Income Tax Appellate Tribunal - Chandigarh
Pooja Industries,, Solan vs Assessee on 27 December, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIG ARH BENCH ' A', CHANDIG ARH
BEFORE SHRI T.R. SOOD, A.M AND Ms. SUSHMA CHOWLA, JM
ITA No. 11/Chd/2012
Assessment Year : 2007-08
Pooja Industries V I.T.O. W ard 1, Solan (HP)
Plot No. 75, Sector 1
Parwanoo
Solan
AAGFP 3843 G
(Appellant) (Respondent)
Appellant by : Shri Surinder Babbar
Respondent by: Shri N.K. Saini
Date of hearing : 27.12.2012
Date of Pronouncement : 14.01.2013
O R D E R
PER T.R.SOOD, A.M
This appeal is directed against the order passed by the ld. CIT(A), Shimla dated 31.10.2011.
2. In this appeal the assessee has raised the following grounds:
"1 On the facts and circumstances of the case, the ld. CIT(A) has grossly erred in concurring with the ITO in rejecting the valid claim of the assessee u/s 80IC of the Act.
2. On the facts and circumstances of the case, the ld. CIT(A) has grossly erred in upholding the rejection of claim of Rs. 1,12,94,962/- in concurrence with the ITO by holding that there is no distinction between a "Flour Mill" and a "Roller Flour Mill".
3 Brief facts of the case are that the assessee filed return declaring income of Rs. 82,760/-. This income was after claim of deduction amounting to Rs. 1,12,94,962/- u/s 80IC of the Act. Earlier the assessee was claiming deduction u/s 80IB of the Act and in the present year it was claimed that the 2 assessee had made substantial expansion and therefore, was entitled to deduction u/s 80IC of the Act. During the assessment proceedings the Assessing Officer noticed that the assessee has claimed deduction u/s 80IC on the basis of expansion in Flour Mill. He further noticed that deduction u/s 80IC is not available in view of sub-section (8) of section 80IC which prescribed that deduction is not available under this provision on manufacture of article or thing specified in Schedule XIII, Part B. Since part B of Schedule XIII specifically mentioned Floor Mill at Item 8, the deduction was not available. The assessee was confronted with this situation by way of show cause notice vide order sheet dated 26.11.2010 and following points were raised:
i) "Being 6th year of production deduction u/s 80IB is allowable 25% instead of 100% claimed by you.
ii) As per thirteenth schedule, deduction u/s 80IC is not allowable to flour mills.
iii) In nutshell,, you are requested to explain why deduction claimed at 100% may not be reduced to 25% of total profits."
The assessee submitted detailed reply in which it was contended that substantial expansion has been carried out as investment in the plant and machinery during the year was more than 50% of the book value. Further the assessee was running a "Roller Flour Mill" which is distinct from the "Flour Mill" and in this regard reference was made to the sales tax exemption given by the Government of Himachal Pradesh wherein it was clarified that "Roller Flour Mills" is different from "Flour Mill" vide letter No. Ind (A)(F) 6-16/94 darted 1.7.1994. Since "Roller Flour Mill" is not mentioned in part B of Schedule XIII, therefore, the assessee was eligible for 3 deduction u/s 80IC. The Assessing Officer after considering the reply rejected the same because the assessee was running basically a Flour Mill and the main item manufactured was Atta/Flour. He also observed that interpretation by the Government of Himachal Pradesh under Sales tax Laws could not be applied to the income-tax. However, he allowed the deduction u/s 80IB (4) @ 25%.
4. On appeal before the ld. CIT(A) the submissions made before the Assessing Officer were reiterated. It was again emphasized that the Roller Flour Mill is different from Flour Mill and in this regard reference was also made to the Registration Certificate issued by the Department of Industries. It was further submitted that in a Flour Mill only atta and chokkar are the end products whereas in Roller Flour Mill in addition to atta and chokkar, maida and suzi are also produced. The Flour Mill is practically a "Chakki" made out of stone wheels whereas Roller Flour Mill is made of Roll Bodies which is entirely different from a flour mill. The clarification given by the Government of Himachal Pradesh regarding exemption in sales- tax was also reiterated.
5. The ld. CIT(A) after considering the submissions did not find force in the same and rejected the claim of the assessee. 6 Before us, the ld. counsel of the assessee reiterated the submissions made before the lower authorities and emphasized that Flour Mill is different from Roller Flour Mill. Firstly the Flour Mill can produce only flour and choker whereas Roller Flour mill also produces in addition to flour and choker, maida and suzi. Secondly the flour mill machinery is very simple and 4 a small single floor building is required to install the same whereas in case of Roller flour mill five storey building is required along with sophisticated machinery. Thirdly the Government of Himachal Pradesh has clarified vide letter dated 1.7.1994 (copy placed at page 55 of paper book) written by D.C-cum-Secretary to Industries to the Director of Industries that Roller Mill are not covered under Sr No. 1 of Annexure III. That since Roller Flour Mill are different from Flour Mill and therefore, same is eligible for sales tax exemption. Thus it is clear that Flour Mill is different from Roller Flour Mill. He submitted that the Assessing Officer has not disputed that the assessee has carried out substantial expansion during the year and deduction stands denied u/s 80IC mainly on the basis that Flour Mill finds mention in schedule XIII, Part B containing list of article or things which are not entitled for deduction. Since Roller Flour Mill does not find mention in schedule XIII, Part B and item 8 by the schedule only refers to the Flour Mill / Rice Mills which are different from the Roller Flour Mill, the assessee is eligible for deduction u/s 80IC. The ld. counsel of the assessee further submitted that the ld. CIT(A) in para 5.4 of her order uses the definition given in the dictionary which is not correct because it has been held by the various decisions that if an item in schedule is to be interpreted that the same should be interpreted on the basis of trade names given by the trade.
7 On the other hand, the ld. DR for the revenue referred to page 12 of the paper book which is a copy of Form 3 CD of Tax Audit Report and invited our attention to Col No. 8. Against the nature of business tax auditor has clearly mentioned "Flour 5 Mill" which itself shows that the assessee was running a Flour Mill. He referred to pg 24 of the paper book and pointed out that opening stock of maida and suzi which clearly shows that the assessee was earlier also producing maida and suzi which has been produced now. He referred to pg 33 to 38 of the paper book which is a copy of letter addressed to the Assessing Officer and pointed out that claim regarding distinction between Flour mill and Roller Flour Mill was sought to be arranged for the first time on 9.12.2010 by this letter i.e. after three years.
8 In the rejoinder the ld. counsel of the assessee submitted that distinction between Flour Mill and Roller Flour Mill was brought to the knowledge of the Assessing Officer only when the issue raised by the Assessing Officer for denial of deduction u/s 80IC. Further merely because the assessee was manufacturing maida and suzi earlier also only proves that the assessee was running a Roller Flour Mill right from the beginning.
9 W e have heard the rival submissions carefully. We find that the ld. CIT(A) has discussed the issue in detail and in this regard we would like to produce para 4 to 4.4 of her order which are as under:
"4 The rival submissions have been considered. The entry at Sr No. 8 in Schedule XIII, Part B reads "Flour Mill/Rice Mill". On the fact of it, the entry makes it clear that all types of flour mills and rice mills are covered by this entry. It does not elaborate the categories or types of flour mills and rice mills. The heading of the XIII schedule reads "List of Article or thing". Therefore, it is clear that what is prohibited by virtue of XIII schedule is the production/manufacturing of the specified articles or things. Accordingly, it is the production of flour/rice through flour mill/rice mill which is barred from entitlement u/s 80IC of the Income-tax Act, 1961 by virtue 6 of Schedule XIII. Thus the prohibition is in respect of the production of flour, and it is immaterial whether the flour mill producing the flour is an ordinary chakki or a roller flour mill. In fact, logically speaking, the provisions of section 80IC read with schedule XIII would hardly be relevant in the case of an ordinary chakki which does not involve so much of investment, what to talk of substantial expansion and such other things. Further flour mills can be of various types, such as stone mill, hammer mill, plate mill, pin mill, roller mill etc. The equipment used in these mills can be powered by hand, water, animals, electricity or diesel engine. The only difference between various milling processes is that of technique and speed. Flour is a common product in all kinds of milling processes. Therefore, it can not be said that what is intended by entry No.8 in part B of schedule XIII is only a stone mill and not a hammer mill or a plate mill or a pin mill or a Roller Flour Mill. Putting such an interpretation would reduce the entry to a farce.
4.1 Further, the relevant entry of "flour mill/rice mills" in schedule XIII also mentions an excise classification of 11.01 against it. This classification code refers to classification of products under the Central Excise Tariff Act, which deals with products of the milling industry. There is no distinction made in this chapter between goods produced by roller flour mills or by any other type of flour mill. Various products are classified as per the starch content and ash content. The code 11.01 refers to wheat flour and there is no distinction made as to whether the wheat flour is made by a roller mill or by any other mill.
4.2 Certain decisions under the Central Excise Tariff Act also make it clear that the classification code 11.01 is a broad heading which covers various productions of the milling industry. In the case of Bhagyalaxmi Poha Industries V. Commissioner (2007) 215 ELT 458 (Trib Bangalore), it was held that rice flakes or poha are prime facie classifiable under heading 11.01 of the Central Excise Tafiff. In another case of Mahavir Food Products V Commissioner (2007) 211 ELT 29 (Trib LB), it has been held that makai poha i.e. corn boiled and flattened between rollers, is classifiable under the heading 11.01 of the Central Excise Tariff Act.
4.3 The assessee's contention that the State Government of Himachal Pradesh has accepted the distinction between flour mill and roller flour mill is of no relevant. The scheme of sales tax incentives which was in force in the State in 1994 was entirely a separate scheme notified by the State Government. That scheme has no relevance or connection with the tax holiday comprised in section 80IC, which was enacted by the Finance Act, 2003 as a part of the new industrial policy of the Central Government announced in 2003 for States like H.P. This becomes further clear by the fact that the list of ineligible industries contained in schedule XIII is almost entirely different in content from the list of units 7 declared to be ineligible for sales tax incentives by the State Government. For the purpose of the Income-tax Act, the entry in schedule XIII has to be understood in its normal sense and not in terms of any clarifications issued by the State Government under an entirely different scheme.
4.4 A statute is the edict of the legislature. The language employed in a statute is the determinative factor of the legislative intent. The first and primary rule of construction is that one must go by the intention of the legislation itself as held in Padmasundra Rao V Stte of TN 255 ITR 147 (S.C); CGT V. Laxmi Devi 220 ITR 50, CIT V.Deep Chand, 2547 ITR 756. It was also held by Hon'ble Supreme Court in the case of Vikrant Tyres V First ITO, 247 ITR 821 (S.C) that unless there is an intention to the contrary, the words in a statute should be given their ordinary grammatical or natural meaning (emphasis supplied)."
The relevant portion of Section 80IC reads as under:
"80-IC. (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section (3).
(2) This section applies to any undertaking or enterprise,--
(a) which has begun or begins to manufacture or produce any article or thing, not being any article or thing specified in the Thirteenth Schedule, or which manufactures or produces any article or thing, not being any article or thing specified in the Thirteenth Schedule and undertakes substantial expansion during the period beginning--
THE THIRTEENTH SCHEDULE (See sections 80IB(4) and 80IC(2)} LIST OF ARTICLES OR THINGS PART A FOR THE STATE OF SIKKIM
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SCHEDULE XIII - LIST OF ARTICLES OR THINGS PART B FOR THE STATE OF HIMACHAL PRADESH AND THE STATE OF UTTARANCHAL 8 S No Activity or article or Excise Sub-class thing classification under National Industrial Classification (NIC) 1998 1 Tobacco and tobacco 24.01 to 24.04 1600 products including and 21.06 cigarettes and pan masala 2 Thermal Power Plant 40102 or (Coal / oil based) 40103 3 Coal washeries/dry coal processing 4 Inoroganic Chapter 28 chemicalsl lexcluding medicinal grade oxygen (2804.11), memdicinal grade hydrogen peroxide (2847.11), compressed air (2851.30) 5 Organic chemicals Chapter 29 24117 excluding provitamins/vitamins, Hormones (29.36), Glycosides (29.39), sugar (29.40) 6 Tanningand dyeing Chapter 32 24113 or extracts, tannins and 24114 their derivatives, dyes, colours, paints and varnishes, putty, fillers and other mastics, inks 7 Marble and mineral 25.04 14106 or substances nor 14107 classified elsewhere 25.05 8 Flour mills/rice mills 11.01 15311 9 TO 20 ........................
From the above it is clear that deduction u/s 80IC is available whenever the assessee undertakes a substantial expansion. The issue relating to substantial expansion has not been disputed by the Assessing Officer. However, Sub-sec (2) further requires that deduction is available only to such undertaking which begins to manufacture or produce any article or thing which are not mentioned in schedule XIII, Part B. Thus it is clear as observed by the ld. CIT(A) the deduction is not 9 denied on a particular type of mill but it is denied on a particular type of article or thing which is mentioned therein. It should be emphasized that part B of Schedule XIII, item 8 talks of Flour mill under the head "activity or article or thing" but that has been further clarified in the schedule itself by way of excise classification as well as sub-clause under National Industries Classification (N.I.C) 1998. The ld. CIT(A) has further observed that Central excise tariff classification code 11.01 of Central excise Act makes it clear that it is a broad heading which covers various products of the milling industry. Further N.I.C. 1998 gives various categories of products under various heads known as "Divisions". Division 15 reads as under:
DIVISION 15 "Manufacture of food products of brewages 15311 Flour Milling"
This classification under various NIC standards has been issued by Ministry of Statistics and Programme Implementation, Government of India. Code 15311 has been mentioned in Part B of Schedule XIII at Col. 8. Since this Division pertain to Food and Brewages and only one item in respect of Flour Milling is there, it becomes clear that the Parliament was clear in its intention that activity of Flour Milling would not be entitled to deduction u/s 80IC and that is why the same has been placed in Schedule XIII along with Excise classification Code 11.01 as well as National Industries classification under Division 15 at Sl No. 15311. Therefore, the activity of Flour milling or article or thing under which can be called "Flour" is not eligible for deduction u/s 80IC by virtue of its entry in the negative list in Part B of Schedule XIII.10
10 The ld. counsel of the assessee though argued that this item should be interpreted on the basis of a trade name but no Trade Journal or any other material was produced to show that in the trade parlance "Flour Mill" is distinct from "Roller Flour Mill". In any case the assessee itself has been shown to be running a Flour Mill as per the Tax Audit Report (copy of which is available at pg 12 to 20 at Sl No. 8 which deals with the nature of business, the same has been shown as "Flour Mill".
11 W e have also perused page 25 of the paper book which is an annexure giving quantitative details of principle items of raw material and finished products has been followed.
Annexure IV Quantitative details of Principal items of raw material Item wheat (in Qtls) Opening Stock 14345.66 Purchases during the previous year 140348.50 Consumption during the previous 149102.62 year Sales during the previous year Nil Closing stock 5591.54 Yield of finished products Flour Maida/ Choker 118746 Suzi 16586.46 16984.
45
%age of yield 79.64% 11.39% 11.12%
Shortage/excess, if any Process
Gain(Qtls)
=
(3214.29)
2.15%
From the above it is clear that principle activities remain milling of flour and 79.64% wheat crushed results into milling of flour and maida and suzi is only at 11.39% which can be 11 called as bi-product. Thus it is clear that main activity of the assessee is milling and by doing the activity listed in the negative list in Part B of Schedule XIII, deduction u/s 80IC, is not available.
12 The ld. counsel of the assessee had put up lot of stress on the clarification of legal exemption granted by the Government of Himachal Pradesh. Relevant letter is extracted below:
"Ind(A)(F)6-16/94 Government of Himachal Pradesh Industries Department The D.C-cum-Secretary (Industries) to the Government of Himachal Pradesh To The Director of Industries Himachal Pradesh, Shimla-1 Dated, Shimla-2 1.7.1994 June 1994 Sub: Sales Tax Exemption to Roller Flour Mills, Clarification thereof Sir, I am directed to reply to your letter No. In/Dev., F.19- 18/91-IB dated 20.4.94 in the above cited subject and to say that the matter has been examined in consultation with Law Department. According to rule 11.1 (d) of the Revised Rules Regarding grant of incentives to Industrial Units in Himachal Pradesh, all Industrial Units re eligible for sales tax incentives which are registered as appellate authority dealer under the H.P. General Sales Tax Act, 1968/Central Sales Tax Act, 1956 and comply with its Provisions, except for the industries notified in Annexure-III or as notified by the State Government from time to time. According to Sl No. 1 of Annexure III of the said rules, Flour Mills are not eligible for sales tax incentives. In other words, the Roller Flour Mills are not covered under Sl No. 1 of Annexure III and hence are eligible for sales tax incentives subject to fulfillment of other requirements.
Yours faithfully Sd/-
Joint Secretary (Industries) to the Government of Himachal Pradesh "12
In our opinion, the ld. CIT(A) has correctly brushed aside this clarification because it deals with the sales tax etc. which is a State subject and this clarification can not negates the intention of the Parliament given in Part B of Schedule XIII which is a negative list for deduction u/s 80IC. In these circumstances, we are of the opinion that the assessee by virtue of being placed in Part B of Schedule XIII, is not entitled to deduction u/s 80IC. The Assessing Officer has been more than reasonable for granting deduction u/s 80IB @ 25%. In these circumstances we find nothing wrong with the order of ld. CIT(A) and confirm the same.
13. In the result, appeal of the assessee is dismissed.
Order pronounced on 14.01.2013.
Sd/- Sd/-
(SUSHMA CHOWLA) (T.R. SOOD)
JUDICI AL MEMBER ACCOUNTANT MEMBER
Dated : 14.01.2013
SURESH
Copy to: The Appellant/The Respondent/The CIT/The CIT(A)/The DR 13 14