9911796707
TMI Blog2012 (11) TMI 194X X X X Extracts X X X X X X X X Extracts X X X X ..... ssential conditions for availing deduction u/s. 80IC of the Act. 3. That the appellant craves leave to add, alter, amend or vary the grounds of appeal before or at the time of hearing." 2. In assessment year 2009-10, the amount claim as a deduction under sec. 80-IC of the Income-tax Act, 1961 is Rs.285,10,459. 3. The brief facts of the case are that assessee has filed its return of income on 20th September, 2008 for assessment year 2008-09 declaring nil income after claiming deduction of Rs.332,29,787 under sec. 80-IC of the Act. Similarly in assessment year 2009-10, the assessee filed its return of income on 25th September, 2009 declaring nil income by claiming a deduction of Rs.299,88,505 under sec. 80-IC of the Act. The case of the assessee was selected for scrutiny assessment in both the assessment years. Learned Assessing Officer had issued notice under sec. 143(2) of the Income-tax Act, 1961. He observed that in assessment year 2007-08, assessee has claimed deduction under sec. 80-IC which was disallowed to it after a detailed discussion. The disallowance of the deduction was upheld by the Learned CIT(Appeals). On the strength of his findings in assessment year 2007-08, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied92 by the Central Government in this regard, in the State of Himachal Pradesh or the State of Uttaranchal; or x x x x x x x (b) which has begun or begins to manufacture or produce any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule, or which manufactures or produces any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule and undertakes substantial expansion during the period beginning x x x x x x x (ii) on the 7th day of January, 2003 and ending before the 1st day of April, 2012, in the State of Himachal Pradesh or the State of Uttaranchal; or x x x 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 subclauses (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 subclause (ii) of clause (a) or sub-clause (ii) of clause (b), of subsection (2), one hundre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as if the transfer, in either case, had been made at the market value of such goods 82[or services] as on that date : Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. [ Explanation.- For the purposes of this sub-section, "market value", in relation to any goods or services, means the price that such goods or services would ordinarily fetch in the open market.] (9) Where any amount of profits and gains of an 84[undertaking] or of an enterprise in the case of 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 84[undertaking] or enterprise, as the case may be. (10) Where it appears to the Assessing Officer that, owing to the close connection between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt from this, the activity of manufacture should commence between the period 7th day of Jan 2003 and ending on Ist April 2012. It should be at the place notified by the Board in accordance with the scheme. The learned counsel pointed out that assessee's case falls under 80-IC 2(b) also. The difference between both the clause is that under clause 'b', the article should be one, which is provided in fourteenth schedule and area i.e. Industrial Park, Industrial Centre need not be notified. The assessee has not manufactured any article or thing, which provided in thirteenth schedule. It is situated in Industrial Estate, thus it falls in section 80IC(2)(ii) of the Act. As far as the other provisions are concerned, they are meant for 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, subsection( 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hing with a different chemical composition or integral structure". However, expression "production" has not been defined in the Act. The stand of the revenue authorities is that at the most activity carried out by the assessee is of blending one. It has just mixed the floral distillate from Kannouj and no new or distinct product has emerged out. On the other hand, learned counsel for the assessee has placed in the written submissions a flow chart exhibiting the activities carried out by the assessee before producing altogether distinct saleable commodity which has its own identification in the commercial world. The learned counsel for the assessee pointed out that expression "manufacture" as well as production have fallen for 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 vs. M/s. Arihant Tiles & Marbles Pvt. Ltd. reported in 320 ITR 79, India Cine Agency Vs. CIT reported in 308 ITR 98, CIT vs. Sesa Goa Ltd. reported in 271 ITR 331. In his written submissions, he also refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Board of Revenue (Taxes) Coco Fibres [1992] Supp. 1 SCC 290). 4. Manufacture implies a change but every change is not manufacture, yet every change of an article is the result of treatment, labour and manipulation. Naturally, manufacture is the end result of one or more processes through which the original commodities are made to pass. The nature and extent of processing may vary from one class to another. There may be several stages of processing, a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. Whenever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity. But 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the effect that broadly manufacture is a transformation of an article, which is commercially different from the one which is converted. It is a change of one object to another for the purpose of marketability. It brings something into existence, which is different from that, which originally existed. The new product is a different commodity physically as well as commercially. The Hon'ble Court also explained broader test to determine whether manufacture is there or not, it is propounded that when a change or series of changes are brought out by application of processes which take the commodity to the point where, commercially, it cannot be regarded as the original commodity but is, instead recognized as a distinct and new article that has emerged as a result of the process. 15. Now, 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ixed together; h) That fragrance thus obtained is left for maturation to get the finished produce; and i) That same is then packed in sealed containers for the purposes of sale". 16. It was pointed out by the learned counsel for the assessee that one of the major raw-material required for carrying out manufacturing activities at Bhimtal is distilled oil or floral oil, this oil was procured by the assessee from Kannouj. The assessee used to purchase the flowers in that area and got distilled work on job work basis, but the distillated oil is altogether a different product then fragrant compound, attar and floral water. The learned counsel for the assessee pointed out that assessee has purchased 640601 kgs of flowers of different kind for a consideration of Rs.185,85,604.90. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or it is just a processing. Hon'ble Court has observed that there are three stages involved. The tea is produced in the tea garden. This is the first stage which is called production of tea. The second stage is manufacture of tea. In this stage, the tea leaves are plucked from the tea bushes and by mechanical process, tea leaves are converted to tea. This second stage is considered manufacturing of tea. The third stage is blend of different qualities of tea in order to smoothen its marketability. Thus, the 3rd stage is considered processing of tea. In the present case, assessee has purchased flowers, got their oil on job work basis. Thereafter, in a long continuous process, it produced fragrant compound, attar and fragrant which are altogether different items than the raw 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 ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ripheral aspects wherein stress of the Assessing Officer is to doubt the very existence of the assessee. However, we do not find any substantial material which can goad an authority to say that assessee was not carrying out the manufacturing activity. In the first objection, Assessing Officer has alleged the pollution control certificate is dated 28.12.2006 which suggest that activity cannot be started prior to 22.12.2006. Similarly, in the second objection, he alleged that chimini was installed only after 18.12.2006 which suggests that any furnance activity could not be taken prior to this date. The explanation of the assessee to these objections is that it has submitted bank draft for making application to pollution control on 17.7.2006. It had commenced its operation during 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 Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to its factory premises so that he can have a glance over the activities carried out by the assessee. This request of the assessee has dully been noted by the Assessing Officer on page 27 of the impugned order while taking cognizance of the assessee's submission, however, learned Assessing Officer did not visit the factory on the ground that no fruitful purposes would be served. According to the assessee, had the Assessing Officer paid a visit, he could appreciate the activities carried out by the assessee and he could also assess since when such activity was undertaken by the assessee. We also find that assessee has placed on record the material exhibiting transportation of the raw material, purchase bills and Vat certificate. It is registered with the Central Excise Department w.e.f. Ist of September, 2006. According to the assessee, fragrance, fragrant compound, attar and floral water though exempt from payment of Central Excise in Uttrakhand State. It has pointed out that total quantity of essential oil and chemicals purchased by the assessee are of 9214 kgs. out of that distilled product of 704 kgs. was procured from Kannauj. These items were procured at market price as demon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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