The ITO, Ward-6(4), Surat V. M/s. Yash Creation, Surat

ITA 1107/AHD/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1191 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 06-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 21-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAVIN KUMAR
• Keywords: Depreciation; Additional depreciation

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ./ ITA NO.1107/AHD/2012 WITH CO NO.154/AHD/2012 /BLOCK ASSTT. YEAR: 2008-2009 ITO, WARD - 6(4) SURAT. VS M/S.YASH CREATION G-17, NARAYAN NAGAR OPP: ANKUR FLATS PARVAT PATIA, DIST: SURAT PIN : 395 010. PAN : AAAFY 6250 A %& / (APPELLANT) '( %& / (RESPONDENT) REVENUE BY : SHRI PRAVIN KUMAR, DR ASSESSEE BY : NONE / DATE OF HEARING : 13/08/2015 / DATE OF PRONOUNCEMENT: 21/08/2015 )*/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF THE LD.CIT(A)-IV, SURAT DATED 16.2.2012 PASSED FOR ASST T.YEAR 2008-09. 2. ON RECEIPT OF NOTICE IN THE REVENUES APPEAL, TH E ASSESSEE FILED CROSS-OBJECTION BEARING NO.154/AHD/2012. 3. SOLITARY GRIEVANCE OF THE REVENUE IS THAT THE LD .CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.32,89,944/-. ITA NO.1107/AHD/2012 WITH CO 2 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF EMBROIDERY WORK ON GREY SYNTHETICS CLOTH. IT HAS FILED ITS RETURN OF INCOME ON 29.9.2008 DECLARING NIL INC OME. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT A ND NOTICE UNDER SECTION 143(2) WAS ISSUED ON 8.8.2009 WHICH WAS DUL Y SERVED UPON THE ASSESSEE. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE AO THAT THE ASSESSEE HAS CLAIMED DEPRECIATION OF RS.60,87,545/- ON THE PLANT & MACHINERY OF HAVING VALUE OF RS.1,69,46,773/-. THE ASSESSEE HAD CALCULATED THE DEPRECIATION AT NORMAL RATE OF 15% P LUS ADDITIONAL DEPRECIATION AT 20%. THIS CALCULATION HAS BEEN MAD E AS UNDER: TOTAL DEPRECIATION AS PER COMPUTATION : RS.60,87,53 0/- LESS: DEPRECIATION WHERE NO ADDL. DEPRECIATION IS CLAIMED : RS.-27,97,586/- TOTAL ADDITIONAL DEPRECIATION CLAIMED : RS. 32,89, 944/- 5. THE LD.AO HAS DISALLOWED THE CLAIM OF THE ASSESS EE ON THE GROUND THAT IT IS ENGAGED IN THE JOB WORK ACTIVITY OF EMBR OIDERY WORK ON THE SAREES . ACCORDING TO THE AO, SAREE REMAINED SAREE WHETHER OR NOT THE EMBROIDERY WORK IS BEING DONE ON THE SAME. ITS NAM E ALSO DOES NOT CHANGE. THE BASIC FEATURES OF ITEM ARE ALSO NOT CH ANGED. THE ONLY CHANGE EFFECTED IN IT IS, IN TERMS OF VALUE. THUS, THE EMBROIDERY WORK DOES NOT CONSTITUTE ANY MANUFACTURING ACTIVITY AND ASSESSEE IS NOT ENTITLED TO FOR ADDITIONAL DEPRECIATION. THE LD.A O IN THIS WAY DISALLOWED THE CLAIM OF RS.32,89,944/-. 