The Chennai Bench of Income Tax Appellate Tribunal (ITAT) held that extraction of minerals from beach sand involve change in non-living physical object / article into a new and distinct object / article having different name and use, the same would amount to manufacture. Hence quashed the revisionary order and allowed deduction under Section 32 AC of the Income Tax Act, 1961.
The assessee M/s.Trimex Sands Private Limited was only extracting / separating minerals such as granite, limenite, rutile, zircon, monazite etc. in its original form from mineral sand available in certain beaches. The assessee claimed deduction under Section 32AC of Income Tax Act which was allowed by the assessing Officer (AO) in the assessment proceeding.
The Principal Commissioner of Income Tax (PCIT) exercising revisionary jurisdiction under Section 263 of the Income Tax Act stated that minerals were extracted by the assessee from the sand and thereafter, plain sand was dumped back in to beaches. The assessee thus does not manufacture any items and the stated extraction process do not fit into the definition of ‘manufacturing’ in terms of Section 2(29BA) of Income Tax Act. Thus, investment allowance claimed under Section 32AC for Rs. 612.61 Lakhs was required to be withdrawn.
The assessee assailed the revision on the ground that the definition of manufacturing u/s 2(29BA) include ‘production’. This term, as per the decision of Supreme Court in CIT vs. Sesa Goa Ltd. , is much wider in its scope. Anything that results from any production process or as a result of effort of human activity, the same can be regarded as production. Reliance was placed on many other decisions to support the submissions.
The PCIT distinguished the case of Sesa Goa Ltd. (supra) on the ground that in that case, the assessee was extracting iron ore whereas in the present case, the assessee was merely extracting minerals from beach sand. Further he stated that AO should have verified the claim made under Section 32AC of Income Tax Act.
There was regrouping of asset under plant and machinery. The AO did not examine whether the assets were eligible assets under Section 32AC of Income Tax Act or not. The assessment order failed to verify the same and the claim was allowed without making requisite enquiries which call for revision in terms of Explanation 2 to Section 263(1) of Income Tax Act.
Aggrieved by the order the assessee filed an appeal before the Tribunal with delay of 39 days in the appeal which stand condoned in the light of the fact that that the time available to prefer the appeal fall within the Lockdown situation arising out of Covid-19 Pandemic.
The Bench comprising of Mahavir Singh, Vice President and Manoj Kumar Aggarwal, Accountant Member relied on the decision of DCIT vs. M/s Indian Ocean Garnet Sand Company where the assessee was engaged in similar activity of separation of garnet sand from beach sand and claimed the same to be manufacturing process and it was held that extraction of minerals from beach sand involve change in non-living physical object / article into a new and distinct object / article having different name and use. Thus, the same would amount to manufacture.
The Tribunal held that the activities carried out by the assessee amount to manufacture and the claim was in order. Therefore, no interference is called for in the assessment order, on this issue. Thus quashed the revision order and allowed deduction under Section 32AC of Income Tax Act.
Hence appeal of the assessee was allowed.
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