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TMI Blog2014 (8) TMI 727X X X X Extracts X X X X X X X X Extracts X X X X ..... the audit report the nature of business was shown as "rendering services of job work" (packaging of Horlics, Boost for M/s Glaxo Smith Kline Consumer Healthcare Ltd.), which was not the manufacturing activity as defined in sec. 2(29BA) of the I.T. Act. In doing so the AO rejected the explanation of the assessee that the claim was allowed from the starting of business in 2005-06 and in scrutiny assessments for A.Y. 07-08 & A.Y 08-09. 2.1. In first appeal before the CIT(A), the assessee had filed a petition under rule 46A requesting for admission of additional evidences in the form of flow chart of manufacturing process, ledger account of M/s Ridge Construction, copy of certificate of deduction of sales tax, and other evidences, which were admitted by the CIT(A) vide order dated. 27.02.2013 and called for the remand report from the AO. 2.2. Before the ld. CIT(A) the assessee, inter alia, submitted that: (i) It had set up its manufacturing unit at Baddi in the state of Himachal Pradesh which qualifies for deduction u1s 80IC. The assessee is into this very business since A.Y. 2005-06 & had been allowed the deduction u1s 801C in respect of its profits derived from this very industria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mercially by different names than those of the raw-materials. In fact CBEC vide its circular No. 7/90 dated 07.03.1990 has also explained on the basis of the report of Chief Chemist that when the above said inputs are mixed, a new product different from raw-material emerges & it can not be considered as simply re-packing. 2.3. In support of contentions that it was engaged in manufacturing and production, the assessee had placed reliance on the ratio of decisions in the cases of: (i) Arihant Tiles and Marbles (P) Ltd [2010] 320 ITR 79; (ii) DCIT vs. Benjamin Cheri an (2011)10 ITR (Trib)521 (Chennai); (iii) ITO vs. Natural Frangrances (2010) 27 Taxmann.com 292(Del); & (iv) Deepkiran Foods P. Ltd. vs. ACIT, AIT-2013-26-IT AT (Ahmd.) 2.4. The ld. CIT(A) allowed the claim of deduction u/s 80IC, by deleting the addition in question, inter alia, observing as under: "I have considered the submissions of the appellant, findings of the AO and the facts on record. The remand report of the AO and the rejoinder filed by the appellant has also been considered. Perusal of the remand report shows that the AO after considering the additional evidences furnished by the appellant has again hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate of Uttaranchal; or (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 subsection (2), one hundred per cent of such profits and gains for five assessment years commencing with the initial assessment year and thereafter, twentyfive percent (or thirty per cent where the assessee is a company) of the profits and gains". Perusal of the section would reveal that subsection (1) of section 80IC provides a deduction in respect of profit and gains derived by an undertaking or enterprises from any business referred to in sub-section (2), while computing the total income of an assessee. Sub- section (2) has further subsections and in the case of the appellant, the clause applicable is 80IC (2) (b) which provides that assessee has begun or begins to manufacture any article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght into existence which is different from that, out of which it is made in the sense that the thing produced is by itself a commercial commodity capable of being sold or supplied. The material from which the thing or product is manufactured may necessarily lose its identity or may become transformed into the basic or essential properties. (See Dy. CST (Law), Board of Revenue (Faxes) Coco Fibres [1992J Supp. l 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 commer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... talline sugar, dry vitamin premix, ascorbic acid & other raw materials for production of Horlics. For production of Boost the raw materials supplied were Fortified Base, Fine crystalline sugar, Cocoa powder, Cocoa flavor DC 499, Cocoa flavor 497, Vanilla Flavor De 110. After undergoing various manufacturing processes the raw materials are converted into the final products. The manufacturing process of Horlics involves two stages which have been described as under by the appellant: "Manufacturing process for sweetened milk powder. Materials are weighed as per manufacturing formula & transferred from drums into blender through pneumatic conveying system. Sequence of addition is-half qty of Skimmed milk powder, whey powder, total qty of Fine Crystalline sugar, ascorbic acid, Dey vitamin premix, finally remaining SMP. After conveying above batch is mixer, mixing is done for 15 Mins. Composite sample is collected for analyzing vitamin-C. After completion of mixing, powder is discharged in plastic drums having polyliner. Afterwards it is transferred to warehouse for captive consumption. The mixed powder is named as Part-B or Sweetened milk powder which is further issued to production f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extensive processes which involve the use of machinery are converted into Horlics & Boost. There is a distinct change of one object to another for the purpose of making it marketable. A new product has been brought into existence which is distinctly different from the raw materials which are used and is a commercially different commodity. A different commodity having a distinct name and character emerges from the raw material after undergoing various processes in the form of mixing, blending, sieving etc. at different temperatures. The final product is entirely different commercially from the raw material used. The chemical composition has also undergone change. Labour and machinery have also been utilized for production of the final product. In view of the above it is clear that the appellant is engaged in manufacturing and production. The Hon'ble Supreme Court in the case of CIT vs Oracle Software India Ltd. has held as under: "10. In our view, if one examines the above process in the light of the details given hereinabove, commercial duplication cannot be compared to home duplication Complex technical nuances are required to be kept in mind while deciding issues of the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd distinct object or articles or thing with a different chemical composition or integral structure. Applying this definition to the facts of the present case, it may be mentioned that the above thermo mechanical process also beings about a structural change in the yarn itself which is one of the important tests to be seen while judging whether the process is manufacture or not. The structure, the character, the use and the name of the product are indicia to be taken into account while deciding the quest ion whether the process is a manufacture or not". Perusal of facts on record also show that the appellant was registered with the excise department wherein it has been stated by the excise department that the appellant was engaged in manufacturing. Perusal of the audit report of the excise department shows that it has clearly been mentioned that the appellant was engaged in the manufacture of Malt Based Foods and was falling within chapter 19 of CETA attracting central excise duty. The Hon'ble Supreme Court in the case of Arihant Tiles & Marbles Pvt .Ltd. 320 ITR 79 (SC) has observed that when the activity undertaken by the assessee involves levy of excise duty then to say tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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