2017 (8) TMI 1431 - HC - Income Tax

Additional depreciation of 20% on plant and machinery used for production of ready mix concrete - assessee was manufacturing ready mix concrete for the purpose of sale apart from use in construction of buildings and was being levied Central Excise duty on such manufacture - Held that - There can be no doubt that preparation of ready mix concrete results in transformation of stone chips sand cement flyash and other articles into a new and distinct object having a different name character and use. Once the ready mix concrete is prepared the ingredients used lose their original character and can never be restored to their original character. It is not in dispute that the appellant-assessee is registered under the Central Excise Act and has been paying inter alia excise duty for manufacture of concrete ready mix which is sold by the appellant-assessee to other civil contractors. The judgment and order of the learned Tribunal cannot be sustained to the extent that the additional depreciation claimed by the appellant-assessee on the machinery used for manufacture of ready mix concrete has been disallowed and the same is set aside. We restore the order of the Commissioner of Income Tax (Appeals) - 1 in this regard. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of additional depreciation on plant and machinery used for the manufacture of ready mix concrete (RMC).

Detailed Analysis:

1. Disallowance of Additional Depreciation on Plant and Machinery Used for the Manufacture of Ready Mix Concrete (RMC):

The appellant-assessee, a company engaged in civil and industrial constructions, including the manufacture and sale of ready mix concrete, filed its Income Tax Return for the Assessment Year 2010-2011. The Assessing Officer (AO) issued a notice under Section 143(2) of the Income Tax Act, 1961, and subsequently passed an order of assessment on 12.03.2014, rejecting the claim of the appellant-assessee for additional depreciation under Section 32(1)(iia) of the Income Tax Act, 1961, in respect of machinery used for the production of ready mix concrete.

The appellant-assessee filed an appeal before the Commissioner of Income Tax (Appeals) - 1, which was allowed, directing the AO to delete the addition of Rs. 62,63,733/- for additional depreciation on plant and machinery used for RMC. The Commissioner of Income Tax (Appeals) relied on the appellant's case for the AY 2009-10, where the issue was decided in favor of the appellant.

The Revenue filed an appeal before the Income Tax Appellate Tribunal 'A' Bench, Chennai, which allowed the Revenue's appeal, holding that the activity of the assessee company in producing ready mix concrete could not be considered as manufacture or production to allow additional depreciation. The Tribunal referred to the Supreme Court's decision in CIT v. N.C. Budharaja & Co., which held that ready mix concrete could not be considered as manufacturing.

The appellant-assessee argued that the production of ready mix concrete involved a manufacturing process, as the raw materials mixed could not be reconverted into their original shape and character, resulting in a new product known as ready mix concrete. The appellant also contended that it was registered under the Central Excise Act and paid excise duty for the manufacture of ready mix concrete, which was sold to other civil contractors.

The High Court analyzed Section 32(1)(iia) of the Income Tax Act, 1961, which allows additional depreciation for new machinery or plant acquired and installed by an assessee engaged in the business of manufacture or production of any article or thing. The Court noted that the transformation of stone chips, sand, cement, flyash, and other materials into ready mix concrete resulted in a new and distinct product with a different name, character, and use. The Court distinguished the Supreme Court's decision in N.C. Budharaja & Co., which involved pre-fabricated piles not sold in the market, and other cases cited by the AO, where the end product was not considered manufacturing for the purpose of sale.

The High Court concluded that the preparation of ready mix concrete constituted manufacturing, as it resulted in a new product with a different chemical composition and integral structure. The judgment and order of the Tribunal were set aside to the extent that the additional depreciation claimed by the appellant-assessee on the machinery used for the manufacture of ready mix concrete was disallowed. The Court restored the order of the Commissioner of Income Tax (Appeals) - 1, allowing the appellant-assessee's claim for additional depreciation.

The appeal was accordingly allowed, with the question formulated answered against the Revenue and in favor of the appellant-assessee. No costs were awarded.