Court allows additional depreciation claim for manufacturing ready mix concrete

The High Court allowed the appeal, determining that the production of ready mix concrete constituted manufacturing, entitling the appellant-assessee to claim additional depreciation on machinery used for this purpose. The Court held that the process resulted in a new product with distinct characteristics, different from the raw materials used. The Court distinguished previous cases and set aside the Tribunal's decision, restoring the Commissioner of Income Tax (Appeals) order in favor of the appellant-assessee. The appeal was allowed, with costs not awarded.

---

---

Issues Involved:
1. Disallowance of additional depreciation on plant and machinery used for the manufacture of ready mix concrete (RMC).

Detailed Analysis:

1. Disallowance of Additional Depreciation on Plant and Machinery Used for the Manufacture of Ready Mix Concrete (RMC):

The appellant-assessee, a company engaged in civil and industrial constructions, including the manufacture and sale of ready mix concrete, filed its Income Tax Return for the Assessment Year 2010-2011. The Assessing Officer (AO) issued a notice under Section 143(2) of the Income Tax Act, 1961, and subsequently passed an order of assessment on 12.03.2014, rejecting the claim of the appellant-assessee for additional depreciation under Section 32(1)(iia) of the Income Tax Act, 1961, in respect of machinery used for the production of ready mix concrete.

The appellant-assessee filed an appeal before the Commissioner of Income Tax (Appeals) - 1, which was allowed, directing the AO to delete the addition of Rs. 62,63,733/- for additional depreciation on plant and machinery used for RMC. The Commissioner of Income Tax (Appeals) relied on the appellant's case for the AY 2009-10, where the issue was decided in favor of the appellant.

The Revenue filed an appeal before the Income Tax Appellate Tribunal 'A' Bench, Chennai, which allowed the Revenue's appeal, holding that the activity of the assessee company in producing ready mix concrete could not be considered as manufacture or production to allow additional depreciation. The Tribunal referred to the Supreme Court's decision in CIT v. N.C. Budharaja & Co., which held that ready mix concrete could not be considered as manufacturing.

The appellant-assessee argued that the production of ready mix concrete involved a manufacturing process, as the raw materials mixed could not be reconverted into their original shape and character, resulting in a new product known as ready mix concrete. The appellant also contended that it was registered under the Central Excise Act and paid excise duty for the manufacture of ready mix concrete, which was sold to other civil contractors.

The High Court analyzed Section 32(1)(iia) of the Income Tax Act, 1961, which allows additional depreciation for new machinery or plant acquired and installed by an assessee engaged in the business of manufacture or production of any article or thing. The Court noted that the transformation of stone chips, sand, cement, flyash, and other materials into ready mix concrete resulted in a new and distinct product with a different name, character, and use. The Court distinguished the Supreme Court's decision in N.C. Budharaja & Co., which involved pre-fabricated piles not sold in the market, and other cases cited by the AO, where the end product was not considered manufacturing for the purpose of sale.

The High Court concluded that the preparation of ready mix concrete constituted manufacturing, as it resulted in a new product with a different chemical composition and integral structure. The judgment and order of the Tribunal were set aside to the extent that the additional depreciation claimed by the appellant-assessee on the machinery used for the manufacture of ready mix concrete was disallowed. The Court restored the order of the Commissioner of Income Tax (Appeals) - 1, allowing the appellant-assessee's claim for additional depreciation.

The appeal was accordingly allowed, with the question formulated answered against the Revenue and in favor of the appellant-assessee. No costs were awarded.

---