Bsc C&C Jv, New Delhi vs Assessee

M/s BSC C&C JV. Vs. ACIT, Circle-38(1), 74, Hemkunt Colony, New Delhi. Opposite Nehru Place, New Delhi 110048

(PAN AADFB 8115 G)

(Appellant ) (Respondent)

Appellant by : Shri Ajay Vohra, Sr. Advocate, Shri Rohit Jain, Advocate And Ms.Deepashree Rao, CA. Respondent by: Ms. Y. Kakkar. Sr. D.R.

ORDER

PER SHRI GEORGE GEORGE K, JM:

1. The appeal at the instance of the assessee, is directed against the CIT(A)'s

order dated 22.07.2013. The relevant assessment year is 2009-10.

2. Grounds raised reads as follows:-

"1. That the Commissioner of Income-tax (Appeals) erred on facts and in law in upholding the disallowance of additional depreciation to the tune of Rs.8,58,60,045 on plant and machinery, on the ground that the appellant was not engaged in "manufacture or production of an article or thing" as required under Section 32(1)(iia) of the Income tax Act, 1961 ('the Act').

2.1. That the Commissioner of Income-tax (Appeals) erred on facts and in law in not appreciating that production of concrete from bitumen and other components ITA No.5219/Del /2013 2

constituted "manufacture or production of any article or thing" in terms of clause (iia) of Section 32 of the Act.

2.2. That the Commissioner of Income-tax (Appeals) erred on facts and in law in not appreciating that the mere fact that mixed concrete was captively used by the appellant in construction of roads could not be the sole basis for denying additional depreciation under Section 32(1 )(iia) of the Act.

2.3. That the Commissioner of Income-tax (Appeals) erred on facts and in law in relying upon the decision of the Hon'ble Supreme Court in the case of CIT vs. NC Buddhiraja:

204 ITR 307, without appreciating that the apex Court had categorically refrained from adjudicating the issue of eligibility of items/articles produced and captively used in construction business.

2.4. That the Commissioner of Income-tax (Appeals) erred on facts and in law in relying upon the decision of Delhi Tribunal in the appellant's own case for the assessment year 2004- 05, without appreciating that the said decision was rendered in context with the unamended provisions of section 32(1)(iia) of the Act, prior to amendment vide Finance Act, 2005 w.e.f. 01.04.2006.

3. Without prejudice, that the Commissioner of Income Tax (Appeals) erred on facts and in law in not directing the assessing officer to re compute normal depreciation under Section 32(1)(ii) of the Act with reference to enhanced value of assets on which additional depreciation was disallowed in earlier year(s).

3.1 That the CIT(A) erred on facts and in law in holding that such direction cannot be given since the appellant: (a) has filed appeal against the order of the Tribunal before the High Court: and (b) did not raise this issue during assessment proceedings."

3. We shall adjudicate the issues ground-wise as under:-

Grounds No.1, 2.1 to 2.4

Above grounds relates to the issue on disallowance of additional depreciation

claimed by the assessee amounting to Rs.8,58,60,045/-. The Assessing Officer

disallowed the aforesaid claim for additional depreciation on the ground that the

assessee was not engaged in 'manufacture or production of an article or thing' as

required u/s 32(1)(iia) of the Act. As regard, the activity of production of bitumen

concrete, the Assessing Officer held that the assessee was only mixing cement, sand,

aggregate and admixture to form concrete, which activity according to the Assessing ITA No.5219/Del /2013 3

Officer could not be regarded as amounting to manufacture or production of any

article or thing.

4. On further appeal, the CIT(A) confirmed the order of the Assessing Officer

on this issue. The relevant finding of the CIT(A) reads as follows:-

"5.1 I have carefully considered the assessment order and the submissions thereof. The facts of the case as per the assessment order are that the assessee filed return of Income declaring income of Rs.57,19,54,8401- which was subsequently revised to 55,69,73,6601-. The assessee had claimed additional depreciation of RS.8,58,60,045/- on plant & machinery. However the assessing officer found that the claim of additional depreciation could not be allowed as the requirement of section 32(1)iia were not fulfilled. The assessing officer on the basis that the assessee was engaged in the business of construction of road, which did not amount to manufacture or production of article, held that the assessee was not entitled to additional deprecation. The assessing officer placed reliance on the decision of Hon'ble Supreme Court in the case of Commissioner of Income Tax vs N.C. Budhiraja & Co. 204 ITR 307(SC) where in it has been held that the construction activity does not fall in the category of manufacture or production of an article or thing.

