Assessee wins Section 80IC deduction for processing raw materials as manufacturing activity not contract services

ITAT Delhi ruled in favor of the assessee regarding Section 80IC deduction eligibility. The tribunal held that the assessee's activities of processing raw materials received from HUL and feeding processed materials to HUL's mother plant constituted manufacturing, not merely contract services. The tribunal found that regulatory authority approvals supported the manufacturing nature of operations. The AO's reliance on HUL's confirmation stating activities were only contract services was deemed improper as it wasn't confronted with the assessee during assessment proceedings. The tribunal set aside both the assessment order and CIT(A)'s order, directing the AO to allow Section 80IC benefits. The assessee's appeals were allowed.

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Issues Involved:
1. Jurisdiction and validity of the CIT(A)'s order.
2. Eligibility for deduction under Section 80-IC of the Income Tax Act.
3. Interpretation of the nature of activities as 'manufacture' or 'service'.

Summary:

Jurisdiction and Validity of the CIT(A)'s Order:
The appellant contended that the CIT(A)'s order dated 17.12.2014 was erroneous, based on surmises and conjectures, illegal, without jurisdiction, and hence bad in law. The Tribunal did not specifically address this issue in isolation but focused on the substantive matter of eligibility for deduction under Section 80-IC.

Eligibility for Deduction under Section 80-IC:
The main issue was whether the assessee's activities constituted 'manufacture' under Section 80-IC of the Income Tax Act. The assessee argued that its activities, including processing raw materials, stacking, packaging, and dispatching final products for Hindustan Unilever Limited (HUL), qualified as 'manufacture.' The assessee's facility was registered under the Factories Act, 1948, and approved by the Pollution Control Board. The Tribunal noted that the assessee had made significant capital investment and employed sophisticated machinery and a substantial workforce.

Interpretation of Activities as 'Manufacture' or 'Service':
The CIT(A) had held that the assessee's activities did not constitute 'manufacture' but were merely service provisions. The Tribunal disagreed, citing various Supreme Court judgments, including Quazi Noorul HHH Petrol Pump and Kores India Ltd v CCE, which recognized similar processes as 'manufacture.' The Tribunal emphasized that the assessee's activities resulted in commercially new goods distinct from the raw materials.

The Tribunal also noted that the confirmation letter from HUL stating the activities were C & F Services was not confronted with the assessee during assessment proceedings, violating principles of natural justice. The Tribunal found that the documents produced by the assessee, including approvals from regulatory authorities, supported the claim of manufacturing activities.

Conclusion:
The Tribunal concluded that the activities conducted by the assessee constituted 'manufacture' and directed the A.O. to allow the benefit of Section 80-IC of the Act to the assessee. The appeals filed by the assessee were allowed, and the orders of the CIT(A) were set aside.

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