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2019 (9) TMI 490 - AT - Income TaxEligibility of deduction u/s 80IB(11A) - profit derived from the business of processing preservation and packaging of fruits - HELD THAT - The intention of the legislature for giving the exemption u/s 80IB(11A) is to promote agro processing industries as is evident from the Finance Ministers speech and also memorandum explaining the amendments to the bill. There is no doubt that oil palm fresh fruit bunches are agricultural products. They may not be edible in their raw or ripe form, but they extract therefore after processing is edible. The language used in the section itself is processing, preservation and packaging of fruits or vegetables. Thus, the legislature was aware of the fact that certain fruits and vegetables would require processing and preservation for their long shelf-life. As long as the end product is also consumable it cannot be denied exemption u/s 80IB(11A). Therefore we are satisfied that the oil palm fruits are fruits u/s 80IB(11A) of the Act. Whether the assessee satisfies all the three conditions of processing, preservation and packaging? - In the case of the assessee before us also, the question involved was whether the extraction of oil from the FFBs of oil palm is processing or not, and the AAR has held similar activity in the case of mango pulp or powder, to be so and hence the principle and ratio of decision of the AAR in the case of Delna Rustum Boyce Inre 2009 (10) TMI 23 - AUTHORITY FOR ADVANCE RULINGS is definitely applicable in other similar cases also and we have to hold that the activities carried on by the assessee for extraction of oil from FFB s of oil palm, will amount to processing u/s 80IB(11A) of the Act. Preservation - As long as the assessee is maintaining the standards and is taking steps to maintain such standards, it can be said that it satisfies the condition of preservation. DR had relied upon the contention of the assessee before the A.O that the crude palm oil requires the least preservation as it is a durable commodity. But this contention of the assessee alone cannot mean that the assessee is not taking any steps for preservation of the oil. It is common knowledge that all items, particularly food items, have an expiry date unless they are preserved in the required conditions. Therefore, we are satisfied that the assessee is also preserving the palm oil extracted from the fresh fruit bunches of oil palm fruits, after the process of pressing and extraction of oil . Packaging - The assessee is preserving and maintaining the palm oil in large containers / tanks. As rightly pointed out by the learned Counsel for the assessee, packaging can be varied and includes the simple boxes to large container/vessel. Since the assessee is involved in large scale operation, it has to store the extracted oil in tanks. Therefore, we are satisfied that all the three processes necessary for claiming deduction u/s 80IB(11A) are satisfied by the assessee. Whether the end product is not a fruit but it is edible oil or kernels and shells which are not consumable goods, and hence it does not satisfy the condition of section 80IB(11A) ? - In the case of Delna Rustum Boyce Inre, the AAR has also held that the end product need not remain in the same form as the raw material. It may be in the form of juice or cut fruits or even oil or powder. As long as the end product is derived from the fruits or vegetables, the assessee is eligible for deduction u/s 80IB(11A) of the Act. In these circumstances, we are satisfied that the oil palm is a fruit and that it undergoes different processes before extraction of oil, and the palm oil is preserved under adjusted temperature and they are packed in large container or tanks and therefore, the assessee is eligible for deduction u/s 80IB(11A) of the Act. The assessee s appeals are accordingly allowed.
Issues Involved:
1. Eligibility for deduction under Section 80IB(11A) of the Income Tax Act. 2. Interpretation of "processing, preservation, and packaging of fruits." 3. Applicability of rulings from the Authority for Advance Rulings (AAR) to other cases. 4. Scope of Rule 27 of ITAT Rules for raising new grounds by the Revenue. Detailed Analysis: 1. Eligibility for Deduction under Section 80IB(11A): The primary issue was whether the assessee, engaged in the processing of oil palm fruits to extract crude palm oil, was eligible for deduction under Section 80IB(11A). The Assessing Officer (AO) disallowed the deduction, arguing that the activity did not involve the processing, preservation, and packaging of fruits as intended by the statute. The AO contended that the extraction of oil from oil palm fruits did not qualify as processing and preservation of fruits. The CIT (A) upheld this view, leading to the assessee's appeal. 2. Interpretation of "Processing, Preservation, and Packaging of Fruits": The Tribunal examined whether oil palm fruits could be considered as "fruits" under Section 80IB(11A). It referenced several legislative and policy documents, including the Andhra Pradesh Oil Palm (Regulation of Production & Processing) Act of 1993 and the Indian Accounting Standard 41, which classified oil palm as a fruit. The Tribunal also considered the processes involved in extracting oil from fresh fruit bunches (FFBs), such as sterilization, stripping, pressing, and storage, and concluded that these activities constituted processing and preservation. The Tribunal emphasized that the legislative intent behind Section 80IB(11A) was to promote agro-processing industries, including those dealing with perishable agricultural products like fruits. 3. Applicability of AAR Rulings: The assessee relied on the AAR ruling in Delna Rustum Boyce Inre, which held that extensive processing of fruits, including extraction of juice or oil, qualified as processing under Section 80IB(11A). The AO dismissed this ruling as non-precedential. However, the Tribunal clarified that while AAR rulings are binding only on the applicant and the revenue authorities in that specific case, they have persuasive value in similar cases. The Tribunal adopted the reasoning of the AAR, affirming that the extraction of oil from oil palm fruits met the criteria for processing under Section 80IB(11A). 4. Scope of Rule 27 of ITAT Rules: The Revenue raised an argument under Rule 27, asserting that the assessee did not satisfy the basic conditions of Section 80IB, as it was formed by demerger. The Tribunal rejected this argument, stating that Rule 27 allows a respondent to support the order appealed against on any grounds decided against them but does not permit raising new issues not addressed by the AO or CIT (A). The Tribunal cited several judicial precedents, including the Delhi High Court's ruling in Divine Infracon Pvt Ltd., to underscore that Rule 27 cannot be used to expand the scope of an appeal. Conclusion: The Tribunal concluded that the assessee's activities of processing oil palm fruits to extract crude palm oil qualified for deduction under Section 80IB(11A). It held that oil palm fruits are indeed fruits, and the processes involved in extracting oil constituted processing, preservation, and packaging. The Tribunal also dismissed the Revenue's objections under Rule 27, affirming that the assessee's appeals for all three years were allowed.
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