TMI Blog2010 (2) TMI 893X X X X Extracts X X X X X X X X Extracts X X X X ..... e has not received sale proceeds in convertible foreign exchange or the assessee has not furnished report of an accountant in the prescribed Form No.10CCAC. Further as it is now settled law that book entries are not determinative factor to deal with the income/expenditure whether taxable or deductible thus assessee is entitled to the deduction u/s. 80-HHC(3) on the amount received as a result of exports to M/s. P.T. Indo Bharat Rayon, Indonesia. The AO is directed to compute and allow the same in accordance with the provisions of the law, assessee's appeal stands allowed. - ITA No. 261/Mum/2007 - - - Dated:- 12-2-2010 - D.K. Agarwal, R.K. Panda, JJ. J.D. Mistry for the Appellant K.R. Das for the Respondent ORDER D.K. Agarwal: This appeal preferred by the assessee is directed against the order dated 24.11.2006 passed by the ld. CIT(A) for the Assessment Year 1990-91. 2. Briefly stated facts of the case are that the assessee company is engaged in manufacturing activities viz. Rayon, fibre, pulp, viscose staple fibre (VSF), textile, suitings and shirtings, yarn, cement etc. It filed return declaring total income of Rs.66,67,09,140/-. However, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that entries made in the books of account are not conclusive or decisive for tax implications. Accounting of foreign currency received on account of export of wood pulp as processing charges in the books of account will not change the correct nature of receipt. Further the assessee has fulfilled all the conditions prescribed in section 80 HHC as under:- 1. The assessee has exported out of India goods i.e. VSF 2. The sale proceeds were received in convertible foreign exchange. 3. The assessee furnished along with its return of income accountant's report in the prescribed Form No.10CCAC. With regard to the Assessing Officer's observation that deduction u/s. 80HHC is allowed only in cases of sale proceeds received and not for processing charges, the assessee submitted that amount amount received from PTIBRI is export sales proceeds and not processing charges. The assessee manufactured VSF and exported the same to the foreign customer. Referring to the decision in the case of Chowhule and Co.(P) Ltd. vs. Union of India (1981) 47 STC 124(SC) the assessee stated that there is a difference between processing and manufacturing as in manufacturing the original com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer to consider receipt of Rs.49,67,779/- towards export of fibre as part of export turnover for the purpose of allowing deduction u/s.80HHC. 1.4 The Appellant prays that deduction u/s.80- HHC be allowed on proceeds of Rs.49,67,779/- as it forms part of export turnover." However, at the time of hearing the ld. Counsel for the assessee submits that all the grounds raised by the assessee are pertaining to one issue i.e. disallowance of deduction u/s.80-HHC on the amount of exports of Rs.47,67,779/-. 7. At the time of hearing the ld. Counsel for the assessee while reiterating the same submissions as submitted before the ld. CIT(A) further submits that the amount received by the assessee from PTIBRI is export sales proceeds and not processing charges. The assessee has manufactured VSF and exported the same to the foreign customer. In the case of the assessee the raw material is wood pulp which has been manufactured as VSF and exported to PTIBRI. Since the raw material is different from the product manufactured by the assessee, exported to foreign buyers, the assessee has fulfilled all the conditions as laid down u/s.80HHC of the Act, therefore, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee from the export of such goods or merchandise. In the case of the assessee there is no purchase/sales inasmuch as the assessee after processing of the raw material supplied free of cost by M/s. P.T. Indo Bharat Rayon, Indonesia, has exported the goods to the same party, hence, the assessee is not entitled to deduction u/s.80-HHC of the Act. Reliance was also placed on the following decisions: 1. CIT vs. K.K. Doshi and Co. (2000)245 ITR 849(Bom). 2. CIT vs. Sterling Foods (1999)237 ITR 579(SC) 3. CIT vs. K. Ravindranathan Nair (2007)295 ITR 228(SC) 4. Income-tax Officer vs. Induflex Products P. Ltd. (2006)280 ITR 1(SC) He therefore, submits that disallowance of deduction u/s.80-HHC made by the AO and sustained by the ld. CIT(A) be upheld. 9. In the rejoinder, the ld. Counsel for the assessee submits that in the assessment order it has been observed by the AO that an amount of Rs.47,67,779/- (after reducing expenses of Rs.43,84,649/-) has been received by the assessee from M/s. M/s. P.T. Indo Bharat Rayon. This indicates that an amount of Rs.47,67,779/- is a profit received by the assessee from exports. Thus, the plea taken by the ld. DR that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt article or commodity. That process itself may consist of several processes. The different processes are integrally connected which results in the production of a commercially different article. If a commercially different article or commodity results after processing then it would be a manufacturing activity." 13. In Saraswati Sugar Mills vs. Haryana State Board (1992) 1 SCC 418 it has been noted that: "Manufacture" is a transformation of an article, which is commercially different from the one, which is converted. The essence of manufacture is the change of one object to another for the purpose of making it marketable. The essential point thus is that in manufacture something is brought into existence, which is different from that which originally existed in the sense that the thing produced is by itself a commercially different commodity whereas in the case of processing it is not necessary to produce a commercially different article." 14. In India Cine Agencies vs. CIT (2009) 308 ITR 98(SC) the Hon'ble Supreme Court after review of the case law on the subject and the guidelines available from the Supreme Court itself in Ujagar Prints vs. Union of India (1989) 179 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have to be upheld." 16. Applying the ratio of the above decisions to the facts of the present case, we find that in the case of the assessee, the assessee has manufactured Viscose Staple Fibre (VSF) from the raw material i.e., wood pulp having different properties. In other words, the manufacturing process applied to manufacturing of VSF constituted manufacture as the article produced is recognised in the trade as distinct commodity pursuant to the process it undergoes and which amounts to manufacture as the original commodity loses its identity. 17. With regard to observation of the ld. CIT(A) that the raw material should be owned by the assessee for the purpose of claiming deduction u/s.80-HHC we find that sec.80-HHC does not specify any such requirement as has been held by the Tribunal in DCIT vs. Shashi Kant Mittal (supra), wherein it has also been held that the definition of 'manufacture' as defined by the Supreme Court in Aspinwall and Co. Ltd. (supra), also does not give any indication that ownership of raw material is a primary condition for manufacturing. Further, the section specifies that the assessee should engage in the business of exports out of India of any g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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