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YFC Projects (P) Ltd. Versus DCIT

2010 (1) TMI 880 - ITAT, Delhi

Whether production of ready mixed concrete (RMC) amounts to manufacture - Additional depreciation - assessee to claim additional depreciation under section 32(l)(iia) of the Act - mixing of four products in prescribed ratio would result a different identifiable product which cannot be reconverted to its original shape. Hon'ble Supreme Court in the case of India Cine Agencies (2008 -TMI - 31532 - SUPREME COURT ) has considered cutting of a jumbo films rolls into small piece of films a manufacturi .....

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not be held that assessee has not received the goods from these persons and the credit balance in the shape of sundry credit appearing in the books of account is unaccounted money of the assessee. The assessee has filed certificate from the bank indicating the facts that cheque issued by it were cleared - Held that:- Assessing Officer is not justified in making the disallowance of purchases made by the assessee. appeal filed by the assessee is allowed. - IT Appeal No. 4672 (Delhi) of 2007 - Da .....

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l, whereas the controversy raised in all these grounds of appeal revolves around two issues. The first issue is whether production of ready mixed concrete (RMC) amounts to manufacture or production of a goods or articles. If yes, then that would enable the assessee to claim additional depreciation under section 32(l)(iia) of the Act. The second issue relates to disallowance of some expenses incurred for purchase of sand, etc. 2. We have heard the learned representatives and perused the record ca .....

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d 19-2-2006 contending therein that assessee had claimed depreciation under section 32(l)(iia) at Rs. 36,10,546 whereas the same should have been Rs. 18,05,273. The assessee had claimed additional depreciation under section 32(l)(iia) of the Act on the ground that it is engaged in the manufacturing of ready mixed concrete which involved mixture of three ingredients, namely, cement, sand and aggregate. The product manufactured is mixed with another chemical called add-mixture. The final product a .....

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32(l)(iia) of the Act on the new plant and machinery purchased during the year. In support of its contention, it has relied upon the decision rendered in the case of CIT v. Premier Tobacco Packers (P.) Ltd. [2006] 284 ITR 222 (Mad.) wherein it was held that the word manufacture has to be understood as in common parlance. It was also explained before the Assessing Officer that if the change made in the article results in a new and a different article, then it would amount to manufacturing activi .....

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in the meaning of section 32(l)(iia) of the Act. According to the Assessing Officer, the concrete cannot be called goods or articles or understand as goods by a common man. He also observed that business entity engaged in construction are not to be treated as industrial undertaking. 3. Dissatisfied with the denial of additional depreciation by the Assessing Officer, assessee carried the matter in appeal before the learned CIT (Appeals) and reiterated its contention. Learned First Appellate Autho .....

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rity, the material produced from the above four components, no chemical change has taken place to the raw material. If anything is to be considered has changed, i.e., cement which is a normal course to mixing with water will become solid and, thus, by any stretch of imagination the assessee could be said to be an industrial undertaking involving manufacturing of any product. For buttressing his point, Learned First Appellate Authority has placed reliance upon the judgment of Hon ble Allahabad Hi .....

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before the learned CIT (Appeals) and contended that assessee was preparing RMC of different categories and under different grade. These are M-5, M-10, M-15 and M-7.5 and so on. These grades are manufactured according to the requirements of the buyers. There is different ratios of sand, cement, flyash to the requirement for different grade. The cement coming into water leads to a chemical reaction. The cement contains calcium oxide which mixed with the water is converted into calcium hydro oxide .....

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of the goods. In the case of assessee, the chemical reaction of cement takes place and, therefore, it is to be construed that a new commercially known product is produced. The learned counsel for the assessee putting reliance upon the decision of Hon ble Supreme Court in the case of India Cine Agencies v. CIT [2009] 308 ITR 98 , contended that conversion of jumbo rolls of photographic films into small flats and rolls in desired size has been considered as production of a different commercial com .....

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al depreciation. 5. On the other hand, learned DR relied upon the order of learned CIT (Appeals) and contended that mixing of cement, flyash, sand and add-mixture with concrete could not amount to any manufacturing activity and, therefore, assessee is entitled to any additional depreciation under section 32(l)(iia) of the Act. He also emphasized that assessee cannot be considered as industrial undertaking. The learned counsel for the assessee in the rebuttal drew our attention towards page Nos. .....

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ly and Sewerage v. R. Rajappa AIR 1978 SC 548 and judgment of Hon ble Gujarat High Court in the case of CIT v. J.B. Kharwar and Sons[l987] 163 ITR 394 , he pointed out that expression activity has a wide import. According to the judgment of Hon ble Gujarat High Court, where there is a systematic activity, organized by co-operation between employer and employees for the production and/or distribution of goods and services calculated to satisfy human wants and wishes, prima facie there is an indus .....

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technical specification for demonstrating the method of concrete mixed design. According to the assessee, these standard do indicate that preparation of R.M.C. is not as simple as construed by the learned CIT (Appeals). 6. We have considered the rival contentions and gone through the records carefully. Hon ble Supreme Court in the case of India Cine Agencies (supra) has considered various judgments of Hon ble High Court as well of Hon ble Supreme Court, while construing the meaning of expressio .....

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re issue is whether the activity undertaken was manufacture or production. 3. In Black s Law Dictionary (5th edition), the word, the manufacture has been defined as, the process or operation of makings goods or any material produced by hand, by machinery or by other agency; by the hand, by machinery, or by art. The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand labour or machine . Thus, by a .....

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(Law), Board of Revenue (Taxes) v. Coco Fibres [1992] Supp. (1) SCC 290. 4. article is the result of treatment, labour and manipulation. Naturally, manufacture is the end result of one or more process through which the original commodities are made to pass. The nature and extent of processing may vary from one case to another. There may be several stages of processing, a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. Whenever .....

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tion but also various stages through which the raw material is subjected to change by different operations. It is the cumulative effect of the various processes to which the raw material is subjected that the manufactured product emerges. Therefore, each step towards such production would be a process in relation to the manufacture. Where any particular process is so integrally connected with the ultimate production of goods that but for that process processing of goods would be impossible or co .....

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ginally existed in the sense that the thing produced is by itself a commercially different commodity whereas in the case of processing it is not necessary to produce a commercially different article-Saraswati Sugar Mills v. Haryana State Board [1992] 1 SCC 418. 6. The prevalent and generally accepted test to ascertain that there is manufacture is whether the change or the series of changes brought about by the application of processes take the commodity to the point where, commercially, it can n .....

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o determine whether a particular activity amounts to manufacture or not is : Do new and different goods emerge having distinctive name, use and character. The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether it be the result of one process or several processes manufacture takes place and liability to duty is attracted. Etymologically the word manufacture properly construed would doubtless c .....

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then it would reveal that preparation of RMC is not as simple as construed by the learned CIT (Appeals). The assessee has been carrying out this activity in an organized manner with the help of heavy machinery and computer. Its activity is not as simply as mixing of sand, cement, etc., by a labourer on the right side. Though in the common parlance, sometime it does not sound logic to say that mixing of R.M.C. is a manufacturing activity but if we look into this activity carried out by the asses .....

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per the ratios of Hon ble Supreme Court s decision then its case is on a better footings. Therefore, we are of the opinion that learned Revenue Authority have erred in holding that assessee is not carrying out any manufacturing activity. We allow the first issue raised by the assessee and pleaded in ground Nos. 3 to 5. We direct the Assessing Officer to allow additional depreciation on machinery used for the production of ready mixed concrete. 8. In the next ground of appeal, grievance of the as .....

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e notice was returned back with the remarks not known . Assessing Officer has disallowed the claim of the assessee on the ground that assessee failed to file confirmation from these persons in support of its purchases. Dissatisfied with the disallowance, assessee carried the matter in appeal before the learned CIT (Appeals). It is contended that assessee has shown net profit of Rs. 79.11 lakhs on the turnover of Rs. 884.81 lakhs. The net profit in terms of percentage is 8.94 per cent whereas the .....

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