2007 (2) TMI 267 - AT - Income Tax

Tribunal Grants Relief for Manufacturing Activity, Remands Sales Promotion Expense Issue for Further Review.

Vinbross And Company. Versus Income-tax Officer, Ward (1), Pondicherry.

Vinbross And Company. Versus Income-tax Officer, Ward (1), Pondicherry. - [2008] 297 ITR 280, ITD 110, 185, TTJ 111, 435, Issues Involved:1. Denial of assessee's claim of relief under section 80-IB.2. Disallowance of sales promotion expenses.Detailed Analysis:1. Denial of Assessee's Claim of Relief Under Section 80-IB:Background:The assessee, a firm registered as a small-scale industry, set up a second unit (Unit II) to manufacture and bottle Indian manufactured foreign liquor (IMFL) at Pondicherry. The assessee claimed relief under section 80-IB for the profits and gains derived from this new unit. This relief was initially allowed for the assessment years 2000-01 and 2001-02. However, the Commissioner of Income-tax (CIT) revised the assessment for the year 2001-02 under section 263, raising two objections: (i) that the undertaking was not new but an expansion of the existing unit, and (ii) that the activity did not constitute 'manufacture.'Commissioner's Findings:The Commissioner accepted that the undertaking was new but concluded that the activity did not constitute 'manufacture' because the raw material (alcohol) and the finished product (IMFL) were essentially the same.Assessee's Arguments:The assessee contended that the process of blending alcohol involved significant qualitative changes, making the final product (IMFL) distinct from the raw material. They cited various legal precedents to support their claim that the activity constituted 'manufacture.'Tribunal's Analysis:- New Undertaking: The Tribunal noted that the Commissioner had accepted the unit as new, satisfying the parameters under section 80-IB. The new unit was located more than 10 km away from the old unit, had new plant and machinery, and operated under separate licenses.- Manufacture: The Tribunal distinguished the present case from the Shaw Scott Distilleries case, noting that the input in the assessee's case was rectified spirit (non-potable), which underwent various processes to become IMFL (potable). The Tribunal cited several legal precedents, including the Supreme Court's decision in Bihar Distillery v. Union of India, which recognized the distinction between rectified spirit and IMFL. They concluded that the assessee's activity constituted 'manufacture' because the final product was commercially different from the input.Conclusion:The Tribunal held that the assessee was entitled to relief under section 80-IB, setting aside the lower authorities' orders on this issue.2. Disallowance of Sales Promotion Expenses:Background:In ITA No. 2020/Mad./06 for the assessment year 2004-05, the assessee raised an issue regarding the disallowance of sales promotion expenses, which the Commissioner of Income-tax (Appeals) had omitted to consider.Tribunal's Decision:The Tribunal found that the assessee had raised a valid ground regarding the disallowance of sales promotion expenses. They remitted this issue to the files of the Commissioner of Income-tax (Appeals) to provide a speaking order on the matter, ensuring the assessee was given an adequate opportunity to be heard.Final Judgment:- The assessee's appeal in ITA No. 2019/Mad./06 was allowed, granting relief under section 80-IB.- The appeal in ITA No. 2020/Mad./06 was allowed for statistical purposes, with the issue of sales promotion expenses remitted to the Commissioner of Income-tax (Appeals) for further consideration.