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TMI Blog2010 (4) TMI 710X X X X Extracts X X X X X X X X Extracts X X X X ..... overed by the decision of Hon. Supreme Court in CIT vs. Alom Extrusion (2009 - TMI - 35073 - SUPREME COURT) according to which contributions to PF made before due date of filing the return are allowable as deduction - This ground of assessee is accordingly allowed Disallowance u/s 35D - Public issue expenses - AO to decided the issue in accordance with the decision taken in the preceding year. - ITA No. 235/Ahd/2007 - - - Dated:- 30-4-2010 - Mukul Shrawat Judicial Member D.C. Agrawal Accountant Member Appellant by :- Shri S. V. Agrawal, AR Respondent by:- Shri Rajeev Sahai , CIT, DR ORDER Per D.C.Agrawal, Accountant Member. This is an appeal filed by the assessee raising following grounds :- (1) The ld. Commissioner Income Tax (Appeals)XIX, Ahmedabad (called CIT(A) has erred in denying exemption u/s 10B in respect of profit earned from mfg. Of Ascrobic Acid IP out of Ascrobic Acid FCCIV by treating same as trading activity. (1.1) The ld. CIT(A) further erred in confirming estimation of NP Rs.49,04,792/- i.e.@ 20% on purchase of goods and treating same as trading profit and denied exemption u/s 10B. (2) The ld. CIT(A) has erred in confirming disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t assessee s EOU Unit is entitled for exemption under section 10B. Entire raw material purchased in this EOU unit, situated at Ankleshwar, undergoes manufacturing process. It is only thereafter that manufactured products are exported. According to him ascorbic acid FCC Grade IV is imported from China. It undergoes detailed processing. He explained that following processing is done on FCC Grade IV on ascorbic acid to make it into ascorbic acid IP grade. The concerned part of the reply of the assessee given to ld. CIT(A) on this aspect is reproduced below :- g. Following processes are done for converting FCC-IV grade of Ascorbic Acid into IP grade of Ascorbic Acid: (i) The FCC-IV grade purchased from the market is mixed with water (DM water) in a big vessel. Further in the said vessel chemicals like sodium carbonate and methanol are also added. (ii) This process ii done fur removing impurities in the FCC- IV grade. Contents like Oxalic Acid which reduces the effectiveness of the medicine are removed. (iii) This process is done to obtain pure form of Ascorbic Acid The Ascorbic Acid is in slurry form in this process. (iv) Frther processing {after mixing with DM Water) is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have certified that assessee is entitled to exemption under section 10B on the items manufactured by it and exported. Under these circumstances there is no reason to hold that assessee is not entitled to exemption 10B on this part of manufacturing/processing. 7. Against this, ld. DR submitted that firstly auditors have clearly commented in Schedule- O of raw material consumed that Rs.1,96,19,168/- represented finished goods purchased. Therefore, sales to this extent could not be granted exemption under section 10B. The ld. DR then submitted, presuming for the sake of argument that assessee is undertaking some processing on ascorbic acid, food grade-4 but the output is still ascorbic acid. Therefore, there is no manufacturing and exemption under section 10B could not be granted. Thirdly it is not shown that ascorbic acid food grade -4 (imported as finished goods) could not be utilized in the same way, or in the same manner where ascorbic acid IP is utilized. If utilization of items before processing and after processing are not different except changing the grade then it will not fall within the definition of manufacturing or production and, therefore, assessee will not be entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is not formed by the splitting up, or the reconstruction, of a business already in existence : 9. Thus provisions of section 10B would be applied to an industry which is manufacturing or producing any article or thing. There are other conditions required to be fulfilled for getting exemption under section 10B such as assessee should be 100% export oriented undertaking and there should be approval of the undertaking by a competent authority. The foremost condition is that such 100% export oriented unit should manufacture or produce any article or thing or computer software that fulfills all other conditions as stipulated in sub-section (2). The essence of manufacturing is the change from one object to another for the purpose of making it a different marketable commodity. Every change in the raw material could not be called as manufacturing unless a new product which has a separate commercial identity in the market comes into existence. The transformation to the raw material should of such a nature that a new and different article or thing emerges which is distinct in name, character and use. If original thing remains the same after undergoing the processing even though it may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es into existence. The word manufacture has not been defined in the Act and it has different shades of its meaning. It is to be interpreted in the context of the object and language used in the relevant section. When we view the term manufacture in the setting of section 10B it becomes crystal clear that it is used to mean production of a new article or bringing into existence some new commodity by an industrial undertaking. The term manufacture or produce in section 10B can be considered only when a commercially new and distinct product comes into existence after undergoing manufacturing activities. If the intention had been to include processing as understood generally as a condition precedent for granting exemption under section 10B, the words manufacturing or processing would have been used instead of manufacture or produce . Further, Explanation 4 leaves nothing to doubt that barring the exception of process of polishing of precious and semi-precious stones all other processing of goods or articles, which do not result into transformation of new product have been kept away from benefit of exemption under this section. By no stretch of imagination, can it be infe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturing or production in respect of items imported by it worth Rs.1,96,19,168/- described as purchase of finished goods by auditor and after alleged claim of processing it has resulted into ascorbic acid IP. We, therefore, hold no manufacturing or production of any new article or thing has taken place from import of finished goods of ascorbic acid FCC grade IV. This ground is accordingly decided against the assessee. 13. Ground No.2 of assessee relates to disallowance under section 40A(3) amounting to Rs.50,027/-. AO has already disallowed a sum of Rs.20,210/- out of total cash payment of Rs.1,01,052/- in respect of following items:- i) ESIC Rs.20,667/- ii) Telephone exp. Rs.20,197/- iii) Business promotion Rs.25,917/- iv) Telephone exp. Rs.34,271/- ------------------------------------------- Tota Rs.1,01,052/- The assessee agreed before ld. CIT (A) that disallowance under section 40A(3) in respect of business promotion expenditure is reasonable. The ld. CIT(A), however, confirmed other disallowance made by the AO also. 14. The assessee has come up in appeal before us, in respect of rest of the items other than on business promotion expenditure. 15. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... public issue expenses of Rs.44,09,170/-. He, therefore, disallowed the entire claim of the assessee. The CIT(A) upheld the disallowance by stating that the assessee would be entitled to deduction of Rs.1,62,000/- per year starting from Asst. Year 2000-01 for 10 successive years as according to him the assessee had set up a new industrial undertaking only w.e.f.1.10.1999. 4. The ld. Counsel of the assessee explained that the claim of Rs.4,40,917/- was for the increase in public issue for extension of old project and it was being claimed from Asst. Year 1996-97. It has nothing to do with the setting up of industrial undertaking on 1.10.1999. In any case, there was an increase in the capital of Rs.518.42 lacs as per the revision claim of the assessee vide letter dated 26.10.2004 and borrowings from bank of Rs.132.62 lacs aggregating to Rs.651.04 lacs 2.5% thereof works out to Rs.16.27 lacs and 1/5 th thereof should have been allowed even as per the CIT (A) s working as against Rs.16.27 lacs which is 1/10 th of capital amount. There is thus some misunderstanding on the facts and circumstances of the case. We, therefore, set aside the orders of the CIT (A) as well as that of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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