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TMI Blog2024 (4) TMI 347X X X X Extracts X X X X X X X X Extracts X X X X ..... re or production of lube oil. The assessee claims that blending of lube oil tantamount to manufacture or production as contemplated u/s 32AC of the Act. The opinion of the AO that the assessee is not engaged in the manufacturing or production activity, is contrary to the judgement of the Hon ble Supreme Court in Hindustan Petroleum Corporation Ltd [ 2017 (8) TMI 197 - SUPREME COURT] - As the provision is not restricted to manufacturing activity and it also has production in its ambit. We therefore, do not find any merit in the findings of AO. Reliance placed by Ld. DR for the Revenue during the course of hearing in the case of Commissioner of Trade Tax vs M/s. Kumar Paints Mill Stores through its Proprietor [ 2023 (3) TMI 943 - SUPREME COURT] would not help the Revenue as referred judgement decided the dispute under U.P. Trade Tax Act, 1948. Objection of the AO was regarding investment made by the assessee, did not meet threshold limit - Figures submitted by the assessee are self-explanatory. Revenue has not brought any contrary material to controvert the claim of the assessee that it had made investment exceeding the threshold limit. In the absence of such material, we do not see ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and that the assessee had acquired installed the new assets during the period 01.04.2013 to 31.03.2014. b) Whether on the facts in the circumstances of the case and in law, the Ld.CIT(A) has erred in not appreciating the findings of the Assessing officer that i) The business activity of the assessee involves only blending of oil and therefore, does not qualify as manufacture as defined u/s 2(29BA) of the Act. ii) The assessee had not acquired and installed the whole of plant machinery during the year under assessment, with a substantial part of the plant machinery having been acquired installed before 01.04.2013, and therefore, the threshold limit of investment of Rs. 100 crore during the year under consideration was not satisfied in this case. iii) A substantial part of the assets did not qualify as plant machinery, being in the nature of lighting fixtures, switches, electric work, and therefore, such items were liable to be excluded from the amount of investment in the plant machinery for reckoning the qualifying amount of Rs. 100 Crore for the purpose of eligibility of the claim u/s 32AC. 2. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther, the AO also disallowed the additional depreciation claimed u/s 32(1)(iia) of the Act amounting to INR 20,82,61,994/-. He also disallowed excess depreciation in respect of incorrect capitalization of assets amounting to INR 97,05,846/-. Further, he made addition on account of difference of INR 98,97,292/- which was set off by the assessee against the interest paid on ECB loans. Further, he made addition on account of disallowance of Club Membership Fee subscription treating it as capital expenditure of INR 2,33,850/-. Thus, the AO assessed the income of the assessee at loss of INR 57,81,34,616/- against the income declared by the assessee at a loss of INR 96,49,05,777/-. 4. Aggrieved against this, the assessee carried the matter before Ld.CIT(A), who after considering the submissions, partly allowed the appeal of the assessee. Thereby, Ld.CIT(A) deleted the addition in respect of disallowance of investment allowance u/s 32AC of the Act, disallowance of additional depreciation u/s 32(1)(iia) of the Act, disallowance of deprecation on account of wrong capitalization of certain assets and the addition made on account of disallowance of club membership fee. However, Ld.CIT(A) dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plant machinery would certainly include the accessories which are necessary for running of the plant machinery that would also include the electrical fittings and sockets. He submitted that the assessee had given composite contract for plant machinery. Therefore, he submitted that under the facts of the present case, the AO was not justified in deleing the claim made by the assessee regarding investment allowance. He submitted that the issue is no more res-integra and has been decided in favour of the assessee in catena of judgements. Hence, the Ld.CIT(A) has rightly allowed the claim of the assessee. 9. We have heard Ld. Authorized Representatives of the parties and perused the material available on record. The question is whether the Ld.CIT(A) was justified in allowing the claim of the assessee qua investment allowance made u/s 32AC of the Act by the assessee. For the sake of clarity, section 32AC of the Act is reproduced as under:- Investment in new plant or machinery. 32AC. (1) Where an assessee, being a company, engaged in the business of manufacture or production of any article or thing, acquires and installs new asset after the 31st day of March, 2013 but before the 1st day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, in addition to taxability of gains, arising on account of transfer of such new asset. (3) Where the new asset is sold or otherwise transferred in connection with the amalgamation or demerger within a period of five years from the date of its installation, the provisions of sub-section (2) shall apply to the amalgamated company or the resulting company, as the case may be, as they would have applied to the amalgamating company or the demerged company. (4) For the purposes of this section, new asset means any new plant or machinery (other than ship or aircraft) but does not include (i) any plant or machinery which before its installation by the assessee was used either within or outside India by any other person; (ii) any plant or machinery installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house; (iii) any office appliances including computers or computer software; (iv) any vehicle; or (v) any plant or machinery, the whole of the actual cost of which is allowed as deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head Profits and gains of business or profession of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken by the assessee, is a process which amounts to production or manufacture for the purposes of Sections 80HH, 80-I and 80-IA of the Act?; and if so, whether the respondents/assessees are entitled to claim the benefit of deduction under the aforesaid provisions while computing their taxable income? 15) At the outset, it needs to be emphasised that the aforesaid provisions of the Act use both the expressions, namely, manufacture as well as production . It also becomes clear after reading these provisions that an assessee whose process amounts to either manufacture or production (i.e. one of these two and not both) would become entitled to the benefits enshrined therein. It is held by this Court in Arihant Tiles and Marbles P. Ltd. case that the word production is wider than the word manufacture . The two expressions, thus, have different connotation. Significantly, Arihant Tiles judgment decides that cutting of marble blocks into marble slabs does not amount to manufacture. At the same time, it clarifies that it would be relevant for the purpose of the Central Excise Act. When it comes to interpreting Section 80-IA of the Act (which was involved in the said case), the Court was cat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection, our view is also fortified by the following judgments of this Court which have been fairly pointed out to us by learned counsel appearing for the Department. 19. In CIT v. Sesa Goa Ltd. [(2004) 13 SCC 548 : (2004) 271 ITR 331], the meaning of the word production came up for consideration. The question which came before this Court was whether ITAT was justified in holding that the assessee was entitled to deduction under Section 32-A of the Income Tax Act, 1961, in respect of machinery used in mining activity ignoring the fact that the assessee was engaged in extraction and processing of iron ore, not amounting to manufacture or production of any article or thing. 20. The High Court in Sesa Goa case [(2004) 13 SCC 548 : (2004) 271 ITR 331], while dismissing the appeal preferred by the Revenue, held that extraction and processing of iron ore did not amount to manufacture . However, it came to the conclusion that extraction of iron ore and the various processes would involve production within the meaning of Section 32-A(2)(b)(iii) of the Income Tax Act, 1961 and consequently, the assessee was entitled to the benefit of investment allowance under Section 32-A of the Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained from the refinery undergoes a complex technical process in the assessee s plants and is clearly distinguishable from the LPG bottled in cylinders and cleared from these plants for domestic use by customers. It may be relevant to point out that keeping in view the aforesaid process, the ITAT arrived at the specific findings in support of its decision, which are as under: (a) There is no dispute that the LPG produced in the refinery cannot be directly supplied to the consumer for domestic use because of various reasons of handling, storage and safety. (b) LPG bottling is a highly technical and complex activity which requires precise functions of machines operated by technically expert personnel. (c) Bottling of LPG is an essential process for rendering the product marketable and usable for the end customer. (d) The word production has a wider connotation in comparison to manufacture , and any activity which brings a commercially new product into existence constitutes production. The process of bottling of LPG renders it capable of being marketed as a domestic kitchen fuel and, thereby, makes it a viable commercial product. 18) In the considered opinion of this Court, the afores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed keeping in view the said definition of manufacture and the issue was as to whether the process amounted to manufacture or not. As pointed out above, the question as to whether it amounts to production as well did not arise for consideration. The AO committed manifest error in relying upon the said decision inasmuch as the provisions with which we are concerned in the instant case use the words manufacture or production and are not limited to manufacture alone. 20) Judgment in the cases of Servo-Med Industries Private Limited and Tara Agencies, which were cited by the learned counsel for the Revenue, may not apply to the present case. They dealt with the provision of the Central Excise Act and, therefore, test of manufacture propounded on that case would not be applicable when dealing with the cases under the provisions of Sections 80HH, 80-I and 80-IA of the Act which use both the expressions manufacture and production . It has already been clarified in Vadilal Chemicals Ltd. judgment. Insofar as judgment in Tara Agencies is concerned, the factual scenario therein was totally different where three different stages in relation to tea were examined by this Court. The Court held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Shimizu Corporation India Private Limited for which the necessary details are available at Page No. 202 to 208 of Paper Book where assets wise details of assets supplied by the M/s. Shimizu Corporation India Private Limited has been given. Out of this Rs. 197.88 Crores, Rs. 88.27 Crores was on account of Plant Machinery and balance amount Rs. 109.61 Crores represented other assets namely office building, factory building, furniture fixture, land development etc. The balance capitalization of Rs. 27.58 Crores was done by the assessee directly from the various other suppliers / vendors. Out of Rs. 27.58 Crores, Rs. 17.51 Crores was towards Plant Machinery and balance of Rs. 10.07 Crores was towards other assets under various heads. Thus, the total capitalization under the head Plant Machinery was as under:- 1. By M/s. Shimizu Corporation India Rs. 88.27 Crores 2. By assessee at its own from other vendors Rs. 17.51 Crores Rs. 105.78 Crores The complete detail of all the assets on which depreciation has been claimed is available at Page No. 77 to 105 of Paper Book which forms part of Tax Audit Report. The items capitalized under the head Plant Machinery starts from the Page No. 95 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the deleting of addition of INR 20,82,61,994/- in respect of additional depreciation claimed u/s 32(1)(iia) of the Act and Ground No.3 raised by the Revenue is against treating the assessee as manufacturer. Undisputedly, Ground Nos. 1, 2 and 3 are inter-connected and finding rendered in Ground No.1 has bearing on these grounds. 15. Ld. DR for the Revenue supported the assessment order. 16. On the other hand, Ld. Counsel for the assessee reiterated the submissions as made in the written synopsis and also relied on the finding of Ld.CIT(A). 17. We have heard Ld. Authorized Representatives of the parties and perused the material available on record. We find that Ld.CIT(A) has decided the issue by observing as under:- 4.4.3.1. The appellant during the year has claimed additional depreciation u/s 32(1)(iia) of the Income Ta Act, amounting to Rs. 20,82,61,994/-. The Assessing Officer has discussed this issue in Para 31 32 of his order. The only reason given by the Assessing Officer to disallow the claim of the additional depreciation is that appellant is not engaged in the business of manufacture or production an article or a thing. The Assessing Officer has merely relied upon h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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