2017 (4) TMI 1316 - AT - Income Tax

Eligibility to deduction u/s 80-IB - whether process of preparation of poultry feeds amount to production of an article within the meaning of section 80IB? - Held that - This issue has duly been decided by this Bench in assessee s sister concern Amrit Feeds Ltd. as categorically held the assessee is engaged in manufacturing of poultry feeds and that the assessee is engaged in the manufacture or production of an article. The assessee s eligible undertaking itself was independently carrying out the complete activity i.e. from mixing, grinding till the pelletisation. The raw materials once consumed could 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. - Decided in favour of assessee Whether interest income earned by the assessee on FDRs should be considered as income derived from eligible business for the purpose of allowing deduction u/s 80IB(5) - Held that - In the light of the admitted factual position that the income in question had direct nexus with the business of the assessee. The same was rightly held by CIT(A) to be eligible for the purpose of claiming deduction u/s 80IB(5) of the Act. We do not find any ground to interfere with the order of CIT(A). Consequently the grounds of appeal are dismissed.

Summary

Issues Involved:
1. Definition of 'manufacture' under Section 80-IB.
2. Eligibility of the process of manufacturing poultry feeds for deduction under Section 80-IB.
3. Deduction under Section 80-IB for the amount of ?73,44,900.
4. Netting off interest income against interest expense for deduction calculation.
5. Opportunity for the Revenue to examine the submission of the assessee.

Issue-wise Detailed Analysis:

1. Definition of 'manufacture' under Section 80-IB:
The Revenue contended that the term 'manufacture' under Section 80-IB requires the end product to be completely different from the ingredients in terms of chemical composition, integral structure, or use. The CIT(A) accepted that the process of manufacturing poultry feeds involves mechanical, chemical, and electrical processes, resulting in a product distinct in shape, character, and end-use from its raw materials.

2. Eligibility of the process of manufacturing poultry feeds for deduction under Section 80-IB:
The Revenue argued that the process of manufacturing poultry feeds does not amount to 'manufacture' as it involves mere mixing of ingredients without changing their chemical composition. The CIT(A) and ITAT Kolkata Bench, however, upheld that the process qualifies as 'manufacture', referencing the decision in the assessee’s own case for AY 2007-08, where it was held that the production of poultry feed involves significant transformation of raw materials into a distinct product known in trade as 'poultry feed'. The Tribunal emphasized that the process is recognized by trade and statutory authorities as manufacturing.

3. Deduction under Section 80-IB for the amount of ?73,44,900:
The CIT(A) allowed the entire amount claimed as deduction under Section 80-IB, which was contested by the Revenue. The Tribunal upheld the CIT(A)'s decision, reiterating that the assessee's activity qualifies as 'manufacture' and is thus eligible for the deduction.

4. Netting off interest income against interest expense for deduction calculation:
The Revenue challenged the CIT(A)'s direction to net off interest income against interest expense in the profit and loss account for the eligible undertaking. The Tribunal supported the CIT(A)'s decision, referencing the assessee's submission that the income had a direct nexus with the business of manufacturing poultry feed and should be considered for deduction under Section 80-IB.

5. Opportunity for the Revenue to examine the submission of the assessee:
The Revenue argued that the CIT(A) erred by not providing an opportunity to examine the assessee's submissions. The Tribunal found no merit in this ground, as the CIT(A)'s decision was based on admitted factual positions and prior decisions in the assessee’s favor.

Conclusion:
The Tribunal dismissed the appeal by the Revenue, upholding the CIT(A)'s decision on all grounds. The Tribunal confirmed that the assessee's process of manufacturing poultry feed qualifies as 'manufacture' under Section 80-IB and that the income derived from this process is eligible for the claimed deduction. Additionally, the Tribunal supported the netting off of interest income against interest expense for deduction calculation and found no procedural error in the CIT(A)'s handling of the case.