2019 (9) TMI 606 - AT - Income Tax

Additional depreciation - production/manufacturing of new and marketable article.whether assessee is a civil contractor and therefore does not qualify for the addition depreciation? - AO has denied the claim of additional depreciation on the ground that the assessee is not engaged in the production or manufacture of articles or things but the assessee is doing contractual civil work - CIT-A allowed the claim - HELD THAT - The assessee is not carried out any activity of construction or development of projects but the assessee is in the activity of converting the stone blocks into aggregate which is used in the construction unit. Therefore, the assessee is not a civil contractor but supplying the construction material to other companies engaged in the construction/infrastructure activity. Once the activity of the assessee is converting the large stone blocks into aggregate which is after undergoing the process of crushing then the said activity is production/ manufacturing of a new article or thing which is different/distinct from input. The outcome of the process carried out by the assessee is a new marketable product/ article or thing and therefore, the assessee is adding the value to the raw material used and converting the same into a marketable article. No error or illegality in the order of the ld. CIT(A) allowing the claim of additional depreciation on the new plant and machinery purchase and used by the assessee for the purpose of production and manufacturing. - Decided against revenue.

Summary

Issues:
Claim of additional depreciation disallowed by AO but allowed by CIT(A) based on the nature of the assessee's activities.

Analysis:
The main issue in this appeal was the disallowance of additional depreciation by the Assessing Officer (AO) which was later allowed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The dispute revolved around whether the assessee, a firm engaged in the production of GSB and aggregate, was eligible for claiming additional depreciation under Section 32(i)(iia) of the Income Tax Act. The AO contended that the assessee, being a civil work contractor, did not qualify for additional depreciation as it was not involved in the production or manufacture of articles. However, the CIT(A) ruled in favor of the assessee, stating that the firm was indeed engaged in manufacturing and production of aggregate, not civil work.

The Departmental Representative (DR) argued that the assessee received contractual payments for job work from various parties and was not involved in manufacturing or production. The DR relied on a Supreme Court decision to support the claim that contractual civil work did not fall under production or manufacture. On the other hand, the Authorized Representative (AR) of the assessee contended that the firm was manufacturing aggregate, not engaged in civil work. The AR highlighted that the assessee supplied aggregate to infrastructure companies and had set up a crusher unit for production. The AR emphasized that the raw material used was transformed into aggregate, making the plant and machinery eligible for additional depreciation.

The Tribunal analyzed the submissions and the facts on record. It noted that the assessee's activities involved converting stone blocks into aggregate used in construction, indicating manufacturing rather than civil contracting. The CIT(A) had considered the details of the production process and machinery used, concluding that the assessee qualified for additional depreciation. The Tribunal agreed that the assessee's process resulted in a new marketable product, justifying the allowance of additional depreciation on the plant and machinery used for production. Consequently, the appeal by the Revenue was dismissed, upholding the CIT(A)'s decision to allow the claim of additional depreciation.

In conclusion, the Tribunal affirmed that the assessee's activities constituted manufacturing and production of a distinct article, warranting the allowance of additional depreciation. The judgment highlighted the importance of the nature of the activities carried out by the assessee in determining eligibility for tax benefits under the Income Tax Act.