Income Tax Appellate Tribunal - Amritsar
India Woollen Textile Mills (P) Ltd. vs Deputy Commissioner Of Income Tax. on 21 January, 1998
Equivalent citations: [1998]67ITD140(ASR)
ORDER
Phool Singh, J.M.
1. Through these two appeals, the assessee has assailed the order dt. 15th September, 1992 recorded by the CIT(A), Jammu, confirming the order of the ITO, Special Range, Amritsar recorded under s. 154 r/w s. 155(4A) of the IT Act, 1961 withdrawing the investment allowance granted to the assessee for the asst. yrs. 1982-83 and 1983-84 for violation of provisions of s. 32A(5)(a)(b) of the Act.
2. The relevant facts for the asst. yr. 1982-83 are that original assessment for this assessment year was completed at an income of Rs. 3,57,218. At the time of completing the assessment, the assessee-company was allowed investment allowance of Rs. 8,35,101 in respect of the new machinery installed during the previous year, relevant to the year under consideration and that amount of investment allowance was adjusted as under:
For the asst. yr. 1982-83 Rs.
To the extent of income available i.e. 3,57,218 Balance to be carried forward and allowed in subsequent assessment year 4,77,883
Accordingly, the net income for the asst. yr. 1982-83 was computed at 'nil' vide order dt. 10th May, 1984. While going through the return of income filed by the assessee for the asst. yr. 1989-90, the ITO noticed that the assessee has sold its machinery installed during the asst. yr. 1982-83. The ITO noted that the assessee had violated the provisions of s. 32A(5)(a) of the Act as it transferred the machinery before the expiry of eight years from the end of the previous year in which it was acquired/installed and thus the ITO issued notice under s. 154 r/w s. 155(4A) of the Act calling upon the assessee to explain on 30th November, 1990, as to why the amount of investment allowance of Rs. 3,57,218 allowed in respect of new machinery installed in the asst. yr. 1982-83 be not withdrawn as said machinery had been sold out before the expiry of eight years. The assessee filed written reply dt. 24th January, 1991, in which it was submitted that provisions of s. 155(4A) of the Act were not applicable to the facts of the case and it was mentioned that investment allowance of Rs. 8,35,101 was allowed and not Rs. 3,57,218. Further the attention of the ITO was invited to the provisions of cl. (b) of sub-s. (5) of s. 32A of the Act, which provides that assessee was under obligation to utilise the amount credited to the reserve account under sub-s. (4) of s. 32A of the Act within 10 years from the end of the previous year in which the machinery was acquired. The contention of the assessee was that the assessee had utilised the said amount as in the subsequent year, he had purchased the new machinery and thus no investment allowance remained in existence, which could be withdrawn by the ITO and thus notice was misconceived. The ITO considered the contentions of the assessee and did not agree to the same. The ITO noted that the assessee had violated the conditions of s. 32A(5)(a) of the Act by selling out the machinery before the expiry of eight years. He further noted that the assessee had wrongly asserted to have utilised the investment allowance reserve for purchase of new machinery in the subsequent year as after examining the assessment records of next year, it was found that the assessee had purchased new machinery but the same was not purchased out of the investment allowance reserve created as that reserve amounted shown in the balance sheet under this head remained intact till the asst. yr. 1988-89 and in case the assessee had utilised this investment allowance reserve for the purchase of new machinery, an entry to this effect would have been passed immediately transferring this amount to "investment allowance reserve utilisation account" as is the principle in commercial accountancy but the same was not done. He further noted that in the asst. yr. 1989-90, the assessee has transferred the investment allowance reserve first to Reserve & Surplus account and then from 'Reserve & Surplus Account' to the P&L a/c and this again go to show that investment allowance reserve was never utilised for purchase of machinery as stated by the assessee in its reply. On the basis of above discussion, the ITO concluded that conditions laid down under the provisions of s. 32A(5) (a) & (b) had not been observed by the assessee and the provisions of s. 155(4A) are clearly applicable and he accordingly withdrew the amount of Rs. 3,57,218 granted to the assessee under s. 32A for the asst. yr. 1982-83.
