DCIT 15(2), MUMBAI vs. ESTER LUB TECHNOLOGIES, MUMBAI

At the very outset, it was contended by the ld. Authorized Representative (AR), the assessee’s counsel, that the issue may be regarded as covered by the order by the Tribunal in the assessee’s own case for (A.Y.) 2007-08, followed by it for 2008-09, adverting to pgs. 8-19, 23-27 of the paper-book (PB). In fact, the Assessing Officer (A.O.) had not disputed the deduction u/s. 80-IB, i.e., the subject matter of dispute, for (A.Y.2009-10) Dy. CIT vs. Ester Lub Technologies the two years preceding the same, being claimed since A.Y. 2005-06, and for which he made reference to the copy of the assessment orders on record (PB pgs. 1-7), so that the issue came to be disputed by him for the first time only for A.Y. 2007-08. Narrating the background facts of the case in brief, he would continue, the assessee concern, a manufacturer of lubricating oil and antistatic conning oil, produced emulsifiers, using raw materials such as fatty acids, glycols, vegetables oils, caustic soda and other additives. The same was questioned by the Revenue on the ground that the assessee was producing the same for its’ sister concern, Wittmans Industries, so that it was essentially undertaking job work for it, producing only an intermediate product. The tribunal did not find it as a relevant consideration. However, the ld. Departmental Representative (DR) raising a contention that the assessee had not established that the emulsifier was a distinct and new product, commercially recognized in the market as such, the tribunal (for A.Y. 2007-08) restored the matter back to the file of the A.O. to examine if the emulsifier/s produced by the assessee for its’ sister concern is a new commercial product, i.e., from the raw materials used, recognized in the market as such (in dated 13.6.2012/PB pgs.8-19). The assessment order passed since, i.e., u/s. 143(3) r/w s. 254 of the Act is on record (PB pgs. 20-22), whereat the A.O. had allowed the deduction u/s. 80-IB, clarifying vide para 6 of the said order that the end product (emulsifier) passes the tests as prescribed by the tribunal; the operative part of his order reading as under: ‘6. It can be inferred from the report as submitted above that the end product i.e. emulsifier appears to be quite distinct from the raw materials used for preparing it and is recognized in the market as per the Chapter Head Code assigned to the product by the excise authorities.’ On that basis, the facts of the case being the same as for the earlier years, since allowed, the deduction for this year was prayed by him for being allowed. The ld. DR did not object to the same in view of the undisputed facts on record, would though raise an issue that while the assessee claims to manufacturing (A.Y.2009-10) Dy. CIT vs. Ester Lub Technologies emulsifier, the assessment order notes that the income by the assessee is by way of labour charges (para 4). The ld. AR would, in rejoinder, state that the raw materials stand purchased by the assessee on own account, and that categorizing the same as labour charges may perhaps not be correct, though this would not alter the assessee’s claim in any manner in-as-much as the deduction is being claimed only on the net profit.

We have heard the parties, and perused the material on record. We firstly observe that while the assessee’s explains to be manufacturing emulsifiers, using fatty acids, glycols, vegetables oils, caustic soda, etc. as raw materials, it is stated to be a manufacturer of lubricating oils and antistatic conning oil. Do the two represent the same class of chemicals? It does not appear to be so. However, the question is if the difference is material? While the assessee’s case rests solely on the manufacturing of emulsifier, it should not materially alter its’ case even if it is also manufacturing, and which should be the case, lubricating oils and antistatic conning oil. This is as the two products again appear to be ‘distinct’ products. Further, this may perhaps also explain the amount reflected by way of labour charges and sales in the assessee’s accounts for the current year, at Rs.127.13 lacs and Rs.0.91 lacs respectively. If, however, the assessee has also produced the other two categories of products, i.e., the lubricating oils and antistatic conning oil, which appears to be the case, the same shall be subject to the same verification and the prescriptive test by the A.O., i.e., as directed by the tribunal in the assessee’s case for A.Y. 2007-08 (supra), with a further direction for allowance of its claim (for deduction u/s. 80-IB(1)) subject to the A.O. returning positive finding/s. As regards the apparent anomaly in-as-much as the ld. AR states of the raw materials being purchased by the assessee from the market, while it has raised - in the main, labour charges on its’ sister concern, we consider it as of little moment in-as- much as the cost of raw materials would either way stand to be excluded, i.e., in computing the income on which deduction is being claimed. No doubt, the main