R.M. Mehta, Accountant Member - (1.)THIS appeal which is directed against the order of the C.I.T. (Appeals) raises as many as 19 grounds but involves for our consideration only three issues. The first of these pertains to the assessee's claim in respect of Investment Allowance.
(2.)The assessee in this case is a Public Limited Company and the assessment year involved is 1982-83 with the previous year ending 31-8-81. The I.A.C. (Asst.) in the course of the assessment proceedings observed that the assessee had made a claim for Investment Allowance "in respect of assets worth Rs. 84,69,945. On making inquiries it transpired that the assets in question had been purchased during the immediately preceding asst. year viz. 1981-82 but Investment Allowance had been claimed in A.Y. 1982-83 on the ground that these had been put to use during the latter asst. year. The I.A.C. (A) also found that the claim on account of Investment Allowance related to the assessee's new unit for manufacturing sanitaryware located at Kadi near Ahmedabad the construction of which had started in the month of September, 1979. The I.A.C.(A) also found on a perusal of the Director's report dated 27-11-80 relevant to A.Y. 1981-82 that the construction of buildings, Tunnel Kiln, Intermittent Kiln as also the installation of the plant and machinery had been completed in record time and the plant commissioned on 21-7-80 and trial production commenced. It was also observed that the depreciation in respect of fixed assets installed in Kadi unit had been claimed and allowed in A.Y. 1981-82 itself. The IAC(A) also noted that the assessee had not claimed any Investment Allowance on the assets concerned for A.Y. 1981-82.
The I.A.C. (A) also noted that Investment Allowance on the aforesaid assets pertaining to the manufacture of sanitaryware was specifically prohibited by entry No. 16 of the 11th Schedule to the I.T. Act for A.Y. 1981-82 and that this prohibition had been removed with effect from 1-4-1982 i.e. from A.Y. 1982-83.

(3.)IN the light of the aforesaid position the I.A.C. (Asst.) processed the assessee's claim on account of INvestment Allowance as follows:
III. Assessee while claiming investment allowance has claimed that assets worth Rs. 84,69,945 were purchased during 79-80 but installed and put to use during 80-81 relevant to A.Y. 1982-83. When details for date of purchase, date of installation, installation charges etc. were asked assessee informed that in fact these were installed last year but not put to use. It was stated that main part of plant was Tunnel Kiln and it was to work on natural gas. Gujarat INdustrial Development Corporation Ltd. had assured the supply of Natural Gas from 1-4-1980. However the gas could not be supplied by ONGC/GIDC and assessee installed on intermittent kiln which could be operated in light diesel oil and production was started with effect from 21-7-80. When Gas supply did not materialise assessee switched over the fuel system of tunnel kiln to light Diesel oil. Assessee imported some burners and installed during February, 1981. Production on the basis of changed fuel system started with effect from 1-4-1981. Finally as supply was received and effect from 17-9-1981.

IV. Before proceeding further, it is mentioned that when assessee was asked to give detailed note on each of these items of plant and machinery it admitted that items worth Rs. 37,309 were actually used last year and by mistake investment allowance was claimed this year. Thus no investment allowance can be allowed on this amount of Rs. 37,309. Similarly INvestment Allowance cannot be allowed on item costing less than Rs. 750.

V. Assessee has spent Rs. 4,72,621 on drawings and designs etc. required to install the kiln. It is important to note that these drawings etc. were not required for manufacturing sanitaryware but for installation of tunnel kiln. These designs, drawings are put to use as and when the kiln is installed. Time element for use of these designs, drawings depends upon the time of installation of tunnel kiln and independent of production of end-product. As the installation of tunnel kiln was completed last year and these drawings etc. were fully and totally used last year, no investment allowance can be allowed on these items.

VI. Permission to the following items was received from Govt. Agencies during previous year relevant to A.Y. 1982-83 and therefore investment allowance is allowable on them:

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VII. All other items of plant and machinery were claimed to have not been physically used last year and reasons for the same can be broadly placed in two groups. First group would be of tunnel kiln and other items directly connected with this kiln and reason for their non-use was non-supply of natural gas. Reason for non-use of rest of the items was production at lower rate. But admittedly all these items were installed last year and in my view these were used within the meaning of Section 32A. It is not a settled legal position that an asset having been acquired for the purposes of business, duly installed and is in proper condition for use, it amount to used as far as allowability of depreciation, development rebate etc. is concerned. IN Whittle Anderson Ltd. v. CIT[1971] 79 ITR 613 (Bom.) it was held that the word "used" has to be understood in a wide sense so as to embrace passive or active user. IN Capital Bus Service (P.) Ltd. v. CIT [1980 ] 123 ITR 404 (Delhi), assessee company kept ready for use four buses for being run on contract basis but could not run them due to lack of demand. It was held in this case that these buses were "used", and depreciation was allowable. On page 413 of this judgment it was held that on the other hand, it would be more appropriate to envisage the expression as comprehending cases were the machinery is kept ready by the owner for its use in the business and the failure to use it actively in the business is not on account of its incapacity for being used for that purpose or its non-availability. Similarly Madras High Court in CIT v. Vayithri Plantations Ltd. [1981] 128 ITR 675 has observed on page 681 that "the result of these cases is to establish that the machinery could be "used" for the purposes of the business so long as it is kept ready for such user. Any forced idleness' of the machinery cannot disentitle the assessee from getting the benefit of the allowance". IN that case assessee was unable to use machinery because of frequent labour unrest. If ratio of these cases is applied to assessee's case it is clear that these assets were 'used' last year. Assessee has installed machinery properly. These machinery were available for use and were in excellent condition to be used and necessary expertise to use was there. There was no prohibition under any law or regulation against their case. Assessee had started the business and production though on a low scale. Under these circumstances forced idleness on account of non-availability of Natural Gas or less production cannot be considered as non-use by the assessee. Considering all these facts and case laws, in my view, all these machinery were "used" last year within the meaning of Section 32A and no investment allowance is allowable this year in respect of this machinery.

VIII. Thus out of the assets claimed to have been used this year but installed last year, investment allowance is allowable in respect of Rs. 4,19,547 only in terms of sub-para VI above. Total investment allowance is worked out as below:

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