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.
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However, the assessing officer did not accept the same by observing that as ‘polyurethane foam’ is made of Polyol and Isocyanate and other components, the deduction under Section 80-IB of the IT Act cannot be given to the assessee-company as Section 80-IB(2)(iii) states that the benefit of deduction under the said section cannot be given if the assessee manufactures or produces any article or thing specified in the list in the Eleventh Schedule of the IT Act. 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 by observing that polyurethane foam was neither produced as a final product nor is an intermediate product nor is a by-product by the assessee and the same was used as automobile seat and therefore does not fall within entry 25 to Eleventh Schedule of the IT Act and therefore the assessee shall be entitled to claim deduction under Section 80-IB of the IT Act.
1 Shri Preetesh Kapur, learned counsel appearing on behalf of the assessee has vehemently submitted that when on appreciation of the entire evidence on record and after considering the process undertaken by the assessee and after considering the fact that the end product was automobile seat, the ITAT allowed the appeal and held that the assessee is entitled to claim deduction under Section 80-IB of the IT Act, the same was not required to be interfered with by the High Court. It is submitted that the learned ITAT returned a categorical finding of fact that the final product manufactured by the assessee is automobile seat in which polyurethane foam is used. 4 It is submitted that the High Court ought to have appreciated that in fact in assessee’s own case in respect of the very same product, in relation to classification for the purposes of payment of excise duty, the CEGAT has observed that the product manufactured by the assessee can never be said to be known in trade parlance as articles of polyurethane foam and hence cannot be classified as polyurethane foam. 6
It is further submitted that it is a settled position of law that the moment a commercially distinct commodity, known in trade parlance by a different name and having a different use, comes into being, it ceases to be classifiable as the raw material/ingredient from which it is made.
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It is submitted therefore that when the final product is automobile seat and the polyurethane foam loses its characteristics which is used as ingredient, the assessee shall be entitled to deduction under Section 80- IB of the IT Act. It is submitted that as rightly observed by the High Court the assessee produces the polyurethane foam seats which are used for making end product to be fixed in different vehicles.
2 It is submitted that therefore as the assessee is manufacturing polyurethane foam which falls under entry 25 of the Eleventh Schedule and therefore considering Section 80-IB(2)(iii), the assessee shall not be entitled to deduction under Section 80-IB of the IT Act. 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.
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.
We are in complete agreement with the view taken by the High Court and that of the assessing officer, confirmed by the CIT(Appeals).
Case Title: M/S POLYFLEX (INDIA) PVT. LTD. Vs. THE COMMISSIONER OF INCOME TAX (2022 INSC 1211)
Case Number: C.A. No.-008260-008260 / 2022
