The ACIT, Guntur V. M/s. Rahaman Khan Tobacco Enterprises Pvt. Ltd., Guntur

ITA 333/VIZ/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 6627 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 29-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 30-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y SESHA SRINIVAS
• Assessee Lawyers: K TIRUMALA RAO
• Keywords: Depreciation; Additional depreciation; Question of law
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO , HONBLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , HONBLE ACCOUNTANT MEMBER ITA NO. 33 3 / VIZ /201 6 (ASST. YEAR : 20 11 - 12 ) ACIT, CIRCLE - 2(1), GUNTUR. V S . M/S. RAHAMAN KHAN TOBACCO ENTERPRISES PVT. LTD., D.NO. 8 - 24 - 37, MANGALAGIRI ROAD, GUNTUR. PAN NO. AGRPG 3860 E (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K. TIRUMALA RAO C A. DEPARTMENT BY : SHRI Y. SESHA SRINIVAS SR. DR DATE OF HEARING : 16 / 0 8 /201 7 . DATE OF PRONOUNCEMENT : 06 / 1 0 /201 7 . O R D E R PER V. DURGA RAO, JUDICIAL MEMBER THI S IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 1 , GUNTUR , DATED 30 /0 3 /201 6 FOR THE ASSESSMENT YEAR 2011 - 12 . 2. FACTS OF THE CASE, IN BRIEF, ARE THAT ASSESSEE - COMPANY IS DERIVING INCOME FROM TOBACCO PROCESSING AND TRADING, FILED ITS RETURN OF INCOME BY ADMITTING TOTAL LOSS OF 8,56,40,672/ - . THE RETURN FIELD BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE 'ACT') AND AFTER FOLLOWING DUE PROCEDURE , ASSESSMENT IS COMPLETED UNDER SECTION 143(3) , WHEREIN THE 2 ITA NO. 333 /VIZ/201 6 ( M/S. RAHAMAN KHAN TOBACCO ENTERPRISES P. LTD. ) ASSESSING OFFICER DISALLOWED ADDITIONAL DEPRECIATION OF 5,93,23,320/ - . IN THE ASSESSMENT ORDER , THE ASSESSING OFFICER HAS OBSERVED THAT THE ACTIVITY OF THE ASSESSEE IS RE - DRYING AND THRESHING TOBACCO FOR TRADING PURPOSE. THE RAW MATERIAL AND THE END PRODUCT ARE TOBACCO ONLY. ALTHOUGH, IT INVOLVES SOME PROCESSING ACTIVITY, NO NEW AND DISTINCT OBJECT OR ARTICLE HAVING A DIFFERENT NAME, CHEMICAL COMPOSITION OR INTEGRAL STRUC TU RE IS PRODUCED BY THE PROCESS CARRIED OUT BY THE ASSESSEE. THEREFORE, THE ASSESSING OFFICER WAS OF THE OPINION THAT THE ACTIVITY CARRIED OUT BY THE ASSESSEE DOES NOT AMOUNTING TO MANUFACTURING ACTIVITY AND , ACCORDINGLY , THE CLAIM MADE BY THE ASSESSEE WAS DISALLOWED. 3 . ON APPEAL, THE LD. CIT(A) BY FOLLOWING THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. PREMIER TOBACCO PACKERS PVT. LTD . (284 ITR 222) HAS HELD THAT THE ACTIVITY CARRIED OUT BY THE ASSESSEE IS AMOUNTING TO MANUFACTUR E AND THEREFORE, ASSESSEE IS ELIGIBLE FOR CLAIM OF DEPRECIATION. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER: - I HAVE GONE THROUGH THE FACTS OF CASE, CONTENTS O F THE ASSESSMENT ORDER, WRITTEN SUBMISSIONS FILED BY THE ASSESSEE AND THE CASE LAWS RELIED BY THE ASSESSEE. THE ASSESSEE M/S. RAHAMAN KHAN TOBACCO ENTERPRISES PVT. LTD, IS IN THE BUSINESS OF PURCHASING OF RAW - TOBACCO AND PROCESSING AND SELLING THE SAME, F ILED ROI FOR THE A.Y. 2011 - 12. ON 30.09.2011, ADMITT ING TOTAL INCOME (LOSS) OF RS. 8,56,40,672/ - AND SCRUTINY ASSESSMENT WAS COMPLETED ON 18.02.2014 COMPUTING THE TOTAL INCOME ( L OSS) AT RS.2, 4 0,27,030/ - . WHILE DOING SO, THE AO HAS DISALLOWED THE ADDITIONAL DEPRECIATION TO THE EXTENT OF RS.5,93,23,320/ - ON PLANT AND MACHINERY. AO. IN THE IMPRESSION THAT THE ACTIVIT IES OF THE ASSESSEE COMPANY CANNOT BE CONSIDERED AS MANUFACTURING ACTIVITY AND DISALLOWED THE CLAIM OF ADDITIONAL DEPRECIATION. HOWEVER, THE ASSES SEE IN THE WRITTEN SUBMISSIONS HAS SUBMITTED THAT THE MAIN BUSINESS OF THE ASSESSEE IS PURCHASE OF RAW TOBACCO, RE - DRYING AND THRESHING OF TOBACCO AND SELLING THE SAME, WHICH IS THE PART OF THE 3 ITA NO. 333 /VIZ/201 6 ( M/S. RAHAMAN KHAN TOBACCO ENTERPRISES P. LTD. ) MANUFACTURING PROCESS AND THE ASSESSEE IS ENTITLED FOR ADDITIO NAL DEPRECIATION U/S.32(1 )(IIA) OF THE I.T. ACT, 1961. THE ASSESSEE IN THE FORM 3CD, THE NATURE OF BUSINESS HAS MENTIONED THAT 'THRESHING AND RE - DRYING OF TOBACCO, TRADING OF TOBACCO'. AS PER I.T. ACT, 1961 SEC,2(29BA) 'MANUFACTURE' WITH ITS GRAMMATICAL VA RIATIONS, MEANS A CHANGE IN A NON - LIVING PHYSI CAL OBJECT OR ARTICLE OR THING: - (A) RESULTING IN TRANSFORMATION OF THE OBJECT OR ARTICLE OR THING INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFERENT NAME, CHARACTER AND USE; OR (B) BRINGING INTO EXISTENCE OF A NEW AND DISTINCT OBJECT OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSITION OR INTEGRAL STRUCTURE. THE HON'BL E MADRAS HIGH COURT IN THE CASE OF CIT VS. PREMIER TOBACCO PACKERS PRIVATE LIMITED 284 ITR 222 IT WAS HELD THAT 'THE ASSESSEE AFTER TRASHING AND RE - DRYING WHAT WAS CALLED VIRGINIA FLUE - CURED TOBACCO (VFT) IN COMMERCIAL PARLANCE, CONVERTED IT INTO, LAMINA AND N.R. STEMS ETC. THE END PRODUCT WAS USED IN THE MANUFACTURE OF CIGARETTES AND THE RAW MATERIALS, NAMELY, VIRG INIA FLUE - CURED TOBACCO (VFT) COULD NOT BE USED DIRECTLY IN THE MANUFACTURE OF CI GARETTES. THE ASSESSEE AFTER PROCESSING THE RAW VIRGINIA FLUE - CURED TOBACCO CONVERTED IT INTO TOBACCO WHICH IS A COMMERCIALLY DIFFERENT COMMODITY. CONVERSION OF THE VIRGINIA FLUE - CURED TOBACCO INTO TOBACCO WOULD, BE A MANUFACTURING ACTIVITY. THE ASSESSEE WAS ENTITLED TO SPECIAL DEDUCTION US 80HH. THE CLAIM OF ADDITIONAL DEPRECIATION WAS NOT ALLOWED AS PER THE PROVISIONS OF SECTION 32(IIA) OF THE