1994 (1) TMI 291 - AT - Income Tax

Summary

Issues Involved:
1. Rectification of Tribunal's order under Section 254(2) of the Income-tax Act, 1961.
2. Claim of 100% depreciation on bottles and wooden crates.
3. Classification of bottles and crates as 'plant' or 'stock-in-trade'.
4. Determination of the assessee as a manufacturing company.
5. Allowance of investment allowance on plant and machinery.
6. Capitalization of pre-operative expenses.

Issue-wise Detailed Analysis:

1. Rectification of Tribunal's order under Section 254(2) of the Income-tax Act, 1961:
The assessee sought rectification of the Tribunal's order dated 30-4-1991 under Section 254(2) of the Income-tax Act, 1961. The Tribunal initially rejected the misc. application, stating that the alleged mistakes were not apparent from the records and that the assessee was attempting to review the order, which is not permissible in law. However, upon further review, it was determined that the Tribunal had indeed overlooked certain facts, such as the withdrawal of the breakage claim and the actual manufacturing activities of the assessee. The Third Member concluded that there was a mistake apparent from the record, which needed rectification to avoid injustice.

2. Claim of 100% depreciation on bottles and wooden crates:
The assessee claimed 100% depreciation on bottles and wooden crates used in its manufacturing process. The Assessing Officer disallowed this claim, arguing that the bottles and crates did not qualify as 'plant' for depreciation purposes based on the Gujarat High Court decision in CIT v. Elecon Engg. Co. Ltd. The Tribunal initially upheld this view, but upon review, it was determined that the bottles and crates should be considered 'plant' eligible for 100% depreciation, especially since the value of each item was below Rs. 5,000.

3. Classification of bottles and crates as 'plant' or 'stock-in-trade':
The Assessing Officer and the Tribunal initially classified the bottles and crates as 'stock-in-trade' rather than 'plant,' partly based on the assessee's claim for breakages. However, it was later clarified that the assessee had withdrawn the breakage claim and instead claimed 100% depreciation. The Third Member concluded that the bottles and crates should be classified as 'plant,' making them eligible for depreciation under Section 32(i)(iii).

4. Determination of the assessee as a manufacturing company:
The Tribunal initially held that the assessee was not a manufacturing company and was merely bottling soft drinks supplied by Parle (Exports) Pvt. Ltd. However, the Third Member found that the assessee was indeed engaged in manufacturing activities, as evidenced by the purchase of raw materials, power consumption, and the manufacturing process involved. The assessee was thus entitled to be recognized as a manufacturing company.

5. Allowance of investment allowance on plant and machinery:
The assessee claimed investment allowance on the cost of plant and machinery, including pre-operative expenses. The Assessing Officer allowed only a portion of this claim, and the Tribunal initially upheld this decision. However, upon review, it was determined that the assessee was entitled to the full investment allowance, as the assessee was engaged in manufacturing activities, a prerequisite for such allowance.

6. Capitalization of pre-operative expenses:
The Assessing Officer and the Tribunal initially disallowed the capitalization of pre-operative expenses, arguing that these expenses had no direct nexus to the assets and plant. However, the Third Member found that these expenses were incurred during the construction and installation of the plant and should be capitalized according to established accounting principles and legal precedents.

Conclusion:
The Third Member concluded that there were mistakes apparent from the record in the Tribunal's order dated 30-4-1991, which needed rectification. The assessee was found to be a manufacturing company entitled to 100% depreciation on bottles and wooden crates, investment allowance on plant and machinery, and capitalization of pre-operative expenses. The matter was referred back to the regular Bench for a decision according to the majority opinion.