Share capital, plant depreciation and investment allowance issues turned on proof, functional use, and business nexus under tax law.

Share application/share capital addition was held unsustainable where the assessee furnished confirmation, the creditor's identity was not in dispute, and summons of the creditor had been sought, showing discharge of the primary burden. Electric installations used in manufacturing were treated as plant and machinery under the functional test, so higher depreciation was allowed. Depreciation on pre-operative expenses was rejected because no nexus with acquisition or creation of a capital asset was shown. The question of 100% depreciation on small plant items was remitted for fresh verification of individual costs and bills. Investment allowance on the specified machinery was allowed as the items were used as business plant and the statutory conditions were satisfied.

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Issues: (i) whether the addition made towards share application money was sustainable when the assessee had furnished confirmation and sought summons of the creditor, (ii) whether electric installations formed part of plant and machinery for the purpose of depreciation, (iii) whether depreciation could be allowed on pre-operative expenses, (iv) whether 100% depreciation on small plant and machinery items required fresh examination, and (v) whether investment allowance on the specified machinery items was allowable.

Issue (i): whether the addition made towards share application money was sustainable when the assessee had furnished confirmation and sought summons of the creditor.

Analysis: The assessee had given a specific request to the Assessing Officer to summon the creditor, and the identity of the depositor was not in dispute. The confirmation letter and surrounding material showed that the assessee had discharged the primary burden to explain the credit. The same approach was applied while considering the Revenue's challenge to the deletion of addition in respect of share capital, where the investors' identity and the genuineness of the transactions were found established.

Conclusion: The addition was not sustainable and the deletion of the share application/share capital addition was upheld in favour of the assessee.

Issue (ii): whether electric installations formed part of plant and machinery for the purpose of depreciation.

Analysis: The electric installations were used for the manufacturing business and were not shown to be part of the premises merely as a building feature. Applying the functional test of plant and the broad meaning given to plant in prior decisions, the installations were treated as apparatus used for carrying on the business and not as part of the factory building. The depreciation claim therefore had to be examined under the rate applicable to plant and machinery.

Conclusion: The electric installations were held to be plant and machinery and depreciation at the higher rate was allowable in favour of the assessee.

Issue (iii): whether depreciation could be allowed on pre-operative expenses.

Analysis: The assessee did not establish that the pre-operative expenses were incurred for acquiring or creating plant, machinery, or other capital assets. The burden remained on the assessee to show the nexus between the expenses and the cost of the asset sought to be capitalized, and that burden was not discharged on the record.

Conclusion: The claim for depreciation on pre-operative expenses was rejected against the assessee.

Issue (iv): whether 100% depreciation on small plant and machinery items required fresh examination.

Analysis: The factual position as to the cost of each individual item was not properly examined by the authorities below, and the bills needed verification to determine whether each item fell within the threshold for 100% depreciation. The matter therefore required factual re-examination by the Assessing Officer under the governing depreciation provision.

Conclusion: The issue was remitted to the Assessing Officer for fresh examination and was allowed for statistical purposes.

Issue (v): whether investment allowance on the specified machinery items was allowable.

Analysis: The items in question were treated as plant and machinery used for the business, and the Department did not dispute either the cost or the business user of the equipments. In those circumstances, the statutory conditions for investment allowance were satisfied.

Conclusion: The investment allowance claim was allowed in favour of the assessee.

Final Conclusion: The assessee succeeded on the principal issues relating to share capital, depreciation on electric installations, and investment allowance, while the claim regarding pre-operative expenses failed and one depreciation issue was restored for verification, leaving the overall result partly in favour of the assessee.

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