TaxTMI 
TaxTMI 
2021 (7) TMI 185
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....ee is in the business of manufacturing of odoriferous compounds through his proprietary concern M/s Khattri Aromas. For the assessment year under dispute, the assessee had originally filed his return of income under section 139 (1) of the Act. Subsequently, on 04.12.2014 a search and seizure operation under section 132 of the Income Tax Act, 1961 was conducted in assessee's residential as well as business premises. In consequence of the aforesaid search and seizure operation, the AO initiated assessment proceedings by issuing notice under section 153A of the Act. In response to the said notice the assessee on 28.07.2016 again filed a return of income declaring total income of Rs. 14,74,35,660/- after claiming deduction under section 80IC of the Act. In course of assessment proceedings, the AO, from the material available on record, found that the in course of search and seizure operation in the factory premises of the assessee a statement on oath was recorded from one of his employees, namely, Shri Sanjeev Kumar Agarwal, wherein, the concerned employee, on query being raised regarding the manufacturing process adopted by the assessee, stated that the manufacturing activity invol....
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....istency would apply and accordingly allowed assessee's claim of deduction. Further, after analyzing the facts and material on record, learned Commissioner (Appeals) also recorded a factual finding that the assessee is involved in manufacturing activity. Hence, entitled for deduction u/s 80IC of the Act. Accordingly, he allowed assessee's claim. 5. At the outset, Shri Nitesh Joshi, learned counsel for the assessee submitted, the issue is squarely covered by the decision of the Tribunal in assessee's own case in assessment years 2010-11, 2011-12 and 2012-13, wherein, the Tribunal following its own decision in case of assessee's sister concern M/s Khushbu Industries has allowed assessee's claim of deduction under section 80IC of the Act. He submitted, since there is no difference in factual position in the impugned assessment year, the decision of the Tribunal would squarely apply. 6. The learned Departmental Representative, though, agreed that the Tribunal in the preceding assessment years has allowed assessee's claim of deduction under section 80IC of the Act, however, he relied upon the observations of the AO. 7. We have considered rival submissions and perused the mate....
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.... assessee's claim of deduction under section 80IC of the Act was disallowed by the AO in assessment years 2010-11 and 2011-12 and 2012-13 as well. However, learned Commissioner (Appeals) allowed assessee's claim of deduction. Being aggrieved, the revenue came in appeal before the Tribunal. While deciding revenues appeals in ITA No. 2173, 2174 and 2175/Mum/2018 dated 27.05.2020, the Tribunal upheld the decision of learned Commissioner (Appeals) observing as under:- "4. Learned representatives fairly agree that the issue in appeal is squarely covered by the order dated 19th October 2016 passed by a coordinate bench, in the case of DCIT Vs Khusboo Enterprises [ITA No. 371/Lkw/2016; order dated 19th October 2016]- which was also covered by the same search and seizure operations, for the assessment year 2008- 09, wherein the coordinate bench has, inter alia, observed as follows: 5. We have heard the rival submissions, carefully considered the same along with the orders of the tax authorities below as well as the documents placed before us. The only question before us is whether the assessee is engaged in manufacturing activities to be eligible for deduction u/s 80IC of....
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....involves melting, grinding, mixing, stirring at optimal temperature to produce a distinct product. There is proper reaction amongst the products to produce a distinct flavor or fragrance. It was submitted that a perfume or a flavor may involve from as less as 10 to as much as 50 raw materials to manufacture the product. Furthermore, a raw material may have 0.1% to even 50% of the constitution of finished goods. The raw materials have to be added in a proper chronological manner and a proper formulation without which the finished goods cannot be produced. The mixing has to be done at controlled temperatures to get the desired chemical reaction. The finished goods are themselves a result of chemical reactions only. Several raw materials used by the assessee are hazardous chemicals, which are not per se fit for human consumption or application. However, scientifically derived formulations, whereby other chemicals and substances are mixed with the material, such that the hazardous properties are removed, are used by the assessee. Several natural oils and flavors, which may otherwise rot/decay with passage of time, and are in concentrated form are required to be treated and ble....
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....T.A. No.68/PNI/2013 (Goa) (xi) Fiberfill Engineers vs. ACIT, I.T.A. No.1853/Del/2015 (xii) Aspinwall & Co. Ltd. vs. CIT [2001] 251 ITR 323 (SC) 5.3 Learned counsel for the assessee vehemently contended that if this Tribunal wants to verify whether the product or the article produced by the assessee is different from the raw material having the different market value and which cannot be reconverted into the raw material, this Tribunal can verify the same by visiting the industrial unit of the assessee. After having the discussion with D.R, we decided to call for the demonstration of the manufacturing process of the assessee in respect of one of the item and therefore, the case when it was initially fixed for 14/09/2016 when the detailed argument has taken place, adjourned the case for 15/09/2016 to see the demonstration of two of the products of the assessee i.e. sweet gulab and compound bela. 5.4 On 15/09/2016 the representative of the assessee appeared along with three chemical engineers of the assessee company having different chemicals in small bottles along with the induction and glass jars. The assessee first demonstrated how the sweet gulab....
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....produced by mixing the various chemicals is entirely different from the raw material. Its usage as well as the utility is different. It cannot be converted again in the same form of the raw material. It has resulted in the transformation of the object or the article which is entirely new and distinct having a different name, character and use. We noted that the provision of section 80IC was inserted in the statute by the Finance Act, 2003 with effect from 2004. Section 80IC nowhere defines the word "manufacture‟ or "production‟ of an article. We noted that the word "manufacture‟ or "production‟ of an article or thing has also been used u/s 80IA as well as u/s 10B of the Act. Section 10B defined the word "manufacture‟ for the purpose of the said section to include any - (a) process or (b) assembling or (c) recording of programme on disc, tape, perforated media or other information storage device. Thus, "process‟ was included within the word manufacture for the purpose of sec. 10B. Explanation (iv) of the said sec. 10B further provided that the word "produce‟ for the purpose of said section, in relation to any article or thi....
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....finition was adopted by the Legislature in section 10AA w.e.f. 10/02/2006 as adopted by the Special Economic Zones Act, 2005 by inserting Explanation 1(iii) to section 10AA of the Act which reads as under:- (iii) "Manufacture‟shall have the same meaning as assigned to it in clause (r) of section 2 of the Special Economic Zone Act, 2005. 5.10 As per the said definition "process‟ is included in manufacture. Subsequently, by the Finance Act, 2009 w.e.f 1.4.2009, clause (29BA) was inserted in section 2 of the Income Tax Act, 1961defining the expression "manufacture" as under: "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. 5.11 In Chowgule & Co. Pvt. Ltd. Vs. Union of India (1981) 1 SCC 653 Hon‟ble Supreme Court, after considering the judgment of Hon‟ble ....
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....ercial Taxes [16 STC 935 (Cal)]. What is necessary in order to characterize an operation as "processing" is that the commodity must as a result of the operation, experience some change. Here, in the present case, diverse quantities of ore processing different chemical and physical compositions are blended together to produce ore of the requisite chemical and physical composition demanded by the foreign purchaser and obviously as a result of this blending, the quantities of ore mixed together in the course of loading through the mechanical ore handling plant experience change in their respective chemical and physical composition, because what is produced by such blending is ore of a different chemical and physical compositions. When the chemical and physical composition of each kind of ore which goes into the blending is changed, there can be no doubt that the operation of blending would amount to "processing" of ore within the meaning of Section 8(3)(b) and Rule 13. It is no doubt true that the blending of ore of diverse physical and chemical compositions is carried out by the simple act of physically mixing different quantities for such ore on the conveyor belt o....
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....nce of new and distinct object or article or thing with different chemical composition or integral structure, tantamount to manufacture. Even though they remain in liquid form but it is not a case that all the ingredients which are being mixed are in liquid forms. The taste as well as the smell and the utility of the input and the output which we have seen during the course of demonstration in the court, are entirely different. In our opinion, in view of this clause and the decision of Hon'ble Supreme Court in the case of Chowgule & Co. (supra), it cannot be held that the assessee is engaged in these units in manufacturing. 5.13 Further, in CIT Vs N.C. Budharaja & Co. (1993) 204 ITR 412 (SC), Hon‟ble Supreme Court further observed that the word "production" is much wider than the word "manufacture". It was said (page 423): "The word "production" has a wide connotation than the word "manufacture". While every manufacture can be characterized as production, every production need not amount to manufacture... The word "production‟ or "produce‟ when used in juxtaposition with the word "manufacture‟ takes in bringing into existence new goods ....
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....t the application of any mechanical or chemical process blended these brands of different qualities according to a certain formula evolved by them and sold the tea mixture in the market. The question arose before the Sales Tax Authorities whether the different brands of tea purchased and blended by the assessee for the purpose of producing the tea mixture could be said to have been "processed‟ after the purchase within the meaning of the proviso to Section 8(a), so as to preclude the assesses from being entitled to deduct from their turnover under Section 8(a), the value of the tea purchased by them. The High Court of Bombay held that different brands of tea purchased by the assesses could not be regarded as "processed‟ within the meaning of the proviso to clause (a) of Section 8, because there was "not even application of mechanical force so as to subject the commodity to a process, manufacture, development or preparation" and the commodity remained in the same condition. The argument of the Revenue before us was that this decision of the Bombay High Court was on all fours with the present case and if the blending of different brands of tea for the purpose of producing....
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.......... " 5.17 In deciding the said question, the Hon‟ble Supreme Court after considering the judgment of the Hon‟ble Bombay High Court in Nilgiri Ceylon Tea Supplying Co. Vs. State of Bombay [1959] 10 STC 500 (Bom), inter alia, observed asfollows: (i) When different brands of tea were mixed by the assessee as in Nilgiri Ceylon Tea Supplying Co.‟s case (1959) 10 STC 500 (Bom) for the purpose of purchasing a tea mixture of a different kind and quality according to a formula evolved by them, there was plainly and indubitably processing for the different brands of tea, because these brands of tea experienced, as a result of mixing, a qualitative change, in that the tea mixture which came into existence was of a different quality and flavor than the different brands of the tea which went into the mixture; (ii) There are, it is true, some observations in the judgment of the Bombay High Court which seem to suggest that if instead of manual application of energy in mixing the different brands of tea, there had been application of mechanical force in producing the tea mixture, the court might have come to a different conclusion and these observat....
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....s treated as "manufacture‟ or "production‟ of an article qualifying for exemption. Hon‟ble Kerala High Court considered the contention of the assessee that the scheme of income tax exemption available to units in the SEZ u/s 10A of the Act and units in the free trade zone provided u/s 10AA of the Act and the exemption available to 100% EOU u/s 10B of the Act are very similar in nature and the wordings of the statutory provisions are similar in nature. Hon‟ble Kerala High Court also considered the judgment in the decision of Supreme Court in Tara Agencies (292 ITR 444 (SC) relied upon by the Sr. Standing Counsel for the revenue, wherein Hon‟ble Supreme Court clearly held that blending of tea does not amount to "manufacture‟ or "production‟ of an article or thing, but is only processing. Hon‟ble High Court allowing the appeal of the assessee held that the assessee was exclusively engaged in blending and packing of tea for export and was not manufacturing or producing any other article or thing. It was recognized as a 100% EOU division and the Department had no case that the assessee‟s unit engaged in export of tea bags and tea pac....
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....lause of section 10B of the Incometax Act and the Department has no case that the assessee‟s unit engaged in export of tea bags and tea packets is not a 100 per cent export oriented unit. So much so, in our view, if exemption is denied on the ground that products exported are not produced or manufactured in the industrial unit of the assessee‟s 100 per cent export oriented unit, the same would defeat the very object of section 10B. Further, industrial units engaged in the very same activity, i.e., blending, packing and export of tea in the special economic zones and free trade zones, will continue to enjoy tax exemption under section 10A and section 10AA respectively. The still worse position is that the appellant would be denied of export exemption available under section 80HHC even to a merchant exporter. In our view, the decision of the Supreme Court in Tara Agencies‟ case [2007] 292 ITR 444 (SC) is not applicable for the purpose of considering exemption for industries in the export processing zones, free trade zones and to 100 per cent export oriented units covered by sections 10A, 10AA and 10B of the Income tax Act. Therefore, following the judgment of this c....
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....orting and dealing in various commodities, more particularly tea, coffee, jute, pepper, chillies, cardamom, turmeric and similar other spices, etc. The assessee, as per the claim is a 100% EOU within the meaning of section 10B of the I.T. Act, 1961 and claimed exemption under that section. The assessee buys tea from auctions held in Tea Board recognized Auction centres at Kolkata, Guwahati, Siliguri, Cochin, Coimbatore and Coonoor. The assessee conceded the factual position that it imports small quantity of tea of the type and quality not produced in India. It further conceded the factual position that it does not grow or manufacture any tea. According to the assessee, tea so bought in different auctions is processed with a viewto remove all dust and foreign substances and thereafter it blends different varieties of tea to make it of "uniform and consistent‟ quality throughout the year. Thereafter, it is packed in consumer packets of 50, 100, 250, 500 or 1000 gms. Etc. or packed in the form of tea bags of 1.94 gms. Or 2 gms. etc., as the case may be. The assessee claimed exemption u/s 10B of the Act in respect of its 100% EOU for export of manufactured jute bags, packet tea, ....
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.... Manufacture, for the purpose of this Policy,shall also include agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining." But the only difference between the Exim Policy of 2002-07 and of 2000 is that words "and segregation" which were appearing in the definition of the expression 'manufacture" in the Exim policy of 2000 was deleted in the Exim Policy of 2002-07. Further, even in Prevention of Food Alternation Rules, 1955, it has been inter alia stated that "Tea used in the manufacture of flavoured tea shall conform to the standards of tea. The flavoured tea : manufacturers shall register themselves with the Tea Board before making flavour tea In The Tea (Distribution & Export) Control Order, 1957 issued by the Government of India, Ministry of Commerce & Industry (Department of Commerce) the expressions "flavour tea", "green tea" "instant tea", "packet tea" "quick brewing black tea", "tea" and "test bag" have been separately defined as distinct product. In Tea (Marketing) Control Order, 2003 issued by the ' Central Government, in exercise of the powers conferred by section 30(5)(3)....
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....nual capacity of 3110 Mt. in terms of Registration Certificate dated 26th December, 1995, inter alia, with the condition that its 100% production (excluding rejects not exceeding 5%) would have to be exported and that its registered EOU Unit shall make value addition to a minimum extent of 79%. Undisputedly, the exported consumer products, blended by Assessee in its said factory premises is a case of substantial value addition, as compared to the unblended black tea in granule and dust form normally available for sale in the open retail market throughout India. 34. The subject for consideration under sections 10A and/or 10B of the said Act is manufacture / production of tea ; the object being grant of benefits of tax exemption to exporters carrying out their operations in FTZ, EOU, EPZ & SEZ areas in accordance with the Exim Policy declared by the Government of India in Parliament and in the light of allied and governing laws; in the light of allied laws e.g. The Tea Act, 1953, The Prevention of Food Adulteration Act, 1953 read with Prevention of Food Adulteration Rules, 1955. The Tea (Marketing) Control Order, 2003, The Tea (Distribution & Export) Control Order, ....
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....ial unit of the assessee's 100% EOU, it would defeat the very object of sections 10B of the Act. 36. We, in view of the above, hold that when the products for which the assessee's unit is recognized as a 100% EOU are tea bags, tea in packets and tea in bulk packs and the assessee is exclusively engaged in blending and packing of tea for export may not be manufacturer or producer of any other article or thing in common parlance. However, for the purpose of Section 10A, 10AA and 10B, we have to consider the definition of the word "manufacture" as defined in Section 2(r) of SEZ Act, Exim Policy, Food Adulteration Rules, 1955, Tea (Marketing) Control Order, 2003, etc. We also find that the definition of 'manufacture' as per Section 2(r) of the SEZ Act, 2005 is incorporated in Section 10AA of the Income-tax act with effect from 10.02.2006. Hon'ble Kerala High Court in the case of Girnar Industries (supra) had held such amendment in Section 10AA to be of clarificatory in nature. The definition of 'manufacture' under the SEZ Act, Exim Policy, Food Adulteration Rules and Tea (Marketing) Control Order is much wider than what is the meaning of the term `m....
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....so gone through the decision of Hon‟ble Supreme Court in Indian Cine Agencies Vs CIT 308 ITR 98. In this case the question before the Hon‟ble Supreme Court was: When the assessee was engaged in the activity of cutting jumbo roll films into flat and small rolls in desired sizes, whether such activity undertaken by the assessee was manufacture or production? In this case, the Hon‟ble Supreme Court after discussing various cases, the provisions of different Acts and the dictionary meaning took the view that the assessee was engaged in manufacture / production. While holding so under para 12 of its order, Hon‟ble Supreme Court has given the same analogy for the purpose of eligibility of deduction under section 80HH and 80-I as has been given by the Kerala High Court in the case of Tata Tea discussed herein above for the purpose of section 10B, that if there was no manufacturing activity, then the question of referring to item 10 of Eleventh Schedule for the purpose of exclusion does not arise. From this judgment, thus, it is apparent that the Hon‟ble Apex Court accepted that manufacture/production includes processing also. 5.26 We have al....
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....e of the view that in the present cases, the activity undertaken by each of the respondents constitutes manufacture or production and, therefore, they would be entitled to the benefit of Section 80IA of the Income Tax Act, 1961." 5.27 In this case also, Hon‟ble Supreme Court took the view that cutting and polishing of the marble blocks is the activity which constitutes "manufacture or production‟ as after processing marble block no more remains as marble block. This decision has also duly considered, in our opinion, whether the activity of processing is manufacture / production. 6. In view of our aforesaid discussion, we hold that the assessee is engaged in manufacturing and production of an article and therefore, the assessee shall be entitled for the deduction available u/s 80IC of the Act. We accordingly confirm the order of CIT(A) as in our opinion, no illegality or infirmity is found in the order of CIT(A)." 5. Dealing with exactly the same grounds of appeal in the case of sister concern Khushbu Industries, and vide order on ITA Nos. 2164 to 2169/Mumbai/2018, a coordinate bench has dismissed identically worded appeal and added as follows: ....
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....r. In the light of these discussions, as also bearing in mind entirety of the case and following the views of the coordinate bench - with which we are in considered agreement, we approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter." 9. On careful analysis of facts on record, we are convinced that the material facts based on which the Tribunal upheld assessee's claim of deduction in the preceding assessment years are identical to the facts involved in the impugned assessment year. In fact, the revenue has not been able to demonstrate any perceptible factual difference in the impugned assessment year to persuade as to take a view different from what is taken in assessment years 2010-11, 2011-12 and 2012-13. Therefore, respectfully following the decision of the coordinate Bench in assessee's own case, as referred to above, we uphold the decision of learned Commissioner (Appeals) on the issue. Grounds are dismissed. 10. In ground no. 4 the revenue has challenged deletion of disallowance made under section 14A of the Act. 11. Briefly the facts are, in course of assessment proceedings, the AO noticed that the assessee has made substant....
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....the order passed by the Tribunal was holding the field, the AO should not have proceeded to disallow expenditure under section 14A of the Act. Therefore, he submitted, since the AO has disregarded the decision of the Tribunal while rejectiong assessee's claim, it amounts to improper recording of satisfaction. In support, he relied upon the decision of the Hon'ble Supreme Court in case of CIT vs. Max India Ltd. [2007] 295 ITR 282 (SC). 14. Without prejudice, the learned counsel submitted, the disallowance computed by the AO, in any case, is high and excessive, as he has also included those investments on which the assessee has not earned any exempt income during the year. He submitted, after excluding the investment on which the assessee had not earned any exempt income, the disallowance would work out to Rs. 90,42,703/- in assessment year 2013-14 and Rs. 31,10,164/- in assessment year 2014-15. In this context, he drew our attention to the working of such disallowance as placed in the paper book. 15. We have considered rival submissions in the light of the decisions relied upon and perused the material on record. As far as assessee's contention that the AO has not recorded pro....