THE COMMISSIONER OF INOCME TAX vs. M/S LAILA NUTRACEUTICALS

ITTA NO: 259 OF 2015 The Commissioner Of Inocme Tax, Vijayawada. ANO r PRESENT HONOURABLE SRI JUSTICE C.PRAVEEN KUMAR . AND HONOURABLE SRI JUSTICE A V RAVINDRA BABU THURSDAY .THE TWENTY FIFTH DAY OF AUGUST TWO THOUSAND AND TWENTY TWO ■ T ...APPELLANT I IN THE HIGH COURT OF ANDHRA PRADESH :: AMARAVATI 0^ SB (Appeal Under Section 260(A) of the. Income Tax Act, 1961 preferred against the order of the Income tax Appellate Tribunal, Visakhapatnam Bench, Visakhapatnam in ITA.No.464AZ/12 for the Assessment Year 2008-09, dated 30-07- 2014 preferred against the order of the Commissioner of Income Tax (Appeals), Vijayawada in Appeal No.345/CIT (A)A/JA/10-11. dated 30.08.2012 preferred against the order of the Assistant Commissioner of Income Tax, Central Circle-2 (t), Vijayawada in PAN No. AACFL3855A, dated 31-12-2010) Between: M/S Laila Nutraceuticals, 40-15-14, Sudarshan Apartments. Brindavan Colony, Labbipet, Vijayawada. ...RESPONDENTS ITTA NO: 283 OF 2015 S (Appeal Under Section 260(A) of the Income Tax Act, 1961 preferred against this order of the Income Tax Appellate Tribunal, Visakhapatnam Bench, Visakhapatnam in ITA.No. 401A//12 for the Assessment Year 2009-10, dated 30.07.2014 preferred against the order of the Commissioner of Income Tax (Appeals), Vijayawada ih Appeal No. 420/ CiT (A) / VJA/ 11-12, dated 30.08.2012 preferred against the order of the Commissioner of . Income Tax, Ward 2 (2),. Vijayawada in PAN No. AACFL3855A, dated 30-12-2011) ! . ■ i * ITTA NOs: 259, 283, & 330 OF 2015.45 & 106 OF 2016 & 25.121 & 192 OF 2017 r

Between: The Commissioner Of Income Tax, Vijayawada. ...APPELLANT AND ...RESPONDENT ITTA NO: 330 OF 2015 Between: The Commissioner Of Income Tax, Vijayawada ...APPELLANT AND ...RESPONDENTS ITTA NO: 45 OF 2016 M/S Laila Nutraceuticals, 40-15-14, Sudarshan Apartments, Brindavan Colony, Labbipet, Vijayawada I Laila Nutraceuticals, 40-15-14, Sudarshan Apartments, Brindavan Colony, Labbipet, Vijayawada. (Appeal Under Section 260(A) of the Income Tax Act, 1961 preferred, against the . order of the Income Tax Appellate Tribunal, Visakhapatnam Bench, Visakhapatnam in ITA.No. 398/V/I2 for the Assessment Year 2006-07, dated 30.07.2014 preferred against the order of the Commissioner of Income Tax (Appeals), Vijayawada in Appeal No. 343/CIT(A),VJA /10-11 dated 30.08.2012 preferred against the order of the Assistant Commissioner of Income Tax,, Circle-2 (1), Vijayawada in PAN No. AACFL3855A, dated 17-12-2008) (Appeal Under Section 260(A) of the Income. Tax Act, 1961 preferred against the order of the Income Tax Appellate Tribunal, Visakhapatnam Bench, Visakhapatnam in ITA.No. 463/V/12 for the Assessment Year 2007-08, dated 30.07.2014 preferred against the order of the Commissioner of Income Tax (Appeals), Vijayawada in Appeal No. 344/CIT(A),VJA /10-11 dated 30.08.2012 preferred against the order of the Assistant Commissioner of Income Tax, Circle-2 (1),. Vijayawada in PAN No. AACFL3855A, dated 31-12-2010) X

,! Between: The Commissioner Of Income Tax, Vijayawada, Krishna District. AND I 1 ITTANO: 106 OF 2016 i AACFL3855A, dated 31-12-2010) Between: :| The Commissioner Of Income Tax, Vijayawada. ...APPELLANT AND ...RESPONDENTS ITTA NO: 25 OF 2017 ...APPELLANT 'i M/S. Laila Nutraceuticals, 40-15-14, Sudarshan Apartments, Brindavan Colony, Labbipet, Vijayawada, Krishna District. . ...RESPONDENTS (Appeal Under Section 260(A) of the Income Tax Act, 1961 preferred against! the order of the Income Tax Appellate Tribunal, Visakhapatnam Bench, Visakhapatnam in ITA.No. 399A//12 for the Assessment Year 2007-08, dated! 30.07.2014 preferred against the order of the Commissioner of Income Tax (Appeals), Vijayawada in Appeal No. 344/CIT(A),VJA / 10-11 dated 30.08.2012 preferred against the order of the Assistant Commissioner of Income Tax, Circle-^ (1), Vijayawada in PAN No. AACFL3855A, dated 31-12-2010) (Appeal Under Section 260(A) of the Income Tax Act, 1961 preferred, against the order of the Income Tax Appellate Tribunal, Visakhapatnam Bench, Visakhapatnam in ITA.No. 400/V/12 for the Assessment Year 2008-09, dated 30.07.2014 preferred against the order of the Commissioner of Income Tax (Appeals), Vijayawada in Appeal No. 345/CIT(A),VJA /10-11 dated 30.08.2012 preferred against the order of : the Assistant Commissioner of Income Tax, Circle-2 (1), Vijayawada in PAN No.) _______ M/S. Laila Nutraceuticals, 40-15-14, Sudarshan Apartments, Brindavan Colony, Labbipet, Vijayawada.

A Between: The Commissioner Of Income Tax, Vijayawada ...APPELLANT AND ...RESPONDENTS ITTA NO: 121 OF 2017 Between: i The Commissioner Of Income Tax. Vijayawada. ...APPELLANT AND ...RESPONDENT ITTA NO: 192 OF 2017 M/S Laila Nutraceuticals, 40-15-14. sudarshan Apartments, Brindavan Colony. Labbipet, Vijayawada. M/S Laila Nutraceuticals, 40-15-14, Sudarshan Apartments, Brindavan Colony. Labbipet, Vijayawada. (Appeal Under Section 260(A) of the Income Tax Act, 1961 preferred against the order of the Income Tax Appellate Tribunal, Visakhapatnam Bench, Visakhapatnam in ITA. No. 465/V/I 2 for the Assessment Year 2009-10, dated 30.07-.2014 preferred against the order of the Commissioner of Income Tax (Appeals), Vijayawada in Appeal No. 420/CIT(A),VJA / 11-12 dated' 30.08.2012 joreferred against the order of the Assistant Commissioner of Income Tax, Circle-2 (2), Vijayawada in PAN No,. AACFL3855A, dated-30-12-2011) (Appeal Under Section 260(A) of the Income Tax Act. 1961 preferred against the order of the Income Tax Appellate Tribunal, Visakhapatnam Bench, . Visakhapatnam iri ITA. No. 462/V/I 2 for the Assessment Year 2006-07, dated 30.07.2014 preferred against the order of the Commissioner of Income Tax (Appeals), Vijayawada in Appeal No. 343/CiT(A),VJA ! 10-11 dated 30.08.2012 preferred against the order of the Assistant Commissioner of Income Tax, Circle-2 . (1), Vijayawada in PAN No. AACFL3855A. dated 31-12-2010)

Between: The Commissioner Of Income Tax, Vijayawada. AND Labbipet, Vijaywada. Counsel for the Appellant : SMT. M. KIRANMAYEE (SC for Income Tax) Counsel for the Respondent: SRI K. VASANTKUMAR 'i The Court made the following: ■t :l .'i 1 J ...APPELLANT M/S. Laila Nutraceuticals, 40-15-14, Sudarshan Apartments, Brindavan Colony, ...respondent

COMMON JUDGMENT; (Per Hon’ble Sri Justice C. Praveen Kumar) Heard Ms. M. Kiranmayee, learned Standing Counsel for Income Tax, appearing for the appellant, and Sri K. Vasant Kumar, learned counsel for the resjpondent-assessee, in all the Appeals,, and perused the records. 2. In all the 8 Appeals filed by the Revenue, I.T.T.A Nos. 121 &■ 192. of-2017, 259 of 2015 and 45 of 2016 are against the 465/V/12, 464/V/12 & 463/V/12, dated 30.07.2014, filed by the Revenue before the Income Tax Appellate Tribunal Bench at Visakhapatnam (for short, ‘the Tribunal’) relating to Foreign Trade. Policy and incorporation of Section 10-B of the Income Tax Act, 1961 (for short, ‘the IT Act*) and I.T.T.A n6s.33O 8b 283 of 2015, 106 of 30.07.2014, filed by the Assessee before the Tribunal wherein the Tribunal held that profit attributed to the turnover on job HON'BLE SRI JUSTICE C. PRAVEEN KUMAR AND HON'BLE SRI JUSTICE A.V. RAVINDRA BABU I.T.T.A. Nos.259, 283 as 330 OF 2015, 45 & 106 OR2016 AND 25, 121 & 192 OF 2017 NOS.398/V/12, 401/V/12, 400/V/12 8b 399/V/12, dated 2016 and 25 of 2017 are against the orders in I.T.A orders in. I.T.A Nos.462/V/12,

2 3. 4. was carried out in the work should not be excluded while calculating the deduction under Section 10-B of the IT Act. 'I i 'i 'I The respondent-assessee is The brief facts, which led to filing of these Appeals, are as under: nil after claiming deduction under Section 10-B of the IT Act, which is to a tune of Rs.23,03,43,847/-. The income tax return was processed under Section 143(1) of the-IT Act and subsequently it was selected for scrutiny, which was completed on 17.12.2008 by accepting the return of income. While things stood thus, the survey operation under Section 133-A of the IT Act business premises of the assessee on 17.09.2009 by the Deputy Director of Income Tax (Investigation), Vijayawada. During the All these Appeals are taken up for disposal by way of this common judgment, as the issue involved and the party being one and the same, taking I.T.T.A. No.330 of 2015 as a lead case. a registered 100% Export Oriented Undertaking (EOU) engaged in the business of. manufacturing and trading of biological, pharmaceutical and ayurvedic products and herbal extracts. The assessee firm filed its income tax return for the assessment year 2006-07 on 31.10.2005 admitting the total income as

3 course of survey, certain defects were noticed which, if accepted. would make the assessee ineligible to claim deduction under Section 10-B of the IT Act. Since the income chargeable to tax escaped the assessment, a notice under Section 148 of the IT Act was issued on 08.03.2010. In reply, the respondent- assessee submitted a letter, dated 23.03.2010, stating that the return filed originally on 27.10.2007 may be treated as a return filed in response to the notice under Section 148 of the IT Act as well. Thereafter, an opportunity of personal hearing was given and the Assessing Authority passed an assessment order on 31.12.2010, imposing a total tax of Rs. 12,17,27,950/- on taxable income of Rs.6,91,03,155/-. Challenging the order of assessment, the respondent-assessee preferred an Appeal vide Appeal No.343/CIT{A)/VJA/10-11 before the Commissioner of 30.08.2012, the Appellate Authority allowed the Appeal in part on both the counts namely Foreign Trade Policy covers the case of the respondent-assessee and held that the assessee has installed machinery and commenced its operation^ during the previous year to the assessment and conducted manufacturing activity in its unit though not on every aspect and as such making liable to pay tax for not violating the Foreign Trade V ■■ ■ ■ Income Tax (Appeals), Vijayawada. By an order, dated

4 5. •*:r’ Policy is incorrect. Coming to the issue relating to 10-B of the IT Act, the Appellate Authority dealt with the same and held that a plain reading of Section 10-B of the IT Act does not preclude outsourcing a part of manufacturing activity on job work basis, which was held to have been done in the instant case. The second aspect which was dealt with by the Appellate Authority in the Appeal was with regard to deductions under Section 10-B of the IT Act to the extent of job work done and the Appellate Authority held that the turnover to the extent of 21.27% representing the percentage of job work charges in total manufacturing expenses, including raw material, chemicals, packing materials etc., should be excluded from the total turnover, eligible for deduction under Section 10-B of the IT Act. Hence, the Assessing Officer was Aggrieved by the order of the Appellate Authority, the appellant-Revenue and the respondent-assessee, separately, filed Appeals before the Tribunal for the assessment year 2006- 07. The Revenue filed the Appeal against the order of the Appellate Authority in holding that the assessee is eligible for directed to compute net profit on the said percentage of 21.27% of the total turnover and bring the same to tax, adopting the same percentage of profit as shown by the assessee in respect of total turnover.

5 deduction under Section 10-B of the IT Act, whereas the assessee filed the Appeal against the orders of the Appellate Authority in holding that profit on 21.27% of the total turnover 10-B of the IT Act. By order, dated 30.07.2014, the Tribunal allowed the Appeal preferred by the respondent-assessee and dismissed'the Appeal preferred by the appellant-Revenue. 6.. Further aggrieved, the appellant-Revenue preferred the Income Tax Tribunal Appeal No.330 of 2015. Ms. M. Kiranmayee, learned Standing Counsel for the 7. Income Tax, appearing for the appellant-Revenue, fairly submits that in view of Clause 6.14(a)(ii) of the Foreign Trade Policy, the respondent-assessee shall sub-contract production process to Domestic Tariff Area (DTA) through job work but the said sub­ contract shall not be above 50% of the overall production of the previous year in value terms in DTA with permission of Customs Authorities. She took us through the Foreign Trade Policy, more particularly, to Clause 6.14(a)(ii) of the provisions, in support of her plea. She further contends that, in order to claim exemption from payment of tax in terms of Section 10-B of the IT Act, there being job work should be computed and excluded from computation of the eligible profit for deduction under Section

■ 6 has to be a manufacturing process i.e., the respondent-assessee, which is a 100% Export Oriented Undertaking, has to carry the entire manufacturing activity in its unit and merely because the 1 respondent-assessee and entire manufacturing was being done 100% Export Oriented Undertaking unit. It is her case that no old machinery can be used for manufacturing a product which is subject matter of export and, in case, if the respondent- IT Act, the terms of Section 10-B have to be strictly complied with. 8. On the other hand, Sri K. Vasant Kumar, learned counsel appearing for the respondent-assessee, would contend that two . findings do not warrant interference by .this Court. In other words, his argument appears to be that when the fact finding I authorities have concurrently held against the Revenue, this authorities namely Appellate Authority as well as the Tribunal have concurrently held the findings against the Revenue, which contends that the finding of the Assessing Authority clearly indicates that no machinery was established in the unit of the assessee intends to claim any benefit under Section 10-B of the I j I i' 1 I I I I I i I entire manufacturing process was given on outsourcing basis no relief can be given under Section 10-B of the IT Act. She further by its sister concern namely M/s. Laila Impex, which is also a

7 Court, in these Appeals, cannot go into the formal aspects and that it can only look into the substantial questions of law raised. In any event, he would contend that the stand of the respondent-assessee from the beginning is under Clause undertaken without through other 9. the assessee for claiming deduction under Section 10-B of the IT Act. According to him, it is not necessary that the entire product' produced should be manufactured/processed in the unit of the maintained in the unit. That being so there is no illegality or violation of said clause stipulated under the Foreign Trade Policy by the respondent-assessee. Coming to Section 10-B of the Income Tax Act, he relied upon the judgments of Hon’ble Apex Court and various High Courts to contend that manufacturing process can be done on job work basis outside the unit of the respondent-assessee. It is sufficient if there is some manufacturing process in the unit of 6.14(b)(iii) of the Foreign Trade Policy, whereas Clause. 6.14(a)(ii) was urged before the Assessing Authority by the appellant- Revenue. According, to him, a reading of Clause 6.14(b)(iii) of the Foreign Trade Policy would make it clear that subcontractirig of both production and production' processes may also be any limit. EOU/EHTP/STP/SEZ/BTP units, on the basis of records

■ 8 respondent-assessee seeking benefit under Section 10-B of the IT Act. 10. evidence to that effect. In other words, he would contend that 1 machinery was being used by the respondent-assessee in its unit. According to him, the self serving statement of the record iridicate installation of new machinery only. the argument of learned Standing Counsel for the Income Tax appearing for the appellant-Revenue that the respondent- the absence of any independent material to that effect. He would submit that independent evidence before the Assessing Authority to show that there was no machinery or that old Assessing Authority cannot be accepted in Insofar as the argument that there is no machinery established' in the unit of the respondent-assessee or that old machinery has been used, he would contend that there is no 11. Learned counsel further submits that this benefit under Section 10-B of the IT Act can be availed for a period of 10 years from the date of its installation, which it has done. new machinery and whatever manufacturing process is being done was with the there was no invoices of the new machinery purchased and material on

9 12. interference? 13. assessee is an old unit disentitled from seeking exemption may not be correct. Insofar as it relates to outsourcing the job work, he would contend that the finding of the Appellate Authority which was confirmed by the Tribunal on this aspect cannot be found fault with. Hence, pleads that these Appeals are liable to be dismissed. to answer the first point namely as to whether there was any violation or adherence to the Foreign Trade Policy, since the As seen from the record, each assessment order was set- aside by the Commissioner of Income Tax (Appeals), which was confirmed by the Tribunal meaning thereby that the two fact finding authorities concurred with each other differing with the view expressed by the Assessing Authority. As seen from the arguments advanced by learned standing counsel two grounds sought to be raised are whether the respondent-asses'see fulfilled the terms of the Foreign Trade Policy and whether it is entitled for exemption under Section 10-B of the IT Act. In order The point that arises-for consideration in these Appeals is whether the orders passed by the Appellate Authority, which were confirmed in Appeal's by the Tribunal, requires any

I 10 as<«s» i 'I I i if ;; ■i . - “6.14 Sub-Contracting; {a)(i) EOU/EHTP/STP/BTP units, including gem and jewellery units, may on the basis of annual permission from Customs authorities, subcontract production processes to DTA through job work which . may also involve change of form or nature of goods, through job work by units in DTA. (ii) These units may subcontract up to 50% of overall production of previous year in value terms in DTA with permission of Customs authorities. (b) (1) EOU may, with annual permission from Customs authorities, undertake job work for export, on behalf of DTA exporter, provided that goods are exported directly from EOU and export document shall jointly be in name of DTA/EOU. For such exports, DTA units wiU be entitled for refund of duty paid on inputs by way of Brand Rate of duty drawback. (ii) Duty free import of goods for execution of export order placed in EOU by Foreign Supplier on job­ work basis, would be allowed subject to condition that no DTA clearance shaU be allowed. (iii) Subcontracting of both production and production processes may also be undertaken without any limit through other EOU/EHTP/STP/SEZ/BTP units, on the basis of records maintained in unit.” respondent-assessee being an Export Oriented Undertaking, it would be just and proper to extract Clause 6.14 of the Foreign Trade Policy, which reads as under:

11 A reading of clause 6.14(a)(i) of the Foreign Trade Policy 14. would make it clear that an Export Oriented Undertaking, may Authorities, subcontract production processes to DTA through job work which may also involve change of form or nature of goods, through job work by units in DTA. Secondly, it also postulates that the EOU may sub-contract up to 50% of overall production of previous year in value terms in DTA with permission of Customs Authorities. 15. As stated by us earlier, learned Standing Counsel mainly relied upon this clause to say that sub-contract of production process can only be to DTA through job work and subcontract may be up to up to 50% of the overall production of previous first. At the said argument appeared be to year. correct/impressive but after a perusal of (b)(iii) of Clause 6.14' of Foreign Trade Policy, it proved to be otherwise. A reading of (b)(iii) of Clause 6.14 of Foreign Trade Policy would show that. subcontracting of both production and production- processes may also be undertaken without any limit through other EOU units on the basis of the records maintained in it. Therefore, an Export Oriented Undertaking unit can also seek the assistance of another EOU unit for both production and production on the basis of annual permission from the Customs

12 i! processes without any limit. Hence, the argument of. learned Standing Counsel for the Income Tax that outsourcing of production process should be only through DTA and that ,1 i! Appellate Authority as well as the Tribunal dealt with the said aspect. process was in 6 stages. The Assessing Authority categorically held that the first stage of production process was in the sister concern of the respondent-assessee, while the other stages were in the unit of the respondent-assessee itself. It would be appropriate to extract the finding of the Assessing Authority at this stage, which is as under: subcontracting of production process up to 50% of the over all production of the previous year may not be correct. In fact, the I “In the reply during the course of survey proceedings as evident from the Survey Report, the assessee sub-divided the manufacturing process into 6 stages. A perusal of these 6 stages would reveal that manufacturing activity is involved only in the first two stages, while in the remaining 4 stages only processing activity like drying, powdering, sieving and packing is undertaken. Hence, the manufacturing & trading account gives the expenditure incurred on all the 6 stages (which includes 2 manufacturing stages and 4 non-manufacturing .-stages). According to the assessee. 16. At this stage it is also to be noticed that the production

13 It appears that the Assessing Authority has relied upon 17. clause 6.14(a)(i) and (ii) of Foreign Trade Policy to discredit the without any limit through other EOU. Hence, the finding of the Assessing Authority that the case of the respondent-assessee fall's under clause 6.14(a)(ii) of the Foreign Trade Policy may not be correct, which in fact was the view taken by the Appellate Authority as well as by the Tribunal. 1 contention of the respondent-assessee namely that they are covered by clause 6.14{b)(iii) of the Foreign Trade Policy but, as observed above, clause 6.14(b)(iii) categorically permits both stage 1 is done by M/s. Laila Impex on job work basis while stages 2 to 6 are done by the assessee itself. It should be recalled here that 96.56% of ‘Manufacturing Expenses’ and* 91.1% of ‘Manufacturing Establishment Expenses’ are paid to M/s. Laila Impex. As already mentioned above, stages 1 8b 2 alone can be regarded as stages where manufacturing activity is carried on. And' now the assessee staged that stage 1 is performed by M/s. Laila Impex. It is to be noted here that the assessee had no control over that part of activity performed by M/s. Laila Impex. None of the employees of assessee are present in the premises of job worker when its work is being done. AU that is meant to be said is that the job worker undertook stage 1 of the manufacturing activity independently.” production and production processes can be undertaken

14 18. Further, at this stage, it would be appropriate to refer to the findings of the Appellate Authority, which are as under: a) Process of Solution ■I d) Process of Pulverization e) Process of Sieving f) Process of Packing b) Process of Concentration c) Process of Drying 14.6. Unless, all the activities in the first 5 stages are carried out, the manufacture of the finished product 1 >! 'i I 14.5. Each of the above processes have been dealt with in detail in the written submissions filed by the appellant, which have been reproduced in the preceding paragraphs. The first stage of the manufacturing process is carried out by M/s. Laila Impex, on job work basis. The remaining 5 stages are carried out by the appellant in its premises. 14.4. The manufacturing process of the appellant involves the following stages: “14.3. In course of the appeal proceedings, the appellant has filed certificates of both itself and M/s. Laila Impex to the effect that they are recognized as 100% EOUs and has also stated, that complete records in both units regarding the job work are maintained, duly verified by the concerned authorities of Central Excise/SEZ, from time to time. Therefore, I am in agreement with the contention of the appellant that sub-clause (b)(iii) of Chapter 6.14 of FTP are applicable in its case.

15 It is to be noted herein that the product, which is sought 19. to be exported, undergoes 6 stages i.e., the first, stage relates to of is second stage process is fourth stage drying; is third concentration; stage pulverization;; fifth stage is Sieving and sixth stage is packing. Unless all these steps are done in the manner required, it cannot be said that the process of manufacturing is complete may be in exception to the last one which relates: to packing of polythene bags. The Assessing Authority while dealing with manufacturing process held that “the manufacturing & trading account gives the expenditure incurred by the assessee itself’. includes 2 manufacturing stages and 4 non-manufacturing stages). According to the respondent-assessee, stage 1 is done by M/s. Laila Impex on job work basis while stages 2 to 6 are done on all the 6 stages (which cannot be said to be completed in the appellant’s case. Even the 6“* stage of packing in the appellant’s case is a necessary adjunct to the process of manufacture,, in as . much, the packing would have to be specialized keeping in view the need for long preservation and quality requirements in export process and the attendant disclosures regarding product as required under local laws in the country to which the product is exported.” of solution; the process

'i 16 20. 'I part of the activity performed by M/s. Laila Impex as none of its employees were present in the premises of the job work, when it installation of the machinery, and that the :f f the unit of the respondent-assessee because no machinery was installed and the findings of the Assessing Authority show that manufacturing process at all may not be correct. In fact, even the order of the is being done by M/s. Laila Impex. But this fact was negatived by the Appellate Authority as well as the Tribunal holding that even if stage 1 is done by M/s. Laila Impex, on job work basis. From the above, it is clear that the Assessing Authority was of the view that only stages 1 and 2 can be regarded as stages where manufacturing activity is carried on and stage 1 is performed by M/s. Laila Impex. It is the finding of the Assessing Authority that the respondent-assessee has no control over that i; i was no 21. At this stage, learned Standing Counsel would contend j that the manufacturing processes could not have been done in there was no the other stages of the manufacturing processes i.e., from stage 2 were done in the unit of the respondent-assessee itself. Therefore, the argument that there Assessing Authority shows that there was manufacturing process in the unit of the respondent-assessee.

17 22. We are not in agreement with the argument advanced by learned Standing Counsel for the appellant-Revenue and also the findings given by the Assessing Authority. A perusal of the material on record, more record, more manufacturing process was in sister concern of the respondent- assessee i.e., M/s. Laila Impex. particularly the orders passed by the two fact finding bodies namely Commissioner of Income tax (Appeals) as well as the Tribunal, would show that except the self serving statement of the Assessing Authority, there is no material to show that the machinery was not installed or that the work was carried out in its sister concern i.e., M/s. Laila Impex. These findings of the Assessing Authority, in our view, run contrary to his own findings. On one hand he says that the machinery was not installed and on the other hand it is his case that part of the manufacturing process did take place in the unit of the respondent-assessee. Be that as it may, the material on particularly the tax invoices would show the purchase of the machinery and commencement of the manufacturing process in the unit of the respondent-assessee with the installation of nJwlniachinery. Hence, the argument of the learned Standing Counsel for the Income Tax that there was no manufacturing process atall may not be correct.

18 23. some to the decisions of the 'I sMai s’ i ‘ 188 ITR 370 (All) 2 137 ITR 329 (MP) ’ 196 ITR 813 (Bom) 86 TTJ 298 (Mum) 137 ITR 879 (Mum) ®338 ITR 290 (Delhi) UP State Agro Industrial Corporation Limited^, Madhya Pradesh High Court in CWT v. Premlatha Bai^, Bombay High Court in CIT v. Penwait India LimitetP, Sunrise Metal Industries v. ITCP, CIT v. Neo Pharma Private Limited^ and the decision of the Delhi High Court in CIT v. Continental Engines Limited^, it cannot be said that the respondent-assessee is not entitled for the benefit/exemption under Section 10-B of the IT Act and as such The above finding of this Court which is in conformity with the findings given by the Appellate Deputy Commissioner and the Tribunal would show that there was manufacturing process in the unit of the respondent-assessee. At this stage an objection came to be raised saying that some manufacturing may not satisfy the. requirement of Section 10-B of the IT Act but the Courts have held that it is not necessary that there should be entire manufacturing process to be done in the unit claiming relief under Section 10-B of the IT Act. In fact, some stage of manufacturing process of almost all the products takes place outside. Having regard Hon Tile Apex Court in CIT v.

19 the benefit/exemption under Section 10-B of the IT Act cannot be denied to the respondent-assessee on the ground that entire manufacturing did not take place at its unit. That being the position, the other issue involved namely 24. supervision by the employees of the respondent-assessee for the manufacturing done in the unit of its sister concern M/s. Laila Impex pales into insignificance. At this stage, learned Standing Counsel for the Income Tax would contend that the finding of 90% manufacturing activity' is carried out on job work basis through sub-contracting violating the provisions of the Foreign Trade Policy would disentitle the respondent-assessee to any claim. more particularly under Section 10-B of the IT Act. Learned Standing Counsel for the Income Tax would contend that the respondent-assessee used the machinery of M/s. Laila Impex and has violated the provisions of Section 10-B of the IT Act,, as it contemplates use of new rhachinery at the unit of the respondent-assessee. Except an assertion from the assessment order no material is brought on record to substantiate this. On the contrary the Appellate Authorities hav^ verified the material on record, invoices and also the payments made for purchase of new machinery through cheques and the certificates issued by of the the Assessing Authority that more than

20 manufacturing process in respect of stages 2 to 6 of the product ;i did take place in the unit of the respondent-assessee. 25. 'I can be extended for a period of 10 years from the date of its commencement/institution/installation of manufacturing. The the respondent-assessee. In fact, the record shows that the benefit claimed was within the first year of its installation. beyond the period of 10 years from the date of installation. 26. In view of the above circumstances, I.T.T.A Nos. 121 & 192 of 2017, 259 of 2015 and 45 of 2016 are dismissed. 27. Insofar as the other four Appeals i.e., I.T.T.A Nos.330 86 'I 'I I i said fact is not disputed even by learned counsel appearing for 283 of 2015, 106 of 2016 and 25 of 2017 are concerned, the dispute in these Appeals was relating to the job work charges Learned Standing Counsel for the Income Tax, appearing for the appellant-Revenue, would contend that the benefit under Section 10-B of IT Act is made applicable only to the new units meaning thereby that the benefit under Section 10-B of IT Act where the job work charges should be exonerated from total il/ Therefore, we are not inclined to accept that the claim made was machinery has thus come of the the Statutory authorities evidencing installation to the conclusion that the

'/ 21 turnover thereby making it liable for returns under Section 10-B of the IT Act. It is to be noted herein that while working out percentage of job work with the manufacturing expenses, it would include entire manufacturing cost comprising of the raw materials, chemicals etc., more so, when entire raw material. chemicals and packing material cost is directly incurred by the respondent-assessee herein. In other words, the entire material is purchased by the respondent and given to a third party on job work basis. Therefore, while working out the percentage of job work to total manufacturing costs, the entire extent should be taken into account. As stated earlier only the first stage of manufacturing process was given to the sister concern of the respondent-assessee i.e., M/s. Laila Impex, while other stages of respondent-assessee itself. the Since sub-contracting production, process on job work is permitted as per the judgments referred to earlier and in the absence of any specific clause contraiy to Section 10-B of the Act, apprehending the work. Hence, the findings of the Commissioner of Income-Tax I I . outsourcing of the job work, we feel that the respondent- assessee is entitled for the benefit even in respect of the job I manufacturing processes were done in the . unit of the (Appeals) and the Tribunal on this aspect warrants no

22 interference and accordingly the ITTA Nos.330 & 283 of 2015, 106 of 2016 and 25 of 2017 are dismissed. As a sequel, Miscellaneous Applications pending, if any, in 'J these Appeals shall stand closed. //TRUE COPY// . The Income Tax Appellate Tribunal, Visakhapatnam Bench, Visakhapatnam _ T- /AI ^1 j i To, 1. 2. The Commissioner of Income Tax (Appeals), Vijayawada. 3. The Commissioner of Income Tax, Central Circle-2 (1), Vijayawada. 4. The Assistant Commissioner of Income Tax, Circle-2 (2). Vijayawada. 5. One CC to Smt. M. Kiranmayee, SC for Income Tax [OPUC] 6. One CC to Sri K. Vasantkumar, Advocate [OPUC] 7. Two CD Copies Psr Cnr j SD/- S.V.S.R. MURTHY JOINT REGISTRAR SECTION OFFICER

HIGH COURT DATED:25/08/2022 % COMMON JUDGMENT DISMISSING THE ITTA mi ITTA NOs: 259, 283, & 330 OF 2015,45 & 106 OF 2016 & 25.121 & 192 OF 2017 I 3 0 SEP 2023