1985 (10) TMI 284 - AT - Income Tax

Summary

Issues Involved:
1. Whether the assessee-firm qualifies as an industrial undertaking entitled to investment allowance under Section 32A of the Income-tax Act, 1961.
2. Whether the assessment orders passed by the Income Tax Officer (ITO) were erroneous and prejudicial to the interests of the revenue.
3. Whether the Commissioner of Income-tax was justified in passing orders under Section 263 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Whether the assessee-firm qualifies as an industrial undertaking entitled to investment allowance under Section 32A of the Income-tax Act, 1961:

The assessee-firm, engaged in the construction of thermal power stations and other building activities, was initially allowed investment allowance by the ITO on new plant and machinery installed for carrying out its business. The Commissioner, however, opined that the assessee-firm was not engaged in manufacturing, construction, or production, and thus should not have been treated as an industrial undertaking eligible for investment allowance. The Tribunal considered the Full Bench decision in the case of ITO v. Hydle Constructions (P.) Ltd., which held that companies engaged in construction activities could be treated as industrial undertakings if they met the relevant criteria. The Tribunal concluded that the assessee-firm could be considered an industrial undertaking under Section 32A(2)(6)(vi) of the Income-tax Act, 1961, and thus eligible for investment allowance.

2. Whether the assessment orders passed by the Income Tax Officer (ITO) were erroneous and prejudicial to the interests of the revenue:

The Commissioner argued that the ITO's orders were erroneous and prejudicial to the interests of the revenue because the ITO did not provide specific reasons for allowing the investment allowance and did not ascertain the relevant facts to determine whether the assessee qualified as an industrial undertaking. The Tribunal noted that the ITO, by allowing the investment allowance, implicitly considered the assessee as an industrial undertaking. However, the ITO did not explicitly state the reasons for this conclusion. The Tribunal agreed with the Commissioner that the lack of detailed reasoning and fact-finding by the ITO rendered the assessment orders erroneous and prejudicial to the interests of the revenue.

3. Whether the Commissioner of Income-tax was justified in passing orders under Section 263 of the Income-tax Act, 1961:

The Tribunal acknowledged the Commissioner's authority under Section 263 to revise orders that are erroneous and prejudicial to the interests of the revenue. The Commissioner directed the ITO to make fresh assessments after considering the relevant facts and the definition of an industrial undertaking. The Tribunal upheld the Commissioner's decision to set aside the assessment orders but clarified that the matter should remain open before the ITO, who must decide the issue afresh in light of the Tribunal's observations and in accordance with the law.

Separate Judgments Delivered by the Judges:

Judicial Member's View:
The Judicial Member agreed with the Commissioner that the ITO's orders were erroneous due to the lack of detailed reasoning and fact-finding. He supported the Commissioner's decision to set aside the assessment orders and directed the ITO to make fresh assessments.

Accountant Member's View:
The Accountant Member disagreed with the Judicial Member, arguing that the ITO had made relevant inquiries and verified the claims before allowing the investment allowance. He believed that the Commissioner's sole objection was based on the nature of the assessee's business as a contractor, which was contrary to the Full Bench decision in Hydle Constructions (P.) Ltd. The Accountant Member opined that the assessment orders should be restored, and the Commissioner's orders under Section 263 should be set aside.

Third Member's Opinion:
The Third Member sided with the Accountant Member, emphasizing that the Full Bench decision in Hydle Constructions (P.) Ltd. explicitly held that contractors engaged in construction activities could be considered industrial undertakings eligible for investment allowance. He concluded that the ITO had made the necessary inquiries, and there was no need for further investigation. The Third Member recommended setting aside the Commissioner's orders and restoring the assessment orders.

Conclusion:
The majority opinion favored the view that the assessee-firm qualifies as an industrial undertaking entitled to investment allowance, and the ITO's assessment orders should be restored. The appeals filed by the assessees were allowed, and the orders passed by the Commissioner under Section 263 were set aside.