TMI Blog2012 (11) TMI 194X X X X Extracts X X X X X X X X Extracts X X X X ..... was required to look into whether assessee has an industrial undertaking. It is situated within notified area as contemplated in section 80IC(2)(a)(ii) of the Act. Whether it is manufacturing any article or thing. Negligible expenses shown by the assessee - AO observed that by incurring a sum of Rs.7013 only, turnover of more than Rs. 3 crores cannot be achieved - Held that:- The assessee in the audited P & L account has shown fuel charges at Rs.1,56,320, freight Rs.52,663, manufacturing expenses Rs.15,132, water and electricity expenses Rs.7715 and packing material of Rs.50,853. Apart from these expenses, assessee has shown purchase of raw material at Rs.2.39 crores. Thus, it can be fairly concluded that AO has made this comparison in isolation. 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. Thus the assessee has demonstrated that it is engaged in the manufacturing of article and things fulfilling all the essential conditions for availing deduction under sec. 80IC - in favour of assessee. - ITA Nos. 4171 & 4172/Del/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the deduction to the assessee in assessment year 2007-08 vide its order dated 16.3.2012 passed in ITA No.4183/Del/2011. According to the Learned CIT(Appeals), 5. In response to the notice of hearing, no one has come present on behalf of the assessee. With the assistance of learned departmental representative, we have gone through the record carefully and dispose of the appeals ex parte qua the assessee. The ITAT while allowing the deduction under sec. 80-IC in assessment year 2007-08 has discussed the issue as under: 7. We have duly considered the rival contentions and gone through the record carefully. In order to avail deduction under section 80IC, an assessee has to fulfill the conditions contemplated in the section. Therefore, before considering the respective contentions as well as the relevant material, it is imperative upon us to take note of the relevant statutory provisions. The relevant part of section 80-IC, thus reads as under: Special provisions in respect of certain undertakings or enterprises in certain special category States90. 80-IC. (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterpri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty 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 to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made. x x x x x x x x x x x (7) 79[The deduction] under sub-section (1) from profits and gains derived from an 80[undertaking] shall n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 conferred by this section shall not apply to any class of industrial undertaking or enterprise with effect from such date as it may specify in the notification. (12) Where any undertaking of an Indian company which is entitled to the deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger (a) no deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and (b) the provisions of this s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 geographically it is located with the notified area contemplated in sub-clause (ii) of sec. 80IC(2)(a) or (2) (b). It emerges out from the record that assessee partnership firm came into existence on Ist of April 2006. It is situated at F-3, Industrial Area, Bhimtal (Nainital). According to the assessee, it has started the manufacturing operation at its industrial undertaking on 28.8.2006 though this date has been disputed by the Assessing Officer and we will discuss this aspect in the later part of the order. For the time being, it is concluded that as far as geographical location of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in 137 ITR 879 (Bombay), CIT vs. Anglo French Drug Co. Ltd. reported in 191 ITR 92 (Bom.), CIT vs. 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 Vs.CIT reported in 269 ITR 232 and the judgment of Hon'ble Supreme Court in the case of CIT vs. 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 brand name does not amount to manufacturing or production of a new commodity. 12. As observed earlier, we would be reverting back to the facts of the present case in the later part of the order. First, we would like to bring at home the meaning of expression manufacture and production as propounded in the various authoritative pronouncements of the Hon'ble Supreme Court as well as of Hon'ble High Court. 13. In the case of India Cine Agency, Hon'ble Supreme Court has considered the judgment rendered in the case of Sesa Goa (supra) and all other decisions on the point which contempla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, 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). x x x x x x x x x x x x x x x x x x x x x x 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 name, use and character. The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes manufacture takes place and liability to duty is attracted. Etymologically the word manufacture properly construed would doubtless cover the transformation. It is the transformation of a matter into something else and that something else is a question of degree, whether that something else is a different commercial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 Control Board and the evidence has been placed at page 84 of the paper book. On the strength of these documents, it was contended by the assessee that it is a firm came into existence on Ist of April 2006 engaged in the business of production fragrance, fragrant compound, attar and floral water. The learned counsel for the assessee while taking us through his written submissions drew our attention towards paragraph No. 6.3 wherein assessee has placed on record a flow chart indicating the various steps taken by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.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 assessee on ruh-mehandi and ruh-bella is more than the raw material available in the open market. He further pointed out that the flowers are available only in Kannouj Market, they are not available near the market of Nainital or Bhimtal. After their procurement, they have to be processed within two hours otherwise required result would not come and in this connection he made reference to the certificate of a Horticulture Department available on pages 85 to 87 wherein it has been opined that in order to extract oil from the flowers th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 independent in their work. They have confirmed that they have carried out the job work for the assessee. Assessing Officer has deputed an inspector to verify this aspect and the learned inspector has given his report to the Assessing Officer. The notices under sec. 133(6) of the Act were issued to all the job workers. Out of the 19 job workers, the learned inspector has pointed out that 15 have confirmed the job work carried out by them for the assessee and their accounts have duly been tallied. It suggests that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 reference is altogether irrelevant. Assessing Officer was required to look into whether assessee has an industrial undertaking. It is situated within notified area as contemplated in section 80IC(2)(a)(ii) of the Act. Whether it is manufacturing any article or thing. The Act does not lay a condition that purchases should be made from the local market. The raw-material can be procured from anywhere. According to the assessee, the flowers from where oil could be distilled were not available or produced in the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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