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TMI Blog2010 (8) TMI 252X X X X Extracts X X X X X X X X Extracts X X X X ..... fter referred to as the Act) against the order dated April 17, 2002, passed by the learned Income-tax Appellate Tribunal, Guwahati in Income-tax Appeal No. 315(Gau) of 1995 has been admitted on the following two substantial questions of law : "(i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified and correct in law in holding that the adjustment of Rs. 27,94,275 made by the Assessing Officer declining the claim of investment allowance is not in order ? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified and correct in law in holding that the adjustment under section 32A of the Income-tax Act, 1961 while processing the return under section 143(1)(a) of the Act is outside the scope of the said provision ?" 2. The facts that will be required to be noticed for the purpose of adjudi-cation of the questions framed may now be stated. For the assessment year 1990-91, the respondent-assessee filed its return showing a total loss of Rs.83,82,590. The Assessing Officer who scrutinized the return under the provisions of section 143(1)(a) of the Act (as then in force) did not allow the claim of investment allowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plant specified in sub-section (8B), this sub-section shall have effect as if for the words `twenty-five per cent.', the words `twenty per cent.' had been substituted :Provided further that no deduction shall be allowed under this section in respect of- (a) any machinery or plant installed in any office premises or any residential accommodation, including any accommodation in the nature of a guest-house ; (b) any office appliances or road transport vehicles ; (c) any ship, machinery or plant in respect of which the deduction by way of development rebate is allowable under section 33 ; and (d) any machinery or plant, the whole or the actual cost of which is allowed as a deduction (whether by way of depreciation or other-wise) in computing the income chargeable under the head `Profits and gains of business or profession' of any one previous year. Explanation.-For the purposes of this sub-section, `actual cost' means the actual cost of the ship, aircraft, machinery or plant to the assessee as reduced by that part of such cost which has been met out of the amount released to the assessee under sub-section (6) of sec-tion 32AB . . . (3) Where the total income of the assessee asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) is made ; and (b) where an allowance has to be made under clause (ii) in respect of amounts carried forward from more than one assessment year, the amount carried forward from an earlier assessment year shall be allowed before any amount carried forward from a later assessment year. (4) The deduction under sub-section (1) shall be allowed only if the following conditions are fulfilled, namely:- (i) the particulars prescribed in this behalf have been furnished by the assessee in respect of the ship or aircraft or machinery or plant ; (ii) an amount equal to seventy-five per cent. of the investment allowance to be actually allowed is debited to the profit and loss account of any previous year in respect of which the deduction is to be allowed under sub-section (3) or any earlier previous year (being/ previous year not earlier than the year in which the ship or aircraft was acquired or the machinery or plant was installed or the ship, air-craft, machinery or plant was first put to use) and credited to a reserve account (to be called the `Investment Allowance Reserve Account') to be utilized- (a) for the purposes of acquiring, before the expiry of a period of ten years next ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (4) of section 32A, deduction on account of investment allowance under sub-section (1) is to be allowed only if, inter alia, an amount equal to seventy-five per cent. of the investment allowance to be actually allowed to an assessee is debited to the profit and loss account of any previous year in respect of which the deduction is to be allowed under sub-section (3) or any earlier previous year (being previous year not earlier than the year in which the ship or aircraft was acquired or the machinery or plant was installed or the ship, aircraft, machinery or plant was first put to use. The amount debited in the profit and loss account as aforesaid is thereafter to be credited to a reserve account called the investment allowance reserve account. 7. The provisions of sub-section (4)(ii) shown in italics above were amended by the Finance Act, 1990 with retrospective effect fromApril 1, 1976. Prior to the amendment the words appearing in sub-section (4)(ii) in place of the words in italics were "the previous year in respect of which the deduction is to be allowed." 8. The provisions relating to investment allowance as contained in section 32A of the Act are in pari mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said manner development rebate under section 33(1) of the Act cannot be allowed. Naturally, if development rebate cannot be allowed no question of carrying forward the same to any subsequent year could arise. 10. Following the aforesaid decision of the apex court the Union Legislature decided to intervene and amend sections 32A and 34 to ensure that the condition of creation of a reserve fund even in a year of loss or insufficient profit will not be mandatory in respect of both development rebate and investment allowance. The amendment proposed covered section 32A also though the decision of the Supreme Court in Shri Shubhlaxmi Mills Ltd. [1989] 177 ITR 193 was with regard to development rebate as the under-lying principles governing development rebate were the same as in the case of grant of investment allowance. The relevant clauses of the Memo-randum Explaining the Provisions in the Finance Bill, 1990 seeking to amend section 32A(4) and section 34(3)(a) of the Act and the object and scope of the amendment may be usefully extracted herein below ([1990] 186 ITR (St.) 81, 93) : "Modification of conditions for grant of development rebate and investment allowance. 18. The p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dering whether the condition regarding creation of reserve is fulfilled or not, the reserve(s) created in the year in which the deduction is to be allowed and in any earlier year will be taken into account. Of course, the earlier year will not be a year earlier than the year in which the plant, machinery is installed or put to use or the ship is acquired. 18.4 These amendments took effect retrospectively from1st April, 1962, in relation to the development rebate and1st April, 1976, in relation to the investment allowance and will accordingly, applied from assessment years 1962-63 and 1976-77, respectively and sub-sequent years." 11. Reading the aforesaid Memorandum there can be no manner of doubt that with the amendment brought about by the Finance Act, 1990 the judgment of the Supreme Court in Shri Shubhlaxmi Mills Ltd. [1989] 177 ITR 193 would cease to have any application. Instead, under the provisions of section 32A(3) and (4), as amended, it is not mandatory for an assessee to create the requisite reserve in the year of installation of the plant and machinery if in the said year the assessee had returned a minus figure of income, i.e., loss. The Explanation to section 34(3 ..... 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