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The Income- Tax Act, 1995
Cit vs Sesa Goa Ltd. on 17 November, 2004
Cit vs C.A. Taktawala on 12 February, 2008
Cit vs Gujarat Mineral Development ... on 30 September, 1997
Cit, Bhopal vs Eastern Electro Chemical ... on 13 August, 1999

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Income Tax Appellate Tribunal - Ahmedabad
Saurabh Stone International, ... vs Department Of Income Tax
                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 International
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

                                   ORDER

Per Bench : These four appeals by the Revenue against four separate 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, Surat, raise common grounds relating to claim for deduction u/s 80IB of the Income-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 relevant order for the AY 2001-02 , return declaring income of Rs.1,210/- filed on 30-10-2001 by the assessee, engaged in the business of cutting and polishing of Kotah, Kaddapa and Dholpur stone tiles in a backward area of Silvassa, after being processed u/s 143(1) of the Act, was taken up for scrutiny with the issue of notice u/s 143(2)of the Act on 11-10-2002. During the course of assessment proceedings, the Assessing Officer[AO in short] noticed that the assessee was engaged in the 2 I.T.A. No. 905 &2199 to 2201 /Ahd/2005 activity of splitting, cutting and polishing of Kotah, Kaddapa and Dholpur stone tiles. To a query by the AO, the assessee explained 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 performed by the assessee on rough stone tiles is merely cutting with a scissor or with the help of a hammer and chisel and therefore, profits of the industrial undertaking were not eligible for deduction u/s 80IA / 80IB of the Act.

2.1 . The AO noticed that prior to starting business 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 and polishing of kotah stone in the names of M/s Surya Marbles, Prop Smt. Pushpa Kumari Jain; M/s Shilpi Enterprises, Prop Shri Bharat Kumar Jain; and M/s Sanjog Marbles, Prop Shri Ashok Kumar Jain. The aforesaid concerns were making sales to almost all the same parties while the sales of individual proprietary 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 M/s Shilpi M/s Sanjog M/s Saurabh Marbles Enterprises Marbles 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 concluded that turnover of the proprietory concerns had been diverted to the assessee 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 activity of an industrialist starting a unit, enjoying benefits for five years and thereafter closing down the 3 I.T.A. No. 905 &2199 to 2201 /Ahd/2005 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. According to the AO, such activity cannot in any terms be called tax planning and that colourable devices cannot be part of tax planning and it is wrong to encourage avoidance of tax by dubious methods as adopted by partners. In this connection, the AO relied upn decision of the Hon'ble Apex Court in Mc Dowell & Co. Ltd. Vs. 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) 107 ITR 195 (SC) held that if substantially the same persons are doing the same business, it amounts to reconstruction. In the case under consideration, purchases by the concerns controlled by Shri Bharat Jain and Ashok Jain are from 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 involves the idea of substantially the same persons carrying on substantially the same business, by breaking down the total business by creating new concerns, accordingly, 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 CIT V/s Textile Machinery Corporation Ltd,(1977) 80 ITR 428(Cal.), the AO concluded that since the assessee purchased and sold Kotah, Kaddapa and Dholpur 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 was not entitled to deduction u/s 80IB of the Act.

2.4. The AO further while analysing the manufacturing process of the assessee and the decisions in the case of UOI vs Delhi Cloth & General Mills Co Ltd., AIR 1963 SC 791; Neimla Textile Finishing Mills (P) Ltd v/s ITO (1985) 152 ITR 429 (P&H)(FB); V.M Salgaocar Bros (P) Ltd vs CIT 1996) 217 ITR 849 (Kar) and distinguished the decisions in the case of Lucky Minmat Pvt Ltd vs CIT (2000) 245 ITR 830 (SC); CIT vs Gem India Mfg Co (2001) 249 ITR 307 (SC);

4 I.T.A. No. 905 &2199 to 2201 /Ahd/2005

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 also distinguishing the decisions in the case of Aspinwall And Co Ltd Vs Commissioner 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 Kutch Oil and Allied Industries Pvt Ltd (1987) 163 ITR 237 and Commissioner 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 substantially by partners;.
(ii) The assessee and his partners are in the practice of starting concerns under various names only to enjoy tax benefits 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 Saurabh Stone International.
(iv) Starting of new concerns and diverting sales of 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 planning, in view of the decision of the Hon'ble Supreme Court in the case of Mc.Dowell & Co. Ltd V/s. CTO 154 ITR 48.
(v) The activities of the assessee is against the spirit of chapter VI-A, interpreted by the Hon'ble Supreme Court in the case of Textile Machinery Corp. Ltd V/s CIT (1977) 107 ITR 195 (SC) and that of the Hon'ble Kerala High Court in the 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 supposed to.
(vii) The activity of the assessee is cutting and polishing kotah / kaddapa / dholpur tiles.
(viii) Manufacturing should result in change of character, name and use of the original commodity.
5 I.T.A. No. 905 &2199 to 2201 /Ahd/2005

(ix) The assessee performs only cutting and polishing operations, which does not require any special skill.

