SHAILY ENG. PLASTICS. P. LTD. V. DY. CIT (ASST.)

TAXAP/460/2000

AI Insights

The case involves Shaily Eng. Plastics P. Ltd., the appellant, contesting the decision of the Income Tax Appellate Tribunal (ITAT) which reversed the CIT(A)'s allowance of an investment claim. The dispute centered on whether the investment allowance under Section 32A of the Income Tax Act for assets installed between 01.04.1987 and 31.03.1988 was justifiably claimed, given that the orders for these assets were placed before the cut-off date of 12.06.1986. The ITAT had disallowed the claim, leading to the present appeal. The High Court examined the provisions of Section 32A(8B) and the evidence provided by the assessee, ultimately finding in favor of the assessee for a portion of the claimed amount.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 759035 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 19-11-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: K M PARIKH
• Assessee Lawyers: S N SOPARKAR; B S SOPARKAR
• Keywords: CIT(A); Income Tax; Investment allowance; ITAT; Section 32A
• Section: 32A

Judgement Text

"O/TAXAP/460/2000 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 460 of 2000 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ SHAILY ENG. PLASTICS. P. LTD.....Appellant(s) Versus DY. CIT (ASST.)....Opponent(s) ================================================================ Appearance: MR SN SOPARKAR, SENIOR ADVOCATE WITH MR BS SOPARKAR, ADVOCATE for the Appellant(s) No. 1 MR KM PARIKH, ADVOCATE for the Opponent(s) No. 1 ================================================================ Page 1 of 9 O/TAXAP/460/2000 JUDGMENT CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Date : 19/11/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. Being aggrieved and dissatisfied with the impugned judgement and order dated 29.02.2000 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench (ITAT) in Income Tax Appeal No. 1440/Ahd/1994 for the assessment year 1989- 90, the assessee has preferred the present tax appeal with the following substantial question of law which was framed while the matter was admitted by this Court on 17.01.2001: “Whether on the facts and in the circumstances, the Tribunal has substantially erred in law in holding that the investment allowance under Section 32A of Rs. 11,38,286/- is not allowable to the appellant?” 2. The facts leading to the present tax appeal in a nutshell are set out as under: 2.1 The assessee Company which is engaged in the business of manufacturing of quartz parts for electronic watches claimed investment allowance to the tune of Rs. 11,75,190/- for assets installed between 01.04.1987 and 31.03.1988 the orders for which were placed before 12.06.1986. The Assessing Officer held that the appellant is not entitled to claim the investment allowance on various assets as the same Page 2 of 9 O/TAXAP/460/2000 JUDGMENT had been purchased after the cut off date of 12.06.1986. On appeal before the CIT(A) by the assessee, CIT(A) allowed the claim of the appellant of investment allowance. 2.2 Being aggrieved by the order of the first appellate authority, the revenue preferred appeal before the ITAT and the Tribunal vide impugned order allowed the appeal and held that CIT(A) was not justified in allowing the claim of investment allowance as claimed by the appellant. The ITAT reversing the order passed by CIT(A) confirmed the order passed by Assessing Officer. Being aggrieved by the said order, the present appeal is filed. 3. Mr. Saurabh Soparkar, learned Senior Counsel apeparing with Mr. B.S. Soparkar, leanred advocate appearing the assessee has drawn the attention of this Court to the provisions of sub clause 8(b) of Section 32A of the Income Tax Act and contended that the contract for purchase of machinery was not before 12.06.1986 as required by Section 32A(8B) of the Act. He submitted that the documents which were placed on record by the assessee are very crucial and are required to be considered in its true spirit. He has drawn our attention to paragraph 3 of the impugned order passed by the Tribunal and submitted that Sr. No. 1 of the details furnished by the assessee is only pressed into service and that he does not press into service the items at Sr. no. 2 to 5. Para 3 of the impugned order passed by the Tribunal reads as under: 3. The next ground is against the deletion of the disallowance made by the A.O on account of investment allowance of Rs. 11,38,286/-, the A.O has discussed the matter vide para 10 of the Page 3 of 9 O/TAXAP/460/2000 JUDGMENT assessment order. The assessee claimed investment allowance of Rs. 11,75,190 under section 32A of the Income-tax Act on the ground that plant and