M/S. BLA INDUSTRIES PVT. LTD.,MUMBAI vs. PCIT-1, KOLKATA, KOLKATA

आयकर अपील�य अधीकरण, �यायपीठ – “D” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “D” KOLKATA Before Shri N.V.Vasudevan, Judicial Member and Shri Waseem Ahmed, Accountant Member ITA No.779/Kol/2016 Assessment Year :2011-12 BLA Industries Pvt.Ltd. V/s. Pr. CIT-1, 84, Maker Chambers III, Aayakar Bhawan, Nariman Point, Mumbai- Kolkata 400021 [PAN No.AABCB 3505 D] .. अपीलाथ� /Appellant ��यथ�/Respondent Shri Robin Maheshwari, ACA अपीलाथ� क� ओर से/By Appellant Shri A.K. Tiwari, CIT-DT ��यथ� क� ओर से/By Respondent 08-02-2018 सुनवाई क� तार�ख/Date of Hearing 28-02--2018 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER Waseem Ahmed, Accountant Member:- This is an appeal filed by the assessee against order of Ld. Pr. Commissioner of Income Tax-1, Kolkata passed u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) in M.No.Pr. CIT-1/15- 16/U/s263/BLA Industries/2011-12/12629-31 dated 23/28.03.2016 for assessment year 2011-12. Shri Robin Maheshwari, Ld. Authorized Representative appeared on behalf of the assessee and Shri A.K. Tiwari, Ld. Departmental Representative appeared on behalf of the Revenue. 2. In this assessee’s appeal the assessee has raised the following grounds:- “1) For that the order of the Ld. CIT passed u/s. 263 is bad in law as well as in facts hence liable to be quashed.

ITA No.779/Kol/2016 A.Y. 2011-12 BLA Industries Pvt. Ltd. Vs. Pr. CIT-1, Kol. Page 2 2) For that upon the facts and circumstances of the case the Ld. CIT was not justified in setting aside the assessment to the AO for reframing the same. 3) For that upon facts and circumstances of the case the Ld CIT was not justified in setting aside the assessment order of the AO which was neither erroneous nor prejudicial to the interests of the revenue. 4) For that upon the facts and circumstances of the case the Ld. AO had allowed additional Depreciation on Plant & Machinery after proper verification and forming an opinion as such the order of the AO cannot be said to be erroneous. 5) For that any other ground or grounds which may be urged at the time of hearing.” 3. Sole issue raised by assessee in this appeal is that Ld. Pr. CIT u/s 263 of the Act erred in holding the order of Assessing Officer passed u/s 143(3) of the Act as erroneous in so far as prejudicial to the interest of Revenue. 4. Briefly stated facts are that assessee is a private limited company and engaged in business of mining and sale of coal. The assessee filed its return of income electronically dated 27.09.2011 declaring total income of ₹22,33,67,402/- only. Subsequently, the case was selected under scrutiny u/s 143(3) on the basis of CASS module. Accordingly, notices u/s 143(2)/142(1) of the Act were issued upon assessee which were duly served. The assessment was completed by AO u/s 143(3) of the Act after making certain disallowance of ₹3,53,387/- under the provision of Sec. 14A of the Act vide order dated 19.03.2014. Subsequently, the Ld. Pr.CIT u/s 263 of the Act observed that assessee has claimed additional depreciation on plant and machinery for ₹12,69,860/- u/s 32 (1)(iia) of the Act which was not verified by the AO during the course of assessment proceedings. As per Ld. Pr. CIT the additional depreciation is allowed to assessee on the fulfillment of condition as specified u/s. 32(1)(iia) of the Act. These conditions, inter alia include the verification of the ownership, nature of asset and whether these assets were used in the business of manufacturing or production of any article or thing. Accordingly, Ld. Pr. CIT u/s 263 of the Act issued a show cause notice upon assessee for clarification of the issues as discussed above. In compliance thereto, assessee submitted that it is in business of coal mining which is a