6. ON APPEAL, THE LD.CIT(A) HAS ALLOWED THE CLAIM O F THE ASSESSEE BY OBSERVING AS UNDER: 2. ALL THE GROUNDS OF APPEAL PERTAIN TO JUST ONE G RIEVANCE OF THE APPELLANT, I.E. NOT ADMITTING CLAIM OF ADDITIONAL D EPRECIATION U/S. 32(L)(IIA) OF RS.32,89,944/- ON THE GROUND THAT THE APPELLANT WAS NOT ELIGIBLE AS HE WAS CARRYING ON EMBROIDERY WORK ON SAREES & DRESS MATERIALS WHICH DID NOT AMOUNT TO MANUFACTURI NG OR PRODUCTION. I FIND THAT THE A.O. DID NOT ALLOW THE CLAIM OF ITA NO.1107/AHD/2012 WITH CO 3 ADDITIONAL DEPRECIATION OF RS.32,89,9447- U/S. 32(L )(IIA) AS HE WAS OF THE OPINION THAT AN ACTIVITY OF EMBROIDERY CONST ITUTES ONLY VALUE ADDITION AND CANNOT BE CONSIDERED AS MANUFACT URE, A PREREQUISITE FOR GRANT OF ADDITIONAL DEPRECIATION. AGGRIEVED THE ASSESSEE IS IN APPEAL. BEFORE ME, IT HAS BEEN ARGUE D THAT THE EMBROIDERY ON FABRIC AMOUNTS TO MANUFACTURING PROCE SS AND ELIGIBLE FOR ADDITIONAL DEPRECIATION U/S. 32(L)(IIA ). IT WAS FURTHER SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF THE IT AT, AHMEDABAD BY ITS DECISION IN THE CASE OF M/S. ASWAN I INDUSTRIES, SURAT (213/AHD/2010, DATED 29.10.2010) AND HARIPRIY A PROCESSORS PVT. LTD. (1569/AHD/2010, DATED 08.09.20 09) WHEREIN IT WAS HELD THAT EMBROIDERY WORK DONE WAS AN ACTIVI TY OF MANUFACTURING AND ENTITLED TO ADDITIONAL DEPRECIATI ON U/S. 32(L)(IIA). 2.1 I HAVE GONE THROUGH THE FACTS OF THE CASE. THE RE IS NO DISPUTE REGARDING PURCHASE AND OWNERSHIP OF MACHINE RY AS NORMAL DEPRECIATION HAS BEEN ALLOWED. THE ONLY DISP UTE IS REGARDING GRANT OF ADDITIONAL DEPRECIATION WHICH HA S NOT BEEN ALLOWED ONLY FOR THE REASON THAT THE APPELLANT IS E NGAGED IN EMBROIDERY WORK WHICH DOES NOT AMOUNT TO MANUFACTUR E OR PRODUCTION. I FIND THAT THE ISSUE IS COVERED IN FAV OUR OF THE ASSESSEE BY THE DECISIONS OF THE HON'BLE ITAT, AHME DABAD IN THE CASES CITED ABOVE. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, IT IS HELD THAT THE APPELLANT IS ENTITLED TO ADDITIONAL D EPRECIATION U/S. 32(L)(IIA). THE A.O. IS THEREFORE DIRECTED TO ALLOW THE CLAIM OF ADDITIONAL DEPRECIATION. THIS GROUND IS ALLOWED. 7. WITH THE ASSISTANCE OF LEARNED DR, WE HAVE GONE THROUGH THE RECORD CAREFULLY. SECTION 32(1)(IIA) OF THE INCOME TAX ACT PROVIDES THAT IN THE CASE OF ANY NEW MACHINERY OR PLANT, WHICH HA S BEEN ACQUIRED AND INSTALLED AFTER THE 31 ST DAY OF MARCH, 2005, BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY AR TICLE OR THING, A FURTHER SUM EQUAL TO 20% OF THE ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTION UNDER CLAUSE (II). M EANING THEREBY, IF AN ASSESSEE HAS ACQUIRED AND INSTALLED MACHINERY AFTER 31 ST MARCH, 2005, AND SUCH ASSESSEE IS ENGAGED IN THE BUSINESS OF MAN UFACTURING AND PRODUCTION OF ANY ARTICLE OR THING, THEN APART FROM NORMAL DEPRECIATION THE ASSESSEE WOULD GET 20% OF THE ACTUAL COST AS AD DITIONAL DEPRECIATION. AS FAR AS THE APPLICABILITY OF THIS SECTION IS CONCERNED, ITA NO.1107/AHD/2012 WITH CO 4 THAT HAS NOT BEEN DISPUTED BY THE PARTIES. THE DIS PUTE IS WHETHER EMBROIDERY WORK CARRIED OUT BY THE ASSESSEE AMOUNTS TO MANUFACTURING ACTIVITY OR NOT. 8. THE EXPRESSION 'MANUFACTURE' HAS BEEN DEFINED IN SECTION 2(29)(B)(A) WHICH READ AS UNDER: '(29BA) 'MANUFACTURE', WITH ITS GRAMMATICAL VARIATI ONS, MEANS A CHANGE IN A NON-LIVING PHYSICAL OBJECT OR ARTICLE O R THING,- (A) RESULTING IN TRANSFORMATION OF THE OBJECT OR AR TICLE OR THING INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVIN G A DIFFERENT NAME, CHARACTER AND USE; OR (B) BRINGING INTO EXISTENCE OF A NEW AND DISTINCT O BJECT OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSITION OR I NTEGRAL STRUCTURE'. 9. HOWEVER, EXPRESSION 'PRODUCTION' HAS NOT BEEN DE FINED IN THE ACT. THE EXPRESSION 'MANUFACTURE' AS WELL AS PRODUCTION HAVE FALLEN FOR THEIR INTERPRETATION AND CONSTRUCTION NOT ONLY AT THE LEV EL OF ITAT BUT BEFORE THE HON'BLE SUPREME COURT ALSO AND THE HON'BLE COUR T HAS EXPLAINED BOTH THESE EXPRESSIONS IN DETAIL. A REFERENCE TO TH E DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. M/S. ARIHANT T ILES & MARBLES PVT. LTD. REPORTED IN 320 ITR 79, INDIA CINE AGENCY VS. CIT REPORTED IN 308 ITR 98, CIT VS. SESA GOA LTD. REPORTED IN 271 ITR 3 31 AND TO THE FOLLOWING DECISION OF HONBLE GUJARAT HIGH COURT CA N BE MADE : (A) CIT VS. NEOKARNA REPORTED IN 137 ITR 879 (BOMBA Y) (B) CIT VS. ANGLO FRENCH DRUG CO. LTD. REPORTED IN 191 ITR 92 (BOM.) (C) CIT VS. PRABHUDASS KISHORE DASS TOBACCO PRODUCT S REPORTED IN 282 ITR 568 (GUJARAT). ITA NO.1107/AHD/2012 WITH CO 5 10. LET US BRING AT HOME THE MEANING OF EXPRESSION 'MANUFACTURE AND PRODUCTION' AS PROPOUNDED IN THE VARIOUS AUTHORITAT IVE PRONOUNCEMENTS OF THE HON'BLE SUPREME COURT AS WELL AS OF HON'BLE HIGH COURT. 11. IN THE CASE OF INDIA CINE AGENCY, HON'BLE SUPRE ME COURT HAS CONSIDERED THE JUDGMENT RENDERED IN THE CASE OF SES A GOA (SUPRA) AND ALL OTHER DECISIONS ON THE POINT WHICH CONTEMPLATE THE MEANING OF EXPRESSION 'MANUFACTURE' AS WELL AS 'PRODUCTION'. T HE RELEVANT DISCUSSION MADE BY THE HON'BLE COURT READS AS UNDER : '2. AS NOTED ABOVE, THE CORE ISSUE IS WHETHER ACTIV ITY UNDERTAKEN WAS MANUFACTURE OR PRODUCTION. 3. IN BLACK'S LAW DICTIONARY (5TH EDITION), THE WOR D 'MANUFACTURE' HAS BEEN DEFINED AS, 'THE PROCESS OR OPERATION OF M AKING GOODS OR ANY MATERIAL PRODUCED BY HAND, BY MACHINERY OR BY O THER AGENCY; BY THE HAND, BY MACHINERY, OR BY ART. THE PRODUCTIO N OF ARTICLES FOR USE FROM RAW OR PREPARED MATERIALS BY GIVING SU CH MATERIALS NEW FORMS, QUALITIES, PROPERTIES OR COMBINATIONS, W HETHER BY HAND LABOUR OR MACHINE'. THUS BY PROCESS OF MANUFACTURE SOMETHING IS PRODUCED AND BROUGHT INTO EXISTENCE WHICH IS DIFFER ENT FROM THAT, OUT OF WHICH IT IS MADE IN THE SENSE THAT THE THING PRODUCED IS BY ITSELF A COMMERCIAL COMMODITY CAPABLE OF BEING SOLD OR SUPPLIED. THE MATERIAL FROM WHICH THE THING OR PRODUCT IS MAN UFACTURED MAY NECESSARILY LOSE ITS IDENTITY OR MAY BECOME TRA NSFORMED INTO THE BASIC OR ESSENTIAL PROPERTIES. (SEE DY. CST (LA W), BOARD OF REVENUE (TAXES) COCO FIBRES [1992] SUPP. 1 SCC 290) . 