JCIT, Bangalore V. M/s Mineral Enterprises Ltd., Bangalore

ITA 533/BANG/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2294 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 05-03-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 16-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P TIWARI
• Keywords: Depreciation; Additional depreciation; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 10B; 32; 147; 148; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NOS.1152 TO 1154/BANG/2011 & 533/BANG/2012 ASSESSMENT YEARS : 2005-06, 2006-07, 2008-09 & 200 7-08 THE JOINT COMMISSIONER OF INCOME TAX (OSD), CENTRAL RANGE, BANGALORE. VS. M/S. MINERAL ENTERPRISES LTD., 300/1B, 16 TH CROSS, SADASHIVANAGAR, BANGALORE 560 080. APPELLANT RESPONDENT APPELLANT BY : SHRI FARAHAT HUSSAIN QURESHI, CIT-II(DR). RESPONDENT BY : SHRI P. TIWARI, FCA. DATE OF HEARING : 21.05.2013 DATE OF PRONOUNCEMENT : 31.05.2013 O R D E R PER BENCH ITA NOS.1152 TO 1154/BANG/2011 ARE APPEALS BY TH E REVENUE AGAINST THE COMMON ORDER DATED 14.09.2011 RELATING TO ASSESSMENT YEARS 2005-06, 2006-07, 2008-09. ITA NO.533/BANG/2012 I S ALSO AN APPEAL BY ITA NO. 1152 TO 1154/BANG/11 & 533/BANG/12 PAGE 2 OF 28 THE REVENUE AGAINST THE ORDER DATED 24.01.2012 OF T HE CIT(APPEALS), MYSORE RELATING TO ASSESSMENT YEAR 2007-08. 2. WE WILL FIRST TAKE UP FOR CONSIDERATION ITA NO.1152/BANG/2011 (AY 05-06) . THE REVENUE HAS RAISED 8 GROUNDS OF APPEAL. GRO UND NOS. 1 & 8 ARE GENERAL IN NATURE AND DO NOT CALL FOR ANY ADJUD ICATION. 3. GROUND NO.2 IS WITH REGARD TO GRIEVANCE OF THE R EVENUE AGAINST THE ORDER OF THE CIT(APPEALS) WHEREBY THE LD. CIT(A) HE LD THAT REASSESSMENT PROCEEDINGS INITIATED FOR THE A.Y. 2005-06 ARE INVA LID. GROUNDS 3 TO 5 RAISED BY THE REVENUE RELATE TO THE GRIEVANCE OF TH E REVENUE WITH REGARD TO THE FINDING OF THE CIT(A) THAT THE ENTIRE PROFITS D ERIVED BY THE ASSESSEE FROM MANUFACTURE OR PRODUCTION OF IRON ORE WAS ENTITLED TO DEDUCTION U/S. 10B OF THE ACT AND THAT THE FINDINGS OF THE AO THAT THE AS SESSEE WAS DOING TRADING IN IRON ORE WAS INCORRECT. WE DEEM IT CONVENIENT T O DEAL WITH BOTH THESE ISSUES TOGETHER. 4. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF MINING AND EXPORT OF MINERALS. THE ASSESSEE SET UP AN EOU DURING 2004 AFTER GETTING ALL THE NECESSARY PERMISSIONS FROM THE CONC ERNED AUTHORITIES. THE ASSESSEE CLAIMED DEDUCTION U/S. 10B IN RESPECT OF P ROFITS DERIVED FROM EXPORT ORIENTED UNIT, WHICH WAS MINING AND EXPORTIN G IRON ORE. FOR THE FIRST TIME IN A.Y. 2005-06, THE ASSESSEE CLAIMED DEDUCTIO N U/S. 10B OF THE ACT IN RESPECT OF THE PROFITS DERIVED FROM THE ACTIVITY OF EXTRACTION AND PROCESSING OF MINING ORE AND EXPORTING THE SAME. THE REVENUE IN THAT ASSESSMENT ITA NO. 1152 TO 1154/BANG/11 & 533/BANG/12 PAGE 3 OF 28 YEAR TOOK A STAND THAT THE ACTIVITY OF EXTRACTION A ND PROCESSING OF MINING ORE DOES NOT AMOUNT TO MANUFACTURE AND THEREFORE TH E ASSESSEE WAS NOT ENTITLED TO DEDUCTION U/S. 10B OF THE ACT. THE IS SUE WAS ULTIMATELY DECIDED BY THE TRIBUNAL IN ASSESSEES FAVOUR IN ITA NO.527/ BANG/2009 FOR THE A.Y. 2005-06 BY ORDER DATED 09.10.2009. THE RELEVANT OB SERVATIONS OF THE TRIBUNAL IN PAGE 26 OF ITS ORDER WERE AS FOLLOWS:- WE HAVE CONSIDERED THE RIVAL SUBMISSION AND PERUSED THE EVIDENCE ON RECORD. THE BRIEF FACTS IN THE CASE OF ASSESSEE ARE THAT ASSESSEE HAS SET UP 100% EOU WHICH IS ENGAGED IN PRODUCTION OF IRON ORE. THE ASS ESSEE HAS RECEIVED APPROVAL OF 100% EOU FROM THE GOVERNME NT. THE CERTIFICATE OF APPROVAL IS PLACED IN PAPER BOOK AT PAGE 94 TO 96 . FIRST WE SHALL TAKE OBJECTION OF A.O. TH AT ASSESSEE IS NOT ENGAGED IN MANUFACTURE OR PRODUCTIO N OF ARTICLE OR THING. IT IS SEEN THAT SUCH DISPUTE IS N O MORE RES INTEGRA IN VIEW OF THE DECISION OF APEX COURT IN TH E CASE OF CIT VS SESA GOA LTD. REPORTED AT 271 ITR 331 (S.C.) . HONBLE APEX COURT IN THE SAID CASE HAS HELD THAT EXTRACTION AND PROCESSING OF IRON ORE AMOUNTS TO PRODUCTION. HONBLE APEX COURT HAS UPHELD THE DECIS ION OF HONBLE BOMBAY HIGH COURT IN THE CASE CIT VS SESA G OA LTD. REPORTED AT 266 ITR 126 (BOM.) WHEREIN IT IS H ELD THAT WINNING AND EXTRACTING OF ORE AMOUNTS TO PRODUCTION OF AN ARTICLE OR THING. THE ACTIVITY OF ASSESSEE COMPANY IS IDENTICAL TO THAT IN THE CASE OF SESA GOA LTD. THE RATIO LAID DOWN BY HONBLE APEX COURT IN THE CASE OF SESA GOA LTD. SQUARELY APPLIES TO THE FACTS IN THE CASE OF ASSESS EE. AS REGARD TO DECISION REPORTED AT 292 ITR 444 (S.C.) R EFERRED TO BY A.O. IN PARA 38 IT IS SEEN THAT AFORESAID CAS E PERTAINS TO PURCHASE OF TEA OF VARIOUS QUALITIES WHICH WERE BLENDED TO MAKE DIVERSE GRADES OF TEA. IT WAS HELD THAT IT DOES NOT AMOUNT TO MANUFACTURE OR PRODUCTION OF AN ARTICLE O R THING. IN FACT IN THE AFORESAID DECISION IT HAS BEEN OBSER VED THAT TEA IS PRODUCED IN THE TEA GARDEN AND THIS FIRST ST AGE IS CALLED PRODUCTION OF TEA. THESE OBSERVATIONS THUS S UPPORT THE CASE OF ASSESSEE. IN THE FACTS OF THE PRESENT C ASE IRON ORE IS EXTRACTED FROM MINES AND THUS THE FACTS IN T HE CASE ITA NO. 1152 TO 1154/BANG/11 & 533/BANG/12 PAGE 4 OF 28 OF ASSESSEE ARE DISTINGUISHABLE FROM THE FACTS OF T HE CASE TARA AGENCIES REFERRED TO BY A.O. IN ASSESSMENT ORD ER. IN VIEW OF ABOVE WE HOLD THAT CIT(A) HAS CORRECTLY HEL D THAT ASSESSEE IS ENGAGED IN BUSINESS OF MANUFACTURE OR PRODUCTION OF IRON ORE AND THEREFORE CONDITION FOR GRANT OF EXEMPTION U/S 10B(2)(I) OF I.T. ACT 1961 STAND FULF ILLED BY ASSESSEE. THE DENIAL OF DEDUCTION U/S 10B BY A.O. F OR THE REASON THAT ASSESSEE IS NOT ENGAGED IN MANUFACTURE AND PRODUCTION OF ARTICLES OR THING IS THUS HELD TO BE NOT JUSTIFIED. IT IS ALSO SEEN THAT A.O. IN PARA 40 OF ASSESSMENT ORDER HIMSELF HAS OBSERVED THAT ASSESSEE IS ENGAGED IN PRODUCTION OF IRON ORE. IN VIEW OF ABOVE A.O. WAS N OT JUSTIFIED IN HOLDING THAT THERE IS NO MANUFACTURE A ND PRODUCTION OF ARTICLE OR THING IN THE CASE OF ASSES SEE. 5. THUS THE ISSUE WHETHER THE ASSESSEE IS ENTITLED TO DEDUCTION U/S.10B OF THE ACT FOR AY 05-06 GOT SETTLED PURSUAN T TO THE ORDER OF THE TRIBUNAL. HOWEVER, THE AO ISSUED NOTICE U/S. 148 O F THE ACT FOR THE A.Y. 2005-06 ON 11.05.2009. UNDER THE PROVISIONS OF SEC .10B OF THE ACT A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A HUNDRED PER CENT EXPORT-ORIENTED UNDERTAKING FROM THE EXPORT FOR ART ICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE A SSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE AR TICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, SHALL BE ALL OWED FROM THE TOTAL INCOME OF THE ASSESSEE. SECTION 10B(2) OF THE ACT LAYS DOWN SOME OF THE CONDITIONS SUBJECT TO WHICH DEDUCTION U/S.10B(1) OF THE ACT WOULD BE ALLOWED AND ONE SUCH CONDITION IS LAID DOWN BY SEC. 10B(2)(I) WHICH READS THUS: ITA NO. 1152 TO 1154/BANG/11 & 533/BANG/12 PAGE 5 OF 28 (2) THIS SECTION APPLIES TO ANY UNDERTAKING WHICH FULFILS ALL THE FOLLOWING CONDITIONS, NAMELY : (I) IT MANUFACTURES OR PRODUCES ANY ARTICLES OR THI NGS OR COMPUTER SOFTWARE; (II) 6. ACCORDING TO THE AO, IN THE COURSE OF ASSESSMEN T PROCEEDINGS OF THE ASSESSEE FIRM FOR A.Y. 2007-08, IT WAS NOTICED THAT THE ASSESSEE PURCHASED IRON ORE FINE, IN ADDITION EXTRACTION OF IRON ORE FROM ITS OWN MINES, OF THE VALUE OF RS.4,33,69,492. ACCORDING T O THE AO, THIS PURCHASE OF IRON ORE FINE DID NOT UNDERGO ANY PROCESS BY THE ASSESSEE AND IT WAS SOLD AS SUCH. ACCORDING TO THE AO, THE ASSESSEE HA D CLAIMED DEDUCTION U/S. 10B OF THE ACT BY INCLUDING THE TURNOVER RESUL TING FROM THE ACTIVITY OF TRADING I.E., PURCHASE AND SALE OF IRON ORE. ACCOR DING TO THE AO, THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION U/S. 10B OF THE ACT, UNLESS THE ASSESSEE DERIVES PROFIT FROM MANUFACTURE OR PRODUCT ION OF ARTICLE OR THING. ACCORDING TO THE AO, THE ASSESSEE HAD CLAIMED DEDUC TION U/S. 10B EVEN IN RESPECT OF PURCHASE AND SALE OF IRON ORE FINE. THE AO THEREFORE ISSUED NOTICE U/S. 148 OF THE ACT FOR RESTRICTING THE DEDU CTION ALREADY ALLOWED U/S. 10B OF THE ACT TO THE EXTENT OF THE INCOME FROM TRA DING OF IRON ORE FINES WHICH WAS INCLUDED BY THE ASSESSEE IN SUCH PROFITS. 7. IN THE REASSESSMENT PROCEEDINGS, THE AO ISSUED A SHOW CAUSE NOTICE IN WHICH HE EXTRACTED THE PROVISIONS OF SEC. 10B OF THE ACT AND FURTHER CALLED UPON THE ASSESSEE TO SHOW CAUSE ON T HE FOLLOWING ISSUE:- ITA NO. 1152 TO 1154/BANG/11 & 533/BANG/12 PAGE 6 OF 28 ABOVE PROVISIONS MEAN THAT CLAIM OF DEDUCTION U/S 10-B CAN BE ALLOWED ON MANUFACTURED/PRODUCED ARTICLE OR THINGS AND NOT ON THE PURCHASED TURNOVER. BUT, IN THE P & L ACCOUNT, IT IS OBSERVED THAT YOU HAVE INCLUDED PURC HASE OF RS.4,33,69,492/- IN YOUR EXPORT TURNOVER, WHICH AS PER THE ACT DOES NOT QUALIFY FOR CLAIM OF DEDUCTION U/S 10- B OF THE INCOME TAX ACT, 1961. PLEASE STATE WHY CLAIM OF DEDUCTION U/S 10-B OF THE INCOME TAX ACT, 1961 CLAIMED BY YOU SHOULD NOT BE DISALLOWED PROPORTIONATELY TO THE PURCHASE TURNOVER AS PER THE WORKINGS SHOWN HEREUNDER: PROFIT RELATED TO PURCHASE TURNOVER= TOTAL CLAIM OF DEDUCTION U/S 10-B / X TOTAL PURCHAS ES TOTAL TURNOV ER = 21,33,00,869 X 4,33,69,492 61,34,48,619 = RS.1,50,79,911 PLEASE SHOW CAUSE AS TO WHY THE ABOVE AMOUNT OF RS.1,50,79,911/- SHOULD NOT BE DISALLOWED AND ADDED BACK TO THE TOTAL TAXABLE INCOME. 8. IN RESPONSE TO THE AFORESAID NOTICE, THE ASSESSE E SUBMITTED THAT IT HAD SET UP EOU AT HABBIGE GUDDA MINES HGM AND RED H ILL MINES (RH) AFTER OBTAINING NECESSARY APPROVAL FROM THE GOVERNM ENT OF INDIA UNDER THE SCHEME FRAMED BY CENTRAL GOVERNMENT AS PER THE GUID ELINES ISSUED AND VIDE APPROVAL LOP NO.1/44/2003: PER:EOU:KR:CSEZ DT. 21.11.2003. THAT THE EOU WAS SET UP IN THE YEAR 2004-05 AND FIR ST TIME DEDUCTION U/S. 10B OF THE INCOME TAX ACT WAS CLAIMED FOR THE A.Y.2 005-06 AND IN SUBSEQUENT YEARS AND HOW THE SAME WAS ALLOWED BY TH E ITAT. THE ASSESSEE POINTED THAT THE PRESUMPTION DRAWN BY THE AO THAT PURCHASES- ITA NO. 1152 TO 1154/BANG/11 & 533/BANG/12 PAGE 7 OF 28 ROM AS REFLECTED IN THE PROFIT AND LOSS ACCOUNT WA S PURELY TRADING TURNOVER AND THAT THE SAID PURCHASES WERE DIRECTLY SOLD WITHOUT UNDERGOING THE PROCESS OF MANUFACTURE OR BY ANY VALUE ADDITION OR WITHOUT UNDERGOING THROUGH ANY PROCESS WAS INCORRECT. THE BROUGHT TO THE NOTICE OF THE AO THAT PURCHASES - ROM AS REFLECTED IN PROFIT AND L OSS ACCOUNT IS NOT A PURCHASE OF FINISHED PRODUCT BUT ACTUALLY REPRESENT S THE RAW MATERIAL CONSUMED FOR THE MANUFACTURE OF THE IRON ORE. THE ASSESSEE HIGHLIGHTED THAT IN ADDITION TO THE IRON ORE MANUFACTURED (EXTR ACTED) OUT OF ITS OWN MINE WHICH THE ASSESSEE OWNS BY WAY OF LEASEHOLD RIGHTS THE ASSESSEE PROCURED RAW MATERIALS FROM OUTSIDE AND MANUFACTURE D THE SAME IN THE EOU PLANT AND EXPORTED THE SAME AS PER REQUIREMENT. THE ASSESSEE POINTED OUT THAT EVEN THE APPROVAL GRANTED BY THE C ENTRAL GOVERNMENT THROUGH COCHIN SPECIAL ECONOMIC ZONE DOES NOT PUT A NY RESTRICTION ON BUYING OF RAW MATERIALS FROM OUTSIDE AND GETTING