Income Tax Appellate Tribunal - Ahmedabad
Aswani Industries, Surat vs Department Of Income Tax on 22 October, 2012
1 ITA No 1180/Ahd/2010
A.Yr.. 2006-07
IN THE INCOME TAX APPELLATE TRIBUNAL "D "BENCH, AHMEDABAD
(BEFORE SHRI MUKUL KR.SHRAWAT JM & SHRI ANIL CHATURVEDI A.M.)
I.T.A. No. 1180/AHD/2010.
(Assessment Year: 2006-07)
Income Tax Officer, Vs. M/s.Aswani Industries,
Ward 2(1), C/o.Geeta Fashions
Aayakar Bhavan, C-1023,Surat GTextile Market,
Majura Gate, Ring Road,
Surat. Surat.
(Appellant) (Respondent)
PAN: AALFA4927D
Appellant by : Mr.A.Tirkey, Sr. D.R.
Respondent by : Mr.Rajesh Kumar Shah.
आदे श)/ORDER
(आदे Date of hearing : 22-10-2012 Date of Pronouncement : 23-11-2012 PER: SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER.
The assessee is a firm engaged in the embroidery job work for other parties and export of cloth. It filed its return of income on 31-12-2006 with returned total income at Rs. Nil. The case was selected for scrutiny and subsequently assessment was framed u/s. 143(3) vide order dated 22-12- 2008 and the income was determined at loss of Rs.60,123/- after making various additions/disallowances. Aggrieved by the order of A.O. assessee preferred appeal before the CIT (A). CIT (A) vide his order dated 25-1- 2010 partly allowed the assessee's appeal.
2 ITA No 1180/Ahd/2010 A.Yr.. 2006-07
2. Aggrieved by the order of CIT (A), the Revenue is now in appeal before us.
3. Before us, the only effective ground is with respect to additional depreciation. During the course of assessment proceedings the A.O. observed that the assessee had added new plant and machinery on which the assessee had claimed depreciation at normal rates as well as additional depreciation of Rs.15,61,831/-. A.O. was of the view that since the assessee firm was engaged in the business of embroidery on job work basis it did not fall into the category of manufacturing and as such the assessee was not entitled to additional depreciation on the new machineries installed by it. He accordingly disallowed the claim with respect to additional depreciation of the assessee and added it to the total income. The assessee carried the matter before the CIT (A). CIT (A) after considering the submissions and various decisions of High Court and Tribunal held that the activity of embroidery would be considered as manufacturing and the assessee would be eligible for additional depreciation. CIT (A) was also of the view that under the Central Excise Act, the activity of embroidery of manmade fabrics is liable to excise duty under Chapter 58 heading No.5810 and sub-heading 5810-92 of the First Schedule of the Central Excise Tarrif Act, 1985 @ 8%.Thus even by relying on the criteria of "manufacture" applied under the Central Excise Act, he was of the view that the activity of embroidery would amount to manufacturing. He accordingly allowed the appeal of the assessee.
4. Revenue is now aggrieved by the order of CIT (A).
3 ITA No 1180/Ahd/2010 A.Yr.. 2006-07
5. Before us the Ld. D.R. submitted that the basic material is "finished fabrics" and the final output is also finished fabrics and thereby no separate or distinct product emerges out of the process of embroidery work carried out by the assessee and there is no transformation of goods to the extent they are commercially known as different item. He further submitted that the activity of the embroidery constitute only "value addition" whereby finished wearable fabrics are made more attractive and no different product is manufactured by applying the process of embroidery. He thus submitted that the activity of embroidery cannot be said to be 'manufacture' within the meaning ot section 32 (1) (iia) for the purpose of allowance of additional depreciation. He therefore urged that the order of the A.O. be upheld.
6. On the other hand the Ld. A.R. submitted that in the assessee's own case on identical facts the Hon'ble Tribunal vide order dated 29-10-2010 in ITA No.2103/Ahd/2010 have dismissed the Department's appeal. He placed on record copy of the order. He therefore, urged that following the decision for A.Y.2007-08 the order of the CIT (A) be upheld.
7. We have heard the rival submissions and perused the material on record. We find that for A.Y. 2007-08 the Department had carried before Tribunal the matter with respect to the claim of additional depreciation. The Tribunal had dismissed the Department's appeal by holding as under :-
"5. Having heard both the sides, we have carefully gone through the orders of authorities below as well as the decision dated 8-9-2009 of ITAT "SMC" Bench, Ahmedabad in ITA No.1569/Ahd/2010 for the assessment year 2007-08 in the case of Haripriya Processors Pvt. Ltd. (supra) relied by the Ld. Counsel of the assessee. In the said 4 ITA No 1180/Ahd/2010 A.Yr.. 2006-07 decision, ITAT, "SMC" Bench, Ahmedabad on identical facts took the view that the assessee is entitled to additional depreciation under section 31(1)(iia) of the Income Tax Act,1961. The relevant discussion contained in para 5 of the said order, which reads as under:
"5. I have heard the rival contentions and gone through the facts and circumstances of the case. I find from the facts that the assessee is doing embroidery work on job work basis and said activity also results in production of new article which has different market of its own and there are various stages which are involved in embroidery activity and the same can be briefly categorized as under:-
(i) Creating a digitalized embroidery design file;
(ii) Editing the design and/or combining {with other design} (optional)
(iii) Load the final design file into the embroidery machine;
(iv) Stabilize the fabric and place it in the machine;
(v) Start and monitor the embroidery machine;
And because of the above process which has to be carried out in very careful manner the output i.e. embroidery fabrics has entirely different looks and has different commercial value and thus, because of above operations new commodity emerges. The expressions 'manufacture' and 'produce' have not been defined in the Act at the relevant point of time but the dictionary meaning of "manufacture" is to transform or fashion new material into a changed form for use. Because of the above operations carried out by assessee, the look of the fabric is changed substantially and the new article is commercially known differently from the original fabrics. Even otherwise, the word "product" has a wider connotation than the work "manufacture" and reliance placed by the assessee on the decision of Hon'ble apex court in the case of S.S.M. Brothers (P) Ltd. & Others vs. CIT (2000) 243 ITR 418 (SC) wherein the 5 ITA No 1180/Ahd/2010 A.Yr.. 2006-07 development rebate claimed u/s. 33(1)(b)(B)(i) was allowed by holding that the plant and machinery were used in the production of processed textiles (embroidery) and therefore, the machinery is entitled to development rebate under the above provisions. Section 33(1)(b)(B)(i) provides for development rebate on machinery or plant which is installed for the purpose of business of construction, manufacture or production of any one or more of the articles or things specified in the List in the Fifth Schedule. The ratio of above decision of Hon'ble Supreme Court is directly applicable to facts of the instant case because Sec. 32(1)(iia) also provides for additional depreciation in respect of new machinery and plant purchased by assessee who is engaged in the business of manufacture of production of any article or thing. In the above case the Hon'ble Supreme Court has already held that assessee was using machinery in production of processed textile i.e. embroidery work and thus, the fact embroidery work is regarded as production cannot be denied. Section 32(1)(iia) also used the word 'production of any article or thing' and thus, the product with embroidery work is included in the work any article or thing. In fact the provisions of section 32(1)(iia) are larger. In scope as compared to section33(1)(B)(b)(1) inasmuch as section 32(1)(iia) provides for additional depreciation on plant and machinery which is used in the production/manufacture of any article or thing whereas section 33(1)(B)(b)(i) provides for development rebate on plant and machinery which is used in the construction, manufacture or production of any article or thing which is listed in the Fifth Schedule. In view of these facts and the decision of Hon'ble Supreme Court the additional depreciation claimed by assessee is required to be allowed as plant and machinery is used in the production of embroidery fabrics. I further find that even from the angle of levy of Excise Duty under Central Excise Act, this embroidery is subject to levy of duty and considered as manufacture. The relevant Tarrif 5810 read as under:-
Section XI 350 Chapters 58
6 ITA No 1180/Ahd/2010
A.Yr.. 2006-07
Tarrif item Depreciation of goods Unit Rate of duty
5810 Embroidery in the piece, in
strips on in motifs
5810 10 00 Embroidery without visible Kg. 8%
ground
5810 91 00 Other embroidery of cotton Kg. 8%
5810 92 Of man-made fibres
5810 92 10 Embroidered badges, Kg. 8%
Motifs and the like
5810 92 90 Other Kg. 8%
5810 99 00 Of other textile materials Kg. 8%
As the issue is squarely covered in favour of the assessee, we allow the claim of the assessee. This issue of Revenue's appeal is dismissed."
6. In view of the above, we following the decision dated 8-9-2009 of ITAT, "SMC" Bench, Ahmedabad in ITA No.1569/AHD/2010 for the Assessment year 2007-08 in the case of Haripriya Processors Pvt. Ltd. (supra) held that the assessee is entitled to depreciation under section 31(1)(iia) of the Income Tax Act,1961. We therefore, do not find any infirmity in the order of Ld. CIT (A) directing the A.O. to allow additional depreciation under section 32(1)(iia) of the Act."
8. Since the facts in the present case are similar to that of earlier years and the Revenue has not been in a position to controvert that the facts are different, we respectfully following the decision of the Co-ordinate Bench of the Tribunal are of the view that the assessee is entitled to additional depreciation u/s. 32(1)(iia) of the Act an therefore do not find any reason to interfere in the order of the CIT (A) and therefore, appeal of the Department is dismissed.
7 ITA No 1180/Ahd/2010 A.Yr.. 2006-07
10. In the result, appeal of the Revenue is dismissed.
Order pronounced in Open Court on 23 -11 - 2012.
Sd/- Sd/-
(MUKUL KUMAR SHRAWAT) (ANIL CHATURVEDI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad.
S.A.Patki.
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals)-XI, Ahmedabad
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad.
1.Date of dictation 29 - 10 -2012
2.Date on which the typed draft is placed before the Dictating 22 / 11 / 2012 Member................Other Member................
3.Date on which the approved draft comes to the Sr.P.S./P.S - -2012.
4.Date on which the fair order is placed before the Dictating Member for pronouncement - -2012
5.Date on which the fair order comes back to the Sr.P.S./P.S - -2012
6.Date on which the file goes to the Bench Clerk - -2012.
7.Date on which the file goes to the Head Clerk.............
8.The date on which the file goes to the Asstt. Registrar for signature on the order........................
9.Date of Despatch of the Order.................