DCIT, CHENNAI V. Chettinad Builders Pvt. Ltd., CHENNAI

ITA 829/CHNY/2016

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3895 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 01-04-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SHIVASRINIVAS IRS
• Assessee Lawyers: K B MURALIDARAN
• Keywords: Depreciation; Additional depreciation; Earning of tax free income; Wholly owned subsidiary; Revised return
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , ! . ! ' # , $ #% BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO.829/MDS/2016 $ & !'& / ASSESSMENT YEAR : 2011-2012 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(2) CHENNAI 600 034. VS. M/S. CHETTINAD BUILDERS PVT. LTD, RANI SEETHAI HALL, 5 TH FLOOR, NO.603, ANNA SALAI, CHENNAI 600 006. [PAN AACCC 4133B] ( / APPELLANT) ( /RESPONDENT) () * + / APPELLANT BY : SHRI. SHIVA SRINIVAS, IRS, JCIT. ,-() * + /RESPONDENT BY : SHRI. K.B. MURALIDARAN, C.A. ' ! * . / DATE OF HEARING : 22-08-2016 /0' * . / DATE OF PRONOUNCEMENT : 08-09-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THE APPEAL FILED BY THE DEPARTMENT IS DIRECTED A GAINST ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-1 , CHENNAI IN ITA NO.32/14-15/A-1, DATED 29.12.2015 FOR THE ASSESSMEN T YEAR 2011- 2012 PASSED U/S.143(3) AND 250 OF THE INCOME TAX A CT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT). ITA NO.829/MDS/2016. :- 2 -: 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL:- 2.1 THE LEARNED CIT(A) ERRED IN DELETING THE DIS ALLOWANCE MADE U/S./14A OF RS. 35,00,000/ -. 2.2 THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED TH E FACT THAT THE DECISION OF THE JURISDICTIONAL ITAT IN THE CASE OF EIH ASSOCIATED HOTELS IN ITA NO.1503/MDS/20 12 FOR A.Y.2008-09 DATED 17-07-2013 HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND APPEAL U/S.260A HAS BEEN PREFERR ED WHICH IS PENDING BEFORE THE HON'BLE HIGH COURT. 2.3 THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED TH E BOARD'S CIRCULAR NO.5/2014 DATED 11-02-2014 WHEREIN IT IS STATED THAT DISALLOWANCE U/S. 14A CAN BE MADE EVEN IN CASES WHERE THE TAXPAYER HAS NOT EARNED EXEMPT INCO ME IN ANY PARTICULAR. 3.1 THE LEARNED CIT(A) ERRED IN DIRECTING THE ASSES SING OFFICER TO ALLOW ADDITIONAL DEPRECIATION ON PLANT A ND MACHINERY TO THE TUNE OF RS.62,63,733/- 3.2 THE LEARNED CIT(A) FAILED TO NOTE THAT THE ADDI TIONAL DEPRECIATION IS AVAILABLE FOR THOSE ENGAGED IN THE MANUFACTURE OF PRODUCTION .AND THE INSTANT ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF CIVIL CONSTRU CTION. 3.3 THE LEARNED CIT(A) FAILED TO APPRECIATE THE APE X COURT'S DECISION IN THE CASE OF N.C. BUDHARAJA & COMPANY REPORTED IN 204 ITR 412 (SC) THE FACTS OF WHICH IS SQUARELY APPLICABLE TO THE FACTS OF THE ASSESSEE COMPANY WHE REIN IT WAS HELD THAT PRODUCTION OF READY MIX CONCRETE DOES NOT AMOUNT TO 'MANUFACTURE' AS DEFINED UJS.32(1)(IIA). 3.4 THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED TH E DECISION OF THE APEX COURT IN THE CASE OF BUILDERS ASSOCIATION OF INDIA VS. UOI REPORTED IN 209 ITR 87 7 (SC) AND THE ALLAHABAD HIGH COURT'S DECISION IN THE CASE OF AGRA CONSTRUCTION CORPORATION REPORTED IN 146 TAXMAN 31 WHICH ARE FAVOURABLE TO REVENUE . 3.5 THE LEARNED C1T(A) OUGHT TO HAVE APPRECIATED TH E FACT THAT THE ON SIMILAR ISSUE FOR A.Y.2009-10 IN THE AS SESSEE'S OWN CASE, THE DEPARTMENT HAS FILED APPEAL BEFORE TH E HON'BLE HIGH COURT. SINCE THE ISSUE HAS NOT REACHED FINALITY, FILING FURTHER APPEAL IS NECESSITATED ON THIS ISSUE. 4.1 THE LEARNED C1T(A) ERRED IN ALLOWING THE DEDUCT ION U/S.80IA OF THE ACT. ITA NO.829/MDS/2016. :- 3 -: 4.2. THE LEARNED C1T(A) ERRED IN NOT APPRECIATING T HE FACT THAT THE LOSS ON ACCOUNT OF DEPRECIATION ON WINDMIL LS IN EARLIER YEARS. HAD TO BE SET OFF NOTIONALLY AGAINST THE DEDUCTION AS PER SECTION 801A(S) AS PER THE SPECIAL BENCH DECISION OF AHMEDABAD TRIBUNAL IN THE CASE OF M/S.GOLDMINE SHARES & FINANCE PRIVATE LTD (2008) 11 3 1TD 209. 4.3 THE LEARNED CIT(A) OUGHT TO HAVE- APPRECIATED T HE FACT THAT THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS PRIVATE LIMITED (2 012) (38 DTR 57) (340 1TR 477) HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND SLP HAS BEEN FILED BEFORE THE HON'BL E SUPREME COURT. 3. THE BRIEF FACTS OF THE CASE THAT THE ASSESSEE COM PANY IS ENGAGED IN CIVIL CONSTRUCTION AND INDUSTRIAL CONS TRUCTIONS, CONSTRUCTION OF IT PARKS AND HOTELS AND MANUFACTURI NG AND SELLING OF READY MIX CONCRETE AND FILED RETURN OF INCOME ELEC TRONICALLY ON 30.09.2011 WITH TOTAL INCOME OF ;12,51,60,370/-. S UBSEQUENTLY REVISED RETURN OF INCOME WAS FILED ON 23.12.2011 WI TH TOTAL INCOME OF ;12,50,59,350/- AND NOTICE U/S.143(2) OF THE ACT WA S ISSUED AND THE LD. ASSESSING OFFICER ALSO CALLED FOR INFORMATION. THE LD. AUTHORISED REPRESENTATIVE APPEARED FROM TIME TO TIME AND FILED THE DETAILS AND THE LD. ASSESSING OFFICER FOUND FROM THE FINANCIAL STATEMENTS THAT THE ASSESSEE COMPANY HAS MADE INVESTMENTS IN M/S. CHET TINAD CEMENT CORPORATION LTD ;69,99,99,940/- BEING GROUP CONCERN AND NO EXPENDITURE WAS DISALLOWED AS PER PROVISIONS OF SEC . 14A OF THE ACT. CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND TH E LD. ASSESSING ITA NO.829/MDS/2016. :- 4 -: OFFICER DISCUSSED ELABORATELY ON THE APPLICABILITY OF PROVISIONS AT PAGE 2 TO 5 ORDER AND COMPUTED DISALLOWANCE U/SEC. 14A R .W.S.8D (III) ;35,00,000/-. AGGRIEVED BY THE ADDITION, THE ASSE SSEE FILED AN APPEAL BEFORE COMMISSIONER OF INCOME TAX (APPEALS). 3.1 IN THE APPELLATE PROCEEDINGS, THE LD. COMMISSIO NER OF INCOME TAX (APPEALS) CONSIDERED THE GROUNDS, SUBMIS SIONS AND RELIED ON FINDINGS OF THE LD. ASSESSING OFFICER AND OBSERV ED AT PARA 6 & 7OF THE ORDER AS UNDER:- 6. I HAVE CAREFULLY CONSIDERED THE FACTS IN ISSUE , THE VIEW TAKEN BY THE AO, THE ARGUMENTS ADVANCED BY THE APPELLANT AND MATERIAL ON RECORD. THE PLEA MADE BY APPELLANT THAT DISALLOWANCE U/S.14A R.W. RULE 80 IS NOT TRIQQERED IN VIEW OF THE INVES TMENTS BEING MADE IN SISTER CONCERNS AS ALSO, THAT NO DIVIDEND W AS. EARNED DURING THE YEAR. THIS PROPOSITION FINDS SUPPORT IN THE DECISIONS OF THE JURISDICTIONAL IT T IN THE CASE OF EIH HOTELS L TD V. DCIT, ITA NO.1503 & 1624/MDS/2012 DATED 17. 7.2013 CHENNAI TR IBUNAL), AND JURISDICTIONAL TRIBUNAL IN ACIT VS. M BASKARAN IN ITA NO.1717/MDS/2013 ORDER DT. 31 ST OF JULY, 2014. IN EII-I HOTELS (SUPRA) IT WAS HE ID BY THE ITAT THAT WHERE INVESTM ENTS WERE MADE BY THE ASSESSEE IN THE SUBSIDIARY COMPANY THE SAME ARE NOT TO EARN CAPITAL GAINS OR DIVIDEND INCOME. THEY WERE MADE TO PROMOTE THE SUBSIDIARY COMPANY. THE ASSESSEE NOT BE ING IN THE BUSINESS OF INVESTMENT, SUCH INVESTMENTS WERE MADE ON ACCOUNT OF BUSINESS EXPEDIENCY. THE DIVIDEND EARNED BY THE ASSESSEE FROM INVESTMENT IN SUBSIDIARY COMPANY IS PURELY INC IDENTAL. THEREFORE THE INVESTMENT MADE BY THE ASSESSEE IN IT S SUBSIDIARY ARE NOT TO BE RECKONED FOR DISALLOWANCE U/S 14A R.W . U/S 8D. IN THE DECISION OF JURISDICTIONAL ITAT IN DCIT V. MLS AMALGAMATIONS ITA NO.829/MDS/2016. :- 5 -: LTD IN ITA NO,811 & 1712/MDS/2015 ORDER DT. 16.9.2015), IT WAS HELD SIMILARLY, RELIANCE BEINQ PLACED IN THE RATIO IN EIH ASSOCIATES HOTELS V. CIT. 7. IN ACIT VS. M. BASKARAN (SUPRA) THE FACTS RELATE D TO THE ASSESSEE WHICH HAD NOT RECEIVED ANY EXEMPT INCOME. THE ITAT HELD THEREIN THAT DISALLOWANCE U/S.14A COULD NOT BE SUSTAINED IN SUCH CIRCUMSNCES. IN CHEMIVEST LTD VS. CIT 378 ITR 33 ORDER DATED 2.09.2015 IN ITA NO.749/2014, THE HONBLE DEL HI HIGH COURT HELD THAT DISALLOWANCE U/S.14A ENVISAGES THAT THERE SHOULD BE A ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDI BLE IN THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE P URPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME. IN OTHER WORDS, SEC. 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVAN T PREVIOUS YEAR. AND DELETED THE ADDITION. AGGRIEVED BY THE COMMISS IONER OF INCOME TAX (APPEALS) ORDER, THE REVENUE ASSAILED AN APPEAL BEFORE THE TRIBUNAL. 3.2 BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE ARGUED THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE ADDITION U/SEC. 14A OF THE ACT AND THE REVENUE HAS FILED APPEAL AGAINST THE ITAT ORDER OF EIH ASSOCIATED HOTELS LIMITED VS. DCIT IN ITA NO.1503/MDS/2012, DATED 17.07.2013 IN THE JURISDICTIONAL HIGH COURT AND LD. CIT(A) OVERLOOKED THE BOARD CIRCULAR WERE THE PROVISIONS ITA NO.829/MDS/2016. :- 6 -: OF SEC. 14A OF THE ACT ARE APPLICABLE IN CASES WE RE NO EXEMPTED INCOME RECEIVED AND PRAYED FOR SETTING ASIDE THE OR DER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 3.3 CONTRA, THE LD. AUTHORISED REPRESENTATIVE RELIE D ON THE ORDERS OF THE LD. COMMISSIONER OF INCOME TAX (APPEA LS) AND VEHEMENTLY OPPOSED TO THE GROUNDS. 3.4 WE HEARD THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND JUDICIAL DECISIONS CITED. THE CRUX OF T HE ISSUE BEING THE ASSESSEE HAS MADE INVESTMENTS IN SISTER COMPANY AND THE CONTENTION THAT OWN FUNDS ARE GENERATED OUT OF BUSINESS AND N O BORROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF INVESTMENTS. FURT HER, INVESTMENTS IN SISTER/GROUP COMPANY SHALL NOT BE CONSIDERED FOR TH E PURPOSE OF CALCULATION OF DISALLOWANCE UNDER RULE 8D(2) AND R ELIED ON JUDICIAL DECISIONS. THE ASSESSEE COMPANY MADE INVESTMENTS O N BUSINESS EXPEDIENCY AND NO INCOME HAS BEEN GENERATED BY SI STER/GROUP COMPANY. THE PROVISIONS OF SEC. 14A R.W.R. 8D ARE MANDATORILY APPLICABLE FROM ASSESSMENT YEAR 2008-09 BUT WHILE C ALCULATING THE DISALLOWANCE U/SEC. RULE 8D(2), THE LD. ASSESSING O FFICER SHALL CONSIDER THAT THE INVESTMENTS IN GROUP/ SISTER COMPANY ARE MADE IN ORDINARY COURSE OF BUSINESS. SIMILAR ISSUE WAS CONSIDERED B Y THE TRIBUNAL IN THE ITA NO.829/MDS/2016. :- 7 -: CASE OF DCIT VS. M/S. REGEN POWERTECH (P) LTD. IN ITA NO.766 & 786/MDS /2016, ASSESSMENT YEAR 2011-12, DATED 17.08 .2016 AT PAGE 24, PARA 9.4 AS UNDER:- 9.4 WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND JUDICIAL DECISIONS CITED. T HE CRUX OF THE ISSUE BEING THE ASSESSEE HAS MADE INVESTMENT S IN SUBSIDIARY/SISTER COMPANIES AND THE CONTENTION THAT OWN FUNDS ARE GENERATED OUT OF BUSINESS AND NO BORROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF INVESTMENTS. FURTHER, INVESTMENTS IN SUBSIDIARY/SI STER COMPANY SHALL NOT BE CONSIDERED FOR THE PURPOSE OF CALCULATION OF DISALLOWANCE UNDER RULE 8D(2). THE LD. AUTHORISED REPRESENTATIVE DREW OUR ATTENTION TO THE STATEMENT OF DETAILS OF SUBSIDIARY GROUP COMPANIES AND THE INVESTMENTS REFLECTED IN FINANCIAL STATEMENTS AND RELIED ON JUDICIAL DECISIONS. THE ASSESSEE COMPANY MADE INVESTMENTS IN THESE COMPANIES ON BUSINESS EXPEDIENCY AND NO INCOME HAS BEEN GENERATED BY SISTER/GROUP COMPANIES AND ALSO SHAREHOLDING PATTE RN VARIED FROM COMPANY TO COMPANY. THE PROVISIONS OF SEC. 14A R.W.R. 8D ARE MANDATORILY APPLICABLE FROM ASSESSMENT YEAR 2008-09 BUT WHILE CALCULATING THE DISALLOWANCE U/SEC. RULE 8D(2), THE LD. ASSESSING O FFICER SHALL CONSIDER THAT THE INVESTMENTS IN SUBSIDIARIE S ARE MADE IN ORDINARY COURSE OF BUSINESS. WE FOUND TH AT THERE ARE NO FINDINGS IN THE ASSESSMENT ORDER ON TH IS SUBSIDIARY/GROUP COMPANIES WHICH ARE CONSIDERED AS INVESTMENTS FOR CALCULATING DISALLOWANCE U/SEC. 14A R.WR.8D(2) AND RELY ON THE CO-ORDINATE BENCH DECIS ION OF M/S. RANE HOLDINGS VS. ACIT, CHENNAI IN ITA NO.115/MDS/2015, DATED 06.01.2016 WERE IT WAS HELD AS UNDER:- TAKING NOTE OF THE ABOVE DECISIONS AND THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN IT A NO.156/MDS/13 CITED SUPRA, WE HEREBY REMIT THE MATTER BACK TO THE FILE OF LD. ASSESSING OFFICER TO EXAMINE THE ISSUE INVOLVED IN THIS CASE AFRESH AND PASS APPROPRIATE ORDER AS PER LAW AND MERITS AND IN THE LIGHT OF THE DECISIONS CITED HEREIN ABOVE. WHIL E ITA NO.829/MDS/2016. :- 8 -: DOING SO, WE ALSO DIRECT THE LD. ASSESSING OFFICER TO CONSIDER THE DECISION OF THE TRIBUNAL IN THE CASE M /S AGILE ELECTRIC SUB ASSEMBLY PVT. LTD. CITED SUPRA WHEREIN IT WAS HELD AS FOLLOWS:- 7.2 IN REGARD TO APPLICABILITY OF SECTION 14A OF TH E ACT READ WITH RULE 8D ALSO; THE ABOVE VIEW WILL BE APPLICABLE. MOREOVER IN THE CASE EIH ASSOCIATED HOTELS LTD V. DCIT REPORTED IN 2013 (9) TMI 604 IN ITA NO.1503, 1624/MDS/2012 DATED 17TH JULY, 2013, IT HAS BEEN HELD BY THE CHENNAI BENCH OF THE TRIBUNAL AS FOLLOWS :- DISALLOWANCE U/S. 14A RW RULE 8D CIT UPHELD DISALLOWANCE HELD THAT INVESTMENTS MADE BY THE ASSESSEE IN THE SUBSIDIARY COMPANY ARE NOT ON ACCOU NT OF INVESTMENT FOR EARNING CAPITAL GAINS OR DIVIDEND IN COME. SUCH INVESTMENTS HAVE BEEN MADE BY THE ASSESSEE TO PROMOTE SUBSIDIARY COMPANY INTO THE HOTEL INDUSTRY. A PERUSAL OF THE ORDER OF THE CIT(APPEALS) SHOWS THAT OUT OF TOTAL INVESTMENT OF RS.64,18,19,775/-, RS.63,31,25, 715/- IS INVESTED IN WHOLLY OWNED SUBSIDIARY. THIS FACT SUPP ORTS THE CASE OF THE ASSESSEE THAT THE ASSESSEE IS NOT INTO THE BUSINESS OF INVESTMENT AND THE INVESTMENTS MADE BY THE ASSES SEE ARE ON ACCOUNT OF BUSINESS EXPEDIENCY. ANY DIVIDEND EAR NED BY THE ASSESSEE FROM INVESTMENT IN SUBSIDIARY COMPANY IS PURELY INCIDENTAL. THEREFORE, THE INVESTMENTS MADE BY THE ASSESSEE IN ITS SUBSIDIARY ARE NOT TO BE RECKONED F OR DISALLOWANCE U/S. 14A R.W.R. 8D. THE ASSESSING OFFI CER IS DIRECTED TO RE-COMPUTE THE AVERAGE VALUE OF INVESTM ENT UNDER THE PROVISIONS OF RULE 8D AFTER DELETING INVE STMENTS MADE BY THE ASSESSEE IN SUBSIDIARY COMPANY DECIDE D IN FAVOUR OF ASSESSEE. FOR THE ABOVE SAID REASONS, WE HEREBY HOLD THAT IN THE CASE OF THE ASSESSEE THE PROVISIONS OF SECTION 14A READ WITH RULE 8D WILL NOT BE APPLICABLE IN REGARD TO INVESTMENTS MADE FOR ACQUIRING THE SHARES OF THE ASSESSEES SISTER CONCE RNS. ACCORDINGLY WE RESTRAIN OURSELVES FROM INTERFERING WITH THE ORDER OF THE LD.CIT(A) ON THIS REGARD. IT IS ORDERED ACCORDINGLY. AND WE REMIT THE DISPUTED ISSUE TO THE FILE OF THE LD. ASSESSING OFFICER TO VERIFY AND EXCLUDE THE INVESTMENTS IN GROUP COMP ANIES FOR THE PURPOSES OF CALCULATION OF DISALLOWANCE UNDER SEC. 14A R.W.RULE 8D(2) ITA NO.829/MDS/2016. :- 9 -: AND THE ASSESSEE SHOULD BE PROVIDED ADEQUATE OPPO RTUNITY OF BEING HEARD BEFORE PASSING THE ORDER ON MERITS. THE GROUN D OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. 4. THE NEXT GROUND RAISED BY THE REVENUE THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELET ING THE ADDITIONAL DEPRECIATION ON PLANT AND MACHINERY ;62,63,733/-. 4.1 THE LD. ASSESSING OFFICER FOUND THAT ASSESSEE COMPANY HAS CLAIMED DEPRECATION ON ADDITIONS OF ;3,41,98,133/ - TO PLANT AND MACHINERY- RMC AND ISSUED SHOW CAUSE NOTICE. IN T HE ASSESSMENT PROCEEDINGS, THE LD. AUTHORISED REPRESENTATIVE FI LED EXPLANATIONS REFERRED AT PAGE 2, PARA 6.1. OF THE ORDER AS UND ER:- 'NOTE ON ADDITIONAL DEPRECIATION CLAIMED IN RESPECT OF MECHLNERIES USED FOR PRODUCTION OF READY MIX CONCRETE (RMC):- THE ASSESSEE IS ENGAGED IN MANUFACTURING OF READY MIX CONCRETE. THE ASSESSEE PROCURES NECESSARY RAW MATERIALS SUCH AS SAND, CRUSHED STONE, CEMENT, FLYASH AND GYPSUM. THESE ARE POURED INTO THE BATCHING PLANT IN THE DES IRED PROPORTION AND PROPERLY MIXED BY USING WATER. THE P LANT IS RUN FOR CERTAIN DURATION DEPENDING UPON THE DESIRED MIXTURE AND PRODUCT MANUFACTURED IS MIXED WITH ANOTHER CHEMICAL CALLED ADD- MIXTURE. THE FINAL PRODUCT AFTER MIXING HAS TO BE USED ITA NO.829/MDS/2016. :- 10 -: WITHIN SPECIFIED TIME. THE PRODUCT PRODUCED IS ALTOGETHER A DIFFERENT PRODUCT FROM THE MATERIAL OUT OF WHICH IT WAS PRODUCED. THE PRODUCT PRODUCED IS KNOWN BY NAME 'READY MIX CONCRETE (RMC)' AND IS SOLD AS SUCH IN THE MARKET. THIS FINAL MIXTURE IS POURED INTO THE VEHICLES MOUNTED WITH TRANSIT MIXTU RES AND ARE TAKEN TO CONSTRUCTION SITES IN ROTATING CONDITION SO THAT THE MATERIALS DO NOT GET SOLIDIFIED AND MAINTAINED IN PROPER CONDITION TO BE USED FOR CONSTRUCTION PURPOSES. THE RAW MATERIALS ONCE MIXED CANNOT BE RECONVERTED INTO THEIR ORIGINAL SHAPE AND CHARACTER. THUS, FROM THE ABOVE PROCESS, IT COULD BE UNDERSTOOD THAT THE RAW MATERIALS BY THEMSELVES ARE INDEPENDENT PRODUCTS AND GETS TRANSFORMED INTO A DIFFERENT PRODUCT KNOWN AS RMC W ITH TOTALLY VARIED CHARACTER. THUS THE PROCESS INVOLVES A MANUFACTURING ACTIVITY AND HENCE THE ASSESSEE HAS CLAIMED ADDITIONAL DEPRECIATION FOR THE ADDITIONS T O FIXED ASSETS'. BUT THE LD. ASSESSING OFFICER RELIED ON JUDICIAL DECISIONS AND DISALLOWED THE CLAIM OF ADDITIONAL DEPRECIATION. A GGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE COMMISSI ONER OF INCOME TAX (APPEALS). 4.2 IN THE APPELLATE PROCEEDINGS, THE LD. COMMISSIO NER OF INCOME TAX (APPEALS) CONSIDERED THE GROUNDS, SUBMIS SIONS AND FINDINGS OF THE LD. ASSESSING OFFICER AND ON SIMILA R ISSUE FOR ASSESSMENT YEAR 2009-2010 OBSERVED AT PAGE 5 AT PAR A 11 OF ORDER AS UNDER:- ITA NO.829/MDS/2016. :- 11 -: 11. I HAVE CAREFULLY CONSIDERED THE FACTS IN ISSU E, THE VIEW TAKER BY THE AO, THE ARGUMENTS ADVANCED BY THE APPE LLANT AND MATERIAL ON RECORD. SIMILAR ISSUE WAS CONSIDERE D BY MY PREDECESSOR IN THE CASE OF THE APPELLANT FOR THE AY . 2009-10 IN ITA NO.373/13-14 DATED 25.11.2013. SINCE THE FACTS OBTAINING IN THE CASE OF THE APPELLANT IN THE APPEAL UNDER CO NSIDERATION ARE SAME; I DO NOT FIND ANY REASONS TO TAKE DIFFERE NT VIEW IN THE MATTER AS TAKEN IN AY 2009-10. RESPECTFULLY FO LLOWINQ THE SAME, THE AO IS DIRECTED TO MODIFY THE ORDER BY DEL ETING THE ADDITION OF RS.62,63,733/-. THIS GROUND OF APPEAL IS ALLOWED. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) RELYI NG ON THE EARLIER YEAR ORDER DIRECTED THE LD. ASSESSING OFFICER TO AL LOW THE DEDUCTION. AGGRIEVED BY THE ORDER, THE REVENUE ASSAILED AN APP EAL BEFORE THE TRIBUNAL. 4.3 BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE ARGUED THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE ADDITION, OF ADDITIONAL DEPRECIATION, WERE SUCH DE PRECIATION IS ALLOWED TO ENTITY ENGAGED IN MANUFACTURE OR PRODUCTION BUT NOT CIVIL CONSTRUCTION WORKS AND RELIED ON THE APEX COURT DE CISION AND OTHER JUDICIAL DECISION WERE PRODUCTION OF READY MIX CONC RETE DOES NOT AMOUNT TO MANUFACTURE AND THE APPEAL IS PENDING ON SIMILAR ISSUE AND PRAYED FOR ALLOWING THE GROUND OF THE REVENUE. 4.4 ON THE OTHER LAND, THE LD. AUTHORISED REPRESENT ATIVE RELIED ON EARLIER YEAR ORDERS AND SUPPORTED THE ORDER OF C OMMISSIONER OF INCOME TAX (APPEALS) AND OPPOSED TO THE GROUNDS. ITA NO.829/MDS/2016. :- 12 -: 4.5 WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MAT ERIAL ON RECORD AND JUDICIAL DECISIONS CITED. THE ASSESSEE IS IN THE BUSINESS OF CIVIL CONSTRUCTION WORKS AND HAS CLAIMED ADDITIONA L DEPRECIATION ON READY MIX CONCRETE AS THE ACTIVITY OF ASSESSEE COMP ANY CANNOT BE MANUFACTURE OR PRODUCTION TO ALLOW ADDITIONAL DEPRE CIATION. THE LD DEPARTMENTAL REPRESENTATIVE ARGUED THAT THE APEX C OURT DECISION SQUARELY COVER THE CASE. ON THE OTHER HAND, THE LD. AUTHORISED REPRESENTATIVE EXPLAINED THAT SIMILAR ISSUE OF THE ASSESSEE FOR EARLIER YEAR WAS DECIDED IN ASSESSEE FAVOUR.. WE PERUSED TH E ORDER OF LD. ASSESSING OFFICER AND ACTIVITY OF THE ASSESSEE COMP ANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF READYMIX CONCRETE AND ONCE THE RAW MATERIAL IS MIXED WHICH CANNOT BE RECONVERTED IN SH APE. THE HONBLE APEX COURT IN THE CASE OF CIT VS. N.C. BUDHARAJA & COMPANY 204 ITR 412 (SC) HAS HELD THAT READYMADE MIXED CONCRETE CANNOT BE I N THE NATURE OF MANUFACTURE. WE ALSO FIND SIMILAR ISSUE D EALT IN THE CASE OF CIT VS. AGRA CONSTRUCTION CORPN. (2005) 146 TAXMANN 31 (ALL) AND M/S. CHERIAN VARKEY CONSTRUCTION CO. (P) LTD VS. AC I IN ITA NO.25/COCH/2014, DATED 20.03.2015 AT PARA 20 & 21 OF ORDER AS UNDER:- 20. I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE RECORD. IT IS COMMON KNOWLEDGE THAT AN UNEDUCATED MASON DOES THE WORK OF PREPARATION OF READYMIX CONCRETE FOR CONSTRUCTION OF HOUSES AND IT IS NEVER ITA NO.829/MDS/2016. :- 13 -: TREATED AS MANUFACTURING ACTIVITY EITHER IN THE COM MON PARLANCE OR IN THE COMMERCIAL PARLANCE. THE READYMI X CONCRETE CAN BE PRODUCED IN HUGE VOLUME WITH THE HE LP OF MACHINES WITH LESS MANPOWER BUT MERELY BECAUSE THERE IS INCREASE IN VOLUME, IT CANNOT AUTOMATICALL Y BE TREATED AS MANUFACTURING ACTIVITY. AT ANY RATE, THE END PRODUCT IS ONLY AN INTERMEDIATE PRODUCT WHICH IS US ED FOR CONSTRUCTION OF BUILDINGS, ROADS, DAMS ETC. AND WHEN THE END PRODUCT IS NOT CONSIDERED AS MANUFACTURING ACTIVITY, THEN IT IS DIFFICULT TO HOLD THAT THE INT ERMEDIATE PRODUCT CAN BE CLASSIFIED AS MANUFACTURE OR PRODUCT ION OF ARTICLE OR THING. 21. THE LD. JUDICIAL MEMBER, WHILE FOLLOWING THE DECISION OF THE ITAT, DELHI BENCH IN THE CASE OF YF C PROJECTS (P) LTD. (CITED SUPRA), MIGHT HAVE TAKEN N OTE OF THE OBSERVATIONS OF THE SAID BENCH THAT ONCE IT IS MIXED WITH CEMENT, WATER, ETC., IT CANNOT BE SEGREGATED A ND HENCE IT AMOUNTS TO MANUFACTURING ACTIVITY. EVEN FO R PREPARATION OF FOOD, SUCH AS IDLI ETC, ONCE THE ITE M IS PREPARED OR MIXED, IT CANNOT BE SEGREGATED AND BROU GHT BACK TO ITS ORIGINAL SHAPE AND MERELY ON THAT COUNT , IT CANNOT BE TREATED AS MANUFACTURING ACTIVITY. THE HO NBLE KERALA HIGH COURT IN THE CASE OF CIT VS. CASINO (PV T) LTD. 91 ITR 289 OBSERVED THAT WHILE CONSIDERING THE TAXING STATUTE, THE REAL TEST IS TO ASCERTAIN WHETH ER THE COMMODITY EITHER IN COMMON PARLANCE OR COMMERCIAL PARLANCE CAN BE TREATED AS A MANUFACTURED PRODUCT. IN THE ORDINARY SENSE, THE PRODUCTION OF FOOD MATERIAL S IN A HOTEL CANNOT BE TREATED AS MANUFACTURE. IN THE SAME WAY, THE PRODUCTION OF READY MIX CONCRETE, IN THE COMMON PARLANCE OR COMMERCIAL PARLANCE CANNOT BE TREATED AS MANUFACTURING ACTIVITY; AS RIGHTLY OBSER VED BY THE HONBLE SUPREME COURT IN THE CASE OF N.C. ITA NO.829/MDS/2016. :- 14 -: BUDHARAJA & CO. (CITED SUPRA) A STATUTE CANNOT ALWAY S BE CONSTRUED WITH DICTIONARY IN ONE HAND AND THE ST ATUTE IN THE OTHER HAND. (PG. 204 ITR 434). REGARD MUST A LSO BE HAD TO THE SCHEME, CONTEXT AND TO THE LEGLISLATI VE HISTORY OF THE PROVISION. HAVING REGARD TO THE RATI O LAID DOWN BY THE HONBLE APEX COURT, BEARING IN MIND THE FACT THAT THE END PRODUCT SHOULD AMOUNT TO MANUFACT URE OR PRODUCTION OF AN ARTICLE OR THING, THE READYMIX CONCRETE MANUFACTURED BY THE ASSESSEE, WHICH IS ALS O ENGAGED IN THE CONSTRUCTION ACTIVITY, CANNOT BE SAI D TO BE A MANUFACTURING ACTIVITY. RESPECTFULLY FOLLOWING THE TRIBUNAL DECISION, WE SE T ASIDE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) AND ALLOW THE GROUND OF THE REVENUE. 5. THE LAST GROUND RAISED ON CLAIM OF DEDUCTION U NDER SECTION 80-IA OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) IN RESPECT OF WINDMILLS. 5.1 THE LD. ASSESSING OFFICER DENIED THE DEDUCTION OF ;34,30,895/- UNDER SECTION 80IA OF THE ACT BY NOTIO NALLY BRINGING IN AND SETTING OFF THE BROUGHT FORWARD LOSS FOR DETERM INING THE PROFITS QUALIFYING FOR DEDUCTION U/S.80IA FROM THE INITIAL ASSESSMENT YEAR BEING THE YEAR RELEVANT TO THE FINANCIAL YEAR IN WH ICH OPERATIONS RELATING TO THE WINDMILL INFRASTRUCTURE COMMENCED . AGGRIEVED, THE ITA NO.829/MDS/2016. :- 15 -: ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONE R OF INCOME TAX (APPEALS) . 5.2 ON APPEAL, THE COMMISSIONER OF INCOME TAX (APP EALS) OBSERVED THAT THE ISSUE IS COVERED BY THE JURISDICT IONAL HIGH COURT ORDER IN THE CASE OF CIT VS. VELAYUTHASAMY SPINNING MILLS 231 CTR 368 /340 ITR 477 AND ALLOWED THE CLAIM OF THE ASSESSEE BY DIRECTING THE LD. ASSESSING OFFICER TO WITHDRAW THE DISALLOWANCE. . A GAINST COMMISSIONER OF INCOME TAX (APPEALS) ORDER, THE RE VENUE ASSAILED AN APPEAL BEFORE TRIBUNAL. 5.3 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ONLY CONTENTION OF THE DEPARTMENT BEFOR E THE TRIBUNAL THAT THE REVENUE HAS NOT ACCEPTED THE JUDGMENT OF M ADRAS HIGH COURT AND AN APPEAL HAS ALREADY BEEN FILED ALONG WITH SPE CIAL LEAVE PETITION AND THE SAME IS PENDING BEFORE THE APEX COURT. TH IS TRIBUNAL IS OF THE CONSIDERED OPINION THAT MERE PENDENCY OF SPECIA L LEAVE PETITION BEFORE THE APEX COURT CANNOT BE A REASON TO TAKE A DIFFERENT VIEW. THE JUDGMENT OF MADRAS HIGH COURT IS BINDING ON ALL THE AUTHORITIES IN THE STATE OF TAMIL NADU AND UNION TERRITORY OF POND ICHERRY. THEREFORE, THE COMMISSIONER OF INCOME TAX (APPEALS) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE BINDING JUDGMENT OF MADRAS HIGH COURT IN VELAYUDHASWAMY SPINNING MILLS (P) LTD (SUPRA). ITA NO.829/MDS/2016. :- 16 -: THEREFORE, THIS TRIBUNAL DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). THE GROUND O F THE REVENUE IS DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS P ARTLY ALLOWED. ORDER PRONOUNCED ON THURSDAY, THE 8TH DAY OF SEPTEMBER, 2016, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ! ' # ) (G. PAVAN KUMAR) / JUDICIAL MEMBER / CHENNAI H / DATED:08.09.2016 KV I * ,$.JK LK'. / COPY TO: 1 . () / APPELLANT 3. ' M. () / CIT(A) 5. K!NO ,$.$ / DR 2. ,-() / RESPONDENT 4. ' M. / CIT 6. OP& Q / GF