Income Tax Appellate Tribunal - Chennai
Rane Engine Valves Ltd., , Chennai vs Department Of Income Tax on 21 August, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
' C' Bench Chennai
Before Dr. O. K. Narayanan, Vice President
and Shri V. Durga Rao, Judicial Member
-------
ITA No. 1082/Mds/2012
Assessment year : 2004-05
The Asst. Commissioner of v. M/s. Rane Engine Valves
Income Tax, Ltd., "Maithri",
Company Circle-V(3), 132, Cathedral Road,
Chennai. Chennai-600 086.
(PAN :AAACT1279M)
(Appellant) (Respondent)
Appellant by : Ms. Anupama Shukla, IRS,
CIT
Respondent by : Shri R. Vijayaraghavan,
Advocate
Date of Hearing : 21.08.2012
Date of Pronouncement : 21.08.2012
ORDER
PER V. DURGA RAO, JUDICIAL MEMBER:
This appeal by the Revenue is directed against the order passed by the Commissioner of Income Tax (Appeals), Large Taxpayer Unit, Chennai dated 24-02-2012 for the assessment year 2004-05.
2ITA No.1082/Mds/2012
2. The facts in brief are that the assessee is engaged in the business of manufacture of automobile parts. For the assessment year under consideration the assessee filed its return of income admitting a total income of ` 19,70,50,096/- and revised the return of income on 31-03-2006 admitting an income of ` 20,15,43,777/-. The return was processed u/s 143(1) of the Income Tax Act, 1961 ('the Act' for short) and subsequently the assessment was completed u/s 143(3) determining the total income at ` 20,06,43,151/-.
3. During the course of the assessment proceedings the Assessing Officer observed that the assessee had created a reserve u/s 32A of the Act aggregating to ` 1,19,03,813/- from assessment yeas 1977-78 to 1996-97. During the period the assessee had purchased plant and machinery to the tune of ` 51,27,23,088/- which was more than the amount of reserve created. The Assessing Officer withdrew the investment allowance granted u/s 32A and passed order on 04-02-2009 by invoking section 155(4A) of the Act. The reason given by the Assessing Officer was that, "....As per section 32A if the assessee owns any ship or aircraft or machinery and is wholly used for 3 ITA No.1082/Mds/2012 the purpose of business shall be allowed a deduction in respect of the P.Y. ion which such ship or aircraft or machinery was acquired or installed, of a sum by way of investment allowance.
As per (5)(6) - And any allowance made underu this section shall be deemed to have been wrongly made for the purpose of this act, if at any time before the expiry of ten years from the end of the P.Y. in which the machinery, ship etc was acquired, the assessee does not utilize the amount credited to the reserve account for the purpose of acquiring a new ship or machinery and the provisions of sub-section (4A) of section 155 shall apply accordingly.
Further as per section 155(4A) in the above case the investment allowance originally allowed shall be deemed to have been wrongly allowed and the A.O. may recompute the total income of the relevant previous year and make necessary amendment. It is also seen that investment allowance reserve of ` 11930813/- was transferred to General reserve during the P.Y. relevant to A.Y. 2004-05.
In view of the above discussion, the sum of ` 11930813/- is being added back u/s 155(4A) and the order u/s 143(3) dated 27.12.06 is revised accordingly."
