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Part A — Reported Decisions
39 (2008) 300 ITR (AT) 50 (Pune) (SB)
Dhariwal Industries Ltd. v. ACIT
A.Ys. 1993-94 to 1995-96 and 1997-98 to 2000-01. Dated :
14-8-2007
S. 80I, S. 80IA, S. 143, S. 263, Sch. XI (item 2) —Assessee
manufacturing gutka and pan masala containing tobacco claiming deduction
u/s.80-I and u/s.80-IA — Deduction not allowed stating that the item is covered
under ‘tobacco preparations’, ‘chewing tobacco’ as mentioned in item (2) of Sch.
XI — Held, gutka would fall within the meaning of term ‘tobacco preparations’
and ‘chewing tobacco’.
Facts :
The assessee, a company engaged in the business of
manufacturing gutka and pan masala containing tobacco, had claimed deduction
u/s.80-I/80-IA, which was allowed by the AO. The CIT invoked S. 263 by stating
that gutka manufactured by the assessee is a ‘tobacco preparation’ within the
meaning of item no. 2 in the Sch. XI and thus not eligible for deduction
u/s.80-I/80-IA and the order passed by the AO was erroneous and prejudicial to
the interest of the Revenue.
On appeal to the ITAT, the Special Bench of the Tribunal,
relying on the following grounds, held that the assessee’s business of
manufacturing gutka was not entitled to deduction u/s.80-IB, as the same is
covered by item no. 2 of Sch. XI :
(1) Reliance was placed on the decision of the Allahabad
Tribunal in the case of Kothari Products Ltd., (1991) 37 ITD 285 wherein it
was held that zarda yukt pan masala does not fall under the expression
‘tobacco preparation’. Further, the Allahabad High Court and also the Suprme
Court have declined to interfere with the aforesaid order, thus ruling that
the question under consideration is a question of fact and not a question of
law.
(2) Further, ‘tobacco preparation’ would cover all those
preparations and products which are prepared using tobacco, if the properties
of tobacco are retained in the preparation without undergoing any
metamorphosis as a result of addition of other ingredients. Hence, even 6–7%
content of tobacco in gutka is sufficient to call it ‘tobacco preparation’.
(3) The expression ‘tobacco preparation’ has to be
understood in contradistinction to a ‘tobacco-less preparation’. As a
‘tobacco-less preparation’ cannot become a ‘tobacco preparation’, by the same
logic ‘tobacco preparation’ cannot become ‘tobacco-less preparation’. Hence,
it cannot be said that ‘gutka’ is a ‘tobacco-less preparation’.
(4) Further, the words ‘such as’ used in item 2 of Sch. XI
do not limit the ambit to the specific 7 items in item no. 2. The words ‘such
as’ are illustrative and not exhaustive.
(5) In addition, without prejudice to the above, even if it
is assumed that the words ‘such as’ in item no. 2 of Sch. XI are in the nature
of limitation, gutka and pan masala would fall under ‘chewing tobacco’, an
item mentioned in item no. 2 of Sch. XI.
(6) Further, classification by various provisions of the
Acts dealing with Central Excise and Sales Tax, as relied upon by the
assessee’s authorised representative, is hardly relevant for deciding the
scope of ‘tobacco preparations’ and ‘chewing tobacco’ under the I.T. Act.
(7) Hence, the CIT was correct in invoking the provisions
of S. 263 as the presumptions made by the AO regarding the nature of the
business of the assessee and the profits arising from them were completely
incorrect and the AO had granted deduction without taking note of the most
crucial part of the case i.e., the assessee was manufacturing gutka and
it was held that the assessee was not entitled to deduction u/s.80-IB.
Cases referred to :
(i) Bajaj Tempo Ltd. v. CIT, (1992) 196 ITR 188
(SC);
(ii) Collector of Central Excise v. Parle Exports P.
Ltd., (1990) 183 ITR 624 (SC);
(iii) CIT v. Taj Mahal Hotel, (1971) 82 ITR 44 (SC);
(iv) CIT v. Venkateswara Hatcheries (P.), (1999) 237
174 (SC);
(v) Kothari Products Ltd. v. ACIT, (1991) 37 ITD 285
(All.);
(vi) Malabar Industrial Co. Ltd. v. CIT, (2000) 243
ITR 83 (SC) and many others.
