M/S. ARTS & CRAFTS EXPORTS, MUMBAI V. THE ITO 14(2)(1), MUMBAI

ITA 554/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1369 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 03-05-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 23-01-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MADHUK
• Assessee Lawyers: ADITYA NENANI
• Keywords: Business income; Advance ruling; Competent authority
• Section: 80HHC; 234B; 80IB; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI BEFORE SHRI SHRI A.L. GEHLOT, A.M. & SHRI V. DURGA RAO, J.M. ITA NOS. 554, 555 & 2923/M/2008 ASSESSMENT YEARS: 2003-04, 2004-05 & 2004-05 M/S ARTS & CRAFTS EXPORTS, APPELLANT C/O M/S SHAH P. TAPARIA 12, NAVJEEVAN WADI DHOBI TALAO, MUMBAI (PAN AAEFA1778) VS. INCOME TAX OFFICER, WARD 14(2)(1), RESPONDENT MUMBAI APPELLANT BY : MR. RAKESH JOSHI & ADITYA NENANI RESPONDENT BY : MR. S.K. MADHUK ORDER PER A.L. GEHLOT, A.M.: THESE APPEALS FILED BY ONE ASSESSEE ARE DIRECTED A GAINST THE ORDERS OF CIT(A), MUMBAI, FOR THE ASSESSMENT YEAR S 2003-04, 2004-05, AND 2005-06. SINCE IDENTICAL ISSUES ARE IN VOLVED IN THESE APPEALS, THEY WERE HEARD TOGETHER AND, THEREFORE, W E FIND IT CONVENIENT TO DISPOSE OF THESE APPEALS BY WAY OF CO NSOLIDATED ORDER. 2. A COMMON GROUND IS RAISED IN THESE APPEALS, WHIC H IS RELATED TO DEDUCTION U/S 10BA & 80IB OF THE ACT. 3. TO DISPOSE OF THESE APPEALS, WE REFER TO THE FAC TS FROM THE YEAR 2005-06 IN ITA NO. 2923/M/08. 4. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE FIRM WAS ENGAGED IN THE BUSINESS OF MAKING AND EXPORT OF WOO DEN AND IRON HANDICRAFT ARTISTIC ITEMS AT JODHPUR. THE ASSESSEE SUBMITTED ITS RETURN OF INCOME DECLARING TOTAL INCOME AT RS. 4,58 ,780/- AFTER CLAIMING DEDUCTION U/S 10BA AMOUNTING TO RS. 1,43,7 5,541/- AND DEDUCTION U/S 80-IB AT RS. 1,54,929/- ON MANUFACTUR E AND EXPORT ITA NOS. 2923, 554 & 555/M/08 ARTS & CRAFTS EXPORTS. 2 OF HANDICRAFT ITEMS. THE AO HELD THAT THE BUSINESS OF THE ASSESSEE WAS THE SAME AS THAT OF AY 2004-05 AND THEREFORE TH E FINDINGS FOR AY 2004-05 WERE SQUARELY APPLICABLE FOR THE ASSESSM ENT YEAR UNDER CONSIDERATION. THE AO CONCLUDED THAT THE ASSESSEE H AD BEEN MAKING PURCHASES FROM THE LOCAL ARTISANS AND CRAFTS MEN AT LOW PRICE AND SELLING THOSE PRODUCTS ABROAD AT A VERY H IGH PRICE AND SIPHONING AWAY THE PROFIT WHICH SHOULD HAVE ACTUALL Y GONE TO THOSE ARTISANS AND CRAFTSMEN. THE BUSINESS OF THE ASSESSE E WAS MORE OF A TRADER OR A MIDDLEMAN AND NOT THAT OF A MANUFA CTURER. THEREFORE, THE AO HELD THAT THE ASSESSEE HAD NOT FU LFILLED THE BASIC CONDITION LAID DOWN UNDER SECTION 10BA (2)(A) WHICH STATES THAT THE UNDERTAKING SHOULD MANUFACTURE OR PRODUCE THE ELIGI BLE ARTICLES OR THINGS TO CLAIM THE EXEMPTION U/S 10BA OF THE I.T. ACT. SIMILAR FINDING IS GIVEN BY THE AO IN RESPECT OF 80IB. THE AO PLACED RELIANCE ON A HIGH COURT DECISION IN THE CASE OF CI T VS. RITESH INDUSTRIES LTD., 274 ITR 324 (DELHI) AND CIT VS. JA MEEL LEATHER, 246 ITR 97 (MAD.) WHEREIN IT WAS HELD THAT IF THE I NCOME OF UNDERTAKING IS NOT ATTRIBUTABLE TO THE MANUFACTURIN G ACTIVITY OF THE UNDERTAKING, NO EXEMPTION U/S 10BA AND DEDUCTION U/ S 80IB ARE ALLOWABLE TO THE UNDERTAKING. ON THE BASIS OF THE A BOVE FINDING, THE AO HELD THAT APPELLANT CANNOT BE HELD TO HAVE MANUF ACTURED WOODEN ITEMS AND CLAIM OF EXEMPTION U/S 10BA WAS NO T ALLOWABLE TO THE ASSESSEE. 5. THE CIT(A) CONFIRMED THE ACTION OF THE AO BY OBS ERVING AS UNDER:- 3.15 I HAVE CAREFULLY CONSIDERED THE FACTS AND SUBM ISSIONS. THE FACTS OF THE ISSUE INVOLVED ARE IDENTICAL TO TH E FACTS OF THE EARLIER AY I.E. 2004-05. THE APPELLANT HAD PURCHASE D SUBSTANTIAL QUANTITY OF WOODEN ARTICLES IN THE READ YMADE FORM AND HAD DONE SOME NOMINAL WORK SUCH AS POLISHING, P AINTING ETC. AND SUCH KIND OF ACTIVITY CANNOT BE TERMED AS MANUFACTURE IN AS MUCH AS IT DID NOT HAVE THE EFF ECT OF BRINGING INTO EXISTENCE SOMETHING NEW; THE APPELLAN T HAD PURCHASED READY MADE WOODEN ITEMS OF ARTISTIC VALUE MADE BY THE ARTISANS/CRAFTSMAN, ONLY SOME FINISHING TOUCHES MIGHT HAVE BEEN GIVEN AT THE APPELLANTS FACTORY AND THE CONDITIONS STIPULATED IN CLAUSES (B),(C), (D) & (E) WERE NOT S ATISFIED. RELYING ON THE SUPREME COURT DECISION IN THE CASE O F COLLECTOR ITA NOS. 2923, 554 & 555/M/08 ARTS & CRAFTS EXPORTS. 3 OF CENTRAL EXCISE VS. KUTTY FLUSH DOORS & FURNITURE CO. (P) LTD., 9 AIR 1988 SC 1164/[1988] 17ECC 37(SC), AND I N THE CASE OF CIT VS. LAXMI PRINTINGS 1998, 147 TAXMAN 388/389/BOM., I AM OF THE OPINION THAT THE AOS ACT ION IN DENYING THE DEDUCTION U/S 10BA WAS FULLY JUSTIFIED. THEREFORE, THE GROUND OF APPEAL IS DISMISSED. 6. THE LEARNED AR SUBMITTED THAT THE AO HAS DISALLO WED DEDUCTION U/S 10BA AND 80IB MAINLY ON THREE GROUNDS , NAMELY, 1) THE AO ALLEGES THAT THE ASSESSEES BUSINESS ACTIVIT IES CANNOT BE CONSIDERED AS MANUFACTURING, 2) THE ASSESSEE DID NO T EMPLOY MORE THAN 20 SKILLED EMPLOYEES, AND 3) DEDUCTION U/S 10B A CANNOT CLAIM ON DEPB LICENSE INCOME AND DUTY DRAWBACK. THE LEARNED AR REFERRED THE RELEVANT SECTIONS AND SUBMITTED THAT O N PLAIN READING OF THESE SECTIONS, IT IS CLEAR THAT LEGISLATURE DID NOT INTEND OR STRESS UPON THE MANUFACTURING IN VERY DEEP AND TECHNICAL S ENSE. THE LEARNED AR SUBMITTED THAT EVEN THE TITLE OF THE SEC TION SAYS SPECIAL PROVISIONS IN RESPECT OF EXPORT OF CERTAIN ARTICLES & THINGS. THIS SECTION MERELY REQUIRES AN ASSESSEE TO EXPORT A WOO DEN HANDICRAFT ITEM HAVING ARTISTIC VALUE. THE LEARNED AR SUBMITT ED THAT REQUIREMENT OF MANUFACTURING & PRODUCTION BY THE AS SESSEE FOR THE ENTITLEMENT OF EXEMPTION U/S 10BA HAS TO BE UNDERST OOD IN THE CONTEXT OF THE SPECIFIC LANGUAGE AND OTHER REQUIREM ENT OF THE SAID PROVISION. THE LEARNED AR IN SUPPORT OF HIS CONTEN TION RELIED UPON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF SUN ENGINEERING WORKS (P) LTD., 198 ITR 297. THE LEARNE D AR SUBMITTED THAT THE WORD MANUFACTURING OR PRODUCTION IS BEING USED IN EXPLANATION (B) TO SECTION 10BA. WHAT THE ASSESSEE PURCHASED FROM ITS SUPPLIER IS SEMI FINISHED FURNITURE AND THEN CO NVERTING IT INTO ARTICLES OF ARTISTIC VALUE, WHICH IS THE REQUIREMEN T OF SECTION. THE LEARNED AR SUBMITTED THAT THIS SECTION DOES NOT REQ UIRE ASSESSEE TO MANUFACTURE ENTIRE FURNITURE/ARTICLES. THE LEARNED AR SUBMITTED THAT AFTER PURCHASING SEMI FINISHED GOODS, THE ASSE SSEE CARRIED OUT VARIOUS PROCESSES ON THE SAME AND MADE IT A TOTALLY DIFFERENT PRODUCT WITH DIFFERENT USER AND WITH SUBSTANTIAL VA LUE ADDITION THEREON. THE LEARNED AR SUBMITTED THAT ULTIMATE PRO DUCT IS ALTOGETHER DIFFERENT THAN IT WAS BEFORE THE ACTIVIT IES IT IS NO MORE ITA NOS. 2923, 554 & 555/M/08 ARTS & CRAFTS EXPORTS. 4 REMAIN MERELY FURNITURE. THE LEARNED AR IN SUPPORT OF HIS CONTENTION RELIED UPON THE FOLLOWING DECISIONS:- A. GOVERDHAN PRASHAD SINGHAL VS. ITO, 27 DTR (JP)( TRIB)1 B. DY. CIT VS. MANGLAM ARTS, 17 DTR (JP)(TRIB) 97) C. CIT VS. ORICON PVT. LTD., 151 ITR 296 (BOM.) D. CIT VS. ACROW INDIA LTD., 188 ITR 485 (BOM.) E. CIT VS. PENWALT INDIA LTD., 196 ITR 813 (BOM.) F. DCIT VS. TRIBHOVANDAS BHIMJI ZAVERI, 110 TTJ 94 2(MUMB) G. KWAL PRO EXPORTS V ITO 123 TTJ 543(JODH) H. SUNRISE METAL INDUSTRIES V ITO 89 ITD 406(MUMB) I. DCIT V TRIBHOVANDAS BHIMJI ZAVERI 110 TTJ 942(M UMB) J. CIT V B. SURESH 313 ITR 149(SC) K. CIT V PUNEET COMMERCIAL LTD 245 ITR 550(BOMB) 7. AS REGARDS THE OBJECTION OF THE AO IN RESPECT OF SHORTFALL OF WORKERS, THE LEARNED AR SUBMITTED THAT THE AO HIMS ELF ADMITTED IN THE REMAND PROCEEDINGS THAT AS PER PF RECORDS TO TAL NUMBER OF EMPLOYEES ARE 71 WHICH INCLUDES CASUAL LABOUR TAKEN ON HIRE AND EVEN AS PER MUSTER RECORDS OF THE ASSESSEE NUMBER O F EMPLOYEES WERE 29. THE LEARNED AR SUBMITTED THAT THE ONLY OB JECTION OF THE AO IS THAT THE NUMBERS OF SKILLED EMPLOYEES ARE LES S THAN 20. THE LEARNED AR SUBMITTED THAT THE ACT DOES NOT REQUIRE THE ASSESSEE TO KEEP MORE THAN 20 SKILLED WORKERS; THEREFORE, THE A SSESSEE HAS COMPLIED WITH THE REQUIREMENT AS THE EMPLOYEES WERE ENGAGED MORE THAN 20. THE LEARNED AR RELIED UPON THE FOLLOWING D ECISIONS:- 1. CRAP CONTROL PANEL (P) LTD. V. ITO, ITAT (MUMBAI ) 11 SOT 35. 2. CIT VS. AJMANI INDUSTRIES (ALLAHABAD HC), 153 TA XMAN 43 3. CIT VS. SULTAN AND SONS RICE MILL (ALL. HC) 272 ITR 181 8. AS REGARDS DEPB, THE LEARNED AR SUBMITTED THAT T HERE ARE TWO TYPES OF SECTIONS ALLOWING DEDUCTION ON CERTAIN INCOME ONE IS WHERE SOME FORMULA IS PRESCRIBED TO CLAIM DEDUCTION SUCH SECTIONS ARE 80 HHC AND OTHERS. THE LEARNED AR SUBMITTED TH AT WHERE THE PROFIT DERIVES FROM EXPORT OUT OF INDIA SHALL BE TH E AMOUNT WHICH ITA NOS. 2923, 554 & 555/M/08 ARTS & CRAFTS EXPORTS. 5 BEARS TO THE PROFIT OF BUSINESS OF THE UNDERTAKING THE SAME PROPORTIONATE AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES NEARS TO TOTAL TURNOVER OF THE BUSINESS CARRIED ON. THE LEARNED AR FURTHER SUBMITTED THAT OTHER TYPES OF SECTION ARE W HERE THERE IS NO FORMULA PRESCRIBED BUT MERELY STATED THAT INCOME AT TRIBUTABLE TO SUCH UNDERTAKING SUCH SECTIONS ARE VARIOUS SUB-SECT IONS OF 80I, 80IA, 80IB, 80IC. THE LEARNED AR SUBMITTED THAT QUE STION OF INTERPRETATION COMES INTO PICTURE. IN THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA AND STER LING FOOD WHERE NO SUCH SPECIFICATION IS BEING GIVEN IN THE SECTION . THE LEARNED AR DREW OUR ATTENTION TO THE PROVISIONS OF SECTION 10B A (4), WHICH DEFINE THE AMOUNT ELIGIBLE FOR DEDUCTION. THE LEARN ED AR SUBMITTED THAT THE ASSESSEES CASE FALL IN THE CATEGORY OF FI RST CLASS SO THE ENTIRE PROFIT OF THE BUSINESS IS TO BE CONSIDERED F OR THE PURPOSE OF ALLOWABLE DEDUCTION OF THE ASSESSEE. THE LEARNED AR IN SUPPORT OF HIS CONTENTION RELIED UPON THE JUDGMENT OF JURISDIC TIONAL HIGH COURT IN THE CASE OF CIT VS. PUNIT COMMERCIAL LTD., 245 ITR 550 WHERE THE COURT HAS HELD THAT ONCE THE INCOME BECOM E PART OF BUSINESS INCOME OF THE ASSESSEE, THE ASSESSEE IS EL IGIBLE FOR DEDUCTION U/S 80 HHC. THE LEARNED AR WHILE REFERRIN G THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F KP VERGHESE VS. ITO, 131 ITR 597 (SC) SUBMITTED THAT WHERE THE STATUES ARE VERY CLEAR THERE IS NO NEED TO INTERPRET THEM DIFFE RENTLY. 9. THE LEARNED DR RELIED UPON THE ORDER OF REVENUE AUTHORITIES AND WHILE REFERRING PAGE 12 OF CIT (A)S ORDER FOR AY 2004-05 SUBMITTED THAT BUSINESS ACTIVITY OF THE ASSESSEE WA S MORE OF A TRADER OR MIDDLEMEN AND NOT THAT OF ACTUAL MANUFACT URER, THEREFORE, THE CIT(A) HAS RIGHTLY CONFIRMED THE ORD ER OF AO THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION. THE LEARNED DR REFERRED PAGE 3 OF CIT(A)S ORDER FOR 2004-05 AND SUBMITTED THAT THE CIT(A) HAS SUMMARISED THE OBJECTION OF THE AO CLASSIFIED IN TW O CATEGORIES, VIZ., 1) THAT THE ASSESSEE WAS NOT ENGAGED IN MANUF ACTURING OR PRODUCING OF THE ELIGIBLE ARTICLES OR THINGS, AND 2 ) THE ARTICLES EXPORTED BY THE ASSESSEE AS MENTIONED IN THE EXPORT INVOICES LIKE ITA NOS. 2923, 554 & 555/M/08 ARTS & CRAFTS EXPORTS. 6 WOODEN CABINET, WRITING TABLE, TV CABINET ETC. WERE THE SAME ITEMS WHICH WERE PURCHASED FROM LOCAL MANUFACTURERS AND N O MANUFACTURING ACTIVITY WAS CARRIED OUT BY THE ASSES SEE. THE LEARNED DR SUBMITTED THAT ON IDENTICAL SET OF FACTS , THE ITAT JODHPUR BENCH IN THE CASE OF KWAL PRO EXPORTS V. A CIT, [2007] 109 TTJ 869 HAS DECIDED THE ISSUE IN FAVOUR OF THE REVENUE. 10. IN THE REJOINDER, THE LEARNED AR SUBMITTED THAT DECISIONS CITED BY THE LEARNED DR IN THE CASE OF KWAL PRO EXP ORTS V. ACIT, [2007] 109 TTJ 869 IS DISTINGUISHABLE ON FACTS. IN THE SAID CASE, THE CLAIM OF THE ASSESSEE WAS U/S 10B OF THE ACT WH EREAS IN THE CASE UNDER CONSIDERATION THE CLAIM OF THE ASSESSEE IS U/S 10AB. THERE ARE TWO SUBSTANTIAL DIFFERENCES BETWEEN TWO S ECTIONS AS FAR AS MANUFACTURING PART IS CONCERNED. THE LEARNED AR SUBMITTED THAT SECTION 10B IS APPLICABLE TO MANUFACTURING OF ANY I TEMS OR THINGS INCLUDING SOFTWARE WHEREAS SECTION 10BA IS RESTRICT ED TO ARTICLES OR THINGS OF ARTISTIC VALUE WHERE MAIN RAW MATERIAL IS WOOD. THE LEARNED AR SUBMITTED THAT SO FAR AS THE POINT OF VI EW OF SECTION 10B ONE NEED TO EXAMINE WHETHER THE PRODUCTS MANUFACTUR ING BY THE ASSESSEE ITSELF OR OTHERS WHEREAS IN CASE OF SECTIO N 10BA SUCH EXAMINATION CANNOT BE RESTRICTED IF THE MANUFACTURI NG ACTIVITY CARRIED OUT BY THE ASSESSEE RESULTS IN THE ARTICLES OR THINGS HAVING ARTISTIC VALUE. THE LEARNED AR FURTHER SUBMITTED TH AT IN CASE OF KWAL PRO EXPORTS V. ACIT, [2007] 109 TTJ 869, THE I TAT RELIED UPON THE DECISION OF ITAT THIRD MEMBER IN THE CASE OF ARIHANT TILES AND MARBLES (P) LTD., V. ITO, 104 TTJ (JD) TM 149 W HERE THE BENEFIT U/S 80I HAS BEEN DENIED BY HOLDING THAT ACTIVITIES OF THE ASSESSEE DO NOT AMOUNT TO MANUFACTURE. THE LEARNED AR SUBMIT TED THAT THE SAID 3 RD MEMBER DECISION HAS BEEN REVERSED BY THE HONBLE RAJASTHAN HIGH COURT REPORTED IN 295 ITR 148 HOLDIN G THAT THE ASSESSEE WAS ENGAGED IN SAWING MARBLE BLOCKS INTO S LABS AND TILES AFTER PURCHASING BLOCKS. IT WAS MANUFACTURE OF AN A RTICLE. THE HONBLE SUPREME COURT VALIDATES THE DECISION OF HO NBLE RAJASTHAN HIGH COURT REPORTED IN 227 CTR 513. THE LEARNED AR FURTHER SUBMITTED THAT IN CASE OF KWAL PRO EXPORTS V. ACIT, (SUPRA), ITA NOS. 2923, 554 & 555/M/08 ARTS & CRAFTS EXPORTS. 7 TRIBUNAL HAS EMPHASIS ON EXPLANATION 4 TO SECTION 10B, WHICH SAYS MANUFACTURE OF PRODUCE SHALL INCLUDE CUTTING A ND POLISHING OF PRECIOUS AND SEMI PRECIOUS STONES. THE LEARNED AR F URTHER SUBMITTED THAT THE SAID DECISION IN THE CASE OF KWA L PRO EXPORTS VS. ITO (SUPRA), THE HONBLE JODHPUR BENCH SUBSEQUE NTLY DISTINGUISHED BY THE SAME IN SAME ASSESSEES CASE R EPORTED IN 123 TTJ 543 IN SUBSEQUENT DECISION OF ITAT JODHPUR BENC H DISTINGUISHED EARLIER DECISION IN THE CASE OF KWL P RO EXPORTS (SUPRA) ON THREE PLEA ONE IS THIRD MEMBER DECISIO N IN CASE OF ARIHAND MARBLES (SUPRA) ON BASIS OF WHICH THE ABOVE DECISION IS BEING GIVEN HAS BEEN REVERSED BY THE RAJASTHAN HIGH COURT. SECONDLY, THE TRIBUNAL HAS GIVEN A FINDING THAT AFT ER CARRYING OUT VARIOUS PROCESS OF POLISHING, ANTIQUING ETC. THE PR ODUCT IS DIFFERENCE AND ITS USER IS DIFFERENT. AND LASTLY, T HE HONBLE TRIBUNAL SAID THERE ARE VARIOUS JUDICIAL PRONOUNCEMENTS AFTE R THE ABOVE DECISIONS WHICH QUALIFY THE ACTIVITIES CARRIED ON B Y THE APPELLANT AS MANUFACTURING ACTIVITIES. THE LEARNED AR FURTHER SU BMITTED THAT ON IDENTICAL SET OF FACTS AS FACTS IN THE CASE OF THE VARIOUS ASSESSEES THE JAIPUR BENCH AND OTHER BENCHES, HIGH COURTS AND EVEN THE SUPREME COURT HAD DECIDED THE ISSUE IN FAVOUR OF TH E ASSESSEES. 11. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF T HE PARTIES, RECORD PERUSED AND GONE THROUGH THE DECISI ONS CITED. THE CRUX OF THE MATTER TO BE EXAMINED IN THE CASE UNDER CONSIDERATION IS WHETHER THE ASSESSEE IS ENTITLED TO DEDUCTION UN DER SECTION 10BA & 80IB UNDER THE CIRCUMSTANCES, THE ASSESSEE PURCHA SED UNFINISHED WOODEN ARTICLES AND CARRIED OUT VARIOUS ARTISTIC VALUE PROCESSES. AFTER GIVING ATTRACTIVE ARTISTIC WORK/VA LUE THE ARTICLES WERE EXPORTED AS HANDICRAFT ITEMS. TO APPRECIATE T HE ISSUE WE WOULD LIKE TO QUOTE THE RELEVANT SECTION 10BA, WHIC H READS AS UNDER:- 10BA(1) SUBJECT TO THE PROVISIONS OF THIS SECTION, A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTA KING FROM THE EXPORT OUT OF INDIA OF ELIGIBLE ARTICLES OR THINGS, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE : ITA NOS. 2923, 554 & 555/M/08 ARTS & CRAFTS EXPORTS. 8 PROVIDED THAT WHERE IN COMPUTING THE TOTAL INCOME O F THE UNDERTAKING FOR ANY ASSESSMENT YEAR, DEDUCTION UNDE R SECTION 10A OR SECTION 10B HAS BEEN CLAIMED, THE UNDERTAKIN G SHALL NOT BE ENTITLED TO THE DEDUCTION UNDER THIS SECTION : PROVIDED FURTHER THAT NO DEDUCTION UNDER THIS SECTI ON SHALL BE ALLOWED TO ANY UNDERTAKING FOR THE ASSESSMENT YEAR BEGINNING ON THE 1ST DAY OF APRIL, 2010 AND SUBSEQUENT YEARS. (2) THIS SECTION APPLIES TO ANY UNDERTAKING WHICH F ULFILS THE FOLLOWING CONDITIONS, NAMELY : (A) IT MANUFACTURES OR PRODUCES THE ELIGIBLE ARTIC LES OR THINGS WITHOUT THE USE OF IMPORTED RAW MATERIALS; (B) IT IS NOT FORMED BY THE SPLITTING UP, OR THE R ECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE : PROVIDED THAT THIS CONDITION SHALL NOT APPLY IN R ESPECT OF ANY UNDERTAKING WHICH IS FORMED AS A RESULT OF THE RE- ESTABLISHMENT, RECONSTRUCTION OR REVIVAL BY THE ASS ESSEE OF THE BUSINESS OF ANY SUCH UNDERTAKING AS IS REFERRED TO IN SECTION 33B, IN THE CIRCUMSTANCES AND WITHIN THE PE RIOD SPECIFIED IN THAT SECTION; (C) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSI NESS 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 SH ALL APPLY FOR THE PURPOSES OF THIS CLAUSE AS THEY APPLY FOR T HE PURPOSES OF CLAUSE (II) OF SUB-SECTION (2) OF THAT SECTION; (D) NINETY PER CENT OR MORE OF ITS SALES DURING TH E PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR ARE BY WAY OF EXPOR TS OF THE ELIGIBLE ARTICLES OR THINGS; (E) IT EMPLOYS TWENTY OR MORE WORKERS DURING THE P REVIOUS YEAR IN THE PROCESS OF MANUFACTURE OR PRODUCTION. (3) THIS SECTION APPLIES TO THE UNDERTAKING, IF THE SALE PROCEEDS OF THE ELIGIBLE ARTICLES OR THINGS EXPORTED OUT OF INDIA ARE RECEIVED IN OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE, WITHIN A PERIOD OF SI X MONTHS FROM THE END OF THE PREVIOUS YEAR OR, WITHIN SUCH F URTHER PERIOD AS THE COMPETENT AUTHORITY MAY ALLOW IN THIS BEHALF. EXPLANATION.FOR THE PURPOSES OF THIS SUB-SECTION, THE EXPRESSION COMPETENT AUTHORITY MEANS THE RESERVE BANK OF INDIA OR SUCH OTHER AUTHORITY AS IS AUTHORISED UNDE R ANY LAW FOR THE TIME BEING IN FORCE FOR REGULATING PAYMENTS AND DEALINGS IN FOREIGN EXCHANGE. (4) FOR THE PURPOSES OF SUB-SECTION (1), THE PROFIT S DERIVED FROM EXPORT OUT OF INDIA OF THE ELIGIBLE ARTICLES OR THI NGS SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS O F THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURN OVER IN RESPECT OF SUCH ARTICLES OR THINGS BEARS TO THE TOT AL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING. (5) THE DEDUCTION UNDER SUB-SECTION (1) SHALL NOT B E ADMISSIBLE, UNLESS THE ASSESSEE FURNISHES IN THE PR ESCRIBED ITA NOS. 2923, 554 & 555/M/08 ARTS & CRAFTS EXPORTS. 9 FORM12, ALONG WITH THE RETURN OF INCOME, THE REPORT OF AN ACCOUNTANT, AS DEFINED IN THE EXPLANATION BELOW SUB -SECTION (2) OF SECTION 288, CERTIFYING THAT THE DEDUCTION H AS BEEN CORRECTLY CLAIMED IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION. (6) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, WHERE A DEDUCTION IS ALLOWED UNDER THI S SECTION IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, NO DEDU CTION SHALL BE ALLOWED UNDER ANY OTHER SECTION IN RESPECT OF IT S EXPORT PROFITS. (7) THE PROVISIONS OF SUB-SECTION (8) AND SUB-SECTI ON (10) OF SECTION 80-IA SHALL, SO FAR AS MAY BE, APPLY IN REL ATION TO THE UNDERTAKING REFERRED TO IN THIS SECTION AS THEY APP LY FOR THE PURPOSES OF THE UNDERTAKING REFERRED TO IN SECTION 80-IA. EXPLANATION.FOR THE PURPOSES OF THIS SECTION, (A) CONVERTIBLE FOREIGN EXCHANGE MEANS FOREIGN E XCHANGE WHICH IS FOR THE TIME BEING TREATED BY THE RESERVE BANK OF INDIA AS CONVERTIBLE FOREIGN EXCHANGE FOR THE PURPO SES OF THE FOREIGN EXCHANGE MANAGEMENT ACT, 1999 (42 OF 1999), AND ANY RULES MADE THEREUNDER OR ANY OTHER CORRESPONDIN G LAW FOR THE TIME BEING IN FORCE; (B) ELIGIBLE ARTICLES OR THINGS MEANS ALL HAND-M ADE ARTICLES OR THINGS, WHICH ARE OF ARTISTIC VALUE AND WHICH REQUI RES THE USE OF WOOD AS THE MAIN RAW MATERIAL; (C) EXPORT TURNOVER MEANS THE CONSIDERATION IN R ESPECT OF EXPORT BY THE UNDERTAKING OF ELIGIBLE ARTICLES OR T HINGS RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE IN ACCORDANCE WITH SUB -SECTION (3), BUT DOES NOT INCLUDE FREIGHT, TELECOMMUNICATIO N CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE AR TICLES OR THINGS OUTSIDE INDIA; (D) EXPORT OUT OF INDIA SHALL NOT INCLUDE ANY TR ANSACTION BY WAY OF SALE OR OTHERWISE, IN A SHOP, EMPORIUM OR AN Y OTHER ESTABLISHMENT SITUATE IN INDIA, NOT INVOLVING CLEAR ANCE OF ANY CUSTOMS STATION13 AS DEFINED IN THE CUSTOMS ACT, 19 62 (52 OF 1962).] 11.1 THERE ARE A NUMBER OF PROVISIONS UNDER INC OME TAX PROVIDING FOR TAX CONCESSIONS FOR EXPORT OF GOODS A ND SERVICES. SECTION 10BA WAS INSERTED IN THE INCOME TAX ACT, 19 61 BY TAXATION LAWS (AMENDMENT) ACT, 2003 W.E.F. 01.04.2004. THIS SECTION MAKES SPECIAL PROVISIONS FOR DEDUCTION OF PROFITS AND GAI NS OF BUSINESS OF EXPORT OF CERTAIN ARTICLES OR THINGS WHICH ARE REFE RRED IN THE SECTION AS ELIGIBLE ARTICLES OR THINGS. THEY ARE, AS PER DEFINITION IN THE EXPLANATION, ALL HANDMADE ARTICLES OR THINGS, WHICH ARE OF ARTISTIC ITA NOS. 2923, 554 & 555/M/08 ARTS & CRAFTS EXPORTS. 10 VALUE AND WHICH REQUIRES THE USE OF WOOD AS THE MAI N RAW MATERIAL. ONE OF THE IMPORT CONDITIONS IS THAT THE ASSESSEE S HOULD MANUFACTURE OR PRODUCE ELIGIBLE ARTICLES OR THINGS WITHOUT THE USE OF IMPORTED RAW MATERIALS. SOME CONDITIONS ARE AKIN TO THOSE IN S. 80HHC. WHERE ASSESSEE CLAIMS DEDUCTION UNDER S. 10A OR 10B, HE WOULD NOT BE ENTITLED TO DEDUCTION UNDER THE PRESEN T SECTION, NAMELY, 10BA. WHERE A DEDUCTION IS ALLOWED UNDER TH IS SECTION, NO DEDUCTION SHALL BE ALLOWED UNDER ANY OTHER SECTION IN RESPECT OF EXPORT PROFITS. THUS THE CONDITIONS WHICH ARE TO BE SATISFIED FOR DEDUCTION U/S 10BA ARE AS UNDER:- I) MANUFACTURES OR PRODUCE THE ELIGIBLE ARTICLES OR THINGS. II) ELIGIBLE ARTICLES OR THINGS SHOULD HAVE ARTISTI C VALUE III) ELIGIBLE ARTICLES OR THINGS SHOULD BE HAND-MA DE ARTICLES OR THINGS. IV) THERE SHOULD NOT BE USE OF IMPORTED RAW MATERI AL. V) WOOD SHOULD BE THE MAIN RAW MATERIAL VI) THE UNDERTAKING SHOULD BE A NEW INDUSTRIAL UND ERTAKING AS IS NECESSARY FOR SECTIONS 10A, 10B, 80IA, AND 80IB. 11.2 THE MAIN OBJECTION OF REVENUE FOR NOT GRANTI NG DEDUCTION U/S 10BA IN THE CASE UNDER CONSIDERATION IS THAT THE AS SESSEE DID NOT MANUFACTURE THE ELIGIBLE ARTICLES. THE ASSESSEE PUR CHASE READYMADE ELIGIBLE ARTICLES AND SAME WERE EXPORTED. THE ARTICLES WERE CONTINUED TO BE THE SAME AND THEY DO NOT CONST ITUTE AS NEW GOODS AND CONSEQUENTLY THE ASSESSEE DID NOT SATISFY THE CONDITIONS LAID DOWN IN THE SECTION 10BA OF THE ACT. IF WE SEE SECTION 10BA, WE FIND THAT IN SUB-SECTION 2(A) OF SECTION 10BA TW O WORDS ARE THERE MANUFACTURE OR PRODUCES AS STATED IN COND ITION NO.1 WHICH TO BE SATISFIED. THE IMPORTANT TEST, WHICH DISTINGU ISHES THE WORD PRODUCES FROM MANUFACTURE, IS THE WORD PRODUCE S IS WIDER THE WORDS MANUFACTURES. THEREFORE, THE WORD PRODUCES CANNOT BE DERIVE ITS COLOUR FROM THE WORD MANUFACTURES. FUR THER EVEN ACCORDING TO THE DICTIONARY MEANING OF WORD PRODUC ES IS DEFINED ITA NOS. 2923, 554 & 555/M/08 ARTS & CRAFTS EXPORTS. 11 AS SOMETHING WHICH BROUGHT FORTH OR YIELDED EITHER NATURALLY OR AS A RESULT OF EFFORT AND WORKS. THE HONBLE JURISDICT IONAL HIGH COURT IN THE CASE OF CIT V. FATEH GRANITE (P) LTD., 314 ITR 32(BOM.),HAS EXAMINED THESE WORDS AS UNDER:- THE EXPRESSION 'MANUFACTURE' OR 'PRODUCTION' IS DI FFERENT EXPRESSIONS AND THE WORD 'PRODUCTION' HAS A WIDER M EANING AS EXPLAINED BY THE APEX COURT IN SESA GOA LTD. (SU PRA). IN OUR OPINION, THE WORD 'PRODUCTION' UNDER S. 10B CON SIDERING SIMILAR EXPRESSION IN S. 80-IB WILL HAVE TO BE GIVE N THIS WIDER MEANING. CONSIDERING THAT THE EXPRESSIONS ARE NOT D EFINED IN THE ACT BUT THE EXPRESSIONS ARE USED IN THE SAME AC T. THE ONLY DIFFERENCE BETWEEN S. 80-IB AND S. 10B IS THAT S. 10B IS APPLICABLE TO A 100 PER CENT EOU, WHEREAS S. 80-IB CAN BE IN RESPECT OF ANY UNIT. IN OUR OPINION, THEREFORE, THE EXPRESSION 'PRODUCTION' WILL HAVE THE SAME MEANING AS IN SESA GOA LTD. (SUPRA) AND CONSEQUENTLY, THE QUESTION FRAMED IS DE VOID OF MERITS. 11.3 THE APEX COURT IN THE CASE OF VIJAY SHIP BRE AKING CORP. V. CIT, 314 ITR 309(SC) WHEREIN AFTER EXAMINING THE WO RDS MANUFACTURE AND PRODUCTION CONFIRMED THE ORDER OF ITAT WHERE IN WAS HELD THAT SHIP BREAKING ACTIVITY GAVE RISE TO THE PRODUCTION OF A DISTINCT AND DIFFERENT ARTICLES, THEREFORE, TH E ASSESSEE IS ENTITLED TO DEDUCTION U/S 80 HHC & 80I OF THE ACT. 11.4 THE ITAT JAIPUR BENCH IN THE CASE OF GOVERD HAN PRASAD SINGHAL V. ITO, 27 DTR (JP)(TRIB.)1 WHEREIN THE ASS ESSEE PURCHASES RAW MATERIAL IN THE SHAPE OF PURE WOOD OR SEMI-WOOD OR SEMI FINISHED FURNITURE AND MAKES VARIOUS TYPES OF ADDIT IONS BY MAKING ARTISTIC DESIGN & FITTINGS OF BOXES, AND IRON ITEMS , INLAY CASINGS GIVING AN ARTISTIC LOOK TO THE FURNITURE ITEMS, AND EXPORTED THOSE ARTICLES. THE ITAT HELD THAT PRODUCT IS AN ALTOGETH ER DIFFERENT COMMODITY WITH A SUBSTANTIVE VALUE ADDITION. THE AR TICLES WERE HAND-MADE AND CONDITIONS LAID DOWN IN THE SECTION 1 0BA ARE SATISFIED. SIMILAR VIEW WAS TAKEN BY THE ITAT IN TH E CASE OF DY. CIT V. MANGLAM ARTS, 17 DTR (JP)(TRIB.) 97. ITA NOS. 2923, 554 & 555/M/08 ARTS & CRAFTS EXPORTS. 12 11.5 ANOTHER OBJECTION OF THE REVENUE IS THAT T HE ASSESSEE PURCHASED THE ARTICLES FROM OUTSIDE PARTIES AND DID NOT MANUFACTURE BY SELF. WE DO NOT FIND SUBSTANCE IN TH IS OBJECTION OF THE REVENUE. THE ITAT MUMBAI BENCH IN THE CASE OF S UNRISE METAL INDUSTRIES VS. ITO, 89 ITD 406 (MUM) HELD THAT EVEN WHERE MAJOR ACTIVITY OF MANUFACTURING IS NOT DONE BY THE ASSESS EE FROM OUTSIDE PARTIES ON JOB WORK BASIS, STILL IT CAN BE SAID THA T ASSESSEE HAS CARRIED OUT MANUFACTURING ACTIVITY IN ITS OWN UNIT. 11.6 THE REVENUE HEAVILY RELIED UPON A DECISION OF ITAT JODHPUR BENCH IN THE CASE OF KWAL PRO EXPORT V. ACI T, 109 TTJ 869 (JODH) FOR AY 2001-02. THE LEARNED AR POINTED O UT THAT IN SUBSEQUENT YEARS IN AY 2002-03 TO 2005-06 IN ASSESS EES OWN CASE REPORTED IN 123 TTJ 543 (JP) THE ITAT HAS DISTINGUI SHED THAT EARLIER DECISION OF ITAT. THE RELEVANT FINDINGS IS REPRODUCED AS UNDER FROM THE ORDER OF ITAT FOR AY 2002-03 TO 2005 -06 PARA 20 & 21 OF THE ORDER:- 20. WE HAVE HEARD THE PARTIES WITH REFERENCE TO MA TERIAL ON RECORD AND PRECEDENTS CITED AT THE BAR. THE FINDING OF FACT REACHED BY THE ASSESSING AUTHORITY THAT THE ASSESSE E SIMPLY CARRIED OUT TRADING OF MANUFACTURED ITEMS PURCHASED FROM LOCAL TRADERS IS FOUND PERVERSE ON FACTS. THE FINDI NG THAT NO MANUFACTURING HAS BEEN UNDERTAKEN BY THE ASSESSEE O N ITS OWN AND ONLY JOB CHARGES PAID FOR THE WORK DONE BY OTHER MANUFACTURERS IS ALSO NOT CORRECT. THE EXAMINATION OF BOOKS OF ACCOUNT WITH REFERENCE TO PURCHASES, SALES AND O THER EXPENSES VOUCHERS ALONG WITH CONTEMPORARY RECORD RE VEAL THAT THE APPELLANT PURCHASED NOT ONLY THE RAW MATER IAL BUT ALSO PURCHASED SEMI-FINISHED GOODS AND ARTICLES OF LIKE DESCRIPTION AS THAT OF EXPORTED GOODS ON WHICH IT C ARRIED OUT MACHINE WORK IN CASE OF WOODEN ARTICLES SUCH AS SMOOTHENING AND SHAPING THE STRUCTURES. THE SURFACE S AND THE EDGES OF WOODEN ITEMS AND THEN ENGRAVING, EMBOS SING, FIXING METALLIC PARTS AND ACCESSORIES AND THEREAFTE R POLISHING AND PAINTING THEREOF HAS ALSO BEEN DONE. THE ASSESS EE HAS ALSO FIXED ARTISTIC PARTS THEREON TO GIVE IT A COMM ERCIAL LOOK MAKING IT COMPLETELY DISTINCT IN CHARACTER AND USE. LIKEWISE IN METALLIC ITEMS, THE ASSESSEE CARRIED THE ACTIVIT IES SUCH AS SMOOTHENING OF THE SURFACES AND CORNERS, NICKEL AND COPPER PLATING BY WAY OF JOB WORK FROM OUTSIDE, FIXING ART ISTIC ACCESSORIES, STRUCTURES AND PARTS THEREON TO MAKE T HEM ITA NOS. 2923, 554 & 555/M/08 ARTS & CRAFTS EXPORTS. 13 FASCINATING AND MARKETABLE COMMODITY WHICH WAS DIFF ERENT BOTH IN CHARACTER AND USE THAN WHAT THESE ITEMS WER E ORIGINALLY PURCHASED BY THE ASSESSEE. MERELY BECAUS E SOME JOB WORK HAS BEEN GOT DONE FROM OUTSIDE, WOULD NOT TAKE AWAY THE ASSESSEE FROM THE SCOPE AND MEANING OF MANUFACTURE OF ARTICLES OR PRODUCTS BY HIM. THE ACT IVITY CARRIED OUT BY THE APPELLANT THUS WAS NOT THAT OF G IVING MERE FEATHER TOUCHES. EVEN THOUGH THE ORIGINAL MATERIAL DID NOT LOSE ITS IDENTITY COMPLETELY YET A DIFFERENT COMMER CIAL COMMODITY HAS BEEN BROUGHT INTO EXISTENCE BY THE AP PELLANT, THE END-PRODUCT SO PRODUCED BEING DIFFERENT AND DIS TINCT BOTH IN CHARACTER AND USE AS WELL. 20.1 THE TERM 'MANUFA CTURE' HAS NOT BEEN DEFINED IN IT ACT. IN THE CASE OF ASPI NWALL & CO. LTD. VS. CIT (2001) 170 CTR (SC) 68 : (2001) 251 IT R 323 (SC) HON BLE SUPREME COURT HAS OBSERVED AS UNDER : 'TH E WORD MANUFACTURE HAS NOT BEEN DEFINED IN THE ACT. IN T HE ABSENCE OF A DEFINITION OF THE WORD MANUFACTURE IT HAS TO BE GIVEN A MEANING AS IS UNDERSTOOD IN COMMON PARLANCE. IT IS TO BE UNDERSTOOD AS MEANING THE PRODUCTION OF ARTICLES FO R USE FROM RAW OR PREPARED MATERIALS BY GIVING SUCH MATER IALS NEW FORMS, QUALITIES OR COMBINATIONS WHETHER BY HAND LA BOUR OR MACHINES. IF THE CHANGE MADE IN THE ARTICLE RESULTS IN A NEW AND DIFFERENT ARTICLE THEN IT WOULD AMOUNT TO A MAN UFACTURING ACTIVITY.' 20.2 HON BLE APEX COURT IN ADITYA MILLS VS. UNION OF INDIA AIR 1988 SC 2237 HAS OBSERVED THAT MANUFACTURE IS C OMPLETE AS SOON AS THE RAW MATERIAL UNDERGOES SOME CHANGE A ND A NEW SUBSTANCE OR ARTICLE IS BROUGHT INTO EXISTENCE HAVING ITS OWN CHARACTER AND USE. 20.3 HON BLE KARNATAKA HIG H COURT IN THE CASE OF CIT VS. DARSHAK LTD. (2001) 165 CTR (KAR) 17 : (2001) 247 ITR 489 (KAR) EXPLAINED THE WORLD 'MANUF ACTURE' AS UNDER : 'THE WORD MANUFACTURE IS TO BE UNDER STOOD IN A WIDE SENSE. MANUFACTURE WOULD IMPLY A CHANGE AND A TRANSFORMATION. A NEW AND DIFFERENT ARTICLE MUST EM ERGE HAVING A DISTINCT AND DIFFERENT CHARACTER AND USE.' 20.4 HON BLE MADRAS HIGH COURT IN CIT VS. PREMIER TOBACCO PA CKERS (P) LTD. (2006) 203 CTR (MAD) 201 : (2006) 284 ITR 222 (MAD) MADE THE FOLLOWING OBSERVATION WITH RESPECT TO MANU FACTURING ACTIVITY : 'THE WORD MANUFACTURE HAS NOT BEEN D EFINED IN THE IT ACT. IN THE ABSENCE OF A DEFINITION, THE WOR D MANUFACTURE HAS TO BE GIVEN A MEANING AS IS UNDER STOOD IN COMMON PARLANCE. IT IS TO BE UNDERSTOOD AS MEANING THE PRODUCTION OF ARTICLES FOR USE FROM RAW OR PREPARED MATERIALS BY GIVING SUCH MATERIALS NEW FORMS, QUALITIES OR COMBINATIONS WHETHER BY HAND LABOUR OR MACHINES. IF THE CHANGE MADE IN THE ARTICLE RESULTS IN A NEW AND DIF FERENT ARTICLE THEN IT WOULD AMOUNT TO MANUFACTURING ACTIV ITY.' 20.5 HON BLE MADRAS HIGH COURT IN CIT VS. JAMAL PHOTO INDUSTRIES (I) (P) LTD. (2006) 205 CTR (MAD) 427 : (2006) 285 ITR 209 (MAD) OBSERVED AS UNDER : 'THE EXPRESSION MANUFACTURE INVOLVES THE CONCEPT OF CHANGES EFFEC TED TO THE ITA NOS. 2923, 554 & 555/M/08 ARTS & CRAFTS EXPORTS. 14 BASIC RAW MATERIAL RESULTING IN THE EMERGENCE OF, O R TRANSFORMATION INTO, A NEW COMMERCIAL COMMODITY. BU T IT IS NOT NECESSARY THAT THE ORIGINAL ARTICLE OR MATERIAL SHOULD HAVE LOST ITS IDENTITY COMPLETELY. ALL THAT IS REQU IRED IS TO FIND OUT WHETHER AS A RESULT OF THE OPERATION IN QUESTIO N, A TOTALLY DIFFERENT COMMODITY HAS BEEN PRODUCED HAVING ITS OW N NAME, IDENTITY CHARACTER AND END USE.' 20.6 HON BLE APE X COURT IN THE CASE OF CIT VS. N.C. BUDHARAJA & CO. (1993) 114 CTR (SC) 420 : (1993) 204 ITR 412 (SC) HAS OBSERVED AS FOLLO WS : 'THE TEST FOR DETERMINING WHETHER MANUFACTURE CAN BE SAI D TO HAVE TAKEN PLACE IS, WHETHER THE COMMODITY WHICH IS SUBJ ECTED TO THE PROCESS OF MANUFACTURE CAN NO LONGER BE REGARDE D AS THE ORIGINAL COMMODITY BUT IS RECOGNIZED IN THE TRADE A S A NEW AND DISTINCT COMMODITY.' 20.7 IN A RECENT JUDGMENT BY AUTHORITY FOR ADVANCE RULING IN THE CASE OF RAMIT K UMAR SHARMA, IN RE (2009) 221 CTR (AAR) 621 : (2009) 18 DTR (AAR) 209 : (2009) 309 ITR 344 (AAR), IT HAS BEEN E XPRESSED THAT THE ESSENCE OF MANUFACTURING IS THAT WHAT IS M ADE SHALL BE A DIFFERENT THING FROM THAT OUT OF WHICH IT IS M ADE DESPITE THE ORIGINAL MATERIAL NOT LOSING ITS IDENTITY COMPL ETELY. ACCORDINGLY THE RAW CASTINGS THAT UNDERWENT A SUBST ANTIAL CHANGE GIVING RISE TO A COMMERCIALLY DIFFERENT PROD UCT AS MACHINE CASTING AMOUNTED TO MANUFACTURE. 20.8 IN IT O VS. RAMSONS ORGANICS LTD. (2008) 119 TTJ (DEL) 193 : (2 008) 14 DTR (DEL) 129 : (2009) 28 SOT 57 (DELHI)(URO), THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF PROCESSING OF STONE, MARBLE, GRANITE ETC., AND EXPORTING THE SAME OUTSIDE INDIA. IT PURCHASED RAW STONE BLOCKS MADE OF SANDSTONE, MARBL E, GRANITE ETC. AND THEN CUT THE SAME INTO DESIRED THI CKNESS AFTER CALIBRATION. SLICED STONE BLOCKS WERE SUBJECT ED TO VARIOUS PROCESSES AND THE END RESULT WAS A COMMERCI ALLY DIFFERENT COMMODITY. THE ASSESSEE CLAIMED DEDUCTION UNDER S. 10B WHICH WAS REJECTED BY THE AO. THE TRIBUNAL H ELD THAT THE ACTIVITY OF THE ASSESSEE GAVE RESULT TO PRODUCT S WHICH WERE COMMERCIALLY DISTINCT FROM THE RAW MATERIALS A ND IT COULD BE SAID THAT THE ASSESSEE WAS ENGAGED IN THE ACTIVITY OF MANUFACTURING WHICH IS ELIGIBLE FOR DEDUCTION UNDER S. 10B. THUS, THE DECISION WAS RENDERED IN FAVOUR OF THE AS SESSEE. 20.9 IN SARASWATI SUGAR MILLS VS. HARYANA STATE BOA RD (1992) 1 SCC 418, IT HAS BEEN HELD THAT : ' MANUFACTURE IS A TRANSFORMATION OF AN ARTICLE, WHICH IS COMMERCIALLY DIFFERENT FROM THE ONE, WHICH IS CONVERTED. THE ESSENCE OF MA NUFACTURE IS THE CHANGE OF ONE OBJECT TO ANOTHER FOR THE PURP OSE OF MAKING IT MARKETABLE. THE ESSENTIAL POINT THUS IS T HAT IN MANUFACTURE SOMETHING IS BROUGHT INTO EXISTENCE, WH ICH IS DIFFERENT FROM THAT WHICH ORIGINALLY EXISTED IN THE SENSE THAT THE THING PRODUCED IS BY ITSELF A COMMERCIALLY DIFF ERENT COMMODITY WHEREAS IN THE CASE OF PROCESSING IT IS N OT NECESSARY TO PRODUCE A COMMERCIALLY DIFFERENT ARTIC LE.' 20.10 IN ADVANCE LAW LEXICON, 3RD EDN., BY P. RAMANATHA A IYAR, THE EXPRESSIONS 'PRODUCTION' AND 'MANUFACTURE' ARE ITA NOS. 2923, 554 & 555/M/08 ARTS & CRAFTS EXPORTS. 15 DESCRIBED AS UNDER : ' PRODUCTION WITH ITS GRAM MATICAL VARIATIONS AND COGNATE EXPRESSIONS; INCLUDES (I) P ACKING, LABELING, RELABELLING OF CONTAINERS (IMPUGNED ORDER ) REPACKING FROM BULK PACKAGES TO RETAIL PACKAGES, AND (III) TH E ADOPTION OF ANY OTHER METHOD TO RENDER THE PRODUCT MARKETABL E. PRODUCTION IN RELATION TO A FEATURE FILM, INCLUDE S ANY OF THE ACTIVITIES IN RESPECT OF THE MAKING THEREOF. [CINE WORKERS AND CINEMA THEATRE WORKERS (REGULATION OF EMPLOYMENT] A CT, (50 OF 1981) S. 2(1). THE WORD PRODUCTION MAY DESIG NATE AS WELL A THING PRODUCED AS THE OPERATION OF PRODUCING (AS) PRODUCTION OF COMMODITIES OR THE PRODUCTION OF A WI TNESS. MANUFACTURE INCLUDES ANY ART PROCESS OR MANNER OF PRODUCING, PREPARING OR MAKING AN ARTICLE AND ALSO ANY ARTICLE PREPARED OR PRODUCED BY MANUFACTURE PATENTS AND DESIGNS ACT, (2 OF 1911) S. 2(10). MANUFACTURE INCLUDES ANY PROCESS (I) INCIDENTAL OR ANCILLARY TO THE COMPLET ION OF A MANUFACTURED PRODUCT; AND (IMPUGNED ORDER) WHICH IS SPECIFIED IN RELATION TO ANY GOODS IN THE SECTION O R CHAPTER NOTES OF THE FIRST SCHEDULE TO THE CENTRAL EXCISE T ARIFF ACT, 1985 (5 OF 1986) AS AMOUNTING TO MANUFACTURE, OR, A ND THE WORD MANUFACTURE SHALL BE CONSTRUED ACCORDINGLY AND SHALL INCLUDE NOT ONLY A PERSON WHO EMPLOYEES HIRED LABOU R IN THE PRODUCTION OR MANUFACTURE OF EXCISABLE GOODS BUT AL SO ANY PERSON WHO IS ENGAGED IN THEIR PRODUCTION OR MANUFA CTURE ON HIS OWN ACCOUNT. (III) WHICH IS SPECIFIED IN RELATI ON TO ANY GOODS BY THE CENTRAL GOVERNMENT BY NOTIFICATION IN THE OFFICIAL GAZETTE AS AMOUNTING TO MANUFACTURE CENTRA L EXCISE ACT, (1 OF 1944) S. 2(F).' 20.11 IN ARIHANT TILES & MARBLES (P) LTD. VS. ITO (SUPRA), HON BLE RAJASTHAN HIGH COUR T HAS HELD THAT : 'MARBLE BLOCKS AS A MINERAL PRODUCED FROM EA RTH BY ITSELF ARE NOT USABLE FOR ANY PURPOSE AND THEREFORE TO MAKE THEM USABLE VARIOUS PROCESSES COULD BE APPLIED TO B RING THEM TO THAT STAGE WHICH WOULD AMOUNT TO MANUFACTURING. UNDER THE SCHEME OF THE IT ACT AND THE RULES CUTTING AND POLISHING OF MARBLE AND GRANITE BLOCKS HAVE BEEN HELD TO BE A N INDUSTRIAL ACTIVITY OF MANUFACTURE. CIRCULAR NO. 72 9, DT. 1ST NOV., 1955 [(1995) 129 CTR (ST) 1] HAS CONSIDERED G RANITE AS A MINERAL AND ANY PROCESS APPLIED MAKES IT A VALUAB LE MARKETABLE COMMODITY. HENCE CONVERSION OF MARBLE BL OCKS INTO SLABS AND TILES AMOUNTS TO MANUFACTURE OF THIN G OR ARTICLE WITHIN THE MEANING OF S. 80-IA/80-IB AND AN ASSESSEE ENGAGED IN SUCH ACTIVITY WOULD BE ENTITLED TO SPECI AL DEDUCTION UNDER THE PROVISION.' 21. THE ORDER IN THE CASE OF ARIHANT TILES & MARBLE S (P) LTD. VS. ITO (SUPRA) A THIRD MEMBER CASE OF JODHPUR TRIB UNAL ITSELF WAS ASSAILED BEFORE THE HON BLE HIGH COURT OF JUDICATURE OF RAJASTHAN AT JODHPUR BY THE ASSESSEE AND THE HON BLE COURT THUS HAS SET ASIDE THE ORDER OF THE TRIBUNAL IN AFORESAID JUDGMENT. THE TRIBUNAL AT JODHPUR IN A PPELLANT ITA NOS. 2923, 554 & 555/M/08 ARTS & CRAFTS EXPORTS. 16 S CASE BEFORE US RESTED ITS DECISION ON THE FINDING S AND CONCLUSION ARRIVED IN THE CASE OF ARIHANT TILES & M ARBLES (P) LTD. (SUPRA) BY ITS OWN BENCH. THIS ONE REASON ALSO HAS PERSUADED US TO HEAR THE MATTER DE NOVO FOR REACHIN G INDEPENDENT FINDINGS OF FACTS AND CONCLUSION THEREO N. THE FACTS THUS FOUND ARE DIFFERENT FROM THE FACTS FOUND BY THE EARLIER TRIBUNAL IN APPELLANT S CASE IN THE IMMED IATELY PRECEDING YEAR. KEEPING IN VIEW THE CHANGE IN FACTS , LEGAL DEVELOPMENTS AS REFERRED BY THE LEARNED COUNSEL BY CITING VARIOUS JUDGMENTS SUCH AS INDIA CINE AGENCIES VS. C IT (SUPRA). OTHERS ARE IN CIT VS. MAHESH CHANDRA SHARM A (SUPRA), CIT VS. GROZ BECKERT SABOO LTD. (SUPRA) AN D P.R.P. GRANITES VS. ASSTT. CIT & ANR. (SUPRA), JUDICIAL TH INKING, APPELLANT S REGISTRATION WITH VARIOUS GOVERNMENT AGENCIES AS A MANUFACTURING UNIT AND THE FINDINGS OF FACT AS ARE REACHED AT PARA 20 HEREINBEFORE, WE HOLD THAT THE A PPELLANT COULD BE SAID TO HAVE UNDERTAKEN BUSINESS ACTIVITY AMOUNTING TO MANUFACTURE OR PRODUCTION OF ARTICLES IN THESE YEARS UNDER APPEAL BEFORE US AND THE INCOME THEREOF IS THUS ELIGIBLE FOR EXEMPTION UNDER S. 10B OF THE ACT. THE GROUNDS RAISED IN THESE APPEALS ARE THUS ALLOWED. 11.7 WE MAY STATE HERE THAT THE JUDGMENT OF RAJAS THAN HIGH COURT IN THE CASE OF ARIHANT TILES AND MARBLES (P) LTD., V. ITO, 104 TTJ (JD)TM 149 HAS BEEN UPHELD BY THE APEX COURT IN THE CASE OF ITO VS. ARIHANT TILES AND MARBLES (P) LTD. (SC) 320 ITR 79 (SC). 11.8 WE MAY ALSO STATE SOME IMPORTANT OBSERVATION S OF THE APEX COURT MADE IN THE CASE OF ITO V. ARIHAND TILES AND MARBLES P. LTD., [2010] 320 ITR 79, READ AS UNDER:- BEFORE CONCLUDING WE WOULD LIKE TO MAKE ONE OBSERVA TION. IF THE CONTENTION OF THE DEPARTMENT IS TO BE ACCEPTED , NAMELY, THAT THE ACTIVITY UNDERTAKEN BY THE RESPONDENTS HER EIN IS NOT A MANUFACTURE, THEN, IT WOULD HAVE SERIOUS REVENUE CONSEQUENCES. AS STATED ABOVE, EACH OF THE RESPONDE NTS IS PAYING EXCISE DUTY, SOME OF THE RESPONDENTS ARE JOB WORKERS AND THE ACTIVITY UNDERTAKEN BY THEM HAS BEEN RECOGN IZED BY VARIOUS GOVERNMENT AUTHORITIES AS MANUFACTURE. TO S AY THAT THE ACTIVITY WILL NOT AMOUNT TO MANUFACTURE OR PROD UCTION UNDER SECTION 80-IA WILL HAVE DISASTROUS CONSEQUENC ES, 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 UNDERT AKEN BY EACH OF THE RESPONDENTS CONSTITUTES MANUFACTURE OR PROD UCTION AND, ITA NOS. 2923, 554 & 555/M/08 ARTS & CRAFTS EXPORTS. 17 THEREFORE, THEY WOULD BE ENTITLED TO THE BENEFIT OF SECTION 80IA OF THE INCOME TAX ACT, 1961. 11.9 THE ABOVE OBSERVATIONS OF THE APEX COURT AL SO APPLICABLE IN THE CASE UNDER CONSIDERATION AS THE ASSESSEE IS GET TING SOME INCENTIVES IN SALES TAX ETC. AS STATED ABOVE THAT W ORD PRODUCTION IS WIDER IN SCOPE AS COMPARED TO THE WORD MANUFACT URE. PARLIAMENT ITSELF HAS TAKEN NOTE OF THE GROUND REAL ITY AND HAS AMENDED THE PROVISIONS OF INCOME TAX ACT, 1961 BY I NSERTING SECTION 2(29BA) VIDE FINANCE ACT, 2009, WEF 1.4.200 9. THE SAID SECTION READS AS UNDER:- SECTION 2(29BA): - 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 ART ICLE 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 OB JECT OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSITION OR I NTEGRAL STRUCTURE. 11.10 WE APPLY THE TESTS LAID DOWN BY THE APEX COURT IN THE CASE OF SESA GOAS CASE 271 ITR 33 (SC) AND ITO VS. ARIHANT TILES AND MARBLES (P) LTD. (SC) 320 ITR 79 (SC) TO THE AC TIVITIES UNDERTAKEN BY THE ASSESSEE. IN THE CASE UNDER CONSI DERATION WE FIND THAT THE ASSESSEE PLACED ORDERS FOR SUPPLY OF VARIOUS UNFINISHED HAND-MADE WOODEN HANDICRAFT ARTICLES OR THINGS IN THEIR RAW FORM, TO VARIOUS ARTISANS/SUPPLIERS AFTER OBTAI NING THE EXPORT ORDERS. THE ASSESSEE GAVE COMPLETE SPECIFICATIONS O F THE WOODEN ARTICLES REQUIRED TO BE SUPPLIED BY THE CONCERNING SUPPLIERS. THOSE SUPPLIERS HAD MANUFACTURED THOSE WOODEN ITEMS IN TH EIR RAW FORM/UNFINISHED STAGE I.E. ONLY STRUCTURES OF SPECI FIED ITEMS MADE OF WOOD WERE MANUFACTURED BY THEM UNDER THE SUPERVI SION OF THE ASSESSEE AND ACCORDING TO THE SPECIFICATIONS GIVEN BY THE ASSESSEE IN THOSE SUPPLIERS PURSUANT TO PRE-EXISTING EXPORT ORDERS. AFTER RECEIVING SUCH HANDMADE WOODEN ARTICLES/THINGS IN T HEIR RAW FORM FROM THE SUPPLIERS, THE ASSESSEE IN ITS FACTORY HAD CARRIED OUT ITA NOS. 2923, 554 & 555/M/08 ARTS & CRAFTS EXPORTS. 18 VARIOUS PROCESSES OF MANUFACTURING/PRODUCTION. A DE TAILED NOTE RELATING TO VARIOUS PROCESSES OF MANUFACTURE/PRODUC TION HAS ALREADY BEEN SUBMITTED BEFORE THE REVENUE AUTHORITI ES ALONG-WITH THE PHOTOGRAPHS OF VARIOUS PROCESSES SO CARRIED OUT AT THE FACTORY PREMISES OF THE ASSESSEE IN THE YEAR UNDER CONSIDER ATION VIZ. AY 2004-05 AND ALSO DURING ASSESSMENT PROCEEDINGS FOR AY 2003-04. THE VARIOUS PROCESSES SO CARRIED OUT BY THE ASSESSE E AT ITS FACTORY PREMISES THROUGH THEIR OWN EMPLOYED WORKERS/ARTISAN S AS WELL AS THROUGH CONTRACT WORKERS/ARTISANS INTER ALIA INCLUD ING THE PROCESS OF SANDING HANDCARVING, FITTING, STAINING, PAINTING, POLISHING, SPRAYING, ANTIQUE-ING AND PACKING, ETC. SUCH P ROCESSES ARE CARRIED OUT BY VARIOUS ARTISANS IN THE ASSESSEES F ACTORY. SUCH FINISHED WOODEN HANDICRAFT ITEMS SO PROCESSED, MANU FACTURED AND PRODUCED IN THE ASSESSEES FACTORY BY VARIOUS ARTIS ANS DISPLAYS THE INDIAN ART AND CRAFTSMANSHIP. THE HANDMADE HANDICRA FT WOODEN ARTICLES OR THINGS SO MANUFACTURED/PRODUCED DISPLAY S THE INDIAN ART, TRADITIONAL CULTURE AND HERITAGE AND ARE PURCH ASED BY FOREIGN BUYERS ONLY BECAUSE OF ATTRACTIVE ARTISTIC VALUE OF SUCH ARTICLES. FROM THE ACTIVITIES CARRIED OUT BY THE ASSESEE IT I S CLEAR THAT THE SAID ACTIVITIES WOULD COME WITHIN THE MEANING OF TH E WORDS MANUFACTURES OR PRODUCES ARTICLES OR THINGS WHI CH ARE OF ARTISTIC VALUE, THUS THE ASSESSEE SATISFIED THE MAIN CONDITI ON FOR ENTITLE TO DEDUCTION UNDER SECTION 10BA AND 80IB OF THE ACT I N RESPECT OF THE RESPECTIVE ARTICLES/GOODS. 11.11 NOW WE COME TO OTHER OBJECTIONS OF THE R EVENUE FOR NOT GRANTING DEDUCTIONS UNDER SECTION 80IB AND SECTION 10BA OF THE ACT. IN AY 2003-04 THE CIT(A) PARTLY CONFIRMED THE ORDER OF AO IN RESPECT OF DISALLOWANCE OF DEDUCTION U/S 80IB ON TH E GROUND THAT THE ASSESSEE IS NOT MANUFACTURING THE ITEMS. HOWEVE R, IN RESPECT OF PURCHASES OF WOOD RS. 1679568 AND IRON AT RS. 1,47, 570/- THE CIT(A) HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCT ION U/S 10BA AND U/S 80IB RESPECTIVELY. THE AO WAS DIRECTED ACCORDIN GLY. IN AY 2004-05, THE ASSESSEE CLAIMED DEDUCTION U/S 80IB & 10BA OF THE ACT. APART FROM THE MAIN REASON FOR DISALLOWING DED UCTION THAT THE ITA NOS. 2923, 554 & 555/M/08 ARTS & CRAFTS EXPORTS. 19 ASSESSEE IS NOT MANUFACTURER, THE CIT(A) FURTHER HE LD THAT THE ASSESSEE DID NOT SATISFY THE REQUIREMENT OF CONDIT ION OF 2(B), 2(C), 2(D) & 2(E) OF SECTION 10BA. THE IDENTICAL ISSUE RE GARDING COMPLIANCE OF CONDITIONS LAID DOWN IN SECTION 2(B) & 2(C) OF SECTION 10BA CAME BEFORE ITAT, JAIPUR BENCH IN THE CASE OF MANGLAM ARTS SUPRA WHERE IN THE ITAT HAS HELD AS UNDER:- 8. THERE IS NO DISPUTE THAT THE ASSESSEE WAS BEING ALLOWED THE DEDUCTION UNDER S. 80HHC OF THE ACT IN THE PREC EDING YEARS. IT WAS EXPLAINED TO THE AO THAT IN COMPUTING THE TOTAL INCOME OF ANY UNDERTAKING FOR ANY ASSESSMENT YEAR, DEDUCTION UNDER S. 10A OR S. 10B HAS BEEN CLAIMED T HE UNDERTAKING SHALL NOT BE ENTITLED TO DEDUCTION UNDE R THIS SECTION. THERE IS NO MENTION THAT THE UNDERTAKING W HICH HAS ENJOYED BENEFITS UNDER S. 80HHC IS ALSO SIMILARLY D ISENTITLED. TO PUT IT OTHERWISE, ALL EXISTING UNITS ARE DULY SO ENTITLED EXCEPT THOSE WHO HAVE ENJOYED BENEFITS UNDER S. 10A OR 10B OF IT ACT. SEC. 10BA(B) ALREADY CLEARLY SAYS THAT I N CASE ANY ASSESSEE GETS THE BENEFITS UNDER S. 10BA THE SAID A SSESSEE SHALL NOT BE ENTITLED TO ANY OTHER DEDUCTION (INCLU DING UNDER S. 80HHC) UNDER THE IT ACT. SEC. 10BA IS A SPECIAL PROVISION TO ENCOURAGE EXPORT OF WOODEN HANDICRAFT ARTICLES. IT HAS BEEN INTRODUCED UNDER SPECIAL CIRCUMSTANCES AND THE WORK ING OF OTHER SECTIONS PROVIDING SIMILAR DEDUCTION FOR PROF ITS FROM EXPORT OF OTHER GOODS AND THE DIFFERENCE CAN BE SEE N. IN S. 10A, DEDUCTION IS FOR FTZ AND THE SAID SECTION IS F OR SOFTWARE WHICH BEGINS TO MANUFACTURE SOFTWARE FROM ASST. YR. 1981-82 OR TRANSFER FOR FTZ 1994-95 OR THEREAFTER (ELECTRON IC HARDWARE INDUSTRY). SEC. 10B IS FOR SOFTWARE FOR 10 YEARS ST ARTING FROM ASST. YR. 1994-95. SEC. 10C IS FOR INDUSTRIAL UNDER TAKINGS IN NORTH EAST, WHICH START PRODUCTION ON OR AFTER 1ST APRIL, 1998. SIMILARLY SS. 80-I, 80-IA, 80-IB AND 80-IC WH ICH PROVIDE FOR DEDUCTION OF CERTAIN PERCENTAGE OF PROF ITS OF DIFFERENT UNDERTAKINGS ALSO PROVIDE THAT THIS BENEF IT IS AVAILABLE FOR CERTAIN SPECIFIED PERIOD FROM THE DAT E ON WHICH THE MANUFACTURE IS STARTED. AS AGAINST ALL THESE PR OVISIONS, IT IS SIGNIFICANT TO NOTE THAT THERE IS NO MENTION ABO UT THE COMMENCEMENT OF MANUFACTURE OR PRODUCTION FOR GRANT OF RELIEF UNDER S. 10BA. THIS SECTION IS AVAILABLE FOR ASST. YRS. 2004-05 TO 2009-10. TO PUT IT OTHERWISE, THE EXISTI NG UNDERTAKINGS WERE NOT EXCLUDED FROM CLAIMING THE BE NEFIT UNDER S. 10BA. THIS EXPLANATION OF THE ASSESSEE WAS NOT CONSIDERED BY THE ASSESSING AUTHORITIES. ON PERUSAL OF THE PROVISIONS LAID DOWN IN S. 10BA(2)(B) AND 10BA(2)(C ), THE ITA NOS. 2923, 554 & 555/M/08 ARTS & CRAFTS EXPORTS. 20 ASSESSEE S UNDERTAKINGS HAS NOT BEEN FORMED BY SP LITTING UP OR RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENC E AND NONE OF THE UNDERTAKINGS HAVE BEEN FORMED BY THE TRANSFE R TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE, SINCE THE ASSESSEE HAS NOT STARTED ANY NEW BUSINESS AND THE ASSESSEE WAS CARRYING ON THE EXISTING BUSIN ESS. THEREFORE, THERE IS NO CONDITION LAID DOWN UNDER TH E ACT WHERE THE EXISTING BUSINESS OF THE ASSESSEE HAVING THE PLANT AND MACHINERY CAN BE DENIED DEDUCTION UNDER S. 10BA (1) OF THE ACT. THE DEDUCTION IS AVAILABLE FOR A LIMITED P ERIOD STARTING FROM ASST. YR. 2004-05 TO ASST. YR. 2009-1 0. THERE IS NO MENTION OF THE COMMENCEMENT OF THE MANUFACTURE O R PRODUCTION FOR CLAIMING THE DEDUCTION UNDER S. 10BA (1) OF THE ACT. THEREFORE, IT APPEARS THAT THE AO HAS MADE WRO NG INTERPRETATION OF THE LAW CONTAINED IN S. 10BA(2)(A ) AND 10BA(2)(B) OF THE ACT. THEREFORE, WE FIND NO INFIRM ITY IN THE ORDER OF THE LEARNED CIT(A) WHO HAS RIGHTLY ACCEPTE D THE EXPLANATION OF THE ASSESSEE AND REVERSED THE DECISI ON OF THE AO ON THIS ISSUE. FOLLOWING THE ABOVE ORDER OF ITAT, WE DO NOT FIND A NY SUBSTANCE IN THE FINDING OF CIT(A). WE FIND THAT THE ASSESSEE HA S SATISFIED ALL THE CONDITIONS STATED IN SECTION 10BA OF THE ACT. 11.12 AS REGARDS CONDITIONS STIPULATED IN SUB-SEC TION 2(D) OF SECTION 10BA THAT NINETY PERCENT OR MORE OF ITS SAL ES DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR ARE B Y WAY OF EXPORTS OF THE ELIGIBLE ARTICLES OR THINGS; WE FIND THAT TH E CIT(A) CALCULATED ELIGIBLE ITEMS ONLY IN RESPECT OF WOOD PURCHASED WH ICH IS NOT CORRECT. THE ASSESSEE IS 100% EXPORTER OF ELIGIBLE ITEMS. SINCE THE FIRST ISSUE REGARDING THAT THE ASSESSEE PRODUCES EL IGIBLE ARTICLES, THEREFORE, THIS OBJECTION OF CIT(A) IS NOT SUSTAINA BLE. THE LAST OBJECTION FOR AY 2004-05 OF THE CIT(A) IS IN RESPEC T OF WORKERS, AS REQUIRED IN SECTION 10BA(2E). THE AO HIMSELF ADMITT ED THAT THERE WERE 71 WORKERS WORKING IN THE FACTORY. THE RELEVAN T PARA 6 OF CIT(A) REPRODUCED BELOW:- 6. ASSESSEE HAS SUBMITTED DETAILS OF 71 WORKERS WO RKING IN THE FACTORY AS PER P.F. RECORDS. IN FACT, AS PER SALARY REGISTER THERE WERE ONLY 28 WORKERS WHICH INCLUDES 1 SWEEPER, 2 SUPERVISOR, ONE SPRAY MAN, 22 LABOURS, 2 CARPENTERS, 2 HELPERS, 1 WATCHMAN AND OTHER EMPLOYEES. OUT OF THE ABOVE WORK ERS ONLY 2 CARPENTER, 1 SPRAY MAN, 11 LABOURS AND 2 HELPERS COULD HAVE PARTICIPAT ED IN THE JOB WORK OF ASSEMBLING ITA NOS. 2923, 554 & 555/M/08 ARTS & CRAFTS EXPORTS. 21 POLISHING ETC. IN THE FACTORY. AS SUCH ONLY 16 PERS ONS ARE INVOLVED IN PROCESSING THE ITEMS WHICH ALSO VIOLATES THE PROVISIONS OF SUB CLA USE (E) OF CLAUSE 2 OF SEC. 10BA. 11.13 THE OBJECTION OF AO AND CIT (A) ARE THAT THE ONLY 16 WORKERS INVOLVED IN PROCESSING THE ITEMS. IN THE L IGHT OF VARIOUS DECISIONS CITED BY THE LEARNED AR, THE ORDER OF CIT (A) IS NOT SUSTAINABLE. THE ASSESSEE SATISFIED THE CONDITIONS LAID DOWN IN SUB-SECTION 2(E) OF SECTION 10BA AS 71 WORKERS WERE EMPLOYED. IN THIS YEAR THE ASSESSEE ALSO CLAIMED DEDUCTION U/S 8 0IB ON IRON ITEMS. THE AO REJECTED ASSESSEES CLAIM U/S 80IB O N THE GROUND THAT THE ASSESSEE IS NOT MANUFACTURER. AS PER DETAI LED DISCUSSION MADE BY US IN ABOVE PARAS WE FIND THAT THE ASSESSEE SATISFIED ALL THE CONDITIONS INCLUDING THAT THE ASSESSEE IS MANU FACTURE/PRODUCE THE ARTICLES. IN THE LIGHT OF THAT FINDING THE CLAI M OF ASSESSEE IS ALLOWED. 11.14 AS REGARDS DEDUCTION U/S 10BA IN RESPECT O F DEPB, WE FIND THAT SUB-SECTION (4) OF SECTION 10BA DEFINES PROFIT S DERIVED FROM ELIGIBLE ARTICLES. SECTION 28 (IIIC) (IIID) & (IIIE ) PROVIDES THAT THESE INCOME ARE PROFITS & GAINS OF BUSINESS. THE SAID SU B-SECTION (4) OF SECTION 10BA IS REPRODUCED BELOW:- FOR THE PURPOSES OF SUB-SECTION (1), THE PROFITS DERIVED FROM EXPORT OUT OF INDIA OF THE ELIGIBLE ARTICLES OR THINGS SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THINGS BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING. THE RELEVANT PART OF SECTION 28 READS AS UNDER:- SECTION 28.THE FOLLOWING INCOME SHALL BE CHARGEA BLE TO INCOME TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION - [(IIIC) ANY DUTY OF CUSTOMS OR EXCISE RE-PAID OR R E-PAYABLE AS DRAWBACK TO ANY PERSON AGAINST EXPORTS UNDER THE CUSTOMS AND CENTRAL EXCIS E DUTIES DRAWBACK RULES, 1971 ; [(IIID) ANY PROFIT ON THE TRANSFER OF THE DUTY ENTI TLEMENT PASS BOOK SCHEME, BEING THE DUTY REMISSION SCHEME UNDER THE EXPORT AND IMPORT P OLICY FORMULATED AND ANNOUNCED UNDER SECTION 5 OF THE FOREIGN TRADE (DEV ELOPMENT AND REGULATION) ACT, 1992 (22 OF 1992); ITA NOS. 2923, 554 & 555/M/08 ARTS & CRAFTS EXPORTS. 22 (IIIE) ANY PROFIT ON THE TRANSFER OF THE DUTY FREE REPLENISHMENT CERTIFICATE, BEING THE DUTY REMISSION SCHEME UNDER THE EXPORT AND IMPORT P OLICY FORMULATED AND ANNOUNCED UNDER SECTION 5 OF THE FOREIGN TRADE (DEV ELOPMENT AND REGULATION) ACT, 1992 (22 OF 1992) ;] 11.15 IN THE LIGHT OF ABOVE DISCUSSION, WE FIND THAT THE ASSESSEE IS ENTITLED DEDUCTION U/S 10BA ON DEPB AS IN ACCORD ANCE WITH SECTION 28 OF THE ACT THESE ARE BUSINESS INCOME. 12. ONE MORE COMMON GROUND RAISED IN THESE APPEA LS PERTAINS TO CHARGING OF INTEREST UNDER SECTION 234A, 234B AND 2 34C WHICH IS CONSEQUENTIAL NATURE .THE AO IS DIRECTED ACCORDINGL Y. 13. NEXT GROUND IN AY 2005-2006 IS IN RESPECT OF DISALLOWANCE OF MOTOR CAR EXPENSES. THE AO DISALLOWED 20% ON ACCOUN T OF PERSONAL USED WHICH HAS BEEN CONFIRMED BY THE CIT (A). AFTER HEARING LEARNED REPRESENTATIVE WE AGREE WITH VIEW OF THE RE VENUES THAT PERSONAL USE OF VEHICLE CANNOT BE RULED OUT THEREFO RE TO THAT EXTEND VEHICLES WERE NOT USED FOR THE PURPOSE OF BUSINESS. HOWEVER, DISALLOWANCES ARE ON HIGHER SIDES THEREFORE DISALLO WANCE IS RESTRICTED 10% INSTEAD OF 20% DISALLOWED BY THE AO. THE AO IS DIRECTED ACCORDINGLY. 14. IN THE RESULT, THE APPEALS OF THE ASSESSE E ARE PARTLY ALLOWED AS INDICTED ABOVE. PRONOUNCED IN OPEN COURT ON THIS 30 TH DAY OF JUNE, 2010. SD/- SD/- (V. DURGA RAO) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED: 30 TH JUNE, 2010. ITA NOS. 2923, 554 & 555/M/08 ARTS & CRAFTS EXPORTS. 23 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, H BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON 3.6.10 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 4.6.10/ 15/6/10 SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER