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Polyflex (India) Pvt. Ltd. vs. The Commissioner of Income Tax and Ors. - (Supreme Court) (17 Nov 2022)

Assessee is manufacturing polyurethane foam, assessee shall not be entitled to deduction claimed under Section 80-IB of the IT Act

MANU/SC/1505/2022

Direct Taxation

Appellant – assessee is having a manufacturing unit at Pune in which the Appellant – assessee is manufacturing ‘polyurethane foam,’ which is ultimately used as automobile seat. The assessee filed its return of income for the assessment year 2003-04 and claimed deduction under Section 80-IB of the Income Tax Act (‘IT Act’). The assessing officer disallowed the deduction under Section 80-IB of the IT Act by observing that the nature of the business of the assessee is “manufacturer of polyurethane foam seats” which falls under entry 25 to the Eleventh Schedule of the IT Act and therefore the Assessee shall not be entitled to deduction under Section 80-IB of IT Act. The assessee preferred an appeal before the Commissioner of Income Tax (Appeals) against the assessment order. The CIT(A) upheld the order of the assessing officer.

Against the order of the CIT(A), the Assessee filed an appeal before the Income Tax Appellate Tribunal ( ‘ITAT’). The ITAT set aside the assessment order as well as the order passed by the CIT(A) and allowed the appeal filed by the assessee. The order passed by the ITAT has been set aside by the High Court, by the impugned judgment and order specifically observing that what is manufactured by the assessee is polyurethane foam in different sizes/designs and there is no further process undertaken by the assessee to convert it into automobile seats and therefore what is manufactured by the assessee is polyurethane foam falling in entry 25 to Eleventh Schedule and therefore the assessee shall not be entitled to deduction claimed under Section 80-IB of the IT Act. Consequently, the High Court has allowed the appeal preferred by the revenue and has quashed and set aside the order passed by the ITAT and has restored the assessment order denying the deduction claimed under Section 80- IB of the IT Act.

By the impugned judgment and order, the High Court has specifically observed and held that what is manufactured and sold by the assessee is polyurethane foam which is manufactured by injecting two chemicals, namely, Polyol and Isocyanate and the polyurethane foam which is manufactured by the assessee is used as ingredient for manufacture of automobile seats. The assessee is manufacturing polyurethane foam and supplying the same in different sizes/designs to the assembly operator, which ultimately is being used for car seats. The assessee is not undertaking any further process for end product, namely, car seats. The polyurethane foam which is supplied in different designs/sizes is being used as ingredient by others, namely, assembly operators for the car seats.

Merely because the assessee is using the chemicals and ultimately what is manufactured is polyurethane foam and the same is used by assembly operators after the process of moulding as car seats, it cannot be said that the end product manufactured by the assessee is car seats/automobile seats. There must be a further process to be undertaken by the very assessee in manufacturing of the car seats. No further process seems to have been undertaken by the assessee except supplying/selling the polyurethane foam in different sizes/designs/shapes which may be ultimately used for end product by others as car seats/automobile seats.

When the articles/goods which are manufactured by the assessee, namely, polyurethane foam is an article classifiable in the Eleventh Schedule (entry 25), considering Section 80- IB(2)(iii), the assessee shall not be entitled to the benefit under Section 80-IB of the IT Act. The High Court has rightly set aside the order passed by the ITAT and has rightly restored the order passed by the assessing officer denying the deduction/benefit claimed under Section 80-IB of the IT Act. Present Court is in complete agreement with the view taken by the High Court and that of the assessing officer, confirmed by the CIT(Appeals). Appeal dismissed.

Tags : ASSESSMENT   DEDUCTION   DENIAL  

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