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TMI Blog2001 (9) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly the assessments were completed by the Assessing Officer in the set aside proceedings vide his order dated 30-11-1990 wherein the investment allowance claimed by the assessee for both the years under consideration was withdrawn for the following reasons given in his order: (1) The assessee-firm has utilised the investment allowance reserve for distribution by way of profit as provided in section 32A(5)(c) of the Act. (2) Section 32A(4) and section 32A(5) are mutually inclusive and not exclusive. The assessee-firm has no right to distribute the reserve by way of profit after acquiring the new plant and machinery. it is to comply with requirement of section 32A(5). (3) The assessee-firm has not utilised the investment allowance reserve for acquiring new plant and machinery as the cost of such machinery and plant has been made after raising loan from Rajasthan Financial Corporation (RFC). From the balance-sheet as on 31-12-1980 it is clear that the total additions in the building, plant and machinery are of the amount of Rs. 2,63,579 against a total loan of Rs. 2,82,629 raised from RFC. The assessee carried this matter in the appeal before the ld. CIT(A), Jodhpur, who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the authorities below to disallow the investment allowance claimed by the assessee. He also contended that the combined and conjoint reading of both the sub-sections 32A(4) and 32A(5) in a harmonious manner indicates that after the utilisation of the amount of reserve for investment in plant and machinery, the assessee is free to use the said reserve even for the prohibitive purposes. According to him, as soon as the investment is made, the funds to that extent out of reserve amount automatically get ploughed back and remain invested in the business so long as the assets newly acquired are retained in the business. In this regard he contended that in the present case the assessee has not even utilised the reserve amount for such prohibitive use and the mere transfer of the reserve amount to the capital of the partners after acquiring new plant and machinery cannot be regarded as used for the prohibitive purposes. He also submitted that the amount of reserve transferred to the partners' capital accounts of the assessee-firm was not withdrawn by the partners and the same was retained in the business. In support of his contentions, he placed reliance on the following case-laws: (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee for assessment year 1991-92 that the assessee raised a loan amount of Rs. 2,82,629 in the calendar year 1980, whereas the cost of new assets acquired during the said year amounted to Rs. 2,63,579 only. He, therefore, contended that the figures given in the balance sheet of the assessee for the relevant year clearly show that it was the loan availed from RFC which stood utilised for purchase of new plant and machinery and not the investment allowance reserve which was transferred to partners' capital accounts. As regards the various case laws cited by the ld. counsel for the assessee he submitted that the same are distinguishable on facts inasmuch as in none of the cited cases the new plant and machinery was purchased out of the borrowed funds. 6. We have considered the rival submissions and also perused the relevant material on record. We have also carefully gone through the judgments on which reliance was placed by the ld. counsel for the assessee. It is observed that the investment allowance granted initially to the assessee was subsequently withdrawn for the assessee's failure in complying with the conditions precedent for earning and retaining the investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd. [1992] 196 ITR 149 the Hon'ble Supreme Court has held that the provisions of fiscal statute should be construed harmoniously with the Legislative object and a provision for deduction, exemption or relief should be construed reasonably and in favour of the assessee. In the case of Bajaj Tempo Ltd v. CIT [1992] 196 ITR 188 the Hon'ble Apex Court has held that a provision in a taxing statute granting incentive for promoting growth and development should be construed liberally and since a provision for promoting economic growth has to be interpreted liberally, the restriction on it too has to be construed so as to advance the objective of the provision and not to frustrate it. Keeping conscious awareness of this Legislative spirit and considering the purpose and object of scheme of investment allowance, we now proceed further to consider the issue of compliance or otherwise of the conditions precedent as contemplated in clauses (b) and (c) of sub-section (5) of section 32A by the assessee in the case on hand. 9. As per the provisions of section 32A(4) the assessee is required to set apart an amount equal to 75% of the investment allowance that would be allowed to him in a part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing new plant and machinery, we are of the view that such replacement/ rearrangement of funds cannot be construed as the non-utilisation of the reserve amount for acquiring new assets simply for the lack of nexus between the reserve amount and the purchase of new assets. In the instant case, the reserve amount having been retained by the assessee in the business, the requirement of keeping the said amount utilised for the purpose of business was entirely complied with, and this being the position, we are of the view that there was no justification on the part of the authorities below to assume that the new assets were acquired by the assessee from the borrowed funds and not from the investment allowance reserve. Thus the first objection of the revenue that the investment allowance reserve was not utilised by the assessee for acquiring new plant and machinery and actually the cost of such machinery and plant was met by raising loan from RFC, in our opinion, is not well-founded and thus is liable to be overruled. 10. As regards the other objection of the revenue that the assessee has utilised the amount of investment allowance reserve for distribution by way of profits, in contrave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer of investment allowance reserve to the partners' capital accounts, the same was not withdrawn by the partners and the amount of reserve so credited in their capital accounts remained in the business. In this regard it is observed that neither the Assessing Officer nor the ld. D.R. has disputed this factual position and this being so, we are of the opinion that the transferring of the amount of investment allowance reserve to the capital accounts of the partners merely by making book entries by itself cannot be construed as utilisation of the investment allowance reserve for distribution by way of profit especially when the said amount was allowed to be retained in the business by the partners. 13. As such considering all the facts and circumstances of the case and in view of the aforesaid discussion, we are of the opinion that the conditions precedent as contemplated by section 32A(5)(b) and (c) were satisfied by the assessee for not only earning the investment allowance but also for retaining the same and there was no reason for the revenue to fall back upon section 155(4A) to withdraw the same. In that view of the matter we hold that the ld. CIT(A) was not justified in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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