Income Tax Appellate Tribunal - Hyderabad
3F Oil Palm Agrotech Private Limited, ... vs Income Tax Officer, Ward-2(4), ... on 14 June, 2019
ITA Nos 1579 1580 of 2016 and 132 of 2018.
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad ' B ' Bench, Hyderabad
Before Smt. P. Madhavi Devi, Judicial Member
AND
Shri S.Rifaur Rahman, Accountant Member
ITA Nos.1579, 1580/Hyd/2016 & 132/Hyd/2018
(Assessment Years: 2012-13 to 2014-15)
3F Oil Palm Agrotech Vs Asstt. Commissioner of
Private Limited, Hyderabad Income Tax, Circle 2(2)
PAN: AAACZ4451H Hyderabad
(Appellant) (Respondent)
For Assessee : Shri P. Murali Mohana Rao
For Revenue : Shri Nilanjan Dey, DR
Date of Hearing: 20.03.2019
Date of Pronouncement: 14.06.2019
ORDER
Per Smt. P. Madhavi Devi, J.M.
All these three appeals are filed by the assessee against the orders of the CIT (A) for the A.Ys 2012-13, 2013-14 & 2014-15 respectively.
2. Brief facts of the case as seen from the assessment order for the A.Y 2012-13, are that the assessee company is engaged in the business of manufacturing and trading of edible oil products. For the relevant A.Y, the assessee filed its return of income in which, the assessee had claimed deduction u/s Page 1 of 31 ITA Nos 1579 1580 of 2016 and 132 of 2018.
80IB(11A) of the Act. During the assessment proceedings u/s 143(3) of the Act, the A.O observed that the deduction u/s 80IB(11A) of the Act does not mention anything about manufacturing and trading of edible oil products. Therefore, the A.O asked the assessee to furnish the details of deduction claimed by it under Chapter-VIA. The assessee filed detailed submissions as to how the palm oil is extracted from fresh fruit bunches of oil palm plantations, the different processes involved therein and claimed that the assessee company is engaged in the business of processing, preservation and packaging of Oil extracted from Oil Palm fruits and therefore, is eligible for deduction u/s 80IB(11A) of the Act.
3. The AO observed that u/s 80IB(11A) of the Act, profits from the business of processing, preservation and packaging of fruits, vegetables, meat and meat products or poultry and dairy products and profit from the integrated business of storage and transportation of food grains alone are eligible. He observed that since the assessee is sourcing the oil palm fruits and after pressing the same, Palm Oil is extracted and that the residue after extraction is only palm fibre which is not usable or consumable, the question of preservation and packaging of fruits does not arise in the case of the assessee. He held that the nomenclature of Page 2 of 31 ITA Nos 1579 1580 of 2016 and 132 of 2018.
fruits given to 'oil palm' alone cannot make the assessee eligible for deduction u/s 80IB(11A) of the Act. He held that what is allowable is the profit derived from the business of processing preservation and packaging of fruits.
4. He held that pressing the fruits and getting the oil therefrom cannot held to be processing and preservation of fruits. He also considered the decision of the Authority for Advance Ruling (AAR) in the case of Delna Rustum Boyce Inre reported in (2009) 185 Taxmann 180 (Del.) relied upon by the assessee and held that such a ruling does not have the precedential value and that it is applicable only to the particular assessee who has approached the Authority and not to all others. He further held that the intention of the crushing of oil palm is not for preservation of oil palm but it is to extract the oil therefrom and therefore, it does not fall under the process of preservation as mentioned in Sec. u/s 80IB(11A) of the Act. Further, with regard to the word "packaging" he held that the crude palm oil is stored in tanks and that it is impossible to perceive as to how storing in oil tanks amounts to packaging of fruits. As regards the assessee's contention that oil palm is being processed, the AO considered the official website of Agriculture and Process Food Products Export Development Authority (APEDE), Ministry of Page 3 of 31 ITA Nos 1579 1580 of 2016 and 132 of 2018.
Commerce, Govt. of India to observe that the palm oil is not in the list of processed foods. He accordingly disallowed the claim of deduction u/s 80IB(11A) of the Act. Aggrieved, the assessee preferred an appeal before the CIT (A) who confirmed the order of the AO and the assessee is in second appeal before us by raising the following grounds of appeal:
"I. The Learned CIT (A) has erred in upholding the order of the A.O. when the A.O had wrongly made disallowance of deduction claimed u/s. 80IB (I lA) of the Income tax Act.
2. The Learned CIT (A) erred in upholding that the appellant company is involved in the business of manufacturing and trading of edible oil products whereas the overwhelming evidence submitted and explanation offered to establish that the appellant is in the business of possessing of palm oil.
3. The Learned CIT (A) erred in not considering that appellant company is in the business of processing of fresh fruit bunches by way of crushing and extracting crude palm oil.
4. The Learned CIT (A) erred in ignoring the fact that the company purchases fresh fruit bunches of palm fruits from the farmers which are considered as fruits, in terms of common parlance and commercial substance.
5. The Learned CIT (A) erred in not considering the fact that the palm fruit contains mesocarp, from which oil is extracted, which similar to mango pulp of the mango fruit and hence partakes the nature and character of fruit.
6. The learned CIT (A) erred in not understanding the nature of the business activity carried on by the Appellant and erroneously held it is manufacture of edible oil.
7. The Learned CIT (A)erred in not appreciating that the primary business activity of the appellant company is to press and extract the oil out of the Palm fruit which similar to the activity of extracting mango pulp or mango juice from mangoes and does not result in a new; produce to be called a " Manufacturing activity"
8. The Learned CIT(A) erred in not appreciating that the Mill division of the appellant company subjects the FFB's to different activities such as sterilization, stripping, oil purification drying etc which run Page 4 of 31 ITA Nos 1579 1580 of 2016 and 132 of 2018.
as continuous process, resulting in extraction of palm oil, which is squarely covered under the activity of processing as explained in judicial decisions
9. The learned CIT(A) has misdirected himself by referred to the list of processed food as appearing in Agricultural & Processed Food Products Export Development Authority (APEDA) website, ignoring the fact that APEDA deals with scheduled products and does not apply to palm fruit oil.
10. Interest under section 234 Band 234C:
The learned CIT (A) erred in not directing the A.O to charge the interest as per provisions of section 234 Band 234 C of the Income tax.
11. The appellant craves leave to add, to alter or amend all or any of the above-state grounds of appeal".
5. The learned Counsel for the assessee filed detailed written submissions and placed reliance upon various decisions in support of his contention. The case of the assessee is that the oil palm fruits are grown on trees and are referred to as fresh fruit bunches (FFB's in short) and as they are highly perishable fruits, they have to be processed and the extract is in the form of oil and to avoid formation of radicals, it is preserved at a particular temperature. According to the learned Counsel for the assessee, the Govt. of Andhra Pradesh has identified 'oil palm' as a 'fruit' u/s 28 of the A.P. Oil Palm (Regulation of Production & Processing) Act of 1993. 'Oil palm fresh fruit bunch' is defined as a fruit and includes its loose form also. The learned Counsel for the assessee also referred to the Indian Accounting Standard Page 5 of 31 ITA Nos 1579 1580 of 2016 and 132 of 2018.
41 on Agriculture wherein "Oil Palm" is defined as "Picked Fruit"
and the products that are the result of processing after harvest is "Palm Oil". He also referred to the Andhra Pradesh Food Processing Policy issued by the Govt. of Andhra Pradesh wherein at page 174, the "Oil Palm" is defined under the head "Fruit" and in the said policy, the Govt. of A.P. highlighted income tax deduction u/s 80IB(11A) of the Act as an incentive to grow oil palms. He submitted that after reading the above, there is no doubt that the oil palm 'fresh fruit bunches' are nothing but 'fruits' which are grown on the oil palm trees. He countered the main objection of the AO that the activities involved in the conversion of oil pam fresh fruit bunches into palm oil are not processing, preservation and packaging and took us through the processes carried on by the assessee for converting fresh fruit bunches into the palm oil. The assessee in its paper book at Pages 107 to 112 has produced the flow chart of various processes to show that the assessee company sows the seeds from the domestic and international market and sows the same in the nursery managed and operated by it and subsequently sells one year old saplings from the nursery to identified farmers at a subsidized rate (which is reimbursed by the Govt. at a fixed rate in the form of subsidy to the assessee), who in turn plants the Page 6 of 31 ITA Nos 1579 1580 of 2016 and 132 of 2018.
saplings in their land. Once the palm and fresh fruit bunches are grown, the same are harvested by the farmers and sold to the company at a fixed price which are again mashed for extraction of oil and the assessee sells the same. He explained the various processes involved in this activity. It is submitted that after collection of fresh fruit bunches, they are transferred to fruit cages and the cages are then moved into a sterilizer in the rotating drums. Thereafter, they are stripped and pressed and the oil is extracted and filtered through oil mesh and such oil is separated from water and stored in tanks. Another byproduct of the processing is Palm Kernel and the cracked mixture, which consists of kernels and shells, which is then processed again to separate the shells from kernels. This is done in air columns and by a water bath in a hydro-cyclone. The shell is sent to the boiler house to be used as fuel while the kernels are dried in a silo and then packed in bags for sale. It is submitted that other factories extract oil from the kernel also.
6. As regards the preservation and packaging is concerned, it is submitted that oil has to be preserved in tanks at a temp. of 50 degree Celsius. It is submitted by the assessee that the packaging can be done in any form either in boxes or cans/tins or tanks and since the assessee is manufacturing and Page 7 of 31 ITA Nos 1579 1580 of 2016 and 132 of 2018.
processing oil in large quantity, it is preserved in large tanks and therefore it cannot be held that it does not amount to packaging.
In support of his contention that such processes are also eligible for deduction u/s 80IB(11A), the learned Counsel for the assessee had relied upon the decision of the AAR in the case of Delna Rustum Boyce Inre (cited Supra).
