELY NEW MANUFACTURING TECHNOLOGY AND PROCESSES. 13. THE RECONSTR UCTION OF A BUSINESS OR AN INDUSTRIAL UNDERTAKING MUST NECESSARILY INVOLVE THE CONCEPT THAT THE ORIGINAL BUSINESS OR UNDERTAKING IS NOT TO CEASE FUNCTIONING, AND ITS IDENTITY IS NOT TO BE SET TO BE LOST OR ABANDONED. THE CONCEPT ESSENTIALLY RESTS ON CHANG ES BUT THE CHANGES MUST BE CONSTRUCTIVE AND NOT DESTRUCTIVE. THERE MUST BE SOMETHING POSITIVE ABOUT THE WHOLE MATTER AS OPPOSED TO NEGATIVE. THE UNDERLYING IDEA OF A RECONSTRUCTION EVIDENTLY MUST BE - AND THIS IS BROUGHT OUT BY THE SECTION ITSELF - OF A 'B USINESS ALREADY IN EXISTENCE'. THERE MUST BE A CONTINUATION OF THE ACTIVITIES AND BUSINESS OF THE SAME INDUSTRIAL UNDERTAKING. THE UNDERTAKING MUST CONTINUE TO CARRY ON THE SAME BUSINESS THOUGH IN SOME ALTERED OR VARIED FORM. IF THE ALTERATION AND CHANGES ARE SUBSTANTIAL, THERE WOULD BE LITTLE SCOPE FOR DESCRIBING WHAT EMERGES AS A RECONSTRUCTION OF THE BUSINESS. (SEE CIT V. GAEKWAR FOAM AND RUBBER CO. LTD. [1959] 35 ITR 662 [BOM.] 14. FROM THE PERUSAL OF SECTION 80 - IA OF THE ACT IT IS CLEAR THAT THE STATUTE ITSELF HAS ENVISAGED AND APPROVED OF A SITUATION IN WHICH AN OLD EXISTING SMALLER INDUSTRIAL UNDERTAKING IS ABSORBED BY A NEW MUCH BIGGER INDUSTRIAL UNDERTAKING. 15. IN THE PRESENT CASE, ONLY CAPACITY WAS INCREASED AND THERE WAS EXPANSION OF OLD BUSINESS WITH SOME MODIFICATIONS. AS FOR RECONSTRUCTION OF THE BUSINESS, IT IS NOWHERE EVIDENT THAT THE OLD INDUSTRIAL UNIT WAS SPLIT UP OR DAMAGED OR DESTROYED THAT WAS SUPPOSEDLY RECONSTRUCTED AS A NEW UNIT BY THE ASSESSEE. WHAT THE ASSESSEE HAS DONE IS TO SET UP AN INDUSTRIAL UNDERTAKING WITH LATEST TECHNOLOGY AND WITH INCREASED CAPACITY AND OF COURSE, WITH A FAIRLY GOOD AMOUNT OF FRESH INVESTMENT. (II) METTUR CHEMICALS & INDUSTRIAL CORPORATION LTD. VS. CIT (1996) 217 ITR 768 (SC) 11. IT IS FOUND AS A FACT THAT THE APPELLANT HAD BEGUN TO MANUFACTURE OR PRODUCE ARTICLES IN THE PREVIOUS YEAR ENDED ON 31 - 3 - 1957 WITH THE HELP OF THIRTY HOOKER CELLS. IT IS TRUE THAT RECTIFIER HAD NOT BEEN INSTALLED IN THE YEAR 1957 - 58 BUT IT IS NOT 112 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) IN DISPUTE THAT WITH SUITABLE ADJUSTMENT BEING MADE TO THE POWER SYSTEM, THE THIRTY HOOKER CELLS WHICH HAD BEEN INSTALLED WERE UTILISED. THE USE OF THESE NEW HOOKER CELLS HAD RESULTED IN THE CAPACITY OF THE UNIT GRADUALLY INCREASING AND THE PRODUCTION SO MADE WAS NOT EXPERIMENTAL BUT WAS COMMERCIAL. THIS BEING SO, THE APPELLANT'S UNDERTAKING MUST BE REGARDED AS HAVING BEEN NEWLY ESTABLISHED WHEN IT HAD BEGUN TO MANUFACTURE OR PRODUCE ARTICLES BY 31 - 3 - 1957. AS 1957 - 58 WAS THE FIRST ASSESSMENT YEAR 13. THIS I S A CASE WHERE THE MANUFACTURING CAPACITY OF THE APPELLANT WAS INCREASED ON A LICENCE BEING GRANTED FROM 13.5 TONS PER DAY TO 20 TONS PER DAY. IN OTHER WORDS, THESE HOOKER C ELLS WERE INSTALLED AND THE BILL ETER CELLS WERE GRADUALLY REPLACED. THE NEW INDUSTR IAL UNDERTAKING CAME INTO EXISTENCE WHEN THE INITIAL LOT OF THIRTY HOOKER CELLS WERE INSTALLED IN THE YEAR 1957 - 58 WHICH HAD RESULTED IN ENHANCED COMMERCIAL PRODUCTION. THE TRIBUNAL AND THE HIGH COURT, IN OUR OPINION, RIGHTLY CAME TO THE CONCLUSION THAT TH E UNDERTAKING COULD FUNCTION WITH THIRTY HOOKER CELLS IN THE YEAR 1957 - 58 AND FURTHER NUMBERS WERE ADDED IN THE SUBSEQUENT YEAR. THE UNDERTAKING HAVING THUS STARTED, THE COMMERCIAL MANUFACTURE IN THE YEAR 1957 - 58 COULD NOT CLAIM THE BENEFIT OF PROVISIONS O F SECTION 84 OF THE ACT BECAUSE THE UNIT AS SUCH HAD COMMENCED IN THE YEAR 1957 - 58 NOTWITHSTANDING THE FACT THAT THERE HAD BEEN AN EXPANSION THERETO IN THE SUBSEQUENT YEAR. (III) TAURUS MERCHANDISING (P) LTD. VS. ITO (2012) 143 TTJ (DEL) 1 16. IN JT. CIT VS . ASSOCIATED CAPSULES (P) LTD. (2008) 117 TTJ (MUMBAI) 399 : (2008) 9 DTR (MUMBAI)(TRIB) 95 : (2008) 304 ITR 85 (MUMBAI)(AT), IT HAS BEEN HELD THAT WHERE THE ASSESSEE HAD ESTABLISHED NEW PLANT AND MACHINERY AT THE SAME PREMISES AND WAS PRODUCING THE SAME PRODUCT AS THAT DONE BY THE EXISTING BUSINESS, THE NEW UNITS WERE HAVING SEPARATE AND DISTINCT IDENTITY OF THEIR OWN, PROFITS AND GAINS WERE DERIVED FROM THEM AND THE ASSESSEE WAS TREATING EACH UNIT AS A SEPARATE AND INDEPENDENT UNIT IN ITS ACCOUNTS, THE N EW UNITS COULD NOT BE HELD TO BE PART OF THE EXISTING BUSINESS; AND THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION UNDER SS. 80 - I AND 80 - IA OF THE ACT. 17. FURTHER, THE EXISTENCE OF BUSINESS IS A PRESUPPOSITION FOR THE FORMATION OF A NEW UNDERTAKING BY THE RECONSTRUCTION OR THE SPLITTING UP THEREOF. IN THE PRESENT CASE, THERE HAD BEEN NO BUSINESS IN THE OLD UNIT OF THE ASSESSEE FOR OVER FIVE YEARS BEFOR E THE START OF PRODUCTION BY THE NEW EOU. THAT BEING SO, THE NEW EOU OF THE ASSESSEE CANNOT, IN ANY MANNER, BE SAID TO BE FORMED BY THE RECONSTRUCTION OR SPLITTING UP OF A BUSINESS ALREADY IN EXISTENCE. THEN, THE AUTHORITIES BELOW HAVE OBSERVED THAT MERE R EGISTRATION AS A ONE HUNDRED PER CENT EOU IS NOT THE SOLE CRITERION FOR GRANT OF DEDUCTION UNDER S. 10B OF THE ACT. THIS OBSERVATION ITSELF AMOUNTS TO AN ADMISSION OF THE UNIT BEING REGISTERED AS A ONE HUNDRED PER CENT UNIT WITH THE DEVELOPMENT COMMR., NE PZ. EXPLANATION 113 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) 2(IV) TO S. 10B OF THE ACT PROVIDES FOR A ONE HUNDRED PER CENT EOU TO MEAN AN UNDERTAKING WHICH HAS BEEN APPROVED AS A ONE HUNDRED PER CENT EOU BY THE BOARD APPOINTED IN THIS BEHALF BY THE CENTRAL GOVERNMENT IN EXERCISE OF THE POWERS CONFE RRED BY S. 14 OF THE INDUSTRIES (DEVELOPMENT AND REGULATION) ACT, 1951 AND THE RULES MADE THEREUNDER. FOR FACILITY, THE SAID EXPLN. 2(IV) TO S. 10B IS BEING REPRODUCED AS FOLLOWS: - 'HUNDRED PER CENT EXPORT - ORIENTED UNDERTAKING' MEANS AN UNDERTAKING WHICH HAS BEEN APPROVED AS A HUNDRED PER CENT EXPORT - ORIENTED UNDERTAKING BY THE BOARD APPOINTED IN THIS BEHALF BY THE CENTRAL GOVERNMENT IN EXERCISE OF THE POWERS CONFERRED BY S. 14 OF THE INDUSTRIES (DEVELOPMENT AND REGULATION) ACT, 1951 (65 OF 1951), AND THE RULES MADE UNDER THAT ACT.' 18. THEREFORE, REGISTRATION AS A ONE HUNDRED PER CENT EOU IS A SINE QUA NON FOR CLAIMING DEDUCTION UNDER S. 10B OF THE ACT. FURTHER, AS IS AVAILABLE FROM THE COPY OF REGISTRATION OF THE UNIT AS A ONE HUNDRED PER CENT EOU (AS SESSEE'S PAPER BOOK 71 TO 74), THE UNIT WAS DULY APPROVED BY THE BOARD APPOINTED IN THIS BEHALF BY THE CENTRAL GOVERNMENT. IN TUBE INVESTMENTS OF INDIA LTD. VS. ASSTT. CIT (2009) 121 TTJ (CHENNAI)(TM) 577 : (2009) 20 DTR (CHENNAI)(TM)(TRIB) 244 : (2009) 1 17 ITD 239 (CHENNAI)(TM), IT HAS BEEN HELD THAT A ONE HUNDRED PER CENT EOU, AS PER EXPLN. 2(IV) TO S. 10B MEANS AN UNDERTAKING APPROVED AS A ONE HUNDRED PER CENT EOU BY THE BOARD APPOINTED IN THIS BEHALF BY THE CENTRAL GOVERNMENT IN EXERCISE OF THE POWERS CONFERRED BY S. 14 OF THE INDUSTRIES (DEVELOPMENT AND REGULATION) ACT, 1951 AND THE RULES FRAMED UNDER THAT ACT; AND THAT IT WAS NOT THE CASE OF THE DEPARTMENT THAT APPROVAL AS REQUIRED UNDER THE STATUTE HAD NOT BEEN ACCORDED TO THE ASSESSEE (IV) GUJARAT ALK ALIES AND CHEMICALS LTD. VS. CIT (2012) 249 CTR (GUJ.) 82 IN THE PRESENT CASE ALSO, IT IS NOT THE CASE OF THE REVENUE THAT THE NEW UNIT BY ITSELF IS NOT CAPABLE OF PRODUCTION OF GOODS BUT THE CASE OF THE REVENUE IS THAT IT TAKES HELP OF THE OLD EXISTING UNIT. WE ARE OF THE VIEW THAT, THAT ITSELF SHOULD NOT BE T HE REASON TO REJECT THE CLAIM UNDER SECTION 80 - I OF THE ACT. THUS, WHETHER AN UNDERTAKING IS A NEW INDUSTRIAL UNDERTAKING ENTITLED TO THE EXEMPTION UNDER SECTION 80 - I OF THE ACT DEPENDS ON THE FACTS OF EACH CASE. NO HARD A ND FAST RULE CAN BE LAID DOWN. USE BY THE ASSESSEE OF THE OLD UNDERTAKING FOR THE PURPOSE OF PRODUCTION IN ITS NEW UNDERTAKING IS NOT A DECISIVE TEST IN CONST RUING SECTION 80 - I OF THE ACT. THE NEW UNDERTAKING MUST NOT BE SUBSTANTIALLY THE SAME OLD BUSINESS. SUBSTANTIAL INVESTMENT OF N EW CAPITAL IS IMPERATIVE AND IN THE PRESENT CASE, THERE HAS BEEN A HUGE SUBSTANTIAL INVESTMENT OF AROUND RS.7 C RORE ALMOST THREE DECADES AGO. THE WORDS THE CAPITAL EMPLOYED IN THE PRINCIPAL CLAUSE OF SECTION 80 - I OF THE ACT ARE SIGNIFICANT, FOR FRESH CAP ITAL MUST BE EMPLOYED IN THE NEW U NDERTAKING CLAIMING EXEMPTION. MANUFACTURE OR PRODUCTION OF ARTICLES YIELDING ADDITIONAL PROFIT ATTRIBUTABLE TO THE NEW OUTLAY OF CAPITAL IN A SEPARATE 114 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) AND DISTINCT UNIT IS ESSENTIAL TO EARN THE BENEFIT OF SECTION 80 - I. T HE FACT THAT AN ASSESSEE BY ESTABLISHMENT OF A NEW INDUSTRIAL UNDERTAKING EXPANDS HIS EXISTING BUSINESS WHICH HE CERTAINLY DOES, WOULD NOT ON THAT SCORE DEPRIVE HIM OF THE BENEFIT UNDER SECTION 80 - I. EVERY NEW CREATION IN BUSINESS IS SOME KIND OF EXPANSION AND ADVANCEMENT. THE TRUE TEST IS NOT WHETHER THE NEW INDUSTRIAL UNDERTAKING CONNOTES EXPANSION OF THE EXISTING BUSINESS OF THE ASSESSEE BUT WHETHER IT IS A NEW IDENTIFIABLE ENDEAVOUR WHERE SUBSTANTIAL INVESTMENT OF FRESH CAPITAL IS MADE TO ENABLE EARNING OF PROFIT ATTRIBUTABLE TO THAT NEW CAPITAL. IN THE CIRCUMSTANCES, THE QUESTION REFERRED FOR THE OPINION OF THIS COURT IS ANSWERED IN THE NEGATIVE, I.E., AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE (V) BAJAJ TEMPO LTD. VS. CIT (1992) 104 CTR (SC) 116 DEDUCTION UNDER S. 15C OF 1922 ACT (S. 80J OF 1961 ACT) ALLOWABILITY INDUSTRIAL UNDERTAKING ESTABLISHED IN A BUILDING TAKEN ON LEASE USED PREVIOUSLY FOR OTHER PURPOSE TOOLS AND IMPLEMENTS WORTH RS. 3,500 OF THE PREVIOUS UNDERTAKING ALSO TRANSFERRED RELIEF UNDER S. 15C IS ALLOWABLE CLAUSE (I) OF SUB - S. (2) OF S. 15C DOES NOT APPLY THE PROVISION GRANTING RELIEF WAS ENACTED TO ENCOURAGE INDUSTRIALIZATION AND HAS TO BE CONSTRUED LIBERALLY TOOLS AND IMPLEMENTS TRANSFERRED WERE OF INSIGNIFICANT VAL UE AS COMPARED TO THE WHOLE ASSETS AND LITERAL CONSTRUCTION OF CL. (I) OF S. 15C(2) WOULD DEFEAT THE VERY PURPOSE OF ENACTING THE PROVISIONS THE KEY TO INTERPRETATION IS THAT THE NEW UNDERTAKING SHOULD NOT BE FORMED' BY TRANSFER OF BUILDING, PLANT OR MA CHINERY EMPHASIS IS ON FORMATION NOT ON USE. 45.16 WE FIND THAT THE FOLLOWING GUIDING PRINCIPLES EMERGE FOR THE RECKONING OF A NEW UNIT BASED UPON VARIOUS LAND MARK RULINGS AND ALSO FIND THAT (I) THERE WAS INFUSION OF NEW CAPITAL BY THE ASSESSEE IN THOSE UNITS. (II) THERE WAS SUBSTANTIAL MODIFICATION IN THE OLD UNITS SO AS NOT TO DISTURB THE IDENTITY OF THE OLD UNITS, I.E., THE IDENTITY OF THOSE UNITS REMAINED UNCHANGED. (III) THERE WAS LEAST POSSIBLE OR INSIGNIFICANT USAGE OF THE PLANT AND MACHINERY OF THE OLD UNITS. (IV) THERE WAS A NEGATIVE ACT OF THE ASSESSEE TO DISTURB THE IDENTITY OF THE OLD UNIT AS THE PLANT AND MACHINERY WAS DISMANTLED BY THE ASSESSEE IN ALL THESE UNITS. (V) THE ASSESSEE HAD SET UP NEW UNITS ESSENTIALLY PRODUCING THE SAME COMMODITY AS IN THE EXIS TING UNITS, THOUGH THERE IS NO SUCH BAR IMPOSED IN LAW. 45.17 ACCORDINGLY, AFTER HEARING BOTH THE PARTIES AND ALSO GOING THROUGH THE MATERIAL PLACED ON RECORD AND AFTER CONSIDERING THE VARIOUS DECISIONS, WE HOLD THAT NEW UNITS HAD ACTUALLY BEEN ESTABLISHE D BY THE ASSESSEE IN THE FY 1999 - 2000 AT CODLI; IN THE FY 2002 - 03 AT AMONA; AND IN THE FY 2005 - 06 AT CHITRADURGA. 115 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) 45.18 WE NOTED AFTER GOING THROUGH THE PROVISIONS OF SEC.10B THAT THERE IS NO REQUIREMENT THAT THE ASSESSEE SHOULD MAINTAIN SEPARATE BOOKS OF ACCOUNTS IN RESPECT OF 100% EOU UNIT FOR CLAIMING DEDUCTION. THE ONLY REQUIREMENT IN THIS REGARD U/S 10B(5) IS THAT THE ASSESSEE SHALL NOT BE ALLOWED DEDUCTION UNLESS THE ASSESSEE FURNISHES IN THE PRESCRIBED FORM ALONG WITH THE RETURN OF INCOME THE REPORT OF AN ACCOUNTANT, AS WE FIND IN THE EXPLANATION BELOW SUB - SEC.2 OF SEC.288, CERTIFYING THAT DEDUCTION HAS BEEN CORRECTLY CLAIMED IN ACCORDANCE WITH PROVISIONS OF THE IT ACT, 1961. WE HAVE GONE THROUGH THE CASE LAWS, AS RELIED BY THE LEARNED AR AND WE FIN D THAT THE CASE OF THE ASSESSEE IS DULY COVERED BY THE DECISION IN THE CASE OF DCIT VS ARABIAN EXPORTS LTD., (2007) 109 TTJ (MUM.) 440 ON THIS ISSUE. IT IS NOT DENIED BY THE REVENUE THAT THE ASSESSEE HAS FILED THE REPORT IN ACCORDANCE WITH SEC.10B(5) OF T HE IT ACT, 1961. WE THEREFORE, DISMISS THIS CLAIM OF THE REVENUE. 45.19 WE NOTED THAT IN RESPECT OF THE AMONA PLANT THE ASSESSEE HAS DULY INFORMED THE DC, SEZ BOMBAY VIDE HIS LETTER DATED 9.3.2008 I.E., COMMERCIAL PRODUCTION STARTED ON 8.3.2000 AND COPY OF THE SAID LETTER WAS DULY SENT TO CUSTOMS DEPARTMENT WHICH WAS NOT DISPUTED BY THESE COMPETENT AUTHORITIES. 45.20 IN THE CASE OF CHITRADURGA PLANT ALSO WE NOTED THAT THE ASSESSEE VIDE ITS LETTER DATED 14.7.2008 DULY INTIMATED TO THE DC, SEZ THAT THE CONVERTED 100% EOU IS STARTED COMMERCIAL PRODUCTION ON 6.6.2008. THE PREMISES OF THE SAID UNIT WAS BONDED AND THE LICENCE NO.1/2008 DATED 5.6.2008 WAS ISSUED U/S 58 OF THE CUSTOMS ACT. SIMILARLY, WE NOTED THAT IN THE CASE OF CODLI UNIT THE ASSESSEE HAS DULY INTIMATED TO THE MINISTRY OF INDUSTRY VIDE LETTER DATED 9.3.2000 THAT THE COMMERCIAL PRODUCTION IS STARTED ON 8.3.2000. NONE OF THE AFORESAID GOVERNMENT AUTHORITY HAS DISPUTED THAT THE ASSESSEE HAS NOT STARTED COMMERCIAL PRODUCTION ON THAT DATE. 45.21 IN VIEW OF THE AFORESAID DISCUSSION, WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED FOR EXEMPTION U/S 10B IN RESPECT OF ALL THE THREE 100% EXPORT ORIENTED UNITS, BUT DURING THE COURSE OF THE HEARING, WE NOTED THAT THE ASSESSEE WHILE COMPUTING THE E XEMPTION U/S 10B HAS DEBITED ORE EXTRACTED FROM OWN MINES IN AMONA UNIT AS WELL AS CHITRADURGA UNIT AT COST OF RS.45,25,23,692/ - AND RS. 20,27,01,458/ - RESPECTIVELY, WHILE IN VIEW OF PROVISIONS OF SECTION 10B(7) READ WITH SECTION 80 - IA(8) THE ASSESSEE IS RE QUIRED TO TRANSFER THE CRUDE ORE EXTRACTED FROM ITS OWN MINES AT MARKET VALUE FOR DETERMINING THE TRUE PROFIT DERIVED BY THE 100% EOU FOR THE PURPOSE OF COMPUTING THE INCOME ILLEGIBLE FOR EXEMPTION U/S 10B. WE ALSO NOTED THAT THE ASSESSEE HAS ALSO PURCHAS ED CRUDE ORE I.E ROM FROM OUTSIDE PARTIES I.E FROM MINING BELONGING TO THE OTHER PARTIES. THE PRICE PAID BY THE ASSESSEE TO THESE OUTSIDE PARTIES, IN OUR OPINION CAN BE REGARDED TO BE THE BEST EVIDENCE FOR DETERMINING THE MARKET VALUE OF THE CRUDE ORE USED BY THE ASSESSEE EXTRACTING IT FROM ITS OWN MINES. SINCE DETERMINATION OF MARKET VALUE REQUIRES VERIFICATION ON THE PART OF THE REVENUE, WE, THEREFORE, RESTORE THIS ISSUE ONLY FOR DETERMINING THE MARKET VALUE OF THE CRUDE ORE CONSUMED BY THE ASSESSEE ON TH E BASIS OF THE VALUE PAID BY THE ASSESSEE FOR THE CRUDE ORE TO THE OUTSIDE PARTIES DURING THE YEAR AND THEREBY RECOMPUTING THE PROFIT DERIVED BY THE ASSESSEE FROM THE 100% EOU UNITS ELIGIBLE FOR EXEMPTION U/S 10B. ACCORDINGLY, WE DIRECT THE ASSESSING OFFIC ER TO RECOMPUTE THE EXEMPTION AVAILABLE U/S 10B TO THE ASSESSEE IN RESPECT OF AMONA AS WELL AS CHITRADURGA UNITS AFTER ASCERTAINING THE MARKET VALUE OF THE CRUDE ORES 116 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) TRANSFERRED BY THE ASSESSEE TO THESE UNITS FROM ITS EXTRACTION DIVISIONS ON THE BASIS OF THE AVERAGE MARKET VALUE AS THE ASSESSEE HAS PAID TO THE OUTSIDE PARTIES FOR THE CRUDE ORES PURCHASED BY THE ASSESSEE FROM THESE PARTIES DURING THE IMPUGNED ASSESSMENT YEAR AND SUBSTITUTING AS COST OF THE RAW MATERIAL IN PLACE OF COST OF THE CRUDE ORE DERI VED BY THE ASSESSEE FROM ITS OWN MINES AFTER GIVING PROPER AND SUFFICIENT OPPORTUNITY TO THE ASSESSEE TO ADDUCE THE MATERIAL AND EVIDENCE IN THIS REGARD. 45.22 WITH REGARD TO CODLI UNIT, THE ASSESSEE CLAIMED BEFORE US THAT THE INPUT IN THIS CASE IS TAI LINGS WHICH IS MERELY A WASTE PRODUCT AND DOES NOT INVOLVE ANY COST AND ALSO HAS NOT FETCHED ANY PRICE IN THE OPEN MARKET, THEREFORE, ITS MARKET VALUE IS NIL FOR THE PURPOSE OF COMPUTATION OF PROFIT ELIGIBLE FOR EXEMPTION U/S 10B FROM THIS UNIT. WE FIND FORCE IN THE SUBMISSION OF THE ASSESSEE BUT IN THE INTEREST OF JUSTICE AND FAIR PLAY TO BOTH THE PARTIES, IN RESPECT OF THIS UNIT ALSO WE DIRECT THE ASSESSING OFFICER TO RECOMPUTE THE PROFIT OF THIS UNIT ELIGIBLE FOR EXEMPTION AFTER SATISFYING HIMSELF ABOU T THE FAIR MARKET VALUE OF TAILINGS AFTER GIVING PROPER AND SUFFICIENT OPPORTUNITY TO THE ASSESSEE TO PROVE THE MARKET VALUE OF THE TAILINGS USED IN THE CODLI UNIT AND ALLOW THE ASSESSEE EXEMPTION TO THE ASSESSEE U/S 10B OF THE INCOME - TAX ACT, 1961 FOR C ODLI UNIT ON THE PROFIT SO RECOMPUTED ACCORDINGLY. THE ASSESSEE IS DIRECTED TO ADDUCE THE NECESSARY EVIDENCE ON WHICH IT MAY RELY TO PROVE THE MARKET VALUE OF INPUTS BEFORE THE ASSESSING OFFICER. THUS, THE GROUND NOS. 7, 8 & 9 ARE PARTLY ALLOWED. 5.4.5 WE, THEREFORE, IN V IEW OF OUR DECISION IN ITA NOS. 72/PNJ/2012 & 85/PNJ/2012 AND THE FACT THAT THE FINDING OF CIT(A) IN THE CASE OF THE ASSESSEE HAS ALREADY BECOME FINAL DURING THE A.Y. 2006 - 07 VIDE ITS ORDER DT. 9.12.2009, HOLD THAT THE ASSESSEE HAS ESTAB LISHED A NEW INDUSTRIAL UNDERTAKING. 5.4.6 SO FAR AS THE QUESTION WHETHER THE SAID UNIT WHICH IS ELIGIBLE FOR EXEMPTION AND IN RESPECT OF WHICH THE ASSESSEE HAS CLAIMED EXEMPTION U/S 10B IS A 100% EOU, WE NOTED THAT THIS TRIBUNAL VIDE ITS ORDER DT. 7.4.2011 IN ITA NO. 42/PNJ/2010 HAS ALREADY GIVEN A FINDING , AS HAS BEEN REPRODUCED HEREINABOVE . WE ARE BOUND TO FOLLOW THE FINDING OF THIS TRIBUNAL. WE, ACCORDINGLY, ALLOW THE EXEMPTION TO THE ASSESSEE U/S 10B AND CONFIRM THE ORDER OF CIT(A). THUS, THE GROUND TAKEN BY THE REVENUE STANDS DISMISSED. 117 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) ITA N OS . 30 , 31 , 3 5 & 3 6 /PNJ/2013 : 6. THESE CROSS APPEALS HAVE BEEN FILED AGAINST THE ORDERS OF CIT(A) BOTH DT D. 20.12.2 012 FOR A.Y S . 2007 - 08 AND 2008 - 09. THE FOLLOWING COMMON GROUNDS OF APPEAL HAVE BEEN TAKEN BY THE ASSESSEE IN BOTH THE A.YS EXCEPT CHANGE IN THE FIGURES : - 1. THAT THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), PANAJI, GOA (HEREINAFTER REFERRED TO AS CIT(A)) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. THAT THE CIT(A) ERRED IN UPHOLDING THE LEGALITY OF THE REASSESSMENT PROCEEDINGS. 3. (A) THAT THE CIT( A)LEGALLY ERRED IN DENYING THE DEDUCTION OF RS.452,859,800/ - UNDER SECTION 10B OF THE ACT. (B) THE CIT(A) FURTHER LEGALLY ERRED IN COMING TO THE CONCLUSION THAT THE UNIT IS NOT ENGAGED IN PRODUCTION OR MANUFACTURE WITHIN THE MEANING OF SECTION 10B OF THE ACT RELATABLE TO ITS ACTIVITY OF PURCHASING, PROCESSING AND EXPORTING OF THE IRON ORE. 4. THE CIT(A) ERRED IN NOT DECIDING THE FOLLOWING ISSUES, WHICH WERE SPECIFICALLY RAISED BEFORE HIM. (I) THE ELIGIBILITY OF THE UNDERTAKING UNDER SECTION 10B OF THE ACT MUST BE DECIDED IN THE INITIAL ASSESSMENT YEAR AND AS PER THE LAW EXISTED IN THAT YEAR. SINCE THE ASSESSEE STARTED ITS PRODUCTION ACTIVITY IN THE ASSESSMENT YEAR 1999 - 2000 (ADMITTED BY CIT(A)), AND AS PER THE DEFINITION OF THE TERM MANUFACTURE IN CLAUSE (III) OF THE EXPLANATION TO SECTION 10B AS EXISTED AS ON 01.04.1999 WHICH INCLUDES PRO CESS, EVEN INCOME FROM ROM PROCESSED BY THE ASSESSEE WOULD ALSO BE ENTITLED TO DEDUCTION. (II) WITHOUT PREJUDICE TO GROUND NO. 4(I) ABOVE, IN THE ABSENCE OF THE DEFINITION OF THE TERM MANUFACTURE IN THE ASSESSMENT YEAR UNDER CONSIDERATION, THE DEFINITION AS CONTAINED IN OTHER LEGISLATIONS MAY BE RELIED UPON AS HELD BY THE KERALA HIGH COURT IN THE CASE OF TATA TEA LTD. (338 ITR PAGE 285). APPLYING THE SAID RATIO OF THE KERALA HIGH COURT DECISION, THE ASSESSEE IS SAID TO BE ENGAGED IN MANUFACTURE IN TERMS OF SECTION 2(R) OF THE SEZ ACT, 2005 (WHICH INTER ALIA INCLUDES PROCESSING), THE ASSESSEE IS ENTITLED FOR FULL DEDUCTION UNDER SECTION 10B OF THE ACT ON ITS ACTIVITY OF PURCHASING, PROCESSING AND EXPORTING THE IRON ORE. 118 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) (III) IT IS NOT OPEN F OR THE REVENUE TO DENY DEDUCTION UNDER SECTION 10B OF THE ACT FOR THE FIRST TIME IN THE PENULTIMATE YEAR OF THE CLAIM BY HOLDING THAT THE APPELLANT IS NOT ENGAGED IN MANUFACTURE AFTER 8 YEARS. 5. (I) THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE AO UNDER SECTION 14A OF THE ACT R.W.R. 8D OF THE I.T.RULES, 1962 WHEN RULE 8D WAS BROUGHT INTO STATUTE WITH EFFECT FROM ASSESSMENT YEAR 2008 - 09. (II) WITHOUT PREJUDICE, THE DISALLOWANCE BY APPLICATION OF RULE 8D MAY DIRECTED TO BE RESTRICTED (A) BY CALCULATING THE AVERAGE INVESTMENT VALUE TAKING INTO CONSIDERATION ONLY THOSE INVESTMENTS ON WHICH THE ASSESSEE EARNED EXEMPTED DIVIDEND AND (B) BY EXCLUDING THE BANK CHARGES AND COMMISSION WHILE CONSIDERING THE PROPORTIONATE DISALLOWANCE OF INTEREST UNDER RULE 8D(2)(II). WHEREAS THE FOLLOWING COMMON GROUNDS OF APPEAL HAVE BEEN TAKEN BY THE REVENUE IN BOTH THE A.YS EXCEPT FOR THE FIGURES : 1. THE LD. COMMISSIONER OF INCOME - TAX (APPEALS) ORDER IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN HOLDING THAT GREATER FERRO - MET UNIT IS A NEW UNIT, CONSIDERING THE FACT THAT EXTRACTION HAS STARTED IN SHIRGAO MINES IN 1989 - 90 AND CUDEGAL MINE IN 1986. 3. THE CIT(A) ERRED IN ALLOWING DEDUCTION U/S 10B IN RESPECT OF THE PROFIT OF CUDEGAL MINES, WHEN AS PER AGREEMENT, HARDESH ORES PVT. LTD., IS DOING EXTRACTION, RAISING AND LOADING OF IRON ORE AND THE ASSESSEE IS PURCHASING IRON ORE FROM MINEIRA NACIONAL LIMITADA. 4. CONSIDERING THE FACTS THAT CUDEGAL M INE BEGAN OPERATION IN 1986 AND SHIRGAO MINE IN 1989 - 90, CAN IT BE SAID THAT THE GREATER FERRO - MET UNIT WHICH COMPRISED OF THE MINES, HAVE BEGUN PRODUCTION IN F.Y. 1998 - 99 ? 5. THE LD. CIT(A) ERRED IN EXEMPTING THE PROFITS OF EXPORTS IN RESPECT OF SHIRGAO MINE AS ASSESSEE COMPANY HAS NOT FURNISHED ANY EVIDENCE BEFORE THE AO TO SHOW THAT IT IS EXTRACTING IRON ORE FROM THIS MINE. THE CIT(A) HAS NOT GIVEN OPPORTUNITY TO THE AO TO VERIFY THE CLAIM OF THE ASSESSEE. 5. THE LD. CIT(A) ERRED IN ALLOWING DEDUCTION U/S 10B TO THE EXTENT OF ORE EXTRACTED AND PROCESSED OF RS.85,90,16,792/ - OUT OF TOTAL PROFIT OF RS.131,18,76,592/ - . 119 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) 6.1 SINCE ISSUE INVOLVED IN ALL THESE APPEALS ARE COMMON THEREFORE, BOTH THE PARTIES AGREED THAT ALL THESE APPEALS BE DECIDED ON THE BASIS OF THE FACTS INVOLVED FOR THE ASSESSMENT YEAR 2007 - 08. WE, THEREFORE, DECIDED ALL THESE APPEALS ON THE BASIS OF THE FACTS INVOLVED FOR THE ASSESSMENT YEAR 2007 - 08. 7. GROUND NO. 1 IN BOTH THE ASSESSMENT YEAR IN ASSESSEES APPEAL AS WELL AS IN REVENUES APPEAL IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. 8. GROUND NO. 2 IN ASSESSEES APPEAL FOR BOTH THE ASSESSMENT YEARS RELATES TO THE ILLEGALITY OF THE ASSESSMENT PROCEEDINGS INITIATED U/S 147 . THE LD. SENIOR ADVOC ATE CONTENDED THAT IN BOTH THE ASSESSMENT YEARS RETURN HAS BEEN PROCESSED U/S 143(1) AND THE EXEMPTION CLAIMED BY THE ASSESSEE U/S 10B HAS BEEN ALLOWED. HE CARRIED US TO THE FACTS FOR THE ASSESSMENT YEAR 2007 - 08 AND STATED THAT IN THIS CASE THE ASSESSEE SU BMITTED ITS RETURN OF INCOME ON 31.10.2007 SHOWING AN INCOME OF RS.57,26,22,757/ - AFTER CLAIMING EXEMPTION U/S 10B AMOUNTING TO RS.131,18,76,592/ - . THE RETURN WAS PROCESSED U/S 143(1) ON 16.2.2009 BUT AO DID NOT ISSUE ANY NOTICE U/S 143(2). THE AO SUBSEQ UENTLY RE - OPENED THE ASSESSMENT BY RECORDING THE REASONS WHICH ARE UNDATED AND WERE PROVIDED TO THE ASSESSEE ALONGWITH LETTER DT. 8.2.2012 IN RESPONSE TO THE LETTER OF THE ASSESSEE DT. 6.2.2012, COPY OF WHICH IS AVAILABLE AT PG. 3 - 4 OF THE PAPER BOOK. THE ASSESSEE OBJECTED FOR THE INITIATION OF THE PROCEEDINGS U/S 147 VIDE HIS LETTER DT. 20.2.2012 BY STATING THAT THE AO IS FACTUALLY INCORRECT IN STATING IN THE REASONS THAT THE CLAIM U/S 10B WAS DISALLOWED IN THE ASSESSMENT COMPLETED FOR THE A.Y 2002 - 03. T HE CLAIM U/S 10B WAS ALLOWED DURING THE A.Y 2002 - 03 AFTER THOROUGH INVESTIGATION. THAT ASSESSMENT WAS SUBSEQUENTLY RE - OPENED ON THE PREMISE THAT NO NEW UNIT HAD BEEN SET UP BY THE ASSESSEE AND THE ADDITIONAL PLANT AND MACHINERY INSTALLED BY THE ASSESSEE M ERELY AMOUNTED TO EXPANSION OF THE EXISTING UNIT . FOR A.Y 2003 - 04 TO 2005 - 06 , ASSESSMENTS WERE COMPLETED U/S 120 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) 143(3) ALLOWING EXEMPTION TO THE ASSESSEE U/S 10B OF THE INCOME TAX ACT. CIT INVOKING THE PROVISIONS OF SEC. 263 SET ASIDE THOSE ORDERS BUT IN AP PEAL, THIS TRIBUNAL QUASHED ON ALL THE THREE ORDERS PASSED U/S 263. AGAINST THE ORDER S PASSED BY ITAT, THE REVENUE HAS FILED THE APPEALS BEFORE HIGH COURT AND MATTER IS PENDING BEFORE THE HON'BLE HIGH COURT. IN THE A.Y 2006 - 07 , THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE U/S 10B BUT THE CIT(A) TOOK THE VIEW THAT THE ELIGIBLE UNIT IS A NEW UNIT BUT DENIED EXEMPTION AS IT DID NOT COMPLY WITH THE NECESSARY CONDITION STIPULATED U/S 10B, WHEN THE MATTER WENT BEFORE THE TRIBUNAL, THIS T RIBUNA L ALLOWED THE APPEAL OF THE ASSESSEE VIDE ORDER DT. 7.4.2011. THUS, THE CLAIM OF THE ASSESSEE STANDS ALLOWED IN THESE ASSESSMENT YEAR S 2003 - 04 TO ASSESSMENT YEAR 2006 - 07. HE CONTENDED THAT EVEN IN CASE AN ASSESSMENT IS RE - OPENED AFTER PROCESSING THE RETUR N U/S 143(1) THERE MUST BE SOME FRESH TANGIBLE MATERIAL WITH THE AO. IN THIS REGARD, RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF ORIENT CRAFT, 354 ITR 536 (DEL.). WHEN THE BENCH POINTED OUT TO THE LD. SR. ADVOCATE T HAT A SIMILAR ISSUE HAD ARISEN BEFORE THE HON'BLE SUPREME COURT IN THE CASE OF RAYMOND WOOLLEN MILLS VS. ITO, 236 ITR 34 (SC) WHEN THE QUESTION WAS RAISED THAT RE - ASSESSMENT WAS INVALID AS THERE WAS NO FRESH MATERIAL IN ADDITION TO THE VALUATION OF THE CLO SING STOCK, THE HON'BLE SUPREME COURT DID NOT EXPRESS ANY OPINION ON MERIT AND THE QUESTION WAS LEFT TO BE INVESTIGATED AND DECIDED BY THE ASSESSING AUTHORITY. THE LD. SR. ADVOCATE AGREED ON THE VERDICT OF RAYMOND WOOLLEN MILLS ( SUPRA ). 8.1 THE LD. DR, O N THE OTHER HAND, RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ACIT VS. RAJESH JHAVERI STOCK BROKERS PVT. LTD., 291 ITR 500 (SC) . HE CONTENDED THAT WHERE RETURN HAS BEEN PROCESSED U/S 143(1), THERE IS NO ASSESSMENT. IT IS MERELY AN INTIMATION. THE REASON TO BELIEVE U/S 147 AS IT STOOD AFTER 1.4.1989 DOES NOT REQUIRE THAT THERE SHOULD BE A 121 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) FRESH MATERIAL ON WHICH A REASONABLE PERSON COULD HAVE FORMED THE REQUISITE BELIEF. 8.2 WE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDER ED THE SAME ALONGWITH THE ORDER OF THE TAX AUTHORITIES BELOW AS WELL AS THE MATERIAL AND THE RELEVANT PROVISIONS OF THE INCOME TAX ACT. WE HAVE GONE THROUGH THE CASE LAWS AS HAS BEEN RELIED ON BEFORE US FROM BOTH THE SIDES . BEFORE DECIDING THE ISSUE INVO LVED, IT IS EXPEDIENT TO DISCUSS THE RELEVANT PROVISIONS. THE RELEVANT PROVISIONS OF SEC. 147 ARE REPRODUCED AS UNDER : 147 . IF THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR , HE MAY, SUBJECT TO THE PROVISIONS OF SECTIONS 148 TO 153 , ASSESS OR REASSESS SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTI ON, OR RECOMPUTE THE LOSS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE, AS THE CASE MAY BE, FOR THE ASSESSMENT YEAR CONCERNED (HEREAFTER IN THIS SECTION AND IN SECTIONS 148 TO 153 REFERRED TO AS THE RELEVANT ASSESSMENT YEAR) : PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB - SECTION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE RELEVANT ASSESSMENT YEAR, NO ACTION SHALL BE TAKEN UNDER THIS SECTION AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH AS SESSMENT YEAR BY REASON OF THE FAILURE ON THE PART OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB - SECTION (1) OF SECTION 142 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT, FOR THAT ASSESSMENT YEAR: PROVIDED FURTHER THAT NOTHING CONTAINED IN THE FIRST PROVISO SHALL APPLY IN A CASE WHERE ANY INCOME IN RELATION TO ANY ASSET (INCLUDING FINANCIAL INTEREST IN ANY ENTITY) LOCATED OUTSIDE INDIA, CHARGEABLE TO TAX, HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR: PROVIDED AL SO THAT THE ASSESSING OFFICER MAY ASSESS OR REASSESS SUCH INCOME, OTHER THAN THE INCOME INVOLVING MATTERS WHICH ARE THE SUBJECT MATTERS OF ANY APPEAL, REFERENCE OR REVISION, WHICH IS CHARGEABLE TO TAX AND HAS ESCAPED ASSESSMENT. 122 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) EXPLANATION 1. PRODUCTION BEFORE THE ASSESSING OFFICER OF ACCOUNT BOOKS OR OTHER EVIDENCE FROM WHICH MATERIAL EVIDENCE COULD WITH DUE DILIGENCE HAVE BEEN DISCOVERED BY THE ASSESSING OFFICER WILL NOT NECESSARILY AMOUNT TO DISCLOSURE WITHIN THE MEANING OF THE FOREGOING PROVISO. EXPL ANATION 2. FOR THE PURPOSES OF THIS SECTION, THE FOLLOWING SHALL ALSO BE DEEMED TO BE CASES WHERE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, NAMELY : ( A ) WHERE NO RETURN OF INCOME HAS BEEN FURNISHED BY THE ASSESSEE ALTHOUGH HIS TOTAL INCOME OR THE TOTAL INCOME OF ANY OTHER PERSON IN RESPECT OF WHICH HE IS ASSESSABLE UNDER THIS ACT DURING THE PREVIOUS YEAR EXCEEDED THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO INCOME - TAX ; ( B ) WHERE A RETURN OF INCOME HAS BEEN FURNISHED BY THE ASSESSEE BUT NO ASSESS MENT HAS BEEN MADE AND IT IS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS UNDERSTATED THE INCOME OR HAS CLAIMED EXCESSIVE LOSS, DEDUCTION, ALLOWANCE OR RELIEF IN THE RETURN ; ( BA ) WHERE THE ASSESSEE HAS FAILED TO FURNISH A REPORT IN RESPECT OF AN Y INTERNATIONAL TRANSACTION WHICH HE WAS SO REQUIRED UNDER SECTION 92E ; ( C ) WHERE AN ASSESSMENT HAS BEEN MADE, BUT ( I ) INCOME CHARGEABLE TO TAX HAS BEEN UNDERASSESSED ; OR ( II ) SUCH INCOME HAS BEEN ASSESSED AT TOO LOW A RATE ; OR ( III ) SUCH INCOME HAS BEEN MADE THE SUBJECT OF EXCESSIVE RELIEF UNDER THIS ACT ; OR ( IV ) EXCESSIVE LOSS OR DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE UNDER THIS ACT HAS BEEN COMPUTED; ( D ) WHERE A PERSON IS FOUND TO HAVE ANY ASSET (INCLUDING FINANCIAL INTEREST IN ANY ENTITY) LOCATED OUTSIDE INDIA. EXPLANATION 3. FOR THE PURPOSE OF ASSESSMENT OR REASSESSMENT UNDER THIS SECTION, THE ASSESSING OFFICER MAY ASSESS OR REASSESS THE INCOME IN RESPECT OF ANY ISSUE, WHICH HAS ESCAPED ASSESSMENT, AND SUCH ISSUE COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION, NOTWITHSTANDING THAT THE REASONS FOR SUCH ISSUE HAVE NOT BEEN INCLUDED IN THE REASONS RECORDED UNDER SUB - SECTION (2) OF SECTION 148 . EXPLANATION 4. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT THE PROVISIONS OF THIS SECTION, AS AMENDED BY THE FINANCE ACT, 2012, SHALL ALSO BE APPLICABLE FOR ANY ASSESSMENT YEAR BEGINNING ON OR BEFORE THE 1ST DAY OF APRIL, 20 12. 8.3 FROM THE READING OF THIS SECTION, IT IS APPARENT THAT THIS SECTION EMPOWERS THE AO TO ASSESS OR RE - ASSESS INCOME CHARGEABLE TO TAX IF HE HAS REASON TO BELIEVE THAT INCOME FOR ANY ASSESSMENT YEAR HAS ESCAPED ASSESSMENT. THIS 123 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) SECTION AUTHORIZES THE AO NOT ONLY TO RE - ASSESS BUT ALSO TO ASSESS THE ASSESSEE IN RESPECT OF AN INCOME WHICH ESCAPED ASSESSMENT. FOR INITIATING THE PROCEEDINGS UNDER THIS SECTION, NO DOUBT THERE MUST BE REASON TO BELIEVE AS HAS BEEN POINTED OUT BY US IN THE PRECEDING PAR AGRAPHS WHILE DISPOSING OFF THE APPEAL FOR THE A.Y. 2002 - 03. REASON TO BELIEVE WOULD MEAN CAUSE OR JUSTIFICATION. IF THE AO HAS CAUSE OR JUSTIFICATION TO KNOW OR SUPPOSE THAT INCOME HAS ESCAPED ASSESSMENT, IT CAN BE SAID THAT ASSESSING OFFICER HAS REA SON TO BELIEVE THAT THE INCOME HAS ESCAPED ASSESSMENT. THE HON'BLE SUPREME COURT IN THE CASE OF ACIT VS. RAJESH JHAVERI STOCK BROKERS PVT. LTD., 291 ITR 500 ( SUPRA ) HAS CATEGORICALLY HELD THAT PROCESSING OF THE RETURN U/S 143(1) BY WAY OF INTIMATION IS N OT AN ASSESSMENT. INITIATING ACTION U/S 147 IN RESPECT OF INCOME ESCAPING ASSESSMENT WHERE AN INTIMATION U/S 143(1) IS ISSUED, IS COVERED BY THE MAIN PROVISION OF SEC. 147 AS SUBSTITUTED W.E.F. 1.4.1989 AND NOT BY THE PROVISO THERETO. THE ONLY CONDITION TO CLOTHE WITH THE JURISDICTION U/S 147 IN SUCH CASE IS THAT THERE MUST BE REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THE REASON TO BELIEVE MEANS WHERE THERE IS RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COULD HAVE FORMED THE REQUISITE BELIEF. THE MATERIAL NEED NOT CONCLUSIVELY PROVE ESCAPEMENT OF INCOME AT THE STAGE OF THE REASON TO BELIEVE. THE PRINCIPLE OF CHANGE OF OPINION FOR REASON TO BELIEVE IS NOT APPLICABLE AS THE AO HAS NOT TO APPLY HIS MIND WHILE PR OCESSING RETURN U/S 143(1). RATHER AO IS BOUND TO ACCEPT IT IF IT IS OTHERWISE A VALID RETURN AND DOES NOT HAVE ANY DEFECT. NOW, AS PER THE SCHEME OF CBDT, THE RETURN HAS TO BE PROCESSED BY THE COMPUTER AND NOT BY AO. IN THE CASE OF ASSESSEE RETURN HAS ONLY BEEN PROCESSED U/S 143(1), THEREFORE, NO QUESTION OF APPLYING THE MIND BY AO ARISES WHILE DETERMINING THE TAXABLE INCOME IS CONCERNED. 8.4 W E NOTED THAT THE WORDS INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT HAS BEEN DEFINED BY EXPLANATION 2 IN SEC. 147 AS SUBSTITUTED W.E.F. 124 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) 1.4.1989. SUB - CLAUSE (B) OF THE EXPLANATION IS RELEVANT FOR US. THIS SUB - CLAUSE CLEARLY MANDATES THAT WHERE INCOME TAX RETURN HAS BEEN FILED BY THE ASSESSEE BUT NO ASSESSMENT HAS BEEN MADE AND THE AO NOTICE S THAT THE ASSESS EE HAS UNDERSTATED THE INCOME OR HAS CLAIMED EXCESSIVE LOSS, DEDUCTION, ALLOWANCE OR RELIEF IN THE RETURN, IT WILL BE DEEMED TO BE A CASE WHERE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. IN OUR OPINION, EXPLANATION 2(B) IS CLEARLY APPLICABLE IN THE CASE OF THE ASSESSEE IN VIEW OF THE PROPOSITION OF LAW AS PRONOUNCED BY THE HON'BLE SUPREME COURT IN THE CASE OF ACIT VS. RAJESH JHAVERI STOCK BROKERS PVT. LTD., 291 ITR 500 ( SUPRA ) AS THE ASSESSEE HAS DULY FURNISHED THE RETURN BUT NO ASSESSMENT U/S 143(3) HAS BEEN FRAMED BY THE ASSESSING OFFICER. IN THE CASE OF THE ASSESSEE, WE NOTED THAT THE RETURN FOR THE IMPUGNED ASSESSMENT HAS BEEN PROCESSED U/S 143(1) AND ISSUED THE INTIMATION. NO DECISION WAS BROUGHT TO OUR KNOWLEDGE BY THE LD. SR. ADVOCATE HOW THE EXPLANATION 2(B) WILL NOT APPLY IN SUCH CASES EXCEPT RELYING ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. ORIENT CRAFT, 354 ITR 536 (DEL.) ( SUPRA ). NO DOUBT IN THAT DECISION THE HON'BLE DELHI HIGH COURT UNDER PARA 17 WHILE DEALI NG WITH THE SPECIFIC ARGUMENT OF THE REVENUE THAT AN INTIMATION CANNOT BE EQUATED TO AN ASSESSMENT, TOOK THE VIEW THAT THE SUBMISSION OF THE LD. DR ACTED TO BE SELF - DEFEATING BECAUSE IF AN INTIMATION IS NOT AN ASSESSMENT, THEN, IT CAN NEVER BE SUBJECTED TO SEC. 147 PROCEEDINGS AS THE SECTION COVERS ONLY AN ASSESSMENT AND WE WONDER IF THE REVENUE WOULD BE PREPARED TO CONCEDE THAT POSITION. IN OUR OPINION, SEC. 147 AUTHORISES THE AO NOT ONLY TO RE - ASSESS BUT TO ASSESS ANY INCOME CHARGEABLE TO TAX WHICH HAS E SCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR. THE WORD CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT IS DEFINED UNDER EXPLANATION 2 UNDER SUB - CLAUSE (B). SUB - CLAUSE (B) CLEARLY STATES THAT WHERE RETURN HAS BEEN FILED BUT NO ASSESSMENT HAS BEEN MADE AND THE AO NOTICES THAT THE ASSESSEE HAS UNDERSTATED THE INCOME OR HAS CLAIMED EXCESSIVE LOSS, DEDUCTION, ALLOWANCE OR RELIEF IN THE RETURN, IT SHALL 125 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) BE DEEMED TO BE A CASE WHERE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. WE DO NOT FIND THAT THE EXPLANATION 2( B) HAS BEEN CONSIDERED BY THE HON'BLE HIGH COURT IN THIS DECISION WHILE THE HON'BLE SUPREME COURT IN THE CASE OF ACIT VS. RAJESH JHAVERI STOCK BROKERS PVT. LTD., 291 ITR 500 ( SUPRA ) HAS DULY REPRODUCED AT PG. 506 EXPLANATION 2(B) AND HAS OBSERVED THAT W.E.F. 1.4.1989 THE PROVISIONS OF SEC. 147 UNDERWENT SUBSTANTIAL AND MATERIAL CHANGE. NO DOUBT THE TERM INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WAS DEFINED U/S 147 PRIOR TO 1.4.1989 UNDER EXPLANATION 1 TO SEC. 147 BUT THAT DEFINITION WAS ENTIRELY DIFFERENT. NO SUCH CLAUSE AS CLAUSE (B) UNDER EXPLANATION 2 WAS THERE IN THE DEEMING PROVISION GIVEN UNDER EXPLANATION 1 IN RESPECT OF INCOME ESCAPING ASSESSMENT UNDER THE OLD SECTI ON 147. WE DO NOT AGREE THAT SEC. 147 PROCEEDINGS COULD COVER ONLY THE REASSESSMENT. THE RELEVANT PROVISIONS OF EXPLANATION 1 TO SEC. 147 AS IT STOOD PRIOR TO 1.4.1989 READS AS UNDER : EXPLANATION 1. - FOR THE PURPOSES OF THIS SECTION, THE FOLLOWING SHALL ALSO BE DEEMED TO BE CASES WHERE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, NAMELY: - (A) WHERE INCOME CHARGEABLE TO TAX HAS BEEN UNDERASSESSED; OR (B) WHERE SUCH INCOME HAS BEEN ASSESSED AT TOO LOW A RATE; OR (C) WHERE SUCH INCOME HAS BEEN MADE THE SUBJECT OF EXCESSIVE RELIEF UNDER THIS ACT OR UNDER THE INDIAN INCOME - TAX ACT, 1922 (11 OF 1922); OR (D) WHERE EXCESSIVE LOSS OR DEPRECIATION ALLOWANCE HAS BEEN COMPUTED. 8.5 WE, THEREFORE, DO NOT AGREE WITH THE SUBMISSION OF THE LD. SR. ADVOCATE ON THIS ISSUE AND REJECT THE PLEA ADVANCED IN THIS REGARD . 8.6 NOW, COMING TO THE SECOND SUBMISSION OF THE LD. SR. ADVOCATE THAT IN VIEW OF THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. ORIENT CRAFT, 354 ITR 536 (DEL.) ( SUPRA ) AS GIVEN IN PARA 18 , THERE MUST BE TANGIBLE MATERIAL WHICH SHOULD HAVE COME IN THE POSSESSION OF THE AO SUBSEQUENT TO THE ISSUE OF THE INTIMATION, WE NOTED THIS OBSERVATION OF THE HON'BLE HIGH COURT. WE AL SO NOTED THAT THE HON'BLE SUPREME COURT IN THE CASE 126 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) OF ACIT VS. RAJESH JHAVERI STOCK BROKERS PVT. LTD., 291 ITR 500 ( SUPRA ) NOWHERE TOOK THE VIEW THAT SOME FRESH TANGIBLE MATERIAL SHOULD COME SUBSEQUENTLY IN THE POSSESSION OF THE AO WHILE TAKING ACTION U/S 147 AFTER THE RETURN IS PROCESSED U/S 143(1). THE HON'BLE SUPREME COURT WHILE COMPARING THE OLD PROVISIONS OF SEC. 147 AND THE PROVISIONS AS HAS BEEN SUBSTITUTED W.E.F. 1.4.1989 HAS CLEARLY LAID DOWN UNDER PARA 17 OF ITS DECISION THAT UNDER THE SUBSTITUT ED SEC. 147 EXISTENCE OF ONLY THE FIRST CONDITION IS SUFFICIENT. IF THE AO, FOR WHATEVER REASONS, HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT, IT CONFERS JURISDICTION TO RE - OPEN THE ASSESSMENT. IT IS FURTHER STATED THAT BOTH THE CONDITIONS M UST BE FULFILLED IF THE CASE FALLS WITHIN THE AMBIT OF PROVISO TO SEC. 147. NO DOUBT THE INGREDIENTS OF SEC. 147 ARE TO BE FULFILLED. THE INGREDIENTS OF SEC. 147 NOWHERE REQUIRES THAT IN CASE A RETURN IS FURNISHED U/S 147 THERE MUST BE TANGIBLE MATERIAL WHICH SHOULD COME TO THE POSSESSION OF THE AO SUBSEQUENT TO THE ISSUE OF THE INTIMATION. IN OUR OPINION, THE MATERIAL WHICH IS AVAILABLE WITH THE AO EVEN ALONGWITH THE RETURN AT THE TIME OF THE PROCESSING OF THE RETURN CAN BE THE BASIS FOR REASON TO BELI EVE AS IN VIEW OF CLAUSE (B) OF EXPLANATION 2 IT CAN BE DEEMED THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. CLAUSE (B) OF EXPLANATION 2 DOES NOT REQUIRE THAT THE ASSESSMENT MUST PRECEDE BEFORE TAKING ANY ACTION U/S 147. WE NOTED THAT THE HON'BL E SUPREME COURT IN THE CASE OF RAYMOND WOLLEN MILLS LTD V S. ITO , 236 ITR 34 WHEN A SIMILAR QUESTION HAD COME BEFORE THE HON'BLE SUPREME COURT DID NOT DECIDE THE ISSUE WHETHER ANY NEW FACT CAME TO THE KNOWLEDGE OF THE ITO AFTER COMPLETING THE ASSESSMENT PRO CEEDINGS. BUT THAT WAS NOT A CASE OF PROCESSING THE RETURN U/S 143(1). WE NOTED THAT THE HON'BLE SUPREME COURT IN THE CASE OF JHAVERI (SUPRA) HAS DISCUSSED THE PROVISIONS OF SEC. 143(1) AND 147 IN DETAIL AS WELL AS THE TERM REASON TO BELIEVE AND HAS CA TEGORICALLY HELD THAT WHERE THE RETURN IS PROCESSED U/S 143(1) THERE IS NO ASSESSMENT. SEC. 147 HAS USED BOTH THE WORDS ASSESS OR REASSESS. THIS IMPLIES THAT THE AO HAS THE 127 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) POWER EVEN TO MAKE AN ASSESSMENT WHERE EARLIER NO ASSESSMENT HAS BEEN MADE BY THE AO AND THERE IS ESCAPEMENT OF ASSESSMENT . WE CANNOT READ THE PROVISIONS OF SEC. 147 IN A MANNER THAT IT CAN BE APPLIED ONLY IN A CASE WHERE THE ASSESSMENT HAS ALREADY BEEN MADE. IN OUR VIEW, THE CASE OF THE ASSESSEE IS CO VERED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ACIT VS. RAJESH JHAVERI STOCK BROKERS PVT. LTD., 291 ITR 500 ( SUPRA ) AS IN THAT CASE, THE AO HAS NOT MADE ANY ASSESSMENT AND HAS NOT FORMED ANY OPINION. THEREFORE, ON THE BASIS OF THE MATER IAL WHICH IS AVAILABLE IN THE RETURN OR ALONGWITH THE RETURN WITH THE AO, THE AO, IN OUR OPINION, IN VIEW OF EXPLANATION 2(B) CAN TAKE ACTION U/S 147 IN A CASE WHERE THE RETURN HAS BEEN PROCESSED U/S 143(1). WE ARE BOUND TO FOLLOW THE DECISION OF THE HON' BLE SUPREME COURT. EVEN WE NOTED THAT THE DECISION OF THE HON'BLE DELHI HIGH COURT IS NOT BINDING ON US IN VIEW OF THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. THANA ELECTRICITY SUPPLY LTD., 206 ITR 727 IN WHICH THE HON'BLE JURISDICTIONAL HIGH COURT HAS LAID DOWN AS UNDER : THE GENERAL PRINCIPLES WITH REGARD TO PRECEDENTS ARE : (A) THE LAW DECLARED BY THE SUPREME COURT BEING BINDING ON ALL COURTS IN INDIA, THE DECISIONS OF THE SUPREME COURT ARE BINDING ON ALL COURTS, EX CEPT, HOWEVER, THE SUPREME COURT ITSELF WHICH IS FREE TO REVIEW THE SAME AND DEPART FROM ITS EARLIER OPINION IF THE SITUATION SO WARRANTS. WHAT IS BINDING IS, OF COURSE, THE RATIO OF THE DECISION AND NOT EVERY EXPRESSION FOUND THEREIN. (B) THE DECISIONS OF THE HIGH COURT ARE BINDING ON THE SUBORDINATE COURTS AND AUTHORITIES OR TRIBUNALS UNDER ITS SUPERINTENDENCE THROUGHOUT THE TERRITORIES IN RELATION TO WHICH IT EXERCISES JURISDICTION. IT DOES NOT EXTEND BEYOND ITS TERRITORIAL JURISDICTION. (C) THE POSITION IN REGARD TO THE BINDING NATURE OF THE DECISIONS OF A HIGH COURT ON DIFFERENT BENCHES OF THE SAME COURT, MAY BE SUMMED UP AS FOLLOWS : (I) A SINGLE JUDGE OF A HIGH COURT IS BOUND BY THE DECISION OF ANOTHER SINGLE JUDGE OR A DIVISION BENCH OF THE SAME HIGH COURT. IT WOULD BE JUDICIAL IMPROPRIETY TO IGNORE THAT DECISION. JUDICIAL COMITY DEMANDS THAT A BINDING 128 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) DECISION TO WHICH HIS ATTENTION HAD BEEN DRAWN SHOULD NEITHER BE IGNORED NOR OVERLOOKED. (II) A DIVISION BENCH OF A HIGH COURT SHOULD FOLLOW THE DECISION OF ANOTHER DIVISION BENCH OF EQUAL STRENGTH OR A FULL BENCH OF THE SAME HIGH COURT. IF ONE DIVISION BENCH DIFFERS FROM ANOTHER DIVISION BENCH OF THE SAME HIGH COURT, IT SHOULD REFER THE CASE TO A LARGER BENCH. (III) WHERE THERE ARE CONFLICTING DECISIONS OF COURTS OF CO - ORDINATE JURISDICTION, THE LATER DECISION IS TO BE PREFERRED IF REACHED AFTER FULL CONSIDERATION OF THE EARLIER DECISIONS. (IV) THE DECISION OF ONE HIGH COURT IS NEITHER BINDING PRECEDENT FOR ANOTHER HIGH COURT NOR F OR COURTS OR TRIBUNALS OUTSIDE ITS TERRITORIAL JURISDICTION. 8.7 ALTHOUGH WE ARE OF THE OPINION THAT THE ISSUE IS DULY COVERED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ACIT VS. RAJESH JHAVERI STOCK BROKERS PVT. LTD., 291 ITR 500 ( SUPRA ) BUT STILL WE DECIDED TO GO THROUGH THE RELEVANT PROVISIONS FROM WHICH THE WORD TANGIBLE MATERIAL OR INFORMATION HAS BEEN INTERPRETED BY THE COURTS IN THE PROVISIONS OF SEC. 147. 