TaxTMI 
TaxTMI 
TaxTMI 
2016 (11) TMI 1470
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....ol/2016 is taken as the lead case. 3. The brief facts qua the assessee is that the assessee is a Private Limited Company incorporated under the provision of Companies Act, 1956.The assessee-company derives income mainly from manufacturing of poultryfeed. The assessee-company filed its return of income for respective years. A search u/s. 132 of the Act was conducted in the business premises of the assessee at 17-B & C, Everest House, 46C, Chowringhee Road, Kolkata-700071 on 13.12.2012. In view of search and seizure operation, the assessment proceeding was initiated against the assessee along with the normal assessment procedure u/s 143(3) of the Act. The assessee-company claimed deduction Under Section 80IB(5) of the Act and under Section 80-IE of the Act. The manufacturing unit of assessee-company is located in a category "A" notified backward district and therefore assessee is entitled to claim deduction u/s. 80IB(5) of the Act. The provisions of Section 80-IB of the Act, stipulates the conditions of eligibility in sub-section (2) of the said Section, wherein it is mandatory that the activity of the undertaking is that of manufacture of articles or things. The assessee was requir....
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.... 'processing' does not hold true in this case. (v) The assessee's further arguments citing the treatment in other statutes were also considered. As such, different statutes are devised from different perspectives. While Sales tax statutes concentrate on sale or transfer of goods, excise statute focus on production of goods as opposed to trade. However, none of these are essentially required to differentiate between 'manufacture' and processing. Similarly, the Bureau of Indian Standards are concerned with standardization of process and control of quality of products, but not necessarily with manufacture vs processing as is required from the perspective of the Income Tax Act. This has been amply clarified by the Hon'ble Supreme Court in the case of Sacs Eagles Chicory vs CIT (2002) 255 ITR 17, wherein it was held that classification as manufacturing industry in the National Industrial Classification is not applicable in respect of claiming deductions under the Income Tax Act. The apex court in the case of Collector of Central Excise vs. Kutty Fish Doors and Furniture Company (P) Ltd. AR 1998 SC 1164 observed that "manufacture" implies a change but every change is not manufactur....
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....m u/s 80IB(5) without bringing on record any evidence/document found during the search for such disallowance. Apart from this fact. (2) that, the AR has discussed in detailed and submitted a synopsis of manufacturing process of poultry feed in detail. It is also clear from the details filed that the end product i.e. poultry feed cannot be reversed back to its original raw material/ingredients. (3) so, it is clear that the poultry feed is a distinct product from different materials which are used in its production. I have also considered different case laws brought on record by the AR. Some of the case laws which are direct on this issue are- (1) DCIT, Circle 2 Kolkata vsAmricon Agro Vest (supra), (2) Komrala Feeds vs DCIT (supra) (3) Bajaj Tempo Ltd vs CIT (SC) (supra) (4) Topline Foods vs ACIT (supra), etc After careful consideration of facts brought on record on this issue, it is clear that the process of producing poultry feeds involves the process of manufacturing. Therefore keeping in view the principles of consistency and , the process of manufacturing, AO's act of making disallowance u/s 801B(5); for manufacturing of poultry feeds is not justified. Accordin....
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....e sake of brevity. In addition to this, the Ld. DR for the Revenue has relied on the order of ITAT Hyderabad Bench in the case of Venkateswra Feeds & Feeds vs. ACIT in ITA No.493(Hyd)/2005, ITA No.1013 & 1014 (Hyd) of 2006 and 868 & 870 (Hyd.) of 2008 dated 26.04.2012 wherein it has been observed about the term "manufacture" in para 17.5, the operative portion is reproduced below:- "17.5 In the conversion, whether the identity of the commodity before and after it undergoes various process/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 productio....
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.... the Act for the initial assessment year i.e Asst Year 2003-04, the grant of deduction under the said section in respect of the same unit is only academic and hence the assessee is entitled for deduction u/s 801B of the Act for the Asst Years 2007-08 and 2008-09. Accordingly, the ground raised by the revenue in this regard for the assessment years 2007-08 and 2008-09 are dismissed." The facts of the case of M/s Kanchan Oil Industries Ltd. (supra) cited hereinabove, is exactly identical to the facts in the instant case. In that case also deduction u/s 80IB has had been consistently granted but in case of 153A assessment the same was denied. In the instant case also deduction u/s 80IB had consistently been granted in scrutiny assessments u/s 143(3) whereas in the course of 153A proceedings the same has been denied by the AO that too without having any incriminating material on record. Therefore, taking shield of the above case the assessee prays before your honor to restore the deduction u/s 80IB of the Act. The assessee challenges the action of the Ld. AO on the following two grounds: Firstly on the ground of principles of consistency as the deduction claimed U/S 80IB had been ....
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....9;ble ITAT Kolkata in the case of Kant & Co. in ITA No1129/Kol/2006 wherein the Hon'ble Tribunal allowed the claim of the assessee by following the rule of consistency. The relevant portion is reproduced here under; "we agree with the submission of the assessee that the department has accepted the dividend income & interest income as income from business in past assessments. Following the rules of consistency, we direct the AO to treat the same as income from business," (d) Further in this regard reliance may be placed to the order of Hon'ble ITAT, Kolkata, in the case of ITO Vs Narin Prasad Dalmia 39 CCH 0035 (Kol) wherein the Hon'ble Tribunal decided the similar issue in favour of the assessee by following the rules of consistency. The relevant portion is reproduced here under; "Held, assessee invested in shares and transactions carried out were exactly similar to the transactions carried out in earlier yearsIn earlier years revenue had accepted income arising from sale of shares, declared by assessee in its books of account as investments, as income from capital gains-Thus income cannot be assessed as business income merely for reason that quantum is high or nu....
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...., Fish Meal, Maize Gluten, Shell Grit, Deoiled Rice, Bran, Rice Polish, Edible Oil, Taliow, List of Micro-ingredients Di Calcium Phosphate, Limestone Powder, Salt List of Vitamins AD3, B1, B2, B3, B5, B6, B12, FOLIC ACID, ANTI OXIDANT, TOXIN BINDER, ANTI COCCIDIAL, LYSINE - AMINO ACID, METHIONINE - AMINO ACID, PHYTASE ENZYME, COCKTAIL ENZYME, GROWTH PROMOTER, ANTIBIOTIC DRUG. List of Minerals Iron, Copper, Iodine, Manganese, Zinc, Cobalt All the above input materials are different in characteristics, taste, appearance, smell and properties. Some inputs are rich in protein, some are rich in energy, some in fibre and some in fat. Again, the micro-ingredients and minerals are totally different and are handled delicately in the manufacturing plant. The end product i.e., poultry feed is a product which has protein, energy, fibre, fat, minerals, calcium, and other nutrients as per Bureau of Indian Standards (BIS) specifications. This poultry feed is not a mere blending process. It involves lot of manufacturing activities which are possible only by technologically efficient machines. It is a scientific activity. A lot of power - electricity is required to manufacture poult....
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.... Further, the end product i.e, poultry feeds couls be consumed by a specific class of consumers i.e, poultry and by none else. The entire production process of poultry feeds was carried out with the aid of sophisticated plant and machinery and it is not a case where the assessee was merely mixing few agricultural produces in an unscientific manner. Hence, it is established that the poultry feeds manufactured by the assessee was an independent product having its distinct physical characteristic and identity. Further, the end product i.e, poultry feeds has a different trade name and marketability from its original raw products. Therefore, under no circumstance it can be argued that the raw product and the end product is merely a mixing of few raw materials and not manufacturing activity. The provisions of Sec 2(29BA) of the Income Tax Act 1961 which states as under: "[(29BA) "manufacture", with its grammatical variations, means a change in a non- living physical object or article or thing,- (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) bringing into existen....
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.... is not defined in the Act also. The Ld. CIT (A) extensively analysed meaning of the said expression with reference to judicial decisions discussed in his order. The test laid down by the Courts is whether the emerging new product is known to the trade, industry and commerce by its own name having its own application use and has a market of its own. Applying the criteria laid down in these judicial decisions we find that in physical appearance, colour and shape the Poultry feed vastly differs from the input materials. The poultry feed is manufactured in a scientific and systematic manner with the use and assistance of sophisticated plant and machinery acquired at a substantial cost. Poultry feed is recognised not only by trade and commerce but also by the statutory authorities under Central Excise, Sales Tax etc, as independent products Applying the ratio laid down in judicial decisions discussed in the order of CIT(A) we have no hesitation in holding that the assessee is engaged in manufacture or production of an article, contemplated in Sec 80IB (2) (iii). 16. We also find on the identical facts the Bangalore Bench of ITAT in the case of Komrala Feeds -Vs- DCIT 74ITD 65 held th....
