2013 (6) TMI 102 - AT - Income Tax

Deduction u/s 80IC - are bases exemption - AO concluded that the assessee has not carried out any manufacturing activities at the factory premises - as per AO considering the span of purchase of raw materials and sale of finished goods, it was not possible to manufacture the articles shown by the assessee in the return of income - Held that - This was the third year of the existence of the assessee firm. The assessee has filed the various documents to establish that it was engaged in the business of manufacturing of perfumery/aromatic compounds at, Uttarankhand as confirmed by a copy of licence from Directorate of Industry, Kotdwar which shows that the assessee was categorized as unit producing Natural Atras and Perfumery Compound. This licence was issued on 27.11.2006. The address in this licence is B-14, Balbhadrapur Industrial Area, Kotdwar, Garhwal. This registration was w.e.f. 26.11.2006. The other document filed by the assessee is Form ST-2 Certificate for Registration u/s 69 of the Finance Act, 1994 issued by the Superintendent of Customs & Central Excise Range Kotdwar, other documents like order of the Commercial Tax Department, Uttarakhand u/s 25 (7) and Section 9(2) by Shri S.S. Negi, Deputy Commissioner, Vanijya Kar, Kotdwar, where the tax liability by the assessee has been decided decalring product is self produced perfumery oil. The tax liability of the assessee had been made of ₹ 94,64,794/- and after making the adjustment to a prepaid taxes of ₹ 8,11,044/-, the balance was to be paid. In this order, the details of the raw material also elaborated, i.e. the Jari Booti, DOP, LLD, Gas, Packing Material and Imported Perfumery Compound. The assessee has also filed request dated 07.12.2006 for obtaining no objection certificate from Fire Department again mentioning the place of the industry at B-14, Balbhadrapur Industrial Area, Kotdwar also confirmed by no objection certificate from the Fire Department. Revenue had not established any thing contrary to these documents. The assessee has also placed documents with regard to the dispatch of finished goods by railway parcel bill from Kotdwar to Delhi establishing that product was sold out and also dispatched from Uttarakhand. Confirmations from debtors and creditors are also filed which were not questioned by AO. The assessee also submitted the rent agreement in respect of the factory. The main raw material was Rose Kashmir which was used in production of perfumery compound along with Jari Booti, DOP, Gas, Small Drum and P. Compound. The assessee has also placed certificate from Chartered Engineers in respect of the production of finished goods in short period wherein the process of mixture of all the material is boiled in a vessel through gas or fire wood heat treatment process and vapor generated in this process which is called extract. The utensils at the premises of the assessee were for the capacity of more than 500 kgs. and more. All these facts show that the assessee has submitted independent evidences regarding the existence of the production unit at B-14, Balbhadrapur Industrial Area, Kotdwar during the relevant period. The inspection at the later day by the IT Authorities alone is not sufficient to dislodge the evidences submitted by the assessee regarding running of the factory at the premises, thus the product of the assessee qualifies for deduction u/s 80IC. Moreover on the rule of consistency where the assessee has already enjoyed the benefit of section 80IC in the immediate presiding year and there is not change in the position of law and facts then it shall not be proper to deny the benefit of section 80IC. Also see DCIT vs. Natural Fragrances 2013 (1) TMI 158 - UTTARAKHAND HIGH COURT . Decided in favor of assessee.

Issues Involved:
1. Whether the assessee was engaged in manufacturing activities eligible for deduction under section 80IC of the Income-tax Act.
2. Whether the activities carried out by the assessee amounted to manufacturing or merely blending and packing.
3. Whether the assessee's factory was operational during the relevant period.
4. Whether the revenue authorities properly investigated the assessee's claims and evidence.
5. Whether the principle of consistency applies in granting the deduction under section 80IC.

Detailed Analysis:

1. Manufacturing Activities and Eligibility for Deduction under Section 80IC:

The assessee, a partnership concern, claimed a deduction under section 80IC of the Income-tax Act for manufacturing perfumery compounds. The Assessing Officer (AO) disallowed the claim, concluding that the assessee did not engage in manufacturing activities at the factory premises during the relevant period. The CIT (A) confirmed the AO's decision, noting the improbability of the entire year's production occurring in the last week of March and the lack of clear distinction between blending and manufacturing. The assessee argued that the process undertaken, including mixing and blending various aromatic substances, constituted manufacturing, thus qualifying for the deduction.

2. Manufacturing vs. Blending and Packing:

The CIT (A) and AO questioned whether the assessee's activities amounted to manufacturing, as the production appeared to occur within a short span, and the process seemed more like blending and packing. The CIT (A) referenced case laws such as Nemat Enterprises and Sonrise Tea Processing to support the view that the activities did not qualify as manufacturing. The assessee countered by citing the Supreme Court's decision in CIT vs. Vinbros and Co., which held that blending could amount to manufacturing, and argued that their process created a chemically new product.

3. Operational Status of the Factory:

The assessee provided various documents to establish the operational status of the factory at B-14, Balbhadrapur Industrial Area, Kotdwar, including licenses, registration certificates, and no objection certificates from relevant authorities. The AO's local enquiry in 2012, which suggested the factory was not operational, was contested by the assessee, who clarified that the factory ceased operations in December 2010 due to partner disputes. The Tribunal found the assessee's evidence credible, indicating the factory was operational during the relevant period.

4. Investigation of Claims and Evidence:

The assessee submitted extensive documentation, including sales bills, railway receipts, stock registers, and confirmations from debtors and creditors, to support their claim of manufacturing and sales. The AO did not sufficiently investigate these claims or the veracity of the sales. The Tribunal noted that the revenue authorities failed to disprove the evidence provided by the assessee and did not adequately distinguish between blending and manufacturing.

5. Principle of Consistency:

The assessee argued that they had been allowed the deduction under section 80IC in previous years, and there was no change in the facts or law that would justify a different conclusion for the current year. The Tribunal agreed, citing the principle of consistency as upheld in various judicial decisions, including CIT vs. Jagson International Limited and CIT vs. Paul Brothers. The Tribunal emphasized that the revenue authorities should not re-interpret the provisions of law when there is no change in the facts.

Conclusion:

The Tribunal allowed the appeal, concluding that the assessee was engaged in manufacturing activities eligible for deduction under section 80IC. The evidence provided by the assessee regarding the operational status of the factory and the nature of the activities was found credible. The revenue authorities' failure to properly investigate the claims and the principle of consistency further supported the Tribunal's decision. The appeal was allowed, and the order of the authorities below was set aside.

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