1990 (1) TMI 150 - AT - Income Tax

Appeal To CIT(A), Orders Prejudicial To Interests, Plant And Machinery, Rate Of Depreciation, Retrospective Effect, Written Down Value

Summary

Issues Involved:
1. Jurisdiction of the Commissioner under Section 263 of the Income-tax Act, 1961.
2. Applicability of the Explanation to Section 263.
3. Merits of the claim for higher depreciation on plant and machinery.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Commissioner under Section 263 of the Income-tax Act, 1961:
The assessee contended that the Commissioner lacked jurisdiction to revise the assessment under Section 263 because the entire order of the Income-tax Officer (ITO) had merged with that of the Commissioner of Income-tax (Appeals) [CIT(A)]. The Commissioner, however, held that the merger doctrine applied only to matters specifically addressed by the CIT(A). The Tribunal agreed with the Commissioner, noting that the CIT(A) had not adjudicated on the issue of higher depreciation for the written down value (WDV) of the plant and machinery added in earlier years. Therefore, the Commissioner retained jurisdiction to revise this part of the ITO's order.

2. Applicability of the Explanation to Section 263:
The assessee argued that the Explanation to Section 263, introduced by the Finance Acts of 1988 and 1989, did not apply retrospectively and thus could not affect the assessment completed in 1984. The Tribunal, however, held that the Explanation was declaratory and intended to clarify the law as it always stood. The Explanation stated that the Commissioner's powers to revise extended to matters not considered and decided in an appeal, irrespective of when the appeal was filed. The Tribunal found that the Explanation had retrospective effect, thereby validating the Commissioner's jurisdiction to revise the ITO's order.

3. Merits of the claim for higher depreciation on plant and machinery:
On the merits, the Tribunal considered the practical difficulties and doubtful revenue benefits involved in reclassifying machinery added in earlier years. It referenced a similar case, T.I. Diamond Chain Ltd., where the Tribunal had upheld the CIT(A)'s decision not to disturb the WDV of old machinery due to practical difficulties and negligible revenue impact. The Tribunal concluded that requiring the assessee to produce evidence for machinery added in earlier years was unjust and unnecessary. It held that the assessee should be allowed depreciation at 15% for the WDV of machinery added in earlier years, as was done in previous years.

Conclusion:
The Tribunal upheld the Commissioner's jurisdiction under Section 263 but ruled in favor of the assessee on the merits, allowing the higher depreciation rate of 15% for the WDV of machinery added in earlier years. The appeal was thus partly allowed.