1991 (3) TMI 193 - AT - Income Tax

Summary

Issues:
1. Disallowance of investment allowance, deduction under s. 80HH, and deduction under s. 80J in the original assessment for the asst. yr. 1982-83.
2. Entitlement to investment allowance under s. 32A of the IT Act for machinery used in two units - mosaic tiles and wood work.
3. Treatment of subsidy received from the Government for calculating depreciation allowance.

Analysis:

Issue 1: Disallowance of Deductions
In the original assessment for the asst. yr. 1982-83, deductions under s. 80HH and s. 80J were disallowed by the ITO. The CIT(A) remitted the matter back to the ITO for further examination. The ITAT held that the department's grievance regarding the CIT(A)'s decision was not maintainable as the CIT(A) had not allowed the deductions initially. Therefore, the ground of disallowance was dismissed.

Issue 2: Entitlement to Investment Allowance
Regarding the claim for investment allowance under s. 32A of the IT Act for machinery used in the mosaic and wood work units, the ITO had denied the claim stating that the units were auxiliary and not entitled to the allowance. The CIT(A) allowed the claim based on the units being owned by the assessee and solely used for manufacturing purposes. The ITAT upheld the CIT(A)'s decision, emphasizing that the end user of the products was not a criterion for denying the investment allowance. The rationale behind investment allowance is to promote industrial development, especially in small scale industries. The ITAT distinguished a Bombay case cited by the department, stating it was not applicable to the current scenario. Therefore, the departmental appeal was dismissed.

Issue 3: Treatment of Subsidy for Depreciation
The question in this appeal was whether the subsidy received by the assessee from the Government should be considered in calculating the depreciation allowance. The Assessing Officer argued that the subsidy would reduce the cost of the plant and machinery, affecting depreciation. However, the CIT(A) held otherwise. The ITAT referred to a decision by the jurisdictional High Court, which supported the assessee's position. Consequently, the ITAT declined to interfere, leading to the dismissal of the departmental appeal.

In conclusion, the ITAT upheld the CIT(A)'s decisions regarding the entitlement to investment allowance and the treatment of subsidy for depreciation, dismissing the departmental appeals in both instances.