1993 (8) TMI 269 - AT - Income Tax

Summary

Issues Involved:
1. Delay in filing appeals.
2. Disallowance of investment allowance on plant and machinery for industrial alcohol.
3. Disallowance under section 43B for sales-tax.

Detailed Analysis:

1. Delay in Filing Appeals:
The appeals were filed with a delay of six days. The delay was attributed to the laxity of the Chartered Accountant despite the appeal memo being prepared in time. The Tribunal condoned the delay and admitted both appeals.

2. Disallowance of Investment Allowance:
The main issue for assessment years 1983-84 and 1984-85 was the disallowance of investment allowance claimed on plant and machinery installed in the Industrial Alcohol Section. The assessee argued that the machinery was used exclusively for manufacturing industrial alcohol, not for potable alcoholic spirits. The ITO disallowed the claims, stating that industrial alcohol falls within item 1 of the Eleventh Schedule of the Income-tax Act, 1961, which includes "Beer, wine and other alcoholic spirits."

The CIT(A) upheld the disallowance, rejecting the assessee's reliance on previous Tribunal decisions and the argument that the prohibition applied only to intoxicating liquors like rum and whisky. The Tribunal, however, analyzed the term "other alcoholic spirits" using principles of noscitur a sociis and ejusdem generis, concluding that it refers only to alcoholic beverages meant for human consumption. Thus, industrial alcohol does not fall within the Eleventh Schedule, and machinery used exclusively for its production is eligible for investment allowance.

However, the Tribunal noted the difficulty in distinguishing between machinery used for rectified spirit (an intermediary product) and industrial alcohol. It directed the Assessing Officer to ascertain which machinery was used exclusively for converting rectified spirit to industrial alcohol and grant investment allowance accordingly, provided other conditions like creation of reserves are met.

3. Disallowance Under Section 43B:
For assessment year 1984-85, the issue was the disallowance of Rs. 6,45,800 under section 43B. The assessee argued that section 43B applies only when there is a debit to the profit and loss account, which was not the case here. The Tribunal rejected this argument, citing Supreme Court decisions that sales-tax collection, even if not separately credited or debited, constitutes part of sales.

The main contention was that the sales-tax collected at the end of the accounting year was paid in the next year within the due dates. The Tribunal referred to the Karnataka High Court decision in Chief Commissioner (Admn.) v. Sonjay Sales Syndicate, which held that the first proviso to section 43B (introduced by the Finance Act, 1987) is declaratory and applies retrospectively. The Tribunal directed the Assessing Officer to verify if the sales-tax was paid within the due dates and allow the corresponding reduction in disallowance.

Conclusion:
Both appeals were partially allowed. The Tribunal condoned the delay in filing, clarified the eligibility of investment allowance for industrial alcohol machinery, and directed the Assessing Officer to verify and allow reductions under section 43B based on timely sales-tax payments.