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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 ..... n 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 1-4-1982 i.e. from A.Y. 1982-83. 4. In the light of the aforesaid position the I.A.C. (Asst.) processed the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ITR 613 (Bom.) it was held that the word "used" has to be understood in a wide sense so as to embrace passive or active user. In Cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 course of his lengthy arguments reiterated the submissions made before the authorities below. He however highlighted the following points: (1) T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncement 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 trial, it would not mean that it has begun to manufacture or produce articles." (Page 6) (B) Copy of the Directors' Reports pertaining to A.Ys. 1981-82 and 1982-8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought 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 Geigy Ltd. [1982] 133 ITR 884 (Guj.) (Page 889) (11) CIT v. Mysore Iron & Steel Ltd. [1978] 115 ITR 219 (Kar.) (In respect of Drawings and Designs amounting to Rs. 4,72,671) 10. The learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to the assessee with effect from 1-3-81 that being a date relevant to A.Y. 1982-83. The learned counsel also sought to distinguish the decisions relied upon by the learned D.R. and invited our attention to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 subject to the various conditions that may be incorporated in the certificate to be issued hereafter by the Sales Tax Commissioner. The amount of sales tax deferment on the sale of its production will be up to uppe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 the view point canvassed by him. The authorities cited by the learned D.R. on the other hand as also those taken into account by the authorities below are clearly distinguishable. We need refer at this stage only to the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the outset invited our attention to the fact that as in the case of Investment Allowance there was a specific prohibition once again by the 11th Schedule in claiming the relief u/s. 80J but this prohibition stood removed with ef ..... X X X X Extracts X X X X X X X X Extracts X X X X
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