2022 (2) TMI 1209 - HC - Income Tax

Deduction u/s 80IB(5) - Scope of definition of the term manufacture which included process - process of making poultry feeds as manufacture or production of article or thing - assessee claimed deduction on the ground that the activity done by them in their factory is a manufacturing activity by manufacturing poultry feed and, therefore, they are entitled for deduction - AO said there was no manufacturing done by the assessee but what was done by the assessee is mixing various product, each one of them had an individual identity and cannot be construed to be an input for manufacturing of poultry feed - HELD THAT - The process involves steam cooking which is done after the materials are mixed and the assessee has a one tonne per hour boiler which generates steam at 10 kgs/cm2 pressure and they also have insulated pipeline which carries the steam to the pellet section. The pressure reducing valve (PRV) is fitted before the pellet section which is reducing the pressure from 10 kgs to 1.5 kg/cm2 which will ensure that the steam entering the conditioning section is released slowly into the material for good conditioning. Thereafter, there are two other conditioning processes in which the poultry feed comes into contact with steam which is stated to ensure that the starch contained in the feed is gelatinised which is better for the growth of the chicken and at that level the feed attains a temperature of 850C thereby all the bacteria like E Coli, salmonella and other microbes get destroyed. After conditioning, the product goes in the pelleting section, then to the cooling section, then to the crumbling section, then to the sieving section and after passing the quality control test, it is ready for bagging. The assessee had also furnished details as to what are the raw materials required to make the poultry feed. We would be well-justified in following the decision in Sona Vets Pvt. Ltd. 2020 (3) TMI 130 - CALCUTTA HIGH COURT which had considered the same product as that of the product produced by the assessee. Therefore, we hold that the tribunal was right in confirming the order of the CIT(A) and granting relief under Section 80IB of the Act. In the result, the substantial questions of law framed on this issue are decided against the revenue. Disallowance under Section 14A - ITAT directed the assessing officer to compute the disallowance as per Rule 8D by taking into consideration only those shares which have yielded dividend income in the year under consideration - HELD THAT - Though the Tribunal has noted the decision of the Tribunal in REI Agro Ltd. 2013 (12) TMI 1517 - CALCUTTA HIGH COURT ,there are several other decisions on the said point and the machinery provision under Rule 8D can be applied only with regard to the shares which yielded dividend income in the year under consideration. Therefore, we find that the tribunal rightly applied the legal principle and granted relief. Accordingly, the substantial question of law framed on the said issue, namely, the deduction under Section 14A of the Act is decided against the revenue.

Summary

Issues Involved:
1. Validity of jurisdiction under Section 153A/143(3) of the Income Tax Act, 1961
2. Claim for deduction under Section 80IB(5) of the Income Tax Act, 1961
3. Disallowance under Section 14A of the Income Tax Act, 1961

Issue 1: Validity of Jurisdiction under Section 153A/143(3) of the Income Tax Act, 1961:
The appeal raised questions on the jurisdiction of the assessing officer to make assessments under Section 153A/143(3) without incriminating documents. The High Court dismissed appeals for certain years due to low tax effect. The Court decided to first address the questions related to deductions under Section 80IB(5) and disallowance under Section 14A for multiple assessment years before considering the jurisdictional issue for the assessment year 2011-12.

Issue 2: Claim for Deduction under Section 80IB(5) of the Income Tax Act, 1961:
The dispute revolved around whether the activity of manufacturing poultry feed qualified for a deduction under Section 80IB. The assessing officer denied the deduction, but the CIT(A) and Tribunal granted it after examining the manufacturing process. The Court found that the process undertaken by the assessee involved more than mere mixing and amounted to manufacturing, as the final product had distinct characteristics and could not be reversed to its original ingredients. The Court relied on previous decisions and upheld the Tribunal's decision to grant the deduction.

Issue 3: Disallowance under Section 14A of the Income Tax Act, 1961:
The Tribunal directed the assessing officer to compute disallowance under Section 14A as per Rule 8D, considering only shares yielding dividend income. The Court agreed with the Tribunal's approach, noting that Rule 8D should apply only to shares generating dividend income in the relevant year. The Court upheld the Tribunal's decision on this issue, granting relief to the assessee.

In conclusion, the High Court dismissed the revenue's appeal, affirming the decisions on the deduction under Section 80IB(5) and disallowance under Section 14A against the revenue. The Court left the jurisdictional issue open for the assessment year 2011-12, as it became academic in light of the decisions on the other issues. The stay application related to the appeal was closed with the dismissal of the appeal.