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

ITAT/29/2021IA No. GA/2/2021 IN THE HIGH COURT AT CALCUTTASpecial Jurisdiction (Income Tax)ORIGINAL SIDE PRINCIPAL COMMISSIONER OF INCOMETAX, CENTRAL-1, KOLKATA -Versus- M/S. SHALIMAR PELLET FEEDS LTD. Appearance:Mr. Smita Das De, Adv....for the appellant. Mr. Abhratosh Majumdar, Sr. Adv.Ms. Swapna Das, Adv.Mr. Siddhartha Das, Adv....for the respondent. BEFORE: The Hon’ble JUSTICE T.S. SIVAGNANAM -And- The Hon’ble JUSTICE HIRANMAY BHATTACHARYYA Date : 4[th] April, 2022. The Court : This appeal filed by the revenue underSection 260A of the Income Tax Act, 1961 (the ‘Act’ in brevity)is directed against the order dated 9[th] April, 2019 passed bythe Income Tax Appellate Tribunal, Kolkata “D” Bench (the‘Tribunal’ in short) in ITA Nos.2201, 2222, 2197, 2198 and2199/Kol/2018 for the assessment years 2008-09, 2009-10, 2010-11, 2011-12 and 2013-14. The appeal has been filed by the revenue raising thefollowing substantial questions of law for consideration: i)Whether the Income Tax Appellate Tribunal erredin law in holding that the assessee hasmanufacturing activity in the production of thepellets and feeds although the process ofproductions or the procedure for producing thearticle does not come to neither the ambit ofSection 2(29BA) of the Income Tax Act, 1961 andtherefore perverse ?in law in holding that the assessee hasmanufacturing activity in the production of thepellets and feeds although the process ofproductions or the procedure for producing thearticle does not come to neither the ambit ofSection 2(29BA) of the Income Tax Act, 1961 andtherefore perverse ? ii)Whether the order of the Income Tax AppellateTribunal is at all sustainable inasmuch as theissue of question whether the activity ismanufacturing or not pending hearing in HighCourt ?Tribunal is at all sustainable inasmuch as theissue of question whether the activity ismanufacturing or not pending hearing in HighCourt ? iii)Whether the Income Tax Appellate Tribunalmisread and misinterpreted Section 80IB(5) and80E(IE) of the Income Tax Act, 1961 and came toan erroneous decision that the assessee isentitled to additional depreciations claimed onplant and machinery relating to manufacturingsince the activities does not come under thepurview of the term “manufacture” under section2(29BA) of the Income Tax Act, 1961 as such theorder is liable to be set aside ?misread and misinterpreted Section 80IB(5) and80E(IE) of the Income Tax Act, 1961 and came toan erroneous decision that the assessee isentitled to additional depreciations claimed onplant and machinery relating to manufacturingsince the activities does not come under thepurview of the term “manufacture” under section2(29BA) of the Income Tax Act, 1961 as such theorder is liable to be set aside ?iv)Whether the Income Tax Appellate Tribunal erredin law in setting aside the order of AssessingOfficer who made an addition ofRs.3,24,49,403/- in the Assessment Year 2009-10based on the facts or difference in sales asper tax audit report/payment made to personsspecified under Section 40A(2)(b) of the IncomeTax Act, 1961 to M/s. Shalimar Hatcheries Ltd.as submitted by the assessee itself ?in law in setting aside the order of AssessingOfficer who made an addition ofRs.3,24,49,403/- in the Assessment Year 2009-10based on the facts or difference in sales asper tax audit report/payment made to personsspecified under Section 40A(2)(b) of the IncomeTax Act, 1961 to M/s. Shalimar Hatcheries Ltd.as submitted by the assessee itself ?v)Whether the Income Tax Appellate Tribunal erredin allowing 30% depreciation amounting toin allowing 30% depreciation amounting to Rs.14,68,279/- in the Assessment Year 2009-10as claimed by the assessee since the same isentitled to 15% on lorries, which was not usedfor the business of hire ?” We have heard Ms. Smita Das De, learned standingcounsel for the revenue and Mr. Abhratosh Majumdar, learnedsenior counsel assisted by Ms. Swapna Das and Mr. SiddharthaDas, learned Advocates appearing for the respondent. Rs.14,68,279/- in the Assessment Year 2009-10as claimed by the assessee since the same isentitled to 15% on lorries, which was not usedfor the business of hire ?” We have heard Ms. Smita Das De, learned standingcounsel for the revenue and Mr. Abhratosh Majumdar, learnedsenior counsel assisted by Ms. Swapna Das and Mr. SiddharthaDas, learned Advocates appearing for the respondent. It is not in dispute that the substantial questions oflaw, as suggested above, were decided in the assessee’s owncase. However, we find that the assessee’s own case inITAT/199/2018 dated 7[th] December, 2021 and ITAT/200/2018 dated22[nd] February, 2022, the substantial questions of law nos.1 to3, as suggested by the revenue, were slightly worded in adifferent manner in ITAT/200/2018 in which it was substantialquestion of law No.2. By the judgment dated 22[nd] February, 2022the appeal was allowed and the question of law was answered infavour of the respondent/assessee. The operative portion of thejudgment reads as follows: “This is with regard to the claim for deduction underSection 80IB(5) of the Act which was denied by theassessing officer, granted by the Commissioner of IncomeTax (Appeals) (CIT(A)) which was affirmed by the Tribunal.The assessee claimed deduction under Section 80IB of theAct on the ground that the activity done by them in theirfactory is a manufacturing activity by manufacturingpoultry feed and, therefore, they are entitled fordeduction. The assessing officer was of the view that therewas no manufacturing done by the assessee but what was done by the assessee is mixing various product, each one of themhad an individual identity and cannot be construed to be aninput for manufacturing of poultry feed. Therefore, theclaim for deduction was denied. Before the CIT(A), theassessee had explained the entire manufacturing processwhich has been recorded by the CIT(A) in paragraph 2.7 ofthe order dated 11th February, 2016. From the said findingrecorded by the CIT(A), we find that the process adopted bythe assessee cannot be said to be a mere act of mixing ofvarious individual products to turn out to be a poultryfeed. The process involves steam cooking which is doneafter the materials are mixed and the assessee has a onetonne per hour boiler which generates steam at 10 kgs/cm2pressure and they also have insulated pipeline whichcarries the steam to the pellet section. The pressurereducing valve (PRV) is fitted before the pellet sectionwhich is reducing the pressure from 10 kgs to 1.5 kg/cm2which 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 withsteam which is stated to ensure that the starch containedin the feed is gelatinised which is better for the growthof the chicken and at that level the feed attains atemperature of 850C thereby all the bacteria like E Coli,salmonella and other microbes get destroyed. Afterconditioning, the product goes in the pelleting section,then to the cooling section, then to the crumbling section,then to the sieving section and after passing the qualitycontrol test, it is ready for bagging. The assessee hadalso furnished details as to what are the raw materialsrequired to make the poultry feed. This has been noted bythe CIT(A) in paragraph 2.7.3 onwards of the order. The list of micro ingredients, list of vitamins and thelist of minerals have also been mentioned. Noting all thesefacts and also taking into consideration the order passed The list of micro ingredients, list of vitamins and thelist of minerals have also been mentioned. Noting all thesefacts and also taking into consideration the order passed by the tribunal in the case of DCIT-Cir-2/Kol Vs. AmriconAgrovest (ITA No.827/Kol/2012 dated 13.8.2013 where theassessee produced poultry feed and the tribunal afterexamining the entire process granted relief to theassessee. The CIT(A) also referred to the decision in thecase of Komarala Feeds Vs. DCIT (1999) 18 CCH 087(ITATBangalore). In the said decision the tribunal held thatwhile the raw materials individually can be eaten by bothhuman beings as well as animals, the end product can beeaten only by animals. Thus, noting the factual position,the CIT(A) held that from the details filed by theassessee, it is clear that the end product of such poultryfeed cannot be reversed back to its original rawmaterials/ingredients. The revenue challenged the orderbefore the tribunal. The tribunal also examined the factualposition and took note of various other decisions as alsothat the Central Government has notified the poultry feedindustry under Section 80IB(4) and other observations, theappeal filed by the revenue was dismissed. The learned counsel for the appellant/revenue submits thatthe process undertaken by the assessee is only mixing and,therefore, the assessing officer was right in denying therelief. In support of her contentions, the learned counselreferred to the decision of this Court in the case of PCIT,Kolkata Vs. V.N. Enterprises Limited in ITAT No.129/2016dated 30.9.2021. This decision is pressed into service tobuttress her submission that when there is ambiguity in anexemption provision, the benefit has to go to the revenue. Further, the learned senior standing counsel referred tothe decision in the case of Commissioner of Income Tax Vs.Tara Agencies [2007] 292 ITR 444 (SC). It is submitted thatthe decision in Tara Agencies was not placed before thisCourt when judgment was rendered in the case of PrincipalCommissioner of Income-Tax Vs. Sona Vets Pvt. Ltd. [2020]424 ITR 387 (Cal) which held in favour of the assessee. Further, the learned senior standing counsel referred tothe decision in the case of Commissioner of Income Tax Vs.Tara Agencies [2007] 292 ITR 444 (SC). It is submitted thatthe decision in Tara Agencies was not placed before thisCourt when judgment was rendered in the case of PrincipalCommissioner of Income-Tax Vs. Sona Vets Pvt. Ltd. [2020]424 ITR 387 (Cal) which held 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 thematerials placed before the CIT(A) which have been recordedin the order, we have no hesitation to hold that theprocess undertaken by the assessee in producing the poultryfeed amounts to manufacture. The simple test which can beapplied is to examine as to whether the individualingredients which are mixed together to form the poultryfeed can be recovered and brought back to its originalposition. After the process is completed, if such reversalis not possible then it goes without saying that the finalproduct has a distinct and separate character and identity.The learned senior standing counsel submits that theprocess involves only mixing of all the ingredients whichingredients are capable of being consumed as such even byhuman beings. In our view, this may not be the right testbecause though the individual ingredients are capable ofbeing consumed by human beings, the end product, namely,the poultry feed obviously cannot be consumed by humanbeings. Therefore, the individual ingredients loose themits identity and get merged with the final product which isa separate product having its own identity andcharacteristics. Therefore, we are of the view that theCIT(A) and the tribunal were right in holding that theprocess undertaken by the assessee amounts to manufacture.So far as the decision in the case of V.N. EnterprisesLimited is concerned, the question which was framed in thesaid appeal was whether the assessee therein will beentitled to exemption under Section 10B of the Act forbusiness of blending of tea. The learned senior counsel forthe respondent/assessee submits that in the said case areview application has been filed by the assessee raisingseveral issues. Be that as it may, the said decision aroseout of interpretation and the applicability of Section 10Bon the particular process adopted by the assessee therein in the light of the amendment by substitution done inSection 10B in the year 2001. Therefore, the Hon’bleDivision Bench while considering the said provisions cameto the conclusion that there was some ambiguity and,consequently, held that in case of ambiguity in anyexemption provision, the benefit has to go to the revenue.To be noted that Section 10B as it stood prior to 2001 hadan expanded definition of the term “manufacture” whichincluded “process”. Therefore, in our considered view, thedecision in V.N. Enterprises Limited may not renderassistance to the case of the revenue. The decision in SonaVets has considered the case of an assessee who was alsoengaged in producing poultry feed. The Court has devotedseveral paragraphs of its judgement to examine as to whatwas the process undertaken by the assessee therein andconcluded that the process undoubtedly amounts tomanufacture. It may be true that the Court had referred tothe judgement which was cited in paragraph 11 of the order.The argument of the learned senior standing counsel is thatthe decision of the Hon’ble Supreme Court in Tara Agencieswas not placed before the Division Bench while renderingthe decision in Sona Vets Pvt. Ltd. In our considered view,that may not make the judgement in Sona Vets Pvt. Ltd. tobe inapplicable to cases where similar activities werecarried on. In fact, in the case of Tara Agencies theprocess was blending of tea and obviously the process whichwas mentioned therein was different and distinguishable asthat of the process of making poultry feed. Therefore, wewould be well-justified in following the decision in SonaVets Pvt. Ltd. which had considered the same product asthat of the product produced by the assessee. Therefore, wehold that the tribunal was right in confirming the order ofthe CIT(A) and granting relief under Section 80IB of theAct. In the result, the substantial questions of law framedon this issue are decided against the revenue.” Following the above decision, the substantial questionnos.1, 2 and 3 are answered against the revenue. So far as the question nos.4 and 5 are concerned,identical question was also raised before us in ITAT/199/2018and the findings rendered by the tribunal was set aside and thematter was remanded to the Commissioner of Income Tax (Appeals).Following the said decision in ITAT/199/2018 dated 7[th] February,2021, the finding rendered by the Tribunal on the said issue isset aside and the matter is remanded to the CIT(A) to considerthe case of the assessee afresh in terms of the observationscontained in our judgment dated 7[th] December, 2021.The appeal, ITAT/29/2021 stands disposed ofaccordingly. Consequently, the connected application for stay (IANo.GA/2/2021) also stands closed. (T.S. SIVAGNANAM, J.) (HIRANMAY BHATTACHARYYA, J.) S.DasAs.