9911796707
TMI Blog1993 (5) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... wance and brought forward losses, unabsorbed depreciation and investment allowance of earlier years. 2. Ground No. (i) The assessment year involved is 1989-90. The assessee was observing the calender year as its previous year. However, in view of amendment of s. 3 of the IT Act, 1961 with effect from the instant asst. yr. 1989-90, this year consisted of 15 months from 1st Jan., 1988 to 31st March, 1989. 3. It is beyond dispute that the assessee installed new solvent extraction plant for manufacturing oil cake and oil from soya seed of 200 MT per day capacity in addition to the existed plant of 100 MT per day capacity. That new plant was installed during the period April, 1987 to January, 1988, that is to say, after the 31st March, 1987 and before the 1st April, 1988. The production was started on the 9th March, 1988. The assessee claimed investment allowance on the said plant at Rs. 36,18,035 under s. 32A(8B) of the Act. It was negatived concurrently by the Assessing Officer and the first appellate authority on the ground that for getting benefit of the investment allowance, the assessee failed to establish that it had entered into a contract for the purchase of the machinery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e withdrawal. It appears that in view of introduction of the scheme of Investment Deposit Account introduced w.e.f. 1st April, 1987, the Government was in haste in withdrawing the investment allowance. For that purpose, the provision contained in s. 32A(8) that the withdrawal of investment allowance would not be earlier than three years from the date of notification making the withdrawal, was amended by the Finance Act, 1986 w.e.f. 1st April, 1986 and thereby the condition of three years prior notice was withdrawn. Soon thereafter a Notification No. GSR 870(E), dt. 12th June, 1986 [(1986) 160 ITR (St) 55] was issued, which read as under: "In exercise of the powers conferred by sub-s. (8) of s. 32A of the IT Act, 1961 (43 of 1961), the Central Government hereby directs that the deduction allowable under this section shall not be allowed in respect of any ship or aircraft acquired or any machinery or plant installed after the 31st day of March, 1987." This sudden withdrawal of the relief of investment allowance w.e.f. 1st April, 1987, created an adverse situation for entrepreneurs, who were not able to get benefit of s. 32AB for the reasons of absence or inadequacy of profit in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1st April, 1989. 8. The notification dt. 12th June, 1986 had the effect of not allowing investment allowance for the asst. yr. 1988-89 and onwards. As will be seen presently the effect of sub-s. (8B) is that the investment allowance has been continued till the asst. yr. 1990-91 on certain specified assets. Sub-s. (8B) was since introduced w.e.f. 1st April, 1989 and the notification dt. 12th June, 1986 had the effect of withdrawing the investment allowance from 1st April, 1988, the asst. yr. 1988-89 falling in between these two periods met with the fate of not getting the benefit of investment allowance. The legislature in their wisdom did not think proper to give retrospective effect to sub-s. (8B). Minute analysis of sub-s. (8B) shows that the relief against the notification dt. 12th June, 1986 has been granted in respect of the following specified assets: (i) A new ship or a new aircraft acquired after the 31st day of March, 1987 but before the 1st day of April, 1988, if the assessee had entered into a contract for purchase of such ship or aircraft before the 12th day of June, 1986. (ii) Any new machinery or plant installe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was allowable under cl. (a) for the asst. yr. 1989-90 and it was allowable under cl. (b) for both the asst. yrs. 1989-90 and 1990-91, but the description of such specified assets was different. The distinction between the cls. (a) and (b) for relief of investment allowance for the asst. yr. 1989-90 appears to be that in cl. (a) such assets have been specified which have been either purchased or contracted to be purchased under the belief that investment allowance would be allowable since till then there was no notification for withdrawal; whereas the assets described in cl. (b) are those assets in respect of which relief for the same asst. yr. 1989-90 has been allowed and no condition as to the date of purchase or the date of agreement to purchase has been put. It appears that the Government considered necessary or expedient to allow such relief for the asst. yrs. 1989-90 and 1990-91 without imposing any condition as there were no such conditions till asst. yr. 1987-88. In this view of the matter, there has been unintended discrimination between the assets specified in cl. (a) and those specified in cl. (b). However, in view of the facts that the Government considered necessary an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ionally considering the same necessary and expedient. Thus, for getting benefit of investment allowance for the asst. yr. 1989-90, the assets specified in cl. (a) are burdened with the conditions and those specified in cl. (b) have no such burden. This analysis of the provisions need to be borne in mind while appreciating the material placed by the assessee for establishing that it had entered into a contract for the purchase of the machinery before the 12th June, 1986. 12. It is to be seen that the first solvent extraction plant was supplied to the assessee by M/s Servotech and the Second plant was also supplied by them. In the light of these facts, we are inclined to accept the submission of the learned counsel for the assessee that the relation between the assessee-company and the supplier were coordial inasmuch as that the employees of the supplier were occasionally visiting the old plant of the assessee for its maintenance. The other circumstance which needs attention is that it is not that the assessee was making roving enquiries from other suppliers. 13. It is apparent that the CIT(A) was in error in observing in para 12.12 that an oral contract could not be termed as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee to M/s Servotech alongwith a cheque of Rs. 51,000 as a token advance against the order for solvent extraction plant. 