TaxTMI 
TaxTMI 
TaxTMI 
2012 (6) TMI 231
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....able to the Appellant Company on the ground that the unit owned by the Appellant Company does not manufacture or produce any article or thing. 4. The Learned CIT failed to appreciate that the basic condition for allowing deduction u/s.80IA stipulated in Sub-sec. (1) is that the assessee must own an "industrial undertaking" within the meaning of Sec. 80IA(12) read with Explanation to Sec. 33B and in fact, there is no dispute that the unit owned by the Appellant Company constitutes an "industrial undertaking" for the purpose of Sec. 80IA/80IB. 5. The Learned CIT has erred in denying the deduction u/s. 80IA/80IB even though it is not in dispute that the Appellant Company's unit constitutes an "industrial undertaking" within the meaning of Sec80IA/80IB(12) r.w.s 33B. 6. The Learned CIT failed to appreciate that the phrases "manufacture or produce articles or things" in Cl. (iii) of Sec. 80IB(2) and Clause (i) of Sec. 80IB(3) will have to be read with the definition of "industrial undertaking" provided for the purpose of Sec. 80IA/80IB which includes "processing of goods" and these can not be interpreted to take away the benefit available to the unit, which carries on activity of "pr....
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.... we sell is not the dry leaf tea that we purchase at the auctions or directly from the tea gardens. (ii) What we sell is processed and blended tea, which is the result of technical skill, patronage and mechanical process involved in producing the final product. (iii) The character of what we sell is totally different from the material used in the production i.e. raw material in the form of dry leaf tea. (iv) The specialties of the different brands establish the different character of the final product. (v) Every brand has a distinctive name and its own specialty so as to be totally different with the character of the raw material used. (vi) The selling price structure of every brand differs according to its speciality thereby further establishing the claim of different character. (vii) Expertise, thorough technical knowledge and skill mechanical process and human labour is involved in producing the final product." Further, assessee made a further submission relying on various case laws. CIT analysed the said case laws and distinguished them by stating the said case laws relate to preparation of bread or blending of alcohol, blending of spi....
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....upreme Court in the case of Tara Agencies (Supra) vide D.D. Shah & Bros. v. Union of India [2006] 283 ITR 486/[2005] 148 Taxman 1 (Raj.). Another case relevant to the decision in favour of the revenue is the judgment in the case of D.D. Shah and Brothers, wherein it is held blending of tea does not amount to production and process of blending tea is mere processing for bringing some qualitative change/does not bring in existence any distinct tea as a new article or thing. There is no manufacture or production within the meaning of section 80-IB(2)(iii) of the Act. Consequently, the High Court held carrying out blending of different grades and qualities of manufactured tea is not entitled to deduction u/s. 80IB of the Act. Further, D.R. also relied on Calcutta High Court judgment in the case of Brooke Bond India Ltd. v. CIT [2004] 269 ITR 232/137 Taxman 529 (Cal.) for the proposition that blending various categories of teas and selling them after packing with brand name is not a manufacturing or producing and therefore, that assessee is found ineligible for investment allowance on the facts of that case. 6. We have heard both the parties and perused the orders of the Revenue as wel....
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....the Income tax Authorities are bound to give effect to the judicial interpretation of the Honble High courts on the subject concerned. It is binding on the IT Authorities when such interpretations are affirmed by the Apex court. In the back ground of the same, an 'incorrect assumption of the law' constitutes an acceptable ground for the CIT to assume jurisdiction. When the AO adopted one of the courses permissible in law and it has resulted in the loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as and erroneous order prejudicial to the interests of the revenue, unless the view taken by he ITO is unsustainable in law. Further, on the issue of application of the mind of the AO, in the case of Gabriel India Ltd. (supra), the Jurisdiction High Court has also held that where the AO has made enquiries with regard to nature of the expenditure incurred by the assessee in the light of detailed explanations furnished by the assessee, the order of the AO cannot be called to be erroneous and prejudicial to the interest of revenue. Relevant observations in this regard are extracted here under:- "t....
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....ents of (i) Rajasthan High court's judgment dt 18/7/2005 in the case of D.D. Shah & Bros. (supra) straight on the subject i.e. explaining of the meaning of the expression 'manufacturing' used in clause (iii) of section 80IB(2) of the Act and (ii) Appeejay (P.) Ltd. (supra) and (iii) Brooke Bond Lipton India Ltd. (supra) for the proposition that the blending of tea is only processing and is not manufacturing within the meaning of section 80IB(2)(iii) of the Act. This view is further cemented by the none other than the supreme court in the case of Tara Agencies (supra). Thus, the AO has fallen into error in allowing the claim of the assessee under section 80IB of the Act. Regarding the application of the mind of the AO, nothing is brought to our notice to indicate that there was any inquiry into the aspects of the meaning of the expressions 'processing' or 'manufacturing' in the context of the provisions of section 80IB(2)(iii) of the Act. Thus, there is nothing to indicate that the AO has applied his mind on the topic under consideration. 10. Further, we have perused the ratio of the cited judgments and relevant portions are extracted for the sake of the completeness of this order ....
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....e can be applied and each case must be decided on its own facts having regard to the context in which the term is used in the provision under consideration. The word 'production' or 'produce' when used in juxtaposition with the word 'manufacture' takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods. According to Oxford Dictionary one of the meanings of the word 'process' is "a continuous and regular action or succession of actions taking place or carried on in a definite manner and leading to the accomplishment of some result." In Chambers 21st Century Dictionary, the term "process" has been defined as " "Process : 1. a series of operations performed during manufacture, etc. 2. a series of stages which a product, etc. passes through, resulting in the development or transformation of it." The processing is only an intermediate stage of production and/or manufacture. The processing of tea of the assessee falls short of either manufacturing or production, therefore, because of the language of s. 35B(1A) of t....
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.... such business which is comparable case of the assessee. In the process, the Hon'ble High Court held that the "processing" does not amount to production and relied on the Supreme Court judgment in the case of Chowgule & Co. (P.) Ltd. v. Union of India [1981] 47 STC 124/7 Taxman 71 and Calcutta High Court judgment in the case of Appeejay (P.) Ltd. (supra) which was decided in the context of 80J(4) which has same language as that of Sub-section (2) of Section 80 IB of the Act. D. Further, it is evident that the Apex Court is categorical in stating that process is different from manufacturing and the expression used in Section 80IB (2)(iii) is "manufacture or production" and there is no place for processing for the purpose of Section 80IB of the Act. Clause (iii) of Sub-section 80(2) is relevant which is as follows : "(iii) it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India : Provided that the condition in this clause shall, in relation to a small scale industrial undertaking or an industrial undertaking referred to in sub-section ....
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.... Legislature is not treating manufacture of goods as the same as processing of goods. "Manufacture" implies a transformation or alteration of goods. "Manufacture" means production of an article for use from raw, semi-raw or prepared materials by giving these materials new form, quantities or properties or combination, whether by hand, labour or machinery. Thus, it is clear that the assessee is engaged in the "Processing" activity only and there is no manufacturing activity of any kind. The decision of the Hon'ble Calcutta High Court in the case of Appejay Pvt. Ltd. v. CIT is squarely applicable to the assessee's case. The said decision was in context of section 80J(4)(iii) of the IT Act, 1961 and the provisions of which is same as its successor 80IA of the IT Act, 1961. 8. In view of the above facts and judicial pronouncements discussed above, the explanation put-forth by the assessee is not acceptable. I have, therefore, hold that the action of the AO in allowing the assessee's claim is erroneous and also prejudicial to the interest of revenue because income has been subjected to excessive allowance by deduction u/s. 80IA/80IB of the Act. I, therefore, invoke the provisions of se....