1988-VIL-63-ITAT-AHM

Equivalent Citation: ITD 030, 171,

Income Tax Appellate Tribunal AHMEDABAD

Date: 09.09.1988

HINDUSTAN CONSTRUCTION COMPANY.

Vs

INCOME-TAX OFFICER.

BENCH

Member(s)  : R. M. MEHTA., U. T. SHAH.

JUDGMENT

Per Shri R. M. Mehta, Accountant Member -- These appeals have been preferred against the consolidated order of the Commissioner of Income-tax, passed under section 263 of the IT Act, 1961. The assessment years involved are 1978-79, 1980-81 and 1981-82.

2. The assessee in this case is a Registered Firm and admittedly engaged in the business of construction of roads. The CIT, on a perusal of the record, was of the opinion that the assessment orders as framed by the Income-tax Officer were erroneous and prejudicial to the interests of revenue inasmuch as the ITO had allowed depreciation at the rate of 30 per cent on "dumpers" being used by the assessee in its business of construction of roads. The learned CIT was of the opinion that depreciation on dumpers was available at the rate of 15 per cent only under Item III-B(14) of Appendix I, Part 1 of Rule 5 and not under Item III-D(4) of the said Appendix. He, therefore, invoked his jurisdiction under section 263 of the Act and issued a combined show-cause notice to the assessee indicating his intention to pass suitable orders with a view to modify the orders of the ITO.

3. In response to the show-cause notice, the assessee furnished written submissions wherein it was contended that the dumpers had been used for 'earth-moving work' and were entitled to depreciation at the rate of 30 per cent. According to the assessee, the dumper was not to be classified under the head "Road Making Plant and Machinery". The attention of the CIT was also invited to the further fact that in respect of assessment year 1978-79, the assessment had already been set aside once on the point of investment allowance on dumpers and that also u/s. 263. It was submitted that even at that stage the depreciation at 30 per cent allowed by the ITO on the dumpers was not disturbed. In other words, the assessee's argument was not only on the merits of the case but also on the invoking of jurisdiction u/s. 263.

4. The CIT, after considering the arguments advanced on behalf of the assessee opined that the rate at which the dumpers were entitled for depreciation was 15 per cent and not 30 per cent. He issued necessary directions to the ITO to recompute the WDV on that score as also the income for all the three years under consideration. It is in the aforesaid circumstances that the present appeals have come up before us.

5. The learned counsel for the assessee, at the outset, invited our attention to the relevant facts for each of the three years. It was stated that insofar as assessment year 1978-79 was concerned, the first assessment order was passed by the ITO on 25th March, 1981 where investment allowance was allowed on the dumpers as also depreciation at the rate of 30 per cent. This order, according to him, was set aside by the CIT vide order dated 22-4-1983 passed u/s 263 and that also on the question of investment allowance on the dumpers. According to the learned counsel, no attempt was made to disturb the figure of depreciation already allowed by the ITO at 30 per cent. It was further submitted that consequent to the order u/s 263, the ITO once again reframed the assessment and that also after obtaining the necessary instructions of the IAC u/s 144B. The claim of investment allowance, according to him, was once again allowed by the ITO, acting under the directions of the IAC, and depreciation at 30 per cent on dumpers was once again allowed. It was submitted that it was this second order of the ITO dated 27-4-1983 which was modified by the CIT once again and by resort to the provisions of section 263.

6. In respect of assessment years 1980-81 and 1981-82, the learned counsel submitted that the original assessment orders dated 27-4-1983 and 9-3-1984 respectively were modified as a result of the order u/s 263 of the Act and the point at issue was once again the depreciation on dumpers.

7. After stating the aforesaid facts, the learned counsel for the assessee vehemently argued that the dumpers were being utilised by the assessee for earth-moving work since this was a necessary prerequisite in "road construction work". According to him this did not mean that the dumpers ceased to be "earth-moving machinery" and it became necessary to classify them under the head of "Road Making Plant and Machinery". At this stage, he invited our attention to the observations of the IAC in 144B proceedings consequent to the setting aside of the order dated 25-3-1981 in proceedings u/s 263. According to him, the IAC had referred in detail to rule 5 of the IT Rules as also the Appendix with a view to come to the conclusion that on the facts of the assessee's case, the dumpers were to be classified as "earth-moving machinery". He also referred to the CBDT Circular F. No. 202/34/72-ITA-II dated 15-3-1975 which related to the issue whether development rebate could be allowed on dumpers. He thereafter took us through the observations of the IAC whereby he had relied on the guidelines issued by the aforesaid circular and come to the conclusion that the dumpers were being used by the assessee as "earth-moving machinery".

8. At this stage we would reproduce the relevant portions of the observations of the IAC in 144B proceedings and to which a specific reference was made by the assessee's counsel. They are as under :--

"I have considered the facts of the case, the submissions and the contentions of the assessee's counsel. I find it as a matter of fact that the assessee uses the dumpers for the purpose of construction of roads as earth-moving machinery only. . . ."

"Further considering the normal purposes for which dumpers are used they cannot be described as 'road transport vehicles' in spite of the fact that they may be required to be registered by the Regional Transport authority. According to the circular the decisive test in treating a particular vehicle as a 'road transport vehicle' should be the test of the use to which the vehicle is ordinarily put to and not merely the fact that it is capable of moving on the roads. The circular concludes that dumpers should not be treated as 'road transport vehicles' for the purpose of development rebate. In the light of the guidelines laid down in this CBDT circular I am of the firm view that the assessee has been using the dumpers only for their constructional activity as earth-moving machinery and not as 'road transport vehicles'. This view is fortified by the fact that in the profit and loss a/c very substantial transport charges to the tune of Rs. 2,18,697 have been claimed."

9. The learned counsel for the assessee thereafter questioned the powers of the CIT to invoke the provisions of section 263 on the facts and circumstances of the case. According to the learned counsel the claim for depreciation at 30 per cent had been allowed by the ITO after a thorough investigation of the matter and in respect of one of the years viz. A.Y. 1978-79 the same had also been looked into by the IAC in 144B proceedings. In this connection, he also referred to the fact that for assessment year 1978-79 when the powers u/s 263 were invoked for the first time there was no disturbance insofar as the depreciation on dumpers was concerned. According to him, the CIT cannot invoke the powers u/s 263 over and over again in respect of the same assessment year and at each occasion in respect of a different item. It was accordingly submitted that although on merits the assessee's claim was maintainable, even on the question of jurisdiction the order of the CIT deserve to be set aside. Before concluding his arguments, the assessee's counsel invited our attention to a circular dated 11-10-1985 issued by the Ministry of Industry and Company Affairs wherein dumpers had been classified as "earth-moving machinery". He finally made an impassioned plea for the acceptance of the assessee's claim on merits.

10. The learned departmental representative in the course of his arguments strongly supported the consolidated order of the CIT. His arguments thereafter proceeded on lines identical to those as had been adopted by the CIT in modifying the assessee's claim for depreciation on dumpers from 30 per cent to 15 per cent. The departmental representative also supported the action of the CIT insofar as the assumption of jurisdiction u/s 263 was concerned.

11. We have considered the rival submissions and have also perused the material on record to which our attention was invited by the parties. The paper book furnished by the assessee's counsel has also been looked into for the purpose of disposing of the present appeals.

12. It is apparent that although the assessee's business is that of 'construction of roads', the 'dumpers' are being used for the purpose of moving the earth which is a necessary prerequisite for road construction work. The work of road construction involves three stages, the first of which consists of moving the earth and thereafter the second stage involves the laying of the road and the third stage, which is the final one, involves the finishing work. The first stage of earth-moving is undertaken by dumpers whereas the other two stages are performed by various other types of road construction machinery such as road rollers, pavers etc. We are, however, for the present concerned with dumpers only and these are primarily being used for removing earth. Under these circumstances, dumpers would have to come up for consideration under Item III-D(4) of Appendix I, Part 1, Rule 5 and not under Item III-B(14) of the said Appendix. At this stage it would be necessary to reproduce the relevant entry viz. Item III-D(4) of Appendix I, Part 1 :

"(4) Earth-moving machinery employed in heavy construction works, such as dams, tunnels, canals, etc."

According to us the aforesaid description is only illustrative and not exhaustive since the word used is "etc.". We are also of the view that as far as earth-moving work is concerned it would be the same, whether the construction is that of a road, canal, dam or a tunnel. It would be the same dumper that would have to be used for this type of work although in some cases the earth-moving work may be more rigorous and tougher than in other cases. This, however, would not mean that dumpers being used for road construction work would cease to be "earth-moving machinery" and would become "Road Making Plant and Machinery".

13. At this stage, we would reproduce the circular issued by the Ministry of Industry and Company Affairs and to which our attention was invited by the assessee's counsel. This circular is on the following lines :

"Broad banding of industries for Earth Moving Machinery-- Clarification regarding.

(Issued by Ministry of Industry and Company Affairs, Department of Industrial Development vide their F. No. 1065/85 LP Press Note No. 28(1985 Series) dated 11-10-1985).

In the Department of Industrial Development's Press Note No. 15 (1985 Series) dated 17th June, 1985 schemes of Broad banding were announced in respect of 14 industries which also included Earth Moving Machinery Industry. The Earth Moving Machinery Industry was divided into the following two sub-categories :--

(a) Earth Moving Machinery including bull dozers, dumpers, scrappers, loaders, shovels and drag lines.

(b) Road rollers and vibratory compactors.

2. On further consideration of the matter, it has now been decided to categorise the Earth Moving Machinery Industry in the following manner :

(a) Earth Moving Machinery including bull dozers, dumpers, scrappers, loaders, shovels, vibratory compactors and drag lines (excluding walking drag lines)

(b) Walking drag lines

(c) Road rollers, hot-mix plants and other road-construction and bridge-construction machinery.

3. The entrepreneurs are requested to note the above mentioned changes."

14. A perusal of the aforesaid circular clearly shows that 'dumpers' have been classified as "earth-moving machinery".

15. In the final analysis, we would hold that the 'dumpers' being used by the assessee in road construction work would be entitled to depreciation at the rate of 30 per cent. We accordingly set aside the consolidated order of the CIT for all the three years under consideration and restore those of the ITO.

16. Before we part with these appeals, we would like to observe that action u/s 263 should be taken after a proper perusal of the records in respect of all the items which are sought to be encompassed within the said action. It would not be desirable to assume jurisdiction u/s 263 in respect of the same assessment year in respect of different items at different stages and at different points of time. This can never lend finality to an assessment order and puts an assessee to unnecessary harassment and protracted litigation. This situation could have been clearly avoided in the assessee's case in so far as assessment year 1978-79 was concerned.

17. In the result, all the three appeals are allowed.

 

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