TaxTMI 
TaxTMI 
2022 (12) TMI 279
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.... the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in sustaining the order passed by ld. Assessing Officer. u/s 143(3), without appreciating assessee's submission while adjudicating the appeal. 3. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the appellant has not fall within the purview of manufacturing in term of section 2(29BA) of the Income Tax Act, 1961." 2. Brief facts are such that the assessee-company filed return of income on 30.09.2015 declaring a loss of Rs. 39,72,580/-. The case was selected for scrutiny and statutory notices u/s 143(2)/142(1) were issued, which were duly complied with. During assessment proceeding, Ld. AO observed that the assessee has claimed additional depreciation u/s 32(1)(iia) of Rs. 20,25,596/- on plant and machinery. Ld. AO confronted the assessee on eligibility of claim. The assessee made a detailed submission on business activity, which is reproduced in assessment-order at Page No. 4 to12, and tried to convince the Ld. AO that it is eligible for claim of additional depreciation. However, the Ld. AO being unsatisfied with the submission of as....
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.... would like to draw your Honour's attention towards the business of the company. The company M/s Madhuri Refiners Private Limited is mainly engaged in the manufacturing activities i.e. repacking of edible Oil in which company used to buy oil in bulk and loose quantities from market and sale in Tin/Jar and bottles or other packing as required by the customers. The Repacking process involved several stages such as Storing, Analytical observation, Segregation & Mixing of oil, packing, branding etc. and the said stages requires labour, machinery, power, packing material, analytical lab and job works. In addition to the above company is also engaged in trading business of Oil i.e. loose oil purchased from Local as well as overseas market and sale directly to the parties in tankers or in loose quantities which constitute 1.07 % only of total sale and balance is from manufacturing activities i.e. 98.93 % as regard the year under consideration. Now, we would like to draw your Honour's attention toward the assessment order passed under section 143(3) of Income-tax Act for the year under consideration wherein Ld. AO has disallowed Rs. 2025596/- on account ....
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....sed Store in Tanks Sent for analytical observation Segregation of oil [according to quality/nutrition value] Mixing process [To achieve/enhancing quality/nutrition value] Edible oil sent to filing station -Finished edible oil Receiving material from packing unit ## Repacking of oil in jar /bottles with various brands names [as per quality] It is needless to mention here that the above process required Labour, Packing material, Loading, Unloading, Power, machinery and analytical Lab and same can be evident from attached Note No. 26 -"Factory expenses" of Profit & Loss Account of audited Balance-Sheet for the year under consideration. Kindly refer page no. 1 ##. Here we would like to draw your honour attention towards the packing unit, wherein assesse company also manufactured the packing material such as jar/pouches/bottles form plastic granules by using machinery installed in factory. In this regard we are enclosing copies of purchase bills of plastic granule/raw material. Kindly refer page no. 2 to 3 We are also enclosing the schedule & Sub schedule of fixed assets....
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....he goods mentioned in schedule 3 shall be considered as deemed manufacture. The Factories Act, 1948- section 2(k) (k) "manufacturing process" means any process for- (i) making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing, or otherwise treating or adapting any article or substance with a view to its use, sale, transport, delivery or disposal, (ii) pumping oil, water, sewage or any other substance; or (iii) generating, transforming or transmitting power; or (iv) composing types for printing, printing by letter press, lithography, photogravure or other similar process or book binding; [or] (v) constructing, reconstructing, repairing, refitting, finishing or breaking up ships or vessels; or (vi) preserving or storing any article in cold storage; It is pertinent to mentioned here that assesse company having license under the provision of Factories Act, 1948. Wherein stated that company engaged in manufacture process of Edible Oil & packing and Jar Packing. Xerox copy of same is enclosed for your honour kind perusal. Kindly refer page no.....
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....92J Supp. l SCC 290). 4. Manufacture implies a change but every change is not manufacture, yet every change of an article is the result of treatment, labour and manipulation. Naturally, manufacture is the end result of one or more processes through which the original commodities are made to pass. The nature and extent of processing may vary from one class to another. There may be several stages of processing, a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. Whenever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity. But it is only when the change or a series of changes takes the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article that a manufacture can be said to take place. Process in manufacture or in relation to manufacture implies not only the production but also various stages through which the raw material is subjected to change by different operations. it is the cumulative effect of the various....
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....nd the entire process provided the commercial identity to goods & same has been become the marketable or saleable goods. In view of the above, it is submitted that assesse engaged in business of manufacturing within the meaning of income tax Act and eligible to claim additional depreciation on the plant and machinery." 4. However, Ld. CIT(A) rejected the submission of assessee and confirmed the disallowance by holding as under: "3.1 During the course of appeal proceeding, the counsel of the appellant has filed detailed written submissions which are reproduced above. I have considered the reasons given by the Assessing Officer in the assessment order and also the written submission filed by the appellant. After taking into account the express provision of the Income Tax Act, 1961 dealing the additional depreciation and definition of plant and machinery and manufacturing, I am of the opinion that the activity of packaging of oil being done by the appellant does not fall within the purview of manufacturing. Therefore, I am in agreement with Assessing Officer that the additional depreciation is admissible only for manufacturing of the articles in terms of section 2....
