Hanuman Filaments Pvt. Ltd.,, Surat v. The Income tax Officer,Ward-1(3),, Surat

IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : AHMEDABAD CAMP AT SURAT (BEFORE HONBLE SHRI T.K. SHARMA J.M. & HONBLE SH RI D.C. AGRAWAL A.M.) I.T.A. NO. 1412/AHD./2007 ASSESSMENT YEAR : 2004-2005 HANUMAN FILAMENTS PVT. LTD. SURAT -VS.- DE PUTY COMMISSIONER OF INCOME TAX (PAN : AAACH 5965 N) CIRCLE-1 SURAT (APPELLANT) (RESPONDENT) & I.T.A. NO. 156/AHD./2008 ASSESSMENT YEAR : 2005-2006 HANUMAN FILAMENTS PVT. LTD. SURAT -VS.- INCOM E TAX OFFICER WARD-1(2) SURAT (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAMESH MALPANI DEPARTMENT BY : SHRI SANJEEV KASHYAP SR. D.R. O R D E R PER SHRI T.K. SHARMA JUDICIAL MEMBER : THESE TWO APPEALS FILED BY THE ASSESSEE ARE AGAINS T TWO SEPARATE ORDERS DATED 31.01.2007 AND 01.11.2007 OF LEARNED COMMISSIONER OF INCOME TA X(APPEALS)-I SURAT FOR THE ASSESSMENT YEARS 2004-05 AND 2005-06 RESPECTIVELY. 2. VARIOUS GROUNDS RAISED BY THE ASSESSEE IN BOTH T HE APPEALS ARE AS UNDER :- ASSESSMENT YEAR : 2004-05 (1) THAT THE HONBLE CIT(A) HAS ERRED IN SUSTAININ G THE ADDITION OF RS.28 94 000/- ON ACCOUNT OF DISALLOWANCE OF DEPREC IATION AT HIGHER RATE OF 50% CLAIMED UNDER BLOCK III(6) OF APPENDIX-I OF I.T. RU LES 1962. (2) WITHOUT PREJUDICE TO OTHER GROUNDS OF APPEAL T HAT THE HONBLE CIT(A) HAS ERRED IN SUSTAINING INTEREST CHARGED U/S. 234B. 2 ITA NO. 1412 & 156/AHD/ 2008 ASSESSMENT YEAR : 2005-2006 (1) THAT THE HONBLE CIT(A) HAS ERRED IN SUSTAINING THE ADDITION OF RS.7 38 994/- ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION AT HIGHE R RATE OF 50% CLAIMED UNDER BLOCK III(6) OF APPENDIX-I OF I.T. RULES 196 2. (2) THAT THE HONBLE CIT(A) HAS ERRED IN NOT ALLOWING L EGITIMATE DEDUCTION U/S. 80IB(4) OF THE ACT. (3) WITHOUT PREJUDICE TO OTHER GROUNDS OF APPEAL THAT THE HONBLE CIT(A) HAS ERRED IN SUSTAINING INTEREST CHARGED U/S. 234B. 3. THE FACTS RELATING TO CONTROVERSY INVOLVED IN GR OUND NO. 1 FOR BOTH THE ASSESSMENT YEARS ARE THAT THE ASSESSING OFFICER REJECTED THE CLAIM O F THE ASSESSEE OF HIGHER RATE OF DEPRECIATION ON MACHINERY ACQUIRED UNDER TUF SCHEME AMOUNTING TO RS .28 94 000/- IN BOTH THE ASSESSMENT YEARS. IN THE ASSESSMENT ORDER THE ASSESSING OFFIC ER STATED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF TEXTURISED AND TWISTED YARN. THE A.O. ASKED THE ASSESSEE TO JUSTIFY THE CLAIM AS TO HOW IT WAS ELIGIBLE FOR DEDUCTION A T THE RATE OF 50% INSTEAD OF NORMAL RATE. BEFORE THE A.O. THE ASSESSEE MADE THE FOLLOWING SUBMISSIO NS :- IN RESPECT OF HIGHER DEPRECIATION CLAIMED UNDER BL OCK III)6) OF APPENDIX-I OF I.T. RULES 1962 ON PLANT & MACHINERY PURCHASED UND ER TUFS WE HUMBLY BEG TO SUBMIT THAT THESE MACHINES WERE PURCHASED FOR TEXTU RISING AND TWISTING (ON TFO MACHINES) OF YARN WHICH ARE THE PROCESSING OF YARN. IN TEXTURISING PARTIALLY ORIENTED YARN (POY) IS PROCESSED AS TEXUTURISED YAR N. THE SAME IS CLEARLY A PROCESSING OF YARN AND IS COVERED BY PROCESSING SEC TOR OF TEXTILE INDUSTRY. SIMILARLY TWISTING IS ALSO PROCESSING OF YARN. FUR THER TEXTURISING AND TWISTING ARE ESSENTIAL PREPARATORY PROCESSES FOR WEAVING IND USTRY. WEAVING DOES NOT ONLY MEAN MANUFACTURING OF CLOTH ON POWER LOOMS BUT ALSO INCLUDES THE PREPARATORY PROCESSES SUCH AS TEXTURISING TWISTING WRAPING ETC. THUS THE TEXTURISING AND TWISTING ARE ALSO COVERED BY WEAVING SECTOR OF TEXT ILE INDUSTRY. THE TERM PROCESSING USED IN BLOCK III(6) INCLUDES PROCESSI NG OF FIBRES YARN AND FABRICS. HENCE THE TEXTURISING IS CLEARLY COVERED BY THE BL OCK III(6) OF I.T. RULES 1962 AS THESE MACHINES ARE PURCHASED UNDER TUFS FOR PROCESS ING OF YARN. 4. THE A.O. HAS NOT ACCEPTED THE AFORESAID EXPLANAT ION AND STATED THAT AS PER APPENDIX PART A III. MACHINERY & PLANT AT SR. NO. 6 OF THE INCOM E TAX RULES IT IS CLEAR THAT THE HIGHER RATE OF DEPRECIATION AT 50% IS ALLOWABLE IN MACHINERY PLANT USED IN WEAVING PROCESSING AND GARMENT SECTOR. ACCORDING TO A.O. THE HIGHER RATE OF DEPRE CIATION UNDER THIS CATEGORY IS NOT APPLICABLE FOR MACHINERIES USED FOR ACTIVITIES PRIOR TO WEAVIN G I.E. MANUFACTURING OR TEXTURISING OF YARN. HE 3 ITA NO. 1412 & 156/AHD/ 2008 THEREFORE DISALLOWED THE EXCESS DEPRECIATION AMOUN TING TO RS.28 94 000/- AFTER ALLOWING NORMAL RATE OF DEPRECIATION ON THE SAME MACHINERY. 5. ON APPEAL BEFORE THE LD. CIT(A) THE ASSESSEE CO NTENDED THAT THE MACHINERIES HAVE BEEN INSTALLED UNDER TUFS. THE PERIOD OF INSTALMENT IS A LSO AS PER THE RULE PROVIDED IN APPENDIX-I. THE ASSESSEE IS ENGAGED IN A PROCESS OF YARN WHICH IS A STAGE PRIOR TO WEAVING. IT WAS CLAIMED THAT TEXTURISING OF YARN IS ALSO PROCESSING AND IS PART OF WEAVING SECTOR OF TEXTILE INDUSTRY. AFTER CONSIDERING THE AFORESAID SUBMISSION THE LD. CIT(A ) UPHELD THE ACTION OF A.O. FOR THE DETAILED REASONS GIVEN IN PARA 4.1 & 4.2 ON PAGES 4 AND 5 FO R THE ASSESSMENT YEAR 2004-05 IN HIS IMPUGNED ORDER WHICH READS AS UNDER :- 4.1. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT AND OBSERVATIONS OF THE A.O. THE ONLY ISSUE REMAINS IS WHETHER THE A SSESSEES TEXTURISING PROCESS IS COVERED BY THE ENTRY AT BLOCK III(6) OF APPENDIX I OF THE DEPRECIATION TABLE. THE BLOCK III(6) STATES AS UNDER :- MACHINERY AND PLANT USED IN WEAVING PROCESSING A ND GARMENT SECTOR OF TEXTILE INDUSTRY WHICH IS PURCHASED UNDER TUFS ON OR AFTER THE 1 ST DAY OF APRIL 2001 BUT BEFORE THE 1 ST DAY OF APRIL 2002 AND IS PUT TO USE BEFORE THE 1 ST DAY OF APRIL 2004. 4.2. FROM THE ABOVE IT IS SEEN THAT THE ENTRY STAR TS WITH MACHINERY AND PLANT USED IN WEAVING AND THEN PROCESSING AND GARMENT SEC TOR OF TEXTILE INDUSTRY. THIS CLEARLY SHOWS THAT PRODUCTION OF YARN IS DEFINITELY NOT COVERED UNDER THIS PROVISION EVEN THOUGH THE ADVERTISEMENT QUOTED BY T HE APPELLANT TALKS OF FROM FIBRE TO FASHION. THE ADVERTISEMENT CANNOT MAKE TH E RULE AND TAKE THE SHAPE OF LAW EVEN THOUGH IT MAY HELP IN INTERPRETATION. THE MINISTRY OF TEXTILES AND BANKS MAY BE GIVING FUNDS AND HELP IN THE FORM OF EASY LO ANS UNDER TUFS BUT THE INCOME TAX RULES IS CLEARLY NOT GIVING THE HIGHER D EPRECIATION TO YARN MANUFACTURER. TEXTURISING IS ALSO A PROCESS OF YARN MAKING IT SUITABLE FOR WEAVING. IN THE PRESENT CASE THE PROVISIONS OF BLO CK III(6) ARE VERY CLEAR THAT PRODUCTION AND PROCESSING OF YARN ARE NOT COVERED B UT THE BENEFITS STARTS FROM WEAVING AND AFTER WEAVING ALL PROCESSES OF GARMENT SECTOR AND TEXTILE INDUSTRY. IF THE PARLIAMENT INTENDED TO GIVE THE BENEFIT TO YARN MANUFACTURER OR TO YARN PROCESSING UNITS THE RULE WOULD HAVE CLEARLY PROVID ED SO. THE WORD WEAVING WOULD NOT HAVE BEEN USED IN THE BEGINNING. AS DECID ED BY THE SUPREME COURT IN THE CASE OF IPCA LABORATORIES [266 ITR 521] AN INC ENTIVE PROVISION HAS TO BE STRICTLY INTERPRETED AND IF THE WORDINGS OF THE SEC TION IS CLEAR THE BENEFITS WHICH ARE NOT AVAILABLE CANNOT BE CONFERRED BY IGNORING O R MISINTERPRETING WORDS IN THE SECTION. IN THE PRESENT CASE THE APPELLANT IS TRYI NG TO TAKE THE BENEFIT EVEN THOUGH IT IS NOT AVAILABLE. THE APPELLANT IS CARRYING OUT A PROCESS ON THE YARN WHICH IS 4 ITA NO. 1412 & 156/AHD/ 2008 PRIOR TO WEAVING. THEREFORE THE DEPRECIATION DISAL LOWED BY THE A.O. IS CORRECT. THIS GROUND OF APPEAL IS DISMISSED. ON IDENTICAL REASONS GIVEN THE LD. CIT(A) UPHELD THE ACTION OF ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2005-06. 6. AGGRIEVED BY THE ORDER OF LD. CIT(A) FOR BOTH TH E ASSESSMENT YEARS THE ASSESSEE IS IN APPEALS BEFORE THE TRIBUNAL. 7. AT THE TIME OF HEARING BEFORE US ON BEHALF OF A SSESSEE SHRI RAMESH MALPANI APPEARED AND CONTENDED THAT THE CONTROVERSY INVOLVED IN THIS GROUND OF APPEALS FOR BOTH THE ASSESSMENT YEARS IS SQUARELY COVERED BY THE DECISION DATED 18. 02.2009 OF THE ITAT D BENCH AHMEDABAD IN ITA NO. 3128/AHD/2008 FOR THE ASSESSMENT YEAR 20 05-06. 8. ON THE OTHER HAND SHRI SANJEEV KASHYAP SR. D.R . APPEARING ON BEHALF OF THE REVENUE COULD NOT CONVERT THE AFORESAID SUBMISSION OF THE L D. COUNSEL OF THE ASSESSEE. 9. HAVING HEARD BOTH THE SIDES WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW AS WELL AS THE DECISION DATED 18.2.09 OF ITAT D BENCH AHMEDABAD IN ITA NO. 3128/AHD/2008 FOR THE ASSESSMENT YEAR 2005-06 (SUPR A). THE RELEVANT DISCUSSION IS CONTAINED IN PARA 7 OF THE SAID ORDER OF THE TRIBUNAL WHICH REA DS AS UNDER :- 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS GONE THRO UGH THE FACTS AND CIRCUMSTANCES AND ALSO ORDERS OF THE TAX AUTHORITIE S. IT IS APPARENT FROM THE RECORD THAT THE AO HAS RESTRICTED THE DEPRECIATION AT THE RATE OF 25% BY OBSERVING THAT AS PER RULE 5 OF THE IT ACT DEPRECIATION WAS ALLOWABLE @ 50% ONLY MACHINERY AND PLANT WHICH ARE ACTUALLY USED IN WEA VING PROCESS AND NOT MACHINERY USED FOR TWISTING PROCESS. ON PERUSAL OF THE APPENDIX I OF THE INCOME TAX RULES IT IS EVIDENT THAT THIS PARTICULAR MACHI NERY SHOULD BE USED IN WEAVING SECTOR AND DOES NOT RESTRICT THAT IT SHOULD BE USED IN WEAVING PROCESS OF THE TEXTILE INDUSTRY. SINCE ADMITTEDLY THE TWISTER MACHINE WAS USED BY WEAVING SECTOR OF TEXTILE INDUSTRY DEPRECIATION ON THE SAID MACHINER Y AT THE RATE OF 50% SHOULD BE ALLOWED. THE ASSESSEE UNDERTAKES ALL THE ACTIVITIES RIGHT FROM TWISTING OF YARN OF WEAVING TO MAKE FINAL GREY CLOTH. LIST OF MACHINERI ES MENTIONED IN THE SCHEDULE PUBLISHED BY THE MINISTRY OF TEXTILE AND REFERRED T O ABOVE STATE MULTIPLE PURPOSE AND USAGE OF TWISTER MACHINES. WE FIND THAT TAX AUT HORITIES HAVE NOT JUSTIFIED IN DENYING THE CLAIM OF THE ASSESSEE FOR DEPRECIATION ON THE TWISTER MACHINE AT THE 5 ITA NO. 1412 & 156/AHD/ 2008 RATE OF 50% AND THEREFORE WE SET ASIDE THEIR RESP ECTIVE ORDERS AND ALLOW THE CLAIM OF THE ASSESSEE. 9.1. WE THEREFORE FOLLOWING THE DECISION OF THE T RIBUNAL D BENCH AHMEDABAD IN ITA NO. 3128/AHD/2008 (SUPRA) DIRECT THE ASSESSING OFFICER TO ALLOW THE DEPRECIATION @ 50% AS CLAIMED IN BOTH THE ASSESSMENT YEARS UNDER APPEAL. RESULTANTLY GROUND NO. 1 FOR BOTH THE ASSESSMENT YEARS IS ALLOWED. 10. GROUND NO. 2 OF ASSESSEES APPEAL FOR THE ASSES SMENT YEAR 2005-06 IS RENDERED INFRUCTUOUS IN VIEW OF OUR DECISION ON GROUND NO. 1 FOR THE ASSESSMENT YEAR 2005-06(SUPRA). THIS GROUND OF APPEAL IS ACCORDINGLY REJECTED. 11. GROUND NO. 2 FOR ASSESSMENT YEAR 2004-05 AND GR OUND NO. 3 FOR ASSESSMENT YEAR 2005- 06 IS REGARDING LEVY OF INTEREST UNDER SECTION 234B . THE ASSESSING OFFICER WILL ALLOW CONSEQUENTIAL RELIEF IN LEVY OF INTEREST UNDER SECT ION 234B FOR BOTH THE ASSESSMENT YEARS. 12. IN THE RESULT FOR STATISTICAL PURPOSES THE AP PEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2004-05 IS TREATED AS ALLOWED AND THE APPEAL F ILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2005-06 IS TREATED AS PARTLY ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 21.05.2010 . SD/- SD/- (D.C. AGRAWAL) (T.K. SHARMA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 21 / 05 /2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED (4) CIT CONCERNED (5) D.R. ITAT AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT AHMEDABAD LAHA/SR.P.S.