INCOME TAX ACT, 1961

Section 10AA

Deduction unders ection 10AA - Manufacture or production - Processing of oil -

Assessee in the present case was a private limited company and engaged in the business of dealing in fuel oil and high speed diesel and all types of petroleum products. The assessee had its processing unit in SEZ and thus it claimed the deduction from the operations carried out therein (SEZ Unit) under section 10AA. As per the assessee, it was carrying out the activity of blending of different oils in the oil tanks situated within SEZ. The assessee for this purpose had hired 7 tanks of different capacity for fuel oil storage from Adani Ports and Special Economic Zone Limited (APSEZ). Accordingly, the assessee claimed that as a result of such processing, a different product with different chemical composition used to be produced. Assessee claimed that such processing was manufacturing activity within the meaning of the provision as defined in clause (iii) of explanation 1 to section 10AA read with clause (r) of section (2) of Special Economic Zones Act, 2005. The assessee without prejudice to the above also claimed that even the activity of the assessee was assumed as trading activity and not manufacturing activity, then also it was entitled for the deduction under section 10AA within the meaning of the services defined under section 2(z) of SEZ Act read with rule 76 of SEZ Rules 2006. AO inter alia observed that the impugned processing/blending activity was not manufacturing activity within the meaning of section 2(29BA. It was because the final product after the processing/blending had not undergone for any class transformation and no new product had come into existence, having any distinct object or article or thing having a different chemical composition or integral structure. CIT(A) however allowed the deduction. Held: Submission of the assessee had not been doubted by the AO during the assessment proceedings. However, the AO doubted on the manufacturing activity carried out by the assessee mainly for 2 reasons, firstly, that there was not sufficient equipment available with the assessee secondly, and the AO referred the definition of manufacture as provided under section 2(29B). Regarding the availability of equipment, the assessee hired the tanks which were well equipped for carrying out the blending activities as described above. Furthermore, the activity of blending cannot be linked with the value of the equipment shown by the assessee in the financial statements. There was no need to import the definition provided under section 2(29B) while evaluating the fact whether the assessee is carrying out any manufacturing activity. The assessee was engaged in the manufacturing activity. It is also pertinent to take a note of the fact that the deduction under section 10AA is also available to the assessee engaged in providing any services and even the trading activity carried out by the assessee from its SEZ unit.

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