THE ACIT, ERNAKULAM vs. M/S.NITTA GELATINE INDIA LTD, COCHIN

Per CHANDRA POOJARI, AM:

These two appeals filed by the Revenue are directed against the different orders

of the CIT(A)-I, Kochi dated 30/03/2017 and pertain to the assessment years 2009-

10 and 2010-11.

No.301/Coch/2017 as follows:

I.T.A. Nos. 301 & 303/Coch/2017 Rs.27,57,98,420/- after making various additions/disallowance, including the disallowances of Rs.42,18,575/- and Rs.1,50,03,709/-.

2.1 The Revenue has raised the following grounds of appeal in ITA

No.303/Coch/2017 as follows:

I.T.A. Nos. 301 & 303/Coch/2017

depreciation.

claimed an additional depreciation of Rs.42,18,575/- in respect of plant and

machinery which were added during the previous year relevant to AY 2008-09.

assessee vide its letter dated 03-09-2012 stated that, Section 32(l)(iia) vests with

the assessee the right to claim additional depreciation at the rate of 20% of the

actual cost of such machinery or plant. Section 32(l)(iia) nowhere specifically denies

the assessee the right to claim the additional depreciation on a restrictive basis

(50%) for an asset which is put to use for the purpose of business or profession for

a period of less than 180 days. According to the Assessing Officer, Clause (ii a) of

subsection (1) of section 2 provides additional depreciation only "in the year in

which the asset was put to use". In the present case, the asset was put to use in

the previous year relevant to Assessment Year 2008-09, and not in the year

relevant to the Assessment Year 2009-10, hence the additional depreciation claimed

I.T.A. Nos. 301 & 303/Coch/2017 was disallowed. The assessee relied on the judgment of the Supreme Court in the

case of Bajaj Tempo Ltd. vs. CIT (196 ITR 188) wherein it was that provisions

should be applied reasonable and liberally in keeping with the spirit of section

32(1)(iia) of the Act. The Assessing Officer was of the opinion that the said proviso

was brought into the Act to provide incentive or creating job and increase the

production and it is not merely for buying more plant and machinery. According to

the Assessing Officer, to achieve the objective, the new plant and machinery should

be utilised for maximum duration. Thus, the Assessing Officer restricted the

additional depreciation to the year in which the asset was put to use and disallowed

the additional depreciation claimed by the assessee.

same in the light of the judgment of the Madras High Court in the case of MM

Forgings Ltd. (349 ITR 673), the decision of the ITAT, Chennai Bench in the case of

Brakes India vs. DCIT (144 ITD 403), the decision of the ITAT Cochin Bench in the

case of Apollo Tyres Ltd. (45 taxmann.com 337(Cochin- Trib.), the judgment of the

Karnataka High Court in the case of CIT vs. Rittal india Private Limited (380 ITR

428)/(66 taxmann.com 4) and other judicial decisions, the CIT(A) deleted the

disallowance of additional depreciation.

I.T.A. Nos. 301 & 303/Coch/2017 7. The Ld. AR submitted that the additional depreciation is a statutory incentive

allowance u/s. 32(1)(iia) as a one time benefit to encourage industrialization. For

this, the Ld. AR placed reliance on the judgment of the Supreme Court in the case

of Bajaj Tempo Ltd. vs. CIT (196 ITR 188) wherein it was held that the same should

be constructed reasonably, liberally and purposively to make the provision

meaningful. It was submitted that one time benefit extended to assessee is earned

in the year of acquisition of new plant and machinery and the allowance was

restricted to 50% only on account of the usage of plant and machinery for less than

180 days in the year of acquisition, and it could not be the intent of the legislature

to deny the assessee the benefit of allowance of balance in the subsequent year,

since the expression used in section 32(1) (iia) is ‘shall be allowed’ and as such, the

allowance as provided therein is a mandatory allowance. It was submitted that the

restriction based on the period of usage cannot divest the assessee’s statutory right

of full benefit of additional depreciation under section 32(1) (iia) which is mandatory

in nature. It was submitted that there is no provision in the Act providing that the

balance 50% will not be allowed in succeeding year. In support of this contention,

the Ld. AR relied on the following case laws:

I.T.A. Nos. 301 & 303/Coch/2017 8. We have heard the rival submissions and perused the record. In our opinion this

issue was considered by the Karnataka High Court in the case of CIT (LTU) and

Another vs. Rittal India Pvt. Ltd. (2016) (380 ITR 428) wherein it was held as

under:

“Additional depreciation allowable under section 32(1)(iia) of the Income Tax Act, 1961 is a one-time benefit to encourage industrialization and the relevant provisions have to be construed reasonably and purposively. The additional depreciation is allowed in the year of purchase and if in the year of purchase, the assessee is eligible only for 50 per cent, depreciation, the balance 50 per cent, can be carried forward for the subsequent year.”

