MAYUR INDUSTRIES vs. A.C.I.T.

Facts

The assessee, Mayur Industries, claimed deduction under Section 80-I of the Income Tax Act for Assessment Years 1992-93 and 1993-94, asserting that its activity of converting chana (gram) into dal and besan constituted manufacturing. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) rejected this claim, viewing the process as mere conversion. The Income Tax Appellate Tribunal (Tribunal) upheld these decisions. The revenue (A.C.I.T.) appealed to the High Court against the Tribunal's orders. The High Court admitted the appeals on a substantial question of law regarding whether the activity was manufacturing for the purpose of Section 80-I deduction.

Held

The High Court held that the question raised in the appeals should be answered in favour of the revenue. The Court agreed with the concurrent findings of fact by the lower authorities. The Tribunal's observation that manufacturing involves bringing into existence a new product with a different physical or chemical composition, understood as such in common and commercial parlance, was noted. The Tribunal had also considered the Apex Court's decision in CIT vs. Sacs Eagles Chicory, which held that converting chicory root into powder by roasting and powdering is not manufacturing. Furthermore, the Court noted that since the assessee had not appealed against the earlier rejection of a similar claim by the Tribunal, the assessee was not entitled to raise the same issue in subsequent years. Therefore, the substantial question of law was answered in favour of the revenue, and the appeals were dismissed.

Key Issues

1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the assessee’s activity of converting chana into dal/besan did not amount to manufacturing activity and as such the assessee was not entitled to deduction u/s. 80-I of the I.T. Act? (Question of law) Assessee's contentions: The assessee argued that the conversion of gram into dal and besan, involving various processes, constituted manufacturing. The assessee also noted that an earlier claim was rejected by the AO for not submitting the audit report in the prescribed form. Revenue's contentions: The revenue supported the impugned orders, arguing they were passed in accordance with law. The revenue highlighted that no claims of this nature had been allowed previously and that the assessee had accepted the AO's and CIT(A)'s rejection of a similar claim for Assessment Year 1991-92 without filing a further appeal. The revenue relied on the High Court's decision in Saurashtra Cement & Chemical Industries Ltd. vs. Commissioner of Income-Tax, Gujarat – V.