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TMI Blog2012 (4) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... he stand of the revenue authorities is that at the most activity carried out by the assessee is of blending one. It has just mixed the floral distillate from Kannouj and no new or distinct product has emerged out - learned counsel for the assessee has placed in the written submissions a flow chart exhibiting the activities carried out by the assessee before producing altogether distinct saleable commodity which has its own identification in the commercial world - he moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes 'manufacture' takes place and liability to duty is attracted - assessee contended that its undertaking is registered with Excise Department, however, excise duty is exempt by virtue of notification Nos. 49 and 50 of 2003 - Decided in favor of the assessee by way of direction to allow the deduction - IT Appeal No. 4183 (Delhi) of 2011 - - - Dated:- 16-3-2012 - RAJPAL YADAV, K.G. BANSAL, JJ. ORDER Rajpal Yadav, Judicial Member The assessee is in appeal before us against the order of Learned CIT(Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tification of claim of deduction u/s. 80-IC 3. Learned Assessing Officer thereafter time to time adjourned the hearing and called for number of details. On 14.12.2009, learned counsel for the assessee produced following details apart from others produced earlier: (1) Production clearance register running from page 1 to 68; (2) Sales register page Nos. 1 to 47; (3) Purchase register page no. 1 to 47; (4) Stock register page no. 1 to 71; (5) Bills vouchers 6(a) 6b); (6) Attendance register 2 volumes 5(a) 5(b). 4. Learned Assessing Officer had made detailed analysis of the activities carried out by the assessee vis- -vis the material collected by him in the impugned assessment order. We will be dealing with the reasoning given by the Assessing Officer for denying the benefit under section 80-IC as well as the explanation submitted by the assessee in the later part of this order. Briefly, the Assessing Officer was of the view that the claim of deduction under sec. 80-IC is not admissible to the assessee on the ground that manufacturing of fragrances, fragrant compound, attar and other floral waters at its undertaking at Bhimtal is not a manufacture within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory provisions. The relevant part of section 80-IC, thus reads as under: "80-IC. Special provisions in respect of certain undertakings or enterprises in certain special category States. - (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section (3). (2) This section applies to any undertaking or enterprise, ( a ) which has begun or begins to manufacture or produce any article or thing, not being any article or thing specified in the Thirteenth Schedule, or which manufactures or produces any article or thing, not being any article or thing specified in the Thirteenth Schedule and undertakes substantial expansion during the period beginning ** ** ** ( ii ) on the 7th day of January, 2003 and ending before the 1st day of April, 2012, in any Export Processing Zone or Integrated Infrastructure Development Centre or Industrial G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made. ** ** ** (7) [The deduction] under sub-section (1) from profits and gains derived from an [undertaking] shall not be admissible unless the accounts of the [undertaking] for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant, as defined in the Explanation below sub-section (2) of section 288, and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant. (8) Where any goods [or services] held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods [or services] held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e any undertaking of an Indian company which is entitled to the deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger ( a ) no deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and ( b ) the provisions of this section shall, as far as may be, apply to the amalgamated or the resulting company as they would have applied to the amalgamating or the demerged company if the amalgamation or demerger had not taken place. [(12A) Nothing contained in sub-section (12) shall apply to any enterprise or undertaking which is transferred in a scheme of amalgamation or demerger on or after the 1st day of April, 2007.] ** ** ** 9. From the bare perusal of the section would reveal that sub-section (1) of section 80IC provides a deduction in respect of profit and gains derived by an undertaking or enterprises from any business referred to in sub-section (2), while computing the total income of an assessee. Sub-section (2) has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the record that assessee partnership firm came into existence on 1st of April 2006. It is situated at F-3, Industrial Area, Bhimtal (Nainital). According to the assessee, it has started the manufacturing operation at its industrial undertaking on 28.8.2006 though this date has been disputed by the Assessing Officer and we will discuss this aspect in the later part of the order. For the time being, it is concluded that as far as geographical location of the assessee is concerned, it falls within the industrial estate specified for the purpose of admissibility of deduction under sec. 80-IC of the Act. Similarly, it has commenced its operation in between period of January 2003 to April 2012 as provided in sub-clause (2) of section 80-IC(ii)(a)(b) of the Act. Therefore, to this extent, there cannot be any dispute between the parties. 11. The next step which is essential for examining the case of an assessee about the admissibility of deduction under sec. 80-IC is whether it manufactures or produces any article or things. According to the Assessing Officer, expression "manufacture" has been defined in section 2(29)(B)(a) which read as under: "(29BA) "manufacture", with its g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed earlier, we would be reverting back to the facts of the present case in the later part of the order. First, we would like to bring at home the meaning of expression "manufacture and production" as propounded in the various authoritative pronouncements of the Hon'ble Supreme Court as well as of Hon'ble High Court. 13. In the case of India Cine Agency, Hon'ble Supreme Court has considered the judgment rendered in the case of Sesa Goa ( supra ) and all other decisions on the point which contemplate the meaning of expression "manufacture" as well as "production". The relevant discussion made by the Hon'ble Court reads as under: "2. As noted above, the core issue is whether activity undertaken was manufacture or production. 3. In Black's Law Dictionary (5th Edition), the word "manufacture' has been defined as, "the process or operation of making goods or any material produced by hand, by machinery or by other agency; by the hand, by machinery, or by art. The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand labour or machine". Thus by process of manufacture something ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes 'manufacture' takes place and liability to duty is attracted. Etymologically the word 'manufacture' properly construed would doubtless cover the transformation. It is the transformation of a matter into something else and that something else is a question of degree, whether that something else is a different commercial commodity having its distinct character, use and name and commercially known as such from that point of view, is a question depending upon the facts and circumstances of the case. ( See Empire Industries Ltd. v. Union of India [1985] 3 SCC 314). ** ** ** 14. In this case, assessee was carrying on business of conversion of Jumbo Rolls of photographic films into small flats and rolls in desired sizes. It claimed deduction under sec. 80-HH and 80-I as well as investment allowance under sec. 32AB. The controversy arose whether conversion of jumbo rolls into small sizes amounts to manufacture or production, eligible for deduction under sec. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board and the evidence has been placed at page 84 of the paper book. On the strength of these documents, it was contended by the assessee that it is a firm came into existence on 1st of April 2006 engaged in the business of production fragrance, fragrant compound, attar and floral water. The learned counsel for the assessee while taking us through his written submissions drew our attention towards paragraph No. 6.3 wherein assessee has placed on record a flow chart indicating the various steps taken by the assessee for demonstrating its manufacturing activities. These steps read as under: ( b ) That appellant 'mixes' different 'raw material', such as, distilled oil obtained from extract of flowers with herbs and spices such as loan, javitri, jaiphal, laung, elaichi and kapoor etc. all of which are purchased from the market; ( c ) That 'mixture' is then roasted and put in a copper vessel called 'Deg' along-with proportionate amount of water; ( d ) That mixture is then again steamed distilled and vapors made to condense through a bamboo piepe called 'Chonga' over fixed oil (another raw material) contained in another vessel called 'Bhapka'. The oil in Bhapka absorbs the vapors. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not independently available nor they are saleable in the market. The cost incurred by the assessee on ruh-mehandi and ruh-bella is more than the raw material available in the open market. He further pointed out that the flowers are available only in Kannouj Market, they are not available near the market of Nainital or Bhimtal. After their procurement, they have to be processed within two hours otherwise required result would not come and in this connection he made reference to the certificate of a Horticulture Department available on pages 85 to 87 wherein it has been opined that in order to extract oil from the flowers they have to be processed within two hours. Therefore, the assessee has to distilled the oil on job work basis at Kannouj. On the other hand, Learned DR pointed out that major activities has been carried out at Kannouj. At Bhimtal, assessee has carried out very negligible activities. Learned First Appellate Authority while affirming the order of the Assessing Officer made reference to the decision of the Hon'ble Supreme Court in the case of CIT v. Tara Agency as well as the decision of Hon'ble Calcutta High Court in the case of Broke Bond India Ltd. v. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under sec. 80IC but we find that assessee has given complete details of all the job workers. They are independent in their work. They have confirmed that they have carried out the job work for the assessee. Assessing Officer has deputed an inspector to verify this aspect and the learned inspector has given his report to the Assessing Officer. The notices under sec. 133(6) of the Act were issued to all the job workers. Out of the 19 job workers, the learned inspector has pointed out that 15 have confirmed the job work carried out by them for the assessee and their accounts have duly been tallied. It suggests that the assessee has purchased flowers, got them processed and obtained distilled oil on job work basis. The report of the Inspector is available on page 364 of the paper book, copies of the notices issued under sec. 133(6) of the Act and the replies given by the job workers are placed on page Nos. 365 to 405 of the paper book. 19. Learned Assessing Officer made a reference to a number of peripheral aspects for drawing an inference that carrying out manufacturing activity by the assessee at the alleged industrial establishment is doubtful. Such aspects have been briefly no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee 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. The Act does not lay a condition that purchases should be made from the local market. The raw-material can be procured from anywhere. According to the assessee, the flowers from where oil could be distilled were not available or produced in the local area. Under any circumstance that has to be purchased out of Uttrakhand State. Assessing Officer thereafter made a reference about the negligible expenses shown by the assessee for manufacturing activities. He totally lost sight about cost of the raw material. Assessing Officer has observed that by incurring a sum of Rs. 7013 only, turnover of more than Rs. 3 crores cannot be achieved. The assessee has pointed out that this reference is factually incorrect because in the audited P L account, the assessee has shown fuel charges at Rs. 1,56,320, freight Rs. 52 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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