ACIT, Circle -16(2), Hyderabad, Hyderabad V. Midwest Granites Pvt Ltd., Hyderabad, Hyderabad

ITA 236/HYD/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5984 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 25-02-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 10-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SRINIVAS
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Depreciation; Additional depreciation
• Section: 143(3); 80HHC; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NOS. 236 & 237/HYD/2015 ASSESSMENT YEARS: 2010-11 & 2011-12 ASST. COMMISSIONER OF INCOME- TAX, CIRCLE 16(2), HYDERBADAD. VS. MIDWEST GRANITES PVT. LTD., HYDERABAD PAN AAACM9486D (ASSESSEE) (RESPONDENT) REVENUE BY : SHRI D. SRINIVAS ASSESSEE BY : SHRI P. MURALI MOHAN RAO DATE OF HEARING 25-02-2016 DATE OF PRONOUNCEMENT 04-03-2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: BOTH THESE APPEALS ARE PREFERRED BY THE REVENUE AG AINST THE ORDERS OF THE LEARNED COMMISSIONER OF INCOME-TAX(AP PEALS)- IV, HYDERABAD, BOTH, DATED 06/12/2014 FOR AYS 2010-11 AND 2011-12. AS IDENTICAL ISSUES ARE INVOLVED IN BOTH THESE APPEALS , THEY WERE CLUBBED AND HEARD TOGETHER, THEREFORE, A COMMON ORDER IS PA SSED FOR THE SAKE OF CONVENIENCE. 2 . TO DISPOSE OF THESE APPEALS, WE REFER TO THE FA CTS INVOLVED IN AY 2010-11 BEING ITA NO. 236/HYD/2014. 3. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE FILED THE RETURN OF INCOME FOR THE AY 2010-11 ON 30/09/2010 D ECLARING A TOTAL INCOME OF RS. 4,99,57,490/- UNDER THE NORMAL PROVIS IONS AND BOOK PROFITS OF RS. 23,36,93,100/- U/S 115JB. IN THE AS SESSMENT MADE U/S 2 ITA NOS. 236 & 237 /HYD/2015 MIDWEST GRANITES PVT. LTD. 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT ACT) , THE AO DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT RS 23,66,50,830 /- BY MAKING THE FOLLOWING ADDITIONS: 1. DISALLOWED THE CLAIM OF DEDUCTION U/S 10B OF RS . 17,77,41,695/- 2. ADDITIONAL DEPRECIATION DISALLOWED RS. 89,51,64 1/-. 4. AS REGARDS THE CLAIM OF DEDUCTION U/S 10B OF THE ACT, THE AO DISALLOWED THE EXEMPTION U/S 10B OF THE ACT BY STAT ING THAT THE EXTRACTION AND PROCESSING OF GRANITE BLOCK IS NOT A MANUFACTURING ACTIVITY AS MERE EXTRACTING AND CUTTING OF GRANITE WILL NOT CONSTITUTE MANUFACTURING AND ALSO OPINED THAT THE ASSESSEE COM PANY DO NOT HAVE LEASED QUARRY ON THE DATE OF GRANTING OF 100% EOU PERMISSION ON 08/09/2006. THE AO ALSO MENTIONED THAT THE QUARR Y LEASED TO THE ASSESSEE COMPANY WAS EARLIER AWARDED TO VICTORIAN G RANITE PVT. LTD. WHICH IS SISTER CONCERN OF THE ASSESSEE COMPANY. TH EREFORE, THE AO HELD THAT THE BUSINESS OF THE ASSESSEE COMPANY SAID TO BE RECONSTITUTED OR RECONSTRUCTION OF A BUSINESS ALREA DY IN EXISTENCE INVOLVING TRANSFER TO NEW BUSINESS OF LEASE HOLD RI GHT HELD BY ITS SISTER-CONCERN. HENCE, ASSESSEE FAILS TO FULFILL TH E CONDITION LAID DOWN IN SECTION 10B(2) OF THE ACT. 5. ON AN APPEAL, BEFORE THE CIT(A), THE ASSESSEE SU BMITTED THAT THE ASSESSEE COMPANY WAS SUBJECT TO PROVISIONS OF T HE CENTRAL EXCISE ACT, 1944 AND EXCISE DUTY WAS LEVIED ON THE SALES MADE BY IT ONLY WHEN THERE IS A MANUFACTURE AND THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND THEREF ORE IS SUBJECT TO LEVY OF EXCISE DUTY. IT WAS FURTHER SUBMITTED THAT IN THE ABSENCE OF ANY SPECIFIC FINDING GIVEN ON THE NATURE OF THE GRA NITE BLOCKS EXPORTED, IT WAS NOT CORRECT ON THE PART OF THE AO TO COME TO THE CONCLUSION THAT THE ASSESSEE HAS PARTLY EXPORTED RO UGH/DRESSED GRANITE BLOCKS AND PARTLY CUT GRANITE SLABS AND THA T IT DOES NOT TANTAMOUNT TO MANUFACTURE OR PRODUCTION. 3 ITA NOS. 236 & 237 /HYD/2015 MIDWEST GRANITES PVT. LTD. 6. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT(A) OBSERVED THAT THE FACTUAL POSITION REGARDING THE DI SALLOWANCE OF DEDUCTION U/S 10B IS SAME AS WAS PREVAILING FOR THE AY 2009-10. HE, THEREFORE, FOLLOWING THE DECISION IN AY 2009-10, HE LD THAT ASSESSEES BUSINESS OF CUTTING, SIZING, POLISHING AND SLICING OF GRANITES MAKE HIM ELIGIBLE FOR CLAIMING DEDUCTION U/S 10B OF THE ACT. ACCORDINGLY, HE ALLOWED THE CLAIM OF ASSESSEE. 7. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US RA ISING THE FOLLOWING GROUNDS OF APPEAL: 2. THE LD. CIT(A) ERRED IN HOLDING THAT THE ASSESSE E IS ELIGIBLE FOR EXEMPTION U/S 10B OF THE ACT. 3. THE LD. CIT(A) SHOULD HAVE APPRECIATED THAT THE GRANITE BLOCK WHICH IS CUT FROM THE LARGER FORMATION CONTINUES TO REMAIN GRANITE ONLY AND THE FACT LABOUR AND SKILL REQUIRED TO REMOVE THE BLOCK FROM THE LARGER MASS AND TRANSPORTING THE SAM E, CANNOT BE REGARDED AS EITHER MANUFACTURING OR PRODUCTION. 8. LD. DR RELIED UPON THE ORDER OF THE AO AND SUBMI TTED THAT LD. CIT(A) SHOULD HAVE APPRECIATED THAT THE GRANITE BLO CK WHICH IS CUT FROM THE LARGER FORMATION CONTINUES TO REMAIN GRANI TE ONLY AND THE FACT LABOUR AND SKILL REQUIRED TO REMOVE THE BLOCK FROM THE LARGER MASS AND TRANSPORTING THE SAME, CANNOT BE REGARDED AS EITHER MANUFACTURING OR PRODUCTION AND RELIED ON THE ORDER OF AO. 9. THE LD. AR, ON THE OTHER HAND, BESIDES RELYING U PON THE ORDER OF THE CIT(A) SUBMITTED THAT THE ISSUE IN DISPUTE IS S QUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH OF ITAT, HYDER ABAD IN THE FOLLOWING CASES: 1. MADHUCON GRANITES LTD. IN ITA NOS. 666/HYD/10 A ND OTHERS, ORDER DATED 28/12/2012. 2. MADHUCON GRANITES LTD. IN ITA NO. 1908/HYD/14 AND OTHERS, ORDER DATED 22/01/2016. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD AS WELL AS THE ORDERS OF REVENUE AU THORITIES. WE HAVE ALSO CAREFULLY GONE THROUGH THE ORDERS OF THE COORD INATE BENCH IN THE 4 ITA NOS. 236 & 237 /HYD/2015 MIDWEST GRANITES PVT. LTD. CASE OF MADHUCON GRANITES LTD. WE FIND THAT THE ISS UE IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH IN THE SAID CASE WHEREIN THE COORDINATE BENCH HAS HELD AS FOLLOWS: 8. COMING TO THE MAIN ISSUE OF ALLOWING DEDUCTION U/S. 10B, AS ALREADY STATED ABOVE, THE ISSUE OF ALLOWING OF 10B HAS ALREADY BEEN CRYS TALLISED BY THE ORDERS OF THE ITAT IN ASSESSEES OWN CASE IN EARLIER YEARS UPTO AY. 2006- 07 DT. 28-12-2012. VIDE PARA 7 & 8, THE ISSUE WAS CONSIDERED AND ALLOWED AS UNDER: 7. AS PER THE LATEST CIRCULAR NO. 729 DATED 1.11.1 995 CUTTING AND POLISHED GRANITE IS ELIGIBLE FOR DEDUCTION U/S. 80HHC OF THE ACT AS THEY FIND MENTION IN 12TH SCHEDULE OF INCOME-TAX ACT, 1961. ON THE REASO N THAT IT WAS MENTIONED IN THE DIRECTOR'S REPORT THAT THE ASSESSEE HAS EXPO RTED ONLY ROUGH BLOCKS OF GRANITE, ACCORDING TO THE DEPARTMENT THE ASSESSEE I S NOT ENTITLED FOR DEDUCTION U/S. 80HHC OF THE ACT. IT IS ALSO SUBMITT ED BEFORE US BY THE DR THAT THE ASSESSEE HAS DESCRIBED IN THE SALES INVOICES RO UGH GRANITE. HOWEVER, IT WAS CLARIFIED BY THE ASSESSEE THAT GRANITE HAS BEEN PROCESSED INTO BLOCKS AND DRESSED BY THE ASSESSEE AND WHICH WAS SUBJECTED TO EXCISE DUTY AND SALES TAX, AS THE CASE MAY BE, BUT STILL THESE WERE MENTI ONED IN THE INVOICES OR IN THE DIRECTOR'S REPORT AS 'ROUGH BLOCKS' IN SALE INV OICES. BUT IT DOES NOT MEAN THAT THEY ARE UNPROCESSED GRANITES. IT WAS NOT DISP UTED BY THE DEPARTMENT THAT THE ASSESSEE IS ENGAGED IN CUTTING AND POLISHI NG AND SIZING OF GRANITES INTO REQUIRED SIZES. ONCE THE ASSESSEE IS ENGAGED I N CUTTING, POLISHING AND SIZING OF THE GRANITE TO THE REQUIRED SIZED AND EXP ORTING THE SAME, IT IS TO BE AND IT HAS TO BE CONCLUDED THAT THE ASSESSEE IS ENG AGED IN 'PRODUCTION'. IN SIMILAR CIRCUMSTANCES, THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. FATEH GRANITES PVT. LD. (314 ITR 32) (BOM) HELD THAT THE ACTIVITY OF CUTTING, POLISHING AND SIZING OF GRANITES WOULD BE COVERED WITHIN THE MEANING OF EXPRESSION 'PRODUCTION'. THEREFORE, THE ASSESSEE IS ENTITLED T O THE BENEFIT U/S. 80HHC/ L0B OF THE ACT. FURTHER, THE CHENNAI BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS. M/S. .JANANI HOLDINGS, CHENNAI IN ITA NO. 1094/ MDS/2010 VIDE ORDER DATED 25.2.2011 HELD THAT IF THE ASSESSEE IN THE SA LES INVOICES DESCRIBED THE EXPORTED GOODS 'AS PROCESSED DIMENSIONAL ROUGH OR C RUDE GRANITE' AND THE GRANITE HAS BEEN PROCESSED INTO BLOCKS AND DRESSED BY THE ASSESSEE AND THESE WERE EXPORTED, BECAUSE THE ASSESSEE DESCRIBED AS 'R OUGH BLOCKS OR CRUDE BLOCK' IN SALE INVOICES BY WHICH THE ASSESSING OFFI CER CANNOT DENY THE DEDUCTION U/S.L0B OF THE ACT ON THE REASON THAT GRA NITE HAS NOT BEEN POLISHED. BEING SO, THE ASSESSEE IS ENTITLED FOR DEDUCTION U/ S. 80HHC/ L0B OF THE ACT ON SIMILAR LINES FOR THE A.YS. 2000-01 TO 2004-05. ACC ORDINGLY, THE REVENUE APPEALS IN ITA NO. 29 TO 33/HYD/2012 ARE DISMISSED. 8. FOR THE ASSESSMENT YEAR 2006-07 IN ITA NO. 35/HY D/12, THE ISSUE IS RELATING TO ALLOWABILITY OF DEDUCTION U/S. L0B OF THE ACT WH ICH IS DECIDED ON SIMILAR LINES AS ABOVE AS DISCUSSED IN THE ABOVE, THE REVEN UE APPEAL IS DISMISSED. 9. IN VIEW OF THE ABOVE, WE ARE OF THE OPINION THAT ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S. 10B, THE FACT OF WHICH WAS ALREADY ACKNOWLEDGE D BY THE CIT(A) IN THE ORDER FOR AY 2011-12. HOWEVER, IN AYS. 2007-08 TO 2010-11, LD . CIT(A) IN HIS OWN WAY CATEGORIZED THE EXPORT OF ROUGH GRANITE BLOCKS INTO DIMENSIONAL BLOCKS AND UNDIMENSIONAL BLOCKS AND RESTRICTED THE DEDUCTION T O SO CALLED TYPE-3 UN-DIMENSIONAL 5 ITA NOS. 236 & 237 /HYD/2015 MIDWEST GRANITES PVT. LTD. BLOCKS. EVEN THOUGH LD. CIT(A) DEVIATED FROM THE IS SUE IN ANALYZING THE NATURE OF ROUGH GRANITE BLOCKS EXPORTED, HOWEVER, HE MADE AME NDS IN THE ORDER FOR AY. 2011- 12 AND ALLOWED THE DEDUCTION IN ALL THE GRANITE BLO CKS BEING EXPORTED BY ASSESSEE, SUBJECT TO EXAMINATION OF ELIGIBILITY OF ONGOLE UNI T. THIS UNIT IS ALSO ESTABLISHED MUCH EARLIER AND ASSESSEE WAS ALLOWED DEDUCTION ON THIS UNIT ALSO UPTO AY. 2006-07. CONSEQUENTLY, THE DIRECTION OF THE CIT(A) ASKING TH E AO TO EXAMINE THE ELIGIBILITY OF ONGOLE UNIT IS SUPERFLUOUS. THEREFORE, ALLOWING ASS ESSEES GROUND ON THIS ISSUE, WE DIRECT THE AO TO ALLOW THE DEDUCTION OF ONGOLE UNIT AS CLAIMED BY ASSESSEE. TO THAT EXTENT, ASSESSEES APPEALS ARE ALLOWED WITH REFEREN CE TO ALLOWING OF 10B CLAIM IN ALL THE IMPUGNED AYS. 2007-08 TO 2011-12. AS THE ISSUE IN THE PRESENT CASE IS SIMILAR TO THAT OF THE SAID CASE, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH, WE UPHOLD THE ORDER OF THE CIT(A) IN ALLOWING THE ASSESSEES CLAIM OF DEDUCTION U/S 10B OF THE ACT. THESE GROUNDS OF APPEAL OF REVE NUE ARE DISMISSED. 11. AS REGARDS THE ASSESSEES CLAIM OF ADDITIONAL D EPRECIATION OF RS. 89,51,641/-, THE AO OBSERVED THAT THE ADDITION AL DEPRECIATION OF RS. 89,51,641//- CLAIMED BY THE ASSESSEE U/S 32(1)( IIA) ON PLANT AND MACHINERY, MINING EQUIPMENT ETC. ARE NOT ELIGIBLE S INCE THE ASSESSEE IS NOT INVOLVED IN THE BUSINESS OF MANUFACTURE OR P RODUCTION OF AN ARTICLE OR THING. HE OPINED THAT THE ADDITIONAL DEP RECIATION WAS TO BE ALLOWED FOR AN ASSESSEE WHO IS ENGAGED IN THE BUSIN ESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING. AS HE HELD THAT ASSESSEE IS NOT ELIGIBLE FOR CLAIMING DEDUCTION U/S 10B, DISALLOWED THE ADDITIONAL DEPRECIATION CLAIMED AS ABOVE. 12. THE CIT(A) FOLLOWING THE DECISION IN AY 2009-10 , ALLOWED THE ASSESSEES APPEAL AND DIRECTED THE AO TO ALLOW THE ASSESSEES CLAIM OF ADDITIONAL DEPRECIATION. 13. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US BY RA ISING THE FOLLOWING GROUND OF APPEAL: 4. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE DISALLOWANCE OF ADDITIONAL DEPRECIATION BY HOLDIN G THAT THE ACTIVITY OF THE ASSESSEE DOES NOT INVOLVE MANUFACT URING AND PRODUCTION. 6 ITA NOS. 236 & 237 /HYD/2015 MIDWEST GRANITES PVT. LTD. 14. THE LD. DR RELIED UPON THE ORDER OF AO WHILE, T HE LD. AR RELIED UPON THE ORDER OF THE CIT(A). 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL FACTS ON RECORD. AS THE BUSINESS OF THE AS SESSEE IS PROVED BEYOND DOUBT THAT IT INVOLVES IN THE MANUFACTURING ACTIVITIES, IN THE RESULT, IT IS ELIGIBLE TO CLAIM DEDUCTION U/S 10B A S WELL AS IT IS ELIGIBLE TO CLAIM ADDITIONAL DEPRECIATION, AS THE SAME WAS ELIGIBLE TO BE CLAIMED BY THOSE ASSESSEES WHO ARE IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING. HENCE, IN O UR OPINION, THE ASSESSEE IS ELIGIBLE TO CLAIM ADDITIONAL DEPRECIATI ON AS A MANUFACTURER. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 16. GROUND NOS. 1 & 4 ARE GENERAL IN NATURE, HENCE, NO NEED TO ADJUDICATE THE SAME. 17. SINCE THE FACTS AND ISSUES ARE MATERIALLY IDENT ICAL IN AY 2011- 12 TO THAT OF AY 2010-11 (SUPRA), FOLLOWING THE CON CLUSIONS DRAWN THEREIN, WE DISMISS THE APPEAL OF THE REVENUE. 18. IN THE RESULT, BOTH THE APPEALS UNDER CONSIDERA TION ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 4 TH MARCH, 2016. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAH MAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 4 TH MARCH, 2016 KV 7 ITA NOS. 236 & 237 /HYD/2015 MIDWEST GRANITES PVT. LTD. COPY TO:- 1) ACIT, CIRCLE 16(2), ROOM NO. 611, 6 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2) M/S MIDWEST GRANITES PVT. LTD., 8-2-684/3/25 & 2 6, ROAD NO. 12, BANJARA HILLS, HYDERABAD. 3 CIT(A)-IV, HYDERABAD 4) CIT-IV HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.