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Commissioner of Income Tax Versus M/s. Shree Triveni Foods

2015 (5) TMI 653 - HIMACHAL PRADESH HIGH COURT

Eligibility for deduction under Section 80IB(4) - Whether the conversion of gram Dal into Besan powder, by a process of mere roasting and grinding, amounts to manufacture? - Held that:- Applying test given in Idandas versus Anant Ram Chandra Phadke (dead) by L.Rs., [1981 (11) TMI 185 - SUPREME COURT] it can conveniently be held that converting gram Dal into Besan will amount to manufacturing process because:i) gram Dal loses its shape and identification as in the case of wheat which is converted .....

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ure and consequently the assessee is entitled to the deduction under Section 80IB(4) of the Income Tax Act. - Decided in favour of assesse. - Decided in favour of the assessee

Eligibility for deduction under Section 80IB (4) - whether necessarily to be computed after allowing depreciation under Section 32? - Held that:- Profits eligible for deduction under Section 80IB (4) of the Act though are necessarily to be computed after allowing depreciation under Section 32 of the Act, but th .....

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t is established that the assessee had not employed 10 or more workers during the substantial part of the year, we are left with no other option but to answer the question in favour of the revenue - Decided against the assessee. - ITA No. 43 of 2009, ITAs No. 44, 45, 46, 49 , 51 of 2009 - Dated:- 23-4-2015 - Mansoor Ahmad Mir, CJ And Tarlok Singh Chauhan, JJ. For the Appellants : Mr Vinay Kuthiala, Sr. Adv. & Ms Vandana Kuthiala, Adv. For the Respondents : Mr vishal Mohan, Adv. & Mr Adit .....

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be computed after allowing depreciation under Section 32? Whereas, the following question of law is common in ITA No.49 and 51 of 2009:- ITA No.49 of 2009. "3. Whether the condition of ten or more workers to be employed in the manufacturing process, as specified in section 80IB(2)(iv) could be said to be complied with, especially when ten or more workers were actually engaged on only 73 days during the entire year." Though the same question arises for determination in ITA No.51 of 200 .....

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n on 19.03.1999 as per the certificate granted by the Department of Industries. 3. For the assessment year 2000-01 to 2004-05, the assessee filed returns of income claiming the entire profits as deduction under Section 80IB of the Income Tax Act, 1961, (for short the 'Act'). For the assessment year 2003-04, the assessee filed return of income declaring total income at nil after claiming deduction under Section 80IB at ₹ 33.11 lacs. Subsequently, the assessment made for the assessme .....

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se was completed under Section 143(3) on 30.03.2006. In all these five assessments the claim of deduction under Section 80IB was disallowed on various grounds including the ground that the process of making daliya and besan did not amount to manufacture. 4. The Assessing Officer also held in the assessment that though the assessee had not claimed depreciation in assessment year 2000-01 and 2001-02, the same should be allowed while computing the eligible profits and the depreciation allowable alo .....

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holding that all the necessary conditions for grant of deduction under Section 80IB were satisfied. On the issue of manufacturing, the ITAT relied its own decision in the case of Indus Cosmeceuticals which related to manufacture of herbal heena powder from heena leaves and was held to be a manufacturing activity. This decision in turn has already been upheld by this Court in a bunch of appeals, the lead case being ITA No.28 of 2009, titled as Commissioner of Income Tax, Shimla versus M/s Indus C .....

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tion 80IB. 8. In support of his contention, he has relied upon judgment of Madras High Court in Commissioner of Income-Tax vs. Sacs Eagles Chicory [2000] 241 I.T.R. 319 as affirmed by the Hon'ble Supreme Court vide judgment reported in [2002] 255 I.T.R. 178 titled Sacs Eagles Chicory vs. Commissioner of Income Tax and a judgment of this Court in ITA No. 27 of 2005 titled Mrs. Poonam Arora vs. Income Tax Officer and others, decided on 14.10.2009. 9. In Sacs Eagles Chicory case (supra), the Ma .....

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Whether, on the facts and in the circumstances of the case, the assessee- firm is an industrial undertaking eligible for deduction under Sections 80HH, 80-I and 80-J of the Income Tax Act, 1961? " All that is on record in regard to the "process" that the assessee carries on is stated in the order of the Appellate Assistant Commissioner of Income Tax thus: "But if an analysis of the activity of making powder from the chicory roots is made, it will be found out that there are .....

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to the conclusion that mere process of roasting of raw groundnut seeds into groundnut did not amount to manufacture as no new and distinct product came into existence. 11. Now, in case the facts of the present case are seen, the ITAT after considering its own observations in the case of M/s Indus Cosmeceuticals held the activity of converting Besan from gram Dal amounted to manufacture by according the following reasons:- "If the facts of the aforesaid case, cases relied upon therein are ke .....

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lly known differently. Similar is the situation for vermicelli. For producing instant dalia, the whole process is well known. There is no denying the fact that use of end product is altogether different and it is known differently in commercial world. Even otherwise, the shape and size and use is altogether different from its raw material and also known differently in the commercial world, therefore, it can be said that it is an manufacturing activity." 12. Indisputably, the word 'manuf .....

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, character and use; or (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure." Though, this amendment was introduced only with effect from 01.04.2009 while we are dealing with the assessments prior to 01.04.2009, yet the same would be of relevance since the definition itself apart from being based on the dictionary meaning has embodied in itself the meaning as had been assigned to the word by various judicia .....

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7 which is far more closer to the issue involved in this lis. Therein the question before the Hon'ble Supreme Court related to a lease under Section 106 of the Transfer of Property Act and the precise question was as to whether the lease was for a manufacturing process. The following tests for determining whether a lease for running flour mill had been granted for the purpose of manufacturing process were culled out:- "1. That it must be proved that a certain commodity was produced; 2. .....

