1981 (3) TMI 94 - AT - Income Tax

Summary

Issues:
1. Initial depreciation allowance for machinery used in textile production.
2. Validity of Commissioner's order setting aside the assessment.
3. Assessment of the percentage of cotton textiles manufactured by the company.

Analysis:
1. The case involved a limited company engaged in textile manufacturing, which claimed initial depreciation under section 32(1)(vi) of the Income Tax Act on machinery used for textile production. The Commissioner found the initial depreciation erroneous due to the cotton content in some fabrics being less than 51%, questioning the machinery's use for cotton textile production. The company contested this, providing detailed data showing high cotton consumption and production of cotton textiles, justifying the initial depreciation claim.

2. The Commissioner set aside the assessment order, citing errors and lack of time for verification. The Tribunal criticized the Commissioner's approach as arbitrary, noting the denial of opportunity to the company to present its case properly. However, upon reviewing the merits, the Tribunal found no error in the original assessment by the Income Tax Officer, as the company's data supported its claim for initial depreciation on machinery used predominantly for cotton textile manufacturing.

3. The Tribunal emphasized the significant percentage of cotton consumption and textile production by the company, highlighting the inconsequential amount spent on new machinery for which initial depreciation was claimed. The Tribunal concluded that the Commissioner's basis for intervention under section 263 was unfounded, as the Income Tax Officer had already examined the production composition during the original assessment, aligning with the company's assertions.

In conclusion, the Tribunal set aside the Commissioner's order and allowed the company's appeal, affirming the validity of the initial depreciation claim for machinery used in cotton textile production.