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TMI Blog2022 (12) TMI 279X X X X Extracts X X X X X X X X Extracts X X X X ..... ding to quality / nutritional value mixing for enhancing quality / nutritional value lastly packing in jars/bottles of different brand names and qualities. Thirdly, the whole process requires application of labour, machinery and analytical lab. Fourthly, the chemical composition is changed in such a way that nutritional-values are enhanced and the finished product becomes edible for a longer period. Therefore, the final product is a commercially, physically and chemically different. Fifthly, a very important factor that the assessee has been consistently regarded as manufacture by various Government Department and Agencies. The process undertaken by the assessee have been treated as manufacture under Excise Act and allied tax laws. These factors clearly indicate that the assessee s case falls within the scope of manufacture as defined in sub-clause (b) of section 2(29BA) i.e. bringing into existence of a new and distinct object or article or thing with a different chemical composition or alternatively it qualifies to be treated as production . Hence the assessee is eligible for additional depreciation. Vital fact, which is not disputed by revenue, that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmission on business activity, which is reproduced in assessment-order at Page No. 4 to12, and tried to convince the Ld. AO that it is eligible for claim of additional depreciation. However, the Ld. AO being unsatisfied with the submission of assessee, rejected the claim of assessee by observing as under: 5.3 The explanation, case laws and submissions given by the assessee is given due consideration and is found to be not acceptable for the following reasons: 1. The nature of business of the assessee is to buy oil in bulk in loose quantities from market and to pack it and sale in different type of packing i.e. in tins, jars, bottles etc. 2. As per definition of manufacture u/s 2(29)(BA), it is a change in the non-living physical object resulting into transformation into a new and distinct object having a different name character and use and bringing into existence a thing with a different chemical composition. But in the case of the assessee, it is only purchasing of oil in bulk quantities and selling of oil which is sold in packaged container which amount to packing only but not manufacturer of oil. 3. In the case of the assessee, the assessee has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Now, we would like to draw your Honour s attention toward the assessment order passed under section 143(3) of Income-tax Act for the year under consideration wherein Ld. AO has disallowed Rs. 2025596/- on account of additional depreciation as claimed by assessee under section 32(1)(iia) of the Income Tax Act by observing that assessee has not involved in any manufacture activity. At this point of time it is pertinent to mention here that while making addition on account of additional deprecation, Ld. AO. has not pay proper attention towards the assessee submission dt. 11.02.2017 26.12.2017. More so, ignored the evidence and the judicial pronouncements of Hon ble Supreme court as furnished by the assessee and also not provided opportunity of being heard. Above all, the Ld. AO. has claimed in the assessment order Page no. 3 in which stated that Assessee was asked to explain why the additional depreciation claimed on the plant and machinery of Rs. 20,25,596/- should not be disallowed since the assessee is not engaged in manufacturing business. The claim of Ld. AO. is based on erroneous footing since Ld. AO. never raised specific quarry with regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this regard we are enclosing copies of purchase bills of plastic granule/raw material. Kindly refer page no. 2 to 3 We are also enclosing the schedule Sub schedule of fixed assets from audited Balance sheet for the year under consideration showing Plant machineries related to manufacturing activates. Kindly refer page no. 4 to 7 In the above manufacturing process assessee-company not only repacked the edible oil but repacked the oil in manner that not loses its nutrition value and remain edible for longer period and most of the process is automated and performed by the machinery. Above all it is a very complex process which can only be carried by experts since its related to the health safety of the people and company has to follow the regulation of foods and safety department as prescribed. The above flow chart exhibit that the raw material acquired by the assesse company has gone through various processes which resultant into commercially different commodity and become marketable or saleable. Furthermore on the perusal of above flow chart your honour will appreciated the fact that inputs and output are different in all respect viz. technic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in manufacture process of Edible Oil packing and Jar Packing. Xerox copy of same is enclosed for your honour kind perusal. Kindly refer page no. 8 The above proposition has been also supported by various judicial pronouncements; In this regard assesse has place reliance on judgment of the Supreme court in the case of: [i] M/s India Cine Agencies Vs. Commissioner of Income-tax madras (3649- 3650 of 2003) [ii] Arihant Tiles and marbles P.Ltd. (2010) 320 ITR 79 (SC) [iii] CIT Vs. Hindustan Petroleum Corporation Ltd. (9296 of 2017) Xerox copies of above Judgments are annexed kindly refer page no. 9 to 42 From the perusal of above judgment your honour will find that the legal position is well settled by the Supreme Court with regard the type s activities fall under the ambit of manufacture. Moreover rule laid down by the Hon ble Supreme Court in the case of M/s India Cine Agencies vs. CIT Madras and Arihant Tiles has been reiterated in the case of CIT vs. Hindustan Petroleum Corporation. In the above case Hon ble Supreme Court had consider bottling of LPG as undertaken by the assesssee is a process which amount to manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s stages through which the raw material is subjected to change by different operations. it is the cumulative effect of the various processes to which the raw material is subjected to that the manufactured product emerges. Therefore, each step towards such production would be a process in relation to the manufacture. Where any particular process is so integrally connected with the ultimate production of goods that but for that process processing of goods would be impossible or commercially inexpedient, that process is one in relation to the manufacture. Collector of Central Excise v. Rajasthan State Chemical Works [1991) 4 SCC 473) = (2002-TIOL-66-SC-CX). 7. To put it differently, the test to determine whether a particular activity amounts to manufacture' or not is: Does a new and different good emerge having distinctive name, use and character. The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its character, use and name, whether be it the result of one process or several processes- 'manufacture' takes place and liability to duty is attracted. Etymologically the word 'manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer that the additional depreciation is admissible only for manufacturing of the articles in terms of section 2(29BA) of the Income tax Act, 1961. I have also gone through the various case laws cited by the appellant in support of the ground of appeal which have not been found applicable on the facts of the present case. Therefore, I hereby endorse the finding of the Assessing Officer as listed at serial Nos.1 to 4 above. The addition made on this account is hereby confirmed. The grounds of appeal are dismissed. 5. Aggrieved by order of Ld. CIT(A), the assessee has now come in appeal before us. 6. During hearing before us, Ld. AR reiterated the extensive submissions made by assessee to lower authorities, which have been reproduced in foregoing paragraph. Referring to the same, Ld. AR pointed out that it is true that the assessee is doing two types of activities, viz. (i) purchasing oil from local/overseas market and reselling as such, which is a trading activity and (ii) purchasing raw-oil, applying technical-processes, converting the same into finished-oil of high nutritional value of different qualities/brands and thereafter selling the same, which is a manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argued that whatever process is applied by the assessee, the oil remains oil and the requirements of manufacture as defined in section 2(29BA) are not satisfied. Therefore, the assessee is not eligible to claim additional depreciation. 8. In order to resolve the controversy, let us first examine the relevant provision of law. 8.1 Section 32(1)(iia) of the act, which grants the benefit of additional depreciation, reads as under: 32.(1) In respect of depreciation of- (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed- (i) XXX (ii) XXX (iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The work done by embroidery machines changes the basic form of the fabric in the same manner as is in the case of dyeing and printing. The value of cloth is increased by way of embroidery. The input is cloth and the output is embroidered sarees, dupattas and dress materials: In support of his contentions, the AR has placed reliance on the various provisions of section 32(1)(iia) of the IT Act and on the following case-laws, and has pleaded that the addition be deleted. 6. I have carefully considered both the positions. At the outset, it is necessary to refer to the provisions under which additional depreciation was claimed by the Assessee, which is section 32(1)(iia) : (iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an Assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to twenty percent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii). It is evident that some of the new machineries or plants on which additional depreciation was claimed by the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Excise Act , resulting in the embroidered product being liable to excise duty. 6.3 The AR has placed reliance on the decision of the Hon'ble Supreme in the case of S.S.M.Bros. (P) Ltd. Ors. V/s CIT (2000) 243 ITR 418. In this case, the Hon'ble Supreme Court has dealt with the application of the provisions of section 33(1)(b)(B)(i) and has held that, when read together with item 32 of Schedule-V, the machinery or plant installed for the production of textiles including those dyed, printed or otherwise processed, made wholly or mainly out of cotton, the Assessee is entitled to deduction on account of development rebate under the said section. The Court has further observed that, if the machinery or plant is required to be utilized in the production of such textiles at whatever stage, the Assessee is entitled to the benefit. In this case, the Assessee had been producing 5 ITA no.2113/Ahd/2010 embroidered cloth which started from scratch i.e., with cotton, The Court observed that it would make no difference if the Assessee bought the cloth and then processed it using the machinery for embroidering, and in some cases after dying. What was important was that, the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... embroidery can only be done for a specific purpose and for a specific use. The embroidery for the top of a woman's wear would be clearly different from that of the bottom, the embroidery on the kameez would have to be a specific design which is suitable and matches a kameez. The embroidery on the salwar or the bottom would be different. The Assessee cut the pieces, got them embroidered, packed them into 6 ITA no.2113/Ahd/2010 boxes and exported them. This meant that the end product was completely different from the bale of cloth or finished fabric prior to being embroidered. In other words, the market recognition of the embroidered finished product necessarily had to be different from the finished fabric prior to being embroidered. To this extent, such activity of embroidery could also be treated as manufacture. 6.6 In view of the discussion above, it is held that the Assessee was fully entitled to the additional depreciation of 10% (machineries used for less than 180 days) under the provisions of section 32(1)(iia) of the IT Act. The AO is directed to allow the claim of additional depreciation i.e. the sum of Rs.9,12,112/- under the provisions of section 32(1)(iia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... production need not amount to manufacture. The word 'production' or 'produce' when used in juxtaposition with the word 'manufacture' takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products which emerge in the course of manufacture . Here we may refer to a decision of the Hon'ble Apex Court relied upon by the assessee before the ld. CIT(A) in the case of S.S.M.Bros. (P) Ltd. Ors. V/s CIT (2000) 243 ITR 418. In this decision, the issue was as to whether the assessee purchasing cloth and doing embroidery work thereon with the aid of imported machines, would be entitled to development rebate at an enhanced rate under the provisions of section 33(1)(b)(B)(i) of the Act. Hon'ble Apex Court held that if the machinery or plant is required to be utilised in the production of such textiles, at whatever stage, the assessee is entitled to the benefit of this development rebate. It is not disputed, fairly, that if the assessee had been producing the embroidered cloth starting from scratch, that is, by starting with cotton, this machinery would have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y that nutritional-values are enhanced and the finished product becomes edible for a longer period. Therefore, the final product is a commercially, physically and chemically different. Fifthly, a very important factor that the assessee has been consistently regarded as manufacture by various Government Department and Agencies. The process undertaken by the assessee have been treated as manufacture under Excise Act and allied tax laws. These factors clearly indicate that the assessee s case falls within the scope of manufacture as defined in sub-clause (b) of section 2(29BA) i.e. bringing into existence of a new and distinct object or article or thing with a different chemical composition or alternatively it qualifies to be treated as production . Hence the assessee is eligible for additional depreciation. 11. Not only above, but there is one more peculiar factor in this case of asssessee which too entitles the assessee to claim additional depreciation. The assessee has made following submission very categorically and consciously before Ld. CIT(A) with documentary evidences: Here we would like to draw your honour attention towards the packing unit, wherein assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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