TMI Blog2012 (6) TMI 683X X X X Extracts X X X X X X X X Extracts X X X X ..... not amount to manufacture as a production of a new substance does not mean merely to produce some change in the substance -decided against assessee. Disallowance of foreign travel expense - Held that:- As the assessee failed to prove that the expenditure incurred towards foreign travelling expenses of two persons is wholly and exclusively for the purpose of its business by way of documentary evidence, dis allowance is warranted - against assessee. Levy of interest u/s 234D - Held that:- As the provisions of section 234D having been inserted with effect from 1st June 2003, applicable only from the assessment year 2004-05. Since the assessment year under consideration is 2003-04 interest charged u/s 234D need to be deleted - in favour of assessee. Validity of the reopening of the assessment u/s 147 - Held that:- As the assessee has to initially file a return and after that the assessee can ask reasons for issuing the notices for re-assessment, but in the present case, the assessee has not at all filed the return of income in the first place to seek for reasons recorded and hence the reopening u/s 148 is valid - against assessee. - IT Appeal NoS. 493 (Hyd.) of 2005 1013 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 80IB of the Act. A sworn statement was also recorded from the Dy. Manager of the factory about the scheme of manufacturing, if any, involved in the pelletisation of feed. According to the said statement, various feed ingredients such as maize, rice bran, de-oiled soya etc., along with certain feed premixes are mixed in different proportions and then ground to form a course powdered material which is called mash feed. Such feed undergoes a certain kind of physical changes before again converted into small pellets. The actual process involved is that the mash feed is carried through an elevator to a pellet making machine where it gets mixed with steam and then forced through a press containing small holes to convert the feed into small pellets. There is no change of composition in the mash feed and the pellet feed. Hence according to the assessing officer the conversion of physical shape of the feed involves only processing and no manufacture. On the basis of these findings, the assessee was given an opportunity to show cause as to why the claim of deduction u/s. 80IB should not be disallowed. The assessee, relying on various judicial pronouncements on the issue, objected to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent that the pellet unit had independent existence was not substantiated. 6. The assessing officer further noted that the assessee by using exiting old plants and machineries on which the claim under S.80IA was fully availed, sought to claim deduction twice. The profit earned by the assessee was not solely attributable to the pellet unit alone. With the contribution of both the units, the profit was earned. Both the units were integrated as one unit. This is also evident, according to the assessing officer, from the fact that the mash feed was not purchased from outside but was made available from a part of the assessee's own unit. In terms of the provisions of sub-section (2) of S.80IB, assessee is not entitled to ail the deduction on the same item twice. 7. Based on these findings, the assessing officer rejected the claim of the assessee made under S.80IB amounting to ₹ 94,41,829. 8. On appeal, the CIT(A) after detailed consideration of the submissions of the assessee in the light of the ratio laid down in various decisions on the issue, concluded that there cannot be any dispute that the poultry feed whether in the form of a powder (mash feed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n claimed in respect of pellet unit cannot be denied. Only when in a new plant, some old machinery is transferred, it can be said that old machineries are used in the new unit. But when the profit is separately computed for pellet unit and deduction u/s 80IB is claimed is only for that unit, it cannot be said that the appellant has used old machinery of the mash feed unit. 11. After considering the submissions of the assessee, the CIT(A) held as under:- 2.20 I have carefully considered the facts of the case and the submissions of the appellant. Sec. 80IB provides for a deduction from the profits and gains of an amount equal to a certain percentage and for a certain number of assessment years as specified in sub-section (3) and sub-section (4) of that section. One of the conditions of eligibility is that the assessee must be an industrial undertaking which manufactures of produces an article or thing not being an article or thing specified in the list in the Eleventh Schedule or operates one or more cold storage plant or plants in any part of India. Aggrieved by the order of the CIT(A) dated 1.2.2005, confirming the disallowance made by the assessing officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by the partners or employees of the appellant firm. 3.2 The appellant submits that the expenditure was incurred wholly and exclusively for the purpose of the business and hence is an allowable deduction u/s 37(1). The appellant submits that it is not always necessary that the expenses have to be incurred on employees or partners. The expenditure incurred on business associates is also business expenditure allowable u/s 37(1) of the Act. 3.3 The appellant further submits that it is not always necessary that foreign travel should result in happening of transaction and merely the absence of the same does not necessitate the disallowance. 3.4 The appellant therefore prays your Honour to direct the ACIT to allow the foreign travel expense as a deduction. 12. For the other three years also, viz. assessment year 2003-04 to 2005-06, the assessing officer while completing the assessment under S.143 of the Act, following the stand taken for the assessment year 2001-02 which has been upheld by the CIT(A) as well, completed the assessments rejecting the claims of the assessee inter-alia under S.80-B of the Act of ₹ 2,04,68,538 for assessment year 2003- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce the words 'manufacture' and 'production have not been defined in the Act, one would have to go by the ordinary meanings of the words for deciding whether an activity constitutes manufacturing, one has to see whether the original product is consumed in the manufacture of new product and a commercially new product emerges out of the same. For the said propositions, he relied upon the following case laws:- ( i ) In the case of Dy. CST (Law) Board of Revenue v. Pio Food Packer [1980] 46 STC 63 (SC), the Hon'ble Supreme Court defined the term 'manufacture' in the following words: Commonly, manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 71 ITR 331/[2005] 142 Taxman 16 (SC), the Court observed that extraction and processing of iron ore amounts to production within the meaning of section 32A(2)(b)(iii) of the Act. 16. The Learned Departmental Representative on the other hand, strongly supported the orders of the lower authorities. The learned DR submitted that there is no change of composition in the mash feed and the pellet feed and, therefore, the conversion of physical shape of the feed involves only processing and no manufacture. He further submitted that mash feed which simply changes shape on pellitisation and remains the same commodity even after the aforesaid processing meant for the same use cannot be said to have undergone the process of manufacture. It is submitted that there cannot be any dispute that the poultry feed, whether in the form of a powder (mash feed) or in the form of a particular solid shape (pellet) remains nothing but poultry feed and no new and different commodity, in a commercial sense, is born from out of such pellitisation The ingredients remain the same. The utility remains the same, so also the intended consumers and customers. The only that such feed undergoes is a change o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agent. The conditioned feed formed into pellets by pressing the through a die (3mm, 4.5 mm 6 mm). (10) Pellet Cooling is also a part of conditioning, where, cooling is achieved by passing draft of air through the pellets to evaporate moisture resulting in temperature reduction. (11) After the cooling process, the material is being passed to the Pellet Crumbler through pellet elevator, where the crumbler is used to crumble a whole pellet into smaller size. (12) In the Sieving process, Sieve is used to grade the pellets by size and the feed goes to bagging bin and depending upon the requirement, packing is done in the bags of 50 to 70 kgs. 17.2 We have examined the stages through which the mash feed is converted into pellet feed. In deciding the issue whether there has been any manufacture of pellet feed, we are inclined to hold that there has been only processing' while the production of pellet feed is done by following various stages, namely, i) batch weighing, ii) grinding, iii) mixing, iv) conditioning with steam, v) pelleting, vi) cooling, vii) crumbling and, finally, viii) packing. 17.3 The learned counsel for the assessee also submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. There is no change in the basic component except a physical change in the structure and shape in the form of pellet as no new substance comes into existence. 17.6 The ITAT coordinate bench held in the case of Daftri Agro, as follows: We find merit in the observations of the Assessing Officer that the assessee firm processed only raw seed to final seeds and hence the assessee firm has not taken any manufacturing activity and, therefore, the assessee is not eligible for claim of deduction u/s 80IB of the Act. It is well settled law that process of standardization and pasteurization of milk does not amount to manufacture/production for the purpose of claiming deduction u/s 80IB of the Act ( B.G. Chitale v. DCIT [2008] 115 ITD 97 (Pune)(SB). Like wise the processing of mineral water also not amounts to manufacture. The activity of the assessee firm is similar to the activity referred to in the case of B.G. Chitale ( supra ). Hence, the decisions relied on by the learned counsel for the assessee is distinguishable on facts. Hence, the appeal of the revenue is allowed. 17.7 In the case of Shri Raghavendra Industries v. ITO , the coord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not manufacture. 17.12 In the case of Sri Vinayaka Oil Industries v. State of Karnataka [1993] 91 STC 253 (Kar.), the Court held that dehusking of tamarind seeds to give white tamarind 'pappu' is merely a change of form and conversion of tamarind seed into powder does not result in the manufacture of new article. 17.13 In the case of Appeejay (P.) Ltd. v. CIT [1994] 206 ITR 367/77 Taxman 208 (Cal.), the Court held that the blending of different kinds of tea does not constitute manufacture or production of articles. 17.14 In the case of CIT v. Tata Locomotives Engineering Co. Ltd. [1968] 68 ITR 325 (Bom.), the Court held that the word or expression manufacture and produce apply to bringing into existence of something which is different from its components. 17.15 In the case of Raghbir Chand Som Chand v. Excise and Taxation Officer [1960] 11 STC 149 (Punj.), the Court held that where the commodity retains a substantial identity through the processing stage is said to have been processed. 17.16 In view of the above discussion and the ratios laid down by the respective Hon'ble High Courts/Supreme Court, it ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see filed written submissions and the contents regarding claim of deduction u/s 80IB stated in the written submission were the same as stated in AY 2001-02 and followed various case laws in support of its claim, which were extracted by the CIT(A) at 3 of his order. As regards, reopening of assessment, it was submitted that based on the reasons for reopening of the assessment as communicated by the AO vide letter dated 22/11/04, the assessee had filed its objection to the vide letter dated 04/03/05. However, the AO had passed the order without disposing off the objection raised by the assessee vide its letter dated 04/03/05. He, therefore, contended that it had resulted into lack of adequate opportunity to the assessee and violation of principle of natural justice. For this proposition, the assessee relied upon the judgment of the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd . v. ITO [2003] 125 Taxman 963 and the Hon'ble Madras High Court in the case of K.S. Suresh v. Dy. CIT [2005] 279 ITR 61 /[2006] 150 Taxman 269. It had been contended that non-consideration of the objection raised by the assessee vitiated the proceedings u/s 147 of the Act. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment order u/s 143(3) dated 27/01/06 was passed raising demand of ₹ 87,74,0389/-. The AO levied interest u/s 234D of ₹ 1,63,215/-on the said demand. The CIT(A) confirmed the action of the AO. Still aggrieved the assessee is in further appeal before us. 24. Before us, the learned counsel for the assessee submitted that in the relevant assessment year the provisions of section 234D did not exist since the same has been introduced with effect from 01/06/2003. 25. We have heard the parties on this issue. In this connection, the Delhi Special Bench of the Tribunal in the case of ITO v. Ekta Promoters (P) Ltd. [2008] 305 ITR 1 (AT), held that the provisions of section 234D having been inserted in the statute with effect from 1st June 2003, the same are applicable only from the assessment year 2004-05. Since the assessment year under consideration is 2003-04, we delete the interest charged u/s 234D and this ground of appeal is allowed. 26. Similarly, in the appeal for assessment year 2001-02, viz. 493/Hyd/2005, the assessee has raised grounds contesting the quantification of the relief under S.80IB of the Act, as Ground No. II. 27. G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submitted that the expenditure was incurred wholly and exclusively for the purpose of the business and hence is an allowable deduction u/s 37(1). He further submitted that it is not always necessary that the expenses have to be incurred on employees or partners. The expenditure incurred on business associates is also business expenditure allowable u/s 37(1) of the Act. 32. On the other hand, the learned DR has relied upon the orders of the authorities below. 33. After hearing both the parties and perusing the record as well as the orders of the authorities below, it is observed that neither before the revenue authorities nor before us the assessee failed to prove that the expenditure of ₹ 6,65,977/- incurred towards foreign travelling expenses of two persons is wholly and exclusively for the purpose of its business by way of documentary evidence. Therefore, we find no infirmity in the order of the CIT(A) in confirming the action of the AO in disallowing the said foreign travel expenses. Accordingly, we uphold the order of the CIT(A) and dismiss this ground of appeal of the assessee. 34. In the result, appeals being ITA No. 493/Hyd/05 for AY 2001-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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