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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 ..... e 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 allowance on the ground that the required pre-conditions under section 32A of the Act were not fulfilled. Accordingly, the amount claimed, i.e., Rs. 27,94,275 was adjusted and the total loss was worked out as Rs. 55,88,315. Additional tax of Rs. 3,01,782 was levied by the Assessing Officer. 3. The assessee preferred a rectification petition under section 154 of the Act which was rejected by order datedNovember 12, 1992of the Assessing Officer. The assessee thereafter filed an appeal before the learned Commissioner of Income-tax (Appeals). The said authority by order datedMarch 22, 1995dismissed the appeal by holding that the investment allowance claimed by the assessee was rightly adjusted since the assessee had failed to create the requisite reserve as required under the Act. 4. Aggrieved by the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins 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 assessable for the assessment year relevant to the previous year in which the ship or air-craft was acquired or the machinery or plant was installed, or, as the case may be, the immediately succeeding previous year the total income for this purpose being computed after deduction of the allowances under section 33 and section 33A, but without making any deduction under sub-section (1) of this section or any deduction under Chapter VI-A is nil or is less than the full amount of the investment allowance, - (i) the sum to be allowed by way of investment allowance for that assessment year under sub-section (1) shall be only such amount as is sufficient to reduce the said total income to nil ; and (ii) the amount of the investment allowance, to the extent to which it has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 following the previous year in which the ship or air-craft was acquired or the machinery or plant was installed, a new ship or a new aircraft or new machinery or plant other than machinery or plant of the nature referred to in clauses (a), (b) and (d) of the second proviso to sub-section (1) for the purposes of the business of the undertaking; and (b) until the acquisition of a new ship or a new aircraft or new machinery or plant as aforesaid, for the purposes, of the business of the undertaking other than for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any asset outside India : Provided that this clause shall have effect in respect of a ship as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled 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 materia with the provisions contained in section 33 of the Act which deals with development rebate. The conditions on fulfillment of which development rebate is to be allowed are dealt with separately by section 34 of the Act whereas the conditions subject to which investment allowance under section 32A is to be allowed are dealt with by sub-section (4) of section 32A itself. The only difference with regard to the provisions dealing with the conditions subject to which investment allowance and development rebate is to be allowed is that under section 34(3) there was an Explanation to the following effect which was amended by the Finance Act of 1990 with retrospective effect fromApril 1, 1962: "E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 provisions of section 33 read with section 34 of the Income-tax Act, relating to development rebate, provide for deduction of a percentage of the actual cost of a ship acquired or machinery or plant installed. One of the conditions for the deduction is that an amount equal to 75 per cent. of the amount of 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. 18.1 In the context that appropriation to a reserve presupposes existence sufficient profits and it should suffice if the required amount is so appropriated before the deduction by way of development rebate came to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ading 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)(a) which has since been deleted by the Finance Act, 1990 with effect from April 1, 1962, was never engrafted in the provisions of section 32A of the Act. In fact under section 32A(3) if the total income of an assessee is nil or is less than the full amount of the investment allowance claimed, investment allowance is to be allowed in part and the outstanding amount of investment allowance is to be carried over to the next assessment years subject to a maximum of eight assessment years. Under sub-section (4) of section 32A, as amended by the Finance Act, 1990, the debit in the profit and loss account and the corresponding credit to the res ..... 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