7. The learned DR supported the orders of the authorities below and also filed written submissions and raised an argument under Rule 27 of ITAT Rules that the assessee, does not satisfy the basic conditions u/s 80IB of the Act, i.e it is formed by demerger and therefore, is not eligible for deduction u/s 80IB(11A) of the Act. The learned DR further, submitted that the assessee is only pressing the fruits and extracting the oil which cannot be considered as processing and as the assessee itself had stated before the AO that once the oil is extracted, it does not require preservation as palm oil is a very durable commodity and requires very little or no preservation, it cannot be said that preservation is involved. He also referred to the packaging done by the assessee and relied upon the order of the AO to hold that the palm oil is not in the list of processed fruits and it is not the intention of the Legislature to promote oil industry by giving Page 8 of 31 ITA Nos 1579 1580 of 2016 and 132 of 2018.
deduction u/s 80IB(11A) of the Act. He also relied upon the following case law in favour of his argument:
1. M/s Motipur Zamindari Co. (P) Ltd. Vs. The State of Bihar, 1962 AIR 660 (SC);
2. Ramavatar Budhaiprasad Vs. Asst. Sales Tax Officer, Akola, 1961 AIR 1325;;
3. P.A Thillai Chidambara Nadar Vs. State of Tamil Nadu, AIR 1958 SC 1644.
8. The learned Counsel for the assessee objected to the argument raised by the Revenue under Rule 27 stating that the said rule is applicable only where a decision has been taken by the CIT (A) on an issue against the respondent before him and the Revenue has not filed any cross appeal / cross objection against the order of the CIT (A) on the issue decided against them. Since there was no finding either by the AO or the CIT (A) on the issue now raised by the revenue under Rule 27, it cannot be raised before the ITAT under Rule 27. He further submitted that the Revenue cannot raise an objection which was not raised by the AO in an appeal filed by the assessee before the ITAT. Therefore, he prayed for the rejection of the Revenue's objections about the allowability of deduction u/s 80IB(11A) on the ground that the assessee is not eligible for such deduction at all.
9. Having regard to the rival contentions and the material on record, we find that the basic grievance of the assessee is that Page 9 of 31 ITA Nos 1579 1580 of 2016 and 132 of 2018.
though it is eligible for deduction u/s 80IB(11A) of the Act, the same has been denied by the AO on an erroneous understanding that the assessee is not involved in the processing, preservation and packaging of fruits. Let us therefore, first consider the provisions of section 80IB(11A) of the Act. The same is reproduced hereunder for ready reference:-
" [(11A) The amount of deduction in a case of 9[an undertaking deriving profit from the business of processing, preservation and packaging of fruits or vegetables or 9a [meat and meat products or poultry or marine or dairy products or] from] the integrated business of handling, storage and transportation of foodgrains, shall be hundred per cent of the profits and gains derived from such undertaking for five assessment years beginning with the initial assessment year and thereafter, twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains derived from the operation of such business in a manner that the total period of deduction does not exceed ten consecutive assessment years and subject to fulfilment of the condition that it begins to operate such business on or after the 1st day of April, 2001.] The following proviso shall be inserted after sub-section (11A) of section 80-IB by the Finance (No. 2) Act, 2009, w.e.f. 1-4-2010 :
Provided that the provisions of this section shall not apply to an undertaking engaged in the business of processing, preservation and packaging of meat or meat products or poultry or marine or dairy products if it begins to operate such business before the 1st day of April, 2009".
10. From a literal reading of the above provisions and to apply the same to the assessee, the assessee must have derived profit from the business of processing, preservation and packaging of 'fruits or vegetables'. Let us therefore examine the applicability of the above provision, and the case law relied upon by both the parties, to the facts of case before us. Page 10 of 31
ITA Nos 1579 1580 of 2016 and 132 of 2018.
11. Section 80IB(11A) of the Act was initially brought into the statue book by the Financial Act of 2001 w.e.f 01.02.2002 by granting deduction in a case of the integrated business of handling, storage and transportation of food grains. By virtue of the Finance Act of 2004, the undertaking deriving profits from the business of processing, preservation and packaging of fruits or vegetables was also brought under the purview sub Sec. 11A of 80IB of the Act w.e.f 01.04.2005. To understand the intention of the legislature, it is pertinent to consider the Finance Minister's speech while introducing the Finance Bill 2004. In para 103 of his speech he had stated as under:
"In order to promote agro-processing industries, I propose to amend Section 80IB of the Act to allow a deduction of 100% for 5 years and 25 % of profits for the next 5 years in the case of new agro-processing industries set up to process, preserve and package fruits and vegetables".
12. In the memorandum explaining the amendments brought in by Finance Bill (No.2 of 2004) it has been explained as under:
"Under the existing provision of Sec. 80IB, deduction is available in respect of profits and gains of undertakings engaged in refining or production of mineral oil, undertakings engaged in developing and building Page 11 of 31 ITA Nos 1579 1580 of 2016 and 132 of 2018.
housing projects and those engaged in the integrated business of handling, storge and transportation of food grains, etc. The agro based industry in the courtry is an important source of employment, especially in the rural areas. The Bill, therefore, propose to provide hundred percent deduction for five years and twenty fire percent for the next five years (thirty percent, in the case of a company) from profits derived by undertakings, engaged in the business of processing, preservation and packaging of fruits and vegetables. The deduction is available from the assessment year relevant to the previous year in which the undertaking begins such business".
13. Thus, it is seen that the intention of the Govt. in making the amendment was to grant deductions for promoting agro processing industries. Prior to the amendment the deduction was for promotion of handling, storage and transportation of food grains and by way of the amendment w.e.f 01.04.2005, the Govt. wanted to promote the processing, preservation and packaging of perishable goods such as fruits, vegetables which are also agricultural products.
14. The next question that arises is whether the assessee is dealing with fruits. The Ld. Counsel for the assessee has filed the copy of a photograph of the bunch of fruits on the Palm Oil Plants to demonstrate that these are nothing but fruits and the bunch is called fresh 'fruit bunch'. From the legislation by the Page 12 of 31 ITA Nos 1579 1580 of 2016 and 132 of 2018.
Govt. of AP, in AP Oil Palm Regulation, Production and Processing Act of 1993, Oil Palm is defined as a fruit and even the Indian Accounting Standard -41 on Agriculture, also defined Oil Palm as picked fruit and on the basis of the Act framed by AP for regulation, production of Oil Palm, the Govt of AP has defined Oil Palm under the head fruit under its food processing policy and has also stated the incentive for such processing as the income tax deduction u/s 80IB(11A) of the Act. Thus, it is seen that the state Govt. has understood and accepted the 'fresh fruit bunches' of Oil Palm as fruit only and even the Central Government in the Indian Accounting Standard on Agriculture, has recognized the 'Oil Palm' as 'fruits'.
15. The next question that arises is whether the fruits have to be edible in its raw or ripe form only. The Ld. DR had submitted that the Oil Palm could not be eaten either in raw or ripe form and therefore, it cannot be considered as a fruit. Further, he had also placed reliance upon various case laws which have been cited supra to the effect that only such fruits which are brought to the table as fruits can be considered as fruits. The oldest case referred to by the Ld. DR the case of Ramavtar Budhaiprasad (supra), in which the Hon'ble Supreme Court was considering whether betel leaves were vegetables within Page 13 of 31 ITA Nos 1579 1580 of 2016 and 132 of 2018.
the meaning of Central Provisions and Sales Tax Act of 1947. In the said case, the contention of the petitioner was that u/s 6 r.w Second Schedule of Sales Tax Act, betel leaves were not taxable. Under Section 6 of the Act, articles mentioned in the said schedule were exempt from Sales Tax and articles not mentioned therein were taxable. There were two Items in the schedule, namely Item -6, 'vegetables] and 'item - 36 betel leaves' but subsequently Item - 36 was omitted by an amendment of the Act. The Hon'ble Supreme Court held that the use of two distinct and two different items i.e vegetable and betel leaves and subsequent removal of betel leaves from the schedule were indicative of the legislative intention of not exempting betel leaves from taxation. I was held that the word 'vegetable' must be interpreted not in the technical sense but in it popular sense as understood in common language that is denoting a class of vegetables which are grown in a kitchen garden or in a farm and are used for the table. This judgement was followed by the Hon'ble Supreme Court in the case of M/s Mothipur Zamindari Pvt Ltd (supra). In this case, the case the petitioner was a producer of sugar cane, which according to him green vegetable and was exempt from tax and thus could not be assessed to Bihar Sales Tax Act. The Hon'ble Supreme Court held that the sugar cane was not a green vegetable and was not Page 14 of 31 ITA Nos 1579 1580 of 2016 and 132 of 2018.
exempted under the notification. I was held, that the word 'vegetable' in taxing statue was to be understood as in common practice i.e denoting class of vegetables which are grown in kitchen garden or in a farm and were used for the table. It was held that the dictionaries defined the sugar cane as a grass and not as a vegetable. The Hon'ble Supreme Court in the case of PA Thillai Chidambara Nadar (supra) was considering the case of petitioner who claimed coconut as a vegetable or a fresh fruit and as exempt from levy of sales tax under G.O No.7064 dated 05.04.1960 as amended 22.12.1960 issued under the T.N General Sales Tax Act 1969. The Hon'ble Supreme Court held that the exemption is not available for ripened coconut as it is neither fresh fruit nor a vegetable. The Hon'ble Supreme Court followed its ruling in Indo-International industries Vs. CST reported in AIR 1981 SC 1079, wherein it was held as under:
"It is well settled that in interpreting items in statutes like the Excise Tax Act or Sales Tax Acts, whose primary objects is to raise revenue and for which purpose they classify diverse products, articles and substances resort should be had not to the scientific and technical meaning of the terms or expressions used but to their popular meaning, that is to say, the meaning attached to them by those dealing in them. If any term or expression has been defined in the enactment then it must be understood in the sense in which it is defined but in the absence of any definition being given in the Page 15 of 31 ITA Nos 1579 1580 of 2016 and 132 of 2018.
enactment the meaning of the term in common parlance or commercial parlance has to be adopted".
16. Referring to the above, the Hon'ble Supreme Court held that the coconut would be a fruit in the botanical sense but unless it can be said to a fresh fruit, it will no fall within the exemption notification. It was also held that because it is available in vegetable market, it would not become a vegetable because it cannot be used as a substantial article of fruit on the table. It was held that fresh fruits and vegetables being house hold articles for every day use for the table, they will have to be construed in the popular sense, meaning the sense in which every house holder will understand them.
17. Thus, according to the Ld. DR, the fruits and vegetables have to be understood as understood by a common man and the classification by the Governments as 'fresh fruit bunches' of oil palm, will not cover the term 'fruit' mentioned in Section 80IB(11A) of the Act. However, we find that the all the decisions relied upon by the Ld. DR are relating to exemptions under the sales tax. Whether the interpretation given to the items under sales tax can also be applied to the Income Tax Act is the question before us. The sales tax is levied by the state governments while income tax is levied on the income of the Page 16 of 31 ITA Nos 1579 1580 of 2016 and 132 of 2018.
assessee by the Central Government. The Sales Tax Act defines or specifies items which are exempt from sales tax and has accordingly exempted fruits and vegetables from the levy of sales tax and in some state Acts, has also specified specific fruit or vegetable as exempt from tax. Therefore, the decisions in interpreting the items in Sales Tax may not strictly ipso facto apply to the reference of similar items in Income Tax Act. The intention of the legislature for giving the exemption u/s 80IB(11A) of the Act is to promote agro processing industries as is evident from the Finance Ministers speech and also memorandum explaining the amendments to the bill. There is no doubt that oil palm fresh fruit bunches are agricultural products. They may not be edible in their raw or ripe form, but they extract therefore after processing is edible. The language used in the section itself is processing, preservation and packaging of fruits or vegetables. Thus, the legislature was aware of the fact that certain fruits and vegetables would require processing and preservation for their long shelf-life. As long as the end product is also consumable it cannot be denied exemption u/s 80IB(11A) of the Act. Therefore we are satisfied that the oil palm fruits are fruits u/s 80IB(11A) of the Act.
Page 17 of 31
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18. The next question is whether the assessee satisfies all the three conditions of processing, preservation and packaging. The activity of processing itself means that original article undergoes a change. The change may not only be visible but may also change in its form. The Hon'ble Authority for Advance Ruling in the case of Delna Rustom Boyee (2009) 185 Taxman 180 (Delhi) has considered the decisions of the Hon'ble Supreme Court in the case of Delhi Cold Storage Vs. CIT, [1991] 196 ITR 656 and in the case of Chogle and Company Pvt Ltd. Vs. Union of India, [1981] 7 taxman 71 (SC), to hold that in common language the word 'processing' is understood as an action which brings forth some change or alteration of the goods or material which is subjected to the Act of processing. It was also held that the nature and extent of processing may vary from case to case; in one case, the processing may be slight and in another it may be extensive, but each process suffered, the commodity would experience a change. After considering these judgments, the AAR has held that processing of fruits does not mean that the end product also should be in the form of fruit or in the form of slices only. It was held that the expression should not be confined to minimum process that will not change the identity of the fruit. Let us Page 18 of 31 ITA Nos 1579 1580 of 2016 and 132 of 2018.
therefore examine the applicability of the said decision to the case of assessee before us.
19. In the case of Delna Rustum Boyce Inre reported in (2009) 185 Taxmann 180 (Del.), the AAR was considering the case of an assessee, a non-resident, who proposed to set up and promote a unit to produce fruit-based drink mixes/concentrates derived from fruit juices through various processes involving various steps, such as peeling, extraction of fruit oil, fruit pulping, screening, emulsifying, homogenizing, spray drying, addition of preservatives, color and sweetness and packaging and the said assessee had sought direction from the AAR on the question whether the profit of her proposed undertaking would be eligible for deduction u/s 80IB(11A) of the Act. The AAR, after considering various decisions of the Hon'ble Supreme Court on the word "processing" has held as under:
"10. Processing and preservation are two distinct expressions used side by side. Processing may be for the limited purpose of preservation of fruits without bringing about much change in the form of the fruit. But, 'processing' in the context in which it occurs ought not to be confined only to the operations that would ensure the preservation of fruits as they are or in the form of slices. In other words, the expression should not be confined to minimal processing that would not change the identity of the fruit. If processing and preservation is to be confined only to fruits as such and not to the derivatives from the fruits, the benefit intended to be given to agroprocessing industries will operate in a very limited sphere, thereby defeating the very object of the provision. The extraction of juice and oil from the fruits or further converting the homogenized juice into fruit powder and adding the substances meant for preservation Page 19 of 31 ITA Nos 1579 1580 of 2016 and 132 of 2018.
would legitimately fall within the sweep of the expression 'processing'. The fact that the fruit assumes a different form or that a series of operations are involved in preparing the mixed juices and concentrates which could be preserved for long does not take it out of bounds of processing. Processing in its wider sense would still be aptly applicable.
11. I am therefore of the view that the applicant is entitled to the benefit of deduction contemplated in sub-section (11A) of Section 80- IB and the question has to be answered in the affirmative subject however to the clarification that the conditions laid down in subsection (2) of Section 80-IB should be satisfied. I may add that the Commissioner in his comments has very rightly taken the stand that the profit of the proposed business "seems to be eligible for deduction provided the assessee satisfies the other conditions".
20. This decision was quoted by the assessee before the AO but the AO has held it to be not applicable to the case of the assessee before us by holding that the decision of the AAR is binding only in the case decided by the AAR and not in the other cases.
21. In support of his contention that a decision of the AAR is binding on the Revenue Department, the learned Counsel for the assessee has placed reliance on the following case laws:
i) Director of Income Tax (International Taxation) vs. Dun & Bradstreet Information Services India (P) Ltd reported in (2012) 20 Taxmann.com 695 (Bom.) wherein it was held as under:
"Held that the Authority for Advance Rulings held that the sale of very same business information reports by the subsidiaries of Dun and Bradstreet US in Spain, the Europe and the UK to the assessee did not attract the provisions of section 195. Since the decision of the Page 20 of 31 ITA Nos 1579 1580 of 2016 and 132 of 2018.
Authority for Advance Rulings related to the very same business information reports imported by the assessee and no fault in the decision of the Authority for Advance Rulings was pointed out, there was no reason to interfere with the decision of the Tribunal".
ii) Cyril Eugene Pereira vs. CIT reported in (1999) 105 Taxman 273 (AAR) New Delhi wherein it was held as under:
"52. There is another aspect of this matter. Advance rulings are judgments in personam and not in rem. Section 245S of the Income-tax Act, 1961, lays down as under :
"245S. (1) The advance ruling pronounced by the authority under Section 245R shall be binding only-
(a) on the applicant who had sought it ;
(b) in respect of the transaction in relation to which the ruling had been sought ; and
(c) on the Commissioner and the income-tax authorities subordinate to him, in respect of the applicant and the said transaction.
(2) The advance ruling referred to in Sub-section (1) shall be binding as aforesaid unless there is a change in law or facts on the basis of which the advance ruling has been pronounced."
Thus, Sub-section (2) of Section 245S has limited the binding nature of the ruling to the case of the applicant in respect of the transaction in relation to which the advance ruling is sought and to the Commissioner and authorities subordinate to him only in respect of the applicant and the transaction involved. This is not to say that a principle of law laid down in a case will not be followed in future. The Act has made the ruling binding in the case of one transaction only and the parties involved in that case in respect of that transaction. For other transactions and for other parties, the ruling will be of persuasive nature".
iii) Columbia Sports Wear Company vs. Director of Income Tax, Bangalore reported in (2012) 25 taxmann.com 470 (S.C):
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"9. We also find that the determination of the Authority is not just advisory but binding. Section 245S in Chapter XIX-B is quoted hereunder:
"245S. (1) The advance ruling pronounced by the Authority under section 245R shall be binding only--
(a) on the applicant who had sought it;
(b) in respect of the transaction in relation to which the ruling had been sought; and
(c) on the Commissioner, and the income-tax authorities subordinate to him, in respect of the applicant and the said transaction.
(2) The advance ruling referred to in sub-section (1) shall be binding as aforesaid unless there is a change in law or facts on the basis of which the advance ruling has been pronounced." The binding effect of advance ruling as provided in Section 245S has been dealt with by the Authority (Chairman and two Members) in Cyril Eugene Pereira, In re. [1999] 239 ITR 650] and at page 672 of the ITR, the Authority held:
"Thus, sub-section (2) of section 245S has limited the binding nature of the ruling to the case of the applicant in respect of the transaction in relation to which the advance ruling is sought and to the Commissioner and authorities subordinate to him only in respect of the applicant and the transaction involved. This is not to say that a principle of law laid down in a case will not be followed in future. The Act has made the ruling binding in the case of one transaction only and the parties involved in that case in respect of that transaction. For other transactions and for other parties, the ruling will be of persuasive nature." The Authority, thus, held that the advance ruling of the Authority is binding in the case of one transaction only and the parties involved in respect of that transaction and for other parties, the ruling will be of persuasive nature. The Authority, however, has clarified that this is not to say that a principle of law laid down in a case will not be followed in future. This decision of the Authority in Cyril Eugene Pereira, In re.(supra) has been taken note of by this Court in Union of India & Anr. v. Azadi Bachao Andolan & Anr. [2003] 263 ITR 706 at 742] to hold that the advance ruling of the Authority is binding on the applicant, in respect of the transaction in relation to which the ruling had been sought and on the Commissioner and the income-tax authorities subordinate to him and has persuasive value in respect of other parties. However, it has also been rightly held by the Authority itself that this does not mean that a principle of law laid down in a case will not be followed in future".
22. From the above judgments, we find that though the decision of the AAR is not binding on the persons other than the applicant before it and the department when it is dealing with the case of that applicant, as held by the Hon'ble Supreme Court in the case of Columbia Sportswear Company (cited supra) the Page 22 of 31 ITA Nos 1579 1580 of 2016 and 132 of 2018.
principle and the ratio laid down by the AAR is persuasive in the cases with similar facts. In the case of the assessee before us also, the question involved was whether the extraction of oil from the FFBs of oil palm is processing or not, and the AAR has held similar activity in the case of mango pulp or powder, to be so and hence the principle and ratio of decision of the AAR in the case of Delna Rustum Boyce Inre is, definitely applicable in other similar cases also and we have to hold that the activities carried on by the assessee for extraction of oil from FFB's of oil palm, will amount to processing u/s 80IB(11A) of the Act.
23. The next step involved is preservation and it is submitted by the assessee that since the rate of oxidation of the oil increases, with the temperature of storage, the temperature of the oil is normally maintained around 50 degree centigrade using low pressure stem heating coils to prevent solidification and fractionation. According to him, this activity satisfies the condition of preservation.
24. The meaning and purpose of preservation is, to see that the product does not deteriorate and maintains the required quality and standard. It is not required that all the processes or the steps of preservation, should be complicated. Some items may require the least the steps while, some may require a Page 23 of 31 ITA Nos 1579 1580 of 2016 and 132 of 2018.
complicated procedure. As long as the assessee is maintaining the standards and is taking steps to maintain such standards, it can be said that it satisfies the condition of preservation. The Ld. DR had relied upon the contention of the assessee before the A.O that the crude palm oil requires the least preservation as it is a durable commodity. But this contention of the assessee alone cannot mean that the assessee is not taking any steps for preservation of the oil. It is common knowledge that all items, particularly food items, have an expiry date unless they are preserved in the required conditions. Therefore, we are satisfied that the assessee is also preserving the palm oil extracted from the fresh fruit bunches of oil palm fruits, after the process of 'pressing and extraction of oil'.
25. The third condition to be satisfied is packaging. The assessee is preserving and maintaining the palm oil in large containers / tanks. As rightly pointed out by the learned Counsel for the assessee, packaging can be varied and includes the simple boxes to large container/vessel. Since the assessee is involved in large scale operation, it has to store the extracted oil in tanks. Therefore, we are satisfied that all the three processes necessary for claiming deduction u/s 80IB(11A) are satisfied by the assessee.
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ITA Nos 1579 1580 of 2016 and 132 of 2018.
26. The last objection of the Revenue is that the end product is not a fruit but it is edible oil or kernels and shells which are not consumable goods, and hence it does not satisfy the condition of section 80IB(11A). In the case of Delna Rustum Boyce Inre, the AAR has also held that the end product need not remain in the same form as the raw material. It may be in the form of juice or cut fruits or even oil or powder. As long as the end product is derived from the fruits or vegetables, the assessee is eligible for deduction u/s 80IB(11A) of the Act. In these circumstances, we are satisfied that the oil palm is a fruit and that it undergoes different processes before extraction of oil, and the palm oil is preserved under adjusted temperature and they are packed in large container or tanks and therefore, the assessee is eligible for deduction u/s 80IB(11A) of the Act. The assessee's appeals are accordingly allowed.
27. The objections of the Revenue under Rule 27 of ITAT Rules cannot be entertained because under Rule 27, the respondent can only argue against the order of the CIT (A) on the grounds decided against the Revenue, even though it has not filed an appeal / cross objection.
For the sake of ready reference, Rule 27 of ITAT Rules is reproduced hereunder:
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ITA Nos 1579 1580 of 2016 and 132 of 2018.
"Rule 27 - The respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him".
28. The Ld. Counsel for the assessee had relied upon the unreported decision of Hon'ble Delhi High Court in the case of Divine Infracon Pvt Ltd., in ITA 771 of 2014 and 185 of 2018 dated 30.08.2015 and the decision of ITAT Kolkata in the case of Tongani Tea Co. Ltd., [2018] Taxmann.com 47. The Hon'ble Delhi High Court in the case of Divine Infracon Pvt Ltd., (supra) in paras 11, 12 & 13 of its order has held as under:
11. The aforesaid passages were referred to by a Division bench of this Court in CIT vs. Edward Keventer (Successors) Pvt. Ltd (supra) and the Court further reiterated the principle that a party who has not appealed cannot be permitted to raise a ground, which will work adversely to the appellant.
12. Indisputably, the Revenue could also not take recourse to Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963. By virtue of the said Rule, a respondent before the Tribunal can support the decision appealed against not only on the grounds decided in favour of the respondent but also on grounds decided against it. However, Rule 27 of the said Rules would not extend to permitting the respondent to expand the scope of an appeal and assail the decision on issues, which are not subject matter of the appeal. In CIT vs. Edward Keventer (Successors) Pvt. Ltd (supra), this court had reiterated that "it would not be open to a respondent to travel outside the scope of the subject matter of the appeal under the guise of invoking r 27"
13. The learned counsel for the Revenue has referred to the decision of the Supreme Court in National Thermal Power Corporation Ltd. vs. Commissioner of Income Tax: 229 ITR 383 (SC) in support of the contention that it is open for the Tribunal to consider all questions of law where no investigation into facts are necessary. We find that the aforesaid decision is Page 26 of 31 ITA Nos 1579 1580 of 2016 and 132 of 2018.
wholly inapplicable to the facts of the present case. It is trite law that the Tribunal may, under Section 254(1) of the Act, pass such orders as it thinks fit; nonetheless, the decision must be in respect of the subject matter of the dispute. Indisputably, the Tribunal can examine all questions which relate to the subject matter of an appeal but, once an issue has attained finality and is not a subject matter of the dispute before the Tribunal, it would not be open for the Tribunal to reopen the issue on the pretext of examining a question of law.
29. The Coordinate Bench of this Tribunal, in the case of Tongani Tea Co. Ltd., (cited supra) also considered the scope and ambit of Rule 27 of ITAT Rules at para 11 of its order and has held as under:
The ratio laid down in the various judicial pronouncements as discussed above makes it clear that the scope of Rule 27 of the ITAT Rules, 1963 is limited and the respondent in an appeal before the Tribunal can invoke the said Rule 27 of the ITAT Rules only to support the order appealed against on any of the grounds decided against him and cannot seek any further or more relief than what has been granted to him by the Ld. CIT(A). We therefore, find no mistake in the order of the Tribunal dated 2306.2017 (supra) is not granting such more relief to the assessee by relying on Rule 27 of the ITAT rules. In our opinion, there is thus no mistake much less a mistke apparent from record in the order of the Tribunal dated 23.06.2017 (supra) as alleged by the assessee in the present Miscellaneous Application. We, therefore, dismiss this Miscellaneous Application filed by the assessee being devoid of any merit.
30. Thus, it is clear that there should be a decision taken by the CIT(A) against which the respondent has not appealed, but can argue against the same in an appeal filed against the order of the CIT(A). In the case before us, though the decision is on the Page 27 of 31 ITA Nos 1579 1580 of 2016 and 132 of 2018.
allowability of deduction u/s 80IB(11A), the AO has not considered or decided whether the assessee is eligible for deduction u/s 80IB(11A) because of its formation by demerger.
31. The Ld. Counsel for the assessee had also placed reliance upon the following decisions in support of his contentions that the Revenue cannot extend its scope beyond assessment order and the order of the CIT(A), as it cannot take back the benefit given by the A.O.
1) M/s. Aiswarya K Rai, [2010] 127 ITD 204 (ITAT Mum);
2) Ericsson AB, ITA No. 1735 to 1740 (ITAT Del);
3) Mcorp Global (P) Ltd., [2009] 178 Taxman 347 (SC);
4) Anant Y. Chavan, [2009] 126 TTJ 984 (ITAT Pune); 5) Hukumchand Mills Ltd., [1967] 63 ITR 232 (SC).
32. In the case of Mcorp Global (P) Ltd., (supra) the Hon'ble Supreme Court was considering the case of an assessee, where the A.O in the original assessment had granted depreciation in respect of 42,000 bottles only on the ground that till end of financial year, only 42,000 bottled were received by the assessee and the remaining bottles were received after 31.03.1991. On appeal, the CIT(A) after formulating user test, remanded the matter to the A.O, who on remand, held that all 5,46,000 bottles stood dispatched before 31.03.1991 and Page 28 of 31 ITA Nos 1579 1580 of 2016 and 132 of 2018.
therefore the assessee was entitled to 100% depreciation on all the 5,46,000 of the bottles and said finding of the A.O was not in challenged by the Revenue Authority. In the appeal against the order of the CIT(A), the Tribunal held that the transaction in question was only a financial arrangement and not a lease and therefore the depreciation claimed by the assessee could not be allowed. The Hon'ble Supreme Court was considering whether when the A.O in original assessment order had granted depreciation in respect of 42,000 bottles, the Tribunal could take back the said benefit. The Hon'ble Supreme Court held that the Tribunal has no power of enhancement and the relief granted by the A.O could not be withdrawn by the Tribunal and in holding so the Hon'ble Supreme Court has relied upon its earlier decision in the case Hukumchand Mills Ltd., (supra). Therefore, it is settled law that the assessee cannot be put to disadvantage only because he has appealed against the order of the CIT(A), meaning thereby that the relief granted by the AO cannot be withdrawn in an appeal filed by the assessee. The Income Tax Act has provided sufficient safeguards to secure the taxes due to it, even if there is a mistake committed by the AO, in the assessment order. U/s 147 the AO can reopen an assessment if he forms an opinion that there is an escapement of income or the CIT u/s 263, can revise Page 29 of 31 ITA Nos 1579 1580 of 2016 and 132 of 2018.
the assessment order, if the assessment order is found to be erroneous or prejudicial to the interest of the Revenue. In the case before us, the Revenue has not resorted to any of these provisions and cannot do so now in an appeal filed by the assessee by relying on Rule 27 of ITAT Rules. The decision in the case of Veen Promoters Pvt Ltd in ITA No. 788/Hyd/2015 dated 17.09.2018 relied upon by the Revenue in support of these objections under Rule 27 is distinguishable on facts.
33. In the case of Vreen Promoters, the Coordinate Bench of this Tribunal (to which both of us are signatories) was considering the merits of the penalty levied u/s 271(1)(c) of the Act, which was deleted by the CIT(A). The appeal was filed by the Revenue and the assessee had raised additional ground of appeal under Rule 27 of the IT Rules challenging the validity of the notice u/s 274 r.w.s 271(1)(c) of the Act on the ground that the irrelevant portion of the order of the notice was not struck off. The Ld. DR therein had objected to such additional ground stating that the respondent assessee is not entitled to raise any ground of appeal in the appeal filed by the Revenue. The assessee had argued that the ground raised by the assessee is purely a legal ground and can raise such a ground even in the Revenue's appeal under Rule 27 of ITAT Rules. The Coordinate Bench has Page 30 of 31 ITA Nos 1579 1580 of 2016 and 132 of 2018.
considered the decisions of the Hon'ble Bombay High Court in the case of CIT Vs. Hazarimal Nagji & Co, 46 ITR 1168 (Bom.) to admit the additional ground of appeal, because by such additional ground of appeal, the appellant was not adversely affected. Therefore, the said decision is distinguishable on facts and is not relevant to the case on hand. Therefore, the objections of the Revenue made in writing allegedly under Rule 27 are not sustainable and they are accordingly rejected.
34. In the result, assessee's appeals for all the three years are allowed.
Order pronounced in the Open Court on 14th June, 2019.
Sd/- Sd/-
(S.Rifaur Rahman) (P. Madhavi Devi)
Accountant Member Judicial Member
Hyderabad, dated 14th June, 2019.
Vinodan/sps / Ravi Kumar, PS
Copy to:
1 M/s. 3F Oil Palm Agrotech P Ltd, 6-3-569/2 1st Floor, Rockdate Compound, Somajiguda, Hyderabad 500082 2 ACIT, Circle 2(2) Signature Towers, Madhapur, Hyderabad 500081 3 CIT (A)-2 Hyderabad 4 Pr. CIT - 2 Hyderabad 5 The DR, ITAT Hyderabad 6 Guard File By Order Page 31 of 31