Exempt. u/s 10B allowed as product'n of raw honey held manufacturing in nature.

Facts in Brief:

1.  The assessee was engaged in manufacturing various types of finished honey from nectar (i.e., raw honey). It had established a hundred per cent export oriented unit.

2.  The assessee filed its return claiming exemption under section 10B.

3.  The Assessing Officer allowed assessee's claim.

4.  The Commissioner opined that the assessee had not established any manufacturing unit to carry out its manufacturing activities and it was only removing moisture from raw honey and repacking the same, which in no circumstances could be called manufacturing activities.

5.  He thus, passed a revisional order setting aside the assessment.

  On appeal, ITAT held as under:

6.  It was noted from records that the product, i.e., finished honey in the case of the assessee is at variance with the raw honey collected from the bee hives. The process carried out by the assessee changed both the physical and chemical characteristics of raw honey to convert it into finished product and the said product was different in form, i.e., raw honey and had a better shelf life than raw honey. Further, finished honey is prepared on the specific requirements of the buyers or the respective country and the product has a different market than raw honey. Thus, the activities carried on by the assessee bring into form the product which has a different market and, thus, fulfils the test of marketability.

7.  In view thereof, it is opined that the assessee was engaged in the production of finished honey and the profits and gains arising from such activity were eligible for deduction under section 10B as the assessee fulfils the condition of being 100 per cent export oriented unit and total sale proceeds were received in foreign exchange by the assessee. In the totality of the facts and circumstances, the finding of the Assessing Officer that the assessee was eligible for the claim of deduction under section 10B is upheld. 

8.  There is merit in the plea of the assessee as there are two steps involved in bringing into existence the finished product, i.e., finished honey. The process of formation of honey in the raw form is biological phenomena which is undertaken by the bees. Thereafter the said honey is collected by the farmers or bee-keepers from whom purchases are made by the assessee and the said product was then subjected to various processes to bring into existence the finished honey as per the specific requirements of the foreign buyers. The second process of converting honey into finished honey cannot be termed as biological. The process carried on by the assessee clearly reflects various steps undertaken by the assessee to bring into existence the finished product which is distinct from raw honey which is collected by the farmers/beekeepers from the bee-hives. 

9.  In the totality of the above said facts and circumstances where the order of the Assessing Officer in coming to the conclusion that the assessee is entitled to claim of deduction under section 10B was erroneous, there was no merit in exercise of revisionary jurisdiction by the Commissioner under section 263. Accordingly, the directions issued by the Commissioner under section 263 in setting aside the assessment made by the Assessing Officer in this regard are set aside and it is held that there was no error in the order of the Assessing Officer in granting exemption under section 10B.