ACIT, Central Circle-2(1), Kolkata, Kolkata V. M/s Amrit Hatcheries Pvt. Ltd., Kolkata

ITSSA 125/KOL/2016

• Counselvise Citation: [2017] 122 COUNSELVISE.COM (IT) 3289 (ITAT-KOLKATA)
• Duration Of Justice: 4 month(s) 12 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 05-04-2017
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 23-11-2016
• Court: TRIBUNAL
• Department Lawyers: G MALLIKARJUNA
• Assessee Lawyers: D S DAMLE
• Section: 80HHC; 80IB; 10

Judgement Text

IT(SS)A.NOS.125 TO 128/KOL/2016 M/S. AMRIT HATCHERI ES (P) LTD., A.Y.2008-09 & 2010-11 TO 2012-13 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH 'C', KO LKATA [BEFORE HON'BLE SRI N.V.VASUDEVAN, JM & HON'BLE SRI M.BALA GANESH, AM] IT(SS) A NO.125 TO 128/KOL/2016 ASSESSMENT YEAR : 2008-09, 2010-11 TO 2012-13 A.C.I.T., CENTRAL CIRCLE-2(1) -VS- M/S. AMRIT HATCHERIES PVT.LTD., KOLKATA KOLKATA (PAN AACCA 5987F) (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI.G.MALLIKARJUNA CIT DR FOR THE RESPONDENT: SHRI D.S.DAMLE, FCA DATE OF HEARING : 21.3.2017 DATE OF PRONOUNCEMENT : 05.04.2017. ORDER PER BENCH: THESE ARE APPEALS FILED BY THE REVENUE AGAINST 4 OR DERS ALL DATED 27.9.2016 OF CIT(A)-20, KOLKATA, RELATING TO AY 2008-09, 2010-11 TO 2012-13. SINCE COMMON ISSUES ARE INVOLVED IN THESE APPEALS, WE DEEM IT CO NVENIENT TO PASS A CONSOLIDATED ORDER. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN ALL THESE APPEALS ARE IDENTICAL. FOR THE PURPOSE OF REFERENCE, WE REPRODUCE THE GROUNDS RAISED BY THE REVENUE IN IT(SS)A.NO.25/KOL/2016 FOR AY 2008-09 WHICH READS A S FOLLOWS: (I) THAT THE LD. CIT(A) HAS ERRED IN ACCEPTING THA T THE TERM 'MANUFACTURE' OCCURRING IN THE CONTEXT OF SECTION 80-IB DOES NOT NECESSARILY REQUIRE THAT THE END PRODUCT OF THE MANUFACTURING PROCESS IS TO BE COMPL ETELY DIFFERENT FROM THE INGREDIENTS, AS REGARDS ITS CHEMICAL COMPOSITION, I NTEGRAL STRUCTURE OR ITS USE. (II) THAT THE LD. CIT(A) HAS ERRED IN ACCEPTING THA T THE PROCESS OF MANUFACTURING OF POULTRY FEEDS DOES NOT AMOUNT TO MERE MIXING TOG ETHER OF ALL DIFFERENT INGREDIENTS, WITHOUT INVOLVING ANY CHANGE IN THE CH EMICAL COMPOSITION OF THE INGREDIENTS. IT(SS)A.NOS.125 TO 128/KOL/2016 M/S. AMRIT HATCHERI ES (P) LTD., A.Y.2008-09 & 2010-11 TO 2012-13 2 (III) THAT THE LD. CIT(A) HAS ERRED IN ACCEPTING TH AT THE PROCESS OF PREPARATION OF POULTRY FEEDS AMOUNT TO PRODUCTION OF AN ARTICLE WI THIN THE MEANING OF SECTION 80IB. (IV) THAT THE LD. CIT(A) HAS ERRED IN ALLOWING THE ENTIRE AMOUNT OF RS.83,06,647/- CLAIMED AS DEDUCTION U/S 80-IB. (V) THAT THE LD. CIT(A) HAS ERRED IN DIRECTING THE A.O. TO NET OFF THE INTEREST INCOME CREDITED IN THE PROFIT AND LOSS ACCOUNT OF T HE ELIGIBLE UNDERTAKING AGAINST THE INTEREST EXPENSE DEBITED IN THE SAID PROFIT AND LOSS ACCOUNT WITHOUT THE APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CAS E SUPPORTED BY THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF PANDIAN CHEMIC ALS LIMITED VS. CIT,[2003] 129 TAXMAN 539 (SC) AND THE DECISION OF HIGH COURT OF JAMMU AND KASHMIR IN THE CASE OF ASIAN CEMENT INDUSTRIES VS INCOME TAX APPELLATE TRIBUNAL, [2012] 28 TAXMAN 290(JAMMU & KASHMIR) (VI) THAT THE DEPARTMENT CRAVES THE RIGHT TO ADD, M ODIFY OR ABROGATE THE GROUNDS OF APPEAL DURING THE COURSE OF HEARING OF THE CASE. 3. GROUNDS NO.