Natural Fragrances, Bhimtal V. DCIT, Nainital

ITA 4183/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58863 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 19-01-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 19-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R S NEGI SENIOR
• Assessee Lawyers: SSH CS AGGARW AL
• Keywords: Scheme of amalgamation
• Section: 133(6); 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E NEW DELHI) BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL ITA NO. 4183/DEL/2011 ASSESSMENT YEAR: 2007-08 NATURAL FRAGRANCES, VS. DEPUTY CIT, F-3, INDUSTRIAL ESTATE, NAINITAL BHIMTAL (PAN: AAFFN9107L) (APPELLANT) (RESPONDENT) APPELLANT BY: S/SH. CS AGGARW AL, ADV. & SH. GAUTAM JAIN, CA RESPONDENT BY: SHRI RS NEGI, SEN IOR DR DATE OF HEARING : 19.01.2012 DATE OF PRONOUNCEMENT : 16.03.2012 ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE OR DER OF LEARNED CIT(APPEALS) DATED 15.07.2011 PASSED FOR ASSESSMENT YEAR 2007-08. THE GROUNDS OF APPEALS TAKEN BY THE ASSESSEE ARE NOT IN CONSONANCE WITH RULE 8 OF THE ITAT'S RULES, THEY ARE DESCRIPTIVE AND ARGUM ENTATIVE IN NATURE. IN BRIEF, THE SUBSTANTIAL GRIEVANCE REVOLVES AROUND A SINGLE ISSUE WHICH PERTAINS TO DENIAL OF DEDUCTION UNDER SEC. 80-IC OF THE INCO ME-TAX ACT, 1961. APART FROM THIS SUBSTANTIAL ISSUE, THE ASSESSEE HAS PLEAD ED TWO MORE ISSUES IN GROUND NOS. 7 & 8, WHEREIN IT HAS CHALLENGED THE SE LECTION OF ITS CASE FOR SCRUTINY ASSESSMENT AND NON-SERVICE OF NOTICE UNDER SEC. 143(2) OF THE 2 INCOME-TAX ACT, 1961WITHIN THE STATUTORY TIME PERIO D. HOWEVER, LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRESS THESE ISSUES AT THE TIME OF HEARING. ACCORDINGLY, BOTH THE GROUNDS ARE REJECTED. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A FIRM. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF FRAGRANCE, FRAGRANT COMPOUND, ATTAR AND FLORAL WATERS AT ITS ELIGIBLE UNDERTAKING COMPRISED AT F-3 , INDUSTRIAL AREA, BHIMTAL, NAINITAL. IT HAS FILED ITS RETURN OF INCOME ON 26.1 0.2007, DECLARING NIL INCOME, AFTER CLAIMING DEDUCTION OF RS.1,36,38,274 UNDER SEC. 80-IC OF THE INCOME-TAX ACT, 1961. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND A NOTICE UNDER SEC. 143(2) DATED 30. 09.2008 WAS ISSUED FOR COMPLIANCE ON 16.10.2008. IN RESPONSE TO THIS NOTIC E, SHRI MANISH KHANNA, FCA DULY AUTHORIZED BY THE ASSESSEE APPEARED BEFORE THE ASSESSING OFFICER ON 16.10.2008. THE CASE WAS ADJOURNED SINE DIE. LD ASSESSING OFFICER TOOK UP THE SCRUTINY PROCEEDINGS AND ISSUED A QUESTIONNA IRE UNDER SEC. 142 ON 23.3.2009 AND CALLED FOR THE INFORMATION BY 6.4.200 9. IN THE QUESTIONNAIRE, LEARNED ASSESSING OFFICER HAS CALLED FOR FOLLOWING INFORMATION: 1) COMPLETE NOTE ON BUSINESS ACTIVITY; 2) THE DATE OF COMMENCEMENT OF ITS COMMERCIAL OPERATIO NS; 3) FURNISHING OF FORM NO. 3CD WITH AUDITED BALANCE SHE ET, P & L A/C. ETC. 4) DETAILS OF PARTNERS LIKE THEIR NAMES, ADDRESSES, PA N, SHARE, THEIR LEDGER ACCOUNT IN THE BOOKS OF ASSESSEE; 3 5) DETAILS OF THE BANK ACCOUNTS MAINTAINED BY THE ASSE SSEE AND TO FURNISH ALL THE BANK STATEMENTS FOR THE F.Y. 2006-0 7; 6) NAME AND ADDRESSES OF THE MAJOR BUYERS DURING THE F .Y. 2006-07; 7) NAME AND ADDRESSES OF THE MAJOR SUPPLIERS DURING TH E F.Y. 2006- 07; 8) HOW MANY UNITS DOES THE ASSESSEE OPERATE FROM? TO F URNISH ADDRESS OF THE UNITS; & 9) JUSTIFICATION OF CLAIM OF DEDUCTION U/S. 80-IC 3. LEARNED ASSESSING OFFICER THEREAFTER TIME TO TIM E ADJOURNED THE HEARING AND CALLED FOR NUMBER OF DETAILS. ON 14.12 .2009, LEARNED COUNSEL FOR THE ASSESSEE PRODUCED FOLLOWING DETAILS APART F ROM OTHERS PRODUCED EARLIER: 1) PRODUCTION & CLEARANCE REGISTER RUNNING FROM PAGE 1 TO 68; 2) SALES REGISTER PAGE NOS. 1 TO 47; 3) PURCHASE REGISTER PAGE NO. 1 TO 47; 4) STOCK REGISTER PAGE NO. 1 TO 71; 5) BILLS & VOUCHERS 6(A) & 6B); 6) ATTENDANCE REGISTER 2 VOLUMES 5(A) & 5(B). 4. LEARNED ASSESSING OFFICER HAD MADE DETAILED ANAL YSIS OF THE ACTIVITIES CARRIED OUT BY THE ASSESSEE VIS--VIS THE MATERIAL COLLECTED BY HIM IN THE IMPUGNED ASSESSMENT ORDER. WE WILL BE DEALING WITH THE REASONING GIVEN BY THE ASSESSING OFFICER FOR DENYING THE BENEFIT UNDER SECTION 80-IC AS WELL AS THE EXPLANATION SUBMITTED BY THE ASSESSEE IN THE LA TER PART OF THIS ORDER. BRIEFLY, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE CLAIM OF DEDUCTION UNDER SEC. 80-IC IS NOT ADMISSIBLE TO THE ASSESSEE ON THE GROUND THAT 4 MANUFACTURING OF FRAGRANCES, FRAGRANT COMPOUND, ATT AR AND OTHER FLORAL WATERS AT ITS UNDERTAKING AT BHIMTAL IS NOT A MANUF ACTURE WITHIN THE MEANING OF DEFINITION OF EXPRESSION MANUFACTURE PROVIDED IN SECTION 2(29)(BA) OF THE INCOME-TAX ACT, 1961. HE WAS OF THE OPINION THA T EXPRESSION MANUFACTURE MEANS A CHANGE IN A NON-LIVING PHYSIC AL OBJECT OR ARTICLE OR THINGS RESULTING INTO TRANSFORMATION OF THE OBJECTS OR ARTICLE OR THINGS INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THINGS HAVING A DIFFERENT NAME AND CHARACTER AND USE OR BRINGING INTO EXISTENCE OF A N EW AND DISTINCT OBJECT OR ARTICLE OR THINGS WITH A DIFFERENT CHEMICAL COMPOSI TION OR INTEGRAL STRUCTURE. ACCORDING TO THE ASSESSING OFFICER, IMPLANTING OF T HIS FLORAL OIL INTO FRAGRANCE OR FRAGRANT COMPOUND WOULD NOT BE A MANUF ACTURING ACTIVITIES. HE FURTHER OBSERVED THAT THE OBJECT OF SECTION 80-IC W AS TO BOOST INDUSTRIAL GROWTH OF STATE OF UTTRAKHAND SO THAT EMPLOYMENT CA N BE GENERATED BUT IN THE PRESENT CASE, 99.30% OF THE ACTIVITIES IS CARRI ED OUT AT KANNOUJ (UP) FROM WHERE THE ASSESSEE HAS PURCHASED FLOWER AND ESSENTI AL OIL ARE EXTRACTED ON JOB WORK BASIS. THUS, NO MANUFACTURING ACTIVITIES I S BEING CARRIED OUT AT BHIMTAL (NAINITAL). ACCORDING TO HIM, IT WILL BE IN -CONTRADICTION WITH THE LEGISLATIVE INTENT IF DEDUCTION UNDER SEC. 80-IC IS BEING GRANTED TO SUCH AN ENTITY. ASSESSING OFFICER FURTHER OBSERVED THAT ASS ESSEE HAS NOT GENERATED JOB WITHIN THE STATE OF UTTRAKHAND. ACCORDING TO HIM, M ANUFACTURING EXPENSES 5 ARE OF 7013 ONLY AND PLANT AND MACHINERY INVOLVED I S HAVING VALUE OF RS.2,05,000. APART FROM THE ABOVE, HE FURTHER OBSER VED THAT MANUFACTURING ACTIVITY WAS NOT COMMENCED PRIOR TO JANUARY 2007. I N THIS WAY, LEARNED ASSESSING OFFICER HAS DENIED THE DEDUCTION TO THE A SSESSEE. 5. APPEAL TO THE LEARNED CIT(APPEALS) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 6. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE IMPUG NING THE ORDERS OF THE LEARNED REVENUE AUTHORITY BELOW HAS FILED PAPER BOOK RUNNING INTO 478 PAGES AND PLACED ON RECORD ALL THE MATERIAL COLLECT ED BY THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS. HE ALSO FILED WRITTEN SUBMISSIONS RUNNING INTO 36 PAGES. 7. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. IN ORDER TO AVAIL DEDUCTION UNDER SECTION 80IC, AN ASSESSEE HAS TO FULFILL THE CONDITIONS CONTEMPLATED IN THE S ECTION. THEREFORE, BEFORE CONSIDERING THE RESPECTIVE CONTENTIONS AS WELL AS T HE RELEVANT MATERIAL, IT IS IMPERATIVE UPON US TO TAKE NOTE OF THE RELEVANT STA TUTORY PROVISIONS. THE RELEVANT PART OF SECTION 80-IC, THUS READS AS UNDER : SPECIAL PROVISIONS IN RESPECT OF CERTAIN UNDERTAKI NGS OR ENTERPRISES IN CERTAIN SPECIAL CATEGORY STATES 90 . 6 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 7 ( 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-SECTIONS 7 TO 12 OF SECTION 80IA SHALL, SO FAR AS MAY BE, APPLIED TO THE ELIGIBLE UNDERTAKI NG OR ENTERPRISES UNDER THIS SECTION. THUS, WE DEEM IT FIT TO NOTE DOWN SUB-SECT ION(5) AND SUB-SECTIONS 7 TO 12 OF 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 PREVIOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT YE AR AND TO EVERY 8 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 9 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 10 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 AND GAINS DERIVED BY AN UNDERTAKING OR ENTERPRISES FROM ANY BUSINESS REFERRED TO IN SUB-SECTION (2), WHILE COMPUTING THE TOTAL INCOME OF AN ASSESSE E. SUB-SECTION (2) HAS FURTHER SUB-SECTIONS AND IN THE CASE OF ASSESSEE, T HE CLAUSE APPLICABLE IS 80IC 2 (A)(II) WHICH PROVIDE THAT ASSESSEE HAS BEGUN OR BEGINS TO MANUFACTURE ANY ARTICLE OR THING, WHICH ARE NOT SPECIFIED IN THIRTE ENTH SCHEDULE. IT MEANS ASSESSEE SHOULD NOT MANUFACTURE ANY ARTICLE OR THIN G WHICH IS 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 NOTIFIED BY THE BOA RD IN ACCORDANCE WITH THE SCHEME. THE LEARNED COUNSEL POINTED OUT THAT ASSESS EES CASE FALLS UNDER 80- IC 2(B) ALSO. THE DIFFERENCE BETWEEN BOTH THE CLAUS E IS THAT UNDER CLAUSE B, THE ARTICLE SHOULD BE ONE, WHICH IS PROVIDED IN FOU RTEENTH SCHEDULE AND AREA I.E. INDUSTRIAL PARK, INDUSTRIAL CENTRE NEED NOT BE NOTIFIED. THE ASSESSEE HAS NOT MANUFACTURED ANY ARTICLE OR THING, WHICH PROVID ED IN THIRTEENTH SCHEDULE. IT IS SITUATED IN INDUSTRIAL ESTATE, THUS IT FALLS IN SECTION 80IC(2)(II) OF THE ACT. AS FAR AS THE OTHER PROVISIONS ARE CONCERNED, THEY ARE MEANT FOR DIFFERENT GEOGRAPHICAL AREA I.E. STATE OF SIKKIM, N ORTHERN EASTERN STATES. THE ASSESSEE IS SITUATED IN UTTRAKHAND, THEREFORE, SUB- CLAUSE (II) OF SECTION 80- 11 IC(2)(A) IS APPLICABLE. THEREAFTER, SUB-SECTION (3) PROVIDES QUANTIFICATION OF DEDUCTION, SUB-SECTION(4) LAID DOWN THE CONDITIONS THAT UNDERTAKING OR ENTERPRISES SHOULD NOT BE FORMED BY SPLITTING UP OR THE RECONSTRUCTION, 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 ASSESSEE AS PROVIDED IN SECTION 33B OF THE ACT. SIMILARLY, IT I S NOT FORMED BY THE TRANSFER TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSES. SINCE THERE IS NO DISPUTE THAT THESE CONDITIONS AR E NOT ATTRACTED IN THE CASE OF THE ASSESSEE, THEREFORE, WE DO NOT DEEM IT NECESSAR Y TO MAKE ELABORATE DISCUSSION. AT THE TIME OF HEARING, IT HAS BEEN POI NTED OUT THAT THERE IS NO VIOLATION TO ANY OTHER CONDITIONS CONTAINED IN SUB- RULES 5 TO 12 OF SECTION 80IA OF THE ACT (EXTRACTED SUPRA). 10. THE PRIMARY ISSUE REQUIRED TO BE DETERMINED, IS WHEN ASSESSEE CAME INTO EXISTENCE AND WHETHER GEOGRAPHICALLY IT IS LOC ATED WITH THE NOTIFIED AREA CONTEMPLATED IN SUB-CLAUSE (II) OF SEC. 80IC(2)(A) OR (2) (B). IT EMERGES OUT FROM THE RECORD THAT ASSESSEE PARTNERSHIP 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 MANUF ACTURING OPERATION AT ITS 12 INDUSTRIAL UNDERTAKING ON 28.8.2006 THOUGH THIS DAT E HAS BEEN DISPUTED BY THE ASSESSING OFFICER AND WE WILL DISCUSS THIS ASPE CT IN THE LATER PART OF THE ORDER. FOR THE TIME BEING, IT IS CONCLUDED THAT AS FAR AS GEOGRAPHICAL LOCATION OF THE ASSESSEE IS CONCERNED, IT FALLS WITHIN THE I NDUSTRIAL 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-CLAUSE (2) OF SECT ION 80-IC(II)(A)(B) OF THE ACT. THEREFORE, TO THIS EXTENT, THERE CANNOT BE ANY DISPUTE BETWEEN THE PARTIES. 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. ACC ORDING 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 13 (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 MOS T ACTIVITY CARRIED OUT BY THE ASSESSEE IS OF BLENDING ONE. IT HAS JUST MIXED THE FLORAL DISTILLATE FROM KANNOUJ AND NO NEW OR DISTINCT PRODUCT HAS EMERGED OUT. ON THE OTHER HAND, LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED IN THE WRITTEN SUBMISSIONS A FLOW CHART EXHIBITING THE ACTIVITIES CARRIED OUT BY THE ASSESSEE BEFORE PRODUCING ALTOGETHER DISTINCT SALEABLE COMMODITY WHICH HAS IT S OWN IDENTIFICATION IN THE COMMERCIAL WORLD. THE LEARNED COUNSEL FOR THE A SSESSEE POINTED OUT THAT 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 HONBLE COURT HA S EXPLAINED BOTH THESE EXPRESSIONS IN DETAIL. HE MADE REFERENCE TO THE DEC ISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. M/S. ARIHANT TILES & M ARBLES PVT. LTD. REPORTED IN 320 ITR 79, INDIA CINE AGENCY VS. CIT REPORTED I N 308 ITR 98, CIT VS. SESA GOA LTD. REPORTED IN 271 ITR 331. IN HIS WRITT EN 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 14 ITR 879 (BOMBAY), CIT VS. ANGLO FRENCH DRUG CO. LTD . REPORTED IN 191 ITR 92 (BOM.), CIT VS. PRABHUDASS KISHORE DASS TOBA CCO PRODUCTS REPORTED IN 282 ITR 568 (GUJARAT). ON THE OTHER HAN D, LEARNED DR HAS POINTED OUT THAT IT IS JUST A BLENDING ACTIVITY AND HE REFERRED TO THE DECISION OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF BROKEBON D INDIA VS.CIT REPORTED IN 269 ITR 232 AND THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. TARA AGENCY REPORTED IN 292 ITR 444. IN THE SE CASES, IT HAS BEEN HELD THAT BLENDING OF VARIOUS CATEGORIES OF TEAS AN D SELLING THEM AFTER PACKAGING WITH NEW BRAND NAME DOES NOT AMOUNT TO MA NUFACTURING 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. FIRST, WE WOULD LIKE TO BRING AT HOME THE MEANING OF EXPRESSION MANUFACTURE AND PRO DUCTION AS PROPOUNDED IN THE VARIOUS AUTHORITATIVE PRONOUNCEME NTS OF THE HON'BLE SUPREME COURT AS WELL AS OF HON'BLE HIGH COURT. 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 15 MANUFACTURE AS WELL AS PRODUCTION. THE 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 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 16 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). X X X X X X X X X X X 17 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 W ELL AS INVESTMENT ALLOWANCE UNDER SEC. 32AB. THE CONTROVERSY AROSE WH ETHER CONVERSION OF JUMBO ROLLS INTO SMALL SIZES AMOUNTS TO MANUFACTURE OR PRODUCTION, ELIGIBLE FOR DEDUCTION UNDER SEC. 32AB OR DEDUCTION UNDER SE CTIONS 80-HH AND 80-I OF THE INCOME-TAX ACT, 1961/ HON'BLE SUPREME COURT HAS HELD THAT THIS ACTIVITY AMOUNTS TO MANUFACTURE OR PRODUCTION. THUS , WE THINK IT IS NOT NECESSARY TO RECAPITULATE AND RECITE ALL THE DECISI ON ON THE CONSTRUCTION EXPRESSION MANUFACTURE. BUT SUFFICE TO SAY THAT C ORE OF ALL THE DECISIONS OF THE HON'BLE SUPREME COURT OR HON'BLE HIGH COURT IS TO THE EFFECT THAT BROADLY MANUFACTURE IS A TRANSFORMATION OF AN ARTIC LE, WHICH IS COMMERCIALLY DIFFERENT FROM THE ONE WHICH IS CONVERTED. IT IS A CHANGE OF ONE OBJECT TO ANOTHER FOR THE PURPOSE OF MARKETABILITY. IT BRIN GS SOMETHING INTO EXISTENCE, WHICH IS DIFFERENT FROM THAT, WHICH ORIGINALLY EXIS TED. THE NEW PRODUCT IS A DIFFERENT COMMODITY PHYSICALLY AS WELL AS COMMERCIA LLY. THE HONBLE COURT ALSO EXPLAINED BROADER TEST TO DETERMINE WHETHER MA NUFACTURE IS THERE OR NOT, IT IS PROPOUNDED THAT WHEN A CHANGE OR SERIES OF CH ANGES ARE BROUGHT OUT BY 18 APPLICATION OF PROCESSES WHICH TAKE THE COMMODITY T O THE POINT WHERE, COMMERCIALLY, IT CANNOT BE REGARDED AS THE ORIGINAL COMMODITY BUT IS, INSTEAD RECOGNIZED AS A DISTINCT AND NEW ARTICLE TH AT 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 (NAINITAL). IT IS MA INTAINING COMPLETE BOOKS OF ACCOUNT WHICH ARE DULY AUDITED AND DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, ASSESSEE HAS PRODUCED ALL THESE DETAIL S BEFORE THE ASSESSING OFFICER INCLUDING THE PROFIT AND LOSS ACCOUNT, SALE S BILLS ALONG WITH FORM NO. C , PURCHASE BILLS WITH FORM NO.16 ETC. THE ASSESSE E CONTENDED THAT ITS UNDERTAKING IS REGISTERED WITH EXCISE DEPARTMENT, H OWEVER, 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 O N RECORD THE COPIES OF MONTHLY RETURN FILED BY THE ASSESSEE ON PAGE NOS. 2 7 TO 37 OF THE PAPER BOOK. THE ASSESSEE FURTHER CONTENDED THAT IT IS REG ISTERED WITH VAT AUTHORITIES AND ALSO WITH DISTRICT INDUSTRIES CENTR E. THE COPIES OF ALL THESE 19 DETAILS ARE PLACED ON THE PAPER BOOK FROM PAGE NOS. 38 TO 83. IT IS REGISTERED WITH POLLUTION CONTROL BOARD AND THE EVIDENCE HAS B EEN PLACED AT PAGE 84 OF THE PAPER BOOK. ON THE STRENGTH OF THESE DOCUMENTS, IT WAS CONTENDED BY THE ASSESSEE THAT IT IS A FIRM CAME INTO EXISTENCE ON I ST OF APRIL 2006 ENGAGED IN THE BUSINESS OF PRODUCTION FRAGRANCE, FRAGRANT COMP OUND, ATTAR AND FLORAL WATER. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE T AKING US THROUGH HIS WRITTEN SUBMISSIONS DREW OUR ATTENTION TOWARDS PARA GRAPH NO. 6.3 WHEREIN ASSESSEE HAS PLACED ON RECORD A FLOW CHART INDICATI NG THE VARIOUS STEPS TAKEN BY THE ASSESSEE FOR DEMONSTRATING 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; 20 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. 16. IT WAS POINTED OUT BY THE LEARNED COUNSEL FOR T HE ASSESSEE THAT ONE OF THE MAJOR RAW-MATERIAL REQUIRED FOR CARRYING OUT MA NUFACTURING ACTIVITIES AT BHIMTAL IS DISTILLED OIL OR FLORAL OIL, THIS OIL WA S PROCURED BY THE ASSESSEE FROM KANNOUJ. THE ASSESSEE USED TO PURCHASE THE FLO WERS IN THAT AREA AND GOT DISTILLED WORK ON JOB WORK BASIS, BUT THE DISTILLAT ED OIL IS ALTOGETHER A DIFFERENT PRODUCT THEN FRAGRANT COMPOUND, ATTAR AND FLORAL WATER. THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT ASSESSEE HAS PURCHASED 640601 KGS OF FLOWERS OF DIFFERENT KIND FOR A CONSIDERATION OF RS.185,85,604.90. THESE FLOWERS WERE PURCHASED AT KANNOUJ MANDI. IT HAS INC URRED AN EXPENSE OF RS.17,71,074 ON JOB WORK FOR CARRYING OUT DISTILLAT ION WORK AT KANNOUJ. THUS, THE TOTAL COST INCURRED BY THE ASSESSEE ON TH IS ACTIVITY IS RS.203,57,038. THE DISTILLED PRODUCT I.E. OIL RECOV ERED BY THE ASSESSEE IS OF 21 FOUR VARIETIES. THEIR QUANTITIES AND VALUES WORKED AT PAGE 471 AND 476 OF THE PAPER BOOK HAS BEEN SUMMARIZED BY THE LEARNED COUNS EL FOR THE ASSESSEE IN A NOTE WHICH READS 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 ASSESSEE NOT PROCU RED THESE OILS ON JOB WORK BASIS THEN IT HAS TO PURCHASE THESE OILS FROM THE OPEN MARKET AT THE ABOVE PRICE. SIMILARLY, HE POINTED OUT THAT ATTAR B ELA AND UTTAR MEHANDI ARE CONCERNED, THEY ARE NOT INDEPENDENTLY AVAILABLE NOR THEY ARE SALEABLE IN THE MARKET. THE COST INCURRED BY THE ASSESSEE ON RUH-ME HANDI AND RUH-BELLA IS MORE THAN THE RAW MATERIAL AVAILABLE IN THE OPEN MA RKET. HE FURTHER POINTED OUT THAT THE FLOWERS ARE AVAILABLE ONLY IN KANNOUJ MARKET, THEY ARE NOT AVAILABLE NEAR THE MARKET OF NAINITAL OR BHIMTAL. A FTER THEIR PROCUREMENT, THEY HAVE TO BE PROCESSED WITHIN TWO HOURS OTHERWIS E REQUIRED RESULT WOULD NOT COME AND IN THIS CONNECTION HE MADE REFERENCE T O THE CERTIFICATE OF A HORTICULTURE DEPARTMENT AVAILABLE ON PAGES 85 TO 87 WHEREIN IT HAS BEEN 22 OPINED THAT IN ORDER TO EXTRACT OIL FROM THE FLOWER S THEY HAVE TO BE PROCESSED WITHIN TWO HOURS. THEREFORE, THE ASSESSEE HAS TO DI STILLED THE OIL ON JOB WORK BASIS AT KANNOUJ. ON THE OTHER HAND, LEARNED DR POI NTED OUT THAT MAJOR ACTIVITIES HAS BEEN CARRIED OUT AT KANNOUJ. AT BHIM TAL, ASSESSEE HAS CARRIED OUT VERY NEGLIGIBLE ACTIVITIES. LEARNED FIRST APPEL LATE AUTHORITY WHILE AFFIRMING THE ORDER OF THE ASSESSING OFFICER MADE R EFERENCE TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. TARA AGENCY AS WELL AS THE DECISION OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF BROKE BOND INDIA LTD. VS. CIT REPORTED IN 292 ITR 444 AND 269 ITR 23 2. IN THE CASE OF TARA AGENCY, THE ASSESSEE CLAIMED WEIGHTED DEDUCTION UND ER SEC. 35D(1)(A) OF THE ACT. SUCH DEDUCTION WAS AVAILABLE TO THE ASSESS EE IF IT WAS MANUFACTURING ANYTHING AND ARTICLE. THE ASSESSEE WA S ENGAGED IN THE BUSINESS OF EXPORT OF TEA. IT PURCHASED TEA OF DIVE RSE GRADE AND BRAND AND BLEND THE SAME BY MAKING DIFFERENT KIND OF TEAS. TH E CONTROVERSY AROSE WHETHER THE BUSINESS ACTIVITY OF THE ASSESSEE FALLS WITHIN THE AMBIT OF EXPRESSION PRODUCTION OR MANUFACTURE OR IT IS J UST A PROCESSING. HONBLE COURT HAS OBSERVED THAT THERE ARE THREE STAGES INVO LVED. THE TEA IS PRODUCED IN THE TEA GARDEN. THIS IS THE FIRST STAGE WHICH IS CALLED PRODUCTION OF TEA. THE SECOND STAGE IS MANUFACTURE OF TEA. IN THIS STAGE, THE TEA LEAVES ARE PLUCKED FROM THE TEA BUSHES AND BY MECHANICAL PROCESS, TEA LEAVES ARE CONVERTED TO 23 TEA. THIS SECOND STAGE IS CONSIDERED MANUFACTURING OF TEA. THE THIRD STAGE IS BLEND OF DIFFERENT QUALITIES OF TEA IN ORDER TO SMO OTHEN ITS MARKETABILITY. THUS, THE 3 RD STAGE IS CONSIDERED PROCESSING OF TEA. IN THE PRES ENT CASE, ASSESSEE HAS PURCHASED FLOWERS, GOT THEIR OIL ON JO B WORK BASIS. THEREAFTER, IN A LONG CONTINUOUS PROCESS, IT PRODUCED FRAGRANT COMPOUND, ATTAR AND FRAGRANT WHICH ARE ALTOGETHER DIFFERENT ITEMS THAN THE RAW MATERIAL. WE HAVE DISCUSSED IN DETAIL THE MANUFACTURING PROCESS OF TH E ASSESSEE WHILE TAKING COGNIZANCE OF THE FLOW CHART SUBMITTED BY THE ASSES SEE. THESE TWO DECISIONS 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 MANUFACTURING ACTIVITIES IS CARRIED OUT AT KANNOUJ AND AT BHIMTAL, A VERY NEGLIGIBLE AC TIVITY HAS BEEN CARRIED OUT HAS FAILED TO APPRECIATE THE TRUE NATURE OF THE CON TROVERSY. IF DISTILLED OIL IS SIMILAR TO THAT OF FRAGRANCE, FRAGRANT COMPOUND, AT TAR AND FLORAL WATER THEN ASSESSING OFFICER MAY BE JUSTIFIED TO SAY THAT MAJO R ACTIVITIES HAVE BEEN CARRIED OUT AT KANNOUJ BUT THAT IS NOT THE CASE. TH E END PRODUCT MANUFACTURED BY THE ASSESSEE AND SOLD IS ALTOGETHER DIFFERENT FROM DISTILLED OIL. DISTILLED OIL IS ONE OF THE RAW MATERIAL FOR P RODUCING FRAGRANT, FRAGRANT COMPOUND OR ATTAR. THE CONTROVERSY CAN BE LOOKED IN TO WITH DIFFERENT ANGLES ALSO I.E. WHETHER ASSESSEE IS TRYING TO SHIFT ITS P ROFIT OF THE ACTIVITY CARRIED AT 24 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 OFFICER HA S DEPUTED AN INSPECTOR TO VERIFY THIS ASPECT AND THE LEARNED INSPECTOR HAS GI VEN 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 CONFIRMED THE JOB WORK CAR RIED OUT BY THEM FOR THE ASSESSEE AND THEIR ACCOUNTS HAVE DULY BEEN TALLIED. IT SUGGESTS THAT THE ASSESSEE HAS PURCHASED FLOWERS, GOT THEM PROCESSED AND OBTAINED DISTILLED OIL ON JOB WORK BASIS. THE REPORT OF THE INSPECTOR IS A VAILABLE 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 CARRYING OUT MANUFACTURING ACTIVITY BY THE ASSESSEE AT THE ALLEGED INDUSTRIAL ESTABLISHMEN T IS DOUBTFUL. SUCH ASPECTS HAVE BEEN BRIEFLY NOTED DOWN BY THE ASSESSING OFFIC ER ON PAGE 34 TO 37 OF THE IMPUGNED ORDER. THEREAFTER, HE DISCUSSED THE IS SUE ELABORATELY. THE ASSESSEE IN THE WRITTEN SUBMISSIONS REBUTTED ALL TH E ASPECTS HIGHLIGHTED BY 25 THE ASSESSING OFFICER IN A TABULAR FORM. WE HAVE GO NE THROUGH THE OBJECTION OF THE ASSESSING OFFICER AS WELL AS THE EXPLANATION GIVEN BY THE ASSESSEE WHICH HAS BEEN NOTICED BY THE LEARNED CIT(APPEALS) ALSO IN THE IMPUGNED ORDER AND ALSO EXPLAINED IN PARAGRAPH NO. 6.16 OF T HE WRITTEN SUBMISSIONS. TO OUR MIND, THESE ARE PERIPHERAL ASPECTS WHEREIN S TRESS OF THE ASSESSING OFFICER IS TO DOUBT THE VERY EXISTENCE OF THE ASSES SEE. HOWEVER, WE DO NOT FIND ANY SUBSTANTIAL MATERIAL WHICH CAN GOAD AN AUT HORITY TO SAY THAT ASSESSEE WAS NOT CARRYING OUT THE MANUFACTURING ACT IVITY. IN THE FIRST OBJECTION, ASSESSING OFFICER HAS ALLEGED THE POLLUT ION CONTROL CERTIFICATE IS DATED 28.12.2006 WHICH SUGGEST THAT ACTIVITY CANNOT BE STARTED PRIOR TO 22.12.2006. SIMILARLY, IN THE SECOND OBJECTION, HE ALLEGED THAT CHIMINI WAS INSTALLED ONLY AFTER 18.12.2006 WHICH SUGGESTS THAT ANY FURNANCE ACTIVITY COULD NOT BE TAKEN PRIOR TO THIS DATE. THE EXPLANAT ION 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 POINTED OUT THAT NO CHIMINI WAS REQUIRED. IT WAS ONLY INSTALLED AT THE INSISTENCE O F THE POLLUTION CONTROL BOARD. THE CHIMINIES ARE MADE BY USING MUD, SAND, BRICK AN D CLAY. THESE ASPECTS SUGGEST THAT THEY ARE NOT VERY SUBSTANTIAL CIRCUMST ANCE WHICH CAN TURN THE ISSUE THAT NO MANUFACTURING ACTIVITY WAS CARRIED OU T BY THE ASSESSEE. 26 SIMILARLY, LEARNED ASSESSING OFFICER HAS REFERRED A N INSTANCE THAT BORE WELL WAS INSTALLED ONLY ON 15.1.2007 WHICH SUGGESTS THAT THERE WAS NO SOURCE OF WATER AND ASSESSEE COULD NOT UNDERTAKE ANY ACTIVITY PRIOR TO THIS DATE. TO THIS OBJECTION, IT WAS EXPLAINED BEFORE THE LEARNED FIRS T APPELLATE AUTHORITY AS WELL AS BEFORE THE ASSESSING OFFICER THAT ASSESSEE HAS PURCHASED THE WATER AND IT HAS PRODUCED THE BILLS FOR WATER TANKER BEFO RE THE ASSESSING OFFICER. THE ASSESSEE DOES NOT REQUIRE MUCH WATER IN ITS ACT IVITY BECAUSE THE TOTAL QUANTITY PRODUCED BY THE ASSESSEE IS NOT VERY LARGE . 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 ACTIVITIES WERE CARRIED OUT IN UP. WE FIND THAT THIS REFERENCE IS ALTOGETHER IRRELEVANT. ASSES SING OFFICER WAS REQUIRED TO LOOK INTO WHETHER ASSESSEE HAS AN INDUSTRIAL UNDERT AKING. IT IS SITUATED WITHIN NOTIFIED AREA AS CONTEMPLATED IN SECTION 80IC(2)(A) (II) OF THE ACT. WHETHER IT IS MANUFACTURING ANY ARTICLE OR THING. THE ACT DOES NOT LAY A CONDITION THAT PURCHASES SHOULD BE MADE FROM THE LOCAL MARKET. THE RAW-MATERIAL CAN BE PROCURED FROM ANYWHERE. ACCORDING TO THE ASSESSEE, THE FLOWERS FROM WHERE OIL COULD BE DISTILLED WERE NOT AVAILABLE OR PRODUC ED IN THE LOCAL AREA. UNDER ANY CIRCUMSTANCE THAT HAS TO BE PURCHASED OUT OF UT TRAKHAND STATE. ASSESSING OFFICER THEREAFTER MADE A REFERENCE ABOUT THE NEGLIGIBLE EXPENSES 27 SHOWN BY THE ASSESSEE FOR MANUFACTURING ACTIVITIES. HE TOTALLY LOST SIGHT ABOUT COST OF THE RAW MATERIAL. ASSESSING OFFICER H AS OBSERVED THAT BY INCURRING A SUM OF RS.7013 ONLY, TURNOVER OF MORE T HAN RS. 3 CRORES CANNOT BE ACHIEVED. THE ASSESSEE HAS POINTED OUT THAT THIS REFERENCE IS FACTUALLY 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, ASSESSEE HAS SHOWN PURCHASE OF RAW MATERIAL AT RS.2.39 CRORES. THUS, WE ARE OF THE VIE W THAT ASSESSING OFFICER HAS MADE THIS COMPARISON IN ISOLATION. HE HAS ATTAC HED MUCH SIGNIFICANT TO EACH CIRCUMSTANCE IN ISOLATION. HE OUGHT TO HAVE AS SESSED THE CUMULATIVE EFFECT OF ALL THE CIRCUMSTANCES IN THEIR SETTING AS A WHOLE. THE ASSESSEE HAS INVITED THE ASSESSING OFFICER FOR PAYING A VISIT TO ITS FACTORY PREMISES SO THAT HE CAN HAVE A GLANCE OVER THE ACTIVITIES CARRIED OU T BY THE ASSESSEE. THIS REQUEST OF THE ASSESSEE HAS DULLY BEEN NOTED BY THE ASSESSING OFFICER ON PAGE 27 OF THE IMPUGNED ORDER WHILE TAKING COGNIZAN CE OF THE ASSESSEES SUBMISSION, HOWEVER, LEARNED ASSESSING OFFICER DID NOT VISIT THE FACTORY ON THE GROUND THAT NO FRUITFUL PURPOSES WOULD BE SERVE D. ACCORDING TO THE ASSESSEE, HAD THE ASSESSING OFFICER PAID A VISIT, H E COULD APPRECIATE THE ACTIVITIES CARRIED OUT BY THE ASSESSEE AND HE COULD ALSO ASSESS SINCE WHEN 28 SUCH ACTIVITY WAS UNDERTAKEN BY THE ASSESSEE. WE AL SO FIND THAT ASSESSEE HAS PLACED ON RECORD THE MATERIAL EXHIBITING TRANSPORTA TION OF THE RAW MATERIAL, PURCHASE BILLS AND VAT CERTIFICATE. IT IS REGISTERE D WITH THE CENTRAL EXCISE DEPARTMENT W.E.F. IST OF SEPTEMBER, 2006. ACCORDING TO THE ASSESSEE, FRAGRANCE, FRAGRANT COMPOUND, ATTAR AND FLORAL WATE R THOUGH EXEMPT FROM PAYMENT OF CENTRAL EXCISE IN UTTRAKHAND STATE. IT H AS POINTED OUT THAT TOTAL QUANTITY OF ESSENTIAL OIL AND CHEMICALS PURCHASED B Y THE ASSESSEE ARE OF 9214 KGS. OUT OF THAT DISTILLED PRODUCT OF 704 KGS. WAS PROCURED FROM KANNAUJ. THESE ITEMS WERE PROCURED AT MARKET PRICE AS DEMONS TRATED BY THE LEARNED COUNSEL FOR THE ASSESSEE IN A SEPARATE NOTE ANNEXED WITH THE 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 THAT THE A SSESSEE HAS DEMONSTRATED THAT IT IS ENGAGED IN THE MANUFACTURING OF ARTICLE AND THINGS. IT FULFILLS ALL THE ESSENTIAL CONDITIONS FOR AVAILING DEDUCTION UNDER S EC. 80IC OF THE ACT. WE DIRECT THE LEARNED ASSESSING OFFICER TO GRANT SUCH DEDUCTION TO THE ASSESSEE. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 16.03.201 2 SD/- SD/- ( K.G. BANSAL ) ( RAJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 16/03/2012 MOHAN LAL 29 COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR