ACIT, Tirunelveli V. Vetrivel Minerals, Tirunelveli

ITA 706/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6164 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 25-07-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 22-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Cost of acquisition

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A BENCH, CHENNAI . . . , . , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.706/MDS/2017 ( / ASSESSMENT YEAR: 2013-14) THE ACIT, CIRCLE 1, TIRUNELVELI. V S M/S. VETRIVEL MINERALS, KEERAIKARANTHATTTU, TISAYANVILAI, TIRUNELVELI PAN: AAHFV2400N ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SMT. RUBY GEORGE, JCIT /RESPONDENT BY : SHRI D. ANAND, ADVOCATE /DATE OF HEARING : 25.07.2017 /DATE OF PRONOUNCEMENT : 20.09.2017 / O R D E R PER A. MOHAN ALANKAMONY, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEA LS)-3, MADURAI DATED 07.12.2016 IN ITA NO.0068/2016-17 FOR THE ASSESSMENT YEAR 2013-14 PASSED U/S.250(6) R.W.S.1 43(3) OF THE ACT. 2 I TA NO.706/MDS/2017 2. THE REVENUE HAS RAISED SEVERAL GROUNDS IN ITS A PPEAL HOWEVER THE CRUX OF THE ISSUE IS THAT THE LD.CIT(A) HAS ERRED IN ALLOWING THE CLAIM OF DEDUCTION U/S.10AA OF THE ACT BY HOLDING THAT THE ACTIVITY OF THE ASSESSEE IS MANUFACTURING. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A FIRM ENGAGED IN THE BUSINESS OF MANUFACTURE AND EXPORTIN G OF PULVERIZED GARNET ABRASIVE GRIT, FILED ITS RETURN O F INCOME FOR THE ASSESSMENT YEAR 2013-14 ELECTRONICALLY ON 27.09.201 3, DECLARING TOTAL INCOME OF RS.3,16,61,350/-. THE CASE WAS SEL ECTED FOR SCRUTINY UNDER CASS AND FINALLY ASSESSMENT ORDER U/ S.143(3) OF THE ACT WAS PASSED ON 30.03.2016, WHEREIN AMONGST C ERTAIN OTHER ADDITIONS AND DISALLOWANCES THE LD.AO DISALLO WED THE CLAIM OF DEDUCTION U/S.10AA OF THE ACT. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD MADE THE FOLLOWING SUBMISSIONS BEFORE THE LD.AO WITH RESPECT TO ITS CLAIM OF DEDUCTION U/S.10AA OF THE ACT: I. THE AUTHORIZED OPERATION IN THE ASSESSEES SEZ A CTIVITIES INCLUDE MANUFACTURE OF GARNET, ILMENITE, RUTILE ETC ., 3 I TA NO.706/MDS/2017 II. ALL THE RAW MATERIALS BOUGHT INTO THE ASSESSEE S SEZ UNIT WERE IMPORTED AND THE ENTIRE PRODUCTION IS EXPORTED IN ACCORDANCE WITH SEZ ACT. III. ALL THE IMPORT MATERIALS ARE SEMI PROCESSED MA TERIAL CONTAINING HEAVY MINERALS AND THE EXPORT MATERIALS ARE GARNET AND ILMENITE. IV. THE RAW SAND IS MIXED WITH SEA WATER RESULTING IN A SLURRY STATE FROM WHICH SILICA SAND AND WASTE ARE EXTRACTE D. V. THEREAFTER ON FURTHER PROCESS, MINERALS SUCH AS GARNET, ILMENITE, RUTILE ETC., ARE EXTRACTED AND MARKETED. VI. THE DETAILS OF PRODUCTION PROCESS ARE STATED AS FOLLOWS: RAW MATERIAL PROCUREMENT: SINCE, THE PRODUCTS GARNET, LLMENITE, RUTILE ETC. A RE MINERAL PRODUCTS, THIS CAN BE PURCHASED ONLY FROM THE UNITS HOLDING MINING LEASES AND OTHER MINERAL SEPARATION UNITS. THE REQUIRED RAW MATERIAL FOR PRODUCTION IS BEING P URCHASED FROM THE GROUP CONCERN M/S. VV MINERAL, A FIRM HAVI NG VALID MINING LEASE. THE LESSEE FIRM MINES THE ALLUVIAL BEACH SAND WHICH CONTAINS HEAVY MINERALS SUCH AS GARNET, I1MENITE ETC. NEAR THE MINED PLACE, THE WASTE MATERIAL CONTENT WI LL BE REDUCED BY USING SPIRAL AND SEA WATER. THE SPIRAL PROCESS IS EXPLAINED IN DETAIL AS BELOW: O HEAVY MINERALS ARE THE ONE WITH A DENSITY THAT IS G REATER THAN 2.9 G/CM3 4 I TA NO.706/MDS/2017 O THE SPIRAL SEPARATOR IS A DEVICE USED FOR SEPARATIN G THE SOLID COMPONENTS IN SLURRY, BASED ON THE DENSITY. O THE LARGER AND HEAVIER PARTICLES SINK TO THE BOTTOM OF THE SLUICE FASTER AND EXPERIENCE MORE DRAG FROM THE BOT TOM. THEY TRAVEL SLOWER AND SO MOVE TOWARDS THE CENTRE O F THE SPIRAL. O CONVERSELY, LIGHT PARTICLES STAY TOWARDS THE OUTSID E OF THE SPIRAL, WITH THE WATER AND QUICKLY REACH THE BOTTOM . O AT THE BOTTOM, A CUT IS MADE WITH ADJUSTABLE BARS, CHANNELS OR SLOTS, SEPARATING THE LOW AND HIGH DENSITY PARTS . THE MINED SAND AFTER THIS PROCESS IS BEING BOUGHT A S RAW MATERIAL BY VV MINERALS SEZ UNITS. THE PROCESS UPTO THIS STAGE IS TERMED AS MINING ACT IVITY AND THE OUTPUT MATERIAL AT THIS STAGE WILL CONTAIN 90% TO 95% HEAVY MINERALS. THE FOLLOWING COSTS WERE APPORTIONED TO ARRIVE AT T HE COST PER TON FOR THE MATERIALS BEING SOLD TO THE SISTER COMP ANIES. O ROYALTY PAID O MINING EXPENSES O LOADING AND UNLOADING EXPENSES O TRANSPORTATION COST O FACTORY EXPENSES AND LABOUR EXPENSES ATTRIBUTABLE T O THIS SPIRAL UNIT ALONE. O THE APPROXIMATE COST PER TON WORKS OUT TO RS.313/- PER MT NOW, THE CONCENTRATE MATERIAL AFTER THIS PROCESS, W HICH CONTAINS ILMENITE AND GARNET AND VERY LESS WASTE MA TERIAL. THIS SEMI PROCESSED MATERIAL WILL BE SUPPLIED TO VV MINERALS SEZ UNITS FOR THE FURTHER PROCESSING - TO REMOVE TH E WASTE CONTENTS AND TO SEPARATE THE GARNET AND ILMENITE TO MAKE THE MINERALS USABLE. PROCESS OF SEZ UNITS: IN THE SEZ, THE ABOVE SAID MATERIAL WILL BE STORED IN RAW MATERIAL TAN. 5 I TA NO.706/MDS/2017 FROM THERE, IT WILL BE TRANSPORTED THROUGH ELEVATOR S FOR PRIMARY SEPARATION IN RARE EARTH ROLLER MAGNET, (RE R) AND THIS WILL REMOVE THE UNWANTED WASTE SILICA SAND AND OTHER IMPURITIES ORDINARY SHELLS, SMALL STONES TEE. AGAIN IT WILL BE PASSED THROUGH ANOTHER MAGNETIC SE PARATOR FOR FINAL SEPARATION TO REMOVE ESCAPED IMPURITIES A ND THEN THIS WILL CONTAIN NOT LESS THAN 99% PURE GARNET. ACCORDING TO INTERNATIONAL STANDARD 96% PURITY GARN ET WILL BE CALLED GARNET WHERE AS OUR GARNET SUPERIOR THAN INT ERNATIONAL STANDARD. THIS PURE GARNET WILL BE TRANSPORTED TO SIEVE SYSTE M WHICH CONTAINING UP TO 5 DECKS DEPENDS UPON CUSTOMER REQU IREMENTS. IN THE SIEVE SYSTEM, GARNET WILL BE SEPARATED BASED ON THE GRAIN SIZE AS EACH GRADE HAS SPECIAL CHARACTER AND SPECIAL USE. FOR EXAMPLE: BIGGER GRAIN SIZE IS USED FOR WATER FI LTRATION, MEDIUM AND SMALL GRAIN SIZE IS USED FOR SAND BLASTI NG, FINE GRAIN SIZE AND MICRO GRAIN SIZES ARE USED FOR WATER JET CUTTING. VERY FINE GRAIN SIZE IS USED FOR GRINDING FOR POLIS HING TV PICTURE TUBE AND GLASSES ETC. BASED ON THE REQUIREMENT OF THE CUSTOMER THE MESH S IZE DECK WILL BE CHANGED. THE FINAL PRODUCT WILL BE PACKED EITHER 25 KG BAGS OR 50 KG BAGS OR 1 TON/2 TON JUMBO BAGS WITH OR WITHOUT LINE R DEPENDING ON THE CUSTOMER'S REQUIREMENT. THE SAME METHOD OF PROCESS WILL BE USED FOR PRODUCT ION OF LLMENITE. ILMENITE IS USED FOR THE PRODUCTION OF TITANIUM PIG MENTS, SYNTHETIC RUTILE, TITANIUM METALS ETC. IN ADDITION TO THE ABOVE MENTIONED PROCESS, VSEZ CO NTAINS WASHING FACILITY ALSO. 6 I TA NO.706/MDS/2017 THE MATERIALS IN SLURRY FORM WILL BE PASSED TO THE ATTRITION PANEL FOR SURFACE COATING THAT IS TO REMOVE THE IMP URITIES. SILOS ARE USED TO REDUCE HIGH MOISTURE IN THE MATER IALS. AFTER THIS THE MATERIALS WILL BE DRIED IN THE DRIER . SAND AFTER DRYING WILL BE COOLED IN A COOLER. THUS OUR VV MINERALS SEZ UNITS FULFTLL THE APPROVED ACTIVITIES REQUIREMENT UNDER THE SEZ ACT AND PRODUCE GARNET, L LMENITE AND OTHER HEAVY MINERAL PRODUCTS AS APPROVED BY DEVELOPMENT COMMISSIONER OF MEPZ AND VSEZ AND ALL O UR PRODUCED MINERALS ARE EXPORTED THROUGH AUTHORIZED O FFICER. 5. AFTER ANALYZING THE SUBMISSION OF THE ASSESSEE A ND EXAMINING THE FACTS OF THE CASE, THE LD.AO OBSERVED AS FOLLOWS:- (I) THE CLAIM OF THE ASSESSEE THAT THE MINED SAND A FTER SPIRAL PROCESS WAS PURCHASED AS RAW MATERIALS BY M/S. VV MINERALS SEZ UNIT, HOWEVER IT WAS FOUND THAT THE RA W MATERIALS WAS ILMENITE CONTAINING APPROXIMATELY 5 T O 10% OF DUST. (II) THE ASSESSEES CLAIM THAT THE MINERAL SEPARATI ON FROM RUN ON MINES IS CARRIED OUT IN THE SEZ UNIT IS DEVOID O F MERITS. (III) AS PER THE APPLICATION OF REMOVAL OF EXCISAB LE GOODS MAINTAINED BY THE ASSESSEE WITH THE CENTRAL EXCISE DEPARTMENT SHOWS THAT THE ASSESSEE WAS IMPORTING ILMENITE ORES FROM THE DOMESTIC TARIFF AREA TO THE SEZ UNIT 7 I TA NO.706/MDS/2017 AND ALSO EXPORTING THE SAME PRODUCT AS PER THE SALE S INVOICES FURNISHED BY THE ASSESSEE DURING THE COURS E OF SCRUTINY PROCEEDINGS. (IV) IT WAS THEREFORE CLEAR THAT THE RAW MATERIALS AND THE FINISHED PRODUCTS ARE THE SAME. (V) IT WAS EVIDENT THAT THE NATURE OF PRODUCT IMPOR TED TO THE SEZ UNIT FROM DTA AND THE PRODUCT EXPORTED ARE SIMI LAR, BEING CONCENTRATES OF ILMENITE ORE. (VI) THEREFORE THIS ACTIVITY OF THE ASSESSEE DOES N OT AMOUNT TO MANUFACTURE IN TERMS OF THE SEZ ACT. (VII) IT WAS ALSO EVIDENT THAT THE ASSESSEE WAS ROU TING A PART OF THE REGULAR SALES OF THE UNIT IN THE DOMESTIC TARIF F AREA THROUGH THE SEZ UNIT EVEN BEFORE INSTALLATION OF TH E MACHINERY AND PLANT. (VIII) A MINOR ACTIVITY OF SIEVING TO SEPARATE DUST PARTICLES IS ONLY CARRIED OUT IN THE SEZ UNIT THEREBY QUALIFYING THE ESTABLISHMENT OF THE SEZ UNIT AS A RESULTANT OF SPL ITTING UP OR RECONSTRUCTION OF AN EXISTING UNIT. (IX) THE QUANTITATIVE DETAILS ALSO SERVE TO PROVE T HAT THERE IS NO MANUFACTURING OR PROCESSING ACTIVITY CARRIED OUT IN THE SEZ UNIT BUT ONLY A PART OF THE SALES OF THE DTA UNIT H AS BEEN ROUTED THROUGH THE SEZ UNIT. 8 I TA NO.706/MDS/2017 (X) IT WAS ALSO EVIDENT THAT THE ASSESSEES UNIT D O NOT POSSESS THE MACHINERY TO CARRY OUT MINERAL SEPARATION PROCE SS. (XI) THE ONLY ACTIVITY CONDUCTED BY THE ASSESSEE WA S TO REMOVE THE DUST FROM THE RAW MATERIAL PURCHASED. (XII) THE TRANSACTION OF THE ASSESSEE IS ALSO NOT A T ARMS- LENGTH. WITH THE ABOVE FINDINGS THE LD.AO HELD THAT THE ASS ESSEE IS NOT ELIGIBLE FOR THE CLAIM OF DEDUCTION U/S.10AA OF THE ACT. 6. ON APPEAL, THE LD.CIT(A) ALLOWED THE CLAIM OF D EDUCTION U/S.10AA OF THE ACT BY OBSERVING AS UNDER:- (I) THE ASSESSEES SEZ UNIT WAS RECOGNIZED BY THE S EZ AUTHORITIES AND THEY HAD HELD THE ACTIVITIES OF THE SEZ UNIT AS MANUFACTURING ACTIVITY AS PER THE SEZ ACT. THIS FACT COULD NOT BE DISPUTED BY THE LD.AO. (II) THE EXPORT INVOICE STATES THAT THE MATERIALS E XPORTED WAS ILUMINATE OF 50% GRADE WHICH ESTABLISH THE FACT THAT A DISTINCT MATERIAL HAS EMERGED FROM THE MANUFACTURING ACTIVITY OF THE ASSESSEE, WHICH CANNO T BE DISPUTED. 9 I TA NO.706/MDS/2017 (III) THE CLAIM OF THE ASSESSEE THAT THE PRE-ENGINE ERED METAL BUILDING WAS ERECTED BEFORE 31.03.2012, THOUG H THE BILL WAS RAISED ON 28.04.2012 IS JUSTIFIABLE BE CAUSE THE CONCERNED SEZ AUTHORITIES HAD CERTIFIED THAT TH E SEZ UNIT HAD COMMENCED PRODUCTION ON 29.02.2012. THUS IT IS EVIDENT THAT THE ASSESSEE HAD PRE-FABRIC ATED THE BUILDING WELL BEFORE 31.03.2012. (IV) IT ALSO ESTABLISHES THE FACT THAT THE SEZ UNIT HAS NOT FORMED BY SPLITTING UP OR RECONSTRUCTION OF BUILDIN G AS CLAIMED BY THE LD.AO. MOREOVER, THE LD.AO HAS NOT PROVED THE CLAIM OF THE ASSESSEE TO BE INCORRECT. (V) THE OPINION OF THE LD.AO THAT THE SEZ UNIT OF T HE ASSESSEE IN VISHAKHAPATNAM COULD NOT HAVE BEEN COMMENCED OPERATIONS BEFORE 31.03.2012 BECAUSE THE INVOICE ISSUED BY M/S. INTERARCH BUILDING PRODUCTS PVT. LTD. IS DATED 28.04.2012 IS NOT ACCEPTABLE BECAUSE THE CONCERNED ASSISTANT DEVELOPMENT COMMISSIONER OF THE SEZ UNIT HAD CERTIFIED THAT THE UNIT HAD COMMENCED PRODUCTION ON 29.02.2012 ITSELF. (VI) THE LD.AO COULD NOT PROVE THAT THE CERTIFICATE ISSUED BY THE CONCERNED ASSISTANT DEVELOPMENT COMMISSIONER OF THE SEZ UNIT IS NOT GENUINE. 10 ITA NO.706/MDS/2017 (VII) FROM THE ABOVE IT IS EVIDENT THAT THE SEZ UNI T OF THE ASSESSEE COMMENCED PRODUCTION ON 29.02.2012. (VIII) THE CONTENTION OF THE LD.AO THAT THE SEZ UNI T ONLY REMOVED 22% OF THE WASTE MATERIAL/SLIT DOES NOT CAR RY MUCH WEIGHT BECAUSE THE LD.AO HAS HERSELF ACCEPTED THAT ONLY 10 TO 20% OF THE IMPURITIES WERE REMOVED BY THE APPELLANTS SEZ UNIT. (IX) THE COMPARISON OF THE MARKET PRICE AND THE INV OICE PRICE OF THE ASSESSEE IS NOT JUSTIFIABLE BECAUSE TH E MARKET PRICE OF THE FINISHED PRODUCT AS PER THE YEA R BOOK 2013 WAS RS.15,269/- PER METRIC TON WHILE AS T HE APPELLANT HAS SOLD THE SAME AT THE PRICE OF RS.17,0 98/-. (X) THERE IS NOTHING ON RECORD TO SUGGEST THAT THE ASSESSEE HAD DELIBERATELY SUPPRESSED THE PURCHASE COST OF SE MI- FINISHED MATERIALS IN ORDER TO CLAIM HIGHER DEDUCTI ON U/S.10AA OF THE ACT. 7. BEFORE US THE LD.DR REITERATED THE FINDINGS MADE BY THE LD.AO AND ARGUED IN SUPPORT OF THE SAME, WHILE AS T HE LD.AR RELIED ON THE ORDER OF THE LD.CIT(A). 11 ITA NO.706/MDS/2017 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIALS ON RECORD. FROM THE FACTS OF THE CAS E, IT IS APPARENT THAT THE SEZ AUTHORITIES HAS RECOGNIZED TH E SEZ UNIT OF THE ASSESSEE AND ALSO HELD THAT THE ACTIVITY OF THE ASSESSEE IS MANUFACTURING AS PER THE SEZ ACT. FURTHER, THE FIN DINGS OF THE LD.CIT(A) THAT THE MATERIALS EXPORTED BY THE ASSESS EE IS ILMINATE CONSISTING OF 50% GRADE IS ALSO NOT IN DISPUTE. TH E SEZ AUTHORITIES HAD ALSO CERTIFIED THAT ASSESSEES SEZ UNIT HAS COMMENCED PRODUCTION ON 29.02.2012 AND THIS ESTABLI SHES THE FACT THAT THE PRE-FABRICATED BUILDING OF THE ASSESS EE WAS COMPLETED EARLIER TO 29.02.2012. FURTHER THE LD.AO COULD NOT ESTABLISH THAT THE ASSESSEE HAD FORMED ITS SEZ UNIT BY SPLITTING UP OR BY RECONSTRUCTION WITH COGENT EVIDENCE. THE LD.AO HAS ALSO ACCEPTED THAT THE ASSESSEES UNIT PROCESSED TH E RAW MATERIALS BY REMOVING 10 TO 20% OF THE IMPURITIES. THE COMPARISON OF THE MARKET PRICE AND INVOICE PRICE BY THE LD.AO WERE PROVED TO BE INCORRECT BECAUSE THE PRICE OF TH E FINISHED PRODUCT WAS STATED AS RS.15,269/- IN THE YEAR BOOK 2013 WHILE AS THE APPELLANT HAS SOLD THE SAME AT THE PRICE OF RS.17,098/-. THE LD.AO COULD ALSO NOT ESTABLISH THAT THE ASSESSE E HAD SUPPRESSED THE PURCHASE COST OF SEMI-FURNISHED GOOD S IN ORDER TO CLAIM HIGHER DEDUCTION U/S.10AA OF THE ACT. FUR THER, THE 12 ITA NO.706/MDS/2017 CERTIFICATES ISSUED BY THE CONCERNED OFFICERS OF TH E SEZ UNIT COULD NOT BE PROVED TO BE NOT GENUINE. THE LD.CIT( A) HAD MADE A CATEGORICAL FINDING ON ALL THE ABOVE STATED FACTS AND THE LD.DR COULD NOT CONVINCINGLY ARGUE OR DISPROVE THE FINDIN GS OF THE LD.CIT(A). IN THIS SITUATION, WE DO NOT FIND ANY I NFIRMITY IN THE ORDER OF THE LD.CIT(A). THEREFORE WE HEREBY SUSTAIN THE ORDER OF THE LD.CIT(A) ON MERITS. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED ON 20 TH SEPTEMBER,2017 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER SD/- ( . ) (A. MOHAN ALANKAMONY) /ACCOUNTANT MEMBER !' /CHENNAI, #$ /DATED 20 TH SEPTEMBER, 2017 RSR $% &'(' /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. , ( ) /CIT(A) 4. , /CIT 5. '-. / /DR 6. .01 /GF