M.M.KUMAR, J. - (1.) On the basis of an application filed by the revenue under Section 256(1) of the Income-tax Act, 1961, the revenue had requested the Tribunal to make a reference to this Court for its opinion on two questions of law which were claimed to have arisen from the order of the Income-tax Tribunal dated 1.11.1987 passed in I.T.A. No.1196/CHANDI/86 in respect of the assesseerespondent for the assessment year 1983-84. The questions which have been claimed are as under:- 1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in allowing I.T.R. No.21 of 1989 2 the assessee's claim for Rs.22,60,375/- on account of undisclosed liability towards ST/CST and Education-tax in assessment year 1983-84?
(2.) Whether on the facts and in the circumstances of the case, and on a proper interpretation of Explanation 2 to Section 80J(4), the Appellate Tribunal was right in law in holding that second-hand machinery worth Rs.1,08,568/- should be taken as part of the capital employed for allowing the assessee's claim for deduction u/s 80J? It remains undisputed that the controversy raised by the first question is covered against the revenue in view of the Division Bench judgment of this Court in the case of Sirsa Industries v. Commissioner of Income-tax (1989)178 I.T.R. 437 laying down that wherever an assessee follows the mercantile system of accounting, then deduction could be claimed only in the year in which the liability is finalised or the amount is actually paid. Accordingly, the question has to be answered against the revenue. On the second question, the Tribunal has allowed deduction under Section 80J on the second-hand machinery worth Rs.1,08,568/- by treating the same as part of the capital employed on the reasoning that in the present case, the second-hand machinery was purchased from a third person and it was not brought in as an asset by mere transfer. The Tribunal has placed reliance on the view taken by the Andhra Pradesh High Court in the case of Electronic Corporation of India v. C.I.T. (1985) 151 I.T.R. 381 holding that the only amount ineligible for deduction under Section 80J is where the old machinery has been transferred by the assessee from his earlier business but where the machinery was purchased from a third person and I.T.R. No.21 of 1989 3
(3.) was not brought in as an asset by mere transfer from one undertaking to another by the same assessee then the deduction under Section 80J was allowable even on the second-hand machinery. Raising the issue of interpretation of provisions of Explanation 2 to Section 80J, the Tribunal in para 8 has observed as under:;