Income Tax Appellate Tribunal - Indore
Shree Janki Overseas Pvt. Ltd., Bhopal vs Department Of Income Tax on 2 March, 2009
1
IN THE INCOME TAX APPELLATE TRIBUNAL,
INDORE BENCH, INDORE
BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER
AND
SHRI R.C. SHARMA, ACCOUNTANT MEMBER
ITA No.380/Ind/2009
A.Y. 2005-06
Asstt. Commissioner of Income tax
3(1), Bhopal Appellant
Vs
M/s Shree Janki Overseas Private Limited
Bhopal
PAN -AAHCS-0170-K Respondent
Appellant by : Shri Pradeep Kumar Mitra
Respondent by : Shri M.C. Mehta
with Shri Hitesh Chimnani
O R D E R
PER JOGINDER SINGH, Judicial Member
This is an appeal by the assessee against the order of the learned CIT(A) dated 2.3.2009 on the ground that the learned Commissioner of Income Tax (Appeals) has erred in deleting the addition of Rs.32,01,235/- made by the Assessing Officer on account of disallowance of deduction u/s 80IB(3)(ii).
2
2. During hearing of this, we have heard Shri Pradeep Kumar Mitra, learned Senior Departmental Representative and Shri M.C. Mehta along with Shri Hitesh Chimnani. The crux of arguments on behalf of the revenue is that the no manufacturing is involved as the assessee is merely purchasing whole pulses seeds which are merely broken into pieces with the aid of machinery , therefore, the claim of deduction u/s 80IB(3)(ii) of the Act was rightly denied by the Assessing Officer. It was further submitted that making of Dal from Chana, Tuvar and Masoor is not manufacturing activity and no new item, article or thing is coming into existence, therefore, no manufacturing is involved. Reliance was placed upon the decision in Acqua Minerals Private Limited v. DCIT; 96 ITD 417 (Ahd) and DXN Hurbal Manufacturing (India) Private Limited v. ITO (110 ITD 99 (Chennai), CWT v. Devasahayam; 236 ITR 885 (Mad), CIT v. Gem India Mfg. Co.; 249 ITR 307 (SC) and CIT v. Relish Foods; 237 ITR 79 (SC).
3. On the other hand, the crux of arguments on behalf of the assessee is that a highly specialized process with the aid of machinery is involved for manufacturing of Dal out of gram, moong, urad, masur, etc. as commercially new and distinct end product comes into existence. The ld. Counsel for the assessee also invited our attention to the process involved for which our attention was invited to page 3 (para D) of the impugned order. The ld. Counsel for the assessee also relied 3 upon the cases which have been dealt with in the impugned order especially pages 5 to 7. Further reliance was placed upon the decision in ITO v. Arihant Tiles & Marbles Private Limited; 320 ITR 79 (SC), CIT v. Oracle Software India Limited (2010) 320 IR 546 (SC) along with the decision of the Tribunal in the case of ITO v. Kamal Kumar Agrawal (ITA No. 170/Ind/2003) and ITA No. 4/Ind/2006 order dated June 8, 2007.
4. We have considered the rival submissions of ld. representatives of both sides and perused the material available on record. Brief facts are that the assessee is a registered SSI Unit for the manufacturing of different kinds of Dals with the annual manufacturing capacity of 7920 MT and 1080 MT for Churi/Chhilka, claimed deduction u/s 80IB(3)(ii) of the Act as a small scale undertaking. Basically, the assessee is claiming of manufacturing Dal from Chana, Tuar, Masoor, etc. The learned Assessing Officer denied the claimed deduction on the plea that no manufacturing is involved in the process adopted by the assessee as no new article or thing is coming out of the activity carried out by the assessee. On appeal, the learned Commissioner of Income Tax (Appeals) decided the appeal in favour of the assessee which is in challenge before the Tribunal by the revenue.
