2009 (8) TMI 855 - AT - Income Tax

Deductions - Profits and gains from industrial undertakings other than infrastructure development undertakings

Summary

Issues Involved:
1. Eligibility of the assessee for deduction under section 80-IB of the Income-tax Act.
2. Determination of whether the assessee's activities qualify as "manufacturing" under the Income-tax Act.

Detailed Analysis:

1. Eligibility of the Assessee for Deduction under Section 80-IB:
The revenue challenged the order of the CIT(A) allowing the assessee's claim for deduction under section 80-IB, asserting that the assessee was only engaged in the activity of grinding raw materials. The assessee, a domestic company involved in producing herbal powder and coconut shell powder, claimed a deduction of Rs. 6,19,697 under section 80-IB for the assessment year 2004-05. The Assessing Officer (AO) denied this deduction, arguing that the activities did not amount to manufacturing. The CIT(A) reversed the AO's decision, concluding that the processes undertaken by the assessee transformed the raw materials into a commercially different product, thus qualifying as manufacturing.

2. Determination of Whether the Assessee's Activities Qualify as "Manufacturing":
The AO's assessment was based on the premise that the activities of mixing and grinding raw materials into fine powder did not constitute manufacturing. The assessee contended that the processes involved-cleaning, drying, and grinding various herbal products-resulted in a product that was commercially distinct from the raw materials used. The CIT(A) agreed with the assessee, referencing several judicial precedents, including the Supreme Court's decision in Aspinwall & Co. Ltd. v. CIT, which provided criteria for determining manufacturing activities in the absence of a statutory definition.

The CIT(A) noted that the AO failed to consider the detailed processes and the commercial distinction between the raw materials and the finished product. The CIT(A) concluded that the assessee's activities met the criteria for manufacturing as the final product had a different commercial use and identity from the raw materials.

The Tribunal examined the processes involved in the production of herbal powder, which included mixing various herbal plants, drying, grinding, and filtering to produce a fine powder with a distinct aroma and commercial identity. The Tribunal referred to several Supreme Court judgments, including Aspinwall & Co. Ltd. v. CIT, India Cine Agencies v. CIT, and CIT v. Sesa Goa Ltd., which supported the view that transformation of raw materials into a new product with a different commercial identity constitutes manufacturing.

The Tribunal upheld the CIT(A)'s order, affirming that the assessee's activities amounted to manufacturing and thus qualified for the deduction under section 80-IB. The Tribunal dismissed the revenue's appeal, finding no valid reason to interfere with the CIT(A)'s conclusion.

Conclusion:
The Tribunal confirmed the CIT(A)'s decision to allow the assessee's claim for deduction under section 80-IB, concluding that the assessee's activities constituted manufacturing. The appeal of the revenue was dismissed.