The Commissioner Of Income-Tax, Karnal v. The Shahbad Co-Op. Sugar Mills Ltd., Shahbad

Income-tax Appeal No.472 *** IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH Income-tax Appeal No.472 of 2008Date of decision: 25.2.2011 The Commissioner of Income-Tax, Karnal ...Appellant Versus The Shahbad Co-op. Sugar Mills Ltd., Shahbad ...Respondent CORAM: HON'BLE MR.JUSTICE ADARSH KUMAR GOEL HON'BLE MR.JUSTICE AJAY KUMAR MITTAL Present: Ms. Urvashi Dhugga, Senior Standing Counsel for the appellant. Mr. S.K.Mukhi, Advocate for the respondent **** ADARSH KUMAR GOEL, J ( Oral). 1.Since Registry has not been able to send the file onaccount of fire in the Court premises, learned counsel for the revenuehas furnished copy of paper-book which is taken on record. Weproceed to decide the matter after hearing learned counsel for theparties. 2.This appeal has been preferred by the revenue underSection 260A of the Income Tax Act, 1961 (“the Act”) against orderdated 3.10.2007 passed by the Income Tax Appellate Tribunal,Chandigarh Bench 'A', Chandigarh in ITA No.20/Chandi/2007, for theassessment year 1995-96, claiming following substantial questions oflaw:- “i).Whether on the facts and circumstances of thecase, the Ld. ITAT was right in law in allowing thedepreciation on the new plant and machinery whichwas not put to use during the year underconsideration?case, the Ld. ITAT was right in law in allowing thedepreciation on the new plant and machinery whichwas not put to use during the year underconsideration? ii)Whether on the facts and circumstances of thecase, the order passed by Ld. ITAT is perverse asthe evidence available on record has not beenconsidered by the ITAT?case, the order passed by Ld. ITAT is perverse asthe evidence available on record has not beenconsidered by the ITAT? iii)Whether the Ld. ITAT is right in law in allowingdepreciation despite the fact that the assesseefailed to fulfill the conditions contained in Sec.32 ofthe I.T.Act, 1961?”depreciation despite the fact that the assesseefailed to fulfill the conditions contained in Sec.32 ofthe I.T.Act, 1961?” 3. 3.The assessee is a cooperative society and claimeddepreciation on the machinery which was not actually used but waskept ready for use. The Assessing Officer did not allow the claim fordepreciation on the ground that machinery had not been actually putto use. On appeal, the CIT(A) upheld the order of the AssessingOfficer but the Tribunal accepted the plea of the assessee asfollows:- “With respect to balance, we find that plea of theassessee all alone has been that the plant & machineryhas been kept ready for production and fact trial run wascarried out on 28.3.2005 onwards. In support, apartfrom other evidences, the assessee produced a log-book which showed hour to hour working of themachinery and such log-books weremaintained by the assessee regularly for oldplant & machinery as well as the new plant &machinery installed. We find that thestatements made by the Chief Engineer of theassessee were on the basis of such records.On the strength of such evidence, theassessee had argued that it being an entity,which is headed by government official as itsManaging Director, there were no reasons todoubt the bonafides of the claim. In thisconnection we find that the CIT(Appeals) hasfound discrepancies in the log-booksproduced by the assessee. According to theCIT(Appeals) the log-book related to newboiler and turbine etc. “had nothing relatingto production from the expanded plant isproduced/filed.” According to the CIT(Appeals), the running of boilers and turbinescannot be taken as an evidence relating toreadiness of the plant & machinery for thepurpose of production. We have consideredthe entire gamut of facts and find that theinference drawn by the CIT(Appeals) is misplaced. Firstly, the excise recordsproduced by the assessee duly show anenhanced crushing/production of molassesfrom the date when the assessee claimed tohave put the new plant & machinery intooperation i.e. from 28.3.95 onwards. This isevident from the copy of the Excise Registerplaced at page 11 ofthe paper book. Apartfrom the aforesaid, as a circumstantialevidence, we find that the assessee takencredit for the purchase of new plant &machinery in the excise record and availedModvat credit for the same. The entry of suchcredit made in excise records namely RG-23is evident from the copies placed at pages 7to 10 of the Paper book. After considering theaforesaid in the face of other material, we areinclined to uphold the plea of the assesseethat the plant & machinery in question wasatleast in the state of readiness for productionand therefore, it could be said to have beenput to use for the purposes of Section 32 ofthe Act. As a matter of passing, we maymention here that the trial production alsocannot be effected unless the plant is ready to be put to use and this position was notdisputed by the Assessing Officer even in theoriginal proceedings.” 4.We have heard learned counsel for the parties. 5.Learned counsel for the revenue submits that in absenceof actual use, the claim for depreciation could not be allowed. Thisplea cannot be accepted. The Tribunal has categorically held thatthe plant and machinery was kept in the state of readiness forproduction. Moreover, in the case of the assessee itself we haveapproved the view of the Tribunal in order dated 17.12.2010 in ITANo.515 of 2008 (The Commissioner of Income-Tax Vs. TheShahbad Co-op. Sugar Mills Ltd.) as follows:- 10. We also find that expression ‘used’ in Section 32 ofthe Act has been judicially interpreted to includemachinery kept for use, even if the same was not activelyused. Passive user has also been held to be user where itmay be necessary for business of the assessee to keepthe machinery ready for use. Reference may be made tothe judgment of Delhi High Court in CIT v.Refrigeration& Allied Industries Ltd. [2001] 247 ITR 12.Thereinreliance was placed on the following judgments:- “i) Machinery Manufacturers Corporation Ltd. v.CIT [1957] 31 ITR 203 (Bom);CIT [1957] 31 ITR 203 (Bom); i) Machinery Manufacturers Corporation Ltd. v.CIT [1957] 31 ITR 203 (Bom);CIT [1957] 31 ITR 203 (Bom); ii) CIT. v. Viswanath Bhaskar Sathe [1937] 5 ITR62 (Bom); iii) CIT. v. Dalmia Cement Ltd.[1945] 13 ITR 415 (Patna); iv) Liquidators of Pursa Ltd. v. CIT [1954] 25 ITR 265 (SC); v) CIT. v. Bombay State Transport Corporation[1979] 118 ITR 399 (Bom); vi) G.R. Govindarajulu Naidu. v. CIT [1973] 90 ITR 13 (Mad); vii) CIT. v. Elecon Engineering Co. Ltd. [1974] 96 ITR 672 (Guj) and viii) CIT. v. Geo Tech Construction Corporation[2000] 244 ITR 452 (Ker); Reference was also be made to dictionary meaning of theword ‘depreciation’ as also the object of allowingdepreciation. In the present case, the machinery inquestion is vapour cell, juice clarifier and fly ash arresterpaid pweitier which according to the assessee had to bekept ready for use for its business expediency. Stand ofthe assessee is that it resulted in increase of capacity ofthe plant and that on account of technical justification forthe said machinery, items of the machines were installed.Even though the auditors may not have accepted the saidstand, the assessee was entitled to free play in joints in taking a decision to install the machinery if in its view thesame was necessary for its business. If the assessee wasto install such a machinery on its bonafide businessconsideration, mere absence of proof of actual usethereof was not enough to deny the claim fordepreciation. Accordingly, we do not find any ground tointerfere with the finding of the Tribunal, holding that theassessee was entitled to depreciation on the machinery,as claimed.” taking a decision to install the machinery if in its view thesame was necessary for its business. If the assessee wasto install such a machinery on its bonafide businessconsideration, mere absence of proof of actual usethereof was not enough to deny the claim fordepreciation. Accordingly, we do not find any ground tointerfere with the finding of the Tribunal, holding that theassessee was entitled to depreciation on the machinery,as claimed.” 6.In view of above, questions of law raised in this appealare decided against the revenue and in favour of the assessee. 7.Accordingly, the appeal is dismissed. (Adarsh Kumar Goel) Judge February 25, 2011Pka (Ajay Kumar Mittal) Judge