IN HIGH COURT OF DELHI AT NEW DELHI Judgment reserved on November 26, 2014 Judgment delivered on December 12, 2014 ITA No. 90/2003 COMMISSIONER OF INCOME TAX, DELHI-IV Appellant Through: Mr.N.P.Sahni, Sr.Standing Counsel with Mr.Nitin Gulati, Mr.Judy James, Advocates versus M/S. ESCORTS TRACTORS LTD. Respondent Through: Mr.Simran Mehta with Mr.Prabhat Kalia, Advocates CORAM: HON BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE V.KAMESWAR RAO V.KAMESWAR RAO, J. 1. In this appeal, under Section 260A of Income Tax Act, 1961 ( Act in short) filed by revenue challenging order dated July 15, 2002 of Income Tax Appellate Tribunal ( Tribunal in short), following substantial questions of law fall for our consideration:- 1. Whether finding recorded by Tribunal is perverse? 2. Whether in absence of any evidence to effect that machine was put to use before closure of financial year and in absence of documentary evidence in this behalf, Tribunal was justified in arriving at conclusion that any amount of depreciation and investment allowance could be deducted? ITA No. 90/2003 Page 1 of 11 2. Assessment Year is 1987-88. On June 30, 1987, assessee had filed return declaring income as Rs. 1,66,17,084/-. assessee claimed normal depreciation, amounting to Rs.23,93,038/- on plant and machinery. Assessing Officer disallowed depreciation on following items:- ITEM AMOUNT IN CLAIMED DATE OF OF RS. INSTALLATION Widia Special Six Spindle Drilling & 20,94,355/- 29.12.1986 (Machine handed over Reaming Machine for try out) 500 lb air horses 76,513/- 29.12.1986 Conveyor 2,07,517/- 29.12.1986 Electrical Tester 14,653/- 26.12.1986 TOTAL 23,93,038/- 3. Insofar as this appeal is concerned, we are concerned with item at serial No. 1 above. Assessing Officer disallowed depreciation on ground that said machine was not installed before close of Accounting Year 31.12.1986 for purpose of production/manufacture of goods. While coming to said conclusion, Assessing Officer was of view that one Krishan who had signed report on commissioning/trying out of machines was not produced and further production sheets in respect of machines were not produced by assessee in support of its contention. 4. appeal filed by assessee before Commissioner of Income Tax (Appeals) was dismissed by observing that apart from ITA No. 90/2003 Page 2 of 11 facts noted by Assessing Officer; assessee had not produced any evidence to effect that machine was put to use before end of accounting year; most important witness who had signed commissioning/try out report for machines was not produced before Assessing Officer; and no production sheet or log sheet in respect of machine, to show that machine was put to use for production before close of year, were filed. 5. assessee, who had filed appeal before Tribunal succeeded inasmuch Tribunal, vide order dated July 15, 2002, held that material placed before Assessing Officer and Commissioner of Income Tax (Appeals) was sufficient to show that machine was installed before close of year. We note below facts as found and accepted by Tribunal. 6. machine namely Widia Special Six Spindle Drilling Machine was received on 24.12.1986. foundation of machine was already laid on 22.12.1986 in Hall No. 1 and electrical connections were completed on 27.12.1986. machine in full working order was handed over for trying out on 29.12.1986 to manufacturing engineering department. Tribunal concluded as under: 13.6. We have considered rival submissions and perused record carefully. ITA No. 90/2003 Page 3 of 11 material placed before AO and CIT(A) was sufficient to show that machine was installed before end of financial year and it was used for trial and once this is certified by factory manager and others then assessee was justified in claiming depreciation and we direct AO to allow depreciation in respect of machines mentioned in earlier part of order . 7. Learned counsel for appellant-revenue would submit that no evidence was filed by respondent assessee to show that production had commenced to ascertain use of machine in business of assessee. In other words, it is revenue s case that machine should have been actually used in commercial sense to make claim of depreciation. Mr. Simran Mehta, learned counsel appearing for respondent assessee would reiterate facts as noted by CIT (Appeals) and Tribunal. According to him, machine after installation was handed over to manufacturing engineering department on 29.12.1986 for trial run, which would demonstrate that machine was duly installed and was ready to be used. He would submit, appellant revenue is interpreting provisions narrowly. According to him, there is no requirement of actual production having taken place before end of previous year. 8. Having heard learned counsel for parties, we note that ITA No. 90/2003 Page 4 of 11 appellant-revenue has stated in para d of grounds of appeal, which is reproduced as under: d) For claiming depreciation, it is mandatory to establish that plant and machinery were owned and used for its business for production and manufacturing. Admittedly, in present case machines were handed over to production department only for purpose of trial just two days before end of previous year and not for purpose of production and manufacturing . 9. above would show that appellant revenue has conceded to fact that machine was handed over to production department for purpose of trial two days before end of previous year i.e. 29.12.1986. appellant revenue qualifies its stand by stating that same was not for purpose of production and manufacture. It is not stand of appellant revenue that machine was not installed for trial purposes. Given finding of Tribunal as reproduced above, it must be inferred and accepted that machine was installed. Once machine is installed, it is fit to be used for manufacturing and production. trial run was to ensure that machine was working in perfect condition following installation and could be used henceforth for production and manufacturing purposes. 10. Even Section 32 of Act which has been referred to by appellant revenue in para j in grounds of appeal, does not ITA No. 90/2003 Page 5 of 11 contemplate that manufacturing or production should have actually commenced nor does it contemplate that assets should be used for whole of assessment year. requirement under Section 32(1) is owned by assessee which suggest that assessee should be owner in previous year in question. second requirement is that machine should have been used. purpose of Section 32 is to give due regard to wear and tear suffered by assets used by assessee so that net income is duly arrived. 