TMI Blog2011 (7) TMI 1220X X X X Extracts X X X X X X X X Extracts X X X X ..... the normal rate of 15% was claimed on the new machinery installed during the year. In response to the said notice, it was submitted that additional depreciation of 20% was claimed on new embroidery machines purchased during the year. This was utilised mainly for the purpose of own work of embroidery and partially for outside parties work. It was further contended that since the firm is engaged in the manufacturing of cloth, it is entitled for additional depreciation. In the assessment order, the AO rejected the claim of additional depreciation on the ground that basic input material is also finished fabrics whereas the final output is also finished fabrics and no separate or distinct product emerges out of the process of embroidery carried out by the assessee and there is even no transformation of goods to the extent that they are commercially known differently. 2.1 The AO further took the view that the activity of embroidery constitutes only value addition whereby the finished wear-able fabrics are made more attractive and no different product is manufactured by applying the process of embroidery. Therefore, it cannot be said that manufacture of any article or thing as has tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issions, in the impugned order, the ld. CIT(A) directed the AO to allow additional depreciation claimed amounting to ₹ 27,33,075/- under the provisions of section 32(1)(iia) of the I.T. Act for the detailed reasons given in para 5 to 5.5 of the impugned order. 5. I have carefully considered both the positions. At the outset, it is necessary to refer to the provisions under which additional depreciation was claimed by the Assessee, which is section 32(1)(iia): (iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31 st day of March, 2005, by an Assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to twenty percent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii). It is evident that the new machinery or plant on which additional depreciation was claimed by the Assessee was acquired after 31-03-2005. In fact, the addition to the machinery and plant was made during the year under consideration and was totally worth ₹ 1,25,08,788, as is evidenced by the Annexure-A to the Tax audit repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e embroidered product being liable to excise duty. 5.3 The AR has placed reliance on the decision of the Hon'ble Supreme Court in the case of S.S.M.Bros.(P) Ltd. Ors. V/s CIT (2000) 243 ITR 418. In this case, the Hon'ble Supreme Court dealt with the application of the provisions of section 33(1)(b)(B)(i) and held that, when read together with item 32 of Schedule-V, the machinery or plant installed for the production of textiles including those dyed , printed or otherwise processed made wholly or mainly out of cotton, the Assessee is entitled to deduction on account of development rebate under the said section. The Court further observed that, if the machinery or plant is required to be utilised in the production of such textiles at whatever stage, the Assessee is entitled to the benefit. In this case, the Assessee had been producing embroidered cloth which started from scratch i.e. with cotton. The Court observed that it would make no difference if the Assessee bought the cloth and then processed it using the machinery for embroidering, and in some cases after dying. What was important was that, the Assessee utilised the machinery in the production of processed texti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prior to being embroidered. In other words, the market recognition of the embroidered finished product necessarily had to be different from the finished fabric prior to being embroidered. To this extent, such activity of 31 embroidery could also be treated as manufacture. 5.5 In view of the discussion above, it is held that the Assessee was fully entitled to the additional depreciation of 20% under the provisions of 32(1)(iia) of the IT Act. While in the assessment order, the AO made the disallowance of ₹ 47,82,881 which included the disallowance of the claim of not only the additional depreciation but also the original depreciation. This mistake has been rectified by the AO vide order u/s 154 of the IT Act dated 02-01-2009. The disallowance has thus been restricted to ₹ 27,33,075 which was the additional depreciation claimed, The AO is now directed to allow the claim of additional depreciation i.e. the sum of ₹ 27,33,075 under the provisions of section 32(1)(iia) of the IT Act. 4. Aggrieved with the order of the ld. CIT(A), the Revenue is in appeal before the Tribunal. 5. At the time of hearing before us, none was present from the side of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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