C I T vs. SHAHABAD COOP. SUGAR MILLS LTD.

PDF · subscribers
ITA/472/2008HC Punjab & HaryanaPHHC01080468200825 February 2011Author: MR. JUSTICE ADARSH KUMAR GOEL,MR. JUSTICE AJAY KUMAR MITTAL7 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the ITAT was correct in allowing depreciation. The Tribunal had categorically found that the plant and machinery were kept in a state of readiness for production. The Court referred to its own previous order in a similar case involving the same assessee (ITA No. 515 of 2008), which had approved the view that the expression 'used' in Section 32 includes machinery kept ready for use, even if not actively employed. This interpretation was supported by various High Court and Supreme Court judgments, including CIT v. Refrigeration & Allied Industries Ltd. The Court reasoned that passive use, where machinery is kept ready for business expediency, constitutes 'use'. The assessee's decision to install machinery based on bonafide business considerations, even without absolute proof of actual use, entitled them to depreciation. Therefore, the ITAT's finding was upheld, and the appeal was dismissed.

What were the facts?

The Revenue (Commissioner of Income-Tax, Karnal) appealed to the High Court against an order of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 1995-96. The assessee, Shahbad Co-op. Sugar Mills Ltd., claimed depreciation on new plant and machinery that was not actually put to use but was kept ready for use. The Assessing Officer and the CIT(Appeals) denied the claim, holding that actual use was necessary. The ITAT, however, allowed the depreciation, relying on evidence such as logbooks, statements from the Chief Engineer, excise records showing enhanced production, and Modvat credit availed. The High Court noted that the ITAT's file was unavailable due to a fire, and the revenue's counsel provided a paper-book copy.

What were the issues?

1. Whether, on the facts and circumstances, the ITAT was legally correct in allowing depreciation on new plant and machinery not put to use during the assessment year, as per Section 32 of the Income Tax Act, 1961? 2. Whether the ITAT's order was perverse due to non-consideration of available evidence? 3. Whether the ITAT was legally correct in allowing depreciation despite the assessee failing to fulfill the conditions of Section 32 of the Income Tax Act, 1961? Assessee's arguments: The plant and machinery were kept ready for production, and a trial run was conducted. Evidence like logbooks and statements from the Chief Engineer supported the claim. The assessee, being a government-headed entity, had bonafide reasons for the claim. The ITAT found that excise records showed enhanced production from the date the new machinery was claimed to be in operation, and Modvat credit was availed, indicating readiness for use. Revenue's arguments: The Revenue contended that depreciation could not be allowed in the absence of actual use. The ITAT's order was challenged as perverse for not considering evidence. The assessee failed to fulfill the conditions of Section 32.

Which sections of the Income-tax Act were involved?

Section 32,Section 260A

AI-generated summary — verify with the full judgment below

of 2008

-1- *** IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Income-tax Appeal No.472 of 2008 Date 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 on account of fire in the Court premises, learned counsel for the revenue has furnished copy of paper-book which is taken on record. We proceed to decide the matter after hearing learned counsel for the parties.

2.

This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (“the Act”) against order dated 3.10.2007 passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'A', Chandigarh in ITA No.20/Chandi/2007, for the assessment year 1995-96, claiming following substantial questions of law:- of 2008

-2- *** “i). Whether on the facts and circumstances of the case, the Ld. ITAT was right in law in allowing the depreciation on the new plant and machinery which was not put to use during the year under consideration? ii) Whether on the facts and circumstances of the case, the order passed by Ld. ITAT is perverse as the evidence available on record has not been considered by the ITAT? iii) Whether the Ld. ITAT is right in law in allowing depreciation despite the fact that the assessee failed to fulfill the conditions contained in Sec.32 of the I.T.Act, 1961?”

3.