11. In Machinery Manufacturers Corporation Ltd. vs. CIT [1957] 31 ITR 203 (Bombay), it was observed that word used in Income Tax Act of 1922 corresponding to Section 32 of Act of 1961, should be given wider meaning. It is settled position of law that expression used includes passive as well as active user. This Court in case of Capital Bus Services Pvt. Ltd. vs. Commissioner of Income Tax 123 ITR 404 (Delhi) has held as under:- Though it is true that machinery generally depreciates with actual user, decision indicate that it is not necessary to import this concept in interpreting expression "used" is statute. In first place, machinery may well depreciate even where it is not used in business and even due to non-user or being kept idle. Secondly, very strict correlation between actual use ITA No. 90/2003 Page 6 of 11 of machinery and concept of depreciation would lead to several anomalies and difficulties, for machinery cannot be used throughout day and night or even throughout working hours or even during days when business is in full scale operation. Thirdly, there will be no strain on statutory language by interpreting it widely and not limiting it to actual working or actual employment of machinery in business. On other hand, it would be more appropriate to envisage expression as comprehending cases where machinery is kept ready by owner for its use in business and failure to use it actively in business is not on account of its incapacity for being used for that purpose of its non-availability. 12. From above it is seen that terminology used would envisage comprehending cases where machinery is installed, checked and made fully operational. Thus, depreciation is not denied on ground of non use when trial has taken place. On this aspect, we note for benefit judgment of Madhya Pradesh High Court in case of Commissioner of Income Tax Vs. Vindhyachal Distilleries Pvt. Ltd., [2005] 272 ITR 583, wherein assessee claimed that it installed and put to use bio gas plant at cost of Rs. 90,41,057/- in May, 1992. In return for assessment year 1993-94, it claimed depreciation. Income Tax Officer while passing order of assessment; restricted ITA No. 90/2003 Page 7 of 11 depreciation to 50% on ground that bio gas plant was commissioned and put to use for less than 180 days; that is only from October 9, 1992. Commissioner (Appeals) upheld disallowance. Tribunal found that bio gas plant was installed and put to use in May 1992, as was evident from assessee s letter dated May 19, 1992, to supplier of bio gas plant that during trial run, it developed some leakage and other problems, that there was some correspondence with supplier of plant in July and August, 1992, and thereafter, plant was repaired and leakage and other teething problems were solved and normal flaring of methane gas started in October 1992. Tribunal recorded finding of fact after examining relevant documents that entire equipments had been installed and commissioned and put to use in May 1992. High Court, while dismissing appeal of revenue was of view that it was not in dispute that plant was installed in May, 1992 and records clearly shows that on installation, it was commissioned in May 1992 but on account of certain leakage during trial run, repairs had to be carried out and regular production started in October 1992. assessee was entitled to full depreciation. Similarly, High Court of Kerala in case of Commissioner of Income Tax Vs. Geo Tech Construction Corporation, [2000] 244 ITR 452 on similar lines, wherein Tribunal ITA No. 90/2003 Page 8 of 11 held that margin of time was enough for tippers to move from Pondicherry to work site and even if it is accepted, as was case put up by revenue, there was no actual user, fact that they were kept ready for use would be enough for grant of depreciation on principle of passive user of asset, allowed claim of assessee for depreciation. Suffice to state, from above two judgments, we note that if plant and machinery is kept ready for use, that would be enough to grant depreciation. 13. In case in hand, as observed in para No.9 above more particularly keeping in view conceded position of appellant revenue, only dispute that has been raised by revenue is that there was no material to show that machine was used for production and manufacturing. On reading of evidence before it, if Tribunal has come to conclusion that machine having been installed before end of financial year and used for trial in terms of certificate of factory manager, we are of view that it is plausible view that machine having been used for purpose of business cannot be interfered with. Moreover such aspect is pure question of fact. We do not think, it would be appropriate for this Court to interfere with such finding when conclusion as drawn by Tribunal is not perverse or ITA No. 90/2003 Page 9 of 11 such which cannot be drawn by any reasonable person or authority on disclosed state of facts. 14. power of High Court to interfere with factual findings of Tribunal is well settled. Supreme Court in case of Ishwar Dass Jain Vs. Sohan Lal, AIR 2000 SC 426 has noted two situations where findings of fact can be interfered with, which are as under: (i) first situation is, when material or relevant evidence is not considered which, if considered, would have led to opposite conclusion, while (ii) second situation in which interference is permissible is where finding has been arrived at by placing reliance on inadmissible evidence which if it was omitted, opposite conclusion was possible. 15. Neither of above two situations arise in present case inasmuch, it is not case, when material or relevant evidence was not considered. That apart, it is also not case of appellant-revenue that finding of fact has been arrived at by Tribunal, relying upon inadmissible evidence. off shoot of above discussion is that machine has been duly installed and was in working condition before end of previous year. 16. In view of above, we are of view that questions of law need to be answered against appellant-revenue and in favour of ITA No. 90/2003 Page 10 of 11 respondent assessee. appeal is dismissed with no order as to costs. (V.KAMESWAR RAO) JUDGE (SANJIV KHANNA) JUDGE DECEMBER 12, 2014 akb ITA No. 90/2003 Page 11 of 11 Commissioner of Income-tax, Delhi-IV v. M/s. Escorts Tractors Ltd