The appellant has claimed that its activity amounts to manufacture on the basis of various decisions quoted by in its submissions, however, the issue has been decided by the Hon'ble ITAT, Delhi Bench in the appellant's own case for A.Y. 2004-05 against the appellant wherein the Hon'ble ITAT in ITA No. 1752/Dell2011 dated 15.05.2012 has held as under:

Respectfully following Hon'ble Supreme court judgment in the case of N C Budhraja and other citations relied on by Id CIT(DR), assessee's arguments and grounds in this behalf are rejected.

28. Thus as the assessee cannot be held to be a producer of any article or thing, we are unable to accept the plea that to the extent of manufacturing of intermediate Bitumen mix, it may be treated as eligible for additional depreciation. In view of foregoings, on merits also the assessee's grounds are rejected.

The facts of the present case are duly covered and identical with that of the case for Assessment Year 2004-05 wherein decision has already been taken by the Hon'ble ITAT. Therefore, respectfully following the decision of the Hon'ble ITAT, the ground of appeal is dismissed."

5. The assessee being aggrieved is in appeal before us. At the outset the Ld.

counsel for the assessee submitted that the order of the Tribunal in assessee's own

case for the AY 2004-05 (ITA No. 1217/D/2011 dated 15.05.2012) is not applicable ITA No.5219/Del /2013 4

to the facts of the instant case, in view of the amendment to Section 32(1)(iia) of the

Act by Finance Act 2005 w.e.f. 01.04.2006.

6. The Ld. DR submitted that the issue is squarely covered by the order of the

Tribunal in assessee's own case for the AY 2004-05 (Supra).

7. We have heard rival submissions and perused the material on record. The Ld.

Sr. Counsel appearing on behalf of the assessee contended that the Tribunal's order

in assessee's own case for the AY 2004-05 is not applicable to the facts of the

instant case, in view of the amendment to Section 32(1)(iia) of the Act w.e.f.

01.04.2006. In order to appreciate whether the amendment will materially effect the

issue in question, the pre amended and post amended provision of Section 32(1)(iia)

of the Act is reproduced below:-

Prior to Amendment

The relevant extracts of the provisions of section 32(1)(iia) of the Act as it

stood prior to amendment are as under:

"(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2002, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to fifteen per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii):

Provided that such further deduction of fifteen per cent shall be allowed to-

(A) a new industrial undertaking during any previous year in which such undertaking begins to manufacture or produce any article or thing on or after the 1st day of April, 2002; or

(B) any industrial undertaking existing before the 1st day of April, 2002, during any previous year in which it achieves the substantial expansion by way of increase in installed capacity by not less than ten per cent:

ITA No.5219/Del /2013 5 Provided further that no deduction shall be allowed in respect of-"

Explanation.-For the purposes of this clause,-

(1) "new industrial undertaking" means an undertaking which is not formed,-

(a) by the splitting up, or the reconstruction, of a business already in existence; or

(b) by the transfer to a new business of machinery or plant previously used for any purpose;

(2) "installed capacity" means the capacity of production as existing on the 31st day of March, 2002" (emphasis supplied)

Amendment to section 32(1)(iia) of the Act

Section 32(1)(iia) of the Act, as amended by the Finance Act, 2005, w.e.f.

01.04.2006 and applicable for the year under consideration, reads as under:

"(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacturer 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):

Provided that no deduction shall be allowed in respect of .........."

8. From the reading of the above provisions, it is clear that though the amended

Section is done away with the words "industrial undertaking" the condition that the

plant and machinery on which the additional depreciation is claimed must be

engaged in the business of manufacturer or production of article or thing is retained

in the post amendment section. The Tribunal in assessee's own case for the AY

2004-05 (Supra) held as under:-

"Respectfully following Hon'ble Supreme court judgment in the case of N C Budhraja and other citations relied on by Id CIT(DR), assessee's arguments and grounds in this behalf are rejected.

28. Thus as the assessee cannot be held to be a producer of any article or thing, we are unable to accept the plea that to the extent of manufacturing of intermediate ITA No.5219/Del /2013 6

Bitumen mix, it may be treated as eligible for additional depreciation. In view of fore goings, on merits also the assessee's grounds are rejected."

9. It has been brought to our notice that the above order of the Tribunal has been

challenged before the Hon'ble High Court and the same is pending for adjudication.

We find that the post amended provision of Section 32(1)(iia) clearly stipulate that

there should be manufacture or production of article or thing. The Tribunal in AY

2004-05 had categorically held that the intermediary Bitumen mix is not article or

thing manufactured or produced by the assessee, therefore, the order of the Tribunal

in assessee's own case for AY 2004-05 is squarely applicable to the instant case.

Therefore, we uphold the order of the CIT(A) as correct and in accordance with law

and no interference is called for. It is ordered accordingly.

10. In the result, the Grounds No.1, 2.1 to 2.4 are rejected.

11. Ground No.3

In the above grounds, the assessee's plea is to recompute normal depreciation

u/s 32(1)(ii) of the Act with reference to the enhanced value of the assets on which

additional depreciation was disallowed in the earlier assessment year. The CIT(A)

dismissed the above plea of the assessee by recording as under:-

"6.1 I have carefully considered the assessment order and the submissions thereof. As discussed above, the facts of the case as per the assessment order are that the assessee filed return of income declaring income of Rs.57,19,54,840/- which was subsequently revised to 55,69,73,6601-. The assessee had claimed additional depreciation of Rs.8,58,60,045/- on plant & machinery which was disallowed by the assessing officer on the basis that the assessee was engaged in the business of construction of road which did not amount to manufacture or production of article held that the assessee was not entitled to additional deprecation. This disallowance has been upheld by the Hon'ble ITAT in the appellant's own case in A.Y. 2004-05. During the appellate proceedings the appellant has claimed that without prejudice to its ITA No.5219/Del /2013 7

claim for additional depreciation, it should be allowed depreciation on enhanced written down value of the asset as the Assessing Officer has allowed depreciation on the normal WDV as computed after reducing the amount of additional depreciation. The claim of the appellant has been considered. The appellant is in appeal against the order of Hon'ble ITAT, and has not accepted the order of the Hon'ble ITAT. In case the Issue is decided in favour of the appellant by the Hon'ble High Court, in that case the entire exercise of allowability of additional depreciation would be essential. The claim of the appellant for allowability of normal depreciation on enhanced WDV is therefore rejected being premature as the appellant is in appeal against the judgement delivered by the Hon'ble ITAT. Further the appellant has not raised this issue during assessment proceedings, therefore claim cannot be considered in appeal. The ground of appeal is therefore dismissed."

12. The assessee being aggrieved is in appeal before us.

13. We have heard rival submissions and perused the material on record. Under

the scheme of the act, depreciation is to be allowed as a percentage of written down

value of the assets. Thus, for one year if the claim of depreciation is not allowed

then the opening written value of the same assets in the succeeding year to the

extent of disallowance gets enhanced. In the instant case, in the earlier assessment

years additional depreciation claimed by the assessee was not allowed by the

Assessing Officer. The view of the Assessing Officer was confirmed by the ITAT.

Since the additional depreciation was disallowed in earlier years to the extent of

disallowance the written down value is to be enhanced and the depreciation is to be

computed accordingly. This claim of the assessee is reasonable and justified and

accordingly we direct the AO to compute normal depreciation u/s 32(I)(II) of the

Act with reference to the enhanced value of the assets on which additional

depreciation is disallowed in the earlier assessment year. Needless to state, the

Revenue shall be at liberty to take remedial measures in the event, the assessee ITA No.5219/Del /2013 8

succeeds in getting the benefit of additional depreciation on account of favourable

judgment from Hon'ble High Court. It is ordered accordingly.

14. In the result, appeal filed by the assessee is partly allowed as indicated above.

The decision was pronounced in the open court on 13th January, 2015.

Sd/- Sd/- (N.K. SAINI) (GEORGE GEORGE K.) Accountant Member Judicial Member

Dated: 13th January, 2015.

Aks/-

Copy forwarded to 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi