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TMI Blog2015 (8) TMI 572X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction of Rs. 30,72,03,504 as investment allowance under section 32A of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), on machinery of Rs. 1,06,41,24,179 installed during the period from April 1, 1987, to March 31, 1988. The Assessing Officer at the time of assessment found that the assessee-company had already been allowed deduction under investment deposit account under section 32AB of the Act in the earlier years, that is, in the assessment years 1987-88 and 1988-89. According to the Assessing Officer, in the assessment year 1987-88 both the claims, that is, investment allowance under section 32A and investment deposit account under section 32AB were in operation, however, the assessee had consciously chosen to claim the benefit of investment deposit account under section 32AB for the assessment year 1987-88 and for the assessment year 1988-89 the scheme for investment allowance under section 32A was not in operation. The Assessing Officer was of the view that since the assessee had been allowed deduction under the scheme of investment deposit account under section 32AB of the Act for the assessment year 1988-89, it was not entitled to claim deduction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Direct Taxes (CBDT) Circular No. 559, dated May 4, 1990, to submit that the same clearly provides that investment allowance could be claimed as an option to the deduction allowable under the Investment Deposit Account Scheme (section 32AB). It was submitted that under the circumstances since the benefit under section 32A(8B) of the Act was to be claimed as an option to the benefit under section 32AB of the Act the assessee was not entitled to deduction under section 32A(8B) of the Act in respect of plant and machinery on which deduction under section 32AB of the Act had already been claimed in the earlier years. It was, accordingly, urged that the impugned order not being in consonance with the above referred to provisions of the Act the question is required to be answered in favour of the Revenue and against the assessee. 5. On the other hand, Mr. J. P. Shah, learned counsel appearing on behalf of respondent-assessee, invited the attention of the court to the provisions of sub-section (8B) of section 32A of the Act to submit that the same nowhere provides that in case where deduction has already been claimed in earlier years in respect of such plant and machinery as described in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that denial of any part of such deduction would amount to denial of the benefit provided under law, espe cially when there is no provision in the Act for withdrawing the deduction of allowance under section 32AB in the assessment year 1988-89 while granting the deduction under section 32A(8B) of the Act in respect of plant and machinery installed during 1987-88, if the same was ordered or pur chased before June 12, 1986. The attention of the court was drawn to the Explanation to sub-section (1) of section 32AB of the Act to point out that reduction is to be made from the actual cost of plant and machinery installed, for that part of such cost which has been met out of the amount released under section 32AB(6), that is, from the Development Bank deposit. It was argued that under section 32A(8B) of the Act the assessee is entitled to investment allowance on the assets which have been installed during the previous year relevant to the assessment year 1988-89 and that such claim does not amount to double deduction. It was contended that the assessee-company has satisfied all the conditions as laid down under section 32A(8B) of the Act and is, thus, entitled to investment allowance ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1986*, was issued which discontinued the deduction for investment allowance in respect of a ship or aircraft acquired or any machinery or plant installed after March 31, 1987. The Finance Act, 1986, inserted, with effect from April 1, 1987, a new section 32AB in the Income-tax Act, 1961, to allow deduction on account of investment deposit account (i.e., deposit in an account with the Development Bank) subject to a maximum of 20 per cent. of the profits of the eligible business or profession. It was, however, felt that the withdrawal of investment allowance, with effect from April 1, 1987, created an adverse situation for entrepreneurs, who were not able to get the benefit of section 32AB for the reasons of absence or inadequacy of profit in the year of investment. The Government, therefore, decided to reintroduce investment allowance in respect to new ship or aircraft acquired or new machinery or plant installed after March 31, 1988. The investment allowance could be claimed as an option to the deduction allowable under the investment deposit account scheme (section 32AB) and was to be allowed on the same lines as was being allowed earlier prior to its withdrawal, with the modifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee from the Development Bank in accordance with the provisions of section 32AB(6) of the Act. 10. At this juncture it may be pertinent to refer to the provisions of sub-section (8B) of section 32A of the Act which to the extent the same are relevant for the present purpose read thus : "(8B) Notwithstanding anything contained in sub-section (8) or the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. G. S. R. 870(E), dated the June 12, 1986, issued thereunder, the provisions of this section shall apply in respect of,-. . . (ii) any new machinery or plant installed after the 31st day of March, 1987, but before the 1st day of April, 1988, if the assessee furnishes evidence to the satisfaction of the Assessing Officer that before the 12th day of June, 1986, he had purchased such machinery or plant or had entered into a contract for the purchase of such machinery or plant with the manufacturer or owner of, or a dealer in, such machinery or plant, or had, where such machinery or plant has been manufactured in an undertaking owned by the assessee, taken steps for the manufacture of such machinery or plant : Provided that nothing c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been elaborated in the Departmental Circular No. 559, dated May 4, 1990 (see [1990] 184 ITR (St.) 91, 98 ) : "6.5 Amendment of section 32AB relating to deduction under the investment deposit account scheme.-The old provisions of sub-section (10) of section 32AB provided that no deduction shall be allowed under this section in the case of an assessee who had claimed deduction allowable under section 33AB in respect of the tea development account. Since the Finance Act, 1987, had amended section 33AB to provide that deduction under that section would be allowable only for the assessment years 1986-87 and 1987-88, the said provisions of sub-section (10) of section 32AB were no longer necessary and were to be deleted. 6.6 Further, since the Amending Act, 1989, has amended section 32A to reintroduce investment allowance, as discussed in the pre ceding paras, and has substituted a new sub-section (8C) in that section to provide that deduction for investment allowance will be an option to the deduction for investment deposit account scheme under section 32AB and the option, once exercised, would be valid for five assessment years, it was necessary that a corresponding provision shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from switching over to the other option is counted from the initial assessment year only and not from any assessment year com prised in the block of four assessment years immediately succeeding the initial assessment year. Thus, in the example given in the pre ceding para, the assessee can switch over to deduction under section 32AB in the assessment year 1994-95 (counting the block for claim under section 32A from the initial assessment year 1989-90) notwith standing that the assessee had claimed deduction under section 32A up to assessment year 1993-94. In case of an option for claiming deduction under section 32A is exercised by the assessee for the first time during the assessment year 1990-91, that will become the initial assessment year for claim under section 32A and in that case the assessee would be able to switch over to the claim under section 32AB from the assessment year 1995-96, notwithstanding that the assessee had claimed deduction under section 32A up to the assessment year 1994-95. 6.9 The first initial assessment year for the purposes of exercising the option between sections 32A and 32AB.-Doubts have been raised as to which will be the first initial assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been made available for the first time from the assessment year 1989-90 only, the assessment year 1989-90 shall be the first initial assessment year for the purposes of exercising the options between the two sections. Thus, an assessee, who had claimed the deduction under section 32AB during the assessment year 1987-88 or the assessment year 1988-89, can exercise the option for claiming the deduction either under section 32A or under section 32AB in the assessment year 1989-90. Where any such option is exercised in the assessment year 1989-90, that will be the initial assessment year for the claim for which the option is exercised. 15. In the aforesaid backdrop, what emerges is that upon reintroduction of the scheme of investment allowance under section 32A of the Act the intention of the Legislature was to grant the benefit thereunder in respect of plant and machinery installed after 1988 as also to plant and machinery installed during the period April 1, 1987, to March 31, 1988. However, with a view to take care of a situation whereby the cost of such machinery had been met with out of the amount released to the assessee from the Development Bank, an Explanation came to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shes evidence to the satisfaction of the Assessing Officer that he had, before June 12, 1986, entered into a contract for the purchase of such plant or machinery with the manufacturer or owner of, or a dealer in, such machinery or plant, or had, where such machinery or plant has been manufactured in an undertaking owned by the assessee, taken steps for the manufacture of such machinery or plant. Thus, the intention of the Legislature clearly was to give the benefit of investment allowance in respect of plant or machinery installed during the period March 31, 1987, to April 1, 1988. If the contention of the appellant- Revenue were to be accepted, the provisions of sub-section (8B) of section 32A would be rendered nugatory and the very purpose of introducing the sub-section would be frustrated. Moreover, having regard to the fact that an assessee cannot claim the benefit of both investment allowance and investment deposit account in the same assessment year, the question of double deduction would not arise. 16. Thus, sub-section (8B) of section 32A of the Act clearly envisages allowance of investment allowance under section 32AB of the Act in respect of plant and machinery installed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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