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TMI Blog1989 (7) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... e ground that these had been put to use during the latter asst. year. The I.A.C. (A) also found that the claim on account of Investment Allowance related to the assessee's new unit for manufacturing sanitaryware located at Kadi near Ahmedabad the construction of which had started in the month of September, 1979. The I.A.C.(A) also found on a perusal of the Director's report dated 27-11-80 relevant to A.Y. 1981-82 that the construction of buildings, Tunnel Kiln, Intermittent Kiln as also the installation of the plant and machinery had been completed in record time and the plant commissioned on 21-7-80 and trial production commenced. It was also observed that the depreciation in respect of fixed assets installed in Kadi unit had been claimed and allowed in A.Y. 1981-82 itself. The IAC(A) also noted that the assessee had not claimed any Investment Allowance on the assets concerned for A.Y. 1981-82. 3. The I.A.C. (A) also noted that Investment Allowance on the aforesaid assets pertaining to the manufacture of sanitaryware was specifically prohibited by entry No. 16 of the 11th Schedule to the I.T. Act for A.Y. 1981-82 and that this prohibition had been removed with effect from 1-4-19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to A.Y. 1982-83 and therefore investment allowance is allowable on them : Rs. ISI permission Auto clave 8,204 -do- Vacuum Pump 5,255 -do- Lab Oven 2,641 -do- CO2 Tester 1,036 -do- Ferro Filters 60,021 -do- Horizontal Thermal 44,350 -do- Prop. type Glaze Mixer 93,040 -do- Generator 2,05,000 Gujarat Electrical Board's permission ---------------------- 4,19,547 ---------------------- VII. All other items of plant and machinery were claimed to have not been physically used last year and reasons for the same can be broadly placed in two groups. First group would be of tunnel kiln and other items directly connected with this kiln and reason for their non-use was non-supply of natural gas. Reason for non-use of rest of the items was production at lower rate. But admittedly all these items were installed last year and in my view these were used within the meaning of sec. 32A. It is not a settled legal position that an asset having been acquired for the purposes of business, duly installed and is in proper condition for use, it amount to used as far as allowability of depreciation, development rebate etc. is concerned. In Whittle Anderson Ltd. v. CIT [1971] 79 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Electrical plant Rs. 1,27,044 Rs. 26,08,166 ------------------------- Less: Cash subsidy(-) Rs.19,78,820 ------------------------- Total Rs. 6,20,346 ------------------------- Investment Allowance @ 25% Rs. 1,57,337." 5. In the course of the first appellate proceedings the assessee made the claim on assets to the tune of Rs. 80,13,089 as against the claim before the IAC (Asst.) to the tune of Rs. 84,69,945. The difference was firstly on account of assets to the tune of Rs. 4,19,547 purchased and installed in A.Y. 1981-82 but in respect of which the permission for use was received from various Govt. Agencies during A.Y. 1982-83. The IAC(A) allowed the claim on these assets. The balance difference of Rs. 37,309 related to assets which were admittedly put to use during A.Y. 1981-82 but claimed for investment allowance in A.Y. 1982-83 on account of a mistake. 6. The C.I.T. (Appeals) on identical reason as had been brought out by the IAC(A) once again rejected the assessee's claim. He turned down the contention to the effect that commercial production had started with effect from 1-3-81 a date relevant to A.Y. 1982-83. 7. The learned counsel for the assessee in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mencement of business" was not to be equated with "commercial production". (12) The commencement of final production was the crucial event and not the commencement of trial production. (13) That the terms "active" or "passive" user were important in so far as depreciation was concerned but these were not applicable to Investment Allowance. (14) That the provisions for Investment Allowance had been introduced with a view to give an impetus to the industry for growth and these should be liberally construed. (15) The facts of the present case clearly indicated that the year of allowability was AY 1982-83 and not AY 1981-82 as was the case of the department. 8. In order to support his arguments the learned counsel for the assessee referred extensively to his paper book wherein were appended the relevant details and documents. These are referred to as follows:--- (A) Copy of communication D.O.No. 15/9/69-IT(AI), dated 28th April, 1969 from the Central Board of Direct Taxes to the Federation stating "the manufacture or production of goods for the purpose of Section 80J means manufacture or production in a commercial sense. Merely because at factory is run for the purposes of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnel Kiln along with the technical details. (Pages 52 to 56) 9. After making a detailed reference to the aforesaid documents it was argued by the learned counsel that the facts brought out clearly indicated that the items of plant and machinery in question had been put to use for the first time in A.Y. 1982-83 although they had been purchased and installed in A.Y. 1981-82. According to him the claim for Investment Allowance merited acceptance. In support of his arguments and the legal propositions arising therefrom, the learned counsel placed reliance on the following authorities: (1) CIT v. Satellite Engg. Ltd. [1978] 113 ITR 208 (Guj.) (2) CIT v. Gaekwar Foam Rubber Co. Ltd. [1959] 35 ITR 662 (Bom.) (3) Chandulal Harjiwandas v. CIT [1967] 63 ITR 627 (SC) (4) CIT v. Saurashtra Cement Chemical Industries Ltd. [1973] 91 ITR 170 (Guj.) (5) Sarabhai Management Corpn. Ltd. v. CIT [1976] 102 ITR 25 (Guj.) (6) Prem Conductors (P.) Ltd. v. CIT [1977] 108 ITR 654 (Guj.) (7) CIT v. Hindustan Antibiotics Ltd. [1974] 93 ITR 548 (Bom.) (8) Hotel Alankar v. CIT [1982] 133 ITR 866 (Guj.) (9) Addl. CIT v. Speciality Paper Ltd. [1982] 133 ITR 879 (Guj.) (10) CIT v. Suhrid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the following decisions : (1) CIT v. Vayithri Plantations Ltd. [1981] 128 ITR 675 (Mad.) (2) V. Ramakrishna Sons Ltd. v. CIT [1984] 149 ITR 554/16 Taxman 433 (Mad.) (3) Mysore Iron Steel Ltd.'s case. He also sought to distinguish the various authorities relied upon by the assessee's counsel. In summing up his arguments the learned D.R. made an impassioned plea for the confirmation of the order of the CIT(A). 12. The learned counsel for the assessee in his reply at the outset raised strong objections to the observations of the D.R. to the effect that there was some mala fide intention in changing the accounting period from June to August. According to him the change in the law was contemplated in February, 1981 whereby the various items were to be removed from the 11th Schedule with effect from 1-4-1982. As against this it was pointed out that the change in the accounting period came about much earlier since it related to A.Y. 1981-82 the previous year for which was extended to 31-8-1980 viz. 15 months. As regards the certificate issued by the Industries Commissioner it was stated that this pertained to the provisions of the Sales Tax Act which were made applicable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the effect that the commercial production started with effect from 1-3-81 and the date 21-7-80 related only to the trial production. 16. It is also found that the assessee had every intention of starting the regular commercial production but could not do so on account of non-availability of natural gas. This was supplied to it as late as on 17-9-81 that being a date relevant to A.Y. 1983-84. In the meantime, however, it had imported an oil burner from Germany and it was with the aid of this equipment that it was able to enter into the realm of commercial production with effect from 1-3-81. 17. The assessee has also supported its case by the "Eligibility Certificate" obtained from the Industries Commissioner, Government of Gujarat. The relevant clauses of this certificate are reproduced as under:--- " This is to certify that :--- (a) M/s. Madhusudan Vegetable Products Co. Ltd. (Ceramic unit) which is located at Kadi is a new unit and that it has been commissioned i.e. to say it has started commercial production from 1-3-8l." " 5. This eligibility certificate is effective from the date of commissioning/the date of diversification or expansion i.e. from 1-3-81 and would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d viz. 1-3-81. According to us the principles of "passive" and "active" user do not fit into the scheme of the aforesaid section specially when there are two separate and distinct limbs into which the claim for Investment Allowance can fall. 22. It is not the case of the department that the assessee is not entitled to the claim on account of Investment Allowance on principle but all that is being disputed is the year in which the claim should have been made. We on a perusal of the facts find that the claim had been rightly made in A.Y. 1982-83 that being the year in which the assets in question had been put to use by the commencement of commercial production. 23. A word at this stage about the allegation made by the learned D.R. to the effect that the accounting year had been changed with a view to overcome the prohibition placed by the unamended 11th Schedule as relevant to A.Y. 1981-82. We are of the view that such an allegation is not called for at this stage since it has not been substantiated by any evidence and nor has this been the case of the department before the lower authorities. 24. The various authorities cited at the bar by the assessee's counsel fully support t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be considered together viz. the drawings and designs as also the amount spent on the construction of the kiln although the other view is also possible i.e. the examination of the claim in respect of each of the items as isolated from the other. We however propose to consider the claim as a consolidated one for both the items and accept the assessee's arguments in respect of Investment Allowance on drawings and designs in A.Y. 1982-83 itself. 27. In the final analysis the assessee's claim for Investment Allowance is allowed. 28. The second issue in this appeal pertains to the assessee's claim in respect of relief u/s. 80J. The I.A.C. (Asst.) rejected the claim on more or less identical reasons as recorded by him in not accepting the assessee's claim on account of Investment Allowance. In other words he was of the view that the assessee had commenced regular production in A.Y. 1981-82 itself viz. from 21-7-80. The plea of the assessee to the effect that this was the date on which the trial production had commenced, was turned down. The CIT (Appeals) confirmed the action of the I.A.C. (Asst.) in rejecting the assessee's claim. 29. The learned counsel for the assessee at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejected. 33. The appeal is partly allowed. Per Shri K.R. Dixit, Judicial Member --- I agree with the conclusion of my learned Brother. However, I would like to add a few lines. On the question of investment allowance it is undisputed that the machinery in respect of which that allowance has been claimed has not been actually physically used in the period relevant to the asst. year 1981-82. The Department's case therefore, rests only on the passive use. So far as that is concerned, the learned Accountant Member has rightly distinguished the Madras High Court decision from the facts of the present case. Therefore, there is no basis for disallowing the assessee's claim on the ground of passive use in the earlier assessment year. The machinery in respect of which the investment allowance has been claimed was actually and physically used in the period relevant to the asst. year 1982-83. Therefore, the assessee is entitled to that allowance for the assessment year 1982-83. In view of this conclusion it is unnecessary to enter into the question of applicability of the Board's Circular which specifically pertains to sec. 80J. For the same reasons, it is unnecessary to enter into the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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