16. It appears that much weight has been attached by the CIT(A) to these two letters, wherefrom he reached the conclusion that the letter dt. 28th Oct., 1986 was an offer by M/s Servotech and the letter dt. 30th Oct., 1986 was acceptance by the assessee. Whether a concluded contract has been made or not is a question of fact to be determined in each case by consideration of all the relevant circumstances and facts and cannot be determined by picking up only these two letters. It may be repeated that the parties to the contract had cordial relation, though the correspondence, entered into between them appears formal. Because of such relations, the correspondence indicated special mention "Kind attention Mr. P.C. Mutha", "Attention Mr. L.S. Rawlani". It is, thus, indicative of the fact that particular representatives of the parties to the contract were in contact with each other. As the sequence of events show, after receipt of the quotations from M/s Servotech dt. 3rd March, 1986, a resolution authorising Shri P.C. Mutha to negotiate with the suppliers w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents go to show that the assessee had entered into the contract for the plant and machinery in April, 1986. 18. The letters dt. 28th Oct., 1986 and 30th Oct., 1986 were apparently mere formal documents in confirmation of the oral contract. It is difficult to assume that all these exercises for collection of funds by issue of shares and by applying to ICICI for loan were done by the assessee-company without entering into the contract for purchase before the 12th June, 1986. It was publicly known that no investment allowance would be allowed on the plant and machinery installed after 31st March, 1987. It would amount to impute insinuative motive to the assessee-company that it floated the public issue of equity shares with a representation that it was entitled to deduction under s. 32A of the IT Act, when it was not entitled to the same. No such motive can be imputed unless clearly established by the Revenue. 19. These observations of the Hon'ble Supreme Court in the case of K. Sriramulu vs. Aswatha Narayana AIR 1968 SC 1028 (1081) need attention in this context: "We proceed to consider the next question raised in these appeals, namely whether the oral agreement was ineffective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussed above which clearly established conclusion of the contract by oral agreement. 22. In order to appreciate as to how a contract is brought about between the parties, the following excerpts from Chitty on Contracts, Twenty Third Edition, Pages 9-10, Para 12 reproduced with approval by the Hon'ble Supreme Court in the case of Md. Ishaq vs. Md. Iqbal AIR 1978 SC 798 (801) need to be noticed: " Express and implied contracts. Contracts may be either express or implied. The difference is not one of legal effect but simply of the way in which the consent of the parties is manifested. Contracts are express when their terms are stated in words by the parties. They are often said to be implied when their terms are not so stated, as for example, when a passenger is permitted to board a bus; from the conduct of the parties the law implies a promise by the passenger to pay the fare, and a promise by the operator of the bus to carry him safely to his destination. There may also be an implied contract when the parties make an express contract to last for a fixed term, and continue to act as though the contract still bound them after the term has expired. In such a case, the Court may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prepared by M/s Servotech on 10th July, 1986, had there not been concluded contract for installation of the plant prior to that date. (9) Thus, the letter dt. 28th Oct., 1986 of M/s Servotech came at the end of the series of the events just for the sake of giving a formal shape to the valid and legal oral contract already entered into. It does make reference to the detailed discussion entered into with Shri P.C. Mutha and so also it takes note of the desire of the assessee to commission the plant latest by the 31st March, 1987. Minute examination of the letter dt. 28th Oct., 1986 of M/s Servotech evinces that the offer prepared by them was in respect of only those items as were already agreed to and, therefore, it is in variance with the formal offer dt. 3rd March, 1986. It is also pertinent to note that the letter dt. 28th Oct., 1986 further gave an option to the assessee to exercise option in respect of certain items, that is to say, the option was in the nature of novation of contract already entered into. 23. Thus, taking into account the totality of the facts and circumstances obtaining in this case, there is no manner of doubt that the contract was entered into by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the assessee that out of 9950 MT, the consumption of coal was of 9470 MT and there was sale of 480 MT coal stone. Such sale of coal stone finds place in the coal register. Simply because at one place there is some cutting in the register, it cannot be assumed that the sale was showed subsequently when such sale has already been entered in the miscellaneous receipts. As a matter of fact, the average consumption of coal comes to 181 kgs. per MT which cannot be taken as excessive in comparison to the consumption of coal shown by the assessee in earlier years. The addition of Rs. 10,96,175 and enhancement of Rs. 2,08,343 is, therefore, uncalled for. Such additions are based upon mere assumption without concrete basis. The addition of Rs. 13,04,518 is, therefore, deleted. 27. Ground No. (iii) The assessee had shown an income of Rs. 2,15,000 from sale of coal ash. According to the Assessing Officer, the assessee has suppressed the sale proceeds of coal ash. He took that there was consumption of 8502 MT (9950-1448) of coal which should have generated about 2,550.64 MT of coal ash and therefrom the assessee must have had fetched Rs. 3,57,075 at the rate of Rs. 140 per MT. Thus, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceeds shown by the assessee are less than the market price but thereby one cannot jump to the conclusion that there was suppression of sale by the assessee. No attempt was made by the Assessing Officer to challenge the genuineness of the contract entered into by the assessee for lifting of coal ash on receipt of lump sum. It may be at the most said that the assessee was not prudent in selling coal ash by entering into such a contract and instead the assessee should have sold coal ash in the manner adopted by M/s Premier Industries Ltd. and M/s Prestige Foods Ltd. But such imprudence on the part of the assessee should not result in penalising the assessee. It is, no doubt, duty of a taxing officer to find out if there is suppression of income but thereby the taxing officer cannot impose conditions as to in what manner the assessee should have transacted his business. He cannot assume facts which are not borne out from the record. The addition of Rs. 3,41,137 sustained by the CIT(A) is deleted. 30. Ground No. (iv) The Assessing Officer made lump sum disallowance of Rs. 25,000 out of the miscellaneous expenses. According to him, there were number of items which were not vouched ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
