M/s. K.K. Creation, Surat V. The Income tax Officer,Ward-1(3), Surat

ITA 1965/AHD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60302 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 26-04-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 08-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SAPNESH SHETH
• Keywords: Depreciation; Additional depreciation

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , !', #$ # % BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ./ I.T.A. NO.1965/AHD/2011 ( ( ( ( ( / / / / ASSESSMENT YEAR : 2008-09) M/S.K.K.CREATION 165-166, 2 ND FLOOR YAMUNA NAGAR-2 ANJANA FARM, SURAT / VS. THE INCOME TAX OFFICER WARD-1(3) SURAT ) #$ ./*+ ./ PAN/GIR NO. : AAIFK 3581 E ( ), / // / APPELLANT ) .. ( -.), / RESPONDENT ) ), / # / APPELLANT BY : SHRI SAPNESH SHETH, A.R. -.), 0 / # / RESPONDENT BY : SHRI SAMIR TEKRIWAL, SR.D.R. 1 0 '$ / / / / DATE OF HEARING : 26/04/2012 23( 0 '$ / DATE OF PRONOUNCEMENT : 30/4/2012 #4 / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE WH ICH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-I, SURAT DATED 17/06/20111 PASSED FOR A.Y. 2008-09. THE FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESSEE IN ITS APPEAL:- 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE A S WELL AS LAW ON THE SUBJECT, THE LEARNED CIT(APPEALS) HAS ERRED IN CONF IRMING THE ACTION OF ASSESSING OFFICER IN DISALLOWING ADDITIONAL DEPRECIATION OF RS.9,18,722/-. ITA NO.1965/AHD /2011 M/S.K.K.CREATION VS. ITO ASST.YEAR - 2008-09 - 2 - 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE A S WELL AS LAW ON THE SUBJECT, THE LEARNED CIT(APPEALS) HAS ERRED IN PART LY CONFIRMING THE ACTION OF ASSESSING OFFICER BY SUSTAINING DISALLOWA NCE TO THE EXTENT RS.5,981/- AS AGAINST RS.14,953/- MADE BY ASSESSING OFFICER ON ACCOUNT OF THE EXPENSES. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) OF THE I.T. ACT, 1961 DATED 26/ 11/2010 WERE THAT THE ASSESSEE-FIRM IS ENGAGED IN THE BUSINESS OF EMBROIDERY WORK ON JOB WORK BASIS. THE ASSESSING OFFICER NOTICED ON VERIFICATION OF THE DETAILS FILED THAT THE ASSESSEE HAS CLAIMED ADDITIONAL DEPR ECIATION OF RS.9,18,722/- @ 20% ON THE PLANT & MACHINERY INSTAL LED OF RS.45,93,612/-, IN ADDITION TO NORMAL DEPRECIATION CLAIM OF RS.6,89,042/- @ 15%. IT WAS CLAIMED THAT THE ADDITIONAL DEPRECIA TION IS CLAIMED BY THE ASSESSEE COMPANY AS IT IS ENGAGED IN THE BUSINESS O F MANUFACTURE OR PRODUCTION OF ARTICLE OR THING AS PER SECTION 32(1) (IIA). HOWEVER, AS PER A.O., THE ASSESSEE WAS NOT ENGAGED IN MANUFACTURING OR PRODUCTION ACTIVITY, HENCE A LETTER WAS ISSUED TO THE ASSESSEE REQUIRING IT TO SHOW CAUSE AS TO WHY ADDITIONAL DEPRECIATION CLAIM OF RS .9,18,722/- SHOULD NOT BE DISALLOWED. FINALLY, THE ASSESSEES CLAIM FOR ADDITIONAL DEPRECIATION OF RS.9,18,722/- WAS DISALLOWED. 3. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLAT E AUTHORITY. THE LD.CIT(A) HAS UPHELD THE ACTION OF THE ASSESSING OF FICER BY ORBSERVING AS UNDER:- ITA NO.1965/AHD /2011 M/S.K.K.CREATION VS. ITO ASST.YEAR - 2008-09 - 3 - DECISION THE ARGUMENTS OF THE ASSESSING OFFICER AS WELL AS T HE APPELLANT HAVE BEEN CONSIDERED. THERE IS CONSIDERABLE FORCE IN THE ARGUMENTS OF THE ASSESSING OFFICER. THE AO HAS CO RRECTLY ANALYZED AND PROVED THAT THE APPELLANT HAS NOT CARR IED OUT ANY MANUFACTURING ACTIVITY AND THAT EMBROIDERY WORK IS IN THE NATURE OF VALUE ADDITION ONLY. AFTER GIVING THE DETAILED REASONINGS, THE ASSESSING OFFICER HAS RIGHTLY CONCLUDED THAT THE AP PELLANT IS NOT A MANUFACTURER AND IS NOT ENTITLED TO ADDITIONAL DEPR ECIATION. THE ARGUMENTS ADVANCED BY THE APPELLANT ARE NOT STRONG ENOUGH TO CALL FOR INTERFERENCE IN THE ASSESSING OFFICERS ORDER. ACCORDINGLY, THE ORDER OF THE A.O HOLDING THAT ADDITIONAL DEPRECIATI ON OF PLANT & MACHINERY IS NOT ALLOWABLE TO THE APPELLANT IS UPHELD. 