ACIT 19(2), MUMBAI vs. K.P. SANGHVI & SONS, MUMBAI

आदेश / O R D E R PER R.C.SHARMA (A.M):

4. Whether on facts and circumstances .of the case, the Ld.CIT(A) erred in not appreciating the fact that Hon'ble Supreme Court in the case of CIT Vs. Gem India Manufacturing Co.(2001) 249 ITR 307 (SC) & Hon'ble High Court of Bombay in the case of London Star Diamond Co(I)Ltd.213 ITR 517 (Bom) had held that the diamond cutting & polishing amounts to processing of goods and not manufacturing of goods and decision relied upon in the case of M/s Sheetal Manufactures has not been accepted on merits.

10. We have heard the rival contentions of the parties and perused the material placed before us. We find that the claim of the assessee is that the business of cutting and polishing of diamonds is manufacturing and production of an article or thing as required for claiming additional depreciation u/s 32(1) (iia) of the Act. The AO disallowed the claim by observing that the assessee is not engaged in manufacturing or production of any article or thing. The CIT (A) relying on the decision of the Hon’ble Supreme Court in the case of Arihant Tiles & Marble Pvt. Ltd. 320 ITR 79 (SC) allowed the claim of the assessee vide Para 2.4.40 as under:- 2.4.40 It is seen that in the earlier year, this claim has been allowed following the decision in the case of Sheetal Diamonds Ltd. in to 6689/Mum/2002 dated 23.3.2011 where the issue of cutting and polishing of diamonds whether constituted manufacturing activity or not was considered in detail by the Hon’ble ITAT, Mumbai Bench. In the aforesaid decision, reference was also made to the decision of Hon’ble Supreme Court in the case of Gen India Mfg. Co. 249 ITR 307 and the subsequent decisions of the apex Court in the case of Arihant Tiles and Marble (P) Ltd. 320 ITR 79 (SC), Vijay Ship Breaking Corpn. 314 ITR 309 (SC) and Empee Poly Yarn Pvt. Ltd. 320 ITR 665 to hold that t he assessee was engaged in the business of manufacturing of cutting and polishing rough diamonds and hence, it was eligible for deduction u/s 80 IA of the Act. Following the above said decisions, the appellant’s claim for additional depreciation u/s. 32(1) (ii) of the Act was allowed. As the facts obtaining in the current year are in pari

M/s. K.P.Sanghvi & Sons material with the facts obtaining in earlier year in respect of the appellant’s claim of additional depreciation, this ground is allowed 11. We also find that the Tribunal in the case of Flawless Diamond India Ltd. Vs Addl. CIT (2014) 45 Taxmann.com 67 (Mum.) after considering the recent of the Hon’ble Supreme Court held that cutting and polishing of diamonds amounts to manufacturing or production of article or thing by observing in Para 16 as under:- ― 16. Thus, from the aforesaid decision, it can be safely inferred that, what is required is the process undertaken for conversion of raw / rough diamonds into superior or polished diamond. In this case, as stated above, the assessee has duly placed on record the entire process and the stages through which the rough diamond undergoes for becoming the polished diamond, which is a separate and distinct product and has different usage. Such a process has neither been rebutted by the Revenue nor any other counter-opinion have been sought to contradict the assessee’s version of the process. Thus, in our opinion, once the entire process of cutting and polishing of diamond have not been rebutted and also the fact that the rough and polished diamond are two distinct commodity having different usage, not only in the common parlance but also in real sense, then it has to be understood that the cutting and polishing of diamond amounts to manufacturing or production of article or thing as envisaged for the purpose of claiming deduction under section 80- IC. Thus, the contention raised by the learned counsel before us is accepted that simply relying on the decision of Gem India Mfg. Co (supra) by the Revenue to deny the claim of deduction is uncalled for in the present case, especially in the wake of later decision of the Hon’ble Supreme Court in Heavens Diamond (supra) which has clarified this point. Accordingly, the decision and the conclusion drawn by the learned Commissioner (Appeals) for the year under appeal i.e., assessment year 2008-09 are set aside and assessee’s claim for deduction under section 80-IC is allowed. Respectfully following the Coordinate Bench decision in the case of Flawless Diamond India Ltd. (supra), we hold that cutting and polishing of diamonds amounts to manufacturing or production of article or thing as envisaged for the purpose of claiming additional depreciation u/s 32(1) (iia) of the Act. Hence, we confirm the order of the CIT (A) on this issue and dismiss the Revenue’s appeal.”