The DCIT, Circle-1, Surat V. M/s. PNC Fashoins Pvt.Ltd., Surat

ITA 1489/AHD/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8965 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-03-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 15-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHIVA SEWAK
• Assessee Lawyers: ALTERNATIVE MODE. WE FIND
• Keywords: Depreciation; Additional depreciation
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 191

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD, CAMP AT SURAT BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA.NO.1489/AHD/2014 / ASSTT.YEAR : 2006-2007 DCIT, CIR.1 SURAT. VS M/S.PNC FASHIONS P.LTD. 3004, WORLD TRADE CENTRE RING ROAD SURAT 395 002. PAN : AACCP 0994 R / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI SHIVA SEWAK, SR.DR ASSESSEE BY : NONE / DATE OF HEARING : 09/03/2017 / DATE OF PRONOUNCEMENT: 16/03/2017 !'/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST OR DER OF THE LD.CIT(A)-I, SURAT DATED 10.3.2014 PASSED FOR ASSTT .YEAR 2006-07. 2. THOUGH THE REVENUE HAS TAKEN THREE GROUNDS OF AP PEAL, BUT ITS SOLE GRIEVANCE REVOLVES AROUND A SINGLE ISSUE WHEREBY IT HAS CHALLENGED GRANT OF ADDITIONAL DEPRECIATION ON EMBROIDERY MACHINES. ITA NO.1489/AHD/2014 DCIT VS. M/S.PNC FASSHIONS P.LTD. 2 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ON 31/12/2008 DECLARING TOTAL INCOME AT NIL. ON SC RUTINY OF THE ACCOUNTS, IT REVEALED TO THE AO THAT THE ASSESSEE HAS CLAIMED AD DITIONAL DEPRECIATION OF RS.74,62,887/-. HE CONFRONTED THE ASSESSEE TO DEMO NSTRATE AS TO HOW IT IS ENTITLED FOR ADDITIONAL DEPRECIATION. IN RESPONSE TO QUERY OF THE AO, THE ASSESSEE SUBMITTED A DETAILED REPLY WHICH HAS BEEN REPRODUCED BY THE AO. THE LD.AO HAS OBSERVED THAT THE ASSESSEE IS ENGAGED IN EMBROIDERY WORK ON JOB WORK BASIS. THE ALLEGED EMBROIDERY WORK DOES N OT FALL WITHIN THE AMBIT OF EXPRESSION MANUFACTURE, AND THEREFORE IT IS NO T ENTITLED FOR ADDITIONAL DEPRECIATION. ACCORDING TO THE AO, THE ADDITIONAL DEPRECIATION UNDER SECTION 32(IIA) IS ADMISSIBLE ON NEW MACHINERY INSTALLED BY AN ASSESSEE WHO IS INVOLVED IN THE BUSINESS OF MANUFACTURE OR PRODUCTI ON OF ARTICLE OR THINGS. ACCORDING TO THE UNDERSTANDING OF THE AO, EMBROIDER Y MACHINE DOES NOT MANUFACTURE OR PRODUCE ANY ARTICLE OR THINGS, THERE FORE, THE ASSESSEE IS NOT ENTITLED FOR CLAIMING OF ADDITIONAL DEPRECIATION. 4. ON APPEAL, THE LD.CIT(A) MADE REFERENCE TO THE O RDER OF ITAT PASSED IN THE CASE OF ITO VS. HARIPRIYA PROCESSORS P.LTD., ITA NO.1569/AHD/2010 AND ALLOWED DEPRECIATION. 5. IN RESPONSE TO THE NOTICE OF HEARING NO ONE HAS COME PRESENT ON BEHALF OF THE ASSESSEE. SINCE ISSUE IS COVERED AGAINST TH E REVENUE, THEREFORE, WE DID NOT EXPLORE SERVICE OF NOTICE UPON THE ASSESSEE BY ALTERNATIVE MODE. WE FIND THAT A VERBATIM ISSUE HAD COME UP BEFORE THE TRIBUN AL IN THE CASE OF ITO VS. YASH CREATION IN ITA NO.107/AHD/2012. THE DISCUSSI ON MADE BY THE TRIBUNAL IN THAT CASE READS AS UNDER: 7. THE DISPUTE IS WHETHER EMBROIDERY WORK CARR IED OUT BY THE ASSESSEE AMOUNTS TO MANUFACTURING ACTIVITY OR N OT. ITA NO.1489/AHD/2014 DCIT VS. M/S.PNC FASSHIONS P.LTD. 3 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 PR ODUCTION HAVE FALLEN FOR THEIR INTERPRETATION AND CONSTRUCTION NO T ONLY AT THE LEVEL OF ITAT BUT BEFORE THE HON'BLE SUPREME COURT ALSO A ND THE HON'BLE COURT HAS EXPLAINED BOTH THESE EXPRESSIONS IN DETAIL. A REFERENCE TO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. M/S. ARIHANT TILES & MARBLES PVT. LTD. R EPORTED IN 320 ITR 79, INDIA CINE AGENCY VS. CIT REPORTED IN 308 I TR 98, CIT VS. SESA GOA LTD. REPORTED IN 271 ITR 331 AND TO THE FO LLOWING DECISION OF HONBLE GUJARAT HIGH COURT CAN 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). 10. LET US BRING AT HOME THE MEANING OF EXPRESSION 'MANUFACTURE AND PRODUCTION' AS PROPOUNDED IN THE VARIOUS AUTHOR ITATIVE 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 'PRO DUCTION'. THE RELEVANT DISCUSSION MADE BY THE HON'BLE COURT READS AS UNDER: ITA NO.1489/AHD/2014 DCIT VS. M/S.PNC FASSHIONS P.LTD. 4 '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, MANU FACTURE IS THE END RESULT OF ONE OR MORE PROCESSES THROUGH WHICH T HE ORIGINAL COMMODITIES 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 PR OCESSING, A DIFFERENT KIND OF PROCESSING AT EACH STAGE. WITH EA CH PROCESS SUFFERED, THE ORIGINAL COMMODITY EXPERIENCES A CHAN GE. WHENEVER A COMMODITY UNDERGOES A CHANGE AS A RESULT OF SOME OPERATION PERFORMED ON IT OR IN REGARD TO IT, SUCH OPERATION WOULD AMOUNT TO PROCESSING OF THE COMMODITY. BUT IT IS ONLY WHEN TH E CHANGE OR A SERIES OF CHANGES TAKES THE COMMODITY TO THE POINT WHERE COMMERCIALLY IT CAN NO LONGER BE REGARDED AS THE OR IGINAL COMMODITY BUT INSTEAD IS RECOGNIZED AS A NEW AND DI STINCT ARTICLE THAT A MANUFACTURE CAN BE SAID TO TAKE PLACE. PROCE SS 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 OPERAT IONS. IT IS THE CUMULATIVE EFFECT OF THE VARIOUS PROCESSES TO WHICH THE RAW MATERIAL IS SUBJECTED TO THAT THE MANUFACTURED PROD UCT EMERGES. THEREFORE, EACH STEP TOWARDS SUCH PRODUCTION WOULD BE A PROCESS IN RELATION TO THE MANUFACTURE. WHERE ANY PARTICULA R PROCESS IS SO INTEGRALLY CONNECTED WITH THE ULTIMATE PRODUCTION O F GOODS THAT BUT FOR THAT PROCESS PROCESSING OF GOODS WOULD BE I MPOSSIBLE OR COMMERCIALLY INEXPEDIENT, THAT PROCESS IS ONE IN RE LATION TO THE ITA NO.1489/AHD/2014 DCIT VS. M/S.PNC FASSHIONS P.LTD. 5 MANUFACTURE. (SEE COLLECTOR OF CENTRAL EXCISE V. RA JASTHAN 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 CHARACTER. THE MOMENT THERE IS TRANSFORMATION INTO A NEW COMMODITY COMMERCIALLY KNOWN AS A DISTINCT AND SEPA RATE COMMODITY HAVING ITS OWN CHARACTER, USE AND NAME, W HETHER BE IT THE RESULT OF ONE PROCESS OR SEVERAL PROCESSES 'MAN UFACTURE' TAKES PLACE AND LIABILITY TO DUTY IS ATTRACTED. ETYMOLOGI CALLY THE WORD 'MANUFACTURE' PROPERLY CONSTRUED WOULD DOUBTLESS CO VER THE TRANSFORMATION. IT IS THE TRANSFORMATION OF A MATTE R INTO SOMETHING ELSE AND THAT SOMETHING ELSE IS A QUESTIO N OF DEGREE, 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 QUESTIO N DEPENDING UPON THE FACTS AND CIRCUMSTANCES OF THE CASE. (SEE EMPIRE INDUSTRIES 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 INT O SMALL FLATS AND ROLLS IN DESIRED SIZES. IT CLAIMED DEDUCTION UN DER SEC. 80-HH AND 80-I AS WELL AS INVESTMENT ALLOWANCE UNDER SEC. 32AB. THE CONTROVERSY AROSE WHETHER CONVERSION OF JUMBO ROLLS INTO SMALL SIZES AMOUNTS TO MANUFACTURE OR PRODUCTION, ELIGIBL E FOR DEDUCTION UNDER SEC. 32AB OR DEDUCTION UNDER SECTIONS 80-HH A ND 80-I OF THE INCOME-TAX ACT, 1961. HON'BLE SUPREME COURT HAS HELD THAT THIS ACTIVITY AMOUNTS TO MANUFACTURE OR PRODUCTION. THUS, WE THINK IT IS NOT NECESSARY TO RECAPITULATE AND RECIT E ALL THE DECISION ON THE CONSTRUCTION EXPRESSION 'MANUFACTURE'. BUT S UFFICE TO SAY THAT CORE OF ALL THE DECISIONS OF THE HON'BLE SUPRE ME COURT OR HON'BLE HIGH COURT IS TO THE EFFECT THAT BROADLY MA NUFACTURE IS A TRANSFORMATION OF AN ARTICLE, WHICH IS COMMERCIALLY DIFFERENT FROM THE ONE WHICH IS CONVERTED. IT IS A CHANGE OF ONE O BJECT TO ANOTHER FOR THE PURPOSE OF MARKETABILITY. IT BRINGS SOMETHING INTO EXISTENCE, WHICH IS DIFFERENT FROM THAT, WHICH ORIG INALLY EXISTED. THE NEW PRODUCT IS A DIFFERENT COMMODITY PHYSICALLY AS WELL AS COMMERCIALLY. THE HON'BLE COURT ALSO EXPLAINED BROA DER TEST TO ITA NO.1489/AHD/2014 DCIT VS. M/S.PNC FASSHIONS P.LTD. 6 DETERMINE WHETHER MANUFACTURE IS THERE OR NOT, IT I S PROPOUNDED THAT WHEN A CHANGE OR SERIES OF CHANGES ARE BROUGHT OUT BY APPLICATION OF PROCESSES WHICH TAKE THE COMMODIT Y TO THE POINT WHERE, COMMERCIALLY, IT CANNOT BE REGARDED AS THE O RIGINAL COMMODITY BUT IS, INSTEAD RECOGNIZED AS A DISTINCT AND NEW ARTICLE THAT HAS EMERGED AS A RESULT OF THE PROCESS. 16. THUS, IN OUR OPINION, THE MOMENT THE ASSESSEE H AS CARRIED THE EMBROIDERY WORK, THE CHARACTER OF SARI HAD CHAN GED. IT DOES NOT REMAIN THE ORIGINAL GREY SYNTHETIC CLOTH. IT H AS ITS INDEPENDENT MARKET AND VALUE IN THE MARKET OTHER TH AN THE GREY SYNTHETIC CLOTH. THUS, THE LEARNED AO FAILED TO AP PRECIATE 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 BEE N HELD THAT THE EMBROIDERY WORK IS AN ACTIVITY OF MANUFACTURE. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY MERIT IN THE A PPEAL OF THE REVENUE. IT IS DISMISSED. 6. IN THE LIGHT OF THE ABOVE, IF WE EXAMINE THE FAC TS OF THE PRESENT CASE, THEN IT WOULD REVEAL THAT THE LD.CIT(A) HAS APPRECI ATED THE CONTROVERSY IN RIGHT PERSPECTIVE. EMBROIDERY WORK IS TO BE CONSID ERED AS MANUFACTURING ACTIVITY, BECAUSE, CLOTH AFTER GETTING EMBROIDERED ON IT, HAS CHANGED ITS CHARACTER AND IT HAS ITS INDEPENDENT MARKET AND VAL UE. ITAT IN THE CASE OF YASH CREATION HAS CONSIDERED ALL THESE ASPECTS, AND THEREAFTER UPHELD THE ORDER OF THE CIT(A) FOR GRANTING OF ADDITIONAL DEPR ECIATION. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY MERIT IN THIS APPEAL OF T HE REVENUE. IT IS DISMISSED. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE COURT ON 16 TH MARCH, 2017 AT AHMEDABAD. SD/- SD/- ( AMARJIT SINGH ) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 16/03/2017