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TMI Blog2019 (9) TMI 657X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee during the assessment proceeding instead of Rs. 1,75, 51,043/- claimed in the return of income. 3. Aggrieved assessee went in appeal before the ld. CIT(A) challenging vide ground no. 4 that net profit earned on trading of goods of Dholpur unit amounting to Rs. 62,25,935/- were not liable to be disallowed for purpose of calculating the deduction u/s 80IB of the Act. The Ld. CIT(A) has confirmed the addition after carefully considering the written submission filed by the assessee on 07.10.2013, reproduced vide Para 4.3, and called for a remand report from the AO vide letter No. 128/CIT((A)-II/JCIT-4/Agra/2012-13/995 dated 10.12.2013 to verify the supporting evidences, the AO relied upon while concluding that the appellant assessee was engaged in trading of goods along with carrying out its manufacturing activities (Refer para 5.1 of impugned order). 3.1. The CIT(A) has reproduced in para 5.2 in page no. 5 to 9 of the of the impugned order, the AO's remand report dated 17.10.2013 being furnished in compliance to the CIT(A)'s letter dated 07.10.2013, on the submissions of the assessee that disallowance of deduction u/s 80 IB is not justified on the profits derived o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o furnish basis for claiming deduction u/s 8018 of the Income Tax Act, 1961. in this connection, it is submitted that the appellant is engaged in manufacturing of Desi Ghee and otheritems of milk products. As already stated that the Ld. Assessing Officer has disallowed net profit on trading goods ofDholpur Unit amounting to Rs. 62,35,937/- while calculating deduction allowable under the provisions of section 80IB of the Income Tax Act. The aforesaid amount was a part of profit earned from Dholpur Unit and had rightly been claimed by the appellant as a deduction u/s 80IB of the Income Tax Act, 1961. 3. In this connection, it is submitted that the facts of the case of the appellant are similar to those available in the following case laws and therefore, the appellant relied upon these case laws:- (i) CIT Vs. Vinbros& Co. (2012) 210 Taxman 252/254 CTR 110/79 DTR 43 (SC). (ii) CIT Vs. Vinbros& Co. (2009) 177 Taxman 217 (Mad) (High Court), (Judgmentof Madras High Court) (Hi) India Cine Agencies Vs. Dy. CIT (2012) 210 Taxman 253 (SC). S. 80IB : Deduction - Industrial undertakings - Manufacture -Blending and bottling of Indian Manufactured Foreign liquor (IMFL), would amount to ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... desee ghee to be sold under the brand name of the appellant company, thus, it is submitted that since the facts of the present case are absolutely identical to those given in the aforesaid cases there does not appear to be any reason or basis for disallowing the claim of the appellant under the provisions of section 801B of the Income TaxAct, 1961. 6. That it may again be submitted here that the Ld. Assessing Officer has erred in law and on facts in disallowing net profit on trading goods comprising of SMP and unfinished and rough desee ghee containing guthia etc. The SMP (skimmed milk powder) comes in jute bags and it contain moisture etc. This moisture makes the SMP quite harder and is not at all eatable. Thus, the appellant company has to reprocess it by removing moisture etc. to give it a shape of very fine powder and good in taste. The appellant company has also to manufacture it up to the level and quality of the company to be sold under the brand name of the company, similar type of treatment is given to the unfinished rough desee ghee consists of guthia etc., The guthia is made of cream. Such unfinished rough desee ghee consisting of guthia is put in the machinery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecial taste and quality, the manufactured goods cannot be compared with any other trading goods. Therefore, a special product ismanufactured and it cannot be separated for deduction claimed u/s 80IB of the Income Tax Act, 1961. 9. It is also submitted that the Ld. Assessing Officer has taken the trading profit on estimated basis without giving any basis or reason. Therefore, the action of the Assessing Officer cannot be said to be correct in the eyes of the law and the ' estimated trading profit taken by the Ld. Assessing Officer is unjust, unlawful and cannot be regarded as correct. The action of the Ld. Assessing Officer in taking estimated trading profit deserves to be cancelled. 10. In view of the above mentioned facts, it is requested that the disallowance made by the Ld. Assessing Officer for Rs. 62,53,927A for working out the deduction u/s 80!B of the Income Tax Act, 1961 deserves to be cancelled and the said amount of Rs. 62,53,937/- be taken into account for purpose of allowing deduction u/s 80IB of the Income Tax Act, 1961." 4. In so far as the computation of profits of Rs. 6235937/- from trading goods is concerned, Ld. AR although submitted that the trading pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . AR is not correct. The auditor, as per annexure 'A', has given complete details of quantity and value of opening stock, production, purchase, turnover and closing stock of various raw material and finished goods including ghee and skimmed milk powder. The quantity of goods manufactured is given as per column 'f of the table and the quantity of goods purchased is given as per column 'g' of the table. The quantity of ghee produced is shown at 8146871 Kg. and the quantity of Ghee purchased is shown at 1065079 Kg. Similarly, the quantity of skimmed milk powder produced is shown at 12240341 Kg. and the quantity of skimmed milk powder purchased is shown at 1754685 Kg. Thus, the quantity of trading stock of ghee and skimmed milk powder is reported by the auditor himself. The assessee has not disputed that the company has purchased above products. The company has simply stated that after purchasing the ghee and skimmed milk powder, they were processed by removing moisture and guthle and therefore, the ghee and skimmed milk powder after such reprocessing turn into a new commercial product being different from the product originally purchased. The argument given by Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2240341.700 1754685.000 13653486.500 307.300 1706018.000 Skimmed Milk 1542.21 1845.29 16731.51 2279.11 Total (Qty) 2123755.983 26340203.392 2819764.290 26645570.588 1287.220 4636870.862 Total (Rs.) 2908.355 3785.80 34238.70 8720.825 Electric Unit 0.000 4189103.00 0.000 4189103.00 0.000 0 Electric (Rs.) 0.00 0.00 151.562 0.00 Grand Total 2908.355 0.000 3785.803 34390.261 0,000 8720.825 Stock in Process:- Current Year Quantify (in kgs.) amount (Rs. In lacs) Milk Fat (Ghee) 495400 1065.11 Milk Solid not fat (SNF/SMP) 78000 1040.06" From above quantitative details provided by the auditor, it is quite clear that the assessee is doing production of Ghee and Skimmed milk from Raw Material being purchased as "Milk" and apart from doing production of Ghee and Skimmed milk from Raw Milk, it is also purchasing Ghee and Skimmed milk and selling them in its brand name. The AO has considered such purchase and sale of Ghee and Skimmed milk astrading of goods because he did not agree with the argument of the Ld. AR that merely by removing the moisture and gutahle, the Ghree and Skimmed milk powder p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resolve this dispute, the Ld. AR has been asked to show the production from Raw Material and purchased goods separately giving the details of production process involved in producing Ghee and Skimmed Milk from Raw Milk and production process involved in making Ghee and Skimmed milk of the brand being sold by the assessee from these goods purchased from market. He has also been asked to give the details of chemical and essence being added during manufacturing process to make the Ghee and Skimmed Milk suitable for the brand being sold by the assessee. During discussion, it has also been found that sale made out of purchase of ' Ghee and Skimmed Milk is being shown as trading in the return filed to the Trade Tax Department but the same sale is being shown as out of manufacturing to the Income Tax Department. The Ld. AR has been asked to explain the reason for giving different treatment to sates made by the assessee in the returns filed to both departments, if these sales are of same type. 5.4 In response to the above queries raised in the hearing held on 22.10.2013, reply of the assessee (appellant) through its Ld. AR is filed on 30,10.2013 as under:- "2. On the last date o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 779 of 2010 dated 30.11.2011)." 4. That as regards treatment of Trade Tax Department to our goods it is submitted that equal treatment is given by the Trade Tax Department on trading goods and manufactured goods. Therefore, there is no dispute on the levy of trade tax on the trading goods as well as manufactured goods. 5. That the aforesaid reply be treated as final submission by the appellant and appeal may be decided on the basis of our written submission submitted from time to time." After going through the above reply, I find that none of the details regarding production process involved in manufacturing of Ghee and Skimmed Milk from Raw Material as "milk" and also manufactured from the Ghee and Skimmed milk purchased from the marked have been furnished. It is only stated that the Skimmed Milk and Ghee purchased as trading goods were put in pouches and tins of various sizes to be sold by the assessee company in its brand name and a case law in the case of CIT Vs. Seta Cosmetic P 31-683 (2012) 43-3 BCAJ (Bom) of Bombay High Court has been referred to support his argument that such type of packing under a particular brand name would amount to manufacturing and hence, such s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration showing your declaration for trading goods as well as manufacturing goods. - 2.2 In this appeal, only issue to be decided vs about providing of deduction u/s 30/B on certain goods which have been pointed out by the auditor in the audit report as trading goods as per the finding given by the AO in the impugned assessment order. This issue could not be decided so far because the requisite details as called from you could not be submitted so far Therefore, you are required to furnish these details as mentioned in para no. 2 of this notice and also as required to be submitted in the hearing with your Authorized Representative on 22.10.2013. The next date of hearing in the case is fixed on 21.02.2014. You are required either to appear personally or send your Authorized Representative along with the details as called for in this notice so that hearing of this appeal can be completed otherwise this appeal v/ould be decided on 21.02.2014 on the basis of the submissions so far made by you considering that you have nothing to submit further." 5.5 In response to my above letter, the assessee (appellant) filed his reply on 24.02.2014 and the same is reproduced as under: - "P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins bearing brand of the company. As per the AO, such removal of guthale from Ghee and moisture from Skimmed Milk is akin to cleaning process and not manufacturing process. In order to rationalize his claim of manufacturing done from the Ghee and Skimmed milk purchased from the market, the Ld. AR claimed that to make these Ghee and Skimmed milk suitable for the brand of the company, chemical and essence are also added but no details with regard to such process and details of adding of any chemical and essence in this process, has been furnished even after calling for such details repeatedly. Therefore, the only conclusion that can be drawn is that the Ghee and Skimmed Milk purchased from market is only being repacked after some cleaning process of removing guthale from ghee and moisture from Skimmed milk but no manufacturing process is involved in which raw material gets converted into some different new commercial product. Here input and " output product is same. Only after doing some cleaning process, it is repacked in pouches and tins. Sales of such goods are also being shown as trading sale of goods in the return filed to the Trade Tax Department. When the Ld. AR has been asked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icle or thing with a different chemical composition or integral structure." 5.7 Now, applying the above definition of manufacture as laid down in the decision of the Hon'ble Supreme Court and also incorporated under the Income Tax Act w.e.f. 01.04.2009, I find that in the present appeal in case of trading goods, the purchased material is Deshee Ghee and Skimmed Milk and the material sold is also Deshee Ghee and Skimmed Milk. The only difference is that before selling, guthaie from Deshee Ghee and moisture from Skimmed Milk has been removed and they are packed in pouches and tins having brand name of company. No other processing done on trading goods before thers sale has been explained. Therefore, purchased goods as well sold goods remained to be Deshee Ghee and Skimmed Milk in respect of trading goods and no new product has come into existence with a different chemical composition or having different name, character and use Therefore, the DesheaGhea and Skimmed Milk sold after purchasing from the market and repackingthem after removing guthale from Deshee Ghee and moisture from Skimmed milk would not amount to manufacture, if the above definition of manufacture is applied. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld by the AO In the assessment order. In the case law of CIT Vs. Beta Cosmetics ITA No. 5759 of 2010 dated 30.11.2011, of Bombay High Court, the output product was made as perfumed hair oil using coconut oil and mineral oil and hence, chemical composition of the oil made to be used for hair has changed from that of pure coconut oil due to adding of mineral oil and perfume and hence, output product can be used only for hair while pure coconut oil can be used for cooking as well as for hair also. Since output perfumed hair oil has been found to be distinct and different than the input coconut oil, the Bombay High Court has held the perfumed hair oil as produced by manufacturing process and eligible for deduction u/s 80IB. After referring to the above case law, the Ld. AR argued in the hearing that while making Deshee Ghee and Skimmed Milk out of purchased Deshee Ghee and Skimmed Milk, some chemical and essence are mixed to make them suitable for the brand of Ghee and Skimmed Milk being marketed by the assessee company but despite giving several opportunities, no such details of .the process of mixing of chemical and essence in the purchased Deshee Ghee and Skimmed Milk could be fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them in the market and on these purchases, the assessee is not entitled for the deduction under Section 80(IB)(3) of the Income Tax Act being as per Section 80(IB)(3) there is no process involved so as to eligible the assessee for the deduction under Section 80(IB)(3). The assessee further submitted that in respect of sale of products (ghee and milk powder) which are directly purchased and sold them after processing them in the market, the assessee is entitled for deduction under Section 80(IB)(3) of the Income Tax Act against the profit earned on these sales being in selling of these goods, process is undertaken which is explained as under:- Ghee That the assessee company purchases the raw ghee from the open market. In this ghee, there is moisture as well as Gutla, it is raw ghee. After purchase of this ghee, the assessee company first churn it so that the impurities could be removed and the Gutla are dissolved in the ghee. Thereafter this ghee is heated on a particular temperature so that further impurities may be removed. Thereafter this ghee is kept for 48 hours in a fix temperature of 18 degree so that the granules may emerge. Then this ghee is packet in packets of various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Skimmed Milk which is also evident from the return filed to the Trade Tax Department wherein the Sales of such goods are also being shown as trading sale of goods in the return filed to the Trade Tax Department. The question before us is to decide whether repacking of trading goods after a cleaning process can be called as manufacturing. 7. To understand the process of manufacture, It is well settled that where the change or series of changes brought about by the applications of process, take the commodity to the point where, commercially, it can no longer be regarded as original commodity but is, instead recognized as a distinct and new article that has emerged as a result of the process, it would amount to manufacture of an article or thing. Reference in this respect may be made to the decision of the Supreme Court in the case of Ujagar Prints Vs. Union of India (1989) 3 SCO 488. At the same time, it is also well settled that the word "manufacture" implies a change but every change in the raw material is not manufacture. There must be such a transformation that a new and different article must emerges having a distinct name, character or use. Reference may be made in this re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing, which yields polished diamond, has been held to be not amounting to 'manufacture', in the case of C/r Vs. Gem India Mfg. Co. (2001) 249ITR 307 by the Supreme Court. 7.4 In another decision of Madras High Court in case CIT Vs. Sri Meenakshi Asphalts reported In (2004) 136 TAXMAN 170 (MAD), earlier decision of Hon'ble ITAT Madras in which it held making of blown bitumen by process of heating waste scrap bitumen as manufacturing for the purpose of deduction u/s 80HH, has been reversed by holding the above process as not manufacturing because heating to scrap bitumen has only resulted in separation of oil and water from bitumen and no new product has emerged from the process employed by the assessee. What was bitumen, continued to be bitumen but with lesser quantity of oil and moisture. The purposes for which, it can be used are only the purposes for which the use of bitumen is appropriate. Similar to the above case law in the present case also, for the Deshee Ghee and Skimmed Milk sold out of Desnee Ghee and Skimmed Milk purchased from the market, what was Deshee Ghee and Skimmed Milk continued to be Deshee Ghee and Skimmed Milk but with lesser quantity of guthale in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lt (supra) discussed in previous sub-para in which, the Hon'ble Madras High Court held that heating of the scrap bitumen in order to obtain solid bitumen, by causing moisture and oil in the scrap bitumen to evaporate or separated, cannot amount to a process of manufacturing. Similarly removing of guthale from Deshee Ghee and moisture from Skimmed Milk cannot amount to a process of manufacturing. Therefore, we appreciate the finding of the ld.CIT(A) in holding hold that the AO is correct in his decision not allowing deduction u/s 80IB on such sale made by the assessee (appellant) out of purchased Deshee Ghee and Skimmed Milk. Since there is no dispute in respect of calculation of trading and manufacturing goods, we confirm the decision of the ld. CIT(A)in upholding AO's disallowing net profit on trading goods of Dholpur unit amounting to Rs. 62,35,937/- while calculating deduction u/s 80IB and hence deduction u/s 80IB computed by the AO at Rs. 1,20,99.937/- is confirmed. and accordingly, All the grounds are rejected. 8. In the above view, the grievance of the assessee is rejected devoid of merits, and as such, the order of the ld. CIT(A) is upheld. 9. In the result appeal is d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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