The DCIT, Central Circle, Vijayawada V. M/s Krishna Sai Granites, Ongole

ITA 88/VIZ/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50268 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 21-04-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 15-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T LUCAS PETER
• Assessee Lawyers: S RAMA RAO
• Keywords: Depreciation; Additional depreciation
• Section: 80IB

Judgement Text

ITA NOS 87 TO 91 AND 493 OF 2010 KRISHNA SAI GRANIT ES ONGOLE & OTHERS PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NOS.87 TO 91/VIZAG/2010 ASSESSMENT YEAR: 2001 - 02 TO 2005 - 06 DY.COMMISSIONER OF INCOME TAX CENTRAL CIRCLE VIJAYAWADA VS. M/S. KRISHNA SAI GRANITES, ONGOLE (APPELLANT) (RESPONDENT) PAN NO: AAEFK 1790 R ITA NO.493/VIZAG/2010 ASSESSMENT YEAR: 2007-08 DY.COMMISSIONER OF INCOME TAX CENTRAL CIRCLE VIJAYAWADA VS. M/S. KRISHNA SAI EXPORTS PVT. LTD., HYDERABAD (APPELLANT) (RESPONDENT) PAN NO: AACCK 41118 N APPELLANT BY: SHRI T. LUCAS PETER, CIT (DR) RESPONDENT BY: SHRI S. RAMA RAO, ADVOCATE ORDER PER BENCH: THESE APPEALS OF THE REVENUE ARE DIRECTED AGAINST T HE ORDERS PASSED BY LEARNED CIT(A), VIJAYAWADA IN THE HANDS OF THE A SSESSEES CITED ABOVE FOR THE ASSESSMENT YEARS MENTIONED AGAINST THEIR NAME. AS THE ISSUE URGED IN THESE APPEALS IS IDENTICAL IN NATURE, THEY WERE HEA RD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2. THE ONLY ISSUE URGED BY THE REVENUE IN ALL THESE APPEALS IS WHETHER THE LEARNED CIT(A) IS JUSTIFIED IN HOLDING THAT THE ACTIVITIES CARRIED ON BY THESE ASSESSEES WOULD AMOUNT TO PRODUCTION. 3. THE FACTS RELATING TO THE ISSUE ARE STATED I N BRIEF. THESE ASSESSEES ARE ENGAGED IN THE BUSINESS OF MINING/EXTRACTION OF GRA NITE BLOCKS AND PROCESSING THE SAME WITH THE FOLLOWING ACTIVITIES. A) BLASTING THE ROCKS CUTTING THE ROCKS FROM THE PARENT ROCK. ITA NOS 87 TO 91 AND 493 OF 2010 KRISHNA SAI GRANIT ES ONGOLE & OTHERS PAGE 2 OF 7 B) REMOVAL OF WASTE MATERIAL LIKE SOIL COVER AND O THER WASTE USING MECHANICAL PROCESS. C) SEPARATING THE GRANITE FROM THE PARENT ROCK. D) REMOVAL OF INTRUSIONS AND DEFECTS FROM THE GRA NITE BLOCKS. E) DIMENSIONAL CUTTING OF GRANITE BLOCKS AND POLI SHING OF SUCH BLOCK. ALL THESE ACTIVITIES ARE CARRIED OUT BY USING MACHI NERIES. THE ASSESSEE M/S KRISHNA SAI GRANITES CLAIMED DEDUCTION UNDER SECTIO N 80IB OF THE ACT BY CLAIMING THAT ITS ACTIVITIES FALL IN THE CATEGORY O F MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING. THE ASSESSEE M/S KRISHNA S AI EXPORTS PVT. LTD., CLAIMED DEDUCTION OF ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA) OF THE ACT BY CLAIMING THAT ITS ACTIVITIES FALL IN THE CAT EGORY OF MANUFACTURE OR PRODUCTION OR AN ARTICLE OR THING. IT IS PERTINENT TO NOTE THAT THE DEDUCTION UNDER SECTION 80IB OF THE ACT OR THE ADDITIONAL DEPR ECIATION UNDER SECTION 32(1)(IIA) OF THE ACT IS ALLOWABLE ONLY IF THE ASSE SSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICL E OR THING. THE ASSESSING OFFICER REJECTED THE CLAIMS MADE BY THESE ASSESSEES BY HOLDING THAT THE ACTIVITIES CARRIED ON BY THEM WILL NOT FAL L IN THE CATEGORY OF MANUFACTURING OR PRODUCTION. IN THE APPEALS PREFER RED BY THESE ASSESSEES, THE LEARNED CIT(A) ALLOWED THEIR CLAIM BY FOLLOWING THE ORDER DATED 31-03- 2008 PASSED BY VIZAG BENCH OF ITAT IN THE CASE OF M /S SOUTHERN ROCKS & MINERALS (P) LTD., IN ITA NOS.604, 605/V/04. AGGRI EVED, THE REVENUE IS IN APPEAL BEFORE US. 4. IN THE CASE OF M/S SOUTHERN ROCKS AND MINERA LS (P) LTD, (SUPRA), THE TRIBUNAL HAS DISCUSSED VARIOUS CASE LAWS ON THE ISS UE AND HELD THAT THE ACTIVITIES OF MINING AND EXTRACTION OF GRANITE BLOC KS AND PROCESSING THE SAME WOULD FALL IN THE CATEGORY OF PRODUCTION. T HE RELEVANT OBSERVATIONS MADE IN THAT CASE ARE EXTRACTED BELOW: 12. BEFORE PROCEEDING FURTHER IT WOULD BE USEFUL IF WE UNDERSTAND THE MEANING OF THE TERM MANUFACTURE AN D PRODUCTION. IN THIS CONNECTION, THE HON'BLE RAJA STHAN HIGH COURT, IN THE CASE OF ARIHANT TILES AND MARBLES (P) LTD., (SUPRA) HAS OBSERVED AS UNDER: ITA NOS 87 TO 91 AND 493 OF 2010 KRISHNA SAI GRANIT ES ONGOLE & OTHERS PAGE 3 OF 7 THE EXPRESSION PRODUCTION HAS A WIDER CONNOTATIO N THAN THE EXPRESSION MANUFACTURE AND THEREFORE THE QUESTION WHETHER EXAMINATION FROM THE POINT OF VIEW OF ONLY MANUFACTURER IS NOT THE FINAL TEST. THE ESSEN TIAL DISTINCTION BETWEEN THE EXPRESSIONS MANUFACTURE A ND PRODUCTION HAD RECEIVED ATTENTION OF THE JUDICIAL PRONOUNCEMENTS FROM TIME TO TIME. THE DISTINCTION BETWEEN MANUFACTURE AND PRODUCTION WAS NOTICED AND EXPLAINED BY THE SUPREME COURT IN COMMISSIONER OF INCOME TAX VS. N.C.BHUDHARAJA AND CO. (204 ITR 412). THE APEX COURT CLEARLY OPINED THAT ALL THE ACTIVITI ES FALLING WITHIN THE AMBIT OF MANUFACTURE RESULTS IN PRODUCTI ON BUT CONVERSE IS NOT TRUE. THIS PRINCIPLE WAS REITERATE D IN CHOWGULE AND CO. P LTD V UNION OF INDIA (47 STC 124 (S.C)). 13. THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. SESA GOA LTD. (271 ITR 331) HAS DEALT IN DETAIL THE MEANING OF THE WORD PRODUCTION IN THE FOLLOWING LINES. THERE IS NO DISPUTE THAT THE PLANT IN RESPECT OF W HICH THE ASSESSEE CLAIMED DEDUCTION WAS OWNED BY IT AND WAS INSTALLED AFTER MARCH 31, 1976 IN THE ASSESSEES IN DUSTRIAL UNDERTAKING FOR EXCAVATING, MINING AND PROCESSING MINERAL ORE. MINERAL ORE IS NOT EXCLUDED BY THE EL EVENTH SCHEDULE. THE ONLY QUESTION IS WHETHER SUCH BUSINE SS IS ONE OF MANUFACTURE OR PRODUCTION OF ORE. THE ISSUE HAD ARISEN BEFORE DIFFERENT HIGH COURTS OVER A PERIOD O F TIME. THE HIGH COURTS HAVE HELD THAT THE ACTIVITY AMOUNTE D TO PRODUCTION AND ANSWERED THE ISSUE IN QUESTION IN FAVOUR OF THE ASSESSEE. THE HIGH COURT OF ANDHRA PRADESH DID SO IN CIT VS, SINGARENI COLLIERIES CO. LTD (1996) 221 ITR 48, THE CALCUTTA HIGH COURT IN KHALS A BROTHERS VS. CIT (1996) 217 ITR 185 AND CIT VS. MERCANTILE CONSTRUCTION CO. (1994) 74 TAXMAN 41 (CA L) AND THE DELHI HIGH COURT IN CIT VS. UNIVMINE (P) LT D (1993) 202 ITR 825. THE REVENUE HAS NOT QUESTIONED ANY OF THESE DECISIONS, AT LEAST NOT SUCCESSFULLY A ND THE POSITION OF LAW, THEREFORE, WAS TAKEN AS SETTLED. THE REASONING GIVEN BY THE HIGH COURT, IN THE DECIS IONS NOTED BYS US EARLIER, IS, IN OUR OPINION, UNIMPEACH ABLE. THIS COURT, HAD, AS EARLY AS IN 1961, IN CHRESTIAN MICA INDUSTRIES LTD. VS. STATE OF BIHAR (1961) 12 STC 150 , DEFINED THE WORD PRODUCTION ALBEIT, IN CONNECTION WITH THE BIHAR SALES TAX ACT, 1947. THE DEFINITION WAS ADOPTED FROM THE MEANING ASCRIBED TO THE WORK IN TH E OXFORD ENGLISH DICTIONARY AS MEANING AMONGST OTHER THINGS THAT WHICH IS PRODUCED; A THING THAT RESULTS FROM ANY ACTION, PROCESS OR EFFORT, A PRODUCT OF HUMAN A CTIVITY ITA NOS 87 TO 91 AND 493 OF 2010 KRISHNA SAI GRANIT ES ONGOLE & OTHERS PAGE 4 OF 7 OR EFFORT. FROM THE WIDE DEFINITION OF THE WORD PRODUCTION, IT HAS TO FOLLOW THAT MINING ACTIVITY FOR THE PURPOSE OF PRODUCTION OF MINERAL ORES WOULD COME WI THIN THE AMBIT OF THE WORD PRODUCTION SINCE ORE IS A THING, WHICH IS THE RESULT OF HUMAN ACTIVITY OR EFFORT. I T HAS ALSO BEEN HELD BY THIS COURT IN CIT VS. N.C.BUDHARAJA AN D CO (1993) 204 ITR 412 THAT THE WORD PRODUCTION IS MU CH WIDER THAN THE WORD MANUFACTURE. IT WAS SAID (PA GE 423): THE WORD PRODUCTION HAS A WIDER CONNOTATION THAN THE WORD MANUFACTURE. WHILE EVERY MANUFACTURE CAN BE CHARACTERIZED AS PRODUCTION, EVERY PRODUCTION NEED NOT AMOUNT TO MANUFACTURE. 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. IT IS THEREFORE, NOT NECESSARY, AS HAS BEEN SOUGHT TO BE CONTENDED BY LEARNED COUNSEL FOR THE REVENUE, THAT THE MINED ORE MUST BE A COMMERCIALLY NEW PRODUCT . THE DECISIONS AND OTHER AUTHORITIES ON THE DEFINITION OF THE WORD ORE AS CITED BY THE APPELL ANT ARE IRRELEVANT. LEARNED COUNSEL APPEARING ON BEHALF OF THE ASSESSEE , CORRECTLY SUBMITTED THAT THE OTHER PROVISIONS OF TH E ACT, PARTICULARLY SECTION 33(1)(B)(B) READ WITH ITEM NO. 3 OF THE FIFTH SCHEDULE TO THE ACT, WOULD SHOW THAT MINING O F ORE IS TREATED AS PRODUCTION. SECTION 35E ALSO SPEAKS O F PRODUCTION IN THE CONTEXT OF MINING ACTIVITY. THE LANGUAGE OF THESE SECTIONS IS SIMILAR TO THE LANGUAGE OF SEC TION 32A(2). THERE IS NO REASON TO ASSUME THAT THE WORD PRODUCTION WAS USED IN A DIFFERENT SENSE IN SECTI ON 32A. WE ARE, THEREFORE, OF THE OPINION THAT EXTRACTION A ND PROCESSING OF IRON ORE AMOUNTS TO PRODUCTION WITH IN THE MEANING OF THE WORD IN SECTION 32A(2)(B)(III) OF TH E ACT AND CONSEQUENTLY, THE ASSESSEE IS ENTITLED TO THE B ENEFIT OF SECTION 32A(1) OF THE ACT. THE QUESTION WHETHER TH E HIGH COURT WAS CORRECT IN HOLDING THAT THE ACTIVITY DID NOT AMOUNT TO MANUFACTURE IS LEFT OPEN. ITA NOS 87 TO 91 AND 493 OF 2010 KRISHNA SAI GRANIT ES ONGOLE & OTHERS PAGE 5 OF 7 14. AS OBSERVED BY THE HON'BLE APEX COURT, THE JUR ISDICTIONAL ANDHRA PRADESH HIGH COURT IN THE CASE OF SINGARENI COLLIERIES CO. LTD 221 ITR 48 HAS ALSO HELD THAT THE WORKING I N MINING AND EXTRACTION OF COAL WAS PRODUCTION ELIGIBLE FOR IN VESTMENT ALLOWANCE. 15. THE HON'BLE RAJASTHAN HIGH COURT IN ARIHANT TI LES & MARBLES PVT. LTD (SUPRA) HAS NOTED THAT PART B OF A NNEXURE TO FORM NO.3CD PRESCRIBED UNDER INCOME TAX RULES HAS LI STED OUR VARIOUS BUSINESS ACTIVITIES AND THE ACTIVITY CARRIE D OUT WITH RESPECT TO MARBLE AND GRANITE HAS BEEN CLASSIFIED U NDER MANUFACTURING INDUSTRY SECTOR. HENCE HON'BLE RAJ ASTHAN HIGH COURT OBSERVED THAT FOR THE PURPOSE OF INCOME TAX, UNDER THE RULES, THE MARBLE AND GRANITE INDUSTRY HAS BEEN CON SIDERED TO BE A MANUFACTURING INDUSTRY. THE HIGH COURT AFTER CONSIDERING VARIOUS JUDGMENTS INCLUDING THE DECISION OF HON'BLE SUPREME COURT IN LUCKY MINMAT (P) LTD V CIT 245 ITR 830 AND CIT VS. BEST CHEM LIME STONE INDUSTRIES P LTD 210 ITR 883 H AS OBSERVED AS UNDER: THUS LEGISLATIVE INTENT EMANATING FROM THE INCOME T AX ACT AND THE RULES FRAMED THERE UNDER AND THE JUDGME NT OF THE KARNATAKA HIGH COURT AS AFFIRMED BY THE SUPR EME COURT MAKES IT CLEAR THAT FOR THE PURPOSE OF SECTIO NS 80IA AND 80IB, PROCESS OF CUTTING AND SAWING OR SIZING OR POLISHING OF MARBLE BLOCKS INTO SLABS AND TILES WHI CH RESULTS IN MAKING RAW MARBLE USABLE AMOUNT TO MANUFACTURE. APART FROM THAT WINNING OF MARBLE BLOCK FROM MINES ITSELF AMOUNTS TO PRODUCTION . 16. THE RAJASTHAN HIGH COURT (SUPRA) ALSO CONSIDER ED THE SUPREME COURTS DECISION IN LUCKY MINMAT P LTD. (SU PRA) AND IN THIS CONNECTION HAS OBSERVED AS UNDER:- THE TRIBUNAL HAS RELIED ON THE DECISION OF SUPREME COURT IN LUCKY MINMAT P LTD THIS JUDGMENT AFFIRME D THE DECISION OF RAJASTHAN HIGH COURT, WHEREIN THE H IGH COURT HAS HELD THAT MINING OF LIME STONE AND MARBLE BLOCK AND THEREAFTER CUTTING AND SIZING THE SAME BE FORE IT IS SOLD IN THE MARKET WAS NOT A MANUFACTURING ACTIV ITY BY DISTINGUISHING THE EARLIER JUDGMENT IN COMMISSIONER OF INCOME TAX VS. BEST CHEM AND LIME STONES INDUSTRIES P LTD (210 ITR 883 (RAJ.)) IN WHICH THE BUSINESS OF EXTRACTING LIME STONE AND ITS SALE EITHER AS CONVER TED INTO LIME RODI OR LIME DUST WERE HELD TO BE MANUFACTUR ING ACTIVITY IT IS APPARENT THAT THE AFORESAID JUDGMEN T IS FOUNDED ON THE GROUND THAT THE COMMODITY IN BEST CHEMS CASE BEING DIFFERENT THAN WHAT WAS IN THE CA SE IN HAND, THE JUDGMENT WAS RIGHTLY DISTINGUISHED. THE SUPREME COURT WAS NOT EXAMINING THE ISSUE ABOUT THE FACT WHETHER THE BUSINESS OF MINING OR LIME STONE A ND ITA NOS 87 TO 91 AND 493 OF 2010 KRISHNA SAI GRANIT ES ONGOLE & OTHERS PAGE 6 OF 7 MARBLE BLOCKS, THEREAFTER CUTTING AND SIZING THE SA ME BEFORE IT IS SOLD IN THE MARKET IS A MANUFACTURING OR PRODUCTION, AS THE CASE MAY BE. 17. AS POINTED OUT IN THE HON'BLE SUPREME COURT DECISION IN SESA GOA LTD, THE MEANING OF TERM PRODUCTION ACCO RDING TO OXFORD DICTIONARY INTERALIA, INCLUDE A THING THAT RESULTS FROM ANY ACTION, PROCESS OR EFFORT , A PRODUCT, A PRODUCT OF HUMAN ACTIVITY OR EFFORT. ACCORDING TO THE TWELFTH SCHE DULE OF THE INCOME TAX ACT, THE ACTIVITY OF DRESSING, CUTTING AN D POLISHING, WASHING AND LEVIGATION, BENEFICATION, SIZING, OTHER UPGRADING ETC. TURN THE MINERALS AND ORES INTO PROCESSED MINE RALS AND ORE. THE CIRCULAR NO.729 OF CBDT ALSO RECOGNIZES THAT AN Y PROCESS APPLIED TO GRANITE WOULD MAKE IT A VALUE ADDED MARK ETABLE COMMODITY. DEDUCTION UNDER SECTION 80IB IS ALLOWABL E IF THE INDUSTRIAL UNDERTAKING MANUFACTURES OR PRODUCES ANY ARTICLE OR THING . BASED ON THE LEGAL DECISIONS STATED ABOVE AND MEANING OF THE TERM PRODUCTION, WE HOLD THAT THE ACTIVITY OF MINING AND EXTRACTION OF GRANITE BLOCKS FROM THE GR ANITE QUARRIES IS AN ACTIVITY OF PRODUCTION. ACCORDING LY THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB FOR ITS QUARRYING ACTIVITIES. 5. THE DECISION OF HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF ARIHANT TILES & MARBLES (P) LTD., HAS BEEN UPHELD BY THE HO N'BLE SUPREME COURT IN THE SAME CASE REPORTED IN (2009) (32 DTR (SUPREME C OURT) 161. THE SUPREME COURT HELD THAT THE HIGH COURT WAS RIGHT IN COMING TO THE CONCLUSION THAT THE ACTIVITY UNDERTAKING BY THE ASS ESSEES (I.E. CONVERSION OF MARBLE BLOCKS INTO SLABS AND TILES ETC.) DID CONSTI TUTE MANUFACTURE OR PRODUCTION IN TERMS OF 80IA OF THE ACT. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE, BY PLACING RELIANCE ON THE DECISION OF B.G.CHITALE VS. D.C.I.T (2008) 115 ITD 9 7 (PUNE (SB) CONTENDED THAT THE ACTIVITY OF THE ASSESSEES DID NOT RESULT I N COMMERCIALLY DIFFERENT PRODUCT. HOWEVER, THE SAID ASPECT WAS ALSO CONSIDE RED BY THE HON'BLE SUPREME COURT IN THE CASE OF SESA GOA LTD., (SUPRA) WHILE INTERPRETING THE TERM PRODUCTION AND HELD THAT IT IS NOT NECESSAR Y THAT THE MINED ORE MUST BE A COMMERCIALLY NEW PRODUCT. ITA NOS 87 TO 91 AND 493 OF 2010 KRISHNA SAI GRANIT ES ONGOLE & OTHERS PAGE 7 OF 7 7. SINCE THE IMPUGNED ISSUE IS SQUARELY COVERED BY THE DECISION OF THIS BENCH CITED ABOVE LIBERALLY AND SINCE THE LEARNED C IT(A) HAS FOLLOWED THE SAID DECISION, WE FIND NO REASON TO INTERFERE WITH HIS ORDERS AND ACCORDINGLY UPHOLD THE SAME. 8. IN THE RESULT, ALL THE APPEALS OF THE REVENUE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 23 RD JUNE, 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE:23-06-2011 COPY TO 1 THE DY.COMMISSIONER OF INCOME TAX CENTRAL CIRCLE, VIJAYAWADA 2 M/S KRISHNA SAI GRANITES, D.NO.8-418 UPSTAIRS, SU NDAR NAGAR, MANGAMURU DONKA, ONGOLE 3 M/S KRISHNA SAI EXPORTS PVT. LTD., F.NO.F-2 RADHI KA APARTMENTS, ROAD NO.2 BANJARA HILLS, HYDERABAD 4 5 THE CIT CENTRAL, HYDERABAD THE CIT(A), VIJAYAWADA 6 THE DR, ITAT, VISAKHAPATNAM. 7 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM