DCIT, Circle - 4, Kolkata V. M/s. Star Paper Mills Ltd., Kolkata

ITA 1643/KOL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2546 (ITAT-KOLKATA)
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 30-04-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 18-09-2009
• Court: TRIBUNAL
• Department Lawyers: B N VERMA
• Assessee Lawyers: D S DAMLE
• Keywords: Capital asset; Business income; Depreciation; Additional depreciation; Bad and doubtful debts
• Section: 32(1)(iia); 32; 6

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL : A BENCH : KOLKATA [ BEFORE SRI D.K. TYAGI, J.M. & SHRI B.C. MEENA, A.M. ] I.T.A.NO. 1643 (KOL) OF 2009 ASSESSMENT YEAR 2006-07 DY. COMMISSIONER OF INCOME-TAX, -VS- M/S. STAR PAPER MILLS LTD., CIRCLE-4, KOLKATA. KOLKATA. (PAN-AAECS0759B) ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SRI B.N. VERMA RESPONDENT BY : SRI D.S. DAMLE O R D E R PER SRI B.C.MEENA, A.M. : THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 30.04.2009 OF C.I.T.(A)-IV, KOLKATA, PERTAINING TO ASSESSMENT YEAR 2006-07. THE FIRST TWO GROUNDS RAISED IN THIS APPEAL BY TH E REVENUE ARE AGAINST DELETION OF ADDITION OF RS.57,85,000/- IN RESPECT OF WR ITE OFF OF LOANS AS BAD DEBT, WHICH READ AS UNDER :- 1. THAT, ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. C.I.T.(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN D ELETING THE ADDITION OF RS.57,85,000/- MADE BY THE AO TREATING THE CLAIM OF WRITTEN OFF OF LOANS AS NOT ALLOWABLE IN VIEW OF THE DECISION OF H ONBLE MUMBAI HIGH COURT, REPORTED IN 202 ITR 417. 2. THAT, ON THE FACTS AND IN THE CIRCU MSTANCES OF THE CASE, THE LD. C.I.T.(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN N OT CONSIDERING THAT AS THE ASSESSEE WAS NOT ENGAGED IN THE BUSINESS OF MONEY LENDING THEREFORE WRITE OFF OF LOANS AS BAD DEBT WAS NOT IN CIDENTAL TO ITS BUSINESS, HENCE NOT ALLOWED. 2. THE FACTS OF THE CASE, IN BRIEF, ARE THAT DURING THE YEA R UNDER CONSIDERATION THE ASSESSEE CLAIMED THE DEDUCTION OF RS.57,85,000/- IN RESPECT OF BAD DEBT WRITTEN OFF. IT WAS FOUND BY THE A.O. THAT THE ASSESSEE HAD ADVANCED A SUM OF RS.65 LAKHS IN EARLIER YEARS TO M/S. BAK ELITE HYLAM LTD. (IN SHORT BHL) AND RECEIVED INTEREST UPTO F.Y. 2000-01 OF RS.39.65 LAKHS OUT OF TOTAL INTEREST RECEIVABLE OF RS.73.48 LAKHS. AS BHL BECAM E A SICK COMPANY AND WAS REGISTERED WITH BIFR, THE ASSESSEE ENTERED INTO A ONE-TIME SETTLEMENT WITH BHL IN RESPECT OF THE AMOUNTS RECEIVABLE FROM BHL A ND, ACCORDINGLY, RECEIVED RS.7.15 LAKHS FROM BHL IN FULL & FINAL SETTLEMENT OF ITS DUES IN 2 JANUARY, 2006. SINCE THE ASSESEE DUE TO THIS ONE-TIME S ETTLEMENT HAD LOST ITS RIGHT TO RECOVER ANY FURTHER AMOUNTS, BALANCE AMOUNT WA S WRITTEN OFF AND, ACCORDINGLY, SHOWN IN THE P/L ACCOUNT AS FOLLOWS :- INTEREST RECEIVABLE (RS.73.48 LAKHS RS.39.65 LAKHS) RS.33.83 LAKHS PRINCIPAL AMOUNT OF LOAN (RS.65 LAKHS RS.7.15 LAKHS) RS.57.85 LAKHS RS.91.68 LAKHS THE A.O. DISALLOWED THE ASSESSEES CLAIM. HOWEVER, THE INT EREST RECEIVABLE AMOUNTING TO RS.33.83 LAKHS, WHICH HAS BEEN WRITTEN OFF IN T HE ACCOUNTS, WAS TREATED BY THE A.O. AS TRADING LOSS SINCE THE ASSESSEE HAS NOT RECEIVED THE INTEREST BUT OFFERED THE SAME TO TAX IN THE EARLIER YEARS . IN THIS WAY, THE A.O. DISALLOWED RS.57.85 LAKHS [RS.91.68 LAKHS RS.33.83 LAKHS]. WHILE DOING SO, THE A.O. RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT REPORTED IN 202 ITR 417. THE ASSESSEE CAME IN APPEAL BEFORE THE C.I.T.(A). THE C.I.T.(A) IN HIS ORDER DISCUSSED THE ISSUE IN GREAT DETAIL AND DELETED THE DISALLOWANCE OF RS.57.85 LAKHS. HENCE THIS APPEAL BY THE REVENUE. 3. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE A.O. AND ALSO PLACED RELIANCE ON THE FOLLOWING DECISIONS OF HONBLE SUPREME COURT IN SUPPORT OF HIS ARGUMENTS :- (A) A.V.THOMAS & CO. LTD. VS. CIT [48 ITR 67 (SC) - IT HAS BEEN HELD THAT ADVANCE PAID BY ASSESSEE-COMPANY TO PURCHASE SH ARES NOT BEING INCIDENTAL TO ITS TRADING ACTIVITIES CANNOT BE DESCRIBE D AS A DEBT AND IRRECOVERABLE PART THEREOF CANNOT BE ALLOWED AS DEDUCTION U/S. 10(2)(XI). (B) CIT VS. ABDULLABHAI ABDULKADAR [41 ITR 545 (SC)] IT HAS BEEN HELD THAT TAX LIABILITY OF NON-RESIDENT DISCHARGED BY AGENT U/S. 42(1) AND ON AGENT FAILING TO RECOVER THE SAME FROM NON-RESIDEN T, CANNOT BE ALLOWED AS BAD DEBT U/S. 10(2)(XI). (C) INDIAN ALUMINIUM CO. LTD. VS. CIT [79 ITR 514 (SC)] IT HAS B EEN HELD THAT IRRECOVERABLE AMOUNT OF TAX PAID ON BEHALF OF A FO REIGN COLLABORATION (TO WHOM PAYMENT WAS MADE WITHOUT DEDUCTION OF TAX AT SOURCE) WRITTEN OFF IN THE BOOKS OF THE ASSESSEE CANNO T BE ALLOWED AS BAD DEBT ARISING OUT OF THE BUSINESS OF THE ASSESSEE. 3 3.1. THE ASSESSEES LD. A/R APART FROM RELYING ON THE ORDER OF THE C.I.T.(A) ALSO RELIED ON THE FOLLOWING DECISIONS IN SUPPORT OF THE CLAIM OF BAD DEBT :- (A) POYSHA OXYGEN (P) LTD. VS. ACIT [(2008) 19 SOT 711 (DEL-TM)] (B) GOETZE (INDIA) LTD. VS. DCIT [(2008) 25 SOT 171 (DEL) (C) ACIT VS. PHILIPS CARBON BLACK LTD. [ITA NO.1447/K/06 DT. 22.9.06] 3.2. THE CASE LAWS RELIED UPON BY THE LD. DEPARTMENTAL R EPRESENTATIVE MENTIONED ABOVE ARE BASED ON ALTOGETHER DIFFERENT FACTS T HAN THOSE IN THE CASE BEFORE US. THEREFORE, THESE DECISIONS WILL NOT HELP THE REV ENUE. WE, HOWEVER, FIND THAT THE DECISIONS RELIED ON BY THE ASSESSEES LD. A/R ARE DIRECTLY ON THE POINT UNDER CONSIDERATION. 3.3. THE HEAD-NOTES OF POYSHA OXYGEN (P) LTD. (SUPRA) R ELIED ON BY THE ASSESSEES LD. A/R IS REPRODUCED BELOW: WHETHER FURTHER SINCE INTEREST ON SAID ADVANCE WAS ASSESSED IN EARLIER YEARS AS BUSINESS INCOME AND MOREOVER BOARD RESOLUTION AU THORIZING SAID ADVANCE WAS IN CONFORMITY WITH OBJECTS CLAUSE OF MEMORANDUM OF ASSOCIATION, IT COULD BE SAID THAT TRANSACTION IN QUESTION WAS A LOAN TRANSA CTION AND REPRESENTED MONEY LENT IN ORDINARY COURSE OF BUSINESS OF MONEY LENDI NG CARRIED ON BY ASSESSEE HELD, YES WHETHER, THEREFORE, ASSESSEES CLAIM OF BAD DEBTS WAS ALLOWABLE IN VIEW OF PROVISIONS CONTAINED IN SECTION 36(1)(VII) READ WITH SECTION 36(2)(I) HELD YES. 3.4. THE HEAD-NOTES OF GOETZE (INDIA) LTD. (SUPRA) IS REPRODUCED BELOW :- ASSESSEE-COMPANY WAS ENGAGED IN BUSINESS OF MANUFAC TURING OF PISTON RINGS, CYLINDER LINERS, GROOVE INSERTS, SLEEVES, LIGHT ALL OY CYLINDERS, ETC. MAIN OBJECTS OF ASSESSEE, INTER ALIA, INCLUDED TO INVEST AND DEA L WITH MONIES OF COMPANY NOT IMMEDIATELY REQUIRED IN SUCH MANNER AS WAS TO BE DET ERMINED FROM TIME TO TIME ASSESSEE HAD BEEN PLACING INTER-CORPORATE DEPOSIT S (ICDS) WITH VARIOUS COMPANIES SINCE FINANCIAL YEAR 1994-95 FOR RELEVA NT ASSESSMENT YEAR, ASSESSEE CLAIMED DEDUCTION OF CERTAIN AMOUNT AS BAD DEBT UNDER SECTION 36(1)(III) IN RESPECT OF ICDS WHETHER SINCE ASSES SEE HAD LENT MONEY BY WAY OF ICDS IN ORDINARY COURSE OF ITS BUSINESS OF MONEY LE NDING AND, MOREOVER, IT HAD COMPLIED WITH OTHER CONDITIONS LAID DOWN IN SECTION 36(1)(VII) AND 36(2)(I), CLAIM OF BAD DEBT WAS ALLOWABLE HELD, YES. 3.5. THE CASE LAWS RELIED UPON BY THE LD. DEPARTMENTAL RE PRESENTATIVE ARE PRIOR TO AMENDMENT TO S. 36 (1) (VII) W.E.F. 1.4.1989. IN THIS C ONNECTION, WE MAY REFER TO THE RECENT DECISION OF HONBLE SUPREME COUR T PRONOUNCED ON 4 22/2/2010 IN THE CASE OF TRF LTD. VS. CIT [(2010) 230 CTR (SC) 14], WHEREIN THE HONBLE SUPREME COURT HAD TO CONSIDER WHETHER AFTE R THE AMENDMENT TO SEC. 36 (1) (VII) W.E.F. 1.4.1989, AN ASSESSEE HAD TO ESTABLISH, AS A MATTER OF FACT, THAT THE DEBT ADVANCED BY THE ASSESSEE HAD, IN FA CT, BECOME IRRECOVERABLE OR WHETHER WRITING OFF THE DEBT AS IRRECOVER ABLE IN THE ACCOUNTS WAS SUFFICIENT. IT HAS BEEN HELD THAT THE POSITION IN LAW IS W ELL-SETTLED. AFTER 1.4.1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT T HE DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEB T IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. WHEN A B AD DEBT OCCURS, THE BAD DEBT ACCOUNT IS DEBITED AND THE CUSTOMERS ACCOU NT IS CREDITED, THUS, CLOSING THE ACCOUNT OF THE CUSTOMER. IN THE CASE OF COMPAN IES, THE PROVISION IS DEDUCTED FROM SUNDRY DEBTORS. IN THE CASE BEFORE US, ON THE FACTS OF THE CASE, THE DEBT HAS ACTUALLY BECOME BAD AND THE SAME H AS BEEN DULY ACCOUNTED FOR IN THE P/L ACCOUNT. THE A.O. HAS ALSO NOT DISPUTED THAT THE ASSESSEE DID NOT, IN FACT, REALIZE ITS DUES FROM BHL AND THE DECISION TO WRITE OFF WAS TAKEN AS PER AGREEMENT WITH BHL ON THE BASIS OF DECISION OF THE MANAGEMENT OF THE ASSESSEE-COMPANY. FURTHER, WHEN THE INTEREST INCOME HAS BEEN ASSESSED YEAR AFTER YEAR AS BUSINESS INCOME A ND THE A.O. HIMSELF HAS TREATED THE INTEREST RECEIVABLE OF RS.33.83, WHICH HAS BEEN WRITTEN OFF IN THE ACCOUNTS, AS TRADING LOSS SINCE THE ASSESSEE HAS NO T RECEIVED THE INTEREST WHICH HAD BEEN OFFERED TO TAX IN THE EARLIER YEARS BY IT, IN OUR OPINION, THE A.O. WAS NOT JUSTIFIED IN DISALLOWING THE BAD DEBT OF RS.57.8 5 LAKHS CLAIMED BY THE ASSESSEE IN THE YEAR UNDER APPEAL. WE, THEREFORE , UPHOLD THE ORDER OF THE C.I.T.(A) ON THIS ISSUE ALLOWING THE DEDUCTION OF RS.57.85 LA KHS AS BAD DEBT. ACCORDINGLY, GROUNDS NO. 1 & 2 OF THE REVENUES APPEAL ARE DISMIS SED. 4. GROUNDS NO. 3 TO 5, WHICH READ AS UNDER, RELATE TO DE LETION OF DISALLOWANCE OF CLAIM OF ADDITIONAL DEPRECIATION TO THE TUNE OF RS.80,70,370 : - 3. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN DELETING THE DI SALLOWANCE OF CLAIM OF ADDITIONAL DEPRECIATION TO THE TUNE OF RS.80,70,370 /- WITHOUT CONSIDERING THE AMENDED PROVISION OF SEC. 32(1)(IIA ). 4. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN NOT CONSIDERING THAT THE ASSESSEE ACQUIRED THE MACHINERY BEFORE 31.03.2005 AND INSTAL LED/PUT TO USE THE SAME AFTER 31.03.2005 BUT IN ORDER TO CLAIM ADDITIO NAL DEPRECIATION THE 5 ASSESSEE WAS REQUIRED TO BOTH ACQUIRE AND INSTALL T HE MACHINERY AFTER 31.03.2005. 5. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN NOT CONSIDERING THAT THE DECISION OF HONBLE SUPREME COURT PRONOUNCED IN THE CASE OF BAJ AJ TEMPO LTD. [REPORTED IN 196 1TR 188] RELATES TO THE ISSUE OF E XEMPTION U/S. 15C OF THE I T ACT, 1922 AND DOES NOT HAVE ANY RELEVANCE T O THIS INSTANT CASE. 5. THE FACTS IN BRIEF RELATING TO THE ABOVE ISSUE ARE TH AT IN THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HA D CLAIMED ADDITIONAL DEPRECIATION U/S.32(1)(IIA) OF THE ACT AMOUNTING TO RS.4,49,88,662 /-. IN THE ASSESSMENT ORDER, THE A.O. NOTED THAT OUT OF THE TOTAL C LAIM OF RS.4,49,88,662/-, SUM OF RS.80,70,3701- PERTAINED TO ADDITIONS TO THE PLANT & MACHINERY HAVING COST OF RS.4,03,51,850/-, WHICH WERE AC QUIRED PRIOR TO 31 ST MARCH, 2005 BUT INSTALLED DURING THE F.Y. 2005-06. THE A.O. WAS OF THE OPINION THAT IN ORDER TO CLAIM ADDITIONAL DEPRECIATION U/S. 32 (1)(IIA) OF THE ACT, IT WAS NECESSARY FOR THE ASSESSEE TO PROVE THAT THE E LIGIBLE MACHINERIES WERE PURCHASED AS WELL AS INSTALLED AFTER 31ST MARCH, 2005 AND UNLESS BOTH THESE CONDITIONS I.E. ACQUISITION AND INSTALLATION, WERE COMPLETED IN TH E FINANCIAL YEAR 2005-06, DEDUCTION COULD NOT BE ALLOWED. HE ACCORDING LY DISALLOWED THE CLAIM U/S 32(1)(IIA) TO THE EXTENT OF RS,80,70,370/-. 6. ON APPEAL, THE CIT(A) HAS DISCUSSED THE ISSUE AT GREA T LENGTH AND ALLOWED THE ASSESSES CLAIM WITH THE FOLLOWING OBSERVATIONS :- 10. I HAVE CONSIDERED SUBMISSIONS OF THE A/R AND THE REASONS RECORDED BY THE AO FOR DENYING DEPRECIATION U/S 32(1)(IIA) OF T HE ACT. FROM THE LEGISLATIVE HISTORY IT APPEARS THAT SECTION 32(1)(IIA) GRANTING ADDITIONAL DEPRECIATION WAS ORIGINALLY ENACTED BY THE FINANCE (NO.2) ACT, 1980 WITH EFFECT FROM 1/4/1981 AND WAS OMITTED WITH EFFECT FROM 1/4/1988. THEREAFT ER SECTION 32(1)(IIA) WAS ENACTED AGAIN BY THE FINANCE (NO.2) ACT, 2002 WITH EFFECT FROM 1/4/2003 GRANTING ADDITIONAL DEPRECIATION IN RESPECT OF NEW PLANT AND MACHINERY ACQUIRED AND INSTALLED, RESULTING IN EXPANSION OF T HE INSTALLED CAPACITY. THE PROVISIONS ORIGINALLY INSERTED BY THE FINANCE ACT 2 002 EFFECTIVE FROM THE ASSESSMENT YEAR 2003-04 WERE AMENDED BY THE FINANCE (NO.2) ACT, 2004 WITH EFFECT FROM 1/4/2005. THE PROVISIONS OF SECTION 32( 1)(IIA) OF THE ACT, AS WERE APPLICABLE IN ASSESSMENT YEAR 2006-07, WERE SAME IN THE IMMEDIATELY PRECEDING YEAR AS WELL. SECTION 32(1)(IIA), AS CAME INTO FORCE FROM THE ASSESSMENT YEAR 2005-06, PROVIDED THAT IN CASE OF A NY NEW MACHINERY OR PLANT, WHICH IS ACQUIRED AND INSTALLED AFTER 31-03- 2005, A FURTHER SUM EQUAL TO 20% OF THE ACTUAL COST OF PLANT AND MACHINERY WI LL BE ALLOWED AS DEDUCTION. THE DEDUCTION MADE PERMISSIBLE U/S 32(1) (IIA) WAS IN ASSESSMENT YEAR 2005-06 MEANING THEREBY THE ACQUISITION AND IN STALLATION OF NEW PLANT AND MACHINERY COMPLETED AFTER 31-03-2005 WAS ELIGIB LE TO CLAIM DEDUCTION. 6 11. SECTION 32(1)(IIA) WAS INSERTED BY T HE FINANCE ACT, 2002 AND CAME INTO EFFECT FROM THE ASSESSMENT YEAR 2003-04. THE MEMORA NDUM EXPLAINING PROVISIONS OF FINANCE BILL 2002 STATED THAT THIS PR OVISION WAS ENACTED TO PROVIDE BOOST TO MANUFACTURING SECTOR. THE INTENTIO N WAS TO PROMOTE CREATION OF ADDITIONAL PRODUCTION CAPACITIES IN MANUFACTURIN G SECTOR BY INSTALLATION OF NEW PLANT AND MACHINERY. THE INTENTION OF THE LEGIS LATURE WAS TO ENCOURAGE THE ASSESSEES IN MANUFACTURING SECTOR NOT ONLY TO P URCHASE NEW PLANT AND MACHINERY BUT ALSO TO INSTALL THE SAME RESULTING IN CREATION OF ADDITIONAL PRODUCTION CAPACITIES. IT IS, FOR THIS PURPOSE, THE YEAR OF ALLOWANCE WAS FIXED WITH REFERENCE TO THE YEAR OF INSTALLATION AND NOT YEAR OF ACQUISITION BECAUSE THE INSTALLATION OF NEW MACHINERIES RESULTING IN EX PANSION OF PRODUCTION CAPACITY MAY TAKE MORE THAN ONE FINANCIAL YEAR TO C OMPLETE. THE LANGUAGE USED IN SECTION 32(1)(IIA) NOWHERE INDICATES THAT T HE LEGISLATURE REQUIRED THE ASSESSEES TO ACQUIRE AS ALSO INSTALL THE NEW PLANT AND MACHINERIES IN ONE SINGLE FINANCIAL YEAR. THERE IS NO EXPRESS PROVISIO N IN THE LANGUAGE USED IN SECTION 32(1)(IIA) WHICH COMPELS THE ASSESSEES TO C OMPLETE BOTH ACQUISITION AND INSTALLATION OF NEW PLANT AND MACHINERY IN THE SAME FINANCIAL YEAR. IN ABSENCE OF ANY SUCH EXPRESS PROVISION, THE AO COULD NOT READ SUCH ADDITIONAL CONDITION IN SECTION 32(1)(IIA). 