TMI Blog1998 (3) TMI 163X X X X Extracts X X X X X X X X Extracts X X X X ..... ,92,392 out of the total addition of Rs. 44,84,719 made by the AO on account of excess claim of process loss by the assessee during the manufacturing process of refining of crude cottonseed oil. Ground of appeal Nos. 12 to 15 relate to certain disallowances under s. 40A(3) which were not pressed by the learned counsel for the assessee and as such are not dealt with. Ground of appeal Nos. 16 to 18 relate to the action of the CIT(A) in upholding the action of the AO in granting depreciation to the assessee on the cost of machinery after deducting the cost of subsidy received by the assessee from the Government. The issue has to be adjudicated in favour of the assessee and against the Revenue as per the decision of the Supreme Court in the case of CIT vs. P.J. Chemicals (1994) 121 CTR (SC) 201 : (1994) 210 ITR 830 (SC). We direct accordingly. 4. At the time of hearing, the learned Departmental Representative moved an additional ground of appeal in the following words: "That the assessee is not entitled to deduction under ss. 32A, 80HH and 80-I of the Act because it is engaged in the business of refining of mainly cottonseed oil and the refining of oil does not amount to manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the additional ground should not be admitted. 7. We have considered the rival submissions with regard to the admission of the additional ground. The issue is in dispute is squarely covered by the decision of the Supreme Court in the case reported in (1998) 229 ITR 383 (SC) wherein the Supreme Court held that a legal ground can be taken even for the first time before the Tribunal. As regards the submissions of J.P. Shah, the learned counsel for the assessee, that it will involve investigation into facts, the same is not tenable because the only fact which is required to be ascertained is as to whether conversion of raw cottonseed oil known as wash oil into refined cottonseed oil tantamounts to manufacturing or not and it is undisputed that the business of the assessee is only refining of raw cottonseed oil into refined cotton seed oil under ISI mark. Accordingly we will admit the additional ground in view of the above the additional ground in view of the above decision of the Supreme Court in (1998) 229 ITR 383 (SC). 8. We will be taking up the Revenue's appeal first and like to adjudicate on the additional ground raised by the Revenue relating to deduction under ss. 32A, 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed on the decision of the Supreme Court in the case of CIT vs. N.C. Budhharaja Co. (1993) 114 CTR (SC) 420 : (1993) 204 ITR 412 (SC), Delhi Cold Storage (P) Ltd. vs. CIT (1991) 98 CTR (SC) 165 : (1991) 191 ITR 656 (SC), Sterling Food vs. State of Karnataka 63 STC 239 (SC) and Dy. CST vs. Pio Food Products 36 STC 63 (SC). The learned Senior Departmental Representative read through the decision of the Supreme Court in the case of Pio Food Packers at paras 26 and 27 as well as the decision in the case of Sterling Food at paras 28 and 29 and submitted that in the case of Pio Food Packers the apex Court observed that although a degree of processing is involved in preparing pineapple slices from the original fruits, the commodity continues to possess its original identity notwithstanding the removal of inedible portions. Similarly, in the case of Sterling Food it was held that after processing the frozen, shrimps, prawns and lobsters they can still go under the description of shrimps, prawns and lobsters even though their heads and tales are separated for the purpose of storage and preservations. In both the cases the items under process cannot be regarded as an item commercial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the refined state. Similarly, rice bran oil is not (sic) eatable in the unrefined state as well as in the refined state. Whereas in the case of cottonseed oil which the assessee is manufacturing, unrefined cottonseed oil is not at all eatable whereas cotton seed oil is eatable and, therefore, not only different commercial commodity come into existence, but its use is also different as compared to the unrefined cotton seed oil called "wash oil". Reliance was placed on the decision in the case of Edible Products (India) (P) Ltd. vs. CTO (1991) 83 STC 317 wherein the conversion of raw coconut oil into refined coconut oil was held to be manufacturing because the change brought about in the coconut oil purchased by the applicant by application of different processing such as neutralisation, decolouring and deodorisation takes the commodity to the point where commercially the refined coconut oil produced by the applicant can no longer be regarded as the original commodity due to difference in the free fatty acid value, colour odour, unsaponificable matter, moisture and impurities. Such coconut oil is a different commercial article and has a different class of consumers who purchases i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn as wash oil. It was submitted that the Department does not deny that not only raw cotton seed oil is called wash oil in the commercial market, whereas refined cottonseed oil is known as a different commercial commodity in trade circle, it also does not deny that the wash oil is not edible whereas the refined cottonseed oil is edible. Thus when the final product which is produced is commercially distinct from the raw material, the process involved necessarily has to be held as a manufacturing process. Reliance was placed on the decision of the Tribunal in the case of C.J. Kansara Co. vs. ITO (ITA No. 2757/Ahd/1992) Order dt. 25th Nov., 1997. 11. We have considered the rival submissions. Refining of cottonseed oil consists of the following process: 1. Degumming (Phosphoric acid treatment); 2. Neutralising (Alkali refining); 3. Bleaching; 4. Filtration; 5. Deoderisation; 6. Winterisation; 7. Final Filtration; and 8. Tinning (filling in the containers). Out of the above process, degumming involve treatment with phosphoric acid by which the gums are dissolved and precipitated. Thereafter with the process of neutralisation by treating degummed oil with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken." In view of the above, we are of the opinion that the CIT(A) was justified in holding that the activity carried on by the assessee is a manufacturing activity and the assessee is entitled to deduction under s. 32A, 80HH and 80-I. Even assuming though not admitting that there are diversions of opinion on the question as to whether activity carried on by the assessee is manufacturing or not, we will adjudicate the issue in favour of the assessee relying on the decision of the Supreme Court in the case of CIT vs. Vegetables Products Ltd. 1973 CTR (SC) 177 : (1973) 88 ITR 192 (SC) that if there are two equally reasonable views possible on a issue in dispute, the one which is favourable to the assessee should be adopted. In that decision the Supreme Court held as under: "If the Court finds that the language of a taxing provision is ambiguous or capable or more meaning than one, then the Court has to adopt that interpretat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f accounts will not be subjected to the provisions of s. 40A(3). In this connection reliance was placed on the decision of the Andhra Pradesh High Court in the case of Venkat Subba Rao vs. CIT (1988) 73 CTR (AP) 93 : (1988) 173 ITR 340 (AP). Reliance was also placed on the decision of the Supreme Court in the case of Avtarsingh Gurumukhsingh vs. ITO (1991) 97 CTR (SC) 251 : (1991) 191 ITR 667 (SC). Reliance was also placed on the decision in the case of Maddi Venkataraman Co. vs. CIT (1998) 144 CTR (SC) 214 wherein the Supreme Court has considered its earlier judgment in the case of CIT vs. S.C. Kothari 1974 CTR (SC) 137 : (1971) 82 ITR 794 (SC) relied upon by the Tribunal in the case of the assessee for earlier assessment year. On the question of following the decision of an earlier Bench, Chowdhury relied on the decision of the Tribunal in the case of Virendra Co. vs. Asstt. CIT (1997) 60 ITR 463 (Mumbai) wherein relying on the decision of the Supreme Court in the case of CIT vs. Brijlal Lohia Mahabir Prashad Khemka 1974 CTR (SC) 167 : (1972) 84 ITR 273 (SC) it was held that it is not only possible for the subsequent Bench but even obligatory on the subsequent Bench to take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, we feel that the earlier Bench of the Tribunal has taken a proper and reasonable decision taking into consideration the totality of the facts and circumstances of the case and we are not persuaded by the arguments of the learned Departmental Representative to take a view which is different from that of our predecessor in office because of consistency of approach. In this connection we will like to refer to the decision of the Supreme Court in the case of CIT vs. Smt. P.K. Kochammu Amma (1980) 19 CTR (SC) 196 : (1980) 125 ITR 624 (SC) wherein it is held that although the earlier decision in the case of V.D.M.RM.M.RM. Muthiah Chettiar vs. CIT (1969) 74 ITR 183 (SC) was not correctly decided, yet the Supreme Court followed that decision. Accordingly, we will adjudicate these two grounds against the Revenue and in favour of the assessee. 15. Ground of appeal No. 3 in the Revenue's appeal and ground of appeal Nos. 1 to 11 in the assessee's appeal relate to the same issue i.e., the disallowance made by the AO on account of excess process loss in the manufacturing of refined cottonseed oil from raw cottonseed oil. The AO while examining the accounts of the assessee found t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Department before the Tribunal on this point. It was submitted that the Departmental authorities have mainly relied on the statement of the director A.P. Patel for making this addition and they have not correctly understood the import of the statement of the of the director. It was pleaded that what the director meant was that a total amount of unaccounted profit of Rs. 55 lakhs was earned on account of claim of excess process loss in the regular books of account and the same was reflected in the seized diaries. Accordingly, it was submitted that whatever undisclosed income has been earned by the assessee-company, the same is fully reflected in the seized diaries and when the assessee's income has already been computed on the basis of these seized diaries, there is no further justification to make any addition on the ground of excess-shortage. Reliance was placed on the submissions made by the assessee before the CIT(A) which have been extracted in para 6.3 of the impugned order wherein based upon the statement of the director excess production on account of claim or excess process loss in the regular books has been worked out as under: Regular Books Asst. yr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Unrecorded 279 - 279 279 Total 152% 10 15,286 14,867 Last Year (10,747) (1,095) (9,652) (2,614) . Closing (M.T.) Production (M.T) Shortage (M.T.) Percentage (M.T.) Recorded 419 14,143 445 3.04 Unrecorded - 421 (*) 76 - Total 419 14,564 369 2.48 Last year (33) (9,319) (256) (2.60) (*) Excluding 66M.T., i.e., unrecorded quantity for asst. yr. 1988-89 It was submitted by the learned Departmental Representative that the assessee has tried to reconcile the discrepancies noted by the AO by furnishing working of unaccounted business in the course of appeal hearing before the CIT(A) in support of its contention with regard to the claim of process loss at 2.48 per cent. However, on the basis of working given in the assessment order there was excess sale to the extent of 148 M.T. approximately. It was submitted that as per the recorded production the shortage has been worked out at 445 M.T. and if shortage is worked at 2 per cent then the results in the form of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and by claiming excess process loss in the regular books, the assessee has shown unaccounted production in the seized diaries and thus has earned extra income of Rs. 55 lakhs. The assessee, on the basis of above statement of the director, has tried to reconcile the excess production in the regular books with the sales shown in the seized diaries which we have extracted in para 18 and which has also been referred to by the CIT(A) in para 6.3 : Thus it is seen that the so-called excess production obtained by claiming excess process loss in regular books has been shown in the seized diaries which has also been taken into consideration while computing the total income by the AO and as such we are of the opinion that there is no justification for making any further addition on account of alleged excess claim of process loss in the regular books because total process loss of 2.48 per cent claimed in quite reasonable in view of the certificate given by Alfa Laval India Ltd. (originally known as Vulcan Laval). As regard the observations of the AO that the process loss should be lesser on account of addition of chemical, water, etc. is concerned, we are of the opinion that whatever exces ..... X X X X Extracts X X X X X X X X Extracts X X X X
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