5. Before coming to any conclusion, we are reproducing hereunder the activities done by the assessee and the process of manufacturing :- 4
(i) As regards industrial activities of the appellant it is submitted that they manufacture Pulses which are either article or things in its manufacturing unit from whole grams or Moong or Urad or Masoor etc. in a huge power operated plant and machinery and in an industrial building. This is definitely an industrial activity. This activity (Pulses manufacturing) involves following manufacturing processes :
(1) Mixing (Pala) & weighing - Mixing is making a batch of a particular quantity of whole seeds of various produce purchased from various suppliers. (2) Grading and Sorting- This is done with the help of a specially made machine. This process is de-stoning process. In this process Clay, Stones pieces and other foreign materials etc are recovered from seeds.
(3) Watering & Oiling - In this process cleaned raw materials is made wet with water and oil. This process needs skill and knowledge. Wrong quantity of water & oil may spoil entire batch. This process is performed by skilled and experienced workers and also is supervised by senior experienced staff. 5 (4) Drying - In this process Oiled and watered batch is kept for drying for about 24 hours. (5) De-husking - This process is main milling process and in this process cover of gram, masoor, etc. is removed. This is done with the help of a plant consisting rollers and elevators etc. In this process approximately 50% of de-husking is done. (6) Repetition of process no. 3, 4 and 5 is done again to 100% de-husking.
(7) Splitting - This also a Milling process and in this process de-husked material is broken to pulses. This process also needs skill, knowledge and experience. (8) Drying - Pulses are then sent to machine dryers for drying. Sometimes Sun drying is also done. (9) Sorting - This is an important process. This is done with the help of a machine called 'SORTEX MACHINE'. This process removes un-husked seeds and also stones any foreign material, sub-standard dal etc. It up grades quality of the product. It sorts equal size of pulses and removes churi (small and broken pieces). This is a by product generated out of the manufacturing process. For this purpose, the 6 assessee uses specially imported machine from Japan and are fully automatic and computer operated.
(10) Polishing - This is again a machine process and pulses are polished with the help of oil, powders and brushing is done. This process is 'Value Addition' process.
(11) Storing in tanks - This is done with the help of elevators and storage is done in huge of tanks. (12) Weighing and Packing - As per the requirement of foreign and domestic buyers packaging of required size and weight and specification is done using different type of packing materials e.g. Jute bags, HDPE bags, polythene bags, Pre-printed bags, etc. Tagging and batch printing, expiry and other legal requirements of printing, packaging and food grades etc. are met at this stage.
In the light of the aforesaid process, now the question arises whether the process amounts to manufacturing ?
6. If the totality of facts are analysed, we are convinced that if the raw material undergoes through the aforesaid process then a new and distinct commercial end product comes into existence, meaning thereby 7 that the whole grams/Chana/Masoor/Urad, etc. is converted into Dal with the aid of power of power operated plant and machinery and a commercial different product comes into picture. If we go to the seller and ask for Dal, he will not give us whole grams. The use of whole gram and end product (Dal) is different. The word 'industry' has a wide import. Where there is a systematic and organized activity with the cooperation between the employer and employee (the direct and substantial element is commercial) for the production/or distribution of services and goods calculated to satisfy human wants and wishes (not spiritual and religious but inclusive of material things or services geared to celestial bliss i.e. easy making on a large scale Prasad or food) prima facie, there is an "industry" in that enterprise. The true focus is functional and the decisive test is the nature of activity with special emphasis on the employee employer relations. A provision in the taxing statute granting incentive for promoting and development should be construed liberally. Manufacture and processing are not clearly demarketing fields. The test of manufacture lies in the answer to the question whether what is processed or produced as the end product is commercial known as a different product from the materials out of which it is so produced. Therefore, if the product has a different name and is identified by the byers and sellers as a different product and is bought and sold as a distinct product from its raw material, one can say that it is 8 a manufactured product. There may be some room for debate as to whether this test is fully satisfied by edibles that come as end products from the raw materials out of which they are made. But the expression "produce" has to be taken in a more liberal sense than manufacture. If the end product is different, that by itself would suffice to meet the requirement of producing. For granting deduction u/s 80IA the department is expected to study the actual process undertaken by the assessee. Section 80IA comes in Chapter VIA. That chapter in any way is a Code by itself. It provides for special deductions.
7. Our aforesaid observation can also be understood with the help of various judicial pronouncements. Since it is the appeal of the revenue, therefore, we tend to discuss the cases relied upon by the learned CIT DR. In the case of CWT v. Devasahayam (supra) the Hon'ble Madras High Court has deliberated upon the meaning of industrial undertaking wherein there was preparation of sweetmeats and biscuits which were held to be not manufacturing. In the case of CIT v. Gem India Mfg. Co. the Hon'ble Apex Court with respect to deduction u/s. 80I held that cutting and polishing uncut raw diamonds does not amount to manufacture or production. Likewise, in the case of CIT v. Relish Food with respect to deduction u/s 80HH, the assessee was engaged in peeling and freezing of shrimps. Since there was no essential difference between raw shrimps and frozen shrimps it was held that the assessee 9 was not entitled to special deduction. In the case of Aqua Minerals Private Limited for the production of demineralised water it was held that there is no manufacturing within the meaning of section 80I. Likewise in the DXN Herbal Mfg. (India) (P) Limited, filing of mushroom power in gelatin capsules to make it fit for marketing it was held that it is merely a process which does not amount to manufacture or production of any commercially distinct commodity so as to fulfill conditions stipulated u/s 80IB of the Act.
8. In later decision the Hon'ble Apex Court in Arihant Tiles & Marbles Private Limited (2010) 320 ITR 79 (SC) order dated 2nd December, 2009, Sawing Marble Blocks into slabs and tiles and polishing it was held that it amounts to manufacture or production within the meaning of section 80IA(2)(iii) of the Act. It is pertinent to mention here that while coming to this conclusion, the Hon'ble Apex Court applied the decision pronounced in CIT v. Ses Goa Limited; 271 ITR 331 (SC) and CIT v. N.C. Budhiraja & Company; 204 ITR 412 (SC) and distinguished the decision in Rajasthan State Electricity Board v. Associated Stone Industries (2000) AIR 2000 SC 2382 and Aman Marble Industries Private Limited Vs. Collector of Central Excise (20030 157 ELT 393 (SC) and affirmed the decision from Hon'ble Rajasthan High Court in Arihant Tiles & Marbles Private Limited vs. ITO; 295 ITR 148.
The decision in CIT v. Best Chem & Lime Stone Industries Private 10 Limited; 210 ITR 883 (Raj) and CIT v. Mysore Minerals Limited; 250 ITR 725 (Karn) along with others were considered. In another case the Hon'ble Apex Court in CIT v. Oracle Software India Limited (2010) 320 ITR 546 held that duplication of blank CD with master media amounts to manufacture, therefore, the deduction u/s 80IA of the Act is available to the assessee. While coming to this conclusion, the Hon'ble Apex Court relied upon the decision in Tata Consultancy Services Vs. State; 271 ITR 401, United States vs. International Paints Company (35 CCPS 87, CAD 76) and Gramophone Company of India Limited v. Collector of Custom; 114 ELT 770 (SC) and affirmed the decision of the Hon'ble Delhi High Court in 293 ITR 353. In another case the Hon'ble Apex Court in India Cine Agencies Vs. CIT; 308 ITR 98 (SC) wherein the jumbo films were converted/cut into small flat rolls of desired size were held to be production within the meaning of section 80HH and 80I of the Act. While coming to this conclusion, the Hon'ble Court reversed the decision of Hon'ble Madras High Court in India Cine Agencies; 261 ITR 491 and CIT v. Computer Graphics Limited; 285 ITR 84 and considered the decision in CIT v. Singareni Colleries Company Limited; 221 ITR 48 (AP) (para 9), CIT v. Univmine Private Limited; 202 ITR 825 (Del) (para
9), CIT v Venkateswara Hatcheries; 237 ITR 174; Empire Industries Limited v. Union of India; 162 ITR 846 (SC), India Cine Agencies; 261 ITR 491 (Mad), Khalsa Brothers Vs. CIT; 217 ITR 185 (Cal), Kores India 11 Limited (2005); 1 SCC 385 among others. The Chandigarh Bench of the Tribunal in the case of Smt. Kusum Prop. Kapoor Stone Crusher (ITA No.1057, 725, 745/Chd/2008) order dated 31.3.2009 and Pawan Singh M/s. Mahadev Stone Crushers (ITA No.866 to 868/Chd/2008) dated 31.12.2008 on the allowability of deduction u/s 80IA held that it amounts to manufacture. Conversion of natural latex into preserved latex was held to be manufacturing and thus entitled to deduction u/s 80HH by the Hon'ble Kerla High Court in CIT vs. Kanam Latex Ind. P. Ltd. (221 ITR
1) (Ker). Likewise, the Hon'ble Madras High Court in CIT vs. M.R. Gopal (58 ITR 598) (Mad) held that conversion of boulders into stones amounts to manufacture. Likewise, in CIT vs. TATA Locomotive & Engg. Co. Ltd. (68 ITR 325) (Bom) held that assembling bus/truck from imported parts amounts to manufacture/production. Even book publishing by Hon'ble Calcutta High Court in addl. CIT vs. A. Mukharji & Co. (113 ITR 718) was held to be manufacturing. The Hon'ble Karnataka High Court in CIT vs. Darshak Ltd. (247 ITR 489) held that conversion of plain glassware into decorative glassware amounts to manufacture and thus eligible for deduction u/s 80I. The Hon'ble Apex Court in Vijay Ship Breaking Corporation Vs. CIT (175 Taxman 77) held that ship breaking activity result into production of a distinct and different article and thus entitled to deduction u/s 80HH and 80I of the Act. The Hon'ble Bombay High Court in Ship Scrap Traders vs. CIT (251 ITR 806) applied the 12 yardsticks adopted by Hon'ble Apex Court in the case of CIT vs. N.C. Buddhiraja & Co. (204 ITR 412) clearly held that the assessee is entitled to deduction u/s 80HH & 80I. The Hon'ble Madras High Court in CIT vs. Premier Tobacco Packers P. Ltd. (284 ITR 222) held that even tobacco curing is commercially different commodity. The Hon'ble Gujarat High Court in CIT vs. Prabhudas Kishordas Tobacco Products (154 Taxman
404) (Guj) held that bidi manufacturing amounts to manufacturing. The Hon'ble Allahabad High Court in CIT vs. Shiv Oil & Dal Mill (153 Taxman
27) (All) held that refining of oil amounts to manufacturing. The processing of film and printing photographs from negatives was held to be manufacturing activity by Hon'ble High Court of Madras in CIT vs. Jamal Photo Industries (I) (P) Ltd. (203 CTR 256). In another case in CIT vs. Vinbros & Co. (2009) (177 Taxman 217) (Mad) held that blending of liquor amounts to manufacturing and thus entitled to deduction u/s 80IB. In CIT vs. Maheshchandra Sharma (2009) (178 Taxman 22), the Hon'ble P & H High Court held that assembling of parts amounts to manufacture or production. The Hon'ble Madras High Court in CIT vs. Balaji Hotels & Enterprises (311 ITR 389) held that printing of paper labels constitute manufacturing so as to entitle the assessee to claim deduction u/s 80IA. The Hon'ble Apex Court in CIT vs. Emptee Poly Yarn P. Ltd. (2010) (188 Taxman 188) held that twisting and 13 textrising of partially oriented yarn (POY) by using thermo mechanical process amounts to manufacture in terms of sec. 80IA of the Act.
9. If the aforesaid judicial pronouncements are kept in juxtaposition with the facts of the present appeal specifically the involvement of manufacturing process as we have discussed in para 5 (supra), we are of the considered opinion that assessee is producing a new and distinct commercially end product from its raw material, therefore, the assessee is entitled to deduction u/s 80IB(3)(ii) of the Act, therefore, we find no infirmity in the stand of the ld. CIT(A). Thus, this appeal of the Revenue is dismissed.
Order pronounced in open Court on 2nd March, 2011.
(R.C.SHARMA) (JOGINDER SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 2nd March, 2011
Copy to: Appellant, Respondent, CIT, CIT(A), DR, Guard File Dn/-
14