The DCIT, Circle-11, Ahmedabad V. Mahalaxmi Exports, Ahmedabad

ITA 895/AHD/2006

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6563 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 26-04-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 13-04-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H P MEENA
• Assessee Lawyers: P M MEHTA
• Section: 80HHC; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE S/SHRI G. D. AGARWAL, VP AND BHAVNESH SAINI , JM) ITA NO.895/AHD/2006 A. Y.: 2002-03 THE D. C. I. T., CIRCLE- 11, 1 ST FLOOR, NARAYAN CHAMBERS, ASHRAM ROAD, AHMEDABAD VS M/S. MAHALAXMI EXPORTS, 47, NEW CLOTH MARKET, AHMEDABAD PA NO. AACFM 9502 D (APPELLANT) (RESPONDENT) APPELLANT BY SHRI H. P. MEENA, SR. DR RESPONDENT BY SHRI P. M. MEHTA, AR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)- XVII, AHM EDABAD DATED 17 TH JANUARY, 2006 FOR ASSESSMENT YEAR 2002-03 CHALLENG ING THE ORDER OF THE LEARNED CIT(A) IN ALLOWING DEDUCTION U/S 80 IB OF THE INCOME TAX ACT. 2. EARLIER, THE DEPARTMENTAL APPEAL WAS DISMISSED V IDE ORDER DATED 23-01-2009. THE REVENUE PREFERRED MISC. APPLI CATION AGAINST THE ORDER CLAIMING THAT ONLY GROUNDS NO.1 AND 2 OF THE APPEAL HAVE BEEN MENTIONED OMITTING GROUNDS NO.3, 4 AND 5 OF TH E APPEAL WHILE DECIDING THE DEPARTMENTAL APPEAL. EARLIER ORDER WAS , THEREFORE, RECALLED BY ALLOWING THE MISC. APPLICATION OF THE R EVENUE. THE APPEAL WAS ACCORDINGLY RE-FIXED FOR HEARING. ITA NO.895/AHD/2006 DCIT CIR-1 AHMEDABAD VS MAHALAXMI EXPORTS 2 3. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE AO H AS NOT ALLOWED DEDUCTION U/S 80 IB OF THE IT ACT ON THE GROUND THA T THE ASSESSEE HAS CLAIMED THE DEDUCTION AFTER LAPSE OF SEVERAL YEARS AND THUS BELATED CLAIM. THE AUDIT REPORT WAS NOT FILED ALONG WITH T HE RETURN OF INCOME. THE DEDUCTION WAS CLAIMED AT THE LAST MOMENT DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE CORRECTNESS OF THE C ONDITIONS FOR SUCH DEDUCTION WAS NOT POSSIBLE TO VERIFY AFTER LAP SE OF SEVERAL YEARS. THE BUSINESS PREMISES OF THE ASSESSEE ARE SITUATED NEITHER IN BACKWARD AREA NOR IN BACKWARD DISTRICT. 4. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE AO REJECTED THE CLAIM OF THE ASSESSEE . THE LEARNED COUNSEL HAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE AO HAS REJECTED THE CL AIM OF THE ASSESSEE MADE IN THE COURSE OF THE ASSESSMENT PROCE EDINGS FOR DEDUCTION U/S 801B OF THE INCOME-TAX ACT. THE LEARN ED COUNSEL FOR THE ASSESSEE ENCLOSED THE AUDITED BALANCE SHEET, CO PY OF LETTER SUBMITTED TO THE AO, REPORT U/S 80IB OF THE INCOME- TAX ACT AND THE COPY OF SSI CERTIFICATE. IT WAS SUBMITTED THAT THE AO WHILE REJECTING THE CLAIM OF THE ASSESSEE OBSERVED THAT THE CLAIM I S MADE AFTER LAPSE OF SEVERAL YEARS. IN THIS REGARD IT WAS SUBMITTED T HAT SINCE THE BEGINNING OF THE INDUSTRIAL UNDERTAKING IN ASSESSME NT YEAR 1996-97, THE INDUSTRIAL UNDERTAKING WAS HAVING 100% EXPORT E XCEPT A LITTLE SCRAP OR WASTE REALIZATION LOCALLY OR RETURNED GOOD S AND THEREFORE ALMOST WHOLE OF THE INCOME WAS ENTITLED TO DEDUCTIO N U/S 80HHC OF THE INCOME-TAX ACT. THERE WAS NO OCCASION TO CLAIM THE DEDUCTION U/S 80IB OF THE INCOME-TAX ACT, AS THE ENTITLEMENT OF B OTH THE DEDUCTION U/S 80IB AND 80HHC OF THE INCOME-TAX ACT, WOULD BE WITH IN GROSS ITA NO.895/AHD/2006 DCIT CIR-1 AHMEDABAD VS MAHALAXMI EXPORTS 3 TOTAL INCOME AND COULD NOT BRING NEGATIVE PROFIT AN D THEREFORE TILL ASSESSMENT YEAR 2001-02, THE ASSESSEE HAS NOT CLAIM ED ANY DEDUCTION U/S 80IB OF THE INCOME-TAX ACT. TO CLARIF Y THE FACTS THE LEARNED COUNSEL FOR THE ASSESSEE ENCLOSED THE DETA ILS FROM ASSESSMENT YEAR 1996-97 TILL ASSESSMENT YEAR 2001-0 2 STATING THE FACT ABOUT THE TOTAL SALES, LOCAL SALES AS WELL AS NET PROFIT AND THE PROFIT ENTITLED TO DEDUCTION U/S 80HHC OF THE INCOM E-TAX ACT EVERY YEAR. IT WAS SUBMITTED THAT THERE WAS HARDLY ANY TA XABLE INCOME IN ANY OF THE YEAR. IT WAS SUBMITTED BY THE LEARNED CO UNSEL FOR THE ASSESSEE REGARDING THE OBSERVATIONS OF THE AO THAT THE AO HAS ALSO OBSERVED THAT THE CLAIM IS A BELATED CLAIM AFTER LA PSE OF SEVERAL YEARS. IN THIS REGARD UNDER THE PROVISIONS OF SECTI ON 80IB OF THE INCOME-TAX ACT, THERE IS NO RESTRICTION TO NOT TO A LLOW DEDUCTION U/S 80IB IN SUCCEEDING YEARS, IF IT IS NOT CLAIMED IN F IRST YEAR. IF THE ASSESSEE IS ENTITLED TO THE DEDUCTION EVEN IN ANY O F THE 10 YEARS UNDER THE PROVISIONS OF SECTION 80IB OF THE INCOME- TAX ACT, THE AO HAS TO ALLOW THE SAME. AS REGARDS ANOTHER OBSERVATI ON OF THE AO WHILE REJECTING THE CLAIM OF THE ASSESSEE FOR DEDUC TION U/S 80IB OF THE INCOME-TAX ACT THAT THE BUSINESS PREMISES OF THE AS SESSEE IS NOT SITUATED IN BACKWARD AREA OR BACKWARD DISTRICT, IN THIS REGARD IT WAS PLEADED THAT THE CLAIM IS NOT AS DEDUCTION U/S 80IB (4) OR (5) APPLICABLE TO BACKWARD AREA OR BACKWARD DISTRICT RE SPECTIVELY, BUT THE CLAIM IS FOR INDUSTRIAL UNDERTAKING U/S 80IB (3) OF THE INCOME-TAX ACT, AND, THEREFORE, THE ASSESSEE IS ENTITLED TO THE DED UCTION. THE AO HAS ALSO OBSERVED THAT THE AUDIT REPORT HAS NOT BEEN FI LED ALONG WITH THE RETURN OF INCOME. THE PROVISION OF SECTION 80IB (13 ) IS FOR AUDIT REPORT ITA NO.895/AHD/2006 DCIT CIR-1 AHMEDABAD VS MAHALAXMI EXPORTS 4 WHEREIN THEY HAVE MADE APPLICABLE SECTION 80 IA (7) . SECTION 80 I(7) RELATING TO FILING OF AUDIT REPORT IS CONSIDERED IN FOLLOWING DECISIONS:- I) CIT VS. PANAMA CHEMICAL WORKS REPORT IN 2 45 ITR 684 IN WHICH IT IS HELD THAT FILING OF AUDIT REPORT DURING ASSESSMENT PROCEEDINGS IS IN COMPLIANCE WITH THE STATUTORY REQUIREMENT U/S 80 IA(7) OF THE INCOME-TA X ACT. II) IT IS ALSO HELD IN ZENITH PROCESSING MIL LS VS. CIT (GUJARAT HIGH COURT) 219 ITR 721 THAT FURNISHING OF PROOF OF AUDITING IS NOT MANDATORY REQUIREMENT BUT IS DIR ECTORY. THE SAME CAN BE FURNISHED WHEN DEDUCTIONS BEING CONSIDERED ALSO U/S 80 J OF THE INCOME-TAX ACT. THI S GUJARAT HIGH COURT'S DECISION HAS FOLLOWED THE EARL IER DECISION IN CIT VS. GUJARAT OIL & ALLIED INDUSTRIES REPORTED IN 201 ITR 325 (GUJ) AGAIN U/S 80 J OF THE INCOME-T AX ACT. THERE ARE SEVERAL IT AT & COURT DECISIONS IN SUPPOR T OF THE SAME. THE LONGATION AS TO REQUIREMENT OF AUDIT IS SAME U/S 80J, 80HHC, 801. 80IA & 80IB III) IN CIT VS. JAYANT PATEL REPORTED IN 248 ITR 199 (MAD) IT IS HELD THAT AUDIT REPORT CAN BE SUBMITTED EVEN BEFORE APPELLATE AUTHORITY. AS REGARDS THE CORRECTNESS OF THE CLAIM AND CONDITI ONS IN RESPECT OF DEDUCTION AS TO PLANT & MACHINERY, THE LEARNED COUN SEL FOR THE ASSESSEE ENCLOSED THE AUDITED STATEMENT OF ACCOUNTS FOR THE FINANCIAL YEAR ENDED ON 1996 WHEREIN DETAILS OF FIX ED ASSETS ARE ITA NO.895/AHD/2006 DCIT CIR-1 AHMEDABAD VS MAHALAXMI EXPORTS 5 APPEARING IN SCHEDULE 'A'. AS EXPLAINED TO THE AO, THESE PLANT & MACHINERY ARE USED TO PRODUCE MADE UP ARTICLES BEIN G BED COVERS AND PILLOW COVERS. THE OTHER CONDITIONS FOR CLAIM O F DEDUCTIONS ARE ALSO STATED IN THE LETTER SUBMITTED TO THE AO WHERE BY THE ASSESSEE IS HAVING MANUFACTURING WITH POWER WITH ABOVE 40 EMPLO YEES I.E. MUCH MORE THAN THE REQUIREMENT OF 10 EMPLOYEES WITH POWE R AND IS ALSO AN SSI INDUSTRY AND IS MANUFACTURING BED COVERS AND PILLOW COVERS. IT WAS FURTHER SUBMITTED BY THE LEARNED COUNSEL FOR TH E ASSESSEE THAT DURING THE COURSE OF THE ARGUMENT IN APPEAL IT WAS ASKED WHETHER THE BED COVERS AND PILLOW COVERS IS MANUFACTURING OR NO T. IN THIS REGARD, IT WAS SUBMITTED THAT THEIR BASIC RAW MATERIAL IS GREY CLOTH WHICH IS GOT PRINTED AND THE PRINTED CLOTH IS CONVERTED INTO GAR MENTS/ARTICLES CALLED MADE UP ARTICLES BEING BED COVERS AND PILLOW COVERS . IT MAY BE STATED THAT BED COVERS AND PILLOW COVERS ARE TOTALLY DIFFE RENT THEN A SIMPLE CLOTH, AS CLOTH HAS DIFFERENT USE I.E. THE USE BY T HE CUSTOMERS FOR FURTHER MANUFACTURING OF READYMADE GARMENTS OR MADE UP ARTICLES LIKE BED COVERS AND PILLOW COVERS. THEREFORE, THE B ED COVERS AND PILLOW COVERS HAVE DIFFERENT USE THEN THE CLOTH BEI NG RAW MATERIAL OF OURS. BED COVERS AND PILLOW COVERS ARE FOR THE DIRE CT USE OF CONSUMERS AND PUBLIC. IN SUPPORT OF THE FACT THAT T HE ASSESSEE IS MANUFACTURING ARTICLES, OVER AND ABOVE THE SSI CERT IFICATE, THE LEARNED COUNSEL ENCLOSED THE FOLLOWING REGISTRATION CERTIFICATES:- I. THE REGISTRATION CERTIFICATE UNDER FACTORIES AC T. II. THE REGISTRATION CERTIFICATE UNDER EXCIS E LAW. ITA NO.895/AHD/2006 DCIT CIR-1 AHMEDABAD VS MAHALAXMI EXPORTS 6 IT WAS SUBMITTED THAT THE UNIT IS REGISTERED WITH E XCISE AUTHORITIES AND IT HAD SUBMITTED REGULAR MONTHLY RT-12 RETURNS, BUT ON ACCOUNT OF 100% EXPORT, THERE IS NO LIABILITY OF EXPENSES OF E XCISE DUTY AS THE EXCISE DUTY IS EXEMPTED ON EXPORT. IN SUPPORT OF TH E MANUFACTURING ACTIVITY, RELIANCE WAS PLACED ON THE DECISION OF CA LCUTTA TRIBUNAL IN THE CASE OF ACIT VS. BHARAT EXPORTS LTD. REPORTED I N 107 TAXMAN 66 (CAL. TRIB) IN WHICH THE ASSESSEE WAS MANUFACTURING THE CARPET FROM CARPET ROLLS AND IT WAS