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TMI Blog2019 (9) TMI 657X X X X Extracts X X X X X X X X Extracts X X X X ..... Skimmed milk would not amount to manufacture, if the above definition of manufacture is applied. In the present case also, for the Deshee Ghee and Skimmed Milk sold out of Desnee Ghee and Skimmed Milk purchased from the market, what was Deshee Ghee and Skimmed Milk continued to be Deshee Ghee and Skimmed Milk but with lesser quantity of guthale in Deshee Ghee and lesser quantity of moisture in Skimmed Milk and no new product has emerged from the process employed by the assessee. Since the output product is not different than the input product and the purpose for which input product can be used, arc only the purpose for which the output product can be used, the Deshee Ghee and Skimmed Milk purchased from the marked cannot be said to be sold out of manufactured Dashee Ghee and Skimmed Milk. Therefore, such sales have been shown by the assessee (appellant) to the Trade Tax Department as trading sale and hence, for such sale, the assessee (appellant) would not be entitled for deduction u/s 80IB as held by the AO in the assessment order and accordingly, the CIT(A) was justified in confirming the addition in articulative manner. Heating of the scrap bitumen in order to obtain so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidering the written submission filed by the assessee on 07.10.2013, reproduced vide Para 4.3, and called for a remand report from the AO vide letter No. 128/CIT((A)-II/JCIT-4/Agra/2012-13/995 dated 10.12.2013 to verify the supporting evidences, the AO relied upon while concluding that the appellant assessee was engaged in trading of goods along with carrying out its manufacturing activities (Refer para 5.1 of impugned order). 3.1. The CIT(A) has reproduced in para 5.2 in page no. 5 to 9 of the of the impugned order, the AO s remand report dated 17.10.2013 being furnished in compliance to the CIT(A) s letter dated 07.10.2013, on the submissions of the assessee that disallowance of deduction u/s 80 IB is not justified on the profits derived on trading goods. In para 6 of the remand report, AO noted that as per the auditor reports, Annexure A , quantitative trading results for the year under consideration and the has not disputed the same except stating that after purchase of ghee and skimmed milk powder, they were processed by removing moisture and guthle. The AO concluded I remand report that merely by removing moisture and guthle, the purchased ghee and skimmed milk powd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able under the provisions of section 80IB of the Income Tax Act. The aforesaid amount was a part of profit earned from Dholpur Unit and had rightly been claimed by the appellant as a deduction u/s 80IB of the Income Tax Act, 1961. 3. In this connection, it is submitted that the facts of the case of the appellant are similar to those available in the following case laws and therefore, the appellant relied upon these case laws:- (i) CIT Vs. Vinbros Co. (2012) 210 Taxman 252/254 CTR 110/79 DTR 43 (SC). (ii) CIT Vs. Vinbros Co. (2009) 177 Taxman 217 (Mad) (High Court), (Judgmentof Madras High Court) (Hi) India Cine Agencies Vs. Dy. CIT (2012) 210 Taxman 253 (SC). S. 80IB : Deduction - Industrial undertakings - Manufacture -Blending and bottling of Indian Manufactured Foreign liquor (IMFL), would amount to 'manufacture' for the purpose of deduction 80IB. The question before the Apex Court was whether blending and batting of Indian Manufactured Foreign Liquor (IMPL), would amount to -'manufacture' for purpose of claiming deduction under section 80IB, the Court answered the question in favour of assesses and civil appeal of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of section 801B of the Income TaxAct, 1961. 6. That it may again be submitted here that the Ld. Assessing Officer has erred in law and on facts in disallowing net profit on trading goods comprising of SMP and unfinished and rough desee ghee containing guthia etc. The SMP (skimmed milk powder) comes in jute bags and it contain moisture etc. This moisture makes the SMP quite harder and is not at all eatable. Thus, the appellant company has to reprocess it by removing moisture etc. to give it a shape of very fine powder and good in taste. The appellant company has also to manufacture it up to the level and quality of the company to be sold under the brand name of the company, similar type of treatment is given to the unfinished rough desee ghee consists of guthia etc., The guthia is made of cream. Such unfinished rough desee ghee consisting of guthia is put in the machinery for melting it at a certain degree in order to make it upto the required quality and standard prescribed for the tasty daanedaar ghee sold by the company. Thereafter, the same is packed in various , sizes of pouch and tins and then it is sold under the brand name of the company. Thus, the reprocess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer has taken the trading profit on estimated basis without giving any basis or reason. Therefore, the action of the Assessing Officer cannot be said to be correct in the eyes of the law and the ' estimated trading profit taken by the Ld. Assessing Officer is unjust, unlawful and cannot be regarded as correct. The action of the Ld. Assessing Officer in taking estimated trading profit deserves to be cancelled. 10. In view of the above mentioned facts, it is requested that the disallowance made by the Ld. Assessing Officer for ₹ 62,53,927A for working out the deduction u/s 80!B of the Income Tax Act, 1961 deserves to be cancelled and the said amount of ₹ 62,53,937/- be taken into account for purpose of allowing deduction u/s 80IB of the Income Tax Act, 1961. 4. In so far as the computation of profits of ₹ 6235937/- from trading goods is concerned, Ld. AR although submitted that the trading profit is estimated without giving any basis, but when it was pointed out that the basis is given in the assessment order as per Note 2 on page No. 5 6 and he was also requested that in case there is any submission regarding the correctne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s including ghee and skimmed milk powder. The quantity of goods manufactured is given as per column 'f of the table and the quantity of goods purchased is given as per column 'g' of the table. The quantity of ghee produced is shown at 8146871 Kg. and the quantity of Ghee purchased is shown at 1065079 Kg. Similarly, the quantity of skimmed milk powder produced is shown at 12240341 Kg. and the quantity of skimmed milk powder purchased is shown at 1754685 Kg. Thus, the quantity of trading stock of ghee and skimmed milk powder is reported by the auditor himself. The assessee has not disputed that the company has purchased above products. The company has simply stated that after purchasing the ghee and skimmed milk powder, they were processed by removing moisture and guthle and therefore, the ghee and skimmed milk powder after such reprocessing turn into a new commercial product being different from the product originally purchased. The argument given by Ld. AR does not stand to reason. Merely by removing the moisture and guthle the ghee and skimmed milk powder purchased by the assessee do not get converted into a new commercial product Both the products remain th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.000 5952995 0.000 0.000 Milk (CFC) 0.00 0.00 0.00 1415.51 0.00 0.00 Ghee 758970.888 8146871.692 1065079.290 7039089.088 979.920 2930852.862 Ghee 1366.15 1940.52 16091.67 6441.72 Skimmed Milk 1364785.100 12240341.700 1754685.000 13653486.500 307.300 1706018.000 Skimm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Note 2 of the computation given in the assessment order and the same is reproduced as under:- Net Profit of Dholpur unit of Trading Goocte;- (A) Sale Value of Trading Goods -. (1) Value of Ghee Sales of Trading Goods 16091.67x1065074 = (Sales Rs. In lacs) x (Trading Purchases in Kg.) = ₹ 24,34,81,788/- 7039089 (Total Ghee Sales in Kg.) (2) Value ofSMP Sales of Trading Goods 16731.51 x 1754685 = (Sales Rs. In lacs) x (Trading Purchases in KQ.) = ₹ 21.50,25,888 /- 13653486 (Total SMP Sales in Kg.) Total Sales value of Trading Goods = ₹ 45,35,07,67'6/- (B) Total Sales of Dholpur Unit Total Sales as per books ₹ 343,90,26,143.75 . Less: Sales of Wind Mill . ₹ 1,51,56.161.00 Rs 342,38,69,982.00 .... .... - (C) Net Profit of Dholpur undertaking ₹ 4,65,66,368.00 Net Profit on trading goods of Dholpur unit = C x A B = 45,85,07,676.00x4,65,66,368.00 / 342,38,69,982.00 = ₹ 62,35,93 7/- 5.3 The above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee (appellant) through its Ld. AR is filed on 30,10.2013 as under:- 2. On the last date of hearing i.e. on 22.10.2013, the appeal was -.partly heard and various information / details, as per order sheet entry dated 22.10.2013, were required. In response to the aforesaid query our submission on each of the points raised therein is as under- 3. That we have already submitted details of trading andmanufacturing goods to the concerned Assessing Officer during the course of assessment proceedings and it may also be submitted that the figures mentioned by the Assessing Officer in respect of calculation of trading and manufacturing goods is not a matter of dispute at any stage. It is further submitted that the trading goods shown to have been purchased by theappellant has been utilized in the manufacturing and reprocessing of desee ghee and SMP to be sold by the company under it brand name by putting it in pouches and tins of various sizes. It may also be submitted here that the raw material purchased and trading goods, ghee and SMP are put in the machines and these items are mixed together and thereafter good quality of desee ghee and SMP is manufactured whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court has been referred to support his argument that such type of packing under a particular brand name would amount to manufacturing and hence, such sale would be eligiblefor deduction u/s 80IB. As the reply submitted by the Ld. AR has been found to be incomplete, a letter F. No. 128/CIT(A)-ll/Agra/JCIT /R-4/Agra/2012-13/1970 dated 03.02.2014 has been written to the assessee. This letter is reproduced for a readyreference:- Please refer to your written submission filed in Dak on 30thOctober, 2013 in justification of deduction claimed by you u/s 80IB which was not allowed by the AO on the profit earned on account of trading of goods to the extent of ₹ 62,35,937/-. , . . 2. With respect to the above disallowance made by the AO in the impugned assessment order, it has been claimed by you that the trading goods purchased by you was further processed before selling them in the market and hence the profit earned on such sales is also eligible for deduction u/s 80IB in view of the decision of Mumbai High Court in the case of CIT vs Beta Cosmetics. In order to examine the suitability of this case law being applied in your case, you are required to explain the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by you considering that you have nothing to submit further. 5.5 In response to my above letter, the assessee (appellant) filed his reply on 24.02.2014 and the same is reproduced as under: - Please refer to your notice issued u/s 250(1) of the Income Tax Act, 1961 bearing F. No. 128/CIT(A)-l!/Agra/JCIT/R-4/Agra/2012-13, on the above noted subject. 2. In this connection, it is submitted that the assessee had claimed deduction u/s BOIB of the Income Tax Act, 1961 amounting to ₹ 6235937/-. The assessee was engaged in manufacturing of Desl Ghee and other items of milk products. The Assessing Officer has disallowed net profit on trading goods ofDholpur Unit amounting to ₹ 62,35,937/-. 3. That in our earlier replies we have already stated that the assessee having purchased roughtdesee ghee from other traders had to remanufacture it at the premises ofassessee's factory in order to bring it up to the level of standard desee ghee and thereafter, it was to be sold under the brand name of the assessee company, further, we have a/so given reason for claiming deduction u/s 80IB that after purchasing the unfinished and rough desee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Here input and output product is same. Only after doing some cleaning process, it is repacked in pouches and tins. Sales of such goods are also being shown as trading sale of goods in the return filed to the Trade Tax Department. When the Ld. AR has been asked to give separate details of manufacturing process involved, using raw material as Raw Milk and using raw material as Ghee and Skimmed Milk, purchased from the market, it has been replied that they have already submitted details of trading and manufacturing goods to the concerned Assessing Officer during the course of assessment proceeding and further stated that it may also be submitted that the figures mentioned by the Assessing Officer in respect of calculation of trading and manufacturing goods is not a matter of dispute. However, on checking the details filed with the assessing officer, it has been found that only quantitative details of trading and manufacturing of goods were filed but details of showing the process of manufacturing from the trading goods was not filed. Therefore, now the question to be decided is whether repacking of trading goods after a cleaning process can be called as manufacturing. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erent chemical composition or having different name, character and use Therefore, the DesheaGhea and Skimmed Milk sold after purchasing from the market and repackingthem after removing guthale from Deshee Ghee and moisture from Skimmed milk would not amount to manufacture, if the above definition of manufacture is applied. 5.8 The Supreme Court in the case of Sterling Foods Vs. State of Karnataka [1986] 3 SCO 469 held that Shrims, prawns and lobsters, even after undergoing process of peeling, deveining, cleaning freezing and packing, retain their original identity and do not become different commodities. The Madras High Court in the ease of State of 7am// Nadu Vs. Indodan Milk Products (1980) 45 STC 498 has held that dehydration of milk to obtain condensed milk does not amount to manufacture. Subjecting raw uncut diamonds to process of cutting and polishing, which yields polished diamond, has been held to be not amounting to 'manufacture', in the case of C/r Vs. Gem India Mfg. Co. (2001) 249ITR 307 by the Supreme Court. In another decision of Madras High Court in case CIT Vs. Sri Meenakshi Asphalts reported In (2004) 136 TAXMAN 170 (MAD), earlier decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilk out of purchased Deshee Ghee and Skimmed Milk, some chemical and essence are mixed to make them suitable for the brand of Ghee and Skimmed Milk being marketed by the assessee company but despite giving several opportunities, no such details of .the process of mixing of chemical and essence in the purchased Deshee Ghee and Skimmed Milk could be furnished and hence, the assessee failed to show that facts of his case are similar to the facts of the case of CIT Vs. Beta Cosmetics (supra), Therefore, this case law has not been found to be applicable in case of the assessee (appellant). 5.9 I have found that the facts of the case of the assessee are more nearer to the facts of the case of CIT Vs. Shri Meenakshi Asphalt (supra) discussed in previous sub-para in which, the Hon'ble Madras High Court held that heating of the scrap bitumen in order to obtain solid bitumen, by causing moisture and oil in the scrap bitumen to evaporate or separated, cannot amount to a process of manufacturing. Similarly removing of guthale from Deshee Ghee and moisture from Skimmed Milk cannot amount to a process of manufacturing. Therefore, I hold that the AO is correct in his decision not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter purchase of this ghee, the assessee company first churn it so that the impurities could be removed and the Gutla are dissolved in the ghee. Thereafter this ghee is heated on a particular temperature so that further impurities may be removed. Thereafter this ghee is kept for 48 hours in a fix temperature of 18 degree so that the granules may emerge. Then this ghee is packet in packets of various sizes for sale in the market. Thus, after purchasing of raw ghee and getting it packed in different sizes of packets, there after 2-3 processes undertaken, as stated above. Thus, as after purchasing of raw ghee and then processing it, as stated above, it only becomes saleable in the market. Thus, the assessee is entitled for the deduction under Section 80(IB)(3) of the Income Tax Act having getting it in manufacturing process before its sale. Skimmed Milk; That there is also process involved in selling of skimmed milk. The assessee company purchases the raw skimmed milk wherein there is moisture and also the skimmed milk is not clean powder as per the standard of the assessee company brand. After its purchase, for some time it is spread so that the humidity could be removed. Thereafter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the process, it would amount to manufacture of an article or thing. Reference in this respect may be made to the decision of the Supreme Court in the case of Ujagar Prints Vs. Union of India (1989) 3 SCO 488. At the same time, it is also well settled that the word manufacture implies a change but every change in the raw material is not manufacture. There must be such a transformation that a new and different article must emerges having a distinct name, character or use. Reference may be made in this respect to the decision of the Supreme Court in the case of Tungbhadra Industries Ltd. Vs. Commercial Tax Officer AIR 1961 SC412. 7.1 The word manufacture has been defined under section 2(29BA) of the Income Tax Act. This section has been introduced w.e.f. 01.04.2009. This definition is as under:- [(29BA) manufacture , with its grammatical variations, means a change in a non-living physical object or article or thing - (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) bringing into existence of a new and distinct object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and water from bitumen and no new product has emerged from the process employed by the assessee. What was bitumen, continued to be bitumen but with lesser quantity of oil and moisture. The purposes for which, it can be used are only the purposes for which the use of bitumen is appropriate. Similar to the above case law in the present case also, for the Deshee Ghee and Skimmed Milk sold out of Desnee Ghee and Skimmed Milk purchased from the market, what was Deshee Ghee and Skimmed Milk continued to be Deshee Ghee and Skimmed Milk but with lesser quantity of guthale in Deshee Ghee and lesser quantity of moisture in Skimmed Milk and no new product has emerged from the process employed by the assessee. Since the output product is not different than the input product and the purpose for which input product can be used, arc only the purpose for which the output product can be used, the Deshee Ghee and Skimmed Milk purchased from the marked cannot ba said to be sold out of manufactured Dashee Ghee and Skimmed Milk. Therefore, such sales have been shown by the assessee (appellant) to the Trade Tax Department as trading sale and hence, for such sale, the assessee (appellant) would not be en ..... X X X X Extracts X X X X X X X X Extracts X X X X
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