Income Tax Officer, Nainital V. M/s Natural Fragrances, Uttrakhand

ITA 4171/DEL/2012

• Counselvise Citation: 417120114 RSA 2012
• Duration Of Justice: 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 04-10-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 01-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GUNJAN P RASAD
• Keywords: Scheme of amalgamation
• Section: 133(6); 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E NEW DELHI) BEFORE J.S. REDDY AND SHRI RAJPAL YADAV ITA NOS. 4171 & 4172/DEL/2012 ASSESSMENT YEARS: 2008-09 & 2009-10 INCOME-TAX OFFICER, VS. NATURAL FRAGRANCES, GOLGHAR, BARA BAZAR, F-3, INDUSTRIAL ESTATE, BARA BAZAR, NAINITAL. BHIMTAL, NAINITAL (UTTRAKHAND) (PAN: AAFFN9107L) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI GUNJAN P RASAD, CIT(DR) RESPONDENT BY: NONE ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE PRESENT TWO APPEALS ARE DIRECTED AT THE INSTAN CE OF THE REVENUE AGAINST SEPARATE ORDERS OF EVEN DATE I.E. 17.05.201 2 PASSED BY THE LEARNED CIT(APPEALS) IN ASSESSMENT YEARS 2008-09 AND 2009-1 0. THE GROUNDS OF APPEALS RAISED BY THE REVENUE IN BOTH THE YEARS ARE VERBATIM SAME EXCEPT VARIATION IN THE QUANTUM. THE GROUNDS IN ASSESSMENT YEAR 2008-09 READ AS UNDER: 1. THAT THE LEARNED CIT(APPEALS) HAS ERRED IN LAW & FACTS IN DELETING THE ADDITION OF RS.3,28,92,527 MADE ON ACC OUNT OF REJECTION OF THE ASSESSEES CLAIM OF DEDUCTION U/S. 80IC OF THE INCOME-TAX ACT, 1961. 2. THAT THE LEARNED CIT(APPEALS) HAS ERRED IN LAW & FACTS IN FOLLOWING THE DECISION OF HONBLE ITAT, NEW DELHI I N ASSESSEES OWN CASE FOR A.Y. 2007-08, HOLDING THAT THE ASSESSEE 2 IS ENGAGED IN THE MANUFACTURING OF ARTICLES & THING S AND IT FULFILLS ALL THE ESSENTIAL CONDITIONS FOR AVAILING DEDUCTION U/S. 80IC OF THE ACT. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, A MEND OR VARY THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 2. IN ASSESSMENT YEAR 2009-10, THE AMOUNT CLAIM AS A DEDUCTION UNDER SEC. 80-IC OF THE INCOME-TAX ACT, 1961 IS RS.285,10 ,459. 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HA S FILED ITS RETURN OF INCOME ON 20 TH SEPTEMBER, 2008 FOR ASSESSMENT YEAR 2008-09 DECLAR ING NIL INCOME AFTER CLAIMING DEDUCTION OF RS.332,29,787 UN DER SEC. 80-IC OF THE ACT. SIMILARLY IN ASSESSMENT YEAR 2009-10, THE ASSE SSEE FILED ITS RETURN OF INCOME ON 25 TH SEPTEMBER, 2009 DECLARING NIL INCOME BY CLAIMING A DEDUCTION OF RS.299,88,505 UNDER SEC. 80-IC OF THE ACT. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT IN BO TH THE ASSESSMENT YEARS. LEARNED ASSESSING OFFICER HAD ISSUED NOTICE UNDER SEC. 143(2) OF THE INCOME-TAX ACT, 1961. HE OBSERVED THAT IN ASSESSMEN T YEAR 2007-08, ASSESSEE HAS CLAIMED DEDUCTION UNDER SEC. 80-IC WHI CH WAS DISALLOWED TO IT AFTER A DETAILED DISCUSSION. THE DISALLOWANCE OF TH E DEDUCTION WAS UPHELD BY THE LEARNED CIT(APPEALS). ON THE STRENGTH OF HIS FI NDINGS IN ASSESSMENT 3 YEAR 2007-08, HE DISALLOWED THE CLAIM OF ASSESSEE I N THESE TWO ASSESSMENT YEARS. 4. ON APPEAL, LEARNED CIT(APPEALS) DELETED THE DISA LLOWANCE ON THE GROUND THAT THE ITAT HAS ALLOWED THE DEDUCTION TO T HE ASSESSEE IN ASSESSMENT YEAR 2007-08 VIDE ITS ORDER DATED 16.3.2 012 PASSED IN ITA NO.4183/DEL/2011. ACCORDING TO THE LEARNED CIT(APPE ALS), THIS ORDER IS REPORTED IN 19 TAXMAN.COM 312. 5. IN RESPONSE TO THE NOTICE OF HEARING, NO ONE HAS COME PRESENT ON BEHALF OF THE ASSESSEE. WITH THE ASSISTANCE OF LEAR NED DEPARTMENTAL REPRESENTATIVE, WE HAVE GONE THROUGH THE RECORD CAR EFULLY AND DISPOSE OF THE APPEALS EX PARTE QUA THE ASSESSEE. THE ITAT WHILE A LLOWING THE DEDUCTION UNDER SEC. 80-IC IN ASSESSMENT YEAR 2007-08 HAS DIS CUSSED THE ISSUE AS UNDER: 7. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS A ND GONE THROUGH THE RECORD CAREFULLY. IN ORDER TO AVAIL DED UCTION UNDER SECTION 80IC, AN ASSESSEE HAS TO FULFILL THE CONDITIONS CON TEMPLATED IN THE SECTION. THEREFORE, BEFORE CONSIDERING THE RESPECTI VE CONTENTIONS AS WELL AS THE RELEVANT MATERIAL, IT IS IMPERATIVE UPO N US TO TAKE NOTE OF THE RELEVANT STATUTORY PROVISIONS. THE RELEVANT PAR T OF SECTION 80-IC, THUS READS AS UNDER: 4 SPECIAL PROVISIONS IN RESPECT OF CERTAIN UNDERTAKI NGS OR ENTERPRISES IN CERTAIN SPECIAL CATEGORY STATES 90 . 80-IC. (1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN E NTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB-SECTION (2), THERE SHAL L, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE A LLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION FROM SUCH PROFITS AND GAINS, AS SPECIFIED IN SUB-SECTION (3). (2) THIS SECTION APPLIES TO ANY UNDERTAKING OR ENTE RPRISE, ( A ) WHICH HAS BEGUN OR BEGINS TO MANUFACTURE OR PROD UCE ANY ARTICLE OR THING, NOT BEING ANY ARTICLE OR THING SP ECIFIED IN THE THIRTEENTH SCHEDULE, OR WHICH MANUFACTURES OR PRODU CES ANY ARTICLE OR THING, NOT BEING ANY ARTICLE OR THING SPECIFIED IN THE THIRTEENTH SCHEDULE AND UNDERTAKES SUBSTANTIAL EXPANSION DURIN G THE PERIOD BEGINNING X X X X X X X ( II ) ON THE 7TH DAY OF JANUARY, 2003 AND ENDING BEFOR E THE 1ST DAY OF APRIL, 2012, IN ANY EXPORT PROCESSING ZONE OR IN TEGRATED INFRASTRUCTURE DEVELOPMENT CENTRE OR INDUSTRIAL GRO WTH CENTRE OR INDUSTRIAL ESTATE OR INDUSTRIAL PARK OR SOFTWARE TECHNOLOGY PARK OR INDUSTRIAL AREA OR THEME PARK, AS NOTIFIED BY THE BOARD IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED 92 BY THE CENTRAL GOVERNMENT IN THIS REGARD, IN THE STATE OF HIMACHAL PRADESH OR THE STATE OF UTTARANCHAL; OR X X X X X X X ( B ) WHICH HAS BEGUN OR BEGINS TO MANUFACTURE OR PROD UCE ANY ARTICLE OR THING, SPECIFIED IN THE FOURTEENTH SCHEDULE OR C OMMENCES ANY OPERATION SPECIFIED IN THAT SCHEDULE, OR WHICH MANU FACTURES OR PRODUCES ANY ARTICLE OR THING, SPECIFIED IN THE FOU RTEENTH SCHEDULE OR COMMENCES ANY OPERATION SPECIFIED IN THAT SCHEDU LE AND UNDERTAKES SUBSTANTIAL EXPANSION DURING THE PERIOD BEGINNING X X X X X X X 5 ( II ) ON THE 7TH DAY OF JANUARY, 2003 AND ENDING BEFOR E THE 1ST DAY OF APRIL, 2012, IN THE STATE OF HIMACHAL PRADESH OR THE STATE OF UTTARANCHAL; OR X X X X X X X (3) THE DEDUCTION REFERRED TO IN SUB-SECTION (1) SH ALL BE ( I ) IN THE CASE OF ANY UNDERTAKING OR ENTERPRISE REF ERRED TO IN SUB- CLAUSES ( I ) AND ( III ) OF CLAUSE ( A ) OR SUB-CLAUSES ( I ) AND ( III ) OF CLAUSE ( B ), OF SUB-SECTION (2), ONE HUNDRED PER CENT OF SUCH PROFITS AND GAINS FOR TEN ASSESSMENT YEARS COMMENCING WITH THE INITIAL ASSESSMENT YEAR; ( II ) IN THE CASE OF ANY UNDERTAKING OR ENTERPRISE REF ERRED TO IN SUB- CLAUSE ( II ) OF CLAUSE ( A ) OR SUB-CLAUSE ( II ) OF CLAUSE ( B ), OF SUB- SECTION (2), ONE HUNDRED PER CENT OF SUCH PROFITS A ND GAINS FOR FIVE ASSESSMENT YEARS COMMENCING WITH THE INITIAL ASSESS MENT YEAR AND THEREAFTER, TWENTY-FIVE PER CENT (OR THIRTY PER CEN T WHERE THE ASSESSEE IS A COMPANY) OF THE PROFITS AND GAINS. 8. SUB-SECTION(2) OF SECTION 80IC OF THE ACT PROVID ES THAT PROVISIONS CONTAINED IN SUB-SECTION (5) AND SUB-SEC TIONS 7 TO 12 OF SECTION 80IA SHALL, SO FAR AS MAY BE, APPLIED TO TH E ELIGIBLE UNDERTAKING OR ENTERPRISES UNDER THIS SECTION. THUS , WE DEEM IT FIT TO NOTE DOWN SUB-SECTION(5) AND SUB-SECTIONS 7 TO 12 O F SECTION 80IA ALSO. THEY READ AS UNDER: NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PR OVISION OF THIS ACT, THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS TO WHICH THE PROVISIONS OF SUB-SECTION (1) APPLY SHALL, FOR THE PURPOSES OF DETERMINING THE QUANTUM OF DEDUCTION UNDER THAT SUB -SECTION FOR THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE INITIAL ASSESSMENT YEAR OR ANY SUBSEQUENT ASSESSMENT YEAR, BE COMPUTED AS IF S UCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSE SSEE DURING THE 6 PREVIOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT YE AR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR UP TO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH THE DETERMINATION IS TO BE MADE. X X X X X X X X X X X (7) 79 [THE DEDUCTION] UNDER SUB-SECTION (1) FROM PROFITS AND GAINS DERIVED FROM AN 80 [UNDERTAKING] SHALL NOT BE ADMISSIBLE UNLESS THE ACCOUNTS OF THE 80 [UNDERTAKING] FOR THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR FOR WHICH THE DEDUCTION IS CLAIMED HAVE BEEN AUDITED BY AN ACCOUNTANT, AS DEFINED IN THE EXPLANATION BELOW SUB-SECTION (2) OF SECTION 288 , AND THE ASSESSEE FURNISHES, ALONG WITH HIS RETURN OF INCOME, THE REPORT OF SUCH AUDIT IN THE PRESCRIBED FORM 81 DULY SIGNED AND VERIFIED BY SUCH ACCOUNTANT. (8) WHERE ANY GOODS 82 [OR SERVICES] HELD FOR THE PURPOSES OF THE ELIGIBLE BUSINESS ARE TRANSFERRED TO ANY OTHER BUSI NESS CARRIED ON BY THE ASSESSEE, OR WHERE ANY GOODS 82 [OR SERVICES] HELD FOR THE PURPOSES OF ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE AR E TRANSFERRED TO THE ELIGIBLE BUSINESS AND, IN EITHER CASE, THE CONSIDER ATION, IF ANY, FOR SUCH TRANSFER AS RECORDED IN THE ACCOUNTS OF THE ELIGIBL E BUSINESS DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS 82 [OR SERVICES] AS ON THE DATE OF THE TRANSFER, THEN, FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION, THE PROFITS AND GAINS OF SUCH ELIGIBLE BUS INESS SHALL BE COMPUTED AS IF THE TRANSFER, IN EITHER CASE, HAD BE EN MADE AT THE MARKET VALUE OF SUCH GOODS 82 [OR SERVICES] AS ON THAT DATE : PROVIDED THAT WHERE, IN THE OPINION OF THE ASSESSING OFFICER , THE COMPUTATION OF THE PROFITS AND GAINS OF THE ELIGIBL E BUSINESS IN THE MANNER HEREINBEFORE SPECIFIED PRESENTS EXCEPTIONAL DIFFICULTIES, THE ASSESSING OFFICER MAY COMPUTE SUCH PROFITS AND GAIN S ON SUCH REASONABLE BASIS AS HE MAY DEEM FIT. 83 [ EXPLANATION. FOR THE PURPOSES OF THIS SUB-SECTION, MARKET VALUE, IN RELATION TO ANY GOODS OR SERVICES, MEANS THE PRICE THAT SUCH GOODS OR SERVICES WOULD ORDINARILY FETCH IN THE OPE N MARKET.] (9) WHERE ANY AMOUNT OF PROFITS AND GAINS OF AN 84 [UNDERTAKING] OR OF AN ENTERPRISE IN THE CASE OF AN ASSESSEE IS CLAIMED AND ALLOWED UNDER THIS SECTION FOR ANY ASSESSMENT YEAR, DEDUCTION TO THE EXTENT OF SUCH PROFITS AND GAINS SHALL NOT BE ALLOWED UNDER ANY OT HER PROVISIONS OF THIS CHAPTER UNDER THE HEADING C.DEDUCTIONS IN RESPECT OF CERTAIN 7 INCOMES , AND SHALL IN NO CASE EXCEED THE PROFITS AND GAIN S OF SUCH ELIGIBLE BUSINESS OF 84 [UNDERTAKING] OR ENTERPRISE, AS THE CASE MAY BE. (10) WHERE IT APPEARS TO THE ASSESSING OFFICER THAT , OWING TO THE CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON THE ELI GIBLE BUSINESS TO WHICH THIS SECTION APPLIES AND ANY OTHER PERSON, OR FOR ANY OTHER REASON, THE COURSE OF BUSINESS BETWEEN THEM IS SO A RRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE AS SESSEE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARI SE IN SUCH ELIGIBLE BUSINESS, THE ASSESSING OFFICER SHALL, IN COMPUTING THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION, TAKE THE AMOUNT OF PROFITS AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED THEREFROM. (11) THE CENTRAL GOVERNMENT MAY, AFTER MAKING SUCH INQUIRY AS IT MAY THINK FIT, DIRECT, BY NOTIFICATION IN THE OFFIC IAL GAZETTE, THAT THE EXEMPTION CONFERRED BY THIS SECTION SHALL NOT APPLY TO ANY CLASS OF INDUSTRIAL UNDERTAKING OR ENTERPRISE WITH EFFECT FR OM SUCH DATE AS IT MAY SPECIFY IN THE NOTIFICATION. (12) WHERE ANY UNDERTAKING OF AN INDIAN COMPANY WHI CH IS ENTITLED TO THE DEDUCTION UNDER THIS SECTION IS TRANSFERRED, BE FORE THE EXPIRY OF THE PERIOD SPECIFIED IN THIS SECTION, TO ANOTHER INDIAN COMPANY IN A SCHEME OF AMALGAMATION OR DEMERGER ( A ) NO DEDUCTION SHALL BE ADMISSIBLE UNDER THIS SECTI ON TO THE AMALGAMATING OR THE DEMERGED COMPANY FOR THE PREVIO US YEAR IN WHICH THE AMALGAMATION OR THE DEMERGER TAKES PLACE; AND ( B ) THE PROVISIONS OF THIS SECTION SHALL, AS FAR AS M AY BE, APPLY TO THE AMALGAMATED OR THE RESULTING COMPANY AS THEY WO ULD HAVE APPLIED TO THE AMALGAMATING OR THE DEMERGED COMPANY IF THE AMALGAMATION OR DEMERGER HAD NOT TAKEN PLACE. 85 [(12A) NOTHING CONTAINED IN SUB-SECTION (12) SHALL APPLY TO ANY ENTERPRISE OR UNDERTAKING WHICH IS TRANSFERRED IN A SCHEME OF AMALGAMATION OR DEMERGER ON OR AFTER THE 1ST DAY OF APRIL, 2007.] X X X X X X X X X X X 9. FROM THE BARE PERUSAL OF THE SECTION WOULD REVEA L THAT SUB- SECTION (1) OF SECTION 80IC PROVIDES A DEDUCTION IN RESPECT OF PROFIT 8 AND GAINS DERIVED BY AN UNDERTAKING OR ENTERPRISES FROM ANY BUSINESS REFERRED TO IN SUB-SECTION (2), WHILE COMPUTING THE TOTAL INCOME OF AN ASSESSEE. SUB-SECTION (2) HAS FURTHER SUB-SECTIONS AND IN THE CASE OF ASSESSEE, THE CLAUSE APPLICABLE IS 80IC 2 (A)(II) W HICH PROVIDE THAT ASSESSEE HAS BEGUN OR BEGINS TO MANUFACTURE ANY ART ICLE OR THING, WHICH ARE NOT SPECIFIED IN THIRTEENTH SCHEDULE. IT MEANS ASSESSEE SHOULD NOT MANUFACTURE ANY ARTICLE OR THING WHICH I S SPECIFIED IN THIRTEENTH SCHEDULE. APART FROM THIS, THE ACTIVITY OF MANUFACTURE SHOULD COMMENCE BETWEEN THE PERIOD 7 TH DAY OF JAN 2003 AND ENDING ON IST APRIL 2012. IT SHOULD BE AT THE PLACE NOTIFI ED BY THE BOARD IN ACCORDANCE WITH THE SCHEME. THE LEARNED COUNSEL POI NTED OUT THAT ASSESSEES CASE FALLS UNDER 80-IC 2(B) ALSO. THE DI FFERENCE BETWEEN BOTH THE CLAUSE IS THAT UNDER CLAUSE B, THE ARTIC LE SHOULD BE ONE, WHICH IS PROVIDED IN FOURTEENTH SCHEDULE AND AREA I .E. INDUSTRIAL PARK, INDUSTRIAL CENTRE NEED NOT BE NOTIFIED. THE ASSESSE E HAS NOT MANUFACTURED ANY ARTICLE OR THING, WHICH PROVIDED I N THIRTEENTH SCHEDULE. IT IS SITUATED IN INDUSTRIAL ESTATE, THUS IT FALLS IN SECTION 80IC(2)(II) OF THE ACT. AS FAR AS THE OTHER PROVISI ONS ARE CONCERNED, THEY ARE MEANT FOR DIFFERENT GEOGRAPHICAL AREA I.E. STATE OF SIKKIM, NORTHERN EASTERN STATES. THE ASSESSEE IS SITUATED I N UTTRAKHAND, THEREFORE, SUB-CLAUSE (II) OF SECTION 80-IC(2)(A) I S APPLICABLE. THEREAFTER, SUB-SECTION (3) PROVIDES QUANTIFICATION OF DEDUCTION, SUB- SECTION(4) LAID DOWN THE CONDITIONS THAT UNDERTAKIN G OR ENTERPRISES SHOULD NOT BE FORMED BY SPLITTING UP OR THE RECONST RUCTION, OF A BUSINESS ALREADY IN EXISTENCE. HOWEVER, THIS CONDIT ION WOULD NOT BE APPLICABLE IN RESPECT OF AN UNDERTAKING WHICH IS FO RMED AS A RESULT OF THE REESTABLISHMENT OR RECONSTRUCTION OR REVIVAL OF THE BUSINESS OF AN 9 ASSESSEE AS PROVIDED IN SECTION 33B OF THE ACT. SIM ILARLY, IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSINESS OF MACHINE RY OR PLANT PREVIOUSLY USED FOR ANY PURPOSES. SINCE THERE IS NO DISPUTE THAT THESE CONDITIONS ARE NOT ATTRACTED IN THE CASE OF THE ASS ESSEE, THEREFORE, WE DO NOT DEEM IT NECESSARY TO MAKE ELABORATE DISCUSSI ON. AT THE TIME OF HEARING, IT HAS BEEN POINTED OUT THAT THERE IS NO V IOLATION TO ANY OTHER CONDITIONS CONTAINED IN SUB-RULES 5 TO 12 OF SECTI ON 80IA OF THE ACT (EXTRACTED SUPRA). 10. THE PRIMARY ISSUE REQUIRED TO BE DETERMINED, IS WHEN ASSESSEE CAME INTO EXISTENCE AND WHETHER GEOGRAPHICALLY IT I S LOCATED WITH THE NOTIFIED AREA CONTEMPLATED IN SUB-CLAUSE (II) OF SE C. 80IC(2)(A) OR (2) (B). IT EMERGES OUT FROM THE RECORD THAT ASSESSEE P ARTNERSHIP FIRM CAME INTO EXISTENCE ON IST OF APRIL 2006. IT IS SITUATED AT F-3, INDUSTRIAL AREA, BHIMTAL (NAINITAL). ACCORDING TO THE ASSESSEE , IT HAS STARTED THE MANUFACTURING OPERATION AT ITS INDUSTRIAL UNDERTAKI NG ON 28.8.2006 THOUGH THIS DATE HAS BEEN DISPUTED BY THE ASSESSING OFFICER AND WE WILL DISCUSS THIS ASPECT IN THE LATER PART OF THE O RDER. FOR THE TIME BEING, IT IS CONCLUDED THAT AS FAR AS GEOGRAPHICAL LOCATION OF THE ASSESSEE IS CONCERNED, IT FALLS WITHIN THE INDUSTRI AL ESTATE SPECIFIED FOR THE PURPOSE OF ADMISSIBILITY OF DEDUCTION UNDER SEC . 80-IC OF THE ACT. SIMILARLY, IT HAS COMMENCED ITS OPERATION IN BETWEE N PERIOD OF JANUARY 2003 TO APRIL 2012 AS PROVIDED IN SUB-CLAUS E (2) OF SECTION 80-IC(II)(A)(B) OF THE ACT. THEREFORE, TO THIS EXTE NT, THERE CANNOT BE ANY DISPUTE BETWEEN THE PARTIES. 10 11. THE NEXT STEP WHICH IS ESSENTIAL FOR EXAMINING THE CASE OF AN ASSESSEE ABOUT THE ADMISSIBILITY OF DEDUCTION UNDER SEC. 80-IC IS WHETHER IT MANUFACTURES OR PRODUCES ANY ARTICLE OR THINGS. ACCORDING TO THE ASSESSING OFFICER, EXPRESSION MANUFACTURE HAS BEEN DEFINED IN SECTION 2(29)(B)(A) WHICH READ AS UNDER: (29BA) MANUFACTURE, WITH ITS GRAMMATICAL VARIATI ONS, MEANS A CHANGE IN A NON-LIVING PHYSICAL OBJECT OR ARTICLE O R THING,- (A) RESULTING IN TRANSFORMATION OF THE OBJECT OR ARTICL E OR THING INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFERENT NAME, CHARACTER AND USE; OR (B) BRINGING INTO EXISTENCE OF A NEW AND DISTINCT OBJE CT OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSIT ION OR INTEGRAL STRUCTURE. HOWEVER, EXPRESSION PRODUCTION HAS NOT BEEN DEFIN ED IN THE ACT. THE STAND OF THE REVENUE AUTHORITIES IS THAT AT THE MOST ACTIVITY CARRIED OUT BY THE ASSESSEE IS OF BLENDING ONE. IT HAS JUST MIXED THE FLORAL DISTILLATE FROM KANNOUJ AND NO NEW OR DISTINCT PROD UCT HAS EMERGED OUT. ON THE OTHER HAND, LEARNED COUNSEL FOR THE ASS ESSEE HAS PLACED IN THE WRITTEN SUBMISSIONS A FLOW CHART EXHIBITING THE ACTIVITIES CARRIED OUT BY THE ASSESSEE BEFORE PRODUCING ALTOGETHER DIS TINCT SALEABLE COMMODITY WHICH HAS ITS OWN IDENTIFICATION IN THE C OMMERCIAL WORLD. THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT TH AT EXPRESSION MANUFACTURE AS WELL AS PRODUCTION HAVE FALLEN FOR THEIR INTERPRETATION AND CONSTRUCTION NOT ONLY AT THE LEV EL OF ITAT BUT BEFORE THE HON'BLE SUPREME COURT ALSO AND THE HONB LE COURT HAS 11 EXPLAINED BOTH THESE EXPRESSIONS IN DETAIL. HE MADE REFERENCE TO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CI T VS. M/S. ARIHANT TILES & MARBLES PVT. LTD. REPORTED IN 320 I TR 79, INDIA CINE AGENCY VS. CIT REPORTED IN 308 ITR 98, CIT VS. SESA GOA LTD. REPORTED IN 271 ITR 331. IN HIS WRITTEN SUBMISSIONS , HE ALSO REFERRED A LARGE NUMBER OF OTHER DECISIONS RENDERED BY BOMBAY HIGH COURT, HON'BLE GUJARAT HIGH COURT IN THE CASES OF CIT VS. NEOKARNA REPORTED IN 137 ITR 879 (BOMBAY), CIT VS. ANGLO FRENCH DRUG CO. LTD. REPORTED IN 191 ITR 92 (BOM.), CIT VS. PRABHUDASS K ISHORE DASS TOBACCO PRODUCTS REPORTED IN 282 ITR 568 (GUJARAT). ON THE OTHER HAND, LEARNED DR HAS POINTED OUT THAT IT IS JUST A BLENDING ACTIVITY AND HE REFERRED TO THE DECISION OF HON'BLE CALCUTTA HIG H COURT IN THE CASE OF BROKEBOND INDIA VS.CIT REPORTED IN 269 ITR 232 A ND THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. TAR A AGENCY REPORTED IN 292 ITR 444. IN THESE CASES, IT HAS BEE N HELD THAT BLENDING OF VARIOUS CATEGORIES OF TEAS AND SELLING THEM AFTE R PACKAGING WITH NEW BRAND NAME DOES NOT AMOUNT TO MANUFACTURING OR PRODUCTION OF A NEW COMMODITY. 12. AS OBSERVED EARLIER, WE WOULD BE REVERTING BACK TO THE FACTS OF THE PRESENT CASE IN THE LATER PART OF THE ORDER. FI RST, WE WOULD LIKE TO BRING AT HOME THE MEANING OF EXPRESSION MANUFACTUR E AND PRODUCTION AS PROPOUNDED IN THE VARIOUS AUTHORITAT IVE PRONOUNCEMENTS OF THE HON'BLE SUPREME COURT AS WELL AS OF HON'BLE HIGH COURT. 12 13. IN THE CASE OF INDIA CINE AGENCY, HON'BLE SUPRE ME COURT HAS CONSIDERED THE JUDGMENT RENDERED IN THE CASE OF SES A GOA (SUPRA) AND ALL OTHER DECISIONS ON THE POINT WHICH CONTEMPLATE THE MEANING OF EXPRESSION MANUFACTURE AS WELL AS PRODUCTION. T HE RELEVANT DISCUSSION MADE BY THE HONBLE COURT READS AS UNDER : 2. AS NOTED ABOVE, THE CORE ISSUE IS WHETHER ACTIVITY UNDERTAKEN WAS MANUFACTURE OR PRODUCTION. 3. IN BLACKS LAW DICTIONARY (5TH EDITION), THE WORD 'MANUFACTURE HAS BEEN DEFINED AS, 'THE PROCESS OR OPERATION OF M AKING GOODS OR ANY MATERIAL PRODUCED BY HAND, BY MACHINERY OR BY OTHER AGENCY; BY THE HAND, BY MACHINERY, OR BY ART. THE PRODUCTION OF AR TICLES FOR USE FROM RAW OR PREPARED MATERIALS BY GIVING SUCH MATERIALS NEW FORMS, QUALITIES, PROPERTIES OR COMBINATIONS, WHETHER BY H AND LABOUR OR MACHINE'. THUS BY PROCESS OF MANUFACTURE SOMETHING IS PRODUCED AND BROUGHT INTO EXISTENCE WHICH IS DIFFERENT FROM THAT , OUT OF WHICH IT IS MADE IN THE SENSE THAT THE THING PRODUCED IS BY ITS ELF A COMMERCIAL COMMODITY CAPABLE OF BEING SOLD OR SUPPLIED. THE MA TERIAL FROM WHICH THE THING OR PRODUCT IS MANUFACTURED MAY NECE SSARILY LOSE ITS IDENTITY OR MAY BECOME TRANSFORMED INTO THE BASIC O R ESSENTIAL PROPERTIES. ( SEE DY. CST (LAW), BOARD OF REVENUE (TAXES) COCO FIBRES [1992] SUPP. 1 SCC 290). 4. MANUFACTURE IMPLIES A CHANGE BUT EVERY CHANGE IS N OT MANUFACTURE, YET EVERY CHANGE OF AN ARTICLE IS THE RESULT OF TRE ATMENT, LABOUR AND MANIPULATION. NATURALLY, MANUFACTURE IS THE END RES ULT OF ONE OR MORE PROCESSES THROUGH WHICH THE ORIGINAL COMMODITIES AR E MADE TO PASS. THE NATURE AND EXTENT OF PROCESSING MAY VARY FROM O NE CLASS TO ANOTHER. THERE MAY BE SEVERAL STAGES OF PROCESSING, A DIFFERENT KIND OF PROCESSING AT EACH STAGE. WITH EACH PROCESS SUFFERE D, THE ORIGINAL COMMODITY EXPERIENCES A CHANGE. WHENEVER A COMMODIT Y UNDERGOES A CHANGE AS A RESULT OF SOME OPERATION PERFORMED ON IT OR IN REGARD TO IT, SUCH OPERATION WOULD AMOUNT TO PROCESSING OF TH E COMMODITY. BUT IT IS ONLY WHEN THE CHANGE OR A SERIES OF CHANGES T AKES THE COMMODITY TO THE POINT WHERE COMMERCIALLY IT CAN NO LONGER BE REGARDED AS THE 13 ORIGINAL COMMODITY BUT INSTEAD IS RECOGNIZED AS A N EW AND DISTINCT ARTICLE THAT A MANUFACTURE CAN BE SAID TO TAKE PLAC E. PROCESS IN MANUFACTURE OR IN RELATION TO MANUFACTURE IMPLIES N OT ONLY THE PRODUCTION BUT ALSO VARIOUS STAGES THROUGH WHICH TH E RAW MATERIAL IS SUBJECTED TO CHANGE BY DIFFERENT OPERATIONS. IT IS THE CUMULATIVE EFFECT OF THE VARIOUS PROCESSES TO WHICH THE RAW MATERIAL IS SUBJECTED TO THAT THE MANUFACTURED PRODUCT EMERGES. THEREFORE, EACH S TEP TOWARDS SUCH PRODUCTION WOULD BE A PROCESS IN RELATION TO THE MA NUFACTURE. WHERE ANY PARTICULAR PROCESS IS SO INTEGRALLY CONNECTED W ITH THE ULTIMATE PRODUCTION OF GOODS THAT BUT FOR THAT PROCESS PROCE SSING OF GOODS WOULD BE IMPOSSIBLE OR COMMERCIALLY INEXPEDIENT, TH AT PROCESS IS ONE IN RELATION TO THE MANUFACTURE. ( SEE COLLECTOR OF CENTRAL EXCISE V. RAJASTHAN STATE CHEMICAL WORKS [1991] 4 SCC 473). X X X X X X X X X X X X X X X X X X X X X X 7. TO PUT IT DIFFERENTLY, THE TEST TO DETERMINE WHETH ER A PARTICULAR ACTIVITY AMOUNTS TO 'MANUFACTURE OR NOT IS: DOES A NEW AND DIFFERENT GOOD EMERGE HAVING DISTINCTIVE NAME, USE AND CHARAC TER. THE MOMENT THERE IS TRANSFORMATION INTO A NEW COMMODITY COMMER CIALLY KNOWN AS A DISTINCT AND SEPARATE COMMODITY HAVING ITS OWN CH ARACTER, USE AND NAME, WHETHER BE IT THE RESULT OF ONE PROCESS OR SE VERAL PROCESSES MANUFACTURE TAKES PLACE AND LIABILITY TO DUTY IS ATTRACTED. ETYMOLOGICALLY THE WORD MANUFACTURE PROPERLY CONS TRUED WOULD DOUBTLESS COVER THE TRANSFORMATION. IT IS THE TRANS FORMATION OF A MATTER INTO SOMETHING ELSE AND THAT SOMETHING ELSE IS A QU ESTION OF DEGREE, WHETHER THAT SOMETHING ELSE IS A DIFFERENT COMMERCI AL COMMODITY HAVING ITS DISTINCT CHARACTER, USE AND NAME AND COM MERCIALLY KNOWN AS SUCH FROM THAT POINT OF VIEW, IS A QUESTION DEPE NDING UPON THE FACTS AND CIRCUMSTANCES OF THE CASE. ( SEE EMPIRE INDUSTRIES LTD. V. UNION OF INDIA [1985] 3 SCC 314). 14 X X X X X X X X X X X X X X X X X X X X X X 14. IN THIS CASE, ASSESSEE WAS CARRYING ON BUSINESS OF CONVERSION OF JUMBO ROLLS OF PHOTOGRAPHIC FILMS INTO SMALL FLATS AND ROLLS IN DESIRED SIZES. IT CLAIMED DEDUCTION UNDER SEC. 80-HH AND 80 -I AS WELL AS INVESTMENT ALLOWANCE UNDER SEC. 32AB. THE CONTROVER SY AROSE WHETHER CONVERSION OF JUMBO ROLLS INTO SMALL SIZES AMOUNTS TO MANUFACTURE OR PRODUCTION, ELIGIBLE FOR DEDUCTION U NDER SEC. 32AB OR DEDUCTION UNDER SECTIONS 80-HH AND 80-I OF THE INCO ME-TAX ACT, 1961/ HON'BLE SUPREME COURT HAS HELD THAT THIS ACTI VITY AMOUNTS TO MANUFACTURE OR PRODUCTION. THUS, WE THINK IT IS NOT NECESSARY TO RECAPITULATE AND RECITE ALL THE DECISION ON THE CON STRUCTION EXPRESSION MANUFACTURE. BUT SUFFICE TO SAY THAT CORE OF ALL THE DECISIONS OF THE HON'BLE SUPREME COURT OR HON'BLE HIGH COURT IS TO T HE EFFECT THAT BROADLY MANUFACTURE IS A TRANSFORMATION OF AN ARTIC LE, WHICH IS COMMERCIALLY DIFFERENT FROM THE ONE WHICH IS CONVER TED. IT IS A CHANGE OF ONE OBJECT TO ANOTHER FOR THE PURPOSE OF MARKETA BILITY. IT BRINGS SOMETHING INTO EXISTENCE, WHICH IS DIFFERENT FROM T HAT, WHICH ORIGINALLY EXISTED. THE NEW PRODUCT IS A DIFFERENT COMMODITY PHYSICALLY AS WELL AS COMMERCIALLY. THE HONBLE COU RT ALSO EXPLAINED BROADER TEST TO DETERMINE WHETHER MANUFACTURE IS TH ERE OR NOT, IT IS PROPOUNDED THAT WHEN A CHANGE OR SERIES OF CHANGES ARE BROUGHT OUT BY APPLICATION OF PROCESSES WHICH TAKE THE COMMODIT Y TO THE POINT WHERE, COMMERCIALLY, IT CANNOT BE REGARDED AS THE O RIGINAL COMMODITY 15 BUT IS, INSTEAD RECOGNIZED AS A DISTINCT AND NEW AR TICLE THAT HAS EMERGED AS A RESULT OF THE PROCESS. 15. NOW, WE REVERT TO THE FACTS OF THE PRESENT CASE . IN ORDER TO CLAIM DEDUCTION UNDER SEC. 80-IC, IT WAS CONTENDED BY THE ASSESSEE THAT IT IS CARRYING OUT MANUFACTURING ACTIVITY AT ITS INDUSTRI AL UNDERTAKING COMPRISED AT F-13, INDUSTRIAL AREA, BHIMTAL (NAINIT AL). IT IS MAINTAINING COMPLETE BOOKS OF ACCOUNT WHICH ARE DUL Y AUDITED AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESS EE HAS PRODUCED ALL THESE DETAILS BEFORE THE ASSESSING OFFICER INCL UDING THE PROFIT AND LOSS ACCOUNT, SALES BILLS ALONG WITH FORM NO. C , P URCHASE BILLS WITH FORM NO.16 ETC. THE ASSESSEE CONTENDED THAT ITS UND ERTAKING IS REGISTERED WITH EXCISE DEPARTMENT, HOWEVER, EXCISE DUTY IS EXEMPT BY VIRTUE OF NOTIFICATION NOS. 49 AND 50 OF 2003. THE ASSESSEE PLACED COPY OF THE NOTIFICATION AT PAGE 26 OF THE PAPER BO OK. IT IS FILING REGULAR EXCISE RETURN WITH THE DEPARTMENT AND ALSO PLACED ON RECORD THE COPIES OF MONTHLY RETURN FILED BY THE ASSESSEE ON PAGE NOS. 27 TO 37 OF THE PAPER BOOK. THE ASSESSEE FURTHER CONTENDE D THAT IT IS REGISTERED WITH VAT AUTHORITIES AND ALSO WITH DISTR ICT INDUSTRIES CENTRE. THE COPIES OF ALL THESE DETAILS ARE PLACED ON THE PAPER BOOK FROM PAGE NOS. 38 TO 83. IT IS REGISTERED WITH POLL UTION CONTROL BOARD AND THE EVIDENCE HAS BEEN PLACED AT PAGE 84 OF THE PAPER BOOK. ON THE STRENGTH OF THESE DOCUMENTS, IT WAS CONTENDED BY TH E ASSESSEE THAT IT IS A FIRM CAME INTO EXISTENCE ON IST OF APRIL 2006 ENG AGED IN THE BUSINESS OF PRODUCTION FRAGRANCE, FRAGRANT COMPOUND , ATTAR AND FLORAL WATER. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE T AKING US THROUGH 16 HIS WRITTEN SUBMISSIONS DREW OUR ATTENTION TOWARDS PARAGRAPH NO. 6.3 WHEREIN ASSESSEE HAS PLACED ON RECORD A FLOW CHART INDICATING THE VARIOUS STEPS TAKEN BY THE ASSESSEE FOR DEMONSTRATI NG ITS MANUFACTURING ACTIVITIES. THESE STEPS READ AS UNDER : B) THAT APPELLANT MIXES DIFFERENT RAW MATERIAL, SU CH AS, DISTILLED OIL OBTAINED FROM EXTRACT OF FLOWERS WITH HERBS AND SPICES SUCH AS LOAN, JAVITRI, JAIPHAL, LAUNG, ELAIC HI AND KAPOOR ETC. ALL OF WHICH ARE PURCHASED FROM THE MARKET; C) THAT MIXTURE IS THEN ROASTED AND PUT IN A COPPER VESSEL CALLED DEG ALONG-WITH PROPORTIONATE AMOUNT OF WAT ER; D) THAT MIXTURE IS THEN AGAIN STEAMED DISTILLED AND VA PORS MADE TO CONDENSE THROUGH A BAMBOO PIEPE CALLED CHO NGA OVER FIXED OIL (ANOTHER RAW MATERIAL) CONTAINED IN ANOTHER VESSEL CALLED BHAPKA. THE OIL IN BHAPKA ABSORBS T HE VAPORS. THIS PROCESS IS REPEATED TILL THE FRAGRANCE IS OBTAINED AS PER THE REQUISITION OF THE PURCHASER; E) THAT DIFFERENT AROMATIC CHEMICALS/OIL AND ALSO THE EXTRACTS AS HAD BEEN OBTAINED BY THE ABOVE EXTRACTION/DISTILLAT ION ARE WEIGHTED AS PER FORMULATION; F) THAT SUBSTANCES ARE THEN MIXED TOGETHER IN A CONTAI NER; G) THAT MIXTURE IS THEN STIRRED MANUALLY OR BY A STIRR ER TILL THE INGREDIENTS ARE COMPLETELY MIXED TOGETHER; H) THAT FRAGRANCE THUS OBTAINED IS LEFT FOR MATURATION TO GET THE FINISHED PRODUCE; AND I) THAT SAME IS THEN PACKED IN SEALED CONTAINERS FOR T HE PURPOSES OF SALE. 17 16. IT WAS POINTED OUT BY THE LEARNED COUNSEL FOR T HE ASSESSEE THAT ONE OF THE MAJOR RAW-MATERIAL REQUIRED FOR CARRYING OUT MANUFACTURING ACTIVITIES AT BHIMTAL IS DISTILLED OIL OR FLORAL OI L, THIS OIL WAS PROCURED BY THE ASSESSEE FROM KANNOUJ. THE ASSESSEE USED TO PURCHASE THE FLOWERS IN THAT AREA AND GOT DISTILLED WORK ON JOB WORK BASIS, BUT THE DISTILLATED OIL IS ALTOGETHER A DIFFERENT PRODUCT T HEN FRAGRANT COMPOUND, ATTAR AND FLORAL WATER. THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT ASSESSEE HAS PURCHASED 640601 KGS OF FLOWERS O F DIFFERENT KIND FOR A CONSIDERATION OF RS.185,85,604.90. THESE FLOW ERS WERE PURCHASED AT KANNOUJ MANDI. IT HAS INCURRED AN EXPE NSE OF RS.17,71,074 ON JOB WORK FOR CARRYING OUT DISTILLAT ION WORK AT KANNOUJ. THUS, THE TOTAL COST INCURRED BY THE ASSES SEE ON THIS ACTIVITY IS RS.203,57,038. THE DISTILLED PRODUCT I.E. OIL RE COVERED BY THE ASSESSEE IS OF FOUR VARIETIES. THEIR QUANTITIES AND VALUES WORKED AT PAGE 471 AND 476 OF THE PAPER BOOK HAS BEEN SUMMARI ZED BY THE LEARNED COUNSEL FOR THE ASSESSEE IN A NOTE WHICH RE ADS AS UNDER: (1) RUH MEHNDI 12 KG 27,60,000 @2,30,000 KG(-) R S.20000 PER KG. (2) RUH BELA 12 KG 22,32,000 @ 1,86,000 KG(+) RS. 21000 PER KG (3) ATTAR BELA 330 KG 74,58,000 @ 22,600 KG. (4) ATTAR MEHANDI 350 KG 75,95,000 @ 21,700 KG. 17. THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OU T THAT THE MARKET PRICE OF RUH MEHANDI AT THE RELEVANT TIME WAS RS.2, 10,000 PER KG. AND RUH BELA WAS RS.2,07,000 PER KG. HAD THE ASSES SEE NOT PROCURED THESE OILS ON JOB WORK BASIS THEN IT HAS T O PURCHASE THESE OILS FROM THE OPEN MARKET AT THE ABOVE PRICE. SIMILARLY, HE POINTED OUT THAT 18 ATTAR BELA AND UTTAR MEHANDI ARE CONCERNED, THEY AR E NOT INDEPENDENTLY AVAILABLE NOR THEY ARE SALEABLE IN THE MARKET. THE COST INCURRED BY THE ASSESSEE ON RUH-MEHANDI AND RUH-BELLA IS MORE THAN THE RAW MATERIAL AVAILABLE IN THE OPEN MARKET. HE FURTHER POINTED OU T THAT THE FLOWERS ARE AVAILABLE ONLY IN KANNOUJ MARKET, THEY ARE NOT AVAILABLE NEAR THE MARKET OF NAINITAL OR BHIMTAL. AFTER THEIR PROCUREM ENT, THEY HAVE TO BE PROCESSED WITHIN TWO HOURS OTHERWISE REQUIRED RE SULT WOULD NOT COME AND IN THIS CONNECTION HE MADE REFERENCE TO TH E CERTIFICATE OF A HORTICULTURE DEPARTMENT AVAILABLE ON PAGES 85 TO 87 WHEREIN IT HAS BEEN OPINED THAT IN ORDER TO EXTRACT OIL FROM THE F LOWERS THEY HAVE TO BE PROCESSED WITHIN TWO HOURS. THEREFORE, THE ASSES SEE HAS TO DISTILLED THE OIL ON JOB WORK BASIS AT KANNOUJ. ON THE OTHER HAND, LEARNED DR POINTED OUT THAT MAJOR ACTIVITIES HAS BEEN CARRIED OUT AT KANNOUJ. AT BHIMTAL, ASSESSEE HAS CARRIED OUT VERY NEGLIGIBLE A CTIVITIES. LEARNED FIRST APPELLATE AUTHORITY WHILE AFFIRMING THE ORDER OF THE ASSESSING OFFICER MADE REFERENCE TO THE DECISION OF THE HON'B LE SUPREME COURT IN THE CASE OF CIT VS. TARA AGENCY AS WELL AS THE D ECISION OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF BROKE BOND INDIA LTD. VS. CIT REPORTED IN 292 ITR 444 AND 269 ITR 232. IN THE CAS E OF TARA AGENCY, THE ASSESSEE CLAIMED WEIGHTED DEDUCTION UND ER SEC. 35D(1)(A) OF THE ACT. SUCH DEDUCTION WAS AVAILABLE TO THE ASSESSEE IF IT WAS MANUFACTURING ANYTHING AND ARTICLE. THE ASSE SSEE WAS ENGAGED IN THE BUSINESS OF EXPORT OF TEA. IT PURCHASED TEA OF DIVERSE GRADE AND BRAND AND BLEND THE SAME BY MAKING DIFFERENT KIND O F TEAS. THE CONTROVERSY AROSE WHETHER THE BUSINESS ACTIVITY OF THE ASSESSEE FALLS WITHIN THE AMBIT OF EXPRESSION PRODUCTION OR MAN UFACTURE OR IT IS JUST A PROCESSING. HONBLE COURT HAS OBSERVED THAT THERE ARE THREE 19 STAGES INVOLVED. THE TEA IS PRODUCED IN THE TEA GAR DEN. THIS IS THE FIRST STAGE WHICH IS CALLED PRODUCTION OF TEA. THE SECOND STAGE IS MANUFACTURE OF TEA. IN THIS STAGE, THE TEA LEAVES A RE PLUCKED FROM THE TEA BUSHES AND BY MECHANICAL PROCESS, TEA LEAVES AR E CONVERTED TO TEA. THIS SECOND STAGE IS CONSIDERED MANUFACTURING OF TE A. THE THIRD STAGE IS BLEND OF DIFFERENT QUALITIES OF TEA IN ORDER TO SMOOTHEN ITS MARKETABILITY. THUS, THE 3 RD STAGE IS CONSIDERED PROCESSING OF TEA. IN THE PRESENT CASE, ASSESSEE HAS PURCHASED FLOWERS, G OT THEIR OIL ON JOB WORK BASIS. THEREAFTER, IN A LONG CONTINUOUS PROCES S, IT PRODUCED FRAGRANT COMPOUND, ATTAR AND FRAGRANT WHICH ARE ALT OGETHER DIFFERENT ITEMS THAN THE RAW MATERIAL. WE HAVE DISCUSSED IN D ETAIL THE MANUFACTURING PROCESS OF THE ASSESSEE WHILE TAKING COGNIZANCE OF THE FLOW CHART SUBMITTED BY THE ASSESSEE. THESE TWO DEC ISIONS ARE NOT APPLICABLE ON THE FACTS OF THE CASE. 18. ON AN ANALYSIS OF THESE FACTS, WE FIND THAT LEA RNED ASSESSING OFFICER WHILE OBSERVING THAT MORE THAN 93% OF MANUF ACTURING ACTIVITIES IS CARRIED OUT AT KANNOUJ AND AT BHIMTAL , A VERY NEGLIGIBLE ACTIVITY HAS BEEN CARRIED OUT HAS FAILED TO APPRECI ATE THE TRUE NATURE OF THE CONTROVERSY. IF DISTILLED OIL IS SIMILAR TO THA T OF FRAGRANCE, FRAGRANT COMPOUND, ATTAR AND FLORAL WATER THEN ASSESSING OFF ICER MAY BE JUSTIFIED TO SAY THAT MAJOR ACTIVITIES HAVE BEEN CA RRIED OUT AT KANNOUJ BUT THAT IS NOT THE CASE. THE END PRODUCT MANUFACTU RED BY THE ASSESSEE AND SOLD IS ALTOGETHER DIFFERENT FROM DISTILLED OIL . DISTILLED OIL IS ONE OF THE RAW MATERIAL FOR PRODUCING FRAGRANT, FRAGRANT C OMPOUND OR ATTAR. THE CONTROVERSY CAN BE LOOKED INTO WITH DIFFERENT A NGLES ALSO I.E. 20 WHETHER ASSESSEE IS TRYING TO SHIFT ITS PROFIT OF T HE ACTIVITY CARRIED AT KANNOUJ IN ORDER TO CLAIM DEDUCTION UNDER SEC. 80IC BUT WE FIND THAT ASSESSEE HAS GIVEN COMPLETE DETAILS OF ALL THE JOB WORKERS. THEY ARE INDEPENDENT IN THEIR WORK. THEY HAVE CONFIRMED THAT THEY HAVE CARRIED OUT THE JOB WORK FOR THE ASSESSEE. ASSESSING OFFICE R HAS DEPUTED AN INSPECTOR TO VERIFY THIS ASPECT AND THE LEARNED INS PECTOR HAS GIVEN HIS REPORT TO THE ASSESSING OFFICER. THE NOTICES UNDER SEC. 133(6) OF THE ACT WERE ISSUED TO ALL THE JOB WORKERS. OUT OF THE 19 JOB WORKERS, THE LEARNED INSPECTOR HAS POINTED OUT THAT 15 HAVE CONF IRMED THE JOB WORK CARRIED OUT BY THEM FOR THE ASSESSEE AND THEIR ACCO UNTS HAVE DULY BEEN TALLIED. IT SUGGESTS THAT THE ASSESSEE HAS PURCHASE D FLOWERS, GOT THEM PROCESSED AND OBTAINED DISTILLED OIL ON JOB WORK BA SIS. THE REPORT OF THE INSPECTOR IS AVAILABLE ON PAGE 364 OF THE PAPER BOOK, COPIES OF THE NOTICES ISSUED UNDER SEC. 133(6) OF THE ACT AND THE REPLIES GIVEN BY THE JOB WORKERS ARE PLACED ON PAGE NOS. 365 TO 405 OF THE PAPER BOOK. 19. LEARNED ASSESSING OFFICER MADE A REFERENCE TO A NUMBER OF PERIPHERAL ASPECTS FOR DRAWING AN INFERENCE THAT CA RRYING OUT MANUFACTURING ACTIVITY BY THE ASSESSEE AT THE ALLEG ED INDUSTRIAL ESTABLISHMENT IS DOUBTFUL. SUCH ASPECTS HAVE BEEN B RIEFLY NOTED DOWN BY THE ASSESSING OFFICER ON PAGE 34 TO 37 OF THE IM PUGNED ORDER. THEREAFTER, HE DISCUSSED THE ISSUE ELABORATELY. THE ASSESSEE IN THE WRITTEN SUBMISSIONS REBUTTED ALL THE ASPECTS HIGHLI GHTED BY THE ASSESSING OFFICER IN A TABULAR FORM. WE HAVE GONE T HROUGH THE OBJECTION OF THE ASSESSING OFFICER AS WELL AS THE E XPLANATION GIVEN BY THE ASSESSEE WHICH HAS BEEN NOTICED BY THE LEARNED CIT(APPEALS) ALSO IN THE IMPUGNED ORDER AND ALSO EXPLAINED IN PA RAGRAPH NO. 6.16 21 OF THE WRITTEN SUBMISSIONS. TO OUR MIND, THESE ARE PERIPHERAL ASPECTS WHEREIN STRESS OF THE ASSESSING OFFICER IS TO DOUBT THE VERY EXISTENCE OF THE ASSESSEE. HOWEVER, WE DO NOT FIND ANY SUBSTA NTIAL MATERIAL WHICH CAN GOAD AN AUTHORITY TO SAY THAT ASSESSEE WA S NOT CARRYING OUT THE MANUFACTURING ACTIVITY. IN THE FIRST OBJECTION, ASSESSING OFFICER HAS ALLEGED THE POLLUTION CONTROL CERTIFICATE IS DA TED 28.12.2006 WHICH SUGGEST THAT ACTIVITY CANNOT BE STARTED PRIOR TO 22 .12.2006. SIMILARLY, IN THE SECOND OBJECTION, HE ALLEGED THAT CHIMINI WA S INSTALLED ONLY AFTER 18.12.2006 WHICH SUGGESTS THAT ANY FURNANCE A CTIVITY COULD NOT BE TAKEN PRIOR TO THIS DATE. THE EXPLANATION OF THE ASSESSEE TO THESE OBJECTIONS IS THAT IT HAS SUBMITTED BANK DRAFT FOR MAKING APPLICATION TO POLLUTION CONTROL ON 17.7.2006. IT HAD COMMENCED IT S OPERATION DURING THE PENDENCY OF THIS APPLICATION. SIMILARLY, IT POI NTED OUT THAT NO CHIMINI WAS REQUIRED. IT WAS ONLY INSTALLED AT THE INSISTENCE OF THE POLLUTION CONTROL BOARD. THE CHIMINIES ARE MADE BY USING MUD, SAND, BRICK AND CLAY. THESE ASPECTS SUGGEST THAT THEY AR E NOT VERY SUBSTANTIAL CIRCUMSTANCE WHICH CAN TURN THE ISSUE T HAT NO MANUFACTURING ACTIVITY WAS CARRIED OUT BY THE ASSES SEE. SIMILARLY, LEARNED ASSESSING OFFICER HAS REFERRED AN INSTANCE THAT BORE WELL WAS INSTALLED ONLY ON 15.1.2007 WHICH SUGGESTS THAT THE RE WAS NO SOURCE OF WATER AND ASSESSEE COULD NOT UNDERTAKE ANY ACTIVITY PRIOR TO THIS DATE. TO THIS OBJECTION, IT WAS EXPLAINED BEFORE THE LEAR NED FIRST APPELLATE AUTHORITY AS WELL AS BEFORE THE ASSESSING OFFICER T HAT ASSESSEE HAS PURCHASED THE WATER AND IT HAS PRODUCED THE BILLS F OR WATER TANKER BEFORE THE ASSESSING OFFICER. THE ASSESSEE DOES NOT REQUIRE MUCH WATER IN ITS ACTIVITY BECAUSE THE TOTAL QUANTITY PR ODUCED BY THE ASSESSEE IS NOT VERY LARGE. 22 20. THE MAIN STRESS OF THE ASSESSING OFFICER IS THA T IT SHOULD BOOST ECONOMY OF THE STATE BUT IN THE PRESENT CASE, ASSES SEE HAD MADE PURCHASES OUT OF UTTRAKHAND STATE. ITS MAJOR ACTIVI TIES WERE CARRIED OUT IN UP. WE FIND THAT THIS REFERENCE IS ALTOGETHER IR RELEVANT. ASSESSING OFFICER WAS REQUIRED TO LOOK INTO WHETHER ASSESSEE HAS AN INDUSTRIAL UNDERTAKING. IT IS SITUATED WITHIN NOTIFIED AREA AS CONTEMPLATED IN SECTION 80IC(2)(A)(II) OF THE ACT. WHETHER IT IS MA NUFACTURING ANY ARTICLE OR THING. THE ACT DOES NOT LAY A CONDITION THAT PURCHASES SHOULD BE MADE FROM THE LOCAL MARKET. THE RAW-MATER IAL CAN BE PROCURED FROM ANYWHERE. ACCORDING TO THE ASSESSEE, THE FLOWERS FROM WHERE OIL COULD BE DISTILLED WERE NOT AVAILABLE OR PRODUCED IN THE LOCAL AREA. UNDER ANY CIRCUMSTANCE THAT HAS TO BE PURCHAS ED OUT OF UTTRAKHAND STATE. ASSESSING OFFICER THEREAFTER MADE A REFERENCE ABOUT THE NEGLIGIBLE EXPENSES SHOWN BY THE ASSESSEE FOR M ANUFACTURING ACTIVITIES. HE TOTALLY LOST SIGHT ABOUT COST OF THE RAW MATERIAL. ASSESSING OFFICER HAS OBSERVED THAT BY INCURRING A SUM OF RS.7013 ONLY, TURNOVER OF MORE THAN RS. 3 CRORES CANNOT BE ACHIEVED. THE ASSESSEE HAS POINTED OUT THAT THIS REFERENCE IS FAC TUALLY INCORRECT BECAUSE IN THE AUDITED P & L ACCOUNT, THE ASSESSEE HAS SHOWN FUEL CHARGES AT RS.1,56,320, FREIGHT RS.52,663, MANUFACT URING EXPENSES RS.15,132, WATER AND ELECTRICITY EXPENSES RS.7715 A ND PACKING MATERIAL OF RS.50,853. APART FROM THESE EXPENSES, A SSESSEE HAS SHOWN PURCHASE OF RAW MATERIAL AT RS.2.39 CRORES. THUS, W E ARE OF THE VIEW THAT ASSESSING OFFICER HAS MADE THIS COMPARISON IN ISOLATION. HE HAS ATTACHED MUCH SIGNIFICANT TO EACH CIRCUMSTANCE IN I SOLATION. HE OUGHT TO HAVE ASSESSED THE CUMULATIVE EFFECT OF ALL THE C IRCUMSTANCES IN THEIR SETTING AS A WHOLE. THE ASSESSEE HAS INVITED THE AS SESSING OFFICER FOR 23 PAYING A VISIT TO ITS FACTORY PREMISES SO THAT HE C AN HAVE A GLANCE OVER THE ACTIVITIES CARRIED OUT BY THE ASSESSEE. THIS RE QUEST OF THE ASSESSEE HAS DULLY BEEN NOTED BY THE ASSESSING OFFICER ON PA GE 27 OF THE IMPUGNED ORDER WHILE TAKING COGNIZANCE OF THE ASSES SEES SUBMISSION, HOWEVER, LEARNED ASSESSING OFFICER DID NOT VISIT TH E FACTORY ON THE GROUND THAT NO FRUITFUL PURPOSES WOULD BE SERVED. A CCORDING TO THE ASSESSEE, HAD THE ASSESSING OFFICER PAID A VISIT, H E COULD APPRECIATE THE ACTIVITIES CARRIED OUT BY THE ASSESSEE AND HE C OULD ALSO ASSESS SINCE WHEN SUCH ACTIVITY WAS UNDERTAKEN BY THE ASSESSEE. WE ALSO FIND THAT ASSESSEE HAS PLACED ON RECORD THE MATERIAL EXHIBITI NG TRANSPORTATION OF THE RAW MATERIAL, PURCHASE BILLS AND VAT CERTIFICAT E. IT IS REGISTERED WITH THE CENTRAL EXCISE DEPARTMENT W.E.F. IST OF SE PTEMBER, 2006. ACCORDING TO THE ASSESSEE, FRAGRANCE, FRAGRANT COMP OUND, ATTAR AND FLORAL WATER THOUGH EXEMPT FROM PAYMENT OF CENTRAL EXCISE IN UTTRAKHAND STATE. IT HAS POINTED OUT THAT TOTAL QUA NTITY OF ESSENTIAL OIL AND CHEMICALS PURCHASED BY THE ASSESSEE ARE OF 9214 KGS. OUT OF THAT DISTILLED PRODUCT OF 704 KGS. WAS PROCURED FROM KAN NAUJ. THESE ITEMS WERE PROCURED AT MARKET PRICE AS DEMONSTRATED BY TH E LEARNED COUNSEL FOR THE ASSESSEE IN A SEPARATE NOTE ANNEXED WITH TH E WRITTEN SUBMISSIONS AND NOTICED BY US IN PARAGRAPH NO. 16 O F THIS ORDER. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW TH AT THE ASSESSEE HAS DEMONSTRATED THAT IT IS ENGAGED IN THE MANUFACTURIN G OF ARTICLE AND THINGS. IT FULFILLS ALL THE ESSENTIAL CONDITIONS FO R AVAILING DEDUCTION UNDER SEC. 80IC OF THE ACT. WE DIRECT THE LEARNED A SSESSING OFFICER TO GRANT SUCH DEDUCTION TO THE ASSESSEE. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 24 6. THERE IS NO DISPARITY ON FACTS. LEARNED DR HAS R ELIED UPON THE ORDER OF THE ASSESSING OFFICER. HE DID NOT BRING ANY SPEC IFIC CIRCUMSTANCE WHICH CAN PERSUADE US TO TAKE A DIFFERENT VIEW THEN THE V IEW TAKEN BY THE ITAT IN ASSESSMENT YEAR 2007-08. RESPECTFULLY FOLLOWING THE ORDER OF THE ITAT, WE DO NOT FIND ANY MERIT IN THESE APPEALS. THEY ARE DI SMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 12.10.201 2 SD/- SD/- ( J.S. REDDY ) ( RAJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 12/10/2012 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR