2016 (6) TMI 780 - AT - Income Tax

Additional Depreciation claim - engagement or non engagement in activity of production - assessee is engaged in designing of the magazines, procurement of raw material such as paper, ink, chemicals, etc, the printing, binding and packing of magazines - Held that - We notice that the Assessing Officer has himself mentioned in the assessment order that the assessee was involved in the business of manufacturing of greetings, magazines, envelopes, etc, and, therefore, the Assessing Officer could not have taken a contrary view while dealing with the issue of allowability of depreciation. It is further noted by us that the hon ble Delhi High Court in the case of Delhi Press Patra Prakashan Ltd. (2013 (6) TMI 71 - DELHI HIGH COURT), has dealt with this issue at length for holding that the aforesaid activity amount to manufacturing. It has been held that printing of greetings cards on paper amount to manufacturing a new and marketable article, as a distinct product comes into existence. It was further held that it is not necessary that an industrial undertaking must manufacture a commercially new product. It was further held that, in any case, this activity shall amount to production . As per section 32, an undertaking, engaged in manufacturing or production shall be eligible to claim additional depreciation. Thus, in view of this, the controversy becomes narrower. Therefore, the assessee is eligible for the benefit of depreciation, as it is undisputedly engaged in activity of production . - Decided in favour of assessee

Issues Involved:
1. Addition of Rs. 17,60,000 as unexplained cash credit under section 68 of the Income-tax Act, 1961.
2. Disallowance of additional depreciation on plant and machinery.

Detailed Analysis:

1. Addition of Rs. 17,60,000 as Unexplained Cash Credit:

The assessee challenged the addition of Rs. 17,60,000 as unexplained cash credit under section 68 of the Income-tax Act, 1961, and the disallowance of interest on the said loans. The Assessing Officer (AO) had found that out of Rs. 1,47,65,000 of unsecured loans, Rs. 73,15,000 from 28 creditors were not substantiated with adequate proof of creditworthiness, genuineness of transactions, and identity. The AO disallowed these amounts as unexplained loans.

During the appellate proceedings, the Commissioner of Income-tax (Appeals) (CIT(A)) accepted loans from 12 persons amounting to Rs. 21,55,000 but upheld the AO's findings regarding the remaining creditors. The CIT(A) noted discrepancies such as lack of income sources, cash deposits before loan advances, and manufactured evidence.

The assessee contended that the AO did not communicate deficiencies in the submitted details and relied on whatever information was provided by the lenders. The assessee also pointed out that some lenders were unwilling to provide income details and requested the issuance of notices for verification. The assessee further argued that sufficient documents were provided for some creditors and that all lenders had permanent account numbers and confirmations.

Upon appeal to the Tribunal, the assessee reiterated that complete documentary evidence was furnished, including confirmations, income tax returns, balance sheets, bank statements, and ledger accounts. The Tribunal noted the lack of adverse material against the assessee's submissions and highlighted the need for proper examination of the overwhelming documentary evidence provided. The Tribunal set aside the CIT(A)'s order and remanded the issue back to the AO for fresh examination, directing the AO to take a judicious view after providing a fair hearing to the assessee.

2. Disallowance of Additional Depreciation on Plant and Machinery:

The assessee claimed additional depreciation of Rs. 26,30,112 on plant and machinery, arguing that their activities, including designing, procurement of raw materials, printing, binding, and packing of magazines, constituted a manufacturing process. The AO disallowed the claim, asserting that the assessee did not engage in manufacturing activities.

The CIT(A) upheld the AO's decision, stating that the printing activity did not result in a new product and thus did not qualify as manufacturing. The CIT(A) relied on the jurisdictional High Court's decision in CIT v. Jaypee Dyeing House, which was deemed to be rendered in a different context.

The assessee appealed, citing the Bombay High Court's decision in CIT v. Emptee Poly-yarn P. Ltd., which recognized similar activities as manufacturing. Additionally, the Delhi High Court's ruling in CIT v. Delhi Press Patra Prakashan Ltd. held that printing periodicals and magazines constituted manufacturing.

The Tribunal observed that the AO had acknowledged the assessee's involvement in manufacturing activities in the assessment order. The Tribunal further noted that the Delhi High Court's decision in Delhi Press Patra Prakashan Ltd. supported the assessee's claim, stating that printing activities amounted to manufacturing or production, qualifying for additional depreciation under section 32. The Tribunal concluded that the position of law favored the assessee and directed the AO to allow the claimed depreciation.

Conclusion:

The appeal was partly allowed, with the Tribunal remanding the issue of unexplained cash credit for fresh examination and directing the AO to allow the claimed additional depreciation.

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