TMI Blog2009 (8) TMI 855X X X X Extracts X X X X X X X X Extracts X X X X ..... sum of Rs. 6,19,697 as deduction under section 80-IB. The claim so made was, however, not supported by an audit report to be filed in Form No. 10CCB. And so, the Assessing Officer was of the view that the company cannot be said to be eligible for any deduction under section 80-IB and income chargeable to tax had escaped assessment. Therefore, he initiated assessment proceedings by issue of notice under section 148 which was followed up by an issue of notice under section 143(2) of the Act. The assessment was completed under section 143(3) read with section 147 of the Act and vide order dated 31-12-2007, the Assessing Officer determined the taxable income of the company for the assessment year 2004-05 at Rs. 6,15,316. In this order, the Assessing Officer had held that the business activities carried on by the assessee-company would not amount to manufacture and, therefore, the profits earned by the company during the accounting period ended 31-3-2004 would not qualify for deduction under section 80-IB. It was further held that the assessee-company was not carrying on any manufacturing activity. The assessee had contended before the Assessing Officer that the raw materials which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Registration issued in Form B dated 30-3-1998 wherein M/s. Vinayagar Silks Pvt. Ltd. is stated to be mainly engaged in manufacturing. ( iv )Certificate dated 6-11-2000 granting registration to the appellant company as a small-scale undertaking. ( v )Permanent Registration Certificate No. 59/03/006357, dated 30-7-1999 issued by the Directorate of Industries and Commerce, Government of Pondicherry wherein it is stated that the company was manufacturing herbal powder and the date of commencement of production was stated to be from 30-7-1999. ( vi )Letter No. 1-13/9217/Ind. Com./PMT/AS, dated 9-11-2000 issued by the Government of Pondicherry, Industries and Commerce Department, intimating M/s. Vinayagar Silks Pvt. Ltd. of the fact that their unit has been registered as a small scale industry and the production returns as per the accounting year must be submitted regularly in future under copies to the Development Commissioner (SSI), Nirman Bhavan, New Delhi. 3.1 But, it has to be mentioned here that though in these certificates the assessee-company had been shown as manufacturing herbal powders for the purposes of granting deduction under section 80-IB of the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers and supplying the same to the principals, it is entitled for the deduction under section 80-IB, as per the ratio of the Madras High Court s decision in the case of Taj Fire Works Ltd. If the appellant s case is viewed from this angle also, it has to be held that the company is entitled for deduction under section 80-IB." 3.3 Aggrieved by this order, the department has come up in appeal and while relying upon the Assessing Officer s order, it was pleaded for setting aside the impugned order and restoring that of the Assessing Officer. It was further submitted that the ld. CIT(A) has just gone by the arguments of the ld. counsel for the assessee without considering the entirety of facts and circumstances and materials on record. In this case, the assessee has just done the work of grinding of various materials and applied for deduction under section 80-IB to treat it as manufacturing when there are Hon ble Supreme Court s decision and various High Court s decisions to support the plea of the department, which have not been properly appreciated nor considered in the right prospective. As such, the conclusion drawn by the ld. CIT(A) is not legally or factually correct. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various products, it does not amount to either manufacturing or processing of any different commodity as such, the order of the Assessing Officer should be restored. 4. We have heard both the sides and considered the material on record as well as precedents relied upon by the rival sides and find that the exact process involved as stated by the assessee and not disputed by the department is as under : "Carista Herbal products is manufactured by using following Herbal plants : Input raw material Botanical name 1. Shikakai Acacia concinna 2. Auvri 3. Venthayam Trigonella foemun graecum 4. Henna Lawsonia inermis 5. Amala Ribes grossularia 6. Hibiscum flower Hibiscus rosa sinensis 7. Vettiver Vettiveria zizanoides 8. Avaram Cassia auriculata The herbal plants are brought to the workyard in bulk and weighed. The same are sorted out as dried and semi-dried in the godowns. The drying process is undert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or produce - The word production or produce when used in juxtaposition with the word manufacture takes in bringing into existence new goods by a process, which may or may not amount to manufacture. It also takes in all the by products, intermediate products and residual products, which emerge in the course of manufacture of goods. The expressions manufacture and produce are normally associated with movable articles and goods, big and small but they are never employed to denote the construction activity of the nature involved in the construction of a dam or for that matter a bridge, a road and building." And in the case of CIT v. Sesa Goa Ltd. [2004] 271 ITR 331 the Hon ble Supreme Court considered the meaning of word production . The issue in that case was whether the extraction and processing of iron ore amounted to manufacture or not in view of the various processes involved and the various processes would involve production within the meaning of section 32A of the Act. It was inter alia observed as under : "There is no dispute that the plant in respect of which the assessee claimed deduction was owned by it and was installed after March 31, 1976, in the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not be so considered. The assessee was not entitled to special deduction under section 80HH of the Income-tax Act, 1961." 4.2 Now, if we revert to the process involved in bringing out the herbal substance produced out of various raw materials comprising of different herbals and not only one, after having undergone various processes, it is seen that identity of original ingredients has been lost, which can never be brought back to its original form and the output has an aroma, which was absent at the time when the raw materials are received or mixed before the beating process. Therefore, in view of the ratio of various decisions and discussion as held above, we hold that there is a complete transformation of original raw materials so as to produce a commercially different product, as such, the assessee is entitled to deduction under section 80-IB as claimed and the Assessing Officer was not correct at all to disallow such claim of the assessee and the ld. CIT(A) s conclusion in reversing the order of the Assessing Officer is found to be justified. Thus, we do not find any valid reason or justification to interfere in such conclusion as drawn by the ld. CIT(A), which is c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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