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2019 (7) TMI 423 - AT - Income TaxDeduction u/s 80IB - process involved in converting Carcass into meat - 'manufacturing or production - difference in between input and the output in the name, character and use - different marketable product - HELD THAT - Final product produced by the assessee-company is commercially different from the raw-material (Buffalo Carcasses), the process of production involved a number of steps and processes. The raw-material used by the assessee cannot be substituted by the final product. The production process as explained by assessee resulted not only in qualitative changes, but also a distinct product for end-use of the consumer. Thus, in our considered view, the assessee fulfilled the requisite requirement i.e. manufacturing or producing an article of things for the purpose of section 80IB of the Act. In the result, ground no.1 of the appeal raised by assessee is allowed. Disallowance of deduction u/s 80HHC - CIT(A) confirmed the action of AO that if the export house is not entitled to claim deduction u/s 80HHC, it cannot pass the benefit to the supporting manufacture - HELD THAT - We have noted that Bangalore Tribunal in case of Shamanur Kallappa Sons Vs ACIT . 2008 (8) TMI 455 - ITAT BANGALORE-A held that wherein the assessee being supporting manufacture claimed deduction u/s 80HHC on the basis of disclaimer certificate issued by State Trading Corporation (STC) certifying that it has not claimed deduction on the export of trading goods. The assessee apparently complied the statutorily requirement provided under section 80HHC(1A) it was held that only condition stipulated by the legislation is that the same benefit should not be claimed by both the export house and the supporting manufacture. To ensure the same, it was made a pre-condition that export house should furnishes a certificate of disclaimer in respect of export turnover, and the amount of deduction available to the export house would be accordingly reduced in the specified manner. The decision of Tribunal was upheld by Hon ble Karnataka High Court 2015 (8) TMI 507 - KARNATAKA HIGH COURT - additional grounds of appeal raised by the assessee are allowed. The assessing officer is directed to re-compute the deduction under section 80IB 80 HHC in accordance with law. - Decided in favour of assessee.
Issues Involved:
1. Deduction under Section 80IB for profits earned from an undertaking in a backward district. 2. Deduction under Section 80HHC for a supporting manufacturer based on a disclaimer certificate from an Export House. Detailed Analysis: Issue 1: Deduction under Section 80IB The primary contention was whether the appellant's activity constituted "manufacture" or "production" of goods, which is a prerequisite for claiming a deduction under Section 80IB. Arguments by the Appellant: - The appellant argued that its activities involved converting buffalo carcasses into various commercially distinct products such as frozen boneless buffalo meat and other inedible products. These products are used in different industries, indicating that new and distinct products were created. - It was highlighted that the processes involved significant transformation, including chilling, deboning, enzymatic actions, and acid treatments, which resulted in products with different names, characters, and uses. - The appellant cited various legal precedents, including the Supreme Court's decisions in DCIT vs. K.M. Mohammad Ali and CIT vs. Emptee Poly-Yarn (P.) Ltd., which supported the view that substantial transformation qualifies as "manufacture" or "production." Arguments by the Revenue: - The Revenue contended that the activities of the appellant did not amount to "manufacture" or "production" as there was no significant change in the input and output in terms of name, character, and use. - The Revenue relied on the decision of the Hon’ble Supreme Court in CIT vs. Relish Foods, arguing that the appellant’s activities did not meet the criteria for manufacturing or producing goods. Tribunal's Findings: - The Tribunal noted that the appellant’s activities resulted in the creation of commercially distinct products from the raw buffalo carcasses. The processes involved were detailed and resulted in products used in various industries, indicating a significant transformation. - The Tribunal referred to several legal precedents that supported the appellant's claim, including the Supreme Court's decision in CIT vs. Emptee Poly-Yarn (P.) Ltd., which defined "manufacture" as bringing into existence a new and distinct object with different characteristics. - The Tribunal concluded that the appellant's activities qualified as "manufacture" or "production" under Section 80IB, allowing the deduction. Issue 2: Deduction under Section 80HHC The appellant claimed a deduction under Section 80HHC as a supporting manufacturer based on a disclaimer certificate issued by the Export House, Allanasons Ltd. Arguments by the Appellant: - The appellant argued that it was entitled to the deduction under Section 80HHC in its capacity as a supporting manufacturer, as specified in sub-sections (1A), (3A), (4A), and explanation clauses (d) and (e). - The appellant cited previous Tribunal decisions, including the case of Frigorifico Allana Limited, where similar deductions were allowed. - The appellant also referenced the Bangalore Tribunal's decision in Shamanur Kallappa & Sons vs. ACIT, which held that the supporting manufacturer could claim the deduction based on the disclaimer certificate from the Export House. Arguments by the Revenue: - The Revenue argued that since the Export House, Allanasons Ltd., was not entitled to any deduction under Section 80HHC due to losses, it could not pass the benefit to the supporting manufacturer. - The Revenue relied on the Supreme Court's decision in IPCA Laboratories vs. DCIT, which held that if the main exporter incurred losses, the supporting manufacturer could not claim the deduction. Tribunal's Findings: - The Tribunal referred to the decision of the Hon’ble Bombay High Court in Associated Capsules (P.) Ltd. vs. DCIT, which allowed simultaneous deductions under Sections 80IB and 80HHC. - The Tribunal also considered the Bangalore Tribunal's decision in Shamanur Kallappa & Sons vs. ACIT, which upheld the right of the supporting manufacturer to claim the deduction based on the disclaimer certificate. - The Tribunal concluded that the appellant was entitled to the deduction under Section 80HHC as a supporting manufacturer, provided the aggregate deduction under Sections 80HHC and 80IB did not exceed the profit earned by the undertaking. Conclusion: The Tribunal allowed the appeals for the assessment years 2003-04, 2004-05, and 2005-06, granting the appellant the deductions under Sections 80IB and 80HHC. The Assessing Officer was directed to re-compute the deductions in accordance with the Tribunal's findings and applicable laws.
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