1987 (11) TMI 123 - AT - Income Tax

Summary

Issues:
1. Entitlement to investment allowance for fabrication contractor.
2. Disallowance of depreciation on plant and machinery.
3. Cash credit disallowance for unconfirmed creditor.
4. Credit disallowance for unexamined creditor.

Entitlement to Investment Allowance:
The case involved appeals by an assessee, a fabrication contractor, for the assessment years 1982-83 and 1983-84 regarding the claim of investment allowance. The Income-tax Officer and the Commissioner of Income-tax (Appeals) disallowed the investment allowance, stating that the assessee did not produce new articles but only rendered services for fabricating materials supplied by principals. However, the assessee contended that it manufactured cranes, tanks, and other articles using large machinery, justifying the investment allowance claim. The tribunal analyzed the fabrication process, noting that the raw materials were transformed into new articles like cranes and tanks, distinct from the original materials. Citing various precedents, including cases where tailoring, printing, retreading tires, and construction activities were considered manufacturing, the tribunal held that the assessee was entitled to investment allowance as it produced new articles or things.

Depreciation Disallowance and Cash Credit Issues:
In the assessment year 1983-84, the tribunal addressed the disallowance of depreciation on plant and machinery and cash credit issues. While the depreciation rate ground was not pressed, the tribunal directed the Commissioner of Income-tax (Appeals) to consider the disallowance of depreciation on plant and machinery. Regarding the cash credits, the tribunal upheld the addition of Rs. 66,000 due to the absence of documentation and genuineness of the loan. However, for another credit of Rs. 10,000, the tribunal noted that a confirmatory letter was submitted, but the Commissioner (Appeals) did not examine the creditor. The tribunal remitted this issue back to the Commissioner (Appeals) for further examination to determine the genuineness of the credit. Ultimately, the appeals were partly allowed for statistical purposes.

In conclusion, the judgment clarified the entitlement of a fabrication contractor to investment allowance based on the manufacturing process, addressed the depreciation disallowance and cash credit issues for the assessment year 1983-84, and emphasized the importance of examining creditors for credit transactions.