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....hange the raw material physically or chemically. Ld. AR submitted that by virtue of the complex process carried out by us, the assessee obtains oil of different and high nutritional-value / quality than the raw-oil and, therefore, there is a significant change in properties, although the input and output both are called "oil". Ld. AR submitted that had there been a "trading activity" only, why would have assessee installed the plant and machinery of such a high magnitude on which the "additional depreciation" itself is as high as Rs. 20,25,596/-. Ld. AR also emphasised that the assessee has been consistently regarded as "manufacture" by various Government Department and Agencies. The process undertaken by the assessee have been treated as manufacture under Excise Act and allied tax laws, although the excise-duty is exempt on edible oil. With these submissions, Ld. AR prayed to accept the assessee as eligible for additional depreciation. 7. Ld. DR strongly opposed the submissions of Ld. AR and placed a heavy reliance on the orders of lower authorities. Ld. AR argued that whatever process is applied by the assessee, the oil remains oil and the requirements of "manufacture" as defi....
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....ction, 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 by a process which may or may not amount to manufacture." 9. In Deepak G. Kherajani, Surat Vs. Department of Income-tax, ITA No. 2113/Ahd/2010, dated 13.05.2011, the Hon'ble Ahmedabad Bench of ITAT had an occasion to deal with a case of "additional depreciation", wherein it was observed and held thus: "3. On appeal, the learned CIT(A) allowed the claim in the following terms:- "5. In the written submission, the AR has submitted that even though a composite unit engaged in all the processes may be termed as being 3 ITA no.2113/Ahd/2010 engaged in manufacturing of textiles yet, an industry engaged in one or two activities or processes in the series, should also be considered as a manufacturer. It has been further submitted that the Assessee, in addition to job-work, is engaged in manufacturing and trading of embroidered dupattas, sarees and dress materials. The work done by embroidery machines changes the basic form of the fabric in the same manner as is in the case ....
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....y become fit for consumption" (Aluminum Corporation of India Ltd. V/s Coal Board, AIR 1959 Cal, 222,226) 6.2 Thus, the word "production' does not necessarily have to be examined and analysed by the strict rigour of what otherwise constitutes manufacture. It is a more general term and involves the bringing into existence by the use of human skill and labour, and the application of some processes, a product which is fit for consumption. Under the Central Excise Act, the activity of embroidery of man-made fibres is liable to excise duty under Chapter 58, Heading No. 5810 and Sub-Heading No. 5810.92 of the First Schedule to the Central Excise Tariff Act, 1985 @ 8%. However, the Central Government vide Notification No. 30/2004- Central Excise dated 09-07-2004 has exempted all the excisable goods falling under Chapter 58 (except 5804.90, 5805.90, 58,07 and 5808.10) from the levy of Excise Duty, (see Annexure-2). Thus, even if the criteria of manufacturing is to be applied, then also the activity of embroidery would amount to manufacturing under the Central Excise Act, resulting in the embroidered product being liable to excise duty. 6.3 The AR has placed reliance on....
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....or development rebate. If we draw a parallel and agree on the similarity and the Legislative intent then, for the purposes of additional depreciation u/s 32(1)(iia) the activity of embroidery would also be eligible for deduction. 6.4 In the case of Oracle Software India Pvt. Ltd. vs. CIT reported in 2010 (1) Scale 425 the Hon'ble Supreme Court has held that" "the term "manufacture" implies a change, but, every change is not a manufacture, despite the fact that every change in an article is the result of treatment of labour and manipulation. However, this test of manufacture needs to be seen in the context of the above process. If an operation / process renders a commodity or article fit for use for which it is otherwise not fit, the operation / process fall within the meaning of the word "manufacture". 6.5 It must be appreciated that the designs which are embroidered are specific to a product and the purpose for which the product is to be utilized. It is thus different from printing. While a design may be printed on bales of cloth, embroidery can only be done for a specific purpose and for a specific use. The embroidery for the top of a woman's wear would ....
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....n the meaning of provisions of sec.32(1)(iia) of the Act. The ld. CIT(A), on the other hand, found that the designs which were embroidered were product specific and the end product was completely different from the bale of cloth or finished fabric prior to being embroidered. The market recognition of the embroidered finished product necessarily had to be different from the finished fabric prior to being embroidered and thus, the activity of embroidery could also be treated as manufacture. Since additional depreciation could be allowed only if the assessee was engaged in either manufacture 'or' production, relying on a number of decisions, the ld. CIT(A) allowed the claim of additional depreciation. Indisputably, the embroidery is one of the process in the manufacture of man-made fabrics. The words used in sec. 32(1)(iia) of the Act are 'manufacture' or 'production'. 'The word 'production' has a wider connotation than the word 'manufacture'. While every manufacture can be characterised as production, every production need not amount to manufacture. The word 'production' or 'produce' when used in juxtaposition with the word ....
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....rom the submission of assessee made before lower authorities and also argued before us, which stand uncontroverted by revenue. Firstly the assessee is doing two distinguishable types of activities, viz. (i) purchasing oil from local/overseas market and reselling as such, which is a "trading activity" and (ii) purchasing raw-oil, applying technical-processes, converting the same into finished-oil of high nutritional value of different qualities/brands, which is a "manufacturing activity". The proportion of "manufacturing activity" in the year was 98.93%. Secondly, the flow-chart of "manufacturing activity" depicts various step-by-step activities from purchase of raw-oil - storage of oil - analytical observation - segregation of oil according to quality / nutritional value - mixing for enhancing quality / nutritional value - lastly packing in jars/bottles of different brand names and qualities. Thirdly, the whole process requires application of labour, machinery and analytical lab. Fourthly, the chemical composition is changed in such a way that nutritional-values are enhanced and the finished product becomes edible for a longer period. Therefore, the final product is a commercially,....