2015 (5) TMI 218 - HC - Income Tax

Investment allowance under Section 32A disallowed - Held that - The contract dated 18.08.1986 was not a new contract but only a continuation or in other words modification of the existing contract dated 02.05.1986 as there was a price escalation and improvement of product. Even the insurance which was covered by shipper was also taken on 09.06.1986 which was prior to 12.06.1986. The finding of fact recorded by the CIT(A) is in consonance with section 32A(8B) of the Act. The Tribunal has erred in taking a contrary view and has misinterpreted section 32A(8B) of the Act and the facts are not properly appreciated. However, the assesee shall be entitled only to deduction on the amount which was referred in the contract dated 02.05.1986 which on pro-rata basis comes to ₹ 47,25,633/- and 20% of the same comes to ₹ 9,45,126/-. We therefore answer the question raised in the present appeal in the affirmative to that extent. The assessee shall be entitled to deduction on investment allowance to the extent of ₹ 9,45,126/- - Decided partly in favour of assessee.

Summary

Issues:
1. Interpretation of Section 32A of the Income Tax Act regarding investment allowance eligibility.
2. Validity of the contract for the purchase of machinery before the specified cut-off date.

Issue 1: Interpretation of Section 32A of the Income Tax Act regarding investment allowance eligibility
The case revolved around the eligibility of the assessee for claiming investment allowance under Section 32A of the Income Tax Act. The assessee, engaged in manufacturing quartz parts for electronic watches, claimed investment allowance for assets installed between specific dates. The Assessing Officer initially disallowed the claim, stating the assets were purchased after the cut-off date. The CIT(A) allowed the claim, but the ITAT reversed this decision. The key contention was whether the contract for the purchase of machinery was made before the specified date of 12.06.1986, as required by Section 32A(8B) of the Act.

Issue 1 Analysis:
The primary argument put forth by the assessee's counsel was based on the provisions of sub clause 8(b) of Section 32A of the Income Tax Act. The counsel highlighted the documents submitted by the assessee, emphasizing the importance of the contract date for the machinery purchase. The Tribunal's order and the details furnished by the assessee were scrutinized to determine the validity of the investment allowance claim. The counsel referenced specific paragraphs of the impugned order and the CIT(A)'s observations to support the contention that the contract for machinery purchase was indeed made before the cut-off date.

Issue 2: Validity of the contract for the purchase of machinery before the specified cut-off date
The second major issue focused on the validity of the contract for the purchase of machinery before the specified cut-off date of 12.06.1986. The revenue contended that the assessee failed to provide sufficient evidence to prove the contract date, leading to the dismissal of the investment allowance claim. The Tribunal upheld this decision, stating no investment allowance was allowable under Section 32A(8B) of the Act.

Issue 2 Analysis:
The Court analyzed the relevant provisions of Section 32A(8B) of the Act, emphasizing the requirement for evidence of the contract date before claiming investment allowance. A detailed examination of the documents, including the revised contract dated 18.08.1986 and the advance payment to Nicks Shipping, was conducted to ascertain the validity of the contract date. The Court concluded that the contract dated 18.08.1986 was a modification of the existing contract dated 02.05.1986, supported by evidence of price escalation and product improvement. The CIT(A)'s findings aligned with the legal provisions, indicating that the appellant had indeed entered into the contract before the specified date. Consequently, the Court partially allowed the appeal, granting deduction on the investment allowance to the extent specified in the contract dated 02.05.1986.

In conclusion, the judgment delved into the intricate details of the case, focusing on the interpretation of statutory provisions and the validity of the contract date for claiming investment allowance under Section 32A of the Income Tax Act. The Court's analysis and decision provided clarity on the eligibility criteria and evidentiary requirements for investment allowance claims, ensuring adherence to legal standards and precedents.