Gujarat High Court
The Commissioner Of Income Tax-Ii vs Hynoop Food & Oil Ind. ... on 4 July, 2016
Author: Ks Jhaveri
Bench: Ks Jhaveri, G.R.Udhwani
O/TAXAP/683/2008 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 683 of 2008
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE KS JHAVERI Sd/-
and
HONOURABLE MR.JUSTICE G.R.UDHWANI Sd/-
================================================================
1 Whether Reporters of Local Papers may be allowed to see Yes
the judgment ?
2 To be referred to the Reporter or not ? No
3 Whether their Lordships wish to see the fair copy of the No
judgment ?
4 Whether this case involves a substantial question of law No
as to the interpretation of the Constitution of India or any
order made thereunder ?
================================================================
THE COMMISSIONER OF INCOME TAX-II....Appellant(s)
Versus
HYNOOP FOOD & OIL IND. LTD.....Opponent(s)
================================================================
Appearance:
MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1
RULE SERVED for the Opponent(s) No. 1
================================================================
CORAM: HONOURABLE MR.JUSTICE KS JHAVERI
and
HONOURABLE MR.JUSTICE G.R.UDHWANI
Page 1 of 8
HC-NIC Page 1 of 8 Created On Fri Jul 08 23:59:49 IST 2016
O/TAXAP/683/2008 JUDGMENT
Date : 04/07/2016
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE KS JHAVERI)
1. By way of this Appeal, the Appellant has challenged the judgment and order dated 08.12.2006 of the Income Tax Appellate Tribunal, Ahmedabad Bench 'C' in ITA No.1432/Ahd/2000 for Assessment Year : 1994-1995.
2. While admitting the matter on 30.09.2008, the following substantial question of law was framed by the Court for consideration :-
"Whether on facts and in the circumstances of the case the Tribunal is right in law in holding that the assessee was engaged in manufacturing activities for being entitled to deduction u/s 80HH and 80I of the Income-Tax Act, 1961?"
3. Learned Counsel for the appellant has drawn the attention of this Court to the decision in the case of Commissioner of Income Tax v. Hynoup Food & Oil Industries in Tax Appeal No.1091/2005 Page 2 of 8 HC-NIC Page 2 of 8 Created On Fri Jul 08 23:59:49 IST 2016 O/TAXAP/683/2008 JUDGMENT dated 20.07.2011 and relevant paragraphs of the said decision reads as under :-
4. As the question no.(C) is repetitive in nature and for many assessment years in case of this very assessee, same issue has been cropping up, same is firstly dealt with in the present appeal. At the outset it needs to be stated that other Tax Appeals in case of this very assessee have been dealt by this Court. One such tax appeal being Tax Appeal No.10/2001 where identical issue is decided by this Court in the following manner :
"9. Quite apart from the above observations, we find that the tribunal had examined the materials on record which included the data of the turnover, Gross Profit rate and process loss for several years. It was found that year after year, the Gross Profit rate of the assessee company was increasing. Process loss was fluctuating between a minimum of 1.9% to maximum of 3.05%. The tribunal also observed that the product manufactured by assessee is refined cotton seed oil which is obtained from refining raw cotton seed oil which is in turn obtained from crushing cotton seed by ginning factories. Cotton seed is an agricultural commodity. The quality of cotton seed would certainly impact the raw cotton seed oil and Page 3 of 8 HC-NIC Page 3 of 8 Created On Fri Jul 08 23:59:49 IST 2016 O/TAXAP/683/2008 JUDGMENT consequently refined cotton seed oil. Quality of raw material would depend on several factors such as rainfall, quality of soil and other such factors. It was also noted that if the raw cotton seed oil is obtained from crushing of inferior quality of cotton seed, then the process loss was likely to be higher, but Gross Profit rate may go up since the assessee may have purchased the raw material at a cheaper rate. Tribunal also noted that there were instances where though process loss was high, Gross Profit rate was also high compared to other years. Tribunal noted contention of the assessee that the production recorded and maintained by the assessee were being checked and supervised by the Food and Civil Supply department of the Government. Periodic reports and returns were submitted by the assessee. No irregularities were noticed. Tribunal also relied on the report of one M/s. Vulcl laval, supplier of machinery to the assessee for manufacturing of refined cotton seed oil who had stated that process loss is typically found depending on the quality of raw cotton seed and functioning of the plant and would normally range between 2.65% to 4.20%. It can thus be seen that It can thus be seen that the tribunal based its findings on several factors and came to the conclusion that without any evidence or base Page 4 of 8 HC-NIC Page 4 of 8 Created On Fri Jul 08 23:59:49 IST 2016 O/TAXAP/683/2008 JUDGMENT the Assessing Officer could not have held that the process loss claimed by the assessee(in the present case at the rate of 3.05%) was inflated or excessive.
