- (1.) This appeal is filed by the Revenue seeking admission by framing the following question of law: Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that blending and bottling of IMFL would amount to "manufacture" for the purpose of claiming deduction under Section 80-IB The Assessee herein is small-scale industry recognised as so by the Director of Industries, Pondicherry. It set up a second unit to manufacture and bottle Indian manufactured foreign liquor (IMFL) at Pondicherry. In its return for the assessment years 2003-04 and 2004-05, it claimed deduction under Section 80-IB of the Act in respect of the profits and gains derived from the second unit. The Assessing Officer, however, rejected the plea on the issue that the process carried on by the Assessee for its product does not constitute 'manufacture' within the meaning of Section 80-IB of the Income-tax Act, 1961. He further held that setting up of the second unit is only an expansion or reconstruction of the existing unit. Aggrieved by the same, the Assessee preferred an appeal before the Commissioner of Income-tax (Appeals).
(2.) In the proceedings before the Commissioner of Income-tax (Appeals), the Assessee explained the process of blending as follows: The Assessee purchased rectified spirit or extra neutral alcohol (ENA) made of grain or grapes or malt to which it added demineralised water in required proportion to reduce the strength of the ENA to make various products like whiskey, brandy, rum, etc. Apart from that, other ingredients like caramel, sugar, etc., were also added as per the blending formulations. This blend was subject to filtration for required time, blend inspection and then bottling in empty bottles. The finished products were packed and sold.
(3.) The Commissioner of Income-tax (Appeals) considered the fact that the alcoholic strength of ENA which was around 95 per cent, v/v was reduced to a maximum of 42.8 per cent. v/v. Consequently, the Commissioner of Income-tax (Appeals) held that there was no manufacture or production of any new article or thing as the alcohol which was the input remained as alcohol. In the circumstances, he rejected the plea for deduction under Section 80-IB of the Act.;