JK AgriGenetics Limited(Earlier Known as Florence Alumina Ltd.), Kolkata V. DCIT, Circle-5(2), Kolkata, Kolkata

ITA 2218/KOL/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5847 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 22-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PINAKI MUKHERJEE ADD
• Assessee Lawyers: D S DAMLE
• Keywords: Depreciation; Additional depreciation
• Section: 143(3)

Judgement Text

, A , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA ( ) . . , . ' # $% % , '( ) [BEFORE SHRI A. T. VARKEY, JM & DR. A. L. SAINI, A M] I.T.A. NO. 2218/KOL/2016 ASSESSMENT YEARS: 2012-13 J. K. AGRI GENETICS LTD. (PAN: AAACF7629R) VS. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-5(2), KOLKATA. APPELLANT RESPONDENT DATE OF HEARING 13.06.2018 DATE OF PRONOUNCEMENT 20.07.2018 FOR THE APPELLANT SHRI D. S. DAMLE, FCA FOR THE RESPONDENT SHRI PINAKI MUKHERJEE, ADD. CIT ORDER PER SHRI A.T.VARKEY, JM THIS IS AN APPEAL PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-2, KOLKATA DATED 04.10.2016 FOR AY 2012-13. 2. IN THE GROUNDS RAISED IN THE APPEAL, THE ASSESSE E COMPANY HAS PRIMARILY OBJECTED TO ACTION OF THE AO IN DISALLOWING THE DEDUCTION FOR A DDITIONAL DEPRECIATION OF RS.15,78,386/- CLAIMED U/S. 32(1)(IIA) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) HOLDING THAT THE ASSESSEE WAS NOT ENGAGED IN MANUFA CTURE OR PRODUCTION OF ANY ARTICLE OR THING. 3. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY IS ENGAGED IN THE PRODUCTION AND PROCESSING OF HYBRID SEEDS. IN THE RELEVANT YEAR UNDER CONSIDERATION, THE ASSESSEE HAD MADE NEW ADDITION TO PLANT AND MACHINE RY ON WHICH IT HAD CLAIMED THE ADDITIONAL DEPRECIATION U/S. 32(1)(IIA) OF THE ACT. IN THE ASSESSMENT COMPLETED U/S. 143(3) OF THE ACT, THE AO WAS OF THE OPINION THAT THE ASSESS EE COMPANY WAS BASICALLY A TRADER OF SEEDS AND NOT A PRODUCER OF SEEDS IN TERMS OF THE P ROVISIONS CONTAINED IN SEC. 2(29BA) OF THE ACT AND, THEREFORE, HELD THAT THE ASSESSEE COUL D NOT BE TERMED AS A MANUFACTURER AND 2 ITA NO.2218/KOL/2016 J. K. AGRI GENETICS LTD., AY 2012-13 2 HENCE, DISALLOWED THE CLAIM OF ADDITIONAL DEPRECIAT ION OF RS.15,78,396/- MADE U/S. 32(1)(IIA) OF THE ACT. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT (A) WHO WAS PLEASED TO DISMISS THE SAME. A GGRIEVED BY THE ORDER OF THE LD. CIT (A), THE ASSESSEE IS BEFORE US. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. FROM A PERUSAL OF THE ASSESSMENT ORDER WE NO TE THAT IN PARA 2, THE AO HIMSELF ADMITTED THAT DURING THE FINANCIAL YEAR THE ASSESSE E WAS ENGAGED IN THE BUSINESS OF PRODUCTION, PROCESSING AND SALE OF SEEDS AND RELATE D SERVICES. DESPITE RECORDING SUCH A FINDING, LATER ON THE AO CONTRADICTED HIMSELF BY ST ATING THAT THE ASSESSEE WAS A MERE TRADER OR DEALER IN HYBRID SEEDS. WE FURTHER NOTE THAT IN THE COURSE OF APPELLATE PROCEEDINGS THE ASSESSEE HAD FURNISHED A DETAILED NOTE ON THE PRODU CTION PROCESS INVOLVED IN THE ASSESSEES BUSINESS OF MANUFACTURE OR PRODUCTION OF HYBRID SEE DS. THE LD. AR EXPLAINED THAT FIRST THE ASSESSEE AFTER CARRYING OUT SEVERAL RESEARCH PROCES SES DEVELOPED THE BREEDER SEEDS. AFTER THE BASIC BREEDER/FOUNDATION SEED WAS DEVELOPED, THE NE ED TO BE MULTIPLIED FOR SPECIFIC USE IN CROP HYBRIDIZATION PROGRAMME. FOR THAT THESE BREED ER/FOUNDATION SEEDS WERE TAKEN TO THE AGRICULTURAL GROWER/FARMER FOR CULTIVATION. AND FRO M THEM, THE UNPROCESSED HYBRID SEEDS WERE PURCHASED I.E. ASSESSEE PURCHASED FROM THE CON TRACTUAL GROWERS THE UNPROCESSED HYBRID SEEDS. AFTER THE UNPROCESSED SEEDS WERE PURCHASED, THE ASSESSEE COMPANY CONDUCTS FURTHER PROCESSING SUCH AS CLEANING, FERMENTATION, FUMIGATI ON, DRAYING, APPLICATION OF CHEMICALS, GRADING AND PACKAGING OF HYBRID SEEDS WERE CARRIED OUT BEFORE THE SEEDS WERE MARKETED IN THE MARKET. THE LD. AR OF THE ASSESSEE SUBMITTED T HAT THE PRODUCTION PROCESSES OUTLINED BEFORE THE LOWER AUTHORITIES IN THE PROCESS CHART F ORM WAS FOLLOWED BY ALL SEEDS COMPANIES IN THE COUNTRY BECAUSE THE CERTIFICATION STANDARDS AND PROCESS FOLLOWED UNDER THE SEEDS ACT 1966 WAS SAME ALL OVER INDIA. THE LD. AR FURTHER S UBMITTED THAT THE QUESTION AS TO WHETHER THE SEED COMPANIES ENGAGED IN PRODUCTION AND SALE O F PROCESSED OR HYBRID SEEDS ARE ENGAGED IN MANUFACTURING OR PRODUCTION OF AN ARTICL E OR THING WAS CONSIDERED AND DECIDED BY VARIOUS JUDICIAL AUTHORITIES INCLUDING THE HONB LE SUPREME COURT. HE SUBMITTED THAT IN THE FOLLOWING JUDGMENTS THE HONBLE COURTS HAVE HEL D THAT THE COMPANIES ENGAGED IN 3 ITA NO.2218/KOL/2016 J. K. AGRI GENETICS LTD., AY 2012-13 3 PRODUCTION OF HYBRID SEEDS ARE ENGAGED IN MANUFACT URE OR PRODUCTION OF NEW ARTICLE OR THING. I) TARAI DEVELOPMENT CORPORATION VS. CIT 2 TAXMAN 3 59 (ALL H.C), II) CIT VS. EID PARRY (INDIA) LTD. 218 ITR 713 (MAD ), III) CIT VS. JALNA SEEDS PROCESSING & REFRIGERATIO N CO. LTD. 118 TAXMAN 725 (BOM), IV) ITO VS. NAV BHARAT SEEDS PVT. LTD. 32 ITD 703 ( AHD. TRIB.), V) NEW NANDI SEEDS CORPORATION VS. CIT 55 TAXMANN.C OM 19 (GUJ) VI) STATE OF RAJASTHAN VS. RAJASTHAN AGRICULTURE IN PUTS DEALERS ASSOCIATION (JT.1996 (6) 217, 1996 SCALE (5) 51 (SC) VII) KRISHI UTPADAN MANDI SAMITI VS. PILIBHIT PANTN AGAR BEEJ LTD. CIVIL APPEAL NO. 630 OF 2001 (SC) 4. THE LD. DR FULLY SUPPORTED THE ORDERS OF THE AUT HORITIES BELOW AND DOES NOT WANT US TO INTERFERE IN THE ORDER PASSED BY THE LD. CIT (A) . 5. AFTER GIVING OUR THOUGHTFUL CONSIDERATION TO THE SUBMISSION OF THE PARTIES AND PERUSING THE JUDICIAL DECISIONS RELIED UPON BY THE LD. AR, WE FIND THAT THE ISSUE INVOLVED IN THE PRESENT APPEAL IS NO LONGER RES INTEGRA. THE Q UESTION AS TO WHETHER THE SEED COMPANIES ENGAGED IN PRODUCTION OF PROCESSED SEEDS WERE ELIGI BLE FOR PROFIT BASED DEDUCTION U/S. 80J/80I/80IB/80HH WAS CONSIDERED BY VARIOUS JUDICIA L FORUMS ACROSS INDIA. THE BASIC PRODUCTION PROCESS INVOLVED IN PRODUCING PROCESSED/ HYBRID SEEDS ARE STANDARDIZED BECAUSE THE SPECIFICATIONS AND PROCEDURES FOR SEED CERTIFIC ATION HAVE BEEN LAID DOWN BY THE GOVT. OF INDIA UNDER THE SEEDS ACT, 1966 AND IS THE SAME ALL OVER INDIA. IN THE DECISIONS ABOVE REFERRED, THE HONBLE COURTS ANALYZED IN DETAIL THE PRODUCTION PROCESS FOLLOWED AND HELD THAT SEED COMPANIES FIRST DEVELOP BREEDER/FOUNDATIO N SEEDS BY CARRYING OUT RESEARCH AND EXPERIMENTS FOR ENSUING BETTER YIELD AND HIGH RESIS TANCE TO DISEASE AND ATTACK BY INSECTS. THIS BREEDER/FOUNDATION SEEDS DEVELOPED BY SEED COM PANIES WERE THEN PROVIDED TO THE 4 ITA NO.2218/KOL/2016 J. K. AGRI GENETICS LTD., AY 2012-13 4 AGRICULTURIST/GROWERS/FARMERS, WHO IN TURN LATTER S UPPLIED THE UNPROCESSED SEEDS AFTER HARVESTING IN THEIR FARMS TO THE SEED COMPANY IN BU LK. IT HAS TO BE NOTED THAT THESE UNPROCESSED SEEDS BY THEMSELVES ARE CAPABLE OF BEIN G USED AS SEEDS AND THEY ARE ALSO FIT FOR HUMAN CONSUMPTION. HOWEVER, AFTER BEING PURCHASED BY THE ASSESSEE COMPANY, THE COMPANY CARRIES OUT SERIES OF PROCESSES SO AS TO CO NVERT THE UNPROCESSED SEEDS INTO HYBRID SEEDS. THE ASSESSEE COMPANY CARRIES OUT SERIES OF PROCESSES SUCH AS CLEANING, FERMENTATION, FUMIGATION, DRYING, APPLICATION OF CHEMICALS, GRADI NG ETC. IT HAS TO BE KEPT IN MIND THAT SINCE THE PROCESSED HYBRID SEEDS ARE CHEMICALLY TRE ATED, THESE ARE NOT FIT FOR HUMAN CONSUMPTION BUT CAN ONLY BE USED FOR CULTIVATION PU RPOSES. TAKING NOTE OF THE AFORESAID PROCESS INVOLVED, THE COURTS HAVE THEREFORE HELD TH AT THE INTEGRATED PROCESS CARRIED OUT BY THE SEED COMPANIES BY WHICH UNPROCESSED SEEDS ARE C ONVERTED INTO PROCESSED HYBRID SEEDS AMOUNT TO PRODUCTION MANUFACTURE OF A ARTICLE OR THING AND, THEREFORE, ELIGIBLE FOR PROFIT LINKED DEDUCTION U/S. 80J/80I/80IB/80HH ETC. IN FA CT, THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF TARAI DEVELOPMENT CORPORATION, SUPRA TO OK SPECIFIC NOTE OF THE FACT THAT SECTION 33(1)(B)(B) READ WITH 5 TH SCHEDULE OF THE ACT TREATED PROCESSED SEEDS AS AN ARTICLE OBTAINED BY THE PROCESS OF MANUFACTURE OR PRODUCTION AND, T HEREFORE, ELIGIBLE FOR CLAIMING DEVELOPMENT REBATE. THE HONBLE ALLAHABAD HIGH CO URT, THEREFORE, HELD THAT FOR THE PURPOSE OF ALLOWING DEVELOPMENT REBATE, ASSESSEE EN GAGED IN PRODUCTION OF PROCESSED SEEDS WERE CONSIDERED ELIGIBLE, THEN DIFFERENT CONCLUSION COULD NOT BE DRAWN WHILE ALLOWING THE DEDUCTION PERMISSIBLE U/S. 80J OR 80HH. THE VIEW E XPRESSED BY THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF TARAI DEVELOPMENT CORPORA TION, SUPRA WAS FOLLOWED BY A COORDINATE BENCH OF THIS TRIBUNAL AT AHMEDABAD IN T HE CASE OF NAV BHARAT SEEDS PVT. LTD., SUPRA. ON APPEAL BY THE REVENUE THE DECISION OF TH IS TRIBUNAL WAS UPHELD CONCURRENTLY BY THE HONBLE GUJARAT HIGH COURT AS WELL AS BY HONBL E SUPREME COURT. 6. WE FURTHER NOTE THAT APPEALS INVOLVING THE IDENT ICAL QUESTION WAS DECIDED BY THE HONBLE GUJARAT HIGH COURT IN ITS JUDGMENT DATED 12 .12.2014 WHEREIN THE SPECIFIC QUESTION ADJUDICATED BY THE HONBLE HIGH COURT WAS WHETHER PROCESSING OF SEEDS IS A MANUFACTURING ACTIVITY. THE JUDGMENT IN THIS BATCH OF APPEALS W AS REPORTED IN NEW NANDI SEEDS CORPORATION, SUPRA. IN THIS JUDGMENT, THE HONBLE HIGH COURT AFTER EXAMINING IN DETAIL 5 ITA NO.2218/KOL/2016 J. K. AGRI GENETICS LTD., AY 2012-13 5 VARIOUS PROCESSES INVOLVING IN PRODUCTION OF HYBRID SEEDS HELD THAT REVENUES CONTENTION THAT THE ACTIVITIES INVOLVED IN PROCESSING OF SEED S DID NOT AMOUNT TO MANUFACTURE, WAS DEVOID OF ANY MERIT AND, THEREFORE, LIABLE TO BE RE JECTED. 7. WE, THEREFORE, FIND THAT IN A CATENA OF JUDGMENT S THE UNANIMOUS VIEW TAKEN BY THE JUDICIAL AUTHORITIES IS THAT THE SEED COMPANYS ENG AGED IN PRODUCTION OF PROCESSED/HYBRID SEEDS ARE ENGAGED IN MANUFACTURE OR PRODUCTION OF A NEW ARTICLE OR THING. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN THESE DECISIONS, W E HOLD THAT THE ASSESSEE WAS ENGAGED IN THE PRODUCTION OF A NEW ARTICLE OR THING AND, THERE FORE, ELIGIBLE TO CLAIM ADDITIONAL DEPRECIATION U/S. 32(1)(IIA) OF THE ACT. THEREFORE, THE ASSESSEE SUCCEEDS IN ITS APPEAL AND, THEREFORE, THE AO IS DIRECTED TO ALLOW THE ADDITION AL DEPRECIATION OF RS.15,78,386/-. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 20.07.201 8 SD/- SD/- (DR. A.L. SAINI) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 20TH JULY, 2018 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1. APPELLANT M/S. J. K. AGRI GENETICS LTD., 7, CO UNCIL HOUSE STREET, KOLKATA-700 001. 2 RESPONDENT DCIT, CIRLCE-5(2), KOLKATA. 3. THE CIT(A) -2, KOLKATA. (SENT THROUGH E-MAIL) 4. 5. CIT KOLKATA DR, ITAT, KOLKATA. (SENT THROUGH E-MAIL) / TRUE COPY, BY ORDER, SR. PVT. SECRETARY