Income Tax Appellate Tribunal - Hyderabad
Elemech Industrial Constructions vs Income-Tax Officer on 13 November, 1987
Equivalent citations: [1988]26ITD148(HYD)
ORDER
T. Venkatappa, Vice President
1. Since common points are involved, these appeals preferred by the assessee relating to the assessment years 1982-83 and 1983-84 are being disposed of together.
2. The common contention that is raised in these two years is with regard to investment allowance. The assessee is a fabrication contractor. It has purchased machinery which was exclusively used for fabrication work on which investment allowance was claimed. The Income-tax Officer held that the assessee is not producing any new article or thing in the course of fabrication process. The material for the purpose of fabrication has been supplied by the principals. The assessee only renders services for fabricating the required articles. Thus, he held that the assessee is not entitled for investment allowance for both these years. On appeal, the Commissioner of Income-tax (Appeals) upheld the disallowance made by the Income-tax Officer.
3. The learned counsel for the assessee strongly urged that the assessee manufactures cranes, tanks and various other such articles or things. The assessee has large machinery for the purpose of such manufacture of separate units. This is not a case of repairs carried out but a unit like tanks, cranes, etc., are manufactured. Hence, the assessee is entitled to investment allowance. The learned departmental representative submitted that the raw materials will be supplied by the concerned departments and the assessee only undertakes something like job works for fabricating the material as per specifications. Thus, the assessee does not manufacture any article or tiling. Hence, the assessee is not entitled for investment allowance.
4. We have considered the rival submissions. The assessee carries on structural fabrications. The raw materials like steel rods and steel sheets are fabricated into steel structures and in the process of fabrication electrods, oxygen, etc., are used with the help of machineries like welding machines, compressors and gas cutters, etc. The steel sheets, rods, angulars, etc., change its shapes into a new article or thing to be used for different and entirely new purpose which is an entity by itself. The assessee thus produces different articles or things like cranes, tanks, etc., which are quite different from the steel sheets or rods or angulars. Thus, the assessee manufactures or produces an article or thing not being an article or thing specified in the list in the Xlth Schedule. Thus, the assessee is entitled for investment allowance. In Nu-Look (P.) Ltd. v. CIT [1986] 157 ITR 253 (Delhi), the assessee makes ready-made garments. It does tailoring for customers and it trades in clothes. The Tribunal held that the tailoring activity does not amount to manufacturing activity. On reference, the Delhi High Court reversing the Tribunal's decision held that the making of clothes or garments to the order of the customers will also be manufacturing or processing of goods. In CIT v Ajay Printer (P.) Ltd. [1965] 58 ITR 811 the Gujarat High Court held that the business of printing balance-sheets, profit and loss accounts, dividend warrants, etc., was that of 'manufacture of goods'. In Addl. CIT v. Kalsi Tyre (P.) Ltd. [1981] 131 ITR 636, the Delhi High Court held that the activity of retreading tyres amounts to processing of goods. In Addl. CIT v. A. Mukherjee & Co. (P.) Ltd. [1978] 113 ITR 718 (Cal.), it was held that the publication of books by getting them printed or bound by another, was a manufacturing or processing activity. In CIT v. Pressure Piling Co. (India) (P.) Ltd. [1980] 126 ITR 333 the Bombay High Court held that by subjecting the concrete mixture which consisted of several articles to certain process along with iron bars something new was brought into being and by piling process something new which ultimately formed part of the construction came into being and it had complete independent existence. It was described as pile which was more or less akin to a pillar and the pile was an independent product. Since the end-product of piling process was something which had an independent existence and independent entity which was described as pile it was an article for the purpose of 84(2)(iii). Therefore, the assessee was engaged in the manufacture or production of an article within the meaning of Section 84(2)(iii) of the Act and was entitled to the relief under the section. In CIT v. N.C. Budharaja & Co. [1980] 121 ITR 212 (Ori.), the assessee undertook construction of an irrigation project. The Orissa High Court held that there is no warrant for the submission of the revenue that a dam would not be an article. In CIT v. M.R. Gopal [1965] 58 ITR 598 (Mad.), the process employed in converting boulders into small stones with the aid of machinery was held to be a manufacturing process. In the case of Progressive Engg. Co. v. ITO [1987] 23 ITD 419 (Hyd.) the assessee was doing business as contractors and claimed investment allowance, on its machinery used in the construction of the dam. The Tribunal held that the assessee was entitled to investment allowance. In Durandel Foods (P.) Ltd. v. ITO [1983] 6 ITD 207 (Hyd.), the assessee was engaged in packing in bottles malted milk food 'Horlicks'. The assessee used its own machinery and labour for such packing. The Tribunal held that the assessee did manufacture or at any rate produce a commercially different article in respect of bottled Horlicks and it was entitled to investment allowance.
5. In our view the ratio laid down in the above cases would squarely apply to the instant case. The order of the Tribunal in ITO v. Ahura Shipping & Engg. Co. (P.) Ltd. [1984] 8 ITD 435 (Bom.) relied on by the learned departmental representative is distinguishable as that is a case where the assessee is mainly engaged in carrying out large scale repairs to ships and that has no application to the facts of the instant case. The decision of the Madras High Court in S.P.G.C. Metal Industries (P.) Ltd. v. CIT [1985] 152 ITR 484 is also distinguishable as that is a case where it was held that the assessee is not manufacturing any iron and steel which fell within the items in Schedule IX. That decision has no application to the facts of this case. In our view the assessee is entitled for investment allowance and accordingly we direct the Income-tax Officer to allow investment allowance in both these years.
6. The ground raised relating to depreciation rate is not pressed in both the years.
7. In the assessment year 1983-84 one of the grounds is with regard to disallowance of depreciation on plant and machinery of Rs. 2,33,842. We find that this ground though raised before the Commissioner of Income-tax (Appeals) has not been dealt with in his order. Hence, we restore this ground to the file of the Commissioner of Income-tax (Appeals) for his consideration.
8. The next ground in the asst. year 1983-84 is with regard to the cash credit of Rs. 66,000 in the name of Shri S. Sudarsanam. We find that the assessee has not filed even a confirmatory letter of the creditor. The assessee has not filed the genuineness of the loan. Thus the lower authorities were justified in making the addition of Rs. 66,000.
9. The next ground in the asst. year 1983-84 is with regard to the credit of Rs. 10,000 in the name of Shri V. Rambabu. The assessee filed confirmatory letter before the Commissioner of Income-tax (Appeals). But he confirmed the addition of Rs. 10,000. The learned counsel submitted that the Commissioner (Appeals) should have examined the creditor if he was not accepting the confirmatory letter. The learned departmental representative justified the addition. In our view the Commissioner (Appeals) should have summoned the creditor and examined him since the confirmatory letter was filed. Since that has not been done, we remit this item to the file of the Commissioner (Appeals) for examining the creditor and deciding the genuineness of the credit.
10. In the result, the appeals are partly allowed for statistical purposes.