1992 (11) TMI 166 - AT - Income Tax

Investment allowance upheld for screening plant but not for barge engines.

Second Income-Tax Officer. Versus GN. Agrawal (HUF).

The Tribunal partially allowed the appeal, upholding the investment allowance for the screening plant used in mining operations but disallowing the ... Assessing Officer, Investment Allowance Issues: Appeal against disallowance of investment allowance on barge engines and screening plant.Analysis:1. The appeal by the revenue challenged the order of the CIT(A) allowing investment allowance on barge engines and screening plant. The revenue contended that the engines fitted to an old barge were not eligible for investment allowance and that the assessee, not engaged in manufacturing, was not entitled to investment allowance on mining machinery.2. The Assessing Officer disallowed the investment allowance claimed by the H.U.F. assessee for two Cummins Engines and a screening plant. The disallowance was based on the failure to fulfill conditions under section 32A(2)(a) or 2(b)(ii) and (iii).3. The CIT(A) held that the new engines on the barge were eligible for investment allowance as they were part of a ship used in the business of shipping. Additionally, he deemed the engines as machinery. Regarding the screening plant, he considered it machinery used in mining operations, thus allowing investment allowance on both items.4. During the hearing, the revenue reiterated that investment allowance was not admissible due to non-fulfillment of section 32A conditions. They argued that the engines being fitted to an old barge and the absence of manufacturing activity rendered the allowance inapplicable, citing the Supreme Court's judgment in Idandas v. Anant Ramchandra Phadke.5. The counsel for the assessee supported the CIT(A)'s decision.6. The Tribunal concluded that the engines, being part of the barge, did not qualify as new machinery under section 32A. The engines were not independent machinery and did not meet the criteria for new ships or aircraft. As the engines were fitted to an old barge, which was not eligible for investment allowance, the claim was deemed untenable. The judgment in Idandas was referenced for the manufacturing process test, which the engines did not satisfy.7. Regarding the screening plant, the Tribunal upheld the CIT(A)'s decision, citing the plant's crucial role in mining operations. The Tribunal referenced a previous case involving machinery used in mining operations for manganese ore production to support the allowance of investment. The Tribunal found the machinery used in mining operations, including the screening plant, eligible for investment allowance.8. Consequently, the appeal was partially allowed, with the decision on the investment allowance for the screening plant upheld while disallowing the allowance for the barge engines.