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Income Tax Appellate Tribunal, BENGALURU BENCH B, BENGALURU
Before: SHRI. INTURI RAMA RAO
O R D E R PER LALIET KUMAR, JUDICIAL MEMBER : These are cross appeals filed by the Revenue and the assessee respectively against the order of the CIT (A)-4, Bengaluru, dt.18.07.2017, for the assessment year 2013-14.
ITA.1978 & 2001/Bang/2017 Page - 2 Revenue’s grounds :
On facts of the case, whether the decision of the Ld CIT (A) is right in allowing the appeal of assessee on perusal of additional details furnished before the appellate authority without giving opportunity to the AO to verify the same on the issue of excess claim of repairs and maintenance, addition on account of provision made / non deduction of TDS u/s.40(a)(ia) and provision of outstanding liability.
3. On facts of the case, the Ld CIT (A) has admitted the additional evidence filed by the assessee before the CIT (A) on all the issues without giving opportunity to the AO. Hence, violated the provisions of Rule 46A of the IT Rules. Assessee’s grounds are as under :
ITA.1978/Bang/2017 – Revenue’s appeal :
2. The effective ground raised by the Revenue are grounds 2 and 3 as reproduced herein above. In this regard it was submitted by the Ld. DR that the CIT (A) without affording an opportunity of hearing and without confronting the document filed by the assessee ITA.1978 & 2001/Bang/2017 Page - 3 during the appellate proceedings before him has allowed the claim of the assessee with respect to manpower supply and service expenses u/s.37 of the Act and in the alternative u/s.40(a)(ia) of the Act, to the extent of Rs.8,27,739/-.
On the other hand the Ld. AR has submitted that the assessee has produced the bills to the extent of Rs.9,28,510/- as against Rs.17,56,249/- . Copy of the ledger extract and the provision made therein and the bills were enclosed along with the copy of the written submissions filed before the CIT (A).
We have heard the rival contentions an perused para 6.3 of the CIT (A)’s order. It is abundantly clear that the CIT (A) has allowed the claim of Rs.8,27,349/- based on the ledger extract and the bills filed by the assessee during the appellate proceedings as Annexure –C. However at the time of assessment the assessee has failed to produce the bills and further failed to corroborate the other facts as mentioned in para 3.2 of the assessment order. As the CIT (A) has failed to provide opportunity to the AO or has failed to procure the remand report from the AO and thus as arrogated the powers of deciding the dispute without confronting it with the assessee, there is clear violation of Rule 46A of the IT Rules and accordingly the matter is remanded back to the file of the CIT (A) and we cancel the order of the CIT (A) with respect to grant of relief to the extent of Rs.8,27,739/- as mentioned in para 6.3 of the CIT (A)’s order. The CIT (A) is directed to decide this ground afresh after affording opportunity of hearing to the AO as well as to the assessee in accordance with law. Revenue’s appeal is allowed.
ITA.1978 & 2001/Bang/2017 Page - 4 ITA.2001/Bang/2017 – Assessee’s appeal :
The case of the assessee was selected for scrutiny as the assessee claimed additional depreciation of Rs.46,63,950/-, u/s.32(1)(iia) of the Act. The AO in para 4.1 has considered the issue of additional depreciation and after considering the submission of the assessee has disallowed the claim of additional depreciation to the extent of Rs.46,63,950/-. Para 4.4 of the assessment order is reproduced hereunder :
ITA.1978 & 2001/Bang/2017 Page - 5 Feeling aggrieved by the order passed by the AO, assessee filed appeal before the CIT (A).
The CIT (A) has confirmed the order passed by the AO and the reasoning given by the CIT (A) in para 8.3 is as under :
ITA.1978 & 2001/Bang/2017 Page - 6 Further aggrieved, the assessee preferred appeal before the Tribunal.
Before us the assessee contended that the activity of the assessee falls within the definition of ‘manufacture’ as defined in Section 2(29)(BA) of the Act. It was also the case of the assessee that regular depreciation on the plant and machinery was granted, for which the additional depreciation was denied. The assessee further submitted that as per section 32(1)(iia) of the Act, activity of the assessee falls within the sub-clause (iia) of Section 32 and therefore the assessee is entitled to the additional depreciation equal to 20% of the actual cost of the new plant and machinery.
ITA.1978 & 2001/Bang/2017 Page - 7
On the other hand the Ld. DR vehemently opposed the submission of the assessee as the assessee has filed to prove the purchase of new plant and machinery during the year under consideration and therefore the requirement of Section 32(iia) are not fulfilled by the assesse. Even assuming that the activity of the assessee falls within the definition of manufacture or production of any article or thing u/s.32(iia) of the Act.
We have heard the rival contentions and perused the record. Before we advert to the facts and decide the legal issue, for the sake of clarity and reference, we reproduce herein below the provision as per Section 32(1)(iia) and definition of manufacture as provided in section 2(29)(BA) of the Act :
32(1)(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 20015 by an assessee engaged in the business of manufacture or production of any article or thing or in the business of generation, transmission or distribution of power], a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii) ; ITA.1978 & 2001/Bang/2017 Page - 8
Section 2(29)(BA) of the Act : (29BA) "manufacture", with its grammatical variations, means a change in a non-living physical object or article or thing,— (a) 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 (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure;] From the conjoint reading of the above said provisions it is clear that for the purposes of claiming the benefit of additional depreciation, it is essential that : (i) The assessee has acquired and installed new assets in the year under consideration, for which the additional depreciation is claimed; and (ii) The assessee is engaged in the business of manufacture or production of any article or thing.
We will first deal with the contention whether the activity of the assessee falls within the four corners of business activity of manufacture or production of any article or thing. As mentioned by ITA.1978 & 2001/Bang/2017 Page - 9 the AO in the assessment order as well as by the assessee in the written submission, the assessee company has entered into contract with JSW Steel Ltd, for processing and conversion of steel coils as per para 4.3 of AO, which reads as under :
4.3 In the agreement with the JSW was also called for and the same is furnished from which it is seen that the scope of work is that JSW Steel supply CRCA and DRPO steel coils and the company shall process and convert the coil into finished steel on job work basis by providing the following job work facility : Slitting Cutting Packing Packing – cut to length For which the soil of conversion is Slitting .. Rs.650/- per ton Cut to Length .. Rs.650/- per ton And the company shall transfer such scrap / waste generated to JSW Steel and such items shall be in JSW Steel’s account and the packing job in the scope of JSW Steels.
Now the issue to be examined is whether the cutting of the coil to the required size as per the specification of the customer would amount to manufacturing activity or not. If we look into the agreement produced before us in the paper book, effective from 20.12.2017, the scope of work was mentioned as conversion of coil into finished steel coil. In para 1.3 it is mentioned as under : 1.3 JSWSPCL shall provide the following job work facilities: • Slitting • Cut to length • Packing – Slit • Packing – cut to length ITA.1978 & 2001/Bang/2017 Page - 10 The very nature of the activity of the assessee as per the agreement is in the nature of job work and not a manufacturing activity. There is neither a value addition nor the use of skills for the purpose of converting the steel coil rolled into any other form. On the contrary there is only reduction in length of the steel coil from its original size as per the requirement of the customer. Definition of manufacture as given in section 2(29)(BA) requires transformation of the object from one thing to a different object. In our view, there is no transformation of the steel coil from either in physical form or its appearance. Only there is a reduction in size and length of the coil. Therefore neither new or a distinct object or article with different chemical composition or design came into existence. Therefore in our view, the activity of the assessee does not form part of the manufacturing activity, as per section 2(29)(BA) of the Act.
Further it was the contention of the assessee that the activity of the assessee, if not falling within the definition of manufacture, would fall within the definition of ‘production’. In our considered opinion activity of the assessee will not fall within the definition of production as used in Section 32(1)(iia) of the Act. Cutting of the steel roll into different size or dimension will not be a production activity and as mentioned in the production agreement it is only a job work. Further if we see the photograph of the input and finished product, at page 24 of the paper book, which is reproduced below, we find no change in the physical form except in the reduction in the width of the coil in both the photographs :
ITA.1978 & 2001/Bang/2017 Page - 11 From the above, we find that though only width of the coil is reduced and the steel coil (HR {GI}) has been referred as HR (GI) slitting and therefore there is change in the characteristic of both the coil and in commercial world it is known by different commodity. assessee relied upon India Cine Agencies v. CIT [2009] 308 ITR 98/[2008] 175 Taxman 361 (SC). In said case the assessee was involved in the activity of conversion of jumbo rolls of photographic films into small flats and rolls of different sizes, the Apex Court held the activity carried out by the assessee to be manufacturing. Similarly in in ITO v. Arihant Tiles & Marbles (P.) Ltd. [2010] 320 ITR 79/186 Taxman 439, after taking into account its earlier decisions rendered in Aman Marble Industries (P.) Ltd. v. CCE, [2005] 1 SCC 279; CIT v. Sesa Goa Ltd. [2004] 271 ITR 331/[2005] 142 Taxman 16 (SC); Lucky Minmat (P.) Ltd. v. CIT [2001] 9 SCC 669; Rajasthan SEB v. Associated Stone Industries [2000] 6 SCC 141; and CIT v. N.C. Budharaja & Co. [1993] 204 ITA.1978 & 2001/Bang/2017 Page - 12 ITR 412/70 Taxman 312 (SC) held that in a case where the assessee was involved in the business of converting blocks of marble into polished slabs and tiles, by applying the principle that the product can no longer be regarded as original commodity, but recognized in trade as a distinct and new commodity, he was entitled to the exemptions under the provisions of the Income Tax Act. IN our view activity of assessee falls under manufacturing activities , similar views were expressed by Hon’ble high court in Ms. Megha Dadoo*2015] 57 taxmann.com 309 (Himachal Pradesh) to the following effect :
“20. These findings of fact, after having perused the record and heard learned counsel for the parties, we find to be in no manner perverse or erroneous, warranting interference. In fact, we are in agreement with the opinion so rendered by the Tribunal.
In Collector of Central Excise v. Technoweld Industries 2003 (155) ELT 209 (SC), the Court was dealing with a case where the assessee was engaged in the business of drawing wires into thinner gauge from wires of thicker gauge, by cold drawing process. The old product did not lose its identity or could be put to similar and same use. In our considered view, no ratio of law is laid down by the Apex Court in the said decision, unlike the ones we have noticed hereinabove. In the instant case, as we have already observed, by applying the settled principles, the activity carried out by the assessee can only be said to be manufacturing a new product.
Learned counsel for the Revenue also seeks reliance upon the decision rendered by the Apex Court in Bharat Forge & Press Industries (P.) Ltd. v. Collector of Central Excise [1990] 1 SCC 532. Even the said decision, in our considered view, is inapplicable in the given facts and circumstances. There the assessee was dealing with the process of cutting pipes and tubes in small sizes and shapes, which were though ITA.1978 & 2001/Bang/2017 Page - 13 passed through chemical process, but however, there was neither any change in their basic physical properties nor in their end use. It is in this backdrop that the Court observed that smaller articles can also be described and used as pipes and tubes. Moreover, the Court was dealing with a totally different legislation.
Learned counsel for Revenue also seeks reliance upon the decision rendered by the Hon'ble Supreme Court of India in Union of India v. J.G. Glass Industries Ltd. [1998] 96 Taxman 29. In our considered view, the decision does not advance the case of the Revenue in any manner. There the assessee was involved in the activity of printing names and logos on the bottles, which did not change the character or condition of the original product.
Thus, keeping in mind the exposition in the aforesaid decisions, we have no hesitation in holding that the Appellate Tribunal was justified in concluding that the product (Route Marker) produced by the assessee was commercially different from its raw material and further, it is commercially known to be different in the market. In other words, the assessee was engaged in manufacturing of the said product. Therefore, the assessee was entitled to deduction claimed under Section 80IC of the Income Tax Act. We find no reason to disagree with the said opinion of the Tribunal. As a result, the appeal is dismissed. Substantial questions of law are answered accordingly.” Therefore in the present case the stripes has been changed / reduced./ silted/ winded in different size etc , therefore the activity of the assessee would fall within the domain of manufacture.
12. However, as noted in para 4.4 of the asst. order and 8.3 of the CIT (A)’s order reproduced herein above, the assessee has not produced the relevant bills pertaining to purchase of new plant and machinery claimed to be installed during the year under consideration. Therefore the second requirement as mentioned herein above to claim the benefit of additional depreciation ITA.1978 & 2001/Bang/2017 Page - 14 u/s.32(1)(iia) had not been fulfilled which requires the assessee to prove that it had acquired of plant and machinery during this year and it was used for manufacturing / production purposes.
12.1 We may further add that the ground of grant of regular depreciation on these very machines by the AO was not raised before the CIT(A) in the grounds of appeal , therefore this cannot be agitated before us without raising a additional grounds in accordance with law . Further, though the assessee has orally submitted before us, that the AO has granted the regular depreciation on the plant and machinery, but no evidence or document or order has been brought to our notice, from the record before us, to show that the assessee has been granted regular depreciation on plant and machinery on which the additional depreciation was claimed by the assessee. , hence the contention of the assessee that the regular depreciation was granted by the AO on these plant and machinery was not borne out from the record. Accordingly as the assessee has failed to fulfil the requisite condition as mentioned in section 32(1)(iia) of the Act, the assessee is not entitled to any relief.
In view of the above, we do not find any merit in the appeal filed by the assessee. Accordingly the same is dismissed.
ITA.1978 & 2001/Bang/2017 Page - 15
In the result, appeal of the Revenue is allowed while the appeal of the assessee is dismissed.
Order pronounced in the open court on 7th day of March, 2018.