2003 (2) TMI 50 - HC - Income Tax

Whether, Tribunal was right in law in confirming the order of the Commissioner of Income tax (Appeals) in directing the Assessing Officer to allow the claim of the assessee under section 32AB of the Income-tax Act, 1961, in spite of the fact that the assessee had failed to furnish the prescribed particulars of machineries and also the audit account under section 32AB(5) in support of its claim? - Whether, Tribunal was right in law in confirming the findings of the Commissioner of Income-tax (Appeals) that capitalization of certain machineries amounted to purchase of machineries and hence the same were eligible for deduction under section 32AB of the Income-tax Act, 1961? - Whether, Tribunal was right in law in confirming the order of the Commissioner (Appeals) in holding that deduction under section 80-I will be available to the assessee in spite of the fact that the unit started manufacturing prior to April 1, 1988? - we answer the said question in the affirmative, i.e., in favour of the assessee and against the Department.

Summary

Issues Involved:
1. Deduction under Section 32AB for failure to furnish prescribed particulars and audit report.
2. Eligibility for deduction under Section 32AB for capitalized machinery.
3. Deduction under Section 32AB for amounts capitalized from work-in-progress of earlier years.
4. Deduction under Section 80-I for units manufacturing prior to April 1, 1988.
5. Applicability of the Eleventh Schedule amendment to both old and new units.
6. Inclusion of service charges, maintenance revenue, and lease rent as income derived from industrial undertaking under Section 80-I.
7. Addition to total income on account of unutilized Modvat credit.

Detailed Analysis:

Question No. 1:
The issue is whether the Tribunal was correct in allowing the assessee's claim under Section 32AB despite the failure to furnish prescribed particulars of machinery and the audit report under Section 32AB(5). The Department argued that the deduction was inadmissible without the audit report submitted with the return of income. The court found no merit in this argument, noting that the audit report was present in the Assessing Officer's file and there was no finding that it was not submitted with the return. The Commissioner of Income-tax had also remanded the matter for better particulars, indicating that the prescribed particulars were supplied. Thus, the question was answered in favor of the assessee.

Question No. 2:
The issue concerns whether capitalization of certain machineries amounts to purchase of machinery eligible for deduction under Section 32AB. The Department argued that internal capitalization did not qualify for the deduction, as it did not constitute a purchase. The court rejected this argument, stating that if an assessee manufactures a machine and transfers it at cost to its business, it qualifies for the deduction under Section 32AB(1)(b). Therefore, the question was answered in favor of the assessee.

Question No. 3:
This question addresses whether the assessee is entitled to deduction under Section 32AB for amounts capitalized under "Plant and machinery" from work-in-progress of earlier years. The Assessing Officer contended that the asset should have been generated from the current year's profits. The court found no merit in this argument, noting that the assessee had succeeded on this point in earlier years and the Department had not challenged it. The court held that Section 32AB does not restrict the amount to be spent only from the current year's profit but from income chargeable to tax. Thus, the question was answered in favor of the assessee.

Question No. 4:
The issue is whether the assessee is entitled to deduction under Section 80-I despite starting manufacturing prior to April 1, 1988. The Department argued that the exclusion of computers from the Eleventh Schedule applied only after April 1, 1988. The court found no merit in this argument, stating that the Eleventh Schedule excluded computers from being classified as office machines or luxury items. Therefore, the assessee was entitled to the deduction under Section 80-I, and the question was answered in favor of the assessee.

Question No. 5:
This question addresses whether the amendment to the Eleventh Schedule excluding computers applies to both old and new units commencing production after April 1, 1988. The court held that the benefit of the amendment applies to both old and new units. It noted that data processing machines and computers could not be compared to typewriters and other office machines listed in item 22. Thus, the question was answered in favor of the assessee.

Question No. 6:
The issue is whether the assessee is entitled to deduction under Section 80-I on service charges, maintenance revenue, and lease rent. The Assessing Officer excluded these receipts from eligible profits, arguing they were not derived from manufacturing operations. The court found that there was a direct nexus between these receipts and the assessee's main business activity. Thus, the question was answered in favor of the assessee.

Question No. 7:
The issue concerns the deletion of an addition made by the Assessing Officer on account of unutilized Modvat credit. The Department conceded that this issue was covered by a prior judgment of the Bombay High Court. Thus, the question was answered in favor of the assessee.

Conclusion:
The appeal was dismissed, and all questions were answered in favor of the assessee and against the Department. No order as to costs was made.