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.... 18 For the reasons as set out herein before therefore we do not find any infirmity in the order of CIT(A) holding the assessee to be engaged in manufacture or production of an article. We are therefore of the considered opinion that the assessee satisfies the conditions of Sec 80-IB(2) (iii) of the Act and is therefore eligible for deduction u/s 80-IB. We therefore uphold the order of CIT(A) directing AO to allow deduction u/s 80IB to the assessee." From perusal of the said decision of this Tribunal, it is apparent that this Tribunal has categorically held in the case that the assessee is engaged in manufacturing of poultry feeds and that the assessee is engaged in the manufacture or production of an article. No contrary decision of the Coordinate Bench or the Jurisdictional High Court or that Hon'ble Supreme Court was brought to our knowledge which may have taken a contrary view. The Id. DR, even though relied on the decision of the Hyderabad Bench "A" of the Tribunal in the case of Venkateswara Feeds & Feeds -vs- ACIT 22 Taxmann.com 234 (Hyd.) but we noted that the undertaking for which the assessee has claimed the deduction under section 80-lB was merely engaged in conv....
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....oultry feeds amounts to manufacturing as evident from the series of order listed in the above table. Therefore, the Ld.AO had grossly erred on both facts and law by not following the decision of the Hon'ble Jurisdictional ITAT. The assessee also seeks reliance from the order of Hon'ble ITAT Mumbai Bench in the case of Topline Foods vs. ACIT in ITA Nos-9041/Mum/2010 wherein the Hon'ble Tribunal after examining the manufacturing process in details and also pointing out the importance of "Rule of consistency" has held that the production of poultry feeds in a sophisticated environment with the help of machinery and in conformity with BIS Standards amounts to manufacturing. Assessee also produced the following documents in support of the term "manufacturing": - i. List of NIC Codes of FEMA(Refer to Code No.217.10 & 217.20) in which Poultry Feed has been held as Manufacturing. ii. Layout plan approved by WBIDC. iii. Certificate of Registration issued by The Directorate of Industries, Govt. Of West Bengal vide No.DI/2000/327(C)/229(2)/1993 dated 27-02-2003 and amendment of Registration Certificate dated 09-09-2003. iv. Certificate from Department of Industrial polic....
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....of Venkateswara Feeds & Feeds -vs- ACIT 22 Taxmann.com 234 (Hyd.) but we noted that the undertaking for which the assessee has claimed the deduction under section 80-lB was merely engaged in converting the poultry mash feed into pellet feed and therefore that Bench has held that there was no change in the basic component or new or different article came into existence. As such, conversion was processing activity not manufacturing. The case of the assessee under consideration is entirely different. The assessee's eligible undertaking itself was independently carrying out the complete activity i.e. from mixing, grinding till the pelletisation. The raw materials once consumed cannot be reconverted into the same position. Its utility gets changed. Apart from this, keeping the principle of consistency and the process of manufacturing, the action of the Assessing Officer of making disallowance u/s. 80-IB(5)/80IE of the Act, in respect of manufacturing of poultry feeds is not justified. We do not find any infirmity in the order passed by Ld. CIT(A). Accordingly, we confirm the order passed by Ld. CIT(A). 6.5 In the result, appeals filed by the Revenue in respect of deduction U/s 80-....
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.... u/s 14A on the book profit of the assessee determined U/s 115JB. In the computation sheet attached with the assessment order the AO has disallowed Rs. 4,42,216/- u/s 14A while computing the assessee's income u/s 115JB. 8.1 The Ld. AR for the assessee submitted that AO has disallowed Rs. 4,42,216/- u/s 14A while computing income U/s 115JB, which is not in accordance with the law and the judgment of the Hon'ble Supreme Court in Apollo Tyres Vs. CIT (2002) 255 ITR 273 (SC), And CIT Vs. HCL Connect Systems & Services Ltd. (2008) 305 ITR 409(SC): " Disallowance made U/s 14A can not be added while computing book profit U/s 115JB, Explanation 1(f). The permissible adjustments that can be made u/s 115JB are very specific and are listed at the explanation 1. It is that clause (f) provides for adjustment towards: - " the amount or amounts of expenditure relatable to any income to which section 10 (other than the provisions contained in clause (38) thereof or section 11 or section 12 apply" However, it is stipulated in the conclusion to the clause that; 'If any amounts referred to in clause (a) to (i) is debited to the profit and loss account'. The disallowance made U/s 14A is by the Assess....