10. We are of the opinion that tribunal has considered the facts on record. Several relevant factors have been examined. These facts included uncertainty of the nature of business and fluctuating nature of process loss. By the very nature of things, the business of assessee depended on quality of cotton seed oil procured from the market. Such cotton seed oil depending on quality of cotton produced being an agricultural commodity, naturally quality would depend on the seeds used, the technique employed by farmers for production, soil, rainfall, irrigation and so on. In absence of any additional material, only on basis of an isolated answer by one of the Directors of the company, the Assessing Officer could not have come to the conclusion that the process loss was artificially inflated. Tribunal had also relied on certificate given by the supplier of machine who stated that typically the process loss ranges between 2.65% to 4.20%.
11. In addition to above, we also notice that in earlier years, orders passed by the tribunal were accepted by the Revenue and not carried in Page 5 of 8 HC-NIC Page 5 of 8 Created On Fri Jul 08 23:59:49 IST 2016 O/TAXAP/683/2008 JUDGMENT appeal.
12. Sum total of above discussion is that we do not find that the decision of the tribunal requires reconsideration. Question No(1) is therefore, answered against Revenue."
5. As nothing is pointed out by the Revenue before this Court to take a different view than already taken in case of this very assessee, the question no.(C) in the present case also is being answered in favour of the assessee and against the Revenue.
6. Question No.(A) relates to entitlement of assessee for direction under Section 32A where the Assessing Officer allowed such deduction by not treating the activities carried out by the assessee as manufacturing activity. CIT(Appeals) allowed the same and the tribunal also confirmed the view of CIT(Appeals).
7. While dealing with the issue tribunal had depended on decision of Apex Court in case of Parshuram Pottery Works Co. Ltd. V.s ITO reported in (1977) 106 ITR 1. Tribunal also relied on the decision of Radhasoami Satsang v. CIT reported in (1992) 193 ITR 321 to conclude that the activity carried on by the assessee was a Page 6 of 8 HC-NIC Page 6 of 8 Created On Fri Jul 08 23:59:49 IST 2016 O/TAXAP/683/2008 JUDGMENT manufacturing activity and the assessee is entitled to deduction under Sections 32A, 80HH and 80I of the Income Tax Act. Tribunal also further relying on decision of the Supreme Court in case of CIT v. Vegetables Products Ltd. reported in (1973) 88 ITR 192 held that where there are two possible views, one which favours the assessee while interpreting the taxing provisions needs to be adopted by the Court and accordingly it held activity of assessee as manufacturing activity.
8. Question no.(B) relates to deletion of addition of 1,05,388/in respect of interest. Same was disallowed by the Assessing Officer on the ground that loans were obtained by the assessee from known existing concerns and cost of assets were inflated. As the loans were concerned fictitious and entries were held to be havala entry, same were therefore, held disallowable under Section 68 of the Act. However,CIT(Appeals) did not agree with the reasonings of the Assessing Officer. In assessee's own case, for the assessment year 1986-1987, very same controversy had arisen where the tribunal had held in favour of the assessee by concurring with the reasonings of CIT(Appeals). On the ground that loans were ultimately obtained, interest were needed to be allowed in the opinion of both the authorities. It in terms held that Page 7 of 8 HC-NIC Page 7 of 8 Created On Fri Jul 08 23:59:49 IST 2016 O/TAXAP/683/2008 JUDGMENT they were not concerned with inflation of assets but with obtaining of loan. This issue was decided by the authorities following its own order of earlier years and moreover, as can be seen from the very tenor, issue is based on facts and with no question of law, muchless substantial question arising, this appeal warrants no interference from this Court. Decision of the tribunal is upheld."
4. Considering the ratio laid down in the above decision and in the facts of the present case, we are of the view that the issue raised in this Appeal is governed by the above decision and hence, the issue is required to be answered in favour of the assessee and against the Department.
Sd/-
(K.S. JHAVERI, J.) Sd/-
(G.R. UDHWANI, J.) CAROLINE Page 8 of 8 HC-NIC Page 8 of 8 Created On Fri Jul 08 23:59:49 IST 2016