8.8 WE NOTED THAT INITIALLY THE PROVISIONS FOR INCOME ESCAPING ASSESSMENT WERE BROUGHT INTO THE STATUTE BY WAY OF SEC. 34 INCORPORATED UNDER THE INCOME TAX ACT, 1922. THIS SECTION READS AS UNDER : 34. INCOME ESCAPING ASSESSMENT (1) IF - (A) THE INCOME - TAX OFFICER HAS REASON TO BELIEVE THAT BY REASON OF THE OMISSION OR FAILURE ON THE PART OF AN ASSESSEE TO MAKE A RETURN OF HIS INCOME UNDER SECTION 22 FOR ANY YEAR OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THAT YEAR, INCOME, PROFITS OR GAINS CHARGEABLE TO INCOME - TAX HAVE ESCAPED ASS ESSMENT FOR THAT YEAR, OR HAVE BEEN UNDER - ASSESSED OR ASSESSED AT TOO LOW A RATE, OR HAVE BEEN MADE THE SUBJECT OF EXCESSIVE RELIEF UNDER THE ACT, OR EXCESSIVE LOSS OR DEPRECIATION ALLOWANCE HAS BEEN COMPUTED, OR (B) NOTWITHSTANDING THAT THERE HAS BEEN NO OMISSION OR FAILURE AS MENTIONED IN CLAUSE (A) ON THE PART OF THE ASSESSEE, THE INCOME - TAX OFFICER HAS IN CONSEQUENCE OF INFORMATION IN HIS POSSESSION REASON TO BELIEVE THAT INCOME, PROFITS OR GAINS CHARGEABLE TO INCOME - TAX HAVE ESCAPED ASSESSMENT FOR ANY 129 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) YEAR, OR HAVE BEEN UNDER - ASSESSED, OR ASSESSED AT TOO LOW A RATE, OR HAVE BEEN MADE THE SUBJECT OF EXCESSIVE RELIEF UNDER THIS ACT, OR THAT EXCESSIVE LOSS OR DEPRECIATION ALLOWANCE HAS BEEN COMPUTED, HE MAY IN CASES FALLING UNDER CLAUSE (A) AT ANY TIME 2 [* * *) AND IN CASES FALLING UNDER CLAUSE (B) AT ANY TIME WITHIN FOUR YEARS OF THE END OF THAT YEAR, SERVE ON THE ASSESSEE, OR, IF THE ASSESSEE IS A COMPANY, ON THE PRINCIPAL OFFICER THEREOF, A NOTICE CONTAINING ALL OR ANY OF THE REQUIREMENTS WHICH MAY BE INCLUDED IN A NOTICE UNDER SUB - SECTION (2) OF SECTION 22 AND MAY PROCEED TO ASSESS OR REASSESS SUCH INCOME, PROFITS OR GAINS OR RECOMPUTE THE LOSS OR DEPRECIATION ALLOWANCE; AND THE PROVISIONS OF THIS ACT SHALL, SO FAR AS MAY BE, APPLY ACCORDINGLY AS IF TH E NOTICE WERE A NOTICE ISSUED UNDER THAT SUB - SECTION: 8.9 WE NOTED THAT SEC. 34 AUTHORISES THE AO TO TAKE ACTION FOR RE - ASSESSMENT UNDER TWO SITUATIONS; THE FIRST SITUATION IS GIVEN IN SEC. 34(1)(A) AND SECOND IS GIVEN IN SEC. 34(1)(B). SEC. 34(1)(A) EM POWERS THE AO TO ASSESS OR RE - ASSESS THE ESCAPED INCOME, WHERE THE AO HAS REASON TO BELIEVE, DUE TO THE OMISSION OR FAILURE OF THE ASSESSEE TO MAKE A RETURN OF HIS INCOME U/S 22 OR TO DISCLOSE FULLY AND TRULY ALL THE MATERIAL FACTS NECESSARY FOR HIS ASSESS MENT. U/S 34(1)(A) REASON TO BELIEVE IS QUALIFIED BY THE WORDS OMISSION OR FAILURE. SUB - CLAUSE (B) APPLIES TO A CASE WHERE THERE MAY BE NO OMISSION OR FAILURE BUT THE AO, IN CONSEQUENCE OF INFORMATION IN HIS POSSESSION, HAS REASON TO BELIEVE ABOUT TH E ESCAPED INCOME. U/S 34(1)(B) THUS THE REASON TO BELIEVE FOR ESCAPEMENT OF THE INCOME MUST HAVE ARISEN IN CONSEQUENCE OF THE INFORMATION COMING IN THE POSSESSION OF THE AO. THE HON'BLE SUPREME COURT HAS ANALYSED THE WORD INFORMATION AS USED IN SEC. 34 (1)(B) IN THE CASE OF KALYANJI MAVJI A ND CO. VS CIT , 102 ITR 287 (SC) AND HAS CATEGORICALLY HELD IN THE FOLLOWING MANNER : THE WORD INFORMATION IN SECTION 34(1)(B) IS OF THE WIDEST AMPLITUDE AND COMPREHENDS A VARIETY OF FACTORS. NEVERTHELESS, THE POW ER UNDER SECTION 34(1)(B), HOWEVER WIDE IT MAY BE, IS NOT PLENARY BECAUSE THE DISCRETION OF THE INCOME - TAX OFFICER IS CONTROLLED BY THE WORDS REASON TO BELIEVE. INFORMATION MAY COME FROM EXTERNAL SOURCES OR EVEN FROM THE MATERIALS ALREADY ON RECORD OR MAY BE DERIVED FROM THE DISCOVERY OF NEW AND IMPORTANT MATTER OR FRESH FACTS. SECTION 34(1)(B) WOULD APPLY TO THE FOLLOWING CATEGORIES OF CASES : (1) WHERE THE INFORMATION IS AS TO THE TRUE AND CORRECT STATE OF THE LAW DERIVED FROM RELEVANT JUDICIAL DECISIONS; 130 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) (2) WHERE IN THE ORIGINAL ASSESSMENT THE INCOME LIABLE TO TAX HAS ESCAPED ASSESSMENT DUE TO OVERSIGHT, INADVERTENCE OR A MISTAKE COMMITTED BY THE INCOME - TAX OFFICER; (3) WHERE THE INFORMATION IS DERIVED FROM AN EXTERNAL SOURCE OF ANY KIND: SUCH EXTERNAL SOURCE WOULD INCLUDE DISCOVERY OF NEW AND IMPORTANT MATTERS OR KNOWLEDGE OF FRESH FACTS WHICH WERE NOT PRESENT AT THE TIME OF ORIGINAL ASSESSMENT; AND (4) WHERE THE INFORMATION MAY BE OBTAINED EVEN FROM THE RECORD OF THE ORIGINAL ASSESSMENT FROM AN INVESTIGATION OF THE MATERIALS ON THE RECORD OR THE FACTS DISCLOSED THEREBY OR FROM OTHER ENQUIRY OR RESEARCH INTO FACTS OR LAW. WHERE, HOWEVER, THE INCOME - TAX OFFIC ER GETS NO SUBSEQUENT INFORMATION, BUT MERELY PROCEEDS TO REOPEN THE ASSESSMENT WITHOUT ANY FRESH FACTS OR MATERIALS OR WITHOUT ANY ENQUIRY INTO THE MATERIALS WHICH FORM PART OF THE ORIGINAL ASSESSMENT, SECTION 34(1)(B) WOULD HAVE NO APPLICATION. 8.10 FR OM THE AFORESAID JUDGEMENT , WE NOTED THAT THE HON'BLE COURT HAS INTERPRETED THAT THE WORD SUBSEQUENT INFORMATION REQUIRES FRESH FACTS AND MATERIAL OR IF THERE ARE EXISTING FACTS, THEN, THERE MUST BE ENQUIRY INTO THE MATERIALS AVAILABLE. THUS, WE NOTED T HAT REQUIREMENT OF FRESH MATERIAL OR FACTS HAS BEEN INTERPRETED BY THE COURT BECAUSE SEC. 34(1)(B) STATES THAT THE AO HAS IN CONSEQUENCE OF INFORMATION IN HIS POSSESSION REASON TO BELIEVE. REASON TO BELIEVE SHOULD HAVE ARISEN IN CONSEQUENCE OF THE INFORMATION AND AS THE INFORMATION CANNOT BE BASED WITHOUT MATERIAL OR FACTS, THEREFORE, IT HAS BEEN INTERPRETED BY THE COURT THAT THERE MUST BE FRESH FACTS OR TANGIBLE MATERIAL WITH THE AO. WE NOTED THAT IN SEC. 147, AS WAS IN EXISTENCE PRIOR TO 1.4.1989, UNDER SUB - CLAUSE (B) SIMILAR LANGUAGE HAS BEEN USED AS HAD BEEN USED IN SEC. 34(1)(B). FOR READY REFERENCE THE SAID SECTION 147 AS WAS IN EXISTENCE PRIOR TO 1.4.1989 IS REPRODUCED AS UNDER : - 147. IF (A) THE INCOME - TAX OFFICER HAS REASON TO BELIEVE THAT, BY REASON OF THE OMISSION OR FAILURE ON THE PART OF AN ASSESSEE TO MAKE A RETURN UNDER SECTION 139 FOR ANY ASSESSMENT YEAR TO THE INCOME - TAX OFFICER OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESS ARY FOR HIS ASSESSMENT FOR THAT YEAR, INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR THAT YEAR, OR 131 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) (B) NOTWITHSTANDING THAT THERE HAS BEEN NO OMISSION OR FAILURE AS MENTIONED IN CLAUSE (A) ON THE PART OF THE ASSESSEE, THE INCOME - TAX OFFICER HAS IN CO NSEQUENCE OF INFORMATION IN HIS POSSESSION REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, HE MAY, SUBJECT TO THE PROVISIONS OF SECTIONS 148 TO 153, ASSESS OR REASSESS SUCH INCOME OR RECOMPUTE THE LOSS OR TH E DEPRECIATION ALLOWANCE, AS THE CASE MAY BE, FOR THE ASSESSMENT YEAR CONCERNED (HEREAFTER IN SECTIONS 148 TO 153 REFERRED TO AS THE RELEVANT ASSESSMENT YEAR). 8.11 IN THIS SECTION ALSO, FOR THE PURPOSE OF REASON TO BELIEVE IT IS NECESSARY THAT THE REASON TO BELIEVE MUST HAVE ARISEN IN CONSEQUENCE OF THE INFORMATIO N IN THE POSSESSION OF THE AO. THE INFORMATION MUST PRECEDE THE REASONS TO BELIEVE I F WE READ THE PROVISIONS OF SEC.147(B) . W E NOTED THAT THE HON'BLE SUPREME COURT HAD OCCASION TO INTERPR ET THE WORD INFORMATION AS USED IN SEC. 147(B) IN THE CASE OF CIT VS. A. RAMAN & CO., 67 ITR 011 (SC) AS REPRODUCED BELOW : - THE EXPRESSION INFORMATION IN THE CONTEXT IN WHICH IT OCCURS [IN SECTION 147(B) OF THE INCOME - TAX ACT, 1961] MUST MEAN INSTRUCTION OR KNOWLEDGE DERIVED FROM AN EXTERNAL SOURCE CONCERNING FACTS OR PARTICULARS, OR AS TO LAW RELATING TO A MATTER BEARING ON THE ASSESSMENT. TO COMMENCE THE PROCEEDINGS FOR REASSESSMENT IT IS NOT NECESSARY THAT ON THE MATERIALS WHICH CAME TO THE NOTICE OF THE INCOME - TAX OFFICER, THE PREVIOUS ORDER OF ASSESSMENT WAS VITIATED BY SOME ERROR OF FACT OR LAW. THE HIGH COURT EXERCISING JURISDICTION UNDER ARTICLE 226 OF THE CONSTITUTION HAS POWER TO SET ASIDE A NOTICE ISSUED UNDER SECTION 147(B) OF THE INCOME - TAX ACT, 1961, IF THE CONDITION PRECEDENT TO THE EXERCISE OF THE JURISDICTION DOES NOT EXIST. THE COURT MAY, IN EXERCISE OF ITS POWERS, ASCERTAIN WHETHER THE INCOME - TAX OFFICER HAD IN HIS POSSESSION ANY INFORMATION: THE COURT MAY ALSO DETERMINE WHE THER FROM THE INFORMATION THE INCOME - TAX OFFICER MAY HAVE REASON TO BELIEVE THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. BUT THE JURISDICTION OF THE COURT EXTENDS NO FURTHER. WHETHER ON THE INFORMATION IN HIS POSSESSION, HE SHOULD COMMENCE PROCEE DINGS FOR ASSESSMENT OR REASSESSMENT, MUST BE DECIDED BY THE INCOME - TAX OFFICER AND NOT BY THE HIGH COURT. THE INCOME - TAX OFFICER ALONE IS ENTRUSTED WITH THE POWER TO ADMINISTER THE ACT: IF HE HAS INFORMATION FROM WHICH IT MAY BE SAID, PRIMA FACIE, THAT H E HAD REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT, IT IS NOT OPEN TO THE HIGH COURT EXERCISING POWERS UNDER ARTICLE 132 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) 226 OF THE CONSTITUTION TO SET ASIDE OR VACATE THE NOTICE FOR REASSESSMENT ON A REAPPRAISAL OF THE EVIDENCE. IN A PETITION UNDER ARTICLE 226 OF THE CONSTITUTION, THE TAXPAYER MAY CHALLENGE THE VALIDITY OF A NOTICE UNDER SECTION 147 OF THE INCOME - TAX ACT, 1961, ON THE GROUND THAT EITHER OF THE CONDITIONS PRECEDENT DOES NOT EXIST, BUT AN INVESTIGATION WHETHER THE INFE RENCES RAISED BY THE INCOME - TAX OFFICER ARE CORRECT OR PROPER CANNOT BE MADE. JURISDICTION OF THE INCOME - TAX OFFICER TO REASSESS INCOME ARISES IF HE HAS IN CONSEQUENCE OF INFORMATION IN HIS POSSESSION REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THAT INFORMATION MUST, IT IS TRUE, HAVE COME INTO THE POSSESSION OF THE INCOME - TAX OFFICE AFTER THE PREVIOUS ASSESSMENT, BUT EVEN IF THE INFORMATION BE SUCH THAT IT COULD HAVE BEEN OBTAINED DURING THE PREVIOUS ASSESSMENT FROM AN INVEST IGATION OF THE MATERIAL ON RECORD, OR THE FACTS DISCLOSED THEREBY, OR FROM OTHER ENQUIRY OR RESEARCH INTO FACTS OR LAW, BUT WAS NOT IN FACT OBTAINED, THE JURISDICTION OF THE INCOME - TAX OFFICER IS NOT AFFECTED. 8.12 FROM THE PROVISIONS OF SEC. 34(1)(B) AN D 147(B) WHICH WERE UNDER THE INCOME TAX ACT PRIOR TO 1.4. 1989 IT IS APPARENT THAT FOR ARRIVING AT REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT IT WAS NECESSARY THAT THE AO MUST HAVE INFORMATION IN HIS POSSESSION PRIOR TO ARRIVI NG AT REASONS TO BELIEVE THAT INCOME ESCAPED ASSESSMENT . THIS INFORMATION HAS BEEN INTERPRETED BY THE COURTS FROM TIME TO TIME IN THE FORM OF TANGIBLE FRESH MATERIAL OR FACTS BUT WHEN WE LOOKED INTO THE PROVISIONS OF SEC. 147 WHICH HAS BEEN SUBSTITUTED W. E.F. 1.4.1989 , WE NOTED THAT THERE ARE DRASTIC CHANGES IN TH IS SECTION. NOW, THE ONLY CONDITION WHICH REQUIRES TO BE FULFILLED IS THAT THE AO MUST HAVE REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THIS SECTION DOES NOT TA LK THAT REASON TO BELIEVE MUST BE BASED OR MUST HAVE BEEN IN CONSEQUENCE OF INFORMATION COMING INTO THE POSSESSION OF THE AO. THEREFORE, IN OUR OPINION, FOR TAKING ACTION U/S 147 THE REASON TO BELIEVE CAN BE BASED ON THE BASIS OF THE MATERIAL AVAILABL E WITH THE AO ON THE BASIS OF THE RETURN FILED BY THE ASSESSEE. IN OUR OPINION, REQUIREMENT OF NEW MATERIAL OR FRESH TANGIBLE MATERIAL COMING IN THE POSSESSION OF THE AO AS A PRE - REQUISITE CONDITION FOR RE - ASSESSMENT IS APPLICABLE ONLY WHERE HE HAD MADE A N 133 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) ASSESSMENT EARLIER. THIS WILL NOT BE APPLICABLE IF NO ASSESSMENT WAS ORIGINALLY MADE AND AO IS GOING TO PROCEED WITH ASSESSMENT U/S 147 FOR THE FIRST TIME. IT MAY ALSO BE NOTED THAT SEC. 147 DOES NOT DEAL ONLY WITH THE CASES OF RE - ASSESSMENT BUT ALSO WI TH THE ASSESSMENT FOR THE FIRST TIME. THE COURTS HAVE FROM TIME TO TIME INTERPRETED THE WORD REASON TO BELIEVE TO MEAN THAT THE AO MUST HAVE CAUSE OR JUSTIFICATION. AT THE STAGE OF INITIATION OF THE PROCEEDINGS IT IS NOT REQUIRED THAT THE AO MUST ESTAB LISH THE ESCAPEMENT OF THE INCOME. THE ONLY QUESTION IS WHETHER THERE WAS RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COULD HAVE FORMED THE REQUISITE BELIEF . THE SCOPE AND EFFECT OF SEC. 147 AS SUBSTITUTED W.E.F. 1.4.1989 IS SUBSTANTIALLY DIFFERENT FRO M THE PROVISIONS AS STOOD PRIOR TO SUCH SUBSTITUTION. THE COURT HAS INTERPRETED FROM TIME TO TIME THAT THERE MUST BE BONA FIDE REASON TO BELIEVE. WHERE THE AO HAS APPLIED HIS MIND TO THE MATERIAL AVAILABLE WITH HIM, HE CANNOT BE PERMITTED