1991 (12) TMI 80 - AT - Income Tax

Additional Depreciation Higher Rate Industrial Undertaking Investment Allowance Manufacture Or Production Plant And Machinery

Summary

Issues Involved:
1. Grant of investment allowance.
2. Grant of depreciation at a special rate.
3. Grant of additional depreciation.
4. Validity of proceedings initiated under section 263.

Issue-wise Detailed Analysis:

1. Grant of Investment Allowance:
The appellant company, engaged in construction work in Iraq and with a new division for earthmoving and transport, claimed investment allowance on new machinery purchased for the new division. The original assessment allowed this claim, but the Commissioner of Income-tax (CIT) issued a notice under section 263, stating that the investment allowance was not admissible for the nature of the assessee's business. The CIT argued that the machinery was not used for the intended business purpose and directed the assessing authority to re-evaluate the eligibility for the investment allowance. The Tribunal found that the machinery was indeed used for construction activities, such as excavation for trenches, which falls under the business of construction as per section 32A(2)(iii). Thus, the original assessment granting the investment allowance was deemed correct and valid.

2. Grant of Depreciation at a Special Rate:
The assessee claimed depreciation at a higher rate of 30% for earthmoving machinery used in heavy construction work, as per entry D-4 of the Depreciation Schedule. The CIT contended that the machinery was not used for heavy construction work and thus not eligible for the higher depreciation rate. However, the Tribunal noted that the assessing authority had allowed the higher depreciation rate in the subsequent assessment year 1984-85, which was not challenged by the CIT. The Tribunal concluded that the machinery was used for heavy construction work in both years and upheld the higher depreciation rate of 30%.

3. Grant of Additional Depreciation:
The assessee also claimed additional depreciation equivalent to 50% of the normal depreciation for the new machinery. The CIT had directed the assessing authority to withdraw this additional depreciation. The Tribunal, however, found that since the machinery was used for heavy construction work and eligible for higher depreciation, the additional depreciation was also rightly allowed in the original assessment. Consequently, the assessee was entitled to the additional depreciation.

4. Validity of Proceedings Initiated under Section 263:
The assessee challenged the validity of the proceedings initiated under section 263, arguing that the original assessment was neither erroneous nor prejudicial to the interests of revenue. The Tribunal did not find merit in this argument and rejected the grounds related to the invalidity of the proceedings under section 263.

Conclusion:
The Tribunal modified the orders of the CIT under section 263, upholding the original assessment's grant of investment allowance, higher depreciation, and additional depreciation for both assessment years 1983-84 and 1984-85. Consequently, the appeals against the fresh assessment orders became infructuous and were dismissed. The Tribunal also noted that the assessee would be entitled to relief concerning the levy of interest under sections 217 and 215. Thus, ITA Nos. 920/Ahd./1988 and 323/Ahd./1989 were partly allowed, while ITA Nos. 4002 and 4003/Ahd./1990 were dismissed.