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Income Tax Appellate Tribunal, MUMBAI BENCH “J”, MUMBAI
Before: SHRI G.S. PANNU & SHRI RAVISH SOOD
The captioned appeal filed by the assessee pertaining to Assessment Year 2010-11 is directed against an order passed by CIT(A)-3, Mumbai dated 29.08.2016, which in turn arises out of an order passed by the Assessing Officer under Section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) dated 29.01.2016.
In this appeal, the assessee has raised the following Grounds of appeal:-
“1. On the facts and circumstances of the case as well as in law, the Learned Commissioner of Income-tax (Appeals) 3, Mumbai erred in upholding the notice issued under section 148, and not considering that the same is based on the audit objection raised and/or change in opinion of the learned Assessing Officer.
2. On the facts and circumstances as well as in law the Learned Commissioner of Income-tax (Appeals) 2, Mumbai erred in confirming the disallowance of the claim of additional depreciation of Rs.97,83,302 under the provisions of section 32(iia) of the Income-tax Act. a. The learned Commissioner (Appeals) erred in holding that the appellant is not into the business of manufacture and production of seeds. b. The learned Commissioner (Appeals) erred in ignoring, not considering and not distinguishing the Honorable Supreme Court Judgment in the case of Krishi Utpadan Mandi Samiti and others V/s. Pilibhit Pantnagar Beej Ltd. and the decision of the Jurisdictional High Court in the case of Jalna Seeds Processing and Refrigeration Co. Limited reported in 246 ITR 156, which are directly on the issue.”
At the time of hearing, the learned representative for the assessee pointed out that the substantive dispute is manifested in Ground of appeal no. 2, which relates to denial of assessee’s claim for additional depreciation on plant and machineries as per Sec. 32(1)(iia) of the Act amounting to Rs.97,83,302/-. It has been explained that the claim has been denied by the lower authorities on the ground that assessee is not engaged in the business of manufacture or production of any article or thing and thus it is not eligible for the additional depreciation u/s 32(1)(iia) of the Act.
4. In this context, it is noted that the appellant is a company incorporated under the provisions of the Companies Act, 1956 and is, inter- alia, engaged in the business of production, processing and marketing of hybrid and high yielding seeds and field crops like cereals and fibre oil seeds as also hybrid tomato. It claimed additional depreciation u/s 32(1)(iia) of the Act qua its plant and machineries relating to Seed Division. Notably, Sec. 32(1)(iia) of the Act permits an assessee engaged in the business of manufacture or production of any article or thing to claim additional depreciation to the extent of 20% of the actual cost of such plant and machinery. Before the Assessing Officer, assessee enumerated the activities carried on by it in order to show that it was indeed engaged in manufacturing/processing of seeds so as to be eligible for additional depreciation u/s 32(1)(iia) of the Act. In para 6.2 of the assessment order, the submissions of the assessee have been reproduced by the Assessing Officer, which are quite relevant to appreciate the present controversy. The relevant extract reads as under :-
“6.2 ................... The Company produces seeds in association with the farmers. The process in detail is as under: a) The foundation seeds are given to Farmers on the basis of contract farming, in various states to multiply them through crop growth in the fields. b) The crop received from the farmers are then collected by the company. The crop is then cleaned to remove the dust, rock particles and other foreign materials with the help of various machinery. These crop is called unprocessed crop. c) A sample is taken from each batch of unprocessed crop and tested to determine its germination ability, the trait present and to determine the quality of the batch. The seeds which do not pass the test are disposed. d) The crop is then subjected to the process of segregation as per the quality through the screening and centrifuge process using screening machines and centrifuge machines. e) The good seeds which come out of segregation process is then treated with various chemicals, which preserve and/or increases the quality of the seeds. It also prevents the seed from attacks of pest. After the treatment the seeds are unfit for Human consumption. The seeds can only be utilised for the purposes of cultivation. f) It is at this stage, the crop can no longer be called a crop but are seeds which has to be utilised as such only and cannot be used for consumption as any other crop. Therefore the crop changes its identity and now are seeds only. g) The treated seeds are packed as per the accepted norms and then dispatched to various dealers and distributors all over India.”
On the basis of the aforesaid, it has been canvassed by the learned representative that the activities of the assessee justify its assertion that it is engaged in the business of manufacture/processing of seeds. In this context, reference has also been made to the judgment of the Hon'ble Bombay High Court in the case of CIT vs Jalna Seeds Processing and Refrigeration Co. Ltd., 246 ITR 156 (Bom.) to contend that an activity similar to that of the assessee has been found to be in the nature of ‘manufacturing’ activity. The Hon'ble Bombay High Court was considering as to whether processing of raw seeds into a marketable commodity would amount to ‘manufacture’ so as to enable the claiming of relief u/s 80HH of the Act. The Hon'ble High Court noted the various processes involved whereby the raw seeds underwent various stages to make them a marketable lot. The Hon'ble High Court noted that the net result of seven stages of processing through which the raw seeds go through was that the raw seeds, which was hitherto fit to be consumed by human beings and animals, was rendered inedible for human and animal consumption and could only be used for cultivation. Thus, as per the Hon'ble High Court, a different commodity emerged after the raw seeds went through the different stages of processing. Thus, the activity of processing was held to be in the nature of ‘manufacturing’ activity. If we examine the facts of the instant case in the light of the judgment of the Hon'ble Bombay High Court in the case of Jalna Seeds Processing and Refrigeration Co. Ltd. (supra), an irresistible conclusion which can be drawn is that the pre-processed seeds procured by the assessee are quite different in its usage and marketability qua the final product. The various stages of processing undertaken by the assessee, which were canvassed by the assessee before the Assessing Officer also, have not been disputed by the Revenue at any stage. Thus, considering the ratio of the judgment of the Hon'ble Bombay High Court in the case of Jalna Seeds Processing and Refrigeration Co. Ltd. (supra), the instant activity of the assessee is held to be an activity of manufacturing; thus, assessee is eligible for additional depreciation u/s 32(1)(iia) of the Act on its plant and machineries relating to Seed Division. Thus, Ground of appeal no. 2 is allowed.
The remaining Ground of appeal no. 1 relates to the validity of the proceedings initiated under Section 147/148 of the Act. Since the assessee has got full relief in earlier paras, this Ground is rendered academic in nature, and does not require any adjudication at the present, and is accordingly kept open.
Resultantly, the appeal of the assessee is allowed, as above.
Order pronounced in the open court on 19th September, 2018.