TO REVIEW THE A SSESSMENT IN THE GARB OF REASON TO BELIEVE. THE HON'BLE SUPREME COURT IN THE CASE OF ACIT VS. RAJESH JHAVERI STOCK BROKERS PVT. LTD., 291 ITR 500 ( SUPRA ) HAS CATEGORICALLY TAKEN THE VIEW AT PG. 509 THAT THE INTIMATION U/S 143(1) CANNOT BE TREATED TO BE AN ORDER OF ASSESSMENT. THE AO IS BOUND TO ACCEPT THE RETURN AS HAS BEEN FILED BY THE ASSESSEE AND PROCESS IT. SINCE THE AO IS BOUND TO PROCESS THE RETURN WITHOUT MAKING ANY ADDITION THEREON, NO QUESTION OF APPLICATION OF MIND BY THE AO ARISES. THEREFOR E, IT CANNOT BE SAID THAT THE AO HAS APPLIED HIS MIND AND IF THE AO IS TAKING ACTION U/S 147 ON THE BASIS OF THE MATERIAL AVAILABLE ON RECORD FOR ESCAPEMENT OF THE INCOME AS PER THE DEFINITION GIVEN UNDER EXPLANATION 2(B), IN OUR OPINION, IT CANNOT BE SAID THAT SUCH AN ACTION IS ILLEGAL AND WITHOUT JURISDICTION. THE HON'BLE SUPREME COURT IN THE CASE OF ACIT VS. RAJESH JHAVERI STOCK BROKERS PVT. LTD., 291 ITR 500 ( SUPRA ) FURTHER HELD THAT THERE BEING NO ASSESSMENT U/S 143(1) OF THE ACT, THE QUESTION OF CHAN GE OF OPINION DOES NOT ARISE. THE HON'BLE SUPREME COURT ALSO HELD THAT SEC. 147 PERMITTED THE AO TO ASSESS OR RE - ASSESS THE INCOME CHARGEABLE TO TAX WHEN HE 134 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) HAS REASON TO BELIEVE INCOME ESCAPING ASSESSMENT. THE MERE FAILURE TO TAKE STEPS U/S 143(3) WOULD NOT RENDER THE AO POWERLESS TO INITIATE PROCEEDINGS U/S 147 OF THE ACT EVEN WHEN INTIMATION U/S 143(1) HAD BEEN ISSUED. THUS, WITH THE AMENDMENT BROUGHT TO SEC. 147 OF THE ACT ON AND FROM 1.4.1989 AND THE ELUCIDATION ON THE SCOPE OF THE AUTHORITY AND JUR ISDICTION OF THE OFFICER U/S 147 OF THE ACT , WE ARE OF THE FIRM VIEW THAT THE PROCEEDINGS INITIATED BY THE AO U/S 147 ARE VALID AND THE AO COULD HAVE TAKEN THE ACTION U/S 147 ON THE BASIS OF THE MATERIAL AVAILABLE AND FILED ALONGWITH THE RETURN. THERE IS NO NEED OF ANY FRESH TANGIBLE MATERIAL FOR COMING TO THE REASON TO BELIEVE THAT THE INCOME HAS ESCAPED ASSESSMENT IN VIEW OF EXPLANATION 2 CLAUSE (B) OF SEC. 147. 8.13 IN VIEW OF THE AFORESAID DISCUSSION, GROUND NO. 2 TAKEN BY THE ASSESSEE IN BOTH THE A.YS. 2007 - 08 AND 2008 - 09 STAND S DISMISSED. 9. GROUND NOS. 3 & 4 IN BOTH THE APPEALS FILED BY THE ASSESSEE FOR A.YS. 2007 - 08 AND 2008 - 09 AND GROUND NOS. 2 - 6 IN REVENUES APPEALS IN BOTH THE ASSESSMENT YEARS ARE COMMON AND RELATE TO THE EXEMPTION AVAILABLE U/S 10B. BOTH THE PARTIES AGREED THAT A SIMILAR ISSUE HAS ARISEN IN ITA NO. 425/PNJ/2013 IN THE APPEAL FILED BY THE REVENUE AND WHATEVER VIEW THIS TRIBUNAL MAY TAKE IN ITA NO. 425/PNJ/2013 FOR A.Y. 2002 - 03, THE SAME VIEW MAY BE TAKEN IN BOTH THE APPEALS. 9.1 WE HAVE ALREADY ADJUDICATED THE SIMILAR ISSUE IN A.Y. 2002 - 03 AND DISMISSED THE GROUND TAKEN BY THE REVENUE RELATING TO THE EXEMPTION CLAIMED BY THE ASSESSEE U/S 10B IN RESPECT OF GREATER FERRO - MET UNIT IN ITA NO. 425/PNJ/2013. RESPECTFULLY FOLLOWING OUR AFORESAID DECISION, WE ALLOW THE GROUNDS TAKEN BY THE ASSESSEE IN ITS APPEAL BEING GROUND NOS. 3 - 4 IN A.YS. 2007 - 08 AND 2008 - 09 AND DISMISS THE GROUNDS 2 TO 6 TAKEN BY THE REVENUE IN BOTH THE A.YS. 2007 - 08 AND 2008 - 09. 135 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) 10. NOW, THERE REMAIN S ONLY GROUND NO. 5 IN ASSESSEES APPEAL FOR BOTH A.YS. 2007 - 08 AND 2008 - 09. BOTH THE PARTIES AGREED THAT THE ISSUE INVOLVED IN GROUND NO. 5 TAKEN BY THE ASSESSEE IN BOTH THE ASSESSMENT YEARS RELATES TO DISALLOWANCE MADE U/S 14A OF THE INCOME TAX ACT. BO TH THE PARTIES AGREED THAT A SIMILAR ISSUE HAS ARISEN IN THE CASE OF THE ASSESSEE FOR A.Y. 2009 - 10 IN THE ASSESSEES APPEAL BEARING ITA NO. 32/PNJ/2013 BY WAY OF GROUND NO. 2. THIS TRIBUNAL HAS ALREADY DECIDED THIS ISSUE AND ALLOWED THE GROUND OF THE ASSE SSEE. THE FACTS INVOLVED IN THESE TWO YEARS ARE ALSO THE SAME AS WERE IN A.Y. 2009 - 10. WE, THEREFORE, AFTER HEARING THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERING THE SAME NOTED THAT A SIMILAR ISSUE HAD ARISEN IN THE CASE OF THE ASSESSEE IN A.Y. 2009 - 10 IN ITA NO. 32/PNJ/2013 IN WHICH THIS TRIBUNAL VIDE ORDER DT. 13.9.2013, AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES, HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN THE FOLLOWING MANNER. 3.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME. WE NOTED FROM THE PROVISIONS OF SEC. 14A(2) THAT BEFORE MAKING ANY DISALLOWANCE U/S 14A, THE AO MUST RECORD SATISFACTION HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE THAT THE CLAIM OF THE ASSESSEE THAT THE EXPENDITURE INCURRED IS NOT RELATED TO THE INCOME FORMING PART OF THE TOTAL INCOME IS INCORRECT. WE HAVE GONE THROUGH PARA 3.5, 3.6, 3.7, 3.8, 3.9, 3.10 AND 3.11 OF THE ASSESSMENT ORDER. WE NOTED THAT THE AO ONLY DISCUSSED THE PROV ISIONS OF SEC. 14A(1) AND HAS NOT MADE OUT ANY SATISFACTION WHATSOEVER HOW THE EXPENDITURE INCURRED BY THE ASSESSEE DURING THE YEAR RELATE TO THE INCOME NOT FORMING PART OF THE TOTAL INCOME OF THE ASSESSEE. NO WHISPER WHAT TO TALK OF THE RELATIONSHIP OF T HE EXPENDITURE WITH THE EXEMPT INCOME IS MENTIONED. THE AO STRAIGHTAWAY JUMPED TO APPLYING RULE 8D RELYING ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT, 328 ITR 81 (MUM) (SUPRA) HOLDING THA T RULE 8D PERTAINS TO BOTH DIRECT AND INDIRECT EXPENDITURE INCURRED ON EARNING TAX EXEMPT INCOME AND IN THE JUDGEMENT IT WAS HELD THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO SUCH INCOME WHICH DOES NO T FORM PART OF THE TOTAL INCOME UNDER THE ACT BY VIRTUE OF PROVISIONS OF SEC. 14A(1) AND RULE 8D OF THE INCOME TAX RULES. CIT(A), WE NOTED, HAS ALSO NOT DEALT WITH THE SUBMISSIONS OF THE ASSESSEE WITH REGARD TO THE SATISFACTION BEING RECORDED BY THE AO BE FORE APPLYING RULE 8D. THE MAIN CONTENTION OF THE ASSESSEE WHILE IS THAT THERE CANNOT BE ANY DISALLOWANCE UNDER THIS PROVISION. WE HAVE GONE THROUGH THE DECISION OF THIS BENCH IN THE CASE OF SESA GOA LTD. VS. JCIT (SUPRA) DT. 8.3.2013 FOR WHICH THE UNDER SIGNED IN THE AUTHOR. 136 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) WE NOTED THAT THE CASE OF THE ASSESSEE IS DULY COVERED BY THE SAID DECISION. IN THAT DECISION, THIS TRIBUNAL HAS ELABORATELY DISCUSSED THE PROVISIONS OF SEC. 14A AS WELL AS RULE 8D AND ULTIMATELY HELD AS UNDER : 14. WE HAVE CAREFU LLY CONSIDERED THE RIVAL SUBMISSIONS ALONG WITH THE ORDER OF THE AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH VARIOUS CASE LAWS AND THE PROVISIONS OF THE IT ACT IN THIS REGARD. THE ISSUE INVOLVED BEFORE US RELATE TO THE DISALLOWANCE MADE BY THE AO BY APPLY ING THE PROVISIONS OF SEC.14A OF THE IT ACT READ WITH RULE 8D OF THE IT RULES. SEC.14A WAS INSERTED BY THE FINANCE ACT, 2001 W.E.F. 1.4.1962. ORIGINALLY THIS SEC. PROVIDES THAT IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF THE EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. SUBSEQUENTLY, BY FINANCE ACT, 2002 WITH RETROSPECTIVE EFFECT FROM 11/5/2001 PROVISO WAS ADDED WHICH STATES THAT THIS S EC. SHALL NOT EMPOWER THE AO EITHER TO RE - ASSESS OR PASS AN ORDER ENHANCING THE ASSESSMENT OR REDUCING THE REFUND ALREADY MADE OR OTHERWISE INCREASING THE LIABILITY OF THE ASSESSEE FOR ANY ASSESSMENT YEAR BEGINNING ON OR BEFORE 1/4/2001. WITH EFFECT FROM 1 /4/2007 BY FINANCE ACT, 2006 SUB - SEC. (2) EMPOWERS THE AO TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME IN ACCORDANCE WITH THE METHOD AS MAY BE PRESCRIBED. SUCH POWER IS TO BE EXERCI SED IF THE AO HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE MENTIONED IN SUB - SEC.(1). BEFORE APPLYING RULE 8D, IT IS APPARENT THAT THE AO MUST BE SATISFIED WI TH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. SUCH SATISFACTION IS AN OBJECTIVE SATISFACTION THAT IT HAS TO BE JUDICIOUS AND BASED ON THE MATERIAL ON RECORD. IT CANNOT BE AN IMPRESSION THAT IT IS MUCH MORE T HAN THE GOSSIP OR HEARSAY, IT MEANS JUDGMENT OR BELIEF THAT IT IS A BELIEF OR A CONNECTION RESULTING FROM WHAT ONE THINKS ON A PARTICULAR QUESTION. IT MUST BE BASED ON THE REASONS AND GROUND AS SEEMS GOOD TO HIM AND WHILE MAKING SUCH SATISFACTION, THE AO M UST GIVE REGARD TO THE ACCOUNTS OF THE ASSESSEE. HE MUST RECORD DEFICIENCY IN THE ACCOUNTS WITH REGARDS TO THE CLAIM OF THE ASSESSEE. SUB - SEC.(3) PROVIDES THAT PROVISIONS OF SUB - SEC.(2) SHALL ALSO APPLY WHERE ASSESSEE CLAIMS THAT NO EXPENDITURE HAD BEEN IN CURRED IN RELATION TO INCOME NOT FORMING PART OF THE TOTAL INCOME. THIS IS NOT THE CASE OF THE ASSESSEE AS IN THE CASE OF THE ASSESSEE, ASSESSEE HIMSELF ESTIMATED THE EXPENSES RELATING TO THE EXEMPT INCOME AND DISALLOWED THE SAME. RULE 8D WAS INSERTED BY G AZETTE NOTIFICATION DATED 24/3/2008 IN VIEW OF THE POWER CONFERRED UNDER SUB - SEC (2). THIS RULE PRESCRIBES THE METHOD FOR COMPUTING THE EXPENDITURE INCURRED IN RELATION TO THE INCOME NOT FORMING PART OF THE TOTAL INCOME. THIS IS AN UNDISPUTED FACT THAT IN THIS CASE, THE ASSESSEE HAS INVESTED IN DEBTS MUTUAL FUNDS. THE ASSESSEE COMPUTED DISALLOWANCE U/S 14A(2) AT RS.25,78,156/ - AND DISALLOWED THE SAME, WHILE COMPUTING ITS TOTAL INCOME. THE WORKING OF THE SAID DISALLOWANCE CLAIMED BY THE ASSESSEE IS GIVEN HER EIN ABOVE IN THE SUBMISSIONS MADE BY THE ASSESSEE. THE AO WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE ESPECIALLY THE 137 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) EXPLANATION OF THE ASSESSEE THAT NO ADMINISTRATIVE EXPENDITURE INCURRED ON EARNING THE DIVIDEND INCOME. CONSIDERING THE MAGNITUDE OF THE INVESTMENTS AND THE DIVIDEND INCOME RECEIVED, THE AO WAS OF THE VIEW THAT THE DISALLOWANCE MADE BY THE ASSESSEE U/S 14A OF THE IT ACT TOWARDS THE ADMINISTRATIVE EXPENDITURE IS LOW ON COMPARING THE MAGNITUDE OF PURCHASE AND SALES MADE BY THE ASSESSEE AND THE INVESTMENTS OF LARGE MAGNITUDE CANNOT BE MADE WITHOUT PROPER ANALYSIS OF THE MARKET CONDITION/STOCK MOVEMENT ETC. THE REVENUE WAS OF THE OPINION, THAT THE ASSESSEE HAS WORKED OUT THE ADMINISTRATIVE EXPENDITURE AND HAD NOT CONSIDERED ALL THE ADMINISTRATIVE EXPENDITURE. BOTH THE PARTIES BEFORE US VEHEMENTLY RELIED ON THE DECISION OF GODREJ BOYCE MFG CO. LTD. VS DCIT 328 ITR 81 (MUM). 15. WE HAVE GONE THROUGH THIS DECISION AND WE NOTED THAT IN THIS CASE, THE ASSESSEE CLAIMED EXEMPTION IN RESPECT OF DIVIDEND INCOME OF 34.34 CRORES U/S 10(33). THE AO ISSUED NOTICES FOR DISALLOWANCE OF INTEREST U/S 14A OF THE IT ACT. THE EXPLANATION OF THE ASSESSEE WAS THAT (I) 95% OF THE SHARES WERE BONUS SHARES FOR WHICH NO COST WAS INCURRED; (II) NO IN VESTMENT IN SHARES WAS MADE IN THE CURRENT YEAR AND NO DISALLOWANCE WAS MADE IN EARLIER YEARS AND (III) THERE WERE SUFFICIENT INTEREST FREE FUNDS AVAILABLE IN THE FORM OF SHARE CAPITAL, RESERVES ETC. WHICH WERE MORE THAN INVESTMENT IN SHARES. THE AO WAS NO T SATISFIED WITH THE EXPLANATION OF THE ASSESSEE AND HE MADE DISALLOWANCE U/S 14A ON PRORATA BASIS. THE CIT(A) FOLLOWING HIS ORDERS FOR EARLIER YEARS, ACCEPTED THE APPEAL OF THE ASSESSEE. THE TRIBUNAL FOLLOWING THE DECISION OF THE SPECIAL BENCH IN THE CASE OF ITO VS DAGA CAPITAL MANAGEMENT (P) LTD 117 ITD 169 (SB) RESTORED THE MATTER TO THE FILE OF THE AO FOR THE CONSIDERATION IN THE LIGHT OF THE PROVISIONS OF SUB - SEC.(2) & (3) OF SEC.14A OF THE IT ACT. THE ASSESSEE, BEING AGGRIEVED, FILED APPEAL AS WELL AS WRIT PETITION CHALLENGING THE CONSTITUTIONAL VALIDITY OF SUB - SEC. (2) & (3) AND RULE D. THE HON'BLE HIGH COURT GAVE THE FOLLOWING FINDINGS; 1. THE PROVISIONS OF SEC. 14A AND RULE 8D ARE CONSTITUTIONALLY VALID. 2. THE PROVISIONS OF SUB - SEC. (2) & (3) OF SEC.14A AND RULE 8D ARE PROSPECTIVE AND NOT RETROSPECTIVE, IN NATURE AND THEREFORE, WOULD APPLY FROM ASSESSMENT YEAR 2007 - 08. 3. THE BASIC OBJECT OF SEC.14A IS TO DISALLOW THE DIRECT AND INDIRECT EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME (PAGE 21). 4. THE INSERTION OF SEC.14A WAS CURATIVE AND DECLARATORY OF THE INTENT OF THE PARLIAMENT. THE BASIC PRINCIPLE OF TAXATION IS THAT ONLY NET INCOME, NAMELY, GROSS INCOME MINUS EXPENDITURE THAT IS TAXABLE. EXPENSES IN CURRED CAN BE ALLOWED ONLY TO THE EXTENT THAT THEY ARE RELATABLE TO THE EARNING OF TAXABLE INCOME (PAGES 22 - 23). THE TEST WHICH HAS BEEN ENUNCIATED IN WALLFORT FOR ATTRACTING THE PROVISIONS OF SEC.14A IS THAT THERE HAS TO BE A PROXIMATE CAUSE FOR DISALLOWA NCE WHICH HAS ITS RELATIONSHIP WITH THE TAX EXEMPT INCOME. ONCE THE TEST OF PROXIMATE CAUSE, BASED ON 138 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) THE RELATIONSHIP OF THE EXPENDITURE WITH TAX EXEMPT INCOME IS ESTABLISHED, A DISALLOWANCE WOULD HAVE TO BE EFFECTED UNDER SECTION 14A (PAGE 28) 5. WHAT M ERITS EMPHASIS IS THAT THE JURISDICTION OF THE AO TO DETERMINE THE EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, IN ACCORDANCE WITH THE PRESCRIBED METHOD, ARISES IF THE AO IS NOT SATISFIED WITH THE CORRECTNES S OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE WHICH THE ASSESSEE CLAIMS TO HAVE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. MOREOVER, THE SATISFACTION OF THE AO HAS TO BE ARRIVED AT, HAVING REGARD TO THE ACCO UNTS OF THE ASSESSEE. HENCE, SUB - SEC (2) DOES NOT IPSO FACTO ENABLE THE AO TO APPLY THE METHOD PRESCRIBED BY THE RULES STRAIGHTAWAY WITHOUT CONSIDERING WHETHER THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME IS CORRECT. THE AO MUST, IN THE FIRST INSTANCE, DETERMINE WHETHER THE CLAIM OF THE ASSESSEE IN THAT REGARD IS CORRECT AND THE DETERMINATION MUST BE MADE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE SATISFACTIO N OF THE AO MUST BE ARRIVED AT ON AN OBJECTIVE BASIS. IT IS ONLY WHEN THE AO IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE, THAT THE LEGISLATURE DIRECTS HIM TO FOLLOW THE METHOD THAT MAY BE PRESCRIBED. IN A SITUATION WHERE THE ACCOUNTS OF THE ASSESSEE FU RNISH AN OBJECTIVE BASIS FOR THE AO TO ARRIVE AT A SATISFACTION IN REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE OF THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, THERE WOULD BE NO WARRA NT FOR TAKING RECOURSE TO THE METHOD PRESCRIBED BY THE RULES. FOR, IT IS ONLY IN THE EVENT OF THE AO NOT BEING SO SATISFIED THAT RECOURSE TO THE PRESCRIBED METHOD IS MANDATED BY LAW (PAGES 31 - 32). 6. IN THE EVENT THAT THE AO IS NOT SATISFIED WITH THE CORR ECTNESS OF THE CLAIM MADE BY THE ASSESSEE, HE MUST RECORD REASONS FOR HIS CONCLUSION (PAGE - 79). 7. THE EFFECT OF SEC.14A IS TO WIDEN THE THEORY OF THE APPORTIONMENT OF EXPENDITURE (PAGE 49). 8. THE EXPRESSION EXPENDITURE INCURRED; IN SEC.14A REFERS TO E XPENDITURE ON RENT, TAXES, SALARIES, INTEREST, ETC., IN RESPECT OF WHICH ALLOWANCES ARE PROVIDED FOR (PAGE - 50). 9. SUB - SECTIONS (2) & (3) OF SEC.14A ARE INTENDED TO ENFORCE AND IMPLEMENT THE PROVISIONS OF SUB - SEC (1) (PAGES 50). 10. EVEN IN THE ABSENCE O F SUB - SECTION (2) OF SEC.14A THE AO WOULD HAVE TO APPORTION THE EXPENDITURE AND TO DISALLOW THE EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE AO WOULD HAVE TO FOLLOW A REASONABLE METHOD OF APPORTIONING THE EXPENDITURE CONSISTENT WITH WHAT THE CIRCUMSTANCES OF THE CASE WOULD WARRANT AND HAVING REGARD TO ALL RELEVANT FACTS AND CIRCUMSTANCES. THE SAID DECISION OF THE JURISDICTIONAL HIGH COURT IS BINDING ON US. WHILE DECIDING THIS CASE, THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS WALLFORT SHARES & STOCK BROKERS LTD., 233 CTR (SC) 42 WAS REFERRED TO. IN THIS DECISION, WE NOTED THAT THE HON'BLE SUPREME COURT IN THAT CASE UPHELD THE VIEW OF 139 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) THE HON'BLE MUMBAI HIGH COURT IN THE CASE OF WALLFORT SHARES & STOCK BROKERS LTD. VS ITO 310 ITR 421. THE HON'BLE SUPREME COURT IN THIS DECISION, AT PAGE - 31 OF THE ORDER HELD AS UNDER; TO ATTRACT SEC.14A THERE HAS TO BE PROXIMATE CAUSE FOR DISALLOWANCE WHICH HAS ITS RELATIONSHIP WITH THE TAX EXEMPT. PAY BACK OR RETURN OF INVESTMENT IS NOT SUCH PROXIMATE CAUSE. HENCE, SEC.14A IS NOT APPLICABLE IN THE PRESENT CASE. THUS, IN THE ABSENCE OF SUC H PROXIMATE CAUSE FOR DISALLOWANCE, SEC.14A CANNOT BE INVOKED. 16. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS DCIT (SUPRA) THEREFORE AT PAGE - 28 HAS CLEARLY LAID DOWN THAT THERE MUST BE PROXIMATE CAUSE BASED ON THE RELATI ONSHIP OF THE EXPENDITURE THAT TAX EXEMPT INCOME IS ESTABLISHED, ONLY THEN A DISALLOWANCE WOULD HAVE TO BE EFFECTED U/S 14A OF THE IT ACT. THEREFORE, IN VIEW OF THE DECISION OF THE JURISDICTIONAL HIGH COURT AND THE DECISION OF THE HON'BLE SUPREME COURT, WE ARE OF THE VIEW THAT SEC.14A CANNOT BE APPLIED UNLESS THERE IS A PROXIMATE CAUSE FOR DISALLOWANCE. THE ONUS TO ESTABLISH THAT THERE IS PROXIMATE CAUSE BASED ON THE RELATIONSHIP OF THE EXPENDITURE WITH THE EXEMPT INCOME IN OUR OPINION IS ON THE REVENUE. TH US, THE APPLICATION OF THE PROVISIONS OF SEC. (2) & (3) OF SEC.14A AND RULE 8D IS NOT AUTOMATIC IN EACH AND EVERY CASE, WHERE THERE IS INCOME NOT FORMING PART OF THE TOTAL INCOME. SUB - SEC. (2) & (3) ARE INTENDED TO ENFORCE AND IMPLEMENT THE PROVISIONS OF S UB - SEC. (1). THEREFORE, IT IS NECESSARY FOR THE AO FIRST TO ASCERTAIN WHETHER THERE IS PROXIMATE CONNECTION BETWEEN THE EXPENDITURE INCURRED AND THE INCOME NOT FORMING PART OF THE TOTAL INCOME. IF SUCH PROXIMATE CONNECTION IS ESTABLISHED WITH THE EXEMPT IN COME, THE AO WOULD BE JUSTIFIED IN APPLYING THE PROVISIONS OF SUB - SEC (2) & (3) OF SEC.14A AND RULE 8D OF THE IT ACT, 1961. THE EXPENDITURE INCURRED U/S 14A WOULD INCLUDE DIRECT AND INDIRECT EXPENDITURE, BUT RELATIONSHIP WITH EXEMPTED INCOME MUST BE PROXIM ATE. IF THERE IS MATERIAL TO ESTABLISH THAT THERE IS DIRECT NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE INCOME NOT FORMING PART OF TOTAL INCOME THEN DISALLOWANCE WOULD BE JUSTIFIED EVEN WHERE THERE IS NO RECEIPT OF EXEMPTED INCOME U/S 10 IN THE YEAR UND ER CONSIDERATION IN VIEW OF THE DECISION OF SPECIAL BENCH IN THE CASE OF CHEMINVEST LTD. 124 TTJ 577 (DEL)(SB). 17. THE BASIC PRINCIPLE OF TAXATION IS TO TAX THE NET INCOME. ON THE SAME ANALOGY, THE EXEMPTION IS ALSO TO BE ALLOWED ON NET BASIS I.E. GROSS RECEIPTS MINUS RELATED EXPENSES. THEREFORE, IF ANY EXPENDITURE IS DIRECTLY RELATED TO EXEMPTED INCOME, IT CANNOT BE ALLOWED TO BE SET OFF AGAINST TAXABLE PROFIT. ON THE SAME ANALOGY, IN OUR OPINION, IF ANY EXPENDITURE IS DIRECTLY RELATED TO TAXABLE INCOME , IT CANNOT BE ALLOWED TO BE SET OFF AGAINST THE EXEMPTED INCOME MERELY BECAUSE SOME INCIDENTAL BENEFIT HAS ARISEN TOWARDS EXEMPTED INCOME. BEFORE MAKING ANY DISALLOWANCE U/S 14A, THE AO IS REQUIRED TO RECORD A SATISFACTION, HAVING REGARD TO THE ACCOUNTS O F THE ASSESSEE, THAT CLAIM OF ASSESSEE THAT EXPENDITURE INCURRED IS NOT RELATED TO THE INCOME FORMING PART OF THE TOTAL INCOME IS INCORRECT. SUCH SATISFACTION MUST BE ARRIVED AT ON THE OBJECTIVE BASIS. HE IS ALSO REQUIRED TO RECORD THE REASONS FOR 140 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) ARRIVING AT SUCH SATISFACTION. THE ASSESSING OFFICER IN THIS CASE, WE NOTED IS NOT SATISFIED WITH THE CORRECTNESS OF THE DISALLOWANCE MADE BY THE ASSESSEE EVEN THOUGH HE HAS ACCEPTED THE EXPLANATION OF THE ASSESSEE THAT NO INTEREST IS INCURRED WITH REGARD TO EXEMP T INCOME. HE REJECTED THE EXPLANATION OF THE ASSESSEE THAT NO ADMINISTRATIVE EXPENDITURE INCURRED ON EARNING DIVIDEND INCOME CONSIDERING THE MAGNITUDE OF THE INVESTMENTS AND DIVIDEND INCOME RECEIVED AND THE DISALLOWANCE ACCORDING TO HIM MADE BY THE ASSESSE E U/S 14A TOWARDS ADMINISTRATIVE EXPENDITURE IS VERY LESS. THE ASSESSING OFFICER NOWHERE POINTED OUT THE PROXIMATE CONNECTION OF OTHER EXPENSES NOT APPORTIONED BY THE ASSESSEE FOR THE EARNING OF THE DIVIDEND INCOME. HE MERELY OBSERVED THAT THE ADMINISTRATI VE EXPENSES DISALLOWED BY THE ASSESSEE IS VERY LESS BUT HOW THEY ARE LESS AND HOW THE OTHER EXPENSES INCURRED BY THE ASSESSEE RELATED TO THE DIVIDEND INCOME HAS NOT BEEN BROUGHT ON RECORD. EVEN THE AO HAS NOT POINTED OUT THE EXPENSES EXCLUDED BY THE ASSESS EE FOR DISALLOWANCE HAS PROXIMATE CONNECTION WITH DIVIDEND INCOME. IN OUR OPINION, THE ASSESSING OFFICER BEFORE REJECTING THE DISALLOWANCE COMPUTED BY THE ASSESSEE MUST GIVE A CLEAR CUT FINDING HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE HOW THE OTHER EX PENDITURE CLAIMED BY THE ASSESSEE OUT OF NON EXEMPT INCOME IS RELATED WITH THE EXEMPT INCOME. NO DISCREPANCY IN THE CLAIM OF THE ASSESSEE WAS POINTED OUT. THE ASSESSING OFFICER IN OUR OPINION IN VIEW OF THE JURISDICTIONAL HIGH COURT DECISION IS BOUND TO RE CORD SATISFACTION AS TO HOW THE EXPENSES CLAIMED BY THE ASSESSEE HAVE BEEN INCURRED ON EARNING DIVIDEND INCOME WERE NOT SUFFICIENT AND CORRECT. WE HAVE ALREADY HELD THAT THE ONUS TO PROVE IN THIS REGARD LIES ON THE ASSESSING OFFICER. ALTHOUGH THE LD. DR HA D VEHEMENTLY CONTENDED AND TRIED TO BUILD UP HIS CASE BY SUBSTITUTING THE REASONS GIVEN BY THE CIT(APPEAL) IN PLACE OF THE AO, BUT FAILED TO BRING ANY COGENT MATERIAL OR EVIDENCE IN THIS REGARD WHICH MAY PROVE THAT THE OTHER EXPENSES CLAIMED BY THE REVENUE FOR APPORTIONMENT HAD PROXIMATE CONNECTION WITH THE EARNING OF THE DIVIDEND INCOME. IN OUR OPINION UNTIL AND UNLESS THIS IS PROVED OR ESTABLISHED BY THE REVENUE, THE ASSESSING OFFICER DOES NOT HAVE ANY POWER TO REJECT THE ACCOUNTS OF THE ASSESSEE AND TAKE THE SHELTER OF RULE 8D FOR COMPUTING THE DISALLOWANCE OUT OF THE EXEMPT INCOME. WE ARE NOT AT ALL CONVINCED WITH THE SUBMISSION OF THE LD. DR RELYING ON THE DECISION OF CIT(APPEAL) IN RESPECT OF EXPLANATION BB TO SEC. 80HHC THAT 10% OF THE RECEIPTS UNDER THE SOURCES MENTIONED THEREIN ARE DEEMED TO BE THE EXPENDITURE. THIS IN OUR OPINION WILL STRENGTHEN THE CASE OF THE ASSESSEE AS EXPLANATION BB TO SEC. 80HHC DOES NOT RECOGNIZE AMOUNT OF THE INVESTMENT MADE IN OTHER RECEIPT TO BE THE BASIS OF COMPUTING THE EXPENDITURE BEING INCURRED FOR THE EARNING OF THAT INCOME. SIMILAR VIEWS HAVE BEEN TAKEN BY HON'BLE TRIBUNAL IN THE FOLLOWING DECISIONS ALSO. IN THE CASE OF DCIT VS. JINDAL PHOTO LTD. HELD IN I.T.A.T. DELHI BENCH DATED 7.1.2011 IT WAS HELD AS FOLLOWS: NOW AS PER SECTION 14A(2) OF THE ACT, IF THE AO, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN 141 