1997 (3) TMI 139 - AT - Income Tax

Tribunal grants deduction for machinery investment, emphasizing liberal construction to spur investment.

The Tribunal allowed the appeal, holding that the assessee met all conditions of section 32AB by utilizing profits for acquiring machinery in the relevant ... Advance Payment, Assessment Year, Plant And Machinery, Previous Year, Profits And Gains Issues:Disallowance under section 32AB for advance made to supplier in the preceding year.Analysis:The appeal was against the disallowance of Rs. 78,173 under section 32AB for the assessment year 1987-88. The assessee had purchased plant and machinery, claiming a deduction under section 32AB. The Assessing Officer allowed a deduction of Rs. 1,07,564, excluding the advance amount of Rs. 78,173 made to the supplier in the preceding year. The CIT(A) upheld the denial based on the audit report. The assessee contended that the investment in machinery was made in the relevant year, satisfying the conditions of section 32AB. The revenue argued that only the amount utilized in the previous year could be considered for deduction.The Tribunal considered the provisions of section 32AB, emphasizing that it aims to encourage investment in machinery. It noted that the purpose of the section should not be defeated by a technical interpretation. The Tribunal found that the assessee had indeed utilized profits and gains of business for acquiring new machinery as per the government scheme. The invoice and delivery note indicated that the investment and utilization occurred in the relevant year, not in the preceding year when the advance was made. The Tribunal clarified that legal rights in machinery are established upon delivery, which happened in the relevant year. Therefore, the assessee met all conditions of section 32AB and was entitled to the deduction on the total amount utilized during the previous year.The Tribunal held that the revenue authorities and the CIT(A) had taken a technical view, whereas section 32AB should be liberally construed to achieve its purpose. The Tribunal allowed the assessee's appeal, directing that the deduction be granted on the total sum of Rs. 1,85,737 utilized during the relevant previous year.