9911796707
TMI Blog1989 (12) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... Air conditioner Rs. 10,792 --------------------- Rs. 3,15,277 --------------------- 3. The ITO noted in the assessment order that the assessee has not created any reserve during the year as prescribed under the provisions of section 32A(4)(ii) of the Income-tax Act and, therefore, deduction on account of investment allowance cannot be allowed during the relevant asst. year. 4. The assessee appealed to the CIT(A) who took the view that the computers do not either produce or manufacture any article and that the activities involved therein would fall within the concept of processing of goods. The CIT(A) further noted that the computers are installed in the office premises and so in view of the provision of section 32A(1)(a) such machinery and plant installed in office premises are not eligible for deduction of investment allowance. It was further noted that similar is the case in respect of the air conditioner. The CIT(A) thus confirmed the order of the ITO on the point, though for different reasons. Aggrieved, the assessee has come up in second appeal before the Tribunal. 5. Shri C.S. Aggarwal, Advocate appearing for the assessee submitted that the computers purchased b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claiming investment allowance on the new plant and machinery purchased and installed during the year. It was further submitted that the benevolent circulars issued by the CBDT are binding on all Income-tax authorities even if they detract from the law or an express provision contained in a statute. Shri Aggarwal further submitted that the decision of the Supreme Court in the case of Shri Shubhlaxmi Mills Ltd. v. Addl. CIT [1989] 177 ITR 193 which was concerned with the provisions relating to the grant of development rebate under section 33(1) read with section 34(3)(a) of the Income-tax Act, 1961 was not applicable in the instant case for the reason that the provisions of section 32A(4)(ii) are not in pari materia with the provisions of section 34(3)(a) governing the grant of development rebate under section 33. According to Shri Aggarwal, even if the said decision of the Supreme Court was held applicable in instant case, the benevolent circulars of the Board would prevail as they would be binding on the Income-tax authorities. 7. Shri Satish Khosla, learned Departmental Representative, on the other hand, fully supported the impugned order of the CIT(A). It was further contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Reserve Account') to be utilised-- " 9. The provisions governing grant of development rebate are contained in sections 33 and 34. Section 34(3)(a) reads as under :-- " The deduction referred to in section 33 shall not be allowed unless an amount equal to seventy-five per cent of the development rebate to be actually allowed is debited to the profit and loss account of the relevant previous year and credited to a reserve account to be utilised by the assessee during a period of eight years next following for the purposes of the business of the undertaking, other than--- " 10. A comparison of the provisions contained in section 32A(4)(ii) and section 34(3)(a) does go to show that the provisions relating to the grant of investment allowance are in pari materia with the provisions governing the grant of development rebate. 11. In Shri Shubhlaxmi Mills Ltd.'s case. Their Lordships of the Supreme Court considered the provisions of section 33(1) and section 34(3)(a) and held that in order to claim deduction on account of development rebate under section 33(1) it is obligatory that debit entries in the profit and loss account and the credit entry in the reserve account should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that case clearly deviated from the provisions of the Act, yet it was held by the Court that the circular was binding on the Income-tax authorities. These earlier decisions were followed by the Supreme Court in K.P. Varghese v. ITO [1981] 131 ITR 597 wherein it was held that the circulars of the CBDT are binding on the Revenue. It was held by Their Lordships that it is now well settled as a result of two decisions, one in Navnit Lal C. Javeri's case and the other in Ellerman Lines Ltd.'s case that circulars issued by the CBDT under section 119 of the Act are binding on all officers and persons employed in the execution of the Act even if they deviate from the provisions of the Act. In view of these decisions of the Supreme Court it must he held that the circulars of the Board even if they deviate from the law or from the provisions of the Act are binding on all Income-tax authorities, with the result that they are bound to frame assessments in accordance with the instructions of the CBDT issued under section 119 even if such instructions deviate from the law. Here it will also be useful to refer to a decision of the Kerala High Court in CIT v. Punalur Paper Mills Ltd. [1988] 170 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed while considering the adequacy of the reserve created in respect of the grant of investment allowance also. Though these circulars of the CBDT deviate from the relevant provisions of the Income-tax Act, 1961, in view of the law as enunciated by the Supreme Court in the case of Shri Subhlaxmi Mills. Ltd. they are binding on the Income-tax authorities and the ITO was, therefore, bound to follow the instructions contained in these circulars while considering the claim of the assessee for grant of investment allowance. In view of these circulars the assessee was not required to create investment allowance reserve during the year as there were no income in this year. Such reserve should be created in the year when there is income. In view of the Board's circulars it must be held that the assessee's claim for investment allowance was not disallowable on the ground that no reserve has been created during this year. 16. As has already been pointed out above, the CIT(A) upheld the order of the ITO for different reasons. He was of the view that the computers do not either produce or manufacture any article. On this point there is a decision of the Bangalore Bench of the Tribunal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year is installed in the administrative office of the assessee or it is installed in the room where the computers are installed. Therefore, it will be necessary to restore this issue to the file of the ITO. In view of what has been said above, we hold that the assessee is entitled to investment allowance on computers purchased and installed during the year even though no reserve has been created in this year. The investment allowance, however, shall be actually allowed only in the year in which there is income and it is in that year that reserve will have to be created by the assessee. The quantum of invesunent allowance has to be determined by the assessing officer and deduction in respect thereof shall be allowed in accordance with the provisions of section 32A(3). However, before the investment allowance is actually allowed, the assessing officer will have to ascertain whether the requirement of creating reserve is fulfilled in accordance with the instructions issued by the CBDT in the aforesaid circulars. 18. The assessing officer shall ascertain if the airconditioner purchased during the year has been installed in the room in which the computers are installed or if it is i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed on the ground that they were incurred on providing food, refreshments etc. to the employees in the office premises. So the total disallowance will be restricted to Rs. 7,088. The assessment shall be modified accordingly. 22. The last ground states that the CIT(A) erred in not disposing of the additional ground of appeal filed at the time of hearing relating to the disallowance of Rs. 9,125 under section 40A(3). The assessee has filed a copy of the additional ground of appeal said to have been filed before the CIT(A) disputing the disallowance of Rs. 9,125 under section 40A(3). This additional ground has not been considered by the CIT(A) in the impugned order. Shri C.S. Aggarwal stated at the bar that he had represented the assessee before the CIT(A) and that the additional ground, a copy whereof is included in the paper book, was in fact filed before the CIT(A). The learned Departmental Representative was not in a position to controvert this fact for the reason that he did not have with him the record of the CIT(A). After hearing the learned authorised representatives of the parties, we are of the opinion that it will be proper to give necessary directions to the CIT(A) in ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
