2020 (5) TMI 683 - AT - Income Tax

Deduction u/s 80IC - deduction denied as assessee not doing any manufacturing or processing activity but only mixing and repacking various ingredients and thus no finished product distinct from the raw material has come into existence which may fall within the meaning of words manufacturing processing and production - HELD THAT - Similar issue decided in KHUSHBU INDUSTRIES 2016 (11) TMI 68 - ITAT LUCKNOW claim of deduction under section 80IC is admissible. We have also noted that as noted by the Assessing Officer just because the assessee has used certain raw materials in the organic and inorganic chemicals it does not mean that the product manufactured is also in the nature of organic or inorganic chemicals. There is also a categorical finding to the effect that the products manufactured by the assessee fall under chapter 33 related to essential oils resinoids perfumery cosmetic or toilet preparations and donot fall under chapter 28 or 29 dealing with organic/ inorganic chemicals . Nothing has been brought before us to dislodge these findings. We therefore see no merits in the grievances of the Assessing Officer. Assessee is engaged in manufacturing and production of an article and therefore the assessee shall be entitled for the deduction available u/s 80IC of the Act. We accordingly confirm the order of CIT(A) as in our opinion no illegality or infirmity is found in the order of CIT(A). Decided in favour of assessee.

Summary

Issues Involved:
1. Deduction under Section 80IC of the Income Tax Act, 1961.
2. Definition and scope of "manufacturing" and "production" under the Income Tax Act.
3. Compliance with procedural rules for pronouncement of orders.

Detailed Analysis:

1. Deduction under Section 80IC of the Income Tax Act, 1961:
The core issue is whether the assessee is entitled to deduction under Section 80IC. The appellant challenged the CIT(A)'s order allowing the assessee's claim for deduction under Section 80IC, arguing that the assessee was not engaged in manufacturing or processing activities but merely mixing and repacking ingredients. The CIT(A) had allowed the deduction on the grounds that the assessee's claim had been thoroughly examined and allowed in the original assessment and preceding years.

2. Definition and Scope of "Manufacturing" and "Production":
The tribunal examined whether the assessee's activities constituted "manufacturing" or "production" under Section 80IC. The assessee argued that it was engaged in manufacturing odoriferous substances using over 1,500 raw materials to produce more than 500 distinct finished products. The process involved melting, grinding, mixing, and stirring at optimal temperatures, resulting in distinct products used in various industries. The tribunal referred to multiple case laws, including CIT vs. Vinbros & Co., Shree Par Frangrances (P) Ltd. vs. ITO, and others, which supported the view that such activities constituted manufacturing.

The tribunal also considered the definition of "manufacture" under Section 2(29BA) of the Act, which includes any process resulting in a new and distinct object with a different name, character, and use. The assessee's demonstration of the manufacturing process, involving precise mixing of chemicals to produce distinct products, further supported the claim.

3. Compliance with Procedural Rules for Pronouncement of Orders:
The tribunal addressed the delay in pronouncing the order beyond the 90-day period stipulated by Rule 34(5) of the Income Tax Appellate Tribunal Rules, 1963. The delay was attributed to the nationwide lockdown due to the COVID-19 pandemic. The tribunal referred to the Hon'ble Supreme Court's orders extending the limitation period due to the lockdown and concluded that the period of lockdown should be excluded from the 90-day limit. This interpretation was deemed pragmatic and in line with the spirit of the law.

Conclusion:
The tribunal upheld the CIT(A)'s order allowing the assessee's claim for deduction under Section 80IC, concluding that the assessee was engaged in manufacturing activities. The decision was supported by detailed analysis of the manufacturing process and relevant case laws. The procedural delay in pronouncement of the order was justified due to the extraordinary circumstances of the COVID-19 pandemic. All appeals were dismissed, confirming the assessee's entitlement to the deduction under Section 80IC.