ITAT, HYDERABAD BENCH ‘B’ Allowability of deduction under section 80-IB of IT Act, 1961 to a manufacturer and trader of wheat products

Allowability of deduction under section 80-IB of IT Act, 1961 to a manufacturer and trader of wheat products


Milling of wheat into Rawa, bran, Atta, and Maida has to be considered as amounting to manufacture or production and as such, the assessee-manufacturer of such items is entitled for deduction u/s 80-IB.

ITAT, HYDERABAD BENCH ‘B’ HYDERABAD

DCIT

v.

Sri Sai Roller Flour Mills Pvt. Ltd.

ITA No. 1440/Hyd/08

January 30, 2009

RELEVANT EXTRACTS:

** ** ** ** ** ** ** ** ** ** ** **

We have considered the rival submissions and perused the material available on record, in the light of the case-law relied upon by the parties We find that the deduction under section 801A had been denied by the assessing officer on the ground of use of old machinery by the assessee. However, the CIT(A) granted the same since no infringement of provisions of the Act was subsequently found by him. As per the provisions of Sec. B01B, the deduction is available to an assessee who 'manufactures or produces any article or thing'. It: is clear from the "process flow diagram for milled wheal, products" furnished by the assessee that the said manufacturing/production activity carried on by the assessee consists of several processes which are integrally connected. As demonstrated by the learned counsel, the entire processing is done with the help of specific and sophisticated machinery and but for such processing, mere grinding of wheat cannot produce the same end products. It is not the case of the Revenue that wheat is simply pulverized while being milled and then-graded into the four end products. Rather, a specific procedure has been followed with the aid of specific machinery utilized in a systematic manner so as to obtain the specific end product(s) "the process so undertaken results in value addition to the raw materials, which basically is wheat. The end products 'liny from such process i.e. Atta, Maida, Rawa and bran have from wheat, not only in terms of usage, but also on account pi /steal attributes etc. and each of them have distinct commercial identity. In the circumstances, processing of wheat in the instant case not result in 'wheat powder' simplicitor, just as the processing of ‘chicory' resulting in 'chicory powder'. Processing of wheat in the instant results in Maida, Rawa, Atta and bran which are capable of being ; independently in the production of edible; items in their own identity. It is obvious that Maida cannot in the normal course substitute Rawa or Atta for making upma or chapatti, while Rawa cannot, in the normal course be used for making biscuits or bread. Similarly, cattle feed /bran in no way can be a substitute for Maida, Rawa and Atta. It is also a common knowledge that Maida, Rawa, Atta, and bran, as also the raw material wheat, are known and available as distinct articles in commercial parlance and any person willing to buy any one of these items will not accept any other of these items as a substitute, since the end use of each of these items is totally different. Therefore, it is clear that the activities undertaken by the assessee results in production or manufacture of distinct, articles/things, which are new and different from the raw material used for the production of such items, as contemplated by Sec. 80113. Such activity cannot be equated with mere processing wherein, the item processed though undergoes some change, the commercial identity of the end product continues to retain a substantial identity of the raw material. Rather the processes carried on by the assessee using wheat as raw material result in the end products having different physical and chemical properties and the products are recognized in the commercial parlance as distinct commodities, having different value for each of them.

12. Further, in the case under consideration, the wheat (raw material) purchased by the assessee was different from the end products i.e. Atta, Rawa, Maida and bran and the uses of the end products vis-a-vis the raw material was different and served entirely different purposes. There is no dispute with regard to the fact that the process of manufacturing of these products once produced back into wheat. The end products are known differently in the commercial world on their own and their usage are also qualitatively different. It can, therefore, not be said that the wheat had been simply crushed and converted into small particles of the same thing like chicory powder or the soap stones, as in the cases relied upon by the Assessing Officer. The manufacturing process is a combination of one or more processes through which the original commodity is made to pass and with each process the original commodity experiences change but if is only when the change takes the commodity lo the point where commercially it can no longer be regarded as the original commodity, but. instead is recognized as a new and distinct article then manufacture can be said to have taken place. In the case under consideration, due to various processes the product gets a distinct name, shape and usage; while raw material looses its identity and the new product coming into existence is commercially recognized as a new product and also the end products are different in character and usage vis-a-vis the raw materials. Also the raw material i.e. wheat loses its identity as Atta, Maida, Rawa and bran put together after such processing cannot regain the shape and attributes of wheat. The physical attributes of the end products are different from raw material and until the wheat is put to such process it cannot be put to any purposeful use.

15. In view of the above discussion, we hold that milling of wheat into Rawa, bran, Atta and Maida has to be considered as amounting to manufacture or production and as such, the assessee is entitled for deduction u/s 80IB.



** ** ** ** ** ** ** ** ** ** ** **
Posted at www.taxmannindia.blogspot.com
Get Free Quality SMS updates from my blog on your MOBILE:http://labs.google.co.in/smschannels/subscribe/ca_taxmannindia
OR
Send a message JOIN ca_taxmannindia to 9870807070 thru ur mobile nd receive updates