Rc/153/1996 Of Sri Vinod Bhargava v. The Commissiner Of Income Tax

HON’BLE SRI JUSTICE L. NARASIMHA REDDYANDHON’BLE SRI JUSTICE CHALLA KODANDA RAM REFERRED CASE No.153 OF 1996 ORDER:- (per Hon’ble Sri Justice Challa Kodanda Ram) At the instance of the assessee, the following three questions of laware arising from the order of the Tribunal dated 08.03.1996 for theassessment year 1987-88, are referred for the opinion of this Court: 1.“Whether on the facts and in the circumstances of thecase, could it be said that the appellant has used BalzersVaccum Coating Bak 600 machine for the purpose ofbusiness as understood under Section 32 of the Income-taxAct and the same while computing the income for theassessment year 1987-88?”case, could it be said that the appellant has used BalzersVaccum Coating Bak 600 machine for the purpose ofbusiness as understood under Section 32 of the Income-taxAct and the same while computing the income for theassessment year 1987-88?” 2.“Whether on the facts and circumstances of the case,Balzers Vaccum Coating Bak 600 machine installed andcommissioned by way of trial runs and processdevelopment before 31.3.1987 could be said to have beenused by the assessee for the purpose of business asunderstood u/s.32 of the Income-tax Act?”Balzers Vaccum Coating Bak 600 machine installed andcommissioned by way of trial runs and processdevelopment before 31.3.1987 could be said to have beenused by the assessee for the purpose of business asunderstood u/s.32 of the Income-tax Act?”3.“Whether on the facts and circumstances of the case, theappellant is entitled to allowance of depreciation ofRs.49,75,808/- on Balzers Vaccum Coating Bak 600machine while computing its income for the assessmentyear 1987-88?”appellant is entitled to allowance of depreciation ofRs.49,75,808/- on Balzers Vaccum Coating Bak 600machine while computing its income for the assessmentyear 1987-88?” 2) The assessee is an industry involved in manufacturing and supplying of certain critical optical equipment to the Defense Sector. For theassessment year 1987-88, the assessee claimed 100% depreciation on theequipment under the name “Balzars Vaccum Coating Bak 600 machine”. Theclaim for the depreciation was disallowed by the Assessing Officer allegingthat the machine came to the factory of the assessee only on 29.03.1987 andin that view of the matter, the claim of the assessee that the machine wasinstalled on 30.03.1987 and thereafter it was put to use was false. On furtherappeal, the First Appellate Authority Commissioner, as a matter of fact, foundthat the machine was infact reached the factory of the assessee on29.03.1987. However, on scrutiny of the evidence on record including theadditional evidence that was brought before him, he found that the claim ofthe assessee with regard to installation of the machinery and conducting of trial run was not supported by evidence, was false. The Tribunal hadconsidered the entire evidence on record and on appreciation of the samewas in complete agreement with the findings recorded by the Commissioner. The first appellate authority while recording a finding that the machinereached Hyderabad and factor on 29.03.1987 declined to allow the claim fordepreciation on the ground that the same was not installed and put to use.The Tribunal confirmed the said findings and thereby refused to grant relief ofdepreciation as claimed by the assessee. In the above set of facts situation,the questions of law referred to in para No.1 are required to be answered bythis Court. 3. At the out set, a careful perusal of the questions referred to above wouldgo to show that there is no question raised before us on the ground ofperversity of finding of facts by the Tribunal. In those circumstances and inline with the settled principles of law as set out by the Supreme Court that thefindings recorded by the Tribunal can be the basis for the High Court whileanswering the questions of law referred. 3. At the out set, a careful perusal of the questions referred to above wouldgo to show that there is no question raised before us on the ground ofperversity of finding of facts by the Tribunal. In those circumstances and inline with the settled principles of law as set out by the Supreme Court that thefindings recorded by the Tribunal can be the basis for the High Court whileanswering the questions of law referred. 4. Keeping in view of the settled legal principles, now we may refer to thefindings recorded by the Tribunal in Para No.19 of page No.24: “19. We have heard the parties and considered the rivalsubmissions. Throughout the proceedings before the assessing officer, theCommissioner (Appeals) and even before us, the assessee emphasized thatthere was installation before 31.3.1987. Nothing has been brought on record tosuggest that the machinery was actually used or there was in fact trial conductedby the assessee before the end of the previous year. Even in answers toobservations of the Commissioner (Appeals) in para No.25, the assessee’s replyis not that they had produced something on trial basis but on the aspect thatCommissioner (Appeals) had accepted that there was at least some temporaryinstallation. We have put it to the counsel of the assessee at the time of hearingto produce any contemporary evidence for the production or user of theequipment if any, of the machine but nothing was brought on record. On thisground alone, the assessee’s claim for depreciation can be disallowed as thelanguage of Section 32 is clear in this regard. It allows deduction of depreciationonly in respect of that machinery or plant which is used by the assessee for thepurpose of its business in the previous year. Mere installation, if any, would notbe sufficient to grant deduction under Section 32. Also in the present case, the machinery was not even fit or ready foruse. The assessee’s contention that the machinery was used for trial run andtherefore, it used for the purpose of business has no force. Firstly it has notbeen proved by any material on record that some trial run was at all carried by theassessee and accordingly we do not think that there could not all be a trial run. The concept of trial run is not defined in the Act. ‘Trial run’ as understood inbusiness parlance is a stage prior to actual use of the machineries for producing any thing or article. In other words, the machine is ready to be used for thepurpose of business. When it gives a successful trial run, it serves as acertificate that the machinery was ready to put to use. The theory of trial runcannot be fitted in mere inspection of machinery and checking the fact that themachinery was in good working condition. It is a stage after the machinery isinstalled and commissioned and prior to its user for actual production.” 5. In the light of categorical finding recorded by the Tribunal and therebeing no contra material to take a different view, the questions of law referredto this Court are required to be answered in the negative i.e., against theassessee and in favour of the revenue. 6. Accordingly, the referred case is dismissed. No order as to costs. Miscellaneous Petitions, if any, pending in this referred case shall standclosed. ___________________________ L. NARASIMHA REDDY, J Date:10.06.2014.Gk ____________________________CHALLA KODANDA RAM, J HON’BLE SRI JUSTICE L. NARASIMHA REDDYANDHON’BLE SRI JUSTICE CHALLA KODANDA RAM Gk REFERRED CASE No.153 OF 1996 Date:10.06.2014.