2023 (9) TMI 975 - AT - Income Tax

Tribunal rules in favor of assessee on mineral extraction manufacturing claim, allowing investment & depreciation deductions

The Tribunal ruled in favor of the assessee, holding that the extraction of minerals from beach sand qualified as manufacturing under sec 2(29BA). The ... Revision u/s 263 - claim of deduction u/s 32AC, claim of additional depreciation u/s 32(1)(ii) & Disallowance u/s 14A - HELD THAT:- So far as the disallowance u/s 14A is concerned, the undisputed position that emerges is that the assessee has not earned any exempt income during this year. In such a case, no disallowance u/s 14A is called for in terms of binding decision of Chettinad Logistics Ltd. [2017 (4) TMI 298 - MADRAS HIGH COURT] Additional depreciation - We find that ratio of decision of T.P. Textiles P. Ltd. [2017 (3) TMI 739 - MADRAS HIGH COURT] would apply wherein similar additional depreciation has been allowed for AY 2011-12. Therefore, the assessment order could not be termed as erroneous or prejudicial to the interest of revenue on both these scores. Eligibility to claim deduction u/s 32AC - We find that this issue is covered in assessee’s favor by the decision of co-ordinate bench of this Tribunal in DCIT vs. M/s Indian Ocean Garnet Sand Company [2017 (10) TMI 1641 - ITAT CHENNAI] - In that case, the assessee was engaged in similar activity of separation of garnet sand from beach sand and claimed the same to be manufacturing process. The bench, relying on the cited decision of Apex Court in Sesa Goa Ltd. (supra), held that this process is one of manufacturing. We find that the term ‘manufacture’ as defined in Sec. 2(29BA) means a change in a non-living physical object or article or thing resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure. We find that the extraction of minerals from beach sand involve change in non-living physical object / article into a new and distinct object / article having different name and use. Thus, the same would amount to manufacture. Respectfully following the ratio laid in cited case laws, we would hold that the activities carried out by the assessee amount to manufacture and the claim was in order. Therefore, no interference is called for in the assessment order, on this issue also. This being the case, the revision of the order fails on merits. Assessee appeal allowed. Issues Involved:The judgment involves the invocation of revisionary jurisdiction under section 263 by the Principal Commissioner of Income Tax, Chennai-3, challenging the assessment framed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961.Claim of Deduction u/s 32AC:The Principal Commissioner held that the assessee, engaged in extracting minerals from beach sand, did not qualify as a manufacturer under sec 2(29BA) and therefore, the claimed investment allowance under sec 33AC was required to be withdrawn.Claim of Additional Depreciation u/s 32(1)(ii):The Principal Commissioner ruled that since the proviso to Sec 32(1)(ii) applied only from AY 2016-17, the claimed additional depreciation for a specific year was required to be withdrawn.Disallowance u/s 14A:It was observed that the assessee had made investments potentially subject to disallowance under sec 14A, but the Assessing Officer failed to consider this aspect during assessment, leading to a show cause notice being issued.Assessee's Arguments:The assessee contended that the term 'production' in sec 2(29BA) was broader than 'manufacture,' citing legal precedents. They also argued that the provisions aimed to incentivize investment in plant and machinery, relying on various decisions to support their claims.Judgment and Conclusion:The Tribunal found in favor of the assessee on all counts. It held that the extraction of minerals from beach sand constituted manufacturing, aligning with the definition in sec 2(29BA). The Tribunal also noted that no disallowance under sec 14A was warranted due to the absence of exempt income. The appeal was allowed, and the revision of the order was quashed based on the merits of the case.