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TMI Blog1989 (7) TMI 135X X X X Extracts X X X X X X X X Extracts X X X X ..... ary ware located at Kadi near Ahmedabad, the construction of which had started in the month of September, 1979. The IAC(A) also found on a perusal of the Directors' Report dt. 27th Nov., 1980 relevant to asst. yr. 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 21st July, 1980 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 asst. yr. 1981-82 itself. The IAC(A) also noted that the assessee had not claimed any Investment Allowance on the assets concerned for asst. yr. 1981-82. 3. The IAC(A) also noted that Investment Allowance on the aforesaid assets pertaining to the manufacture of sanitary ware was specifically prohibited by entry No. 16 of the 11th Schedule to the IT Act for asst. yr. 1981-82 and that this prohibition had been removed w.e.f. 1st April, 1982, i.e., from asst. yr. 1982-83. 4. In the light of the aforesaid position the IAC(Asst.) processed the assessee's claim on account of Investment Allowance as follows: "III ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,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.2 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 s. 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. vs. CIT (1971) 79 ITR 513 (Bom) it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) Assets purchased and installed in this year 20,61,575 (iii) Electrical plant 1,27,044 . 26,08,166 Less: Cash subsidy (—) 19,78,820 Total 6,29,346 Investment allowance @ 25 per cent 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. 34,69,945. The difference was firstly on account of assets to the tune of Rs. 4,19,547 purchased and installed in asst. yr. 1981-82 but in respect of which the permission for use was received from various Govt. Agencies during asst. yr. 1982-83. The IAC allowed the claim on these assets. The balance difference of Rs. 37,309 related to assets which were admittedly put to use during asst. yr. 1981-82 but claimed for investment allowance in asst. yr. 1982-83 on account of a mistake. 6. The CIT(A) on identical reasons 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 w.e.f. 1st March, 1981 a date relevant to asst. yr. 1982- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich it was first put to use, the latter being the immediately succeeding previous year. These provisions were different from those relating to depreciation. (11) That "commencement 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 asst. yr. 1982-83 and not asst. yr. 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. 159/9/69-IT(AI) dt. 28th April, 1969 from the CBDT to the Federation stating "the manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtaining to the fabrication of Semi-Muffled Natural Gas Fired Tunnel Kiln alongwith the technical details. 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 asst. yr. 1982-83 although they had been purchased and installed in 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 vs. Satellite Engg. Ltd. 1978 CTR (Guj) 199 : (1978) 113 ITR 208 (Guj). (2) CIT vs. Gaekwar Foam Rubber Co. Ltd. (1959) 35 ITR 662 (Bom). (3) Chandulal Harjiwandas vs. CIT (1967) 63 ITR 627 (SC). (4) CIT vs. Saurashtra Cement Chemical Indus. Ltd. (1973) 91 ITR 170 (Guj). (5) Sarabhai Management Corporation Ltd. vs. CIT (1976) 102 ITR 25 (Guj). (6) Prem Conductors (P) Ltd. vs. CIT 1976 CTR (Guj) 324 : (1977) 108 ITR 654 (Guj). (7) CIT vs. Hindustan Antibiotics Ltd. (1974) 93 ITR 548 (Bom). (8) Hotel Alankar vs. CIT (1981) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e effect that the claim for Investment Allowance was not tenable. 11. In support of his arguments the learned Departmental Representative not only relied upon the various authorities referred to in the order of the authorities below but placed further reliance on the following decisions: (1) CIT vs. Vayithri Plantation Ltd. (1980) 19 CTR (Mad) 200 : (1981) 128 ITR 675 (Mad). (2) V. Ramakrishna Sons Ltd. vs. CIT (1984) 149 ITR 554 (Mad). (3) CIT vs. Mysore Iron Steel Ltd. (1979) 8 CTR (Kar) 45 : (1978) 115 ITR 219 (Kar). He also sought to distinguish the various authorities relied upon by the assessee's counsel. In summing up his arguments the learned Departmental Representative 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 Departmental Representative 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 w.e.f. 1st April, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... burner. This date apparently pertained to asst. yr. 1982-83. Even the consumption of electricity, fuel and raw materials as also the employment of the workers showed an upward trend which cannot be described as nominal but something which could be related to a unit operating full swing. Even the details of itemwise production furnished to us during the course of the hearing support the arguments advanced on behalf of the assessee to the effect that the commercial production started w.e.f. 1st March, 1981 and the dt. 21st July, 1980 related only to the trial production. 15. 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 17th Sept., 1981 that being a date relevant to asst. yr. 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 w.e.f. 1st March, 1981. 16. The assessee has also supported its case by the "Eligibility Certificate" obtained from the Industries Commissioner, Government of Gujar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake the claim either in the year in which the machinery is purchased and installed or in the year in which the machinery is first put to use and that being the immediately succeeding assessment year. The facts of the present case do not leave any doubt in our mind that the assessee put to use the items of plant and machinery under consideration during asst. yr. 1982-83 the relevant date being the date on which the commercial production started, viz., 1st March, 1981. 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. 21. 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 asst. yr. 1982-83 that being the year in which the assets in question had been put to use by the commencement of commercial production. 22. A word at this stage about the allegation made by the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission, are of the view that the assessee would be entitled to Investment Allowance in respect of the expenditure incurred for importing the drawings and designs. There is no doubt that the construction of the kiln had been completed in all respects in asst. yr. 1981-82 itself and that also with the aid of these drawings and designs but the same was put to use only in asst. yr. 1982-83. We have already accepted the assessee's claim in respect of Investment Allowance on various items of plant and machinery including the kiln in question. A common sense view would require that both the things 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 asst. yr. 1982-83 itself. 25. In the final analysis the assessee's claim for Investment Allowance is allowed. 26. The second issue in this appeal pertains to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment order to show that these figures had been looked into by the AO since he at the outset rejected the claim. We would accordingly direct him to peruse the relevant figures and work out the deduction to be allowed to the assessee as a result of our order. This ground is accordingly decided in favour of the assessee. 30. The last issue which has been raised in this appeal (Ground No. 17) is stated as follows: "That the CIT(A) in alternative should have considered the claim of the assessee under s. 80I and 80HH(A) of the IT Act 1961." This was not pressed at the time of hearing and is hereby rejected. 31. The appeal is partly allowed. K.R. Dixit, J.M.: 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. yr. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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