AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2020 (1) TMI 1371
X X X X Extracts X X X X
X X X X Extracts X X X X
....r under section 271(1)(c) of the Income Tax Act, 1961 ." 3. Indraprastha Gas Limited (IGL) is a joint venture of GAIL India Ltd., the largest Natural Gas transmission company in India and Bharat Petroleum Corporation Limited ( BPCL), one of the leading oil refining and marketing company in India and government of NCT of Delhi. The company is currently engaged in the business in the Delhi-NCR region including Noida, Greater Noida, Ghaziabad and Rewari. 4. IGL is a City Gas Distribution Company (CGD) which is engaged in the business of selling and distribution of Natural Gas to be used as industrial and household fuel in Commercial and Domestic sector respectively. Further IGL is also engaged in the manufacturing and selling of Compressed Natural Gas (CNG) which is used as a fuel to be used for running Automobiles. 5. The AO has held that the process of delivery of CNG to automobiles at the CNG filling centres does not amount to manufacture or production or an article or thing which is mandatory requirement for claiming additional depredation u/s 32 (1)(iia) of the Income Tax Act. Therefore, the AO held that the assessee company is not entitled for additional depreciation as claim....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tally controlled systems. Priority panels are installed in every compressing unit to automatically route the gas to dispensing units based on gas requirement. This is a complete integrated infrastructure comprising of pipe line network, compressor, dispensers and cascades to converts Natural gas into fuel. Natural gas as such cannot be used as commercial viable option for use as a fuel in automobile this CNG is a completely differently product from natural gas." 9. The ld. AR relied on the order of the Hon' ble High Court of Allahabad in the case Central UP Gas Ltd. Vs DCIT in ITA 224 of 2014. 10. The ld. DR Gaurav Dudeja, elaborately argued the case to prove that the assessee is not into manufacturing and hence not eligible for claim of additional depreciation. He has referred the audit report and the financials of the assessee company to buttress his arguments. He argued that the Memorandum and Articles of Association of the assessee company outlines the objects to be pursued by the company and the main object as per Memorandum and Articles of Association is " to carry on all or any of the businesses of storage, suppliers, distributors, sellers and dealers in natural gas an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing excise duty does not mean that it is manufacturing an article or thing for the purposes of Income Tax Act. Therefore, this argument of the assessee is not acceptable." 14. Regarding the argument of the audit report, the ld. DR submitted that the audit report cannot be basis for claim of additional depreciation but the additional depreciation has to be accorded only in the case, the assessee is eligible to claim the benefit u/s 32(1 )(iia). 15. The ld. DR argued that the meaning of term 'manufacture or production of an article or thing' has been a subject matter of discussion of various Courts and Tribunal an there is no universal definition. Ld. DR further argued that the definition of term, ' manufacture' was introduced in the Income Tax Act w.e.f. 1.4.2009 therefore law has changed since AY 2007-08 and the claim of the assessee needs to be examined in view of amended law. The ld. DR has also relied on the following case laws to drive home the point that every activity cannot be treated as manufacturing process: i. Cutting and polishing of uncut raw diamonds - Does not amount to manufacturing as polished diamond is not a new article or thing [CIT Vs Gem India Mfg. Co ( SC)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....R 59 xiii. Golden Hind Shipping (India) P. Ltd. Vs CIT (Del) 240 ITR 324 CIT Vs Poyilakada Fisheries P. Ltd. (Ker) 240 ITR 445 xiv. CIT Vs Sterling Foods (Bom) 213 ITR 851 xv. CIT Vs George Maijo ( Mad) 250 ITR 440 16. Further, the ld. DR argued that the activity of the assessee is only of compressing the natural gas. In fact, as stated by the assessee, the natural gas which reached to CNG stations is already compressed to a pressure 18 to 26 bar and it is compressed up to 250 bar in three stages. Besides this, the gas is being filtered before its compression. And, in the whole process, the input and output remains same i.e. natural gas as the compression-process not change characteristics of natural gas. Further, he argued that the natural gas before compression and after compression remains a fuel in the form of natural gas. 17. On going through the audit report, he argued that there has been no manufacturing expenses and even by going through the closing stock, there is no new product which can be said to have been manufactured by the assessee company. He also distinguish that the case of HPCL, the company was into bottling of cylinders whereas the assessee is not into suc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sale is made as piped natural gas ( PNG) sale. The appellant also manufactures compressed natural gas ( CNG) from the natural gas received by it from GAIL India Limited, which is sold from the vending station( s) as a fuel for running of vehicles. The natural gas is supplied by GAIL India Limited through pipelines which are connected with the compressor with suction pressure of 14 Bar to 22 Bar and the discharge pressure of 255 Bar, which are installed at CNG stations and is dispensed in the vehicle at a maximum pressure of 200 Bar through the dispense connected to the compressor. The safe compression and dispensing system during process of manufacturing of compressed natural gas ( CNG), all the compressors are filled with a close circuit type cooling system and also safety valve at each stage. The compressed natural gas ( CNG) manufacturing premises are designed and based on the basis of specification provided under the Oil Industry and Safety Directorate and the Gas Cylinder Rules, 2004 . The manufacturing, storage and dispensing of compressed natural gas (CNG) can only be started after the grant of l icense by the Petroleum Explosive Safety Organization. The Rule 2 (viii....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssions, perused the material available on record and gone through the orders of the authorities below and the judgment cited by learned A. R. of the assessee. We find that it is noted by CIT (A) on page No. 6 of his order that the assessee' s activity of conversion of natural gas to compressed natural gas does not amount to bringing out a new and distinct object or article or thing having different character, use or chemical composition. In the l ight of these findings of CIT (A), now we examine the judgment of Hon' ble High Court rendered in the case of Commissioner of Income- tax Vs. Hindustan Petroleum Corporation Ltd. (Supra) cited by learned A.R. of the assessee. In this case, the issue before the Hon'ble High Court was that as to whether the activity of the assessee of bottling LPG gas amounts to production or manufacturing activity for the purpose of deduction under Section 80HHC and 80 - IA of the Income Tax Act, 1961 . Hon'ble Bombay High Court has given a finding that the process of bottling liquified petroleum gas into cylinders makes the gas marketable on execution of the process and therefore, follows that a new product comes into existence. We also fin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rticle or thing into a new and distinct object or article or thing having a different name, character and used; or ( b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure;" Learned counsel for the appellant has placed reliance on the judgments of the Apex Court in the case of Income Tax Officer Vs. Arihant Tiles and Marbles P. LTD. reported in 2010 320 ITR 79 ( SC) in support of his case. On the face of it, it appears that compressed natural gas is a commodity having a distinct name, character and use and therefore, the test to determine whether ' manufacture' has taken place is satisfied. Without undergoing the process of compression natural gas in its original form cannot be used as fuel for the automobile industry. It is only upon undergoing the process of compression, it is converted into compressed natural gas which is a commodity, to be used as a fuel for the automobile industry. The Tribunal has failed to discuss this aspect of the matter completely and has ignored the material placed by the appellant on record whereby it has sought to show that the entire process by which natural gas i....