The ITO, Ward-1(2), Surat V. M/s. Haripriya Processors Pvt.Ltd., Surat

ITA 1569/AHD/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9955 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 08-09-2010
• Assessment Year: 2007-2008
• Appeal Filed On: 13-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K JHA SRDR
• Keywords: Depreciation; Additional depreciation
• Section: 32(1)(iia)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH SMC AHMEDABAD BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.1569/AHD/2010 ASSESSMENT YEAR:2007-08 DATE OF HEARING:8.9.10 DRAFTED:8.9.10 INCOME TAX OFFICER, WARD-1(2), SURAT V/S . HARIPRIYA PROCESSORS PVT. LTD., 707, JEEVANDEEP COMPLEX, RING ROAD, SURAT PAN NO.AABCH7365P (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI S.K. JHA, SR-DR RESPONDENT BY:- SHRI HARDIK VORA, AR O R D E R THIS APPEAL BY THE REVENUE IS ARISING OUT OF THE O RDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-I, SURAT IN APPEAL NO.CAS-I/14 5/09-10 DATED 10-03-2010. THE ASSESSMENT WAS FRAMED BY ITO WARD-1(2), SURAT U/S.1 43(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HI S ORDER DATED 30-11-2009 FOR THE ASSESSMENT YEAR 2007-08. 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) IN DELETING THE ADDITION MADE BY ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF CLAIM OF ADDITIONAL DEPRECIATION. FOR THIS, REVENUE HAS R AISED THE FOLLOWING GROUND NO.1 :- 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY T HE AO ON ACCOUNT OF CLAIM OF ADDITIONAL DEPRECIATION OF RS.9,45,450/-. 3. THE BRIEF FACTS ARE THAT THE ASSESSEE ENGAGED IN THE ACTIVITY OF EMBROIDERY WORKS ON FABRICS ON JOB WORK BASIS. ACCORDING TO TH E ASSESSING OFFICER THE BUSINESS OF EMBROIDERY WORK ON JOB WORK BASIS IS NOT A MANUF ACTURING ACTIVITY, HENCE, THE ADDITIONAL DEPRECIATION CLAIMED BY ASSESSEE CANNOT BE ALLOWED AND ACCORDINGLY HE MADE DISALLOWANCE OF ADDITIONAL DEPRECIATION CLAIME D AT RS.9,45,450/-. IN THE ITA NO.1569/AHD/2010 A.Y. 2007-08 ITO WD-1(2), SRT V. HARIPRIYA PROCESSORS PVT. LTD. PAGE 2 ASSESSMENT ORDER, AO NOTED THAT THE ASSESSEE HAS CL AIMED DEPRECIATION OF RS.17,65,557/- ON COMPUTER EMBROIDERY MACHINE, WHIC H WAS PURCHASED AFTER 30-09- 2006 AND ASSESSEE CLAIMED DEPRECIATION @ 35%. THE A O NOTED THAT DEPRECIATION ALLOWABLE ON PLANT & MACHINERY IS PRESCRIBED AS PER I.T. RULES, 1962 @ 15%. THE ASSESSEE CLAIMED THAT AS PER SECTION 32(1)(IIA) OF THE ACT IF ANY NEW MACHINERY AND PLANT IS ACQUIRED AND INSTALLED AFTER 30-03-2005 IN THE MANUFACTURE OR PRODUCTION OF ANYTHING, ADDITIONAL DEPRECIATION OF 20% WILL BE AL LOWED AS DEDUCTION. THE ASSESSEE CLAIMED THAT IT IS MANUFACTURING CONCERN ENTITLED F OR ADDITIONAL 20% DEPRECIATION. ACCORDING TO THE ASSESSING OFFICER, IN VIEW OF DETA ILS FURNISHED, IT IS ENGAGED IN THE BUSINESS OF EMBROIDERY WORK ON JOB WORK BASIS WHICH IS NOT A MANUFACTURING ACTIVITY. THE ASSESSEE WAS THEREFORE ISSUED A LETTER TO SHOW CAUSE AS TO WHY DEPRECIATION SHOULD NOT BE RESTRICTED TO 15% AND EXTRA CLAIM OF 20% SHOULD NOT BE DISALLOWED AND ADDED TO ITS TOTAL INCOME VIDE SHOW CAUSE NOTICE DA TED 12-11-2009. THE ASSESSEE REPLIED BUT THE AO STATED THAT THE REPLY IS NOT ACC EPTABLE IN VIEW OF THE CLEAR-CUT PROVISIONS OF SECTION 32(1)(IIA) OF THE ACT. ACCORD INGLY, THE ASSESSING OFFICER DISALLOWED THE ADDITIONAL DEPRECIATION CLAIMED BY T HE ASSESSEE. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). 4. THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY GIVING FOLLOWING FINDING IN PARA-3.3 OF HIS APPELLATE ORDER:- 3.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND THE OBSERVATION OF THE A.O. THE CASE OF THE APPELLANT I S COVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF S.S.M. BROS. PVT. LD. & OTHERS (243-ITR-418) WHEREIN THE HONBLE SUPREME COURT STA TED AS UNDER:- 6. WHEN BOTH THE PROVISIONS ARE READ TOGETHER THIS IS THE RESULT: WHERE THE MACHINERY OR PLANT IS INSTALLED FOR THE PURPOSE OF THE BUSINESS OF PRODUCTION OF TEXTILES, INCLUDING THOSE DYED, PRINT ED OR OTHERWISE PROCESSED, MADE WHOLLY OR MAINLY OUT OF COTTON, THE ASSESSEE IS ENTITLED TO THE DEDUCTION OF THE DEVELOPMENT REBATE THE UNDER. WHAT IS IMPORTANT IS THAT THIS DEVELOPMENT REBATE IS AVAILA BLE IF THE MACHINERY OR PLANT IS INSTALLED FOR THE PURPOSES OF THE BUSIN ESS OF THE PRODUCTION OF TEXTILES, INCLUDING THOSE OTHERWISE PROCESSED. IF THE MACHINERY OR PLANT IS REQUIRED TO BE UTILIZED IN THE PRODUCTION OF SUCH TEXTILES, AT WHATEVER SAGE, THE ASSESSEE IS ENTITLED TO THE BENE FIT OF THE DEVELOPMENT REBATE. IT IS NOT DISPUTED FAIRLY THAT IF THE ASSESSEE HAD BEEN PRODUCING THE EMBROIDERED CLOTH STARTING FROM SCRATCH, THAT IS, BY STARTING WITH COTTON, THIS MACHINERY WOULD HAVE BEE N ENTITLED TO BE CONSIDERED FOR THE PURPOSES OF SUCH DEVELOPMENT REB ATE. ITA NO.1569/AHD/2010 A.Y. 2007-08 ITO WD-1(2), SRT V. HARIPRIYA PROCESSORS PVT. LTD. PAGE 3 WE ARE OF THE VIEW THAT IT MAKES NO DIFFERENCE THAT IN THE PARTICULAR CASE, THE ASSESSEE BUYS THE CLOTH AND THEN PROCESSE S IT, USING THE MACHINERY, BY EMBROIDERING IT AND, IN SOME CASES, B Y DYEING IT. THE ASSESSEE UTILIZES THE MACHINERY IN THE PRODUCTION O F PROCESSED TEXTILES. THEREFORE, THE MACHINERY IS ENTITLED TO THE DEVELOP MENT REBATE UNDER S.33(1)(B)(B)(I). THE QUESTION HAS, THEREFORE, TO B E ANSWERED IN THE AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. IN VIEW OF THE ABOVE, THE DISALLOWANCE MADE BY THE A.O IS DELETED AND THIS GROUND OF APPEAL IS ALLOWED. AGGRIEVED, REVENUE CAME IN APPEAL BEFORE TRIBUNAL. 5. I HAVE HEARD THE RIVAL CONTENTIONS AND GONE THRO UGH THE FACTS AND CIRCUMSTANCES OF THE CASE. I FIND FROM THE FACTS TH AT THE ASSESSEE IS DOING EMBROIDERY WORK ON JOB WORK BASIS AND SAID ACTIVITY ALSO RESULTS IN PRODUCTION OF NEW ARTICLE WHICH HAS DIFFERENT MARKET OF ITS OWN AND T HERE ARE VARIOUS STAGES WHICH ARE INVOLVED IN EMBROIDERY ACTIVITY AND THE SAME CAN BE BRIEFLY CATEGORIZED AS UNDER:- I) CREATING A DIGITALIZED EMBROIDERY DESIGN FILE; II) EDITING THE DESIGN AND/OR COMBINING IT WITH OTH ER DESIGN (OPTIONAL); III) LOAD THE FINAL DESIGN FILE INTO THE EMBROIDERY MACHINE; IV) STABILIZE THE FABRIC AND PLACE IT IN THE MACHIN E; V) START AND MONITOR THE EMBROIDERY MACHINE; AND BECAUSE OF THE ABOVE PROCESS WHICH HAS TO BE CA RRIED OUT IN VERY CAREFUL MANNER THE OUTPUT I.E. EMBROIDERED FABRICS HAS ENTI RELY DIFFERENT LOOKS AND HAS DIFFERENT COMMERCIAL VALUE AND THUS, BECAUSE OF ABO VE OPERATIONS NEW COMMODITY EMERGES. THE EXPRESSIONS MANUFACTURE AND PRODUCE HAVE NOT BEEN DEFINED IN THE ACT AT THE RELEVANT POINT OF TIME BUT THE DICTIONAR Y MEANING OF MANUFACTURE IS TO TRANSFORM OR FASHION NEW MATERIAL INTO A CHANGED FO RM FOR USE. BECAUSE OF THE ABOVE OPERATIONS CARRIED OUT BY ASSESSEE, THE LOOK OF THE FABRIC IS CHANGED SUBSTANTIALLY AND THE NEW ARTICLE IS COMMERCIALLY KNOWN DIFFERENT LY FROM THE ORIGINAL FABRICS. EVEN OTHERWISE, THE WORD PRODUCT HAS A WIDER CONNOTATI ON THAN THE WORK MANUFACTURE AND RELIANCE PLACED BY THE ASSESSEE ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF S.S.M. BROTHERS (P) LTD. & OTHERS V. CIT (2000) 243 ITR 418 (SC), WHEREIN THE DEVELOPMENT REBATE CLAIMED U/S.33(1)(B)(B)(I) W AS ALLOWED BY HOLDING THAT THE PLANT AND MACHINERY WERE USED IN THE PRODUCTION OF PROCESSED TEXTILES (EMBROIDERY) ITA NO.1569/AHD/2010 A.Y. 2007-08 ITO WD-1(2), SRT V. HARIPRIYA PROCESSORS PVT. LTD. PAGE 4 AND THEREFORE, THE MACHINERY IS ENTITLED TO DEVELOP MENT REBATE UNDER THE ABOVE PROVISIONS. SECTION 33(1)(B)(B)(I) PROVIDES FOR DEV ELOPMENT REBATE ON MACHINERY OR PLANT WHICH IS INSTALLED FOR THE PURPOSE OF BUSINES S OF CONSTRUCTION, MANUFACTURE OR PRODUCTION OF ANY ONE OR MORE OF THE ARTICLES OR TH INGS SPECIFIED IN THE LIST IN THE FIFTH SCHEDULE. THE RATIO OF ABOVE DECISION OF HONBLE SU PREME COURT IS DIRECTLY APPLICABLE TO FACTS OF THE INSTANT CASE BECAUSE SEC .32(1)(IIA) ALSO PROVIDES FOR ADDITIONAL DEPRECIATION IN RESPECT OF NEW MACHINERY AND PLANT PURCHASED BY ASSESSEE WHO IS ENGAGED IN THE BUSINESS OF MANUFACT URE OF PRODUCTION OF ANY ARTICLE OR THING. IN THE ABOVE CASE THE HONBLE SUPREME COU RT HAS ALREADY HELD THAT ASSESSEE WAS USING MACHINERY IN PRODUCTION OF PROCE SSED TEXTILE I.E. EMBROIDERY WORK AND THUS, THE FACT EMBROIDERY WORK IS REGARDED AS PRODUCTION CANNOT BE DENIED. SECTION 32(1)(IIA) ALSO USED THE WORD PRODUCTION O F ANY ARTICLE OR THING AND THUS, THE PRODUCT WITH EMBROIDERY WORK IS INCLUDED IN THE WOR K ANY ARTICLE OR THING. IN FACT THE PROVISIONS OF SECTION 32(1)(IIA) ARE LARGER IN SCOP E AS COMPARED TO SECTION 33(10(B)(B)(I) INASMUCH AS SECTION 32(1)(IIA) PROVI DES FOR ADDITIONAL DEPRECIATION ON PLANT AND MACHINERY WHICH IS USED IN THE PRODUCTION /MANUFACTURE OF ANY ARTICLE OR THING WHEREAS SECTION 33(10(B)(B)(I) PROVIDES FOR D EVELOPMENT REBATE ON PLANT AND MACHINERY WHICH IS USED IN THE CONSTRUCTION, MANUFA CTURE OR PRODUCTION OF ANY ARTICLE OR THING WHICH IS LISTED IN THE FIFTH SCHEDULE. IN VIEW OF THESE FACTS AND THE DECISION OF HONBLE SUPREME COURT THE ADDITIONAL DEPRECIATIO N CLAIMED BY ASSESSEE IS REQUIRED TO BE ALLOWED AS PLANT AND MACHINERY IS US ED IN THE PRODUCTION OF EMBROIDERY FABRICS. I FURTHER FIND THAT EVEN FROM T HE ANGLE OF LEVY OF EXCISE DUTY UNDER CENTRAL EXCISE ACT, THIS EMBROIDERY IS SUBJEC T TO LEVY OF DUTY AND CONSIDERED AS MANUFACTURE. THE RELEVANT TARIFF ITEM 5810 READS AS UNDER:- SECTION XI 350 CHAPTER 58 TARIFF ITEM (1) DEPRECIATION OF GOODS (2) UNIT (3) RATE OF DUTY (4) 5810 EMBROIDERY IN THE PIECE, IN STRIPS ON IN MOTIFS 5810 10 00 EMBROIDERY WITHOUT VISIBLE GROUND KG. 8% OTHER EMBROIDERY; 5810 91 00 OF COTTON KG. 8% 5810 92 OF MAN-MADE FIBRES; ITA NO.1569/AHD/2010 A.Y. 2007-08 ITO WD-1(2), SRT V. HARIPRIYA PROCESSORS PVT. LTD. PAGE 5 5810 92 10 EMBROIDERED BADGES, MOTIFS AND THE LIKE KG. 8% 5810 92 90 OTHER KG. 8% 5810 99 00 OF OTHER TEXTILE MATERIALS KG 8% AS THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE A SSESSEE, WE ALLOW THE CLAIM OF THE ASSESSEE. THIS ISSUE OF REVENUES APPEAL IS DISMISS ED. 6. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) IN DELETING THE ADDITION MADE BY ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENDITURE. FOR THIS, REVENUE HAS RAISED THE FOLLOWING GROUND NO.2 :- 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY T HE AO ON ACCOUNT OF INTEREST EXPENDITURE OF RS.24,514/-. 7. HAVING HEARD THE RIVAL CONTENTIONS AND GOING THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. I FIND THAT THE ASSESSIN G OFFICER HAS STATED THAT THE ASSESSEE HAD DEBIT BALANCE OF RS.29,003/- IN THE CA SE OF A SISTER CONCERN, NAMELY, HARIPRIYA EMBROIDERY AND DETAILS SHOWED THAT AN EMB ROIDERY MACHINE WAS SOLD ON 07-11-2006 AND THE AMOUNT WAS RECEIVED IN INSTALLME NT. THE AO STATED THAT SINCE THE ASSESSEE HAS TAKEN HUGE INTEREST BEARING LOAN, THEREFORE, WHY THE INTEREST BE NOT DISALLOWED TO THE EXTENT OF 12% ON THIS SALE AMOUNT OF OUTSTANDING IN THE CASE OF SISTER CONCERN. THE ASSESSEE REPLIED THAT IT IS A C OMMERCIAL TRANSACTION AS THE MACHINE WAS SOLD ON 07-11-2006 AT RS.12,17,876/- AN D AMOUNT WAS RECEIVED IN INSTALLMENT TILL 09-02-2007 AND ONLY AMOUNT OF RS.2 9,003/- WAS OUTSTANDING ON 31- 03-2007 AND ASSESSEE STATED THAT IT WAS COMMERCIAL TRANSACTION AND NOTHING TO DO WITH LOAN AND ADVANCES. THE AO DID NOT ACCEPT THE A BOVE EXPLANATION AND DISALLOWED THE INTEREST OF RS.24,514/-. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). 8. THE CIT(A) ALLOWED THE CLAIM OF ASSESSEE BY HOLD ING IN PARA-2.3 OF HIS APPELLATE ORDER AS UNDER:- 2.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND THE OBSERVATION OF THE A.O. I AGREE WITH THE APPELLANT THAT SALE OF MACHINERY IS COMMERCIAL TRANSACTION ON WHICH SALE PROCEEDINGS CA N BE OBTAINED IN ITA NO.1569/AHD/2010 A.Y. 2007-08 ITO WD-1(2), SRT V. HARIPRIYA PROCESSORS PVT. LTD. PAGE 6 INSTALLMENT. THERE IS A COMMERCIAL EXPEDITIOUS SHOW N. THE DISALLOWANCE OF RS.24,514/- IS, THEREFORE, DELETED AND THIS GROUND OF APPEAL IS ALLOWED. 9. I FIND THAT FACTUALLY THIS IS A COMMERCIAL TRANS ACTION AND NOW BEFORE ME THE LD. SR-DR COULD NOT ADDUCE ANYTHING THAT THIS TRANSACTI ON IS A LOAN OR DEPOSIT GIVEN TO SISTER CONCERN. IN THE ABSENCE OF ANYTHING, I AM OF THE VIEW THAT THE CIT(A) HAS RIGHTLY DELETED THE ADDITION HOLDING THE TRANSACTIO N AS COMMERCIAL TRANSACTION. ACCORDINGLY, I CONFIRM THE ORDER OF CIT(A) ON THIS ISSUE AND REVENUES ISSUE IS DISMISSED. 10. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 08/09/2009 SD/- (MAHAVIR SING H) (JUDICIAL MEMBER) AHMEDABAD, DATED : 08/09/2009 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-I, SURAT 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR IT AT, AHMEDABAD