Judgment:
1. This cross-objection is filed by the assessee having been aggrieved by the order of the CIT(A) dt. 23rd Nov., 1987, for the asst. yr.
1984-85.
2. The sole issue for consideration of this Special Bench is regarding the claim of the assessee made under Section 80HHC of the IT Act, 1961.
3. Both the parties were heard regarding the issue raised by the assessee in the cross-objections and its legal implications.
4. The admitted facts relating to the issue are that the assessee during the course of its business for the period under consideration has stated to have exported granite and it claimed deduction under Section 80HHC on the value of the granite exported and the same was denied by the AO. Hence, the assessee filed an appeal before the CIT(A) on this issue among other issues. The CIT(A) has confirmed the disallowance made by the AO on this issue basing on the decision in ITA No. 448/1985-86 relating to the asst. yr. 1983-84 in the case of the very same assessee. The Department filed appeal against the impugned order aggrieved by the decision of the disallowances made by the CIT(A) in ITA No. 548/Mds/1988, whereas the assessee has filed the present cross-objection aggrieved by the confirmed part of the claim made.
5. The learned representative of the assessed has contended that the assessee is excavating granites and exporting the same after cutting them into dimensional blocks and polishing them. Therefore, it was claimed that the assessee is entitled for deduction under Section 80HHC. In support of his claim, the learned representative of the assessee has relied on the decision of apex Court in the case of Stonecraft Enterprises v. CIT (1999) 237 ITR 131 (SC) and the decision of the Karanataka High Court in the case of God Granites v. Dy. CIT (1999) 240 ITR 343 (Kar).
6. Contrary to this, the learned Departmental Representative has contended that since the assessee's polishing unit was closed during the period of assessment for which it has claimed to have paid some amount as compensation to the workers. From this fact it is clear that there is no scope for the assessee to cut and polish granite of dimensional blocks and therefore, what was exported by the assessee during the period under consideration might not be in all probability dimensional blocks of granites duly polished. Under these circumstances the claim of the assessee is not at all tenable under law. Therefore, both the Departmental authorities are well within their exercise of powers under law conferred on them in disallowing the claim of the assessee.
7. On consideration of the materials placed before the Tribunal and analysing the same in the light of the arguments advanced on behalf of both the parties we have examined Section 80HHC of the Act, Section 80HHC contemplates deduction in respect of profits retained for export business. In Clause (b) of Sub-section (2) of Section 80HHC it is categorically stated that this deduction does not apply to mineral oil and minerals and ores other than processed minerals and ores specified in the Twelfth Schedule. The CBDT has issued Circular No. 693, dt. 17th Nov., 1994 to the effect that the granite which was not cut and polished is not entitled to special deduction under Section S0HHC of the Act. The CBDT has also issued subsequent Circular No. 729, dt. 1st Nov., 1995, stating that when rough granite is cut into dimensional blocks of uniform colour and size, the assessee would be entitled to special deduction under Section 80HHC. Considering all these provisions and the circulars, the Hon'ble apex Court has held in the case of Stonecraft Enterprises, stated supra, that the circular issued by the Board dt. 1st Jan., 1995, records the Board's opinion that while granite alone can be considered as a mineral, any process applied to granite would deprive the quality of rough minerals from the dimensional blocks of granite, which is a value added marketable commodity and, therefore, the profits derived from the export of granite dimensional blocks would be eligible for deduction under Section 80HHC, It has also been held that the circular was explanatory and could, therefore, relate back to the year of issue of the said circular and the benefit can be thus given to the assessee even for prior periods of assessment. The same provisions were subsequently examined by the Hon'ble Karnataka High Court in the case of God Granites, cited supra, and the Hon'ble High Court was pleased to hold that the circulars issued by the CBDT are binding on the authorities and persons employed in execution of the IT Act and they are required to follow the directions issued by the Board. Under the Twelfth Schedule to the IT Act, 1961, what is required is that only cut and polished minerals including granites should be exported for entitlement to deduction under Section 80HHC of the Act. The Act does not prescribe the degree or extent of cutting and polishing to be applied to granite ores or boulders. Any process applied to the rough mineral which adds value to the marketable commodity would create an eligibility for deduction. The CBDT in its Circular No. 693, dt. 17th Nov., 1994, says that 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 circular is in line with Government's 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. Subsequently, the CBDT in Circular No, 729, dt. 1st Nov., 1995, retracted its earlier view on the question of deduction under Section 80HHC and took a different view very much favourable to exporters. Considering the provisions contained in Section 80HHC and the circulars, cited supra, the Hon'ble Karnataka High Court has been pleased to hold that the circulars issued by the CBDT which are only clarificatory will have retrospective effect unless the statute provides otherwise and the assessees are entitled to special deduction under Section 80HHC for assessment year prior to issue of circular.
8. Both parties to the cross-objection have not disputed about the propositions laid down by the aforesaid two decisions. Hence, in the facts and circumstances of the case, which are analysed in the light of the said propositions, we find that the material facts relating to the nature and quality of the granite exported during the period under consideration and their value and in view of the closure of the polishing unit of the assessee and whether the assessee has exported the granite duly cut into dimensional blocks and polished, are two material aspects which are not readily available in the records before the Tribunal. Therefore, in the facts and circumstances of the case, we are of the considered view that it is just and proper to restore this issue for consideration of the AO and pass consequential order as per law duly taking into consideration the dictums laid down by the aforesaid two decisions and the observations of the Tribunal, and affording to the assessee an opportunity of hearing.
9. In the result, the cross-objection of the assessee is to be treated as allowed for statistical purposes.