V.Anantha Kumar , Chamarajanagar V. The Assistant Commissioner of Income Tax Circle-9(1), Bangalore

ITA 717/BANG/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 2758 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 25-03-2021
• Assessment Year: 2008-2009
• Appeal Filed On: 07-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: C RAMESH
• Keywords: Difference of opinion; Set aside
• Section: 143(3); 10B; 263; 10

Judgement Text

ITA NO.717/BANG/2018 SRI V. ANANTHA KUMAR, CHAMARAJNAGAR IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: BANGALORE BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.717/BANG/2018 ASSESSMENT YEAR: 2008-09 SRI V. ANANTHA KUMAR B.R. HILLS ROAD CHAMARAJANAGAR PAN NO : AFSPK9224K VS. ACIT CIRCLE-9(1) BENGALURU APPELLANT RESPONDENT APPELLANT BY : SHRI C. RAMESH, A.R. RESPONDENT BY : SHRI PRADEEP KUMAR, D.R. DATE OF HEARING : 25.03.2021 DATE OF PRONOUNCEMENT : 23.06.2021 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 14.12.2017 PASSED BY LD. CIT(A)-2 BANGALORE AND IT RELATES TO THE ASSESSMENT YEAR 2008-09. THE GROUND URGED BY THE A SSESSEE RELATE TO PARTIAL DISALLOWANCE OF DEDUCTION CLAIMED U/S 10 B OF THE INCOME- TAX ACT,1961 ['THE ACT' FOR SHORT]. 2. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. THE ORIGINAL ASSESSMENT FOR THE YEAR UNDER CONSIDERATION WAS COM PLETED BY THE A.O. U/S 143(3) OF THE ACT. SUBSEQUENTLY, THE LD. PRINCIPAL CIT PASSED REVISION ORDER U/S 263 OF THE ACT. CONSEQUE NT THERETO, THE PRESENT ASSESSMENT ORDER CAME TO BE PASSED BY THE A .O. ON ITA NO.717/BANG/2018 SRI V. ANANTHA KUMAR, CHAMARAJNAGAR PAGE 2 OF 8 28.3.2014. THE ASSESSEE IS THE PROPRIETOR OF THE C ONCERN NAMED BILIGIRI GRANITES AND IT IS ENGAGED IN THE BUSINE SS OF QUARRYING GRANITES AND EXPORT OF ROUGH GRANITE BLOCKS. THIS CONCERN WAS ESTABLISHED IN 1978. SUBSEQUENTLY, THE ASSESSEE ES TABLISHED ANOTHER UNIT IN THE YEAR RELEVANT TO THE ASSESSMENT YEAR 20 00-01 IN THE NAME OF S.M. NATURAL STONES. THE NEW UNIT WAS REGISTERE D AS 100% EOU. ACCORDING TO THE ASSESSEE, THE COMMERCIAL TAX AUTHO RITIES OBJECTED TO THE NAME OF S M NATURAL STONES, SINCE THE ASSESS EE IS ALREADY HAVING A BUSINESS CONCERN NAMED BILIGIRI GRANITES . HENCE THE ASSESSEE NAMED THE NEW UNIT ALSO AS BILIGIRI GRANI TES. IN THE NEW CONCERN, THE ASSESSEE PROPOSED TO EXPORT MONUMENTS AND FINISHED GRANITE STONES. IN THE YEAR RELEVANT TO ASSESSMENT YEAR 2003-04, THE NEW UNIT WAS REGISTERED WITH COCHIN SEZ. THE ASSES SEE CLAIMED DEDUCTION U/S 10B OF THE ACT IN RESPECT OF THE NEW UNIT FROM THAT YEAR ONWARDS. IN THE ORIGINAL ASSESSMENT PROCEEDIN GS FOR THE YEAR UNDER CONSIDERATION, THE A.O. ALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE U/S 10B OF THE ACT. THE LD. CIT(A), IN TH E REVISION ORDER, OBSERVED THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDU CTION U/S 10B OF THE ACT FOR THE FOLLOWING REASONS:- A) THE NEW UNIT IS A CASE OF SPLITTING UP/RECONSTRUCTI ON OF A BUSINESS ALREADY IN EXISTENCE. B) THE ASSESSEE HAS TRANSFERRED OLD PLANT & MACHINERY PREVIOUSLY USED FOR OTHER BUSINESS AND THE VALUE OF SUCH MACHI NERY CONSTITUTES 84% OF THE TOTAL VALUE OF MACHINERY AS ON 31.3.2004, WHICH EXCEEDS THE THRESHOLD LIMIT OF 20% . C) THE BUSINESS OF THE ASSESSEE WAS ESTABLISHED AS DTA IN 1983- 84 AND 10 YEARS HAVE ELAPSED MUCH EARLIER. D) IF AT ALL, DEDUCTION U/S 10B OF THE ACT IS ALLOWABL E TO THE ASSESSE, IT IS ALLOWABLE ONLY IN RESPECT OF PROFIT RELATABLE TO EXPORT OF MONUMENTS, SINCE THE ASSESSEE HAS EARNED PROFITS ON EXPORT OF GRANITES, WHICH IS A TRADING ITEM. THE LD . CIT(A) ITA NO.717/BANG/2018 SRI V. ANANTHA KUMAR, CHAMARAJNAGAR PAGE 3 OF 8 NOTICED THAT THE EXPORT TURNOVER OF THE ASSESSE INC LUDED SALES VALUE OF RS1.47 CRORES RELATING TO EXPORT OF GRANIT E BLOCKS AND SLABS. THE CIT NOTICED THAT THE DEDUCTION U/S 10B OF THE ACT IS AVAILABLE ONLY IN RESPECT OF MANUFACTURED ITEMS. HENCE THE LD CIT(A) HELD THAT THE PROFIT REALISED ON EXPORT O F GRANITE BLOCKS IS NOT ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT, AS IT IS A TRADING ITEM. 3. CONSEQUENT TO THE ORDER PASSED BY LD. PRINCIPAL CIT U/S 263 OF THE ACT, THE A.O. PASSED THE IMPUGNED ASSESSMENT ORDER, WHEREIN HE ALSO TOOK THE VERY SAME VIEW AS THAT OF LD. PRIN CIPAL CIT AND ACCORDINGLY REJECTED THE CLAIM OF DEDUCTION U/S 10B OF THE ACT. 4. IN THE APPELLATE PROCEEDINGS, LD. CIT(A) TOOK TH E VIEW THAT THE ASSESSEE HAS ESTABLISHED A NEW UNIT IN THE YEAR REL EVANT TO THE ASSESSMENT YEAR 2000-01 AS 100% IN EOU AND THE SAME WAS REGISTERED WITH COCHIN SPECIAL ECONOMIC ZONE. THE LD. CIT(A) ALSO NOTICED THAT THE OLD PLANT & MACHINERY TRANSFERRED TO THE NEW UNIT, AT THE TIME WHEN IT WAS ESTABLISHED, WAS LESS THAN 20% TOTAL VALUE OF MACHINERY WHICH IS PERMITTED U/S 10B OF THE ACT. A CCORDINGLY, BY PLACING RELIANCE ON THE DECISION RENDERED BY KOLKAT A BENCH OF TRIBUNAL IN THE CASE OF JCIT VS. NALCO CHEMICALS (I ) LTD. 97 ITD 348 AND THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF SOEX INDIA PVT LTD. VS. ACIT (ITA NO.402/MUM/2015) THE LD. CIT(A) HELD THAT THE NEW UNIT OF THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT. THUS, THE LD. CIT(A) DID NOT AGREE WITH THE VIEW OF AO IN RESPECT OF SPLITTING/RECONSTRUCTION, TRANSFER OF OLD PLANT & M ACHINERY BEYOND THE THRESHOLD LIMIT. HE ALSO HELD THAT THE NEW UNI T WAS SET UP IN THE YEAR RELEVANT TO AY 2000-01. ITA NO.717/BANG/2018 SRI V. ANANTHA KUMAR, CHAMARAJNAGAR PAGE 4 OF 8 5. WITH REGARD TO THE VIEW OF THE A.O. THAT THE DED UCTION U/S 10B OF THE ACT IS AVAILABLE IN RESPECT OF PROFIT RELATA BLE TO MANUFACTURING ACTIVITY AND NOT TO THE ENTIRE PROFIT, THE ASSESSEE CONTESTED THE SAME BY PLACING RELIANCE BEFORE LD. CIT(A) ON THE DECISI ON RENDERED BY COORDINATE BANGALORE BENCH OF TRIBUNAL IN THE ASSES SEES OWN CASE FOR ASSESSMENT YEARS 2006-07, 2007-08 & 2009-10 (IT A NO.1442/BANG/2015 & OTHERS DATED 20.3.2017). IN TH E ABOVE SAID YEARS, THE TRIBUNAL HAD HELD THAT THE ASSESSEE IS E LIGIBLE FOR DEDUCTION U/S 10B OF THE ACT IN RESPECT OF ITS ENTI RE PROFITS. IN THIS REGARD, THE ASSESSEE HAD PLACED RELIANCE BEFORE THE TRIBUNAL IN THOSE YEARS, ON THE DECISION RENDERED BY HONBLE DELHI HI GH COURT IN THE CASE OF CIT VS. ARR-ESS EXIM PVT LTD. (ITA NO.551/2 013 & 553/2013). IN THE ABOVE SAID CASE, THE HONBLE DEL HI HIGH COURT HAS EXPRESSED THE VIEW THAT SECTION 10B OF THE ACT IS A BENEFICIAL PROVISION AND THE ASSESSEE SHOULD BE GIVEN THE BENEFIT OF EXE MPTION EVEN ON THE GOODS WHICH THE ASSESSEE HAS NOT MANUFACTURED H IMSELF BUT HAS GOT PRODUCED THROUGH OUTSOURCING I.E. IT IS HELD TH AT THE MANUFACTURE WOULD INCLUDE PROCUREMENT THROUGH OUTSOURCING. SIN CE REVENUE COULD NOT CONTRADICT THE ABOVE SAID DECISION WITH A NY OTHER JUDICIAL PRECEDENT, THE COORDINATE BENCH HELD THAT THE ASSES SEE WOULD BE ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT IN RESPEC T OF WHOLE OF ITS PROFIT. 6. THE LD. CIT(A), AFTER CONSIDERING THE DECISION O F THE COORDINATE BENCH RENDERED FOR ASSESSMENT YEAR 2006-07 AND ALSO THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF ARR-ESS EXIM PVT LTD. (SUPRA) PROCEEDED TO DISCUSS VARIOUS OTHER CASE LAW S WITH REGARD TO THE CLAIM FOR DEDUCTION U/S 10B OF THE ACT. THE LD . CIT(A) RELIED ON THE FOLLOWING DECISIONS: ITA NO.717/BANG/2018 SRI V. ANANTHA KUMAR, CHAMARAJNAGAR PAGE 5 OF 8 A) CIT VS. N.C. BUDHARAJA & COPANY (1993) 204 ITR 4 12. B) CIT VS. GWALIOR RYAN SILK MANUFACTURING COMPANY LTD. (1992) 196 ITR 149 (SC). C) TONIRA PHARMA LTD. 39 SOT 58. D) KWAL PRO EXPORTS VS. ACIT 110 ITD 59 BY PLACING THE RELIANCE ON THE ABOVE SAID CASE LAWS , THE LD. CIT(A) EXPRESSED THE VIEW THAT IN ORDER TO BE ELIGIBLE FOR EXEMPTION U/S 10B OF THE ACT, THE ACTIVITY CARRIED ON BY THE ASSESSEE SHOULD NECESSARILY FALL UNDER THE CATEGORY OF MANUFACTURING. ACCORDIN GLY, THE LD. CIT(A) DIRECTED THE A.O. TO EXCLUDE PROFIT EARNED FROM EXP ORT OF FINISHED PRODUCTS BOUGHT FROM MARKET (TRADED GOODS) FROM THE COMPUTATION OF EXEMPTION U/S 10B OF THE ACT. 7. AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL BE FORE US. WE NOTICE THAT THE REVENUE HAS NOT FILED ANY APPEAL CH ALLENGING THE ORDER PASSED BY LD CIT(A). HENCE THE ISSUES DECIDED BY L D CIT(A) IN FAVOUR OF THE ASSESSEE HAS ATTAINED FINALITY. THE ONLY SU RVIVING ISSUE, WHICH IS BEING AGITATED BY THE ASSESSEE RELATES TO THE RE JECTION OF CLAIM FOR DEDUCTION U/S 10A IN RESPECT OF PROFITS EARNED FROM EXPORT OF GRANITE SLABS. 8. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS E XPORTED CUT AND POLISHED GRANITES APART FROM MONUMENTS. THE EXPORT SALES OF CUT AND POLISHED GRANITES HAVE BEEN CATEGORIZED AS TRAD ING ITEMS (BOUGHT OUT ITEMS) BY THE TAX AUTHORITIES. HE SUBMITTED TH AT THE ACTIVITY OF SAWING MARBLE BLOCKS INTO SLABS AND TILES AND POLIS HING THE SAME HAS BEEN HELD TO BE MANUFACTURE OR PRODUCTION BY HONBL E SUPREME COURT IN THE CASE OF ITO VS. ARIHANT TILES AND MARB LES P LTD (2010)(320 ITR 79). ACCORDINGLY, THE LD A.R SUBMIT TED THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 10B IN RESPE CT OF PROFITS EARNED ON SALE OF CUT AND POLISHED GRANITE STONES ALSO. ITA NO.717/BANG/2018 SRI V. ANANTHA KUMAR, CHAMARAJNAGAR PAGE 6 OF 8 9. ON THE CONTRARY, THE LD D.R SUBMITTED THAT T HE ASSESSEE HAS PURCHASED THE GRANITE SLABS FROM THE MARKET AND THE SAME HAS BEEN EXPORTED. SINCE THE TRADING ITEMS DO NOT FALL UNDE R THE CATEGORY OF MANUFACTURE OR PRODUCTION, THE LD CIT(A) HAS RIGH TLY REJECTED THE CLAIM ON THE PROFIT EARNED ON EXPORT OF TRADING ITE MS. 10. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. WE NOTICE THAT THERE IS DIFFERENCE OF OPINION BETWEEN THE PARTIES ON THE FACTUAL ASPECTS OF THE CLAIM. WHILE THE ASSESSEE C LAIMS THAT THE GRANITE SLABS HAVE BEEN EXPORTED AFTER UNDERTAKING THE ACTIVITIES OF SAWING, CUTTING AND POLISHING, THE REVENUE HAS CLAI MED THAT THE FINISHED GRANITE SLABS HAVE BEEN PURCHASED FROM THE MARKET. THE REVENUES STAND IS THAT THE DEDUCTION U/S 10B IS AV AILABLE ONLY IN RESPECT OF MANUFACTURE OR PRODUCTION ACTIVITIES. THE ASSESSEES CASE IS THAT IT HAS PRODUCED CUT AND POLISHED GRANI TE SLABS. IT IS ALSO THE CASE OF THE ASSESSEE THAT THE CO-ORDINATE BENCH OF TRIBUNAL HAS ALLOWED THE DEDUCTION ON THE PROFIT REALIZED ON EXP ORT OF GRANITE SLABS IN AY 2006-07 BY FOLLOWING THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ARR-ESS EXIM PVT LTD. (ITA NO.551/2013 & 553/2013). 11. IN THIS REGARD, WE NOTICE THAT THE TRIBUNAL , IN AY 2006-07, HAS FOLLOWED THE DECISION RENDERED BY HONBLE DELHI HIG H COURT IN THE CASE OF CIT VS. ARR-ESS EXIM PVT LTD. (SUPRA) BY OB SERVING THAT NO OTHER CONTRARY DECISION HAS BEEN BROUGHT TO ITS NOT ICE BY THE REVENUE. HOWEVER, THE LD CIT(A), AFTER NOTICING ABOVE SAID O BSERVATIONS OF THE TRIBUNAL, HAS DISCUSSED VARIOUS OTHER CASE LAWS TO BUTTRESS THE REVENUES VIEW THAT THE DEDUCTION U/S 10B IS AVAILA BLE IN RESPECT OF MANUFACTURE OR PRODUCTION ACTIVITIES. HENCE THE IS SUE HAS TO BE EXAMINED INDEPENDENTLY WITHOUT HAVING RESORT TO THE DECISION RENDERED BY THE CO-ORDINATE BENCH IN AY 2006-07. ITA NO.717/BANG/2018 SRI V. ANANTHA KUMAR, CHAMARAJNAGAR PAGE 7 OF 8 12. THE ASSESSEE HAS FURNISHED THE PROFIT AND LO SS ACCOUNT AT PAGES 63 OF THE PAPER BOOK. A PERUSAL OF THE SAME WOULD SHOW THAT THE ASSESSEE HAS INCURRED EXPENSES ON EXTRACTION AND QU ARRYING, PURCHASE OF BLOCKS AND PURCHASE OF FINISHED GOODS. WE NOTICE THAT THE PURCHASE OF FINISHED GOODS IS TO THE TUNE OF RS .25,17,391/-. THUS, IT APPEARS THAT THE ASSESSEE HAS BEEN DOING I TS OWN PROCESSING OF RAW BLOCKS AND HAS ALSO PURCHASED FINISHED GOODS . THE HONBLE SUPREME COURT HAS HELD IN THE CASE OF ARIHANT TILES & MARBLES P LTD (SUPRA) THAT SAWING OF MARBLE BLOCKS INTO SLABS AND TILES AND POLISHING ACTIVITIES AMOUNT TO MANUFACTURE OR PRODU CTION. HENCE THE ASSESSEE SHOULD BE ELIGIBLE FOR DEDUCTION U/S 10B I N RESPECT OF EXPORT OF GRANITE SLABS, WHICH IT HAS SUBJECTED TO PRODUCT ION PROCESS. SINCE THE PROVISIONS OF SEC.10B REFERS TO THE ACTIVITY OF MANUFACTURE OR PRODUCTION, WE ARE OF THE VIEW THAT THE ASSESSEE S HALL NOT BE ELIGIBLE FOR DEDUCTION U/S 10B IN RESPECT OF PROFITS REALISE D EXPORT OF PURCHASED FINISHED GOODS (TRADING ITEMS). 13. WE NOTICE THAT THE BREAK-UP DETAILS OF THE EXPORT TURNOVER BETWEEN EXPORT OF GRANITES PROCESSED BY THE ASSESSE E AND EXPORT OF PURCHASED ITEMS ARE NOT AVAILABLE ON RECORD. RATHE R, NONE HAS EXAMINED THIS ASPECT. HENCE, THIS ASPECT REQUIRES EXAMINATION AT THE END OF AO. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND RESTORE THIS ISSUE TO THE FILE OF THE AO FOR EXAMINING THE SAME AFRESH. WE MAKE IT CLEAR THAT T HE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT IN RESPEC T OF PROFITS REALIZED ON EXPORT OF GRANITE SLABS, WHICH HAS BEEN PROCESSE D BY IT. IT SHALL NOT BE ELIGIBLE FOR DEDUCTION IN RESPECT OF PROFIT REALIZED ON EXPORT OF PURCHASED ITEMS, I.E., ITEMS WHICH HAS BEEN EXPORTE D AS IT IS WITHOUT UNDERTAKING ANY PROCESS OF SAWING BLOCKS INTO SLABS AND TILES AND POLISHING. ITA NO.717/BANG/2018 SRI V. ANANTHA KUMAR, CHAMARAJNAGAR PAGE 8 OF 8 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD JUNE, 2021 SD/- (BEENA PILLAI) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 23 RD JUNE, 2021. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.