Raveendran, J.:—

The petitioner is an exporter of cut and dressed granite (unpolished). According to petitioner, it selects and marks the quarrying area/rock, cuts the rock by burner/bore cutting, drills holes and after blasting, removes the blocks and exports the granite in an unpolished condition. In regard to the assessment year 1993-1994, petitioner filed a return claiming deduction of the profit derived by the export of such unpolished granite from the total income under Section 80 HHC of the Income-tax Act, 1961 (‘Act’ for short). Petitioner contended that the material so exported is ‘rock’ falling under Item (x) of the Twelfth Schedule to the Act and thus the benefit of deduction under Section 80 HHC was available. In response to the said return, the Assessing Officer (fourth respondent) sent an Intimation dated 31.3.1995 (Annexure-C) under Section 143(1)(a) of the Act regarding the total income tax and interest payable by the petitioner, disallowing the deduction claimed under Section 80 HHC. In the Adjustment Explanatory Sheet, attached to the said Intimation, the following reason is given for the disallowance of the deduction claimed under Section 80 HHC:

“80 HHC is not allowed, as Assessee is exporting cut granites (rough granites) as per 80 HHC report. As per schedule 12 of IT Act, 80 HHC deduction is allowed only to cut and polished granites exporting.”

2. According to petitioner, deduction claimed under Section 80 HHC was disallowed by the Assessing Officer on account of the instructions contained in Circular No. 693 dated 17.11.1994 (Annexure-A) issued by the Central Board of Direct Taxes and the said Circular is contrary to the provisions of the Act. Hence the petitioner has filed this Petition: (a) seeking a declaration that Circular No. 693 dated 17.11.1994 issued by the first respondent is illegal; and (b) for quashing the Intimation dated 31.3.1995 (Annexure-C) issued under Section 143(1)(a) of the Act.

3. Before referring to the contentions, it is necessary to refer to the relevant provisions of the Act and the impugned Circular.

3.1) Sub-section (1) of Section 80 HHC provides that an assessee engaged in the business of export of any goods or merchandise to which the said Section applies, shall be allowed a deduction of the profits derived from the export of such goods or merchandise, in computing his total income, in accordance with and subject to the provisions of the said Section. Clause (a) of sub-section (2) provides that the Section applies to all goods other than those specified in clause (b). Clause (b) of sub-section (2) provides that Section does not apply to the following goods: (1) Mineral oil; and (ii) Minerals and ores (other than processed minerals and ores specified in the Twelfth Schedule). The Twelfth Schedule is extracted below:

THE TWELFTH SCHEDULE

PROCESSED MINERALS AND ORES

(i) to (ix) - (omitted as not relevant).

(x) Cut and polished minerals and rocks including cut and polished granite:

EXPLANATION: For the purpose of this Schedule, “Processed” in relation to mineral or ore, means:

(a) dressing through mechanical means to obtain concentrates after removal of gangue and unwanted deleterious substances or through other means without altering the minerological identity;

(b) pulverisation, calcination or micronisation;

(c) agglomeration from fines;

(d) cutting and polishing;

(e) washing and levigation;

(f) Benefication by mechanical crushing and screening through dry process;

(g) Sizing by crushing, screening, washing and classification through wet process;

(h) Other upgrading techniques such as removal of impurities through chemical treatment, refining by gravity separation, bleaching, floatation or filtration.

3.2) The words “(other than processed minerals and ores specified in the Twelfth Schedule)” after the words “minerals and ores” in sub-section 2(b)(ii) of Section 80 HHC and the Twelfth Schedule to the Act were added with effect from 1.4.1991 by Finance (No. 2) Act, 1991. Before the said amendment, all minerals and ore, without exception, whether processed or not, were excluded from Section 80 HHC. From 1.4.1991, an exception to the exclusion clause was introduced, by providing that specified minerals and ores which were processed, listed in the Twelfth Schedule, will be exceptions to the total exclusion of minerals and ores from Section 80 HHC. Thus from 1.4.1991, profits from export of processed minerals and ores specified in the Twelfth Schedule could be deducted from the computation of total income.

4. Circular No. 693 dated 17.11.1994 issued by CBDT is extracted below:

“Subject: Benefit of Section 80 HHC for export of processed minerals - Clarification regarding export of cut and polished dimensional blocks, granite or other rocks.

Section 80 HHC of the Income-Tax Act allows a deduction from the gross total income of the entire profits derived from export of goods other than minerals. Finance (No. 2) Act, 1991 extended the benefit to export of processed minerals and ores mentioned in the Twelfth Schedule to the Income-tax Act. Item (x) of the Schedule mention “Cut and polished minerals and rocks including cut and polished granite.”

2. Some organisations and individual tax payers have raised doubts whether the deduction under Section 80 HHC is available in respect of export of granite or other rocks that are cut and exported as raw blocks after being washed and cleaned.

3. The entry in the Twelfth Schedule is very clear and unambiguous and uses the term “cut and polished”. Therefore, for availing of the benefit under Section 80 HHC, it is necessary that the rock is not only cut into blocks but also polished before it is exported. This is in line with Government's policy to encourage export of polished granite and other rocks where value addition before export is high and discourage export of raw blocks where value addition is low.”

5. Sri Soli J. Sorabjee, learned Senior Counsel appearing for the petitioner put forth the following contentions:

(1) Unpolished granite is a ‘rock’ and all rocks, whether polished or unpolished, fell under Item (x) of the Twelfth Schedule and thus export thereof attracted the benefit of Section 80 HHC.

(ii) The Assessing Officer could not disallow the deduction claimed under Section 80 HHC by making an adjustment under Section 143(1)(a), as the deduction claimed was not something that was prima facie impermissible.

6. RE: POINT (i)

6.1) Petitioner's contentions are as follows: The Petitioner exported cut granite which is nothing but a ‘rock’. The benefit of Section 80 HHC was available in respect of all minerals and ores enumerated in the Twelfth Schedule, which include ‘Rocks’. Item (x) of Twelfth Schedule, that is “cut and polished minerals and rocks including cut and polished granite” should be read as referring to three items, namely (i) cut and polished minerals; (ii) Rocks; and (iii) cut and polished granite. The restricting words ‘cut and polished’ applied only to ‘minerals’ and not to ‘rocks’. Secondly, the use of the words ‘including’ normally enlarges the meaning of the word interpreted and does not exclude the normal and ordinary meaning of the word interpreted; and therefore the words ‘including cut and polished granite’ occurring after ‘rocks’ have to be read as words of extension and not words of limitation and therefore neither unpolished rocks nor unpolished granite get excluded from item (x) of the Twelfth Schedule. Thirdly, if the legislative intent was to apply the limitation of ‘cut and polished’ to ‘rocks’ also, then item (x) would have been differently worded as “Cut and Polished minerals, cut and polished Rocks including cut and polished granite”. Fourthly, when the words used in a Statute are clear, it is not permissible to rely on any external aid to interpretation and therefore reliance could not be placed on the policy of Government, to interpret item (x) of the Twelfth Schedule. Therefore, the benefit of Section 80 HHC was available in respect of export of - (a) all cut and polished minerals; and (b) all rocks, whether polished or unpolished, including cut and polished granite.

6.2) Alternatively, it is contended that even if the interpretation put forth by the Assessee is found to be not the only reasonable interpretation and the interpretation put forth by the Revenue is also found to be a reasonable interpretation, then the interpretation that is favourable to the assessee should be preferred. Thus, if one possible interpretation of Item (x) was that it included unpolished rocks/granite and another possible interpretation is that Item (x) referred to only cut and polished rocks/granite, the interpretation favourable to the assessee should be followed.

6.3) Reliance is placed by the learned Counsel for the petitioner on the Decision of the Supreme Court in CIT v. Taj Mahal Hotel . 1971 3 SCC 550 and the Decision of the House of Lords in Carter v. Bradbeer . 1975 3 All. E.R 158. wherein it is held that the word ‘includes’ is used in order to enlarge the meaning of a word occurring in the Statute and when it is used, the word or phrase must be construed as comprehending not only such things as they signify according to their ordinary and natural meaning, but also those things which are specifically included. He next relied on the Decision in Hansraj Gordhan Das v. H.H Dave . AIR 1970 SC 755. wherein it is held that in Taxing Statutes, there is no room for any intendment, and the matter has to be judged by the plain words employed and not by the object or policy in the mind of the State; and if the tax payer is within the plain terms of the exemption, the benefit of it cannot be denied by calling in aid, the supposed intention of the Exempting Authority. Reliance was next placed on the Decisions of the Supreme Court in CIT v. J.H Hosiery Factory . 159 ITR 85. and CIT v. Naga Hills Tea Co. Ltd. . 89 ITR 236., which hold that where two interpretations are possible, in regard to a Taxing Statute, the interpretation favourable to the assessee should be accepted. Sri H.L Dattu, learned Counsel for the Respondents did not dispute any of these three propositions. He, on the other hand, contended that the wording of Section 80 HHC and Twelfth Schedule were clear and the only interpretation possible was that unpolished rock or granite did not fall under item (x) or any other item of Twelfth Schedule and consequently the benefit of Section 80 HHC was not available in respect of profit from the export of unpolished granite.

6.4) Let me now examine whether the word ‘Rocks’ in Item (x) of Twelfth Schedule refers to only ‘cut and polished rocks’ and whether it is possible to reasonably interpret the words ‘rocks’ as referring to ‘rocks which are not cut and polished’ as contended by the petitioner. On a plain and careful reading of Section 80 HHC and the Twelfth Schedule, I find that there is only one possible interpretation and the word ‘rocks’ in Item (x) can refer to only ‘cut and polished rocks’ and nothing else. The entire argument of the petitioner with reference to the description of ‘rocks’ in item completely ignores the words ‘processed minerals and ores’ occurring in sub-section 2(b)(ii) of Section 80 HHC. ‘Rock’ and ‘Granite’ are treated as part of ‘minerals’ is evident from Twelfth Schedule as both rocks and granite are listed in the items enumerated as Minerals and ores. In fact this Court in the case of 1. Muddeereswara Mining Industries v. 2. Stonecraft Enterprises . 204 ITR 550. has held that Granite is a mineral, even before rock and granite were specifically shown as minerals in the Twelfth Schedule.

6.5) sub-section (2) of Section 80 HHC provides that Section 80 HHC is inapplicable to minerals and ores. But while so excluding, the said sub-section however makes an exception in the case of ‘processed minerals and ores specified in the Twelfth Schedule’. In other words in respect of minerals and ores which are processed and listed in the Twelfth Schedule, the benefit of Section 80 HHC will be available. Therefore, when we read Item (x) of Twelfth Schedule, it should always be with reference to sub-section 2(b)(ii) of Section 80 HHC which requires that the goods/merchandise specified in Twelfth Schedule should be processed. Thus, if an assessee claims deduction in regard to export of ‘Rock’ under Section 80 HHC, then the ‘Rock’ exported should be ‘processed Rock’. Petitioner would contend that marking, cutting, drilling, blasting and removal of varying shapes of Rock is processing. But ‘Processed’ is defined in the Explanation to the Twelfth Schedule (extracted above). The Explanation makes it clear that for the purposes of the Twelfth Schedule, “Processed” in relation to any mineral or ore, means, the eight processes enumerated therein. When a defining provision of a Statute, uses the word ‘means’, the definition is prima facie exhaustive and restrictive to the description given therein. Thus, unless the ‘Rocks’ or ‘Granite’ undergoes any of the processes specified in the Explanation to the Twelfth Schedule, it cannot be said the same is processed.

6.6) It is however not necessary that the mineral or ore, should undergo all the processes, specified in the definition of ‘Processed’. Some of them will be applicable only to particular minerals or ores, and inapplicable to rocks or granite. Out of the eight processes enumerated in the Explanation to the Twelfth Schedule, it is seen that seven processes listed as (a), (b), (c), (e), (f), (g) and (h) are inapplicable to rocks and granite. The only process that is applicable to rocks and granite is Process No. (d), that is ‘cutting and polishing’. Thus a ‘rock’ which is one of the items listed in the Twelfth Schedule, to attract the benefit of Section 80 HHC, should have undergone the process of ‘cutting and polishing’. In this case admittedly the ‘rock’ or ‘granite’ exported by the petitioner has not undergone any of the processes including cutting and polishing, listed in the Explanation to the Twelfth Schedule. Hence petitioner is not entitled to claim deduction under Section 80 HHC in regard to the profits derived by exporting such unpolished granite, while computing its total income.

6.7) Even otherwise, the description of the mineral/ore in item (x) in the Twelfth Schedule, by itself is clear. The prefix ‘cut and polished’ occurring before the words ‘minerals and rocks’ has to be read as being applicable to ‘minerals and rocks’ and not to ‘mineral’ only. It should be remembered that the term ‘mineral’ includes ‘rock’ and the term ‘rock’ includes ‘granite’. In fact the purpose of Item could as well have been achieved by merely using the words ‘cut and polished minerals’, as ‘minerals’ include ‘rocks’ and ‘granite’. But to make the description clearer and emphasise the inclusion of rocks and its sub-species ‘granite’, the words “and rocks including cut and polished granite” has been included. The addition of the word ‘rocks’ as stated above, is to emphasise the inclusion of ‘rocks’ in ‘minerals’ and not to exclude ‘rocks’ from minerals. There is no basis to read Item (x) as required by the petitioner, that is “cut and polished minerals; and rocks (including cut and polished granite)”. The words do not permit it. The context does not permit it.

6.8) The impugned Circular (No. 693 dated 17.11.1994) clarifying that rock should not only be cut into blocks, but also be polished, before it is exported to avail the benefit of Section 80 HHC, is valid as it is in accordance with Section 80 HHC and the Twelfth Schedule to the Act. The Government's policy to encourage export of polished granite and other rocks where value addition before export is high and to discourage export of raw blocks where value addition is low, is evident from Section 80 HHC, as it extends its benefit not to all minerals, but only to “processed minerals specified in the Twelfth Schedule” and the word “processed” with reference to rocks/granite, means “cut and polished”. It may be of some relevance to refer to the following observations of this Court in Muddeereswara's case with reference to sub-section (2) of Section 80 HHC before its amendment by Finance (No. 2) Act, 1991:

“It is true that Section 80 HHC (1) is a beneficial provision; it may be compared to the provisions enacted to given incentives to traders and industrialists under certain circumstances. But, the question arises whether the provisions of sub-section (2) should be read narrowly to limit its operation. If sub-section (2) of Section 80 HHC also indicates a public purpose, the Court cannot ignore it. The purpose behind excluding “mineral oil”, “mineral and ores” from the beneficial provision of Section 80 HHC (1) seems not to extend its benefits to the export of goods which are part of the natural wealth of the country, obtained directly from the earth. Discouraging export of such goods cannot be considered with a negative approach; such a provision also, in a larger sense, is a beneficial provision or at any rate, advances a public purpose.”

7. RE: CONTENTION (ii):

7.1) It is not in dispute that petitioner had sought deduction of the profits derived from export of dressed granite, in computing the total income, in the Return submitted by it for the assessment year 1993-1994. Petitioner had returned a total income of Rs. 44,135/-. The Assessing Officer disallowed the deduction of Rs. 37,13,849/- claimed by the petitioner under Section 80 HHC and added the same to the total income, by way of adjustment under Section 143(1)(a) of the Act. Petitioner was not heard in the matter. Under the first Proviso to Section 143(1)(a), the Assessing Officer could make an adjustment in the income, by disallowing the deduction claimed in the Return, only if it is prima facie inadmissible, on the basis of the information available in such Return or accounts or documents accompanying the Return. It cannot be said that inadmissibility of the claim of petitioner in regard to deduction under Section 80 HHC, is so clear and self evident from the Return and the annexed documents, that the Assessing Officer could have recourse to adjustment by disallowance, under Section 143(1)(a). The fact that on ultimate analysis, the petitioner may not be entitled for the deduction claimed from the total income does not mean that recourse can be had to disallowance under Section 143(1)(a), dispensing with hearing and denying the opportunity to the petitioner to challenge the assessment. Under the guise of effecting an adjustment under Section 143(1)(a), the Assessing Officer cannot decide debatable issues. Reference may be made in this behalf to the Decision of the Bombay High Court in Khatau Junkar Ltd. v. K.S Pathania . 1961 1992 ITR 55. wherein it is held that unless the inadmissibility of a deduction is evident and obvious (as in the case of Section 154), from the Return and its annexures, the Assessing Officer who wants to disallow or deduction or a claim, is bound to follow the procedure under Section 143(2) of giving a notice to the Assessee; and that no substantial adjustments which require examination of evidence or which would require a hearing, is contemplated under Section 143(1)(a). Hence the intimation dated 31.3.1995 (Annexure-C) is liable to be set aside. Petitioner is entitled to a notice under Section 143(2) even though the result of the hearing and consequential disposal may lead to the same result, as a consequence of this Decision.

8. In view of the above, this Petition is disposed of in the following manner:

(i) Prayer (i) for declaring the Circular dated 17.11.1994 is illegal, is rejected.

(ii) The Intimation dated 31.3.1995 (Annexure-C) is set aside and the Fourth respondent is directed to reconsider the Return of petitioner relating to Assessment year 1993-1994 under Section 143(2) of the Act, in accordance with law.

(iii) The sum of Rs. 15 lakhs said to have been deposited by the petitioner with the fourth respondent, in pursuance of the Interim Order dated 26.6.1995 shall be held on account, by the Assessing Officer, till completion of assessment and shall be dealt with in the light of the order of assessment to be passed regarding Assessment year 1993-1994.

(iv) Parties to bear their respective costs.