1996 (2) TMI 83 - HC - Income Tax

Summary

Issues:
1. Rectifiability of mistake apparent under section 154 of the Income-tax Act, 1961.
2. Entitlement to investment allowance under section 32A of the Income-tax Act, 1961.

Analysis:

Issue 1: Rectifiability of mistake apparent under section 154
The case involved a dispute regarding the rectifiability of a mistake apparent under section 154 of the Income-tax Act, 1961. The assessee, a public company, had claimed investment allowance under section 32A of the Act for a specific unit. Initially, the allowance was allowed in the assessment, but later, the Inspecting Assistant Commissioner identified a mistake in allowing the said investment. The Commissioner believed that the unit was engaged in manufacturing a prohibited item under the Eleventh Schedule and was not a small-scale industrial undertaking, making it ineligible for the investment allowance. Consequently, the Commissioner rectified the mistake under section 154 by disallowing the claimed amount. The appellate authority and the Tribunal were involved in subsequent proceedings to determine the correctness of invoking section 154 in rectifying the mistake.

Issue 2: Entitlement to investment allowance under section 32A
The core of the second issue was the eligibility of the assessee for investment allowance under section 32A of the Income-tax Act, 1961. The Tribunal found that the unit in question was not a small-scale industrial undertaking, as evidenced by the value of machinery exceeding Rs. 10 lakhs. Additionally, the unit was involved in the manufacturing of sanitary pipes, falling under the category of prohibited items specified in the Eleventh Schedule. As a result, the Tribunal concluded that the assessee was not entitled to the investment allowance under section 32A. The Tribunal's decision was based on the clear provisions of the Act and the nature of the assessee's business activities, leading to the reversal of the Commissioner's findings.

In the final judgment, the High Court upheld the Tribunal's decision, emphasizing that the mistake regarding the unit's eligibility for investment allowance and the nature of the manufactured items was apparent from the record. The Court agreed that the rectification under section 154 was justified in this case, as the mistake was evident on the face of the record. Consequently, the questions of law were answered in favor of the Revenue and against the assessee, affirming the Tribunal's decision and the rectification made by the authorities under section 154 of the Income-tax Act, 1961.