4. WE HAVE HEARD THE PARTIES. WE FIND THAT, CONSID ERING THE FACTS NARRATED HEREINABOVE, THE ISSUE IS SQUARELY COVERED BY THE DECISION OF ITAT SMC BENCH AHMEDABAD BEARING ITA NO.1569/AHD/ 2010 FOR A.Y. 2007-08 TITLED AS ITO VS. HARIPRIYA PROCESSOR S PVT.LTD. DATED 08/09/2009, WHEREIN THE TRIBUNAL HAS HELD AS UNDER: - 5. I HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH 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 OW N AND THERE ARE VARIOUS STAGES WHICH ARE INVOLVED IN EMBROIDERY ACTIVITY AND THE S AME CAN BE BRIEFLY CATEGORIZED AS UNDER:- I) CREATING A DIGITALIZED EMBROIDERY DESIGN FILE; II) EDITING THE DESIGN AND/OR COMBINING IT WI TH OTHER DESIGN (OPTIONAL); III) LOAD THE FINAL DESIGN FILE INTO THE EMBR OIDERY MACHINE; IV) STABILIZE THE FABRIC AND PLACE IT IN THE M ACHINE; V) START AND MONITOR THE EMBROIDERY MACHINE; ITA NO.1965/AHD /2011 M/S.K.K.CREATION VS. ITO ASST.YEAR - 2008-09 - 4 - AND BECAUSE OF THE ABOVE PROCESS WHICH HAS TO BE CA RRIED OUT IN VERY CAREFUL MANNER THE OUTPUT I.E. EMBROIDERED FABRICS HAS ENTIRELY DIFFERENT LOOKS AN D HAS DIFFERENT COMMERCIAL VALUE AND THUS, BECAUSE OF ABOVE OPERATIONS NEW COMMODITY EMERGES. THE EXPRESSIONS 'MANUFACTURE' AND 'PRODUCE' HAVE NO T BEEN DEFINED IN THE ACT AT THE RELEVANT POINT OF TI ME BUT THE DICTIONARY MEANING OF 'MANUFACTURE' IS TO TRANSFORM OR FASHION NEW MATERI AL INTO A CHANGED FORM 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 DIFFERENTLY FROM THE ORIGINAL FABRICS. EVEN OTHERWI SE, THE WORD 'PRODUCT' HAS A WIDER CONNOTATION THAN THE WORK 'MANUFACTURE' AND R ELIANCE PLACED BY THE ASSESSEE ON THE DECISION OF HON'BLE APEX COURT IN T HE CASE OF S.S.M. BROTHERS (P) LTD. & OTHERS V. CIT (2000) 243 ITR 418 (SC), W HEREIN THE DEVELOPMENT REBATE CLAIMED U/S.33(1)(B)(B)(I) WAS ALLOWED BY HO LDING THAT THE PLANT AND MACHINERY WERE USED IN THE PRODUCTION OF PROCESSED TEXTILES (EMBROIDERY) AND THEREFORE, THE MACHINERY IS ENTITLED TO DEVELOPMENT 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 BUSI NESS OF CONSTRUCTION, MANUFACTURE OR PRODUCTION OF ANY ONE OR MORE OF THE ARTICLES OR THINGS SPECIFIED IN THE LIST IN THE FIFTH SCHEDULE. THE RATIO OF ABO VE DECISION OF HON'BLE SUPREME COURT IS DIRECTLY APPLICABLE TO FACTS OF THE INSTAN T CASE BECAUSE SEC.32(1)(IIA) ALSO PROVIDES FOR ADDITIONAL DEPRECIATION IN RESPEC T OF NEW MACHINERY AND PLANT PURCHASED BY ASSESSEE WHO IS ENGAGED IN THE BUSINES S OF MANUFACTURE OF PRODUCTION OF ANY ARTICLE OR THING. IN THE ABOVE CA SE THE HON'BLE SUPREME COURT HAS ALREADY HELD THAT ASSESSEE WAS USING MACHINERY IN PRODUCTION OF PROCESSED TEXTILE I.E. EMBROIDERY WORK AND THUS, THE FACT EMB ROIDERY WORK IS REGARDED AS PRODUCTION CANNOT BE DENIED. SECTION 32(1)(IIA) ALS O USED THE WORD 'PRODUCTION OF ANY ARTICLE OR THING' AND THUS, THE PRODUCT WITH EM BROIDERY WORK IS INCLUDED IN THE WORK ANY ARTICLE OR THING. IN FACT THE PROVISIONS O F SECTION 32(1)(IIA) ARE LARGER IN SCOPE AS COMPARED TO SECTION 33(10(B)(B)(L) INASMUC H AS SECTION 32(1)(IIA) PROVIDES FOR ADDITIONAL DEPRECIATION ON PLANT AND M ACHINERY WHICH IS USED IN THE PRODUCTION/MANUFACTURE OF ANY ARTICLE OR THING WHER EAS SECTION 33(10(B)(B)(I) PROVIDES FOR DEVELOPMENT REBATE ON PLANT AND MACHIN ERY WHICH IS USED IN THE CONSTRUCTION, MANUFACTURE OR PRODUCTION OF ANY ARTI CLE OR THING WHICH IS LISTED IN THE FIFTH SCHEDULE. IN VIEW OF THESE FACTS AND THE DECISION OF HON'BLE SUPREME COURT THE ADDITIONAL DEPRECIATION CLAIMED BY ASSESS EE IS REQUIRED TO BE ALLOWED AS PLANT AND MACHINERY IS USED IN THE PRODUCTION OF EMBROIDERY FABRICS. I FURTHER FIND THAT EVEN FROM THE ANGLE OF LEVY OF EXCISE DUT Y UNDER CENTRAL EXCISE ACT, THIS EMBROIDERY IS SUBJECT TO LEVY OF DUTY AND CONSIDERE D AS MANUFACTURE. THE RELEVANT TARIFF ITEM 5810 READS AS UNDER:- SECTION XI 350 CHAPETER 58 TARIFF ITEM DEPRECIATION OF UNIT RATE OF DUTY GOODS (1) (2) (3) (4) 5810 EMBROIDERY IN THE PIECE, IN STRIPS ON IN MOTIFS 5810 10 00 EMBROIDERY WITHOUT KG. 8% VISIBLE GROUND OTHER EMBROIDERY; ITA NO.1965/AHD /2011 M/S.K.K.CREATION VS. ITO ASST.YEAR - 2008-09 - 5 - 5810 91 00 OF COTTON 5810 92 OF MAN-MADE FIB RES; KG. 8% 5810 92 10 EMBROIDERED KG. 8% BADGES, MOTIFS AND THE LIKE 5810 92 90 OTHER KG. 8% 5810 99 00 OF OTHER TEXTILES KG. 8% MATERIALS AS THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE A SSESSEE, WE ALLOW THE CLAIM OF THE ASSESSEE. THIS ISSUE OF REVENUE'S APPEAL IS DIS MISSED. 5. ONCE A CO-ORDINATE BENCH HAS TAKEN A VIEW IN FA VOUR OF THE ASSESSEE BY REJECTING THE REVENUES APPEAL, THEREFO RE, WE HAVE NO REASON TO TAKE ANY OTHER VIEW BUT TO FOLLOW THE VIEW ALREA DY TAKEN, REPRODUCED HEREINABOVE. RESULTANTLY THE ASSESSEE BEING ENGAGED IN EMBROIDERY WORK IS ENTITLED FOR ADDITIONAL DEPRECIATION CONSEQUEN TLY, THE ASSESSEES GROUND IS HEREBY ALLOWED. 6. GROUND NO. 2 READS AS UNDER: 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE A S WELL AS LAW ON THE SUBJECT, THE LEARNED CIT(APPEALS) HAS ERRED IN PARTLY CONFIRMING THE ACTION OF ASSESSING OFFICER BY SUSTA INING DISALLOWANCE TO THE EXTENT RS.5,981/- AS AGAINST RS .14,953/- MADE BY ASSESSING OFFICER ON ACCOUNT OF OFFICE EXPENSES. 6.1. APROPOS TO GROUND NO.2, THE ASSESSEE HAS CLAIM ED OFFICE EXPENSES OF RS.59,814/-, HOWEVER, THE ASSESSING OFFICER HAS DISALLOWED 20% OF THE EXPENSES. WHEN THE MATTER REACHED TO THE FIRST APPELLATE AUTHORITY, THE DISALLOWANCE WAS RESTRICTED TO 10% ONLY. RESUL TANTLY, TOTAL DISALLOWANCE SUSTAINED AT RS.5,981/- BY THE LCIT(A) . HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, WE ARE OF THE VIEW T HAT NO INTERFERENCE IS REQUIRED IN THE ESTIMATION AS ADOPTED BY THE LEARNE D CIT(APPEALS) FOR ITA NO.1965/AHD /2011 M/S.K.K.CREATION VS. ITO ASST.YEAR - 2008-09 - 6 - THE YEAR UNDER CONSIDERATION. RESULTANTLY, THIS GR OUND OF THE ASSESSEE IS DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. SD/- SD/- ( !' ) ( ) #$ ( ANIL CHATURVEDI ) ( MUKU L KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 30/ 4 /2012 5'.., .../ T.C. NAIR, SR. PS #4 0 -6 7#6( #4 0 -6 7#6( #4 0 -6 7#6( #4 0 -6 7#6(/ COPY OF THE ORDER FORWARDED TO : 1. ), / THE APPELLANT 2. -.), / THE RESPONDENT. 3. 8 / CONCERNED CIT 4. 8() / THE CIT(A)-I, SURAT 5. 6;< - , , / DR, ITAT, AHMEDABAD 6. <= >1 / GUARD FILE. #4 #4 #4 #4 / BY ORDER, .6 - //TRUE COPY// ? ?? ?/ // / * * * * ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DICTATION..26.4.12 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 26.4.12 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S30.4.12 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 30.4.12 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER