M/s. GRASIM INDUSTRIES LTD., MUMBAI v. ACIT Rg. - 6(3), MUMBAI

ITA 261/MUM/2007 | 1990-1991
Pronouncement Date: 12-02-2010 | Result: Allowed

Appeal Details

RSA Number 26119914 RSA 2007
Assessee PAN AAACG4464B
Bench Mumbai
Appeal Number ITA 261/MUM/2007
Duration Of Justice 3 year(s) 1 month(s) 1 day(s)
Appellant M/s. GRASIM INDUSTRIES LTD., MUMBAI
Respondent ACIT Rg. - 6(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 12-02-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted G
Tribunal Order Date 12-02-2010
Date Of Final Hearing 27-01-2010
Next Hearing Date 27-01-2010
Assessment Year 1990-1991
Appeal Filed On 10-01-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G : MUMBAI BEFORE SHRI D.K. AGARWAL (JM) AND SHRI R.K. PAND A (AM) ITA NO.261/MUM/2007 ASSESSMENT YEAR : 1990-91 GRASIM INDUSTRIES LIMITED CORPORATE FINANCE DIVISION ADITYA BIRLA CENTER A-WING 2 ND FLOOR S.K. AHIRE MARG WORLI MUMBAI-400 030. ..( APPELLANT ) P.A. NO. (AAACG 4464 B) VS. ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 6(3) 5 TH FLOOR ROOM NO.522 AAYAKAR BHAVAN MUMBAI. ..( RESPONDENT ) APPELLANT BY : SHRI J.D. MISTRY RESPONDENT BY : SHR I K.R. DAS O R D E R PER D.K. AGARWAL (JM). THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 24.11.2006 PASSED BY THE LD. CIT(A) FOR T HE ASSESSMENT YEAR 1990-91. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COM PANY IS ENGAGED IN MANUFACTURING ACTIVITIES VIZ. RAYON FIBRE PULP VISCOSE ITA NO.261/M/07 A.Y: 90-01 2 STAPLE FIBRE (VSF) TEXTILE SUITINGS & SHIRTINGS YA RN CEMENT ETC. IT FILED RETURN DECLARING TOTAL INCOME OF RS.66 67 09 140 /-. HOWEVER THE ASSESSMENT WAS COMPLETED AT AN INCOME OF RS.82 34 30 90 0/- INCLUDING THE DISALLOWANCE OF DEDUCTION U/S.80HHC ON EXPO RT OF VSF RS.47 67 779/- VIDE ORDER DATED 31.3.1993 PASSED U/S. 143(3) OF THE INCOME TAX ACT 1961(THE ACT). DURING THE COURSE OF ASSE SSMENT IT WAS INTERALIA OBSERVED BY THE ASSESSING OFFICER THAT THE A SSESSEE HAS CLAIMED DEDUCTION U/S. 80-HHC ON EXPORT OF FIBRE OF RS.4 7 67 779/-. THE ASSESSING OFFICER DISCUSSED THE ABOVE ISSUE UNDER THE HEA DING STAPLE FIBRE DIVISION-NAGDA SECTION-Q IN PARA Q-9 A T PAGE-97 OF THE ASSESSMENT ORDER. ACCORDING TO THE ASSESSING OFFICER AS PER SECT ION 80HHC(2)(A) THE DEDUCTION IS ADMISSIBLE ONLY IN THE CASE OF SALE PROCEEDS RECEIVABLE AND NOT THE PROCESSING CHARGES AS SHOWN BY THE ASSESSEE. THE FACT THAT THE ASSESSEE CREDITED THE AMOUNT RE CEIVED AS PROCESSING CHARGES AND NOT TO SALES SHOWS THAT THE RECEIPTS DO NOT REPRESENT SALE PRICE. HE FURTHER POINTED OUT THAT THE WORD PROCESSED HAS BEEN INCORPORATED IN SECTION 80HHC(3)(A) WITH EFFECT F ROM 1.4.1992 AND THEREFORE FOR THE ASSESSMENT YEAR 1990-9 1 THE DEDUCTION CANNOT BE ALLOWED. ON APPEAL THE LD. CIT (A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. ON FURTHER APPEAL TO T HE TRIBUNAL THE TRIBUNAL IN ITA NO.7593/M/97 VIDE PARA-149 OF ORDE R DATED 17.3.2004 WHILE OBSERVING THAT THE LD. CIT(A) IN PARA-34 OF HI S ORDER HAS NOTED ITA NO.261/M/07 A.Y: 90-01 3 THE SUBMISSIONS OF THE ASSESSEE IN THIS REGARD BUT HAS NOT G IVEN ANY FINDING RESTORED BACK THE ISSUE TO THE FILE OF THE LD. CIT(A) TO DECIDE THE SAME. 3. PURSUANT TO THE ORDER OF THE TRIBUNAL IT WAS SUBMI TTED BY THE ASSESSEE BEFORE THE LD. CIT(A) THAT THE COMPANY ENTERE D INTO AN AGREEMENT DATED 26.11.1998 WITH M/S. P.T. INDO BHARA T RAYON INDONESIA(PTIBRI) TO SUPPLY VSF AND TO MANUFACTURE VSF PTIBRI AGREED TO SUPPLY WOOD PULP. PTIBRI SUPPLIED 478.40MT( GROSS) OF WOOD PULP TO THE ASSESSEE. THE ASSESSEE MANUFACTURED 470.025 M T VSF AND EXPORTED THE SAME TO PTIBRI. THE ASSESSEE RECEIVED AMOUNT OF RS.47 67 779/- IN CONVERTIBLE FOREIGN CURRENCY FROM PTI BRI @ USD 600 PER MT TOWARDS EXPORT OF VSF MANUFACTURED BY THE ASSESSEE. THIS RECEIPT WAS ACCOUNTED AS PROCESSING CHARGES IN BOOKS A ND SHOWN UNDER HEAD OTHER INCOME IN THE FINAL ACCOUNTS. IN THE RETURN OF INCOME THE ASSESSEE HAS TREATED THE PROCESSING CHARGES RECEI VED IN FOREIGN CURRENCY ON EXPORT OF VSF AS EXPORT TURNOVER A ND ACCORDINGLY CLAIMED DEDUCTION U/S. 80HHC. IT WAS FURTHER SUBMITTED TH AT ENTRIES MADE IN THE BOOKS OF ACCOUNT ARE NOT CONCLUSIVE OR DECISIVE FOR TAX IMPLICATIONS. ACCOUNTING OF FOREIGN CURRENCY RECEIVED ON ACCOUNT OF EXPORT OF WOOD PULP AS PROCESSING CHARGES IN THE BOOKS OF ACCOUNT WILL NOT CHANGE THE CORRECT NATURE OF RECEIPT. FURTHER THE ASSESSEE HAS FULFILLED ALL THE CONDITIONS PRESCRIBED IN SECTION 80 HHC AS UNDER :- ITA NO.261/M/07 A.Y: 90-01 4 1. THE ASSESSEE HAS EXPORTED OUT OF INDIA GOODS I.E. VSF 2. THE SALE PROCEEDS WERE RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE. 3. THE ASSESSEE FURNISHED ALONG WITH ITS RETURN OF INCOME ACCOUNTANTS REPORT IN THE PRESCRIBED FORM NO.10CCAC. WITH REGARD TO THE ASSESSING OFFICERS OBSERVATION THAT D EDUCTION U/S. 80HHC IS ALLOWED ONLY IN CASES OF SALE PROCEEDS RECEIVED AND NOT FOR PROCESSING CHARGES THE ASSESSEE SUBMITTED THAT AMOUNT AMOUN T RECEIVED FROM PTIBRI IS EXPORT SALES PROCEEDS AND NOT PRO CESSING CHARGES. THE ASSESSEE MANUFACTURED VSF AND EXPORTED THE SA ME TO THE FOREIGN CUSTOMER. REFERRING TO THE DECISION IN TH E CASE OF CHOWHULE & CO.(P) LTD. VS. UNION OF INDIA (1981) 47 STC 124(SC) THE ASSESSEE STATED THAT THERE IS A DIFFERENCE BETWEEN PROCESSING AND MANUFACTURING AS IN MANUFACTURING THE ORIGINAL COMMOD ITY CAN NO LONGER BE REGARDED AS THE ORIGINAL COMMODITY AND BECOM ES A NEW DISTINCT COMMODITY. THE WOOD PULP WAS CONVERTED IN VSF AND WOOD PULP LOST ITS FORM AND QUALITY. VSF HAS GOT TOTALLY D IFFERENT QUALITIES AND USE AND CANNOT BE PUT BACK INTO WOOD PULP FORM. I N VIEW OF THE ABOVE ASSESSEE HAS CONTENDED THAT THE ECONOMIC ACTIVITY CARR IED OUT BY THE ASSESSEE IS NOT PROCESSING BUT MANUFACTURING AND ACCOR DINGLY THE RECEIPT IS EXPORT SALES PROCEEDS AND NOT PROCESSING CHARG ES. IN THIS REGARD THE ASSESSEE PLACED RELIANCE ON THE DECISION IN THE CASE OF ABDULGAFAR A. NADIADWALA VS. ACIT (267 ITR 488)(BOM. ). IN VIEW OF ABOVE AND REFERRING TO CBDT CIRCULAR NO.572 DATED 03. 08.1990 THE ITA NO.261/M/07 A.Y: 90-01 5 ASSESSEE HAS CONTENDED THAT DEDUCTION U/S.80-HHC SHOULD BE ALL OWED ON THE EXPORT PROCEEDS. 4. THE LD. CIT(A) AFTER CONSIDERING THE ASSESSEES SUBMISSIO NS AND AGREEMENT DATED 26.11.1988 WITH PTIBRI OBSERVED THAT THE APPELLANT HAS RECEIVED WOOD PULP WHICH HAS BEEN CONVERTED TO VSF AS PER AGREEMENT 500 MT OF WOOD PULP WAS TO BE SUPPLIED BY P TIBRI TO THE APPELLANT COMPANY FREE OF COST FOR MANUFACTURE OF VSF F OR WHICH THE APPELLANT HAS CHARGED USD 600 PER MT. THE FACTS CLEARL Y SHOW THAT OWNERSHIP OF THE WOOD-PULP AND VSF REMAINED WITH PTI BRI AND NOT WITH THE APPELLANT. HE FURTHER OBSERVED THAT TO CLAIM DEDUCTION U/S.80HHC THE ASSESSEE SHOULD OWN GOODS AND MERCHANDISE IN RE SPECT OF WHICH EXPORT RECEIPTS ARE RECEIVED. HE ACCORDINGLY H ELD THAT SINCE THE APPELLANT WAS NOT THE OWNER OF THE WOOD-PULP A ND VSF THE APPELLANT IS NOT ELIGIBLE FOR DEDUCTION U/S.80-HHC ON TH E PROCESSING CHARGES RECEIVED ON EXPORT OF VSF. 5. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE ASSESSEE IS IN APPEAL BEFORE US. 6. THE GROUNDS TAKEN BY THE ASSESSEE READ AS UNDER : THE APPELLANT PREFERS AN APPEAL AGAINST THE ORDER OF THE CIT(A) ON THE FOLLOWING GROUNDS EACH OF WHIC H IS WITHOUT PREJUDICE TO ANY OTHER: ITA NO.261/M/07 A.Y: 90-01 6 1.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN REJECTING THE CL AIM OF THE APPELLANT FOR DEDUCTION U/S.80HHC OF THE INCOME T AX ACT 1961. 1.2 THE CIT(A) ALSO ERRED IN DISALLOWING THE CLAIM FOR DEDUCTION U/S.80HHC ON FIBRE EXPORT OF RS.47 67 779/- ON THE ALLEGED GROUND THAT THE PROCE SSING CHARGES RECEIVED BY THE APPELLATE IS NOT SALES PROC EEDS AS THE ASSESSEE IS NOT THE OWNER OF THE GOODS OR MERCHANDISE. 1.3 THE LD. CIT(A) OUGHT TO HAVE DIRECTED THE ASSESSING OFFICER TO CONSIDER RECEIPT OF RS.49 67 7 79/- TOWARDS EXPORT OF FIBRE AS PART OF EXPORT TURNOVER FOR THE PURPOSE OF ALLOWING DEDUCTION U/S.80HHC. 1.4 THE APPELLANT PRAYS THAT DEDUCTION U/S.80- HHC BE ALLOWED ON PROCEEDS OF RS.49 67 779/- AS IT FO RMS PART OF EXPORT TURNOVER. HOWEVER AT THE TIME OF HEARING THE LD. COUNSEL FOR T HE ASSESSEE SUBMITS THAT ALL THE GROUNDS RAISED BY THE ASSESSEE ARE PER TAINING TO ONE ISSUE I.E. DISALLOWANCE OF DEDUCTION U/S.80-HHC ON THE AMOUNT OF EXPORTS OF RS.47 67 779/-. 7. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFORE THE LD. CIT(A) FURTHER SUBMITS THAT THE AMOUNT RECEIVED BY THE ASSESSEE F ROM PTIBRI IS EXPORT SALES PROCEEDS AND NOT PROCESSING CHARGES. THE ASSE SSEE HAS MANUFACTURED VSF AND EXPORTED THE SAME TO THE FORE IGN CUSTOMER. IN THE CASE OF THE ASSESSEE THE RAW MATERIAL IS WOOD PULP WHICH HAS BEEN MANUFACTURED AS VSF AND EXPORTED TO PTIBRI. SI NCE THE RAW MATERIAL IS DIFFERENT FROM THE PRODUCT MANUFACTURED BY THE ASSESSEE ITA NO.261/M/07 A.Y: 90-01 7 EXPORTED TO FOREIGN BUYERS THE ASSESSEE HAS FULFILLED AL L THE CONDITIONS AS LAID DOWN U/S.80HHC OF THE ACT THEREFORE THE ASSESSEE I S ENTITLED TO DEDUCTION PROVIDED UNDER THE SAID PROVISIONS OF THE ACT. HE FURTHER SUBMITS THAT WHEN THE ASSESSEE HAS RECEIVED THE WOOD PULP F ROM PTIBRI FOR MANUFACTURING INTO VSF THE ASSESSEE IS THE OWNER OF THE RAW MATERIAL AND AFTER MANUFACTURING OF VSF FROM TH E SAID RAW MATERIAL THE ASSESSEE HAS EXPORTED THE GOODS AND SALE PRO CEEDS WERE RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE HENCE THE LD . CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT THE ASSESSEE IS NOT THE OWNER O F WOOD PULP AND VSF. THE LD. COUNSEL FOR THE ASSESSEE AFTER GIVING AN EXAMPLE THAT IF SOMEONE AFTER TAKING THE RAW MATERIAL ON CREDIT BA SIS MANUFACTURES THE GOODS AND EXPORTS THE SAME DOES IT MEAN THAT THE ASSESSEE IS NOT ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT S? ACCORDING TO HIM THE PERSON IS ENGAGED IN THE BUSINESS OF EXPORT O F GOODS OR MERCHANDISE ELIGIBLE TO DEDUCTION U/S.80-HHC. HE FURTHE R SUBMITS THAT U/S.80-HHC THERE IS NO SUCH PROVISION TO DISALLOW THE CLAIM OF THE ASSESSEE ON THE GROUND THAT IF THE ASSESSEE IS NOT THE OWNER HE IS NOT ENTITLED TO DEDUCTION U/S.80-HHC. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITS THAT TRADING GOODS HAVE BEEN DEFINED TO MEAN GOODS NOT MANUFACTURED BY THE ASSESSEE. THUS EVEN WHERE THE GOODS ARE PROCESSED BY THE TAX PAYER THEY ARE TREATED AS TRADING GOODS. TO REMOVE THIS ANOMALY THE FINANCE ACT 1992 HAS AMENDED THE ITA NO.261/M/07 A.Y: 90-01 8 DEFINITION OF TRADING GOODS TO MEAN GOODS NOT MANU FACTURED OR PROCESSED BY THE ASSESSEE. THUS IN EFFECT WHERE GOODS PRO CESSED BY THE TAX PAYER ARE EXPORTED THE ASSESSEE IS ELIGIBLE FOR THE RELIEF U/S. 80-HHC AND IN SUPPORT HE ALSO PLACED ON RECORD THE RE LEVANT MEMORANDUM EXPLAINING PROVISIONS IN FINANCE BILL 199 2 REPORTED IN (1992) 194 ITR 189 (ST.) AND COPY OF CIRCULAR NO.63 6 DATED 31.8.1992 EXPLAINING THE RELEVANT PROVISION OF THE F INANCE ACT 1992. THE RELIANCE WAS ALSO PLACED ON THE DECISION OF THE TRIB UNAL IN DCIT VS. SASHI KANT MITTAL(2009) 34 SOT 6 (DEL.)(URO) TO SHOW THAT CONVERSION OF RAW GOLD INTO GOLD JEWELLERY IS NOTHING BUT A MAN UFACTURING PROCESS AND OWNERSHIP OF RAW MATERIAL IS NOT A NECESSARY CONDITI ON AND HENCE ENTITLED TO EXEMPTION U/S.10B OF THE ACT. HE THEREFOR E SUBMITS THAT THE DEDUCTION U/S.80-HHC CLAIMED BY THE ASSESSEE BE ALLOWED . 8. ON THE OTHER HAND THE LD. DR WHILE RELYING ON TH E ORDER OF THE AO AND THE LD. CIT(A) FURTHER SUBMITS THAT ACCORDING T O SEC.80-HHC PROFIT SHOULD BE DERIVED BY THE ASSESSEE FROM THE EXPORT OF SUCH GOODS OR MERCHANDISE . IN THE CASE OF THE ASSESSEE THERE IS NO P URCHASE/ SALES INASMUCH AS THE ASSESSEE AFTER PROCESSING OF THE RAW MATE RIAL SUPPLIED FREE OF COST BY M/S. P.T. INDO BHARAT RAYON INDONESIA HAS EXPORTED THE GOODS TO THE SAME PARTY HENCE THE ASSESSEE IS NOT ENTITLED TO DEDUCTION U/S.80-HHC OF THE ACT. RELIANCE WA S ALSO PLACED ON THE FOLLOWING DECISIONS: ITA NO.261/M/07 A.Y: 90-01 9 1. CIT VS. K.K. DOSHI AND CO. (2000)245 ITR 849(BOM). 