S.K. Chander, Accountant Member -
(1.) THESE appeals by the assessee are directed against the orders of the Commissioner (Appeals) for the assessment years 1975-76 and 1977-78, respectively, dated 2-12-1980 and 20-7-1980. Before we crystallise the issues that have come up for our determination, we set out the facts of the case from which the issues emanate.
(2.) The assessee is a private limited company registered under the name and style of Bhushan Industrial Co. (P.) Ltd. For the assessment year 1975-76, the original assessment was made on 26-3-1970. The assessment order made by the ITO appears at pages 1 to 3 of the assessee's paper book. In this assessment order, the ITO allowed to the assessee development rebate at 15 per Cent on the cost of machinery of Rs. 8,44,200. The development rebate actually allowed was Rs. 1,26,630. The ITO, however, started reassessment proceedings. Since the validity of the reassessment proceedings is not open for our determination, it would be suffice to say that the issues that emanate from these appeals now are with regard to the reassessment proceedings. The reassessment for the assessment year 1975-76 was made on 11-8-1980. According to the ITO, the assessee also owns Bhushan Steel Rolling Mills. Thus, the appellant-company comprised of two units, namely, Bhushan Industrial Co. (P.) Ltd. functioning at 22, Industrial Area, Chandigarh and Bhushan Steel Rolling Mills, functioning at Industrial Area, Chandigarh. The first unit had been established prior to the second unit. In the first unit, the assessee manufactures railway tracks and parts out of MS rods and bars. In the Bhushan Steel Rolling Mills, which was set up and commenced production with effect from 1-7-1974, the assessee manufactures MS rods, bars and flats, etc., from billets and ingots of iron. The assessee is not a small scale industrial undertaking within the meaning of Explanation to Sub-section (2) of Section 32A of the Income-tax Act, 1961 ('the Act') and was, therefore, entitled to investment allowance under Section 32A of the Act in the relevant assessment year 1977-78.
However, when the original assessment for 1975-76 was made, the assessee inadvertently made a claim for development rebate on the plant and machinery installed in the industrial undertaking, working under the name and style of Bhushan Steel Rolling Mills. It is a common ground before us that the assessee was not entitled to allowance of development rebate in the assessment year 1975-76, as the assets on which the development rebate was claimed had been acquired after the date up to which the assessee could claim development rebate. However, the assessee was entitled to the claim of initial depreciation under Section 32(1)(vi). This section reads as under :
32. (1) In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the follpwing deductions shall, subject to the provisions of Section 34, be allowed-
(vi) in the case of a new ship or a new aircraft acquired after the 31st day of May, 1974, by an assessee engaged in the business of operation of ships or aircraft or in the case of new machinery or plant (other than office appliances or road transport vehicles) installed after that date for the purposes of business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in items 1 to 24 (both inclusive) in the list in the Ninth Schedule or in the case of new machinery or plant (other than office appliances or road transport vehicles) installed after that date in a small-scale industrial undertaking for the purposes of business of manufacture or production of any other articles or things, a sum equal to twenty per cent of the actual cost of the ship, aircraft, machinery or plant to the assessee, in respect of the previous year in which the ship or aircraft is acquired or the machinery or plant is installed, or if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year then, in respect of that previous year ; but any such sum shall not be deductible in determining the written down value for the purposes of Clause (ii) :
Provided that the assessee may, before the expiry of the time allowed under Sub-section (1) or Sub-section (2) of Section 139, whether fixed originally or on extension, for furnishing the return of income for the assessment year in respect of which he first becomes entitled to deduction under this clause, furnish to the Income-tax Officer a declaration in writing that the provisions of this clause shall not apply to him and if he does so, the provisions of this clause shall not apply to him for that assessment year and for every subsequent assessment year ; so, however, that the assessee may, by notice in writing furnished to the Income-tax Officer before the expiry of the time allowed under Sub-section (1) or Sub-section (2) of Section 139, whether fixed originally or on extension, for furnishing the return of income for any such subsequent assessment year, revoke his declaration and upon such revocation, the provisions of this clause shall apply to the assessee for that subsequent assessment year and for every assessment year thereafter :
Clause (vi) was inserted by the Direct Taxes (Amendment) Act, 1974, with effect from 1-4-1975. We have not reproduced in this order the second proviso, etc., as we do not consider it material for the determination of the issue before us.
(3.) WHEN the assessee filed the return in response to notice under Section 148 of the Act issued for the purpose of reassessment under Section 147(b) of the Act, the assessee made a plea that in filing the return originally, development rebate in respect of Bhushan Steel Rolling Mills had been claimed at Rs. 1,26,630 and the same was allowed in the original assessment, though the assessee-company was in fact entitled to claim on the account of initial depreciation under Section 32(1)(vi). This is as per the assessee's letter dated 19-9-1979 appearing at pages 11 to 13 of the paper book. The assessee, therefore, attached a computation sheet showing the originally assessed income by order dated 26-2-1976, adding thereto development rebate amounting to Rs. 1,20,630 already allowed and from the total of Rs. 6,16,910 so arrived at deducting initial depreciation of Rs. 1,68,840 at 20 per cent of Rs. 9,44,200, being the cost of the machinery installed after 31-5-1974. The ITO considered the claim of the assessee. According to him, the assessee was not entitled to initial depreciation as claimed, because MS rods, rounds and flats are commercial articles and cannot be equated with iron and steel (metal) in the basic form. No doubt the qualities of iron and steel are retained in this process, but that will be true in the case of steel furniture, steel utensils also. It cannot be believed that iron and steel (metal) should be given such an extended meaning so as to include everything conceivable from or made of iron and steel. He gave other reasons which he has recorded in his order for not allowing the assessee the benefit of entitlements under Item 1 of the Ninth Schedule, as according to him, the assessee was not qualified for this relief. However, the ITO withdrew the development rebate allowed by him in the original assessment amounting to Rs. 1,26,630. The result was that the income originally assessed by the order dated 26-2-1976 at Rs. 4,90,280 came to be assessed at Rs. 6,16,910 with the addition of Rs. 1,26,630. This assessment was challenged in appeal before the learned Commissioner (Appeals).;