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TMI Blog2008 (6) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... case was admitted on the following question of law. "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing grant of investment allowance for the year 1986-87 when the plant and machinery had been installed in the year 1981-82?" 3. The brief facts are as follows : 4. The assessment year is 1986-87 and the corresponding accounting year ended on March 31, 1986. The assessee-company filed its return of income originally July 30, 1986, admitting an income of Rs. 5,30,62,920. Later, a revised return was filed on September 14, 1986, disclosing Rs. 5,28,96,920. Subsequently, another revised return was filed on November 11, 1988, wherein investment allowance claim was enhanced to Rs. 47,20,648 from Rs. 10,55,608 as originally claimed. The Assessing Officer, by his order dated March 10, 1989, after deducting the investment allowance, has determined the total income at Rs. 5,10,79,507. The Commissioner of Income-tax issued a show-cause notice under section 263 of the Income-tax Act on the ground that the assessment order passed by the Deputy Commissioner of Income-tax, Special Range-I, Coimbatore, is erroneous and prejudicial to the &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gure of actual cost in the year of installation can be altered on the basis of subsequent events connected within the original cost. Therefore, the Tribunal has correctly granted investment allowance by following the judgment of the Supreme reported in the case of Saharanpur Electric Supply Co. Ltd. v. CIT [1992] 194 ITR 294 and also the judgment of this court in the case of CIT v. Chengalvarayan Co-operative Sugar Mills Ltd. [2000] 242 ITR 440 and, hence the order passed by the Tribunal has to be confirmed. 7. Heard learned counsel on either side. The assessee has imported machinery from Italy for the polynostic staple fibre plant and installed them in the accounting year relevant to the assessment year 1981-82. 'There is an agreement entered into between the assessee and the foreign manufacturers. It provides for an escalation clause. In pursuance of the said escalation clause, the assessee made certain payments towards cost of escalation of machinery and escalation in the customs duty and technical consultancy fee. The total payments amounted to Rs. 1,40,60,651. Therefore, the assessee has claimed investment allowance on the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d after the 31st day of March, 1983, but before the (1st day of April, 1988) for the purposes of business of repairs to ocean-going vessels or other powered craft if the business is carried on by an Indian company and the business so carried on is for the time being approved for the purposes of this clause by the Central Government ... (2A) The deduction under sub-section (1) shall not be denied in respect of any machinery or plant installed and used mainly for the purposes of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule, by reason only that such machinery or plant is also used for the purposes of business of construction, manufacture or production of any article or thing specified in the said list. (2B) where any new machinery or plant is installed after the 30th day of June, 1977, but before the 1st day of April, 1987, for the purposes of business of manufacture or production of any article or thing and such article or thing ..... (3) Where the total income of the assessee assessable for the assessment year relevant to the previous year in which the ship or aircraft was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... day of March, 1967, but before the 1st day of March, 1975, and is used otherwise than in a business of running it on hire for tourists, exceeds twenty-five thousand rupees, the excess of the actual cost over such amount shall be ignored, and the actual cost thereof shall be taken to be twenty five thousand rupees." 9. Section 32A of the Income-tax Act deals with investment allowance which was inserted by the Finance Act, 1976, with effect from April 1, 1976. Sub-section (1) of the said section provides that in respect of a ship or an aircraft or machinery or plant specified in sub-section (2), which is owned by the assessee and is wholly used for the purpose of the business carried on by the assessee, deduction would be allowable in the previous year of acquisition or installation, as the case may be, or in the immediately succeeding previous year, if the said asset is first put to use then in that previous year. The amount of allowance is equal to 25 per cent. of the actual cost of asset. Sub-section (2) of section 32A of the Act specifies the asset which is eligible for investment allowance. Sub-section (3) of section 32A of the Act provides that the deduction of investment all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation is also actual cost to the assessee. It is seen that there is no prohibition under the statute. Hence, the assessee is entitled to investment allowance on the said amount paid in the accounting year relevant to the assessment year 1986-87. The words "actual cost" is the subject-matter of interpretation by the Supreme Court in the case of Saharanpur Electric supply Co. Ltd. v. CIT [1992] 194 ITR 294, while granting the depreciation allowance and held at page 309 as follows : "These apart, there are clearly situations in which the actual cost does get altered prospectively and not retrospectively. One such instance is where the cost of an asset increases or decreases on account of a fluctuation in the value of the currency. Suppose an asset was purchased in 1965 for $10,000 (equivalent to say, Rs. 1,00,000) and the price or the moneys borrowed by the assessee in foreign currency for its payment, remained outstanding. The devaluation of the rupee in June, 1966, would result in the increase of the price to say, Rs. 1,20,000. It may be arguable whether this is a retrospective enhancement in the price or not. But it would be only reasonable to say that the actual cost has increase ..... X X X X Extracts X X X X X X X X Extracts X X X X
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