TH E SAME MANUFACTURED AND EXPORTED. THE ASSESSEE SUBMITTED THAT IT HAD PU RCHASED RAW MATERIALS WORTH RS. 4.34 CRORES (APPROX) AND THE SAME HAS BEE N REFLECTED IN THE DAILY ROM REGISTER AND HAS BEEN TRANSFERRED FOR MANUFACTU RING CLEARLY REFLECTING IN THE ROM FEED FOR PRODUCTION REGISTER AND FINALLY HAVE BEEN SHOWN THE PRODUCTION REGISTER ALSO. THE ASSESSEE EXPLAINED THAT ROM IS BASICALLY PURCHASE OF REQUIRED OF RAW MATERIAL IN THE FORM OF RUN OF MINES (ROM) OUT OF WHICH THE VARIOUS GRADES OF IRON ORE FINES A ND LUMPS ARE MANUFACTURED IN THE EOU PLANT TO MATCH THE REQUIRE D GRADE OF REQUIRED QUALITY. THE ASSESSEE SUBMITTED THAT THE PURCHASED ROM WAS NEVER SOLD ITA NO. 1152 TO 1154/BANG/11 & 533/BANG/12 PAGE 8 OF 28 AS IT WAS PURCHASED AND EACH AND EVERY PURCHASE OF ROM I.E., RAW MATERIALS HAS BEEN PUT THROUGH THE PLANT FOR MANUFA CTURING AND IT IS THE FINISHED GOODS OF VARIOUS GRADES WHICH HAS BEEN EXP ORTED. IT WAS HIGHLIGHTED THAT ROM DOES NOT HAVE ANY EXPORT OR RE ADYMADE MARKET, IT HAS TO BE SUBJECTED TO THE VARIOUS MANUFACTURING PR OCESS TO OBTAIN IRON ORE FINES / LUMPS WHICH ARE ULTIMATELY MARKETED. THE A SSESSEE SUBMITTED THAT IT MAINTAINED RECORDS REQUIRED BY CUSTOMS AUTHORITI ES WHICH WOULD ALSO SHOW CLEARLY THAT THE PURCHASED ROM HAS BEEN FED IN TO THE PRODUCTION PLANTS TO OBTAIN THE FINAL PRODUCT. THE ASSESSEE ALSO PRODUCED BEFORE THE AO THE FOLLOWING RECORDS MAINTAINED TO ESTABLISH TH AT ROM ACTUALLY GOT CONVERTED INTO FINISHED PRODUCT BY A PROCESS OF MAN UFACTURE: A. DAILY ROM ARRIVAL REGISTER B. DAILY ROM FEED PRODUCTION REGISTER C. PRODUCTION REGISTER. D. DAILY FINISHED STOCK REGISTER . THE ASSESSEE THUS SUBMITTED THAT THE DISALLOWANCE P ROPOSED ON ALLEGED GROUND OF TRADING TURNOVER WAS WITHOUT ANY BASIS. 9. THE AO ON RECEIPT OF THE AFORESAID REPLY BY THE ASSESSEE POSED THE QUESTION AS TO WHAT IS MANUFACTURE OR PRODUCTION CO NTEMPLATED BY SECTION 10B(2) OF THE ACT. HE CONCLUDED THAT TO CALL AN AC TIVITY AS MANUFACTURE OR PRODUCTION, THERE SHOULD BE A CLEAR DIFFERENCE BETW EEN THE INPUT AND OUTPUT AND THAT THE ASSESSEE SHOULD BRING NEW THING INTO E XISTENCE FROM ITS RAW ITA NO. 1152 TO 1154/BANG/11 & 533/BANG/12 PAGE 9 OF 28 MATERIAL OR ELEMENTS AS A RESULT OF PROCESS. THERE AFTER THE AO ANALYSED THE VARIOUS PURCHASES MADE BY THE ASSESSEE APART FR OM IRON ORE EXTRACTED BY THE ASSESSEE FROM ITS OWN MINE. FROM AN ANALYSI S OF THE PURCHASE BILLS, THE AO FOUND THAT THE FE CONTENT OF SOME OF THE ROM WAS 61.52%. THE AO THEREFORE CONCLUDED THAT THE IMPUGNED PURCHASE B Y THE ASSESSEE WAS OF IRON ORE AND NOT ROM. SIMILARLY, THE AO EXAMINE D SOME OF THE SALES MADE BY THE ASSESSEE AND HE FOUND THAT FE CONTENT O F THE IRON ORE WAS BETWEEN 60.60 TO 60.77%. FROM THE ABOVE, THE AO CO NCLUDED THAT THE FE CONTENT OF IRON ORE BETWEEN THE PURCHASE AND SALE D ID NOT CONTAIN ANY VALUE ADDITION, THEREBY PROVING THE CASE OF THE REV ENUE THAT THERE WAS NO MANUFACTURE OR PRODUCTION OF ARTICLE OR THING, INSO FAR AS IT RELATES TO PURCHASES OF IRON ORE MADE BY THE ASSESSEE, IN CONT RA-DISTINCTION TO IRON ORE EXTRACTED BY THE ASSESSEE FROM ITS OWN MINE. B ASED ON THE ABOVE ANALYSIS, THE AO CAME TO THE CONCLUSION THAT THE AS SESSEE DID NOT PURCHASE ROM, BUT PURCHASED ONLY IRON ORE FINES AND THAT THE ASSESSEE DOES NOT CARRY OUT ANY MANUFACTURE OR PRODUCTION AC TIVITY, AS THERE WAS NO VALUE ADDITION TO THE PURCHASES OF IRON ORE BEFORE ITS EXPORT. THE ASSESSEE HAD PRODUCED VARIOUS RECORDS MAINTAINED AS PER THE CUSTOMS ACT BEFORE THE AO. ON THE ABOVE SUBMISSION, THE AO HELD THAT THE CUSTOMS AUTHORITIES DO NOT CARRY OUT INSPECTION AND THAT TH E RECORD MAINTAINED BY THE ASSESSEE IS PURELY AN INTERNAL REGISTER. HE AL SO HELD THAT THE EVIDENCE BROUGHT OUT BY THE ASSESSEE WOULD SHOW THAT THERE W AS NO MANUFACTURE OR PRODUCTION. THE AO ALSO ANALYSED THE MONTHLY REPOR TS FILED BY THE ITA NO. 1152 TO 1154/BANG/11 & 533/BANG/12 PAGE 10 OF 28 ASSESSEE BEFORE THE INDIAN BUREAU OF MINES WHEREIN THE PRODUCTION OF MARKETABLE DESIRABLE QUALITY OF 2,44,589 TONS WAS R EPORTED BY THE ASSESSEE, WHEREAS THE EXPORT OF EOU UNIT WAS CLAIME D AT 3,18,150 TONS. THE AO ALSO GAVE A FINDING THAT REMOVING IMPURITIES AND GRADING BASED ON SIZE DOES NOT AMOUNT TO MANUFACTURE OR PRODUCTION. THIS FINDING OF THE AO IS CONTRARY TO THE AOS FINDING THAT THERE WAS NO M ANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING. IN THIS REGARD, THE AO AL SO OBTAINED THE DETAILS OF THE PROCESS DONE BY THE ASSESSEE AND GAVE HIS FINDI NG ON THE SAME AS FOLLOWS:- 11.3 FROM THE ABOVE LIST OF STEPS INVOLVED, IT IS CLEAR THAT THE FUNCTION OF THE PLANT WAS TO REMOVE IMPURI TIES FROM THE ORE AND TO SIMULTANEOUSLY SEGREGATE THE OR ES ON THE BASIS OF THE SIZE. THE IRON ORE REMAINED COMMERCIALLY THE SAME COMMODITY WITHOUT CHANGE IN THE COMMERCIAL NOMENCLATURE OF THE PRODUCT. HENCE THE ASSESSEE IS NOT ENTITLED TO SPECIAL DEDUCTION U NDER 10B IN RESPECT OF THE PROFIT ARISING FROM THE PURCH ASE TURN OVER. THE ASSESSEE IS NOT ENTITLED TO DEDUCTIO N UNDER S. 10B IN RESPECT OF THIS PROFIT FROM TRADING ACTIVITY . THE PROCESS OF GRADING, REMOVING IMPURITIES AND SIZING OF THE ORE WAS NOT TANTAMOUNT TO MANUFACTURE OR PRODUCTION OF A NEW ARTICLE OR COMMODITY SO AS TO Q UALIFY FOR THE BENEFIT ADMISSIBLE UNDER SECTION 10B OF THE ACT . THE PROCESS UNDERTAKEN BY THE ASSESSEE IN RESPECT OF TH E PURCHASED IRON ORE DOES NOT AMOUNT TO MANUFACTURE O R PRODUCTION OF ANY ARTICLE COMMERCIALLY DIFFERENT FR OM THE ONE WHICH WAS SUBJECTED TO SUCH PROCESS FOR THE BEN EFIT CLAIMED BY THE ASSESSEE. 