1982 (8) TMI 101 - AT - Income Tax

Appellate Tribunal allows investment allowance claim under Income-tax Act

Swastika Metal Works. Versus Income-Tax Officer.

The Appellate Tribunal allowed the appeal in part, directing the admission and allowance of the investment allowance claimed by the assessee under section ... Assessment Proceedings, Initial Depreciation, Investment Allowance, Revised Return Issues:1. Disallowance of investment allowance under section 32A(4) of the Income-tax Act, 1961.Detailed Analysis:The appeal involved a dispute regarding the disallowance of Rs. 63,242 claimed as investment allowance under section 32A(4) of the Income-tax Act, 1961. The assessee, a registered firm, initially claimed depreciation on new machinery but later revised the return to claim investment allowance. The main contention was whether the assessee fulfilled the conditions for claiming the investment allowance, specifically related to the creation of a reserve as required by law. The Income Tax Officer (ITO) disallowed the claim due to the absence of a reserve in the relevant books of account. The Commissioner (Appeals) upheld the disallowance, citing the need for the reserve to be created in the books of the previous year. The assessee argued that the reserve was created in the current year's books before the assessment was finalized, meeting the statutory requirements.The assessee relied on a circular by the Central Board of Direct Taxes (CBDT) and legal precedents to support their claim. The CBDT circular allowed for rectification of deficiencies in creating reserves if done in the current year's books before the assessment's completion. The assessee contended that the investment allowance claim was valid as it rectified the initial depreciation claim by creating the necessary reserve in the current year. Legal arguments were made based on judgments from various High Courts and the Supreme Court, emphasizing the importance of fulfilling statutory conditions for claiming investment allowance.The revenue, represented by the junior authorized representative, opposed the assessee's claim, highlighting the requirement of creating a statutory reserve in the relevant books of account for the assessment year under appeal. The revenue argued that the CBDT circular could not override statutory provisions and that the claim should have been disallowed due to the absence of a reserve in the previous year's books. Reference was made to legal judgments emphasizing the mandatory nature of creating reserves as a condition precedent for claiming investment allowance.After considering the arguments and legal provisions, the Appellate Tribunal concluded that the assessee had complied with the conditions for claiming the investment allowance. Despite the reserve not being created in the books of the previous year, the Tribunal held that creating the reserve in the current year's books before finalizing the assessment fulfilled the statutory requirements. The Tribunal cited legal precedents supporting the allowance of claims when all conditions are satisfied, emphasizing the spirit of the law and natural justice in income-tax proceedings. Consequently, the Tribunal allowed the appeal in part, directing the admission and allowance of the investment allowance claimed by the assessee.