TaxTMI 
TaxTMI 
2010 (4) TMI 710
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....by assessee. (4) The ld. CIT(A) has erred in confirming disallowance of Rs.2,78,917/- by restricting claim u/s 35D. 2. The facts of the case are that assessee company is engaged in the business of manufacturing and export of bulk drugs, drugs intermediates, fine chemicals (organic/inorganic) etc. It has two units namely general unit and EOU unit. The assessee had claimed exemption under section 10B of the Act in respect of EOU unit where profit of Rs.2,25,41,679/- was shown. The AO had rejected the claim made under section 10B but was allowed by the Tribunal in ITA No.2469/Ahd/2006 for Asst. Year 2002-03 vide its order pronounced on 12.02.2010. 3. However, during the course of assessment proceedings the AO had noticed that assessee had shown purchases of finished goods of Rs.1,96,19,168/-. These purchases are related to ascorbic acid (Vitamin C). These goods were, as claimed by the assessee, processed and sold as ascorbic acid (vitamin C) and exemption under section 10B was claimed on this amount also. The AO found that the Chartered Accountant has not certified in any manner that the goods were processed. There are also no evidences or details that any processing has been....
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..... (vi) The slurry is converted into cake form in this process. (vii) The cake form obtained, is then mixed with sulphuric acid and methanol. (viii) This form is again taken to the SS Reactor and centrifuged at a prescribed temperature and pressure (ix) After this process the cake is transferred for cooling and chilling to the cooling and chilling plant. (x) The chilled cake is then transferred to dryer. (xi) In this stage again various processes are performed for removing the moisture content, (xii) Once the moisture contents are removed, an altogether different quality of Ascorbic Acid is obtained in powder form, (xiii) After this process packing is done and the item is now ready to be used for medical purpose. (xiv) On the basis of the above your kind office would appreciate that the appellant performs various processes which amounts to manufacture. (xv) Your kind office would appreciate that the material fed into the plant and the material obtained are altogether different. Detailed process flow chart is available at page no. 69 of the paper book. (xvi) It is also worthwhile to mention that the Ascorbic Acid FCC-IV grade has a life of 2 years, where....
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....CC grade-iv and after undergoing some processing has made ascorbic acid IP. In the processing the assessee is using certain other chemicals, such as methanol and sulphuric acid for the purpose of cleaning and removing iron and lead contents, if any. The fine grade of ascorbic acid IP is exported. The question now arises is whether refined ascorbic acid would amount to manufacture or production within the meaning of section 10B or the I.T. Act. For the sake of convenience we refer to section 10B of the IT Act as under :- "10B. Special provisions in respect of newly established hundred per cent export-oriented undertakings.-(1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent. export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the pervious year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee : Provided that where in computing the total income of the undertakin....
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....identity and use of the commodity before undergoing the processing and after the processing. If the identity and character remain the same then there is no manufacturing or production but where identity and character get transformed then it would be a manufacturing or production of new article or thing. Our view is supported by the decision of ITAT Jodhpur Bench in the case of Kwal Pro Exports vs. ACIT (2008) 297 ITR (A.T.) 0049, wherein it has been observed as under :- "The essence of "manufacture" is the change from one object to another for the purposes of making it marketable with the aid and employment of men, machinery and material. Every change in the raw material cannot be characterised as manufacture unless a new product, which has a separate commercial identity in the market, comes into being. There must be such a transformation that a new and different article must emerge having distinct name, character and use. If the original commodity continues to remain the same after undergoing processes and is called by the same name, it cannot be said there is manufacture of an article or thing. Thus the main test is to decide whether the identity of the commodity, before and a....
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....20 ITR 546 (SC) observed that if an operation/process rendered a commodity fit for use for which it would not be otherwise be fit, the operation/process would fall within the meaning of word "manufacture". A blank CD on which certain material was recorded through electronic process, the process would be called as manufacturing as blank CD could not be used for the purpose as recorded CD would be used. Where different kinds of teas were mixed to different grade of tea it would not amount to manufacturing as held by Hon. Supreme Court in CIT vs. Tara Agencies (2007) 292 ITR 444(SC). The term manufacture within the meaning of section 10B would also refer to bringing into existence of new article or thing distinct in identity and character. The word used in section 10B manufacturing or production and not manufacturing or processing. Thus the word 'manufacture' is coming in association with production meaning thereby that merely by carrying out processing which result into same commodity, there will not be any manufacturing or production. 11. Hon. Madras High Court in CIT vs. Premier Tobacco Packers (P) Ltd. (2006) 284 ITR 222 (Mad) also emphasized on emerging of new and different ar....
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....en made under section 40A(3). 16. The ld. DR on the other hand, supported the order of ld. CIT(A). 17. After considering the rival submissions, we delete the addition in respect of payment made to ESIC being the payment made to the Government Department and it is covered under the exception to Section 40A(3). 18. In respect of expenditure on telephone, we do not find any satisfactory explanation. Therefore, disallowance in respect of this payment is confirmed. This ground of assessee is partly allowed. 19. The next issue is payment made under section 43B in respect of ESIC and PF. The issue is now covered by the decision of Hon. Supreme Court in CIT vs. Alam Extrusion 319 ITR 306 (SC) according to which contributions to PF made before due date of filing the return are allowable as deduction. It is held that deletion of second proviso to section 43B and the amendment to first proviso by the Finance Act 2003 was to overcome implementation problem and, therefore, amendments though made applicable by Parliament only w.e.f. 1.4.1988 were curative in nature and would apply retrospectively w.e.f. 1.4.1988. In view of this AO will allow all the payments made before filing the r....