4ITA No.1082/Mds/2012
4. On being aggrieved, the assessee carried the matter before the learned CIT(Appeals). It was submitted before the learned CIT(Appeals) that the assessee is entitled to claim investment allowance deduction at 25% of the total value of new plant and machinery installed and put to use. The condition for allowance is that 75% of the investment allowance claimed should be debited to the profit and loss account and credited to a reserve called the "Investment Allowance Reserve Account" and subsequently the reserve should be utilized for purchasing new plant and machinery. This is a beneficial section conferring an additional allowance over and above the depreciation on the amount invested in acquiring plant and machinery. The restriction is that the profit to the extent to 75% of the investment allowance claimed should not be used for distribution of dividends and should be sterilized by crediting to a reserve called "Investment Allowance Reserve Account". By doing so, the profit cannot be distributed as dividend. The other requirement is that the assessee should purchase new machinery within ten years. It was further submitted that 5 ITA No.1082/Mds/2012 once the assessee purchased sufficient amount of machinery to the extent of the amount standing to the credit in the investment allowance reserve, they should be deemed to have utilized the investment allowance reserve for purchase of machinery and hence satisfied the requirement of section 32A. He also relied on the decision of the Chennai Bench of the Tribunal in the case of M/s. Shardlow India Ltd. (ITA Nos. 1492 & 1493/Chny/2009 dated 11.06.2010) and India Pistons Ltd. (ITA No. 211/Mds/2010 dated 30-04-2010). The learned CIT(Appeals) after considering the submissions of the assessee by following the decision of the Tribunal in the case of India Pistons Ltd. and M/s. Shardlow India Ltd. (supra) held as under :
"6. I have carefully considered the facts of the case and the submission of the ld. AR. I have also gone through the decisions relied on by the AO and AR. The appellant has created reserve of ` 1,19,30,813/-. However, it has purchased plant and machinery to the extent of ` 51,27,23,088/-. Therefore the appellant has clearly purchased plant and machinery worth more than the amount of reserve created and has utilized the IAR for purchase of plant and machinery. On similar fact, 6 ITA No.1082/Mds/2012 in the case of M/s. India Pistons Ltd. in ITA No. 63/07-08/A.III dated 31.11.2009, I had held that the investment allowance allowed cannot be withdrawn u/s 155(4A) merely on the ground that some balance is left in the investment allowance utilized reserve. On further appeal by the department, the Hon'ble ITAT in ITA No. 211/Mds/2010 (supra) dismissed the appeal of the revenue. Further, the Hon'ble ITAT in the case of Shardlow India Ltd. (supra) has also decided the issue in favour of the assessee. Respectfully following these decisions, the ground is allowed."
5. Being aggrieved, the Revenue has carried the matter before the Tribunal. The learned DR supported the order passed by the Assessing Officer.
6. On the other hand, the learned counsel for the assessee relied on the order passed by the learned CIT(Appeals) and also submitted that the issue involved in this appeal is squarely covered by the decision of the Tribunal in the case of M/s. Shardlow India Ltd. in ITA Nos. 1492 & 1493/Mds/2009 dated 11-06-2010 which was considered by the learned CIT(Appeals).
7ITA No.1082/Mds/2012
7. We have heard both the sides, perused the records and gone through the orders of the authorities below. The only issue for consideration is that whether the assessee is entitled to claim investment allowance deduction u/s 32A of the Act or not. It is an admitted fact that the assessee had created a reserve of ` 1,19,30,813/-. The assessee also purchased machinery to the extent of ` 51,27,23,088/-.Therefore, the assessee has purchased plant and machinery worth more than the amount of reserve created and has utilized the IAR for purchase of plant and machinery. These facts are not disputed by the Revenue authorities. The learned CIT(Appeals) by considering the above facts and by following the decision of the Tribunal in the case of M/s. Shardlow India Ltd. dated 11-06-2010 (supra), wherein the Tribunal has held as under, allowed the ground of appeal:
"3. We have heard the rival submissions. We have also perused the details of the investment allowance reserve credit, as also the additions to the plant and machinery. It is noticed that the plant and machinery acquired are far exceeding the investment allowance reserve created. In these circumstances, we are of the view that the finding of the Co-ordinate Bench 8 ITA No.1082/Mds/2012 of this Tribunal in the case of M/s. India Pistons Ltd. squarely covers the issue in the appeal. In the circumstances, respectfully following the decision of the Co-ordinate Bench of this Tribunal in the case of M/s. India Pistons Ltd. referred to supra, the finding of the Ld. CIT)A)m on this issue stands confirmed and the appeals of the Revenue are dismissed."
8. Respectfully following the decision of the Tribunal, cited supra, we hold that the assessee is eligible for the benefit of deduction under section 32A of the Act. We find no infirmity in the order passed by the learned CIT(Appeals). Accordingly, this ground of appeal raised by the Revenue is dismissed.
Order pronounced in the open court at the time of hearing on Tuesday, the 21st of August, 2012, at Chennai.
Sd/- Sd/-
(Dr. O. K. Narayanan) ( V.Durga Rao )
VICE PRESIDENT JUDICIAL MEMBER
Chennai,
Dated the 21st August, 2012.
H.
Copy to : (1) Assessee (2) Assessing Officer (3) CIT
(4) CIT(A) (5) DR (6) Guard File