(x) The activity performed by the assessee does not change the identity or characteristics of the original commodity, since, only simple cutting is done by the assessee

(xi) In the three member bench decision given by the Hon'ble 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 sheets and tiles does not amount to manufacture, though, it involves 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 Hon'ble Supreme Court has held that cutting and polishing of raw diamonds 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 Hon'ble 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 cleaning 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 Hon'ble Madras High Court has held that processing of shrimps by removing heads, tails, veins and thereafter cleaning and freezing tem does not amount to manufacture as it does not bring into existence a commercially new and a different commodity.

(xv) The Hon'ble Rajasthan High Court has in the case of CIT V/s Lucky Mineral (1997) 226 ITR 245 (Raj.) held that quarrying of marble, cutting into blocks, sizing, cutting into sheets and tiles does not amount to manufacture, though, it involves numerous processes.

(xvi) The three member bench of the Hon'ble 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 Hon'ble Madras High Court has, in the case of India Cine Agencies V/s CIT (2002) 261 ITR 491, held that an assessee engaged in activity of importing photographic colour paper in jumbo rolls, handling them using forklifts, cutting them into flats and rolls of smaller sizes in dark air conditioned humidity controlled dust proof rooms with the help of computerized slitting machine cannot be considered to be engaged in manufacturing activity.

6 I.T.A. No. 905 &2199 to 2201 /Ahd/2005

(xviii) The Madras High Court has recently delivered 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 authorized representative of the assessee, he has tried to mislead the department by bringing into judgments of various High Courts, which were already overruled / revered by the Hon'ble Supreme Court.

(xx) The assessee has presented wrong facts of its case with respect to the processes done by it and with respect to the skill required to carry out that process, in order to mislead the assessing officer so that it can enjoy the undue benefits of section 80IB of the Act.

(xxi) The conduct of the assessee is such that, despite being confronted with so many decisions of the Hon'ble Supreme Court and various High Courts, the assessee is not ready to accept the fact that its activity of cutting and polishing is not manufacturing or production. Any lawful citizen would have accepted that the activity is not manufacturing. (xxii) The asseessee is not eligible for any benefits of deduction u/s 80IA / 80IB, as has been held in very similar cases by the Hon'ble 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 submissions before the AO. After having a report from the AO on the submissions 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 respect of findings of the AO regarding splitting up of the business in the AY 2001-02 as under :

"5. After perusing the findings of the assessing officer in the assessment order and also after going through the submission as made by the authorized representative of the appellant and keeping in view the findings of the Hon'ble Supreme Court of India in the case of Textile Machinery Corporation Ltd.'s case (which was decided in favour of the assessee), I am of the view that the 7 I.T.A. No. 905 &2199 to 2201 /Ahd/2005 findings of the assessing officer are totally baseless and incorrect as the facts of the case are that there was no transfer of assets from one existing unit to the appellant firm and all the earlier business of proprietary concerns were existed, owned and run by partners in their individual capacity as proprietor and none of the units has lost its identity to pave way for the formation of the appellant firm. From the details of turnover, it is seen that in the case of M/s Shilpi Enterprises, a proprietor concern 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. Similarly, in the case of M/s Surya Marbles, there is not much difference in the turnover between the years 1999-2000 and 2000-01 which are of the3 value of Rs.39.19 lakhs and Rs.38.01 lakhs respectively. 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 2001-02. The above figures show that the business activity of the appellant firm were not on account of diversion of the sales or the business of the proprietary concerns as all these proprietary concerns were doing full-fledged business in their own capacity. I, therefore, on the basis of above facts, reject the findings of the assessing officer and allow the grounds of appeal as taken up by the appellant."

3.1 The learned CIT(A) further held in respect of claim for deduction u/s 80IB of the Act as under:

"9. I have carefully gone through the findings of the assessing officer in his assessment order, his submission in the remand report and subsequent replies filed before me. Also, I have perused thoroughly the submission as made by the authorized representative of the appellant before the assessing 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 submission made by the appellant before him, the assessing officer arrived at the following conclusions:
[i] In fact, the assessee admits on its own that kota stone exists along with earth and thus it cannot claim that it produced Kotah / Kaddapa or Dholpur tiles, which is naturally available.
8 I.T.A. No. 905 &2199 to 2201 /Ahd/2005

[ii] Chiselling is not a process but simple cutting activity done for edge polishing. Some stones may be such that chiseling activity is not required and thus calling this activity 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 commodity.

9.1 The assessing officer in support of his above referred arguments that the activities of the appellant were not manufacturing, relied upn various judicial pronouncements, 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 produced 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 constitute manufacturing. Again according to the assessing officer, in the case of M/s Gem India Manufacturing Co. (supra), the Hon'ble Supreme Court of India has held that cutting and polishing 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 the 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 his

assessment order that the word manufacturing has not been defined in the Act and therefore, the definition of the word as given by the Hon'ble Supreme Court of India in various judgments should be applied keeping in view that the facts of this case. Further in his observation, the assessing officer laid emphasis on the view that while determining a particular activity as manufacturing or not, the test as laid down by the 9 I.T.A. No. 905 &2199 to 2201 /Ahd/2005 Hon'ble Supreme Court of India should be applied to the facts of the case and it should be determined accordingly as to whether the activity is manufacturing or not.

9.3 Here, it is necessary to point out the definition of the expression manufacturing as given by the Hon'ble Supreme Court of India while deciding the issues relating to 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 takes place.

[ii] In the case of Dy.CST vs Pio Food Packers (1980) 46 STC 63 SCC 174, the Hon'ble Supreme Court of India has held as under:

"Only manufacturing is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary 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 suffered, the commodity experiences a change. But it is only when the change or a series of changes, take the commodity to point where commercially it can no longer be regarded 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 Hon'ble Court has held that the same view while defining the word manufacturing. The Hon'ble court has held as under:

"Manufacture" is complete, as soon as by the application of one or more process, the raw material undergoes some change and a new substance or article is brought 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 commodity having its own character and use."

10 I.T.A. No. 905 &2199 to 2201 /Ahd/2005

[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 Hon'ble court that to become 'goods' an article must be something which can ordinarily come to the market to be bought and sold.

[v] Later on, in the case of CIT vs N.C. Buddharaja & Anothers 204 ITR 412, the Hon'ble Supreme Court of India has again relied on the meaning of expression 'manufacture' 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 Hon'ble Supreme Court of India (as discussed above), it is found the expression that 'manufacture' denote the end result of one or more process the 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 each 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 regarded different than the original commodity in commercial 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 Hon'ble Supreme Court of India in various judicial pronouncements, the activity as carried by the appellant cannot be regarded as manufacture one. On the other hand, the authorized representative of the appellant had stated that the rough kotah stone was made to pass through various processes, in all, six processes and the end product is received in the form of Kotah tiles which is commercially new article or thing and is certainly different than the rough kotah stone. It has been further pointed out by the authorized representative in his detailed submission that after carrying out various processes such as extraction of rough kotah 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. The authorized representative has also submitted that in the end kotah stone is changed in the form of kotah tiles only 11 I.T.A. No. 905 &2199 to 2201 /Ahd/2005 and its original form is finally consumed into a new form i.e. 'Tiles'.

9.6 In his findings, the assessing officer has cited various case laws and after relying upon the judicial findings in such case laws held that the activity of the appellant is manufacturing. 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) CIT 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 officer based on the above judgments, authorized representative had distinguished the nature of activity carried out by the assesses in the above cases vis-à-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 assessing officer in this regard are mentioned from pages numbering 7 to 14 and 35 to 39 of this order and the same facts are not repeated here. In support of his contention, the authorized representative relied upon the findings of Hon'ble Supreme Court of India in the case of Aspinwall & Co Vs CIT (2001) 251 itr 323 (sc); CIT VS Mysore Minerals Ltd 250 ITR 725 (Kar); CIT vs Mysore Minerals Ltd No.2) 350 ITR 728 (Kar; CIT vs Sesa Goa Ltd. 266 ITR 126 (Mum) and CIT vs Best Chem and Lime Stone Industries Pvt Ltd. 210 ITR 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 extracting lime stone and their sale as such or after converting them into lime or lime dust or concrete by stone crusher and such activities were held by the Hon'ble High Court of Rajasthan to be manufacturing on the ground that concrete or lime dust constitute a separate marketable commodity. Showing the similarity of the facts of the case of the appellant with the above case, the authorized representative stated that 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 the appellant.

12 I.T.A. No. 905 &2199 to 2201 /Ahd/2005

9.7 Regarding the findings of the Hon'ble Supreme Court 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 adopting the following manufacturing process:

• Receipt of coffee from the estates;

• Storage of coffee in covered godowns;

• Drying of coffee to the required standards prescribed 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 that after examining the facts of the case, Hon'ble Apex Court held that as a result of such processes, towards the end, a commercially different article or commodity in the form of coffee beans, ready for consumption emerged and accordingly, it was held a manufacturing activity. According to the authorized representative, the principle laid down in the case of CIT vs Best Chem & Limestone Industries's case has been followed by the Hon'ble court in this case and in this way, the appellant's activity satisfied the test as laid down by the Apex court in this case i.e. in the case of Aspinwall & Co. It has been further pointed by the authorized representative that in the case of the appellant after passing through all the processes, the rough kotah stone acquires a new name known as kotah stone tiles and the end product is used directly by the consumers. 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 the assessee as mentioned in the judgment of Hon'ble Supreme court of India is that "the assessee had business of mining of limestone and marble blocks and thereafter cutting and sizing the same before being sold in the market." As per the authorized representative, in the case of the appellant, it carried out further processing after "cutting" the rough kotah stone into tiles i.e. "edge-cutting" and "re-polishing" and the assessing officer had also acknowledged this fact in his remand report (page No.8) dated 8/11/2004.

13 I.T.A. No. 905 &2199 to 2201 /Ahd/2005

9.8 The authorized representative has further referred to the findings of Hon'ble jurisdictional Mumbai High Court in the case of CIT vs Sesa Goa Ltd. 266 ITR 126 in his submission made before me during the appellate proceedings, wherein the Hon'ble court has discussed the following question of law:

"Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that the assessee is entitled for deduction on investment allowance u/s 32A of the I.T. Act, in respect of machinery used in mining activity, ignoring the fact that the assessee is engaged in extraction and process of iron ore not amounting to any manufacture or production."

9.9 As per the authorized representative, while discussing the nature of business activity of the assessee in the above case, which was extraction of iron ore from the earth, the Hon'ble court has discussed the meaning of expression "manufacture in the light of the findings of Hon'ble Supreme Court of India in 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) 46 STC 63(SC). The Hon'ble Court has discussed the above referred findings of the Hon'ble Supreme Court of India on page 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 activity of the assessee i.e. M/s Sesa Goa Ltd. was 'manufacturing' or 'production', the Hon'ble Bombay High Court considered various judgments of other Hon'ble High Courts. The first case, which was considered by the Hon'ble 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 manufacturing but the test as laid down by the Hon'ble Supreme Court in the case of CIT vs N.C. Buddharaja (supra) was not applied. The next judgment which the next judgment which the Hon'ble Bombay Court considered 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 manufacture 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 case 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 Hon'ble court is Dy.CIT vs Mysore 14 I.T.A. No. 905 &2199 to 2201 /Ahd/2005 Minerals Ltd (2001) 250 ITYR 730 (Kar.). In this case also what was involved was mining of granite. The Learned Division Bench of Karnataka High Court relied upon the judgment of Hon'ble 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 granite and converting it into slabs, cutting and polishing them, According to the authorized representative, this was held to be a manufacturing activity by the Hon'ble High Court of Karnataka. Further, according to the authorized representative, the Hon'ble Mumbai High Court in the above case (CIT vs Sesa Goa Ltd.) again considered the findings of the Hon'ble 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 Bench 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 Hon'ble Karnataka High Court in the case of CIT vs Mysore Minerals Ltd. As reported in 205 ITR 461 (Kar) was reversed by the Hon'ble Supreme Court of India in the sense that the High Court was directed to decide a question of law u/s 256(2) of the Act. The Hon'ble Supreme Court of India did not express any opinion on the merit of the case. Thereafter, the Hon'ble 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 were manufacturing activities. In holding so, the Hon'ble Karnataka High 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 Hon'ble Mumbai High Court in the case of Sesa Goa Ltd., it is found that the submission made by the authorized representative of the appellant is correct. It is also seen that the Hon'ble Mumbai 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) 250 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 Hon'ble Mumbai High Court in the case of M/s Sesa Goa Ltd. has been recently confirmed by the Hon'ble Supreme Court of 15 I.T.A. No. 905 &2199 to 2201 /Ahd/2005 India by its three Judges Bench dismissing civil appeal NO.3967 of 2003 filed by the Department by Special Leave and the same is reported in (2004) 271 ITR 331 (SC) dated 17/11/2004. In the said judgment, the Hon'ble Supreme Court of India has confirmed the findings of Hon'ble Mumbai High Court that the business activity of the assessee (M/s Sesa Goa Ltd) was production and not manufacturing and affirmed the decision of Hon'ble 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 polishing before effecting the sale of the same. The Hon'ble Karnataka High Court, on the basis of these facts, held as under:

i. "That the original assessment grating the relief under sections 32A and 80-I of the Act to the assessee was 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 facts in the case of CIT vs Mysore Minerals Ltd. as decided by the Hon'ble Karnataka High Court and reported in 250 ITR 725 (Kar) are exactly the same as that of the appellant before me. The appellant also carried out the business of quarrying kota stone, chiseling, cutting and polishing of the same and finally converting it into an end product, which is known in commerce and trade circles as kotah stone tiles. Thus, in the light of the judgment of Hon'ble Supreme Court of India affirming the findings of Hon'ble Karnataka High Court 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 activity as the appellant has very heavily relied upon the findings of Hon'ble Karnataka High Court decisions as referred above.

9.12 The authorized representative has also cited the case of one more very recent judgment of Hon'ble Supreme Court of India decided on 23/11/2004 and reported in 2004 (97) ECC 393 (SC) in 16 I.T.A. No. 905 &2199 to 2201 /Ahd/2005 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 Hon'ble 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 machines for further use into typewrite and telex machines as ribbons. In this case the Hon'ble Apex court held that "the activity of the assessee whichis cutting of jumbo rolls of ribbons into smaller sizes, spooling them into automatic machines and the resultant product is 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 this decision, the Hon'ble Court has interpreted the expression manufacture and the same is quoted as under:

"Manufacture implies a change but every change is not manufacture, yet every change of an article is the result of treatment, labour and manipulation. Naturally, manufacture is the end result of one or more processes through which 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 of processing at each stage. With each process suffered the original commodity experiences a change. Whenever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity. But it is only when the change or a series of changes takes the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article that a manufacture can be said to take place. Process in manufacture or in relation to manufactu4re implies not only the production but also various stages through which the raw material is subjected to change by different operations. It is the cumulative effect of the various processes to which the raw material is subjected to (sic that the) manufactured product emerges. Therefore, each step towards such production would be a process in relation to the manufacture. The test to determine whether a particular activity amount to 'manufacture' or not is : Does new and different goods emerge having distinctive name, use and character. The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes 'manufacture' takes place and liability to duty is attracted. Etymologically the word 17 I.T.A. No. 905 &2199 to 2201 /Ahd/2005 'manufacture' properly construed would doubtless cover the transformation. It is the transformation of a matter into something else and that something else is a question of degree, whether that something else is a different commercial commodity having its distinct character, use and name 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 Hon'ble Court, it is seen that in para 16 of the order, it has been observed as under:

"It is to be noted that once the jumbo rolls are cut into smaller sizes, they completely lost their earlier identity and cannot be used for the same purpose as was done before cutting. In a hypothetical case, even if the smaller sized ribbons are stitched together or fixed together in any manner, there is no possibility of its use as Jumbo rolls. The factual findings recorded that the processing resulted in coming into existence of a commercial product having distinct name, character, and use are on terra firma."

9.14 On the basis of the above referred findings and the definition of the expression 'manufacturing' as given by the Hon'ble Court in the above referred case, it has been submitted by the authorized representative that in the case of the appellant also, the facts are same. According to the authorized representative, the appellant also purchases rough kotah stones in the form of a big block and after chiseling, polishing and cutting it into required sizes of tiles and after repolishing the same converts the kotah stone into an end product known as kotah stone tiles which is totally different in existence in terms of commercial parlance and flooring media. According to the authorized representative, 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 through 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 representative that a new thing or article in the form of kotah stone tile comes into existence having different name, character and use.

9.15 In view of the above referred facts and also keeping in view the findings of assessing officer and submissions as made 18 I.T.A. No. 905 &2199 to 2201 /Ahd/2005 by the authorized representative and the decisions of Hon'ble 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 (Kar) (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 appeal as taken by the appellant are allowed."

3.2 Likewise in his order for the AYs 1999-2000,200-01 & 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 aforesaid orders of the ld. CIT(A) in these four assessment years. The learned DR while carrying us through the impugned orders contended that since same persons carried on substantially the same business, in the light of view taken by the Hon'ble Apex Court in the case of Textile Machinery Corporation (supra), the learned CIT(A) was not justified in granting deduction u/s 80IA/80IB of the Act. On the other hand, the learned AR on behalf of the assessee while relying on the decision in the case of Textile Machinery Corporation vs CIT 107 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 findings 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 the sales or the business of the proprietary concerns as all those proprietary concerns were doing full-fledged business in their own capacity. We find that admittedly, the activity of the firm consists of the four stages: [i] Chiselling; [ii]Polishing;[iii]Cutting edges; and [iv] Repolishing. After analyzing various decisions, the ld. CIT(A) observed that the expression 'manufacture' denote the end result of one or more process the 19 I.T.A. No. 905 &2199 to 2201 /Ahd/2005 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 each 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 regarded 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 further noticed that after carrying out various processes such as extraction of rough kotah 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 Central 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 the assessee, the assessee having carried out the business of quarrying kota stone, chiseling, cutting and polishing of the same and finally converting it into 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 adjudicating a similar issue in the case of Income-tax Officer vs Arihant Tiles And Marbles P Ltd. (and other appeals), 320 ITR 79 (SC), Hon'ble 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 undertaken by the respondents herein, reproduced herein-above), it is clear that the said activities would come within the meaning of the word "production". One more aspect needs to be highlighted. By the said judgment, this Court affirmed the decision of the Karnataka High Court in the case of Commissioner of Income Tax vs. Mysore Minerals Ltd, (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 arose for determination before this Court was whether construction of a dam to store water (reservoir) can be characterised as amounting to manufacturing or producing an article. It was held that the word "manufacture" and the word 20 I.T.A. No. 905 &2199 to 2201 /Ahd/2005 "production" have received extensive judicial attention both under the Income Tax as well as under the Central Excise and the Sales Tax laws. The test for determining whether "manufacture" can be said to have taken place is whether the commodity, which is subjected 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 manufacture. The word "production" takes in all the byproducts, intermediate products and residual products which emerge in the course of manufacture of goods.

Applying the above tests laid down by this Court in Budharaja's case (supra) to the facts of the present cases, we are of the view that blocks converted into polished slabs and tiles after undergoing the process indicated above certainly results in emergence of a new and distinct commodity. The original block does not remain the marble block, it becomes a slab or tile. In the circumstances, not only there is manufacture but also an activity which is something beyond manufacture and which brings a new 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 conclusion that the activity undertakenbythe respondents-assessees did constitute 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, namely that the activity undertaken by the respondents herein is not a manufacture, 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 the 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 factors, we are of the view that in the present cases, the activity undertaken by each of the respondents constitutes manufacture or production and,therefore, they would be entitled to the benefit of Section 80IA of the Income Tax Act, 1961".

5.1 In India Cine Agenies & Computer Graphics Ltd.,308 ITR 98(SC) issue before Hon'ble Apex Court was as to whether conversion of Jumbo rolls of photographic films into small flats and rolls in the 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? . Hon'ble Apex Court while allowing the 21 I.T.A. No. 905 &2199 to 2201 /Ahd/2005 appeals of the assesses concluded that 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 reside rodeos which emerge in the course of manufacture of goods.

5.2 In the light of the aforesaid decisions of the Hon'ble Apex Court and considering the manufacturing process of the assessee,especially when in the case under consideration blocks of stones converted 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 controverting the aforesaid findings of the ld. CIT(A), we are not inclined to interfere with his findings. We also agree with the conclusions of the ld. CIT(A) that the business activity of the assessee firm was not on account of diversion of the sales or the business of the proprietary concerns of the three partners. Therefore, 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 29th 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
                         22    I.T.A. No. 905 &2199 to 2201 /Ahd/2005


2.   ITO, Vapi Ward-3
3.    CIT(A)-V, Surat
4.   CIT, Valsad
5.   DR, "D" Bench
                                     By order



                        Deputy Registrar, ITAT, Ahmedabad