Deepkiran Foods Pvt.Ltd., Ahmedabad V. The ACIT.,Range-1, Ahmedabad

ITA 1451/AHD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63201 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 05-09-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 02-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHELLY JINDAL
• Assessee Lawyers: A C SHAH
• Keywords: Business income
• Section: 143(3); 80IB; 10B

Judgement Text

, , , , A, IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, A BENCH . .. . . .. . , !' !' !' !', , , , #$ #$ #$ #$ %&'( %&'( %&'( %&'(, , , , )* + ) )* + ) )* + ) )* + ) ' ' ' ' BEFORE S/SHRI G.C. GUPTA, VICE-PRESIDENT AND ANIL CHATURVEDI, ACCOUNTANT MEMBER) ITA NO.1451/AHD/2012 [ASSTT.YEAR : 2008-2009] DEEPKIRAN FOODS P. LTD. 101,ASTRON TECH PARK OPP: FUN REPUBLIC SATELLITE, AHMEDABAD. PAN : AABCD 2018 F /VS. THE ACIT, RANGE-1 AHMEDABAD. ( (( (-. -. -. -. / APPELLANT) ( (( (/0-. /0-. /0-. /0-. / RESPONDENT) 1& 2 3 )/ ASSESSEE BY : SHRI A.C. SHAH + 2 3 )/ REVENUE BY : SHRI SHELLY JINDAL 5 2 &(*/ DATE OF HEARING : 21 ST SEPTEMBER, 2012 678 2 &(*/ DATE OF PRONOUNCEMENT : 14-12-2012 )9 / O R D E R PER ANIL CHATURVEDI, ACCOUNTANT MEMBER: THIS IS ASSESSEES APPEAL DIRECTED AGAINST THE ORDE R OF THE COMMISSIONER OF INCOME TAX (APPEALS)-6, AHMEDABAD F OR THE ASSESSMENT YEAR 2008-2009. ITA NO.1451/AHD/2012 -2- 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1. THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE ASSESSEE IS NOT A MANUFACTURER AND THEREBY HAS ERRE D IN REJECTING THE CLAIM OF DEDUCTION OF PROFIT OF RS.4, 66,46,264 UNDER SECTION 1OB IN AS MUCH AS THE ASSESSES IS A M ANUFACTURER AND IS ENTITLED TO DEDUCTION UNDER SECTION 10B THOU GH IT IS HELD THAT THE ASSESSEE IS INDUSTRIAL UNDERTAKING [SECOND PARA FROM BOTTOM ON PAGE NO.8 OF CIT(A) ORDER]. 1.1 THE APPELLANT SAYS AND SUBMITS THAT THE ASSESSE E MANUFACTURES EATABLES FROM RAW MATERIAL AND THAT IT IS SEPARATE AND DISTINCT PRODUCT KNOWN IN THE MARKET AND IS COV ERED BY DEFINITION OF SECTION 2(29BA). 1.2 THE LEARNED CIT(A) MISAPPLIED THE APEX COURT DE CISION IN CASE OF INDIAN HOTELS LTD. V/S. ITO 245 ITR 538 SC IN AS MUCH AS THE OBSERVATION OF THE SC THAT THE PREPARATION O F FOODSTUFF OR EATABLE FROM RAW MATERIAL IS NOT MANUFACTURE IS WIT H REFERENCE TO HOLDING THAT THE HOTEL BUSINESS IS A TRADING BUS INESS AND THAT THE HOTEL CANNOT MANUFACTURE AND THAT IT WAS SPECIF ICALLY HELD THAT INDUSTRIAL UNDERTAKING CAN MANUFACTURE. 1.3 THOUGH THE LEARNED CIT(A) HELD THAT THE ASSESSE S IS INDUSTRIAL UNDERTAKING BUT ERRED IN HOLDING THAT TH E ASSESSEE IS NOT MANUFACTURER BY WRONGLY FOLLOWING THE APEX COUR T DECISION IN CASE OF INDIAN HOTELS LTD. V/S. ITO 245 ITR 538 SC. 3. LATER ON ASSESSEE RAISED ADDITIONAL GROUND VIDE LETTER 24.8.2012 WHICH READS AS UNDER: THE LD.CIT(A) ERRED IN HOLDING THAT THE FOLLOWING INCOME IS NOT DERIVED FROM 100% EOU AND THEREFORE IS NOT ELIG IBLE FOR DEDUCTION UNDER SECTION 10B. EXPORT INCENTIVES OF RS.13,45,953 INTEREST INCOME OF RS.2,70,125 ITA NO.1451/AHD/2012 -3- 4. THE EFFECTIVE GROUND RAISED IN THE GROUNDS OF TH E APPEAL OF THE ASSESSEE IS REGARDING REJECTION OF THE CLAIM OF DED UCTION OF PROFIT OF RS.4,66,46,264/- UNDER SECTION 10B. 5. ASSESSEE IS A 100% EXPORT ORIENTED UNIT (EOU) EN GAGED IN THE BUSINESS OF MANUFACTURING OF FROZEN AND PROCESSED F OOD PRODUCTS LIKE PARATHA, SAMOSA, DHOKLA, IDLI, DAHI VADA, FRIED BHI NDI PANI PURI, MINT CHUTNEY ETC.. IT FILED ITS RETURN OF INCOME ELECTRO NICALLY ON 24.9.2008 DECLARING TOTAL INCOME AT RS.NIL AFTER CLAIMING DED UCTION U/S.10B. THE CASE WAS SELECTED FOR SCRUTINY. 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT ASSESSEE HAS CLAIMED DEDUCTION U/S 10B. AO WA S OF THE VIEW THAT PREPARATION OF EATABLE ITEMS BY THE ASSESSEE IN ITS MECHANISED KITCHEN DOES NOT AMOUNT TO MANUFACTURING OR PROCESSING AND THEREFORE IT WAS NOT ELIGIBLE FOR DEDUCTION U/S 10B. THE AO RELIED O N THE DECISION OF THE APEX COURT IN THE CASE OF RELISH FOODS 237 ITR 59 AND INDIAN HOTELS LTD 245 ITR 538. HE ACCORDINGLY ISSUED SHOW CAUSE NOTICE AND ASKED THE ASSESSEE TO SUBSTANTIATE ITS STAND. THE A SSESSEE MADE DETAILED REPRESENTATION WHICH WAS NOT FOUND ACCEPTA BLE BY THE AO. HE NEGATIVED THE CLAIM OF THE ASSESSEE BY HOLDING AS U NDER: 2.5 THE CONTENTION OF THE ASSESSEE IS CAREFULLY CO NSIDERED BUT NOT FOUND ACCEPTABLE ASSESSEES HAS RELIED ON CERTAI N CASE LAWS TO CONTEND THAT THE ACTIVITY OF PREPARATION OF EATA BLES FROM THE RAW MATERIAL IS MANUFACTURING. ASSESSEE ALSO TRIED TO TAKE SUPPORT FROM THE DEFINITION OF THE WORD 'MANUFACTUR E' INTRODUCED BY THE FINANCE ACT 2008 WITH EFFECT FROM 1-4- 2009(A.Y. 2009-10). IT HAS TO BE NOTICED THAT THE W ORD DEFINED TO APPLICABLE FROM A.Y. 2009-10. EVEN IF IT IS PRES UMED THAT THE FOR GUIDANCE THE SAME DEFINITION CAN BE APPLIED, TH E ACTIVITY OF PREPARATION OF CHAPATI SAMOSA ETC CANNOT BE FALL UN DER MANUFACTURE. RAW MATERIAL USED BY THE ASSESSEE IS F LOUR, ITA NO.1451/AHD/2012 -4- CEREALS WHICH ARE PROCESSED TO PREPARE EATABLE ITEM S. THERE IS NO MANUFACTURING INVOLVED IN THIS PROCESS. AT THE M OST IT CAN BE CALLED PREPARATION OF FOOD ITEMS. IN THE CASE OF AS PRINWALL & CO. LTD., CO LTD 251 ITR 323, RELIED BY THE ASSESSE S WAS ENGAGED IN COFFEE MANUFACTURE NOT DIRECTLY APPLICAB LE TO THE ASSESSES. FACTS ARE DIFFERENT AND DISTINGUISHABLE I N OTHER CASES RELIED BY THE ASSESSEE HOWEVER, THE SUPREME COURT D EALING WITH SIMILAR CASE AS THAT OF THE ASSESSEE, THERE IS THE ASSESSEE WAS PREPARING EATABLE ITEMS FROM THE RAW MATERIAL L IKE EATABLE, CEREALS ETC. AND MAKING FOOD PACKETS, HELD THAT DOE S NOT AMOUNT TO MANUFACTURE. RELIANCE IS PLACE ON HOTEL & ALLIE D TRADE PVT. LTD. VS. CIT (2000) 245 ITR 538 (SC) WHERE THE COUR T HELD 16. IN OUR VIEW, SAME WOULD BE THE POSITION WITH REGARD TO THE FOODSTUFF SERVED OR SOLD BY THE HOTEL S THE FOODSTUFF PREPARED BY COOKING OR BY ANY OTHER PROCE SS FROM RAW MATERIALS SUCH AS CEREALS, PULSES, VEGETAB LE, MEAT OR THE LIKE CANNOT BE REGARDED AS COMMERCIALLY DISTINCT COMMODITY AND IT CANNOT BE HELD THAT SUCH FOODSTUFF IS MANUFACTURED OR PRODUCED. 7. AGGRIEVED BY THE ORDER OF THE AO, ASSESSEE CARRI ED THE MATTER BEFORE CIT(A). BEFORE CIT(A) ASSESSEE MADE DETAILE D SUBMISSIONS. CIT(A) DID NOT AGREE WITH THE CONTENTIONS OF THE AS SESSEE AND UPHELD THE ORDER OF AO BY HOLDING AS UNDER: 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSES SMENT ORDER AND APPELLANT'S WRITTEN SUBMISSION. APPELLANT CLAIM ED DEDUCTION UNDER SECTION 10B ON EXPORTS OF PROCESSED AND PACKED FOOD ITEMS IN AN INDUSTRIAL UNDERTAKING. ASS ESSING OFFICER DISALLOWED THE CLAIM ON THE GROUND THAT HON OURABLE SUPREME COURT IN THE CASE OF INDIAN HOTELS LTD 245 ITR 538 HELD THAT FOODSTUFFS PREPARED BY COOKING OR ANY OTH ER PROCESS FROM RAW MATERIALS IS NOT MANUFACTURING OR PRODUCTI ON. SINCE DEDUCTION UNDER SECTION 10B IS AVAILABLE ONLY TO AN INDUSTRIAL UNDERTAKING WHICH IS INVOLVED IN THE BUSINESS OF MA NUFACTURING OR PRODUCTION OF ARTICLES AND THINGS. SINCE THIS VI TAL CONDITION IS NOT FULFILLED IN THE CASE OF APPELLANT IN VIEW OF T HE AFORESAID DECISION OF HONOURABLE APEX COURT, THE DEDUCTION CL AIMED BY THE APPELLANT WAS TO BE NOT ALLOWABLE. THE RELEVANT EXT RACT OF THE ITA NO.1451/AHD/2012 -5- APEX COURT DECISION IN THE CASE OF INDIAN HOTELS LT D IS QUOTED BELOW- FROM THE PROVISO TO SECTION 80J(I) AND SECTIONS 80J (4), 80J(6) AND 32A IT IS CLEAR THAT FOR GETTING BENEFIT OF DEDUCTION OR INVESTMENT ALLOWANCE, TO REQUIREMENT I S THAT THE ASSESSEE-COMPANY MUST BE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICL E OR THING. IN CASE OF PREPARING FOOD PACKAGES OR SELLIN G THE SOME OR PREPARING FOODSTUFFS FOR SERVING IN THE HOT EL THERE IS NO QUESTION OF MANUFACTURE OR PRODUCTION. THE RAW MATERIAL IS AT THE MOST PROCESSED SO AS TO MAKE IT EATABLE. THE WORD 'MANUFACTURE' HAS VARIOUS SHADES OF MEANING BUT UNLESS DEFINED UNDER THE ACT IT IS TO B E INTERPRETED IN THE CONTEXT OF THE OBJECT AND THE LA NGUAGE USED IN THE SECTIONS. IN THE CONTEXT OF THE PROVISI ONS WHICH DEAL WITH GRANT OF INVESTMENT REBATE OR DEDUC TION UNDER SECTION 80J IT IS APPARENT THAT IT IS USED TO MEAN PRODUCTION OF A NEW ARTICLE OR BRINGING INTO EXISTE NCE SOME NEW COMMODITY BY AN INDUSTRIAL UNDERTAKING. IT WOULD NOT BE APPLICABLE IN CASES WHERE ONLY PROCESS ING ACTIVITY IS CARRIED OUT. FURTHER, SUCH PRODUCTION A CTIVITY MUST BE BY AN INDUSTRIAL UNDERTAKING AND NOT BY THE ASSESSEE HAVING MAINLY TRADING ACTIVITY. THE FOODSTUFF PREPARED BY COOKING OR BY ANY OTHER P ROCESS FROM RAW MATERIALS SUCH AS, CEREALS, PULSES, VEGETA BLES, MEAT OR THE LIKE CANNOT BE REGARDED AS COMMERCIALLY DIST INCT COMMODITY AND IT CANNOT BE HELD THAT SUCH FOODSTUFF IS MANUFACTURED OR PRODUCED.' FROM THE ABOVE IT IS CLEAR THAT THE DEDUCTION WAS N OT A- LOWED BY THE APEX COURT ON TWO GROUNDS- 1- INDIAN H OTELS LTD WAS NOT AN INDUSTRIAL UNDERTAKING, 2- THE FOODSTUFF S PREPARED WAS NOT MANUFACTURING OR PRODUCTION OF ARTICLES OF THINGS. IN THE CASE OF APPELLANT, THERE IS NO DOUBT ABOUT APPE LLANT BEING AN INDUSTRIAL UNDERTAKING. IN THIS REGARD APPELLANT SUBMITTED VARIOUS DETAILS TO PROVE THAT IT IS AN INDUSTRIAL U NDERTAKING. THEREFORE THE FIRST PART OF THE DECISION IN THE CAS E OF INDIAN HOTELS LTD IS NOT APPLICABLE TO THE APPELLANT AND I T IS HELD THAT APPELLANT IS AN INDUSTRIAL UNDERTAKING. HOWEVER THE SECOND PART OF THE DECISION IN WHICH IT IS ITA NO.1451/AHD/2012 -6- HELD THAT FOODSTUFF PREPARED BY COOKING OR BY ANY O THER PROCESS FROM RAW MATERIALS CANNOT BE REGARDED AS COMMERCIAL LY DISTINCT COMMODITY AND IT CANNOT BE HELD THAT SUCH FOODSTUFF IS MANUFACTURED OR PRODUCED, APPLIES TO THE APPELLANT. IN THE CASE OF APPELLANT FOODSTUFFS IN THE FORM OF PROCESSED AN D PACKAGED FOOD ITEMS ARE PREPARED THROUGH MECHANISED PROCESS BUT THERE IS NO DISPUTE THAT THE SAME WAS PREPARED FROM RAW M ATERIALS SUCH AS WHEAT, CEREALS, PULSES, VEGETABLE ETC. THER EFORE TO THIS EXTENT FACTS OF INDIAN HOTELS LTD AND APPELLANT ARE IDENTICAL. APPELLANT SUBMITTED SEVERAL DECISIONS IN WHICH VARI OUS ACTIVITIES THROUGH WHICH RAW MATERIALS WERE CONVERT ED INTO DIFFERENT PRODUCTS WERE HELD TO BE MANUFACTURING. H OWEVER THERE IS NO DECISION DIRECTLY RELATING TO PREPARATI ON OF FOODSTUFFS FROM RAW MATERIALS. THEREFORE THE DECISI ON OF APEX COURT IN THE CASE OF INDIAN HOTELS LTD IS DIRECTLY APPLICABLE TO THE FACTS OF THE APPELLANT'S CASE AS FAR AS MANUFAC TURING OF ARTICLES OF THINGS ARE CONCERNED. THERE IS NO DOUBT ABOUT APPELLANT PREPARING THE FOODSTUFFS THROUGH MECHANIS ED PROCESS INVOLVING SUBSTANTIAL INVESTMENT IN FACTORY AND PLA NT AND MACHINERY BUT THE FACT REMAINS THAT IT WAS PREPARIN G FOODSTUFFS FROM RAW MATERIALS THROUGH MECHANISED PROCESS WHICH CANNOT BE SAID TO BE MANUFACTURED OR PRODUCED AS PER THE A PEX COURT DECISION. ALL THE DECISIONS RELIED UPON BY THE APPE LLANT ARE, ON DIFFERENT FACTS OR PRODUCTS AND THEREFORE THE SAME CANNOT BE APPLIED IN THIS CASE PARTICULARLY WHEN THERE IS DIR ECT DECISION OF THE APEX COURT 'DECIDING THAT PREPARATION OF FOODST UFFS FROM RAW MATERIAL THROUGH ANY PROCESS IS NOT MANUFACTURING O R PRODUCTION. THEREFORE IT IS HELD THAT NONE OF THE D ECISION RELIED UPON BY THE APPELLANT APPLIES TO THIS CASE. RESPECT FULLY FOLLOWING THE DECISION OF HONOURABLE SUPREME COURT IN THE CASE OF INDIAN HOTELS LTD AS QUOTED EARLIER, IT IS HELD THAT FOODSTUFFS PREPARED BY THE APPELLANT IS NOT MANUFACTURING AND ACCORDINGLY IT IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 10B. THE ADDITION MADE BY THE ASSESSING OFFICER IS ACCOR DINGLY CONFIRMED. THE OTHER ARGUMENTS GIVEN BY THE APPELLANT THAT BENEFICIAL PROVISIONS SHOULD BE LIBERALLY INTERPRET ED AND THAT IT WAS ALLOWED DEDUCTION IN EARLIER YEARS, WILL NOT HE LP APPELLANT SINCE THE INTERPRETATION GIVEN BY APEX COURT REGARD ING MANUFACTURING CANNOT BE IGNORED. IT ASSESSING OFFIC ER IN EARLIER YEARS DID NOT CONSIDER THE APEX COURT DECISION WHIL E ITA NO.1451/AHD/2012 -7- INTERPRETING MANUFACTURING, SUCH PRECEDENCE CANNOT STOP ASSESSING OFFICER FROM TAKING THE CORRECT STAND IN THE CURRENT YEAR. IN VIEW OF THIS, APPELLANT'S OTHER ARGUMENTS DO NOT HELP APPELLANT ON THE VITAL ISSUE OF INTERPRETING MANUFA CTURING OF FOODSTUFFS FROM RAW MATERIAL. 8. AGGRIEVED WITH THE ORDER OF CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. 9. BEFORE US, THE LD.AR SUBMITTED THAT THE ASSESSE E IS ENGAGED IN THE MANUFACTURE AND PRODUCTION OF VARIOUS EATABLES LIKE PARATHA, SAMOSA, PATRA, IDLI, VADA ETC AT ITS PLANT BY USING VARIOUS RAW MATERIALS LIKE WHEAT FLOUR, RICE, OIL, GHEE, SPICES ETC. THE ASSESSEE HAS BEEN ISSUED FACTORY LICENCE IN 2002 AND THE DEVELOPMENT COMMISSIONER, KASEZ, MINISTRY OF COMMERCE AND INDUSTRY, GOVERNMEN T OF INDIA HAS ALSO ISSUED APPROVAL TO SET UP 100% EOU. THE AS SESSEE HAS ALSO BEEN ISSUED EXCISE LICENCE AND HAS PERMISSION TO HA VE PRIVATE BONDED WAREHOUSE U/S 58 OF THE CUSTOMS ACT. THE LD. AR PLACED THE COPIES OF THE VARIOUS PERMISSIONS RECEIVED BY THE A SSESSEE AT PAGE 8 TO 21 OF THE PAPER BOOK. THE MANUFACTURING ACTIVITY IS CARRIED OUT AT IS PLANT WHERE MORE THAN 2000 WORKERS ARE EMPLOYED. TH E LD. A.R. SUBMITTED THAT LONG AND DETAILED PROCESS ARE CARRIE D TO MANUFACTURE EACH ITEM. THE LD. A.R. DESCRIBED THE PROCESS TO MA NUFACTURE CHAPATTI AS UNDER: 7. IN THE CASE OF ASSESSES, THERE IS A LONG AND DE TAILED PROCESS CARRIED ON WITH THE HELP OF IMPORTED PLANT & MACHINERY, THE RAW MATERIALS ARE PROCESSED AND FINISHED PRODUC TS ARE MANUFACTURED. FOR EXAMPLE THE CHAPATTI MAKING PROCE SS IS GIVEN BELOW: THE ASSESSEE COMPANY PROCURE WHEAT DIRECTLY FROM T HE FARMERS. THE PROCURED WHEAT IS CLEANED AND WASHED W ITH VACUUM AND STEAM ENERGY. THERE AFTER THE WHEAT GOES TO THE MILLING DEPARTMENT, WHICH IS SPREAD IN AN AREA OF ITA NO.1451/AHD/2012 -8- 5000 SQ. MTR AND THE WHEAT IS GRINDED OVER THERE WITH A HI-TECH GRINDING MACHINE. WHEAT CONVERTED IN TO FLOUR IS THE 1ST CASE OF FORM HAVING BEEN TAKEN PLA CE FROM WHEAT TO FLOUR. AFTER THAT THE FLOUR HAS BEEN TAKEN TO THE DOUGH MAKING DEPARTMENT. OVER HERE ADDITIONS SUCH A S CORN OIL AND OTHER NUTRITIVE ADDITIVES ARE ADDED ON TO THE FLOUR. DOUGH IS FORMED AFTER THE MIXING OF ABOVE MENTIONED ITEMS. THEN THIS DOUGH IS PLACE INTO III- TECH IMPORTED CHAPATTI MAKING MACHINE, WHICH IS OPERATED WITH THE HELP OF BOILER WHICH GENERATES THE STEAM. AIR COMPRESSOR WHICH GENERATES THE VACCUMIZATION AND DG SETS FOR THE SUPPLY OF ELECTRICITY. THIS DOUGH IS N OW CONVERTED INTO READY TO CAT CHAPPATI WHICH IS ALMOS T 80% COOKED. AFTER THE PROCESS OF THE CHAPATTI IS DONE W ITHIN THE CHAPATTI MAKING MACHINE, IT IS TRANSFERRED ONTO THE CONVEYORS FOR THE COOLING PROCESS UNDER THE AMBIENT TEMPERATURE AND THEREAFTER IT IS FEEDED INTO THE SP IRAL FREEZER TO ATTAIN A TEMPERATURE OF' 18 DEG. C TO MA INTAIN ITS SHELF' LIFE OF 2 YEARS. THIS ENTIRE MANUFACTURI NG PROCESS IS DONE IN AN ATMOSPHERE WHICH HAS A FRESH AIR SYSTEM AND THE AIR COMES IN FROM THE SCREENS.' THE PROCESS OF SUCH ITEMS SUCH AS PARATHA, TANDOOR, SAMOSA, COCKTAIL SAMOSA, SOUTH INDIAN SNACKS. STEAM ED ITEMS SUCH AS DAHIWADA, SANDWITCH DHOKLA, PATRA. PA RTA VAGHAR & PATRA VATA, STUFF DUTN AALU, FRIED BHINDI, FRIED GREEN METHI, PURAN POLL, BAJRA ROTLA, KHAMAN AND AL L TYPE OF CHATANI ETC. IS ENCLOSED. HE SUBMITTED THAT SIMILAR PROCESSES ARE CARRIED OUT TO MANUFACTURE OTHER ITEMS. HE PLACED AT PAGES 22 TO 32 THE DIAGRA MMATIC PROCESS OF MANUFACTURING OF VARIOUS OTHER ITEMS. THE LD. A.R. FURTHER SUBMITTED THAT THE ASSESSEE IS AN INDUSTRIAL UNDERTAKING IN V IEW OF THE FACT THAT THE ASSESSEE OWNS FACTORY BUILDING WITH ELECTRIC IN STALLATION AND PLANT AND MACHINERY AND ALSO HAS WORKERS WHO ARE ENGAGED IN THE MANUFACTURING ACTIVITY. THE LD. A.R. SUBMITTED THAT IT HAS BEEN CARRYING OUT MANUFACTURING SINCE AY 2003-04 AND THE DEPARTMENT HAS ACCEPTED THE AFORESAID FACT AND HAS ALLOWED THE DED UCTION U/S.10B IN ITA NO.1451/AHD/2012 -9- THE ASSESSMENT ORDERS PASSED U/S 143(3) IN EARLIER YEARS (A.Y.2005- 2006, 2006-2007 AND 2007-2008). HE PLACED ON RECORD AT PAGES 67 TO 77 OF THE PB THE COPIES OF THE ASSESSMENT ORDERS OF EARLIER YEARS. THE LD.A.R ALSO SUBMITTED THAT UNDER EXCISE LAWS, THE G OODS OF THE ASSESSEE ARE CLASSIFIED UNDER TARIFF CODE OF 1909 0. HE PLACED ON RECORD THE COPIES OF RG1 REGISTER (MAINTAINED UNDER THE EXCISE LAWS) IN SUPPORT OF HIS CONTENTION THAT UNDER THE EXCISE LAWS ALSO THE ACTIVITIES OF THE ASSESSEE ARE CONSIDERED AS MANUFA CTURING ACTIVITY. FURTHER, HE POINTED OUT THAT WHILE PASSING THE ORDE R FOR THE YEAR UNDER APPEAL, THOUGH CIT(A) HAS DENIED THE DEDUCTION U/S. 10B, BUT HAS HELD THAT THE ASSESSEE IS AN INDUSTRIAL UNDERTAKING (AT PAGE 8 IN SECOND LAST PARA). THE LD.A.R. ALSO SUBMITTED THE BREAKUP OF SA LES. THE LD.A.R SUBMITTED THAT IN CASE OF THE ASSESSEE THE RAW MATE RIALS LIKE WHEAT, CEREALS. GHEE, OIL ETC ARE PROCESSED AND CONVERTED INTO COMMERCIALLY NEW AND DISTINCT PRODUCT. THE RAW MATERIALS ARE TRA NSFORMED INTO NEW AND DISTINCT ARTICLE HAVING A DIFFERENT NAME, CHARA CTER AND USE. THE RAW MATERIALS WHEN CONSUMED CEASES TO BE ORIGINAL C OMMODITY AND WITH THE APPLICATION OF PROCESS IT BECOMES COMMERCI ALLY DISTINCT AND NEW PRODUCT. THE LD.A.R. RELIED ON THE DECISION IN THE CASE OF CIT VS PANKAJ JAIN (2006) 152 TAXMAN 80 (J&K), CIT VS S IDRAL FOOD P.LTD 282 ITR 563 (GUJ), ITO VS ARIHANT TILES & MAR BLES P.LTD 320 ITR 79 (SC). THE LD. A.R. SUBMITTED THAT THE RATIO OF DECISION IN THE CASE OF INDIAN HOTELS (SUPRA) ARE DISTINGUISHABLE O N FACTS AND ARE NOT APPLICABLE TO THE FACTS OF THE ASSESSEE. HE SUBMITT ED THAT THE DEDUCTION WAS DENIED BECAUSE IN THE CASE OF INDIAN HOTEL, ITS BUSINESS WAS CONSIDERED TO BE A TRADING ACTIVITY NOT AN INDUSTRI AL UNDERTAKING. HE FURTHER SUBMITTED THAT THERE WAS NO CHANGE IN THE F ACTS IN THE YEAR UNDER APPEAL AS COMPARED TO THE FACTS OF EARLIER YE ARS. THUS THE ITA NO.1451/AHD/2012 -10- LD.A.R SUBMITTED THAT THE ACTIVITY OF THE ASSESSEE IS A MANUFACTURING ACTIVITY AND THE ASSESSEE IS THEREFORE ELIGIBLE FO R DEDUCTION U/S 10B. 10. ON THE OTHER HAND THE LD. D.R. SUBMITTED THAT T HE HBLE APEX COURT IN THE CASE OF INDIAN HOTELS (SUPRA) HAS HELD THAT THE ACTIVITY OF PROCESSING FOOD MATERIALS INTO EDIBLE PRODUCTS FOR SERVICE TO CLIENTS CANNOT BE CONSIDERED TO BE A MANUFACTURING ACTIVITY . THE LD.D.R. ALSO PLACED RELIANCE ON THE DECISION OF CIT VS HOTEL BEL LE VUE (P) LTD (1997) 223 ITR 675 (GAU). HE THUS SUPPORTED THE OR DER OF AO. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE MAIN DISPUTE IN THE PRESENT APPEAL B EFORE US IS WHETHER THE ACTIVITIES OF THE ASSESSEE CAN BE TERMED AS MA NUFACTURING ACTIVITY AND THEREFORE ELIGIBLE FOR DEDUCTION U/S. 10B. THE FACTUAL MATRIX OF THE CASE IS THAT THE ASSESSEE IS A 100% E OU SET UP IN OCTOBER, 2002 AND ENGAGED IN THE BUSINESS OF MANUFA CTURING AND EXPORT OF VARIOUS FOOD PRODUCTS LIKE PARATHA, SAMOS A, DHOLKA, IDLI, VADA ETC. THE ASSESSEES FACTORY IS LOCATED IN TAL. KALOL, GANDHINAGAR DISTRICT. THE ASSESSEE HOLDS FACTORY LICENCE DATED 12.8.2002, HAS PERMISSION FROM OFFICE OF DEVELOPMENT COMMISSIONER, KANDLA SPECIAL ECONOMIC ZONE FOR ITS 100% EOU UNIT FOR MAN UFACTURE AND EXPORT OF FOOD. ITS FACTORY PREMISES AT TAL KALOL IS ALSO LICENCED UNDER SECTION 58 OF THE CUSTOMS ACT 1953 AS A PRIVATE BON DED WAREHOUSE FOR STORING AND MANUFACTURING OF FOOD ITEMS. IT HAS ALSO BEEN GRANTED CENTRAL EXCISE REGISTRATION CERTIFICATE UNDER RULE 9 OF THE CENTRAL EXCISE RULES, 2002 FOR OPERATING AS A MANUFACTURER OF EXCISABLE GOODS AND IS REGISTERED FOR OPERATING AS A 100% EOU. WE A RE INFORMED THAT THE AFORESAID CERTIFICATE IS STILL VALID AND HAS NO T BEEN REVOKED BY THE CONCERNED AUTHORITIES. THE ASSESSEE OWNS FACTORY BU ILDING WITH PLANT ITA NO.1451/AHD/2012 -11- AND MACHINERY AND ELECTRICAL INSTALLATIONS. THE VAL UE OF PLANT AND MACHINERY AND ELECTRICAL INSTALLATIONS AS PER THE A UDITED BALANCE SHEET AS ON 31.3.2008 IS IN EXCESS OF RS.20 CRORES, AND T HE ASSESSEE CLAIMS THAT THE NUMBER OF WORKERS EMPLOYED IN ITS FACTORY ARE IN EXCESS OF 2000. THESE FACTS HAVE NOT BEEN CONTROVERTED BY RE VENUE BY BRINGING ANY CONTRARY MATERIAL ON RECORD AND THEREFORE THE U NDISPUTED FACTUAL POSITION IS THAT THE ASSESSEE IS AN INDUSTRIAL UNDE RTAKING. THE FACT THAT ASSESSEE IS AN INDUSTRIAL UDNERTAKING HAS ALSO BE EN ACCEPTED BY THE CIT(A) WHILE PASSING THE ORDER DATED 5.6.2012. HOW EVER, THE CONTROVERSY REMAINS THAT THE CIT(A) HAS NOT ACCEPTE D THE CLAIM OF THE ASSESSEE THAT THE ASSESSEE IS INDULGING IN MANUFACT URING ACTIVITIES. THE ASSESSEE CLAIMS THAT IT MANUFACTURES VARIOUS PR ODUCTS LIKE PARATHA, SAMOSA, VADA, IDLI AT ITS FACTORY. THE PROCESS OF M ANUFACTURING CONSISTS OF VARIOUS PROCESSES. THE CHAPATTI MAKING PROCESS OF THE ASSESSEE HAS BEEN NARRATED HEREINABOVE. SIMILAR PR OCESS IS USED FOR MANUFACTURE OF OTHER PRODUCTS. THE LD.AR DESCRIBED THE PROCESS FOR MANUFACTURE OF CHAPPATI . THE ASSESSEE PROCURES WHEAT DIRECTLY FROM THE FARME RS WHICH IS CLEANED AND WASHED WITH VACUUM AND STEAM, THEREAFTE R IN THE MILLING DEPT. THE WHEAT IS GRINDED WITH THE HELP OF MACHINE S AND CONVERTED INTO FLOUR WHICH IS THEN TRANSFERRED TO DOUGH MAKIN G DEPARTMENT WHERE VARIOUS NUTRITATIVE ADDITIVES ARE MIXED IN TH E FLOUR AND DOUGH IS FORMED. WITH THE HELP OF CHAPATI -MAKING MACHINES, DOUGH IS CONVERTED INTO READY TO EACH CHAPATTI WHICH IS TRAN SFERRED INTO CONVEYORS FOR COOLING PROCESS AND THEREAFTER IT IS FED INTO SPIRAL FREEZER TO ATTAIN TEMPERATURE OF 18 O C SO AS TO MAINTAIN ITS SHELF LIFE OF 2 YEARS. VARIOUS PROCESSES ARE INVOLVED AND WITH THE HELP OF VARIOUS MACHINERIES, THE CHAPATTIS ARE MANUFACTURED. SIMIL AR PROCESS IS ITA NO.1451/AHD/2012 -12- INVOLVED IN MANUFACTURE OF VARIOUS OTHER ITEMS. TH E REVENUE HAVE NOT BROUGHT ANY MATERIAL ON RECORD TO CONTROVERT TH E MANUFACTURING PROCESS FOLLOWED BY THE ASSESSEE. IN THE PRESENT C ASE, WE FIND THAT THE ASSESSEE USES VARIOUS MATERIALS LIKE FLOUR, GHEE, O IL ETC. FOR THE PRODUCTION OF VARIOUS ITEMS. THE PRODUCTION IS DONE BY FOLLOWING A PARTICULAR SET PROCESS. THE VARIOUS RAW MATERIALS W HEN CONSUMED LOSE THEIR INDIVIDUAL AND INDEPENDENT IDENTITY AND A DIF FERENT AND NEW PRODUCT COMES INTO EXISTENCE. THE NEW PRODUCT MANUF ACTURED HAS A DIFFERENT NAME AND CHARACTERISTICS AND IS COMMERCIA LLY DISTINCT. EVEN FOR THE PURPOSE OF EXCISE DUTY, FINAL PRODUCT IS CO NSIDERED AS A DIFFERENT PRODUCT THAN THE INDIVIDUAL ITEMS OF RAW MATERIALS. THE PRODUCED GOODS WAS NOT SOLD TO THE CUSTOMER AS FLOO R, GHEE ETC BUT WITH THE CHANGE IN THE FORM AND IT ATTAINED A DIFFE RENT IDENTITY AND WAS RECOGNISED AS A NEW AND DISTINCT ARTICLE AND WAS SO LD AS A DIFFERENT AND DISTINCT COMMODITY. ACCORDINGLY, THE MANUFACTURING OF CHAPPATI, PARATH, SAMOSA, DHOKLA CONSTITUTES MANUFACTURING ACTIVITY. FROM THE FLOW CHART OF MANUFACTURING PROCESS IN THE CASE OF MATHIA/CHORAFALI SUBMITTED BY THE LD.A.R WE FIN D THAT THE PROCESS IS DESCRIBED AS UNDER: RECEIVING OF MATHIA / CHORAFALI IN BULK PACKAG ING FROM SUPPLIER IN THE PRODUCTION AREA, THEREAFTER THE PRO CESS OF SORTING TAKES PLACE AND THEN PACKING IN CONSUMER PA CKS AND THEREAFTER FREEZING TO -18O C IN DEEP STORAGE FREEZ ER. THUS FROM THE FLOW CHART IT APPEARS THAT IN THE CAS E OF MATHIA AND CHORAFALI THE ASSESSEE DOES REPACKAGING. FURTHER FROM THE D ETAILS OF SALES SUBMITTED BY THE ASSESSEE WE FIND THAT THE SA LES INCLUDES SALE OF CORIANDER LEAVES, CHORAFALI , CUSTARD APPLE PULP, MAGAJ LADU , IQF SHREDDED COCONUT AND MISC. ITEMS. FROM THE DETAILS IT APPEARS ITA NO.1451/AHD/2012 -13- THAT THE AFORESAID ITEMS ARE SOURCED READY MADE AND NOT MANUFACTURED IN THE FACTORY OF ASSESSEE. THE TOTAL SALES OF SUCH ITEMS AS PER THE SUMMARY IS RS.85,68,942/-. WE ARE OF THE VIEW THAT FOR THE AFORESAID ITEMS WHICH HAVE BEEN OUTSOURCED AND NOT MANUFACTUR ED IN THE PREMISES OF THE ASSESSEE BUT HAVE ONLY BEEN REPACKA GED WITH SOME OTHER CONNECTED ACTIVITIES AT THE ASSESSEES PREMIS ES CANNOT BE CONSIDERED TO BE A MANUFACTURING ACTIVITY BY THE AS SESSEE. THE REVENUE HAS PLACED HEAVY RELIANCE ON THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF INDIAN HOTELS LTD., 245 ITR 538 (SC). THE DECISION OF THE HONBLE SUPREME COUR T ARE DISTINGUISHABLE IN VIEW OF THE FACT THAT IN THAT CA SE, THE HONBLE SUPREME COURT HAD HELD THE BUSINESS OF THE ASSESSE E IS THAT OF A HOTEL, WHICH IS TRADING ACTIVITY AND NOT OF AN IND USTRIAL UNDERTAKING. IT WAS FURTHER HELD THAT THE FLIGHT KITCHEN WAS ANC ILLARY TO ITS BUSINESS OF HOTEL AND THEREFORE IT WAS HELD THAT IT TO BE A COMPANY ENGAGED N THE BUSINESS OF HOTEL AND NOT AN INDUSTRIAL UNDERT AKING. IN VIEW OF THESE FACTS, IT HAS HELD THAT PREPARING AND SELLING FOODS STUFF FOR SELLING IN HOTEL THERE WAS NO QUESTION OF MANUFACTURE OR PR ODUCTION. HOWEVER, IN THE PRESENT CASE, THE LD.CIT(A) HAS GIV EN A FINDING THAT THE ASSESSEE IS AN INDUSTRIAL UNDERTAKING AND TO CONTROVERT THIS FACT, NOTHING HAS BEEN BROUGHT ON RECORD BY THE REVENUE. THESE FINDINGS OF OURS IS ALSO SUPPORTED BY THE DECISION OF J&K HI GH COURT IN THE CASE OF PANKAJ JAIN, PROP. OF AAGAM FOOD INDUSTRIES (SUPRA), WHERE THE ASSESSEE WAS MANUFACTURING BREAD, THE HONBLE H IGH COURT HAS HELD THAT THE ASSESSEE WAS AN INDUSTRIAL UNDERTAKI NG ENGAGED IN THE MANUFACTURE AND PRODUCTION OF BREAD AND WAS THUS EN TITLED TO THE BENEFIT OF DEDUCTION UNDER SECTION 80IB. ITA NO.1451/AHD/2012 -14- IN THE CASE OF CIT VS N.C.BUDHARAJA & CO & ANR.(199 3) 204 ITR (SC) THE HBLE APEX COURT HAS HELD THAT THE TES T FOR DETERMINING WHETHER MANUFACTURE CAN BE SAID TO HAVE TAKEN PLACE IS WHETHER THE COMMODITY WHICH IS SUBJECTED TO THE PROCESS OF MANU FACTURE CAN NO LONGER BE REGARDED AS THE ORIGINAL COMMODITY BUT IS RECOGNISED IN THE TRADE AS A NEW AND DISTINCT COMMODITY. IN THE CASE OF INDIAN HOTELS LTD VS ITO, 245 ITR 53 8 (SC) , THE HBLE APEX COURT HAS HELD THAT THE WORD MANUFACTURE HA S VARIOUS SHADES OF MEANING BUT UNLESS DEFINED UNDER THE ACT IT IS T O BE INTERPRETED IN THE CONTEXT OF THE OBJECT AND THE LANGUAGE USED IN THE SECTIONS. IN THE CONTEXT OF THE PROVISIONS WHICH DEAL WITH GRANT OF INVESTMENT ALLOWANCE OR DEDUCTION U/S 80J IT IS APPARENT THAT IT IS USED TO MEAN PRODUCTION OF A NEW ARTICLE OR BRINGING INTO EXISTE NCE SOME NEW COMMODITY BY AN INDUSTRIAL UNDERTAKING. IT WOULD NO T BE APPLICABLE IN CASES WHERE ONLY PROCESSING ACTIVITY IS CARRIED OUT . FURTHER, SUCH PRODUCTION ACTIVITY MUST BE BY AN INDUSTRIAL UNDERT AKING AND NOT BY THE ASSESSEE HAVING MAINLY TRADING ACTIVITY. IN THE CASE OF CIT VS PANKAJ JAIN PROP. AAGAM FOOD INDUSTRIES (2006) 152 TAXMAN 80 (J&K) THE QUESTION BEFORE THE HBLE HIGH COURT WAS WHETHER THE CONVERSION OF MAIDA, SUGAR, Y EAST ETC INTO BREAD WAS MANUFACTURING ACTIVITY AND THEREFORE WHET HER THE ASSESSEE WAS ENTITLED TO BENEFIT U/S 80IB OF THE ACT. THE H BLE HIGH COURT HELD AS UNDER: 16. THE PROCESS ADMITTEDLY ENVISAGES NINE STEPS WH EREBY MAIDA, SUGAR, YEAST AND OTHER INGREDIENTS ARE PROCE SSED AND PUT TO PASS THROUGH VARIOUS STAGES OF MECHANICAL PR OCESS WITH THE AID OF POWER, LIKE MIXING, ROUNDING, PROVING, M OULDING, FERMENTING, BAKING, COOLING, SLICING ETC. IF THE TE ST LAID DOWN BY ITA NO.1451/AHD/2012 -15- THE SUPREME COURT IN ITS VARIOUS JUDGMENTS WAS APPL IED TO THIS PROCESS, WE ARE LEFT WITH NO DOUBT THAT THIS WAS A MANUFACTURING PROCESS AND THE ASSESSEE WAS MANUFACT URING BREAD AND NOT PROCESSING IT, BECAUSE THE WHOLE PROC ESS OF CONVERSION OF THE RAW MATERIAL UNDOUBTEDLY LEADS TO PRODUCTION OF A NEW THING I.E. THE BREAD IN PLACE OF THE ORIGI NAL INGREDIENTS LIKE MAIDA, SUGAR, YEAST ETC. THE RAW MATERIAL BEFO RE PROCESSING IS ALTOGETHER DIFFERENT AND AFTER ITS CO NVERSION, ITS NATURE, CHARACTER AND USE UNDERGOES A TOTAL CHANGE LEADING TO THE PRODUCTION OF A NEW THING BREAD. THEREFORE IT C ANNOT BE SAID THAT UNBAKED MATERIALS. I.E. MAIDA, SUGAR, YEA ST, ETC RETAIN THEIR CHARACTER EVEN AFTER CONVERSION INTO A BREAD, INVOLVING PROCESSING ONLY. AS FAR AS WHETHER THE ASSESSEES U NIT WAS INDUSTRIAL UNDERTAKING, IT HELD THE ASSEESSS UN IT STANDS ALREADY REGISTERED WITH DIRECTORATE OF INDUSTRIES H OLDING POWER LICENCE AND IS ALSO REGISTERED UNDER THE FACTORIES ACT AND THEREFORE THERE IS THUS NO DOUBT THAT IT WAS AN IND USTRIAL UNDERTAKING WITHIN THE MEANING OF S. 80IB OF THE AC T ENGAGED IN THE MANUFACTURING ACTIVITY FURTHER THE HBLE HC DISTINGUISHED THE DECISION OF APEX COURT IN THE CASE OF INDIAN HOTELS IN FOLLOWING MANNER: 21. A CAREFUL READING OF THIS JUDGMENT WOULD SHOW THAT IT HAD SEVERAL DISTINGUISHING FEATURES, WHICH WERE NOT ATT RACTED IN THE PRESENT CASE. FOR EXAMPLE, IT WAS DEALING WITH A FL IGHT KITCHEN WHICH WAS BEING RUN ALONGWITH HOTEL AND WAS ANCILLA IARY TO THE HOTEL BUSINESS AND THAT IS WHY IT WAS NOT HELD TO B E A SEPARATE INDUSTRIAL UNDERTAKING WITHIN THE MEANING OF S. 80J . SIMILARLY, THE SUPREME COURT FOUND THAT THE INDIAN HOTELS CO L TD WAS ENGAGED IN THE BUSINESS OF TRADING ACTIVITY AND NOT IN ANY INDUSTRIAL ACTIVITY AS SUCH AND WAS PREPARING FOOD STUFF FOR CONSUMPTION WHICH DID NOT RESULT IN THE MANUFACTURE OF PRODUCTION OF ANY NEW ARTICLE OR THING BECAUSE ALL FOOD PACKAGES PREPARED IN THE FLIGHT KITCHEN INVOLVED ON LY THE ACTIVITY OF PROCESSING AND NOT MANUFACTURING, AND O RIGINAL EATABLES RETAINED THEIR NATURE AND CHARACTER AND WE RE NOT TRANSFORMED INTO A NEW PRODUCT. IT THUS HELD BY THE HONBLE J&K HIGH COURT IN THIS CASE THAT THE ASSESSEE WAS AN INDUSTRIAL UNDERTAKING ENGAGED IN T HE MANUFACTURING ITA NO.1451/AHD/2012 -16- AND PRODUCTION OF BREAD AND WAS THUS ENTITLED TO BE NEFIT OF DEDUCTION U/S 80IB OF THE ACT. 12. IN THE CASE OF ITO VS ARIHANT TILES AND MARBLES P.LTD (2010) 320 ITR 79 (SC) HAS OBSERVED AS UNDER: BEFORE CONCLUDING WE WOULD LIKE TO MAKE ONE OBSERV ATION. IF THE CONTENTION OF THE DEPARTMENT IS TO BE ACCEPTED, NAMELY, THAT THE ACTIVITY UNDERTAKEN BY THE RESPONDENTS HEREIN I S NOT A MANUFACTURE, THEN, IT WOULD HAVE SERIOUS REVENUE CONSEQUENCES. AS STATED ABOVE, EACH OF THE RESPONDE NTS IS PAYING EXCISE DUTY, SOME OF THE RESPONDENTS ARE JOB WORKERS AND THE ACTIVITY UNDERTAKEN BY THEM HAS BEEN RECOGN ISED BY VARIOUS GOVERNMENT AUTHORITIES AS MANUFACTURE. TO S AY THAT THE ACTIVITY WILL OT AMOUNT TO MANUFACTURE OR PRODUCTIO N UNDER SECTION 80IA WILL HAVE DISASTEROUS CONSEQUNECES PAR TICULARLY IN VIEW OF THE FACT THAT THE ASSESSEES IN ALL THE CASE S WOULD PLEAD THAT THEY WERE NOT LIABLE TO PAY EXCISE DUTY, SALES TAX ETC BECAUSE THE ACTIVITY DID NOT CONSTITUTE MANUFACTURE . KEEPING IN MIND THE ABOVE FACTORS, WE ARE OF THE VIEW THAT IN THE PRESENT CASES, THE ACTIVITY UNDERTAKNE BY EACH OF THE RESPO NDENT CONSTITUTES MANUFACTURE OR PRODUCTION AND THEREFORE THEY WOULD BE ENTITLED TO THE BENEFIT OF SECTION 80IA OF THE I NCOME TAX ACT, 1961. 13. ON THE BASIS OF MATERIAL ON RECORD, WE FIND THA T THE ASSESSEE HAS CLAIMED DEDUCTION U/S 10B IN THE PAST ASSESSMENT YE ARS AND THE CLAIM OF THE ASSESSEE WAS ALLOWED WHILE FRAMING THE ASSES SMENTS FRAMED U/S 143(3) AND THE ASSESSMENTS HAVE ATTAINED FINALITY. IT WAS SUBMITTED THAT THERE WAS NO CHANGE IN THE FACTS IN THE YEAR U NDER APPEAL AS COMPARED TO THE FACTS OF EARLIER YEARS. THIS FACT H AS NOT BEEN CONTROVERTED BY THE LD.D.R. BY BRINGING ANY CONTRAR Y MATERIAL ON RECORD. WE FURTHER FIND THAT THE HONBLE J.K. HIGH COURT IN THE CASE OF PANKAJ JAIN (SUPRA) AFTER DISTINGUISHING THE HONBL E APEX COURT IN THE ITA NO.1451/AHD/2012 -17- CASE OF INDIAN HOTELS (SUPRA) HAS HELD THE MANUFACT URE OF BREAD TO BE A MANUFACTURING ACTIVITY. THUS, IN VIEW OF THE TOTALITY OF FACTS OF THE CASE, WE HOLD THAT THE ISSUE BEFORE US IS COVERED WITH THE DECISION OF HONBLE J.K. HIGH COURT IN THE CASE OF PANKAJ JAIN (SUPRA) IN FAVOUR OF THE ASSESSEE AND WE ARE OF THE VIEW THAT THE ASSESSEE IS AN INDUSTRI AL UNDERTAKING AND THE ACTIVITY OF PRODUCTION OF THE FOODSTUFF IS A MA NUFACTURING ACTIVITY (EXCEPT FOR THE ITEMS OUTSOURCED FROM OTHER PARTIES ). 14. IN THE YEAR UNDER APPEAL, THE PROFIT FOR THE YE AR INCLUDES THE PROFIT ON SALE ON OUTSOURCED ITEMS. FROM THE PROFI TS, THE BREAK-UP OF PROFIT EARNED FROM OUTSOURCED ITEMS IS NOT AVAILABL E BEFORE US. WE ARE OF THE VIEW THAT PROFIT EARNED FROM OUTSOURCED ITEMS CANNOT BE CONSIDERED AS PROFIT EARNED FROM THE MANUFACTURING ACTIVITIES UNDERTAKEN BY THE ASSESSEE, AND THEREFORE THE ASSES SEE SHALL NOT BE ENTITLED TO DEDUCTION UNDER SECTION 10B ON PROFIT E ARNED ON SALE ON OUTSOURCED ITEMS. WE ARE THUS OF THE VIEW THAT MAT TER OF QUANTIFICATION OF THE QUANTUM OF PROFITS EARNED ON OUT-SOURCED AND SELF MANUFACTURED ITEMS NEEDS VERIFICATION. WE ACCO RDINGLY ARE OF THE VIEW THAT THE MATTER BE SENT BACK TO THE FILE OF TH E AO FOR THE LIMITED PURPOSE TO DETERMINE THE PROFITS OF SELF MANUFACTUR ED ITEMS AND THAT OF OUTSOURCED ITEMS. THE AO SHALL COMPUTE THE PROFITS ELIGIBLE FOR DEDUCTION U/S.10B AND ALLOW THE DEDUCTION UNDER SEC TION 10B IN PROPORTION OF THE TURNOVER OF SELF-MANUFACTURED AND OUTSOURCED ITEMS. THE ASSESSEE SHALL CO-OPERATE BY FURNISHING THE REQ UIRED DETAILS TO THE AO FOR COMPUTING SUCH PROFITS. THUS THIS GROUND OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO.1451/AHD/2012 -18- 15. THE ADDITIONAL GROUND RAISED BY THE ASSESSEE WA S NOT SERIOUSLY ARGUED AND THEREFORE THE SAME IS DISMISSED. 16. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- ( . .. . . .. . /G.C. GUPTA) !' !' !' !' /VICE-PRESIDENT ( %&'( %&'( %&'( %&'( / ANIL CHATURVEDI) )* + )* + )* + )* + /ACCOUNTANT MEMBER