2012 (4) TMI 73 - AT - Income Tax

Deduction u/s 80-IC - Rule 8 of the ITAT s Rules - the assessee has pleaded two more issues in ground Nos. 7 & 8, wherein it has challenged the selection of its case for scrutiny assessment and non-service of notice under sec. 143(2) of the Income-tax Act, 1961within the statutory time period - Whether manufacturing of fragrances, fragrant compound, attar and other floral waters at its undertaking at Bhimtal amounts to manufacture within the meaning of definition of expression manufacture provided in section 2(29)(BA) of the Income-tax Act, 1961 - In order to avail deduction under section 80IC, an assessee has to fulfill the conditions contemplated in the section - The assessee has not manufactured any article or thing, which provided in thirteenth schedule. It is situated in Industrial Estate, thus it falls in section 80IC(2)(ii) of the Act - it is concluded that as far as geographical location of the assessee is concerned, it falls within the industrial estate specified for the purpose of admissibility of deduction under sec. 80-IC of the Act Regarding manufacture - The stand of the revenue authorities is that at the most activity carried out by the assessee is of blending one. It has just mixed the floral distillate from Kannouj and no new or distinct product has emerged out - learned counsel for the assessee has placed in the written submissions a flow chart exhibiting the activities carried out by the assessee before producing altogether distinct saleable commodity which has its own identification in the commercial world - he moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes manufacture takes place and liability to duty is attracted - assessee contended that its undertaking is registered with Excise Department, however, excise duty is exempt by virtue of notification Nos. 49 and 50 of 2003 - Decided in favor of the assessee by way of direction to allow the deduction

Summary

Issues Involved:
1. Denial of deduction under section 80-IC of the Income-tax Act, 1961.
2. Selection of the case for scrutiny assessment.
3. Non-service of notice under section 143(2) of the Income-tax Act, 1961 within the statutory time period.

Issue-wise Detailed Analysis:

1. Denial of Deduction under Section 80-IC of the Income-tax Act, 1961:

The primary issue in the appeal was the denial of deduction under section 80-IC of the Income-tax Act, 1961. The assessee, a firm engaged in the manufacture of fragrance, fragrant compound, attar, and floral waters, claimed a deduction of Rs. 1,36,38,274 under section 80-IC. The Assessing Officer (AO) denied the deduction on the grounds that the activities carried out by the assessee did not qualify as "manufacture" within the meaning of section 2(29)(BA) of the Income-tax Act, 1961. The AO argued that the transformation of floral oil into fragrance or fragrant compound did not result in a new and distinct object with a different name, character, and use. Additionally, the AO noted that 99.30% of the activities were carried out in Kannouj (UP), not at the Bhimtal (Nainital) unit, and thus did not align with the legislative intent of promoting industrial growth in Uttarakhand.

Upon appeal, the CIT(A) upheld the AO's decision. The assessee contended that it fulfilled all conditions under section 80-IC, including geographical location and commencement of operations within the specified period. The assessee also provided a detailed flow chart of its manufacturing process, emphasizing that the end product was distinct from the raw materials used. The Tribunal considered various judicial precedents, including the Supreme Court's interpretation of "manufacture" and "production" in cases like CIT v. M/s. Arihant Tiles & Marbles Pvt. Ltd. and India Cine Agency v. CIT. The Tribunal concluded that the assessee's activities constituted manufacturing, as the end products were commercially distinct from the raw materials. The Tribunal directed the AO to grant the deduction under section 80-IC to the assessee.

2. Selection of the Case for Scrutiny Assessment:

The assessee challenged the selection of its case for scrutiny assessment. However, the learned counsel for the assessee did not press this issue during the hearing. Consequently, the Tribunal rejected this ground of appeal.

3. Non-service of Notice under Section 143(2) of the Income-tax Act, 1961 within the Statutory Time Period:

The assessee also contended that the notice under section 143(2) was not served within the statutory time period. However, this issue was not pressed by the learned counsel for the assessee during the hearing. As a result, the Tribunal rejected this ground of appeal as well.

Conclusion:

The Tribunal concluded that the assessee fulfilled all the conditions for availing the deduction under section 80-IC of the Income-tax Act, 1961. The Tribunal directed the AO to grant the deduction to the assessee. The appeal was partly allowed, with the primary issue of deduction under section 80-IC being decided in favor of the assessee. The other grounds related to the selection of the case for scrutiny assessment and non-service of notice under section 143(2) were rejected as they were not pressed during the hearing.