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Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI
Before: SHRI G.S. PANNU (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
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:-
Whether, on the facts and in the circumstance of the case and in law, the Ld. CIT (A) erred in allowing additional depreciation @ 20% u/s 32(1)(iia) of the Act amounting to Rs. 38,87,990/- on new Plant Machinery acquired and installed during that year.
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.
3 Assessment Year: 2012-13
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:
“5. We have considered the rival contention of the parties and find the issue raised in the present appeal is covered against the revenue by the decision of Mumbai Tribunal Flawless Diamond (I) Ltd. (supra), wherein the coordinate bench held as under:-
“18. We have carefully considered the rival submission. The short controversy before us is as to whether the activity of cutting and polishing of rough diamonds amounts to manufacture or not? At the time of hearing, the learned representative for the assessee has also furnished an Explanatory Note dealing with the various steps and stages involved in cutting and polishing of rough diamonds into polished diamonds. The Assessing Officer has heavily relied on the judgment of the Hon’ble Supreme Court in the case of Gem India Manufacturing Co. (supra) to emphasise that cutting and polishing of uncut raw diamonds does not amount to manufacture or production of any article or thing. In this context, the following paragraph in the judgment of the Hon’ble Supreme Court is relevant:-
There can be little difficulty in holding that the raw and uncut diamond is subjected to a process of cutting and polishing which yields the polished diamond, but that is no to say that the polished diamond is a new article or thing which is the result of manufacture or production. There is no material on record upon which such a conclusion can be reached.
Quite clearly, the Hon’ble Supreme Court noted that the raw and uncut diamond is subjected to process of cutting and polishing which yields 4 Assessment Year: 2012-13 the polished diamond, but it could not go to say that such polished diamond was a new article or thing as a result of manufacture or production because there was “no material on record upon which such a conclusion can be reached. ”Evidently, the proposition canvassed by the assessee could not succeed before the Hon’ble Supreme Court because it was not able to demonstrate that the process undertaken of cutting and polishing uncut raw diamonds was producing a new article or thing. The aforesaid understanding of the judgment of the Hon’ble Supreme Court is fortified by the subsequent decision of Hon’ble Supreme Court in the case of Heaven Diamonds Pvt. Ltd. in CA No. 9936 of 2010, wherein the following observations have been made:-
“Heard learned counsel on both sides.
Leave granted.
We find from the impugned order of the Income Tax Appellate Tribunal (Tribunal’, for short] that there is no discussion on the process undertaken by the assessee, who claims benefit of Section 801Bof the Income Tax Act 1961 [Act’, for short]. The assessee imports raw diamonds and applies thereon the process of Sawing, Turning, Profiling, Cutting, Drilling, Polishing, etc. by the use of sophisticated machineries resulting in production of a superior marketable commodity. Detailed procedure has been set out in the paper book. The Tribunal ought to have examined the process as to whether such process would constitute manufacture under section 801B of the Act. That exercise has not been undertaken. The reliance on the judgment of this Court in the case of Commissioner of Income Tax, vs. Gem India Manufacturing Company, reported in [ 2001] 249 I.T.R. 307, may not be correct for the simple reason company was not able to demonstrate the process undertaken by it to convert raw diamonds into a superior commodity. Moreover, the High Court has also ot gone into that aspect. The High Court should have remitted the case to the Tribunal to consider whether the process undertaken by constituted ‘manufacture. Under the above circumstances, the impugned order of the High Court and the Tribunal are set aside and the matter is remitted to the Tribunal for de novo consideration in the light of what we have stated hereinabove.
5 Assessment Year: 2012-13 The civil appeal filed by the assessee is, accordingly, allowed with no order as to costs.”
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.”
6. Considering the above legal position, we do not find any infirmity in the poder passed by ld CIT(A) for allowing the additional depreciation to the assessee.”
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.
In the result, appeal filed by the revenue for assessment year 2012-2013 is dismissed.