THE COMMISSIOINER OF INCOME TAX vs. M/S ESCORTS TRACTORS LTD.

In this appeal, under Section 260A of the Income Tax Act, 1961 („Act‟ in short) filed by the revenue challenging the order dated July 15, 2002 of the Income Tax Appellate Tribunal („Tribunal‟ in short), the following substantial questions of law fall for our consideration:-

Whether the finding recorded by the Tribunal is perverse?

Whether in the absence of any evidence to the effect that the machine was put to use before the closure of the financial year and in the absence of documentary evidence in this behalf, the Tribunal was justified in arriving at a conclusion that any amount of depreciation and investment allowance could be deducted?

The Assessment Year is 1987-88. On June 30, 1987, the assessee had filed the return declaring the income as Rs. 1,66,17,084/-. The assessee claimed normal depreciation, amounting to Rs.23,93,038/- on the plant and machinery. The Assessing Officer disallowed depreciation on the following items:- ITEM AMOUNT IN RS. CLAIMED DATE OF INSTALLATION Widia Special Six Spindle Drilling & Reaming Machine 20,94,355/- 29.12.1986 (Machine handed over for try out) 500 lb air horses 76,513/- 29.12.1986 Conveyor 2,07,517/- 29.12.1986 Electrical Tester 14,653/- 26.12.1986 TOTAL 23,93,038/-

Insofar as this appeal is concerned, we are concerned with the item at serial No. 1 above. The Assessing Officer disallowed the depreciation on the ground that the said machine was not installed before the close of the Accounting Year 31.12.1986 for the purpose of production/manufacture of goods. While coming to the said conclusion, the Assessing Officer was of the view that one Krishan who had signed the report on commissioning/trying out of machines was not produced and further the production sheets in respect of the machines were not produced by the assessee in support of its contention.

The appeal filed by the assessee before the Commissioner of Income Tax (Appeals) was dismissed by observing that apart from the facts noted by the Assessing Officer; the assessee had not produced any evidence to the effect that the machine was put to use before the end of the accounting year; the most important witness who had signed the commissioning/try out report for the machines was not produced before the Assessing Officer; and no production sheet or log sheet in respect of the machine, to show that the machine was put to use for production before the close of the year, were filed.

The assessee, who had filed an appeal before the Tribunal succeeded inasmuch the Tribunal, vide order dated July 15, 2002, held that material placed before the Assessing Officer and the Commissioner of Income Tax (Appeals) was sufficient to show that the machine was installed before the close of the year. We note below the facts as found and accepted by the Tribunal.

The machine namely Widia Special Six Spindle Drilling Machine was received on 24.12.1986. The foundation of the machine was already laid on 22.12.1986 in Hall No. 1 and electrical connections were completed on 27.12.1986. The machine in full working order was handed over for trying out on 29.12.1986 to the manufacturing engineering department. The Tribunal concluded as under:

From the above it is seen that the terminology used would envisage comprehending cases where the machinery is installed, checked and made fully operational. Thus, depreciation is not denied on the ground of non “use” when trial has taken place. On this aspect, we note [2005] 272 ITR 583, wherein the assessee claimed that it installed and put to use a bio gas plant at the cost of Rs. 90,41,057/- in May, 1992. In the return for the assessment year 1993-94, it claimed depreciation. The Income Tax Officer while passing the order of assessment; restricted the depreciation to 50% on the ground that the bio gas plant was commissioned and put to use for less than 180 days; that is only from October 9, 1992. The Commissioner (Appeals) upheld the disallowance. The Tribunal found that the bio gas plant was installed and put to use in May 1992, as was evident from the assessee‟s letter dated May 19, 1992, Corporation, [2000] 244 ITR 452 on similar lines, wherein the Tribunal held that the margin of time was enough for tippers to move from where findings of fact can be interfered with, which are as under:

Neither of the above two situations arise in the present case inasmuch, it is not a case, when material or relevant evidence was not considered. That apart, it is also not the case of the appellant-revenue that the finding of fact has been arrived at by the Tribunal, relying upon the inadmissible evidence. The off shoot of the above discussion is that machine has been duly installed and was in a working condition before the end of the previous year.

In view of the above, we are of the view that the questions of law need to be answered against the appellant-revenue and in favour of the respondent assessee. The appeal is dismissed with no order as to costs.