2017 (10) TMI 1641 - AT - Income Tax

Appellate Tribunal upholds additional depreciation claim for manufacturing activities.

The Dy. Commissioner of Income-Tax, Circle-I, Tuticorin. Versus M/s. Indian Ocean Garnet Sand Company

The Appellate Tribunal upheld the Commissioner of Income Tax (Appeals) decision to allow the additional depreciation claim for the assessee, ruling in ... Disallowance of the additional depreciation on the cost of wind mill - assessee was not engaged in the manufacture or production of any article or thing - submission that the assessee is processing garnet sand and assessee had purchased a wind mill and had claimed additional depreciation in respect of the same - CIT(A) had allowed the assessee’s claim of additional depreciation on the ground that the provisions of Sec.2(29BA) defining the term ‘manufacture’ introduced w.e.f. 01.04.2009 provided for any change in a non-living physical object resulting in transformation of the object into a new and distinct object having a different name, character and use HELD THAT:- A perusal of the decision relied upon by the AO in the Assessment Order shows that the decision related to assessment years before the amendment to Sec. 2(29BA) providing for the definition of term ‘manufacture’. Admittedly, the process involved in the conversion of the beach sand into garnet sand as has been extracted of the Ld.CIT(A) clearly shows that the process is one of manufacture. This view of ours also find support from the decision of Sesa Goa Ltd. [2004 (11) TMI 14 - SUPREME COURT] Further, it is noticed that the Revenue has granted the benefit of deduction u/s. 80HHC for the AY 2003-04. Thus, even without the definition of the term manufacture u/s. 2(29BA), the Revenue has been holding that the assessee is doing the business of manufacturing. Now, to hold that the assessee is not doing manufacturing only for the purpose of denying the benefit of additional depreciation is not permissible. In these circumstances, we find no error in the findings as arrived at by the Ld. CIT(A) and consequently, it stands upheld.Appeal filed by the Revenue stands dismissed. Issues Involved:- Appeal against the deletion of disallowance of additional depreciation on the cost of wind mill- Interpretation of the term 'manufacture' for claiming additional depreciation- Comparison with previous assessment years for granting benefits- Validity of the Commissioner of Income Tax (Appeals) decisionAnalysis:Issue 1: Appeal against the deletion of disallowance of additional depreciation on the cost of wind millThe appeal was filed by the Revenue against the Order of the Commissioner of Income Tax (Appeals) regarding the disallowance of additional depreciation claimed on the cost of a wind mill. The Revenue contended that the assessee, engaged in processing garnet sand, was not involved in manufacturing any article or thing, thus not eligible for additional depreciation.Issue 2: Interpretation of the term 'manufacture' for claiming additional depreciationThe key argument revolved around the interpretation of the term 'manufacture' in relation to the additional depreciation claim. The Revenue argued that since the assessee was only cleaning and segregating garnet sand without engaging in manufacturing activities, the additional depreciation claim should be denied. However, the assessee relied on the definition of 'manufacture' under Sec.2(29BA) and previous judicial decisions to support their claim for additional depreciation.Issue 3: Comparison with previous assessment years for granting benefitsThe assessee presented evidence from previous assessment years, specifically mentioning the benefit of deduction granted under Sec. 80HHC for AY 2003-04, to support their claim for additional depreciation. The argument was based on the consistency of treatment by the Revenue regarding the assessee's manufacturing activities, even before the specific definition of 'manufacture' was introduced.Issue 4: Validity of the Commissioner of Income Tax (Appeals) decisionThe Appellate Tribunal analyzed the submissions from both parties, reviewed the relevant legal provisions, and considered past decisions. The Tribunal concluded that the process undertaken by the assessee, as detailed in the order of the Ld.CIT(A), amounted to manufacturing. The Tribunal also noted the Revenue's past treatment of the assessee as engaged in manufacturing activities. Therefore, the Tribunal upheld the decision of the Ld.CIT(A) to allow the additional depreciation claim, dismissing the appeal filed by the Revenue.In conclusion, the Tribunal's decision affirmed the eligibility of the assessee for additional depreciation based on the manufacturing activities undertaken, supported by legal interpretations and past treatment by the Revenue.