Income Tax Appellate Tribunal - Bangalore
P. Mayilvaganan, Bangalore vs Assessee on 17 October, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH : BANGALORE
BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER
AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
ITA No.1806/Bang/2013
Assessment year : 2009-10
The Assistant Commissioner of Vs. Shri P. Mayilvaganan,
Income Tax, Prop. M/s. Swathi Exports,
Circle 10(1), No.14-15, Krishnamraju Layout,
Bangalore. Bilekahalli, Bannerghatta Road,
Bangalore - 560 076.
PAN : ABPPV 3734Q
APPELLANT RESPONDENT
CO No.70/Bang/2014
[in ITA No.1806/Bang/2013]
Assessment year : 2009-10
Shri P. Mayilvaganan, Vs. The Assistant Commissioner of
Prop. M/s. Swathi Exports, Income Tax,
Bangalore - 560 076. Circle 10(1),
PAN : ABPPV 3734Q Bangalore.
CROSS OBJECTOR RESPONDENT
Revenue by : Shri P. Dhivahar, Jt. CIT(DR)
Assessee by : Shri G. Krishnan, C.A.
Date of hearing : 13.10.2014
Date of Pronouncement : 17.10.2014
ITA No.1806/Bang/2013
& CO No.70/Bang/2014
Page 2 of 7
ORDER
Per N.V. Vasudevan, Judicial Member
The appeal is by the revenue against the order dated 23.9.2013 of the CIT(Appeals)-V, Bangalore relating to assessment year 2009-10. The assessee has filed the Cross Objection, which is purely supportive of the CIT(Appeals).
2. The effective grounds raised by the revenue reads as follows:-
"2. The CIT (A) ought to have appreciated the fact, that the assessee is involved in excavation of granite from the earth and the same are only dressed/sized to shape for weighing, transportation and billing. Neither they are cut into slabs nor polished to give requisite shine and ready to use by the purchaser. As such, the activity does not come under the purview of the "manufacture or production of any article or a thing" as specified in Sec.32(1)(iia) of the IT Act.
3. The CIT (A) ought to have appreciated the fact, in order to be eligible for the benefit of additional depreciation of 20%, the assessee should be engaged in the business of manufacture or production of any article or a thing.
4. The CIT (A) has erred in not appreciating the judicial pronouncement of the Hon'ble Supreme Court in the case of Vijay Granites (P) Ltd in 349 ITR 350 (SC)/2012 the facts of which are similar to the present case."
3. The assessee is an individual. He is engaged in the business of extracting granites from earth, cutting it into sizes and blocks and exports rough granite blocks. The assessee claimed additional depreciation on new machineries (tillers, cranes & dumpers) purchased during the previous ITA No.1806/Bang/2013 & CO No.70/Bang/2014 Page 3 of 7 year. Under the provisions of section 32(1)(ii)(a) of the Act, in the case of any new machinery or plant which has been acquired or installed after 31.3.2005 by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to 25% of actual cost of such machinery or plant, will be allowed as a deduction.
4. The crucial expression in section 32(1)(ii)(a) of the Act is that the assessee must be engaged in the business of "manufacture or production"
of any article or thing. The assessee claimed that it was engaged in the business of manufacture or production of article or thing during the previous year. The assessee described the process carried on by it as follows:-
a) Blasting the rocks.
b) Removal of waste material like soil cover and other waste using mechanical process.
c) Separating the granite block from the parent rock.
d) Removal of intrusions and defects from the granite blocks.
e) Dimensional cutting and dressing on four sides to make them marketable lots.
All these activities are carried out by using heavy machineries like excavators, cranes, compressors etc., followed by various human activities and huge amount of planning and execution in timely manner necessary for carrying its activities.
5. The AO, on examining the claim of the assessee, was of the view that extracting and cutting to size marbles before export would not amount ITA No.1806/Bang/2013 & CO No.70/Bang/2014 Page 4 of 7 to manufacture. Accordingly, the AO disallowed claim of the assessee for additional depreciation.
6. On appeal by the assessee, the ld. CIT(Appeals) following the decision of the Hon'ble Supreme Court in the case of CIT v. Sesa Goa Ltd., 271 ITR 331 (SC), held that extraction of iron ore by itself was held by the Hon'ble Apex Court to be production. The ld. CIT(A) was of the view that the assessee was entitled to additional depreciation as he was engaged in manufacture or production of an article or thing.
7. Aggrieved by the order of the ld. CIT(Appeals), the revenue has preferred the present appeal before the Tribunal.
8. We have heard the submissions of the ld. DR, who primarily placed reliance on the decision of the Hon'ble Madras High Court in the case of CIT v. Vijay Granites Pvt. Ltd., (2004) 140 taxman 371 (Mad).
9. The ld. counsel for the assessee relied on the order of the CIT(Appeals). The Assessee also submitted that Section 2(29BA) of the Act, 'manufacture' has been defined by Finance No.2 Act, of 2009 w.e.f. 01.04.2009. This definition clearly contemplates that a new and distinct object or article with a different chemical composition or integral structure would amount to manufacture of an article or thing. Admittedly in the facts of the present case, this chemical and physical composition of raw iron ore is transformed into export and marketable commodity with a required ITA No.1806/Bang/2013 & CO No.70/Bang/2014 Page 5 of 7 acceptability of the foreign buyer. This process of changing the original product with a chemical composition and physical changes would amount to manufacture. Hence the conclusion of the Assessing Officer that the assessee does not carry on manufacture or production activity is erroneous.
10. We have given a very careful consideration to the rival submissions. The Hon'ble Supreme Court in the case of CIT v. Sesa Goa Ltd. (supra) had to decide the question, (i) whether mining activity for extracting iron ore and processing iron ore amounts to production within the meaning of section 32(1)(ii)(a) of the Act? and (ii) whether investment allowance is to be allowed as a deduction?; in respect of machinery used for mining activity, provided the assessee is engaged in production or manufacture of article or thing. The Hon'ble Supreme Court held that extraction and processing of iron ore amounts to "production" within the meaning of s. 80-I and consequently, assessee was entitled to deduction under s. 80-I in respect of mining activity. In the very same decision, another question was as to, whether the assessee engaged in extraction and processing of granites can be said to be engaged in production of an article or thing within the meaning of section 80I of the Act and consequent, entitled to deduction under the aforesaid section? The Hon'ble Supreme Court held that both the aforesaid activities would amount to production of an article or thing. In the aforesaid decision, the Hon'ble Supreme Court affirmed the ITA No.1806/Bang/2013 & CO No.70/Bang/2014 Page 6 of 7 decision of the Hon'ble High Court of Karnataka in the case of CIT v. Mysore Minerals Ltd., 250 ITR 730 (Kar). In view of the aforesaid decision directly on the issue, we are of the view that the order of the ld. CIT(Appeals) does not call for any interference.
11. As far as the decision of the Hon'ble Madras High Court in the case of CIT v. Vijay Granites Pvt. Ltd., (supra) is concerned, we find that it was a case where the assessee purchased granite blocks, processed them and exported them outside India. The Hon'ble Madras High Court held that cutting and polishing granite slaps before exporting did not amount to manufacture or production. The aforesaid decision was taken up in appeal by the assessee to Hon'ble Supreme Court. The Hon'ble Apex Court remanded the matter to the Assessing Officer for fresh consideration, directing the assessee to lead evidence as to the exact nature of activities undertaken by the assessee. In our view, therefore, the decision rendered in the case of Vijay Granites Pvt. Ltd., (supra) will not be of any assistance to the plea of the revenue before us. We may also point out that in the present case, the assessee was extracting granite from the earth and cutting the granite so extracted to make it marketable lots. The activity carried on by the assessee is materially different from the activity carried on by the assessee in the case of Vijay Granites Pvt. Ltd., (supra). ITA No.1806/Bang/2013 & CO No.70/Bang/2014 Page 7 of 7
12. For the reasons given above, we uphold the order of the ld. CIT(Appeals) and dismiss the appeal of the revenue.
13. The Cross Objection by the assessee is purely supportive of the order of the ld. CIT(Appeals) and the same is dismissed as not maintainable.
14. In the result, the appeal as well as the cross objection is dismissed.
Pronounced in the open court on this 17th day of October, 2014.
Sd/- Sd/-
( ABRAHAM P. GEORGE ) ( N.V. VASUDEVAN )
Accountant Member Judicial Member
Bangalore,
Dated, the 17th October, 2014.
/D S/
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard file
By order
Assistant Registrar /
Senior Private Secretary
ITAT, Bangalore.