M/s. Hari Fashions, Surat V. The ACIT.,Circle-2, Surat

ITA 3105/AHD/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6494 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 20-05-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 22-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Assessee Lawyers: SUNIL KEDIA
• Keywords: Depreciation; Additional depreciation
• Section: 32(1)(iia)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI A.N. PAHUJA, ACCOUNTANT MEMBER DATE OF HEARING : 20/05/2011 DRAFTED ON: 23 /05/2011 ITA NO.3105/AHD/2010 ASSESSMENT YEAR : 2007-08 M/S. HARI FASHIONS C/O.SUNIL KEDIA 210 B-21 ST CENTURY BUSINESS CENTRE NR.UDHAN DARWAJA RING ROAD, SURAT-395002 VS. THE ASST.CIT CIRCLE-2 SURAT PAN/GIR NO. :AAEFH 1350 G ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI SUNIL KEDIA RESPONDENT BY: SHRI C.K. MISHRA, SR.D.R. O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE WHICH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-II, SURAT DATED 19/08/2010 AND THE ONLY SUBSTANTIVE GROUND IS GROUN D NO.1 WHICH IS ARGUED BEFORE US; REPRODUCED BELOW:- 1. THE ASSESSMENT ORDER IS BAD IN LAW AND I N FACTS. 2. THE A.O. ERRED IN LAW AND IN FACTS IN MAKING A DDITION OF RS.2,72,049/- BY DISALLOWING THE ADDITIONAL DEPRECI ATION U/S.32(1)(IIA) OF THE INCOME TAX ACT ON THE FOLLOWI NG GROUNDS. A) THE A.O. HAS FAILED TO APPRECIATE THE FACT, THAT TH E EMBROIDERY MACHINE WHICH IS SUBJECT MATTER OF ISSUE ARE BEING ISSUED TO DO THE EMBROIDERY WORK ON THE FABRI CS AND THEREBY MAKING THE FABRICS VALUE ADDED AND MARKETAB LE ITA NO. 3105/AHD/2010 M/S. HARI FASHIONS VS. ASST.CIT ASST.YEAR 2007-08 - 2 - WITH NEW GETUP AND DESIGNS AND FURTHER THE PROCESS IS COVERED UNDER THE TECHNOLOGY UP-GRADATION FUND SCHE ME (TUF) FRAMED BY MINISTRY OF TEXTILE, GOVERNMENT OF INDIA FOR SMALL SCALE TEXTILE AND JUTE INDUSTRIES TO AVA IL 15% CREDIT LINKED CAPITAL SUBSIDY (CLCS TUFS). B) THE PLANT & MACHINERY (EMBROIDERY MACHINE) IS COVER ED UNDER THE TECHNOLOGY UP-GRADATION FUND, WHICH IS ME NT FOR SMALL SCALE INDUSTRIES. C) THE UNIT IS HAVING SSI REGISTRATION WITH DISTRICT I NDUSTRIAL CENTRE, SURAT. D) THE EMBROIDERY WORK ON FABRICS TRANSFORM THE PLAIN FABRIC INTO THE WELL VALUE ADDED EMBORDE4D FABRICS WHICH H AS ENTIRELY DIFFERENT USE AND VALUE. THE EMBORDED FAB RIC IS BEING RECOGNIZED AS A DISTINCT PRODUCT IN THE TRADE AND COMMERCE. E) THE PROCESS INVOLVED IN THE EMBROIDERY WORK REQUIRE S THE USE OF MAN POWER, ELECTRICITY, INFRASTRUCTURE AND R AW MATERIAL WHICH IS USUALLY FOR MANUFACTURING ACTIVIT Y. F) THE WORD MANUFACTURE OR PRODUCTION SHOULD BE SEEN F ROM THE WIDE ANGLE AND SHOULD NOT BE RESTRICTED TO MANU FACTURE THE NEW PRODUCT ALONE. G) THERE ARE MANY CASE LAWS DECIDED BEFORE THE DIFFERE NT APPELLATE AUTHORITIES, WHERE DIFFERENT KIND OF ACTI VITY HAS BEEN HELD TO MANUFACTURING ACTIVITY. IN THE CASE O F CIT VS DARSHAK, 247 ITR 489, IT WAS HELD THAT CONVERTING T HE PLAIN GLASS INTO THE DECORATIVE GLASSWARE AMOUNTS TO MANUFACTUR4E. H) UNDER THE CENTRAL EXCISE ACT, THE EMBROIDERY IS SUB JECT TO LEVY OF DUTY AND CONSIDERED AS MANUFACTURE. I) SECTION 32(1)(IIA) IS A DEDUCTION SECTION AND SHOUL D BE LIBERALLY CONSTITUTED. 3) THE HONORABLE ITAT AHMEDABAD IN CASE OF INCOME TAX OFFICER, WARD-1(2), SURAT V/S. HARIPRIYA PROCESSORS PVT.LTD. (ITA NO.1569/AHD/2010), HELD THAT EMBROIDERY ON FABRICS IS AMOUNT TO MANUFACTURE AND ADDITIONAL DEPRECIATION IS ALLOWED U/S.32(1)(IIA). CONSIDERING THE FACTS GIVEN ABOVE, YOU ARE REQUESTE D TO APPRECIATE THAT EMBROIDERY PROCESS IS NOTHING BUT A MANUFACTURE OR PRODUCTION PROCESS AND ELIGIBLE FOR ADDITIONAL DEPRECIATION UNDER SECT ION 32(1)(IIA) OF THE ACT. ITA NO. 3105/AHD/2010 M/S. HARI FASHIONS VS. ASST.CIT ASST.YEAR 2007-08 - 3 - 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) OF THE I.T. ACT, 1961 DATED 15/1 0/2009 WERE THAT THE ASSESSEE-FIRM IS ENGAGED IN THE BUSINESS OF EMBROI DERY WORK ON JOB- WORK BASIS. IT WAS NOTED BY THE ASSESSING OFFICER THAT IN ADDITION TO THE NORMAL DEPRECIATION THE ASSESSEE HAS ALSO CLAIMED A DDITIONAL DEPRECIATION OF RS.2,72,049/- ON NEW MACHINERY INSTALLED DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE WAS ISSUED A SHOW-CAUS E AS TO WHY ADDITIONAL DEPRECIATION BE NOT DISALLOWED. IT WAS SUBMITTED THAT THE EMBROIDERY MACHINE IS USED TO PERFORM EMBROIDERY W ORK ON THE FABRICS AND BY THE EMBROIDERY WORK THE VALUE OF THE FABRIC IS ADDED AND, THEREFORE, MARKETABLE UNDER A NEW GROUP AND DESIGN OF FABRIC. IT WAS ALSO INFORMED THAT THE PROCESS IS COVERED UNDER THE TECH NOLOGY UPGRADATION FUND SCHEME (TUF) FRAMED BY THE MINISTRY OF TEXTILE , GOVERNMENT OF INDIA TO PROMOTE SMALL SCALE TEXTILE AND JUTE INDUS TRIES. IT WAS ARGUED THAT THE EMBROIDERY PROCESS WAS A MANUFACTURING OR A PRODUCTION PROCESS THEREFORE ELIGIBLE FOR ADDITIONAL DEPRECIATION U/S. 32(1)(IIA) OF THE I.T.ACT. HOWEVER, THE ASSESSING OFFICER WAS NOT CONVINCED AN D ACCORDING TO HIM ADDITIONAL DEPRECIATION @ 20% IS ALLOWABLE ONLY WHE N THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTIO N OF ANY ARTICLE OR THING. AGAINST THE SAID DISALLOWANCE AN APPEAL WAS PREFERRED HOWEVER THE LEARNED CIT(APPEALS) HAS AFFIRMED THE VIEW OF T HE ASSESSING OFFICER. NOW THE ASSESSEE IS FURTHER IN APPEAL. 3. BEFORE US, A DECISION OF ITAT SMC AHMEDABAD I N THE CASE OF ITO VS. HARIPRIYA PROCESSORS PVT.LTD. BEARING ITA N O.1569/AHD/2010, DATED 08/09/2009 HAS BEEN FILED, WHEREIN VIDE PARAG RAPH NO.5, IT WAS HELD AS UNDER:- ITA NO. 3105/AHD/2010 M/S. HARI FASHIONS VS. ASST.CIT ASST.YEAR 2007-08 - 4 - 5. I HAVE HEARD THE RIVAL CONTENTIONS AND GONE THRO UGH THE FACTS AND CIRCUMSTANCES OF THE CASE. I FIND FROM THE FACTS TH AT THE ASSESSEE IS DOING EMBROIDERY WORK ON JOB WORK BASIS AND SAID ACTIVITY ALSO RESULTS IN PRODUCTION OF NEW ARTICLE WHICH HAS DIFFERENT MARKE T OF ITS OWN AND THERE ARE VARIOUS STAGES WHICH ARE INVOLVED IN EMBROIDERY ACTIVITY AND THE SAME CAN BE BRIEFLY CATEGORIZED AS UNDER:- I) CREATING A DIGITALIZED EMBROIDERY DESIGN FILE; II) EDITING THE DESIGN AND/OR COMBINING IT WITH O THER DESIGN (OPTIONAL); III) LOAD THE FINAL DESIGN FILE INTO THE EMBR OIDERY MACHINE; IV) STABILIZE THE FABRIC AND PLACE IT IN THE M ACHINE; V) START AND MONITOR THE EMBROIDERY MACHINE; AND BECAUSE OF THE ABOVE PROCESS WHICH HAS TO BE CA RRIED OUT IN VERY CAREFUL MANNER THE OUTPUT I.E. EMBROIDERED FABRICS HAS ENTIRELY DIFFERENT LOOKS AND HAS DIFFERENT COMMERCIAL VALUE AND THUS, BECAUSE OF ABOVE OPERATIONS NEW COMMODITY EMERGES. THE EXPRESSIONS ' MANUFACTURE' AND 'PRODUCE' HAVE NOT BEEN DEFINED IN THE ACT AT THE R ELEVANT POINT OF TIME BUT THE DICTIONARY MEANING OF 'MANUFACTURE' IS TO TRANS FORM OR FASHION NEW MATERIAL INTO A CHANGED FORM FOR USE. BECAUSE OF TH E ABOVE OPERATIONS CARRIED OUT BY ASSESSEE, THE LOOK OF THE FABRIC IS CHANGED SUBSTANTIALLY AND THE NEW ARTICLE IS COMMERCIALLY KNOWN DIFFERENTLY F ROM THE ORIGINAL FABRICS. EVEN OTHERWISE, THE WORD 'PRODUCT' HAS A WIDER CONN OTATION THAN THE WORK 'MANUFACTURE' AND RELIANCE PLACED BY THE ASSESSEE O N THE DECISION OF HON'BLE APEX COURT IN THE CASE OF S.SM BROTHERS (P) LTD. & OTHERS V. CIT (2000) 243 ITR 418 (SC), WHEREIN THE DEVELOPMENT RE BATE CLAIMED U/S.33(1)(B)(B)(I) WAS ALLOWED BY HOLDING THAT THE PLANT AND MACHINERY WERE USED IN THE PRODUCTION OF PROCESSED TEXTILES ( EMBROIDERY) AND THEREFORE, THE MACHINERY IS ENTITLED TO DEVELOPMENT REBATE UNDER THE ABOVE PROVISIONS. SECTION 33(1)(B)(B)(I) PROVIDES F OR DEVELOPMENT REBATE ON MACHINERY OR PLANT WHICH IS INSTALLED FOR THE PU RPOSE OF BUSINESS OF CONSTRUCTION, MANUFACTURE OR PRODUCTION OF ANY ONE OR MORE OF THE ARTICLES OR THINGS SPECIFIED IN THE LIST IN THE FIFTH SCHEDU LE. THE RATIO OF ABOVE DECISION OF HON'BLE SUPREME COURT IS DIRECTLY APPLI CABLE TO FACTS OF THE INSTANT CASE BECAUSE SEC.32(1)(IIA) ALSO PROVIDES F OR ADDITIONAL DEPRECIATION IN RESPECT OF NEW MACHINERY AND PLANT PURCHASED BY ASSESSEE WHO IS ENGAGED IN THE BUSINESS OF MANUFACT URE OF PRODUCTION OF ANY ARTICLE OR THING. IN THE ABOVE CASE THE HON'BLE SUPREME COURT HAS ALREADY HELD THAT ASSESSEE WAS USING MACHINERY IN P RODUCTION OF PROCESSED TEXTILE I.E. EMBROIDERY WORK AND THUS, TH E FACT EMBROIDERY WORK IS REGARDED AS PRODUCTION CANNOT BE DENIED. SECTION 32(1)(IIA) ALSO USED THE WORD 'PRODUCTION OF ANY ARTICLE OR THING' AND T HUS, THE PRODUCT WITH ITA NO. 3105/AHD/2010 M/S. HARI FASHIONS VS. ASST.CIT ASST.YEAR 2007-08 - 5 - EMBROIDERY WORK IS INCLUDED IN THE WORK ANY ARTICLE OR THING. IN FACT THE PROVISIONS OF SECTION 32(1)(IIA) ARE LARGER IN SCOP E AS COMPARED TO SECTION 33(10(B)(B)(L)[SIC] INASMUCH AS SECTION 32(1)(IIA) PROVIDES FOR ADDITIONAL DEPRECIATION ON PLANT AND MACHINERY WHICH IS USED I N THE PRODUCTION/MANUFACTURE OF ANY ARTICLE OR THING WHER EAS SECTION 33(10(B)(B)(I)[SIC] PROVIDES FOR DEVELOPMENT REBATE ON PLANT AND MACHINERY WHICH IS USED IN THE CONSTRUCTION, MANUFACTURE OR P RODUCTION OF ANY ARTICLE OR THING WHICH IS LISTED IN THE FIFTH SCHEDULE. IN VIEW OF THESE FACTS AND THE DECISION OF HON'BLE SUPREME COURT THE ADDITIONAL DE PRECIATION CLAIMED BY ASSESSEE IS REQUIRED TO BE ALLOWED AS PLANT AND MAC HINERY IS USED IN THE PRODUCTION OF EMBROIDERY FABRICS. I FURTHER FIND TH AT EVEN FROM THE ANGLE OF LEVY OF EXCISE DUTY UNDER CENTRAL EXCISE ACT, THIS EMBROIDERY IS SUBJECT TO LEVY OF DUTY AND CONSIDERED AS MANUFACTURE. THE REL EVANT TARIFF ITEM 5810 READS AS UNDER:- SECTION XI 350 CHAPTER 58 TARIFF ITEM DEPRECIATION OF GOODS UNIT RATE OF DUTY (1) (2) (3) (4) 5810 EMBROIDERY IN THE PIECE, IN STRIPS O N IN MOTIFS 5810 10 00 EMBROIDERY WITHOUT KG. 8% VISIBLE GROUND OTHER EMBROIDERY; 5810 91 00 OF COTTON KG. 8% 5810 92 OF MAN-MADE FIBRES; 5810 92 10 EMBROIDERED KG. 8% BADGES, MOTIFS AN D THE LIKE 5810 92 90 OTHER KG. 8% 5810 99 00 OF OTHER TEXTILE KG. 8% MATERIALS AS THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE A SSESSEE, WE ALLOW THE CLAIM OF THE ASSESSEE. THE ISSUE OF REVENUES APPE AL IS DISMISSED. 4. ON HEARING THE SUBMISSIONS OF BOTH THE SIDES AND ON CAREFUL PERUSAL OF THE ORDER OF THE RESPECTED CO-ORDINATE B ENCH, IT IS EVIDENT THAT THE ISSUE OF ADDITIONAL DEPRECIATION ON EMBROIDERY MACHINE IS SQUARELY COVE RED, HENCE, JUDICIAL PROPRIETY REQUIRES ONE BE NCH OF THE TRIBUNAL TO FOLLOW THE OTHER BENCH SPECIALLY WHEN THE ISSUE IN VOLVED IS IDENTICAL ON ITA NO. 3105/AHD/2010 M/S. HARI FASHIONS VS. ASST.CIT ASST.YEAR 2007-08 - 6 - SAME FACTS. WE HOLD ACCORDINGLY, THEREFORE, REVER SE THE FINDINGS OF THE AUTHORITIES BELOW AND DIRECT TO ALLOW THE CLAIM. G ROUNDS RAISED IN THIS REGARD ARE ALLOWED. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 27/ 5 /2011. SD/- SD/- ( A.N. PAHUJA ) ( MU KUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBE R AHMEDABAD; DATED / /2011 T.C. NAIR, SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPARTMENT. 3. THE CIT CONCERNED. 4. THE LD. CIT(APPEALS)-II, SURAT 5. THE DR, AHMEDABAD BENCH. 6. THE GUARD FI LE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD 1. DATE OF DICTATION..23.5.2011 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 23.5.2011 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S27/5/2011 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 27/5/2011 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER