DY. C I T vs. GUJARAT NARMADA VELLEY FER-TILIZERS CO. LTD.

Facts

The assessee, Gujarat Narmada Valley Fertilizers Co. Ltd., filed its return of income for Assessment Year 1991-92 declaring Nil income after setting off brought forward investment allowance of Rs. 23,11,39,362. The case was processed under Section 143(1)(a) without adjustment, but later selected for scrutiny. The Assessing Officer (AO) assessed the income. The Commissioner of Income Tax (Appeals) partly allowed the assessee's appeal. The Revenue appealed to the Income Tax Appellate Tribunal (ITAT), which also partly allowed the Revenue's appeal. The present appeal is filed by the Revenue against the ITAT's order dated June 21, 2000.

Held

The High Court admitted the appeal only on the second question, finding that the first question involved an inquiry into facts that did not emanate from the Tribunal's order. The Tribunal had considered findings of fact from the AO and the CIT(A) regarding the installation of machinery. The High Court noted that the Revenue had not raised this specific ground before the Tribunal. For the second question, the High Court referred to its own prior decision in Tax Appeal No. 401/2000, which dealt with a similar issue concerning the deletion of disallowance of interest relatable to the diversion of interest-bearing funds to interest-free advances. In that case, the Court held that the S.A. Builders Ltd. decision was not applicable as no interest-bearing funds were diverted. The High Court concluded that the Tribunal was justified in deleting the disallowance under Section 36(1)(iii) as there was no diversion of interest-bearing funds to interest-free advances. The High Court also noted that the Revenue had accepted the Tribunal's decision on a similar issue for a subsequent assessment year, making it inappropriate to change the position. The appeal was dismissed.

Key Issues

1. Whether the ITAT was justified in allowing the claim of investment allowance under Section 32A for Rs. 30,48,14,442, despite some machineries not being fully installed before March 31, 1990, some being on lease, and some being defective? 2. Whether the ITAT was justified in setting aside the matter to the AO with a rider to establish a nexus between borrowings and interest-free advances, which was not a legal requirement? Assessee's Contentions: The judgment does not record specific contentions for the assessee on these issues. However, the High Court's admission order frames the questions as proposed by the Revenue. Revenue's Contentions: Regarding issue 1, the Revenue argued that the machineries were not fully installed by the due date, some were on lease, and some were defective, making the investment allowance claim unjustified. Regarding issue 2, the Revenue contended that the ITAT was wrong in setting aside the matter to the AO with a rider to establish a nexus between borrowings and interest-free advances, as this was not a legal requirement.