THE COMMR. OF INCOME TAX, KARNAL vs. M/S PICCADILY AGRO INDUS. LTD.

ITA/362/2006HC Punjab & HaryanaPHHC01075074200606 August 2007Author: MR. JUSTICE M.M. KUMAR,MR. JUSTICE AJAY KUMAR MITTAL8 pages
AI SummaryDismissed

What were the facts?

The assessee, M/s Piccadily Agro Industries Ltd., filed its return for assessment year 1996-97 declaring a loss. Trial production of sugar commenced on 23.2.1996. The Assessing Officer completed the assessment under Section 143(3) on 31.3.1999, allowing depreciation of Rs. 4,37,61,018/-. The Commissioner, invoking Section 263, revised this order on 19.3.2001, holding the assessment erroneous and prejudicial to revenue, directing disallowance of depreciation on the grounds that commercial production had not commenced. The Income Tax Appellate Tribunal (ITAT) set aside the Commissioner's order on 31.10.2005, finding the assessment order neither erroneous nor prejudicial. The revenue appealed this ITAT order to the High Court.

What did the High Court hold?

The High Court held that the appeal filed by the revenue was without merit and dismissed it. The Court referred to Section 32 of the Income Tax Act, 1961, which allows depreciation on buildings, machinery, and plant used for the purpose of business or profession. It was not disputed that production of sugar commenced on 23.2.1996, and the assessee consumed raw material and incurred manufacturing expenses. The Court found that based on a bare interpretation of Section 32, it could not be claimed that the machinery or plant was not used for the purposes of business. The Court also relied on the Supreme Court's observation in Liquidators of Pursa Ltd. v. Commissioner of Income-tax, Bihar, AIR 1954 SC 253, that machinery must have been used at least for a part of the accounting year. The Tribunal's view, which followed the Gujarat High Court's decision in Ashima Syntex Ltd., was found to be legally sound and applicable to the present case. Therefore, the Court found no ground to interfere with the Tribunal's order.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the ITAT was right in law in cancelling the order passed by the Commissioner of Income-tax under Section 263 by holding that the assessment order is neither erroneous nor prejudicial to the interest of the revenue inspite of the fact that depreciation on plant and machinery etc. was allowed by Assessing Officer without the commencement of production of sugar on commercial basis. Assessee's contentions: The assessee argued that the ITAT's view was correct. They relied on the Gujarat High Court judgment in Assistant Commissioner of Income-tax v. Ashima Syntex Ltd. (2001) 251 ITR 133, which held that law does not require optimum production for depreciation benefit, only that the plant and machinery must be used for the purpose of business. The assessee pointed out that trial production had commenced and raw material was consumed. Revenue's contentions: The revenue argued that depreciation is not admissible as full-fledged commercial production had not started, and only trial production was undertaken. They contended that mere installation of equipment is insufficient; it must be used for regular and commercial production to attract Section 32 of the Act. Trial production, they argued, does not constitute use for the purpose of business.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 143(3),Section 263,Section 32,Section 34,Section 42,Section 43(6)(c),Section 10(2)(vii)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH DATE OF DECISION: 6.8.2007 The Commissioner of Income-tax, Karnal …Appellant Versus M/s Piccadily Agro Industries Ltd., Karnal. …Respondent CORAM: HON’BLE MR. JUSTICE M.M. KUMAR HON’BLE MR. JUSTICE AJAY KUMAR MITTAL Present: Mr. Yogesh Putney, Advocate, for the appellant-revenue.

Mr. Pankaj Jain, Advocate, Mr. Deepak Aggarwal, Advocate, Ms. Rimpi, Advocate, Mr. Prakul Khurana, Advocate, for the respondent-assessee M.M. KUMAR, J.

The revenue has approached this Court by filing the instant appeal under Section 260-A of the Income Tax Act, 1961 (for brevity, ‘the Act’), challenging order dated 31.10.2005 passed by the Income Tax Appellate Tribunal, Chandigarh Bench (A), Chandigarh (for brevity, ‘the Tribunal’), in ITA No. 388/Chandi/2001, in respect of the assessment year 1996-97. The assessee derived income from manufacturing and sale of sugar etc. and filed its return on 26.9.1996 for the assessment year 1996-97 declaring loss of Rs. 4,55,41,581/-. It is apposite to mention here that the trial production of sugar after setting up and construction of the plant of the assessee w

The order continues below.

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