12. MANUFACTURE IMPLIES A CHANGE BUT EVERY CHANGE IS NOT MANUFACTURE, YET EVERY CHANGE OF AN ARTICLE IS THE RESULT OF TREATMENT, LABOUR AND MANIPULATION. NATURALLY, MANUFACTURE IS THE END RESULT OF ONE OR MORE PROCESSES THROUGH WHICH THE ORIGINAL COMMOD ITIES ARE MADE TO PASS. 13. THE NATURE AND EXTENT OF PROCESSING MAY VARY FR OM ONE CLASS TO ANOTHER. THERE MAY BE SEVERAL STAGES OF PROCESSING, A DIFFERENT KIND OF PROCESSING AT EACH STAGE. WITH EACH PROCESS SUFFERE D, THE ORIGINAL ITA NO.1107/AHD/2012 WITH CO 6 COMMODITY EXPERIENCES A CHANGE. WHENEVER A COMMODIT Y UNDERGOES A CHANGE AS A RESULT OF SOME OPERATION PERFORMED ON I T OR IN REGARD TO IT, SUCH OPERATION WOULD AMOUNT TO PROCESSING OF THE CO MMODITY. BUT IT IS ONLY WHEN THE CHANGE OR A SERIES OF CHANGES TAKES T HE COMMODITY TO THE POINT WHERE COMMERCIALLY IT CAN NO LONGER BE RE GARDED AS THE ORIGINAL COMMODITY BUT INSTEAD IS RECOGNIZED AS A N EW AND DISTINCT ARTICLE THAT A MANUFACTURE CAN BE SAID TO TAKE PLAC E. PROCESS IN MANUFACTURE OR IN RELATION TO MANUFACTURE IMPLIES N OT ONLY THE PRODUCTION BUT ALSO VARIOUS STAGES THROUGH WHIC H THE RAW MATERIAL IS SUBJECTED TO CHANGE BY DIFFERENT OPERATIONS. IT IS THE CUMULATIVE EFFECT OF THE VARIOUS PROCESSES TO WHICH THE RAW MA TERIAL IS SUBJECTED TO THAT THE MANUFACTURED PRODUCT EMERGES. THEREFORE, E ACH STEP TOWARDS SUCH PRODUCTION WOULD BE A PROCESS IN RELATION TO T HE MANUFACTURE. WHERE ANY PARTICULAR PROCESS IS SO INTEGRALLY CONNE CTED WITH THE ULTIMATE PRODUCTION OF GOODS THAT BUT FOR THAT PROC ESS PROCESSING OF GOODS WOULD BE IMPOSSIBLE OR COMMERCIALLY INEXPEDIE NT, THAT PROCESS IS ONE IN RELATION TO THE MANUFACTURE. (SEE COLLECTOR OF CENTRAL EXCISE V. RAJASTHAN STATE CHEMICAL WORKS [1991] 4 SCC 473). X X X X X X X X X X X X X X X X X X X X X X 14. TO PUT IT DIFFERENTLY, THE TEST TO DETERMINE WH ETHER A PARTICULAR ACTIVITY AMOUNTS TO 'MANUFACTURE' OR NOT IS: DOES A NEW AND DIFFERENT GOOD EMERGE HAVING DISTINCTIVE NAME, USE AND CHARAC TER. THE MOMENT THERE IS TRANSFORMATION INTO A NEW COMMODITY COMMER CIALLY KNOWN AS A DISTINCT AND SEPARATE COMMODITY HAVING ITS OWN CHAR ACTER, USE AND NAME, WHETHER BE IT THE RESULT OF ONE PROCESS OR SE VERAL PROCESSES 'MANUFACTURE' TAKES PLACE AND LIABILITY TO DUTY IS ATTRACTED. ETYMOLOGICALLY THE WORD 'MANUFACTURE' PROPERLY CONS TRUED WOULD DOUBTLESS COVER THE TRANSFORMATION. IT IS THE TRANS FORMATION OF A MATTER INTO SOMETHING ELSE AND THAT SOMETHING ELSE IS A QU ESTION OF DEGREE, ITA NO.1107/AHD/2012 WITH CO 7 WHETHER THAT SOMETHING ELSE IS A DIFFERENT COMMERCI AL COMMODITY HAVING ITS DISTINCT CHARACTER, USE AND NAME AND COM MERCIALLY KNOWN AS SUCH FROM THAT POINT OF VIEW, IS A QUESTION DEPENDI NG UPON THE FACTS AND CIRCUMSTANCES OF THE CASE. (SEE EMPIRE INDUSTRI ES LTD. V. UNION OF INDIA [1985] 3 SCC 314). X X X X X X X X X X X X X X X X X X X X X X 15. IN THIS CASE, ASSESSEE WAS CARRYING ON BUSINES S OF CONVERSION OF JUMBO ROLLS OF PHOTOGRAPHIC FILMS INTO SMALL FLATS AND ROLLS IN DESIRED SIZES. IT CLAIMED DEDUCTION UNDER SEC. 80-HH AND 80 -I AS WELL AS INVESTMENT ALLOWANCE UNDER SEC. 32AB. THE CONTROVER SY AROSE WHETHER CONVERSION OF JUMBO ROLLS INTO SMALL SIZES AMOUNTS TO MANUFACTURE OR PRODUCTION, ELIGIBLE FOR DEDUCTION UNDER SEC. 32AB OR DEDUCTION UNDER SECTIONS 80-HH AND 80-I OF THE INCOME-TAX ACT , 1961. HON'BLE SUPREME COURT HAS HELD THAT THIS ACTIVITY AMOUNTS T O MANUFACTURE OR PRODUCTION. THUS, WE THINK IT IS NOT NECESSARY TO R ECAPITULATE AND RECITE ALL THE DECISION ON THE CONSTRUCTION EXPRESSION 'MA NUFACTURE'. BUT SUFFICE TO SAY THAT CORE OF ALL THE DECISIONS OF TH E HON'BLE SUPREME COURT OR HON'BLE HIGH COURT IS TO THE EFFECT THAT B ROADLY MANUFACTURE IS A TRANSFORMATION OF AN ARTICLE, WHICH IS COMMERCIAL LY DIFFERENT FROM THE ONE WHICH IS CONVERTED. IT IS A CHANGE OF ONE OBJEC T TO ANOTHER FOR THE PURPOSE OF MARKETABILITY. IT BRINGS SOMETHING INTO EXISTENCE, WHICH IS DIFFERENT FROM THAT, WHICH ORIGINALLY EXISTED. THE NEW PRODUCT IS A DIFFERENT COMMODITY PHYSICALLY AS WELL AS COMMERCIA LLY. THE HON'BLE COURT ALSO EXPLAINED BROADER TEST TO DETERMINE WHET HER MANUFACTURE IS THERE OR NOT, IT IS PROPOUNDED THAT WHEN A CHANGE O R SERIES OF CHANGES ARE BROUGHT OUT BY APPLICATION OF PROCESSES WHICH T AKE THE COMMODITY TO THE POINT WHERE, COMMERCIALLY, IT CANNOT BE REGA RDED AS THE ORIGINAL COMMODITY BUT IS, INSTEAD RECOGNIZED AS A DISTINCT AND NEW ARTICLE THAT HAS EMERGED AS A RESULT OF THE PROCESS. ITA NO.1107/AHD/2012 WITH CO 8 16. THUS, IN OUR OPINION, THE MOMENT THE ASSESSEE H AS CARRIED THE EMBROIDERY WORK, THE CHARACTER OF SARI HAD CHANGED. IT DOES NOT REMAIN THE ORIGINAL GREY SYNTHETIC CLOTH. IT HAS I TS INDEPENDENT MARKET AND VALUE IN THE MARKET OTHER THAN THE GREY SYNTHET IC CLOTH. THUS, THE LEARNED AO FAILED TO APPRECIATE THIS ASPECT. 17. WE FURTHER, FIND THAT THE LD.FIRST APPELLATE AU THORITY HAS APPRECIATED THE CONTROVERSY IN RIGHT PERSPECTIVE AS WELL AS FOLLOWED THE ORDER OF THE ITAT, WHEREIN, IT HAS BEEN HELD THAT T HE EMBROIDERY WORK IS AN ACTIVITY OF MANUFACTURE. IN VIEW OF THE ABOVE D ISCUSSION, WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE REVENUE. IT IS DISMISSED. CO NO.154/AHD/2012 18. AS FAR AS CO IS CONCERNED, SECTION 253(4) AUTHO RIZES THE RESPONDENT TO FILE CO ON RECEIPT OF NOTICE IN APPEA L. SUCH CO WOULD BE VERIFIED IN THE PRESCRIBED MANNER, AND IT IS TO BE FILED AGAINST ANY PART OF THE IMPUGNED ORDER. IN THE PRESENT CASE, THE AS SESSEE HAS NOT POINTED OUT ITS GRIEVANCE AGAINST ANY PART OF THE C IT(A)S ORDER. THE CO IS BEING FILED IN SUPPORT OF THE CIT(A)S FINDING, THEREFORE, IT IS NOT MAINTAINABLE. IN VIEW OF THE ABOVE DISCUSSION, CO IS ALSO REJECTED. 19. IN THE RESULT, APPEAL OF THE REVENUE AND THE CO OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 21 ST AUGUST, 2015 AT AHMEDABAD. SD/- SD/- (ANIL CHATURVEDI) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 21/08/2015