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TMI Blog2016 (11) TMI 1470X X X X Extracts X X X X X X X X Extracts X X X X ..... lear that the process of producing poultry feeds involves the process of manufacturing. The assessee's eligible undertaking itself was independently carrying out the complete activity i.e. from mixing, grinding till the pelletisation. The raw materials once consumed cannot be reconverted into the same position. Its utility gets changed. Apart from this, keeping the principle of consistency and the process of manufacturing, the action of the Assessing Officer of making disallowance u/s. 80-IB(5)/80IE of the Act, in respect of manufacturing of poultry feeds is not justified. - Decided in favour of assessee. Disallowance u/s 14A - Held that:- The assessee had in its books of accounts available capital as per schedule ‘A’ of ₹ 40,00,200/- and reserve and surplus as per schedule ‘B’ of ₹ 26,65,12,677/- (totalling ₹ 27,05,12,877/-). Thus, it is clear that the assessee has enough funds of its own and no borrowed fund seems to have been utilised in order to earn exempted income. Regarding Rule 8D(2) (iii), the assessee has given a calculation for average investments as (41,361,527+38,416,565)/2 =Rs.39,889,046/-. As per assessee the disallowance under Rule 8D(2)(i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted Company incorporated under the provision of Companies Act, 1956.The assessee-company derives income mainly from manufacturing of poultryfeed. The assessee-company filed its return of income for respective years. A search u/s. 132 of the Act was conducted in the business premises of the assessee at 17-B C, Everest House, 46C, Chowringhee Road, Kolkata-700071 on 13.12.2012. In view of search and seizure operation, the assessment proceeding was initiated against the assessee along with the normal assessment procedure u/s 143(3) of the Act. The assessee-company claimed deduction Under Section 80IB(5) of the Act and under Section 80-IE of the Act. The manufacturing unit of assessee-company is located in a category A notified backward district and therefore assessee is entitled to claim deduction u/s. 80IB(5) of the Act. The provisions of Section 80-IB of the Act, stipulates the conditions of eligibility in sub-section (2) of the said Section, wherein it is mandatory that the activity of the undertaking is that of manufacture of articles or things. The assessee was required to state the details of the activities that it carries on in the said unit. During the assessment proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atment in other statutes were also considered. As such, different statutes are devised from different perspectives. While Sales tax statutes concentrate on sale or transfer of goods, excise statute focus on production of goods as opposed to trade. However, none of these are essentially required to differentiate between manufacture and processing. Similarly, the Bureau of Indian Standards are concerned with standardization of process and control of quality of products, but not necessarily with manufacture vs processing as is required from the perspective of the Income Tax Act. This has been amply clarified by the Hon'ble Supreme Court in the case of Sacs Eagles Chicory vs CIT (2002) 255 ITR 17, wherein it was held that classification as manufacturing industry in the National Industrial Classification is not applicable in respect of claiming deductions under the Income Tax Act. The apex court in the case of Collector of Central Excise vs. Kutty Fish Doors and Furniture Company (P) Ltd. AR 1998 SC 1164 observed that manufacture implies a change but every change is not manufacture. And yet every change in an article is the result of treatment, labour and manipulation. But somet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rch for such disallowance. Apart from this fact. (2) that, the AR has discussed in detailed and submitted a synopsis of manufacturing process of poultry feed in detail. It is also clear from the details filed that the end product i.e. poultry feed cannot be reversed back to its original raw material/ingredients. (3) so, it is clear that the poultry feed is a distinct product from different materials which are used in its production. I have also considered different case laws brought on record by the AR. Some of the case laws which are direct on this issue are- (1) DCIT, Circle 2 Kolkata vsAmricon Agro Vest (supra), (2) Komrala Feeds vs DCIT (supra) (3) Bajaj Tempo Ltd vs CIT (SC) (supra) (4) Topline Foods vs ACIT (supra), etc After careful consideration of facts brought on record on this issue, it is clear that the process of producing poultry feeds involves the process of manufacturing. Therefore keeping in view the principles of consistency and , the process of manufacturing, AO's act of making disallowance u/s 801B(5); for manufacturing of poultry feeds is not justified. Accordingly assessee's appeal on ground no 2 is allowed. 5. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this, the Ld. DR for the Revenue has relied on the order of ITAT Hyderabad Bench in the case of Venkateswra Feeds Feeds vs. ACIT in ITA No.493(Hyd)/2005, ITA No.1013 1014 (Hyd) of 2006 and 868 870 (Hyd.) of 2008 dated 26.04.2012 wherein it has been observed about the term manufacture in para 17.5, the operative portion is reproduced below:- 17.5 In the conversion, whether the identity of the commodity before and after it undergoes various process/changes remains the same. In manufacturing a new and different article must emerge from the original substance and new substance does not mean that merely a change in the substance is effected. Manufacture and production implies that something is brought into existence which is different from its components. Moreover, the term processing is distinguishable from the term manufacture and mere processing does not amount to change loosing its original identity whereas in manufacturing, the original articles loose their identity. In the case under consideration, doing something to substance to change or alter their form can be termed as processing and does not amount to manufacture as a production of new substance does not mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d/incriminating material. The relevant portion of the order is reproduced below: With regard to the claim of deduction u/s. 80IB of the Act for the Asst Years 2007-08 and 2008-09 are concerned, we find that the same is only consequential in nature and once the assessee has been granted deduction u/s 80-1B of the Act for the initial assessment year i.e Asst Year 2003-04, the grant of deduction under the said section in respect of the same unit is only academic and hence the assessee is entitled for deduction u/s 801B of the Act for the Asst Years 2007-08 and 2008-09. Accordingly, the ground raised by the revenue in this regard for the assessment years 2007-08 and 2008-09 are dismissed. The facts of the case of M/s Kanchan Oil Industries Ltd. (supra) cited hereinabove, is exactly identical to the facts in the instant case. In that case also deduction u/s 80IB has had been consistently granted but in case of 153A assessment the same was denied. In the instant case also deduction u/s 80IB had consistently been granted in scrutiny assessments u/s 143(3) whereas in the course of 153A proceedings the same has been denied by the AO that too without having any incriminating m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the past, CIT was not justified in interfering with the assessment on the ground that no deductions other than those allowable under s. 24 could be allowed - AI-Haz Amir Hasan Properties (P) Ltd. VsAsstt. CIT (2006) 104 TTJ 108 (Kol 'D'). (c) Further, reliance in this regard may kindly be placed to the order of the Hon'ble ITAT Kolkata in the case of Kant Co. in ITA No1129/Kol/2006 wherein the Hon'ble Tribunal allowed the claim of the assessee by following the rule of consistency. The relevant portion is reproduced here under; we agree with the submission of the assessee that the department has accepted the dividend income interest income as income from business in past assessments. Following the rules of consistency, we direct the AO to treat the same as income from business, (d) Further in this regard reliance may be placed to the order of Hon'ble ITAT, Kolkata, in the case of ITO Vs Narin Prasad Dalmia 39 CCH 0035 (Kol) wherein the Hon'ble Tribunal decided the similar issue in favour of the assessee by following the rules of consistency. The relevant portion is reproduced here under; Held, assessee invested in shares and transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to size. xv) Sievinq the pellets to remove over-sized pellets and dust. xvi) Weighing the finished product - poultry feed in an automatic weigher. xvii) Packing the poultry feed in gunny or PP bags. xviii) Dispatching the poultry feed. RAW MATERIALS REQUIRED TO MAKE POULTRY FEED List of Maior Ingredients Maize, Soyabean DOC, Mustard DOC, Till Cake, Meat and Bone Meal, Fish Meal, Maize Gluten, Shell Grit, Deoiled Rice, Bran, Rice Polish, Edible Oil, Taliow, List of Micro-ingredients Di Calcium Phosphate, Limestone Powder, Salt List of Vitamins AD3, B1, B2, B3, B5, B6, B12, FOLIC ACID, ANTI OXIDANT, TOXIN BINDER, ANTI COCCIDIAL, LYSINE - AMINO ACID, METHIONINE - AMINO ACID, PHYTASE ENZYME, COCKTAIL ENZYME, GROWTH PROMOTER, ANTIBIOTIC DRUG. List of Minerals Iron, Copper, Iodine, Manganese, Zinc, Cobalt All the above input materials are different in characteristics, taste, appearance, smell and properties. Some inputs are rich in protein, some are rich in energy, some in fibre and some in fat. Again, the micro-ingredients and minerals are totally different and are handled delicately in the manufacturing pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law. Thus, under these circumstances and facts of the case, the Ld. AO was not correct in holding that the assessee was not engaged in a manufacturing of poultry food. 6.9 In this regard it is further submitted that production of poultry feeds was carried out in conformity with the BIS specifications which prescribed production standards and recommended proportions in which input materials were to be used to suite the metabolism of chicks. Further, the end product i.e, poultry feeds couls be consumed by a specific class of consumers i.e, poultry and by none else. The entire production process of poultry feeds was carried out with the aid of sophisticated plant and machinery and it is not a case where the assessee was merely mixing few agricultural produces in an unscientific manner. Hence, it is established that the poultry feeds manufactured by the assessee was an independent product having its distinct physical characteristic and identity. Further, the end product i.e, poultry feeds has a different trade name and marketability from its original raw products. Therefore, under no circumstance it can be argued that the raw product and the end product is merely a mixing of few ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1505/Kol/2007 in the case of ACIT-vs- Amrit Feeds Ltd., Kolkata, in which, the similar issue has arisen and restored. While deciding the similar issue, this Tribunal observed as under vide para 15 to 18 of its order. 15. Sec 80IB (2) (iii) requires the eligible Industrial undertaking to be engaged in manufacture of production of an article'. The said section however, does not define the expression manufacture or production of an article . In fact this expression is not defined in the Act also. The Ld. CIT (A) extensively analysed meaning of the said expression with reference to judicial decisions discussed in his order. The test laid down by the Courts is whether the emerging new product is known to the trade, industry and commerce by its own name having its own application use and has a market of its own. Applying the criteria laid down in these judicial decisions we find that in physical appearance, colour and shape the Poultry feed vastly differs from the input materials. The poultry feed is manufactured in a scientific and systematic manner with the use and assistance of sophisticated plant and machinery acquired at a substantial cost. Poultry feed is recognised not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vt. accepted in principle that poultry feed is an eligible industry u/s 80-IB(4); then the very same industry cannot be considered as non- manufacturing industry under sub sections (3) and (5) of Sec 80IB. With reference to same set of facts the revenue cannot hold the poultry feed industry as manufacturing industry if situated in North Eastern states and a 'processing industry if situated in any other states Such an interpretation will only lead to an absurd legal position. 18 For the reasons as set out herein before therefore we do not find any infirmity in the order of CIT(A) holding the assessee to be engaged in manufacture or production of an article. We are therefore of the considered opinion that the assessee satisfies the conditions of Sec 80-IB(2) (iii) of the Act and is therefore eligible for deduction u/s 80-IB. We therefore uphold the order of CIT(A) directing AO to allow deduction u/s 80IB to the assessee. From perusal of the said decision of this Tribunal, it is apparent that this Tribunal has categorically held in the case that the assessee is engaged in manufacturing of poultry feeds and that the assessee is engaged in the manufacture or production o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd again reiterated its view that production of poultry feeds amounts to manufacturing in the case of Amrit Feeds Ltd in the following cases; ITA Nos. Asst. Year Date of order 1505/Kol/2007 2003-04 17.08.2007 262/Kol/2008 2004-05 10.04.2008 723/Kol/2008 2005-06 18.06.2008 1134/Kol/2009 2006-07 04.09.2009 2220/Kol/2010 2007-08 28.03.2014 825/Kol/2012 2008-09 02.04.2014 From the above table it is clear that the Hon'ble ITAT Kolkata has continuously held that production of poultry feeds amounts to manufacturing as evident from the series of order listed in the above table. Therefore, the Ld.AO had grossly erred on both facts and law by not following the decision of the Hon'ble Jurisdictional ITAT. The assessee also seeks reliance from the order of Hon'ble ITAT Mumbai Bench in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord any evidence or documents found during the search. The search party did not find any incriminating document or any new document during the search action. In the absence of any new document/incriminating document how the assessee can be denied for deduction U/s 80-IB/80IE. The assessee has submitted a synopsis of manufacturing process of poultry feeds which amounts to manufacture considering the above cited judicial precedents cited in para 6.3 above. It is also clear from the details filed with the end product that poultry feeds cannot be reversed back to its original content/material. It is clear that the poultry feed is a distinct product and amounts to manufacture . It is clear that the process of producing poultry feeds involves the process of manufacturing. The Id. DR, even though relied on the decision of the Hyderabad Bench A of the Tribunal in the case of Venkateswara Feeds Feeds -vs- ACIT 22 Taxmann.com 234 (Hyd.) but we noted that the undertaking for which the assessee has claimed the deduction under section 80-lB was merely engaged in converting the poultry mash feed into pellet feed and therefore that Bench has held that there was no change in the basic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld AR has also submitted that total value of investments for earning dividends etc, was ₹ 11,22,27,298/-. The assessee had in its books of accounts available capital as per schedule A of ₹ 40,00,200/- and reserve and surplus as per schedule B of ₹ 26,65,12,677/- (totalling ₹ 27,05,12,877/-). Thus, it is clear that the assessee has enough funds of its own and no borrowed fund seems to have been utilised in order to earn exempted income. Regarding Rule 8D(2) (iii), the assessee has given a calculation for average investments as (41,361,527+38,416,565)/2 =Rs.39,889,046/-. As per assessee the disallowance under Rule 8D(2)(iii) comes at (0.5% of ₹ 39,889,046/-) ₹ 1,99,445. Therefore, total disallowance under [Rule 8D(2) (i)+(ii)+(iii) is ₹ 1,99,445/- less amount paid by the assessee ₹ 1,00,000/-,] ₹ 99,445/-. 8. Regarding ground No. (VI) which is against the disallowance of ₹ 4,42,216/- u/s 14A on the book profit of the assessee determined U/s 115JB. In the computation sheet attached with the assessment order the AO has disallowed ₹ 4,42,216/- u/s 14A while computing the assessee s income u/s 115JB. 8.1 The Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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