Deduction U/s 80IC can be claimed, despite no chemical change in composition of the raw material during manufacturing process

assessee had set up a unit at Baddi in Himachal Pradesh for packaging of Horlics, Boost for Glaxo Smithkline Consumer Healthcare Ltd. The assessee filed its return of income claiming deduction u/s 80IC of Rs. 6,59,69,287/- @ 100% on the profits of the eligible business alleging that it was engaged in the activity of manufacturing of Horlics & Boost. The AO disallowed the claim of deduction u/s 80IC, inter alia, by observing that in from 3 CD of the audit report the nature of business was shown as “rendering services of job work” (packaging of Horlics, Boost for M/s Glaxo Smith Kline Consumer Healthcare Ltd.), which was not the manufacturing activity as defined in sec. 2(29BA) of the I.T. Act. In doing so the AO rejected the explanation of the assessee that the claim was allowed from the starting of business in 2005-06 and in scrutiny assessments for A.Y. 07-08 & A.Y 08-09.

The assessing officer disallowed the claim of deduction u/s 80IC by observing that assessee was not engaged in manufacturing activity. Therefore, the main issue involved is whether the activity carried on by the appellant was a manufacturing activity. To examine whether the assessee had to fulfill the conditions contemplated u/s 80IC, it is imperative to take note of the relevant statutory provisions. Sub-section (1) of section 80IC provides a deduction in respect of profit and gains derived by an undertaking or enterprises from any business referred to in sub-section (2), while computing the total income of an assessee. Sub- section (2) has further sub-sections and in the case of the assessee, the clause applicable is 80IC (2) (b) which provides that assessee has begun or begins to manufacture any article or thing, which are not specified in Thirteenth schedule. It means assessee should not manufacture any article. or thing which is specified in thirteenth schedule. Apart from this, the activity of manufacture should commence between the period 7th day of Jan 2003 and ending on Ist April 2012. It should be at the place notified by the Board in accordance with the scheme.

Admittedly the assessee was registered with the excise department. In the audit report of the excise department the assessee has been shown to be engaged in the manufacture of Malt Based Foods, falling within chapter 19 of CETA attracting central excise duty.

In our considered opinion the ld. CIT(A) in coming to the conclusion that assessee was engaged in the activity of manufacturing and production, eligible for deduction u/s 80IC, has drawn support from various judicial pronouncements and elaborately taken into consideration the facts of the case. It is also not disputed that assessee has already been allowed deduction u/s 80IC in earlier years from A.Y. 2005-06 to A.Y. 2008-09. No change in facts for the assessment year in question has been brought on record. In this view of the matter we see no reason to interfere in the order of CIT(A) on the issue in question. Accordingly, order of CIT(A) is upheld.