2008 (9) TMI 879 - AT - Income Tax

Summary

Issues involved: Dispute regarding the allowability of deduction u/s 80-IB for the assessment year 2003-04 based on whether the business of the assessee, engaged in manufacturing masala, qualifies as industrial undertaking for manufacture or is considered as processing of goods.

The Assessing Officer disallowed the claim of deduction u/s 80-IB, stating that the assessee's business of producing masala was only processing and not manufacture, based on the judgment in the case of Appeejay (P.) Ltd. v. CIT, Indian Hotel Co. Ltd. v. ITO, and CIT v. Sacs Eagles Chicory. The AO emphasized that blending different spices to produce masala was processing, not manufacturing.

In appeal, the assessee argued that their manufacturing process involved various activities like cleaning, roasting, mixing, grinding, etc., resulting in distinct masala products sold in the market. Citing the judgment in Aspinwall & Co. Ltd. v. CIT, the assessee contended that the changes made in the raw spices resulted in new and different products, qualifying as manufacture. The CIT(A) agreed, noting that the end product was distinct from the raw material, and allowed the deduction u/s 80-IB.

During the Tribunal hearing, the revenue supported the AO's decision, while the assessee reiterated their manufacturing process, referencing the judgment in Aspinwall & Co. Ltd. and other Tribunal decisions. The Tribunal analyzed the case, considering whether the production of masala by the assessee constituted manufacturing or processing of goods.

The Tribunal concluded that the assessee's process of producing various types of masala involved significant changes to the raw spices, resulting in commercially distinct products. Citing the judgment in Aspinwall & Co. Ltd., the Tribunal held that the final masala products were different from the input spices, qualifying as manufacturing. The Tribunal distinguished the cases relied upon by the AO, emphasizing that the masala production by the assessee met the criteria for manufacturing under section 80-IB.

Therefore, the Tribunal upheld the CIT(A)'s decision, ruling that the assessee's business was a manufacturing concern eligible for deduction u/s 80-IB, as the end products were commercially different from the raw materials used in the process.