ITA No.779/Kol/2016 A.Y. 2011-12 BLA Industries Pvt. Ltd. Vs. Pr. CIT-1, Kol. Page 3 manufacturing activity. Therefore, assessee was entitled for additional depreciation on the plant and machinery used in the business of manufacture / production of article or thing. The assessee in support its claim has relied on the following judgments:- a) CIT vs. G.S. Atwl & Co.(Gua) (2002) 254 ITR 592 (Cal) b) Khalsa Brothers vs. CIT (1996) 217 ITR 185 (Cal) c) CIT vs. Singareni Collieries Co. Ltd. (11996) 221 ITR 48W(AP) d) CIT vs. Sesa Goa Ltd. (2004) 271 ITR 331 (SC) However, Ld. Pr.CIT was of the view that no necessary enquiry has been conducted by the AO during the course of assessment proceeding, which rendered the order of AO as erroneous in so far a prejudicial to the interest of revenue. Accordingly, Ld. Pr.CIT held that the order of AO is erroneous in so far a prejudicial to the interest of revenue by observing as under:- “10. I am also of the view that his error lay in his doing inadequate scrutiny and in his making the incorrect appreciation fact. Consequently, he had made incorrect application of law. He did not examine, for example, what the additional plants were and if they had been actually purchased within the stipulated period. There was no examination also to find out, if the same had been used for the manufacture or production of the thing, even if coal mining was to be considered as manufacture. In my view, such plant & machinery would have been verified to come to a valid conclusion, before allowing the assessee’s claim. Besides, the number of days used was also another aspect to be questioned and needed to be found out by the AO to accept such a claim. In my case, the claim certainly had not merited for mechanical non-questioning. 11. Much as I would appreciate that the A/R has brought to my notice the settled position of law that mining would stand on the same footing as manufacture, the non-questioning about the claim attributable to such a judicial view and the non-examination of the same have definitely made the AO's order erroneous. 12. The A/R is well within his rights to defend the assessee’s claim (although a note in the Assessee’s accounts or a not in the assessment order would have saved the whole lot of botheration) but he, in my opinion, is not entitled to certify the correctness of the Assessing Officer's inaction now, especially something what the AO had not evidently questioned nor examined during the assessment proceedings. 13. In the interest of justice therefore, I hereby set aside the impugned assessment order with a direction to the present AO to redo the same on this limited issue. The AO shall afford due opportunity to the Assessee Company, so that the claim of additional depreciation,

ITA No.779/Kol/2016 A.Y. 2011-12 BLA Industries Pvt. Ltd. Vs. Pr. CIT-1, Kol. Page 4 including the ownership and nature of asset to find out if the same were meant for “manufacturing:” and their user and more importantly, the period of user, are all properly examined by him.” Being aggrieved, assessee is in appeal before us. 5. Before us Ld AR filed paper book comprising three sets pages 1 to 79 and submitted that there were issued two notices u/s 263 of the Act vide dated 13.02.2015 and 19.02.2015 respectively which are placed on pages 1 to 3 of the paper book. In both the notices issued u/s 263 of the Act it was alleged it the activity of mining and extraction of coal cannot be considered as manufacturing activity. As per the ld. CIT the additional depreciation u/s 32(1)(iia) of the Act is available in respect of plant & machineries only in the cases where plant and machineries are used in the manufacture or production of products / things. Thus the activity of the assessee is not eligible for additional depreciation as per the provision of Section 32(1)(iia) of the Act.

The Ld. AR however, submitted that various courts have held that activity of mining and extraction of coal amounts to manufacturing activity. Therefore, assessee cannot be denied the benefit of additional depreciation as per the provision of Section 32(iia) of the Act. Ld. AR in support assessee’s claimed relied on the judgment of various courts which have been explained in the preceding paragraph of this order. Ld. AR further submitted that the activities of the assessee and details of the fixed assets have been duly examined by AO during the assessment proceedings. Ld. AR further submitted that AO has issued two notices u/s. 142(1) on 22.02.2013 and 10.10.2013 respectively where the following questions were raised to the assessee. The question raised by AO in the notice issued u/s 142(1) of the Act date 22.02.2013:- “3. Detailed note on nature of business activities. 4. XXXXXXX 5. XXXXXXX 6. Copy of statutory audit report & TAX audit report (3CD) with all its annexure & schedules.

ITA No.779/Kol/2016 A.Y. 2011-12 BLA Industries Pvt. Ltd. Vs. Pr. CIT-1, Kol. Page 5

Similarly notice issued u/s 142(1) of the Act dated 10.10.2013 where the question raised by AO as under:- “3. Please state in brief business activities performed during the previous year. XXXXXXXXXXXXXXXX 5. Balance Sheet XXXXXXXXXX iii) Fixed Assets Please file details of fixed assets along with production of evidence of purchase and put to use in respect of new assets acquired during the year. Ld. AR further submitted that the reply of the above notices, were duly made by the assessee vide letter dated 27.02.2013 and 21.10.2013 respectively. The reply of assessee dated 27.02.2013 in response to the notice issued u/s 142(1) of the Act vide dated 22.2.2013 stand as under:- “1) ….. 2) Brief note on activities of business is enclosed as Annex B XXXXXXXXXXXXXXXXXXXXXXX 12) Details of addition / deletion of fixed assets is enclosed as Annex J” The reply of the assessee vide letter dated 21.10.2013 in response to the notice issued u/s 142(1) of the Act vide dated 10.10.2013 stand as under:- “1)… … 2)…… 3) Brief note on activities of business had already been submitted vide letter dated 27/02/2013 as Annexure-B of the submission dated 27/02/2013 XXXXXXXXXXXXXXXXXX 8) Details of Addition/Deletion of fixed asset had already been submitted vide letter dated 27/02/2013 as Annexure-J of the submission dated 27/02/2013.”

ITA No.779/Kol/2016 A.Y. 2011-12 BLA Industries Pvt. Ltd. Vs. Pr. CIT-1, Kol. Page 6 In view of above, Ld. AR submitted that the AO has passed assessment order after considering the material facts which were produced at the time of assessment proceedings. Therefore, the order of AO cannot be held as erroneous in so far as prejudicial to the interest of revenue on the ground that Assessing Officer has failed to conduct necessary enquiries. On the other hand, Ld. DR conceded the fact that assessee has furnished necessary details regarding the addition of plant and machineries during the year but the AO before allowing the additional depreciation claimed by assessee failed to conduct the necessary enquiries whether the conditions specified u/s. 32(1)(iia) of the Act have been fulfilled by assessee. Ld. DR drew our attention on explanation-2 to Section 263 of the Act and submitted that non enquiry renders the order of AO as erroneous in so far as prejudicial to the interest of revenue. Ld. DR in support of Revenue’s claim relied on the judgment of Hon'ble jurisdictional High Court in the case of CIT vs. Maithan International reported in 375 ITR 123 (Cal), wherein it was held as under:- 19. It is not the law that the assessing officer occupying the position of an investigator and adjudicator can discharge his function by perfunctory or inadequate investigation. Such a course is bound to result in erroneous and prejudicial orders. Where the relevant enquiry was not undertaken, as in this case, the order is erroneous and prejudicial too and therefore revisable. Investigation should always be faithful and fruitful. Unless all fruitful areas of enquiry are pursued the enquiry cannot be said to have been faithfully conducted. In a different context the Apex Court observed "contra veritatem lex nunquam aliquid permittit : implies a duty on the Court to accept and accord its approval only to a report which is the result of faithful and fruitful investigation" Ld. DR vehemently relied on the order of Ld. Pr. CIT.

ITA No.779/Kol/2016 A.Y. 2011-12 BLA Industries Pvt. Ltd. Vs. Pr. CIT-1, Kol. Page 7 As per the notice issued u/s 263 of the Act it was alleged that the activity of the assessee i.e. mining and extracting of coal is not manufacturing activity. Therefore assessee is not eligible for additional depreciation. But the Ld. Pr. CIT in his order u/s 263 held that AO was supposed to verify the facts as detailed under:- 4. The points that were supposed to be verified by the AO, in the case of a complete scrutiny under CASS were: (i) Ownership, Nature of Asset, if the same were meant for manufacturing & User of such additional assets (ii) Period of user (iii) Whether the assessee company was engaged in the business of manufacture or production of any article or thing. 5. I was of the view that since the AO had not even looked into this claim at all, no limb of expected verification had been done and thus the assessment had been rendered erroneous and since the tax impact was to the tune of ₹4,21,816/- the assessment had caused obvious prejudice to the interest of Revenue.” From the allegation raised in the notice u/s 263 of the Act, it was observed that the order of AO was considered as erroneous in so far as prejudicial to the interest of revenue on the ground that activity of mining and extracting coal does not amount to ‘manufacture’. Therefore, the assessee is not eligible for additional depreciation. In this regard, we find the issue whether the mining and extracting of coal is manufacturing activity has been settled by the Hon'ble jurisdictional High Court in the case of CIT vs. G.S Atwal & Co. reported in 254 ITR 592 (Cal) wherein it was held as under:- “The Calcutta High Court in the case of CIT v. Mercantile Construction Co. [1994] 74 Taxman 41 has held that the winning of coal is no doubt production as after winning coal, something that was not there comes up and it is, therefore, a production of coal. [Para 14] The point that the assessee was not an industrial undertaking even though it might be engaged in production of coal was also to be decided against the revenue. Under the definition of an 'industrial undertaking' given under section 33B, Explanation, mining activity would bring the assessee within the definition of an 'industrial undertaking'. [Para 15] So far as the assessee was concerned, an undertaking, it certainly was. There was no fact to show that the assessee was not an industrial undertaking. Ordinarily speaking if a manufacturing activity or an article producing activity is carried on, an undertaking carrying on such activity is to