I.T. ACT. THUS, IF DRYING AND T HRESHING OF TOBACCO COULD BE SHOWN AS MANUFACTURING, THEN THERE SHOULD NOT BE ANY PROBLEM FOR THE AO TO ACCEDE TO THE REQUEST OF THE APPELLANT. IN THIS CONTEXT, L AM REMINDED OF THE EASE OF C IT VS. PREMIER TOBACCO PACKERS (P), REPORTED IN (2006) 284 ITR 22 2 (MAD), WHEREIN THE SAME QUESTION OF WHETHER DRYING AND THRESHING OF TOBACCO AMOUNTS TO MANUFACTURING ACTIVITY? AND IT WAS ANSWERED IN FAVOR OF THE APPELLANT. THE HON'B L E SUPREME COURT OF INDIA IN THE CASE OF ASPIN WAIL & CO. LTD VS. CIT REPORTED IN (2001 ) ITR 323 (SC), IT WAS HELD THAT THE CONVERSION OF THE RAW BERRY INTO COFFEE BEANS WAS A MANUFACTURING ACTIVITY AND THE APPELLANT WAS, THEREFORE, ENTITLED TO THE INVESTMENT ALLOWANCE UNDER SEC.32A. THOUGH THE SUPREME COURT OF INDIA HAS RENDERED THE JUDGMEN T REGARDING THE ALLOWABILITY OF INVESTMENT U/S.32(IIA) OF THE I.T.ACT, APPLYING THE SAME ANALOGY THAT THE ADDITIONAL DEPRECIATION CLAIM MADE BY THE ASSESSEE HAS TO BE ALLOWED. I N VIEW OF THE DETAILED DISCUSSION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AN D VARIOUS COURT JUDG MENTS, THE ASSESSEE IS ENTITLED FOR ADDITIONAL DEPRECIATION U/S.32( 1 )(IIA) OF THE I.T. ACT. HENCE, THE DISALLOWANCE MADE BY THE AO IS DISMISSED AND ASSESSEE'S GROUND OF APPEAL IS ALLOWED. 4 . ON BEING AGGRIEVED, REVENUE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. 5. WHEN THIS APPEAL IS TAKEN UP FOR HEARING, L EARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE INVOLVED IN 4 ITA NO. 333 /VIZ/201 6 ( M/S. RAHAMAN KHAN TOBACCO ENTERPRISES P. LTD. ) THIS APPEAL IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH OF THE TR IBUNAL IN THE CASE OF DCIT VS. MADDI LAKSHMAIAH & CO. LTD. IN ITA NO. 422/VIZ/2012 , BY ORDER DATED 05/05/2017 . 6 . ON THE OTHER HAND , L EARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER. 7 . WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND ORDERS OF THE AUTHORITIES BELOW. 8 . IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER CLEARLY MENTIONED THAT THE ACTIVITY OF THE ASSESSEE IS RE - DRYING AND THRESHING TOBACCO FOR TRADING PURPOSE. THE RAW MATERIAL AND THE END PRODUCT ARE TOBACCO ONLY. THEREFORE, THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF THE ASSESSEE FOR DEPRECIATION. THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF MADDI LAKSHMAIAH & CO. LTD . (SUPRA) HAS CONSIDERED TH E ISSUE BY FOLL O W I NG THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF PREMIER TOBACCO PACKERS PVT. LTD. (SUPRA) , ALLOWED DEPRECIATION CLAIMED BY THE ASSESSEE. FOR THE SAKE OF CONVENIENCE, THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER: - 18. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATERIAL ON RECORD, WE FIND THAT THE A.O. HAS DISALLOWED ADDITIONAL DEPRECIATION CLAIMED BY THE ASSESSEE, ON THE GROUND THAT THE ACTIVITY OF DRYING AND THRESHING OF TOBACCO DOES NOT AMOUNT TO MANUFACT URE WHICH IS ELIGIBLE FOR ADDITIONAL DEPRECIATION UNDER THE PROVISIONS OF SECTION 32(IIA) OF THE ACT. THE CIT(A) BY FOLLOWING THE DECISION OF HONBLE MADRAS HIGH COURT, IN THE CASE OF CIT VS. PREMIER TOBACCO PA C KERS PVT. LTD. (2006) 284 ITR 222, HELD THAT DRYING AND THRESHING OF TOBACCO LEAVES IS MANUFACTURE AND ACCORDINGLY, ENTITLED FOR ADDITIONAL DEPRECIATION AS PER THE PROVISIONS OF SECTION 32(IIA) OF THE ACT. THE RELEVANT PORTION OF THE CIT(A) ORDER IS EXTRACTED BELOW: I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT, GONE THROUGH THE ORDER OF THE AO AND HEARD THE AR IN PERSON BESIDES PERUSING 5 ITA NO. 333 /VIZ/201 6 ( M/S. RAHAMAN KHAN TOBACCO ENTERPRISES P. LTD. ) ALL OTHER MATERIAL AVAILABLE ON RECORD. THE AO HAS NOT ALLOWED THE APPELLANTS CLAIM ON THE GROUND THAT DRYING AND THRESH ING OF TOBACCO LEAVES CANNOT BE CALLED MANUFACTURING ACTIVITY, HENCE THE CLAIM OF ADDITIONAL DEPRECIATION WAS NOT ALLOWED AS PER THE PROVISIONS OF SECTION 32(IIA) OF THE ACT. THUS, IF DRYING AND THRESHING OF TOBACCO COULD BE SHOWN AS MANUFACTURING, THEN T HERE SHOULD NOT BE ANY PROBLEM FOR THE AO TO ACCEDE TO THE REQUEST OF THE APPELLANT. IN THIS CONTEXT, I AM REMINDED OF THE CASE OF CIT VS. PREMIER TOBACCO PA C KERS (P), REPORTED IN (2006) 284 ITR 222 (MAD), WHEREIN THE SAME QUESTION OF WHETHER DRYING AND T HRESHING OF TOBACCO AMOUNTS TO MANUFACTURING ACTIVITY? AND IT WAS ANSWERED IN FAVOUR OF THE APPELLANT. IN THIS CASE THE APPELLANT IS ENGAGED IN THE ACTIVITY7 OF PROCESSING TOBACCO FOR OTHERS, WHICH IS KNOWN AS THRASHING. IN THE RETURN FILED, ENTIRE INCO ME WAS CLAIMED DEDUCTIBLE UNDER SECTION 80HH, AS ITS ACTIVITY IS MANUFACTURING OR PRODUCTION. THE AO DISALLOWED THE CLAIM. BUT ON APPEAL, THE CIT(A) FOLLOWING THE EARLIER ORDER OF THE TRIBUNAL, ALLOWED THE APPEAL AND ANSWERED THE ISSUE IN FAVOUR OF THE AP PELLANT. HENCE, THE REVENUE WENT IN APPEAL TO THE TRIBUNAL, WHICH HAS CONFIRMED THE ORDER OF THE CIT(A) FOLLOWING ITS EARLIER ORDER ON WHICH HAS CONFIRMED THE ORDER OF THE CIT(A) FOLLOWING ITS EARLIER ORDER ON THE GROUND THAT THE APPELLANTS ACTIVITY FALL S WITHIN THE PURVIEW OF THE MANUFACTURE OR PRODUCTION AND DISMISSED THE APPEAL OF THE REVENUE. AGGRIEVED BY THE SAID ORDER OF THE TRIBUNAL, THE REVENUE HAS REFERRED THE ABOVE MATTER AND RAISED THE SUBSTANTIAL QUESTIONS OF LAW THAT WHETHER, IN THE FACTS AN D CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE APPELLANT IS ENTITLED TO DEDUCTION UNDER S. 80HH? THE HIGH COURT AFTER HOLDING THAT THE ISSUE INVOLVED IN THE ABOVE QUESTION IS COVERED BY THE DECISION OF THE SUPREME COURT RENDERED IN ASPIN WALL & CO. LTD. VS. CIT, REPORTED IN (2001) 251 ITR 323 (SC), DISMISSED THE REFERENCE. IT IS IMPORTANT TO NOTE HERE THAT THE APEX COURT IN THE CASE LAW CITED ABOVE HAS OBSERVED THAT CONVERSION OF THE RAW BERRY INTO COFFEE BEANS WAS A MANUFACTURIN G ACTIVITY AND THE APPELLANT WAS, THEREFORE, ENTITLED TO THE INVESTMENT ALLOWANCE UNDER S. 32A. IN VIEW OF THE FOREGOING CON C LUSION, THE COURT DID NOT FIND ANY ERROR IN THE ORDER OF THE TRIBUNAL AND FURTHER OBSERVED THAT NO QUESTION OF LAW MUCH LESS A SUB STANTIAL QUESTION OF LAW ARISES FOR CONSIDERATION AND ACCORDINGLY, THE APPEAL WAS DISMISSED. IN LIGHT OF THE FOREGOING, I DO NOT HAVE ANY HESITATION TO HOLD THAT DRYING AND THRASHING OF TOBACCO LEAVES IS MANUFACTURE AND ACCORDINGLY ENTITLED FOR ADDITIONAL DEPRECIATION AND THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 19. THE FACTS REMAIN UNCHANGED. THE REVENUE FAILS TO BRING ON RECORD ANY CONTRARY DECISION WHICH IS IN FAVOUR OF THE REVENUE TO COUNTER THE FINDINGS OF THE CIT(A). THEREFORE, WE ARE OF THE VIEW THAT THE ACTIVITY OF DRYING AND THRESHING OF TOBACCO LEAVES AMOUNTS TO MANUFACTURE, WHICH IS ELIGIBLE FOR ADDITIONAL DEPRECIATION AS PER THE PROVISIONS OF SECTION 32(IIA) OF THE ACT, ACCORDINGLY DIRECTED THE A.O. TO ALLOW ADDITIONAL DEPRECIATION CLA IMED BY THE ASSESSEE. 9. WE FIND THAT THE FACTS OF THIS CASE ARE SIMILAR TO THE CASE ALREADY BEEN CONSIDERED BY THE COORDINATE BENCH OF THE TRIBUNAL AND THEREFORE 6 ITA NO. 333 /VIZ/201 6 ( M/S. RAHAMAN KHAN TOBACCO ENTERPRISES P. LTD. ) BY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF MADDI LAKSHMAIAH & CO. LTD . (SUPRA) AND ALSO BY FOLLOWING THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF PREMIER TOBACCO PACKERS PVT. LTD. (SUPRA) , WE HOLD THAT ASSESSEE IS ELIGIBLE FOR ADDITIONAL DEPRECIATION AS PER THE PROVISIONS OF SECTION 32(I IA) OF THE ACT , ACCORDINGLY WE DIRECT THE ASSESSING OFFICER TO ALLOW ADDITIONAL DEPRECIATION CLAIMED BY THE ASSESSEE . 10 . IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON TH IS 0 6 T H DAY OF OCTOBER , 201 7 . S D / - S D / - ( D.S. SUNDER SINGH ) ( V. DURGA RAO ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 0 6 T H OCTOBER , 201 7 . VR/ - COPY TO: 1. THE ASSESSEE - M/S. RAHAMAN KHAN TOBACCO ENTERPRISES PVT. LTD., D.NO. 8 - 24 - 37, MANGALAGIRI ROAD, GUNTUR. 2. THE REVENUE ACIT, CIRCLE - 2(1), GUNTUR. 3. THE P CIT , GUNTUR. 4. THE CIT(A) - 1, GUNTUR. 5. THE D.R . , VISAKHAPATNAM. 6. GUARD FILE. BY ORDER (VUKKEM RAMBABU) SR. PRIVATE SECRETARY, ITAT, VISAKHAPATNAM.