M.M. Kumar, J.
1. The Revenue has approached this Court by filing the instant appeal under Section 260A of the IT Act, 1961 (for brevity, 'the Act'), challenging order dt. 31st Oct., 2005 passed by the Income-tax Appellate Tribunal, Chandigarh Bench 'A', Chandigarh (for brevity, 'the Tribunal'), in ITA No. 388/Chd/2001, in respect of the asst. yr. 1996-97.
2. The assessee derived income from manufacturing and sale of sugar, etc. and filed its return on 26th Sept., 1996 for the asst. yr. 1.996-97 declaring loss of Rs. 4,55,41,581. It is apposite to mention here that the trial production of sugar after setting up and construction of the plant of the assessee was commenced on 23rd Feb., 1996. The assessee consumed raw material in the form of sugarcane worth Rs. 2,80,71,662 and has shown manufacturing expenses of Rs. 20,88,295. The assessment was completed on 31st March, 1999 under Section 143(3) of the Act and depreciation on plant, machinery and building etc. was allowed at Rs. 4,37,61,018.
3. Against the order of the AO, dt. 31st March, 1999, the assessee preferred an appeal before the CIT(A). During the pendency of the said appeal, on 19th March, 2001, the CIT, Panchkula, passed an order under Section 263 of the Act, setting aside the assessment made by the AO under Section 143(3) of the Act on 31st March, 1999 on the ground that the assessee was not entitled, to depreciation because it had. not started commercial production of sugar during-the relevant period. It was directed that the AO would pass fresh orderafter disallowing the depreciation amounting to Rs. 4,37,61,018.
4. Against the aforementioned order of the CIT, the assessee preferred an appeal before the Tribunal, which was allowed vide order dt. 31st Oct., 2005.by setting aside order of the CIT holding that the assessment order dt. 31st March, 1999 was neither erroneous nor prejudicial to the interest of the Revenue.
5. The AO in pursuance to order under Section 263, passed another order of assessment under Section 143(3) of the Act on 1st Nov., 2002 against which the assessee preferred an appeal before the CIT(A), Karnal, which was partly accepted vide order dt. 2nd Sept, 2003. The Revenue went in appeal against order dt. 2nd Sept, 2003 before the Tribunal, New Delhi, which is stated to be pending for adjudication.
6. Learned Counsel for the Revenue submitted before us that the following question of law would arise in this matter for determination of this Court:
Whether on the facts and in the circumstances of the case, the Tribunal was right in law in cancelling the order passed by the CIT under Section 263 by holding that the assessment order is neither erroneous nor prejudicial to the interest of the Revenue in spite of the fact that depreciation on plant and machinery, etc. was allowed by AO without the commencement of production of sugar on commercial basis?
7. The main thrust of the argument of learned Counsel for the Revenue is that it has come on record that the unit of the assessee never started full fledged production and during the relevant period production of sugar was started only on trial basis, therefore, depreciation on plant and machinery etc, is not admissible to the assessee, which has erroneously been allowed by the AO. He has then argued that mere installation of equipment in a building would not be sufficient to attract the provisions contained in Section 32 of the Act to claim depreciation on such plant and machinery until and unless the same is put to regular and commercial production. According to the learned Counsel trial production of sugar by using plant and machinery could not be construed to mean that the same was used for the purpose of business.
8. On the other hand, supporting the view taken by the Tribunal, as well as the AO, counsel for the assessee has placed reliance on a judgment of Gujarat High Court in the case of Asstt CIT v. Ashima Syntex-Ltd. : [2001]251ITR133(Guj) . In the. aforementioned case under similar circumstances a question of law as is sought to be emerging in the instant appeal, fell, for consideration of the Gujarat High Court and it has been held that law does not require that there must be optimum production for granting the benefit. Law only requires that there must be use of plant and machinery for the purpose of business. The. assessee in that case was held entitled to depreciation on the machinery.
9. We have thoughtfully. considered the submissions made by learned Counsel for the parties, examined the record with the assistance of learned Counsel and are of the view that there is no merit in the instant appeal and the same is liable to be decided against the Revenue and in favour of the assessee. It would be appropriate to make a reference to Section 32 of the Act, as it stood at the relevant time, which reads thus:
32. Depreciation. - (1) In respect of depreciation of buildings, machinery, plant or furniture owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of Section 34, be allowed-
(i) omitted;
(ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed:
Provided that no deduction shall be allowed under this clause in respect of-
(a) any motor car manufactured outside India, where such motor car is acquired by the assessee after the 28th day of February, 1975, unless it is used-
(i) in a business of running it on hire for tourists; or
(ii) outside India in his business or profession in another country; and
(b) any machinery or plant if the actual cost thereof is allowed as a deduction in one or more years under an agreement entered into by the Central Government under Section 42:
Provided further that where any asset falling within a block of assets is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this clause in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed. under this clause in the case of block of assets comprising such asset:
Provided also that, in respect of the previous year relevant to the assessment year commencing on the 1st day of April, 1991, the deduction in relation to any block of assets under this clause shall, in the case of a company, be restricted to seventy-five per cent of the amount calculated at the percentage, on the written down value of such assets, prescribed under this Act immediately before the commencement of the Taxation Laws (Amendment) Act, 1991.
Explanation 1 - Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee.
Explanation 2 - For the purposes of this clause 'written down value of the block of assets' shall have the same meaning as in Clause (c) of Sub-section (6) of Section 43.
(iii) to (vi) omitted..
10. A perusal of the aforementioned provision shows that depreciation is allowable by granting deductions in respect of building, machinery, plant, etc. to the assessee if it is used for the purpose of business or profession. It is not disputed before us that production of sugar has commenced on 23rd Feb., 1996 and the assessee has consumed raw material in the form of sugarcane worth Rs. 2,80,71,662 and has shown manufacturing expenses of Rs. 20,88,295. On the bare interpretation of Section 32 of the Act it cannot be claimed that the machinery or plant was not used by the assessee for the purposes of business. In that regard reliance may be placed on the observation made by the Hon'ble Supreme Court in para 10 of the judgment in the case of Liquidators of Puisa Ltd. v. CIT : [1954]25ITR265(SC) , wherein it has been observed that machinery must have been used at least for the part of the accounting year in order to attract Section 10(2)(vii) proviso 2 of the IT Act, 1922. Therefore, we find that the order of the Tribunal does not suffer from any legal infirmity.
11. We are further of the view that the Tribunal has rightly followed the view taken by the Gujarat High Court in the case of Ashima Syntax Ltd. (supra) and rejected the appeal filed by the Revenue, which is fully applicable to the instant appeal. Therefore, we do not find any ground to interfere in the view taken by the Tribunal.
In view of the above, this appeal is wholly without merit. Dismissed.