2015 (10) TMI 1091 - HC - Income Tax

Disallowance of additional depreciation u/s. 32(iia) on embroidery machine - use of the input and the output remains the same even after doing the embroidery work - whether the embroidery work carried out by the assessee on synthetic fabrics would amount to manufacture or production ? - ITAT allowed the claim - Held that - In the present case, the assessee carries on embroidery work on synthetic fabrics. When the assessee carries on embroidery work on the synthetic fabric, such synthetic fabric is converted into a new article, viz. embroidered synthetic fabric which is commercially known as another article. The nature of the article produced would depend upon the kind of embroidery carried out on the synthetic cloth. The ultimate article produced may be an embroidered saree or an embroidered dress material or some other article. Therefore, there would be a transformation in the basic synthetic fabric on which embroidery has been carried out resulting into a new article which is commercially known as another article. Under the circumstances, the work of embroidery carried on by the assessee would fall within the ambit of definition of manufacture as envisaged under section 2(29BA) of the Act. The Tribunal, therefore, did not commit any legal error in holding that the activity carried on by the assessee falls within the ambit of manufacturing activity and thereby the assessee is entitled to avail of the additional depreciation under section 32(1)(iia) of the Act in relation to the machinery installed by it.- Decided in favour of assessee.

Summary

Issues:
Challenge to order disallowing claim of additional depreciation under section 260A of the Income Tax Act, 1961.

Analysis:
1. The appellant revenue challenged the order disallowing additional depreciation on embroidery machines amounting to Rs. 74,92,303. The Assessing Officer disallowed the claim stating that embroidery work does not qualify as "manufacturing" or "production" for additional depreciation eligibility.

2. The Commissioner (Appeals) deleted the disallowance, relying on a Tribunal decision. The Tribunal upheld the deletion, citing a previous decision and a Supreme Court ruling. The appellant argued that embroidery work is mere value addition and not manufacturing, questioning the reliance on the Supreme Court case cited.

3. The main issue was whether embroidery work on synthetic fabrics constitutes "manufacture" or "production" for claiming additional depreciation under section 32(1)(iia) of the Act. The relevant section allows additional depreciation for new machinery if the assessee is engaged in manufacturing. The Tribunal's decision was based on a Supreme Court ruling regarding development rebate eligibility for processed textiles.

4. The Court found that embroidery work transforms synthetic fabric into a new article, commercially recognized as another article. This transformation falls within the definition of "manufacture" under the Act. The Tribunal's decision was upheld, concluding that the activity qualifies as manufacturing, allowing the additional depreciation claim.

5. The Court dismissed the appeal, stating that the Tribunal's decision did not raise any substantial question of law warranting interference. The appellant's argument against the eligibility of embroidery work as manufacturing for additional depreciation was rejected based on the definition of "manufacture" under the Act.