1989 (12) TMI 98 - AT - Income Tax

Tribunal rules against Revenue on investment allowance eligibility, deems reassessment unauthorized

The Tribunal ruled in favor of the Revenue, holding that the assessees were not entitled to investment allowance under section 32A. Additionally, the ... A Firm, Assessment Order, Assessment Year, High Court, Investment Allowance, Original Assessment, Reopening Assessment Issues:1. Reopening of assessments under section 147(b) for withdrawal of investment allowance.2. Interpretation of section 32A regarding entitlement to investment allowance for industrial undertakings engaged in construction.Detailed Analysis:1. Reopening of assessments under section 147(b) for withdrawal of investment allowance:The case involved two appeals by the Revenue arising from assessments of two assessees for the assessment year 1978-79. The assessments were reopened under section 147(b) by the Income Tax Officer (ITO) on the grounds that investment allowance under section 32A was erroneously allowed to the assessees, who were partnership firms engaged in the business as building contractors. The assessees objected to the reopening, but the ITO proceeded to enhance their income by the amounts representing the investment allowance initially allowed. The CIT (Appeals) upheld the reopening but recognized the assessees as industrial undertakings under section 32A(2)(b)(iii) entitled to investment allowance. The Revenue appealed this decision.2. Interpretation of section 32A regarding entitlement to investment allowance for industrial undertakings engaged in construction:The main contention raised by the Revenue was that as firms engaged in the construction of buildings, the assessees were not industrial undertakings under section 32A. The section allows investment allowance for plant and machinery installed for various business purposes, including construction. The assessees were considered small-scale industrial undertakings by the ITO due to their plant and machinery value not exceeding Rs. 10 lakhs. The CIT (Appeals) supported the assessees' claim as industrial undertakings engaged in construction. However, the Tribunal held that the assessees did not qualify for investment allowance under section 32A, as the construction of buildings did not constitute manufacturing or production of goods. The Tribunal emphasized that the word 'construction' in the provision did not refer to the business of construction of buildings specifically. The judgment cited previous cases and interpretations to support the decision that buildings cannot be considered as articles or things for the purpose of investment allowance under section 32A.In conclusion, the Tribunal ruled in favor of the Revenue, holding that the assessees were not entitled to investment allowance under section 32A. Additionally, the Tribunal rejected the reopening of assessments under section 147(b) as unauthorized in law, emphasizing that the action taken by the ITO to withdraw the investment allowance was not justified. The Tribunal highlighted the conflicting legal opinions and interpretations regarding the eligibility of construction businesses for investment allowance, ultimately canceling the reassessment orders for the two assessees.