TaxTMI 
TaxTMI 
2007 (1) TMI 224
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....inished goods at Rs. 37,01,064. The method of valuation of closing stock was "cost or net realizable value whichever is less". The finished goods consisted of different grades of Zircon powder, such as, Zircon 500, 325, 240, 100, 10, 5, etc. The manufacturing cost as per the working given by the assessee was at Rs. 19,722.04 PMT in all cases. However, the Net Realizable Value (hereinafter called as 'NRV') was different in these cases. In the case of Zircon 100 'NRV average' was shown at Rs. 17,473.61 against the manufacturing cost at Rs. 19,722.04. The value of this item was taken at Rs. 17,473, being the average NR V and other items at cost. The Assessing Officer noticed that Zircon 100 was the main item of the closing stock of finished goods, which was valued at the rate less than the manufacturing cost by Rs. 2,248.43 PMT, which was incredible. The Assessing Officer further conc1uded that there was a difference of Rs. 2,42,749 in the valuation of closing stock of this product only. By considering these facts, he made a lump sum trading addition of Rs. 3 lakhs, which came to be deleted in the first appeal. 4. We have heard both the sides and perused the relevant material on re....
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....t the finished goods from any type of contamination and such mill lining is a recurring expenditure. The Assessing Officer has not disputed the nature of mill lining but proceeded to make the disallowance only on the ground that the assessee was supposed to claim deduction only for mill lining expenses claimed in the P&L account and unamortized amount could not have been claimed as revenue expenditure. Thus, the position, which emerges is that the nature of mill lining expenses has been established to be a recurring cost, which falls upon the assessee from time to time and hence cannot be treated a capital expenditure. Once this conclusion is reached, there is no justification for making disallowance for the expenditure incurred in this year notwithstanding the fact that in the books of account a different treatment has been given. If the expenditure is of revenue nature, the same would call for deduction in the year in which it is incurred. In our considered opinion, the ld. CIT(A) was justified in granting deduction for this sum. 8. Ground No. 3 is against the deletion of addition of Rs. 75,833 on account of 2/3rd disallowance out of ISO 9002 certification expenses, which were....
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.... beyond the year in question. It would be treated as capital expenditure only if it enhances the capital structure by way of addition to the assets. If, however, the fixed capital remains unchanged, the incurring of expenditure would be taken as revenue if it simply facilitates the carrying on of business more efficiently and profitably. Adverting to the facts of the case, we note that by making payments for obtaining ISO 9002 certification, the fixed capital of the company has not enhanced in any manner. It rather created a positive image of the products of the assessee for the smooth conduct of the business. In our considered opinion, the ld. CIT(A) was justified in treating the entire amount as revenue in nature. This ground is, therefore, not allowed. 11. Last ground is against the allowing of deduction under section 80-IB(3)(ii) amounting to Rs. 8,33,264. 12. The Assessing Officer observed that the assessee was engaged in the grinding of Zircon Sand and Dolomite powder, etc. The assessee was show caused as to why the claim of deduction under section 80-IB(3)(ii) be not jettisoned in view of the Hon'ble Supreme Court decision in the case of Dy. CST v. Bherhaghat Minera....
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....able number of decisions by the Hon'ble Supreme Court as per which the processes of cutting and crushing etc. do not amount to manufacture. The Hon'ble Supreme Court in the case of Sacs Eagles Chicory v. CIT [2002] 255 ITR 178 has ruled that no manufacture or production is involved in the preparation of chicory powder or chicory roots and therefore, the assessee engaged in such activity cannot be allowed deduction under sections 80HH and 80-I. 14. The case of the ld. A.R. before us is that the assessee is neither involved in crushing nor cutting and sizing of Zircon Sand. Our attention was drawn towards pages 48 and 49 of the impugned order to show the Flow sheet for production/manufacture of Zircon Opacifiers, which is reproduced as under: Screening; of raw Zircon sand using a Vibratory Screen for removal of tramp | Transferred to feed SILO through Bucket Elevators ....
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....use it amounts to the further filtering of zircon sand. Third process is the closed circuit milling using ball mills lined with high alumina. The ld. A.R. has explained that in this stage the purified and demagnetized material is fed to the Closed Circuit Milling system using Ball Mills through a vibratory/screw feeder with variable frequency drives. It has been explained by way of note of this process, which has remained uncontroverted, that the purified material enters the Ball Mill for micronization through high Alumina Liners and Media. The Chemical composition of High Alumina lines is AI203 (90 per cent Alumina di oxide). The Alumina Lining and Media is used specifically as the Zircon Opacifiers are used in ceramics and any other material would result in contamination of the end-product. Alumina itself acts as a whitening agent. Thus, high Alumina liners are used so as to result in a uniform mixing of Alumina (AI203) in the product without causing any damage to the end-product while micronizing. The micronizing of the final product takes place in the ball mill with the help of Alumina liners and Alumina media with temperatures in the ball mill ranging between 80 degrees to 100....
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....re Earth Ltd., discussed above, that the process done on zircon sand for converting into opacifier is irreversible and both have different uses/applications. The next decision relied upon by the Assessing Officer is the case of Hon'ble Supreme Court in Lucky Minmat (P.) Ltd. In this case it was held that no manufacturing process was involved in cutting and sizing of the marble blocks and mining lime stones. In other words, if an item of larger substance is cut into small pieces by how so ever mechanical processes and inherent values and quality of the original items and cut out pieces remains the same, it cannot be said that any manufacturing process has been carried out. Again, we are at a loss to appreciate as to how this decision can be held to be applicable because primarily there is no cutting and sizing of the sand. The assessee has produced a different product from the one used as raw material. The uses and applications of both the raw material and finished product are different. We, therefore, hold that this decision is not applicable to the facts of the instant case. 17. We are reminded of the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Best ....
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.... shape of coffee beans. The assessee claimed itself entitled to allowance as being engaged in manufacture or production which was not accepted by the revenue authorities. Finally, when the matter travelled to the Hon'ble Supreme Court, it was observed that the process is a manufacturing process when it brings about a complete transformation in the original article so as to produce a commercially different article or commodity and, therefore, the assessee engaged in such activity was held to be entitled to investment allowance. In view of the legal position emanating from the foregoing judicial precedents, we note that the assessee is engaged in the manufacture of opacifiers/zircon powder from the raw material! zircon sand. The processes involved in converting raw material into finished product bring out a complete transformation from raw material to finished product. Not only the uses of the two products are different but also their chemical composition. Both are known differently in the commercial world. the finished product cannot be reversed back to the original raw material because of the processes through which it had undergone. 18. This case has another interesting aspect ....