TaxTMI 
TaxTMI 
2012 (6) TMI 683
X X X X Extracts X X X X
X X X X Extracts X X X X
....in grievance of the assessee, common in all these appeals, relates to denial of its claim for relief under S.80IB of the Income-tax Act, 1961. 3. Facts of the case in brief, as taken from the appeal folder for the assessment year 2001-02, are that the assessee derives income from production and sale of poultry feed. For the assessment year 2001-02, assessee filed return showing gross total income at Rs. 2,87,89,710 from which deduction under S.80IB was claimed to the extent of Rs. 94,41,829, computing the taxable income at Rs. 1,93,47,881. 4. As against this, the assessment was completed determining the total income of the assessee at Rs. 2,94,80,875. During the course of assessment, assessing officer noted that the assessee claimed deduction under S.80IB in respect of pellet feed division, for which separate computation of income was filed. An Audit Report in Form No. 10CCD was filed along with the return of income in support of the claim made under S.80IB of the Act. As per the said audit report, the assessee had two separate divisions. In one division, mash feed was manufactured and the other division was meant for pelletisation of such mash feed. The assessing officer car....
X X X X Extracts X X X X
X X X X Extracts X X X X
....istence a new substance and not merely to produce some change in the substance. Therefore, in a manufacturing process, a new and different articles must emerge which is distinct from the original substance. The assessing officer also relied on several other judicial decisions to hold that when the original commodity has undergone degrees of change, but yet has not lost its original identity, it cannot be said to have undergone manufacturing process. 5. The assessing officer further noted that the plant and machinery which were used for production of mash feed were also put into use for production of pellet feed. The raw material, in the case of the assessee, such as maize, rice bran etc. could not have been fed directly into the pellet unit and the mash feed unit remained an essential part or heart of the production process of the pellet feed without which the pellets could not have been made. Moreover, the assessee did not purchase mash feed from outside market and the entire pelletisation was from out of the mash feed produced by it. Therefore, the pelletisaton unit is nothing but a simple extension of the basic unit i.e. mash feed unit. The assessing officer also held that th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Assessing Officer wrongly concluded that the pellet unit is not a new unit having its own building and plant & machinery eligible for deduction u/s 80IB. 10. Without prejudice to the above, it was submitted that even if old machinery is construed as a part of the new plant, the value of old plant & machinery was much less than 20% of the total value of plant & machinery and hence, as per Explanation-2 to section 80IB(2), the conditions specified u/s 80IB(2)(ii) are not violated and the assessee is entitled to deduction u/s 80IB. The AR of the further submitted as under:- "2.10 .........................................the contention of the Assessing Officer that two separate units does not exist is incorrect. It is not necessary that all the units should have both mash and pellet plants. The pellet plant can function independently. It can use mash feed bought out and convert the same to pellets. Mash feed is easily available in the market. Just because both the units are in adjacent buildings, it cannot be said that they are one unit for the purpose of denying deduction u/s 80IB. The pellet unit is a new and separate unit having its own building and plant and machinery. The pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... deduction u/s 80IB. 2.1 On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in upholding the action of the Assessing Officer of reducing an amount of Rs. 15,47,946/- from the amount of deduction claimed by the appellant u/s 80IB, on the ground that they were not derived from the industrial undertaking. 2.2 The appellant submits that all the items referred to in the assessment order were derived from the industrial undertaking of pellet feed unit and hence eligible for deduction u/s 80IB. 2.3 Without prejudice to the above, the appellant submits that if at all any amount is to be reduced from the claim, it should be the profit attributable to the sale of miscellaneous items and not the sales proceeds itself. The costs attributable to these items have to be reduced to arrive at the profit. 2.4 The appellant therefore, prays your Honour to direct the learned ACIT to calculate and allow the due deduction u/s 80IB. III. Disallowance of foreign travel expense Rs. 6,65,977/-. 3.1 On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in upholding the disallowance by foreign travel expenses to the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he units are in adjacent buildings as the same is not proper to deny the claim of the assessee on the said ground that just because both the units are in adjacent buildings it cannot be said that they are one unit for the purpose of denying deduction u/s 80IB. It is pointed out that the pellet unit is a new and separate unit having its own building and plant & machinery, therefore, the profit attributable to it are eligible for deduction u/s 80IB. It is submitted that even though the old machinery is used for manufacturing mash feed, the profit is separately computed for pellet unit and deduction u/s 80IB is claimed and, therefore, it cannot be said that the assessee has used old machinery o the mash feed unit. 15. The learned counsel referring to the definition of the term 'manufacture' under different enactments, submitted that in the absence of definition under the IT Act, the definition given in other enactments should be taken into consideration and section 80IA being a beneficial legislation requires liberal interpretation in the light of the decision of the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188/62 Taxman 480. He furthe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....] 80 STC 249, the Apex Court held that fibre is different from coconut husk and by applying commercial parlance principle, the said process was held to be a manufacturing activity. Similarly in the case of Pio Packer's case (supra), the Apex Court applied commercial parlance test. (v) The Apex court in the case of India Cine Agencies v CIT [2009] 308 ITR 98/175 Taxman 361 has held that cutting Jumbo rolls of photographic films into small flats and rolls in desired sizes amounts to manufacture or production eligible for deduction u/s 80HH and 80I. (vi) The Apex Court in the case of Aspinwall & Co Ltd v CIT [2001] 251 ITR 323/118 Taxman 771 has held that processing raw coffee berries and converting into coffee beans would amount to manufacture or production entitled to Investment Allowance. (vii) In the case of Bajaj Temp Ltd. (supra), the Court held that in the absence of definition under the IT Act the definition given in other enactments should be taken into consideration and section 80IA being a beneficial legislation it requires liberal interpretation. (viii) In the case of CIT v. Sesa Goa Ltd. [2004] 271 ITR 331/[2005] 142 Taxman 16 (SC), the Court observed that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urse powdered material which is called mash feed. (2) Such feed undergoes a certain kind of physical changes before again converted into small pellets. The mash feed is carried through an elevator to a pellet making machine where it gets mixed with steam and then forced through a press containing small holes to convert the feed into small pellets. (3) At the stage of grinding, grinding is done to reduce particle size of ingredients. (4) After grinding the ingredients will be sent to mixture by elevators in the process of pre-mixing. (5) In the last process of mixing, all ingredients like vitamins, mineral and medicines are properly mixed to provide a balance diet as prescribed by the Nutritional Doctor who is stationed at the plant 24 hours. (8) After mixing, conditioning is done where after collecting mixed feed from the feeder, the feed is conditioned with dry steam in the conditioner. Perfect mixing of dry steam with feed results in a consistent pellet. (9) Gelatinized starch is gummy, desirable to form a pellet as a binding agent. The conditioned feed formed into pellets by pressing the through a die (3mm, 4.5 mm & 6 mm). (10) Pellet Cooling is also a part ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....39;existence a new substance' and does not mean merely to 'produce some change in the substance'. 17.5 In the conversion, whether the identity of the commodity before and after it undergoes various processes/changes remains the same. In manufacturing a new and different article must emerge from the original substance and new substance does not mean that merely a change in the substance is effected. Manufacture and production implies that something is brought into existence which is different from its components. Moreover, the 'term' processing is distinguishable from the term 'manufacture' and mere processing does not amount to change loosing its original identity whereas in manufacturing, the original articles loose their identity. In the case under consideration, doing something to substance to change or alter their form can be termed as processing and does not amount to manufacture as a production of a new substance does not mean merely to produce some change in the substance. There is no change in the basic component except a physical change in the structure and shape in the form of pellet as no new substance comes into existence. 17.6 The ITAT....
X X X X Extracts X X X X
X X X X Extracts X X X X
....taken by the Hyderabad Bench in the assessee's own case we uphold the order of the learned CIT(A) and dismiss the appeals filed by the assessee." 17.8 In the case of Chowgule & Co. (P.) Ltd. v. Union of India [1981] 47 STC 124W (SC) wherein blending of different qualities of ore of the contractual specifications was held not to involve the process of manufacture. 17.9 In the case of CST v. Bombay Traders [1976] 38 STC 286 (Bom), the Hon'ble Court held that plain-cashew nuts were fried and salted, still to be cashew-nuts. 17.10 In the case of Sandoz (India) Ltd. v. Union of India [1980] Tax LR 2332 (Bom.), the Hon'ble Court held that formulation of foron pigments in the form of Foron liquid does not amount to manufacture. 17.11 In the case of Bheraghat Mineral Industries v. Division Dy. CST [1990] 79 STC 156 (MP), the Court held that preparation of chips and powder from dolomite lumps held not manufacture. 17.12 In the case of Sri Vinayaka Oil Industries v. State of Karnataka [1993] 91 STC 253 (Kar.), the Court held that dehusking of tamarind seeds to give white tamarind 'pappu' is merely a change of form and conversion of tamarind seed into powder....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bove finding, the AO had reopened the assessment u/s 147 of the Act. In response to the notice issued u/s 148 of the Act, the assessee had filed revised return on 10/11/05 showing same amount of income as shown in the original return filed on 30/11/02. After considering the information furnished by the assessee and following the stand taken in the assessment order passed for AY 2001-02, wherein it was held that the assessee is not eligible for claim of deduction u/s 80IB, which was confirmed by the CIT(A), the AO disallowed the claim of deduction u/s 80IB. Also disallowed the claim foreign travel expenditure of Rs. 3,98,174/- on the ground that there was no satisfactory explanation with supporting evidences on the said claim. Aggrieved, the assessee carried the matter in appeal before the CIT(A). 20. Before the CIT(A), the assessee filed written submissions and the contents regarding claim of deduction u/s 80IB stated in the written submission were the same as stated in AY 2001-02 and followed various case laws in support of its claim, which were extracted by the CIT(A) at 3 of his order. As regards, reopening of assessment, it was submitted that based on the reasons for reopeni....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng a speaking order." From the reading of the said decision, the assessee is initially to file a return and after that the assessee can ask reasons for issuing the notices. In the present case, the assessee has not at all filed the return of income in the first place to seek for reasons recorded and hence the reopening u/s 148 is valid. Thus, this ground of appeal of the assessee is dismissed. 22. Similarly, in the appeal for assessment year 2003-04, viz. ITA No.1014/Hyd/2006, the assessee has raised grounds contesting the levy of interest under S.234D of the Act. 23. The assessee filed its return of income on 30/10/2004 and claimed refund and the return was processed u/s 143(1) on 15/06/2004 and granted refund of Rs. 52,93,783. Later on, the case was selected for scrutiny and the assessment order u/s 143(3) dated 27/01/06 was passed raising demand of Rs. 87,74,0389/-. The AO levied interest u/s 234D of Rs. 1,63,215/-on the said demand. The CIT(A) confirmed the action of the AO. Still aggrieved the assessee is in further appeal before us. 24. Before us, the learned counsel for the assessee submitted that in the relevant assessment year the provisions of section 234D did....