CHEMEX OIL PRIVATE LIMITED,KOLKATA V. ACIT, CIRCLE 7.1, KOLKATA, KOLKATA

CO 41/KOL/2024

AI Insights

The case involves multiple appeals by the revenue against Chemex Oil Pvt. Ltd. concerning the eligibility of the company's product, 'organic inedible fatty acid', for deductions under Section 80-IC of the Income Tax Act, 1961, for various assessment years. The primary legal contention was whether the product fell under the negative list specified in the Thirteenth Schedule of the Act, which would render it ineligible for the claimed deductions. The CIT(A) had previously ruled in favor of the assessee, a decision which the revenue challenged. The tribunal examined the classification of the product under excise laws and found that it was correctly classified under Chapter 38, not Chapter 29 as argued by the AO, and thus did not fall within the negative list.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 298790 (ITAT-KOLKATA)
• Appeal Type: Cross Objection
• Pronouncement Date: 22-01-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: REVENUES APPEALS
• Keywords: Condonation of delay; Tax effect
• Section: 147; 148; 143(3); 250; 251; 13; 268A; 80IC; 80IC

Judgement Text

"आयकर अपीलीय अिधकरण कोलकाता 'C' पीठ, कोलकाता म¤ IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘C’ BENCH, KOLKATA Before SRI SANJAY GARG, JUDICIAL MEMBER & SHRI RAKESH MISHRA, ACCOUNTANT MEMBER I.T.A. Nos.: 173 to 176/KOL/2024 Assessment Years: 2010-11 to 2013-14 & I.T.A No. 177/Kol/2024 Assessment Year: 2015-16 ACIT, Circle-7(1), Kolkata …….. Appellant Vs. Chemex Oil Pvt. Ltd. ......... Respondent 19A, Jawaharlal Nehru Road, 3rd Floor, Kolkata-700087. (PAN: AACCC8125B) & C.O. No. 40/Kol/2024 In ITA No. 173/Kol/2024 AY: 2010-11 & C.O. No. 41/Kol/2024 In ITA No. 175/Kol/2024 AY: 2012-13 Chemex Oil Pvt. Ltd. ……… Cross Objector Vs. ACIT, Circle-7(1), Kolkata. …….. Respondent Appearances: Revenue represented by: Shri Dheeraj, Sr. DR Assessee represented by: Shri Akkal Dudhewala, AR Date of concluding the hearing : December 04th 2024 Date of pronouncing the order : January 22, 2025 ORDER Per Bench: I.T.A. Nos.: 173 to 177/KOL/2024 Chemex Oil Pvt. Ltd., AYs : 2010-11 to 2013-14 & 2015-16 C.O. Nos. 40 & 41/Kol/2024 Page 2 of 13 All the captioned appeals have been preferred by the revenue arising out of the separate orders of even date 25.09.2023 of the Commissioner of Income Tax (Appeal), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ld. ‘CIT (A)’] u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) for Assessment Years (AY) 2010-11 to 2013-14 and 2015-16. Cross Objections filed by the assessee are against the orders of Ld. CIT(A), NFAC, Delhi of even dated 25.09.2023 for AYs 2010-11 and 2012-13. Since facts and issues involved in all these appeals and Cross Objections are identical, hence the same have been heard together and are being disposed of by this common order for the sake of convenience. 2. All the appeals of the revenue are time barred by 66 days. Separate applications for condonation of delay have been filed. Considering the averments made in the applications, the delay in filing the present appeals is hereby condoned. 3. The sole issue involved in all these appeals is as to whether the product manufactured by the assessee namely, “organic inedible fatty acid” would fall within the excluded/negative items as listed in XIII Schedule of the Act and, therefore, whether the deduction claimed by the assessee u/s. 80IC of the Act is not admissible to the assessee ? 4. Brief facts as extracted from the order of the Ld. CIT(A) are that the assessee is engaged in the manufacture of ‘distilled fatty acid’ for which it had set-up a plant in the Solan District of Himachal Pradesh which is admittedly notified backward industrial area in terms of Section 80-IC(2)(a)(ii) of the Act vide CBDT Notification No.80/2008 dated 27.08.2008. From the facts on record, it is observed that the assessee had commenced production from 01.09.2007 and that it has been consistently claiming deduction u/s 80-IC of the Act from Assessment Year (AY) 2008-09 and onwards. It is noted that the deduction so claimed u/s 80-IC of the Act were allowed in AYs 2008-09 to 2015-16. It is further noted that except for AYs 2011-12 & 2015-16, the AYs 2008-09, 2009-10, 2010-11, 2012-13, 2013-14, 2014-15 were originally assessed u/s 143(3) of the Act and the assessment orders reveal that the I.T.A. Nos.: 173 to 177/KOL/2024 Chemex Oil Pvt. Ltd., AYs : 2010-11 to 2013-14 & 2015-16 C.O. Nos. 40 & 41/Kol/2024 Page 3 of 13 deduction claimed u/s 80-IC of the Act was allowed in the respective income- tax assessments. The AO vide notices issued u/s 148 of the Act all dated 28.03.2017 had reopened the assessment for AYs 2010- 11 to 2015-16 on the premise that the assessee had wrongly claimed deduction u/s 80-IC of the Act. The reasons recorded by the AO suggested that the product - ‘organic inedible fatty acid’ fell under Chapter 29 of the Excise Classification and, therefore, the said product fell within the negative list specified in the Thirteenth Schedule for the State of Himachal Pradesh. The AO accordingly held that the assessee had wrongly claimed deduction u/s 80-IC of the Act and therefore, disallowed the same. On the other hand, according to the assessee, the product – ‘organic inedible fatty acid’ fell under Chapter 38 of the Excise Classification and not under Chapter 29 and therefore, it did not fall within the negative list specified in the Thirteenth Schedule for the State of Himachal Pradesh and in that view of the matter, the deduction was rightly claimed u/s 80-IC of the Act. In support, the assessee has enclosed the relevant Chapter 38 & 29 of Excise Classification along with excise returns evidencing that the product being manufactured by the assessee has all along been declared as an item covered by Chapter 38 and the same has been accepted by the Central Excise Department as well. 5. The Ld. CIT(A) after considering the rival submissions held that the product manufactured by the assessee did not fall in the negative list of the XIII schedule, instead, the product manufactured by the assessee falls under Chapter 38 of the Excise Classification which includes Industrial Monocarboxylic Fatty Acid, which is defined to include long chain fatty acid and the product manufactured by the assessee i.e. ‘distilled fatty acid’ would fall in the said category. The relevant part of the order of the Ld. CIT(A), for the sake of ready reference, is reproduced as under: “7.5. Having considered the entire factual matrix of the case, I note that the appellant had set-up a manufacturing {unit in Solan, Himachal Pradesh which is a notified industrially backward district under Section 80-IC of the Act. Clause (2) of Section 80-IC of the Act covers two categories viz., sub-clause (a) allows deduction to industrial undertaking located in notified area (Himachal Pradesh included) provided the item/product manufactured is not covered by the negative list set out in Thirteenth Schedule and sub-clause (b) allows deduction to industrial undertaking located in notified area (Himachal Pradesh included) I.T.A. Nos.: 173 to 177/KOL/2024 Chemex Oil Pvt. Ltd., AYs : 2010-11 to 2013-14 & 2015-16 C.O. Nos. 40 & 41/Kol/2024 Page 4 of 13 provided the item/product manufactured is covered by the list set out in Fourteenth Schedule, It is noted that the appellant had claimed deduction in terms of Section ,80-IC(2)(a) of the Act i.e. it was an industrial undertaking located in Solan, Himachal Pradesh (a notified area) and the product - organic inedible fatty acid manufactured did not fall within the negative list set out in Thirteenth Schedule. The dispute in the present case however is noted to have emanated from the erroneous reporting made by the auditor in Form 10CCB wherein at Column 25(f) for AY 2012-13, the auditor had ticked the box 'Yes' instead of 'No' in response to the query as to whether the item/product being manufactured is covered by Fourteenth Schedule as well. Since the product was not falling under any of the items mentioned in Fourteenth Schedule, this particular reporting raised suspicion regarding the correctness of the deduction claimed u/s 80-IC of the Act. I find that before the AO the appellant had pointed out that this was a mistake committed by the auditor and the auditor had furnished an errata/revised report as well. The appellant further pointed out that in the audit report for the initial year of claim i.e. AY 2008-09, the auditor had rightly ticked 'No' in Column 25(f) and this contemporaneous document substantiated that the auditor had simply committed an error in the Form 10CCB filed for AY 2012-13. The appellant had further clarified it had never claimed to have been covered by Section 80-IC(2)(b) but the deduction was always claimed in terms of Section 80-IC(2)(b) of the Act. From the assessment order, I find that although the AO on the given facts agreed with the appellant that the item manufactured by the appellant i.e. organic inedible fatty acid did not fall under the Fourteenth Schedule, as wrongly reported by the auditor in Form 10CCB, and that the appellant did not claim deduction u/s 80-IC(2)(b) of the Act, but he was of the view that this item was covered by Thirteenth Schedule as the product - organic inedible fatty acid fell under Chapter 29 of the Excise classification which was one of the excluded/negative items enlisted in Thirteenth Schedule and therefore even the deduction so claimed in terms of Section 80-IC(2)(a) was not entertainable. 7.6. In the above background, the limited issue to be adjudicated is whether the product - organic inedible' fatty acid fell within the excluded/negative items enlisted in Thirteenth Schedule or not and therefore whether the deduction u/s 80-IC as claimed by the appellant was permitted or not. In order to adjudicate the issue, it is first relevant to set out the excluded/negative items enlisted in Thirteenth Schedule which reads as under:- I.T.A. Nos.: 173 to 177/KOL/2024 Chemex Oil Pvt. Ltd., AYs : 2010-11 to 2013-14 & 2015-16 C.O. Nos. 40 & 41/Kol/2024 Page 5 of 13 I.T.A. Nos.: 173 to 177/KOL/2024 Chemex Oil Pvt. Ltd., AYs : 2010-11 to 2013-14 & 2015-16 C.O. Nos. 40 & 41/Kol/2024 Page 6 of 13 I.T.A. Nos.: 173 to 177/KOL/2024 Chemex Oil Pvt. Ltd., AYs : 2010-11 to 2013-14 & 2015-16 C.O. Nos. 40 & 41/Kol/2024 Page 7 of 13 I.T.A. Nos.: 173 to 177/KOL/2024 Chemex Oil Pvt. Ltd., AYs : 2010-11 to 2013-14 & 2015-16 C.O. Nos. 40 & 41/Kol/2024 Page 8 of 13 I.T.A. Nos.: 173 to 177/KOL/2024 Chemex Oil Pvt. Ltd., AYs : 2010-11 to 2013-14 & 2015-16 C.O. Nos. 40 & 41/Kol/2024 Page 9 of 13 I.T.A. Nos.: 173 to 177/KOL/2024 Chemex Oil Pvt. Ltd., AYs : 2010-11 to 2013-14 & 2015-16 C.O. Nos. 40 & 41/Kol/2024 Page 10 of 13 7.7. According to AO, the case of the appellant fell under Sl. No. 6 of Part-B (For the State of Himachal Pradesh & State of Uttaranchal) in the thirteen Schedule i.e. the product-organic inedible fatty acid qualified as organic chemicals set out Chapter 29 of the Excise classification. The AO has conspicuously not specified the exact line item of Chapter 29 which mentions this product. Upon perusal of all I.T.A. Nos.: 173 to 177/KOL/2024 Chemex Oil Pvt. Ltd., AYs : 2010-11 to 2013-14 & 2015-16 C.O. Nos. 40 & 41/Kol/2024 Page 11 of 13 the six sections of Chapter 29 and each of the several line items mentioned therein, I find that the appellant had rightly contended that the product - organic inedible fatty acid did not fall under any of the items specified in Chapter - 29 of the Excise Classification and therefore this finding rendered by the AO was erroneous. 7.8 Instead, it is noted that the product - organic inedible fatty acid fell under Chapter 38 of the excise classification which includes Industrial Monocarboxylic Fatty Acids. It is observed that Industrial Monocarboxylic Fatty Acids is defined to include long chain fatty acids containing even number of carbon atoms attached to a carboxyl group. The process involves using Crude Fatty Acids obtained from the reaction which are distilled in multiple vacuum distillation columns in high temperature and high vacuum conditions to remove the low-boiling and high- boiling impurities from the fatty acids. The Distilled Fatty Acids, which is manufactured by the appellant, are obtained after distillation which are used in the production of Toilet Soap Noodles, Cleansing Products, Surfactants etc. and hence stands covered by the Chapter 38 of excise classification. 7.9 It is also noted that the appellant had filed its excise returns in Form ER-1 in which the product - organic inedible fatty acid has all along been classified under Chapter 38 of the excise classification and the same has been accepted by the Excise Department without any dispute. It is further noted that the items/products specified in Chapter 38 of the excise classification does not feature in the Thirteenth Schedule. In light of the foregoing therefore, I hold that the product organic inedible fatty acid did not fall within the negative list of Thirteenth Schedule. Accordingly, the conditions specified in Section 80-IC(2)(a) were duly fulfilled & met, and hence the deduction u/s 80-IC claimed by the appellant was justified. The AO is accordingly directed to delete the disallowance of Rs.8,59,63,307/- made in relation to deduction u/s 80-IC of the Act. Ground No.2 is therefore allowed. 7.10 Since the addition/disallowance made by the AO has already been held to be untenable and accordingly/deleted, the legal issue raised in ground no. 1 challenging the legal validity of the assessment have now become academic in nature and is thus dismissed as being infructuous. 8. In the result, the appeal of the appellant is partly allowed. Order passed u/s. 250 r.w.s. 251 of the I. T. Act, 1961.” 8. The Ld. Counsel for the assessee has invited our attention to page 50 of the paper book, which is a copy of relevant part of Chapter 29 of Excise Classification, wherein the item with ITC(HS) Code 29157040-H.C.O. Fatty acid (including 12-hydroxy stearic acid) has been mentioned. He has further taken us to page 51 of the paper book, which is a part of the Chapter 38 of the Excise Classification, wherein the relevant entry has been mentioned as under: I.T.A. Nos.: 173 to 177/KOL/2024 Chemex Oil Pvt. Ltd., AYs : 2010-11 to 2013-14 & 2015-16 C.O. Nos. 40 & 41/Kol/2024 Page 12 of 13 Tarif Item Description of goods 3823 INDUSTRIAL MONOCARBOXYLIC FATTY ACIDS; ACID OILS FROM REFINING; INDUSTRIAL FATTY ALCOHOLS Industrial monocarboxylic fatty acids: acid oils from refining 3823 11 Stearic acide 9. The Ld. Counsel has further taken us to paper book page 37, wherein the details of the raw material used in manufacturing the product in question have been mentioned, which read as under: PFAd Palm Fatty Acid Distillation CPS Crude Palm Sterin RPS Refine Palm Sterin CPKO Crude Palm Kernel Oil PKO Palm Kernel Oil 10. The Ld. CIT(A) duly considered the aforesaid details and has categorically held that the product manufactured by the assessee would fall under the category as mentioned in Chapter 38 of the Excise Act, which is having a different code, and hence, did not fall under the negative list as detailed in Chapter XIII, therefore, the assessee is entitled to the deduction u/s. 80IC of the Act. The Ld. DR, on the other hand, could not rebut the aforesaid factual aspects. Therefore, we do not find any infirmity in the order of the Ld. CIT(A). There is no merit in the appeals of the revenue and the same are accordingly dismissed. 11. Further, it is also pointed out that the tax effect for revenue’s appeals bearing ITA Nos. 176/Kol/2024 for AY 2013-14 and in ITA No. 177/Kol/2024 for AY 2015-16 is less than the monetary limits prescribed by the CBDT, therefore, appeals of the revenue for AYs 2013-14 and 2015-16 are also dismissed being not maintainable u/s. 268A of the Act. 12. So far as the Cross Objections filed by the assessee are concerned, the assessee in the aforesaid Cross Objections agitated reopening of the assessment u/s. 147 of the Act. However, since we have dismissed the appeal I.T.A. Nos.: 173 to 177/KOL/2024 Chemex Oil Pvt. Ltd., AYs : 2010-11 to 2013-14 & 2015-16 C.O. Nos. 40 & 41/Kol/2024 Page 13 of 13 of the revenue on merits, therefore, the Cross Objections taken by the assessee are rendered academic in nature and the same are dismissed without any adjudication. The assessee will be at liberty to raise the aforesaid legal points if so, required in any other proceedings. 13. In the result, the appeals of the revenue and the Cross Objections of the assessee are hereby dismissed. Order pronounced in the open Court on 22nd January, 2025. Sd/- Sd/- [Rakesh Mishra] [Sanjay Garg] Accountant Member Judicial Member Dated: 22.01.2025 J.Dey (Sr. P.S.) Copy of the order forwarded to: 1. Appellant : ACIT, Circle-7(1), Kolkata 2. Respondent : Chemex Oil Pvt. Ltd. 3. CIT(A), NFAC, Kolkata 4. CIT 5. CIT(DR), Kolkata Benches, Kolkata. 6. Guard File. //True copy // By order Assistant Registrar ITAT, Kolkata Benches Kolkata "