The ITO, Vapi Ward,, Vapi v. M/s. Saurabh Stone International,

ITA 985/AHD/2005 | 2001-2002
Pronouncement Date: 29-01-2010 | Result: Dismissed

Appeal Details

RSA Number 98520514 RSA 2005
Assessee PAN AAMFS7583A
Bench Ahmedabad
Appeal Number ITA 985/AHD/2005
Duration Of Justice 4 year(s) 9 month(s) 24 day(s)
Appellant The ITO, Vapi Ward,, Vapi
Respondent M/s. Saurabh Stone International,
Appeal Type Income Tax Appeal
Pronouncement Date 29-01-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 29-01-2010
Date Of Final Hearing 19-01-2010
Next Hearing Date 19-01-2010
Assessment Year 2001-2002
Appeal Filed On 04-04-2005
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI BHAVENESH SAINI JM & SHRI A.N. PAHUJA AM I.T.A. NO.2199/AHD/2005 - AY 1999-2000 I.T.A. NO.2200/AHD/2005 - AY 2000-2001 I.T.A. NO. 985/AHD/2005 - AY 2001-2002 I.T.A. NO.2201/AHD/2005 - AY 2002-2003 ITO VAPI WARD-3 VS M/S SAURABH STONE INTERNATIO NAL AJIT NGAR CHALA VAPI PLOT NO.7 SR. NO.678/1/3 NAROLI SILVASSA [PAN : AAMFS7583A] (APPELLANT) (RESPONDENT) REVENUE BY : SHRI CK MISHRA DR APPELLANT BY : SHRI MEHUL K PATEL AR O R D E R PER BENCH : THESE FOUR APPEALS BY THE REVENUE AGAINST FOUR SE PARATE ORDERS DATED 26-07-2005 FOR THE AYS 1999-2000 2000-01 AND 2002-03 AND DATED 07- 01-2005 FOR THE AY 2001-02 OF THE LD CIT(A)-V SU RAT RAISE COMMON GROUNDS RELATING TO CLAIM FOR DEDUCTION U/S 80IB OF THE INC OME-TAX ACT 1961[HEREINAFTER REFERRED TO AS THE ACT] IN THE LIGHT OF DECISIONS IN LUCKY MINMET P LTD. VS.CIT 245 ITR830 CIT VS. GEM INDIA MFG.CO. 249 ITR 307 CIT VS.RELISH FOODS 237 ITR 59 & GEM GRANITE VS. CIT 271 ITR322. SINCE SIMILAR ISSUES ARE INVOLVED IN THESE APPEALS PERTAINING TO THE SAME ASSESSEE THESE WERE HEARD TOGETHER FOR THE SAKE OF CONVENIENCE AND ARE BEING DISPOSED OF THROUGH THIS COMMON ORDER. 2. ADVERTING NOW TO THE FACTS OF THE CASE AS PER RE LEVANT ORDER FOR THE AY 2001-02 RETURN DECLARING INCOME OF RS.1 210/- F ILED ON 30-10-2001 BY THE ASSESSEE ENGAGED IN THE BUSINESS OF CUTTING AND PO LISHING OF KOTAH KADDAPA AND DHOLPUR STONE TILES IN A BACKWARD AREA OF SILVA SSA AFTER BEING PROCESSED U/S 143(1) OF THE ACT WAS TAKEN UP FOR SCRUTINY WITH T HE ISSUE OF NOTICE U/S 143(2)OF THE ACT ON 11-10-2002. DURING THE COURSE OF ASSESS MENT PROCEEDINGS THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASS ESSEE WAS ENGAGED IN THE I.T.A. NO. 905 &2199 TO 2201 /AHD/2005 2 ACTIVITY OF SPLITTING CUTTING AND POLISHING OF KOT AH KADDAPA AND DHOLPUR STONE TILES. TO A QUERY BY THE AO THE ASSESSEE EXPLAINE D THAT THEY PROCURE ROUGH KOTAH KADDAPA AND DHOLPUR STONES AND AFTER CUTTING AND CHISELING USING A HAMMER AND A CHISEL THESE TILES ARE PLACED UNDER A POLISHING MACHINE TO MAKE THE SURFACES SMOOTH. THEREAFTER THE EDGES OF THE TILES ARE CUT USING CIRCULAR SAW BLADES. ACCORDING TO THE AO THE ACTIVITIES PERFOR MED BY THE ASSESSEE ON ROUGH STONE TILES IS MERELY CUTTING WITH A SCISSOR OR WIT H THE HELP OF A HAMMER AND CHISEL AND THEREFORE PROFITS OF THE INDUSTRIAL UN DERTAKING WERE NOT ELIGIBLE FOR DEDUCTION U/S 80IA / 80IB OF THE ACT. 2.1 . THE AO NOTICED THAT PRIOR TO STARTING BUSINE SS IN THE NAME OF THE FIRM IN THE ACCOUNTING PERIOD RELEVANT TO THE AY 1999-2000 THE THREE PARTNERS OF THE FIRM WERE CARRYING ON SIMILAR BUSINESS OF CUTTING A ND POLISHING OF KOTAH STONE IN THE NAMES OF M/S SURYA MARBLES PROP SMT. PUSHPA KU MARI JAIN; M/S SHILPI ENTERPRISES PROP SHRI BHARAT KUMAR JAIN; AND M/S S ANJOG MARBLES PROP SHRI ASHOK KUMAR JAIN. THE AFORESAID CONCERNS WERE MAKI NG SALES TO ALMOST ALL THE SAME PARTIES WHILE THE SALES OF INDIVIDUAL PROPRIET ARY CONCERNS HAD DECLINED IN THEIR FIFTH YEAR I.E AY 1999-2000WITH THE START OF NEW FIRM AND THE SALE OF THE ASSESSEE FIRM INCREASED SUBSTANTIALLY AS COULD BE SEEN FROM THE FOLLOWING CHART: [IN RS. LACS] YEAR M/S SURYA MARBLES M/S SHILPI ENTERPRISES M/S SANJOG MARBLES M/S SAURABH STONE INTERNATIONAL 1999-2000 39.19 39.17 39.09 164.25 2000-2001 33.01 56.78 35.56 268.89 2001-2002 29.11 43.68 30.09 312.95 2.2 IN THE LIGHT OF AFORESAID FACTS THE AO CONCL UDED THAT TURNOVER OF THE PROPRIETORY CONCERNS HAD BEEN DIVERTED TO THE ASSES SEE FIRM IN A SYSTEMATIC MANNER FOR THE ASSESSMENT YEARS UNDER CONSIDERATION . WHILE REFERRING TO THE INTENTION OF LEGISLATURE BEHIND INSERTING SECTIONS 80IA & 80IB OF THE ACT IN ORDER TO DEVELOP BACKWARD AREAS THE AO OBSERVED THAT THE AC TIVITY OF AN INDUSTRIALIST STARTING A UNIT ENJOYING BENEFITS FOR FIVE YEARS A ND THEREAFTER CLOSING DOWN THE I.T.A. NO. 905 &2199 TO 2201 /AHD/2005 3 UNIT CANNOT BE SAID TO BE A HEALTHY ACTIVITY AND IN FACT IT IS NOT ALLOWED AS PER THE PROVISIONS OF SECTION 80IB(2)(I) OF THE ACT. ACCOR DING TO THE AO SUCH ACTIVITY CANNOT IN ANY TERMS BE CALLED TAX PLANNING AND THA T COLOURABLE DEVICES CANNOT BE PART OF TAX PLANNING AND IT IS WRONG TO ENCOURAG E AVOIDANCE OF TAX BY DUBIOUS METHODS AS ADOPTED BY PARTNERS. IN THIS CONNECTION THE AO RELIED UPN DECISION OF THE HONBLE APEX COURT IN MC DOWELL & CO. LTD. V S. CTO 154 ITR 48. 2.3. THE AO WHILE REFERRING TO THE DECISION OF THE APEX COURT IN THE CASE OF TEXTILE MACHINERY CORPORATION LTD V/S CIT (1977) 10 7 ITR 195 (SC) HELD THAT IF SUBSTANTIALLY THE SAME PERSONS ARE DOING THE SAME B USINESS IT AMOUNTS TO RECONSTRUCTION. IN THE CASE UNDER CONSIDERATION PU RCHASES BY THE CONCERNS CONTROLLED BY SHRI BHARAT JAIN AND ASHOK JAIN ARE F ROM THE SAME PARTIES. LIKEWISE SALES WERE ALSO TO THE SAME PARTIES. SINCE THE CONCERN IS CARRYING ON THE SAME BUSINESS AND SPLITTING UP OF BUSINESS INV OLVES THE IDEA OF SUBSTANTIALLY THE SAME PERSONS CARRYING ON SUBSTANTIALLY THE SAM E BUSINESS BY BREAKING DOWN THE TOTAL BUSINESS BY CREATING NEW CONCERNS A CCORDINGLY RELYING UPON THE AFORESAID DECISION IN TEXTILE MACHINERY CORPORATION LTD (SUPRA) CIT V/S HINDUSTAN GENERAL INDUSTRIES LTD (1982) 137 ITR 851 (DEL); CHEMBRA PEAK ESTATES LTD VS CIT (1972) 85 ITR 401 (KER) AND CI T V/S TEXTILE MACHINERY CORPORATION LTD (1977) 80 ITR 428(CAL.) THE AO CON CLUDED THAT SINCE THE ASSESSEE PURCHASED AND SOLD KOTAH KADDAPA AND DHOL PUR STONE TILES THE ACTIVITY OF THE ASSESSEE REMAINED SAME AND THERE IS NO CHANGE IN NAME USE OR CHARACTERISTIC OF THE ORIGINAL ITEM THE ASSESSEE W AS NOT ENTITLED TO DEDUCTION U/S 80IB OF THE ACT. 2.4. THE AO FURTHER WHILE ANALYSING THE MANUFACTURI NG PROCESS OF THE ASSESSEE AND THE DECISIONS IN THE CASE OF UOI VS DE LHI CLOTH & GENERAL MILLS CO LTD. AIR 1963 SC 791; NEIMLA TEXTILE FINISHING MIL LS (P) LTD V/S ITO (1985) 152 ITR 429 (P&H)(FB); V.M SALGAOCAR BROS (P) LTD VS CI T 1996) 217 ITR 849 (KAR) AND DISTINGUISHED THE DECISIONS IN THE CASE OF LUCK Y MINMAT PVT LTD VS CIT (2000) 245 ITR 830 (SC); CIT VS GEM INDIA MFG CO (2 001) 249 ITR 307 (SC); I.T.A. NO. 905 &2199 TO 2201 /AHD/2005 4 CIT VS RELISH FOODS (1999) 237 ITR 59 (SC); CIT VS GEORGE MAIJO (2001) 250 ITR 440 (MAD); CIT VS LUCKY MINERAL PVT LTD (1997) 226 ITR 245 (RAJ) AND INDIA CINE AGENCIES VS CIT (2002) 261 ITR 491 (MAD) AS A LSO DISTINGUISHING THE DECISIONS IN THE CASE OF ASPINWALL AND CO LTD VS CO MMISSIONER OF INCOME-TAX (2001) 251 ITR 0323 COMMISSIONER OF INCOME-TAX VS. MYSORE MINERALS LTD (NO.1) (2001) 250 ITR 0725 COMMISSIONER OF INCOME- TAX VS. R.C. CONSTRUCTION (1996) 222 ITR 0658 COMMISSIONER OF INCOME-TAX VS. GOGTE MINERALS (O.2) (1997) 225 ITR 0060 COMMISSIONER OF INCOME-TAX VS K UTCH OIL AND ALLIED INDUSTRIES PVT LTD (1987) 163 ITR 237 AND COMMISSI ONER OF INCOME-TAX VS. GOPAL (M.R. (1965) 058 ITR 0598 CONCLUDED AS UNDER : (I) THE GROUP CONCERNS OF THE ASSESSEE ARE [1] M/ S SURYA MARBLES PROP. SMT. PUSHPHA KUMARI [2] M/S SHILPI ENTERPRISES PROP. SHRI BHARAT KUMAR [3] M/S SANJOG MARBLES PROP. SHRI ASHOK KUMAR [4] SAURABH STONE INTERNATIONAL SET UP CONTROLLED AND MANAGED SUBST ANTIALLY BY PARTNERS;. (II) THE ASSESSEE AND HIS PARTNERS ARE IN THE PRACT ICE OF STARTING CONCERNS UNDER VARIOUS NAMES ONLY TO ENJOY TAX BENE FITS BY UNDUE MEANS. (III) THE CLIENTS OF M/S SURYA MARBLES M/S SHILPI ENTERPRISES M/S SANJOG MARBLES ARE THE SAME AS THOSE OF M/S SAURAB H STONE INTERNATIONAL. (IV) STARTING OF NEW CONCERNS AND DIVERTING SALES O F OLD CONCERNS TO NEW CONCERNS IS A SYSTEMATIC LONG TERM PLAN MADE BY THE ASSESSEE TO EVADE TAX. THIS DUBIOUS METHOD ADOPTED BY THE ASSESSEE TO EVADE TAX CANNOT BE CALLED AS TAX PLANN ING IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT I N THE CASE OF MC.DOWELL & CO. LTD V/S. CTO 154 ITR 48. (V) THE ACTIVITIES OF THE ASSESSEE IS AGAINST THE S PIRIT OF CHAPTER VI-A INTERPRETED BY THE HONBLE SUPREME COURT IN T HE CASE OF TEXTILE MACHINERY CORP. LTD V/S CIT (1977) 107 I TR 195 (SC) AND THAT OF THE HONBLE KERALA HIGH COURT IN T HE CASE OF CHEMBRA PEAK ESTATES LTD. V/S CIT (1972) 85 ITR 401 (KER). (VI) THE INTENTION OF THE ASSESSEE IS ONLY TO ENJOY TAX BENEFITS AND NOT TO PAY ANY TAXES WHEN HE IS LEGALLY SUPPOS ED TO. (VII) THE ACTIVITY OF THE ASSESSEE IS CUTTING AND P OLISHING KOTAH / KADDAPA / DHOLPUR TILES. (VIII) MANUFACTURING SHOULD RESULT IN CHANGE OF CHA RACTER NAME AND USE OF THE ORIGINAL COMMODITY. I.T.A. NO. 905 &2199 TO 2201 /AHD/2005 5 (IX) THE ASSESSEE PERFORMS ONLY CUTTING AND POLISHI NG OPERATIONS WHICH DOES NOT REQUIRE ANY SPECIAL SKIL L. (X) THE ACTIVITY PERFORMED BY THE ASSESSEE DOES NOT CHANGE THE IDENTITY OR CHARACTERISTICS OF THE ORIGINAL COMMODI TY SINCE ONLY SIMPLE CUTTING IS DONE BY THE ASSESSEE (XI) IN THE THREE MEMBER BENCH DECISION GIVEN BY TH E HONBLE SUPREME COURT IN THE CASE OF LUCKY MINMAT PVT LTD V/S CIT (2000) 245 ITR 830 (SC) IT WAS HELD THAT QUARRYING OF MARBLE CUTTING INTO BLOCKS SIZING CUTTING INTO S HEETS AND TILES DOES NOT AMOUNT TO MANUFACTURE THOUGH IT IN VOLVES NUMEROUS PROCESSES. (XII) IN THE CASE OF CIT V/S GEM INDIA MFG.CO.(2001) 249 ITR 307 (SC) THE THREE MEMBER BENCH OF THE HONBLE SUPREME COURT HAS HELD THAT CUTTING AND POLISHING OF RAW DI AMONDS DO NOT AMOUNT TO MANUFACTURE THOUGH IT REQUIRES LOT OF SKILLS AND SPECIALIZED CUTTING FROM VARIOUS GEOMETRIC AND SYMMETRIC ANGLES. (XIII) THE THREE MEMBER BENCH OF THE HONBLE SUPREME COURT HAS IN THE CASE OF CIT V/S RELISH FOODS (1999) 237 ITR 59 (SC) HELD THAT PEELING OF PRAWNS AND SHRIMPS CUTTING OF HEADS AND TAILS REMOVING VEINS AND THEREAFTER CLEA NING AND FREEZING THEM DO NOT AMOUNT TO MANUFACTURE THOUGH IT CANNOT BE USED DIRECTLY IN THE ORIGINAL FORM. (XIV) IN THE CASE OF CIT V/S. GEORGE MAIJO (2001) 250 ITR 440 (MAD.) THE HONBLE MADRAS HIGH COURT HAS HELD THAT PROCESSING OF SHRIMPS BY REMOVING HEADS TAILS VEI NS AND THEREAFTER CLEANING AND FREEZING TEM DOES NOT AMOUN T TO MANUFACTURE AS IT DOES NOT BRING INTO EXISTENCE A COMMERCIALLY NEW AND A DIFFERENT COMMODITY. (XV) THE HONBLE RAJASTHAN HIGH COURT HAS IN THE CA SE OF CIT V/S LUCKY MINERAL (1997) 226 ITR 245 (RAJ.) HELD THAT QUARRYING OF MARBLE CUTTING INTO BLOCKS SIZING C UTTING INTO SHEETS AND TILES DOES NOT AMOUNT TO MANUFACTURE TH OUGH IT INVOLVES NUMEROUS PROCESSES. (XVI) THE THREE MEMBER BENCH OF THE HONBLE SUPREME COURT HAS IN THE CASE OF TAMILNADU STATE TRANSPORT CORP. LTD V/S CIT 252 ITR 883 (SC) HELD THAT RETREADING OF TYRES DOES NOT AMOUNT TO MANUFACTURE. (XVII) THE HONBLE MADRAS HIGH COURT HAS IN THE CA SE OF INDIA CINE AGENCIES V/S CIT (2002) 261 ITR 491 HELD THAT AN ASSESSEE ENGAGED IN ACTIVITY OF IMPORTING PHOTOGRAP HIC COLOUR PAPER IN JUMBO ROLLS HANDLING THEM USING FO RKLIFTS CUTTING THEM INTO FLATS AND ROLLS OF SMALLER SIZES IN DARK AIR CONDITIONED HUMIDITY CONTROLLED DUST PROOF ROOMS WI TH THE HELP OF COMPUTERIZED SLITTING MACHINE CANNOT BE CON SIDERED TO BE ENGAGED IN MANUFACTURING ACTIVITY. I.T.A. NO. 905 &2199 TO 2201 /AHD/2005 6 (XVIII) THE MADRAS HIGH COURT HAS RECENTLY DELIVERE D A JUDGMENT IN THE CASE OF CIT VS POOSHYA EXPERTS P. LTD. (2003) 262 ITR 417 (MAD) WHICH IS EXACTLY WITH RESPECT TO QUARRYING SIZING CUTTING AND POLISHING OF GRANITES WHICH IS ALSO IN CONNECTION WITH DEDUCTION UNDER CHAPTER VI-A OF THE ACT. (XIX) THE ABOVE JUDGMENTS ON BEING PUT UP TO THE AU THORIZED REPRESENTATIVE OF THE ASSESSEE HE HAS TRIED TO MIS LEAD THE DEPARTMENT BY BRINGING INTO JUDGMENTS OF VARIOUS HI GH COURTS WHICH WERE ALREADY OVERRULED / REVERED BY T HE HONBLE SUPREME COURT. (XX) THE ASSESSEE HAS PRESENTED WRONG FACTS OF ITS CASE WITH RESPECT TO THE PROCESSES DONE BY IT AND WITH RESPEC T TO THE SKILL REQUIRED TO CARRY OUT THAT PROCESS IN ORDER TO MISLEAD THE ASSESSING OFFICER SO THAT IT CAN ENJOY THE UNDU E BENEFITS OF SECTION 80IB OF THE ACT. (XXI) THE CONDUCT OF THE ASSESSEE IS SUCH THAT DES PITE BEING CONFRONTED WITH SO MANY DECISIONS OF THE HONBLE SU PREME COURT AND VARIOUS HIGH COURTS THE ASSESSEE IS NOT READY TO ACCEPT THE FACT THAT ITS ACTIVITY OF CUTTING AND PO LISHING IS NOT MANUFACTURING OR PRODUCTION. ANY LAWFUL CITIZEN WO ULD HAVE ACCEPTED THAT THE ACTIVITY IS NOT MANUFACTURING. (XXII) THE ASSEESSEE IS NOT ELIGIBLE FOR ANY BENEFI TS OF DEDUCTION U/S 80IA / 80IB AS HAS BEEN HELD IN VERY SIMILAR C ASES BY THE HONBLE SUPREME COURT IN THE CASES CITED SUPRA SINCE THE ACTIVITY OF CUTTING AND POLISHING PERFORMED BY THE ASSESSEE IS NOT MANUFACTURING OR PRODUCTION. 2.5 ACCORDINGLY THE CLAIM FOR DEDUCTION U/S 80IA /80IB OF THE ACT WAS DENIED IN THE AFORESAID FOUR ASSESSMENT YEARS. 3. ON APPEAL THE ASSESSEE REITERATED THEIR SUBMISS IONS BEFORE THE AO. AFTER HAVING A REPORT FROM THE AO ON THE SUBMISSION S OF THE ASSESSEE AND RELYING ON THE DECISIONS IN THE CASE OF KORES INDIA LTD CHENNAI REPORTED IN (97) ECC 393 (SC) THE LEARNED CIT(A) CONCLUDED IN RESPE CT OF FINDINGS OF THE AO REGARDING SPLITTING UP OF THE BUSINESS IN THE AY 2 001-02 AS UNDER : 5. AFTER PERUSING THE FINDINGS OF THE ASSESSING OF FICER IN THE ASSESSMENT ORDER AND ALSO AFTER GOING THROUGH THE S UBMISSION AS MADE BY THE AUTHORIZED REPRESENTATIVE OF THE APPELL ANT AND KEEPING IN VIEW THE FINDINGS OF THE HONBLE SUPREME COURT O F INDIA IN THE CASE OF TEXTILE MACHINERY CORPORATION LTD.S CASE (WHICH WAS DECIDED IN FAVOUR OF THE ASSESSEE) I AM OF THE VIE W THAT THE I.T.A. NO. 905 &2199 TO 2201 /AHD/2005 7 FINDINGS OF THE ASSESSING OFFICER ARE TOTALLY BASE LESS AND INCORRECT AS THE FACTS OF THE CASE ARE THAT THERE WAS NO TRAN SFER OF ASSETS FROM ONE EXISTING UNIT TO THE APPELLANT FIRM AND AL L THE EARLIER BUSINESS OF PROPRIETARY CONCERNS WERE EXISTED OWNE D AND RUN BY PARTNERS IN THEIR INDIVIDUAL CAPACITY AS PROPRIETOR AND NONE OF THE UNITS HAS LOST ITS IDENTITY TO PAVE WAY FOR THE FOR MATION OF THE APPELLANT FIRM. FROM THE DETAILS OF TURNOVER IT I S SEEN THAT IN THE CASE OF M/S SHILPI ENTERPRISES A PROPRIETOR CONCER N OF ONE OF THE PARTNERS THE TURNOVER IN THE YEAR 1999-2000 WAS OF THE VALUE OF RS.39.17 LAKHS WHEREAS IN THE YEAR 2000-01 IT WAS RS.56.78 LAKHS AND IN THE YEAR 2001-02 IT WAS RS.43.63 LAKHS. SIM ILARLY IN THE CASE OF M/S SURYA MARBLES THERE IS NOT MUCH DIFFER ENCE IN THE TURNOVER BETWEEN THE YEARS 1999-2000 AND 2000-01 WH ICH ARE OF THE3 VALUE OF RS.39.19 LAKHS AND RS.38.01 LAKHS RES PECTIVELY. IN THE CASE OF M/S SANJOG MARBLES ANOTHER PROPRIETARY CONCERN THERE WAS SOME DECLINE IN THE TURNOVER BUT THESE WERE NOT MORE THAN RS.5 LAKHS IN DIFFERENCE IN TERMS OF VALUE. ON THE OTHER HAND THE TURNOVER OF THE APPELLANT FIRM HAS GONE UP FROM RS. 164.25 LAKHS IN THE YEAR 1999-2000 TO RS.312.95 LAKHS IN THE YEAR 2 001-02. THE ABOVE FIGURES SHOW THAT THE BUSINESS ACTIVITY OF TH E APPELLANT FIRM WERE NOT ON ACCOUNT OF DIVERSION OF THE SALES OR TH E BUSINESS OF THE PROPRIETARY CONCERNS AS ALL THESE PROPRIETARY CONCE RNS WERE DOING FULL-FLEDGED BUSINESS IN THEIR OWN CAPACITY. I TH EREFORE ON THE BASIS OF ABOVE FACTS REJECT THE FINDINGS OF THE AS SESSING OFFICER AND ALLOW THE GROUNDS OF APPEAL AS TAKEN UP BY THE APPE LLANT. 3.1 THE LEARNED CIT(A) FURTHER HELD IN RESPECT OF C LAIM FOR DEDUCTION U/S 80IB OF THE ACT AS UNDER: 9. I HAVE CAREFULLY GONE THROUGH THE FINDING S OF THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER HIS SUBMISSION IN THE REMAND REPORT AND SUBSEQUENT REPLIES FILED BEFORE ME. ALSO I HA VE PERUSED THOROUGHLY THE SUBMISSION AS MADE BY THE AUTHORIZED REPRESENTATIVE OF THE APPELLANT BEFORE THE ASSESSIN G OFFICER AND ALSO DURING THE APPELLATE PROCEEDINGS BEFORE ME ON VARIOUS DATES. IN HIS ASSESSMENT ORDER WHILE DISCUSSING ABOUT THE VARIOUS STAGES OF MANUFACTURING PROCESS ON THE BASIS OF THE SUBMIS SION MADE BY THE APPELLANT BEFORE HIM THE ASSESSING OFFICER ARR IVED AT THE FOLLOWING CONCLUSIONS: [I] IN FACT THE ASSESSEE ADMITS ON ITS OWN THAT KO TA STONE EXISTS ALONG WITH EARTH AND THUS IT CANNOT CLAIM THAT IT P RODUCED KOTAH / KADDAPA OR DHOLPUR TILES WHICH IS NATURALL Y AVAILABLE. I.T.A. NO. 905 &2199 TO 2201 /AHD/2005 8 [II] CHISELLING IS NOT A PROCESS BUT SIMPLE CUTTING ACTIVITY DONE FOR EDGE POLISHING. SOME STONES MAY BE SUCH THAT CHISE LING ACTIVITY IS NOT REQUIRED AND THUS CALLING THIS ACTI VITY AS MANUFACTURING ACTIVITY IS FALSE ON THE PART OF THE APPELLANT. [III] POLISHING THE SURFACE OF THE TILES TO IMPROVE THE MARKETABILITY OF THE STONE IS A SIMPLE PROCESS AND IN THIS REGARD IT CANNOT BE ACCEPTED THAT A NEW ARTICLE IS CREATED AND THAT THE APPELLANT WAS MANUFACTURING OR PRODUCING A COMMODIT Y. 9.1 THE ASSESSING OFFICER IN SUPPORT OF HIS ABOVE R EFERRED ARGUMENTS THAT THE ACTIVITIES OF THE APPELLANT WERE NOT MANUFACTURING RELIED UPN VARIOUS JUDICIAL PRONOUNC EMENTS SUCH AS NIEMLA TEXTILES FINISHING MILLS (P) LTD VS ITO 152 ITR 429 (P&H); M/S V.M. SALGOCAR BROS. PVT LTD. VS CIT 297 ITR 849; CIT VS GEM INDIA MANUFACTURING CO. 249 ITR 307 (SC) ; LUCKY MINMAT PVT LTD VS CIT 245 ITR 380 (SC) ETC. ACCORDING TO THE ASSESSING OFFICER IN THE CASE OF M/S NIEMLA TEXTILES FINISHING MILLS (P) LTD. (SUPRA) IT HAS BEEN HELD THAT IN GIVING A GOOD FINISH TO A PARTICULAR ARTICLE ALREADY MANUFACTURED OR PRO DUCED TO MAKE A BETTER MARKETABLE COMMODITY IS NOT MANUFACTURING. SIMILARLY THE ASSESSING OFFICER HAS POINTED OUT THAT IN THE CASE OF V.M. SALGOCAR BROS. (P) LTD. VS CIT 217 ITR 849 (KAR) IT HAS BEEN HELD THAT IMPROVING MARKETABILITY OF AN ARTICLE DID NOT CONST ITUTE MANUFACTURING. AGAIN ACCORDING TO THE ASSESSING OF FICER IN THE CASE OF M/S GEM INDIA MANUFACTURING CO. (SUPRA) THE HONBLE SUPREME COURT OF INDIA HAS HELD THAT CUTTING AND PO LISHING OF RAW AND UNCUT DIAMONDS DID NOT AMOUNT TO MANUFACTURE OR PRODUCTION. THE ASSESSING OFFICER IN HIS REPLY TO REMAND LETTER DATED 8/11/2004 HAS FURTHER GIVEN A FINDING THAT THE ACTIVITY OF TH E FIRM CONSISTS OF THE FOLLOWING FOUR STAGES: [I] CHISELLING [II] POLISHING [III] CUTTING EDGES [IV] REPOLISHING 9.2 THE ASSESSING OFFICER HAS FURTHER OBSERVED IN H IS ASSESSMENT ORDER THAT THE WORD MANUFACTURING HAS NO T BEEN DEFINED IN THE ACT AND THEREFORE THE DEFINITION OF THE WORD AS GIVEN BY THE HONBLE SUPREME COURT OF INDIA IN VARI OUS JUDGMENTS SHOULD BE APPLIED KEEPING IN VIEW THAT TH E FACTS OF THIS CASE. FURTHER IN HIS OBSERVATION THE ASSESSI NG OFFICER LAID EMPHASIS ON THE VIEW THAT WHILE DETERMINING A PARTICULAR ACTIVITY AS MANUFACTURING OR NOT THE TEST AS LAID DOWN BY THE I.T.A. NO. 905 &2199 TO 2201 /AHD/2005 9 HONBLE SUPREME COURT OF INDIA SHOULD BE APPLIED TO THE FACTS OF THE CASE AND IT SHOULD BE DETERMINED ACCOR DINGLY AS TO WHETHER THE ACTIVITY IS MANUFACTURING OR NOT. 9.3 HERE IT IS NECESSARY TO POINT OUT THE DEFINITI ON OF THE EXPRESSION MANUFACTURING AS GIVEN BY THE HONBLE SU PREME COURT OF INDIA WHILE DECIDING THE ISSUES RELATING T O IT IN VARIOUS CASES OVER THE TIME [I] IN THE CASE OF EMPIRE JUTE INDUSTRIES LTD. VS. UNIONOF INDIA (1986) 162 ITR 846 (SC) IT HAS BEEN HELD THAT THE MOMENT THERE IS TRANSFORMATION INTO A NEW COMMODITY HAVING ITS OWN CHARACTER NAME AND USE WHETHER AS A RESULT OF ONE PROCESS OR SEVERAL PROCESSES MANUFACTURE TA KES PLACE. [II] IN THE CASE OF DY.CST VS PIO FOOD PACKERS (1980) 46 STC 63 SCC 174 THE HONBLE SUPREME COURT OF INDIA HAS HELD AS UNDER: ONLY MANUFACTURING IS THE END RESULT OF ONE OR MOR E PROCESSES THROUGH WHICH THE ORIGINAL COMMODITY IS M ADE TO PASS. THE NATURE AND EXTENT OF PROCESSING MAY V ARY FROM ONE CASE TO ANOTHER AND INDEED THERE MAY BE SEVERAL STAGES OF PROCESSING AND PERHAPS DIFFERENT KIND OF PROCESSING AT EACH STAGE. WITH EACH PROCESS SUF FERED THE COMMODITY EXPERIENCES A CHANGE. BUT IT IS ONLY WHEN THE CHANGE OR A SERIES OF CHANGES TAKE THE COMMODI TY TO POINT WHERE COMMERCIALLY IT CAN NO LONGER BE REGARD ED AS THE ORIGINAL COMMODITY BUT INSTEAD IS RECOGNIZED AS A NEW AND DISTINCT ARTICLE THAT A MANUFACTURE CAN BE SAID TO TAKE PLACE. [III] IN THE CASE OF ADITYA MILLS VS UNION OF INDIA (1979-73 STC 195 AIR 1988 SC 2237 THE HONBLE COURT HAS HELD THAT THE SAME VIEW WHILE DEFINING THE WORD MANUFACTURING. T HE HONBLE COURT HAS HELD AS UNDER: MANUFACTURE IS COMPLETE AS SOON AS BY THE APPLIC ATION OF ONE OR MORE PROCESS THE RAW MATERIAL UNDERGOES SOME CHANGE AND A NEW SUBSTANCE OR ARTICLE IS BROUG HT INTO EXISTENCE. THE NEW SUBSTANCE OR ARTICLE MUST HAVE A DISTINCT NAME CHARACTER OR USE. THE NEW COMMODITY MUST BE A COMMERCIALLY SEPARATE AND DISTINCT COMMOD ITY HAVING ITS OWN CHARACTER AND USE. I.T.A. NO. 905 &2199 TO 2201 /AHD/2005 10 [IV] IN THE CASE OF UNION OF INDIA VS DELHI CLOTH & GENERAL MILLS CO. LTD. AIR 1963 SC 791 IT HAS BEEN HELD BY THE HONBLE COURT THAT TO BECOME GOODS AN ARTICLE MUS T BE SOMETHING WHICH CAN ORDINARILY COME TO THE MARKET T O BE BOUGHT AND SOLD. [V] LATER ON IN THE CASE OF CIT VS N.C. BUDDHARAJA & ANOTHERS 204 ITR 412 THE HONBLE SUPREME COURT OF INDIA HAS AGAIN RELIED ON THE MEANING OF EXPRESSION MANU FACTURE AS WAS CONSIDERED BY THE SAME COURT IN THE CASE OF DY.CST VS PIO FOOD PACKERS (190) 46 STC 63 SCC 174 AS HAS BEEN QUOTED ABOVE. 9.4 FROM THE MEANING OF THE EXPRESSION MANUFACTURE AS GIVEN BY THE HONBLE SUPREME COURT OF INDIA (AS DISCUSSED ABOVE) IT IS FOUND THE EXPRESSION THAT MANUFACTUR E DENOTE THE END RESULT OF ONE OR MORE PROCESS THE ORIGINAL MATERIAL / COMPONENT IS MADE TO UNDERGO. THE NATURE AND EXTEN T OF PROCESSING MAY DIFFER FROM ONE CASE TO ANOTHER AND THERE MAY BE SEVERAL STAGES OF PROCESSING CARRIED OUT IN A DIFFERENT WAY AT EACH STAGE. AGAIN AS A RESULT OF EACH PROCESS THE ORIGINAL COMMODITY MAY EXPERIENCE A CH ANGE BUT WHEN ON ACCOUNT OF SUCH CHANGES IF THE COMMODI TY IS REGARDED DIFFERENT THAN THE ORIGINAL COMMODITY IN C OMMERCIAL TERMS AND IS RECOGNIZED AS NEW AND DISTINCT ARTICLE A MANUFACTURE IS SAID TO HAVE TAKEN PLACE. 9.5 ACCORDING TO THE ASSESSING OFFICER IN THE LIGHT OF THE MEANING OF THE EXPRESSION MANUFACTURING AS CONSIDERED BY THE HONBLE SUPREME COURT OF INDIA IN VARIOUS JUDICIAL PRONOUNCEMENTS THE ACTIVITY AS CARRIED BY THE APPE LLANT CANNOT BE REGARDED AS MANUFACTURE ONE. ON THE OTHE R HAND THE AUTHORIZED REPRESENTATIVE OF THE APPELLANT HAD STATED THAT THE ROUGH KOTAH STONE WAS MADE TO PASS THROUGH VARI OUS PROCESSES IN ALL SIX PROCESSES AND THE END PRODUC T IS RECEIVED IN THE FORM OF KOTAH TILES WHICH IS COMMER CIALLY NEW ARTICLE OR THING AND IS CERTAINLY DIFFERENT THAN TH E ROUGH KOTAH STONE. IT HAS BEEN FURTHER POINTED OUT BY THE AUTH ORIZED REPRESENTATIVE IN HIS DETAILED SUBMISSION THAT AFTE R CARRYING OUT VARIOUS PROCESSES SUCH AS EXTRACTION OF ROUGH K OTAH STONE CHISELING CUTTING EDGE-CUTTING AND FINAL P OLISHING THE FINAL PRODUCT IS RECEIVED IN THE FORM OF KOTAH STON E TILES WHICH IS FIT FOR USE FOR THE CUSTOMERS IN THE FORM OF END PRODUCT. THE AUTHORIZED REPRESENTATIVE HAS ALSO SUBMITTED TH AT IN THE END KOTAH STONE IS CHANGED IN THE FORM OF KOTAH TIL ES ONLY I.T.A. NO. 905 &2199 TO 2201 /AHD/2005 11 AND ITS ORIGINAL FORM IS FINALLY CONSUMED INTO A NE W FORM I.E. TILES. 9.6 IN HIS FINDINGS THE ASSESSING OFFICER HAS CITE D VARIOUS CASE LAWS AND AFTER RELYING UPON THE JUDICIAL FINDINGS I N SUCH CASE LAWS HELD THAT THE ACTIVITY OF THE APPELLANT IS MAN UFACTURING. THE CASE LAWS RELIED UPON BY THE ASSESSING OFFICER ARE (I) CIT VBS GEM INDIA MFG. CO. (2001) 249 ITR 307 (SC); (II) M/S LUCKY MINMAT PVT LTD VS CIT (2000) 245 ITR 380 (SC); (III) CIT VS RELISH FOODS (1999) 237 ITR 59 ( SC); (IV) CIT VS GEORGE MAIJO (2001) 250 ITR 440 (MAD); (V) C IT VS LUCKY MINERAL PVT LTD (1997) 226 ITR 245 (RAJ) AND (V) INDIA CINE AGENCIES VS CIT (2002) 261 ITR 491 (MAD) ETC. IN RESPONSE TO THE FINDINGS OF THE ASSESSING OFFICE R BASED ON THE ABOVE JUDGMENTS AUTHORIZED REPRESENTATIVE HAD DISTINGUISHED THE NATURE OF ACTIVITY CARRIED OUT BY THE ASSESSES IN THE ABOVE CASES VIS--VIS THE ACTIVITY CARRIED OUT BY THE APPELLANT AND MADE A DETAILED SUBMISSION AT THE TIME OF ASSESSMENT PROCESSING AS WELL AS AT THE TIME OF APPELLATE PROCEEDINGS. THE SUBMISSION OF THE AUTHORIZED REPRESENTATIVE DISTINGUISHING THE COMMENTS OF THE A SSESSING OFFICER IN THIS REGARD ARE MENTIONED FROM PAGES NUM BERING 7 TO 14 AND 35 TO 39 OF THIS ORDER AND THE SAME FACTS ARE NOT REPEATED HERE. IN SUPPORT OF HIS CONTENTION THE A UTHORIZED REPRESENTATIVE RELIED UPON THE FINDINGS OF HONBLE SUPREME COURT OF INDIA IN THE CASE OF ASPINWALL & CO VS CIT (2001) 251 ITR 323 (SC); CIT VS MYSORE MINERALS LTD 250 IT R 725 (KAR); CIT VS MYSORE MINERALS LTD NO.2) 350 ITR 728 (KAR; CIT VS SESA GOA LTD. 266 ITR 126 (MUM) AND CI T VS BEST CHEM AND LIME STONE INDUSTRIES PVT LTD. 210 IT R 883 W(RAJ). ACCORDING TO THE AUTHORIZED REPRESENTATIVE IN THE CASE OF BEST CHEM AND LIME STONE INDUSTRIES PVT LTD THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF EXTRACT ING LIME STONE AND THEIR SALE AS SUCH OR AFTER CONVERTING TH EM INTO LIME OR LIME DUST OR CONCRETE BY STONE CRUSHER AND SUCH ACTIVITIES WERE HELD BY THE HONBLE HIGH COURT OF R AJASTHAN TO BE MANUFACTURING ON THE GROUND THAT CONCRETE OR LIME DUST CONSTITUTE A SEPARATE MARKETABLE COMMODITY. SHOWIN G THE SIMILARITY OF THE FACTS OF THE CASE OF THE APPELLAN T WITH THE ABOVE CASE THE AUTHORIZED REPRESENTATIVE STATED TH AT HERE IN THIS CASE THE APPELLANT CONVERTED ROUGH KOTA STONE A MINERAL INTO POLISHED KOTAH TILES READY TO BE USED AS A FLOORING MEDIA AS AN ENTIRELY DIFFERENT MARKETABLE COMMODITY AND THEREFORE THE FINDINGS OF THE COURT IS COMPLETELY APPLICABLE TO THE FACTS OF THE CASE OF T HE APPELLANT. I.T.A. NO. 905 &2199 TO 2201 /AHD/2005 12 9.7 REGARDING THE FINDINGS OF THE HONBLE SUPREME C OURT OF INDIA IN THE CASE OF ASPINWAL & CO. LTD VS CIT (SUPRA) IT HAS BEEN SUBMITTED BY THE AUTHORIZED REPRESENTATIVE THAT IN THIS CASE THE ASSESSEE WAS CURING COFFEE BY ADOPTIN G THE FOLLOWING MANUFACTURING PROCESS: RECEIPT OF COFFEE FROM THE ESTATES; STORAGE OF COFFEE IN COVERED GODOWNS; DRYING OF COFFEE TO THE REQUIRED STANDARDS PRESCRIB ED BY THE COFFEE BOARD IN DRYING YARDS; HULLING / PEELING / POLISHING; GRADING OF COFFEE MECHANICALLY; COLOUR SORTING; GRABLING AND MANUAL GRADING; OUT TURNING OF GRABLED COFFEE; BULKING. THE AUTHORIZED REPRESENTATIVE HAS FURTHER STATED TH AT AFTER EXAMINING THE FACTS OF THE CASE HONBLE APEX COURT HELD THAT AS A RESULT OF SUCH PROCESSES TOWARDS THE END A COMM ERCIALLY DIFFERENT ARTICLE OR COMMODITY IN THE FORM OF COFFE E BEANS READY FOR CONSUMPTION EMERGED AND ACCORDINGLY IT WAS HEL D A MANUFACTURING ACTIVITY. ACCORDING TO THE AUTHORIZE D REPRESENTATIVE THE PRINCIPLE LAID DOWN IN THE CASE OF CIT VS BEST CHEM & LIMESTONE INDUSTRIESS CASE HAS BEEN FOLLOWED BY THE HONBLE COURT IN THIS CASE AND IN THIS WAY THE APPELLANTS ACTIVITY SATISFIED THE TEST AS LAID DOWN BY THE APE X COURT IN THIS CASE I.E. IN THE CASE OF ASPINWALL & CO. IT HAS BEEN FURTHER POINTED BY THE AUTHORIZED REPRESENTATIVE THAT IN TH E CASE OF THE APPELLANT AFTER PASSING THROUGH ALL THE PROCESSES THE ROUGH KOTAH STONE ACQUIRES A NEW NAME KNOWN AS KOTAH STON E TILES AND THE END PRODUCT IS USED DIRECTLY BY THE CONSUME RS. WHILE DISCUSSING THE FACTS OF THE CASE OF M/S LUCKY MINMAT PVT LTD. VS CIT (SUPRA) IT HAS BEEN POINTED OUT BY THE AUTHORIZED REPRESENTATIVE THAT THE NATURE OF THE ACTIVITY OF T HE ASSESSEE AS MENTIONED IN THE JUDGMENT OF HONBLE SUPREME COURT OF INDIA IS THAT THE ASSESSEE HAD BUSINESS OF MINING OF LIMEST ONE AND MARBLE BLOCKS AND THEREAFTER CUTTING AND SIZING THE SAME BEFORE BEING SOLD IN THE MARKET. AS PER THE AUTHORIZED R EPRESENTATIVE IN THE CASE OF THE APPELLANT IT CARRIED OUT FURTHE R PROCESSING AFTER CUTTING THE ROUGH KOTAH STONE INTO TILES I. E. EDGE-CUTTING AND RE-POLISHING AND THE ASSESSING OFFICER HAD AL SO ACKNOWLEDGED THIS FACT IN HIS REMAND REPORT (PAGE N O.8) DATED 8/11/2004. I.T.A. NO. 905 &2199 TO 2201 /AHD/2005 13 9.8 THE AUTHORIZED REPRESENTATIVE HAS FURTHER REFE RRED TO THE FINDINGS OF HONBLE JURISDICTIONAL MUMBAI HIGH COUR T IN THE CASE OF CIT VS SESA GOA LTD. 266 ITR 126 IN HIS SUBMISSION MADE BEFORE ME DURING THE APPELLATE PROCEEDINGS WHEREIN THE HONBLE COURT HAS DISCUSSED THE FOLLOWING QUESTION OF LAW: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE INCOME TAX APPELLATE TRIBUNAL WAS JUSTIFIED IN HOLD ING THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION ON INVESTMENT AL LOWANCE U/S 32A OF THE I.T. ACT IN RESPECT OF MACHINERY USED I N MINING ACTIVITY IGNORING THE FACT THAT THE ASSESSEE IS EN GAGED IN EXTRACTION AND PROCESS OF IRON ORE NOT AMOUNTING TO ANY MANUFACTURE OR PRODUCTION. 9.9 AS PER THE AUTHORIZED REPRESENTATIVE WHILE DIS CUSSING THE NATURE OF BUSINESS ACTIVITY OF THE ASSESSEE IN THE ABOVE CASE WHICH WAS EXTRACTION OF IRON ORE FROM THE EARTH TH E HONBLE COURT HAS DISCUSSED THE MEANING OF EXPRESSION MANUFACTUR E IN THE LIGHT OF THE FINDINGS OF HONBLE SUPREME COURT OF INDIA I N THE CASES OF CIT VS N.C. BUDDHARAJA & CO 204 ITR 412 AND DY.CST (LAW) BOARD OF REVENUE (TAX) VS PIO FOOD PACKERS (1980) 4 6 STC 63(SC). THE HONBLE COURT HAS DISCUSSED THE ABOVE REFERRE D FINDINGS OF THE HONBLE SUPREME COURT OF INDIA ON P AGE NO.132 OF ITS ORDER AND THE SAME HAS ALREADY BEEN REFERRED ON PAGE NOS. 41 42 & 43 OF THIS ORDER. ACCORDING TO THE AUTHORIZED REPRESENTATIVE WHILE DECIDING THE QUESTION OF LAW WHETHER THE ACTI VITY OF THE ASSESSEE I.E. M/S SESA GOA LTD. WAS MANUFACTURING OR PRODUCTION THE HONBLE BOMBAY HIGH COURT CONSIDE RED VARIOUS JUDGMENTS OF OTHER HONBLE HIGH COURTS. THE FIRST CASE WHICH WAS CONSIDERED BY THE HONBLE COURT WAS CIT VS GOGATE MINERALS (NO.2) 225 ITR 60 (KAR) AND CAME TO THE CONCLUSION THAT THOUGH THE SAID COURT HAS HELD THE ACTIVITY AS MANUFACTURI NG BUT THE TEST AS LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS N.C. BUDDHARAJA (SUPRA) WAS NOT APPLIED. THE NEXT JUDGMENT WHICH THE NEXT JUDGMENT WHICH THE HONBLE BOMBAY COURT CO NSIDERED AS IN THE CASE OF CIT VS MYSORE MINERALS LTD (NO.1) 250 ITR 725 (KAR.). THIS WAS THE CASE IN RESPECT OF MINING OF GRANITE. THE DIVISION BENCH HELD THAT IT WOULD AMOUNT TO MANUFAC TURE RELYING ON AN EARLIER JUDGMENT IN THE CASE OF CIT VS MYSORE MINERALS LTD 205 ITR 461 (KAR). THE CRITICISM AGAINST THIS JUDGMENT IS THAT THIS JUDGMENT RELIED UPON AN EARLIER JUDGMENT IN THE CAS E OF CIT VS MYSORE MINERALS LTD. 205 ITR 461 (SUPRA) WHICH HAS BEEN REVERSED BY THE APEX COURT AND REPORTED IN CIT VS MYSORE MINERALS LTD 247 ITR 305 AS SUCH WOULD NO LONGER BE GOOD LAW. AGAIN ACCORDING TO THE AUTHORIZED REPRESENTATIVE THE NEXT JUDGMENT RELIED UPON BY THE HONBLE COURT IS DY.CIT VS MYSORE I.T.A. NO. 905 &2199 TO 2201 /AHD/2005 14 MINERALS LTD (2001) 250 ITYR 730 (KAR.). IN THIS CASE ALSO WHAT WAS INVOLVED WAS MINING OF GRANITE. THE LEARNED DI VISION BENCH OF KARNATAKA HIGH COURT RELIED UPON THE JUDGMENT OF HO NBLE SUPREME COURT OF INDIA IN THE CASE OF CIT VS N.C. BUDDHARAJA & CO (1993) 204 ITR 412 (SC) AND EXPLAINED AND DISTINGUISHED IT. IN THAT CASE THE PROCESSES INVOLVED WERE EXTRACTING G RANITE AND CONVERTING IT INTO SLABS CUTTING AND POLISHING THE M ACCORDING TO THE AUTHORIZED REPRESENTATIVE THIS WAS HELD TO BE A MANUFACTURING ACTIVITY BY THE HONBLE HIGH COURT OF KARNATAKA. F URTHER ACCORDING TO THE AUTHORIZED REPRESENTATIVE THE HONBLE MUMBA I HIGH COURT IN THE ABOVE CASE (CIT VS SESA GOA LTD.) AGAIN CONSIDERED THE FINDINGS OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE4 OF CIT VS MYSORE MINERAL S LT (NO.2) (2001) 250 ITR 728 (KAR) AND AGAIN THE MATTER INVOLVED WAS GRANITE. THE DIVISION BENC H OBSERVED THAT IT STANDS CONCLUDED IN VIEW OF THE JUDGMENT IN CIT VS MYSORE MINERALS LTD (2001) 250 IOTR 725 (KAR). IT IS PERTINENT TO MENTION HERE THAT THE FINDINGS OF HONBLE KARNATAKA HIGH CO URT IN THE CASE OF CIT VS MYSORE MINERALS LTD. AS REPORTED IN 205 ITR 461 (KAR) WAS REVERSED BY THE HONBLE SUPREME COURT OF INDIA IN THE SENSE THAT THE HIGH COURT WAS DIRECTED TO DECIDE A QUESTI ON OF LAW U/S 256(2) OF THE ACT. THE HONBLE SUPREME COURT OF IN DIA DID NOT EXPRESS ANY OPINION ON THE MERIT OF THE CASE. THER EAFTER THE HONBLE KARNATAKA HIGH COURT IN THE ABOVE REFERRED DECISIONS AS REPORTED IN 250 ITR DECIDED SUBSTANTIAL QUESTION OF LAW U/S 260A IN THE CASE OF SAME ASSESSEE I.E. DY.CIT VS MYSORE MINERALS LTD. BY HOLDING THAT THE ACTIVITIES CARRIED OUT BY IT WE RE MANUFACTURING ACTIVITIES. IN HOLDING SO THE HONBLE KARNATAKA H IGH COURT EXPLAINED AND DISTINGUISHED THE FINDINGS OF THE HON BLE SUPREME COURT OF INDIA IN THE CASE OF N.C. BUDDHARAJA & CO. REPORTED IN 204 ITR 412 (SC). 9.10 AFTER THE PERUSAL OF THE JUDGMENT OF THE HONB LE MUMBAI HIGH COURT IN THE CASE OF SESA GOA LTD. IT IS FOUN D THAT THE SUBMISSION MADE BY THE AUTHORIZED REPRESENTATIVE OF THE APPELLANT IS CORRECT. IT IS ALSO SEEN THAT THE HONBLE MUMBA I HIGH COURT HAS TAKEN INTO CONSIDERATION THE ABOVE JUDGMENT OF HON BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS MYSORE MINERALS LTD. AS REPORTED IN 250 ITR SUCH AS CIT VS MYSORE MINERALS LTD. 250 ITR 725 (KAR); CIT VS MYSORE MINERALS LTD (NO.2) 25 0 ITR 728 (KAR) AND DY.CIT VS MYSORE MINERALS LTD 250 ITR 730 (KAR) WHILE DECIDING THE BUSINESS ACTIVITY OF THE ASSSSEE IN THE CASE BEFORE IT I.E. IN THE CASE OF CIT VS SESA GOA LTD. AS TO WHETHER ITS ACTIVITIES (M/S SESA GOA LTD.) WERE COVERED UNDER THE EXPRESSION PRODUCTION AND NOT OF MANUFACTURING. THE ABOVE JUDGMENT OF HONBLE MUMBAI HIGH COURT IN THE CASE OF M/S SESA G OA LTD. HAS BEEN RECENTLY CONFIRMED BY THE HONBLE SUPREME COURT OF I.T.A. NO. 905 &2199 TO 2201 /AHD/2005 15 INDIA BY ITS THREE JUDGES BENCH DISMISSING CIVIL AP PEAL NO.3967 OF 2003 FILED BY THE DEPARTMENT BY SPECIAL LEAVE AND THE SAME IS REPORTED IN (2004) 271 ITR 331 (SC) DAT ED 17/11/2004. IN THE SAID JUDGMENT THE HONBLE SUPREME COURT O F INDIA HAS CONFIRMED THE FINDINGS OF HONBLE MUMBAI HIGH COURT THAT THE BUSINESS ACTIVITY OF THE ASSESSEE (M/S SESA GOA LTD) WAS PRODUCTION AND NOT MANUFACTURING AND AFFIRMED THE D ECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS MYSORE MINERALS LTD 250 ITR 725 (KAR). THE FACTS OF THE CASE OF THE ASSESSEE I.E. CIT VS MYSORE MINERALS LTD. 250 ITR 725 (KAR) WAS THAT THE ASSESSEE WAS ENGAGED IN EXTRACTING GRANITE FROM QUARRY CONVERTING THE SAME INTO SLABS CUTTING AND POLISHI NG BEFORE EFFECTING THE SALE OF THE SAME. THE HONBLE KARNAT AKA HIGH COURT ON THE BASIS OF THESE FACTS HELD AS UNDER: I. THAT THE ORIGINAL ASSESSMENT GRATING THE RELIEF UN DER SECTIONS 32A AND 80-I OF THE ACT TO THE ASSESSEE WA S NOT ERRONEOUS AND THE ORDER OF THE COMMISSIONER UNDER SECTION 263 WITHDRAWING THE RELIEF WAS NOT PROPER. II. THAT EXTRACTING GRANITE FROM QUARRY AND CUTTING IT TO VARIOUS SIZES AND POLISHING WAS MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING AND THE ASSESSEE S BUSINESS ACTIVITY WAS AN INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF GRANTING RELIEFS UNDER SECTIONS 32A AND 80- I. 9.11 FROM THE ABOVE DETAILS IT IS FOUND THAT THE F ACTS IN THE CASE OF CIT VS MYSORE MINERALS LTD. AS DECIDED BY THE HONB LE KARNATAKA HIGH COURT AND REPORTED IN 250 ITR 725 (K AR) ARE EXACTLY THE SAME AS THAT OF THE APPELLANT BEFOR E ME. THE APPELLANT ALSO CARRIED OUT THE BUSINESS OF QUARRYIN G KOTA STONE CHISELING CUTTING AND POLISHING OF THE SAME AND FINALLY CONVERTING IT INTO AN END PRODUCT WHICH IS KNOWN I N COMMERCE AND TRADE CIRCLES AS KOTAH STONE TILES. T HUS IN THE LIGHT OF THE JUDGMENT OF HONBLE SUPREME COURT OF INDIA AFFIRMING THE FINDINGS OF HONBLE KARNATAKA HIGH CO URT IN THE CASE OF CIT VS MYSORE MINERALS LTD 250 ITR 725 (KAR) IT CAN SAFELY7 BE CONCLUDED THAT THE ACTIVITY CARRIED OUT BY THE APPELLANT IN THE CASE BEFORE ME IS MANUFACTURING AC TIVITY AS THE APPELLANT HAS VERY HEAVILY RELIED UPON THE FIND INGS OF HONBLE KARNATAKA HIGH COURT DECISIONS AS REFERRED ABOVE. 9.12 THE AUTHORIZED REPRESENTATIVE HAS ALSO CITED T HE CASE OF ONE MORE VERY RECENT JUDGMENT OF HONBLE SUPREME COURT OF INDIA DECIDED ON 23/11/2004 AND REPORTED IN 2004 (97) ECC 393 (SC) IN I.T.A. NO. 905 &2199 TO 2201 /AHD/2005 16 THE CASE OF KORES INDIA LTD. CHENNAI VS COMMISSIONER OF CENTRAL EXCISE CHENNAI IN CIVIL APPEAL NO.4322 OF 1999 . THE FACTS OF THE CASE BEFORE THE HONBLE COURT WAS THAT THE ASSESSEE CARRIED OUT THE BUSINESS OF CUTTING OF JUMBO ROLLS OF RIBBONS INTO A SMALLER SIZES AND SPOOLING THEM INTO AUTOMATIC MACH INES FOR FURTHER USE INTO TYPEWRITE AND TELEX MACHINES AS RIBBONS. IN THIS CASE THE HONBLE APEX COURT HELD THAT THE ACTIVITY OF THE A SSESSEE WHICHIS CUTTING OF JUMBO ROLLS OF RIBBONS INTO SMALLER SIZE S SPOOLING THEM INTO AUTOMATIC MACHINES AND THE RESULTANT PRODUCT I S DISTINCT IDENTIFIABLE ARTICLE HAVING DISTINCT NAME FUNCTION US AND AS A SEPARATE UNIT MACHINERY WORKFORCE OF MANUFACTURING IN ITS SPOOL FORM AMOUNTS TO MANUFACTURE. WHILE ARRIVING AT TH IS DECISION THE HONBLE COURT HAS INTERPRETED THE EXPRESSION MANUFA CTURE AND THE SAME IS QUOTED AS UNDER: MANUFACTURE IMPLIES A CHANGE BUT EVERY CHANGE IS N OT MANUFACTURE YET EVERY CHANGE OF AN ARTICLE IS THE RESULT OF TREATMENT LABOUR AND MANIPULATION. NATURALLY MAN UFACTURE IS THE END RESULT OF ONE OR MORE PROCESSES THROUGH WHI CH THE ORIGINAL COMMODITIES ARE MADE TO PASS. THE NATURE AND EXTENT OF PROCESSING MAY VARY FROM ONE CLASS TO ANOTHER. THERE MAY BE SEVERAL STAGES OF PROCESSING A DIFFERENT KIND O F PROCESSING AT EACH STAGE. WITH EACH PROCESS SUFFERED THE ORIG INAL COMMODITY EXPERIENCES A CHANGE. WHENEVER A COMMODI TY UNDERGOES A CHANGE AS A RESULT OF SOME OPERATION PE RFORMED ON IT OR IN REGARD TO IT SUCH OPERATION WOULD AMOU NT TO PROCESSING OF THE COMMODITY. BUT IT IS ONLY WHEN T HE CHANGE OR A SERIES OF CHANGES TAKES THE COMMODITY TO THE P OINT WHERE COMMERCIALLY IT CAN NO LONGER BE REGARDED AS THE OR IGINAL COMMODITY BUT INSTEAD IS RECOGNIZED AS A NEW AND DI STINCT ARTICLE THAT A MANUFACTURE CAN BE SAID TO TAKE PLAC E. PROCESS