8.1 In the present case, the assessee has purchased plant and machinery in the

second half of the financial year 2008-09 relevant to the assessment year 2009-10

and claimed 50% additional depreciation, therefore, the balance additional

depreciation of 50% is to be allowed in the next assessment year, i.e., 2010-11 as

held by the Karnataka High Court in the case of CIT vs. Rittal India Pvt. Ltd. cited

supra. Hence, we do not find any infirmity in the order of the CIT(A) in allowing

balance 50% depreciation in the immediate next year. Thus, this ground of appeal

of the Revenue is dismissed.

the disallowance of Cash Payments made to suppliers of Animal crushed bones u/s.

40A(3) of the Act.

assessee is crushed animal bone (CB). CB is a produce of animal husbandry, by 6

I.T.A. Nos. 301 & 303/Coch/2017 minimal process of crushing the bones of bovine animals, with minimal process of

cleaning and drying. The assessee generally makes payment to the CB suppliers by

account payee cheques. However, it was noticed that some of the purchases were

made on delivery at assessee's factory basis with prices inclusive of freight. In such

cases the suppliers transports goods by motor lorries to assessee's factory. As per

the Industry practice the motor lorries are hired by the supplier on onetime basis,

depending on the availability. In the absence of regular contacts, the lorry freight is

required to be paid in cash at the time of delivery at factory. However, CB suppliers

indicate the lorry number and the freight payable in the invoices. Assessee pay the

freight in cash to lorry drivers by debit to respective CB supplier Account. After

reducing the freight paid in cash the balance amount due to suppliers were made by

account payee cheques. According to assessee the freight component paid in cash

to CB suppliers are covered by provisions of Rule 6DD and hence not to be

disallowed u/s 40A (3) of the I.T Act being payment is made for the purchase of

"produce of animal husbandry". However, the Assessing Officer held that the CB is

an industrial product and not a produce of animal husbandry and the certificate

issued by the Livestock Products Inspecting Officer of Kerala State Animal

Husbandry Department merely states that the crushed bone is a product falling

under the purview of that department According to the Assessing Officer vide

circular No. 8/2006 (6-10-2006), it was clarified that exemption will not be available

in respect of payments for the purchase of livestock, meat, hides and skins from a

person who is not proved to be the producer of these goods and is only a trader ,

broker or any other middlemen by whatever name called. The same circular also

I.T.A. Nos. 301 & 303/Coch/2017 give added benefit by including any person, by whatever name called, who buys

animals from the farmers, slaughters them and then sells the raw meat carcasses to

the meat processing factories or to the traders/retail outlets would be considered as

producer of livestock and meat. Thus, the Assessing Officer was of the view that in

order to avail the benefit as per rule 6DD the producer need to furnish.

i) A declaration from the person receiving the payment that he is a producer of meat;

ii) A confirmation that the payment, otherwise than by an account payee cheque or account payee bank draft, was made on his insistence; and

iii) A further confirmation from a veterinary doctor certifying that the person specified in the certificate is a producer of meat and that slaughtering was done under his supervision.

10.1 According to the Assessing Officer, in the case of fish and fish products

circular no 10/2008 dated 5/12/2008 clearly stated that exception will not be

available on the payment for the purchase of fish or fish products from a person

who is not proved to be a producer of these goods and is only a trader, broker or

any other middlemen, by whatever name called.

10.2 According to the Assessing Officer, even if the argument of the assesse that

crushed bone is an animal produce, benefit of Rule 6DD is not available, as the

assessee is not purchasing the crushed bone from the producer.

disallowance of Rs.1,50,03,709/- by observing as follows: 8

I.T.A. Nos. 301 & 303/Coch/2017

1) The Department of Animal husbandry, Ministry of Agriculture, Government of India has clarified that crushed bones is a matter within the jurisdiction of animal husbandry and agriculture. 2) A narrow interpretation that excludes crushed bone, that may merely be crushed and thereby retaining their original element form and chemical configuration), as a produce of livestock by the AO is not proper as the Department of Animal Husbandry of Government of India has classified crushed bone as a produce of animal husbandry.

3) The term "produce of animal husbandry" provided in Rule 6DD(e) is an inclusive definition and includes livestock, meat, hides and skins. Therefore, crushed bones would stand included therein.

4) If the AO's arguments were accepted and even cash purchase of hides and skins would need to be made in their raw and dripping with blood and laden with remains of meat form to render the purchase made in cash sufficiently qualified to avail the benefit of Rule 6DD.

5) AO appears to have not observed or ignored that CBDT's circular number 10/ 2008 dated 5 December 2008 referenced by AO relate to "the payment for purchase of fish or fish products" and significantly did not employ the term "fish produce". Therefore, Rule 6DD itself and read with CBDT circular number 10/2008 as above as included within "products" of animal origin and has not contextually distinguish such products from produce.

6) The Rule 6DD and the circulars referenced by AO are more concerned about presence of traders, middlemen and brokers trying to make rapid killings out of statutory provisions being the beneficial exemptions provided to payments made in cash and therefore are seen to attempt to cut off and close such undesirable beneficiaries from the purview of benefits concerned. The processes undergone by the produce or products are subsumed by the position that such produce or products are purchased directly from producers, if such position is proved to be fact.

7) In view of the above the CIT (A) held that processes undergone by crushed bones directly from producers prior to their arrival for use in the factory premises of the respondent-assessee do not render them as non-produce of animal husbandry in any manner and that the matter of what really constitute a produce of animal husbandry will need to be dealt and decided upon a reasonable, practicable and fair manner after taking into consideration the nature of claimants business activities and the nature of processes undergone by such produce and the definitions and opinions of government authorities processed of the necessary jurisdiction. 9

I.T.A. Nos. 301 & 303/Coch/2017

8) The CIT(A) also examined the decisions of Supreme Court in the case of Attar Singh Gurmukh Singh (191 ITR 667), CIT vs. CPL tannery (318 1TR 179) (Cal), CIT vs. Crescent Export Syndicate (ITA number 202 of 2008)

9) The Assessing Officer had not questioned the genuineness of the transactions or the payments or the identity of the suppliers.

11.1 Thus, on the basis of above the CIT(A) held that the assessee passed the test

of exemption offered under Rule 6DD and the CB that have been purchased and

paid for in cash are produce of animal husbandry.

order of the Assessing Officer.

as provided in clause (e) of Rule 6DD of the Act (covered by clause (f) thereof upto 7th amendment Rules w.e.f. AY 2009-10 states as under:

e) where the payment is made for the purchase of - i) agricultural or forest produce; or ii)the produce of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry farming; or

iii) fish or fish products; or iv) the products of horticulture or apiculture to the cultivator, grower or producer of such articles, produce or products.

The exemption as per clause (ii) state that the produce of animal husbandry include

livestock, meat, hides and skins. As per these provisions where the payment is

made for purchase of various items mentioned therein, which includes the produce

of animal husbandry including livestock, meat, hides and skins or diary or poultry 10

I.T.A. Nos. 301 & 303/Coch/2017 farming to the cultivator, grower or producer of such articles, produce or products,

are not to be subjected to disallowance u/s. 40A(3). In view of the above, it was

submitted that what is important is not the activity of animal husbandry per se, but

whether the payment is made for the purchase of the produce of animal husbandry

to the producer of such articles, produce or products. It was submitted that the

Annual Report of the Department of Animal Husbandry and Dairy & Poultry farming

under the Ministry of Agriculture, Government of India, clearly list the Livestock

Products as per Annexure XII of the said Annual Report clearly mentions Bone &

Bone Products (including Crushed Bones, Grist, Buttons, Pearls, Handicraft Items

etc) as produce of animal husbandry. It was submitted that Livestock Products

Inspecting Officer, State Laboratory for Livestock, Marine and Agri Products, Govt of

Kerala has issued a certificate that crushed bone under reference is a product falling

under the purview of Animal Husbandry department. It was submitted that the view

taken by the AO that the Livestock Product Inspecting Officer, Govt of Kerala merely

states that crushed bone is a product falling under the purview of that department

itself confirms that crushed Bone "is a product falling under the purview of Animal

Husbandry Department." which is in line with the official view of Ministry of

Agriculture, Govt of India, as reflected in their Annual Report referred above. It was

submitted that the AO was not justified in rejecting the certificate without giving

any valid reasons. The assessee's submission was supported by the fact that

Crushed Bone is a produce of livestock is confirmed by Ministry of Agriculture,

Department of Animal Husbandry referred above.

I.T.A. Nos. 301 & 303/Coch/2017 13.1 Processing done on the "bone' to 'crushed bone' involve only simple cleaning,

drying and crushing of raw animal bones of bovine origin. It was submitted that the

Assessing Officer erred in treating 'Crushed Bones' as an industrial product against

the settled judicial views in the matter as below:

i. CIT vs. Interseas, Sea Food Exporters (233 CTR 77) (Ker.) wherein the assessee made massive purchases from various suppliers of processed fish by paying cash instead of making payment through account payee cheques or demand drafts as required under section 40A(3) of the IT Act. When proposal was made in the assessment to make disallowances of purchases in excess of Rs. 20000 through payment in cash, the assessee claimed the benefit of exemption provided under r. 6DD (f)(iii)

"It is worthwhile to note that produce of animal husbandry covered by sub- cl.(ii) of cl.(f) takes in even hides and skins. Hides and skins are obtained in the process of taking meat from the slaughtered animal. Payments made to even industries engaged in manufacture of fish products are covered by the exemption clause contained in cL(iii). We feel the exemption clause generally covers a class of goods in all forms without confining itself to any particular form leaving other forms of it from the very same class. When fish and even manufactured products of fish are covered by the exception clause, we see no reason why the processed fish which is an intermediary, should be taken out of the scope cause the Government under the rule considers fish only in two forms, either fish as such or in its product form. In other words, sub-r (iii) of r.6DD(f) covers all forms of fish, though the broad classification is only between fish and fish products. So much so, in our view, since the processed fish purchased is not fish in the same form it is obtained, it falls within the meaning of fish product under the above rule. Since we have accepted the contention of the assessee that the processed fish purchased is fish product within the meaning of that term in the rule, we have to necessarily hold that the supplier namely, the processor offish, is certainly producer to whom payments are made. Therefore, we are of the view that the Tribunal rightly held that r.6DD(f)(ii) of the IT Rules squarely apply to the processed fish purchased by the assessee and so much so, they are entitled to exemption available under s. 40A(3). We therefore, answer the first question stated above in favour of the assessee and against revenue.”

In respondent assessee's case, the product is crushed bone which is a direct product produced of animal husbandry (livestock) by extracting the bone at the time of slaughtering and by doing certain minor process (like removing waste, 12

I.T.A. Nos. 301 & 303/Coch/2017 washing, drying and crushing), and as per the provisions of sub cl.(e) (ii) of rule 6DD, payment can be made even to the producer of such article which includes produce of animal husbandry or diary or poultry farming.

ii. CIT Vs. CPL Tannery (318 ITR 179) (Kol) wherein the Court concurred with

the finding of the Tribunal and held;

"We have given our thoughtful consideration to the arguments advanced from, both sides and also perused carefully the relevant papers. We find that the Assessing officer in his order at paragraph 3.8 states that "The assessee has also admitted that they collect raw hides/skins from villages from the original skin peelers, process these hides and skins to some extent and only after that, those skins/hides are sold to tannery". Thus, the Assessing officer admits that the small suppliers of hides and skins do carry out processing after obtaining the goods from original skin peelers. The Commissioner of Income tax (Appeals) also in his order at paragraph 2.2 describes that processing is done by these suppliers. Thus, the fact that processing is done is not disputed by the authorities below. The view that processing in this case cannot “”be equated to production will render the interpretation of the word "production" used in rule 6DD(f) extremely technical and meaningless and will frustrate the provisions of the rule. Rule 6DD was created to carve out exceptions of the rigorous of section 40A(3) and such exceptions are to be understood in the background of commercial.”

"We have given our thoughtful consideration to the arguments advanced from both sides and also perused carefully the relevant papers. We find that the Assessing officer in His order at paragraph 3.8 states that "The assesses has also admitted that they collect raw hides/skins from villages from the original skin peelers, process these hides and skins to some extent and only after that, those skins/ hides are sold to tannery". Thus, the Assessing officer admits that the small suppliers of hides and skins do carry out processing after obtaining the goods from original skin peelers. The Commissioner of Income tax (Appeals) also in his order at paragraph 2.2 describes that processing is done by these suppliers. Thus, the fact that processing is done is not disputed by the authorities below. The view that processing in this case cannot be equated to production will render the interpretation of the word "production" used in rule 6DD(f) extremely technical and meaningless and will frustrate the provisions of the rule. Rule 6DD was created to carve out exceptions of the rigorous of section 40A(3) and such exceptions are to be understood in the background of commercial expediency and other relevant factors. This has been accepted by the Central Board of Direct Taxes by issuing press note dt. May 2, 1969, and the view that products otherwise covered under rule 6DD, when subject to some processing should also qualify 13

I.T.A. Nos. 301 & 303/Coch/2017 for exemption has been admitted. In this view of the matter and after considering the issue in great detail, we are of our considered view that the addition o Rs.2.50 lacs under Sec. 40A (3) is uncalled for and, hence, deleted. The first ground of appeal thus succeeds".

iii. DCIT. Kanpur Vs. Allied Leather Finishers P.Ltd - 32 SOT 549 (Luck.) wherein the assessee company purchased raw hides/skins for the purpose of manufacturing leather and leather products directly from producers of such raw hides and skins or through their agents. The Tribunal held that in so far as the addition u/s 40A(3) was concerned, it is nowhere denied that the assesee has not purchased part of its raw material directly from the producers. Accordingly, the entire payment made by the assessee to producers of the raw hides/skins or to their agents for such purchases would not be hit by the provisions of Section 40A(3).

In view of the above, it was submitted that the AO erred in holding that Crushed

bone is not a produce of animal husbandry but an industrial product.

13.2 It was submitted that the AO erred in finding that the assesse is not entitled

to the exemption in view of the circular no 8/2006 dated 6.10.2006 issued by

CBDT.) Para 1 of the said circular states: It was further clarified that the above

exception will not be available in respect of payment for the purchase of livestock,

meat, hides and skins from a person who is not proved to be the producer of these

goods and is only a trader, broker or any other middleman by whatever name

called. In the respondent assessee's case, we have purchased crushed bone directly

from the producers and not from any trader, broker or middlemen. Accordingly, it

was submitted that the assessee was eligible for exemption under the said circular.

unless the manufacturer himself desires to be covered under the provisions of the said order, namely:- (Emphasis supplied);

(i) Meat extracts, meat consomme and stock, meat sauces and similar products not containing fragments of meat; 14

I.T.A. Nos. 301 & 303/Coch/2017

(ii) Whole, broken or crushed bones, meat peptones, animal gelatin, meat powder, pork-rind powder, blood plasma, dried blood, dried blood plasma, cellular proteins, bone extracts and similar products; (Emphasis supplied);

(iii) Fats melted down from animal tissues;

(iv) Stomachs, bladders and intestines, clean and bleached, salted or dried;

(v) Products containing fragments of meat, but which contain a quantity of meat or meat product not exceeding ten percent of the total weight of the final product;

(vi) Patties, puffs, rolls, samosas, cutlets, koftas, kababs, chops, tikkas and soups made from mutton, chicken, goat meat, buffalo meat, beef and grilled chicken which are prepared for immediate consumption, the ampoules of chicken essence, hot-dogs and hamburgers prepared for immediate consumption which cannot be stored even under refrigerated conditions;'

It was submitted that as per Rule 6DD (e), no disallowance can be made in respect

of the payment made for purchase of specified items in sub clauses (i) to (iv) to

cultivator, grower or producers of such article or products. This has been clearly

interpreted in the judicial decisions referred earlier. Thus, the reliance placed by the

learned AO is clearly misplaced and have no application to the facts of the case.

13.3 Similarly, it was submitted that Circular no 10/2008 dated 05/12/2008 relates

to "fish or fish products under sub clause (iii) of clause (e) of Rule 6DD, and clarify

the expression fish or fish produce' and producers of fish or fish products for the

purpose of Rule 6DD (e) of IT Rules, 1962 which also has no application to the facts

of the case.

I.T.A. Nos. 301 & 303/Coch/2017 13.4 Thus, it was submitted that the provision of Rule 6DD is clear. Rule 6DD do

not specify any conditions for eligibility for claiming exemptions as per section. The

CBDT circular cannot expand or restrict the scope of law. In this regard, the Ld. AR

placed reliance on the decision of Bombay High Court in the case of Principal CIT vs

Gee Square Exports 100 Taxmann.com 461), wherein the Court upheld the view of

the Tribunal that Assessing Officer cannot deny the benefit of proviso to section

40A(3j and Rule 6DD(e) on ground of non- satisfaction of condition provided in

CBDT Circular No. 8 of 2006 dated 6-10-2006. The Tribunal opined that CBDT

Circular could not put in new conditions for grant of benefit under Rule 6DD which

were not provided either in Act or in rules framed thereunder. According to

Tribunal, assessee having satisfied requirements under Rule 6DD(e), could not be

subjected to disallowance under section 40A(3). The High Court of Bombay upheld

the order passed by Tribunal. The SLP filed against the decision of the High Court

was dismissed by the Supreme Court. Thus, it was submitted that the AO erred in

stating that the assessee had not adhered to the conditions laid down by the CBDT

Circular mentioned above as there is no specific CBDT circular relating to the item

relating to the assessee’s case. Further, it was submitted that the AO had not relied

on legal decisions or any specific authority for denial of benefit to the assesse and

also has not stated any specific reason for treating the case laws relied on by the

assesse as distinguishable. It was submitted that these case laws are self-

explanatory and rendered on the basis of identical facts and circumstances. The Ld.

AR also placed reliance on the judgment of the Supreme Court in the case of

Attar Singh Gurmukh Singh (191 1TR 667) wherein it was held as under:

I.T.A. Nos. 301 & 303/Coch/2017 "The terms of section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the Assessing Officer the circumstances under which the payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulty to the payee."

13.5 The Ld. AR relied on the judgment of the Gauhati High Court in the case of

Walfard Transport (Eastern) Ltd. India v. C1T [2002] 124 Taxman 538/240 ITR 902

(Gau.) & the judgment of Madras High Court in the case of CIT vs. Chrome Leather

Co, (P.) Ltd. [1999] 235 ITR 708 (Mad.) wherein it was held that where the

transaction was found to be genuine and the identity of the payee is established, a

liberal view of compelling and mitigating circumstances should be taken.

facts of the case, the assessee has made payments for purchase of produce of

animal husbandry, i.e., crushed animal bones from the supplier who is the producer

of the crushed bones. According to the ld. AR, it is not necessary to make such

payments by account payee check or crossed demand draft when it is in excess of

Rs.20,000/-. Whereas the case of the Department is that in the case of purchase of

any of produce or products mentioned in Rule 6DD(e) of the Act, the payment must

have been made to the cultivator, grower or producer of such articles alone to avail

benefit of the said clause. For clarity, we reproduce Rule 6DD(e) of the Act:

“Rule 6DD No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section 3 of section 40A: 17

I.T.A. Nos. 301 & 303/Coch/2017

(e) where a payment is made for the purchase of: i) agricultural or forest produce; or ii) the produce of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry farming; or iii) fish or fish products; or iv) the products of horticulture or agriculture” to the cultivator, grower or producer of such articles, produce or products;

14.1 On a reading of the clause, we are of the opinion that the contention urged

the Revenue is justified. In the first two sub-clauses, the word ‘produce’ is used

and in the next two sub-clauses, the word ‘products’ is used. Both these words

“produce” and “products” are used in the concluding words. If the assessee’s

contention is right, the use of the word “produce” in these concluding words qualify

only sub-clause (iv) uses only he work “products” but not the word “produce”. The

intention underlying clause (f) also supports our contention. The idea was that since

the cultivators, growers or producers of agricultural or forest produce, produce of

animal husbandry, fish or fish products are mostly residents of rural areas not used

to banking systems or not having bank accounts, the requirement of sub-section(3)

of section 40A was impracticable and would lead to difficulties in its application.

The idea could never have been to exempt all the producers of forest produce or

other produce and products mentioned in sub-clauses (i) to (iii) from whomsoever

they are purchased. Thus, the words “cultivator, grower or producer” occurring at

the end of Rule 6DD(f) qualify the words occurring in all the preceding four sub-

clauses and not only in sub-clause(iv). This view was fortified by the judgment of

the Allahabad High Court in the case of CIT vs. Pehlaj Rai Daryanmal (190 ITR 242).

However, there is a judgment from the Jurisdictional High Court in the case of CIT

I.T.A. Nos. 301 & 303/Coch/2017 vs. Interseas, Sea Food Exporters (233 CTR 77) wherein it was held that rule

makers never intended processed fish to be taken out of the scope of sub-cl.(iii) of

cl.(f) of r.6DD because the Government under the rule considers fish only in two

forms, either fish as such or in it’s product form. In other words, sub-r. (iii) of

r.6DD(f) covers all forms of fish, though the broad classification is only between fish

and fish products. So much so, in our view, since the processed fish purchased is

not fish in the same form it is obtained, it falls within the meaning of fish product

under the above rule. Since we have accepted the contention of the assessee that

the processed fish purchased is fish product within the meaning of that term in the

rule, we have to necessarily hold that the supplier namely, the processor of the fish,

is certainly producer to whom payments are made. Therefore, we are of the view

that the Tribunal rightly held that r. 6DDf(iii) of the IT Rules squarely apply to the

processed fish purchased by the assessee and so much so, they are entitled to

exemption available under s. 40A(3). We, therefore, answer the first question

stated above in favour of the assessee and against Revenue. By applying that

anology, the product dealt by the assessee being crushed bone, which is a direct

product produced from livestock or animal husbandry by extracting the bone at the

time of slaughtering and by doing certain minor process (like removing waste,

washing, drying and crushing) in which the assessee has made payment by way of

cash in excess of Rs.20,000/-, the provisions of Rule 6DD(f) (iii) is applicable.

Therefore, it cannot be said that provisions of section 40A(3) has been violated by

the assessee by making payments in excess of Rs.20,000/- in cash. Being so, the

judgment of the Jurisdictional High Court in the case of CIT vs. Interseas, Sea Food

I.T.A. Nos. 301 & 303/Coch/2017 Exporters is directly applicable to the facts of the present case. Accordingly, we

dismiss this ground taken by the Revenue.

disallowance of additional depreciation on the cost of acquisition of the effluent

treatment plant.

of filing of return of income. Therefore, the Assessing Officer held that this being a

fresh claim cannot be entertained during the completion of the assessment

proceedings.

decisions of Supreme Court in the case of Goetze India Ltd. (284 ITR 323) , ITAT,

Mumbai in the case of Chicago Pneumatic India Ltd. (15 SOT 252), CIT vs.

Dhampur Sugar Ltd. (90 ITR 236), Bombay High Court in the case of Pruthvi

Brokers & Shareholders Pvt. Ltd. (349 ITR 336), ITAT, Cochin Bench in the case of

Thomas Kurian vs. ACIT (106 ITD 158), Solaris Bio Chemicals Ltd. vs. DCIT (ITA

No.987/2011 dated 13/07/2012 (Delhi) and allowed the claim of the assessee.

order of the Assessing Officer.

I.T.A. Nos. 301 & 303/Coch/2017 19. The Ld. AR submitted that the Assessing Officer’s finding that assessee was

making a fresh claim which was not made in the return of income filed, was not

correct. It was submitted that the assessee had already made the claim for

additional depreciation u/s 32 (l)(iia) in the return of income. The assessee had only

revised the claim of additional depreciation already made in the return of income. It

was submitted that the assessee was eligible for additional depreciation on the cost

of additions made to the effluent treatment plant made during the year. However,

the same was not claimed in the return of income due to lack of clarity in this

regard at the time of filing the return. This issue now stands clarified by the decision

of the High Court of Madras in the case of CIT vs Hi Tech Arai Ltd (Madras)

(http://www.indiankanoon.org/doc/954914/), wherein the High Court has held as

under:

"the primary condition for claiming additional depreciation was that the taxpayer should invest in new plant and machinery and that the taxpayer should manufacture any article or thing. The section did not provide for any connection between the new machines for which additional depreciation was claimed and the goods manufactured. It held that the taxpayer was entitled to the additional depreciation and allowed the claim of the taxpayer".

Thus, it was submitted that in view of the decision of Madras High Court in the case

of CIT Vs Hi-tech Arai Ltd, the claim of the assessee was allowable. It was also

submitted that CIT(A) had the power to consider the claim as held by the Supreme

Court in the case of CIT vs. Jute Corporation of India Ltd. (1991) (AIR 241, 1990

SCR Supl (1)(340).

Officer denied additional depreciation on the cost of additions made to the effluent 21

I.T.A. Nos. 301 & 303/Coch/2017 treatment plant made during the year. In our opinion, the assessee is entitled for

additional depreciation on the cost of additions made to the effluent treatment plant

made during the year only if the assessee has not claimed the whole of the actual

cost as determined in computing the income charged under the head ‘profit and

gains of business or profession’. In other words, if the assessee has not claimed

100% depreciation on the actual cost of additions made to the effluent treatment

plant in the assessment year under consideration, the Assessing Officer has to grant

additional depreciation on it. Hence, this issue is remitted to the file of the

Assessing Officer for fresh consideration. Thus this ground of appeal of the Revenue

is partly allowed for statistical purposes.

disallowance made on account of deduction in respect of the provision for leave

encashment.

debited provision for leave encashment liability on the basis of independent

actuarial valuation as per the mandatory requirements of the Companies Act. Before

the Assessing Officer, it was submitted that the assessee had disallowed in the

return of income the provision for leave encashment u/s 43B (f) of the Income Tax

Act 1961. The Ld. AR relied on the judgment of the High Court of Kerala in the

case of CIT Vs Hindustan Latex Ltd. (209 taxman 42) wherein subsequently it was

held that provision for leave encashment is not to be disallowed u/s 43B (f) of the

I.T.A. Nos. 301 & 303/Coch/2017 Income Tax Act 1961. The assessee submitted before the AO that in view of the

above decision of Kerala High Court, the same may be allowed as a deduction.

However, the AO did not allow the claim of the assessee on the ground that the

facts in the case are distinguishable and the provision for leave encashment made

by the respondent is contingent in nature and is not allowable.

judgments of the Supreme Court in the case of Bharath Earth Movers Vs CIT (245

ITR 428), Calcutta High Court in the case of Exide Industries Ltd Vs Union of India

(292 ITR 470), High Court of Kerala in the case of Hindustan Latex Ltd. (209

Taxman 42), High court of Kerala in the case of South Indian Bank Ltd. (363 ITR

111) and allowed the claim of the assessee. The CIT(A) also followed the decision

of the Supreme Court in the case of Vegetable Products Ltd (88 ITR 192) wherein it

was held that if two reasonable constructions of a taxing provisions are possible,

that construction which favours the assessee must be adopted. The CIT(A) also

considered that there is no contrary binding decision of the Kerala High Court to

that held in the case of CIT Vs Hindustan Latex Ltd., cited supra.

order of the Assessing Officer.

basis of the independent actuarial valuation of its liability to employees towards

I.T.A. Nos. 301 & 303/Coch/2017 leave encashment benefits, as per the mandatory requirements of the Companies

Act.

Jurisdictional High Court in the case of South Indian Bank Ltd. vs.CIT (363 ITR 111)

had held that deduction of any sum payable by the assessee as employer in lieu of

leave at credit of its employee should be allowed only in computing the income of

previous year. This ground of appeal of the assessee is partly allowed.

addition of Rs.1,92,16,851/- being an Export incentive under the Duty Entitlement

Pass Book (DEPB).

income an amount of Rs. 1,92,16,851/- in respect of export incentive (DEPB) and

Rs.53,07,847/- towards duty draw back on the basis of amounts credited to Profit &

Loss A/c. However, the Assessing Officer denied the claim of the assessee as there

cannot be two opinions on the judgment of the Supreme court in the case of CIT Vs

Excel Industries Ltd and Mafatlal Industries P Ltd (358 ITR 295), but in the

assessee's case the claim cannot be entertained mainly because the assessee’s case

pertains to the financial year 2009-10 relevant to the assessment year 2010-11. But,

according to the Assessing Officer, the judgment of the Supreme Court in the case

of CIT vs. Excel Industries Ltd and Mafatlal Industries Ltd (358 ITR 295) came only 24

I.T.A. Nos. 301 & 303/Coch/2017 in the October 2013, which pertains to the financial year 2013-14 relevant to the

assessment year 2014-15. Further, the AO relied on the judgment of the Supreme

court in the case of Gem Granites Vs CIT ( 271 ITR 322) wherein it was held that

"No retrospectivity unless expressly stated or clearly implied. On perusal of the case

cited by the assessee, the Supreme Court has not given any such direction and the

above decision pronounced will apply retrospectively”. The Assessing Officer also

relied on the judgment of the Rajasthan High Court in the case of Marlborough

Polychem Ltd Vs CIT (321 ITR 395) wherein it was held that "judgment operative

from the date it is pronounced". Based on the above discussion and the case laws

quoted, the Assessing Officer rejected the assessee’s claim in respect of export

incentive and disallowed for the next year as the assessee already offered the tax in

its return of income voluntarily.

the decision of the Supreme Court in the case of Excel Industries and Mafatlal

industries (supra) allowed the claim of the assessee.

order of the Assessing Officer.

covered by the Exim policy and this scheme provided for reimbursement of duty

paid on materials consumed for production of goods for export and as the DEPB

I.T.A. Nos. 301 & 303/Coch/2017 was issued on the basis of exports made by the manufacturer, with reference to the

duty paid for import of materials used in the manufacture. According to the Ld. AR

DEPB is taken to the credit of P&L Account in the year of export and the object of

DEPB is to neutralize the incidence of duty paid on the import content of export

product. It was submitted that DEPB can be used by the assessee by claiming set

off when subsequent imports are made or where there is no such import required

DEPB could be transferred for a consideration to other companies who could import

materials required by them after setoff of DEPB. The assessee does not derive any

real income or benefit in the year of export when DEPB is credited to the P&L

Account. If this is taxed in the year of export, it would be tax levied on a notional

benefit. It was submitted that the assessee derived benefit when DEPB is actually

utilised for export or when it is transferred for a consideration and the real taxable

benefit is accrued in that year for tax purposes. The Ld. AR relied on the judgment

of the Supreme Court in the case of CIT vs. Excel Industries Ltd and Mafatlal

Industries P. Ltd (358 ITR 295 (SC) The Supreme Court had in the case of CIT Vs.

Excel Industries Ltd and Mafatlal Industries P. Ltd (358 ITR 295) held as follows:

“Even if it was assumed that the assessee was entitled to the benefits under the advance licences as well as under the duty entitlement pass book, there was no corresponding liability on the customs authorities to pass on the benefit of duty free imports to the assessee until the goods were actually imported and made available for clearance. The benefits represented, at best, a hypothetical income which might or might not materialize and their money value was, therefore, not the income of the assessee. Applying the three tests, namely, whether the income accrued to the assessee is real or hypothetical, whether there is a corresponding liability of the other party to pass on the benefits of duty free import to the assessee even without any imports having been made, and the probability or improbability of realization of the benefits by the assessee considered from a realistic and practical point of view (the assessee might not have made imports), it was quite clear that in fact no real income but only hypothetical income had accrued to the assessee and section 28(iv) of the IT Act, 26

I.T.A. Nos. 301 & 303/Coch/2017 1961, would be inapplicable to the facts and circumstances of the case. (CIT Vs.Shoorji Vallabhdas & Co.(1962) 46 TTR 144(SC), Morvi Industries Ltd vs. CIT(Central) (1971) 82 FTR 835 (SC) and Godhra Electricity Co. Ltd Vs.CIT (1997) 225 ITR 746(SC) applied).”

31.1 The Supreme Court also held that since the assessee derives the benefit in a

subsequent year, the said benefit will be offered for tax and therefore the

department is not deprived of any tax. The rate of tax remains the same in the

subsequent year. Therefore, department had not been deprived of any tax. In other

words, the DEPB benefit credited to the P&L A/c for the current year cannot be

assessed in the current year being hypothetical and notional and not real income of

the year. Accordingly, the Ld. AR submitted that the benefit should be assessed in

the subsequent assessment year (AY 2011-12) only, in which the DEPB income

became the real income of the assessee and actually accrued and assessable as per

the above judgment of the Supreme Court. Under the circumstances, the Ld. AR

submitted that DEPB/Drawback should be taxed on the basis as held by the above

judgment of the Apex court and not at the amount credited to P&L A/c. The Ld. AR

submitted that the above judgment of the Supreme Court defines/clarifies the law

applicable and is to be followed by the AO in deciding an identical issue and hence,

the question of application of the above judgment retrospectively does not arise.

In view of the above, it was submitted that the CIT(A) had rightly allowed the

ground of the assessee.

contention of the Ld.AR is supported by the judgment of the Supreme Court in the

I.T.A. Nos. 301 & 303/Coch/2017 case of However, we direct the Assessing Officer to verify whether the assessee

has offered the DEPB for taxation in subsequent years in accordance with the

judgment of the Supreme Court in the case of CIT Vs. Excel Industries Ltd and

Mafatlal Industries P. Ltd (358 ITR 295). In view of this, we remit the issue in

dispute to the file of the AO for fresh consideration. This ground of appeal of the

assessee is partly allowed for statistical purposes.

dismissed and the appeal of the Revenue in ITA No.303/Coch/2017 is partly allowed

for statistical for statistical purposes. Order pronounced in the open Court on this 26th August, 2019

sd/- sd/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Place: Kochi Dated: 26th August, 2019 GJ Copy to: 1. M/s. Nitta Gelatin India Ltd., 50/1002, SBT Avenue, Panampilly Nagar, Kochi-682 036. 2. he Assistant Commissioner of Income-tax, Corporate Circle-2(1), Kochi. 3. The Commissioner of Income-tax(Appeals)-I, Kochi. 4. The Pr. Commissioner of Income-tax, Kochi. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. 7. I.T.A.T., Cochin By Order

(ASSISTANT REGISTRAR) ITAT, Cochin Bench

I.T.A. Nos. 301 & 303/Coch/2017