Sonrise Tea Processing Co. Pvt. Ltd., Kolhapur V. ACIT Cir.-2, Kolhapur

ITA 785/PUN/2007

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7431 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 24-05-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Section: 143(3); 80IB; 10B; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE SHRI I.C. SUDHIR AND SHRI D. KARUNAKARA RAO A CCOUNTANT M EMBER ITA NO. 785 /PN/ 20 0 7 ( ASSTT. YEAR : 2003 - 04 ) S O NRISE TEA PROCESSING COMPANY PVT. LTD. , APPELLANT 29/30, SHIV AJI PARK, KOLHA PUR 416 001 PAN: NOT AVAILABLE VS. ASSTT. C.I.T, CIRCLE 2, KOLHAPUR RESPONDENT APP ELLANT BY : SHRI S URENDRA GADRE , (DIRECTOR OF SONRISE TEA PROCESSING CO.PVT.LTD.) RESPOND ENT BY : SHRI HARESHWAR SHARMA/SHRI ABHAY DAMLE ORDER PER D KARUNAKARA RAO AM THIS APPEAL BY THE ASSESSEE ARISE FROM THE ORDER OF CIT(A) - II, KOLHAPUR DATED 28/03/2007. T HE GROUNDS RAISED READ AS UNDER : 1. THE LEARNED COMMISSIONER O F INCOME TAX (CIT) ERRED ON FACTS AND IN LAW, IN INVOKING THE PROVISIONS OF SECTION 263 OF THE INCOME TAX ACT, 1961 WHEN THE AO WHILE MAKING THE ASSESSMENT U/S. 143(2) HAS FULLY EXAMINED THE CLAIM OF THE APPELLANT FOR DEDUCTION U/S. 80IA / 80IB OF RS.20,81 ,018/ - AND ALLOWED THE CLAIM AFTER FULLY SATISFYING ABOUT THE ADMISSIBILITY OF THE CLAIM. WITHOUT PREJUDICE TO THE ABOVE, 2. THE LEARNED CIT ERRED IN HOLDING THAT THE ORDER OF THE AO PASSED U/S.143(3) WAS IN ANY WAY ERRONEOUS AND PREJUDICIAL TO THE INTE REST OF THE REVENUE. 3. THE LEARNED CIT ERRED IN HOLDING THAT THE DEDUCTION U/S.80IA/80IB IS NOT ALLOWABLE TO THE APPELLANT COMPANY ON THE GROUND THAT THE UNIT OWNED BY THE APPELLANT COMPANY DOES NOT MANUFACTURE OR PRODUCE ANY ARTICLE OR THING. 4. THE LEARNED CIT FAILED TO APPRECIATE THAT THE BASIC CONDITION FOR ALLOWING DEDUCTION U/S.80IA STIPULATED IN SUB - SEC.(1) IS THAT THE ASSESSEE MUST OWN AN INDUSTRIAL UNDERTAKING WITHIN THE MEANING OF SEC. 80IA(12) READ WITH EXPLANATION TO SEC.33B AND IN FA CT, THERE IS NO DISPUTE THAT THE UNIT OWNED BY THE APPELLANT COMPANY CONSTITUTES AN INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF SEC. 80IA/80IB. 5. THE LEARNED CIT HAS ERRED IN DENYING THE DEDUCTION U/S. 80IA/80IB EVEN THOUGH IT IS NOT IN DISPUTE THAT THE APPELLANT COMPANYS UNIT CONSTITUTES AN I NDUSTRIAL UNDERTAKING WITHIN THE MEANING OF SEC80IA/80IB(12)R.W.S 33B. 6. THE LEARNED CIT FAILED TO APPRECIATE THAT THE PHRASES MANUFACTURE OR PRODUCE ARTICLES OR THINGS IN CL. (III) OF SEC. 80IB(2) AND CLAUS E (I) OF SEC. 80IB(3) WILL HAVE TO BE READ WITH THE DEFINITION OF ITA NO. 785/ PN/ 2007 SONRISE TEA PROCESSING CO. PVT. LTD. ( A.Y. 2003 - 04 ) . 2 INDUSTRIAL UNDERTAKING PROVIDED FOR THE PURPOSE OF SEC. 80IA/80 IB WHICH INCLUDES PROCESSING OF GOODS AND THESE CAN NOT BE INTERPRETED TO TAKE AWAY THE BENEFIT AVAILABLE TO THE UNIT, WH ICH CARRIES ON ACTIVITY OF PROCESSING OF GOODS, WHICH IS INCLUDED IN THE DEFINITION OF INDUSTRIAL UNDERTAKING FOR BEING ENTITLED FOR THE DEDUCTION. 7. THE LEARNED CIT FAILED TO APPRECIATE THAT THE FINAL PRODUCT (I.E. BLENDED & PACKAGED TEA) IS A DIFF ERENT AND DISTINCT PRODUCT FROM THE ORIGINAL COMMODITY, WHICH COMES INTO EXISTENCE AS A RESULT OF MANUFACTURING PROCESS. 8. THE LEARNED CIT FAILED TO APPRECIATE THAT THE DEDUCTION U/S.80IA / 80IB IS PROVIDED BY WAY OF INCENTIVES TO PROMOTE INDUSTRY AND TH AT IT IS WELL SETTLED THAT THESE PROVISIONS SHOULD BE INTERPRETED LIBERALLY. 9. THE ORDER OF THE CIT BE SET ASIDE. 