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Commissioner Of Income-Tax v. Fateh Granite Pvt. Ltd.
Factual and Procedural Background
The appeal concerns the assessment year 2001–02 regarding the claim for deduction under section 10B of the Income-tax Act, 1961. The Assessing Officer initially denied the deduction on the ground that the assessee failed to produce a bank realisation certificate for export sales, which is a prerequisite for an approved 100% export oriented undertaking. The assessee appealed to the Commissioner of Income-tax (Appeals), who remanded the matter back to the Assessing Officer to verify the claim and allow the deduction to the extent of export sale proceeds received in convertible foreign exchange within the prescribed time limit. Subsequently, the Assessing Officer granted the deduction in a revised order dated May 1, 2006.
The Revenue challenged this order before the Income-tax Appellate Tribunal (Tribunal), relying on the Rajasthan High Court judgment in Arihant Tiles and Marbles Pvt. Ltd. v. ITO [2007] 295 ITR 148, but the Tribunal dismissed the Revenue's appeal. The Revenue then appealed to this court against the Tribunal’s order.
The Tribunal noted that the Commissioner had allowed the deduction under section 264 of the Income-tax Act, and the Assessing Officer had also allowed the deduction for the subsequent assessment year 2002–03. However, for assessment year 2003–04, the Assessing Officer disallowed the deduction. The Tribunal held that while the doctrine of res judicata does not apply to fiscal statutes, the doctrine of consistency applies. Thus, absent any change in facts or law, the Revenue could not take a different view after the Commissioner’s order.
Legal Issues Presented
- Whether the activities of cutting, polishing, and sizing granites amount to manufacturing or processing such that the assessee is entitled to deduction under section 10B of the Income-tax Act?
Arguments of the Parties
Revenue's Arguments
- Relied on the Rajasthan High Court judgment in CIT v. Lucky Mineral Pvt. Ltd. [1997] 226 ITR 245, which interpreted “manufacture” under section 80HH, a view approved by the Supreme Court in Lucky Minmat Pvt. Ltd. v. Commissioner Of Income Tax, Jaipur [2000] 245 ITR 830.
- Contended that the assessee had not complied with other conditions necessary to avail the benefit of section 10B, though this issue was not raised before the Tribunal.
Assessee's Arguments
- Relied on the Gujarat High Court judgment in Saurashtra Cement and Chemical Industries Ltd. v. CIT [1980] 123 ITR 669, arguing that once relief is allowed for a previous assessment year, it cannot be disturbed for subsequent years without disturbing the initial year’s relief.
- Referred to this court’s decision in Commissioner Of Income-Tax v. Paul Brothers [1995] 216 ITR 548, which held that withdrawal of deduction for subsequent years is not permissible unless relief for the earlier year is withdrawn.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Arihant Tiles and Marbles Pvt. Ltd. v. ITO [2007] 295 ITR 148 (Rajasthan High Court) | Interpretation of “production” under section 80-IB to include activities such as sawing, cutting, and polishing of marble blocks. | The court relied on this precedent to hold that similar activities qualify as “production” under section 10B. |
| CIT v. Lucky Mineral Pvt. Ltd. [1997] 226 ITR 245 (Rajasthan High Court) | Interpretation of “manufacture” under section 80HH. | Revenue relied on this to argue against the assessee's claim, but the court distinguished the language used in section 10B. |
| Lucky Minmat Pvt. Ltd. v. Commissioner Of Income Tax, Jaipur [2000] 245 ITR 830 (Supreme Court) | Approval of the Rajasthan High Court’s interpretation of “manufacture.” | The court noted this precedent but emphasized the difference in language between sections 10B and 80HH. |
| Commissioner Of Income Tax, Goa v. Sesa Goa Ltd. [2004] 271 ITR 331 (Supreme Court) | Interpretation of “production” as a wider concept than “manufacture.” | The court applied this wider meaning of “production” to section 10B, aligning it with the interpretation under section 80-IB. |
| Saurashtra Cement and Chemical Industries Ltd. v. CIT [1980] 123 ITR 669 (Gujarat High Court) | Principle that relief granted for a previous assessment year should not be disturbed for subsequent years without disturbing the initial relief. | Assessee relied on this to argue against Revenue’s attempt to deny relief for later years. |
| Commissioner Of Income-Tax v. Paul Brothers [1995] 216 ITR 548 | Held that deduction for subsequent years cannot be withdrawn without withdrawal of relief for the initial year. | Assessee cited this precedent to support the consistency doctrine and maintain the deduction for the year in question. |
Court's Reasoning and Analysis
The court analyzed the language of section 10B, which uses the expressions “manufacture or production.” It noted that these terms are not defined in the Act but are used similarly in section 80-IB. The Supreme Court’s decision in Commissioner Of Income Tax, Goa v. Sesa Goa Ltd. established that “production” has a wider meaning than “manufacture.” The court applied this broader interpretation to section 10B, concluding that activities such as cutting, polishing, and sizing granite constitute “production” within the meaning of the statute.
The court also considered the doctrine of consistency, emphasizing that since the Revenue had allowed the deduction in earlier assessment years and the Commissioner had confirmed it, the Revenue could not take a contrary view for the current year without a change in facts or law. The court rejected the Revenue's new contention regarding other conditions for section 10B since it was not raised before the Tribunal and thus not part of the appeal before the court.
Consequently, the court found the question framed by the Revenue devoid of merit and upheld the Tribunal’s decision dismissing the Revenue’s appeal.
Holding and Implications
The appeal is dismissed.
The court upheld the assessee’s entitlement to deduction under section 10B for the assessment year 2001–02, confirming that the activities of cutting, polishing, and sizing granite amount to “production” within the meaning of the Act. The decision reinforces the doctrine of consistency in fiscal matters, preventing the Revenue from denying benefits in subsequent years after having allowed them previously, absent any change in facts or law. No new precedent was set beyond affirming existing interpretations and principles.
1. The appeal is in respect of the assessment year 2001–02. In respect of the amount claimed under section 10B of the Income-tax Act, 1961, the Assessing Officer was pleased to hold that for granting of deduction under section 10B, there must be an approved 100 per cent. export oriented undertaking. On facts, the Assessing Officer held that the assessee was unable to show the bank realisation certificate for the export sales. In the appeal preferred by the assessee before the Commissioner of Income-tax (Appeals) on this issue, the Commissioner of Income-tax (Appeals) remanded the matter back to the Assessing Officer to verify the claim of the assessee and to allow deduction to the extent related to export sale proceeds received in convertible foreign exchange in India within time limit prescribed in sub-section (3) of section 10B of the Act. On the matter being remanded back to the Assessing Officer, the Assessing Officer by a revised order dated May 1, 2006, allowed the claim of the assessee under section 10B of the Act.
2. The Revenue aggrieved by the order of the Commissioner of Income-tax (Appeals) directing the Assessing Officer to allow deduction in terms of section 10B of the Act read with the proviso thereof preferred an appeal to the learned Tribunal and relied on the judgment of the Rajasthan High Court in the case of Arihant Tiles and Marbles Pvt. Ltd. v. ITO reported in [2007]295 ITR 148. The Tribunal dismissed the appeal preferred by the Revenue. The Revenue is in appeal against the said order and the questions have been formulated for the determination of this court.
3. The Tribunal noted the contentions advanced by the parties. The Commissioner in exercise of his powers under section 264 of the Income-tax Act had allowed the said deduction. The Assessing Officer thereafter for the assessment year 2002–03 had also allowed the deduction.
4. In spite of these orders, the Assessing Officer in respect of the assessment year 2003–04 has disallowed the same. The learned Tribunal noted that though the concept of res judicata is not applicable to the fiscal statute, the doctrine of consistency as contended is squarely applicable to the facts of the present case. In other words, it held that as the Revenue for the previous assessment year has accepted the claim of the assessee, it would not be open to the Revenue unless there is change of facts or change of law to take a different view, more so, after the order passed by the Commissioner.
5. Though in the memo of appeal three questions have been framed, in our opinion, the question which is relevant would be as set out in paragraph 5.1(a) which reads as under:
“Whether, in view of the facts and circumstances of the case and in law, the cutting, polishing and sizing granites amounted to either manufacturing or processing and accordingly, the assessee was entitled for deduction under section 10B of the Income-tax Act?”
6. The submission made on behalf of the Revenue was based on the view taken by the Rajasthan High Court in the case of CIT v. Lucky Mineral Pvt. Ltd. reported in [1997]226 ITR 245 which considered the expression “manufacture” under section 80HH. The view taken by the Rajasthan High Court was approved by the Supreme Court in the case of Lucky Minmat Pvt. Ltd. v. Commissioner Of Income Tax, Jaipur reported in [2000]245 ITR 830.
7. The language used in section 10B is “manufacture or production”. This language is similar to the language used in section 80-IB. The Supreme Court in Commissioner Of Income Tax, Goa v. Sesa Goa Ltd., [2004]271 ITR 331 had an occasion to consider the expression “production”. The Rajasthan High Court in Arihant Tiles and Marbles Pvt. Ltd. v. ITO reported in [2007]295 ITR 148 for the purpose of section 80IB was pleased to hold that the activity, namely, sawing of marble blocks and subsequent activities of cutting and polishing, will fall within the meaning of the expression “production” and, therefore, the assessee was entitled to the benefit under section 80-IB.
8. The expression “manufacture” or “production” are different expressions and the word “production” has a wider meaning as explained by the apex court in Sesa Goa Ltd., [2004]271 ITR 331. In our opinion, the word “production” under section 10B considering similar expression in section 80IB will have to be given this wider meaning, considering that the expressions are not defined in the Act but the expressions are used in the same Act. The only difference between section 80-IB and section 10B is that section 10B applicable to a 100 per cent. export oriented unit, whereas section 80-IB can be in respect of any unit. In our opinion, therefore, the expression “production” will have the same meaning as in Sesa Goa Ltd., [2004]271 ITR 331 (SC) and consequently, the question framed is devoid of merits.
9. On behalf of the Revenue, the learned counsel sought to contend that they had also raised an issue that the assessee had not complied with the other predicates to avail of the benefit of section 10B. We do not find such an issue was raised before the Income-tax Appellate Tribunal. The question in appeal to this court must arise from the order of the Income-tax Appellate Tribunal. In these circumstances, in our opinion, the oral submissions sought to be advanced cannot be sustained.
10. On behalf of the assessee, the learned counsel had drawn our attention to the judgment of the Gujarat High Court in the case of Saurashtra Cement and Chemical Industries Ltd. v. CIT reported in [1980]123 ITR 669 to contend that once the Revenue had allowed the relief for the previous assessment year, it was not open to disturb the relief for the subsequent years without disturbing the relief granted in the initial year. Our attention is also invited to the judgment of this court in the case of Commissioner Of Income-Tax v. Paul Brothers. reported in [1995]216 ITR 548 wherein the court was considering the issue for the assessment year 1981–82. This court took a view that for the purpose of section 80HH or section 80J, there is no provision for withdrawal of deduction for the subsequent year for breach of certain conditions, unless the relief granted for the earlier year 1981–82 was withdrawn. For the reasons set out earlier, we need not consider this aspect. We find no merit in this appeal and accordingly, the same is dismissed.
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