M/s. JSW Steel Processing Centres Ltd, Bangalore V. Deputy Commissioner of Income Tax, Circle-4(1)(6), Bangalore

ITA 2001/BANG/2017

• Counselvise Citation: [2023] 102 COUNSELVISE.COM (IT) 0067 (ITAT-BANGALORE)
• Duration Of Justice: 6 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-11-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 06-11-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 12-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Additional depreciation
• Section: 143(3); 260A; 32(1)(iia); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENT AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA No.2001/Bang/2017 Assessment Year : 2013-14 M/s. JSW Steel Processing Centres Ltd., No.121, 3 rd Floor The Estates, Dickenson Road, Bengaluru – 560 042. PAN : AABCJ7646 P Vs.DCIT, Circle – 4(1)(1), Bengaluru. APPELLANTRESPONDENT Assessee by:Shri.K. Kotresh, CA Revenue by :Shri.G. Manoj Kumar, CIT(DR)(ITAT), Bengaluru. Date of hearing:07.11.2023 Date of Pronouncement:09.11.2023 O R D E R Per George George K, Vice President: This appeal was disposed off by the Tribunal vide its order dated 07.03.2018. Aggrieved by the order of the Tribunal, assessee filed an appeal before the Hon’ble High Court of Karnataka under section 260A of the Act. The Hon’ble High Court in ITA No.479/18 (judgment dated 20.09.2022), restored the matter to the Tribunal. The relevant finding of the Hon’ble High Court of Karnataka reads as follows: “ORDER i)The appeal is allowed; ITA No.2001/Bang/2017 Page 2 of 14 ii)Order dated 07.03.2018 in I.T.A.No.2001/Bang/2017 passed by the Income Tax Appellate Tribunal, Bengaluru Bench 'B', Bengaluru, is set aside and the matter is remitted on the file of ITAT to record a categorical finding with regard to the aspect whether assessee's activity falls within the definition of ‘manufacture or not'. The ITAT shall also examine the veracity of bills to be produced before it; iii)Since we are remanding the matter on the file of ITAT, the questions raised in this appeal do not call for any answer. No costs.” 2. Brief facts of the case are as follows: Assessee is a company engaged in the business of processing of steel products. For the Assessment Year 2013-14, the return of income was filed on 25.09.2013 declaring income of Rs.25,31,44,321/- after claiming additional depreciation under section 32(1)(iia) of the Act amounting to Rs.46,63,950/-. The assessment was completed under section 143(3) of the Act vide order dated 23.11.2015 wherein the addition depreciation claimed under section 32(1)(iia) of the Act was disallowed. The AO held that assessee is not into the business of manufacture or production and therefore is not entitled to additional depreciation under section 32(1)(iia) of the Act. On appeal, CIT(A) upheld the disallowance of additional depreciation made by the AO. Aggrieved by the order of the CIT(A), assessee preferred an appeal before the Tribunal. The Tribunal dismissed the appeal of the assessee on the ground that relevant bills relating to purchase of new plant and machinery were produced to claim the additional depreciation. 3. Aggrieved by the order of the Tribunal, assessee preferred an appeal before the Hon’ble High Court. As mentioned earlier, the Hon’ble High Court remanded ITA No.2001/Bang/2017 Page 3 of 14 the matter to the Tribunal. The Hon’ble High Court directed the Tribunal to give a finding whether the assessee’s activities falls within the definition of manufacture or not. The Hon’ble High Court also directed the Tribunal to examine the veracity of the bills to be produced before the Tribunal. 4. Pursuant to the Hon’ble High Court’s judgment, the matter was heard on 07.11.2023. The learned AR submitted that input and finished products are distinctly recognized in the commercial world and also in the central excise regulation. Therefore, it was submitted that the activities of assessee comes within the definition of manufacture under section 2(29BA) of the Act. The learned AR also explained to us the process undertaken to convert the input to the finished products. The learned AR also relied on the various judicial pronouncements in support of his contention that assessee undertakes manufacture / process and hence entitled to the benefit of additional depreciation. 5. The learned AR has also filed a Paper Book enclosing therein the invoices of purchase of machineries, the cost on which the additional depreciation is claimed. The learned AR further submitted that the AO nor the CIT(A) has doubted the purchase of these machineries and consequently, depreciation has been granted on the same and only the additional depreciation has been denied stating that the assessee’s activities does not amount to manufacture or production of any article or things. 6. The learned DR, by referring to the definition of manufacture, submitted that the assessee merely cuts the coil and packs the same which does not tantamount to manufacture or production. Hence, it was contended that assessee is not entitled to the benefit of additional depreciation under section 32(1)(iia) of the Act. ITA No.2001/Bang/2017 Page 4 of 14 7. We have heard the rival submissions and perused the material on record. The Hon’ble High Court had directed the Tribunal to examine the activities of the assessee and to come to a conclusion whether the same amounts to manufacture or production. The Hon’ble High Court also directed the Tribunal to verify the veracity of the bills of plant and machinery on which assessee has claimed additional depreciation. To adjudicate the issue whether assessee company was entitled to additional depreciation of Rs.46,63,590/-, it is pertinent to refer to section 32(1)(iia) of the Act which reads as under: “32: Depreciation: (1)(i).... (ii).... (iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing [or in the business of generation or generation and distribution of power], a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause” 8. From the above provision of the Act, it is clear that an additional depreciation equal to twenty percent of the actual cost of new plant or machinery shall be allowed as deduction to those assesses engaged in the business of manufacture or production of article or thing. In the instant case, the AO and CIT (A) have only considered whether the assessee company is into the business of manufacture and not touched upon whether or not the assessee company is in the business of production. The term ‘manufacture’ has been defined under section 2(29BA) of the Act and the same read as follows: “2. Definitions: [(29BA) "manufacture", with its grammatical variations, means a change in a non-living physical object or article or thing, — ITA No.2001/Bang/2017 Page 5 of 14 (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure;]” 9. The assessee company has entered into contract with JSW Steel Ltd for processing and conversion of Steel Coils (HR/CR Coils) into Finished Products being HR/CR cut to length, HR/CR Slit Coils. Clause 1 of the Contract between the assessee company and JSW Steel Ltd., (refer page 7 of the Paper Book) specifies that the assessee company is required to convert Steel Coils into Finished Products. The processed finished products are returned to JSW Steel Ltd. who in- turn sells to the ultimate customers. The assessee company’s activities are explained on page numbers 14 and 15 of the Paper Book. The flowchart explains the material and process flow of the assessee company’s activities. To manufacture HR/CR Slit coils, the raw material being HR/CR Coils go through the process of uncoiling, slitting, recoiling and packaging based on the customer’s specifications. Whereas to manufacture HR/CR Cut to lengths, the raw material being HR/CR Coils go through the process of uncoiling, levelling, cropping, sheet packaging. The processes mentioned above is carried on with the help of complex plant and machinery to ensure precision and accuracy in each of the above-mentioned processes. The processes mentioned above is further elaborated below: Processing lines at JSW Steel Processing Centres SLITTER: This process produces multiple slits from a single input coil as per customer’s width requirement. Un-coiler: it releases the charged coil by applying a certain tension. Slitter: turnstile type tooling changing system with pusher makes quick set up of tooling on slitter head without using a spare slitter ITA No.2001/Bang/2017 Page 6 of 14 head. Shimless tooling makes the setup of tooling accurate and easier. Separator unit: two sets of separators are provided in front of the tension unit to guide every slit to their right positions. Tension unit: it is provided to give the slits uniform tension for tight rewinding on recoiler. Deflector Roll: it steers deflection and flowing direction of strip in order to wind up the slit strip on the recoiler. Recoiler: it rewinds the slits. CUT-TO-LENGTH: Uncoiler: it releases the charged coil by applying a certain tension. Leveler: it produces flat shapes leveler units are of two types, 4-HI and 6-HI, depending upon the arrangement of set of rolls. A 6-HI configuration has an upper and lower set of work rolls, intermediate rolls and backup rolls. Whereas in 4-HI has no set of intermediate rolls. Measuring roll unit: it measures (via encoder) the length of sheet and the feedback is sent to shear unit. Shear Unit: it crops the incoming coil into sheet form as per the feedback from the measuring roll unit. Magnetic stacker: it picks up sheet from the conveyor and drops the sheets on the wooden pallet. Piler Unit: It holds the wooden pallet on which the sheets are stacked. Special features of the above two processes: SLITTER Shimless tooling: For accurate setup off slitter knives and spacers to get accurate slitting width minimum burr and high efficiency of the line with reduced setup time. ITA No.2001/Bang/2017 Page 7 of 14 Tooling turnstile: to provide quick setup of tooling on the slitter head without using a spare slitter head. Telescopicity: + 1mm wrap to wrap and 3mm overall achieved by using belt bridle and tension pad combination to give the slits uniform tension for tight winding on recoiler. 1M Raptor Automatic line stoppage facility at required length and OD to produce coils as per customers requirement. All the rolls in contact with the coil are polyurethane coated and hence zero surface defects is assured CUT-TO-LENGTH Rotary shear with automatic blade clearance adjustment against thickness for improved productivity and assurance of Burr free cutting edges Trapezoidal sheets can be produced by using oscillating and rotating shear (Max 40 degrees) in CR CTL 2 Length tolerances of 0.5(upto 2000mm), + 0.1 for each additional 1000mm Flatness below 10 I ensured with 6-HI precision leveler. 10. For a clear understanding of the products as to how they appear prior to the processing and after processing, assessee has placed on record the photographs of the input product and the finished products from pages 21 to 28 of the Paper Book submitted by the assessee in the original proceedings before the Tribunal. On the left hand side is steel coils supplied by the JSW Steel Ltd., and on the right hand side is the processed finished products. It is noticed that the finished products (HR/CR, slit coils/sheets) are completely different products compared to the steel coils (HR/CR coils) as shown in the inputs. We are enclosing photographs of the input products and the finished products as part of this order and are placed as Annexure A and Annexure B. Further, we notice that different invoices are raised by the JSW Steel Ltd., with respect to HR coil (preprocessed) and HR cut to length ITA No.2001/Bang/2017 Page 8 of 14 sheets (finished products which demonstrate that finished goods are different from steel coils). Moreover, these products are sold under two different tariff codes under Central Excise Act. The HR coils are sold under code 72083740 and HR cut to length sheets are sold under code 72085430. Thus, even the Central Excise authorities also recognize these products as two different products. Therefore, the activities of the assessee company are resulting in the transformation of object / article (HR/CR coils) or thing into a new and distinct object or article or a thing having a different name, character and use. Therefore, it is clear that processing activities amounts to manufacture as per definition under section 2(29BA)(a) of the Act. 11. The assessee company, even assuming without admitting that it is not in manufacturing activity, we are of the view that assessee company is engaged in the activity of production. Neither the Assessing Officer nor the Commissioner of Income Tax-(Appeals) have applied their mind to consider whether or not the assessee company is into the activity of production. 12. The word 'production' has a wider connotation than the word 'manufacture'. While every manufacture can be characterised as production, every production need not amount to manufacture. It has been held in the case of India Cine Agencies Vs. CIT, Madras [SC] 175 Taxmann 361 [2008] and CIT Vs. N.C. Budharaja & Co., [SC] 70 Taxman 312 [1993] that the word 'production' or 'produce' when used in juxtaposition with the word 'manufacture' takes in bringing into existence new goods by a process, which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products, which emerge in the course of manufacture of goods. Further in the case of CIT Vs Sesa Goa Ltd. [SC] 142 Taxman 16 [2005], the Hon’ble Apex Court had observed that the word "production", albeit, in connection which the ITA No.2001/Bang/2017 Page 9 of 14 Bihar Sales Tax Act, 1947. The definition was adopted from the meaning ascribed to the word in the Oxford English Dictionary as meaning "amongst other things that which is produced; a thing that results from any action, process or effort, a product; a product of human activity or effort". From the wide definition of the word "production", it has to follow that mining activity for the purpose of production of mineral ores would come within the ambit of the word "production" since ore is "a thing", which is the result of human activity or effort. 13. In the instant case the Steel coils are processed into new goods namely HR/CR Cut to length or HR/CR Slitted Coils resulting into the production of an article or a thing which may or may not result into manufacture. The finished products are a result of human activity or effort and therefore the assessee company is undoubtedly into the activity of production. 14. Even if assuming there is no change in the character of the HR/CR coils post the processing of the assessee company, it may be noted that the Calcutta High Court in the case of Andaman & Nicobar Islands Forest and Plantation Development Corporation V/s CIT [280 ITR 118] has held that “the de-embarking of the trunk of the tree and cutting the same into pieces and seasoning the same in order to convert the tree trunk into logs as commercially saleable commodity requires a human effort to undertake such process and the end-product is something different from the tree though its characteristics remains the same, viz., wood remains wood, yet definitely it is an article or thing which is commercially saleable and as such the process undertaken for conversion of trees into logs as commercially saleable commodity would amount to production”. 15. The fact that assessee is involved in manufacture or production, has also been noted in the earlier order of ITAT which reads as follows: ITA No.2001/Bang/2017 Page 10 of 14 11. ...... In our view activity of assessee falls under manufacturing activities , similar views were expressed by Hon’ble high court in Ms. Megha Dadoo*2015] 57 taxmann.com 309 (Himachal Pradesh) to the following effect : “20. These findings of fact, after having perused the record and heard learned counsel for the parties, we find to be in no manner perverse or erroneous, warranting interference. In fact, we are in agreement with the opinion so rendered by the Tribunal. 21. In Collector of Central Excise v. Technoweld Industries 2003 (155) ELT 209 (SC), the Court was dealing with a case where the assessee was engaged in the business of drawing wires into thinner gauge from wires of thicker gauge, by cold drawing process. The old product did not lose its identity or could be put to similar and same use. In our considered view, no ratio of law is laid down by the Apex Court in the said decision, unlike the ones we have noticed hereinabove. In the instant case, as we have already observed, by applying the settled principles, the activity carried out by the assessee can only be said to be manufacturing a new product. 22. Learned counsel for the Revenue also seeks reliance upon the decision rendered by the Apex Court in Bharat Forge & Press Industries (P.) Ltd. v. Collector of Central Excise [1990] 1 SCC 532. Even the said decision, in our considered view, is inapplicable in the given facts and circumstances. There the assessee was dealing with the process of cutting pipes and tubes in small sizes and shapes, which were though passed through chemical process, but however, there was neither any change in their basic physical properties nor in their end use. It is in this backdrop that the Court observed that smaller articles can also be described and used as pipes and tubes. Moreover, the Court was dealing with a totally different legislation. 23. Learned counsel for Revenue also seeks reliance upon the decision rendered by the Hon'ble Supreme Court of India in Union of India v. J.G. Glass Industries Ltd. [1998] 96 Taxman 29. In our considered view, the decision does not advance the case of the Revenue in any manner. There the assessee was involved in the activity of printing names and logos on the bottles, which did not change the character or condition of the original product. ITA No.2001/Bang/2017 Page 11 of 14 24. Thus, keeping in mind the exposition in the aforesaid decisions, we have no hesitation in holding that the Appellate Tribunal was justified in concluding that the product (Route Marker) produced by the assessee was commercially different from its raw material and further, it is commercially known to be different in the market. In other words, the assessee was engaged in manufacturing of the said product. Therefore, the assessee was entitled to deduction claimed under Section 80IC of the Income Tax Act. We find no reason to disagree with the said opinion of the Tribunal. As a result, the appeal is dismissed. Substantial questions of law are answered accordingly.” Therefore in the present case the stripes has been changed / reduced./ silted/ winded in different size etc , therefore the activity of the assessee would fall within the domain of manufacture.” 16. Having found that assessee’s activities tantamount to production as mentioned under section 32(1)(iia) of the Act, we hold that it is prima facie entitled to additional depreciation. 17. Further, the Hon’ble High Court has directed the Tribunal to verify the veracity of the bills / invoices of the plant and machinery on which the additional depreciation was claimed. For this purpose, assessee has filed a Paper Book during the second round of litigation before the Tribunal enclosing therein the invoices of the plant and machinery on which additional depreciation is claimed. We find that invoices to the extent of claiming additional depreciation of Rs.18,98,203/- is not produced. The learned AR pleaded that invoices could be traced and produced in due course. Hence, the learned AR submitted that for verification of the invoice, the matter may be restored to the AO. Therefore, for the limited purpose of examination with regard to the veracity of the invoices, the issue is restored to the files of the AO. The assessee shall also furnish the necessary evidence to prove its case that normal depreciation has been granted on the plant and machinery for which assessee is claiming additional depreciation. If normal depreciation has been granted, we fail to understand why for additional ITA No.2001/Bang/2017 Page 12 of 14 depreciation there has been disallowance on account of non-furnishing of the invoices / bills for the plant and machinery. With these observations, we restore the issue to the files of the AO. It is ordered accordingly. 18. In the result, appeal filed by the assessee is allowed for statistical purposes. Pronounced in the open court on the date mentioned on the caption page. Sd/- Sd/- (LAXMI PRASAD SAHU) (GEORGE GEORGE K) Accountant MemberVice President Bangalore. Dated: 09.11.2023. /NS/* Copy to: 1.Appellants2.Respondent 3.DRP4.CIT 5.CIT(A)6.DR, ITAT, Bangalore. 7. Guard file By order Assistant Registrar, ITAT, Bangalore. ITA No.2001/Bang/2017 Page 13 of 14 ITA No.2001/Bang/2017 Page 14 of 14