2022 (12) TMI 1263 - AT - Income Tax

Investment allowance u/s. 32AC(1A) - Investment in new plant or machinery. - AO has disallowed the claim of the assessee on the ground that the assessee has not furnished any explanation nor has it provided any supporting evidence to substantiate its claim - A.O. has disallowed the same on the ground that the assessee company has not earned any trading and manufacturing activity for the year ending 31.03.2017 and that the income from manufacturing and sale of sweets and namkeen is declared as Nil - Also assessee has shown fixed asset under capital work-in-progress and has not claimed any depreciation on fixed assets for the impugned year - HELD THAT - The pre condition for claiming deduction as per the provision of section 32AC of the Act is that the assessee ought to have acquired and installed new assets during any previous year which exceeds Rs.25 crores on or before 31.03.2017. The assessee has in fact furnished copy of certificate of M/s. Khedkar and Associates Consultant P. Ltd. indicating that the said plant and machinery was installed by the assessee on or before 31.03.2017, along with supporting documents. This facts has not been denied by the lower authorities. The assessee company has commenced sale on 29.04.2017 and state that the said fact is sufficient to prove that the plant and machineries were installed prior to this as it was impossible to commence the sale without preliminary work such as trial production of run, training of personnel, etc. much before the commencement of sale. The A.O. has only relied on the audited profit and loss account which disclosed loss due to excess of expenses and also the audited balance sheet and the return of income. It is pertinent to point out that the provision of section 32AC is a beneficial provision inserted vide Finance Act, 2014 to promote and encourage business of manufacture or production of any article or a thing by way of investment allowance for plant or machinery and for this purpose even the threshold limit of investment was reduced from Rs.100 crores to Rs.25 crores. This clearly implies that the said beneficiary provision is to be construed so as to entitle the assessee with the benefit of additional deduction. A.O. in the present case has only relied on the audited P L account, balance sheet and the return of income of the assessee and has not gone beyond to enquire into the credibility of the documentary evidences furnished by the assessee to substantiate its claim. We would also like to place our reliance on the decision of the co-ordinate bench in the case of SNJ Distillers Pvt. Ltd. (supra) which has dealt with the similar issues and has held in favour of the assessee.

Summary

Issues:
- Challenge to the order of the learned Commissioner of Income Tax (Appeals) by the Revenue regarding the deletion of investment allowance claimed under section 32AC(1A) of the Income Tax Act, 1961.
- Dispute over the installation of new plant and machinery and eligibility for deduction under section 32AC(1A) of the Act.

Analysis:

Issue 1: Investment Allowance Claim under Section 32AC(1A)
- The Revenue challenged the order of the Commissioner of Income Tax (Appeals) regarding the deletion of the claimed investment allowance under section 32AC(1A) of the Income Tax Act, 1961. The assessee, a private limited company engaged in sweets and namkeen production, claimed an investment allowance of Rs. 14,12,48,379, being 15% of the total installed machinery value. The Assessing Officer (A.O.) disallowed the claim, citing lack of trading and manufacturing activity for the year and absence of evidence to substantiate the claim.
- The Commissioner of Income Tax (Appeals) noted that the assessee provided evidence of machinery installation before 31.03.2017, including a certificate from a Chartered Engineer, invoices, and electricity bills for trial runs. The Commissioner held that the assessee was entitled to the deduction under section 32AC(1A) based on the evidence submitted.
- The Revenue contended that the assessee did not show new plant and machinery in the balance sheet and failed to prove actual installation. However, the Authorized Representative argued that all necessary evidence was submitted, relying on legal precedents such as the Supreme Court and High Court decisions.
- The Tribunal observed that the assessee furnished supporting evidence of machinery acquisition and installation. The A.O. denied the deduction based on lack of proof of installation, but the Tribunal found no infirmity in the Commissioner's decision to allow the claim. The Tribunal emphasized the beneficial nature of section 32AC and directed the A.O. to delete the disallowed deduction.

Issue 2: Installation of New Plant and Machinery
- The dispute centered on whether the assessee met the criteria for deduction under section 32AC(1A) due to the installation of new plant and machinery. The A.O. contended that the assessee was only contemplating production, not engaged in it, and thus ineligible for the deduction. However, the assessee provided evidence of machinery installation and trial runs before the relevant date.
- The A.O. based the denial on the balance sheet showing capital work-in-progress and lack of depreciation claims. The assessee clarified that depreciation was not claimed due to the trial run stage and that the machinery installation was completed before the deadline. The Tribunal agreed with the Commissioner's decision, emphasizing the assessee's compliance with the statutory requirements for the deduction.
- Legal interpretations from the Supreme Court and High Court decisions supported the assessee's position that engaging in business includes preparatory stages and trial runs. The Tribunal upheld the Commissioner's order, dismissing the Revenue's appeal and directing the A.O. to delete the disallowed addition.

This detailed analysis outlines the key issues, arguments, and legal interpretations involved in the judgment regarding the claimed investment allowance under section 32AC(1A) of the Income Tax Act, 1961.