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2016 (4) TMI 40 - ITAT HYDERABAD

2016 (4) TMI 40 - ITAT HYDERABAD - TMI - Additional depreciation u/s 32(1)(iia) on plant and machinery - whether to claim additional depreciation, the assessee’s main business must be manufacture or can be it an activity of the main business i.e. ancillary activity? - Held that:- It is clear that the manufacturing activity of the assessee is a separate economical activity and incidental to the main business. Since, the assessee was already running a manufacturing activity independently and manuf .....

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aim additional depreciation u/s 32(1)(iia) of the Act as an existing manufacturer. - Decided in favour of assessee. - ITA Nos. 1674/Hyd/2011 & 938/H/12014 - Dated:- 30-3-2016 - Shri D. Manmohan, Vice President And Shri S. Rifaur Rahman, Accountant Member For the Petitioner : Shri P. Chiranjeevulu For the Respondent : Shri M. Sitaram ORDER Per S. Rifaur Rahman, A. M. Both these appeals are preferred by the assessee against the orders of the learned Commissioner of Income-tax(Appeals) - IV and VII .....

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entral/state govt. agencies, local bodies and private bodies in the country. The assessee also set up a separate unit for manufacturing pipes, which was utilized for captive consumption in contract business as well as sold to outsiders also. The above manufacturing unit is registered with excise department and the details of manufacturing and sales are given below: AY Description of pipes Total value For use in works contract value Sold to others value 2007-08 All kinds of pipes namely MS pies, .....

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tion 32(1)(iia) i.e. to claim additional depreciation, the assessee should be engaged in the business of manufacture or production of any article or thing. Assessing Officer also relied on the Hon ble Madras High Court s decision in the case of Hi Tech Arai Ltd., 321 ITR 477, which observed that for the purpose of claiming additional depreciation, the condition to be satisfied by the taxpayer, who was already engaged in the business of manufacture or production of any article or thing, is to set .....

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business operation of execution of contract works relating to development and execution of infrastructure projects and was not the end activity in itself. 4. On an appeal, the CIT(A) confirmed the action of the AO by observing as under: (The running no. of paras are not sequential, we have extracted this para from paper book at page 31 of CIT(A) s order.) 10.1 In the case of the appellant however it can be seen that the appellant is engaged in the business of contract works for development and .....

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uring pipes, which was an additional and different business of the appellant. Accordingly, I am of the view that the case law relied upon by the appellate proceedings or the arguments raised by the learned representative do not help the cause of the appellant on this issue. Therefore, the appellant fails at the threshold level itself, as it was not the existing business of the appellant to manufacture any articles / things. Besides, it is also clear that manufacturing of such articles was only a .....

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rned CIT(A) erred in law in not allowing additional depreciation under section 32(1)(iia) amounting to ₹ 32,25,776 when the appellant was engaged in manufacturing of pipes both for captive utilization in contract work and sale to out side parties, loosing sight of the fact that quantitative test is not a statutory criteria for allowing additional depreciation on business assets. 3. The learned CIT(A) ought to have appreciated that quasi judicial authorities are precluded from providing cas .....

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be manufacture or can be it an activity of the main business i.e. ancillary activity. 6. Before us, the ld. AR of assessee filed written submissions wherein it was stated that Additional Depreciation is admissible in case of New Machinery or Plant (other than Ships and Aircrafts) acquired and installed after 31.03.2005. To claim benefit, the Assessee should be engaged in the business of manufacture or production of an article or thing. The pre-condition for the claim of Additional Depreciation .....

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of providing relief to the assesses who makes investment in new plant and machinery. 5.2. It was stated that the decision rendered by the Honorable ITAT Mumbai Bench (E) in Stefon Constructions Pvt ltd Vs. Commissioner of Income Tax-7, Mumbai reported in (2016) 65 Taxmann.com 140 (Mumbai Tribunal) relied by the Learned Departmental Representative cannot be made applicable to assessee s case. In the above case, the Assessee is using the pre-fabricated piles produced by it in its business of exec .....

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relied on the following cases: 1. M/s Hi Tech Arai Ltd., 321 ITR 477 2. CIT Vs. Lake Palace Hotels and Motels (P.) Ltd., 286 ITR 589 (Raj.) 6. The ld. DR on the other hand, submitted that the assessee has claimed additional depreciation on the premise that the assessee though is in the business of construction and infrastructure business and in the process using pipes by manufacturing themselves and also has sold such manufactured pipes to others. Referring to the case relied upon by the AO and .....

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ing the pipes in his construction and infrastructure business, which is not an activity of manufacture or production as held in a plethora of cases. He, therefore, submitted that mere usage of machinery in making pipes would not amount to manufacture or production as provided u/s 32(1)(iia) as the condition precedent to section 32(1)(iia) is an assessee engaged in the business of manufacture or production of any article or thing. The ld. DR submitted that it is clear from the facts of the case t .....

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ated to have set up two wind mills in addition to the already existing four wind mills and thereby increased its power generation capacity by above 50 per cent. It is true that the assessee is a company engaged in the business of manufacture of oil seeds, moulded rubber parts, reed value assemblies apart from generation of power. After the installation of the additional wind mills, both prior to as well as after the installation of the additional wind mills, the assessee was using wind energy fo .....

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The said provision does not state that the setting up of a new machinery or plant, which was acquired and installed upto 31st March, 2002 should have any operational connectivity to the article or thing that was already being manufactured by the assessee. Therefore, the contention that the setting up of a wind mill has nothing to do with the power industry, namely, manufacture of oil seeds, etc. is totally not germane to the specific provision contained in s. 32(1)(iia) of the Act. In the above .....

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ment. 7.2 On the issue of dominant nature of business of manufacture, the Hon ble Rajasthan High Court in the case Lake Palace Hotels and Motels (P.) Ltd., (supra), the Hon ble Rajasthan High Court held as follows: 22. In that view of the matter, firstly we are of the opinion that the Circular dt. 29th July, 1991 [(1991) 96 CTR (St) 233], fully supports the view which the Tribunal has taken. Apart from that the Tribunal has also referred to the fact that the assessee is charging hire for providi .....

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rt on checking out for leaving the place. The statutory provision nowhere puts a restriction that if a business is running on a restricted scale, the benefit could not be available. Therefore, it cannot be said that there was no evidence on the basis of which the Tribunal could reach its conclusion that the assessee has acquired the vehicles in question for running a taxi on hire and that the assessee has used the vehicles in question for running them on hire for tourists. 23. In this connection .....

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of 30 per cent. The AO, however, allowed the depreciation at the higher rate of 40 per cent. The CIT in exercise of power under s. 263 opined that the correct rate to be applied in such case was only the regular rate of 30 per cent of depreciation and not the extra rate. Consequently, the order was held erroneous and prejudicial to the interests of the Revenue. 24. The Tribunal upturning the order of the CIT held that the assessee is entitled to the higher rate namely at 40 per cent and set asi .....

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