12. THE PLANT AND MACHINERY IN RESPECT O F WHICH ADDITIONAL DEPRECIATION WAS DENIED WAS ACQUIRED BY THE ASSESSEE IN EARLIER YEAR S AND IN THE YEAR OF PURCHASE THE ADDITIONAL DEPRECIATION WAS NOT ALLOWE D EVEN THOUGH SECTION 32(1)(IIA) WAS IN FORCE IN SUCH EARLIER YEARS. IT W AS SO BECAUSE IN SUCH YEAR ASSESSEE HAD NOT FULFILLED THE CONDITION OF INSTALL ATION OF THE PLANT AND MACHINERY THOUGH ONLY CONDITION RELATING TO ACQUISI TION WAS FULFILLED. GOING BY THE INTERPRETATION OF SECTION 32(I)(IIA) MADE BY THE AO, THE ASSESSEE WOULD BE DISENTITLED TO CLAIM ADDITIONAL DEPRECIATION BOT H IN THE YEAR OF PURCHASE AS ALSO IN ASSESSMENT YEAR 2006-07, BECAUSE THE ACQUIS ITION AND INSTALLATION OF NEW PLANT AND MACHINERIES WAS CARRIED OUT IN TWO DI FFERENT FINANCIAL YEARS. IN THE CIRCUMSTANCE, EVEN THOUGH ASSESSEE COMPLIED WIT H SUBSTANTIVE CONDITIONS OF SECTION 32(L)(IIA) I.E. ACQUIRING AND INSTALLING NEW PLANT AND MACHINERIES, BENEFICIAL DEDUCTION WAS DENIED ONLY BECAUSE THE TW O ACTS WERE CARRIED OUT IN TWO DIFFERENT FINANCIAL YEARS. IN MY OPINION, SUCH AN ARTIFICIAL INTERPRETATION OF A BENEFICIAL PROVISION HAS LED TO AN ABSURD POSITIO N RESULTING IN COMPLETE DENIAL OF DEDUCTION EVEN THOUGH THE ASSESSEE ACQUIR ED AND INSTALLED NEW PLANT AND MACHINERY FOR CARRYING ON ITS MANUFACTURI NG BUSINESS. 13. THE SUPREME COURT IN THE CASE OF BAJ AJ TEMPO LIMITED VS CIT (196 ITR 188 HELD THAT A PROVISION IN A TAXING STATUTE GRANT ING INCENTIVES FOR PROMOTING GROWTH AND DEVELOPMENT SHOULD BE CONSTRUED LIBERALL Y; AND SINCE THE PROVISION FOR PROMOTING ECONOMIC GROWTH HAS TO BE I NTERPRETED LIBERALLY, THE RESTRICTION OF IT TOO HAS TO BE CONSTRUED SO AS TO ADVANCE THE OBJECTIVE OF THE PROVISION AND NOT TO FRUSTRATE IT. APPLYING THE ABO VE JUDICIAL PRINCIPLE IT IS FOUND THAT IN ASSESSMENT YEAR 2006-07 ADDITIONAL DE PRECIATION WAS GRANTED TO ALL ASSESSEES, WHO ACQUIRED AND INSTALLED NEW PL ANT AND MACHINERY AFTER 31-03-2002. THE PROVISIONS RELATING TO GRANTING OF ADDITIONAL DEPRECIATION WERE IN THE STATUTE SINCE ASSESSMENT YEAR 2003- 04 AND THE ASSESSEE SATISFIED THE SUBSTANTIVE CONDITIONS OF ACQUISITION AND INSTA LLATION OF NEW PLANT AND MACHINERY IN THE PREVIOUS YEAR RELEVANT TO ASSESSME NT YEAR 2006-07. SINCE THE SUBSTANTIVE CONDITIONS OF SECTION 32(1)(IIA) WE RE SATISFIED IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2006-07, THE DEDUC TION WAS ALLOWABLE IN ASSESSMENT YEAR 2006-07. SUCH BENEFICIAL PROVISION COULD NOT BE FRUSTRATED 7 BY PLACING AN ARTIFICIAL INTERPRETATION TO THE LANG UAGE USED IN SECTION 32(1)(IIA). THE EXPRESSION USED BY THE LEGISLATURE DID NOT REQUIRE THE ASSESSEE TO ACQUIRE AND INSTALL NEW PLANT AND MACHINERY IN T HE SAME YEAR AND THEREFORE, THE AO COULD NOT READ INTO THE ACT ADDIT IONAL CONDITION AND DENY THE BENEFIT TO WHICH THE ASSESSEE WAS LEGITIMATELY ENTITLED. 14. THE DECISION OF THE CALCUTTA HIGH CO URT IN THE CASE OF CIT VS SURANA TUBES LIMITED (SUPRA) SUPPORTS THE CLAIM OF THE ASS ESSEE. EVEN THOUGH THE LANGUAGE SECTION 32(1)(IIA) ENACTED EARLIER ALLOWED THE DEDUCTION IN THE YEAR IN WHICH MACHINERIES WERE INSTALLED; THE AO DISALLOWED THE CLAIM ON THE GROUND THAT MACHINERIES WERE PURCHASED PRIOR TO ENACTMENT OF SECTION 32(1)(IIA). ACCORDING TO AO WHEN MACHINERIES WERE PURCHASED BY THE ASSESSEE, SECTION 32(1)(IIA) WAS NOT ENACTED AND THEREFORE, THE DEDUC TION COULD NOT BE ALLOWED IN THE YEAR OF INSTALLATION. THE TRIBUNAL AND THE H IGH COURT, HOWEVER, APPRECIATED THAT IN CASE OF AN INDUSTRIAL PROJECT, THE PROCESS OF ACQUISITION AND INSTALLATION OF PLANT AND MACHINERY MIGHT BE CA RRIED OUT OVER A NUMBER OF ACCOUNTING YEARS. TAKING INTO ACCOUNT REALITIES OF COMMERCIAL LIFE, THE HIGH COURT HELD THAT EVEN IF THE INSTALLATION OF PLANT W AS SPREAD OVER MORE THAN ONE YEAR, THE RELEVANT YEAR FOR GRANTING OF ALLOWAN CE WOULD BE THE YEAR IN WHICH INSTALLATION WAS COMPLETE. IN MY OPINION, THE RATIO LAID DOWN IN THE DECISION OF THE CALCUTTA HIGH COURT IS CLEARLY APPL ICABLE IN THE PRESENT CASE AS WELL. SINCE IN THE PRESENT CASE THE TWIN CONDITI ONS OF SECTION 32(1)(IIA) STOOD SATISFIED IN PREVIOUS YEAR RELEVANT TO ASSESS MENT YEAR 2006-07, THE DEDUCTION WAS ALLOWABLE IN THE YEAR IN WHICH THE AS SESSEE COMPLIED WITH THE SAID TWO CONDITIONS. THE AO IS ACCORDINGLY DIRECTED TO ALLOW ADDITIONAL DEPRECIATION OF RS.80,70,370/-. HENCE THIS APPEAL BY THE REVENUE. 7. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE O RDER OF THE A.O. AND ALSO PLACED RELIANCE ON THE FOLLOWING DECISIONS IN SUPPORT OF T HE CONCLUSION ARRIVED AT BY THE A.O. :- (A) 229 ITR 172 (KER) - ASIATIC SEAFOODS VS. CIT (B) 255 ITR 147 (SC) - PADMASUNDARA RAO (DECD.) VS. STATE OF T.N. (C) 254 ITR 06 (P&H-FB) CIT VS. PUNJAB FINANCIAL CORPORATION. 8. THE ASSESSEES LD. A/R ARGUED VERBALLY AND ALSO FILED A WRITTEN SUBMISSION. FOR THE SAKE OF BETTER UNDERSTANDING, WE DEE M IT PROPER TO REPRODUCE THIS WRITTEN SUBMISSION FILED BEFORE THE TRIBUNAL AS UNDER :- BEFORE DEALING WITH THE ISSUE IN QUESTION, IT IS NE CESSARY TO TAKE INTO ACCOUNT THE HISTORICAL BACKGROUND IN WHICH SECTION. 32(1)(I IA) WAS ENACTED AND THEREAFTER AMENDED SUCCESSIVELY BY PARLIAMENT THROU GH THE FINANCE ACTS OF 2004 & 2005. THE STATUTORY PROVISION, GRANTING ADDI TIONAL DEPRECIATION THROUGH S.32(1)(IIA) WAS FIRST ENACTED BY THE FINAN CE ACT 1980, WHICH WAS DELETED WITH EFFECT FROM 1ST APRIL 1988. THE PROVIS ION FOR GRANT OF ADDITIONAL DEPRECIATION WAS ONCE AGAIN ENACTED BY THE FINANCE ACT, 2002. WHILE INTRODUCING SECTION32(1)(IIA) THROUGH FINANCE BILL , 2002, THE INTENTION BEHIND ITS INTRODUCTION WAS EXPLAINED IN THE MEMORANDUM EX PLAINING PROVISIONS OF 8 THE FINANCE BILL, 2002. THE MEMORANDUM EXPLAINED TH AT THE AMENDMENT OF INTRODUCING SECTION 32(1)(IIA) WAS WITH A VIEW TO P ROVIDE INCENTIVE FOR INVESTMENT AND INDUSTRIAL GROWTH AND ALSO WITH A VI EW TO GIVING BOOST TO THE MANUFACTURING SECTOR, IT WA7 EXPLAINED THAT SECTION . 32(1)(IIA) WAS PROPOSED TO ALLOW DEDUCTION FOR A SUM EQUAL TO 15% OF THE AC TUAL COST OF PLANT & MACHINERIES ACQUIRED AND INSTALLED AFTER 31.03.2002 AND IN THE CASE OF AN EXISTING INDUSTRIAL UNDERTAKING, THE DEDUCTION WAS TO BE ALLOWED IN THE PREVIOUS YEAR IN WHICH IT ACHIEVES SUBSTANTIAL EXPA NSION BY WAY OF INCREASE IN THE INSTALLED CAPACITY.[REFERENCE - 254 ITR 194- ST ATUTE] THE MEMORANDUM EXPLAINING FINANCE BILL, 2002 SHOW S THAT THE DEDUCTION U/S 32(1)(IIA) WAS MADE PERMISSIBLE IN RESPECT OF NEW M ACHINERIES ACQUIRED AND INSTALLED AFTER 31.03.2002, BUT THE DEDUCTION WAS T O BE ACTUALLY ALLOWED IN THE PREVIOUS YEAR IN WHICH THE UNDERTAKING ACHIEVED SUB STANTIAL EXPANSION BY WAY OF INCREASE IN THE INSTALLED CAPACITY. IT WILL THEREFORE BE NOTED THAT THE INTENTION OF THE LEGISLATURE WAS TO ALLOW THE DEDUC TION NOT IN THE YEAR OF PURCHASE OF NEW PLANT & MACHINERY, BUT IN THE YEAR OF INSTALLATION RESULTING IN SUBSTANTIAL EXPANSION. THE FINANCE BILL, 2002 PERMI TTED THE DEDUCTION ONLY IF THE INCREASE IN THE INSTALLED CAPACITY WAS MORE THA N 25% COMPARED TO THE EARLIER YEAR. THE FINANCE BILL ,2004 CARRIED OUT AM ENDMENT TO SECTION. 32(1)(IIA) AND THE PROVISIONS FOR THE ALLOWANCE U/S .32(1)(IIA) WERE LIBERALIZED. IN NOTES ON CLAUSES TO FINANCE (NO.2) BILL, 2004 IT WA S EXPLAINED AS FOLLOWS: UNDER THE EXISTING PROVISION CONTAINED IN CLAUSE (IIA) OF SUB-SECTION 1 OF SECTION 32, AN ADDITIONAL SUM EQUAL TO 15% IS ALLOW ED AS DEDUCTION UNDER CLAUSE (II) OF THE SAID SECTION IN THE CASE OF ANY NEW MACHINERY OR PLANT WHICH HAS BEEN ACQUIRED & INSTALLED AFTER 31ST DAY OF MAR CH 2002. CLAUSE (B) OF THE FIRST PROVISO TO THE SAID CLAUSE PROVIDES THAT IN C ASE OF AN INDUSTRIAL UNDERTAKING EXISTING BEFORE 1ST DAY OF APRIL 2002 S UCH DEDUCTION SHALL BE ALLOWED DURING ANY PREVIOUS YEAR IN WHICH IT ACHIEV ES THE SUBSTANTIAL EXPANSION BY WAY OF INCREASE IN INSTALLED CAPACITY BY NOT LESS THAN 25%. THE PROPOSED AMENDMENT SEEKS TO REDUCE TH E LIMIT FOR INCREASE IN INSTALLED CAPACITY FROM THE EXISTING 25% TO 10%. THIS AMENDME NT WILL TAKE EFFECT FROM 1ST APRIL 2005 AND WILL APPLY IN RELATION TO A. Y. 2005-06 AND SUBSEQUENT YEARS .[REFERENCE :- 268 ITR 119- STATUTE]. IN THE ACCOMPANYING MEMORANDUM EXPLAINING PROVISION IN THE FINANCE (NO.2) BILL 2004 RATIONALE FOR INTRODUCING AMENDMENT TO S. 32(1)(IIA) WAS EXPLAINED AS FOLLOWS: MEASURES TO PROMOTE SOCIO-ECONOMIC GROWTH REDUCTION IN THE LIMIT FOR INCREASE IN INSTALLED CAPACITY FOR THE PU RPOSE OF ADDITIONAL DEPRECIATION. UNDER THE EXISTING PROVISIONS OF CLAU SE (IIA) OF SUB-SECTION (1) OF SECTION 32, AS INTRODUCED BY THE FINANCE ACT, 2002, ADDITIONAL DEPRECIATION AT THE RATE OF L5PER CENT IS ALLOWABLE ON NEW PLANT AN D MACHINERY ACQUIRED AND INSTALLED ON OR AFTER 1.42002. THIS DEDUCTION IS AV AILABLE TO I) A NEW INDUSTRIAL UNDERTAKING IN THE PREVIOUS YEAR I N WHICH IT BEINGS MANUFACTURE OR PRODUCTION; II) AN EXISTING UNDERTAKING, IN THE PREVIOUS YEAR IN WH ICH IT ACHIEVES 25% INCREASE IN INSTALLED CAPACITY. 9 INSTALLED CAPACITY HAS BEEN DEFINED TO MEAN THE CAPACITY OF PRODUCTION AS EXISTING ON THE 31ST DAY OF MARCH, 2002. IN ORDER TO GIVE A THRUST TO INVESTMENT IN THE MA NUFACTURING SECTOR, IT IS PROPOSED TO REDUCE THE LIMIT FOR INCREASE IN INSTAL LED CAPACITY FROM 25 % TO 10%. THIS AMENDMENT WILL TAKE EFFECT FROM 1 DA Y OF APRIL, 2005 AND WILL, ACCORDINGLY APPLY IN RELATION TO THE ASSESSMENT YEAR 2005-2006 AND SUBSEQUENT YEARS. [REFERENCE 268 ITR 185- STATUTE] FROM NOTES ON CLAUSES TO FINANCE (NO.2) BILL ,200 4 IT IS THUS CLEAR THAT IN CASE OF EXISTING INDUSTRIAL UNDERTAKINGS NEW PLANT & MAC HINERY ACQUIRED AFTER 31. 03.2002 WERE ELIGIBLE FOR DEDUCTION ULS.32(1)(IIA) BUT DEDUCTION WAS TO BE ACTUALLY ALLOWED IN THE YEAR IN WHICH THE INSTALLAT ION WAS COMPLETE RESULTING IN EXPANSION IN THE INSTALLED CAPACITY BY SPECIFIED PE RCENTAGE. THE FINANCE BILL, 2005 CARRIED OUT FURTHER AMENDM ENT TO SECTION, 32(1)(IIA). NOTES ON CLAUSES ACCOMPANYING THE FINANCE BILL 2005 CLARIFIED AS FOLLOWS : CLAUSE 8 SEEKS TO AMEND SECTION 32 OF THE INCOM E-TAX ACT RELATING TO DEPRECIATION. UNDER THE EXISTING PROVISIONS CONTAINED IN CLAUSE (II) OF SUB-SECTION (1) OF THE SAID SECTION, A FURTHER SUM EQUAL TO FIFTEEN PER CE NT OF THE ACTUAL COST OF ANY NEW MACHINERY OR PLANT (OTHER THAN SHIPS AND AIRCRA FT) ACQUIRED AND INSTALLED AFTER THE 31ST DAY OF MARCH. 2002 BY ALL ASSESSEE E NGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING, IS ALLOWED AS DEDUCTION AS FURTHER DEPRECIATION. IT IS PROPOSED TO INCREASE THE SAID SUM OF FURTH ER DEPRECIATION MENTIONED IN THE SAID CLAUSE (IIA) FROM FIFTEEN PERCENT TO TWENT Y PER CENT. IT IS FURTHER PROPOSED TO OMIT THE CONDITIONS RELATING TO INDUSTR IAL UNDERTAKING BEING NEW OR SUBSTANTIAL EXPANSION MENTIONED IN THE FIRST PRO VISO TO THE AFORESAID CLAUSE TO OMIT THE REQUIREMENTS OF FURNISHING DETAILS OF M ACHINERY OR PLANT AND REPORT OF AN ACCOUNTANT MENTIONED IN THE THIRD PROVISO OF THAT CLAUSE (IIA). [REFERENCE 273 ITR 146 STATUTE] IN THE MEMORANDUM EXPLAINING THE PROVISIONS IN TH E FINANCE BILL 2005, CLARIFICATION IN RESPECT OF AMENDMENT TO SECTION 32 (1)(IIA) WAS GIVEN UNDER THE BROAD HEADING RATIONALIZATION & SIMPLIFICATION MEA SURES. THE MEMORANDUM EXPLAINED THE AMENDMENTS TO SECTIO N 32 AS FOLLOWS: RATIONALIZATION OF RATES OF DEPRECIATION AND ENHA NCEMENT OF ADDITIONAL DEPRECIATION ON NEW MACHINERY AND PLANT. UNDER THE EXISTING PROVISIONS OF SECTION 32, DEPR ECIATION ON CAPITAL ASSETS IS ALLOWED AS A DEDUCTION AT THE ACCELERATED RATES SPE CIFIED IN THE APPENDIX TO INCOME TAX RULES, 1962. THE ACCELERATED RATE OF DEP RECIATION ON GENERAL MACHINERY AND PLANT IS 25 PER CENT. FURTHER, SECTIO N 32 ALSO PROVIDES FOR AN INITIAL DEPRECIATION OF 15 PER CENT. ON NEW MACHINE RY AND PLANT SUBJECT TO INTER ALIA THE CONDITION THAT THE INSTALLATION OF NEW PLA NT AND MACHINERY RESULT IN 10 TEN PERCENT INCREASE IN THE INSTALLED CAPACITY. THE RATES OF DEPRECIATION HAVE REMAINED AT THE EX ISTING LEVELS FOR A LONG TIME. THESE DO NOT FULLY REFLECT THE POSITIVE EFFECT ON I NTERNAL ACCRUALS AS A RESULT OF THE STEADY REDUCTION IN THE CORPORATION TAX RATES O VER THE LAST TWO DECADES AND THE FALL IN OF CAPITAL GOODS. THE TAX RATE ON DOMES TIC COMPANIES IS PROPOSED TO BE REDUCED TO 33 PER CENT (INCLUDING SURCHARGE OF 1 0 PER CENT) FROM 35.875 PER CENT (INCLUDING SURCHARGE OF 2.5 PER CENT). THIS RE DUCTION IN THE TAX RATE WILL FURTHER IMPROVE THE INTERNAL ACCRUALS OF THE COMPAN IES TO FINANCE REPLACEMENT OF PLANT AND MACHINERY. IN VIEW OF THE ABOVE, T IS PROPOSED TO AMEND THE IN COME TAX ACT AND THE RULES THEREUNDER SO AS TO REDUCE THE RATE OF DEPRECIATION FOR GENERAL MACHINERY AND PLANT TO 15 PER CENT FROM THE EXISTING RATE OF 25 P ER CENT. RATES OF DEPRECIATION OF OTHER CAPITAL ASSETS ARE ALSO BEING RATIONALIZED IN LINE WITH THE REDUCTION IN THE RATE FOR GENERAL MACHINERY AND PLANT. FURTHER, IN ORDER TO ENCOURAGE NEW INVESTMENT, TH E INITIAL DEPRECIATION ON NEW MACHINERY AND PLANT IS PROPOSED TO BE INCREASED TO 20 PER CENT FROM THE EXISTING LEVEL OF 15 PER CENT. THE REQUIREMENT OF C REATING A MINIMUM INCREASE OF 10 PER CENT IN INSTALLED CAPACITY FOR AVAILING T HE INITIAL DEPRECIATION IS ALSO PROPOSED TO BE ELIMINATED. CONSEQUENTLY, THE INITIA L DEPRECIATION WILL BE AVAILABLE TO ALL NEW PLANT AND MACHINERIES EXCEPT T HOSE REFERRED TO IN THE PROVISO CLAUSE (IIA) OF SECTION 32 OF THE INCOME TA X ACT. THIS AMENDMENT WILL TAKE EFFECT FROM 1ST APRIL, 2006 AND WILL, ACCORDIN GLY APPLY IN RELATION TO THE ASSESSMENT YEAR 2006-07 AND SUBSEQUENT YEARS. [REFE RENCE 273 ITR 205-ST.]. FROM NOTES ON CLAUSES TO FINANCE BILL,2005, IT IS THEREFORE, CLEAR THAT SECTION 32(1)(IIA) AS AMENDED BY THE FINANCE BILL, 2005 WAN TED TO LIBERALIZE THE EXISTING PROVISIONS OF SECTION. 32(1)(IIA) UNDER WH ICH NEW PLANT & MACHINERIES ACQUIRED & INSTALLED AFTER 31ST MARCH ,2002 WERE EL IGIBLE TO CLAIM THE BENEFIT OF ADDITIONAL DEPRECIATION. AS PER THE PROVISIONS E XISTING PRIOR TO INTRODUCTION OF FINANCE BILL 2005, THE ADDITIONAL CONDITION WHIC H AN ASSESSEE WAS REQUIRED TO FULFILL, WAS THAT THE ACQUISITION OF NEW PLANT & MACHINERY AFTER 01-042002 SHOULD RESULT IN INCREASE IN THE INSTALLED CAPACITY BY SPECIFIED PERCENTAGE. FINANCE BILL, 2005 INCREASED THE PERCENTAGE OF PERM ISSIBLE DEDUCTION FROM 15% TO 20% AND ALSO OMITTED THE CONDITION OF ACHIEV ING SUBSTANTIAL EXPANSION BY SPECIFIED PERCENTAGE. THE NOTES ON CLAUSES AND M EMORANDUM EXPLAINED THAT THE AMENDMENT CARRIED OUT BY THE FINANCE BILL, 2005 WAS INTENDED TO EXPAND AND LIBERALIZE THE SCOPE OF EXISTING PROVISI ONS AND NOT TO RESTRICT THE SCOPE. AS PER THE PRE EXISTING PROVISIONS PLANT & M ACHINERIES ACQUIRED AFTER 01.04.2002 WERE ENTITLED FOR DEDUCTION U/S.32(1)(II A). THE MEMORANDUM EXPLAINING THE PROVISION IN THE FI NANCE BILL, 2005 CATEGORICALLY EXPLAINED THAT THE AMENDMENT WAS MADE TO ENCOURAGE NEW INVESTMENT AND THEREFORE THE REQUIREMENT OF CREATIN G MINIMUM INCREASE OF 10% IN INSTALLED CAPACITY WAS ELIMINATED. THE MEMOR ANDUM THEREFORE EXPLAINED: CONSEQUENTLY THE INITIAL DEPRECIATION WILL BE AV AILABLE TO ALL NEW PLANT & MACHINERIES EXCEPT THOSE REFERRED TO IN THE PROVISO TO THE PROPOSED CLAUSE (IIA) OF SECTION 32 OF INCOME TAX ACT. 11 THE COMBINED READING OF THE NOTES ON CLAUSES AND MEMORANDUM EXPLAINING PROVISION OF THE FINANCE BILLS FOR THE YEAR 2004 AS ALSO 2005, IT IS CLEAR THAT THE AMENDMENTS WERE MADE TO LIBERALIZE SECTION 32(1 )(IIA), WHICH WAS FIRST ENACTED BY THE FINANCE ACT 2002. FROM PLAIN READING OF NOTES ON CLAUSES & MEMORANDUM EXPLAINING FINANCE BILL 2005, IT IS APPA RENT THAT AMENDMENT TO THE EXISTING PROVISIONS OF SECTION 32(1)(IIA) WAS M ADE FOR ENHANCING THE DEDUCTION FROM THE EXISTING LIMITS. NOWHERE THE NOT ES ON CLAUSES OR MEMORANDUM EXPLAINED THE NEW PLANT & MACHINERIES AC QUIRED AFTER 01 .04.2002 BUT NOT INSTALLED BEFORE 31 .03.2005 WILL BE DENIED THE BENEFIT OF ADDITIONAL DEPRECIATION. IT WAS NOWHERE EXPLAINED T HAT THE LEGISLATURE WANTED TO EXCLUDE FROM THE PURVIEW OF SECTION 32(1)(IIA) T HE MACHINERIES WHICH WERE ACQUIRED AFTER 01 .04.2002 BUT NOT INSTALLED BEFORE 31.03.2005 FROM THE BENEFIT OF DEDUCTION U/S.32(1)(IIA). AS PER SECTION 32(1)(IIA) ENACTED BY THE FINANCE ACT 2002 ADDITIONAL DEPRECIATION WAS TO BE ALLOWED ON A NEW PLANT & MACHINERY ACQUIRED AND INSTALLED AFTER 31.03.2002 A ND THE DEDUCTION WAS TO BE ALLOWED IN THE YEAR IN WHICH THE INSTALLATION WA S COMPLETE RESULTING IN SUBSTANTIAL EXPANSION OF THE INSTALLED CAPACITY. TH E FINANCE BILLS 2004 & 2005 PROGRESSIVELY LIBERALIZED THE BENEFICIAL PROVISIONS BUT THE SCOPE AND INTENT CONTINUED TO REMAIN UNCHANGED. THE PURPOSE OF THE A MENDMENTS THROUGH FINANCE ACTS 2004 & 2005 WAS TO ALLOW THE DEDUCTION U/S.32(1)(IIA) FOR ALL NEW PLANT & MACHINERIES ACQUIRED AND INSTALLED AFTER 31 .03.2002. THE FINANCE BILL 2005 ELIMINATED THE CONDITION OF ACHIEVING INCREASE IN INSTALLED CAPACITY BY MORE THAN 10% AND IT WAS PROPOSED THAT ALL NEW PLAN T & MACHINERIES BE MADE ELIGIBLE FOR CLAIMING THE BENEFIT OF ADDITIONAL DEP RECIATION IN THE YEAR IN WHICH INSTALLATION IS COMPLETE. IN THE PRESENT CASE, IT IS NOT IN DISPUTE THAT TH E MACHINERIES ON WHICH ADDITIONAL DEPRECIATION WAS CLAIMED WERE ACQUIRED A FTER 01.04.2002. IT IS ALSO NOT IN DISPUTE THAT THE SAID MACHINERIES WERE INSTA LLED IN F.Y. 2005-06. IT IS ALSO NOT IN DISPUTE THAT THE PLANT & MACHINERIES ON WHICH DEPRECIATION WAS CLAIMED WERE NEW AND DID NOT SUFFER FROM THE DISABI LITIES PRESCRIBED IN PROVISO TO SECTION 32(1)(IIA). IT IS ALSO NOT IN DISPUTE T HAT NO DEPRECIATION EITHER U/S. 32(1)(II) OR U/S. 32(1)(IIA) WAS ALLOWED ON THESE M ACHINERIES IN ANY OF THE EARLIER YEARS. IN THE CIRCUMSTANCES, WE SUBMIT THAT SINCE THE CO MPANY HAD ACQUIRED AND INSTALLED NEW PLANT & MACHINERIES AFTER 31.03.2002 AND THESE WERE PUT TO USE FOR THE FIRST TIME IN F.Y. 2005-06, THE ADDITIONAL DEPRECIATION WAS RIGHTLY ALLOWED BY THE CIT(A) IN THE ASSESSMENT FOR A.Y. 20 06-07. 9. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHOR ITIES BELOW, CASE LAWS RELIED ON BY THE PARTIES AND CONSIDERED THE SUBMISSIONS O F BOTH THE SIDES. FROM THE FACTS IT IS FOUND THAT THE ASSESSEE ACQUIRED NE W PLANT & MACHINERY FOR EXPANSION OF ITS EXISTING INSTALLED CAPACITY AFTER 1.4.200 2 BUT BEFORE 1.4.2005. AS PER PROVISIONS OF CLAUSE (IIA) OF SEC. 32(1), AS INT RODUCED BY THE FINANCE (NO.2) ACT, 2002 WITH EFFECT FROM 1/4/2003, ADDITIONAL DEPRECIATION WAS GRANTED IN RESPECT OF NEW PLANT AND MACHINERY ACQUI RED AND INSTALLED, RESULTING IN EXPANSION OF THE INSTALLED CAPACITY. THE PROVISIO NS OF THIS SECTION WERE FURTHER AMENDED BY FINANCE (NO.2) ACT, 2004 W.E.F. 1/4/2 005, I.E. A.Y. 12 2005-06 AND THEREAFTER AGAIN BY FINANCE ACT, 2005 W.E.F. 1/4/2006, I.E. A.Y. 2006-07. BY THIS AMENDMENT VIDE FINANCE ACT, 2005 W.E.F. 1/4 /2006 APPLICABLE TO A.Y. 2006-07, WHICH IS UNDER APPEAL BEFORE US, IT IS PROVIDED THAT IN CASE OF ANY NEW MACHINERY OR PLANT, WHICH IS ACQU IRED AND INSTALLED AFTER 31/3/2005, A FURTHER SUM EQUAL TO 20% OF THE ACTUA L COST OF SUCH NEW PLANT & MACHINERY WILL BE ALLOWED AS DEDUCTION. FROM PLAIN RE ADING OF THIS AMENDED PROVISIONS OF SEC.32(1)(IIA) W.E.F. 1/4/2006 RELEVANT TO A.Y. 2006-07, IT IS AMPLY CLEAR THAT IF THE ACQUISITION AND INSTALLATION OF NE W PLANT & MACHINERY BOTH ARE COMPLETED AFTER 31/3/2005, THEN THE SAME IS ELIGIBLE FOR DEPRECIATION FOR A.Y. 2006-07 AND SUBSEQUENT YEARS. BOTH THE CONDITIONS OF ACQUISITION AND INSTALLATION AFTER 31/3/2005 ARE CONJUNCTIVE AND NOT DISJUNCTIVE. IN OTHER WORDS, BOTH ACQUISITION AND INSTALLATION HAS TO BE AFTER 31/3/2005 SO AS TO BE ELIGIBLE FOR ADDITIONAL DEPRECIATION IN RESPECT OF A.Y. 2006-07. IN THIS CASE, AS STATED ABOVE, THE ACQUISITION W AS ADMITTEDLY BEFORE 31/3/2005. AFTER THE AMENDMENT OF PROVISIONS OF SEC.32(1)(IIA) W.E.F. 1/4/2006, THE EARLIER AMENDED PROVISIONS OF THIS SECTION W .E.F. 1/4/2003 OR 1/4/2005 DO NOT EXIST TO BE OPERATIVE. AS STATED ABOVE , IN THIS CASE OF THE ASSESSEE IT IS NOT DISPUTED THAT THE ASSESSEE ALTHOUGH INSTALLED NEW PLANT & MACHINERY AFTER 31/3/2005, BUT THE SAME WERE ACQUIRED B EFORE 31/3/2005 ALTHOUGH NO DEPRECIATION EITHER U/S. 32(1)(II) OR SEC. 32(1)(IIA) WAS ALLOWED IN THE YEAR OF ACQUISITION, AS STATED BY THE ASSESSEE. THER EFORE, THE CONDITIONS AS LAID DOWN BY THE AMENDED PROVISIONS OF SEC. 32(1)(IIA) W.E.F. 1/4 /2006 RELEVANT TO A.Y. 2006-07, WERE NOT FULFILLED BY THE ASSESSEE . THE C.I.T.(A) HAS INTERPRETED THAT THE LANGUAGE USED IN SEC. 32(1)(IIA) NOWHERE INDICATES THAT THE LEGISLATURE REQUIRED THE ASSESSEE TO ACQUIRE AS ALSO INSTA LL THE NEW PLANT & MACHINERY IN ONE SINGLE FINANCIAL YEAR. HE ALSO STATED THAT THERE IS N O EXPRESS PROVISION IN THE LANGUAGE USED IN SEC. 32(1)(IIA) WHICH COMPELS T HE ASSESSEE TO COMPLETE BOTH ACQUISITION AND INSTALLATION OF NEW PLANT & MACHINERY IN THE SAME FINANCIAL YEAR. HE, THEREFORE, INFERRED THAT IN ABSENC E OF SUCH EXPRESS PROVISION, THE A.O. COULD NOT READ SUCH ADDITIONAL CONDITION IN SEC. 32(1)(IIA). HOWEVER, THIS IS NOT THE ISSUE IN THIS CASE OF THE ASSESSE E. HERE WE HAVE TO SEE WHETHER ACQUISITION AS WELL AS INSTALLATION BOTH HAS TAKEN PLACE AFTER 31/3/2005. IN THIS REGARD THERE IS NO DISPUTE THAT IN T HE ASSESSMENT YEAR 13 UNDER CONSIDERATION, I.E. A.Y. 2006-07, ONE OF THESE CONDITIONS, I.E. ACQUISITIO N AFTER 31/3/2005, HAS NOT BEEN FULFILLED. IT WILL BE RELEVANT TO REFER TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF PADMASUN DARA RAO (DECD.) VS. STATE OF TAMIL NADU (SUPRA) WHEREIN THEIR LORDSHIPS HAVE HELD THAT WHILE INTERPRETING A STATUTE LEGISLATIVE INTENTION MUST BE FOUND IN THE WORDS USED BY THE LEGISLATURE ITSELF; LEGISLATIVE CAUSES OMISSUS CA NNOT BE SUPPLIED BY JUDICIAL INTERPRETATIVE PROCESS EXCEPT IN CASE OF CLEAR NECE SSITY AND WHEN REASON FOR IT IS FOUND IN THE FOUR CORNERS OF THE STATUTE ITSELF . TO REITERATE, THE TWIN CONDITIONS AS PER AMENDED PROVISIONS OF SEC. 32(1)(IIA) BY FINANCE ACT, 20 05 W.E.F. 1/4/2006 DO NOT STAND SATISFIED IN THE CASE OF THE ASSES SEE FOR THE PREVIOUS YEAR RELEVANT TO A.Y. 2006-07. THEREFORE, THE ADDITIONAL DEPRECIATION CLAIMED BY THE ASSESSEE FOR THIS ASSESSMENT YEAR, IN OUR OPINION, IS NOT ALLOWABLE. IN VIEW OF THE ABOVE, WE DO NOT AGREE WITH THE CONCLUSION O F THE C.I.T.(A) ON THIS ISSUE AND UPHOLD THE ACTION OF THE A.O. IN DISALLOWING THE ADD ITIONAL DEPRECIATION CLAIMED BY THE ASSESSEE. GROUNDS NO. 3 TO 5 OF THE REVENUES APPEAL ARE ALLOWED. 10. IN THE RESULT, THE REVENUES APPEAL IS PARTLY ALLOWED. ORDER IS PRONOUNCED IN THE COURT ON 25.6.10. SD/- SD/- [D.K. TYAGI] [B.C. MEENA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 25-06-2010 COPY FORWARDED TO : 1. M/S. STAR PAPER MILLS LTD., 31, N.S. ROAD, KOLKATA-700 069. 2. D.C.I.T., CIRCLE-4, KOLKATA. 3. C.I.T.(A)-IV, KOLKATA. (4) CIT, KOL- 5. THE DEPARTMENTAL REPRESENTATIVE, ITAT, KOLKATA. TRUE COPY, BY ORDER [DKP] DY. REGISTRAR.