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Issues:
Whether the Income-tax Appellate Tribunal was justified in allowing investment allowance under section 32A for plant and machinery used in manufacturing cigarette filter rods as per the Eleventh Schedule. Analysis: The case involved a reference under section 256(1) of the Income-tax Act, 1961, regarding the allowability of investment allowance under section 32A for plant and machinery used in manufacturing cigarette filter rods. The assessee claimed investment allowance for plant and machinery, excluding a pedestal fan and a deep chilling machine. The Income-tax Officer allowed the investment allowance on the balance cost of the plant and machinery. The Commissioner of Income-tax observed doubts regarding the classification of cigarette filter rod under the Eleventh Schedule and remanded the matter. The Income-tax Appellate Tribunal disagreed with the Revenue's view and allowed the investment allowance. The main issue was whether the manufacture of cigarette filter rods fell within entry No. 27 of the Eleventh Schedule. Upon review, the High Court analyzed the provisions of section 32A, which allows investment allowance for plant and machinery used in industrial undertakings. The Revenue argued that cigarette filter rods were covered under entry No. 27 of the Eleventh Schedule, which mentions "Crown corks, or other fittings of cork, rubber, polyethylene or any other material." The assessee contended that cigarette filter rods were made from different materials and served a different purpose. The High Court examined the Eleventh Schedule and concluded that cigarette filter rods were distinct from the items listed in entry No. 27. The court highlighted the functional difference between crown corks and cigarette filters, emphasizing that they served different purposes. As a result, the High Court upheld the decision of the Income-tax Appellate Tribunal to allow the investment allowance for plant and machinery used in manufacturing cigarette filter rods. In conclusion, the High Court found no error in the decision of the Income-tax Appellate Tribunal and ruled in favor of the assessee, allowing the investment allowance under section 32A for the plant and machinery involved in producing cigarette filter rods. The reference was disposed of accordingly, with no order as to costs.
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