3. The facts for the asst. yr. 1983-84 are identical as in that year, the assessee was allowed Rs. 8,82,417 as investment allowance out of which Rs. 4,77,883 was on account of unabsorbed carried forward of investment allowance from the asst. yr. 1982-83 and remaining Rs. 4,04,534 was allowed for the year under consideration out of income and the AO called upon the assessee to show cause as to why these amounts could not be withdrawn because the assessee sold the machinery in the previous year, relevant to the asst. yr. 1989-90 and the reply was the same and the ITO withdrawn Rs. 8,82,417 granted to the ITO as investment allowance in this year.
4. The assessee filed two separate appeals and it appears that the assessee further filed two more appeals relating to the asst. yrs. 1980-81 and 1981-82 involving the same ground and the CIT(A), Jammu disposed of all the four appeals vide order dt. 15th September, 1992. It was contended before the CIT(A) that one of the conditions for grant of investment allowance was creation of the reserve in the P&L a/c and that reserve can be utilised for purchase of new machinery in coming years but prior to the expiry of 10 years and in the case of the assessee, the assessee had utilised that reserve in purchase of the new machinery and nothing was in existence which could have been withdrawn and provisions of s. 155(4A) of the Act cannot be made applicable. All these contentions of the assessee were considered but the CIT(A) did not agree to the same. He confirmed the findings of the ITO that conditions of s. 32A(5)(a) had been violated by the assessee by selling out the machinery purchased in the asst. yrs. 1982-83 and 1983-84 before the expiry of eight years for which he had allowed the investment allowance and thus the view of the AO was justified. The other plea of the learned counsel was on the reliance upon the decision of the Hon'ble Supreme Court in the case of CIT vs. Gwalior Rayon & Silk Manufacturing Co. (1992) 196 ITR 149 (SC) in which the Hon'ble Supreme Court laid down that harmonious interpretation of the statute should be made and in case there is benefit of doubt it should be extended to the assessee and it was also repelled by the learned CIT(A) by observing that in the case in hand there was no ambiguity in the provisions applied in the case of the assessee, thus no possibility of two interpretations. Accordingly, he dismissed all the appeals and the assessee had come before us through these two appeals for the asst. yrs. 1982-83 and 1983-84.
5. The learned counsel for the assessee has first raised legal point about the jurisdiction of the concerned ITO, who had withdrawn the investment allowance by passing the order under s. 154 r/w s. 155(4A) of the Act. The contention is that the CIT, Amritsar vide order No. G-II/Jurdn./18/87-88/577 dt. 17th July, 1987, transferred the jurisdiction of assessee's case to IAC (Asst.), Amritsar since 17th July, 1987 as communicated by the IAC (Asst.) vide letter dt. 25th August, 1987, copy of which is appearing at p. 1 of the paper-book and thus it was IAC (Asst.) (now called Dy. CIT (Asst.), who was having jurisdiction over the case of the assessee but the impugned order withdrawing the investment allowance had been passed by R.K. Sood, ITO, Special Range, Amritsar, who was having no jurisdiction and the orders are invalid, illegal being without jurisdiction.
6. The other plea on merit was the same as taken up by the assessee before the authorities below. Our attention was drawn to p. 7 of the paper-book, containing the chart depicting utilisation of investment allowance reserve for purchase of new machinery after asst. yr. 1980-81 which is as under :
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Asst. yr. Cost of new machinery Amount of Investment
Allowance
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1980-81 16,047 4,012
1981-82 27,705 6,925
1982-83 23,40,404 8,35,101
1983-84 16,18,136 4,04,534
1986-87 5,70,035 1,42,510
55,72,327 13,93,083
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On the basis of the above, the contention of the learned counsel, Anil Puri was that the provisions of s. 32A(5)(b) provides that assessee was under obligation to utilise the investment allowance reserve in a period of 10 years for purchase of new machinery and the assessee had already utilised that amount then nothing remained, which an ITO could have withdrawn and thus the very basis of withdrawing investment allowance is not correct. To strengthen the argument, the learned counsel pointed out that provisions of s. 32A of the Act were inserted vide s. 8 of the Finance Act, 1976 w.e.f. the asst. yr. 1977-78 and initially it was initial depreciation allowance, which stood replaced by a scheme of investment allowance and this scheme was broadly on the lines of the development rebate scheme except minor difference. Reliance was also placed on the decision of the Gujarat High Court in the case of CIT vs. Karamchand Premchand (P) Ltd. (1993) 200 ITR 281 (Guj) in which it was concluded by their Lordships that in case conditions specified for allowing the development rebate were fulfilled and development rebate reserve was created and reserve amount was utilised for purpose of business; development rebate reserve emerged with general reserve and declaration of dividends out of profits was declared then development rebate cannot be withdrawn. On the ratio of this, the contention is that in the case in hand the assessee had established investment allowance reserve account and utilised the amount of said reserve for purchase of new machinery then conditions stipulated under s. 32A(4) and 5(b) complied with and investment allowance cannot be withdrawn.
7. The learned counsel further placed reliance on the decision of the Tribunal, Ahmedabad Bench 'A' in the case of ITO vs. Patel Manufacturers (1995) 51 TTJ (Ahd) 246, which was authored by one of us (Phool Singh, J.M.) in which it was concluded that if new machineries were purchased in each succeeding year and cost of new machinery was larger than the amount of investment allowance reserves, the provisions of s. 32A(5) were fully complied with. On the basis of this, the contention is that the facts of that case are fully applicable to the present case.
8. In the end, the contention of the assessee's counsel was that if there is provision of law, which are not free from ambiguity and admits of two interpretations, a view which is favourable to the subject (assessee) should be adopted and reliance was placed on several decisions by the learned counsel for the assessee which are :
(1) CIT vs. Madho Pd. Jatia (1976) 105 ITR 179 (SC);
(2) Travancore Sugars & Chemicals Ltd. vs. CIT (1990) 185 ITR 558 (Ker);
(3) CIT vs. Radha Devi Poddar (1990) 185 ITR 544 (Cal);
(4) State of MP & Anr. vs. G. S. Dull & Flour Mills (1991) 187 ITR 478 (SC);
(5) CIT vs. G. K. Devarajulu (1991) 191 ITR 211 (Mad);
(6) CIT vs. Cellulose Products of India Ltd. (1991) 192 ITR 155 (SC); and (7) CIT vs. Gwalior Rayon Silk Manufacturing Co. Ltd. (supra).
The emphasis of the learned counsel was that provisions of s. 32A(5)(a) and (b) were capable of giving different interpretations and the one, which is favourable to the assessee has to be applied as the assessee had already utilised the amount of investment reserve account for purchase of new machinery and thus complied the provisions of s. 32A(5)(b) and no withdrawal of the investment allowance was required and the orders of the authorities below should be reversed.
9. As against it, the learned Departmental Representative pointed out that the Directorate of OSM Services (Income-tax), New Delhi vide letter dt. 7th November, 1988 has opined that assessment orders are to be signed by the Dy. CIT (Asst.) and ITOs/Asstt. CITs, attached to him may be assigned statutory powers relating to the enquiry, investigation, examination of accounts, assessment work like rectification under s. 154, for giving appeal effect to the appellate orders, etc. The learned Departmental Representative filed copy of that order before us and further pointed out that the Dy. CIT, Special Range, Amritsar, L. R. Nayyar, who was AO of the assessee delegated powers in pursuance of DOMS Instruction No. 56 issued vide letter dt. 7th November, 1988 referred to above, to R. K. Sood, ITO, attached with him for all these purposes vide letter dt. 9th December, 1988, a copy of which is also placed on record. The Departmental Representative further filed a copy of the order dt. 11th January, 1991, issued by the CIT, Amritsar by which all the Asstt. CITs/ITOs attached with the Dy. CIT, Special Range, Amritsar, were given concurrent powers in respect of assessees falling within the jurisdiction of Dy. CIT, Special Range and particularly relating to all work of assessment like rectification under s. 154, etc. He further pointed out that in pursuance of this instruction of DOMS vide Instruction No. 56 as well as the order of the CIT dt. 11th January, 1991, referred to above, R.K. Sood, ITO attached to the Dy. CIT, Special Range, Amritsar, was fully authorised particularly for rectification proceedings under s. 154 of the Act and the impugned order in the case of the assessee relates to s. 154 and thus he was having jurisdiction over the matter.
10. On merits, he relied upon the orders of the authorities below submitted further that both the orders are elaborate one.
11. We have considered the rival submissions and gone through the orders of the authorities below as well as the relevant papers to which our attention was drawn during the course of arguments and also perused the case laws cited by the learned counsel of the assessee.
12. Before applying the provisions of sub-s. 5(a) and (b) of s. 32A in the case of the assessee, it will be material to give out the facts as had come on record.
