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2012 (11) TMI 194 - AT - Income TaxDeduction u/s. 80IC - rejection of claim - whether geographically assessee is located with the notified area contemplated in sub-clause (ii) of sec. 80IC(2)(a) or (2) (b)- CIT(A) deleted the addition - Held that - AO while observing that more than 93% of manufacturing activities is carried out at Kannouj and at Bhimtal, a very negligible activity has been carried out has failed to appreciate the true nature of the controversy. If distilled oil is similar to that of fragrance, fragrant compound, attar and floral water then AO may be justified to say that major activities have been carried out at Kannouj but that is not the case. The end product manufactured by the assessee and sold is altogether different from distilled oil. Distilled oil is one of the raw material for producing fragrant, fragrant compound or attar. The main stress of the Assessing Officer is that it should boost economy of the State but in the present case, assessee had made purchases out of Uttrakhand State. Its major activities were carried out in UP. We find that this reference is altogether irrelevant. Assessing Officer was required to look into whether assessee has an industrial undertaking. It is situated within notified area as contemplated in section 80IC(2)(a)(ii) of the Act. Whether it is manufacturing any article or thing. Negligible expenses shown by the assessee - AO observed that by incurring a sum of Rs.7013 only, turnover of more than Rs. 3 crores cannot be achieved - Held that - The assessee in the audited P & L account has shown fuel charges at Rs.1,56,320, freight Rs.52,663, manufacturing expenses Rs.15,132, water and electricity expenses Rs.7715 and packing material of Rs.50,853. Apart from these expenses, assessee has shown purchase of raw material at Rs.2.39 crores. Thus, it can be fairly concluded that AO has made this comparison in isolation. Assessee has placed on record the material exhibiting transportation of the raw material, purchase bills and Vat certificate. It is registered with the Central Excise Department w.e.f. Ist of September, 2006. Thus the assessee has demonstrated that it is engaged in the manufacturing of article and things fulfilling all the essential conditions for availing deduction under sec. 80IC - in favour of assessee.
Issues Involved:
1. Deletion of the addition made on account of rejection of the assessee's claim of deduction under section 80IC of the Income-tax Act, 1961. 2. Whether the assessee is engaged in manufacturing activities and fulfills all essential conditions for availing deduction under section 80IC. 3. The geographical location and commencement of the assessee's operations. 4. Whether the activities carried out by the assessee qualify as "manufacture" or "production." Issue-wise Detailed Analysis: 1. Deletion of the Addition Made on Account of Rejection of the Assessee's Claim of Deduction under Section 80IC: The revenue appealed against the deletion of the addition of Rs. 3,28,92,527 for AY 2008-09 and Rs. 2,85,10,459 for AY 2009-10, made due to the rejection of the assessee's claim of deduction under section 80IC. The Assessing Officer had disallowed the deduction based on findings from AY 2007-08, which were upheld by the CIT(A). However, the CIT(A) deleted the disallowance for the current assessment years, relying on the ITAT's decision for AY 2007-08, which allowed the deduction under section 80IC. 2. Whether the Assessee is Engaged in Manufacturing Activities and Fulfills All Essential Conditions for Availing Deduction under Section 80IC: The ITAT examined whether the assessee met the conditions under section 80IC, which includes manufacturing or producing articles or things not specified in the Thirteenth Schedule and commencing operations between January 7, 2003, and April 1, 2012, in a notified area. The assessee's firm, established on April 1, 2006, in Bhimtal (Nainital), commenced operations on August 28, 2006. The ITAT found no dispute regarding the geographical location or the commencement period, confirming the assessee's eligibility under section 80IC(2)(a)(ii). 3. The Geographical Location and Commencement of the Assessee's Operations: The ITAT confirmed that the assessee's firm is located in a notified industrial estate in Bhimtal (Nainital) and commenced operations within the stipulated period. The primary issue was whether the assessee's activities qualified as manufacturing or production. The ITAT noted that the assessee's firm was registered with various authorities, including the Excise Department and VAT Authorities, and maintained complete books of accounts, which were audited. 4. Whether the Activities Carried Out by the Assessee Qualify as "Manufacture" or "Production": The ITAT analyzed the meaning of "manufacture" and "production" based on various judicial pronouncements. The assessee's activities involved multiple steps, including mixing raw materials, roasting, steaming, distillation, and maturation, resulting in distinct products like fragrant compounds, attar, and floral water. The ITAT concluded that these activities constituted manufacturing, as they transformed raw materials into new and distinct products with commercial identity. The ITAT rejected the revenue's argument that the activities were mere blending, relying on the detailed process and the end products' distinct nature. Conclusion: The ITAT upheld the CIT(A)'s decision to allow the deduction under section 80IC, confirming that the assessee was engaged in manufacturing activities and met all the essential conditions for the deduction. The appeals by the revenue were dismissed, as no specific circumstances were presented to warrant a different view from the ITAT's decision in AY 2007-08.
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