2009 (1) TMI 542 - AT - Income Tax

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

Summary

Issues Involved:
1. Whether the activity of milling wheat into rawa, bran, atta, and maida constitutes "manufacture" or "production" under section 80-IB of the Income Tax Act.
2. Justification of the CIT(A)'s decision to allow the deduction under section 80-IB to the assessee.

Detailed Analysis:

1. Whether the activity of milling wheat into rawa, bran, atta, and maida constitutes "manufacture" or "production" under section 80-IB of the Income Tax Act:

The core issue revolves around whether the activity undertaken by the assessee, which involves milling wheat into rawa, bran, atta, and maida, qualifies as "manufacture" or "production" under section 80-IB of the Income Tax Act. The Assessing Officer (AO) initially disallowed the deduction claimed by the assessee under section 80-IB(3)(ii), arguing that the activity was merely grinding wheat and grading wheat flour, which did not result in the production of a new article or thing. The AO relied on precedents such as Sacs Eagles Chicory v. CIT and CIT v. Premier General Traders (P.) Ltd., where similar activities were not considered as manufacturing.

However, the CIT(A) disagreed with the AO, concluding that the process of converting wheat into rawa, bran, atta, and maida amounted to manufacturing or production. The CIT(A) emphasized that the end-products were distinct from the raw material (wheat) in terms of use and physical attributes, thus qualifying as new articles or things. The CIT(A)'s decision was based on various case laws that supported the view that significant transformation of raw materials into commercially distinct products constitutes manufacturing.

Upon appeal, the Tribunal upheld the CIT(A)'s decision, emphasizing that the processes undertaken by the assessee involved sophisticated machinery and resulted in distinct end-products with different commercial identities and uses. The Tribunal noted that the end-products (atta, maida, rawa, and bran) could not substitute one another or the raw material (wheat) in their specific uses, thus qualifying as new and distinct articles. The Tribunal referred to several judicial precedents, including the Supreme Court's ruling in Aspinwall & Co. Ltd. v. CIT, which held that significant transformation resulting in commercially different articles amounts to manufacturing.

2. Justification of the CIT(A)'s decision to allow the deduction under section 80-IB to the assessee:

The Tribunal found that the CIT(A) was justified in allowing the deduction under section 80-IB, as the activities undertaken by the assessee met the criteria for manufacturing or production. The Tribunal noted that the CIT(A) had carefully considered the detailed submissions and case laws presented by the assessee, distinguishing the facts of the present case from those relied upon by the AO. The Tribunal emphasized that the processes undertaken by the assessee involved significant value addition and resulted in commercially distinct products, thus qualifying for the deduction under section 80-IB.

The Tribunal also highlighted that the end-products (atta, maida, rawa, and bran) were recognized as distinct commodities in commercial parlance, with specific uses and market values different from the raw material (wheat). The Tribunal concluded that the activities undertaken by the assessee resulted in the production of new and different articles, as contemplated by section 80-IB, and could not be equated with mere processing.

Conclusion:

The Tribunal upheld the CIT(A)'s order, concluding that the milling of wheat into rawa, bran, atta, and maida constituted manufacturing or production under section 80-IB, and the assessee was entitled to the deduction. The Tribunal dismissed the revenue's appeal, affirming that the CIT(A) was justified in allowing the deduction under section 80-IB to the assessee.