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was wheat which could not be consumed by any human being but would be used only for cattle or medicines or similar other purposes. Thereafter, in order to come to the conclusion that the conversion of wheat into wheat flour amounted to manufacturing process, the Hon'ble Supreme Court recorded following reasons:- "11. In the instant case what happened was that wheat was transformed, by the manufacturing process which involved both labour and machinery, into flour. The commodity before m .....

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and the inescapable conclusion would be that the present lease was one for manufacturing purposes. In this view of the matter, the notice of one month must be held to be invalid and suit for ejectment should have failed on that ground." 15. Applying the aforesaid tests to the instant case, it can conveniently be held that converting gram Dal into Besan will amount to manufacturing process because: i) gram Dal loses its shape and identification as in the case of wheat which is converted int .....

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onsequently the assessee is entitled to the deduction under Section 80IB(4) of the Income Tax Act. Question No.2. 17. Section 80IB (4) of the Act reads thus:- "Deduction in respect of profits and gains from certain industrial undertaking other than infrastructure development undertaking. 80-IB. (1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-section (3) to [(11), (11A) and (11B)] (such business being hereinafter ref .....

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lip;……. (iv)………. (3)………… (i)…………. (ii)………… (4) The amount of deduction in the case of an industrial undertaking in an industrially backward State specified in the Eighth Schedule shall be hundred per cent of the profits and gains derived from such industrial undertaking for five assessment years beginning with the initial assessment year and thereafter twenty-five per cent (or t .....

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ending on the 31st day of March [2004]. Provided further that in the case of such industries in the North-Eastern Region, as may be notified by the Central Government, the amount of deduction shall be hundred per cent of profits and gains for a period of ten assessment years, and the total period of deduction shall in such a case not exceed ten assessment years: Provided also that no deduction under this sub-section shall be allowed for the assessment year beginning on the 1st day of April, 200 .....

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ustrial undertaking in the State of Jammu and Kashmir which is engaged in the manufacture or production of any article or thing specified in Part C of the Thirteenth Schedule.]" 18. It is vehemently argued by learned counsel for the revenue that, no doubt, the allowance of depreciation was made mandatory under explanation 5 to Section 32(i) (ii) with effect from the assessment year 2002-03. However, the profits eligible for deduction under Chapter VIA including Section 80IB can only be comp .....

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se years would stand reduced. 19. It is not in dispute that the allowance of depreciation was made mandatory only with effect from the assessment year 2002-03 and it is the case of the revenue that assessee has not established its business for the other assessment years. The contention on behalf of the assessee is that the assessee had not claimed any deprecation on fixed assets in the books of accounts so as to claim higher deduction under Section 80IB. The revenue never disputed this claim of .....

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ein it was held as under:- "The question referred to us at the instance of the revenue is, "Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in upholding the order of the Commissioner (Appeals) holding that the depreciation should not be allowed to the assessee since he has specifically withdrawn the claim for depreciation by filing revised return?" The assessment year is 1988-89. The Supreme Court in the case of CIT v. Mahendra Mills (200 .....

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ed by the Apex Court, Explanation 5 was inserted in section 32(1) of the Income Tax Act, 1961, by the Finance Act 2001, with effect from April 1, 2002, declaring that "for the removal of doubts" the provisions of sub-section (1) will apply whether or not the assessee claims deduction in respect of depreciation in computing his total income, that Explanation cannot be regarded as taking away the effect of the judgment of the Supreme Court for the years prior to the date of introduction .....

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prior years." 21. In view of the aforesaid discussion, it is held that the profits eligible for deduction under Section 80IB (4) of the Act though are necessarily to be computed after allowing depreciation under Section 32 of the Act, but the same would apply only from April 1, 2002, when the amendment came into force and will not apply to earlier years. Question No.3. 22. Section 80IB (2) (iv) of the Act reads thus:- "Deduction in respect of profits and gains from certain industrial u .....

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to such percentage and for such number of assessment years as specified in this section. (2) This section applies to any industrial undertaking which fulfils all the following conditions, namely:- (i)……. (ii)…….. (iii)……. (iv) in a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in .....

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of whom four employees had been engaged in the two trucks owned by the assessee i.e. two drivers, two cleaners and in case these four workers were excluded, then the assessee at all given times had employed 6 to 9 workers. Though in the reply, the assessee disputed the fact that the drivers and cleaners were not included in the employees list, but then this reply was not found acceptable by the Assessing Officer because the assessee did not deny having two trucks which were used to transport th .....

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een produced before the Assessing Officer. 24. The Commissioner of Income Tax affirmed these findings, however, when the matter reached in ITAT, the findings recorded by both the learned authorities below were set aside on the ground that for getting relief under Section 80IB, there must be substantial compliance whereby an undertaking must have employed 10 or more workers substantially during the period for which the claim was made and further that there was no hard and fast rule by which one c .....

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red in the attendance register is absolutely erroneous in teeth of the findings recorded by A.O. against which findings there was no contradiction or rebuttal on behalf of the assessee. 8. In M/s Amrit Rubber Industries vs. Commissioner of Income Tax, ITA Nos. 32 of 2004 and 33 of 2004 decided on 30.9.2010, this court was dealing with the interpretation of section 80IA(2) (v), which reads as follows:- "(v) in a case where the industrial undertaking manufactures or produces articles or thing .....

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year. It was held as follows:- "3. It is not disputed before us that in one of the appeal, ten or more workers were employed only for two months and in the other, only for six months. This cannot be deemed to fulfill the requirements of the aforesaid clause of Section 80-IA. The employment has to be for a substantial part of a year and employment for two months and six months cannot be termed to be employment for a substantial part of the year. 4. In this regard, we may make reference to th .....

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