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) RESPECT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE ASS ESSEES TOTAL INCOME UNDER THE ACT, THE AO SHALL DETERMINE THE AMOUNT INCURRED IN RELATION TO SUCH INCOME, IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED, I.E., UNDER RULE 8D OF THE I.T. RULES. HOWEVER, IN THE PRESENT CASE, THE ASSESSMENT ORDER DOES N OT EVINCE ANY SUCH SATISFACTION OF THE AO REGARDING THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. AS SUCH, RULE 8D OF THE RULES WAS NOT APPROPRIATELY APPLIED BY THE AO AS CORRECTLY HELD BY THE CIT(A). IT HAS NOT BEEN DONE BY THE AO THAT ANY EXPENDITURE HAD BEEN INCURRED BY THE ASSESSEE FOR EARNING ITS DIVIDEND INCOME. MERELY, AN ADHOC DISALLOWANCE WAS MADE. THE ONUS WAS ON THE AO TO ESTABLISH ANY SUCH EXPENDITURE. THIS ONUS HAS NOT BEEN DISCHARGED. IN .CIT VS. HERO CYCLES. (P&H) 323 ITR 518, UNDER SIMILAR C IRCUMSTANCES, IT WAS HELD THAT THE DISALLOWANCE U/S 14A OF THE ACT REQUIRES A CLEAR FINDING OF INCURRING OF EXPENDITURE AND THAT NO DISALLOWANCE CAN BE MADE ON THE BASIS OF PRESUMPTIONS. IN .ACIT VS. EICHER LTD.., 101 TTJ (DEL.) 369, THAT IT WAS HELD THAT THE BURDEN IS ON THE AO TO ESTABLISH NEXUS OF EXPENSES INCURRED WITH THE EARNING OF EXEMPT INCOME, BEFORE MAKING ANY DISALLOWANCE U/S 14A OF THE ACT. IN MARUTI UDYOG VS. DCIT, 92 ITD 119 (DEL.), IT HAS BEEN HELD THAT BEFORE MAKING ANY DISALLOWANCE U/S 14 A OF THE ACT, THE ONUS TO ESTABLISH THE NEXUS OF THE SAME WITH THE EXEMPT INCOME, IS ON THE REVENUE. IN WIMCO SEEDLINGS LIMITED VS. DCIT., 107 ITD 267 (DEL.) (TM), IT HAS BEEN HELD THAT THERE CAN BE NO PRESUMPTION THAT THE ASSESSEE MUST HAVE INCURRED EXPE NDITURE TO EARN TAX FREE INCOME. SIMILAR ARE THE DECISIONS IN: 1. PUNJAB NATIONAL BANK VS. DCIT, 103 TTJ 908 (DEL.); 2. VIDYUT INVESTMENT LTD., 10 SOT 284 (DEL.); AND 3. D.J. MEHTA VS. INCOME TAX OFFICER, 290 ITR 238 (MUM.) (AT) IN VIEW OF THE ABOVE, FINDING NO ERROR WITH THE ORDER OF THE CIT(A) ON THE POINT AT ISSUE, THE SAME IS HEREBY CONFIRMED. GROUND NO.3 IS THUS REJECTED. IN THE CASE OF JINDAL PHOTO LTD. VS. DCIT HELD IN I.T.A.T. DELHI BENCH DATED 23.9.2011 IT WAS HELD AS FOLLOWS: IN THE YE AR UNDER CONSIDERATION, IT IS SEEN THAT IT IS NOT INCORRECT WHEN THE ASSESSEE CONTENDS THAT NO SATISFACTION HAS BEEN RECORDED BY THE AO REGARDING THE ASSESSEES CALCULATION BEING INCORRECT. EVEN SO, RULE 8D OF THE RULES HAS BEEN APPLIED. THIS, IN OUR OPINI ON, IS NOT CORRECT. SUCH SATISFACTION OF THE ASSESSING OFFICER IS A PRE - REQUISITE TO INVOKE THE PROVISIONS OF RULE 8D OF THE RULES. THE LEARNED CIT(A), THEREFORE, ERRED IN PARTIALLY APPROVING THE ACTION OF THE ASSESSING OFFICER. IN THE CASE OF AVSHESH M ERCANTILE P. LTD. VS. DCIT IN I.T.A.T. MUMBAI BENCH (I.T. ACT NO.5779/MUM/2006 & 208/MUM/2009) IT WAS HELD AS FOLLOWS: AT THE TIME OF HEARING, THE CONTENTION RAISED BY THE LEARNED DR IN THIS REGARD IS THAT THE APPEAL OF THE REVENUE ON THE ISSUE HAVING B EEN DISMISSED BY THE HON'BLE 142 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) BOMBAY HIGH COURT MERELY OBSERVING THAT NO QUESTION ARISES, IT CANNOT BE TREATED AS A DECISION RENDERED BY THE HON'BLE HIGH COURT ON THE MERIT OF THE ISSUE WHICH IS BINDING ON THIS TRIBUNAL. WE ARE UNABLE TO ACCEPT THIS CONTENT ION OF THE LEARNED DR. IT IS WELL SETTLED PROPOSITION OF JUDICIAL PRECEDENTS THAT IS APPEAL THE HON'BLE HIGH COURT CONSIDERS FACTS PERTAINING TO THE ISSUE AND GIVES APPROVAL TO THE DECISION OF THE LOWER FORUM, THE DECISION OF LOWER FORUM GETS MERGED WITH T HE JUDGMENT AND ORDER OF THE HIGH COURT AND IT BECOMES BINDING PRECEDENT EVEN THOUGH APPROVAL TO DECISION OF LOWER FORUM/COURT IS SUMMARILY RECORDED. SIMILAR SITUATION HAD ARISEN FOR CONSIDERATION BEFORE THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF NIRMA INDUSTRIES LTD. 283 ITR 402 WHEREIN THE EFFECTS OF SUMMARY DISPOSAL OF APPEAL BY THE HIGH COURT WERE ANALYSED AND EXPLAINED BY THEIR LORDSHIPS. IT WAS CLARIFIED THAT WHILE HEARING AN APPEAL EVEN FOR DECIDING WHETHER SUBSTANTIAL QUESTION OF LAW ARISES OR NO T FROM THE ORDER OF THE TRIBUNAL, THE HIGH COURT DOES NOT EXERCISE EITHER THE ORIGINAL JURISDICTION OR THE JURISDICTION TO ISSUE WRITS AND THE ONLY JURISDICTION EXERCISED BY THE HIGH COURT IN THE FIRST INSTANCE DECIDES WHETHER OR NOT SUBSTANTIAL QUESTION O F LAW ARISES FROM THE ORDER OF THE TRIBUNAL, IT CANNOT BE SAID THAT THE HIGH COURT DOES NOT EXERCISE THE APPELLATE POWERS OR THAT THERE IS NO DECISION ON MERIT WHEN THE HIGH COURT DISMISSES AN APPEAL HOLDING THAT NO SUBSTANTIAL QUESTION OF LAW ARISES FROM THE ORDER OF THE TRIBUNAL. IT WAS HELD THAT WHENEVER AN ORDER OF THE SUBORDINATE FORUM IS CARRIED IN APPEAL BEFORE THE HIGHER APPELLATE FORUM/COURT, OPERATIVE PART THEREOF MERGES INTO THE JUDGMENT, DECISION OR ORDER OF THE HIGHER COURT AFTER THE CONFIRMATI ON, MODIFICATION OR REVERSAL, AS THE CASE MAY BE, AND THE DECISION OF THE LOWER COURT OR FORUM HAS NO INDEPENDENT EXISTENCE THEREAFTER IN RELATION TO THE ISSUE WHICH WAS CARRIED BEFORE THE APPELLATE COURT OR FORUM. IT WAS HELD THAT WHERE THE HIGH COURT COM ES TO THE CONCLUSION THAT NO SUBSTANTIAL QUESTION OF LAW ARISES ON A PARTICULAR ISSUE, IT CANNOT BE STATED THAT THE SUBJECT MATTER OF CONTROVERSY BETWEEN THE PARTIES HAS NOT BEEN DEALT WITH BY THE HIGH COURT. IT WAS HELD THAT WHEN THE DECISION OF THE TRIBU NAL IS AFFIRMED ON THE ISSUE BROUGHT BEFORE THE HIGH COURT, IT IS THE DECISION OF THE HIGH COURT WHICH BECOMES OPERATIVE AND WHICH IS CAPABLE OF BEING GIVEN EFFECT TO FOR ALL INTENTS AND PURPOSES. KEEPING IN VIEW THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF NIRMA INDUSTRIES LTD. (SUPRA), WE HAVE NO HESITATION TO HOLD THAT THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF DELITE ENTERPRISE LTD. (SUPRA) IS A DECISION ON MERIT WHICH IS BINDING PRECEDENT ON US. AS THE ISSUE INVOLVED IN T HE PRESENT CASES AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THAT OF THE CASE OF DELITE ENTERPRISE (SUPRA), WE RESPECTFULLY FOLLOW THE SAID DECISION OF THE JURISDICTIONAL HIGH COURT AND DELETE THE DISALLOWANCE MADE BY THE AO AND CONFI RMED BY THE LEARNED CIT(A) ON ACCOUNT OF PREMIUM PAID BY THE ASSESSEES ON REDEMPTION OF PREMIUM NOTES (OCPN) BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. AS REGARDS THE CASE LAWS CITED BY THE LEARNED DR, IT IS OBSERVED THAT IN NONE OF THESE CASES, THE FACTS INVOLVED WERE SIMILAR TO THE CASE OF THE PRESENT ASSESSEES IN AS MUCH AS THE INVESTMENT MADE THEREIN WAS NOT FOUND TO BE CAPABLE OF EARNING TAXABLE AS WELL AS EXEMPT INCOME WHICH WAS ACTUALLY NOT EARNED BY THE ASSESSEE IN THE RELEVANT PERIOD AS ARE THE FACTS 143 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) OF THE PRESENT CASE OR THAT OF THE CASE OF DELITE ENTERPRISE (SUPRA) DECIDED BY THE HON'BLE BOMBAY HIGH COURT. ACCORDINGLY, WE DECIDE THE COMMON ISSUE INVOLVED IN ALL THESE APPEALS IN FAVOUR OF THE ASSESSEES FOLLOWING THE DECISION OF JURISDIC TIONAL HIGH COURT IN THE CASE OF DELITE ENTERPRISES (SUPRA) AND ALLOW THE APPEALS OF ALL THE ASSESSEES. 18. WE HAVE ALSO GONE THROUGH THE DECISION RELIED UPON BY THE LEARNED DR ALSO. THE DECISION OF ACIT VS CITICORP FINANCE (IND.) LTD., 108 ITD 457 (BOM.) IS NO MORE RELEVANT, IN VIEW OF THE DECISION OF THE HON'BLE MUMBAI HIGH COURT IN THE CASE OF GODREJ BOYCE MF G CO. LTD. (SUPRA). THE DECISION OF SPIC VS DCIT 93 TTJ (CHENNAI) 161 IS NOT APPLICABLE TO THE FACTS OF THE CASE. AS IN THAT CASE, THE ASSESSEE WAS REGULARLY INVESTING IN THE SHARES. THE ASSESSEE HAS NOT DISALLOWED ANY EXPENDITURE WITH REGARD TO THE EARNIN G OF THE DIVIDEND INCOME. UNDER THESE FACTS, THE HON'BLE TRIBUNAL HELD THAT WHETHER TO INVEST OR NOT TO INVEST IS A VERY STRATEGIC DECISION AND TOP MANAGEMENT INVOLVE IN TAKING THE DECISIONS. THIS DECISION RELATE TO ASSESSMENT YEAR 2000 - 01 MUCH PRIOR TO TH E INSERTION OF PROVISION OF SEC.14A(2) OF THE IT ACT,1961. THE DECISION OF ACIT VS PREMIUM CONSOLIDATED CAPITAL TRUST 83 TTJ (BOM.) RELATES TO ASSESSMENT YEAR 1991 - 92 PRIOR TO INSERTION OF 14A(2) HENCE WILL NOT ASSIST THE REVENUE. THE OTHER DECISION RELIED ON ARE ALSO NOT APPLICABLE TO THE FACTS OF THE CASE, EXCEPT THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS DC IT & ANOTHER 328 ITR 81(BOM.). IN VIEW OF OUR AFORESAID DISCUSSION AND RESPECTIVELY FOLLOWING THE DEC ISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT & ANOTHER 328 ITR 81 (BOM), WE DELETE THE DISALLOWANCE MADE U/S 14A R.W. RULE 8D AND ACCORDINGLY, THE GROUND TAKEN BY THE ASSESSEE IN THIS REGARD IS ALLOWED. THE FINDING GIVEN BY THIS TRIBUNAL IN THE AFORESAID DECISION UNDER PARA 17 ARE EQUALLY APPLICABLE IN THE CASE OF THE ASSESSEE AS IN THE ASSESSMENT ORDER WE DO NOT FIND ANY WHISPER WHATSOEVER WHICH PROVES THAT THE AO WAS NOT SATISFIED WITH THE CORRECTNESS OF TH E CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE WHICH THE ASSESSEE CLAIMS TO HAVE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE AO STRAIGHTAWAY WENT ON APPLYING RULE 8D WHILE, IN THE FIRST INSTANCE, THE AO SHOULD HAVE DETERMINED WHETHER THE CLAIM OF THE ASSESSEE THAT IT HAS NOT INCURRED ANY EXPENDITURE WITH REGARD TO THE DIVIDEND INCOME IS CORRECT OR NOT AND SUCH DETERMINATION MUST HAVE BEEN MADE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE ON OBJECTIVE BASIS. IT IS ONLY WHEN THE AO IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE, THE LEGISLATURE HAS EMPOWERED THE AO TO FOLLOW THE METHOD FOR CALCULATING THE DISALLOWANCE AS MAY BE PRESCRIBED I.E. RULE 8D. THE AO INSTEAD OF DISC HARGING HIS OBLIGATION, STRAIGHTAWAY APPLIED RULE 8D AND MADE DISALLOWANCE. HE HAS PUT THE CART BEFORE THE HORSE WHICH IS NOT PERMISSIBLE UNDER LAW. THE CASE OF THE ASSESSEE, IN OUR OPINION, IS COVERED BY OUR AFORESAID DECISION IN THE CASE OF SESA GOA LT D. VS. JCIT (SUPRA). RESPECTFULLY 144 ITA NO. 321 & 425/PNJ/2013 (A.Y. 2002 - 03) ITA NO. 30 & 35/PNJ/2013 (A.Y. 2007 - 08) ITA NO. 31 & 36/PNJ/2013 (A.Y. 2008 - 09) FOLLOWING THE DECISION IN THE CASE OF SESA GOA LTD. VS. JCIT (SUPRA), WE DELETE THE DISALLOWANCE MADE U/S 14A. SIMILAR VIEW HAS BEEN TAKEN BY THIS BENCH IN ITA NO. 34/PNJ/2013 & ITA NO. 50/PNJ/2013 IN THE CASE OF M/S. IN FRASTRUCTURE LOGISTICS PVT. LTD. VS. ACIT. THUS, THIS GROUND IS ALLOWED. 10.1 RESPECTFULLY FOLLOWING THE AFORESAID DECISION IN THE CASE OF THE ASSESSEE FOR A.Y. 2009 - 10, WE ALLOW THE GROUND TAKEN BY THE ASSESSEE. THUS, GROUND NO. 5 IN BOTH THE ASSESSME NT YEARS ARE ALLOWED. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE FOR A.Y. 2002 - 03 IS STATISTICALLY ALLOWED WHILE THE APPEALS FILED BY THE REVENUE FOR A.Y. 2002 - 03, 2007 - 08 AND 2008 - 09 STAND DISMISSED AND THE APPEALS FILED BY THE ASSESSEE FOR A.Y. 2007 - 08 AND 2008 - 09 ARE PARTLY ALLOWED. 12. ORDER PRONOU NCED IN THE OPEN COURT ON 28 .03.2014. SD/ - (D.T.GARASIA) JUDICIAL MEMBER SD/ - (P.K. BANSAL) ACCOUNTANT MEMBER PLACE : PANAJI / GOA DATED : 28 .03. 201 4 *SSL /A * COPY TO : (1) APPELLANT (2) RESPONDENT (3) CIT CONCERNED (4) CIT(A) CONCERNED (5) D.R (6) GUARD FILE TRUE COPY, BY ORDER