9911796707
|
Home
Issues Involved:
1. Whether the assessee's chemical division was set up and commenced business during the assessment year 1985-86. 2. Whether the assessee was entitled to investment allowance and depreciation for the new plant and machinery installed in the chemical division. Issue-wise Detailed Analysis: Issue 1: Whether the assessee's chemical division was set up and commenced business during the assessment year 1985-86. The assessee, a manufacturer of food products, started a chemical division for the manufacture of "Oxyphenbutazone" during the assessment year 1985-86. The Assessing Officer allowed the assessee's claim of investment allowance and depreciation for the new plant and machinery installed in the chemical division. However, the CIT initiated proceedings under section 263, forming a prima facie opinion that the assessment order was erroneous and prejudicial to the interest of revenue, arguing that the chemical division plant had not been set up during the relevant accounting period. The CIT directed the withdrawal of the depreciation amounting to Rs. 19,40,714 and the investment allowance of Rs. 8,00,082. The CIT noted that the assessee's manufacturing process had not stabilized and standardized till 31-3-1985, as evidenced by the meager production of 10 kgs. of OPB. The CIT concluded that the business of manufacturing OPB was not set up by 31-3-1985, and the expenditure incurred was necessary even for a trial run. The assessee contended that the plant and machinery were installed, and commercial production commenced on 14-12-1984. They argued that the initial production runs were erroneously stated as trial runs, and the income from sales in the chemical division supported the claim that the business was set up in December 1984. The CIT, however, did not find these arguments convincing. Issue 2: Whether the assessee was entitled to investment allowance and depreciation for the new plant and machinery installed in the chemical division. The assessee argued that the chemical division was an addition to its pre-existing business of manufacturing food products. They cited several judicial decisions to support their claim that the business was set up and commenced during the relevant period. The department, on the other hand, contended that commercial production had not commenced by 31-3-1985, as indicated by the meager production of 10 kgs. of OPB, and relied on various judicial decisions to support their stance. Upon reviewing the facts and circumstances of the case and the cited case law, the Tribunal concluded that the CIT was not justified in revising the assessment order. The Tribunal noted that all buildings for the new department were completed, and plant and machinery were installed. Trial runs were conducted, and 10 kgs. of the final product were manufactured and marketed. The Tribunal held that the factual position constituted the setting up/commencement of business, entitling the assessee to the investment allowance and depreciation. The Tribunal discussed several judicial decisions, concluding that the assessee had set up and commenced its business during the year under appeal. The Tribunal emphasized that the business would commence when the first activity in the integrated business activities starts, even if the production quantity was limited initially. The Tribunal allowed the assessee's appeal, holding that the assessee was entitled to depreciation and investment allowance for the year under appeal. Conclusion: The Tribunal allowed the assessee's appeal, concluding that the assessee had set up and commenced its business during the assessment year 1985-86, and was entitled to investment allowance and depreciation for the new plant and machinery installed in the chemical division. The CIT's order revising the assessment was found to be unjustified.
|
