ITO, Nahan V. Shri Mela Ram, Kala Amb

ITA 245/CHANDI/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57616 (ITAT-CHANDIGARH)
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-01-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 10-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: B S SAINI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH CH ANDIGARH BEFORE SHRI H.L. KARWA, VP AND SHRI D K SRIVASTAVA, AM ITA NO. 245 AND 246 /CHANDI/2011 ASSESSMENT YEAR: 2006-07 AND 2007-08 I.T.O. NAHAN V SHRI MELA RAM PROP DEEWAL GRAMDAYOG SANSTHAN VILLAGE OGLI, KALA AMB ABCPR 5448 J CROSS-OBJECTIONS NO. 34 AND 35/CHD/2011 ARISING OUT OF ITA NOS. 245 AND 246/CHD/2011 ASSESSMENT YEAR: 2006-07 AND 2007-08 SHRI MELA RAM, VILLAGE OGLI V I.T.O. NAHAN KALA AMB DEPARTMENT BY: SHRI N.K. SAINI ASSESSEE BY: SHRI B.S., SAINI DATE OF HEARING: 19.1.2012 DATE OF PRONOUNCEMENT: 20 .1.2012 ORDER PER H.L. KARWA, V.P THESE TWO APPEALS BY THE REVENUE AND THE CROSS-OBJE CTIONS BY THE ASSESSEE ARE DIRECTED AGAINST THE CONSOLIDATED ORDER OF LD. CIT(A), SHIMLA DATED 10.1.2011 RELATING TO AY 2006-07 AND 2007-08. 2. THE COMMON GROUND OF APPEALS READ AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES, THE LD. CIT (A) HAS ERRED IN HOLDING THAT CONVERSION OF HEENA LEAVES INTO HERBAL HEENA POWDER BY A PROCESS OF MIXING AND GRINDING, AMOUNTS TO MANUFACTURE, ESPECIALLY IN THE LIGHT OF JUDGMENTS OF THE HON'BLE SUPREME COURT IN CIT V. TARA AGENCIES, 292 ITR 444 AND SACS EAGLE CHICORY V. CIT, 255 ITR 178 AND CONSEQUENTLY HAS ERRED IN ALLOWING DEDUCTION U/S 80IC ON THE PROFITS DERIVED FROM THIS ACTIVITY ALSO. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE FILED RETURN OF INCOME FOR AY 2006-07 AT RS. 1,19,163/- AND FOR THE AY 200 7-08 AT RS. 19,978/-. IN THE RETURN THE ASSESSEE CLAIMED DEDUCTION U/S 80IC OF T HE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) AMOUNTING TO RS. 4,97,938 AND RS. 46,89, 311/- RESPECTIVELY. THE ASSESSEE WAS RUNNING A UNIT OF MANUFACTURING OF PER FUME AND BEAUTY CREAM. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE WAS ASKED T O EXPLAIN THE MANUFACTURING PROCESS. AFTER CONSIDERING THE REPLY OF THE ASSESS EE, THE AO DID NOT ACCEPT THE CLAIM OF THE ASSESSEE HOLDING THAT THE ACTIVITY OF THE ASSESSEE IS NOT MANUFACTURING ITA NOS. 245 & 246/CHANDI/2011 C.O NOS. 34 & 35/CHD/2011 2 2 WHICH IS A PRIME CONDITION FOR CLAIMING EXEMPTION U /S 80IC OF THE ACT. HE THEREFORE, HELD THAT THE ASSESSEE WAS NOT ENTITLED FOR DEDUCTI ON U/S 80IC OF THE ACT. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE C ARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED THAT THE AO HAS WRONGLY DISALLOWED DEDUCTION U/S 80IC ON THE PROFIT S OF MANUFACTURING OF MEHNDI POWDER, BROWN HAIR COLOUR, BURGUNDY HAIR COLOUR, FA CE PACK, HERBAL SHAMPOO, HAIR OIL, HAIR REMOVING CREAM, HAIR CONDITIONER HOL DING THAT SAME WERE NOT COVERED UNDER THE DEFINITION OF MANUFACTURING. THE ASSESSE E FURTHER SUBMITTED BEFORE THE LD. CIT(A) THAT IN THE CASE OF HARBAL MEHNDI, BROWN HAIR COLOUR, MEHNDI POWDER AND NEEM POWDER WERE MIXED, OVEN HEATED, WEIGHED MIXED AND THEREAFTER TESTED. AFTER PRINTING THE BATCH NO. POUCHES WERE FILLED AND STOR ED FOR MARKETING. IT WAS ALSO CLAIMED BY THE ASSESSEE BEFORE THE LD. CIT(A) THAT IN HERBAL SHAMPOO THERE WERE EIGHT STAGES TO GET THE FINAL PRODUCT AFTER HEATING THE MATERIAL. LIKEWISE REGARDING HAIR OIL THERE WERE 13 STAGES BEGINNING FROM WEIGHI NG OF TESTED MATERIAL FROM 1 TO 8 ITEMS AS PER FORMULA TO GET THE FINAL PRODUCT PACKE D IN THE BOTTLES FOR MARKETING. 5. THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSE E FOR BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION FOLLOWING THE DECISION OF ITAT CHANDIGARH BENCH B IN THE CASE OF M/S INDUS COSMECEUTICALS, SHIMLA V. DCIT, C IRCLE, SHIMLA IN ITA NO. 1116/CHD/2008 RELATING TO AY 2005-06, ORDER DATED 2 7.2.2009. 6. BEFORE US, SHRI B.S. SAINI, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF ITAT CHANDIGARH BENCH B IN THE CASE O F M/S INDUS COSMECEUTICALS, SHIMLA V. DCIT, CIRCLE, SHIMLA (SUPRA). HE, THEREF ORE SUBMITTED THAT THE ISSUE MAY BE DECIDED IN FAVOUR OF THE ASSESSEE FOLLOWING THE ORDER OF TRIBUNAL DATED 27.2.2009 REFERRED TO ABOVE. 7. THE LD. LD. DR , SHRI N.K. SAINI, HEAVILY RELI ED ON THE ORDER OF AO. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN OUR VIEW THE LD. CIT(A) HAS CORRECTLY F OLLOWED THE DECISION OF ITAT CHANDIGARH BENCH B IN THE CASE OF M/S INDUS COSME CEUTICALS (SUPRA). WHILE DECIDING THE CASE OF M/S INDUS COSMECEUTICALS (SUPR A) FOR AY 2005-06, THE TRIBUNAL HAS FOLLOWED ITS EARLIER ORDER DATED 25.9.2008 PASS ED IN THE CASE OF M/S INDUS COSMECEUTICALS, SHIMLA V. DCIT, CIRCLE, SHIMLA. IN ITA NOS. 874 AND 875/CHD/2007 ITA NOS. 245 & 246/CHANDI/2011 C.O NOS. 34 & 35/CHD/2011 3 3 RELATING TO ASSESSMENT YEARS 2003-04 AND 2004-05. IN ITA NOS. 874 AND 875/CHD/2007 IN THE CASE OF M/S INDUS COSMECEUTICAL S, SHIMLA V. DCIT, CIRCLE, SHIMLA, THE TRIBUNAL HAS HELD AS UNDER:- EVEN THE AO AT PAGE 7 OF THE ORDER HAS MENTIONED T HAT THE ASSESSEE FIRM IS ENGAGED IN MANUFACTURING OF HERBAL HEENA POWDER AND USED FOLLOWING INGREDIENTS: NAME OF THE RAW MATERIAL PERCENTAGE HEENA 40 BARIUM 25 PPD 10 CITRIC ACID 10 AMLA SHIKAKAI 15 PLANTAGO, BARHMI, ROSE PETALS, PAP, MANGANESE CARBONATGE AND SODIUM SULPHITE IT IS NOT THE CASE THAT THE ASSESSEE IS MERELY GRIN DING AND MIXING RATHER THE RAW MATERIAL IS FIRST COLLECTED, DRIED 'WITH THE US E OF MIXING OF VARIOUS ACIDS AND THEREAFTER GRINDED BY PUTTING THE DEFINITE QUAN TITY (IN PERCENTAGE) WITH THE HELP OF VARIOUS SPECIALIZED PERSONS. IF ANY OF THE ITEM IS MIXED IN DISPROPORTIONATE MANNER, THEN THE END PRODUCT MAY B E HARMFUL AND MAY NOT BE USED FOR THE PURPOSE FOR WHICH IT WAS PRODUC ED. THE END PRODUCT IS THE RESULT OF MANY TRANSFORMATIONS CARRIED OUT W ITH THE HELP OF MANPOWER AND MACHINES AND IS COMMERCIALLY A DIFFERE NT ITEM. ANOTHER POINT-ON THE BASIS OF WHICH THE DEDUCTION WAS DISAL LOWED IS THAT THE GROSS TURN OVER IS ABNORMALLY HIGH, WE ARE OF THE VIEW, T HAT THIS PLEA ITSELF CAN NOT BE THE SOLE GROUND FOR DENYING THE DEDUCTION SPECIA LLY WHEN THE ISSUE TO BE ADJUDICATED BY US IS WHETHER THE ACTIVITY OF THE AS SESSEE AMOUNTS TO MANUFACTURING OR NOT. THE ANOTHER POINT MENTIONED B Y THE ID ASSESSING OFFICER JS THAT NO CENTRAL EXCISE DUTY HAS BEEN PAI D BY THE ASSESSEE ON THE PRODUCT, THEREFORE, IT CANNOT BE SAID TO BE A MANUF ACTURING. WE ARE MAKING IT CLEAR THAT AS PER CENTRAL EXCISE TARIFF ACT, 198 5, EXEMPTION HAS BEEN GRANTED TO CERTAIN GOODS / NEW UNITS IN UTTRANCHAL & HIMACHAL PRADESH (INSERTED BY NOTIFICATION NO. 76/2003 - CE DATED 5. 11.2003 AND SUBSTITUTED BY NOTIFICATION NO.27/2004 - CE DATED 9.7.2004 AND NO.12/2006 CE' DATED 1.3.2006). EVEN OTHERWISE, THE SMALL SCALE IN DUSTRY (SSI UNIT) ARE NOT SUPPOSED TO PAY EXCISE DUTY WHERE THE TURN OVER IS LESS THAN RS. 1.5 CRORES. DURING ARGUMENTS, THE ID COUNSEL FOR TH E ASSESSEE CONTENDED THAT IN VIEW OF THE NOTIFICATION OF THE - CENTRAL G OVERNMENT, CENTRAL EXCISE DUTY IS EVEN OTHERWISE EXEMPTED FROM PAYMENT IN THE BACKWARD STATE SO THAT THE NEW ENTREPRENEURS MAY FEEL ATTRACTION AND NEW UNITS CAN BE SET UP. THESE FACTS WERE NOT CONTROVERTED BY THE REVENUE. W E ARE MAKING IT CLEAR THAT BRANDED HEENA POWDER IS AN EXCISABLE ITEM, THE REFORE, THE CLAIM OF DEDUCTION CANNOT BE DENIED TO THE ASSESSEE SOLELY O N THE GROUND THAT NO EXCISE DUTY HAS BEEN PAID. , EVEN OTHERWISE, THE ON LY ISSUE FOR .ADJUDICATION BEFORE US .IS WHETHER THE ASSESSEE IS A MANUFACTURING UNIT OR NOT AND FURTHER WHETHER HERBAL COSMETIC PRODUCTS IS ELIGIBLE FOR DEDUCTION U/S 80 IB OF THE ACT, THEREFORE, WE RESTR ICT OURSELVES TO THIS ISSUE ONLY. 5. THE ID ASSESSING OFFICER DENIED THE DEDUCTION BY PLACING RELIANCE ,UPON THE DECISION IN THE CASE OF CIT VS SACS EAGLE S CHICORY (241 ITR 319). WE HAVE FOUND THAT THIS CASE WAS DECIDED BY T HE HON'BLE MADRAS HIGH COURT WHEREIN ONLY CHICORY ROOT WERE CONVERTED INTO CHICORY POWDER ITA NOS. 245 & 246/CHANDI/2011 C.O NOS. 34 & 35/CHD/2011 4 4 WHEREAS IN THE PRESENT INDUSTRIAL UNIT, THERE ARE S O MANY ITEMS, WHICH ARE DRIED WITH THE HELP OF VARIOUS ACIDS / OTHER METHOD S AND ARE MIXED IN A DEFINITE PERCENTAGE AND THEREAFTER PUT TO VARIOUS P ROCESSES AND THEN GRINDED WITH THE HELP OF MACHINES/AID OF POWER AND THE RESULTANT PRODUCT / END PRODUCT IS COMMERCIALLY KNOWN DIFFERENTLY, THER EFORE, IN OUR HUMBLE OPINION, AFORESAID CASE RELIED UPON BY THE ID ASSES SING OFFICER AND WELL AS BY THE ID SR. DR MAY NOT HELP THE REVENUE BEING ON DIFFERENT FACTS. EVEN OTHERWISE, THE MANUFACTURE ,AND PROCESSING ARE NOT CLEARLY DEMARCATED FIELD. THE TEST OF MANUFACTURE LIES IN THE ANSWER T O THE QUESTION WHETHER WHAT IS PROCESSED OR PRODUCED AS THE END-PRODUCT IS COMMERCIALLY KNOWN AS A DIFFERENT PRODUCT FROM THE MATERIALS OUT OF WH ICH IT IS SO PRODUCED. THEREFORE, IF THE PRODUCT HAS A DIFFERENT NAME AND IS IDENTIFIED BY THE BUYERS AND SELLERS AS A DIFFERENT PRODUCT AND IS BO UGHT AND SOLD AS A DISTINCT PRODUCT FORM ITS RAW-MATERIALS, ONE CAN SA Y THAT IT IS A MANUFACTURED 'PRODUCT. THERE MAY BE SOME ROOM FOR D EBATE AS TO WHETHER THIS TEST IS FULLY SATISFIED BY EDIBLES THAT COME A S END-PRODUCTS FROM THE RAW MATERIALS OUT OF WHICH THEY ARE MADE. BUT THE EXPRE SSION 'PRODUCE' HAS TO BE TAKEN IN A MORE LIBERAL SENSE THAN MANUFACTURE. IF THE END-PRODUCT IS DIFFERENT, THAT BY ITSELF WOULD SUFFICE TO MEET THE REQUIREMENT OF 'PRODUCING'. EVEN AN EXCLUSIVE CATERING UNIT OF A H OTEL SUPPLYING EATABLES IN BULK FOR CONSUMPTION BY AIR PASSENGERS WAS HELD TO BE ELIGIBLE FOR RELIEF BY THE HON'BLE CALCUTTA HIGH COURT IN CIT VS. EAST IND IA HOTELS LTD (209 ITR 854)(CAL). THE FOLLOWING CASES CAN ALSO BE RELIED U PON: CIT VS, M.R. GOPAL (58 ITR 598)(MAD) TARAI DEVELOPMENT CORPORATION VS. CIT (120 ITR 342) (AII) CIT VS. KANAM LATEX INDUSTRIES LTD (221 ITR 1)(KER. ) CIT VS. TATA LOCOMOTIVE AND ENGG CO LTD (68 ITR 325 )(BOM) ADDL.C'IT VS. A.MUKERJEE.& CO (113 ITR 718)(CAL) CIT VS. DARSHAK LTD (247 ITR 489)(KAR) SHIP SCRAP TRADERS VS. CIT (251 ITR 806)(BOM) CIT VS. PREMIUM TOBACCO PACKERS (284 ITR 222) (MAD) CIT VS. PRABHU DASS KISHORE DASS TOBACCO PRODUCTS ( 154 TAXMAN 404)(GUJ) CIT VS. SHIV OIL & DAL MILLS (153 TAXMAN 27)(AII) CIT VS. JAMAL PHOTO INDS (205 CTR 427)(MAD) IF THE AFORESAID DECISIONS ARE ANALYSED, IT IS SEEN THAT EVEN THE TOBACCO ; CURING, BIDI MANUFACTURING AND CONVERSION OF PLAIN GLASSWARE INTO DECORATIVE GLASSWARE WERE HELD TO BE AMOUNTING TO M ANUFACTURE. EVEN BOOK PUBLISHING AND BOOK BINDING [ADDL CIT VS. A. M UKERJEE & CO 113 ITR 718, (CAL) ] WERE HELD TO BE MANUFACTURING. THERE ARE .CERTAIN DECISIONS WHEREIN IT WAS HELD TH AT THERE IS A NO MANUFACTURING ACTIVITY LIKE PACKING OF TEA (APPEE JAY PVT LTD VS. CIT (77 TAXMAN 208), TYRE RE-TREADING (TAMILNADU STATE TRAN SPORT CO LTD VS. CIT - 252 ITR 883) (SC) FOUNDATION WORK (CIT V. N.C. BUDHIRAJA & CO. 204 ITR 412 (SC) PROCESSING OF SHRIMPS (CIT VS. RELI SH FOODS 237 ITR 59 (SC), REARING OF CHICKS (CIT VS. VENKTESWARA H ATCHERIES PVT LTD 237 ITR 174) (S.C), CONVERSION OF CHICORY ROOTS INT O CHICORY POWDER (SACS EAGLES CHICORY V. CIT 255 ITR 178 (S.C) ETC 9. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL (SUPRA) WE HOLD THAT IN THE PRESENT CASE, SINCE THERE IS A SYSTEMATIC ACTIVITY DONE BY THE ASSESSEE IN REACHING TO ITA NOS. 245 & 246/CHANDI/2011 C.O NOS. 34 & 35/CHD/2011 5 5 AN END PRODUCT WHICH IS COMMERCIALLY KNOWN DIFFEREN TLY, THEREFORE, WE HAVE NO HESITATION TO SAY THAT IT IS A MANUFACTURING ACTIVI TY. CONSEQUENTLY, WE DISMISS BOTH THE APPEALS OF REVENUE. CROSS-OBJECTIONS NO. 34 AND 34/CHD/2011 10 THE CROSS-OBJECTIONS FILED BY THE ASSESSEE MEREL Y SUPPORT THE ORDER OF THE LD. CIT(A). FURTHERMORE, THE ASSESSEE HAS NOT CLAIMED ANY EFFECTIVE RELIEF IN THE CROSS- OBJECTIONS. IN VIEW OF THE ABOVE, WE DO NOT SEE AN Y MERIT IN THE CROSS-OBJECTIONS FILED BY THE ASSESSEE AND HENCE DISMISSED. 11. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE AND THE CROSS-OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON 20 .01.2012 SD/- SD/- (D K SRIVASTAVA) (H.L. KARWA) ACCOUNTANT MEMBER VICE PRESIDENT CHANDIGARH, 20.01.2012 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/ THE DR