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TMI Blog2013 (2) TMI 483X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.2 The learned CIT(A) misapplied the apex court decision in case of Indian Hotels Ltd. v. ITO 245 ITR 538 SC in as much as the observation of the SC that the preparation of foodstuff or eatable from raw material is not manufacture is with reference to holding that the hotel business is a trading business and that the hotel cannot manufacture and that it was specifically held that industrial undertaking can manufacture. 1.3 Though the learned CIT(A) held that the assesses is industrial undertaking but erred in holding that the assessee is not manufacturer by wrongly following the apex court decision in case of Indian Hotels Ltd. v. ITO 245 ITR 538 (SC). 3. Later on Assessee raised additional ground vide letter 24.8.2012 which reads as under: "The ld. CIT(A) erred in holding that the following income is not derived from 100% EOU and therefore is not eligible for deduction under Section 10B. Export Incentives of Rs. 13,45,953 Interest Income of Rs. 2,70,125" 4. The effective ground raised in the grounds of the appeal of the assessee is regarding rejection of the claim of deduction of profit of Rs. 4,66,46,264/- under Section 10B. 5. Assessee is a 100% Export Oriented Unit (E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 538 (SC) where the Court held "16. In our view, same would be the position with regard to the foodstuff served or sold by the hotels the foodstuff prepared by cooking or by any other process from raw materials such as cereals, pulses, vegetable, meat or the like cannot be regarded as commercially distinct commodity and it cannot be held that such foodstuff is manufactured or produced." 7. Aggrieved by the order of the AO, assessee carried the matter before CIT(A). Before CIT(A) assessee made detailed submissions. CIT(A) did not agree with the contentions of the assessee and upheld the order of AO by holding as under: "2.3 I have considered the facts of the case, assessment order and appellant's written submission. Appellant claimed deduction under section 10B on exports of processed and packed food items in an industrial undertaking. Assessing officer disallowed the claim on the ground that honourable Supreme Court in the case of Indian hotels Ltd 245 ITR 538 held that foodstuffs prepared by cooking or any other process from raw materials is not manufacturing or production. Since deduction under section 10B is available only to an industrial undertaking which is involved in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which it is held that foodstuff prepared by cooking or by any other process from raw materials cannot be regarded as commercially distinct commodity and it cannot be held that such foodstuff is manufactured or produced, applies to the appellant. In the case of appellant foodstuffs in the form of processed and packaged food items are prepared through mechanised process but there is no dispute that the same was prepared from raw materials such as wheat, cereals, pulses, vegetable etc. Therefore to this extent facts of Indian hotels Ltd and appellant are Identical. Appellant submitted several decisions in which various activities through which raw materials were converted into different products were held to be manufacturing. However there is no decision directly relating to preparation of foodstuffs from raw materials. Therefore the decision of apex court in the case of Indian hotels Ltd is directly applicable to the facts of the appellant's case as far as manufacturing of articles of things are concerned. There is no doubt about appellant preparing the foodstuffs through mechanised process involving substantial investment in factory and plant and machinery but the fact remains that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.R. submitted that long and detailed process are carried to manufacture each item. The Ld. A.R. described the process to manufacture chapatti as under: "7. In the case of assessee, there is a long and detailed process carried on with the help of imported plant & machinery, the raw materials are processed and finished products are manufactured. For example the chapatti making process is given below: "The assessee company procure wheat directly from the farmers. The procured wheat is cleaned and washed with vacuum and steam energy. There after the wheat goes to the milling department, which is spread in an area of 5000 Sq. Mtr and the wheat is grinded over there with a hi-tech grinding machine. Wheat converted into flour is the 1st case of form having been taken place from wheat to flour. After that the flour has been taken to the dough making department. Over here additions such as corn oil and other nutritive additives are added on to the flour. Dough is formed after the mixing of above mentioned items. Then this dough is place into Iii-tech imported chapatti making machine, which is operated with the help of boiler which generates the steam. air compressor which generates the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... processed and converted into commercially new and distinct product. The raw materials are transformed into new and distinct article having a different name, character and use. The raw materials when consumed ceases to be original commodity and with the application of process it becomes commercially distinct and new product. The Ld. A.R. relied on the decision in the case of CIT v. Pankaj Jain Prop. Aagam Food Industries [2006], CIT v. Sidral Food (P.) Ltd. [2006] 282 ITR 563, Arihant Tiles & Marbles (P.) Ltd. v. ITO [2010] 320 ITR 79. The Ld. A.R. submitted that the ratio of decision in the case of Indian Hotels Co. Ltd. (supra) are distinguishable on facts and are not applicable to the facts of the assessee. He submitted that the deduction was denied because in the case of Indian Hotel, its business was considered to be a trading activity not an industrial undertaking. He further submitted that there was no change in the facts in the year under appeal as compared to the facts of earlier years. Thus the Ld. A.R submitted that the activity of the assessee is a manufacturing activity and the assessee is therefore eligible for deduction u/s 10B. 10. On the other hand the Ld. D.R. su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing activities. The assessee claims that it manufactures various products like paratha, samosa, vada, idli at its factory. The process of manufacturing consists of various processes. The chapatti making process of the assessee has been narrated hereinabove. Similar process is used for manufacture of other products. The ld. AR described the process for manufacture of chappati. The assessee procures wheat directly from the farmers which is cleaned and washed with vacuum and steam, thereafter in the milling dept. the wheat is grinded with the help of machines and converted into flour which is then transferred to dough making department where various nutritative additives are mixed in the flour and dough is formed. With the help of chapati-making machines, dough is converted into ready to each chapatti which is transferred into conveyors for cooling process and thereafter it is fed into spiral freezer to attain temperature of 18oC so as to maintain its shelf life of 2 years. Various processes are involved and with the help of various machineries, the chapattis are manufactured. Similar process is involved in manufacture of various other items. The Revenue have not brought any material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in that case, the Hon'ble Supreme Court had held the "business of the assessee is that of a hotel, which is trading activity and not of an "industrial undertaking". It was further held that the flight kitchen was ancillary to its business of hotel and therefore it was held that it to be a company engaged n the business of hotel and not an "industrial undertaking". In view of these facts, it has held that preparing and selling foods stuff for selling in hotel there was no question of manufacture or production. However, in the present case, the ld.CIT(A) has given a finding that the assessee is an "industrial undertaking" and to controvert this fact, nothing has been brought on record by the Revenue. These findings of ours is also supported by the decision of J&K High Court in the case of Pankaj Jain, Prop. of Aagam Food Industries (supra), where the assessee was manufacturing bread, the Hon'ble High Court has held that the assessee was an "industrial undertaking" engaged in the manufacture and production of bread and was thus entitled to the benefit of deduction under Section 80IB. In the case of CIT v. N.C. Budharaja & Co [1993] 204 ITR 412 the H'ble Apex Court has held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dertaking, it held ... the asseess's unit stands already registered with Directorate of Industries holding power licence and is also registered under the Factories Act and therefore there is thus no doubt that it was an industrial undertaking within the meaning of s. 80IB of the Act engaged in the manufacturing activity...' Further the H'ble HC distinguished the decision of Apex Court in the case of Indian Hotels in following manner: "21. A careful reading of this judgment would show that it had several distinguishing features, which were not attracted in the present case. For example, it was dealing with a flight kitchen which was being run alongwith hotel and was ancillary to the hotel business and that is why it was not held to be a separate industrial undertaking within the meaning of s. 80J. Similarly, the Supreme Court found that the Indian Hotels Co Ltd was engaged in the business of trading activity and not in any industrial activity as such and was preparing food stuff for consumption which did not result in the manufacture of production of any new article or thing because all food packages prepared in the flight kitchen involved only the activity of processing and not m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and we are of the view that the assessee is an industrial undertaking and the activity of production of the foodstuff is a manufacturing activity (except for the items outsourced from other parties). 14. In the year under appeal, the profit for the year includes the profit on sale on outsourced items. From the profits, the break-up of profit earned from outsourced items is not available before us. We are of the view that profit earned from outsourced items cannot be considered as profit earned from the manufacturing activities undertaken by the assessee, and therefore the assessee shall not be entitled to deduction under Section 10B on profit earned on sale on outsourced items. We are thus of the view that matter of quantification of the quantum of profits earned on out-sourced and self manufactured items needs verification. We accordingly are of the view that the matter be sent back to the file of the AO for the limited purpose to determine the profits of self manufactured items and that of outsourced items. The AO shall compute the profits eligible for deduction u/s.10B and allow the deduction under Section 10B in proportion of the turnover of self-manufactured and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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