Buchepalli Subba Reddy, Chimakurthy V. THE ACIT, Guntur

ITA 189/VIZ/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6446 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 8 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 18-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M N M NAIK
• Assessee Lawyers: T CHAITANYA KUMAR
• Keywords: Depreciation; Additional depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO , HONBLE JUDICIAL MEMBER & SHRI G. MANJUNATHA, HONBLE ACCOUNTANT MEMBER ITA NO. 1 89 / VIZ /201 5 (ASST. YEAR : 20 06 - 07 ) SRI BUCHEPALLI SUBBA REDDY, PROP. SRI SURYA GRANITES, KOTI REDDY BAZAR, GANDHINAGAR, CHIMAKURTHY, PRAKASAM DISTRICT. V . A CIT, CIRCLE - 2(1), GUNTUR. PAN NO. ABNPB 7048 K (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI T. CHAITANYA KUMAR ADV. DEPARTMENT BY : SHRI M.N.M. NAIK SR. DR DATE OF HEARING : 09 / 02 /201 7 . DATE OF PRONOUNCEMENT : 17 / 02 /201 7 . O R D E R PER V. DURGA RAO, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS - 1 ) , GUNTUR , DATED 27 /0 3 /201 5 FOR THE ASSESSMENT YEAR 2006 - 07 . 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS IN THE BUSINESS OF GRANITE QUARRY , CUTTING AND POLISHING OF SLABS & TILES, FILED ITS RETURN OF INCOME BY CLAIMING ADDITIONAL DEPRECIATION ON PLANT & MACHINERY TO THE TUNE OF 62,78,247/ - . THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND TH A T THE BUSINESS OF 2 ITA NO. 189 / VIZ /201 5 THE ASSESSEE DOES NOT AMOUNT TO PRODUCTION OR MANUFACTURING OF ARTICLES OR THINGS. 3 . ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 4 . ON BEING AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE TR IBUNAL . 5. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT GRANITE QUARRY , CUTTING AND POLISHING OF SLABS IS AMOUNTING TO MANUFACTURE OR PRODU TION OF ARTICLE & THING, THEREFORE, THE ASSESSEE IS ENTITLED FOR ADDITIONAL DEPRECIATION. FOR TH AT , HE RELIED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF ITO VS. M/S. ARIHANT TILES & MARBLES (P) LTD . (328 ITR 79) AND ALSO THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL AT BANGALORE IN THE CASE OF ACIT VS. P. MAYILVAGANAN [(2014) 41 CCH 186 (BANG. TRIB.)] . 6 . ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 7 . WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW . 8 . THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS IN THE BUSINESS OF GRANITE QUARRY , CUTTING AND POLISHING AND CLAIMED ADDITIONAL DEPRECIATION UNDER SECTION 32(1 )( I I A) OF THE INCOME TAX ACT, 1961 . THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND TH A T THE ACTIVITI ES CARRIED OUT WERE NOT AMOUNTING TO MANUFACTURE OR PRODUCTION OF ARTICLE OR THIN G , THEREFORE, NOT ENTITLED FOR ADDITIONAL DEPRECIATION. 3 ITA NO. 189 / VIZ /201 5 WHETHER THE ASSESSEE S ACTIVIT IES WOULD FALL WITHIN THE MEANING OF MANUFACTURE OR PRODUCTION OF ARTICLE OR THING HAS BEEN CONSIDERED BY THE HON'BLE SUPREME COURT IN THE CASE OF M/S. ARIHANT TILES & MARBLES (P) LTD. (SUPRA) WHEREIN IT HAS BEEN HELD AS UNDER: - 15. IN THE PRESENT CASE, WE HAVE EXTRACTED IN DETAIL THE PROCESS UNDERTAKEN BY EACH OF THE RESPONDENTS BEFORE US. IN THE PRESENT CASE, WE ARE NOT CONCERNED ONLY WITH CUTTING OF MARBLE BLOCKS INTO SLABS. IN THE PRESENT CASE WE ARE ALSO CONCERNED WITH THE ACTIVITY OF POLISHING AND ULTIMATE CONVERSION OF BLOCKS INTO POLISHED SLABS AND TILES. WHAT WE FIND FROM THE PROCESS INDICATED HEREIN - ABOVE IS THAT THERE ARE VARIOUS STAGES THROUGH WHICH THE BLOCKS HAVE TO GO THROUGH BEFORE THEY BECOME POLISHED SLABS AND TILES. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW T HAT ON THE FACTS OF THE CASES IN HAND, THERE IS CERTAINLY AN ACTIVITY WHICH WILL COME IN THE CATEGORY OF 'MANUFACTURE' OR 'PRODUCTION' UNDER SECTION 80IA OF THE INCOME TAX ACT. AS STATED HEREINABOVE, THE JUDGMENT OF THIS COURT IN AMAN MARBLE INDUSTRIES PVT . LTD., (2005) 1 SCC 279 : (2003) 157 ELT 393 (SC) WAS NOT REQUIRED TO CONSTRUE THE WORD 'PRODUCTION' IN ADDITION TO THE WORD 'MANUFACTURE'. ONE HAS TO EXAMINE THE SCHEME OF THE ACT ALSO WHILE DECIDING THE QUESTION AS TO WHETHER THE ACTIVITY CONSTITUTES MA NUFACTURE OR PRODUCTION. THEREFORE, LOOKING TO THE NATURE OF THE ACTIVITY STEPWISE, WE ARE OF THE VIEW THAT THE SUBJECT ACTIVITY CERTAINLY CONSTITUTES 'MANUFACTURE OR PRODUCTION' IN TERMS OF SECTION 80IA. IN THIS CONNECTION, OUR VIEW IS ALSO FORTIFIED BY T HE FOLLOWING JUDGMENTS OF THIS COURT WHICH HAVE BEEN FAIRLY POINTED OUT TO US BY LEARNED COUNSEL APPEARING FOR THE DEPARTMENT. 16. IN THE CASE OF COMMISSIONER OF INCOME TAX V. SESA GOA LTD., REPORTED IN (2004) 13 SCC 548:271 ITR 331 (SC), THE MEANING OF T HE WORD 'PRODUCTION' CAME UP FOR CONSIDERATION. THE QUESTION WHICH CAME BEFORE THIS COURT WAS WHETHER THE ITAT WAS JUSTIFIED IN HOLDING THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION UNDER SECTION 32A OF THE INCOME TAX ACT, 1961, IN RESPECT OF MACHINERY USED IN MINING ACTIVITY IGNORING THE FACT THAT THE ASSESSEE WAS ENGAGED IN EXTRACTION AND PROCESSING OF IRON ORE, NOT AMOUNTING TO MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING. THE HIGH COURT IN SESA GOA CASE,(2004) 13 SCC 548:271 ITR 331 (SC) WHILE DISMIS SING THE APPEAL PREFERRED BY THE REVENUE, HELD THAT EXTRACTION AND PROCESSING OF IRON ORE DID NOT AMOUNT TO 'MANUFACTURE'. HOWEVER, IT CAME TO THE CONCLUSION THAT EXTRACTION OF IRON ORE AND THE VARIOUS PROCESSES WOULD INVOLVE 'PRODUCTION' WITHIN THE MEANIN G OF SECTION 32A(2)(B)(III) OF THE INCOME TAX 4 ITA NO. 189 / VIZ /201 5 ACT, 1961 AND CONSEQUENTLY, THE ASSESSEE WAS ENTITLED TO THE BENEFIT OF INVESTMENT ALLOWANCE UNDER SECTION 32A OF THE INCOME TAX ACT. IN THAT MATTER, IT WAS ARGUED ON BEHALF OF THE REVENUE THAT EXTRACTION AND P ROCESSING OF IRON ORE DID NOT PRODUCE ANY NEW PRODUCT WHEREAS IT WAS ARGUED ON BEHALF OF THE ASSESSEE THAT IT DID PRODUCE A DISTINCT NEW PRODUCT. THE VIEW EXPRESSED BY THE HIGH COURT THAT THE ACTIVITY IN QUESTION CONSTITUTED 'PRODUCTION' HAS BEEN AFFIRMED BY THIS COURT IN SESA GOA CASE, (2004) 13 SCC 548 : 271 ITR 331 (SC) SAYING THAT THE HIGH COURT'S OPINION WAS UNIMPEACHABLE. IT WAS HELD BY THIS COURT THAT THE WORD 'PRODUCTION' IS WIDER IN AMBIT AND IT HAS A WIDER CONNOTATION THAN THE WORD 'MANUFACTURE'. IT WAS HELD THAT WHILE EVERY MANUFACTURE CAN CONSTITUTE PRODUCTION, EVERY PRODUCTION DID NOT AMOUNT TO MANUFACTURE. 17. IN OUR VIEW, APPLYING THE TESTS LAID DOWN BY THIS COURT IN SESA GOA'S CASE (SUPRA) AND APPLYING IT TO THE ACTIVITIES UNDERTAKEN BY THE RESPONDENTS HEREIN, REPRODUCED HEREIN - ABOVE), IT IS CLEAR THAT THE SAID ACTIVITIES WOULD COME WITHIN THE MEANING OF THE WORD 'PRODUCTION'. 18. ONE MORE ASPECT NEEDS TO BE HIGHLIGHTED. BY THE SAID JUDGMENT, THIS COURT AFFIRMED THE DECISION OF THE KARNATAKA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX V. MYSORE MINERALS LTD, (2001) 250 ITR 725 (KAR) 19. IN THE CASE OF COMMISSIONER OF INCOME TAX V. N.C. BUDHARAJA & CO., REPORTED IN 1994 SUPP (1) SCC 280 : 204 ITR 412 (SC), THE QUESTION WHICH AROSE FO R DETERMINATION BEFORE THIS COURT WAS WHETHER CONSTRUCTION OF A DAM TO STORE WATER (RESERVOIR) CAN BE CHARACTERISED AS AMOUNTING TO MANUFACTURING OR PRODUCING AN ARTICLE. IT WAS HELD THAT THE WORD 'MANUFACTURE' AND THE WORD 'PRODUCTION' HAVE RECEIVED EXTEN SIVE JUDICIAL ATTENTION BOTH UNDER THE INCOME TAX AS WELL AS UNDER THE CENTRAL EXCISE AND THE SALES TAX LAWS. THE TEST FOR DETERMINING WHETHER 'MANUFACTURE' CAN BE SAID TO HAVE TAKEN PLACE IS WHETHER THE COMMODITY, WHICH IS SUBJECTED TO A PROCESS CAN NO LO NGER BE REGARDED AS THE ORIGINAL COMMODITY BUT IS RECOGNISED IN TRADE AS A NEW AND DISTINCT COMMODITY. THE WORD 'PRODUCTION', WHEN USED IN JUXTAPOSITION WITH THE WORD 'MANUFACTURE', TAKES IN BRINGING INTO EXISTENCE NEW GOODS BY A PROCESS WHICH MAY OR MAY N OT AMOUNT TO MANUFACTURE. THE WORD 'PRODUCTION' TAKES IN ALL THE BYPRODUCTS, INTERMEDIATE PRODUCTS AND RESIDUAL PRODUCTS WHICH EMERGE IN THE COURSE OF MANUFACTURE OF GOODS. 20. APPLYING THE ABOVE TESTS LAID DOWN BY THIS COURT IN BUDHARAJA'S CASE 1994 SUPP (1) SCC 280 : (1993) 204 ITR 412 TO THE FACTS OF THE PRESENT CASES, WE ARE OF THE VIEW THAT BLOCKS CONVERTED INTO POLISHED SLABS AND TILES AFTER UNDERGOING THE PROCESS INDIC ATED 5 ITA NO. 189 / VIZ /201 5 ABOVE CERTAINLY RESULTS IN EMERGENCE OF A NEW AND DISTINCT COMMODITY. THE ORIGINAL BLOCK DOES NOT REMAIN THE MARBLE BLOCK, IT BECOMES A SLAB OR TILE. IN THE CIRCUMSTANCES, NOT ONLY THERE IS MANUFACTURE BUT ALSO AN ACTIVITY WHICH IS SOMETHING BEYOND MA NUFACTURE AND WHICH BRINGS A NEW PRODUCT INTO EXISTENCE AND, THEREFORE, ON THE FACTS OF THESE CASES, WE ARE OF THE VIEW THAT THE HIGH COURT WAS RIGHT IN COMING TO THE CONCLUSION THAT THE ACTIVITY UNDERTAKEN BY THE RESPONDENTS - ASSESSEES DID CONSTITUTE MANUF ACTURE OR PRODUCTION IN TERMS OF SECTION 801A OF THE INCOME TAX ACT, 1961. 9. THE COORDINATE BENCH OF THIS TRIBUNAL AT BANGALORE IN THE CASE OF P. MAYILVAGANAN (SUPRA) HAS ALSO BEEN CONSIDERED THE ISSUE OF ENTITLEMENT FOR ADDITIONAL DEPRECIATION . THE HEAD - NOTE OF THE ORDER IS EXTRACTED AS UNDER: - DEPRECIATION ADDITIONAL DEPRECIATION ASSESSEE WAS ENGAGED IN BUSINESS OF ( EXTRACTING GRANITES FROM EARTH, CUTTING IT INTO SIZES AND BLOCKS AND EXPORTED ROUGH GRANITE BLOCKS ASSESSEE HAD CLAIMED ADDITIONAL DE PRECIATION U/S. 32(L)(II)(A) ON ANY NEW MACHINERY OR PLANT WHICH WAS ACQUIRED OR INSTALLED AFTER 31.3.2005 BY ASSESSEE ENGAGED IN BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE THEN 25 PER CENT OF ACTUAL COST OF SUCH MACHINERY OR PLANT AO HAD DISALLO WED CLAIM OF ASSESSEE FOR ADDITIONAL DEPRECIATION ON GROUND THAT EXTRACTING AND CUTTING TO SIZE MARBLES BEFORE EXPORT WOULD NOT AMOUNT TO MANUFACTURE CIT(A) OPINED THAT ASSESSEE WAS ENTITLED TO ADDITIONAL DEPRECIATION AS HE WAS ENGAGED IN MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING HELD, AS PER S. 32(L)(II)(A) / ASSESSEE MUST BE ENGAGED IN BUSINESS OF 'MANUFACTURE OR PRODUCTION' OF ANY ARTICLE OR THING CHEMICAL AND PHYSICAL COMPOSITION OF RAW IRON ORE WAS TRANSFORMED INTO EXPORT AND MARKETABLE COMMODI TY WITH REQUIRED ACCEPTABILITY OF FOREIGN BUYER BY ASSESSEE PROCESS OF CHANGING ORIGINAL PRODUCT WITH CHEMICAL COMPOSITION AND PHYSICAL CHANGES WOULD AMOUNT TO MANUFACTURE OR PRODUCTION CONCLUSION OF AO THAT ASSESSEE DID NOT CARRY ON MANUFACTURE OR PRODUCT ION ACTIVITY WAS ERRONEOUS AS PER CASE OF CIT V. SESA GOA LTD. EXTRACTION AND PROCESSING OF IRON ORE AMOUNT TO 'PRODUCTION' ORDER OF CIT(A) UPHELD REVENUE'S APPEAL DISMISSED. 10 . IN VIEW OF THE JUDGMENT OF THE HON'BLE SUPREME COURT AND ALSO THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL AT BANGALORE , WE 6 ITA NO. 189 / VIZ /201 5 HOLD THAT THE ASSESSEE IS ENTITLED FOR ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA) OF THE ACT. THUS, WE REVERSE THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEAL S) AND THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED. 11 . IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON TH IS 1 7 T H DAY OF FEBRUARY , 201 7 . S D / - S D / - ( G. MANJUNATHA ) ( V. DURGA RAO ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 1 7 T H FEBRUARY , 201 7 . VR/ - COPY TO: 1 . THE ASSESSEE - SRI BUCHEPALLI SUBBA REDDY, PROP. SRI SURYA GRANITES, KOTI REDDY BAZAR, GANDHINAGAR, CHIMAKURTHY, PRAKASAM DISTRICT. 2 . THE REVENUE - ACIT, CIRCLE - 2(1), GUNTUR. 3 . THE PR. CIT, GUNTUR . 4 . THE CIT(A) - I, GUNTUR . 5 . THE D.R . 6 . GUARD FILE. BY ORDER ASSISTANT REGISTRAR I.T.A.T., VISAKHAPATNAM .