The Income Tax Officer, Amritsar. V. M/s. Indus Textiles, Amritsar.

ITA 282/ASR/2014

• Counselvise Citation: 28220914 RSA 2014
• Duration Of Justice: 1 year(s) 4 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 15-09-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 02-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: TARSEM LAL
• Keywords: Depreciation; Additional depreciation
• Section: 154; 15; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR (SMC). BEFORE SH. A.D. JAIN, JUDICIAL MEMBER I.T.A. NO.282(ASR)/2014 ASSESSMENT YEAR:2007-08 PAN :AAAFI6307E INCOME TAX OFFICER, VS. M/S. INDUS TEXTILES, WARD V(2), BHATIA HOUSE, AMRITSAR. 26, THE MALL, AMRITSAR. (APPELLANT) (RESPONDENT) APPELLANT BY:SH.TARSEM LAL, DR RESPONDENT BY: NONE DATE OF HEARING:15/09/2015 DATE OF PRONOUNCEMENT: 01/10/2015 ORDER THIS IS DEPARTMENTS APPEAL FOR THE ASSESSMENT YEAR 2007-08 AGAINST THE ORDER DATED 06.02.2014 PASSED BY THE LD. CIT(A) , AMRITSAR, QUASHING THE ORDER PASSED BY THE AO U/S 154 OF THE ACT BY HO LDING THAT DISALLOWANCE OF DEPRECIATION IN THIS CASE WAS NOT A PRIMA FACIE MISTAKE. 2. THE FACTS OF THE CASE, AS PER THE RECORD, ARE T HAT IN THIS CASE THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE INCOME T AX ACT, 1961 ( IN SHORT, THE ACT) VIDE ORDER DATED 16.11.2009. THE ASSESSEE IS ENGAGED IN THE ITA NO.282(ASR)/2014 2 BUSINESS OF EMBROIDERY WORK OF CLOTH. DURING F.Y. 2006-07, RELEVANT TO A.Y. 2007-08, THE ASSESSEE FIRM PURCHASED AND INST ALLED NEW MACHINERY IN THE MONTH OF AUGUST, 2006 AND STARTED THE BUSINESS OF EMBROIDERY WORK OF CLOTH. DURING THE YEAR UNDER CONSIDERATION, THE ASS ESSEE FIRM CLAIMED ADDITIONAL DEPRECIATION OF RS.18,25,184/- U/S 32(1) (IIA) OF THE ACT. SUBSEQUENTLY, IT WAS NOTICED FORM THE ASSESSMENT RE CORD OF THE ASSESSEE, THAT ADDITIONAL DEPRECIATION CLAIMED TO THE TUNE OF RS.1 8,25,184/-, HAD WRONGLY BEEN ALLOWED, AS THE ASSESSEE WAS ENGAGED IN THE JO B WORK OF EMBROIDERY OF CLOTH AND NOT IN THE BUSINESS OF MANUFACTURE OR PRO DUCTION OF ANY ARTICLE OR THING TO ENABLE THE ASSESSEE TO CLAIM THE DEPRECIAT ION U/S 32(1)(IIA) OF THE ACT. ACCORDINGLY, NOTICE U/S 154 OF THE ACT WAS GIV EN TO THE ASSESSEE TO RECTIFY THE ABOVE MISTAKE. 3. THE AO REJECTED THE ASSESSEES EXPLANATION BY HO LDING AS FOLLOWS: AS PER PROVISION OF SECTION 32(1)(IIA) THE ADDITION AL DEPRECIATION IS ADMISSIBLE IN RESPECT OF THE MACHINERY OR PLANT ( O THER THAN SHIPS AND AIRCRAFT) WHICH IS ACQUIRED AND INSTALLED AFTER TH E 31 ST DAY OF MARCH, 2005 BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANU FACTURE OR PRODUCTION OF ANY ARTICLE OR THING A FURTHER SUM EQ UAL TO TWENTY PERCENT OF THE ACTUAL COST OF SUCH MACHINERY OR PLA NT SHALL BE ALLOWED AS DEDUCTION UNDER CLAUSE (II). IN THIS CASE THE ASSESSEE IS USING THE MACHINERY FO R EMBROIDERY WORK ON GREY CLOTH AND NOT MANUFACTURING OR PRODUCING AN Y ARTICLE OR THING NEW. BESIDE ABOVE, TO CLARIFY THE MEANING OF WORD MANUFACTURE A DEFINITION HAS BEEN INSERTED U/S 2(29BA) BY THE FIN ANCE (NO.2) ACT, 2009, W.E.F. 1.4.2009 WHICH IS REPRODUCED HEREUNDER : ITA NO.282(ASR)/2014 3 2(29BA) MANUFACTURE: WITH ITS GRAMMATICAL VARIATI ONS, MEANS A CHANGE IN A NON-LIVING PHYSICAL OBJECT OR ARTICLE OR THING:- A) RESULTING IN TRANSFORMATION OF THE OBJECT OR ARTICL E OR THING INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFERENT NAME, CHARACTER AND USER, OR B) BRINGING INTO EXISTENCE OF A NEW AND DISTINCT OBJEC T OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSIT ION OR INTEGRAL STRUCTURE. IT IS CLEAR FROM THE ABOVE THAT THE ASSESSEE HAS NOT USING THE MACHINERY FOR THE PURPOSES WHICH MAY ENTITLE THE AS SESSEE FOR ADDITIONAL DEPRECIATION. THE CASE LAWS QUOTED BY TH E ASSESSEE DO NOT HELP HIM AS THE FACTS OF THE CASES REPORTED BY THE ASSESSEE ARE THEREFORE DISTINGUISHABLE TO THE FACTS OF THE CASE OF THE ASSESSEE UNDER REFERENCE. THE CLAIM OF THE ASSESSEE OF ADDITIONAL DEPRECIATION ON MACHINERY IS NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 32(1)(II) OF THE INCOME TAX ACT, 1961. SINCE THE ASSESSEE HAS FAILED TO FULFILL THE CONDITIONS LAID DOWN IN SECTION 32(I)(II) OF THE IN COME TAX ACT, 1961, THE CLAIM OF ADDITIONAL DEPRECIATION OF ASSESSEE IS , THEREFORE, REJECTED AND AN ADDITION OF RS.18,25,184/- IS MADE ON ACCOUN T OF DISALLOWANCE OF ADDITIONAL DEPRECIATION. 4. THE LD. CIT(A) QUASHED THE AOS ORDER. 5. AGGRIEVED, THE DEPARTMENT IS IN APPEAL. 6. THE LD. DR HAS CONTENDED THAT THE LD. CIT(A) W ENT WRONG IN QUASHING THE ORDER PASSED BY THE AO U/S 154 OF THE ACT WITHOUT TAKING INTO CONSIDERATION THE AOS OBSERVATIONS THAT AS PER PR OVISIONS OF SECTION 32(1)(IIA) OF THE ACT, ADDITIONAL DEPRECIATION I S ADMISSIBLE IN RESPECT OF MACHINERY OR PLANT WHICH IS ACQUIRED AND INSTALLED AFTER 31.03.2005 BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE ITA NO.282(ASR)/2014 4 OR THING, ALLOWING A FURTHER SUM EQUAL TO TWENTY PE RCENT OF THE ACTUAL COST OF PLANT AND MACHINERY AS DEDUCTION UNDER CLAUSE (II) OF SECTION 32(1); THAT IN THE PRESENT CASE, THE ASSESSEE WAS USING THE MACHIN ERY FOR EMBROIDERY WORK ON GREY CLOTH AND WAS NOT MANUFACTURING OR PRODUCIN G ANY ARTICLE OR NEW THING; THAT SECTION 2(29BA) OF THE ACT PROVIDES A DEFINITION OF MANUFACTURE; AND ACCORDING TO THIS DEFINITION, M ANUFACTURE MEANS A CHANGE IN A NON-LIVING PHYSICAL OBJECT OR ARTICLE O R THING, RESULTING IN TRANSFORMATION OF THE OBJECT OR ARTICLE OR THING I NTO A NEW DISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFERENT NAME, CHARACTER AND USER, OR BRINGING INTO EXISTENCE OF A NEW AND DISTINCT OBJECT OR ARTICLE O R THING WITH A DIFFERENT CHEMICAL COMPOSITION OR INTEGRAL STRUCTURE; THAT HE REIN, THE ASSESSEE WAS NOT USING THE MACHINERY FOR THE PURPOSES WHICH MAY ENTI TLE THE ASSESSEE FOR ADDITIONAL DEPRECIATION; AND THAT THE ASSESSEES CL AIM OF ADDITIONAL DEPRECIATION ON MACHINERY WAS NOT IN ACCORDANCE WIT H THE PROVISIONS OF SECTION 32(1)(II) OF THE ACT. 7. DESPITE DUE SERVICE OF NOTICE, NONE HAS APPEARE D BEFORE ME ON BEHALF OF THE ASSESSEE, NOR HAS ANY APPLICATION FOR ADJOUR NMENT BEEN FILED. HOWEVER, FINDING THAT THE MATTER CAN BE PROCEEDED WITH IN THE ABSENCE OF THE ASSESSEE, I AM DOING SO. ITA NO.282(ASR)/2014 5 8. I HAVE CONSIDERED THE LD. DRS CONTENTIONS IN TH E LIGHT OF THE MATERIAL ON RECORD. THE ISSUE TO BE CONSIDERED IS AS TO WHET HER THE LD. CIT(A) HAS RIGHTLY QUASHED THE ORDER PASSED BY THE AO U/S 15 4 OF THE ACT. 9. THE LD. CIT(A), IT IS SEEN, WHILE QUASHING THE R ECTIFICATION ORDER PASSED BY THE AO, HAS PLACED RELIANCE ON THE AHMEDA BAD BENCH DECISION OF THE TRIBUNAL IN THE CASE OF M/S. HARI FASHION VS. ACIT, PASSED ON 27.05.2011, IN ITA NO.3105/AHD/2010. IN THIS CASE, THE ASSESSEE, LIKE THE PRESENT ASSESSEE, WAS DOING EMBROIDERY WORK ON JOB WORK BASIS. THE EMBROIDERY ACTIVITY, ACCORDING TO THE TRIBUNAL, ALS O RESULTS IN PRODUCTION OF A NEW ARTICLE HAVING A DIFFERENT MARKET OF ITS OWN AN D THERE ARE VARIOUS STAGES INVOLVED IN EMBROIDERY ACTIVITY, AS FOLLOWS: I) CREATING A DIGITALIZED EMBROIDERY DESIGN FILE, II) EDITING THE DESIGN AND/OR COMBINING IT WITH OTH ER DESIGN (OPTIONAL), III) LOADING THE FINAL DESIGN FILE INTO THE EMBROIDERY M ACHINE, IV) STABILIZING THE FABRICS AND PLACE IT IN THE MACHINE V) STARTING AND MONITORING THE EMBROIDERY MACHINE. THE TRIBUNAL OBSERVED THAT BECAUSE OF THE ABOVE PR OCESSES, WHICH HAVE TO BE CARRIED OUT IN A VERY CAREFUL MANNER, THE EMBROI DERED FABRIC ACQUIRES ENTIRELY DIFFERENT LOOKS AND HAS DIFFERENT COMMERC IAL VALUE AND THAT THUS, BECAUSE OF THE SAID OPERATIONS, AN ENTIRELY NEW C OMMODITY EMERGES. IT WAS HELD THAT BECAUSE OF THESE OPERATIONS, THE LOOK OF THE FABRIC CHANGED ITA NO.282(ASR)/2014 6 SUBSTANTIALLY AND THE NEW ARTICLE IS COMMERCIALLY KNOWN DIFFERENTLY FROM THE ORIGINAL FABRIC; THAT EVEN OTHERWISE, THE WORD PRODUCE HAS A WIDER CONNOTATION THAN THE WORK MANUFACTURE; THAT IN S.S.M. BROTHERS (P) LTD. AND OTHERS VS. CIT, 243 ITR 418 (SC), DEVELOPMENT REBATE CLAIMED U/S 33(1)(B)(B)(I) OF THE ACT WAS ALLOWED BY HOLDING TH AT THE PLANT AND MACHINERY WERE USED IN THE PRODUCTION OF PROCESSED TEXTILES (EMBROIDERY) AND, THEREFORE, MACHINERY WAS ENTITLED TO THE DEVE LOPMENT REBATE CLAIMED; THAT THE DECISION IN S.S.M BROTHERS (P) LTD. & OTH ERS (SUPRA), WAS DIRECTLY APPLICABLE TO THE FACTS OF THAT CASE, BECAUSE SECT ION 32(1)(IIA), LIKE SECTION 33(1)(B)(B)(I), ALSO PROVIDES FOR ADDITIONAL DEPRE CIATION IN RESPECT OF NEW MACHINERY AND PLANT PURCHASED BY AN ASSESSEE ENGAGE D IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ARTICLE OR THING; THAT SINCE SECTION 32(1)(IIA) ALSO USES THE EXPRESSION PRODUCTION OF ANY ARTICLE OR THING, ANY PRODUCT WITH EMBROIDERY WORK IS AN ARTICLE OR THING; THAT T HE PROVISIONS OF SECTION 31(1)(IIA) ARE LARGER IN SCOPE THAN THOSE OF SECTI ON 33(1)(B)(B)(I) IN ASMUCH AS SECTION 32(1)(IIA) PROVIDES FOR ADDITIONAL DEPRE CIATION ON PLANT AND MACHINERY, WHICH IS USED IN THE PRODUCTION/MANUFAC TURE OF ANY ARTICLE OR THING, WHEREAS SECTION 33(1)(B)(B)(I) PERTAINS TO D EVELOPMENT REBATE ON PLANT AND MACHINERY WHICH IS USED IN THE CONSTRUCTI ON, MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING, AS LISTED IN TH E FIFTH SCHEDULE; THAT EVEN ITA NO.282(ASR)/2014 7 FROM THE ANGLE OF EXCISE DUTY UNDER THE CENTRAL EXC ISE ACT, EMBROIDERY IS SUBJECT TO LEVY OF DUTY AND IS CONSIDERED AS MANUFA CTURE UNDER TARIFF ITEM 5810. 10. THE LD. CIT(A) ALSO TOOK INTO CONSIDERATION THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT OF PUNJAB & HARYA NA IN CIT VS. SOVRIN KNIT WORKS, 199 ITR 679 (P&H)(FB), WHICH WAS BASED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF EMPIRE IN DUSTRIES LTD. VS. U.O.I, 162 ITR 846 (SC), WHICH STOOD ENDORSED BY THE HONBLE SUPREME COURT IN THE CASE OF UJAGAR PRINTS VS. U.O.I, 179 ITR 317 (SC). 11. IN EMPIRE INDUSTRIES LTD. VS. U.O.I. (SUPRA) , THE HONBLE SUPREME COURT HAS HELD MANUFACTURE UNDER THE CENTRAL EXCI SE ACT TO INCLUDE THE PROCESSES OF BLEACHING, DYEING AND PRINTING, HOLDI NG THAT ELYMOLOGICALLY, BLEACHING, DYEING AND PRINTING MEANT MANUFACTURING PROCESSES. IT HAS NOT BEEN SHOWN THAT MANUFACTURE UNDER THE INCOME TA X ACT CARRIESANY OTHER MEANING. PERTINENTLY, MANUFACTURE IS NOT DEFINED IN THE INCOME-TAX ACT. 12. IN UJAGAR PRINTS VS. U.O.I. (SUPRA), THE VIEW EXPRESSED IN EMPIRE INDUSTRIES LTD. VS. U.O.I (SUPRA), WAS HELD TO BE C ORRECT. IT WAS HELD THAT THE PROCESSES LIKE BLEACHING, DYEING, PRINTING, SIZING, SHRINK-PROOFING, WATER- PROOFING, RUBBERIZING, ETC., OF FABRIC ARE NOT SO ALIEN OR FOREIGN TO THE CONCEPT OF MANUFACTURE THAT THEY COULD NOT COME W ITHIN THAT CONCEPT. ITA NO.282(ASR)/2014 8 EMPIRE INDUSTRIES LTD. (SUPRA) WAS AFFIRMED IN S OVRIN KNIT WORKS (SUPRA), FOLLOWING EMPIRE INDUSTRIES LTD., (SUPRA) AND UJAGAR PRINTS (SUPRA), INTER-ALIA, EMBROIDERY OF GREY CLOTH WAS H ELD TO CONSTITUTE PRODUCTION AND MANUFACTURE IN TERMS OF ITEM NO.32 O F THE FIFTH SCHEDULE OF THE INCOME TAX ACT, 1961. TO REITERATE, HEREIN ALSO , THE ACTIVITY UNDER CONSIDERATION IS EMBROIDERY ON GREY CLOTH. 13. THEN, M/S. HARI FASHION (SUPRA) HAS ALSO BEEN RELIED ON BY THE AMRITSAR BENCH OF THE TRIBUNAL IN S.S. EMBROIDERS, AMRITSAR VS. DEPARTMENT OF INCOME TAX, RENDERED ON 23.04.2012 I N ITA NO.357(ASR)/2010, FOR THE ASSESSMENT YEAR 2005-06 ( COPY PLACED AT APB 121 TO 125), HOLDING DEPRECIATION TO BE ALLOWED AT THE RATE OF FIFTY PERCENT ON MACHINERY CLAIMED TO HAVE BEEN PURCHASED UNDER T UFS, SUCH MACHINERY BEING UTILIZED IN THE TEXTILE INDUSTRY. THE TRIBUNA L ALSO TOOK INTO CONSIDERATION, INTER-ALIA, SOVRIN KNIT WORKS (SUP RA) AND S.S.M. BROTHERS (P) LTD. (SUPRA). 14. NO DECISION CONTRARY TO THE ABOVE CASE LAWS HA S BEEN BROUGHT TO MY NOTICE. 15. IN VIEW OF THE ABOVE DISCUSSION, FINDING NO MER IT THEREIN, THE GRIEVANCE SOUGHT TO BE RAISED BY THE DEPARTMENT IS REJECTED AND IT IS HELD THAT ITA NO.282(ASR)/2014 9 THE LD. CIT(A) WAS CORRECT IN QUASHING THE RECTIF ICATION ORDER PASSED BY THE ASSESSING OFFICER. 16. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON IST OCT OBER, 2012. SD/- (A.D. JAIN) JUDICIAL MEMBER DATED: IST OCTOBER, 2015 COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. INDUS TEXTILES, AMRITSAR. 2. THE ITO WARD V(2), AMRITSAR. 3. THE CIT(A), AMRITSAR. 4. THE CIT, AMRITSAR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.