KOSHA CUBIDOR CONTAINERS LTD. vs. DY. C.I.T. (ASSTT)

Facts

The appellant, Kosha Cubidor Containers Ltd., is challenging an order of the Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench 'C', dated June 1, 2001. The ITAT had dismissed the assessee's appeal in I.T.A. No. 4114/Ahd/1995 for Assessment Year 1992-93. The core of the dispute is the disallowance of depreciation claimed by the assessee on plant and machinery used during trial production. The High Court of Gujarat admitted the appeal on August 5, 2002, recognizing a substantial question of law.

Held

The High Court allowed the Tax Appeal in favour of the assessee. The Court found that the facts of the present case were akin to those in the cited precedents, specifically Assistant Commissioner of Income Tax v. Ashima Syntex Ltd. In that case, the Tribunal had held that plant and machinery used from March 26, 1993, until the end of the accounting year (March 31, 1993) for trial runs, resulting in the manufacture of grey cotton fabric, entitled the assessee to depreciation. The principle established is that the law requires the use of plant and machinery for the purpose of business, and optimum production is not a prerequisite for claiming depreciation. Therefore, the assessee was entitled to depreciation on the machinery used during the trial production period. The Court deemed it unnecessary to provide elaborate discussion or detailed reasons as the facts were analogous to the relied-upon judgment.

Key Issues

1. Whether, on the facts and circumstances of the case, the Tribunal is right in law and on facts in disallowing the assessee's claim for depreciation allowance under section 32 of the Income Tax Act, 1961, in respect of plant and machinery used in trial production during the year? Assessee's Contentions: The assessee argued that the issue is covered by the High Court's decision in Assistant Commissioner of Income Tax v. Ashima Syntex Ltd. (251 ITR 133) and subsequently followed in Commissioner of Income-Tax v. Mentha and Allied Products (326 ITR 297). These judgments, according to the assessee, establish that depreciation is allowable on plant and machinery used for trial runs, even if full commercial production had not commenced. Revenue's Contentions: The judgment does not record any specific contentions made by the revenue.