TMI Blog2024 (4) TMI 662X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to the deduction under section 10B of the Act as the assessee is manufacturing gherkin pickles from gherkin for the purpose of deduction u/s 10B. No reason to hold that the assessee is not engaged in manufacturing activities. Thus, we hold that the process of manufacturing pickles from raw vegetables and fruits, masala and other ingredients has different marketable commodities than the raw materials which are a different value addition, and a new product emerges therefrom. With respect to the realization of the export proceeds it has been stated that the assessee has produced bank realization certificates, bank certified statement of the Forex receipt, and certificate of the auditor, therefore we do not find any infirmity in the order of the CIT A in allowing the claim of the assessee u/s 10 B to the extent of foreign exchange received during the specified period. With respect to the conversion of the firm into a company and use of plant and machinery, it is a fact that both the units of the assessee became hundred percent export-oriented units in 2001 01. The first year of claim of deduction under section 10 B was assessment year 2001 02. With respect to the use of plant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed before the learned CIT A the assessee submitted that there is a double disallowance of the same amount - CIT A rejected the same holding that the learned assessing officer has started the computation from the net profit as per profit and loss account and thereafter made the disallowance. Before us also the same argument was advanced - HELD THAT:- We do not find any infirmity in the order of the learned CIT A as the computation by the learned assessing officer started from the net profit as per profit and loss account there cannot be any question of double disallowance. Thus, ground of the appeal of the assessee is dismissed. Suppression of profit by rejecting the books of accounts - CIT- A considering the average gross profit shown by the assessee held that by showing the valuation of the closing stock of inventory at higher amount by ₹ 1 20 crores the appellant has offered higher gross profit/net profit for taxation and not vice versa. The charge regarding the suppression of profit by the AO was without pointing out any defect in the books of account maintained by the assessee company. Further the manner of making an addition was also not correct - HELD THAT:- On careful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the sales proceeds of the articles exported out of India were received in India in convertible foreign exchange within the prescribed time inspite of non-production of realization certificates. 8. On the facts and in the circumstances and in law, the Ld.CIT(A) erred in deleting addition of income on account of difference of ₹ 3,61,257/- between the books of accounts of assessee with that of Widen without reconciliation of accounts. 9. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the additions made on account of the difference in closing stock as per statement submitted to the bank and as per the Balance Sheet. 10. On the facts and circumstances of the case and in law, the Ld CIT(A) erred in deleting the addition on account of Unsecured loan of ₹ 22,11,374/- without ascertaining the genuineness of Loan. 11. On the facts and in the circumstances of the case, the impugned order of the Ld.CIT(A) is contrary to law and consequently merits to be set aside and that of the Assessing Officer be restored. 3. Assessee has raised an application unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the period of six months from the end of the previous year. 6. Thus, for verification of the statutory condition assessee was requested to furnish details. Assessee was given 10 opportunities to prove its claim of deduction under section 10 B of the act of ₹ 227 lakhs which assessee failed. However, the assessee submitted that regarding deduction under section 10 B of the act assessee has already filed a detailed submission as per letter dated 10/8/2006 for assessment year 2004 05 which may be considered. The AO further issued a final show cause notice on 1 December 2006 stating why the deduction allowed under section 10 B should not be disallowed as the statutory condition laid down under that section are not fulfilled. Assessee did not file any information. Therefore, the learned assessing officer decided the issue of eligibility of deduction under section 10 B of the act on its merit. 7. The AO examining the first condition stated that the undertaking at Nasik and Ratlam Formed by the transfer of machinery in plant previously used in other business to a business already in existence. It was found that for Nasik undertaking Widem machines private limited was in the busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct industries Centre. On 28/10/1994 District industries Centre issued a permanent certificate of registration to that company. As per that certificate the date of commencement of the business of manufacturing pickles, chutney, and masala was 1/2/1994. Ultimately that undertaking was given on rent to the assessee till 11/11/1999. On 22/9/1999 as applied for sales tax registration without showing any additional place of business. On the basis of the above application on 24/12/1999 registration was granted. In the income tax return of the assessee the business of the assessee company was also stated to be at Ratlam, which is the address of that company. When questioned, assessee submitted the details submission made on this issue for assessment year 2004 2005 may be considered. Based on the above facts, the learned assessing officer held that the undertakings at Nasik and of Ratlam are a continuation of the business which is already in existence. 9. As the plant and machinery of Nasik unit has been previously used by Widem industries private limited and taken on lease from that company by the assessee and further the plant and machinery of Ratlam unit were taken over from another comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of deduction was that that the beneficial interest in the undertaking at Nasik has been transferred by one company to the assessee and the beneficial interest of wrath alarm unit was transferred to assessee by another company. Thus, there is a violation of subsection 9 of section 10 B of the act. In absence of any explanation by the assessee, the learned AO held that the assessee case is covered by the above section and therefore the assessee is not entitled for deduction. 13. The learned AO further questioned that the sale proceeds of the articles exported out of India are not received or brought into India within the period of six months for the reason that in spite of giving sufficient opportunity the assessee has failed to prove that the entire receipt of ₹ 18.79 crores were brought into India in the form of convertible foreign exchange within the period of six months or further. As extended. Therefore, the assessee is also not eligible for a deduction under section 10 B of the act. 14. The learned AO further noted that assessee is in the business of preparing pickles, based, chutney which both on the facts and in law does not amount to manufacture or production. The pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. As the assessee has not submitted the prescribed certificate in form number 10 CCAC and further the goods were produced by an exported by the assessee, the deduction under section 80 HH C was also disallowed as an alternative claim. 19. The AO further found that there is a difference in account with respect to both the entities and therefore an addition of ₹ 2,381,763/ was also added to the total income of the assessee. Assessee or obtained unsecured loan of ₹ 15,158,958 confirmation of which were not provided, addition was also made to that extent. Depreciation was also disallowed based on the previous year s assessment orders. 20. During the course of assessment proceedings, the assessee company was asked to furnish the stock statement submitted to the bank on 31/12/2001. On examination of the details, it was found that the stock as given to the Bank was ₹ 14.04 crore and stock as per balance sheet was ₹ 11.85 crore and thus there is a difference of rupees 2 .19 crores. Accordingly, an addition of ₹ 21,909,800/ was made on this count. 21. Accordingly, assessment order was passed under section 144 read with section 147 of the income tax act on 20/1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forwarded the written submission made by the assessee to the assessing officer for his comments and the AO has made his remand report on 24/9/2007. Such a remand report is also reproduced at page number 43 48 of the appellate order. A copy of the remand report was provided to the assessee for its comment which was replied to on 10/10/2007 in the form of rejoinder which is reproduced by the learned CIT A at page number 48 62. Further a paper book was also filed by the assessee on 11/1/2008 providing copies of the permission 400% export oriented unit, a chart showing the main issues raised by the assessing officer, copies of the certificates in form number 56G certifying the deduction under section 10 B and also a chart giving details of hearing before the learned assessing officer. The various assessment orders, annual reports, other submissions and assessment orders with respect to all the units/companies. The learned CIT A held that: i. M/s M M Ponjiaji co was established in the year 1983. On 23/3/1992 the above company was taken over by Arte India partnership firm. That firm set up a new unit in Nasik in October 1997 and April 1998. In February 1999 a new partnership firm was for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessing officer has accepted the assessee's activities as manufacturer. He referred to the earlier order and held that mangoes and mango pickles held to be treated as two distinct and separate things with respect to their marketability, use, and manufacturing process. The process which brings out a complete transformation so as to produce a commercially different article has to be necessarily treated as a manufacturing process. He further looked at the value addition test to examine that assessee has been granted the permission by the development Commissioner for putting up the 100 percent export oriented unit where the net value addition of 76% in the terms of foreign exchange earnings were analyzed and accepted. He further referred to several judicial precedents of various courts and then held that it becomes amply clear that the raw material used by the assessee mango, fruits, vegetables, spices and other ingredients in different and elaborate processes obtain the entirely distinct and different finished products in the shape of pickle, chutney and jam is a manufacturing process and the units at Nasik and Ratlam are manufacturing units. vii. With respect to the various un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing officer has given several reasons for the purpose of denial of deduction under section 10 B of the act. He submits that. i. Assessee is not manufacturing or producing any article or thing. He submits that the manufacturing of pickles cannot be considered to be a manufacturing activity. ii. Nasik and Ratlam units are formed by transfer of old plants and machinery which were used by other companies of the group. iii. The beneficial interest in the undertaking at Nasik and Ratlam units was transferred. iv. the sale proceeds of articles exported out of India are not proved to have been received within a period of six months as the assessee failed to furnish the bank realization certificate in support of the realization of export proceeds. v. they learned assessing officer has categorically referred to the provision of section 10 B of the act and stated that it violates the condition of manufacturing, split up for the construction of the unit, unit is formed by the transfer of a new business of machinery or plant previously used for the purposes and further the sale proceeds have not been received in India within a specified period is not been proved by the assessee. vi. He ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anted by the export processing John Department of commerce and industries. He further referred to the order of the learned CIT A for assessment year 2003 04. iii. With respect to the sale proceeds not received in India within the prescribed time he submits that the assessee has produced a bank realization certificates, bank certified statement of forex receipts, auditor certificate to prove that the export realization was brought back into India. He further referred to the statement showing realization of export proceeds. It was his argument that the learned CIT A had referred to the remand report and after the finding of the learned AO, relief was granted. iv. With respect to the conversion of form into company he submitted that section 10 B (9) was introduced from 1 April 2021 hence it would not apply to the conversion that happened prior to that date further that section applies to an export-oriented units eligible for deduction and not to non-eligible units. In the year of conversion, the assessee was not an eligible unit. He referred to various dates and stated that there is a conversion of a partnership firm into a private limited company which would not be covered by the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto dry grading machine, wherein the gherkins undergo machine oscillation through dry plate. As a result, very fine and thin varieties are selected in this process; (e) Gherkins are then subjected to the process of manual culling; (f) The selected varieties after the grading are taken through a process of washing by the machine; (g) Thereafter, the process of fine grading is undertaken; (h) The fine graded and washed gherkins are next put into barrels and various chemicals like acetic acid, brine, vinegar, salt, calcium and KMS preservatives are added thereto. The mixture is then stored for seven to ten days for stabilization. During the period, a fermentation process takes place inside the barrels; (i) Once fermented, gherkins are transported from the factory and unloaded into pits and held until the next phase of processing. Inside the pit the levels of lactic acid and salt are adjusted as per the requirements of the customers. This is achieved by adding salt/water to the brine and allowing the levels of salt and acid in the brine and pickle to equalize. Reduction in the level of lactic acid is required due to a pungent flavour associated with the said acid; (j) Thereafter, the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld once excise duty is being paid it would not be possible to hold that there was no manufacturing involved. He drew our attention to Chapter 20 of the Central Excise Tariff Act, 1985 wherein it is specifically mentioned that pickles are classified under the heading 20.01 vide M. F.(D.R.) F. No. 114/18/86-CX.3, dated 24-3-1986. It was the further submission that the Hon'ble Supreme Court in the case of Edward Keventer (P) Ltd. v. Bihar State Agricultural Marketing Board [2000] 6 SCC-264. The Hon'ble Supreme Court has held that under the provision even though basic ingredients may be the same end product which is known differently is treated as a separate item. It was the submission that in the assessee's case the gherkin pickles are different from gherkins and as the end product in the assessee's case was different from gherkin as such, the same was liable to be held to be manufacture . He further relied upon the decision of the Hon'ble J K High Court in the case of CIT v. Pankaj Jain, Prop. Aagam Food Industries [2006] 152 Taxman 80 to submit that the decision in the case of Indian Hotels Co. Ltd., referred to supra, was not applicable insofar as the said deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommodity. It is not necessary that the original article or material should have lost its identity completely. All that is required is to find out whether as a result of operation in question, a totally different commodity had been produced. It was the submission that in the present case the gherkins which were converted into gherkin pickles was a totally different commodity which had been produced. It was the submission that in view of the later development in the law, the decision of the co-ordinate Bench of this Tribunal in the assessee's own case for the assessment years 2001-02 to 2003-04, referred to supra, should not be followed and it should be held that the assessee is entitled to the claim of deduction under section 10-B of the Act. 6. In reply, the learned DR submitted that there was a decision of the coordinate Bench of this Tribunal in the assessee's own case and it had the binding precedent. It was the further submission that if the pickle as manufactured by the assessee was washed, the gherkin could be obtained. It was the submission that no new produce came into existence. It was the submission that the main ingredient of the assessee's pickle was gherkin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity done by the assessee, extracted above. Once it is held to be a process for the purpose of the provisions of section 10B, it would have to be held that the assessee is doing manufacture . Further a perusal of the provisions of section 2(29BA) though inserted by the Finance (No.2) Act, 2009, with retrospective effect from 1-4-2009, clearly shows that manufacture would mean a change in a non-living physical object or article or thing resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use. In the present case, the term difference name, character and use comes into importance. The gherkin by itself is a vegetable. When it is processed and made into gherkin pickles, the name is gherkin pickles . Its characteristic from that of a vegetable changes into a pickle and its use also changes. Gherkin as a vegetable is used for making food dishes or salads. It is eaten raw. It is used for beauty treatment. The gherkin pickles cannot be used in the same manner as the gherkin itself. Washing the gherkin pickles to obtain the gherkins would in no way help the case of the Revenue insofar as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of CIT v. Hi-Tech Arai Ltd. [2010] 321 ITR 477 (Mad.) we must take a different view and we do so. In the circumstances, we are of the view that the assessee is entitled to the deduction under section 10B of the Act as the assessee is manufacturing gherkin pickles from gherkin for the purpose of deduction u/s 10B. In the circumstances, the appeals of the assessee are allowed. 32. The process of manufacturing is also similar in the case of the assessee as compared to the process considered by the coordinate bench. In view of the above facts, we do not find any reason to hold that the assessee is not engaged in manufacturing activities. Thus, we hold that the process of manufacturing pickles from raw vegetables and fruits, masala and other ingredients has different marketable commodities than the raw materials which are a different value addition, and a new product emerges therefrom. 33. With respect to the realization of the export proceeds it has been stated that the assessee has produced bank realization certificates, bank certified statement of the Forex receipt, and certificate of the auditor, therefore we do not find any infirmity in the order of the learned CIT A in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not be made on the basis of difference between the closing stock declared in the statement submitted by the banker is less than the book stock. Accordingly, we dismiss this ground of appeal of the AO also. 38. As, the issue raised by the learned authorized representative under rule 27 of ITA T rules has merely become academic issue, same is also dismissed. 39. In the result ITA number 2943/M/2008 for assessment year 2001 02 filed by the learned assessing officer is dismissed. 40. ITA number 4987/M/2008 is filed by the learned assessing officer for assessment year 2002 03 against the appellate order passed by the Commissioner of income tax (appeals) Iv, Mumbai dated 9/5/2008 granting deduction under section 10 B to the assessee. Assessee has claimed deduction under section 10 B of the act of ₹ 22,778,606/ which was disallowed by the learned assessing officer. This ground of appeal is identical to ground of appeal in assessment year 2001 02 raised by the learned AO. As there is no change in the facts and circumstances of the case and further, we have dismissed those grounds for that year holding that assessee is eligible for deduction under section 10 B of the act, for simi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rely academic in nature and hence dismissed. 45. Another issue is with respect to the disallowance of trading loss of ₹ 8,005,983 incurred by the assessee held to be by the learned assessing officer is a speculation loss. The learned CIT A deleted the same. 46. On careful consideration of the rival arguments, we find that the assessee has purchased so have been from Cargill global trading private limited and exported to Cargill International Limited and incurred the above loss. The learned CIT A of the copies of the bills and the appeal of leading along with the other supporting evidence found that it is a regular loss incurred by the assessee on high seas sales. Therefore, we upheld the order of the learned CIT A this ground of appeal of the learned AO. 47. In the result ITA number 6537/M/2006 for assessment year 2003 2004 filed by the learned assessing officer is dismissed. 48. ITA number 4988/M/2008 is filed by the learned assessing officer for assessment year 2004 05 challenging the deletion of the disallowance of deduction claimed by the assessee under section 10 B of the income tax act and further addition on account of difference in book stock and stock given to the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the CIT appeals dated 1/8/2008 for assessment year 2005 06. 54. Ground number 1 6 is with respect to the deduction under section 10 B of the act. This is identical to the appeals of learned AO for assessment year 2001 02 onwards. The facts and circumstances are also the same and arguments of the parties are also the same. As we have already confirmed the order of the learned CIT A in allowing the claim of the assessee of deduction under section 10 B of the act, for similar reasons, we further the year also confirm the order of the learned CIT A and direct the learned assessing officer to delete the disallowance of deduction under section 10 B of the act. Therefore, these grounds are dismissed. 55. Ground number 7 is with respect to the addition made on account of difference in closing stock as per statement submission submitted to the bank and as per the balance sheet deleted by the learned CIT A. This is also identical to the appeal of the learned assessing officer for assessment year 2001 02, while deciding that appeal, we have confirmed the order of the learned CIT A deleting the above addition, for similar reasons we also confirm the order of the learned CIT A and dismiss g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the bank, it was found that as on 31/3/2006 the bank statement submitted to the bank shows closing stock of ₹ 19.15 crores whereas the book stock is only ₹ 20.15 crores. Thus, the assessee has shown higher stock in its books of accounts than stock shown to the bankers. The difference was Rs 1 crore. As the assessee could not reconcile the difference, the learned AO rejected the books of accounts and estimated the gross profit at the rate of 26% and made the addition of ₹ 26,539,393/ on account of suppression of profits. We find that when the assessee has shown higher stock in books of accounts and shown lesser stock to the bank, we do not find any reason to make any addition in the hence of the assessee. Thus, the order of the learned CIT A is reversed to the extent of confirmation of the addition of ₹ 1,584,547 and confirmed deleting the balance addition. Thus, ground number 2 of the appeal of the AO is dismissed and ground number 1 3 of the appeal of the assessee are allowed. 62. Ground number 4 of the appeal of the assessee is with respect to the order of the learned CIT A in confirming the disallowance of ₹ 146,418/ in respect of provident fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference of ₹ 1.20 crores in valuation of closing stock. As this year the situation has reversed wherein the valuation given to the bankers lower and the valuation of closing stock as per the books of account is higher by ₹ 1.20 crores the learned assessing officer rejected the books of account applying the provisions of section 145 (3) of the act and made an addition at the profit of 20% being average of three years and thus made an addition of ₹ 15,639,254. The learned CIT A after considering the explanation of the assessee and considering the average gross profit shown by the assessee held that by showing the valuation of the closing stock of inventory at higher amount by ₹ 1 20 crores the appellant has offered higher gross profit/net profit for taxation and not vice versa. The charge regarding the suppression of profit by the learned assessing officer was without pointing out any defect in the books of account maintained by the assessee company. Further the manner of making an addition was also not correct. On careful consideration of the rival arguments, we find no infirmity in the order of the learned CIT A wherein the addition was deleted. We do not fi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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