13. Undisputedly the assessee purchased new machinery in the asst. yr. 1982-83 and was allowed investment allowance of Rs. 8,35,101 out of which Rs. 3,57,218 was deducted out of assessed income of that year and balance of Rs. 4,77,883 was carried forward to be allowed in the subsequent assessment year. For the asst. yr. 1983-84, the facts are also not in dispute to the extent that in that year, the assessee was allowed investment allowance of Rs. 8,82,417 out of which unabsorbed carried forward of investment allowance of Rs. 4,77,883 from the asst. yr. 1982-83 was adjusted and remaining Rs. 4,04,534 was allowed further out of the assessed income for that year. It is also a fact and not disputed from the side of the assessee that the assessee had sold the machinery purchased in 1982-83 and 1983-84 in the previous year, relevant to the asst. yr. 1989-90 for which the assessee was allowed investment allowance. Now the contention of the authorities below is that the assessee had violated the provisions of s. 32A(5)(a) and thus it should be deemed that assessee was allowed investment allowance wrongly for the asst. yrs. 1982-83 and 1983-84 and was rightly withdrawn through order recorded under s. 154 r/w s. 155(4A) while the contention of the assessee is that the assessee had purchased new machinery worth more than the amount of reserve in subsequent year and thus complied with the provisions of s. 32A(5)(b) of the Act and after utilisation of that amount, nothing remained due which could be withdrawn by the authorities below under s. 155(4A) of the Act.
14. To appreciate the respective contentions, it will be relevant to point out that the provisions of s. 32A of the Act were brought on the statute by the Finance Act, 1976, w.e.f. from the asst. yr. 1976-77. The purpose for bringing this provision into operation was to encourage the businessmen and industrialists to acquire/install more and more machinery, ships and aircrafts. The deduction of 25 per cent of the actual cost of ships, aircrafts, machinery or plant so purchased and used by any assessee was allowed subject to certain conditions and s. 32A(4)(ii) requires an assessee to debit 75 per cent of investment allowance to the P&L a/c and credited to the reserve account to be called 'Investment Allowance Reserve Account' and that amount was to be utilised before the expiry of 10 years following the previous year in which the machinery/plant was installed, the new ship, new machinery or new plant. Further provisions of s. 32A(5) are relevant to be reproduced which read as under :
"32A(5) Any allowance made under this section in respect of any ship, aircraft, machinery or plant shall be deemed to have been wrongly made for the purpose of this Act :
(a) If the ship, aircraft, machinery or plant is sold or otherwise transferred by the assessee to any person at any time before the expiry of eight years from the end of the previous year in which it was acquired or installed; or
(b) if at any time before the expiry of ten years from the end of the previous year in which the ship or aircraft was acquired of the machinery or plant was installed, the assessee does not utilise the amount credited to the reserve account under sub-s. (4) for the purposes of acquiring a new ship or a new aircraft or new machinery or plant [other than machinery or plant of the nature referred to in cls. (a), (b) and (d) of the (second) proviso to sub-s. (1)] for the purposes of the business of the undertaking; or
(c) if at any time before the expiry of the ten years aforesaid, the assessee utilises the amount credited to the reserve account under sub-s. (4) for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any assets outside India or for any other purpose which is not a purpose of the business of the undertaking, and the provisions of sub-s. (4A) of s. 155 shall apply accordingly :"
The above provisions provide three specific conditions when investment allowance so granted under the relevant provision shall be deemed to have been wrongly made.
15. so far as the facts as stated above, are concerned, undisputedly the assessee had violated the provisions of s. 32A(5)(a) of the Act as admittedly the assessee had sold the machinery purchased in the asst. yrs. 1982-83 and 1983-84 in 1989-90, that is before the expiry of 8 years of the years from the end of the previous years in which these machineries were acquired and installed.
