Appeal details
Counselvise Citation
[2011] 140 COUNSELVISE.COM (IT) 51833 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 month(s) 18 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
26-08-2011
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
B
Next Hearing Date
23-08-2011
Assessment Year
2006-2007
Appeal Filed On
08-04-2011
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AN D SHRI GEORGE MATHAN, JUDICIAL MEMBER .. I.T.A. NOS. 598, 599 & 600/MDS/2011 ASSESSMENT YEARS : 2005-06, 2006-07 & 2007-08 M/S. STERLING AGRO PRODUCTS PROCESSING PVT. LTD., STERLING TOWER, 327, ANNA SALAI, TEYNAMPET, CHENNAI-600 018. (PAN : AACCS8707R) V. THE ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-VI(4), CHENNAI. A N D I.T.A. NOS. 620 & 621/MDS/2011 ASSESSMENT YEARS : 2006-07 & 2007-08 THE ASSISTANT COMMISSIONER OF V. M/S. STERLING AGRO PRODUCTS INCOME-TAX, PROCESSIONG PVT. LTD. COMPANY CIRCLE-VI(4), 327, ANNA SALAI, TEYNAMPET, CHENNAI CHENNAI-600 018. (APPELLANTS) (RESPONDENTS) DEPARTMENT BY : SHRI K.E.B. RENGARAJAN, JR. STANDING COUNSEL ASSESSEE BY : SHRI SHRIRAM SESHADRI DATE OF HEARING : 23/08/2011 DATE OF PRONOUNCEMENT : 26/08/2011 I.T.A. NOS. 598-600 & 620-621/MDS/2011 2 O R D E R PER BENCH: ITA NOS. 598, 599 & 600/MDS/2011 ARE APPEALS FILE D BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED CIT(A PPEALS)-VI, CHENNAI IN ITA NOS. 214/10-11, 86/10-11 AND 465/10-11 DATED 18-01- 2011 FOR THE ASSESSMENT YEARS 2005-06, 2006-07 AND 2007-08 RESPECTIVELY. I TA NOS. 620 & 621/MDS/2011 ARE APPEALS FILED BY THE REVENUE AGAINST THE ORDERS OF THE LEARNED CIT(APPEALS)- VI, CHENNAI IN ITA NOS. 86 & 465/10-11 DATED 18-01- 2011 FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08 RESPECTIVELY. SINCE COMM ON ISSUES ARE INVOLVED IN ALL THESE APPEALS, THEY WERE HEARD TOGETHER AND ARE BEI NG DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. SHRI SHRIRAM SHESHADRI, CA REPRESENTED ON BEHALF OF THE ASSESSEE AND SHRI K.E.B. RENGARAJAN, JR. STANDING COUNSEL REPRESENTED ON BEHALF OF THE REVENUE. 3. ITA NOS. 598 TO 600/MDS/2011: IT WAS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THE ONLY ISSUE IN TH E ASSESSEES APPEALS WAS AS TO WHETHER THE ASSESSEE IS ENTITLED TO THE BENEFIT OF DEDUCTION U/S 10B OF THE INCOME-TAX ACT, 1961 (THE ACT IN SHORT) IN REGAR D TO ITS BUSINESS OF MANUFACTURING OF GHERKIN PICKLES. IT WAS THE SUBMI SSION THAT GHERKINS ARE COMMONLY KNOWN AS CUCUMBERS. THE ASSESSEE PURCHAS ED GHERKINS AND PUT THEM THROUGH VARIOUS PROCESSES FOR MANUFACTURE OF GHERKI N PICKLES. THE LEARNED AUTHORISED REPRESENTATIVE PLACED BEFORE US THE PROC ESS INVOLVED WHICH IS EXTRACTED HEREIN BELOW : I.T.A. NOS. 598-600 & 620-621/MDS/2011 3 PROCESS INVOLVED IN THE MANUFACTURE OF THE END PRO DUCT PICKLE A) GHERKINS ARE PROCURED FROM THE INDIVIDUAL FARMER S AND THE SAME ARE UNLOADED AT THE RECEIVING CENTRE OF THE AP PELLANTS EOUS; B) GHERKINS ARE STORED IN COLD STORAGES AT PARTICUL AR TEMPERATURES; C) THEREAFTER, VARIOUS DEFECTS ARE REMOVED FROM THE GHERKINS TO GET THE DESIRED QUALITY OF THE RAW MATERIALS. THIS PROCESS IS KNOWN AS PRE-CULLING; D) SELECTED QUALITY GHERKINS ARE PUT INTO DRY GRADI NG MACHINE, WHEREIN THE GHERKINS UNDERGO MACHINE OSCILLATION TH ROUGH DRY PLATE. AS A RESULT, VERY FINE AND THIN VARIETIES A RE SELECTED IN THIS PROCESS. E) GHERKINS ARE THEN SUBJECTED TO THE PROCESS OF MA NUAL CULLING; F) THE SELECTED VARIETIES AFTER THE GRADING ARE TAK EN THROUGH A PROCESS OF WASHING BY THE MACHINE. G) THEREAFTER, THE PROCESS OF FINE GRADING IS UNDER TAKEN; H) THE FINE GRADED AND WASHED GHERKINS ARE NEXT PUT INTO BARRELS AND VARIOUS CHEMICALS LIKE ACETIC ACID, BRINE, VINE GAR, SALT, CALCIUM AND KMS PRESERVATIVES ARE ADDED THERETO. THE MIXTU RE IS THEN STORED FOR SEVEN TO TEN DAYS FOR STABILIZATION. DU RING THE PERIOD, A FERMENTATION PROCESS TAKES PLACE INSIDE THE BARRELS ; I) ONCE FERMENTED, GHERKINS ARE TRANSPORTED FROM TH E FACTORY AND UNLOADED INTO PITS AND HELD UNTIL THE NEXT PHAS E OF PROCESSING. INSIDE THE PIT THE LEVELS OF LACTIC ACID AND SALT A RE ADJUSTED AS PER THE REQUIREMENTS OF THE CUSTOMERS. THIS IS ACHIEVE D BY ADDING SALT/WATER TO THE BRINE AND ALLOWING THE LEVELS OF SALT AND ACID IN THE BRINE AND PICKLE TO EQUALIZE. REDUCTION IN THE LEVEL OF LACTIC I.T.A. NOS. 598-600 & 620-621/MDS/2011 4 ACID IS REQUIRED DUR TO A PUNGENT FLAVOR ASSOCIATED WITH THE SAID ACID; J) THEREAFTER, THE GHERKINS ARE LIFTED OUT OF THE P IT BY A CONVEYER INTO A ROD WASHER WHICH REMOVES EXTRANEOUS MATTER F ROM THE GHERKINS, AS A RESULT OF WHICH THE PRODUCTS GET CLE ANSED; K) SUBSEQUENTLY, THE GHERKINS ARE INSPECTED FOR REM OVAL OF DEFECTIVE FRUITS. THE DEFECTIVE FRUITS INCLUDE ANY BROKEN, BLOATED, ENZYMES SOFTENED OR DISCOLOURED GHERKINS. AFTER DE FECT REMOVAL, THE GHERKINS ARE SLICED; L) ONCE SLICED, SECONDARY INSPECTION IS CARRIED OUT AS THE SLICED GHERKINS MOVE ACROSS A CONVEYER. AT THIS STAGE, SL ICES WITH HOLES/INCOMPLETE SKINS OR CUTS ARE REMOVED; M) THE SLICES THEREAFTER MOVE ACROSS A SHAKER TABLE WHICH ALLOWS THE SLICES NOT HAVING THE DESIRED SIZE SPECIFICATIO NS TO DROP THROUGH A SCREEN; N) THEREAFTER A VIBRATORY TWO-SPEED AUTOMATIC PAIL FILLER PACKS THE SLICES AND COVERS THE SLICES IN THE PAIL WITH T HE SOLUTION HAVING APPROPRIATE BLEND OF SPICE EMULSION. THE PAILS HAV E MANUFACTURING DATES WRITTEN ON THEM AS WELL AS THE HOUR OF THE DA Y WHEN THEY WERE PRODUCED; O) IN ADDITION TO THE ABOVE, THE GHERKINS REMOVED A T THE STAGE OF PRE-CUTTING (IE GHERKINS OF GOOD QUALITY AND BIG IN SIZE) ARE AGAIN TAKEN INTO PROCESS. THESE GHERKINS ARE PUT INTO A MACHINE WHICH WASHES THEM, CUTS THEM INTO REQUIRED PIECES AND AUT OMATICALLY PACKS IN BOTTLES. THESE BOTTLES ARE FILLED WITH TH E AFORESAID CHEMICALS TO CONVERT THEM INTO A DISTINCT PRODUCT N AMELY SWEET PICKLE OR HOT PICKLE. SUGAR IS ADDED TO THE SWEET PICKLE AND CHILLY IS ADDED TO THE HOT PICKLE AT THE PROCESS OF TOPPING U P THE CHEMICALS. I.T.A. NOS. 598-600 & 620-621/MDS/2011 5 THIS PROCESS INVOLVES CHEMICAL REACTIONS LIKE FERME NTATION; NEUTRALIZATION AND OXIDIZATION. 4. IT WAS FAIRLY AGREED BY THE LEARNED AUTHORISED R EPRESENTATIVE THAT IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2000-0 1 TO 2003-04 IN ITA NOS. 2416 TO 2418/MDS/2007 VIDE ORDER DATED 06-02-2009 T HE CO-ORDINATE BENCH OF THIS TRIBUNAL HAS HELD THE ISSUE AGAINST THE ASSESS EE BY FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF INDIAN HOT ELS CO. LTD. REPORTED IN 245 ITR 538. IT WAS THE SUBMISSION THAT AFTER THE DECI SION OF THE HON'BLE SUPREME COURT IN THE CASE OF INDIAN HOTELS CO., REFERRED TO SUPRA, THE ISSUE OF MANUFACTURE OR PRODUCTION HAS UNDERGONE SUBSTANTI AL DEBATE. IT WAS THE SUBMISSION THAT THE HON'BLE SUPREME COURT IN THE CA SE OF ITO V. M/S. ARIHANT TILES & MARBLES (P) LTD. REPORTED IN 320 ITR 79 HAS HELD ONCE EXCISE DUTY IS BEING PAID IT WOULD NOT BE POSSIBLE TO HOLD THAT THERE WA S NO MANUFACTURING INVOLVED. HE DREW OUR ATTENTION TO CHAPTER 20 OF THE CENTRAL EXCISE TARIFF ACT, 1985 WHEREIN IT IS SPECIFICALLY MENTIONED THAT PICKLES ARE CLASS IFIED UNDER THE HEADING 20.01 VIDE M. F.(D.R.) F. NO. 114/18/86-CX.3, DATED 24-3-1986. IT WAS THE FURTHER SUBMISSION THAT THE HON'BLE SUPREME COURT IN THE CA SE OF EDWARD KEVENTER PVT. LTD. V. BIHAR STATE AGRICULTURAL MARKETING BOARD & ORS., REPORTED IN 2000-(006)- SCC-264-SC. THE HON'BLE SUPREME COURT HAS HELD THA T UNDER THE PROVISION EVEN THOUGH BASIC INGREDIENTS MAY BE THE SAME END PRODUC T WHICH IS KNOWN DIFFERENTLY IS TREATED AS A SEPARATE ITEM. IT WAS THE SUBMISSI ON THAT IN THE ASSESSEES CASE I.T.A. NOS. 598-600 & 620-621/MDS/2011 6 THE GHERKIN PICKLES ARE DIFFERENT FROM GHERKINS AND AS THE END PRODUCT IN THE ASSESSEES CASE WAS DIFFERENT FROM GHERKIN AS SUCH, THE SAME WAS LIABLE TO BE HELD TO BE MANUFACTURE. HE FURTHER RELIED UPON T HE DECISION OF THE HON'BLE J & K HIGH COURT IN THE CASE OF CIT V. PANKAJ JAIN, REP ORTED IN 200 CTR 11 TO SUBMIT THAT THE DECISION IN THE CASE OF INDIAN HOTELS CO. LTD., REFERRED TO SUPRA, WAS NOT APPLICABLE INSOFAR AS THE SAID DECISION WAS DEALING WITH THE FLIGHT KITCHEN WHICH WAS BEING RUN ALONG WITH HOTEL AND WAS ANCILLARY TO THE HOTEL BUSINESS AND THAT WAS WHY IT WAS NOT HELD TO BE A SEPARATE INDUSTRIAL UNDERTAKING WITHIN THE MEANING OF SECTION 80J OF THE ACT. IT WAS THE FURT HER SUBMISSION THAT THE DECISION IN THE CASE OF INDIAN HOTELS CO. LTD., REFERRED TO SUPRA, WOULD NOT APPLY INSOFAR AS IN THE SAID DECISION THE ASSESSEE THEREIN WAS ENGAG ED IN THE BUSINESS OF TRADING ACTIVITY. IT WAS THE FURTHER SUBMISSION THAT IN AN Y CASE EVEN IF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF INDIAN HOTELS CO. LTD. WAS TO BE APPLIED, THEN IT HAD BEEN CATEGORICALLY HELD THERE THAT FOOD PREPARED IN THE FLIGHT KITCHEN INVOLVED ONLY THE ACTIVITY OF PROCESSING AND NOT MA NUFACTURING. 5. THE LEARNED AUTHORISED REPRESENTATIVE DREW OUR ATTENTION TO THE PROVISIONS OF SECTION 10B AS IT STOOD WHEN THE ASSESSEE STARTE D ITS BUSINESS. IT WAS THE SUBMISSION THAT THE ASSESSMENT YEAR 2006-07 WAS THE 7 TH YEAR OF CLAIM AND THE DATE OF COMMENCEMENT OF MANUFACTURE OR PRODUCTION W AS 01-04-1999. IT WAS THE SUBMISSION THAT THE PROVISIONS OF SECTION 10B H AD BEEN SUBSTITUTED BY THE FINANCE ACT, 2000 W.E.F. 1-4-2001. IT WAS THE SUBM ISSION THAT WHEN THE ASSESSEE I.T.A. NOS. 598-600 & 620-621/MDS/2011 7 HAD MADE ITS CLAIM FOR DEDUCTION U/S 10B, THE PROVI SIONS OF THE EXPLANATION TO SECTION 10B HAD CATEGORICALLY PROVIDED THAT MANUFA CTURE INCLUDES ANY PROCESS. IT WAS THE SUBMISSION THAT IN ANY CASE THE ACTIVITI ES OF THE ASSESSEE IN CONVERTING RAW GHERKINS INTO GHERKIN PICKLES INVOLVED MULTIPLE PROCESSES AND THE SAME, IN VIEW OF THE EXPLANATION TO SECTION 10B AS IT STOOD A T THE YEAR OF COMMENCEMENT OF ITS CLAIM, WERE MANUFACTURE. IT WAS THE FURTH ER SUBMISSION THAT THE HON'BLE KERALA HIGH COURT IN THE CASE OF TATA TEA LTD. V. A SSISTANT COMMISSIONER OF INCOME-TAX, REPORTED IN (2000) 189 TAXMAN 303 (KER) , FOR THE PURPOSE OF SECTION 10B OF THE ACT HAD HELD THAT BLENDING, PACKING AND EXPORTING OF TEA BAGS, TEA IN PACKETS AND TEA IN BULK PACKS WAS MANUFACTURE. THE LEARNED AUTHORISED REPRESENTATIVE FURTHER RELIED UPON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. JAMAL PHOTO INDUSTRIES (I) (P.) LTD. REPORTED IN 287 ITR 620 WHEREIN IT HAD BEEN HELD THAT FOR THE PURPOSE O F SECTION 80-IA, THE EXPRESSION MANUFACTURE INVOLVES THE CONCEPT OF CH ANGES EFFECTED TO A BASIC RAW MATERIAL RESULTING IN THE EMERGENCE OF, OR TRANSFOR MATION INTO, A NEW COMMERCIAL COMMODITY. IT IS NOT NECESSARY THAT THE ORIGINAL A RTICLE OR MATERIAL SHOULD HAVE LOST ITS IDENTITY COMPLETELY. ALL THAT IS REQUIRED IS TO FIND OUT WHETHER AS A RESULT OF OPERATION IN QUESTION, A TOTALLY DIFFERENT COMMODIT Y HAD BEEN PRODUCED. IT WAS THE SUBMISSION THAT IN THE PRESENT CASE THE GHERKIN S WHICH WERE CONVERTED INTO GHERKIN PICKLES WAS A TOTALLY DIFFERENT COMMODITY W HICH HAD BEEN PRODUCED. IT WAS THE SUBMISSION THAT IN VIEW OF THE LATER DEVELO PMENT IN THE LAW, THE DECISION I.T.A. NOS. 598-600 & 620-621/MDS/2011 8 OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE AS SESSEES OWN CASE FOR THE ASSESSMENT YEARS 2001-02 TO 2003-04, REFERRED TO SU PRA, SHOULD NOT BE FOLLOWED AND IT SHOULD BE HELD THAT THE ASSESSEE IS ENTITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 10-B OF THE ACT. 6. IN REPLY, THE LEARNED DR SUBMITTED THAT THERE WA S A DECISION OF THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES O WN CASE AND IT HAD THE BINDING PRECEDENT. IT WAS THE FURTHER SUBMISSION THAT IF T HE PICKLE AS MANUFACTURED BY THE ASSESSEE WAS WASHED, THE GHERKIN COULD BE OBTAI NED. IT WAS THE SUBMISSION THAT NO NEW PRODUCE CAME INTO EXISTENCE. IT WAS TH E SUBMISSION THAT THE MAIN INGREDIENT OF THE ASSESSEES PICKLE WAS GHERKINS AN D THE SAME DID NOT LOSE THEIR INDIVIDUALITY AFTER THE VARIOUS ACTIVITIES DONE BY THE ASSESSEE FOR CONVERTING THE GHERKINS INTO GHERKIN PICKLES. IT WAS THE FURTHER SUBMISSION THAT THE TERM MANUFACTURE HAS BEEN DEFINED IN SECTION 2(29BA) O F THE ACT AND AS PER THE DEFINITION OF MANUFACTURE THERE SHOULD BE THE TRA NSFORMATION OF THE OBJECT OR ARTICLE OR THING INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVING DIFFERENT NAME, CHARACTER AND USE, WHICH IN THE PRESENT CASE WAS NOT AVAILABLE. THE LEARNED DR FURTHER RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF PIO FOOD PACKERS REPORTED IN 46 STC 63 TO S AY THAT CONVERTING PINEAPPLE INTO PINEAPPLE SLICES, PINEAPPLE JAM, PINEAPPLE SQU ASH AND PINEAPPLE JUICE WAS NOT MANUFACTURE. HE VEHEMENTLY RELIED UPON THE ORDER OF THE LEARNED CIT(A) I.T.A. NOS. 598-600 & 620-621/MDS/2011 9 AS ALSO THE DECISION OF THE CO-ORDINATE BENCH OF TH IS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2001-02 TO 2003-0 4, REFERRED TO SUPRA. 7. IN REPLY, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE DECISION IN THE CASE OF PIO FOOD PACKERS, REFERRED TO SUPRA, ALSO RECOGNIZED THAT WHAT WAS BEING DONE THERE WAS PROCESSING. IT WAS THE SUBMIS SION THAT FOR THE PURPOSE OF KERALA GENERAL SALES TAX ACT, 1963, THE PROCESSING OF PINEAPPLE INTO PINEAPPLE SLICES WAS NOT MANUFACTURE BUT AS PER THE EXPLANATIO N TO SECTION 10B OF THE INCOME TAX ACT, 1961 AS PROCESS HAS BEEN HELD TO BE INCLUSIVE IN THE TERM MANUFACTURE, THE ASSESSEE SHOULD BE HELD TO BE EL IGIBLE FOR THE DEDUCTION UNDER SECTION 10B OF THE ACT. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PER USAL OF THE PROVISIONS OF SECTION 10-B OF THE ACT IN THE PRESENT CASE CLEARLY SHOWS THAT IT IS THE PROVISION OF SECTION10-B BEFORE ITS SUBSTITUTION W.E.F. 1.4.2001 WHICH IS APPLICABLE IN THE ASSESSEES CASE. THIS IS BECAUSE THE ASSESSMENT YE AR 2006-07 IS THE 7 TH YEAR OF ITS BUSINESS AND IT REMAINS UNDISPUTED THAT THE ASS ESSEE HAD STARTED ITS PRODUCTION ON 1.4.1999 AND ITS FIRST YEAR OF CLAIM IS 2000-01. BEFORE ITS SUBSTITUTION, SECTION 10B AND THE EXPLANATION THERET O HAS CATEGORICALLY HELD THAT MANUFACTURE INCLUDES ANY PROCESS. A PERUSAL OF THE VARIOUS DECISIONS AS HAVE BEEN QUOTED ABOVE CLEARLY SHOWS THAT THE CONVERSION OF THE GHERKINS IN THE PRESENT CASE INTO GHERKIN PICKLES INVOLVES PROCESS . THIS IS ALSO EVIDENT FROM THE CHART OF THE ACTIVITY DONE BY THE ASSESSEE, EXTRACT ED ABOVE. ONCE IT IS HELD TO BE I.T.A. NOS. 598-600 & 620-621/MDS/2011 10 A PROCESS FOR THE PURPOSE OF THE PROVISIONS OF SE CTION 10B, IT WOULD HAVE TO BE HELD THAT THE ASSESSEE IS DOING MANUFACTURE. FUR THER A PERUSAL OF THE PROVISIONS OF SECTION 2(29BA) THOUGH INSERTED BY THE FINANCE ( NO.2) ACT, 2009, WITH RETROSPECTIVE EFFECT FROM 1-4-2009, CLEARLY SHOWS T HAT MANUFACTURE WOULD MEAN A CHANGE IN A NON-LIVING PHYSICAL OBJECT OR ARTICLE OR THING RESULTING IN TRANSFORMATION OF THE OBJECT OR ARTICLE OR THING IN TO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFERENT NAME, CHARACTER AND USE. IN THE PRESENT CASE, THE TERM DIFFERENCE NAME, CHARACTER AND USE COMES INTO IMPORTANCE. THE GHERKIN BY ITSELF IS A VEGETABLE. WHEN IT IS PROCE SSED AND MADE INTO GHERKIN PICKLES, THE NAME IS GHERKIN PICKLES. ITS CHAR ACTERISTIC FROM THAT OF A VEGETABLE CHANGES INTO A PICKLE AND ITS USE ALSO CHANGES. GH ERKIN AS A VEGETABLE IS USED FOR MAKING FOOD DISHES OR SALADS. IT IS EATEN RAW. IT IS USED FOR BEAUTY TREATMENT. THE GHERKIN PICKLES CANNOT BE USED IN THE SAME MANN ER AS THE GHERKIN ITSELF. WASHING THE GHERKIN PICKLES TO OBTAIN THE GHERKINS WOULD IN NO WAY HELP THE CASE OF THE REVENUE INSOFAR AS THE GHERKIN PIECES SO OBT AINED FROM THE WASHING OF THE GHERKIN PICKLES CANNOT BE USED FOR THE SAME PURPOSE AS GHERKIN COULD NORMALLY BE USED. FURTHER, A READING OF THE PROVISIONS OF SECT ION 80-IC(2) TALKS OF MANUFACTURE OR PRODUCTION. THE XIV SCHEDULE TO THE INCOME TAX ACT, 1961 WHICH GIVES THE LIST OF ARTICLES OR THINGS OR OPERATIONS IN ITEM I RECOGNIZES FRUIT AND VEGETABLE PROCESSING INDUSTRIES MANUFACTURING OR PR ODUCING -- (I) CANNED OR BOTTLED PRODUCTS. OBVIOUSLY, THE ASSESSEE IS A VEG ETABLE PROCESSING INDUSTRY AND I.T.A. NOS. 598-600 & 620-621/MDS/2011 11 AS PER THE XIV SCHEDULE ITSELF, IT IS MANUFACTURING OR PRODUCING THE BOTTLED PRODUCT OF GHERKIN PICKLES. 9. A READING OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. N.C BUDHARAJA & CO., REPORTED IN 204 ITR 412 CLEARL Y SHOWS THAT THE HON'BLE SUPREME COURT HAS DEFINED THE TERM PRODUCTION WHE N USED IN JUXTAPOSITION WITH THE WORD MANUFACTURE TO TAKE IN BRINGING INTO EXI STENCE NEW GOODS BY A PROCESS WHICH MAY OR MAY NOT AMOUNT TO MANUFACTURE. IT ALS O TAKES IN ALL THE BY- PRODUCTS, IMMEDIATE PRODUCTS AND RESIDUAL PRODUCTS WHICH EMERGE IN THE COURSE OF MANUFACTURE OF GOODS. HERE AGAIN THE WORD PROC ESS IS USED. A PERUSAL OF THE DECISION IN THE CASE OF INDIAN HOTELS CO. LTD., REFERRED TO SUPRA, ALSO CLEARLY RECOGNIZES THE PROCESS. HOWEVER, FOR THE PURPOSE O F THE DEDUCTION UNDER SECTION 80J, 80IA ETC. THE PROCESS IS NOT BEING TREATED AS A MANUFACTURE AS PROCESS DOES NOT AMOUNT TO MANUFACTURE FOR THE SAID SECTI ONS. HOWEVER, FOR THE PURPOSE OF SECTION 10B THE TERM MANUFACTURE HAS B EEN HELD TO INCLUDE PROCESS. THIS IS WHERE THE DIFFERENCE COMES. SEC . 80J, 80IA ETC. DID NOT EXPLAIN OR DEFINE THE TERM MANUFACTURE. THIS LED TO THE INTERPRETATION OF THE TERM MANUFACTURE OR PRODUCTION. HOWEVER, SEC. 10B B EFORE ITS SUBSTITUTION W.E.F. 1.4.2001 DEFINED MANUFACTURE TO INCLUDE PROCESS . 10. NOW COMING TO THE DECISION OF THE CO-ORDINATE B ENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2001-0 2 TO 2003-04, IT IS NOTICED THAT THE CO-ORDINATE BENCH HAS HELD THAT THERE WAS NO PRODUCTION OR MANUFACTURE I.T.A. NOS. 598-600 & 620-621/MDS/2011 12 OF ARTICLE OR THING. IT IS NOTICED THAT THE CO-ORD INATE BENCH OF THIS TRIBUNAL HAD NOT TAKEN INTO CONSIDERATION THE EXPLANATION TO SECT ION 10B WHERE THE TERM MANUFACTURE INCLUDED THE PROCESS. IN THE CIRCU MSTANCES, WE ARE OF THE VIEW THAT IN VIEW OF THE DECISION OF THE HON'BLE JURISDI CTIONAL HIGH COURT IN THE CASE OF CIT V. HI-TECH ARAI LTD REPORTED IN 321 ITR 477 WE MUST TAKE A DIFFERENT VIEW AND WE DO SO. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED TO THE DEDUCTION UNDER SECTION 10B OF THE ACT AS THE ASSESSEE IS MANUFACTURING GHERKIN PICKLES FROM GHERKIN FOR THE PURPOSE OF DEDUCTION U/S 10B. IN THE CIRCUMSTANCES, THE APPEALS OF THE ASSESSEE A RE ALLOWED. 11. I.T.A. NOS. 620 & 621/MDS/2011 ; NOW, WE TAKE UP THE APPEALS OF THE REVENUE. 12. REVENUE HAS TAKEN COMMON GROUNDS FOR BOTH THE A SSESSMENT YEARS INVOLVED. ITS GRIEVANCE IS THAT LD. CIT(APPEALS) D ELETED DISALLOWANCE OF ADVANCE WRITE-OFF MADE BY THE ASSESSEE. SUCH ADVANCES GIVE N TO FARMERS WERE FOR SUPPLY OF RAW MATERIALS. AS PER THE REVENUE, DECISION OF HON 'BLE APEX COURT IN THE CASE OF CIT V. MYSORE SUGAR CO. LTD. (46 ITR 649) RELIED ON BY LD. CIT(APPEALS) WAS NOT APPLICABLE ON FACTS. 13. SHORT FACTS APROPOS ARE THAT ASSESSEE IN ITS PR OFIT AND LOSS ACCOUNT FOR THE IMPUGNED ASSESSMENT YEARS DEBITED UNDER THE HEAD I RRECOVERABLE ADVANCES FROM FARMERS ` 39,44,289/- AND ` 33,38,074/- RESPECTIVELY. AS PER THE ASSESSEE, TH ESE AMOUNTS WERE GIVEN TO FARMERS FOR SUPPLY OF RAW MAT ERIALS/AGRICULTURAL PRODUCE TO I.T.A. NOS. 598-600 & 620-621/MDS/2011 13 THE ASSESSEE. SINCE SUCH RAW MATERIALS WERE NOT SU PPLIED BY THE FARMERS, VICE PRESIDENT OF THE ASSESSEE-COMPANY HAD TAKEN A CONSC IOUS DECISION IN CONSULTATION WITH THE MANAGEMENT TO WRITE-OFF THE AMOUNTS. HOWE VER, A.O. WAS OF THE OPINION THAT THE ABOVE MENTIONED WRITE-OFF WAS CLAIMED BY T HE ASSESSEE UNDER THE HEAD SELLING AND DISTRIBUTION EXPENSES, BUT, SUCH EXPE NSES WERE, AS PER ADMISSION OF THE ASSESSEE ITSELF, INCURRED FOR PROCUREMENT OF AG RICULTURAL PRODUCE/RAW MATERIALS. HENCE, ACCORDING TO HIM, THIS CLAIM UNDER THE HEAD SELLING AND DISTRIBUTION EXPENSES COULD NOT BE ALLOWED. HE, THEREFORE, DIS ALLOWED THE CLAIM FOR THE RESPECTIVE ASSESSMENT YEARS. 14. IN ITS APPEAL BEFORE LD. CIT(APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT THE MAIN RAW MATERIAL FOR THE PRODUCTION OF PICKLE WAS GHERKINS GROWN BY THE AGRICULTURISTS. ACCORDING TO ASSESSEE, IT WAS NECE SSARY FOR IT TO ENSURE REGULAR SUPPLY OF GHERKINS FROM THE FARMERS. FOR THIS PURP OSE, ADVANCE MONEY WAS GIVEN TO AGRICULTURISTS WHICH WERE ADJUSTED AGAINST SUPPL IES MADE BY THEM. HOWEVER, WHEN THERE WAS FAILURE OF CROP, SOME FARMERS FAILED TO HONOUR THEIR COMMITMENT FOR SUPPLY OF GHERKINS. ACCORDING TO ASSESSEE, THE ADV ANCES IN SUCH CIRCUMSTANCES BECAME IRRECOVERABLE. AS PER THE ASSESSEE, THE LO SS WRITE-OFF WAS NOTHING BUT A REVENUE LOSS. LD. CIT(APPEALS) WAS APPRECIATIVE OF THIS CONTENTION. ACCORDING TO HIM, DECISION OF HON'BLE APEX COURT IN THE CASE OF MYSORE SUGAR CO. LTD. (SUPRA) SUPPORTED THE CLAIM OF THE ASSESSEE. I.T.A. NOS. 598-600 & 620-621/MDS/2011 14 15. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF LD. CIT(APPEALS), SUBMITTED THAT THERE WAS NO FINDING WHETHER SUCH A CLAIM OF LOSS, WAS OUT OF EARLIER ADVANCES GIVEN BY THE ASSESSEE OR ADVANCES GIVEN DU RING THE IMPUGNED ASSESSMENT YEARS. ACCORDING TO LEARNED D.R., IF IT WERE ADVANCES GIVEN DURING THE RELEVANT PREVIOUS YEAR ITSELF, THEN A WRITE-OFF COU LD NOT BE ALLOWED SINCE IRRECOVERABILITY THEREOF COULD NOT BE ESTABLISHED, IN SUCH A SHORT PERIOD OF TIME. 16. PER CONTRA, LEARNED A.R. SUBMITTED THAT THE ADV ANCES WERE GIVEN DURING THE YEARS PRIOR TO THE RELEVANT PREVIOUS YEARS AND WRIT E-OFF WAS EFFECTED ONLY FOR THE REASON THAT SUPPLIES OF GHERKINS WERE NOT MADE BY T HE CONCERNED AGRICULTURISTS. 17. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. THERE IS NO DISPUTE THAT ASSESSEE HAD GIVEN THE MONEY FOR SUPPL Y OF GHERKINS TO THE AGRICULTURISTS AND FARMERS. THERE IS ALSO NO DISPU TE THAT THE CONCERNED FARMERS OR AGRICULTURISTS FAILED TO SUPPLY GHERKINS FOR WHICH ADVANCES WERE GIVEN. GHERKINS WAS AN ESSENTIAL RAW MATERIAL OF THE ASSESSEE FOR P RODUCING GHERKINS PICKLES. THIS BEING SO, GIVING ADVANCES TO FARMERS COULD ONLY BE CONSIDERED AS A MEASURE TO ENSURE CONTINUOUS SUPPLY OF RAW MATERIAL, WHICH WAS ESSENTIAL IN THE NATURE OF BUSINESS OF THE ASSESSEE. WHEN THE RAW MATERIALS W ERE NOT RECEIVED ON SUCH ADVANCES, IT WOULD DEFINITELY BE A LOSS TO THE ASSE SSEE AND SUCH LOSS WOULD LIE IN REVENUE FIELD ONLY. AS HELD BY HON'BLE APEX COURT IN THE CASE OF CIT V. WOODWARD GOVERNOR INDIA P. LTD. (312 ITR 254), THE EXPRESSIO N ANY EXPENDITURE USED IN SECTION 37 OF THE ACT COVER BOTH EXPENSES INCURRED AS WELL AS LOSS EVEN IF THE I.T.A. NOS. 598-600 & 620-621/MDS/2011 15 LOSS AMOUNT HAD NOT GONE OUT OF THE POCKET OF THE ASSESSEE. HON'BLE APEX COURT ALSO OBSERVED THAT BUSINESS LOSSES ARE DEDUCTIBLE U NDER SECTION 37(1) OF THE ACT ON THE BASIS OF ORDINARY PRINCIPLES OF COMMERCIAL ACCO UNTING. WE ARE OF THE OPINION THAT THE ADVANCES HAVING FAILED, ASSESSEE WAS VERY MUCH RIGHT IN EFFECTING A WRITE- OFF. THOUGH THE LEARNED D.R. ARGUED THAT PART OF A DVANCES WRITTEN OFF MIGHT HAVE BEEN OF THE SAME YEAR, NOTHING WAS PLACED ON RECORD TO SUBSTANTIATE THIS CONTENTION. WE ARE, THEREFORE, OF THE OPINION THAT LD. CIT(APPEALS) WAS JUSTIFIED IN DELETING THE DISALLOWANCES MADE BY THE A.O. IN THIS REGARD. 18. IN THE RESULT, BOTH THE APPEALS FILED BY THE RE VENUE ARE DISMISSED. 19. THE ORDER WAS PRONOUNCED IN THE COURT ON 26/08/ 2011. SD/- SD/- (ABRAHAM P. GEORGE) (GEORGE MATHAN) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 26 TH AUGUST, 2011. H. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE
