The first of set appeals by the assessee has been preferred against the consolidated order of the Commissioner (Appeals), dated 30-12-1994, for the assessment years 1988-89, 1989-90 and 1990-91, respectively and the other set of appeals also has been preferred by the assessee against the consolidated order of the Commissioner (Appeals), dated 12-5-1994, for the assessment years 1991-92, 1992-93 and 1993-94 respectively.
. The main point for consideration in all these appeals is whether the assessee is entitled to deduction under section 80HHC. According to the department the assessee is exporting granite and granite being a mineral, the deduction under section 80HHC is not admissible. However, according to the assessee, the assessee is dealing in export of polished granite and article made of granite termed by the learned counsel for the assessee, Shri Venkatesan as "graniteware".
. The assessment orders for the years 1988-89 and 1989-90 indicate that the assessments originally does for these years were set aside by the Commissioner, K-I, under section 263, with a direction to redo the assessment for re-examining the issue relating to certain deductions allowed in the original assessment and the assessment has been done afresh in accordance with the directions of the Commissioner. The assessment order for 1990-91 indicates that the original assessment was completed under section 143(1)(a), but later the assessment was reopened by issue of notice under section 147, dated 5-1-1994. The assessments for the subsequent years have been done in the normal course under section 143(3).
. In the course of hearing before us the learned counsel for the assessee filed an additional ground of appeal stating objection to the reassessment proceedings for the assessment year 1990-91. The additional ground submitted before us on 18-8-2000 reads as under : "The reassessment proceedings initiated are bad in law for want of requisite jurisdiction and requires to be annulled." It is stated by the learned counsel that since the matter involves pure question of law and since this ground was not filed originally while filing the appeal by sheer inadvertence, the additional ground may be admitted.
. On the other hand, the learned Departmental Representative Shri K.Ramesh, vigorously objected to the admission of the additional ground as there was no substantial question of law to be considered by the Tribunal as the reassessment has been done by the assessing officer in accordance with the procedure laid down under the Act after recording the reasons for reopening the assessment. The learned Departmental Representative produced before us photocopy of the order sheet wherein reasons for reopening have been recorded by the assessing officer. The original file was also produced before us for verification.
. After considering the rival submissions including the ratio of the decisions cited and the evidence on record, we admit the additional ground of appeal relating to reopening of assessment as it goes to the root of the matter. But at the same time, we do not find any infirmity in the reassessment proceedings initiated by the assessing officer as he has complied with the provisions of law by recording reasons for reopening and by issuing notice to the assessee in the proper manner.
Hence, we uphold the action of the assessing officer in initiating reassessment proceedings for the assessment year 1990-91.
. Now, we proceed to dispose of the common issue raised in all these appeals with regard to the question whether the assessee is entitled to deduction under section 80HHC. The deduction under section 80HHC is allowable in the case of an assessee who is engaged in the business of export out of India of any goods and merchandise as envisaged in the said section. Section 80HHC(2)(b) as it stood before the amendment with effect from 1-4-1991, read as under : "This section does not apply to the following goods or merchandise, viz.,State of Mysore v.Swamy Satyanand Saraswati AlR 1971 SC 1569 held that granite is a mineral, though it was in the context of Mines and Minerals (Regulation Development) Act. The ratio of that decision squarely applies to the definition of the term mineral in the context of section 80HHC. This position in law has been examined in the context of Income Tax Act, 1961 by the Supreme Court in Stonecraft Enterprises v. CIT (1999) 8 DTC 619 (SC) : (1999) 237 ITR 131 (SC). The Honble Karnataka High Court also took a similar view in the case of Muddeereshwara Mining Industries v. CIT (1993) 204 ITR 550 (Karn). In view of the ratio of these decisions, it is clear that granite being a mineral the assessee exporting granite is not entitled to deduction under section 80HHC. The observation holds good for the assessment years prior to 1991-92.
. However, there was an amendment to section 80HHC(2)(b) by the Finance (No, 2) Act, 1991, with effect from 1-4-1991, as a result of which the section was revised as under : (ii) minerals and ores other than processed minerals and ores specified in the Twelfth Schedule." Consequently, the Twelfth Schedule was also amended by the Finance (No.2) Act, 1991, with effect from 1st April, 1991 and this Schedule which is entitled "Processed Minerals and Ores" contains a list of ten items, the last two of which reads as under : "(x) Cut and polished minerals and rocks including cut and polished granite".
Hence, it is clear that with effect from assessment year 1991-92 onwards cut and polished granite is eligible for deduction under section 80HHC. Whether processed granite is eligible for deduction under section 80HHC has been considered by the Honble Karnataka High Court in God Granites v. Under Secretary, CBDT (1996) 218 ITR 298 (Karn), wherein it was impliedly held that for the assessment year 1991-92 and subsequent years, cut and polished granite would be considered for the benefit of section 80HHC. Moreover we find that in the case of Stonecraft Enterprises (supra), the Honble Supreme Court also impliedly held a similar view in respect of cut and polished granite.
. It is worthwhile in this connection to refer to Circular No. 739, dated 1-11-1995 and the earlier Circular No. 693, dated 17-11-1994 of the CBDT which have been quoted by the assessee before the Honble Karnataka High Court and the Honble Supreme Court in support of the contention that those circulars would be available to the assessee even for the assessment years prior to 1991-92.
"Subject : Benefit of section 80HHC for export of processed minerals-Clarification regarding export of cut and polished dimensional blocks, granite or other rocks.
Section 80HHC 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 mentions cut and polished minerals and rocks including cut and polished granite.
2. Some organisations and individual taxpayers have raised doubts whether the deduction under section 80HHC 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 unambiguious and uses the term cut and polished. Therefore, for availing of the benefit under section 80HHC, it is necessary that the rock is not only cut into blocks, but also polished before it is exported. This is in line with Governments 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" "3 The Board is, therefore, of the view that while granite can alone be considered as mineral, any process applied to granite would deprive the quality of rough mineral from the dimensional blocks of granite, which is a value added marketable commodity. When rough granite is cut to dimensional blocks of uniform colour and size, it not only undergoes mechanical process of cutting and also certain amount of dressing and polishing is involved to remove various natural flaws such as colour variations, grain variations, joints, fissures, moles, patches, hairline cracks, etc. The profits derived from the export of such granite dimensional blocks would accordingly be eligible for deduction under section 80HHC of the Act." While the Honble Supreme Court did not go into the question whether the circular was clarificatory in nature and retrospective in effect, the Honble Karnataka High Court held in CIT v. God Granites (2000) 13 DTC 87 (Karn-HC) : (1999) 240 ITR 343 (Karn) held that the circular was clarificatory in nature and would have retrospective effect even prior to the issue of the circular.
The learned counsel for the assessee, Shri S. Venkatesan during the course of hearing before us in the present case, has produced a copy of the order of the Honble Karnataka High Court dated 6-1-2000 in which question regarding the applicability of the circulars even prior to the amendment by the Finance Act, 1991 was brought to the attention of the court and the Honble court deemed it fit that this should be examined by a Larger Bench and, therefore, there lordships considered it necessary to place the matter before the Honble Chief Justice for constituting a Larger Bench. The learned counsel clarified before us that the matter is still pending before the Honble Chief Justice of the Karnataka High Court.
In the light of the above discussion, it is clear that as far as cut and polished granite or granite subject to processing before export is concerned, the assessee is entitled to deduction under section 80HHC for the assessment years 1991-92 onwards. However, there is an element of doubt with regard to the position in law for the assessment years prior to 1991-92. As mentioned earlier, a Division Bench of the Honble Karnataka High Court has held the view that the beneficial circular of the Central Board of Direct Taxes would be available to the assessee even prior to the assessment years 1991-92, though the matter has to be further clarified by the pronouncement of a Larger Bench of the Karnataka High Court with special reference to the observations of the Honble Supreme Court in the case of Stonecraft Enterprises and Swamy Satyanand Saraswati (supra).
. Coming to the facts of the present case, the learned counsel has referred to several pages of the paper-book furnished before us relating to the invoices of the goods and merchandise dealt with by the assessee, wherein the entries clearly indicate that what was exported included inter alia polished granite, memorials in crates, finished polished pink granite, etc., In other words, according to the learned counsel the assessee was not dealing in rough granite but in polished granite and various articles made of granite which he terms as "graniteware". However, the learned Departmental Representative supported the orders of the authorities below by asserting that the assessee has not furnished any evidence either before the assessing officer or the Commissioner (Appeals) in support of the plea that what was exported was granite subject to processing.
After considering the rival submissions and the evidence on record, it appears to us that the assessee is exporting different items of granite, cut and polished granite, articles made of granite or other items which have been made after rough granite has been subjected to a process of cutting or polishing. In the light of our discussion in the preceding paragraphs it is clear that the assessee is entitled to deduction under section 80HHC insofar as value added granite is concerned for the assessment years 1991-92, 1992-93 and 1993-94.
However, in order to quantify the exact amount of deduction available to the assessee, the matter requires re-examination by the assessing officer with reference to the export bills and the nature of the goods and merchandise actually exported. This is because of the fact that the assessing officer in the first instance did not examine the claim of the assessee in detail as the claim was rejected outright on the presumption that what was exported was rough granite. In the circumstances, we consider it necessary to restore the matter to the file of the assessing officer with a direction to examine the claim of the assessee in the light of the Central Board of Direct Taxes circulars mentioned above which are binding on the income-tax authority.
With regard to the assessment years 1988-89, 1989-90 and 1990-91, we have explained the position in law with reference to the decision of the Supreme Court vide para 7 above. Therefore, it would appear that the assessee is not entitled to the claim of deduction under section 80HHC and therefore, there is no infirmity in the orders of the assessing officer and the Commissioner (Appeals) in this respect.
However, this matter also requires fresh examination in the light of the observations of the Karnataka High Court in CIT v. God Granites (supra), wherein it was held that the circulars of the Board are clarificatory and would have retrospective effect for assessment years prior to 1991-92. However, this is subject to review by a Larger Bench of the Honble Karnataka High Court as mentioned earlier. Hence, we deem it appropriate that this matter is also restored to the file of the assessing officer for fresh consideration in accordance with law in the light of the latest decision of the Honble jurisdictional High Court or the Supreme Court, as the case may be.
Accordingly, we set aside the orders of the authorities below, with a direction to the assessing officer to reconsider the claim of the assessee for all the assessment years in question with reference to the export invoices, the items exported, etc., with regard to the finding of fact and the conclusion to be reached thereon in the light of the latest binding decision as mentioned above.
In the result, the appeals are treated as partly allowed for statistical purposes.