TaxTMI 
TaxTMI 
2019 (9) TMI 657
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....sed deduction of Rs. 1,46,51,327/- computed by the assessee during the assessment proceeding instead of Rs. 1,75, 51,043/- claimed in the return of income. 3. Aggrieved assessee went in appeal before the ld. CIT(A) challenging vide ground no. 4 that net profit earned on trading of goods of Dholpur unit amounting to Rs. 62,25,935/- were not liable to be disallowed for purpose of calculating the deduction u/s 80IB of the Act. The Ld. CIT(A) has confirmed the addition after carefully considering the written submission filed by the assessee on 07.10.2013, reproduced vide Para 4.3, and called for a remand report from the AO vide letter No. 128/CIT((A)-II/JCIT-4/Agra/2012-13/995 dated 10.12.2013 to verify the supporting evidences, the AO relied upon while concluding that the appellant assessee was engaged in trading of goods along with carrying out its manufacturing activities (Refer para 5.1 of impugned order). 3.1. The CIT(A) has reproduced in para 5.2 in page no. 5 to 9 of the of the impugned order, the AO's remand report dated 17.10.2013 being furnished in compliance to the CIT(A)'s letter dated 07.10.2013, on the submissions of the assessee that disallowance of deduction u/s 8....
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....is reproduced as under- "2. On the last date of hearing the appellant was asked to furnish basis for claiming deduction u/s 8018 of the Income Tax Act, 1961. in this connection, it is submitted that the appellant is engaged in manufacturing of Desi Ghee and otheritems of milk products. As already stated that the Ld. Assessing Officer has disallowed net profit on trading goods ofDholpur Unit amounting to Rs. 62,35,937/- while calculating deduction allowable under the provisions of section 80IB of the Income Tax Act. The aforesaid amount was a part of profit earned from Dholpur Unit and had rightly been claimed by the appellant as a deduction u/s 80IB of the Income Tax Act, 1961. 3. In this connection, it is submitted that the facts of the case of the appellant are similar to those available in the following case laws and therefore, the appellant relied upon these case laws:- (i) CIT Vs. Vinbros& Co. (2012) 210 Taxman 252/254 CTR 110/79 DTR 43 (SC). (ii) CIT Vs. Vinbros& Co. (2009) 177 Taxman 217 (Mad) (High Court), (Judgmentof Madras High Court) (Hi) India Cine Agencies Vs. Dy. CIT (2012) 210 Taxman 253 (SC). S. 80IB : Deduction - Industrial under....
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....h daseeghee from other traders to be manufactured at the premises of the factory of the appellant in order to bring it up to the level of standard desee ghee to be sold under the brand name of the appellant company, thus, it is submitted that since the facts of the present case are absolutely identical to those given in the aforesaid cases there does not appear to be any reason or basis for disallowing the claim of the appellant under the provisions of section 801B of the Income TaxAct, 1961. 6. That it may again be submitted here that the Ld. Assessing Officer has erred in law and on facts in disallowing net profit on trading goods comprising of SMP and unfinished and rough desee ghee containing guthia etc. The SMP (skimmed milk powder) comes in jute bags and it contain moisture etc. This moisture makes the SMP quite harder and is not at all eatable. Thus, the appellant company has to reprocess it by removing moisture etc. to give it a shape of very fine powder and good in taste. The appellant company has also to manufacture it up to the level and quality of the company to be sold under the brand name of the company, similar type of treatment is given to the unfinis....
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....hinery v/nero raw material is put for manufacturing and finished goods is prepared for its sale in the market. The commodity which is produced by the company has its special taste and quality, the manufactured goods cannot be compared with any other trading goods. Therefore, a special product ismanufactured and it cannot be separated for deduction claimed u/s 80IB of the Income Tax Act, 1961. 9. It is also submitted that the Ld. Assessing Officer has taken the trading profit on estimated basis without giving any basis or reason. Therefore, the action of the Assessing Officer cannot be said to be correct in the eyes of the law and the ' estimated trading profit taken by the Ld. Assessing Officer is unjust, unlawful and cannot be regarded as correct. The action of the Ld. Assessing Officer in taking estimated trading profit deserves to be cancelled. 10. In view of the above mentioned facts, it is requested that the disallowance made by the Ld. Assessing Officer for Rs. 62,53,927A for working out the deduction u/s 80!B of the Income Tax Act, 1961 deserves to be cancelled and the said amount of Rs. 62,53,937/- be taken into account for purpose of allowing deductio....
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.... a new commercial productbeing quite distinct and different from the product purchased by the company and therefore, it is a case manufacturing of new product. 6. The submission made by the Ld. AR is not correct. The auditor, as per annexure 'A', has given complete details of quantity and value of opening stock, production, purchase, turnover and closing stock of various raw material and finished goods including ghee and skimmed milk powder. The quantity of goods manufactured is given as per column 'f of the table and the quantity of goods purchased is given as per column 'g' of the table. The quantity of ghee produced is shown at 8146871 Kg. and the quantity of Ghee purchased is shown at 1065079 Kg. Similarly, the quantity of skimmed milk powder produced is shown at 12240341 Kg. and the quantity of skimmed milk powder purchased is shown at 1754685 Kg. Thus, the quantity of trading stock of ghee and skimmed milk powder is reported by the auditor himself. The assessee has not disputed that the company has purchased above products. The company has simply stated that after purchasing the ghee and skimmed milk powder, they were processed by removing moistur....
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.... (j) Closing Stock Milk (CFC) 0.000 5952995 0.000 5952995 0.000 0.000 Milk (CFC) 0.00 0.00 0.00 1415.51 0.00 0.00 Ghee 758970.888 8146871.692 1065079.290 7039089.088 979.920 2930852.862 Ghee 1366.15 1940.52 16091.67 6441.72 Skimmed Milk 1364785.100 12240341.700 1754685.000 13653486.500 307.300 1706018.000 Skimmed Milk 1542.21 1845.29 16731.51 2279.11 Total (Qty) 2123755.983 26340203.392 2819764.290 26645570.588 1287.220 4636870.862 Total (Rs.) 2908.355 3785.80 34238.70 8720.825 Electric Unit 0.000 4189103.00 0.000 4189103.00 0.000 0 Electric (Rs.) 0.00 0.00 151.562 0.00 Grand Total 2908.355 0.000 3785.803 34390.261 0,000 8720.825 Stock in Process:- Current Year Quantify (in kgs.) amount (Rs. In lacs) Milk Fat (Ghee) 495400 1065.11 Milk Solid not fat (SNF/SMP) 78000 1040.06" From above quantitative details provided by the auditor, it is quite ....
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....d that the purchased goods are also being mixed with certain chemicals and essence to convert them to Ghee and Skimmed milk of the brand sold by the company and hence, in view of the Ld, AR, the process involved is akin to manufacturing. Therefore, he pleaded that deduction u/s 80IB should be allowed on \ purchased goods also. Against the above arguments of the Ld. AR, the AO contended that the purchased Ghee and Skimmed Milk are being sold only after extracting moisture and removing guthale and hence, the process is akin to only cleaning process and not any manufacturing process and no deduction u/s 80IB should be allowed. In order to resolve this dispute, the Ld. AR has been asked to show the production from Raw Material and purchased goods separately giving the details of production process involved in producing Ghee and Skimmed Milk from Raw Milk and production process involved in making Ghee and Skimmed milk of the brand being sold by the assessee from these goods purchased from market. He has also been asked to give the details of chemical and essence being added during manufacturing process to make the Ghee and Skimmed Milk suitable for the brand being sold by the assessee. ....
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....fumed hair oil using coconut oil and mineral oil as per the requirement of Hindustan Lever Ltd. The assesses claimed the deduction under section 80IB. The assessing officer rejected the claim. In appeal before the Tribunal the Tribunal allowed the claim of assesses. On appeal by revenue the Court following the ratio of Supreme Court in CCE Vs. Zondu Pharmaceutical Works Ltd. (2006) 12 SCC 453, wherein it has been held that addition of perfume to coconut oil to produce perfumed oil constitute a manufacturing process, hence decision of Tribunal holding that the assesses is engaged in manufacturing activity is justified. The appeal of revenue was dismissed. (A.Y. ITA No. 5779 of 2010 dated 30.11.2011)." 4. That as regards treatment of Trade Tax Department to our goods it is submitted that equal treatment is given by the Trade Tax Department on trading goods and manufactured goods. Therefore, there is no dispute on the levy of trade tax on the trading goods as well as manufactured goods. 5. That the aforesaid reply be treated as final submission by the appellant and appeal may be decided on the basis of our written submission submitted from time to time." Aft....
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....s of processing done by you with respect to these goods to examine about the applicability of case law CIT vs. Beta Cosmetics in your case. 2.1 With regard to your declaration in Trade Tax Department with respect to sale made by you out of manufacturing goods and trading goods, it has been submitted in your letter filed on 3tfn October, 2013 that equal treatment is given by the Trade Tax Department on trading goods and manufacturing goods and, therefore, there is no dispute on the levy of Trade Tax on the trading goods as well as manufacturing goods. In order to examine the above contention, you are required to furnish the copy of returned fifed by you to the Trade Tax Department for the year under consideration showing your declaration for trading goods as well as manufacturing goods. - 2.2 In this appeal, only issue to be decided vs about providing of deduction u/s 30/B on certain goods which have been pointed out by the auditor in the audit report as trading goods as per the finding given by the AO in the impugned assessment order. This issue could not be decided so far because the requisite details as called from you could not be submitted so far Therefore, yo....
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....cated for compliance." 5.6 I have considered the rival submissions put up before me during the appeal proceeding. From the details given by the Auditors and also found by the AO during assessment proceeding, the assessee (appellant) is manufacturing Deshee Ghee and Skimmed Milk from Raw Milk and also purchasing Deshee Ghee and Skimmed milkfrom market separately and then these products purchased from market are also packed in pouches and tin after some cleaning process .and sold in the market under the brand name of the company along with its manufactured products. With respect to such purchase of goods from the market, it has been explained that guthale is removed from Ghee and moisture is removed from Skimmed Milk before, they are repacked in pouches and tins bearing brand of the company. As per the AO, such removal of guthale from Ghee and moisture from Skimmed Milk is akin to cleaning process and not manufacturing process. In order to rationalize his claim of manufacturing done from the Ghee and Skimmed milk purchased from the market, the Ld. AR claimed that to make these Ghee and Skimmed milk suitable for the brand of the company, chemical and essence are also added bu....
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....hat a new and different article must emerges having a distinct name, character or use. Reference may be made in this respect to the decision of the Supreme Court in the case of Tungbhadra Industries Ltd. Vs. Commercial Tax Officer AIR 1961 SC412. Now, under section 2(29BA) of the Income Tax Act, the word "manufacture" has been defined. This section has been introduced w.e.f. 01.04.2009. This definition is 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 existence of a new and distinct object or article or thing with a different chemical composition or integral structure." 5.7 Now, applying the above definition of manufacture as laid down in the decision of the Hon'ble Supreme Court and also incorporated under the Income Tax Act w.e.f. 01.04.2009, I find that in the present appeal in case of trading goods, the purchased material is Deshee Ghee and Skimmed Milk ....
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.... Desnee Ghee and Skimmed Milk purchased from the market, what was Deshee Ghee and Skimmed Milk continued to be Deshee Ghee and Skimmed Milk but with lesser quantity of guthale in Deshee Ghee and lesser quantity of moisture in Skimmed Milk and no new product has emerged from the process employed by the assessee. Since the output product is not different than the input product and the purpose for which input product can be used, arc only the purpose for which the output product can be used, the Deshee Ghee and Skimmed Milk purchased from the marked cannot ba said to be sold out of manufactured Dashee Ghee and Skimmed Milk. Therefore, suchsales have been shown by the assessee (appellant) to the Trade Tax Department as trading sale and hence, for such sale, the assessee (appellant) would not be entitled for deduction u/s 80IB as held by the AO In the assessment order. In the case law of CIT Vs. Beta Cosmetics ITA No. 5759 of 2010 dated 30.11.2011, of Bombay High Court, the output product was made as perfumed hair oil using coconut oil and mineral oil and hence, chemical composition of the oil made to be used for hair has changed from that of pure coconut oil due to adding of m....
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....ilk powder and ghee. The assessee company is also purchasing raw ghee and raw dairy milk which after getting it processed is packed in various sizes of packets and thereafter sold in the open market. That the assessee has claimed deduction under Section 80(IB)(3) of the Income Tax Act against the profit earned from manufacturing of ghee and milk powder. The AO while allowing the deduction under Section 80(IB)(3) of the Income Tax Act has not allowed the deduction against the profit earned from selling of ghee and milk powder which the assessee has purchased from the market and after processing them got them sold in the market. The AO in the assessment order has mentioned that the milk powder and ghee which the assessee company has purchased from the market and after having the same processed, same is packed in various size of packets and sold them in the market and on these purchases, the assessee is not entitled for the deduction under Section 80(IB)(3) of the Income Tax Act being as per Section 80(IB)(3) there is no process involved so as to eligible the assessee for the deduction under Section 80(IB)(3). The assessee further submitted that in respect of sale of products (ghee....
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....tter is very old one. Thanking you, Submitted Sd/- (Rajendra Sharma) Advocate Counsel for the Appellant Dated: July 19, 2019. 5. The ld. DR has placed strong reliance on the impugned order Para 5.3 of CIT(A)'s Order as under: "During discussion, it has also been found that sale made out of purchase of Ghee and Skimmed Milk is being shown as trading in the return filed to the Trade Tax Department" Page 16 of CIT(A)'s Order "Sales of such goods are also being shown as trading sale of goods in the return filed to the Trade Tax Department." ' "............Therefore, now the question to be decided is whether repacking of trading goods after a cleaning process can be called as manufacturing.". 6. Heard both the sides and perused the material on record. It is not disputed that the assessee was engaged in trading of Ghee and Skimmed Milk which is also evident from the return filed to the Trade Tax Department wherein the Sales of such goods are also being shown as trading sale of goods in the return filed to the Trade Tax Department. The question before us is to decide whether repacking of trading goods after a....
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....rading goods and no new product has come into existence with a different chemical composition or having different name, character and use Therefore, the DesheaGhea and Skimmed Milk sold after purchasing from the market and repacking them after removing guthale from Deshee Ghee and moisture from Skimmed milk would not amount to manufacture, if the above definition of manufacture is applied. 7.3 The Supreme Court in the case of Sterling Foods Vs. State of Karnataka [1986] 3 SCO 469 held that Shrims, prawns and lobsters, even after undergoing process of peeling, deveining, cleaning freezing and packing, retain their original identity and do not become different commodities.The Madras High Court in the ease of State of Tamil Nadu Vs. Indodan Milk Products (1980) 45 STC 498 has held that dehydration of milk to obtain condensed milk does not amount to manufacture.Subjecting raw uncut diamonds to process of cutting and polishing, which yields polished diamond, has been held to be not amounting to 'manufacture', in the case of C/r Vs. Gem India Mfg. Co. (2001) 249ITR 307 by the Supreme Court. 7.4 In another decision of Madras High Court in case CIT Vs. Sri Meenakshi Asphalts ....