The ACIT, Circle-1(1),, Baroda v. M/s. Jagdat Menerals Pvt.Ltd.,, Baroda

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE S/SHRI G. D. AGARWAL VP AND BHAVNESH SAINI JM) ITA NO.2367/AHD/2006 A. Y.: 2002-03 THE A. C. I. T. CIRCLE-1(2) AAYAKAR BHAVAN RACE COURSE CIRCLE BARODA VS M/S. JAGDAT MINERALS PVT. LTD. 75 SURYAKIRAN COMPLEX NEAR TAGOR NAGAR OLD BADRA ROAD BARODA PA NO. AAACJ 4589J (APPELLANT) (RESPONDENT) APPELLANT BY SHRI C. K. MISHRA DR RESPONDENT BY SMT. URVASHI SHODHAN AR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-I BARODA D ATED 28-08-2006 FOR ASSESSMENT YEAR 2002-03. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL AVAILABLE ON RECORD. 3. ON GROUND NO.1 OF THE APPEAL THE REVENUE CHALLE NGED THE ORDER OF THE LEARNED CIT(A) IN DELETING THE ADDITION OF RS.2 5 LACS OUT OF TRANSPORT AND VEHICLE EXPENSES IN VIOLATION OF RULE 46A OF TH E IT RULES. THE AO OBSERVED FROM THE PROFIT & LOSS ACCOUNT THAT THERE WAS INCREASE IN TRANSPORTATION EXPENSES AND VEHICLE EXPENSES AS COM PARED TO EARLIER YEARS. MOST OF THESE PAYMENTS WERE SEEN TO HAVE BEE N MADE TO AN ASSOCIATE CONCERN NAMELY SHREENATHJI TRANSPORT. THE INCREASE IN TRANSPORTATION AND VEHICLE EXPENSES WAS 114% AS AGA INST INCREASE IN SALES REALIZATION AND TRANSPORT RECEIPT WAS ONLY 26 % AS COMPARED TO THE EARLIER YEAR. THE ASSESSEE EXPLAINED THAT INCREASE WAS DUE TO GENERAL ITA NO.2367/AHD/2006 ACIT VS M/S. JAGDAT MINERALS PVT. LTD. 2 INCREASE IN FUEL COST AND TRANSPORTATION COST AND T HAT THESE EXPENSES ARE GENERALLY HIGHER IN THE YEAR IN WHICH THE EARTH SUR FACE IS CLEARED IN MAKING THE MINING POSSIBLE WHICH BEGINS WITH THE PR OCESS OF EXCAVATING THE EARTH UP TO THE LEVEL OF 40 TO 50 FEET AFTER WH ICH THE BLASTING AND RECOVERY COMMENCES. THEREFORE THE YEAR IN WHICH NE W MINING PITS ARE DEVELOPED THE EXPENSES ARE COMPARATIVELY HIGHER. TH E AO OBSERVED THAT THE ASSESSEE HAD NOT MAINTAINED ANY LOG BOOK IN RES PECT OF TRIPS UNDERTAKEN PER VEHICLE AND CORRESPONDING SALE OF MA TERIAL OR INCOME ON ACCOUNT OF TRANSPORTATION. IT WAS ALSO OBSERVED THA T THE ASSOCIATE CONCERN NAMELY SHREENATHJI TRANSPORT TO WHICH THESE PAYMENTS HAVE BEEN MADE WAS NOT KEEPING CONTROL OVER THE FUEL EXP ENSES. THE ASSESSEE COMPANY USED TO ADJUST THE FUEL CHARGES TOWARDS PAY MENT OF TRANSPORTATION. UNDER THESE CIRCUMSTANCES THE GENU INENESS OF FUEL EXPENSES AND OTHER TRANSPORTATION EXPENSES AND TRAN SPORTATION INCOME CREDITED TO THE PROFIT & LOSS ACCOUNT COULD NOT BE VERIFIED. THE AO FURTHER OBSERVED THAT OUTSTANDING CREDIT BALANCE OF SHREENA THJI TRANSPORT OF RS.22 75 101/- WAS ALMOST EQUAL TO THE RISE IN THE TRANSPORT EXPENSES WHICH WAS RS.23 48 495/-. THE AO IN THE ABSENCE OF ANY COGENT REPLY ALLOWED 26% INCREASE IN THE TRANSPORTATION AND VEHI CLE EXPENSES IN THE RATIO TO THE INCREASE IN THE SALE RECEIPTS AND TRAN SPORTATION RECEIPT. AFTER MAKING FURTHER ALLOWANCE FOR GENERAL RISE IN THE FU EL COST THE AO DISALLOWED A SUM OF RS.25 LACS OUT OF THE TRANSPORT ATION AND VEHICLE EXPENSES. IT WAS FURTHER SUBMITTED BEFORE THE LEARN ED CIT(A) THAT IN THE BUSINESS OF THE ASSESSEE TRANSPORT EXPENSES VARY PR IMARILY ON ACCOUNT OF SALES UNDERTAKEN DURING THE PARTICULAR YEAR. IN A Y EAR IN WHICH SALES ARE MADE TO THE GOVERNMENT PARTIES/OTHERS WHERE TERMS O F SALES REQUIRE DELIVERY OF THE MATERIAL AT VARIOUS SITES/DEPOT TH E TRANSPORTATION EXPENSE TENDS TO BE HIGHER. DURING THE RELEVANT YEA R THE SUPPLIES ARE MOSTLY COVERED UNDER THIS CATEGORY. THE ASSESSEE FI LED TABULATED INFORMATION WHICH IS PLACED AT PAGE 7 OF THE IMPUGN ED ORDER. THE ASSESSEE BY REFERRING TO THE TABLE EXPLAINED THAT T HE TENDER SALES HAVE ITA NO.2367/AHD/2006 ACIT VS M/S. JAGDAT MINERALS PVT. LTD. 3 BEEN SUBSTANTIALLY HIGHER DURING THE YEAR AT RS.73 66 000/- AS COMPARED TO RS.37 50 000/- IN THE EARLIER YEAR. THE QUANTITY SOLD DURING THE YEAR IS ALMOST 50% HIGHER WHILE THE TENDER SALES WHERE DELI VERY BY TRANSPORT HAS TO BE NORMALLY SUPPLIED BY THE ASSESSEE SHOW AN INC REASE OF 100%.THE ASSESSEE HAS SHOWN CO-RELATION BETWEEN THE TRANSPOR T EXPENSES AND THE NUMBER OF TRIPS UNDERTAKEN AS WELL AS THE QUANTITY TRANSPORTED. THE ASSESSEE TRIED TO SHOW BEFORE THE LEARNED CIT(A) FR OM THIS TABLE THAT COST PER TRIP AS WELL AS PER BRASS IS LOWER AT RS.1257/- AND RS.307/- RESPECTIVELY AS COMPARED TO RS.1521/- AND RS.441/- RESPECTIVELY IN THE LAST YEAR. IT WAS FURTHER SUBMITTED THAT INCREASE I N THE VOLUME AND QUANTITY OF SALES UNDER TENDER MAINLY TO RAILWAY WH ERE THERE IS A CONDITION FOR DELIVERY OF MATERIAL AT SITE AND THE INCREASE IN THE NUMBER OF TRIPS AND TOTAL QUANTITY TRANSPORTED WAS THE MAI N REASON FOR INCREASE IN THE TRANSPORTATION COST. THE COPIES OF THE TENDE RS WERE FILED IN THE PAPER BOOK TO SUPPORT THE ABOVE CONTENTION. AS REGA RDS DUES OUTSTANDING FROM SHREENATHJI TRANSPORT THE ASSESSE E EXPLAINED THAT IT IS REGULARLY ASSESSED TO TAX AND DETAILS HAVE BEEN SHO WN IN THEIR RECORD. THE AMOUNT IS PAID TO THEM IN THE NEXT YEAR. COPY O F THE ACCOUNT WAS ALSO FILED BEFORE THE LEARNED CIT(A). IT WAS ACCORD INGLY SUBMITTED THAT THE AO SHOULD NOT HAVE DOUBTED THE GENUINENESS OF THE T RANSACTIONS IN THE MATTER. THE LEARNED CIT(A) CONSIDERING THE DETAILS FILED IN THE PAPER BOOK ACCEPTED THE CONTENTION OF THE ASSESSEE. THE LEARNE D CIT(A) ALSO NOTED THAT THE ASSESSEE DID NOT PRODUCED GOOD EVIDENCE BE FORE THE AO BUT BEFORE HIM THE ASSESSEE FURNISHED THE RELEVANT DETA ILS AND MATERIAL TO SHOW THAT INCREASE IN TRANSPORTATION AND VEHICLE EX PENSES ARE SUFFICIENT TO SHOW JUSTIFICATION IN INCREASE IN THE PAYMENT. T HE LEARNED CIT(A) ACCORDINGLY ALLOWED THE APPEAL OF THE ASSESSEE. 4. THE LEARNED DR SUBMITTED THAT WHATEVER DETAILS A RE FILED BEFORE THE LEARNED CIT(A) IN THE PAPER BOOK ARE ADMITTEDLY NOT FILED BEFORE THE AO AND THE LEARNED CIT(A) IN VIOLATION OF RULE 46A OF THE IT RULES ALLOWED ITA NO.2367/AHD/2006 ACIT VS M/S. JAGDAT MINERALS PVT. LTD. 4 THE CLAIM OF THE ASSESSEE. ON THE OTHER HAND THE L EARNED COUNSEL FOR THE ASSESSEE ADMITTED THAT THE DETAILS WERE FILED FOR T HE FIRST TIME BEFORE THE LEARNED CIT(A). THE LEARNED COUNSEL FOR THE ASSESSE E HOWEVER SUBMITTED THAT THE ADDITION HAS BEEN RIGHTLY DELETED BY THE L EARNED CIT(A). 5. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE AR E OF THE VIEW THAT THE MATTER REQUIRES RECONSIDERATION AT THE LEVEL OF THE LEARNED CIT(A). AS PER RULE 46A OF THE IT RULES THE ASSESSEE SHALL NO T BE ENTITLED TO PRODUCE BEFORE THE LEARNED CIT(A) ANY EVIDENCE OTHE R THAN THE EVIDENCE PRODUCED BEFORE THE AO EXCEPT WHERE THE AO REFUSED TO ADMIT THE EVIDENCE WHICH OUGHT TO HAVE BEEN ADMITTED THE ASS ESSEE WAS PREVENTED BY SUFFICIENT CAUSED FROM PRODUCING THE EVIDENCE BE FORE THE AO THE ASSESSEE WAS PREVENTED BY SUFFICIENT CAUSE FROM PRO DUCING SUCH EVIDENCE BEFORE THE AO AND THAT WHERE THE AO MADE T HE ASSESSMENT ORDER WITHOUT GIVING SUFFICIENT OPPORTUNITY TO THE ASSESSEE TO PRODUCE EVIDENCE RELEVANT TO THE GROUND OF APPEAL. RULE 46A (2) OF THE IT RULES PROVIDES THAT NO EVIDENCE SHALL BE ADMITTED BY THE LEARNED CIT(A) UNLESS THE LEARNED CIT(A) RECORDS THE REASONS FOR ADMISSIO N IN WRITING. SUB RULE (3) OF RULE 46A PROVIDES THAT LEARNED CIT(A) SHALL NOT TAKE INTO ACCOUNT ANY EVIDENCE WAS PRODUCE UNLESS THE AO HAS BEEN GIV EN OPPORTUNITY TO EXAMINE THE SAME EVIDENCE. IN THIS CASE THE ASSESS EE COULD NOT PRODUCE RELEVANT AND COGENT MATERIAL BEFORE THE AO IN EXPLA NATION TO THIS ISSUE. THE ASSESSEE FILED RELEVANT DETAILS IN THE FORM OF PAPER BOOK BEFORE THE LEARNED CIT(A). THE LEARNED CIT(A) NOTED THAT THE A SSESSEE DID NOT PRODUCE GOOD EVIDENCE BEFORE THE AO IN ORDER TO JU STIFY INCREASE IN THE EXPENSES BUT BEFORE HIM THE ASSESSEE PRODUCED THE R ELEVANT DETAILS IN ORDER TO JUSTIFY ITS CLAIM. IT WOULD THEREFORE SH OW THAT THE EVIDENCE AND MATERIAL FILED BEFORE THE LEARNED CIT(A) IN SUPPORT OF THE CONTENTION WERE NOT FILED BEFORE THE AO. THE LEARNED CIT(A) HAS NOT NOTED ANY REASONS AS TO HOW HE HAS ADMITTED THE ADDITIONAL EVIDENCE WHIL E DELETING THE ADDITION. NO OPPORTUNITY WAS GIVEN TO THE AO TO EXA MINE OR CROSS ITA NO.2367/AHD/2006 ACIT VS M/S. JAGDAT MINERALS PVT. LTD. 5 EXAMINE SUCH EVIDENCES WHICH WERE FILED FOR THE FIR ST TIME BEFORE THE LEARNED CIT(A). NO REASONS ARE RECORDED BY THE LEAR NED CIT(A) IN THE IMPUGNED ORDER AS TO WHY SUCH EVIDENCES HAVE BEEN A DMITTED AT THE APPELLATE STAGE WHICH WERE NOT FILED BEFORE THE AO. THE LEARNED COUNSEL FOR THE ASSESSEE ADMITTED THAT SUCH EVIDENCES WERE NOT FILED BEFORE THE AO. SINCE RULE 46A OF THE IT RULES IS VIOLATED IN T HE MATTER WE THEREFORE SET ASIDE THE ORDER OF THE LEARNED CIT(A ) AND RESTORE THIS ISSUE TO HIS FILE WITH DIRECTION TO RE-DECIDE THIS ISSUE BY FOLLOWING RULE 46A OF THE IT RULES AND BY GIVING REASONABLE SUFFICIENT OP PORTUNITY OF BEING HEARD TO THE AO AND THE ASSESSEE. AS A RESULT GROU ND NO.1 OF THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. 6. ON GROUND NO.2 OF THE APPEAL REVENUE CHALLENGED THE ORDER OF THE LEARNED CIT(A) IN ALLOWING DEDUCTION OF RS.2 11 977 /- U/S 80 IA /80IB OF THE IT ACT. THE ASSESSEE EXPLAINED BEFORE THE AO TH AT IT WAS ENGAGED IN THE BUSINESS OF EXTRACTING BOULDERS FROM THE EARTH BY MINING AND CRUSHING THE SAME INTO RUBBLES AND THEN MADE SALES TO VARIOUS CUSTOMERS FOR ROAD MAKING OR FOR THE PURPOSE OF LAY ING THE RAILWAY TRACKS. BOULDERS AND THE RUBBLES ARE DIFFERENT COMM ERCIAL PRODUCTS AND HAVE DIFFERENT APPLICATIONS IN THE FIELD OF COMMERC IAL ACTIVITIES ETC. IT WAS SUBMITTED THAT THE CLAIM OF THE ASSESSEE IS DIRECTL Y COVERED BY THE DECISION IN THE CASE OF CIT VS M. R. GOPAL 58 ITR 5 98 (MAD) AND CIT VS R. C. CONSTRUCTION 222 ITR 658 (GAU) WHEREIN CONVER SION OF BOULDERS INTO STONE WITH THE AID OF MACHINERY WAS HELD TO BE MANUFACTURING PROCESS ENTITLED TO DEDUCTION. THE AO HOWEVER DENI ED THE CLAIM OF THE ASSESSEE. THE ASSESSEE REITERATED THE SUBMISSIONS M ADE BEFORE THE AO AND RELIED UPON THE DECISION OF THE HONBLE GAUHATI HIGH COURT IN THE CASE OF R. C. CONSTRUCTION (SUPRA) AND ALSO RELIED UPON THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF BES T CHEM AND LIMESTONE INDUSTRIES PVT. LTD. 210 (ITR 883) IN WHI CH IT WAS HELD AS UNDER: ITA NO.2367/AHD/2006 ACIT VS M/S. JAGDAT MINERALS PVT. LTD. 6 HELD THAT UPON CONVERSION OF THE MINERAL INTO THE FORM OF RODI AND POWDER IT DOES NOT RETAIN THE PHYS ICAL SHAPE WHICH THE RAW MATERIAL HAS AND IS UNDERSTOOD AS A DIFFERENT COMMERCIAL COMMODITY BY THE BUSINESS COMMUNITY. IN THESE CIRCUMSTANCES THE INCOME-TAX APPELLATE TRIBUNAL WAS JUSTIFIED IN COMING TO THE CONCLUSION THAT CONVERSION OF LIMESTONE BY CRUSHING INTO RODI OR LIME DUST IS A PROCESS OF MANUFACTURE AND THAT THE ASSESSEE WAS ENTITLED TO INVESTMENT ALLOWANCE. 6.1 IT WAS FURTHER SUBMITTED THAT THE ASSESSEE IS E NTITLED FOR THE CLAIM. THE LEARNED CIT(A) CONSIDERING THE EXPLANATION OF T HE ASSESSEE NOTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MINING A ND CRUSHING OF BOULDERS WHICH RESULT INTO KAPACHI METAL GITTI AND RUBBLES THROUGH THE USE OF STONE CRUSHER. THE PRODUCT UNDERGOES A SUBST ANTIAL CHANGE IN THE PROCESS AND THE FINISHED PRODUCT IS COMMERCIALLY KN OWN AS DIFFERENT PRODUCT AND IS USED FOR DIFFERENT COMMERCIAL PURPOS E LIKE LAYING OF ROADS AND RAILWAY TRACKS. THE LEARNED CIT(A) CONSIDERING THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF BEST CH EM AND LIMESTONE INDUSTRIES PVT. LTD. (SUPRA) ACCEPTED THE CONTENTIO N OF THE ASSESSEE AND HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 80 IA OF THE IT ACT BECAUSE ITS BUSINESS ACTIVITIES CLEARLY AMOUNT TO M ANUFACTURE. 7. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE THE LEARNED CIT(A) AND ALSO RELIED UPON RECENT DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ITO VS ARI HANT TILES AND MARBLES P. LTD . 320 ITR 79 IN WHICH IT WAS HELD AS UNDER: HELD AFFIRMING THE DECISION OF THE HIGH COURT TH AT THIS WAS NOT A CASE OF MERELY CUTTING MARBLE BLOCKS INTO SLABS. THERE WAS THE FURTHER ACTIVITY OF POLISHING AND ULTIMATE CONVERSION OF THE BLOCKS INTO POLISHED SLA BS AND TILES. THERE WERE VARIOUS STAGES THROUGH WHICH THE BLOCKS HAD TO GO THROUGH BEFORE THEY BECAME POLISHE D SLABS OR TILE. BLOCKS WERE CONVERTED INTO POLISHED SLABS ITA NO.2367/AHD/2006 ACIT VS M/S. JAGDAT MINERALS PVT. LTD. 7 AND TILES RESULTING IN THE EMERGENCE OF A NEW AND DISTINCT COMMODITY. SUCH AN ACTIVITY WAS SOMETHING BEYOND MANUFACTURE AND BROUGHT A NEW PRODUCT INTO EXISTENCE. THE STEPWISE ACTIVITY CONSTITUTED MANUFACTURE OR PRODUCTION IN TERMS OF SECTION 80- IA. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE PLEADED BEFORE TH E LEARNED CIT(A) THAT IT WAS ENGAGED IN THE BUSINESS OF EXTRACTING BOULDE RS FROM EARTH BY MINING AND CRUSHING THE SAME INTO RUBBLES AND THEN SALES MADE TO VARIOUS CUSTOMERS FOR ROAD MAKING OR FOR THE PURPOS E OF LAYING RAILWAY TRACKS. THE BOULDERS AND RUBBLES ARE DIFFERENT COMM ERCIAL PRODUCTS HAVING DIFFERENT APPLICATIONS IN COMMERCIAL FIELD. HONBLE RAJASTHAN HIGH COURT IN THE CASE OF BEST CHEM AND LIMESTONE INDUST RIES PVT. LTD. (SUPRA) HELD THAT ON CONVERSION OF THE MINERAL INTO THE FORM OF RODI AND POWDER IT DOES NOT RETAIN THE PHYSICAL SHAPE WHICH THE RAW MATERIAL HAS AND IS UNDERSTOOD AS A DIFFERENT COMMERCIAL COMMODI TY BY BUSINESS COMMUNITY. IN THE CASE OF THE ASSESSEE THE ASSESSE E ORIGINALLY TAKES OUT BOULDERS FROM THE EARTH BY MINING AND BY CRUSHING T HE SAME INTO RUBBLES DIFFERENT PRODUCT COMES INTO EXISTENCE. DI FFERENT COMMODITIES HAVE COME OUT THROUGH THE USE OF STONE CRUSHING. TH US THE LEARNED CIT(A) RIGHTLY CONSIDERED THAT THE PRODUCT UNDERGOE S A SUBSTANTIAL CHANGE IN THE PROCESS AND FINISHED PRODUCT IS COMME RCIALLY KNOWN AS DIFFERENT PRODUCTS AND USED IN DIFFERENT FIELDS. TH E ORIGINAL MATERIAL DOES NOT REMAIN IN ITS ORIGINAL SHAPE AND HAS DIFFERENT COMMERCIAL PRODUCTS. IT RESULTED INTO MANUFACTURE OF NEW AND DIFFERENT COMM ODITIES. THUS THE ACTIVITY OF THE ASSESSEE WAS RIGHTLY CONSIDERED TO BE MANUFACTURE AND BROUGHT NEW PRODUCTS INTO EXISTENCE. THE LEARNED CI T(A) WAS THEREFORE JUSTIFIED IN CONSIDERING THE CASE OF THE ASSESSEE F OR THE PURPOSE OF DEDUCTION U/S 80 IA OF THE ACT. WE ACCORDINGLY DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. SAME IS ACCOR DINGLY DISMISSED. ITA NO.2367/AHD/2006 ACIT VS M/S. JAGDAT MINERALS PVT. LTD. 8 9. AS A RESULT THE DEPARTMENTAL APPEAL IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 14-05-2010 SD/- SD/- (G. D. AGARWAL) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 14- 05-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR ITAT AHMEDABAD