2019 (9) TMI 258 - AT - Income Tax

Rectification u/s 154 - non reliance or consideration of binding decisions of the superior court while pronouncing an order / judgement - additional depreciation on plant and machinery was disallowed - whether the assessee is engaged in the business of manufacturing - HELD THAT - Hon'ble Supreme Court in the case of CIT vs Gem India Mfg. Co. 2000 (12) TMI 7 - SUPREME COURT has considered and decided this issue in respect of activity of cuttings and polishing of diamonds and it was held that said activity does not result new article or thing which can be held as manufacturing or production Thus once the issue is settled by the Hon'ble Supreme Court then it is a binding law for all the authorities including the AO. This is also an undisputed fact that allowing the claim of additional depreciation while passing the assessment order u/s 143(3), the judgement of Hon'ble Supreme Court was not considered. Therefore, the order passed by the AO without considering the binding of law laid down by the Hon'ble Supreme Court would amount an apparent mistake on record which can be rectified u/s 154 of the Act. The Hon'ble Supreme Court in the case of ACIT vs Saurasthra Katch Stock Exchange Ltd. 2008 (9) TMI 11 - SUPREME COURT has held that non-consideration of a binding decision would render the Tribunal decision liable for rectification of mistake apparent from record. While considering the issue in the case of ITO vs Arihant Tiles Marbles (P) Ltd. 2009 (12) TMI 1 - SUPREME COURT has noted that the assessee in the said case was engaged in the activities which include excavation of marble blocks and processing of such blocks by cutting into tiles and thereafter processing the tiles in different shapes and sizes and polishing was held to be manufacture or production. Thus the process undertaken while manufacturing of tiles from the blocks of marbles is different than cutting and polishing of raw diamonds. Even otherwise the decision in the case of CIT vs Gems India Mfg. Co. ( 2000 (12) TMI 7 - SUPREME COURT was not at all referred or considered in the case of ITO vs Arihant Tiles Marbles (P) Ltd. (supra), though both the decisions are passed by the same strength of Bench of Three Judges - Decided against assessee.

Summary

Issues:
1. Whether the notice issued under section 154 of the Act was valid in a case involving a debatable issue.
2. Whether the disallowance of additional depreciation on account of manufacturing activities was justified.

Analysis:

Issue 1:
The appeal was against the order of the ld. CIT(A) upholding the notice issued under section 154 of the Act for the Assessment Year 2012-13. The AO disallowed additional depreciation on plant and machinery, citing a decision of the Hon'ble Supreme Court in a similar case. The assessee contended that the issue was debatable and not a mistake apparent from records. The Tribunal noted that the Hon'ble Supreme Court's decision on the issue was binding on all authorities. The Tribunal held that the AO's failure to consider the binding law while allowing the depreciation in the original assessment order constituted a mistake apparent on record. The Tribunal referred to the case law to support its decision, emphasizing that non-consideration of a binding decision renders the order liable for rectification under section 154 of the Act.

Issue 2:
The second issue revolved around the disallowance of additional depreciation on the grounds that the assessee's manufacturing activities did not qualify as manufacturing. The ld. CIT(A) upheld the AO's decision, relying on the Hon'ble Supreme Court's judgment that cutting and polishing of raw diamonds did not amount to manufacturing. The Tribunal found that the process involved in the manufacturing of tiles from marble blocks, as cited in a different case, was distinct from cutting and polishing raw diamonds. The Tribunal emphasized that the decision in the case of CIT vs. Gems India Mfg. Co. was not overruled by subsequent judgments. The Tribunal concluded that the ld. CIT(A) had correctly disallowed the additional depreciation, as the facts of the case aligned with the precedent set by the Hon'ble Supreme Court.

In conclusion, the Tribunal dismissed the appeal, affirming the decisions of the ld. CIT(A) and the AO. The order was pronounced on 29/08/2019.