2019 (2) TMI 519 - AT - Income Tax

Disallowance of deduction u/s 80IC - proof of manufacturing activity - spot enquiry revealed that no manufacturing activities were seen at the premises of the company - CIT-A allowed the claim - Held that - The original products used by the assessee are wooden planks, evafoam, thermocol, adhesive tape/ pheumatic, stapler pins, and nails. The final product obtained in the process by the assessee is wooden crates which are a distinct and separate article different from all the products that go into it manufacture and recognized as a distinct product by Central Excise and VAT classification which has assigned the product a specific HS Code and serial no. respectively in the Central Excise and VAT Schedules. As per Uttrakhand VAT Act, 2005, wooden crates were recognized as a distinct product and item. Similarly the assessee has been registered as manufacture with District Industries Centre and registered as a factory under the Factories Act. Further the assessee has been granted exemption from Excise Duty and has availed exemption from duty which is only granted to manufacturing units. Thus as per the term defined by Section 2 (29BA) of the Act would be any activity that results in the creation of an article for object that is new and distinct from the raw material that go into its manufacture and having a different name, character , use and / or integral structure. It cannot be denied that the wooden crates are completely distinct from the planks, nails, fevicol foam etc. that are used to make them and have a use of their own. The change brought in wooden planks by hand by the labours using small cutters would amount as manufacture a product, which is obtained as wooden crates by the assessee. We find that the original commodity used by the assessee as raw material are a wooden sleepers / planks which are go into sizes to according to the orders placed with the assessee then the cut two sizes wooden planks are subject to smoothening use of planting machine then the planks are treated to fix the evafoam and thermocol to make the material carried in the crates jerk resistant then the planks are stapler and nail are used industrial nails and staplers, therefore, the result of the process is wooden crates which is distinct from the wooden slippers planks being original commodity. Therefore, the end project is result of manufacturing activity which amounts change in the original articles. Hence, it cannot be treated as mere assembling of wooden planks even the Hon ble Supreme Court in the case of Oracle Software India Ltd. 2010 (1) TMI 9 - SUPREME COURT OF INDIA held that if an operation / process renders a commodity or article fit for use for which it is otherwise not fit, operation / process falls within the meaning of word manufacture. - Decided against revenue

Summary

Issues Involved:
1. Whether the assessee's activities qualify as "manufacturing" under Section 80IC of the Income Tax Act, 1961.
2. Whether the deduction claimed under Section 80IC by the assessee was rightly allowed by the CIT(A).

Issue-wise Detailed Analysis:

1. Qualification of Activities as "Manufacturing" under Section 80IC:

The primary issue was whether the assessee's activities of making wooden crates from wooden planks, nails, and other materials constituted "manufacturing" as defined under Section 2(29BA) of the Income Tax Act, 1961. The Assessing Officer (AO) claimed that the activities were merely assembling, not manufacturing, as the wooden crates could revert to their original form if dismantled. However, the CIT(A) and the Tribunal found that the process involved significant transformation, creating a new and distinct product with a different name, character, and use. The Tribunal emphasized that the wooden crates were recognized as distinct products by the Central Excise and VAT classifications, fulfilling the criteria of being manufactured products.

2. Allowance of Deduction under Section 80IC:

The CIT(A) allowed the deduction under Section 80IC, which the AO had disallowed. The CIT(A) observed that the assessee's activities met the definition of "manufacture" as they resulted in the creation of a new and distinct product. The Tribunal upheld this view, noting that several government departments, including the District Industries Centre and the Excise Department, recognized the assessee as a manufacturing unit. The Tribunal referenced multiple judicial precedents, including the Supreme Court's ruling in Aspinwall & Co. Ltd. vs. CIT, which defined "manufacture" as producing articles with new forms, qualities, or combinations, either by hand or machine.

The Tribunal also considered the broader interpretation of "manufacture" as per various judicial decisions, emphasizing that the process does not necessarily require sophisticated machinery and can involve manual labor. The Tribunal concluded that the assessee's activities constituted manufacturing, and the deduction under Section 80IC was rightly allowed by the CIT(A).

Conclusion:

The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision to allow the deduction under Section 80IC. The Tribunal held that the assessee's activities of making wooden crates constituted "manufacturing" as they resulted in a new and distinct product, fulfilling the criteria under Section 2(29BA) of the Income Tax Act, 1961. The Tribunal also noted that the recognition of the assessee as a manufacturer by various government departments supported this conclusion.