1982 (2) TMI 114 - AT - Income Tax

Assessment Proceedings, Initial Depreciation, Investment Allowance, Reassessment Proceedings

Summary

Issues Involved:
1. Validity of reassessment proceedings for the assessment year 1975-76.
2. Entitlement to initial depreciation under Section 32(1)(vi) for the assessment year 1975-76.
3. Entitlement to investment allowance under Section 32A for the assessment year 1977-78.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings for the Assessment Year 1975-76:
The reassessment proceedings were initiated by the Income Tax Officer (ITO) for the assessment year 1975-76, which were not challenged by the assessee. The original assessment had allowed a development rebate of Rs. 1,26,630 on machinery costing Rs. 8,44,200. The reassessment, dated 11-8-1980, aimed to rectify this allowance as the assets were acquired after the permissible date for claiming the development rebate. The reassessment proceedings' validity was not in question before the Tribunal, and thus, the focus was on the reassessment's substantive issues.

2. Entitlement to Initial Depreciation Under Section 32(1)(vi) for the Assessment Year 1975-76:
The assessee, a private limited company, claimed initial depreciation under Section 32(1)(vi) during the reassessment proceedings, arguing that the original claim for development rebate was inadvertently made. The ITO rejected this claim, asserting that MS rods, rounds, and flats manufactured by the assessee did not qualify as iron and steel (metal) under Item 1 of the Ninth Schedule. The Tribunal, however, considered precedents from various High Courts, including the Kerala High Court's judgments in CIT v. Mittal Steel Re-rolling & Allied Industries (P.) Ltd. and CIT v. West India Steel Co. Ltd., which supported the assessee's position. The Tribunal also noted that the Supreme Court in CIT v. Mahalakshmi Textile Mills Ltd. allowed an alternative claim during reassessment proceedings if the subject matter remained the same. Consequently, the Tribunal held that the assessee was entitled to initial depreciation, but limited the allowance to Rs. 1,26,630, equivalent to the originally allowed development rebate.

3. Entitlement to Investment Allowance Under Section 32A for the Assessment Year 1977-78:
For the assessment year 1977-78, the issue was whether the assessee was entitled to investment allowance under Section 32A. The ITO had rejected this claim in the original assessment proceedings. The Tribunal examined the statutory conditions under Section 32A and concluded that the assessee satisfied these conditions. The Tribunal directed that the investment allowance be allowed, as the assessee's business activities met the requisite criteria for the allowance.

Conclusion:
The Tribunal allowed the appeals for both assessment years. For 1975-76, the Tribunal directed that initial depreciation of Rs. 1,26,630 be allowed, replacing the erroneously claimed development rebate. For 1977-78, the Tribunal directed that the investment allowance be granted as the assessee met the statutory requirements.