STEFON CONSTRUCITONS P.LTD, MUMBAI V. ACIT 7(2), MUMBAI

ITA 2863/MUM/2012

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9177 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 02-01-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 27-04-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Assessee Lawyers: VIJAY JOSHI
• Keywords: Depreciation; Additional depreciation

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE S/SHRI JOGINDER SINGH (JM) AND B.R.BASKARAN (AM) , , . . , ./ I. T.A. NO . 2863 / MUM/20 1 2 ( / ASSESSMENT YEAR : 2 00 8 - 09 ) S TEFON CONSTRUCTION S PVT.LTD. 101, LAXMIKANT - A , OPP KAKAD UDYOG BHUVAN, S KEER MARG , OFF T H KATARIA MARG, MAHIM WEST, MUMBAI - 400016 MAHARASHTRA / VS. COMMISSIONER OF INCOME TAX 7 A AYAKAR BHAVAN , CHURCHGATE, MUMBAI - 400020 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AAACS5878F / A PPELLANT BY SHRI VIJAY JOSHI / RE SPONDENT BY SHRI NEIL PH ILIP / DATE OF HEARING : 9.01. 2015 / DATE OF PRONOUNCEMENT : 2 5. 8 . 3. 2015 / O R D E R PER B. R. BASKARAN, AM : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE O RDER DATED 24.1.2011 PASSED BY LD CIT(A) - 13, MUMBAI AND IT RELATES TO THE ASSESSMENT YEAR 2008 - 09. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN CONFIRMING THE DISALLOWANCE OF ADDITIONAL DEPRECIATION CLAIMED BY THE ASSESSEE. ITA NO.2863/ M / 20 1 2 2 2. THE ASSESS EE IS ENGAGED IN LAYING PILE FOUNDATION ON JOB WORK BASIS, WHICH ARE REQUIRED IN CONSTRUCTION ACTIVITIES. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE PURCHASED NEW MACHINERY NAMED HR - 180 PILING RING AND RELATED ACCESSORIES. GENERALLY PILING WORK IS DONE AT THE SITE ITSELF BY DIGGING BORES OF REQUIRED SIZES AND ERECTING CONCRETE PIPES INSIDE THE BORE. THE NEW MACHINERY ENABLED THE ASSESSEE TO FABRICATE PILES OF STANDARD SIZES AT A PLACE LOCATED OUTSIDE THE PROJECT AREA; TRANSPORT THE SAME TO PROJECT SITE AND PLACE THE PILES IN THE BORE DURING THE OPERATION OF BORE ITSELF. THE PILES SO FABRICATED WERE CALLED M.S. LINER PILES. THE ASSESSEE CLAIMED ADDITIONAL DEPRECIATION U/S 32(1)(IIA) OF THE ACT ON THE COST OF ABOVE SAID MACHINERY. THE ADDITIONAL DEPRECIATION WAS ALLOWED ON THE PLANT AND MACHINERY USED IN THE MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING. THE ASSESSEE, BY REFERRING TO THE DEFINITION OF THE TERM MANUFACTURE GIVEN IN SEC. 2(29BA) OF THE ACT, CONTENDED THAT THE PRE - CAST OR PRE - FABRICATED PILES MANUFACTURED BY USING THE NEW MACHINERY RESULTS IN MANUFACTURE OF NEW ARTICLE OR THING. 3. THE AO TOOK THE VIEW THAT A PILE IS CONSTRUCTED AND IT IS NOT MANUFACTURED OR PRODUCED. ACCORDINGLY THE AO, BY PLACING RELIANCE ON THE DECISI ON OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. N.C. BUDHARAJA & CO. & ORS (204 ITR 412), HELD THAT THE PILING WORK CANNOT BE TREATED AS MANUFACTURING ACTIVITY. THE AO ALSO REFERRED TO THE DECISION OF HONBLE SUPREME COURT RENDERED IN THE CASE OF S.A. BUILDERS VS. CIT (289 IR 26) TO HOLD THAT THE BUSINESS OF CIVIL CONSTRUCTION WOULD NOT AMOUNT TO CARRYING ON ANY MANUFACTURING ACTIVITY. ACCORDINGLY THE AO REJECTED THE CLAIM OF ADDITIONAL DEPRECIATION. 4. IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) NOT ICED THAT THE ASSESSEE DID NOT USE THE NEW MACHINERY IN THE PILING ACTIVITIES UNDERTAKEN BY IT DURING THE YEAR UNDER CONSIDERATION, I.E., THE LD CIT(A) NOTICED THAT THE ASSESSEE HAS CARRIED OUT PILING WORKS UNDER THE CONVENTIONAL METHOD ITA NO.2863/ M / 20 1 2 3 ONLY DURING THE YEA R UNDER CONSIDERATION. ACCORDINGLY, WITHOUT GOING INTO THE MERITS OF THE CONTENTIONS OF THE ASSESSEE, THE LD CIT(A) HELD THAT THE QUESTION OF GRANTING ADDITIONAL DEPRECIATION DOES NOT ARISE. AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 5. THE LD A.R INVITED OUR ATTENTION TO FOLLOWING OBSERVATIONS MADE BY THE HONBLE SUPREME COURT IN THE CASE OF N.C. BUDHARAJA & CO. (SUPRA) IT IS NOT AS IF THE ASSESSEE SUPPLIES PREFABRICATED PILES, WHICH ARE BORED INTO THE EARTH BY THE CONTRACTOR OR OWNER , AS THE CASE MAY BE. ACCORDINGLY HE SUBMITTED THAT THE HONBLE SUPREME COURT HAS NOT EXPRESSED ITS VIEW OR OPINION IN RESPECT OF MANUFACTURING OF PREFABRICATED PILES. HE FURTHER PLACED RELIANCE ON THE DEFINITION OF THE WORD MANUFACTURE GIVEN IN SEC. 2(29BA) OF THE ACT AND CONTENDED THAT THE PRE - FABRICATED PILES SQUARELY FALLS IN THE DEFINITION OF THE TERM MANUFACTURE. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS STARTED MANUFACTURING AND USING THE PREFABRICATED PILES IN THE SUCCEEDING YEAR AND I N SUPPORT OF THE SAME HE SUBMITTED THAT THE ASSESSEE HAS REALISED A TURNOVER OF RS.1.34 CRORES BY USING THE MS LINER PILES. ACCORDINGLY HE SUBMITTED THAT THE MACHINERY WAS READY TO USE DURING THE YEAR UNDER CONSIDERATION AND HENCE THE AO HAS ALLOWED NORM AL DEPRECIATION. ACCORDINGLY HE SUBMITTED THAT THE LD CIT(A) WAS NOT JUSTIFIED IN DENYING ADDITIONAL DEPRECIATION ON THIS GROUND. HE FURTHER CONTENDED THAT THE ASSESSEE IS MANUFACTURING PREFABRICATED PILES AND THE SAME IS BROUGHT TO THE WORK SITE BY PAY ING APPLICABLE VAT AND USED FOR PILING WORKS AND HENCE IT IS ENTITLED FOR ADDITIONAL DEPRECIATION. 6. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE ASSESSEE IS ULTIMATELY USING THE MACHINERY FOR EXECUTING OF PILING CONTRACT AND HENCE THE ASSESSEE CANNOT BE SAID TO HAVE ENGAGED IN MANUFACTURE OR ITA NO.2863/ M / 20 1 2 4 PRODUCTION OF ANY ARTICLE OR THING. FURTHER THE ASSESSEE HAS NOT USED THE MACHINERY DURING THE YEAR UNDER CONSIDERATION. 7. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. SINCE THE ISSUE REVOLVES AROUND TH E PROVISIONS OF SEC. 32(1)(IIA), WE FEEL IT RELEVANT TO EXTRACT THE SAME BELOW: - (IIA) IN THE CASE OF ANY NEW MACHINERY OR PLANT (OTHER THAN SHIPS AND AIRCRAFT), WHICH HAS BEEN ACQUIRED AND INSTALLED AFTER THE 31 ST DAY OF MARCH, 2005, BY AN ASSESSEE ENGA GED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING, A FURTHER SUM EQUAL TO TWENTY PERCENT OF THE ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTION UNDER CLAUSE (II). ADMITTEDLY, THE ASSESSEE IS ENGAGED IN THE BUSIN ESS OF UNDERTAKING CONTRACT WORK OF DOING PILING WORKS IN THE CONSTRUCTION SITES. THE CONVENTIONAL METHOD OF PILING INVOLVED DIGGING VERTICAL BORES AND THEN ERECTING PILES WITH MATERIALS, LIKE, STEEL, CEMENT, SAND, METAL ETC. THE NEW MACHINERY WAS CAPABL E OF PREPARING THE PILES IN SOME OTHER PLACE AND THE SAID PREFABRICATED PILES COULD BE BROUGHT TO THE PROJECT SITE AND THEY CAN BE FITTED INTO THE BORE. SINCE THE MACHINERY ENABLED THE ASSESSEE TO PRODUCE OR MANUFACTURE PRE - FABRICATED PILES, IT HAS CONTEN DED THAT THE PRE - FABRICATED PILES INVOLVE PRODUCTION OR MANUFACTURE OF AN ARTICLE OR THING. ACCORDINGLY, IT WAS CLAIMED THAT THE ASSESSEE IS ELIGIBLE FOR ADDITIONAL DEPRECIATION. 8. HOWEVER, A CAREFUL PERUSAL OF THE PROVISIONS OF SEC. 32(1)(IIA) EXTRACT ED ABOVE WOULD SHOW THAT THE ADDITIONAL DEPRECIATION IS ALLOWED TO AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING. ADMITTEDLY THE BUSINESS OF THE ASSESSEE INVOLVES CARRYING OUT PILING WORKS AND THE SAID BUSINESS CANNOT BE CONSIDERED TO BE A BUSINESS OF MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING. HENCE, IN OUR VIEW, THE PRODUCTION OF PREFABRICATED PILES WHICH ARE GOING TO BE USED BY THE ASSESSEE IN ITS BUSINESS OF PILING WOULD FORM PART OF CONSTRUCTION ITA NO.2863/ M / 20 1 2 5 ACTIV ITY AND HENCE THE DECISION RENDERED BY THE HONBLE SUPREME COURT IN THE CASE OF N.C. BUDHARAJA (SUPRA) WOULD SQUARELY APPLY TO IT. THE LD A.R CONTENDED, BY REFERRING TO SOME OF THE OBSERVATIONS MADE BY THE HONBLE SUPREME COURT, THAT THE HONBLE SUPREME C OURT DID NOT DECIDE ABOUT THE CASE OF MANUFACTURING OF PREFABRICATED PILES. A REFERENCE TO THE RELEVANT OBSERVATIONS OF THE HONBLE SUPREME COURT, WHICH IS EXTRACTED ABOVE, WOULD SHOW THE SAME WOULD APPLY TO A PERSON WHO IS ENGAGED IN THE BUSINESS OF MANU FACTURE OR PRODUCTION OF PRE - FABRICATED PILES AND SUPPLIES THEM TO OTHER CONTRACTORS OR OWNERS, AS THE CASE MAY BE. IN THE INSTANT CASE, THE ASSESSEE IS USING THE PRE - FABRICATED PILES IN ITS BUSINESS OF EXECUTING THE PILING WORKS, I.E., IT IS NOT SUPPLIE D TO OTHER CONTRACTORS OR OWNERS. 9. IT IS IN THE COMMON KNOWLEDGE OF EVERYONE THAT, IN CIVIL CONSTRUCTION CONTRACTS, CONCRETE SLABS ARE PRODUCED SEPARATELY AND THEY ARE THEN FITTED AT THE REQUIRED PLACES. DOES IT MEAN THAT THE CIVIL CONTRACTOR IS MANUFACTURING OR PRODUCING THE CONCRETE SLABS? IN OUR VIEW THE PRODUCTION OF CONCRETE SLABS EITHER SEPARATELY OR ON THE STRUCTURE ITSELF BY THE CIVIL CONTRACTOR FORMS PART OF CONSTRUCTION ACTIVITY ONLY, SINCE THEY ARE MERELY TWO DIFFERENT WAYS OF CONSTR UCTION. THE SAME ANALOGY, IN OUR VIEW, WOULD APPLY TO THE PRESENT CASE ALSO. IN OUR VIEW, IT WOULD NOT MAKE ANY DIFFERENCE WHEN THE PILES ARE CONSTRUCTED INSIDE THE BORE AT PROJECT SITE ITSELF OR THE PREFABRICATED PILES ARE FITTED INTO THE BORE, BY PRODU CING THE PILES AT A DIFFERENT PLACE. ULTIMATELY THE ASSESSEE IS EXECUTING HIS CONTRACT WORK OF PILING AND THE NEW MACHINERY WOULD ENABLE HIM TO COMPLETE THE WORK FAST, SINCE THE ASSESSEE COULD CARRY OUT BORING WORK SEPARATELY AND THE PREFABRICATED PILES C OULD BE PREPARED PRIOR TO BORING WORK ALSO. AS OBSERVED EARLIER, IT IS NOT THE CASE OF THE ASSESSEE THAT IT IS PRODUCING THE PREFABRICATED PILES AND SELLING THEM TO OUTSIDERS. HENCE, WE ARE OF THE VIEW THAT THE ASSESSEE CANNOT BE CONSIDERED TO BE AN ASS ESSEE ENGAGED IN ITA NO.2863/ M / 20 1 2 6 THE BUSINESS OF MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING. ACCORDINGLY WE UPHOLD THE DECISION REACHED BY THE LD CIT(A) ON THE REASONS DISCUSSED SUPRA. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. THE ABOVE ORDER W AS PRONOUNCED IN THE OPEN COURT ON 25TH MAR , 2015 . 25TH MAR, 2015 SD SD ( / JOGINDER SINGH ) ( . . / B.R. BASKARAN) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI: MAR , 201 5 . . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESP ONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI