Principal Commissioner Of Income Tax, Central 1, Kolkata v. M/S. Shalimar Pellet Feeds Ltd

Form No.(J2) IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTION (INCOME TAX)ORIGINAL SIDE Present : THE HON’BLE JUSTICE T.S. SIVAGNANAM A N D THE HON’BLE JUSTICE HIRANMAY BHATTACHARYYA IA NO.GA/2/2018(Old No.GA/1616/2018) ITAT/200/2018 PRINCIPAL COMMISSIONER OF INCOME TAX, CENTRAL 1, KOLKATA -Versus- M/S. SHALIMAR PELLET FEEDS LTD. For the Appellant: Ms. Sucharita Biswas, Adv. Mr. Soumen Bhattacharyya, Adv. For the Respondent: Mr. J. P. Khaitan, Sr. Adv. Ms. Swapna Das, Adv. Mr. Siddharth Das, Adv. Mr. Sourav Chunder, Adv. Heard on : 22.02.2022 Judgment on : 22.02.2022 T. S. SIVAGANANAM, J. : This appeal filed by the revenueunder Section 260A of the Income Tax Act, 1961 (the ‘Act’ inbrevity) is directed against the order dated 2[nd] June, 2017 passedby the Income Tax Appellate Tribunal, Kolkata “C” Bench (the ‘Tribunal’ in short) in IT(SS)A Nos.13 to 18/Kol/2016 for theassessment years 2008-09 to 2013-14. The appeal has been filed by the revenue raising the following substantial questions of law for consideration: “(1) Whether in the facts and circumstances of the case,the learned Tribunal was justified in law and onfacts in upholding the assessee’s appeal in which theassessee had challenged the assumption ofjurisdiction by the assessing officer to make theassessment under Section 153A/143(3) of the IncomeTax Act, 1961 on the ground that no incriminatingdocuments was found and/or seized during search? (2) Whether in the facts and circumstances of the case,the learned Tribunal was justified in allowingdeduction under Section 80IB(5) of the Income TaxAct, 1961 to the assessee by wrongly holding that theprocess of making poultry feeds as manufacture orproduction of article or thing for the purpose ofSection 80IB(5) of the Income Tax Act, 1961? (3) Whether in the facts and circumstances of the case,the learned Tribunal was justified in holding thatdisallowance under Section 14A of the Income Tax Act,1961 read with Rule 8D of the Income Tax Rules, 1962will not apply where no exempt income is received orreceivable during the relevant previous year or byignoring the provisions of Rule 8D that provides forcomputation of expenditure in respect of not onlythose investments, income from which does not formpart of total income, but also those investments,income from which shall not form part of totalincome? We have heard Ms. Sucharita Biswas, learned standingcounsel assisted by Mr. Soumen Bhattacharyya, learned advocateappearing for the appellant/revenue and Mr. J.P. Khaitan, learnedsenior counsel assisted by Ms. Swapna Das, Mr. Siddharth Das andMr. Sourav Chunder, learned advocates appearing for therespondent/assessee.The order passed by the tribunal, impugned in this appeal,is a composite order covering six assessment years, i.e., 2008-09to 2013-14. It is not disputed by the revenue that in so far asthe appeals filed by the revenue before this Court for theassessment years 2008-09, 2009-10 and 2010-11 are hit by thecircular issued by the Central Board of Direct Taxes (CBDT) andthe appeals cannot be pursued by the revenue on the ground of lowtax effect. For such reason, appeals filed by the revenue for theaforementioned three years are dismissed.Substantial question of law no.1 arises for considerationfor the assessment year 2011-12 and substantial questions of lawnos.2 and 3 arise for the assessment years 2011-12, 2012-13 and2013-14. So far as the substantial question of law no.1 isconcerned, as to whether the assumption of jurisdiction by theassessing officer under Section 153A/143(3) of the Act was validor not, is an issue which can be decided if necessary after takinga decision on the other questions which arise in the threeassessment years. In case the other questions of law, namely, 2 and 3 are decided in favour of the assessee, then there may not bea need for answering question no.1 which arises only for theassessment year 2011-12. Therefore, first we consider substantialquestion of law no.2. and 3 are decided in favour of the assessee, then there may not bea need for answering question no.1 which arises only for theassessment year 2011-12. Therefore, first we consider substantialquestion of law no.2. This is with regard to the claim for deduction under Section80IB(5) of the Act which was denied by the assessing officer,granted by the Commissioner of Income Tax (Appeals) (CIT(A)) whichwas affirmed by the Tribunal. The assessee claimed deductionunder Section 80IB of the Act on the ground that the activity doneby them in their factory is a manufacturing activity bymanufacturing poultry feed and, therefore, they are entitled fordeduction. The assessing officer was of the view that there wasno manufacturing done by the assessee but what was done by theassessee is mixing various product, each one of them had anindividual identity and cannot be construed to be an input formanufacturing of poultry feed. Therefore, the claim for deductionwas denied. Before the CIT(A), the assessee had explained theentire manufacturing process which has been recorded by the CIT(A)in paragraph 2.7 of the order dated 11[th] February, 2016. From thesaid finding recorded by the CIT(A), we find that the processadopted by the assessee cannot be said to be a mere act of mixingof various individual products to turn out to be a poultry feed.The process involves steam cooking which is done after thematerials are mixed and the assessee has a one tonne per hour boiler which generates steam at 10 kgs/cm[2 ] pressure and they alsohave insulated pipeline which carries the steam to the pelletsection. The pressure reducing valve (PRV) is fitted before thepellet section which is reducing the pressure from 10 kgs to 1.5kg/cm[2 ]which will ensure that the steam entering the conditioningsection is released slowly into the material for goodconditioning. Thereafter, there are two other conditioningprocesses in which the poultry feed comes into contact with steamwhich is stated to ensure that the starch contained in the feed isgelatinised which is better for the growth of the chicken and atthat level the feed attains a temperature of 85[0]C thereby all thebacteria like E Coli, salmonella and other microbes get destroyed.After conditioning, the product goes in the pelleting section,then to the cooling section, then to the crumbling section, thento the sieving section and after passing the quality control test,it is ready for bagging. The assessee had also furnished detailsas to what are the raw materials required to make the poultryfeed. This has been noted by the CIT(A) in paragraph 2.7.3onwards of the order. The list of micro ingredients, list of vitamins and the listof minerals have also been mentioned. Noting all these facts andalso taking into consideration the order passed by the tribunal inthe case of DCIT-Cir-2/Kol Vs. Amricon Agrovest(ITANo.827/Kol/2012 dated 13.8.2013 where the assessee produced The list of micro ingredients, list of vitamins and the listof minerals have also been mentioned. Noting all these facts andalso taking into consideration the order passed by the tribunal inthe case of DCIT-Cir-2/Kol Vs. Amricon Agrovest(ITANo.827/Kol/2012 dated 13.8.2013 where the assessee produced poultry feed and the tribunal after examining the entire processgranted relief to the assessee. The CIT(A) also referred to thedecision in the case of Komarala Feeds Vs. DCIT (1999) 18 CCH 087(ITAT Bangalore). In the said decision the tribunal held thatwhile the raw materials individually can be eaten by both humanbeings as well as animals, the end product can be eaten only byanimals. Thus, noting the factual position, the CIT(A) held thatfrom the details filed by the assessee, it is clear that the endproduct of such poultry feed cannot be reversed back to itsoriginal raw materials/ingredients. The revenue challenged theorder before the tribunal. The tribunal also examined the factualposition and took note of various other decisions as also that theCentral Government has notified the poultry feed industry underSection 80IB(4) and other observations, the appeal filed by therevenue was dismissed.The learned counsel for the appellant/revenue submitsthat the process undertaken by the assessee is only mixing and,therefore, the assessing officer was right in denying the relief.In support of her contentions, the learned counsel referred to thedecision of this Court in the case of PCIT, Kolkata Vs. V.N.Enterprises Limited in ITAT No.129/2016 dated 30.9.2021. Thisdecision is pressed into service to buttress her submission thatwhen there is ambiguity in an exemption provision, the benefit hasto go to the revenue. Further, the learned senior standing counsel referred to thedecision in the case of Commissioner of Income Tax Vs. TaraAgencies [2007] 292 ITR 444 (SC). It is submitted that thedecision in Tara Agencies was not placed before this Court whenjudgment was rendered in the case of Principal Commissioner ofIncome-Tax Vs. Sona Vets Pvt. Ltd. [2020] 424 ITR 387 (Cal) whichheld in favour of the assessee. Firstly, the revenue has not been able to dislodge thefactual findings recorded by the CIT(A) after examining theprocess undertaken by the assessee. On going through the materialsplaced before the CIT(A) which have been recorded in the order, wehave no hesitation to hold that the process undertaken by theassessee in producing the poultry feed amounts to manufacture. Thesimple test which can be applied is to examine as to whether theindividual ingredients which are mixed together to form thepoultry feed can be recovered and brought back to its originalposition. After the process is completed, if such reversal is notpossible then it goes without saying that the final product has adistinct and separate character and identity. The learned seniorstanding counsel submits that the process involves only mixing ofall the ingredients which ingredients are capable of beingconsumed as such even by human beings. In our view, this may notbe the right test because though the individual ingredients arecapable of being consumed by human beings, the end product, namely, the poultry feed obviously cannot be consumed by humanbeings. Therefore, the individual ingredients loose them itsidentity and get merged with the final product which is a separateproduct having its own identity and characteristics. Therefore, weare of the view that the CIT(A) and the tribunal were right inholding that the process undertaken by the assessee amounts tomanufacture. So far as the decision in the case of V.N.Enterprises Limited is concerned, the question which was framed inthe said appeal was whether the assessee therein will be entitledto exemption under Section 10B of the Act for business of blendingof tea. The learned senior counsel for the respondent/assesseesubmits that in the said case a review application has been filedby the assessee raising several issues. Be that as it may, thesaid decision arose out of interpretation and the applicability ofSection 10B on the particular process adopted by the assesseetherein in the light of the amendment by substitution done inSection 10B in the year 2001. Therefore, the Hon’ble DivisionBench while considering the said provisions came to the conclusionthat there was some ambiguity and, consequently, held that in caseof ambiguity in any exemption provision, the benefit has to go tothe revenue. To be noted that Section 10B as it stood prior to2001 had an expanded definition of the term “manufacture” whichincluded “process”. Therefore, in our considered view, thedecision in V.N. Enterprises Limited may not render assistance to the case of the revenue. The decision in Sona Vets has consideredthe case of an assessee who was also engaged in producing poultryfeed. The Court has devoted several paragraphs of its judgement toexamine as to what was the process undertaken by the assesseetherein and concluded that the process undoubtedly amounts tomanufacture. It may be true that the Court had referred to thejudgement which was cited in paragraph 11 of the order. Theargument of the learned senior standing counsel is that thedecision of the Hon’ble Supreme Court in Tara Agencies was notplaced before the Division Bench while rendering the decision inSona Vets Pvt. Ltd. In our considered view, that may not make thejudgement in Sona Vets Pvt. Ltd. to be inapplicable to cases wheresimilar activities were carried on. In fact, in the case of TaraAgencies the process was blending of tea and obviously the processwhich was mentioned therein was different and distinguishable asthat of the process of making poultry feed. Therefore, we would bewell-justified in following the decision in Sona Vets Pvt. Ltd.which had considered the same product as that of the productproduced by the assessee. Therefore, we hold that the tribunal wasright in confirming the order of the CIT(A) and granting reliefunder Section 80IB of the Act. In the result, the substantialquestions of law framed on this issue are decided against therevenue. The next substantial question of law is with regard to thedisallowance under Section 14A of the Act. The tribunal afternoting several decisions has directed the assessing officer tocompute the disallowance as per Rule 8D by taking intoconsideration only those shares which have yielded dividend incomein the year under consideration. Though the Tribunal has noted thedecision of the Tribunal in REI Agro Ltd. Vs. DCIT (2013) 35taxmann.com 404, there are several other decisions on the saidpoint and the machinery provision under Rule 8D can be appliedonly with regard to the shares which yielded dividend income inthe year under consideration. Therefore, we find that thetribunal rightly applied the legal principle and granted relief.Accordingly, the substantial question of law framed on the saidissue, namely, the deduction under Section 14A of the Act isdecided against the revenue. Thus, we are left with the substantial question of law no.1which arises only for the assessment year 2011-12. As prefacedearlier, the decision on this substantial question of law is notrequired to be answered as the issue has become academic moreparticularly in the light of the conclusion arrived at by us whileanswering substantial questions of law no.2 and no.3. Accordingly,the substantial question of law no.1 is left open. In the result, the appeal (ITAT 200/2018) filed by therevenue stands dismissed and the substantial questions of law nos.2 and 3 are decided against the revenue and substantialquestion of law no.1 is left open. With the dismissal of this appeal, the stay application (IANo.GA/2/2018 (Old No.GA/1616/2018) stands closed. (T.S. SIVAGNANAM, J.) I agree. (HIRANMAY BHATTACHARYYA, J.) A/s./Spal/NM/S.Das.