Case Law Details

Case Name : Income-tax Officer Vs Natural Fragrances (ITAT Delhi)
Appeal Number : IT Appeal Nos. 4171 & 4172 (Delhi) of 2012
Date of Judgement/Order : 12/10/2012
Related Assessment Year : 2008-09 & 2009-10
Courts : All ITAT (4773) ITAT Delhi (1047)

 IN THE ITAT DELHI BENCH ‘E’

Income-tax Officer

Versus

Natural Fragrances

IT Appeal Nos. 4171 & 4172 (Delhi) of 2012

[Assessment years 2008-09 & 2009-10]

OCTOBER 12, 2012

ORDER

Rajpal Yadav, Judicial Member 

The present two appeals are directed at the instance of the revenue against separate orders of even date i.e. 17.05.2012 passed by the Learned CIT(Appeals) in assessment years 2008-09 and 2009-10. The grounds of appeals raised by the revenue in both the years are verbatim same except variation in the quantum. The grounds in assessment year 2008-09 read as under:

“1.  That the Learned CIT(Appeals) has erred in law & facts in deleting the addition of Rs.3,28,92,527 made on account of rejection of the assessee’s claim of deduction u/s. 80IC of the Income-tax Act, 1961.

 2.  That the Learned CIT(Appeals) has erred in law & facts in following the decision of Hon’ble ITAT, New Delhi in assessee’s own case for A.Y. 2007-08, holding that the assessee is engaged in the manufacturing of articles & things and it fulfills all the essential conditions for availing deduction u/s. 80IC of the Act.

 3.  That the appellant craves leave to add, alter, amend or vary the grounds of appeal before or at the time of hearing.”

2. In assessment year 2009-10, the amount claim as a deduction under sec. 80-IC of the Income-tax Act, 1961 is Rs. 285,10,459.

3. The brief facts of the case are that assessee has filed its return of income on 20th September, 2008 for assessment year 2008-09 declaring nil income after claiming deduction of Rs. 332,29,787 under sec. 80-IC of the Act. Similarly in assessment year 2009-10, the assessee filed its return of income on 25th September, 2009 declaring nil income by claiming a deduction of Rs.299,88,505 under sec. 80-IC of the Act. The case of the assessee was selected for scrutiny assessment in both the assessment years. Learned Assessing Officer had issued notice under sec. 143(2) of the Income-tax Act, 1961. He observed that in assessment year 2007-08, assessee has claimed deduction under sec. 80-IC which was disallowed to it after a detailed discussion. The disallowance of the deduction was upheld by the Learned CIT(Appeals). On the strength of his findings in assessment year 2007-08, he disallowed the claim of assessee in these two assessment years.

4. On appeal, Learned CIT(Appeals) deleted the disallowance on the ground that the ITAT has allowed the deduction to the assessee in assessment year 2007-08 vide its order dated 16.3.2012 passed in ITA No.4183/Del/2011. According to the Learned CIT(Appeals), this order is reported in 19 Taxman.com 312.

5. In response to the notice of hearing, no one has come present on behalf of the assessee. With the assistance of learned departmental representative, we have gone through the record carefully and dispose of the appeals ex parte qua the assessee. The ITAT while allowing the deduction under sec. 80-IC in assessment year 2007-08 has discussed the issue as under:

“7. We have duly considered the rival contentions and gone through the record carefully. In order to avail deduction under section 80IC, an assessee has to fulfill the conditions contemplated in the section. Therefore, before considering the respective contentions as well as the relevant material, it is imperative upon us to take note of the relevant statutory provisions. The relevant part of section 80-IC, thus reads as under:

“Special provisions in respect of certain undertakings or enterprises in certain special category States.

80-IC. (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section (3).

(2) This section applies to any undertaking or enterprise,

(a)  which has begun or begins to manufacture or produce any article or thing, not being any article or thing specified in the Thirteenth Schedule, or which manufactures or produces any article or thing, not being any article or thing specified in the Thirteenth Schedule and undertakes substantial expansion during the period beginning

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(ii) on the 7th day of January, 2003 and ending before the 1st day of April, 2012, in any Export Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or Industrial Park or Software Technology Park or Industrial Area or Theme Park, as notified by the Board in accordance with the scheme framed and notified92 by the Central Government in this regard, in the State of Himachal Pradesh or the State of Uttaranchal; or

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(b)  which has begun or begins to manufacture or produce any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule, or which manufactures or produces any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule and undertakes substantial expansion during the period beginning

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(ii) on the 7th day of January, 2003 and ending before the 1st day of April, 2012, in the State of Himachal Pradesh or the State of Uttaranchal; or

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(3) The deduction referred to in sub-section (1) shall be

 (i)  in the case of any undertaking or enterprise referred to in sub-clauses (i) and (iii) of clause (a) or sub-clauses (i) and (iii) of clause (b), of sub-section (2), one hundred per cent of such profits and gains for ten assessment years commencing with the initial assessment year;

(ii)  in the case of any undertaking or enterprise referred to in sub-clause (ii) of clause (a) or sub-clause (ii) of clause (b), of sub-section (2), one hundred per cent of such profits and gains for five assessment years commencing with the initial assessment year and thereafter, twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains”.

6. Sub-section (2) of section 80IC of the Act provides that provisions contained in sub-section (5) and sub-sections 7 to 12 of section 80IA shall, so far as may be, applied to the eligible undertaking or enterprises under this section. Thus, we deem it fit to note down sub-section (5) and sub-sections 7 to 12 of section 80IA also. They read as under:

“Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made.

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(7) [The deduction] under sub-section (1) from profits and gains derived from an [undertaking] shall not be admissible unless the accounts of the [undertaking] for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant, as defined in the Explanation below sub-section (2) of section 288, and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant.

(8) Where any goods [or services] held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods [or services] held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods [or services] as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods [or services] as on that date :

Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit.

[Explanation.- For the purposes of this sub-section, “market value”, in relation to any goods or services, means the price that such goods or services would ordinarily fetch in the open market.]

(9) Where any amount of profits and gains of an [undertaking] or of an enterprise in the case of an assessee is claimed and allowed under this section for any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of this Chapter under the heading ” C.-Deductions in respect of certain incomes “, and shall in no case exceed the profits and gains of such eligible business of [undertaking] or enterprise, as the case may be.

(10) Where it appears to the Assessing Officer that, owing to the close connection between the assessee carrying on the eligible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the Assessing Officer shall, in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom.

(11) The Central Government may, after making such inquiry as it may think fit, direct, by notification in the Official Gazette, that the exemption conferred by this section shall not apply to any class of industrial undertaking or enterprise with effect from such date as it may specify in the notification.

(12) Where any undertaking of an Indian company which is entitled to the deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger-

(a)  no deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and

(b)  the provisions of this section shall, as far as may be, apply to the amalgamated or the resulting company as they would have applied to the amalgamating or the demerged company if the amalgamation or demerger had not taken place.

(12A) Nothing contained in sub-section (12) shall apply to any enterprise or undertaking which is transferred in a scheme of amalgamation or demerger on or after the 1st day of April, 2007.

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7. From the bare perusal of the section would reveal that 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 assessee, the clause applicable is 80IC 2 (a)(ii) which provide 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. The learned counsel pointed out that assessee’s case falls under 80-IC 2(b) also. The difference between both the clause is that under clause ‘b’, the article should be one, which is provided in fourteenth schedule and area i.e. Industrial Park, Industrial Centre need not be notified. The assessee has not manufactured any article or thing, which provided in thirteenth schedule. It is situated in Industrial Estate, thus it falls in section 80IC(2)(ii) of the Act. As far as the other provisions are concerned, they are meant for different geographical area i.e. State of Sikkim, Northern Eastern States. The assessee is situated in Uttrakhand, therefore, sub-clause (ii) of section 80-IC(2)(a) is applicable. Thereafter, sub-section (3) provides quantification of deduction, sub-section (4) laid down the conditions that undertaking or enterprises should not be formed by splitting up or the reconstruction, of a business already in existence. However, this condition would not be applicable in respect of an undertaking which is formed as a result of the reestablishment or reconstruction or revival of the business of an assessee as provided in section 33B of the Act. Similarly, it is not formed by the transfer to a new business of machinery or plant previously used for any purposes. Since there is no dispute that these conditions are not attracted in the case of the assessee, therefore, we do not deem it necessary to make elaborate discussion. At the time of hearing, it has been pointed out that there is no violation to any other conditions contained in sub-rules 5 to 12 of section 80IA of the Act (extracted supra).

8. The primary issue required to be determined, is when assessee came into existence and whether geographically it is located with the notified area contemplated in sub-clause (ii) of sec. 80IC(2)(a) or (2) (b). It emerges out from the record that assessee partnership firm came into existence on Ist of April 2006. It is situated at F-3, Industrial Area, Bhimtal (Nainital). According to the assessee, it has started the manufacturing operation at its industrial undertaking on 28.8.2006 though this date has been disputed by the Assessing Officer and we will discuss this aspect in the later part of the order. For the time being, it is concluded that as far as geographical location of the assessee is concerned, it falls within the industrial estate specified for the purpose of admissibility of deduction under sec. 80-IC of the Act. Similarly, it has commenced its operation in between period of January 2003 to April 2012 as provided in sub-clause (2) of section 80-IC(ii)(a)(b) of the Act. Therefore, to this extent, there cannot be any dispute between the parties.

9. The next step which is essential for examining the case of an assessee about the admissibility of deduction under sec. 80-IC is whether it manufactures or produces any article or things. According to the Assessing Officer, expression “manufacture” has been defined in section 2(29)(B)(a) which read as under:

“(29BA) “manufacture”, with its grammatical variations, means a change in a non-living physical object or article or thing,-

(a)  resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or

(b)  bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure”.

However, expression “production” has not been defined in the Act. The stand of the revenue authorities is that at the most activity carried out by the assessee is of blending one. It has just mixed the floral distillate from Kannouj and no new or distinct product has emerged out. On the other hand, learned counsel for the assessee has placed in the written submissions a flow chart exhibiting the activities carried out by the assessee before producing altogether distinct saleable commodity which has its own identification in the commercial world. The learned counsel for the assessee pointed out that expression “manufacture” as well as production have fallen for their interpretation and construction not only at the level of ITAT but before the Hon’ble Supreme Court also and the Hon’ble Court has explained both these expressions in detail. He made reference to the decision of Hon’ble Supreme Court in the case of ITO v. Arihant Tiles & Marbles (P.) Ltd. [2010] 320 ITR 79, India Cine Agency v. CIT [2008] 308 ITR 98, CIT v. Sesa Goa Ltd. [2004] 271 ITR 331. In his written submissions, he also referred a large number of other decisions rendered by Bombay High Court, Hon’ble Gujarat High Court in the cases of CIT v. Neo Pharma (P.) Ltd. [1982] 137 ITR 879, CIT v. Anglo French Drug Co. (Eastern) Ltd. [1991] 191 ITR 92, CIT v. Prabhudas Kishoredas Tobacco Products (P.) Ltd. [2006] 282 ITR 568. On the other hand, Learned DR has pointed out that it is just a blending activity and he referred to the decision of Hon’ble Calcutta High Court in the case of Brooke Bond India v. CIT [2004] 269 ITR 232 and the judgment of Hon’ble Supreme Court in the case of CIT v. Tara Agency [2007] 292 ITR 444. In these cases, it has been held that blending of various categories of teas and selling them after packaging with new brand name does not amount to manufacturing or production of a new commodity.

10. As observed earlier, we would be reverting back to the facts of the present case in the later part of the order. First, we would like to bring at home the meaning of expression “manufacture and production” as propounded in the various authoritative pronouncements of the Hon’ble Supreme Court as well as of Hon’ble High Court.

11. In the case of India Cine Agency, Hon’ble Supreme Court has considered the judgment rendered in the case of Sesa Goa (supra) and all other decisions on the point which contemplate the meaning of expression “manufacture” as well as “production”. The relevant discussion made by the Hon’ble Court reads as under:

“2. As noted above, the core issue is whether activity undertaken was manufacture or production.

3. In Black’s Law Dictionary (5th Edition), the word “manufacture’ has been defined as, “the process or operation of making goods or any material produced by hand, by machinery or by other agency; by the hand, by machinery, or by art. The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand labour or machine”. Thus by process of manufacture something is produced and brought into existence which is different from that, out of which it is made in the sense that the thing produced is by itself a commercial commodity capable of being sold or supplied. The material from which the thing or product is manufactured may necessarily lose its identity or may become transformed into the basic or essential properties. (See Dy. CST (Law), Board of Revenue (Taxes) Coco Fibres [1992] Supp. 1 SCC 290).

4. Manufacture implies a change but every change is not manufacture, yet every change of an article is the result of treatment, labour and manipulation. Naturally, manufacture is the end result of one or more processes through which the original commodities are made to pass. The nature and extent of processing may vary from one class to another. There may be several stages of processing, a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. Whenever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity. But it is only when the change or a series of changes takes the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article that a manufacture can be said to take place. Process in manufacture or in relation to manufacture implies not only the production but also various stages through which the raw material is subjected to change by different operations. It is the cumulative effect of the various processes to which the raw material is subjected to that the manufactured product emerges. Therefore, each step towards such production would be a process in relation to the manufacture. Where any particular process is so integrally connected with the ultimate production of goods that but for that process processing of goods would be impossible or commercially inexpedient, that process is one in relation to the manufacture. (See Collector of Central Excise v. Rajasthan State Chemical Works [1991] 4 SCC 473).

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7. To put it differently, the test to determine whether a particular activity amounts to “manufacture’ or not is: Does a new and different good emerge having distinctive name, use and character. The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes ‘manufacture’ takes place and liability to duty is attracted. Etymologically the word ‘manufacture’ properly construed would doubtless cover the transformation. It is the transformation of a matter into something else and that something else is a question of degree, whether that something else is a different commercial commodity having its distinct character, use and name and commercially known as such from that point of view, is a question depending upon the facts and circumstances of the case. (See Empire Industries Ltd. v. Union of India [1985] 3 SCC 314).

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12. In this case, assessee was carrying on business of conversion of Jumbo Rolls of photographic films into small flats and rolls in desired sizes. It claimed deduction under sec. 80-HH and 80-I as well as investment allowance under sec. 32AB. The controversy arose whether conversion of jumbo rolls into small sizes amounts to manufacture or production, eligible for deduction under sec. 32AB or deduction under sections 80-HH and 80-I of the Income-tax Act, 1961. Hon’ble Supreme Court has held that this activity amounts to manufacture or production. Thus, we think it is not necessary to recapitulate and recite all the decision on the construction expression “manufacture”. But suffice to say that core of all the decisions of the Hon’ble Supreme Court or Hon’ble High Court is to the effect that broadly manufacture is a transformation of an article, which is commercially different from the one which is converted. It is a change of one object to another for the purpose of marketability. It brings something into existence, which is different from that, which originally existed. The new product is a different commodity physically as well as commercially. The Hon’ble Court also explained broader test to determine whether manufacture is there or not, it is propounded that when a change or series of changes are brought out by application of processes which take the commodity to the point where, commercially, it cannot be regarded as the original commodity but is, instead recognized as a distinct and new article that has emerged as a result of the process.

13. Now, we revert to the facts of the present case. In order to claim deduction under sec. 80-IC, it was contended by the assessee that it is carrying out manufacturing activity at its industrial undertaking comprised at F-13, Industrial Area, Bhimtal (Nainital). It is maintaining complete books of account which are duly audited and during the course of assessment proceedings, assessee has produced all these details before the Assessing Officer including the profit and loss account, sales bills along with form No. C , purchase bills with Form No.16 etc. The assessee contended that its undertaking is registered with Excise Department, however, excise duty is exempt by virtue of notification Nos. 49 and 50 of 2003. The assessee placed copy of the notification at page 26 of the paper book. It is filing regular excise return with the Department and also placed on record the copies of monthly return filed by the assessee on page Nos. 27 to 37 of the paper book. The assessee further contended that it is registered with VAT Authorities and also with district industries centre. The copies of all these details are placed on the paper book from page Nos. 38 to 83. It is registered with Pollution Control Board and the evidence has been placed at page 84 of the paper book. On the strength of these documents, it was contended by the assessee that it is a firm came into existence on Ist of April 2006 engaged in the business of production fragrance, fragrant compound, attar and floral water. The learned counsel for the assessee while taking us through his written submissions drew our attention towards paragraph No. 6.3 wherein assessee has placed on record a flow chart indicating the various steps taken by the assessee for demonstrating its manufacturing activities. These steps read as under:

(b)  That appellant ‘mixes’ different ‘raw material’, such as, distilled oil obtained from extract of flowers with herbs and spices such as loan, javitri, jaiphal, laung, elaichi and kapoor etc. all of which are purchased from the market;

(c)  That ‘mixture’ is then roasted and put in a copper vessel called ‘Deg’ along-with proportionate amount of water;

(d)  That mixture is then again steamed distilled and vapors made to condense through a bamboo piepe called ‘Chonga’ over fixed oil (another raw material) contained in another vessel called ‘Bhapka’. The oil in Bhapka absorbs the vapors. This process is repeated till the fragrance is obtained as per the requisition of the purchaser;

(e)  That different aromatic chemicals/oil and also the extracts as had been obtained by the above extraction/distillation are weighted as per formulation;

(f)  That substances are then mixed together in a container;

(g)  That mixture is then stirred manually or by a stirrer till the ingredients are completely mixed together;

(h)  That fragrance thus obtained is left for maturation to get the finished produce; and

(i)  That same is then packed in sealed containers for the purposes of sale”.

14. It was pointed out by the learned counsel for the assessee that one of the major raw-material required for carrying out manufacturing activities at Bhimtal is distilled oil or floral oil, this oil was procured by the assessee from Kannouj. The assessee used to purchase the flowers in that area and got distilled work on job work basis, but the distillated oil is altogether a different product then fragrant compound, attar and floral water. The learned counsel for the assessee pointed out that assessee has purchased 640601 kgs of flowers of different kind for a consideration of Rs.185,85,604.90. These flowers were purchased at Kannouj Mandi. It has incurred an expense of Rs. 17,71,074 on job work for carrying out distillation work at Kannouj. Thus, the total cost incurred by the assessee on this activity is Rs.203,57,038. The distilled product i.e. oil recovered by the assessee is of four varieties. Their quantities and values worked at page 471 and 476 of the paper book has been summarized by the learned counsel for the assessee in a note which reads as under:

(1)  Ruh Mehndi 12 Kg 27,60,000 @2,30,000 Kg(-) Rs.20000 Per Kg.

(2)  Ruh Bela 12 Kg 22,32,000 @ 1,86,000 Kg(+) Rs.21000 Per Kg

(3)  Attar Bela 330 Kg 74,58,000 @ 22,600 Kg.

(4)  Attar Mehandi 350 Kg 75,95,000 @ 21,700 Kg.

15. The learned counsel for the assessee pointed out that the market price of Ruh Mehandi at the relevant time was Rs.2,10,000 Per Kg. And Ruh Bela was Rs.2,07,000 per Kg. Had the assessee not procured these oils on job work basis then it has to purchase these oils from the open market at the above price. Similarly, he pointed out that attar bela and uttar mehandi are concerned, they are not independently available nor they are saleable in the market. The cost incurred by the assessee on ruh-mehandi and ruh-bella is more than the raw material available in the open market. He further pointed out that the flowers are available only in Kannouj Market, they are not available near the market of Nainital or Bhimtal. After their procurement, they have to be processed within two hours otherwise required result would not come and in this connection he made reference to the certificate of a Horticulture Department available on pages 85 to 87 wherein it has been opined that in order to extract oil from the flowers they have to be processed within two hours. Therefore, the assessee has to distilled the oil on job work basis at Kannouj. On the other hand, Learned DR pointed out that major activities has been carried out at Kannouj. At Bhimtal, assessee has carried out very negligible activities. Learned First Appellate Authority while affirming the order of the Assessing Officer made reference to the decision of the Hon’ble Supreme Court in the case of Tara Agency (supra) as well as the decision of Hon’ble Calcutta High Court in the case of Broke Bond India Ltd. (supra). In the case of Tara Agency’s case (supra), the assessee claimed weighted deduction under sec. 35D(1)(A) of the Act. Such deduction was available to the assessee if it was manufacturing anything and article. The assessee was engaged in the business of export of tea. It purchased tea of diverse grade and brand and blend the same by making different kind of teas. The controversy arose whether the business activity of the assessee falls within the ambit of expression “production” or “manufacture” or it is just a processing. Hon’ble Court has observed that there are three stages involved. The tea is produced in the tea garden. This is the first stage which is called production of tea. The second stage is manufacture of tea. In this stage, the tea leaves are plucked from the tea bushes and by mechanical process, tea leaves are converted to tea. This second stage is considered manufacturing of tea. The third stage is blend of different qualities of tea in order to smoothen its marketability. Thus, the 3rd stage is considered processing of tea. In the present case, assessee has purchased flowers, got their oil on job work basis. Thereafter, in a long continuous process, it produced fragrant compound, attar and fragrant which are altogether different items than the raw material. We have discussed in detail the manufacturing process of the assessee while taking cognizance of the flow chart submitted by the assessee. These two decisions are not applicable on the facts of the case.

16. On an analysis of these facts, we find that learned Assessing Officer while observing that more than 93% of manufacturing activities is carried out at Kannouj and at Bhimtal, a very negligible activity has been carried out has failed to appreciate the true nature of the controversy. If distilled oil is similar to that of fragrance, fragrant compound, attar and floral water then Assessing Officer may be justified to say that major activities have been carried out at Kannouj but that is not the case. The end product manufactured by the assessee and sold is altogether different from distilled oil. Distilled oil is one of the raw material for producing fragrant, fragrant compound or attar. The controversy can be looked into with different angles also i.e. whether assessee is trying to shift its profit of the activity carried at Kannouj in order to claim deduction under sec. 80IC but we find that assessee has given complete details of all the job workers. They are independent in their work. They have confirmed that they have carried out the job work for the assessee. Assessing Officer has deputed an inspector to verify this aspect and the learned inspector has given his report to the Assessing Officer. The notices under sec. 133(6) of the Act were issued to all the job workers. Out of the 19 job workers, the learned inspector has pointed out that 15 have confirmed the job work carried out by them for the assessee and their accounts have duly been tallied. It suggests that the assessee has purchased flowers, got them processed and obtained distilled oil on job work basis. The report of the Inspector is available on page 364 of the paper book, copies of the notices issued under sec. 133(6) of the Act and the replies given by the job workers are placed on page Nos. 365 to 405 of the paper book.

17. Learned Assessing Officer made a reference to a number of peripheral aspects for drawing an inference that carrying out manufacturing activity by the assessee at the alleged industrial establishment is doubtful. Such aspects have been briefly noted down by the Assessing Officer on page 34 to 37 of the impugned order. Thereafter, he discussed the issue elaborately. The assessee in the written submissions rebutted all the aspects highlighted by the Assessing Officer in a tabular form. We have gone through the objection of the Assessing Officer as well as the explanation given by the assessee which has been noticed by the Learned CIT(Appeals) also in the impugned order and also explained in paragraph No. 6.16 of the written submissions. To our mind, these are peripheral aspects wherein stress of the Assessing Officer is to doubt the very existence of the assessee. However, we do not find any substantial material which can goad an authority to say that assessee was not carrying out the manufacturing activity. In the first objection, Assessing Officer has alleged the pollution control certificate is dated 28.12.2006 which suggest that activity cannot be started prior to 22.12.2006. Similarly, in the second objection, he alleged that chimini was installed only after 18.12.2006 which suggests that any furnance activity could not be taken prior to this date. The explanation of the assessee to these objections is that it has submitted bank draft for making application to pollution control on 17.7.2006. It had commenced its operation during the pendency of this application. Similarly, it pointed out that no chimini was required. It was only installed at the insistence of the pollution control board. The chiminies are made by using mud, sand, brick and clay. These aspects suggest that they are not very substantial circumstance which can turn the issue that no manufacturing activity was carried out by the assessee. Similarly, learned Assessing Officer has referred an instance that bore well was installed only on 15.1.2007 which suggests that there was no source of water and assessee could not undertake any activity prior to this date. To this objection, it was explained before the Learned First Appellate Authority as well as before the Assessing Officer that assessee has purchased the water and it has produced the bills for water tanker before the Assessing Officer. The assessee does not require much water in its activity because the total quantity produced by the assessee is not very large.

18. The main stress of the Assessing Officer is that it should boost economy of the State but in the present case, assessee had made purchases out of Uttrakhand State. Its major activities were carried out in UP. We find that this reference is altogether irrelevant. Assessing Officer was required to look into whether assessee has an industrial undertaking. It is situated within notified area as contemplated in section 80IC(2)(a)(ii) of the Act. Whether it is manufacturing any article or thing. The Act does not lay a condition that purchases should be made from the local market. The raw-material can be procured from anywhere. According to the assessee, the flowers from where oil could be distilled were not available or produced in the local area. Under any circumstance that has to be purchased out of Uttrakhand State. Assessing Officer thereafter made a reference about the negligible expenses shown by the assessee for manufacturing activities. He totally lost sight about cost of the raw material. Assessing Officer has observed that by incurring a sum of Rs.7013 only, turnover of more than Rs. 3 crores cannot be achieved. The assessee has pointed out that this reference is factually incorrect because in the audited P & L account, the assessee has shown fuel charges at Rs.1,56,320, freight Rs.52,663, manufacturing expenses Rs.15,132, water and electricity expenses Rs.7715 and packing material of Rs.50,853. Apart from these expenses, assessee has shown purchase of raw material at Rs.2.39 crores. Thus, we are of the view that Assessing Officer has made this comparison in isolation. He has attached much significant to each circumstance in isolation. He ought to have assessed the cumulative effect of all the circumstances in their setting as a whole. The assessee has invited the Assessing Officer for paying a visit to its factory premises so that he can have a glance over the activities carried out by the assessee. This request of the assessee has dully been noted by the Assessing Officer on page 27 of the impugned order while taking cognizance of the assessee’s submission, however, learned Assessing Officer did not visit the factory on the ground that no fruitful purposes would be served. According to the assessee, had the Assessing Officer paid a visit, he could appreciate the activities carried out by the assessee and he could also assess since when such activity was undertaken by the assessee. We also find that assessee has placed on record the material exhibiting transportation of the raw material, purchase bills and Vat certificate. It is registered with the Central Excise Department w.e.f. Ist of September, 2006. According to the assessee, fragrance, fragrant compound, attar and floral water though exempt from payment of Central Excise in Uttrakhand State. It has pointed out that total quantity of essential oil and chemicals purchased by the assessee are of 9214 kgs. out of that distilled product of 704 kgs. was procured from Kannauj. These items were procured at market price as demonstrated by the learned counsel for the assessee in a separate note annexed with the written submissions and noticed by us in paragraph No. 16 of this order. In view of the above discussion, we are of the view that the assessee has demonstrated that it is engaged in the manufacturing of article and things. It fulfills all the essential conditions for availing deduction under sec. 80IC of the Act. We direct the learned Assessing Officer to grant such deduction to the assessee. The appeal of the assessee is partly allowed”.

19. There is no disparity on facts. Learned DR has relied upon the order of the Assessing Officer. He did not bring any specific circumstance which can persuade us to take a different view then the view taken by the ITAT in assessment year 2007-08. Respectfully following the order of the ITAT, we do not find any merit in these appeals. They are dismissed.

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