2015 (6) TMI 942 - AT - Income Tax

Disallowance of Additional depreciation - business of the assessee involves carrying out piling works - business of manufacture or production of an article or thing or not - construction contracts - Held that - It is in the common knowledge of everyone that, in civil construction contracts, concrete slabs are produced separately and they are then fitted at the required places. Does it mean that the civil contractor is manufacturing or producing the Concrete slabs ? In our view the production of concrete slabs either separately or on the structure itself by the civil contractor forms part of construction activity only, since they are merely two different ways of construction. The same analogy, in our view, would apply to the present case also. In our view, it would not make any difference when the piles are constructed inside the bore at project site itself or the prefabricated piles are fitted into the bore, by producing the piles at a different place. Ultimately the assessee is executing his contract work of piling and the new machinery would enable him to complete the work fast, since the assessee could carry out boring work separately and the prefabricated piles could be prepared prior to boring work also. As observed earlier, it is not the case of the assessee that it is producing the prefabricated piles and selling them to outsiders. Hence, we are of the view that the assessee cannot be considered to be an assessee engaged in the business of manufacture or production of an article or thing. - Decided against assessee.

Summary

Issues:
Disallowance of additional depreciation claimed by the assessee for the assessment year 2008-09.

Analysis:
The appeal before the ITAT Mumbai concerned the disallowance of additional depreciation claimed by the assessee for the assessment year 2008-09. The assessee, engaged in laying pile foundation on a job work basis, purchased new machinery named HR-180 Piling Ring and related accessories during the relevant year. The assessee claimed additional depreciation under section 32(1)(iia) of the Income Tax Act on the cost of the machinery, contending that the pre-cast or pre-fabricated piles manufactured using the new machinery constituted the manufacture of a new article or thing.

The Assessing Officer (AO) rejected the claim of additional depreciation, stating that piling work cannot be treated as a manufacturing activity based on previous court decisions. The CIT(A) upheld the AO's decision, noting that the new machinery was not used in the piling activities during the relevant year. The ITAT considered the provisions of section 32(1)(iia) and observed that the additional depreciation is allowed to an assessee engaged in the business of manufacture or production of any article or thing.

The ITAT concluded that the business of the assessee involved piling works, which could not be considered as the business of manufacturing or production of an article or thing. The production of prefabricated piles for use in piling works was deemed part of the construction activity. The ITAT highlighted that the assessee was not supplying prefabricated piles to other contractors but was using them in its own piling business. Drawing an analogy to concrete slab production in civil construction, the ITAT determined that the production of prefabricated piles by the assessee did not qualify as manufacturing or production of an article or thing. Therefore, the ITAT upheld the decision of the CIT(A) to disallow the additional depreciation claimed by the assessee.

In conclusion, the ITAT dismissed the appeal of the assessee, emphasizing that the assessee could not be considered engaged in the business of manufacturing or production of an article or thing, leading to the denial of additional depreciation for the relevant assessment year.