1988 (9) TMI 71 - AT - Income Tax

Summary

Issues:
- Appeal against the consolidated order of the CIT under section 263 of the IT Act, 1961 for assessment years 1978-79, 1980-81, and 1981-82.
- Classification of depreciation rate for dumpers used in road construction business.
- Jurisdiction of CIT under section 263 for multiple interventions in the same assessment year.

Analysis:

The appeals were filed against the CIT's consolidated order under section 263 of the IT Act, 1961, concerning the assessment years 1978-79, 1980-81, and 1981-82. The CIT found the assessment orders by the ITO allowing 30% depreciation on dumpers used in road construction erroneous and prejudicial to the revenue's interest. The CIT believed that the correct depreciation rate for dumpers was 15% under a specific item in the IT Rules. The CIT invoked jurisdiction under section 263 and issued a show cause notice to the assessee to modify the ITO's orders. The assessee contended that dumpers were used for earth-moving work, justifying a 30% depreciation rate. The CIT directed the ITO to recompute the depreciation, leading to the appeals before the tribunal.

For the assessment years 1978-79, 1980-81, and 1981-82, the assessee argued that the dumpers were essential for earth-moving work in road construction, not solely road-making machinery. The assessee referred to the IAC's observations and a CBDT circular classifying dumpers as earth-moving machinery. The tribunal analyzed the purpose of dumpers in road construction, emphasizing their role in earth-moving activities, and concluded that dumpers should be classified under earth-moving machinery for depreciation purposes.

The tribunal examined a circular from the Ministry of Industry and Company Affairs categorizing dumpers as earth-moving machinery. Based on this classification and the assessee's arguments, the tribunal held that dumpers used in road construction were entitled to a 30% depreciation rate. The tribunal criticized the repeated intervention by the CIT under section 263 for the same assessment year on different issues, emphasizing the need for a thorough review before invoking such jurisdiction. Consequently, the tribunal allowed all three appeals, setting aside the CIT's orders and restoring those of the ITO for the relevant assessment years.