Principal Commissioner Of Income ... vs M/S. Shalimar Pellet Feeds Ltd
2022 Latest Caselaw 607 Cal/2

Form No.(J2)

                           IN THE HIGH COURT AT CALCUTTA
                         SPECIAL 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 revenue

under Section 260A of the Income Tax Act, 1961 (the 'Act' in

brevity) is directed against the order dated 2nd June, 2017 passed

by the Income Tax Appellate Tribunal, Kolkata "C" Bench (the

'Tribunal' in short) in IT(SS)A Nos.13 to 18/Kol/2016 for the

assessment 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 on facts in upholding the assessee's appeal in which the assessee had challenged the assumption of jurisdiction by the assessing officer to make the assessment under Section 153A/143(3) of the Income Tax Act, 1961 on the ground that no incriminating documents was found and/or seized during search? (2) Whether in the facts and circumstances of the case, the learned Tribunal was justified in allowing deduction under Section 80IB(5) of the Income Tax Act, 1961 to the assessee by wrongly holding that the process of making poultry feeds as manufacture or production of article or thing for the purpose of Section 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 that disallowance under Section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962 will not apply where no exempt income is received or receivable during the relevant previous year or by ignoring the provisions of Rule 8D that provides for computation of expenditure in respect of not only those investments, income from which does not form part of total income, but also those investments, income from which shall not form part of total income?

We have heard Ms. Sucharita Biswas, learned standing

counsel assisted by Mr. Soumen Bhattacharyya, learned advocate

appearing for the appellant/revenue and Mr. J.P. Khaitan, learned

senior counsel assisted by Ms. Swapna Das, Mr. Siddharth Das and

Mr. Sourav Chunder, learned advocates appearing for the

respondent/assessee.

The order passed by the tribunal, impugned in this appeal,

is a composite order covering six assessment years, i.e., 2008-09

to 2013-14. It is not disputed by the revenue that in so far as

the appeals filed by the revenue before this Court for the

assessment years 2008-09, 2009-10 and 2010-11 are hit by the

circular issued by the Central Board of Direct Taxes (CBDT) and

the appeals cannot be pursued by the revenue on the ground of low

tax effect. For such reason, appeals filed by the revenue for the

aforementioned three years are dismissed.

Substantial question of law no.1 arises for consideration

for the assessment year 2011-12 and substantial questions of law

nos.2 and 3 arise for the assessment years 2011-12, 2012-13 and

2013-14. So far as the substantial question of law no.1 is

concerned, as to whether the assumption of jurisdiction by the

assessing officer under Section 153A/143(3) of the Act was valid

or not, is an issue which can be decided if necessary after taking

a decision on the other questions which arise in the three

assessment years. In case the other questions of law, namely, 2

and 3 are decided in favour of the assessee, then there may not be

a need for answering question no.1 which arises only for the

assessment year 2011-12. Therefore, first we consider substantial

question of law no.2.

This is with regard to the claim for deduction under Section

80IB(5) of the Act which was denied by the assessing officer,

granted by the Commissioner of Income Tax (Appeals) (CIT(A)) which

was affirmed by the Tribunal. The assessee claimed deduction

under Section 80IB of the Act on the ground that the activity done

by them in their factory is a manufacturing activity by

manufacturing poultry feed and, therefore, they are entitled for

deduction. The assessing officer was of the view that there was

no manufacturing done by the assessee but what was done by the

assessee is mixing various product, each one of them had an

individual identity and cannot be construed to be an input for

manufacturing of poultry feed. Therefore, the claim for deduction

was denied. Before the CIT(A), the assessee had explained the

entire manufacturing process which has been recorded by the CIT(A)

in paragraph 2.7 of the order dated 11th February, 2016. From the

said finding recorded by the CIT(A), we find that the process

adopted by the assessee cannot be said to be a mere act of mixing

of various individual products to turn out to be a poultry feed.

The process involves steam cooking which is done after the

materials are mixed and the assessee has a one tonne per hour

boiler which generates steam at 10 kgs/cm2 pressure and they also

have insulated pipeline which carries the steam to the pellet

section. The pressure reducing valve (PRV) is fitted before the

pellet section which is reducing the pressure from 10 kgs to 1.5

kg/cm2 which will ensure that the steam entering the conditioning

section is released slowly into the material for good

conditioning. Thereafter, there are two other conditioning

processes in which the poultry feed comes into contact with steam

which is stated to ensure that the starch contained in the feed is

gelatinised which is better for the growth of the chicken and at

that level the feed attains a temperature of 850C thereby all the

bacteria 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, then

to the sieving section and after passing the quality control test,

it is ready for bagging. The assessee had also furnished details

as to what are the raw materials required to make the poultry

feed. This has been noted by the CIT(A) in paragraph 2.7.3

onwards of the order.

The list of micro ingredients, list of vitamins and the list

of minerals have also been mentioned. Noting all these facts and

also taking into consideration the order passed by the tribunal in

the case of DCIT-Cir-2/Kol Vs. Amricon Agrovest (ITA

No.827/Kol/2012 dated 13.8.2013 where the assessee produced

poultry feed and the tribunal after examining the entire process

granted relief to the assessee. The CIT(A) also referred to the

decision in the case of Komarala Feeds Vs. DCIT (1999) 18 CCH 087

(ITAT Bangalore). In the said decision the tribunal held that

while the raw materials individually can be eaten by both human

beings as well as animals, the end product can be eaten only by

animals. Thus, noting the factual position, the CIT(A) held that

from the details filed by the assessee, it is clear that the end

product of such poultry feed cannot be reversed back to its

original raw materials/ingredients. The revenue challenged the

order before the tribunal. The tribunal also examined the factual

position and took note of various other decisions as also that the

Central Government has notified the poultry feed industry under

Section 80IB(4) and other observations, the appeal filed by the

revenue was dismissed.

The learned counsel for the appellant/revenue submits

that 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 the

decision of this Court in the case of PCIT, Kolkata Vs. V.N.

Enterprises Limited in ITAT No.129/2016 dated 30.9.2021. This

decision is pressed into service to buttress her submission that

when there is ambiguity in an exemption provision, the benefit has

to go to the revenue.

Further, the learned senior standing counsel referred to the

decision in the case of Commissioner of Income Tax Vs. Tara

Agencies [2007] 292 ITR 444 (SC). It is submitted that the

decision in Tara Agencies was not placed before this Court when

judgment was rendered in the case of Principal Commissioner 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 the

factual findings recorded by the CIT(A) after examining the

process undertaken by the assessee. On going through the materials

placed before the CIT(A) which have been recorded in the order, we

have no hesitation to hold that the process undertaken by the

assessee in producing the poultry feed amounts to manufacture. The

simple test which can be applied is to examine as to whether the

individual ingredients which are mixed together to form the

poultry feed can be recovered and brought back to its original

position. After the process is completed, if such reversal is not

possible then it goes without saying that the final product has a

distinct and separate character and identity. The learned senior

standing counsel submits that the process involves only mixing of

all the ingredients which ingredients are capable of being

consumed as such even by human beings. In our view, this may not

be the right test because though the individual ingredients are

capable of being consumed by human beings, the end product,

namely, the poultry feed obviously cannot be consumed by human

beings. Therefore, the individual ingredients loose them its

identity and get merged with the final product which is a separate

product having its own identity and characteristics. Therefore, we

are of the view that the CIT(A) and the tribunal were right in

holding that the process undertaken by the assessee amounts to

manufacture. So far as the decision in the case of V.N.

Enterprises Limited is concerned, the question which was framed in

the said appeal was whether the assessee therein will be entitled

to exemption under Section 10B of the Act for business of blending

of tea. The learned senior counsel for the respondent/assessee

submits that in the said case a review application has been filed

by the assessee raising several issues. Be that as it may, the

said decision arose out of interpretation and the applicability of

Section 10B on the particular process adopted by the assessee

therein in the light of the amendment by substitution done in

Section 10B in the year 2001. Therefore, the Hon'ble Division

Bench while considering the said provisions came to the conclusion

that there was some ambiguity and, consequently, held that in case

of ambiguity in any exemption provision, the benefit has to go to

the revenue. To be noted that Section 10B as it stood prior to

2001 had an expanded definition of the term "manufacture" which

included "process". Therefore, in our considered view, the

decision in V.N. Enterprises Limited may not render assistance to

the case of the revenue. The decision in Sona Vets has considered

the case of an assessee who was also engaged in producing poultry

feed. The Court has devoted several paragraphs of its judgement to

examine as to what was the process undertaken by the assessee

therein and concluded that the process undoubtedly amounts to

manufacture. It may be true that the Court had referred to the

judgement which was cited in paragraph 11 of the order. The

argument of the learned senior standing counsel is that the

decision of the Hon'ble Supreme Court in Tara Agencies was not

placed before the Division Bench while rendering the decision in

Sona Vets Pvt. Ltd. In our considered view, that may not make the

judgement in Sona Vets Pvt. Ltd. to be inapplicable to cases where

similar activities were carried on. In fact, in the case of Tara

Agencies the process was blending of tea and obviously the process

which was mentioned therein was different and distinguishable as

that of the process of making poultry feed. Therefore, we would be

well-justified in following the decision in Sona Vets Pvt. Ltd.

which had considered the same product as that of the product

produced by the assessee. Therefore, we hold that the tribunal was

right in confirming the order of the CIT(A) and granting relief

under Section 80IB of the Act. In the result, the substantial

questions of law framed on this issue are decided against the

revenue.

The next substantial question of law is with regard to the

disallowance under Section 14A of the Act. The tribunal after

noting several decisions has directed the assessing officer to

compute the disallowance as per Rule 8D by taking into

consideration only those shares which have yielded dividend income

in the year under consideration. Though the Tribunal has noted the

decision of the Tribunal in REI Agro Ltd. Vs. DCIT (2013) 35

taxmann.com 404, there are several other decisions on the said

point and the machinery provision under Rule 8D can be applied

only with regard to the shares which yielded dividend income in

the year under consideration. Therefore, we find that the

tribunal rightly applied the legal principle and granted relief.

Accordingly, the substantial question of law framed on the said

issue, namely, the deduction under Section 14A of the Act is

decided against the revenue.

Thus, we are left with the substantial question of law no.1

which arises only for the assessment year 2011-12. As prefaced

earlier, the decision on this substantial question of law is not

required to be answered as the issue has become academic more

particularly in the light of the conclusion arrived at by us while

answering 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 the

revenue stands dismissed and the substantial questions of law

nos.2 and 3 are decided against the revenue and substantial

question of law no.1 is left open.

With the dismissal of this appeal, the stay application (IA

No.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.