TaxTMI 
TaxTMI 
2013 (7) TMI 353
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.... Brief facts, apropos the first issue are that, the assessee is a partnership firm which is registered as a Small Scale Industry with the Director of Industries, Government of Maharashtra. The assessee is exclusive suppliers of food packets for the "mid day meal scheme" of the Government. For this purpose, it has been stated that it is converting raw food material into therapeutic food in packets. During the assessment year, the assessee has disclosed total sales of Rs. 15.95 crores and has earned net profit of Rs. 39.26 lacs, from which the assessee has claimed deduction under Section 80IB of Rs. 15,75,080/- i.e. 25% of the net profit. During the course of assessment proceedings, the assessee was required to justify the claim made under Section 80IB with reference to the activities undertaken by the assessee during the year under consideration for conduct of its business. In response, the assessee submitted a note on the nature of operations and various steps involved in the processing of raw materials to the stage of finished products. The assessee's explanation before the Assessing Officer has been incorporated by him in para 4.3 of the assessment order. The learned Assessing Of....
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.... the assessment order. As pointed out by the Assessing Officer, as a result of the processing undertaken no new and distinct commodity, having a different character has been brought into existence. The final product does not have different chemical composition or integral structure. The case laws cited by the Assessing Officer especially related to food stuffs are apt. In addition the following decisions also can be relied upon. In D.D. Shah & Bros. vs. UOI [2006] 8 (I) ITCL 48 (Raj. HC), blending of different qualities of tea was held not to amount to manufacturer for the purpose of sec. 80IB. Similarly for blending and bottling of spirits the same principle was upheld in Shaw Scott Distilleries (P) Ltd. vs. ACIT [2000] 76 ITD 89 (Cal. Trib 503). The list of ingredients submitted by the appellant as raw materials & final product does not indicate any new product has come into existence. Different food items (raw materials) have been merely ground & mixed together, the chemical composition has not changed intrinsically. The constituents of the final product are separate. The Assessing Officer's action is thus confirmed." 4. Before us, the learned counsel after explaining the entir....
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....rinding, roasting, blending, etc. there is no change in the chemical properties of the substance and there is no new and distinct product which comes into existence. Hence it cannot be held that assessee was engaged in any kind of manufacturing activities from the industrial undertaking. His main reliance apart from various other decisions has been on the decision of Hon'ble Supreme Court in the case of India Hotels Company Ltd. (supra). 7. One of the basic requirement for deduction under Section 80IB is that, an industrial undertaking should manufacture or produce an article or a thing. Over the period of time it has been well established principle by various judicial pronouncements that the end product, which has been manufactured, should be different in name, character and use. It should be distinct from the original raw material. The process should employ use of machines, skilled labours and a large outlay adding to the substantial value addition to the raw materials. As has been discussed above various raw materials are subject to various stages of processing like roasting, grinding, mixing, blending, etc through a skilled labours and machines in a proper proposition and rati....
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....terest on partner's capital account has to be added back to the income, being excessive claim made under Section 80IB. This excessive claim was on account of fact that while computing the deduction, the assessee has reduced the interest paid on partners' capital account for an amount of Rs. 22,64,740/- to arrive at the taxable profit. Such a deduction in taxable profit is not permissible, accordingly, he worked out the excessive claim of Rs. 5,66,185/- in the following manner :- "Profit as per P&L A/c Rs. 39,26,376/- Add: Items considered separately Depreciation 1,54,557/- Interest on partners capital 22,64,740/- Amount disallowed u/s 43B 41,275/- Rs. 24,60,572/- Rs. 63,86,948/- Less Depreciation u/s 32 of the Act Rs. 86,629/- Rs. 63,00,319/- Less Interest on partner capital Rs. 22,64,740/- Gross Total Income Rs. 40,35,579/- Less Deduction u/s 801B @ 25% Rs. 10,08,895/- Taxable Profit Rs. 30,26,684/- (Protective Addition Rs. 5,66,185/-)" This has been confirmed by the CIT(A) also. 9. After hearing both the parties and also the findings of the AO as well as the CIT(A), we find that the comp....
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....s directed to examine the records and identity the specific violation and make disallowance u/s. 40(a)(ia) accordingly." 11. The learned counsel reiterated the same submissions made before the CIT(A) and submitted that once there is no privity of contract with the individual truck owners, there is no requirement to deduct TDS, therefore no disallowance under Section 40(a)(ia) can be made. He further submitted that the A.O. and CIT(A) had gone by truck wise instead of driver wise for working out the aggregate payments made during the year, which is not correct. On the other hand, learned Departmental Representative relied upon the findings of the AO as well as the CIT(A). 12. After carefully considering the rival contention, findings of the AO as well as the CIT(A), we find that the entire details for the payments made to the various truck drivers as claimed by the assessee has not been furnished. If the assessee has claimed that firstly, there is no privity of contract with the individual truck drivers which have been engaged on random basis and secondly, no payment has been made exceeding 50,000/-, then these aspects need to be proven by the assesee and proper scrutiny and exami....