JK AGRIGENETICS LIMITED(EARLIER KNOWN AS FLORENCE ALUMINA LTD.),KOLKATA vs. DCIT, CIRCLE-5(2), KOLKATA, KOLKATA

In the grounds raised in the appeal, the assessee company has primarily objected to action of the AO in disallowing the deduction for additional depreciation of Rs.15,78,386/- claimed u/s. 32(1)(iia) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) holding that the assessee was not engaged in manufacture or production of any article or thing.

Briefly stated facts of the case are that the assessee company is engaged in the production and processing of hybrid seeds. In the relevant year under consideration, the assessee had made new addition to plant and machinery on which it had claimed the additional depreciation u/s. 32(1)(iia) of the Act. In the assessment completed u/s. 143(3) of the Act, the AO was of the opinion that the assessee company was basically a trader of seeds and not a producer of seeds in terms of the provisions contained in sec. 2(29BA) of the Act and, therefore, held that the assessee could not be termed as a ‘manufacturer’ and

We have heard rival submissions and gone through the facts and circumstances of the case. From a perusal of the assessment order we note that in para 2, the AO himself admitted that during the financial year the assessee was engaged in the business of production, processing and sale of seeds and related services. Despite recording such a finding, later on the AO contradicted himself by stating that the assessee was a mere trader or dealer in hybrid seeds. We further note that in the course of appellate proceedings the assessee had furnished a detailed note on the production process involved in the assessee’s business of manufacture or production of hybrid seeds. The Ld. AR explained that first the assessee after carrying out several research processes developed the breeder seeds. After the basic breeder/foundation seed was developed, the need to be multiplied for specific use in crop hybridization programme. For that these breeder/foundation seeds were taken to the agricultural grower/farmer for cultivation. And from them, the unprocessed hybrid seeds were purchased i.e. assessee purchased from the contractual growers the unprocessed hybrid seeds. After the unprocessed seeds were purchased, the assessee company conducts further processing such as cleaning, fermentation, fumigation, draying, application of chemicals, grading and packaging of hybrid seeds were carried out before the seeds were marketed in the market. The Ld. AR of the assessee submitted that the production processes outlined before the lower authorities in the process chart form was followed by all seeds companies in the country because the certification standards and process followed under the Seeds Act 1966 was same all over India. The Ld. AR further submitted that the question as to whether the seed companies engaged in production and sale of processed or hybrid seeds are engaged in manufacturing or production of an article or thing was considered and decided by various judicial authorities including the Hon’ble Supreme Court. He submitted that in the following judgments the Hon’ble Courts have held that the companies engaged in

The Ld. DR fully supported the orders of the authorities below and does not want us to interfere in the order passed by the Ld. CIT (A).

After giving our thoughtful consideration to the submission of the parties and perusing the judicial decisions relied upon by the Ld. AR, we find that the issue involved in the present appeal is no longer res integra. The question as to whether the seed companies engaged in production of processed seeds were eligible for profit based deduction u/s. 80J/80I/80IB/80HH was considered by various judicial forums across India. The basic production process involved in producing processed/hybrid seeds are standardized because the specifications and procedures for seed certification have been laid down by the Govt. of India under the Seeds Act, 1966 and is the same all over India. In the decisions above referred, the Hon’ble Courts analyzed in detail the production process followed and held that seed companies first develop breeder/foundation seeds by carrying out research and experiments for ensuing better yield and high resistance to disease and attack by insects. This breeder/foundation seeds developed by seed companies were then provided to the 3

We further note that appeals involving the identical question was decided by the Hon’ble Gujarat High Court in its judgment dated 12.12.2014 wherein the specific question adjudicated by the Hon’ble High Court was “whether processing of seeds is a manufacturing activity”. The judgment in this batch of appeals was reported in New Nandi Seeds Corporation, supra. In this judgment, the Hon’ble High Court after examining in detail 4

We, therefore, find that in a catena of judgments the unanimous view taken by the judicial authorities is that the seed company’s engaged in production of processed/hybrid seeds are engaged in ‘manufacture or production of a new article or thing’. Respectfully following the ratio laid down in these decisions, we hold that the assessee was engaged in the production of a new article or thing and, therefore, eligible to claim additional depreciation u/s. 32(1)(iia) of the Act. Therefore, the assessee succeeds in its appeal and, therefore, the AO is directed to allow the additional depreciation of Rs.15,78,386/-.

In the result, the appeal of the assessee is allowed.