Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “B” BENCH : KOLKATA
Before: Hon’ble Shri A.T.Varkey, JM & Shri M.Balaganesh, AM ]
Per M.Balaganesh, AM
This appeal by the assessee arises out of the order of the Learned Commissioner of Income Tax (Appeals) Central-II , Kolkata [ in short the ld CITA] in Appeal No. 109/CC-XVI/CIT(A)C-II/13-14 dated 13.05.2014 against the order passed by the DCIT, Central Circle XVI, Kolkata [ in short the ld AO] under section 147/143(1) of the Income Tax Act, 1961 (in short the ‘Act’) dated 21.01.2014 for the Asst Year 2007-08.
Though the assessee has raised several grounds of appeal, we find that the central issue revolves on the point of admissibility of additional depreciation on plant & machinery used in the business of mining of coal. The brief facts of the case is that the return of income for the assessment year 2007-08 was filed by the assessee on 30.10.2007 declaring total income of Rs. 82,47,737/- which was processed u/s 143(1) of the Act, on 14.08.2008 accepting the returned income. In the said return, the assessee had claimed additional depreciation u/s 32(1)(iia) of the Act amounting to Rs.
2 ITA No.1601/Kol/2014 Ujjal Transport Agency A.Yr.07-08 1,27,20,257/-. Subsequent to this, there was a search in the premises of the assessee and pursuant to the same, assessment was framed u/s 153A/ 143(3) of the Act on 31.12.2010 wherein, the issue of admissibility of additional depreciation @ 20% on newly purchased assets were duly examined and allowed by the Ld. AO. This search assessment framed u/s 153A of the Act was subject matter of revision proceedings u/s 263 of the Act by the Ld. CIT for withdrawal of grant of additional depreciation u/s 32(1)(iia) of the Act for the sum of Rs. 1,27,20,257/-. The said order of Ld. CIT u/s 263 of the Act was appealed by the assessee before the Tribunal and this Tribunal in I.T.(SS). A. No. 58/Kol/2013 dated 19.10.2016 had quashed the revision order passed by the Ld. CIT u/s 263 of the Act. While this is so, the assessment for the assessment year 2007-08 was sought to be reopened by the Ld. AO u/s 147 of the Act. In the said reassessment proceedings, the Ld. AO disallowed the additional depreciation u/s 32(1)(iia) of the Act in the sum of Rs. 1,27,20,257/- on the ground that the assessee during the year was engaged only in contractors job and not involved in any manufacture or production of any article or thing so as to be eligible for additional depreciation. He also concluded that the coal mining activity does amount to manufacture or production of any article or thing and for this proposition, he placed reliance on the decision of the Hon'ble Supreme Court in the case of Lucky Minerals Pvt. Ltd. vs. CIT reported in (2001) 116 Taxman 1 (SC). This action of the Ld. AO was upheld by the Ld. CIT(A). Aggrieved the assessee is in appeal before us on the following grounds: 1. That the Ld. Commissioner of Income-tax (Appeals) grossly erred on facts and law in confirming the order of the Assessing Officer assessing the income u/s 147/143(1) of the I.T. Act, 1961 (hereinafter referred to as the Act) at Rs. 2,09,67,690/- as against the income assessed u/s 153A/143(3) of the act at Rs. 84,35,250/-. 2. That the Ld. Commissioner of Income-tax (Appeals) grossly erred on facts and in law in sustaining the action of the Assessing Officer in initiating proceedings u/s 147 of the act and sustaining the addition of Rs. 1,27,20,257/- being disallowance u/s 32(1)(iia) of the Act notwithstanding the fact that the Ld.. Commissioner of Income-tax has already initiated the proceedings u/s 263 of the Act on the same issue on which re-assessment has been framed and order u/s 263 of the Act was passed on 21.03.2013. 2
3 ITA No.1601/Kol/2014 Ujjal Transport Agency A.Yr.07-08
That both the Ld. Commissioner of Income-tax (Appeals) and the Assessing Officer failed to appreciate that in law when proceedings u/s 263 of the Act are concluded, then automatically no proceedings u/s 148 of the Act can be initiated. 4. That both the Ld. Commissioner of Income-tax (Appeals) and the Assessing Officer failed to appreciate that exercising of jurisdiction u/s 147 of the Act is erroneous in law once action u/s 263 is taken by the C.I.T. and in this view of the matter there can be no reason to believe that income has escaped assessment. The orders of the Ld. Commissioner of Income-tax (Appeals) and the Assessing Officer requires to be annulled. 5.i) That the Ld. Commissioner of Income-tax (Appeals) grossly erred on facts and in law in failing to appreciate that once the proceedings u/s 153A of the Act have been initiated then there exists no order u/s 143(1) as the same abates and only an order u/s 153A/143(3) exists. 5.ii) That the Ld. Commissioner of Income-tax (Appeals) has failed to appreciate that the order u/s 143(1) not being in existence, there can be no notice u/s 147/148 of the Act for reopening such proceedings.
We have heard rival submissions and perused the material available on record, including the paper book filed by the assessee comprising of the order of this Tribunal in I.T. (SS).A. No. 58/Kol/2013 dated 19.10.2016 for assessment year 2007-08 (enclosed in pages 1 to 14 of the Paper Book); order passed by the ld. CIT u/s 263 of the Act for the assessment year 2007-08 (enclosed in pages 15 to 18 of the Paper Book); such assessment framed u/s 153A dated 31.12.2010 for assessment year 2007-08 (enclosed in pages 19-26 of the Paper Book) and copy of income tax return of the assessee for assessment year 2007-08 together with Tax Audit Report in Form 3CA and 3CD together with its annexures, computation of total income, audited balance sheet, profit and loss account together its schedules thereon enclosed in pages 27 to 59 of the Paper Book. The brief facts are that the assessee is a partnership firm engaged in the business of excavation, transportation of coal and other allied activities including the activities carried out on job work basis. We find from the trading account for the year ended on 31.3.2007, the assessee had earned contract receipts to the tune of Rs. 28,94,62,202/-and had incurred operational expenditure in the form of operational 3
4 ITA No.1601/Kol/2014 Ujjal Transport Agency A.Yr.07-08 charges for raising of coal with corresponding allied mining activities to the tune of Rs. 3,63,18,647/-, contract and machinery maintenance to the tune of Rs. 14,16,76,618/-, labour charges to the tune of Rs. 88,78,458/-, road repairing and maintenance to the tune of Rs. 3,01,745/-, construction of wooden bridge to the tune of Rs. 2,55,685/-, dewatering charges of Rs. 2,31,528/-, scaffolding & guarding to the tune of Rs. 1,01,268/-. Apart from this, the assessee has also earned interest income of Rs. 12,27,942/- , miscellaneous receipts of Rs. 43,30,060/- dividend income of Rs. 15,00,525/-, net profit from Swagat R.O. to the tune of Rs. 1,01,283/-. The assessee has also incurred various administrative and selling expenses and finally had earned net profit before depreciation to the tune of Rs. 7,03,03,355/-. We also find from the balance sheet of the assessee for the year ended 31.3.2007 that the assessee had made additions to plant & machinery during the year under appeal to the tune of Rs. 10,35,95,370/- comprising of eighteen items and had claimed additional depreciation in respect of twelve items thereon amounting to Rs. 1,27,20,257/-. Now the short question to be decided is as to whether the assessee’s activity of excavation, transportation of coal and other allied activities including contract job work would make assessee eligible for claiming additional depreciation u/s 32(1)(iia) of the Act or not. In this regard, we find that the following decisions would come to rescue of the assessee:-
a) Decision of Hon’ble Jurisdictional High Court in the case of CIT vs. Mercantile Construction Co. reported in (1994) 74 Taxman 41 (Cal): “The business of the assessee was raising of coal in collieries where open cast mining of coal was undertaken. The work of the assessee consisted, inter alia, of cutting earth, drilling and blasting stones, removing the overheads, removing the coal and transporting and dumping at the coal yard. For this purpose, the assessee employed new machinery like bulldozers, compressors, drills, etc., and other heavy earthmoving machinery. The entire work was taken up by the assessee with its own machinery and workmen. None of the machineries was made over by the assessee to the collieries. It was paid for the various jobs at the rates stipulated in contract. For the assessment year 1981-82, the assessee claimed that the machinery used for the said mining jobs was entitled to investment allowance under section 32A. The ITO held that the mere fact of being engaged in removing over-burden and extraction of coal for others would not 4
5 ITA No.1601/Kol/2014 Ujjal Transport Agency A.Yr.07-08 make the assessee-firm an industrial undertaking. He also observed that it was merely letting the machinery on hire and it was immaterial how such machinery was being used. He, therefore, disallowed the assessee's claim for investment allowance.
HELD the fact that coal is an article which is produced would be evident from the provisions of the Act itself. In the Act provisions have been made for allowance of development rebate or investment allowance, the basic nature of such allowance being the same. In section 33(1) (b)(8), relating to development rebate, the plant and machinery referred to is, - ". . . for the purposes of business of construction, manufacture or production of anyone or more of the articles or things specified in the list in the Fifth Schedule. " In the list of the Fifth Schedule, item No. (3) is : "(3) Coal, lignite, iron ore, bauxite, manganese ore, dolomite, limestone, magnesite and mine oil'
All these items are minerals. It was thus absolutely clear that the Act treats the raising of coal or other minerals as manufacture or production of an article or thing.
Further, in Aluminium Corpn. of India Ltd. v. Coal Board AIR 1959 Cal. 222, approved by the Supreme Court in Empire Industries Ltd. V. Union of India [1986] 162 ITR 846, it has been held that raising of coal, even if it did not amount to manufacture, was certainly production of an article.
In the instant case, coal was not there to start with. With human skill and labour it had to be raised from the mines and made fit for consumption or for marketing. Such process of raising the coal amounted to production of the coal. Therefore, it was to be held that it was not correct to say that coal was not produced.
The contention of the revenue that there was letting out of the machinery and as such there was no industrial undertaking engaged in the production of any article or thing was also not correct as the machinery was not let out and its possession always remained with the assessee. It worked the machinery with its own staff and labour. The condition precedent for hiring (which is a contract of bailment) is that possession must be transferred to hirer. Further, the assessee was required to do blasting, remove over- burdens; expose coal, remove such coal and stack the same. These were all mining operations. The fact that the assessee was not the owner of the mineral was immaterial for determining whether the assessee was an industrial undertaking engaged in the production of an article or thing. Even if the work was undertaken as a job work it did not in any way affect the nature of the undertaking or the activity undertaken by it vide in the case of Unity Tools v. CIT [1990]185 ITR 1/50 Taxman 5 (Mad). In that case the Madras High Court rejected the contention of the revenue that the assessee was not entitled to development rebate since it produced goods out of raw materials supplied by the customer.
Moreover, even in a case where commercial asset was exploited by letting out the same, the investment allowance could not be denied Therefore, the requirements of section
6 ITA No.1601/Kol/2014 Ujjal Transport Agency A.Yr.07-08 32A(2)(b)(ii) were fully satisfied in the instant case and the assessee was entitled to claim deduction on account of investment allowance”.
b) Decision of Hon’ble Jurisdictional High Court in the case of CIT vs. G.S. Atwal & Co. reported in (2003) 128 Taxman 520 (Cal): 8. We first deal with the aspect of production. In sub-Section (2) of Section 32A, the machinery has to be installed in an industrial undertaking 'for the purposes of business of construction or manufacture or production of any article or thing .. .' Such article or thing cannot be in the Eleventh Schedule but it is nobody's case that coal is in the Eleventh Schedule.
Mr. Agarwalla gave us several cases. Amongst those the case of CIT v. Venkateswara Hatcheries (P.) Ltd. [1999] 237 ITR 1741 (SC), contains dicta to the effect that production of hicks through the assessee's specialised machinery, which aids such formation is not, within the meaning of the Act, production of an article or thing. The Supreme Court laid emphasis on its view that chicks were not articles or things. Also, it said that the assessee does not cause the formation of chicks, which are formed by natural biological processes. The assessee's work is merely aiding such formation. Mr. Agarwalla also gave us the case \ of Lucky Minmat (P.) Ltd. v. CIT [2000] 245 ITR 830, where in relation to relief under section 80HH, the Supreme Court opined as follows: " ... The conversion into lime and lime dust or concrete by stone crushers could legitimately be considered to be a manufacturing process while the mere mining of limestone and marble and cutting the same before it was sold in the market could not be so considered." (p. 831)
Thus, Mr. Agarwalla argued that if the mining of limestone is not a manufacturing process, the winning of coal cannot also be either manufacture or production.
He further argued on the basis of the Supreme Court decision in the case of CIT v. N. C.Budharaja & Co. [1993] 204 ITR 4122 , that if a construction of a dam is made, it does not amount to production or manufacture of an article, as the Supreme Court has clearly opined.
We take note that in N.C. Budharaja & Co.'s case (supra), the Supreme Court clearly stated at page 423 that not all production is manufacture, but all manufacture is production. Mr. Bajoria appearing for the assessee relied on a decision of our Division Bench given in the case of CIT v. Mercantile Construction Co. [1994] 74 Taxman 41.
Following an old and long standing decision given by Chakravartti, C.J., in 1959, which was later approved by the Supreme Court, the Division Bench opined that the winning of coal s no doubt production. At paragraph 12 of the judgment it said that after winning coal something that was not there comes up. and it is, therefore, a production of coal. The Division Bench followed its own decision in the later case of Khalsa Bros. v. CIT [1996] 217 ITR 185. Mr. Bajoria also relied on the interesting case of CIT v. Shaan Finance (P.) Ltd. [1998] 231 ITR 3081 where the Supreme Court 6
7 ITA No.1601/Kol/2014 Ujjal Transport Agency A.Yr.07-08 opined that a financier owning machinery might still be entitled to investment allowance even if the machinery is actually used by its lessee for the purpose of production. Going on the language of sub-sections (1) and (2) of the said section, the Supreme Court found, on an accurate assessment of the language (we say this with the greatest respect), that the language does not disentitle the financier from investment allowance in the above circumstances.
Even considering the later Supreme Court decision given by Mr. Agarwalla, we are still of the opinion that the view taken by our Division Bench as to winning of coal being production is, with due respect, perfectly sound and consistent with common sense. We have absolutely no reason to differ from the reasoning given in Mercantile Construction Co. 's case (supra) and we respectfully adopt the same.
The point that the assessee is still not an industrial undertaking even though it might be engaged in production of coal is, in our opinion, also to be decided against the revenue. Under the definition of an industrial undertaking given under section 33B of the Act, Explanation, mining activity would bring the assessee within the definition of an industrial undertaking. But we need not import the definition of another section to the present one, although ordinarily the definition given in one section in an Act can be used for the purposes of another section unless the context indicates otherwise. 16. So far as the assessee is concerned, an undertaking it certainly is. We have found no facts from which we can opine that the assessee is 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 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. We were not shown any such particular difference excepting that the assessee was also said to carry on transport business.
It suffices in this regard to mention that on the principle of Shaan Finance (P.) Ltd. 's case (supra), if the 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 does not tilt the question one way or the other.
As such the questions are answered all in favour of the assessee, the academic questions taking the same fate as the substantial question No. 1; the first question is answered in the affirmative and so are the second and the third ones”.
We find that this decision of Hon’ble High Court had duly considered the decision of Hon'ble Supreme Court in the case of Lucky Minerals Pvt. Ltd. reported in 116 Taxman 1/ 245 ITR 830 7
8 ITA No.1601/Kol/2014 Ujjal Transport Agency A.Yr.07-08 (relied by the Ld. AO) and had distinguished the same on facts and held that winning/ raising of coal, excavation of coal would amount to production of article or thing.
c) We also find from the Co-ordinate Bench decision of this Tribunal in the case of JCIT vs. G.S. Atwal & Co. (Engg) Pvt. Ltd. for assessment year 2009-10 in I.T.A. No. 1516/Kol/2012 dated 26.04.2017 in the context of grant of additional depreciation had held as under: “19. We have heard the rival contentions and perused the materials available on record. The issue in the instant case relates to the disallowance of additional depreciation claimed by the assessee. The A.O. disallowed the claim of additional depreciation on the ground that the assessee is not engaged in any manufacturing activities. The action of AO was also subsequently confirmed by Ld. CIT(A). From the order of AO we find that he has given the finding that the issue of additional depreciation was discussed elaborately but no satisfactorily reply was filed. However we find that all the details of new plant & machineries were duly filed before the lower authorities which are placed on pages 54 to 60 of the PB along with the report in form 3AA for additional depreciation. Thus the AO has disallowed on the ground that the assessee is not engaged in the manufacture activities. In this regard at the outset, we find that instant issue is already covered by the decision of jurisdictional High Court in the sister concern of assessee in the case of CIT vs. G.S. Atwal & Co. reported 254 ITR 592 (Cal). The relevant operative portion of the judgment is reproduced below:-
" 13. Following an old and long standing decision given by Chakravarti C.J. in 1959, which was later approve by the Supreme Court, the Division Bench opined that the winning of coal is not doubt production. At paragraph 12 of the judgment it said that after winning coal something that was not thee comes up, and it is, therefore, a production of coal. The Division Bench allowed its own decision in the later case of Khalsa Bros vs. CIT [1996J 217 ITR 185. MR. Bajoria also relied on the interesting case of CIT v. Shann finance (P) Ltd [1998] ITA No. 1146, 1138/Kol/2012-C-AM Integrated Coal Mining Ltd 23 ~ 231 ITR 308 where the Supreme Court opined that a financier owning machinery might still be entitled to investment allowance even if the machinery is actually used by its lessee for the purpose of production. " It is also important to note that similar issue is also covered by the order of ITAT in the case of Integrated Coal Mining Limited Vs DCIT in ITA 1146/Kol/2012 & 1138/Ko1/20l2 vide order dated 30-11-2015. Respectfully following the decision of Hon'ble jurisdictional High Court in the case of G.S.Atwala & CO. (supra) we reverse the order of Ld. CIT(A) in this regard and direct the AO to delete the addition. This ground of assessee's CO is allowed. ` 20. In the result, assessee's CO is partly allowed”.
9 ITA No.1601/Kol/2014 Ujjal Transport Agency A.Yr.07-08 4. Respectfully following the aforesaid decisions, we hold that the activity carried on by the assessee would automatically fall under the ambit of production of any article or thing and thereby the assessee is indeed eligible for claiming additional depreciation u/s 32(1)(iia) of the Act in the sum of Rs. 1,27,20,257- for the Asst Year 2007-08.
Since, the issue is addressed on merits, the other grounds raised by the assessee on the validity of reopening is not addressed herein. Accordingly, the grounds raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 14.07.2017
Sd/- Sd/- [A.T.Varkey] [ M.Balaganesh ] Judicial Member Accountant Member
Dated : 14.07.2017
SB, Sr. PS
Copy of the order forwarded to:
M/s Ujjal Transport Agency, Asansol 2. DCIT, Central Circle-XVI, Kolkata 3..C.I.T.(A)-4, Kolkata 4. C.I.T.- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.