Additional depreciation was allowable on purchase of Raw Material and making packing material

Madhuri Refiners Private Ltd. Vs DCIT (ITAT Indore)

Conclusion: Additional depreciation on purchase of raw material and making packing material was manufacture as the final product was a commercially, physically and chemically different and a very important factor that the assessee had been consistently regarded as “manufacture” by various Government Department and Agencies.

Held: AO observed that assessee had claimed additional depreciation u/s 32(1)(iia) of Rs. 20,25,596 on plant and machinery. AO confronted the assessee on eligibility of claim. Assessee made a detailed submission on business activity, and tried to convince the AO that it was eligible for claim of additional depreciation. However, AO rejected the claim of assessee. CIT(A) also rejected the contention of the assessee and hence the present appeal. Assessee, submitted that had there been a “trading activity” only, why would have assessee installed the plant and machinery of such a high magnitude on which the “additional depreciation” itself was as high as Rs. 20,25,596 and also emphasised that it  had been consistently regarded as “manufacture” by various Government Department and Agencies. It was held that the process undertaken by assessee had been treated as manufacture under Excise Act and allied tax laws, although the excise-duty was exempt on edible oil. The assessee’s case was reverted back. Firstly the assessee was doing two distinguishable types of activities, viz. (i) purchasing oil from local/overseas market and reselling as such, which was a “trading activity” and (ii) purchasing raw-oil, applying technical-processes, converting the same into finished-oil of high nutritional value of different qualities/brands, which was a “manufacturing activity”. The proportion of “manufacturing activity” in the year was 98.93%. Secondly, the flow-chart of “manufacturing activity” depicted various step-by-step activities from purchase of raw-oil – storage of oil – analytical observation – segregation of oil according to quality / nutritional value – mixing for enhancing quality / nutritional value – lastly packing in jars/bottles of different brand names and qualities. Thirdly, the whole process required application of labour, machinery and analytical lab. Fourthly, the chemical composition was changed in such a way that nutritional-values were enhanced and the finished product became edible for a longer period. Therefore, the final product was a commercially, physically and chemically different. Fifthly, a very important factor that the assessee had been consistently regarded as “manufacture” by various Government Department and Agencies. The process undertaken by the assessee had been treated as manufacture under Excise Act and allied tax laws. These factors clearly indicated that the assessee’s case falls within the scope of “manufacture” as defined in sub-clause (b) of section 2(29BA) i.e. “bringing into existence of a new and distinct object or article or thing with a different chemical composition” or alternatively it qualified to be treated as “production”. Hence assessee was eligible for additional depreciation.

FULL TEXT OF THE ORDER OF ITAT INDORE

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