2. CIT VS. STERLING FOODS (1999)237 ITR 579(SC) 3. CIT VS. K. RAVINDRANATHAN NAIR (2007)295 ITR 228(SC) 4. INCOME-TAX OFFICER VS. INDUFLEX PRODUCTS P. LTD. (2006) 280 ITR 1(SC) HE THEREFORE SUBMITS THAT DISALLOWANCE OF DEDUCTION U/S.8 0-HHC MADE BY THE AO AND SUSTAINED BY THE LD. CIT(A) BE UPH ELD. 9. IN THE REJOINDER THE LD. COUNSEL FOR THE ASSESSEE SUB MITS THAT IN THE ASSESSMENT ORDER IT HAS BEEN OBSERVED BY THE AO THAT AN AMOUNT OF RS.47 67 779/- (AFTER REDUCING EXPENSES OF RS.43 84 6 49/-) HAS BEEN RECEIVED BY THE ASSESSEE FROM M/S. M/S. P.T. INDO BHA RAT RAYON . THIS INDICATES THAT AN AMOUNT OF RS.47 67 779/- IS A PRO FIT RECEIVED BY THE ASSESSEE FROM EXPORTS. THUS THE PLEA TAKEN BY THE LD. DR THAT THERE IS NO PROFIT FROM EXPORT IS WITHOUT ANY MERIT . HE FURTHER SUBMITS THAT ALL THE DECISIONS RELIED ON BY THE LD. DR A RE ON DIFFERENT ISSUE NOT PERTAINING TO THE IMPUGNED ISSUE THEREFORE THE SAME ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE P RESENT CASE. 10. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE R IVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FROM T HE RELEVANT PARA OF THE ASSESSMENT ORDER WE FIND THAT THERE IS NO DISPUTE THAT THE ASSESSEE HAS RECEIVED AN AMOUNT OF RS.47 67 779/- (AFTER R EDUCING EXPENSES OF RS.43 84 649/-) FROM M/S. M/S. P.T. INDO BH ARAT RAYON ITA NO.261/M/07 A.Y: 90-01 10 INDONESIA. ACCORDING TO THE AO THE SAID AMOUNT REPRE SENTED CHARGES RECEIVED FOR CONVERTING WOOD-PULP INTO VISCOSE STAPLE FI BRE (VSF) WHICH HAS BEEN SHOWN AS PROCESSING CHARGES UNDER THE HEAD O THER INCOME. IT HAS BEEN FURTHER OBSERVED BY THE AO THAT SINCE THE AMOUNT HAS BEEN SHOWN BY THE ASSESSEE AS PROCESSING CHARGES AND NOT AS SALES AND THE WORD PROCESSED HAS BEEN INSERTED UN DER THE PROVISIONS OF SECTION 80-HHC (3)(A) BY THE FINANCE ACT 19 92 W.E.F. 1.4.1992 THEREFORE THE ASSESSEE IS NOT ENTITLED TO THE DEDUCTION U/S.80-HHC FOR THE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 1990-91. ON APPEAL THE LD. CIT(A) OBSERVED THAT S INCE THE ASSESSEE IS NOT OWNER OF THE WOOD PULP AND VSF HENCE HE IS NOT ENTITLED FOR DEDUCTION U/S.80-HHC ON THE PROCESSING CHARGES RECEIVED ON E XPORT OF VSF. 11. WE MAY FIRST CONSIDER FROM THE VARIOUS JUDGMENTS OF THE HONBLE SUPREME COURT/HIGH COURTS AS TO THE MEANING OF THE EXP RESSION MANUFACTURE. 12. IN ASPINWALL AND CO. LTD. VS. CIT (2001) 251 ITR 323 (SC) THE HONBLE SUPREME COURT NOTED THAT THE WORD MANUFACTU RE HAS NOT BEEN DEFINED IN THE ACT. THEREFORE IT HAS TO BE GIV EN A MEANING AS UNDERSTOOD IN COMMON PARLANCE. IT IS TO BE UNDERSTOOD A S MEANING THE PRODUCTION OF ARTICLES FOR USE FROM RAW OR PREPARED MATERIALS BY ITA NO.261/M/07 A.Y: 90-01 11 GIVING SUCH MATERIALS NEW FORMS QUALITIES OR COMBINATIO NS WHETHER BY HAND LABOUR OR MACHINES. IF THE CHANGE MADE IN THE ARTICLE RESULTS IN A NEW AND DIFFERENT ARTICLE THEN IT WOULD AMOUNT TO A MANUFACTURING ACTIVITY. THE CONTENTION URGED BY THE REVENUE THAT TH E ASSESSEE WAS DOING A MANUFACTURING PROCESS IN THAT CASE WAS REJECTED BY HOLDING THAT THE PROCESS IS A MANUFACTURING PROCESS WHEN IT BRINGS OUT A COMPLETE TRANSFORMATION IN THE ORIGINAL ARTICLE SO AS T O PRODUCE A COMMERCIALLY DIFFERENT ARTICLE OR COMMODITY. THAT PRO CESS ITSELF MAY CONSIST OF SEVERAL PROCESSES. THE DIFFERENT PROCESSES ARE INTE GRALLY CONNECTED WHICH RESULTS IN THE PRODUCTION OF A COMMERCIALLY DIFFERENT ARTICLE. IF A COMMERCIALLY DIFFERENT ARTICLE OR COMMODI TY RESULTS AFTER PROCESSING THEN IT WOULD BE A MANUFACTURING ACTIVITY. 13. IN SARASWATI SUGAR MILLS VS. HARYANA STATE BOARD ( 1992) 1 SCC 418 IT HAS BEEN NOTED THAT : MANUFACTURE IS A TRANSFORMATION OF AN ARTICLE WH ICH IS COMMERCIALLY DIFFERENT FROM THE ONE WHICH IS CONVE RTED. THE ESSENCE OF MANUFACTURE IS THE CHANGE OF ONE OBJ ECT TO ANOTHER FOR THE PURPOSE OF MAKING IT MARKETABLE. THE ESSENTIAL POINT THUS IS THAT IN MANUFACTURE SOMETHI NG IS BROUGHT INTO EXISTENCE WHICH IS DIFFERENT FROM THA T WHICH ORIGINALLY EXISTED IN THE SENSE THAT THE THING PROD UCED IS BY ITSELF A COMMERCIALLY DIFFERENT COMMODITY WHEREA S IN THE CASE OF PROCESSING IT IS NOT NECESSARY TO PRODU CE A COMMERCIALLY DIFFERENT ARTICLE. 14. IN INDIA CINE AGENCIES VS. CIT (2009) 308 ITR 98( SC) THE HONBLE SUPREME COURT AFTER REVIEW OF THE CASE LAW ON THE SUBJECT AND ITA NO.261/M/07 A.Y: 90-01 12 THE GUIDELINES AVAILABLE FROM THE SUPREME COURT ITSEL F IN UJAGAR PRINTS VS. UNION OF INDIA (1989) 179 ITR 317(SC) IT HAS BEEN HELD THAT CONVERSION OF JUMBO ROLLS OF PHOTOGRAPHIC FILMS INTO SMAL L FLATS AND ROLLS IN DESIRED SIZE WAS HELD TO BE PRODUCTION SO AS TO QUALIFY FOR DEDUCTION UNDER SECTIONS 32AB 80-HH AND 80-I. 15. IN CIT VS. EMPTEE POLY-YARN P. LTD. (2008)305 IT R 309(BOM.) AT PLACITUM 9 APPEARING AT PAGE 314 IT HAS BEEN NOTED: MANUFACTURING ACTIVITY WAS ALSO EXPLAINED IN DEPU TY CST (LAW) BOARD OF REVENUE (TAXES) VS. PIO FOOD PA CKERS (1980) SUPP SCC 174; [1980] 46 STC 63 65(SC). THE COURT NOTES AS UNDER : THE GENERALLY PREVALENT TEST IS WHETHER THE ARTIC LE PRODUCED IS REGARDED IN THE TRADE BY THOSE WHO DEA L IN IT AS DISTINCT IN IDENTITY FROM THE COMMODITY INVOLVED IN ITS MANUFACTURE. COMMONLY MANUFACTURE IS THE END RESULT OF ONE OR MORE PROCESSES THROUGH WHICH THE ORIGINAL COMMODITY IS MADE TO PASS . . . BUT IS ONLY WHEN TH E CHANGE OR A SERIES OF CHANGES TAKE THE COMMODITY T O THE POINT WHERE COMMERCIALLY IT CAN NO LONGER BE REGARD ED AS THE ORIGINAL COMMODITY BUT INSTEAD IS RECOGNIZED AS A NEW AND DISTINCT ARTICLE THAT A MANUFACTURE CAN BE SAID TO TAKE PLACE. THEIR LORDSHIPS AFTER CONSIDERING VARIOUS JUDGMENTS OF TH E HONBLE SUPREME COURT AS TO THE MEANING OF THE EXPRESSION MAN UFACTURE HAVE HELD (AT PLACITUM 27 PAGE-319 OF ITR): HELD DISMISSING THE APPEAL THAT PARTIALLY ORIENTE D YARD (POY) HAS DIFFERENT PHYSICAL AND CHEMICAL PROPERTIE S AND WHEN POY CHIPS UNDERGO THE PROCESS OF TEXTURISING A ND/OR TWISTING THE YARN I.E. TWISTED AND/OR TEXTURISED OR BOTH RESULTS IN A PRODUCT HAVING DIFFERENT PHYSICAL AND CHEMICAL ITA NO.261/M/07 A.Y: 90-01 13 PROPERTIES. IN OTHER WORDS THE PROCESS APPLIED TO POY EITHER FOR THE PURPOSE OF TEXTURISING OR TWISTING CONSTITUTED MANUFACTURE AS THE ARTICLE PRODUCED IS RECOGNIZED IN THE TRADE AS A DISTINCT COMMODITY PUR SUANT TO THE PROCESS IT UNDERGOES AND WHICH AMOUNTS TO MANUFACTURE. UNDER THE CENTRAL EXCISE ACT THE UNI ON OF INDIA ITSELF TREATS THE POY AS DISTINCT FROM POY D RAWN TWISTED OR TEXTURED OR BOTH. FROM ALL THE MATERIAL WE HAVE NO HESITATION IN ARRIVING AT A CONCLUSION THAT THE PROCESS WHICH POY UNDERGOES IN THE PROCESS OF TEXTURISING A ND TWISTING RESULTS IN A NEW AND DISTINCT PRODUCT AND REGARDED IN THE TRADE AS DISTINCT FROM THE COMMODIT Y INVOLVED IN THE MANUFACTURE. THE PROCESS AMOUNTS T O MANUFACTURE AS THE ORIGINAL COMMODITY LOSES ITS IDE NTITY. IN VIEW OF OUR FINDINGS THE VIEW TAKEN BY THE TRIBU NAL WILL HAVE TO BE UPHELD. 16. APPLYING THE RATIO OF THE ABOVE DECISIONS TO THE F ACTS OF THE PRESENT CASE WE FIND THAT IN THE CASE OF THE ASSESSEE T HE ASSESSEE HAS MANUFACTURED VISCOSE STAPLE FIBRE (VSF) FROM THE RAW MATERIAL I.E. WOOD PULP HAVING DIFFERENT PROPERTIES. IN OTH ER WORDS THE MANUFACTURING PROCESS APPLIED TO MANUFACTURING OF VSF CONSTITUTED MANUFACTURE AS THE ARTICLE PRODUCED IS RECOGNISED IN THE TRADE AS DISTINCT COMMODITY PURSUANT TO THE PROCESS IT UNDERGOES AN D WHICH AMOUNTS TO MANUFACTURE AS THE ORIGINAL COMMODITY LOSES IT S IDENTITY. 17. WITH REGARD TO OBSERVATION OF THE LD. CIT(A) THA T THE RAW MATERIAL SHOULD BE OWNED BY THE ASSESSEE FOR THE PURPOSE OF CLAIMING DEDUCTION U/S.80-HHC WE FIND THAT SEC.80-HHC DOES NOT SPECIFY ANY SUCH REQUIREMENT AS HAS BEEN HELD BY THE TRIBUNAL IN DC IT VS. SHASHI KANT MITTAL (SUPRA) WHEREIN IT HAS ALSO BEEN HELD THA T THE DEFINITION OF MANUFACTURE AS DEFINED BY THE SUPREME COURT IN ASPI NWALL AND CO. ITA NO.261/M/07 A.Y: 90-01 14 LTD. (SUPRA) ALSO DOES NOT GIVE ANY INDICATION THAT O WNERSHIP OF RAW MATERIAL IS A PRIMARY CONDITION FOR MANUFACTURING. FU RTHER THE SECTION SPECIFIES THAT THE ASSESSEE SHOULD ENGAGE IN THE BUSINESS OF E XPORTS OUT OF INDIA OF ANY GOODS OR MERCHANDISE THE ASSESSEE BE ALLOWED A DEDUCTION TO THE EXTENT OF PROFITS DERIVED BY THE ASSE SSEE FROM THE EXPORT OF SUCH GOODS OR MERCHANDISE. IT IS NOT THE CASE O F THE REVENUE THAT THE VSF WAS NOT EXPORTED OUT OF INDIA OR THE ASSE SSEE HAS NOT RECEIVED SALE PROCEEDS IN CONVERTIBLE FOREIGN EXCHANGE O R THE ASSESSEE HAS NOT FURNISHED REPORT OF AN ACCOUNTANT IN THE PRESCR IBED FORM NO.10CCAC. 18. FURTHER IT IS NOW SETTLED LAW THAT BOOK ENTRIES AR E NOT DETERMINATIVE FACTOR TO DEAL WITH THE INCOME/EXPENDIT URE WHETHER TAXABLE OR DEDUCTIBLE. THE PROVISIONS OF LAW HAVE TO BE TAKEN INTO CONSIDERATION. 19. IN CIT VS. K.K. DOSHI & CO. ( 245 ITR 849 )(SUPR A) THE ASSESSEE FIRM OFFERED ITS SERVICES ON JOB WORK BASIS TO OUT SIDERS TO POLISH ROUGH DIAMONDS FOR WHICH THE ASSESSEE RECEIVED SERVICE CHARGES. IT HAS BEEN HELD THAT THE PROFITS EARNED BY T HE ASSESSEE ON ACCOUNT OF SERVICE CHARGES COULD NOT BE SAID TO HAVE A DIR ECT NEXUS WITH THE EXPORT ACTIVITIES OF THE ASSESSEE AND THEREFOR E THE SERVICE CHARGES COULD NOT BE CONSIDERED AS PART OF THE BUSINESS PR OFITS WHILE ITA NO.261/M/07 A.Y: 90-01 15 WORKING OUT DEDUCTION U/S.80-HHC. WHEREAS IN THE CASE BEF ORE US IT IS NOT THE CASE OF THE REVENUE THAT THE PROFITS EARNED BY THE ASSESSEE IS NOT CONNECTED WITH EXPORT ACTIVITY. THEREFORE THE DE CISION RELIED ON BY THE LD. DR IS DISTINGUISHABLE AND NOT APPLICABLE T O THE FACTS OF THE PRESENT CASE. 20. THE JUDGMENT IN CIT VS. STERLING FOODS (237 ITR 579)(SC)(SUPRA) IS PERTAINING TO DEDUCTION U/S.80-HH O F THE ACT WHICH IS A DIFFERENT PROVISION THAN SEC. 80-HHC HENCE NOT AP PLICABLE. 21. IN CIT VS. K. RAVINDRANATHAN NAIR (295 ITR 228)( SUPRA) IT HAS BEEN HELD THAT WHILE ARRIVING AT THE EXPORT PROFITS U/S.80-HHC (3) AS IT STOOD IN THE ASSESSMENT YEAR 1993-94 PROCESSING CHARGES ARE TO BE INCLUDED IN THE TOTAL TURNOVER. ALSO HELD THAT IN AR RIVING AT THE PROFIT EARNED FROM EXPORT OF SELF MANUFACTURED GOODS AND TRAD ING GOODS THE PROFIT AND LOSS IN BOTH TRADES HAVE TO BE TAKEN INTO CO NSIDERATION. IF AFTER THE ADJUSTMENT THERE WAS A POSITIVE PROFIT THE ASSESSEE WOULD BE ENTITLED TO THE DEDUCTION U/S.80-HHC(1) . IF THERE WA S LOSS THE ASSESSEE WOULD NOT BE ENTITLED TO ANY DEDUCTION. THE FACT S OF THE PRESENT CASE ARE DIFFERENT FROM THE FACTS OF THE CASE REL IED ON BY THE LD. DR HENCE NOT APPLICABLE. 22. IN ITO VS. INDUFLEX PRODUCTS P. LTD. (280 ITR 1)( SUPRA) IT HAS BEEN OBSERVED AND HELD THAT THERE SHOULD BE POSITIVE PROFITS. NO ITA NO.261/M/07 A.Y: 90-01 16 EXEMPTION IF PROFIT IS NOT EARNED IN EXPORT BUSINESS. THE SAID DECISION RELIED ON BY THE LD. DR IS PERTAINING TO DIFFERENT ISSUE NOT RELATED TO THE ISSUE IN THE INSTANT CASE THEREFORE NOT APPLICABLE TO T HE FACTS OF THE PRESENT CASE. 23. IN THE LIGHT OF THE AFORESAID DISCUSSION WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED TO THE DEDUCTION U/S. 80-HHC(3) ON THE AMOUNT OF RS.47 67 779/- RECEIVED AS A RESULT OF EXPOR TS TO M/S. P.T. INDO BHARAT RAYON INDONESIA. THE AO IS DIRECTED TO CO MPUTE AND ALLOW THE SAME IN ACCORDANCE WITH THE PROVISIONS OF THE L AW. THE GROUNDS TAKEN BY THE ASSESSEE ARE THEREFORE ALLOWED. 24. IN THE RESULT THE ASSESSEES APPEAL STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12.2.2010. SD/- SD/- ( R.K. PANDA ) ( D.K. AGARWAL ) ACCOUNTANT MEMBER J UDICIAL MEMBER MUMBAI DATED:12.2.2010. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT CONCERNED MUMBAI THE CIT(A) CONCERNED MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI. ITA NO.261/M/07 A.Y: 90-01 17 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 27.1.10 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 28.1.10 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 12.2.10 SR.PS/PS 7. FILE SENT TO THE BENCH CLERK 15.2.10 SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER