9911796707
TMI Blog2012 (4) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... m. It is engaged in the business of manufacture of fragrance, fragrant compound, attar and floral waters at its eligible undertaking comprised at F-3, Industrial Area, Bhimtal, Nainital. It has filed its return of income on 26.10.2007, declaring nil income, after claiming deduction of Rs. 1,36,38,274 under sec. 80-IC of the Income-tax Act, 1961. The case of the assessee was selected for scrutiny assessment and a notice under sec. 143(2) dated 30.09.2008 was issued for compliance on 16.10.2008. In response to this notice, Shri Manish Khanna, FCA duly authorized by the assessee appeared before the Assessing Officer on 16.10.2008. The case was adjourned sine die. Ld Assessing Officer took up the scrutiny proceedings and issued a questionnaire under sec. 142 on 23.3.2009 and called for the information by 6.4.2009. In the questionnaire, learned Assessing Officer has called for following information: (1) Complete note on business activity; (2) The date of commencement of its commercial operations; (3) Furnishing of Form No. 3CD with audited balance sheet, P & L a/c. etc. (4) Details of partners like their names, addresses, PAN, share, their ledger account in the books of assessee; ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30% of the activities is carried out at Kannouj (UP) from where the assessee has purchased flower and essential oil are extracted on job work basis. Thus, no manufacturing activities is being carried out at Bhimtal (Nainital). According to him, It will be in-contradiction with the legislative intent if deduction under sec. 80-IC is being granted to such an entity. Assessing Officer further observed that assessee has not generated job within the State of Uttrakhand. According to him, manufacturing expenses are of 7013 only and plant and machinery involved is having value of Rs. 2,05,000. Apart from the above, he further observed that manufacturing activity was not commenced prior to January 2007. In this way, learned Assessing Officer has denied the deduction to the assessee. 5. Appeal to the Learned CIT(Appeals) did not bring any relief to the assessee. 6. The learned counsel for the assessee while impugning the orders of the Learned Revenue Authority Below has filed paper book running into 478 pages and placed on record all the material collected by the Assessing Officer during the assessment proceedings. He also filed written submissions running into 36 pages. 7. We have duly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) The deduction referred to in sub-section (1) shall be (i) in the case of any undertaking or enterprise referred to in sub-clauses (i) and (iii) of clause (a) or sub-clauses (i) and (iii) of clause (b), of sub-section (2), one hundred per cent of such profits and gains for ten assessment years commencing with the initial assessment year; (ii) in the case of any undertaking or enterprise referred to in sub-clause (ii) of clause (a) or sub-clause (ii) of clause (b), of sub-section (2), one hundred per cent of such profits and gains for five assessment years commencing with the initial assessment year and thereafter, twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains". 8. Sub-section(2) of section 80IC of the Act provides that provisions contained in sub-section (5) and sub-sections 7 to 12 of section 80IA shall, so far as may be, applied to the eligible undertaking or enterprises under this section. Thus, we deem it fit to note down sub-section(5) and sub-sections 7 to 12 of section 80IA also. They read as under: "Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an assessee is claimed and allowed under this section for any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of this Chapter under the heading " C.-Deductions in respect of certain incomes ", and shall in no case exceed the profits and gains of such eligible business of [undertaking] or enterprise, as the case may be. (10) Where it appears to the Assessing Officer that, owing to the close connection between the assessee carrying on the eligible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the Assessing Officer shall, in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom. (11) The Central Government may, after making such inquiry as it may think fit, direct, by notification in the Official Gazette, that the exemption conferr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different geographical area i.e. State of Sikkim, Northern Eastern States. The assessee is situated in Uttrakhand, therefore, sub-clause (ii) of section 80-IC(2)(a) is applicable. Thereafter, sub-section (3) provides quantification of deduction, sub-section(4) laid down the conditions that undertaking or enterprises should not be formed by splitting up or the reconstruction, of a business already in existence. However, this condition would not be applicable in respect of an undertaking which is formed as a result of the reestablishment or reconstruction or revival of the business of an assessee as provided in section 33B of the Act. Similarly, it is not formed by the transfer to a new business of machinery or plant previously used for any purposes. Since there is no dispute that these conditions are not attracted in the case of the assessee, therefore, we do not deem it necessary to make elaborate discussion. At the time of hearing, it has been pointed out that there is no violation to any other conditions contained in sub-rules 5 to 12 of section 80IA of the Act (extracted supra). 10. The primary issue required to be determined, is when assessee came into existence and whether g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or their interpretation and construction not only at the level of ITAT but before the Hon'ble Supreme Court also and the Hon'ble Court has explained both these expressions in detail. He made reference to the decision of Hon'ble Supreme Court in the case of CIT v. M/s. Arihant Tiles & Marbles Pvt. Ltd. reported in 320 ITR 79, India Cine Agency v. CIT reported in 308 ITR 98, CIT v. Sesa Goa Ltd. reported in 271 ITR 331. In his written submissions, he also referred a large number of other decisions rendered by Bombay High Court, Hon'ble Gujarat High Court in the cases of CIT v. Neokarna reported in 137 ITR 879 (Bombay), CIT v. Anglo French Drug Co. Ltd. reported in 191 ITR 92 (Bom.), CIT v. Prabhudass Kishore Dass Tobacco Products reported in 282 ITR 568 (Gujarat). On the other hand, Learned DR has pointed out that it is just a blending activity and he referred to the decision of Hon'ble Calcutta High Court in the case of Brokebond India v. CIT reported in 269 ITR 232 and the judgment of Hon'ble Supreme Court in the case of CIT v. Tara Agency reported in 292 ITR 444. In these cases, it has been held that blending of various categories of teas and selling them after packaging with new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut it is only when the change or a series of changes takes the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article that a manufacture can be said to take place. Process in manufacture or in relation to manufacture implies not only the production but also various stages through which the raw material is subjected to change by different operations. It is the cumulative effect of the various processes to which the raw material is subjected to that the manufactured product emerges. Therefore, each step towards such production would be a process in relation to the manufacture. Where any particular process is so integrally connected with the ultimate production of goods that but for that process processing of goods would be impossible or commercially inexpedient, that process is one in relation to the manufacture. (See Collector of Central Excise v. Rajasthan State Chemical Works [1991] 4 SCC 473). ** ** ** 7. To put it differently, the test to determine whether a particular activity amounts to "manufacture' or not is: Does a new and different good emerge having distinctive na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow, we revert to the facts of the present case. In order to claim deduction under sec. 80-IC, it was contended by the assessee that it is carrying out manufacturing activity at its industrial undertaking comprised at F-13, Industrial Area, Bhimtal (Nainital). It is maintaining complete books of account which are duly audited and during the course of assessment proceedings, assessee has produced all these details before the Assessing Officer including the profit and loss account, sales bills along with form No. C , purchase bills with Form No.16 etc. The assessee contended that its undertaking is registered with Excise Department, however, excise duty is exempt by virtue of notification Nos. 49 and 50 of 2003. The assessee placed copy of the notification at page 26 of the paper book. It is filing regular excise return with the Department and also placed on record the copies of monthly return filed by the assessee on page Nos. 27 to 37 of the paper book. The assessee further contended that it is registered with VAT Authorities and also with district industries centre. The copies of all these details are placed on the paper book from page Nos. 38 to 83. It is registered with Pollution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... These flowers were purchased at Kannouj Mandi. It has incurred an expense of Rs. 17,71,074 on job work for carrying out distillation work at Kannouj. Thus, the total cost incurred by the assessee on this activity is Rs. 203,57,038. The distilled product i.e. oil recovered by the assessee is of four varieties. Their quantities and values worked at page 471 and 476 of the paper book has been summarized by the learned counsel for the assessee in a note which reads as under: (1) Ruh Mehndi 12 Kg 27,60,000 @2,30,000 Kg(-) Rs. 20000 Per Kg. (2) Ruh Bela 12 Kg 22,32,000 @ 1,86,000 Kg(+) Rs. 21000 Per Kg (3) Attar Bela 330 Kg 74,58,000 @ 22,600 Kg. (4) Attar Mehandi 350 Kg 75,95,000 @ 21,700 Kg. 17. The learned counsel for the assessee pointed out that the market price of Ruh Mehandi at the relevant time was Rs. 2,10,000 Per Kg. And Ruh Bela was Rs. 2,07,000 per Kg. Had the assessee not procured these oils on job work basis then it has to purchase these oils from the open market at the above price. Similarly, he pointed out that attar bela and uttar mehandi are concerned, they are not independently available nor they are saleable in the market. The cost incurred by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material. We have discussed in detail the manufacturing process of the assessee while taking cognizance of the flow chart submitted by the assessee. These two decisions are not applicable on the facts of the case. 18. On an analysis of these facts, we find that learned Assessing Officer while observing that more than 93% of manufacturing activities is carried out at Kannouj and at Bhimtal, a very negligible activity has been carried out has failed to appreciate the true nature of the controversy. If distilled oil is similar to that of fragrance, fragrant compound, attar and floral water then Assessing Officer may be justified to say that major activities have been carried out at Kannouj but that is not the case. The end product manufactured by the assessee and sold is altogether different from distilled oil. Distilled oil is one of the raw material for producing fragrant, fragrant compound or attar. The controversy can be looked into with different angles also i.e. whether assessee is trying to shift its profit of the activity carried at Kannouj in order to claim deduction under sec. 80IC but we find that assessee has given complete details of all the job workers. They are indepe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the pendency of this application. Similarly, it pointed out that no chimini was required. It was only installed at the insistence of the pollution control board. The chiminies are made by using mud, sand, brick and clay. These aspects suggest that they are not very substantial circumstance which can turn the issue that no manufacturing activity was carried out by the assessee. Similarly, learned Assessing Officer has referred an instance that bore well was installed only on 15.1.2007 which suggests that there was no source of water and assessee could not undertake any activity prior to this date. To this objection, it was explained before the Learned First Appellate Authority as well as before the Assessing Officer that assessee has purchased the water and it has produced the bills for water tanker before the Assessing Officer. The assessee does not require much water in its activity because the total quantity produced by the assessee is not very large. 20. The main stress of the Assessing Officer is that it should boost economy of the State but in the present case, assessee had made purchases out of Uttrakhand State. Its major activities were carried out in UP. We find that this ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
