1996 (7) TMI 80 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal was correct in allowing the Revenue's miscellaneous application on the basis that the investment allowance granted to the assessee for the assessment year 1985-86 contained an error apparent from the record.
2. Whether the Tribunal's decision on the investment allowance issue should be governed by the High Court's judgment in CIT v. Bhageeratha Engineering Ltd. [1992] 193 ITR 674, the Supreme Court's judgment in N. C. Budharaja's case [1993] 204 ITR 412, or the Supreme Court's observations in Builders Associations of India's case [1994] 209 ITR 877.

Issue-wise Detailed Analysis:

1. Tribunal's Allowance of Revenue's Miscellaneous Application:
The Tribunal allowed the Revenue's miscellaneous application on the basis that the investment allowance granted to the assessee for the assessment year 1985-86 suffered from an error apparent from the record. The Tribunal found that, in light of the Supreme Court's judgment in CIT v. N. C. Budharaja and Co. [1993] 204 ITR 412, the assessee was not entitled to the deduction of investment allowance for the assessment year 1985-86. Consequently, the Tribunal recalled its earlier order in ITA No. 511/Coch. of 1989, which had granted the investment allowance. The Tribunal's decision to rectify its previous order and withdraw the investment allowance was deemed appropriate, as it aligned with the Supreme Court's ruling in Budharaja's case.

2. Governing Decision for Investment Allowance Issue:
The Tribunal initially upheld the Commissioner of Income-tax (Appeals) order, which allowed the investment allowance based on the Tribunal's decision for the assessment years 1980-81 and 1981-82. However, the Tribunal later reconsidered this position in light of the Supreme Court's judgment in N. C. Budharaja's case, which clarified that the construction of a dam, bridge, building, road, canal, and similar constructions did not fall within the ambit of section 32A(2)(b)(iii). The Supreme Court's interpretation of terms like "production" and "articles" emphasized that these constructions did not constitute manufacturing or production of articles or things as contemplated under the relevant provision.

The Tribunal's reliance on the High Court's judgment in CIT v. Bhageeratha Engineering Ltd. [1992] 193 ITR 674, which had allowed investment allowance for earlier years, was challenged. The High Court's judgment was based on the Tribunal's finding that the assessee was an industrial undertaking engaged in manufacturing and processing materials used in construction. However, the Supreme Court's subsequent judgment in Budharaja's case overruled the Orissa High Court's decision, which had been referenced by the Division Bench in Bhageeratha's case.

The Supreme Court in Builders Associations of India's case clarified that its dismissal of the Revenue's appeal in Bhageeratha Engineering Ltd.'s case was based on the Tribunal's factual finding that the assessee was an industrial undertaking, and not on the interpretation of section 32A(2)(b)(iii).

Conclusion:
The Tribunal's decision to allow the Revenue's application for rectification and withdraw the investment allowance was justified, as it aligned with the Supreme Court's authoritative interpretation in N. C. Budharaja's case. The High Court dismissed the application for compelling reference, finding no referable questions involved, and upheld the Tribunal's rectification order.