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ACIT vs Chemex Oil Private Limited… | s.80-IC, 250 | ITAT Kolkata 2025 | BharatTax

ACIT, CIRCLE-7(1), KOLKATA, KOLKATA vs. CHEMEX OIL PRIVATE LIMITED, KOLKATA

ITA 176/KOL/2024Status: DisposedITAT Kolkata22 January 2025AY 2013-2014Bench: SRI SANJAY GARG (Judicial Member), SHRI RAKESH MISHRA (Accountant Member)1 pages

AI SummaryPartly Allowed

Facts

The assessee company is engaged in the manufacture of distilled fatty acid in a notified backward industrial area. It has been claiming deduction u/s 80-IC of the Income Tax Act, which was allowed in earlier assessment years. The revenue reopened the assessments, contending that the product fell under a negative list item as per Chapter 29 of the Excise Classification.

Held

The Tribunal held that the product manufactured by the assessee, 'organic inedible fatty acid', falls under Chapter 38 of the Excise Classification, not Chapter 29, and thus does not fall under the negative list of the Thirteenth Schedule. Therefore, the deduction claimed u/s 80-IC was justified.

Key Issues

Whether 'organic inedible fatty acid' manufactured by the assessee falls under the negative list of the Thirteenth Schedule, thereby disallowing deduction u/s 80-IC, and whether the product is correctly classified under Chapter 38 of Excise Classification instead of Chapter 29.

Sections Cited

80-IC, 250, 251, 148, 143(3), 268A, 147

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, KOLKATA ‘C’ BENCH, KOLKATA

Before: SRI SANJAY GARG & SHRI RAKESH MISHRA

For Appellant: Shri Akkal Dudhewala, AR

For Respondent: Shri Dheeraj, Sr. DR, Shri Akkal Dudhewala, AR

Vs. Chemex Oil Pvt. Ltd. ......... Respondent 19A, Jawaharlal Nehru Road, 3rd Floor, Kolkata-700087. (PAN: AACCC8125B) & C.O. No. 40/Kol/2024 In AY: 2010-11 & C.O. No. 41/Kol/2024 In AY: 2012-13 Chemex Oil Pvt. Ltd. ……… Cross Objector Vs. ACIT, Circle-7(1), Kolkata. …….. Respondent Appearances: Revenue represented by: Shri Dheeraj, Sr. DR Assessee represented by: Shri Akkal Dudhewala, AR Date of concluding the hearing : December 04th 2024 Date of pronouncing the order : January 22, 2025 ORDER Per Bench:

.: 173 to 177/KOL/2024 Chemex Oil Pvt. Ltd., AYs : 2010-11 to 2013-14 & 2015-16 C.O. Nos. 40 & 41/Kol/2024 All the captioned appeals have been preferred by the revenue arising out of the separate orders of even date 25.09.2023 of the Commissioner of Income Tax (Appeal), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ld. ‘CIT (A)’] u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) for Assessment Years (AY) 2010-11 to 2013-14 and 2015-16. Cross Objections filed by the assessee are against the orders of Ld. CIT(A), NFAC, Delhi of even dated 25.09.2023 for AYs 2010-11 and 2012-13. Since facts and issues involved in all these appeals and Cross Objections are identical, hence the same have been heard together and are being disposed of by this common order for the sake of convenience.

2.

All the appeals of the revenue are time barred by 66 days. Separate applications for condonation of delay have been filed. Considering the averments made in the applications, the delay in filing the present appeals is hereby condoned.

3.

The sole issue involved in all these appeals is as to whether the product manufactured by the assessee namely, “organic inedible fatty acid” would fall within the excluded/negative items as listed in XIII Schedule of the Act and, therefore, whether the deduction claimed by the assessee u/s. 80IC of the Act is not admissible to the assessee ?

4.

Brief facts as extracted from the order of the Ld. CIT(A) are that the assessee is engaged in the manufacture of ‘distilled fatty acid’ for which it had set-up a plant in the Solan District of Himachal Pradesh which is admittedly notified backward industrial area in terms of Section 80-IC(2)(a)(ii) of the Act vide CBDT Notification No.80/2008 dated 27.08.2008. From the facts on record, it is observed that the assessee had commenced production from 01.09.2007 and that it has been consistently claiming deduction u/s 80-IC of the Act from Assessment Year (AY) 2008-09 and onwards. It is noted that the deduction so claimed u/s 80-IC of the Act were allowed in AYs 2008-09 to 2015-16. It is further noted that except for AYs 2011-12 & 2015-16, the AYs 2008-09, 2009-10, 2010-11, 2012-13, 2013-14, 2014-15 were originally assessed u/s 143(3) of the Act and the assessment orders reveal that the Page 2 of 13 .: 173 to 177/KOL/2024 Chemex Oil Pvt. Ltd., AYs : 2010-11 to 2013-14 & 2015-16 C.O. Nos. 40 & 41/Kol/2024 deduction claimed u/s 80-IC of the Act was allowed in the respective income- tax assessments. The AO vide notices issued u/s 148 of the Act all dated 28.03.2017 had reopened the assessment for AYs 2010- 11 to 2015-16 on the premise that the assessee had wrongly claimed deduction u/s 80-IC of the Act. The reasons recorded by the AO suggested that the product - ‘organic inedible fatty acid’ fell under Chapter 29 of the Excise Classification and, therefore, the said product fell within the negative list specified in the Thirteenth Schedule for the State of Himachal Pradesh. The AO accordingly held that the assessee had wrongly claimed deduction u/s 80-IC of the Act and therefore, disallowed the same. On the other hand, according to the assessee, the product – ‘organic inedible fatty acid’ fell under Chapter 38 of the Excise Classification and not under Chapter 29 and therefore, it did not fall within the negative list specified in the Thirteenth Schedule for the State of Himachal Pradesh and in that view of the matter, the deduction was rightly claimed u/s 80-IC of the Act. In support, the assessee has enclosed the relevant Chapter 38 & 29 of Excise Classification along with excise returns evidencing that the product being manufactured by the assessee has all along been declared as an item covered by Chapter 38 and the same has been accepted by the Central Excise Department as well.

“7.5. Having considered the entire factual matrix of the case, I note that the appellant had set-up a manufacturing {unit in Solan, Himachal Pradesh which is a notified industrially backward district under Section 80-IC of the Act. Clause (2) of Section 80-IC of the Act covers two categories viz., sub-clause (a) allows deduction to industrial undertaking located in notified area (Himachal Pradesh included) provided the item/product manufactured is not covered by the negative list set out in Thirteenth Schedule and sub-clause (b) allows deduction to industrial undertaking located in notified area (Himachal Pradesh included) Page 3 of 13 .: 173 to 177/KOL/2024 Chemex Oil Pvt. Ltd., AYs : 2010-11 to 2013-14 & 2015-16 C.O. Nos. 40 & 41/Kol/2024 provided the item/product manufactured is covered by the list set out in Fourteenth Schedule, It is noted that the appellant had claimed deduction in terms of Section ,80-IC(2)(a) of the Act i.e. it was an industrial undertaking located in Solan, Himachal Pradesh (a notified area) and the product - organic inedible fatty acid manufactured did not fall within the negative list set out in Thirteenth Schedule. The dispute in the present case however is noted to have emanated from the erroneous reporting made by the auditor in Form 10CCB wherein at Column 25(f) for AY 2012-13, the auditor had ticked the box 'Yes' instead of 'No' in response to the query as to whether the item/product being manufactured is covered by Fourteenth Schedule as well. Since the product was not falling under any of the items mentioned in Fourteenth Schedule, this particular reporting raised suspicion regarding the correctness of the deduction claimed u/s 80-IC of the Act. I find that before the AO the appellant had pointed out that this was a mistake committed by the auditor and the auditor had furnished an errata/revised report as well. The appellant further pointed out that in the audit report for the initial year of claim i.e. AY 2008-09, the auditor had rightly ticked 'No' in Column 25(f) and this contemporaneous document substantiated that the auditor had simply committed an error in the Form 10CCB filed for AY 2012-13. The appellant had further clarified it had never claimed to have been covered by Section 80-IC(2)(b) but the deduction was always claimed in terms of Section 80-IC(2)(b) of the Act. From the assessment order, I find that although the AO on the given facts agreed with the appellant that the item manufactured by the appellant i.e. organic inedible fatty acid did not fall under the Fourteenth Schedule, as wrongly reported by the auditor in Form 10CCB, and that the appellant did not claim deduction u/s 80-IC(2)(b) of the Act, but he was of the view that this item was covered by Thirteenth Schedule as the product - organic inedible fatty acid fell under Chapter 29 of the Excise classification which was one of the excluded/negative items enlisted in Thirteenth Schedule and therefore even the deduction so claimed in terms of Section 80-IC(2)(a) was not entertainable. 7.6. In the above background, the limited issue to be adjudicated is whether the product - organic inedible' fatty acid fell within the excluded/negative items enlisted in Thirteenth Schedule or not and therefore whether the deduction u/s 80-IC as claimed by the appellant was permitted or not. In order to adjudicate the issue, it is first relevant to set out the excluded/negative items enlisted in Thirteenth Schedule which reads as under:-

Page 9 of 13 .: 173 to 177/KOL/2024 Chemex Oil Pvt. Ltd., AYs : 2010-11 to 2013-14 & 2015-16 C.O. Nos. 40 & 41/Kol/2024 7.7. According to AO, the case of the appellant fell under Sl. No. 6 of Part-B (For the State of Himachal Pradesh & State of Uttaranchal) in the thirteen Schedule i.e. the product-organic inedible fatty acid qualified as organic chemicals set out Chapter 29 of the Excise classification. The AO has conspicuously not specified the exact line item of Chapter 29 which mentions this product. Upon perusal of all Page 10 of 13 .: 173 to 177/KOL/2024 Chemex Oil Pvt. Ltd., AYs : 2010-11 to 2013-14 & 2015-16 C.O. Nos. 40 & 41/Kol/2024 the six sections of Chapter 29 and each of the several line items mentioned therein, I find that the appellant had rightly contended that the product - organic inedible fatty acid did not fall under any of the items specified in Chapter - 29 of the Excise Classification and therefore this finding rendered by the AO was erroneous. 7.8 Instead, it is noted that the product - organic inedible fatty acid fell under Chapter 38 of the excise classification which includes Industrial Monocarboxylic Fatty Acids. It is observed that Industrial Monocarboxylic Fatty Acids is defined to include long chain fatty acids containing even number of carbon atoms attached to a carboxyl group. The process involves using Crude Fatty Acids obtained from the reaction which are distilled in multiple vacuum distillation columns in high temperature and high vacuum conditions to remove the low-boiling and high- boiling impurities from the fatty acids. The Distilled Fatty Acids, which is manufactured by the appellant, are obtained after distillation which are used in the production of Toilet Soap Noodles, Cleansing Products, Surfactants etc. and hence stands covered by the Chapter 38 of excise classification. 7.9 It is also noted that the appellant had filed its excise returns in Form ER-1 in which the product - organic inedible fatty acid has all along been classified under Chapter 38 of the excise classification and the same has been accepted by the Excise Department without any dispute. It is further noted that the items/products specified in Chapter 38 of the excise classification does not feature in the Thirteenth Schedule. In light of the foregoing therefore, I hold that the product organic inedible fatty acid did not fall within the negative list of Thirteenth Schedule. Accordingly, the conditions specified in Section 80-IC(2)(a) were duly fulfilled & met, and hence the deduction u/s 80-IC claimed by the appellant was justified. The AO is accordingly directed to delete the disallowance of Rs.8,59,63,307/- made in relation to deduction u/s 80-IC of the Act. Ground No.2 is therefore allowed. 7.10 Since the addition/disallowance made by the AO has already been held to be untenable and accordingly/deleted, the legal issue raised in ground no. 1 challenging the legal validity of the assessment have now become academic in nature and is thus dismissed as being infructuous.