Conversion of Pulses into Dal Qualifies as Manufacturing under Income Tax Act

The Tribunal determined that the process of converting whole pulses into Dal qualifies as "manufacturing" under section 80IB(3)(ii) of the Income Tax Act. The Tribunal found that the detailed process involved in producing Dal results in a new and distinct commercial end product, meeting the criteria for manufacturing. Additionally, the Tribunal ruled that the assessee, engaged in Dal manufacturing as a registered SSI Unit, is entitled to deduction under section 80IB(3)(ii) of the Act. The Tribunal upheld the decision of the CIT(A) and dismissed the revenue's appeal, affirming the assessee's entitlement to the deduction.

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Issues Involved:
1. Whether the process of converting whole pulses into Dal constitutes "manufacturing" u/s 80IB(3)(ii) of the Income Tax Act.
2. Whether the assessee is entitled to deduction u/s 80IB(3)(ii) of the Income Tax Act.

Summary:

Issue 1: Whether the process of converting whole pulses into Dal constitutes "manufacturing" u/s 80IB(3)(ii) of the Income Tax Act.

The revenue argued that the assessee's activity of breaking whole pulses into pieces does not amount to manufacturing, as no new item or article comes into existence. They relied on various judicial precedents, including Acqua Minerals Private Limited v. DCIT and CIT v. Gem India Mfg. Co., to support their claim that no manufacturing is involved.

Conversely, the assessee contended that a highly specialized process with the aid of machinery is involved in converting whole pulses into Dal, resulting in a commercially new and distinct end product. The assessee cited several cases, including ITO v. Arihant Tiles & Marbles Private Limited and CIT v. Oracle Software India Limited, to argue that the process amounts to manufacturing.

The Tribunal analyzed the detailed manufacturing process, which includes mixing, grading, sorting, watering, oiling, drying, de-husking, splitting, polishing, and packing. The Tribunal concluded that the process results in a new and distinct commercial end product, thus constituting manufacturing.

Issue 2: Whether the assessee is entitled to deduction u/s 80IB(3)(ii) of the Income Tax Act.

The Tribunal noted that the assessee is a registered SSI Unit engaged in the manufacturing of different kinds of Dals with a significant annual manufacturing capacity. The Tribunal observed that the end product (Dal) is commercially different from the raw material (whole pulses), and the process involves systematic and organized activity with employer-employee cooperation.

The Tribunal referred to various judicial pronouncements, including CIT v. Oracle Software India Limited and CIT v. Emptee Poly Yarn P. Ltd., which supported the view that the assessee's activity amounts to manufacturing. The Tribunal concluded that the assessee is producing a new and distinct commercially end product from its raw material and is thus entitled to deduction u/s 80IB(3)(ii) of the Act.

Conclusion:

The Tribunal upheld the order of the learned CIT(A) and dismissed the revenue's appeal, affirming that the assessee is entitled to deduction u/s 80IB(3)(ii) of the Income Tax Act. The order was pronounced in open Court on 2nd March, 2011.

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