TMI Blog1991 (12) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... year 1983-84. The assessee submitted a return for assessment year 1983-84 declaring an income of Rs. 1,62,541. The assessment was completed under section 143(3) on 24-3-1986 at an income of Rs. 21,12,640. On 3-2-1988 the learned Commissioner of Income-tax issued a notice under section 263 in which it was inter alia mentioned that considering the nature of assessee's business viz., the business of transportation and earthmoving, investment allowance and additional depreciation are not admissible and hence the assessment order passed by the IAC(A) is erroneous insofar as it is prejudicial to the interests of revenue. The other items mentioned in the show-cause notice with regard to deduction under section 80HHB is not relevant for the present proceedings as that is not the subject matter of appeals before us. The CIT after taking into consideration the reply dated 7-3-1988 submitted by the assessee, passed an order under section 263 on 18-3-1988. He observed that the assessee who is claiming that the machineries are of sophisticated and intricate functions which were purchased and installed in the year under consideration, have not been utilised for the purpose of business for which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the new machineries purchased and installed for the new division of earth-moving and transportation business. The higher depreciation allowed at the rate of 30 per cent as per entry D-4 on these items of plant and machinery was not the subject matter of the aforesaid divisional proceedings taken under section 263 for assessment year 1984-85. The CIT passed an order under section 263 for assessment year 1984-85 on 23-12-1988 in which he relying upon his predecessor's order under section 263 for assessment year 1983-84, set aside the assessment with a direction to the IAC(A) to determine admissibility of investment allowance after considering the nature of business in which the machinery was being used. The appeal against the original assessment order was decided by the CIT(A) vide order dated 28-3-1989. No further appeal against this order was preferred by the assessee before the Tribunal. A fresh assessment was made by the IAC(A) pursuant to order under section 263 on 23-3-1990 in which the investment allowance was withdrawn apart from rectifying totalling mistake in the original assessment order which is not the subject matter of appeal submitted before us. The appeal against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. The investment allowance was therefore rightly allowed to the assessee in the original assessment order after necessary satisfaction about the fulfilment of all the prescribed conditions for grant of investment allowance. The details of plant and machinery purchased and installed in the new division in this year have been given at page 2 of the assessee's reply to the show-cause notice dated 7-3-1988 which shows that hydraulic excavator costing Rs. 24,96,353, Terex Model 72-21 Front Loader costing Rs. 13,45,257, Bharat Model D144A1 Dozer costing Rs. 24,21,835 and car washing equipments Rs. 12,125 purchased by the assessee meant for use in heavy construction work are therefore clearly eligible for grant of investment allowance. Our attention was also invited towards bills issued by the assessee to M/s. National Builders dated 29-5-1982 showing that the excavation for trenches carried out by the assessee was up to a depth of 6.00 M apart from the other work of excavation done for trenches pursuant to contract obtained from M/s. National Builders. This is covered by the heavy construction work. 3.2 It was further pointed out that the assessing authority at the time of completing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment allowance in assessment year 1984-85 was granted by the assessing authority at the time of passing the original assessment order after necessary satisfaction about the fulfilment of all the conditions. The plant and machinery were utilised for heavy construction work. The details have been given at pages 67 and 68 of the paper book. In assessment year 1984-85 the assessee had carried out in its new division the work of excavation for pipes and trenches on behalf of M/s. National Builders and it also carried out other heavy construction work on behalf of other parties as per details mentioned in assessee's letter dated 24-11-1986 (pages 66 to 71 of the paper book). The investment allowance is allowable on the plant and machinery used in the business of construction as per provisions of section 32A(2)(iii). The original assessment order passed by the assessing authority allowing investment allowance in respect of plant and machinery purchased for its new division cannot therefore be regarded as erroneous and prejudicial to the interests of revenue. The learned counsel further contended that although the CIT while passing the order under section 263 has set aside the assessment w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any investment allowance. Since the assessing authority had wrongly allowed such investment allowance in both the years under consideration, the CIT has rightly invoked the provisions of section 263 and was justified in directing the assessing authority to consider the allowability or otherwise of investment allowance after taking into consideration the nature of work for which these items of plant and machinery were used by the assessee in both the years under consideration. 4.1 The learned Senior DR further submitted that the assessee is not entitled to grant of higher depreciation at the rate of 30 per cent as per item D-4 of the Depreciation Schedule. Such plant and machinery which are in the form of transport vehicles used for excavation and removal of earth and its transportation, cannot be termed as having been used for heavy construction work. Our attention was invited towards the judgment of the Hon'ble Madras High Court in the case of CIT v. Tamil Nadu Agro Industries Corpn. [1991] 192 ITR 108 in which it was held that the drilling machinery used in digging borewell cannot be regarded as earth-moving machinery and that was not entitled to depreciation at higher rate as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of 82 Corpn. of 303, Hyd. 25-1-1982 Tripnex House Excavator 25,900 --------------------------------------------------------------------------------------------------------------------------------------------------- The details of contract receipts in this year in which the aforesaid plant and machinery were used, are as under :------- Rs. (i) GNFC, Bharuch Work done for reclamation of urea and feeding the same in conveyer system for bagging at GNFC, Bharuch by our payloader terex. 54,650 (ii) Gujarat Carbon Ltd. Cleaning debris from the area of Guj. Carbon and levelling by showel loader terex 8,361 (iii) National Builders Excavation of trench in ordinary soil effluent channel project. 1,79,284 -------------------------- Total 2,42,295 -------------------------- The details of plant and machinery purchased in assessment year 1984-85 are as under :--------- Particulars Amount (Rs.) (i) 'BEML' Model 229H Scrapper with Insurance Transport Charges and incidental charges 30,13,096 (ii) Multishank Ripper attachment suitable for D155A1 Dozer with transportation charges 4,33,519 (iii) Hydraulically operated front mounted with double jack ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of the aforesaid section, it cannot be said that in all cases, manufacture or production is a condition precedent to call an activity, business or trade an "industrial undertaking". The words "industrial undertaking" used in the section may be any one of the categories viz. "business of construction", "business of manufacture" or "business of production" of any article or thing, not specified in the Eleventh Schedule. The contention of the learned DR that the business carried on by the assessee in its new division cannot be regarded as business of construction as the assessee merely carried out the work of excavation on behalf of M/s. National Builders in assessment year 1983-84 and also carried out the work of excavation and removal of earth in the next year on behalf of other parties which by itself cannot be regarded as construction work, is not acceptable. The business of construction consists of several activities and different categories of work are required to be carried out in the said business of construction. It is not necessary that the assessee should himself carry out all such different categories and several activities involved in the complete construction work even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as transport vehicles. We are therefore of the considered view that the assessing authority had rightly granted investment allowance for both the years under consideration on the aforesaid items of plant and machinery. 5.3 We will now consider the assessee's contention relating to grant of higher depreciation at the rate of 30 per cent as per entry D-4 of Depreciation Schedule. Since the IAC(A) has himself allowed depreciation on these very items of plant and machinery purchased in assessment year 1983-84 at the rate of 30% as per the aforesaid entry in assessment year 1984-85, the denial of similar higher rate of depreciation in the year under consideration is not at all justified. The plant and machinery in question were used in assessment year 1983-84 inter alia for the work of excavation for trenches up to a depth of 6.00 M on behalf of M/s. National Builders as is evident from the invoice dated 29-5-1982. This, in our opinion, is one of the activities covered by the term "heavy construction work". In any case the plant and machinery in question were ready for use for any heavy construction work, which in fact have admittedly been used for such heavy construction work in as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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