DCIT, Haldwani V. M/s. Raj Luxmi Stone Crusher (P) Ltd, Haldwani

ITA 3874/DEL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3894 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 01-06-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 11-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUSHA KHURANA
• Section: 80IB; 80IA; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : F NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER I.T.A NO. 3874/DEL/09 ASSTT. YEAR 2006-07 DCIT ITO, HALDWANI, DISTTT. NAINITAL UTTRANCHAL PIN 263139 VS. M/S. RAJ LUXMI STONE CRUSHER (P) LTD. HALDWANI HALDWANI. (APPELLANT) (RESPONDENT) APPELLANT BY: MISS ANUSHA KHURANA, SR. DR RESPONDENT BY: SHRI ASHWANI TANEJA, CA, SHRI TARU N KUMAR ADVOCATE ORDER PER RAJPAL YADAV, JM: THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF LD. CIT(A) DATED 18 TH JUNE, 2009 PASSED FOR ASSTT. YEAR 2006-07. THE GRI EVANCE OF THE REVENUE IS TWO FOLD. IN THE FIRST FOLD IT HAS P LEADED THAT LD. CIT(A) HAS ERRED IN ALLOWING DEDUCTION U/S 80IB OF THE INCOME TAX ACT AND IN THE SECOND FOLD IT HAS CONTENDED THAT ADDITIONAL DEPREC IATION U/S 32 (IIA) IS NOT AVAILABLE TO THE ASSESSEE BECAUSE ASSESSEE IS A STONE CRUSHER AND ITA NO. 3874/DEL/2009 ASSTT. YEAR 2006-07 2 NOT ENGAGED IN THE MANUFACTURING AND PROCESSING OF STONE ARTICLE AND THINGS. 2. LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET SUBMITTED THAT ASSESSEE HAS FILED ITS RETURN OF INCOME ON 30.11.20 06 DECLARING AN INCOME OF RS. 2633388/-. IT IS RUNNING A STONE CRUS HER AND IT HAS CLAIMED DEDUCTION U/S 80IB AS WELL AS ADDITIONAL DEPRECIATI ON ON THE GROUND THAT BREAKING OF BOULDER INTO SMALL PIECES I.E. MANUFACT URING ACTIVITY. THE LD. CIT(A) HAS ACCEPTED THIS CONTENTION OF THE ASSESSEE AND GRANTED DEDUCTION U/S 80IB AS WELL AS ADDITIONAL DEPRECIATI ON. HE SUBMITTED THAT ISSUE IN DISPUTE IS SQUARELY COVERED IN FAVOUR OF T HE ASSESSEE BY THE TWO DECISION OF THE ITAT RENDERED IN ITA NO. 5000/DEL/2 004 IN THE CASE OF MALLIKARJUN GEORESOURCES ASSOCIATES AND IN THE CAS E OF DCIT VS. M/S. J.P.STONE CRUSHER (P) LTD. (IN ITA NO. 3872/DEL/20 09). HE PLACED ON RECORD COPIES OF BOTH THESE TRIBUNALS DECISION. LD . DR ON THE OTHER HAND RELIED UPON THE ORDER OF AO AND SUBMITTED THAT CONVERSION OF BIG STONE INTO SMALL GRITS CANNOT BE CONSTRUED AS A MAN UFACTURING ACTIVITY. 3. WITH THE ASSISTANCE OF LD. REPRESENTATIVE WE HAV E GONE THROUGH THE RECORD CAREFULLY. WE FOUND THAT THE CONTENTIONS RAISED BY THE AO IN THE PRESENT APPEAL ARE SIMILAR TO THE ONE RAISED IN THE CASE OF M/S. J.P. STONE CRUSHER. THE FACTS AND THE OBSERVATIONS OF TH E TRIBUNAL IN THIS CASE READ AS UNDER :- ITA NO. 3874/DEL/2009 ASSTT. YEAR 2006-07 3 2. THE GROUND RAISED IS THAT LD. CIT(A) ERRED IN D ELETING ADDITION OF RS. 1836804/- ON ACCOUNT OF CLAIM U/S 8 0IB IGNORING THE FACT THAT ASSESSEE IS A STONE CRUSHER AND NOT MANUFACTURER AT ALL, AND ALSO IN RATIO OF DECISION IN THE CASE OF LUCKY MINMAT PVT. LTD. VS. CIT 116 TAXMAN 1 (SC) AND OTHER CASE LAWS ON THE SUBJECT. 3. IN THIS CASE THE ASSESSEE COMPANY CLAIMED EXEMPT ION UNDER SECTION 80IB OF THE IT ACT. AO REFERRED TO THE PROVISIONS OF SECTION 80IB(2)(III) AND HELD AS UND ER:- IN THE BUSINESS OF THE ASSESSEE FIRM, BOULDERS ARE BROKEN INTO SMALL PIECES I.E. GRITS. WHAT WAS BROKEN IS S TONE AND THE RESULT OF THIS BREAKING IS AGAIN STONE. THERE I S ONLY A CHANGE IN SHAPE OF STONE. IT WAS CHANGED FROM BIGGE R SIZE TO SMALLER SIZE. GRITS OR STONE CHIPS DO NOT LOO SE THE BASIC CHARACTER OF STONE WHICH WAS IN BOULDERS EVEN AFTER CRUSHING THEM TO SMALL SIZES. THE COMPOSITION OF BOULDERS AND THE STONE GRITS IS THE SAME. THERE IS ONLY ONE CHANGE IN THE PHYSICAL PROPERTY I.E. THE SHAPE OF THE STONE. THE TERM STONE ALSO INCLUDES ITS VARIOUS FORMS LIKE GRITS, K ANKER, STONE BALLAST, BOULDERS ETC. AND THESE VARIOUS FORM S OF STONE CONTINUE TO CARRY THE SUBSTANTIAL CHARACTERIS TICS OR ITS ORIGINAL SUBSTANCE. FURTHER, THE CONVERSION OF STONE BOULDERS INTO GRITS/STONE IS ONLY PROCESSING. TO BECOME MANUFACTURE, SOMETHING MORE IS ESSENTIAL AND THIS IS DEGREE OF PROCESSING IN ORDER TO BRING INTO EXISTE NCE A NEW ARTICLE DIFFERENT FROM THE ORINGIANL NOT ONLY IN PH YSICAL PROPERTY BUT IN COMPOSITION, CHARACTERISTICS AND US E. ITA NO. 3874/DEL/2009 ASSTT. YEAR 2006-07 4 THE ASSESSEE COMPANY IS DOING THE SAME JOB WITH THE HELP OF MACHINES ON LARGE SCALE WHAT THE LABOURERS DO O N THE ROAD SIDE WITH HANDS. THE LABOURERS ALSO CONVERT T HE BIGGER STONES DO ON THE ROAD SIDE WITH HANDS. THE REQUIREMENT BUT THAT ACTIVITY DOES NOT AMOUNT TO MANUFACTURE. HOW THEN THE SAME ACTIVITY WITH THE HE LP OF MACHINES AND ON LARGER SCALE CAN AMOUNT TO MANUFACTURING ACTIVITY. RELIANCE MAY BE PLACED ON FOLLOWING CASE LAWS: (A) CENTRAL EXCISE VS. AMBA LAL SARABHAI ENTERPRISE [43 ELT 214 (SC)] (B) ARIHANT TILES AND MARBLE (P) LTD. VS. ITO (200 6) 10 SOT 225 (JODHPUR TM) (CONCLUSION : CUTTING OF MARBLE BLOCKS INTO MARBLE SLAPS AND TILES AND SELLING THE SAME AFTER POLISHING DOES NOT AMOUNT EITHER PRODUCTION OR MANUFACTURING OF ANY ARTICLE OR THINGS). THEREFORE, CLAIM OF THE ASSESSEE REGARDING EXEMPTION U/S 80IB OF THE IT ACT, 1961 ARE HEREBY REJECTED. 4. UPON ASSESSEES APPEAL LD. CIT(A) ACCEPTED THE CONTENTION THAT IT IS ONLY AFTER THE BLOCKS OF THE STONE HAVE BEEN CUT TO SIZES THAT THEY BECOME MARKETABLE. IT W AS THE PROCESS OF CRUSHING / BREAKING THE STONE BOULDERS I NTO SMALL PIECES THAT THE SAME BECAME MARKETABLE. TH E STONE BOULDERS CANNOT BE USED FOR THE SAME PURPOSE AS THE STONE GRITS AND AFTER THE STONE BOULDER HAVE BEEN CUT INTO ITA NO. 3874/DEL/2009 ASSTT. YEAR 2006-07 5 DIFFERENT SIZES, THE END PRODUCTS SIMULTANEOUSLY CA NNOT BE USED AS A BLOCK. ACCORDINGLY, CIT(A) HAS ALLOWED THE ASSESSEES APPEAL BY INTER-ALIA PLACING RELIANCE UP ON ITAT DECISION IN THE CASE OF MALLIKARJUN GEORESOURCES ASSOCIATES. 5. AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEFO RE US. IT HAS BEEN INTER-ALIA URGED THAT THE DECISION OF T HE HONBLE APEX COURT IN THE CASE OF LUCKY MINMAT PVT. LTD. V S. CIT 116 TAXMAN 1 (SC) IS APPLICABLE. 5.1 LD. COUNSEL OF THE ASSESSEE ON THE OTHER HAND SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF TH E ASSESSEE BY THE CATENA OF DECISIONS IN THIS REGARD. HE REFERRED TO THE FOLLOWING CASE LAWS:- I) CIT VS. M.R. GOPAL 58 ITR 598. IN THIS CASE HON BLE MADRAS HIGH COURT HELD THAT THE ASSESSEE WAS ENGAG ED IN CONVERTING BOULDERS INTO SMALL CHIPS OF STONES WIT H THE AID OF LABOUR AND MACHINERY IT WAS A MANUFACTURING PR OCESS AND THE ASSESSEE ENGAGED IN SUCH ACTIVITIES IS AN I NDUSTRIAL UNDERTAKING ENTITLED TO RELIEF UNDER SECTION 15C (W HICH CORRESPONDENCE TO SECTION 80J OF THE IT ACT, 1961); II) CIT VS. SESA GOA LTD. 271 ITR 331 (SC). IN THIS CASE IT WAS HELD THAT MINING ACTIVITY FOR EXTRACTING IR ON ORE EXTRACTION AND PROCESSING OF ORE AMOUNTS TO PRODU CTION WITHIN THE MEANING OF S. 32A(2)(B()(III). IT WAS A LSO HELD THAT EXTRACTION AND PROCESSING OF GRANITE AMOUNTS T O PRODUCTION WITHIN THE MEANING OF S.80-I OF THE IT ACT. ITA NO. 3874/DEL/2009 ASSTT. YEAR 2006-07 6 III) CIT VS. SOPHISTICATED MARBLES AND GRANITE INDU STRIES ITA NO. 519-2009 DELHI HIGH COURT ORDERS DATED 11.8.2009. IN THIS CASE IT WAS HELD THAT WHEN ASSES SEE WAS PURCHASING BLOCKS AND SLABS OF MARBLES AND CUTTING THEM IN PROPER SIZES. THE ACTIVITY FALL WITHIN THE DEFIN ITION OF MANUFACTURING PROCESS. IV) ITAT, DELHI DECISION IN ITA NO. 5000/DEL/04 (A .Y. 2003-04) IN THE CASE OF DCIT VS. MALLIKARJUN GEORES OURCES ASSOCIATES ORDER DATED 31.3.2008. IN THIS CASE THE ASSESSEES ACITIVITES OF MINING AND CRUSHING OF BOU LDERS AND SALE OF EXCAVATED MATERIALS AND STONE GRITS WAS HELD TO BE MANUFACTURING AND PROCESSING OF ARTICLES AND THI NGS AS TO ENTITLE DEDUCTION UNDER SECTION 80IB. V) ITO, UDAIPUR VS. M/S ARIHANT TILES AND MARBLES (P) LTD. IN CIVIL APPEAL NO. 8036 OF 2009 ORDER DATED 2.12.2009. IN THIS CASE THE LARGER BENCH OF THE H ONBLE APEX COURT COMPRISING THREE OF THEIR LORDSHIPS HAVE TAKEN INTO ACCOUNT THE JUDGEMENT OF THE HONBLE APEX COUR T IN THE CASE OF LUCKY MINMAT PVT. LTD. VS. CIT (2001) 9 SCC 669. THE HONBLE COURT ELABORATELY CONSIDERED THE ISSUE AND THE HONBLE APEX COURT EARLIER DECISION ON THE SUBJECT AND HELD AS UNDER:- APPLYING THE ABOVE TESTS LAID DOWN BY THIS COURT IN BUDHARAJAS CASE (SUPRA) TO THE FACTS OF THE PRESEN T CASES, WE ARE OF THE VIEW THAT BLOCKS CONVERTED INT O POLISHED SLABS AND TILES AFTER UNDERGOING THE PROCE SS INDICATED ABOVE CERTAINLY RESULTS IN EMERGENCE OF A NEW AND DISTINCT COMMODITY. THE ORIGINAL BLOCK DOES ITA NO. 3874/DEL/2009 ASSTT. YEAR 2006-07 7 NOT REMAIN THE MARBLE BLOCK, IT BECOMES A SLAB OR T ILE. 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 CAS ES, WE ARE OF THE VIEW THAT THE HIGH COURT WAS RIGHT IN COMING TO THE CONCLUSION THAT THE ACTIVITY UNDERTA KEN BY THE RESPONDENTS-ASSESSEE DID CONSTITUTE MANUFACTURE OR PRODUCTION IN TERMS OF SECTION 80IA OF THE INCOME TAX ACT, 1961. 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 DUT Y, 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 MANUFACTUR E OR PRODUCTION UNDER SECTION 80IA WILL HAVE DISASTROUS CONSEQUENCES, PARTICULARLY IN VIEW OF THE FAT THAT THE ASSESSES IN ALL THE CASES WOULD PLEAD THAT THEY WER E NOT LIABLE TO PAY EXCISE DUTY, SALES TAX ETC. BECAU SE THE ACTIVITY DID NOT CONSTITUTE MANUFACTURE. KEEPING I N MIND THE ABOVE FACTORS, WE ARE OF THE VIEW THAT IN THE PRESENT CASES, THE ACTIVITY UNDERTAKEN BY EACH OF T HE RESPONDENTS CONSTITUTES MANUFACTURE OR PRODUCTION ITA NO. 3874/DEL/2009 ASSTT. YEAR 2006-07 8 AND, THEREFORE, THEY WOULD BE ENTITLED TO THE BENEF IT OF SECTION 80IA OF THE INCOME TAX ACT, 1961. 5.2 FROM THE ABOVE CASE LAWS, IT IS EVIDENT THAT T HE ISSUE INVOLVED IS COVERED IN FAVOUR OF THE ASSESSEE . WE MAY QUOTE THE OBSERVATIONS OF THE TRIBUNALS DECISION I N ITA NO. 5000/DEL/04 DCIT VS. MALLIKARJUN GEORESOURCES ASSOCIATES CITED ABOVE IN IDENTICAL CASE AS UNDER O N WHICH THE LD. CIT(A) HAS ALSO RELIED. 12. WE, AFTER HAVING GOING THROUGH THE CHART OF PR OCESS OF PRODUCTION PLACED AT PAGE 5/PB ARE OF THE VIEW THAT THIS PROCESS OF PRODUCTION AMOUNTS TO MANUFACTURING INASMUCH AS IN THIS CASE ALSO THE ORIGINAL COMMODIT Y BOULDERS COULD NOT BE USED FOR BUILDING/ ROAD PURPO SE AS SUCH UNTIL IT IS BROKEN INTO SMALL PIECES I.E, G RITS TO BE USED AS BUILDING/ROAD MATERIAL. IT IS ONLY BY T HE PROCESS OF BREAKING THE BOULDERS INTO GRITS THAT IT IS MADE MARKETABLE. THE BOULDERS CANNOT BE USED FOR THE SAME PURPOSE AS THE GRITS CAN BE USED AND AFTER BOULDERS HAVE BEEN BROKEN INTO GRITS, THE END PRODU CT BY PUTTING IT SIMULTANEOUSLY CANNOT BE USED AS A BOULDER. THE BOULDER AS A MINERAL PRODUCED/ EXCAVATED FROM RIVERBED OR BY BLASTING ROCKS BY ITS ELF IS NOT USABLE FOR ANY PURPOSE, THEREFORE, TO MAKE I T USABLE, VARIOUS PROCESSES WHICH COULD NOT BE APPLIE D TO BRING IT TO THAT STAGE WOULD AMOUNT TO MANUFACTURING. OBVIOUSLY SO FAR AS PHYSICAL CHARACTERISTIC OF BOULDERS AND GRITS MAY HAVE SAME PHYSICAL PROPERTIES I.E., STONE. THUS, KEEPING IN V IEW THE DECISION IN THE CASE OF ARIHANT TILES MARBLES ( P) LTD. (SUPRA), KORES INDIA LTD. (SUPRA) AND MYSORE MINERAL LTD. (SUPRA). WE HOLD THAT THE ASSESSEE IS ENGAGED IN THE ACTIVITY OF MANUFACTURE OR PRODUCE O F ARTICLE OR THING AND AS SUCH, ENTITLE TO DEDUCTION U/S 80IB. HENCE, WE UPHOLD THE ORDER PASSED BY THE CIT(A). 13. THE DECISION IN THE CASE OF LUCKY MINERALS (P) LTD. VS. CIT 116 TAXMAN 1(SC) RELIED BY THE LD. DR IS ITA NO. 3874/DEL/2009 ASSTT. YEAR 2006-07 9 DISTINGUISABLE FROM THE PRESENT CASE. IN THE SAID CASE. HONBLE SUPREME COURT HAS OBSERVED THAT IT HAS NOT BEEN FOUND BY THE TRIBUNAL THAT THE ASSESSEE COMPAN Y CONVERTED THE BOULDERS INTO POWDER, CHIPS OR ANY OT HER ARTICLE COMMERCIALLY KNOWN BY ANOTHER NAME AND USED AS A DIFFERENT ARTICLE. THUS, THE COURT HELD THAT THE ACTIVITIES CARRIED ON BY THE ASSESSEE COMPANY D ID NOT AMOUNT TO MANUFACTURE. SIMILARLY, OTHER DECISIO NS RELIED UPON BY THE REVENUE ARE DISTINGUISHABLE ON FACTS. 3. WE DO NOT FIND ANY DISPARITY ON FACTS. THEREFORE , RESPECTFULLY FOLLOWING THE ORDERS OF THE COORDINATE BENCH THE AP PEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 4.6.2010 SD/- [A.K. GARODIA] [RAJPAL YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 4.6.2010 VEENA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT