Venkateshwara Foods&Feeds, Hyderabad V. ACIT, Hyderabad

ITA 493/HYD/2005

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61862 (ITAT-HYDERABAD)
• Duration Of Justice: 6 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 24-02-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 05-05-2005
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS
• Assessee Lawyers: U L N SUDHAKAR
• Keywords: Reopening of assessment; Business expenditure; Corroborative evidences; Onus to prove; Revised return
• Section: 143(3); 80IB; 37(1); 147; 148; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER. ITA NO.1013/HYD/2006 : ASSESSMENT YEAR 2002-03 ITA NO.1014/HYD/2006 : ASSESSMENT YEAR 2003-04 ITA NO.869/HYD/2008 : ASSESSMENT YEAR 2004-05 ITA.NO.870/HYD/2008 : ASSESSMENT YEAR 2005-06 ITA.NO.493/HYD/2005 : ASSESSMENT YEAR 2001-02 M/S. VENKATESWARA FEEDS & FEEDS, HYDERABAD (PAN - AACFV 4204 H ) V/S ASSTT. COMMISSIONER OF INCOME- TAX CIRCLE 4(1) HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI JITENDRA JAIN & SHRI U.L.N.SUDHAKAR RESPONDENT BY : SHRI V.SRINIVAS DATE OF HEARING 23.2.2012 DATE OF PRONOUNCEMENT 26/04/ 2012 O R D E R PER ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER THESE FIVE APPEALS ARE FILED BY THE ASSESSEE AND THEY ARE DIRECTED AGAINST FOUR ORDERS OF THE CIT(A)-V, H YDERABAD FOR THE ASSESSMENT YEARS 2001-02 TO 2005-06. WHILE APPE ALS FOR THE ASSESSMENT YEARS 2001-02 AND 2002-03 ARE DIRECTED A GAINST SIMILAR BUT SEPARATE ORDERS OF THE CIT(A)-V HYDERAB AD DATED 31.8.2006; THE SAME FOR THE ASSESSMENT YEARS 2004- 05 AND 2005-06 ARE DIRECTED AGAINST THE ORDER OF THE CIT(A ) DATED 7.3.2008; AND THE APPEAL FOR THE ASSESSMENT YEAR 20 01-02 IS DIRECTED AGAINST THE ORDER OF THE CIT(A) DATED 1.2. 2005. SINCE ITA NO.1013/HYD/2006 & 5 OTHERS M/S. VENKATESWARA FOODS & FEEDS, HYDERABAD 2 COMMON ISSUES ARE INVOLVED, THESE APPEALS ARE BEING DISPOSED OF WITH THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE MAIN GRIEVANCE OF THE ASSESSEE, COMMON IN A LL THESE APPEALS, RELATES TO DENIAL OF ITS CLAIM FOR R ELIEF UNDER S.80IB OF THE INCOME-TAX ACT, 1961. 3. FACTS OF THE CASE IN BRIEF, AS TAKEN FROM THE A PPEAL FOLDER FOR THE ASSESSMENT YEAR 2001-02, ARE THAT TH E ASSESSEE DERIVES INCOME FROM PRODUCTION AND SALE OF POULTRY FEED. FOR THE ASSESSMENT YEAR 2001-02, ASSESSEE FILED RETURN SHOWING GROSS TOTAL INCOME AT RS.2,87,89,710 FROM WHICH DED UCTION UNDER S.80IB WAS CLAIMED TO THE EXTENT OF RS.94,41, 829, COMPUTING THE TAXABLE INCOME AT RS.1,93,47,881. 4. AS AGAINST THIS, THE ASSESSMENT WAS COMPLETED DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. 2,94,80,875. DURING THE COURSE OF ASSESSMENT, ASSESSING OFFICER NOTED THAT THE ASSESSEE CLAIMED DEDUCTION UNDER S.80IB IN RESPECT OF PELLET FEED DIVISION, FOR WHICH SEPARATE COMPUTATION OF INCOME WAS FILED. AN AUDIT REPORT IN FORM NO.10CCD WAS FILED ALONG WITH THE RETURN OF INCOME IN SUPPORT OF THE CLAIM MADE UNDER S.80IB OF THE ACT. AS PER THE SAID AUDIT REPORT, THE ASSESSEE HAD TWO SEPARATE DIVISIONS. IN ONE DIVISION, MASH FEED WAS MANUFACT URED AND THE OTHER DIVISION WAS MEANT FOR PELLETISATION OF SUCH MASH FEED. THE ASSESSING OFFICER CARRIED OUT INSPECTION OF THE FACTORY PREMISES OF THE ASSESSEE TO ASCERTAIN THE MANUFACTU RING ACTIVITY, IF ANY, CONDUCED IN THE PELLETISATION UNIT ON WHICH THE ASSESSEE CLAIMED DEDUCTION U/S. 80IB OF THE ACT. A SWORN STA TEMENT WAS ALSO RECORDED FROM THE DY. MANAGER OF THE FACTORY A BOUT THE SCHEME OF MANUFACTURING, IF ANY, INVOLVED IN THE PE LLETISATION OF FEED. ACCORDING TO THE SAID STATEMENT, VARIOUS FEE D INGREDIENTS SUCH AS MAIZE, RICE BRAN, DE-OILED SOYA ETC., ALONG WITH CERTAIN ITA NO.1013/HYD/2006 & 5 OTHERS M/S. VENKATESWARA FOODS & FEEDS, HYDERABAD 3 FEED PREMIXES ARE MIXED IN DIFFERENT PROPORTIONS AN D THEN GROUND TO FORM A COURSE POWDERED MATERIAL WHICH IS CALLED MASH FEED. SUCH FEED UNDERGOES A CERTAIN KIND OF PHYSICAL CHAN GES BEFORE AGAIN CONVERTED INTO SMALL PELLETS. THE ACTUAL PROC ESS INVOLVED IS THAT THE MASH FEED IS CARRIED THROUGH AN ELEVATOR T O A PELLET MAKING MACHINE WHERE IT GETS MIXED WITH STEAM AND T HEN FORCED THROUGH A PRESS CONTAINING SMALL HOLES TO CONVERT T HE FEED INTO SMALL PELLETS. THERE IS NO CHANGE OF COMPOSITION I N THE MASH FEED AND THE PELLET FEED. HENCE ACCORDING TO THE A SSESSING OFFICER THE CONVERSION OF PHYSICAL SHAPE OF THE FEED INVOLV ES ONLY PROCESSING AND NO MANUFACTURE. ON THE BASIS OF THE SE FINDINGS, THE ASSESSEE WAS GIVEN AN OPPORTUNITY TO SHOW CAUSE AS TO WHY THE CLAIM OF DEDUCTION U/S. 80IB SHOULD NOT BE DISA LLOWED. THE ASSESSEE, RELYING ON VARIOUS JUDICIAL PRONOUNCEMENT S ON THE ISSUE, OBJECTED TO THE ACTION PROPOSED BY THE ASSES SING OFFICER. HOWEVER, THE ASSESSING OFFICER AFTER CONSIDERING TH E SUBMISSIONS OF THE ASSESSEE HELD THAT THOUGH THE ASSESSEES CLA IM IS IN ORDER IN RESPECT OF CONVERSION OF INDIVIDUAL RAW MATERIAL S TO MASH FEED, AS FAR AS PELLETISATION IS CONCERNED, THOUGH THE PR ODUCT IS COMMERCIALLY DIFFERENT COMMODITY, YET THE COMPOSITI ON REMAINS THE SAME. THE DIFFERENCE LIED IN TEXTURE AND SHAPE AND THERE IS ONLY A PHYSICAL CHANGE. THE ASSESSING OFFICER REFER RED TO THE DECISION OF THE APEX COURT IN THE CASE OF VENKATESW ARA HATCHERIES WHICH IS A SISTER CONCERN OF THE ASSESSE E, WHEREIN IT WAS HELD THAT USE OF MECHANICAL METHODS ALONE DOES NOT ALWAYS RESULT IN MANUFACTURE. HE FURTHER HELD THAT EVEN T HOUGH THE WORD MANUFACTURE HAS NOT BEEN DEFINED IN THE ACT, IN A LITERAL SENSE, A MANUFACTURE INVOLVES SOME TRANSFORMATION O R CHANGE AS A RESULT OF APPLICATION OF ART OR MECHANICAL MANIPU LATION. THE WORD MANUFACTURE USED AS A VERB IS GENERALLY UNDE RSTOOD TO BRING INTO EXISTENCE A NEW SUBSTANCE AND NOT MERELY TO PRODUCE SOME CHANGE IN THE SUBSTANCE. THEREFORE, IN A MANUF ACTURING ITA NO.1013/HYD/2006 & 5 OTHERS M/S. VENKATESWARA FOODS & FEEDS, HYDERABAD 4 PROCESS, A NEW AND DIFFERENT ARTICLES MUST EMERGE W HICH IS DISTINCT FROM THE ORIGINAL SUBSTANCE. THE ASSESSIN G OFFICER ALSO RELIED ON SEVERAL OTHER JUDICIAL DECISIONS TO HOLD THAT WHEN THE ORIGINAL COMMODITY HAS UNDERGONE DEGREES OF CHANGE, BUT YET HAS NOT LOST ITS ORIGINAL IDENTITY, IT CANNOT BE SAID T O HAVE UNDERGONE MANUFACTURING PROCESS. 5. THE ASSESSING OFFICER FURTHER NOTED THAT THE PLANT AND MACHINERY WHICH WERE USED FOR PRODUCTION OF MASH FE ED WERE ALSO PUT INTO USE FOR PRODUCTION OF PELLET FEED. T HE RAW MATERIAL, IN THE CASE OF THE ASSESSEE, SUCH AS MAIZE, RICE BR AN ETC. COULD NOT HAVE BEEN FED DIRECTLY INTO THE PELLET UNIT AND THE MASH FEED UNIT REMAINED AN ESSENTIAL PART OR HEART OF THE PRO DUCTION PROCESS OF THE PELLET FEED WITHOUT WHICH THE PELLET S COULD NOT HAVE BEEN MADE. MOREOVER, THE ASSESSEE DID NOT PUR CHASE MASH FEED FROM OUTSIDE MARKET AND THE ENTIRE PELLETISATI ON WAS FROM OUT OF THE MASH FEED PRODUCED BY IT. THEREFORE, THE PELLETISATON UNIT IS NOTHING BUT A SIMPLE EXTENSION OF THE BASIC UNIT I.E. MASH FEED UNIT. THE ASSESSING OFFICER ALSO HELD THAT TH E PELLETISATION UNIT IS INCAPABLE OF CONVERTING RAW MATERIALS INTO PELLETS. IT NEEDS GROUND RAW MATERIAL WHICH IS THE MASH. THEREF ORE, HE CONCLUDED THAT THE ASSESSEES ARGUMENT THAT THE PEL LET UNIT HAD INDEPENDENT EXISTENCE WAS NOT SUBSTANTIATED. 6. THE ASSESSING OFFICER FURTHER NOTED THAT THE A SSESSEE BY USING EXITING OLD PLANTS AND MACHINERIES ON WHIC H THE CLAIM UNDER S.80IA WAS FULLY AVAILED, SOUGHT TO CLAIM DED UCTION TWICE. THE PROFIT EARNED BY THE ASSESSEE WAS NOT SOLELY AT TRIBUTABLE TO THE PELLET UNIT ALONE. WITH THE CONTRIBUTION OF BOT H THE UNITS, THE PROFIT WAS EARNED. BOTH THE UNITS WERE INTEGRATED AS ONE UNIT. THIS IS ALSO EVIDENT, ACCORDING TO THE ASSESSING OF FICER, FROM THE FACT THAT THE MASH FEED WAS NOT PURCHASED FROM OUTS IDE BUT WAS ITA NO.1013/HYD/2006 & 5 OTHERS M/S. VENKATESWARA FOODS & FEEDS, HYDERABAD 5 MADE AVAILABLE FROM A PART OF THE ASSESSEES OWN UN IT. IN TERMS OF THE PROVISIONS OF SUB-SECTION (2) OF S.80IB, ASS ESSEE IS NOT ENTITLED TO AIL THE DEDUCTION ON THE SAME ITEM TWIC E. 7. BASED ON THESE FINDINGS, THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE MADE UNDER S.80IB AMOUNTI NG TO RS.94,41,829. 8. ON APPEAL, THE CIT(A) AFTER DETAILED CONSIDERAT ION OF THE SUBMISSIONS OF THE ASSESSEE IN THE LIGHT OF THE RATIO LAID DOWN IN VARIOUS DECISIONS ON THE ISSUE, CONCLUDED T HAT THERE CANNOT BE ANY DISPUTE THAT THE POULTRY FEED WHETHER IN THE FORM OF A POWDER (MASH FEED) OR IN THE FORM OF A PARTICU LAR SOLD SHAPE (PELLET) REMAINS NOTHING BUT POULTRY FEED AND NO NE W AND DIFFERENT COMMODITY, IN A COMMERCIAL SENSES, IS BOR N FROM OUT OF SUCH PELLETSIATION. THE INGREDIENTS REMAIN THE SAM E. THE UTILITY REMAINS THE SAME, SO ALSO THE INTENDED CONSUMERS AN D CUSTOMERS. THE ONLY CHANGE THAT SUCH FEED UNDERGOES IS OF SHAPE, I.E. FROM POWDER FORM TO SOLIDS OF FIXED SHA PE. THE PROCESS IS THAT OF SIMPLE SOLIDIFICATION AND NOTHING ELSE . HE ACCORDINGLY, UPHELD THE DISALLOWANCE MADE BY THE AS SESSING OFFICER. . 9. WITH RESPECT TO THE OTHER ISSUE AS TO WHETHER THE ASSESSEE CAN CLAIM DEDUCTION U/S 80IB WHEN IT USES A PLANT AND M ACHINERY, WHICH HAD ALREADY EXHAUSTED THE CLAIM U/S 80IA, THE LEARN ED AR OF THE ASSESSEE BEFORE THE CIT(A) SUBMITTED THAT THE OLD M ACHINERY WERE USED IN THE MASH FEED PLANT AND NOT IN THE PELLET FEED PLAN T. THE DEDUCTION U/S 80IB HAS BEEN CLAIMED ONLY IN RESPECT OF THE PELLET FEED PLANT. HENCE, THE ASSESSEE DID NOT CLAIM THE DEDUCTION TWICE ON THE S AME MACHINERY. IT WAS SUBMITTED THAT THE ASSESSING OFFICER WRONGLY CO NCLUDED THAT THE ITA NO.1013/HYD/2006 & 5 OTHERS M/S. VENKATESWARA FOODS & FEEDS, HYDERABAD 6 PELLET UNIT IS NOT A NEW UNIT HAVING ITS OWN BUILDI NG AND PLANT & MACHINERY ELIGIBLE FOR DEDUCTION U/S 80IB. 10. WITHOUT PREJUDICE TO THE ABOVE, IT WAS SUBMITTE D THAT EVEN IF OLD MACHINERY IS CONSTRUED AS A PART OF THE NEW PLANT, THE VALUE OF OLD PLANT & MACHINERY WAS MUCH LESS THAN 20% OF THE TOTAL VAL UE OF PLANT & MACHINERY AND HENCE, AS PER EXPLANATION-2 TO SECTIO N 80IB(2), THE CONDITIONS SPECIFIED U/S 80IB(2)(II) ARE NOT VIOLAT ED AND THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 80IB. THE AR OF THE FURTH ER SUBMITTED AS UNDER:- 2.10 ..THE CONTENTION OF THE ASSESSING OFFICER THAT TWO SEPARATE UNITS DOES NOT EXIST IS INCORRECT . IT IS NOT NECESSARY THAT ALL THE UNITS SHOULD HAVE BOTH MASH AND PELLET PLANTS. THE PELLET PLANT CAN FUNCTION INDEPENDENTLY. IT CAN USE MASH F EED BOUGHT OUT AND CONVERT THE SAME TO PELLETS. MASH FEED IS EASIL Y AVAILABLE IN THE MARKET. JUST BECAUSE BOTH THE UNITS ARE IN ADJACENT BUILDINGS, IT CANNOT BE SAID THAT THEY ARE ONE UNIT FOR THE PURPO SE OF DENYING DEDUCTION U/S 80IB. THE PELLET UNIT IS A NEW AND SE PARATE UNIT HAVING ITS OWN BUILDING AND PLANT AND MACHINERY. TH E PROFIT ATTRIBUTABLE TO IT ARE ELIGIBLE FOR DEDUCTION U/S 8 0IB. EVEN THOUGH THE OLD MACHINERY IS USED FOR MANUFACTURING MASH FEED, THE DEDUCTION CLAIMED IN RESPECT OF PELLET UNIT CANNOT BE DENIED. ONLY WHEN IN A NEW PLANT, SOME OLD MACHINERY IS TRANSFERRED, IT CA N BE SAID THAT OLD MACHINERIES ARE USED IN THE NEW UNIT. BUT WHEN THE PROFIT IS SEPARATELY COMPUTED FOR PELLET UNIT AND DEDUCTION U /S 80IB IS CLAIMED IS ONLY FOR THAT UNIT, IT CANNOT BE SAID TH AT THE APPELLANT HAS USED OLD MACHINERY OF THE MASH FEED UNIT. 11. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE CIT(A) HELD AS UNDER:- 2.20 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE APPELLANT. SEC. 80IB PRO VIDES FOR A DEDUCTION FROM THE PROFITS AND GAINS OF AN AMOUNT EQUAL TO A CERTAIN PERCENTAGE AND FOR A CERTAIN NUMBER OF AS SESSMENT YEARS AS SPECIFIED IN SUB-SECTION (3) AND SUB-SECTI ON (4) OF THAT SECTION. ONE OF THE CONDITIONS OF ELIGIBILITY IS THAT THE ASSESSEE MUST BE AN INDUSTRIAL UNDERTAKING WHICH MANUFACTURES OF PRODUCES AN ARTICLE OR THING NOT BE ING AN ARTICLE OR THING SPECIFIED IN THE LIST IN THE ELEVE NTH SCHEDULE OR OPERATES ONE OR MORE COLD STORAGE PLANT OR PLANT S IN ANY PART OF INDIA. ITA NO.1013/HYD/2006 & 5 OTHERS M/S. VENKATESWARA FOODS & FEEDS, HYDERABAD 7 AGGRIEVED BY THE ORDER OF THE CIT(A) DATED 1.2.2005 , CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING O FFICER, ASSESSEE PREFERRED THE SECOND APPEAL, ITA NO.493/HY D/2005 BEFORE US AND RAISED THE FOLLOWING GROUNDS OF APPEA L:- 1. DISALLOWANCE OF CLAIM OF DEDUCTION U/S 80IB 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN UPHOLDING T HE ORDER OF THE ASSESSING OFFICER HOLDING THAT THE APPELLANT FI RM IS NOT ELIGIBLE FOR DEDUCTION U/S 80IB ON THE GROUNDS THAT PRODUCTION OF PELLET FEED FROM MASH FEED IS ONLY PR OCESSING AND NOT MANUFACTURING. 1.2 THE APPELLANT SUBMITS THAT CONVERSION OF MASH FEED INTO PELLET FEED AMOUNTS TO MANUFACTURING AND NOT PROCESSING. MASH FEED AND PELLET FEED ARE COMMERCIA LLY TWO DISTINCT PRODUCTS HAVING THEIR OWN PECULIAR FEATURE S AND ADVANTAGES AND DISADVANTAGES. AS PER THE SETTLED LE GAL POSITION, IF COMMERCIALLY TWO PRODUCTS ARE REGARDED SEPARATE, THEN IT AMOUNTS TO MANUFACTURING. HENCE PRODUCTION OF PELLET FEED AMOUNTS TO MANUFACTURING AND APPELLANT IS ELIGIBLE FOR DEDUCTION U/S 80IB. 1.3 THE APPELLANT, THEREFORE, PRAYS YOUR HONOUR T O ALLOW THE DEDUCTION U/S 80IB. II. CALCULATION OF DEDUCTION U/S 80IB. 2.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN UPHOLDING T HE ACTION OF THE ASSESSING OFFICER OF REDUCING AN AMOUNT OF R S. 15,47,946/- FROM THE AMOUNT OF DEDUCTION CLAIMED BY THE APPELLANT U/S 80IB, ON THE GROUND THAT THEY WERE NO T DERIVED FROM THE INDUSTRIAL UNDERTAKING. 2.2 THE APPELLANT SUBMITS THAT ALL THE ITEMS REFER RED TO IN THE ASSESSMENT ORDER WERE DERIVED FROM THE INDUSTRI AL UNDERTAKING OF PELLET FEED UNIT AND HENCE ELIGIBLE FOR DEDUCTION U/S 80IB. 2.3 WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT SUBMITS THAT IF AT ALL ANY AMOUNT IS TO BE REDUCED FROM THE CLAIM, IT SHOULD BE THE PROFIT ATTRIBUTABLE TO THE SALE OF MI SCELLANEOUS ITEMS AND NOT THE SALES PROCEEDS ITSELF. THE COSTS ITA NO.1013/HYD/2006 & 5 OTHERS M/S. VENKATESWARA FOODS & FEEDS, HYDERABAD 8 ATTRIBUTABLE TO THESE ITEMS HAVE TO BE REDUCED TO A RRIVE AT THE PROFIT. 2.4 THE APPELLANT THEREFORE, PRAYS YOUR HONOUR TO DIRECT THE LEARNED ACIT TO CALCULATE AND ALLOW THE DUE DED UCTION U/S 80IB. III. DISALLOWANCE OF FOREIGN TRAVEL EXPENSE RS. 6, 65,977/-. 3.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN UPHOLDING T HE DISALLOWANCE BY FOREIGN TRAVEL EXPENSES TO THE TUNE OF RS. 6,65,971/- ON THE GROUND THAT THE EXPENDITURE WAS N OT INCURRED BY THE PARTNERS OR EMPLOYEES OF THE APPELL ANT FIRM. 3.2 THE APPELLANT SUBMITS THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AND HENCE IS AN ALLOWABLE DEDUCTION U/S 37 (1). THE APPELLANT SUBMITS THAT IT IS NOT ALWAYS NECESSARY T HAT THE EXPENSES HAVE TO BE INCURRED ON EMPLOYEES OR PARTNE RS. THE EXPENDITURE INCURRED ON BUSINESS ASSOCIATES IS ALSO BUSINESS EXPENDITURE ALLOWABLE U/S 37(1) OF THE ACT. 3.3 THE APPELLANT FURTHER SUBMITS THAT IT IS NOT A LWAYS NECESSARY THAT FOREIGN TRAVEL SHOULD RESULT IN HAPP ENING OF TRANSACTION AND MERELY THE ABSENCE OF THE SAME DOES NOT NECESSITATE THE DISALLOWANCE. 3.4 THE APPELLANT THEREFORE PRAYS YOUR HONOUR TO D IRECT THE ACIT TO ALLOW THE FOREIGN TRAVEL EXPENSE AS A DEDUC TION. 12. FOR THE OTHER THREE YEARS ALSO, VIZ. ASSESSMEN T YEAR 2003-04 TO 2005-06, THE ASSESSING OFFICER WHILE COM PLETING THE ASSESSMENT UNDER S.143 OF THE ACT, FOLLOWING THE ST AND TAKEN FOR THE ASSESSMENT YEAR 2001-02 WHICH HAS BEEN UPHELD B Y THE CIT(A) AS WELL, COMPLETED THE ASSESSMENTS REJECTING THE CLAIMS OF THE ASSESSEE INTER-ALIA UNDER S.80-B OF THE ACT OF RS.2,04,68,538 FOR ASSESSMENT YEAR 2003-04; OF RS.15,14,971 FOR AS SESSMENT YEAR 2004-05; AND OF RS.15,73,700 FOR ASSESSMENT YE AR 2005-06. ITA NO.1013/HYD/2006 & 5 OTHERS M/S. VENKATESWARA FOODS & FEEDS, HYDERABAD 9 13. ON APPEAL, THE CIT(A), BY THE ORDERS IMPUGNED IN THE APPEALS FOR ASSESSMENT YEAR 2002-03 TO 2005-06, MAI NLY FOLLOWING THE APPELLATE ORDER DATED 1.2.2005 FOR TH E ASSESSMENT YEAR 2001-02, UPHELD THE DISALLOWANCE OF THE ASSESS EES CLAIMS FOR RELIEF UNDER S.80IB OF THE ACT IN RESPECT OF PE LLETISATION UNIT FOR THESE YEARS AS WELL. 14. THE LEARNED COUNSEL FOR THE ASSESSEE BESIDES REITERATING THE CONTENTIONS URGED BEFORE THE LOWER AUTHORITIES, SUBMITTED THAT CONVERSION OF MASH FEED INTO PELLET FEED IS A MANUFACTURING ACTIVITY AND NOT A PROCESSING ACTIVIT Y. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CONTENT ION OF THE AO THAT TWO SEPARATE UNITS DOES NOT EXIST IS INCORRECT , AS IT IS NOT NECESSARY THAT ALL THE UNITS SHOULD HAVE BOTH MASH AND PELLET PLANTS AND THE PELLET PLANT CAN FUNCTION INDEPENDEN TLY & CAN USE MASH FEED BOUGHT OUT AND CONVERT THE SAME TO PELLET S AS MASH FEED IS VERY WELL AVAILABLE IN THE MARKET. IT IS CO NTENDED THAT THE AO DENIED THE ASSESSEES CLAIM OF DEDUCTION U/S 80I B ON THE GROUND THAT BOTH THE UNITS ARE IN ADJACENT BUILDING S AS THE SAME IS NOT PROPER TO DENY THE CLAIM OF THE ASSESSEE ON THE SAID GROUND THAT JUT BECAUSE BOTH THE UNITS ARE IN ADJAC ENT BUILDINGS IT CANNOT BE SAID THAT THEY ARE ONE UNIT FOR THE PU RPOSE OF DENYING DEDUCTION U/S 80IB. IT IS POINTED OUT THAT THE PELLET UNIT IS A NEW AND SEPARATE UNIT HAVING ITS OWN BUIL DING AND PLANT & MACHINERY, THEREFORE, THE PROFIT ATTRIBUTAB LE TO IT ARE ELIGIBLE FOR DEDUCTION U/S 80IB. IT IS SUBMITTED T HAT EVEN THOUGH THE OLD MACHINERY IS USED FOR MANUFACTURING MASH FE ED, THE PROFIT IS SEPARATELY COMPUTED FOR PELLET UNIT AND D EDUCTION U/S 80IB IS CLAIMED AND, THEREFORE, IT CANNOT BE SAID T HAT THE ASSESSEE HAS USED OLD MACHINERY O THE MASH FEED UNI T. ITA NO.1013/HYD/2006 & 5 OTHERS M/S. VENKATESWARA FOODS & FEEDS, HYDERABAD 10 15. THE LEARNED COUNSEL REFERRING TO THE DEFINITION OF THE TERM MANUFACTURE UNDER DIFFERENT ENACTMENTS, SUBMITTE D THAT IN THE ABSENCE OF DEFINITION UNDER THE IT ACT, THE DEFINIT ION GIVEN IN OTHER ENACTMENTS SHOULD BE TAKEN INTO CONSIDERATION AND SECTION 80IA BEING A BENEFICIAL LEGISLATION REQUIRES LIBERA L INTERPRETATION IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BAJAJ TEMPO LTD., 196 ITR 188. HE FURTHER SUBMITTED THAT SINCE THE WORDS MANUFACTURE AND PRODUCTION HAVE NOT BEEN DEFINED IN THE ACT, ONE WOULD HAVE TO GO BY TH E ORDINARY MEANINGS OF THE WORDS FOR DECIDING WHETHER AN ACTIV ITY CONSTITUTES MANUFACTURING, ONE HAS TO SEE WHETHER T HE ORIGINAL PRODUCT IS CONSUMED IN THE MANUFACTURE OF NEW PRODU CT AND A COMMERCIALLY NEW PRODUCT EMERGES OUT OF THE SAME. F OR THE SAID PROPOSITIONS, HE RELIED UPON THE FOLLOWING CASE LAW S:- I) IN THE CASE OF PIO FOOD PACKERS CASE, 46 STC 63 , THE HONBLE SUPREME COURT DEFINED THE TERM MANUFACTURE IN THE FOLLOWING WORDS: COMMONLY, MANUFACTURE IS THE END RESULT OF ONE OR M ORE PROCESSES THROUGH WHICH THE ORIGINAL COMMODITY IS M ADE TO PASS. THE NATURE AND EXTENT OF PROCESSING MAY VARY FROM ONE CASE TO ANOTHER, AND INDEED THERE MAY BE SEVERAL STAGES OF PROCESSING AND PERHAPS A DIFFERE NT KIND OF PROCESSING AT EACH STAGE. WITH EACH PROCES S SUFFERED, THE ORIGINAL COMMODITY EXPERIENCES A CHA NGE. BUT IT IS ONLY WHEN THE CHANGE, OR A SERIES OF CHAN GES, TAKE THE COMMODITY TO THE POINT WHERE COMMERCIALLY IT CA N NO LONGER BE REGARDED AS THE ORIGINAL COMMODITY BUT IN STEAD IS RECOGNIZED AS A NEW AND DISTINCT ARTICLE THAT A MAN UFACTURE CAN BE SAID TO TAKE PLACE II)) IN THE CASE OF STATE OF RAJASTHAN VS. RAJASTHA AGRICULTURAL INPUT DEALERS ASSOCIATION, AIR 1996 21 79, THE HONBLE SUPREME COURT HELD THAT WHEN FOOD GRAIN BECOMES SEEDS IT LOSES ITS CHARACTER OF BEING CONSU MED AS FOOD BY HUMAN BEING OR ANIMALS. THEREFORE, THE APEX COURT HELD THAT THE PROCESS INVOLVED IN BRINGING IN A DIS TINCT ITA NO.1013/HYD/2006 & 5 OTHERS M/S. VENKATESWARA FOODS & FEEDS, HYDERABAD 11 PRODUCT AND HENCE THE AO IS NOT CORRECT IN MENTIONI NG THAT THE SAME PRODUCT HAS BEEN PRODUCED. III) IN THE CASE OF EID PARRY, 218 ITR 713 MAD, IT HAS BEEN HELD THAT PROCESSING OF SEEDS WOULD AMOUNT TO MANUF ACTURE AS RAW SEEDS AFTER PROCESSING ARE CONVERTED INTO SE ED FOR CULTIVATION AND NO LONGER FIT FOR HUMAN CONSUMPTION . IV) IN THE CASE OF M/S OK PLAY (INDIA) LTD. VS. CIT , 180 ELT 291, THE HONBE APEX COURT OBSERVED THAT CONVERSION FROM GRANULES INTO MOULDING POWDER AMOUNTS TO MANUFACTU RE. IN THE CASE OF M/S KORES INDIA LTD., 174 ELT 7, THE COURT HELD THAT CUTTING OF RIBBONS INTO SMALLER SIZE AND SPOOLING THEM AMOUNTS TO MANUFACTURE. IN THE CASE REPORTED I N 80 STC 249, THE APEX COURT HELD THAT FIBRE IS DIFFEREN T FROM COCONUT HUSK AND BY APPLYING COMMERCIAL PARLANCE PRINCIPLE, THE SAID PROCESS WAS HELD TO BE A MANUFA CTURING ACTIVITY. SIMILARLY IN THE CASE OF PIO PACKER, 46 STC 63, THE APEX COURT APPLIED COMMERCIAL PARLANCE TEST. V) THE APEX COURT IN THE CASE OF INDIA CINE AGENCI ES V CIT (308 ITR 98) HAS HELD THAT CUTTING JUMBO ROLLS OF PHOTOGRAPHIC FILMS INTO SMALL FLATS AND ROLLS IN DE SIRED SIZES AMOUNTS TO MANUFACTURE OR PRODUCTION ELIGIBLE FOR DEDUCTION U/S 80HH AND 80I. VI) THE APEX COURT IN THE CASE OF ASPINWALL & CO LT D V CIT (251 ITR 323) HAS HELD THAT PROCESSING RAW COFFEE BERRIES AND CONVERTING INTO COFFEE BEANS WOULD AMOUNT TO MANUFACTURE OR PRODUCTION ENTITLED TO INVESTMENT ALLOWANCE. VII) IN THE CASE OF BAJAJ TEMP LTD. (SUPRA), THE CO URT HELD THAT IN THE ABSENCE OF DEFINITION UNDER THE IT ACT THE ITA NO.1013/HYD/2006 & 5 OTHERS M/S. VENKATESWARA FOODS & FEEDS, HYDERABAD 12 DEFINITION GIVEN IN OTHER ENACTMENTS SHOULD BE TAKE N INTO CONSIDERATION AND SECTION 80IA BEING A BENEFICIAL LEGISLATION IT REQUIRES LIBERAL INTERPRETATION. VIII) IN THE CASE OF SESA GOA LTD., 271 ITR 331, TH E COURT OBSERVED THAT EXTRACTION AND PROCESSING OF IRON ORE AMOUNTS TO PRODUCTION WITHIN THE MEANING OF SECTION 32A(2)(B)(III) OF THE ACT. 16. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND, STRONGLY SUPPORTED THE ORDERS OF THE LO WER AUTHORITIES. THE LEARNED DR SUBMITTED THAT THERE IS NO CHANGE OF COMPOSITION IN THE MASH FEED AND THE PELLET FEED AN D, THEREFORE, THE CONVERSION OF PHYSICAL SHAPE OF THE FEED INVOLV ES ONLY PROCESSING AND NO MANUFACTURE. HE FURTHER SUBMITTE D THAT MASH FEED WHICH SIMPLY CHANGES SHAPE ON PELLITISATI ON AND REMAINS THE SAME COMMODITY EVEN AFTER THE AFORESAID PROCESSING MEANT FOR THE SAME USE CANNOT BE SAID TO HAVE UNDER GONE THE PROCESS OF MANUFACTURE. IT IS SUBMITTED THAT THERE CANNOT BE ANY DISPUTE THAT THE POULTRY FEED, WHETHER IN THE FORM OF A POWDER (MASH FEED) OR IN THE FORM OF A PARTICULAR SOLID SH APE (PELLET) REMAINS NOTHING BUT POULTRY FEED AND NO NEW AND DIF FERENT COMMODITY, IN A COMMERCIAL SENSE, IS BORN FROM OUT OF SUCH PELLITISATION THE INGREDIENTS REMAIN THE SAME. THE UTILITY REMAINS THE SAME, SO ALSO THE INTENDED CONSUMERS AN D CUSTOMERS. THE ONLY THAT SUCH FEED UNDERGOES IS A C HANGE OF SHAPE, I.E. FROM POWER FORM TO SOLIDS OF FIXED SHAP E. HE, THEREFORE, SUBMITTED THAT THE PROCESS IS THAT OF SI MPLE, SOLIDIFICATION AND NOTHING ELSE. IN THE SUPPORT O F HIS SUBMISSIONS, THE LEARNED DR HAS RELIED UPON THE FOL LOWING CASE LAWS: 1) VENKATESWARA HATHCERY PVT. LTD., 237 ITR 174 2) CIT VS. RELISH FOODS, 237 ITR 59 (SC) ITA NO.1013/HYD/2006 & 5 OTHERS M/S. VENKATESWARA FOODS & FEEDS, HYDERABAD 13 3) CIT VS. T.S. SUNDARAM, 237 ITR 61 (SC) 4) DXN HERBAL MFG. (INDIA) P. LTD. VS. ITO, 110 ITD 99 (CHENNAI) 5) CIT VS. SRINIVASA SEA FOODS LTD., 284 ITR 348 (AP) 6) CIT VS. PARRY AGRO INDUSTRIES LTD., 284 ITR 353 (KE L.) 7) KWAL PRO EXPORTS VS. ACIT, 297 ITR (AT) 49 (JODHPUR ) 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. WE HA VE ALSO CAREFULLY EXAMINED THE CASE-LAW RELIED UPON BY THE PARTIES BEFORE US. 17.1 WE HAVE PERUSED THE ENTIRE PROCESS BY WHICH P ELLET FEED IS OBTAINED AND SHALL ENUMERATE THE SAME SERIA TUM: 1) VARIOUS FEED INGREDIENTS SUCH AS MAIZE, RICE BRA N, DE- OILED SOYA ETC., ALONG WITH CERTAIN FEED PREMIXES A RE MIXED IN DIFFERENT PROPORTIONS AND THEN GROUND TO FORM A COURSE POWDERED MATERIAL WHICH IS CALLED MASH FEED. 2) SUCH FEED UNDERGOES A CERTAIN KIND OF PHYSICAL C HANGES BEFORE AGAIN CONVERTED INTO SMALL PELLETS. THE MASH FEED IS CARRIED THROUGH AN ELEVATOR TO A PELLET MAKING MACH INE WHERE IT GETS MIXED WITH STEAM AND THEN FORCED THROUGH A PRESS CONTAINING SMALL HOLES TO CONVERT THE FEED IN TO SMALL PELLETS. 3) AT THE STAGE OF GRINDING, GRINDING IS DONE TO RE DUCE PARTICLE SIZE OF INGREDIENTS. 4) AFTER GRINDING THE INGREDIENTS WILL BE SENT TO MIXTURE BY ELEVATORS IN THE PROCESS OF PRE-MIXING. 5) IN THE LAST PROCESS OF MIXING, ALL INGREDIENTS LIKE VITAMINS, MINERAL AND MEDICINES ARE PROPERLY MIXED TO PROVIDE A BALANCE DIET AS PRESCRIBED BY THE NUTRITI ONAL DOCTOR WHO IS STATIONED AT THE PLANT 24 HOURS. ITA NO.1013/HYD/2006 & 5 OTHERS M/S. VENKATESWARA FOODS & FEEDS, HYDERABAD 14 8) AFTER MIXING, CONDITIONING IS DONE WHERE AFTER COLLECTING MIXED FEED FROM THE FEEDER, THE FEED IS CONDITIONED WITH DRY STEAM IN THE CONDITIONER. PERF ECT MIXING OF DRY STEAM WITH FEED RESULTS IN A CONSISTE NT PELLET. 9) GELATINIZED STARCH IS GUMMY, DESIRABLE TO FORM A PELLET AS A BINDING AGENT. THE CONDITIONED FEED FOR MED INTO PELLETS BY PRESSING THE THROUGH A DIE (3MM, 4.5 MM & 6 MM). 10)PELLET COOLING IS ALSO A PART OF CONDITIONING, W HERE, COOLING IS ACHIEVED BY PASSING DRAFT OF AIR THROUGH THE PELLETS TO EVAPORATE MOISTURE RESULTING IN TEMPERAT URE REDUCTION. 11) AFTER THE COOLING PROCESS, THE MATERIAL IS BEIN G PASSED TO THE PELLET CRUMBLER THROUGH PELLET ELEVATOR, WHE RE THE CRUMBLER IS USED TO CRUMBLE A WHOLE PELLET INTO SMA LLER SIZE. 12) IN THE SIEVING PROCESS, SIEVE IS USED TO GRAD E THE PELLETS BY SIZE AND THE FEED GOES TO BAGGING BIN AN D DEPENDING UPON THE REQUIREMENT, PACKING IS DONE IN THE BAGS OF 50 TO 70 KGS. 17.2 WE HAVE EXAMINED THE STAGES THROUGH WHICH THE MASH FEED IS CONVERTED INTO PELLET FEED. IN DECIDING T HE ISSUE WHETHER THERE HAS BEEN ANY MANUFACTURE OF PELLET FEED, WE A RE INCLINED TO HOLD THAT THERE HAS BEEN ONLY PROCESSING WHILE THE PRODUCTION OF PELLET FEED IS DONE BY FOLLOWING VARIOUS STAGES, N AMELY, I) BATCH WEIGHING, II) GRINDING, III) MIXING, IV) CONDITIONI NG WITH STEAM, V) PELLETING, VI) COOLING, VII) CRUMBLING AND, FINALLY , VIII) PACKING. ITA NO.1013/HYD/2006 & 5 OTHERS M/S. VENKATESWARA FOODS & FEEDS, HYDERABAD 15 17.3 THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUB MITTED A CHART SHOWING THE DIFFERENCE BETWEEN THE PELLET FEE D AND MASH FEED, WHICH IS A NOTE ON THE DIFFERENCE IN THE QUAL ITY OF THE FEED AND DOES NOT THROW ANY LIGHT ON THE MANUFACTURE AND IS OF ANY SIGNIFICANCE WHILE DISCUSSING WHETHER THERE IS MANU FACTURE FOR THE PURPOSE OF CLAIMING DEDUCTION U/S 80IB. 17.4 THE QUESTION BEFORE US IS WHETHER MASH FEED UNDERGOES ANY PROCESS OF MANUFACTURE TO PRODUCE AN ARTICLE OR THING CALLED PELLET, WHICH IS DIFFERENT AND DISTI NCT FROM THE INPUT MATERIAL. IN THIS CASE THOUGH THE ORIGINAL C OMMODITY HAS UNDERGONE CERTAIN DEGREE OF CHANGE STILL IT HAS NOT LOST ITS ORIGINAL IDENTITY AND HENCE, IT CANNOT BE SAID THAT IT AMOUNTS TO MANUFACTURE. THE WORD MANUFACTURE AND PRODUCE A PPLIED TO BRINGING INTO EXISTENCE SOMETHING WHICH IS DIFFEREN T FROM ITS COMPONENTS. IN THE CASE OF CASINO P. LTD., 91 ITR 2 89, THE HONBLE KERALA HIGH COURT HELD THAT DOING SOMETHING TO THE GOODS TO CHANGE OR ALTER THEIR FORM CAN BE TERMED A S PROCESSING AND DOES NOT AMOUNT TO MANUFACTURE. THE HONBLE SUP REME COURT HAS DRAWN THE DISTINCTION BETWEEN THE PROCESS ING AND MANUFACTURE IN THE CASE OF UNION OF INDIA VS. DELHI CLOTH & GENERAL MILLS CO. LTD., AIR 1963 SC 791 AND IT WAS HELD IN THAT CASE THE WORD MANUFACTURE USED AS VERB IS GENERALLY UNDERSTOOD TO MEAN BRING TO EXISTENCE A NEW SUBSTANCE AND DO ES NOT MEAN MERELY TO PRODUCE SOME CHANGE IN THE SUBSTANCE. 17.5 IN THE CONVERSION, WHETHER THE IDENTITY OF THE COMMODITY BEFORE AND AFTER IT UNDERGOES VARIOUS PROCESSES/CHANGES REMAINS THE SAME. IN MANUFACTURIN G A NEW AND DIFFERENT ARTICLE MUST EMERGE FROM THE ORIGINAL SUBSTANCE AND NEW SUBSTANCE DOES NOT MEAN THAT MERELY A CHANG E IN THE SUBSTANCE IS EFFECTED. MANUFACTURE AND PRODUCTION I MPLIES THAT ITA NO.1013/HYD/2006 & 5 OTHERS M/S. VENKATESWARA FOODS & FEEDS, HYDERABAD 16 SOMETHING IS BROUGHT INTO EXISTENCE WHICH IS DIFFER ENT FROM ITS COMPONENTS. MOREOVER, THE TERM PROCESSING IS DIST INGUISHABLE FROM THE TERM MANUFACTURE AND MERE PROCESSING DOE S NOT AMOUNT TO CHANGE LOOSING ITS ORIGINAL IDENTITY WHER EAS IN MANUFACTURING, THE ORIGINAL ARTICLES LOOSE THEIR ID ENTITY. IN THE CASE UNDER CONSIDERATION, DOING SOMETHING TO SUBSTA NCE TO CHANGE OR ALTER THEIR FORM CAN BE TERMED AS PROCESS ING AND DOES NOT AMOUNT TO MANUFACTURE AS A PRODUCTION OF A NEW SUBSTANCE DOES NOT MEAN MERELY TO PRODUCE SOME CHANGE IN THE SUBSTANCE. THERE IS NO CHANGE IN THE BASIC COMPONENT EXCEPT A PHYSICAL CHANGE IN THE STRUCTURE AND SHAPE IN THE FORM OF PE LLET AS NO NEW SUBSTANCE COMES INTO EXISTENCE. 17.6 THE ITAT COORDINATE BENCH HELD IN THE CASE OF M/S DAFTRI AGRO, AS FOLLOWS: WE FIND MERIT IN THE OBSERVATIONS OF THE ASSESSING OFFICER THAT THE ASSESSEE FIRM PROCESSED ONLY RAW S EED TO FINAL SEEDS AND HENCE THE ASSESSEE FIRM HAS NOT TAK EN ANY MANUFACTURING ACTIVITY AND, THEREFORE, THE ASSESSEE IS NOT ELIGIBLE FOR CLAIM OF DEDUCTION U/S 80IB OF THE ACT . IT IS WELL SETTLED LAW THAT PROCESS OF STANDARDIZATION AND PASTEURIZATION OF MILK DOES NOT AMOUNT TO MANUFACTURE/PRODUCTION FOR THE PURPOSE OF CLAIMING DEDUCTION U/S 80IB OF THE ACT (B.G. CHITALE VS. DC IT [2008] 115 ITD 97 (PUNE)(SB). LIKE WISE THE PROCESSING OF MINERAL WATER ALSO NOT AMOUNTS TO MANUFACTURE. THE ACTIVITY OF THE ASSESSEE FIRM IS SIMILAR TO THE ACTIVITY REFERRED T O IN THE CASE OF B.G. CHITALE (SUPRA). HENCE, THE DECISIONS RELIE D ON BY THE LEARNED COUNSEL FOR THE ASSESSEE IS DISTINGUISHABLE ON FACTS. HENCE, THE APPEAL OF THE REVENUE IS ALLOWED. 17.7 IN THE CASE OF SHRI RAGHAVENDRA INDUSTRIES VS. ITO, THE COORDINATE BENCH IN ITA NO. 324 TO 326/HYD/04 FOR ASSESSMENT YEAR 1996-97, 1997-98 & 1999-2000, ORDER DATED 30/11/2005, HELD AS UNDER:- 8. EVEN ON MERITS WE ARE UNABLE TO PERSUADE OURSELVES TO TAKE A DIFFERENT VIEW FROM THE VIEW ALREADY TAKEN. IN THE ITA NO.1013/HYD/2006 & 5 OTHERS M/S. VENKATESWARA FOODS & FEEDS, HYDERABAD 17 ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1998-99 (IT A NO. 175/HYD/2001 DATED 11 TH SEPT. 2003) THE BENCH HAS CONSIDERED THE ISSUE IN GREAT DETAIL AND APPLIED TH E DECISION OF SUPREME COURT IN THE CASE OF N.C. BUDDIRAJA & CO MPANY (SUPRA) WHILE HOLDING THAT NO NEW COMMODITY HAS COM E INTO EXISTENCE WITH A NEW CHEMICAL COMPOSITION. THOUGH T HE CONTENTION OF THE ASSESSEE, SUPPORTED BY CASE-LAW, IS ATTRACTIVE, NONE OF THE CASES WERE DIRECTLY ON THE POINT. IN OTHER WORKS, THE ISSUE AS TO WHETHER PRESSING OF CO TTON INTO BALES WOULD AMOUNT TO MANUFACTURE OR NOT WAS NOT TH E SUBJECT MATTER OF CONSIDERATION. IT IS NOT OUT OF P LACE TO MENTION THAT THE DEFINITION GIVEN UNDER THE CENTRAL EXCISE ACT AND UNDER DIFFERENT ENACTMENTS HAVE TAKEN IN IT S FOLD ANY PROCESS, IN ORDER TO CONSIDER IT AS A MANUFACTU RING PROCESS, WHEREAS THE HYDERABAD BENCH HAS TAKEN INTO CONSIDERATION THE DICTIONARY MEANING OF THE TERM MANUFACTURE AND THE DECISION OF THE APEX COURT, W HEREIN THE TERM MANUFACTURE WAS INTERPRETED, TO COME TO THE CONCLUSION THAT THE ACTIVITY OF PRESSING THE COTTON AND CONVERTING INTO BALES WOULD NOT AMOUNT TO MANUFACTU RE. CONSISTENT WITH THE VIEW TAKEN BY THE HYDERABAD BEN CH IN THE ASSESSEES OWN CASE WE UPHOLD THE ORDER OF THE LEARNED CIT(A) AND DISMISS THE APPEALS FILED BY THE ASSESSE E. 17.8 IN THE CASE OF CHOWGULE & CO. PVT. LTD. VS. UN ION OF INDIA [1981] 47 STC 124 (SC) WHEREIN BLENDING OF DI FFERENT QUALITIES OF ORE OF THE CONTRACTUAL SPECIFICATIONS WAS HELD NOT TO INVOLVE THE PROCESS OF MANUFACTURE. 17.9 IN THE CASE OF CST VS. BOMBAY TRADERS, [1976] 38 STC 286 (BOM), THE HONBLE COURT HELD THAT PLAIN-CASHEW NUTS WERE FRIED AND SALTED, STILL TO BE CASHEW-NUTS. 17.10 IN THE CASE OF SANDOZ (INDIA) LTD. VS. UNION OF INDIA [1980] TAX LR 2332 (BOM.), THE HONBLE COURT HELD T HAT FORMULATION OF FORON PIGMENTS IN THE FORM OF FORON LIQUID DOES NOT AMOUNT TO MANUFACTURE. ITA NO.1013/HYD/2006 & 5 OTHERS M/S. VENKATESWARA FOODS & FEEDS, HYDERABAD 18 17.11 IN THE CASE OF BHERAGHAT MINERAL INDUSTRIES V S. DIVISION DY. CST [1990] 79 STC 156 (MP), THE COURT HELD THAT PREPARATION OF CHIPS AND POWDER FROM DOLOMITE LUMPS HELD NOT MA NUFACTURE. 17.12 IN THE CASE OF SRI VINAYAKA OIL INDUSTRIES VS . STATE OF KARNATAKA [1993] 91 STC 253 (KARN.), THE COURT HELD THAT DEHUSKING OF TAMARIND SEEDS TO GIVE WHITE TAMARIND PAPPU IS MERELY A CHANGE OF FORM AND CONVERSION OF TAMARIND SEED INTO POWDER DOES NOT RESULT IN THE MANUFACTURE OF NEW AR TICLE. 17.13 IN THE CASE OF APPEEJAY PVT. LTD. VS. CIT, [1 994] 206 ITR 367, 381 (CAL.), THE COURT HELD THAT THE BLENDI NG OF DIFFERENT KINDS OF TEA DOES NOT CONSTITUTE MANUFACTURE OR PRO DUCTION OF ARTICLES. 17.14 IN THE CASE OF CIT VS. TATA LOCOMOTIVE ENGINE ERING CO., 68 ITR 325, THE COURT HELD THAT THE WORD OR EXPRESS ION MANUFACTURE AND PRODUCE APPLY TO BRINGING INTO EXIS TENCE OF SOMETHING WHICH IS DIFFERENT FROM ITS COMPONENTS. 17.15 IN THE CASE OF RAGHBIR CHAND SOMCHAND VS. EXC ISE AND TAXATION OFFICER, 11 STC 149 (P&H), THE COURT HELD THAT WHERE THE COMMODITY RETAINS A SUBSTANTIAL IDENTITY THROUG H THE PROCESSING STAGE IS SAID TO HAVE BEEN PROCESSED. 7.16 IN VIEW OF THE ABOVE DISCUSSION AND THE RATIO S LAID DOWN BY THE RESPECTIVE HONBLE HIGH COURTS/SUPREME COURT, IT CAN BE CONCLUDED THAT THE ACTIVITY FOLLOWED BY THE ASSESSEE-FIRM IS A PROCESSING ACTIVITY AND IT IS NOT ENTITLED FOR THE DEDUCTION UNDER S. 80-IB OF THE IT ACT, 1961. THUS, WE CONFIR M THE ORDERS OF THE CIT(A) PASSED IN RESPECTIVE APPEALS AND DISM ISS THE ITA NO.1013/HYD/2006 & 5 OTHERS M/S. VENKATESWARA FOODS & FEEDS, HYDERABAD 19 ASSESSEES CLAIM U/S 80-IB OF THE ACT, IN A.YS 2001 -02, 2002-03, 2003-04, 2004-05 & 2005-06 RESPECTIVELY. 18. IN THE APPEAL FOR THE ASSESSMENT YEAR 2002-0 3, VIZ. ITA 1013/HYD 2006, THE ASSESSEE HAS RAISED FURTHER GROUNDS QUESTIONING THE LEGALITY AND VALIDITY OF THE REOPEN ING OF THE ASSESSMENT UNDER S.147 OF THE ACT. 19. THE FACTS ARE, IN BRIEF, THAT THE ASSESSEE HAD FILED ITS RETURN OF INCOME ON 30/10/12 SHOWING INCOME OF RS. 1,49,84,101/-, WHICH WAS PROCESSED U/S 143(3) ON 26 /11/2002. HOWEVER, FROM THE ENCLOSURES FILED WITH THE SAID RE TURN, THE AO NOTICED THAT THOUGHT THE ASSESSEE HAD CLAIMED DEDUC TION FOR AN AMOUNT OF RS. 1,73,95,115/- U/S 80IB OF THE ACT, IN RESPECT OF ITS PELLET FEED DIVISION, SUCH CLAIM WAS NOT SUPPOR TED BY ANY DOCUMENTARY EVIDENCE IN AS MUCH AS NO PROFIT & LOSS ACCOUNT HAD BEEN FILED BY THE ASSESSEE IN SUPPORT OF THE SA ID CLAIM. THE AO, THEREFORE, NOTED THAT THE ASSESSEE HAD NOT SATI SFIED THE CONDITION SPECIFIED IN THE ACT FOR GRANT OF DEDUCTI ON U/S 80IB OF THE ACT. FROM THE TDS CERTIFICATES FILED WITH THE S AID RETURN, THE AO FURTHER NOTICED THAT THOUGH THE ASSESSEE HAD REC EIVED A SUM OF RS. 6,41,450/- TOWARDS PROFESSIONAL FEES FROM VE NKATESWARA HATCHERIES LTD., THE SAME HAD NOT BEEN OFFERED AS I NCOME. IN VIEW OF THE ABOVE FINDING, THE AO HAD REOPENED THE ASSESSMENT U/S 147 OF THE ACT. IN RESPONSE TO THE NOTICE ISSUE D U/S 148 OF THE ACT, THE ASSESSEE HAD FILED REVISED RETURN ON 1 0/11/05 SHOWING SAME AMOUNT OF INCOME AS SHOWN IN THE ORIGI NAL RETURN FILED ON 30/11/02. AFTER CONSIDERING THE INFORMATIO N FURNISHED BY THE ASSESSEE AND FOLLOWING THE STAND TAKEN IN TH E ASSESSMENT ORDER PASSED FOR AY 2001-02, WHEREIN IT WAS HELD TH AT THE ITA NO.1013/HYD/2006 & 5 OTHERS M/S. VENKATESWARA FOODS & FEEDS, HYDERABAD 20 ASSESSEE IS NOT ELIGIBLE FOR CLAIM OF DEDUCTION U/S 80IB, WHICH WAS CONFIRMED BY THE CIT(A), THE AO DISALLOWED THE CLAIM OF DEDUCTION U/S 80IB. ALSO DISALLOWED THE CLAIM FOREI GN TRAVEL EXPENDITURE OF RS. 3,98,174/- ON THE GROUND THAT TH ERE WAS NO SATISFACTORY EXPLANATION WITH SUPPORTING EVIDENCES ON THE SAID CLAIM. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER I N APPEAL BEFORE THE CIT(A). 20. BEFORE THE CIT(A), THE ASSESSEE FILED WRITTEN S UBMISSIONS AND THE CONTENTS REGARDING CLAIM OF DEDUCTION U/S 80IB STATED IN THE WRITTEN SUBMISSION WERE THE SAME AS STATED I N AY 2001-02 AND FOLLOWED VARIOUS CASE LAWS IN SUPPORT OF ITS CL AIM, WHICH WERE EXTRACTED BY THE CIT(A) AT 3 OF HIS ORDER. AS REGARDS, REOPENING OF ASSESSMENT, IT WAS SUBMITTED THAT BASE D ON THE REASONS FOR REOPENING OF THE ASSESSMENT AS COMMUNIC ATED BY THE AO VIDE LETTER DATED 22/11/04, THE ASSESSEE HAD FIL ED ITS OBJECTION TO THE VIDE LETTER DATED 04/03/05. HOWEVE R, THE AO HAD PASSED THE ORDER WITHOUT DISPOSING OFF THE OBJECTIO N RAISED BY THE ASSESSEE VIDE ITS LETTER DATED 04/03/05. HE, TH EREFORE, CONTENDED THAT IT HAD RESULTED INTO LACK OF ADEQUAT E OPPORTUNITY TO THE ASSESSEE AND VIOLATION OF PRINCIPLE OF NATUR AL JUSTICE. FOR THIS PROPOSITION, THE ASSESSEE RELIED UPON THE JUD GMENT OF THE HONBLE SUPREME COURT IN THE CASE OF GKN DRIVESHAFT S (INDIA) LTD VS. ITO, 125 TAXMAN 963 AND THE HONBLE MADRAS HIGH COURT IN THE CASE OF K.S. SURESH VS. DCIT, 279 ITR 61. IT HAD BEEN CONTENDED THAT NON-CONSIDERATION OF THE OBJECT ION RAISED BY THE ASSESSEE VITIATED THE PROCEEDINGS U/S 147 OF TH E ACT. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASS ESSEE, DISALLOWED THE ASSESSEES CLAIM OF DEDUCTION U/S 80 IB FOLLOWING HIS ORDER IN THE ASSESSEES CASE FOR AY 2001-02. HE ALSO CONFIRMED THE ACTION OF THE AO IN REOPENING THE ASS ESSMENT U/S 147. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEF ORE US. ITA NO.1013/HYD/2006 & 5 OTHERS M/S. VENKATESWARA FOODS & FEEDS, HYDERABAD 21 21. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. IN THE CASE UNDER CONSIDERATIO N, THE AO REOPENED THE ASSESSMENT U/S 147 FOR THE REASONS THAT THE ASS ESSEE HAD NOT SUBSTANTIATED ITS CLAIM U/S 80IB BY WAY DOCUMENTAR Y EVIDENCE AND ALSO NOT SATISFIED THE CONDITION SPECIFIED IN THE ACT FO R GRANT OF DEDUCTION U/S 80IB. AS ALSO IN RESPECT OF THE FOREIGN TRAVEL EXPE NDITURE. THE ASSESSEES CONTENTION BEFORE THE CIT(A) WAS THAT THE ASSESSEE FILED ITS OBJECTION TO THE REASSESSMENT VIDE ITS LETTER DATED 04/03/05, HO WEVER, THE AO HAD PASSED THE ORDER WITHOUT DISPOSING OFF THE OBJECTIO N RAISED BY THE ASSESSEE, THUS, RESULTED INTO LACK OF ADEQUATE OPPO RTUNITY TO THE ASSESSEE AND VIOLATION OF PRINCIPLE OF NATURE JUSTICE. IN TH E CASE OF GKN DRIVESHAFTS, THE APEX COURT HAS HELD AS UNDER:- ' WHEN A NOTICE UNDER SECTION 148 OF THE IT ACT, 1961 , IS ISSUED, THE PROPER COURSE OF ACTION FOR THE NOTICEE IS TO FILE THE RETURN AND, IF HE SO DESIRES, TO SEEK REASONS F OR ISSUING THE NOTICES. THE AO IS BOUND TO FURNISH REASONS WIT HIN A REASONABLE TIME. ON RECEIPT OF REASONS, THE NOTICEE IS ENTITLED TO FILE OBJECTIONS TO ISSUANCE OF NOTICE AND THE AO IS BOUND TO DISPOSE OF THE SAME BY PASSING A SPEAKING ORDER.' FROM THE READING OF THE SAID DECISION, THE ASSESSE E IS INITIALLY TO FILE A RETURN AND AFTER THAT THE ASSES SEE CAN ASK REASONS FOR ISSUING THE NOTICES. IN THE PRESENT CAS E, THE ASSESSEE HAS NOT AT ALL FILED THE RETURN OF INCOME IN THE FI RST PLACE TO SEEK FOR REASONS RECORDED AND HENCE THE REOPENING U/S 14 8 IS VALID. THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISM ISSED. 22. SIMILARLY, IN THE APPEAL FOR ASSESSMENT YEAR 2 003-04, VIZ. ITA NO.1014/HYD/2006, THE ASSESSEE HAS RAISED GROUNDS CONTESTING THE LEVY OF INTEREST UNDER S.234D OF THE ACT. 23. THE ASSESSEE FILED ITS RETURN OF INCOME ON 30/1 0/2004 AND CLAIMED REFUND AND THE RETURN WAS PROCESSED U/S 143 (1) ON ITA NO.1013/HYD/2006 & 5 OTHERS M/S. VENKATESWARA FOODS & FEEDS, HYDERABAD 22 15/06/2004 AND GRANTED REFUND OF RS. 52,93,783. LAT ER ON, THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT O RDER U/S 143(3) DATED 27/01/06 WAS PASSED RAISING DEMAND OF RS. 87,74,0389/-. THE AO LEVIED INTEREST U/S 234D OF RS . 1,63,215/- ON THE SAID DEMAND. THE CIT(A) CONFIRMED THE ACTION OF THE AO. STILL AGGRIEVED THE ASSESSEE IS IN FURTHER APPEAL B EFORE US. 24. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE RELEVANT ASSESSMENT YEAR THE PROVISIONS OF SECTION 234D DID NOT EXIST SINCE THE SAME HAS BEEN INTRODUC ED WITH EFFECT FROM 01/06/2003. 25. WE HAVE HEARD THE PARTIES ON THIS ISSUE. IN TH IS CONNECTION, THE DELHI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF M/S. EKTA PROMOTERS (P) LTD., 305 ITR 1 (AT)(DEL.), HEL D THAT THE PROVISIONS OF SECTION 234D HAVING BEEN INSERTED IN THE STATUTE WI TH EFFECT FROM 1 ST JUNE 2003, THE SAME ARE APPLICABLE ONLY FROM THE AS SESSMENT YEAR 2004- 05. SINCE THE ASSESSMENT YEAR UNDER CONSIDERATION IS 20 03-04, WE DELETE THE INTEREST CHARGED U/S 234D AND THIS GR OUND OF APPEAL IS ALLOWED. 26. SIMILARLY, IN THE APPEAL FOR ASSESSMENT YEAR 2 001-02, VIZ. 493/HYD/2005, THE ASSESSEE HAS RAISED GROUNDS CONTESTING THE QUANTIFICATION OF THE RELIEF UNDER S.80IB OF TH E ACT, AS GROUND NO. II. 27. GROUND NO. 2 IN A.Y. 2001-0-2 ON THE ISSUE OF COMPUTATION OF DEDUCTION ALLOWABLE U/S 80IB, WHICH HAS BEEN RAI SED BY THE ASSESSEE IS DISMISSED. AS THE VERY DEDUCTION U/S 80 IB HAS BEEN DISALLOWED, THIS GROUND BECOMES INFRUCTUOUS AND TH E SAME IS DISMISSED AS INFRUCTUOUS. ITA NO.1013/HYD/2006 & 5 OTHERS M/S. VENKATESWARA FOODS & FEEDS, HYDERABAD 23 28. THE ASSESSEE HAS RAISED ANOTHER ISSUE IN AY 200 1-02 REGARDING DISALLOWANCE OF FOREIGN TRAVEL EXPENSES O F RS. 6,65,977/-, AS GROUND NO. III. 29. THE AO NOTED THAT THE ASSESSEE HAD INCURRED AN AMOUNT OF RS. 6,65,977/- TOWARDS FOREIGN TRAVELLING EXPENSES OF TWO PERSONS, WHO WERE NEITHER EMPLOYEES OF THE FIRM NOR THE PARTNERS. THE EXPLANATION OF THE ASSESSEE IS THAT T HE PURPOSE OF EXPENDITURE WAS TO EXPLORE THE FEED MARKET IN USA A ND EUROPE AND TO MEET THE OVERSEAS SUPPLIERS OF FEED MATERIAL . ACCORDING TO THE ASSESSEE, THE EXPENDITURE WAS ALLOWABLE U/S 37( 1) AS THE SAME WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PU RPOSE OF BUSINESS. AFTER CONSIDERING THE SAID EXPLANATION, T HE AO DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THE TWO PERSONS TRAVELLING TO UNITED STATES AND EUROPE AT T HE COST OF THE ASSESSEE FIRM, DID NOT HAVE ANY RELATIONSHIP WITH E ITHER THE BUSINESS AFFAIRS OF THE ASSESSEE OR ANY OTHER ACTIV ITY RELATING TO EARNING OF INCOME OF THE ASSESSEE. 30. ON APPEAL, BEFORE THE CIT(A), THE ASSESSEE REIT ERATED THE SUBMISSIONS AS MADE BEFORE THE AO. THE CIT(A) NOTED THAT IT TRANSPIRED DURING THE DISCUSSION THAT THE TWO PERSO NS TRAVELLING ABROAD WERE ACTUALLY FRIENDS OF PARTNERS AND THEY H AD NO CONNECTION WHATSOEVER WITH THE FIRM, MUCH LESS AS B USINESS CONNECTION. THE CIT(A) FOLLOWING THE HONBLE JURISD ICTIONAL HIGH COURT IN THE CASE OF TRANSPORT CORPORATION OF INDIA , 256 ITR 701, (WHEREIN IT WAS HELD THAT THE BURDEN OF PROOF TO JU STIFY A PARTICULAR EXPENDITURE LINES ON AN ASSESSEE), HELD THAT THE CLAIM CANNOT BE SAID TO BE ADMISSIBLE U/S 37(1) OF THE AC T SINCE THE ASSESSEE WAS NOT IN A POSITION TO JUSTIFY THE VISIT OF THE TWO ITA NO.1013/HYD/2006 & 5 OTHERS M/S. VENKATESWARA FOODS & FEEDS, HYDERABAD 24 PERSONS IN TERMS OF FURTHERING THE BUSINESS NOR WAS IT IN A POSITION TO FURNISH THE DETAILS OF THE ACTIVITIES S UPPOSED TO HAVE BEEN UNDERTAKEN BY THE SAID PERSONS ABROAD WITH AN INTENTION TO EITHER PROMOTE OR TO FURTHER THE BUSINESS OF THE AS SESSEE, THE CLAIM WAS RIGHTLY DISALLOWED. AGGRIEVED, THE ASSESS EE IS IN APPEAL BEFORE US. 31. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF THE BUSINESS AND HENCE IS AN ALLOWABLE D EDUCTION U/S 37(1). HE FURTHER SUBMITTED THAT IT IS NOT ALWAYS N ECESSARY THAT THE EXPENSES HAVE TO BE INCURRED ON EMPLOYEES OR PA RTNERS. THE EXPENDITURE INCURRED ON BUSINESS ASSOCIATES IS ALSO BUSINESS EXPENDITURE ALLOWABLE U/S 37(1) OF THE ACT. 32. ON THE OTHER HAND, THE LEARNED DR HAS RELIED UP ON THE ORDERS OF THE AUTHORITIES BELOW. 33. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD AS WELL AS THE ORDERS OF THE AUTHORITIES BELOW, IT IS OBSERVED THAT NEITHER BEFORE THE REVENUE AUTHORITIES NOR BEFORE U S THE ASSESSEE FAILED TO PROVE THAT THE EXPENDITURE OF RS. 6,65,9 77/- INCURRED TOWARDS FOREIGN TRAVELLING EXPENSES OF TWO PERSONS IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS BY WAY OF DOCUMENTARY EVIDENCE. THEREFORE, WE FIND NO INFIRMI TY IN THE ORDER OF THE CIT(A) IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING THE SAID FOREIGN TRAVEL EXPENSES. ACCOR DINGLY, WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THIS GRO UND OF APPEAL OF THE ASSESSEE. 34. IN THE RESULT, APPEALS BEING ITA NO. 493/HYD/05 FOR AY 2001-02, ITA NO. 1013/HYD/06 FOR AY 2002-03, 869/H YD/08 FOR ITA NO.1013/HYD/2006 & 5 OTHERS M/S. VENKATESWARA FOODS & FEEDS, HYDERABAD 25 AY 2004-05, AND 870/HYD/08 FOR AY 2005-06 ARE DISM ISSED, AND APPEAL BEING ITA NO. 1014/HYD/06 FOR AY 2003-04 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 26/04/2012. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER. JUDICIAL MEMBER. DT/-26 TH APRIL, 2012 COPY FORWARDED TO: 1. M/S. VENKATESWARA FEEDS & FEEDS, VENKATESWARA HO USE, HYDERGUDA, 3-4-808/808/1, HYDERABAD 29. 2. ASST COMMISSIONER OF INCOME-TAX, CIRCLE 4(1) HYD ERABAD 3. COMMISSIONER OF INCOME-TAX(APPEALS)-V HYDERABAD 4. COMMISSIONER OF INCOME - TAX, IV HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE , ITAT, HYDERABAD B.V.S. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., HYDERABAD