Appeal Details
Counselvise Citation
[2015] 121 COUNSELVISE.COM (IT) 1791 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
1 year(s) 1 month(s) 9 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
30-11-2015
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Next Hearing Date
28-08-2015
Assessment Year
2007-2008
Appeal Filed On
21-10-2014
Judgement Text
I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `A NEW DELHI BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER I.T.A.NO.2531/DEL/2014 ASSESSMENT YEAR : 2009-10 I.T.A.NO.5702/DEL/2014 ASSESSMENT YEAR : 2006-07 I.T.A.NO.5703/DEL/2014 ASSESSMENT YEAR : 2007-08 ART BEAUTY EXPORT, VS ITO, WARD-31(1) , C/O RAJIV SAXENA & CO. NEW DELHI. (ADVOCATES & SOLICITORS). 318, POCKET-D, MAYUR VIHAR-II, NEW DELHI. (PAN: AABFA1767B) I.T.A.NO.924/DEL/2014 ASSESSMENT YEAR : 2008-09 ITO, WARD-31(1), VS ART BEAUTY EXPORT, NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI RAJIV SAXENA, ADV. SUMANGLA SAXENA, ADV. RESPONDENT BY : SHRI RAVI JAIN, CIT DR DATE OF HEARING: 4.9.2015 DATE OF PRONOUNCEMENT: 30.11.2015 O R D E R PER CHANDRAMOHAN GARG, J.M. OUT OF CAPTIONED FOUR APPEALS, THE THREE APPEALS I. E. I.T.A. 5702, 5703 AND 2531/DEL/2014 FOR ASSESSMENT YEARS 2006-07, 200 7-08 AND 2009-10 I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 2 RESPECTIVELY ARE THE APPEALS FILED BY THE ASSESSEE WHICH AROSE AGAINST THE ORDER OF THE CIT PASSED U/S 263 OF THE INCOME TAX ACT, 19 61 DATED 16.9.14, 19.9.14, AND 19.3.2014 RESPECTIVELY WHEREAS REMAINING ONE AP PEAL I.E. I.T.A. 924/DEL/14 FOR ASSESSMENT YEAR 2008-09 IS THE APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A) DATED 25.11.13 IN APPEAL NO. 207/13-1 4. 2. IT IS PERTINENT TO NOTE THAT ALL THE AFORESAID A PPEALS INVOLVE CONSIDERATION OF COMMON ISSUE VIZ. WHETHER THE ACTIVITY UNDERTAKE N BY THE ASSESSEE COMES WITHIN THE SCOPE AND MEANING OF WORDS MANUFACTURE AND PRODUCTION OF ARTICLE OR THING: AS USED BY THE LEGISLATION IN SECTION 10B (2)(I) OF THE ACT. BESIDES THE AFORESAID ISSUE, APPEALS FOR ASSESSMENT YEAR 2006-0 7, 2007-08 AND 2009-10- ALSO INVOLVE CONSIDERATION OF ANOTHER ISSUE I.E. WH ETHER THE LD. CIT WAS JUSTIFIED IN LAW AND ON FACTS IN REVISING THE ORDERS OF ASSES SMENT FOR SAID THREE ASSESSMENT YEARS PASSED U/S 143(3)/260A AND 143(3)/ 260A OF THE ACT RESPECTIVELY BY INVOKING REVISIONAL PROVISION OF SE CTION 263 OF THE ACT. 3. BRIEFLY STATED THE FACTS GIVING RISE TO THESE AP PEALS ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND IS ENGAGED IN THE BUSINESS O F MANUFACTURE AND EXPORT OF WOODEN AND BRASS ARTICLES, CHESS BOARDS ETC. FOR WH ICH UNFINISHED AND SOME FINISHED ARTICLES ARE GOT MANUFACTURED FROM VARIOUS ARTISANS AS PER THE INSTRUCTIONS OF THE ASSESSEE. AFTER RECEIPT OF AFO RESAID UNFINISHED AND SEMI FINISHED ARTICLES, THE ASSESSEE CONVERTS THEM INTO FINISHED PRODUCTS BY UNDERTAKING SEVERAL MANUFACTURING AND MECHANICAL PR OCESS SUCH AS RUBBING THE I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 3 RAW MATERIAL BY SAND PAPER, BUFFING, HANDCARVING, P OLISHING, ANTIQUING, PACKAGING, FITTING OF KUNDIS, PASTING OF VELVET ON THE COINS AND BOXES, ASSEMBLING TO FORM A NEW GAME CALLED 3-IN ONE GAME AND 5-IN-ONE GAME, STAINING, PAINTING, ETC. SIMILAR ACTIVITIES ARE AL SO UNDERTAKEN BY THE ASSESSEE FIRM ON THE BRASS ITEMS WHICH ARE ASSEMBLED AND POL ISHED TO COVERT THEM IN A FINISHED PRODUCT READY TO USE. THE ASSESSEE FIRM I S A 100% EXPORT ORIENTED UNIT AND PROFIT AND GAINS DERIVED BY THE ASSESSEE FIRM F ROM AFORESAID UNDERTAKING WAS CLAIMED AS ELIGIBLE FOR DEDUCTION U/S 10B OF TH E ACT. FOR THE FIRST ASSESSMENT YEAR 2006-07, THE ASSESSING OFFICER PASS ED ASSESSMENT ORDER U/S 143(3) OF THE ACT ON 15.12.08 WHEREIN THE ASSESSING OFFICER DISALLOWED THE CLAIM OF DEDUCTION U/S 10B OF THE ACT ON THREE GROU NDS VIZ. THE ASSESSEE FIRM HAS BEEN RECONSTITUTED BY THE RECONSTRUCTION OF BUS INESS ALREADY IN EXISTENCE; II) THE UNDERTAKING OF ASSESSEE HAS NOT BEEN APPROVED B Y THE REVENUE AUTHORITIES ON ACCOUNT OF NOT OBTAINING CUSTOM BONDING LICENCE; II I) THE ASSESSEE HAS BEEN PURCHASING THE FINISHED HANDICRAFT ITEMS OF OTHER A LLIED ITEMS AND AS PER THE SALE INVOICES FURNISHED, THE ITEMS EXPORTED ARE EXACTLY THE SAME AS HAVE BEEN PURCHASED, IN SUBSTANCE AND IN NOMENCLATURE ALSO. A ND NO MANUFACTURING ACTIVITY HAS BEEN UNDERTAKEN BY THE ASSESSEE WITHIN THE MEANING OF SECTION 10B OF THE ACT. THE ASSESSING OFFICER ALSO PASSED ASSE SSMENT ORDER FOR ASSESSMENT YEAR 2007-08 ON 30.12.09 WHEREIN FOLLOWING THE EARL IER ORDER FOR ASSESSMENT YEAR 2006-07, THE CLAIM OF DEDUCTION U/S 10B OF THE ACT WAS AGAIN DISALLOWED. I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 4 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT A ND VIDE CONSOLIDATED ORDER DATED 30.3.10 FOR BOTH THE ASSESSMENT YEARS, IT WAS HELD THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION U/S 10B OF THE ACT. THE CIT REVERSED THE FINDINGS OF THE ASSESSING OFFICER AND HELD THAT THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF MANUFACTURING FOR WHICH IT PURCHASED SE VERAL SEMI FINISHED AND UNFINISHED MATERIAL ON WHICH FURTHER PROCESSING WAS CARRIED OUT TO MAKE IT SALEABLE IN THE INTERNATIONAL MARKET AS DIFFERENT C OMMODITIES BECAUSE GOODS WERE MANUFACTURED IN RAW FORM AS PER THEIR DIRECTIO NS AND FURTHER THE GOODS WERE FINISHED BY POLISHING, CUTTING, BUTTING ETC IN THE PREMISES OF THE ASSESSEE FIRM AS READY TO USE ITEM FOR THE PURPOSE OF EXPORT . 5. IN THIS SEQUENCE, THE ASSESSING OFFICER PASSED A SSESSMENT ORDER FOR ASSESSMENT YEAR 2008-09 U/S 143(3) OF THE ACT ON 20 .12.10 WHEREIN FOLLOWING THE EARLIER ORDERS, THE CLAIM OF ASSESSEE BEING DED UCTION U/S 10B OF THE ACT WAS AGAIN DISALLOWED. ON 3.6.11, THE ITAT DISMISSED TH E APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2006-07 AND 2007-08 BY HOLDING THAT THE CIT(A) IS CORRECT IN ALLOWING DEDUCTION AND ALSO REFERRING TO DEFINITION UNDER FTP WHICH IS WIDER IN CONNOTATION AND INCLUDES ACTIVITIES OF THE ASSESSEE AS MANUFACTURING. IT WAS ALSO HELD BY THE TRIBUNAL THAT THE ASSEMBLING OF THE VAR IOUS PRODUCTS IN ORDER TO EXPORT IS ALSO MANUFACTURING AS PER DEFINITION OF S ECTION 10B OF THE ACT. ON 23.12.11, THE ASSESSING OFFICER PASSED ASSESSMENT O RDER FOR ASSESSMENT YEAR 2009-10 BY MAKING ENQUIRY OF THE MANUFACTURING ACTI VITIES AND AFTER DUE I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 5 EXAMINATION, DEDUCTION U/S 10B WAS ALLOWED. IT IS ALSO PERTINENT TO NOTE THAT THE REVENUE DEPARTMENT CARRIED THE MATTER BEFORE THE HO N'BLE HIGH COURT AGAINST THE ORDER OF THE TRIBUNAL DATED 3.6.11 AND THE SAME WAS UPHELD BY HON'BLE HIGH COURT CONFIRMING THE CONCURRENT FINDING OF THE LD. CIT AND THE TRIBUNAL THAT THE ASSESSEE FIRM HAS NOT BEEN RECONSTITUTED BY THE REC ONSTRUCTION OF THE BUSINESS ALREADY IN EXISTENCE AND THE ASSESSEE IS NOT REQUIR ED TO OBTAIN CUSTOM BONDING LICENCE. HOWEVER, IN RESPECT OF ADMISSION OF ADDIT IONAL EVIDENCE, THE HON'BLE HIGH COURT HELD THAT THE ADDITIONAL EVIDENCE SUBMIT TED BEFORE THE CIT WAS NOT PROPERLY VERIFIED BY THE ASSESSING OFFICER AND THE MATTER WAS SENT BACK TO THE ASSESSING OFFICER FOR LIMITED PURPOSE WITH FOLLOWIN G DIRECTIONS:- WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF T HE ASSESSING OFFICER TO ENABLE HIM TO PROCESS THE CLAIM OF THE A SSESSEE AFRESH IN THE LIGHT OF THE EVIDENCE BROUGHT ON RECORD. IT IS CLARIFIED THAT THE ASSESSING OFFICER WILL EXAMINE ONLY THE QUESTIO N WHETHER THE ASSESSEE SATISFIED THE CONDITION STATED IN SECTION 10(B)(2)(I) OF THE ACT. 6. AS PER SUBMISSIONS OF THE ASSESSEE, IT WAS A LIM ITED SET ASIDE AND SCOPE OF ASSESSMENT IN THE SET ASIDE WAS LIMITED TO RECORD H IS FINDINGS WHETHER THE ASSESSEE HAS SATISFIED THE CONDITIONS STATED IN SEC TION 10B(2)(I)OF THE ACT VIS-A- VIS ADDITIONAL EVIDENCES BROUGHT ON RECORD DURING F IRST APPELLATE PROCEEDINGS. IT WAS ALSO SUBMITTED ON BEHALF OF THE ASSESSEE THAT T HE HON'BLE HIGH COURT HAS NEITHER UPSET NOR ADVERSELY COMMENTED UPON THE FIND INGS OF THE CIT(A) AND THE TRIBUNAL THAT THE ASSESSEE IS UNDERTAKING MANUFACTU RING ACTIVITY WITHIN THE MEANING OF SECTION 10B(2)(I) OF THE ACT. IN PURSUAN CE OF THE ORDER OF THE I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 6 HON'BLE HIGH COURT, THE ASSESSING OFFICER PASSED OR DER U/S 143(3)/260A FOR ASSESSMENT YEAR 2006-07 AND 2007-08 ON 22.3.2013 AF TER DETAILED VERIFICATION OF THE ADDITIONAL EVIDENCE AND OTHER EVIDENCES PLACED BEFORE HIM. THE ASSESSING OFFICER ALSO SUBMITTED HIS CONCLUSION BY MAKING DUE INQUIRY BY SENDING INSPECTOR TO THE PREMISES OF THE ASSESSEE BUSINESS FIRM AND FINALLY HELD THAT THE ASSESSEE IS UNDERTAKING MANUFACTURING ACTIVITY WITH IN THE MEANING OF SECTION 10B(2) OF THE ACT AND THUS, THE ASSESSING OFFICER A LLOWED DEDUCTION U/S 10B OF THE ACT. 7. FURTHER ON 3.10.13 THE CIT(A) UPHELD THE ORDER O F ASSESSMENT FOR ASSESSMENT YEAR 2009-10 AND DID NOT DISTURB THE FIN DINGS OF THE ASSESSING OFFICER THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 10B OF THE ACT AS THE ASSESSEE IS UNDERTAKING MANUFACTURING ACTIVITY WITH IN THE PROVISIONS OF SECTION 10B(2) OF THE ACT ON 25.10.13. THE CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2009-10 ALLOWING THE CLAIM OF D EDUCTION U/S 10B OF THE ACT FOR WHICH THE REVENUE HAS FILED I.T.A. NO. 924/D/14 . 8. AFTER ALL AFORESAID ORDERS PASSED BY THE ASSESSI NG OFFICER AND THE CIT IN PURSUANCE TO THE ORDER OF HON'BLE HIGH COURT, THE C IT ISSUED NOTICES U/S 263 OF THE ACT TO REVISE THE ORDERS OF THE ASSESSMENT FOR ASSESSMENT YEAR 2006-07 AND 2007-08 DATED 22.3.13 PASSED U/S 143/260A OF THE AC T IN PURSUANCE TO THE ORDER OF HON'BLE HIGH COURT. THE CIT ALSO ISSUED NOTICE U S/ 263 OF THE ACT AGAINST THE ASSESSMENT ORDER DATED 23.12.11 FOR ASSESSMENT YEAR 2009-10. FINALLY, THE CIT I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 7 PASSED ORDER U/S 263 OF THE ACT ON 19.3.13, 16.9.14 AND 19.9.14 FOR ASSESSMENT YEAR 2009-10, 2006-07 AND 2007-08 RESPECTIVELY BY H OLDING THAT THE ASSESSEE ONLY POLISHES THE FINISHED PRODUCTS WHICH CANNOT BE TERMED AS MANUFACTURE AND PRODUCTION AND DENIED THE EXEMPTION U/S 10B OF THE ACT. NOW, THE AGGRIEVED ASSESSEE IS BEFORE THIS TRIBUNAL WITH THREE SEPARAT E APPEALS CHALLENGING THE INVOCATION OF REVISIONARY POWERS OF CIT U/S 263 OF THE ACT. 9. FIRST OF ALL, WE TAKE GROUNDS OF APPEAL OF THE A SSESSEE IN ITA NO. 2531/DEL/14 FOR ASSESSMENT YEAR 2009-10 WHICH READ AS UNDER:- 1. THAT THE LD COMMISSIONER OF INCOME TAX, DELHI - XI HAS ERRED IN LAW AS WELL AS ON FACTS IN CANCELLING THE ASSESSMENT ORDER ALLOWING THE DEDUCTION U/S 10 B AND DIRECTING TO REFRAME AFRESH THE SAME BY HOLDING THAT ASSESSMENT WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E U/S 263 OF THE IT ACT, 1961 BECAUSE: A) SHE HAS IGNORED THAT MANUFACTURING ACTIVITIES UNDE RTAKEN BY THE ASSESSEE NOT ONLY BRING CHANGES BUT ALSO BRI NG INTO EXISTENCE INTO NEW AND DISTINCT ARTICLE WHICH CAN N O LONGER BE REGARDED AS ORIGINAL COMMODITY AND THEN ONLY IS MARKETABLE AND READY FOR EXPORT. B) SHE HAS ERRED IN NOT APPLYING THE DEFINITION OF 'MANUFACTURE' APPLICABLE AS PER CLAUSE (R) OF THE S PECIAL ECONOMIC ZONES ACT, 2005 AS PROVIDED UNDER SECTION 10 AA OF IT ACT TO AN ENTREPRENEUR REFERRED TO IN CLAU SE (J) OF THAT ACT IN WHICH ASSESSEE FIRM IS ALSO COVERED. C) SHE HAS FAILED TO APPRECIATE THAT ASSESSEE FIRM WA S GRANTED 100% EOU BY MINISTRY OF COMMERCE UNDER THE FOREIGN TRADE POLICY AS PER SCHEME OF SPECIAL ECONOMIC ZONE BY DEVELOPMENT COMMISSIONER TILL THAT TIME LEGISLATURE HAS NOT IMPLEMENTED SEZ ACT, 2005. D) SHE HAS IGNORED THAT ASSESSEE FIRM IS NOT ONLY MANUFACTURING AS PER ITS DESIGN AND ORDERS THROUGH THE ARTISTS EMPLOYED/HIRED BUT ALSO ENGAGED IN CUTTING, CARVING, POLISHING, BUFFING, ASSEMBLING, LABELING, REPACKING ETC FOR WHICH SUPPORTING DOCUMENTS WERE FILED BY THE ASSESS EE FIRM WHICH ARE 'MANUFACTURING' AS PER CLAUSE 9.37 OF FOR EIGN TRADE POLICY, 2004-2009 WHICH WAS MORE OR LESS ADOP TED UNDER SECTION 2 (R) OF SEZ ACT, 2005. E) SHE HAS FAILED TO APPRECIATE THAT ASSESSMENT ORDER IS NOT ERRONEOUS AS THE LD ASSESSING OFFICER HAS MADE THOR OUGH I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 8 ENQUIRY BEFORE REACHING TO THE CONCLUSION DURING TH E ASSESSMENT THAT ASSESSEE FIRM IS INVOLVED IN MANUFA CTURING PROCESS. F) SHE HAS FAILED TO APPRECIATE THE LIMITED DIRECTION S OF THE HON'BLE DELHI HIGH COURT IN AY 2006-07 & 2007-08 ON WHICH THE AO DEPUTED THE INSPECTOR WHO MADE THE INSPECTION ON SITE AND THEREAFTER ALLOWED THE DEDUC TION U/S 10 B. 10. IT IS RELEVANT TO NOTE THAT THE ASSESSEE HAS AL SO ALLEGED INVOCATION OF SECTION 263 OF THE ACT FOR ASSESSMENT YEAR 2006-07 AND 2007-08 IN THE SAME MANNER AS HAS BEEN DONE FOR ASSESSMENT YEAR 2009-10 AND GROUNDS IN ALL THREE APPEALS ARE ALMOST SIMILAR, THEREFORE, WE ARE ADJUD ICATING THEM TOGETHER. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. FOR THE SAKE OF CLARITY AND BREVITY IN OUR DISCUSSION, IT WOULD BE APPROPRIATE TO TAKE NOTE OF WRITTEN SUB MISSIONS OF THE ASSESSEE CHALLENGING THE VALIDITY OF NOTICE AND IMPUGNED ORD ERS US/ 263 OF THE ACT. THE RELEVANT PORTION OF WRITTEN SUBMISSIONS OF THE ASSE SSEE IS BEING REPRODUCED BELOW:- 4. IT IS SUBMITTED THAT IN THE INSTANT CASE, LEARN ED CIT HAS REVISED THE ORDERS OF ASSESSMENT FOR THREE ASSESSME NT YEARS I.E. AY 2006-07, 2007-08 AND 2009-10 UNDER SECTION 263 O F THE ACT. IT IS SUBMITTED THAT IN SO FAR AS THE ORDERS OF ASS ESSMENT FOR THE AY 2006-07 AND 2007-08 ARE CONCERNED, SUCH ORDERS O F ASSESSMENTS WERE FRAMED UNDER SECTION 143(3)/260A O F THE ACT IN VIEW OF THE JUDGMENT OF THE HONBLE HIGH COURT OF D ELHI DATED 17.09.2012 FOR THE AY 2006-07 8S 2007-08, WHEREBY H ONBLE HIGH COURT HAS REMANDED THE CASE TO THE LEARNED AO ONLY TO EXAMINE THE CONDITION AS PROVIDED IN SECTION 10B(2) (I) OF THE ACT IN THE LIGHT OF THE ADDITIONAL EVIDENCES BROUGHT ON RECORD AS IT HAS BEEN HELD THAT LEARNED AO DID NOT GET SUFFICIEN T OPPORTUNITY TO VERIFY THE ADDITIONAL EVIDENCES. I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 9 5. IT IS SUBMITTED THAT AFTER THE SET ASIDE BY THE HI GH COURT, LEARNED AO DULY VERIFIED ALL THE ADDITIONAL EVIDENCES FURNI SHED BY THE ASSESSEE BEFORE LEARNED CIT(A) DURING APPELLATE PRO CEEDINGS WHICH HAS ALSO BEEN TAKEN NOTE OF IN THE JUDGMENT O F THE HONBLE HIGH COURT IN PARA 24. THE ADDITIONAL EVIDENCES FUR NISHED BY THE ASSESSEE BEFORE THE LEARNED CIT(A) DURING THE APPEL LATE PROCEEDINGS WERE AS UNDER: I. COPY OF RTI APPLICATION DATED 11.01.2010 ADDRESSED TO MINISTRY OF COMMERCE AND INDUSTRY, UDVOY, BIAWAN. NEW DELHI. II. COPY OF REPLY DATED 19.01.2010 RECEIVED FROM EOU S ECTION, MINISTRY OF COMMERCE AND INDUSTRY, GOVERNMENT OF IN DIA. III. AFFIDAVITS OF SUPPLIERS CONFIRMING ABOUT SUPPLYING THE UNFINISHED, UNASSEMBLED AND INCOMPLETE GOODS TO THE ASSESSEE. IV. EXHIBITS 01 AND 02 AS RAW CHESS BOARD AND RAW CHES S PIECES RESPECTIVELY AND ALSO EXHIBITS 03 AND 04 AS FINISHE D CHESS BOARD AND FINISHED CHESS PIECES RESPECTIVELY. 6. IT IS SUBMITTED THAT OUT OF THE AFORESAID FOUR ADD ITIONAL EVIDENCES, DOCUMENTS AT SI. (I) & (II) WERE NOT REL ATED TO THE ISSUE WHICH WAS SET ASIDE AND ONLY DOCUMENTS STATED AT SI . (III) & (IV) ARE RELATED TO THE ISSUE WHICH WAS SET ASIDE. FURTH ER, AFTER THE SET ASIDE, LEARNED AO DULY EXAMINED THE AFORESAID DOCUM ENTS AND NONE OF THE AFORESAID ADDITIONAL EVIDENCES WAS FOUN D AS NON GENUINE BY THE LEARNED AO. THAT IN THE SET ASIDE PR OCEEDINGS, ASSESSEE ALSO FILED VARIOUS REPLIES VIDE LETTERS DA TED JANUARY 21, 2013 (PB 14), FEBRUARY 25, 2013(PB 15-17), DATED NI L (PB 18- 19) AND DATED 12 & 14 MARCH, 2013 (PB 20- 21). ON T HE BASIS THEREOF, LEARNED AO TOOK NOTE OF FACT THAT ON RECEI PT OF SPECIFIC ORDERS FROM EXPORTERS, ASSSESSEE IN ITS FACTORY THR OUGH ITS OWN WORKER/ARTISANS PERFORMED THE ACTIVITIES OF SANDING , HANDCARVING, FITTING OF KUNDIES, PASTING OF VALVET ON THE COINS AND BOXES, ASSEMBLING TO FORM A NEW GAME CALLED 3 IN 1 GAME AND 5 IN 1 GAME, AND WAS ALSO DOING STAINING, PAINTING, P OLISHING, ANTIQUING AND PACKAGING WORK ETC AND FINAL PRODUCT MANUFACTURED BY THE ASSESSEE WAS DIFFERENT THAN THE PRODUCT PURCHASED BY IT FROM ITS SUPPLIERS. THAT TO FURTHER EXAMINE THAT WHETHER THE ASSESSEE IS ENGAGED IN THE MANUFACTURIN G ACTIVITY, APART FROM THE EXTENSIVELY EXAMINING THE DOCUMENTAR Y EVIDENCES AND WRITTEN SUBMISSIONS FURNISHED BY THE ASSESSEE, LEARNED AO ALSO DEPUTED THE INSPECTOR TO MAKE SPOT ENQUIRIES W HO IN HIS REPORT HAS STATED AS UNDER: THESE WORKERS WERE ENGAGED IN MANUFACTURING WORK O N SANDING MACHINE, BUFFING MACHINE, CUTTING MACHINE AND BOLT FIXING I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 10 MACHINE. SOME OF THE WORKERS WERE ENGAGED IN POLISH ING, COLOURING, BAR CODING, ASSEMBLING AND PACKAGING WOR K.... ON INSPECTION OF WORK BEING DONE THERE, IT SEEMS THAT THE WORK WAS INVOLVED IN FINISHING JOB ON UNFINISHED ITEMS. 7 . THAT IN VIEW OF THE AFORESAID FACTS, LEARNED AO I N HIS ORDER DATED 22.03.2013 PASSED UNDER SECTION 143(3)/260A O F THE ACT ALLOWED THE DEDUCTION UNDER SECTION 10B OF THE ACT BY HOLDING THAT ACTIVITIES UNDERTAKEN BY THE ASSESSEE WOULD AM OUNT TO MANUFACTURE WITHIN THE MEANING OF SECTION 10B(2)(I) OF THE ACT. IT IS SUBMITTED THAT AFORESAID ORDER OF THE LEARNED AO WAS WITHIN THE SCOPE OF JUDGMENT OF THE HONBLE HIGH COURT AS HONTILE HIGH COURT HAS SET ASIDE THE CASE TO THE AO ONLY TO EXAMINE THE CONDITION AS PROVIDED IN SECTION 10B(2)(I) OF THE A CT IN THE LIGHT OF THE ADDITIONAL EVIDENCES BROUGHT ON RECORD. IT I S THEREFORE SUBMITTED THAT AFORESAID ORDER OF THE LEARNED AO CA NNOT BE HELD TO BE ERRONEOUS EITHER ON FACTS OR IN LAW AS LEARNE D AO HAS TAKEN A VIEW WHICH WAS ABSOLUTELY IN ACCORDANCE WITH LAW. 7.1 IT IS SPECIFIC SUBMISSION OF THE APPELLANT THAT THE LEARNED CIT HAS EXCEEDED IN HIS JURISDICTION AND, HAS PASSE D THE IMPUGNED ORDERS TO REVISE THE ORDERS OF ASSESSMENT, IN DISREGARD OF THE FACT AND LAW THAT, IT IS NOT A CAS E WHERE CONDITIONS FOR EXERCISE OF POWERS TO ACT UNDER SECT ION 263 OF THE ACT EXISTED . IT IS SUBMITTED THAT, IN ORDER TO ASSUME JURISDICTION UNDER SECTION 263 OF THE ACT, THE PRER EQUISITES ARE THAT, ORDER PASSED BY THE ASSESSING OFFICER SHOULD BE ERRONEOUS AND IT SHOULD BE PREJUDICIAL TO THE INTERESTS OF RE VENUE. THE LEARNED DIRECTOR OF INCOME TAX HAS TO SATISFY THE TWIN CONDITIONS, NAMELY, (I) THE ORDER OF THE ASSESSING OFFICER SOUGHT TO BE REVISED SHOULD BE ERRONEOUS (II) IT SHOULD BE PREJUDICIAL TO THE INTERESTS OF THE REVENUE. BOTH THE CONDITIONS MUST BE SATISFIED. IN CASE THE ORDER OF THE ASSESSING OFFIC ER IS ERRONEOUS BUT IS NOT PREJUDICIAL TO THE INTERESTS OF THE REVE NUE, THE COMMISSIONER WOULD NOT BE COMPETENT TO EXERCISE JUR ISDICTION UNDER SECTION 263. THE ORDER UNDER SECTION 263 COULD BE CONSIDERED AS ERRONEOUS, IF SUCH ORDER IS BASED ON WRONG ASSUMPTION OF FACTS OR INCORRECT APPLICATION OF LAW . THE ORDER COULD ALSO BE SAID TO BE ERRONEOUS, IF IT HAS BEEN PASSED WITHOUT PROPER APPLICATION OF MIND AND, IN UNDUE HASTE WITH OUT MAKING PROPER INQUIRY WARRANTED IN THE FACTS OF THE CASE. IT IS FURTHER SUBMITTED THAT, EVEN IF THE ORDER IS ERRONEOUS, THA T BY ITSELF WOULD NOT BE SUFFICIENT FOR INVOKING THE POWER UNDER SECT ION 263 OF THE I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 11 ACT. THE OTHER CONDITION, WHICH REQUIRES TO BE SATI SFIED FOR ASSUMPTION OF JURISDICTION UNDER SECTION 263, IS TH AT THE ORDER SHOULD ALSO BE PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE ORDER COULD BE SAID TO BE PREJUDICIAL TO THE INTERE STS OF THE REVENUE IF DUE TO AN ERRONEOUS ORDER OF THE ASSESSI NG OFFICER, THE REVENUE HAS LOST TAX LAWFULLY PAYABLE BY A PERS ON. THE EXPRESSION PREJUDICIAL TO THE INTERESTS OF THE REV ENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY AN ASSESSING OFFICER. HOWEVER, EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IN A CASE, WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HA S TAKEN A VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, TH E SAID ORDER CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJU DICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY T HE ASSESSING OFFICER IS UNSUSTAINABLE IN LAW. 8. IT IS SUBMITTED THAT THE ORDER OF THE LEARNED AO CAN IN NO CIRCUMSTANCE BE HELD TO BE ERRONEOUS AS ORDER OF AS SESSMENTS WERE NEITHER PASSED ON WRONG ASSUMPTION OF FACTS NO R BY APPLYING INCORRECT LAW. IN FACT, ORDER OF ASSESSMEN T IS PERFECTLY IN ACCORDANCE WITH LAW AFTER DETAILED EXAMINATION O F THE DOCUMENTARY EVIDENCES AND ALSO BY MAKING SPOT ENQUI RIES. FURTHER IN THE INSTANT CASE EVEN THE LEARNED CIT(A) ALSO BEFORE THE SET ASIDE, AFTER EXAMINING THE ENTIRE EVIDENCES PLACED ON RECORD, IN HIS ORDER DATED 30.03.2010 HAS HELD THAT ASSESSEE IS UNDERTAKING MANUFACTURING WITHIN THE MEANING OF SEC TION 10B OF THE ACT. FOR THE SAKE OF CONVENIENCE, RELEVANT FIND ING OF LEARNED CIT(A) IS REPRODUCED HEREINBELOW: 8. ON CAREFUL PERUSAL OF THE VARIOUS DOCUMENTS FURN ISHED BEFORE ME, I FIND THAT THERE WAS A DEFINITE DISTINCTION IN THE WAY THE INDUSTRIAL UNDERTAKING OWNED BY THE APPELLANT FIRM OPERATED IN THE CURRENT ASSESSMENT YEAR AS COMPARED TO THE EARL IER YEARS. THE PARTNERSHIP DEED RELATING TO THE OLD FIRM, WHIC H WAS LATER RECONSTITUTED ON 18TH MAY, 2005 W.E.F. 1-4-2005 CLE ARLY PROVIDED THE SCOPE OF THE BUSINESS OF THE FIRM, WHICH WAS RE STRICTED TO TRADING FOR EXPORTS OF HANDICRAFTITEMS. HOWEVER, VI DE THE NEW PARTNERSHIP DEED, THE SCOPE OF THE BUSINESS OF THE APPELLANT FIRM WAS ENLARGED TO INCLUDE MANUFACTURING FOR THE PURPO SE OF EXPORT OF HANDICRAFT ITEMS. THIS FACT WAS ALSO CLEARLY BRO UGHT ABOUT AND NOTED BY THE TAX AUDITORS WHILE FURNISHING THE TAX AUDIT REPORT UNDER SECTION 44AB. ON CAREFUL PERUSAL OF THE PROFI T AND LOSS ACCOUNT FOR THE ASSESSMENT YEAR 2005-06 AND ASSESSM ENT YEAR 2006-07, IT CAN BE CLEARLY OBSERVED THAT THERE WERE NO EXPENSES WHICH WERE ATTRIBUTABLE TO MANUFACTURING IN THE P A ND L ACCOUNT FOR THE PREVIOUS YEAR RELATING TO ASSESSMENT YEAR 2 005-06. ON THE OTHER HAND, THE PROFIT AND LOSS ACCOUNT FOR THE PRE VIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2006-07 SHOWS EXPEN SES IN THE NATURE OF WAGES AND ALSO MANUFACTURING EXPENSES. FU RTHER, A I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 12 CAREFUL PERUSAL OF THE VARIOUS ASSETS SHOWN IN THE DEPRECIATION CHART FOR THE ASSESSMENT YEAR 2005-06 CLEARLY SHOWS THAT THERE WAS NO PLANT OR MACHINERY, WHICH COULD BE UTILIZED FOR THE PURPOSE OF MANUFACTURING OF HANDICRAFT ITEMS. ON TH E OTHER HAND, THE STATEMENT OF ASSET FOR THE ASSESSMENT YEAR 2006 -07 CLEARLY SHOWS AN ADDITION OF MACHINERY OF RS. 35,100 WHICH COMPRISED OF VARIOUS TOOLS/MACHINES USED FOR THE MANUFACTURE OF HANDICRAFT ITEMS. IN THE BUSINESS OF MANUFACTURING OF HANDICRAFT ITEM S, AS THE NAME SUGGEST, THE MAIN VALUE ADDITION COMES THR OUGH HAND-MADE OPERATIONS, FOR WHICH SMALL TOOLS ARE NEE DED WHICH ARE, NOT VERY EXPENSIVE. THEREFORE, EVEN IF THERE I S INSIGNIFICANT ADDITION IN VALUE TERMS IN THE ASSETS, THE SAME WER E RELEVANT FOR MANUFACTURING OPERATIONS AND CANNOT BE DISREGARDED SUMMARILY. 8.2 THE LEARNED APPELLANT COUNSEL ALSO FURNISHED BE FORE ME A COPY OF THE ENTIRE RANGE OF BILLS OF PURCHASE OF VA RIOUS RAW MATERIALS, SEMI-FINISHED MATERIAL, UNFINISHED MATER IAL, WHICH WERE USED FOR THE PURPOSE OF MANUFACTURING BY THE A PPELLANT FIRM. THE APPELLANT FIRM ALSO FURNISHED EXHIBITS AN D SAMPLES IN ORDER TO EMPHASIZE THE NATURE OF VALUE ADDITION BRO UGHT ABOUT BY THE APPELLANT FIRM ON SUCH SEMI-FINISHED ITEMS. SOM E SAMPLE EXHIBITS WERE ALSO FURNISHED TO THE LEARNED ASSESSI NG OFFICER FOR OBTAINING HIS COMMENTS FOR ADMISSION OF ADDITIONAL EVIDENCE UNDER RULE 46A. HOWEVER, THE LEARNED ASSESSING OFFI CER DID NOT EXAMINE THE VALUE ADDITION IN SUCH SAMPLES. THE MINISTRY OF FINANCE, GOVERNMENT OF INDIA HAS CL ARIFIED THE SECTION 2(F) OF THE CENTRAL EXCISE ACT, 1944, TO DE FINE THE TERM 'MANUFACTURE' VIDE TRADE NOTICE NO. 06/2006, DATED 24-7-2006, AS UNDER:- '2(F) 'MANUFACTURE' INCLUDES ANY PROCESS:- (I) INCIDENTAL OR ANCILLARY TO THE COMPLETION OF A MANUFACTURED PRODUCT; (II) WHICH IS SPECIFIED IN RELATION TO ANY GOODS IN THE SECTION OR CHAPTER NOTES OF THE FIRST SCHEDULE TO THE CENTRAL EXCISE TRRIF ACT, 1985 (5 OF 1985) AS AMOUNTING TO MANUFACTURE; OR (III)WHICH, IN RELATION TO THE GOODS SPECIFIED IN T HE 'THIRD SCHEDULE', INVOLVES PACKING OR RE-PACKING OF SUCH G OODS IN A UNIT CONTAINER OR LABELLING OR RELABELLING OF CONTAINERS INCLUDING THE DECLARATION OR ALTERATION OF RETAIL SALE PRICE ON I T OR ADOPTION OF ANY OTHER TREATMENT ON THE GOODS TO RENDER THE PROD UCT MARKETABLE TO THE CONSUMER, AND THE WORD 'MANUFACTURE' SHALL BE CONSTRUED ACCOR DINGLY AND SHALL INCLUDE NOT ONLY A PERSON WHO EMPLOYS HIRED L ABOUR IN THE PRODUCTION OR MANUFACTURE OF EXCISABLE GOODS, BUT A LSO ANY PERSON WHO ENGAGES IN THEIR PRODUCTION OR MANUFACTU RE ON HIS OWN ACCOUNT;' 8.4 I FIND THAT IN THE BUSINESS OF EXPORT THE WORK ORDE RS ARE PLACED ON THE BASIS OF WHICH ONLY GOODS ARE MANUFAC TURED. LOOKING TO THE FACTS OF THE CASE, I OBSERVE THAT TH ESE GOODS ARE I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 13 PURCHASED AS PER ORDERS GIVING DESCRIPTION OF SHAPE , SIZE, DESIGN, WEIGHT, ETC., WHICH WERE ULTIMATELY MANUFAC TURED FOR THEM. THE APPELLANT FIRM NOT ONLY IS CLEARLY ENGAGE D IN THE BUSINESS OF MANUFACTURING FOR WHICH IT PURCHASED SE VERAL FINISHED AND UNFINISHED MATERIAL ON WHICH FURTHER, PROCESSING WAS CARRIED OUT TO MAKE IT SALEABLE IN THE INTERNAT IONAL MARKET. THEREFORE IN VIEW OF THE ABOVE FACTS, IT CANNOT BE DENIED THAT THE APPELLANT FIRM HAD NOT DONE ANY 'MANUFACTURING' ACTIVITY DURING THE YEAR FOR THE PURPOSE OF EXPORT OF HANDIC RAFT ITEMS. 9. IT IS SUBMITTED THAT AGAINST THE AFORESAID ORDE R OF THE LEARNED CIT(A) REVENUE PREFERRED AN APPEAL AND SUCH FINDING OF THE LEARNED CIT(A) WAS ALSO UPHELD BY THE HONBLE TRIBU NAL IN ITS ORDER DATED FOR THE SAKE OF CONVENIENCE, THE FINDIN G OF THE HONBLE TRIBUNAL IS REPRODUCED HEREINBELOW: 10.2 COMING TO THE ISSUE ABOUT ASSESSEE'S ACTIVITY NOT AMOUNTING TO 'MANUFACTURE' OR 'PRODUCTION' OR ARTIC LE OR THINGS, LEARNED COUNSEL HAS REFERRED TO VARIOUS PURCHASES F ROM DIFFERENT PARTIES IN WHICH DIFFERENT HANDICRAFT ITEMS AND COM PONENTS OF GAMES ARE ORDERED. ASSESSEE HAS DEMONSTRATED THAT FINISHED PRODUCT IS A COMMERCIALLY 'DISTINCT COMMODITY I.E. 5 INDOOR GAMES', WHICH ARE VERY POPULAR IN FOREIGN COUNTRIES . IT IS PLEADED THAT INDIVIDUAL COMPONENTS ARE ORDERED AS R AW/SEMI- FINISHED COMPONENTS, WHICH ARE CARVED, POLISHED, FI NISHED PUTTING VARIOUS EMBLEMS AND DESIGNS THEREON. THEREA FTER THE REQUISITE GAMES ARE POLISHED, PACKED IN DIFFERENT P ACKINGS AND THE FINISHED PRODUCT WORKS AS A DISTINCT AND SEPARA TE COMMERCIAL COMMODITY I.E. COMPLETE SET OF 5 GAMES WHEREAS PURCHASES ARE FOR DIFFERENT ITEMS. THE SCOPE AND MEANING OF WORDS 'MANUFACTURE AND PRODUCTION OF ARTICLE OR THI NG', AS USED IN SECTION 10B HAS CLOSE RELATIONSHIP WITH THE DEFI NITION OF 'MANUFACTURE' IN SEZ ACT AND THE MEANING REFERRED T O IN FOREIGN TRADE POLICY OF INDIA. SECTION 10B, SEZ ACT AND FOREIGN TRADE POLICY ARE MUTUALLY INTERDEPENDENT AN D THE MEANING OF THESE WORDS IS TO BE TAKEN IN HARMONIOUS BACKDROP AND NOT IN CONTRADICTORY CONTEXT. 10.3 THE GOVERNMENT OF INDIA BY WAY OF FOREIGN TRADE PO LICY HAS DEFINED 'MANUFACTURE' NOT ONLY MEANING TO MAKE, PRODUCE, FABRICATE, ASSEMBLE, PROCESS, CALIBRATE BY HAND OR BY MACHINE A NEW PRODUCT HAVING DISTINCTIVE NAME, CHARACTER OR U SE SHOULD COME INTO EXISTENCE. THE PROCESS INCLUDE PROCESSES SUCH AS CUTTING, POLISHING, BLENDING, REPACKING, LABELLING, REFURBISHING' ETC. 10.4 IN OUR VIEW, HON'BLE SUPREME COURT JUDGMENT IN THE CASE OF GWALIOR RAYON SILK MFG. CO. LTD. (SUPRA), H AS THROWN GUIDING LIGHT ON THE INTERPRETATION MEANING AND CON TEXT. THE WORD 'MANUFACTURE' UIS-A-UIS SECTION 10B CAN BE COR RECTLY UNDERSTOOD WHILE KEEPING THE INTERDEPENDENCE AND PU RPORT OF SECTION 10B, FOREIGN TRADE POLICY OF GOVERNMENT OF INDIA AND I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 14 SEZ ACT. THE SAME PRINCIPLE HAS BEEN ADOPTED BY THE HON'BLE KERALA HIGH COURT IN THE CASE OF TATA TEA LTD. (SUP RA), WHERE, BLENDING, PACKING AND EXPORT OF TEA BAG AND TEA PAC KETS WAS HELD TO BE COVERED AND ELIGIBLE FOR DEDUCTION UNDER SECT ION 10B. IN OUR VIEW IN THIS CASE WHAT ASSESSEE PURCHASED WERE DIFFERENT PARTS OF HANDICRAFTS WHICH WERE METICULOUSLY PROCES SED AS ABOVE AND THEN ASSEMBLED IN THE FORM OF A DISTINCT COMMER CIAL COMMODITY I.E. 5 INDOOR GAMES. THE ASSESSEE CARRIED OUT VARIOUS ACTIVITIES OF CARVING, POLISHING AND BRINGING THE D IFFERENT COMPONENTS INTO A COMMERCIAL VIABLE ITEM, CALLED AS MULTIPLE INDOOR GAMES WHICH HAVE BEEN EXPORTED. THE ITEMS OR DERED BY THE ASSESSEE AS PURCHASES ARE TOTALLY DISTINCT FORM AND COULD NOT HAVE BEEN EXPORTED. 10.5 RESPECTFULLY FOLLOWING THE ABOVE AUTHORITIES AND T HE CASE LAWS I.E. HON'BLE KOLKATA HIGH COURT IN THE CASE OF MUKHERJEE & CO. (SUPRA); ITAT DELHI BENCH DECISION IN THE CASE OF TECH BOOKS ELECTRONICS SERVICES (P.) LTD. (SUPRA ), WE H OLD THAT THE ASSESSEE'S ACTIVITIES AMOUNTED TO MANUFACTURE OR PR ODUCTION OF AN ARTICLE OR THING I.E. MULTIPLE INDOOR GAMES, AS CONTEMPLATED BY SECTION 10B. 10. IT IS SUBMITTED THAT LEARNED CIT(A) AND HONBLE TRI BUNAL HAS CONCURRENTLY HELD THAT ASSESSEE IS UNDERTAKING MANU FACTURING WITHIN THE MEANING OF SECTION 10B(2)(I) OF THE ACT. IT IS SUBMITTED THAT AFORESAID CONCURRENT FINDING OF THE LEARNED CI T(A) AND HONBLE TRIBUNAL HAS ALSO NOT ADVERSELY BEEN COMMEN TED BY THE HONBLE HIGH COURT, AND CASE HAS BEEN SET ASIDE ONL Y ON ACCOUNT OF THE FINDING OF THE HONBLE HIGH COURT THAT BEFOR E ADMITTING THE ADDITIONAL EVIDENCES, NO PROPER OPPORTUNITY WAS PROVIDED TO THE LEARNED AO AND HENCE TO PROVIDE OPPORTUNITY, TH E CASE WAS SET ASIDE. FURTHER, IN AY 2008-09 WHEREIN LEARNED A O HAS DISALLOWED THE DEDUCTION ON THE SAME GROUNDS AS WAS TAKEN IN AY 2006-07 AND IN THE APPEAL FILED BY THE ASSESSEE, LEARNED CIT(A) VIDE HIS ORDER DATED 25.11.2013 HAS ALLOWED THE CLAIM OF DEDUCTION. 11. AT THIS STAGE ITSELF, ASSESSEE SEEKS TO PLACE RELIA NCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS WHERE ASSESSEE AF TER PURCHASING UNFINISHED HANDICRAFT GOODS APPLIED VARI OUS PROCESSES LIKE CUTTING, POLISHING, REPAIRING, REMAK ING, ETC., AND FOR THAT PURPOSE, INCURRED SUBSTANTIAL LABOUR EXPEN SES, IT COULD NOT BE DENIED EXEMPTION UNDER SECTION 10AA ON GROUN D THAT IT WAS NOT UNDERTAKING MANUFACTURING: I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 15 I. FURTHER IN THE CASE OF ITO V. MAKERS MART REPORTED IN 50 TAXMANN.COM 106 (JODHPUR) (PGS. 73 - 87), WHERE ASS ESSEE AFTER PURCHASING UNFINISHED HANDICRAFT GOODS APPLIED VARI OUS PROCESSES LIKE CUTTING, POLISHING, REPAIRING, REMAK ING, ETC., AND FOR THAT PURPOSE, INCURRED SUBSTANTIAL LABOUR EXPEN SES, IT HAS BEEN HELD THAT IT COULD NOT BE DENIED EXEMPTION UND ER SECTION 10AA ON GROUND THAT IT WAS NOT A MANUFACTURING CONC ERN. II. IN THE CASE OF MADHU JAYANTI INTERNATIONAL LTD. V. DCIT REPORTED IN [2012] 148 TTJ 1 (KOLKATA) (SB) (PG.L - 20), WHEREIN THE ASSESSEE WAS ENGAGED IN BLENDING AND PROCESSING OF TEA. IT CLAIMED ITSELF TO BE A 100 PER CENT EOU WITHIN THE MEANING OF SECTION 10B; ACCORDINGLY, DEDUCTION UNDER SECTION 1 0B WAS CLAIMED. TEA WAS PURCHASED THROUGH AUCTION HELD IN TEA BOARD RECOGNIZED AUCTION CENTRES AND, THEREAFTER, TEA SO PURCHASED WAS PROCESSED IN ORDER TO REMOVE ALL DUST AND FOREI GN SUBSTANCES. AFTER PROCESSING, DIFFERENT VARIETIES O F TEA WERE BLENDED TO MAKE IT OF 'UNIFORM AND CONSISTENT' QUAL ITY. FINALLY, THE BLENDED TEA WAS PACKED IN CONSUMER PACKETS OR T EA PACKS. THE ASSESSING OFFICER, DENIED THE CLAIM OF DEDUCTIO N UNDER SECTION 10B. ORDER OF ASSESSING OFFICER WAS CONFIRM ED BY THE COMMISSIONER (APPEALS). DEDUCTION WAS DENIED ON GRO UND THAT BLENDING AND PROCESSING UNDERTAKEN BY ASSESSEE COUL D NOT QUALIFY TO BE CALLED AS 'MANUFACTURE' AS INPUT USED WAS TEA AND OUTPUT OBTAINED WAS ALSO TEA. ON THE AFORESAID FACT S, AFTER CAREFUL EXAMINATION OF THE STATUTORY PROVISIONS, IT WAS HELD THAT ASSESSEE IS ENGAGED IN MANUFACTURING AND HENCE ENTI TLED TO DEDUCTION. III. THAT IN THE CASE OF CIT V. DECO DE TREND REPORTED IN 360 ITR 1 (MAD.) (PG. 21 - 26), WHEREIN ASSESSEE WAS ENGAGED IN THE BUSINESS OF THE EXPORT OF HANDICRAFT ITEMS OF DRIED FLOWERS AND PARTS OF PLANTS. ON GOING THROUGH THE NATURE OF ACT IVITY UNDERTAKEN, THE ASSESSING AUTHORITY CAME TO THE CON CLUSION THAT THERE WAS NO MANUFACTURING ACTIVITY DONE, AS HAD BE EN CLAIMED BY THE ASSESSEE. AFORESAID FINDING OF THE AO WAS RE VERSED BY THE LEARNED CIT(A) AND TRIBUNAL. IN THE APPEAL FILED BY THE REVENUE, HONBLE HIGH COURT HELD AS UNDER: 15. WE AGREE WITH THE CONTENTIONS MADE BY THE LEARNED SENIOR COUNSEL APPEARING FOR THE ASSESSEE THAT THE PROCESS WHICH THE ASSESSEE HAD UNDERTAKEN SATISFIES THE TEST OF M ANUFACTURE TO QUALIFY FOR RELIEF UNDER SECTION 10B OF THE INCOME TAX ACT. AS ALREADY NARRATED IN THE PRECEDING PARAGRAPH, THE EM PHASIS OF THE REVENUE IS THAT IN THE ABSENCE OF ANY DEFINITION UN DER THE ACT AS I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 16 TO WHAT 'MANUFACTURE' IS, THE DECISION OF THE APEX COURT REPORTED IN TARA AGENCIES (SUPRA) WOULD SQUARELY APPLY. IT I S CONTENDED THAT EVERY CHANGE IS NOT 'MANUFACTURE' AND EVERY CH ANGE IN AN ARTICLE AS THE RESULT OF TREATMENT, PER SE, WOULD N OT RESULT IN 'MANUFACTURE'. THERE IS NO DISPUTE ON THIS BROAD PR INCIPLE. HOWEVER, IT IS NOT DENIED BY THE REVENUE THAT APART FROM CLEANING AND GRADING, THE ASSESSEE HAD TAKEN FURTHE R PROCESSING; THAT WHAT IS PURCHASED AS RAW MATERIAL AND WHAT IS EXPORTED AS A PRODUCT FOR EXPORT ARE TOTALLY DIFFERENT ITEMS. THE PROCESS THAT THE ASSESSEE HAD UNDERTAKEN CLEARLY POINTS OUT THE IRRE VERSIBLE NATURE OF THE FINAL END PRODUCT FROM A RAW MATERIAL PURCHASED AND GIVEN THE ABOVE SAID FACT, WHICH THE REVENUE DO ES NOT DENY, WE HAVE NO HESITATION IN ACCEPTING THE CONTENTION O F THE ASSESSEE THAT THERE WAS, IN FACT, 'MANUFACTURE'. 16. WE ACCEPT THE CONTENTION OF THE ASSESSEE IN THIS RE GARD DRAWING SUPPORT FROM THE DECISION OF THE APEX COURT REPORTED IN ASPINWALL & CO. LTD. (SUPRA) THAT THE WORD 'MANUFAC TURE' HAS TO BE UNDERSTOOD IN COMMON PARLANCE, THERE BEING NO DE FINITION OF THE WORD 'MANUFACTURE' IN THE ACT. EVEN IF ONE LOOK S AT THE DEFINITION OF 'MANUFACTURE', AS GIVEN UNDER EXPLANA TION 3 TO SECTION 10B, AS IT EXISTED PRIOR TO ITS SUBSTITUTIO N IN 2001, WE FIND, THE TERM WAS DEFINED INCLUSIVELY THAT ANY PRO CESS OR ASSEMBLING OR RECORDING OF PROGRAMME OR DISC, TAPE, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE ARE BROUG HT UNDER THE DEFINITION OF 'MANUFACTURE'. IN ANY EVENT, WITH THE DEFINITION OF 'MANUFACTURE' AVAILABLE AS UNDER EXPLANATION 4 TO S ECTION 10B OF THE INCOME TAX ACT, INSERTED BY FINANCE ACT, 2003, WITH EFFECT FROM 1.4.2004, WHICH DEFINES 'MANUFACTURE OR PRODUC E' TO INCLUDE THE CUTTING AND POLISHING OF PRECIOUS AND SEMIPRECI OUS STONES, AS IS RELEVANT FOR THE ASSESSMENT YEARS UNDER CONSIDER ATION, THE DECISION RELIED ON BY THE REVENUE IS NOT OF ANY ASS ISTANCE. LEARNED STANDING COUNSEL APPEARING FOR THE REVENUE BROUGHT TO OUR ATTENTION SECTION 2(29)BA, INSERTED UNDER THE F INANCE (NO.2) ACT 2009, WITH EFFECT FROM 1.4.2009, WHICH DEFINES 'MANUFACTURE' TO MEAN A CHANGE IN A NON-LIVING PHYSICAL OBJECT OR ARTICLE OR THING RESULTING IN TRANSFORMATION OF THE OBJECT OR ARTICLE OR THING INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFERENT NAME, CHARACTER AND USE; OR BRINGING INTO EXISTENCE OF A NEW AND DISTINCT OBJECT OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSITION OR INTEGRAL STRUCTURE. 17. EVEN THOUGH THE DEFINITION OF 'MANUFACTURE' UNDER SECTION 2(29)BA, AS AMENDED UNDER FINANCE ACT 2 OF 2009, WITH EFFECT FROM 1.4.2009 AND EXPLANATION 3 TO SECTION 1 0B, AS IT STOOD PRIOR TO THE FINANCE ACT, 2001 ARE NOT OF ANY RELEVANCE TO THE CASE ON HAND RELATING TO THE ASSESSMENT YEARS 2 004-05, 2005- 06, 2006-07 AND 2008- 09, YET, WITH EXPLANATION 4 T O SECTION 10B OF THE INCOME TAX ACT, INSERTED BY FINANCE ACT, 200 3 WITH EFFECT FROM 1.4.2004, DEFINING 'MANUFACTURE' OR PRODUCE' T O INCLUDE THE I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 17 CUTTING AND POLISHING OF PRECIOUS AND SEMI-PRECIOUS STONES AND THE IDEA OF GRANTING EXEMPTION/DEDUCTION UNDER SECT ION 10B BEING CLEAR, THE RELIEF UNDER SECTION 10B OF THE IN COME TAX ACT CANNOT BE DENIED. 18. IN THE DECISION REPORTED IN ASPINWALL & CO. LTD. ( SUPRA), THE APEX COURT OBSERVED 'THE WORD 'MANUFACTURE' HAS NOT BEEN DEFINED IN THE INCOME TAX ACT. IN THE ABSENCE OF A DEFINITION, THE WORD 'MANUFACTURE' HAS TO BE GIVEN A MEANING AS IS UNDERSTOOD IN COMMON PARLANCE. IT IS TO BE UNDERSTOOD AS MEANI NG THE PRODUCTION OF ARTICLES FOR USE FROM RAW OR PREPARED MATERIALS BY GIVING SUCH MATERIALS NEW FORMS, QUALITIES OR COMBI NATIONS WHETHER BY HAND LABOUR OR MACHINES. IF THE CHANGE M ADE IN THE ARTICLE RESULTS IN A NEW AND DIFFERENT ARTICLE THEN IT WOULD AMOUNT TO MANUFACTURING ACTIVITY.' THUS THE APEX COURT POI NTED OUT THAT IF THE COMMODITY CAN NO LONGER BE REGARDED AS THE O RIGINAL COMMODITY BUT INSTEAD IS RECOGNIZED AS A NEW AND DI STINCT ARTICLE, THEN THE ACTIVITY OF MANUFACTURE CAN BE SA ID TO TAKE PLACE. 19. THE DECISION RELIED ON BY THE REVENUE REPORTED IN TARA AGENCIES (SUPRA), HOWEVER, STANDS ON A DIFFERENT FO OTING. THERE, THE ASSESSEE WAS ENGAGED IN PURCHASE OF DIFFERENT Q UALITIES OF TEA AND BLENDING THE SAME FOR THE PURPOSE OF EXPORT. ON THE QUESTION AS TO WHETHER THE ASSESSEE WOULD BE ENTITLED TO WEI GHTED DEDUCTION UNDER SECTION 35B(1A) OF THE INCOME TAX A CT, THE SUPREME COURT POINTED OUT ON FACTS THAT THE ASSESSE E'S ACTIVITY AMOUNTED TO PROCESSING ONLY AND THE ACTIVITY DID NO T AMOUNT TO PRODUCTION OR MANUFACTURE. THUS THE CASE RELIED ON BY THE REVENUE IS DISTINGUISHABLE ON FACTS. 20. GIVEN THE ADMITTED FACT THAT WHAT WAS PURCHASED BY THE ASSESSEE AS RAW MATERIAL AND EXPORTED GOODS ARE TOT ALLY DIFFERENT ITEMS AND COMMERCIALLY KNOWN AS A DIFFERENT PRODUCT , GOING BY THE DEFINITION 'MANUFACTURE' IN EXPLANATION 4 TO SE CTION 10B OF THE INCOME TAX ACT, WE HAVE NO HESITATION IN AGREEI NG WITH THE CONTENTION OF THE ASSESSEE AND THEREBY CONFIRM THE ORDER OF THE TRIBUNAL. IV. IN THE CASE OF KWAL PRO EXPORTS VS. ITO REPORTED IN [2009] 123 TTJ 543 (JODHPUR) , WHEREIN ASSESSEE PURCHASED NOT ONLY RAW MATERIALS BUT ALSO SEMI-FINISHED GOODS AND ARTICLES OF LIKE DESCRIPTION AS THAT OF EXPORTED GOODS ON WHICH IT CARRIED OUT MACHINE WORK IN CASE OF WOODEN ARTICLES SUCH AS SMO OTHENING AND SHAPING STRUCTURES, SURFACES AND EDGES OF WOODE N ITEMS AND THEN ENGRAVING, EMBOSSING, FIXING METALLIC PARTS AN D ASSESSORIES AND, THEREAFTER, POLISHING AND PAINTING THEREOF HAD ALSO BEEN DONE. ASSESSEE ALSO FIXED ARTISTIC PARTS THEREON TO GIVE IT A COMMERCIAL LOOK, MAKING IT COMPLETELY DISTINCT IN C HARACTER AND I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 18 USE - LIKEWISE, IN METALLIC ITEMS ASSESSEE CARRIED MORE OR LESS SIMILAR ACTIVITIES, TO MAKE THEM FASCINATING AND MA RKETABLE COMMODITIES DIFFERENT BOTH IN CHARACTER AND USE THA N WHAT THESE ITEMS WERE ORIGINALLY PURCHASED BY ASSESSEE. ON THE AFORESAID FACTS, IT WAS HELD THAT ASSESSEE IS ENGAGED IN MANU FACTURING ACTIVITY AND HENCE ENTITLED FOR DEDUCTION UNDER SEC TION 10B OF THE ACT. V. IN THE CASE OF LITTLE BEE IMPEX V. DEPUTY COMMISSIONER OF INCOME-TAX REPORTED IN [2015] 56 TAXMANN.COM 201 (CHANDIGARH - TRIB.), IT WAS HELD THAT ACTIVITY OF REMOVING MOISTURE FROM RAW HONEY AND THEREUPON REPACKING AND EXPORTING SAME TO VARIOUS COUNTRIES AMOUNTED TO MANUFACTURIN G ACTIVITY ELIGIBLE FOR EXEMPTION UNDER SECTION 10B OF THE ACT . 12. AS SUCH, IN VIEW OF THE AFORESAID JUDICIAL PRONOUN CEMENTS, IT IS SUBMITTED THAT SINCE THE ASSESSEE IS UNDERTAKING MA NUFACTURING ACTIVITY WITHIN THE MEANING OF SECTION 10B(2)(I) OF HTE ACT AS SUCH, VIEW TAKEN BY THE LEARNED AO THAT THE ASSESSE E IS UNDERTAKING MANUFACTURING WITHIN THE MEANING OF SEC TION 10B(2)(I) OF THE ACT CANNOT BE HELD TO BE ERRONEOUS . AT THIS STAGE, APPELLANT SEEKS TO REFER THE JUDGMENT OF THE APEX C OURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS. CIT REPORTED IN [2000] 243 ITR 83 (SC) WHEREIN THEIR LORDSHIPS HAVE HELD A S UNDER: 9. THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE REV ENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASS ED BY THE ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, FOR EXAMPLE, WHEN AN ITO ADOPTED ON E OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN L OSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE ITO HAS TAK EN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANN OT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE I N LAW. 13. IT IS SUBMITTED THAT SAME VIEW HAS BEEN TAKEN IN FOLLOWING JUDICIAL PRONOUNCEMENTS: I. CIT VS. MAX INDIA LTD. (2007) 295 ITR 282 (SC) II. CIT V. HONDA SIEL POWER PRODUCTS LTD. 333 ITR 547 HC ) DELHI III. CIT VS SALUJA EXIM LTD. 329 ITR 603 HC (PUNJAB AND HARYANA) W I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 19 IV. GRASIM INDUSTRIES LTD. VS CIT 321 ITR 92 HC (BOMBAY) V. CIT VS SUNBEAM AUTO LTD. 227 CTR 133 HC (DELHI) VI. CIT VS DLF POWER LTD. 229 CTR 27 HC (DELHI) VII. CIT VS. ASHISH RAJPAL [2010] 320 ITR 674 (DELHI) VIII. CIT VS VODAFONE ESSAR SOUTH LTD. [2013] 212 TAXMAN 184 ELHI) IX. CIT VS. NEW DELHI TELEVISION LTD [2014] 360 ITR) 44 (DELHI VI. IT IS SUBMITTED THAT SINCE THE VIEW TAKEN BY THE AS SESSING OFFICER IS IN ACCORDANCE WITH LAW AS SUCH, SAME CAN NOT BE HELD TO BE ERRONEOUS. WITHOUT PREJUDICE, IT IS SUBMITTED THAT THE VIEW TAKEN BY THE LEARNED AO THAT ASSESSEE IS UNDERTAKIN G MANUFACTURING WITHIN THE MEANING OF SECTION 10BT2)( IL OF THE ACT IS ONE OF THE POSSIBLE VIEW AS SUCH, POWER EXER CISED BY THE LEARNED CIT TO REVISE THE ORDER OF ASSESSMENT UNDER SECTION 263 IS UNSUSTAINABLE IN LAW. 12. LD. COUNSEL OF THE ASSESSEE REITERATED HIS SUBMISSIONS MADE BEFORE THE CIT AND BEFORE US AS REPRODUCED HEREINABOVE AND VEH EMENTLY CONTENDED THAT THE LD. CIT HAS EXCEEDED HIS JURISDICTION AND HAS P ASSED IMPUGNED ORDERS TO REVISE THE ORDERS OF ASSESSMENT IN DISREGARD OF THE FACT AND LAW BECAUSE THESE ARE NOT THE CASES WHERE REQUIRED CONDITIONS FOR ASS UMPITON OF JURISDICTION AND EXERCISE OF POWERS U/S 263 OF THE ACT ARE EXISTING. LEARNED COUNSEL OF THE ASSESSEE ALSO POINTED OUT THAT THE ASSESSING OFFICE R CALLED REPORT FROM THE INSPECTOR ABOUT THE ACTIVITIES UNDERTAKEN BY THE AS SESSEE IN PURSUANCE TO THE DIRECTIONS OF HON'BLE HIGH COURT AND ON CAREFUL CON SIDERATION OF THE SAME, THE ASSESSING OFFICER TOOK A CORRECT VIEW THAT THE ACTI VITIES UNDERTAKEN BY THE ASSESSEE ON THE SEMI-FINISHED AND FINISHED GOODS AR E OF NATURE OF MANUFACTURING ACTIVITY AND VIEW TAKEN BY THE ASSESSING OFFICER IS REASONABLE AND PLAUSIBLE I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 20 VIEW WHICH CANNOT BE HELD AS UNSUSTAINABLE OR NOT I N ACCORDANCE WITH THE PROVISIONS OF THE ACT. LD. COUNSEL ALSO CONTENDED THAT FOR INVOKING REVISIONAL POWERS U/S 263 OF THE ACT, THE CIT HAS TO SATISFY T WIN CONDITIONS, NAMELY, THE ORDER OF THE ASSESSING OFFICER SOUGHT TO BE REVISED SHOULD BE ERRONEOUS AND IT SHOULD BE PREJUDICIAL TO THE INTEREST OF THE REVENU E. HE FURTHER CONTENDED THAT THE ORDER U/S 263 COULD ONLY BE CONSIDERED AS ERRON EOUS IF SUCH ORDER IS BASED ON WRONG APPRECIATION OF FACTS OR INCORRECT APPRECI ATION OF LAW AND THE ORDER COULD ALSO BE SAID TO BE ERRONEOUS IF IT HAS BEEN P ASSED WITHOUT PROPER APPLICATION OF MIND AND IN UNDUE HASTE WITHOUT MAKI NG PROPER INQUIRY WARRANTED IN THE FACTS OF THE CASE. LEARNED COUNSE L OF THE ASSESSEE FURTHER SUBMITTED THAT THE ASSESSMENT ORDER SHOULD BE SAID TO BE PREJUDICIAL TO THE INTEREST OF REVENUE IF DUE TO AN ERRONEOUS ORDER OF THE ASSESSING OFFICER, THE REVENUE HAS LOST TAX LAWFULLY PAYABLE BY A PERSON. LEARNED COUNSEL OF THE ASSESSEE PARTED THE ARGUMENT THAT A FINAL SUBMISSI ON THAT IN THE PRESENT CASE, THE VIEW TAKEN BY THE ASSESSING OFFICER AFTER DUE I NQUIRY, AS PER DIRECTIONS OF THE HON'BLE HIGH COURT IS QUITE A CORRECT, PLAUSIBL E, REASONABLE AND SUSTAINABLE VIEW AND THERE COULD BE NO OTHER VIEW POSSIBLE ON T HE FACTS AND CIRCUMSTANCES OF THE CASE AND EVEN IN A CASE WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN A VIEW WITH WHICH THE COMMISSIONE R DOES NOT AGREE, THE SAID ORDER CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJU DICIAL TO THE INTEREST OF THE REVENUE UNLESS THE VIEW TAKEN BY THE ASSESSING OFFI CER IS UNSUSTAINABLE IN LAW. I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 21 13. LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ACTION OF THE CIT IN ISSUING NOTICE U/S 263 OF THE ACT AND IN PAS SING THE IMPUGNED ORDERS REVISING THE ASSESSMENT ORDERS PASSED BY THE ASSESS ING OFFICER IN PURSUANCE TO THE DIRECTIONS OF THE HON'BLE HIGH COURT. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT MERELY BECAUSE THE ASSESSEE HAS UNDE RTAKEN SOME FINISHING AND POLISHING ACTIVITY ON THE FINISHED AND SEMI-FINISHE D GOODS, IT CANNOT BE SAID THAT THE ASSESSEE WAS ENGAGED IN MANUFACTURING WORK OR A CTIVITIES. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE VIEW TAKEN BY THE ASSESSING OFFICER WAS NOT A PLAUSIBLE AND SUSTAINABLE, VIEW, THEREFORE, THE CIT VALIDLY ASSUMED JURISDICTION TO ISSUE NOTICE U/S 263 OF THE ACT AND TO PASS IMPUGNED ORDERS WHICH DESERVE TO BE UPHELD. 14. IN THE REJOINDER, THE LEARNED COUNSEL OF THE ASSESSEE HAS DRAWN OUR ATTENTION TOWARDS VARIOUS ORDERS OF HONBLE SUPREME COURT, THE HON'BLE HIGH COURT AND COORDINATE BENCH OF THE TRIBUNAL INCLUDIN G ORDER OF ITAT, JODHPUR IN THE CASE OF ITO VS MAKERS MART 50 TAXMANN.COM 106 (JODHPUR-T RIB.) AND DIVIJ EXPORTS VS ITO 33 TAXMANN.COM 682 (JODHPUR-TR IB.) AND SUBMITTED THAT WHERE THE ASSESSEE AFTER PURCHASING UNFINISHED HANDICRAFT GOODS APPLIED VARIOUS PROCESSES LIKE CUTTING, POLISHING, REPAIRIN G, REMAKING ETC. AND FOR THAT PURPOSE, INCURRED SUBSTANTIAL LABOUR AND OTHER EXPE NSES, THEN IT COULD NOT BE DENIED EXEMPTION U/S 10AA OF THE ACT ON THE GROUND THAT IT WAS NOT A MANUFACTURING CONCERN. LEARNED COUNSEL OF THE ASSE SSEE ALSO POINTED OUT THAT I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 22 IN THE CASE OF DIVIJ EXPORTS (SUPRA), IT WAS CATEGO RICALLY HELD THAT WHERE THE ASSESSEE WAS PURCHASING SEMI-FINISHED WOODEN ARTICL ES WHICH REQUIRED OTHER WORK OF BEAUTIFICATION AND OF ARTISTIC VALUE AND TH EREAFTER WOODEN ARTICLES TOOK SHAPE OF ANTIQUE LOOK, THEN THE ASSESSEE WAS RIGHTL Y ELIGIBLE FOR EXEMPTION U/S 10BA OF THE ACT. LEARNED COUNSEL OF THE ASSESSEE H AS LASTLY DRAWN OUR ATTENTION TOWARDS ORDER OF KOLKATTA SPECIAL BENCH IN THE CASE OF MADHU JAYANTI INTERNATIONAL LTD. VS DCIT REPORTED IN (201 2) 148 TTJ 1 (KOLKATA)(SB) AND SUBMITTED THAT FOR THE PURPOSE OF SECTION 10A , 10AA AND 10B MANUFACTURE IS TO BE CONSIDERED AS DEFINED IN SECTION 2(R) OF THE SPECIAL ECONOMIC ZONE ACT 2005. 15. ON SPECIFIC QUERY FROM THE BENCH, LEARNED DEPAR TMENTAL REPRESENTATIVE COULD NOT ASSIST US TO SHOW THAT THE CASE LAWS/ORDE RS OF HONBLE SPECIAL BENCH AND COORDINATE BENCH OF THE TRIBUNAL AS DISCUSSED S UPRA HAVE BEEN MODIFIED OR SET ASIDE IN ANY MANNER BY ANY HIGHER FORUM. 16. ON CAREFUL CONSIDERATION OF ABOVE RIVAL SUBMISS IONS OF BOTH THE SIDES ON THE ISSUE OF INVOCATION OF PROVISIONAL POWER U/S 26 3 OF THE ACT AND ISSUANCE OF NOTICE UNDER THIS PROVISION, AT THE VERY OUTSET, IT IS RELEVANT TO POINT OUT THAT IN THE FIRST ROUND OF PROCEEDINGS, ORIGINAL ASSESSMENT U/S 2006-07 AND 2007-08 WAS COMPLETED U/S 143(3) OF THE ACT DISALLOWING THE CLAIM U/S 10B OF THE ACT AND SUBSEQUENTLY, THE ASSESSEE RAISED VARIOUS GROUN DS BEFORE THE CIT AND THE I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 23 ITAT WHEREIN THE ASSESSEE SUCCEEDED AND ITS CLAIM O F DEDUCTION U/S 10B OF THE ACT WAS DIRECTED TO BE ALLOWED. IT IS ALSO PERTINE NT TO NOTE THAT THE CIT ADMITTED ADDITIONAL EVIDENCE IN THE FORM OF EXHIBIT S OF FINISHED AND UNFINISHED PRODUCTS U/S 46A OF THE INCOME TAX RULES 1962 AND A LSO REFERRED TO VARIOUS GROUNDS FOR GRANTING RELIEF. THE CONSOLIDATED ORDE R OF THE FIRST APPELLATE AUTHORITY FOR ASSESSMENT YEAR 2006-07 AND 2007-08 W AS UPHELD BY THE TRIBUNAL AND AGAINST THIS ORDER, THE DEPARTMENT FILED APPEAL BEFORE THE HON'BLE DELHI HIGH COURT RAISING QUESTIONS ON THE ADMISSION OF AD DITIONAL EVIDENCE AND GRANT OF DEDUCTION U/S 10B OF THE ACT. THE HON'BLE HIGH COURT ADMITTED THE ADDITIONAL EVIDENCE BUT REMANDED THE MATTER TO THE ASSESSING OFFICER FOR LIMITED PURPOSE TO ENABLE HIM TO PROCESS THE CLAIM OF THE ASSESSEE AFRESH IN THE LIGHT OF EVIDENCE BROUGHT ON RECORD ONLY TO EXAMINE AS TO WHETHER THE ASSESSEE SATISFIED THE CONDITIONS LAID DOWN IN SECTION 10B(2 )(I) OF THE ACT. ON CAREFUL PERUSAL OF THE PARAS 25, 26 & 27 OF THE ORDER OF HO N'BLE HIGH COURT, IT IS AMPLY CLEAR THAT THE FIRST TWO QUESTIONS OF LAW WERE DECI DED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE AND THE THIRD QUESTION WAS ANSWERED IN FAVOUR OF THE REVENUE SUBJECT TO THE ORDER OF THEIR LORDSHIPS TO REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR LIMITED PURPOSE AS STATED ABOVE. 17. THE ASSESSING OFFICER FRAMED ASSESSMENT ORDER U /S 143(3) R/W SECTION 260 A OF THE ACT IN VIEW OF THE JUDGEMENT OF HON'BL E HIGH COURT DATED 17.9.12 FOR ASSESSMENT YEAR 2006-07 AND 2007-08 AND DULY VE RIFIED ALL ADDITIONAL I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 24 EVIDENCE SUBMITTED BY THE ASSESSEE BEFORE THE FIRST APPELLATE AUTHORITY DURING THE EARLIER APPELLATE PROCEEDINGS WHICH WAS ALSO NO TED BY THEIR LORDSHIPS IN PARA 24 OF THE JUDGMENT OF HON'BLE HIGH COURT. THE ASSES SING OFFICER CONSIDERED AFFIDAVITS OF THE SUPPLIERS CONFIRMING ABOUT SUPPLY ING OF UNFINISHED, UNASSEMBLED AND INCOMPLETE GOODS TO THE ASSESSEE FI RM AND ALSO CONSIDERED EXHIBITS SHOWING PHOTOGRAPHIC DETAIL OF RAW CHESS B OARD, RAW CHESS PIECES AND FINISHED CHESS BOARD AND FINISHED CHESS PIECES RESP ECTIVELY. DURING THE REASSESSMENT PROCEEDINGS IN PURSUANCE TO THE ORDER OF HON'BLE HIGH COURT, THE ASSESSING OFFICER DULY EXAMINED THE RELEVANT DOCUME NTS AND THE SAME WERE FOUND TO BE GENUINE AND THE ASSESSING OFFICER ALSO CONSIDERED WRITTEN SUBMISSIONS AND REPLIES OF THE ASSESSEE DATED 21.1. 13, 25.2.13 AND 12.3.13 AND 14.3.13 AVAILABLE ON PAGES 14 TO 21 OF THE ASSESSEE S PAPER BOOK. IT IS ALSO PERTINENT TO NOTE THAT ON THE BASIS OF EXAMINATION AND VERIFICATION OF THE SAID DOCUMENTARY EVIDENCE AND SUBMISSIONS OF THE ASSESSE E, THE ASSESSING OFFICER OBSERVED AND NOTED THAT ON RECEIPT OF SPECIFIC ORDE RS FROM EXPORTERS, THE ASSESSEE IN ITS FACTORY THROUGH ITS OWN WORKERS AND ARTISANS PERFORMED ACTIVITIES OF SANDING, HANDCARVING, FITTING OF KUNDIS, PASTING OF VELVET ON THE COINS AND BOXES, ASSEMBLING OF DIFFERENT GAMES INTO ONE TO FO RM 3 IN 1 GAME AND 5 AND WAS ALSO DOING STONING, PAINTING, POLISHING, ANTIQU ING AND PACKAGING ETC. AND FINAL PRODUCT MANUFACTURED BY THE ASSESSEE WAS DIFF ERENT THAN THE PRODUCT PURCHASED BY IT FROM ITS SUPPLIERS. THE ASSESSING OFFICER WENT IN DETAIL AND DEEP TO FURTHER EXAMINE AS TO WHETHER THE ASSESSEE IS ENGAGED IN MANUFACTURING I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 25 ACTIVITIES. THE ASSESSING OFFICER DEPUTED THE INSP ECTOR TO VISIT FACTORY OF THE ASSESSEE AND TO MAKE SPOT INQUIRIES ABOUT THE ACTUA L WORK UNDERTAKEN BY THE ASSESSEE. FOR THE SAKE OF CLARITY IN OUR FINDINGS, IT WOULD BE APPROPRIATE TO REPRODUCE THE REPORT OF THE INSPECTOR WHEREIN HE ST ATED AS UNDER:- THESE WORKERS WERE ENGAGED IN MANUFACTURING WORK O N SANDING MACHINE, BUFFING MACHINE, CUTTING MACHINE A ND BOLT FIXING MACHINE. SOME OF THE WORKERS WERE ENGAGED IN POLISHING, COLOURING, BAR CODING, ASSEMBLING AND PACKAGING WOR K.... ON INSPECTION OF WORK BEING DONE THERE, IT SEEMS THAT THE WORK WAS INVOLVED IN FINISHING JOB ON UNFINISHED ITEMS. 18. ON THE BASIS OF FOREGOING DISCUSSION, WE OBSERV E THAT THE LD. ASSESSING OFFICER, IN HIS REASSESSMENT ORDER DATED 20.2.13 PA SSED IN PURSUANCE TO THE DIRECTIONS OF HON'BLE HIGH COURT, ALLOWED DEDUCTION US/ 10B OF THE ACT TO THE ASSESSEE BY HOLDING THAT THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE WOULD AMOUNT TO MANUFACTURE WITHIN THE MEANING OF SECTION 10B(2) (I) OF THE ACT IN THE CONTEXT OF AFORESAID PROCEEDINGS UNDERTAKEN BY THE ASSESSIN G OFFICER DURING REASSESSMENT PROCEEDINGS CARRIED OUT IN PURSUANCE T O THE ORDER OF HON'BLE HIGH COURT, WE APPRECIATE THAT THE ASSESSING OFFICER FOL LOWED DIRECTIONS OF HON'BLE HIGH COURT IN ITS LETTER AND SPIRIT AND PROPERLY AN D DEEPLY VERIFIED AND EXAMINED THE CLAIM OF THE ASSESSEE ON THE BASIS OF ADDITIONA L EVIDENCE AS WELL AS SPOT INSPECTION AND INQUIRY REPORT OF THE DEPARTMENTAL I NSPECTOR AND THEN CONCLUDED THAT THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE WOUL D AMOUNT TO MANUFACTURE WITHIN THE MEANING OF SECTION 10(B)(2)(I) OF THE AC T ON THE BASIS OF SAID CONCLUSION, THE ASSESSEES CLAIM FOR DEDUCTION U/S 10B OF THE ACT WAS ALLOWED. I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 26 19. NOW, THE QUESTION BEFORE US IS THAT WHETHER THE CIT WAS JUSTIFIED AND VALIDLY ASSUMED JURISDICTION TO ISSUE NOTICE U/S 26 3 OF THE ACT AND IN PASSING IMPUGNED ORDERS UNDER THE SAID PROVISION, REVISED T HE REASSESSMENT ORDER OF THE ASSESSING OFFICER DATED 23.2.13 AND ORDER FOR ASSES SMENT YEAR 2009-10. THE MAIN CONTENTION OF THE LD. CIT DR IS THAT THE VIEW TAKEN BY THE ASSESSING OFFICER IN REASSESSMENT PROCEEDINGS AND IN ALLOWING THE CLAIM OF THE ASSESSEE U/S 10B OF THE ACT IS NOT A JUSTIFIED, REASONABLE A ND PLAUSIBLE VIEW WHICH WAS UNSUSTAINABLE AND NOT IN ACCORDANCE WITH LAW, THERE FORE, THE CIT ASSUMED JURISDICTION TO INVOKE POWERS U/S 263 OF THE ACT. THE CONTENTION OF THE ASSESSEE IN BRIEF IS THAT THE VIEW TAKEN BY THE ASSESSING OF FICER IS A SUSTAINABLE, REASONABLE AND SUSTAINABLE VIEW AS PER FACTS AND CI RCUMSTANCES OF THE CASE AND AS PER RELEVANT PROVISIONS OF THE ACT. ALTERNATIVEL Y, THE LEARNED COUNSEL OF THE ASSESSEE HAS SUBMITTED THAT THERE IS NO QUESTION OF TWO POSSIBLE VIEWS AS THE VIEW TAKEN BY THE ASSESSING OFFICER WAS THE ONLY PO SSIBLE VIEW WHICH COULD BE TAKEN IN THE FACTS AND CIRCUMSTANCES OF THE CASE, H OWEVER, FOR THE SAKE OF ARGUMENT IF IT IS PRESUMED THAT SECOND VIEW WAS ALS O POSSIBLE, THEN ALSO CIT WAS NOT EMPOWERED TO INVOKE PROVISIONS OF SECTION 2 63 OF THE ACT WHERE TWO VIEWS ARE POSSIBLE AND TO SUPPORT THIS CONTENTION, LEARNED COUNSEL OF THE ASSESSEE PLACED HIS RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS MAX INDIA 295 ITR 282 (S.C.) ON THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF CIT VS NDTV 360 ITR 044 , CIT VS HONDA SIEL POWER LTD. (D(DEL) 333 ITR 547 AND JUDGMENT IN THE I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 27 CASE OF CIT VS DLF POWER LTD. 345 ITR 446 (DEL). 20. AT THE VERY OUTSET, IT IS RELEVANT TO POINT O UT THAT THE ITAT KOLKATA SPECIAL BENCH HAS HELD THAT FOR THE PURPOSE OF SECTION 10A, 10AA AND 10B OF THE ACT, MANUFACTURE HAS TO BE CONSIDERED AS DEFINED IN SECT ION 2(R) OF THE SPECIAL ECONOMIC ZONES ACT, 2005. THE RELEVANT PART OF THI S ORDER IS BEING RESPECTFULLY REPRODUCED AS UNDER:- THE PROVISIONS OF SECTION 10AA OF THE ACT WAS INSE RTED ON THE STATUTE BOOK BY THE SPECIAL ECONOMIC ZONES ACT, 2005 WITH EFFECT FROM FEBRUARY 10, 2006. EVEN PRIOR TO THE EN ACTMENT OF THE SAID SPECIAL ECONOMIC ZONES ACT, SPECIAL ECONOM IC ZONES (INCLUDING UNITS THEREIN) WERE ALL ALONG TREATED LI KE EQU/FTZ/EPZ FOR ALL PURPOSES WHATSOEVER AND WERE DE ALT WITHIN THE EXIM POLICY ACCORDINGLY. SECTION 2(K) OF THE SPECIAL ECONOMIC ZONES ACT, 2005 DEFINES THE EXPRESSION 'EX ISTING SPECIAL ECONOMIC ZONE' TO MEAN EVERY SPECIAL ECONOM IC ZONE WHICH IS IN EXISTENCE ON OR BEFORE THE COMMENCEMENT OF THE SAID ACT. SECTION 2(L) DEFINES THE EXPRESSION 'EXISTING UNIT' TO MEAN EVERY UNIT WHICH HAS BEEN SET UP ON OR BEFORE THE COMMENCEMENT OF THE SAID ACT IN AN EXISTING SPECIAL ECONOMIC ZONE. IN OTHER V/ORDS, ADMITTEDLY ALL SPECIAL ECONO MIC ZONES WERE ALSO BEING GOVERNED BY THE EXIM POLICY PRIOR T O THE ENACTMENT OF THE SPECIAL ECONOMIC ZONES ACT, 2005. CLAUSE (III) OF EXPLANATION 1 TO SECTION 10AA LAYS DOWN THAT THE EXPRESSION 'MANUFACTURE' SHALL HAVE THE SAME MEANING AS ASSIGN ED TO IT IN SECTION 2(R) OF THE SPECIA]_ECPNOMIC ZONES ACT, 200 5, WHICH DEFINITION IS AS UNDER: ''MANUFACTURE' MEANS TO MAKE, PRODUCE, FABRICATE, ASSEMBLE, PROCESS OR BRING INTO EXISTENCE, BY HAND OR BY MACH INE, A NEW PRODUCT HAVING A DISTINCTIVE NAME, CHARACTER OR USE AND SHALL INCLUDE PROCESSES SUCH AS REFRIGERATION, CUTTING, P OLISHING, BLENDING, REPAIR, REMAKING, RE-ENGINEERING AND INCL UDES AGRICULTURE, AQUACULTURE, ANIMAL HUSBANDRY, FLORICU LTURE, I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 28 HORTICULTURE, PISCICULTURE, POULTRY, SERICULTURE, V ITICULTURE AND MINING.' IN EXIM POLICY, THE EXPRESSION 'MANUFACTURE' IS DEF INED, IN PARAGRAPHS 9.30 AND 9.31 THEREOF ALMOST IN THE SAME MANNER AS IN THE SPECIAL ECONOMIC ZONE ACT, 2005, WHICH IS AS UNDER: ''MANUFACTURE' MEANS TO MAKE, PRODUCE, FABRICATE, A SSEMBLE, PROCESS OR BRING INTO EXISTENCE, BY HAND OR BY MACH INE, A NEW PRODUCT HAVING A DISTINCTIVE NAME, CHARACTER OR USE AND SHALL INCLUDE PROCESSES SUCH AS REFRIGERATION, REPACKING, POLISHING AND LABELLING. MANUFACTURE, FOR THE PURPOSE OF THIS POL ICY, SHALL ALSO INCLUDE AGRICULTURE, AQUACULTURE, ANIMAL HUSBANDRY, FLORICULTURE, HORTICULTURE, PISCICULTURE, POULTRY, SERICULTURE, V ITICULTURE AND MINING. WE, IN VIEW OF THE ABOVE, HOLD THAT WHEN THE PROD UCTS FOR WHICH THE ASSESSEE'S UNIT IS RECOGNISED AS A 100 PER CENT, EX PORT ORIENTED UNDERTAKING ARE TEA BAGS, TEA IN PACKETS AND TEA IN BULK PACKS AND THE ASSESSEE, WHICH IS EXCLUSIVELY ENGAGED IN BLEND ING AND PACKING OF TEA FOR EXPORT, MAY NOT BE MANUFACTURER OR PRODU CER OF ANY OTHER ARTICLE OR THING IN COMMON PARLANCE. HOWEVER, FOR T HE PURPOSE OF SECTIONS 10A, 10AA AND 10B, WE HAVE TO CONSIDER THE DEFINITION OF THE WORD 'MANUFACTURE' AS DEFINED IN SECTION 2(R) O F THE SPECIALECONOMIC ZONES ACT, EXIM POLICY, FOOD ADULTE RATION RULES, 1955, TEA (MARKETING) CONTROL ORDER, 2003, ETC. WE ALSO FIND THAT THE DEFINITION OF 'MANUFACTURE' AS PER SECTION 2(R) OF THE SPECIAL ECONOMIC ZONES ACT, 2005 IS INCORPORATED IN SECTION 10AA OF THE INCOME-TAX ACT WITH EFFECT FROM FEBRUARY 10, 2006. THE HON'BLE KERALA HIGH COURT IN THE CASE OF GIRNAR INDUSTRIES [2011] 338 ITR 277 (KER) HAD HELD SUCH AMENDMENT IN SECTION 10AA T O BE CLARIFICATORY IN NATURE. THE DEFINITION OF 'MANUFAC TURE' UNDER THE SPECIAL \ ECONOMIC ZONES ACT, EXIM POLICY, FOOD ADU LTERATION RULES AND TEA (MARKETING) CONTROL ORDER IS MUCH WIDER THA N WHAT IS THE MEANING OF THE TERM 'MANUFACTURE' UNDER THE COMMON PARLANCE, AND IT INCLUDES PROCESSING, BLENDING, PACKAGING, ETC. I N VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWING THE DECISION OF THE HON' BLE KERALA HIGH COURT IN THE CASE OF GIRNAR INDUSTRIES (SUPRA) AND TATA TEA LTD. [2011] 338 ITR 285 (KER), WE HOLD THAT THE ASSESSEE IS ENTITLED FOR EXEMPTION UNDER SECTION 10B OF THE ACT ON ACCOUNT O F BLENDING OF TEA SIMILARLY, IN OUR VIEW, THE INDUS- TRIAL UNITS ENGA GED IN THE VERY SAME ACTIVITY, I.E., BLENDING, PACKING AND EXPORT OF TEA IN THE FREE-TRADE ZONE SHALL ALSO BE ENTITLED TO ENJOY TAX EXEMPTION UNDER SECTION 10A OF THE ACT. I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 29 21. FURTHERMORE, IN THE CASE OF ITO VS MAKERS MAR T (SUPRA), ITAT JODHPUR BENCH AFTER ANALYSING THE RELEVANT PROVISIONS OF TH E ACT CATEGORICALLY HELD THAT WHERE THE ASSESSEE AFTER PURCHASING UNFINISHED HAND ICRAFT GOODS APPLIED VARIOUS PROCESSES LIKE CUTTING, POLISHING, REPAIRING, REMAK ING ETC. AND FOR THE PURPOSE, INCURRED SUBSTANTIAL LABOUR EXPENSES, THEN IT COULD NOT BE DENIED EXEMPTION U/S 10AA OF THE ACT ON THE GROUND THAT IT WAS NOT A MAN UFACTURING CONCERN. THE RELEVANT OBSERVATIONS AND OPERATIVE PART OF THIS OR DER READ AS UNDER:- 11. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT CASE, IT APPEARS THAT AO DISALLOWED THE CLA IM OF THE ASSESSEE MAINLY ON THE GROUND THAT ASSESSEE PURCHAS ED VAT EXEMPTED GOODS AMOUNTING TO RS. 3,43,48,670, WHICH WERE IN FACT, FINISHED HANDICRAFT ITEMS, BECAUSE ONLY HANDICRAFT ITEMS ARE VAT FREE UNDER SCH. I OF RAJASTHAN VALUE ADDED TAX ACT , 2003. ON THE CONTRARY, THE CLAIM OF THE ASSESSEE IS THAT THE GOODS PURCHASED BY IT WERE UNFINISHED HANDICRAFT ITEMS, WHICH WERE ALSO VERIFIED BY THE CUSTOM AUTHORITIES, WHO CLEARLY REMARKED ON THE PURCHASE INVOICES AS 'UNFINISHED ITEMS'. IN OUR OPINION, THE VIEW TAKEN BY THE AO WAS NOT CORRECT BECAUSE THE ASSESSEE PURCHAS ED UNFINISHED HANDICRAFT GOODS AND APPLIED VARIOUS PROCESSES LIKE CUTTING, POLISHING, REPAIRING, REMAKING ETC. AND FOR THAT PU RPOSE, INCURRED EXPENSES AMOUNTING TO RS. 56,47,777 FOR LABOUR, WHI CH HAS NOT BEEN DOUBTED BY THE AO. THE ASSESSEE ALSO INCURRED ELECTRIC EXPENSES OF RS. 6,56,987 WHICH WAS ALSO ACCEPTED BY THE AO. THE ASSESSEE WAS ENGAGED IN MANUFACTURING ACTIVITIES, T HIS FACT IS ESTABLISHED FROM VARIOUS CERTIFICATES ISSUED BY THE GOVERNMENT AND CONCERNED AUTHORITIES, WHO AFTER VERIFICATION A ND SCRUTINY, ISSUED THE CERTIFICATES WHICH ARE TO BE ISSUED ONLY TO THE CONCERNS ENGAGED IN MANUFACTURING ACTIVITIES. THOSE CERTIFIC ATES WERE AS UNDER : (I) COPY OF REGISTRATION CERTIFICATE ISSUED BY DIST RICT INDUSTRIES I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 30 CENTRE, JODHPUR, REGISTERING BIO. 080151100653 (II) REGISTRATION CERTIFICATE GRANTED UNDER THE PRO VISION OF FACTORIES ACT, 1948, NO. 28531 DT. 22ND NOV., 2010. (III) COPY OF THE REGISTRATION CERTIFICATE ISSUED B Y EXPORT PROMOTION COUNCIL FOR HANDICRAFTS. (IV) COPY OF APPROVAL ISSUED AS PER SEZ ACT, 2005 BY OF FICE OF THE DEVELOPMENT COMMR., NOIDA SPECIAL ECONOMIC ZONE , MINISTRY OF COMMERCE AND INDUSTRY, DEPARTMENT OF COMMERCE, GOVERNMENT OF INDIA. (V) COPY OF LETTER DT. 27TH APRIL, 2006 OF DEVELOPMENT COMMR., NOIDA SPECIAL ECONOMIC ZONE. (VI) COPY OF REGISTRATION GRANTED UNDER THE PROVIS IONS OF RAJASTHAN SALES-TAX ACT SHOWING THE APPELLANT (SIC ASSESSEE) AS 'MANUFACTURER OF ALL TYPES OF HANDICRAFTS'. (VII) COPY OF REGISTRATION CERTIFICATE ISSUED UNDER THE PROVISIONS OF CST ACT. SHOWING THE ASSESSEE AS MANUFACTURE OF HAN DICRAFTS. 12. IN THE PRESENT CASE, IT IS ALSO ADMITTED FACT THAT IN THE PRECEDING ASST. YRS. 2007-08 AND 2008-09. THE DEDUCTION CLAIMED BY THE A SSESSEE UNDER S. 10AA OF THE ACT WAS ALLOWED WHILE PASSING THE ASSESSMENT OR DERS UNDER S. 143(3) OF THE ACT. COPIES OF THE SAID ASSESSMENT ORDERS ARE PLACE D AT PAGE NOS. 232 TO 249 OF THE ASSESSEE'S PAPER BOOK. IN THE INSTANT CASE, NOTHING IS BROUGHT ON RECORD TO SUBSTANTIATE, THAT THERE IS ANY CHANGE IN THE FA CTS OF THE PRESENT YEAR VIS-A- VIS THE EARLIER YEARS. IT IS RELEVANT TO POINT OUT THAT IN THE ASSESSMENT ORDER DT. 20TH APRIL, 2010 FOR THE ASST. YR. 2008-09 PASSED U NDER S. 143(3) OF THE ACT. COPY OF WHICH IS PLACED AT PAGE NOS. 232 TO 236 OF THE ASSESSEE'S PAPER BOOK, THE AO WHILE ALLOWING THE DEDUCTION UNDER S. 10AA O F THE ACT OBSERVED AS UNDER : 'MEANWHILE, VIDE ORDER SHEET ENTRY DT. 19TH MARCH. 2010, INSPECTOR OF THIS WARD WAS DIRECTED TO VERIFY WHETHER THE UNIT IS LOC ATED IN SPECIAL ECONOMIC ZONE OR NOT AND WHETHER THE FIRM IS MANUFACTURING T HE ARTICLES OF ITS OWN OR NOT. THE INSPECTOR OF THIS WARD, VIDE HIS REPORT DT . 29TH MARCH, 2010 HAS REPORTED THAT THE ASSESSEE'S FACTORY AND PRODUCTION HOUSE IS SITUATED AT G- 185 AND 186, F-204 AND 205 WHICH IS IN SEZ, BORANAD A. HE FURTHER REPORTED THAT THE ASSESSEE MANUFACTURES THE ARTICLE S OF ITS OWN. THE SUBMISSION OF THE ASSESSEE WAS EXAMINED WITH REFERE NCE TO BOOKS OF ACCOUNT, PURCHASE BILLS/VOUCHERS ETC. PRODUCED/ FIL ED. CONSIDERING ALL THE FACTS AND CIRCUMSTANCE OF THE CASE AND AFTER DISCUS SION WITH THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE AND PARTN ERS OF THE FIRM, IT IS FOUND THAT THE ASSESSEE IS ELIGIBLE FOR 100 PER CEN T EXEMPTION, BEING SECOND YEAR OF THE BUSINESS.' I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 31 13. SIMILARLY, FOR THE ASST, YR. 2007-08 COPY OF WHICH IS PLACED AT PAGE NOS. 240 TO 246 OF THE ASSESSEE'S PAPER HOOK, THE AO IN THE ORDER DT. 3RD APRIL. 2009 IN PARAS 4.1, 4.2 OBSERVED AS UNDER ; 4.1 THE ASSESSEE WAS ASKED VIDE ORDER SHEET NOTING DT. 12 TH MARCH, 2009 TO ESTABLISH ITS CASE TO COVER BY CL. (III) OF EXPLN. 1 TO S. 10AA(8) OF THE ACT I.E. MANUFACTURE SHALL HAVE THE SAME MEANING AS ASS IGNED TO IT IN EL. (R) OF S. 2 OF THE SEZ ACT, 2005. THE ASSESSEE VIDE LETTE R DT. 23 RD MARCH, 2009 HAS EXPLAINED AS UNDER:- THAT ASSESSEE IS MANUFACTURER OF ALL TYPES OF HANDI CRAFTS. IT IS LABOUR ORIENTED UNIT AND NO HEAVY MACHINERY IS USED FOR PRODUCTION. THERE IS NO FIXED SYSTEM OF MANUFACTURING; IT DEPENDS UPON THE ORDER OF EXPO RT. AS AND WHEN ASSESSEE RECEIVED THE ORDER, HE DECIDED THE MANUFACTURING PR OCESS AND STYLE OF WORKING. ASSESSEE IS HAVING GOOD SET UP FOR MANUFAC TURING DIFFERENT TYPES OF HANDICRAFTS ITEMS. ASSESSEE GENERALLY DEALS WITH IR ON HANDICRAFTS. A DETAILED PROCESS CHART WITH PHOTOS OF ITEMS SHOWING THE STEP S INVOLVED IN MANUFACTURING ONE AFTER ANOTHER PROCESS IS ENCLOSED . THE STEPS INVOLVED IN PRODUCTION AND EXPORT IS AS UNDER : (1) RECEIPT OF PURCHASE ORDER FROM THE FOREIGN BUYER. (2) PRODUCTION PLANNING FOR IN-HOUSE AND AT OUTSIDES, (3) ISSUE OF POS AND JOS TO SUPPLIERS AND IN-HOUSE INC HARGES WITH THE SPECIFIED 'MODELS' EACH FOR PRODUCTION OF 'SEMI -FINISHED' GOODS, WHICH TOO IN DIFFERENT STEPS. IRON SHEETS OR ANGLES WERE CUT DOWN IN THE SHAPE OF ITEMS, WHICH IS DONE BY DI FFERENT PERSONS WHICH ARE SPECIALIZED IN DIFFERENT ITEMS AS PER SIZE AND FRAME AND SOME TIME THESE SKELETONS WAS PURCHASED D IRECTLY FROM SUPPLIER TO SAVE TIME AND HEADACHE OF SCRAP. (4) THESE CUT SIZE ITEMS ARE ASSEMBLED AND ENGRAVING A ND SHAPING AS PER REQUIREMENT OF ITEMS UNDER SUPERVISION' OF SUPERVIS ORS. WELDING, MOUNDLING AND GIVING SHAPES AND ATTACHING SMALL ATTACHMENTS WHICH ARE NEEDED AS ACCESSORIES AND REQ UIREMENT OF ITEMS. (5) THESE ITEMS WERE NOW GIVEN FOR FINISHING FOR REMOVI NG THE WELDING SIGNS AND BALANCING THE SAME. (6) NOW THESE ITEMS ARE POLISHED AS PER REQUIREMENT OF BUYER, I.E., NICKEL PLATTING POWDER COATING, SAND STONE BLASTING OR COLOURING AS PER REQUIREMENT. I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 32 (7) NOW FINAL POLISHING IS DONE AND BY CHECKING THE ACC URACY OF ITEM AS PER REQUIREMENT AND AS PER ORDER AND SPECIF ICATION OF SIZE AND FINISHING AND GLASS ACCESSORIES WERE FITTE D OR FINAL ACCESSORIES WERE FITTED AS PER SPECIFICATIONS. (8) SPECIAL PACKAGING IS DONE AS PER ITEM AND INDIVIDUA L ITEM IS PACKED IN SEPARATE BOX AND THAN EACH IS PACKED IN B IG BOXES WITH USE OF DIFFERENT KIND OF PACKING MATERIAL AFTE R LABELLING AND TAGGING THE ITEMS. (9) LABELLING OF BOXES AND PUTTING IT IN CONTAINER FOR EXPORT OF THE SAME. THAT MANUFACTURING OF ITEMS INVOLVED MANY STEPS AND DUE TO VARIETY OF ITEMS AND STYLE, EACH AND EVERY WORK OF THE ITEM CANN'T BE DONE IN-HOUSE, HENCE SOME PART OF THE WORK/JOB IS GIVEN OUTSIDE TO SPECIALIST FOR ADDING IN THE ITEMS AND WHICH RETURN S THE SAME AND NEXT PROCESS WERE DONE IN INHOUSE. AS IN EXPORT SEC RECY OF THE MODEL OF ITEM IS MUST AND IF WE LOSE THE SAME WE WI LL LOSE THE ORDER OR WE WILL NOT RECEIVE THE ORDER SECOND TIME HENCE ASSESSEE'S TRY TO DO THE WORK IN PARTS AND FINAL FINISHING AND SHAPIN G OF THE ITEM IS DONE IN INHOUSE. ASSESSEE IS HAVING GOOD AND EFFICI ENT STAFF WHICH IS SUFFICIENT FOR IT WORKING AND ALL THE STAFF IS ON R OLL AND ALSO HAVING SOME CONTRACTORS WHICH ARE ALSO REGISTERED UNDER AS SESSEE AND WORKING IN ASSESSEE'S PREMISES AND PF AND ESI LIABI LITY IS TAKEN BY THE ASSESSEE IF IT IS NOT PAID BY THE CONTRACTOR. H ENCE, DIRECTLY AND INDIRECTLY ASSESSEE GIVES EMPLOYMENT FOR THE MANUFA CTURING OF ITS ITEM THROUGH CONTRACTOR ALSO. CONTRACTORSHIP IS MUS T IN THIS TRADE DUE TO LARGE VOLUME OF LABOUR TURNOVER. AS ASSESSEE IF KEEPS THE EMPLOYEE ON HIS ROLL AND AFTER TWO THREE, MONTHS HE LEFT AND HE HAS TO GIVE EXPLANATION FOR THE SAME TO THE PF AND ESI DEPARTMENT, HENCE IT CREATE ONE MORE PROBLEM. SECOND IN CONTRAC TORSHIP ASSESSEE HAS TO PAY ONLY FOR THE WORK OR ITEMS WHIC H HE HAS COMPLETED AND NO PAYMENT WITHOUT WORK IF THERE IS N O WORK OF SAID TYPE WITH ASSESSEE. ASSESSEE IN HANDICRAFT INDUSTRY DUE TO VARIETY OF ITEMS EACH PERSON OR TEAM OF PERSONS ARE SPECIALIZE D IN THE SPECIAL WORK, WHICH IS ALSO AS NEEDED FROM ORDER TO ORDER. HENCE, ASSESSEE PREFERS CONTRACTOR OVER THE DIRECT EMPLOYEE, AS THE RE IS NO DIFFERENCE IN WORKING BOTH ARE DOING WORK IN ASSESS EE'S PREMISES.' 4.2 THE EXPLANATION OF THE ASSESSEE WAS EXAMINED WI TH (HE BOOKS OF ACCOUNT, PURCHASE BILLS/VOUCHERS AND VOUCHERS RAISE D BY THE CONTRACTOR. AS MUCH AS PROFIT AND GAINS RAISED TO T HE ASSESSEE ON EXPORT SALES, THE TAKING OF GOODS COMMENCED FROM SE Z I.E. VV.E.F. 3RD JAN., 2007, IS ELIGIBLE FOR 100 PER CENT DEDUCTION, BEING FIRST YEAR OF THE BUSINESS UNDER S. 1OAA OF THE IT ACT, 1961. I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 33 14. FROM THE ABOVE NARRATED FACTS, IT IS CLEAR THAT TH E DEPARTMENT HAS ALLOWED CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER S . 1 OAA OF THE ACT IN THE PRECEDING YEARS. SINCE THERE IS NO CHANGE IN THE FACTS OF THE YEAR UNDER CONSIDERATION THEREFORE, ON THE PRINCIPL E OF CONSISTENCY ALSO, THE CLAIM OF THE ASSESSEE WAS ALLOWABLE. FURT HERMORE, THIS ISSUE IS COVERED BY THE DECISION OF THIS BENCH OF THE TRI BUNAL IN THE CASE OF SURAJ EXPORTS INDIA (SUPRA). WE, THEREFORE, CONSIDE RING THE TOTALITY OF FACTS AS DISCUSSED HEREINABOVE, ARE OF THE VIEW THA T LEARNED CIT(A) WAS FULLY JUSTIFIED IN DIRECTING THE AO TO ALLOW TH E CLAIM OF THE ASSESSEE UNDER S. 1OAA OF THE ACT. ACCORDINGLY, WE DO NOT SEE ANY MERIT ON THIS ISSUE IN THE APPEAL OF DEPARTMENT. 22. IT IS ALSO PERTINENT TO NOTE THAT IN THE CASE OF DIVIJ EXPORTS VS ITO, JODHPUR BENCH HAS ALSO EXAMINED SIMILAR QUESTION I N THE SIMILAR SET OF FACTS AND CIRCUMSTANCES WHEREIN THE ASSESSEE CHALLENGED T HE REVISIONAL ORDER PASSED U/S 263 BY THE CIT WHEREIN IT WRITTEN SUBMISSIONS H ELD THAT WHERE THE ASSESSEE WAS PURCHASING SEMI/FINISHED WOODEN ARTICLES WHICH REQUIRED OTHER WORK OF BEAUTIFICATION AND OF ARTISTIC VALUE, THEREAFTER WO ODEN ARTICLES TOOK SHAPE OF ANTIQUE LOOK, THEN THE ASSESSEE WAS RIGHTLY ALLOWED EXEMPTION U/S 10BA OF THE ACT. THE RELEVANT PART OF OPERATIVE PART OF THIS O RDER IS BEING REPRODUCED AS UNDER:- THEREAFTER, THE LEARNED CIT EXERCISED THE POWERS U NDER S. 263 OF THE ACT BY OBSERVING THAT THE ASSESSEE'S BUSINESS H AD BEEN MENTIONED AS MANUFACTURING AND TRADING OF ALL KINDS OF HAND MADE ARTICLES OR THINGS (HANDICRAFT GOODS) WHICH WERE OF ARTISTIC VALUE AND WHICH REQUIRED THE USE OF WOOD AS THE MAIN RAW MATERIAL. ACCORDING TO LEARNED CIT. THE REPORT OF THE ASSESSE E INTIMATED THAT IT WAS NOT ONLY MANUFACTURING BUT ALSO ENGAGED IN T RADING ACTIVITY DURING THE RELEVANT PERIOD AND SINCE THE MANUFACTUR ING ACTIVITY IS THE CONDITION PRECEDENT FOR ADMISSIBILITY OF EXEMPT ION UNDER S. 10BA OF THE ACT AND THE ASSESSEE WAS ENGAGED IN TRA DING ALSO, IT. WAS NOT ENTITLED FOR EXEMPTION UNDER S. 10BA OF THE ACT BUT SUCH EXEMPTION WAS ERRONEOUSLY ALLOWED BY THE AO, THEREF ORE, THE ASSESSMENT ORDER PASSED UNDER S. 143(3) ON 2BTH APR IL, 2007 WAS ERRONEOUS INSOFAR AS IT WAS PREJUDICIAL TO THE INTE REST OF REVENUE. I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 34 THE LEARNED CIT ALSO MENTIONED THE DETAILS OF CERTA IN INVOICES IN PARAS 5.1 TO 5.18 WHEREIN IT WAS MENTIONED THAT REA DY WOODEN ITEMS WERE PURCHASED BY THE ASSESSEE. THE LEARNED C IT ISSUED A SHOW-CAUSE NOTICE TO THE ASSESSEE BY INVOKING THE P ROVISIONS OF S. 263 OF THE ACT. IN RESPONSE TO THE NOTICE, THE ASSE SSEE FILED WRITTEN REPLY ON 5TH FEB., 2008 AND THE RELEVANT PARA NO. 2 HAD BEEN REPRODUCED BY LEARNED CIT IN PARA 9 OF THE IMPUGNED ORDER, WHICH READS AS UNDER : '2. THAT WE HAVE MANUFACTURED OR PRODUCED ALL THE G OODS AT OUR FACTORY SITE WHICH WERE EXPORTED OUT OF COUNTRY I.E . MOST OF GOODS HAVE BEEN MANUFACTURED AT OUR FACTORY BY PURCHASE O F WOOD, WOODEN ARTICLE, HARDWARE GOODS, POLISHING MATERIALS , CONSUMABLE STORES AND THEREAFTER SEASONING THE WOOD MANUFACTUR ING OF ARTISTIC WOODEN ARTICLE AND THINGS. FURTHER, IN SOME OF THE CASES THE PARTS OF WOODEN ARTICLES HAVE BEEN PURCHASED EITHER IN AGRICULTURES/ARTICLES I.E. GROOMING, SHAPING OR ADH ESING SOME MORE THINGS TO MAKE THEM ELIGIBLE ARTICLES OR THING S BY USE OF CONSUMABLE AND HARDWARE GOODS AND APPLY THE LABOUR. FURTHER THEREAFTER ALL THE POLISHING WORK ON THESE MANUFACT URED OR PRODUCED ARTICLES HAS ALSO BEEN DONE AT OUT FACTORY SITE, WHICH MAY BE VERIFIED FROM OUT TOTAL PAYMENT OF WAGES AND SALARY AND LABOUR WOOD AND POLISH WORTH RS. 13,70,844 FOR A TO TAL SALE OF RS. 88.73,135 I.E. 14.45 PER CENT OF TOTAL SALES AND 18 .57 PER CENT OF COST OF GOODS SOLD WHICH SHOWS THAT THE PRODUCTION ACTIVITIES HAVE BEEN CARRIED OVER AT OUR FACTORY SITE ON THE GOODS WHICH HAVE BEEN PURCHASED AS ROUGH OR RAW MORE PURCHASE OF RAW OR R OUGH ARTICLES OR THINGS THEREAFTER APPLYING OF SOME MORE LABOUR WORK TO MAKE THE COMMODITY MORE ARTISTIC VALUE WHICH MAY BE VERIFIED FROM PURCHASE INVOICE AND OUT OF SALE BILL WHICH CL EARLY SHOWS THAT THE GOODS PURCHASED IN RAW/ROUGH HAVE NOT BEEN EXPORTED THEREAFTER THE ARTISTIC WORK OF GROOMING/DIGGING/AD DING OF SOME PARTICULAR HAS BEEN MADE AND ALSO POLISHING WORK HA S BEEN DONE. THE DETAILED LIST OF PURCHASE AND SALES AND THEIR V OUCHERS ARE ENCLOSED. ACCORDING TO CL. (A) OF SUB-S. (2) OF S. LOBA OF TH E IT ACT, 1961, WHICH THE ASSESSEE HAS TO FULFIL ARE AS UNDER: 'IT MANUFACTURES OR PRODUCES THE ELIGIBLE ARTICLES OR THINGS WITHOUT THE USE OF IMPORTED RAW MATERIALS.' AFTER READING THE ABOVE CLAUSE IT IS CLEAR THAT THE UNDERTAKING SHOULD MANUFACTURE OR PRODUCE THE ELIGIBLE ARTICLES OR THINGS. THE EXPRESSION PRODUCTION HAS WIDER MEANING THAN THE WO RD 'MANUFACTURE'. THE WORD 'PRODUCTION' INCLUDES THE A CTIVITIES OF MANUFACTURING BY APPLYING HUMAN ENDEAVOR ON SOME EX ISTING RAW MATERIAL TO MAKE IT VALUABLE. IN THE INSTANT CASE, THE ASSESSEE HAS DONE THE MANUFACTURING ACTIVITIES TO MANUFACTURE TH E ELIGIBLE ARTICLES OR THINGS I.E. ALL HAND MADE ARTICLES OR T HINGS WHICH ARE OF ARTISTIC FOR WHICH WOOD USED AS MAIN RAW MATERIAL B UT IN SOME NEGLIGIBLE CASES I.E. NOT MORE THAN 15 PER CENT VAL UE OF SALE PRICE THE ARTICLES OR THINGS HAVE BEEN PURCHASED IN RAW O R ROUGH THEREAFTER THE ARTISTIC ACTIVITIES HAVE BEEN DONE B Y APPLYING THE I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 35 LABOUR AND POLISHING WORK HAS ALSO BEEN DONE AT OUT FACTORY SITE, HENCE THE COMMODITY PURCHASED IN RAW AND ROUGH HAS BEEN MADE USABLE OR VALUABLE AT OUR FACTORY SITE WHICH AMOUNT S TO PRODUCTION, MANUFACTURER MEANS A DIFFERENT OR INDEP ENDENT ARTICLE SHOULD BE COURSE BY APPLYING MANUFACTURING ACTIVITI ES WHEREAS IN OUR CASE IT HAS DONE SO BY USE WOOD BUT IN NEGLIGIB LE CASES NOT MORE THAN 15 PER CENT ROUGH OR NEW ARTICLE HAS BEEN PURCHASED EITHER IN LOTO OR IN THEIR PARTS THEREAFTER ASSEMBL ED AT OUR FACTORY SITE AND THEREAFTER ARTISTIC WORK HAS BEEN DONE BY APPLYING LABOUR TO DO THE GROOMING WORK, DIGGING WORK OR ADHESING W ORK WHICH TANTAMOUNTS TO A PRODUCTION ACTIVITY. EVERY MANUFAC TURING ACTIVITY REQUIRES CHANGE I.E. DIFFERENT AND DISTINCT COMMODI TY USED SHOULD BE GOT CHANGED OR BE DIFFERENT OR DISTINCT COMMODIT IES WHEREAS THE COMMODITIES SHOULD BECOME THE VALUABLE OR SALABLE A FTER DOING THE PRODUCTION ACTIVITIES. SEC. 10BA(2)(A) REQUIRES THE UNDERTAKING TO MANUFAC TURE OR PRODUCE THE ELIGIBLE ARTICLE OR THING MEANS THE UND ERTAKING SHOULD DO EITHER THE MANUFACTURING ACTIVITIES OR TO DO PRO DUCTION ACTIVITIES. PRODUCTION OF GOODS IS A WIDER MEANING FROM MANUFAC TURE OF GOODS, WHICH IS HAVING RESTRICTED TO MANUFACTURE OF NEW OR DISTINCT COMMODITY WHEREAS PRODUCTION REQUIRES APPLICATION O F LABOUR ONLY TO MAKE THE THINGS OR ARTICLES AS VALUABLE OR SALEA BLE.' 4. THE ASSESSEE VIDE REPLY DT. 5TH MARCH, 2008 ALSO F ILED LIST OF PURCHASE VOUCHERS AND CONFIRMATIONS FROM VARIOUS PARTIES, WHO HAD SOLD HANDICRAFT ITEMS TO THE ASSESSEE. IN ALL T HOSE CONFIRMATIONS, IT WAS STATED THAT SKELETON PIECES O F WOODEN HANDICRAFTS OR ROUGH SHAPE OF WOODEN ITEMS WERE SUP PLIED. 5. THE LEARNED CIT WAS NOT SATISFIED WITH THE REPLY OF THE ASSESSEE AND OBSERVED THAT THE ASSESSEE WAS DEALING IN WOODE N ITEMS AND IT WAS EVIDENT FROM SOME BILLS THAT THE ASSESSEE HAD P URCHASED TIMBER AND MANUFACTURED SOME ARTICLES AT HIS FACTORY BUT A T THE SAME TIME PURCHASED READYMADE WOODEN ITEMS OF RS.14,20,725. H E FURTHER OBSERVED THAT NOMENCLATURE OF THE ITEMS IN THE BILL S WAS ITSELF A COMPLETE ENTRY TO SUGGEST THAT COMPLETE CHAIR/TABLE /ALMIRAH/LAMP ETC. WERE PURCHASED COULD NOT BE PURCHASED IN PARTS OR PIECES. HAD IT BEEN SO I.E. PURCHASED IN PART THE BILLS WOULD H AVE DEFINITELY STATED SO. THE LEARNED CIT WAS OF THE VIEW THAT THE CONFIR MATION NOW FILED THAT ONLY PARTS WERE PURCHASED WAS MERELY AN AFTERT HOUGHT AND MAKE TO BELIEVE STORY. THE LEARNED CIT ALSO REFERRED TO THE CASE LAW RELIED UPON BY THE ASSESSEE AT PP. 9 AND 10 OF THE IMPUGNE D ORDER. THE LEARNED CIT HELD THAT THE AO HAD ERRONEOUSLY ALLOWE D EXEMPTION OF RS. 5,04,428 UNDER S. 10BA AND THUS ASSESSMENT ORDE R WAS ERRONEOUS AS ALSO PREJUDICIAL TO THE INTEREST OF TH E REVENUE. ACCORDINGLY, WHILE EXERCISING HIS POWER UNDER S. 26 3 OF THE ACT, THE LEARNED CIT SET ASIDE THE ORDER UNDER S. 143(3) DT. 26TH APRIL, 2007 PASSED BY THE AO AND DIRECTED HIM TO REFRAME THE AS SESSMENT. THE LEARNED CIT ALSO MENTIONED THAT THE AO HAD NOT EXAM INED AND MADE INQUIRY FOR INVESTIGATION OF ANY TYPE FOR THE VARIO US EXPENSES I.E. POWER EXPENSES SALARY AND WAGES, ELECTRICAL EXPENSE S AND TELEPHONE EXPENSES. NOW THE ASSESSEE IS IN APPEAL. I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 36 6. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMI TTED THAT THE AO THOROUGHLY EXAMINED AND INVESTIGATED THE CASE OF TH E ASSESSEE BEFORE FRAMING THE ASSESSMENT UNDER S. 143(3) OF THE ACT A ND ONLY AFTER BEING SATISFIED ALLOWED THE DEDUCTION UNDER S. 10BA OF THE ACT. IT WAS FURTHER SUBMITTED THAT THE LEARNED CIT ONLY REFERRE D TO CERTAIN INVOICES WHICH INDICATED THAT THE ASSESSEE PURCHASE D FEW WOODEN ITEMS. IT WAS EXPLAINED THAT THE ASSESSEE PURCHASED THE RAW ITEMS AND GAVE THE FINISHING TOUCH AFTER MAKING THE VARIO US PROCESSES, THEREFORE, THE CLAIM OF THE ASSESSEE WAS ALLOWABLE SINCE IT WAS A CASE WHERE THE ASSESSEE WAS ENGAGED IN THE ACTIVITY OF M ANUFACTURING AND PROCESSING AND WAS NOT ENGAGED IN THE TRADING AS AL LEGED BY LEARNED C1T. THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO PP. 2 TO 7 OF THE ASSESSEE'S COMPILATION WHICH IS A COPY OF REPLY DT. 5TH FEB., 2008 TO THE LEARNED CIT-II, JODHPUR AND SUBMITTED THAT V IDE PARA 9 OF THE SAID LETTER IT WAS EXPLAINED THAT THE ASSESSEE MANU FACTURED OR PRODUCED ALL THE GOODS AT HIS FACTORY SITE WHICH WE RE EXPORTED OUT OF THE COUNTRY AND MOST OF THE GOODS HAD BEEN MANUFACT URED AT FACTORY BY PURCHASE OF WOOD OR WOODEN ARTICLES, HARDWARE GO ODS, POLISHING MATERIALS, CONSUMABLE STORES AND THEREAFTER SEASONI NG THE WOOD, MANUFACTURING OF ARTISTIC WOOD ARTICLES AND THINGS HAD BEEN DONE. IT WAS FURTHER STATED THAT IT WAS EXPLAINED TO THE LEA RNED CIT THAT IN SOME OF THE CASES THE PARTS OF WOODEN ARTICLES OR T HINGS HAD BEEN PURCHASED IN THE RAW OR ROUGH FORM THEREAFTER ASSEM BLED AT OUR FACTORY SITE AND THEREAFTER ARTISTIC WORK AND OTHER WORK OF ARTISTIC HAD BEEN DONE I.E. GROOMING, SHAPING OR ADHESING SO ME MORE THINGS TO MAKE THEM ELIGIBLE ARTICLES OR THINGS BY USE OF CONSUMABLE AND HARDWARE GOODS AND BY APPLYING LABOUR. IT WAS CONTE NDED THAT THE ASSESSEE FULFILLED THE CONDITIONS LAID DOWN IN S. 1 0BA OF THE ACT AND THE AO AFTER BEING SATISFIED TOOK A POSSIBLE VIEW, THEREFORE, THE ACTION OF THE LEARNED CIT WAS NOT JUSTIFIED. RELIAN CE WAS PLACED ON THE FOLLOWING CASE LAWS : 1. GOVERDHAN PRASAD SINGHAL V. TTO [IT APPEAL NOS. 200, 797 & 964 (JP) OF 2008]; 2. SUNIL KUMAR PUGALIA (HUF) V. ITO R20091 120TTJ 1001 (JP); 3. DY. CIT V. JAIPUR MANGLAM ARTS [2009] 28 SOT 57 (JP); 4. SARNATH INFRASTRUCTURE (P) LTD. V. ASSTT. CIT [2010] 124 ITD71 (LUCK.) 5. ARTS & CRAFTS EXPORTS V. ITO [2011] 45 SOT 418/10 TAXMANN.COM 294 (MUM.) 6. DY. CIT V. MANOJ KUMAR JOHRI [2012] 18 TAXMANN.COM 130/50 SOT 39 (URO) (JP); 7. KWAL PRO EXPORTS V. ITO [20091 33 SOT 24 (JODH.); 8. CIT V. MAX INDIA LTD. [2007] 295 ITR 282/166 TAXMAN 188 (SC). 7. IN HIS RIVAL SUBMISSIONS, THE LEARNED DEPARTMENTAL REPRESENTATIVE REITERATED THE OBSERVATIONS MADE BY THE LEARNED CIT AND STRONGLY SUPPORTED THE IMPUGNED ORDER. I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 37 8. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PAR TIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT CASE, IT IS NOT IN DISPUTE THAT THE ASSESSEE WAS EN GAGED IN MANUFACTURING AND EXPORT OF GOODS BUT LEARNED CIT WAS OF THE VIEW THAT APART FROM MANUFACTURING AND EXPORTING GOODS, THE ASSESSEE WAS ENGAGED IN THE TRADING ACTIVITY. THAT VIEW WAS TAKEN ON THE BASIS OF CERTAIN INVOICES WHEREIN IT WAS MENTIONED THAT THE ASSESSEE PURCHASE D WOODEN ARTICLES. THE EXPLANATION OF THE ASSESSEE BEFORE THE LEARNED CIT WAS THAT THOSE WOODEN ARTICLES WERE SUBJECT TO FURTHER PROCESSING BEFORE MAKING THEM FINISHED GOODS. IN THE INSTANT CASE, THE ASSESSMENT WAS FRAMED UNDER S. 143(3) OF THE ACT AND BOOKS OF ACCOUNT AS MAINTAINE D BY THE ASSESSEE WERE SUBJECT TO THE AUDIT UNDER S. 44AB OF THE ACT. THE ASSESSEE ALSO FILED AUDIT REPORT ALONG WITH RETURN OF INCOME. IT IS NOT A CASE THAT THE AO HAD NOT EXAMINED THE BOOKS OF ACCOUNT AND SUPPORTING MA TERIAL WHILE FRAMING THE ASSESSMENT UNDER S. 143(3) OF THE ACT. THE ASSE SSEE ALSO FURNISHED REPORT UNDER S. 10BA OF THE ACT IN FORM NO. 5614 WH ICH IS PLACED AT PP. 21 TO 26 OF THE ASSESSEE'S COMPILATION. IN THE SAID REPORT, NO DEFECT WAS POINTED OUT BY THE LEARNED CIT, HOWEVER, HE CONSIDE RED THE ASSESSMENT ORDER PASSED BY THE AO AS ERRONEOUS AS WELL AS PREJ UDICIAL TO THE INTEREST OF REVENUE ONLY ON THIS BASIS THAT AT SERIAL NO. 5 OF ANNEX. A', APPENDED TO FORM NO. 56H, THE BUSINESS OF THE ASSESSEE WAS M ENTIONED AS 'MANUFACTURING AND TRADING' OF ALL KINDS OF HANDMAD E ARTICLES OR THINGS. BUT IN THE INSTANT CASE, NOT EVEN A SINGLE ITEM WAS POINTED OUT BY THE LEARNED CIT WHEREIN THE ASSESSEE WAS ENGAGED IN THE TRADING. ON THE OTHER HAND, THE CLAIM OF THE ASSESSEE WAS THAT IT W AS PURCHASING SEMI- FINISHED WOODEN ARTICLES WHICH REQUIRED OTHER WORK OF BEAUTIFICATION AND OF ARTISTIC VALUE, THEREAFTER THE WOODEN ARTICLES T OOK THE SHAPE OF ANTIQUE LOOK. IN THE PRESENT CASE, IT APPEARS THAT THE VIEW TAKEN BY THE AO WAS IN CONSONANCE WITH THE VIEW OF THE TRIBUNAL JODHPUR BE NCH 'A' IN THE CASES OF GOVERDHAN PRASAD SINGHAL V. 1TO ITA NO. 200/JP/2 008, 964/JP/2007 AND 797/JP/2008 FOR THE ASST. YRS. 2007-08 AND 2005 -06 AND ITA NO. 964/.LP/2007 FOR THE ASST. YR. 2003-04, ORDER DT. 2 4TH OCT., 2008) (SUPRA)], AS WELL AS THE VIEW EXPRESSED BY TRIBUNAL, JAIPUR ' A' BENCH IN THE CASE OF DY. CIT V. MANGLAM ARTS (ITA NO. 815/JP/2007) (SUPR A). THEREFORE, IT CAN BE HELD THAT THE VIEW TAKEN BY AO WAS ONE OF TH E POSSIBLE VIEWS ON A SIMILAR ISSUE. THE HON'BLE APEX COURT IN THE CASE O F C1T VS MAX INDIA LTD. (SUPRA) HELD AS UNDER : THE PHRASE 'PREJUDICIAL TO THE INTERESTS OF THE RE VENUE' IN S. 263 OF THE IT ACT. 1961, HAS TO BE READ IN CONJUNCTION WIT H THE EXPRESSION 'ERRONEOUS' ORDER PASSED BY THE AO. EVERY LOSS OF R EVENUE AS A CONSEQUENCE OF AN ORDER OF THE AO CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. FOR EXAMPLE, WHEN THE AO ADOPTS ONE OF THE TWO COURSES PERMISSIBLE IN LAW AND IT HAS RESUL TED IN LOSS OF REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE AO HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT B E TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE REVENUE, UNLESS THE VIEW TAKEN BY THE AO IS UNSUSTAINABLE IN LAW.' 9. SINCE IN THE PRESENT CASE, THE AO HAD TAKEN ONE OF THE POSSIBLE VIEWS, THEREFORE, BY KEEPING IN VIEW THE RATIO LAID DOWN B Y THE HON'BLE SUPREME COURT IN THE AFORESAID REFERRED TO CASE, WE ARE OF THE VIEW THAT THE ASSESSMENT ORDER PASSED BY THE AO CANNOT BE TREATED AS ERRONEOUS OR I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 38 PREJUDICIAL TO THE INTEREST OF REVENUE. IN THAT VIE W OF THE MATTER, WE SET ASIDE THE IMPUGNED ORDER PASSED BY LEARNED CIT. 23. IN VIEW OF ABOVE DICTA LAID DOWN BY HONBLE S PECIAL BENCH OF THE TRIBUNAL, WE HAVE NO HESITATION TO HOLD THAT FOR TH E PURPOSE OF CLAIM U/S 10A, 10AA AND 10B OF THE ACT, WE HAVE TO CONSIDER THE GE NUINENESS OF THE WORD MANUFACTURE AS DEFINED IN SECTION 2(R) OF THE SPE CIAL ECONOMIC ZONE ACT 2005. IN THE PRESENT CASE, THE ASSESSING OFFICER I N PURSUANCE TO THE DIRECTIONS OF HON'BLE HIGH COURT NOT ONLY EXAMINED AND VERIFIED A DDITIONAL EVIDENCE AND ALL RELEVANT SUBMISSIONS AND DOCUMENTARY EVIDENCE OF TH E ASSESSEE BUT ALSO CALLED A PHYSICAL SPOT INSPECTION REPORT BY THE INSPECTOR OF THE DEPARTMENT WHEREIN IT WAS INFORMED THAT THE WORKERS OF THE ASSESSEE FIRM WERE ENGAGED IN MANUFACTURING WORK ON SANDING MACHINE, BUFFING, CUTTING AND BOLT FIXING MACHINE. THE INSPECTOR ALSO OBSERVED THAT SOME OF THE WORKERS WE RE ENGAGED IN POLISHING, COLOURING, ASSEMBLING AND PACKAGING WORK. AFTER IN SPECTION OF SAID WORK BEING DONE THERE, THE INSPECTOR NOTED THAT THE WORK UNDER TAKEN BY THE ASSESSEE FIRM INVOLVED FINISHING JOB OF UNFINISHED ITEMS AND THER EFORE, THESE WORKERS WERE ENGAGED IN THE MANUFACTURING WORK OF ARTISTIC PRODU CTS. IN THIS SITUATION, ON THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE ARE INCLINED TO HOLD THAT THE VIEW TAKEN BY THE ITAT, JODHPUR BENCH IN THE CASE OF IT O VS MAKER MART (SUPRA) AND IN THE ORDER OF DIVIJ EXPORTS VS ITO (SUPRA) STRONGLY SUPPORT THE CONTENTION OF THE ASSESSEE THAT WHERE THE ASSESSEE AFTER PURCH ASING UNFINISHED HANDICRAFT GOODS I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 39 APPLIED VARIOUS PROCESSES LIKE CUTTING, POLISHING, REPAIRING, REMARKING ETC. AND FOR THAT PURPOSE, THE ASSESSEE HAD INCURRED SUBSTAN TIAL LABOUR AND OTHER EXPENSES ON PACKING ETC., THEN IT WOULD BE PRESUMED THAT THE ASSESSEE HAD UNDERTAKEN MANUFACTURING ACTIVITIES AND THUS, IT IS ELIGIBLE F OR DEDUCTION U/S 10B OF THE ACT. ACCORDINGLY, WE REACH TO A CONCLUSION THAT THE VIEW TAKEN BY THE ASSESSING OFFICER IN THE REASSESSMENT ORDER IN PURSUANCE TO T HE DIRECTIONS OF HON'BLE HIGH COURT AND IN PASSING IMPUGNED ASSESSMENT ORDER FOR ASSESSMENT YEAR 2006-07, 2007-08 AND 2009-10 WAS A REASONABLE, JUSTIFIED AND PLAUSIBLE VIEW WHICH COULD NOT BE ALLEGED AS UNSUSTAINABLE OR NOT IN ACCORDANC E WITH THE PROVISIONS OF THE ACT AND THEREFORE, THE CIT COULD NOT BE HELD AS JUS TIFIED IN ISSUING NOTICE U/S 263 OF THE ACT AND IN PASSING IMPUGNED ORDERS REVISING AND DISTURBING THE REASSESSMENT ORDER PASSED U/S 143(3), 260A AND 143( 3) OF THE ACT IN PURSUANCE TO THE JUDGMENT OF HON'BLE HIGH COURT. 24. OUR VIEW FURTHER FINDS SUPPORT FROM THE ORDER OF HON'BLE HIGH COURT OF DELHI IN THE CASE OF CIT VS NDTV 360 ITR 044 (DEL) WHEREIN IT WAS HELD THAT WHERE THE ASSESSING OFFICER DID CONDUCT INVEST IGATION AND ACCEPTED THE CLAIM FOR DEDUCTION OF THE ASSESSEE ON BEING SATISF IED THAT THE CONDITIONS STIPULATED IN THE RELEVANT PROVISION OF THE CLAIM H AVE BEEN SATISFIED, THEN IT COULD NOT BE HELD AS A CASE OF NO INVESTIGATION A ND WHERE NO FURTHER INVESTIGATION IS REQUIRED, THEN THE ACCEPTANCE OF T HE CLAIM BY THE ASSESSING OFFICER CANNOT BE HELD AS ERRONEOUS AND THUS ORDER OF REVISION U/S 263 OF THE I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 40 ACT WAS NOT VALID. IN THE PRESENT CASE, THE ASSESS ING OFFICER ORIGINALLY DISALLOWED THE CLAIM OF THE ASSESSEE IN THE FIRST R OUND OF PROCEEDINGS. SUBSEQUENTLY WHEN THE HON'BLE HIGH COURT DIRECTED T HE ASSESSING OFFICER TO VERIFY AND EXAMINE THE CLAIM OF THE ASSESSEE AS TO WHETHER THE ASSESSEE HAS UNDERTAKEN MANUFACTURING ACTIVITIES AS REQUIRED U/S 10B(2)(I) OF THE ACT, THEN IN PURSUANCE TO THE SAID ORDER, THE ASSESSING OFFIC ER HIMSELF VERIFIED AND EXAMINED THE CLAIM OF THE ASSESSEE AND AFTER CALLIN G AND CONSIDERING THE SPOT INSPECTION REPORT OF THE DEPARTMENTAL INSPECTOR, HE HELD THAT THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE IN ITS WORKSHOP/FACTORY WAS MANUFACTURING ACTIVITY AND THUS THE ASSESSING OFFICER HELD THAT THE ASSESS EE IS ENTITLED FOR CLAIM OF DEDUCTION U/S 10B OF THE ACT. IN THIS SITUATION, T HE CIT WAS NOT CORRECT IN INVOKING PROVISIONS OF SECTION 263 OF THE ACT AS TH E VIEW TAKEN BY THE ASSESSING OFFICER IN THE ORDER PASSED IN PURSUANCE TO THE DIRECTIONS OF HON'BLE HIGH COURT WAS QUITE CORRECT, POSSIBLE AND PLAUSIBL E VIEW WHICH CANNOT BE ALLEGED AS UNSUSTAINABLE OR NOT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AND HENCE THE SAME CANNOT BE LABELLED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 25. IN THIS JUDGEMENT OF CIT VS NDTV, THEIR LORDSHI PS SPEAKING FOR JURISDICTIONAL HIGH COURT ALSO CONSIDERED AND REFER RED TO ITS EARLIER JUDGMENTS IN THE CASE OF SUNBEAM AUTO LTD. 332 ITR 167 (DEL) AND ITO VS D.G. HOUSING PROJECTS LTD. 343 ITR 329 (DEL). IN THE CASE OF DG HOUSING I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 41 (SUPRA), AFTER REFERRING TO THE DECISION OF SUNBEAM AUTO (SUPRA), IT WAS HELD THAT THE CIT MUST COME TO A CONCLUSION THAT THE ORD ER IS ERRONEOUS AND IS UNSUSTAINABLE IN LAW. IN THE PRESENT CASE, THE CIT HAS NOT SATISFIED JURISDICTIONAL PRE-CONDITIONS STIPULATED IN SECTION 263 OF THE ACT. THE ORDER U/S 263 OF THE ACT MUST BE CLEAR AND MUST SET OUT THE L OGICAL GROUND AND REASON AS TO WHY THE ASSESSMENT IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 26. IN THE CASE OF MALABAR INDUSTRIES LTD. VS CIT 243 ITR 83 (S.C.), AS RELIED BY THE ASSESSEE, IT WAS HELD THUS:- THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE RE VENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER P ASSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONS EQUENCE OF AN ORDER OF THE ASSESSING OFFICER, CANNOT BE TERMED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, FOR EXAMPLE, WHEN AN INCOME TAX OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN L AW AND IT HAS RESULTED IN LOSS OF REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME TAX OFFICER HAS TAKEN ONE VIEW WITH WHIC H THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED A S AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE INCOME TAX OFFICER IS UNSUSTA INABLE IN LAW. 27. IN VIEW OF ABOVE, IN THE FACTS AND CIRCUMSTANCE S OF THE PRESENT CASE, WE OBSERVE THAT THE ASSESSING OFFICER ADOPTED A REASON ABLE, CORRECT AND PLAUSIBLE VIEW BASED ON LOGICAL ANALYSIS OF DOCUMENTARY EVIDE NCE OF THE ASSESSEE AND FORTIFIED BY THE INSPECTORS SPOT AND PHYSICAL INSP ECTION REPORT AND THE SAME CANNOT BE HELD AS UNSUSTAINABLE OR NOT IN ACCORDANC E WITH THE PROVISIONS OF THE ACT. THE ASSESSING OFFICER RIGHTLY HELD THAT THE A SSESSEE IS UNDERTAKING MANUFACTURING ACTIVITIES AND THUS IT IS ENTITLED FO R DEDUCTION/EXEMPTION U/S 10B I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 42 OF THE ACT. IN OUR HUMBLE UNDERSTANDING, THIS IS N OT A CASE OF TWO POSSIBLE VIEWS BUT THE PRESENT CASE IS THE CASE OF ONE ACCEP TABLE AND SUSTAINABLE VIEW AND IN THIS SITUATION, IT CANNOT BE HELD THAT THE C IT ASSUMED VALID JURISDICTION TO ISSUE NOTICE AND TO PASS REVISIONAL ORDER U/S 263 O F THE ACT. HENCE, WE ARE INCLINED TO HOLD THAT THE CIT HAS NO VALID REASON T O ASSUME JURISDICTION TO INVOKE SECTION 263 OF THE ACT AND THUS WE HOLD THAT THE NOTICES AND IMPUGNED ORDER TO REVISE REASSESSMENT ORDER FOR ASSESSMENT Y EAR 2006-07, 2007-08 AND 2009-10 ARE BAD IN LAW AND THE ACTION OF THE CIT WA S NOT BASED ON VALID ASSUMPTION OF JURISDICTION AND THUS WE QUASH THE SA ME. 28. SINCE FACTS AND CIRCUMSTANCES FOR ASSESSMENT YE AR 2006-07, 2007-08 AND 2009-10 ARE QUITE SIMILAR, OUR CONCLUSION FOR THE G ROUNDS OF THE ASSESSEE FOR ASSESSMENT YEAR 2009-10 WILL APPLY TO ASSESSMENT YE AR 2006-07, 2007-08 MUTATIS MUTANDIS . WE ORDER ACCORDINGLY. FINALLY, IMPUGNED NOTICES ISSUED U/S 263 OF THE ACT AND ORDERS PASSED BY THE CIT U/S 263 OF THE ACT DATED 19.3.14 FOR ASSESSMENT YEAR 2009-10, DATED 16.9.2010 FOR AS SESSMENT YEAR 2006-07 AND DATED 19.9.2014 FOR ASSESSMENT YEAR 2007-08 ARE HER EBY QUASHED. ALL THREE APPEALS OF THE ASSESSEE ARE ALLOWED. REVENUE APPEAL IN I.T.A. NO. 924/D/2014 FOR A.Y. 20 08-09 29. THIS APPEAL HAS BEEN DIRECTED AGAINST THE ORDER OF LD. CIT(A)-XXIV, NEW DELHI DATED 25.11.2013 IN APPEAL NO.207/2013-14 FOR ASSESSMENT YEAR 2008-09. I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 43 30. IN THIS APPEAL, THE DEPARTMENT HAS CHALLENGED T HE FIRST APPELLATE ORDER WHEREIN HE ALLOWED CLAIM OF EXEMPTION U/S 10B OF TH E ACT TO THE ASSESSEE. WE HAVE HEARD ARGUMENTS OF BOTH THE SIDES AND CAREFULL Y PERUSED THE MATERIAL PLACED ON RECORD BEFORE US. THE CIT(A) GRANTED REL IEF TO THE ASSESSEE BY OBSERVING AND CONCLUDING AS FOLLOWS:- SUBSEQUENTLY, AO EXAMINED AND ALLOWED THE DEDUCTIO N U/S 10B TO THE APPELLANT IN THESE TWO ASSESSMENT YEARS AND THEREFORE, NO CONTROVERSY LEFT REMAINED. IT WOULD B E APT TO MENTION THAT DURING THE APPELLATE PROCEEDING, MY PR EDECESSORS SOUGHT REMAND REPORT FROM THE AO BECAUSE THE HONBL E DELHI HIGH COURT HAS REMITTED ONE OF THE ISSUES ON SECTIO N 10 B (2) (I). SUBSEQUENTLY, THE ASSESSING OFFICER HAS PASSED ORDERS U/S 143 (3)/ 260 A ON 22.03.2013 WHICH WERE ALSO PLACED ON RECORD BEFORE MY PREDECESSORS. IT WAS ARGUED THAT IN THE Y EAR IN CONCERN THE AO HAS MERELY FOLLOWED REASONING GIVEN IN THE ASSESSMENT ORDERS FOR AY 2006-07 AND 2007-08 FOR DISALLOWING DEDUCTION U/S 10 B. SINCE, THE AO HAS ALREADY GRANTED RELIEF ON THE DIR ECTIONS OF HONBLE DELHI HIGH COURT WHILE PASSING ORDERS U/ S 143 ( 3)/260A AND GRANTED DEDUCTIONS U/S 10 B OF THE IT ACT, THE CONTROVERSY RAISED BY THE AO FOR THE YEAR IN CONCER N ALSO DOESNT SURVIVE. MOREOVER, IT IS ALSO OBSERVED THAT THE AO HAS ALSO ALLOWED THE CLAIM OF THE APPELLANT U/S 10B IN THE SUBSEQUENT ASSESSMENT YEAR 2009-10. I, THEREFORE, A LLOW THE APPEAL AND DIRECT THE AO TO GRANT DEDUCTION U/S 10B OF THE IT ACT, 1961. 31. SINCE BY THE EARLIER PART OF THIS ORDER, WE HAV E HELD THAT THE ASSESSING OFFICER TOOK A SUSTAINABLE, REASONABLE AND PLAUSIBL E VIEW IN ALLOWING CLAIM OF THE ASSESSEE U/S 10B OF THE ACT IN REASSESSMENT ORD ER PASSED IN PURSUANCE TO THE DIRECTIONS OF THE HON'BLE HIGH COURT, HENCE, THE VI EW TAKEN BY THE CIT(A) FOR 2008-09 FOLLOWING THE ORDERS FOR ASSESSMENT YEAR 20 06-07, 2007-08 AND 2009- 10 CANNOT BE ALLEGED AS PERVERSE OR INCORRECT. THE VIEW TAKEN BY THE CIT(A) IN ALLOWING APPEAL OF THE ASSESSEE AND DIRECTING THE A SSESSING OFFICER TO GRANT EXEMPTION U/S 10B OF THE ACT FOR ASSESSMENT YEAR 20 08-09 IS JUSTIFIED AND WE I.T.A.NOS.2531, 5702, 5703 & 924/D/2014 AYS: 2006-07, 2007-08, 2008-09, 2009-10 44 ARE UNABLE TO SEE ANY VALID REASON TO INTERFERE WIT H THE FIRST APPELLATE ORDER. ACCORDINGLY, WE UPHOLD THE SAME AND BOTH THE MAIN G ROUNDS OF THE REVENUE BEING DEVOID OF MERITS ARE DISMISSED. 32. IN THE RESULT, ALL THREE APPEALS OF THE ASSESSE E ARE ALLOWED AND APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30.11.2015. SD/- SD/- (L.P. SAHU) (C.M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30TH NOVEMBER, 2015 GS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASSTT. REGISTRAR
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