3. THE APPEAL OF THE ASSESSEE REVOLVE S AROUND THE CITS DECISION OF INVOKING OF THE PROVISIONS OF SECTION 263 OF THE ACT ON THE FACTS OF TH E CASE . R ELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN PROCESSING BY BLENDING AND TRADING OF TEA . ASSESSEE FILED THE RETURN OF INCOME CLAIMING DEDUCTION U/S 80 IB OF THE ACT. THE A.O. ASSESSED THE INCOME OF THE ASSESSEE ACCEPTIN G THE CLAIM OF DEDUCTION. IN THE PROCESS, THE THEN A.O IS OF THE OPINION THAT THE ASSESSEES BUSINESS OF BLENDING OF VARIOUS TEAS OF DIFFERENT KIND S AMOUNT S TO MANUFACTURING AND THE REFORE, THE ASSESSEE IS ENTITLED TO THE BENEFITS OF SECTION 80IB OF THE ACT . OF COURSE, THE ORDER OF THE AO IS NOT SO EXPRESSIVE AS HE ALLOWED THE DEDUCTION. USUALLY, THE ASSESSMENT ORDER CONTAINS ELABORATE DISCUSSION ON THE MATTER, WHICH LEAD TO THE ADDITION IN THE ORDER. OTHERWISE, THEY ARE SILENT ON THE MATTER, WHICH DOES N OT LEAD TO ADDITIONS. SUBSEQUENTLY, DURING THE REVISION PROCEEDINGS U/S 263 OF THE ACT , THE CIT FOUND THAT THE MODUS OPERANDI OF ASSESSEES BUSINESS SHOWS THAT VARIOUS TEAS ARE BLENDED TO PRODUCE VARIOUS FLAVORS OF TEA, WHICH ARE SOLD IN THE MARKET AFTER M AKING REQUISITE PACKING OF THE PRODUCT . CONSIDERING VARIOUS CITATIONS OF THE JUDICIAL FORA, THE CIT IS OF THE OPINION THAT THIS ACTIVITY IS ONLY A PROCESSING AND NOT MANUFACTURING WITHIN THE MEANING OF SECTION 80IB(2)(III) OF THE ACT . HENCE, CIT ISSUED A SHOW CASE NOTICE ON 15.11.2006 U/S 263 OF THE ACT AND CALLED FOR SUBMISSIONS/OBJECTION, IF ANY ON THIS ISSUE . IN RESPONSE, THE A SSESSEE VEHEMENTLY OPPOSED THE PROPOSAL OF THE CIT AND MADE ELABORATE SUBMISSIONS IN SUPPORT OF THE CLAIM ALLOWED BY THE A.O I N THE ASSESSMENT PROCEEDINGS. GIST OF THE SUBMISSIONS AS SUMMED UP BY THE CIT IN THE IMPUGNED ORDER ARE AS UNDER : I) WHAT WE SELL IS NOT THE DRY LEAF TEA THAT WE PURCHASE AT THE AUCTIONS OR DIRECTLY FROM THE TEA GARDENS. II) WHAT WE SELL IS PROCESSED A ND BLENDED TEA, WHICH IS THE RESULT OF TECHNICAL SKILL, PATRONAGE AND MECHANICAL PROCESS INVOLVED IN PRODUCING THE FINAL PRODUCT. III) THE CHARACTER OF WHAT WE SELL IS TOTALLY DIFFERENT FROM THE MATERIAL USED IN THE PRODUCTION I.E. RAW MATERIAL IN THE FOR M OF DRY LEAF TEA. IV) THE SPECIALTIES OF THE DIFFERENT BRANDS ESTABLISH THE DIFFERENT CHARACTER OF THE FINAL PRODUCT. ITA NO. 785/ PN/ 2007 SONRISE TEA PROCESSING CO. PVT. LTD. ( A.Y. 2003 - 04 ) . 3 V) EVERY BRAND HAS A DISTINCTIVE NAME AND ITS OWN SPECIALTY SO AS TO BE TOTALLY DIFFERENT WITH THE CHARACTER OF THE RAW MATERIAL USED. VI) THE SELLING PRICE STRUCTURE OF EVERY BRAND DIFFERS ACCORDING TO ITS SPECIALITY THEREBY FURTHER ESTABLISHING THE CLAIM OF DIFFERENT CHARACTER. VII) EXPERTISE, THOROUGH TECHNICAL KNOWLEDGE AND SKILL MECHANICAL PROCESS AND HUMAN LABOUR IS INVOLVED IN PRODUCING THE FINAL PRODUCT. FURTHER, ASSESSEE MADE A FURTHER SUBMISSION RELYING ON VARIOUS CASE LAWS. CIT ANALYSED THE SAID CASE LAWS AND DISTINGUISHED THEM BY STATING THE SAID CASE LAWS RELATE TO PREPARATION OF BREAD OR BLENDING OF ALCOHOL, BLENDING OF SPIRIT , MINING OR MINE STONES OR MARBLE BLOCK OR MAKING OF FOOD STUFF ETC., AT THE END, CIT INVOKED THE PROVISI O NS OF S ECTION 263 OF THE ACT AND DIRECTED THE A.O TO DISALLOW THE CLAIM OF RS. 20,81,018/ - MADE BY THE ASSESSEE U/S. 80 IA / 80 IB OF THE A CT. THE RELEVANT DISCUSSIONS ARE GIVEN IN PARA 7 & 8 OF THE IMPUGNED ORDER OF THE CIT. 4. AGGRIEVED BY THE SAME, ASSESSEE IS IN APPEAL BEFORE US. DURING THE PROCEEDING, LD. COUNSEL FOR THE ASSESSEE NARRATED THE FACTS OF THE CASE AND RELIED ON THE ARGU MENTS MADE BEFORE THE REVENUE AUTHORITIES. FURTHER, THE LD COUNSEL IS OF THE OPINION THAT S UB - CLAUSE (1) OF SECTION 80IA ALLOWS THE CLAIMS OF THE ASSESSEE AS TH E LANGUAGE IN THE S ECTION REFERS TO ANY BUSINE SS OF INDUSTRIAL UNDERTAKING. THE CONDITIONS SP ECIFIED IN SUB - SECTION (2) RELATE TO MANUFACTURE OF ARTICLES OR PRODUCE A THING MENTIONED IN SUB - SECTION (2) CANNOT TAKE AWAY THE DEDUCTIONS ALLOWED UNDER SUB - SECTION 1 OF SECTION 80IB OF THE ACT . FURTHER , HE ARGUED IN FAVOUR OF THE LIBERAL INTERPRETATI ON OF THE INCENTIVE PROVISION. FURTHER, THE COUNSEL RELIED ON THE KERALA HIGH COURT DECISION IN THE CASE OF TATA TEA LTD., 234 CTR 90 FOR THE PROPOSITION THAT THE ASSESSEE ENGAGED IN BLENDING AND PACKING OF TEA FOR EXPORTS IS ENTITLED FOR EXEMPTION U/S. 10 B OF THE ACT NOTWITHSTANDING THE DELETION OF DEFINITION TO MANUFACTURE W.E.F. 1.4.2001. THE FACT OF DISTINGUISHING THE SUPREME COURT JUDGMENT IN THE CASE OF TARA AGENC IES, 292 ITR 411 BY THE HONBLE KERALA HIGH COURT WAS ALSO BROUGHT TO OUR NOTICE. 5. ON THE OTHER HAND, LD. D.R. FOR THE REVENUE ARGUED VEHEMENTLY RELYING ON THE APEX COURT JUDGMENT IN THE CASE OF TARA AGENCIES, 292 ITR 444 (SC) FOR THE PROPOSITION THAT ASSESSEE , A SMALL - SCALE UNDERTAKING , ENGAGED AND PRODUCE D THE TEA OF DIVERSE GR ADES AND BRANDS BY BLENDING AND MIXING DIFFERENT KINDS OF TEA CONSTITUTES ONLY PROCESSING AND NOT MANUFACTURE OR PRODUCING OF GOODS /THINGS . THIS DECISION WAS TAKEN IN THE CONTEXT OF ASSESSEES CLAIM FOR WEIGHTED DEDUCTION U/S 35B (1 A ) OF THE ACT. IN THE P ROCESS, AS PER THE D.R . THE EXPRESSION PROCESSING AND MANUFACTURING OR PRODUCTION ARE OF DIFFERENT ITA NO. 785/ PN/ 2007 SONRISE TEA PROCESSING CO. PVT. LTD. ( A.Y. 2003 - 04 ) . 4 MEANING S , THEREFORE, THE PROCESSING IS NOT PART OF THE MANUFACTURE AT ANY POINT OF TIME FOR THE PURPOSE OF SECTION 80IB(2)(III) OF THE ACT . AS PER TH E D.R, THE IDENTICAL VIEWS OF THE HONBLE RAJASTHAN HIGH COURT ARE CO NFIRMED BY THE SUPREME COURT IN THE CASE OF TARA AGENCIES (SUPRA) VIDE 283 ITR 486 . ANOTHER CASE RELEVANT TO THE DECISION IN FAVOUR OF THE REVENUE IS THE JUDGMENT IN THE CASE OF D.D. SHAH AND BROTHERS , WHEREIN IT IS HELD BLENDING OF TE A DOES NOT AMOUNT TO PRODUCTION AND PROCESS OF BLENDING TEA IS MERE PROCESSING FOR BRINGING SOME QUALITATIVE CHANGE/ DOES NOT BRING IN EXISTENCE ANY DISTIN CT TEA AS A NEW ARTICLE OR THING. THERE IS NO MANU FACTURE OR PRODUCTION WITHIN THE MEANING OF SECTION 80 - IB(2)(III) OF THE ACT . CONSEQUENTLY, THE HIGH COURT HELD CARRYING OUT BLENDING OF DIFFERENT GRADES AND QUALITIES OF MANUFACTURED TEA IS NOT ENTITLED TO DEDUCTION U/S. 80 IB OF THE ACT. FURTHER, D.R. ALSO RELIED ON CALCUTTA HIGH COURT JUDGMENT IN THE CASE OF BROOKE BOND INDIA LTD., 269 ITR 232 (CAL.) FOR THE PROPOSITION THAT BLENDING VARIOUS CATEGORIES OF TEAS AND SELLING THEM AFTER PACKING WITH BRAND NAME IS NOT A MANUFACTURING OR PRODUCING AND TH EREFORE, THAT ASSESSEE IS FOUND IN ELIGIBLE FOR INVESTMENT ALLOWANCE ON THE FACTS OF THAT CASE . 6 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AS WELL AS VARI OUS CITATIONS RELIED UPON BY BOTH THE PARTIES IN DISPUTE. THE LIMITED IS SUE FOR ADJUDICATION BEFORE US IS WHETHER THE CIT(A) HAS RIGHTLY INVOKED THE PROVISIONS OF SEC. 263 OF THE ACT. THE CASE OF THE ASSESSEE IS THAT THE AO APPLIED HIS MIND AND HE ALLOWED THE CLAIM OF DEDUCTION U/S. 80IB OF THE ACT OF THE SUM OF RS. 20,81,018/ - DURING THE ASSESSMENT PROCEEDINGS U/S. 143(3) OF THE ACT. FURTHER, THE PROCESSING CONSTITUTES MANUFACTURING TOO AS HELD IN THE CONTEXT OF SECTION 10B OF THE ACT AND JUDGEMENT OF THE KERAL HIGH COURT IN THE CASE OF TATA TEA LTD (SUPRA). PER CONTRA , THE CASE OF THE REVENUE IS THAT THE AO PASSED THE ASSESSMENT ORDER ON 16/1/2006 ALLOWING THE CLAIM OF DEDUCTION U/S 80IB OF THE ACT, WHEN THERE IS EXISTS ONLY ONE OPINION IN THE MATTER BY WAY OF (I) RAJASTHAN HIGH COURTS JUDGMENT DT 18/7/2005 IN THE CASE OF D D SHAH & BROTHERS (283 ITRM486) STRAIGHT ON THE SUBJECT IE EXPLAINING OF THE MEANING OF THE EXPRESSION MANUFACTURING USED IN CLAUSE (III) OF SECTION 80IB(2) OF THE ACT AND (II) APPEEJAY P LTD (206 ITR 367) AND (III) BROOKE BOND LIPTON I LTD (SUPRA) FO R THE PROPOSITION THAT THE BLENDING OF TEA IS ONLY PROCESSING AND IS NOT MANUFACTURING WIT HIN THE MEANING OF SECTION 80IB( 2)(III) OF THE ACT. THIS VIEW IS FURTHER CEMENTED BY THE NONE OTHER THAN THE SUPREME COURT IN THE CASE OF TARA AGENCIES (SUPRA). ITA NO. 785/ PN/ 2007 SONRISE TEA PROCESSING CO. PVT. LTD. ( A.Y. 2003 - 04 ) . 5 7. FURTHER, WE HAVE EXAMINE D THE SCOPE OF THE PROVISIONS OF SECTION 263 OF THE ACT AND THE SAME IS DETERMINED BY THE PROPOSITIONS PRO - FOUNDED BY THE HONBLE APEX COURT AS WELL AS OTHER COURTS ON THE SUBJECT. ACCORDINGLY, FOR THE REVENUE, AN INCORRECT ASSUMPTI ON OF FACT, INCORRECT ASSUMPTION OF LAW, FAILURE OF THE AO TO OR ROUTINELY TO CONDUCT INVESTIGATION IN TO THE ISSUE AND WHEN SUCH ASSUMPTIONS OR FAILURES LED TO CREATING DAMAGES TO THE INTEREST OF REVENUE , CONSTITUTES THE APPROVED GROUNDS FOR ASSUMING TH E JURISDICTION U/S 263 OF THE ACT . LIMITING THE ASPECTS OF INCORRECT ASSUMPTION OF LAW, WHICH IS THE ISSUE IN THE INSTANT CASE, AS WELL AS PREJUDICIAL TO THE INTEREST OF REVENUE, THE VIEW OF THE SUPREME COURT AND THE HIGH COURT OF BOMBAY IN THE CASES OF MALABAR INDUSTRIAL CO LTD (243 ITR83) AND GABRIEL INDIA LTD (203 ITR108)(BOM) RESPECTIVELY ARE RELEVANT. IT IS A SETTLED MATTER THAT THE JUDICIAL DISCIPLINE DEMANDS THAT THE INCOME TAX AUTHORITIES ARE BOUND TO GIVE EFFECT TO THE JUDICIAL INTERPRETATION OF THE HONBLE HIGH COURTS ON THE SUBJECT CONCERNED. IT IS BINDING ON THE IT AUTHORITIES WHEN SUCH INTERPRETATIONS ARE AFFIRMED BY THE APEX COURT. IN THE BACK GROUND OF THE SAME, AN INCORRECT ASSUMPTION OF THE LAW CONSTITUTES AN ACCEPTABLE GROUND FOR THE CIT TO ASSUME JURISDICTION. WHEN THE A O ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN THE LOSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREAT ED AS AND ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE , UNLESS THE VIEW TAKEN BY HE ITO IS UNSUSTAINABLE IN LAW. FURTHER, ON THE ISSUE OF APPLICATION OF THE MIND OF THE AO, I N THE CASE OF GABRIEL INDIA LTD (SUPRA ), THE JURISDICTION HIGH C OURT HAS ALSO HELD THAT WHERE THE AO HAS MADE ENQUIRIES WITH REGARD TO NATURE OF THE EXPENDITURE INCURRED BY THE ASSESSEE IN THE LIGHT OF DETAILED EXPLANATIONS FURNISHED BY THE ASSESSEE, THE ORDER OF THE AO CANNOT BE CALLED TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. RELEVANT OBSERVATIONS IN THIS REGARD ARE EXTRACTED HERE UNDER: - THAT THE ITO IN THIS CASE HAD MADE ENQUIRIES IN THIS REGARD TO THE NATURE OF THE EXPENDITURE INCURRED BY THE ASSESSEE. THE ASSESSEE HAD GIVEN A DETAILED EXPLANATI ON IN THAT REGARD BY A LETTER IN WRITING. ALL THESE WERE PART OF THE RECORD OF THE CASE. EVIDENTLY, THE CLAIM WAS ALLOWED BY THE ITO ON BEING SATISFIED WITH THE EXPLANATION OF HE ASSESSEE. THIS DECISION OF THE ITO COULD NOT BE HELD TO BE ERRONEOUS SIMPLY B ECAUSE IN HIS ORDER HE DID NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. 8. THUS, AN ORDER OF THE AO BECOMES ERRONEOUS, WHEN SUCH AN ORDER IS MADE BASED ON A NON SUSTAINABLE INTERPRETATIONS AND WHEN SUCH AN ORDER IS AGAINST THE RATIO DECIDENDI OR THE SPIRIT OF THE JUDGMENT OF THE APEX COURT WHETHER PASSED AT THE RELEVANT POINT OF TIME OR LATER IN TIME. RATIO OF THE JUDGMENTS OF THE SUPREME COURT HAS RETROSPECTIVE APPLICATION. DECISIONS OF THE ITA NO. 785/ PN/ 2007 SONRISE TEA PROCESSING CO. PVT. LTD. ( A.Y. 2003 - 04 ) . 6 AO AGAINST SUCH RATIO CONSTITUTES IN CORRECT ASSUMPTION OF THE LAW. SUCH DECISIONS OF THE AO LEADING TO THE ALLOWING THE CORRECT CLAIMS OF THE ASSESSEE CONSTITUTE PREJUDICIAL TO THE INTEREST OF THE REVENUE. REGARDING APPLICATION OF MIND OF THE AO, IT IS A DECIDED ISSUE THAT THE ASSESSMENT PROCEEDINGS MUST REFLE CT THAT THERE ARE ENQUIRIES DONE BY THE AO IN THE SAID PROCEEDINGS. IT IS NOT THE REQUIREMENT THAT THE ORDER MUST SPEAK ON SUCH ENQUIRIES. 9. CONSIDERING THE ABOVE SAID SCOPE OF THE PROVISIONS, WE HAVE EXAMINED THE FACTUAL MATRIX IN THIS CASE . IN FAR AS T HE NATURE OF THE BUSINESS IS CONCERNED THERE IS NO DISPUTE BETWEEN THE PARTIES AND THEREFORE, THE ASSESSEE IS UNDISPUTEDLY ENGAGED IN THE BUSINESS OF BLENDING OF VARIOUS TEAS AND MAKING VARIOUS FLAVORS FOR TRADING IN THE MARKET AFTER PACKAGING OF THE SAME. NO BINDING OR ANY OTHER JUDGMENT IS BROUGHT TO OUR NOTICE BY THE AR OF THE ASSESSEE TO INDICATE THAT THERE IS AN OPINION ON THE EXPLAINING OF THE MEANING OF THE EXPRESSION MANUFACTURING IN THE CONTEXT OF CLAUSE (III) OF SECTION 80IB(2) AND IN THE BLEND ING OF VARIOUS TEA. THE CASE LAWS RELIED UPON BY THE ASSESSEE BEFORE THE REVENUE AUTHORITIES RELATE TO DIFFERENT PRODUCTS AND THE PROVISIONS OF THE ACT WITH THE EXCEPTION OF THE ONE DELIVERED BY THE KERALA HIGH COURT IN THE CASE OF TATA TEA LTD (SUPRA), W HICH IS IN THE CONTEXT OF SECTION 10B OF THE ACT. OTHERWISE, AT THE RELEVANT POINT OF TIME IE 16/1/2005 THE DATE OF THE ASSESSMENT ORDER, THE AO HAS THE JUDGMENTS OF THE BENEFIT OF THE JUDGMENTS OF (I) RAJASTHAN HIGH COURTS JUDGMENT DT 18/7/2005 IN THE CA SE OF D D SHAH & BROTHERS ( 283 ITR 486) STRAIGHT ON THE SUBJECT IE EXPLAINING OF THE MEANING OF THE EXPRESSION MANUFACTURING USED IN CLAUSE (III) OF SECTION 80IB(2) OF THE ACT AND (II) APPEEJAY P LTD (206 ITR 367) AND (III) BROOKE BOND LIPTON I LTD (SUPR A) FOR THE PROPOSITION THAT THE BLENDING OF TEA IS ONLY PROCESSING AND IS NOT MANUFACTURING WITHIN THE MEANING OF SECTION 80IB(2)(III) OF THE ACT. THIS VIEW IS FURTHER CEMENTED BY THE NONE OTHER THAN THE SUPREME COURT IN THE CASE OF TARA AGENCIES (SUPRA). THUS, THE AO HAS FALLEN INTO ERROR IN ALLOWING THE CLAIM OF THE ASSESSEE UNDER SECTIN 80IB OF THE ACT. REGARDING THE APPLICATION OF THE MIND OF THE AO, NOTHING IS BROUGHT TO OUR NOTICE TO INDICATE THAT THERE WAS ANY INQUIRY INTO THE ASPECTS OF THE MEANING OF THE EXPRESSIONS PRO CESSING OR MANUFACTURING IN THE CONTEXT OF THE PROVISIONS OF SECTION 80IB(2)(III) OF THE ACT. THUS, THERE IS NOTHING TO INDICATE THAT THE AO HAS APPLIED HIS MIND ON THE TOPIC UNDER CONSIDERATION. 10. FURTHER, WE HAVE PERUSED THE RATIO OF THE CITED JUDGMENTS AND RELEVANT PORTIONS ARE EXTRACTED FOR THE SAKE OF THE COMPLETENESS OF THIS ORDER AND THE SAME ARE REPRODUCED AS UNDER. ITA NO. 785/ PN/ 2007 SONRISE TEA PROCESSING CO. PVT. LTD. ( A.Y. 2003 - 04 ) . 7 A. THE SUPREME COURT IN THE CASE OF TARA AGENCIES (SUPRA) HAS HELD CATEGORICALLY IN THE CONTEXT OF CL AIMS U/S 35B (1A) OF THE ACT THAT PROCESSING IS DIFFERENT FROM MANUFACTURING AND PURCHASE OF TEA ON DIVERSE GRADES AND BRANDS AND BLENDING THEM BY MIXING DIFFERENT KINDS OF TEA IS ONLY THE PROCESSING AND ASSESSEE IS NOT ENTITLED FOR DEDUCTION IN THE SAI D SECTION. THE HELD PORTION OF THIS JUDGMENT READS AS UNDER : THE ASSESSEE IS A REGISTERED FIRM ENGAGED IN THE BUSINESS OF EXPORT OF TEA. THE ASSESSEE PURCHASES TEA OF DIVERSE GRADES AND BRANDS AND BLENDS THE SAME BY MIXING DIFFERENT KINDS OF TEA. IT HAS T O BE EXAMINED WHETHER THE BUSINESS ACTIVITY OF THE ASSESSEE FALLS WITHIN THE AMBIT OF PRODUCTION, MANUFACTURING OR PROCESSING ? THE ASSESSEE WOULD BE ENTITLED TO WEIGHTED DEDUCTION UNDER S. 35B (1A) IN CASE THE GOODS EXPORTED WERE MANUFACTURED OR PRODUC ED IN SMALL SCALE INDUSTRIAL UNDERTAKING BUT, IN CASE IT FALLS SHORT OF PRODUCTION OR MANUFACTURE, THEN THE ASSESSEE WOULD NOT BE ENTITLED TO THE BENEFIT UNDER S. 35B(1A). THE SAID BENEFIT, ACCORDING TO THE RELEVANT STATUTE, IS RESTRICTED TO ONLY GOODS PR ODUCED OR MANUFACTURED IN THE SMALL SCALE INDUSTRIAL UNDERTAKING OR EXPORT. THE BENEFIT CANNOT BE EXTENDED IN CASE THE GOODS ARE MERELY PROCESSED BY THE SMALL SCALE INDUSTRIAL UNDERTAKING. IN ORDER TO DERIVE BENEFIT UNDER S. 35B(1A) THE GOODS HAVE TO BE EITHER MANUFACTURED OR PRODUCED BY THE SMALL SCALE INDUSTRIAL UNDERTAKING. ALL THE THREE STAGES, NAMELY, PRODUCTION, MANUFACTURING AND PROCESSING OF TEA CAN BE ENUMERATED AS UNDER. THE TEA IS PRODUCED IN THE TEA GARDENS. THIS FIRST STAGE IS CALLED PR ODUCTION OF TEA . THE SECOND STAGE IS MANUFACTURE OF TEA. IN THIS STAGE, THE TEA LEAVES ARE PLUCKED FROM THE TEA BUSHES AND BY MECHANICAL PROCESS, TEA LEAVES ARE CO N VERTED TO TEA. THIS SECOND STAGE IS CONSIDERED MANUFACTURING OF TEA. THE THIRD STAGE IS B LENDING OF DIFFERENT QUALITIES OF TEA IN ORDER TO SMOOTHEN ITS MARKETABILITY. THIS THIRD STAGE IS CONSIDERED PROCESSING OF TEA. THE TERM MANUFACTURE HAS NOT BEEN DEFINED IN THE IT ACT. ACCORDING TO THE DICTIONARY, THE TERM MANUFACTURE MEANS A PROCE SS WHICH RESULTS IN AN ALTERATION OR CHANGE IN THE GOODS WHICH ARE SUBJECTED TO THE PROCESS OF MANUFACTURING LEADING TO THE PRODUCTION OF A COMMERCIALLY NEW ARTICLE. IN DETERMINING WHAT CONSTITUTES MANUFACTURE NO HARD AND FAST RULE CAN BE APPLIED AN D EACH CASE MUST BE DECIDED ON ITS OWN FACTS HAVING REGARD TO THE CONTEXT IN WHICH THE TERM IS USED IN THE PROVISION UNDER CONSIDERATION. THE WORD PRODUCTION OR PRODUCE WHEN USED IN JUXTAPOSITION WITH THE WORD MANUFACTURE TAKES IN BRINGING INTO EXISTENCE NEW GOODS BY A PROCESS WHICH MAY OR MAY NOT AMOUNT TO MANUFACTURE. IT ALSO TAKES IN ALL THE BY - PRODUCTS, INTERMEDIATE PRODUCTS AND RESIDUAL PRODUCTS WHICH EMERGE IN THE COURSE OF MANUFACTURE OF GOODS. ACCORDING TO OXFORD DICTIONARY ONE OF THE M EANINGS OF THE WORD PROCESS IS A CONTINUOUS AND REGULAR ACTION OR SUCCESSION OF ACTIONS TAKING PLACE OR CARRIED ON IN A DEFINITE MANNER AND LEADING TO THE ACCOMPLISHMENT OF SOME RESULT. IN CHAMBERS 21 ST CENTURY DICTIONARY, THE TERM PROCESS HAS BEEN DEFINED AS PROCESS : 1. A SERIES OF OPERATIONS PERFORMED DURING MANUFACTURE, ETC. 2. A SERIES OF STAGES WHICH A PRODUCT, ETC. PASSES THROUGH, RESULTING IN THE DEVELOPMENT OR TRANSFORMATION OF IT. THE PROCESSING IS ONLY AN INTERMEDIATE STAGE OF PRO DUCTION AND/OR MANUFACTURE. THE PROCESSING OF TEA OF THE ASSESSEE FALLS SHORT OF EITHER MANUFACTURING OR PRODUCTION, THEREFO R E, BECAUSE OF THE LANGUAGE OF S. 35B(1A) OF THE IT ACT, THE ASSESSEE CANNOT BE EXTENDED THE BENEFIT. SINCE THE LEGISLATURE IN ITS WISDOM HAS NOT USED THE TERM PROCESSING IN S. 35B(1A), IT WOULD BE ERRONEOUS TO INCORPORATE THE WORD IN THE SECTION AND THEN INTERPRET THE STATUTE. THE INTENTION OF THE LEGISLATURE HAS TO BE GATHERED FROM THE LANGUAGE USED IN THE STATUE WHICH ITA NO. 785/ PN/ 2007 SONRISE TEA PROCESSING CO. PVT. LTD. ( A.Y. 2003 - 04 ) . 8 ME ANS THAT ATTENTION SHOULD BE PAID TO WHAT HAS BEEN SAID AS ALSO TO WHAT HAS NOT BEEN SAID. ON CLEAR CONSTRUCTION AND INTERPRETATION OF S. 35B(1A), THE ASSESSEES ACTIVITY AMOUNTS TO PROCESSING ONLY AND THE ACTIVITY DOES NOT AMOUNT TO EITHER PRODUCTION OR MANUFACTURE. THE TERM PROCESSING HAS NOT BEEN INCLUDED IN S. 35B(1A), THEREFORE, THE ASSESSEE IS NOT ENTITLED FOR WEIGHTED DEDUCTION UNDER S. 35B(1A). - CHOWGULE & CO. (P) LTD. & ANR. VS. UNION OF INDIA & ORS. (1981) 1 SCC 653 AND NILGIRI CEYLON TEA SUPPLYING CO. VS. STATE OF BOMBAY (1959) 10 STC 500 (BOM) DISTINGUISHED; D.D. SHAH & BROS. VS. UNION OF INDIA & ANR. (2005) 197 CTR (RAJ) 1 : (2006) 283 ITR 486 ( RAJ ) IMPLIEDLY APPROVED; CIT VS. TARA AGENCIES (2000) 159 CTR (KER) 325 SET ASIDE. B. THE VIEW OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF D. D . SHAH AND BROTHERS (SUPRA) STANDS APPROVED BY THE ABOVE MENTIONED JUDGMENT IN THE CASE OF TARA AGENCIES (SUPRA) . C. FURTHER, WE HAVE ALSO GONE THROUGH THE KERALA HIGH COURT JUDGME NT IN THE CASE OF TATA TEA LTD. (SUPRA). THE CONCLUSION OF THIS JUDGMENT READS AS UNDER : ASSESSEE, ENGAGED IN BLENDING AND PACKING OF TEA FOR EXPORT WHICH IS RECOGNISED AS A 100 PER CENT EXPORT ORIENTED UNIT, IS ENTITLED TO EXEMPTION UNDER S. 10B NOT WITHSTANDING DELETION OF THE DEFINITION OF MANUFACTURE W.E.F. 1 ST APRIL, 2001 FROM S. 10B, UNDER WHICH PROCESSING WAS COVERED BY MANUFACTURE. WE FIND THAT THE SAID JUDGMENT IN THE CASE OF TATA TEA LTD (SUPRA) WAS PRONOUNCED TAKEN IN THE CONTEXT OF S ECTION 10B OF THE ACT AND THE SAID DECISION MERELY DISTINGUISHED THE JUDGMENT IN THE CASE OF TARA AGENCIES (SUPRA) OF THE SUPREME COURT AND THEREFORE, IT IS NOT IN CONTRADICTION . WE HAVE PERUSED THE RAJASTHAN HIGH COURT JUDGMENT IN THE CASE OF D.D. SHAH AND BROTHERS WHICH WAS DIRECTLY ON THE ISSUE OF INTERPRETATION OF SECTION 80IB (2) (III) WHICH EXPLAI N THE EXPRESSIONS MANUFACTURE OR PROCESSING AND HELD THAT BLENDING OF TEA DOES NOT AMOUNT TO MANUFACTURING OR PRODUCTION AND HELD THAT THE DEDUCTION U/S. 80 IB OF THE ACT IS NOT AVAILABLE IN RESPECT OF SUCH BUSINESS WHICH IS COMPARABLE CASE OF THE ASSESSEE. IN THE PROCESS, THE HONBLE HIGH COURT HELD THAT THE PROCESSING DOES NOT AMOUNT TO PRODUCTION AND RELIED ON THE SUPREME COURT JUDGMENT IN THE CA SE OF CHOWGULE AND COMPANY PVT. LTD. AND OTHERS, 47 STC 124 AND CALCUTTA HIGH COURT JUDGMENT IN THE CASE OF APPEEJAY PVT. LTD., 206 ITR 367 WHICH WAS DECIDED IN THE CONTEXT OF 80J(4) WHICH HAS SAME LANGUAGE AS THAT OF SUB - SECTION (2) OF SECTION 80 IB OF T HE ACT. D. F URTHER, IT IS EVIDENT THAT THE A PEX COURT IS CATEGORICAL IN STATING THAT PROCESS IS DIFFERENT FROM MANUFACTURING AND THE EXPRESSION USED IN SECTION 80 IB ITA NO. 785/ PN/ 2007 SONRISE TEA PROCESSING CO. PVT. LTD. ( A.Y. 2003 - 04 ) . 9 (2)(III) IS MANUFACTURE OR PRODUCTION AND THERE IS NO PLACE FOR PROCESSING FOR TH E PURPOSE OF SECTION 80IB OF THE ACT. CLAUSE ( III ) OF SUB - SECT ION 80 (2) IS RELEVANT WHICH IS AS FOLLOWS : (III) IT MANUFACTURES OR PRODUCES ANY ARTICLE OR THING, NOT BEING ANY ARTICLE OR THING SPECIFIED IN THE LIST IN THE ELEVENTH SCHEDULE, OR OPERATES ONE OR MORE COLD STORAGE PLANT OR PLANTS, IN ANY PART OF INDIA : PROVIDED THAT THE CONDITION IN THIS CLAUSE SHALL, IN RELATION TO A SMALL SCALE INDUSTRIAL UNDERTAKING OR AN INDUSTRIAL UNDERTAKING REFERRED TO IN SUB - SECTION (4) SHALL APPLY AS IF THE WORDS NOT BEING ANY ARTICLE OR THING SPECIFIED IN THE LIST IN THE ELEVENTH SCHEDULE HAD BEEN OMITTED. E. SO FAR AS THE KERALA HIGH COURT JUDGMENT IS CONCERNED, AS SEEN FROM KERALA HIGH COURT JUDGMENT IN THE CASE OF TATA TEA LTD. (SUPRA), WE FIND THAT THE SAME WAS DELIVERED IN THE CONTEXT OF EXEMPTION U/S. 10B OF THE ACT , THEY MERELY DISTINGUISHED THE SUPREME COURT DECISION WHILE LIBERALLY INTERPRETING OF THE TAXING STATUTE. THE SAID JUDGMENT HAS NOT CONSIDER ED THE RAJASTHAN HIGH COURT JUDGMENT IN T HE CASE OF D.D. SHAH AND BROTHERS & O THERS IN FAVOUR OF THE REVENUE WHICH IS DIRECTLY ON THE ISSUE. CONSIDERING THE RAJASTHAN HIGH COURT JUDGMENT WHIC H IS DIRECTLY ON THE ISSUE, WHICH HAS BEEN AFFIRMED BY THE APEX COURT ON THE ISSUE IN THE CASE OF TARA AG ENCIES, WE ARE OF THE OPINION THAT KERALA HIGH COURT JUDGMENT IS DISTINGUISHABLE. CONSIDERIN G THE FACT THAT THE HONBLE A PEX COURT DECISION WHICH HAS MERELY DISTINGUISHED BY THE KERALA HIGH COURT IN THE CASE OF TATA TEA LTD., WE ARE OF THE OPINION THE EXPRESSIONS PROCESS AND MANUFACTURING ARE DIFFERENT. THE P ROVISIONS OF SECTION 80 IB (2)(III) REFERS TO THE EXPRESSION OF MANUFACTURING OR PRODUCTION , THEREFOR E, SAID AP EX COURT JUDGMENT READ WITH RAJASTHAN HIGH COURT JUDGMENT IN THE CASE OF D.D. SHAH AND BROTHERS & OTHERS (SUPRA) ARE RELEVANT FOR DECIDING THIS CASE. CONSIDERING THE APPLICABILITY OF THE SUPREME COURT DECISION WITH RETROSPECTIVE APPLICATION, WE ARE OF THE OPINION THAT THERE IS AN ERRONEOUS IN ASSUMPTION OF LAW BY THE A.O TO THE EX TENT OF NEGATIVE REVENUE IMPLICATION AMOUNTING TO RS. 20,8 1 ,018/ - CLAIMED BY THE ASSESSEE U/S. 80 IB OF THE ACT. THEREFORE, WE ARE OF THE OPINION THAT CIT HAS RIGHTLY AND VALIDL Y ASSUMED JURISDICTION IN DIRECTING A.O IN PARA 7 & 8 OF THE IMPUGNED ORDER. F. FOR THE SAKE OF COMPLETENESS, THE SAID PAR AGRAPHS ARE REPRODUCED AS UNDER : 7. AS ALREADY HIGHLIGHTED, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF BUYING DIFFERENT TYPES OF TEA FROM THE MARKET, BLENDING THEM IN DIFFERENT PROPORTIONS AND THEREAFTER S ELLS THE TEA IN THE MARKET. THE ASSESSEE HAS CLAIMED THAT IT IS AN INDUSTRIAL UNDERTAKING ENGAGED IN MANUFACTURING ACTIVITY AND ENTITLED FOR DEDUCTION U/S. 80 IA/ 80 IB OF THE ACT. ITA NO. 785/ PN/ 2007 SONRISE TEA PROCESSING CO. PVT. LTD. ( A.Y. 2003 - 04 ) . 10 7.1 IN THIS CONTEXT, IT MAY BE NOTED THAT THE LEGISLATURE HAS USED DIFFE RENT EXPRESSIONS MANUFACTURE, PROCESSING OR MINING AND, THEREFORE, IT IS APPARENT THAT THE LEGISLATURE IS NOT TREATING MANUFACTURE OF GOODS AS THE SAME AS PROCESSING OF GOODS. MANUFACTURE IMPLIES A TRANSFORMATION OR ALTERATION OF GOODS. MANUFACT URE MEANS PRODUCTION OF AN ARTICLE FOR USE FROM RAW, SEMI - RAW OR PREPARED MATERIALS BY GIVING THESE MATERIALS NEW FORM, QUANTITIES OR PROPERTIES OR COMBINATION, WHETHER BY HAND, LABOUR OR MACHINERY. THUS, IT IS CLEAR THAT THE ASSESSEE IS ENGAGED IN THE PROCESSING ACTIVITY ONLY AND THERE IS NO MANUFACTURING ACTIVITY OF ANY KIND. THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF APPEJAY PVT. LTD. V/S. CIT IS SQUARELY APPLICABLE TO THE ASSESSEES CASE. THE SAID DECISION WAS IN CONTEXT OF SECT ION 80J(4)(III) OF THE I T ACT, 1961 AND THE PROVISIONS OF WHICH IS SAME AS ITS SUCCESSOR 80IA OF THE I T ACT, 1961. 8. IN VIEW OF THE ABOVE FACTS AND JUDICIAL PRONOUNCEMENTS DISCUSSED ABOVE, THE EXPLANATION PUT - FORTH BY THE ASSESSEE IS NOT ACCEPTABLE. I HAVE, THEREFORE, HOLD THAT THE ACTION OF THE AO IN ALLOWING THE ASSESSEES CLAIM IS ERRONEOUS AND ALSO PREJUDICIAL TO THE INTEREST OF REVENUE BECAUSE INCOME HAS BEEN SUBJECTED TO EXCESSIVE ALLOWANCE BY DEDUCTION U/S. 80 IA /80IB OF THE ACT. I, THEREF ORE, INVOKE THE PROVISIONS OF SECTION 263 OF THE I T ACT, 1961 AND DIRECT THE A.O. TO DISALLOW THE CLAIM OF RS. 20,81,088/ - MADE BY THE ASSESSEE U/S. 80IA / 80 IB OF THE ACT. THE ASSESSING OFFICER IS DIRECTED TO MODIFY THE ASSESSMENT FOR AY : 2003 - 04 ACC ORDINGLY. 11. THUS, IN THIS CASE, CONSIDERING THE ABSENCE OF ANY SPECIFIC ENQUIRIES ON PROCESSING VS MANUFACTURING OF THE VARIOUS PRODUCT OF TEA BY BLENDING VARIOUS TEA, WE ARE OF THE OPINION, THE AO FAILED APPLY HIS MIND ON THE ISSUE. FURTHER, THE AO H AS FAILED TO GIVE EFFECT TO THE PREVAILING JUDGMENTS OF THE HONBLE HIGH COURTS OF RAJASTHAN AND CALCUTTA, WHEN THERE IS NO OTHER JUDGMENT CONTRARY TO THEM. FURTHER ALSO THE SAID JUDGMENT OF THE HIGH COURT ARE AFFIRMED BY THE APEX COURT IN THE CASE OF TAR A AGENCIES AND THEREFORE, IT IS THE CASE OF INCORRECT ASSUMPTION OF THE LAW BY THE AO WHICH IS AN APPROVED GROUND FOR THE CIT TO ASSUME JURISDICTION U/S 263 OF THE ACT. IT ALSO GOES WITHOUT MENTIONING THAT THERE IS LOSS TO THE REVENUE TO THE TUNE OF RS 20 ,81,018/ - BY THE CLAIM OF THE ASSESSEE U/S 80IB OF THE ACT, WHICH IS ALLOWED BY THE AO ERRONEOUSLY. IT FALLS WITH THE MEANING OF THE EXPRESSION PREJUDICIAL TO THE INTEREST OF THE REVENUE USED IN THE PROVISIONS OF SECTION 263 OF THE ACT. THEREFORE, WE AR E OF THE OPINION THAT ORDER OF THE CIT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, THE GROUND 1 AND GROUNDS 2 TO 9 RAISED WITHOUT PREJUDICE TO GROUND 1 ARE DISMISSED . 12 . IN RESULT, APPEAL OF THE ASSESSEE IS DISMISSED . ORDER PRONOUNCED IN OPEN COUR T ON 28TH MARCH , 201 1 ITA NO. 785/ PN/ 2007 SONRISE TEA PROCESSING CO. PVT. LTD. ( A.Y. 2003 - 04 ) . 11 SD/ - SD/ - ( I.C. SUDHIR ) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED THE 28TH MARCH , 201 1 US COPY OF THE ORDER IS FORWARDED TO : 1. THE A PP ELLANT 2. THE RESPONDENT 3. THE CIT - I I, KOLHAPUR 4. THE ADDL. CIT, RANGE - 2, KOLHAPUR 5. THE D.R. ITAT A BENCH 6. GUARD FILE BY ORDER ASSISTANT REGIST RAR INCOME TAX APPELLATE TRIBUNAL PUNE