IN MANUFACTURE OR IN RELATION TO MANUFACTU4RE IMPLI ES NOT ONLY THE PRODUCTION BUT ALSO VARIOUS STAGES THROUGH WHIC H THE RAW MATERIAL IS SUBJECTED TO CHANGE BY DIFFERENT OPERAT IONS. IT IS THE CUMULATIVE EFFECT OF THE VARIOUS PROCESSES TO W HICH THE RAW MATERIAL IS SUBJECTED TO (SIC THAT THE) MANUFAC TURED PRODUCT EMERGES. THEREFORE EACH STEP TOWARDS SUCH PRODUCTION WOULD BE A PROCESS IN RELATION TO THE MA NUFACTURE. THE TEST TO DETERMINE WHETHER A PARTICULAR ACTIVITY AMOUNT TO MANUFACTURE OR NOT IS : DOES NEW AND DIFFERENT GO ODS EMERGE HAVING DISTINCTIVE NAME USE AND CHARACTER. THE M OMENT THERE IS TRANSFORMATION INTO A NEW COMMODITY COMMER CIALLY KNOWN AS A DISTINCT AND SEPARATE COMMODITY HAVING I TS OWN CHARACTER USE AND NAME WHETHER BE IT THE RESULT O F ONE PROCESS OR SEVERAL PROCESSES MANUFACTURE TAKES PL ACE AND LIABILITY TO DUTY IS ATTRACTED. ETYMOLOGICALLY THE WORD I.T.A. NO. 905 &2199 TO 2201 /AHD/2005 17 MANUFACTURE PROPERLY CONSTRUED WOULD DOUBTLESS CO VER THE TRANSFORMATION. IT IS THE TRANSFORMATION OF A MA TTER INTO SOMETHING ELSE AND THAT SOMETHING ELSE IS A QUESTIO N OF DEGREE WHETHER THAT SOMETHING ELSE IS A DIFFERENT COMMERCIAL COMMODITY HAVING ITS DISTINCT CHARACTER USE AND NA ME AND COMMERCIALLY KNOWN AS SUCH FROM THAT POINT OF VIEW IS A QUESTION DEPENDING UPON THE FACTS AND CIRCUMSTANCES OF THE CASE. 9.13 AFTER THE PERUSAL OF THE JUDGMENT OF THE HONB LE COURT IT IS SEEN THAT IN PARA 16 OF THE ORDER IT HAS BEEN OBSE RVED AS UNDER: IT IS TO BE NOTED THAT ONCE THE JUMBO ROLLS ARE CU T INTO SMALLER SIZES THEY COMPLETELY LOST THEIR EARLIER I DENTITY AND CANNOT BE USED FOR THE SAME PURPOSE AS WAS DONE BEFORE CUTTING. IN A HYPOTHETICAL CASE EVEN IF TH E SMALLER SIZED RIBBONS ARE STITCHED TOGETHER OR FIXED TOGETH ER IN ANY MANNER THERE IS NO POSSIBILITY OF ITS USE AS J UMBO ROLLS. THE FACTUAL FINDINGS RECORDED THAT THE PROC ESSING RESULTED IN COMING INTO EXISTENCE OF A COMMERCIAL P RODUCT HAVING DISTINCT NAME CHARACTER AND USE ARE ON TER RA FIRMA. 9.14 ON THE BASIS OF THE ABOVE REFERRED FINDINGS AN D THE DEFINITION OF THE EXPRESSION MANUFACTURING AS GIVEN BY THE H ONBLE COURT IN THE ABOVE REFERRED CASE IT HAS BEEN SUBMI TTED BY THE AUTHORIZED REPRESENTATIVE THAT IN THE CASE OF T HE APPELLANT ALSO THE FACTS ARE SAME. ACCORDING TO T HE AUTHORIZED REPRESENTATIVE THE APPELLANT ALSO PURCH ASES ROUGH KOTAH STONES IN THE FORM OF A BIG BLOCK AND A FTER CHISELING POLISHING AND CUTTING IT INTO REQUIRED S IZES OF TILES AND AFTER REPOLISHING THE SAME CONVERTS THE KOTAH S TONE INTO AN END PRODUCT KNOWN AS KOTAH STONE TILES WHICH IS TOTALLY DIFFERENT IN EXISTENCE IN TERMS OF COMMERCIAL PARLA NCE AND FLOORING MEDIA. ACCORDING TO THE AUTHORIZED REPRES ENTATIVE THE KOTAH STONE IN ITS ROUGH FORM CANNOT BE USED BY THE CONSUMERS AT ANY COST. IT IS ONLY THE KOTAH TILES WHICH ARE OBTAINED AFTER THE KOTAH STONE BLOCKS PASSING THROU GH VARIOUS PROCESSES IS A COMMERCIALLY VIABLE ARTICLE AND USED BY THE CONSUMERS IN THE FORM OF END PRODUCT. BASED ON THIS FACTS IT WAS FURTHER OPINED BY THE AUTHORIZED REPR ESENTATIVE THAT A NEW THING OR ARTICLE IN THE FORM OF KOTAH ST ONE TILE COMES INTO EXISTENCE HAVING DIFFERENT NAME CHARACT ER AND USE. 9.15 IN VIEW OF THE ABOVE REFERRED FACTS AND ALSO K EEPING IN VIEW THE FINDINGS OF ASSESSING OFFICER AND SUBMISSIONS A S MADE I.T.A. NO. 905 &2199 TO 2201 /AHD/2005 18 BY THE AUTHORIZED REPRESENTATIVE AND THE DECISIONS OF HONBLE SUPREME COURT IN VARIOUS CASES AS REFERRED ABOVE INCLUDING THE CASES OF CIT VS SESA GOA LTD. 271 ITR 331 (SC) AND CIT VS MYSORE MINERALS LTD. 250 ITR 725 (K AR) (SUPRA) I COME TO THE CONCLUSION THAT THE ACTIVITY OF THE APPELLANT IS MANUFACTURING ACTIVITY. AS A RESULT I HOLD THAT THE FINDINGS OF ASSESSING OFFICER IS ERRONEOUS AND NOT TENABLE IN THE EYES OF LAW. ACCORDINGLY THE GROUNDS OF AP PEAL AS TAKEN BY THE APPELLANT ARE ALLOWED. 3.2 LIKEWISE IN HIS ORDER FOR THE AYS 1999-200 0 200-01 & 2002-03 THE LD. CIT(A) ALLOWED THE CLAIM FOR DEDUCTION U/S 80IB OF THE ACT . 4. THE REVENUE IS NOW IN APPEAL AGAINST THE AFORESA ID ORDERS OF THE LD. CIT(A) IN THESE FOUR ASSESSMENT YEARS. THE LEARNED DR WHILE CARRYING US THROUGH THE IMPUGNED ORDERS CONTENDED THAT SINCE SA ME PERSONS CARRIED ON SUBSTANTIALLY THE SAME BUSINESS IN THE LIGHT OF VI EW TAKEN BY THE HONBLE APEX COURT IN THE CASE OF TEXTILE MACHINERY CORPORATION (SUPRA) THE LEARNED CIT(A) WAS NOT JUSTIFIED IN GRANTING DEDUCTION U/S 80IA/80 IB OF THE ACT. ON THE OTHER HAND THE LEARNED AR ON BEHALF OF THE ASSESSEE WHIL E RELYING ON THE DECISION IN THE CASE OF TEXTILE MACHINERY CORPORATION VS CIT 10 7 ITR 195 (SC); ITO VS HINDUSTAN GENERAL INDUSTRIES LTD 137 ITR 851 (DEL); ITO VS ARIHANT TILES & MARBLES P LTD 320 ITR 79 (SC); INDIA CINE AGENCIES VS CIT & COMPUTER GRAPHICS LTD VS CIT 308 ITR 98 (SC) SUPPORTED THE F INDINGS OF LEARNED CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. IN THE IMPUGNED ORDERS THE LD. CIT(A) CONCLUDED THAT THE BUSINESS ACTIVITY OF THE ASSESSEE FIRM WAS NOT ON ACCOUNT OF DIVERSION OF TH E SALES OR THE BUSINESS OF THE PROPRIETARY CONCERNS AS ALL THOSE PROPRIETARY CONCE RNS WERE DOING FULL-FLEDGED BUSINESS IN THEIR OWN CAPACITY. WE FIND THAT ADMITT EDLY THE ACTIVITY OF THE FIRM CONSISTS OF THE FOUR STAGES: [I] CHISELLING; [II]PO LISHING;[III]CUTTING EDGES; AND [IV] REPOLISHING. AFTER ANALYZING VARIOUS DECISIONS THE LD. CIT(A) O BSERVED THAT THE EXPRESSION MANUFACTURE DENOTE THE END RESULT OF ONE OR MORE PROCESS THE I.T.A. NO. 905 &2199 TO 2201 /AHD/2005 19 ORIGINAL MATERIAL / COMPONENT IS MADE TO UNDERGO. THE NATURE AND EXTENT OF PROCESSING MAY DIFFER FROM ONE CASE TO ANOTHER AND THERE MAY BE SEVERAL STAGES OF PROCESSING CARRIED OUT IN A DIFFERENT WAY AT EAC H STAGE. AGAIN AS A RESULT OF EACH PROCESS THE ORIGINAL COMMODITY MAY EXPERIENCE A CHANGE BUT WHEN ON ACCOUNT OF SUCH CHANGES IF THE COMMODITY IS REGARD ED DIFFERENT FROM THE ORIGINAL COMMODITY IN COMMERCIAL TERMS AND IS RECOGNIZED AS NEW AND DISTINCT ARTICLE A MANUFACTURE IS SAID TO HAVE TAKEN PLACE. IT IS FURT HER NOTICED THAT AFTER CARRYING OUT VARIOUS PROCESSES SUCH AS EXTRACTION OF ROUGH K OTAH STONE CHISELING CUTTING EDGE-CUTTING AND FINAL POLISHING THE FINAL PRODUCT IS RECEIVED IN THE FORM OF KOTAH STONE TILES WHICH IS FIT FOR USE FOR THE CUSTOMERS IN THE FORM OF END PRODUCT I.E THE KOTAH STONE CHANGED IN THE FORM OF KOTAH TILES ONLY . WE FIND THAT AFTER ANALYZING THE MANUFACTURING PROCESS OF THE ASSESSEE THE LD. CIT(A) WHILE RELYING UPON THE DECISIONS IN THE CASE OF KORES INDIA LTD. CHENNAI VS COMMISSIONER OF CENTRA L EXCISE CHENNAI IN CIVIL APPEAL NO.4322 OF 1999 CIT VS SESA GOA LTD. 271 ITR 331 (SC) AND CIT VS MYSORE MINERALS LTD. 250 ITR 725 (KAR) CONCLUDED THAT THE FACTS OF THE CASE ARE EXACTLY THE SAME AS THAT OF T HE ASSESSEE THE ASSESSEE HAVING CARRIED OUT THE BUSINESS OF QUARRYING KOTA S TONE CHISELING CUTTING AND POLISHING OF THE SAME AND FINALLY CONVERTING IT INT O AN END PRODUCT WHICH IS KNOWN IN COMMERCE AND TRADE CIRCLES AS KOTAH STONE TILES. ACCORDINGLY THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE. WHILE A DJUDICATING A SIMILAR ISSUE IN THE CASE OF INCOME-TAX OFFICER VS ARIHANT TILES AN D MARBLES P LTD. (AND OTHER APPEALS) 320 ITR 79 (SC ) HONBLE APEX COURT HELD AS UNDER: IN OUR VIEW APPLYING THE TESTS LAID DOWN BY THIS COURT IN SESA GOA'S CASE (SUPRA) AND APPLYING IT TO THE ACTIVITIES UND ERTAKEN BY THE RESPONDENTS HEREIN REPRODUCED HEREIN-ABOVE) IT IS CLEAR THAT THE SAID ACTIVITIES WOULD COME WITHIN THE MEANING OF TH E WORD 'PRODUCTION'. ONE MORE ASPECT NEEDS TO BE HIGHLIGHTED. BY THE SAID JU DGMENT THIS COURT AFFIRMED THE DECISION OF THE KARNATAKA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. MYSORE MINERALS L TD (2001) 250 ITR 725 (KAR). IN THE CASE OF COMMISSIONER OF INCOME TAX VS . N.C. BUDHARAJA & CO. REPORTED IN 204 ITR 412 (SC) THE QUESTION WHICH AR OSE FOR DETERMINATION BEFORE THIS COURT WAS WHETHER CONSTRUCTION O F A DAM TO STORE WATER (RESERVOIR) CAN BE CHARACTERISED AS AM OUNTING TO MANUFACTURING OR PRODUCING AN ARTICLE. IT WAS HELD THAT THE WORD 'MA NUFACTURE' AND THE WORD I.T.A. NO. 905 &2199 TO 2201 /AHD/2005 20 'PRODUCTION' HAVE RECEIVED EXTENSIVE JUD ICIAL ATTENTION BOTH UNDER THE INCOME TAX AS WELL AS UNDER THE CENTRAL EXCISE AND THE SALES TAX LAWS. THE TEST FOR DETERMINING WHETHER 'MANU FACTURE' CAN BE SAID TO HAVE TAKEN PLACE IS WHETHER THE COMMODITY WHICH IS SUBJ ECTED TO A PROCESS CAN NO LONGER BE REGARDED AS THE ORIGINAL COMMODITY BUT IS RECOGNISED IN TRADE AS A NEW AND DISTINCT COMMODITY. THE WORD 'PRODUCTION' 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 M ANUFACTURE. THE WORD 'PRODUCTION' TAKES IN ALL THE BYPRODUCTS INTERMEDI ATE PRODUCTS AND RESIDUAL PRODUCTS WHICH EMERGE IN THE COURSE OF MANUFACTURE OF GOODS. APPLYING THE ABOVE TESTS LAID DOWN BY THIS CO URT IN BUDHARAJA'S CASE (SUPRA) TO THE FACTS OF THE PRESENT CASES WE ARE OF THE VI EW THAT BLOCKS CONVERTED INTO POLISHED SLABS AND TILES AFTER UNDERGOING THE PROCE SS INDICATED ABOVE CERTAINLY RESULTS IN EMERGENCE OF A NEW AND DISTINCT COMMODIT Y. THE ORIGINAL BLOCK DOES NOT REMAIN THE MARBLE BLOCK IT BECOMES A SLAB OR T ILE. IN THE CIRCUMSTANCES NOT ONLY THERE IS MANUFACTURE BU T ALSO AN ACTIVITY WHICH IS SOMETHING BEYOND MANUFACTURE AND WHICH BRINGS A N EW PRODUCT INTO EXISTENCE AND THEREFORE ON THE FACTS OF THESE CASES WE ARE OF THE VIEW THAT THE HIGH COURT WAS RIGHT IN COMING TO THE CONCLUSIO N THAT THE ACTIVITY UNDERTAKENBYTHE RESPONDENTS-ASSESSEES DID CONSTITUT E MANUFACTURE OR PRODUCTION IN TERMS OF SECTION 80IA OF THE INCOME TAX ACT 1961. BEFORE CONCLUDING WE WOULD LIKE TO MAKE ONE OBSERVATION. IF THE CONTENTION OF THE DEPARTMENT IS TO BE ACCEPTED NAM ELY THAT THE ACTIVITY UNDERTAKEN BY THE RESPONDENTS HEREIN IS NOT A MANUF ACTURE THEN IT WOULD HAVE SERIOUS REVENUE CONSEQUENCES. AS STATED ABOVE EACH OF THE RESPONDENTS IS PAYING EXCISE DUTY SOME OF THE RESPONDENTS ARE JOB WORKERS AND THE ACTIVITY UNDERTAKEN BY THEM HAS BEEN RECOGNISED BY VARIOUS GOVERNMENT AUTHORITIES AS MANUFACTURE.TO SAY THAT T HE ACTIVITY WILL NOT AMOUNT TO MANUFACTURE OR PRODUCTION UNDER SECTION 80IA WILL HAVE DISASTROUS CONSEQUENCES PARTICULARLY IN VIEW OF THE FACT THAT THE ASSESSEES IN ALL THE CASES WOULD PLEAD THAT THEY WERE NOT LIABLE TO PAY EXCISE DUTY SALES TAX ETC. BECAUSE THE ACTIVITY DID NOT CONSTITUTE MANUFACTURE. KEEPING IN MIND THE ABOVE FACTOR S WE ARE OF THE VIEW THAT IN THE PRESENT CASES THE ACTIVITY UNDERTAKEN BY EACH O F THE RESPONDENTS CONSTITUTES MANUFACTURE OR PRODUCTION AND THEREFORE THEY WOU LD BE ENTITLED TO THE BENEFIT OF SECTION 80IA OF THE INCOME TAX ACT 1961. 5.1 IN INDIA CINE AGENIES & COMPUTER GRAPHIC S LTD. 308 ITR 98(SC) ISSUE BEFORE HONBLE APEX COURT WAS AS TO WHETHER CONVERS ION OF JUMBO ROLLS OF PHOTOGRAPHIC FILMS INTO SMALL FLATS AND ROLLS IN TH E DESIRED SIZES AMOUNTS TO PRODUCTION ENTITLED TO BENEFIT IN TERMS OF SECTION 32AB SECTION 80HH AND SECTION 80-I OF THE INCOME-TAX ACT 1961? . HONBLE APEX CO URT WHILE ALLOWING THE I.T.A. NO. 905 &2199 TO 2201 /AHD/2005 21 APPEALS OF THE ASSESSES CONCLUDED THAT THE WORD 'PR ODUCTION' OR 'PRODUCE' WHEN USED IN JUXTAPOSITION WITH THE WORD 'MANUFACTURE' T AKES 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 RESIDE RODEOS WHICH EMERGE IN THE COURSE OF MANUFACTURE OF GOODS. 5.2 IN THE LIGHT OF THE AFORESAID DECISIONS OF THE HONBLE APEX COURT AND CONSIDERING THE MANUFACTURING PROCESS OF THE ASSESS EE ESPECIALLY WHEN IN THE CASE UNDER CONSIDERATION BLOCKS OF STONES CONVERTE D INTO POLISHED SLABS AND TILES AFTER UNDERGOING THE PROCESS INDICATED ABOVE RESULTS IN EMERGENCE OF A NEW AND DISTINCT COMMODITY AND THE ORIGINAL BLOCK DOES NOT REMAIN THE KOTAH KADDAPA AND DHOLPUR STONE BLOCK IT BECOMES A SLAB OR TILE AND THE REVENUE HAVING NOT PLACED BEFORE US ANY MATERIAL CONTROVERT ING THE AFORESAID FINDINGS OF THE LD. CIT(A) WE ARE NOT INCLINED TO INTERFERE WI TH HIS FINDINGS. WE ALSO AGREE WITH THE CONCLUSIONS OF THE LD. CIT(A) THAT THE BUS INESS ACTIVITY OF THE ASSESSEE FIRM WAS NOT ON ACCOUNT OF DIVERSION OF THE SALES O R THE BUSINESS OF THE PROPRIETARY CONCERNS OF THE THREE PARTNERS. THEREFO RE GROUNDS RAISED IN THESE APPEALS ARE DISMISSED. 6. NO ADDITIONAL GROUND HAVING BEEN RAISED IN TERMS OF THE RESIDUARY GROUND IN THESE APPEALS THESE GROUNDS ARE DISMISSED. 7. IN THE RESULT THESE FOUR APPEALS ARE DISMISSED ORDER PRONOUNCED ON THIS 29 TH DAY OF JANUARY 2010. SD/- SD/- (BHAVNESH SAINI) (A.N. PAHUJA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD DATED : 29TH JANUARY 2010 PK/- COPY TO: 1. THE ASSESSEE I.T.A. NO. 905 &2199 TO 2201 /AHD/2005 22 2. ITO VAPI WARD-3 3. CIT(A)-V SURAT 4. CIT VALSAD 5. DR D BENCH BY ORDER DEPUTY REGISTRAR ITAT AHMEDABAD