1985 (5) TMI 107 - AT - Income Tax

Summary

Issues:
1. Allowance of 100% depreciation on cylinders without manufacturing activity.
2. Allowance of expenditure on repairs of plant and machinery not belonging to the assessee's factory.
3. Treatment of security deposits as trading receipts.

Detailed Analysis:
1. The CIT set aside the assessment order due to erroneous allowances made by the ITO, including 100% depreciation on cylinders despite no manufacturing activity during the relevant year. The CIT directed a fresh assessment after finding the assessment prejudicial to revenue. The assessee contended that the CIT should have specifically held the allowances as impermissible before setting aside the assessment. The ITAT observed that the depreciation was correctly allowed as the cylinders were used in the assessee's business, even if the factory was closed, and no further inquiry was necessary.

2. The CIT also questioned the expenditure on repairs of plant and machinery not owned by the assessee's factory. However, the ITAT found that if the expenditure was for the assessee's business, the ownership of the machinery was irrelevant. Since the repairs were genuine and related to the business, the ITAT concluded that the allowance of the expenditure was justified, and the CIT failed to prove otherwise.

3. The dispute regarding security deposits as trading receipts arose from the CIT's reference to a Supreme Court ruling. The CIT did not provide a specific finding on the taxability of the deposits, despite the material being available. The ITAT noted significant differences between the cited case and the current scenario, emphasizing that the gas cylinders were not meant for sale but for temporary use by purchasers. The ITAT concluded that no specific inquiry was necessary regarding the nature of the deposits, as the circumstances were distinct. Consequently, the ITAT held that the CIT failed to demonstrate the assessment order's erroneous nature on any of the three counts, leading to the cancellation of the order under appeal.

In conclusion, the ITAT allowed the appeal, emphasizing that the CIT did not establish the assessment order's error or prejudice to revenue on any of the issues raised. The ITAT found that the CIT's direction for a fresh assessment was unwarranted, as the original allowances were justified based on the facts presented. The ITAT also dismissed the contention regarding the variance between the grounds in the notice and the basis for setting aside the assessment, deeming it of no significance in light of the overall decision.