Activities not manufacturing, Section 80IB deduction denied, appeal dismissed.

The tribunal upheld the CIT(A)'s decision, confirming that the activities did not constitute manufacturing. The disallowance of the deduction under Section 80IB was justified as the activities of the assessee did not result in a new commercial product. The appeal was dismissed, and the order of the CIT(A) was upheld, denying the deduction for the net profit on trading goods of the Dholpur unit.

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Issues Involved:
1. Disallowance of deduction under Section 80IB of the Income Tax Act.
2. Classification of activities as manufacturing or trading for tax purposes.
3. Applicability of legal precedents to the case.

Detailed Analysis:

1. Disallowance of Deduction under Section 80IB:
The primary issue revolves around the disallowance of a deduction amounting to Rs. 62,35,937 claimed by the assessee under Section 80IB of the Income Tax Act. The Assessing Officer (AO) recomputed the deduction by excluding income from insurance, interest, rent, brokerage, and net profit from trading goods of the Dholpur Unit. The AO computed the deduction at Rs. 1,20,99,129 against the revised deduction of Rs. 1,46,51,327 claimed by the assessee during the assessment proceeding.

2. Classification of Activities as Manufacturing or Trading:
The assessee contended that the net profit earned from trading goods of the Dholpur unit should not be disallowed for the purpose of calculating the deduction under Section 80IB. The AO and CIT(A) concluded that the activities performed by the assessee, such as removing moisture and guthle from purchased ghee and skimmed milk powder, did not constitute manufacturing. The AO noted that these activities did not result in the creation of a new commercial product.

The CIT(A) supported this conclusion by referencing the audit report, which detailed the quantity and value of ghee and skimmed milk powder produced and purchased. The CIT(A) found that the purchased goods were merely repacked after a cleaning process and sold under the company's brand name, which did not amount to manufacturing. The assessee's argument that the process involved adding chemicals and essence to convert the products into a new commercial product was not substantiated with evidence.

3. Applicability of Legal Precedents:
The assessee relied on several case laws to support their claim, including CIT Vs. Vinbros & Co., India Cine Agencies Vs. Dy. CIT, and CIT Vs. Beta Cosmetics. However, the CIT(A) and the appellate tribunal found these cases inapplicable. For instance, in CIT Vs. Beta Cosmetics, the output product was significantly different from the input due to the addition of mineral oil and perfume, which was not the case with the assessee's activities. The tribunal also referenced other cases, such as Sterling Foods Vs. State of Karnataka and CIT Vs. Sri Meenakshi Asphalts, where similar activities were not considered manufacturing.

Conclusion:
The tribunal upheld the CIT(A)'s decision, confirming that the activities performed by the assessee did not constitute manufacturing. Consequently, the disallowance of the deduction under Section 80IB was justified. The tribunal agreed that the assessee's activities of removing moisture and guthle from purchased ghee and skimmed milk powder and repacking them did not result in a new commercial product. Therefore, the assessee's claim for deduction under Section 80IB was not allowable, and the AO's computation of the deduction was upheld.

Final Judgment:
The appeal was dismissed, and the order of the CIT(A) was upheld, confirming the disallowance of the deduction under Section 80IB for the net profit on trading goods of the Dholpur unit. The tribunal emphasized that the activities performed by the assessee did not meet the criteria for manufacturing as defined under the Income Tax Act and relevant legal precedents.

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