PUNJAB BONE MILLS vs. COMMISSIONER OF INCOME TAX

ITA/596/2007HC Punjab & HaryanaPHHC01073309200710 July 2008Author: MR. JUSTICE SATISH KUMAR MITTAL,MR JUSTICE RAKESH KUMAR GARG8 pages
AI SummaryDismissed

What were the facts?

The assessee, Punjab Bone Mills, engaged in manufacturing glue flakes, filed an appeal against an ITAT order for assessment year 2000-01. The Assessing Officer disallowed depreciation of Rs. 1,76,254 on a boiler, finding it was also used by sister concerns, M/s Protinkem and M/s P.B.M. Gelatine (P) Ltd., and that expenses for fuel, power, and generator set were shared. The CIT(A) deleted this addition, holding the boiler was owned and used by the assessee for business, and selling surplus steam did not negate business use. The ITAT, however, restored the disallowance, citing Section 38(2) of the Income Tax Act, 1961, and finding the CIT(A) had deviated from the AO's findings.

What did the High Court hold?

The High Court held that the ITAT was justified in upholding the Assessing Officer's findings. The Court reasoned that Section 38(2) of the Act mandates that if an asset is not exclusively used for business purposes, deductions like depreciation under Section 32(1)(ii) must be restricted to a fair proportionate part determined by the Assessing Officer based on the asset's user for business. The AO had found that the boiler was not exclusively used by the assessee, as it was also used by sister concerns, and expenses were shared. The Court found the cited judgments of Punjab National Bank and Indian Express (Madurai) Pvt. Ltd. distinguishable from the present facts, where the boiler was directly permitted for partial use by sister concerns and expenses were shared. Therefore, the assessee could not claim exclusive use for business purposes. No substantial question of law arose from the ITAT's order.

What were the issues?

1. Whether, on the true and correct interpretation of Section 32 of the Income Tax Act, 1961, depreciation is to be allowed to the assessee based on the user of the asset? 2. Whether, while granting depreciation under Section 32 upon fulfilling the foundational condition of user, the interpretation under Section 38 is to be proportioned related to production? Assessee's Contention: The ITAT erred in reversing the CIT(A)'s finding. The assessee argued that selling surplus steam to sister concerns does not mean the boiler was not used for business purposes. They relied on Punjab National Bank vs. CIT (Delhi High Court) and CIT vs. Indian Express (Madurai) Pvt. Ltd. (Madras High Court). Revenue's Contention: The revenue, referring to the AO's findings, argued that the assessee shared expenses for the boiler's use with sister concerns. They contended that the CIT(A) was not justified in adding income from selling surplus steam as there was no evidence of such income. The AO made the disallowance under Section 38(2), and the ITAT was justified in upholding it.

Which sections of the Income-tax Act were involved?

Section 260A,Section 32,Section 38(2)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. I.T.A. No. 596 of 2007 DATE OF DECISION : 10.07.2008 Punjab Bone Mills, Jalandhar .... APPELLANT Versus Commissioner of Income Tax, Jalandhar ..... RESPONDENT CORAM :- HON'BLE MR. JUSTICE SATISH KUMAR MITTAL HON'BLE MR. JUSTICE RAKESH KUMAR GARG

Present: Mr. Prakul Khurana, Advocate, for the appellant-assessee. Mr. Sanjiv Bansal, Advocate, for the respondent-revenue.

* * * SATISH KUMAR MITTAL , J. The assessee has filed this appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as `the Act'), against the order dated 20.4.2007, passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (hereinafter referred to as `the ITAT'), in ITA No. 343 (ASR)/2004 for the assessment year 2000-01, whereby the appeal of the revenue has been partly allowed. The facts of the case are that the assessee is engaged in the business of manufacturing glue flakes from bone sinews and fluff. Vide order dated 31.3.2003, the Assessing Officer completed the assessment for ITA No. 596 of 2007 -2- the assessment year 2000-01 at an amount of Rs. 99,19,480/-, by making various additions. The issue before us pertains

The order continues below.

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