16. Now the contention of the assessee is to be examined. The only plea from the assessee is that the assessee purchased new machinery of Rs. 16,18,136 in the previous year, relevant to the asst. yr. 1983-84 and worth Rs. 5,70,035 in the asst. yr. 1986-87 and this goes to show that the amount of new machinery purchased in the subsequent years before the expiry of 10 years was more the amount of investment allowance granted to the assessee and thus nothing remained, which could have been withdrawn by the ITO. The above argument of the assessee is to be examined on two grounds. The first is that the ITO had noted in the order under s. 154 r/w s. 155(4A) of the Act that the assessee had not utilised the amount from the 'Investment Allowance Reserve Account' for the purchase of new machinery. The ITO further mentioned that 'Investment Allowance Reserve Account' remained intact till the asst. yr. 1988-89 and in the asst. yr. 1989-90, the assessee transferred the investment allowance reserve first to 'Reserve and Surplus Account' and then from it to P&L a/c. These findings of the ITO were findings of fact and the assessee had not controverted the same. Fact remained that no amount was used by the assessee from 'Investment Allowance Reserve Account' till the asst. yr. 1988-89 and that account stood transferred to 'Reserve & Surplus Account' in the asst. yr. 1989-90 and then to the 'P&L a/c'. The plea of the assessee that new machinery in the asst. yrs. 1982-83, 1983-84 and 1986-87 as appearing in the chart reproduced by us in the earlier part was purchased out of investment allowance reserve remained unproved as the assessee failed to bring on record the copy of investment allowance reserve account and the treatment given by him to this account in the account books for these assessment years, to controvert the findings of the ITO. The first point goes against the assessee.
17. Now comes the other plea that new machinery worth more than the amount of investment allowance was purchased by the assessee in subsequent year and the assessee complied with the provisions of s. 32A(5)(b) of the Act. A perusal of provisions of s. 32A(5)(a), (b) and (c) of the Act shall show that the legislature had given three different situations in which it shall be deemed that investment allowance was wrongly made and these three situations are independent to each other and not interconnected. The first contention of s. 32A(5)(a) in relating to ship, aircraft, machinery or plant and in case there was transfer of any of these before the expiry of 8 years from the end of the previous year, then investment allowance should be treated to have been wrongly made. The second condition in s. 32A(5)(b) relates to utilisation of 'Investment Allowance Reserve Account' and that is to be utilised before the expiry of 10 years from the end of the previous year in which the investment allowance was granted and violation thereof shall result into withdrawal of the investment allowance and sub-s. (5)(c) of s. 32A provides the mis-utilisation of investment allowance reserve account for the purpose other than provided in the Act. So these three conditions are not related to one thing but relating to the different situations as one to the property, the other for utilisation of reserve account and the third one about misuse of the reserve account and thus these are separate one, that is why the legislature in its wisdom has used the word 'or' in between the three situations and not used the word 'and'. If we accept the argument of the learned counsel for the assessee then it will amount to adding word 'and' in between cl. (a), cl. (b) of sub-s. (5) of s. 32A, which is unwarranted and against the spirit of the legislative intent. On the basis of the above, we are of the considered view that in case the assessee, who had been allowed investment allowance, violated the provisions of any of these cls. (a), (b) and (c) of sub-s. (5) of s. 32A, then the investment allowance is to be withdrawn.
18. In the case in hand, the assessee had already violated the provisions of s. 32A(5)(a) of the Act and thus the Investment Allowance is to be treated as wrongly given to the assessee.
19. So far as the compliance of cl. (5)(b) of s. 32A of the Act is concerned, the assessee had failed to prove that he purchased new machinery in subsequent year out of 'Investment Allowance Reserve Account' and thus the assessee cannot be given any benefit of that clause also.
20. There is no ambiguity in the interpretation of any of these provisions of s. 32A(5) of the Act and no possibility of two interpretations and the plea of the assessee that benefit of ambiguity can be extended to the assessee does not help the cause of the assessee.
21. So far as the jurisdiction part is concern, in view of the copy of Instruction No. 56 issued by the Directorate of OSM Services, (Income-tax), New Delhi, dt. 7th November, 1988, to the ITOs attached to the Dy. CIT, Special Range, have been allowed to have powers relating to the assessment work like rectification under s. 154 and further the Dy. CIT, Special Range, Amritsar, has also allowed the powers to R.K. Sood, ITO concerned in the case for making all orders relating to rectification and even the CIT, Amritsar vide order dt. 11th January, 1991, had given concurrent powers to the ITOs attached to the Dy. CIT, Special Range, Amritsar likewise and thus the plea of the learned counsel for the assessee was without any force as the ITO, R.K. Sood was having jurisdiction over the matter.
22. The result of the above discussion is that the authorities below have rightly appreciated the provisions of s. 32A(5)(a) and (b) of the Act and rightly treated the assessee had violated the said provisions and it was a fit case in which investment allowance should have been withdrawn.
23. No force in the appeals and both the appeals are dismissed.