Manufacturing Poultry Feeds: Deductions & Disallowance Upheld

The Tribunal upheld the CIT(A)'s decision, determining that the manufacturing of poultry feeds constitutes "manufacture" for deductions under Section 80-IB(5) and 80-IE. The Tribunal also supported the CIT(A)'s ruling on the disallowance under Section 14A and its exclusion in computing book profit under Section 115JB. Appeals by the Revenue were rejected.

---

---

Issues Involved:
1. Whether the process of manufacturing poultry feeds amounts to "manufacture" under Section 80-IB(5) and Section 80-IE of the Income Tax Act, 1961.
2. Whether the CIT(A) was justified in allowing the claim of deduction under Section 80-IB(5).
3. Whether the disallowance made under Section 14A was justified.
4. Whether the disallowance under Section 14A can be added while computing book profit under Section 115JB.

Issue-wise Detailed Analysis:

1. Manufacturing of Poultry Feeds:
The primary issue was whether the process of manufacturing poultry feeds qualifies as "manufacture" under Section 80-IB(5) and 80-IE of the Act. The Assessing Officer (AO) denied the deduction, arguing that the process involved mere mixing of ingredients like maize, soya, and rice bran with vitamins and minerals, which did not result in a new product with a different chemical composition or structure. The AO cited various judicial precedents to support the view that the process did not amount to manufacture.

2. CIT(A)'s Justification for Allowing Deduction:
The CIT(A) allowed the assessee's appeal, noting that the assessee had been claiming the deduction under Section 80-IB(5) since AY 2005-06, and the scrutiny assessments for those years had allowed the deduction. The CIT(A) emphasized that the end product, poultry feed, could not be reversed back to its original raw materials, indicating a manufacturing process. The CIT(A) also relied on various judicial precedents, including cases like DCIT vs. Amricon Agrovest and Komrala Feeds vs. DCIT, which supported the view that producing poultry feed involves manufacturing.

3. Disallowance under Section 14A:
The AO disallowed an amount under Section 14A for earning exempt income. The CIT(A) accepted the revised calculation submitted by the assessee, which showed sufficient own funds to make the investments without using borrowed funds. The CIT(A) also noted that the AO had not disallowed any amount under Rule 8D(2)(i) and that the disallowance under Rule 8D(2)(iii) was calculated correctly by the assessee.

4. Disallowance under Section 14A and Section 115JB:
The AO disallowed an amount under Section 14A while computing the book profit under Section 115JB. The CIT(A) deleted this disallowance, relying on the Supreme Court judgments in Apollo Tyres vs. CIT and CIT vs. HCL Connect Systems & Services Ltd., which held that disallowances under Section 14A cannot be added while computing book profit under Section 115JB. The CIT(A) noted that the permissible adjustments under Section 115JB are specific and listed in Explanation 1, and the disallowance made under Section 14A by the AO did not fall under these permissible adjustments.

Conclusion:
The Tribunal upheld the CIT(A)'s order, confirming that the process of producing poultry feeds amounts to "manufacture" and thus qualifies for deductions under Section 80-IB(5) and 80-IE. The Tribunal also agreed with the CIT(A) on the disallowance under Section 14A and its non-applicability while computing book profit under Section 115JB. All appeals filed by the Revenue were dismissed.

---