Decided on August 27,1982



S.K. Chander, Accontant Member - (1.) THIS appeal by the assessee is directed against the order of the Commissioner (Appeals) dated 26-9-1979 relating to the assessment year 1977-78. The main issue involved in this appeal is whether on the facts and in the circumstances of the case, the Commissioner (Appeals) erred in upholding the disallowance of Rs. 63,242 claimed on account of investment allowance under Section 32A(4) of the Income-tax Act, 1961 ('the Act')- Insofar as this issue is concerned, the relevant facts are as under.
(2.) The assessee Swastika Metal Works, Jagadhari, is a registered firm. It filed a return of income for the assessment year under appeal on 30-7-1977 declaring total income of Rs. 3,84,710. In this return, the assessee claimed initial depreciation on additions by way of new machinery of the value of Rs. 63,243 at the rate of 20 per cent at Rs. 12,648.60. In addition to the initial depreciation, the assessee also claimed normal depreciation at Rs. 80,293. After the deductions, inter alia, the income was determined at Rs. 3,84,709 and so was declared in the return filed on 30-7-1977. During the course of the assessment proceedings, the assessee found that with effect from 1-4-1976, the Finance Act, 1976 had inserted Section 32A for deduction of investment allowance, if the conditions prescribed in the section were fulfilled by the claimant. These conditions have been prescribed under Sub-section (4) of this section and are that (i) the particulars prescribed on-this behalf have been furnished by the assessee in respect of the ship or aircraft or machinery or plant ; and (ii) an amount equal to 75 per cent of the investment allowance to be actually allowed is debited to the profit and loss account of the previous year, in respect of which the deduction is to be allowed and credited to a reserve account (to be called the 'investment allowance reserve account'). There is further prescription how this investment allowance reserve account can be utilised by the assessee but that for our purpose is not material. The assessee, therefore, revised the return on 11-12-1978 and made the claim for investment allowance. The claim for investment allowance on new machinery added was at 25 per cent of Rs. 63,243 which came to Rs. 15,810.75. The depreciation which had been claimed in the original return at Rs. 80,293 was reduced and claimed at Rs. 71,872. The assessee had closed the books of account of the accounting period relevant to the assessment year under appeal when the assessment proceedings were going on. Therefore, the assessee made a reserve as required under Section 32A(4) by debiting 75 per cent of 25 per cent of Rs. 63,243 of the addition of the new plant and machinery in the current year's books of account, i.e., the books of account of the previous year during which the assessment proceedings were going on as on 11-12-1978. For the sake of clarification, we may record here that the previous year followed by the assessee is the financial year which for the assessment year 1977-78 was from 1-4-1976 to 31-3-1977. The assessment was finalised on 31-1-1979, i.e., during the accounting period relevant to the assessment year 1979-80 and the entries in the reserve account were made by the assessee in the books of account relevant to the assessment year 1979-80 as the credit was made on 11-12-1978.
(3.) THE ITO, however, refused the claim for investment allowance made by the assessee on the ground that 'no reserve has been created'. THE matter was, therefore, taken up in appeal by the assessee before the first appellate authority, namely, the Commissioner (Appeals).;

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