HELD THAT THE ASSESSEE IS A MANUFACTURER AND IS ENTITLED TO DEDUCTION U/S 80 I OF THE INCOME-TAX ACT. THE NATURE OF ACTIVITY OF THE ASSESSEE IS SIMILAR AS THE ASSESSEE WAS MANUFACTURING BED COVERS AND PILLOW COVERS FROM CLOTH OR CLOTH RO LLS. RELIANCE WAS PLACED ON THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF SUPREME GRAPHIC CREATION PVT. LTD. REPORTED IN 197 CTR 657 (MUM) IN WHICH THE PAPER CORRUGATED SHEETS WAS MADE INTO PRINTED L AMINATED CARTON AND IT WAS HELD THAT THE ASSESSEE IS ELIGIBLE AS MA NUFACTURER U/S 80 IB OF THE INCOME-TAX ACT AS AFTER MANUFACTURE IT BE COMES A SPECIFIC USE PRODUCT AND RAW MATERIAL IS TOTALLY CHANGED. AC CORDINGLY THE BED SHEETS AND PILLOW COVERS ARE CLEARLY A SPECIFIC PRO DUCT FOR USE DIRECTLY BY CONSUMERS AND PUBLIC WHICH IS TOTALLY DIFFERENT FROM RAW MATERIAL THE CLOTH I.E. CLOTH ROLLS. IN VIEW OF THE AFORESAI D FACTS AND POSITION IN LAW, IT WAS REQUESTED TO ALLOW THE DEDUCTION U/S 80 IB OF THE INCOME- TAX ACT @ 25% OF INCOME UNDER THE HEAD BUSINESS AND PROFESSION. 5. THE LEARNED CIT(A) CONSIDERING THE SUBMISSION OF THE ASSESSEE IN THE LIGHT OF THE FINDINGS OF THE AO ALLOWED THE CLAIM OF THE ASSESSEE U/S 80IB OF THE IT ACT. THE FINDINGS OF TH E LEARNED CIT(A) IN PARA 17 TO 23 ARE REPRODUCED AS UNDER: ITA NO.895/AHD/2006 DCIT CIR-1 AHMEDABAD VS MAHALAXMI EXPORTS 7 17. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AS WELL AS THE SUBMISSION OF THE LEARNED COUNSEL. THER E IS NO FORCE IN THE OBSERVATION OF THE ASSESSING OFFICER T HAT THE ASSESSEE HAS CLAIMED THE DEDUCTION AFTER LAPSE OF S EVERAL YEARS AND THUS IT IS BELATED CLAIM. THE CLAIM CANNO T BE SAID TO BE BELATED TILL TEN YEARS UP TO WHICH THE A SSESSEE WAS ENTITLED TO THE CLAIM. THERE IS NO FORCE IN THE OBSERVATION OF THE ASSESSING OFFICER THAT THE BUSIN ESS PREMISES OF THE ASSESSEE ARE SITUATED NEITHER IN BACKWARD AREA NOR IN BACKWARD DISTRICT. THE APPELLA NT'S CASE IS COVERED BY THE PROVISIONS OF SECTION 80 IB( 3) OF THE ACT AND THE APPELLANT IS ENTITLED TO THE DEDUCT ION U/S 80 IB EVEN IF THE BUSINESS PREMISES OF THE ASSESSEE ARE NOT SITUATED IN BACKWARD AREA OR IN BACKWARD DISTRI CT. THERE IS ALSO NO FORCE IN THE OBSERVATION OF THE AS SESSING OFFICER THAT THE AUDIT REPORT WAS NOT FILED ALONGWI TH THE RETURN OF INCOME. THE JUDICIAL AUTHORITIES ARE OF T HE VIEW THAT THOUGH THE FILING OF AUDIT REPORT IS MANDATORY BUT THE TIME OF FILING SUCH REPORT IS DIRECTORY IN NATURE A ND THE AUDIT REPORT CAN BE FILED BEFORE THE COMPLETION OF THE ASSESSMENT. CERTAIN HIGH COURTS ARE ALSO OF THE VIE W THAT THE AUDIT REPORT EVEN CAN BE FILED BEFORE THE FIRST APPELLATE AUTHORITY OR EVEN BEFORE THE TRIBUNAL. THE DECISION S REFERRED TO BY THE LEARNED COUNSEL IN HIS SUBMISSIO N AND THE DECISIONS REPORTED IN 254 ITR 503 (CAL), 248 IT R 333 (J&K), 251 ITR 693 (AP), 170 TAXATION 590 (RAJ) AND 262 ITR 10 (CAL) MAY BE REFERRED TO FOR SUCH FINDING. CONSIDERING THE JUDICIAL PRONOUNCEMENTS, IT IS HELD THAT THE AUDIT REPORT FILED DURING THE COURSE OF ASSESSM ENT PROCEEDINGS WAS SUFFICIENT ENOUGH TO ALLOW THE CLAI M OF DEDUCTION U/S 80 IB OF THE ACT. THERE IS NO FORCE I N THE CONTENTION OF THE ASSESSING OFFICER THAT THE DEDUCT ION WAS CLAIMED AT THE LAST MOMENT DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE CORRECTNESS OF THE CONDITIONS FOR SUCH DEDUCTION WAS NOT POSSIBLE TO V ERIFY AFTER LAPSE OF SEVERAL YEARS. THE DEDUCTION IF, GEN UINE CAN BE CLAIMED AT ANY TIME DURING THE COURSE OF ASSESSM ENT PROCEEDINGS. THE CBDT CIRCULAR EVEN SAYS THAT THE ASSESSING OFFICER SHOULD SUO MOTO ALLOW A GENUINE DEDUCTION IF NOT CLAIMED BY THE ASSESSEE. EVEN SUCH ITA NO.895/AHD/2006 DCIT CIR-1 AHMEDABAD VS MAHALAXMI EXPORTS 8 GENUINE DEDUCTION CAN BE CLAIMED BEFORE THE CIT(APPEALS) OR BEFORE THE IT AT. THE ASSESSING OFF ICER CANNOT DISALLOW THE CLAIM ONLY ON THE GROUND THAT I T WAS A BELATED CLAIM OR CLAIM MADE AT THE FAG END OF THE PROCEEDINGS. HE WAS REQUIRED TO EXAMINE THE GENUINENESS OF THE CLAIM AND THEN WAS REQUIRED TO R EACH TO ANY FINDING OF ALLOWABILITY OR DISALLOWABILITY O F THE CLAIM OF DEDUCTION U/S 80 IB OF THE ACT. 18. THE LEARNED COUNSEL HAS SUBMITTED THAT SINCE BEGINNING OF THE INDUSTRIAL UNDERTAKING IN A.Y. 199 6-97, IT HAS 100% EXPORT EXCEPT A LITTLE SCRAP OR WASTE REAL IZATION LOCALLY OR RETURNED GOODS AND THEREFORE ALMOST WHOL E OF THE INCOME WAS ENTITLED TO DEDUCTION U/S 80HHC. THE RE WAS NO OCCASION TO CLAIM DEDUCTION U/S 80IB AS THE ENTITLEMENT OF BOTH THE DEDUCTION U/S 80IB AND 80HH C WERE RESTRICTED TO GROSS TOTAL INCOME. NO DEDUCTION WERE THEREFORE CLAIMED TILL A.Y.2000-02. I AGREE WITH TH E CONTENTION OF THE LEARNED COUNSEL THAT THERE IS NO RESTRICTION UNDER THE PROVISIONS OF SECTION 80IB NO T TO ALLOW DEDUCTION U/S 80IB IN SUCCEEDING YEARS IF NOT CLAIMED IN THE FIRST YEAR. IF THE ASSESSEE IS ENTIT LED TO THE DEDUCTION EVEN IN ANY OF THE TEN YEARS UNDER THE PROVISIONS OF SECTION 80IB, THE ASSESSING OFFICER H AS TO ALLOW THE SAME. IT IS CORRECT TO SAY THAT THE APPEL LANT IS ENTITLED TO THE DEDUCTION AS PER PROVISIONS OF SECT ION 80IB (3) OF THE ACT. 19. CONSIDERING THE SUBMISSION OF THE LEARNED COUNS EL AND IN VIEW OF THE DISCUSSIONS IN PARA 16 AND PARA -17, I CAME TO THE CONCLUSION THAT THE ASSESSING OFFICER H AS NOT EXAMINED THE CLAIM OF DEDUCTION U/S 80IB MADE DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS BY THE APPELLA NT WITHOUT ANY PLAUSIBLE REASONS. THE VARIOUS CONTENTI ONS RAISED BY THE ASSESSING OFFICER HAS BEEN EXAMINED A ND WERE REJECTED IN PARA- 16 AND PARA- 17. NOW IT HAS TO BE SEEN WHETHER ANY PROFIT AND GAINS DERIVED FROM THE ELIGIBLE BUSINESS WAS INCLUDED IN THE GROSS TOTAL I NCOME OF THE APPELLANT AND WHETHER THE APPELLANT WAS FULFILL ING ALL THE CONDITIONS AS REFERRED TO IN SECTION 80IB(2) OF THE ACT. ITA NO.895/AHD/2006 DCIT CIR-1 AHMEDABAD VS MAHALAXMI EXPORTS 9 THE CONDITION NO. (I) AND (II) OF THE INDUSTRIAL UN DERTAKING ARE TO BE SEEN ONLY IN THE YEAR IN WHICH THE ASSESS EE BECAME ENTITLED TO THE DEDUCTION I.E. FOR THE A.Y. 1996-97. HOWEVER, THE APPELLANT HAS NEVER CLAIMED THE DEDUCT ION EARLIER THEREBY THESE TWO CONDITIONS ARE ALSO TO BE SEEN. AS PER DETAILS FILED IN THE SHAPE OF COPY OF AUDITE D PROFIT AND LOSS ACCOUNT AND BALANCE SHEET, THE INDUSTRIAL UNDERTAKING OF THE APPELLANT SATISFIES CONDITION NO . (I) AND (II) OF SECTION 80IB(2) OF THE ACT AND I HAVE NO RE ASON TO SUSPECT. 20. AS PER CONDITION NO.(III) OF SECTION 80IB(2) OF THE ACT, THE INDUSTRIAL UNDERTAKING OF THE APPELLANT SHOULD HAVE BEEN ENGAGED IN MANUFACTURE OR PRODUCE OF ANY ARTIC LE OR THING NOT BEING THE ARTICLES OR THINGS AS SPECIFIED IN ELEVENTH SCHEDULE. THE INDUSTRIAL UNDERTAKING OF TH E APPELLANT DERIVING INCOME FROM SALE OF BED-COVERS A ND PILLOW COVERS WHICH ARE OUTSIDE THE LIST OF ELEVENT H SCHEDULE. IN SUPPORT OF THE MANUFACTURING ACTIVITY, RELIANCE WAS PLACED BY THE LEARNED COUNSEL ON THE DECISION OF CALCUTTA TRIBUNAL IN THE CASE OF ACIT V S. BHARAT EXPORTS LTD. REPORTED IN 107 TAXMAN 66 (CAL. TRIB) IN WHICH THE ASSESSEE WAS MANUFACTURING THE CARPET FROM CARPET ROLLS AND IT WAS HELD THAT THE ASSESSEE IS A MANUFACTURER AND IS ENTITLED TO DEDUCTION U/S 80 I OF THE INCOME-TAX ACT. RELIANCE WAS ALSO PLACED ON THE DEC ISION OF BOMBAY HIGH COURT IN THE CASE OF SUPREME GRAPHIC CREATION PVT. LTD. REPORTED IN 197 CTR 657 (MUM) IN WHICH THE PAPER CORRUGATED SHEETS WAS MADE INTO PRI NTED LAMINATED CARTONS AND IT WAS HELD THAT THE ASSESSEE IS ELIGIBLE AS MANUFACTURE U/S 80IB OF THE INCOME-TAX ACT AS AFTER MANUFACTURE IT BECOMES A SPECIFIC USE PRODUCT AND RAW MATERIAL IS TOTALLY CHANGED. THE NATURE OF ACTI VITY OF THE APPELLANT IS SIMILAR AS THE APPELLANT WAS ARE MANUFACTURING BED COVERS AND PILLOW COVERS FROM CLO TH OR CLOTH ROLLS. ACCORDINGLY THE BED COVERS AND PILLOW COVERS ARE CLEARLY A SPECIFIC PRODUCT FOR USE DIRECTLY BY CONSUMERS AND PUBLIC WHICH IS TOTALLY DIFFERENT FRO M RAW MATERIAL THE CLOTH I.E. CLOTH ROLLS. CONSIDERING TH E RATIO OF THE DECISIONS RELIED UPON AND THE ACTIVITY OF THE A SSESSEE, ITA NO.895/AHD/2006 DCIT CIR-1 AHMEDABAD VS MAHALAXMI EXPORTS 10 I HAVE NO DOUBT ABOUT THE MANUFACTURING ACTIVITY OF THE ASSESSEE. THE BED COVERS AND PILLOW COVERS MADE FRO M THE CLOTH ARE KNOWN AS DIFFERENT AND DISTINCT ARTIC LES IN THE COMMERCIAL PARLANCE. THE RAW MATERIAL I.E. GREY CLO TH LOOSES ITS EXISTENCE AND DOES NOT REMAIN THE SAME PRODUCT AFTER PRINTING, CUTTING TO DIFFERENT SIZES AND AFTER STITCHING. THE END PRODUCT I.E. BED- COVERS AND PIL LOW COVERS ARE DIFFERENT AND DISTINCT ARTICLES THAN THE RAW MATERIAL IN NAME AND QUALITY AND IDENTIFIED AS DIFF ERENT AND DISTINCT ARTICLES BY THE BUYERS AND SELLERS. TH E TEST APPLIED BY THE HON'BLE BOMBAY HIGH COURT, THAT THE 'RAW MATERIAL CANNOT BE USED IN PLACE OF FINISHED PRODUC T AND THE FINISHED PRODUCT CANNOT BE USED IN PLACE O F RAW MATERIAL' ALSO HOLD GOOD IN CASE OF THE PRODUCT OF THE APPELLANT. THUS, IT IS HELD THAT THE INDUSTRIAL UND ERTAKING OF THE APPELLANT WAS ENGAGED IN THE MANUFACTURING ACTI VITY. 21. AS PER CONDITION NO.