(I) TO (III) RAISED BY THE REVENUE I N ALL THE APPEALS IS WITH REGARD TO THE ISSUE AS TO WHETHER THE CIT(A) WAS JUSTIFIED IN ALL OWING THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S.80IB(5) OF THE INCOME TAX ACT, 1961 ( ACT) ON THE PROFITS DERIVED BY THE ASSESSEE FROM MANUFACTURE AND SALE OF POULTRY FEED. 4. AT THE TIME OF HEARING IT WAS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE AFORESAID ISSUE REGARDING THE ELIGIBILITY OF THE ASSESSEE FOR DEDUCTION U/S 80IB(5) OF THE ACT HAS ALREADY BEEN DECIDED BY THE ITAT KOLKATA BENCH IN ASSESSEES OWN CASE FOR AY 2005-06 IN ITA NO. 748/KOL/2008 ORD ER DATED 7.8.2008 AND THIS TRIBUNAL FOLLOWING THE DECISION RENDERED IN THE CAS E OF M/S.AMRIT FEEDS IN ITA NO.1505/KOL/2007 FOR AY 2003-04 DECIDED THE ISSUE I N FAVOUR OF THE ASSESSEE HOLDING THAT THE PROFIT DERIVED FROM THE ACTIVITY O F MANUFACTURE OF POULTRY FEED WAS ENTITLED TO DEDUCTION U/S.80IB(5) OF THE ACT. 5. IT WAS THE PLEA OF THE ASSESSEE THAT THE PROCES S OF PRODUCING POULTRY FEED INVOLVED MECHANICAL, CHEMICAL & ELECTRICAL PROCESSES FOR WHI CH THE ASSESSEE USED SOPHISTICATED PLANT & MACHINERY. IN THE COURSE OF PRODUCTION OF P OULTRY FEED RAW- MATERIALS WHICH EXCEEDED 30 IN NUMBER, LOST INDIVIDUAL IDENTITY AND THE EMERGING PRODUCT WAS DISTINCT IT(SS)A.NOS.125 TO 128/KOL/2016 M/S. AMRIT HATCHERI ES (P) LTD., A.Y.2008-09 & 2010-11 TO 2012-13 3 AND SEPARATE IN SHAPE, CHARACTER AND END-USE. THE R AW- MATERIALS CONSUMED IN PRODUCTION OF POULTRY FEED COULD BE INDIVIDUALLY US ED FOR DIFFERENT PURPOSES, BUT THE END PRODUCT AT THE END OF INTEGRATED PRODUCTION PRO CESS WAS KNOWN TO TRADE BY ITS DISTINCT COMMERCIAL NAME AS 'POULTRY FEED'. IT COUL D ONLY BE CONSUMED BY ONLY ONE CLASS OF CONSUMER I.E. POULTRY & NONE ELSE. IT WAS THE CLAIM OF THE ASSESSEE THE END PRODUCT WAS KNOWN AS POULTRY FEED IN THE TRADE, COM MERCE AND INDUSTRY AND WAS CONSIDERED AS SEPARATE AND DISTINCT FROM VARIOUS MA TERIALS CONSUMED IN THE PROCESS OF ITS PRODUCTION. THE ASSESSEE ALSO PLEADED THAT POUL TRY FEED MANUFACTURING INDUSTRY WAS NOTIFIED BY THE CENTRAL GOVERNMENT TO BE ELIGIB LE FOR CLAIMING DEDUCTION FOR A CONSECUTIVE PERIOD OF 10 YEARS U/S 801B(4) OF THE A CT WHERE THE UNDERTAKING WAS LOCATED IN ANY OF THE NORTH EASTERN STATES. IT WAS THE PLEA OF THE ASSESSEE THAT DEDUCTION BOTH U/S 801B (4) & (5) COULD BE ALLOWED ONLY IF NEWLY SET UP INDUSTRIAL UNDERTAKING WAS ENGAGED IN MANUFACTURE AND PRODUCTI ON OF AN ARTICLE AND IF POULTRY FEED INDUSTRY WAS CONSIDERED ELIGIBLE BY THE CENTRA L GOVERNMENT FOR CLAIMING DEDUCTION U/S 801B(4) THEN THE SAME INDUSTRY SHOULD BE CONSIDERED TO BE ELIGIBLE FOR DEDUCTION U/S 801B(5) OF THE ACT ALSO ON THE GROUND AT IT WAS ENGAGED IN MANUFACTURE OR PRODUCTION OF AN ARTICLE. 6. THE AO HOWEVER WAS OF THE VIEW THAT IN THE PROD UCTION PROCESS EXPLAINED BY THE ASSESSEE, THERE WAS NO CHANGE IN CHEMICAL COMPOSITI ON OF THE END PRODUCT AND THEREFORE THERE WAS NO MANUFACTURE. HOWEVER BEFORE RECORDING SUCH AN AUTHENTIC TECHNICAL FINDING, THE AO HOWEVER DID NOT REFER TO ANY SCIENTIFIC DATA OR SCIENTIFIC EXPERIMENTS OR TECHNICAL REPORT TO SUPPORT HIS CONC LUSION. THE AO ACCORDINGLY REJECTED THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/ S.80IB(5) OF THE ACT. 7. ON APPEAL BY THE ASSESSEE, THE CIT(A) HELD THAT THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S.80IB(5) OF THE ACT AND IN DOING SO RE LIED ON THE DECISION RENDERED IN ASSESSEES OWN CASE BY THE TRIBUNAL REFERRED TO IN THE EARLIER PART OF THIS ORDER. 8. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVEN UE IS IN APPEAL BEFORE THE TRIBUNAL. IT(SS)A.NOS.125 TO 128/KOL/2016 M/S. AMRIT HATCHERI ES (P) LTD., A.Y.2008-09 & 2010-11 TO 2012-13 4 9. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE ONLY IS SUE INVOLVED IN THIS GROUND RELATES TO WHETHER THE ASSESSEE IS ENGAGED IN THE MANUFACTU RE OF A PRODUCTION OF AN ARTICLE SO THAT IT MAY BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB. THIS ISSUE HAS DULY BEEN DECIDED BY THIS BENCH IN ASSESSEE'S SISTER CONCERN IN ITA NO.1505/KOL/2007 IN THE CASE OF ACIT-VS- AMRIT FEEDS LTD., KOLKATA, IN WHIC H, THE SIMILAR ISSUE HAS ARISEN. WHILE DECIDING THE SIMILAR ISSUE, THIS TRIBUNAL OBS ERVED AS UNDER VIDE PARA 15 TO 18 OF ITS ORDER. '15. SEC 801B (2) (III) REQUIRES THE ELIGIBLE INDUS TRIAL UNDERTAKING TO BE ENGAGED IN 'MANUFACTURE OF PRODUCTION OF AN ARTICLE '. THE SAID SECTION HOWEVER, DOES NOT DEFINE THE EXPRESSION 'MANUFACTURE OR PROD UCTION OF AN ARTICLE'. IN FACT THIS EXPRESSION IS NOT DEFINED IN THE ACT ALSO. THE LD. CIT (A) EXTENSIVELY ANALYSED MEANING OF THE SAID EXPRESSION WITH REFERE NCE TO JUDICIAL DECISIONS DISCUSSED IN HIS ORDER. THE TEST LAID DOWN BY THE C OURTS IS WHETHER THE EMERGING NEW PRODUCT IS KNOWN TO THE TRADE, INDUSTR Y AND COMMERCE BY ITS OWN NAME HAVING ITS OWN APPLICATION USE AND HAS A MARKE T OF ITS OWN. APPLYING THE CRITERIA AS LAID DOWN IN THESE JUDICIAL DECISIONS W E FIND THAT IN PHYSICAL APPEARANCE, COLOUR AND SHAPE THE. POULTRY FEED VAST LY DIFFERS FROM THE INPUT MATERIALS. THE POULTRY FEED IS MANUFACTURED IN A SC IENTIFIC AND SYSTEMATIC MANNER WITH THE USE AND ASSISTANCE OF SOPHISTICATED PLANT AND MACHINERY ACQUIRED AT A SUBSTANTIAL COST. POULTRY FEED IS REC OGNISED NOT ONLY BY TRADE AND COMMERCE BUT ALSO BY THE STATUTORY AUTHORITIES UNDE R CENTRAL EXCISE, SALES TAX ETC AS INDEPENDENT PRODUCTS APPLYING THE RATIO LAID DOWN IN JUDICIAL DECISIONS DISCUSSED IN THE ORDER OF CTT(A) WE HAVE NO HESITAT ION IN HOLDING THAT THE ASSESSEE IS ENGAGED IN MANUFACTURE OR PRODUCTION OF AN ARTICLE, CONTEMPLATED IN SEC 801B (2) (III) . 16. WE ALSO FIND ON THE IDENTICAL FACTS THE BANGALO RE BENCH OF ITAT IN THE CASE OF KOMRALA FEEDS --VS- DCIT 74 ITD 65 HELD THAT ACT IVITY OF PRODUCING POULTRY FEED AMOUNTS TO MANUFACTURE AND THEREFORE E LIGIBLE FOR DEDUCTION U/S 80 I. SEC 80I AND SEC 80IB ARE PARAMETERIA BECAUSE CON DITIONS FOR PART OF DEDUCTION ARE SAME AND THEREFORE THE SAID DECISION IS EQUALLY APPLICABLE IN THE PRESENT CASE. 17. SECTION 80IB IS AN INCENTIVE PROVISION OF THE INCOME TAX ACT ENACTED, BY THE LEGISLATURE TO PROMOTE ECONOMIC AND INDUSTRIAL GROWTH IN BACKWARD DISTRICTS AND STATES. IN THE CASE OF BAJAJ TEMPO LT D --VS. CIT (196 ITR 188) THE SUPREME COURT HAS OPINED THAT A PROVISION OF TAXING STATUTE GRANTING INCENTIVES FOR PROMOTING GROWTH AND DEVELOPMENT SHOULD BE CONS TRUED LIBERALLY AND SINCE A PROVISION FOR PROMOTING ECONOMIC GROWTH HAS TO BE INTERPRETED LIBERALLY THE RESTRICTION THEREON TOO HAS TO BE CONSTRUED SO AS T O ADVANCE THE OBJECTIVE OF THE PROVISION AND NOT TO FRUSTRATE IT. CONDITIONS OF SE C 801B (2) (III) SHOULD BE IT(SS)A.NOS.125 TO 128/KOL/2016 M/S. AMRIT HATCHERI ES (P) LTD., A.Y.2008-09 & 2010-11 TO 2012-13 5 FULFILLED BY EVERY NEW INDUSTRIAL UNDERTAKING CLAIM ING DEDUCTION EITHER/UNDER SUB SEC (3) (4) OR (5) OF SEC 80 IB I.E. TO SAY THE UNDERTAKING MUST BE ENGAGED IN MANUFACTURE OR PRODUCTION OF AN ARTICLE. IF THIS CONDITION IS NOT FULFILLED NO DEDUCTION IS PERMISSIBLE UNDER ANY OF THE SUB SECTI ONS OF SEC 801B. THE INDUSTRIAL UNDERTAKINGS NOTIFIED AND APPROVED BY TH E CENTRAL GOVT. AND SITUATED IN NORTH EASTERN STATES ARE ELIGIBLE FOR TAX HOLIDA Y FOR PERIOD OF 10 YEARS' AS AGAINST PERIOD OF 5 YEARS AVAILABLE TO OTHER BACKWA RDS STATES. IN NOTIFICATION NO. SO 627 (E) DATED 04.08.1999 THE CENTRAL GOVERNM ENT HAS RECOGNISED POULTRY AND CATTLE FEED INDUSTRY, TO BE AN ELIGIBLE INDUSTRY U/S 80 IB (4). ONCE THE CENTRAL GOVERNMENT NOTIFIED THE POULTRY 'FEED I NDUSTRY U/S 80 IB (4) THEN THERE IS A TACIT ADMISSION THAT IT IS ENGAGED IN 'M ANUFACTURE OR PRODUCTION OF AN ARTICLE'. THIS IS SO BECAUSE UNLESS POULTRY FEED IN DUSTRY DOES NOT MANUFACTURE AN ARTICLE; NO DEDUCTION CAN BE PERMISSIBLE U/S 80I B. ONCE THE CENTRAL GOVT. ACCEPTED IN PRINCIPLE THAT POULTRY FEED IS AN ELIGI BLE INDUSTRY U/S 80IB(4); THEN THE VERY SAME INDUSTRY CANNOT BE CONSIDERED AS NON MANUFACTURING INDUSTRY UNDER SUB SECTIONS (3) AND (5) ' OF SEC 801B. WITH REFERENCE TO SAME SET OF FACTS THE REVENUE CANNOT HOLD THE POULTRY .FEED INDUSTRY AS MANUFACTURING INDUSTRY IF SITUATED IN NORTH EASTERN STATES AND A 'PROCESSING INDUSTRY' IF SITUATED IN ANY OTHER STATES SUCH AN INTERPRETATION WILL ONLY LEAD TO AN ABSURD LEGAL POSITION. 18. FOR THE REASONS AS SET OUT HEREIN BEFORE THEREF ORE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) HOLDING THE ASSESS EE TO BE ENGAGED IN MANUFACTURE OR PRODUCTION OF AN ARTICLE WE ARE THER EFORE OF THE CONSIDERED OPINION THAT THE ASSESSEE SATISFIES THE CONDITIONS OF SEC 80-IB(2) (III) OF THE ACT AND IS THEREFORE ELIGIBLE FOR DEDUCTION U/S 80IB WE THEREFORE UPHOLD THE ORDER OF CIT (A) DIRECTING A 0 TO ALLOW DEDUCTION U/S 80 IB TO THE ASSESSEE.' 10. IN ASSESSEES OWN CASE THIS TRIBUNAL IN ITA NO. 748/KOL/2018 FOR AY 2005-06 BY ORDER DATED 7.8.2008 ALLOWED SIMILAR CLAIM OF THE A SSESSEE. FROM PERUSAL OF THE SAID DECISIONS OF THIS TRIBUNAL, IT IS APPARENT THAT THI S TRIBUNAL HAS CATEGORICALLY HELD IN THE CASE THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING OF POULTRY FEEDS AND THAT THE ASSESSEE IS ENGAGED IN THE MANUFACTURE OR PRODUCTIO N OF AN ARTICLE. 11. THE LEARNED DR HOWEVER SUBMITTED THAT IN THE D ECISIONS RENDERED BY THE TRIBUNAL, THE DECISION RENDERED BY THE HYDERABAD BENCH OF ITA T IN THE CASE OF VENKATESWARA FEEDS -VS- ACIT 22 TAXMANN.COM 234 (HYD.) WAS NOT P ROPERLY CONSIDERED AND THEREFORE THE DECISION RENDERED IN ASSESSEES OWN C ASE REQUIRES RECONSIDERATION. IN THIS REGARD IT WAS SUBMITTED THAT THE TRIBUNAL IN T HE CASE OF VENKATESWAR FEEDS (SUPRA) FOUND THAT VARIOUS FEED INGREDIENTS SUCH AS MAIZE, RICE BRAN, DE-OILED SOYA ETC., ALONG WITH CERTAIN FEED PREMIXES ARE MIXED IN DIFFERENT P ROPORTIONS AND THEN GROUND TO IT(SS)A.NOS.125 TO 128/KOL/2016 M/S. AMRIT HATCHERI ES (P) LTD., A.Y.2008-09 & 2010-11 TO 2012-13 6 FORM A COURSE POWDERED MATERIAL WHICH WAS CALLED MA SH FEED. SUCH FEED UNDERWENT A CERTAIN KIND OF PHYSICAL CHANGES AND WAS CONVERTED INTO SMALL PELLETS. THE ACTUAL PROCESS INVOLVED WAS THAT THE MASH FEED WAS CARRIED THROUGH AN ELEVATOR TO A PELLET MAKING MACHINE WHERE IT GOT MIXED WITH STEAM AND TH EN FORCED THROUGH A PRESS CONTAINING SMALL HOLES TO CONVERT THE FEED INTO SMA LL PELLETS. IT WAS HELD THAT THERE WAS NO CHANGE OF COMPOSITION IN THE MASH FEED AND T HE PELLET FEED. HENCE CONVERSION OF PHYSICAL SHAPE OF THE FEED INVOLVES ONLY PROCESS ING AND NOT MANUFACTURE. 12. THE LEARNED DR FILED BEFORE US A CHART EXPLAIN ING THE PROCESS CARRIED OUT BY THE ASSESSEE, WHICH IS AS FOLLOWS: RAW MATERIALS (CORN, SOYA MEAL, RICE BRAN, CASSAVA, OTHERS QUALITY INSPECTION (AFLATCOCIN, MOISTURE, ENERGY, PROTEIN, ETC. HATCH WEIGHING (PER FORMULATION) GRINDING OF RAW MATERIALS MIXING PELLETING COOLING CRUMBLING QUALITY INSPECTION WEIGHING AND PACKAGING STORAGE IT WAS SUBMITTED BY HIM THAT THE RAW MATERIAL AND E ND PRODUCT WERE THE SAME AND THEREFORE WHAT THE ASSESSEE DOES IS ONLY PROCESSING AND NOT MANUFACTURE. FOR AN ACTIVITY TO BE CALLED MANUFACTURE ONE OF THE IMPO RTANT CRITERIA IS THAT THE END PRODUCT OF THE MANUFACTURING PROCESS IS TO BE COMPL ETELY DIFFERENT FROM THE INGREDIENTS, AS REGARDS ITS CHEMICAL COMPOSITION, I NTEGRAL STRUCTURE OR ITS USE AND IT(SS)A.NOS.125 TO 128/KOL/2016 M/S. AMRIT HATCHERI ES (P) LTD., A.Y.2008-09 & 2010-11 TO 2012-13 7 SUCH FACTOR IS MISSING IN THE CASE OF THE ASSESSEE. IT WAS ALSO SUBMITTED THAT THE ACTIVITY CARRIED OUT BY THE ASSESSEE WAS MERE MIXIN G TOGETHER OF DIFFERENT INGREDIENTS, WITHOUT INVOLVING ANY CHANGE IN THE CH EMICAL COMPOSITION OF THE INGREDIENTS AND THEREFORE, THE DECISIONS RENDERED O N THIS ISSUE HAVE OVERLOOKED THIS ASPECT. IT WAS SUBMITTED THAT THE DECISION RENDERE D IN ASSESSEES OWN CASE DID NOT CONSIDER THE DECISION OF THE HYDERABAD BENCH OF ITAT IN THE CASE OF VENKATESWARA FEEDS (SUPRA) AND THEREFORE THE DECISION REQUIRES R ECONSIDERATION. 13. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE REL YING ON THE ORDER OF THE CIT(A) AND DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN AY 2005-06 ALSO SUBMITTED THAT IN THE CASE OF AMRIT FEEDS (SUPRA), THE HONBLE ITAT H AD CONSIDERED AND DISTINGUISHED THE DECISION RENDERED IN THE CASE OF VENKATESWARA F EEDS (SUPRA) BY ITAT HYDERABAD BENCH. 14. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE R IVAL SUBMISSIONS. IN THE CASE OF AMRIT FEEDS (SUPRA), THE TRIBUNAL CONSIDERED THE DE CISION RENDERED IN THE CASE OF VENKATESWARA FEEDS (SUPRA) AND HELD THAT THE ASSESS EE IN THAT CASE HAD CLAIMED DEDUCTION UNDER SECTION 80IB ON THE ACTIVITY OF MERELY CONVERTING POULTRY MASH FEED INTO PELLET FEED AND THEREFORE THAT BENCH HAS HELD THAT THERE WAS NO CHANGE IN THE BASIC COMPONENT OR NEW OR DIFFERENT ARTICLE CAME INTO EXI STENCE. AS SUCH, CONVERSION WAS PROCESSING ACTIVITY NOT MANUFACTURING. THE TRIBUNAL HELD THAT THE CASE OF THE ASSESSEE AMRIT FEEDS (SUPRA) WAS ENTIRELY DIFFERENT. THE ASS ESSEE'S ELIGIBLE UNDERTAKING ITSELF WAS INDEPENDENTLY CARRYING OUT THE COMPLETE ACTIVIT Y I.E. FROM MIXING, GRINDING TILL THE PELLETISATION. THE RAW MATERIALS ONCE CONSUMED COUL D NOT BE RECONVERTED INTO THE SAME POSITION. ITS UTILITY GETS CHANGED. THE PRIME RAW MATERIALS SUCH AS, MAIZE, SOYA OIL, RICE BRAN, ETC. CAN NO MORE BE REGARDED TO BE THE RICE BRAN, SOYA OIL, MAIZE. WE ARE OF THE VIEW THAT THE ISSUE IN THE REVENUE'S APPEAL IS SQUARELY COVERED AGAINST THE REVENUE BY THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE EARLIER YEARS WHICH WAS BASED ON THE D ECISION RENDERED IN THE CASE OF AMRIT FEEDS (SUPRA). RESPECTFULLY FOLLOWING THE DE CISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE'S OWN CASE THE FINDING OF LD. CIT(A) ON THIS ISSUE STANDS IT(SS)A.NOS.125 TO 128/KOL/2016 M/S. AMRIT HATCHERI ES (P) LTD., A.Y.2008-09 & 2010-11 TO 2012-13 8 CONFIRMED AND THE GROUNDS OF APPEAL RAISED BY THE R EVENUE IN ALL THE APPEALS ON THIS ISSUE ARE DISMISSED. 15. AS FAR AS GROUND NOS. (IV) & (V) RAISED BY THE DEPARTMENT IN ALL THE APPEALS ARE CONCERNED IT WAS AGREED BY THE PARTIES THAT THE ISS UE IS WITH REGARD TO EXCLUDING INTEREST INCOME FROM THE PROFITS OF THE BUSINESS OF MANUFACTURE OF POULTRY FEED FOR THE PURPOSE OF ALLOWING DEDUCTION U/S 80IB(5) OF THE AC T AND THAT THIS ISSUE ARISES FOR CONSIDERATION ONLY IN THE APPEAL OF THE REVENUE FOR A.Y.2012-13. IN VIEW OF THE AFORESAID SUBMISSION GROUND NOS. (IV) AND (V) IN IT (SS)A.NOS. 125 TO 127/KOL/.2016 ARE DISMISSED AS NOT ARISING OUT OF THE ORDER OF CI T(A). 16. AS FAR AS GR.NO.(IV) & (V) RAISED BY THE REVENU E IN A.Y.2012-13 ARE CONCERNED THE FACTS ARE THAT THE ASSESSEE HAD RECEIVED INTERE ST ON FIXED DEPOSITS OF RS.5,19,954/-. THE AO HELD THAT DEDUCTION U/S 80IB(5) OF THE ACT I S TO BE ALLOWED ONLY ON PROFITS DERIVED FROM THE ELIGIBLE BUSINESS WHICH CLEARLY I NDICATED THAT THERE SHOULD BE A DIRECT OR IMMEDIATE NEXUS BETWEEN THE INCOME AND BU SINESS OF THE ASSESSEE. IT WAS THE PLEA OF THE ASSESSEE THAT THE FIXED DEPOSITS IN QUE STION WERE GIVEN AS SECURITY FOR AVAILING CREDIT FACILITIES AND THEREFORE HAD DIRECT NEXUS WITH THE ELIGIBLE BUSINESS. THE AO, HOWEVER, WAS OF THE VIEW THAT THE INTEREST INCO ME IN QUESTION HAD NO NEXUS WITH THE ELIGIBLE BUSINESS AND THEREFORE THE SAID INCOME HAS TO BE EXCLUDED FROM THE PROFITS OF THE BUSINESS ELIGIBLE FOR DEDUCTION U/S 80IB()5) OF THE ACT. 17. BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY IS PRINCIPALLY ENGAGED IN THE BUSINESS OF MANUFACTURE AND PRODUCTI ON OF POULTRY FEED, HAVING ITS MANUFACTURING UNIT AT BANKURA, WEST BENGAL. THE SAI D UNIT IS ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT. THE ASSESSEE POINTED OUT THAT IT HAD OBTAINED CREDIT LIMITS AND ARRANGED LOAN FINANCING FOR THE BUSINESS OF MANUFAC TURE & SALE OF POULTRY FEED. THE ASSESSEE PAID INTEREST ON THE LOANS/CREDIT FACILITI ES, WHICH AMOUNTED TO RS.28,35,310/- FOR THE RELEVANT YEAR. FURTHER IN ORDER TO OBTAIN P ACKING FACILITIES AND/OR OTHER WORKING CAPITAL LIMITS, THE ASSESSEE WAS REQUIRED T O PROVIDE ENCASHABLE FIXED DEPOSITS AS MARGIN/SECURITY AND FOR THAT PURPOSE FUNDS WERE INVESTED IN FIXED DEPOSITS AND IT(SS)A.NOS.125 TO 128/KOL/2016 M/S. AMRIT HATCHERI ES (P) LTD., A.Y.2008-09 & 2010-11 TO 2012-13 9 THOSE DEPOSITS YIELDED INTEREST INCOME IN QUESTION. IT WAS SUBMITTED THAT IN THE GIVEN CIRCUMSTANCES THE FIXED DEPOSITS MAINTAINED BY THE ASSESSEE WAS INEXTRICABLY LINKED WITH THE BUSINESS OF THE ASSESSEE. THE AFORESAID IN TEREST EARNED FROM THE FIXED DEPOSITS WENT ON TO EFFECTIVELY REDUCE THE OVERALL COST OF B ORROWING OF THE ASSESSEE. IN VIEW OF THE ABOVE THE ASSESSEE SUBMITTED THAT THE INTEREST EXPENSE AS WELL AS INTEREST INCOME BOTH HAVE A PROXIMATE RELATIONSHIP WITH THE BUSINES S OF THE ASSESSEE. THE INTEREST INCOME EARNED HAS DIRECT CO-RELATION WITH THE BUSIN ESS FUNDS OF THE ASSESSEE AND ACCORDINGLY IT SHOULD BE CONSIDERED FOR THE PURPOSE S OF COMPUTING DEDUCTION U/S 80IB OF THE ACT. 18. WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSEE FURTHER SUBMITTED THAT INTEREST INCOME AND INTEREST EXPENSE ARE TWO SIDES OF THE SA ME COIN. IT WAS SUBMITTED THAT THE INTEREST EXPENSE AND INTEREST INCOME DESERVES TO BE NETTED OFF AND ONLY THE NET EFFECT AFTER SET OFF SHOULD BE CONSIDERED FOR THE PURPOSES OF SECTION 80IB OF THE ACT. IT WAS ARGUED THAT THE AO ON ONE HAND TREATED THE INTEREST EXPENSE IN ITS ENTIRETY AS EXPENDITURE INCURRED IN CONNECTION WITH THE ELIGIBL E INDUSTRIAL UNIT U/S 80IB OF THE ACT. HOWEVER, ON THE OTHER HAND HE TREATED THE INTEREST INCOME IN ISOLATION AND ON GROSS BASIS MAKING IT FULLY CHARGEABLE TO TAX UNDER THE I NCOME-TAX ACT, 1961. THE ASSESSEE SUBMITTED THAT SUCH ACTION OF THE AO WAS GROSSLY UN JUSTIFIED IN FACTS AND ALSO IN LAW. THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE ACG ASSOCIATED CAPSULES (P) LTD VS CIT (18 TAX MANN.COM 137). IN THE AFORESAID DECISION, THE QUESTION BEFORE THE HIGH CO URT WAS WHETHER 'NET' INTEREST OR 'GROSS INTEREST' WAS TO BE CONSIDERED FOR THE PURPO SES OF COMPUTING DEDUCTION IN RESPECT OF PROFITS FROM EXPORT BUSINESS UNDER SECTI ON 80HHC OF THE ACT. IT WAS THE DEPARTMENT'S CONTENTION THAT THE GROSS INTEREST INC OME WAS TO BE EXCLUDED FROM 'PROFITS OF BUSINESS FOR THE PURPOSES OF CALCULATI NG DEDUCTION U/S 80HHC. ON ASSESSEE'S APPEAL, THE SUPREME COURT HELD THAT IT W AS NOT THE 'GROSS' AMOUNT BUT ONLY THE 'NET' AMOUNT, IF ANY, WHICH WAS TO BE EXCLUDED UNDER EXPLANATION (BAA) TO SECTION 80HHC. THE SUPREME COURT ACCEPTED THE ASSESSEE'S CO NTENTION THAT INTEREST EXPENSE HAD TO BE NETTED OFF AGAINST THE INTEREST INCOME AN D IT WAS ONLY THE REMAINING NET AMOUNT WHICH WAS TO BE EXCLUDED. IT WAS SUBMITTED THAT APPLYING THE RATIO LAID BY THE IT(SS)A.NOS.125 TO 128/KOL/2016 M/S. AMRIT HATCHERI ES (P) LTD., A.Y.2008-09 & 2010-11 TO 2012-13 10 APEX COURT IN THE FOREGOING DECISION TO THE FACTS O F THE PRESENT CASE, THE INTEREST INCOME IS REQUIRED TO BE NETTED OFF AGAINST THE INT EREST EXPENSE AND ANY POSITIVE FIGURE REMAINING, IF ANY, SHOULD BE EXCLUDED WHILE COMPUTI NG PROFITS ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT. 19. THE CIT(A) AGREED WITH THE SUBMISSIONS OF THE ASSESSEE AND HE ALLOWED THE CLAIM OF THE ASSESSEE WITH THE FOLLOWING OBSERVATIO NS: I HAVE CONSIDERED THE FINDING OF THE AO IN THE ASS ESSMENT ORDER AND THE WRITTEN SUBMISSION FILED BY THE AR ALONG WITH DIFFE RENT CASE LAWS ON THIS ISSUE. I HAVE CONSIDERED THE HON'BLE SUPREME COURT'S DECIS ION IN THE PANDIAN CHEMICAL'S CASE (SUPRA) AND I HAVE ALSO CONSIDERED THE DECISION OF THE SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULES (P) LT D VS CIT 343 ITR 89. I THINK EVEN THOUGH THE SAID DECISION WAS RENDERED IN THE CONTEXT OF PROVISIONS OF SECTION 80HHC, YET IN MY OPINION THE PRINCIPLE L AID 'DOWN IN THAT DECISION HAS EQUAL APPLICATION IN THE ASSESSEE'S CASE AS WE LL. I FURTHER FIND THAT ON SIMILAR FACTS THE ITAT , KOLKATA IN THE CASE OF DCI T VS BMW INDUSTRIES LIMITED (ITA NO.2115/KOL/2007) DATED 29TLT FEBRUARY 2008 HAD SIMILARLY HELD THAT FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U /S 80IB THE INTEREST INCOME WAS LIABLE TO BE NETTED OFF AGAINST INTEREST EXPENS ES AND ONLY THE NET INTEREST EXPENDITURE WAS REQUIRED TO BE ALLOWED IN ARRIVING AT QUALIFYING PROFITS OF THE ELIGIBLE UNDERTAKING U/S 80LB OF THE ACT. I ALSO FI ND THAT THE PRINCIPLE OF NETTING OFF OF INTEREST INCOME AGAINST INTEREST EXPENSE HAS BEEN UPHELD BY JURISDICTIONAL CALCUTTA HIGH COURT IN THE CASE OF WARREN TEA LTD. (374 ITR 6) FOR THE PURPOSES OF INTERPRETING & COMPUTING BUSINESS INCOM E IN THE CONTEXT OF RULE 8 APPLICABLE TO TEA COMPANIES. FOLLOWING. THE RATIO L AID DOWN IN THESE DECISIONS I HOLD THAT THE AO SHOULD NET OFF THE INTEREST INCOME CREDITED IN THE PROFIT AND LOSS ACCOUNT ELIGIBLE AGAINST THE INTEREST EXPENSE DEBITED IN THE SAID PROFIT AND LOSS ACCOUNT. IF NET RESULT THEREOF IS EXPENDITURE, THE SAME SHALL BE CONSIDERED TO BE THE EXPENDITURE RELATABLE TO ELIGIBLE UNDERT AKING. HOWEVER, IF THE NET RESULT AFTER SET OFF IS INCOME, THEN THE ASSESSEE W ILL NOT BE ELIGIBLE TO CLAIM DEDUCTION U/S 80IB IN RESPECT OF SUCH NET INCOME. THE AO SHALL ACCORDINGLY RE-COMPUTE THE INCOME OF THE ELIGIBLE UNDERTAKING A ND RE-COMPUTE THE DEDUCTION U/S 80IB. THUS, ASSESSEE'S APPEAL ON GROU NDS NO 3 TO 6 ARE ALLOWED. 20. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE H AS PREFERRED GROUND NOS. (IV) AND (V) BEFORE THE TRIBUNAL. 21. THE LD.DR RELIED ON THE ORDER OF AO. THE LD. C OUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE CIT(A) AND RELIED ON TH E ORDER OF CIT(A). HE ALSO IT(SS)A.NOS.125 TO 128/KOL/2016 M/S. AMRIT HATCHERI ES (P) LTD., A.Y.2008-09 & 2010-11 TO 2012-13 11 BROUGHT TO OUR NOTICE THAT THE BANK AS A CONDITION FOR GIVING CREDIT FACILITY INSISTED THAT THE FDRS SHOULD BE OFFERED AS A SECURITY AND THEREF ORE INTEREST EXPENDITURE AND THE INTEREST INCOME HAD A DIRECT NEXUS AND HENCE NETTIN G OF INTEREST INCOME WITH THE INTEREST EXPENSES WAS RIGHTLY ALLOWED BY CIT(A). 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND A RE OF THE VIEW THAT THE INTEREST INCOME AND THE INTEREST EXPENSES HAD A DIRECT NEXUS AND THEREFORE NETTING OF INTEREST INCOME AGAINST THE INTEREST EXPENSES HAD TO BE ALLO WED. SINCE THE INTEREST EXPENSES WAS MUCH MORE THAN THE INTEREST INCOME NO INTEREST INCOME CAN BE EXCLUDED FROM THE PROFITS ON WHICH DEDUCTION U/S 80IB(5) OF THE ACT O UGHT TO BE ALLOWED. WE THEREFORE UPHOLD THE ORDER OF CIT(A) ON THIS ISSUE AND DISMIS S GROUND NOS. (IV) AND (V) RAISED BY THE REVENUE. 23. IN THE RESULT ALL THE APPEALS BY THE REVENUE A RE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 05.04.2017. SD/- SD/- [M.BALAGANESH] [ N.V.VASUDEVAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 05.04.2017. R.G.(.P.S.) COPY OF THE ORDER FORWARDED TO: 1. M/S. AMRIT HATCHERIES PVT. LTD., 158, LENIN SARANI, 2 ND FLOOR, KOLKATA-700013. 2. A.C.I.T., CENTRAL CIRCLE-2(1), KOLKATA 3. CIT(A)-20, KOLKATA 4. CIT CENTRAL-I, KOLKATA. 5. CIT DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, DEPUTY /ASST. REGISTRAR, ITAT, KOLKATA BENCHES