2017 (10) TMI 531 - AT - Income Tax

Tribunal allows additional depreciation for drying and threshing tobacco

ACIT, Circle-2 (1), Guntur Versus M/s. Rahaman Khan Tobacco Enterprises Pvt. Ltd.

The Tribunal ruled in favor of the assessee, allowing the claimed additional depreciation of Rs. 5,93,23,320. It held that the activity of drying and ... Eligibility for claim of depreciation - AO clearly mentioned that the activity of the assessee is re-drying and threshing tobacco for trading purpose. The raw material and the end product are tobacco only - Held that:- We find that the facts of this case are similar to the case already been considered by the coordinate bench of the tribunal and therefore by following the decision of the coordinate bench of the tribunal in the case of Maddi Lakshmaiah & Co. Ltd. (2017 (10) TMI 476 - ITAT VISAKHAPATNAM) and also in the case of Premier Tobacco Packers Pvt. Ltd. (2006 (2) TMI 101 - MADRAS High Court), we hold that assessee is eligible for additional depreciation as per the provisions of section 32(iia) of the Act, accordingly we direct the Assessing Officer to allow additional depreciation claimed by the assessee. - Decided against revenue. Issues:1. Disallowance of additional depreciation by Assessing Officer.2. Whether the activity of drying and threshing tobacco amounts to manufacturing for claiming depreciation.Issue 1: Disallowance of Additional DepreciationThe Assessing Officer disallowed the additional depreciation claimed by the assessee, amounting to Rs. 5,93,23,320, on the grounds that the activity of re-drying and threshing tobacco did not constitute manufacturing. The Assessing Officer observed that the raw material and end product were both tobacco, with no new or distinct object produced. Consequently, the claim for depreciation was disallowed under section 143(3) of the Income Tax Act, 1961.Issue 2: Manufacturing Activity for Depreciation ClaimThe dispute revolved around whether the activity of drying and threshing tobacco could be considered as manufacturing, thereby making the assessee eligible for additional depreciation under section 32(iia) of the Act. The Commissioner of Income Tax (Appeals) ruled in favor of the assessee, citing the decision of the Hon'ble Madras High Court in the case of CIT Vs. Premier Tobacco Packers Pvt. Ltd. The High Court held that the conversion of raw tobacco into a different commodity through processing constituted manufacturing activity, entitling the assessee to special deductions.Tribunal's DecisionThe Tribunal, comprising Hon'ble Members V. Durga Rao and D.S. Sunder Singh, analyzed the arguments presented by both parties. The Tribunal noted that a coordinate bench had previously ruled in favor of allowing depreciation claimed by an assessee engaging in similar activities. Citing the precedent set by the Madras High Court, the Tribunal concluded that the activity of drying and threshing tobacco amounted to manufacturing, aligning with the provisions of section 32(iia) of the Act. Consequently, the Tribunal directed the Assessing Officer to allow the additional depreciation claimed by the assessee. The appeal filed by the revenue was dismissed, upholding the decision in favor of the assessee.In conclusion, the Tribunal's judgment upheld the eligibility of the assessee for additional depreciation based on the manufacturing nature of the activity of drying and threshing tobacco, as established by legal precedents and in accordance with the provisions of the Income Tax Act, 1961.