ASST CIT 19(1), MUMBAI vs. BHAWANI GEMS, MUMBAI

This appeal has been filed by the revenue against order dated 27/05/2015 passed by the Ld. Commissioner of Income Tax (Appeals)-30, Mumbai, for the assessment year 2012-13, whereby the Ld. CIT (A) has partly allowed the appeal filed by the assessee against assessment order passed u/s 143 (3) of the Income Tax Act, 1961 (for short ‘the Act’).

Brief facts of the case are that the assessee firm engaged in the business of manufacturing and exporting/trading in cut and polished diamonds, filed its return of income for the relevant assessment year declaring the total income of Rs. 37,89,29,440/-. The return was processed u/s 143 (1). Since, the case was selected for scrutiny, notice u/s 143 (2) and 142 (1) was issued. In response 2 Assessment Year: 2012-13 thereof the authorized representative of the assessee appeared and submitted the details called for. It was noticed that the assessee had claimed the additional depreciation @ 20% u/s 32(1)(iia) of the Act, amounting to Rs. 38,87,992/- on new plant and machinery acquired and installed during the year relevant to the assessment year under consideration. The assessee was accordingly asked to justify the claim of additional depreciation. The AO after hearing the contention of the assessee disallowed the claim and added back the amount top the income of the assessee on the ground that as per the law laid down by the Hon’ble Supreme Court in CIT vs. Gem India Manufacturing Co Ltd.249 ITR 307 that cutting and polishing of diamonds cannot be called manufacturing or production of goods. In the first appeal the Ld. CIT(A) deleted the addition following the orders passed by the then CIT(A) in assessee’s own case for the assessment years 2009-10,2010-11 and 2011-12.

Aggrieved by the order of Ld. CIT (Appeals), the revenue has preferred this appeal before the Tribunal on the following effective grounds:-

Before us the Ld. departmental representative (DR) submitted that the impugned order is not in accordance with the law laid down by the Hon’ble Supreme Court in CIT vs. Gem India Manufacturing Co Ltd.(supra) therefore liable to be set aside.

On the other hand the Ld. counsel for the assessee submitted that the present case is squarely covered by the order dated 28.02.2017 passed by the ITAT in assessee’s own case for the assessment years 2010-11 and 2011-12, therefore there is no merit in the revenue’s appeal.

We have heard the rival submissions and also perused the material on record, including the cases referred by the authorities below. The only grievance of the revenue is that the Ld. CIT(A) has wrongly deleted the addition made by the AO. We notice that the co-ordinate Bench of the Tribunal has decided the identical issue in favour of the assessee in assessee’s own case for the assessment years 2010-11 and 2011-12. The relevant portion of the said order is reproduced hereunder:

In fact, the aforesaid observations of the Hon’ble Supreme Court were before the Tribunal in the case of heaven Diamonds Pvt. Ltd. in & 2817/Mum/2004 dated 22.12.,2014, wherein the matter was remanded back to the file of Assessing Officer to examine the process undertaken by the assessee for cutting and polishing of diamonds, as to whether it constituted manufacture for the purpose of Sec. 80IB of the Act. Considered in this light, the decision of the Tribunal in the case of Sheetal Diamonds Ltd. (supra) is quite eloquent wherein the entire process involved in the activity of cutting and polishing of rough diamonds into polished diamonds has been examined and it has been held that it constituted manufacture. The said decision of the Tribunal has been further followed by our coordinate benches in the case of Parmes Diamond Exports Pvt. Ltd. and Flawless Diamonds Pvt. Ltd. (supra). Considered in this light, in our view, the CIT (A) made not mistake in holding that the activity of cutting and polishing of diamonds amounts to manufacture so as to enable the assessee to claim Additional depreciation u/s 32(1)(iia) of the Act. Thus, on this aspect also, Revenue fails.

In the result, appeal of Revenue is dismissed.”

We further notice that facts and the issues involved in the present case are identical to the facts of the cases of the assessee referred above. Since, the co-ordinate Bench of the Tribunal has already decided the identical issue in favour of the assessee in assessee’s own case and 3636/Mum/2015 for the assessment years 2010- 11&2011-12 respectively, we respectfully following the order of the co- 6 Assessment Year: 2012-13 ordinate Bench decide the issue involved in this appeal in favour of the assessee and dismiss the appeal of the revenue.