ITA No.779/Kol/2016 A.Y. 2011-12 BLA Industries Pvt. Ltd. Vs. Pr. CIT-1, Kol. Page 8 be classed as an industrial one. It might be small scale or large scale, that does not matter much. Even if an undertaking is manufacturing or producing articles, but is still not to be classed as an industrial one, for this clear indications have to be given as to why this difference should be made in the case of the undertaking in question, so that it stands out from the general category. No such particular difference was shown in the instant case excepting that the assessee was also said to carry on transport business. [Para 16] If an assessee owns the machinery for which investment allowance is claimed, and such machinery is used for production, then the section applies; it does not matter if the use for production is made by the lessee or only in one industrial part of the assessee's business undertaking. Accordingly, the transport business of the assessee did not tilt the question one way or the other. In the result, the investment allowance was to be allowed to the assessee. [Paras 17 & 18]”

From the above proposition, we find that from there remains no ambiguity that the activity of assessee i.e. mining and extracting of coal is manufacturing activity. Therefore, assessee is very much entitle for additional depreciation u/s 32(1)(iia) of the Act. It was also observed that the issue about the activities of assessee was duly examined by AO during the course of assessment proceedings as evident from the submission of Ld. AR discussed in the preceding paragraphs. Therefore, in our considered view AO allowed the claim of assessee for the additional depreciation after necessary verification and application of his mind.

Similarly, we find that Ld. Pr. CIT in his impugned order u/s 263 of the Act has held that AO has not verified the necessary details of the plant and machinery purchased during the year. In this regard, we find that the AO has raised the queries regarding the addition of fixed asset which are duly responded by the assessee during the course of assessment proceeding. The query and the replies made by the assessee have already been discussed in the preceding paragraph. Therefore, we are inclined not to repeat the same for the sake of brevity. 6.1 In view of above, we feel that the assessment order u/s 143(3) of the Act was passed duly after due examination of the records for the addition of

ITA No.779/Kol/2016 A.Y. 2011-12 BLA Industries Pvt. Ltd. Vs. Pr. CIT-1, Kol. Page 9 plant and machinery as well as activities carried on by assessee. We also find that the principles laid down by the Hon'ble jurisdictional High Court in the case of Meithan International (supra) is not applicable in the case in hand as the query was raised during the course of scrutiny proceedings which was satisfactorily replied by assessee. Therefore, it cannot be held that assessment was framed without any enquiry with respect to additional depreciation claimed by assessee. In view of above, we hold that the impugned order passed by Ld. Pr. CIT u/s263 is not sustainable in the eyes of law. Hence, the ground of assessee’s appeal is allowed. 7. In the result, assessee’s appeal stands allowed. Order pronounced in the open court 28/02/2018 Sd/- Sd/- (�या$यक सद&य) (लेखा सद&य) (N.V.Vasudevan) (Waseem Ahmed) (Judicial Member) (Accountant Member) Kolkata, *Dkp, Sr.P.S (दनांकः- 28/02/2018 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ� / Appellant-BLA Industries Pvt. Ltd. 84 Maker Chambers III, Nariman Point Mumbaii-400021 2. ��यथ� / Respondent-Pr. CIT-1, Aaykar Bhawan, Kolkata 3. संबं3धत आयकर आयु4त / Concerned CIT Kolkata 4. आयकर आयु4त- अपील / CIT (A) Kolkata 5. 7वभागीय �$त$न3ध, आयकर अपील�य अ3धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड< फाइल / Guard file. By order/आदेश से, /True Copy/ Sr. Private Secretary, Head of Office/DDO आयकर अपील�य अ3धकरण, कोलकाता ।