11.4 THE SAID PROCESSES DONE BY THE ASSESSEE CANNO T BE TREATED TO BE A MANUFACTURING PROCESS AND ALSO AS I T CAN NOT BE DEEMED TO BE A PROCESS OF PRODUCTION OF A COMMERCIALLY SALEABLE COMMODITY DIFFERENT FROM THE ONE WHICH WAS EARLIER TO THE SAID PROCESS WHOLLY UNSALE ABLE. ITA NO. 1152 TO 1154/BANG/11 & 533/BANG/12 PAGE 11 OF 28 10. FOR THE ABOVE REASONS, THE AO RESTRICTED THE C LAIM OF THE ASSESSEE TO DEDUCTION U/S. 10B OF THE ACT TO RS.19,82,20,958 AS AGAINST THE CLAIM WHICH WAS ORIGINALLY ALLOWED AT RS.21,33,00,869. A GGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED APPEAL BEFORE THE CI T(A). 11. AMONGST OTHER GROUNDS, THE ASSESSEE ALSO RAISED A GROUND REGARDING VALIDITY OF INITIATION OF REASSESSMENT PR OCEEDINGS U/S. 147 OF THE ACT. WITH REGARD TO THE AFORESAID GROUND REGARDING VALIDITY OF INITIATION OF REASSESSMENT PROCEEDINGS, IT TRANSPIRED THAT IN THE COURSE OF SCRUTINY PROCEEDINGS FOR THE A.Y. 2007-08, THE AO OBSERVED T HAT APART FROM EXTRACTING IRON ORE FROM ASSESSEES OWN MINE AND PR OCESSING THE SAME BEFORE EXPORT, THE ASSESSEE WAS ALSO PURCHASING IRO N ORE FINES. ACCORDING TO THE AO, PURCHASE OF IRON ORE MADE WAS DIRECTLY E XPORTED WITHOUT ANY PROCESSING AND IT WAS ONLY A TRADING ACTIVITY FOR W HICH DEDUCTION U/S. 10B OF THE ACT CANNOT BE CLAIMED. THE AO THEREFORE CLAIME D THAT HE HAD REASON TO BELIEVE THAT TAXABLE INCOME HAS ESCAPED ASSESSME NT AND THEREFORE ISSUED NOTICE U/S. 148 OF THE ACT FOR MAKING AN ASS ESSMENT U/S. 147. THE ASSESSEE RELIED ON THE CASE OF HONBLE DELHI HIGH C OURT IN THE CASE OF CIT V. JAGSON INTERNATIONAL LTD. 321 ITR 544 WHEREIN IT WAS HELD THAT WITHOUT NEW INFORMATION COMING TO THE POSSESSION OF THE AO, HE CANNOT ON A MERE CHANGE OF OPINION RESORT TO THE PROVISIONS O F SECTION 147 OF THE ACT. ITA NO. 1152 TO 1154/BANG/11 & 533/BANG/12 PAGE 12 OF 28 12. ON THE ABOVE SUBMISSION MADE BY THE ASSESSEE BE FORE THE CIT(A), THE LD. CIT(A) HELD THAT THE ENTIRE INFORMATION REG ARDING PURCHASE OF ROM WAS VERY MUCH AVAILABLE WHEN THE AO COMPLETED THE O RIGINAL ASSESSMENT U/S. 143(3) OF THE ACT AND THAT NO NEW INFORMATION WAS AVAILABLE WITH THE AO FOR RESORTING TO REASSESSMENT PROCEEDINGS. THE LD. CIT(A) THEREFORE HELD THAT INITIATION OF REASSESSMENT PROCEEDINGS WE RE INVALID. 13. ON MERITS OF THE ADDITION MADE BY THE AO, THE C IT(A) CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE AO. TH E ASSESSEE APART FROM REITERATING THE CONTENTIONS AS PUT FORTH BEFOR E AO ALSO CONTENDED BEFORE CIT(A) THAT THE AO HAS REFERRED IN HIS ORDE R TO CERTAIN GRADES OF PURCHASES AS WELL AS SALES GIVING CERTAIN DETAILS F ROM THE INVOICES, BUT FAILED TO APPRECIATE THAT THE GRADES GIVEN IN THE I NVOICES ARE ONLY INDICATIVE AND ARE PURELY BASED ON GUIDELINES GIVEN BY DEPARTM ENT OF MINES AND GEOLOGY FOR THE PURPOSE OF ASSESSMENT OF ROYALTY FR OM THE RESPECTIVE MINES. THE ASSESSEE POINTED OUT BEFORE CIT(A) THAT NONE OF THE PURCHASED ROM GRADES IN MATCHED WITH THE EXPORT GRA DES. THE ASSESSEE ALSO HIGHLIGHTED THAT THE RETURNS FILED BEFORE THE INDIAN BUREAU OF MINES (IBM) DO NOT REFLECT THE PRODUCTION OUT OF PURCHASE D ORE AND THAT IT REFLECTED THE EXCAVATION OF MINERALS BY THE ASSESSEE IN ITS O WN MINE AND THE ULTIMATE PRODUCTION BY THE ASSESSEE WHICH INCLUDES PURCHASES OF ROM EFFECTED BY THE ASSESSEE FOR MANUFACTURING FROM OTH ERS. ITA NO. 1152 TO 1154/BANG/11 & 533/BANG/12 PAGE 13 OF 28 14. ON A CONSIDERATION OF THE ABOVE SUBMISSIONS BY THE ASSESSEE, THE LD. CIT(APPEALS) GAVE THE FOLLOWING FINDINGS:- (A) THAT THE MAJOR SOURCE OF RAW MATERIAL FOR PRO DUCING IRON ORE THAT WAS ULTIMATELY SOLD BY THE ASSESSEE WAS EXTRACTED BY TH E ASSESSEE FROM ITS OWN MINE AND THAT 93% OF THE IRON ORE SOLD BY THE ASSESSEE THE SOURCE OF RAW MATERIAL IS FROM ASSESSEES OWN MINE. (B) PURCHASE OF RUN OF MINES (ROM) TO THE EXTENT OF RS.4,33,69,493/- AGAINST A TOTAL TURNOVER OF 61.34 CRORES WAS FROM O UTSIDERS. (C) THERE WAS NO PROHIBITION FOR THE ASSESSEE TO PROCURE RAW MATERIAL FROM OUTSIDE AND USE THEM FOR MANUFACTURE OF IRON O RE. (D) THE REGISTERS MAINTAINED CLEARLY ESTABLISHED THE FACT THAT THE PURCHASE OF ROM WERE TRANSFERRED FOR MANUFACTURING ACTIVITY AND ULTIMATELY RECORDED IN THE PRODUCTION REGISTER ALSO . (E) SUCH RECORDS/REGISTERS MAINTAINED BY THE ASSES SEE PROVED THAT THE PURCHASE OF ROM AFTER HAVING UNDERGONE VARIOUS PROC ESSES IS CLASSIFIED INTO IRON ORE FINES AND LUMPS TO MATCH T HE REQUIRED GRADE FOR EXPORTS. (F) THE INPUT IS RUN OF THE MINES RAW MATERIALS A ND OUTPUT IS IRON ORE FINES AND LUMPS. ITA NO. 1152 TO 1154/BANG/11 & 533/BANG/12 PAGE 14 OF 28 (G) ROM ITSELF DOES NOT HAVE EXPORT OR READY MADE MARKET AND ONLY AFTER PROCESSING AND MANUFACTURING IRON ORE FINES/L UMPS. IT BECOMES FIT ENOUGH FOR EXPORT. (H) THE RECORDS MAINTAINED FOR THE PURPOSES OF T HE REQUIREMENT OF THE CUSTOMS AUTHORITIES ALSO INDICATE THAT IT IS A MANU FACTURED PRODUCT. EACH OF THE PURCHASES OF ROM IS RECORDED IN DAILY R OM ARRIVAL REGISTER AND ROUTED TO DAILY ROM FEED PRODUCTION RE GISTER, PRODUCTION REGISTER AND THE DAILY FINISHED STOCK RE GISTER AND IS A PART OF THE PRODUCTION REGISTER. (I) THE A.OS FINDING THAT IT IS NOT ROM PURCHASE S AND IT IS FINES OF IRON ORE IS CONTRADICTED BY HIS OWN FINDING IN PARA 11.8 AND 11.9 WHEREIN HE HAS CONCLUDED THAT IT ROM HAS UNDERGONE PROCESSE S LIKE SIZING, GRADING, REMOVAL OF IMPURITIES ETC. IN POINT NO.2 OF PARA 9.3, THE A.O. SAYS THAT THE ASSESSEE DOES NOT DO ANY PROCESS ING AND IN PARA 3 HE CONCLUDES THAT THERE IS NO VALUE ADDITION BUT IN PARA 11.8, HE SAYS THAT THERE WAS VALUE ADDITION WHEREIN HE HAS S TATED AS UNDER (4TH LINE) :- VALUE ADDITION THEREFORE DOES NOT BY ITSELF CONSTITUTE PRODUCTION OR MANUFACTURE LIKEWISE IN POINT NO.4, THE A.O. SAYS THAT THERE IS NO TRANSFORMATION OF RAW MATERIALS/BASIC MATERIAL/SEMI FINISHED ARTICLES TO FINISHED GOODS AND IN PARA 11.9 THE A.O SAYS THAT ITA NO. 1152 TO 1154/BANG/11 & 533/BANG/12 PAGE 15 OF 28 THE FACT THAT THE IRON ORE IS SUBJECTED TO THE PRO CESS OF SIZING, REMOVING IMPURITIES AND GRADING MADE THEREFORE AT B EST BE SAID TO BE A PROCESS BUT NOT A PROCESS WHICH RESULTS IN ANY PRODUCTION OR MANUFACTURE. ALL THESE FACTS, ACCO RDING TO CIT(A), ONLY GO TO SHOW THAT THE PURCHASED GOODS HA VE UNDERGONE PROCESS OF SIZING, REMOVING IMPURITIES AN D GRADING AND EVEN IN A CASE OF EXTRACTION AND PROCESSING OF ORE WAS CONSIDERED AS PRODUCTION AND THE HONBLE SUPREME COURT IN THE CASE OF CIT VS SESA GOA LTD REPORTED IN 271 ITR 331 (S.C..) HAS HELD THAT EXTRACTION AND PROCESSING OF MINERAL ORE AMOUNTS TO PRODUCTION WITHIN THE MEANING OF THE WORD IN S ECTION 32A(2)(B)(III) OF THE I T ACT 1961. (J) FINALLY, THE CIT(A) ALSO RELIED ON THE FINDIN GS OF THE ITAT IN ASSESSEES OWN CASE FOR THE VERY SAME YEAR I.E. A.Y . 2005-06 VIDE ITA NO.527/BANG/2009 FOR A.Y. 2005-06 DATED 09 .10.2009, WHICH WE HAVE ALREADY REFERRED TO IN THE EARLIER PA RT OF THIS ORDER. FOR ALL THE ABOVE REASONS, THE CIT(A) WAS OF THE VIEW THAT THE A.O. WAS NOT CORRECT IN CURTAILING DEDUCTION U/ S.10B OF THE ACT TO THE EXTENT OF 1,50,79,911/-. THE CIT(A) AC CORDINGLY DIRECTED THE AO TO ALLOW DEDUCTION U/S L0B HIGHER B Y A SUM OF RS.1,50,79,911/-. ITA NO. 1152 TO 1154/BANG/11 & 533/BANG/12 PAGE 16 OF 28 15. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVEN UE HAS RAISED GROUNDS 2 TO 5 BEFORE US. WITH REGARD TO THE CHALL ENGE OF INITIATION OF REASSESSMENT PROCEEDINGS U/S. 147 OF THE ACT, THE L D. DR SUBMITTED THAT THE AO IN THE COURSE OF SCRUTINY PROCEEDINGS U/S. 1 43(3) FOR THE A.Y. 2007- 08 NOTICED THE FACT THAT APART FROM OWN MINING, THE ASSESSEE WAS ALSO PURCHASING IRON ORE AND THIS WAS THE REASON WHY THE AO RESORTED TO REASSESSMENT PROCEEDINGS. ACCORDING TO HIM, THE AO WAS JUSTIFIED IN INITIATING REASSESSMENT PROCEEDINGS. 16. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. D R AND ARE OF THE VIEW THAT THE FACT THAT THE ASSESSEE WAS EXTRACTING IRON ORE FROM ITS OWN MINE AS WELL AS PURCHASING IRON ORE FROM OUTSIDE AN D BOTH THE QUANTITIES OF IRON ORE WERE BEING PROCESSED BEFORE THE EXPORT. T HIS FACT IS ALREADY AVAILABLE ON RECORD. THE FACT THAT THE AO DID NOT LOOK INTO THE SAME CANNOT BE THE BASIS TO INITIATE REASSESSMENT PROCEEDINGS U /S. 147 OF THE ACT. IF THE AO IS PERMITTED TO HAVE RECOURSE TO SECTION 147, IN SUCH CIRCUMSTANCES THAT WOULD BE GIVING A POWER OF REVIEW TO THE AO, W HICH IS NOT PERMISSIBLE. IN FACT, NO NEW MATERIAL CAME TO THE POSSESSION OF THE AO BASED ON WHICH THE AO ENTERTAINED A BELIEF REGARDING ESCAPEMENT OF INCOME. WE ARE THEREFORE OF THE VIEW THAT THE CIT(A) WAS FULLY JUS TIFIED IN HOLDING THAT INITIATION OF REASSESSMENT PROCEEDINGS WERE NOT VAL ID. CONSEQUENTLY GROUND NO.2 RAISED BY THE REVENUE IS DISMISSED. ITA NO. 1152 TO 1154/BANG/11 & 533/BANG/12 PAGE 17 OF 28 17. AS FAR AS THE QUESTION WHETHER THE ASSESSEE WAS ONLY EXPORTING PURCHASED IRON ORE OR WAS PURCHASING ROM AND PROCES SING THE SAME BEFORE ITS EXPORT, THE AO STARTED WITH THE PRESUMPT ION THAT WHAT THE ASSESSEE PURCHASED WAS IRON ORE FINES AND NOT ROM. THIS PRESUMPTION OF THE AO IS WITHOUT ANY BASIS. THE ONLY BASIS AS ST ATED BY THE AO IN THE ORDER OF ASSESSMENT IS THE FACT THAT THE FE CONTENT OF IRON ORE IN THE QUANTITY PURCHASED ALMOST TALLIED WITH THE FE CONTE NT OF THE IRON ORE THAT WAS ULTIMATELY SOLD. THIS CANNOT BE A VALID BASIS TO CONCLUDE THAT THE ASSESSEE PURCHASED IRON ORE AND SOLD THEM, ESPECIAL LY IN THE LIGHT OF THE FACT THAT THE MOVEMENT OF THE ROM FROM ITS ARRIVAL ON PURCHASE TILL THE ULTIMATE OUTPUT AFTER PROCESSING IS DULY EVIDENCED BY RECORDS. THE AO IGNORED THESE RECORDS BASED ON WHICH ANNUAL RETURNS WERE FILED BY THE ASSESSEE WITH THE CUSTOMS DEPARTMENT ONLY ON THE BA SIS THAT REGISTERS MAINTAINED BY THE ASSESSEE WERE ITS OWN REGISTERS A ND HAD NOT BEEN INSPECTED BY THE CUSTOMS AUTHORITIES. IN OUR VIEW, THE CONCLUSIONS DRAWN BY THE AO IGNORING THE EVIDENCES ON RECORD CANNOT B E SUSTAINED. IN FACT THERE IS NO EVIDENCE BROUGHT ON RECORD BY THE AO TO SHOW THAT WHAT THE ASSESSEE PURCHASED WAS NOT ROM BUT ONLY IRON ORE FI NES. HAVING MADE A WRONG ASSUMPTION AS ABOVE, THE AO PROCEEDED TO ANAL YSE THE QUESTION AS TO WHAT WOULD CONSTITUTE MANUFACTURE OR PRODUCTION OF ARTICLE OR THING. AS RIGHTLY HELD BY THE LD. CIT(A), THE AO HAS CONTRADI CTED HIMSELF BY GIVING A FINDING THAT EVEN IN RESPECT OF THE PURCHASES MADE BY THE ASSESSEE, THERE WAS A VALUE ADDITION, BUT SUCH VALUE ADDITION, ACCO RDING TO THE AO, DID NOT ITA NO. 1152 TO 1154/BANG/11 & 533/BANG/12 PAGE 18 OF 28 AMOUNT TO MANUFACTURE OR PRODUCTION. IN OUR VIEW, THE FINDINGS OF THE LD. CIT(A) THAT THE INPUT WAS ROM AND OUTPUT WAS IRON O RE FINES IS CORRECT AND IS BASED ON THE RECORDS MAINTAINED BY THE ASSESSEE. THE CIRCUMSTANCES POINTED OUT BY THE CIT(A) IN COMING TO THE CONCLUSI ON THAT THE ASSESSEE WAS ENGAGED IN PRODUCTION OR MANUFACTURE OF IRON OR E IN RESPECT OF THE PURCHASES MADE BY THE ASSESSEE, IN OUR VIEW, DOES N OT CALL FOR ANY INTERFERENCE. IN FACT, THE FINDINGS OF THE TRIBUNA L IN ASSESSEES OWN CASE ON THE SAME ISSUE WHICH HAS BEEN ACCEPTED BY THE REVEN UE WOULD CLEARLY SHOW THAT THE CONCLUSIONS DRAWN BY THE AO IN THE OR DER U/S. 147 OF THE ACT ARE UNSUSTAINABLE. IN OUR VIEW, THERE ARE NO GROUN DS MADE OUT FOR INTERFERING WITH THE ORDER OF THE LD. CIT(A). CONS EQUENTLY GROUNDS NO.2 TO 5 RAISED BY THE REVENUE ARE DISMISSED. 18. GROUND NO.6 RAISED BY THE REVENUE IS WITH REGAR D TO THE COMPUTATION OF DEDUCTION U/S. 10B OF THE ACT. 19. THE AO NOTICED THAT THE ASSESSEE HAD INCURRED T RAVELLING EXPENSES OF RS.5,55,808 AND SUPERVISION CHARGES OF RS.15,30, 870 IN FOREIGN CURRENCY. THE AO WAS OF THE VIEW THAT THE EXPENSES INCURRED IN FOREIGN CURRENCY SHOULD BE EXCLUDED FROM THE EXPORT TURNOVE R IN VIEW OF THE DEFINITION OF EXPORT TURNOVER AS CONTAINED IN EXPLA NATION 2(III) OF THE ACT, WHICH LAYS DOWN THAT EXPORT TURNOVER MEANS CONSID ERATION IN RESPECT OF EXPORT OF ARTICLES OR THINGS BROUGHT INTO INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE, BUT DOES NOT INCLUDE FREIGHT, TEL ECOMMUNICATION CHARGES ITA NO. 1152 TO 1154/BANG/11 & 533/BANG/12 PAGE 19 OF 28 OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF ARTICL ES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES INCURRED IN FORE IGN EXCHANGE IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. THE A O ACCORDINGLY EXCLUDED FROM THE EXPORT TURNOVER THE AFORESAID ITEMS OF EXP ENSES AND COMPUTED DEDUCTION U/S. 10B AS FOLLOWS:- 12.3 FURTHER, ON CALLING FOR THE DETAILS, IT W AS STATED BY THE ASSESSEE THAT THESE EXPENSES WERE INCURRED IN R ESPECT OF EOU. THE SAME WAS VERIFIED. AFTER DUE VERIFICATI ON, THE ABOVE TWO ITEMS ARE REDUCED FROM THE VALUE OF EXPOR T TURNOVER. EXPORT TURNOVER = ETO AS DECLARED BY THE ASSESSEE (-) TRAVELLING EXPENSES (-) SUPERVISION CHARGES INCURRED IN FOREIGN CURRENCY. = 61,22,23,629 5,55,808 15,30,870 = 61,01,36,951 HENCE, THE CLAIM OF DEDUCTION U/S 10B IS COMPUTED A S UNDER: DEDUCTION U/S 10B = ADJUSTED PROFIT OF THE BUSINESS X ETO/TTO = 19,82,20,958 X 61,01,36,951 / 61,34,48,619 12.4 DIFFERENCE BETWEEN THE CLAIM OF DEDUCTION MAD E ORIGINALLY AMOUNTING TO RS.21,33,00,869/- AND THE A CTUAL ELIGIBLE CLAIM OF RS. 197,150,873/- WHICH IS AMOUNT ING TO RS.16,149,996/- IS CONSIDERED AS EXCESSIVE AND UNREASONABLE CLAIM OF DEDUCTION MADE BY THE ASSESSE E AND THE SAME IS DISALLOWED AND ADDED BACK TO THE TO TAL TAXABLE INCOME OF THE ASSESSEE. (ADDITION MADE: RS. 1,61,49,996/-) ITA NO. 1152 TO 1154/BANG/11 & 533/BANG/12 PAGE 20 OF 28 20. THE CIT(A) HOWEVER HELD THAT WHATEVER IS EXCLUD ED IN EXPORT TURNOVER SHOULD ALSO BE EXCLUDED FROM THE TOTAL TUR NOVER AND IF SO DONE, THERE WILL BE NO EFFECT IN THE DEDUCTION U/S. 10B O F THE ACT. IN COMING TO THE AFORESAID CONCLUSION, THE LD. CIT(A) RELIED ON THE DECISION OF THE SPECIAL BENCH OF THE ITAT IN THE CASE OF SAK SOFT 313 ITR 353 (AT) . 21. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE REVENUE HAS RAISED GROUND NO.6 BEFORE THE TRIBUNAL. 22. THE ISSUE RAISED BY THE REVENUE HAS BEEN DECIDE D BY THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF TATA ELXSI LTD. 349 ITR 98 (KAR) WHEREIN A VIEW HAS BEEN TAKEN THAT WHATEVER IS EXCL UDED FROM EXPORT TURNOVER SHOULD ALSO BE EXCLUDED FROM THE TOTAL TUR NOVER. IN VIEW OF THE AFORESAID DECISION OF THE HONBLE HIGH COURT OF KAR NATAKA, WE ARE OF THE VIEW THAT THERE IS NO MERIT IN THE GROUND NO.6 RAIS ED BY THE REVENUE. CONSEQUENTLY THE SAME IS DISMISSED. 23. GROUND NO.7 RAISED BY THE REVENUE READS AS FOLL OWS:- THE CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT ADDITIONAL DEPRECIATION IS ALLOWABLE ONLY ON NEW PLANT OR MACH INERY INCLUDED IN THE SCHEDULE AND NOT ON WINDMILLS ENGAG ED IN POWER GENERATION. 24. IN THE COURSE OF SCRUTINY ASSESSMENT PROCEEDING S, THE AO NOTICED THAT THE ASSESSEE HAD CLAIMED ADDITIONAL DEPRECIATI ON OF RS.1,75,50,000 ON ITA NO. 1152 TO 1154/BANG/11 & 533/BANG/12 PAGE 21 OF 28 WINDMILLS. PROVISIONS OF SEC.32 OF THE ACT ALLOWS DEPRECIATION AS A DEDUCTION WHILE COMPUTING TOTAL INCOME. IT PROVIDE S AS FOLLOWS: SEC.32: DEPRECIATION. (1) IN RESPECT OF DEPRECIATION OF- (I) BUILDINGS, MACHINERY, PLANT OR FURNITURE, BEING TANGIBLE ASSETS; (II) KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LI CENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMIL AR NATURE, BEING INTANGIBLE ASSETS, ACQUIRED ON OR AFTER THE 1ST DAY OF APRIL, 1998, OWNED, WHOLLY OR PARTLY, BY THE ASSESSEE AND USED F OR THE PURPOSES OF THE BUSINESS OR PROFESSION, THE FOLLOWING DEDUCT IONS SHALL BE ALLOWED (I) IN THE CASE OF ASSETS OF AN UNDERTAKING ENGAGED IN GENERATION OR GENERATION AND DISTRIBUTION OF POWER, SUCH PERCENTA GE ON THE ACTUAL COST THEREOF TO THE ASSESSEE AS MAY BE PRESCRIBED; (II) IN THE CASE OF ANY BLOCK OF ASSETS, SUCH PERCE NTAGE ON THE WRITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED : THE FINANCE ACT, 2002, WITH EFFECT FROM 1ST APRIL, 2002 HAS INSERTED A NEW SUB-CLAUSE (IIA) IN SUB-SECTION (1) OF SECTION 32 T O PROVIDE THAT IN THE CASE OF ANY NEW MACHINERY OR PLANT (OTHER THAN SHIPS AND AIRCRAFT), WHICH HAS BEEN ACQUIRED AND INSTALLED AFTER THE 31ST DAY OF M ARCH, 2002, BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING, A FURTHER SUM EQUAL TO FIFTEEN PE R CENT OF THE ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTI ON UNDER CLAUSE (II). SUCH FURTHER DEDUCTION OF FIFTEEN PER CENT SHALL BE ALLOWED TO A NEW INDUSTRIAL UNDERTAKING DURING ANY PREVIOUS YEAR IN WHICH SUCH UNDERTAKING BEGINS TO MANUFACTURE OR TO PRODUCE ANY ARTICLE OR THING ON OR AFTER THE 1ST ITA NO. 1152 TO 1154/BANG/11 & 533/BANG/12 PAGE 22 OF 28 DAY OF APRIL, 2002, OR TO ANY INDUSTRIAL UNDERTAKIN G EXISTING BEFORE THE 1ST DAY OF APRIL, 2002, DURING ANY PREVIOUS YEAR IN WHI CH IT ACHIEVES THE SUBSTANTIAL EXPANSION BY WAY OF INCREASE IN INSTALL ED CAPACITY BY NOT LESS THAN TWENTY-FIVE PER CENT. 25. AS CAN BE SEEN FROM THE ABOVE, ADDITIONAL DEPR ECIATION IS ALLOWED ONLY ON PLANT AND MACHINERY WHICH HAS BEEN ACQUIRE D AND INSTALLED AFTER THE 31ST DAY OF MARCH, 2002, BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING, A FURTHER SUM EQUAL TO FIFTEEN PER CENT OF THE ACTUAL COST OF SUCH MACHINE RY OR PLANT SHALL BE ALLOWED AS DEDUCTION UNDER CLAUSE (II). THE WINDMI LL IN RESPECT OF WHICH THE ASSESSEE CLAIMED DEPRECIATION FALLS WITHIN THE PROV ISIONS OF SEC.32(1)(I) I.E., BUSINESS OF GENERATION OF POWER AND NOT SEC.3 2(1)(II) OF THE ACT. THEREFORE PRIMA FACIE THE CLAIM FOR ADDITIONAL DEPR ECIATION ON WINDMILL IS NOT ADMISSIBLE. HOWEVER RULE 5 OF THE INCOME TAX RULES GIVES OPTION TO THE ASSESSEE TO WHICH SEC.32(1)(I) APPLIES TO OPT FOR B EING GOVERNED BY RATES OF DEPRECIATION APPLICABLE TO AN ASSESSEE U/S.32(1) (II) OF THE ACT. THESE RULES READ THUS: RULE5. (1) SUBJECT TO THE PROVISIONS OF SUB-RULE ( 2), THE ALLOWANCE UNDER CLAUSE (II) OF SUB-SECTION (1) OF S ECTION 32 IN RESPECT OF DEPRECIATION OF ANY BLOCK OF ASSETS S HALL BE CALCULATED AT THE PERCENTAGES SPECIFIED IN THE SECO ND COLUMN OF THE TABLE IN APPENDIX I TO THESE RULES ON THE WRITTEN DOWN VALUE OF SUCH BLOCK OF ASSETS AS ARE U SED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION OF THE A SSESSEE AT ANY TIME DURING THE PREVIOUS YEAR. ITA NO. 1152 TO 1154/BANG/11 & 533/BANG/12 PAGE 23 OF 28 (1A) THE ALLOWANCE UNDER CLAUSE (I) OF SUB-SECTION (1) OF SECTION 32 OF THE ACT IN RESPECT OF DEPRECIATION OF ASSETS ACQUIRED ON OR AFTER 1ST DAY OF APRIL, 1997 SHALL B E CALCULATED AT THE PERCENTAGE SPECIFIED IN THE SECON D COLUMN OF THE TABLE IN APPENDIX IA OF THESE RULES O N THE ACTUAL COST THEREOF TO THE ASSESSEE AS ARE USED FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE AT ANY TIM E DURING THE PREVIOUS YEAR: PROVIDED THAT THE AGGREGATE DEPRECIATION ALLOWED IN RESPECT OF ANY ASSET FOR DIFFERENT ASSESSMENT YEARS SHALL N OT EXCEED THE ACTUAL COST OF THE SAID ASSET: PROVIDED FURTHER THAT THE UNDERTAKING SPECIFIED IN CLAUSE (I) OF SUB-SECTION (1) OF SECTION 32 OF THE ACT MAY, IN STEAD OF THE DEPRECIATION SPECIFIED IN APPENDIX IA, AT ITS O PTION, BE ALLOWED DEPRECIATION UNDER SUB-RULE (1) READ WITH A PPENDIX I, IF SUCH OPTION IS EXERCISED BEFORE THE DUE DATE FOR FURNISHING THE RETURN OF INCOME UNDER SUB-SECTION ( 1) OF SECTION 139 OF THE ACT, (A) FOR THE ASSESSMENT YEAR 1998-99, IN THE CASE O F AN UNDERTAKING WHICH BEGAN TO GENERATE POWER PRIOR TO 1ST DAY OF APRIL, 1997; AND (B) FOR THE ASSESSMENT YEAR RELEVANT TO THE PREVIO US YEAR IN WHICH IT BEGINS TO GENERATE POWER, IN CASE OF ANY O THER UNDERTAKING: PROVIDED ALSO THAT ANY SUCH OPTION ONCE EXERCISED S HALL BE FINAL AND SHALL APPLY TO ALL THE SUBSEQUENT ASSESSM ENT YEARS. 26. GENERALLY, RULE 5(1) & APPENDIX I IS APPLICABLE TO SECTION 32(1)(I) & RULE 5(1A) & APPENDIX IA IS APPLICABLE TO SECTION 3 2(1)(II). HOWEVER BY VIRTUE OF SECOND PROVISO TO RULE 5(1A), THERE IS AN OPTION AVAILABLE TO AN UNDERTAKING FALLING UNDER 32(1)(I) TO CLAIM DEPRECI ATION AS PER APPENDIX I, IF SUCH OPTION IS EXERCISED BEFORE THE DUE DATE FOR FU RNISHING THE RETURN OF ITA NO. 1152 TO 1154/BANG/11 & 533/BANG/12 PAGE 24 OF 28 INCOME UNDER SEC 139(1). THE ASSESSEE CLAIMED BEFOR E THE AO THAT IT HAD EXERCISED THE ABOVE OPTION AND HAD CLAIMED THE REGU LAR DEPRECIATION ON WINDMILLS AS PER APPENDIX I AND THEREFORE THE PROVI SIONS OF SEC32(1)(II) ARE APPLICABLE. THE ASSESSEE RELIED ON THE DECISION OF THE ITAT IN THE CASE OF JINDAL STEEL & POWER LTD VS ADDITIONAL CIT (2007) 1 06 TTJ 943 DELHI TRIBUNAL, WHEREIN IT WAS HELD THAT THERE IS NO PART ICULAR FORMAT OR PROCEDURE LAID DOWN IN THE SECOND PROVISO TO RULE 5(1A) FOR E XERCISING OPTION TO BE GOVERNED BY APPENDIX 1 AND IF THE ASSESSEE HAS FILE D A RETURN CLAIMING HIGHER RATE OF DEPRECIATION ON WINDMILLS IT IS ELIG IBLE FOR DEDUCTION AND THE MERE CLAIM IN THE RETURN IS TO BE TAKEN AS SUFFICIE NT COMPLIANCE WITH THE REQUIREMENTS OF LAW. 27. THE AO WAS OF THE VIEW THAT AS PER THE PROVISIO NS OF THE ACT, ADDITIONAL DEPRECIATION IS AVAILABLE ONLY ON THE PL ANT AND MACHINERY INCLUDED IN THE FIXED ASSET SCHEDULE AND NOT FOR PO WER GENERATING UNITS. AS PER THE PROVISIONS OF SECTION 32(1)(IIA) OF THE L.T . ACT, ADDITIONAL DEPRECIATION SHALL BE ALLOWED ONLY AS DEDUCTION ONL Y IN CASE OF BLOCK OF ASSETS AND NOT IN THE CASE OF ASSETS ENGAGED IN THE GENERATION OR DISTRIBUTION OF POWER UNITS FALLING UNDER CLAUSE I OF SECTION 32 OF THE L.T. ACT. HE HELD THAT UNDER THE ACT ADDITIONAL DEPRECIATION IS ALLOWABLE ONLY IN THE CASE OF ANY NEW MACHINERY OR PLANT (OTHER THAN SHIP S AND AIRCRAFT) AND NOT FOR WINDMILLS WHICH ARE ENGAGED IN THE POWER GENERA TION. HENCE, CLAIM OF THE ASSESSEE WAS NOT ACCEPTABLE. HE ALSO HELD THAT THE DECISIONS RELIED ON BY THE ASSESSEE WERE NOT ACCEPTED BY THE DEPARTMENT AND FURTHER APPEAL ITA NO. 1152 TO 1154/BANG/11 & 533/BANG/12 PAGE 25 OF 28 HAS BEEN PREFERRED ON THIS ISSUE. THE MATTER HAS NO T REACHED FINALITY AND FURTHER APPEAL HAS BEEN PREFERRED BEFORE THE APEX C OURT. THE AO, IN VIEW OF THE ABOVE, DISALLOWED THE CLAIM OF ADDITIONAL DE PRECIATION ON THE WIND MILLS AND ADDED BACK A SUM OF RS.1,75,50,000 TO THE TOTAL TAXABLE INCOME OF THE ASSESSEE. 28. ON APPEAL BY THE ASSESSEE, THE LD. CIT(A) DIRE CTED THE AO TO ALLOW ADDITIONAL DEPRECIATION BY FOLLOWING THE DECISION O F THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. VTM LTD., 319 ITR 336 (MAD). THE ISSUE BEFORE THE HONBLE HIGH COURT WAS AS TO WHETH ER ASSESSEE ENGAGED IN MANUFACTURE OF TEXTILE GOODS HAVING INSTALLED NE W WIND MILL WAS ENTITLED TO ADDITIONAL DEPRECIATION EVEN THOUGH THE MACHINER Y OR PLANT ON WHICH ADDITIONAL DEPRECIATION WAS CLAIMED HAS NO OPERATIO NAL CONNECTIVITY TO THE ARTICLE OR THING THAT WAS ALREADY BEING MANUFACTURE D BY THE ASSESSEE. THE HONBLE MADRAS HIGH COURT HELD AS FOLLOWS: 5. IN THE CASE ON HAND, THE ASSESSEE IS STATED T O HAVE SET UP A WINDMILL AT A COST OF RS. 5,85,60,000. IT IS TRUE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS O F MANUFACTURE OF TEXTILE GOODS. AS FAR AS APPLICATION OF S. 32(1)(IIA) OF THE ACT, IS CONCERNED, WHAT IS REQUIR ED TO BE SATISFIED IN ORDER TO CLAIM THE ADDITIONAL DEPRECIA TION IS THAT THE SETTING UP OF A NEW MACHINERY OR PLANT SHOULD H AVE BEEN ACQUIRED AND INSTALLED AFTER 31ST MARCH, 2002 BY AN ASSESSEE, WHO WAS ALREADY ENGAGED IN THE BUSINESS O F MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING. THE SAID PROVISION DOES NOT STATE THAT THE SETTING UP OF A N EW MACHINERY OR PLANT, WHICH WAS ACQUIRED AND INSTALLE D UPTO 31ST MARCH, 2002 SHOULD HAVE ANY OPERATIONAL CONNEC TIVITY TO THE ARTICLE OR THING THAT WAS ALREADY BEING MANU FACTURED BY THE ASSESSEE. THEREFORE, THE CONTENTION THAT THE SETTING ITA NO. 1152 TO 1154/BANG/11 & 533/BANG/12 PAGE 26 OF 28 UP OF A WINDMILL HAS NOTHING TO DO WITH THE POWER I NDUSTRY, NAMELY, MANUFACTURE OF OIL SEEDS ETC. IS TOTALLY NO T GERMANE TO THE SPECIFIC PROVISION CONTAINED IN S. 3 2(1)(IIA) OF THE ACT. ACCORDING TO THE CIT(A), THE FACTS OF THE ASSESSEE S CASE AND THAT OF THE CASE BEFORE THE HONBLE MADRAS HIGH COURT WERE IDEN TICAL AND THEREFORE THE CLAIM OF THE ASSESSEE WAS DIRECTED TO BE ACCEPT ED. 28. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE HAS RAISED GROUND NO.7 BEFORE THE TRIBUNAL. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNED DR WHO RELIED ON THE ORDER OF THE AO. WE ARE OF THE VIEW THAT THE ORDER OF CIT(A) DOES NOT CALL FOR ANY INTERFERE NCE. AS RIGHTLY HELD BY HIM THE FACTS OF THE ASSESSEES CASE AND THAT OF TH E CASE BEFORE THE HONBLE MADRAS HIGH COURT WERE IDENTICAL. THE CASE OF THE AO WAS THAT THE PROVISIONS OF THE ACT ALLOW ADDITIONAL DEPRECIA TION ONLY IN THE CASE OF ANY NEW MACHINERY OR PLANT (OTHER THAN SHIPS AND AI RCRAFT) AND NOT FOR WINDMILLS WHICH ARE ENGAGED IN THE POWER GENERATION . THE FACT THAT THE ASSESSEE IS ENGAGED IN MANUFACTURE OF ARTICLE OR TH ING IS NOT IN DISPUTE. THE FACT THAT THE WINDMILL WHICH GENERATED POWER HA D NO CONNECTION WHATSOEVER WITH THE ACTIVITY OF MANUFACTURE OF ARTI CLE OR THING IS NOT RELEVANT AS LAID DOWN BY THE HONBLE MADRAS HIGH COURT. TH E ASSESSEE HAS EXERCISED HIS OPTION TO CLAIM ADDITIONAL DEPRECIATI ON UNDER THE SECOND PROVISO TO RULE 5(1A) OF THE RULES. SINCE THERE IS NO PARTICULAR FORM IN WHICH THE OPTION IS TO BE EXERCISED, THE MERE CLAIM MADE IN THE RETURN OF ITA NO. 1152 TO 1154/BANG/11 & 533/BANG/12 PAGE 27 OF 28 INCOME IS SUFFICIENT AND THIS HAS BEEN THE VIEW TAK EN BY THE ITAT, DELHI IN THE CASE OF JINDAL STEEL & POWER LTD. (SUPRA). IN VIEW OF THE ABOVE, WE DO NOT FIND ANY GROUNDS TO INTERFERE WITH THE ORDER OF THE CIT(APPEALS). CONSEQUENTLY GROUND NO.7 IS ALSO DISMISSED. 29. IN THE RESULT, THE APPEAL BY THE REVENUE IS DISMIS SED. ITA NOS.1153 & 1154/BANG/2011 (AY 06-07 & 08-09) 30. THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN THE SE APPEALS ARE IDENTICAL TO THE GROUNDS OF APPEAL RAISED BY THE RE VENUE IN ITA NO.1152/BANG/2011 FOR THE A.Y. 2005-06. FOR THE RE ASONS AND ELABORATE DISCUSSION MADE ON THESE GROUNDS IN THE ORDER FOR T HE A.Y. 2005-06, THESE GROUNDS OF APPEAL ARE DISMISSED. 31. ITA NO.533/BANG/2012 IS AN APPEAL BY THE REVENUE RELATING TO A.Y. 2007-08. 32. GROUNDS NO.1 & 8 ARE GENERAL IN NATURE AND CALLS F OR NO ADJUDICATION. 33. GROUNDS NO. 2 TO 5 ARE IDENTICAL TO GROUNDS NO.2 & 3 RAISED BY THE REVENUE IN ITA NO.1152/BANG/2011 FOR THE A.Y. 2005- 06. FOR THE ELABORATE REASONS GIVEN WHILE DECIDING THOSE GROUNDS, THESE G ROUNDS OF APPEAL ARE DISMISSED. ITA NO. 1152 TO 1154/BANG/11 & 533/BANG/12 PAGE 28 OF 28 34. GROUNDS NO.6 & 7 RAISED BY THE REVENUE IS IDENTICA L TO GROUND NO.6 RAISED BY THE REVENUE IN ITA NO.1152/BANG/2011. FO R ELABORATE REASONS GIVEN WHILE DECIDING SIMILAR GROUNDS FOR THE A.Y. 2 005-06, WE DO NOT FIND ANY MERITS IN THESE GROUNDS OF APPEAL. CONSEQUENTL Y, THEY ARE DISMISSED. 35. IN THE RESULT, ALL THE APPEALS BY THE REVENUE ARE D ISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF MAY, 2013. SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE, DATED, THE 31 ST MAY, 2013. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.