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TMI Blog2010 (9) TMI 548X X X X Extracts X X X X X X X X Extracts X X X X ..... income, the assessee firm declared net income from business activity including interest income as Rs.47, 01,581. However, the assessee firm claimed the entire net profit as exemption under section 80IB of the Act. During the scrutiny proceedings, the assessee was asked to explain the applicability of section 80IB of the Act with regard to business income and business activity of the firm. It was held by the assessing officer that the process of seeds manufacturing starts with purchase of foundation seed which is given to the farmers for seed production and raw seeds procured from the growers goes through various stages such as 1) acid treatment, precleaning, grading, needle separator, laboratory testing, poison treatment and packing and labelling and as per the assessee's note the assessee-firm would perform the above treatments to get finished products from raw material. After going through the facts of the case and on the basis of note submitted by the assessee the assessing officer held that the methods involved in this so-called manufacturing activity clearing treatment is as under:- i) The assessee firm purchases and collects seed from formers, which is called raw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee for the alleged production of chicks it is clear that the assessee does not contribute to the formation of chicks. The formation of chicks is a natural and biological process over which the assessee has no hand or control and in fact, what the assessee is doing is to help the natural of biological process of giving birth to chicks. The chicks otherwise can also be produced by conventional of natural method and in that process also, the same time is taken when the chicks come out from the eggs. What the assessee by application of mechanical process does in the hatchery is to preserve and protect the eggs at a particular temperature but the coming out of chicks from the eggs is an event of nature. They only difference seems to be that the application of mechanical method, the mortality rate of chicks is less and the assessee may get chicks more in number. This would not mean that the assessee produces chicks and that chicks are "articles or things". It is found that in the present case, the assessee is doing some cleaning methods by application of mechanical process to preserve and protect the seed from insects and fungicides. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r is of the view that processing of the seeds does not amount to manufacture and he is of the view that in the process of manufacture the input and the output are the same and no different produce is manufactured in the process. The assessing officer mentions that the assessee is not manufacturing any new article or thing distinct from the original raw material. According to the assessing officer, the process is only a trading activity of purchasing seeds from the farmer and selling the same to the farmers again. The assessing officer is of the view that the decision of the Supreme Court in the case of CIT vs. Venkateshwara Hatcheries Pvt. Ltd. (supra) is applicable to the facts of the case and therefore held that no manufacturing activity was undertaken by the assessee. In view of the above observations, the assessing officer denied deduction under section 80IB of the Act. In this regard, it is submitted that at the time of purchase from the agriculturists, it was grain/oil seed and the grain is used for human consumption. After purchase of the grain it is processed by various treatments which are acid treatment, pre-cleaning, grading, needle se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication to the facts of the assessee's case. In the said decision the question was whether a chick can be considered as an article or a thing within the meaning of section 80-J of the Act. The Apex Court was considering the question whether an income from hatchery is entitled for deduction under section 80J of the Act. For the income from hatchery is entitled for deduction under section 80J of the Act. For the purpose of granting deduction under section 80J, the requirement was that there should be manufacture or production of article or a thing. The apex court held that formation of chick is natural and biological process and a chick is not an article or a thing. The said decision has not application as the circumstances mentioned by the Supreme Court are not existing in the case of the assessee. Therefore, it is contended that the assessing officer is not correct in holding that the production of the seeds is not a manufacturing unit. It is further contended that in view of the judgment of Supreme Court and the judgment of Bombay High Court, preparation of seed amount to manufacture and as such the claim of the assessee for deduction unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The final product i.e., article or thing cannot be called by any other name than the original name. The assessee has purchased seed and finally sold the seed only. The assessee does only trading activity. The assessee firm purchases seeds from farmer and sells to the farmers. Whatever activity is undertaken by the assessee is for only to increase the shelf life of the seed. Whereas the contention of the assessee is that at the time of purchase from the agriculturists, it was grain and the grain is used for human consumption. After purchase of the grain it is processed by various treatments which are acid treatment, pre-cleaning, grading, needle separator, laboratory testing, poison treatment and packing and labeling. After these treatments, the grain becomes a seed. Grain is used for human consumption and whereas the seed is used for reproduction. Seed cannot be used for human consumption and therefore, the assessing officer is not correct in mentioning that the input and the output are the same. The input is of a grain and the output is of a seed with different utility. After hearing both the parties, we find that the only differen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee raised the following grounds of appeal:- 1. The order of the learned CIT (A) is erroneous both on facts and in law in so far as it is prejudicial to the assessee. 2. The order passed under section 143(3) read with section 147 is invalid as the notice under section 148 was not legally valid. 3. The learned CIT(A) erred in holding that interest income from UTI bonds utilized in providing discounts or benefits to the dealers represents the income not covered by the application of provisions of section 80-IB of the IT Act. The learned CIT(A) ought to have seen that the dealers pay in advance for booking the seed and avail discounts and such discounts are met from out of the interest derived by depositing the advances received with UTI and, therefore, there is no income in respect of such deposits received. The learned CIT(A) ought to have held that the amount of Rs.20,44,231 does not represent income and further erred in holding that such income is not eligible for deduction under section 80-IB of the Act. 4. The learned CIT (A) erred in holding that interest u/s 234A is leviable particularly when the assessee filed the return of income within the t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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