machinery has been installed between 1.4.87 to 31.3.88 but the orders for such plant and machinery have been placed before 12.6.1986. The assessee furnished the following details with regard to the claim of investment allowance on the plant and machinery: Sr. No . Description of Plant & Machinery Qt y. Dt. of order Dt. of installati on Total Cost 1 FS 80 Injection Moulding Machine AND FS 260 Injection Moulding Machine 1 02/05/86 09/06/87 48,26,179 2 6 Ton Chilling Plant with Cooling Tower 1 11/03/86 15.6.87 2,46,427 3 Electric Hoist Morris Brand 1 03/05/86 05/06/87 85409 4 Tools & Moulds: (i) Macro Moulds & dies (ii) Tools 2 1 set 31.5.86 15.4.86 9.6.87 9.6.87 1,56,733 27,785 5 Electrical Installation 1 lot 23.5.86 01/06/87 4,36,939 The A.O allowed claimed with regard to tools and moulds. However with regard to the first 4 items of plant and machinery as baove the A.O disallowed the claim on the ground that the provisions of sec. 32A (8B) would not apply since the assessee has failed to furnish the evidence that it had entered into a contract for the purchase of plant and machinery before 12.6.86. 3.1 Mr. Soparkar has also drawn our attention to the individual sales contract with Nissei Plastic Industrial Co. Ltd dated 02.05.1986 and several other documents and contended that the assessee had entered into a contract for the plant and machinery in May 1986. He submitted that the contract and Page 4 of 9 O/TAXAP/460/2000 JUDGMENT the correspondence addressed by the company was not considered in true spirit by the Tribunal. 3.2 Mr. Soparkar has further drawn our attention to the order passed by CIT(A), more particularly paragraphs 11.3, 11.4, 11.9 to 11.12 and submitted that the observations made by CIT(A) is in accordance with law. 4. Mr. K.M. Parikh, learned advocate appearing for the revenue supported the impugned order passed by the Tribunal and submitted that the Tribunal has rightly held that no investment allowance is allowable on the machine in question u/s 32A(8B) of the Act. He submitted that the assessee failed to prove that the contract of purchase of machinery has been entered into before 12.06.1986. He submitted that the present appeal lacks merits and therefore deserves to be dismissed. 5. We have heard learned advocates for both the sides and perused the orders passed by the CIT as well as the Tribunal. Let us first examine the provisions of section 32A(8B) of the Act. The same is reproduced hereunder: \"(8) The Central Government, if it considers necessary or expedient so to do, may, by notification in the Official Gazette, direct that the deduction allowable under this section shall not be allowed in respect of any ship or aircraft acquired or any machinery or plant installed after such date as may be specified therein. (8A) The Central Government, if it considers necessary or expedient so to do, may, by notification in the Official Gazette, omit any article or thing from the list of articles or things specified in the Eleventh Schedule.] Page 5 of 9 O/TAXAP/460/2000 JUDGMENT (8B) Notwithstanding anything contained in sub- section (8) or the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. GSR 870 (E), dated the 12th June, 1986 , issued thereunder, the provisions of this section shall apply in respect of,- (a) (i) a new ship or new aircraft acquired after the 31st day of March, 1987 but before the 1st day of April, 1988 , if the assessee furnishes evidence to the satisfaction of the Assessing Officer that he had, before the 12th day of June, 1986 , entered into a contract for the purchase of such ship or aircraft with the builder or manufacturer or owner thereof, as the case may be; (ii) any new machinery or plant installed after the 31st day of March, 1987 but before the 1st day of April, 1988 , if the assessee furnishes evidence to the satisfaction of the Assessing Officer that before the 12th day of June, 1986 , he had purchased such machinery or plant or had entered into a contract for the purchase of such machinery or plant with the manufacturer or owner of, or a dealer in, such machinery or plant, or had, where such machinery or plant has been manufactured in an undertaking owned by the assessee, taken steps for the manufacture of such machinery or plant: Provided that nothing contained in sub- section (1) shall entitle the assessee to claim deduction in respect of a ship or aircraft or machinery or plant referred to in this clause in any previous year except the previous year relevant to the assessment year commencing on the 1st day of April, 1989 ; (b) a new ship or new aircraft acquired or any new machinery or plant installed after the 31st day of March, 1988 , but before such date as the Central Government, if it considers necessary or expedient so to do, may, by notification' in the Official Gazette, specify in this behalf. “ 6. Having gone through the records, more particularly the letter dated 05.02.1992, it is borne out that a revised contract was entered into on 18.08.1986 which was in continuation of Page 6 of 9 O/TAXAP/460/2000 JUDGMENT the earlier contract dated 02.05.1986 for the two Injection Moulding Machines. The relevant portion of the said letter is reproduced hereunder: “3) However, due to procedural delay in execution, improvement of our product and cost escalation, we entered into the revised contract No. NI/008-R on 18th August, 1986 which was in continuation of our earlier contract dated 2nd May 1986 for the above said two Injection Moulding Machines.” 6.1 Therefore, it is clear that the contract dated 18.08.1986 was not a new contract but only a continuation or in other words modification of the existing contract dated 02.05.1986 as there was a price escalation and improvement of product. Even the insurance which was covered by shipper was also taken on 09.06.1986 which was prior to 12.06.1986. 7. A close perusal of section 32A(8B) sub clause (ii) would reveal that any new machinery or plant installed after the 31st day of March, 1987 but before the 1st day of April, 1988 , if the assessee furnishes evidence to the satisfaction of the Assessing Officer that before the 12th day of June, 1986 , he had purchased such machinery or plant or had entered into a contract for the purchase of such machinery or plant with the manufacturer or owner of, or a dealer in, such machinery or plant, or had, where such machinery or plant has been manufactured in an undertaking owned by the assessee, taken steps for the manufacture of such machinery or plant, the same is permissible for disallowance. 7.1 The assessee had also furnished document showing advance payment of 10000$ to Nicks Shipping dated Page 7 of 9 O/TAXAP/460/2000 JUDGMENT 31.05.1986. The CIT(A) in para 11.12 observed as under: “11.9 The learned counsel for the appellant then drew attention to the individual sales contract with Nissei Plastic Industrial Co. Ltd., dtd. 2nd May, 1986, and several other documents filed in the paper book at page 1 to 4 , to evidence that the appellant had entered into contract for the Plant & Machinery in May, 1986. 11.12 It is difficult to assume that all the exercise in the form of obtaining the other machineries which were essentially for commencing the commercial production were done without entering into the contract for purchase before 12.06.1986. It would amount to impute insinuative motive to the appellant company that it had placed orders for the machineries and had given the projection to the financial institution from which it had availed funds wherein it was stated that the appellant was entitled to deduction under Sec. 32A of the I.T. Act. This representation could be considered to be an overwhelming evidence of the motive of the appellant company. Further the other circumstances which needs attention is that the appellant at that time was not making roving enquiries from other suppliers. The orders had been placed and modification in the orders had been conducted during the course of further negotiation. In view of these overwhelming evidence and consideration that the case law cited before me, I am included to hold that the appellant must succeed. The totality of the facts and circumstances obtaining in this case lead to an irresistible conclusion that the contracts were entered into by the appellant company for the purchase of Plant & Machinery before 12.06.1986. The appellant is therefore entitled to investment Allowance. The Assessing Officer is therefore directed to allow investment allowance.” 7.2 The finding of fact recorded by the CIT(A) is in consonance with section 32A(8B) of the Act. The Tribunal Page 8 of 9 O/TAXAP/460/2000 JUDGMENT has erred in taking a contrary view and has misinterpreted section 32A(8B) of the Act and the facts are not properly appreciated. However, the assesee shall be entitled only to deduction on the amount which was referred in the contract dated 02.05.1986 which on pro-rata basis comes to Rs. 47,25,633/- and 20% of the same comes to RS. 9,45,126/-. We therefore answer the question raised in the present appeal in the affirmative to that extent. 8. In the premises aforesaid, appeal is partly allowed. The assessee shall be entitled to deduction on investment allowance to the extent of Rs. 9,45,126/-. We therefore answer the issue raised in the present appeal in favour of the assessee to the said extent. The impugned order passed by the Tribunal is modified accordingly. (K.S.JHAVERI, J.) (K.J.THAKER, J) divya Page 9 of 9 "