TMI Blog2010 (12) TMI 268X X X X Extracts X X X X X X X X Extracts X X X X ..... for the Appellant. Hari Govind Singh for the Respondent. ORDER Per Rajendra Singh (AM) This appeal by the assessee is directed against the order dated 4-10-10of CIT(A) for the assessment year 2007-08. The only dispute raised by the assessee in this appeal is regarding disallowance of deduction of Rs. 90,66,660 claimed by the assessee under section 80IC(2)( a )( ii ). 2. Briefly stated the facts of the case are that the assessee for the relevant year had claimed deduction of Rs. 90,66,660 under section 80IC(2)( a )( ii ) in respect of new industrial undertaking at Belikhol, Biddi Industrial Area, District Solan, Himachal Pradesh which commenced activities in June 2006. The deduction was claimed in respect of Attars produced by the assessee. The Assessing Officer noted that the provisions of section 80IC(2)( a ) applied to undertaking/enterprises which manufactured or produced any article or thing not specified in Part B of 13th Schedule of I.T. Act. Assessing Officer further noted that articles or things specified at Sr. No. 5 of Part B of 13th Schedule were organic chemicals including pro-vitamins/vitamins etc. The Assessing Officer was of the view that Atta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer disallowed the claim. The Assessing Officer also observed the computation of deduction was not in order. But since he denied the deduction on the ground that the assessee was not eligible, the Assessing Officer did not recompute the deduction. 3. In appeal the assessee submitted that the Assessing Officer was not correct in stating that Attar was an organic chemical. It was pointed out that aromatic chemicals and natural essential oils which had gone into manufacturing of Attar had lost their identity. The composition of Attar was totally different from that of organic chemicals and essential oils. The manufacturing of Attar involved an irreversible process giving rise to a new product and in common parlance also Attar was known as a different product. Therefore the process should be considered as manufacturing. The assessee placed reliance on the decision of the tribunal in case of Shree Par Fragrance Pvt. Ltd. v. ITO (20 SOT 440); the decision of Tribunal in case of J.M. Perfumery v. CCE, Vapi (90 RLT 485 CESTAT-Ahmd.); and the decision of Tribunal in case of Hindustan Essential Oil Co. v. DCIT (2010-TIOL-115). CIT(A) however did not accept the contentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Matunga, Mumbai. CIT(A) pointed out that the report mentioned that Attar 96 Heena Attar 96 musk were deliberate mixtures of carried out on the basis of experience and final appeal. It was thus pointed out that the report never mentioned that the Attar was not an organic chemical or compound. CIT(A) further pointed out that in relation to essential oil the report mentioned that these were mixtures of several components and thus natural products. Thus the report did not clearly state that essential oils were not organic chemicals and components. Therefore on the basis of said report it could not be said that Attars and essential oils were not organic compounds. CIT(A) observed that Attars was a result of blending of certain components being aromatic chemicals and was essential oils which were organic chemicals and the end product Attar was therefore essentially an organic compound. As regard the plea of the assessee that for the purpose of Excise and Sales tax, Attars had been placed in a separate category. CIT(A) observed that classification made under different statutes was for different purposes which could not be imported into other statutes. He therefore held that Attars was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich were fixed were held not furniture but fixtures. 4.1 The Learned AR also argued that process of production of Attar was not reversible because the same could not be brought back into original state of ingredients and therefore the process was manufacturing. In this regard he referred to the judgment of Hon ble Supreme Court in case of Punjab Aromatics in Civil Appeal No. 3160 of 2008. In that case there was conversion of red oil into sandalwood oil by removing water content and impurities. The issue was whether the process was manufacture. Hon ble Supreme Court observed that one of the important tests of manufacturing was that the raw material is subsumed into final products. Another important test was the test of irreversibility which was not satisfied in that case as the sandalwood oil could be brought back to the original state, namely, red oil by adding impurities. It was accordingly held that the process was not manufacturing. The Learned AR also referred to the judgment of Hon ble Supreme Court in case of ITO v. Arihant Tiles Marbles Pvt. Ltd. (320 ITR 79) in which sawing of marble blocks into slabs and tiles and polishing them was held as manufacturing and prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial i.e. aromatic chemicals and essential oils are organic chemicals which on mixing do not undertake any chemical reaction to give a different product. Attars have the same character and qualities as the original ingredients and is not substantially different from them. Therefore the process cannot be considered as manufacturing. Further Attars have the same characteristics as the ingredients which were nothing but organic chemicals and therefore the end product being an organic chemical cannot be considered for deduction. 6.2 The case of the assessee is that the composition of Attars is different from aromatic chemicals and essential oils. The assessee has submitted a report from a technical institute i.e. VJTI in which aromatic chemicals have been referred to as organic chemicals whereas Attars has been termed as mixture carried out on the basis of experience and final appeal. The assessee has also submitted that the entire process was irreversible and Attars cannot be brought back to the original components and therefore the process is manufacturing. It has also been argued that in common parlance Attar is known as a different product and that under the excise Act A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not, finding on this issue is also to linked the technical report regarding composition of Attar. In a manufacturing process the original ingredients are subsumed in the final product which is substantially different from the original ingredients. This can be found out from the specialized test report to which we have referred earlier as to whether the original ingredients undergo substantial changes to give the new product or maintain their original characteristics or quality and Attar has the same chemical composition. Merely because for the purpose of excise duty Attar has been placed in a separate Chapter it cannot be concluded that Attars is different from the original constituents particularly when the assessee is not paying any excise duty on the product. It is possible that CETA deems certain processes as manufacturing by placing certain products in a particular chapter for the purpose of excise duty even if they do not fulfil strict criteria of a manufacturing process but for the purpose of Income-tax we have to find out whether the product meets the test of manufacturing activity particularly in a case like this in which the assessee is not even paying excise duty. Howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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