(IV) OF SECTION 80I B(2) OF THE ACT, THE INDUSTRIAL UNDERTAKING OF THE APPELLANT WA S REQUIRED TO EMPLOY MORE THAN TEN WORKERS IN A MANUFACTURING PROCESS WITH AID OF POWER. THE LEARNED COUNSEL HAS SUBMITTED THAT THE ASSESSEE IS HAVING MANUFACTURING WITH POWER WITH ABOVE 40 EMPLOYEES I.E. MUCH MORE THAN THE REQUIREMENT OF 10 EMPLOYEES WITH POWER AND IS ALSO AN SSI INDUSTRY AND IS MANUFACTURING BED COVERS AND PILLOW COVERS. THERE IS NO DOUBT ABO UT IT CONSIDERING THE LABOUR PAYMENTS MADE BY THE APPELLA NT. 22. THUS, THE ASSESSEE WAS FULFILLING ALL THE CONDI TIONS REQUIRED UNDER THE PROVISIONS OF SECTION 80IB OF TH E ACT AND WAS ELIGIBLE FOR DEDUCTION U/S 80IB. THE ASSESS ING OFFICER IS DIRECTED TO ALLOW THE CLAIM OF SUCH DEDU CTION TO THE APPELLANT. AS REGARDS THE QUANTUM OF DEDUCTION, THE ASSESSING OFFICER IS DIRECTED NOT TO ALLOW SUCH DED UCTION ON THE NET INCOME EARNED FROM THE SALE OF DEPB LICE NSE BECAUSE THE INCOME EARNED FROM THE SALE OF DEPB LICENSE IS NOT THE INCOME DERIVED BY THE INDUSTRIAL UNDERTAKING AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF CIT V. STERLING FOODS 237 ITR 579 (SC). THE HONBLE SUPREME COURT HAS HELD IN THAT CASE THAT 'WE DO ITA NO.895/AHD/2006 DCIT CIR-1 AHMEDABAD VS MAHALAXMI EXPORTS 11 NOT THINK THAT THE SOURCE OF THE IMPORT ENTITLEMENT S CAN BE SAID TO BE THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE. THE SOURCE OF THE IMPORT ENTITLEMENTS CAN , IN THE CIRCUMSTANCES, ONLY BE SAID TO BE THE EXPORT PROMOTION SCHEME OF THE CENTRAL GOVERNMENT WHEREUNDER THE EXPORT ENTITLEMENTS BECOME AVAILABLE, THERE MUST BE, FOR THE APPLICATION OF TH E WORDS 'DERIVED FROM', A DIRECT NEXUS BETWEEN THE PROFITS AND GAINS AND THE INDUSTRIAL UNDERTAKING. I N THE INSTANT CASE, THE NEXUS IS NOT DIRECT BUT ONLY INCIDENTAL. THE INDUSTRIAL UNDERTAKING EXPORTS PROCESSED SEA FOOD, BY REASON OF SUCH EXPORT, THE EXPORT PROMOTION SCHEME APPLIES. THEREUNDER, THE ASSESSEE IS ENTITLED TO IMPORT ENTITLEMENTS, WHICH IT CAN SELL. THE SALE CONSIDERATION THEREFROM CANNOT, IN OUR VIEW, BE HELD TO CONSTITUTE A PROFIT AND GAIN DERIVED FROM THE ASSESSEE'S INDUSTRIAL UNDERTAKING. ' 23. HOWEVER, THE NET INCOME SHOULD BE WORKED OUT BY DEDUCTING THE SALES TAX PAID FOR RS. 6,26,096/-, LI CENSE FEE OF RS. 76,045/- AND LICENSE VERIFICATION FEE OF RS. 68,200/- TOTALING TO RS. 7,70,341/- AS THESE EX PENSES WERE INCURRED ONLY FOR EARNING THE INCOME FROM SALE OF DEPB LICENSE. THE ASSESSING OFFICER HAS ALSO CONSID ERED 90% OF THE INCOME FROM SALE OF DEPB LICENSE WHILE WORKING OUT THE DEDUCTION U/S 80HHC OF THE ACT. THU S, WHILE WORKING OUT THE DEDUCTION U/S 80IB, THE NET I NCOME OF RS. 1,77,89,129/- ON ACCOUNT OF INCOME FROM SALE OF DEPB LICENSE SHOULD BE DEDUCTED FROM THE MANUFACTUR ING PROFIT I.E. FROM RS. 2,21,75,477/- (RS. 2,21,87,072 /- PROFIT - RS. 1 1,595/- AS DISALLOWANCES DELETED). THE FIGURE S MAY BE RECHECKED. 6. THE LEARNED DR RELIED UPON THE ORDER OF THE AO A ND ALSO REFERRED TO ALL THE GROUNDS OF APPEAL IN SUPPORT OF HIS CONTENTION AND SUBMITTED THAT ASSESSEE IS GETTING PROCESSING WORK OF GREY CLOTH I.E. BLEACHING, DYEING AND PRINTING THROUGH ITS ASSOCIAT E CONCERNS ON JOB WORK BASIS AND THE ASSESSEE HAS NO MACHINERIES CAPA BLE OF ITA NO.895/AHD/2006 DCIT CIR-1 AHMEDABAD VS MAHALAXMI EXPORTS 12 PROCESSING THE GREY CLOTH. THE ASSESSEE HAS INSTALL ED ONLY SEWING MACHINES, BUTTONHOLE MACHINES, INTER-LOCK MACHINES FANS ETC. IN THE FACTORY AND THE ASSESSEE IS ONLY CUTTING, STITCHING AND INTER-LOCKING OF THE PRINTED SHEETS RECEIVED FROM ASSOCIATE CONCERNS . THEREFORE, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE ASSESS EE IS ENGAGED IN MANUFACTURING ACTIVITIES AND ENTITLED FOR DEDUCTION U/S 80IB OF THE IT ACT. 7. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE A SSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORIT IES BELOW. HE HAS SUBMITTED THAT PROCESSING WORK OF GREY CLOTH IS DON E INITIALLY ON JOB WORK BASIS AND AFTER PROCESSING OF GREY CLOTH, THE ASSESSEE CONVERTS THE GREY CLOTH INTO BED SHEETS, PILLOW COVER ETC. B Y BLEACHING THE GREY CLOTH TO VARIOUS PROCESSES WITH THE HELP OF SEWING MACHINES, BUTTONHOLE MACHINES, INTER-LOCK MACHINES INSTALLED IN THE FACTORY OF THE ASSESSEE WHICH IS ALSO ADMITTED IN THE GROUND OF APPEAL BY THE REVENUE. ADMITTEDLY, THE ASSESSEE COM PANY IS CONVERTING THE PROCESSED GREY CLOTH INTO INDEPENDEN TLY MARKETABLE ARTICLES BY BLEACHING THE GREY CLOTH THROUGH DIFFER ENT PROCESSES WHICH IS PART OF THE ENTIRE MANUFACTURING PROCESS. THE LE ARNED CIT(A) CONSIDERING THE ENTIRE PROCESS OF THE ASSESSEE AND AFTER APPRECIATING THE SAME RIGHTLY ALLOWED THE DEDUCTION IN FAVOUR OF THE ASSESSEE. A DETAILED CHART FOR MANUFACTURE OR PRODUCTION OF ART ICLES IS ALSO FILED ON RECORD. HE HAS RELIED UPON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF ITO VS ARIHANT TILES AND MARBL ES PVT. LTD. 320 ITR 79 IN WHICH THE HONBLE SUPREME COURT CONSIDERE D THE SCOPE OF THE WORD MANUFACTURE OR PRODUCTION OF ARTICLES OR T HINGS FOR THE ITA NO.895/AHD/2006 DCIT CIR-1 AHMEDABAD VS MAHALAXMI EXPORTS 13 PURPOSE OF SECTION 80 IA OF THE IT ACT AND IT WAS H ELD THAT CONVERSION OF MARBLE BLOCKS INTO SLABS AND TILES AND POLISHING THEM AMOUNTS TO MANUFACTURE OR PRODUCTION FOR THE PURPOSE OF SECTIO N 80 IA OF THE IT ACT. HE, THEREFORE, SUBMITTED THAT THE ISSUE IS SQU ARELY COVERED BY THE ABOVE DECISION OF THE HONBLE SUPREME COURT. HE HAS SUBMITTED THAT ESSENTIAL CONDITION OF SECTION 80 IB(3) OF THE IT A CT IS THAT THE INDUSTRIAL UNDERTAKING BEGINS TO MANUFACTURE OR PRO DUCE ARTICLES OR THINGS AT ANY TIME DURING THE STIPULATED PERIOD. HE HAS ALSO RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN T HE CASE OF INDIA CINE AGENCIES VS CIT 308 ITR 98 AND THE DECISION OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF SHIV OIL AND DA LL MILLS 281 ITR 221 AND THE DECISION OF THE HONBLE BOMBAY HIGH COU RT IN THE CASE OF CIT VS EMPTEE POLY-YARN PVT. LTD. 305 ITR 309. H E HAS ALSO SUBMITTED THAT IT IS SETTLED LAW IF A PART OF THE M ANUFACTURE OF THE PRODUCT HAS BEEN DONE UNDER THE SUPERVISION OF THE ASSESSEE ON JOB WORK, STILL THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 80 I OF THE IT ACT. IN SUPPORT OF THE CONTENTION HE HAS RELIED UPON THE ORDER OF THE ITAT AHMEDABAD BENCH IN THE CASE OF RASHRON HEAVY ENGINE ERING (PRIVATE) LIMITED. VS INCOME-TAX OFFICER 43 ITD 355 AND THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CI T VS PRABHUDAS KISHORDAS TOBACCO PRODUCTS (P) LTD. 154 TAXMAN 404. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MAT ERIAL ON RECORD AND DO NOT FIND ANY JUSTIFICATION TO INTERFE RE WITH THE ORDER OF THE LEARNED CIT(A). THE LEARNED DR MERELY RELIED UP ON THE ORDER OF THE AO AND HAS NOT POINTED OUT ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) IN ALLOWING THE CLAIM OF THE ASSESSE E. THE LEARNED DR ITA NO.895/AHD/2006 DCIT CIR-1 AHMEDABAD VS MAHALAXMI EXPORTS 14 MAINLY SUBMITTED THAT SINCE THE PART OF THE ACTIVIT Y IS DONE BY THE ASSESSEE ON JOB WORK BASIS THROUGH ASSOCIATE CONCER NS, THEREFORE, THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S 80 I B OF THE IT ACT. THE ITAT AHMEDABAD BENCH IN THE CASE OF RASHRON HEAVY E NGINEERING (PRIVATE) LIMITED. VS INCOME-TAX OFFICER 43 ITD 355 HELD AS UNDER: IN THE INSTANT CASE, FROM THE FACTS ON RECORD, IT WAS OBVIOUS THAT THE ASSESSEE HAD MANUFACTURED DURING THE YEAR UNDER CONSIDERATION PLATE BENDING MACHINE AND HAD SOLD THE SAME. IT WAS TRUE THAT THE COMPONENTS WERE MANUFACTURED BY OTHER ENGINEERING UNITS AND THAT THEY WERE ASSEMBLED AT THE WORKSHOP OF THE ASSESSEE. HOWEVER, THAT WOULD NOT MEAN THAT THE ASSESSEE HAD NOT MANUFACTURED THE SAID MACHINE. THE MANUFACTURE OF THE COMPONENT AT OTHER ENGINEERING UNITS HAD TAKEN PLACE UNDER THE SUPERVISION OF THE DIRECTORS OF THE ASSESSEE- COMPANY. THE NECESSARY RAW MATERIALS, COMPONENTS, TOOLS, ETC. WERE PURCHASED BY THE ASSESSEE-COMPANY ITSELF FROM VARIOUS PARTIES AND VARIOUS COMPONENTS WERE MOSTLY MANUFACTURED AS PER DESIGN AND DRAWINGS SUBMITTED BY THE ASSESSEE-COMPANY UNDER THE SUPERVISION OF THE TWO DIRECTORS OF THE ASSESSE E- COMPANY WHO WERE MECHANICAL ENGINEERS. THE BASIC TECHNICAL KNOW-HOW IN THAT ACTIVITY HAD BEEN SUPPLI ED BY THE TWO DIRECTORS WHO WERE MECHANICAL ENGINEERS. THUS, IN THOSE CIRCUMSTANCES, THE ACTIVITY OF THE ASSESSEE WOULD BE REGARDED AS ACTIVITY OF MANUFACTURE OF THE SAID PLATE BENDING MACHINE. 8.1 THE HONBLE GUJARAT HIGH COURT IN THE CASE OF C IT VS PRABHUDAS KISHORDAS TOBACCO PRODUCTS (P) LTD. 154 T AXMAN 404 HELD AS UNDER: ITA NO.895/AHD/2006 DCIT CIR-1 AHMEDABAD VS MAHALAXMI EXPORTS 15 ASSESSEE-COMPANY PURCHASED TENDU LEAVES AND TOBACCO AND GOT THEM ROLLED INTO BIDIES BY CONTRACT WORKERS AND THEREAFTER, SOLD THOSE BIDIES ASSESSE E CLAIMED RELIEF UNDER SECTIONS 80 HH AND 80 I ASSESSING OFFICER DENIED SAID CLAIM BY HOLDING THAT ACTIVITY CARRIED ON BY ASSESSEE WAS NOT MANUFACTURING ACTIVITY BECAUSE ASSESSEE MERELY PURCHASED RAW MATERIALS TO HAND OVER SAME TO OUTSIDE PARTY WHO, IN FACT, ROLLED BIDIES WHETHER SINCE TENDU LEAVES AND TOBACCO WHICH ARE USED AS INPUTS DO NOT RETAIN INDEPENDENT IDENTITY AFTER BID IES ARE ROLLED AND UNDERGONE SEVERAL PROCESS, IN INSTAN T CASE, IT COULD BE SAID THAT ACTIVITIES CARRIED ON B Y ASSESSEE AMOUNTED TO MANUFACTURE OF BIDIES, ENTITLING ASSESSEE TO RELIEF UNDER SECTIONS 80 HH A ND 80- I - HELD YES WHETHER FURTHER RELIEF CLAIM ED BY ASSESSEE COULD NOT BE DENIED MERELY BECAUSE IT GOT WORK DONE THROUGH CONTRACT WORKERS HELD YES. 8.2 THE HONBLE GUJARAT HIGH COURT IN THE CASE OF C IT VS ALFA LAMINATION 329 ITR 348 HELD AS UNDER: HELD, DISMISSING THE APPEAL, THAT THERE WAS NO DISPUTE THAT DUE TO VARIOUS PROCESS, THE END PRODUC T, WHICH WAS AN INPUT FOR THE PURPOSE OF MANUFACTURING TRANSFORMER, HAD DISTINCT NAME, SHAPE AND USE. AFTE R THE RAW MATERIAL IN THE FORM OF CRGO/CRNO COILS AND/OR SHEETS GOES THROUGH ALL THE PROCESSES, THE R AW MATERIAL LOSES ITS IDENTITY AND A NEW PRODUCT COMES INTO EXISTENCE WHICH IS COMMERCIALLY DISTINCT FROM THE RAW MATERIAL ON WHICH THE PROCESSES HAVE BEEN PERFORMED. THE TRIBUNAL HAD FURTHER REFERRED TO VARIOUS OPINIONS OF DIFFERENT EXPERTS ON THE SUBJEC T. THE ASSESSEE WAS ENTITLED TO SPECIAL DEDUCTION UNDE R SECTION 80- IB. 8.3 THE HONBLE SUPREME COURT IN THE CASE OF INDIA CINE AGENCIES VS CIT 308 ITR 98 HELD AS UNDER: ITA NO.895/AHD/2006 DCIT CIR-1 AHMEDABAD VS MAHALAXMI EXPORTS 16 THE ASSESSEE CONVERTED JUMBO ROLLS OF PHOTOGRAPHIC FILMS INTO SMALL FLATS AND ROLLS IN THE DESIRED SIZ ES. IT CLAIMED THAT THE SAME AMOUNTED TO MANUFACTURE/PRODUCTION FOR THE PURPOSE OF ALLOWANCES UNDER SECTIONS 32AB, 80 HH AND 80- I OF THE INCOME-TAX ACT, 1961. THE HIGH COURT HELD THAT IT DID NOT. THE ASSESSEE APPEALED TO THE SUPREME COURT: HELD, REVERSING THE DECISION OF THE HIGH COURT, THA T THE ASSESSEE WAS ENTITLED TO THE ALLOWANCE UNDER SECTIONS 32AB, 80HH AND 80-I. 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 O F MANUFACTURE OF GOODS. 8.4 THE HONBLE SUPREME COURT IN THE CASE OF ITO VS ARIHANT TILES AND MARBLES PVT. LTD. 320 ITR 79 HELD AS UNDER: HELD, AFFIRMING THE DECISION OF THE HIGH COURT, TH AT THIS WAS NOT A CASE OF MERELY CUTTING MARBLE BLOCKS INTO SLABS. THERE WAS THE FURTHER ACTIVITY OF POLIS HING AND ULTIMATE CONVERSION OF THE BLOCKS INTO POLISHED SLABS AND TILES. THERE WERE VARIOUS STAGES THROUGH WHICH THE BLOCKS HAD TO GO THROUGH BEFORE THEY BECAME POLISHED SLABS AND TILES. THE ORIGINAL BLOCK DID NOT REMAIN MARBLE BLOCK; IT BECAME A SLAB OR TI LE. BLOCKS WERE CONVERTED INTO POLISHED SLABS AND TILES RESULTING IN THE EMERGENCE OF A NEW AND DISTINCT COMMODITY. SUCH AN ACTIVITY WAS SOMETHING BEYOND MANUFACTURER AND BROUGHT A NEW PRODUCT INTO EXISTENCE. THE STEPWISE ACTIVITY CONSTITUTED MANUFACTURE OR PRODUCTION IN TERMS OF SECTION 80- IA. ITA NO.895/AHD/2006 DCIT CIR-1 AHMEDABAD VS MAHALAXMI EXPORTS 17 8.5 THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CI T VS EMPTEE POLY-YARN PVT. LTD. 305 ITR 309 HELD AS UNDER: HELD, DISMISSING THE APPEAL, THAT PARTIALLY ORIENT ED YARN (POY) HAS DIFFERENT PHYSICAL AND CHEMICAL PROPERTIES WHEN POY CHIPS UNDERGO THE PROCESS OF TEXTURISING AND/OR TWISTING, THE YEARN, I.E. TWISTE D AND/OR TEXTURISED OR BOTH RESULTS IN A PRODUCT HAVI NG DIFFERENT PHYSICAL AND CHEMICAL PROPERTIES. IN OTHE R WORDS, THE PROCESS APPLIED TO POY EITHER FOR THE PURPOSE OF TEXTURISING OR TWISTING CONSTITUTES MANUFACTURE AS THE ARTICLE PRODUCED IS RECOGNIZED I N THE TRADE AS A DISTINCT COMMODITY PURSUANT TO THE PROCESS IT UNDERGOES WHICH AMOUNTS TO MANUFACTURE. UNDER THE CENTRAL EXCISE ACT, THE UNION OF INDIA IT SELF TREATS THE POY AS DISTINCT FROM POY, DRAWN TWISTED OR TEXTURISED OR BOTH. THE PROCESS WHICH POY UNDERGOES IN THE PROCESS OF TEXTURISING AND TWISTIN G RESULTS IN A NEW AND DISTINCT PRODUCT AND REGARDED IN THE TRADE AS DISTINCT FROM THE COMMODITY INVOLVED I N THE MANUFACTURE. THE PROCESS AMOUNTS TO MANUFACTURE AS THE ORIGINAL COMMODITY LOSES ITS IDENTITY. THE ASSESSEE WAS ENTITLED TO SPECIAL DEDUCTION UNDER SECTION 80-IA. 8.6 THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS SHIV OIL AND DALL MILL 281 ITR 221 HELD AS UNDER: HELD, THAT THE TRIBUNAL HAD FOUND THAT AFTER PURCHASING THE OIL, IT WAS SUBJECTED TO A PROCESS O R TREATMENT AND WHAT WAS SOLD BY THE ASSESSEE WAS NOT THE SAME THING AS WAS ORIGINALLY PURCHASED. THE TRIBUNAL WAS RIGHT IN ALLOWING THE BENEFIT OF SECTI ONS 80 HH AND 80-I OF THE ACT TO THE ASSESSEE IN RESPEC T OF REFINING OF THE OIL FROM THE OIL PURCHASED FROM THE LOCAL MARKET INASMUCH AS THE PROCESS OF REFINING AMOUNTS TO PRODUCTION AS CONTEMPLATED UNDER THE SECTIONS. ITA NO.895/AHD/2006 DCIT CIR-1 AHMEDABAD VS MAHALAXMI EXPORTS 18 8.7 THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CI T VS SUPREME GRAPHICS CREATIONS P. LTD. AND ANOTHER 276 ITR 668 HELD AS UNDER: HELD, THAT THE REASONING GIVEN BY THE TRIBUNAL DID NOT SUFFER FROM ANY ERROR. THEREFORE, THE OPERATION S CARRIED OUT BY THE ASSESSEE, NAMELY, OF LAMINATION, PUNCHING AND PASTING WITH GLUE FOR THE PURPOSE OF MAKING CARTONS WERE A MANUFACTURING PROCESS AS CONTEMPLATED UNDER SECTION 80-IB OF THE INCOME-TAX ACT, 1961. 9. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT O F THE ABOVE DECISIONS, IT IS CLEAR THAT THE AO WITHOUT ANY JUST IFICATION DENIED THE CLAIM OF THE ASSESSEE. MERELY BECAUSE ASSESSEE DID NOT MAKE CLAIM U/S 80 IB OF THE IT ACT IN EARLIER IS NO GROUND TO REJECT THE CLAIM OF THE ASSESSEE. FILING OF THE AUDIT REPORT IS PROCEDURAL IN NATURE AND THE AO WITHOUT EXAMINING THE CASE OF THE ASSESSEE REJECTED THE CLAIM. THEREFORE, THE LEARNED CIT(A) VERIFIED EACH AND EVE RY ASPECT OF THE MATTER WITH REGARD TO ENTITLEMENT OF THE ASSESSEE F OR DEDUCTION U/S 80 IB OF THE IT ACT. THE FINDING OF FACT RECORDED BY T HE LEARNED CIT(A) HAVE NOT BEEN REBUTTED THROUGH ANY EVIDENCE OR MATE RIAL ON RECORD. THE LEARNED CIT(A), THEREFORE, RIGHTLY HELD THAT TH E ASSESSEE SATISFIED ALL THE CONDITIONS OF SECTION 80 IB OF THE IT ACT. THE LEARNED CIT(A) ON EXAMINING THE EVIDENCES ON RECORD RIGHTLY NOTED THA T THE ASSESSEE IS INVOLVED IN MANUFACTURING ACTIVITY, THE BED COVERS AND PILLOW COVERS ARE MADE FROM THE CLOTH WHICH IS DISTINCT AND DIFFE RENT ARTICLES IN COMMERCIAL PARLANCE. GREY CLOTH I.E. RAW MATERIAL L OSES ITS EXISTENCE AND DOES NOT REMAIN SAME PRODUCT AFTER PRINTING, CU TTING TO DIFFERENCE SIZES AND AFTER STITCHING. THE END-PRODUCT I.E. BED COVERS AND PILLOW ITA NO.895/AHD/2006 DCIT CIR-1 AHMEDABAD VS MAHALAXMI EXPORTS 19 COVERS ARE DISTINCT AND DIFFERENT ARTICLES THAN THE RAW MATERIAL IN NAME AND QUALITY AND IDENTIFIED AS DIFFERENT AND DISTINC T ARTICLES BY BUYERS AND THE SELLERS. THE LEARNED COUNSEL FOR THE ASSESS EE FILED THE CHART OF THE MANUFACTURING OR PRODUCTION OF THE ARTICLES WHICH SUPPORT THE FINDINGS OF THE LEARNED CIT(A). MERELY BECAUSE INIT IAL PROCESSING WORK WAS DONE ON JOB WORK BASIS IS NO GROUND TO REJECT T HE CLAIM OF THE ASSESSEE. THE FACT THAT THE ASSESSEE IS OUTSOURCING CERTAIN PROCESSING ACTIVITIES DOES NOT DISQUALIFY THE ASSES SEE TO BE IN THE STATUS OF MANUFACTURER. IN CIT VS ORICON (P) LTD. 151 ITR 296 AND CIT VS PENWALT 196 ITR 813, IT WAS HELD THAT PROCESSOR OF GOODS NEED NOT HIMSELF CARRY OUT ALL THE PROCESSES RESULT ING IN THE END- PRODUCT AND HE MAY GET SOME OF THEM DONE BY A THIRD PARTY. WE HAVE CONSIDERED ALL THE ACTIVITIES CARRIED OUT B Y THE ASSESSEE IN THE LIGHT OF THE OBSERVATION OF THE HONBLE SUPREME COURT IN THE CASE OF M/S. ARIHANT TILES AND MARBLES PVT. LTD. (SUPRA) AND WE ARE OF THE VIEW THAT ACTIVITIES CARRIED OUT BY THE ELIGIBLE UN IT OF THE ASSESSEE IS MANUFACTURING ACTIVITY AND IS ELIGIBLE FOR DEDUCTIO N U/S 80 IB OF THE IT ACT. THE SIMILAR VIEW IS TAKEN BY ITAT AHMEDABAD A BENCH IN THE CASE OF M/S. SUBALACHAL PRINT & PACK PVT. LTD. VS A CIT IN ITA NO. 2128/AHD/2007 ETC. VIDE ORDER DATED 16-12-2009. THE CONTENTION OF THE LEARNED DR HAS NO MERIT AND IS LIABLE TO BE REJ ECTED. SINCE NO MATERIAL IS PRODUCED BEFORE US TO CONTRADICT THE FI NDINGS OF THE LEARNED CIT(A), WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A). WE CONFIRM HIS FINDING S AND DISMISS ALL THE GROUNDS OF APPEAL OF THE REVENUE. ITA NO.895/AHD/2006 DCIT CIR-1 AHMEDABAD VS MAHALAXMI EXPORTS 20 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED ON 29-04-2011. SD/- SD/- (G. D. AGARWAL) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 29-04-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD