2019 (8) TMI 355 - HC - Income Tax

Court allows deduction for conversion to Benzarone Pure but disallows for BFX-P, citing lack of evidence.

The Principal Commissioner of Income Tax 2, Vadodara Versus Tonira Pharma Ltd

The court allowed the deduction under section 10B for the conversion of Benzarone Crude to Benzarone Pure, considering it as 'manufacture or production' ... Deduction u/s 10B in respect of Benzarone Pure - manufacture or production of an article or not - HELD THAT:- Considering the process which Benzarone Crude is subjected to for the purpose of converting it into Benzarone Pure as well as considering the fact that the Benzarone Pure is a distinct marketable commodity, different from Benzarone Crude which is not capable of being used as such, the conversion of Benzarone Crude to Benzarone Pure would fall within the ambit of the expression “manufacture or produce” as contemplated u/s 10B. The Tribunal was, therefore, justified in holding that the assessee is entitled to deduction u/s 10B in respect of the said product. - answered in favour of the assessee and against the revenue Deduction u/s 10B in respect of BFX-P - manufacture or production of an article or not - HELD THAT:- It is an admitted position that no manufacturing process in respect of the said product has been brought on record either before the CIT(A) or even before this court. The chart referred to by the CIT(A) in his order shows that except for the work in progress being shown as BFX-P, no further details have been provided regarding the final product or the chemical formula. In the absence of any material having been placed on record to indicate the process carried out on BFX-P, it cannot be said that any process of manufacture or production has taken place so as to entitle the assessee to deduction u/s 10B in respect of the said product. The Tribunal was, therefore, not justified in allowing the deduction u/s 10B in respect of BFX-P. - answered in favour of the revenue and against the assessee Issues Involved:1. Deduction under section 10B of the Income Tax Act, 1961 in respect of Benzarone Pure.2. Deduction under section 10B of the Income Tax Act, 1961 in respect of BFX-P.Issue-Wise Detailed Analysis:1. Deduction under section 10B for Benzarone Pure:The court considered whether the conversion of Benzarone Crude to Benzarone Pure amounts to 'manufacture or production' under section 10B of the Income Tax Act, 1961. The Assessing Officer disallowed the deduction, claiming the process was merely purification. However, the Commissioner (Appeals) found that the transformation involved significant physical and chemical changes, resulting in a new product with different commercial uses. The Tribunal supported this view, referencing the Supreme Court's decision in *Income Tax Officer, Udaipur v. Arihant Tiles and Marbles Private Limited*, which held that processes leading to a new product with different uses qualify as manufacture.The court examined the detailed process flow chart and found that Benzarone Crude undergoes extensive processing to become Benzarone Pure, a marketable and distinct product. The court referenced the decision in *Commissioner of Income Tax v. Mitesh Impex*, emphasizing that processes resulting in commercially distinct products qualify as manufacturing. Thus, the court concluded that the conversion of Benzarone Crude to Benzarone Pure falls under 'manufacture or production,' allowing the deduction under section 10B.2. Deduction under section 10B for BFX-P:The second issue was whether the deduction under section 10B applies to BFX-P. The Commissioner (Appeals) and the Tribunal noted that the assessee failed to provide details about the manufacturing process for BFX-P. The Tribunal initially allowed the deduction, but the court found no evidence of any manufacturing process for BFX-P. Without such evidence, it could not be determined that any manufacture or production occurred, disqualifying the deduction under section 10B.Conclusion:The court concluded that the conversion of Benzarone Crude to Benzarone Pure qualifies as 'manufacture or production,' thus allowing the deduction under section 10B for Benzarone Pure. However, due to the lack of evidence regarding the manufacturing process for BFX-P, the court disallowed the deduction under section 10B for BFX-P. The Tribunal's order was modified accordingly, and the appeal was partly allowed.