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Income Tax Appellate Tribunal, DELHI BENCH “G” NEW DELHI
Before: SHRI I.C. SUDHIR & SHRI O.P. KANT
ORDER
PER I.C. SUDHIR: JUDICIAL MEMBER The revisional order under section 263 of the Income-tax Act, 1961 passed on 25.3.2013 has been impugned by the assessee.
The original assessment was completed by the Assessing Officer under Section 143(3) vide its order dated 30th December, 2010 wherein he has allowed the deduction of Rs.31,11,096/- claimed by the assessee under Section 80-IC of the Income Tax Act.
2 3. Thereafter the assessment record was examined by the learned CIT. The learned CIT was of the view that assessee did not manufacture any article or thing which is a precondition for claiming exemption under Section 80-IC of the Act. Accordingly, he issued a show cause notice. In response thereto the assessee submitted its reply and contended that it is eligible for claiming exemption under Section 80-IC of the Act. The learned CIT, however, was of the view that assessee is engaged only in printing and it cannot be called as manufacturing and processing. Accordingly, he held that the order passed by the Assessing Officer is erroneous in so far as it was prejudicial to the interest of the Revenue. The assessment order passed by the Assessing Officer, accordingly, was directed to be framed afresh.
Aggrieved by the order of the learned CIT, the assessee is in appeal before us and has raised the following grounds of appeal:-
“1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (CIT) under Section 263 of the Act is bad, both in the eye of law and on facts. 2. On the facts and circumstances of the case, the order passed by the learned CIT cancelling the assessment order passed by the A.O. is untenable in the absence of order of the A.O. being erroneous as well as prejudicial to the interest of the Revenue.
On the facts and circumstances of the case, the learned CIT has erred both on facts and in law in ignoring the fact that the issue raised by him in notice under Section 263 was before the A.O. and as such the jurisdiction on this issue under Section 263 cannot be assumed.
4. On the facts and circumstances of the case, the learned CIT has erred both on facts and in law in rejecting the contention of the appellant that the issue of eligibility of deduction under section 80IC(2) was before the AO in proceedings under Section 143(3) and was allowed after application of mind by him as such the same cannot be the matter for reassessment under Section 263 of the Act. 5. On the facts and circumstances of the case, the learned CIT has erred both on facts and in law in ignoring the contention of the appellant that the proceeding under Section 263 cannot be used for substituting option of the A.O. by that of the CIT. 6. On the facts and circumstances of the case, the learned CIT has erred both on facts and in law in invoking revisionary power under Section 263 of the Act despite the fact that even after thorough examination, no specific findings have been given on the issue of how the order is erroneous and prejudicial to the interest of Revenue. 7.. On the facts and circumstances of the case, the learned CIT has erred both on facts and in law in setting aside the matter to the file of the A.O. without giving a finding as to the error and prejudice caused to the revenue by the assessment order. 8. That the appellant craves leave to add, amend or alter any of the grounds of appeal.”
4 5. The learned AR submitted that in this case the assessment has been completed by the Assessing Officer under Section 143(3) of the Act. During the course of the assessment proceedings the assessee has submitted all the details and the explanation as was called for by the Assessing Officer. Attention was invited to the questionnaire dated 5thAugust, 2010 at PB Pg. 38 whereby the Assessing Officer has asked the assessee to explain the nature of the business activities carried on by it.
It was further submitted that vide letter dated 3rd December, 2010 at 6. PB Pg. 51 the assessee has explained before the Assessing Officer the eligibility of its claim under Section 80-IC of the Income Tax Act. All the necessary details in support thereof were filed including the details of the plant and machinery totaling Rs.87,24,753/- at PB Pg. 97 installed by it for carrying out the manufacturing process.
It was further submitted that the Assessing Officer has examined the manufacturing process carried on by the assessee and in this regard explanation was submitted vide letter dated 15th December, 2010 at PB Pg. 107.
5 8. It was the contention of the learned AR that the Assessing Officer has thoroughly examined this issue and thereafter only he has allowed the deduction after being satisfied about the eligibility of the assessee. It was further contended that the learned CIT was not justified in setting aside the order passed by the Assessing Officer and sitting over the judgment of the Assessing Officer. It was further submitted that in a proceeding under Section 263 the learned CIT has to give a categorical finding and he cannot set aside the order passed by the Assessing Officer where the Assessing Officer has passed the order after carrying out necessary enquiry.
On merit it was contended by the learned AR that assessee is engaged in the business of manufacturing aluminium foils by slitting, printing and air drying the same. It was submitted by the learned AR that assessee purchases rolls of aluminium foils which are of standard length and width. These rolls are cut into strips of required width. These strips are thereafter converted into round shape and thereafter printing is done on such strips. In this regard the learned AR invited attention to PB Pg. 108 which explains the manufacturing process.
6 10. It was further submitted that case of the appellant is squarely covered by the judgment of the Hon’ble Supreme Court in the case of India Cine Agencies v. CIT [2009] 308 ITR 98 (SC). It was further contended that the above judgment has been relied upon by the Hon’ble jurisdictional High Court of Delhi in the case of CIT v. Delhi Press PatraPrakashan Ltd. [2013] 355 ITR 14 (Del) where on similar facts it has been held that printing also included and to be considered as eligible for claiming deduction. It was also submitted that during the course of the proceedings before the learned CIT, the assessee has provided sufficient evidences to prove the process conducted by the assessee as a manufacturer. In this regard attention was invited to the registration granted by the Deputy Director of Industries, Department of Industries, Baddi, Dist. Solan, Himachal Pradesh wherein the assessee’s unit has been recognized as a manufacturing entity with effect from 6th February, 2007. Attention was also invited to the subsidy granted to the assessee as a manufacturing unit by the Government of Himachal Pradesh. Attention was also invited to the excise returns being filed by the assessee in respect of the manufacturing activities being carried on by it.
Further reliance was placed on the judgment of Chennai Bench of CEGAT in the case of Sri Kumar Agencies & Others V. CCE 2000
7 taxmann.com 849 (CEGAT – Chennai) whereby it has been held that products which emerged after printing on paper, polyethylene coated paper and on PVC films is to be treated as products coming out of manufacture.
Attention was also invited to the judgment of the Hon’ble Supreme Court in the case of ITO, Udaipur vsArihant Tiles and Marbles Pvt. Ltd., Civil Appeal No. 8037 to 8044 of 2009 wherein it has been held that cutting of bigger pieces of marbles/tiles into smaller sizes will amount to manufacture.
It was also submitted by the learned AR that various judgments relied upon by the learned CIT are not on the issue and hence not relevant for the present case and learned CIT has wrongly applied these judgments in this case.
The learned CIT(DR) supported the order passed by the learned CIT. It was submitted that the learned CIT has examined the details and has passed a reasoned order. The assessee cannot be said to be engaged in the manufacture and hence not eligible for deduction claimed by it.
We have considered the above submissions and perused the order passed by the learned CIT as well as the paper book filed by the assessee.
8 The issue in the appeal is whether the assessee can be said to be engaged in the manufacture or processing of a thing and hence eligible for claiming deduction under Section 80-IC of the Act. As per learned CIT the assessee is not engaged in the manufacture or producing a thing and hence it is not eligible for deduction. In this regard we have examined the process being followed by the assessee in carrying out its manufacturing activities. On going through the process we note that assessee is buying raw material in the form of aluminum foils which are in jumbo rolls. These rolls are being cut into strips of different seizes. Further these strips are converted into round shape. After such conversion these round strips are printed after loading on to the printing machine. The printed aluminium foils are thereafter run through air drying unit and after drying the same, the finished goods so manufactured is being sold by the assessee. For carrying out these manufacturing activities the assessee has set up this unit in the State of Himachal Pradesh at Baddi. The assessee has also been registered as an industrial unit by the Department of Industries, Himachal Pradesh. It has also got the clearance from the Himachal Pradesh Environment Department. It is also registered with the Excise Department and has been filing excise returns in respect of the manufacturing activities by it. Thus the issue is 9 whether such activity which the assessee is carrying on can be called within the meaning of manufacture of an article or thing.
This issue has come up before the Hon’ble jurisdictional Delhi High Court in the case of CIT vs. Delhi Press PatraPrakashan Ltd. (Supra). In this case an issue has arisen whether the assessee is eligible to claim exemption under section 80-I of the Income Tax Act. The assessee’s two units were engaged in printing. The raw materials used were paper, ink and other consumables.
The Hon’ble jurisdictional High Court rejected the contention of the Revenue and held as under:-
“52. In the present case, Unit Nos.2 & 3 are engaged in printing. The raw materials used are paper, ink and other consumables which are completely distinct from the printed paper that results from the activity on in Unit Nos.2 &3. We are unable to accept the contention that the printing does not alter the character of the paper used and there is no distinction between the raw paper and the resultant product. The purpose and usage of a blank paper is completely different from the use and purpose of a printed magazine or periodical. Once the blank paper undergoes a process of printing, the character of blank paper changes completely and the content of the printed material now becomes the identity of a printed paper. No one can say that blank paper and printed article are one and the same and in our opinion it can hardly be said that printing carried out in an industrial undertaking would not amount to manufacturing. A printed magazine or periodical even if it is not bound has a definite identity and its usage is completely different from a blank paper on which it is printed.
Having stated above we must add that the expression used in Section 80-I (2)(iii) of the Act is "manufacture or produce any article or thing". The word 'produce' has wider meaning than the word "manufacture". The meaning of the word 'produce' is similar to the word "production" and it has been held by the Supreme Court in the case of CIT v. N.C. Budharaja& Co.: (1993) 204 ITR 412 (SC) that while every manufacture can be characterized as production, every production need not amount to manufacture. The quoted passage from the said decision of the Supreme Court is as under: "The word 'production' has a wider connotation than the word 'manufacture'. While every manufacture can be characterized as production, every production need not amount to manufacture........ The word 'production' or 'produce' when used in juxtaposition with the word 'manufacture' takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods".
The expression used in Section 80-I(2)(iii) of the Act is much wider and, thus, would take in its sweep any article that may be manufactured or produced. The house of lords in the case of Long Hurst v. Gild Ford Godalming& District, Wider Board: [1961] 3 AIIER 545 had held that water in filter beds is an article. The Court in that case was considering the definition of factory which was defined to mean "any premises in which, or within the close or curtilage or precincts of which, persons are employed in manual labour in any process for or incidental to any of the following purposes, namely: (a) the making of any article or of part of any article; or (b) the altering, repairing, ornamenting, finishing, cleaning, or washing, or the breaking-up or demolition of any article; or (c) the adapting for sale of any article; being premises in which, or within the close or curtilage or precincts of which, the work is carried on by way of trade or for purposes of gain and to or over which the employer of the persons employed therein has the right of access or control".
The Shorter Oxford English Dictionary defines 'article' to mean "A particular material thing (of a specified class); a commodity; a piece of goods or property". The meaning of the word "thing" is wider and the meanings ascribed to the word "thing" by the shorter Oxford English Dictionary includes "an inanimate material object", "a material substance", "That which one possesses: property, wealth".
It is apparent that the expression "article or thing" is extremely wide. The question thus arises is whether the printed paper which is produced in Unit Nos.2 & 3 falls within the sweep of the expression 'article' or 'thing'. We are unable to think of any reason to exclude the printed paper produced by the assessee in Unit Nos.2 & 3 from the ambit of the expression 'article' or 'thing'. The language of Section 80-I (2)(iii) of the Act, thus clearly, indicates that Unit Nos.2 & 3 do "manufacture or produce an article or thing".
The Supreme Court in the case of Commissioner of Income Tax v. SESA Goa Limited: (2004) 271 ITR 331 (SC) considered the question whether extraction and processing of iron ore amounted to manufacture or not in the context of availability of investment
allowance under section 32(A) of the Act in respect of machinery used in the mining activity. In that case, revenue contended that processing of iron ore did not produce any new product and thus the benefit of Section 32(A) of the Act was not available to the assessee. As per section 32(A)(2)(b)(iii) of the Act, deduction on account of investment allowance is available to the assessee in respect of a plant owned by the assessee which is wholly used for the purpose of assessee's business in an industrial undertaking for the purposes of the business of "construction or manufacture or production of any article or thing". The Supreme Court noted that the meaning of the word production was defined only in the Oxford English Dictionary as "amongst other things that which is produced; a thing that results from any action, process or effort, a product; a product of human activity or effort" and this definition has been accepted by the Supreme Court in an earlier decision in the case of Chrestian Mica Industries Ltd. v. State of Bihar: [1961] 12 STC 150. The Court further held that the definition of the word 'production' was wide enough to include the production of mineral ores and ores would fall within the expression "a thing". Having held that the word "production" was much wider than manufacture, the Supreme Court felt that it was not necessary to examine the question whether the mined ore was commercially a new product. In the present context also, although we have held that in the facts of this case producing printed paper does amount to manufacture as a new article or a thing known to market comes into existence. It is not necessary that an industrial undertaking must manufacture a commercially new product in order to fulfill the condition as specified in Section 80-I(2)(iii) of the Act. Since, in any event production of any article or thing by an industrial undertaking would be sufficient to entitle the industrial undertaking to claim that the condition under Section 80-I(2)(iii) of the Act was fulfilled.
13 Indisputably, printed paper falls within the meaning of the expression "an article or thing" and whether the same is marketable as new product is not relevant. The Supreme Court has also held in the case of N. C. Budharaja& Co. (supra) that by products, intermediate products and residual products that emerge in the case of manufacture are also to be included in the word 'production' or 'produce'. Thus, even if the printed material as produced by Unit Nos.2 & 3 is taken as an intermediate product which requires to be further bound for making it marketable, the word produce occurring in Section 80-I(2)(iii) of the Act would include it within its ambit.
The decision of the Supreme Court in the case of N. C. Budharaja& Co. (supra) and Sesa Goa Limited (supra) have been followed by the Supreme Court in the later decision of India Cine Agencies v. Commissioner of Income Tax: (2009) 308 ITR 98. In this case the Supreme Court accepted that the meaning of the word "production" or "produce" was wide enough to include conversion of jumbo rolls of photographic films into small flats and rolls in the desired sizes and held that the benefits of section 80-I of the Act would be available in respect of an industrial undertaking engaged in such activity.
We, accordingly, reject the contention of the revenue that Unit Nos.2 & 3 fail to fulfill the conditions as specified in Section 80- I(2)(iii) of the Act.”
The above judgment is squarely applicable to the facts of the present case. The condition for claiming exemption under Section 80-IC so far manufacturing or produce any article or thing is concerned is paramateria the same as under Section 80-I which was being examined by the Hon’ble Delhi
14 High Court. The Hon’ble High Court has categorically held that the word ‘produce’ has wider meaning than the word ‘manufacture’. Similarly the Hon’ble High Court has held that the expression ‘article or thing’ is also extremely wider. It has held that the printed paper which is produced after printing falls within the expression ‘article or thing’.
The Hon’ble jurisdictional Delhi High Court has also referred to the judgment of the Supreme Court in the case of CIT vs. SESA Goa Limited (2004) 271 ITR 331 (SC) wherein it has been held that extraction and processing of iron ore amounted to manufacture. The Hon’ble High Court has further relied upon the judgment of the Supreme Court in the case of India Cine Agencies vs. CIT (2009) 308 ITR 98 (SC) relied upon by the learned AR. In this judgment the Supreme Court has accepted that the meaning of the word ‘production or product’ was vide enough to include conversion of jumbo rolls of photographic films into smaller rolls in the desired sizes.
In the present case there is no dispute to the fact that the assessee is buying jumbo rolls and slits into smaller rolls. These rolls are converted into round strips and thereafter printing is done on such round strips. The assessee is duly registered with the Director of Industries. It is registered
15 with the Excise Department and it has been filing its returns in respect of the manufacturing process carried on by it. In these circumstances, we are of the opinion that the learned CIT was not justified in holding that assessee is not engaged in manufacture or processing any article or thing and hence not eligible for claiming deduction under Section 80-IC of the Act.
Accordingly, the order passed by the Assessing Officer allowing deduction cannot be said to be erroneous so as to be prejudicial to the interest of the Revenue. We thus hold that the order passed by the CIT is not a valid order and the same is quashed. In the result, assessment order dated 30.12.2010 passed by the AO is restored and grounds of the appeal of the assessee are allowed.