1989 (7) TMI 156 - AT - Income Tax

Summary

Issues:
Claim for investment allowance for asst. yr. 1980-81.

Detailed Analysis:
The appeal pertains to the claim for investment allowance by the assessee for the assessment year 1980-81. The primary issue revolves around the timing of claiming the investment allowance concerning the purchase and installation of machinery in the preceding year. The Income Tax Officer (ITO) contended that the allowance should have been claimed in the year the machinery was purchased and not in the subsequent year when the claim was made. The assessee, on the other hand, relied on a circular issued by the Central Board of Direct Taxes (CBDT) to support their claim for investment allowance in the later assessment year.

The contention of the assessee was based on the argument that the circular issued by the CBDT supported their claim for investment allowance in the year 1980-81, even though the machinery was purchased and installed in the previous year. The assessee's counsel highlighted that the reserve for investment allowance was created in the year 1980-81 due to profits, making them eligible for the allowance as per the circular.

In contrast, the departmental representative cited a Supreme Court decision to argue against allowing the investment allowance to the assessee. The representative relied on the case of Shri Subhlaxmi Mills Ltd. vs. Addl. CIT to support the stance that the investment allowance could not be granted to the assessee.

The legal battle further delved into the interpretation of circulars and their binding nature on tax authorities. The assessee's counsel argued that even if there is a Supreme Court decision, circulars of a benevolent nature issued by the CBDT should be followed, as emphasized in various judicial precedents. The counsel referred to decisions by the Supreme Court and High Courts, including the Gujarat High Court and Bombay High Court, to support the argument that benevolent circulars should be binding and assist the assessee in claiming allowances.

Ultimately, the Appellate Tribunal, considering the various legal precedents and circulars, ruled in favor of the assessee. The Tribunal held that the benevolent circular of the CBDT should be followed, allowing the investment allowance claimed by the assessee for the assessment year 1980-81. The order of the Assessing Officer was set aside, and the Tribunal directed the ITO to grant the investment allowance as per the Board's Circular No. 189 dated 30th January 1976.

In conclusion, the appeal of the assessee was allowed based on the interpretation of legal provisions, circulars, and judicial decisions, highlighting the significance of benevolent circulars in tax matters.