The assessee is a cooperative society and claimed depreciation on the machinery which was not actually used but was kept ready for use. The Assessing Officer did not allow the claim for depreciation on the ground that machinery had not been actually put to use. On appeal, the CIT(A) upheld the order of the Assessing Officer but the Tribunal accepted the plea of the assessee as follows:- “With respect to balance, we find that plea of the assessee all alone has been that the plant & machinery has been kept ready for production and fact trial run was carried out on 28.3.2005 onwards. In support, apart from other evidences, the assessee produced a log-book of 2008

-3- *** which showed hour to hour working of the machinery and such log-books were maintained by the assessee regularly for old plant & machinery as well as the new plant & machinery installed. We find that the statements made by the Chief Engineer of the assessee were on the basis of such records. On the strength of such evidence, the assessee had argued that it being an entity, which is headed by government official as its Managing Director, there were no reasons to doubt the bonafides of the claim. In this connection we find that the CIT(Appeals) has found discrepancies in the log-books produced by the assessee. According to the CIT(Appeals) the log-book related to new boiler and turbine etc. “had nothing relating to production from the expanded plant is produced/filed.” According to the CIT (Appeals), the running of boilers and turbines cannot be taken as an evidence relating to readiness of the plant & machinery for the purpose of production. We have considered the entire gamut of facts and find that the inference drawn by the CIT(Appeals) is of 2008

-4- *** misplaced. Firstly, the excise records produced by the assessee duly show an enhanced crushing/production of molasses from the date when the assessee claimed to have put the new plant & machinery into operation i.e. from 28.3.95 onwards. This is evident from the copy of the Excise Register placed at page 11 of the paper book. Apart from the aforesaid, as a circumstantial evidence, we find that the assessee taken credit for the purchase of new plant & machinery in the excise record and availed Modvat credit for the same. The entry of such credit made in excise records namely RG-23 is evident from the copies placed at pages 7 to 10 of the Paper book. After considering the aforesaid in the face of other material, we are inclined to uphold the plea of the assessee that the plant & machinery in question was atleast in the state of readiness for production and therefore, it could be said to have been put to use for the purposes of Section 32 of the Act. As a matter of passing, we may mention here that the trial production also cannot be effected unless the plant is ready to of 2008

-5- *** be put to use and this position was not disputed by the Assessing Officer even in the original proceedings.”

4.

We have heard learned counsel for the parties.

5.

Learned counsel for the revenue submits that in absence of actual use, the claim for depreciation could not be allowed. This plea cannot be accepted. The Tribunal has categorically held that the plant and machinery was kept in the state of readiness for production. Moreover, in the case of the assessee itself we have approved the view of the Tribunal in order dated 17.12.2010 in ITA No.515 of 2008 (The Commissioner of Income-Tax Vs. The Shahbad Co-op. Sugar Mills Ltd.) as follows:-

10.

We also find that expression ‘used’ in Section 32 of the Act has been judicially interpreted to include machinery kept for use, even if the same was not actively used. Passive user has also been held to be user where it may be necessary for business of the assessee to keep the machinery ready for use. Reference may be made to the judgment of Delhi High Court in CIT v.Refrigeration & Allied Industries Ltd. [2001] 247 ITR 12. Therein reliance was placed on the following judgments:- “i) Machinery Manufacturers Corporation Ltd. v. CIT [1957] 31 ITR 203 (Bom); i) Machinery Manufacturers Corporation Ltd. v. CIT [1957] 31 ITR 203 (Bom);

of 2008

-6- *** ii) CIT. v. Viswanath Bhaskar Sathe [1937] 5 ITR 62 (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 the word ‘depreciation’ as also the object of allowing depreciation. In the present case, the machinery in question is vapour cell, juice clarifier and fly ash arrester paid pweitier which according to the assessee had to be kept ready for use for its business expediency. Stand of the assessee is that it resulted in increase of capacity of the plant and that on account of technical justification for the said machinery, items of the machines were installed. Even though the auditors may not have accepted the said stand, the assessee was entitled to free play in joints in of 2008

-7- *** taking a decision to install the machinery if in its view the same was necessary for its business. If the assessee was to install such a machinery on its bonafide business consideration, mere absence of proof of actual use thereof was not enough to deny the claim for depreciation. Accordingly, we do not find any ground to interfere with the finding of the Tribunal, holding that the assessee was entitled to depreciation on the machinery, as claimed.”

6.

In view of above, questions of law raised in this appeal are decided against the revenue and in favour of the assessee.

7.

Accordingly, the appeal is dismissed.

(Adarsh Kumar Goel)

Judge February 25, 2011 (Ajay Kumar Mittal) Pka

Judge

More judgments on Section 32

All 2,762 judgments and leading authorities on Section 32 →

Recent GST High Court judgments

Search GST case law →