Income Tax Appellate Tribunal - Chennai
S.Mahalakshmi, Trichy vs Department Of Income Tax on 4 December, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
'B' BENCH : CHENNAI
[BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER
AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER]
I.T.A.No.1523/Mds/2010
Assessment year : 2005-06
The Income Tax Officer vs Smt. S. Mahalakshmi
Ward III(1) No.10, Mathuram Grounds
Tiruchirapalli Thillai Nagar
Tiruchirappalli 620018
[PAN AFZPM1125Q]
(Appellant) (Respondent)
Appellant by : Shri Guru Bashyam, Jt. CIT
Respondent by : Shri S. Sridhar, Advocate
Date of Hearing : 04-12-2012
Date of Pronouncement : 07-12-2012
ORDER
PER N.S. SAINI, ACCOUNTANT MEMBER
This is an appeal filed by the Revenue against the order of the CIT(A), Tiruchirappalli, dated 30.7.2010.
2. The Revenue has raised the following grounds of appeal:
"1. The order of the CIT(A) is contrary to law, facts and in the circumstances of the case.
2. The learned Commissioner of Income-tax (Appeals) erred in allowing the claim of the assessee u/s 80-IB of the Act.:- 2 -: I.T.A.No. 1523/10
2.1) The learned Commissioner of Income-tax (Appeals) failed to note that the activity engaged by the assessee is 'processing' only and not manufacture of any article or thing. There is no element of manufacture or production in this case within the meaning of Section 80-IB(2)(iii) of the Act so as to be eligible for the benefit provided under this section. In this case, the commodity, viz. black gram, continues its original identity even after processing;
, 2.2) In the case of Aspinwall & Co. Ltd. Vs CIT reported in 251 ITR 323 and cited by the appellant, the Apex Court has held that the processing is a manufacturing process when it brings out a complete transformation in the original article so as to produce a commercially different article or commodity. . If a commercially different article or commodity results after processing, then it would be a manufacturing activity. The Court further observed as under:
"......Commonly, manufacture is the end result of one or more processes though which, the original commodity is made to pass. The nature and extent of processing may vary from one case to another and indeed there may be several stages of processing, perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change or series of changes take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article that a manufacture can be said to take place" ...
2.3 The learned Commissioner of Income-tax (Appeals) CIT(A) failed to observe that in the appellant's case, the end product is the same as the original commodity viz. lack/Green Gram, which doesn't loose its identity even after the processes undergone.
3. The learned Commissioner of- Income-tax (Appeals) CIT(A) failed to follow the ratio of the decision of the Madras High Court in the case CIT Vs Computer Graphics Limited (285 ITR
84) wherein it is held that the activity of converting jumbo rolls into marketable small sizes cannot be regarded as a manufacturing activity.:- 3 -: I.T.A.No. 1523/10
3.1 . The learned Commissioner of Income-tax (Appeals) failed to follow the ratio of the decision' of the Supreme Court in the case of Sacs Eagles Chicory Vs CIT (255 ITR 178) wherein it is held that mere crushing of chicory roots into chicory powder cannot be a manufacturing processes;
4. The learned Commissioner of Income-tax (Appeals) failed to follow the ratio of the decision in the case of Indian Hotels Co. Ltd. & Others Vs. ITO & Others reported in (245 ITR
538), the Apex Court held that the preparation of food does not amount to manufacturing of any article or thing.
5. The learned Commissioner of Income-tax (Appeals) failed to. follow the ratio of the decision of.the Kerala High Court in the case of Nampudhiris Pickle Industries (Ker) 1993 KLJ (Tax Cases) 198wherein it is held that Chilly & Chilly products are essentially same commodity and there is no Manufacturing involved.
6. The learned Commissioner of Income-tax (Appeals) failed to follow the ratio of the decisions in the following cases wherein it is held that the activities to make the Tendu leaves soft is not processing.
Natwarlal Vs. Union of India (MP) 233 ITR490 Sagarmal Agarwal Vs. Union of India & Ors. (Ori) 238 ITR 989 North Koel Kendu Leaves and Mahulam leaves Vs. Union of India & Ors. (patna) 228 ITR 630 Abdul Sattar Vs. Union of India & Ors. (MP) 230 ITR 163
7. For these and other reasons that may be adduced that the time of hearing, the order of the CITCA) may be cancelled and that of the Assessing Officer be restored. "
3. The DR submitted that the assessee has purchased black gram and green gram and after processing them into dal, has sold the same in the market and has in the return of income filed for assessment year 2005-06, claimed deduction u/s 80IB of :- 4 -: I.T.A.No. 1523/10 ` 32,04,730/-. The Assessing Officer disallowed the claim for deduction u/s 80IB to the assessee on the ground that the activity of the assessee did not involve any manufacture or production.
4. On appeal filed by the assessee, the CIT(A) has held that the assessee has fulfilled all the conditions laid down u/s 80IB and was entitled to deduction un 80IB of the Act. Thus, in the present appeal of the Revenue, the issue before the Tribunal is whether purchase of black and green gram and after processing the same into dal amounts to manufacture or not to entitle the assessee for claim of deduction u/s 80IB of the Act.
5. The DR submitted that before the Assessing Officer the assessee explained the process carried out by it as under:
" Process Description:
The raw materials after procurement are tested by very experienced persons and are sent for production. They are sun dried in the yard and further dried in the drier to remove moisture. Then the raw material is passed through the seed cleaner and shaker (sieve) to remove foreign materials. The material received is graded. The graded material is passed through ASA (Roller with emery stone) to remove the husk and then sieved to removed the dust. The process is repeated till the husk is removed in total. Material mixed with oil in the Mobile Oil Box and sun dried in the yard I drier. After the oil mixed material is processed through the ASA to remove the husk and sieved. The sieved material received is polished and packed.":- 5 -: I.T.A.No. 1523/10
6. He submitted that from a reading of the above process, it will be seen that there is no new product manufactured by the assessee. Black gram remains black dal and as no new product is manufactured by the assessee, the claim for deduction u/s 80IB was rightly disallowed by the Assessing Officer and hence, the CIT(A) was not justified in allowing the claim for deduction to the assessee by holding that conversion of gram into dal was manufacture. In support of his argument, he relied on the following decisions:
Aspinwall & Co. Ltd vs CIT 251 ITR 323(SC) CIT vs Computer Graphics Ltd 285 ITR 84 (Mad) Sacs Eagles Chicory vs CIT 255 ITR 178(SC) Indian Hotels Co. Ltd & Others vs ITO & Others 245 ITR 538(SC)
7. On the other hand, the A.R of the assessee relied on the decision of Hon'ble Supreme Court in the case of CIT vs Oracle Software India Ltd., [2010] 320 ITR 546, and submitted that the Court in para 10 of its order has observed that the term 'manufacture' implies a change, but every change is not a manufacture, despite the fact that every change in an article is the result of a treatment of labour and manipulation. The Court observed that this test of manufacture needs to be seen in the context of the process. If an operation/process renders a commodity or article fit for use for which it is otherwise not fit, the operation/process falls within the meaning of :- 6 -: I.T.A.No. 1523/10 the word 'manufacture'. He submitted that therefore, the Hon'ble Supreme Court held that by the duplicating process undertaken by the assessee, the recordable media which is unfit for any specific use gets converted into the programme which is embedded in the master media. The duplicating process changes the basic character of a blank CD dedicating it to a specific use without which it is unfit for its intended purposes and therefore, it constitutes a manufacture in terms of section 80IA(12)(b) of the Act. He submitted that in the case of the assessee itself also, black gram/green gram cannot be consumed directly. It has to be processed and after processing black gram/ green gram the same is converted into dal which is fit for human consumption. Therefore, the process undertaken by the assessee amounts to manufacture. He relied on the decision of the Ahmedabad Bench of the Tribunal in the case of Mitesh Trading Co. vs ITO, I.T.A.No. 1299/Ahd/2007, for assessment year 2000-01, order dated 12.03.2010, wherein it was held that manufacturing of urad dal from raw urad amounts to manufacture and therefore, the benefit of the provision of section 80IA was available to the assessee. He also relied on the decision of the Indore Bench of the Tribunal in the case of ACIT, Bhopal vs M/s Shree Janki Overseas Pvt. Ltd. I.T.A.No. 217/Ind/2011, order dated 27.02.2012 where it was held that manufacturing of dal out of gram, moong, urad, masur, etc. amounts :- 7 -: I.T.A.No. 1523/10 to a commercially new and distinct end product and therefore, the assessee was entitled to deduction u/s 80IB(3)(ii) of the Act. Thus, he submitted that in view of the above decisions, the assessee was entitled to deduction u/s 80IB of the Act on manufacture of dal from black and green gram and hence, the order of the CIT(A) should be confirmed and the appeal of the Revenue should be dismissed.
8. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. The undisputed facts of the case are that during the year under consideration the assessee purchased black gram and green gram and after converting the same into dal, sold the same. The assessee claimed deduction u/s 80IB of the Act of ` 32,04,730/- which was disallowed by the Assessing Officer on the ground that the conversion of gram into dal did not amount to manufacture, as according to him, gram and dal are the same thing.
9. On appeal, the CIT(A), relying on the decision of Hon'ble Supreme Court in the case of Divisional Deputy Commissioner of Sales Tax & Another vs Bherhaghat Mineral Industries, 246 ITR 230, where it was held that the end product should be different from the input so as to treat the activity of the assessee as manufacture held that in the case of the assessee the conversion of gram into dal resulted in :- 8 -: I.T.A.No. 1523/10 bringing into existence a new product and therefore, was manufacture and hence, the assessee was entitled to deduction u/s 80IB of the Act.
10. The DR has relied on the decision of the Hon'ble Supreme Court in the case of Aspinwall & Co. Ltd. vs CIT, [2001]251 ITR 323(SC), where it was held that when the change or series of changes take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article that a manufacture can be said to take place. According to the DR, the end product is the same as the original commodity i.e black/green gram which does not lose its identity even after the processes undergone. Similarly, he relied on the decision of the Hon'ble Madras High Court in the case of CIT vs Computer Graphics Ltd., 285 ITR 84, where it was held that conversion of jumbo rolls into marketable small sizes was not manufacture. He also relied on the decision of the Hon'ble Supreme Court in the case of Sacs Eagles Chicory vs CIT, 255 ITR 178, where it was held that mere crushing of chicory roots into chicory power cannot be a manufacturing process. He further relied on the decision in the case of Indian Hotels Co. Ltd & Others vs ITO & Others, 245 ITR 538, where the Hon'ble :- 9 -: I.T.A.No. 1523/10 Supreme Court held that the preparation of food does not amount to manufacture.
11. The A.R, on the other hand, submitted that the raw material of the assessee's industry are black gram and green gram and the finished product is dal. He submitted that green gram and black gram also known as chana are distinct and different commodity from dal which is also known as pulses. When a person goes to the market to purchase chana (gram) no shopkeeper will offer him dal (pulses). Both are two different commercial products known in the commercial world by two different names. He relied upon the following decisions ACIT, Bhopal vs M/s Shree Janki Overseas Pvt. Ltd, in I.T.A.No. 217/Ind/2011, order dated 27.2.2012 Mitesh Trading Co. vs ITO, in I.T.A.No. 1299/Ahd/2007, order dated 12.03.2010 CIT vs Oracle Software India Ltd, 320 ITR 546 (SC) and submitted that the order of the CIT(A) is supported by these decisions.
12. We find that the Revenue has brought no material before us to show that chana (gram) and dal (pulses) are same product and are not recognized as different products in the commercial world. None of the decisions relied upon by the DR shows that pulses and grams are :- 10 -: I.T.A.No. 1523/10 same product. Thus, the decisions relied upon by the DR are found to be distinguishable and not applicable to the facts of the instant case. However, it is observed that the decision in the case of Aspinwall & Co. Ltd. vs CIT (supra) supports the case of the assessee as it is observed that pulses are not commercially recognized as gram and pulses are recognized as a new commodity.
13. Further we find that the Hon'ble Supreme Court in the case of India Cine Agencies vs CIT , 308 ITR 98(SC), has held that cutting of jumbo rolls of photographic films into small flats and rolls of desired sizes is production within the meaning of sections 80HH and 80-I.
14. Further in the case of Sacs Eagles Chicory vs CIT (supra), relied upon by the DR, the Hon'ble Supreme Court has found that on conversion of chicory roots into chicory powder only form of commodity is changed and not its identity as chicory remains chicory. In contrast to this, in the instant case, we find that a new commercial product known as dal emerged on consumption of gram. Therefore, the said decision is found to be distinguishable.
15. The next decision relied on by the DR was in the case of Indian Hotels Co. Ltd. & Others vs ITO & Others (supra) wherein it was held that the process of cooking is not manufacturing as raw :- 11 -: I.T.A.No. 1523/10 material and finished goods are known by the same name. In the instant case, it is observed from the processes undertaken by the assessee as detailed in the assessment order that the processes undertaken by the assessee cannot be called a process of cooking only and further green gram and black gram are commodity different from the end product which is known as pulses.
16. We find that in the case of CIT vs Oracle Software India Ltd. (supra), the Hon'ble Supreme Court has held that duplicating process carried out to prepare a recorded CD from the master media changes the basic character of a blank CD, dedicating it to a specific use, constitutes manufacture in terms of section 80IA(12)(b) of the Act.
17. Further, the Ahmedabad Bench of the Tribunal in the case of Mitesh Trading Co. vs ITO (supra) also held that the process of converting raw urad into urad dal was manufacturing activity and assessee was entitled to deduction u/s 80IA of the Act. Similarly, the Indore Bench of the Tribunal in the case of ACIT, Bhopal vs M/s Shree Janki Overseas Pvt. Ltd.,(supra), after taking into consideration the decision of the Hon'ble Supreme Court in the case of ITO vs Arihant Tiles & Marbles PVt. Ltd, 320 ITR 79(SC), CIT vs Oracle Software India Ltd., 320 ITR 546(SC)and various other decisions reported in that order, came to the conclusion that manufacture of dal out of gram, :- 12 -: I.T.A.No. 1523/10 moong, urad, masur, etc. was a commercially new and distinct end product and therefore, amounts to 'manufacture' and the assessee was entitled to deduction u/s 80IB(3)(ii) of the Act
18. In view of the above, and respectfully following the above quoted decisions of the Tribunal, we do not find any good and justifiable reason to interfere with the order of the CIT(A). It is confirmed and the grounds of appeal of the Revenue are dismissed.
19. In the result, the appeal of the Revenue is dismissed.
Order pronounced on Friday, the 07th of December, 2012, at Chennai.
Sd/- Sd/-
(VIKAS AWASTHY) (N.S.SAINI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 07th December, 2012
RD
Copy to: Appellant/Respondent/CIT(A)/CIT/DR