Income Tax Appellate Tribunal - Ahmedabad
Income Tax Officer, Ward-7(4), ... vs Avinashi Industries, Ahmedabad on 12 April, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "A" BENCH AHMEDABAD
BEFORE, SHRI S. S. GODARA, JUDICIAL MEMBER
AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER
ITA No. 1953/Ahd/2013
(Assessment Year : 2010-11)
Income-Tax Officer,
Ward-7(4), Ahmedabad Appellant
Vs.
M/s. Avinashi Industries
L/5/5/134, Shastrinagar, Nr. Police
Line, Ankur Rannapark Road,
Ahmedabad - 380013 Respondent
PAN: AAMFA6930F
राज व क ओर से/By Revenue : Dr. Jayant Jhaveri, Sr. D.R.
आवेदक क ओर से/By Assessee : None
सन
ु वाई क तार ख/Date of Hearing : 31.03.2017
घोषणा क तार ख/Date of
Pronouncement : 12.04.2017
ORDER
PER S. S. GODARA, JUDICIAL MEMBER
This Revenue's appeals for assessment year 2010-11 arises against the CIT(A)-XIV, Ahmedabad's order dated 09.05.2013 in appeal no. CIT(A) XIV /Wd. 7(4)/315/2012-13, reversing Assessing Officer's action in disallowing assessee's Section 80IC deduction claim of Rs.1,77,01,744/- as made in the re-assessment in question framed on 28.02.2013, in proceedings u/s.143(3) r.w.s. 147 of the Income Tax Act, 1961; in short "the Act".
ITA No. 1953/Ahd/2013 (ITO vs. M/s. Avinashi Industries)A.Y. 2010-11 -2-
2. The Revenue's sole substantive ground raised in the instant appeal seeks to revive the impugned disallowance pertaining to assessee's claim of Section 80IC deduction. The Assessing Officer concluded in his re- assessment order that the assessee's activity of mixing and blinding of reactive dyes does not amount to "manufacturing activity" so as to be held entitled for the above relief. He appears to have followed his reasoning pertaining to the very issue in preceding assessment years. The CIT(A) however deletes the impugned disallowance by following his orders dated 10.05.2010 and 08.08.2012 for assessment years 2007-08 & 2009-10; respectively deciding the very issue in assessee's favour holding that its above business activity amounts to manufacturing as defined under the provisions of the Act. This leaves the Revenue aggrieved.
3. Ld. Departmental Representative first of all highlights the fact that there is no dispute about similarity of the relevant circumstances in the said two earlier assessment years vis-à-vis the impugned assessment year so far as assessee's claim of the impugned Section 80IC deduction claims are concerned. The Assessing Officer as well as the CIT(A) are also very categoric in their respective findings that there is no distinction on facts. Shri Jhaveri then files before us copy of this tribunal's order in assessee's own cases pertaining to the earlier two assessment years ITA Nos. 2430/Ahd/2010 & 2309/Ahd/2012 respectively as decided on 03.12.2013 remitting the very issue of Section 80IC deduction back to the Assessing Officer as under:
"11. We have heard the rival submissions and perused the material on record.
It is an undisputed fact that the Assessee firm was formed in the year under consideration and had undertaken the activity of blending and mixing different reactive dyes with the help of two ball mills at its unit located in Sikkim and the profits generated out of the sale of such products manufactured at its unit at Sikkim, was claimed as deduction u/s 80IC. The main dispute in the present case is whether the activity of blending and mixing of reactive dyes can be considered to be manufacturing or production so as to entitle the Assessee to deduction as per the provisions of u/s 80IC? As per the Assessee, the activity undertaken by the ITA No. 1953/Ahd/2013 (ITO vs. M/s. Avinashi Industries) A.Y. 2010-11 -3- Assessee has been classified as being in the nature of "manufacturing" by Excise Authorities and as per provisions of 32 of Central Excise tariff, conversion of unstandarised synthetic organic dyes by addition of dispersing agents or dilutents into standardised forms ready for use in the process of dyeing amounts to "manufacture". On the other hand as per the Revenue, the activity of assessee is grinding and mixing of different reactive dyes with different salts and there is no material on record to show that the new commodity that comes into existence has different chemical properties and after the manufacturing process, the final product is substantially different from that of the original ingredients. Before us, the Ld.A.R has submitted that once the activity of assessee is considered to be a manufacturing activity by the Excise authority, it would be incorrect on the part of Income tax to consider the activity as not manufacturing and thus take a different view.
12. We find that section 2(29BA) was inserted by Finance (No 2) Act 2009 with effect from 1.4.2009 which defines manufacture as under:-
"manufacture" with its grammatical variations, means a change in a non living physical object or article or thing -
(a) Resulting into transformation of the object or article or thing into a new and distinct object or article or thing into a new and distinct object o article or thing having a different name, 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 structures"
13. In the present case, though the assessment year involved is 2007-08. We are of the view that the definition of "manufacture" as defined in s. 2(29BA) though not applicable but certainly can be used as a guide As per clause (b) of section 2 (29BA) the definition of "manufacture" means "bringing into existence a new and distinct object or article or thing with a different chemical composition or integral structure". Before us, nothing has been brought on record to demonstrate that the chemical composition of the raw materials used by Assessee has undergone a change or there is a substantial change in the chemical composition or integral structure of the raw materials so as to form a new product and that the chemical composition of the finished product is different from that of the original raw material. As per the Assessee the nature of activity done by the Assessee at its unit is termed as" manufacture" by Excise Authorities. We are of the view that though under the Income tax Act there is nothing to suggest that if a particular process is considered as manufacturing process under the Excise Regulations the same has to be treated as Manufacturing for the purposes of Income tax also. We are of the view that for the purpose of income tax it needs to be found out as to whether the process undertaken by an Assessee meets the test of manufacturing so as to become eligible for deduction for undertaking the manufacturing activity. For our aforesaid view we also get support from the decision of co-ordinate Bench in the case of Nemat Enterprises (P) Ltd vs ACIT (ITA No 7423 (Mum) of 2010 order dated 23.10.2010) where at para 6.4, the co-ordinate Bench of Tribunal has noted as under:-
ITA No. 1953/Ahd/2013 (ITO vs. M/s. Avinashi Industries)A.Y. 2010-11 -4- "...Merely because for the purpose of excise duty Attar has been placed in a separate Chapter it cannot be concluded that Attars is different from the original constituents particularly when the assessee is not paying any excise duty on the product It is possible that Central Excise Tariff Act (CETA) deems certain processes as manufacturing by placing certain products in a particular chapter for the purpose of excise duty even if they do not fulfil strict criteria of a manufacturing process but for the purpose of Income-tax we have to find out whether the product meets the test of manufacturing activity particularly in a case like this in which the assessee is not even paying excise duty..."
14. We also find that in the case of Aartech Solonics Ltd, vs. CIT (2013) 256 CTR (MP) 293, the issue before the H'ble High Court was whether the manufacturing of Advanced Microprocessor based Fast Bus Transfer Scheme Panel was a manufacturing process or assembling process? The Hon. High Court has observed as under:-
"5.It appears that both authorities have not considered the process for manufacture of the product. The CIT (Appeal) had considered the matter in a different aspect while the Tribunal had looked into the expenditure aspect and also in respect of the employment of certain persons. The Tribunal was of the opinion that without assistance of the technical persons, no such product could have been manufactured, while finding of the CIT (Appeal) was based entirely on a different footing but the fact remains that none of the authorities had considered how product namely Fast Bus Transfer Scheme Panel is manufactured or assembled. Until and unless some technical expert person examines this aspect, the nature of the product cannot be ascertained whether this is a manufacturing process or is an assembling process. The Apex Court in Oracle Software India Ltd. (supra) considering similar questions held that in each case when an issue of this nature arises for determination, the Department has to study the actual process undertaken by the assessee. If an operation/process rendered a commodity fit for use for which it would otherwise not be fit, the operation/process fell within the meaning of the word "manufacture". Therefore, in each case, where a issue of this nature arises for determination, the department should study the actual process undertaken by the assessee. In Ernptee Poly-Yarn P. Ltd (supra), the Apex Court considering the similar issue held that repeatedly the Apex Court have recommended to the Department, be it under Excise Act, Customs Act or the Income-tax Act, to examine the process applicable to the product in question and not to go only by dictionary meanings. This recommendation is not being followed over the years. Even when the assessee gives an opinion on a given process, the Department does not submit any counter opinion wherever such counter opinion is possible. The Apex Court considering the issue in Morinda Co-operative Sugar Mills Ltd. (supra) reiterated the law, held in para 9 thus:-
"This Court has repeatedly told the Department that, in all such cases, they should have a panel of experts who may be engaged in appropriate cases so that the cases need not be remitted. We do not express any opinion on the merits of the case. We give liberty to the advocates on both sides to cite appropriate judgments of this Court which have laid down the test as to when an operation becomes 'manufacture'. We have laid down the test in one of the cases, namely, Oracle Software India Ltd., (supra),"ITA No. 1953/Ahd/2013 (ITO vs. M/s. Avinashi Industries)
A.Y. 2010-11 -5-
6. In the light of the aforesaid judgments, if we look into factual aspects in the present matter, we find that as per case of the appellant, it was a hyper technical process of manufacturing which was placed before the CIT (Appeal). The CIT (Appeal) in para 3.3 of the order referred the process for manufacturing but had not evaluated/got examined aforesaid process through a technical person. Before it, when the matter was before the Assessing Officer, such process was not followed. Even before the Tribunal, though such issue was raised but the Tribunal had considered the matter in a different perspective and turned down the case of the assessee merely on the grounds that there was no adequate expenditure in the process of manufacturing of the aforesaid product and the persons who were employed were not technical. The Tribunal had only considered that on perusal of the receipts, the expenditure was very low and the profit was high. On these grounds, the order of CIT (Appeal) was turned down by the Tribunal. In our considered opinion, in view of the law laid down by the Apex Court in aforesaid three judgments, we find it appropriate that the matter ought to have been examined by the Assessing Officer through the ass/stance of technical person or a committee of technical persons, if available in the department, but it appears that such process was not followed and the product of the appellant was not found to be manufactured. Though the CIT (Appeal) had found that it was a manufacturing process, but the Tribunal has turned it down. In view of aforesaid, we find it appropriate to remand the matter to the Assessing Officer to call an opinion of the expert in the subject or if panel of experts is available in the department, to take assistance of such panel and after getting an opinion of the experts, to decide that the product namely "Microprocessor based Fast Bus Transfer Scheme Panel" is a product by manufacturing or only an assembled item and thereafter, to decide the matter in accordance with law."
15. In the present case we find that CIT(A) has not obtained any report from an expert to conclude that the new product which has come into existence by undertaking the process of mixing and grinding is on account of manufacturing process but has accepted the contention of Assessee. Considering the aforesaid facts and relying on the decisions cited hereinabove, we are of the view that a definite finding is required to determine as to whether the activity of the assessee can be termed as manufacture in the light of the requirement of the Act so as to enable the Assessee to claim deduction u/s. 80IC. We are therefore of the view, that to meet the ends of justice, the above mentioned aspects needs to examined once again by CIT(A) in the light of the decisions cited above. We are further of the view that for deciding the issue as to whether due to the activity done by the Assessee, any change in chemical composition etc has taken place, CIT(A) may obtain an expert opinion on the composition of the raw material j and its transformation into finished goods.
16. We find that the Assessee has submitted the reason for having gross profit in excess of 70% to be on account of saving in excise duty, VAT, higher price charged on account of longer credit period and lower administrative cost. We find that here is no finding on the aforesaid aspect by CIT(A) and he has accepted the contention of Assessee. Since the matter is remitted to the file of CIT(A), he shall also examine these aspects and after recording a definite finding decide the issue, in the light of the decisions cited herein above and thereafter decide the issue. Needless to state, that he shall grant adequate opportunity of hearing to 'both the parties. We are ITA No. 1953/Ahd/2013 (ITO vs. M/s. Avinashi Industries) A.Y. 2010-11 -6- further of the view that the decisions relied upon by Assessee are distinguishable on facts. In the result, this ground of Revenue is allowed for statistical purposes.
17. Since it is admitted by both the parties that the facts of the case of A.Y. 07-08 are similar to that of A.Y. 2009-10, we for the reasons given while deciding appeal of A.Y. 07-08 also allow the ground of Revenue for A.Y. 2009-10 for statistical purposes 18. In the result the appeal of the Revenue is allowed for statistical purposes."
Ld. Departmental Representative's case therefore is that the instant appeal must also follow the suit. We then notice that the assessee has filed an adjournment letter dated 28.03.2017 that its counsel is out of India due to professional commitments. We however are of the opinion in peculiar facts of the instant case that the main issue is squarely covered in view of above co-ordinate bench's decision. The assessee's adjournment petition therefore does not deserve to be accepted. It is accordingly rejected. We allow the Revenue's sole substantive ground in the impugned assessment year as well for statistical purposes. The Assessing Officer shall adjudicate the said sole issue in light of his findings in earlier assessment years after affording adequate opportunity to the assessee. He shall further take into account the relevant amendments incorporated in the Act; wherever necessary.
4. This Revenue's appeal succeeds for statistical purposes.
[Pronounced in the open Court on this the 12th day of April, 2017.] Sd/- Sd/-
(AMARJIT SINGH) (S. S. GODARA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad: Dated 12/04/2017
True Copy
S.K.SINHA
आदे श क त ल
प अ े
षत / Copy of Order Forwarded to:-
1. राज व / Revenue
2. आवेदक / Assessee
3. संबं धत आयकर आयु!त / Concerned CIT
ITA No. 1953/Ahd/2013 (ITO vs. M/s. Avinashi Industries)
A.Y. 2010-11 -7-
4. आयकर आयु!त- अपील / CIT (A)
5. )वभागीय ,-त-न ध, आयकर अपील य अ धकरण, अहमदाबाद /
DR, ITAT, Ahmedabad
6. गाड3 फाइल / Guard file.
By order/आदे श से,
उप/सहायक पंजीकार
आयकर अपील य अ धकरण, अहमदाबाद ।