M/S SURAJDEV INDUSTRIES, Akola V. ACIT Akola Circle, Akola

ITA 277/NAG/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2130 (ITAT-NAGPUR)
• Duration Of Justice: 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2008-2009
• Appeal Filed On: 30-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AGNESH P THOMAS
• Assessee Lawyers: K B LOHIYA
• Section: 80IB

Judgement Text

1 ITA NO. 277/NAG/2015 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. (S.M.C.) I.T.A. NO. 277/NAG/2015. ASSESSMENT YEAR : 2008 - 09. M/S SURAJDEV INDUSTRIES, ASSTT. COMMISSIONER OF INCOME - TAX, AKOLA. VS. AKOLA CIRCLE, AKOLA. PAN AADES 1663H. APPELLANT. RESPONDENT. APPELLANT BY : SHRI K.B. LOHIYA. RESPONDENT BY : SMT. AGNESH P. THOMAS. DATE OF HEARING : 25 - 07 - 2016 DATE OF PRONOUNCEMENT : 25 TH JULY, 2016 O R D E R THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS) - I, NAGPUR DATED 28 - 08 - 2015 AND PERTAINS TO ASSESSMENT YEAR 200 8 - 09 . 2. THE ISSUE RAISED IS THAT THE LEARNED CIT(APPEALS) ERRED IN HOLDING THAT NO NEW PRODUCT OR THING COMES INTO EXISTENCE BY THE PROCESSING OF TUWAR TO CONVERT THE SAME IN TUWAR PULSES. 3 . IN THIS CASE AS SESSEES CLAIM OF DEDUCTION U/S 80IB(3) WAS DENIED BY THE AO. THE AO WAS OF THE OPINION THAT MANUFACTURING ACTIVITY OF THE ASSESSEE OF TUR DAL IS NOT THE ACTIVITY OF MANUFACTURING OF GOODS AS DEFINED IN THE ACT. HE HELD THAT THE SO CALLED MANUFACTURING PRO CESS OF TUR DAL BY THE ASSESSEE, THE NATURE OF RAW MATERIAL AND FINISHED PRODUCT REMAINS THE SAME WITHOUT ANY CHANGE AND THE ASSESSEE SIMPLY SPLITTING THE TUR SEEDS INTO TWO PARTS NAMED 2 ITA NO. 277/NAG/2015 PULSES. HENCE THE AO DENIED THE ASSESSEES CLAIM OF SECTION 80IB DEDUC TION OF RS. 9,01,269 / - . 4 . UPON ASSESSEES APPEAL, LEARNED CIT(APPEALS) AFFIRMED THE AOS ORDER HOLDING AS UNDER 4.1 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE AR OF THE APPELLANT, THE ORDER OF THE AO AND THE MATERIAL ON RECORD. ON CAREFUL EXAMINA TION OF THE MATERIAL FACTS, IT IS SEEN THAT THE ACTIVITY DEFINED BY THE APPELLANT FOR PROCESSING OF TOOR TO CONVERT THE SAME IN THE TOOR PULSES DOES NOT QUALIFY TO BE A MANUFACTURING ACTIVITY ELIGIBLE FOR DEDUCTION U/S 80IB(3) AS NO NEW PRODUCT OR THING C OMES INTO XISTENCE PURSUANT TO SUCH PROCESSING DONE BY THE APPELLANT. THE DECISION OF THE HONBLE APEX COURT AND THE KARNATAKA HIGH COURT IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE WHEREIN HONBLE APEX COURT HAS HELD THAT CONVERSION OF CHICORY INTO CHICORY POWDER DOES NOT RESULT INTO EXISTENCE OF A NEW PRODUCE OR THING. IN THE CASE OF THE APPELLANT ALSO THE MERE SPLITTING OF TOOR IN 2 PARTS BY THE APPELLANT DOES NOT MAKE ANY MATERIAL CHANGE IN THE ORIGINAL PRODUCT WHICH CAN BE REGARDED AS A NEW PRODUCT OR THING WHICH HAS COME INTO EXISTENCE PURSUANT TO SUCH PROCESS. 4.2 THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF LUCKY MINERALS PVT. LTD. VS. CIT 245 ITR 830 WHEREIN IT HAS BEEN HELD THAT THE BUSINESS OF MINING OF LINE STONES AND MARBLE BLOCKS AND THEREAFTER CUTTING AND SIZING THE SAME BEFORE BEING SOLD IN THE MARKET DOES NOT AMOUNT TO MANUFACTURING AND PRODUCTION. THE HONBLE SUPREME COURT HAS FURTHER HELD THAT MANUFACTURE IMPLIES A CHANGE, BUT EVERY CHANGE IS NOT MANUFACTURE, ALTHOUG H EVERY CHANGE IN THE ARTICLE IS THE RESULT OF THE TREATMENT, LABOUR AND MANIPULATION. TO BRING ABOUT THE CHANGE QUALIFYING AS MANUFACTURE SOMETHING MORE IS NECESSARY AND THAT SOMETHING IS TRANSFORMATION I.E. A NEW AND DIFFERENT ARTICLE HAVING A DISTINCT N AME, CHARACTER OR USE MUST EMERGE. ALTHOUGH AT SOME POINT PROCESSING AND MANUFACTURING WILL MERGE BUT WHERE THE COMMODITY RETAINS A CONTINUING SUBSTANTIAL IDENTITY THROUGH THE PROCESSING STAGE, ONE CANNOT SAY THAT IT HAS BEEN MANUFACTURED. THUS, BASED ON THIS FINDING OF THE HONBLE APEX COURT, THE ACTIVITY OF THE APPELLANT WOULD NOT CONSTITUTE MANUFACTURE OF AN ARTICLE OR A THING. 4.3 THEREFORE, CONSIDERING THE RATIO OF THE DECISION OF THE HONBLE APEX COURT RELIED ON BY THE AO AND OTHER MATERIAL FACTS, I DECLINE TO INTERFERE WITH THE ORDER OF THE AO AND THE DISALLOWANCE MADE BY THE AO IS CONFIRMED. 3 ITA NO. 277/NAG/2015 5 . AGAINST THE ABOVE ORDER, ASSESSEE IS IN APPEAL BEFORE THE ITAT. 6 . I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. LEARNED COUNSEL OF THE ASSESSEE S UBMITTED THAT IDENTICAL ISSUE WAS DECIDED BY THE ITAT, NAGPUR BENCH IN ITA NO.236/NAG/09 IN THE CASE OF M/S R.R. UDYOG VS. ITO VIDE ORDER DATED 26 TH JUNE, 2011. THE TRIBUNAL HAD ADJUDICATED AS UNDER: 7.WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. T HE HONBLE SUPREME COURT IN ITS JUDGMENT IN THE CASE OF INDIA CINE AGENCIES SUPRA) CONSIDERED AN ACTIVITY OF CONVERSION OF JUMBO ROLLS OF PHOTOGRAPHIC FILMS INTO SMALL FLATS AND ROLLS IN DESIRED SIZES. THE HONBLE SUPREME COURT OPINED THAT SUCH AN ACTIVITY AMOUNTS TO MANUFACTURE OR PRODUCT ION ELIGIBLE FOR DEDUCTION UNDER SECTION 80HH AND 80I OF THE ACT. THE PERTINENT REASONING WHICH EMERGES FROM THE SAID JUDGMENT IS THAT IF A CHANGE OR A SERIES OF CHANGES IS EFFECTED IN THE COMMODITY TO THE POINT WHERE COM MERCIALLY IT CANNOT BE REGARDED AS AN ORIGINAL COMMODITY AND INSTEAD IT IS RECOGNIZED AS DISTINCT ARTICLE IN THE COMMERCIAL SENSE, IT WOULD AMOUNT TO MANUFACTURE. IN THE CASE BEFORE THE HONBLE SUPREME COURT, JUMBO ROLLS OF PHOTOGRAPHIC FILMS WERE CONVERTE D INTO SMALL FLATS AND ROLLS IN THE DESIRED SIZES. THIS RESULTED IN COMMERCIAL USAGE OF THE FINAL PRODUCT DIFFERENT THAN THE ORIGINAL AND THUS IT WAS HELD TO BE MANUFACTURE. SIMILAR REASONING ALSO FOUND FAVOUR WITH THE HONBLE SUPREME COURT IN THE CASE O F ASPINWALL & CO. LTD. (SUPRA). 8. IN THE AFORESAID LIGHT, WE HAVE EXAMINED THE BUSINESS CARRIED OUT BY THE ASSESSEE. THE CLAIM OF THE ASSESSEE IS THAT ITS BUSINESS INVOLVES CONVERSION OF TUR (RAW MATERIAL) INTO TUR DAL (MAIN PRODUCT), AND TUR CHUNI, HUSK ETC. HAVING NEGLIGIBLE VALUE. IN ORDER TO OBTAIN THE FINAL PRODUCT AND THE OTHER BYE - PRODUCTS, FOLLOWING PROCESSES ARE BEING CONDUCTED AS OUTLINED IN THE WRITTEN SUBMISSIONS DATED 23 . 2.2009 ADDRESSED TO THE COMMISSIONER , A COPY OF WH I CH HAS BEEN PLACED ON RECORD : IN ORDER TO OBTAIN THE MAIN/JOINT PRODUCT THE ASSESSEE IS REQUIRED TO CONDUCT THE FOLLOWING PROCESS ON THE RAW MATERIAL (I.E. TOOR): 1. PURCHASE OF RAW MATERIAL. 2. CLEANING AND GRADATION OF RAW MATERIAL. 3. THIS CLEANED TOOR IS PASSED THROUGH ROLLS WHERE IN FINE PERFORATIONS ARE MADE IN THE COVER FOR THE PURPOSE OF OIL CURING. OIL IS APPLIED TO THIS TOOR THROUGH VARUMS. THIS OIL CURING IS DONE FOR ABOUT 24 HOURS. THIS PROCESS SOFTNES THE COVER SO THAT IT COULD BE REMOVED EASILY. THIS 4 ITA NO. 277/NAG/2015 PROCESS OF OIL CURING IS AGAIN REPEATED FOR SAME DURATION. IN CASE THE REMOVAL OF COVER IS NOT UPTO ACCEPTABLE LEVEL, THIS OIL CURING MAY BE REPEATED AGAIN. 4. THIS OIL CURED TOOR PASSED IS PASSED THROUGH ROLLS. THIS PROCESS REMOVES THE COVER (GOTI). 5. THEN WATER IS APPLIED TO THIS GOTI (I.E. TOOR, WHEREIN COVER IS REMOVED). AFTER THIS WATER CURING FOR ABOUT 24 HOURS THE GOTI IS DRIED ON A PLATFORM OR WITH THE HELP OF ELECTRICAL DRIER DEPENDING ON WEATHER CONDITIONS. THIS PROCESS HELPS TO CREATE CRACKS IN GOTI WHICH HELPS TO SEPARATE INTO PULSES IN FURTHER PROCESS. 6. THIS WATER CURED GOTI IS PASSED THROUGH ELEVATORS WHEREIN IT BREAKS INTO PULSES. 7. THESE PULSES ARE PASSED THROUGH VARIOUS FILTERS TO SEPARATE THESE PULSES INTO VARIOUS GRADES. THE HIGHER QUALITY (PHATKA) IS PASSED THROUGH VA RUMS AND OIL AND WATER IS APPLIED FOR POLISHING. 8. THE PULSES OF VARIOUS GRADES ARE PACKED AND ARE NOW READY FOR SALES. 9. ALL THIS PROCESS TAKES ABOUT 8 TO 12 DAYS DEPENDING ON QUALITY OF TOOR, MOISTURE CONTENT IN TOOR AND WEATHER CONDITIONS. 10. BREAKAGES DUE TO PASSING THROUGH ROLLS, VARUMS OR ON ELEVATORS ARE SEPARATED AT EACH STAGE. 11. THE COVER IS SEPARATELY COLLECTED KNOWN AS CHUNI. THIS BY - PRODUCT IS USED AS CATTLE FEED AND NOT FIT FOR HUMAN CONSUMPTION. THE PROCESS FOLLOWED BY OUR ASSESSEE TO OBTAIN THE MAIN/J OINT PRODUCT ARE LINKED TO EACH OTHER AND REQUIRED TO BE FOLLOWED IN THE SEQUENCE SPECIFIED ABOVE. THUS FORMS INTEGRAL PART OF THE MANUFACTURING PROCESS. FURTHER IT HAS ALSO BEEN BROUGHT TO THE NOTICE OF THE COMMISSIONER IN THE AFORESAID SUBMISSIONS AS UN DER. I) THAT THE MANUFACTURING PROCESS REQUIRES HUGE SET UP OF FACTORY BUILDING, PLANT AND MACHINERY. IT ALSO REQUIRES SUPPLY OF ELECTRICITY POWER AND LABOUR. IT INVOLVES CONSUMPTION OF OIL. THE PROCESS REQUIRES TECHNICAL UNDERSTANDING. II) THAT THE UNIT IS REGISTERED AS A SMALL SCALE INDUSTRIES UNIT WITH DISTRICT INDUSTRIES CENTRE (DIC) AS A UNIT MANUFACTURING TOOR DAL. III) FOR NORMAL HUMAN CONSUMPTION TOOR DAL IS USED. TOOR IS NOT USED FOR NORMAL HUMAN CONSUMPTION. TOOR HUSK IS USED AS CATTLE FEED. THUS THE FINISHED GOODS HAVE SPECIFIC USE AS AGAINST THE RAW MATERIAL USED. IN CIT VS. SUPREME GRAPHICS CREATIONS P. LTD. (197 CTR 657), HIGH COURT OF BOMBAY, HIGH COURT OF BOMBAY, IT HAS BEEN HELD THAT WHERE AFTER CONVERSION INTO SPECIFIC USE PRODUCT THE 5 ITA NO. 277/NAG/2015 RAT MATERIAL IS TOTALLY CHANGED, IT WOULD AMOUNT TO CARRYING ON OF MANUFACTURING PROCESS. 9. NONE OF THE AFORESAID FACTORS POINTED OUT BY THE ASSESSEE BEFORE THE COMMISSIONER HAVE BEEN CONTROVERTED BY THE REVENUE IN ANY MANNER. FROM THE AFORESAID, IT IS QUIT E CLEAR THAT THE FINAL PRODUCT, I.E. TOOR DAL SOLD BY THE ASSESSEE IS COMMERCIALLY QUITE DIFFERENT THAN THE RAW MATERIAL (TOOR). THE CONVERSION OF THE RAW MATERIAL INTO SPECIFIC USAGE PRODUCT WOULD BE ENTITLED TO BE TERMED AS MANUFACTURE HAVING REGARD TO T HE RATIO OF THE JUDGEMENTS OF THE HONBLE SUPREME COURT IN THE CASE OF INDIA CINE AGENCIES (SUPRA) AND ASPINWALL & CO. LTD. (SUPRA).THE JUDGEMENT OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF SULTAN & SONS RICE MILL RELIED UPON BY THE ASSESSEE ALSO SU PPORTS THE AFORESAID PROPOSITION. IN THE CASE BEFORE THE HONBLE HIGH COURT, THE ASSESSEE FIRM WAS MANUFACTURING RICE FROM PADDY. THE PROCESS INCLUDED TRANSPORTATION OF PADDY FROM STORE OR GODOWN TO THE PLANT, CLEANING AND DRYING OF PADDY AND PUTTING THE SAME INTO MACHINE AND FURTHER CLEANING OF RICE AFTER SEPARATING IT FROM BROKEN RICE TO MAKE IT FIT FOR MARKETING. THE SAID PROCESS HAS BEEN UNDERSTOOD AS MANUFACTURING PROCESS FOR THE PURPOSES OF SECTION 80HH AND 80J OF THE ACT. 10. ON THE SIMILAR PARITY O F REASONING, WE FIND NO REASONS TO DIS - AGREE WITH THE CASE SET UP BY THE APPELLANT THAT THE ACTIVITY OF CONVERTING RAW MATERIAL TOOR INTO TOOR DAL AMOUNTS TO MANUFACTURE OR PRODUCTION WITHIN THE MEANING OF SECTION 80IB OF THE ACT. 11. IN SO FAR AS RELIANCE PLACED BY THE COMMISSIONER ON THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SACS EAGIES CHICORY V CIT 255 ITR 178 (SC) IS CONCERNED, WE FIND THAT THE SAME WAS RENDERED IN THE CONTEXT OF THE PECULIAR FACTS PRESENT THEREIN. IN THAT CASE, THE ONL Y ACTIVITY INVOLVED WAS OF MAKING POWDER OF CHICORY ROOTS, WHICH WAS ACHIEVED BY ROASTING THE ROOTS AND AFTER THAT THEY WERE POWDERED. THE HONBLE SUPREME COURT NOTED THAT OTHER THAN THE AFORESAID PROCESS, THERE WAS NO OTHER PROCESS UNDERTAKEN SO AS TO SAT ISFY THE TEST LAID DOWN IN THE CASE OF ASPINWALL & CO. LTD. (SUPRA). QUITE CLEARLY, IN THE INSTANT CASE THE PROCESS UNDERTAKEN BY THE ASSESSEE, CLEARLY ESTABLISH THAT THE FINAL PRODUCT IS COMMERCIALLY DISTINCT IN USAGE THAN THE RAW MATERIAL AND, THEREFORE, THE TEST LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF ASPINWALL & CO. LTD. (SUPRA) AS WELL AS IN INDIA CINE AGENCIES (SUPRA) ARE FULFILLED. THUS, THE RELIANCE PLACED BY THE COMMISSIONER ON THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SACS EAGLES CHICORY (SUPRA) IN THE INSTANT CASE IS MISPLACED AND THE SAME IS INAPPLICABLE TO THE FACTS OF THE PRESENT CASE. 6 ITA NO. 277/NAG/2015 12. IN THE RESULT, THE ORDER OF THE COMMISSIONER IS SET ASIDE AND THE ASSESSMENT ORDER DATED 11.1.2008 IS RESTORED QUA THE ISSUE OF ALLOWANCE OF DEDUCTION UNDER SECTION 80 - IB OF THE ACT. 7 . REFERRING TO THE ABOVE DECISION, LEARNED COUNSEL SUBMITTED THAT THE FACTS OF THE PRESENT CASE ARE ABSOLUTELY IDENTICAL. HE SUBMITTED THAT THE ASSESSEE HAS REFERRED THE ABOVE SAID DECISION BEFORE THE LEARNED CIT(APPEALS) BUT THE LEARNED CIT(APPEALS) HAS NOT DISCUSSED THE SAME IN HIS ORDER. 8 . LEARNED D.R., ON THE OTHER HAND, RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 9 . UPON CAREFUL CONSIDERATION I FIND THAT THE ITAT, NAGPUR BENCH IN IDENTICA L SITUATION HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. DESPITE REFERRED BEFORE THE LEARNED CIT(APPEALS), THE LEARNED CIT(APPEALS) HAS NOT DISCUSSED THE SAME IN HIS ORDER. I FIND THAT THE CASE LAWS REFERRED BY THE LEARNED CIT(APPEALS) HAVE ALREADY BEE N DEALT WITH BY THE TRIBUNAL IN THE AFORESAID ORDER. IT IS NOT THE CASE THAT THE HONBLE JURISDICTIONAL HIGH COURT HAS REVERSED THE ABOVE DECISION OF THE ITAT. IN SUCH A SITUATION, RESPECTFULLY FOLLOWING THE PRECEDENT AS ABOVE, I SET ASIDE THE ORDERS OF TH E AUTHORITIES BELOW AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 10 . IN THE RESULT, THIS APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 25 TH DAY OF JULY,2016. SD/ - ( SHAMIM YAHYA) ACCOUNTANT MEMBER. NAGPUR, DATED: 25 TH JULY, 2016. 7 ITA NO. 277/NAG/2015 COPY FORWARDED TO : 1. M/S SUR AJDEV INDUSTRIES, 3, GURSHAN ROAD, AKOLA. 2. A.C.I.T., AKOLA CIRCLE, AKOLA. 3. C.I.T. - I,NAGPUR. 4. CIT(APPEALS), - I, NAGPUR. 5. D.R., ITAT, NAGPUR. 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR. WAKODE.