COMMISSIONER OF INCOME TAX vs. INDIAN PETROCHEMICALS CORPORATION LTD.

Facts

The assessee, Indian Petrochemicals Corporation Ltd., claimed an investment allowance of Rs. 30,72,03,504/- under Section 32A of the Income Tax Act, 1961, for machinery installed between April 1, 1987, and March 31, 1988, for the assessment year 1989-90. The Assessing Officer disallowed this claim, reasoning that the assessee had already claimed deductions under Section 32AB (Investment Deposit Account) for the assessment years 1987-88 and 1988-89 for the same machinery, leading to a double deduction. The Commissioner (Appeals) upheld the Assessing Officer's view. However, the Income Tax Appellate Tribunal (ITAT) allowed the assessee's appeal, holding that the assessee was entitled to the investment allowance under Section 32A(8B) for the assessment year 1989-90.

Held

The High Court held that the Tribunal was right in allowing the investment allowance under Section 32A of the Act. The court reasoned that Section 32A(8B) specifically applies to new machinery installed between April 1, 1987, and March 31, 1988. The introduction of an Explanation below Section 32A(1) clarifies that the 'actual cost' is reduced by the part met out of amounts released under Section 32AB(6), thus preventing double deduction. Furthermore, the court noted that Section 32A(8C) and Section 32AB(10) indicate that an assessee can avail of the benefit of either provision, not both in the same assessment year. Since investment allowance was reintroduced from assessment year 1989-90, and an option between Section 32A and Section 32AB was provided for the first time in this year, assessment year 1989-90 is the initial year for exercising this option. Therefore, claiming Section 32A allowance in assessment year 1989-90, even if Section 32AB was availed in earlier years, does not constitute a double deduction. The revenue's contention that Section 32A(8B) would be rendered nugatory if their interpretation were accepted was also considered. The question is answered in favour of the assessee.

Key Issues

1. Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right in allowing the Investment Allowance under Section 32A of the Act in respect of plant and machinery installed from 1.4.1987 to 31.3.1988 in the assessment year 1989-90? Assessee's contentions: - Section 32A(8B) of the Act does not prohibit claiming investment allowance if deductions under Section 32AB were claimed in earlier years for the same machinery. - The deduction under Section 32AB was calculated at 20% of the profit and required investment in a Development Bank account or purchase of new machinery. - The assessee had claimed deductions under Section 32AB for assessment years 1987-88 and 1988-89, but these were not necessarily for the machinery installed in the period relevant to the assessment year 1989-90. - The reintroduction of Section 32A from assessment year 1989-90, with an option between Section 32A and Section 32AB, makes assessment year 1989-90 the initial year for exercising this option. Revenue's contentions: - The impugned order of the Tribunal is non-reasoned. - The assessee having already claimed deduction under Section 32AB for the same plant and machinery in assessment years 1987-88 and 1988-89, claiming investment allowance under Section 32A(8B) would amount to a double deduction. - CBDT Circular No. 559 dated May 4, 1990, clarifies that investment allowance is an option to the deduction allowable under Section 32AB.