Income Tax Appellate Tribunal - Ahmedabad
Dy.Cit.,Circle-1,, Surat vs Pnc Fashoins Pvt.Ltd.,, Surat on 16 March, 2017
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ, अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD, CAMP AT SURAT
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI AMARJIT SINGH, ACCOUNTANT MEMBER
ITA.No.1489/Ahd/2014
नधा रण वष /Asstt.Year : 2006-2007
DCIT, Cir.1 M/s.PNC Fashions P.Ltd.
Surat. Vs 3004, World Trade Centre
Ring Road
Surat 395 002.
PAN : AACCP 0994 R
अपीलाथ / (Appellant) यथ / (Respondent)
Revenue by : Shri Shiva Sewak, Sr.DR
Assessee by : None
ु वाई क तार ख/ Date
सन of Hearing : 09/03/2017
घोषणा क तार ख / Date of Pronouncement: 16/03/2017
आदे श/O RDER
PER RAJPAL YADAV, JUDICIAL MEMBER
Revenue is in appeal before the Tribunal against order of the ld.CIT(A)-I, Surat dated 10.3.2014 passed for Asstt.Year 2006-07.
2. Though the Revenue has taken three grounds of appeal, but its sole grievance revolves around a single issue whereby it has challenged grant of additional depreciation on embroidery machines.
ITA No.1489/Ahd/2014DCIT Vs. M/s.PNC Fasshions P.Ltd.
23. Brief facts of the case are that the assessee has filed its return of income on 31/12/2008 declaring total income at NIL. On scrutiny of the accounts, it revealed to the AO that the assessee has claimed additional depreciation of Rs.74,62,887/-. He confronted the assessee to demonstrate as to how it is entitled for additional depreciation. In response to query of the AO, the assessee submitted a detailed reply which has been reproduced by the AO. The ld.AO has observed that the assessee is engaged in embroidery work on job work basis. The alleged embroidery work does not fall within the ambit of expression "manufacture", and therefore it is not entitled for additional depreciation. According to the AO, the additional depreciation under section 32(iia) is admissible on new machinery installed by an assessee who is involved in the business of manufacture or production of article or things. According to the understanding of the AO, embroidery machine does not manufacture or produce any article or things, therefore, the assessee is not entitled for claiming of additional depreciation.
4. On appeal, the ld.CIT(A) made reference to the order of ITAT passed in the case of ITO Vs. Haripriya Processors P.Ltd., ITA No.1569/Ahd/2010 and allowed depreciation.
5. In response to the notice of hearing no one has come present on behalf of the assessee. Since issue is covered against the Revenue, therefore, we did not explore service of notice upon the assessee by alternative mode. We find that a verbatim issue had come up before the Tribunal in the case of ITO Vs. Yash Creation in ITA No.107/Ahd/2012. The discussion made by the Tribunal in that case reads as under:
"7. ......... The dispute is whether embroidery work carried out by the assessee amounts to manufacturing activity or not.ITA No.1489/Ahd/2014
DCIT Vs. M/s.PNC Fasshions P.Ltd.3
8. The expression "manufacture" has been defined in section 2(29)(B)(a) which read as under:
"(29BA) "manufacture", with its grammatical variations, means a change in a non-living physical object or article or thing,-
(a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or
(b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure".
9. However, expression "production" has not been defined in the Act. The expression "manufacture" as well as production have fallen for their interpretation and construction not only at the level of ITAT but before the Hon'ble Supreme Court also and the Hon'ble Court has explained both these expressions in detail. A reference to the decision of Hon'ble Supreme Court in the case of CIT vs. M/s. Arihant Tiles & Marbles Pvt. Ltd. reported in 320 ITR 79, India Cine Agency Vs. CIT reported in 308 ITR 98, CIT vs. Sesa Goa Ltd. reported in 271 ITR 331 and to the following decision of Hon'ble Gujarat High Court can be made :
(a) CIT vs. Neokarna reported in 137 ITR 879 (Bombay)
(b) CIT vs. Anglo French Drug Co. Ltd. reported in 191 ITR 92 (Bom.)
(c) CIT vs. Prabhudass Kishore Dass Tobacco Products reported in 282 ITR 568 (Gujarat).
10. Let us bring at home the meaning of expression "manufacture and production" as propounded in the various authoritative pronouncements of the Hon'ble Supreme Court as well as of Hon'ble High Court.
11. In the case of India Cine Agency, Hon'ble Supreme Court has considered the judgment rendered in the case of Sesa Goa (supra) and all other decisions on the point which contemplate the meaning of expression "manufacture" as well as "production". The relevant discussion made by the Hon'ble Court reads as under:
ITA No.1489/Ahd/2014DCIT Vs. M/s.PNC Fasshions P.Ltd.4
"2. As noted above, the core issue is whether activity undertaken was manufacture or production.
3. In Black's Law Dictionary (5th Edition), the word "manufacture' has been defined as, "the process or operation of making goods or any material produced by hand, by machinery or by other agency; by the hand, by machinery, or by art. The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand labour or machine". Thus by process of manufacture something is produced and brought into existence which is different from that, out of which it is made in the sense that the thing produced is by itself a commercial commodity capable of being sold or supplied. The material from which the thing or product is manufactured may necessarily lose its identity or may become transformed into the basic or essential properties. (See Dy. CST (Law), Board of Revenue (Taxes) Coco Fibres [1992] Supp. 1 SCC 290).
12. Manufacture implies a change but every change is not manufacture, yet every change of an article is the result of treatment, labour and manipulation. Naturally, manufacture is the end result of one or more processes through which the original commodities are made to pass.
13. The nature and extent of processing may vary from one class to another. There may be several stages of processing, a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. Whenever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity. But it is only when the change or a series of changes takes the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article that a manufacture can be said to take place. Process in manufacture or in relation to manufacture implies not only the production but also various stages through which the raw material is subjected to change by different operations. It is the cumulative effect of the various processes to which the raw material is subjected to that the manufactured product emerges. Therefore, each step towards such production would be a process in relation to the manufacture. Where any particular process is so integrally connected with the ultimate production of goods that but for that process processing of goods would be impossible or commercially inexpedient, that process is one in relation to the ITA No.1489/Ahd/2014 DCIT Vs. M/s.PNC Fasshions P.Ltd.
5manufacture. (See Collector of Central Excise v. Rajasthan State Chemical Works [1991] 4 SCC 473).
x x x x x x x x x x x x x x x x x x x x x x
14. To put it differently, the test to determine whether a particular activity amounts to "manufacture' or not is: Does a new and different good emerge having distinctive name, use and character. The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes 'manufacture' takes place and liability to duty is attracted. Etymologically the word 'manufacture' properly construed would doubtless cover the transformation. It is the transformation of a matter into something else and that something else is a question of degree, whether that something else is a different commercial commodity having its distinct character, use and name and commercially known as such from that point of view, is a question depending upon the facts and circumstances of the case. (See Empire Industries Ltd. v. Union of India [1985] 3 SCC 314).
x x x x x x x x x x x x x x x x x x x x x x
15. In this case, assessee was carrying on business of conversion of Jumbo Rolls of photographic films into small flats and rolls in desired sizes. It claimed deduction under sec. 80-HH and 80-I as well as investment allowance under sec. 32AB. The controversy arose whether conversion of jumbo rolls into small sizes amounts to manufacture or production, eligible for deduction under sec. 32AB or deduction under sections 80-HH and 80-I of the Income-tax Act, 1961. Hon'ble Supreme Court has held that this activity amounts to manufacture or production. Thus, we think it is not necessary to recapitulate and recite all the decision on the construction expression "manufacture". But suffice to say that core of all the decisions of the Hon'ble Supreme Court or Hon'ble High Court is to the effect that broadly manufacture is a transformation of an article, which is commercially different from the one which is converted. It is a change of one object to another for the purpose of marketability. It brings something into existence, which is different from that, which originally existed. The new product is a different commodity physically as well as commercially. The Hon'ble Court also explained broader test to ITA No.1489/Ahd/2014 DCIT Vs. M/s.PNC Fasshions P.Ltd.
6determine whether manufacture is there or not, it is propounded that when a change or series of changes are brought out by application of processes which take the commodity to the point where, commercially, it cannot be regarded as the original commodity but is, instead recognized as a distinct and new article that has emerged as a result of the process.
16. Thus, in our opinion, the moment the assessee has carried the embroidery work, the character of sari had changed. It does not remain the original grey synthetic cloth. It has its independent market and value in the market other than the grey synthetic cloth. Thus, the learned AO failed to appreciate this aspect.
17. We further, find that the ld.First Appellate Authority has appreciated the controversy in right perspective as well as followed the order of the ITAT, wherein, it has been held that the embroidery work is an activity of manufacture. In view of the above discussion, we do not find any merit in the appeal of the Revenue. It is dismissed."
6. In the light of the above, if we examine the facts of the present case, then it would reveal that the ld.CIT(A) has appreciated the controversy in right perspective. Embroidery work is to be considered as manufacturing activity, because, cloth after getting embroidered on it, has changed its character and it has its independent market and value. ITAT in the case of Yash Creation has considered all these aspects, and thereafter upheld the order of the CIT(A) for granting of additional depreciation. In view of the above, we do not find any merit in this appeal of the Revenue. It is dismissed.
7. In the result, appeal of the Revenue is dismissed. Order pronounced in the Court on 16th March, 2017 at Ahmedabad.
Sd/- Sd/- (AMARJIT SINGH) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 16/03/2017